Don't trust article headnotes: Class arbitration required only on contractual principles.

September 5, 2012

Headlines.jpgI hope those of you reading this blog, or any other blog or case commentary, choose to read the discussed opinion rather than rely on the headnote or summary found in the commentary. Recently I came across the following headnote: "Gentry v. Superior Court, which permits invalidation of class action arbitration waivers, remains viable despite AT&T Mobility LLC v. Concepcion." The case opinion referred to is Truly Nolen of America v. Superior Court (certified for publication on August 13, 2012) 2012 DJDAR 11207.

If you think from this heading that you will find that the opinion discusses and supports the application of the Gentry analysis that policy considerations supporting class arbitration will rule the day over the applicable contract, you will find that you have been seriously misled. While the California Court of Appeal, Fourth Appellate District, Division One, does say that California Supreme Court case of Gentry has not been expressly overruled, it goes on to say that the U.S. Supreme Court's reasoning in Concepcion strongly suggests Gentry is toast (my term, not theirs). The appellate court states, "[T]o the extent the Gentry decision would permit such a generalized showing to negate the parties' contractual intentions, that conclusion is no longer valid after the Concepcion and Stolt-Nielsen decisions." (See previous blog of June 19, 2012.)

The appellate court found in Truly Nolen that, in any event, the trial court erred in requiring class arbitration; that even if the Gentry factors still apply, they were not established in this case. It remanded the matter to the trial court in issuing writ of mandate in favor of petitioner Truly Nolen. The trial court was instructed to determine whether there is a contractual basis for finding the parties mutually agreed to class arbitration. Thus the actual holding of the case left little doubt that it was applying the principles found in Concepcion rather the Gentry factors.

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.

Writ granted: producers of Desperate Housewives granted directed verdict on actress's wrongful termination claim.

In Touchstone Television Productions v. Superior Court (B241137, filed August 16, 2012), petitioner Touchstone had an agreement with actress Nicollette Sheridan for the first season of the television series Desperate Housewives in which Touchstone had the exclusive option to renew Sheridan's services on an annual basis for an additional six seasons. During Season 5, Touchstone informed Sheridan it would not renew her contract for Season 6, while paying her for the entirety of Season 5. Sheridan sued for wrongful termination in violation of public policy, alleging that she was "fired" because she had complained about a battery committed against her by the series' creator Mark Cherry. A jury deadlocked on this claim resulting in a mistrial. Touchstone's motion for a directed verdict was denied by the trial court, and Touchstone petitioned the Court of Appeal for extraordinary relief.

The Court of Appeal, Second Appellate District, Division Four, stayed the pending retrial, issue an alternative writ of mandate, and, after receiving briefing and oral argument, concluded the trial court erred in denying Touchstone's motion for directed verdict. The court was convinced there was clear legal precedent on the merits: "A cause of action for wrongful termination in violation of public policy does not lie if an employer decides simply not to exercise an option to renew a contract. In that instance, there is no termination of employment, but, instead, an expiration of a fixed term contract. (Daly v. Exxon Corp. (1997) 55 Cal.App.4th 39.)"

The appellate court, however, rather than ordering the entire action dismissed, sent the matter to the trial court to allow Sheridan to file an amended complaint alleging a cause of action under California Labor Code section 6310 that Touchstone retaliated against her for complaining about unsafe working conditions (in the form of Cherry's conduct) by deciding not to exercise its option to renew her contract. The court noted that, after this petition was filed, Sheridan had moved the trial court to allow her to amend her complaint to add the Section 6310 claim; the trial court had denied that motion.

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Real Estate Recovery Program provides recovery for broker's fiduciary breach if factual findings supporting judgment state conduct constituting deliberate fraud

real estate broker.jpgCalifornia Business & Profession Code section 10471 is a "remedial statute intended to protect the public from loss resulting from unsatisfied damage awards against licensed real estate personnel." (Doyle v. Department of Real Estate (1994) 30 Cal.App.4th 893.) It is punitive in the sense that an agent's license is immediately suspended if the state pays from the fund and that license will not be reinstated until the payment is paid back in full. It is limited in that it only applies to an unsatisfied judgment for intentional fraud.

