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Waiting for Iskanian, Part 4: Friends of the Defendant

By Kirk Jenkins on Posted in Illinois

As we await Thursday’s oral argument before the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, our series of preview posts continues. This time in Part 4, we take a look at the seven amicus curiae briefs filed in support of the defendant. To read all the briefs in Iskanian, check out the National Chamber Litigation Center’s page on the case here.

Not surprisingly given the recent cases, reading the defense amici is a much different experience than reviewing the briefs filed in support of the plaintiff. The plaintiff-side briefs tend to be somewhat defensive in tone, focused on limiting Discover Bank and Concepcion, differentiating Gentry or suggesting reasons why perhaps the ultimate decision in Iskanian could wind up much ado about little (a Supreme Court decision founded on waiver). The defense amici, on the other hand, are by and large on the offensive, trying to broaden the battlefield and bring as much previous law as possible into question in the wake of Concepcion.

We begin with the brief of the Pacific Legal Foundation. The PLF’s Free Enterprise project “defends the freedom of contract, including the right of parties to agree by contract to the process for resolving disputes that might arise between them.” While other parts of Gentry might survive, the passages setting “categorical, per se requirements specific to arbitration clauses” necessarily had to fall in the wake of Concepcion, the PLF argues. Indeed, Armendariz itself was on “particularly shaky ground” according to the PLF. Nor was Gentry a mere distant cousin of the departed rule of Discover Bank, amicus argued: “Iskanian’s effort to distance Gentry from Discover Bank could succeed only with the exercise of willful blindness.” The PLF challenged the United Policyholders’ assertion that arbitration clauses were occasionally upheld between Gentry and Concepcion, writing that its Westlaw search had revealed eight decisions during those years striking arbitration clauses against only one where a clause survived. The California courts have “express[ed] their distrust and disapproval of arbitration” in a series of cases since 1984, the PLF writes, “only to have the United States Supreme Court step in to reverse.” The time has come for California courts “to make their peace with the Supremacy Clause.”

Amicus the Association of Corporate Counsel focused its brief on the practical effects of decisions giving effect to the FAA’s national policy in favor of arbitration. In-house counsel use arbitration as a “basic tool to resolve disputes” quickly and inexpensively, amicus argued. Empirical studies confirm the efficiencies of arbitration. According to one study, arbitrations tend to close about 33 percent faster than litigation in employment discrimination cases; another study found that arbitration cases wrap up twice as fast as litigation. Yet another study of employment cases – this time excluding discrimination cases from the database – concluded that arbitration cases ended three times as fast as courtroom litigation. Studies reflect similarly enormous savings in fees and costs expended by litigants. Reversal would “severely burden in-house counsel and their companies,” amicus wrote. At minimum, it would likely be necessary to review contracts applying in California. Worse yet, other jurisdictions might be tempted to follow suit in looking for ways around the imperative of the FAA.

Amici The National Retail Federation and Rent-A-Center, Inc. took aim at the central issue in Iskanian – the fate of Gentry in the wake of Concepcion. Concepcion’s commands are “clear and far-reaching,” the NRF amici write. Gentry cannot be reconciled with Concepcion for several reasons. First, Gentry repeatedly invokes Discover Bank. Second, as other amici have pointed out, the Gentry rule necessarily involves imposing class arbitration on a party which never agreed to it, directly contrary to Concepcion. The NRF amici end their brief by reviewing the ultimate fate at the U.S. Supreme Court of recent cases in which state courts relied on public policy to refuse to enforce arbitration clauses: in each case, the state court’s decision was reversed.

Amici the California Chamber of Commerce and the Civil Justice Association of California make similar arguments that Gentry cannot survive Concepcion. According to amici, post-Concepcion decisions from the Supreme Court and the Ninth Circuit such as CompuCredit Corp. v. Greenwood, Marmet Health Care Center, Inc. v. Brown, Kilgore v. KeyBank, N.A. and Coneff v. AT&T Corp. confirm that Concepcion is meant to be read broadly.

Amicus the Employers Group is “the nation’s oldest and largest human resources management association, representing nearly 5,000 companies.” The Employers Group challenges one of the central premises argued by the plaintiff and several plaintiff’s amici – the notion that PAGA is a public-benefit statute. “Civil penalties paid by an employer under the PAGA do not inure to the benefit of the public,” amicus writes; at most, they benefit other aggrieved parties. In that sense, Iskanian’s situation was similar to Kilgore v. KeyBank, N.A., where the Ninth Circuit declined to apply California’s Broughton/Cruz rule – which holds that claims for broad injunctive relief benefiting the general public cannot be arbitrated – on the grounds that the relief sought there did not benefit the general public. (And in case you’re wondering, a number of courts have held in the last few years that Concepcion dooms Broughton/Cruz too.)

According to amicus, the theme plaintiff and his amici return to again and again – that Discover Bank was about unconscionability while Gentry was about unwaivable statutory rights – is a “distinction without a difference,” since both derive from the same public policy rationale. Not only can Gentry not survive, amicus concludes – Iskanian would be a good opportunity for the Court to revisit Armendariz and Ralphs Grocery too.

Finally, the Employers Group offers an interesting response to the plaintiff’s-side argument that PAGA suits must by definition be representative actions. By taking that position, amicus argues, the plaintiff is restricting the scope and flexibility of the statute, since if the plaintiff were correct, the Labor Commissioner cannot seek PAGA penalties on behalf of a single employee.

Amici the Retail Litigation Center, Inc. and the California Retailers Association offer details on the progeny of California’s major arbitration decisions. Armendariz, for example, has spawned 25 published Court of Appeal opinions, at least 6 published opinions from the Ninth Circuit and many more unpublished Court of Appeal opinions and trial court orders. Even after Concepcion, several California courts have refused to enforce arbitration clauses; amici point to cases such as Ajamian v. CantoC02E, L.P., where the Court of Appeal “dismissed Concepcion in a footnote,” and Franco v. Arakelian Enterprises, Inc., where the court asserted that Gentry remained viable because most wage-and-hour claims involve too little money to justify the expense of arbitration. (Not surprisingly in the wake of Italian Colors, the California Supreme Court has issued a grant-and-hold in Franco, awaiting Iskanian.)

Amici turn then to the plaintiff’s “effective vindication” theory. The notion that “unwaivable rights” are enough to overcome the FAA was rejected more than twenty years ago in Gilmer v. Interstate/Johnson Lane Corp. Amici point out that the construction advocated by the plaintiff’s side necessarily creates two separate proceedings out of a single dispute – wage and hour claims in arbitration, and the purportedly non-arbitrable PAGA claims in court. The amici conclude by arguing that the United States Supreme Court has repeatedly rejected the notion – still heard today – that arbitration is somehow an inferior forum for certain types of claims.

