In a Victory for Business Interests, the U.S. Supreme Court Finds in Favor of Class Arbitration Waivers

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By: Gina E. Och

For those of you who attended Murchison & Cumming, LLP’s Year in Review last week, and heard California Courts of Appeal Justice Paul Turner’s discussion about the questionable vitality of California’s rule against class action arbitration clauses in consumer contracts—the United States Supreme Court decision is finally here.

On April 27, 2011, the United States Supreme Court handed business interests a major victory by finding in favor of class arbitration waivers. In a close 5-4 decision in AT&T Mobility LLC v. Concepcion, ___ U.S. ___ (Apr. 27, 2011), No. 09-893, the majority concluded that the Federal Arbitration Act (“FAA”) pre-empts state contract law principles in determining the enforceability of a class arbitration waiver, i.e., an arbitration agreement that expressly precludes arbitration on behalf of a class. Specifically, the Supreme Court found that the FAA pre-empts the rule set forth in the California opinion, Discover Bank v. Superior Court, 36 Cal.4th 148 (2005). In Discover Bank, the California Supreme Court held that class action waivers in consumer arbitration agreements were unconscionable if the agreement is in an adhesion contract, disputes between the parties are likely to involve small amounts of damages, and the party with inferior bargaining power alleges a deliberate scheme to defraud.

In fact, prior opinions issued by many state courts have found class arbitration waivers unconscionable and have allowed class actions despite the existence of an express agreement in consumer contracts barring them. One such opinion was recently issued in Nevada last month. In Picardi v. District Court, ___ P.3d ___, 2011 WL 1205284 (Nev. Mar. 31, 2011), the Nevada Supreme Court struck down a no-class-action arbitration clause as unconscionable under Nevada law.

In any case, Justice Scalia’s majority opinion goes beyond the question originally presented for review, which was whether the FAA pre-empts state law “when [class action] procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.” The majority’s opinion appears to further hold that the FAA pre-empts state law (and possibly even removes “unconscionability” as a basis for invalidating an arbitration clause if not based on state public policy) when the lack of a class action mechanism as a practical matter leaves plaintiffs with no remedy at all.

Justice Thomas’s concurring opinion perhaps gives a small ray of hope to consumer interests seeking to pursue class action litigation even where a class arbitration waiver exists. Justice Thomas noted that the decision does not necessarily preclude an argument that no agreement existed in the first instance, such as where the agreement is found to have been entered into as a result of coercion or fraud. Nevertheless, he concluded that unconscionability based purely on public policy would never be a basis to invalidate an arbitration agreement under § 2 of the FAA, since it would not impact the formation of the arbitration agreement. See Slip Op. at 4, n.* (Thomas, J., concurring).

Ultimately, this decision removes what was perceived to be an insurmountable obstacle in the enforcement of millions of arbitration agreements that benefit customers and businesses alike, and confirms the liberal federal policy favoring arbitration.

California Court of Appeal Re-affirms Hanif and Nishihama, which Limit Medical Special Damages to Amounts Actually Paid

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On February 24, 2011, in the most recent appellate case, Cabrera v. E. Rojas Properties, Inc. (Second Dist., Case No. B216445), the Court of Appeal followed the holdings in Hanif v. Housing Authority, 200 Cal.App.3d 635 (1988) and Nishihama v. City and County of San Francisco, 93 Cal.App.4th 298 (2001).

The issue decided by the Cabrera court was whether the collateral source rule barred the reduction of a plaintiff’s recovery of past medical expenses from the amount billed by her medical provider to the amount paid by her private medical insurer. The Cabrera court stated—“We follow current California law and hold that such reduction was appropriate notwithstanding the collateral source rule.” Therefore, the appellate court reaffirmed that a plaintiff may not recover “phantom” damages, i.e., the “billed” amount of medical expenses that providers never actually pursued or collected as opposed to the actual amount paid.

Last year, the California Supreme Court granted review of, and thereby rendered unpublished and uncitable, several contrary decisions that greatly increased medical special damages to include phantom charges never paid or owed by anyone. See Howell v.Hamilton Meats & Provisions, Inc. (Case No. S179115), review granted 3/10/2010; Yanez v. Soma Environmental Eng’g (Case No. S184846), review granted 9/1/10; King v. Willmett (Case No. S186151), review granted 10/13/10.) The Yanez and King cases are on “hold” pending the decision in Howell. Of particular note, the author of the King decision is now-Chief Justice Cantil-Sakauye of the California Supreme Court, who may be a vote against the defense in Howell.

