Governor Vetoes Punitive Damages Sharing Statute

California embarked on a little punitive damages experiment about two years ago. Hidden in a 700-page budget passed (as usual) at the 13th hour was a provision enacting Civil Code section 3294.5, giving the State 75% of any punitive damages award. By its terms, the measure was scheduled to sunset on July 1, 2006. Fast forward two years. SB 832, passed at the end of August, 2006, would have extended the sunset.

Today, Governor Schwarzenegger vetoed SB 832 with the following comment:

"While I have been supportive of the policy in the past and signed [the original bill in 2004] this bill was amended late in the legislative session and did not provide an opportunity for sufficient hearings to determine whether this policy has been effective or not. I encourage the author to reintroduce the bill next year and allow a full debate on the effectiveness of the policy."

"Effectiveness" of this policy indeed. I'm willing to bet that the State has collected virtually no revenue in the two years the statute's been in effect. The provision applied only to lawsuits commenced after mid-August, 2004 and finally adjudicated (including trial and appeal) before July 1, 2006. In all my years of appellate and punitive damages practice, I have never seen a punitive damages appeal (let alone trial too) briefed, argued and decided in that short a time frame.

If anyone has seen statistics on 3294.5 revenue, I'd love to see them.

Dog Day Afternoon in California Supreme Court

California's dog bite statute - Civil Code 3342 - makes the owner liable to the victim regardless of the animal's "former viciousness" or knowledge of same. But the so-called veterinarian's rule, a variation on the primary assumption of risk doctrine, says a dog owner who contracts with the vet to treat the dog is generally exempt from liability should the dog bite or injure the vet or an assistant during treatment. (See Nelson v. Hall (1985) 165 Cal.App.3d 709, 710.)

So which controls when a vet assistant is injured while treating the animal: the statute imposing strict liability for a bite, or the primary assumption of risk doctrine that exempts the owner from liability? Under the California Supreme Court's opinion in Priebe v. Nelson, issued today, veterinarians assume the risk of bites by virtue of the job.


The court, however, offered one caveat: a common law strict liability cause of action may also be maintained if the owner of a domestic animal knew or had reason to know of the animal’s vicious propensities. The court remanded to the lower court to determine if the owner knew or should have known of his dog’s vicious propensities and failed to inform the vet; in that event the owner could have exposed the assistant to an unknown risk, and thereby be strictly liable at common law. Under such circumstances, the defense of primary assumption of risk would not bar the claim, since the assistant could not be found to assume a risk of which she was unaware.

California Grants & Holds Punitive Damages Opinion in Tobacco Case

Punitive damages are, once, again, in the news. Last week, the California Supreme Court granted review in Bullock v. Philip Morris, a single plaintiff smoker case in which the court of appeal had affirmed $ 28 million in punitives. Philip Morris' petition presented two issues concerning the constitutionality of the punitive award: (1) does the 33:1 ratio of punitive to compensatory damages violate due process; and (2) should the jury have been instructed it can't impose punitives to punish the defendant for the effects of its conduct on non-parties. Bullock v. Philip Morris USA, Inc., formerly at 138 Cal.App.4th 1029, mod. 139 Cal.App.4th 588a, S143850, review granted 8/2/06.

However, the state high court will not be deciding these issues anytime soon. It deferred briefing pending the U.S. Supreme Court's decision in Philip Morris USA v. Williams (Ore. 2005) 127 P3d 1165, cert. granted 5/30/06, No. 05-1256.

Employment: At Will Clauses Alive & Well in California

California employers are breathing sighs of relief thanks to the state Supreme Court's decision, rendered late last week, upholding an at-will clause against a former employee's attack. Dore v. Arnold, opinion issued 8/3/06.

The former employee challenged the at will clause in his contract, claiming it impliedly conferred a right to be terminated only for cause. The contract provision said the relationship was "at will," and went on to explain this means either party may terminate the relationship "at any time." He argued that since the clause referred only to the time of termination ("at any time") and was silent on permissible causes for termination, it did not create a true at will relationship. The court of appeal agreed with his interpretation.

But the California Supreme Court did not. Resolving a conflict in the lower state courts of appeal, it held the contract plainly spelled out that the relationship was at will, and the reference to "time" of termination - without expressly using the words "with or without cause" - did not change that fact. The opinion observed that a clause stating the relationship "could be terminated at any time would make no sense if [its] true meaning was that [the] employment could be terminated only for cause. Thus, even though [the employer's] letter defined `at will' as meaning `at any time," without specifying it also meant without cause or for any or no reason, the letter's meaning was clear."

The court also rejected the employee's attempts to use extrinsic evidence - employer's pre-employment statements of wanting a "long-term fix" and to "build a relationship" - to make the provision ambiguous. Even if this extrinsic evidence were credited, it "would not support an inference that Dore reasonably understood [the] letter as consistent with a promise not to terminate him without cause." LINK TO SLIP OPINION: http://www.courtinfo.ca.gov/opinions/documents/S124494.PDF

Applying The Class Action Fairness Act As Intended

CAFA - the Class Action Fairness Act - was designed to allow federal courts to entertain more of the major class actions that have plagued big business in recent years. Good idea, but in California, the execution may be leaving something to be desired.

