The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

Florida High Court Reaffirms “Four-Corners Rule” for Determining the Sufficiency of a Complaint

By on March 23, 2016 Posted in Florida

This post updates the blog post dated May 13, 2015.

On March 17, 2016, the Florida Supreme Court decided Santiago v. Mauna Loa Investments, LLC, No. SC13-2194 (review granted May 22, 2014), by quashing the Third District’s decision which improperly considered documents outside the complaint in determining the complaint’s sufficiency to state a cause of action. The opinion can be found here.

Anamaria Santiago leased commercial space from Mauna Loa Investments, LLC. Santiago tripped and fell on the property in 2008 and sued Mauna Loa two years later in 2010 (“Mauna complaint”). Santiago alleged that Mauna owned, maintained and/or controlled the property at the time of her fall. Mauna’s counsel never filed a responsive pleading and the trial court entered a default against Mauna. Mauna moved to set aside the default arguing that it did not own the property on the date of Santiago’s injury. In support of its argument, Mauna noted that in 2011 Santiago sued Iberia, NV, LLC seeking damages for the same injury (“Iberia complaint”). In that suit, Santiago alleged that at the time of the accident, Iberia and Antonio Martinez-Marmol owned the property and that the property was conveyed to Mauna three months after the accident. Shortly after the Iberia suit was filed, the trial court consolidated the Iberia case with the Mauna case. After a jury trial on damages, the trial court entered a final judgment against Mauna for over $1 million.

Mauna appealed to the Third District. The Third District vacated the default and the final judgment and dismissed the complaint for failure to state a claim upon which relief may be granted. The Court rested its conclusions on two rules of law. First, a default judgment cannot be entered against a defendant when the complaint fails to state a cause of action. And second, a motion to set aside a default requires no showing of excusable neglect when the motion demonstrates that the allegations in the complaint do not entitle the plaintiff to relief. The facts demonstrated that Santiago had no viable claim against Mauna because the special warranty deed attached to the Iberia complaint established that Mauna did not own the property on the date of Santiago’s injury. Santiago also admitted that Iberia owned, controlled and maintained the property at that time. To view the district court decision, which is reported at 122 So. 3d 520 (Fla. 3d DCA 2013), click here.

The Florida Supreme Court accepted review because the district court’s decision conflicted with other Florida decisions. The supreme court reaffirmed the longstanding limitations on determining the sufficiency of a complaint. Specifically, when a court determines the sufficiency of a complaint to state a cause of action, its review is limited to an examination only of the complaint and its attachments (known as the “four-corners rule”). The Court found that the district court erred by considering documents attached to the Iberia complaint to dismiss the Mauna complaint. The Court did not find the fact that the two cases were consolidated justified the district court’s ruling either. It therefore concluded that the district court erred in holding that the Mauna Loa complaint failed to state a cause of action.

The Court also concluded that the trial court did not abuse its discretion in determining that Mauna Loa failed to establish excusable neglect.

Image Courtesy of Flickr by GotCredit (no changes).

Florida Supreme Court to Examine Whether Relation-Back Doctrine Applies to New Causes of Action

By on March 23, 2016 Posted in Florida

The Florida Supreme Court will review two district court cases that apply the relation-back doctrine (when an amended pleading relates back to an original pleading) and decide whether the doctrine applies to new causes of action. See Palm Bch. Cnty. Sch. Bd. v. Doe, No. SC13-1834; Kopel v. Kopel, SC13-992. The doctrine can be found in Florida Rule of Civil Procedure 1.190(c) which states: “When the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment shall relate back to the date of the original pleading.” A plaintiff usually invokes the doctrine to avoid a statute of limitations defense to an amended complaint.

Doe

In this teacher sexual abuse case, the district court had to decide whether a Title IX claim (sexual discrimination by federally-funded schools) related back to the filing of the original complaint. The plaintiffs filed their original complaint against their children’s teacher and the Palm Beach County School Board in 2006 alleging sexual molestation against the teacher and negligence against the school board. Almost five years later, plaintiffs amended their complaint to add a claim for violation of Title IX. The school board moved to dismiss the Title IX claim on statute of limitations grounds. Plaintiffs argued that the Title IX claim related back to the original complaint, but the trial court disagreed and dismissed the claim.

On appeal, the school board argued that the Title IX claims did not relate back because they state a new cause of action. See Doe v. Sinrod, 117 So. 3d 786 (Fla. 4th DCA 2013). The Fourth District acknowledged that amendments generally do not relate back if they raise a new cause of action, but noted that a new cause of action “can relate back to the original pleading so long as the new claim is not based on different facts, such that the defendant would not have ‘fair notice of the general factual situation.’” The Fourth District found that the Title IX claim did relate back to the negligence claims because “[b]oth claims arose from the same conduct and resulted in the same injury.”

Kopel

This case involved a financial dispute between two brothers, Leon and Enrique Kopel, and Enrique’s son, Bernardo, stemming from joint investments they made in Florida real estate. Leon sued on two promissory notes, a loan and for unjust enrichment after certain of his demands to Enrique and Bernardo were not met. At trial, for the first time and over defendants’ objection, Leon claimed that various settlement conversations between him and Enrique were not actually settlement negotiations but rather independent oral agreements. After a mistrial, Leon amended his complaint by abandoning his claim on the two promissory notes, keeping his unjust enrichment claim, but adding a new claim for breach of the oral promise raised during trial. The trial court denied the defendants’ motion challenging the new claim as barred by the applicable four-year statute of limitations.

