May an employer attribute commission wages to a different pay period than when paid to satisfy state's compensation requirements?

employer.jpgThe fact that commissions earned by employees can both be delayed in payment and distributed in uneven increments creates some challenges. Under Federal law, an employer may attribute commissions to when they are earned (rather than when paid), or to other pay periods, so long as an employee is paid minimum wage in each pay period. But, unlike California law, federal law does not require employees to be paid semimonthly, and the rules also differ as they impact whether an employee is exempt.

When confronted with the above question under California state law, the federal Ninth Circuit punted: it asked the California Supreme Court to consider this question, which it did in Peabody v. Time Warner Cable, Inc. (filed 7/14/14) S204804. The California high court answered that a California employer may not attribute commissions to a different pay period than when actually paid to the employee.

Peabody received biweekly paychecks, which included hourly wages in every pay period and commission wages approximately every other pay period. In her class action, Peabody's allegations included that she never received overtime though working 45+ hours per week; when she occasionally worked more than 48 hours per week, she earned less than minimum wage when only paid hourly wages. She also sought statutory penalties for late payment of wages and for itemized wage statement violations.

The action was removed by employer's motion to the United States District Court, where employer's summary judgment motion was granted because the court found employer Time Warner could attribute commission wages paid in one biweekly pay period to other pay periods for the purposes of satisfying California's compensation requirements. Because it found California law was complied with, and this allocation met minimum wage requirements, the district court rejected the overtime and minimum wage and other claims. When Peabody appealed, the Ninth Circuit asked for the state high court's guidance.

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Cal Supreme Court: Arbitration agreement waiver of right to class procedure approved; but right to bring PAGA representative action cannot be waived.

Arbitration.jpgIn Iskanian v. CLS Transportation Los Angeles, LLC (filed 6/23/14) S20432, the California Supreme Court majority has delivered a split decision on the question of whether an arbitration agreement that waives a party's right to bring a representative action on behalf of others is enforceable. Representative actions in the form of class actions brought to enforce the private rights of similarly situated parties (in Iskanian, fellow employees with wage-and hour claims) are enforceable in light of preemption by the Federal Arbitration Act (FAA) of a state law rule to the contrary. However, the right of a party to prosecute claims for the public benefit as a representative party for others under the California Private Attorneys General Act (PAGA), is neither preempted nor inconsistent with the FAA's goal of promoting arbitration--to say it is would be contrary to the strong public policy encouraging private parties to publicly enforce laws, such as wage and hour laws, that might otherwise go unenforced due to scant public prosecution resources.

Iskanian was employed as a driver for defendant CLS. He had signed an agreement that any and all claims arising out of his employment would be submitted to binding arbitration and that the parties would only submit individual claims; that no class action or representative action would be asserted. Iskanian sued CLS; CLS asserted the binding arbitration agreement, and the trial court granted its motion to compel arbitration, based in part on the concept that a state's refusal to enforce an arbitration clause because of a class waiver making it against public policy or unconscionable is preempted by the FAA . Shortly thereafter, the California Supreme decided Gentry v. Superior Court (2007) 42 Cal. 4th 443 which concluded to the contrary. The Court of Appeal in Iskanian then directed the trial court to reconsider its ruling in light of Gentry. CLS withdrew its motion to compel arbitration and the parties proceeded to litigate the case. Iskanian amended his complaint to include PAGA claims, also in a representative capacity of others. Iskanian's motion to certify his class and PAGA claims was granted.

After the Iskanian case was ordered certified, the U.S. Supreme Court issued its opinion in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___, finding that requiring class-wide arbitration interfered with the FAA . CLS then renewed its motion to compel arbitration arguing that Gentry had been abrogated by U.S. Supreme Court authority. The trial court agreed, as did the Court of Appeal. Iskanian's petition for review to the California Supreme Court, asserting that Gentry was still viable, was granted, and the state high court ruled as stated above.

I will not endeavor to analyze the lengthy opinion in Iskanian, but several points stand out to me. One of Iskanian's arguments was that that CLS had waived arbitration by failing to diligently pursue it. Not so, said the court. Waivers are not to be lightly inferred and are questions of fact based on the circumstances. These circumstances certainly indicated CLS desired arbitration but state court rulings blocked their pursuit causing them to acquiesce temporarily, until higher authority supported its pursuit of arbitration.

