Declarations and Exclusions

There "But For" the Court of Appeal Go I -- Clients Must Prove They Would Have Been Better Off Absent Transactional Attorney's Negligence

When an attorney acts negligently when representing a client in litigation, the client can bring an action against the attorney for professional negligence or malpractice. The client can only prevail on the malpractice case by proving that the result of the original litigation would have been more favorable but for the attorney's negligence. In Viner v. Sweet (2003) 30 Cal.4th 1232, the California Supreme Court ruled that the same principle applies when a lawyer is negligent in handling negotiations or other business transactions: the client must prove that some additional measurable benefit would have been achieved if the attorney had not been negligent in the representation.

The Supreme Court remanded the case before it to the Court of Appeal, which has now ruled that the judgment against the attorney defendants must be reduced, as a matter of law, from $13,291,532 to $515,760. The attorneys involved admitted that their negligence caused the reduced amount of damage; the Court of Appeal concludes that there was no substantial evidence to establish that any of the other damage amounts represent profits or benefits that necessarily would have come to the plaintiffs in the absence of the attorneys' errors.

For the most part the claims that the appellate court disallowed arose from the clients' contention that the attorneys should have negotiated certain more favorable terms in the sale of the clients' successful audiobook business. The buyers' representatives testified at trial that they would not have agreed to those terms if they had been proposed, and might well have broken off negotiations altogether rather than accept them. Under those circumstances, the court concluded that the attorneys could not be held to make good their clients' loss of benefits that would not have been achieved even in the absence of the attorneys' negligence.

The Court of Appeal's decision in Viner v. Sweet (April 23, 2004), Case No. B138149 is available at these links in PDF and Word formats.

Request for Sanctions Against Party Compelled to Provide Discovery May Be Presented in Separate Motion

When a party is obliged to bring a motion to compel his opponent to respond to a request for production of documents, the court is authorized to impose a monetary sanction on the uncooperative opponent. Typically, the request for imposition of the sanction will be included in the moving papers, but is that procedure mandatory? The Third District Court of Appeal, in a case out of Calaveras County, concludes that the sanction request can be presented in a separate motion, filed after the original motion has been heard and granted.

Morrie London was terminated after nine years working a manager in the copper shop of Dri-Honing Corporation. He sued, seeking damages for wrongful discharge. Dri-Honing urged that it was justified in terminating London because of incidents of insubordination. It also contended that the termination was warranted because the shop had been unprofitable under London's management. When London requested production of records that would disclose the shop's profitability or lack of profits, Dri-Honing refused to provide the information, contending it was "irrelevant." London filed a motion to compel production of the records.

At the motion hearing, Dri-Honing was given a choice: it could rely on its unprofitability rationale and produce the documents, or it could keep the documents confidential and be limited to relying solely on its insubordination rationale. Dri-Honing elected to keep the documents confidential.

At the hearing, the trial judge asked London's attorneys to state the amount they had incurred in fees for the motion, so that Dri-Honing could be required to pay that amount as a sanction for contesting its discovery obligations. Dri-Honing objected, correctly, that no sanctions could be imposed because they had not been mentioned or claimed in the moving papers. The court then permitted London to file a separate motion for the sanctions, which it granted in the amount of $6,000. Dri-Honing appealed, and the Court of Appeal affirmed the order for sanctions.

The bulk of the opinion consists of an analysis of the structure of the sanctions provisions in the Discovery Act. The Court of Appeal concludes that the favored approach is to make any request for sanctions in the original moving papers, but that there is nothing in the statutory structure that precludes a separate, later application, so long as it is made with reasonable promptness.

The Court expresses skepticism for most of Dri-Honing's arguments, including particularly the suggestion that the sanctions demand should be made in the original papers to permit the responding party to assess whether it makes more sense to fight the discovery or to surrender voluntarily. That calculus, the Court notes, runs counter to the policy requiring the voluntary production of relevant information:

As a final gasp, Dri-Honing states that the 'sanctions request must be included in the motion to compel in order to enable the nonmoving party and his attorney to consider whether and in what manner they will oppose the motion.' We note that a party is obligated to comply with the discovery statutes cooperatively and in good faith, regardless of what sanctions it may or may not be subject to. The suggestion that a party’s cooperation during discovery depends on how heavy the hammer is that hangs above its head is troublesome.