On appeal, the Third District reversed on this issue, finding that this new claim did not relate back and was barred by the applicable statute of limitations. See Kopel v. Kopel, 117 So. 3d 1147 (Fla. 3d DCA 2013). The Third District enforced its rule that “when a cause of action set forth in an amended pleading in a pending litigation is new, different, and distinct from that originally set up, there is no relation back.”

The supreme court has declined to hold oral argument in both cases. This article will be updated once the supreme court decides the cases.

Image Courtesy of Flickr by Mark Goebel (no changes).

Illinois Supreme Court Debates Whether Res Judicata Applies Following Voluntary Dismissal on Remaining Claims

By Kirk Jenkins on March 15, 2016 Posted in Illinois, Jurisdictions

One or more claims are dismissed on the merits. Subsequently, the plaintiff takes a voluntary dismissal without prejudice on the remaining claims. Does res judicata bar any attempt by the plaintiff to later reinstate the dismissed claims? The Illinois Supreme Court debated that question during its January term, hearing oral argument in Richter v. Prairie Farms Dairy, Inc., a case from the Fourth District. Based upon its questioning of the plaintiffs, the Court appeared skeptical of the idea that a plaintiff can deprive a ruling on the merits of res judicata effect by disregarding an offer of time to replead and instead taking a voluntary dismissal. Our detailed summary of the facts and underlying court decisions in Richter is here.

Richter began in 2005, when the defendant terminated the plaintiff farmers’ membership in an agricultural cooperative intended to market their milk. The plaintiffs filed a three-count complaint against the cooperative, seeking shareholder remedies and damages for statutory and common-law fraud. The trial court granted defendant’s motion to dismiss the fraud claims with leave to replead. However, the plaintiff never took the Court up on its offer, proceeding solely on the shareholder claims. After five years of litigation on those claims, when the Court denied the plaintiffs’ request for a continuance, they took a voluntary dismissal without prejudice. A year later, the plaintiffs refiled both the shareholder and fraud claims. The defendants moved to dismiss based on res judicata, the trial court granted the motion, and the Fourth District Appellate Court reversed.

Counsel for the defendant began the argument, explaining that the issue before the Court was whether the refiled claims were barred by either res judicata or the statute of limitations. Justice Theis asked what the record reflected about the first lawsuit. Counsel answered that the Appellate Court had declined to apply res judicata based on its view that the defendant had lacked diligence in the first case. Justice Theis asked whether the record reflected what had happened in the first case for the five years of litigation following the first dismissal. Counsel answered that the time had been taken with discovery on the shareholder remedies claims. Justice Theis asked why that had taken five years. Counsel explained that the plaintiff had been unable to provide documentation at times, and the parties were involved in investigating the claims. Justice Theis asked whether the plaintiff had complied with court orders regarding discovery, and counsel said no. Justice Theis asked what the defense had done to pursue its claim. Counsel answered that the sole reason for the voluntary dismissal in 2013 was because the defendant had opposed the plaintiffs’ request for yet another delay. Chief Justice Garman asked whether the defendant had pursued any consequences for the alleged delay. Counsel said that there was no provision for a dismissal on such grounds. Justice Burke asked whether there was a difference between an involuntary dismissal with leave to amend for a short time after and dismissal without prejudice. Counsel said yes, and suggested that plaintiffs wanted to add the words “without prejudice” to any dismissal giving plaintiffs a brief window to replead. However, there should be some consequence for failing to pursue a claim in the time allowed by the trial court. Justice Theis asked whether the trial judge had enforced any deadlines in the case management order, and counsel said after several years, yes. Defendants brought a number of motions seeking definitive dates for one step or another, seeking to move the case along, and ultimately, the Court had agreed.

