In this commercial lease dispute, the trial court abused its discretion in not one, not two, but three different ways when it awarded contractual fees to the losing defendant.

In Waterwood Enterprises, LLC v. City of Long Beach (D2d1 Dec. 18, 2020) No. B296830, landlord claimed the city was liable for substantial repairs to a property that had been used as a police evidence facility. The city claimed the damages were normal wear and tear. A jury awarded landlord $45,000 in damages against the city.

Yet the trial court went on to rule the city was the prevailing party, awarding it over $170,000 in attorney fees. The court reasoned the verdict was closer to the city's prior settlement offers than to the landlord's (though landlord's verdict exceeded the city's CCP § 998 offer).

The result was that, despite winning at trial, landlord wound up as the judgment debtor, owing the city over $100,000.

The Second District reversed, finding the trial court had abused its discretion in at three ways.

First, the trial court based its ruling on the fact that the jury's verdict was based on the city's liability to repair the parking lot, which, the trial court stated, "was exactly the relief the City acknowledged to the jury that it should pay to [landlord]." While the trial court's reasoning was unsound for other reasons, it abused its discretion because the premise was simply not supported in the record. "[A] trial court abuses its discretion when it relies on facts wholly unsupported by the record."

Second, "[t]he trial court also abused its discretion in relying on improper legal criteria," namely, the parties' settlement offers. "[A] trial court may not consider the parties' settlement communications" in determining the prevailing party under Civil Code section 1717.

Third, "[a] trial court abuses its discretion when it applies the wrong legal standard." Here, the trial court misapplied the legal standard under section 1717. The city contended it had conceded it was liable for some of the parking lot repairs, and thus the jury verdict based on those repairs could not be used to determine plaintiff was the prevailing party. In this, the city and the trial court misapplied section 1717, which requires the party to allege in its answer that tender for such damages had been made, and to thereupon deposit the amount with the court. City did not do that here.

Finally – and rather burying the lede – the Court notes that there was only one contract cause of action, that plaintiff prevailed on it, and thus defendant could not be the prevailing party. Nonetheless, the Court noted plaintiff's victory was not a "simple, unqualified win," and thus the trial court had discretion to determine there was no prevailing party. The Second District remanded to determine whether plaintiff was the prevailing party, or that there was no prevailing party.

The takeaway: Improper or unsupported findings, reliance on improper evidence, and misapplying legal standards are key ways to obtain reversal on abuse of discretion grounds. 

Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at tkowal@tvalaw.com or (714) 641-1232.

Bookmark Penal Code section 496 and Bell v. Feibush (D4d3 2013) 212 Cal.App.4th 1041, if you have not already, which together hold that failing to pay back a loan could subject the borrower to penalties for civil theft: treble damages, plus attorney fees. No need to establish the wrongdoing via a criminal conviction first.

This is a powerful remedy. Even the trial judge in Bell begrudged it: “I really don't like it, to be honest with you, but that is what [Penal Code section 496] says.” The Fourth District hedged a bit too, cautioning that the remedy would be limited to situations actually involving receipt of stolen property, such as in false pretenses: when a borrower receives money with no intention to repay it, it is no different from other forms of "stolen property," and thus falls under the statute.

But the Fourth District recognized "the potential consequences" of its interpretation. That is why it suggested that "the Legislature [] address those policy concerns."

By six years later in 2019, the Legislature had taken no action. The Fifth District thus followed Bell, and a number of other cases similarly applying section 496, in its 2019 opinion in Switzer v. Wood (D5 Apr. 15, 2019) F077206. Switzer held a business partner liable for civil theft for converting money and property belonging to a medical devices venture.

But this year the Second District parted ways in Siry Inv. v. Farkhondehpour (D2d2 Mar. 3, 2020) 45 Cal.App.5th 1098, where a business partner funneled the partnership's rental income into his personal entity. The shape of the fact pattern was not materially different from Switzer, but Siry held "receiving stolen property" means "trafficking," and not ordinary business torts, reasoning that the approach in Bell and Switzer and other cases would work "a significant change" to the regime of tort remedies.