Amicus the California New Car Dealers Association points out that while the United States Supreme Court has occasionally discussed “effective vindication” – always in dicta – in relation to federal statutory rights, it has never actually refused to enforce an arbitration clause based upon the “effective vindication” theory. Amicus argues that it was the California Supreme Court in Broughton that applied the theory with respect to state-law rights, disregarding the theoretical basis for it – the need to reconcile conflicting Congressional mandates. Broughton led straight to Armendariz,and then to Discover Bank, Gentry and the original decision in Sonic-Calabasas. Each of these decisions drew dissents arguing that the Court was straying further from the FAA and the U.S. Supreme Court’s guidance, with Justice Chin writing in Broughton, Cruz and Sonic-Calabasas, and Justice Baxter writing in Gentry. According to the amicus, the dissenters have now been vindicated by Concepcion, which rejected the public policy rationale which lies at the foundation of both Discover Bank and Gentry. The New Car Dealers’ brief concludes by pointing out that due process-based protections in the text of the FAA requiring that parties be granted notice and an opportunity to present relevant and material evidence and argument before neutral arbitrators obviate any need for states to superimpose additional limits on arbitration in pursuit of their own public policies.

Join us back here soon for the conclusion of our five part series: Waiting for Iskanian, Part 5: The Parties’ Briefs.

Image courtesy of Flickr by J. Saper (no changes).

Waiting for Iskanian, Part 3 – Friends of the Plaintiff

By Kirk Jenkins on Posted in Illinois

 

As we await Thursday’s oral argument before the California Supreme Court in Iskanian v. CLS Transportation of Los Angeles, in Part 3 of our series of posts, we’ll take a look at the amici curiae supporting plaintiffs. To read all the briefs in Iskanian, both merits and amici, check out the National Chamber Litigation Center’s page on the case here.

The California Rural Legal Assistance Foundation describes itself as a “non-profit legal services provider that represents low income families in rural California and engages in regulatory and legislative advocacy to promote the interests of low wage workers.” The CRLAF’s brief argues that the FAA compels enforcement of arbitration clauses only insofar as they relate to claims arising from the employment contract itself. While Iskanian has asserted a number of different causes of action arising from his employment, the CRLAF argues, his claim under the Private Attorney General Act is not one of them. The PAGA claim is the result of a delegation by the State of California of its sovereign power to enforce the Labor Code and collect civil penalties for violations.  Since the FAA is limited to claims arising under the contract, PAGA claims cannot be forced into arbitration. Besides, Civil Code § 3513 specifically bars waiver of laws established for a public reason.

The argument under Section 3513 is interesting, but it seems to me ultimately doesn’t hold water. Substantive rights are (in at least some cases) unwaivable. For example, it’s unlikely that a court would enforce an employment contract calling for payment of less than the minimum wage. But there’s a material difference between such a substantive claim for relief and a right to sue. Of course a right to sue is waivable: one waives it by not suing. Why, then, shouldn’t an employee be free to trade away for value that which he or she can surrender for nothing?

The Sandquist amicus brief was sponsored by the named plaintiff in a pending class action under the Fair Employment and Housing Act, as well as a group of nonprofit public interest associations — the AARP, which advocates primarily for older workers and senior citizens; Equal Rights Advocates, which is “dedicated to protecting and expanding economic justice and equal opportunities for women and girls”; and the Impact Fund, which funds, trains and acts as co-counsel to public interest litigators.

The Sandquist brief focuses on the impact of authorizing class waivers on FEHA enforcement. Class waivers would mean “not only that plaintiffs . . . will be unable to vindicate their own FEHA rights, but also that they cannot fulfill the role entrusted to them under the statute” of acting as private attorneys general, amici argue.

The plaintiffs’ amicus briefs were filed several months before Italian Colors squarely took on the effective vindication theory, so understandably, many place significant emphasis on Mitsubishi and what other support arguably existed for the theory. The Sandquist amici quote Judge Richard Posner’s comment in Carnegie v. Household Int’l, Inc.: “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.” According to the Sandquist group, the effective vindication theory sweeps even more broadly than merely outlawing straightforward waivers of substantive statutory rights. To be permissible, “arbitration must be structured in a manner that enables the parties to ‘effectively’ vindicate their statutory rights.” Far from being workarounds from the pro-arbitration mandate of the FAA, Armendariz and Gentry were examples of the California Supreme Court “following the U.S. Supreme Court’s lead,” the Sandquist amici argue.

There’s less than meets the eye to Concepcion, the Sandquist amici insist. Because the arbitration provisions in Concepcion were “highly favorable to consumers,” the agreement probably would have been enforceable under the effective vindication theory. After all, the amici argue, the question presented in Concepcion specifically acknowledged that class arbitration was not necessary to effective vindication there.

Nor were Discover Bank and Gentry closely related, the brief continues. First, Discover Bank is about unconscionability; Gentry is about effective vindication. Second, Discover Bank adopted a blanket rule barring class waivers in consumer cases, while Gentry requires a fact-specific balancing test.

Like the Sandquist amici, the Consumer Attorneys of California focuses on trying to limit Concepcion and Discover Bank and preserve Gentry. Discover Bank, the CAOC argues, created a categorical ban on class action waivers in consumer contracts, while Gentry revolved around procedural unconscionability. Moreover, Gentry involved a challenge to an entire agreement to arbitrate, where Concepcion only addressed a class arbitration waiver clause. The mere fact that Concepcion eliminated the Discover Bank rule does not mean that “generally applicable state law unconscionability defenses” are preempted “across the board.” Rather, the Supreme Court was intending to mandate a “case-by-case approach” to unconscionability and other state-law defenses. The California unconscionability doctrine “has numerous variables giving rise to near infinite variations . . . that were neither discussed nor mentioned in Concepcion,” the CAOC claims; accordingly, “Concepcion is limited to the facts in that one case.”

The United Policyholders amicus brief addresses a different topic: the Court of Appeal’s finding that the defendants in Iskanian hadn’t waived any right to arbitrate. UP argues that whether or not an arbitration clause has been waived is an issue of California law, regardless of whether the contract falls within the purview of the FAA (this raises the interesting question of whether a state’s waiver law could be preempted by the FAA if it were interpreted in such a way as to become an obstacle to the accomplishment of Congress’ purposes). The Court of Appeal erred at the outset, UP argues, by declining to find waiver based on “futility,” since California doesn’t recognize futility as a defense to waiver. Indeed, even if federal law applied to the waiver question, the UP argues, the Court of Appeal got it wrong, since Federal waiver law allegedly limits futility to situations where a new case has created a right which didn’t exist previously. Since certain courts had enforced arbitration clauses before Concepcion, the defendants’ motion to compel arbitration in Iskanian wouldn’t have been futile. A separate amicus brief filed by the California Association of Public Insurance Adjusters raises similar arguments.

