Declarations and Exclusions

Justice Sills Returns Fire on Prop. 65 "Bounty Hunters"

I am glad that someone around here -- specifically Professor Shaun Martin of California Appellate Report -- has the time to keep up with the newest decisions, because otherwise I might have missed out on Justice Sills' virtuoso performance in Consumer Defense Group v. Rental Housing Industry Members.[PDF]  If anything, Professor Martin is understating the case when he observes: "Rarely have I read something as unceasingly bitter and visceral as this."

The object of visceral bitterness is the law firm of Graham & Martin and the Consumer Defense Group, an organization that Justice Sills concludes is little more than a front for . . . the law firm of Graham & Martin, a self-styled collection of "bounty hunters" aiming to collect large awards of attorneys' fees for obtaining largely meaningless settlements in dubious toxic-substances claims under California's Proposition 65.  The nature of the claims is reflected in the pre-litigation notice served by the firm:

The first notice was literally predicated on only two things:  One, each apartment had . . . parking facilities!  Thus the apartment allegedly 'exposed' tenants and visitors to carcinogens in auto exhaust without giving them a Proposition 65 warning.

Two, each apartment did not prohibit tobacco smoking everywhere on the premises.  Hence somewhere on the property the apartment allegedly 'exposed' its tenants and visitors to second-hand tobacco smoke, again without posting a Proposition 65 warning.

[Emphasis by Justice Sills.]

The meat of the opinion concludes that the settlements under consideration -- nearly all of the proceeds of which went to the attorneys or those closely tied to them -- must be set aside because of the attorneys' failure to give meaningful notice to the offices of the state Attorney General prior to filing suit.  The concluding portion, however, focuses on the reasons why the $540,000+ attorney fee award that arose from the settlements was objectively beyond the pale.  In that segment, Justice Sills provides this valuable, step-by-step guide for attorneys who find themselves with time on their hands and mischief on their minds:

Let’s illustrate . . . just how simple it is for a hypothetical unemployed lawyer, eager to cash in on Proposition 65, to extract money from businesses using the initiative. . . :

First, go on the internet and find some common objects (e.g., furniture, paper, carpeting) which may 'contain' a substance on the regulatory carcinogen list.  As we have just noted, a common place item, like a chair, doesn’t have to contain any significant amount either, even a few molecules will do.  Next, call up a local chemistry professor who will tell you that, at least in sufficient quantities, substances in those common objects will cause cancer, and are in fact on the list. . . .  [I]t will be particularly helpful if your chemistry professor opines that as any substance 'degrades' over time (and it can be a very long time indeed given that Proposition 65 puts the burden on any issue of amounts on the defendant), it will emit a few molecules of its constituents into the air -- that will allow you to claim 'exposure' by inhaling or touching. 

Then, extrapolate your results to some 'target' business.  As we have seen in this case, businesses which are centered around structures make easy targets because at the very least they are going to have paint and furniture inside, and a place to park outside....

Third, develop (as here) a plenary omnibus 'macro' notice form which guarantees that yes, somewhere on the premises, there will be a molecule of a substance listed as carcinogenic.  Then send your notice in the stentorian Wizard-of-Oz- berates-Dorothy legal style of an indictment.  ('You (hereinafter "Violator,") are hereby informed that you have exposed the following [long list of categories of sorts of people who might happen onto your property] to Designated Chemicals'.)  This notice will be intended to frighten all but the most hardy of targets (certainly any small, ma and pa business) into a quick settlement when they get it.

        * * *
Given the ease with which it was brought, and the absolute lack of any real public benefit from telling people that things like dried paint may be slowly emitting lead molecules or that parking lots are places where there might be auto exhaust, instead of $540,000, this legal work merited an award closer to a dollar ninety-eight.

[Italics by Justice Sills; boldface by Decs&Excs.] 

An opinion well worth reading for pure entertainment value, but also as an illustration of how well-intentioned (if overreaching) legislation can be put to less than laudable use in the wrong hands.

