California Appellate Law Blog

California Appellate Law Blog

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Attorney Fees Provision May Be Enforced Even If the Contract Is Deemed Void

Posted in Appellate Practice, Recent Decisions

In a recent opinion, the California Court of Appeal held that a party could be liable for the prevailing party’s attorney fees and costs even though the underlying contracts were deemed void and unenforceable.

In California-American Water Company v. Marina Coast Water District, 2017 WL 6397685, Marina Coast Water District (“Marina”) challenged the trial court’s order awarding attorney fees and costs to the respondents based on contracts that the court deemed void. The contracts provided that the prevailing party of any action or proceeding in any way arising from their agreement would be entitled to an award of attorney fees and costs. Marina contended that California Civil Code section 1717 authorizes a fee award only in cases involving an “action on contract,” but that Section 1717 could not apply because the contracts at issue had been declared void.

Section 1717, subdivision (a) provides that in an action on a contract that specifically provides for recovery of attorney fees, “the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.” (Emphasis added.)

The First Appellate District admitted some “intuitive appeal” to Marina’s argument that a contractual attorney fees provision could not apply if the contract was deemed void from its inception. However, the Court ultimately concluded Marina’s argument to be unpersuasive.

The Court’s conclusion was based upon Santisas v. Goodin (1998) 17 Cal.4th 599. In that case, the California Supreme Court stated that the “primary purpose of section 1717 is to ensure mutuality of remedy for attorney fee claims under contractual attorney fee provisions.” (Santisas, supra, 17 Cal.4th at p. 610.) The Santisas Court explained that the section safeguards mutuality of remedy in two circumstances: (1) when a contract expressly provides the right to collect attorney fees to one party but not the other; and (2) when a person sued on a contract containing a provision for attorney fees to the prevailing party defends the litigation by successfully arguing the inapplicability, invalidity, unenforceability, or nonexistence of the same contract. (Id. at p. 611.) In both scenarios, absent Section 1717, the right to attorney fees would be effectively unilateral. To ensure mutuality of remedy, when a party litigant defends a contract claim by establishing that the contract is invalid, inapplicable, unenforceable, or nonexistent, section 1717 permits that party’s recovery of attorney fees whenever the opposing parties would have been entitled to attorney fees under the contract had they prevailed. (Ibid.)

In other words, had Marina prevailed in its effort to enforce the contracts, no one would dispute Marina’s entitlement to recover its attorney fees. Because the respondents successfully argued that the parties’ contracts were void, the mutuality of remedy doctrine required that respondents have the right to recover their attorney fees.

The Court noted that a different rule applies under section 1717 if a contract is held unenforceable because of illegality. However, the Court concluded that those concerns were inapplicable because the subject matter of Marina’s contracts was not illegal.

California-American Water Company serves as a reminder that a contractual attorney fees provision will survive a finding that the contract is void for reasons other than illegality.

Are remands to administrative agencies always immediately appealable? Not quite yet.

Posted in Appellate Practice, Appellate Procedure

In Dhillon v. John Muir Health, 2017 Cal. LEXIS 3649, the Supreme Court of California shed some light on the resolution of the long-standing conflict concerning the appealability of a trial court’s order on a petition for writ of administrative mandamus remanding for further proceedings before the administrative body.

Previously, a line of decisions held that a trial court’s order on administrative mandamus remanding the matter for further administrative proceedings is not an appealable final judgment.  (Gillis v. Dental Bd. of California (2012) 206 Cal.App.4th 311, 318; Village Trailer Park, Inc. v. Santa Monica Rent Control Bd. (2002) 101 Cal.App.4th 1133, 1139–1140; Bolsa Chica Land Trust v. Superior Court (1999) 71 Cal.App.4th 493, 501–502; Board of Dental Examiners v. Superior Court (1998) 66 Cal.App.4th 1424, 1430.)  However, in each of these cases, the Court of Appeal elected to treat the appeal as a petition for extraordinary writ and considered the matter on the merits, so the determination of whether there was an appealable final judgment did not affect the result of the cases.

