Litigation Update: March 2023

A monthly publication of the Litigation Section of the California Lawyers Association.

  • Senior Editor, Eileen C. Moore, Associate Justice, California Court of Appeal, Fourth District, Division Three
  • Managing Editor, Julia C. Shear Kushner
  • Editors, Dean Bochner, Jonathan Grossman, Jennifer Hansen, Gary A. Watt, David Williams, Ryan Wu
Short-Term Military Leave Under USERRA.

Plaintiff, a commercial airline pilot and military reservist, claimed that his employers violated the Uniformed Services Employment and Reemployment Rights Act (38 U.S.C. § 4316(b)(1); USERRA), because defendants airlines provide paid leave for non-military leaves including jury duty, bereavement, and sick leave. Therefore, plaintiff alleged defendants are also required to pay pilots during short-term military leaves. The district court disagreed, granting summary judgment to defendants and concluding as a matter of law that military leave is not comparable to any other form of leave offered by defendants. On appeal, the Ninth Circuit looked at the House Report on the bill when USERRA was enacted in 1994: “The Committee intends to affirm the decision in Waltermyer v. Aluminum Co. of America, 804 F.2d 821 (3d Cir. 1986) that, to the extent the employer policy or practice varies among various types of non-military leaves of absence, the most favorable treatment accorded any particular leave would also be accorded the military leave, regardless of whether the non-military leave is paid or unpaid.” Reversing and remanding, the appeals court stated: “[T]he district court erred by comparing all military leaves, rather than just the short-term military leaves at issue here, with the comparator non-military leaves. . . . The court seemingly considered only the evidence presented by the Airlines when it concluded no reasonable jury could find for Clarkson. Because factual disputes exist, comparability is an issue for the jury.” (Clarkson v. Alaska Airlines, Inc. (9th Cir. Feb. 1, 2023) 59 F.4th 424.)

Another Bivens Action Tossed.

During the summer of 2020, plaintiff protested outside the federal courthouse in Portland, Oregon. He alleged that federal officers unlawfully arrested protesters and used excessive force, including by indiscriminately using tear gas against peaceful protesters. Together with other protesters, he brought this action against Gabriel Russell, then the Director of the Federal Protective Service’s Northwest Region, under Bivens v. Six Unknown Named Agents of the Federal Bureau of Narcotics (1971) 403 U.S. 388. The district court denied Russell’s motion to dismiss. Reversing, the Ninth Circuit stated: “Congress has made a cause of action available to any person who has suffered “the deprivation of any rights, privileges, or immunities secured by the Constitution and laws” at the hands of someone acting under color of state law. 42 U.S.C. § 1983. . . . But it has not created a general cause of action to redress violations of the Constitution by federal officers.” (Pettibone v. Russell (9th Cir., Feb. 2, 2023) 59 F.4th 449.)

Previously we reported: Damages Recoverable Under the Lemon Law.

In a lemon law case under the Song-Beverly Consumer Warranty Act (Civ. Code, § 1790 et seq.), the jury awarded plaintiff the full price of her defective vehicle, offset by mileage accrued, plus incidental and consequential damages and a civil penalty. Following the jury’s verdict, the trial court denied defendant’s motion to reduce plaintiff’s damages by the $19,000 credit plaintiff received towards the purchase price of a new vehicle when she traded in her defective vehicle to a GMC dealer. Reducing the damages award, the Court of Appeal noted: “Granting plaintiff a full refund from defendant in addition to the proceeds of the trade-in would put her in a better position than had she never purchased the vehicle, a result inconsistent with ‘restitution.’ ” The appeals court held the lemon law’s restitution remedy does not include amounts a plaintiff has already recovered by trading in the vehicle at issue. (Niedermeier v. FCA US LLC (Cal. App. 2nd Dist., Div. 1, Oct. 30, 2020) 56 Cal.App.5th 1052.)

The next thing that happened: No Set-Off For Car Manufacturer that Refused to Repurchase or Replace Defective Truck.

A jury found defendant car manufacturer to be in willful violation of the Song-Beverly Consumer Warranty Act (Civil Code § 1790 et seq.) when it refused to repurchase or replace a defective truck. Plaintiff sold the truck to CarMax for $17,000, which was $3,191.93 more than he owed on the loan he used to purchase the truck. The jury awarded plaintiff $30,154 in damages and defendant contended it was entitled to deduct $3,191.93 from the verdict amount. The trial court denied the set-off request. Affirming, the Court of Appeal stated: “[T]he Legislature used the term ‘restitution,’ but it defines what it means by restitution in section 1793.2, subdivision (d)(2)(B). The definition does not include a set-off for the cash received by the vehicle owner on sale of the vehicle or the vehicle’s trade-in value. Second, [defendant] cannot complain that the vehicle’s owner has received an unjustified windfall when it could have avoided such a result by complying with the Song-Beverly Act. Third, it is [defendant], and not the vehicle’s owner, who undercuts the act’s labeling and notification requirements by refusing to repurchase the vehicle as required by the act. The labeling and notification requirements only apply where the manufacturer replaces or repurchases the vehicle, something [defendant] has refused to do.” (Figueroa v. FCA US, LLC (Cal. App. 2nd Dist., Div. 6, Oct. 25, 2022) 84 Cal.App.5th 708.)

