Declarations and Exclusions

9th Circuit Dismisses Subrogation Case on Grounds Not Raised by Any Party

In a case originating in the state of Washington, the 9th Circuit U.S. Court of Appeals has dismissed an insurer's subrogation action unilaterally, on the ground that there was no basis for federal diversity jurisdiction. None of the parties to the case had objected to jurisdiction. The Court raised the jurisdiction issue on its own initiative, as it is required to do, and concluded that the insurer could not rely on its own non-Washington residence to create jurisdiction in its dispute with a Washington-domiciled defendant.

Allstate insured a home in the Seattle area. The home burned down as a result of a subcontractor having covered a halogen light fixture with tape to mask it. When the light was turned on, the heat set fire to the tape and the fire spread to the rest of the house. Allstate paid its insureds' claim and became subrogated* to its insureds' right to sue the responsible parties for negligence. Allstate filed suit against the general contractor (who had hired the negligent subcontractor) in Allstate's own name in the U.S. District Court, basing jurisdiction on "diversity of citizenship." For purposes of jurisdiction, Allstate relied on its own status as a resident of the State of Illinois so that diversity jurisdiction would apply to its dispute with the subcontractor, a resident of Washington.

In the U.S. District Court, the contractor moved successfully for summary judgment on the ground that it was not responsible for its subcontractor's negligence -- but neither the attorneys for the contractor nor Allstate's attorneys cited a controlling Washington state court decision that would have defeated the contractor's argument. After summary judgment was granted against it, Allstate filed a motion for reconsideration, citing the controlling case law for the first time. The District Court denied reconsideration, noting that Allstate had "neglected entirely to defend its . . . liability theories." Allstate appealed to the 9th Circuit.

The 9th Circuit, after narrating the procedural history and implying that Allstate could have prevailed on the merits under Washington law, ordered the case dismissed in its entirety. The Court emphasized its "independent obligation to address . . . whether we have subject matter jurisdiction" whether the parties raised the issue or not.

Under Washington law, the Court ruled, a case must be brought in the name of the "real party in interest." The "real parties" to the claim for negligence were the one's actually damaged, Allstate's insureds. Since those insureds were themselves citizens of Washington, there was no diversity of citizenship between the parties and no basis on which the federal courts could hear the case:

Allstate was not the real party in interest and therefore was not allowed to bring this claim in federal court . . . . This action could only be brought in teh name of the real party in interest, which in Washington is the insured. Bringing an action in the name of the insured . . . , citizens of Washington, would result in the absence of diversity jurisdiction, and thus the district court would not [and did not] have subject matter jurisdiction.

The decision in Allstate Ins. Co. v. Hughes (Oct. 8, 2003), Case Nos. 02-35582 and 02-35825, can be found here.

More comment, and a note on terminology, in the extended portion of this post.

Attempt to Sweep Scandal Under a California Rug Leads to Jurisdiction in a California Court

The Roman Catholic Archdiocese of Milwaukee is subject to the jurisdiction of California courts for claims arising from its alleged knowing transfer of a priest with a history of molestation from Milwaukee to Orange County, California, the Court of Appeal has held.

According to the complaint in this case, Fr. Siegfried Widera had been a priest in Wisconsin and was convicted in that state in 1973 of "sexual perversion against a boy." The complaint alleges a pattern of other instances of molestation by Fr. Widera in Wisconsin. With knowledge of the conviction and the claimed pattern of abuse, the Milwaukee Archdiocese arranged for Fr. Widera's transfer to a parish in Orange County, under the jurisdiction of the Roman Catholic Bishop of Orange, in 1976, initially under cover of Fr. Widera's leaving Wisconsin on "vacation." He remained under the jurisdiction of the Milwaukee Archdiocese until 1981, when he was excardinated in Milwaukee and incardinated in Orange County. Plaintiff in this case alleges that he was molested by Fr. Widera in Orange County beginning in 1985. He now seeks damages from Fr. Widera and both the Orange and Milwaukee dioceses.

The Milwaukee Archdiocese sought an order dismissing the case against it, on the ground that it lacks sufficient contacts with the State of California to support jurisdiction here. The Court of Appeal disagrees.

