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Journal of Consumer Attorneys Associations for Southern California
ADR Dust off the toolbox to move your case along Judicial referees can help you better cope with courtroom delays
Business Litigation for Plaintiffs’ Attorneys Case study: Fighting for small business against a corporate defendant
Insurance coverage for “business interruption” Learn the ins and outs of this common, yet often tricky commercial coverage Presenting evidence of lost profits when the tax returns don’t show any profits Closely held corporations can present special challenges in proving damages The reversible arbitration award The rules of the game for judicial review are changing in California Employment litigation and social media What workers say on social media can — or might — be used against them
Beyond business litigation Chicken Little and the future of class actions Medical billing: The code war The stick and the carrot: Martinez and the “last offer rule” A short reckoning of good legal writing Products liability: Avoiding the “land of the lost”
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Contents Volume 40, Number 10, OCTOBER 2013
Editor-in-Chief Jeffrey Ehrlich Associate Editors Joseph Barrett, Joan Kessler, James Kristy, Beverly Pine, Norman Pine, Rahul Ravipudi, Linda Rice, Ibiere Seck, Geraldine Weiss Editors-in-Chief Emeriti Kevin Meenan, William Daniels, Steven Stevens, Christine Spagnoli, Thomas Stolpman Publisher Managing Editor Richard Neubauer Cindy Cantu firstname.lastname@example.org email@example.com Copy Editor Art Director Eileen Goss David Knopf Consumer Attorneys Association of Los Angeles President Treasurer Lisa Maki Ricardo Echeverria President-Elect Secretary Geoffrey Wells Michael Arias First Vice President Immediate Past President Joseph Barrett Michael Alder Second Vice President Executive Director David Ring Stuart Zanville
Board of Governors Martin Aarons, Mike Armitage, Shehnaz Bhujwala, Todd Bloomfield, John Blumberg, Michael Cohen, Scott Corwin, Jeffrey Ehrlich, Mayra Fornos, Stuart Fraenkel, Scott Glovsky, Steve Goldberg, Jeff Greenman, Christa HaggaiRamey, Genie Harrison, Arash Homampour, Neville Johnson, Bill Karns, Aimee Kirby, James Kristy, Lawrence Lallande, Anthony Luti, Shawn McCann, Minh Nguyen, Linda Fermoyle Rice, David Rosen, Jeffrey Rudman, Ibiere Seck, Douglas Silverstein, Armen Tashjian, Kathryn Trepinski, Geraldine Weiss, Jeff Westerman, Ronnivashti Whitehead, Andrew Wright, Dan Zohar Orange County Trial Lawyers Association Secretary President Geraldine Ly Scott Cooper Treasurer President-Elect Casey Johnson
B. James Pantone
Second Vice President Vincent Howard Third Vice President
First Vice President Ted Wacker
H. Shaina Colover
Parliamentarian Jonathan Dwork Immediate Past President Executive Director Janet Thornton
Board of Directors Melinda S. Bell, Gregory G. Brown, Anthony W. Burton, Brent W. Caldwell, Cynthia A. Craig, Jerry N. Gans, Robert B. Gibson, Paul E. Lee, Kevin G. Liebeck, Christopher E. Purcell, Solange E. Ritchie, Sarah C. Serpa, Adina T. Stern, Douglas B. Vanderpool, Janice M. Vinci, Atticus N. Wegman Periodicals postage paid at Los Angeles, California. Copyright © 2013 by the Consumer Attorneys Association of Los Angeles. All rights reserved. Reproduction in whole or in part without written permission is prohibited.
ADVOCATE (ISSN 0199-1876) is published monthly at the subscription rate of $50 for 12 issues per year by the Consumer Attorneys Association of Los Angeles, 800 West Sixth Street, #700, Los Angeles, CA 90017 (213) 487-1212 Fax (213) 487-1224 www.caala.org
Send address changes to ADVOCATE
c/o Neubauer & Associates, Inc. P.O. Box 2239 Oceanside, CA 92051 6 — The Advocate Magazine
coverage for “business interruption” 12 Insurance Learn the ins and outs of this common, yet often tricky commercial coverage. Michael L. Cohen & Heather M. McKeon
off the toolbox to move your case along 24 Dust Judicial reference to a referee can help you better cope with courtroom delays. Hon. Linda B. Quinn (Ret.)
study: Fighting for small business against 32 Case a corporate defendant
A righteous cause, supporting facts and a story with jury appeal make the business contingency case worthwhile. Richard P. Kinnan, Paul A. Traina, and Scott A. Marks
liability: Avoiding the “land of the lost” 46 Products Your medical-device case was removed to federal court. Learn how to get it back in state court, where it belongs. Stewart R. Albertson
reversible arbitration award 56 The The rules of the game for judicial review have changed in California, and it’s not a moment too soon. Herb Fox
litigation and social media 66 Employment Employers, including plaintiff law firms, need to understand the risks presented by use of social media in the workplace. Nina B. Ries
evidence of lost profits when the tax returns 76 Present don’t show any profits Closely held corporations can present special challenges in proving damages. Anthony A. Liberatore
Little and the future of class actions 84 Chicken Is the sky falling after the American Express v. Italian Colors ruling? Rhett T. Francisco, Trevor R. Hindin and Andrew J. Sokolowski
stick and the carrot: Martinez and the 86 The “last offer rule” An updated look at the CCP 998 offer to compromise. Albro L. Lundy, III, and E. Thomas Moroney
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Submitting articles for publication: Check the annual editorial calendar at www.theadvocatemagazine.com to see when your legal topic would be most appropriate. Articles on time sensitive matters are welcome throughout the year, as are opinion columns, humor pieces, human-interest stories, lifestyle and personality features. Send your article as a WordPerfect or Word document attachment to e-mail: email@example.com. Please check the website for complete editorial requirements. Reprint permission: E-mail written request to Managing Editor Cindy Cantu: firstname.lastname@example.org
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Medical billing: The code war
The ICD and why you should care about a big change on the horizon. Miles B. Cooper
A short reckoning of good legal writing
Demonstrate your virtuosity from the very first word – you’re writing for a tough audience. Howard S. Shernoff
A BOUT T HIS I SSUE Business litigation on contingency. Linda Fermoyle Rice
Purton v. Marriott Int’l, Inc. sets new boundaries for respondeat superior as to employees who become intoxicated. Nickerson v. Stonebridge Life Ins. Co. affirms a punitive damage award ratio of 10:1 in a bad-faith case with no physical injuries.
E XECUTIVE D IRECTOR
Consumer Attorneys Association of Los Angeles
The First Monday in October What will the corporate-friendly U.S. Supreme Court do next?
Orange County Trial Lawyers Association
Honoring our military veterans “Never above you. Never below you. Always beside you.”
G OVERNMENT R EL ATIONS B ULLETIN Political Updates from Sacramento and Washington Opening the statute of limitations for victims of child abuse and keeping discovery rules fair.
Appellate reports and cases in brief
Jeffrey Isaac Ehrlich
CAALA R ESOURCE C ENTER Affiliate Vendor Directory
D IRECTORY OF A DVERTISERS C ALENDAR OF E VENTS
Your resource for legal service providers.
CAALA C ONNECTION C ENTER Welcoming new members who have joined CAALA THE
Consumer Attorneys Association of Los Angeles
Proud and happy about CAALA VEGAS 2013 “The whole was greater than a sum of its parts.”
On the cover: Main Image: Knocking Out the Large Competition | Digital Vision | www.thinkstockphotos.com Secondary Image: Referee Separating Two Businessmen in Boxing Ring | www.thinkstockphotos.com
The Advocate Magazine — 7
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Linda Fermoyle Rice
Linda Fermoyle Rice Associate Editor
Business litigation on contingency It’s looking more appealing to a lot of personal injury attorneys Let me just begin by saying I don’t know the first thing about litigating a By Linda business case, so when I wasFermoyle asked toRice serve as editor for this edition of Advocate, I knew I would need help. In February, I convened a meeting of knowledgeable colleagues anxious to help with my task. Thanks to Michael Cohen, Carolin Shining, Anthony Liberatore, Herb Fox, Michael Parker, Charles Murray, Nina Ries and Ric Kinnan for a spirited round-table discussion of what was hot in business litigation and what was not. Ric Kinnan was fresh off a big win in a David vs. Goliath-type case he tried with partner Paul Traina and Scott Marks. In fact, it was Marks who initially contacted me about their case and wanted me to consider an article in Advocate. I kept that voice mail message for months after I attended Scott’s funeral. Losing Scott was a blow to all of us who knew and respected him. For his new partners, Ric and Paul, it was a sudden and devastating loss. They have credited Scott as an author in the article they wrote, as it was he who conceived it. It is a fun read with some great insights into the complexities of litigating on behalf of a small company against a major corporation. Anthony Liberatore’s article about how to prove a lost profit when a business
has never shown a profit on its tax returns will be invaluable. He tracks all of the elements necessary to recover economic damages in this kind of situation with some helpful citations and a real-life case illustration. If you or a client has business interruption insurance coverage, the article by Michael Cohen and Heather McKeon is a must read. As you might imagine, there are a million ways for an insurance company to deny coverage. This article will alert you to the nature and extent of the coverage and when you can expect trouble from the carrier in collecting on a claim. Nina Ries’ article about avoiding litigation arising out of social media concerns is both timely and comprehensive. Her advice to clients deserves attention not only from lawyers who advise on businesses practices, but from plaintiff attorneys who are bringing employment actions that involve the use of social media at work. One subject that was of great interest to all the business litigators with whom I met was arbitration. Many businesses use binding arbitration clauses with their customers, clients and each other. Generally, such awards have been considered the final word in the conflict, regardless of
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whether the arbitrator properly applied the law in reaching a decision. Herb Fox does an excellent job exploring how California law has begun to encroach on this assumption. His article, “The Reversible Arbitration Award” will be of interest not only to business litigators, but to anyone compelled to arbitrate because of a contractual arbitration clause. As always, we bring you a few timely articles that stray from our theme. Miles Cooper talks about changes afoot in the byzantine world of medical billing. When you’re looking to prove medical damages, that coding matters. Hon. Linda Quinn (Ret.) suggests pulling out some tools from the litigation toolbox to move your case through the overburdened courts, in particular the use of judicial reference to a referee. If you’re thinking of tackling a products liability case, Stewart R. Albertson is here to tell you how to get your case back in state court after the defendant summarily removes it to federal court. Great stuff! Howard Shernoff, who now practices with his father, William Shernoff, is a former English teacher. What he has to say about legal writing is something we all need to hear. It’s concise, as our writing should be. Finally, the trio of Rhett T. Francisco, Trevor R. Hindin and Andrew J. Sokolowski look at the U.S. Supreme Court ruling in American Express v. Italian Colors and tell us why the sky is not falling in the world of class actions. I learned a great deal from everyone who helped me along the journey to this issue of Advocate. Since, after nearly ten years, it is the last Advocate I will be editing, I am pleased to be able to say that, notwithstanding my general ignorance of business litigation, I am very proud of this material and think you will enjoy it – whether you regularly do business litigation or not.
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10 â€” The Advocate Magazine
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Michael L. Cohen
Heather M. McKeon
Insurance coverage for “business interruption” Learn the ins and outs of this common, yet often tricky commercial coverage The payment of a claim for business interruption can often mean the difference between the business surviving a catastrophic loss and going under. This is especially true for small businesses and for new businesses. Without the receipt of ongoing and accurate payments of business interruption benefits, most businesses will not be able to continue to pay employees or meet customers’ demands. If a business is unable to keep its employees and customers during the period of time that the factory or store is being repaired, then there will be no one to assist when the company resumes operations, nor will there be customers who want to purchase the product once repairs are complete. If the business interruption claim is handled properly, the carrier should make ongoing payments for business interruption benefits that will allow the business to resume operations upon completion of repairs. This article then, addresses the basics of coverage for business interruption, a critical form of insurance coverage for a business that has suffered a loss covered by a commercial property policy.
What is “business interruption” coverage?
Coverage for “business interruption” is a form of insurance coverage included in most commercial property insurance policies. It provides indemnification for loss of income that a business suffers and additional expenses that a business incurs because of a covered loss, such as flood, fire or theft.
A typical provision for business interruption coverage
The language in a typical provision for business interruption coverage reads something like this: 12 — The Advocate Magazine
The policy to which this business interruption endorsement is attached is extended to cover loss directly resulting from the necessary interruption of business incurred by the insured during the period of interruption. This loss must result directly from direct physical loss or damage insured against by this policy. In addition, the loss or damage must be to property not otherwise excluded by this policy, utilized by the insured, and located at premises described in the declarations. The period of interruption or restoration means the length of time as would be required, with the exercise of due diligence and dispatch, to rebuild, repair or replace such described property as has been lost or damaged with materials of like kind, size, capacity, and quality.
Parsing the policy language As with any insurance contract, the language is critical. The first sentence grants coverage, extending the policy’s promised financial protection to “loss directly resulting from the necessary interruption of business incurred by the insured during the period of interruption.” The next two sentences either restrict coverage (“loss must result directly from direct physical loss or damage”) or place conditions on the coverage (“loss or damage must be to property not otherwise excluded by this policy,” the property must be “utilized by the insured,” and the property must be “located at premises described in the declarations”). One requirement for a business interruption claim is that the loss must arise from damage to the covered property
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and from a covered peril. If, for example, a factory is damaged by an earthquake, and the insurance policy does not provide coverage for earthquakes, then there will be no business-interruption claim. In contrast, if a fire destroys an insured factory, then losses that occur directly from the fire will be covered. The “period of interruption or restoration” can limit potential recovery for business interruption. Again using a fire as an example, the period of interruption or restoration limits the insured’s recovery to losses incurred during “the length of time as would be required, with the exercise of due diligence and dispatch, to rebuild, repair or replace such described property as has been lost or damaged with materials of like kind, size, capacity, and quality.” Thus, if the policyholder fails to act with “due diligence
and dispatch” and instead unreasonably delays in making the necessary repairs, the insurance company might reduce the amount it pays. Similarly, if changes in building codes or safety regulations cause the restoration to take longer than it would have taken to complete the restoration “with materials of like kind, size, capacity, and quality,” a carrier might reduce the recovery for this reason, too. Sometimes there can be a mismatch between the “period of interruption or restoration” and the time when the business actually incurs a loss of profits. Consider the example of a commercial bakery that suffers a fire that destroys its oven, making it impossible for the company to bake bread for two months. During the two months that the bakery could not bake bread, the bakery sold the
frozen dough it would have used for baking and thus did not incur any loss of income during the first two months after the fire. When the bakery is able once again to bake bread, it does not have any more frozen surplus and cannot meet its customers’ immediate demands. The bakery then sustains a loss of income in months three and four as it regains its full capacity and restocks its frozen surplus. In this scenario, the insurance company will argue that it does not have to pay for any lost profits because no loss of profits occurred during the period of interruption or restoration. But if the insured had not sold its frozen surplus during the first two months, then the carrier likely would argue that the insured failed to mitigate its damages. The policyholder is caught in a Catch-22.
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To avoid this problem, the policyholder must produce appropriate documentation to avoid the inherent problem with business interruption coverage of mitigating damages without forfeiting an insured’s right to recover for loss of profits caused by a covered loss.
How courts have interpreted provisions for business interruption coverage
Provisions that grant coverage are supposed to be interpreted broadly and in favor of the policyholder. (MacKinnon v. Truck Ins. Exch. (2003) 31 Cal.4th 635, 648.) Provisions that restrict coverage or that impose conditions on coverage are supposed to be interpreted narrowly and against the insurance company. Note our use of that mealy-mouthed phrase, “supposed to be.” Unfortunately for policyholders, in the few cases in which California courts have interpreted business interruption provisions, the courts have interpreted these provisions narrowly, strictly, and against the policyholder. The decision in Fresh Express Inc. v. Beazley Syndicate 2623/623 at Lloyd’s et al., (2011) 199 Cal.App.4th 1038, is a good example of this tendency. Fresh Express purchased insurance specifically designed to insure its loss of profits caused by a recall of its spinach products. In September 2006, there was a nationwide recall of spinach after an e- coli breakout occurred in bagged spinach. Responding to this recall, Fresh Express pulled its bagged spinach from the shelves. The company suffered millions of dollars in lost profits. Fresh Express’s policy provided business interruption coverage for recalls caused by the accidental contamination caused by an error by Fresh Express. While a jury found that Fresh Express was entitled to its policy limits for business interruption, the Court of Appeal overturned the judgment because, according to the Fresh Express court, it was not any negligence by Fresh Express that caused the recall. Thus, even though Fresh Express was undeniably harmed by the recall, because the court determined that the e-coli did not occur at the Fresh Express packaging 16 — The Advocate Magazine
plant, the Court of Appeal decided Fresh Express was not entitled to coverage. Another example is MRI Healthcare Center of Glendale, Inc. v. State Farm General Ins. Co. (2010) 187 Cal.App.4th 766. In MRI Healthcare, a rainstorm caused the insured’s building to suffer a covered loss to its roof. To make the repairs to the roof, MRI Healthcare had to “ramp down” its MRI machine. Once the repairs to the roof were completed, MRI Healthcare attempted to “ramp up” the MRI machine but was unable to do so. MRI Healthcare’s business was interrupted from August 2006 until December 2006 while the roof and later the MRI machine were repaired. State Farm refused to pay insurance benefits for business interruption, and MRI Healthcare sued. State Farm moved for summary judgment. The carrier argued that the rainstorm was not the efficient proximate cause of the business interruption loss but rather the “ramping down” of the MRI machines was the efficient proximate cause of the loss. State Farm argued that because the “ramping down” of the MRI machine was not a covered loss, there was no coverage for the business interruption. The trial court and the Court of Appeal agreed with State Farm that even though the rainstorms caused the roof damage which required the “ramping down” of the MRI machine, the loss of business was not caused by the rainstorms. Consequently, State Farm did not owe coverage. In many cases, business interruption insurance is only available if there is a complete suspension of operations. In other words, if a business is only partially hampered by a covered loss and the policy contains the phrase “loss of income due to the necessary suspension of operations” or similar language, there might be no recovery for business interruption. (See Buxbaum v. Aetna Life and Cas. Co. (2002) 103 Cal.App.4th 434.) In Buxbaum, the business continued operating at a reduced capacity, which resulted in a loss of profits, but that was insufficient to trigger a recovery of business interruption benefits. This interpretation puts the insured in the unenviable
position of possibly being in a better position to collect insurance benefits if it suspends its operations completely. This can be a risky position to take: the carrier is likely to argue that a complete suspension was unnecessary and that the policyholder failed to mitigate its damages. Under these circumstances, the insured still might not be entitled to benefits, but now it has also generated no profits during the repairs. There is, nevertheless, some reason for hope. There are few reported cases interpreting provisions for business interruption, and most cases involve disputes between two or more insurance companies fighting about contribution to a loss involving payments for business interruption. In other words, two or more carriers are fighting about how much each owes for business interruption, but there is no dispute in these cases whether business interruption was covered.
What is “extra expense”?
Besides lost profits, business interruption coverage usually provides coverage for “extra expense.” Coverage for extra expense can provide benefits for the various types of expenditures that commonly occur after a fire or other covered loss. Extra expenses can be any added expense incurred because of the covered loss. Insureds often do not realize that this coverage exists and focus on lost profits. But there can be substantial expenses incurred by a business following a loss such as a fire that it can recover from its carrier if the business properly submits and documents its claim. Coverage for “extra expense” is typically found in an insuring clause that reads something like this: This policy shall also pay for the reasonable extra cost to make temporary repairs and to expedite the permanent repair or replacement of property damaged by an insured peril, including overtime and the extra cost of express or other rapid means of transportation. There are many kinds of expenses that can be covered by extra expense,
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such as additional overtime for workers to get the factory functioning again, additional energy expenses if the manufacturing equipment is being run for more hours than usual to respond to the shut-down following a fire, additional shipping and freight charges caused by the need for rush shipments. Our list is not exhaustive. Each insured must look at its own expenses following a loss to see what types of extra expenses it has incurred because of the loss.
Submitting a business-interruption claim
Most policies contain complicated formulas for calculating the loss of profits during the shut-down of operations following a fire or other covered peril. For
instance, most policies will pay for a reduction in gross earnings then define gross earnings using a formula similar to this: Total net sales value of production, total net sales of merchandise, and other earnings derived from operations of the business, less the cost of raw stock and the supplies consisting of materials consumed directly in the conversion of such raw stock; merchandise sold and any other non-continuing expenses. It is often difficult to prove lost profits and gross earnings without submitting tax returns. Individual tax returns are privileged and do not have to be produced to an insurance company. The law is less clear on whether a corporation has
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the same right to privacy as it relates to its tax returns. (See Roberts v. Gulf Oil Corp. (1983) 147 Cal.App.3d 770.) Therefore, an insured might be forced to choose between maintaining the confidentiality of its tax returns, which might make the claim harder to prove, and disclosing the tax return, which waives any claim for confidentiality. Another problem often exists if an insured decides to produce its tax returns as the best evidence of its gross earnings. Most companies, especially small companies, rarely show a profit on their tax returns. Insurance companies use this fact against the insured arguing that the insured did not lose profits because of the fire because the company did not show any profits before the fire. Before an individual or a corporation decides to produce its tax returns to support its insurance claim, the policyholder must understand the gross earnings stated in the returns and must be prepared to explain any discrepancies between the figures stated in the returns and the claim submitted to the carrier. In many instances, the business’s accountant will have to discuss the company’s financial picture with the insurance company before the carrier will pay benefits for business interruption. If a business does not show any net income or profit on its tax returns, the insured might still be entitled to recover its normal operating expenses. In Amerigraphics, Inc. v. Mercury Cas. Co. (2010) 182 Cal.App.4th 1538, the Court held that an insurance policy, which stated that it would provide benefits for net income and continuing normal operating expenses, requires the carrier to pay the normal operating expenses, even when there is no net income. Insurance companies also take into account the experience of the business when determining the benefits owed for business interruption. The following clause is typical: In determining the amount payable under this endorsement, due consideration shall be given to the experience of the business before the period of
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interruption and the probable experience thereafter had no interruption of business occurred. This type of clause can be problematic for both new insureds and insureds whose businesses are seasonal. Because a
new business does not have a track record, it can prove extremely difficult to establish lost profits. With no history of profits, an insurance carrier often will argue that the business did not lose any profits during the period of recovery or
restoration because the company was not earning profits before the loss. A new business will have to submit evidence of projected earnings based on its limited history, which usually results in a lower-than-expected benefits for business interruptions. The Court in Amerigraphics addressed this point. It held that new businesses should be compensated for their normal operating expenses, even if there is no net income, because if the policy was not interpreted that way, then a new business would never be entitled to business interruption coverage. Seasonal businesses have problems that are similar to those for new businesses. For instance, a clothing store that specializes in intimate apparel will have its largest profits in February and December. A water loss that occurs in October preventing the business from operating for five months including December and February can have a substantially greater impact on the loss of profits than a water loss in March that is repaired by September. In this situation, the insurance company will rely on the business’s experience for the five months preceding the water loss (May, June, July, August and September) to determine the gross earnings. The insured, on the other hand, is going to want to provide evidence of the prior years’ earnings for November, December, January and February, which will provide a much more accurate picture of the loss suffered by the seasonal business. Insureds must provide documentation that shows as complete a story as possible when attempting to collect business interruption benefits. Insureds should be prepared to present this documentation and not rely on their carriers or the carriers’ adjusters to ask for it. Michael L. Cohen and Heather M. McKeon are the principals in Cohen McKeon LLP. Cohen received his J.D. in 1992 from Harvard Law School, and was a member of the Harvard Law Review. McKeon graduated in 1996 with honors from Georgetown Law Center. They devote a substantial part of their practice to representing policyholders in cases involving insurance coverage.
20 — The Advocate Magazine
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T Hon. Linda B. Quinn (Ret.)