The latest:

The buyers in another “lemon law” case brought pursuant to the Song-Beverly Consumer Warranty Act (Civ. Code, § 1790 et. seq.), sought restitution from the manufacturer after trading in the defective truck for another vehicle at an unrelated dealership. The parties disputed whether manufacturer was entitled to a credit for the trade-in value of the truck in calculating “the actual price paid or payable by the buyer” under the restitution provision. (When a buyer seeks restitution from an automobile manufacturer for a defective vehicle under §1793.2 (d)(2)(B), the buyer is entitled to “an amount equal to the actual price paid or payable by the buyer.”) Instead of resolving the question of statutory interpretation presented, the trial court transmitted the question to the jury. The jury found the manufacturer willfully failed to promptly replace or repurchase the defective truck and awarded buyers $46,716.54, consisting of $15,572.18 in total damages and a $31,144.36 civil penalty. The buyers appealed, arguing the damages were inadequate as a matter of law because the jury’s calculation of “the actual price paid or payable” impermissibly deducted the $29,500 credit buyers previously received when they traded in the defective truck for a new vehicle. Reversing, the Court of Appeal stated: “Although it may at first blush seem reasonable that a buyer’s restitution under the Act should exclude a credit the buyer received for trading in the defective vehicle, we conclude the language of the restitution provision, our Supreme Court’s prior interpretation of the term ‘price’ in the restitution provision, and the legislative history indicate otherwise. We thus disagree with Niedermeier v. FCA US LLC (2020) 56 Cal.App.5th 1052 (Niedermeier), review granted February 10, 2021 (S266034), and reach the same conclusion (under a different analysis) as Figueroa v. FCA US, LLC (2022) 84 Cal.App.5th 708 (Figueroa).” (Williams v. FCA US LLC (Cal. App. 3rd Dist., Feb. 2, 2023) 88 Cal.App.5th 44.) 

Claim Against Domain Name Registrar Tossed.

Plaintiff is a double amputee, athlete, and motivational speaker who started the Scott Rigsby Foundation and registered the domain name “” with in 2007. When Rigsby and the Foundation failed to pay the annual renewal fee in 2018, allegedly a result of a glitch in’s billing, a third party registered the then-available domain name. To Rigsby’s dismay and his customers’ confusion, became a gambling information site. Rigsby sued, LLC and its corporate relatives. The district court dismissed plaintiff’s claims. Affirming, the Ninth Circuit stated: “Although Rigsby’s claims are sympathetic, relief is not available against GoDaddy, which is a domain name registrar.” The appeals court explained that Rigsby could not satisfy the “use in commerce” requirement of the Lanham Act (15 U.S.C. § 1125(a)) vis-à-vis GoDaddy nor could he overcome GoDaddy’s immunity under the Anticybersquatting Consumer Protection Act (15 U.S.C. §§ 1125(d)(2)(D)(ii); 1114(2)(D)(iii)) or the Communications Decency Act (47 USC § 230(c)), and that “Rigsby’s problem lies with the entity that acquired the domain name; his efforts to tag GoDaddy with liability miss the mark.” (Rigsby v. GoDaddy Inc. (9th Cir. Feb. 3, 2023) 59 F.4th 998.)

Question About Virus Provision in Business Insurance Policy Certified to the California Supreme Court.

Plaintiff operates two restaurants in Napa County, CA. After the COVID-19 pandemic began in early 2020, government closure orders forced plaintiff to shut down its restaurants, resulting in economic losses. Plaintiff sought and was denied coverage for its losses from defendant, the issuer of its insurance policy. In response, plaintiff filed an action in state superior court, which was removed to federal court. Plaintiff sought coverage under several provisions of its policy, two of which were at issue here. The policy contains a “Virus Exclusion” provision stating that defendant “will not pay for loss or damage caused directly or indirectly by any of the following . . . [p]resence, growth, proliferation, spread or any activity of . . . virus.” This exclusion, however, does not apply to coverage otherwise provided by “Fungus, Wet Rot, Dry Rot, Bacteria and Virus – Limited Coverage” provision of the policy, which allows for recovery of certain loss or damage caused by fungus, wet or dry rot, bacteria, or virus, assuming one of the listed risks was the result of one of the listed causes. The district court dismissed the case after finding the virus exclusion barred any coverage. Pursuant to California Rules of Court, rule 8.548(a), the Ninth Circuit certified a question to the California Supreme Court: “Is the virus exclusion in French Laundry’s insurance policy unenforceable because enforcing it would render illusory a limited virus coverage provision allowing for the possibility of coverage for business losses and extra expenses allegedly caused by the presence and impacts of COVID-19 at an insured’s properties, including the loss of business due to a civil authority closure order?” (French Laundry Partners, LP v. Hartford Fire Insurance Company (9th Cir., Feb. 6, 2023) 58 F.4th 1305.)

Insufficient Evidence of Greenhouse Gas Emissions.

In 2010, a city developed a plan for the development of a business center. It prepared and approved an Environmental Impact Report (EIR) at that time for the entire development, even though only a portion of the development was to be performed at that time. Several years later, the real party in interest submitted a plan to conduct further development at the business center. The city determined all the environmental effects of the proposed project had been studied in 2010 and approved the project. Petitioner/plaintiff filed a petition for writ of mandate in the superior court. The trial court granted the writ and the city and real party appealed. The Court of Appeal affirmed, stating there was insufficient evidence to support the city’s finding that the project’s greenhouse gas emissions were consistent with the 2010 EIR, and that it was unclear in the record whether the city’s goal of zero net emissions would be met if the project is built. But the appeals court specifically stated the city may be able to provide more evidence without performing another EIR. (IBC Business Owners for Sensible Development v. City of Irvine (Cal. App. 4th Dist., Div. 3, Feb.  6, 2023) 88 Cal.App.5th 100.)