Siry does not disagree with other cases that the application to civil torts is supported by the statute's very language. But the Second District "conclude[s] that Penal Code section 496's language sweeps more broadly than its intent." While other cases had noted, as did the Fourth District in Bell, that it "is not th[e] court's role" to read language in or out of a statute, the Siry court apparently takes a different view. Siry notes that "our Legislature has not shouted, stated, or even whispered anything about Penal Code section 496 effecting such a 'significant change'...."

But then again, the Legislature has had many years' notice. Inaction is probative, too.

The California Supreme Court has granted review, and in due course will answer the question: “May a trial court award treble damages and attorney fees under Penal Code section 496, subdivision (c), in a case involving the fraudulent diversion of business funds rather than trafficking in stolen goods?”.

Stay tuned.

[Tags: Civil Theft, Treble Damages ]

Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at tkowal@tvalaw.com or (714) 641-1232.

You may be surprised to learn that an attorney's 25% referral arrangement discussed orally with the client, and reduced to a writing signed by the client, is not enough to satisfy rule 1.5.1 of the State Bar Rules of Professional Conduct requiring the client's "consent" to any fee division.

So held the Third District in Reeve v. Meleyco (D3 Mar. 24, 2020) 46 Cal.App.5th 1092. The written fee agreement was unenforceable, and the referring attorney filed after the two-year statute applicable to quantum meruit actions.

"Written consent," the court held, "requires written words expressing agreement or acquiescence, not just words expressing receipt or understanding." Even client's trial testimony that by signing the acknowledgment he had "agreed" to it was not enough, because the agreement has to be in writing.

The result: Referring attorney got nothing. Client had a total settlement haul of $3.375 million, and the jury had awarded the referring attorney $78,750, to which the trial judge had added $49,364.35 in prejudgment interest. But the entire award was reversed as a matter of law.

And the client was awarded his costs on appeal.

[Tags: Retainer Agreements, Professional Ethics ]

Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at tkowal@tvalaw.com or (714) 641-1232.

Take care in drafting your notice of appeal, but if you notice you have made an error, all is not lost. The California Supreme Court's January 2020 opinion in K.J. v. Los Angeles Unified School Dist. (Cal. Jan. 30, 2020) 8 Cal.5th 875 will guide you through your effort to save a malformed notice of appeal.

In that case, attorney was sanctioned, and filed a notice of appeal of the sanctions order. But the notice of appeal named only the client as the party appealing, not the attorney.

Held: No matter, the appeal was saved because under the circumstances, including the facts that client had not been sanctioned and that respondent could not possibly have been misled, it was the attorney who intended to appeal. The omission, due solely to inadvertence, could not defeat the policy of liberality in construing notices of appeal.

The Supreme Court reversed the Second Appellate District, which had held that, even under the liberal policy concerning notices of appeal, such a notice could not be "stretch[ed] ... so far as to deem a notice of appeal to include an unnamed party." The high Court found indeed it could stretch that far, so long as the intent was clear and the respondent was not misled.

The Court also confirmed that while errors in the timing of a notice of appeal are fatal, the same is not true concerning errors in the contents of the notice.

The Court also includes a good survey of the authorities concerning how to construe notices of appeal, including premature appeals from interlocutory rulings, where courts have "admoni[shed] .. .members of the bar ... to cease appealing from ... obviously nonappealable order[s]." Admonish away, says the Court, but that doesn't mean the appeal can't be considered.

The Court disapproves Calhoun v. Vallejo City Unified School Dist. (1993) 20 Cal.App.4th 39 and other cases that suggest an attorney’s name must appear in the notice of appeal to preserve the attorneys' right to challenge a sanctions order.

[ Tags: Notice of Appeal, Supreme Court ]

Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at tkowal@tvalaw.com or (714) 641-1232.

Appellant and attorney sanctioned a blistering $56,000 for their frivolous appeal. (Malek Media Group LLC v. AXGC Corp. (D2d3 Dec. 16, 2020) No. B299743.)

After a business dispute was decided against him, appellant decided to trawl the internet for dirt on the arbitrator, who, he discovered, was a founding member of GLAAD and maintained a Twitter account opining on "social justice" issues.