When counsel for the plaintiff began, Justice Thomas asked what the difference was between dismissal with leave to replead and dismissal without prejudice. Counsel said none. Judge Thomas asked counsel whether the trial judge would have any recourse if a dismissal permitted repleading in sixty days, but the plaintiff tried to file an amended complaint in 75 days. Counsel answered that a judge would have discretion as to whether to permit the amendment. Rather, the plaintiff’s res judicata argument was because there had simply never been a final order or judgment on the merits. Justice Thomas asked what the Court should do with Smith v. Central Illinois Regional Airport, which seemed to indicate that a dismissal with a short time to replead became dismissal with prejudice once the time runs. Counsel answered that the Court had said in Smith that the lower court could also give additional time. Prejudice did not arise automatically. Justice Thomas suggested that if the trial court granted a further sixty days, and plaintiff still didn’t appear, and finally, 180 days after the original dismissal, there hadn’t been either an amendment or a motion for extension – didn’t Smith mean that the dismissal was now with prejudice? Counsel answered no, defendant had to file a motion to make the original dismissal a final order. Justice Thomas asked whether plaintiffs wanted Smith overruled, and counsel answered that Smith should be followed. Justice Theis asked counsel whether he was arguing that the burden was on the defendant to bring to the court’s attention the plaintiff’s disregarding its time limitation. Counsel said that in order to invoke the harsh result of res judicata, that was correct. Justice Thomas asked whether plaintiff was saying that the dismissal was without prejudice essentially forever absent action by the defendant, and counsel said yes. Justice Thomas pointed out that Smith said that dismissals were “considered” to be with prejudice – it didn’t seem to presuppose another motion. Counsel said that Smith, read as a whole, was not that strict. Justice Karmeier asked whether a plaintiff could file an amended complaint after the time period given by the Court without seeking leave, and counsel answered no. Justice Karmeier asked whether it was relevant that the parties had done five years’ worth of discovery after the dismissal as if only one count was left in the case. Counsel said that many deadlines were extended during that period, and besides, none of the discovery would have been different if all claims had remained. Justice Theis asked whether any new facts were pled in the second complaint – comparing the two they seemed almost exactly the same. Counsel conceded that they were similar. Chief Justice Garman asked whether plaintiff’s view as that res judicata could only apply if the plaintiff affirmatively stated that it was standing on the complaint. Counsel agreed that that made a final order – there was nothing like that in the first case. Justice Theis pointed out that the dismissal was on the grounds that the dispute was contractual rather that fraud, so it seemed to be a substantive finding. Counsel argued that the gist of the motion to dismiss was failure to plead fraud with specificity. Justice Thomas asked whether there was something odd about a rule of law allowing the plaintiff time to replead after a dismissal, the plaintiff not taking advantage of that offer, and yet the defendant has to come back to Court and say “this time we really mean it.” Counsel said it was not an onerous burden when it came to res judicata. Justice Thomas asked whether the court was cutting off the plaintiff’s rights, or the plaintiff had done so. Counsel answered by once again suggesting that the decisive fact was there had never been a final order. Counsel concluded by briefly arguing that the statute of limitations defense failed because the cases involved similar theories, and therefore related back for purposes of the statute of limitations.

Counsel for the defendants concluded in rebuttal by noting that the plaintiffs had affirmatively asked for time to replead – and then failed to take advantage of it. The plaintiffs’ burden-shifting argument should never be allowed, according to counsel. Counsel noted that plaintiffs had said the only way to trigger finality should be for plaintiffs to affirmatively state that they were standing on the complaint – but why would they ever do that if they can remain silent for years and then start over? Counsel also denied that the scope of discovery would have been the same if the fraud claims had remained in the case. Counsel argued that the plaintiffs should have known from Smith that their voluntary dismissal would make the merits order final, and if they wanted to avoid the harshness of res judicata, they shouldn’t have ignored the Court’s order.

We expect Richter to be decided in three to four months.

Image courtesy of Flickr by Kate Sheets (no changes).

Illinois Supreme Court Debates Health Insurance Coverage for Police Pension Recipients

By Kirk Jenkins on March 15, 2016 Posted in Illinois, Jurisdictions

Section 10 of the Public Safety Employee Benefits Act provides that under certain circumstances, police officers receiving a line-of-duty disability pension are entitled to receive fully paid health insurance coverage for themselves and their families. Section 10 has been a recurring interest of the Illinois Supreme Court over the past few years, see here and here. During its January term, the Court heard oral argument in Vaughn v. City of Carbondale, which poses yet another Section 10 question: was an officer reaching for his squad car radio to respond to a dispatcher call responding to what he reasonably believed was an emergency? Our detailed summary of the facts and underlying court decisions in Vaughn is here.

Vaughn arises from an incident in 2005. The plaintiff was talking to a motorist who had asked for directions when he heard a dispatcher calling on his radio. He walked back to his car, and when he reached inside to retrieve the radio, struck the top of his head, causing a sharp pain in his arm. Nearly two years later, the officer applied for a line-of-duty disability pension. The Pension Board rejected his application, but the Circuit Court reversed and the Appellate Court affirmed.

In 2012, the plaintiff requested the Section health insurance benefits. The City initially began paying the benefits, but later that year, instructed the officer to submit to a physical examination. Following that physical, the Board terminated his pension on the grounds that he was fit to return to work. While that decision was on appeal, the officer filed a complaint seeking a permanent injunction against the termination of his health insurance coverage. The Circuit Court declined to enter the injunction, but the Fifth District reversed.

Counsel for the defendant began the argument at the Supreme Court. He explained that the Section 10 benefit was narrowly defined and available only when the officer (1) has suffered catastrophic injury (2) in one of four situations (response to fresh pursuit, response to what he or she reasonably believed to be an emergency, as a result of an unlawful act of another, or during investigation of a criminal act). Justice Burke asked whether the Pension Board held a hearing, and counsel responded that proceedings were in progress – an initial hearing finding the officer fit had been overturned for lack of due notice. As a result, the plaintiff is still receiving his pension. Counsel told the Court that the facts are simple and stipulated. The defendant argued that when the officer walked back to his car to respond to the radio dispatcher, he was not responding to an emergency. But the Fifth District concluded that officers must treat all radio calls as emergencies until they know differently. Counsel argued that this is irreconcilable with the Supreme Court’s Gaffney decision, which defined an emergency as an unforeseen circumstance, putting persons or property at risk and requiring an urgent response. Justice Thomas asked whether the Fifth District had held the plaintiff was entitled to a permanent injunction. Counsel said yes. Justice Thomas asked whether the Court had remanded for entry of the injunction, or for an injunction hearing. Counsel responded that the Court expected that an injunction would be entered. Justice Thomas asked whether the defendant was arguing that the plaintiff was never entitled to Section 10 benefits, and even if he was, the benefits could be stopped once he was no longer disabled. Counsel answered that if the plaintiff is fit to return, he no longer satisfies the first prerequisite under Section 10 – a catastrophic injury. Counsel argued that given that the Fifth District found that it didn’t matter that the plaintiff’s call ultimately turned out not to be an emergency, the Court had effectively established a fifth grounds for Section 10 benefits – answering a dispatcher call. According to counsel, the Fifth District’s ruling meant that if an officer fell on a station staircase walking from the second to the first floor after being summoned by a captain, that would trigger the benefit.