Retention of Control Over Construction Site Security Created Question of Fact, Defeating Summary Judgment Under Privette Doctrine

Plaintiff was the foreman of a subcontractor at a construction site in a high crime area when he was attacked and seriously injured by unknown assailants. He sued the general contractor and the site owner, alleging they didn’t take reasonable security precautions. The trial court granted defendants’ summary judgment motion. The Court of Appeal opinion discussed Privette v. Superior Court (1993) 5 Cal.4th 689, under which the hirer of an independent contractor is not liable for on-the-job injuries sustained by the contractor’s employees unless some exception applies. One such exception is found in Hooker v. Department of Transportation (2002) 27 Cal.4th 198, 201-202, which applies when the hirer retains control over any part of the contractor’s work and exercises that control in a way that affirmatively contributes to the plaintiff’s injury. There was evidence that defendants retained control over site security. Reversing the grant of summary judgment, the Court of Appeal stated: “Because we conclude there are triable issues of fact as to whether the site owner and general contractor are liable to Degala under a retained control theory, we shall reverse.” (Degala v. John Stewart Company (Cal. App. 1st Dist., Div. 2, Feb. 7, 2023) 88 Cal.App.5th 158.)

Anti-SLAPP Motion Granted in Favor of Lawyers Sued for Malicious Prosecution

The prevailing party in underlying litigation turned around and sued the lawyers for the losing party, alleging malicious prosecution. The Court of Appeal affirmed after the trial court granted the lawyers’ anti-SLAPP motion brought pursuant to Code of Civil Procedure § 425.16. Plaintiff in the instant action did not establish a probability of prevailing on the claim that the lawyers lacked probable cause and acted out of malice. (Water For Citizens of Weed California v. Churchwell White LLP, (Cal. App. 3rd Dist., Feb. 9, 2023) 88 Cal.App.5th 270.)

Mandatory Reporters of Elder Abuse Are Absolutely Immune, Even for Making Knowingly False Reports

Plaintiff and defendant were both in-home caregivers for the same patient but worked different shifts. Defendant, a mandatory reporter under the elder abuse laws, reported to law enforcement that plaintiff tried to smother the patient with a pillow. Plaintiff was arrested and charged with attempted murder, and she spent 28 days in custody because she was unable to post bond. Ultimately, the charges were dropped.  Plaintiff sued both defendant caregiver and her alleged employer for malicious prosecution. Because Welfare and Institutions Code § 15634, subdivision (a) provides absolute immunity from civil and criminal liability to mandatory reporters under the Elder Abuse and Dependent Adult Civil Protection Act, the trial court sustained defendants’ demurrer without leave to amend and dismissed the action. Affirming, the Court of Appeal concluded carving out immunity for a knowingly false report by a mandated reporter, as urged by plaintiff, would undermine the Act; is not dictated by the statutory language; and would be counter to the legislative policy goal of increasing the reporting of elder abuse and minimizing the chilling disincentives to that reporting, including the fear of getting sued. (Valero v. Spread Your Wings, LLC (Cal. App. 6th Dist., Feb. 9, 2023) 88 Cal.App.5th 243.)

No Standing to Invalidate Trademark

Plaintiff credit union became concerned that defendant credit union would sue it for trademark infringement, and so plaintiff asked for declaratory relief. The district court granted that relief, by granting plaintiff’s motion for summary judgment. The lower court also held that defendant’s common-law mark was invalid. Vacating the lower court’s judgment invalidating the trademark, the Ninth Circuit stated: “After a party obtains declaratory relief which decrees that it is not infringing a trademark, does it retain Article III standing to invalidate that mark? That is the central question presented in these appeals, and we answer it: No.” (San Diego County Credit Union v. Citizens Equity First Credit Union (9th Cir., Feb. 10, 2023)  60 F.4th 481.)

Waiting to Ask for Arbitration Did Not Amount to Relinquishment of the Right to Arbitrate

The district court ordered this action to arbitration. On appeal, plaintiff contended defendant waited too long to move for arbitration. Affirming, the Ninth Circuit noted that defendant did not engage in meaningful discovery and the only significant motion it filed was its motion to compel arbitration, adding that “[a]lthough Michaels’s did not immediately move to compel arbitration, its actions do not amount to a relinquishment of the right to arbitrate.” (Armstrong v. Michaels Stores, Inc. (9th Cir., Feb. 13, 2023) 59 F.4th 1011.)

Online Arbitration Agreement Upheld.