[Emphasis added.]

The decision in London v. Dri-Honing Corporation (April 19, 2004), Case No. C043096, can be found at these links in PDF
and Word formats.

"I'd Go Back If I Were You" -- Attorney Who Continues Litigation After Discovering Absence of Probable Cause May Be Liable for Malicious Prosecution

Resolving a conflict between districts of the Court of Appeal, the California Supreme Court has held that an attorney who had probable cause to commence a lawsuit but who later "continues to prosecute it after learning it is not supported by probable cause" may be held liable to the defendant in that case in a later action for malicious prosecution.

In order to establish a claim against an attorney for malicious prosecution, the former defendant must generally prove (1) that the prior litigation ended in a manner favorable to the defendant on its merits, (2) that the prior action had been pursued as a result of malice, and (3) that the attorney lacked "probable cause" -- a reasonable belief that the claims were meritorious -- to pursue the action. The majority of California appellate courts had indicated that the presence or absence of "probable cause" should be determined as of the inception of the prior lawsuit. More recently, however, two appellate courts had indicated that an attorney who had probable cause to begin a lawsuit might still be liable for malicious prosecution if the attorney later discovered that the facts or law necessary to support the claim did not in fact exist, but still continued to pursue that now-unsupported claim. The Supreme Court has now adopted the latter view, which it concludes brings California law into consistency with the majority of other states that have considered the issue:

Just as it is without support in authority, the limitation defendants urge is also without support in principle. Malicious prosecution ‘is actionable because it harms the individual against whom the claim is made, and also because it threatens the efficient administration of justice.’ [Citation omitted.] Continuing an action one discovers to be baseless harms the defendant and burdens the court system just as much as initiating an action known to be baseless from the outset. [Citation omitted.] As the Court of Appeal in this case observed, ‘It makes little sense to hold attorneys accountable for their knowledge when they file a lawsuit, but not for their knowledge the next day.'

(Emphasis added.) The Court's opinion in Zamos v. Stroud (April 19, 2004), Case No. S118032, may be found at these links in PDF and Word formats.

Update: David Giacalone -- and others -- comment.

Pre-Weekend Workers Comp Update

Within the past hour, the latest attempt to revamp California's workers compensation system has been passed by both houses of the Legislature, with three "no" votes in each house. (California Insider names names.) The bill is now off to Governor Schwarzenegger for signature; presumably, this means the Governor's proposed ballot initiative -- even more friendly to employers -- will not be submitted for inclusion on the November ballot.

The question whether rate regulation should be reimposed on workers' compensation insurance remains pending in a separate bill. The Governor is opposed as noted yesterday. Insurance Commissioner John Garamendi, meanwhile, has weighed in in favor of new regulation: his press release on the subject can be read here.

They Legislate by Night -- Further Workers Compensation Reform Passes Out of Committee; Committee Passes Out

From the looks of the referrer logs, plenty of people are coming here looking to make head or tail of the latest steps toward workers compensation reform in California. We haven't actually covered that here in several months, so it must be time for an update.

Faced with a looming deadline -- after which Governor Arnold Schwarzenegger would have his own version qualified as an initiative on the November ballot -- the joint conference committee approved a new measure in the early early hours of this morning. The Sacramento Bee has posted a report and summary of that bill, which is virtually certain to pass and be signed by the Governor.