Counsel for the plaintiff argued next, explaining the procedural history and noting that the Pension Board has once again demanded that the plaintiff submit to a physical. Justice Theis noted that the statute doesn’t distinguish between temporary and permanent disability, and asked whether it presupposed that an employer could seek reevaluation. Counsel said yes, and noted that the plaintiff had been provided with Section 10 benefits initially without objection by the City. Justice Thomas asked whether that was enough to trigger estoppel. Counsel said yes. There was no other reason to pay him unless the City was admitting that Section 10 was satisfied. Once Section 10 was triggered, the insurance premium benefits could be reduced, but barring fraud in the inception – not present here – the benefits could never be termination. Justice Thomas asked what plaintiff’s detrimental reliance was for establishing estoppel. Counsel answered that plaintiff had stopped his personal health insurance, and for a time had been uninsured. Justice Thomas asked how that was possible under federal law. Counsel said that it was his understanding that the plaintiff would have been entitled to coverage under federal law. Justice Theis asked if it was determined that the plaintiff was no longer disabled, would he still be entitled to health insurance benefits? Counsel said yes. Justice Theis pointed out that the pension itself could be stopped if the plaintiff were no longer disabled, and asked again whether plaintiff was arguing that health insurance benefits would nevertheless continue forever. Counsel said that was correct, and if there was something wrong with that conclusion, it was an argument for the legislature – the statute had no provision for stopping the payments. Chief Justice Garman asked whether there could ever be an injury fielding a dispatcher’s call which was not covered. Counsel said yes, if the officer knew when he reached for the radio that it wasn’t an emergency. The Chief Justice asked whether the Appellate Court’s finding of an emergency was one of fact or law. Counsel said it didn’t matter – every call was an emergency until the officer knew differently. Justice Thomas asked whether that mean nearly all calls qualified. Counsel agreed. Justice Thomas asked why, if that was right, the statute didn’t simply say an “officer’s response to any call”? Counsel answered that it was nevertheless true that all calls were treated as emergencies until the circumstances were known. Justice Thomas asked whether Section 10’s reference to an “officer’s response to what is reasonably believed to be an emergency” was an objective standard. Under the plaintiff’s position, why would “reasonable belief” matter? Counsel once again reiterated that all calls were an emergency until the officer knew differently.

In rebuttal, counsel for the defendant argued that the Fifth District’s holding – that all calls are an emergency until the officer knows differently – is just not what the statute says, or how the Supreme Court ruled in Gaffney. When the plaintiff is legally able to return to work, the employer is entitled to terminate health insurance benefits. According to counsel, plaintiff had no detriment sufficient for estoppel, given that he could get health insurance – he just didn’t want to pay a premium. Counsel concluded by arguing that the plaintiff’s affidavit amounted to an admission that he didn’t believe the call to be an emergency – if he had, he would have responded via the radio on his vest instead of returning to the car.

We expect Vaughn to be decided in three to four months.

Image courtesy of Flickr by Jack Snell (no changes).

California Supreme Court Holds Plaintiffs Entitled to Costs as of Right After Settlement

By Kirk Jenkins on March 15, 2016 Posted in California

Last week, a divided California Supreme Court handed down its decision in DeSaulles v. Community Hospital of the Monterey Peninsula, holding that as long as a settlement agreement involves a payment of money from defendants to plaintiff – no matter how small in relation to the plaintiff’s demand – the plaintiff is a “prevailing party” under Section 1032(a)(4) of the Code of Civil Procedure and entitled to an award of costs as a matter of law.

The Court emphasized that its conclusion was a default rule only, and the parties were free to provide in their settlement agreement for a different allocation of costs. But in the wake of DeSaulles, parties who neglect to make such an express allocation may be in for an unfortunate surprise – a cost bill, which in some kinds of litigation can be substantial.

Plaintiff in DeSaulles worked for defendant for a little over a year as a patient business services registrar. In 2007, the plaintiff filed suit, purporting to allege claims for (1) failure to accommodate her physical disability; (2) retaliation under FEHA; (3) breach of implicit conditions of employment contract; (4) breach of the covenant of good faith and fair dealing; (5) & (6) negligent and intentional infliction of emotional distress; and (7) wrongful termination. Following the defendant’s motions for summary judgment or adjudication and motion in limine, the trial court held that the plaintiff would be barred from offering any evidence on any claim other than the third and fourth causes of action. Subsequently, the parties placed a settlement on the record, pursuant to which the defendant paid the plaintiff $23,500 in connection with the third and fourth claims, and the remaining claims were dismissed with prejudice. The court subsequently entered a judgment providing that the “plaintiff recover nothing from defendant.” The judgment was affirmed on appeal.