In Pavlovich v. Superior Court (2002) 29 Cal.4th 262 (Pavlovich), the California Supreme Court held an out-of-state defendant may be subject to personal jurisdiction in California based upon evidence establishing the defendant engaged in intentional conduct expressly aimed at or targeting California and the defendant knew the intentional conduct would cause harm in this state. In this case, we apply this “effects” test, as expressed in Pavlovich, and conclude the Roman Catholic Archdiocese of Milwaukee (the Milwaukee Archdiocese) is subject to specific personal jurisdiction in California.

* * *

Here, the Milwaukee Archdiocese did not know who [plaintiff] was and could not have expressly aimed its conduct at him. However, we do not believe the effects test required the Milwaukee Archdiocese to know the identities of Widera’s future victims. This is not a situation, as in Pavlovich, where the defendant’s conduct could harm any of a number of industries and businesses, some of which might be centered in California. The nature of the Milwaukee Archdiocese’s conduct—sending a pedophile priest directly into California—meant the Milwaukee Archdiocese’s conduct would harm California residents. In other words, the Milwaukee Archdiocese’s conduct targeted a known group of California residents – boys, specifically, Roman Catholic boys – as a means of getting Widera out of the Milwaukee Archdiocese. Such targeting is, we believe, sufficiently individualized to satisfy due process because the Milwaukee Archdiocese could reasonably anticipate being haled into court in California.

The Court of Appeal concludes that jurisdiction in California is constitutionally sound based on the effects of the Archdiocese's actions here and the close relation of the plaintiff's claims to the in-state conduct of the Archdiocese and, with some understatement, that subjecting the Milwaukee Archdiocese to jurisdiction in California comports with notions of "fair play and substantial justice."

The decision in The Archdiocese of Milwaukee v. Superior Court (October 1, 2003), Case No. G031386 can be found at the following links in PDF and Word formats.

Oh, Behave! No Injunction Against Lawyer-on-Lawyer Violence Absent Evidence of a Threat of Future Harm

The Court of Appeal has reversed and vacated an anti-harassment injunction issued in favor of one attorney and against another, finding that a single instance of violence, threats or harassment is insufficient to support issuance of an injunction absent a showing of a threat of future harm.

Russell and Douvan were attorneys on opposite sides of a dispute. Following a hearing, Douvan, according to Russell, followed Russell into an elevator and grabbed his arm. Russell sought an injunction under California’s anti-harassment statute, Code of Civil Procedure §527.6. Although the underlying case had concluded by the time of the injunction hearing and both attorneys acknowledged that they did not have anything otherwise to do with one another, the trial court concluded that a battery had been committed and issued the injunction. Douvan appealed, and the Court of Appeal concluded that the trial court should not have issued the injunction.

The appellate court’s reasoning was simple: even when an injunction is authorized by statute, the remedy can only operate prospectively. Injunctions deal with future harm, not with events in the past. Absent evidence that there was an actual threat of future wrongdoing, no injunction could be justified.

When the [trial] court concluded that a single act of unlawful violence required the issuance of an injunction, it construed its role too narrowly. There may well be cases in which the circumstances surrounding a single act of violence may support a conclusion that future harm is highly probable. That finding, however, must be made and the court failed to do so here.

The appellate court was silent on the ethical or disciplinary consequences of even a single act of lawyer-on-lawyer violence. We trust that the Court does not mean to be understood as endorsing a “one free bite” rule for attorneys.

The Court's decision in Russell v. Douvan (Sept. 30, 2003), Case No. A096261, can be found at these links in PDFand Word formats.

[Thanks to Ken Lammers at the CrimLaw blog and to The Southern California Law Blog for their links back to this post. Both are well worth your while, if you aren't already checking them regularly.]

Court Lacks Power to Modify Discovery Procedures as to Expert Witnesses

The California Legislature created a number of procedural headaches when it amended the terms of the state’s summary judgment statute to greatly extend the lead time between notice and hearing of a summary judgment motion. In the latest decision to consider the practical problems arising from that change, the Court of Appeal has held that trial judges have no authority to alter the “mutual and simultaneous” nature of the disclosure of expert witnesses, even when to do so will increase the efficacy of the summary judgment procedure.

UPDATE: On the subject of the difficulties created by the extension of the notice period for summary judgment motions -- discussed in the extended portion of this post -- The Southern California Law Blog is reporting on an unpublished Court of Appeal decision holding that a party's right to seek summary judgment trumps a trial court's rule or policy directed to bringing cases to trial quickly. The Association of Southern California Defense Counsel is urging that the decision be published, so that it can be cited as precedent in other cases.

