Insurance Adjuster Liable for Misrepresentation

By Laurie Murphy

When a large tree fell onto the insureds' property and damaged their home, they did what any other homeowners would do - they called their insurance company.  The insurance company, Travelers, sent out an adjuster who took some photos and told the insureds that their policy did not pay for cleanup.  Though they asked for another adjuster, Travelers refused to appoint one.  Based upon the adjuster's representations to them, the insureds paid to clean up the mess themselves.  They then sued the adjuster for misrepresentation on the theory that they relied upon the adjuster in spending their own money to clean up the damage.  The insurer argued that an adjuster could never be sued individually for misrepresentation in the course and scope of his employment.  The trial court agreed, but the appellate court reversed finding that an adjuster who misrepresents the terms of an insureds' policy to their detriment can indeed sue the adjuster individually for misrepresentation.  

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Lender Cannot Pursue Borrower For Deficiency Judgment After Short Sale

By Laurie Murphy 

Laurie Murphy

In a case decided on July 23, 2013, the court of appeal held that a lender cannot pursue a borrower for a deficiency judgment after a short sale.

When a borrower defaulted on her payment obligations under a purchase money note secured by a deed of trust on her residential property, the lender served a notice of default.  The borrower was able to negotiate a short sale with a third party prior to the foreclosure sale but the agreed to price was less than the amount outstanding on the loan.  The lender consented to the short sale with an agreement that they were only releasing the security, not any deficiency.  The borrower then sued the lender after it attempted to collect on the amount of the deficiency it claimed she still owed. 

The trial court sided with the lender.  On appeal by the borrower the court of appeal held that any lender who either forecloses or agrees to a short sale of residential property secured by a deed of trust cannot pursue the borrower for any deficiency after either a foreclosure sale or a short sale.  Coker v. JP Morgan Chase.

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New Requirement in Commercial Leases Effective July 1

By Laurie Murphy

Laurie Murphy

As of July 1,2013, all commercial leases must include a provision indicating whether the leased premises have been inspected by a certified accessibility specialist and if so whether the premises meet all the federal and state accessibility requirements. 

The provision is Civil Code section 1938. This statute compliments a larger statutory scheme enacted in 2012 (Civil Code sections 55.51-.55.57) designed to curb predatory lawsuits by Plaintiffs claiming damages for failing to maintain premises compliant with state and federal accessibility laws.  I had one such case of a client recently where the plaintiff had brought over 50 such lawsuits.
 
Because the landlord is strictly liable for statutory damages so long as a non-compliant conditions exist, landlords nearly always pay the statutory amount which makes them easy targets for lawyers who file these cases most of whom have a stable of professional plaintiffs who are disabled and who troll the area looking for establishments to sue.  The inspection by such a specialist can limit damages sought and/or provide the basis for a stay in litigation.  Commercial landlords are well advised to familiarize themselves with these new laws. 
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Another Case on Unconscionability

By Laurie Murphy

Laurie Murphy

In previous blogs we've reported on what makes a boilerplate agreement unenforceable.  Recently another appellate court weighed in in another automobile purchase case.  Two buyers of a new car were presented with a long, two sided contract containing an arbitration clause on the back of one the pages at the very bottom of the page.

The arbitration clause itself was harsh and one sided favoring the dealer of course.  The buyers were not given the opportunity to review the contract and did not even know it was two sided.  The trial court did not find the contract was unconscionable.  The appellate court reversed finding both procedural and substantive unconscionability. 

The procedural unconscionability stemmed from the placing of the arbitration clause on the back of the two sided page at the bottom.  The substantive unconscionability stemmed from several clauses in the arbitration paragraph, one permitting an appeal in an award of injunctive relief, one permitting an appeal to an arbitration panel of three arbitrators if the award exceeds $100,000, another requiring the appealing party to pay the filing fee in advance and lastly a clause exempting repossession from arbitration though permitting injunctive relief.  Vargas v. SAI Monrovia  2013 DJDAR 7148. 

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When Are Boilerplate Unfair And One-Sided Provisions In Consumer Agreements Unenforceable?