In Worthington v. Davi (G045537, filed August 7, 2012), plaintiffs arbitrated three transactions claiming breach of fiduciary duty and one transaction claiming fraud committed by their real estate broker and others, and received a total award of $280,000. The award was confirmed in a judgment which went unpaid. Plaintiffs applied to the state's Real Estate Commissioner for recovery from the 10471 recovery fund. The Commissioner allowed recovery of $50,000, allowing recovery only on the "fraud" transaction, and disallowing the other three.

Plaintiffs applied to the trial court for an order directing payment of the judgment from the recovery fund as to the remaining three transactions. The trial court ordered payment on two of these three. On these three transactions, the arbitrator did not expressly state the award was for "fraud." The trial court found that in two of these transactions, there was a breach of fiduciary duty resulting from fraudulent transactions. However the remaining fiduciary transaction involved no sufficient stated showing of fraud. Both sides appealed.

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Purported appeal of order compelling arbitration treated as extraordinary petition; order compelling individual arbitration affirmed

Thumbnail image for Court House.jpgIn Nelsen v. Legacy Partners Residential, Inc. (filed July 18, 2012) 2012 DJDAR 9956, plaintiff Lorena Nelson worked for defendant as a property manager from 2006 to 2009. Early in her employment she received a 43-page pre-printed form employee handbook that included a small-print arbitration clause at page 42 headed "TEAM MEMBER ACKNOWLEDGMENT AND AGREEMENT." The handbook gave no option to arbitration as a means of resolving employment disputes. She signed the agreement. In 2010, she filed a class-action lawsuit against defendant primarily alleging violations of wage and hour laws.

Defendant moved the trial court to compel plaintiff to arbitrate the matter as an individual party pursuant to the arbitration clause. Plaintiff opposed the motion, claiming the arbitration clause was unconscionable and in violation of California public policy favoring class actions in this type of lawsuit; if arbitration was to be compelled, argued plaintiff, the court would have to allow class arbitration. The trial court granted the motion to compel individual arbitration, and plaintiff appealed.

To start, the California Court of Appeal, First Appellate District, Division One, questioned whether plaintiff is allowed to appeal this order because it is not a final judgment. (Civil Code section 906.) Nelson argued the "death knell" doctrine, citing Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277: that the order is effectively the death of the class litigation. However, the appellate court pointed to the applicability of this doctrine only where it is unlikely that any individual action will proceed. But the court stops short of deciding this issue of appealability, and instead exercised its discretion to treat the appeal as a petition for writ of mandate.

On the merits, the Court of Appeal determined that plaintiff failed to meet her burden of showing (1) the arbitration clause was both procedurally and substantively unconscionable, and/or (2) that the clause required class-wide arbitration.

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National Federation of Independent Business v. Sebelius

August 1, 2012

Health Care.jpgThere are approximately 50 million Americans uninsured for healthcare. The Patient Protection and Affordable Care Act ("ACA") seeks to have about 30-35 million of those covered by private and public health insurance. About half of those will be covered under the "Individual Mandate" that each individual, subject to certain exceptions, purchase health insurance or pay a "penalty". This half will also consist of persons who become insured as a result of the mandate that "large" employers provide certain coverage or pay a penalty. The other approximate half was to consist of those individuals newly covered under an expansion of Medicaid. The United States Supreme Court addressed the constitutionality of the "Individual Mandate" and the Medicaid Expansion.

Before the Court could address the merits of the challenge to the Individual Mandate, the Court had to determine whether jurisdiction was precluded by the Anti-Injunction Act, which provides that the court lacks jurisdiction of suits to restrain the assessment or collection of "any tax." Noting that ACA required the penalty to be assessed and collected "in the same manner as taxes," Chief Justice Roberts concluded that this language made little sense if the assessable penalties were themselves taxes for purposes of the Anti-injunction Act. Thus, the Court had jurisdiction.

