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California Case Law Updates

Purcell v. Schweltzer (2014) 224 Cal. App. 4th 969

The trial court held a liquidated damages provision in a settlement agreement to be unenforceable.

Facts: Defendant gave a promissory note to plaintiff for $85,000.  When defendant defaulted, plaintiff filed suit. The parties signed a settlement agreement providing that defendant would pay $38,000 with 8.5 % interest in installments over 24 months.  Each payment was due on the first of the month.  To be considered timely, each payment had to be received by the 5th of the month.  In the event that a payment was not timely made, it was considered a breach of the agreement, making the original entire amount of $85,000 due.

After making timely payments for 18 months, defendant made a payment that was 6 days late. Plaintiff accepted the payment and, nevertheless, applied for entry of judgment in the amount of $58,829.35.  Defendant continued making payments until the original $38,000 plus interest was fully paid, and then sought to set aside the default judgment on the ground that it was an unfair penalty for making one late payment.  The trial court agreed and set aside the judgment. Plaintiff appealed.

Ruling: Under Civil Code § 1671, a liquidated damages provision in a contract becomes an unenforceable penalty if it bears no reasonable relationship to the range of actual damages that the parties could have anticipated would flow from the breach.  Here, the default judgment was approximately $20,000 more than the agreed-upon settlement amount, and bore no reasonable relationship to the actual damages plaintiff could anticipate upon defendant’s breach.  Indeed, plaintiff ultimately received the full settlement amount.  Therefore, the trial court was correct in setting aside the default.

Tiri v. Lucky Chances, Inc., (2014 WL 2114276)

The appellate court held that the arbitrator, and not the trial court, must rule on the enforceability of an arbitration agreement where the parties have delegated such authority to the arbitrator.

Facts: Plaintiff was hired as a cook by defendant, a card-club casino and restaurant.  Several years later, defendant asked plaintiff to sign a mutual arbitration agreement and she agreed.  The agreement included a “delegation clause,” stating that the parties agreed to delegate to the arbitrator (and not the court) any questions about the agreement’s enforceability.

Five years later, defendant terminated plaintiff, allegedly while she was on medical leave for heart surgery.  Plaintiff sued for wrongful termination.  Defendant moved to compel arbitration.  Finding the agreement unconscionable, the trial court refused to compel arbitration and denied the motion.  Defendant appealed claiming the delegation clause was valid and the question of enforceability was one for the arbitrator.

Ruling: Parties to an arbitration agreement may agree to delegate to the arbitrator, instead of the court, questions regarding the enforceability of the agreement.  Such clauses are valid so long as they are clear and not revocable on state law grounds, such as being unconscionable.  An agreement is unconscionable if it leaves one party with no meaningful choice but to accept its terms, which are so unfairly one-sided or unduly oppressive that they shock the conscience.

Here, the delegation clause stated unambiguously that an arbitrator, and not the court, had the exclusive authority to determine any issue regarding the enforceability of the arbitration agreement.  Although the delegation clause was presented to plaintiff on a take-it-or-leave-it basis, it was not overly harsh because both sides were equally bound by it.  Thus, the trial court erred in denying the motion to compel arbitration.  It will be for the arbitrator to determine whether the agreement is unconscionable.

The McCaffrey Group v. Superior Court (2014) 224 Cal. App. 4th 1330

The trial court correctly compelled the parties to mediate a construction defect dispute against a builder under Civ. Code § 895 et, seq. (The Right to Repair Act; “Act”).

Facts: The McCaffrey Group constructed 24 single family homes in a Fresno development.  Pursuant to the Act, McCaffrey’s sales agreements provided for a two-step prelitigation process for addressing alleged construction defects.  First, it required homeowners to give notice of alleged defects and an opportunity for McCaffrey to repair it.  Second, if a claim remained unresolved, the homeowner had to submit it to non-binding mediation.

Plaintiff homeowners sued McCaffrey for construction defects.  McCaffrey sought to compel the contractual prelitigation process. Because the contractual provisions lacked strict deadlines, the trial court denied the motion.  McCaffrey filed a petition for writ of mandate, seeking to compel the parties to proceed with the prelitigation process.