Almost immediately, however, Democratic legislators introduced a further bill intended to address one issue that the agreed reform does not: reimpose regulation of workers compensation insurance rates. That bill, if it passes, will almost certainly not be signed by the Governor; in fact, a veto is the most likely reaction. Writing on his California Insider weblog, the Bee's Daniel Weintraub summarizes some of the problems and politics surrounding the rate regulation proposal here:

The Democrats tried to argue that without state regulation of the private insurance industry, the cost-savings achieved in this package won’t ever reach employers. But 80 percent of employers are either self-insured or covered by the state workers compensation fund, which doesn’t earn a profit. So those employers should see immediate savings from any reforms that actually cut costs from the system. The Democrats’ proposal, which is almost certain to be vetoed by Gov. Arnold Schwarzenegger, would affect only a relative handful of policies, and it’s not clear it would help them all that much either. And it would probably kill any chance that more firms would start selling policies in California, where a lack of competition is the market's biggest problem. One especially odd feature of their regulatory plan: it expires automatically after two years. Why would a company not now selling workers comp insurance in California do so under those conditions, when they know they can simply wait two years and avoid the whole mess? The rate regulation proposal is best seen as an attempt by the Democrats to satisfy their constituents in organized labor and the legal community, who hold this concept dear, and to embarrass the governor by forcing him to veto a bill the Democrats claim is good for the business community.

Further updates will likely follow in the coming days.

Cooperate or Evaporate -- Insured's Refusal to Divulge Relevant Information Results in Dismissal of Claim

The pattern has been a common one in recent opinions: insured presents claim, insurer requests information, insured refuses to provide it (often as a result of some antagonism that has developed with the insurer), insurer invokes "duty to cooperate," court concludes claim can properly be denied. (We last reported on cooperation issues here.) Here is a fresh example:

Daphne Miranda was injured in an automobile accident. She brought suit against the opposing driver and also made a claim to her own insurer, 21st Century, under her policies underinsured motorist coverage.¹ After settling her claims against the opposing driver, Miranda continued to seek arbitration with 21st Century, asserting that she required additional treatment by a neurologist for post-concussion symptoms relating to the collision.

21st Century identified two hospitals at which Miranda had been treated, and attempted to subpoena records relating to that treatment. The hospitals took the position that they would not produce the records without Miranda's written consent. After a series of letters, Miranda's attorney notified 21st Century that Miranda would not provide the necessary consent.

21st Century filed a request in the superior court to obtain an order for the release of the records, noting that Miranda had acknowledged in a deposition that the treatment she received at the hospitals was for the conditions involved in her underinsured motorist claim. The court issued an order requiring Miranda to sign the necessary authorizations. Despite that order, Miranda's attorney continued to insist that she would not sign. 21st Century filed a second motion, requesting that Miranda's demand for arbitration be dismissed for her failure to provide the requested information. The superior court ordered the dismissal and Miranda appealed.

On appeal, the order of dismissal was affirmed, effectively barring Miranda from any further pursuit of her underinsured motorist claim. The appellate court rejected Miranda's claim that the superior court had no jursidiction over her insurance claim, noting that the relevant statute [Insurance Code 11580.2] specifically grants the court power to regulate discovery in underinsured motorist arbitration matters and concluding that the court, not an arbitrator, has the exclusive authority to deal with discovery issues. Having found that the superior court possessed proper jurisdiction, the Court of Appeal had little difficulty in concluding that the superior court had not abused its discretion in directing the dismissal:

Substantial evidence supports the court’s conclusion that the sanction of dismissal was appropriate. For nearly a year before the dismissal, defendant had attempted to obtain evidence that would have assisted the determination whether plaintiff’s dizziness and vertigo were caused by the accident, or whether the symptoms were manifestations of a preexisting condition. Repeated attempts to obtain voluntary cooperation were rebuffed. Defendant sought the assistance of the court, and the court ordered plaintiff to cooperate by signing the authorizations for release of the requested records. After the order was made, plaintiff failed to obey the order, and two months later announced, through counsel, she would not sign the authorizations. Thus, the evidence established that plaintiff flatly refused to obey a court order. This was not an inadvertent failure to respond to discovery, or a mere late service of a discovery response. It was defiant disobedience of the court’s order.

The decision in Miranda v. 21st Century Insurance Co. (April 13, 2004), Case No. G031774, can be found at these links in PDF and Word formats.

