Cal Biz Lit

Further Commentary on Unocal Punitive Damages Decision

Yesterday CalBizLit posted on Holdgrafer v. Unocal, wherein the Court of Appeal for the second district applied State Farm v. Campbell in reversing a punitive damages award.  The trial court had allowed evidence of other bad acts, which the Court of Appeal ruled were too dissimilar.

The appellate firm of Horvitz & Levy represented Unocal in the case, and is certainly entitled to plaudits.  Last night, in that firm's punitive damages blog California Punitive Damages - An Exemplary Blog,  Horwitz's Jeremy Rosen quibbled with my characterization of the San Luis Obispo County judge as "conservative" for reducing the jury's punitive verdict from $10,000,000.76 (a cute nod to Unocal's former name, Union 76) to $5,000,000. 

I guess I'm jaded by practicing in California's big cities, where we've seen a $50 million punitive damage award against UPS, a $28 billion punitive award against  Phillip Morris and a $50 million punitive award against DaimlerChrysler.  Pretty sad when a $5 million punitive judgment becomes, if not conservative, at least ho hum.

Punitive Damage Award Reversed Based on Erroneous Admission of Other Dissimilar Instances

Interesting application of State Farm Mutual Automobile Insurance Company v. Campbell (2003) 538 U.S. 408 in the California context in yesterday's decision in Holdgrafer v. Unocal Corp. (2008) ___ Cal.App. 4th ___ (2d Civil No. B175953). 

Unocal (now owned by Chevron) owned and operated oil wells, a refinery, and hundreds of miles of underground petroleum pipeline in Central California in general and San Luis Obispo County in particular.  The company replaced two of the pipelines in 1952, installed cathodic protection (which guards against corrosion) in 1957 and hired a full-time manager to monitor the cathodic protection system starting in 1984.  Alas, there were still some 426 leaks from 1972 to 1992, and most of these were related to corrosion.

In 1988, substantial contamination from the pipes was found on the plaintiffs' property.  After a rapid-fire negotiation session lasting a mere 13 years, negotiations broke down and the plaintiffs sued Unocal.  The jury awarded them $564,348 in damages for past economic loss and $2 million for diminished value of the property.

Civil Code section 3294 permits a jury to award punitive damages if it finds by clear and convincing evidence that the defendant has been guilty of "malice, fraud or oppression."  Section 3295(d) (scroll down) provides that on  application of the defendant,  evidence of the defendant's financial condition shall not be admissible until such time as the jury has found malice, fraud or oppression. 

What this means in most instances is that punitive damage cases are bifurcated.  In phase I, the jury decides all of the compensatory damage issues, and also decides whether there is malice, fraud or oppression.  If it so finds, then in phase II, it looks at evidence concerning what punitive award is appropriate, including the defendant's financial condition.  This bifurcation is the right of the defendant, who can also waive it.

Well, Unocal had other leak and petroleum release problems besides this one.  It spilled, and then cleaned up, 400,000 gallons of oil at Avila Beach.  It leaked about 8.5 million gallons of a diesel-like substance at its Guadalupe field.

And the trial court admitted evidence of both of these mishaps in connection with the plaintiff's punitive damage claims, both as evidence of malice and as evidence of the amount of punitive damages that were appropriate.  The evidence was admitted only in Phase II.  But the trial court bifurcated in an unusual way:  both the malice issue and the amount of punitive damages issue were decided in Phase II.  Only compensatory issues were decided in Phase I.  In order to prevent evidence of the other spills from being admitted in the liability phase, Unocal waived its right to a section 3295 bifurcation.

The jury somewhat whimsically awarded $10,000,000.76 in punitive damages (Unocal, of course, was previously known as Union 76).  Confirming my analysis that San Luis Obispo Superior Court is a pretty conservative place, the trial court reduced the number to an even $5 million, even taking away the seventy-six cents.

The Court of Appeal took away the rest, on the ground that Avila and Guadalupe were dissimilar incidents.  State Farm held that dissimilar incidents were not admissible to prove the amount of punitive damages.  The California court held that dissimilar incidents are inadmissible to prove the entitlement to punitive damages.