Since Hanif and Nishihama are still good and citable opinions, pending the Supreme Court’s decision in Howell, the Cabrera court relied on these cases in reaching its conclusion: “[W]hen the evidence shows a sum certain to have been paid or incurred for past medical care and services, whether by the plaintiff or by an independent source, that sum certain is the most the plaintiff may recover for that care despite the fact that it may have been less than the prevailing market rate.” See Hanif, supra, 200 Cal.App.3d at 641; Nishihama, supra, 93 Cal.App.4th at 306. Accordingly, Cabrera rejected the argument, which swayed the Howell and King courts, that payment of the phantom damages is required under the “collateral source” rule.

Until the Supreme Court rules on Howell, the Cabrera-Hanif-Nishihama cases are binding on trial courts, and other appellate courts are free to follow either the Howell-King approach or the Cabrera-Hanif-Nishihama approach.

Abolishing the Collateral Source Rule?

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By: Lisa D. Angelo

Currently pending before the California Supreme Court is Rebecca Howell v. Hamilton Meats & Provisions, Inc. In Howell, a private insurance covered plaintiff was injured by the negligent driving of an employee of the defendant, Hamilton Meats & Provisions, Inc. Ultimately, a jury awarded plaintiff Howell compensatory damages in the total amount of $689,978.63, which included $189,978.63 for “past economic loss, including medical expenses.” Plaintiff Howell was also awarded $150,000 for future economical loss including medical expenses, $200,000 for past non-economic loss (including physical pain, mental suffering, loss of enjoyment of life, disfigurement, physical impairment, inconvenience, grief, anxiety, humiliation and emotional distress), and $150,000 for “future non-economic loss.” After the verdict was rendered, defendant Hamilton filed a “post-verdict reduction motion” (a.k.a. “Hanif/Nishihama” motion or rule) to reduce the amount of the jury’s award in connection with the plaintiff’s past economic loss, including medical expenses. After a lengthy oral argument between the parties on defendant Hamilton’s post-trial motion, the trial court reduced plaintiff Howell’s net award from the full amount of the medical bills to the amount the providers actually accepted, for a difference of $130,286. See Howell v. Hamilton Meats & Provision, Inc., 179 Cal. App. 4th 686, 692-93 (2009).

Plaintiff Howell appealed the trial court’s decision to the Fourth Appellate District Court of Appeal of California, and on November 23, 2009, the appellate court reversed the trial court’s post-trial reduction order in a monumental opinion that turned the post-trial verdict reduction procedure on its head. In fact, the appellate court ruled that any order reducing a jury-related medical expense award violated the Collateral Source Rule. Going one step further, the appellate court held that post-trial Hanif/Nishihama motions are “unauthorized” under California’s Code of Civil Procedure in that no section of the Code provides for such a procedure. Finally, the court disapproved the Third Appellate District’s opinions in both Hanif v. Housing Authority of Yolo County, 200 Cal. App. 3d 635, 641 (1988) which held that an award of damages for past medical expenses in excess of what the medical care and services actually cost constitutes overcompensation and Greer v. Buzgheia, 141 Cal. App. 4th 1150, 1154 (2006) which approved Hanif and the post-trial verdict reduction procedure nearly two decades later.

The issues upon which Supreme Court review of the Fourth Appellate District’s ruling has been granted are twofold: (1) Is the difference between gross medical bills and the actual amount voluntarily accepted by the medical provider as payment in full from plaintiff’s healthcare insurer – dubbed the “negotiated rate differential” in the Howell decision – a collateral source under the Collateral Source Rule? And, (2) Did the trial court follow proper procedure in determining the reduction of past medical specials portion of the verdict?

Twenty-two years ago, the Third Appellate District Court of Appeal of California held, in Hanif v. Housing Authority of Yolo County, that an award of damages for past medical expenses in excess of what medical care and services actually cost constitutes overcompensation.” The appellate court reasoned that according to select provisions of the California Civil Code, well-established caselaw, and treatises, the purpose of tort law is to compensate a plaintiff and restore him or her back to the place that they were prior to the alleged injury. In short, the Third Appellate District held that a plaintiff is entitled to recover up to and no more than the actual amount expended or incurred for their past medical expenses so long as the amount is reasonable. This defense-favored and oft-cited ruling, has a couple important and distinct aspects that opposing plaintiffs are quick to note in their appellate briefs: (1) California’s Medi-Cal program paid for all the plaintiff’s injury-related medical care and services – thus Hanif is a narrow ruling limited to Medi-Cal cases; and (2) Medi-Cal has subrogation and lien rights limited to the amount of its payment.