California Court Reduces Punitive Damage Award in Tobacco Case

A California Court of Appeal has issued the first appellate decision in this state to provide a detailed application of the limitations on punitive damage awards adopted by the U.S. Supreme Court in State Farm v. Campbell (April 2003). Following the dictates of the Supreme Court's decision, the California court has ordered the reduction of a punitive damage award against Philip Morris, Inc. from $25 million to $9 million.

In the underlying litigation, plaintiff Patricia Henley sought damages from Philip Morris for permanent bodily injury she sustained from 35 years of smoking Marlboro cigarettes. At the conclusion of the trial, the jury returned a verdict awarding Henley compensatory damages for her injuries of $1.5 million, with additional punitive damages of $50 million. Philip Morris moved for a new trial, with the result that the trial judge reduced the punitive damage award to $25 million. A series of appeals followed. The Court of Appeal initially affirmed the judgment, including the $25 million in punitives. Following the U.S. Supreme Court's decision in the Campbell case, the California Supreme Court remanded the case again to the Court of Appeal for review of the punitive damage award in light of the Campbell standards. Applying that analysis in detail, the appellate court has determined that the punitive component of the judgment must be reduced to $9 million. If plaintiff does not accept that reduction, a new trial must be held on the punitive damage issue.

The Court of Appeal summarized the U.S. Supreme Court's involvement with punitive damage issues:

* * * Because civil punitive damage awards present a significant risk of arbitrary punishment exceeding that of which the defendant had fair notice, the Supreme Court has undertaken to 'constitutionalize' the field by adopting a variety of substantive and procedural safeguards against excessive awards. Among the procedural safeguards is the requirement, which we assume applies to the present case, that appellate scrutiny of punitive awards be governed by a 'de novo' standard of review. (Campbell, supra, at p. 1520; cf. Cooper Industries, Inc. v. Leatherman Tool Group, Inc. (2001) 532 U.S. 424, 431, 436 (Cooper Industries).)

In determining the sustainability of a punitive award the constitutional “guideposts” to be considered are (1) the degree of the defendant’s culpability, i.e., the reprehensibility of his or her conduct, (2) the ratio between the punitive award and the harm to the victim caused by the defendant’s actions, and (3) the sanctions imposed in other cases for comparable misconduct. (Campbell, supra, at p. 1520; Cooper Industries, supra, 532 U.S. 424 at pp. 447-448; see Gore, supra, 517 U.S. at p. 575.)

Applying each of the "guideposts," the Court of Appeal determined that Philip Morris' conduct in producing and marketing cigarettes was indeed reprehensible but that the $25 million award could not withstand a comparison to the degree of actual harm done to Henley. Because the conduct was deemed so reprehensible, however, the court opted to approve an actual-to-punitive damage ratio on the high end of what the U.S. Supreme Court suggested is constitutionally permissible.

In light of Campbell we do not believe the 17-to-1 ratio reflected in the present judgment can withstand scrutiny. As we read that case, a double-digit ratio will be justified rarely, and perhaps never in a case where the plaintiff has recovered an ample award of compensatory damages. Indeed, where a plaintiff has been fully compensated with a substantial compensatory award, any ratio over 4 to 1 is “close to the line.” (Campbell, supra, 123 S.Ct. at p. 1525.) Nonetheless we believe a higher ratio (6 to 1) is justified here by the extraordinarily reprehensible conduct of which plaintiff was a direct victim. There is no reason to believe that the compensatory damages were inflated so as duplicate elements of the punitive award. Moreover, as we have noted, plaintiff’s injuries were not merely economic, but physical, and nothing done by defendant mitigated or ameliorated them in any respect.

The decision in Henley v. Philip Morris, Inc. (Sept. 25, 2003), Case No. A086991, can be found at these links in PDF and Word formats.

Keeping Secrets: Court of Appeal Declines to Maintain Secrecy of Evidence in Coverage Dispute

In an opinion issued for that purpose, the California Court of Appeal has refused to permit the filing "under seal" of several thousand pages of documents relating to a pollution coverage dispute, even though those same documents were sealed by the lower court.