Of course, the case was remanded for JUST a trial on the punitive part of the case -- probably not a happy scenario for Unocal.  One questions how well it will do trying ONLY punitive damages, with the jury being instructed that the company has already been found liable, and the only thing they need to do is look at all the similar evidence and determine whether there is malice and how much is appropriate to punish the company.

 

Wrongful Termination Case Based on Labor Code Section 232.5 is Preempted by NLRA

California has two statutes, Labor Code sections 232 and 232.5, that protect the rights of employees to disclose information about their compensation or working conditions.  The first, Labor Code section 232, was enacted in 1984, provides:

No employer may do any of the following:

(a) Require, as a condition of employment, that an employee refrain from disclosing the amount of his or her wages.

(b) Require an employee to sign a waiver or other document that purports to deny the employee the right to disclose the amount of his or her wages.

(c) Discharge, formally discipline, or otherwise discriminate against an employee who discloses the amount of his or her wages.

This statute was broadly interpreted by the Court of Appeal in Grant-Burton v. Covenant Care, Inc. (2002) 99 Cal.App.4th 136.  There, the court upheld a claim for wrongful termination against public policy after an employee was allegedly terminated for telling co-employees (during an exchange of information between co-employees) that she did not receive a bonus.  The court held that (a) section 232 set forth the public policy of the state protecting employees from adverse employment action for disclosing information about “wages,” and (b) that the statute was intended to protect employees who wanted to discuss “some aspect of their compensation, for example, a possible increase in pay, perceived disparities in pay, or the awarding of bonuses.”

Only months after the court’s Grant Burton decision, the legislature enacted Labor Code section 232.5:

No employer may do any of the following:

(a) Require, as a condition of employment, that an employee refrain from disclosing information about the employer's working conditions.

(b) Require an employee to sign a waiver or other document that purports to deny the employee the right to disclose information about the employer's working conditions.

(c) Discharge, formally discipline, or otherwise discriminate against an employee who discloses information about the employer's working conditions.

(d) This section is not intended to permit an employee to disclose proprietary information, trade secret information, or information that is otherwise subject to a legal privilege without the consent of his or her employer.

In the following six years, no California court has issued a published decision involving section 232.5. . . . . until now.

More after the jump.

Reid v. Google: Evidentiary Objections in Summary Judgment Motions

In practice areas where practitioners make heavy use of motions for summary judgment, there's been an ongoing controversy over how the courts treat evidentiary objections.  Biljac Associates v. First Interstate Bank (1990) 218 Cal.App.3d 1410 held that a trial court need not explicitly rule on objections on summary judgment.  Instead, it was presumed that the court had relied only on competent, admissible evidence.  Demps v. San Francisco Housing Authority (2007) ___ Cal.App.4th ___ overruled Biljac and held that any objection not ruled on was implicitly overruled. 

Trial court practice has been all over the map.  Some judges simply state they are deciding only on the basis of competent and admissible evidence.  Some rule on objections as part of their orders.  Some request a "check box" form of objections that allows the court to easily check boxes for "sustained" and "overruled." 

Appellate courts have had similarly diverse views:  some held undecided objections were "waived."  Some held that as long as the party making the objection made some effort to get a ruling, they were not waived.  Others have held that rulings are unnecessary and the objections are preserved as implicitly overruled.

The Cal Supremes have now taken up the issue in Reid v. Google, Inc.(2007) 155 Cal.App.4th 1342 (now unciteable).  This was a very pro-plaintiff employment law decision, wiped off the books as a result of the Court granting review.  The statement of issues on review indicates the issues will be the objections and the "stray remark" doctrine -- the extent to which a "stray remark" can be used in opposition to summary judgment to show unlawful discriminatory bias.

Off Topic Musical Post:  Francis Clay died in San Francisco on January 23.  For those who read this blog for the law and not the music, he was the drummer who drove the great Muddy Waters band in the first half of the 1960's.  He was a jazz drummer who couldn't make any money in jazz (c'est la change . . . ), so he learned to play the blues in Muddy's great band.  Here are Muddy Waters, James Cotton on harp and Francis Clay on drums at the Newport Jazz Festival, 1960.