Thus, in cases where Medi-Cal was not the third party pocket book, such as private insurer, Hanif was and remains easily distinguishable.

Thirteen years later, however, the First Appellate District held, in Nishihama v. City and County of San Francisco, 93 Cal. App. 4th 298 (2001), that Hanif’s ruling went beyond Medi-Cal cases and applied to private insurance cases as well. Going one step further, the Nishihama court reduced plaintiff’s medical specials award to the amount “actually paid” by his private medical insurer to satisfy the bills. It is this “actually paid” principle that has been argued at nauseam in trial courts throughout the State in post-trial reduction motions commonly referred to as “Hanif/Nishihama” motions. Until Howell, defendants came to rely upon these motions which would often turn upon technicalities such as in Greer v. Buzgheia, 141 Cal. App. 4th 1150 (2006), wherein the defendant’s post-trial verdict reduction motion was denied simply because a pre-trial motion in limine had not been filed and the post-trial motion procedure was deemed unpreserved.

Then, of course, the Fourth Appellate District held in Howell v. Hamilton Meats & Provision, Inc., that the “Negotiated Rate Differential,” i.e., the total cost of medical expenses, and the “negotiated rate” a private insurance company ultimately pays, is a “benefit” within the meaning of the Collateral Source Rule. The Court reasoned that simply because a plaintiff had the foresight to purchase health insurance, the defendant should not get the benefit of such foresight by having special damages jury awards reduced by the negotiated amount the insurance company paid for medical bills.

On appeal to the Supreme Court, the Howell petitioners ask the Court to overturn the Fourth Appellate District’s radical ruling, uphold the twenty-year-old Hanif/Nishihmara procedure, and recognize post-verdict reduction motions as authorized under select provision of the California Civil Code including §§ 3281 (“Every person who suffers detriment from the unlawful act or omission of another, may recover from the person in fault a compensation therefore in money, which is called damages.”); 3282 (“Detriment is a loss or harm suffered in person or property”); 3333 (“For the breach of an obligation not arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not”) and § 1431.2, subd. (b)(1). The Hamilton respondents, meanwhile, urge the Court to overrule Hanif and Nishihmara, uphold the newly coined “Negotiated Rate Differential” principle and find that post-verdict reduction motions are not authorized under any California Code or Statute. They finally argue that until the California legislature weighs in on the issue, the Collateral Source Rule applies to any and all “benefits” a plaintiff receives by a third party.

There are several problems, of course, with both parties’ positions. First, the California legislature has yet to “weigh in on the issue” despite the fact that the Supreme Court has urged the branch to do so on two separate occasions within the past decade. See Olszewski v. Scripps; 30 Cal. 4th 798 (2003) (discussing foreseeable adverse ramifications stemming from ruling, Supreme Court asks Legislature to step in); see also Parnell v. Adventist Health System/West, 35 Cal. 4th 595 (2005) (advising respondents to look to the Legislature for relief from the financial pressures that may arise from court’s ruling). Thus, arguments in favor of the Court taking into consideration the possibility that someday the California Legislature might chime in with an unambiguous statute on the matter, are inconsequential.

Second, the position that compensatory damages are limited to the amount “actually paid” by the plaintiff, regardless of the source is also problematic because the primary authority in support of this proposition comes from the recently criticized ruling in Hanif. Indeed, as recently as four months ago, the Third Appellate District in King v. Willmett, 187 Cal. App. 4th 313 (2010) distinguished and criticized Hanif as applying only to Medi-Cal related cases. The Court further distinguished and criticized Nishihama as only concerning the validity of a medical center’s lien and having no application to the collateral source rule. Notably the very appellate district that handed down the Hanif opinion in 1988 is the same appellate district that now criticizes its predecessor panel’s monumental ruling. The King opinion also disfavored its own ruling in Greer v. Buzgheia which it had issued just four years ago in 2006. Interestingly, two months before the King opinion was handed down, the First Appellate District distinguished Hanif in Yanez v. Soma Environmental Engineering, Inc., et al., 185 Cal. App. 4th 1313 (2010) as not addressing or appearing to contemplate situations in which patients covered by private health insurance are charged reduced rates by the provider for their care as an insurance benefit negotiated between the insurer and the health care provider. Both the King and Yanez rulings have been appealed to the Supreme Court. The final outcome of these cases should lie in the Court’s ruling in Howell – presuming, of course, the Court provides further guidance on California’s use of the Collateral Source Rule.