Following remand, both parties filed cost bills, claiming to be the prevailing party (the parties’ settlement agreement said nothing about costs). The trial court granted the defendant’s request for costs and denied the plaintiff’s. The Court of Appeal reversed, holding that the plaintiff was the prevailing party as a matter of law, since the litigation had ended with a payment – albeit a small one – from defendant to plaintiff.

In an opinion by Justice Goodwin Liu, the Supreme Court affirmed the Court of Appeal. The majority began by assessing whether a defendant could be considered the prevailing party following a settlement due to Section 1032’s reference to a “prevailing party” including “a defendant in whose favor a dismissal is entered.” The majority held it could not. The rationale for allowing a defendant costs, according to the Court, is to compensate the defendant for preparing for a trial on unmeritious claims when the plaintiff dismisses on the courthouse steps. That rationale did not apply when the plaintiff receives a cash payment (even a nuisance one). In contrast, the Court concluded that a settling plaintiff was a “prevailing party” on the grounds that a settlement payment constituted a “net monetary recovery” under the statute. This was so, the Court held, in part in order to prevent defendants from avoiding a cost award by settling on the eve of trial.

The majority conceded that “defendants may settle cases with little merit in order to be spared the expense of trial. However, the rule is that a partial recovery, as long as it is a net monetary recovery, entitles a plaintiff to costs.” The Court not only encouraged parties to specifically make an express provision for costs, but noted that courts are free to exercise their discretion to adjust a cost award under Section 664.6 of the Code where “parties . . . overlook the issue of costs in their settlement agreements.” But of course, the corollary of the trial courts having such discretion is always the risk that the court will refuse to make such adjustments.

Justice Kruger dissented, joined by Justice Werdegar. The dissenters agreed that a settling plaintiff was a “prevailing party” under Section 1032, but concluded that settling defendants were too, given the statutory reference to a “defendant in whose favor a dismissal is entered.” Since both sides in a settlement couldn’t be entitled to an award of costs as of right, it necessarily followed that trial judges were free to allocate costs as they see fit when the parties failed to expressly allocate them in the settlement agreement.

Image courtesy of Flickr by Anthony Easton (no changes).

When Is a Stay Not a Stay? – Defining the 5-year Limit to Bring a Case to Trial

By on March 11, 2016 Posted in California, Civil and Appellate Procedure

In Gaines v. Fidelity National Title Ins. Co., S215990, a divided California Supreme Court (5-2) upheld the dismissal of this case for failure to bring the matter to trial within five years, as required by Code of Civil Procedure § 583.310. In doing so, the Supreme Court affirmed the lower courts and rejected plaintiff’s argument that a 120-day stipulated stay of all court proceedings was sufficient under § 583.340 to toll the 5-year deadline. Other related issues raised below, and the corresponding facts, are described in our previous post which addressed the Court of Appeal decision.

The parties stipulated to strike a previous trial date and stay the action for 120 days, excepting only discovery responses owed on pending requests, with the intention of attempting to mediate. Consistent with this, the trial court: (1) “struck” the existing trial date, (2) “stayed [the case] for a period of 120 days except” for responses “to all previously served and outstanding written discovery,” (3) set a post-mediation and trial-setting conference; and (4) directed “all parties . . . to participate in good faith in a mediation of all claims…” After the term of the stay, the matter was reassigned to a different court, a new party emerged, and there was other delays. Eventually, one defendant moved to dismiss the matter for violating the 5-year deadline. At that time, tolling the deadline for 120 days would have saved the action.

Justice Corrigan, writing for the majority, first explained that the provisions of the Civil Action Mediation Program applied here (See, Code Civ. Pro. § 1775, et seq.), even though that program and its provisions were not invoked by the parties below, or the trial court. Nevertheless, the majority found that these provisions apply whenever the trial court orders a matter to mediation in a county which has chosen to apply this program, apparently regardless of whether that program or its other provisions are invoked. As part of this statutory scheme, § 1775.7 bars any tolling of the 5-year deadline unless the mediation occurs in the last six months remaining, which was not the case in Gaines.

The majority then turned to § 583.340, which in relevant part tolls the 5-year deadline if the “Prosecution or trial of the action was stayed or enjoined,” or if “Bringing the action to trial, for any other reason, was impossible, impracticable, or futile.” (Subds. (b) and (c), respectively.) Regarding the stay of prosecution or trial, the majority cited its previous holding in Bruns that a partial stay was insufficient to invoke this provision. The majority concluded that the stay in Gaines was partial because it provided both for the completion of outstanding discovery and also ordered mediation. Discovery is an inherent part of litigation, and the majority found that the order to mediate incorporated that process into the prosecution of the case. As noted above, the legislative intent on this point is demonstrated by Civil Action Mediation Program, which limits any such tolling of the 5-year deadline to the last six months available. The Court distinguished this from contractual arbitration, which is intended to be a separate process from litigation, while mediation is intended to resolve the litigation itself. Under the circumstances, the majority characterized the “stay” of trial as a continuance for a period defined by the parties and not reliant on any condition external to the litigation, which therefore “does not qualify for automatic tolling.” The majority also noted that the parties could have expressly stipulated to extend the 5-year deadline under § 583.330, but did not. Since there was no representation that the 5-year deadline would be stayed, plaintiff’s estoppel argument was also rejected.