How Not to Give References

Most employer's attorneys advise their clients that when an inquiry is made about a former employee, the employer should limit the response to confirming the former employee's dates of employment and job title.  There are two reasons for this:  avoiding liability to the prospective employer for misleading information about a problem employee, and avoiding liability to the former employer for defamation.  This is certainly conservative legal advice and probably a good way to avoid litigation risk.

There are also a significant number of employers who consider this advice to be overkill, and who continue to give out information about past employees. Their logic is that the hiring process is a difficult one, and employers should help one another.  CalBizLit is not unsympathetic with this view, although as an employer, it tends to err on the side of risk avoidance.

But here's something everybody can agree is a bad idea.  Verdict Search
(Subscription Requ'd) reports on the case of William Dozier v. Lithia Ford of Fresno and Mike Leal, Fresno Superior Court No. 05CECG02456.  The news report from the Fresno Bee also appears at the web site for Oren & Paboojian, who represented Dozier.

This was an arbitrator's decision, not a jury verdict.  Plaintiff was a salesman for Lithia Ford.  He left to take another job.  His former  manager faxed posters to his new employer, depicting him as "wanted" for being a traitor and backstabber.  Dozier sued for defamation.

Here's the twist:  Dozier was a Vietnam veteran sniper.  When he was in Vietnam, the Viet Cong circulated wanted posters with his photo on it.  He claimed that the posters caused flashbacks to his service time, caused him to start drinking again, and resulted in VA hospitalization.  His alcohol use caused him to lose his job and the family home.

The arbitrator found that the posters were defamatory and all the damages were caused by the defamation.  He awarded $775,000.

Not Such A Good Way to Defend A Prop 65 Case

Under Proposition 65 (Health and Safety Code Section 25249.5 and following), a private party enforcer (or bounty hunter) can sue any employer of ten or more persons who has exposed persons to carcinogens or reproductive toxicants on the governor’s lists.  I’ve blogged about this here, and have a white paper on the subject here.

Anyway, before filing suit, the bounty hunter has to give sixty days notification to the potential defendant and the attorney general under section 29249.7(d)(1).  That’s what the bounty hunter did in CKE Restaurants, Inc. v. Alicia Moore (January 24, 2008) ___ Cal.App.4th ___ (Fourth Dist., 2nd Civil No. B197077).

CKE, which owns a bunch of Carl’s Junior Restaurants, responded by suing Moore for declaratory relief that its restaurants were in fact in compliance with Proposition 65.  CKE contended it was basing its suit on the declaratory relief mechanism authorized by the Court of Appeal in Baxter v. Denton (2004) 120 Cal.App.4th 333.  (Full disclosure: CalBizLit’s alter ego, Bruce Nye, was co-lead counsel in the Baxter trial and lead appellate counsel.)  Unfortunately, the evidence in support of its contention consisted of test results from one set of fried food products from one restaurant in the chain.

Ms. Moore filed a special motion to strike against CKE under California’s anti-SLAPP (“strategic lawsuit against public participation”) statute, Code of Civil Procedure section 425.16.  The court held that the filing of a Proposition 65 notice is a protected activity in furtherance of her right of petition or free speech (something previously decided by the Supreme Court in Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 68.  Thus, the defendant, CKE, had the burden of showing a probability it would prevail on the merits, or its complaint would be stricken.

The problem is, CKE had done its testing on the cheap: instead of conducting an in depth survey of all of its restaurant, sampling on different times, different places, under different conditions, CKE had its attorney go to one store, and buy orders on one occasion of a small amount of food from that single restaurant.   It then had a lab test the food and offer evidence that those samples didn’t contain enough of the chemical in question (naphthalene) to exceed the “no significant risk level.”  Since the sampling was inadequate, and Plaintiff’s own testing showed quantities of napthalene well in excess of the NSRL, the court held that CKE had not met its burden, and its complaint was properly stricken.

California’s anti-SLAPP statute is a really interesting subject for businesses, and I'm going to try to post a white paper on the subject some day soon.