Ticket purchasers sued defendants, claiming they paid supra-competitive fees for tickets on defendants’ websites. The district court granted defendants’ motion to compel arbitration, holding that the terms of use on the website constituted a valid agreement between the parties and that the requirements for mutual assent were met. Affirming, the Ninth Circuit concluded the online terms fell between the extremes of a “clickwrap” agreement, in which a website presents users with specified contractual terms on a pop-up screen and users must check a box explicitly stating “I agree” in order to proceed, and a “browsewrap” agreement, in which a website offers terms that are displayed only through a hyperlink and the user supposedly manifests assent to those terms simply by continuing to use the website. The appeals court held that an enforceable agreement may be found where: (1) a website provides reasonably conspicuous notice of the terms to which the consumer will be bound; and (2) the consumer takes some action, such as clicking a button or checking a box, that unambiguously manifests his or her assent to those terms. The appeals court noted that in this case the website contained features sufficient to provide reasonably conspicuous notice of the terms because the terms were marked in bright blue font and distinguished from the rest of the text, the notices were located directly on top of or below the action button at each of three independent stages that a user was required to complete before purchasing tickets, and the notices at issue explicitly alerted the user that by creating an account, signing in, or purchasing a ticket, and proceeding to the next page, the user “agrees to our Terms of Use.” (Oberstein v. Live Nation Entertainment, Inc. (9th Cir., Feb. 13, 2023) 60 F.4th 505.)

California’s Laws Making It a Criminal Offense to Require an Employee to Waive Right to Pursue a Civil Action Found to Violate the FAA.

Over the years, the U.S. Supreme Court has struck down a number of California laws or judge-made rules relating to arbitration as preempted by the Federal Arbitration Act (9 U.S.C. § 1; FAA). Mindful of this history, the California legislature engaged in a prolonged effort to craft legislation that would prevent employers from requiring employees to enter into arbitration agreements as a condition of employment, while avoiding conflict with the FAA. Labor Code § 432.6, subdivision (a), for example, prohibits employers from requiring employees to waive, as a condition of employment, the right to litigate certain claims. Labor Code § 433 makes violation of § 432.6 a misdemeanor. But to avoid preemption by the FAA, the California legislature enacted § 432.6, subdivision (f), which provides that if the parties did enter into an arbitration agreement, it would be enforceable. This resulted in the peculiarity that an employer subject to criminal prosecution for requiring an employee to enter into an arbitration agreement could nevertheless enforce that agreement once it was executed. The Ninth Circuit held that this legislation violates the FAA’s “equal-treatment principle” and affirmed the lower court’s grant of a preliminary injunction against enforcement of California’s statutory scheme. (Chamber of Commerce of the United States of America v. Bonta (9th Cir., Feb. 15, 2023) 2023 WL 2013326.)

Appellate Court Found Forum Selection Clause Violates California’s Public Policy Against Usury.

A cross-complainant alleged multiple causes of action based on the assertion that the interest rates charged in a loan agreement were usurious under California law. The trial court stayed the cross-complaint based on the forum selection clause in a loan agreement between the parties. Reversing, the Court of Appeal stated: “If the circumstances of a loan transaction do not fit into one of the exceptions to California’s interest rate limitation, and the rate charged is higher than allowed, then the transaction violates California’s public policy against usury. And since California’s usury law reflects a significant public policy designed to protect its citizens, our law precludes enforcement of a forum selection clause that will deprive a California resident of that protection.” (G Companies Management, LLC v. LREP Arizona LLC (Cal. App. 4th Dist., Div. 3, Feb. 15, 2023) 2023 WL 2011816.)

Personal Identifying Information About Animal Researchers to Be Released to PETA.

Plaintiffs are members of a team that does research on live animals at a university. People for the Ethical Treatment of Animals (PETA), an organization opposed to the use of animals in research, filed a public records request with the university pursuant to the Public Records Act. Plaintiffs brought this action under 42 U.S.C. § 1983 and sought a preliminary injunction prohibiting the university from releasing letters appointing them to the committee, which letters contained personal identifying information about them. The district court granted the injunction. Reversing, the Ninth Circuit stated: “Because the district court made a legal error in concluding that, by serving on the Committee, the members were thereby engaged in that First Amendment protected activity, it abused its discretion.” (Sullivan v. University of Washington (9th Cir., Feb. 17, 2023) 60 F.4th 574.)

Clarification of One Part of the Public Safety Officers Procedural Bill of Rights.

Under Government Code § 3304, subdivision(d)(12), a public agency cannot discipline a peace officer “for any act, omission, or other allegation of misconduct” unless the agency completes its investigation and notifies the officer of its proposed discipline “within one year of the public agency’s discovery by a person authorized to initiate an investigation of the allegation of an act, omission, or other misconduct.” This case involved two different interpretations of that provision. The Court of Appeal held: “Section 3304(d)(1)’s text is clear that the limitations period for an act of misconduct begins to run on the date the agency discovers the misconduct, not the date it initiates an investigation into unrelated misconduct. Under this rule, as under similar discovery rules, each act of misconduct must be considered separately in determining the date the agency discovered the misconduct.” (Garcia v. State Department of Developmental Services (Cal. App. 3rd Dist., Feb. 21, 2023) 2023 WL 2131039.)

U.S. Supreme Court Denied Certiorari in Case Involving the Pro-Veteran Canon Within the Framework of Agency Deference. 