Chief Justice Roberts then found ACA to be constitutional in part and unconstitutional in part. Joined by Justices Scalia, Kennedy, Thomas and Alito, the Chief Justice found that the Individual Mandate was unconstitutional under the Commerce Clause. To permit Congress to regulate individuals because they chose not to become active in commerce by purchasing a product would open a new and potentially vast domain of unauthorized Congressional authority. However, noting that there could be no criminal penalty and no government lien for nonpayment of the "penalty," Chief Justice Roberts determined the Individual Mandate could be upheld under the Taxing Clause because the "penalty" could reasonably be construed as a tax on those with a certain level of income who chose to go without health insurance. Justices Ginsburg, Breyer, Sotomayor, and Kagan joined this determination.

Joined by all other Justices besides Ginsburg and Sotomayor, Chief Justice Roberts found the portion of ACA that permitted the Secretary of Health and Human Services to withhold all Medicaid funding from states that refused to accept the Medicaid expansion as unconstitutional coercion. However, rather than strike down the Medicaid expansion, Chief Justice Roberts, joined by Justices Ginsburg, Breyer, Sotomayor and Kagan, ruled that this portion of ACA was not enforceable. Thus, states are free to accept or reject the Medicaid expansion.

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Dismissal of CCP 998-settled case where agreement silent on plaintiff's statutory claim of attorney fees does not preclude award

Does a dismissal with prejudice after a case settles under California Code of Civil Procedure section 998 preclude an award of attorney fees because the case did not proceed to "judgment?" This is the principal question raised in the Court of Appeal, Fifth Appellate District, case of Wohlgemuth v. Caterpillar, Inc. (filed July 23, 2012, F061981). The short answer is no.

The plaintiffs purchased a new motor home, the engine of which was manufactured and warranted by defendant. After there had been numerous attempts by defendant to repair what plaintiffs claimed were engine defects, plaintiffs sued under the Song-Beverly Warranty Act (Civil Code section 1790 et seq.), which entitles a prevailing consumer to attorney fees and costs in addition to damages.

Shortly before trial, defendant made a "998" offer to compromise by paying plaintiff $50,000 in exchange for a dismissal with prejudice and standard release of all claims. Plaintiffs accepted the offer, which was silent on attorney fees and costs, dismissed the action and then moved to recover their attorney fees and costs under Civil Code section 1794, subdivision (d). Defendant opposed the motion. The trial court granted the motion awarding $117,625 in attorney fees and $7,737 in costs.

Case law is clear that where a CCP 998 offer is silent on costs and fees, the prevailing party is entitled to costs and, if authorized by statute or contract, attorney fees." (Engle v. Copenbarger & Copenbarger, LLP (2007) 157 Cal.App.4th 165, 168.) Defendant's primary argument both in the trial court and on appeal was plaintiffs could not recover attorney fees and costs because there was no judgment entered in plaintiff's favor. This argument cites the language of 1794(d): a buyer who prevails in any action under the Song-Beverly Act is entitled to recover attorney fees and costs "as part of the judgment."

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Plaintiffs alleging separate acts of sexual battery by physician are not properly joined in single action

physician.jpgIn Moe v. Anderson (filed July 11, 2012) 2012 DJDAR 9523, the Court of Appeal, Third Appellate District, distinguishes between joinder of plaintiffs against an offending physician defendant sued for separate sexual batteries, and joinder in the same lawsuit of those plaintiffs against the physician's employer for the negligent hiring and supervision of that physician. In the former joinder was found improper, in the latter proper.

Plaintiffs Paula and Edelmira were treated by defendant Anderson for their separate workers' compensation injuries. In May 2009, Paula alleges that Anderson made sexual advances and touched her breasts and vagina, absent her consent. Between July and September 2009, Edelmira alleges that, without her consent, Anderson committed numerous forcible sexual acts against her including oral copulation, sexual intercourse, and sodomy. They jointly filed an action against Anderson and his employer, defendant Healthworks.