Off-topic post:

Here's some great Count Basie for your Friday:

Attorneys' Fees in Motions to Compel Arbitration

California's appellate courts have issued many decisions in the past several years on binding arbitration provisions in consumer and employment contexts, which are typically non-negotiated contracts of adhesion.  But here's a commercial arbitration case (involving negotiated contracts and equal and sophisticated parties) with implications for all disputes over contractual arbitration provisions.

More after the jump.

How Not to Write An Employee Handbook

The Peters Law Group in Southern California is a small firm representing employees in discrimination, harassment and other litigation.  They also publish the often excellent California Employee Rights Blog.

Over the weekend, they published an amazing post on Tribune Co.'s (owner of the L.A. Times, which also covered the story here) new employee manual, designed to get rid of "mind-numbing lawyer gobbeldygook" and replace it with "common sense."  But the manual, apparently written by a PR executive,  is full of mistakes, and ripe for an enterprising employee-side lawyer to use against Tribune in a future discrimination and harassment case. 

The many gaffes should remind every company doing business in this state that it needs meaningful, written employment policies, and those policies should be vetted by an employment lawyer who knows what she / he is doing, not by the company flack. 

My favorite is the description in the manual of sexual harassment:

    4.2 Working at Tribune means accepting that sometimes you might hear a word that you…might not use…experience an attitude you don’t share…[or] hear a joke that you might not consider funny.

    4.3 This should be understood, should not be a surprise and is not considered harassment.

    4.4 Harassment means being told that a raise, promotion or other benefit is dependent on you going on a date with your boss or some other similar activity.

Well, no, not actually.  While harassment is sometimes "quid pro quo" harassment (the type described in section 4.4 above), the much more common type is "hostile environment" harassment, which apparently isn't described anywhere in the manual.  While I agree that use of "a word that you…might not use…[or] an attitude you don’t share…[or]  joke that you might not consider funny" is not usually sexual harassment, when a sexually charged atmosphere is created by conduct which is severe or pervasive -- including the use of words, jokes or expressed attitudes in some instances -- an employer might well face liability for harassment.  And a lawyer representing an employee making claims of this type against Tribune would love to cross-examine Tribune's executives about language like this in an employee handbook or manual.

California -- Not a Judicial Hell Hole?

In April, the Chamber of Commerce published its list of judicial hellholes, giving California sixth place for the worst in the country, as I reported here.

At year end, here comes the judicial hellhole listing from the American Tort Reform Association.  I don't know what's happening here, but California didn't even make the hellhole list.  The best the golden state could do was number six on the "watch" list, based on ADA accessibility litigation.

Mandatory Arbitration in Employment Contracts

Today's guest blawger is Michael Sachs, who practices employment law with our firm.

Today's Wall Street Journal discusses the increasing use of arbitration provisions in employment agreements.   The WSJ estimates as many as 20% of all businesses require employees to agree to submit employment disputes to binding arbitration and agree in advance to waive jury trial rights as a condition of employment. 

The article also discusses a Missouri case where the court applied an arbitration provision even where the employee failed to sign the agreement.  The court reasoned that by continuing to work, the employee had agreed to be governed by the arbitration provision.

Interestingly, a recent California Court of Appeals indicates the law here is exactly the opposite.  In Mitri v. Arnel Management Co. (2007) ___ C.A. 4th ___ , the employer brought a motion to compel arbitration based on an arbitration provision contained in its employee handbook.  The handbook stated that any dispute would be settled by arbitration and that as a condition of employment the employees were required to sign an arbitration provision.  The employer argued that such language, in conjunction with an acknowledgment of receipt and review of the handbook, created an arbitration provision.  The employees argued that there was no signed arbitration provision because this passage only alerted them that an arbitration agreement would be forthcoming and they would be required to sign that agreement, but that no such agreement was ever provided to or signed by them.  The California Court of Appeals held that the employees never agreed to arbitrate their claims and thus, the motion to compel arbitration was denied.

More discussion of the WSJ artice and a number of perspectives on arbitration appear here at Legal Blog Watch. 

                                                                                                                               --Michael Sachs