On similar grounds, the majority also found that this did not result in circumstances of “impossibility, impracticability, or futility” under § 583.340(c) to “move the case to trial” during the 120-day stay. The majority found that the trial court was within its discretion to make a factual determination that there was no impracticability since the delay was not one “over which plaintiff had no control,” but was instead by design and at plaintiff’s specific request. If the mediation was unproductive, plaintiff could have made a similar request to lift the stay and set a trial date. The majority noted that the plaintiff (1) “made meaningful progress toward resolving the case” during the stay, including the completion of all pending discovery and pursuing mediation, (2) remained “in control of the circumstances,” including entering into the voluntary stay, and (3) failed to show due diligence following mediation, which was partially responsible for extended the intended 120-day stay to 217 days. After the intended termination of the stay, there was a delay of 20 days attributable to preemptory challenges, and the majority agreed that the 5-year deadline should be tolled for that period, but this was insufficient to preserve plaintiff’s claim.

Justice Kruger dissented, joined by Justice Liu, finding that the original 120 days in which the court stayed the action falls within the statutory language for tolling the 5-year deadline, i.e., that the “prosecution or trial of the action was stayed or enjoined” by the trial court in all practical ways. The dissent argued that mediation was not part of the litigation, but was an alternative to it, and therefore should not be considered as acting to move the case to trial. Further, even if the stay was considered a partial stay under § 583.340(b), the dissent argued that the circumstances still made proceeding to trial impracticable under § 583.340(c) for that period. The dissent further noted that any dispute in this regard should be decided in favor of the legislative preference that cases be resolved on their merits.

Image courtesy of Flickr by Dimitris Kalogeropoylos (no changes).

Real Estate Bubble 2.0 – The California Supreme Court Weighs In

By on March 3, 2016 Posted in California, Commercial Law, Supreme Court Updates

The California Supreme Court recently issued two opinions resulting from the aftermath of the 2009 real estate crash. It addressed both the statutory protections for a homeowner after a short sale (i.e., a sale for less then what is owed on the mortgage) and their ability to sue for wrongful foreclosure. In both cases, the Court ruled in favor of the homeowner (or former homeowner), although on sometimes narrow grounds.

In Coker v. JP Morgan Chase Bank, N.A., S213137, the unanimous Court confirmed the protective scope of Code of Civil Procedure § 580b. It was previously well established that homeowners are protected by § 580b from a deficiency judgment by the mortgagee if the property sells for less than the balance of the mortgage in a foreclosure sale. Here, Coker bought a condominium in 2004, but fell behind in her payments in 2010. As Chase began the foreclosure process, Coker found a buyer and asked Chase to release its security interest to allow a short sale. Chase conditionally approved the sale, if (1) all net proceeds went to Chase, (2) Coker would take nothing from the sale, and (3) she would be subject to a deficiency balance. When Chase sent a demand letter for the remaining balance, Coker brought a declaratory relief action claiming protection under § 580b. The trial court sustained Chase’s demurrer, but the Court of Appeal reversed. The Supreme Court, after a detailed discussion of statutory interpretation and previous applications of § 580b, held that the anti-deficiency protection of § 580b “applies to short sales just as it does to foreclosure sales.” The Court recognized that there were virtually no short sales in 2007, much less when § 580b was originally passed, while there were 90,000 in 2009 and 110,000 in 2010. It concluding that the prior absence of short sales was irrelevant, since the same legislative policy goals of discouraging lenders from overvaluing property and helping to soften the blow to borrowers in a depressed housing market applied equally to short sales. Moreover, short sales fall within the statutory language so long as the mortgagee retains an actual security interest in the property. Finally, because § 580b supports a public policy goal it cannot be waived, and therefore remains effective despite Chase’s stated conditions.

In Yvanova v. New Century Mortgage Corp., S218973 a former homeowner sought an action for wrongful foreclosure based on allegations that a purported assignment of the note and deed of trust to the foreclosing party was defective, rendering the assignment void. The Court of Appeal held that the homeowner lacked standing to raise the issue, since she was not a party to the assignment. The unanimous Supreme Court reversed, noting that the foreclosing party in a nonjudicial foreclosure must have a valid deed of trust or assignment in order to proceed. As a result, the Court held that a homeowner has standing to claim that a nonjudicial foreclosure was wrongful based on allegations that the assignment relied upon was void, not merely voidable, thus depriving the foreclosing party of any legitimate authority to order a trustee‘s sale. In doing so, the homeowner is enforcing her own right not to have her home unlawfully foreclosed upon. Explaining that it intended a narrow decision, the Court stated that it was not addressing whether a homeowner could preempt a threatened nonjudicial foreclosure by a suit questioning the foreclosing party‘s right to proceed and that it was not addressing the merits of the pending claim. Thus, the Court resolved a conflict between the lower court decisions in Glaski and Jenkins and joined the growing majority rule among its sister states on this issue.

Image courtesy of Flickr by BasicGov (no changes).