On the other hand, another line of decisions held that a trial court’s order on administrative mandamus remanding the matter for further administrative proceedings is appealable.  (Quintanar v. County of Riverside (2014) 230 Cal.App.4th 1226, 1232; Carson Gardens, L.L.C. v. City of Carson Mobilehome Park Rental Review Bd. (2006) 135 Cal.App.4th 856, 866; City of Carmel-by-the-Sea v. Board of Supervisors (1982) 137 Cal. App. 3d 964, 970; Carroll v. Civil Service Commission (1970) 11 Cal. App. 3d 727, 733.)

In Dhillon, Dr. Dhillon brought action against a hospital operator, John Muir Health, for writ of administrative mandate challenging the suspension of his clinical privileges.  The Superior Court granted the writ petition in part and ordered John Muir Health to conduct a hearing.  John Muir Health filed a notice of appeal. The Court of Appeal dismissed the appeal, holding that “[t]he superior court’s order remanding the matter to John Muir Health is not a final, appealable order.”  John Muir Health petitioned for review, and the Supreme Court granted review.

Instead of answering “the broad question whether remands to administrative agencies are always immediately appealable,” the Dhillon court focused on the nature of the particular remand, and concluded that the superior court’s order partially granting Dr. Dhillon’s writ petition was an appealable final judgment.  Citing to two other Supreme Court cases, the Dhillon court held that “where no issue is left for future consideration except the fact of compliance or noncompliance with the terms of the first decree, that decree is final, but where anything further in the nature of judicial action on the part of the court is essential to a final determination of the rights of the parties, the decree is interlocutory.”  The Dhillon court reasoned that the trial court’s order either granted or denied each of Dr. Dhillon’s claims and thus did not reserve jurisdiction to consider any issues. The Dhillon court reversed the dismissal of John Muir Health’s appeal and remanded the matter to the Court of Appeal with directions to reinstate the appeal because the trial court’s order was a final judgment.

While the Dhillon court did not hold that all remands to administrative agencies are immediately appealable, the Dhillon holding creates a case-by-case analysis rule such that it is up to the parties to argue that the trial court did not reserve jurisdiction to consider any issues, and hence the trial court’s remand to the administrative agencies was a final judgment and was appealable.

Don’t Assume That the Assets of the Receivership Estate Will Be Used to Pay for the Receivership

Posted in Appellate Practice, Appellate Procedure, Recent Decisions

Parties (typically plaintiffs) may request the appointment of a receiver in cases involving disputes over corporate assets or interests in real estate.  But the appointment of a receiver may have unexpected consequences for the party seeking appointment.

The receiver is an agent of the court and not of any party, and as such: (1) is neutral; (2) acts for the benefit of all who may have an interest in the receivership property; and (3) holds assets for the court and not for any party.  (California Rules of Court, rule 3.1179, subd. (a).)  A receiver is obligated to preserve and manage the property during the course of the receivership.  (Title Ins. & Trust Co. v. Calif. Etc. Co. (1911) 159 Cal. 484, 492.)  A receiver can be quite expensive.  The receiver is entitled to hire counsel, accountants, and other professionals required for the receiver to carry out the receiver’s duties.  Generally speaking, the receiver’s fee is often paid by the receivership estate.  In other words, the assets held by the receiver are used to pay the receiver and those hired to assist the receiver.

That all sounds good, except that the Fourth District Court of Appeal recently held that a trial court may require a party, rather than the receivership estate, to pay the receiver’s fee, even long after the issuance of the final accounting order.

In Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership (2017) 8 Cal.App.5th 910, the Court held that while the final accounting order is an appealable order, “the final accounting represents a definitive determination only as to the matters presented therein,” i.e., whether the receiver exceeded his or her authority, caused injury to others, or acted negligently in operating the receivership estate.  However, the Court held that the final accounting is not the final time the parties can question who is ultimately responsible for the court-appointed receiver’s fees.  The Court reasoned that the issue is not an integral part of the receiver’s final accounting.  And there are many factors a trial court should consider when determining whether the obligation to pay for the receivership should be the estate or be shifted to one or more of the parties.