Finally, the Service Employees International Union and the California Employment Lawyers Association filed a brief in support of the plaintiff. The SEIU/CELA brief focuses on yet another aspect of the case: the D.R. Horton decision and the supposed conflict between a class waiver in employment law and the National Labor Relations Act. According to the amici, the proposition that “the filing and pursuit of employment claims on a joint, class, representative, or other concerted action basis constitutes protected ‘concerted’ activity under federal labor law” is “unassailable.” (We’ll see about that once we reach the respondent’s brief.) Citing D.R. Horton, they argue that the right to engage in collective action must include “collective legal action” – presumably regardless of what agreements individual employees enter into. The “CLS Policy/Agreement by its express terms prohibits its employees from engaging in concerted legal action,” the amici write. “That prohibition violates federal labor law. End of story.” Concepcion was distinguishable, the amici write, because “[n]o federal statutory rights were at issue.”

Even if a conflict existed between the FAA’s preference for arbitration and the purported right to engage in concerted legal activity, the amici argue, the FAA would have to give way since “the Section 7 right is far more central to national labor policy than any preference for ‘streamlined’ arbitration is to the FAA.”

Of course, the legal landscape has continued to develop since the SEIU/CELA brief was filed. First, the Supreme Court handed down Italian Colors, where “federal statutory rights” were squarely at issue, and most recently, the Fifth Circuit reversed the NLRB’s decision in D.R. Horton.

Join us back here shortly for Waiting for Iskanian, Part 4: Friends of the Defendant.

Image courtesy of Flickr by Steve Slater (no changes).

Waiting for Iskanian, Part 2: Italian Colors, Sonic-Calabasas and Iskanian

By Kirk Jenkins on Posted in California

 

One would have thought in the wake of Concepcion that Gentry was doomed: Concepcion expressly killed off Discover Bank; Gentry was expressly described by the Court itself as a gloss on Discover Bank; therefore, Concepcion must overturn Gentry.

In the wake of the Concepcion defeat, the plaintiffs’ bar made a strategic retreat, insisting that Gentry was based on an entirely different theory, entirely unrelated to Discover Bank and therefore not affected by Concepcion: the “effective vindication of statutory rights” theory. That theory goes like this: if the practical effect of an arbitration clause is to make it impossible for a plaintiff to “effectively vindicate” (whatever that means) his or her non-waivable statutory rights, then out it goes.

And then American Express Company v. Italian Colors Restaurant came along.

The plaintiffs in Italian Colors were merchants who entered into agreements with the defendant to accept the defendant’s charge and credit cards. The agreement included a clause both requiring arbitration and barring all class proceedings. The plaintiffs brought a putative class action under the federal antitrust laws, alleging that the defendant had used its monopoly power in the market for charge cards to both force merchants to accept its credit cards (an allegedly illegal tie) and to charge merchants rates 30% higher than its competitors.

The defendants moved to compel arbitration. Opposing the motion, the plaintiffs offered a declaration from an economist opining that an expert study and analysis sufficient to prove the claim would cost anywhere from several hundred thousand to a million dollars. Which was a bit of a problem, since the maximum per-plaintiff recovery would be just short of $40,000. Nevertheless, the district court granted the motion to compel arbitration. The Second Circuit reversed. The Supreme Court reversed and remanded for reconsideration in light of Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., but the Second Circuit reversed again after considering both Stolt-Nielsen and Concepcion.

The plaintiffs’ pitch before the United States Supreme Court was very simple: enforcing the class action waiver as written means no antitrust suit – nobody spends several hundred thousand dollars to recover $40K. Thus, as briefed and argued, Italian Colors provided about as square a test of the “effective vindication” theory as can be imagined.

One problem, the Supreme Court held: “the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.” The majority seemed to doubt whether there is any such thing as the “effective vindication” theory in the first place, describing its genesis as “dictum in Mitsubishi Motors.” But even assuming such an exception exists, it was far more limited than the plaintiffs believed. Certainly it would cover an arbitration clause saying “nobody brings an antitrust claim.” Prohibitive filing fees, sure: a clause requiring a ten million dollar per-claim filing fee would fall. But merely making it not worth the expense to prove a statutory remedy wasn’t the same thing as “the elimination of the right to pursue that remedy,” the majority wrote. In a footnote on the final page of their opinion, the majority wrote what one would have expected to be the epitaph of the “effective vindication” theory: “the FAA does . . . favor the absence of litigation when that is the consequence of a class-action waiver.”

Only a few months after Italian Colors, the California Supreme Court got its first major chance to address the new landscape in Sonic-Calabasas A, Inc. v. Moreno.

The plaintiff in Sonic-Calabasas is a former employee of an automobile dealership. As part of his employment, he signed an agreement providing that all disputes arising out of the employment would be settled by binding arbitration pursuant to the FAA and the California Arbitration Act. After leaving his employment, the plaintiff filed an administrative wage claim with the Labor Commissioner, seeking vacation pay. The filing of such a claim is the first step in California towards what’s known as a Berman hearing – a highly informal administrative proceeding designed for more-or-less speedy employee wage claims. The employer moved to compel arbitration of all disputes, arguing that the arbitration clause waived the Berman hearing. The Superior Court denied the petition to compel arbitration, but the Court of Appeal reversed, holding that a Berman waiver was enforceable.

The California Supreme Court granted review and reversed, holding that Berman waivers are per se unconscionable and unenforceable in California. The United States Supreme Court vacated and shipped the case back to California for reconsideration in light of Concepcion.

On remand, the state Supreme Court retreated slightly from its earlier holding in an opinion written by Justice Liu and joined by Justices Kennard, Werdegar and Corrigan, and Chief Justice Cantil-Sakauye. A Berman waiver did not by definition doom an arbitration clause, but the trial courts were still free to refuse to enforce an arbitration clause if “it is otherwise unreasonably one-sided in favor of the employer.” Although the Court’s majority swept away the per se rule, the Court suggested that a Berman waiver might still cast a long shadow over the unconscionability hearing: “waiver of these protections in the context of an agreement that does not provide an employee with an accessible and affordable arbitral forum for resolving wage disputes may support a finding of unconscionability.” Although unconscionability has usually been stated in terms of contracts that “shock the judicial conscience,” the court majority seemed to suggest a more malleable standard: “Unconscionability doctrine is instead concerned with whether the agreement is unreasonably favorable to one party, considering in context ‘its commercial setting, purpose, and effect.'” The unconscionability inquiry it was mandating was “not preempted by the FAA,” the majority held, expressing confidence that trial courts could make the necessary determinations fast enough not to rob arbitration of its primary virtue: speedy resolution.

The Court majority summarized its holding in language reminiscent of the “effective vindication” theory:

[W]here, as here, a particular class has been legislatively afforded specific protections in order to mitigate the risks and costs of pursuing certain types of claims, and to the extent those protections do not interfere with fundamental attributes of arbitration, an arbitration agreement requiring a party to forgo those protections may properly be understood not only to substitute one dispute resolution forum for another, but also to compel the loss of a benefit.

