California Litigation Blog

California Litigation News & Practice Tips

A Plaintiff’s Right to Dismiss Is Not Absolute.

Posted in Attorneys' Fees, Contracts

A plaintiff has the right to voluntarily dismiss, with or without prejudice, all or any part of an action before the commencement of trial. Civ. Proc. § 581. A plaintiff that fears losing may simply dismiss his lawsuit to prevent the defendant from obtaining an award of contractual attorney’s fees. Civ. Code § 1717 ("[w]here an action has been voluntarily dismissed…there shall be no prevailing party.") But, plaintiff’s right to cut and run is not absolute.

In Bank of America v. Mitchell, 204 Cal.App.4th 1199 (2012), the trial court sustained defendant’s demurrer without leave to amend. Two days later, the bank filed a voluntary dismissal with prejudice. It then opposed defendant’s fee motion on the ground that there could be no prevailing party because it had dismissed the action with prejudice. However, the trial court vacated the bank’s dismissal and awarded attorney fees to the defendant. The court of appeal affirmed. By sustaining the demurrer without leave to amend, the trial court had decided the dispute on the merits. Therefore, the bank no longer had the right to voluntarily dismiss under § 581.


Avoid Waiving Your Opposition to Evidentiary Objections.

Posted in Evidence

Must a party oppose written evidentiary objections?

The recent decision of Tarle v. Kaiser Foundation Health Plan, Inc., 2012 WL 2529207, though not officially published, answers this question. The Court of Appeal in Tarle concluded that a plaintiff’s failure to oppose a defendant’s evidentiary objections to her declaration opposing defendant’s summary judgment motion waived her right to appeal the trial court’s order sustaining those objections.

The Court based its finding on the following principles: (i) a party cannot raise a new theory on appeal; (ii) the proponent of evidence must provide the court with the specific basis for its admissibility (e.g. the applicable hearsay exception, proper foundation, relevance, etc.); and (iii) the failure to offer the proper basis for the admissibility of evidence to the trial court before raising the issue on appeal is both inequitable and inefficient.

Opposition to evidentiary objections may be made prior to or at the hearing, and if properly sought, trial courts may grant parties reasonable continuances to allow for written opposition.

The bottom line: File opposition to objections to your important evidence before the hearing; if you cannot do so, you must oppose the court’s order sustaining objections to evidence at the hearing. Failure to do so will result in waiver.



Does A Second Section 998 Settlement Offer Extinguish The First?

Posted in Settlement

The answer is both “yes” and “no,” because there is a clear split of authority between the California Court of Appeals.

Code of Civil Procedure section 998 permits a party to make a written settlement offer with the potential to shift costs and fees to another party if that party does not accept a good faith 998 offer and then fails to obtain a better result.

In (1999) 72 Cal.App.4th 382, the Third District Court of Appeal first noted that section 998 is silent as to the effect of multiple offers. The court then applied contract principles to conclude that a new offer made prior to acceptance of a previous offer extinguished and replaced the prior one. Additionally, the court reasoned that a different rule would enable litigants to make offers that could discourage settlement and thus it was better to have a bright line rule that the most recent 998 offer would control regardless of earlier offers.

Recently, the Second District Court of Appeal reached the opposite conclusion in  (2012) 203 Cal.App.4th 507. Also, applying contract principles, the Martinez court concluded that a 998 offer that is not accepted lapses and thus has no more effect. In other words, a later 998 offer cannot extinguish an earlier lapsed offer. Furthermore, the Martinez court recognized that denying litigants the benefits of earlier offers would actually discourage settlement. And it noted that courts could control any gamesmanship because they have discretion to determine whether a 998 offer was made in good faith; and only good faith offers trigger section 998’s cost shifting mechanism.

The Martinez decision is better reasoned and certainly does a better job promoting settlement during times when courts are underfunded and overburdened. However, until the California Supreme Court resolves this issue, attorneys should keep in mind that a second 998 offer does not necessarily extinguish any prior offers, and that their clients may be on the hook for costs and fees dating back to the earliest 998 offer if they fail to obtain a better result.