Thus far, the California data is anecdotal but troubling. A growing number of trial courts are remanding the class actions, relying on case law creating a "strong presumption" against and an "aversion" to finding federal removal jurisdiction. In particular, they are ruling that the defendant failed to prove that the amount in controversy exceeds CAFA's $5 million jurisdictional minimum. Ironically, with CAFA, Congress intended a presumption in favor of retaining federal jurisdiction of class actions.

And to date, the 9th Circuit apparently has declined to hear any interlocutory appeals from the remand orders. Unless it changes that tack, it could be years before we see an actual opinion from the Court of Appeals. In the meantime, how many cases Congress intended to be litigated in federal court are being bounced back to the state?

For more information, or cites to some of the split district court opinions, contact: christina.imre@sdma.com

Watershed Unfair Competition Decision

July 12, 2006: Yesterday, the California Court of Appeal may have forever changed the world of state unfair competition and class action law. (Pfizer v. Superior Court, Case No. B188106, slip opinion available at: http://www.courtinfo.ca.gov/opinions/documents/B188106.PDF

Pfizer it could well the biggest breakthrough for defendants in the long, tortured history of California's Business & Professions Code section 17200. The decision applies Proposition 64, the 2003 measure designed to reform some of the major abuses of 17200 suits, reinstating such long-absent requirements as: plaintiffs must have standing to sue, suffer actual harm, and have relied on the allegedly wrongful business practice.

1. The class members must have suffered injury in fact and actually lost money or property as a result of such violation. It is not enough that the class representative or named plaintiff satisfy this requirement.

2. The mere likelihood of harm to members of the public is no longer sufficient for standing to sue. Those who have suffered no injury in fact and who have not lost money or property from the business practice cannot state a cause of action based on the “likelihood” that members of the public will be deceived.

3. A plaintiff must have actually relied on the false or misleading misrepresentation or advertisement in entering into the transaction in issue.

A round of applause here to John Sullivan of the Civil Justice Association of California, and his dedicated staff, without whom there would be no Proposition 64.

UPDATE: the plaintiffs filed a petition for review in the California Supreme Court on Aug. 11, 2006. The court has 60 days from date of filing to decide whether to grant review.

Insured May Assign Right To "Brandt" Attorney Fees

In a unanimous opinion, the California Supreme Court held last week that when an insured assigns a claim for bad faith against the insurer, and the assignee brings a tort action against the insurer that includes a claim for wrongfully withheld policy benefits, the assignee may recover Brandt fees. (Essex Ins. Co. v. Five Star, S131992 - slip opinion available at http://www.courtinfo.ca.gov/cgi-bin/opinions/.cgi/)

Over 20 years ago, the high court gave the insured the right to attorney fees attributable to the insured's attempt to recover policy benefits tortiously withheld by the carrier. (Brandt v. Superior Court (1985) 37 Cal.3d 813.) It reasoned that when an insurer has deprived the insured of policy benefits in bad faith, attorney fees the insured reasonably and necessarily incurs to obtain those policy benefits constitute an economic loss proximately caused by the insurer’s tort, and thus those attorney fees (now commonly referred to as Brandt fees) are recoverable as tort damages.

The court reasoned that disallowing recovery of Brandt fees incurred by assignees would also tend to discourage assignment of bad faith claims against insurance companies, contrary to the public policy favoring transferability of causes of action.

State High Court: Probate Code Requires Witnesses To Sign Will Before Testator's Death

Today, the California Supreme Court held that when a witness signs a will after the testator's death, the will violates the Probate Code (section 6110). Declining to follow the trend of other jurisdictions, the court, in one of Justice Carol Corrigan's first opinions since her recent appointment, concluded that any other result would "allow the validity of a will to depend upon the will or caprice of one who had been requested to perform the very simple act of becoming a witness by allowing such a person to wait until after the testator’s death to decide whether or not to subscribe his or her signature to the will. Such an interpretation would invite fraud and subvert the basic intent of will authentication requirements." Estate of Saueresig, Case No. S129110.

Pleading Requirements in Child Abuse Cases Up For Grabs

Yesterday, the California Supreme Court agreed to decide what a plaintiff claiming child abuse must plead regarding the defendant non-perpetrator's notice of the abuser's proclivities. Cal. CCP section 340.1 reinstates certain time-barred causes of action, by adult plaintiffs molested as children, against the abusers and those considered responsible for the abuser. Under the statute, the non-perpetrator must have had notice (actual knowledge ?) of the abuser's wrongful acts and failed to take reasonable steps to prevent a recurrence. The issue to be decided is what standard must the plaintiff meet in order to adequately allege the non-perpetrator defendant had the requisite notice. Doe v. City of Los Angeles, S142689, formerly at 137 Cal.App.4th 438, review granted 6/21/06.

Here are the issues, as described in the court's weekly summary:

"Were plaintiffs’ claims against the City of Los Angeles and the Boy Scouts of America for sexual abuse by a city police officer while they participated in police department programs in the 1970’s barred by the statute of limitations, or did plaintiffs sufficiently invoke the provisions of CCP 340.1 (b)(2), which permits the revival of certain claims of sexual abuse that would otherwise be barred where the defendant `knew or had reason to know, or was otherwise on notice, of any unlawful sexual conduct by an employee, volunteer, representative, or agent, and failed to take reasonable steps, and to implement reasonable safeguards, to avoid acts of unlawful sexual conduct in the future by that person'”?