California Practice Tips

Meet-and-Confer Rules Expand to Motions to Strike and for Judgment on the Pleadings

 
Candice Shih
February 9, 2018

Two years ago, a new rule was put into place requiring any party planning to demur to a pleading to meet and confer with the party that filed the pleading.  (Code Civ. Proc. Section 430.41.)

Hopefully, you have received some practice at this because now it is mandatory to meet and confer before moving to strike a pleading or moving for judgment on pleadings.

As of January 1, 2018, a party moving to strike a pleading under Code Civ. Proc. Section 435 is required to meet and confer with the party that filed the pleading under Section 435.5.  Also as of January 1, 2018, a party moving for judgment on the pleadings under Code Civ. Proc. Section 438 is required to meet and confer with the party that filed the pleading under Section 439.

If you are familiar with the meet-and-confer rules for demurrers, then you will know the rules for motions to strike and for judgment on the pleadings.  Aside from changing the name and nature of the procedure and stylistic changes, the three sets of rules on meet and confer are mostly the same.

As with the rules for demurrers, both new meet-and-confer rules require that the moving party meet and confer in person or by telephone with the party who filed the pleading and identify with legal support the basis of the perceived deficiencies. The non-moving party then must respond with legal support as to why its pleading is legally sufficient.  If a live-time conference does not take place by the deadline, the moving party can file a declaration saying it made a good faith effort to meet and confer and why it did not happen, and it will receive an automatic 30-day extension to file its motion.

A couple differences between (1) the rules for demurrers and (2) the rules for motions to strike and for judgment on the pleadings are:

  • Both the meet-and-confer rules on moving to strike and moving for judgment on the pleading do not apply to a special motion brought pursuant to Section 425.16 (anti-SLAPP) or to a motion brought less than 30 days before trial.  (Sections 435.5(d), 439(d).)
  • The deadline to meet and confer for moving for judgment on the pleading is five days before the motion is filed, rather than five days before it is due.  (Section 439(a)(2).)  Notably, this section does not state that the deadline to meet and confer is related to when the motion is due or when it must be filed, likely because there is no statutory deadline to move for judgment on the pleadings.

Note that if you are planning to demur and move to strike simultaneously that you will be subject to both sets of meet-and-confer rules.  You may want to determine if that is your strategy first before picking up the telephone to meet and confer so that you can address both subjects and comply with both sets of rules.

Disqualification: A Painful Reminder of the Pitfalls of Using Inadvertently Disclosed Attorney-Client Privileged Information

 
Neil Bardack
August 21, 2017

In California, State Compensation Insurance Fund v. WPS, Inc. 70 Cal.App.4th 644 (1999), has served as the rule book for attorneys who obtain inadvertently disclosed and obvious attorney-client information on how to avoid certain disqualification from representation.  Under State Fund, regardless of how the attorney came into possession of the information, once it is concluded that the document appears to be attorney-client privileged, the attorney must notify the holder of the privilege and refrain from using it until the parties or court has sorted out the disclosure or finds a waiver of the privilege.  The receiving attorney’s reasonable belief that there has been a waiver is not a defense to disqualification that may result if the attorney uses the document in advance of resolving the waiver issue.

A recent example of how courts apply the rule in State Fund is found in McDermott Will & Emery v. Superior Court, 10 Cal.App.4th 1083 (2017).  The document involved was clearly attorney-client privileged on its face as it contained an opinion of counsel, but the manner in which came into possession of counsel raised a strong argument of waiver.

There, McDermott had been sued for malpractice by a former client who alleged the firm had represented him and other family members, creating a conflict of interest.  McDermott was represented by Gibson Dunn.  The document in question had been drafted by the client’s attorney and clearly contained legal advice pertinent to the malpractice claim.  However, the client had sent the document to other non-lawyer family members and it ended up with McDermott pre-suit because the firm had been counsel to family members and a family-owned company.  This relationship had given rise to the conflict of interest claim being made.

Over objections, the client’s attorney Gibson Dunn had used the document in the litigation arguing that not only had it come from its client’s files and not by inadvertent disclosure in discovery, but it also had passed through the hands of several non-lawyers and any privilege had been waived.  Gibson Dunn made the wrong call, and that caused its disqualification from representing McDermott by the trial court.

