California’s Unfair Competition Law After Proposition 64

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By: Gina E. Och

California’s Unfair Competition Law (UCL), codified at Business and Professions Code section 17200, prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising….”1 Any person could sue under section 17200; thus, a plaintiff did not have to have “standing” to sue.2 Unfortunately, legislation originally meant to protect consumers and competitors began plaguing businesses, serving as a cash cow for some attorneys, and creating a surge in UCL litigation.

No case symbolized the fallout from UCL lawsuits more than the Trevor Law Group scandal in 2003.3 Specifically, the Trevor Law Group, a law firm, created and funded an alter ego, “consumer” organization called, Consumer Enforcement Watch Corp. (CEW).4 On behalf of CEW, it filed 24 lawsuits against thousands of mostly minority-owned and small businesses, namely automobile repair shops and restaurants, for violations already cited by regulatory agencies.5 The firm then sent letters to these businesses demanding settlement monies.6 The fee arrangement between the firm and CEW granted the firm up to 90 percent of any financial recovery.7 Because these businesses were small, most businesses decided to settle instead of going through the expense of litigation.8.

Eventually, the Trevor Law Group came to the attention of state authorities. The State Bar petitioned to disbar three attorneys in the Trevor Law Group.9 Faced with disbarment, in July, 2003, the three attorneys resigned with 36 counts of misconduct.10 In an ironic twist of fate, the State’s Attorney General’s Office filed a complaint against these attorneys pursuant to section 17200.11 The State seeks to recover a $1 million fine and restitution on behalf of the businesses that settled with the law firm.12.

Prompted by this scandal,13 on November 2, 2004, California voters passed Proposition 64.14 This initiative amended the UCL in two significant ways: (1) it prohibited plaintiffs from filing UCL lawsuits without demonstrating their standing to sue; and (2) it prohibited the filing of “representative actions” as a substitute for the class action process. Now, in order to meet the new standing requirement, a plaintiff must show he “has suffered injury in fact and has lost money or property as a result of such unfair competition.”15 Moreover, a plaintiff can only file a representative lawsuit as a “private attorney general” on behalf of the people of California if he meets the new standing requirement and complies with the procedures governing class actions.16.

Although Proposition 64 became effective on November 3, 2004, it is unclear whether Proposition 64 applies to cases filed before November 3, 2004. By the end of February, 2005, one appellate court held that Proposition 64 did not apply retroactively.17 Four other opinions found Proposition 64 applied retroactively.18 One case stated that the plaintiff should be able to substitute in the lawsuit an affected plaintiff with standing.19 Another case stated that if, after a hearing, no affected plaintiff could be found, a substitution could not be made.20 Still yet, another case, determined that the plaintiff should have leave to amend the complaint to meet the Proposition 64 requirements.21 The California Supreme Court has, thus far, accepted only one of these cases for review.

It is also unclear whether the standard of pleading and proof of the “false” business practice or act prong under section 17200 will need to be revised. Before Proposition 64, a business practice was “fraudulent” if “members of the public are likely to be deceived.”22 Thus, a plaintiff did not have to establish intent, scienter, actual reliance, or damage; even actual deception was not necessary. Yet, after Proposition 64, courts may have to decide whether the current “fraudulent” standard can be reconciled with the standing requirement.

In all, the defense attorney and client should evaluate any pending or new UCL cases, and determine whether a demurrer, motion for judgment, or motion to strike should be filed. In the appropriate cases, until the California Supreme Court concludes otherwise, one should argue that Proposition 64 applies retroactively. Moreover, one should attack the complaint where the plaintiff lacks the standing to sue; paying particular attention where the “fraudulent” business practice and act prong is alleged. Finally, where the plaintiff is suing in representative capacity and fails to meet section 17203, those private attorney general allegations should be stricken from the complaint.

Accordingly, gone are the days when a plaintiff could sue without having to see the advertisement, to purchase the product, or to be injured by the business act.

Contingent Fees Paid to Attorneys is Taxable Income

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On January 24, 2005, the U.S. Supreme Court, ruled that all damages recovered in litigation are taxable income, including contingent fees paid directly to attorneys. Commissioner of Internal Revenue vs. Banks, 2005 U.S. Lexis 1370, 73 U.S.L.W. 4117 (2005).