Justice Chin, joined by Justice Baxter, vigorously dissented from the majority’s opinion:

[W]e should reject Moreno’s unconscionability claim . . . I also disagree with the majority’s advisory opinion regarding the unconscionability principles the trial court should apply on remand. In my view, those principles are both contrary to state law and invalid under – and thus preempted by – the FAA.

Which finally brings us to Iskanian. The plaintiff was employed for a little over a year as a driver for the defendant. He signed an agreement providing that “any and all claims” arising out of his employment would be submitted to binding arbitration. The arbitration clause provided for reasonable discovery, a written award and judicial review. Costs unique to arbitration were paid by the employer. Class procedures – either class actions in court or class arbitration – was barred.

After leaving his employment, the plaintiff filed a putative class complaint, alleging that the defendant had failed to pay overtime, provide meal and rest breaks, reimburse business expenses, provide accurate and complete wage statements, and pay final wages in a timely manner. The trial court initially granted the employer’s motion to compel arbitration, but then Gentry came down, and the Second District issued a writ of mandate directing the trial court to reconsider in light of the new decision. Apparently concluding that the result post-Gentry was a foregone conclusion, the employer withdrew its motion to compel arbitration. Not long after, the plaintiff filed a consolidated first amended complaint, purporting to state claims under the Labor Code, for unfair competition, and claims in a representative capacity under the Labor Code Private Attorneys General Act (“PAGA”) of 2004.

After discovery, the plaintiff moved to certify a class. The employer opposed, but the motion was granted in the fall of 2009. In April 2011, with trial imminent, the United States Supreme Court handed down Concepcion. The employer promptly renewed its motion to compel arbitration and dismiss the class claims. The trial court granted the motion in both respects.

The Second District affirmed, holding that Concepcion had necessarily overruled not only Discover Bank, but Gentry to boot. This was so for three reasons: if Gentry was applied, as the plaintiff wanted, the case would be decided under class arbitration, even though the employer had never agreed to it. Such a situation was clearly barred by Concepcion. Second, the Gentry rule was irreconcilable with the fundamental lesson of the FAA — that arbitration agreements must be enforced according to their terms. Third, the premise that the plaintiff brought the class action to “vindicate statutory rights” was necessarily irrelevant after Concepcion.

Next, the Court turned to D.R. Horton, a decision of the National Labor Relations Board handed down while briefing in Iskanian was under way. There, the NLRB held that class waivers were a per se violation of the National Labor Relations Act, which protects employees’ right to engage in concerted actions. Although courts usually defer to the NLRB’s interpretation of its governing statute, the Iskanian court noted that D.R. Horton was also an interpretation of the FAA itself. The Court of Appeal concluded that Concepcion trumped D.R. Horton, and refused to follow the NLRB.

The Court of Appeal next addressed the plaintiff’s argument that his PAGA claims were a non-waivable statutory right to proceed in a judicial class action. Division Five of the Second District had held that Concepcion was inapplicable to PAGA actions under California state law in Brown v. Ralphs Grocery Co. in 2011, but the Iskanian court refused to follow suit: “the United States Supreme Court has spoken on the issue, and we are required to follow its binding authority.” Only an express finding by Congress that a Federal claim had to proceed in court was sufficient to override the FAA, the Court held.

The Court concluded by briefly addressing the plaintiff’s claim that by withdrawing its motion to compel arbitration post-Gentry, and not raising the issue again until Concepcion, the defendant had waived any right to arbitration. The Court of Appeal disagreed, holding that since any motion to compel arbitration would have, according to all parties, been doomed to failure in the years between Gentry and Concepcion, the defendant’s conduct had not been inconsistent with an intent to arbitrate.

Next time in Waiting for Iskanian, Part 3, we’ll consider the amicus briefs filed at the Supreme Court for the plaintiff’s side.

Image courtesy of Flickr by Richard-G (no changes).

Waiting for Iskanian, Part 1 — Gentry, Discover Bank and Concepcion

By Kirk Jenkins on Posted in California

 

On Thursday, the California Supreme Court will hear arguments in the highly-anticipated Iskanian v. CLS Transportation Los Angeles, LLC. Iskanian has produced several inches worth of paper from a host of interested parties in the past few months, and in these final days before the argument, we’ll be taking a look at the briefing. But first, let’s review the legal background for this latest skirmish in the arbitration wars.

The story begins with a deceptively simple statute, the Federal Arbitration Act. The FAA was enacted in 1925 as a response to generations of judicial hostility to contracts to arbitrate. Section 2 of the Act, provides:

A written provision . . . to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

The FAA wasn’t an especially hot topic for many years after its enactment. In fact, it took until 1984 in Southland Corp. v. Keating for it to be finally settled that the FAA applied to contracts arising under state law, as long as they addressed interstate commerce. Even then, Justice O’Connor and then-Justice Rehnquist dissented, arguing that the Act applies only to federal-law contracts – a view which Justice Thomas continues to hold today. But even after Southland Corp., enforcement in the states still continued to vary from one jurisdiction to another.

Which brings us to Gentry v. Superior Court, a 2007 decision from the California Supreme Court and the center of the Iskanian debate. Gentry was a putative class action filed by a salaried customer service manager alleging that the defendant had misclassified certain employees as “exempt managerial/executive” rather than “non-exempt non-managerial,” meaning that they didn’t get paid for overtime. The problem was that when the plaintiff started work, he’d been given a package incorporating various options for resolving employment disputes. One was an arbitration provision which barred class arbitration, as well as incorporating various limitations on damages and attorney’s fees. The packet stated that if the employee didn’t opt out of the arbitration clause in thirty days, he or she was bound. The plaintiff didn’t opt out. The employer successfully moved to compel arbitration at the trial court, and the Court of Appeal refused to get involved.

Gentry reached the California Supreme Court for the first time while it was considering another arbitration case called Discover Bank v. Superior Court. The Court entered a grant-and-hold in Gentry, awaiting Discover Bank. The Court ultimately held in Discover Bank that “at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion are unenforceable.” Once Discover Bank was finished, the Court tossed Gentry back in the Court of Appeal’s lap for reconsideration in light of the new decision. Nope, the Court of Appeal said – the petition is still denied. So the second time around, the Supreme Court granted full plenary review in Gentry.

Admittedly, Gentry is an employment law case while Discover Bank is a consumer-law case – a distinction we’ll be hearing much more of in a few days when we discuss the plaintiff’s side briefing in Iskanian. But the second review grant in Gentry was – to quote the Court itself- “to clarify our holding in Discover Bank.”

The Gentry Court reversed the lower court’s order compelling arbitration. The statutory right to overtime pay could not be waived, the Court wrote. A few years before in Armendariz v. Foundation Health Psychcare Services, Inc., the Court had held that such rights could only be subject to compelled arbitration – regardless of what the parties had agreed to – only if the arbitration contained certain safeguards: (1) no limit on the damages normally available; (2) sufficient discovery; (3) a written decision and judicial review; and (4) the employer to pay all costs unique to arbitration. The basis of Armendariz was that an employee couldn’t be forced to arbitrate – regardless of the parties’ contract – when the arbitration amounted to a de facto waiver of statutory rights that couldn’t be waived.