Dust off the toolbox to move your case along Judicial referees can help you better cope with courtroom delays During the 10 years I was a civil litigator, a metal box holding 3” x 5” cards had a prominent place on the desk of the senior partner’s secretary. Attorneys were instructed by that formidable authority that a 3” x 5” card must be created for every case, calendaring a date five years hence. That far-away date triggered a drop-dead day when trial must begin or the case was automatically dismissed by statute. Bumping up against the fiveyear deadline was reality in every case. I spent many Friday mornings at master calendar call knowing a courtroom would not be available, but being ready for trial “just in case.” Coded entries on billing 24 — The Advocate Magazine
records included one for trial prep and a different code for “trial re-prep.” The billing records for cases were blighted with charges for “trial re-prep” because of courts’ inability to provide courtrooms for trial. Shortly after I joined the bench, the age of fast-track litigation dawned and cases were tried within 12 to 24 months of filing. Several generations of attorneys today have never known that critical step of calendaring the five-year date in the tickler system. The bad, old days are upon us again in the world of litigation. Budget cuts in the hundreds of millions of dollars have
resulted in courtrooms being shuttered and moth-balled, court staffing slashed by firings and attrition, and elimination of critical resources. These conditions are not only yesterday’s news, they are the new normal. Chaos management is the rule of the day. Reports of draconian changes in courts are floated, then reretooled, then implemented, then modified, then a new round of budget slashes cause courts to go back to revise the plan.
No bad news – please!
Clients don’t want to hear bad news about their case. They really don’t want
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to hear that the logistics of presenting their case are subject to fickle budget plans. Clients don’t want to hear the negative impact on their civil case is exponentially higher because of the statutorily and socially mandated priority of criminal, juvenile and family-law cases. This bleak environment leads the average client to send screeching e-mails and voice messages with the following themes: “What do you mean the motion you convinced me to pay for can’t be heard for five months?” “What do you mean the opposition hasn’t followed the rules on responding to discovery just because they don’t have to without me paying for a motion to compel that won’t be heard for six months??” “What do you mean my trial date was vacated???” “What do you mean my case was transferred downtown????” These times have inspired our Chief Justice to say we may be facing a “civil rights’ crisis” in the function of delivering justice to all. Such a statement of impending doom doesn’t engender trust and confidence for clients entering this vortex of chaos.
Looking for a sharper tool?
The time has arrived to dust off our toolbox and pull out tools for the timely and effective presentation of cases to a trier of fact while preserving opportuni-
ties to appeal. An underused tool that may help regain some control over your case is a judicial reference to a referee. The tool of any private-judging protocol must initially address three public policies. The first is a judge’s limited ability to delegate court functions. The second is the public’s right of access to court proceedings, and the third is preserving appellate rights from a trial court’s ruling. There are two avenues that lead to the appointment of a referee under the judicial reference framework. The nonconsensual route is found at Code of Civil Procedure section 639 and the consensual path starts at Code of Civil Procedure section 638. While the consensual path is where this article strives to point the reader, a review of the non-consensual opportunities is first presented.
No thanks – not interested
When parties do not consent to the appointment of a judicial referee, a judge’s authority to appoint a referee, either by motion of a party or on the court’s own motion, is limited to: • When the case requires examination of a long account, a referee may be appointed to report on a specific fact or decide the entire issue; • When an account is necessary before judgment, or for implementing a judgment or order;
• When a question of fact, other than upon the pleadings, arises at any stage of litigation; • When necessary for information of the court in a special proceeding; • When necessary to resolve disputes regarding discovery. The written order must include the basis for the necessity of the appointment, the scope of the appointment, the name of the referee, and a finding that no party has established an economic inability to pay for the referee or that a party has established an inability to pay its pro rata share of the fees and another party has voluntarily offered to pay the additional share of the referee’s fees. California Rules of Court, rules 3.920, et. seq. provide more specifics in the serpentine route toward the non-consensual appointment of a referee. Once you have brought a successful motion for appointment of referee for one of the limited purposes described above, the product of the referee is only advisory. The court may adopt the referee’s recommendations only after independently considering the referee’s recommendations and objections to the recommendations. Even when no objections to the recommendation are filed, the court must independently review the recommendation. The use of a non-consensual referee remains a limited tool to be used primarily for discovery hurdles or accounting cases rivaling the task of state budget officers looking for funds to run a judiciary.
Hmmm – maybe this can be mutually beneficial
Judicial referees appointed by the consent of the parties have broad powers that can allow your case to escape the increasing challenges of being within the confines of resource-starved courts. A judge may appoint a referee on the stipulation of parties to hear and determine any and all issues in an action, whether of fact or law, and issue a statement of decision or ruling. (Code Civ. Proc, § 638.) A referee may also be appointed
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upon the motion of a party to a written contract that provides any controversy arising from it will be heard by a referee. (Ibid.) The decision of a referee appointed under section 638, that is, by consent of the parties, may be reviewed on appeal as if made by the trial court. (Code Civ. Proc., § 645.) A review of literature on judicial references reflects some confusion as to which rulings of a referee are advisory and which are binding. As shown below, this writer concludes that a consensual reference of either all or a portion of a case results in the referee’s decision being binding and available for appellate review. A non-consensual reference is limited to the topics specifically described in section 639 and the referee’s decisions under section 639 are advisory
only to the trial court with the trial court being required to independently review the referee’s recommendations. Section 644, subd. (a) states: In the case of a consensual general reference pursuant to section 638, the decision of the referee … upon the whole issue must stand as the decision of the court, and upon filing of the statement of decision with the clerk of the court, judgment may be entered thereon in the same manner as if the action had been tried by the court. The word “general” is not found in any other section of the Code of Civil Procedure relating to judicial references. The term has been described by some writers as synonymous with “for all purposes.” It has prompted the erroneous use of the term “special” reference to
refer to a consensual reference for less than all purposes of a case, such as for a single motion, in spite of the fact that the term “special reference” is not used in the Code, either in the context of consensual or non-consensual references. Section 644, subd. (b) states: In the case of all references, decision of the referee or commissioner is only advisory. The court may adopt the referee’s recommendations, in whole or in part, after independently considering the referee’s findings and any objections and responses thereto filed with the court. A review of the code sections and cases support a conclusion that consensual reference of a portion of a case for less than all purposes can avoid the
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limitation of a referee’s ruling being only advisory and subject to the time consuming independent review of the judge. A consensual reference may segregate specific motions from the case and allow a referee to make binding determinations on segregated elements of the case. Two cases are instructive in the interpretation of the term “general” as used in section 644, subd. (a). In Aetna Life Insurance v. Superior Court of San Diego (1986) 182 Cal.App.3d 431, the trial court assigned all law-and-motion to a referee without written consent of the parties. The appellate court swiftly reached the conclusion that such a practice was decidedly outside the scope of section 639, describing permissible nonconsensual references. The opinion
30 — The Advocate Magazine
leaves no doubt the court did not interpret a “general” reference to be one synonymous with “for all purposes.” It held, “A court has no power to make an uncontested-to general reference, which conclusively decides all or part of a matter; …such a general reference is not authorized pursuant to Code Civ. Proc., § 638, except by explicit agreement of the parties.” (Ibid.) In Jovine v. FHP, Inc. (1998) 64 Cal.App.4th 1506, the court addressed the topic of appointing referees without consent of the parties for law-and-motion matters. Again, the practice was quashed and the court discussed the scope of appointments of referees with the consent of the parties. “A ‘general’ reference is conducted pursuant to section 638 …
which authorizes the trial court to refer any or all issues to a referee for trial and determination, provided that the parties have agreed thereto in an agreement filed with the clerk or judge or entered in the minutes or docket…The finding and determination of the referee upon the whole issue must stand as the finding of the court and judgment may be entered thereon in the same manner as though the matter had been tried by the court.” (Id. at 1522, citations omitted) Although there have been articles written which argue only consensual references of the entire case avoid the onerous and time consuming requirement of an independent review by the judge, the above discussion supports the practice of consenting to a referee for select portions
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of a case without the referee’s ruling being only advisory and subject to an independent review by the judge.
Come on – give it a try
This discussion has likely done nothing but set your thoughts in the direction of “What good is this to me? – I’ll never get that foot-dragging opposing counsel to take any part of this case outside to a private referee.” Opposing counsel may react suspiciously. Starting with the premise that his or her case has the slow oar in the water and no impetus to speed up the case, the creative opposing counsel’s resistance will appear to be boundless. Polish up your power of persuasion with a comprehensive proposed Stipulation for Appointment of Referee. The proposal should first cover issues that must be protected in any reference. Specify the ethical obligations of the referee under California Judicial Canons of Ethics, subdivisions (D)(2)(f) and (g) and California Rules of Court 3.924(b)(2) requiring disclosure of personal and professional relationships and potential conflicts. This may also be an area to offer an expansion of the disclosure requirements, for the comfort of opposing counsel. A referenced matter is subject to the public policy of making proceedings open to the public. Your proposed stipulation should describe that mechanism. Include in your proposal the provision that all pleadings will be filed concurrently with the court, showing place, date and time of any hearings in the referenced matter. A public policy that must be protected is the public’s access to legal proceedings. Confirm with your potential referee his or her ability to conduct hearings at locations with access by the public. Confirm with courts how referenced matters will be noticed to the public and include these terms in the proposed stipulation, not only for the comfort of opposing counsel, but for the judge who will be considering your Stipulation for Appointment of Referee. Check what your jurisdiction is doing with empty courtrooms. Although most potential referees will have accommodations for any
members of the public to attend hearings, those empty courtrooms may be available for hearings on referenced matters. Do the reconnaissance and preparation to support a comprehensive proposed stipulation to opposing counsel. Include the enticements of less formal communication with a referee, e-mail letter briefs, greater use of telephone conferences, quicker access to a referee than a judge and a more streamlined presentation of evidence. These are points that may be persuasive to the attorney with even the slowest oar in the water. The ability to choose a referee can either be a selling point or one where opposing counsel may prefer to not take responsibility. Consider either an agreement to a specific selected referee or a suggestion the judge choose and appoint a referee upon each counsel’s nomination of up to three potential referees to the court. Parties retain appellate rights following decisions by referees appointed by consent or stipulation. Propose the manner of reporting referenced proceedings. You have options of being innovative and cost-effective. While an appeal from a trial of a referenced matter will be heard on a Statement of Decision or Settled Statement without a transcript of the proceedings, consider a court reporter or digital recording for the purpose of providing the referee a full transcript from which a complete and thorough Statement of Decision or ruling can be prepared. Set aside fears of presenting a less than adequate record to a Court of Appeal by identifying attorneys’ expectations of the referee regarding the content of the Statement of Decision. Check with your Court of Appeal regarding what type of record it prefers in all reference matters. Include the specific scope of the referee’s appointment. If it is for a single law-and-motion matter, retain referee powers through any potential motion for reconsideration. If the scope of the appointment is for a trial, preserve referee powers to address post-trial matters, such as motions for new trial. Always
address the cost of the reference. In the absence of an agreement, the court may order referee fees paid in any manner deemed “fair and reasonable.” (Code Civ. Proc., § 645.1.)
Dig deep in the toolbox
Innovative uses of the consensual judicial reference will depend on the particular crises in your jurisdiction. Your court may not be able to adequately provide trial courtrooms. It may be able to get a case to trial, but not schedule a motion for five to six months, derailing your litigation plan. Your case may be dependent on specific facts that benefit the case by an early determination. Keep in mind there is nothing in the Code of Civil Procedure or the California Rules of Court that limit references to only nonjury trials. There are many resources available today in which to conduct private jury trials whose verdicts can be reviewed on appeal. Innovation starts with preparation. A proposal for Stipulation for Appointment for Judicial Reference may be just the tool to pull out of your toolbox and present to cooperative or persuadable opposing counsel with his or her own litigation challenges in the face of the ever changing war zone of financially weary courts. Linda B. Quinn is a mediator/arbitrator/referee with Judicate West’s offices throughout California. Prior to joining Judicate West, she was a judge with the San Diego Superior Court from 1987 through 2011. She was supervising judge of the civil division from 2005-2007 and presided over civil and family cases for most of her service with the court. She practiced business and real estate law before being appointed to the court. Judge Quinn has been an instructor with Judicial Education, State Bar, Rutter Group, San Diego County Bar and others throughout her career and earned a B.A. from University of California San Diego and J.D. from California Western School of Law.
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Richard P. Kinnan
Paul A. TrainaAttorneys Association of Los Scott Angeles A. MarksAttorneys Association of Los Angeles
Case study: Fighting for small business against a corporate defendant A righteous cause, supporting facts and a story with jury appeal make the business contingency case worthwhile Our case began with a big company, Wyndham Vacation Ownership, intentionally defrauding a small business, Casablanca Express, out of millions of dollars, and ended four years later with a downtown Los Angeles jury returning a unanimous $3.9 million verdict against Wyndham for breach of contract and a finding of “fraud, oppression, or malice” for purposes of punitive damages. While the jury was deliberating during the punitive-damages phase of the trial, the case settled for a confidential amount payable (and paid) within 30 days. Because the judicial system worked, Casablanca, rather than closing its doors and filing for bankruptcy, gave all its employees bonuses for their loyalty and hard work through the trying times brought on by Wyndham’s fraud. We share our story here in hopes that something about our journey will help you with yours. Our discussion is aided by our lengthy post-verdict telephone conversations with several of the jurors, who shared with us what they thought was important in a business litigation trial.
Wyndham and Casablanca had a 20-year business relationship in which Casablanca devoted nearly all of its resources to helping Wyndham market the sale of its timeshare properties. Each year, Casablanca made millions of dollars because of its contract with Wyndham. By 2008, the year that the fraud occurred, Wyndham was the largest seller of timeshares in the world. The parties’ contract provided for a substantial severance payment of several million dollars by Wyndham to Casablanca in the event Wyndham decided to terminate their relationship. Wyndham, which secretly had decided to end its relationship with Casablanca, persuaded its owner to sign 32 — The Advocate Magazine
a new contract, without the severance provision, by promising Casablanca an exclusive, long-term relationship going forward. Within a year of the signing of the new contract, Wyndham terminated its relationship with Casablanca.
Deciding whether to take the case
Believing that it had been wronged, Casablanca set out to hire a lawyer. Several prominent firms chose not to take the case. The Marks Law Firm, however, saw the righteousness of the case and signed on with a creative fee agreement by which the client agreed to pay the
pre-trial costs. The Marks Law Firm made plans to join ranks with a larger trial firm, in this case Engstrom, Lipscomb & Lack, in the event a trial was necessary. The recipe for success in plaintiffside small business litigation starts with three essential ingredients: (1) righteous facts; (2) an honest and likeable client; and (3) a reasonable likelihood that a jury will believe the plaintiff was wrongly taken advantage of by the defendant. With these ingredients, the jury will likely find – regardless of all the legal hurdles to be faced – a way to make things right
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for the small-business victim. Armed with faith that you have a case with these essential elements, you can begin the business litigation trek with the confidence that there can be a happy ending. There are many other important elements to a successful business litigation case: damning corporate e-mails and “smoking guns” located in the midst of tens of thousands of pages of discovery documents; arrogant corporate officers/ employees (including corporate counsel); success in opposing the summary judgment and motions in limine; smart jury selection; good pre-trial depositions for valuable impeachment at trial; professional audio visual technical support; strategically interposed objections during trial; good damages supported by a reasonable expert; helpful jury instructions;
34 — The Advocate Magazine
a team of reasonable and respectful plaintiffs’ lawyers; a judge who is convinced – either before the start of or during trial – that plaintiff ’s case is legitimate; and, a good dose of faith in the system. When Casablanca notified Wyndham that it would hire a lawyer to file suit if Wyndham did not right the wrong, Wyndham’s general counsel wrote to Casablanca stating, “[y]our assertions are baseless and will receive no serious consideration from a court of law.” In the end, poetic justice prevailed, as the same arrogant general counsel who declared Wyndham a winner before litigation even began ended up signing the settlement agreement following the jury’s $3.9 million verdict for fraud and breach of contract.
It bears mentioning that if the contract upon which you are suing contains an attorney’s fees provision, careful consideration must be given the consequences of a bad result before you and your client decide to move forward with a lawsuit. California Civil Code section 1717(a) provides that the prevailing party in an action on a contract containing an attorney’s fees provision shall recover attorney’s fees. Who the prevailing party is, however, is not always clear. In Silver Creek, LLC v. Blackrock Realty Advisor, Inc. (2009) 173 Cal.App.4th 1533, the court explained the basic rules that determine who is the prevailing party. The trial court is charged with deciding which party obtained “a greater relief,” either in terms of quantity or quality. The trial
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court is given discretion to make the ultimate decision. (See also HSU v. Abbara (1995) 9 Cal.4th 863, where Supreme Court found an abuse of discretion.)
The complaint, venue, and assigned judge
The complaint was filed with ten causes of action – from defamation to intentional misrepresentation. At trial, we chose to have the jury instructed on only fraud and breach of contract. In terms of preparing the complaint, we learned that to avoid a claim of waiver in fraud cases, there should be separate causes of action for intentional misrepresentation (CACI 1900), fraud by concealment (CACI 1901), and, false promises (CACI 1902). It is rarely necessary to plead more than three or four causes of action. The current
CACI jury instructions should be used as a starting point for the law of your case. The parties’ contract had a venue provision which called for legal action to be filed in Los Angeles County, so the matter was filed in downtown Los Angeles and venue was never challenged. The case was assigned to a judge who heard our discovery motions to compel, granted them and awarded sanctions against the defendant. The judge also heard defendant’s motion for summary judgment which was summarily denied. There was a battle at the summary judgment stage over whether the parol evidence rule barred defendant’s misrepresentations and promises that were not part of the new contract. The judge sided with plaintiff, holding that: “Evidence of fraudulent
misrepresentations inducing the execution of a contract is admissible as an exception to the parol evidence rule.” (See, Greenspan Volkswagen v. Ford Motor Land Development Company (1995) 32 Cal.4th 985, 993.) The judge also granted plaintiff ’s motion for pre-trial discovery of defendant’s net worth, based upon a finding that there was sufficient proof of a substantial probability that plaintiff would prevail on its punitive damage claim. (See California Civil Code 3295(c) and Jabro v. Superior Court (2002) 95 Cal.App.4th 754, 758.) Sensing things were not going well for Wyndham before the assigned Individual Calendar [IC] judge, defense counsel made a last-minute motion for
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the case to be assigned for trial to the Long Cause Department. Defendant won that battle and the case was assigned to a Long Cause judge. (See, Los Angeles
County Superior Court Local Rules, 2.7(b)(1)(F), Long Cause Matters). The new trial judge granted defendant’s motion in limine to exclude any
and all representations by Wyndham to Casablanca that were not in the new contract, citing the holding in Bank of America Association v. Pendergrass (1935) 4 Cal.2d 258. The California Supreme Court in Pendergrass adopted a substantial limitation on the fraud exception to the parol evidence rule. We argued that the Pendergrass exception did not apply to our case and pointed out that the IC judge had already ruled that the fraud exception was applicable in this case and the parol evidence rule did not apply. As was his position on all his rulings on the motions in limine, the Long Cause judge said that he would agree to revisit his ruling during trial. Fortunately, the judge did reverse his ruling on the parol evidence issue during trial, but not before we were convinced that this new judge had eviscerated the case and that, as a result, we were likely to lose at trial. The lesson here is to be aware of the Long Cause motion and to be ready to quickly and thoroughly educate the new judge on the nuances of your case so as not to lose the traction developed in prior rulings. Three months after the trial was concluded, the California Supreme Court in Riverisland Cold Storage v. Fresno-Madera Credit Assn. (2013) 55 Cal.4th 1169 (2013), overruled the Pendergrass decision and upheld the line of cases which supported the trial judge’s ruling that the parol evidence rule does not bar evidence of fraudulent promises which are at variance with the written contract.
Expect defendants to resist producing all relevant, and especially damning, documents, so be prepared to strike quickly and often with motions to compel and requests for sanctions. In our case, we were repeatedly successful with such motion and sanction requests, which also had the benefit of helping to sour the judge against defendant and its counsel. In discovery we got some really good internal e-mails, one of which, written by one senior executive to another. It said, “We are cutting back Casablanca as much as we can per the contract Lynch signed 38 — The Advocate Magazine
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us up for. We are pretty much stuck with some component of them for a little longer.” At the time this e-mail was written, Wyndham was promising Casablanca that, in exchange for the waiver of the severance agreement, there would be an exclusive, long-term relationship going forward, just as there had been for the past two decades. Videotaped pre-trial depositions are important. All of the important executives at Wyndham were deposed in our case and, to a person, their depositions were effectively used against them at trial. One of the jurors said that the jury did not believe any of the Wyndham witnesses because they were not credible. The jury cited the fact that the chief financial officer had testified at deposition that he did not know the value of the severance agreement that Wyndham convinced Casablanca to waive. Another of the videotaped depositions was extremely harmful to Wyndham not so much for the substance of the testimony, but for the arrogant, rude, and condescending manner of the witness toward plaintiff ’s lawyer.
Motions in limine
Motions in limine in a case like this are a challenge. There are always too many for the judge to properly digest, so he will inevitably get some wrong. Your job is to persuade the judge to agree to revisit the issues at the appropriate time during trial. Be aware that Los Angeles Superior Court Local Rule 3.57(b) states that “[a] motion in limine may not be used for the purpose of seeking summary judgment or the summary adjudication of an issue or issues.” Until the judge understands the case and its issues, granting a motion in limine to exclude parol evidence, as the Long Cause judge was initially inclined to do, would have had the same effect as summary adjudication in this case.
In business litigation cases, invariably there will be lots of trial exhibits consisting of business documents, such as letters, e-mails, contracts, reports, and
analyses. In our case, each side had at least 100 marked exhibits, although only 40 were actually used by the parties at trial. Before trial, counsel stipulated to authenticity and admissibility of most of those that were used. The lesson there is that you need to have at least one member of your team maintain a cordial working relationship with defense counsel up to the time of trial. To ensure the stipulations we needed for the documents, we agreed to allow defense counsel to use and admit at trial any document that had been produced by defendant to plaintiff during discovery. We cannot emphasize enough the time, effort, and anxiety saved by the pre-trial stipulations regarding the trial exhibits. Finally, in any substantial business case we strongly suggest that you utilize a professional audio-visual company to prepare your exhibits and video clips for presentation to the jury during trial. The jurors we talked to all said they really liked our tech guy and his ability to effectively present a document or video (or highlight a portion thereof). The same jurors said that they were rather annoyed by the fact that the other side’s audiovisual guy was much less proficient than plaintiff ’s. In the end, it is worth the money to hire a good company for the audio-visual portions of the trial.
