Recent Rulings of Interest

We regularly compile a few recent rulings that may be of interest to our clients and friends.  Feel free to contact any of the firm's litigation attorneys should you have questions about these cases.

[1. Civil Procedure]

ARBITRATOR'S FAILURE TO DISCLOSE THAT HE WORKED FOR SAME ADR FIRM PROVIDED GROUNDS TO VACATE ARBITRATION AWARD

While continuing to represent the respondent in arbitration proceedings before ADR Services Inc. (ADR), the respondent's attorney also joined ADR as an arbitrator, a fact the arbitrator failed to disclose.  The arbitrator issued an award for the respondent, which the petitioner then sought vacate based on the nondisclosure.  The Court of Appeal reversed the trial court's denial of the petition to vacate.  The court held that the California Arbitration Act and the California Ethics Standards for Neutral Arbitrators in Contractual Arbitrations require an arbitrator to disclose any grounds for disqualification, which include the status of a party's attorney as a member of the arbitrator's dispute resolution firm.  The court further held that California Code of Civil Procedure section 1286.2(a)(6) requires a court to vacate an award if the arbitrator fails to comply with disclosure requirements.  According to the court, disclosure requirements are mandatory and nonwaiveable under the plain language of the statute and the Ethics Standards.  Therefore, it did not matter whether there in fact existed a significant relationship between the arbitrator and the respondent's attorney, or whether the petitioner knew or should have known of the attorney's membership in ADR.

Gray v. Chiu (2013) 212 Cal. App. 4th 1355.

   

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[2. Real Property]

COURT COULD NOT DENY ARBITRATION FOR EFFICIENCY'S SAKE TO PREVENT PARALLEL LITIGATION/ARBITRATION PROCEEDINGS, WHERE THERE WAS INSUFFICIENT RISK OF CONFLICTING RULINGS

There is a strong policy under California law favoring arbitration.  Consistent with that policy, a court must enforce a written arbitration agreement unless it finds one of the limited number of exceptions set forth in California Code of Civil Procedure Section 1281.2, which include the existence of pending litigation with a third party that creates the possibility of conflicting rulings on common factual or legal issues.  The trial court found that exception to apply in a case involving The Colton Real Estate Group (Colton), a group of related companies that bought and managed commercial real property, which generally used separate funds to solicit investors and take title to each portfolio of properties it managed.  Hundreds of investors sued Colton, alleging a wide variety of fraudulent conduct in connection with multiple different funds.  Some of the funds' governing documents had arbitration provisions and some did not.  Reasoning that having parallel arbitration and court proceedings would be inefficient and could lead to conflicting rulings, the trial court denied all of Colton's motions to compel arbitration.  The Court of Appeal reversed, holding that the primary purpose of Section 1281.2(c) is to avoid conflicting rulings, not to further judicial economy, and that the specific facts of the case did not indicate a sufficient likelihood of conflicting rulings.

Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal. App. 4th 949.

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[3. Contracts]

LOW LEVEL OF PROCEDURAL UNCONSCIONABILITY IS INSUFFICIENT FOR COURT TO REFUSE TO ENFORCE ARBITRATION AGREEMENT 

Once a party seeking to compel arbitration has proved that an arbitration agreement exists, the opposing party bears the burden of proving one of the defenses to enforceabilty, which include unconscionability of the agreement.  One relying on that defense must prove both procedural unconscionability (which focuses on oppression and surprise due to unequal bargaining power) and substantive unconscionability (which focuses on overly harsh or one-sided results).  Under that standard, where a used car purchaser's principal argument for unconscionability was that the sales documents were presented to him on a take-it-or-leave-it basis and he was not given an opportunity to negotiate any of the terms, the Court of Appeal held that it was error for the trial court to deny the petition to compel arbitration.  The court reasoned that any procedural unconscionability arising from the use of a pre-printed contract was minimal where the arbitration clause was conspicuous and the lengthy form of contract was commonly used by auto dealers to comply with various statutes.  Likewise, substantive unconscionability, if any, was also minimal.  Requiring the consumer to pay his own arbitration costs did not violate any statute and was not unconscionable absent evidence that the arbitration would be prohibitively expensive.