Notably, in each of the arguments proffered by the Hamilton petitioners, the Howell respondents, their respective bars, and a majority of cases cited within their Appellate Briefs, both sides urge the Court not to abolish the Collateral Source Rule. Indeed, the first sentence and point heading from Hamilton’s opening brief states, “the long-standing collateral source rule must be protected.” Likewise in Howell’s answer brief, they argue, “the Supreme Court of California has long adhered to the collateral source rule,” and urge the Court to not back away “even an inch” from it despite the “defense bar’s repeated assaults” on the Rule. While it appears as though everyone agrees the Court should uphold the Collateral Source Rule, things are not always as they seem. Indeed, a closer read of both sides’ appellate briefs reveals that neither side takes a firm stand on whether the Court should uphold or abolish the Rule. In fact, both sides’ arguments overlap and sometimes contradict their strongest positions.

For example, one of Howell’s loudest arguments is that there is no such thing as a “Hanif rule” or “Hanif/Nishihama rule” as it is nothing more than a “judge-made rule,” unauthorized by California’s Code of Civil Procedure, which they submit contains no provision authorizing such motions. Yet, is it not a fact that the Collateral Source Rule itself is a judicially created doctrine? The Association of Southern California Defense Counsel and DRI-the Voice of the Defense Bar noted as much in their amicus brief in support of the Hamilton petitioners. Perhaps in an effort to avoid the obvious conclusion, amicus briefs will provide the Court with interesting food for thought such as “whether a plaintiff should not be allowed to introduce evidence of his/her medical bills in the first place?” Indeed, the defense bar argues that the face amount of a medical bill is inadmissible to prove the reasonable value of the services billed. Of course, just this past summer, in Yanez v. Soma Environmental Engineering, Inc., et al., Justice Banke had a different view:

“… courts have exhibited a markedly heightened regard for the ability of juries to deal with complex and sophisticated legal and factual problems, including heeding limiting instructions in connection with otherwise highly prejudicial evidence. [citations]. If properly instructed juries can handle this kind of potentially prejudicial evidence in very serious—even life and death—cases, surely juries can consider, with proper instruction, evidence of amounts paid to health care providers on the issue of the ‘reasonable value’ of health care services…”

Yet, if either of these views were accepted, would not the Collateral Source Rule in California be adversely affected? Do all roads currently lead to abolishing the Rule? Fourteen states, including New York, have abolished the Rule. http://ezinearticles.com/?Personal-Injury—What-You-Must-Know-About-the-Collateral-Source-Rule&id=4414716; http://www.articlesbase.com/law-articles/personal-injury-what-you-must-know-about-the-collateral-source-rule-935630.html. Another fourteen states, including California, have modified or carved out exceptions to the Rule. See California Civil Code § 3333.1, subd. (a) (passed by California Legislature in 1975, permits defendant to introduce evidence of a collateral source such as health or disability insurance benefits at trial in medical malpractice cases and as part of the Medical Injury Compensation Reform Act.); see also California Government Code § 985 (passed in 1987, allows public entities to make post-trial [Hanif-type] motions to preclude payment to any collateral source, plaintiffs may still claim any premiums paid to purchase the collateral source as well as attorneys fees). Is it time to abolish the Rule completely and not shied the jury from anything? I believe so. Juries need not and should not be shielded from the truth.

“It is time therefore to trust juries to heed limiting instructions in this context, as in others, and to let juries hear all the relevant evidence on the ‘reasonable value’ of medical services.” Yanez, 185 Cal.App.4th at 1313 (J. Banke concurring).

Expedited Jury Trials

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By: Edmund G. Farrell, III

On September 30, 2010, Governor Schwarzenegger signed into law what is perhaps the biggest change in California civil procedure in many years. The Expedited Jury Trials Act (AB 2284) was developed over 18 months by a wide-ranging Judicial Council group that included advocates who otherwise agree on little. It is modeled on similar quick trials that have been offered in New York and South Carolina for at least five years. Treated as regular civil trials, cases would be heard — on a date certain — before a judge and a jury of eight. Each side is limited to three peremptory challenges and must put on their case in three hours, including opening and closing arguments, with a goal of concluding the case in one day. Participation is voluntary, verdicts — reached by six jurors — are binding, and appeals and post-trial motions are strictly limited.

The standard Rules of Evidence would normally apply, but the parties could agree to relaxed rules. Witness lists, exhibits, proposed jury verdict forms, jury questionnaires, and other materials, are exchanged 25 days prior to trial. Evidentiary objections will
be addressed at a pre-trial conference, eliminating disputes during trial.