As many of you know, the modern trial now often begins, not with the picking of the jury, but with a mini opening statement delivered to all the prospective jurors sitting in the courtroom waiting to be called to the jury box for questioning. California Code of Civil Procedure section 222.5 provides, in pertinent part, as follows: “The trial judge should allow a brief opening statement by counsel for each party prior to the commencement of the oral questioning phase of the voir dire process.” Usually, the mini opening is limited to five minutes or less so getting to the point is crucial. In our mini opening, we briefly explained the nature of the relationship between Casablanca and Wyndham and discussed the severance agreement. We
told the jurors that their job would consist primarily of deciding whether Casablanca’s owner was simply a moron or whether he was defrauded into voluntarily waiving a multi-million dollar severance agreement that had been firmly in place for many years. In picking a jury, we wanted bright “working stiff ” jurors. In addition to getting the jurors to open up about their feelings for tort reform, the legal system and the nature of your case, we found that jurors who agreed that all the cards should be on the table before parties enter into a contract were “keepers.” With respect to the real opening statement, if you prepare a PowerPoint™ presentation (with excerpts of deposition testimony and key documents, such as emails and contract provisions), be prepared for opposing counsel to object. The use of such presentations during opening statement is forbidden without the mutual agreement between the parties. Theoretically, a stipulation to let each side use such materials during opening may be possible, but such agreement often cannot be reached. Needless to say, preparation is key. Inevitably during trial you will get a ruling that really hurts. Don’t panic. Simply get the judge a short, digestible brief that respectfully explains why he/she is wrong, and why it would be reversible error to let the ruling stand. In our case, we were rolling along really well when all of a sudden the judge sustained an objection to a critically important question we asked of our client: If he had known about the concealed facts, would he have acted any differently in agreeing to sign the new contract? This question went to our fraud by concealment claim. The sustained objection was “calls for speculation.” A concise one-page brief persuaded the judge to reverse himself the following day. The brief read, in part, as follows: “In order to prove a cause of action for fraud by concealment, Judicial Council of California, Civil Jury Instruction 1901 states that plaintiff must prove that he reasonably relied on defendant’s deception. The California Supreme Court in Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 1093 OCTOBER 2013
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holds that ‘it is not logically impossible to prove reliance on an omission. One need only prove that, had the omitted information been disclosed, one would have been aware of it and behaved different-
ly.’” With this authority, the judge saw potential reversible error and allowed the testimony. With respect to cross-examination of defendant’s high level executives, we
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were able to take full advantage of two critical mistakes. The first mistake involved defendants’ presentation of the evidence. Most of the executives called by Wyndham were attractive, well-dressed, well-spoken, and likeable witnesses who were well-rehearsed and knew the defense script extremely well. The problem for Wyndham was that it was painfully obvious that they were all following a well-rehearsed script. Once they were taken off-script during cross-examination, they were largely clueless about nearly all the important facts about the relationship between Casablanca and Wyndham. Their ignorance in this regard made the jury highly skeptical of their testimony. The second critical mistake was Wyndham’s decision to justify its actions toward Casablanca based on changes to their business plans allegedly based on the 2008 recession. This testimony was an effort to show that Wyndham had not acted fraudulently in its dealings with Casablanca. But none of the Wyndham executives produced any documents during discovery or at trial that supported their collective testimony about a change in the business plan. We consistently stressed this obvious point: If, in fact, such business plans exonerated Wyndham from any fault, where were the business plan documents? We pointed out to the jury defendant’s failure to produce documents that supported its theory of the case while we were able to introduce evidence consistent with our position. Wyndham’s damage expert was paid $700,000 to do the lost profits analysis. After getting the $700,000 expert to say he had really studied and analyzed all aspects of the case and was very familiar with all the important facts, he had to admit that there were important facts that Wyndham had failed to share with him. Given the amount he’d been paid, the fact that certain information had been withheld did not sit well with our jury.
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We had several out-of-state corporate witnesses who had to be presented at trial by way of videotape depositions. While that is often unavoidable, to a person, the jurors said they hated watching the videotape depositions, and much preferred when one of plaintiff ’s lawyers took the stand and read the answers from the deposition while the other lawyer read the questions from the podium.
Closing argument matters
The jurors we spoke to told us that closing argument was very important in helping them organize the important facts and law and making up their minds about liability and damages. Although they appreciated our use of Power Point to highlight documents and testimony,
we began by just talking sincerely and passionately about the case and our client, how he was wronged and how the law allows them to make it right. Then turn on the Power Point. In a long trial, make sure to include a detailed damages chart as part of your presentation. The jurors put a great deal of value on the fact that plaintiff and defense counsel treated each other with respect at all times throughout the trial and said they would probably have held it against the lawyer and his client if that had not been the case. We were a team of three trial lawyers trying the case, each with his own style and expertise. The jurors very much appreciated plaintiff ’s team, and we learned that you don’t need to do it all
yourself. Not only did the jury appreciate the different styles each lawyer brought to the courtroom, we learned that working as a team can make a long, otherwise potentially tedious trial fun. The judge insisted – and we recommend this in all business cases – that each juror be provided with his or her own complete set of jury instructions, and, that each juror have their own copy of the special verdict form. Special jury instructions are often important in a business case, as BAJI and CACI do not necessarily cover all of the legal issues. In our case, for example, we requested a special instruction on agency, which turned out to be very important to our case.
Case Study continues
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As against a principal, both principal and agent are deemed to have notice of whatever either has notice of, and ought, in good faith and the exercise of ordinary care and diligence, to communicate to the other.
Wyndham, knowing it was terminating its 20-year relationship with Casablanca, and knowing that termination of the relationship would trigger payment of the multi-million dollar severance agreement, sent two out-of-the-
loop mid-level executives to talk to Casablanca about waiving the severance agreement in exchange for promises of an exclusive long-term business relationship going forward. The special jury instruction on agency foiled Wyndham’s plan to insulate itself from liability for fraud through the use of agents who did not know about the Company’s decision to terminate its relationship with Casablanca. Finally, if you settle the case during trial, which is not uncommon, do not let the judge dismiss the jury until a satisfactory settlement is put in writing, signed by the parties, and put on the record in open court. The settlement must include a provision that it is fully enforceable by the parties and the Court pursuant to California Code of Civil Procedure section 664.6.
Business litigation cases are challenging, but they can be as fun and rewarding as personal injury litigation, especially if you have a committed and well-prepared team ready to go the distance. Choose your cases wisely. If you aren’t convinced you have a likeable and credible client, a jury isn’t likely to be convinced either. However, trying a righteous business case with a good client can be a very satisfying experience – that was the lesson this case taught three experienced consumer attorneys. Paul Traina is a Senior Litigator at Engstrom, Lipscomb & Lack where he specializes in complex business cases, including class actions. Richard P. Kinnan is a Senior Litigator at Engstrom, Lipscomb & Lack handling business, products and personal injury cases, as well as appellate work Scott A. Marks (1957-2013) was a Senior Litigator at Engstrom, Lipscomb & Lack where he specialized in insurance bad faith and business cases. Mr. Marks was an Emeritus Member of the Board of Governors for the Consumer Attorneys Association.
44 — The Advocate Magazine
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Stewart R. Albertson
Products liability: Avoiding the “land of the lost” Getting your medical-device case back from the federal court Your new client has been injured by a medical device, transvaginal mesh, and has required ten difficult explant surgeries to remove it. She is permanently disabled, can no longer work, and she’s in pain 24/7. Liability is clear, damages are significant, and there are no statute-oflimitations issues. To top it off, your client is educated, had a great job before the injury, has three wonderful children, and a loving husband of 20 years. In sum, this is as good as a case gets. You quickly identify the medical manufacturer, which is based out of Delaware, and the implanting doctor from Los Angeles. You draft your complaint against manufacturer and doctor and file it in the Los Angeles County Superior Court. Two weeks later the manufacturer unilaterally removes the case from California state court to the U.S. District Court for the Central District of California, claiming that doctor has been “fraudulently misjoined,” and thus the federal court has jurisdiction because there is complete diversity among the parties in accordance with 28 U.S.C. §§ 1332(a) and 1441(b). The manufacturer also states that the Judicial Panel on Multidistrict Litigation (“JPML Panel”) has established a Multi-District Litigation proceeding (“MDL”) in West Virginia for claims related to the manufacturer’s medical device. Additionally, in a separate step, the manufacturer requests the JPML Panel to transfer the now California federal district-court case across the country to the MDL Court in West Virginia in accordance with the “tag-along” procedure contained in the MDL rules. Finally, the manufacturer files a motion to stay the case at the district court, so that the JPML Panel has time to transfer the case to the MDL court. The manufacturer hopes to have your case transferred to the MDL court so it will die a slow death with approximately 20,000 other similar cases. 46 — The Advocate Magazine
Confused yet? You don’t need to be. In California you have an 80 percent chance of convincing the California federal district court to remand your case to state court before any attempted transfer is made to the MDL court. But you have to jump through several procedural hoops to get the
case returned. Let’s look at what you have to do from a procedural standpoint.
The Courts and the JPML Panel
Before filing anything, you need to know what entities you’re dealing with. There’s the state court, the federal
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district court in the Central District, the Judicial Panel on Multidistrict Litigation (JPML Panel), and the MDL Federal District court in West Virginia. You’ll only be filing motions in the California district court and the JPML Panel. If successful, your case will not be transferred to the MDL court in West Virginia (or wherever your MDL court may be located). Once the case is removed by the manufacturer to federal court, the state court no longer has jurisdiction in any capacity, until the case is remanded. (State courts sometimes try to ignore this rule, and continue to schedule status conferences. It’s best to attend and remind the court that it lacks any jurisdiction over the case. But technically, you can ignore the orders because they are void.) Keep in mind the entire case, even the claims against the doctor, are removed to the California federal district court once a notice of removal is filed.
Procedural steps you must make to get your case returned to state court
Step 1. Make sure you are admitted to practice before the federal court. Make sure you are admitted to practice in front of the federal court where your case was removed. In this article I’ll use the Central District of California for the California federal district court. Step 2. Set up your PACER and Federal courts’ user IDs and passwords. Get a PACER user ID and password. You’ll need it. You’ll also need separate user IDs and passwords for filing your pleadings/motions with the Central District Federal court and the JPML Panel. Step 3. Draft your Motion to Remand. Draft your motion to remand the case, which you will file with the Central District Federal court. Keep in mind that the Central District, under its local rule 7-3, requires you to meet and confer with that manufacturer, and then wait 7 days, before filing your motion to remand. Thus, get the meet and confer completed as soon as possible after you receive the notice of removal. Also, be sure to read the initial standing order of the district
judge you’ve been assigned to when that manufacturer filed its notice of removal. Step 4. Draft your Opposition to Manufacturer’s Motion to Stay. By now Manufacturer has filed its motion to stay (or soon will) in the Central District Federal court. You’ll need to prepare an opposition to the motion to stay. Step 5. File your Notice of Opposition and your Motion to Vacate the Conditional Transfer Order at the JPML Panel. At some point the JPML Panel will issue a conditional transfer order (“CTO”) regarding transferring your case to the MDL Court. Sometimes you get notice of this by e-mail, other times you don’t. So make sure you carefully follow your case on the JPML Panel Web site after you receive Manufacturer’s initial notice of removal. After the JPML Panel issues the CTO you only have seven days to file a notice of opposition with the JPML Panel. Don’t miss this filing. Once the JPML Panel receives your timely notice of opposition, it then sends you notice by e-mail with a briefing schedule that gives you 14 days to file your motion to vacate the CTO with the JPML Panel. Let’s simplify Let’s simplify that a bit. Four primary filings: (1) You will file a motion to remand with the Central District federal court, (2) you will file an opposition to the manufacturer’s motion to stay that was filed with the Central District Federal court, (3) you will file a notice of opposition to the CTO with the JPML Panel, and (4) you will file a motion to vacate the CTO with the JPML Panel. You can also file a reply to the manufacturer’s opposition to your motion to remand, but that’s up to you. And that completes the procedural hoops you have to jump through to get your case returned to state court.
Substantive arguments at the Central District Federal court
• Motion to Remand The motion to remand is straightforward. (I’m happy to provide examples of the motion to remand and the opposition to the motion to stay. Just e-mail
me at email@example.com). Your sole purpose is to get the district judge in the Central District to consider your motion to remand before considering the manufacturer’s motion to stay. If you get the district court to consider your motion to remand first, you have a good chance of getting your case remanded to state court. In your remand motion, argue that the federal court must normally resolve questions of subject-matter jurisdiction before reaching other issues. (Potter v. Hughes (9th Cir. 2008) 546 F.3d 1051, 1061.) And if federal jurisdiction does not exist, the case should be remanded before federal resources are further expended. (Tortola Restaurants, L.P. v. Kimberly Clark Corp. (N.D. Cal. 1997) 987 F.Supp. 1186, 1188 [denying motion for stay pending a determination of transfer by the MDL Panel and deciding threshold jurisdiction issue].) Also, point out that there is a strong presumption against removal jurisdiction. (Gaus v. Miles, Inc. (9th Cir. 1992) 980 F.2d 564, 566.) The manufacturer will invariably rely on Tapscott v. MS Dealer Service Corp. (11th Cir. 1996) 77 F.3d 1353, 1360, as the basis for its “fraudulent misjoinder” argument as to the doctor. Point out that the Ninth Circuit has not adopted the Eleventh Circuit’s controversial fraudulent-misjoinder doctrine that came out of Tapscott. But then show that even if Tapscott is considered, it does not apply to the facts of your case. Read Tapscott and you’ll see that it does not apply to the facts in this type of medical-device case. Then establish with the facts of your case that there is a “real connection” between the product-liability claim and the medical-malpractice claim. You do this by showing that warnings regarding the medical device may or may not have been given by the manufacturer to the doctor. Or, if given, the warnings may not have been adequate warnings. Or the warnings were nullified by overpromotion of the medical device to the doctor. (See generally, Stevens v. Parke Davis and Co. (1973) 9 Cal.3d 51.) Also, point out that the manufacturer’s affirmative defenses establish a “real OCTOBER 2013
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Lost — continued
connection” between the claims, since the manufacturer will invariably plead the “learned intermediary doctrine,” which is ■ a fancy way of saying that the manufac■ Medicare Set-Asides (MSAs) Suite 205, Torrance, CA 90505 turer met its duty-to-warn when it warned tructured the prescribing doctor about the risks 24445 Hawthorne Blvd. ■ Indexed S&P 500 Annuities (with ettlement no loss guarantee) Suite 205, Torrance, CA 90505 associated with the medical device. Contributor to CAALA’s ervices Politcal Action Another affirmative defense you’ll see is Contributor to CAALA’s Committee 24445 Hawthorne Blvd. Politcal Action the manufacturer pleading that someone Committee NSSTA NSSTA Suite 205, Torrance, CA 90505 Society of Society of else (hinting at the doctor) caused your National Structured National24445 StructuredHawthorne Blvd. Settlement Planners Settlement Planners Settlements Trade Assn. Settlements Trade Assn. client’s injuries. Again, all of this helps to Founding Member Founding Member Suite 205, Torrance, CA 90505 member Contributor to CAALA’s member show a real connection between the manPolitcal Action Contributor to CAALA’s Committee ufacturer, the doctor, and your client’s Politcal Action Committee NSSTA NSSTA injuries and claims. Society of Society of National Structured National Structured Settlement Planners Settlement Planners Then hit them where it hurts by Settlements Trade Assn. Settlement Consultant Settlements Trade Assn. Certified Structured pointing to other Central District orders Founding Member Founding Member member member (and any other California district court orders) remanding cases like yours to PickettStructures@hotmail.com state court. There are many orders out License #0536433 Serving the State Bar since 1985 there. A few of the more recent ones include: Goodwin v. Kojian, No. SACV 13325-JST(JPRx) [Court finding that the fraudulent misjoinder did not apply and that both the Plaintiff and implanting doctor were citizens of California for diversity purposes]; Guardado v. Highshaw, No. EDCV 13-365 PSG(SPx) [Court found it was appropriate to We hope your Vegas convention was great! address the plaintiff ’s motion to remand As a CAALA Affilliate Vendor, we appreciate your support by rather than staying the case and deferscheduling Depos, Videographers, Interpreters, with our firm. We hope your Vegas convention wasetc., great! ring the jurisdictional issues to the MDL We will expectations upholding the highest Court]; Haston v. Yeo, No. 5:13-cv-00364As a exceed CAALA your Affilliate Vendor, wewhile appreciate your support by standards of quality control and ethics (no incentive JWF-OP [Defendant failed to demonscheduling Depos, Videographers, Interpreters, etc., with our firm. strate fraudulent joinder under gift like your someexpectations of my competition). We abide by the We giving will exceed while upholding the highest California law and complete diversity of California court reporters board transcript guidelines and standards of quality control and ethics (no incentive As a CAALA AffilliatemyVendor, weWeappreciate your support by citizenship was therefore lacking]; Lung v. giving like some ofOur competition). by the aregift very professional. resources make abide a difference! Schlesinger, CV 13-00672 SJO(CWx) scheduling Depos, Videographers, Interpreters, etc., with ourNo. firm. California court reporters board transcript guidelines and shu change [Court finding that theMaybe California doctor out of state and ju are very professional. Our resources make a difference! We will exceed your expectations while upholding the was highest not fraudulently joined and there MaybeAnd shu change out of state andmake just put " like put "our resources a diffe was not complete diversity, and in thus standards of quality control and ethics (no incentive removal was improper.]; and Perry v. Luu, resources make a difference gift giving like some ofF:(626)568-9987 my competition). We abideNo.by the And put in "our P:(800)524-DEPO 1:13-cv-00729-AWI-JLT [Defendants www.jonnellagnewcourtreporters.com failed toand demonstrate Plaintiffs impropP:(800)524-DEPO F:(626)568-9987 California court reporters board transcript guidelines firstname.lastname@example.org erly joined claims against implanting www.jonnellagnewcourtreporters.com are very professional. Our resources make a difference! 170 South Euclid Avenue doctor and thus the Federal court lacked email@example.com diversity jurisdiction.] Pasadena, CA 91101 170 South Euclid Avenue M Conclude powerfully by stating, (i) Pasadena, CA 91101 the federal court does not have jurisdiction because your client and the doctor A are both California citizens, (ii) the case should be remanded before federal resources are further expended, P:(800)524-DEPO F:(626)568-9987
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(iii) Tapscott does not apply in the Ninth Circuit, and even if it did, it does not apply to your case, and (iv) there is a real connection between the product-liability and medical-malpractice claims. • Opposition to Manufacturer’s Motion to Stay Your opposition to the manufacturer’s motion to stay is easy to deal with. Make the following arguments: First, the federal court should address your motion to remand before deciding the manufacturer’s motion to stay. (Conroy v. Fresh Del Monte Produce, Inc. (N.D. Cal. 2004) 325 F.Supp.2d 1049, 1054 [“[I]t is in the interest of judicial economy to decide issues of jurisdiction as early in the litigation process as possible. If Federal jurisdiction does not exist, the case can be remanded before Federal resources are further expended …”]; Tortola Restaurants, L.P. v. Kimberly Clark Corp. (N.D. Cal. 1997) 987 F. Supp.1186, 1188 [denying motion for stay pending a determination of transfer by the MDL Panel and deciding threshold jurisdiction issue].) Second, show the court that your client will be harmed by the significant delay if her case is sent to languish in the MDL court. It will be years before your client’s case gets to trial. And it will be months, if not years, before the MDL Court can entertain your motion to remand, which will likely not be granted in any event. Explain that the matter is fully briefed and ready for the California district court to decide now. Also, the California district court is in a better position to apply Ninth Circuit law than the MDL Court across the country in West Virginia. Third, point out that the manufacturer should have sought relief of the alleged misjoinder in state court, “and then, if that court severed the case and diversity then existed, [Manufacturer] could seek the removal of the cause to federal court.” (Osborne v. Metropolitan Life Ins. Co., 341 F.Supp.2d 1123, 1127 (E.D. Cal. 2004).
Lost continues 50 — The Advocate Magazine
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Substantive arguments at the JPML Panel
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The notice of opposition to the CTO is a simple one-page document that simply states you represent your client in the matter and you are opposing the transfer of the case to the MDL Court. The motion to vacate the CTO is based on the same arguments that you include in your motion to remand. While these are fairly simple documents to complete, you must not miss the filing deadlines. If you do miss either deadline, it is very likely your case will be transferred to the MDL court.
You greatly increase the value of your client’s case if you can return it to
state court. You also have control of your case at the state-court level – whereas you have no control if it gets transferred to the MDL Court. The manufacturer knows that your client’s case is worth pennies on the dollar if it gets transferred to the MDL Court. Now you know how to stop it. Go do it! Stewart R. Albertson is a trial attorney who represents California patients who have been seriously injured by medical devices. You can contact him at firstname.lastname@example.org and by following his thoughts on medical-device litigation at www.PharmaLawPost.com.
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Sh in be
The Reversible Arbitration Award: A hybrid already here
The rules of judicial review have changed in California – and not a moment too soon!
One of the hallmarks of contractual binding arbitration has long been the absence of full judicial review. Arbitrators could apply incorrect law, foreign law, or no law at all in adjudicating disputes, and there was no remedy for errors of law or legal reasoning. Judicial review was limited to the narrow statutory factors set forth in Code of Civil Procedure sections 1986.2 and 1986.6 (see sidebar article on Page 60). As the state Supreme Court pronounced in 1992, arbitrators were free to render an award “reached by paths neither marked nor traceable and not subject to judicial review” (Moncharsh v. Heily & Blaze (1992) 3 Cal.4th 1 (“Moncharsh”). This limitation was justified on the questionable hypothesis that parties to an arbitration agreement voluntarily traded their right to an adjudication based on accepted legal principles, for the speed, privacy and efficiency of arbitration. For many, however, the limited judicial oversight of arbitration awards was the Achilles’ heel of the entire mechanism. Without the predictability and fairness offered by applying procedural and substantive law, arbitration was little more than a game of roulette where the numbers were stripped from the table and the croupier could stop the wheel at will. But in California, the rules of the game have now changed. Sixteen years after Moncharsh, the Supreme Court corrected course and has carved out an exception to the limited scope of review that is potentially large enough to swallow the entire concept of “binding” arbitration. In 2008, our Supreme Court held that parties to an arbitration agreement can stipulate to allow full judicial review 56 — The Advocate Magazine
of the merits of the award (Cable Connection Inc. v. DirectTV Inc. (2008) 44 Cal.4th 1334). The Supreme Court held that if the parties so agreed, arbitration awards governed by the California Arbitration Act can now be reviewed, and reversed, for legal errors or erroneous reasoning. We have now entered the hybrid world of the reversible arbitration award. And this sea change in California law could not have come at a more opportune time. Not long after Cable Connection, our court system tumbled into the abyss of layoffs, court closures and consolidations, turning an already overwhelmed civil justice system into one marked by chaos and inexorable delays. The availability of a reversible arbitration award is one path out of these Dickensian times. The Supreme Court explained it best: Enforcing contract provisions for review of awards on the merits relieves pressure on congested trial court dockets. [Citations Omitted] Courts are spared not only the burden of conducting a trial, but also the complications of discovery disputes and other pretrial proceedings. Incorporating traditional judicial review by express agreement preserves the utility of arbitration as a way to obtain expert factual determinations without delay, while allowing the parties to protect themselves from perhaps the weakest aspect of the arbitral process, its handling of disputed rules of law. (Id.at 1364.) While the exercise of the right to judicial review will delay the finality of an arbitration award, that review will take place on the Superior Court’s law and
motion calendar, thereby shaving years off the time it would have taken to get to trial and through post-trial proceedings. Even adding the time required for appellate court review, a reviewable arbitration proceeding can move from the initial arbitration demand to a fully reviewed final judgment in three years or less – much less than the four to six years now required for a full trial and appellate review in the state courts. Parties who agree to arbitrate but who stipulate to full judicial review under Cable Connection, can enjoy the best of two worlds: the relative speed, efficiency and convenience of arbitration, combined with a judicial safety net that helps assure that the award is consistent with California law and is supported by substantial evidence. Indeed, a clause providing for full judicial review of arbitration awards is likely to become a standard-of-care issue in drafting agreements or stipulating to arbitration. Now that such review is an option, attorneys who do not recommend such terms to their clients may be hard pressed to explain later, after an arbitration loss based on legal error, that the client waived the right to seek judicial review. Practitioners should note one major caveat to this option. The right to stipulate to full judicial review of arbitration awards, as now recognized in Cable Connection, applies only to arbitration agreements governed by the California Arbitration Act (“CAA”). [Code Civ. Proc., § 1280 et. seq.] In arbitrations governed by the Federal Arbitration Act (“FAA). [9 USC §1 et seq.], parties may not stipulate to expanded judicial review, a limitation imposed by the U.S. Supreme Court in
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Hall Street Associates, L.L.C. v. Mattel, Inc. (2008) 552 U.S. 576. Whether an arbitration agreement is governed by the CAA or the FAA can be a gnarly legal issue that itself is often the subject of appellate court determination (see, e.g., Valencia v. Smyth (2010) 185 Cal.App.4th 153 for a mind-numbing example of the twists and turns of the choice of law analysis). Thus counsel who intend to stipulate to judicial review must be very careful to draft the arbitration agreement so that it is clearly governed by the CAA.