In 2010, Congress passed the “Caregivers and Veterans Omnibus Health Services Act” (124 Stat. 1130 (2010); Caregiver Act), directing the U.S. Department of Veterans Affairs (VA) to establish a program for those who provide caregiver services to military veterans. To qualify for benefits, the Caregiver Act generally provided two alternative statutory eligibility criteria: (1) an inability to perform one or more activities of daily living; or (2) a need for supervision or protection. In 2020, the VA narrowed eligibility for benefits by restricting the number of veterans who qualify for benefits and the amount of benefits for those veterans who do qualify. Plaintiffs challenged the restrictions. Rejecting the challenge, the Federal Circuit deferred to the VA under Chevron U.S.A. v. Natural Resources Defense Council, Inc. (1984) 468 U.S. 837. Plaintiffs petitioned for certiorari, arguing that the Federal Circuit erred in not applying the “Pro-Veteran Canon” set forth in Boone v. Lightner (1943) 319 U.S. 561, and restated most recently in Henderson v. Shinseki (2011) 562 U.S. 428, 440. Petitioners further argued certiorari was warranted to resolve the “inconsistency and disagreement within the Federal Circuit regarding the Pro-Veteran Canon’s use within the Chevron framework.” However, the U.S. Supreme Court denied certiorari. (Veteran Warriors, Inc. v. McDonough (U.S., Feb. 21, 2023) 2023 WL 2123745.)

Federal Courts Lack Authority to Remand a Federal Regulation Without First Holding It Unlawful.

After plaintiffs brought a challenge to a regulation under the Clean Water Act (33 U.S.C. § 1251 et seq.), the district court remanded the regulation to the agency, but did not find the regulation to be unlawful. Reversing, the Ninth Circuit stated: “The question we face today is whether a court granting a voluntary remand may also vacate the regulation without first holding it unlawful, as the district court did here. We hold that courts lack the authority to do so, and we therefore reverse.” (In re Clean Water Act Rulemaking (9th Cir., Feb. 21, 2023) 60 F.4th 583.)

Jury in Death Penalty Case Was Not Told That a Life Sentence Meant Life Without the Possibility of Parole.

A criminal defendant who was sentenced to death in Arizona unsuccessfully argued to the trial court that the jury should be told that a life sentence would mean life without the possibility of parole. When his case reached the U.S. Supreme Court, he contended the trial court violated his due process rights by not allowing him to inform the jury that the only sentencing alternative to death in his case was life without parole in violation of Simmons v. South Carolina (1994) 512 U.S. 154. Relying on a procedural rule in Arizona, the Arizona Supreme Court held that Simmons did not apply. Ordinarily, the U.S. Supreme Court does not involve itself with state procedural rules. But the high court concluded that this was an “exceptional” case and reversed and remanded the conviction for further proceedings in Arizona. (Cruz v. Arizona (U.S., Feb. 22, 2023) 2023 WL 2144416.)

Employee Entitled to Overtime Pay.

Plaintiff worked on an offshore oil rig, typically working 84 hours a week while on the vessel, and earned over $200,000 annually. The Fair Labor Standards Act of 1938 (29 U.S.C. § 203) guarantees that covered employees receive overtime pay when they work more than 40 hours a week. But an employee is not covered, and so is not entitled to overtime compensation, if he works “in a bona fide executive, administrative, or professional capacity.” An employee falls within the “bona fide executive” exemption only if (among other things) he is paid on a “salary basis.” The question here is whether a high-earning employee is compensated on a “salary basis” when his paycheck is based solely on a daily rate—so that he receives a certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on. The U.S. Supreme Court held that such an employee is not paid on a salary basis, and thus is entitled to overtime pay, stating: “Helix did not pay Hewitt on a salary basis as defined in [29 CFR] §602(a). That section applies solely to employees paid by the week (or longer); it is not met when an employer pays an employee by the day, as Helix paid Hewitt.” (Helix Energy Solutions Group, Inc. v. Hewitt (U.S., Feb. 22, 2023) 143 S.Ct. 677.)

Damages Resulting from Failure to Disclose Defects in Real Property Held Not Dischargeable in Bankruptcy. 

In 2005, plaintiffs, a man and a woman, purchased a house in San Francisco. They planned to remodel it and sell it for a profit. The man took charge of the remodel. Defendant purchased the house after the remodel. After the house was his, defendant discovered defects that had not been disclosed. A lawsuit resulted, and a jury returned a verdict of $200,000 in damages. Plaintiffs filed for Chapter 7 bankruptcy. Sometimes when a creditor’s interest in recovering a particular debt outweighs the debtor’s interest in a fresh start, discharge of a debt in bankruptcy is not permitted. One such exception bars debtors from discharging any debt for money obtained by fraud. (11 U.S.C. §523(a)(2)(A).) Thus, defendant filed an adversary complaint alleging the money owed him fell within this exception. After a two-day bench trial, the bankruptcy court decided that neither plaintiff could discharge their debt to defendant. The Ninth Circuit’s Bankruptcy Appellate Panel agreed as to the man’s fraudulent intent but disagreed as to the woman’s. As the panel saw it, §523(a)(2)(A) barred her from discharging the debt only if she knew or had reason to know of the man’s fraud. The U.S. Supreme Court held that the woman’s debt was not dischargeable in bankruptcy, stating: “[I]nnocent people are sometimes held liable for fraud they did not personally commit, and, if they declare bankruptcy, §523(a)(2)(A) bars discharge of that debt. So it is for [the woman], and we are sensitive to the hardship she faces. But Congress has ‘evidently concluded that the creditors’ interest in recovering full payment of debts’ obtained by fraud ‘outweigh[s] the debtors’ interest in a complete fresh start.” (Bartenwerfer v. Buckley (U.S., Feb. 22, 2023) 143 S.Ct. 665.)

“If I’d Observed All the Rules, I’d Never Have Got Anywhere,” Marilyn Monroe.