Huffy Corporation is engaged in litigation with several of its insurers concerning the extent of coverage those companies must provide it in an array of ongoing litigation over Huffy's responsibility for groundwater contamination around its manufacturing facilities. In the trial court, Huffy and its insurers entered into an elaborate stipulation under which a variety of documents would be filed "under seal," i.e., that the trial court would be able to consider the documents, but they would not become part of the publicly available record in the litigation. The trial court entered an order based on the parties' stipulation; the order did not include any express factual findings as to whether any of the documents were actually entitled to be kept confidential, although such findings are a prerequisite to a sealing order under Rule 243.1 of the California Rules of Court.

After the trial court ruled on certain motions for summary adjudication, Huffy sought review by way of a petition to the Court of Appeal. In support of the petition, Huffy submitted 2,598 pages of documents, all under seal. The Court of Appeal, without yet reaching the merits of Huffy's petition, issued this decision finding that none of the documents are properly sealed.

For purposes of proceedings before it, the appellate court found that there was no compelling interest to support maintaining the confidentiality of any of the documents, which included:

♦ The terms of certain earlier settlement agreements

♦ Information on the sources of payment in earlier pollution cases against Huffy

♦ Documents from earlier cases in which Huffy admitted violations of state and federal pollution laws

♦ The identities of witnesses with knowledge of those violations

Huffy was given ten days in which to re-file any documents it chose, with the understanding that anything it submits will become part of the public record. While the records are permitted to remain sealed in the trial court's file -- the appellate panel was critical of the trial court's sealing order, but that order was not before the court for review or modification -- any of those same documents filed with the court of appeal will now be freely available. Huffy will need to strike a balance between its desire for confidentiality and its need to submit any particular document to support its legal position before the Court of Appeal.

The decision, in Huffy Corporation v. Superior Court, Case No. B166781, can be found at these links in PDF and Word formats.

Litigant Self-Designated as an Expert Witness May (or May Not) Waive Attorney-Client Privilege

In an opinion that is frustratingly vague on some of the more important points it raises (see the commentary in the Continuation below), the Court of Appeal for the Second District has held that the representation that a party may testify as an expert witness is not an automatic waiver of that party's attorney-client privilege:

We hold in this writ proceeding that the designation of a party as an expert trial witness is not in itself an implied waiver of the party's attorney-client privilege. If the designation is withdrawn before the party discloses a significant part of a privileged communication (as in this case), or before it is known with reasonable certainty that the party will actually testify as an expert, the privilege is secure; if the party produces privileged documents or testifies as an expert (such as by stating his opinion), the privilege is waived.

The case arises out of an interesting side-story of scandal-plagued Global Crossing: Plaintiff Douglas Shooker claims that he entered into a venture with Gary Winnick in the early 1990s called Telecommunications Development Corporation (TDC), intending to construct an international telecommunications network. After Shooker parted company with him in 1994, Winnick founded (surprise!) a company that constructed an international telecommunications network -- Global Crossing. Shook essentially claims that Winnick lifted that idea from TDC and that he (Shook) should therefore reap the benefits of Global Crossing's now-faded success.

As trial approached, Shook's current attorneys listed Shook himself among those who might testify as expert witnesses. Winnick's attorneys scheduled Shook's deposition in that capacity. When they attempted to question him concerning communications he had had with his earlier attorneys, Shook objected and his current attorneys withdrew his designation as an expert witness. The trial judge held that the designation had operated as a waiver of the attorney-client privilege as to Shook's communications with hie prior counsel, notwithstanding the withdrawal of the designation and the prompt assertion of the privilege. Shook petitioned the Court of Appeal, and that court issued this decision finding that, in the circumstances, Shook had avoided any actual waiver of his attorney-client privilege.

The decision in Shook v. Superior Court (Aug. 28, 2003), Case No. B167889, is available at these links in PDF and Word formats.

"Verbal Alchemy" is Unavailing: Expert Witness Fees of Treating Physicians are Not Recoverable as "Ordinary" Witness Fees

In Baker-Hoey v. Lockheed Martin Corp. (Aug. 20, 2003) Case No. E032995, the Court of Appeal considered whether the hourly fees that a prevailing defendant had paid to a plaintiff's treating physician for that physician's deposition are recoverable as “ordinary witness fees.” The Court concluded that they are not, and that such costs can only be recouped in those exceptional cases in which expert witness fees can be claimed.