By Laurie Murphy

This question was answered in a recent case decided by the court of appeals.  When clauses are so one sided or unfair, the courts can decline to enforce them if they are found to be both procedurally and substantively unconscionable. 

Procedural unconscionability is found when there is unequal bargaining power and the contracts are foisted on the unsuspecting with no explanation and/or when their terms conflict with oral representations, are buried in the fine print and/or required as a "take it or leave it" proposition. 

Substantive unconscionability is where the complained of provision is overly harsh and one-sided.  In Vasquez v. Greene Motors Inc. 2013 DJDAR 4087 the appellate court overturned a trial court's finding that an arbitration clause in a used car sales contract was unconscionable. 

The appellate court found that though the sales contract was procedurally unconscionable because it was offered on a take it or leave it basis, there was not a high degree of procedural unconscionability.  And, the court further found that the complained of clause requiring the parties to arbitrate their dispute was not necessarily substantively unconscionable because there was no evidence that the cost to arbitrate would have been so significant to the plaintiff so as to prevent him from arbitrating and/or that arbitration necessarily favors the defendant dealership. 

Because there was not a high degree of procedural unconscionability and essentially no evidence of substantive unconscionability the court reversed the trial court effectively ordering the parties to arbitrate their dispute.

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Another Case Just Came Down Involving The Issues Of When A Contract Is Unconscionable

By Laurie Murphy

Laurie Murphy

An employee sued her employer for sexual harassment and other claims.  The employer sought to compel arbitration pursuant to the provisions of its employment handbook.  The employee contended (and the trial court agreed) that because the handbook permitted the employer to change its provisions at the employer's sole discretion, the arbitration policy was illusory and therefore unconscionable.   

The court of appeals found the fact that the provisions of a contract can be modified does not alone render a contract unconscionable because the authority to change the provisions of a contract is limited by the covenant of good faith and fair dealing.  Moreover, the court found that unconscionability requires a finding that a contract is both procedurally and substantively unconscionable.  Here, even if the employment handbook was substantively unconscionable, there were no facts justifying a finding that it was also procedurally unconscionable (i.e. no surprise or oppression).  Serpa v. California Surety Investigations Inc. 2013 DJDAR 5124.

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When Are Boilerplate Unfair and One-sided Provisions in Consumer Agreements Unenforceable?

By Laurie Murphy

Laurie Murphy

This question was answered in a recent case decided by the court of appeals.  When clauses are so one sided or unfair, the courts can decline to enforce them if they are found to be both procedurally and substantively unconscionable.  

Procedural unconscionability is found when there is unequal bargaining power and the contracts are foisted on the unsuspecting with no explanation and/or when their terms conflict with oral representations, are buried in the fine print and/or required as a "take it or leave it" proposition.  Substantive unconscionability is where the complained of provision is overly harsh and one-sided.  In Vasquez v. Greene Motors Inc. 2013 DJDAR 4087 the appellate court overturned a trial court's finding that an arbitration clause in a used car sales contract was unconscionable.  

The appellate court found that though the sales contract was procedurally unconscionable because it was offered on a take it or leave it basis, there was not a high degree of procedural unconscionability.  And, the court further found that the complained of clause requiring the parties to arbitrate their dispute was not necessarily substantively unconscionable because there was no evidence that the cost to arbitrate would have been so significant to the plaintiff so as to prevent him from arbitrating and/or that arbitration necessarily favors the defendant dealership.  Because there was not a high degree of procedural unconscionability and essentially no evidence of substantive unconscionability the court reversed the trial court effectively ordering the parties to arbitrate their dispute.

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More leave may be required for disabled employees than that which is called for in the Pregnancy Disability Leave Law

By Laurie Murphy

Laurie Murphy

The Court of Appeals recently held that an employer is not free to fire a disabled (in this case pregnant) employee after providing her the maximum allotted pregnancy disability leave of four months. 

The employer argued that the four months pregnancy disability leave was the sole remedy for an employee seeking a reasonable accommodation of her pregnancy-related disability. 

The court disagreed finding under FEHA (Fair Employment and Housing Act) an employer must make a reasonable accommodation for a disabled worker.  That accommodation does not end with the four month pregnancy leave if the accommodation (here, further leave)  can be made without hardship to the employer.