In the trial court, both defendants demurred arguing plaintiffs were improperly joined because each plaintiff alleged events that constituted different conduct and transactions. Plaintiffs responded that their claims arose out of the same series of transactions and that they shared a common interest including that each of their employers referred them to the same medical facility; additionally they both sued a common codefendant, Healthworks. The trial court sustained the demurrers without leave to amend; the ruling was without prejudice to plaintiffs' filing new and separate complaints. Plaintiffs appealed.

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Work product privilege: recorded witness statements get at least qualified protection; identity of witness not automatically protected

Work.jpgThe California Supreme Court has offered some clarification to the divergent appellate court opinions written in recent years on the subject of protection of an attorney's work product in Coito v. Superior Court (filed June 25, 2012) 2012 DJDAR 8713. To the extent there was a split of authority, the court has drawn the line.

Plaintiff Coito, the mother of a teenager who drowned in Tuolomne River, sued the City of Modesto and State of California for wrongful death. Six juvenile witnesses were interviewed by investigators for State's attorneys, who recorded the interviews. In discovery, plaintiff demanded the names of the interviewees and production of the taped interviews. State claimed work product protection from disclosure and production. At a motion to compel, the trial court denied plaintiff's motion, except to the extent that State had used the recording during a deposition. On petition for writ of mandate, the Court of Appeal, Fifth Appellate District, majority disagreed, determining these matters did not come within the work product privilege. A dissent/concurrence written by Justice Kane concluded the interviews were at least entitled to qualified privilege and the list of interviewed witnesses must be produced unless an adequate showing established privilege. The Supreme Court granted review and essentially agreed with the Kane opinion.

The state high court concluded the witness statements constituted work product protected by Code of Civil Procedure section 2018.030. It was not a matter of what each witness said standing alone, but rather what the attorney-directed questions suggested. The statements are matters of absolute privilege when inextricably intertwined with the attorney-directed statements that suggest the attorney's impressions of the witness and/or theories of the case. But witness statements procured by an attorney will not always reveal the attorney's thought process. An in camera hearing provides an adequate way of showing whether the absolute privilege applies.

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Loss of consortium may lie for pre-marriage acts causing latent injury: a lesson that appellate authority may not carry the day

marriage.jpgJohn Leonard was first diagnosed with mesothelioma after his marriage to Sandra Leonard in 2001. This progressive and fatal disease allegedly resulted from John's exposure to asbestos between 1958 and 1995 caused by John Crane, Inc. In Leonard v. John Crane, Inc. (filed June 13, 2012) 2012 DJDAR 7862, Sandra's lawsuit for loss of consortium was dismissed by the San Francisco Superior Court when it sustained Crane's demurrer without leave to amend. The trial court relied upon Zwicker v. Altamont Emergency Room Physicians Medical Group (2002) 98 Cal.App.4th 26, which held that a loss of consortium claim is cognizable only if the plaintiff was married to the injured spouse at the time of defendant's wrongful conduct. The Court of Appeal, First Appellate District, Division Five, reversed on appeal, after having denied an earlier petition for writ review.

On appeal, defendant argued that the Zwicker holding was "binding" on the trial court. Plaintiff disagreed, arguing not only that Zwicker was bad law, but also that the case was distinguishable and the purported holding was dicta. Both parties agreed that the focus should be the date of the "injury" to the spouse. Defendant insisted the injury occurred at the time John was exposed to asbestos; plaintiff urged that her claim arose only once John had appreciable and actionable injury.

The appellate court declined to apply Zwicker. First, it agreed with plaintiff that a valid loss of consortium arises when a latent and unappreciated injury initially becomes manifest, which in this case was during marriage. Zwicker involved a medical malpractice claim that became manifest prior to the marriage; the ruling was correct on that point, but is factually distinguishable. Second, the Zwicker court went beyond the facts of its case to state a broader principle: that a loss of consortium necessarily arises at the time the wrongful conduct occurred; the Leonard court found this broadly stated principle to be incorrect.