Vasquez v. Greene Motors, Inc. (2013) 214 Cal. App. 4th 1172.

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[4. Real Property]

ATTORNEYS' FEES PROVISION IN HOA STATUTE COVERS PRE-LITIGATION ALTERNATIVE DISPUTE RESOLUTION

A dispute arose between homeowners and their homeowners' association when the homeowners built a cabana and fireplace in their backyard without obtaining the association's prior approval.  Before proceeding to litigate the dispute, the parties unsuccessfully attempted to settle it through the alternative dispute resolution (ADR) process of mediation.  After the homeowners prevailed in litigation, they obtained from the trial court a judgment for their attorneys' fees, including fees incurred in connection with the pre-litigation mediation.  The Court of Appeal affirmed, relying on provisions of the Davis-Sterling Common Interest Development Act (the Act) providing for attorneys' fees to the prevailing party in disputes between an association and a member of a common interest development.  The court held the Act's attorneys' fees provisions are mandatory, as is the requirement under the Act that, before an association or a member may file an enforcement action, the parties must first submit the dispute to ADR.  Since the pre-litigation ADR requirement is mandatory, the court reasoned, there is no basis to exclude mediation fees incurred from the Act's attorneys' fees provisions.

Grossman v. Park Fort Washington Assn. (2012) 212 Cal. App. 4^th 1128

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[5. Real Property]

ACT GOVERNING HOA REQUIRES STRICT COMPLIANCE WITH PRE-LIEN, PRE-FORECLOSURE NOTICE REQUIREMENTS

After a townhouse owner failed to pay a special assessment, the homeowners association recorded an assessment lien on the property and then filed for judicial foreclosure.  The property owner sought summary judgment on the ground that it was undisputed that the association had failed to strictly comply with the pre-lien and pre-foreclosure notice requirements set forth in the Davis-Stirling Common Interest Development Act (the Act) under California Civil Code Sections 1367.1 and 1367.4.  Finding that the association had substantially complied with the notice requirements, the trial court denied the summary judgment motion.  The Court of Appeal reversed, holding that substantial compliance was insufficient since the Act's legislative history showed that the Legislature intended the notice requirements to be strictly construed.

Diamond v. Superior Court (2013) 217 Cal. App. 4^th 1172 (Opinion not available)

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[6. Employment Law]

EMPLOYER LIABLE FOR RETALIATION FOR TURNING EMPLOYEE'S COWORKERS AGAINST HER BY LEAKING DETAILS OF PRIOR CONFIDENTIAL DISCRIMINATION SETTLEMENT

As part of a confidential settlement of an employment discrimination lawsuit, an employer agreed to provide its employee with training for a position that would give her a pay increase.  However, when the employee's training began, she was given a "less desirable" workspace that increased her isolation from the rest of the staff, was denied certain training materials and was not told about a class regarding hazardous materials.  The employee then brought a second suit, alleging claims including unlawful retaliation under the California Fair Employment and Housing Act.  Following a jury verdict favoring the employee, the trial court granted a motion for judgment notwithstanding the verdict.  The Court of Appeal reversed with respect to the retaliation claim, reasoning that there was sufficient evidence for a reasonable jury to find that management revealed to the plaintiff's coworkers the details of the prior confidential settlement with the intent to turn her coworkers against her, thus making her training period intolerable.

McCoy v. Pacific Maritime Assn. (2013) 216 Cal. App. 4^th 283

Recent Rulings of Interest

We regularly compile a few recent rulings that may be of interest to our clients and friends.  Feel free to contact any of the firm's litigation attorneys should you have questions about these cases.

[1. Insurance]

"FIRE SALE" TRIGGERS COVERAGE FOR TRADE LIBEL 

An insured threatened to sell high-end products at close-out prices and the manufacturer sued, contending this would result in a diminution of its brand and trademark. The insurer (whose policy covered claims for disparagement of goods) refused to defend the claim contending that there was no potential for coverage because price reduction itself was not product disparagement and thus not covered under the policy. The trial court granted summary judgment in favor of the insurer, which was reversed on appeal. The appellate court found that the underlying complaint did not need to allege all of the elements of a cause of action for trade libel to trigger coverage for product disparagement. Instead, coverage could be triggered for trade libel because it was a reasonable interpretation that the insured's "fire sale" of products disparaged claimant's high-end product.

Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc., (2012) 207 Cal. App. 4th 969. 

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[2. Real Estate]

"BAD FAITH WASTE" OF SECURITY CAN BE ALLEGED BY FORECLOSING LENDER 

After buyers bought a parcel of property with a deed of trust to secure approximately 90% of the purchase price, they demolished the structure with the intent to build a new building. After they failed to complete the new building and defaulted on their payment obligations, the holders of the security interest foreclosed and then brought suit for bad faith waste. The trial court found no bad faith existed because the borrowers had a good faith intent to build the new building. The court of appeal reversed, holding instead that bad faith waste may exist, regardless of whether the owners acted intentionally or recklessly. The court found that the destruction of the building constituted bad faith waste because there was no showing that its destruction was somehow caused by economic pressures of a depressed market.

Fait v. New Faze Development, Inc. (2012) 207 Cal. App. 4th 284.

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[3. Contract Law]

EXPERT TESTIMONY ON CUSTOM AND PRACTICE SHOULD HAVE BEEN CONSIDERED BY TRIAL COURT 

When a personal manager who had an oral agreement with an actress for a percentage of her income was terminated, he contended that he should be able to receive a percentage of income from engagements entered into and services rendered while he served as her manager. In response to a summary judgment by the actress, the manager submitted the declaration of a long time talent agent and personal manager as to the custom and practice in the entertainment business for compensation after a manager is terminated. The trial court refused to consider the declaration and judgment was entered for the actress. On appeal, the court found that the trial court erred in refusing to consider the declaration of the expert whose credentials qualified him to testify as to the custom and practice in the industry.

Howard Entertainment, Inc. v. Kudrow (2012) 208 Cal. App. 4th 1102.

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[4. Trade Secrets]

PLAINTIFF WHO SUBMITTED NO EVIDENCE OF TRADE SECRET THEFT LIABLE FOR DEFENDANT'S ATTORNEY'S FEES, EVEN THOUGH DISCOVERY WAS NOT COMPLETE 

A company sued its competitor for misappropriation of trade secrets after several of its employees went to work for the competitor, claiming on information and belief that the former employees stole certain trade secret software. Plaintiff failed to oppose a motion for summary judgment, which was granted. Thereafter, the defendant filed a motion for attorney's fees under the Uniform Trade Secrets Act, which provides for the recovery of attorney's fees if the action is brought in bad faith. Plaintiff opposed the motion, contending that discovery was not complete. The trial court awarded attorney's fees to the defendant and plaintiff appealed. The court of appeal held that the trial court was correct because there was no evidence in the record that there was any theft of trade secrets. This absence alone was sufficient in order to award attorney's fees to the defendant.

SASCO v. Rosendin Electric, Inc. (2012) 207 Cal. App. 4th 837.   

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[5. Arbitration]

ARBITRATION ORDERED EVEN THOUGH CC&R'S WERE CREATED BEFORE ANY CONDOS WERE SOLD

 

A developer created a homeowner's association when it developed a condominium project and included in the covenants, conditions and restrictions ("CC&R's") a provision that construction claims against the developer were required to be arbitrated. The HOA later sued the developer for construction defects and the developer contended that under the CC&R's the claims must be arbitrated. The trial court invalidated the arbitration clause in the CC&R's, finding that the HOA could not have consented to arbitration since it did not even exist when the CC&R's were recorded. The court of appeals agreed with the trial court, but the Supreme Court reversed finding, among other things, that it is not unreasonable based upon statutory and decisional law pertaining to common interest developments for a developer to bind future condominium owners via CC&R's to arbitrate their disputes.

Pinnacle Museum Tower Homeowners Association v. Pinnacle Market Development (2012) 55 Cal. 4th 223.

