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Trial Court Has Inherent Authority to Award Attorney’s Fees and Charge Them against Beneficiary’s Share of Trust for Bad Faith Litigation Tactics.

Pizarro v. Reynoso, 1/18/17, 6DCA (Sacramento)

In trust litigation by a trust beneficiary against trustee, does the trial court have the inherent power to award attorney’s fees against a beneficiary’s interest in the trust (including against the interest of a non-suing beneficiary) for bad faith litigation tactics, like submitting false testimony in depositions, declarations and at trial?  The trial court said, Yes. Held: Affirmed, in so far as the attorney’s fees awarded were chargeable against the beneficiary’s interest in the trust.


It is established that the court’s equitable power includes the power to charge attorney fees and costs against a beneficiary’s share of the trust if that beneficiary, in bad faith, brings an unfounded proceeding against the trust.  Rudnick v. Rudnick(2009) 179 Cal.App.4th 1328, 1335.  One of the beneficiaries sought to overturn the fee award because she was not the one who brought the action against the trustee.  The court held that nothing in Rudnick requires instigation of an action against the trust by the offending beneficiary as a prerequisite to charging attorney fees and costs against the offending beneficiary’s share of the trust estate.  Relying on the language of Rudnick and a similar case, the court held that the trial court’s authority exists as part of the inherent jurisdiction of equity to enforce trusts, secure impartial treatment among the beneficiaries, and to carry out the express or implied intent of the settlor.” And, “[w]here the expense of litigation is caused by the unsuccessful attempt of one of the beneficiaries to obtain a greater share of the trust property, the expense may properly be chargeable to that beneficiary’s share.”  The fact that beneficiary took unfounded positions, acted in bad faith and testified falsely helped justify the trial court’s ruling.

Footnote: The appellate court reversed the grant of attorney’s fees only to the extent the fee award sought to impose personal liability against the beneficiary. 
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States Lack Standing to Challenge California’s Standing-Room-for-Chickens Law


State of Misourri ex rel, et al. v. Kamala Harris, 1/17/17, 9C

In 2008, California voters adopted Proposition 2, which enacted new standards beginning on January 1, 2015, for housing farm animals.  Under Prop 2, egg-laying hens must be given room to do things like sit down and stand up.  The California Legislature subsequently enacted legislation that makes it illegal to sell eggs from hens that don’t meet treatment standards set out in Prop 2, with the same effective date as Prop 2. In 2014, about a year before these laws took effect, six states sued California’s AG to declare that these laws violate the Commerce Clause. The trial court granted Defendant’s motion to dismiss based on lack of subject matter jurisdiction.  Held: Affirmed

States who sue on behalf of their citizens must have something called parens patriae standing.  To meet parens patriae standing, a state must meet not only the requirements of Article III standing, but two additional requirements unique to that doctrine. The first requirement is that “the State must articulate an interest apart from the interests of particular private parties, i.e., the State must be more than a nominal party.”  

The egg farmers in each plaintiff state produce hundreds of millions of eggs worth hundreds of millions of dollars.  Under California’s law, egg farmers either have to forgo the California market or modify their facilities, apparently at the cost of hundreds of millions of dollars.

Parens patriae can be satisfied where the policy/actions of one state affects a large segment of the population of another state.  Here, the law obviously affects egg farmers; but that’s not enough.  Egg farmers can pursue their own relief by filing their own complaints, and that counts against finding parens patriae standing.  Second, plaintiffs claimed that their populations would be affected because of anticipated price fluctuations in the egg market.  9C said that was speculative.  Finally, 9C rejected plaintiffs’ argument that the legislation was discriminatory against out-of-state egg farmers. The law applies equally to egg farmers doing business in plaintiff States and in California.  Because plaintiffs did not meet the first requirement for parens patriae standing, the court did not analyze the second requirement.

Leave to amend was also denied.  Plaintiffs argued that events after the legislation took on January 1, 2015 support standing. But subject matter jurisdiction is determined as of the date the action is filed, not on subsequent events.

Final thought: It is worth a trip to youtube to search “inhumane treatment of chickens or farm animals.”