Ruling: The Act establishes a nonadversarial prelitigation process that a homeowner must initiate before bringing a construction defect suit, and sets forth certain deadlines.  Alternatively, the Act gives builders the option of including their own nonadversarial prelitigation process in a contract when the home is first sold.  The builder is not required to provide a particular procedure or to comply with deadlines in the Act.

McCaffrey chose to include alternative procedures in its contract that were not rendered unenforceable because they differed from the statutory procedure.  Moreover, the contract was not unconscionable or unenforceable.  Therefore, the appellate court granted McCaffrey’s petition for writ of mandate and directed the trial court to compel McCaffrey’s prelitigation process.

Cottini v. Enloe Medical Center (2014 WL 2115263)

Exceptional circumstances were not demonstrated to excuse plaintiff’s failure to exchange expert witness information after the discovery cut-off.

Facts: Enloe served a demand for simultaneous exchange of expert witnesses.  However, neither Cottini nor Enloe disclosed their expert trial witnesses by the date specified. Instead, Cottini brought a motion to disqualify the law firm representing Enloe. Enloe offered to delay the expert exchange until the trial court ruled on the disqualification motion. After the trial court denied the motion, Enloe made another demand for exchange of expert witness information. Enloe unilaterally disclosed its expert witness information even after receiving no response from Cottini. On the discovery cutoff date, Cottini still had not disclosed his expert witnesses.  Cottini had appealed the disqualification motion, which was denied.  Thereafter, Cottini disclosed his expert witnesses.  Cottini further moved the trial court to reopen discovery, continue the trial, and grant him relief from the tardy disclosure. The trial court denied these motions and precluded Cottini from offering expert testimony.

Ruling: The Court of Appeal affirmed the trial court’s order excluding plaintiff’s expert testimony because the experts were disclosed after the discovery cut-off.  Cottini challenged the trial court’s decisions arguing it was prejudicial error “by giving the jury an instruction which closed the jury to considering causation of [his] harms based upon common knowledge.”  The trial court has the authority to exclude from evidence expert testimony offered by a party who has completely and unreasonably failed to comply with the requirements of Code of Civil Procedure section 2034.260 upon the objection of a party who made complete yet untimely compliance.

David v. Hernandez, (2014) 226 Cal.App.4th 578

The appellate court reversed the trial court’s denial of a motion for new trial after the jury found defendant was negligent, but it was not a substantial factor in causing plaintiff’s harm even though defendant’s negligence per se was a substantial factor in causing the collision.

Facts: Hernandez was a trucker and stopped for a rest break at a point where the highway has two lanes, one lane in each direction. Hernandez was going northbound, but he drove across the southbound lane into a parking area adjacent to that lane. Hernandez attempted to continue northbound after his break.  He drove across the southbound lane and made a left turn into the northbound lane of Pacific Coast Highway. Upon entering the northbound lane, Hernandez saw the headlights of a vehicle traveling toward him in the southbound lane.  At that time his tractor was totally in the northbound lane, and the end of the trailer was in the southbound lane. The vehicle collided with the left side of the end of the trailer, which was still in the southbound lane.

The jury found defendant was negligent but not the substantial factor causing harm to plaintiff due to lighting conditions and other factors.

Ruling: The Court of Appeal reversed the trial court’s ruling denying a motion for new trial based on the “fatally inconsistent” verdict.  Defendant violated Vehicle Code section 22502 by parking on the left side of the highway facing oncoming traffic.  The truck would not have been in the southbound lane but for its having entered from the right, a position the truck had no legal right to be in.  Therefore, the defendant’s negligence per se was a substantial factor in causing the collision with plaintiff’s vehicle.

ABOUT THE AUTHORS: Jessica Heppenstall graduated from California Western School of Law in 2008. Ms. Heppenstall’s focus is on general liability and personal injury. Contact her at 858.263.4120 or jheppenstall@tysonmendes.com.

David Ramirez is a Senior Counsel at TYSON & MENDES, LLP, and primarily represents clients in complex litigation, including construction defect, insurance law, property disputes, and product liability.  Mr. Ramirez was recently named as a “Top Lawyer” in California for “Litigation” in the June 2014 issue of American Lawyer Media.

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