The City of Palm Springs closed off one of its downtown streets to all vehicular traffic for a period of three years to allow a Palm Springs tourism organization to install and display a large statue of Marilyn Monroe in the middle of the street. Plaintiffs, a citizens’ group, filed a petition for writ of administrative mandate challenging the street closure. It alleged the city did not have the statutory authority to close the street under Vehicle Code § 21101 (e), which permits cities to “[t]emporarily clos[e] a portion of any street for celebrations, parades, local special events, and other purposes” for the safety and protection of persons who use the street during the temporary closure. In plaintiffs’ view, the street closure was impermissible because it was long term—not temporary. Additionally, plaintiffs alleged the city erroneously declared the street closure categorically exempt from environmental review under the California Environmental Quality Act (Pub. Resources Code, §§ 21000 et seq.). The trial court sustained the city’s demurrer without leave to amend. Reversing, the Court of Appeal held the statute does “not vest cities with the expansive power to close public streets—for years on end—so statutes or other semi-permanent works of art may be erected in the middle of those streets.” The appeals court also concluded the city materially changed the project after it filed its notice of exemption, and it did not afford the public an opportunity to consider the revised project or its environmental effects. (Committee to Relocate Marilyn v. City of Palm Springs, (Cal. App. 4th Dist., Div. 1, Feb. 23, 2023) 2023 WL 2179477.)

Attorney Who Prepared Trust Owed No Duty to Trust Beneficiaries.

A client retained an attorney to amend her testamentary trust to disinherit the three children of one of her sons upon her death. Other documents related to the client’s holdings did not prohibit the son from gifting to his children. Certain beneficiaries of the trust sued the lawyer for legal malpractice. The trial court granted summary judgment for the lawyer. The question presented was: “Does a client’s intent to disinherit someone in a testamentary trust by itself constitute clear, certain and undisputed intent to disinherit them in every subsequent transaction the client makes with the property contained in the trust?” The Court of Appeal affirmed, stating: “We conclude that the answer is no, that the attorney in this case accordingly owed no duty to guard against that result, and that the trial court properly granted summary judgment to the attorney and his law firm sued in this case by certain beneficiaries of the testamentary trust.” (Gordon v. Ervin Cohen & Jessup LLP (Cal. App. 2nd Dist., Div. 2, Feb. 23, 2023) 2023 WL 2178790.)

Insurance Company Prevailed in Another COVID Case. 

The trial court granted summary judgment for an insurance company that insured a motel. The outcome turned on whether there was evidence creating a triable issue that the insured sustained lost business income “due to the necessary ‘suspension’” of its operations “caused by direct physical loss of or damage” to the insured property. Affirming, the Court of Appeal stated that even if “a cleaning crew Lysol-ed every inch of the [hotel], it could still not” rent out its rooms. (Best Rest Motel, Inc. v. Sequoia Insurance Company (Cal. App. 4th Dist., Div. 1, Feb. 24, 2023) 2023 WL 2198660.)

PAGA Action to Proceed in Trial Court. 

California’s Healthy Workplaces, Healthy Families Act of 2014 (Lab. Code, § 245 et seq.) requires employers to provide eligible employees with at least three paid sick days per year. The Labor Commissioner and the Attorney General are charged with enforcing this law. Violators may be assessed compensatory as well as liquidated damages, plus civil penalties under § 248.5. The last clause of § 248.5(e) is the focus of this appeal. It provides that “any person or entity enforcing this article on behalf of the public as provided for under applicable state law shall, upon prevailing, be entitled only to equitable, injunctive, or restitutionary relief . . . .” Plaintiff filed an action under the Private Attorney General Act of 2004 (Lab. Code, § 2698 et seq.; PAGA) against her former employer, seeking penalties for alleged violations of the act. The trial court sustained defendant’s demurrer without leave to amend, determining that a PAGA action is one brought “on behalf of the public” and since it seeks only civil penalties, is prohibited by § 248.5(e). Reversing, the Court of Appeal stated: “Following our independent review, we reach a different conclusion. As we explain, the statute’s text and history provide compelling evidence that the phrase ‘on behalf of the public as provided under applicable state law’ in section 248.5, subdivision (e) was intended to refer to actions prosecuted under the [Unfair Competition Law]—not PAGA. Accordingly, we reverse the judgment of dismissal.” (Wood v. Kaiser Foundation Hospitals (Cal. App. 4th Dist., Div. 1, Feb. 24, 2023) 2023 WL 2198664.)

Oscar Goes Home.

When the judgment debtor here received an Oscar for his work in the 1974 film “The Sting,” he signed a “winner’s agreement,” which stated in relevant part: “I agree to comply with your rules and regulations respecting its use and not to sell or otherwise dispose of it, nor permit it to be sold or disposed of by operation of law, without first offering to sell it to you for the sum of $10.00.” The creditor here obtained a judgment against the winner and set a judgment debtor’s examination. The debtor disclosed he had the Oscar, but few other assets. The creditor applied to the court for an order for the debtor to deliver the Oscar for public sale. The Academy of Motion Picture Arts and Sciences (AMPAS) intervened in the case and declared that the Oscar is a copyrighted work of art. It then asserted its right to purchase the Oscar for $10, and the debtor sold the Oscar to AMPAS for $10. The creditor argued that AMPAS should be able to keep the statuette, but also that it should pay the judgment. Instead of ordering AMPAS to pay the judgment, the trial court ordered the debtor to surrender the $10 to the creditor.  Affirming the trial court’s order, the Court of Appeal stated: “An Oscar that is sold by a creditor, who did not earn the award, diminishes the honor of the achievement and the value of AMPAS’s copyrighted statuette.” (Juarez v. Ward (Cal. App. 2nd Dist., Div. 2, Feb. 24, 2023) 2023 WL 2202483.)