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Evidentiary Speculation Is Insufficient to Defeat anti-SLAPP motion

Schwern v. Plunkett, 1/17/17, 9C

In this case, a couple living in Oregon filed for divorce.  The night the divorce was filed they met for one last dinner.  Wife, Plunkett, alleged that her husband, Schwern, sexually assaulted her at the dinner meeting.  Schwern is arrested but the DA decides not to file charges.  Schwern and Plunkett work in the same industry and word of Plunkett’s accusation spreads in that community.  Later, Plunkett also tells a mutual friend about the allegations.  Schwern sues Plunkett for defamation; Plunkett files an anti-slapp motion under Oregon’s version of that law, which is modeled on California’s.  Trial court denies Plunkett’s motion under prong 2, and Plunkett appeals.  Held: Reversed.

Two take-aways – First, because of recent amendments to Oregon’s version of the law, the Court ruled that the denial of an anti-slapp motion under Oregon law is now an appealable order under 28 USC 1291, a conclusion that 9C previously reached when applying California’s anti-slapp law.  The amended version of Oregon’s anti-slapp law, like California’s, provides immunity from trial, not just a defense to liability.  Therefore, a denial of an anti-slapp motion is a final decision that triggers appellate jurisdiction.  Now to the merits.

On the substance of the anti-slapp motion: The parties did not dispute that Schwern’s claim arises “out of expressive activity protected by the statute.”  The burden shifted to the Schwern to establish that there is a probability that the he would prevail on the claim by presenting substantial evidence to support a prima facie case.   Here, he failed Evidence 101 – While it was clear from online traffic that individuals and organizations knew that Schwern had been arrested for an alleged sexual assault, Schwern provided no evidence in response to the anti-slapp motion that Plunkett was the source of that information.  Case over. 
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CAFA Does NOT Expand Appellate Jurisdiction to All Remand Orders

Chan Healthcare v. Liberty Mutual, 1/3/17, 9C

The Class Action Fairness Act (CAFA) significantly expanded federal diversity jurisdiction to require only minimal diversity in high value class action cases.  See 28 USC 1332(d).  Here, Defendant removed the case to federal court, not at the outset of litigation, but within 30 days of receiving a Reply brief that provided the first notice that plaintiff would rely on a federal due process argument as part of its case – In other words, the removal was not based on the new minimal diversity jurisdiction authorized by CAFA, but was based instead on the old-fashion federal question prong.  The trial court held the removal was late because defendant had notice of plaintiff’s federal claims through papers/communications in other, related cases.  The trial court granted remand and awarded attorney’s fees against Liberty. Liberty appealed the remand order and the fee award. Held: Appeal of remand order dismissed for lack of appellate jurisdiction; order granting fees reversed.

The biggest problem with Liberty’s appeal of the remand order  – “an order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise.” 28 U.S.C. § 1447(d).  9C rejected Liberty’s argument that section 1453 (the removal statute enacted as part of CAFA) changed that rule. Section 1453(c)(1), entitled Review of Remand Orders, provides that, when a case is removed “under this section,” “a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action.” 28 U.S.C. § 1453(c)(1).  9C looked at the text, structure and purpose behind CAFA, and had no problem concluding that section 1453 expanded discretionary appellate jurisdiction of remand orders of CAFA cases – i.e., cases that are removed based on minimal diversity jurisdiction established by section 1332(d).  Therefore, 9C lacked jurisdiction to review the trial court’s remand order.  

Footnote:  Liberty also appealed the award of attorney’s fees, which was a final decision and reviewable under 28 USC section 1291. The trial court found that Liberty lacked an objective basis for removal and awarded fees.  9C reversed.  The initial pleading did not provide a basis for removal; if “the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.” Id. § 1446(b)(3). The Reply brief was the first document that provided notice of plaintiff’s federal claim in this case.  The fact that Liberty knew about the potential of a federal due process claim based on what happeend in other related cases (including one in which it was involved) didn’t matter: The focus remains on whether the case “is or has become removable,” and counsel’s clairvoyant sense of what actions a plaintiff might take plays no role in the analysis. A defendant is not put to the impossible choice of subjecting itself to fees and sanctions by filing a premature (and baseless) notice of
removal or losing its right to remove the case by waiting too
long. 
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Can’t Identify Class Members But Want Class Certification — No Problem


Briseno v. ConAgra, 9th Cir., 1/3/17

In some consumer fraud class actions the class is made up of consumers who purchase small ticket items (like groceries). That can make it very difficult to identify and ascertain class members: Consumers probably don’t keep their receipts, and retailers probably don’t have records of who purchased the product.  In addition, consumers may forget or even lie about what they purchased.  In evaluating whether to certify a class, some courts call this an “administrative feasibility” issue.  The question tackled by 9C in this case: Should administrative feasibility problems prevent class certification under Federal Rule 23?  Answer: Not even close.