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Must a managed care plan pay for Medi-Cal beneficiary hospital services in accordance with the providing hospital's full billed charges concerning post-stabilization services not under contract?

beneficiary.jpgIn Children's Hospital Central California v. Blue Cross of California (filed 6/10/14) F065603, Blue Cross, in providing a managed care plan, paid $4.2 million to Children's Hospital for a 10-month period of coverage without written contract rates for post-stabilization care. Payment was based on the Medi-Cal rates paid by the government. Children's Hospital sued for $6.6 million, claiming it was entitled to payment for its full billed charges totaling $10.8 million, based on California Code of Regulations title 28, section 1300.71 (a)(3)(B), which defines "Reimbursement of a Claim" as the payment of the reasonable and customary value for the health care services rendered." Children's Hospital prevailed at trial. The trial court had precluded Blue Cross from presenting evidence of: the rates accepted by or paid to Children's Hospital, Medi-Cal fee for service rates paid by the government, and expert testimony that the Medi-Cal rate was the reasonable and customary rate that Blue Cross should be paying for the services in question.

The Court of Appeal, Fifth Appellate District reversed. The court found that the Department of Managed Health Care (DMHC) adoption of 13300.71 (a) (3) (B) was not an exclusive criteria; that neither billed charges nor government rates are determinative of reasonable value; and reasonable value for the purposes here is based on quantum meruit. Accordingly, the trial court committed reversible error in not allowing discovery of these other measures of value, and further erred in excluding any documentary and expert evidence as to fees actually accepted by this and other hospitals for post-stabilization care to determine reasonable value that should be paid by Blue Cross. The billing that the hospital considered as the reasonable and customary charge was not dispositive standing alone.

This ruling does not mean that Blue Cross automatically prevails. The appellate court remanded the matter for a new trial on damages, including additional discovery. At the retrial, the jury will hear the various items of evidence going to the issue of what the reasonable value is here in the broader context of the realities in the managed care marketplace, including evidence of Medi-Cal rates.

The information contained in this blog is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients, clients or otherwise, should act or refrain from acting on the basis of any content included in this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient's state. The content of this blog contains general information and may not reflect current legal developments, verdicts or settlements. The Firm expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this blog.


Does owner of business premises owe duty to protect family members of persons who work there from secondary exposure to asbestos incurred by worker on premises, but exposed to family members away from premises?

business.jpgIn Haver v. BNSF Railway Co. (filed 6/3/14) B246527, Lynn Haver contracted mesothelioma and died as a result of secondary exposure to asbestos. Her former husband was exposed to products and equipment containing asbestos while working for defendant's predecessor railway company in the 1970's. Asbestos evidently adhered to his clothing, and then was transferred to the family home where Lynn was exposed. Survivors of Lynn Haver sued defendant for wrongful death based upon premises liability negligence.

Relying on Campbell v. Ford Motor Co. (2012) 206 Cal.App.4th 15, the trial court sustained defendant's demurrer without leave to amend, finding no duty. Survivors appealed arguing (1) Campbell is distinguishable on its facts, or, alternatively, incorrectly decided; and (2) a finding of error is compelled by the recent opinion in Kesner v. Superior Court (filed 5/15/14) A136378. The Court of Appeal, Second Appellate District, Division Five, disagreed, affirming the judgment of dismissal.

The appellate court initially focused on the applicability of Campbell. There, the plaintiff brought a premises liability action against Ford based on her father and brother working for a contractor at a Ford plant construction site where asbestos was present. She was exposed to asbestos while laundering their clothing. While Ford argued there was no duty on the part of the property owner for injuries caused relatives of an employee of an independent contractor for that contractor's negligence, the Court of Appeal there reversed the overruling of the demurrer on broader grounds. It found strong policy considerations dictated, as a matter of law, that the premises owner had no duty of care for such secondary exposure. The Haver court agreed with this assessment and found the factual difference of direct employment by the premises owner here made no difference in light of the broad holding of Campbell.