In reaching its decision, the court discussed the split of authority on this question in other jurisdictions. Now California too has a split of appellate authorities. The court noted that another appellate district, the Second District Court of Appeal recently reached the same conclusion as it had. (See Vanhooser v. Superior Court (Hennessy Industries) (June 1, 2012) ___ Cal.App.4th ___.) Thus the Third District Court of Appeal holding in Zwicker is now at odds with these holdings in two other districts.

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General contractor not liable for workplace injury claim of employee of subcontractor premised on negligent coordination of various subs

contractor.jpgIn Brannan v. Lathrop Construction Associates, Inc. (filed May 21, 2012, certified for publication June 12, 2012) 2012 DJDAR 7743, plaintiff was working for a masonry subcontractor at a school site when he slipped on wet scaffolding and injured his back. He sued defendant, the general contractor, on the theory that defendant negligently sequenced and coordinated the various subs working on the project; in particular, that plaintiff slipped and fell due to the presence of the plastering subs scaffolding, dampened by the rain, interfering with the masonry work. Defendant moved for summary judgment. The Contra Costa Superior Court granted the motion, dismissing the case, based on the Privette-Toland doctrine (Privette v. Superior Court (1993) 5 Cal.App.4th 689), Toland v. Sunland Housing Group, Inc. (1998) 18 Cal.4th 253. On appeal, the Court of Appeal, First Appellate District, Division One, affirmed.

The undisputed facts established it was understood that the plastering work would be done first, and the plaster scaffold would be removed before the masonry work started. However the scaffold was left behind at the request of the framing sub who wished to use it; the masonry sub never requested it. The masonry foreman (Garcia) was to make sure the site was safe for the masonry workers; he had the authority to call of the workers, if he saw something unsafe. Garcia observed on the date of the accident that it was raining, but had no safety concern about the wetness or the presence of the scaffolding (he had asked defendant when the scaffold would be removed.) Plaintiff was trying to cross over the scaffold to lay masonry in the area underneath when he stepped onto the second rung of the scaffold believing there was no other way to gain access. He slipped and fell, causing his injury.

The appellate court summarized the Privette-Toland doctrine: that injured employees of independent contractors normally cannot sue the hirer because the employer is implicitly expected to ensure his employees safety and workers' compensation was available should the employee be injured. The exception is found in Hooker v. Department of Transportation (2002) 27 Cal.4th 198: the hirer may be held responsible if it retained control of the work but negligently exercised its control. But merely retaining control over safety conditions is not enough; the hirer must have affirmatively contributed to the employee's injury.

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Public policy considerations no longer a bar to enforcement of class action waiver in employment arbitration agreement

publicpolicy_forum_300x300px.jpgAT&T Mobility LLC v. Concepcion (2011) __ U.S.__ [131 S. Ct 1740] changed the legal landscape concerning class arbitrations. The United States Supreme expressly overturned the California Supreme Court ruling in Discover Bank v. Superior Court (2005) 36 Cal.4th 153, which had held that class action waivers in contracts of adhesion subject to arbitration are unenforceable.

A more recent California Supreme Court opinion--Gentry v. Superior Court (2007) 42 Cal. 4th 443--is not referenced in Concepcion. having lead some to believe Gentry is still viable. (See Kinecta Alternative Financial Solutions, Inc v. Superior Court (Malone) (2012) __Cal.App.4th__.) Gentry determined that, under some circumstances, a class arbitration waiver would impermissibly interfere with an employee's ability to vindicate unwaivable rights concerning overtime laws, and that such a waiver was contrary to public policy. The case to be discussed, Iskanian v. CLS Transportation, LLC (filed June 4, 2012) 2012 DJDAR 7371, finds that the Concepcion decision conclusively invalidates Gentry.