Hairy Decisis

Sometimes a Judge simply cannot resist the urge have some fun with the facts of the case before him.   The Honorable Barry G. Silverman of the Ninth Circuit U.S. Court of Appeals succumbs to temptation today in ruling on a case of alleged trademark infringement.

The holding in the case will be welcomed by many, and especially by angry consumers with Web access.   The Court holds that the non-commercial use of a trademark as the domain name for a web site critical of the trademark owner is not an infringement of the trademark under the Lanham Act.   

Here is the introductory portion of Judge Silverman's opinion, which includes the Judge's moment of weakness:

Defendant Michael Kremer was dissatisfied with the hair restoration services provided to him by the Bosley Medical Institute, Inc.  In a bald-faced effort to get even, Kremer started a website at www.BosleyMedical.com, which, to put it mildly, was  uncomplimentary of the Bosley Medical Institute.   The problem is that 'Bosley Medical' is the registered trademark of the Bosley Medical Institute, Inc., which brought suit against Kremer for trademark infringement and like claims.  Kremer argues that noncommercial use of the mark is not actionable as infringement under the Lanham Act.  Bosley responds that Kremer is splitting hairs.

Like the district court, we agree with Kremer.  We hold today that the noncommercial use of a trademark as the domain name of a website — the subject of which is consumer commentary about the products and services represented by the mark — does not constitute  infringement under the Lanham Act.

(Italics added.)  Later in the opinion, Judge Silverman makes clear that he is not jesting in concluding that Bosley Medical is overreaching in its effort to use its intellectual property rights against Kremer and his critiques:

Any harm to Bosley arises not from a competitor's sale of a similar product under Bosley's mark, but from Kremer's criticism of their services.  Bosley cannot use the Lanham Act either as a shield from Kremer's criticism, or as a sword to shut Kremer up.

The news is not all good for Kremer: the Court also finds that the trial judge acted prematurely in dismissing Bosley Medical's "cybersquatting" claims, and in finding that Bosley Medical's state law claims are barred by California's Anti-SLAPP statute.

The Court's full opinion in Bosley Medical Institute v. Kremer (April 4, 2005), Case No. 04-55962, is available from the 9th Circuit's site at the following link in PDF format.

Punitive Damages in Contract Cases? Say It Isn't So! [It Isn't.]

Walter Olson is concerned:

J. Craig Williams sounds the alarm about a new California Supreme Court opinion (authored, whether curiously or not, by libertarian-admired Justice Janice Rogers Brown) which would seem to open a door for lawyers to start claiming punitive damages in contract disputes.

Hold on to your towels and don't panic, gentlemen: there appears to be a good deal of overstatement going around about the Court's year-end decision in Robinson Helicopter Company v. Dana Corporation.  While that decision may well mean that punitive damages will become an issue in some cases that also involve breach of contract claims, it does not stand for the proposition that one can recover punitive damages for breach of contract.  Decs&Excs' summary and analysis of the decision continues in the extended body of this post, below.

For those who want to read it for themselves, the decision in Robinson Helicopter Company, Inc. v. Dana Corporation (December 23, 2004), Case No. S114054 can be accessed at these links in PDF and Word formats.
[Note: The links will expire in approximately 120 days; the opinion should still be accessible thereafter by substituting "archive" for "documents" in the URL.]

Update [01/11/05]:  Timothy Sandefur of the Pacific Legal Foundation, guest-posting at Crime & Federalism, is also interested in the possible consequences of this case, in which he participated by filing an amicus brief.

Cross-Reference

The decision is somewhat off topic for this weblog, so I have posted initial impressions of the California Supreme Court's opinion today in the San Francisco gay marriage case at the more wide-ranging A Fool in the Forest.

Bronco Bustin', or, The California Supreme Court Takes a Napa

The California Supreme Court has upheld state laws that require that wine sold under a brand name that includes the word "Napa," or any other designation of a designated viticultural area, must be made principally with grapes that were actually grown in the area referred to. The court has disallowed the practice of Fred Franzia's Bronco Wine Co. of bottling wines under brand names such as "Napa Ridge," "Napa Creek" and "Rutherford Vintners" when the grapes from which they were produced came from less respected areas, often hundreds of miles from the Napa Valley.