Discover Bank hadn’t been intended to suggest that class action waivers would be stricken only in consumer cases involving minimal damages, the court wrote. Class actions “play an important function in enforcing overtime laws,” the Court said. The enforceability of a class action waiver depended on the court’s weighing of four factors: (1) the modest size of the potential recovery; (2) the potential for retaliation against members of the putative class; (3) whether absent class members are ill informed about their rights; and (4) other real world obstacles to the “vindication” of class members’ rights through individualized arbitration. Class arbitration waivers couldn’t “be used to weaken or undermine the private enforcement of overtime pay legislation by placing formidable practical obstacles in the way of employees’ prosecution of those claims,” the Court found.

Justice Moreno wrote the majority opinion on behalf of himself, Justices Kennard and Werdegar and Chief Justice George. Justice Baxter dissented, joined by Justices Chin and Corrigan: “I cannot join the majority’s continuing effort to limit and restrict the terms of private arbitration agreements, which enjoy special protection under both state and federal law.”

In the years following the double-whammy of Discover Bank and Gentry, the vast majority of class action waivers, and often arbitration clauses themselves, were disregarded by California courts, notwithstanding the FAA. The rationale was that clauses were being denied enforcement pursuant to the general contract defense of unconscionability, and the FAA specifically preserves such general defenses. The answer to that, of course, is that when unconscionability inflicts fatal wounds on far more arbitration clauses than general contracts, something has gone astray in terms of the FAA’s nationwide policy in favor of arbitration.

Which brings us to AT&T Mobility LLC v. Concepcion. The defendant gave away what it advertised as free phones as part of a promotion. When the defendant charged customers a nominal sum as sales tax based on the retail price of the phones, the plaintiffs filed a putative class action alleging false advertising and fraud. The defendant moved to compel arbitration, pointing out that its contract with the plaintiffs included a blanket arbitration clause and a class action waiver. The district court denied the motion to compel arbitration, finding the waiver unconscionable under Discover Bank, and the Ninth Circuit agreed.

The Supreme Court reversed. Granted, the savings clause of the FAA Section 2 preserved “generally applicable contract defenses” – but that didn’t mean that Congress intended to “preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives.” Requiring that parties engage in classwide arbitration, regardless of the terms of their agreement, “interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA,” the Court held; class arbitration was “slower, more costly, and more likely to generate procedural morass than final judgment.” Class arbitration required far greater formality, and considerably increased risks to defendants. Although the Discover Bank rule didn’t require classwide arbitration, it allowed any party to a consumer contract to demand it after the fact. The rule was therefore preempted by the FAA.

Join us back here soon for Part 2 of the legal backdrop – Italian Colors, Sonic-Calabasas and the Court of Appeal’s decision in Iskanian.

Image courtesy of Flickr by Craig Cloutier (no changes).

California Supreme Court to Tackle Labor and Insurance Issues

By on Posted in California, Employment, Insurance

The California Supreme Court has five civil cases scheduled for its April calendar, each addressing important questions of labor and insurance law.  

  • Independent Contractors or Employees – Class Actions: In Ayala v. Antelope Valley Newspapers, Inc., S206874, the court will address the determination of whether and when common issues dominate in a class action in which the putative class members – in this case, newspaper home delivery carriers – are claiming that they were improperly classified as independent contractors when they should be employees.  The trial court denied certification on all claims, while the Court of Appeal approved certification on the issue of classification, but agreed that the wage and hour claims lacked commonality. In two other Court of Appeal cases which addressed this issue, one also found that the classification issue should not be certified as a class, while the other approved certification.  (Sotelo and Bradley, respectively).
  • Federal Arbitration Law v. California Labor Law:  The matter of Iskanian v. CLS Transportation Los Angeles, LLC, S204032, addresses the continuing dispute over the impact of the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion on California law.  In Concepcion, the U.S. Supreme Court empowered waivers of class arbitrations in most consumer contracts, which has resulted in a series of responses by California courts, as previously discussed by Sedgwick partner Kirk Jenkins here.  The issue in Iskanian is whether Concepcion implicitly overruled the court’s decision in Gentry, which held that a class arbitration waiver in an employment contract is not enforceable if the prohibition of class relief would undermine the vindication of the employees’ unwaivable statutory rights and would pose a serious obstacle to the enforcement of the state’s overtime laws.
  • What Rights Do Undocumented Workers Have?  In Salas v. Sierra Chemical Co., S196568, the trial court dismissed claims under the Fair Employment and Housing Act in light of after-acquired evidence and unclean hands, based on plaintiff’s use of false documentation to obtain this employment.  The court initially granted review to address whether California statutes preserving access to state protections and remedies regardless of immigration status barred such a ruling.  The court then requested supplemental briefing on the issue of whether federal preemption precluded an undocumented worker from obtaining, as a remedy for a violation of “state labor and employment laws,” an award of compensatory remedies, including back pay.   
  • Can an Advertisement That Does Not Name or Refer to a Product be Disparaging?  On the grounds that the advertisement at issue neither named nor disparaged the underlying plaintiff’s product, the trial court granted summary judgment for the insurer in the related coverage dispute, which was affirmed on appeal in Hartford Casualty Ins. Co. v. Swift Distribution, Inc., S207172.  The court granted review on the issue of whether the pleading allegations were sufficient to constitute disparagement, perhaps by implication, to support a duty to defend.
  • Who Owns a Life Insurance Policy?  The court granted review over In re Marriage of Valli S193990 to determine the ownership of a life insurance policy.  The Court of Appeal concluding that the insurance policy on the husband’s life was the wife’s separate property upon dissolution of the marriage, even though the policy was purchased during the marriage and the premiums prior to the couple’s separation were paid with community funds, because the policy listed the wife as the owner.

The Supreme Court files its opinion within 90 days of oral argument, which here take place on April 2 and 3, 2014.  So, we should have decisions on these issues by or before July 2014.  For more details on Labor (compensation cases or other) or Insurance cases currently pending before the California Supreme Court, follow the links to see our summaries.

Image courtesy of Flickr by Ken Lund (no changes).

Illinois Supreme Court Defines “Good Samaritan” in Medical Malpractice Case

By Kirk Jenkins on Posted in Illinois

 

Nearly every state has some variation on a “Good Samaritan” law. In Illinois, the statute says that any licensed medical professional “who, in good faith, provides emergency care without fee to a person, shall not, as a result of his or her acts or omissions, except willful or wanton misconduct on the part of the person, in providing the care, be liable for civil damages.” 745 ILCS 49/25.

So what does “without fee” mean? The patient didn’t get a bill — or the doctor wasn’t paid at all?