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Must a wage-and-hour misclassification class action judgment be reversed because the trial court denied defendant employer the opportunity to impeach plaintiffs' statistical model where the sampling belied consistency in class member work habits?

worker-adjusts-watch-1365362-m.jpgIn the much-awaited California Supreme Court opinion of Duran v. U.S. Bank National Association (filed 5/29/14) S200923, the state high court answered affirmatively, reversing the judgment. There, loan officers sued for unpaid overtime, claiming they had been misclassified as exempt employees under the outside salesperson exemption, exempting from overtime pay entitlement employees who spend more than 50% of the workday engaged in sales activities outside the office. (Labor Code section 1171.) A class of 260 plaintiffs had been certified under a trial plan to determine the extent of defendant's liability to all class members by extrapolating from a purportedly random sample. The first phase of the trial concerned the work habits of 21 plaintiffs, while defendant was not permitted by the court to introduce evidence of work habits of those outside the small sample group; the court nonetheless found the entire class had been misclassified. The second phase focused on statistical expert testimony from which the court extrapolated the average amount of the sample group's overtime entitlement to that of the class as a whole. The resulting verdict was $15 million--$57,000 per class member.

The Supreme Court's discussion of the reasons for this reversal of the trial court certainly does not say that this class was not certifiable. On remand, the trial court will be allowed to recertify the class if done properly, with a sufficiently manageable and fair trial plan. The key point is that "once the issues common to the class have been tried, and assuming some individual issues remain, each plaintiff must still prove up his or her claim, allowing the defendant an opportunity to contest each individual claim on any ground not resolved in the common issues." (Johnson v. Ford Motor Co. (2005) 35 Cal.4th 1191, 1210.) So, yes, there can be a case certified even if individual issues as to liability and damages remain; but trial courts have the obligation to decertify a class action if individual issues prove unmanageable. Nor can a trial judge simply certify a case and then categorically deny the admission of any individualized evidence; the fact the matter proceeds as a class action does not mean that all evidence must be of a common nature. That is essentially what happened in Duran.

In Duran, the trial court did not manage individual issues arising from defendant's defense. There was no preliminary assessment here of the variability of the class. In the view of the high court, the trial court forged through the trial with a flawed statistical plan that, instead of managing individualized issues of how employees were expected to and did spend their work day, totally ignored individual issues. The key issue in a misclassification case is the employee's individual circumstances, not the employer's intent. To deny defense individualized evidence under these circumstances amounts to a denial of a parties' substantive rights.

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Is the trial court's denial of new trial, reversible because appellant court finds court's express statement of reasons for denial legally inconsistent, even though absent that statement the judgment would have been affirmed?

denial.jpgOne lesson I learned from 29 years on the bench was to take care not to say too much when making a ruling. This can be difficult, because conscientious people tend to explain the reasoning behind a conclusion reached. David v. Hernandez (filed 5/22/14) 2d Civil No. B245342 demonstrates the trouble with saying too much.

Hernandez was a truck driver headed northbound on the Pacific Coast Highway when he decided to pull off of the highway to park. Because there was no available parking on the right side of the road, he made a left turn into a parking area adjacent to the southbound lane. After taking a nap, he started driving again, stopping short of the southbound lane, checking that there was no immediate traffic, and proceeding to start his left turn into the northbound lane. The time was 8:39 p.m., four minutes before the end of civil twilight and 25 minutes after sunset. Hernandez' vehicle made it into the northbound lane, but the end of the attached trailer was still a bit in the southbound lane when struck by plaintiff David's vehicle. David had no recollection of the collision; his passenger saw a dark obstruction in their lane of traffic, saw David react, and then the crash happened. Just before the collision, she and David wanted to listen to music on her laptop, but she could not get the power to work.

David and his passenger sued for negligence. At trial, the jury was instructed on negligence per se, that liability would follow if it found that as a result of a relevant statutory violation, which was a substantial factor in causing harm, plaintiffs were injured. The violations claimed included parking on and re-entering the roadway from the wrong side of the highway, including failing to yield the right-of-way; and failing to properly signal a turning motion. The jury found that Hernandez was negligent, but his negligence was not a substantial factor causing the harm. Plaintiffs' motion for new trial was denied, and plaintiffs appealed on grounds of verdict inconsistency, insufficient evidence, and erroneous denial of motion for new trial. The Court of Appeal, Second Appellate District, Division Six, reversed.