Bronco Wine Co. is an enormous enterprise, producing wines under some 30 different brands. In many cases, those brand names once belonged to other wineries, but were acquired by Bronco. Perhaps the best known of the Bronco labels is Charles Shaw -- aka "Two-Buck Chuck" -- of which I have written previously here and here, not to mention here. In the case before the California Supreme Court, the brands involved were acquired by Bronco at various points in the past ten years or so. From the Court's introductory summary of the facts we learn (with emphasis added):

Bronco asserts that it specializes in 'premium wines at affordable prices.' Some of Bronco’s wine is bottled at its facilities in Ceres (near Modesto, in Stanislaus County) and in Sonoma County; other Bronco wines are bottled by petitioner Barrel Ten Quarter Circle, Inc., at a recently completed facility in the City of Napa, in Napa County. The latter plant is capable of producing approximately 18 million 12-bottle cases per year -- output that would be more than double the current annual production of Napa-grown wines.

* * *

Bronco acquired these three brand names, and the right to use these labels, from predecessor owners of wineries located in Napa County. The Napa Ridge brand, which Bronco acquired in January 2000 from Beringer Wine Estates for more than $40 million, had been in use since the early 1980s. The Napa Creek Winery brand, introduced in 1981, was acquired by Bronco in 1993. The Rutherford Vintners brand originated in the early 1970s, and was acquired by Bronco in 1994.

The prior owner of the Napa Ridge brand had used that name and label for wines made from grapes grown in California’s Central Coast, North Coast, and Lodi appellation areas, as well as from Napa County. All of the wines previously marketed by the prior owner under the Napa Creek Winery brand and most wines previously marketed by the prior owner under the Rutherford Vintners brand had been made from Napa County grapes. Under Bronco’s ownership, all three of these brands have been used exclusively to sell wines made from grapes grown outside Napa County.

Bronco's labeling practices are entirely legal under the relevant federal regulations: while new brands with geographical designations in them are required to be made at least 75% from grapes grown in the indicated area, older preexisting brands such as the ones Bronco acquired were "grandfathered" in and are permitted to use grapes from most anywhere so long as their labels also indicate those grapes' place of origin. For instance, the Napa Ridge and Napa Creek labels in issue specified that their grapes came from Lodi, and the Rutherford Vintners label indicated grapes from Stanislaus County in California's Central Valley.

In the year 2000, the California legislature at the urging of various Napa Valley-based vintners passed a statute imposing a stricter rule: any California wine with a viticultural region name in its brand must be made at least 75% from that area's grapes, or it cannot be sold or distributed in California.

The Supreme Court's opinion is unusually lengthy -- 67 pages -- but it turns on a single issue: the Court finds through an excruciatingly detailed review of the relevant legislative and regulatory history that there is no reason that California cannot adopt a stricter labeling standard for the state's wines than is required by the federal regulations. Here is the court's conclusion (again with emphasis added):

Bronco has failed to carry its burden of demonstrating federal preemption of a long established and legitimate exercise of state police power with respect to the subject regulated by section 25241. As we have seen, there is no express preemption in the present context, and Bronco’s assertions of implied preemption are contradicted by the long history we have described of concurrent state and federal regulation of wine labels including, historically, the representations appearing on labels suggesting the place of origin of the grapes used to make wine. Nor has Bronco succeeded in providing any persuasive indication that this longstanding concurrent regulatory scheme no longer is compatible with Congress’s overall purposes -- which have been to support the states’ efforts to protect consumers from misleading labeling, not to permit the type of labeling at issue here. Finally, Bronco has not established that, by purchasing a brand name that had been used prior to 1986, it acquired a federally recognized right or license exempting it from stricter state regulation.