The Supreme Court concluded that attorney’s fees paid out of a judgment or settlement under a contingent fee agreement are includable in a claimant’s gross income for federal tax purposes.

This ruling effectively ends a conflict among the federal appeals courts over whether the position taken by the Internal Revenue Service regarding the tax treatment of such contingency fees was correct.The unanimous decision held that the attorney’s fees portion of any judgment or settlement is taxable income to the recipient whether the fees have been paid directly to the claimant or to the attorney, and whether the fees are pursuant to a contingent fee or different arrangement.

The court upheld the government’s position on the strength of a doctrine that says, “A taxpayer cannot exclude economic gain from gross income by assigning the gain in advance to another party.”

The opinion addresses two consolidated cases. In the first case, John W. Banks, worked as an educational consultant for the California Department of Education from 1972 to 1986, when he was terminated. After his termination, he sued the state for employment discrimination and eventually agreed to a $464,000 settlement. The settlement characterized the entire amount as payment for personal injury damages, which are excluded from gross income under the tax code. Banks paid $150,000 of the settlement amount to his attorney, pursuant to their contingency fee arrangement. Banks did not include any of the $464,000 as gross income on his 1990 Federal Income Tax return.

In the second case, plaintiff Sigitas Banaitis was a Vice President and Loan Officer with the Bank of California and Mitsubishi Bank. During his employment Banaitis developed stress-related medical problems and alleged that he was pressured to resign. He sued Bank of California for wrongful discharge in violation of public policy and Mitsubishi Bank for intentional interference with employment and economic expectations.

In 1991, a jury awarded Banaitis compensatory and punitive damages. After resolution of all appeals, the parties settled. The defendants paid approximately $8.7 million in damages. Following the formula set out in the contingency fee arrangement, the defendants paid an approximately $4.8 million to Banaitis and an additional $3.8 directly to Banaitis’ attorney. The plaintiff excluded the $8.7 Million settlement from gross income on his Federal Income Tax return, attaching a statement of explanation to his return.

The Court’s decision reaffirms one of the oldest principles in income tax juris-prudence, namely, that income is taxed to the one who earned it regardless of any attempts at anticipatory assignment of the income or damages to someone else. The Court stated that a contingent fee agreement constituted an anticipatory assignment to the attorney of a portion of the client’s income from the litigation recovery.

Thus, as a general rule, when a litigant’s recovery constitutes income, the litigant’s income includes the portion of the recovery paid to the attorney as a contingent fee.

New News On Excluding Unreliable Expert Testimony

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By: Scott L. Hengesbach

On January 31, 2005, the Second District Court of Appeals concluded the Lockheed litigation cases, which had been ongoing for two decades, affirming the trial court’s exclusion of the opinions of the plaintiffs’ expert toxicologist regarding medical causation. The Second District’s decision reinforced the trial court’s conclusion that plaintiffs’ expert’s opinions should be excluded under California Evidence Code Section 801(b). Section 801(b) states that in order to be admitted into evidence, an expert’s opinion must be based on matters that are of a type that, “reasonably may be relied upon by an expert in forming an opinion upon the subject to which his testimony relates…” The trial court found that the studies and other materials provided by the expert did not meet this threshold requirement for admissibility. The appellate court agreed with the trial court’s finding that the expert’s opinion that various solvents caused the plaintiffs’ chronic injuries lacked a reasonable basis. The Lockheed Litigation Cases (*LLC*) decision signifies a shift in the method for exclusion of unreliable expert testimony. Prior to the LLC decision, litigants and courts coping with allegedly unreliable expert testimony primarily focused their attention on the question of whether the expert’s opinion was admissible under People v. Kelly (1976) 17 Cal.3d 24 (otherwise known as the Kelly-Frye rule). The Kelly-Frye rule dictates that the admissibility of a new scientific technique depends on whether the technique has become “generally accepted” in the scientific community. This rule was routinely applied to exclude a wide variety of scientific evidence over the past 25 years. However, in Roberti v. Andy’s Termite & Pest Control, Inc. (2003) 113 Cal.App.4th 893, the court held that the application of the Kelly-Frye test should be limited to new scientific techniques and, therefore, generally was not a proper basis for exclusion of medical causation testimony. The Roberti decision forced a renewed emphasis on Evidence Code Section 801(b) as a means of determining the admissibility of expert opinion testimony. The LLC decision is the first published opinion to broadly address the admissibility of expert opinion testimony since Roberti. The decision invites trial courts to carefully scrutinize the basis of an expert’s opinion to determine whether the testimony should be admitted. In this respect, the decision reemphasizes the gate-keeping role of trial courts faced with arguably unreliable expert testimony. On January 31, 2005, the Second District Court of Appeals concluded the Lockheed litigation cases, which had been ongoing for two decades, affirming the trial court’s exclusion of the opinions of the plaintiffs’ expert toxicologist regarding medical causation. The Second District’s decision reinforced the trial court’s conclusion that plaintiffs’ expert’s opinions should be excluded under California Evidence Code Section 801(b). Section 801(b) states that in order to be admitted into evidence, an expert’s opinion must be based on matters that are of a type that, “reasonably may be relied upon by an expert in forming an opinion upon the subject to which his testimony relates…” The trial court found that the studies and other materials provided by the expert did not meet this threshold requirement for admissibility. The appellate court agreed with the trial court’s finding that the expert’s opinion that various solvents caused the plaintiffs’ chronic injuries lacked a reasonable basis.

