Appellate Reports and cases in brief

Zhang clarifies many aspects of UCL practice, particularly insurance claims

2013 September

Zhang v. Superior Court (California Capital Ins. Co.)

(2013) __ Cal.4th __ (Cal. Supreme)

Who needs to know about this case: Lawyers who litigate cases involving the Unfair Competition Law (“UCL”), Bus. & Prof. Code, § 17200, et seq., particularly in cases involving insurance claims.

Why it’s important: Clarifies many aspects of UCL practice. Holds that common-law tort claims can provide a predicate for a UCL claim under the “unlawful” prong of the statute. Holds that conduct that violates an insurer’s common-law duty of good faith and fair dealing can form the basis of a UCL claim, even if that conduct also constitutes a violation of the Unfair Insurance Practices Act (“UIPA”) (Ins. Code, § 790.03.) Hence, Moradi-Shalal v. Fireman’s Fund Ins. Co. (1988) 46 Cal.3d 287, 304, does not preclude first-party UCL claims based on common-law bad-faith claims. Clarifies that the disapproval of the “unfairness” definition that various courts had promulgated contained in its decision in Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 1, 1071, was expressly limited to actions between business competitors alleging anti-competitive practices, and did not apply to consumer actions under the UCL. Disapproved Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061.

Synopsis: Zhang bought a CGL policy from California Capital Insurance Company (“CCIC”). She suffered a fire loss, was unhappy with how CCIC handled her claim, and filed a bad-faith action against it. Her complaint included a UCL claim, which alleged that CCIC had “engaged in unfair, deceptive, untrue, and/or misleading advertising” by promising to provide timely coverage in the event of a compensable loss, when it had no intention of paying the true value of its insureds’ covered claims. CCIC demurred, arguing that the UCL claim was barred as a matter of law by Moradi-Shalal because the conduct the claim was based on constituted a violation of Insurance Code section 790.03. The trial court sustained the demurrer. The Court of Appeal reversed.
Affirmed.

Moradi-Shalal held that there was no private right of action under section 790.03, and it abolished the concept of the third-party bad-faith claim based on violations of section 790.03, overruling Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880. Moradi-Shalal did not affect first-party bad-faith claims, which are based on the common-law implied covenant of good faith and fair dealing, not section 790.03. Several post-Moradi-Shalal decisions held that the UCL could not be used as a way to skirt Moradi-Shalal by converting third-party bad-faith claims into UCL claims.

In State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093 (State Farm), Division 3 of the Second Appellate District held that, although a UCL claim could not be predicated on a violation of section 790.03, it could be supported by a common-law claim for fraud or insurance bad faith. But in Textron, Division 3 of the Fourth Appellate District disagreed with State Farm, and held that if a complaint alleged “the type of activities” barred by section 790.03, then “merely alleging these purported acts constitute unfair business practices under the unfair competition law is insufficient to overcome Moradi-Shalal.” The Textron court further held that, in light of the Supreme Court’s decision in Cel-Tech, which disapproved the definition of “unfair” business practices relied on by the State Farm court, “reliance on general common law principles to support a cause of action for unfair competition is unavailing.”

The Supreme Court resolved the split between State Farm and Textron, holding that hold State Farm was consistent with, and Textron inconsistent with, the Court’s prior decisions on the scope of UCL liability. The Court explained that, “Textron’s criticisms of State Farm do not withstand examination.” First, the Court noted that it expressly cautioned in Cel-Tech that its disapproval of the definition of “unfair” was limited to cases involving business competitors alleging anti-competitive practices, and did not affect the definition of “unfair” used in consumer actions under the UCL. (The Court noted that the lower courts currently relied on three different definitions of “unfair” in consumer actions, and that the issue of which one was the correct definition was not before it.) Second, the Court held that Textron’s holding that Moradi-Shalal precludes UCL claims against insurers based on allegations of bad-faith claims-handling practices was contrary to the reasoning in the Court’s prior UCL decisions.