The case arose out of a class action alleging that Lockheed Martin’s manufacturing operations in Redlands, California, had contaminated the local drinking water. After extensive litigation and the withdrawal of the class certification, Lockheed Martin succeeded in obtaining the dismissal of several individual plaintiffs’ cases based upon the statute of limitations. It then claimed recovery of its litigation costs [* see comments in continuation below], including the hourly fees it had paid to each plaintiff’s treating physician(s) for their depositions and the expense of having a referee appointed to oversee discovery disputes. The trial court permitted recovery of only the $35.00 witness fee allowed for “ordinary” witnesses, rather than the hourly rates charged by the doctors, and denied any recovery of the expense for the referee. The Court of Appeal affirmed.

While “ordinary” witness fees of $35.00 per witness are recoverable as a matter of course, fees charged by most expert witnesses are not (with some exceptions not applicable to this case). A treating physician whose deposition is taken is generally deemed to be an expert who must be paid his or her “reasonable and customary hourly or daily fee” for the time spent in deposition. Lockheed Martin argued that, because it could not obtain the doctors’ depositions with paying them, those fees should be treated as the “ordinary” witness fee for that particular type of witness. The court of appeal was not convinced, giving two reasons: (a) the costs statute only permits recovery of some litigation expenses, not all, and (b) the doctors’ fees must be paid because they have been designated as “experts” and the costs statute specifically disallows recovery of expert witness expense in most cases.

Such fees are simply not ordinary witness fees . . . and Lockheed Martin cannot, by the verbal alchemy of its skilled attorneys, successfully transmute the phrase ‘ordinary witness fees’ into a higher category entitled ‘ordinary witness fees of treating physicians.’ Treating physicians are experts and recovery of their fees as costs are accordingly governed by [the statutory] provisions governing expert witness fees, not the provisions applicable to ordinary witnesses.

The decision can be found at these links in PDF and Word formats.

Those That Don't Ask, Don't Get: Trial Court Had No Jurisdiction to Award More in Default Judgment Than Had Been Asked For in the Complaint

The California Court of Appeal in Finney v. Gomez (Aug. 20, 2003) Case No. B157517, reminds plaintiffs’ attorneys: be sure you ask for everything you want in a Complaint or you may get less than your desire. Finney and Gomez owned a house in common; as a result of a dispute over payment of taxes after Gomez moved out of state, Finney sued Gomez seeking a division of the property and an order that Gomez pay his share of expenses. Gomez was served but did not appear, so the case proceeded to a judgment by default, in which Finney was awarded substantially more than any specific amount he had demanded in his complaint. The Court of Appeal reversed and reduced the judgment, holding that the trial court had no jurisdiction to award more than the specific amounts set forth in the Complaint:

[Code of Civil Procedure] Section 580, subdivision (a) provides; ‘The relief granted to the plaintiff, if there is no answer, cannot exceed that which he shall have demanded in his or her complaint. . . .’ The courts have consistently held section 580 is an unqualified limit on the jurisdiction of courts entering default judgments. As a general rule, a default judgment is limited to the damages of which the defendant had notice. Further the courts have reaffirmed the language of section 580 is mandatory. Therefore, ‘in all default judgments the demand sets a ceiling on recovery.’

(Italics added, footnotes omitted.)

Practice hints from the Court: In cases such as a partition claim in which the amount of damages is uncertain at the inception, the court recommended that plaintiffs should either (a) include a best estimate of their damages in the complaint, erring on the side of asking for more than they can prove, or (b) emulate personal injury plaintiffs and serve the defendant with a separate and precise Statement of Damages prior to obtaining entry of the defendant’s default. The decision can be found at these links in PDF and Word formats.

Punitive Damages -- "Clear and Convincing" Proof of Ratification Required

The Court of Appeal for the Fourth District has ruled, in Barton v. Alexander Hamilton Life Ins. Co., that all of the necessary elements of a claim for punitive damages must be proven by "clear and convincing" evidence. While it has long been settled that the existence of a punishable frame of mind - malice, oppression or fraud - must be proven clearly and convincingly, the law was uncertain whether that higher level of proof also applied to the question of whether an employer has authorized or ratified the punishable conduct of its employee. This case holds that heightened proof is required on that point.

The opinion is a long one (67 pages), and only a small portion addressing this issue has actually been ordered published. The entire opinion and the Court's denial of rehearing/order for publication can be found at these links in PDF or Microsoft Word formats.