The Lockheed Litigation Cases (*LLC*) decision signifies a shift in the method for exclusion of unreliable expert testimony. Prior to the LLC decision, litigants and courts coping with allegedly unreliable expert testimony primarily focused their attention on the question of whether the expert’s opinion was admissible under People v. Kelly (1976) 17 Cal.3d 24 (otherwise known as the Kelly-Frye rule). The Kelly-Frye rule dictates that the admissibility of a new scientific technique depends on whether the technique has become “generally accepted” in the scientific community. This rule was routinely applied to exclude a wide variety of scientific evidence over the past 25 years. However, in Roberti v. Andy’s Termite & Pest Control, Inc. (2003) 113 Cal.App.4th 893, the court held that the application of the Kelly-Frye test should be limited to new scientific techniques and, therefore, generally was not a proper basis for exclusion of medical causation testimony. The Roberti decision forced a renewed emphasis on Evidence Code Section 801(b) as a means of determining the admissibility of expert opinion testimony.

The LLC decision is the first published opinion to broadly address the admissibility of expert opinion testimony since Roberti. The decision invites trial courts to carefully scrutinize the basis of an expert’s opinion to determine whether the testimony should be admitted. In this respect, the decision reemphasizes the gate-keeping role of trial courts faced with arguably unreliable expert testimony.

The relevance of the LLC decision is in no way limited to toxic tort cases. Evidence Code Section 801(b) applies to expert opinion testimony in all civil and criminal cases. While the majority of the court’s opinion in LLC discuss scientific issues frequently arising in toxic tort cases, the court’s call for strict scrutiny of expert testimony under Section 801(b) applies equally to all cases. Thus, while “junk science” surely is more prevalent in toxic tort cases than other cases, the LLC decision will be the focus of future motions to exclude expert testimony in any case where the basis for an expert’s opinion appears unreliable.

Class Action Reform Legislation Passed By Congress

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The Class Action Fairness Act of 2005 has overcome its last Congressional hurdle and will shortly be sent to the President for his signature. On February 17, 2005, the House took up the Senate’s version of the class action reform bill, Senate Bill 5, and passed it by a vote of 279 – 149. Under a previous agreement with Senate leaders, House leadership had promised to fast track the bill if it was received unamended from the Senate. After the Senate fulfilled its part of the agreement, House supporters of class action reform defeated a substitute bill offered by reform opponents and passed Senate Bill 5 without amendments. Relentless lobbying from class action reform advocates and favorable political conditions – strong Republican backing in Congress and from the White House, bipartisan support in both chambers, and cooperation between the House and Senate – formed the right combination during this session to enact reform.