A Judgment against A Trust Is Unenforceable

Posted in Uncategorized

The recent decision of __ Cal.App.4th __ (2011) held that a trust is neither a person nor an entity. As such, a trust cannot sue or be sued. And a judgment against a trust is unenforceable because a judgment debtor is defined as a “person” against whom a judgment is entered. Therefore, when suing a trust, you must: (1) name the trustee in his or her representative capacity as a trustee; and (2) ensure that judgment is entered against the trustee; and not the trust itself.

The plaintiff in Portico, sued the trustees of a trust but unfortunately did nothing to correct an arbitration award and subsequent judgment entered against only the trust. Plaintiff later attempted to enforce the judgment against assets of the trust. However, the trustees of the trust claimed ownership of the trust assets and argued that no judgment had been entered against them or their predecessors. The court of appeal agreed and affirmed the trial court’s order to grant the trustees’ claim of ownership to the assets of the trust. Fortunately for the plaintiff, the court of appeal reversed (with instructions) the trial court’s orders denying leave to amend the judgment to include one of the original trustees.

Bottom line: If you have litigation involving a trust, don’t make the mistake of treating the trust as you would a person or an entity. 

When A Court Grants an Injunction on the Merits No Undertaking Is Required

Posted in Uncategorized

The Court in  201 Cal.App.4th 1371 (2011) issued a peremptory writ and reversed an order dissolving an injunction because plaintiffs failed to post a bond. The case involved a foreclosure dispute between borrowers and their lender over whether the lender complied with Civil Code section 2923.5, subd. (a). Pursuant to that section, a lender must contact the borrower to try to prevent foreclosure before recording a notice of default.

In granting the borrowers’ motion for an injunction, the trial court expressly found that neither the lender nor its servicer contacted the borrowers before issuing a notice of default. The trial court, however, required plaintiffs to post a $20,000 bond and make $500 monthly payments. It later dissolved the injunction when plaintiffs failed to post the bond and make monthly payments.

The appellate court concluded that the trial court erred in requiring a bond in the first place. The trial court did not merely determine that plaintiffs had a substantial likelihood of success on the merits, but rather decided the dispute in plaintiffs’ favor. The purpose of an injunction is to protect the defendant against losses incurred if the defendant later prevails on the merits. Therefore, no undertaking is required when the court grants an injunction after deciding the merits. Shahen v. Superior Court (1941) 46 Cal.App.2d, 187, 189 (bond cannot be ordered on a permanent injunction issued after a trial on the merits).

Posting bonds is often difficult and expensive for clients. Whenever you seek an injunction, try to get the court to rule on the merits. If you succeed, you remove the requirement for a bond or undertaking.

He Who Hesitates, May be Too Late!

Posted in Uncategorized

 In , the Court of Appeal held that a party, who has the option to litigate in more than one forum and litigates extensively in one forum, cannot then decide to enforce its rights to litigate in another forum. Pursuant to a forum selection clause, Trident Labs agreed to waive any rights to commence an action anywhere but Illinois.  Trident nevertheless sued Merrill Lynch in California.  Merrill Lynch actively litigated the case for 19 months in California by filing a cross-complaint, conducting substantial discovery and filing motions seeking relief. Merrill Lynch then filed a motion pursuant to to stay or dismiss the lawsuit based on the forum selection clause.  Merrill Lynch contended that it had the right to make the motion "at any time," and the trial court agreed.  The Court of Appeal noted that section 410.30 does not say such motions may be made at any time. "Where no limits are stated, a reasonableness standard is inferred."  The Court of Appeal concluded that 19 months of delay, without any justification, is unreasonable as a matter of law and reversed the trial court. Moral of the story: Don’t delay!

Boilerplate Contract Language By Design, Not By Accident

Posted in Arbitration, Attorneys' Fees, Contracts

Do you skip the boring boilerplate in contracts before signing them? If so, you could be in for a big surprise later if there is a contract dispute.  Before you sign any contract, you should focus on how disputes will get resolved. You are best served if there is language that provides for each of the following: (1) mediation prior to litigation; (2) reimbursement of attorneys’ fees; and (3) litigation, not arbitration.