Pre-arbitration: Drafting the Cable Connection mantra
The premise of Cable Connection is that if the parties expressly stipulate, an arbitrator who commits legal error is acting in excess of his or her power. Such an excess of authority, in turn, constitutes statutory grounds to vacate or correct the arbitration award (see Code Civ.Proc., §§1986.2(a)(4) and 1986.6(b)). Cable Connection and its progeny make clear, however, that it is not sufficient for the parties to simply agree that the arbitrator must apply California law (See, e.g., Gravillis v. Coldwell Banker Residential Brokerage Co. (2010) 182 Cal.App.4th 503.) The agreement should expressly state that the failure to follow California law would be an excess of authority, and that the issue of legal error is subject to judicial review. (Cable Connection at p. 1361). The clause at issue in Cable Connection reads as follows, and good drafting practice dictates adopting this language verbatim: The arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.
During the arbitration: Creating and preserving the record One result of a Cable Connection agreement for judicial review will be a
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The myth of the “non-appealable” arbitration award In fact, opportunities abound for setting aside standard “binding” arbitration awards How many times have you been told that a binding arbitration award is “not appealable”? If it’s been once, it’s been too many times, because it’s a myth. Arbitration awards can be challenged in the trial courts and Courts of Appeal, and often enough those challenges are successful – even where the parties did not stipulate to full judicial review pursuant to Cable Connection v. DirectTV. The statutory grounds for vacating or correcting arbitration awards are set forth in sections 1286.2 and 1286.4 of the Code of Civil Procedure. (For analogous standards under the Federal Arbitration Act, see 9 USC §§10, 11.) While often described as “narrow,” these statutory grounds are broader than many practitioners realize. The fact is that opportunities abound for setting aside standard “binding” arbitration awards, as seen by the sample of recent state court cases cited below. • Failure to admit material evidence: An arbitrator’s exclusion of evidence was held reversible error in Burlage v. Superior Court (2009) 178 Cal.App.4th 524. Section 1286.2(5) of the Code of Civil Procedure provides that a court “shall” vacate an award when a party’s rights “were substantially prejudiced ... by the refusal of the arbitrator [ ] to hear evidence material to the controversy....” • Merits review where arbitrator violates non-waivable statutory claims: In Pearson Dental Supplies v. Superior Court (2010) 48 Cal.4th 665, the Supreme Court reversed an arbitrator’s award that found an employee’s FEHA claim was time-barred. The Court held that in the context of contractual arbitration of non-waivable statutory claims, courts may review the legal merits of arbitrator’s rulings that bar those claims. • Vacature of award after trial court improperly removed first arbitrator: In Bosworth v. Whitmore (2006) 135 Cal.App.4th 536, an arbitration award was vacated where the trial court had improperly removed the first arbitrator and appointed a successor. • Violation of public policy as exceeding authority: In California Department of Human Resources v. Service Employees Int’l Union, Local 1000 (2012) 209 Cal.App.4th 1420, an arbitration award was partially vacated where the arbitrator exceeded his powers by awarding public employees a pay increase where matter was subject to legislative approval. • Restricting party’s right to representation: An arbitration award was vacated where the arbitrator excluded from the proceeding a corporate party’s attorney and representative (Hoso Foods, Inc. v. Columbus Club, Inc. (2010) 190 Cal.App.4th 881). • Improper ex parte communications between arbitrators: In Maaso v. Signer (2012) 203 Cal.App.4th 362, the Court of Appeal affirmed an order vacating a medical malpractice arbitration award that was procured by “undue means,” where there was ex parte contact between the doctor’s party arbitrator and the neutral arbitrator while the award was pending. • Failure to disclose conflict: In Gray v. Chiu (2013) 212 Cal.App.4th 1355, a Court of Appeal vacated a medical malpractice arbitration award where the doctor’s attorney failed to disclose to plaintiff’s counsel that he belonged to the same arbitration provider firm as the arbitrator. • Erroneous determination that proceeding was binding: A Mandatory Fee Dispute arbitrator’s erroneous determination that award was binding resulted in vacating award (Glaser, Weil, Fink, Jacobs & Shapiro, LLP v. Goff (2011) 1940 Cal.App.4th 423.) • Improper impaneling of arbitrators: An award rendered by a single arbitrator was vacated where parties’ agreement called for a panel of three arbitrators (Parker v. McCaw (2005) 125 Cal.App.4th 1494). These and other cases (published and non-published, state and 9th Circuit) demonstrate that “binding” arbitration awards are not sacrosanct. Counsel facing the losing end of a “binding arbitration” are well advised to deeply investigate the prospect of judicially vacating the award before advising the client that the decision is final and “non appealable.” It just might not be the case! — Herb Fox 60 — The Advocate Magazine
higher degree of formality in the arbitration proceeding itself. Although the arbitration will still likely take place in a conference room with the arbitrator, parties and counsel sitting around a table, the possibility of judicial review requires the creation and preservation of an adequate record to allow for that review. In that sense, the arbitration proceeding will begin to more closely resemble a bench trial. Here are some tips for creating and preserving that record. First, there should be a certified court reporter in attendance so that there will be a reporter’s transcript of the arbitration hearing. Next, the parties should carefully prepare arbitration briefs and, if appropriate, closing briefs that set up the issues and the applicable law. Not only will these serve as a resource for the arbitrator, they may later serve as a roadmap for appellate counsel and the reviewing court(s). Further, the parties should clearly stipulate on the record that the rules of evidence shall apply and that evidentiary objections can be made during the proceeding. This will modify the usual arbitral forum rules regarding evidence (see, e.g., AAA Commercial Arbitration Rule R-31 and JAMS Comprehensive Arbitration Rule 22(d)). Keep in mind, however, that a wrongful exclusion of relevant evidence is already one of the statutory bases for vacating an award (Code Civ. Proc., §1286.2(a)(5); see sidebar article). Further, the parties should require that the arbitrator prepare a “reasoned decision,” akin to a Statement of Decision, setting forth the arbitrator’s findings of fact and conclusions of law. For obvious reasons, a one sentence award (“The arbitrator finds in favor of the claimant”) will be of little use to a reviewing court later. If the parties are submitting to the rules of an established ADR provider, counsel should carefully check those rules as to timing of such a stipulation. For example, AAA rules
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require that a stipulation for a “reasoned award” must be made before the appointment of the arbitrator (see, e.g., AAA Commercial Arbitration Rule R42(b)). Finally, the arbitrator should be apprised of the fact of the Cable Connection stipulation. That the parties have agreed that the arbitrator may not make errors of law or legal reasoning will necessarily affect the arbitrator’s conduct and standard of care in adjudicating the case (and perhaps thereby avoid the need for judicial review!)
An arbitration award that is subject to full judicial review is challenged by the same statutory procedure as any other
arbitration award. A Petition to Vacate or Correct the award must be filed in the Superior Court within 100 days after a signed copy is served on the parties. (Code Civ. Proc., § 1288.) The basis for that petition would be that by committing an error of law or legal reasoning, in light of the parties’ stipulation, the arbitrator has “exceeded his or her powers” and the award therefore must be vacated or corrected. (Code Civ. Proc., §§ 1286.2(4)); 1286.6(b).) That petition should be treated much as an appeal, with a full record of the arbitration proceedings lodged as exhibits, including a reporter’s transcript; a copy of the briefs and other pleadings; a full set of exhibits offered at the arbi-
tration hearing; and, of course, a copy of the arbitrator’s reasoned decision. Moving on up, any Superior Court order vacating the arbitration award (unless remanded for a rehearing), or any judgment confirming the award as rendered or as corrected, is immediately appealable to a Court of Appeal. (Code Civ. Proc., §1294.) Both the Superior Court and the Court of Appeal will likely apply the normal appellate standards of review to the arbitration proceeding, although the extent to which the parties might stipulate to a modified standard of review (e.g., de novo review of the weight of the evidence) was left unanswered in Cable Connection.
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Finally, counsel should not overlook alternatives to a Cable Connection agreement for full judicial review of arbitration awards. One such alternative is a true “arbitration appeal.” Where the parties have entered into an arbitration agreement and would like the protection afforded by judicial review but still want to maintain privacy and/or the relative speed of arbitration, they may be able to invoke a true “arbitration appeal.” (See, e.g., Cummings v. Future Nissan (2005) 128 Cal.App.4th 321, approving a procedure where the agreement allowed review of the award by a second arbitrator, applying normal appellate procedures and standards, with the power to vacate the award.) At least one major provider, JAMS, already offers an “arbitration appeal” as an option. Another alternative, outside of an arbitration proceeding, is for the parties to stipulate to the appointment of a “private judge” or referee to conduct a trial. (Code Civ. Proc., § 638; Rules of Court, rules 2.830 and 3.900 et seq.) The referee’s decision, once reduced to a judgment by the court, is reviewable on appeal as any other final judgment. (Code Civ. Proc., § 645.) Herb Fox is a Certified Appellate Law Specialist handling civil appeals and writs throughout California. He was appellate counsel in Harris v. Sandro (2002) 96 Cal.App.4th 1310 and Parker v. McCaw (2005) 125 Cal.App.4th 1495, decisions vacating arbitration awards. He can be contacted at email@example.com.
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Nina B. Ries
Litigation and corporate social media policies Companies need to understand the risks associated with the use of social media in the workplace Law rarely keeps pace with the speed of business, let alone the speed of technology. As a result, many companies lag behind when it comes to social media. But in doing so, such companies may be unwittingly courting litigation. Litigators are often called upon by their clients to advise on strategies for the avoidance of lawsuits or ways in which companies might mitigate or manage their risks. The law is not fully fleshed out with respect to social media policy, but recent opinions, including those published by the National Labor Relations Board (NLRB), are instructive. Even when permitted, monitoring employees’ use of social media can prove to be a daunting proposition. For one thing, companies are reluctant to delve into employees’ personal lives and are (perhaps rightfully) concerned about the precedent it would set or the message it would send to the company’s other employees if they conduct such an intrusion into employees’ personal lives, or the chilling effect it might have on recruitment. Some companies are aware of the litigation spared by employers’ interests in their employees’ social media postings and are reluctant to delve into that arena at all. Other impediments are more pragmatic: communications are immediate, and are either stored or bounced off sites that are hosted on outside servers not controlled by the company. To minimize the legal risks associated with the use of social media in the workplace and to ensure that companyowned property is being used properly, employers should develop a carefully thought out social media policy for inclusion in employee handbooks, and lawyers should carefully review the NLRB’s decisions and memoranda on the topic. 66 — The Advocate Magazine
Although there are a myriad of considerations, some key issues to consider when drafting a social media policy include the following: • Carefully review the National Labor Relations Act (NLRA), and liberally interpret its provisions in favor of the employee’s right to speak. Even the most cursory review of NLRB decisions relating to social media policy and social media use makes it clear that the Board takes very seriously the rights of employees to speak on a variety of workplace issues, including wages, conditions, terms of employment, conditions of the employment, relationships with co-workers and supervisors, corporate culture, hierarchical structure, union membership, coordination by employees, and the like. As discussed in greater detail below, efforts to stifle this speech are almost certain to be quashed by the NLRB. The NLRB is also concerned about overbroad policies that so exceed the scope of what may be necessary to protect the company’s confidential information that they have a chilling effect on employees’ ability to discuss workplace issues. Additionally, the NLRB is exceedingly concerned about the clarity of the policies. Accordingly, employers would be wise to limit their policies to items outside of categories protected by Section 7, but also to be very specific in what it intends to prohibit. • Advise employees that all forms of communication on company-owned property may be monitored, and that the social media policy may be modified at any time. Notify employees in advance of this monitoring so there is no reasonable expectation of privacy in the use of company-owned equipment. Require employee signatures to acknowledge their
receipt and understanding of the policy and retain these signed acknowledgments. Although the matter has yet to be before the NLRB, it may be good practice to distribute social media policies annually and require signatures just as frequently. Due to the nebulous nature of social media and technology as a whole, it is imperative that any social media policy also include a provision that allows it to be modified at any time, in the employer’s sole discretion. Notify employees when there has been an update to the policy and require employees to familiarize themselves with the updated policy. Employers would be wise to require signatures on updated policies, as well. • Avoid drafting vague, ambiguous, overbroad, or over-reaching policies. The NLRB has struck down as too broad and restrictive a number of social media policies. By way of example, a general provision prohibiting employees from disparaging the company (where it was not specifically tailored to address slander or harassment) has been stricken as being overbroad and amorphous. (See, e.g., Costco Wholesale Corp., 358 NLRB No. 106, slip op. at 2 [“statements posted electronically . . . that damage the Company”]; Knauz BMW, 358 NLRB No. 164 (2012) [“courtesy rule,” which prohibited “disrespectful” conduct and “language which injures the image or reputation of the Dealership]”; Claremont Resort and Spa, 344 NLRB 832, 836 (2005) [a rule proscribing “negative conversations” about managers that was contained in a list of policies regarding working conditions, with no further clarification or examples, was unlawful because of its potential chilling effect on protected activity].
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On the other hand, a rule forbidding “statements which are slanderous or detrimental to the company” that appeared on a list of prohibited conduct including “sexual or racial harassment” and “sabotage” would not be reasonably understood to restrict Section 7 activity. (See Tradesmen International, 338 NLRB at 462.) Similarly, taking the position that everything is confidential – including wages and working conditions – is not likely to be seen as reasonable or narrowlytailored for inclusion in a social media policy. (See, e.g., University Medical Center, 335 NLRB at 1320, 1322; Valley Hospital Medical Center, 351 NLRB 1250, 1252 (2007), enfd. sub nom. Nevada Service Employees Union, Local 1107 v. NLRB, 358 F.App’x 783 (9th Cir. 2009). Further, instructing employees to “[t]hink carefully about ‘friending’ co-workers” is unlawfully overbroad because it would discourage communications among co-workers, and thus it necessarily interferes with Section 7 (of the National Labor Relations Act) activity. Other policies have been stricken for being ambiguous, such as a policy prohibiting unspecified “unprofessional” behavior. The NLRB struck this type of provision on grounds that it would have the effect of chilling political discourse. (See Memorandum OM 12-59 (May 30, 2012).) Some onerous policies have been stricken by the NLRB as having the potential to discourage employees from engaging in protected activities. For instance, policies requiring employees to discuss issues with management prior to posting on social media platforms have been stricken in NLRB opinions, guided by the reasoning that the Board has long held that any rule that requires employees to secure permission from an employer as a precondition to engaging in Section 7 activities violates the Act. (See Brunswick Corp., 282 NLRB 794, 794-795 (1987); Trump Marina Associates, 355 NLRB 585 (2010).) The Board has held that pre-authorization requirements
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E unduly interfere with employees’ Section 7 rights to “improve terms and conditions of employment” by seeking assistance “outside the immediate employeeemployer relationship.” (See Eastex, Inc., v. NLRB, 437 U.S. 556, 565-566, 569-570 (1978); Valley Hospital Medical Center, 351 NLRB 1250, 1252 (2007); Handicabs, Inc., 318 NLRB 890, 896 (1995), enfd., 95 F.3d 681 (8th Cir. 1996).) But the NLRB has upheld a rule that requires an employee to receive prior authorization before posting a message that is either in the employer’s name or could reasonably be attributed to the employer, reasoning that this cannot reasonably be construed to restrict employees’ exercise of their Section 7 right to communicate about working conditions among themselves and with third parties. (See Us Helping Us, Case 05-CA036595.) An obligation to report unusual or inappropriate social media activity is also likely to be struck, as it was viewed by the NLRB as encouraging employees to report to management the union activities of other employees. (See generally Greenfield Die & Mfg. Corp., 327 NLRB 237, 238 (1998) and cases cited at n.6.)
For the same reason, provisions prohibiting self-identification and contact with the media have been struck. The NLRB is so concerned about employees’ Section 7 rights, in fact, that it even found that a company’s blanket policy of requesting participants in internal investigations to keep the investigation confidential improperly infringes on employees’ Section 7 rights. (See Banner Health System d/b/a Banner Estrella Medical Center and James A. Navarro.Case 28-CA-023438 (2012).) More critically, employers would not be wise to rely on a “savings clause,” because the NLRB has held that merely stating that the Employer’s “Social Media Policy will be administered in compliance with applicable laws and regulations (including Section 7 of the National Labor Relations Act),” does not cure the ambiguities in the policy’s overbroad rules. (See General Motors, Case 07-CA053570; Clearwater Paper Corp., Case 19CA-064418.) Poorly drafted policies have been construed as infringing on employees’ rights under the NLRA. To protect against being seen as vague, social media policies should be drafted with specificity
and include examples of the types of behavior that violate the policy. To protect against being viewed as overbroad or over-reaching, such policies should be carefully crafted to protect the company’s interests without silencing employees. • Take time to review employees’ rights to use social media under the National Labor Relations Act (NLRA). According to the National Labor Relations Board (NLRB), employees have the right to discuss a limited number of topics, including work conditions, wages, hours, terms of employment, on social media sites without retribution from their employers. (See, e.g., Cintas Corp., 344 NLRB 943, 943 (2005), enfd.482 F.3d 463 (D.C. Cir. 2007).) The theory is that if these are items employees may discuss amongst themselves in person, there is no reason they could not do so in a broader, electronic conversation on Facebook. Contrary to many companies’ beliefs, employees may also gripe (whether in person or through social media) on the employer’s dime. The NLRB recently concluded that the prohibition on participating in these activities
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on company time is unlawfully overbroad because employees have been afforded the right to engage in Section 7 activities on the Employer’s premises during nonwork time and in non-work areas. (See Republic Aviation Corp. v. NLRB, 324 U.S. 793, 803 n.10 (1945).) The NLRB has released a number of memoranda that provide a good starting point for employers in contemplating employee social media use. • Be mindful of behavior that is not protected under the NLRA, or that violates other laws. On the other hand, activities in the workplace that are not protected from employer discipline, like sexual harassment or the use of racially offensive language, are not protected on Facebook, either. Indeed, social media postings are increasingly becoming a part of employment litigation, and it is not uncommon for document demands to include requests for the production of chat histories, social media postings, and texts. However, employers should also be mindful that provisions stating that “[c]ommunications with coworkers . . . that would be inappropriate in the workplace are also inappropriate online” also
does not meet the NLRB’s standards because such a provision does not specify which communications the employer would deem inappropriate at work and, thus, is ambiguous as to its application to Section 7of the National Labor Relations Act. An employer may properly prohibit employees from disclosing the company’s trade secrets. (See Walmart, Case 11-CA067171 [observing that employees have no protected right to disclose trade secrets, and observing that the employer’s rule provided sufficient examples of prohibited disclosures (i.e., information regarding the development of systems, processes, products, know-how, technology, internal reports, procedures, or other internal business-related communications) for employees to understand that it did not reach protected communications about working conditions].) • Check your state laws for additional legislation. Nevada made news in July by becoming the 11th state to enact social media password protection legislation, joining Arkansas; California; Colorado; Illinois; Maryland; Michigan; New Mexico; Oregon; Utah; and Washington. The legislation varies from state to state.
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The California law generally prohibits employers from requiring or requesting that an employee or applicant provide access to personal social media content (including without limitation “shoulder surfing,” wherein the employee is asked to log in without disclosing his password, while a supervisor or other employee peruses the employee’s Facebook or other social media postings). California’s law contains a critical exception for employers. The exception permits employers to ask an employee to divulge personal social media content that the employer “reasonably believe[s] to be relevant to an investigation of allegations of employee misconduct or employee violation of applicable laws and regulations.” • Train employees on the company’s social media policy. Clear communication from management is essential to the success of a social media policy. Employers should ensure that supervisors (as well as employees) understand what the policy says and how it applies to their jobs. Employees also should understand the risks associated with social media as well as the benefits of appropriate use.
Social Media continues
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And employers would be wise to conduct further training to update employees about any modifications to the company’s social media policies. • Enforce the policy, and enforce it equally. A company should use caution in disciplining employees for online statements, mindful of their Section 7 rights to voice their opinions concerning working conditions. In a ruling that set new precedent for the NLRB (03-CA-027872 (2012)), Administrative Law Judge Arthur Amchan found the Facebook discussion of five employees of Hispanics United of Buffalo to be protected concerted activity under Section 7 of the National Labor Relations Act because it involved communications among employees about their terms and conditions of employment. Specifically, the communications addressed the issues of job performance and staffing levels. Judge Amchan rejected the employer’s argument that the employees’ comments constituted harassment of the employee discussed in the posting. The five employees were ordered to be reinstated, and were awarded back pay. Although a settlement with the NLRB and not a decision by its Board, the 2011 settlement of the American Medical Response and Dawnmarie Souza case is instructive. There, AMR was unsuccessful in defending an allegation of unfair labor practice which involved, among other things, an employee calling her supervisor a “scumbag” and “dick,” spurring supportive Facebook comments from co-workers. The NLRB found a violation of Section 8 (a) as the basis of the employee’s complaint regarding the supervisor was being denied union representation in connection with drafting an incident report. While employees can lose protection under the National Labor Relations Act if they engage in outrageously disgraceful conduct during the course of the protected activity, the NLRB did not find the employee’s conduct to rise to this level. The policy should create or incorporate disciplinary actions from other employment policies. Courts will be
reluctant to view a policy as valid unless it is universally enforced, so all employees and all activity should be treated equally. • Be prepared for discovery. Employers must anticipate that content on social media sites will be relevant in employment litigation, and may also have a bearing on commercial matters. Employers should be mindful of preserving such evidence, and of advising employees to do the same. A social media policy should address discovery issues associated with requesting content from these sites, and attorneys representing companies must be prepared to discuss these issues with opposing counsel. Although the law on social media policy is likely to be fleshed out further in the coming years, the NLRB has provided ample insight as to how social media policies should be drafted, the NLRB’s sensitivities with respect to such policies, and what lawyers should be mindful of in drafting – and litigating over – social media policies. Nina B. Ries is Principal of Ries Law Group, a Santa Monica-based firm specializing in real estate and commercial law (including contract claims, partnership disputes, business torts, employment matters, and intellectual property). She has represented clients ranging in size from entrepreneurs and small businesses to Fortune 500 companies in litigation, and has provided advice and counsel on strategies to avoid, minimize, or manage litigation risk. Ms. Ries is the President of the USC Gould School of Law Alumni Association, and is a former member of the Executive Board of the Los Angeles County Bar Association Barristers.
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Anthony A. Liberatore
Presenting evidence of lost profit when, on paper, there never was a profit Getting beyond the “zeroing out” of profits in closely held corporations An unprofitable corporation presents an interesting challenge to counsel who must demonstrate lost profit as an item of compensable harm in a breach of contract case. The issue arises because the goal of many closely held corporations is to “zero out” the books at the end of each business year. The process of “zeroing out” the books means that the company attempts to write-off enough in expenses so that it does not have any “net profit” or “taxable income” to the corporation itself. In very simple terms, net profits are the gains made from sales after deducting the value of labor, materials, rents, and all expenses, together with interest of the capital employed. (Parlour Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 Cal.App.4th 281, 287.) The companies in which this zeroing out occurs are most often closely held corporations. A closely held corporation has only a limited number of shareholders who are all involved in the actual operation of the business and often are family members or friends. If the company has a net profit, and is organized as a “C-Corp” under Federal Tax Code1, then that profit is first taxed at a corporate tax rate. Later, when the after-tax profits are distributed as dividends to the owners/shareholders, the owners of the corporation are taxed again at the personal level. So, by arranging company expenses to have the corporation post a zero net profit (or a loss) at the end of the year, the owners avoid the double taxation. Companies can legitimately eliminate a corporate net profit by paying year-end bonuses to officers and key employees, purchasing capital equipment or paying into benefits programs, among other means. Whatever the company does at the end of the year to zero out the books, this usually presents an issue that must be addressed by counsel who is pursuing a breach of contract claim on behalf of the company. Even if breach is 76 — The Advocate Magazine
established, the defense will seize the opportunity to argue that the plaintiff does not have any damages because the company has never had a profitable year in business.