   

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[6. Arbitration]

CLASS ACTION WAIVER DOES NOT DEFEAT AN ARBITRATION CLAUSE UNDER THE FEDERAL ARBITRATION ACT 

When a buyer purchased a used car from a Mercedes dealership and experienced mechanical problems, she brought a class action lawsuit. The sales agreement contained an arbitration clause under the Federal Arbitration Act (FAA) and included a class action waiver. The dealership petitioned for arbitration, which the trial court denied on the grounds that the Consumers Legal Remedies Act (CLRA) prohibited class action waivers. The court of appeals reversed the trial court and ordered the case to arbitration, citing to recent US Supreme Court cases and holding that the FAA's main purpose was to have streamlined results in arbitrations and the CLRA's class action waiver was an impediment to the FAA's policy objectives.

Caron v. Mercedes-Benz Financial Services USA LLC (2012) 208 Cal.App.4th 7.  

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Recent Rulings of Interest

We regularly compile a few recent rulings that may be of interest to our clients and friends.  Feel free to contact any of the firm's litigation attorneys should you have questions about these cases.

[1. Trust & Estates] 

LOOTERS BEWARE: BREACHES OF FIDUCIARY DUTY ARE ACTIONABLE BY BENEFICIARIES OF A REVOCABLE TRUST AFTER A SETTLOR'S DEATH

In Estate of Giraldin; 12 S.O.S. 6575, the California Supreme Court ruled in a 5-2 opinion by Justice Ming Chin that the beneficiaries of a revocable trust (a trust which is revocable by the settlor), have standing to sue a non-settlor-trustee of the trust after the settlor's death for a breach of a fiduciary duty owed to the settlor while the settlor was living.

  

Generally speaking, under Probate Code section 15800, unless the trust provides otherwise, while the settlor is living and holds the power to revoke the trust, the trustee's fiduciary duties are owed to the settlor only because, by definition, a revocable trust can be revoked or amended by the settlor at any time while the settlor is living and has the mental capacity to do so.  Until the trust becomes irrevocable at the settlor's death and the rights of the beneficiaries are vested, the named beneficiaries merely have a contingent interest in the trust.  Giraldin holds that despite a beneficiary's mere contingent interest in a revocable trust during the settlor's lifetime, the beneficiary has standing to bring an action against a non-settlor trustee who breaches fiduciary duties owed to the settlor prior to the settlor's death.

The facts of the case are not uncommon.  The settlor, William Giraldin ("William"), established a trust for the benefit of his blended family consisting of his wife, his four children from another marriage, his wife's three children from another marriage and their twin sons from their marriage.  One of the twin sons of the current marriage, Timothy, was appointed as the sole trustee.  Under his control, the trust made substantial investments in a company owned by Timothy and his twin brother, Patrick.  The company failed and the trust lost substantial value.  The trust included fairly standard revocable trust language which attempts to relieve some of the duties and liabilities of the trustee during the settlor's lifetime, namely, waiving accounting duties, relaxing the prudent investor rule, discounting the importance of the remainder beneficiaries and making the trustee's distribution decisions binding on all beneficiaries.  After William's death, his four children from his first marriage sued Timothy in his capacity as trustee alleging that the self-interested investments in his and Patrick's unsuccessful company and the personal loans that the trust made to both Timothy and Patrick had deprived the other seven children of their inheritance.

  

The trial court sided with the petitioners and ordered Timothy to be removed as trustee and to provide an accounting to the beneficiaries, and to be surcharged for his various breaches of fiduciary duties owed to the petitioners themselves.   The Court of Appeal reversed and the Supreme Court reversed the Court of Appeal and found that the beneficiaries had standing to sue "[b]ecause a trustee's breach of the fiduciary duty owed to the settlor can substantially harm the beneficiaries by reducing the trust's value against the settlor's wishes."

  

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[2. Real Estate]  

OOPS!  TRUSTEE'S ERROR IN FORECLOSURE SALE RESULTS IN BUYER'S WINDFALL 

A mistake made by the trustee acting as the lender's agent in a foreclosure sale is not a "procedural irregularity," thus the sale is final.

In Biancalana v. T.D. Service Company (2011) 200Cal.App.4th 527, review granted February 15, 2012, 137 Cal.Rptr.3d 248, the plaintiff successfully bid on a piece of real property for a mere $21,894 at a trustee's sale.  After the sale, T.D. Service Company (TD), the trustee which conducted the sale for the lender, realized that the opening bid should have been $219,105.  When TD discovered its own error, it refused to deliver a deed to the buyer, forcing the buyer to sue to acquire title to the property.