California is recognized as a preeminent producer of wine, and the geographic source of its wines -- reflecting the attributes of distinctive locales, particularly the Napa Valley -- forms a very significant basis upon which consumers worldwide evaluate expected quality when making a purchase. We do not find it surprising that Congress, in its effort to provide minimum standards for wine labels, would not foreclose a state with particular expertise and interest from providing stricter protection for consumers in order to ensure the integrity of its wine industry.

The "federal vs. state" nature of the decisive issue suggests that Bronco Wine Co. may well petition the U.S. Supreme Court to review the case: details will be posted here if and when that occurs.

The opinion in Bronco Wine Co. v. Jolly (August 5, 2004), Case No. S113136, can be found at these links in PDF and Word formats. [Note: The links will expire in approximately 120 days; the opinion should still be accessible thereafter by substituting "archive" for "documents" in the URL.]

[Cross-posted to A Fool in the Forest.]

Noted in Brief

Expert Witnesses; Medical Malpractice:
The need for expert witnesses to be able to articulate reasons for their opinions is emphasized in Jennings v. Palomar Pomerado Health Systems (January 8, 2004), Case No D040393 (opinion at these links in PDF and Word formats). In a medical malpractice case arising from a post-surgical infection, the court of appeal found that the plaintiff’s expert witness had no basis other than speculation for concluding that the infection in one location had been caused by the defendant’s negligent failure to remove a retractor from another, unrelated location.

Motion Procedure:
California’s 4th District Court of Appeal has disapproved language in one of its own earlier decisions and has reemphasized that parties have a right to a hearing and opportunity to present oral argument when any party presents a motion for summary judgment. No matter how thoroughly the trial court has considered the motion in coming to a tentative decision, that decision may not be made final without the opportunity for argument. Brannon v. Superior Court of San Diego County (January 13, 2004), Case No. D042907 (opinion at these links in PDF and Word formats).

Contracts; Entertainment Law:
In a dispute over the payment of merchandising royalties between the Walt Disney Company and Gary K. Wolf, the author of the book that formed the basis for Who Framed Roger Rabbit? the 2nd District Court of Appeal has vacated a partial summary judgment in Disney’s favor. The appellate court concludes that there are genuine factual issues requiring trial in order to determine which of the parties is correct concerning the interpretation of the term “gross receipts” in the royalty agreement. Wolf v. Superior Court of Los Angeles County (January 21, 2004), Case No. B169265 (opinion at these links in PDF and Word formats).

There's Nothing Common About the Happiest Place on Earth -- Disneyland Permitted to Vary Admission Prices to Encourage Local Patrons

Occasionally, one of the perquisites of being an appellate judge is the opportunity to wax whimsical while still deciding a genuinely contested question of law. Such an opportunity presented itself to Justice Wiseman of California's Court of Appeal for the Fifth Appellate District in a dispute over the pricing of admission to Disneyland. The initial paragraphs of the opinion tell the tale:

As we celebrate Mickey Mouse’s 75th birthday, we are called upon to address the legal status of Disneyland in the context of its Resident Salute program, a marketing concept that offers nearby residents a discount as an incentive to visit during the slow season. Essentially, during certain times of the year, if Mickey lives in Los Angeles, he pays $8 to $10 less per ticket than his girlfriend, Minnie, assuming she lives in some far off land such as Oz or Fresno.

Recognizing there is no such thing as a “free ride,” Disney fans fork out lots of money to buy a ticket to enter the Magic Kingdom and partake of its many sights and sounds. Appellants allege that Disney discriminated against them by offering cheaper admission tickets to nearby residents than all others and that doing so is unlawful because Disney is a “common carrier” under Civil Code section 2168.

We conclude that Disney is not a common carrier under section 2168 with respect to all who pay admission to enter its Disneyland theme park in Anaheim, California. If we were to conclude otherwise, the next logical step would be to characterize a baseball park as a common carrier or a movie theatre as a common carrier—just because they also contain elevators, escalators and other people-moving devices. In reaching our conclusion, we offer no opinion regarding whether any particular ride within the Disneyland theme park is or is not a common carrier as it is irrelevant to our decision regarding the park as a whole.