The amendments in the substitute bill mirrored some of the amendments that were defeated by the Senate last week, including a carve-out for civil rights and wage-and-hour class actions, a carve-out for cases brought by state Attorneys General, and a prohibition against denying certification because the law of more than one state applies to the class. Other amendments would have excluded mass torts from the bill, prohibited domestic corporations that reincorporated abroad for the purpose of avoiding taxes and liability from benefiting from the bill, and limited the court’s ability to seal records.

Now that the bill has been passed by both chambers and lacks only the President’s signature before becoming law, it is expected that the number of class action filings in state courts will surge slightly, as plaintiffs’ attorneys wishing to avoid federal jurisdiction will act quickly to file in state court. Any class actions filed after the bill has been signed into law will be subject to the provisions of the new law.

Second Appellate District Clarifies Two-year Statute of Limitations on Personal Injury Claims

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By: Michael J. Nunez

Holding: On April 14, 2005, the Court of Appeal held that the two-year statue of limitations period for personal injury actions applied to any personal injury claims that had not already expired on January 1, 2003, when the statute of limitations period was extended from one to two years.

Application: Prior to this ruling, an argument could have been made that the two-year statute of limitation (C.C.P. section 335.1), did not apply retroactively to revive claims that would have been time barred under the former one-year limitation (section 340(3)), at the time the complaint was filed.

Example: An accident occurs on December 15, 2002 and the action is not filed until April 6, 2004. Under former section 340(3), the action would have been time barred on April 6, 2004 because it was filed 16 months after the accident. In arguing against applying new section 335.1 to this scenario, it might have been asserted that the appropriate statute of limitations to utilize would be the statute in existence at the time of the accident. At the time of the accident, December 15, 2002, former section 340(3) was in effect. To utilize the new section 335.1 in April 2004 to validate this claim might have been construed as retroactively applying section 335.1 to an already time barred claim.

The court of appeals clarified that neither the date of the accident, nor the date of filing is the critical date in this statute of limitations analysis. Rather, the date of enactment of section 335.1, January 1, 2003, is the determinative date in this analysis. If a plaintiff’s claim was not already time barred by the one-year statute of limitations on January 1, 2003, plaintiffs are entitled to the two-year statute of limitations to bring claims for personal injuries.

Thus, accidents occurring on or after January 1, 2002 are entitled to a two-year statute of limitations and accidents occurring on or before December 31, 2001 are subject to the one-year statute of limitations.

Facts: The case arose from a slip and fall incident on December 15, 2002 at a May Department Store. Sixteen months after the accident, plaintiff filed a complaint for damages on April 6, 2004 alleging negligence and a willful failure to warn under Civil Code section 846. Defendant demurrered to the complaint on the grounds that the action was time barred under the one-year statute of limitations under former section 340(3).

Plaintiff opposed the demurrer and argued that the two-year statute of limitations in new section 335.1 governed her claim because her action was not time barred as of the date section 335.1 became effective.

The trial court sustained the demurrer without leave to amend, ruling that plaintiff’s action was filed more than one year after she sustained her injuries and that section 335.1 did not apply retroactively to her action.

The court of appeals reversed.

Analysis: The court of appeals recited and relied upon several cases in reaching its decision. First, “A basic cannon of statutory interpretation is that statutes do not operate retrospectively unless the legislature plainly intended them to do so.” Citing, Western Security Bank v. Superior Court, 15 Cal.4th 232, 243 (1997) “”[W]here the application of a new or amended statute of limitations would have the effect of reviving an already time barred claim, the general rule against retroactive application of the statute is applicable in the absence of a clear indication of legislative intent to the contrary.” Moore v. State Bd. of Control, 112 Cal.App.4th 371, 378 379; 5 Cal.Rptr.3d 116 (2003).

A new statute that enlarges a statutory limitations period applies to actions that are not already barred by the original limitations period at the time the new statute goes into effect. Douglas Aircraft Co. v. Cranston, 58 Cal.2d 462, 465, 24 Cal.Rptr. 851 (1962); Mudd v. McColgan, 30 Cal.2d 463, 468, 183 P.2d 10 (1947); Thompson v. City of Shasta Lake, 314 F .Supp.2d 1017, 1024 (E.D.Cal.2004). The newly enlarged limitations period will apply retroactively, reviving actions that are already time barred, only if the Legislature expressly stated such an intent. Douglas, supra, 58 Cal.2d at p. 465; Thompson, supra, 314 F.Supp.2d at p. 1024. “These rules afford warning to potential defendants that until the statute of limitations has run it may be extended, whereas after it has run, they may rely upon it in conducting their affairs.” Douglas, supra, 58 Cal.2d at p. 465.