A UCL claim does not duplicate causes of action for breach of contract or bad faith, which seek damages. Damages are unavailable in a UCL action. And a trial court has discretion under the UCL not to award equitable relief, such as restitution or an injunction. Zhang “alleges a litany of bad faith practices by California Capital, including unreasonable delays causing deterioration of her property; withholding of policy benefits; refusal to consider cost estimates; misinforming her as to the right to an appraisal; and falsely telling her mortgage holder that she did not intend to repair the property, resulting in foreclosure proceedings. These allegations are sufficient to support a claim of unlawful business practices.” In reaching this conclusion, the Court acknowledges that allegations that an insurer engaged in conduct that violated the implied covenant of good faith and fair dealing is sufficient to state a claim under the UCL as “unlawful” conduct, regardless of whether or not it also qualifies as “unfair” conduct.

Purton v. Marriott Int’l, Inc.

 (2013) __ Cal.App.4th __ (4th Dist., Div. 1.)

Who needs to know about this case? Lawyers who handle claims based on a respondeat superior theory. Lawyers with cases involving employees who become intoxicated within the scope of employment.

Why it’s important: Clarifies that the underlying concept of respondeat superior, the allocation to the business enterprise of responsibility for the risks it creates, extends to accidents that occur while the employee is no longer acting on behalf of the employer, if the conduct that proximately caused the accident occurred within the scope of employment. Specifically rejects employer’s claim that once the employee reaches home safely, respondeat superior liability is automatically cut off, and that the employer cannot be held liable for the employee’s conduct after reaching home.

Synopsis: Michael Landri, a Marriott employee, attended the Marriott Del Mar hotel’s 2009 holiday party, became drunk, and then went home without incident. About 20 minutes after arriving home, he decided to drive another intoxicated co-worker home. Landri did not drink any additional alcohol between the time he arrived at home and the time he left. While driving his co-worker home, Landri rear-ended a car driven by Dr. Jared Purton at high speed, killing Dr. Purton. The trial court granted Marriott’s motion for summary judgment on the ensuing wrongful-death claim, finding that Marriott’s potential liability under a respondeat superior theory was cut off at the point that Landri arrived home. Reversed.

Under the doctrine of respondeat superior, an employer may be held vicariously liable for torts committed by an employee within the scope of employment. Early authorities sought to justify the respondeat superior doctrine on a number of theories, including control by the employer of the employee, but the modern justification for respondeat superior is a deliberate policy allocation of risk. The imposition of respondeat superior liability is not dependent on the employer’s undertaking any act or upon any fault by the employer. Rather, an employer may be vicariously liable for an employee’s tort if the employee’s act was an outgrowth of his employment, inherent in the working environment, typical of or broadly incidental to the employer’s business, or, in a general way, foreseeable from the employee’s duties.

Some states take the view that, in order for an auto accident to be considered to have occurred “within the scope of employment,” the accident had to have occurred while the employee was acting within the scope of employment. Other states hold that it is sufficient that the consumption of alcohol occurred within the scope of employment. California falls into the latter camp. (See, e.g., Harris v. Trojan Fireworks Co. (1981) 120 Cal.App.3d 157 [holding that employer could be held potentially liable under respondeat superior for injuries caused by employee who became drunk at company function and who then drove home]; Childers v. Shasta Livestock Auction Yard, Inc. (1987) 190 Cal.App.3d 792, 806 [employer liable for the actions of its off-duty employees, when the employer provided alcohol and permitted the employees to drink at the workplace after hours].) As Childers explained, “the test is properly applied where an employee undertakes activities within his or her scope of employment that cause the employee to become an instrumentality of danger to others even where the danger may manifest itself at times and locations remote from the ordinary workplace.” (Emphasis in original.)

 Childers posited a hypothetical example to explain the rule – an employee manufacturing radioactive fuel who became contaminated on the job and later contaminated others while playing basketball at a gym far from the jobsite, causing them injury. Because the employer created the risk of injury, the Childers court concluded that it would bear the cost of the injuries.

Thus, existing California case law clearly establishes that an employer may be found liable for its employee’s torts as long as the proximate cause of the injury occurred within the scope of employment. In this case, the evidence shows that the hotel provided alcohol and permitted the consumption of alcohol brought to the party by Landri, and served him additional alcohol. The party and the drinking of alcoholic beverages was a customary incident of the employment relationship at the hotel. A trier of fact could conclude that the party and drinking of alcoholic beverages benefited Marriott by improving employee morale and furthering employer-employee relations.

