California Litigation Blog : California Business Litigation Lawyer & Attorney : Jeffrey Huron Law Firm : CA Real Estate Law & Contract Disputes

Bottom line: If you have litigation involving a trust, don’t make the mistake of treating the trust as you would a person or an entity. 

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The Court in Bardasian v. Superior Court 201 Cal.App.4^th 1371 (2011) issued a peremptory writ and reversed an order dissolving an injunction because plaintiffs failed to post a bond. The case involved a foreclosure dispute between borrowers and their lender over whether the lender complied with Civil Code section 2923.5, subd. (a). Pursuant to that section, a lender must contact the borrower to try to prevent foreclosure before recording a notice of default.

In granting the borrowers' motion for an injunction, the trial court expressly found that neither the lender nor its servicer contacted the borrowers before issuing a notice of default. The trial court, however, required plaintiffs to post a $20,000 bond and make $500 monthly payments. It later dissolved the injunction when plaintiffs failed to post the bond and make monthly payments.

The appellate court concluded that the trial court erred in requiring a bond in the first place. The trial court did not merely determine that plaintiffs had a substantial likelihood of success on the merits, but rather decided the dispute in plaintiffs' favor. The purpose of an injunction is to protect the defendant against losses incurred if the defendant later prevails on the merits. Therefore, no undertaking is required when the court grants an injunction after deciding the merits. Shahen v. Superior Court (1941) 46 Cal.App.2d, 187, 189 (bond cannot be ordered on a permanent injunction issued after a trial on the merits).

Posting bonds is often difficult and expensive for clients. Whenever you seek an injunction, try to get the court to rule on the merits. If you succeed, you remove the requirement for a bond or undertaking.

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 In Trident Labs, Inc. v. Merrill Lynch Commercial Finance Corp., the Court of Appeal held that a party, who has the option to litigate in more than one forum and litigates extensively in one forum, cannot then decide to enforce its rights to litigate in another forum. Pursuant to a forum selection clause, Trident Labs agreed to waive any rights to commence an action anywhere but Illinois.  Trident nevertheless sued Merrill Lynch in California.  Merrill Lynch actively litigated the case for 19 months in California by filing a cross-complaint, conducting substantial discovery and filing motions seeking relief. Merrill Lynch then filed a motion pursuant to Code of Civil Procedure section 410.30 to stay or dismiss the lawsuit based on the forum selection clause.  Merrill Lynch contended that it had the right to make the motion "at any time," and the trial court agreed.  The Court of Appeal noted that section 410.30 does not say such motions may be made at any time. "Where no limits are stated, a reasonableness standard is inferred."  The Court of Appeal concluded that 19 months of delay, without any justification, is unreasonable as a matter of law and reversed the trial court. Moral of the story: Don't delay!

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Do you skip the boring boilerplate in contracts before signing them? If so, you could be in for a big surprise later if there is a contract dispute.  Before you sign any contract, you should focus on how disputes will get resolved. You are best served if there is language that provides for each of the following: (1) mediation prior to litigation; (2) reimbursement of attorneys' fees; and (3) litigation, not arbitration.

MEDIATION FIRST: Although the majority of lawsuits are settled, it is usually after the parties have incurred substantial attorneys' fees. Mediation should occur early and often until the dispute is resolved. Your next contract should therefore make mediation mandatory before either side may file a lawsuit. Anyone who sues first, loses his or her right to recover attorneys' fees.

ATTORNEYS' FEES: You want to discourage lawsuits by ensuring that the loser pays the winner's legal fees. The fee language should be broad enough to cover any dispute arising out of or related to the contract.

LITIGATION, NOT ARBITRATION: In arbitration, you give up the right to a jury trial and an appeal. This means that your stuck with a bad decision--even an incorrect one--unless you can prove the arbitrator was biased. Arbitration is also expensive and often inefficient.

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The California Supreme Court has definitively upheld contractual obligations for payment of interest charges on late payments. Southwest Concrete Products v. Gosh Construction Corp., 51 Cal.3d 701 (1990), involved a dispute between a contractor and its pipe supplier. The supplier sued the contractor when it failed to pay after alleging the pipe was of poor quality. The supplier’s invoices contained an interest provision on late payments at the rate of 1 ½% per month (18% per year). After the jury found in favor of the supplier, the trial court awarded the supplier prejudgment interest at the contract rate of 18% per year rather than the 10% legal rate for prejudgment interest.

The issue of whether the interest charges violated the usury law establishing maximum rates of interest reached the Supreme Court.  In upholding the interest charges, the Supreme Court ruled that the law of usury applies only to a “loan or forbearance.” The contractor did not claim that the contract involved a loan, but argued instead that the interest charge provision amounted to forbearance.

The Supreme Court disagreed. Forbearance is when the creditor agrees to refrain from enforcing the debt immediately and gives the debtor more time to pay. The supplier’s invoices required the contractor to pay the interest charges on any unpaid balance after the tenth day of the following month of the date of purchase. The supplier did not agree to forbear enforcement, and the fact that it filed suit was proof that it did not agree to refrain from enforcing the debt.  Therefore, the Supreme Court found the usury law did not apply to the interest charges and upheld the trial court’s award.

If you provide services or materials, then you should include an interest provision in your contracts or invoices.

Here are two examples:

1. Late charges will be imposed on any balance remaining unpaid after 30 days computed at 1.5% per month (18% per year). Your unpaid balance is determined by taking the beginning balance of your account for each month, adding any new charges and subtracting any payments and credits made to your account. We will then multiply this amount by the applicable monthly periodic rate of 1.5% to compute the late charge for your account for that month.
2. Net 30; Interest at 1.5% per month after 30 days.