Applying this authority to the facts of this case, the court found that when plaintiff allegedly sustained her injuries on December 15, 2002, the statute of limitations then in effect for personal injuries was one year. C.C.P. §340(3). By legislation which became effective on January 1, 2003, the statute of limitations in effect when plaintiff filed her action on April 6, 2004 was two years. The one year statute of limitations (§340(3)) had not barred her action at the time the two year statute of limitations (§ 335.1) became effective. Thus, plaintiff’s action was governed by the two year statute of limitations in effect when she filed her action (§ 335.1) rather than the one year statute of limitations in effect at the time she allegedly sustained her injuries (§ 340, subd. (3)).

Basis for rejecting defense position: Citing Krupnick v. Duke Energy Morrow Bay, 115 Cal.App.4th 1026; 9 Cal.Rptr.3d 767 (2004), defendant argued that section 335.1 has no retroactive application to plaintiff’s action. The court commented that defendant correctly noted that when the Legislature enacted the two year statute of limitations under section 335.1, it made its application retroactive only to actions brought by the victims of the terrorist attacks of September 11, 2001. (Stats.2002, C. 448, § 1, subds.(c), (d); Code Civ. Proc., §340.10(a) & (b); Krupnick, supra, 115 Cal.App.4th at p. 1029, 9 Cal.Rptr.3d 767.) Defendant argued that by expressly making 335.1 retroactive to actions brought by victims of the terrorist attacks of September 11, 2001, the Legislature intended to exclude all other retroactive applications of the statute. In rejecting this argument that court observed that “[a]pplication of section 335.1 to this case, however, is not, as defendant argues, a matter of retroactivity, and, thus, defendant’s reliance on Krupnick, is unavailing.”

In Krupnick, the plaintiff contended that section 335.1 “operated retroactively to revive his lapsed claim.” Krupnick, supra, 115 Cal.App.4th at p. 1028. Plaintiff alleged he sustained injuries on January 26, 2001. Id . at p. 1027. He did not file his action until January 8, 2003. Ibid. Under the one year statute of limitations applicable when he sustained his injuries, he had only until January 26, 2002 to file his complaint. Id. at p. 1028. The court held that section 335.1 did not apply to plaintiff’s action because it was time barred prior to the January 1, 2003 effective date of the new two year statute, and section 335.1 did not operate retroactively to revive his already time barred action. Id. at pp. 1028 1029.

Again, under the facts of this case, plaintiff allegedly sustained her injuries on December 15, 2002, and her claim was but 17 days old and not time barred when section 335.1 became effective on January 1, 2003. Thus, unlike the plaintiff in Krupnick or the victims of the terrorist attacks of September 11, 2001 whose claims would have been barred as of September 11, 2002 (i.e., before section 335.1 became effective) plaintiff’s action did not have to be revived through retroactive application of section 335.1.

Defendant also relied on Abreu v. Ramirez, 284 F.Supp.2d 1250, 1255 (C.D.Cal.2003), for the proposition that the “statute of limitations in effect at the time a claim accrues is the limitation applicable to that claim for all time.” In Abreu, a magistrate judge held that the plaintiff did not benefit from the enlarged two year limitations period in section 335 .1 because his claim accrued before January 1, 2003. Ibid. In rejecting this case the court stated that “Abreu is not persuasive authority. The court in Abreu failed to consider the holdings in Douglas, supra, 58 Cal.2d 462, 24 Cal.Rptr. 851, 374 P.2d 819 and Mudd, supra, 30 Cal.2d 463, 183 P.2d 10 that a new statute that enlarges a statutory limitations period applies to actions that are not already barred by the original limitations period at the time the new statute goes into effect (Douglas, supra, 58 Cal.2d at p. 465, 24 Cal.Rptr. 851, 374 P.2d 819; Mudd, supra, 30 Cal.2d at p. 468, 183 P.2d 10), and its holding is inconsistent with those cases.