Statutory measure of damages
The starting point for measuring damages in California is Civil Code section 3300, which provides that [F]or the breach of an obligation arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.
Prospective or future profits may be the basis of a recovery. (Meer v. Cerati (1921) 53 Cal.App. 497, 508.) Loss of profits, either present or future, may be recovered upon a breach of a contract if such loss is the direct and natural consequence of the breach and the amount thereof can be shown with sufficient certainty. (Mann v. Jackson (1956) 141 Cal.App.2d 6, 12.). In short, the requirements for demonstrating lost profit are proximate cause and certainty of damages. As an aside, there is a different focus on types of non-speculative evidence that can be used when one is trying to prove future lost profits of an established business versus an unestablished business. This article is not intended to address the future profit damage claim of an unestablished business, i.e., breach of contract for the purchase of and construction of a new franchise restaurant. Recommended reading for the latter situation is the case of Parlour Enterprises, Inc. v. Kirin Group, Inc., supra, 152 Cal.App.4th 281, 289-296. In addition, damages for lost profits are only recoverable if they are reasonably foreseeable by the breaching party at the
time of contracting. “Parties may voluntarily assume the risk of liability for unusual losses, but to do so they must be told, at the time the contract is made, of any special harm likely to result from a breach (Citations omitted.) Alternatively, the nature of the contract or the circumstances in which it is made may compel the inference that the defendant should have contemplated the fact that such a loss would be “the probable result” of the defendant’s breach. (Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 970.)
Period of loss
Usually, the loss period will be projected over the remaining term of the contract. If the contract has a notice provision allowing termination by either party with or without cause, damages for breach of contract are limited to those that could accrue during the period of the required notice. (See Martin v. U-Haul Co. of Fresno (1988) 204 Cal.App.3d 396, 409-411.) One may also be able to pursue a parallel claim in tort based on the same contract and/or relationship. The tort claim opens the door to a greater spectrum of damages that are otherwise not available for a breach of contract cause of action. (See Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 991-992.) It is suggested that counsel analyze the potential for past and future damages sooner rather than later. Contracts that are silent as to duration and do not contain a termination provision are generally deemed to be terminated at the time of material breach. To the extent that the contract at issue has a renewal option that is/was being negotiated or the parties have had a history of exercising an option to renew, this may provide a reasonable basis to argue an extension of the contractual term to the end of the renewal period even though the renewal process was not completed. Given that a high number of business litigation cases settle,
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Lost Profit — continued
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creative damage arguments give the parties more to discuss if either side is considering early resolution. Usually, the parties are paying counsel hourly to defend contract claims. Because of the economics, the parties may be more sensitive/receptive to risk and exposure analysis and will consider reasonable damage scenarios, even if they are creative.
Reasonable certainty requirement
Generally, an increase in net income, over time or consistent earnings levels throughout a number of years, provides counsel with meaningful support for a lost future profit projection. The standard for demonstrating certainty is that there must be a reasonable probability that the profits would have been earned except for the breach of the contract. (Nelson v. Reisner (1958) 1 Cal.2d 161, 172). CACI 3903N, entitled Lost Profits, tracks the definition of “net” profits provided above. The problem with a rote application of the jury instruction language “income less expenses” is that the expenses will be greater than the income at the end of each year, if the company effectively plans for tax time. To avoid this problem, an effort should be undertaken to establish that certain fixed expenses, i.e. rent, administrative salaries, phone lines, computers, Internet access, and any other expense that would exist in the same amount, regardless of whether the contract was performed, should not be calculated as an expense that must be deducted from gross income in determining gross profits. While the general rule is that one will not be permitted to recover gross profits, in the event of a breach of the contract, nevertheless under certain circumstances as where, for example, “. . . plaintiff ’s expenses of operating his business are fixed and would have continued in an equal amount even if the contract had not been breached by the defendant,” an award of gross profits may be allowed to the plaintiff, since, in such a situation, the gross profits involved would also constitute
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Lost Profit — continued the net profits which the plaintiff would have earned under the agreement. (Citations omitted.) (Automatic Vending Co. v. Wisdom (1960) 182 Cal.App.2d 354, 358.) Even though certain expenses can be eliminated from the net profit calculation, counsel should exercise reasonable discretion and be mindful of the competing legal precept – the aggrieved party cannot recover more from breach of the obligation than had the parties fully performed. “Except as expressly provided by statute, no person can recover a greater amount in damages for the breach of an obligation, than he could have gained by the full performance thereof on both sides.” (Civ. Code, § 3358.)
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A certified public account or other qualified expert is usually necessary when presenting a lost profit damage scenario. In certain contexts, the Chief Financial Officer or other knowledgeable officer of a closely held corporation can testify to economic loss. However, disclosure of a party expert witness leads to potential issues with attorney client privilege and credibility (bias). (See Shooker v. Superior Court (2003) 111 Cal.App.4th 923, 928.) In addition, certain economic loss scenarios truly require specialized knowledge, training, experience or education. For reference, the American Institute of Certified Public Accountants (AICPA) publishes practice guides that specifically address calculating lost profits. (See AICPA Business Valuation and Forensic & Litigation Services, Pollack, R., Boucher, S., Enos, C., Johns, C. and Moyl, J). It is not our intent to summarize all or even a significant portion of the principles discussed in the AICPA publications. Even so, it must be mentioned that the nature of the plaintiff ’s business and customary business costs must be understood and appropriately categorized in conjunction with the claims at issue. Depending on the type of loss, there may be a number of loss calculations which provide differing damage scenarios. As a rule of thumb, a simpler analysis that makes sense is preferred.
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Lost Profit — continued
There are several generally accepted methods in approaching the calculations of lost profit. There are the “Before and After” and “Yardstick” methods and an analysis based on the particular contract at issue. This list is not exclusive. In a very general sense, the Before and After method focuses on the plaintiff ’s gross profit before the breach compared with after. This measure is tied more closely to the company’s actual historical performance. The Yardstick approach attempts to estimate what the profits would have been had the breach not occurred. This approach must have reasonably comparable metrics for comparison purposes such as actual performance at another location of plaintiff, similar businesses in similar areas serving the same or similar market. If actual financial records or substantially
similar data from the same or similar business in the same area does not support the analysis, it runs the risk of exclusion. The recent case of Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747 (“Sargon”) highlights the importance of ensuring that one’s expert relies on proper matter in forming his or her opinions in a lost profits case. In Sargon, the plaintiff ’s expert was excluded from testifying about lost future profits after an eight-day evidentiary hearing. Although the Sargon case involved future profits for the development and exploitation of new dental implant technology (not the focus of this article), the California Supreme Court reiterated the importance of having substantial similarity in the materials supporting the lost profits testimony and the
aggrieved party’s business: “the underlying requirement […] is a substantial similarity between the facts forming the basis of the profit projections and the business opportunity that was destroyed.” (Citations and quotations omitted.) (Sargon, supra, 55 Cal.4th at 776.) It should be noted that in some instances, if a contract contains certain information upon which anticipated profit can be calculated, the contract itself can be a sufficient basis to calculate damages. Usually, no matter what analysis is being presented, one must gain an understanding of the plaintiff ’s cost structure, including the “avoided” costs – costs that were not incurred but would have been incurred in the absence of breach. The avoided costs should not be counted as part of the lost profit. The cost analysis should look at fixed versus variable costs. Some costs can change from fixed to variable depending on the duration of the breach. The general ledger is a good starting point for the process of determining the nature of the costs. The goal in identifying costs when representing the “no profit” closely held corporation is to focus on “… fixed [costs that] would have continued in an equal amount even if the contract had not been breached. …” (Automatic Vending Co. v. Wisdom, supra, 182 Cal.App.2d 354, 358.) Enlist an accountant early on so that a reasonable damage scenario can be presented which compensates for the inherent conflict in the corporation’s yearly tax planning. One may wish to consult with one accountant initially to explore different damage scenarios, and depending on the results, go with a different accountant expert at trial that focuses on one or a limited analysis (this depends on exposure and budget).
In a recent action, our office represented a trucking company that had various clients located throughout the United States. To fulfill its shipping requirements during busy times, our client entered into contracts with independent subcontractor trucking companies. The subcontractors were precluded from entering into direct 82 — The Advocate Magazine
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shipping contracts with our client’s customers. Ultimately the subcontractors breached the contract and entered into direct shipping contracts with the customers. The problem we had was that defense counsel focused on the fact that our client never posted a profit for the six or so years it had been in business. Although tax returns are generally not discoverable, business documents like the general ledger, profit and loss statement, and balance sheet arguably are discoverable – especially if your client wants to use them at trial. At trial, we focused on the per contract damages. Each shipping engagement with the subcontractor contained a breakdown of gross pay for the trip, less deductions for fuel, maintenance, insurance, tolls, wages and other deductible expenses. The remainder per each trip was profit
payable to our client. Our client’s dispatch office, phone lines, and office hours always stayed the same, and the client could have handled the increased shipments using its own trucks without having to incur any additional operating costs relative to performance of the shipping runs at issue. Although we relied on certain projections and estimates, one good thing is that the law provides the aggrieved party leeway in the presentation of damage evidence. CACI 3903N provides that the “amount of the lost profits need not be calculated with mathematical precision, but there must be a reasonable basis for computing the loss.” (Ibid.)
Not every breach of contract case is the same, nor is every closely held corporation the same. However, the impetus to
minimize taxation will continue, which is why creative damage analysis is helpful when there are no reportable business profits year after year. Anthony A. Liberatore is the principal of A. Liberatore, P.C., A Law Firm. The firm focuses on the trial and litigation of personal and business injury matters. M. Mary Margaryan, an associate with the firm contributed to this article, along with research help from Sean Haddad, a recent UCLA SOL graduate. 1 Closely held corporations are more efficiently organized as S-Corps under Federal Tax Code, which eliminates or greatly reduces the double-taxation issue. Some closely-held corporations however are C-Corps, on which the double taxation applies. This often occurs when the corporation starts out as an S-Corp, becomes particularly profitable and then switches over to a C-Corp in order to retain a large amount of the earnings in the corporation rather than distribute it as taxable income to S-Corp shareholders. Confused? That’s why you need an expert accountant.
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Rhett T. Francisco
Trevor R. Hindin
Andrew J. Sokolowski
Chicken Little and the future of class actions Is the sky falling after the American Express v. Italian Colors ruling? If you have been reading the headlines regarding class actions after the Supreme Court’s ruling in American Express v. Italian Colors (Jun. 20, 2013) 133 S.Ct. 2304 (“Amex”), you may have heard that the sky is falling, and that the end of class actions as we know them is imminent. Some legal pundits have gone so far as to claim that Amex is the “worst Supreme Court arbitration decision ever,” and that it will have “catastrophic” consequences for class actions. (See, e.g., Paul Bland, The Worst Supreme Court Decision Ever, Public Justice (June 20, 2013), http://publicjustice.net/blog/worstsupreme-court-arbitration-decisionever.) The reality, however, is that the Chicken Little perspective is exaggerated; it is a product of reports, articles and blogs that overstate the implications of Amex. This article will provide an analysis of the current state of arbitration law that acknowledges that Amex is a ruling in favor of arbitration (and against access to the courts), but is not the death knell for class actions.
Factual background and procedural posture
Italian Colors Restaurant and other similarly situated merchants sued American Express over fees that the merchants paid to American Express each time a customer charged a purchase using their American Express credit card. The merchants brought suit under the Sherman Act (15 U.S.C. § 1), claiming that American Express used its monopoly power to force merchants to accept its standard form agreement, which included rates that were much higher than those of competing credit card companies. American Express’s standard form agreement included (1) an arbitration provision that stated, in relevant part, “[a]ny Claim shall be resolved upon the election by you or us, 84 — The Advocate Magazine
by arbitration pursuant to this arbitration provision,” (2) and a class-action waiver that stated, in relevant part, “[t]here shall be no right or authority for any Claims to be arbitrated on a class action basis.” American Express moved to compel individual arbitration pursuant to the Federal Arbitration Act (“FAA”). The merchant plaintiffs submitted evidence that the cost of expert analysis that plaintiffs needed to prove their antitrust claims “might exceed $1 million,” and the maximum recovery to an individual plaintiff would be $12,850, or $38,549 when trebled. Judge George B. Daniels of the District Court in the Southern District of New York granted American Express’s motion and ordered the case to be submitted to arbitration. On appeal, the Second Circuit Court of Appeals ruled in favor of the merchant plaintiffs three times before the Supreme Court provided the final word. In Amex I, the Second Circuit reversed and remanded the District Court’s Order compelling arbitration; the 2nd Circuit held that the merchant plaintiffs proved that their ability to enforce their federal statutory rights would be effectively denied due to the prohibitive costs of bringing individual actions (the denial of one’s ability to enforce a federal statutory right is called the “effective vindication” rule). The Supreme Court granted American Express’s petition for certiorari, and then vacated and remanded, instructing the Second Circuit to reconsider its decision in light of its decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. (2010) 130 S. Ct. 1758. In Amex II, the Second Circuit held that Stolt-Nielsen did not affect its analysis of American Express’s arbitration clause. After the Supreme Court issued its decision in AT&T Mobility v. Concepcion (2011) 131 S. Ct. 1740, the Second Circuit requested that the Amex parties
submit briefing regarding the potential impact of Concepcion on the Amex case, which led to Amex III. In Amex III, the Second Circuit held that Concepcion had no application where the arbitration provision prevents a party’s ability to vindicate a federal statutory right.
The Supreme Court issue
The Supreme Court granted certiorari to address the specific issue of “[w]hether a contractual waiver of class arbitration is enforceable under the Federal Arbitration Act when the plaintiff ’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery?” In a 5 to 3 decision, with the opinion written by Justice Scalia and joined by Chief Justice Roberts, and Justices Kennedy, Thomas and Alito, the Supreme Court held that a class-action waiver is enforceable even when the expense of individual arbitration exceeds the potential recovery. The Supreme Court specifically noted that “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” In a scathing dissent, Justice Kagan described the Court’s opinion as unpersuasive and a “betrayal” of the Court’s precedent regarding the effective vindication rule. Justice Kagan summarized the Court’s opinion as “admirably flaunted rather than camouflaged: Too darn bad.”
Amex ruling not death knell for class actions
The holding in Amex is relatively narrow because it is limited to cases involving the vindication of federal statutory rights. Specifically, Amex involved a conflict between compelling arbitration under the FAA and effectively enforcing antitrust laws under the Sherman Act. Because the holding
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applies only to federal statutory rights, it is unlikely to cause the vast changes and deterioration of the class-action landscape that the defense bar is reporting. Amex is further limited to federal statutes which do not “evinc[e] an intention to preclude a waiver” of the class-action procedure. The holding leaves open the possibility that some statutes will demonstrate a congressional command in favor of utilizing the class-action procedure which would support the denial of an arbitration clause. The Court found that, although the effective-vindication rule was limited by its ruling, the rule was still valid because it applies in situations where a contract barred a party from asserting federal statutory claims, and it would “perhaps” apply to “filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable.” Significantly, the Amex decision does not affect traditional avenues for invalidating arbitration provisions; such avenues are left open by the Supreme Court’s decision in Concepcion. In Concepcion, the Supreme Court held that the final phrase of Section 2 of the FAA, referred to as the “savings clause,” permits courts to invalidate arbitration clauses based on “generally applicable contract defenses.” Therefore, plaintiffs can still successfully challenge arbitration provisions based on state-law unconscionability analyses, as well as other common-law principles pertaining to offer and acceptance, fraud, duress, and mutuality, among other contract formation issues. Furthermore, Amex can be distinguished from the majority of consumer class-actions because it was not a consumer case in the traditional sense; it involved disputes between sophisticated businesses and not individual consumers. The sophistication of the parties to a contract is often an important factor in state-law unconscionability analysis. It is also worth noting that the arbitration provision at issue in Concepcion was comparatively deferential to consumers
because (1) AT&T agreed to pay all arbitration costs for non-frivolous claims by its customers; (2) AT&T agreed to conduct the arbitration in the county where the customer was billed; (3) either party could opt to bring a claim in small-claims court in lieu of arbitration; and (4) AT&T agreed to pay customers a minimum of $7,500 and twice their attorney’s fees if they obtained more in the arbitration than AT&T’s last settlement offer. Federal and state courts have shown their willingness to strike down arbitration provisions which are substantially less friendly to consumers and employees than the contract at issue in Concepcion. The Amex ruling does not infringe upon that state of affairs, and it is reasonable to expect that federal and state courts will continue to strike down arbitration provisions that aim to exploit consumers or employees, or, at minimum, are less deferential to consumers or employees than the arbitration provision at issue in Concepcion.
Although the Supreme Court’s decision in Amex undoubtedly continues a pattern of recent decisions that will preclude more class actions and force more cases into individual arbitration, class actions remain viable, even where arbitration provisions exist, because the Amex decision does not disrupt the Supreme Court’s precedent that allows plaintiffs to attack arbitration provisions based on state-law contract defenses. Furthermore, there has already been an increase in indirect purchaser class actions involving everyday consumer products that do not have standard terms of sale and are not subject to arbitration provisions. There will also likely be a surge in cases in which there are multiple defendants who do not have bilateral contracts with all of the class members. Finally, a legislative response to recent changes in arbitration law is possible. The proposed Arbitration Fairness Act of 2013 would amend the FAA by adding a new chapter invalidating predispute arbitration clauses in employment,
consumer, antitrust and civil rights matters. A legislative solution, of course, depends on whether Congress is interested in, and will dedicate itself to, providing a remedy. In the face of decisions such as Amex and reports and articles that overstate the implications of such decisions, it can be easy to get swept up in the hype and overestimate the impact of the ruling. Plaintiffs’ counsel, particularly new lawyers who inherit the current jurisprudence on class actions and arbitration provisions, should be aware of this trap, and they should work to avoid it by performing their own analysis. Such analysis has revealed that the sky is not falling, and that rulings are actually narrower than wide-spread reports often indicate. Rhett Francisco of The Law Offices of Rhett T. Francisco in Woodland Hills, CA, was the Editor-in-Chief of his law school’s Law Review before he launched his own practice some years ago. His practice includes both individual actions and class-actions in the areas of wage-and-hour, FLSA, wrongful termination, compliance, and unfair competition, among other areas. Andrew Sokolowski of The Law Office of Andrew J. Sokolowski in Torrance, CA, has more than a decade of experience with employment law, business law, and class actions. He also advises businesses on compliance with California and national employment and consumer laws. Trevor Hindin is a cum laude graduate of Syracuse University College of Law, and he is an associate at the Law Offices of Rhett T. Francisco. He has extensive experience litigating consumer class actions (including automobile defect cases) and employment class actions (including wage-and-hour cases).
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Albro L. Lundy, III, and E. Thomas Moroney
The stick and the carrot: Martinez and the “last offer rule”
An updated look at the CCP 998 offer to compromise On June 6, 2013, the California Supreme Court decided Martinez v. Brownco (2013) 56 Cal.4th 1014. The question presented in that case was this: When a plaintiff serves two unaccepted offers to compromise pursuant to [Code Civ. Proc.] section 998, and the defendant fails to obtain a judgment more favorable than either offer, does the plaintiff ’s last offer extinguish the first offer for purposes of expert fee recovery under section 998? (Id., 56 Cal.4th at p. 1018.) The Court framed its answer to that question in these terms: We conclude that where, as here, a plaintiff makes two successive statutory offers, and the defendant fails to obtain a judgment more favorable than either offer, allowing recovery of expert fees incurred from the date of the first offer is consistent with section 998’s language and best promotes the statutory purpose to encourage settlements. (Id., at p. 1017.) Presumably, the same applies if a defendant makes two successive statutory offers, and the plaintiff fails to obtain a judgment more favorable than either offer. In legal shorthand, this was a test of what is known as the “last offer rule” as applied to section 998. And in further shorthand, the Supreme Court rejected the “last offer rule” as applied to Mrs. Martinez. The Court, however, did not drive a stake through the rule. While section 998 has been greatly improved by Martinez, litigants will still need to proceed cautiously when using the statutory procedure.
“The last offer rule”
This issue arose because the trial court applied the “last offer rule” when it taxed Mrs. Martinez’s cost bill, which sought to recover expert-witness costs from the date of her first offer, and 86 — The Advocate Magazine
instead limited her cost recovery to costs incurred from the date of her second (and last) offer. A quick summary of the facts will make this clearer. Raymond Martinez was horribly injured when an electrical panel he was dismantling exploded. He filed a thirdparty lawsuit for his injuries against the demolition company, Brownco, which had allegedly contaminated the electrical panel, causing the explosion that injured Mr. Martinez. The lawsuit included a claim by his wife for loss of consortium. Each plaintiff, husband and wife, made two section 998 offers, one shortly after the case was filed ($250,000 for Mrs. Martinez) and a second, lesser demand two and a half years later, ten days before opening statements ($100,000 for Mrs. Martinez.) The case was tried before a jury, and judgment entered in favor of plaintiffs ($1,646,674 for Mr. Martinez and $250,000 for Mrs. Martinez). The judgment for Mr. Martinez exceeded his second section 998 offer but not the first (after offsets for contributory fault.) The judgment for Mrs. Martinez exceeded her second section 998 offer and equaled the first. The trial court ruled that Mrs. Martinez could only recover expert fees incurred from the date of the second offer. This was so even though the judgment awarded to Mrs. Martinez matched her first section 998 offer. In making its decision, the trial court applied a nearly unbroken line of cases beginning over 40 years ago with Distefano v. Hall (1968) 263 Cal.App.2d 380 and continuing more recently with One Star, Inc. v. Staar Surgical Company (2009) 179 Cal.App.4th 1082. The facts of these cases differ from each other. And none involved the situation in Martinez: two proper, unaccepted and unrevoked statutory offers made by a plaintiff who won a judgment at trial that matched or exceeded both offers. Nonetheless, in each of the cited cases
the courts either applied the last-offer rule to deny the recovery of certain augmented costs or cited the rule approvingly. Hence, before Martinez, if you made more than one statutory offer, the last offer extinguished all prior offers and section 998 cost recovery was available from the date of the last offer, and only the last offer, assuming the party making the offer received a more favorable result at trial. This rule is certainly not commanded by the language of the statute. Nothing in section 998 dictates that a later offer is made at the offeror’s peril. And there is nothing particularly intuitive about the notion that by making multiple section 998 offers you are cutting off potential cost recovery, and in certain situations, arguably committing malpractice. Put yourself in Martinez’s counsel’s shoes: on the eve of trial the case does not look quite as strong as it did two and a half years ago; but there is a prior, unaccepted section 998 offer, and plaintiff has incurred six-figure expertwitness costs. If counsel makes another offer, plaintiff arguably loses any hope of recovering expert-witness and other costs incurred to date. If counsel does not make another offer and fails, at trial, to meet or beat that now dated offer, plaintiff loses any opportunity to recover the expert witness and other costs incurred during final trial preparation and trial. What would you do? Counsel chose to make a second offer fortified by his belief that “last offer rule” could not and definitely should not be as it appeared. The courts following the last-offer rule draw upon principles of general contract law: subsequent offers extinguish earlier offers. The Supreme Court itself has approved the usefulness of looking to general contract principles as guidance when interpreting section 998, as long as such principles neither conflict with nor defeat the purpose of the statute.