A key element is the high/low agreement by both plaintiff and defense: the plaintiff is guaranteed some recovery and the defense’s liability is capped. From the plaintiff’s point-of-view, he receives some money, even if the jury decides he is entitled to nothing. On the defense side, the high may be the insurance policy limit or less. Insurance carriers avoid excessive judgments and bad faith claims, and a defendant’s individual liability is also resolved. The high/low agreement is not disclosed to the jury.

Proponents of expedited trials believe cases where relatively small amounts of money, between $10,000 and $50,000, are most likely to go to quick trials. Relatively simple matters, such as small personal injury, slip and falls, or small auto accidents, are prime candidates. However, expedited jury trials are being used in higher value cases of up to $1 million in other states with results similar to verdicts awarded in longer trials.

The Expedited Jury Trials Act goes into effect on January 1, 2011. Murchison & Cumming, LLP, will be providing a seminar in the near future to address the ins-and-outs of the Expedited Jury Trial Act and what all insurance companies need to know. Look for further information on this in the near future.

New Guidance from the DOL for Lactation Accommodation, and Comparable California Law

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Tucked into the “health care reform bill” passed earlier this year, was an amendment to the Fair Labor Standards Act (“FLSA”), requiring employers to provide nursing mothers with adequate time to express breast milk. In July, the U.S. Department of Labor (“DOL”) issued Fact Sheet #73 to provide guidance to employers. California employers have had to provide such accommodation since similar state laws were passed in 2002. The amendment to the FLSA imposes new obligations on employers in states such as Nevada which have not had similar requirements.

Here is a synopsis of the general requirements. Employers are advised to seek assistance of counsel in situations which are not easily accommodated.

Coverage of the laws:
California’s law applies to all employers, regardless of size. Under FLSA, employers with fewer than 50 employees company-wide are exempt if compliance “would impose an undue hardship,” as determined by the difficulty or expense of compliance compared to the employer’s resources. California provides an exemption to compliance, “if to do so would seriously disrupt the operations of the employer.” The burden of proving an inability to comply will rest with the employer.

California’s law also applies to all employees, while the FLSA applies only to non-exempt (hourly) workers.

Location of breaks:
Under both laws, the employee must be provided with a location which is private. The FLSA may demand more of employers than does California. Under the FLSA, a bathroom is not a permissible location to designate for expressing, while in California the employer may not relegate a woman to a “toilet stall.” Further, FLSA requires that the space be “functional as a space for expressing milk,” which the Department of Health and Human Services has suggested calls for a chair and small table or shelf for a breast pump. The place where the employee works would be adequate if it can be made free from intrusion. A space temporarily created for the purpose would be sufficient so long as it is available when needed by the nursing mother.

Privacy:
In June 2008, the California Labor Commissioner imposed penalties in the amount of $4,000 against an employer who failed to provide a space with adequate privacy to an employee. The Labor Commissioner’s press release announcing the enforcement states, “Initially the room that was provided was computer server room with security cameras. This offered an inadequate level of privacy needed to perform the milk expressing process.”

Time and Duration of Breaks:
California permits an employer to require break time for expressing to run concurrently with authorized rest break time, which in California amounts to a net of 10 minutes for each four hours of work (or major fraction of four hours). Employee time spent on lactation breaks beyond that must be provided if needed by the employee, but they need not be compensated. However, any time spent by the employee getting to the designated break area would not be considered part of the net 10 minutes.

The FLSA provides less clarity. Since the FLSA does not require that an employer provide paid rest breaks, time spent on a lactation break may not need to be paid if the employer does not otherwise have a paid break policy. The DOL Fact Sheet states that the employer must provide “a reasonable amount of break time to express milk as frequently as needed by the nursing mother. The frequency of breaks needed to express milk as well as the duration of each break will likely vary.”

How Long Accommodation is Required:
California does not state the length of time that a woman must be afforded this accommodation, stating only that the accommodation must be made for an employee “desiring to express breast milk for the employee’s infant child.” The FLSA, on the other hand, applies for one year after the child’s birth.”

Enforcement:
Penalties may be imposed under Labor Code 1033 in the amount of $100 for each violation, with no maximum specified in the statute.

The FLSA does not yet provide for penalties for failure to accommodate lactating mothers. This suggests the remedy for an employee in a state without an equivalent law, such as Nevada, would be an action for enforcement to a state or federal agency.

Essential Steps for an Employer:
Working through the requirements and logistics for each returning employee would be the employer’s best practice under both California law and the FLSA. Employers should ensure that any woman returning from a pregnancy leave has been informed of her right to lactation accommodation, that consideration of logistics has been given for each returning employee, and that the employee’s manager thoroughly understands and supports the company’s obligations for the accommodation.