Some of the factors the Court discussed include whether plaintiff or defendant most benefited from the receivership, whether the defendant acquiesced in the receivership, whether the property of a defendant was taken from his or her possession by the appointment of a receiver against his consent under an erroneous order which the defendant successfully resisted, whether it would manifestly be inequitable and unjust to throw upon the defendant or his property the burden of the litigation instituted by the plaintiff without right or reason, and whether the parties who procured the appointment of a receiver have any interest in the subject matter of the suit.

So, before asking the court for a receivership, parties should not assume that the assets of the receivership estate will necessarily be used to pay for the receivership.  When weighing the benefits and burdens of a receivership, parties should consider the possibility that a party may have to pay out-of-pocket for the receiver’s fees.

“Do-Over” Arbitrations—Appeals Without Appellate Rules?

Posted in Appellate Practice, Appellate Procedure, Civil Procedure

Are the commonly accepted features of arbitration—speed and finality—being watered down by rules permitting a second arbitration that expose parties to delays and significantly increased expenses?

In a recently published decision, Condon v. Daland Nissan, Inc., 6 Cal.App.5th 263, the First District Court of Appeal held that an arbitration provider’s lack of appellate rules was no impediment to providing a new arbitration because the arbitration provision permits a “do-over.” It appears that the benefits of arbitration that we once believed were true—namely, cost-effectiveness and quick resolution of disputes—may no longer be true in certain situations. Instead, parties may now bear the risk of a potential “do-over” arbitration instead of the protection of well-established appellate rules and procedures applicable to arbitrations.

Condon involved a sales contract with an arbitration provision that stated an arbitration award would be final unless “the arbitrator’s award for a party is $0 or against a party is in excess of $100,000, or includes an award of injunctive relief against a party,” in which case “that party may request a new arbitration under the rules of the arbitration organization by a three-arbitrator panel.” The arbitrator found for the plaintiff and awarded costs and fees of $180,175.34. Because the final award exceeded $100,000, defendants invoked the “do-over” provision and requested the arbitrator provider to proceed with a new arbitration. Plaintiff objected, so the arbitration provider refused to conduct a new arbitration stating that it lacked authority to resolve the parties’ disagreement over whether a new arbitration was proper. Plaintiff then petitioned to confirm the arbitration award.

In confirming the arbitration award and denying defendants’ request for a second arbitration, the trial court explained that one of the bases for its ruling was the arbitration provision did not provide for when the arbitration organization selected by the parties does not have a process by which a new arbitration may be heard before a three-arbitrator panel.

The Court of Appeal reversed. Recognizing that the parties did not dispute that the selected arbitration provider had no appellate rules, the Court of Appeal held that whether or not the arbitration provider had specialized appellate rules was irrelevant to the arbitration dispute. Rather, the arbitration provision authorized, at a party’s request, a “new arbitration under the rules of the arbitration organization by a three-arbitrator panel.”

Perhaps we should think twice before giving up the protection that a court system has to offer, including the right to appeal, in light of the rising costs of arbitration and the possibility of “do-over” arbitrations.

California’s Anti-SLAPP Statute Untangled

Posted in Appellate Practice, Appellate Procedure, Civil Procedure

On August 1 the California Supreme Court finally resolved a split of authority among California’s appellate courts over operation of the anti-SLAPP statute, Code of Civil Procedure section 425.16, in the mixed cause of action context. For over a decade, the appellate courts have disagreed as to how a plaintiff can satisfy the reasonable probability of success requirement when claims alleging both protected and unprotected activity are included within a single cause of action. Some appellate courts concluded that as long as the plaintiff demonstrated a reasonable probability of success on any part of the claim, including just the allegations of unprotected activity, the SLAPP motion had to be denied. (See Mann v. Quality Old Time Service, Inc. (2004) 120 Cal.App.4th 90.) Others concluded that the plaintiff must focus upon and respond to the claims of protected activity, and failure to demonstrate a reasonable probability of success as to those claims meant the SLAPP motion should be granted and those specific claims stricken. (See Wallace v. McCubbin (2011) 196 Cal.App.4th 1169.) In Baral v. Schnitt_ 2016 Cal. LEXIS 6383, a unanimous Court emphatically sided with Wallace and rejected Mann.