Plaintiff Iskanian worked as a driver for the defendant transportation company. After about 9 months of employment, in December 2004 he signed an arbitration agreement that any and all claims arising out of employment would be submitted to binding arbitration and that class claims could not be asserted. The employment concluded in August 2005, and plaintiff filed a break/wage-and-hour class action lawsuit in August 2006. The order appealed from is the trial court's order compelling arbitration and dismissing class claims. Plaintiff claims he can meet the Gentry test to invalidate the class waiver, or alternatively he should not be compelled to arbitrate. The Court of Appeal, Second Appellate District, Division Two found Gentry inapplicable and affirmed.

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No duty of machine manufacturer to warn when hazardous material is used with otherwise nonhazardous machine

Earlier this year, the California Supreme Court determined that a manufacturer has no duty to warn about another manufacturer's dangerous product even if it is foreseeable that the products will be used together. (O'Neil v. Crane Co. (2012) 53 Cal. 4th 335, 361; see Jan. 31, 2012 blog.) The sued manufacturer there was the maker of pumps that had been specified by the government to use asbestos gaskets (later-determined harmful). Repairpersons were exposed to harmful fibers when they removed the gaskets to work on the pumps. Otherwise nothing in the pumps' ordinary operation caused such exposure.

An arguably slightly different scenario is presented by the operation of grinders used in automotive shops to reshape brake parts. When such grinders were operated to reshape asbestos-containing brake parts, the interaction would cause the brake parts to emit harmful respirable asbestos dust. Richard Barker suffered such exposure as an auto mechanic from 1967 to 1995. He died of asbestos-related lung cancer in December 2008. Among the parties sued by Barker's survivors was Hennessey Industries, Inc. the manufacturer of the grinders. Hennessey moved for summary judgment arguing it owed no duty to warn about the asbestos-containing products that were used with its machines. The Los Angeles County Superior Court agreed and dismissed the case against this defendant.

The Barker family appealed in Barker v. Hennessy Industries, Inc (filed May 22, 2012) 2012 DJDAR 6633. The Court of Appeal, Second Appellate District, Division Two, affirmed, finding that the instant facts fall squarely within O'Neil v. Crane Co. Among the findings made by the two justices in the majority was the inference that the Hennessey products could not cause the harm because they did not themselves contain asbestos (and the machines could and did grind non-asbestos parts); thus even though their use with asbestos-containing brake parts was foreseeable, Hennessey had no duty to warn.

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The difficult question of when a disabling psychiatric condition is employment related: don't bank on unrefuted expert evidence

Court House.jpgThis issue more often arises in the workers' compensation context. In Valero v. Board of Retirement (filed May 1, 2012) 2012 DJDAR 5698, plaintiff contended in a petition for writ of mandate that the Board of Retirement of the Tulare County Employees erroneously denied him disability retirement benefits under California Government Code section 31720. Under subdivision (b), to qualify, ones injurious incapacity arises out of and "in the course of the member's employment" and "contributes substantially to such incapacity." The Tulare Superior Court found against plaintiff and the Court of Appeal, Fifth Appellate District affirmed.

Plaintiff contended his interaction with angry clients as a health and human services office assistant substantially contributed to his permanently disabling panic disorder. As the appellate court describes it, plaintiff "bore the burden to affirmatively show a real and measurable connection between his psychiatric disability and his employment."

Four doctors provided evidence. Plaintiff argued that because three doctors concluded the panic disorder were caused by his experience in the workplace and the other did not opine that there was no causal connection between work and the disorder, the trier of fact was required to rule in his favor.

Not so, said the Court of Appeal. It found that, assuming plaintiff's characterization of the evidence is correct, the medical evidence was not of such character and weight as to leave no room for judicial determination that it was insufficient to support the finding. It did not disturb the trial court's conclusion that the medical evidence was not persuasive based on the undocumented and uncorroborated self-reporting about plaintiff's encounters with clients causing his panic attacks.