Illinois Supreme Court Agrees to Decide Whether Occupational Disease Disability Pension Triggers Health Insurance Benefit

By Kirk Jenkins on March 3, 2016 Posted in Illinois

Section 10 of the Public Safety Employee Benefits Act provides that when a covered employee sustains a “catastrophic injury,” the employee is entitled to the additional benefit of having his or her health insurance premiums, as well as those of his or her partner and/or dependent children, paid by the employer. Is Section 10 triggered when a firefighter is held to be entitled to an occupational disease disability pension? The Illinois Supreme Court agreed to decide that issue in the closing days of its January term in Bremer v. City of Rockford, a decision from the Second District of the Appellate Court.

Plaintiff in Bremer began working for the City as a firefighter in 1976. In May 2004, he filed an application with the Pension Board seeking an occupational disease disability pension pursuant to Section 4-110.1 of the Pension Code (40 ILCS 5/4-110.1), arguing that he suffered from cardiomyopathy rendering him unable to work as a firefighter. The Board granted the pension, finding that the plaintiff had completed five years of creditable service and now suffered from cardiomyopathy as a result of exposure to chemicals and toxins on the job and heavy exertion during emergency calls.

One year later, the City informed the plaintiff that it would no longer pay his health insurance premiums. The plaintiff responded by applying for the health insurance benefits under Section 10 of the statute. The City denied his claim, concluding that he had not suffered a catastrophic injury within the meaning of the statute.

The plaintiff filed a complaint seeking a declaration that he had suffered a catastrophic injury within the meaning of the statute and was therefore entitled to have his premiums paid. The parties filed cross-motions for summary judgment, and the trial court granted the plaintiff’s motion and denied the City’s motion. The court subsequently granted the City’s motion for summary judgment on Count 2 of the plaintiff’s claim for an award of attorneys’ fees under the Wage Actions Act. Meanwhile, the court had granted the plaintiff leave to add an additional count, seeking to recover medical expenses incurred and premiums that allegedly should have been paid during the period following the City’s decision to cease payment. In response to a motion to dismiss, the court rejected for the most part the plaintiff’s claim for unpaid premiums. The court also rejected the plaintiff’s claim for medical expenses, finding that the expenses had been paid by automobile insurance.

A divided panel of the Appellate Court largely upheld the plaintiff’s position with respect to the health insurance premiums. The majority explained that the Pension Code defines three types of disability: a line of duty disability under 40 ILCS 5/4-110; an occupational disease disability under 40 ILCS 5/4-110.1; and a non-line-of-duty disability under 40 ILCS 5/4-111.

The Court noted that a line-of-duty pension automatically amounts to a catastrophic injury under the statute. The Court found it significant that the types of injuries justifying a line-of-duty disability and an occupational disease disability are similar. Ultimately, the majority agreed with the trial court that there was no meaningful distinction between a line-of-duty pension based on sickness resulting from cumulative acts of duty and an occupational disease disability pension based upon cardiomyopathy based on years of service. The majority also noted that the both statutes used identical methods of calculating the pensions. The legislature’s methodology supported the conclusion that an occupational disease disability pension was to be treated as a line-of-duty pension under the statute for purposes of Section 10.

That conclusion did not mandate a conclusion that the plaintiff was entitled to the benefits, however. There was still the further requirement of the statute that the injury at issue be incurred as the result of a response “to what is reasonably believed to be an emergency, an unlawful act . . . or during the investigation of a criminal act.” 820 ILCS 320/10(b). Since an occupational disease disability pension could be triggered by “service as a firefighter,” the Court reversed and remanded for further consideration as to whether this standard could be satisfied.

The majority concluded its analysis by briefly affirming the trial court’s rejection of the plaintiff’s claim under the Wage Actions Act, concluding that the health care insurance premiums could not constitute “wages” under the Act since plaintiff’s entitlement to benefits, if any, was triggered only when he was no longer employed by the City.

Justice McLaren dissented from the majority’s conclusion that the plaintiff’s occupational disease disability pension could possibly qualify for a line-of-duty pension (and thereby as a “catastrophic injury” triggering Section 10).

We expect Bremer to be decided in eight to twelve months.

Image courtesy of Flickr by Jack Snell (no changes).

Illinois Supreme Court Agrees to Decide Scope of Standing to Challenge Family Trust Amendment

By Kirk Jenkins on March 2, 2016 Posted in Illinois

In the closing days of its January term, the Illinois Supreme Court agreed to decide a question of considerable importance to the trusts, wills and estates bar – who has standing to challenge an amendment to a trust document? The Court allowed a petition for leave to appeal in Trzop v. Hudson, a decision from Division 5 of the First District Appellate Court.

Trzop began in 2007 when an elderly man and his wife (since deceased) signed a declaration of trust. The trust document named the grantor and his wife as trustees and primary beneficiaries. After the death of both grantors, the instrument provided that the trust should be distributed to twelve different individuals, including the couple’s four children and various grandchildren.

In 2014, the surviving grantor signed an amendment to the trust. The amendment struck the entire beneficiary provision, providing instead that the entire trust should be distributed to two of the four children, thus disinheriting the other two children and the various grandchildren. The amendment was signed by three witnesses.

Plaintiffs, each of whom had been omitted from the trust by operation of the amendment, filed suit to challenge the instrument. According to the plaintiffs’ complaint, the grantor was entirely dependent on the defendant, one of his daughters, with whom he resided and who was entirely responsible for his care. The complaint alleged undue influence, tortious interference with inheritance expectancy, fiduciary fraud and a declaration of constructive trust. The defendant answered, alleging that a contest had been expected, given the decision to disinherit two children and various grandchildren, and as a result, an interpreter had been hired for the grantor and the execution of the trust amendment had been videotaped.