Stick & Carrot continues
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Stick & Carrot — continued
(T.M. Cobb Co v. Sup. Ct. (1984) 36 Cal.3d 273, 280.) And in Cobb, the Court expressly approved last-offer case Distefano for its use of the contract-law approach. So from Distefano’s early adaptation of contract law to section 998, the last-offer rule was born and subsequently thrived. Over the years it garnered substantial acceptance because it was a bright-line rule, easily applied and understood. The problem with the rule, as both the Court of Appeal and the Supreme Court recognized in Martinez, is that it can undermine the statutory purpose of section 998, which was enacted to encourage the settlement of lawsuits prior to trial. Section 998 is designed in classic carrot and stick fashion. A party making a section 998 offer that is not
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accepted can recover enhanced costs if the result at trial is more favorable to him than the offer. The statute encourages parties to extend the offers with the promise of possibly recovering those enhanced costs. The statute encourages parties to accept the offers with the threat of having to pay those costs. Since the enhanced costs can, depending on the circumstances, include prejudgment interest, attorneys’ fees, and expert fees, the carrot and stick can be quite persuasive.
The carrot and the stick
In Bank of San Pedro v. Sup. Ct. (Goodstein) (1992) 3 Cal.4th 797, 804, the California Supreme Court explained: [T]he policy behind section 998 ... is plain. It is to encourage settlement by
providing a strong financial disincentive to a party – whether it be plaintiff or a defendant – who fails to achieve a better result than that party could have achieved by accepting his or her opponent’s settlement offer. (This is the stick. The carrot is that by awarding costs to the putative settler, the statute provides a financial incentive to make reasonable settlement offers.) The last-offer rule undermines section 998’s purpose by imposing a cost upon making multiple offers, thereby deterring them, and making settlement less likely. At the risk of being overly simplistic: more is better than less. The more offers that are made, the more likely one will be accepted and the case settled. (See Cobb, 36 Cal.3d at 281 “The more offers that are made, the more likely the chance for settlement.” [italics added.]) The statute’s purpose is not advanced by making the carrot a little less tasty and the stick less threatening. This could not be more plain than in cases where plaintiffs make successive declining demands or defendants make successive increasing offers. Those plaintiffs and defendants are reevaluating their cases and reducing their demands or increasing their offers in an effort to entice the other side to settle. Under the last-offer rule, however, when a plaintiff or defendant makes the second offer – even one moving towards the other party – the offeror is extinguishing his opportunity to recover enhanced costs incurred from the date of the first offer. Martinez agreed: The purpose would be more fully promoted if the statutory benefits and burdens were to operate whenever the judgment or award is not more favorable than any of the statutory offers made. Conversely, if the statutory benefits and burdens were to run only from the date of the last offer in circumstances such as these, plaintiffs may be deterred from making early offers or from later adjusting their demands. (Id.,56 Cal.4th at p. 1025.) The Court further noted that the rule it was adopting had the added benefit of
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promoting “the public policy of compensating injured parties. ...[T]he policy of compensating injured parties is best served by according parties flexibility to adjust their settlement demands in response to newly discovered evidence.” (Id., 56 Cal.4th at p. 1026.) The Court’s decision allows Mrs. Martinez to recover expert-witness costs from the date of her first offer, subject to issues to be sorted out on remand. The last-offer rule, however, was not put out to pasture. “To reach this conclusion [in favor of Mrs. Martinez] we need not find the last offer rule or the first offer rule controlling in all circumstances. Indeed for present purposes we may assume the propriety of applying the last offer rule where, as in Distefano and Wilson, an
offeree obtains a judgment or award less favorable than a first section 998 offer but more favorable than the later offer. The present circumstances, however, call for a different result. ” (Ibid.)
Undermining section 998
The last-offer rule undermines section 998 in any circumstances; but the facts in Martinez did not require a broader ruling, so the Court declined to issue one. Indeed, the Court is signaling that it is unwilling to do so. In practical application, however, Martinez will help the vast majority of litigants, both plaintiff and defense. The situations carved out by the Court for Distefano and Wilson are factually unusual. In Distefano the defendant made a first statutory offer of $20,000
and a second offer of $10,000. Plaintiff obtained an award of $12,559.96. The defendant wanted plaintiffs to pay defense costs because the judgment did not exceed the first offer. The court, applying the last offer rule, rejected defendant’s position. In Wilson, plaintiff made a first statutory offer of $150,000 and a second offer of $249,000. The jury returned a verdict of $175,000 for the plaintiff. Plaintiff ’s effort to recover expert-witness fees was rebuffed, even though the verdict exceeded the first offer. It is not clear what logic is behind a plaintiff making a second higher section 998 demand (as in Wilson) or a defendant making a second lower section 998 offer (as in Distefano). After all if, after
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Stick & Carrot — continued
making an early statutory offer, counsel believes the case is becoming stronger for his client, then one is probably best advised to sit on the existing offer, if for no other reason than to save the cost of postage. Nonetheless, for whatever reasons, counsel sometimes do make those offers, as is evident by Distefano and Wilson. The upshot of Martinez seemingly is that plaintiffs make increasing section 998 demands at their peril. Likewise, defendants make decreasing section 998 offers at their peril. By doing so, the offeror risks losing out on section 998 cost recovery if, as plaintiff, the judgment or award is greater than the first statutory demand but less than the second, and as defendant, if the judgment or award is less than the first statutory offer but greater than the second. Indeed, this aspect of section 998 (multiple offers), post-Martinez, possibly remains quite the malpractice trap for litigants who do not think through their statutory offers. But as long as you are making offers that are more enticing to the other side (plaintiff is decreasing his demands and defendant is increasing his offers) and the decision at trial is more favorable than or equals all of those offers, then you will be able to recover augmented
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costs from the date of your first offer. No longer will you be risking malpractice by making that second, more enticing offer. No longer will you or your clients need to grapple with whether you should make a second, more enticing offer and risk losing accrued costs. While it is unclear whether you are limited to two offers, there is nothing in the underlying reasoning of Martinez that would limit a party to two offers. Undoubtedly, the next case will come up when three or more offers are made and the outcome at trial is more favorable than some combination of the multiple offers (including the last offer), but not all of the offers. For example, plaintiff ’s counsel, believing his ship has come in, makes an early $1 million statutory offer, and then later makes two lesser statutory offers. At trial, the judgment for plaintiff exceeds the last two statutory offers but not the gold-plated $1 million offer. The logic of Martinez seems to allow for that plaintiff to recover augmented costs from the first statutory demand equaled or beaten at trial – i.e., from the date of the second of the three statutory demands. My head hurts, so for now some simple suggestions going forward. After Martinez, do not make multiple statutory
offers that are sequentially less enticing to the other side. If you make a second offer, it should be better than the first offer. If your case is stronger and plaintiff wants to make a higher demand or defendant wants to offer less, you should do so without using the section 998 procedures. But for the rest of us, after Martinez, we can now make an early section 998 offer and another more enticing offer on the eve of trial without worrying about whether, by so doing, we are cutting off our cost recovery. Albro L. Lundy III (UCLA ‘81, CORO Fellow ‘82, Loyola Law School ‘85), of Baker, Burton & Lundy is an AV-rated trial lawyer, Super Lawyer the last seven years and profiled in California Lawyer Magazine. He was named the CAOC Trial Lawyer of the Year in 2009 and has also been nominated as CAALA Trial Lawyer of the Year. E. Thomas Moroney is a sole practitioner at ET Moroney Law in Redondo Beach, California. He has a general practice with substantial experience in commercial litigation and civil appeals.
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Miles B. Cooper
Medical billing: The code war The ICD and why you should care about a big change on the horizon Coming soon to a courtroom near you
ICD-10’s third-party billing codes
“Mr. Expert, can you tell us what upcoding is and whether you found it in Dr. Smith’s billing for treating the plaintiff?” the defense lawyer asked her medical-coding expert. “Upcoding is an industry term. We sometimes see doctors use more expensive billing codes, known as ICD codes. Billing can be nuanced. Many procedures can be coded different ways. Here, I reviewed the treating doctor’s billing. Prior to the injury, he performed a meniscal repair surgery on the plaintiff ’s left knee. It was coded under a standard insurance reimbursement rate. In this case, the doctor performed a meniscal repair surgery, which he opined was caused by the accident. He coded this surgery differently – with a code that is reimbursed at twice the prior rate. This triggers our suspicions.” The plaintiff ’s lawyer squirmed. A treating doctor, typically above reproach, was being hammered.
Health-care providers chart information about a patient. The chart is then given to medical coding. The coding is not done by the treater who did the care. Coders are separate professionals trained to read charts and code the treatment. Coders work apart from medical professionals. Some coders work for a doctor’s practice group or a hospital. Others are outsourced. They have a set amount of records that they are expected to get through per day. They do not typically interact with the treater who charted the information. This creates an opportunity for errors.
ICD-10 also built-in cause codes and third-party billing codes. So now when your client presents at a hospital, the paramedics list the cause of injury as car crash, and the coders capture the data. The lien notice hits the patient’s mailbox before she’s home.
The International Statistical Classification of Diseases and Related Health Problems (called ICD codes), classify medical events and treatment, and are used for billing. They date back to 1893 when a doctor introduced a list of cause of death classifications. His system expanded. In 1948, the World Health Organization took it over, releasing ICD6. Since then, the ICD has been updated several times. ICD-10 was released in 1994. Most countries use ICD-10. ICD11’s release is scheduled for 2015. But the U.S. is still using ICD-9. Within a version are variants. These variants use abbreviations. For example, the U.S. uses ICD-9-CM, where CM stands for Clinical Modification. The U.S. was supposed to switch to ICD-10-CM in October 2013. The Department of Health and Human Services delayed the transition to ICD-10-CM to October 2014.
There is a greater selection of codes for a specific injury in ICD-10. For example, ICD-9 may have had one code for a femur fracture. ICD-10 has many: they specify the fracture location, distal or proximal, and type of fracture. Helpful, yes? Yes and no. Medical charting is currently not detailed enough for coders to accurately code in ICD-10. A survey found one-third of records were sufficiently charted to code the record. This translates to significant growing pains when ICD-10-CM is implemented. Treaters will have to take more time to chart (a good thing). Records will be kicked back when the information is lacking. The industry expects a six-month industry-wide slowdown – marginally – to adjust to ICD-10-CM’s impact (so if you think Kaiser’s billing takes a long time now, just wait.)
A brief history of the ICD
Coders use software to do their coding. About 200 different programs exist to do coding. The programs have an impact. If coding becomes an issue in your case, you will want to know the program used, the version and who does the coding.
ICD-10’s expanded coding
Third-party billing codes are fertile ground for coding bias. Coding can be nuanced. Several codes might apply to the same injury. Hospitals are reimbursed at one rate by HMOs. But they are usually reimbursed at higher rates from third-party coverage like automobile insurance. The coder may experience a bias to upcode incidents where reimbursement rates might be higher.
This brings us to billing experts. Defense lawyers, particularly those with medical billing fraud exposure, have started using billing experts. These experts look for billing inconsistencies. At first, they sought to reduce the past medical costs. Now, they aim to tarnish your treating doctor as a fraudster. Neither is good news. When a medical billing expert appears on an expert disclosure, you have a problem.
Taking a stand
Back to our squirming plaintiff ’s lawyer. On rebuttal, he called the doctor’s office manager. She demonstrated that all medical coding was outsourced to a company that the office did not directly contact. She acknowledged the error in the billing, apologized, and corrected the billed amount. Deflection and deflation. The treating doctor’s reputation restored. Miles B. Cooper is a partner at Rouda Feder Tietjen & McGuinn. He represents people with catastrophic injury and death claims. He has served as lead counsel, cocounsel and second seat. OCTOBER 2013
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A short reckoning of good legal writing Demonstrate your virtuosity from the very first word – you’re writing for a tough audience I proceed from the presumption that you already know why your writing should shine. That you know your audience – trial judge, appellate panel, opposing counsel, supervising attorney, mediator – is swamped with work and strapped for time. That your reader comes to your written pages grudgingly. And that, if you have any hope of winning over this tough crowd, you must demonstrate virtuosity from the very first word. But what does virtuosity in writing mean? It’s a word that grammar-andusage authority Bryan Garner uses to describe the work of authors whose prose is unmistakably immaculate, like those who publish in Harpers, The New Yorker, The Economist and other top-shelf periodicals. Or think of the crystalline output of such novelists as Vladimir Nabokov and David Foster Wallace. What separates these scribes from the rest of us is their
mastery of grammar, dexterity of diction, command of syntax, pursuit of pith and perhaps most of all, religious reliance on editing, rewriting and proofreading. Add to these qualities the discipline required to achieve and sustain them in pursuit of a supposedly free-spirited process such as writing, and you have a decent definition of virtuosity. As Garner observes, we can detect the presence or absence of virtuosity immediately. You need see only one backhand of Roger Federer to grasp that you are in the presence of a virtuoso, whereas my backhand might cause you to run for cover. The accomplished scholar and law professor Arthur Miller virtually intones virtuosity from his opening words at the podium, while a nervous associate at counsel table for the first time elicits, at best, sympathy. Writing is no exception. The deployment of words in your first few sentences will either earn your
reader’s immediate respect or bring about your summary dismissal. I’ve been a writer for a while and have worked as an English teacher, but I lay no grandiose claim to virtuosity. On a good day I can turn a decent phrase. I don’t presume to offer anything here beyond simple pointers, or reminders, on some attributes of solid writing. Below are ten tips that can help you send the message that you are a writer to be reckoned with. • Sentences can and should begin with transitions words such as and, but and yet – without a comma after them. But this can’t be, you say. Yet I just did it. And I will keep doing so throughout this article. These transitions give your writing professional flow. Legalese transitions, on the other hand, constipate ideas. For example, if this paragraph were advocating legalese transitions, I would have
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written: However, this can’t be. Nonetheless, I just did it. Notwithstanding the foregoing, I will keep doing so hereafter. Not so smooth. • The word of should be omitted much of the time. The New York Times has called the overuse of this preposition “a virus.” It’s difficult to articulate a hardand-fast rule, so exercise skepticism when using of. You don’t strive to please all of the judges all of the time in all of the courts. You strive to please all the judges all the time in all the courts. And it’s not for all of the reasons in all of the grammar books in all of the libraries. It’s for all the reasons in all the grammar books in all the libraries. And let’s not bicker over whether it’s that big of a deal. Let’s just ask whether it’s that big a deal.
• The reason isn’t because; the reason is that. Some people are fortunate to have come of age with grumpy high-school English teachers who beat this rule into their heads, saving them from this grammatical vulgarism. (Unfortunately, one of the worst offenders of note, our current U.S. president, isn’t one of them.) You can say, “I eat green eggs because I’m hungry.” Or, “The reason I eat green eggs is that I’m hungry.” Or even, “Because I’m hungry, I eat green eggs.” But you should not – would not, could not, on a train, in the rain, on a boat, with a goat – ever say, “The reason I eat green eggs is because I’m hungry.” Think of it this way: the words reason and because are both causation words that explain an effect. If you use both in the same sen-
tence, you’re stating two causes: “The reason I eat is owing to the reason that I’m hungry.” • Know thy comma usage. Commas are just a matter of style, right? Wrong. No more so than question marks. Commas do not merely adorn word strings; they convey meaning. You can learn a lot from commas. Consider their use in creating restrictive versus nonrestrictive clauses. If Ida’s sister, Lara, is a lawyer, we can be reasonably sure, barring further context, that Ida has one sister, whose name is Lara. This is because the commas around Lara make the word nonrestrictive, i.e., it doesn’t identify or define the antecedent noun but rather provides incidental information. By contrast, if Ida’s sister Lara is a lawyer, we can assume that Ida
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Reckoning — continued
has other sisters. This is because the omission of the commas makes Lara restrictive, thereby defining Lara and distinguishing her from Ida’s other sisters. And if one reads that Ida’s sister, Lara is a lawyer, then he knows only that the writer is confused. There are, of course, other comma rules that demonstrate the author’s erudition and consideration for his reader. A thoughtful writer traditionally places a comma before a conjunction introducing an independent clause: The jury has deliberated for ten hours, and the foreman has not submitted any questions for clarification. Demi-Hemingways often take liberties with this rule, but they usually end up achieving only inconsistency, sprinkling commas before conjunctions here and
leaving them off there. It comes across not as stylistic flair, but as editorial neglect. Papa would not approve. • Which-hunting is never out of season. I slip in this point because it relates to the restrictive/nonrestrictive discussion above. E.B. White famously wrote, “Careful writers, watchful for small conveniences, go which-hunting, remove the defining whiches, and by so doing improve their work.” When providing incidental, nonrestrictive information, you’re likely to rely properly on which: “The court, which was beleaguered by filings, granted more summary judgments.” Problems arise when careless, or clueless, writers treat the nonrestrictive which as synonymous with the restrictive that: “The law which I am citing is still
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good.” That’s bad. Garner supplements White’s which-hunting prescription with a nifty instruction: “If you see a which with neither a preposition nor a comma, dash, or parenthesis before it, it should probably be a that.” • To be or not to be? If that is the question, choose not “to be.” My law school writing professor placed a draconian restriction on the verb to be. For all writing assignments, she permitted students only one use of to be, is, was or be per page. Your grade dropped incrementally for each occurrence over this allowance. It seemed like a rule better suited to a fiction-writers’ workshop than to a thirdyear law-school course. But it dramatically improved the writing. Purging to be from the page forces better diction and
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kindles vibrancy of expression. As an intended byproduct, it requires recasting passive-voice constructions in the more dynamic active voice. • Infer that which is implied. As lawyers, we live and breathe inferences. We must know the difference between implying and inferring. To imply is to insinuate or suggest. To infer is to deduce or conclude. They’re practically opposites. It destroys our credibility to get this wrong. • Dangling modifiers sound ridiculous. Learn to recognize these ambiguous grammatical constructs that occur when modifiers miss their mark. Then hunt them down and correct them before someone actually reads such unintended absurdities as, “Having lost all value, the plaintiff had to sell his car” or “Heading home, the traffic signal unexpectedly changed” or “With ten years’ experience in the plumbing business, the court should certify the expert.” • Break rules right. A confident writer with a reasonable command of the craft can break the rules to good effect. Take sentence fragments. In the writing of a fourth-grader, they merely require correction. In the writing of a college sophomore, they cause us to despair for the state of our educational institutions. But in the writing of a capable author, they can inject life and conjure rhythm. All the same, perhaps it was impudent of me to use three consecutive fragments in the opening paragraph of this article. Which brings up a related sub-tip: take occasional risks to show that you’re not another boring lawyer. • Prepositions at the end are ok. Ending with a preposition generally does not produce powerful sentence structure. But sometimes it works. Especially if you are a writer to be reckoned with. Howard S. Shernoff is managing attorney of the Los Angeles office of Shernoff Bidart Echeverria Bentley. He practices insurance bad faith, business litigation and personal injury. He can be reached at firstname.lastname@example.org.
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From the Editor Jeffrey Isaac Ehrlich Editor-in-Chief
Appellate Reports and cases in brief Cases ofAbout interest this Issue to members of the Plaintiffs’ Bar JeffreyInt’l, Isaac Ehrlich Purton v. Marriott Inc.
Editor-in-Chief (2013) __ Cal.App.4th __ (4th Dist., Div. 1.) Who needs to know about this case? Lawyers who handle claims based on a respondeat superior theory. Lawyers with cases involving employees who become intoxicated within the scope of employment. Jeffrey Clarifies Isaac Ehrlich Why it’s important: that the underlying concept of respondeat superior, the allocation to the business enterprise of responsibility for the risks it
About this Issue
creates, extends to accidents that occur while the employee is no longer acting on behalf of the employer, if the conduct that proximately caused the accident occurred within the scope of employment. Specifically rejects employer’s claim that once the employee reaches home safely, respondeat superior liability is automatically cut off, and that the employer cannot be held liable for the employee’s conduct after reaching home. Synopsis: Michael Landri, a Marriott employee, attended the Marriott Del Mar hotel’s 2009 holiday
Book Review By Jeffrey Isaac Ehrlich Final Diagnosis... Autopsy: The Editor-in-Chief
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party, became drunk, and then went home without incident. About 20 minutes after arriving home, he decided to drive another intoxicated co-worker home. Landri did not drink any additional alcohol between the time he arrived at home and the time he left. While driving his co-worker home, Landri rear-ended a car driven by Dr. Jared Purton at high speed, killing Dr. Purton. The trial court granted Marriott’s motion for summary judgment on the ensuing wrongful-death claim, finding that Marriott’s potential liability under a respondeat superior theory was cut off at the point that Landri arrived home. Reversed. Under the doctrine of respondeat superior, an employer may be held vicariously liable for torts committed by an employee within the scope of employment. Early authorities sought to justify the respondeat superior doctrine on a number of theories, including control by the employer of the employee, but the modern justification for respondeat superior is a deliberate policy allocation of risk. The imposition of respondeat superior liability is not dependent on the employer’s undertaking any act or upon any fault by the employer. Rather, an employer may be vicariously liable for an employee’s tort if the employee’s act was an outgrowth of his employment, inherent in the working environment, typical of or broadly incidental to the employer’s business, or, in a general way, foreseeable from the employee’s duties. Some states take the view that, in order for an auto accident to be considered to have occurred “within the scope of employment,” the accident had to have occurred while the employee was acting within the scope of employment. Other states hold that it is sufficient that the consumption of alcohol occurred within the scope of employment. California falls into the latter camp. (See, e.g., Harris v. Trojan Fireworks Co. (1981) 120 Cal.App.3d 157 [holding that
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employer could be held potentially liable under respondeat superior for injuries caused by employee who became drunk at company function and who then drove home]; Childers v. Shasta Livestock Auction Yard, Inc. (1987) 190 Cal.App.3d 792, 806 [employer liable for the actions of its off-duty employees, when the employer provided alcohol and permitted the employees to drink at the workplace after hours].) As Childers explained, “the test is properly applied where an employee undertakes activities within his or her scope of employment that cause the employee to become an instrumentality of danger to others even where the danger may manifest itself at times and locations remote from the ordinary workplace.” (Emphasis in original.) Childers posited a hypothetical example to explain the rule – an employee
manufacturing radioactive fuel who became contaminated on the job and later contaminated others while playing basketball at a gym far from the jobsite, causing them injury. Because the employer created the risk of injury, the Childers court concluded that it would bear the cost of the injuries. Thus, existing California case law clearly establishes that an employer may be found liable for its employee’s torts as long as the proximate cause of the injury occurred within the scope of employment. In this case, the evidence shows that the hotel provided alcohol and permitted the consumption of alcohol brought to the party by Landri, and served him additional alcohol. The party and the drinking of alcoholic beverages was a customary incident of the employment relationship at the hotel. A trier of
fact could conclude that the party and drinking of alcoholic beverages benefited Marriott by improving employee morale and furthering employer-employee relations. Marriott’s attempt to distinguish Harris, Childers, and similar cases based on the fact that the accidents on those cases occurred while the employee was on the way home is unavailing. “Assuming a trier of fact concludes that the proximate cause of the accident occurred within the scope of employment, there is no reasonable justification for cutting off an employer’s potential liability as a matter of law simply because an employee reaches home.” The prior cases explain that the employer’s potential liability continues until the risk that was created within the scope of the employee’s employment dissipates.
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As the Childers court explained, “We think that if a commercial enterprise chooses to allow its employees to consume alcoholic beverages for the benefit of the enterprise, fairness requires that the enterprise should bear the burden of injuries proximately caused by the employees’ consumption.”
Nickerson v. Stonebridge Life Ins. Co.
