Daily Journal article

Today's Daily Journal includes my article, entitled "When Courts Disagree," in the Perspective column.  It discusses with some interesting data my perception of a rift between the California Supreme Court and the lower courts of California.  The article is posted below with permission of Daily Journal Corp. (2009).

If you have difficulty viewing the flash object, the direct link is here.  I thank the editorial staff of the Daily Journal for quickly providing the posting permission.

Update on 2009-11-20 22:06 by The Complex Litigator

Trenton H. Norris, a defense lawyer and partner at Arnold & Porter LLP, responded to my column with a letter to the Editor.  In my opinion, Mr. Norris misleadingly chose to cast my column as an attack on the hard-working judges throughout California.  I would take no issue with Mr. Norris stating, for example, that my construction of Cohen and Tobacco II is incorrect.  But Mr. Norris, whose practice is devoted to advising and defending companies in regards to California's unique toxics and labeling law, Proposition 65, and California's expansive consumer protection laws, did not do that.  Instead, my column was used as an opportunity to construct inaccurate statements regarding my views about the many judges of this state.  Nothing in my column stated a lack of appreciation for the hard work that Courts do, and my blog has frequently noted those opinions where Courts were called upon to determine exceedingly difficult issues, doing so above the call of duty.

I want to be clear about the purpose of my column: I take issue with Courts that view Supreme Court decisions as irrelevant, a disturbing conclusion for any lower Court to reach.  My column also notes that, based upon numbers of cases and statistics, there is a low probability that a lower Court will see any particular case reviewed.  This fact, alone, eliminates recourse in most cases where a party views an appellate court's decision as inconsistent with controlling Supreme Court authority.  It is also my belief, expressed through my column, that views about the utility of California's consumer protection laws have become increasingly polarized.  Thus, Mr. Norris' disagreement is unsurprising.  What is surprising is the way in which it was expressed.

As an advocate, I'm more than entitled to express the opinion that various Court decisions are not consistent with controlling law.  In my view, Cohen is one such opinion that cannot be faithfully reconciled with Tobacco II.  But that is just my opinion.  I am confident that the vast majority of judges understand that the nature of their work necessarily results in disagreement over outcomes in most instances.  I am also confident that the vast majority of judges appreciate and support my right to disagree with their rulings.

in brief: Evans v. Lasco Bathware, Inc. has a little something for everyone

While it deserves a more substantial discussion, Evans v. Lasco Bathware, Inc. (November 6, 2009) requires at least a brief mention.  In Evans, the Court of Appeal (Fourth Appellate District, Division One) reviewed an Order denying class certification.  The Court of Appeal affirmed.  The interesting elements of the opinion include (1) a discussion of when, in the Evans Court's view, damages become an issue of sufficient complexity to justify a denial of certification and (2) a discussion of "liability only" certification.  In this case, the complications arising when a defective shower pan caused varying degrees of damages in different homes convinced the Court to reject the "liability only" certification option in this case.  Nevertheless, that aspect of class actions is so infrequently discussed in California that it is of note that it was even considered here.

California Supreme Court activity for the week of October 26, 2009

The California Supreme Court held its (usually) weekly conference on October 28, 2009.  Notable results include:

• A Petition for Review was denied in Messenger Courier Association of the Americas, et al. v. California Unemployment Insurance Appeals Board.  See this blog's prior post on this matter here.
• A Petition for Review was denied in Ali v. U.S.A. Cab.  The interesting texture to this denial is that (1) I argued the appeal so I didn't cover this decision on this blog, and (2) aspects of Ali's construction of the Borello opinion are contrary to language in Messenger Courier, but both originate in the Fourth Appellate District, Division One.
• A Depublication Request was denied in Clark v. American Residential Services LLC, et al.  See this blog's prior post on this matter here.

The UCL's "unlawful" prong receives a little boost in Zhang v. Superior Court

The least loved may be the greedy insurance companies.  In Zhang v. Superior Court (California Capital Insurance Company) (October 29, 2009), the Court of Appeal (Fourth Appellate District, Division Two) was called upon to determine whether the alleged failure of an insurance company to adequately pay a loss claim was actionable in light of Insurance Code section 790.03 et seq., Moradi-Shalal v. Fireman’s Fund Ins. Companies, 46 Cal.3d 287 (1988) and Textron Financial Corp. v. National Union Fire Ins. Co., 118 Cal.App.4th 1061 (2004):

This case presents the question of whether fraudulent conduct by an insurer, which is connected with conduct that would violate Insurance Code section 790.03 et seq.—sometimes referred to as the “Unfair Insurance Practices Act”—can also give rise to a private civil cause of action under the Unfair Competition Law (UCL), Business and Professions Code section 17200 et seq. The trial court ruled that it does not and, therefore, sustained defendant and real party in interest California Capital Insurance Company's demurrer to a cause of action under the UCL. We disagree and will direct the trial court to reinstate the cause of action.

Slip op., at 2.  After a thorough analysis of Moradi-Shalal in particular, the Court concluded that, because the plaintiff had also alleged false advertising, a prohibition on a private claim arising under the Unfair Insurance Practices Act was not at issue:

We take from Manufacturers Life that there is no reason to treat insurers differently from other businesses when it comes to actions under the UCL except as required by Moradi-Shalal. We understand that if a plaintiff relies on conduct that violates the Unfair Insurance Practices Act but is not otherwise prohibited, Moradi-Shalal requires that a civil action under the UCL be considered barred. Thus, if the plaintiff in this case had attempted to sue California Casualty under the UCL because the latter had “[n]ot attempt[ed] in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear” (Ins. Code, § 790.03, subd. (h)(5)) or “failing, after payment of a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under which payment [was] made” (Ins. Code, § 790.03, subd. (h)(9)), a somewhat closer question would be presented. (But see fn. 1, ante.) But that is not this case.