On appeal, a divided Court of Appeal upheld the disqualification by finding there was no evidence of any intention to waive the privilege by the holder even in the face of several intermediate disclosures that had been made before McDermott had obtained the document from a family member who did not hold the privilege. Disqualification was proper because Gibson Dunn did not follow the guidelines set in State Fund but instead used the document, knowing it was presumptively privileged and that the document should have been either returned or that Gibson Dunn should have sought a court order obtained permitting its use.  Disqualification was necessary to prevent future harm and to protect the integrity of the judicial system.

The circumstances causing disqualification in McDermott show how important it is that an attorney refrain from using a document that at least could be argued as attorney-client privileged, no matter how strong the arguments may be that the privilege was waived. Only the holder of the privilege or a court can make that determination. It is a no-win situation and no matter how tempting the document may be, its use outside of State Fund’s ethical pathway will almost certainly result in an expensive and embarrassing disqualification of a client’s choice of counsel.

Commercial Defamation Update: California Imposes New Hurdle on Ability to Ascertain Identity of Anonymous Internet Posters

 
Michael Donner
August 4, 2017

California defamation law continues to evolve as the courts synthesize well-settled legal principles with ever-changing technological realities. On July 21, 2017, California’s First District Court of Appeal issued a published opinion in ZL Technologies v. Does 1-7 (July 21, 2017) 2017 DJ DAR 6999. In its opinion, the Court amplified existing defamation law as it relates to Internet postings and imposed new hurdles on the ability of parties to ascertain the identities of people who post defamatory statements on the Internet.

It is unlawful for an individual to damage a company by saying or writing something about it that is materially false. However, the courts typically bend over backwards to protect First Amendment rights. Accordingly, they created an exception to defamation for what they call “nonactionable opinion,” that is, statements for which no defamation claim may lie because the statements constitute mere expressions of opinion rather than assertions of fact.

It often can be frustratingly difficult, even for lawyers, to distinguish actionable defamation from nonactionable opinion. In part, this is because people tend to pepper their opinions with facts to support or emphasize them. The advent of the Internet has made this analysis even more complex, because now everyone with a cell phone has the ability to immediately share their views, and entire companies and Internet communities have been formed for the singular purpose of facilitating such discourse. In recent years, the California courts have tried to create some ground rules for distinguishing actionable defamation from nonactionable opinion on the Internet. Under those rules, judges are required to assess not only the specific language the internet poster used (the “what”), but also the online forum in which the poster used that language (the “where”). If the poster’s language is exaggerated or appears on websites that lend themselves to “rants and raves,” rather than considered thought, the California courts tend to view the postings as nonactionable opinion, notwithstanding the fact that it might contain some false facts.

Frequently, even if a company believes it can establish a claim for defamation, its battle to obtain relief has only just begun. One common characteristic of Internet posting is its anonymity. Posters sometimes use online monikers and the websites on which they publish their statements actively shield the posters’ identities. Hence, while a company might want to sue, it cannot readily do so because the identity of the person to be sued remains unknown. To address this issue, some businesses file lawsuits against “Doe” defendants and then take discovery to ascertain the posters’ identities. Discovery like that can be expensive and is not always successful.

In ZL Technologies, several anonymous individuals posted allegedly false statements about a company on Glassdoor.com, an employee review website. The company subpoenaed Glassdoor to obtain the posters’ e-mail addresses and other identifying information so the company could sue the posters for defamation. Although Glassdoor was insulated from defamation liability under federal law (as a mere forum for postings), it fought the subpoena on behalf of the posters.

The Court of Appeal allowed the company to proceed both with the case and its efforts to ascertain the identities of the anonymous posters. However, it tried to strike a balance between the company’s interest in obtaining relief and the posters’ interest in remaining anonymous. It held that litigants seeking to subpoena websites to determine the identities of anonymous posters must first (1) give notice of the subpoena to the posters (through the website) so the posters can fight the subpoena; and (2) establish a prima facie case of defamation on par with that necessary to defeat an anti-SLAPP motion. California never applied these two tests before in connection with this type of discovery.