Plaintiffs alleged that defendant advertised Wesson Oil as being “100% Natural” when it actually contains GMOs.  The class was defined as those people who purchased the product within 11 states within the statute of limitations of each state.  The trial court certified the case.  ConAgra appealed, arguing that the case should not have been certified because of the administrative feasibility problems.  

9C affirmed the trial court’s grant of certification. The plain language of Rule 23 does not include an “administrative feasibility” factor, nor does it include an “ascertainability” requirement.  Apparently, 9C doesn’t even have a definition of “ascertainability.” The prerequisites of class certification are set out in Rule 23(a), which speaks to numerosity, common questions, typicality and adequacy.  The language of the Rule is plain.  And under principles of statutory construction, listing specifically enumerated prerequisites means the list is exhaustive.  Federal courts are not allowed to substitute a rule’s criteria with a standard never adopted. 

While 3C uses an administrative feasibility test, the 9th joined other circuits in rejecting 3C’s use of that test and its reasoning.

The 9th explored the Third’s reasoning in detail, and dispelled each of its concerns.  For example, 9C noted that the due process rights of absent class members don’t require actual notice; the notice has to be the best practicable under the circumstances.  Notice can be ordered through means like publication or the web.  While such notice is imperfect, the due process rights of absent class members should be weighed against the fact that the vast majority of them wouldn’t file an action anyway.  With respect to the reliability of claims filed, the court believes there is little incentive to commit perjury for such a small amount, and there are various administrative claims tools (the court lists them) to reduce the incidence of fraud.   

For 9C, a stand-alone administrative feasibility requirement would graft onto Rule 23 a prerequisite that is not listed, and would place too much emphasis on that concern over other important policy considerations of class litigation — like whether class members had other available alternatives to seek redress in low value consumer cases.  To preserve the benefits of class litigation, the perfect cannot become the enemy of the good.

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Qui Tam targets false claims, not breach of contract


Kelly v. Serco, 1/12/17, 9C
The False Claims Act’s (FCA) qui tam provision permits a private person to bring a civil action on behalf of the United States against any individual or company who has knowingly presented a false or fraudulent claim for payment to the United States.  But is there false claim liability when a contractor submits an otherwise accurate claim knowing that it hasn’t fulfilled one of its obligations under the contract?

The answer is maybe.  The FCA is not an all-purpose anti-fraud statute and is not meant to allow private parties to enforce garden variety breach of contract claims on behalf of the government against their vendors. Submitting a claim when such a condition has not been met may be a breach of contract.  But if the circumstances are egregious, submitting such a claim can trigger FCA liability.  In FCA parlance, this is known as an “implied certification” claim, i.e., a defendant’s act of submitting a claim for payment “impliedly certifies compliance with all conditions of payment.”  


Serco contracted with the government under a contract that required it to submit cost/project reports to the contracting agency.  Federal regulations required such cost/project reports to comply with a laundry list of standards set out in ANSI-748 (e.g., that work performed be submitted under various task codes). There was no mention of ANSI-748 in Serco’s contract, which set out a different standard for how the cost/project reports were to be formatted (i.e., using Excel).  When Serco submitted claims for payment, its reports listed only one task code, a practice that the agency permitted, but one that did not comply with ANSI-748.  A disgruntled former employee filed a qui tam action. The question was whether, in submitting claims to the government, Serco was certifying that it had complied with the ANSI-748 standard. 

Per the Supreme Court, implied certification claims can trigger FCA liability even when the regulations don’t say that compliance with subject contract conditions (or applicable regulations) is an express condition of payment.  To state such a claim, two conditions must be satisfied: First, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths”—i.e., “representations that state the truth only so far as it goes, while omitting critical qualifying information.”  The Court reasoned that “concerns about fair notice and open-ended liability “can be effectively addressed through strict enforcement of the Act’s materiality and scienter requirements,” which “are rigorous.”  What “matters is not the label the Government attaches to a requirement, but whether the defendant knowingly violated a requirement that the defendant knows is material to the Government’s payment decision.”

This is where Kelly’s quit tam claim buckled – There was no evidence that Serco’s description of work was false or that the work reported wasn’t performed.  Moreover, there was no showing of “materiality.” The ANSI-748 report requirements were not an express term in Serco’s contract; the agency knew about and allowed Serco’s reporting practice using Excel and only one task code; the agency paid Serco’s bills; and, ultimately, it didn’t find Serco’s reports very helpful and didn’t rely on them for its project.  The Court also rejected Kelly’s argument that the government would not have paid Serco’s bills had they known that its cost/project management reports were non-compliant or fraudulent — That fact, standing alone, is insufficient to demonstrate “materiality.”