California Legislature Mandates Sexual Harassment Training

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As of January 1, 2005, Assembly Bill 1825, Section 12950.1 has been added to the California Government Code, which will require California employers with 50 or more employees to provide training and education regarding sexual harassment to all supervisory employees.

What Training is Required?

• At least two hours of sexual harassment training for all supervisory employees.
• Includes supervisors employed as of July 1, 2005 and new supervisors within six months of hire.
• Individuals promoted to supervisory positions must be trained within six months of promotion.
• Follow-up training once every two years for all supervisory employees beginning January 1, 2006.
• Sexual Harassment training must include: “the prohibition against and the prevention and correction of sexual harassment and the remedies available to victims of sexual harassment . . . ”

Under California’s Fair Employment Housing Act (FEHA and codified as Government Code §12900 et seq.) a supervisor is defined as:
“any individual having the authority in the interest of the employer to hire, transfer, suspend, layoff, recall, promote, discharge, assign, reward, or discipline other employees, or the responsibility to direct them, or to adjust their grievances, or effectively to recommend that action, if, in connection with the foregoing, the exercise of that authority is not of a merely routing or clerical nature, but requires the use of independent judgment.” Government Code §12926(r).

Accordingly, since the definition of “supervisor” is rather broad, most employees will require training under this new law. Realistically, an employer should routinely err on the side of caution and consider an employee as a supervisor for purposes of this new statute if there is a question concerning his or her status as a supervisor.

Most importantly, the new law requires training to be provided by ” . . . trainers or educators with knowledge and expertise in the prevention of harassment, discrimination and retaliation.” Strangely, the statute does not mandate how many hours of training employers must provide after January 1, 2006. However, employers should be safe if guided by the statute’s language specifying at least two hours of training for supervisors employed as of July 1, 2005 and continue to provide at least two hours of training to supervisors every two years beginning January 1, 2006.

What Happens If An Employer Does Not Comply?

The short answer is that the employer will receive an order requiring compliance. Currently, there are no fines or other civil or criminal penalty for failure to comply with the statute. Moreover, Subsection (d) of the statute provides that a ” . . . claim that the training did not reach a particular individual or individuals shall not in of itself result in the imposition of liability of any employer . . . in any action alleging sexual harassment.”

This means, for example, that if a company is sued in a civil action for sexual harassment, the company cannot be found liable for sexual harassment solely due to noncompliance with the training required by the new statute. However, employers, their attorneys and insurance carriers must beware as the lack of compliance will certainly be introduced prominently into evidence at trial in a sexual harassment lawsuit by any competent plaintiff attorney. The fact that a company fails to comply with this simple training requirement as required by law, will be extremely damaging at the time of trial. Unfortunately for employers, since the law does not act as a sword for a sexually harassed employee, it also does not act as a shield. The statute provides that it is not a defense for an employer to claim compliance and thereby avoid liability. Simply put, compliance, or the lack thereof, with the training requirements will be considered as evidence in an action for sexual harassment, but will not, by itself, either impose or preclude the imposition of liability. Any defense counsel would be more confident in proceeding to trial with a client who has complied with applicable state laws. Failure to comply with this simple mandate may prove to be the proverbial “last straw” for a jury which could result in returning a large plaintiff verdict. By the same token, a company that has complied with the statute is not only less likely to be found liable in a sexual harassment lawsuit, but damages awarded to a plaintiff are likely to be less as compared to those employers who have not complied.

Conclusion

California has become more sensitive to issues concerning the work place and employers are faced with increasing regulatory demands as a result. Fortunately, Government Code §12950.1 requires training that is not overly burdensome. Employers should realize that the requirements now mandated are designed to be minimum standards. In fact, the statutes specifically states that the statute is not intended to discourage or relieve any employer from providing for additional education. Ultimately, it is the employer’s responsibility under State law to take all reasonable steps necessary to prevent and correct harassment and discrimination. Employers can rest assured that the one which does not take such steps will be undressed in front of a jury in the next sexual harassment lawsuit.