He Who Hesitates . . . .

Defendant employer decided to lay off a group of employees, of whom plaintiff was one. At the time the decision was made, plaintiff was not disabled. By the time the employer actually implemented its layoff, plaintiff was disabled. Plaintiff sued for disability discrimination under the Fair Employment and Housing Act (Gov. Code, § 12940 (h)). Reversing, the Court of Appeal stated: “On the record here, there was evidence from which a reasonable jury could conclude that Kaiser’s ultimate decision to terminate Lin was motivated, at least in substantial part, by concerns Kaiser had about Lin’s disability. That allows Lin’s complaint to survive summary judgment.” (Lin v. Kaiser Foundation Hospitals (Cal. App. 2nd. Dist., Div. 4, Feb. 24, 2023) 2023 WL 2202544.)

Only Individual PAGA Claim Ordered to Arbitration; Civil Penalties For Labor Code Violations Suffered by Employees Other than Plaintiff May Be Pursued by Plaintiff in Court. . . . Court of Appeal “disagree[s] with the United States Supreme Court’s conclusion that California law requires the dismissal of those claims.”

Plaintiff sued her former employer to recover civil penalties under the Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.; PAGA) for various Labor Code violations suffered by her or by other employees. Defendant moved to compel arbitration, which the superior court denied. In November 2021, the Court of Appeal affirmed the trial court’s order. That affirmance was vacated by the U.S. Supreme Court when it granted defendant’s petition for writ of certiorari and remanded the case for further consideration in light of Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. ___ [142 S.Ct. 1906]. Reversing in part and affirming in part the trial court’s order denying arbitration, the Court of Appeal stated: “First, we conclude Viking River and the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) do not invalidate the rule of California law that a provision in an arbitration agreement purporting to waive an employee’s right to pursue representative actions is not enforceable as to representative claims pursued under PAGA. Second, the severability clause in the arbitration agreement allows the unenforceable waiver provision to be stricken from the arbitration agreement. Third, we interpret the surviving provisions of the agreement to require arbitration of the PAGA claims that seek to recover civil penalties for Labor Code violations suffered by plaintiff. Consequently, those claims must be sent to arbitration in accordance with the principles established by Viking River and the FAA. We further conclude the PAGA claims seeking to recover civil penalties for Labor Code violations suffered by employees other than plaintiff may be pursued by plaintiff in court. Thus, we disagree with the United States Supreme Court’s conclusion that California law requires the dismissal of those claims. More specifically, we conclude plaintiff is an aggrieved employee with PAGA standing and the general rule against splitting a cause of action does not apply to the two types of PAGA claims. Therefore, the order denying Dollar General’s motion to compel arbitration is reversed in part and affirmed in part.” (Galarsa v. Dolgen California, LLC, (Cal. App. 5th Dist., Feb. 24, 2023) 2023 WL 2212196.)

Qui Tam Action Under Seal and the Five-Year-Rule. 

Plaintiff brought this qui tam case on behalf of the State of California alleging defendants engaged in medical insurance fraud, alleging defendants victimized the state workers’ compensation system, including the State Compensation Insurance Fund, as well as Medi-Cal. The action remained under seal for 962 days, until the court was informed the state had decided not to intervene, and the court issued an order lifting the seal. After the complaint was unsealed and plaintiff was permitted to prosecute the action, service was effected on defendants. Discovery and motion practice proceeded except for periods when the case was stayed because of pending criminal prosecutions of certain defendants named in the qui tam complaint. Before the matter reached trial, however, the trial court dismissed the action pursuant to the “five-year rule” set out in Code of Civil Procedure § 583.310. In computing the five-year period, the court included the 962 days during which the case had been kept under seal and in camera. Reversing, the Court of Appeal stated: “Excluding the 962 days during which the action was under seal, as well as other periods the parties agree should be excluded in the computation of the five-year period, the case had not reached the five-year mark when the court granted the motion to dismiss.” (State of California v. Gharib-Danesh, (Cal. App. 2nd Dist., Div. 1, Feb. 27, 2023) 2023 WL 2231585.)

Previously we reported: Compensation for Missed Meal Breaks Constitutes Wages. 

The issue before the California Supreme Court was whether extra pay for missed meal breaks under Labor Code § 226.7 constitutes wages that must be reported on statutorily required wage statements under § 226. The court held: “We conclude, contrary to the Court of Appeal, that the answer is yes. Although the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break, it also compensates for the work the employee performed during the break period. (See Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1104.) The extra pay thus constitutes wages subject to the same timing and reporting rules as other forms of compensation for work.” (Naranjo v. Spectrum Security Services, Inc. (2002) 13 Cal.5th 93.)