(2013) _ Cal.App.4th __ (2d Dist., Div. 3.) Who needs to know about this case? Lawyers who litigate insurance bad-faith cases, and cases involving punitivedamage claims. Why it’s important: Affirms a punitive damage award with a 10:1 ratio of punitives to compensatory damages in an insurance bad-faith case with no physical injuries. Makes clear that jury verdict forms should ask the jury to find “malice, fraud, or oppression” in the disjunctive, in a single question – and not to make separate findings for each element. Finds that an insurer can be held liable for punitive damages for relying on an unenforceable provision in its policy, even if that provision has not previously been held to be unenforceable. Agrees with prior cases that the insurance policy proceeds and Brandt fee award determined post-verdict
cannot be included in the denominator of the punitive-damages ratio. Synopsis: Nickerson, a former marine, purchased a hospital indemnity policy from Stonebridge, which promised benefits of $300 per day for each day he was confined in the hospital. Although payment of the funds is related to healthcare services, the funds can be used for any purpose. The policy promises payment for hospital confinement for “necessary care and treatment” of an injury. The definition of “necessary care” contains what is, for all purposes, an exclusion for care that was not provided “in the most economical and medically appropriate site for treatment.” Nickerson is a paraplegic, and suffered a severe fracture of his leg when he fell from a motorized wheelchair lift on his van. He was hospitalized at the VA Hospital in the spinal-cord unit, which was equipped to treat paraplegics, at no charge to him. He was placed in a fulllength cast and suffered complications. His doctors determined it was safe to discharge him and allow him to return home after 109 days. Stonebridge’s claims’ personnel thought this sounded excessive, so they retained an independent medical review. In filling out the assignment form for the medical review, the Stonebridge
personnel did not check the box on the form that directed the reviewer to contact the insured’s physician. When Nickerson’s physician wrote a letter explaining why he had not discharged Nickerson sooner, the Stonebridge personnel determined that it added no new information to what was in Nickerson’s medical records, and they decided not to forward it to the medical reviewer. The medical reviewer advised Stonebridge that after 20 days of hospitalization, Nickerson could have been transferred to a less acute care environment, and that the remaining 89 days of hospitalization were not medically necessary. Stonebridge paid for only 20 days of confinement and denied the rest of the claim. Nickerson sued. The trial court determined that the exclusion in the definition of “necessary care” was not conspicuous and was unenforceable, and awarded Nickerson $31,500 in unpaid benefits on a directed verdict. The jury found Stonebridge’s failure to pay benefits unreasonable. The verdict form concerning punitive damages asked the jury to determine whether there was “malice,” “oppression,” or “fraud” as independent questions. The jury answered “no” for malice and oppression, but “yes” for fraud. It
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awarded Nickerson emotional-distress damages of $35,000, and punitive damages of $19 million, approximately five percent of its net worth. The trial court cut the punitive-damage award to $350,000 – ten times the emotional-distress award, finding that this amount was likely too low to deter future misconduct by Stonebridge, but that it was “constrained” by the Supreme Court’s due-process cases to limit the award to a 10:1 ratio. Affirmed. The court held that, even though Nickerson did not suffer any physical harm, Stonebridge’s conduct was highly reprehensible. It found that it acted with indifference or reckless disregard of Nickerson’s health or safety; that Nickerson was a financially vulnerable target; that Stonebridge’s conduct involved repeated actions, and was not an isolated incident; and that the harm was the result of intentional deceit, not a mere accident. The Court held that a 10:1 ratio was proper because the defendant’s financial condition may combine with high reprehensibility and a low compensatory award to justify an extraordinary ratio between compensatory and punitive damages. The court agreed that it was likely that Stonebridge “may fold this
award into its cost of doing business,” but held that it, like the trial court, was constrained by the due-process clause from imposing an award higher than 10:1. The court also agreed with the court in Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1224, that in an insurance bad-faith case, the policy proceeds should not be included in the punitive-damages ratio “as punitive damages are not authorized in contract actions.” It also agreed with the court in Amerigraphics, Inc. v. Mercury Casualty Co. (2010) 182 Cal.App.4th 1538, 1565, that because the Brandt fee award was not made by the jury, it could not be included in the ratio. Justice Croskey dissented. He would have found that the jury’s finding of “no malice” was inconsistent with its finding that Stonebridge acted with “fraud,” and that there was no substantial evidence to support a punitive-damages award based on fraud. [Ed note. Jeff Ehrlich was appellate counsel for Nickerson in this case.]
Short(er) Takes: Libel, anti-SLAPP motion, Yelp postings: Bently Reserve, LP v. Papaliolios (2013) __ Cal.App.4th __ (First Dist., Div. 1.)
Papaliolios posted a negative review of an apartment building on Yelp, where he formerly was a tenant. The review, posted under a pseudonym, contained the following statements: the building is newly owned and occupied by a sociopathic narcissist; the new owner’s noise, intrusions, and other abhorrent behaviors contributed to the death of three tenants, and the departure of 8 of 16 long-term tenants; the new owners have sought to evict six long-term tenants whose rent was fully paid; and the new owners cleaned out the entire upper floor of the building in order to charge higher rents. The owners filed a libel action. Papaliolios filed an anti-SLAPP motion, which the trial court denied. Affirmed. “While many Internet critiques are nothing more than ranting opinions that cannot be taken seriously, Internet commentary does not ipso facto get a free pass under defamation law.” Papaliolios went out of his way in his review to assure readers that he was a credible source, providing factual information: “This is my own first-hand experience with this building, and its owners. I know this situation well . . . and have personally witnessed the abhorrent behavior of the owners of the building.” Such assurances
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suggest that facts are being communicated, not opinions. While the review contains epithets not meant to be taken as serious assertions of fact, it also contains statements that could reasonably be understood as conveying facts – each provable – and each meant to be used by prospective tenants to evaluate the owner’s building as a future residential choice. The owners were able to meet the relatively low burden of showing that they would be likely to prevail on the merits because the statements contained in the review were false. For example, they showed that 2 of the 3 “dead” tenants were, in fact, still alive, and the third had died of cancer and pneumonia; and that Papaliolios was the only tenant in the building that the owners had sought to have evicted. The motion was therefore properly denied. Reconsideration, Code Civ. Proc., § 1008; “new law”; depublication: Farmers Ins. Exh. v. Superior Court (Wilson) (2013) __ Cal.App.4th __ (2d Dist., Div. 3.) Wilson filed a class action against Farmers, alleging various Labor Code violations. The trial court granted Wilson’s motion for class certification based on the opinion in Harris v. Superior Court, which held that a class of claims adjusters were not exempt employees, and that their claims were properly certified as a class action. After the Supreme Court depublished the Harris opinion Farmers moved for reconsideration of the class-certification order. The trial court denied reconsideration. Farmers petition for a writ. Granted. Section 1008 allows a trial court to suasponte reconsider a prior order if, at any time, it determines that there has been a change in the law and that its prior decision warrants reexamination. The trial court’s determination that the Supreme Court’s order depublishing the Harris opinion did not constitute a “change in the law” was erroneous. A depublication order is not without legal effect. Since Harris was the sole authority relied on to support the 100 — The Advocate Magazine
class-certification order, reconsideration in light of the depublication of that case was proper. Insurance-policy interpretation; ambiguous exclusions; insurer liability for lost rent when building is vacant: Ventura Kester LLC v. Folksamerica Reinsurance Co. (2013) _ Cal.App.4th __ (2d Dist., Div. 5.) Ventura Kester LLC (“VK”) owned commercial building in Sherman Oaks. When the policy was issued, it was rented to a tenant. After the tenant vacated the property, VK received lease proposals from other prospective tenants, and entered into a letter of intent. The building was vandalized during the process, with vandals stealing copper pipe and wire, and causing damage in excess of $1 million. The insurer paid the vandalism claim, but refused to pay the portion of the claim for lost rents because there was no tenant in the building at the time of the loss or thereafter. VK claimed that it could not lease out the building because of delays by the insurer in paying the claim, and that the policy did not condition payment of lost rents on a tenant being in possession at the time of the loss. The trial court granted summary judgment for the insurer. Reversed. The court held that the policy was ambiguous with respect to coverage for lost rents that the owner would have recovered but for the property damage. “If the building would have been rented to a new tenant but for the property damage, the owner has lost the rents that would have been received from a new tenant. Since the owner’s need for rental income and loss of rental income did not depend on having a tenant in place at the time of the covered incident, it was reasonable for the policyholder to expect the policy covered the owner’s actual lost rent as a result of the damage and did not depend on the fortuity of having a tenant in place when the damage occurred.” If the insurer had wanted to limit the coverage or calculate the rents based on existing tenants at the time of the damage, it could have written its policy to do so.
Landlord-tenant claims; fraud; negligent misrepresentation; reliance; estimated charges. Thrifty Payless, Inc. v. The Americana at Brand, LLC. (2013) _ Cal.App.4th __ (2d Dist., Div. 1.) Thrifty entered into negotiations with Americana at Brand to lease space in its shopping center. During the negotiations, Americana provided Thrifty with written estimates of its estimated pro rata share of property taxes, insurance, and common-area-maintenance charges. The final lease said that Thrifty would pay its share of these charges, but did not specify an formulas, figures, or percentages. After Thrifty moved into the shopping center, its share of the charges was much higher than what Americana had indicated in its estimates. Thrifty sued for rescission, fraud, negligent misrepresentation, and breach of the lease. The trial court sustained Americana’s demurrer without leave to amend, finding that the prior negotiations constituted estimates – not statements of fact – and would not support a fraud claim. Reversed. American’s grossly misleading estimates would support claims of both negligent and intentional misrepresentation, and Thrifty was able to show that Americana had information based on the charges incurred by other tenants that would have allowed it to know that its estimates were inaccurate. Americana also had superior knowledge and information, which made Thrifty’s reliance on the estimates it provided reasonable. Jeffrey Isaac Ehrlich is the principal of the Ehrlich Law Firm, with offices in Encino and Claremont, California. He is a cum laude graduate of the Harvard Law School, a certified appellate specialist by the California Board of Legal Specialization, and a member of the CAALA Board of Governors. His practice emphasizes appellate support for the Southern California trial bar and insurance bad-faith litigation. He is the editor-in-chief of Advocate magazine and a contributing author of the Rutter Group’s Insurance Litigation practice guide.
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From the Executive Director Stuart Zanville
Consumer Attorneys Association of Los Angeles
The FirstFrom Monday in October the
Director What will Executive the corporate-friendly U.S. Supreme Court do next? Stuart Zanville Chances are that you are reading this column on theCAALA first Monday in October, give or take a day or two. Since most of you are law school graduates, I shouldn’t have to remind you that this is a big day for the justice system. By statute, the new term of the U.S. Supreme Court begins on the first Monday in October. For anyone who loves the law, this Stuart Zanville day has traditionally been filled with CAALA high expectations and eager anticipation. Unfortunately, for the past few years, if you love the concept of justice for ordinary people and not corporations, it has become a day of dread and apprehension.
justice in America” and the American Association for Justice to say the decision is “a major blow to America’s consumers, employees and small businesses.” After the decision, Nan Aron wrote on the Web site CommonDreams.org that “Brick by brick, a wall of protection is being erected around large, powerful corporations to ensure that they never have to be held accountable for their actions or inconvenienced by the legal system that governs the rest of us. For the Roberts Supreme Court, this is the corporations’ world, we just live in it.” Aron added that the court’s conservative majority “continued its trend of reaching, often beyond the bounds of reason, to grant powerful interests an The Roberts Court ever-increasing shield against the rest of Stuart Zanville What will be the next Supreme the country.” Consumer Attorneys Court decision that takes away theAssociation rights of Los Angeles
From the Executive Director
interests representing America’s biggest corporations and that the Chamber of Commerce has a 70 percent win rate under the Roberts Court. “Follow this pro-business trend to its obvious conclusion, and you will end up with a Supreme Court that’s a whollyowned subsidiary of the Chamber of Commerce,” said Sen. Warren. The pro-Chamber of Commerce record of the Roberts Court has not come about by accident. It is a direct result of a plan that was written for the Chamber of Commerce by Lewis Powell, a mild-mannered corporate lawyer who would later be appointed to the U.S. Supreme Court. In 1971, he wrote a memorandum to his client, the U.S. Chamber of Commerce that outlined a plan to change the public perception of American businesses. It was a plan that also changed America and it has succeeded beyond even the wildest dreams of the Chamber of Commerce. Jeffrey Clements is the co-founder and general counsel of Free Speech for People and a former assistant attorney general of Massachusetts. He is the author of Corporations Are Not People:
The Chamber of Commerce of ordinary Americans? So how did we get to this demoralizLast May, Lincoln Caplan wrote in ing place? the New York Times, “There is little U.S. Senator Elizabeth Warren doubt, statistically, that the Supreme (D-MA) knows the answer: The U.S. Court presided over by Chief Justice Chamber of Commerce. John Roberts, Jr. has been more sympaIn remarks at a legal convention last thetic to corporate interests than any June, Sen. Warren warned that the court since World By War II.” Stuart Zanville Supreme The Times reported a compreConsumer on Attorneys Association of Los Angeles Court is being captured by hensive study of more than 1,750 decisions from 1946 to 2011 published in the Minnesota Law Review. The study found that the Roberts Court has repeatedly shielded business from lawsuits involving class actions, workplace disputes and BURNS & BACK INJURIES AMPUTATIONS consumer complaints. SPINAL CORD INJURIES CHRONIC PAIN And this was before two June rulings HEAD TRAUMA BIRTH INJURIES that make workplace discrimination and HAND INJURIES MAJOR ORGANS retaliation cases harder to win and a LIFE CARE PLANNING major decision (American Express v. Italian MEDICAL SUMMARIES Colors) that says corporations can force D AY-IN-THE-LIFE VIDEOS small businesses and individuals into IME OBSERVATIONS arbitration even when it can be proved Karen Luckett that they will not be able to assert their OTR, CHT, CLCP, CCM, CDMS, CAPS rights through arbitration. Injury & Disability This decision prompted Public Expert email@example.com Justice to call it “a devastating day for
From the Executive Director
First Monday continues
LIFE CARE PLANNER
SES CA D E T D EDI PTE EXP ACCE
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Statement of Ownership, Management & Circulation United States Postal Service Form 3526-R
1.Title-Advocate 2. No. 0199-1876 3. Filing Date - 9-30-2013 4. Frequency of Issue -Monthly 5. No. of Issues - 12 6. Annual Subscription Price - $50.00 7. Mailing Address of Known Office of Publication Consumer Attorneys Association of Los Angeles 800 West Sixth Street, Ste. 700 Los Angeles, CA 90017 Contact Person - Richard Neubauer Telephone - 760-721-2500 8. Complete Mailing Address of Headquarters or General Business Office - Consumer Attorneys Association of Los Angeles 800 West Sixth Street, Ste. 700 Los Angeles, CA 90017 9. Full Names and Complete Mailing Addresses of Publisher, Editor and Managing Editor: Publisher: Richard Neubauer, PO Box 2239 Oceanside, CA 92051; Editor: Jeff Ehrlich, 800 West Sixth Street, Ste. 700 Los Angeles, CA 90017; Managing Editor: Cindy Cantu, 800 West Sixth Street, Ste. 700 Los Angeles, CA 90017 10. Owner - Consumer Attorneys Association of Los Angeles (a non-profit corporation), 800 West Sixth Street, Ste. 700 Los Angeles, CA 90017 11. Known Bondholders, Mortgagees, and other Security Holders: None 12. Tax Status: Not Applicable 13. Publication Title: Advocate 14. Issue Date for Circulation Data Below: Sept. 1, 2013 15. Extent and nature of circulation: Avg. 12 Mo. Sept ‘13 (a) Total Copies 10317 11000 (b1) Paid/Req. Outside Cty. 5659 2714 (b2) Paid/Req. In-County 643 4104 (b3) Sales thru Dealers -0-0(b4) Paid/Req. other mail classes -0-0(c) Total Paid/Req. Distrubution 6302 6818 (d1) Nonrequested Outside Cty 3268 1413 (d2) Nonrequested In-County 325 1780 (d3) Nonrequested other Mail Classes -0-0(d4) Nonrequested Outside Mail 67 800 (e) Total Nonrequested Distribution 3660 3993 (f) Total Distribution 9962 10811 (g) Copies not distributed 355 189 (h) Total 10317 11000 (i) Percent Paid/Requested 63.26% 63.07% 17. Publication of Statement of Ownership will be printed in the October 2013 issue of this publication. 18. Signature and Title of Editor, Publisher Signed by Richard Neubauer, Publisher Sept. 24, 2013
Why They Have More Rights Than You Do and What You Can Do About It. In an excerpt from the book that appeared on alternet.org, Clements writes that although Powell was a “gentleman – reserved, polite and gracious he also used his gifts to advance a radical corporate agenda.” Clements writes that Powell referred to the Supreme Court in his far-reaching plan. He says that Powell emphasized the need for a sustained, multiyear corporate campaign to use an “activist-minded Supreme Court” to shape “social, economic and political change” to the advantage of corporations. The quotes are from Powell.
Clements concludes the excerpt by writing, “The choice we face in America now about whether to succeed or fail begins with our choice about whether we agree with Lewis Powell, the U.S. Chamber of Commerce, and the corporate rights movement that massive, global corporate entities are the same as people.” Trial lawyers have already made their choice clear – they protect people while the Chamber of Commerce protects profits.
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From the President Scott Cooper
Orange County Trial Lawyers Association
Honoring our military veterans “Never above you. Never below you. Always beside you.” I began to write this article on the 12th anniversary of 9/11 – a day for remembrance. We remember not only the victims of the attacks and the brave first responders, but also the military personnel who serve every day to protect us from future attacks and have protected our liberty and way of life for over 200 years. The next official opportunity to remember and honor those military personnel is the 11th of November – Veterans Day. Twelve days later, on November 23rd, the Orange County Trial Lawyers Association will recognize those veterans at its annual Top Gun Dinner and Charity Auction at The Montage resort in Laguna Beach. Every November, OCTLA recognizes its “Top Guns” – those local trial lawyers who have obtained the most significant verdicts over the past year. Along with the dinner and awards program, we hold a silent and live auction benefitting a local charity. This year, the auction funds will go to Operation Veterans Re-Entry, an outreach program of the Orange County Public Law Center (“PLC”) that provides free legal services to military veterans and their families to ease their re-entry to civilian life. Operation Veterans Re-Entry is being led by PLC attorney Antoinette Balta, an Equal Justice AmeriCorps Legal Fellow. Consistent with PLC’s model, Ms. Balta provides these services herself and also oversees volunteer law students and pro bono attorneys who serve the veterans directly. Everyone deserves access to justice, but perhaps none are more deserving than those who put their lives on the line to protect the very justice system to which they seek access. It is estimated that there are more than 140,000 veterans in Orange County, and with troops still coming home from Afghanistan, the number will continue to rise. Given the unique circumstances facing these veterans when they return, the need for services will also continue to escalate, and the benefits of providing this assistance are clear. As noted by PLC when announcing Operation Veterans Re-Entry:
The unemployment rate for veterans of the wars in Iraq and Afghanistan is over 10 percent – three full percentage points above the national average. Relatively minor legal problems can be major obstacles to employment, personal health and family relationships. Once legal problems are resolved, veterans become more employable and significantly more likely to become productive members of society. . . Shockingly, homelessness is an epidemic affecting veterans and their families from all eras. Estimates indicate there are between 1,500 and 3,000 homeless veterans in Orange County. Further, it is estimated that nearly 10,000 veteran households are at significant risk of homelessness and half of veterans who are experiencing homelessness have legal issues. Resolution of those issues can place an at-risk veteran on a path towards stable housing and a better life. Operation Veterans Re-Entry is dedicated to the memory of a U.S. Marine with roots in Orange County and deep ties to the California legal community. As explained by PLC: Operation Veterans Re-Entry honors the legacy of Captain Matthew Patrick Manoukian, United States Marine Corps, 1st Marine Special Operations Battalion, who was killed in combat August 10, 2012, in Sangin District, Afghanistan. Captain Manoukian, an Orange County native, had been accepted to law school and planned to begin law studies after returning from Afghanistan. He wanted to enter public service as a public defender. Both of Matthew’s parents are judges: Socrates Peter Manoukian is a Santa Clara County Superior Court Judge, and Patricia Bamattre-Manoukian is an Associate Justice on the California Court of Appeal in San Jose and a former Orange County Deputy DA and former Orange County Municipal Court Judge.
Thankfully, we are past the days when our Vietnam vets returned home to a country that not only failed in large part to appreciate and appropriately recognize their sacrifice, but in certain ugly situations, actually criticized or ostracized them upon their return. To the contrary, we now often see spontaneous public displays of honor and thanks to both active and retired military personnel. This is a good thing that should be encouraged whenever possible. But it is not enough. As a society, we need to back up our appreciation and respect with a commitment to ensuring that none of these service men and women fall through the cracks here at home, particularly when many of their issues can be traced to the very sacrifices they made serving our country. Operation Veterans Re-Entry does just that. In just the first eight months of the program, Ms. Balta and the volunteers served over 170 Orange County veterans. Among other services, they assisted with the filing of disability benefits petitions, helped clients stay in their homes, removed barriers to employment, helped repair damaged credit, assisted with child support payments, provided aid on immigration issues, and obtained the return of a veteran’s personal belongings that were wrongfully withheld by a landlord, including his Green Beret. You can help support this worthy cause by attending the Top Gun Dinner and Charity Auction on November 23rd. It promises to be OCTLA’s biggest event of the year, with hundreds of lawyers, judges, and others from outside the legal community coming together to support Operation Veterans Re-Entry and celebrate the top trial lawyers of the year. Please also consider donating and/or soliciting items for the live and silent auctions. You can find information on registration, sponsorships, and auction item donations at www.octla.org or by contacting Janet Thornton at 949-9169577 or firstname.lastname@example.org. Together, we can help Operation Veterans Re-Entry fulfill its motto: “Never above you. Never below you. Always beside you.” OCTOBER 2013
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By Nancy Peverini CAOC Legislative Director
By Linda Lipsen CEO, American Association for Justice
Will the Governor seal a win for justice?
AAJ works to keep discovery rules fair
Consumer Attorneys of California scored a major victory in the waning days of the state legislative session when SB 131 (Beall) won approval and went to the desk of Gov. Jerry Brown. This important measure, which opens the statute of limitations for victims of childhood sexual abuse, was one of the most heavily lobbied bills in the State Capitol this session. Picture this: More than 20 high-paid corporate lobbyists representing the Catholic Church, Swim USA, the Boy Scouts and other entities using every piece of influence they could to get Legislators to reject a bill that goes after child abusers. These lobbyists countered with claims it was a bill only to help “greedy trial lawyers.” Meanwhile, the Catholic Church for days ran continual TV ads in Sacramento on CNN and local channels blasting the bill. Priests preached from the pulpit for five Sundays, urging their congregants to call lawmakers and urge a no vote. Bishops called every single state lawmaker to lobby against the measure. Then there was CAOC. We joined in the fight with victims of childhood sexual abuse and made this bill a priority. To CAOC and the victims we represent, this issue wasn’t about the Church, the Boy Scouts or Swim USA (all entities that have had serious and proven cover-ups of childhood sexual abuse). It was about what’s right and what’s wrong. It was about kids who were abused and who are now adults. It was about giving those victims their day in court. They may be successful or they may not be, but they should have the opportunity to file their case. It is about fairness in the civil justice system. Although most CAOC members do not represent these victims, our fight and success on this bill affects every CAOC member as we continue to make the case in Sacramento, day in, day out, that in order to matter, in order to be fair to those injured and killed, no matter who the defendant is nor their massive lobbying power, people must have access to the courts. As I write this, the bill sits on the desk of Gov. Jerry Brown, who has the power to sign it into law or veto the measure. As always, we need your support to ensure that justice is done. So far, the Governor has given no hint of where he stands on the issue. We need your help to ensure the Governor, a former Jesuit seminarian, understands the moral, ethical and legal stakes in a bill that has been heavily lobbied by the Catholic Church. We don’t expect the church lobbying to stop anytime soon, so we encourage you to write the Governor and add your voice to the cause of justice over efforts to mask shameful wrongs.