So appellant moved to disqualify the arbitrator and have the award thrown out. The grounds: the dispute involved, tangentially, an allegation that appellant sent sexually explicit text messages to two people (though not, apparently, to the respondent), thus warranting disqualification because of the arbitrator's "social justice" public comments and supposed endorsement of the #MeToo movement. Also: appellant is a Catholic, thus warranting disqualification of the GLAAD-affiliated arbitrator because GLAAD and the Catholic Church "were antagonistic to each other."

But it has long been the law that a judicial officer – whether a judge under CCP §§ 170.1 and 170.3 or an arbitrator under § 1281.9 – may not be disqualified merely due to the objector's hypersensitivity or undue suspicion. Instead, the eyes of "the partisan litigant emotionally involved in the controversy" are not the ones through which bias is measured.

For example, an unhappy litigant tried the same tactic, unsuccessfully, not ten years ago in Rebmann v. Rohde (2011) 196 Cal.App.4th 1283. The losing defendant trawled the web for dirt on an arbitrator who, defendant discovered, had lost family in the Holocaust and was a member of the "1939 Club" to prevent future Holocausts. Why was this objectionable? Because defendant's father had been in the SS.

Rebmann held that the arbitrator's personal connection with and opposition to the Holocaust was not grounds for disqualification, because there was no "particular reason" why the arbitrator should be biased against the defendant. Also significant to the analysis was the timing of the objection: "they should have done their Googling before the arbitration began," because litigants cannot "trifle with the courts by standing silently by, thus permitting the proceedings to reach a conclusion in which the party could acquiesce if favorable and avoid if unfavorable.”

Like the Fourth District in Rebmann, the Second District rejected appellant's claim of bias, as not even a close call. But unlike in Rebmann, Malek court imposed sanctions against the appellant. The Court found, concerning appellant's theory of bias, that there were "no dots to connect." But the Malek court went on to find appellant had "peddle[d] a far-fetched conspiracy theor[y], laced with sexism and homophobia." While the Court did not clearly connect the dots how this theory was more "far-fetched" or offensive than that in Rebmann, the Court added that appellant "has a history in this dispute of making frivolous claims," and had "adopted a war-like mentality" in the litigation. (A good example how overall litigation strategy can catch up with you.)

The Court imposed sanctions of $46,000 payable to the respondent, and $10,000 payable to the Court, both jointly and severally against both appellant and counsel. Counsel was also ordered to report the sanctions to the State Bar.

Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at tkowal@tvalaw.com or (714) 641-1232. 

Trial by reference will become very common, I suspect, as trial courts continue to limit their availability due to Covid. A key advantage over arbitration: preservation of the right of review via postjudgment motions and appeal. You may also give your referee authority to hear postjudgment motions and, if appropriate, to conduct a new trial.

But unless you are explicit in your reference motion, the trial court may not substitute its judgment for that of the referee; the referee may not decide postjudgment motions; and any new trial ordered by the court will be held by the court, not the referee. So holds the Second District, Division Three recently in Yu v. Superior Court, No. B304011 (D2d3 Oct. 27, 2020).

In Yu, a referee in a nonjudicial foreclosure action, appointed by general reference by agreement of the parties under Code of Civil Procedure sections 638 through 645.1, hit the bank with $2 million in damages at $5 million in punitives. On the bank's motion, the trial court declined to approve the award, and ordered a new trial instead.

On writ review, the Second District first looked to the parties' reference agreement, noting it did not provide for review of the referee's rulings.

The Court then turned to the statutes. Section 638 provides the ruling by a referee sitting by general reference "must stand as the decision of the court." Although section 644(a) provides that judgment "may be entered thereon," the Court held that that "cannot mean that the trial court has discretion whether to enter judgment." Instead, entry of judgment is a ministerial act that must be entered immediately by the clerk, or alternatively, by the judge. (Code Civ. Proc., § 664.) But entry of judgment is not discretionary. And while section 664 permits objections, such objection must be submitted to the referee, and before the ruling is filed.

The Court's legislative analysis turns up the same result: In the case of a general, consensual reference, the power to review the referee's ruling is solely through the postjudgment statutes and appeal. The court may not decline to enter judgment on the referee's final statement of decision.