The Illinois Supreme Court answered that interesting question on Thursday morning, unanimously holding in Home Star Bank and Financial Services v. Emergency Care and Health Organization, Ltd. that an emergency room physician who responded to a Code Blue emergency elsewhere in the hospital was not entitled to immunity under the Illinois Good Samaritan Act.

Home Star began nearly thirteen years ago, when a patient was admitted first to the hospital emergency room, and later transferred to the intensive care unit. Three days after he was admitted, the patient began having labored breathing and trouble swallowing. A “Code Blue” was called in the early morning hours, and the defendant physician, who was working in the emergency room at the time, responded and attempted to intubate the patient. The patient suffered severe and permanent brain injuries, and the plaintiffs sued the physician and his employer physicians group for malpractice.

The physician moved for summary judgment, arguing that the Good Samaritan law applied, since the patient was not billed for the physician’s services. The plaintiff opposed summary judgment, arguing that whether or not the patient was billed, the doctor didn’t respond to the Code Blue as a volunteer – he was doing his job.

The evidence was all over the place. According to the independent contractor agreement between the doctor and the physicians group, he “may render service to any patient” in “dire emergencies,” when no emergency room patient required immediate assistance. The hospital’s “Clinical Operations” policy stated that ER physicians “respond[ ] to all Code Blues in the hospital.” The nursing supervisor testified that in her experience, the emergency room physician typically responded to Code Blues at night. The defendant physician agreed that the ER physician on duty “would be expected to respond to a Code Blue.” The CEO of the physicians group, on the other hand, testified that responding to Code Blues was not “an inherent prescribed part of [the physician’s] work,” and that he would respond “in the matter a good samaritan would respond to that dire emergency.” The nurse anesthetist who assisted at the patient’s Code Blue testified that in her experience, the emergency room physician was “usually there first” at nighttime Code Blues. The patient’s laryngologist testified that his understanding was that an in-house ER physician would respond to Code Blues. The CEO of the hospital testified that it had been hospital policy for many years that the ER physician would respond to Code Blues, but that she didn’t believe there was anything specific about it in the hospital’s agreement with the defendant physicians group.

The trial court granted summary judgment on the grounds that the patient had never been billed for the physician’s services. The Appellate Court reversed, finding after a review of the legislative history and relevant cases that the statute was not intended to immunize doctors who responded to a scene because they were paid to do so.

In an opinion by Justice Robert R. Thomas, the Supreme Court unanimously affirmed the Appellate Court.

The Court began by reviewing the history of Illinois’ Good Samaritan law and its predecessors. The law had originally been enacted in 1965, and was quite narrow in scope, applying only to medical professionals providing emergency care without fee “at the scene of a motor vehicle accident or in case of nuclear attack.” In 1969, the legislature broadened the statute to include any accident by striking the words “motor vehicle.” Four years later, the legislature struck all reference to accidents and nuclear attacks and added a limitation that for immunity to apply, the medical professional couldn’t have had “prior notice of the illness or injury.” In 1998, the legislature struck the “prior notice” limitation.

The Supreme Court has never construed the statute, but the Appellate Court has addressed it several times. Early cases tended to hold that a physician could claim immunity as long as the patient wasn’t charged. In these early cases, the courts tended not to look into reasons why the patient wasn’t charged. In Estate of Heanue v. Edgcomb, for the first time the Appellate Court held that immunity applied only when a decision not to bill was made in good faith (the court believed that the phrase “good faith” in the statute modified both “provides emergency care” and “without fee”).

The same year as Heanue, the federal district court addressed the statute in Henslee v. Provena Hospitals. Henslee was a diversity case, so it required the district court to make an Erie prediction of how the Supreme Court would address the matter. The court concluded that the Illinois courts had strayed far from the legislature’s intent in enacting the statute. “Without fee” was sufficiently ambiguous, the court found, to encompass either situations where the patient didn’t get billed or the doctor didn’t get paid. The court ultimately opted for a broader definition of the term “without fee” for several reasons: denying paid physicians immunity was more consistent with the legislature’s intent of encouraging volunteerism, was more consistent with modern medical billing practices, and finally, that excluding paid physicians prevented defendants from engineering immunity by simply deciding not to send the patient a bill.

But four years later, another federal district court addressed the issue in Rodas v. SwedishAmerican Health System Corp. and squarely disagreed with Henslee. Then, just to make things even more confusing, the Seventh Circuit reversed the district court’s judgment in Rodas.

The Court sided with the district court in Henslee. “Without fee” was sufficiently ambiguous to encompass either meaning, the Court found — “didn’t bill” or “wasn’t paid.”

So the court turned to various aids to construction. Dictionary definitions of the term “good samaritan” suggested that a doctor had to be a volunteer, but weren’t conclusive.

But the legislative history seemed clear. The statute itself said that the law was intended to protect citizens “who volunteer their time and talents to help others.” The court quoted a state Senator’s comment that the Act was intended to protect medical professionals acting “on the spot, not in his doctor’s office or in the hospital on the operating table.” A state representative stated that the law was intended to encourage “good samaritans to do the right thing on the streets of Illinois.” Another stated that the law “only covers services that are rendered without compensation.” The court also cited with approval to a California decision, Colby v. Schwartz, where the court found that physicians responding to emergencies at a hospital because they served on the hospital’s emergency call surgical panel were not protected by California’s good samaritan law. Such physicians did not need the protection of the law, the court found, since they were acting within the scope of their jobs.

The closing pages of Home Star showed yet again that questions at oral argument often the Court’s reflect serious concerns — and may well be coming from the author of the opinion. During the oral argument, Justice Thomas asked whether the defendant’s construction of the statute, where immunity turned on whether or not the patient was billed, might result in the poor having less access to the tort system: the wealthy would always get billed, but the poor often would not – thus triggering immunity – because the hospital or physicians group had no hope of payment. Justice Thomas’ opinion raises the same point again as public policy grounds for rejecting the defendant’s narrow construction of “without fee.”

In the end, the Court concluded that a broad construction of “without fee” best effectuated the legislature’s intent of extending immunity to true volunteers, but no further. Accordingly, the Court affirmed the Appellate Court’s judgment denying statutory immunity to the defendants.

Image courtesy of Flickr by Ewan Munro (no changes).

 

Illinois Supreme Court Hands Down Significant Decision on Effect of Personal Jurisdiction Waiver

By Kirk Jenkins on Posted in Illinois

 

Maintaining and asserting objections to personal jurisdiction has been one of the more difficult issues in the law of most jurisdictions for years. Thursday morning, the Illinois Supreme Court clarified an issue of jurisdictional law which has divided the Appellate Courts with its unanimous decision in BAC Home Loans Servicing, LP v. Mitchell.