The Judicial Conference, which updates and changes the federal rules of civil procedure, is considering proposed rule changes that may restrict discovery in civil cases. If these changes go into effect, it is highly likely that most states will also adopt them. The Judicial Conference has proposed several changes. One of those changes is to alter language in Rule 26(b), which governs the scope of all discovery proceedings. Currently, the rule allows for the production of any items relevant to the subject matter at issue as long as discovery appears that it will lead to discovery of admissible evidence. The proposed change would require that discovery be proportional to the needs of the case; it would take into consideration the amount in controversy, the importance of the issues at stake, the parties’ resources, the importance of the discovery in resolution of the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. AAJ is concerned that these proposed changes, if adopted, would give defendants new tools that would help them avoid producing information that plaintiffs need for their cases. Specifically, this change would shift the burden to plaintiffs to prove that the information they seek outweighs defense’s burden of producing it. Other changes under consideration include reducing the presumptive limit on depositions and interrogatories, creating presumptive limits for requests for production and requests for admission, and reducing the time for service of process. AAJ encourages trial lawyers to file comments regarding the proposed changes, particularly comments that show how the proposed changes would negatively impact the practice of law. AAJ is working with our sections and litigation groups as well as our state and local affiliates to make sure that comments represent a broad range of practice areas. We expect that a large number of comments will be filed by defense and corporate interests. The current comment period is open until Feb. 15, 2014. AAJ is closely following this issue. For CAALA members who are AAJ members, you can log onto AAJ’s Federal Rules Updates page on the AAJ Web site at www.justice.org/federalrules. There, you will find information about submitting comments and testifying at upcoming public hearings scheduled to take place in Washington, D.C., on November 7, 2013; Phoenix, Arizona, January 9, 2014; and Dallas, Texas, February 7, 2014.
104 — The Advocate Magazine
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CAALA Resource Center
Affiliate Vendor Directory: Your resource for legal service providers The Consumer Attorneys of Los Angeles ‘Affiliate Vendor Directory’ includes a listing of all CAALA Affiliate Vendors who provide legal goods or services to plaintiff trial lawyers. The affiliate vendors are listed alphabetically by company name, as well as by industry categories. The directory includes contact information for each company, as well as a Web site link, if available. The directory serves as a useful tool when looking for recommendations on specific service providers, such as court reporting services, expert witnesses, litigation financing, etc. Below is a list of categories: •Accident Reconstruction •Accounting •Arbitration/Mediation •Banking/Finance •Business Services (copying, office, etc...) •Chiropractic •Class Action/Claims Administration •Computer Forensics •Construction Experts •Court Appearance/ Contract
•Court Reporters •Credit Damage •Demonstrative Evidence •Economic Experts •Employability Evaluations •Expert Referral •Expert Witness •Financial/Retirement Planning •Forensic Engineering •Graphic Design/Marketing/ Websites •Hospital Administration
•IME/DME Observations •Insurance Providers & Services •Investigators •Jury & Trial Consultants •Legal Publications •Legal Research •Legal Software Consultants •Lien Resolution •Life Care Planning •Litigation Financing •Medical Experts
•Medical Illustrations •Neurosurgeons •Orthopedics •Pain Management/ Physical Therapy •Practice Management •Process Servers/ Messenger Service •Pre-Settlement Funding •Psychiatry •Radiology •Safety Engineering •Slip & Falls
•Store Operation Evaluations •Structured Settlements •Surgery Centers •TMJ/Dental Trauma •Translation Services •Verdict Reports •Video Services •Vocational Rehabilitation •Witness Preparation
If you are ever in need of a new legal service provider, take a look at the Affiliate Vendor Directory, and benefit from the companies who support CAALA! Many of them offer special discounts for CAALA Members. Simply click on the ‘Vendor Directory’ link at the top of the CAALA Web site homepage at caala.org.
New CAALA Affiliate Vendors
Our Affiliate Vendors are an excellent resource to help improve your practice. They provide goods or services specifically for plaintiff trial lawyers. Please support our Affiliate Vendors by contacting them for your business needs and projects. Alpha Omega Acupuncture & Herbal Clinic, Inc. 541 West Colorado Street #303 Glendale, CA 91204 (818) 545-7222 Contact: Gratch Grigoryan, L.Ac, Ph.D. E-mail: email@example.com
Dr. Richard Benveniste 19321 Victory Blvd., Suite 256 Reseda, CA 91335 (818) 881-7337 Contact: Dr. Richard Benveniste E-mail: YourGums@gmail.com
Roxanna Rahban, Ph.D. 6230-A Wilshire Blvd., #870 Los Angeles, CA 90048 (310) 930-5033 Contact: Roxanna Rahban, Ph.D. E-mail: firstname.lastname@example.org
CATEGORY: Orthopedics |Pain Management & Physical Therapy Specializing in Acupuncture Orthopedics & Pain Management for personal injury & workers’ compensation cases on LIEN BASIS. 2 convenient locations. Punctual/Personalized reports correlated with colossus guidelines.
CATEGORY: TMJ/Dental Trauma Previous 3-term officer state dental board of California. Practicing, expert consultant, evaluator, treator of TMJ, Personal Injury (P.I.) and lien cases and dental injury.
CATEGORY: Medical Experts | Psychiatry | Expert Witness Providing psychological services to lawyers’ clients. Licensed Clinical Psychologist.
Centre for Neuro Skills 16542 Ventura Blvd., Suite 500 Castaic, CA 91436 (661) 808-4976 Contact: Donna Morales E-mail: email@example.com CATEGORY: Neurosurgeons | Pain Management/ Physical Therapy CNS is a postacute medical treatment, therapeutic rehabilitation and disease management services with specially-trained staff for individuals recovering from acquired brain injury.
Novo Visuals 927 W. Olive Ave. Burbank, CA 91506 (818) 570-2146 Contact: Mikael Gevorkian E-mail: firstname.lastname@example.org CATEGORY: Accident Reconstruction | Graphic Design/Marketing/Websites | Video Services Full service legal graphics firm that offers 2D graphics, 3D accident reconstruction, photography & video services.
WebPresence, Esq. 228 Idaho Santa Monica, CA 90403 (310) 906-0935 Contact: Kristen Marquis E-mail: email@example.com CATEGORY: Legal Publications | Graphic Design/Marketing/Website Advise lawyers on the ethical limitations of an online presence while simultaneously assisting them in strengthening it via customized social media campaigns, legal blogging, Web site design, video marketing, and online reputation management. OCTOBER 2013
The Advocate Magazine — 105
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Advertiser’s Index Contents Index Advertiser’s
ADR Providers ADR Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93 Carrington, R.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78 Daniels, Jack . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102 Fields ADR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80 First Mediation Corp - Jeffrey Krivis . . . . . . . . . . . . . .82 Gage, Sandy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Graver, Darryl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96 JAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 Jossen, Sanford Law Office . . . . . . . . . . . . . . . . . . . .88 Judicate West . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95 Mehta, Steven G. Mediation . . . . . . . . . . . . . . . . . . .52 PMA Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . .67 Rubin, Charles “Skip” . . . . . . . . . . . . . . . . . . . . . . . . .50 Announcements and Career Opportunities CAALA Membership . . . . . . . . . . . . . . . . . . . . . . . . . .81 CAALA PAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87 Jury Verdict Alert . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 Attorneys – Appeals Bader, Donna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68 Ehrlich Law Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 Steven B. Stevens . . . . . . . . . . . . . . . . . . . . . . . . . . . .90 Attorneys – Accepting Referrals Bailey Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 Banifsheh, Danesh & Javid, PC . . . . . . . . . . . . . . .22-23 Bisnar | Chase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Cheong Denove Rowell Bennett & Karns . . . . . . . . . .51 Cook, David . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98, 99 Dordick Law Offices . . . . . . . . . . . . . . . . . . . . . . .54-55 Edzant, Barry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102 Engstrom, Lipscomb & Lack . . . . . . . . . . . . . . . . . . . .73 Galipo, Dale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 Gelber, Bruce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74 Girardi | Keese . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 Greene Broillet & Wheeler . . . . . . . . . . . . . . . . . . . . . .1 Hodes Milman Liebeck Mosier . . . . . . . . . . . . . . . . .38 Kesluk & Silverstein . . . . . . . . . . . . . . . . . . . . . . . . . . .78 Law Offices of Lisa Maki . . . . . . . . . . . . . . . . . . . . . .69 Law Office of Philip Michels . . . . . . .Inside Back Cover Makarem & Associates . . . . . . . . . . . . . . . . . . . . . . . .25 Manly & Stewart . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 McGonigle, Timothy . . . . . . . . . . . . . . . . . . . . . . . . . .15 McNicholas & McNicholas . . . . . . . . . . . . . . . . . . . . .9 Metzger Law Group . . . . . . . . . . . . . . . . . . . . . . . . . .65 Nemecek & Cole . . . . . . . . . . . . . . . . . . . . . . . . . . . .89 Panish Shea & Boyle . . . . . . . . . . . . . . . . . .Back Cover Randolph & Associates . . . . . . . . . . . . . . . . . . . . . . . .27 Richard Harris Law Firm . . . . . . . . . . . . . . . . . . . . . . . .4 Rizio & Nelson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Shernoff Bidart Echeverria Bentley LLP . . . . . . . . . . . .41 Shook & Stone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Taylor & Ring, LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 The Traut Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Vartazarian Law Firm . . . . . . . . . . . . . . . . . . . . . . . . .20
Defense Medical Exam Observation (cont.) PRIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Expert Witnesses – Medical Forensic Autopsy Services . . . . . . . . . . . . . . . . . . . . .96 Graboff, Dr. Steven . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Luckett, Karen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101 Physician Life Care Planning . . . . . . . . . . . . . . . . . . . .29 Roughan & Associates at LINC, Inc. . . . . . . . . . . . . .53 Financial Services California Attorney Lending . . . . . . . . . . . . . . . . . . . .83 CPT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Farber, Patrick (Struct. Settlements) . .Inside Front Cover Fast Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70 Fund Capital America . . . . . . . . . . . . . . . . . . . . . . . . .61 RD Legal Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 Ringler & Associates – Michael Zea . . . . . . . . . . . . .50 Summit Structured Settlements . . . . . . . . . . . . . . . . . .48 The James Street Group (Structured Settlements) . . . .14 Graphics/Presentations/Video Court Graphix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Courtroom Presentations . . . . . . . . . . . . . . . . . . . . . . .36 Executive Presentations . . . . . . . . . . . . . . . . . . . . . . . . .7 High Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Juris Productions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79 Verdict Videos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 Information Service Providers West, A Thomson Reuters Business . . . . . . . . . . . . . . .75 Insurance Programs Lawyers Mutual Insurance Company . . . . . . . . . . . . .77 Lawyer’s Pacific Insurance . . . . . . . . . . . . . . . . . . . . .21 Matloff Company . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 Narver Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 Investigators Hudson Investigations . . . . . . . . . . . . . . . . . . . . . . . . .94 Shoreline Investigations . . . . . . . . . . . . . . . . . . . . . . .64 Tristar Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . .58 Legal Nurse Consultants Cross, Kathy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Nutris Consulting . . . . . . . . . . . . . . . . . . . . . . . . . . . .80 Legal Research Quo Jure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 Legal Support Services 4 Corners Deposition Summaries . . . . . . . . . . . . . . . .68 ABC Virtual Offices . . . . . . . . . . . . . . . . . . . . . . . . . . .19 USA Express Legal & Investigative Services . . . . . . .92
Court Reporters Atkinson Baker Court Reporting . . . . . . . . . . . . . . . . .97 Jonnell Agnew . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 Kusar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Personal Court Reporters . . . . . . . . . . . . . . . . . . . . . .52
Medical & Dental Service Providers Buena Vista Pharmacy . . . . . . . . . . . . . . . . . . . . . . . .49 Doctors on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Injury Institute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Landmark Imaging . . . . . . . . . . . . . . . . . . . . . . . . . . .40 North Valley Eye Medical Group . . . . . . . . . . . . . . .64 Parehjan & Vartzar Chiropractic, Inc. . . . . . . . . . . . .62 Power Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Defense Medical Exam Observation Advantage Representatives . . . . . . . . . . . . . . . . . . . . .18
Organizations CAOC – PAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
106 — The Advocate Magazine
Consumer Attorneys Association Consumer Attorneys of Los Angeles 800 West Sixth Street,#700 Los Angeles, CA 90017 (213) 487-1212 www.caala.org
ASSOCIATION OF LOS ANGELES
CAALA Consumer Attorneys
ASSOCIATION OF LOS ANGELES
CAALA Consumer Attorneys
ASSOCIATION OF LOS ANGELES
October 23, 2013 CAALA Annual Judges Evaluation Meeting 5:00pm - 9:00pm Beverly Wilshire Hotel 9500 Wilshire Blvd. Beverly Hills October 29, 2013 Attorney Member Mixer 6:00-8:00pm Le Ka Restaurant & Lounge 800 W. 6th Street Downtown Los Angeles Board & Committee Meetings Executive Committee – CAALA Offices Downtown Los Angeles, 6:00pm Oct 3 Board of Governors – CAALA Offices Downtown Los Angeles, 6:00pm Oct 17 Education Committee – CAALA Offices Downtown Los Angeles, 5:00pm Oct 17 New Lawyers Committee - CAALA Offices Downtown Los Angeles, 6:00pm Oct 15
Orange County Trial Lawyers Assn. 25602 Alicia Parkway, #403 Laguna Hills, CA 92653 (949) 916-9577 www.octla.org October 14, 2013 Columbus Day Golf Tournament 9:00am-7:00pm EL Niguel Country Club 23700 Clubhouse Drive Laguna Niguel
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CAALA Connection Center Connect with New CAALA Members: We welcome the following new members who joined CAALA during the month of August Jessica Amaya
Fred Hanassab Law Firm
911 Legal Team
Bond And Taylor
Law Offices of Ronald Arakian
Lawyers for Justice, PC
Law Offices of Derek Tabone, APC
Jonathan Delshad Law Center Offices of CAALA Connection Jonathan Delshad, P.C.
Loyola Law School
Benjamin Azizian Loyola Law School
Peter Babos Law Offices of Peter J. Babos
Craig Bealer Law Offices of Juan J. Dominguez
Brett Beeler Alexander Krakow & Glick
Bradley Benham JML Law
Rhys Boyd-Farrell Farley Law Firm
Richard Bredlau Law Offices of Richard R. Bredlau
Peter Bronstein Law Office of Peter Bronstein
Hillary Burrelle Loyola Law School
Vanessa Cardinale The Seegmiller Law Firm
Michael Cernovich Cernovich Law Firm
Rick Chaidez Law Office of Rick Chaidez
Law Offices of Arthur S. Charchian
Richard Chira Attorney at Law
Laura Chung Law Offices of Laura Park Chung
Herman Cohen Cohen Law Group
Brittan Cortney Southwestern Law School
Myles Couch UC Irvine
Kathryn Cowin-Figari The Figari Law Firm
Sherry Davaie Loyola Law School
Elizabeth Davis Waters, Kraus & Paul
Margaret Elder Law Office of Margaret Elder
Martin Eramo Law Offices of Martin P. Eramo
H. Henry Ezzati Ezzati Law, P.C.
Louis Fazzi Law Offices of Louis G. Fazzi
Diana Gershteyn Attorney at Law
DeWitt, Algorri & Algorri
Law Office of Margaret Elder
Loyola Law School
Law Offices of Gregory C. Lehman
Law Offices of Darrick V. Tan
Law Office of Willliam Lively
Simon Resnik Hayes, LLP
Loyola Law School
Fred Hanassab Law Frim
The Lanier Law Firm
Castelblanco Law Group
Khorrami Boucher Sumner Sanguinetti, LLP
Attorney at Law
Law Office of Justin R. Rogal
University of West Los Angeles
Glendale University College of Law
Meadows Law Office
Sadrieh Law Firm
Loyola Law School
D. Elliot Gonzalez
Loyola Law School
Sardarbegian Law Offices
Lawyers for Justice, PC
Law Offices of Gor Mnatsakanyan
Attorney at Law
Northwestern California University School of Law
Webb Law Firm
Loyola Law School
Felahy Law Group
Saman Golfeiz Southern California Institute of Law
DiMarco, Araujo & Montevideo
Fred Hanassab Law Firm
Castelblanco Law Group
Muramoto Law Firm
Loyola Law School
Neil C. Newson & Associates
Law Offices of Robert Lee Hamilton
McNicholas & McNicholas, LLP
Law Offices of Nicholas Hariton
Law Offices of Moses O. Onyejekwe
Chapman University School of Law
Southwestern Law School
Glendale University College of Law
Abraham Lincoln University
Landrum and Amponsah
Law Offices of Deborah Pepaj
Wilshire Law Firm
Loyola Law School
Law Offices of Juan J. Dominguez
Girardi l Keese
Attorney at Law
Pollock Law Firm
Law Offices of Jonathan M. Kashani
Carlos Urzua Western State College of Law
Jessica Vanden Brink Cohn & Swartzon
Cynthia Veneciano Law Office of Nicholas Hariton
Jonathan Waymire Southwestern Law School
The Kick Law Firm
Student Rights Attorneys
Concord Law School
Loyola Law School
Law Office of Lynn Sherrell
Law Offices of Hosep Yepremian
Law Offices of Sandra L. Noel
Law Offices of Ronald Yoosefian
Engstrom, Lipscomb & Lack
Law Offices of Nathan L. Young
Law Office of Kenneth J. Smigelski
Abraham Lincoln Law School
Loyola Law School
Telleria, Telleria & Levy
Soofi Legal Counsel
Aghabegian & Associates
Law Offices of Chandra Spencer
Attorney at Law
The Spencer Law Firm
Jordan Sussman Law Offices of Jordan Sussman
The Torkzadeh Law Firm OCTOBER 2013
The Advocate Magazine â€” 107
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From the President Lisa Maki
Consumer Attorneys Association of Los Angeles
Proud and happy about CAALA VEGAS 2013 “The whole was greater than a sum of its parts” Did you ever see a movie that you didn’t want to end? Or go to a party that you didn’t want to leave? Or take a vacation trip that got better every day? That’s the way I felt about the CAALA Las Vegas Convention. Mind you, I am not a giant fan of Las Vegas. This year after check-in, I stared out the window of a very fine, and I mean fine hotel room, at the vastness of the desert. I began having my limited deep-type thoughts of why millions like me trek here every year, sometimes several times a year, to a bold U.S. Mecca where you-can-do-what-ever-youwant-to-because-a-public-ad-campaign-saysit-is-ok! I’ve been to so many of these conventions that I’ve lost track of the number. But I have to say that this one was my favorite, and not just because I’m CAALA president, which is the honor to top all honors in my book.
The CAALA staff will never brag because they have manners, so I will brag for them because they are incredible and made this convention rock. The numbers were unbelievable with more attendees than ever before (1,996 registered lawyers, legal staff and judges to be exact). We had more sitting judges attend and speak on panels than ever before. More CAALA members were there than in any other year. We sold more booths than ever before and, despite a larger exhibit hall, still had a very long waiting list for exhibitors. With over 450 exhibitor representatives, our total attendance of 2,550 set a new record. Dang! So why the records and why did four days in Las Vegas feel so good? Maybe it was the setting; I don’t think we can do better than the Wynn. Please allow me to digress. The hotel, and I’m not talking about “that” hotel, but the Wynn for cripes sake. Dripping with art and flowers (heaven por moi), my first impulse was to roll around in rose petals and gaze at the Matisse etchings but that would have involved trespass and vandalism so I just thought about it instead. (Note to self: Write to Mr. Wynn and recommend giant swings made of flowers and crescent moons to avoid further thought crimes). Dare I say that some of us were on our best behavior given the surroundings? (Please email me privately if you were not).
108 — The Advocate Magazine
Ahhh, the art and CAALA’s attention to detail – did anyone notice that the CAALA pens exactly matched the wall covering of the exhibit hall? Who thinks of that? See below. Maybe it was the speakers; it seemed like every one of the session rooms was full and the list of presenters was like a Who’s Who of great lawyers and judges. Maybe it was the trade show; it looked so classy. I hear that even hard-to-please exhibitors couldn’t stop raving about how good it was. Maybe it was the parties; great food, incredible themes and unexpected special surprises. Come on, what other parties do you go to where you get face-to-face with a lemur, a boa constrictor and a Le Reve performer? Top notch. First class all the way. I especially liked the mini-binoculars and used them last weekend looking for the baby hawk in the hills. Or maybe it’s what Aristotle said: “The whole is greater than the sum of its parts.” Who knows? Well, I do. It’s the above of course, but what really made the conference great is our CAALA family, or you. Yes, we are still in tough times with a horrible economy, more work, less pay. But during that four-day period, everyone I came into contact with was happy. I know that sounds weird, but everyone was so happy to be there, and I believe to realize how blessed we are all to have a job, a cause, a battle to do the right thing and hold corporations, insurance companies, and the government accountable. We are warriors and we’ve got your back. Young and old (that’s me), male and female, defense and us, judges, vendors, new friends, old friends, hugs, bygones, eat drink and be merry. And in the end, CAALA is more diverse than ever before. Thank you, CAALA. Okay, now you know I was happy. You also should know I am proud. I am so proud to be part of a wonderful organization that does great things for trial lawyers and the people we represent and puts on a Convention that quite simply, is the envy of every legal association in the country. I don’t know about you, but I have gotten calls from lawyers all across the country who know about CAALA Vegas and call to tell me how great it is and ask how we do
PHILI 2011, CA 2003, Trial L
it. If you are a CAALA member, I hope you are as proud as I am. There’s a simple answer to the question “How does CAALA do it?” It’s a one word answer. Well actually, two words: GREAT STAFF. No, let me change that: BEST STAFF EVER.
Kudos to the staff
CAALA’s incredible staff works every single day of the year on the Convention and it’s not by accident that the Convention succeeds the way it does. Even though the Convention is huge in terms of legal conventions, the staff isn’t. The staff is like a typical CAALA member firm – small, dedicated, smart, and incredibly hard-working with a great sense of humor. Cindy Cantu oversees every single detail of the Convention, from the topics and speakers to the themes and menus, and nobody does it better. Bill Smith is in charge of finances, registration, onsite operations, and has modernized our systems with cutting-edge technology. Kwedi Moore is in charge of the trade show and sponsorships and keeps the exhibitors happy. Lucas Harrelson provides tech support for our registration technology, assists speakers with their audio/visual needs, and makes sure attendees receive their daily e-mail updates. Liz Hagan, Margie Ruiz, and Martha Ruiz staff the registration desk to make sure every attendee starts out on the right foot. You can also thank Liz Hagan for expanding our membership and making it look like the rest of the world. And last but not least, Stuart Zanville, aka the Zen Master, is the face of CAALA during the weekend – always walking around the exhibit hall to greet attendees and talk to exhibitors and put out fires quickly so you would never know there was a spark in the first place. They are small in number, but big in heart and the success of the Convention is because of them. So here we are a month after the Convention and we’re all back to the daily grind. I hope you feel happy like I do and energized by our family reunion full of people who wake up each day and look in the mirror and say, “thank you for another day alive so I can help more people.” Thank you for making it the best ever.
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PHILIP MICHELS 2011, CAALA President 2003, Trial Lawyer of the Year
JIN LEW 2014, President-elect Korean American Bar Association
ELIZABETH A. HERNANDEZ CAALA Board of Governors
STEVEN B. STEVENS 2001, CAALA Appellate Lawyer of the Year
BRADFORD S. DAVIS, M.D. In-house Medical Director
California’s premier medical malpractice team
OVER TEN FIGURES IN VERDICTS & SETTLEMENTS 8-Figure Verdict
Spinal Cord Injury
7-Figure Arbitration Award
“The Law Offices of Philip Michels & Associates is one of the premier California Med Mal law firms. No stone is left unturned.”
— Michael Bidart, Shernoff Bidart Echeverria Bentley LLP “When it comes to Med Mal, there is no one better. This winning attorney has impeccable trial skills.”
— Brian J. Panish, Panish Shea & Boyle LLP 11755 Wilshire Blvd., #1300 Los Angeles, CA 90025-1540
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For 31 years, Advocate magazine has served attorneys who represent plaintiffs in Southern California