The lesson to be learned from this is that you cannot always rely upon uncontested expert evidence to carry the day. After all, an expert's testimony is only as good as the factual input upon which the opinion is derived.

Slander of title cause of action may be maintained where the only pecuniary loss consists of attorney fees and costs incurred to clear the slandered title

Thumbnail image for Real Estate.jpgFor more than 20 years, homeowners at Sumner Hill, an isolated subdivision on the bluffs overlooking the San Joaquin River, enjoyed the privacy of living in a remote, rural location behind a locked security gate. They also enjoyed unrestricted access to the river on a dirt road within the subdivision known as Killkelly Road. Because Killkelly Road was inside the gated subdivision, river access by that route was available to Sumner Hill homeowners but not the general public. These amenities - a private gated community and unrestricted river access - were part of what they purchased when they bought their lots in the subdivision.

A developer, Rio Mesa Holdings, LLC, purchased the surrounding land and announced plans to develop a massive residential and commercial development that would include opening the Sumner Hill subdivision to the general public and allowing public access to the San Joaquin River directly through the subdivision using Killkelly Road. The developer installed a locked gate restricting the homeowners' access to Killkelly Road. The developer also recorded a document entitled "Notice of Permission to Use Land" in the County recorder's office, which stated that Rio Mesa Holdings, LLC was the owner of Killkelly Road, the general public had a right to use the road for recreational purposes during daylight hours, and no vehicles were allowed on the road. The developer also hired private security guards to patrol the subdivision and prevent vehicular access to the river. Some of the homeowners were accosted by the security guard when they attempted to use Killkelly Road.

These events caused the homeowners to file suit against the developer, seeking a judicial determination of their right to maintain Sumner Hill as a private, gated subdivision and to have unrestricted use of Killkelly Road for access to the San Joaquin River. They also sought damages for slander of title, and related tort causes of action. The developer cross-complained, claiming that the public had a right of access to the river from Killkelly Road.

In a bifurcated trial, the trial court, sitting in equity, resolved the main issues in the homeowners' favor, by determining the private (nonpublic) character of the gated subdivision, confirming the homeowners' easement rights to use Killkelly Road and denying the developer's claim of public access to the river. A jury then heard the tort causes of action and awarded $803,951 in compensatory damages to the homeowners for slander of title and nuisance and $2,419,800 in punitive damages.

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Defendant's negative net worth does not render punitive damage award reversible

Defendant.jpgBetween 2006 and 2010, ArvinMeritor, Inc., attained $3 billion in sales revenue each year and had an annual cash-flow profit of $111 million, a primary business being manufacturing brake shoes. Its lowest annual profit during this period was $95 million. However, as of 2010, it reported a negative "net worth" of $1.023 billion; the company's losses resulted primarily from significant capital expenditures and development expenses.

Gordon Bankhead contracted mesothelioma as a result of 30 years of exposure to asbestos dust while working in automobile maintenance facilities. Brake shoes for which ArvinMeritor is in part responsible caused the deleterious asbestos dust. Bankhead sued a number of defendants including ArvinMeritor. After trial in Alameda Superior Court, a jury awarded a verdict in favor of Bankhead including a 15% share of the fault against ArvinMeritor which resulted in joint and several liability in the sum of $1.47 million in economic damages, and several liability of $375,000 in noneconomic damages. In addition to this total compensatory award of $1.845 million, the jury later awarded punitive damages against this defendant in the sum of $4.5 million.

In Bankhead v. ArvinMeritor, Inc. (filed April 19, 2012) 2012 DJDAR 5011), ArvinMeritor disputed the punitive damage award on two grounds: 1) the award is excessive because ArvinMeritor proved its negative net worth, and 2) the 2.4 to 1 ratio of punitive damages to compensatory damages is constitutionally excessive. The Court of Appeal, First Appellate District, Division Four, disagreed and affirmed the judgment. In particular, the appellate court held there is no legal requirement that punitive damages must be measured against a defendant's net worth.

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