In Illinois, preserving objections to the court’s jurisdiction over your person is governed by Section 2-301 of the Code of Civil Procedure, 735 ILCS 5/2-301. The statute says that if you want to challenge personal jurisdiction, before doing anything else (other than a motion for extension of time to answer), you have to file “a motion to dismiss the entire proceeding or any cause of action involving in the proceeding” or “a motion to quash service of process.” If the party messes it up:

That party waives all objections to the court’s jurisdiction over the party’s person.

So here’s the issue: what does “all” mean? Are orders entered before the defendant appeared now validated, or does the waiver only operate as to future orders?

The Supreme Court held that the waiver is prospective only.

The plaintiff filed a complaint in foreclosure in 2009. According to the special process server’s affidavit, the summons and complaint was served by substituted service by leaving it with defendant’s daughter at the residence. The suit continued, and in the summer of 2010, the court entered an order of default and a judgment of foreclosure and sale. A judicial sale was held in September 2010, and the court entered an order confirming the sale in September 2011.

In October 2011, the defendant finally appeared, moving to vacate the order confirming the sale. The defendant said she’d never been served with the complaint. Later, she withdrew that motion and moved to quash the order of sale, or in the alternative, for relief from the judgment under Section 2-1401 of the Code of Civil Procedure. Once again, the motion was based squarely on faulty service.

Opposing the motion, the plaintiff once again attached the affidavit of service, claiming that the summons and complaint had been left with the defendant’s daughter.   One problem, the defendant responded: she didn’t have a daughter and didn’t know anybody by the name listed in the affidavit of service.

The circuit court refused to quash the sale. On appeal, the plaintiff acknowledged that the service was faulty, but argued that the defendant had validated the sale by filing a motion to vacate the sale, rather than one to dismiss the action or quash service, as required by Section 5/2-301. The Appellate Court agreed and affirmed.

In an opinion by Justice Kilbride, the Supreme Court reversed.

The Supreme Court had dealt with the waiver issue once before. In In re Marriage of Verdung, the court held that submission to the jurisdiction of the court operates prospectively only. An appearance is “not to be considered as giving the court original jurisdiction to enter the judgment,” the Court held; “doing so deprives the defendant of his day in court.”

But Verdung had been decided under an earlier version of Section 2-301. At the time, the statute had merely provided that anything other than a motion to dismiss or quash was “a general appearance.” The legislature added the language providing that “all” objections to jurisdiction were waived in 2000. The plaintiff argued that the amendment had effectively overruled Verdung.

As recently as 2010, the Fifth District had held that the amendment merely codified the prospective-only rule of Verdung. The language of the statute wasn’t definitive one way or the other, the Court found.  Since the statute was ambiguous, the Court turned to the legislative history. The Court quoted a prominent state Senator as describing the 2000 amendment as “a cleanup. It is designed to prevent an unknowing waiver.” The Court observed that there was no indication in the record that the legislature intended to overturn then-existing law in 2000, and interpreting the amendment to change the law would mean that the 2000 amendment – intended to help parties avoid unknowing waiver – actually had the effect of making the law more harsh. Therefore, the Court reaffirmed Verdung and held that when a party fails to preserve personal jurisdiction objections in either of the ways set forth in Section 2-301, the waiver operates prospectively only.

Since that necessarily meant that the orders entered before the defendant’s appearance were entered without personal jurisdiction, the Court vacated them all, reversing the judgment.

The Court concluded with an unusual step: an invitation to the legislature to get involved. The legislature had amended Section 2-301 in 2000 in order to make preserving personal jurisdiction objections easier. The defendant had waived her personal jurisdiction objections despite being represented by counsel. If that were possible, “it is almost certain that pro se defendants will have difficulty in preserving their objections to personal jurisdiction under the amended section 2-301(a).”

It will be interesting to see whether the legislature responds to the unanimous invitation of the Illinois Supreme Court to try again with Section 2-301.

Image courtesy of Flickr by umjanedoan (no changes).

Illinois Supreme Court Holds Custody Evaluator’s Fees Not Court Costs Under Dismissal Statutes

By Kirk Jenkins on Posted in Illinois

 

On Thursday, the Illinois Supreme Court handed down its decision in In re Marriage of Tiballi, answering a question of potential importance to domestic relations practitioners: are the fees of a court-appointed psychologist “costs” which must be fully paid when one party decides to drop a custody dispute? A unanimous court found that the answer was “no.”

Tiballi began when the parties divorced in 2005. The judgment of dissolution awarded the parties joint legal custody of their daughter, but placed residential custody with the mother. In 2010, the father petitioned for modification of custody, asking that he be named residential custodian. In the petition, the father alleged that the mother had been verbally and physically abusive towards the daughter, who had expressed a desire to live with the father. In her response, the mother demanded sanctions under Supreme Court Rule 137, alleging that the father had charged her with abuse knowing that the allegations were false.

Shortly thereafter, a guardian ad litem was appointed on the father’s motion. Several months after that, the court appointed a psychologist to act as custody evaluator pursuant to Section 604(b) of the Marriage Act. In the order of appointment, the court ordered that the parties split the cost of the evaluation “without prejudice to ultimate allocation.”

After a six month investigation, the evaluator filed his report. The evaluator concluded that there was no evidence of the alleged abuse. He further concluded that it would be in the child’s best interest for the father’s parenting time to be increased.

Not long after the report was filed, the mother filed a motion to dismiss the petition to modify custody. The motion stated that counsel for the father had advised counsel for the mother that he was dropping the petition. The motion was granted.

A month later, the father filed a motion to vacate, arguing that the order dismissing the action did not conform with the parties’ agreement. The court amended the order of dismissal to specify that dismissal was without prejudice.

The mother then filed a petition for costs, seeking to have both the costs of the evaluator and the guardian ad litem’s fees entirely assessed against the father. The trial court granted the motion in part, granting recovery of the evaluator’s fees, but not the guardian’s fees. The Appellate Court affirmed.

In an opinion by Justice Robert R. Thomas, the Supreme Court reversed.

Because both the trial and the Appellate Court had viewed the mother’s motion as a “voluntary” dismissal, the case had turned on Section 2-1009(a) of the Code of Civil Procedure, 735 ILCS 5/2-1009(a), which provides that a matter may be voluntarily dismissed upon payment of “costs.” However, the Court agreed with the dissenter from the Appellate Court that it was difficult to see how a motion by a litigation opponent could be a “voluntary” dismissal, even if it supposedly was triggered by the father’s decision not to proceed.   Instead, the Court concluded that the dismissal was more in the nature of one for want of prosecution. The distinction made no difference in Tiballi though, since the failure-to-prosecute statute required assessment of “costs” too.

So the Court arrived at the central question: were the evaluator’s fees “court costs”? Citing the narrow definition of court costs adopted in Vicencio v. Lincoln-Way Builders, Inc.: “charges or fees taxed by the court, such as filing fees, jury fees, courthouse fees and reporter fees,” the Court held that they were not. For one thing, court fees are nearly always set by statute, and for another, court fees are paid to the court, where the evaluator’s fees are paid directly to the evaluator.