Employment Law in Nevada: Recent Developments

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By: Michael J. Nunez

Hiring only female prison guards for women’s facility violated Title VII, where sexual abuse by male prison guards could be handled with nondiscriminatory methods.

Breiner v. Nev. Dep’t of Corrections, ___ F.3d ___, 2010 WL 2681730 (9th Cir. 2010)

Male prison guards filed suit against the Nevada Department of Corrections (NDOC) to challenge NDOC’s policy of not hiring men for position in the woman’s correctional facility. The woman’s correctional facility, which was run by a private company, CCA, at the time, had widespread problems of sexual abuse of inmates by prison guards. Many of these instances of sexual abuse were sex-for-contraband, with guards providing inmates with drugs and alcohol, among other things. As a result of the Inspector General’s report of these issues, CCA and NDOC terminated the contract and the state assumed control over the facility. NDOC’s director determined that it was appropriate to staff the facility with women lieutenants in order to prevent ongoing sexual abuse. NDOC acknowledged that its policy of hiring only women for lieutenant positions was discriminatory on its face.

The Court of Appeals reversed the district court’s holding that the gender restriction for the lieutenant position had a “de minimis” impact on Plaintiffs. In reaching this conclusion, the Court noted that the district court had misinterpreted Robinot v. Iranon, 145 F.3d 1109 (9th Cir. 1998), in which certain posts were restricted to female prison guards. The Robinot Court held that the gender restriction there was “de minimis” because only 6 out of 41 posts were restricted. The restriction tended to preclude prison guards from working during their preferred shifts, and not, as here, their ability to get a position that may have a detrimental effect on their career. Stated another way, in Robinot “a minor impact on a job assignment was too minimal to be actionable,” while Plaintiffs here were refused employment on the basis of sex, clearly violating Title VII.

Moreover, the Court of Appeals reversed the district court’s holding that NDOC’s discrimination was allowable as a bona fide occupational qualification, stating that NDOC’s theories “rel[y] on the kind of unproven and invidious stereotype the Congress sought to eliminate from employment decisions when it enacted Title VII.” The Court of Appeals noted that NDOC had a variety of non-discriminatory methods for controlling prison guard sexual abuse such as utilizing background checks, promptly investigating allegations of misconduct; and employing severe discipline for misconduct.

Claims of Race Discrimination are not necessarily enough to sustain an action for intentional infliction of emotional distress or for negligent hiring and training by an employer

Colquhoun v. BHC Montevista Hosp., Inc., No. 2:10-cv-00144-RLH-PAL, 2010 WL 2346607 (D. Nev. 2010)

Plaintiff, an African-American woman, worked as an educator at Montevista Hospital. Plaintiff claims she was forced to resign due to a hostile work environment where she endured “disparaging remarks about [her] African American heritage,” and was wrongfully accused of stealing equipment from Montevista. Plaintiff filed suit against Montevista, alleging discrimination under Title VII, discrimination under NRS 613.330, negligent infliction of emotional distress, intentional infliction of emotional distress, negligent hiring, negligent supervision, and negligent training.

The Court dismissed Plaintiff’s intentional infliction of emotional distress claim, finding that Plaintiff had not provided facts indicating that Defendant’s refusal of a “justified” pay raise, false accusation of Plaintiff of stealing, and making “racially derogatory comments,” was intentionally extreme or outrageous conduct. The Court noted that even if the allegations of Defendant’s discriminatory conduct was true, Plaintiff’s claims are appropriate under federal and state anti-discrimination laws, and not “tort claims reserved for the m[o]st egregious behavior.” The Court also dismissed Plaintiff’s negligent infliction of emotional distress claim, noting that Plaintiff’s complaint failed to allege any negligent conduct.

Plaintiff also argued that Defendant was liable for negligent hiring, supervision and training solely on the basis that its employees treated Plaintiff in a discriminatory manner. The Court flatly rejected this argument stating that wrongful acts of an employee “does not in and of itself give rise” to these claims, rather, Plaintiff must allege specific facts of how the employer violated its duty to Plaintiff.

New CA Bad Faith Opinion – Howard v. American National

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See the attached PDF for the published decision.

PDF FileView as PDF

CA Law re Gay Marriage Found Unconstitutional

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See 136 page decision in attached PDF.