Fat of the Land -- Insurers Ponder the Impact of Obesity

It is no secret that Americans are an increasingly spherical lot: hardly a day goes by without some report bewailing increases in obesity or profiling the latest diet trend. Litigation and proposed litigation against restaurants and members of the food industry is a hot topic: recent examples of online commentary on the trend or perceived trend include the ongoing commentary at Overlawyered and the heated colloquy in the comments section at attorney Evan Schaeffer's Notes from the (Legal) Underground.

While the prospect -- real or imagined -- of litigation and liability claims against their food-oriented insureds has been a major concern to liability insurance companies, the life and health insurance industry is also concerned with the impact of obesity, leading to the prospect that overweight insurance buyers may be facing stricter underwriting standards or higher premiums. In his weekly commentary, editor Paul Winston of Business Insurance magazine [link may be subscriber-only] reports:

Swiss Reinsurance Co. last week released a major study of this issue, 'Too Big to Ignore: The Impact of Obesity on Mortality Trends,' that is likely to be influential in this area, given that Swiss Re is one of the world's largest life reinsurers.

The study notes that obesity is on course to surpass smoking as the leading cause of preventable death in the United States. And the trend of increased obesity in the developed world runs counter to an overall decline in mortality in these same countries. Swiss Re questions whether those increases in life span could have been even greater if not for the mitigating impact of obesity and its attendant health risks.

'The fact that so many public spaces are now "tobacco-free" zones is the result of education, persuasion and - in many cases - tough action. Tackling obesity likewise calls for a combined and determined effort from all parties: governments, the medical profession, food manufacturers and consumers need to be alert to this emerging risk and play a role in confronting it. For life insurers - who are not immune to the effects of obesity - addressing the problem means keeping ratings and pricing up to date and in line with emerging experience,' Ronald Klein, global head of pricing-life and health for Swiss Re, writes in the study's foreword.

Insurers already subject some obese policyholders to tighter underwriting and nonstandard rates. But now that the issue has been put squarely on insurers' plate, expect them to ask for extra helpings.

Swiss Re is not making the report itself publicly available, but the company's press release pulls no punches in suggesting the policy holders may be faced with the choice of changing their ways or paying more for coverage:

The increasing prevalence of obesity has financial implications for consumers of life insurance products and society as a whole. Ronald Klein, Global Head of Pricing at Swiss Re's Life & Health Business Group, explained: 'Obesity usually stems from a lifestyle choice. Society has dealt with smoking through a variety of measures including education and persuasion. Confronting obesity is now an equally pressing task, calling for a combined and determined effort from all parties. Governments, the medical profession, food manufacturers and consumers - particularly parents - need to be alert to this emerging risk and to play a role in confronting it. Unless the prevalence of obesity is brought under control, consumers will bear the ultimate cost. As consumers' Body Mass Index goes up, so too will their premiums,' he warned.

[All emphasis added in quoted material.]

A Brief Note About This Weblog

Posting on this site has been more than somewhat irregular of late: more than two weeks have passed since the last new item and similar gaps occurred throughout the month of March.  In large part, the gaps have been driven by a shortage of new cases from the California appellate courts that would be, in your humble editor's judgment, of particular relevance to the areas this weblog covers.  This is not a weblog with a large cotery of regular readers in the sense of browsing through regularly to see what is newly posted: the vast majority of this site's traffic is generated by search engines, so most readers pass through only once to browse whichever article has turned up in the search result.  There has been, consequently, somewhat less pressure on this site to "post for the sake of posting."

Still, one of the points of a weblog is to maintain a reasonably steady stream of new, current content and there is little purpose to be served by letting a weblog languish for lengthy periods.  So, readers should take this post and those shortly to follow as signs of a renewed resolve to make this more of a destination for repeat visitors and less a haven for the ad hoc, one-off, reader (although that reader is as welcome as any other).  The likely upshot will be somewhat less straight reporting of new case developments and somewhat more comment and personal tone.

Ready?  Here we go . . . .