If you are sufficiently intrigued to want to read the entire opinion in the case -- Simon v. Walt Disney World Co. (January 8, 2004), Case No. F040732 -- it can be found at these links in PDF and Word formats.

Unconscionability on the March: Court Invalidates Another Arbitration Provision

Following on the heels of the case summarized below, the California Court of Appeal has invalidated another contractual arbitration provision, declaring it to be "unconscionable."

Ryan Gutierrez responded to a televised infomercial by defendant Autowest offering affordable leasing of a Dodge Durango. After telephoning ahead to confirm that he qualified for the advertised price, Gutierrez went to Autowest's dealership to close the deal. There, he was informed that he could lease the vehicle at the advertised rate if he made a more substantial downpayment than the infomercial suggested. Ultimately, he made a lower downpayment, but was obliged to make monthly payments several hundred dollars more than had been advertised.

Having entered into the written lease, Gutierrez thought through his situation and concluded he had been victimized by an illegal "bait and switch." He filed suit, in response to which Autowest asserted a provision -- which was printed in eight point Arial Narrow type on the rear of the lease document (the appellate court reproduces it in that format) and which Gutierrez contends was never called to his attention -- requiring any disputes to be submitted to binding arbitration through the American Arbitration Association [AAA] under the federal Arbitration Act [9 U.S. Code, §1, et seq.]. Autowest petitioned the trial court to order the matter into arbitration under the terms of the lease. The trial court, finding that the cost of AAA arbitration would be prohibitive -- Gutierrez would have to pay fees of some $8,000 simply to commence the arbitration, which he demonstrated was beyond his ability to pay -- and that the contract provided no means for Gutierrez to seek relief from those costs, declared the provision unconscionable and unenforceable. On appeal by Autowest, the Court of Appeal agrees:

We conclude that where a consumer enters into an adhesive contract that mandates arbitration, it is unconscionable to condition that process on the consumer posting fees he or she cannot pay. It is self-evident that such a provision is unduly harsh and one-sided, defeats the expectations of the nondrafting party, and shocks the conscience. While arbitration may be within the reasonable expectations of consumers, a process that builds prohibitively expensive fees into the arbitration process is not. [Citation omitted.] To state it simply: it is substantively unconscionable to require a consumer to give up the right to utilize the judicial system, while imposing arbitral forum fees that are prohibitively high. Whatever preference for arbitration might exist, it is not served by an adhesive agreement that effectively blocks every forum for the redress of disputes, including arbitration itself.

(Emphasis added.) The court's decision in Gutierrez v. Autowest, Inc. (Dec. 9, 2003), Case No. A098704, may be found at the following links in PDF and Word formats.

The Dark Side of Alternative Dispute Resolution: Concrete Contractor’s Deceptive Arbitration Provision is Voided as “Unconscionable”

“Seldom do we see cases so readily covered by established case law.” So begins the analysis leading the Court of Appeal to affirm the trial court’s refusal to enforce an arbitration clause in a dispute between a concrete contractor and the homeowners whose plumbing and drainage systems he is alleged to have damaged.

The Harpers hired the contractor, Frank Ultimo, to stabilize soil and re-level their backyard swimming pool. The contracts included a provision requiring any and all disputes arising from the contract or work to be submitted to arbitration “in accordance with the Uniform Rules for Better Business Bureau Arbitration.” In the course of the work, Ultimo allegedly broke a sewer pipe, permitting concrete to enter the pipe, the sewer system and surrounding soil, causing blockages. Ultimo was also alleged to have damaged the backyard drainage system and to have lied about the amount of work he had performed.

Only after the harm was done did the Harpers discover that the Better Business Bureau arbitration rules limit the available remedies to no more than $2,500 above any out of pocket loss or property damage, and specifically prohibit any award for “personal injuries” unless the parties agreed in writing to permit such compensation. Ultimo, the court notes, “has conspicuously not made an offer to so agree.” The Harpers sued Ultimo for negligence, fraud and breach of contract. Ultimo sought to have the case ordered to arbitration. The superior court refused, finding the arbitration provision to be “unconscionable” and unenforceable. Ultimo appealed and the Court of Appeal agreed.