As is frequently the case, Baral involved a complaint alleging protected and unprotected activity under the same cause of action. When the defendant moved to strike the claims of protected activity, the plaintiff demonstrated a reasonable probability of success on the allegations of unprotected activity and the trial court denied the SLAPP motion. The Court of Appeal affirmed, holding that under Mann, if the plaintiff demonstrates a reasonable probability of success on “any part of its claim,” then the SLAPP motion is denied because the cause of action is not frivolous.

The Supreme Court minced no words in overruling Mann. “Mann’s reading of section 425.16(b) does not withstand scrutiny.” “[Mann’s] refusal to permit anti-SLAPP motions to reach distinct claims within pleaded counts undermines the central purpose of the statute: screening out meritless claims … .” Mann’s construction of the anti-SLAPP statute “reward[s] artful pleading by ignoring such [protected activity] claims if they are mixed with assertions of unprotected activity.”

So at long last, all of the courts in California should be on the same page going forward dealing with SLAPP motions and the mixed cause of action. As the high court emphasized, “when relief is sought based on allegations of both protected and unprotected activity, the unprotected activity is disregarded at this stage.” And if the defendant succeeds on the first prong of the anti-SLAPP statute, demonstrating claims targeting protected activity, then the burden shifts to the plaintiff to demonstrate that “each challenged claim based on protected activity is legally sufficient and factually substantiated.” “If not, the claim is stricken.”

Prevailing Party Costs Under CCP Section 1032

Posted in Appellate Practice, Appellate Procedure, Civil Procedure

The California Supreme Court recently held that a plaintiff who obtains a monetary settlement and dismisses the action is the prevailing party entitled to statutory costs under Code of Civil Procedure section 1032. DeSaulles v. Community Hospital of the Monterey Peninsula 2016 Cal LEXIS 1281. Most often, parties reaching settlement will dispose of any costs issues as part of the settlement agreement. Therefore, DeSaulles should only come into play when for whatever reason, costs are not resolved in the settlement and entitlement to costs is then litigated.

In DeSaulles, after being stripped of other causes of action by prior motions, the plaintiff settled her remaining causes of action for the sum of $23,500 in return for dismissal with prejudice of those claims. The settlement reserved plaintiff’s right to appeal the previously dismissed causes of action, and expressly reserved resolution of costs until completion of that appeal. After plaintiff lost the appeal, plaintiff and defendant each moved for statutory costs. Plaintiff claimed to be the statutory “party with a net monetary recovery” as set forth in section 1032(a)(4). Defendant claimed entitlement to costs under that same provision as “a defendant in whose favor a dismissal is entered.”

As the Supreme Court put it, the “question in this case is whether a plaintiff who voluntarily dismisses an action after entering into a monetary settlement is a prevailing party under section 1032 … .” Despite the question presented, Justice Goodwin H. Liu, writing for the majority, began the analysis by answering a different question, “first address[ing] whether a dismissal obtained in exchange for a monetary settlement may be considered a dismissal in a defendant’s favor” under section 1032. To answer that question, the majority looked not so much to the language of the statute, but to the legislative history. Based on the purpose of the statute—imposing costs on the losing party—and the codification of prior case law, the Court concluded that “a defendant is not a prevailing party as a matter of right” when the plaintiff’s dismissal is obtained by way of a settlement payment.

The Court then turned to the question at hand, whether a plaintiff who obtains a monetary settlement—no matter the amount or the circumstances—is a statutory prevailing party under section 1032. Looking to the statute, the Court noted that it provides trial court discretion in only two situations: “[w]hen any party recovers other than monetary relief;” and “in situations other than as specified.” Having found “no reason why a monetary settlement cannot fit within the statutory definition of a ‘net monetary recovery,’” the Court concluded that settlement payments are among the “monetary relief” that precludes trial court discretion under the “other than monetary relief” prong. And having found that settlement payments qualify as a statutory net monetary recovery and that dismissals in conjunction with settlement are not “in a defendant’s favor,” the Court impliedly rejected the dissent’s premise that operation of the discretionary clause for “situations other than as specified” should control.