In the aftermath of ZL Technologies, companies may still subpoena websites to ascertain the identities of anonymous posters who write defamatory things about them. However, before doing so, they must now give the posters a chance to challenge the legal propriety of their subpoenas. They also must marshal their evidence and prepare a nearly dispositive motion on their defamation claim, establishing that the posted statements were factual, actionable, material, false, and damaging. These hurdles will require considerably more time and resources to satisfy.

Court: Arbitration Agreements That Waive Injunctive Relief Under CA Consumer Statutes Are Unenforceable

 
Neil Bardack
April 25, 2017

In McGill v. Citibank, N.A., No., S224086  (Cal. Apr. 6, 1017), the California Supreme Court recently held that pre-dispute arbitration agreements that purport to waive the remedy of injunctive relief under California consumer statutes that have the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the public in any forum, are contrary to California public policy and are thus unenforceable under California law.  The court further held that the Federal Arbitration Act (FAA) does not preempt California law nor require enforcement of such contractual waiver provision.

The dispute in McGill arose out of an account agreement for a “credit protector” plan to a Citibank credit card that contained a broadly worded agreement to arbitrate that sought to require arbitration of all claims related to the account no matter the theory or relief sought.  Specifically, claims brought as a class action, private attorney general, or other representative action, could only be brought on an individual basis and relief awarded only to the individual and not to anyone not a party to the agreement.  The provision also stated that such claims would be governed by the FAA.

McGill brought claims under the California consumer remedy statues (Unfair Competition Law, California Legal Remedies Act and False Advertising Law) seeking damages and injunctive relief prohibiting Citibank from continuing to engage in allegedly illegal and deceptive practices.  The trial court severed and kept the injunctive relief cause of action but ordered arbitration of all other claims; the Court of Appeal reversed and remanded concluding that AT &T Mobility v. Concepcion preempted application of the Broughton-Cruz rule, which established that agreements to arbitrate claims for public injunctive relief under these or any other statutes, was unenforceable.

McGill petitioned the California Supreme Court claiming that there was no preemption of the Broughton-Cruz rule and that any arbitration agreement requiring submission of claims for public injunctive relief was unenforceable. McGill also raised an argument that had been ignored by the Court of Appeal but which had traction in the Supreme Court, which is that the clause was unenforceable as it sought to waive McGill’s right to seek public injunctive relief in any forum based upon language in the clause that claims under the consumer statutes could not be pursued “in any litigation in any court.” At the hearing, Citibank agreed with McGill that this clause would prevent McGill from seeking public injunctive relief in any forum 

 In a nutshell, the Court held that it need not decide whether FAA preemption applied because Citibank agreed that public injunctive relief was excluded from the obligation to arbitrate, and the Broughton-Cruz rule “which applies only when the parties have agreed to arbitrate requests for such relief” was not at issue; thus, the continued validity of that rule after Concepcion need not be decided.  The only question before the court was “whether the arbitration provision is valid and enforceable insofar as it purports to waive McGill’s right to seek public injunctive relief in any forum.

By focusing only on the specific language of an arbitration clause that prevented the plaintiff from seeking public injunctive relief in either arbitration or court, the California Supreme Court attempted to thread the needle to avoid taking on the obvious question of FAA preemption under Concepcion and later decisions that have upheld precluding class procedures in consumer arbitrations.  The narrowness of this decision leaves open the question in California courts of the continued validity of the Broughton-Cruz rule and its prohibition against  waiving claims for public injunctive relief by agreeing to individual arbitration

CA Court Vacates Arbitration Decision Awarding Punitive Damages

 
Michael Donner
March 8, 2017

California’s Fourth Appellate District recently issued an interesting, but fact-specific, opinion regarding an arbitrator’s award in Emerald Aero, LLC v. Kaplan (2/28/17) 2017 DJDAR 1819.

In Emerald Aero, the plaintiff investors sued the defendant for breach of fiduciary duty in connection with a self-storage investment gone awry.  Plaintiffs sought compensatory damages and declaratory relief, but did not seek punitive damages. The arbitrator held a telephonic arbitration merits hearing (i.e., trial), after which he awarded plaintiffs $30 million without specifying the grounds for the award. Although the award did not specify the nature of the damages, the parties agreed that a substantial portion consisted of punitive damages.