9C affirmed the trial court’s dismissal of Kelly’s claims.
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Pitzer’s guardian angel may protect it against providing late notice of insurance claim

Pitzer College v. Indian Harbor Insurance, 1/13/17, 9th Cir.

While constructing a student dorm, Pitzer College discovered darkened soils that required remediation.   Three months after that, it performed the remediation.  At some point, its risk management department discovered that the risk is insured, and, three months after remediation, the insurer was notified.  Problem:  The policy contains notice and consent provisions, as well as choice of law clause in favor of NY law.  NY’s law on late notice — If you snooze you lose.  But under California common law,

the notice-prejudice rule provides that an insurer must show that it was prejudiced by late notice in order for a notice clause in the policy to bar coverage.  If California’s notice-prejudice rule is a “fundamental public policy” (no case apparently has said it is), the California rule will presumably trump NY law on that point.  


After Indian Harbor denied coverage citing late notice, Pitzer sued.  The trial court applied NY law in favor of Indian Harbor and dismissed Pitzer’s claims; on appeal, 9C has certified to the California Supreme Court the question of whether California’s notice-prejudice rule is a “fundamental public policy.”   We’ll have to wait and see if Pitzer’s risk management department has a guardian angel looking after it.
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No FLSA exemption from overtime for service advisors

Navarro v. Encino Motorcars, LLC, 1/9/17, 9th Cir.

The issue facing 9C was whether the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201–219, requires automobile dealerships to pay overtime compensation to service advisors.  The district court said no and threw the case out.  Held: Reversed (again).


Plaintiffs are service advisors for a Mercedes dealership that sells and services Mercedes-Benz cars.

In 1970, the DOL had issued a regulation that the 213(b)(10) exemption did not encompass service advisors.  In 1974, 29 U.S.C. § 213(b)(10) was amended.  It excludes from overtime compensation “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” at auto dealerships. 

In 1978, the DOL issued an opinion letter that stated, contrary to the agency’s regulation, service advisors were exempt under 29 U.S.C. § 213(b)(10)(A).  In 2007, the DOL proposed to amend the 1970 regulation to make it consistent with the 1978 opinion letter, but in 2011 it reaffirmed its regulation that service advisors are not exempt from overtime. Confused yet?

In throwing the case out, the trial court must have relied on the DOL’s 1974 opinion letter; in reversing the trial court, 9C gave deference to the DOL’s 2011 final rule reaffirming the agency’s original 1970 position under the principles of agency deference described in Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).   

The Supreme Court reversed, holding that the DOL’s 2011 regulation was arbitrary and capricious for lack of even minimal supporting analysis, and it therefore lacked the force of law under the Administrative Procedure Act: “This lack of reasoned explication for a regulation that is inconsistent with the Department’s longstanding earlier position results in a rule that cannot carry the force of law.”

On remand, 9C still reversed the trial court. This time it did an old fashioned statutory construction, giving no deference to the DOL’s 2011 regulation.

The court found that because the exemption only lists “salesman, partsman, or mechanic,” service advisors are not covered.  And even if service advisors are “salesmen,” they  are not selling cars. They are also not servicing cars because Random House defines servicing as maintaining or repairing cars.  And that service advisors are integral to the servicing process doesn’t make them servicers.  

It didn’t help the employer that exemptions are narrowly construed. Finally, the court examined the legislative history and saw nothing to suggest that Congress intended to cover service advisors, only salesmen and mechanics.  

If you want to still use the exemption, you’ll have to open your dealership in 4C, 5C or Montana.  

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Splitting Hairs and Wasting Time


Hernandez v. Ross Stores, 4/2, 1/3/17

Employee filed a single count PAGA claim based on various alleged California Labor Code violations. The trial court denied employer’s motion to compel arbitration (of course). We all know what Iskanian v. CLS Transportation Los Angeles LLC (2014) 59 Cal.4th 348, 387 (Iskanian) says about whether employers can require its employees to arbitrate their PAGA claims (they can’t).  But based on supposed differences in the language of its arbitration agreement
(the agreement covered “disputes” rather than “claims”), employer appealed, arguing that the employee was first required to arbitrate whether he was an “aggrieved party” before his PAGA claim could proceed in court.  Whether an employee is “aggrieved” sounds like a question of standing, which is generally a sub-issue of the claim alleged. So we’re really talking about splitting hairs.  It didn’t help employer’s position that another case (Williams v. Superior Court (2015) 237 Cal.App.4th 642) had already considered and rejected the same argument in 2015, and that employer in the Hernandez case could point to no case law supporting its position. 