Justice Leondra R. Kruger, joined by Justice Kathryn M. Werdegar, dissented. To the dissent, the same assumptions and logic that led the majority to conclude that settlement payments are a net monetary recovery should have led it to conclude that a dismissal pursuant to settlement is still a dismissal for prevailing party purposes. The dissent contended that because the settlement-driven dismissal is still a dismissal in a defendant’s “favor,” these situations create two potential prevailing parties (the plaintiff with the net monetary recovery and the defendant with the dismissal), bringing into play the discretionary “situations other than as specified” clause. According to the dissent, in such situations, the trial court can evaluate all the circumstances and award costs as is just.

The majority made the bright line rule, but did the dissent have the better interpretation? Under the dissent’s analysis, a trial court could decide that a plaintiff obtaining only a nominal settlement despite numerous causes of action, large demands and lengthy litigation, is not entitled to costs. And just because a plaintiff is not entitled to costs does not mean that costs will automatically go to defendants. Under the discretionary provision, a trial court “may allow costs or not.” The dissent, however, failed to come to terms with the incongruity noted by the majority that under the dissent’s construction of the statute, a plaintiff who obtains a settlement that includes entry of judgment is a prevailing party entitled to costs as a matter of right, whereas a plaintiff who obtains the exact same settlement in return for a dismissal, is not.

This is one of those decisions that while creating a bright line rule, may have little application in the future. But in the event that costs are not being resolved under the terms of a settlement, DeSaulles makes it clear that no matter how nominal the settlement and despite the dismissal, the plaintiff will be entitled to costs.

High Court Reviews Protected Activity Under SLAPP Statute

Posted in Appellate Practice, Appellate Procedure, Civil Procedure, Recent Decisions

In yet another installment of the gravamen of the complaint conundrum, the California Supreme Court is currently reviewing Park v. Board of Trustees of California State University (2015) 239 Cal.App.4th 1258. The issue is whether the SLAPP statute, Code of Civil Procedure section 425.16, “authorize[s] a court to strike a cause of action in which the plaintiff challenges only the validity of an action taken by a public entity in an ‘official proceeding authorized by law’ (subd. (e)) but does not seek relief against any participant in that proceeding based on his or her protected communications?” Say what?

In Park, plaintiff sued a university alleging racial discrimination as grounds for denial of tenure. The university filed a SLAPP motion arguing protected conduct in the form of official proceedings. The trial court denied the SLAPP motion, finding that the gravamen of the complaint was not protected activity such as the tenure review process, but rather, discrimination against plaintiff based on race. Because it denied the motion for lack of protected activity, the trial court did not reach the probability of success on the merits. But the Court of Appeal reversed, holding that alleged discriminatory motivations aside, since all of the operative facts involved various tenure review processes and communications, the gravamen of the complaint was in fact claims arising from protected activity. The Court of Appeal remanded for the trial court to consider plaintiff’s probability of success on the merits, but the high court intervened.

Park is still in the briefing stage, but could be far-reaching, depending on how it is decided. The grant of review itself is curious, given the narrow holding in Park that all of the allegations involved protected activity, and the fact that neither court reached the reasonable probability of success prong. Following the statutory scheme, courts have stayed away from injecting motive into the protected activity analysis. And no matter how tempting, carving out exemptions for suits brought solely to challenge “the validity of an action taken by a public entity” is bound to generate yet more volumes of SLAPP decisions. Stay tuned!