The Court’s decision is notable for several reasons:

First, it underscores the unusual nature of arbitration and private judging. When parties elect to litigate outside of the court system, they are bound by the rules and procedures of their chosen private alternative dispute resolution forum. Ordinarily, arbitrators follow the law and case administrators follow the forum’s internal procedures and processes. But this is not always the case. If arbitrators or case administrators do make a mistake, opportunities for appellate review are few. (Indeed, this arbitration was governed by the California Arbitration Act, which offers fewer bases to overturn arbitration awards than does the Federal Arbitration Act.) The grounds for reversal must be manifest and severe.

Second, it underscores the importance of correctly and completely pleading all claims, prayers for damages, and defenses in an arbitration. Practitioners tend to think of arbitral forums as being less formal than trial courts, and often, they are correct. Arbitrators sometimes (but not always) exercise a degree of “flexibility,” particularly with respect to evidence and pleading, that otherwise is absent from judicial forums. But as this case demonstrates, it’s best not to rely on the perceived informality of arbitrations. If plaintiffs in Emerald Aero asserted a claim that entitled them to punitive damages, they should have plainly asked for an award of such damages (or, if they did not want such damages, they should have made clear to the arbitrator that such damages were not being sought). Their failure to do so opened an expensive can of worms that ultimately unwound an advantageous award in their favor and forced them to incur fees litigating on appeal.

CA Court Refuses To Enforce NY Choice-Of-Law Clause And Jury Waiver

 
Candice Shih
February 6, 2017

California’s First District Court of Appeal issued an interesting new ruling that will affect contracts calling for another state’s laws to govern.

In Rincon EV Realty LLC v. CP III Rincon Towers, Inc. (Cal. Ct. App., Jan. 31, 2017, No. A138463) 2017 WL 429267, the plaintiffs borrowed $110 million to finance the purchase of a San Francisco apartment complex.  After the plaintiffs defaulted on the loan, the lender commenced foreclosure proceedings.  One of the defendants, CP III Rincon Towers, Inc., purchased the property at a nonjudicial foreclosure sale.  In an effort to set aside the sale, the plaintiffs sued the purchaser, the lender, and others involved in the transaction for breach of contract, fraud, unfair competition, slander of title, violation of California’s Uniform Trade Secrets Act, and accounting.

The plaintiffs demanded a jury trial.  However, the contracts at issue had two key provisions:

  1. A New York choice-of-law clause, including a waiver of any claim that any other state’s law would govern, and
  2. A waiver of the right to a jury trial.

After the trial court held that New York law applied and that the jury waiver was enforceable under New York law, the plaintiffs appealed.

In its decision, the appellate court noted that contractual choice-of-law provisions are not always enforceable. Indeed, in Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, the California Supreme Court ruled that, to be effective, (1) there has to be a rational nexus to the chosen state; (2) the other state’s law cannot deprive California citizens of important rights or impugn significant California public policy; and (3) California cannot have a “materially greater interest” in enforcing its laws over those of another state.

Employing the Nedlloyd test, the Court determined that New York had a substantial relationship to the parties and the transaction. However, it held that the right to a trial by jury was “inviolate” in California and that New York law on the enforceability of jury waivers was contrary to fundamental California public policy.  Finally, the Court held that California had a “materially greater interest than New York” in determining how legal proceedings are conducted in California courtrooms. Hence, it concluded that the contractual jury waiver – enforceable in New York – was unenforceable under California law.

The Rincon decision reminds parties and legal practitioners alike to give considerable thought to choice-of-law provisions in contracts.  If the contract involves California parties and the chosen state’s laws deprive them of important California rights, the choice-of-law provision might not be enforceable.

In Bristol-Myers, CA Supremes Find Contacts Insufficient For General Jurisdiction, But Expand the Scope of Specific Jurisdiction

 
Merton Howard
August 30, 2016

Non-resident companies across the United States have been anxiously awaiting the California Supreme Court’s decision in Bristol-Myers Squibb Company v. Superior Court (San Francisco) regarding the reach of the state’s personal jurisdiction statute.  In an opinion authored by Chief Justice Cantil-Sakauye, a 4-3 majority held that Bristol-Myers Squibb (BMS) is subject to jurisdiction in California on suits by non-resident plaintiffs injured outside the state, but limited its holding to claims based on specific jurisdiction only.