Violations Of CAL-OSHA Regulations Admissible In A Third Party Action

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By: Edmund G. Farrell, III

The California Supreme court has issued its opinion in the long-awaited case of Elsner v. Uveges which examined the question of whether or not Cal-Osha violations are admissible in negligence actions against third parties. The court concluded that amendments to the Labor Code in 1999, permit such evidence in cases where the injury-causing event occured after January 1, 2000 and can be the basis of a negligence per se claim.

To read the full opinion please visit:
www.courtinfo.ca.gov/opinions/documents/S113799.PDF

Application of Prop 51 in Product Liability Cases

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By: Friedrich W. Seitz and Tina D. Varjian

On October 14, 2004, Murchison & Cumming hosted the first annual Fall Symposium entitled “Product Liability: Strategies For Success.” The following is an excerpt from the seminar handout materials.

On June 3, 1986, California passed Proposition 51 which is also known as The Fair Responsibility Act of 1986 and is codified in Civil Code §§ 1431-1431.5.  Civil Code § 1431.2, was intended to make the tort system more equitable by partially eliminating the “deep pocket rule” of joint liability, which sometimes required a tortfeasor who might only be minimally culpable to bear all of the plaintiff’s damages. Hock v. Allied-Signal, Inc. 24, Cal.App.4th 48 (1994).

Civil Code § 1431.2(a) provides:

“In any action for personal injury, property damage, or wrongful death, based upon principles of comparative fault, the liability of each defendant for non-economic damages shall be several only and shall not be joint. Each defendant shall be liable only for the amount of non-economic damages allocated to that defendant in direct proportion to that defendant’s percentage of fault, and a separate judgment shall be rendered against that defendant for that amount.”

In other words, the Fair Responsibility Act preserved the traditional joint and several liability doctrine with respect to a plaintiff’s economic damages, but with respect to noneconomic damages adopted a rule of several liability, providing that each defendant is liable for only that portion of the plaintiff’s noneconomic damages that is commensurate with that defendant’s degree of fault for the injury. 14 Cal Jur 3d (Part 2) § 102 p. 170…

Significant to note, where a manufacturer is sued under a theory of strict products liability and another person or entity is sued for separate acts of negligence and both the defect of the product and the negligent act results in plaintiff’s injury -it appears that Proposition 51 is applicable -although no case is directly on point.  Proposition 51 applies to actions based upon principles of comparative fault and there is long-standing Supreme Court authority allocating fault between strictly liable and negligent defendants. Arena v. Owens-Corning Fiberglas Corp., 63 Cal.App.4th 1178, 1193 (1998) citing Daly v. General Motors Corp., 20 Cal.3d 725 (1978) and Safeway Stores, Inc. v. Nest-Kart, 21 Cal.3d 322 (1978). Daly court allowed apportionment of fault between a negligent plaintiff and a strictly liable defendant. Safeway court applied comparative fault principles to a strictly liable defendant and a negligent defendant.

Reporting Requirements Under the Tread Act and the Consumer Product Safety Act

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On October 14, 2004, Murchison & Cumming hosted the first annual Fall Symposium entitled “Product Liability: Strategies For Success.” The following is an excerpt from the seminar handout materials. 

I. Reporting Requirements Under The TREAD Act

On November 1, 2000, Congress enacted the TREAD (Transportation Recall Enhancement, Accountability, and Documentation Act) Act, codified at 49 U.S.C. § 30101 et seq. (2003).  The TREAD Act addresses several issues raised by the Ford/Firestone tire recall, such as defect reporting requirements, see 49 U.S.C. § 30166, enforcement measures, see 49 U.S.C. §§ 30165, 30170, and “significantly under inflated tires,” see TREAD Act § 13.

Regarding defect reporting requirements, the focus of this memorandum, the TREAD Act requires automakers to notify the Secretary of Transportation within five days of discovery of a defect or the need for a safety recall.  See 49 C.F.R. § 573.6.  This requirement applies to related recalls in foreign countries as well.  See 49 U.S.C. § 30166(l)(1),(2).

The Act requires dynamic rollover tests for SUVs and trucks and tougher standards in regulation of design and construction of child safety seats, specifically to side impact and head injuries.  See 49 C.F.R. § 572.1 et seq.