SLAPP Statute and the Mixed Cause of Action

Posted in Appellate Practice, Appellate Procedure, Civil Procedure

The California Supreme Court is reviewing the mixed cause of action conundrum in Baral v. Schnitt (2015) 233 Cal.App.4th 1423. According to the Court’s docket, the issue is whether the SLAPP statute, Code of Civil Procedure section 425.16, “authorize[s] a trial court to excise allegations of activity protected under the statute when the cause of action also includes meritorious allegations based on activity that is not protected under the statute.” (See, e.g., Mann v. Quality Old Time Service, Inc. (2004) 120 Cal.App.4th 90 [in a mixed cause of action, if plaintiff demonstrates a probability of prevailing on “any part of its claim,” then the entire cause of action is left intact and the SLAPP motion is denied]; Cho v. Chang (2013) 219 Cal.App.4th 521 [within a mixed cause of action, a trial court may strike the allegations arising from protected activity, while allowing only the meritorious claims to proceed].)

In Baral, plaintiff’s breach of fiduciary duty cause of action included claims that defendant prevented plaintiff from participating in a pre-litigation audit of the company’s books. Defendant’s SLAPP motion sought to strike the allegations related to the audit on the grounds that the litigation privilege precluded such claims and argued that under the SLAPP statute, the trial court could excise parts of a cause of action. The trial court denied the motion, comparing the relief requested to an ordinary motion to strike and concluding that a SLAPP motion is not a similar procedure.

The Court of Appeal affirmed, holding that since plaintiff demonstrated a reasonable probability of prevailing with respect to the claims that did not involve protected activity, the SLAPP motion had to be denied in its entirety. Baral disagreed with Cho and other decisions striking the claims of protected activity from an otherwise meritorious cause of action. Baral joined cases holding that when it comes to the SLAPP statute, a cause of action stands or falls, it is not subject to amputation of its parts.

What will the Supreme Court decide? For a cogent analysis, see Justice Henry Needham’s majority opinion in Wallace v. McCubbin (2011) 196 Cal.App.4th 1169. As Wallace observes, allowing meritless claims based on protected activity to remain because the same cause of action is adorned with meritorious claims arising out of nonprotected activity defeats the purpose of the SLAPP statute. According to Wallace, the Mann approach is problematic because it enables a plaintiff to succeed in demonstrating a reasonable probability of prevailing on the merits without even addressing the allegations of protected activity. So long as any meritorious claim is found within the cause of action, the defendant whose SLAPP motion is denied is saddled with defending the allegations based on protected activity until such time as those claims can be summarily adjudicated. Yet, it was the inadequacy of the summary judgment mechanism for preventing the chilling of protected activity that led to the SLAPP statute’s enactment in the first place. For the contrary view that when any merit is found, the cause of action is not a SLAPP, see the concurrence in Wallace. The merits were fully briefed as of November, so stay tuned for high court resolution of yet another SLAPP conundrum.

Calculating Prejudgment Interest in Personal Injury Actions

Posted in Civil Procedure, Recent Decisions

Civil Code section 3291 provides that if the plaintiff in a personal injury action makes a Code of Civil Procedure section 998 offer to compromise which the defendant does not accept, and the plaintiff obtains a more favorable judgment, “the judgment” shall bear interest at the legal rate of 10 percent per annum calculated from the date of the plaintiff’s 998 offer until the judgment is satisfied. But what does “the judgment” include for purposes of calculating prejudgment interest in a personal injury action?  In a recently published decision, Bean v. Pacific Coast Elevator Corporation, Division One of the Fourth District Court of Appeal provided some answers to this question.

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Evidence of Immigration Status: Rarely Relevant, Almost Always Prejudicial

Posted in Civil Procedure, Recent Decisions

Now, more than ever, terms like “illegal alien,” “illegal immigrant,” and “undocumented worker” generate fear and controversy in our society.  And in the courtroom setting, the passionate responses inspired by “immigration” carry a significant danger of interfering with the fact finder’s duty to engage in reasoned deliberation.  So significant is this danger that courts across the country (including in California) are increasingly excluding evidence of a litigant’s immigration status—even if arguably relevant to an issue in the case—because it is too prejudicial to be heard by a jury.  In a recently published decision, Velasquez v. Centrome, Inc., the Second District Court of Appeal followed suit, recognizing “the strong danger of prejudice attendant with the disclosure of a party’s status as an undocumented immigrant.”

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