In denying the motion for new trial, the trial court had stated that Hernandez violated the Vehicle Code by parking his truck on the wrong side of the highway, and that the tail end of his truck would not have been in the southbound lane of the highway but for his entering the highway from the wrong side; but there was "sufficient evidence through expert testimony that a jury could have found a reasonable driver who was paying attention to his or her driving and the road in front of him or her would have seen the truck bed in their lane in time to take evasive action and that the lack of attention on the part of the plaintiff driver was in fact the cause of the accident."

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Does trial court lack authority to rule on enforceability of arbitration agreement where delegation of this authority to arbitrator was clear and not revocable?

arbitration.jpgIn Tiri v. Lucky Chances, Inc. (filed 5/15/14) A136675, Plaintiff Tiri had signed an arbitration agreement with defendant, her employer. Included in the agreement was a provision that the arbitrator, instead of the court, would determine all issues of enforceability of the agreement. Upon her termination, plaintiff sued for wrongful termination, and defendant filed a motion to compel arbitration. The trial court denied the petition on the ground the agreement was unenforceable as being unconscionable. On defendant's appeal, the Court of Appeal, First Appellate District, Division Four, reversed, holding the trial court lacked the authority to rule on unenforceability of the agreement because the parties had made a clear, non-revocable delegation of this authority to the arbitrator.

Principle reliance was placed on the United States Supreme opinion in Rent-A-Center, Inc. v. Jackson (2010) 561 U.S.63, 71, which held a party's challenge to the arbitration agreement does not invalidate the delegation clause; accordingly the arbitrator, and not the court, must consider any challenge to the arbitration agreement as a whole. If the enforceability challenge were specific to the delegation clause, the court may consider the challenge. (Id. at p. 73.)

It was not clear in the instant case whether there was a challenge specifically aimed at the delegation clause. In fact, the ruling of the trial court sounded as if the challenge was broader. The trial court found the agreement unconscionable, focusing on the fact that the agreement stated that the arbitration was governed by the AAA rules, but failed to attach those rules. Nonetheless, the appellate court set out to analyze the enforceability of the delegation clause itself. It concluded the delegation clause was procedurally unconscionable (it gave plaintiff no choice), but was not substantively unconscionable as the trial court impliedly found. (Some measure of each of procedural and substantive unconscionableness needed to be present.)

The Court of Appeal found the delegation clause enforceable because it was clear and not revocable. While the law presumes such delegation unenforceable, defendant here carried its burden to show clear and unmistakable evidence that the parties intended the delegation. The question of whether the clause was revocable turns on whether the agreement was unconscionable. Even though this was an adhesion agreement and thus procedurally unconscionable, there was nothing about the delegation clause that was substantively unconscionable: both parties were bound by it thus demonstrating mutuality, and there was nothing ambiguous or misleading about the clause. The court thus found the denial of the petition to compel was improper; it was the arbitrator's call to determine whether the agreement as a whole was unconscionable.

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Watching The River(island) Run . . . .

Last year, we posted an article regarding the January 2013 California Supreme Court decision in Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn., 55 Cal. 4th 1169 (2013), in which the Court reversed almost 80 years of precedent by ruling that the parol evidence rule exception for fraud allowed use of extrinsic evidence of representations that conflict with a written agreement's terms to prove fraud in the inducement.

Since then, two California Appellate Court cases have applied Riverisland in lease cases where pre-Riverisland law likely would have barred use of extrinsic evidence and, as a result, precluded a claim for fraud on the basis the extrinsic evidence was inconsistent with the express terms of an integrated agreement.