Nearly two months after the lawsuit began, the elderly grantor filed a petition for leave to intervene in the litigation. He attached to his petition a motion for summary judgment dismissing the complaint, alleging among other things that the plaintiffs lacked standing to challenge the trust amendment. While the motion for summary judgment was still pending with a briefing schedule in place, the intervenor filed a motion to dismiss the complaint, once again challenging standing. The plaintiffs’ opposition to the motion to dismiss argued, among other things, that the grantor lacked standing to seek dismissal of the plaintiffs’ tort claims against the defendant daughter, and that the motion to dismiss was untimely. The trial court granted the motion to dismiss, holding that the plaintiffs lacked standing to challenge the amendment since they were no longer beneficiaries of the trust.

The Appellate Court reversed. First, the grantor’s motion to dismiss was not timely, the Court held. According to 735 ILCS 5/2-619(a), a defendant must bring a motion to dismiss “within the time for pleading.” Of course, the grantor was not a defendant, and was not technically required to plead at all. But the defendant had not pled lack of standing as an affirmative defense, and her time for pleading had expired by the time the grantor filed his motion. Besides, the Court held, the Supreme Court has made it clear that the intent of the rule is to provide that pleading motions be brought at the outset of litigation. Since the grantor had waited several weeks before filing his motion to dismiss, the Court concluded that the motion should have been denied on timeliness grounds.

Even if the motion had been timely, the Appellate Court found that the grantor lacked standing to move to dismiss the tort claims against the defendant. The grantor argued that he was seeking to protect his property interest in the trust, but the Court pointed out that a judgment against the defendant wouldn’t affect his property interest.

Turning to the issue of the plaintiffs’ standing to sue, the Court noted the holding in In re Estate of Henry that beneficiaries of a will did not have standing to challenge the will until the testator had died. But Henry did not apply to trusts, the Court found, because although a beneficiary has no interest in the testator’s estate until the testator dies, the beneficiary has an interest in a trust as soon as it is executed. This was the holding of the Appellate Court’s post-Henry case, In re Estate of Michalak. The intervenor and defendant responded that even if the plaintiffs had standing to challenge the original trust instrument, they lost that standing pursuant to the amendment, but the Court pointed out that the argument was circular – the amendment could not deprive the plaintiffs of standing unless it was valid, and that was exactly the question at issue.

We expect Trzop to be decided in eight to ten months.

Image courtesy of Flickr by Lars Plougmann (no changes).

Florida Supreme Court to Decide Whether the Litigation Privilege Can Bar a Malicious Prosecution Claim

By on February 23, 2016 Posted in Florida

The Florida Supreme Court will resolve a conflict between the Third and Fourth Districts regarding whether the litigation privilege can be used to bar a claim for malicious prosecution. See No. SC15-1477. In the case before the Court, the Fourth District held that “the litigation privilege cannot be applied to bar the filing of a claim for malicious prosecution where the elements of that tort are satisfied.” See Fischer v. Debrincat, 169 So. 3d 1204 (Fla. 4th DCA 2015). On the other hand, the Third District in Wolfe v. Foreman, 128 So. 3d 67 (Fla. 3d DCA 2013), reached the opposite conclusion. Both cases are discussed below.

It is first important to understand the nature of the litigation privilege and the tort of malicious prosecution. The litigation privilege protects judges, parties, counsel, and witnesses from being sued for any act they perform which is required or permitted by law and that occurs during a judicial proceeding, so long as the act has some relation to the judicial proceeding. Generally speaking, malicious prosecution is the misuse of the legal machinery for an improper purpose. The tort is committed when a person—acting with malice and without probable cause—engages in conduct causing the commencement or continuation of a judicial proceeding against a person.

In Wolfe, the Third District affirmed a judgment on the pleadings in favor of the defendants on the plaintiff’s cause of action for malicious prosecution, concluding that the defendants’ acts of filing a complaint and briefly prosecuting a civil case were protected by the litigation privilege because those actions “indisputably occurred during and were related to” the judicial proceeding. The court reasoned: “The filing of a complaint, which initiates the judicial proceedings, obviously ‘occurs during the course of a judicial proceeding’ and ‘relates to the proceeding.’” The Third District was “also unpersuaded by the argument that, unlike other torts, the application of the litigation privilege to the tort of malicious prosecution would effectively eliminate malicious as a cause of action [altogether].”

The Fourth District in Fischer believed that the Third District “went too far in its application of the litigation privilege.” The lynchpin of its analysis was that “[i]f the litigation privilege could apply to bar a malicious prosecution action, this would mean that the tort of malicious prosecution would be effectively abolished in Florida—or, at the very least, eviscerated beyond recognition.” The Third District supported its conclusion with other Florida cases and a decision from the California Supreme Court that have recognized that the litigation privilege does not bar a malicious prosecution action. The Court also found it “unfathomable that the Florida Supreme Court intended to cloak the commencement or continuation of a judicial proceeding with absolute immunity when such conduct occurs as an element of the tort of malicious prosecution.”

This article will be updated once the supreme court decides the case.

Image Courtesy of Flickr by Beth Cortez-Neavel (no changes).