TD contended that its mistake of soliciting an opening bid at one-tenth (1/10) of the correct price was a "procedural error," rendering the sale based on its mistake voidable.  The trial court set aside the sale, relying on Millennium Rock Mortgage, Inc. v. T.D. Service Co. (2009) 179 Cal.App.4th 804.  In Millennium, the auctioneer made a mistake by selling a property with a wrong street address, and the seller was able to set aside the sale.

Distinguishing the subject case from Millennium, the Biancalana court held that, unlike the mistake made by an auctioneer, an independent third-party, the mistake in this case was made by the trustee, who is the lender's agent. Because the mistake made by TD in the course and scope of its duty as the lender's agent arose solely from its negligence, the Court of Appeal held that there was no "procedural irregularity" in the foreclosure sale and that the sale would stand.

As the California Supreme Court granted review of this decision, whether or not the buyer's investment in the sale and ensuing litigation will pay off remains to be seen.

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[3. Contract Law]

SIGNATORIES TO CONTRACT CAN RECOVER ATTORNEY FEES INCURRED IN DEFENDING AGAINST LAWSUIT FILED BY THIRD PARTY BENEFICIARY 

Signatories to a contract are entitled to attorney fees incurred in defending against a lawsuit filed by a third party beneficiary, which would have been entitled to fees had it prevailed.

In Cargill, Inc. v. Souza (2011) 201 Cal.App.4th962 Mr. and Mrs. Souza made loans to Mr. and Mrs. Teixeira ("the Debtors"), evidenced by promissory notes and secured by an interest in dairy cattle and farm equipment.  Cargill, Inc. ("Plaintiff") was an unsecured creditor of the Debtors.  Upon the Debtors' default on the promissory notes, the Souzas and the Debtors entered into a Transfer In Lieu of Foreclosure Agreement ("the Transfer Agreement").  The Transfer Agreement provided that (1) the Debtors agree to transfer the dairy cattle and farm equipment to the Souzas; and (2) the Souzas agree to pay the Debtors' outstanding obligations listed on Exhibit G to the Transfer Agreement, which was left blank.

The Souzas failed to pay the Debtors' loan from Plaintiff, and litigation ensued.  Plaintiff filed a complaint against the Souzas to reform and enforce the Transfer Agreement in order to list Plaintiff's loan to the Debtors on Exhibit G.  The Souzas then moved for summary judgment, which Plaintiff did not oppose.  Judgment was entered in favor of the Souzas.  The trial court did not grant the Souzas' motion for attorney fees, and the Souzas appealed.

In reaching its decision to award attorney fees' to the Souzas, the appellate court noted two situations when a nonsignatory may recover attorney fees under a contract containing an attorney fees clause.  The first is where the nonsignatory party "stands in the shoes of a party to the contract."   The second is where the nonsignatory party is a third party beneficiary of the contract. If the Transfer Agreement was made for the benefit of Plaintiff, Plaintiff is entitled to attorney fees.  Though Plaintiff was not expressly named in the Transfer Agreement, the agreement nevertheless reflects the intent to benefit the unnamed creditors including Plaintiff.  Since Plaintiff, as a third party beneficiary of the Transfer Agreement, would have been entitled to attorney fees had it prevailed, the Souzas, too, were entitled to fees as the prevailing party under the Transfer Agreement.

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[4.  Real Estate ]

HOMEOWNERS ASSOCIATION HAS STANDING TO PURSUE ACTION AGAINST REALTORS

The Homeowners Association ("HOA") has standing to pursue an action against realtors for concealment or misrepresentation in a matter pertaining to damage to the common area, though the HOA was not the realtors' customers.

In Glen Oaks Estates Homeowners' Association v. Re/MaxPremier Properties, Inc. (2012) 203 Cal.App.4th 913, the HOA brought an action against the realtors which acted as dual-agents for both the developers of the Glen Oaks Estates and the members of the HOA who purchased individual condominium units.