Slip op., at 8-9.

The UCL Practitioner, with the focus on all things UCL, has much more on this decision and cross-referenced material about Textron.  By the way, I asked The UCL Practitioner if her blog was the UCL Practitioner or The UCL Practitioner (the URL giving me pause as to which was right), and the definitive blog name is The UCL Practitioner.  I obviously burn a lot of calories wondering about fringe issues.

Apple gets off its proverbial and finally releases SquareSpace iPhone application

Back on September 11, 2009, I announced the long-anticpated release of an iPhone application for SquareSpace in a blog post that must have excited almost no reader of this blog.  Unfortunately, what Apple did was inadvertently release and then pull a beta version.  It had the final version, but Apple sat on its...hands and didn't fix its own mistake.

For that person in the back who was excited, I want you to know that your wait is over.  Today Apple finally got around to releasing the final version of the Application.

Schachter v. Citigroup, Inc. holds that forfeiture of restricted stock shares during restriction period does not run afoul of Labor Code section 201, 201 and 219

Nothing all that exciting here, but in Schacter v. Citigroup, Inc. (November 2, 2009), the California Supreme Court examined a voluntary employee incentive compensation plan that provided employees with shares of restricted company stock at a reduced price in lieu of a portion of the employee's annual cash compensation.  Under the program, if an employee resigns or is terminated for cause before their restricted shares of stock vest, the employee would forfeit the stock and the portion of cash compensation they directed be paid in the form of the restricted stock.  The Supreme Court considered whether the "incentive plan's forfeiture provision violates Labor Code sections 201, 202, and 219, which provide that employees be paid all earned, unpaid wages upon termination or resignation and prohibit agreements that purport to circumvent that requirement."  Slip op., at 1.

The plan worked as follows:

Under the Plan, eligible employees could elect to receive awards of restricted company stock “in lieu of cash payment of a percentage of the employee‟s annual compensation.” Participating employees could elect to receive 5, 10, 15, 20, or 25 percent of their “total compensation in the form of restricted stock.” To participate in the Plan for the following calendar year, an employee had to execute a “Capital Accumulation Plan Election to Receive Restricted Stock” form at the end of the current calendar year indicating the amount of “total compensation in the form of restricted stock” he or she wished to receive. The percentage of “total compensation” received as restricted stock could be different for the first and second six-month periods of the year. 

Restricted stock could not be sold, transferred, pledged, or assigned for a two-year period commencing on the date of the award; however, the Plan provided that participating employees “shall have the right to direct the vote” and “receive any regular dividends on restricted stock shares” during the restricted period.

For purposes of determining the number of shares to be acquired under the Plan, the purchase price of the stock was discounted at a rate of 25 percent of its then-current market price, averaged over the five days preceding the date of the acquisition, to “reflect the impact of the restrictions on the value of the restricted stock, as well as the possibility of forfeiture of restricted stock.” On the date of the purchase, the company either issued stock certificates to a participating employee, to be held by the company until the restricted period lapsed, or made a “book entry” in the company's records evidencing the award. Although a participating employee could elect to pay taxes on the restricted stock when the stock was purchased (see 26 U.S.C. § 83), “the participating employees' restricted shares [were] not included in the participating employees' gross income for federal tax purposes until the two-year vesting period had expired.”

If an employee remained in the company's employ for the two years following the purchase of restricted stock, title to the shares vested fully with the employee, free of any restrictions. However, if an employee voluntarily terminated employment or was terminated for cause before the end of the two-year period, the employee forfeited his or her restricted stock as well as the percentage of annual income designated by the employee to be paid as shares of restricted stock. In contrast, if an employee was involuntarily terminated without cause, the employee forfeited his or her restricted stock, but received in return, without interest, “a cash payment equal to the portion of his or her annual compensation that had been paid in the form of such forfeited [r]estricted [s]tock.”

Slip op., at 2-3.  The facts surrounding this particular plan's terms made the Court's decision a relatively easy one (or at least a unanimous one):

Schachter voluntarily terminated his employment before his restricted stock fully vested. By the terms of the Plan, and Schachter's own concession, he is not entitled to those unvested shares of restricted stock. Having elected to receive some of his compensation in the form of restricted stock, a transaction he was aware carried risk as well as the potential for reward, Schachter cannot now assert that he should have been paid in cash that portion of his compensation he elected to receive as restricted stock. As the company persuasively argues, Schachter's “bargained-for 'wages' have been paid in full. He received all of his promised cash compensation, received immediately exercisable voting and dividend rights in the restricted stock, and was awarded contingent rights of full ownership in that stock. The only thing that has not been 'paid' is something Schachter never 'earned' — fully vested [company] stock. Schachter therefore has no claim under [section] 201 or [section] 202.”

Slip op., at 13.

I hope we don't see a rash of employers trying to concoct illusory bonus plans or divert vested wages from employees as a result of this plan.  But given some of the crazy attempts that I have seen some employers do to accomplish such purposes, I don't hold out much hope that Schachter won't be misused somewhere by some employer or other.