1. Julius Castle Restaurant, Inc. v. Payne, 216 Cal. App. 4th 1423 (2013)

In Julius Castle, the parties entered into a long-term lease for a restaurant property in conjunction with an asset purchase agreement. The lease contained an integration clause and "as is" language with respect to restaurant equipment. After disputes arose regarding repairs and maintenance, the lessees filed an action alleging that the lessor's managing member had given them oral assurances the property was in good condition and that the lessor would maintain it. Relying on Riverisland, the trial court allowed the lessees to introduce evidence of the alleged oral statements under the fraud exception to the parol evidence rule. The appellate court affirmed, finding that parol evidence was admissible with regard to claims of fraud in the inducement, regardless of the sophistication of the parties. In doing so, the court suggested that instead of seeking to avoid fraud claims by invoking the parol evidence rule, parties should concentrate on the heightened burden plaintiffs must meet to allege and prove fraud claims:

"In the post-Riverisland world, parties would be better served in addressing the heightened burden of proving fraud in a civil action. Fraud demands specialized pleading. [Citations.] Credibility of the parties who negotiated the agreement and their relative bargaining positions will be assessed. Attention will now focus on the justifiable reliance element of fraud. [Citations.] Among the questions to ask are: What are the plausible reasons for the alleged discrepancy between the claimed oral promises and the signed writing? Is there compatibility between the oral representations and the written document? What is the evidence relating to whether the document was read and considered before signing? [Citation.] Again, we decline to carve out an exception to the Riverisland holding that the court itself did not endorse.

"Finally, defendants note one of the justifications for the Riverisland decision was to avoid shielding fraudulent practices. They argue, however, that 'Although this is a valid concern, Riverisland is strong medicine and must be applied only when the circumstances call for it: with contracts of adhesion where there is a disparity in bargaining power.' Again, the court did not limit its holding to contracts of adhesion and we decline to read such a limitation into the decision. Accordingly, in light of the Supreme Court's overruling Pendergrass, supra, 4 Cal.2d 258 in Riverisland, we conclude the parol evidence was properly admitted at trial under the statutory exception for fraud."


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Is NBC entitled to a peremptory grant of mandate directing summary judgment where television program aired more than two years prior to filing of purported creators' complaint for breach of implied contract?

file5461249349189.jpgWhenever I lecture on writ practice, the question inevitably arises whether the appellate courts ever grant writ relief compelling the grant of a summary judgment motion denied in the trial court. My answer: rarely, mostly because, if the moving party is correct, it will prevail at trial; and, if it doesn't, it still has the remedy of an appeal from the final judgment.

NBCUniversal Media, LLC v. Superior Court (ordered published 4/28/14) B250892 is one of those rare exceptions. There, real parties (Montz) presented ideas and concepts for a television program entitled Ghost Expeditions: Haunted to NBC from 1996 to 2001. The proposed show was to be a reality series about common people investigating haunted houses. NBC rejected the idea. But on October 6, 2004, the Ghost Hunters hit series, produced by NBC, premiered on the Syfy Channel. NBC had, on July 22, 2004, e-mailed real parties to advise them about the show, described as a "docu-soap about a group of plumbers-by-day/ghost-hunters-by-night that set out on a mission to disprove ghosts or paranormal activity." Montz sued NBC initially in Federal Court on November 8, 2006. NBC's motion for summary judgment was denied by the trial court.

NBC sought a writ of mandate from the Court of Appeal, Second Appellate District, Division Four, compelling the grant of the motion for judgment on the ground the statute of limitations had expired. The court issued a peremptory writ of mandate commanding the trial court to enter summary judgment in NBC's favor. In doing so, the court determined that, as a matter of law, Montz could not prevail.

The appellate court did note that normally resolution of statute of limitation issues is a question of fact not properly disposed of on summary judgment. However, here it determined that uncontradicted facts were established in discovery. One uncontradicted fact was that NBC's show was released to the general public on October 6, 2004, more than two years ( the statutory period applicable here) before Montz filed suit. Montz argued below and on the writ that the accrual of the causes of action should be delayed in accordance when his company actually discovering the show had been released and that it may have been based upon that company's creative idea.