Besides, the Marriage Act specifically spoke to the fees of the evaluator, providing that the court should allocate the fees “between the parties based upon the financial ability of each party and any other criteria the court considers appropriate.” 750 ILCS 5/604(b). The allocation provision of Section 604(b) was determinative, the Court found.

The Court accordingly held that a party dismissing his or her custody petition “for non-abusive reasons” was not required to bear the full cost of any court-appointed custody evaluators. The Court remanded the matter to the Circuit Court for allocation of the evaluator’s fees under Section 604(b).

Image courtesy of Flickr by Clyde Robinson (no changes).

The Perils of Small Errors: California Supreme Court Publishes Lower Court’s Foreclosure Opinion

By Kirk Jenkins on Posted in California

 

In its second noteworthy action during Wednesday’s conference, the California Supreme Court granted a request to publish an August 2013 opinion from the Appellate Division of the Santa Clara County Superior Court in The Bank of New York Mellon v. Preciado. Preciado carries noteworthy lessons about the perils of small errors in foreclosure cases.

Certain property in Alviso, California was owned and occupied until 2011 by the appellants. In the summer of 2011, the property was acquired by the respondent bank at a trustee’s sale pursuant to foreclosure. The bank served a written notice to quit, and 90 days later, filed two unlawful detainer complaints against appellants.

The actions were tried, and judgment was entered for the bank, awarding possession, rent and damages. But when the sheriff tried to execute the writ, he discovered that the property was actually in Alviso; the complaints – and therefore the writ – said it was in San Jose. The bank went back to court seeking an ex parte order to amend the judgment, which the trial court granted. The appellants appealed.

On appeal, the appellants argued that they were never properly served with the notices to quit. C.C.P. Section 1162 provides three methods of service: (1) personal delivery; (2) either leaving a copy with a person of suitable age and discretion at home or business, or mailing to the residence if the tenant is absent from both the home and business; or (3) if the home or business can’t be ascertained, or no person of suitable age and discretion can be found, then by posting conspicuously at the property, and mailing to the defendant’s attention at the property. Strict compliance is required.

At trial, the resident denied ever receiving the notice to quit. The bank responded with the declaration of its registered process server, who said that “after due and diligent effort,” he had posted a copy of the notices at the address, and mailed them to the owner’s post office box address. The trial court accepted that showing and entered judgment.

Not so fast, the Appellate Division said. Although substituted service was fine without a showing of reasonable diligence, it does require showing that personal service was attempted, and neither the resident nor a person of suitable age or discretion could be found. There was no such showing in the process server’s declaration. Since strict compliance was required, the judgment for possession had to be reversed.

But that wasn’t the only problem. In order to perfect its title, the bank was required to show strict compliance with Civil Code Section 2924. That requires proof of all elements of a valid sale.

Under a deed of trust, power to sell the property rests in the trustee. Well, the Deed of Trust in Preciado identified one entity as the Trustee. The Trustee’s Deed of Sale identified another entity entirely as “acting as Trustee.” Since there was no evidence that one entity had substituted for the other as trustee, the sale was faulty and the judgment had to be reversed.

The lesson of Preciado seems clear: at least in foreclosure cases, any error could be fatal.

 

Image courtesy of Flickr by Jeff Turner (no changes).

California Supreme Court To Consider Causation in Workers Comp for Medication-Related Injuries

By Kirk Jenkins on Posted in California

In Wednesday’s conference, the California Supreme Court agreed to review South Coast Framing v. Workers’ Compensation Appeals Board, an unpublished decision from Division One of the Fourth District. South Coast Framing poses an interesting question: how does the legal standard for causation in a workers’ comp matter apply when an injured worker apparently dies as a result of interactions among the drugs he’s taking following his injuries?

The decedent in South Coast Framing was seriously injured in 2008 when he fell from a roof. His workers’ compensation physician prescribed various pain medications. The decedent was also taking anxiety and sleep medications. Several months after the original accident, the decedent died from the combined effects of two or more of his medications and associated early pneumonia. The decedent’s widow and minor children filed a claim for death benefits, alleging that the decedent’s death was the result of the injury and industrially prescribed medications.

The petitioners’ retained medical expert reviewed various medical records and concluded that the decedent had died as a result of the interaction of all his medications – both the prescribed pain meds and his sleep and anxiety medications. However, the parties’ agreed medical examiner reviewed the medical file, including autopsy and toxicology reports, and concluded that death was the result solely of the sleep and anxiety medications which were unrelated to the injury – the level of the pain medications in the bloodstream was not high enough to trigger any dangerous interaction.

In his deposition, the agreed medical examiner was pressed hard in regard to the pain medications. Ultimately, he commented that “it’s possible” that one of the pain medications might have been “additive” or “an incremental contributor,” but the anxiety and sleep meds had “carried the day.” He declined to quantify any possible contribution from the pain medications, commenting that it would be “throwing a dart at a dartboard kind of stuff . . . just pulling numbers out of the sky.” The examiner also commented that the decedent’s medical records didn’t reveal whether the decedent’s sleep medications had anything to do with pain from his back injury.

The Workers’ Compensation Judge found that the decedent’s death resulted from the medications prescribed as a result of his injury, and that the petitioners were therefore entitled to death benefits. The Judge relied heavily on the examiner’s comments that one of the medications could be part of the “causation pie” and that another represented additional “crumbs” of that pie. In her report to the Workers’ Compensation Board, the Judge concluded that the causal connection between employment and injury is enough if the employment is a contributing cause to the injury; it need not be the sole cause. The Board adopted the Judge’s report.

The Court of Appeal reversed. In order to be a covered injury, the Court held, an applicant has the burden of demonstrating a “reasonable probability of industrial causation” by a preponderance of the evidence. In reaching its conclusion, the Board must consider a physician’s report or testimony as a whole, rather than overly emphasizing snippets of testimony. Considered as a whole, the physician’s report must be based upon reasonable medical probability in order to adequately support an award.

The Board believed that the examiner had changed his opinion from his written report to his deposition testimony. On the contrary, the Court held, the examiner had testified that he stood by his original report. Even if his remark that “it’s possible” that one of the pain medications contributed to the decedent’s death constituted a change of opinion, the new opinion was based on “surmise, speculation, conjecture and guess.” Although a medical examiner was not required to opine as to a precise percentage of causation, a “reasonable probability of industrial causation” was required. “[T]hrowing a dart at a dartboard kind of stuff” wasn’t good enough to satisfy that standard. The Court also found that the record did not establish a reasonable probability that the decedent’s sleeping issues were the result of his injury, since his medical record reflected the decedent was not reporting pain during the times he had trouble sleeping. The unanimous Court reversed the Board’s order and remanded the matter with instructions to deny the claim.

We expect South Coast Framing to be decided in late 2013 or early 2014.

Image courtesy of Flickr by Paul Holloway (no changes).

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