The rule in California is that a contract provision will not be voided as unconscionable unless it displays both “procedural” and “substantive” unconscionability.

Procedural unconscionability, the court notes, depends upon showings of “surprise and opression.”

Here is the surprise: The customer must inevitably receive a nasty shock when he or she discovers that no relief is available even if out and out fraud has been perpetrated, or even if he or she merely wants to be fully compensated for damaged property.

Here is the oppression: The inability to receive full relief is artfully hidden
by merely referencing the Better Business Bureau arbitration rules, and not attaching those rules to the contract for the customer to review. The customer is forced to go to another source to find out the full import of what he or she is about to sign -- and must go to that effort prior to signing.

Substantive unconscionability lies in the one-sidedness overly harsh effect of the provision. Here, unbeknownst to the homeowners, their agreement to the arbitration provision left them without even the possibility of full relief, as there were entire classes of harm for which they effective waived any potential compensation.

The decision in Harper v. Ultimo (Dec. 5, 2003), Case No. G031671, can be found at these links in PDF and Word formats.

“When the Levee Breaks, We’ll Have No Place to Stay,” But We’ll Have a Claim Against the State of California . . .

For those who fancy a bit of California history, we step a bit beyond our usual scope to recommend the Court of Appeal’s new decision in Paterno v. State of California, the latest round in ongoing litigation that the court characterizes as being “as hoary as Jarndyce v. Jarndyce.”  The opening paragraph of the decision sets the scene:

The environmental aftermath of the Gold Rush continues to plague California.  Hydraulic mining debris caused flooding which led to the building of levees at the confluence of the Yuba and Feather Rivers.  Almost a century ago the Linda levee was built with uncompacted mining debris, and the use of that debris caused the levee to collapse on February 20, 1986.

Some 3,000 plaintiffs who sustained damage as a result of the collapse have been seeking redress in the ensuing 17 years.  The case resulted in a defense verdict in the late 1990s, but an appeal at that time sent the case back for a new trial on the plaintiffs’ claims for “inverse condemnation liability”.  That second trial again resulted in a defense verdict, which led to the current appeal.  The Court of Appeal again reverses, finding that the trial judge’s factual findings are sufficient establish inverse liability on the State as a matter of law:

When a public entity operates a flood control system built by someone else, it accepts liability as if it had planned and built the system itself.  A public entity cannot be held liable for failing to upgrade a flood control system to provide additional protection.  But the trial court found the levee was built with porous, uncompacted mining debris, in a location which encouraged seepage, leading directly to the failure of the levee, and that long before the failure, feasible cures could have fixed the problems.  Use of such technology would not have been an upgrade, but would have ensured the planned flood control capacity was achieved.

Inverse liability stems from the California Constitution and is not dependent on tort or private property principles of fault.  [Citation.]  California Supreme Court precedent dictates that a landowner should not bear a disproportionate share of the harm directly caused by failure of a flood control project due to an unreasonable plan. . . .

There follows a lengthy dissertation on hydraulic gold mining, with sightseeing tips -- “The environmental damage is indescribable, and must be seen at the Malakoff Diggins State Historic Park to be believed” -- and an extended history of the California Debris Commission (founded 1893) and of the enormous Sacramento River Flood Control Project (SRFCP), “‘a vast and intricate general plan for levees, bypasses, weirs and other works designed for flood control, reclamation and improvement of navigation.  It is a cooperative federal-state venture which has been in the process of design and construction for over half a century.’”  Ultimately, after an extensive analysis and application three alternative logical frameworks, the court concludes that the State’s decision not to take any steps to upgrade the levee despite knowledge of the risks posed by its manner of construction makes the incorporation of the levee into the overall SRFCP unreasonable, such that the State may be held liable for the harm caused by the failure.

For those who want to survey these somewhat arcane topics in depth, the decision in Paterno v. State of California (Nov. 26, 2003), Case No. C040553, can be found at these links in PDF and Word formats.