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Does order for a medical reevaluation of an employee after she has returned to work following Family Medical Leave Act leave violate her FMLA rights?

evaluation.jpgIn White v. County of Los Angeles (filed 4/15/14) 2014 DJDAR 4726, White took FMLA leave from her position of district attorney's office investigator as a result of emotional/medication difficulties she experienced. Her psychiatrist certified her condition, which was expected to hospitalize her for 2 weeks, followed by 2 weeks of outpatient care plus possibly more time before she would be able to return to work. FMLA entitles an employee to a total of 12 workweeks of unpaid leave because of a serious health condition. The 12 weeks expired at a time when White was still being treated, causing her psychiatrist to request an additional 4 and 1/2 weeks. White then returned to work with the approval of her examining psychiatrist; 4 months later, the County ordered her to appear to be reevaluated by a County doctor. She failed to appear, believing that such an examination violated her rights under FMLA. She was disciplined for insubordination. She sought injunctive relief to prevent the medical reevaluation.

The trial court issued a writ of mandate permanently enjoining the County from requiring a medical examination based on White's conduct prior to her return to work. While an employer would be legally permitted to order a medical reevaluation after her return to work, reasoned the court, it could not challenge her doctor's certification that she was fit to return from FMLA leave. The Court of Appeal, Second Appellate District, Division Three, disagreed, finding that, once an employee is restored to work, an employer may seek, at its own cost, evaluation of the employee's fitness for duty.

Key to the ruling of the appellate court are the 2008 comments of the United States Department of Labor clarifying the interplay between the FMLA and American's with Disabilities Act (ADA): "[I]f an employer is concerned with the health care provider's fitness for duty certification, the employer may, consistent with the ADA, require a medical exam at the employer's expense after the employee has returned to work from FMLA leave. . ." (73 Fed. Reg. 67934-01, 68033.)

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May deficiency in special verdict on essential elements required to establish liability be satisfied by trial judge inference and the finding affirmed on appeal as harmless error?

In what it described as a "first impression case," the Court of Appeal, Second District, Division Six, affirmed the trial court's inferring necessary findings from a defective special verdict because the defect constituted "harmless error." The very first sentence of the court's opinion in Taylor v. Nabors Drilling USA, LP (filed 1/13/14) B241914 gives this answer. That the appellate court is applying harmless error analysis to what has widely been viewed as structural error, and that the court does so without prior express legal authority, strongly suggested that the case may be appropriate for review. However, on April 16, 2014, the California Supreme Court denied the petition for review filed by appellant Nabors.

Before synopsizing the opinion, a disclosure is in order. Appellant was represented in this matter by Dowling Aaron Incorporated, which sponsors this blog, and with whom I have been of counsel since my retirement from the Court of Appeal, Fifth Appellate District.

In Taylor, respondent went to jury trial against appellant, his former employer, on claims of wrongful termination and hostile work environment sexual harassment, failure to prevent sexual harassment, and unlawful retaliation under the California Fair Employment Housing Act (FEHA); and termination in violation of public policy. The evidence strongly supported bad behavior committed against respondent from day one by two of his supervisors. One, Joe Mason (who obnoxiously supervised respondent previously with a different employer before they both became employed by respondent in June 2010) constantly used homosexual epithets when referring to respondent, and committed other debasing stunts against him. As Mason was well aware, respondent had a girlfriend and denied he was homosexual. A second supervisor, Jaime Mendez, who testified he did not consider Respondent to be gay, would spank defendant, ask him to sit on his lap, and on one occasion, urinated on respondent. Respondent testified that he was "infuriated, disgusted and humiliated" by this conduct.

In September 2010, respondent complained to appellant employer about the harassment. After an investigation, Mason was terminated; Mendez stayed on the job, but stopped harassing respondent. On December 19, 2010, appellant terminated respondent's employment for the following reasons: often late to work, missed a mandatory safety meeting, left shifts early without permission while falsely declaring that he had permission, and cursing at Mendez when asked to perform a work task.

The jury found for appellant on all of the claims except for the claim of hostile work environment sexual harassment. On that cause of action, respondent was awarded $10,000 economic plus $150,000 non-economic damages. FEHA-based attorney fees were awarded by the trial court in the sum of $680,520.

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Is the stipulation to "high-low" arbitration binding only if reflected in the judgment in the case?

arbitration.jpgIn Horath v. Hess (filed 4/10/14) D063124 & D063709, prior to arbitration of an automobile personal injury case, the parties stipulated in writing to the acceptance of a minimum award of $44,000 and a maximum of $100,000; the agreement was not disclosed to the arbitrator who was to independently determine his award. Any costs awarded by the arbitrator would be added to the stipulated amount. The arbitrator awarded plaintiff $329, 644.61 in damages, plus $36,882.61 in costs. Plaintiff petitioned the trial court to confirm that award. After more than 100 days had passed, defendant filed two motions: the first to limit the judgment for damages to $100,000, and the second for relief from default. Both motions were denied, and the arbitrator's award was confirmed.