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Lost profits are net gains made from sales, after deducting expenses. They are recoverable in California if there is sufficient evidence to show with reasonable certainty that, but for the defendant's conduct, the plaintiff would have earned such profits. However, the plaintiff does not have to prove the exact amount of its lost profits.

For an established business, lost profits may be proven from the past volume of business and other provable data relevant to the probable future sales. It is more difficult to prove lost profits for an unestablished business. Courts frequently decline to award lost profits for such new businesses because the absence of income and expense experience renders anticipated profits too speculative to meet the standard of reasonable certainty.

Nonetheless, lost profits for an unestablished business can be proven in various ways, including with expert testimony, economic and financial data, market surveys and analyses, business records of similar enterprises, and the like. Other evidence relevant to proving lost profits for new businesses includes: (i) whether the business is in an established market; (ii) the plaintiff’s experience in the business he or she is seeking to establish; (iii) the defendant’s own pre-dispute projections (if, for example, the dispute involves the sale of a business); and (iv) the experience of others in a similar business.

If evidence of lost profits includes a comparison to other businesses, those businesses must be sufficiently similar. The comparable businesses must operate under similar conditions, such as the same area and with the same equipment. 
 

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Did you know that the Commercial Arbitration Rules for the American Arbitration Association permit an arbitrator to award attorneys' fees if all parties have requested such an award? Pursuant to R-43 of the Rules, the arbitration award may include "an award of attorneys' fees if all parties have requested such an award."

In other words, if you file a demand for arbitration and request fees, and the respondent files an answering statement requesting fees, then the arbitrator may award the prevailing party fees even if there is no agreement providing for the recovery of fees! Therefore, if neither side is legally entitled to the recovery of attorneys' fees, you must be very careful not to unwittingly request attorneys' fees in your arbitration demand or answering statement because it could end up costing your client the other side's attorneys' fees.

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When you are sued, you should react just as a battleship when it comes under attack because you are under attack. Alarm bells should go off and you should immediately act to prevent or contain damage. The following actions will help protect you after you have been sued:

1. Contact Your Insurance Company. Review all of your insurance policies for possible coverage.  Immediately notify your broker and insurance company if you believe you might be covered under your policy. You may lose coverage if you delay notifying your insurance company of the lawsuit.  If you are covered, your insurer will defend you in the suit and hold your harmless from any loss.  If it is unclear whether your policy provides for coverage, the insurer may have to defend you or your business even it is later determined that your policy does not provide for coverage.  Therefore, err on the side of coverage and document your conversations with your broker and insurer.  Remember, however, your conversations with your broker are not privileged and may be used against you by the insurer in evaluating whether there is coverage.
2. Begin Preparing Your Defense.  Read and understand the complaint before talking to an attorney. Note your initial responses to the allegations and provide them to your attorney as soon as possible.  Gather all of your documents, including emails. Record and save any voice messages that may be useful to your defense. Talk to witnesses.  If they say anything that supports your defense, send them a letter or email confirming their statements to you.
3. Hire the Right Attorney.  Do not wait for the insurance company to hire an attorney for you. In many cases, the insurance company will take more than 20 days to accept or deny coverage. Give yourself time to hire the right attorney.  For example, hiring an attorney with no (or very little) trial experience is probably not the right choice, especially in high-stakes litigation. 
4. The Best Defense Is A Good Offense. Give serious thought about whether you have any grounds for asserting claims against the plaintiff. If you do, then you should countersue the defendant. Make sure you and your attorney thoroughly explore grounds for a countersuit because a countersuit will put the plaintiff on the defensive and give you leverage in settlement discussions.  
5. Stay Proactive.  Communicate with your attorney regularly. Make suggestions and recommendations concerning your defense.  Success depends on employing the right tactics at the right time as much as the merits of your defense. Let your attorney know if you do not agree with his or her defense tactics.  You know your adversary best and should provide as much insight as possible to your attorney about your adversary's motivations, strengths and weaknesses.

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The California Supreme Court's recent decision in Reid v. Google, Inc. is welcomed news for judges and trial lawyers.

Previously, if a trial court failed to rule on objections to summary judgment evidence, the objections were waived and not preserved for appeal. (Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 670, fn. 1; Sharon P. v. Arman, Ltd. (1999) 21 Cal.4th 1181, 1186-1187, fn. 1.) The waiver rule created tension between overworked judges that are often bombarded with objections to summary judgment evidence, and trial lawyers who were required to request rulings on the objections at least twice at the summary judgment hearing to avoid waiving them. The waiver rule also presented problems for Courts of Appeal: some applied the waiver rule; while others considered evidentiary objections despite the lack of trial court rulings. In Reid, the California Supreme Court disapproved of its decisions Ann M and Sharon P, so the waiver rule and the tension it created are behind us.

Now, things are simple for all concerned. To preserve objections for appeal, litigants must simply object to specific evidence in writing before, or orally at, the summary judgment hearing. See Cal. Rules of Court, Rule 3.1352. If the trial court fails to rule on the objections, then "it is presumed that the objections have been overruled, [] the trial court considered the evidence in ruling on the merits of the summary judgment motion, and the objections are preserved on appeal."

The Supreme Court also disapproved of Biljac Associates v. First Interstate Bank (1990) 218 Cal.App.3d 1410, 1419 to the extent that it permits a trial court to avoid ruling on evidentiary objections, and encouraged attorneys to limit their evidentiary objections to those that "really count."

I can't think of a more practical result.

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