The Act also establishes civil and criminal penalties for failure to comply with its regulations.  Civil penalties may be as high as $5,000 for each violation, with a maximum of $15 million per day for accumulated daily violations.  See 49 U.S.C. § 30165(a)(2).  This is a risk some manufacturers may not be willing to take.

II.Reporting Requirements Under The Consumer Product Safety Act

The Consumer Product Safety Act, 15 U.S.C. §§ 2051-2084, initially adopted in 1972, sets forth consumer product safety rules, including product safety standards and warning requirements.  The Act established the Consumer Product Safety Commission (“CPSC”), an independent federal regulatory agency with a wide range of powers over consumer products, including authority to adopt and implement product safety standards, ban the sale of unsafe products, and require companies to notify consumers of product hazards
Section 15(b) of the Consumer Product Safety Act, 15 U.S.C. § 2064(b), requires manufacturers, importers, distributors, and retailers of consumer products to notify the CPSC if they obtain information that reasonably supports the conclusion that a product (1) fails to comply with a consumer product safety standard established by the CPSC or a voluntary consumer product safety standard upon which the CPSC has relied under section 9 of the Act; (2) contains a defect which could create a “substantial product hazard”; or (3) creates an unreasonable risk of serious injury or death.

The CPSC has recommended that, at a minimum, a report is required if a jury or court has determined in a product case involving serious injury or death that a product presents an unreasonable risk or is unreasonably dangerous for its intended use.  In addition, the Act bans certain hazardous products for use by consumers, including Butyl Nitrite and Isopropal Nitrite and other nitrites.  See 15 U.S.C. §§ 2057a, 2057b…

Fair Labor Standards Act: New Overtime Rules Take Effect

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By: Michael J. Nunez

Changes to the 1938 Fair Labor Standards Act, referred to by the Labor Department as the “FairPay” rules, went into effect on August 23, 2004. The law comes after decades of lobbying by business groups facing major lawsuits about overtime. Among those are: Wal-Mart, Starbucks, Radio Shack, Rite Aid and Bank of America. The Labor Department’s objective in advancing the new rules is an attempt to stop needless litigation by clarifying the rules on who’s entitled to overtime.

The revision of the Fair Labor Standards Act is expected to result in overtime wages for 1.3 million low-income, white-collar American workers who didn’t have it before. And it is expected to cause 107,000 highly-compensated workers to lose their rights to it.

The federal overtime laws have limited application to California. Employees of private companies are governed by California’s more restrictive labor laws. Yet, an estimated 2.3 million federal, state and local government employees in the state are subject to the federal law, although many of them are covered by union contracts that supersede it.

Overtime 101

The 1938 Fair Labor Standards Act set the current standards for pay and overtime and covers about 115 million workers. That law requires employers to pay no less than minimum wage $5.15/hour for all hours worked. For every hour worked above 40 hours in single workweek, the law mandates that employers pay one-and-a-half times the regular rate of pay. But, that law has always had exemptions for certain professions and classes of workers (generally, salaried workers in executive, administrative, professional, outside sales and some computer jobs) – – meaning some employers do not have to pay time- and-a-half.

Who Gains Overtime Under New Law

Workers earning $23,660 or below automatically must receive overtime now. That raises the income bar. Previously, overtime was mandated only for workers who earned $8,060 or less.

Who Could Lose Overtime Under New Law

White-collar workers earning $100,000 or more a year. In addition, people from a number of professions identified as generally exempt from overtime: pharmacists, dental hygienists, physician assistants, accountants, chefs, athletic trainers with degrees or specialized training, computer system analysts, programmers and software engineers, funeral directors, embalmers, journalists, financial services industry workers, insurance claims adjusters, human resource managers, management consultants, executive and administrative assistants, purchasing agents and registered or certified medical technologists. Employers are told to make decisions on a case-by-case basis.

Nurses

Registered nurses who are paid on an hourly basis should receive overtime. Those who are paid on a salaried basis, earning more than $455 a week, no longer have to be paid overtime under federal law.

Emergency Workers and Unions

Emergency workers (including police, firefighters and rescue personnel) will continue to get overtime. The new law clearly states those workers cannot be exempted from overtime. Union workers covered by contracts will not be affected by the change. But organizers say the new rules will make bargaining more difficult when contracts come up for renewal.