After having paid the stipulated $100,000, plus $36,882.61 in costs, to plaintiff, defendant filed a motion in a separate action for acknowledgment of satisfaction of judgment. The trial court denied the motion, determining that judgment was as confirmed from the arbitrator's award, the face of the arbitrator's award governed, and defendant had untimely challenged that award.

On appeal of the two consolidated cases, the Court of Appeal, Fourth Appellate District, Division One, concluded the trial court erred by denying defendant's motion for satisfaction of judgment. Determinative of the appeal was the application of Code of Civil Procedure section 724.050, the section under which defendant sought to obtain a court-entered satisfaction of judgment. That section provides, at subdivision (d), that a judgment debtor may apply to the court for satisfaction where the creditor refuses the debtor's demand for such. Section 724.010, subdivision (a) states that a satisfaction does not require full payment of the amount of judgment where there has been "acceptance by the judgment creditor of a lesser sum in full satisfaction of the judgment." The trial court had agreed with plaintiff that the parties' pre-arbitration award stipulation did not exempt defendant from the requirement of timely seeking to vacate or correct the award before entry of judgment.

Plaintiff argued in its respondent's appellate brief that, even if the statute provided the method for a judgment debtor to enforce a judgment creditor's agreement to accept less than the full judgment, the statute calls for a situation where the stipulation or agreement arose after the judgment was entered rather than before entry, as was the case here. The court of appeal saw this as a distinction without a difference. Under general contractual principals, the parties mutually agreed to the "high-low" provision including that both parties benefited by taking a degree of the risk out of the arbitrator's independent determination. It was understood that this independent award would not govern the payment necessary to satisfy the judgment; rather their stipulation would govern.

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May an HMO be found negligent in the delegation of its statutory duty to reimburse non-contracting emergency physicians?

physicians.jpgEmergency room physicians have a legal duty to treat a patient regardless of patient's inability to pay the physician's bill. Where patient is enrolled in an HMO (Health Maintenance Organization care service plan), even where the emergency physician is not under contract to the HMO, the obligation to pay for the physician's services still rests with the HMO. But HMO's are statutorily allowed to delegate this responsibility to IPA's (independent practice associations). Where this delegation has occurred, and the emergency physician providing treatment neither contracted with the patient's HMO nor was a member of the delegated IPA, is the physician entitled to payment from the HMO when the IPA fails to pay?

The answer to this complex question is equally complex, and is found in Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (filed 4/2/14) B238867a. It may seem surprising that the answer is more a matter of tort law than contract law. And much like the inquires found in the venerable tort law authority in Rowland v. Christian (1968) 69 Cal.2d 108, public policy considerations play a large role. As the discussion below indicates, central to the answer is the policy that the HMO patient (the consumer) not be vulnerable to such billings in violation of their HMO contractual entitlement. In resolving a split of appellate authority, that answer found in Centinella is the HMO has a duty not to delegate its obligation to reimburse emergency physicians to an IPA it knows, or has reason to know, will be unable to pay. On the facts alleged in this case, the Court of Appeal, Second Appellate District, Division Three, found a sufficient basis for the physicians to seek payment from the HMO on the claim of negligent delegation. The trial court's sustaining of the HMO's demurrer without leave was reversed, and the matter was remanded.

In the trial court, the HMO had succeeded in arguing that no duty arose for it to protect the financial interests of the third party physician-plaintiffs under Biakanja v. Irving (1958) 49 Cal.2d 647. The trial court agreed that Biakanja barred relief in that it requires an intent to harm a plaintiff specifically, which was not alleged here. The appellate court disagreed with this interpretation of Biakanja, discussing the split of authority on the issue. The proper interpretation, ruled the court, is that the duty of the HMO is owed to the plaintiff or to a class of which plaintiff is a member.