Marriott’s attempt to distinguish Harris, Childers, and similar cases based on the fact that the accidents on those cases occurred while the employee was on the way home is unavailing. “Assuming a trier of fact concludes that the proximate cause of the accident occurred within the scope of employment, there is no reasonable justification for cutting off an employer’s potential liability as a matter of law simply because an employee reaches home.” The prior cases explain that the employer’s potential liability continues until the risk that was created within the scope of the employee’s employment dissipates. As the Childers court explained, “We think that if a commercial enterprise chooses to allow its employees to consume alcoholic beverages for the benefit of the enterprise, fairness requires that the enterprise should bear the burden of injuries proximately caused by the employees’ consumption.”

Shorter Takes:

Libel, anti-SLAPP motion, Yelp postings: Bently Reserve, LP v. Papaliolios (2013) __ Cal.App.4th __ (First Dist., Div. 1.)

Papaliolios posted a negative review of an apartment building on Yelp, where he formerly was a tenant. The review, posted under a pseudonym, contained the following statements: the building is newly owned and occupied by a sociopathic narcissist; the new owner’s noise, intrusions, and other abhorrent behaviors contributed to the death of three tenants, and the departure of 8 of 16 long-term tenants; the new owners have sought to evict 6 long-term tenants whose rent was fully paid; and the new owners cleaned out the entire upper floor of the building in order to charge higher rents. The owners filed a libel action. Papaliolios filed an anti-SLAPP motion, which the trial court denied. Affirmed.

“While many Internet critiques are nothing more than ranting opinions that cannot be taken seriously, Internet commentary does not ipso facto get a free pass under defamation law.” Papaliolios went out of his way in his review to assure readers that he was a credible source, providing factual information: “This is my own first-hand experience with this building, and its owners. I know this situation well . . . and have personally witnessed the abhorrent behavior of the owners of the building.” Such assurances suggest that facts are being communicated, not opinions. While the review contains epithets not meant to be taken as serious assertions of fact, it also contains statements that could reasonably be understood as conveying facts – each provable – and each meant to be used by prospective tenants to evaluate the owner’s building as a future residential choice.

The owners were able to meet the relatively low burden of showing that they would be likely to prevail on the merits because the statements contained in the review were false. For example, they showed that 2 of the 3 “dead” tenants were, in fact, still alive, and the third had died of cancer and pneumonia; and that Papaliolios was the only tenant in the building that the owners had sought to have evicted. The motion was therefore properly denied.

Class Action Fairness Act; federal removal; amount in controversy: Watkins v. Vital Pharmaceutitcals, Inc. (9th Cir. 2013) __ F.3d __.

Watkins filed a class action in Los Angeles Superior Court alleging that Vital had deceptively marketed its protein bars as having little or no effect on blood sugar. His complaint purported to be on behalf of “thousands of consumers throughout the United States” who had allegedly sustained “millions” in damages. Vital removed under the Class Action Fairness Act (CAFA). It relied on the allegations of the complaint about the size of the class and the damages sought, and a declaration from the company stating that its sales of the bars over the prior four years exceeded $5 million. The district court remanded, finding that the showing as to the amount in controversy was insufficient. Vital appealed. Reversed. The Court held that it had jurisdiction to review the district court’s remand order. The undisputed declaration from the company that its sales of the bars exceeded $5 million over the prior four years showed that the amount in controversy was sufficient to satisfy CAFA’s $5 million requirement.

Reconsideration, Code Civ. Proc.
 § 1008; “new law”; depublication: Farmers Ins. Exh. v. Superior Court (Wilson) (2013) __ Cal.App.4th __ (2d Dist., Div. 3.)

Wilson filed a class action against Farmers, alleging various Labor Code violations. The trial court granted Wilson’s motion for class certification based on the opinion in Harris v. Superior Court, which held that a class of claims adjusters were not exempt employees, and that their claims were properly certified as a class action. After the Supreme Court depublished the Harris opinion Farmers moved for reconsideration of the class-certification order. The trial court denied reconsideration. Farmers petition for a writ. Granted. Section 1008 allows a trial court to sua sponte reconsider a prior order if, at any time, it determines that there has been a change in the law and that its prior decision warrants reexamination. The trial court’s determination that the Supreme Court’s order depublishing the Harris opinion did not constitute a “change in the law” was erroneous. A depublication order is not without legal effect. Since Harris was the sole authority relied on to support the class-certification order, reconsideration in light of the depublication of that case was proper.