The action arose out of a significant slope failure in 2005, which occurred along parts of the Glen Oaks Estates common slope area and common driveway.  In the aftermath of the landslide, a negligence lawsuit was filed against the HOA and two of its members in 2007.  The HOA filed a cross-complaint against the developers for indemnity and contribution.  During discovery process, the HOA discovered that the realtors falsely advised the developers that the Department of Real Estate ("DRE") did not require a homeowners' association for Glen Oaks Estates.  The HOA also learned that the developers and the realtors were required to, but failed to, provide a final public report to each buyer, which would have included a DRE-approved budget worksheet and other material transactional disclosures and documents.

The trial court agreed with the realtors who contended that the HOA had no standing to sue them under the David-Sterling Common Interest Development Act ("CIDA"), more specifically, Civil Code section 1368.3, because Section 1368.3 affords the HOA standing to sue developers only, and not realtors.  The Court of Appeal disagreed. The standing conferred upon HOAs under the CIDA is a statutory creature.  Section 1368.3 does not, by its plain terms, contain a limitation on whom the HOA may sue.

The realtors also argued that the HOA does not have standing because realtors owe no duties to third parties who were not parties to the contract of sale, and the HOA was not a party to the contracts between the realtors and the individual HOA members.  The Court of Appeal disagreed with the realtors again and concluded that Civil Code section 1368.3 provides standing.  "We are dealing here with a specific legislative grant of standing that permits an association to bring the claims of its members."  The HOA, therefore, was allowed to prosecute its claims against the realtors despite the fact that no contract was ever entered into between the realtors and the HOA.

   

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Vanity Fair Not Fair To La Toya Jackson, Say Valensi Rose Attorneys

Steve F. Moeller

Michael R. Morris

Valensi Rose entertainment lawyers Michael Morris and Steve Moeller have been retained to pursue a claim against Vanity Fair magazine, and its publisher Advance Magazine Publishers, Inc., regarding certain false and libelous statements made about Valensi Rose client La Toya Jackson. The statements involve Ms. Jackson’s  supposed actions immediately following the 2009 death of her brother Michael Jackson.

The statements appear in an article in the November issue of Vanity Fair entitled “Estate of Siege”, which generally deals with certain disputes involving Michael Jackson’s family and the executors of his Estate.

The firm’s lawyers have made a formal demand for retraction of the statements, since the magazine article includes a description of certain purported actions by members of the Jackson family which are untrue, and unsupported by any reliable sources or witnesses. As of the present date, it has not been determined whether a lawsuit will be filed against the magazine. 

Both Michael Morris and Steve Moeller have been extensively involved in representing recording artists, writers, producers, and other talent for more than 20 years. Steve Moeller is an experienced entertainment litigator who has represented numerous clients in lawsuits involving copyright infringement, trademarks, libel, and many other media related disputes.

Contact: Stephen F. Moeller

Contact: Michael R Morris

The Rule 26 Amendments: One Year Later

John Keith

Louis Kempinsky

by Louis E. Kempinsky 
and John C. Keith

Originally published by the American Bar Association, April 30, 2012

On December  1, 2010, several amendments to Federal Rule of Civil Procedure 26 took effect.  The primary thrust of the 2010 amendments was to address the “undesirable  effects” of the 1993 amendments to Rule 26, which had provided for “routine  discovery into attorney-expert communications and draft reports.” 2010 amends.,  advisory committee’s notes. The four main changes were

• generally  narrowing the subject-matter of a testifying expert’s disclosure, Fed. R. Civ.  P. 26(a)(2)(B);
• extending  work-product protection to draft expert reports, Fed. R. Civ. P. 26(b)(4)(B);
• providing  new work-product protection to attorney-expert communications, Fed. R. Civ. P.  26(b)(4)(C); and
• clarifying  which testifying experts are required to provide written reports, Fed. R. Civ.  P. 26(a)(2)(B) and (C).

The 2010  amendments have been in effect for just over a year, and they have not been  applied in all cases. The 2010 amendments apply to cases pending as of December  1, 2010, only “when just and practicable.” Order Amending Federal Rules of  Civil Procedure, Apr. 28, 2010. As is not surprising in light of the standard,  cases examining whether it would be “just and practicable” to apply the new  version of the rule are highly fact-driven and have come down on both sides. Case  law interpreting the amendments is still in an early stage of development.  Nonetheless, a number of potentially significant issues have already emerged.

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