The underlying actions, some 592 consolidated claims by non-resident plaintiffs, had been challenged by BMS via a Motion to Quash for lack of personal jurisdiction.  BMS argued that the company is incorporated in Delaware, headquartered in New York City, and maintains substantial operations in New Jersey.  Furthermore, BMS claimed that none of the at-issue complaints contained any claims that the non-resident plaintiffs‘ injuries occurred in California or that they had been treated for their injuries here.  As such, it believed neither specific nor general personal jurisdiction could be exercised over it for claims by non-resident plaintiffs.

After some procedural back and forth on the applicability of general jurisdiction in light of the United States Supreme Court’s decision in Daimler AG v. Bauman (2014) 571 U.S. ___ [134 S.Ct. 746] (Daimler), the Court of Appeal for California heard the BMS cases on transfer, and held that it was specific personal jurisdiction, and not general, which California had the right to exercise over BMS.  It was this decision that the State Supreme Court yesterday affirmed.

Continue reading In Bristol-Myers, CA Supremes Find Contacts Insufficient For General Jurisdiction, But Expand the Scope of Specific Jurisdiction

Baral v. Schnitt: The Roadmap For Anti-SLAPP Motions Has Dramatically Changed

 
Neil Bardack
August 9, 2016

The California Supreme Court in Baral v. Schnitt, No. S225090 (filed 8/1/2016),  has clarified a “perplexing” conflict among several Districts of the Court of Appeal about the application of  Code of Civ. Proc. Section 425.16(b)(1) (the Anti-SLAPP statute) when applied to strike allegations in a mixed cause of action,  where it combines allegations of activity protected by the statute with allegations of unprotected activity.

Protected activity arises out of the defendant’s exercise of the constitutional rights of free speech or petition.  When pleadings assert a cause of action that implicates both those activities and unprotected activities, there was a disagreement in the appellate districts and even divisions as to whether the statute supported applying the Anti-SLAPP motion to the whole cause of action, which often resulted in the denial of the motion.  In essence, by artful pleading of intertwined allegations, a plaintiff could avoid dismissal of the cause of action and potential exposure to attorney’s fees in those courts that held that the motion lay only to strike an entire count as pleaded in the complaint, even where  protected activity was alleged.  This result thwarted the purpose of the statute. which is to shield a defendant’s constitutionally protected conduct from the undue burden of frivolous litigation.

In Baral, the plaintiff pleaded in a single cause of action that Schnitt committed both libel and slander by knowingly providing false information about Baral’s possible misappropriation of company assets to an outside accounting firm hired to investigate the company owned by them; this was protected activity.  However, the plaintiff linked this assertion with allegations that, once discovered as false,  Schnitt refused to correct.  The false information was ultimately published, which was not protected activity and would not be reachable by Schnitt’s  Anti-SLAPP motion.  The trial court’s denial of the motion was upheld by the Court of Appeal, which found that the Anti-SLAPP statute applied only to entire causes of action as pleaded, or to the complaint as a whole, not to isolated allegations with causes of action.

The Supreme Court determined that this result unduly limited the relief contemplated by the Legislature in enacting the Anti-SLAPP statute.  It approached the resolution by starting with the definition of a “cause of action” as intended to be subject to the motion to strike.  The high court held that the Legislature intended to require a plaintiff to show a probability of prevailing on “the claim” arising from protected activity, and this result should not depend on the form of the pleading.  The purpose of the statute is to protect activity, and courts may rule on the plaintiff’s specific claim of protected activity.

To assist the litigants, the Supreme Court provided the following roadmap of the showings and findings required by under section 425.16(b):

At the first step, the moving defendant bears the burden of identifying all allegations of protected activity, and the claims for relief supported by them.  When relief is sought based on allegations of both protected and unprotected activity, the unprotected activity is disregarded at this stage. If the court determines that relief is sought based on allegations arising from activity protected by the statute, the second step is reached. There the burden shifts to the plaintiff to demonstrate that each challenged claim based on protected activity is legally sufficient and factually substantiated.  The court, without resolving evidentiary conflicts must determine whether the plaintiff’s showing, if accepted by the trier of fact, would be sufficient to sustain a favorable judgment. If not, the claim is stricken.  Allegations of protected activity supporting the stricken claim are eliminated from the complaint, unless they also support a distinct claim on which the plaintiff has shown a probability of prevailing.