The latest:

The Court of Appeal reversed with directions, holding: “(1) substantial evidence supports the trial court’s finding that Spectrum presented defenses at trial—in good faith—for its failure to pay meal premiums to departing employees and therefore, Spectrum’s failure to pay meal premiums was not ‘willful’ under section 203; and (2) because an employer’s good faith belief that it is in compliance with section 226 precludes a finding of a knowing and intentional violation of that statute, the trial court erred by awarding penalties, and the associated attorneys’ fees, under section 226.” (Naranjo v. Spectrum Security Services, Inc., (Cal. App. 2nd Dist., Div., 4, Feb. 27, 2023)

Plaintiffs Sufficiently Alleged Actionable Conspiracy Against a City. 

Lunada Bay is a premier surf spot located in, and owned by, the City of Palos Verdes Estates. According to plaintiffs, city residents and officials are not welcoming to outsiders and are sometimes openly hostile towards them. Plaintiffs alleged the city conspired with local surfers to privatize Lunada Bay. The trial court granted the city’s judgment on the pleadings. Reversing, the Court of Appeal stated: “Here, plaintiffs have alleged the following: Many City residents and the City Council do not want outsiders in the City; at least one City official stated that City residents wanted to keep outsiders away; the Bay Boys had a decades-long practice of blocking access to Lunada Bay, both by words and acts; the City was aware of this conduct and complicit in it; the former police chief agreed to look into the situation and then ‘backed off’; the City had a ‘coz[y]’ relationship with the Bay Boys; the City did not enforce its laws against the Bay Boys; instead, the City itself acted to exclude outsiders from the beach by targeting them with traffic citations, parking tickets, and towing.” (Spencer v. City of Palos Verdes Estates (Cal. App. 2nd Dist., Div. 5, Feb. 27, 2023) 2023 WL 2237502.)

District Attorney May Proceed with Action Against National Bank. 

A district attorney sued a national bank for violations of California law, alleging it employed a vendor to make extensive harassing debt collection phone calls to California residents. In a related case, the bank requested that a federal district court enjoin the state action on the ground that it was an unlawful exercise of visitorial powers, which the National Bank Act (12 U.S.C. § 484(a); NBA) grants exclusively to the Office of the Comptroller of the Currency. The district court abstained in favor of the state action, and dismissed the federal action. Affirming, the Ninth Circuit stated: “We hold that the district court was correct to abstain, that the state action was not an exercise of visitorial powers, and that nothing in the NBA prevents district attorneys from suing national banks under non-preempted state laws.” (Credit One Bank, N.A. v. Hestrin (9th Cir., Feb. 27, 2023) 2023 WL 2213469.)

Penalty for Violations of the Bank Secrecy Act. 

The Bank Secrecy Act (31 U.S.C. § 5311; BSA) requires certain individuals to file annual reports with the federal government about their foreign bank accounts. The statute imposes a maximum $10,000 penalty for nonwillful violations of the law. The issue before the U.S. Supreme Court was whether someone who fails to file a timely or accurate annual report commits a single violation subject to a single $10,000 penalty, or does that person commit separate violations and incur separate $10,000 penalties for each account not properly recorded within a single report? The nation’s highest court held: “Best read, the BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis.” (Bittner v. United States (U.S., Feb. 28, 2023) 143 S.Ct. 713.)

Prepaid Instruments Not Timely Presented for Payment Escheat to the State in Which the Instrument Was Purchased.

Regarding escheatment of property to the state, the U.S. Supreme Court was called upon to determine which state has the power to escheat abandoned intangible property that has no physical location when multiple states have arguable claims. This case concerned prepaid instruments not presented for payment within a certain period of time. Under the Federal Disposition Act (12 U.S.C. § 2503; FDA), a money order or other similar instrument should generally escheat to the state in which the instrument was purchased. The nation’s highest court held that the disputed instruments here are sufficiently similar to money orders to fall within the FDA. (Delaware v. Pennsylvania (U.S., Feb. 28, 2023) 143 S.Ct. 696.)

After Suffering a Stroke, a Man Lacked the Capacity to Enter into an Arbitration Agreement. 

Plaintiff suffered a stroke. After he was released from the hospital, he entered defendant rehabilitation facility, a skilled nursing home. Four days later, he signed an arbitration agreement. The trial court denied defendant’s petition to compel arbitration. Affirming, the Court of Appeal stated: “Probate Code sections 810 through 812 provide that a party lacks legal capacity to enter into a contract where deficits in the person’s mental functioning significantly impair the ability to understand and appreciate the attendant consequences, risks, and benefits of the contract. Because respondent lacked legal capacity to enter into a contract, his arbitration agreement cannot be enforced.” (Algo-Heyres v. Oxnard Manor LP (Cal. App. 2nd Dist., Div. 6,  Feb. 28, 2023) 2023 WL 2257761.)

Anti-SLAPP Motion Granted with Respect to Claim of Extortion when State Bar Was Mentioned in Discussion About Legal Malpractice Action. 

With new counsel, a client sued his former attorneys, alleging they accepted $27,500 in fees from him but did not perform the promised legal services. The new counsel engaged in communications via email and telephone with the former attorneys’ representative and discussed the possible filing of a State Bar claim. The former attorneys filed a cross-complaint against the client and his new counsel for extortion, among other claims. The client and his new counsel filed an anti-SLAPP motion, which the trial court granted. Affirming, the Court of Appeal held that discussion about the State Bar was referenced in connection with a pending lawsuit. (Geragos v. Abelyan (Cal. App. 2nd Dist., Div. 8, Feb. 28, 2023) 2023 WL 2258094.)

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