The trial court did not err, however, in granting the bank's new-trial motion, or in setting that new trial before the trial court rather than the referee. Beware, however, that the Court looked to the parties' agreement that the referee decide all matters "in a trial" as support that postjudgment remedies, including a new trial, were not contemplated by the reference. Thus, the parties' right to trial by jury were restored.

If this is not your intent in considering a reference, be sure it is reflected in the proposed reference order you submit to the court. The cases support either approach, but you have to be explicit about it.

A writ issued directing the trial court to enter judgment on the referee's statement of decision, and then to order a new trial to be conducted by the trial court.

Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at tkowal@tvalaw.com or (714) 641-1232.

In Doe v. Regents of the University of California (1st Dist., Div. 4 Nov. 30, 2020) No. A158704 (unpublished), a third-year med student at UCSD examined a 12-year-old girl brought in by her mother for a potential eating disorder, but conducted the examination of the girl's breasts and genitals without a chaperone, in violation of University policy. After a complaint, the University's Office for the Prevention of Discrimination and Harassment (a dystopian-sounding affair) investigated the student, and though there was no evidence of any sexual misconduct, the investigator found the examination could have been "perceived as sexual in nature" by a minor in the patient's position. On that basis, the student was terminated from the University.

After unsuccessfully appealing with the University, student sought a writ of administrative mandate in the Superior Court, and obtained a finding "there's no substantial evidence ... in the entire record that this was of a sexual nature."

But despite prevailing, student was denied PAGA fees under CCP § 1021.5. The First District held PAGA fees are not available when succeeding on a substantial evidence question, because that is not enough of "a ringing declaration of the rights of all or most" members of the public or group represented by the plaintiff. Such fees typically are reserved for vindicating due process rights, which plaintiff did not do here. His victory was more personal in nature.

And Government Code § 800 fees, for overturning a University's "arbitrary and capricious" action in a Title IX action, were not available either. Even though the adverse action was not based on any legally cognizable evidence, the trial court, in its discretion, may still find the action was not arbitrary.

That is, even if a University acts upon no evidence, unless it does so in a way that strikes the courts as "stubborn" or in "bad faith," it will not be found to be arbitrary or capricious. (That strikes me as rather a deviation from, or at least an amendment to, the literal meaning of "arbitrary or capricious." But, that is only my opinion.)

Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. Contact Tim at tkowal@tvalaw.com or (714) 641-1232.

You have a deep bag of tricks as a respondent on appeal to win affirmance of your judgment. One of those tricks is forfeiture: if appellant did not raise an argument below, it is forfeit on appeal. Done. Dead. Your judgment is affirmed. But in United States v. Ngumezi, No. 19-10243 (9th Cir. Nov. 20, 2020), respondent did not argue forfeiture on appeal, and so forfeited its forfeiture argument, and lost its judgment.

In Ngumezi, officer pulled over defendant for not having any plates on his new car, which had a bill of sale in the windshield. Defendant parked next to a gas pump, obstructing approach from the driver's side. So officer leaned into the vehicle from the passenger side to question defendant. Defendant revealed he had a suspended license, which required police to inventory and tow the vehicle. During the inventory, the officers found a loaded .45 handgun, which defendant was prohibited from carrying due to a prior felony.

At trial, defendant moved to suppress the firearm as the fruit of an illegal search. Defendant argued the officer's reasonable suspicion dissipated when he came in view of the bill of sale in the windshield. The district court rejected that argument.

Defendant also argued that the officer's leaning in the window was an illegal search. That was a better argument. But, defendant did not make that argument in his suppression motion. Instead, defendant made it in his reply brief, buried in a footnote. Defendant having made his argument inconspicuous, the district court apparently did not even reach it.

Defendant was convicted and sentenced to 18 months' prison.

But the 9th Circuit reversed, based on defendant's inconspicuous argument buried in a footnote in its reply brief to its suppression motion. The 9th agreed with defendant that the officer's leaning in the window was an illegal search in violation of the Fourth Amendment. Normally, the Court noted, "a perfunctory request, buried amongst the footnotes, does not preserve an argument on appeal." Coalition for a Healthy Cal. v. FCC, 87 F.3d 383, 384 n.2 (9th Cir. 1996). Given the obscurity of defendant's argument, the Court went on, "had the government argued that the issue was forfeited, we would have been compelled to agree."