MEDIATION FIRST: Although the majority of lawsuits are settled, it is usually after the parties have incurred substantial attorneys’ fees. Mediation should occur early and often until the dispute is resolved. Your next contract should therefore make mediation mandatory before either side may file a lawsuit. Anyone who sues first, loses his or her right to recover attorneys’ fees.

ATTORNEYS’ FEES: You want to discourage lawsuits by ensuring that the loser pays the winner’s legal fees. The fee language should be broad enough to cover any dispute arising out of or related to the contract.

LITIGATION, NOT ARBITRATION: In arbitration, you give up the right to a jury trial and an appeal. This means that your stuck with a bad decision–even an incorrect one–unless you can prove the arbitrator was biased. Arbitration is also expensive and often inefficient.

Interest Provisions Are Enforceable

Posted in Contracts, Remedies

The California Supreme Court has definitively upheld contractual obligations for payment of interest charges on late payments. Southwest Concrete Products v. Gosh Construction Corp., 51 Cal.3d 701 (1990), involved a dispute between a contractor and its pipe supplier. The supplier sued the contractor when it failed to pay after alleging the pipe was of poor quality. The supplier’s invoices contained an interest provision on late payments at the rate of 1 ½% per month (18% per year). After the jury found in favor of the supplier, the trial court awarded the supplier prejudgment interest at the contract rate of 18% per year rather than the 10% legal rate for prejudgment interest.

The issue of whether the interest charges violated the usury law establishing maximum rates of interest reached the Supreme Court.  In upholding the interest charges, the Supreme Court ruled that the law of usury applies only to a “loan or forbearance.” The contractor did not claim that the contract involved a loan, but argued instead that the interest charge provision amounted to forbearance.

The Supreme Court disagreed. Forbearance is when the creditor agrees to refrain from enforcing the debt immediately and gives the debtor more time to pay. The supplier’s invoices required the contractor to pay the interest charges on any unpaid balance after the tenth day of the following month of the date of purchase. The supplier did not agree to forbear enforcement, and the fact that it filed suit was proof that it did not agree to refrain from enforcing the debt.  Therefore, the Supreme Court found the usury law did not apply to the interest charges and upheld the trial court’s award.

If you provide services or materials, then you should include an interest provision in your contracts or invoices.

Here are two examples:

  1. Late charges will be imposed on any balance remaining unpaid after 30 days computed at 1.5% per month (18% per year). Your unpaid balance is determined by taking the beginning balance of your account for each month, adding any new charges and subtracting any payments and credits made to your account. We will then multiply this amount by the applicable monthly periodic rate of 1.5% to compute the late charge for your account for that month.
  2. Net 30; Interest at 1.5% per month after 30 days.


Lost Profits May Not Be Lost

Posted in Remedies

Lost profits are net gains made from sales, after deducting expenses. They are recoverable in California if there is sufficient evidence to show with reasonable certainty that, but for the defendant’s conduct, the plaintiff would have earned such profits. However, the plaintiff does not have to prove the exact amount of its lost profits.

For an established business, lost profits may be proven from the past volume of business and other provable data relevant to the probable future sales. It is more difficult to prove lost profits for an unestablished business. Courts frequently decline to award lost profits for such new businesses because the absence of income and expense experience renders anticipated profits too speculative to meet the standard of reasonable certainty.

Nonetheless, lost profits for an unestablished business can be proven in various ways, including with expert testimony, economic and financial data, market surveys and analyses, business records of similar enterprises, and the like. Other evidence relevant to proving lost profits for new businesses includes: (i) whether the business is in an established market; (ii) the plaintiff’s experience in the business he or she is seeking to establish; (iii) the defendant’s own pre-dispute projections (if, for example, the dispute involves the sale of a business); and (iv) the experience of others in a similar business.

If evidence of lost profits includes a comparison to other businesses, those businesses must be sufficiently similar. The comparable businesses must operate under similar conditions, such as the same area and with the same equipment.