PDF FileView as PDF

New California Supreme Court Decision: Minkler v. Safeco

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In a new decision by the California Supreme Court, Minkler v. Safeco, wherein contrary to established California law on the application of policy exclusions referring to “an” or “any” insured as opposed to “the” insured, which the court acknowledged, the court decided that the distinction should not apply in this matter involving an intentional acts exclusion due to the separation of insureds clause in the Conditions section of the policy at issue.  As a result, the court found that insureds other than the actual molester would have coverage for the damages flowing from those intentional acts of the co-insured, finding that each insured was entitled to have his/her coverage evaluated separately as if he/she was the only insured, the net effect rendering the “an” qualification without any impact. 
The court does note that there are exclusions using “an” or “any” to which this separation of insureds analysis would not necessarily apply, and, importantly, commented that the insurance company could have limited the wording of the Separation of Insureds clause so that it clearly indicated that it was meant to only apply to liability limits – providing its own suggested re-wording. 
The Clause from the CG 0001 10 01 form, for example, is quoted below.  Based on this wording for example, under the Minkler decision, 7.b. would appear to be given the effect of having the policy coverages apply to each person, without regard to any other, and without application of the “any” or “an” limitations that are common in various exclusions and applied to all insureds, not just the one seeking coverage.   
 

7.  Separation Of Insureds

Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this Coverage Part to the first Named Insured, this insurance applies:

     a.  As if each Named Insured were the only Named Insured; and

     b.  Separately to each insured against whom claim is made or “suit” is brought.

That said, each policy is unique based on its terms and conditions and each loss is unique based on its facts. 
I would anticipate that this decision will have underwriters immediately working on endorsements to modify or limit their Separation of Insureds clauses, including those at ISO, and that claims departments should expect to have prior denials of coverage re-tendered for reevaluation as happened when Montrose, Presley and other significant decisions were handed down.  For open matters with coverage analysis pending, this decision needs to be considered and applied to the facts of the loss and particular policy language.
We here at Murchison & Cumming are in the process of analyzing the scope and possible effects of this decision ourselves.  If you or your underwriters have any questions, please feel free to contact me or my partner, Bryan M. Weiss.  Just as we have worked with underwriters in the past to draft Montrose, terrorism and other endorsements responsive to developing law or events, so do we expect to be doing the same with this issue, given the far-reaching potential impact of this decision. 

Clash of the Courts: Are Witness Statements Privileged Information?

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By: Lisa D. Angelo

Daily Journal, Perspective Section

For the first time in 14 years, one of California’s six appellate districts has challenged the frequently cited [Nacht & Lewis Architects, Inc. v. McCormick], 47 Cal. App. 4th 214 (1996) ruling, and urged the Supreme Court to “weigh in” on the issue.

The [Coito] case revisits the question: “Whether the statement of a witness, taken in writing or otherwise recorded verbatim by an attorney or the attorney’s representative, is entitled to the protection of the California work product privilege.” According to the Court of Appeal for the 5th Appellate District (Fresno), such statements are not so protected. This ruling, favoring disclosure, confronts the 3rd District Court of Appeal (Sacramento) contrary ruling in [Nacht & Lewis], head on.

The facts of the [Coito] case are simple: In March of 2007, six teenagers were engaging in conduct, possibly criminal, near a local river in Modesto. At some point, one of the teens drowned in the city river. A lawsuit against the state of California et al., filed on behalf of the deceased teen’s parents, promptly followed.

During discovery, one of the defendants, city of Modesto, noticed that depositions of all five teenagers indicated they were with the decedent on the day he drowned and had witnessed the entire occurrence. Anticipating the teens’ testimony, the Attorney General for the state of California sent two “special agents” from the California Department of Justice, Bureau of Investigation, to interview and take recorded statements from four of the five teen witnesses. The Attorney General provided the agents with particular questions for the interviews.

The first of the five depositions of the teens began two months after the interviews. During cross-examination, the Attorney General used some of the information gathered by the agents, against the witness. This exposure naturally raised eyebrows.

Nine days after the first teen’s deposition, plaintiff served the state with a form interrogatory 12.3 (which asks for the names and information about witnesses from whom a written or recorded statement is obtained) and sought production of the recorded interviews. The state objected to disclosure on work product grounds citing [Nacht & Lewis.] A motion to compel was soon filed by plaintiff and denied by the trial court.The plaintiff then filed a writ of mandate, which was granted by the 5th Appellate District.