Although there was much confusion in applying the Anti-SLAPP motion to allegations which were purposefully jumbled to avoid this special motion to strike, is the solution now cleared of the mud?

When Drafting An Arbitration Clause, Check Case Law First

 
Neil Bardack
June 16, 2016

In the recent decision of the California Court of Appeal in Rice v. Downs, Second Appellate District, Div. One, B261860 (Filed 6/1/16), the Court held the drafters of an arbitration clause (the parties and their lawyers alike) were experienced and would not have chosen language that they would have expected to be interpreted differently than the judicial interpretations in then-existing California and Ninth Circuit case law where their chosen language was reviewed. That is, the drafting parties were presumed to know the law.

This decision provides a good review of how arbitration language is typically used and litigated. What is important is that most drafters borrow language from other contracts without much thought of what a court would do when a dispute arises over the scope and meaning or what claims are included or not. Having been presumed to know the law, it is important for drafters to read it.

In Rice, the Court parsed through a number of litigated arbitration clause permutations to decide whether certain claims for malpractice, breach of fiduciary duty, and rescission claims that plaintiff Rice brought against his attorney Downs arose out of limited liability operating agreements drafted by the defendant attorney and were properly arbitrated with other disputes between the parties. These claims were not found to have arisen from the agreement under the following language: “any controversy between the parties arising out of this agreement” as they were not contractual claims (and even tort claims) that arose from the agreement itself. In so holding, the appellate court reversed the trial court’s decision ordering Rice’s claims for malpractice to arbitration.

The Court affirmed that arbitration clauses are to be interpreted like any other contract to give effect to the parties’ intentions in light of the usual and ordinary meaning of the contractual language and circumstances under which the contract was made. The focus on whether a particular dispute is intended by the parties to be arbitrated turns on whether the clause is broad (“any claim arising from or related to this agreement or arising in connection with the agreement’). In that case, even tort claims that have their roots in the relationship of the parties to the contract could be ordered to arbitration, as the factual allegations need only “touch matters covered by the contract between the parties.”

Having said this, the Court found that any determination of whether the parties intended to arbitrate a specific dispute had to be resolved by determining whether the claims are controversies “arising out of” the agreements, that is, whether the disputes “have their roots in the relationship between the parties which was created by the contract in dispute that has the arbitration clause.”

Upon holding that the drafters were experienced and presumed to know the law, the Court held the parties to examine how courts had interpreted the scope of the language being used to determine if a particular claim arose out of or from the agreement.

Federal Court: Discovery Sanctions Mooted Upon Settlement

 
Neil Bardack
May 4, 2016

Discovery sanctions are a fact of life in the courts and becoming more so in high stakes litigation. They can arise from judgment calls that are proved wrong by a court ruling, as in the case of HM Electronics, Inc. v. R.F. Technologies, Inc., 2016 WL 1267385 (S.D. Cal. March 15, 2016). There, the question arose regarding whether parties could compromise sanctions awarded by a magistrate judge in their settlement agreement in advance of the District Court decision to affirm that award.

Defendants (the client and its attorney) objected to the sanction award on the grounds that the parties’ settlement of their dispute, including the sanctions award, mooted the court’s jurisdiction to entertain the motion. The District Court agreed and vacated the sanctions award as moot. How did this happen?

The defendants were sanctioned for discovery misconduct under Rule 37 (for violation of prior discovery orders of the court) and under Rule26(g)(3) (raised by the court for improper certifications of discovery responses). This misconduct caused the plaintiff to incur great expense, and an award of compensatory sanctions was made to compensate plaintiff for the fees and costs involved in collecting discovery from defendants.

Two days before the hearing on discovery misconduct, the parties settled and dismissed the case, notifying the magistrate judge to vacate the motions that were scheduled to be heard. The hearing went forward partly because the magistrate judge held that the settlement could not affect the court’s right to pursue sanctions for the Rule 26 violations, which outlived the settlement. The court proceeded with the scheduled hearing, which resulted in a finding that the violations justified a compensatory sanctions award.

Continue reading Federal Court: Discovery Sanctions Mooted Upon Settlement