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Is homebuilder's contractual construction-defect pre-litigation procedure unenforceable due to its variance from statutory procedure, and unenforceable when used with subsequent home purchasers?

Homebuilder.jpgIn The McCaffrey Group, Inc. v. Superior Court (filed 3/24/14) F066080, the trial court denied homebuilder McCaffrey's "Motion to Compel ADR" brought in an action filed by real parties in interest who were the owners of 24 homes built by McCaffrey which allegedly contained construction defects. McCaffrey petitioned for writ of mandate to enforce provisions in the home purchase contracts that require the homeowners to submit their construction defect claims to non-adversarial pre-litigation procedures before proceeding with a lawsuit. The trial court had found the contract provisions unenforceable as being unconscionable. The Court of Appeal, Fifth Appellate District, granted the petition.

The appellate court opinion addressed the three categories of suing homeowners: (1) pre-2003 original purchasers, (2) post-2003 original purchasers, and (3) subsequent purchasers who bought an existing McCaffrey-built home from a third party. The distinction in the first two categories derives from the Legislature's passage of the so-called "Right to Repair Act," effective January 1, 2003, found at Civil Code sections 895 through 945. Prior to 2003, there was no statutory procedure; after 2003, the builder has the option of contracting for an alternative non-adversarial procedure in lieu of the statutory procedure. Those contracts that came after this date stated that McCaffrey opted for its own procedure; essentially the same procedure it used before that date.

In short, both statutory and contract procedures provide for the homeowner giving written notice of claimed defects; some written acknowledgment by builder, followed by inspection and the opportunity to propose repairs/compensation; a determination by the homeowner to accept the builder's proposal or have the dispute mediated. If still unresolved, litigation may then follow; the contract procedure has an additional judicial reference procedure.

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Where settlement agreement provides for a discounted principal amount to be paid in installments and the entire original liability becomes due because of a late payment, is default judgment for amount in excess an unenforceable penalty?

In promissory note cases, it is not uncommon in my role as a mediator to assist parties in framing terms of a settlement that provides for installment payments. The creditor normally wants some "teeth" in the agreement in exchange for its promise to accept gradual payments rather than the full sum immediately upon settlement. On the other side, the debtor wants the benefit of a discounted principal as a reward for timely payment. This appears to be the scenario that was played out in Purcell v. Schweitzer (ordered published 3/17/2014) 2014 DJDAR 2387.

Plaintiff had received from defendant a promissory note for $85,000. Plaintiff sued defendant for default on the full sum. The parties reached a settlement agreement: plaintiff agreed to reduce the principal amount to $38,000, conditioned upon defendant's payment of 24 timely monthly installment payments to include 8.5% interest; the full, discounted amount would be paid within these 24 months. The payments were due the first of each month; should a payment not be received by the fifth day of any month, the entire original liability of $85,000 would then become immediately due. The settlement agreement further provided that the late-payment provision was not a penalty, and that defendant waived any right to appeal and any right to contest or otherwise set aside a judgment.

Defendant paid the settlement note down to a balance of $1,776.58, then made a late payment of that balance, which was accepted by defendant. Asserting the late-payment clause of the settlement agreement, plaintiff filed this lawsuit and received a default judgment for $58,829.35, reflecting reinstatement of the original liability. Defendant's motion to set aside this default judgment was granted, and plaintiff appealed. The Court of Appeal, Fourth Appellate District, Division One, affirmed, finding the default judgment was the result of an unlawful penalty or forfeiture.

The Court of Appeal recited the rule of enforceability of a liquidated damage clause: it must bear a reasonable relationship to the range of actual damages that the parties could have anticipated from the breach (Civil Code sections 1670 and 1671). Plaintiff argued that the settlement agreement here recited that the $85,000 was an agreed upon amount actually owed and was expressly stated as not being a penalty. However, the appellate court cited Greentree Financial Group Inc. v. Execute Sports, Inc. (2008) 163 Cal.App.4th 495, 499, for the proposition that the relevant breach here is the breach of the stipulation contained in the settlement agreement (in that case the stipulation for entry of judgment of installment payments of a lesser total sum than sought, which would be increased to the greater sum if not timely paid), not the breach of the underlying contract for which recovery was sought.

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