In the majority’s view, prior to [Nacht & Lewis], both case law and public policy underlying the Civil Discovery Act favored disclosure. Thus, the majority declined to follow [Nacht & Lewis], which favored non-disclosure. In fact, both the majority and dissenting justices criticized [Nacht & Lewis] in their respective opinions. While the majority argued that [Nacht & Lewis] failed to provide any analysis for a decision that flew in the face of a “long line of contrary precedent,” the concurring and dissenting opinion argued that both [Coito] and [Nacht & Lewis] got it wrong when they rendered absolute opinions that failed to consider if the evidence could be [“qualified”] work product that may or may not be discoverable depending upon a case-by-case ruling by a trial court judge.

What rings true, throughout the majority opinion, is a desire for judges to return to the original policies underlying the privilege when it was first implemented: preservation of the rights of attorneys to prepare cases for trial with that degree of privacy necessary to encourage them to prepare their cases thoroughly and to investigate not only the favorable but the unfavorable aspects of their cases; and prevention of attorneys from taking undue advantage of their adversary’s industry and efforts.

In order to accomplish these original policies, the majority argued, “The Civil Discovery Act must be construed liberally in favor of disclosure.” As to “witness statements” taken by an attorney or an attorney’s representative, the majority cited a series of pre-[Nacht & Lewis] cases that it viewed collectively to stand for the proposition that “in such situations, the witness statement is in part the product of the attorney’s work […but] that is not to say, however, that the witness statement is entitled to work-product protection.”

With this pre-[Nacht & Lewis] “weight of authority” in mind, the 5th Appellate District majority held: [“written and recorded witness statements, including not only those produced by the witness and turned over to counsel but also those taken by counsel, are not attorney work product. And, because such statements are not work product, neither is a list of witnesses from whom statements have been obtained (the list requested by form interrogatory No. 12.3).” ]

It is clear that this holding lies in direct conflict with the 3rd Appellate District’s [Nacht & Lewis] opinion, which holds: [“compelled production of a list of potential witnesses interviewed by opposing counsel violates the work product doctrine, since production of the information necessarily reflects counsel’s evaluation of the case by revealing which witness or persons who claimed knowledge of the incident counsel deemed important enough to interview; and, notes that counsel takes during such interviews are further protected by the work product doctrine.” ]

Despite the foregoing, until such time the Supreme Court is afforded the opportunity to take these issues up on appeal and resolve the conflict, [Nacht & Lewis] may still be cited in favor of non-disclosure while [Coito] will undoubtedly begin to be cited in zealous opposition.

The majority opinion in [Coito] is questioned by an equally lengthy concurring and dissenting opinion by relatively new appointee Justice Stephen Kane. According to Justice Kane, he would like to see the legislative loophole afforded in said section of the Act, considered and implemented. He also argued that unless an objection to form interrogatory 12.3 is accompanied by a “foundational showing that a response would actually disclose matters protected by the work product privilege (i.e., significant tactical information about the case) the objection should be overruled.

As to [Nacht & Lewis], Justice Kane agreed with the majority to the extent the 3rd Appellate District’s opinion holds “whenever an attorney records the substance of a witness’s statement, all of the written notes or recorded statements are protected by the absolute work product privilege.” Justice Kane’s dual problem with [Nacht & Lewis] and the majority in [Coito] is that both opinions create absolute resolutions and do not consider the happy “case-by-case” medium afforded in section 2018.030(b) of the Act.

After a lengthy analysis of the work-product privilege, which also included guidance on the difference between “qualified” and “absolute” protection, Justice Kane concluded by recommending that the approach noted by the Supreme Court in [Rico v. Mitsubishi Motors Corp.], 42 Cal. 4th 807 (2007) be implemented. Interestingly, in [Rico], the Court cited [Nacht & Lewis] with “apparent approval” when it noted “when a witness’s statement and the attorney’s impressions are ‘inextricably intertwined, ’the absolute work product protection extends to all portions of the written or recorded statement.” In my humble view, neither determining whether something is “inextricably intertwined” and/or permitting a trial court the continued discretion to arbitrarily rule upon the doctrine on a “case by case” basis, are good alternatives. There should be rules where everyone, including pro se litigants as Justice Kane acknowledged in his dissent, can easily locate, review and follow.

Should the Supreme Court take the [Coito] court up on its suggestion to get involved in the issue and should the Court like the direction the majority took – a return to the “pre-[Nacht & Lewis]” years – I would urge the Court to look even farther back and implement the foundational strategy afforded by the Supreme Court in [Hinkman v. Taylor] (which both the [Coito] majority and Justice Kane cited favorably in their respective opinions). Why reinvent a wheel that has been thoroughly briefed and appears to be working quite nicely in federal courts nationwide?