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NON-LICENSED "CONTRACTORS" BEWARE

By Laurie Murphy

Laurie Murphy

The Court of Appeals just held that an arbitration award which favored an unlicensed contractor which award was entered as a judgment by the trial court must be set aside.  Grounds for setting aside an arbitration award are very limited in California.  One of the grounds is that the award violates the public policy of the State. 

In Ahdout v. Hekmatjah, the court found that the arbitrator's award which awarded damages to an unlicensed contractor violated the public policy of the state under the Contractor's State Licensing Law which holds, in part, that parties who use the services of an unlicensed contractor are entitled to reimbursement for any compensation paid while the person was unlicensed and are also shielded from liability for claims by the unlicensed person for compensation.  This case reinforces prior court decisions that hold, in essence, that no matter how unfair it would be to deny compensation to someone who is unlicensed who did construction work on a project, that is the law in this state. 

Anyone who does construction work without a license is well advised to get a license or risk the very serious consequences of not having one.  By the same token, anyone who hires someone without a license has carte blanche to refuse to pay for the work.

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California Supreme Court Overruled a Long Standing Parole Evidence Rule

by Laurie Murphy

The California Supreme Court has just overruled a long standing ruling in a seminal case (Bank of America v. Pendergrass (1935) 4 Cal.2d 258, 263. 

Under Pendergrass, evidence of alleged oral promises, which conflicted with the written terms of a fully integrated written contract, were barred – referred to as the parol evidence rule.  The effect of the Pendergrass rule was that a plaintiff could not argue that promises the defendant with whom he contracted made before or at the time of contracting that varied with the terms of a fully integrated written agreement, i.e. that the defendant would not take certain action if the Plaintiff defaulted on his payment obligations.  This rule has been a mainstay in the arsenal that lenders had to protect themselves against disgruntled borrowers. 

Under Riverisland Cold Storage v. Fresno-Madera Production Credit Association dated January 14, 2013, the Supreme Court examined the parol evidence statute (Code of Civil Procedure section 1856) and many of the cases decided under it both pre- and post-Pendergrass as well as case law from other jurisdictions and held that the fraud exception to the parol evidence rule as codified in CCP  §1856 basically holds that if the defendant defrauded the Plaintiff into signing a fully integrated agreement, the agreement itself is not valid and the courts can no longer bar evidence that goes to prove fraud, including promissory fraud, which Pendergrass had heretofore prohibited. 

It is expected that this will greatly increase lender's exposure to fraud claims by borrowers.  Indeed, all a borrower would have to allege is that the lender orally misstated the terms of the loan, promised that the lender would not foreclose if the borrower did not make timely payments, said that the interest rate would be lower than the loan actually provides, etc.  Up until now, the Pendergrass rule could be used at summary judgment or even demurrer. Under Riverisland these cases will be allowed to proceed to trial.

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California Commercial Tenants Be Aware

 By Laurie Murphy

Laurie Murphy

Commercial tenants in California, unless the lease provides to the contrary, have no rights to offset from their rent payments, any amounts the landlord might otherwise owe the tenant for repairs for which the landlord was responsible but refused to make.

It has long been the law in this state and others that in residential tenancies, the landlord has the obligation to ensure that the premises are habitable when leased and to make any repairs that they are obligated to make to maintain the habitability of the premises.  If the landlord fails to do so, the tenant may, after giving notice to the landlord make the repairs himself and then deduct from the rent owed, the costs he incurred.  This is generally known as the "Repair and Deduct" rule.  (Civil Code section 1942).  Commercial tenants have no such rights. 

So, even if the landlord has the obligation under the lease to maintain the building and make necessary repairs, if the landlord fails to do so, no matter what harm befalls the tenant as a result of the landlord's refusal to repair or maintain, the tenant must still pay its rent.  If the tenant fails to do so and the landlord files an unlawful detainer action, the tenant will be evicted notwithstanding the fact that the landlord did not comply with its obligations under the lease.  The tenant's only recourse is to sue the landlord for breach of lease.   Unless the lease permits him to offset, he simply cannot do so without risking eviction. 


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Firm's 60th Anniversary Profiled in the Daily Journal