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anti-SLAPP not a deterrant to chutzpah

Healthsmart v. Kabateck, January 10, 2017, 
Dr. Drobot used to sell medical devices to Pacific Hospital that he owned through a wholly owned holding company called Healthsmart.  In January 2014, Dr. Drobot pled guilty to federal charges related to certain business schemes.  According to the plea, he sold the devices at fraudulently inflated prices for the purpose of getting reimbursements from insurance companies; he referred patients to Pacific Hospital to get a kickback on spinal surgeries; and he provided financial benefits to a senator to influence legislation.  One month later, a prior patient of Pacific Hospital filed a civil action based on those facts, and further alleged that counterfeit hardware was used in spinal surgeries.  The patient’s attorneys made statements about the lawsuit to reporters at Fox 11 news and CBS radio.  Dr. Drobot and Healthsmart sued the patient’s attorneys for defamation and related claims.
 The trial court granted attorneys’ anti-SLAPP motion and awarded about $64,000 in fees against Dr. Drobot.  Held: Affirmed.

The court used the usual two-step process to evaluate anti-SLAPP motions – Does the challenged claim arise from activity protected by the anti-SLAPP lawsuit (e.g., free speech about an issue of public interest), and, if so, can the plaintiff prove the probability of prevailing on the claim.  

Dr. Drobot argued that the attorneys were exercising their right to free speech, but not in connection with an public issue or issue of public interest.  The public interest test is problematic because it can mean anything, since almost anything can be more or less connected to some aspect of the “public interest.” To avoid over-application the “public interest” prong, one court has fashioned the test to focus on whether the conduct concerns (1) “a person or entity in the public eye”; (2) “conduct that could directly affect a large number of people beyond the direct participants”; or (3) “a topic of widespread, public interest.”

The court had no trouble finding that this prong of the test had been met: Dr. Drobot and the hospital put the devices in thousands of people, consumers have an interest in being informed of issues concerning certain doctors and health facilities, and there were assertions of a widespread illegal physician kickback scheme raise issues concerning the integrity of the health care system, which is a matter of widespread public concern.  On top of this, all of it was linked to allegations of bribing a senator.  So prong one, no problem.

The burden then shifted to Dr. Drobot to show that his claims had minimal merit.  Not a heavy burden; but he couldn’t meet it.  The attorneys’ statements to the media were protected under Civil Code section 47, under the “fair report” privilege. Civil Code section 47(d)(1) defines a “privileged publication or broadcast” to include one made “[b]y a fair and true report in, or a communication to, a public journal, of (A) a judicial, (B) legislative, or (C) other public official proceeding, or (D) of anything said in the course thereof, or (E) of a verified charge or complaint made by any person to a public official, upon which complaint a warrant has been issued.”  This privileged protects not only the media, but those who report to the media, including those attorneys who have a penchant for talking to the media.

A couple of footnotes: Attorneys should still exercise caution in how they speak to the media.  The court has modified its opinion (no change in judgment) to include the following sentence: “More particularly, the attorney defendants in this case are protected from liability under the fair report privilege in informing the news media that they have alleged that plaintiffs used counterfeit screws in spinal surgeries and were part of a scheme that supplied prostitutes, but they are not protected if they informed the media that such facts were true.” 

Second, the opinion contains this very interesting footnote about other litigation concerning against Dr. Drobot: “Other plaintiffs subsequently filed complaints against Drobot alleging similar facts and causes of action. Most of the lawsuits were filed by people who had surgery at hospitals other than Pacific Hospital. Drobot successfully demurred to the complaints of three such lawsuits and 27 other lawsuits were subsequently dismissed voluntarily. Drobot thereafter filed a verified complaint for malicious prosecution against the 30 plaintiffs and their attorneys, including the attorney defendants in this case. The attorney defendants in that malicious prosecution case filed an anti-SLAPP motion, which the court granted. Drobot appealed. That appeal, Healthsmart Pacific, Inc., et al. v. Golia, etc., et al., case No. B266311, is pending.”