But, the Court was forced to acknowledge, appellate counsel did not argue the issue was forfeited. So the Court reached the argument, and, on the merits, reversed.

Takeaway: Before addressing any argument on the merits on appeal, ask yourself if it was properly raised before the trial judge. Forfeiture and waiver issues are common in trial practice, and posttrial practice as well, particularly in Rule 50 motions. Keep a waiver/forfeiture template handy, and routinely note all issues your adversary has waived or forfeited by not timely raising. This will help keep you from forfeiting any forfeiture issues, or waiving any waiver issues.

A recent case out of the Fourth Appellate District in Orange County affirms a finding of contempt against an attorney for his conduct during a 15-minute settlement conference, including persistent interruptions and calling opposing counsel a liar, without explanation. In the opinion, the Court draws a line between zealous advocacy and bullying tactics: "[i]nterrupting an opponent's presentation to loudly proclaim that opponent is 'lying' or is a 'liar....is contemptuous."

In Moore v. Superior Court (D4d3 Nov. 16, 2020) No. G058609, attorney Kevin J. Moore represented the trustee in an action concerning a claim against the trust for child support. During a mandatory settlement conference, attorney Moore was "extremely rude, verbally aggressive, and unprofessional" toward opposing counsel and the pro tem judge, and "yelled at and accused" opposing counsel of lying and failing to research his case, though without explaining these accusations. Attorney Moore also "interrupted, talked over, and yelled at" opposing counsel and the pro tem judge, and "refused to calm down upon request." Opposing counsel remained calm throughout the 15-minute settlement conference. Attorney Moore also failed to file a settlement conference statement (though this proved to be an oversight by Moore's associate due to a medical situation).

At trial, the pro tem judge elaborated he and counsel "were unable to complete a sentence without being interrupted," and that attorney Moore "indicated an absolute refusal" to consider a lien against the trust.

An OSC re contempt was issued concerning attorney Moore's failure to submit a settlement conference statement, and failure to reasonably prepare for or participate in good faith at the conference. At the OSC, the opposing party testified attorney Moore "looked at my attorney and stated 'you could be dead'". Attorney Moore responded that this was not a threat but an observation that the proposed lien involved long-term considerations.

The opinion also relates: "Finally, essentially acknowledging his impropriety, and perhaps hoping that an act of contrition might cause him to escape any further consequences for his improvident behavior, Moore offered an apology to the attendees of the MSC at the conclusion of his direct examination." (Personally, I was chilled by the Court's reliance on attorney Moore's apology as "essentially acknowledging his impropriety." All members of the bench and bar should aspire to higher standards of civility. But signaling that an apology can and will be used against you in a court of law surely works against that goal.)

Attorney Moore was convicted on four counts of contempt, including:

• Blocking the temporary judge from seeking aid of the supervising judge, by arguing it would improperly divulge confidential settlement discussion.
• Two counts relating to failing to file a settlement conference statement.
• Failing to act in good faith.

The Fourth District, Division Three, reversed on the first three counts, as they were not adequately set out in the charging affidavit. The Court affirmed the finding of contempt on the fourth count.

In a fairly bright-line ruling, the Court held that the advocate's duty of zealous advocacy "is never properly discharged through name calling or by hurling insults," including "[i]nterrupting an opponent's presentation to loudly proclaim that opponent is 'lying' or is a 'liar....'" "In a word, it is contemptuous."

The Court relied heavily on a statement in attorney Moore's writ petition, characterizing his behavior as "employing a tactic in representing his client that included raising his voice and accusing [opposing counsel] of making false statements, which [Moore] believed to be true." While the sentence is vague due to poor construction, the Court accepted this as a concession that attorney Moore's behavior was not spontaneous, but was part of a strategy. This, the Court liked not at all.

The Court held that, while attorneys are entitled to "stand their ground," doing so while disrespecting the judge and judicial process, particularly as part of a premeditated tactic, is contemptuous.

The Court also reversed the award of fees and costs against attorney Moore, holding that such an award is only available for contempt that violates a court order. But the Court hastens to add: "Though Moore’s petition is largely successful, that success should in no way be construed as an endorsement by this court of his behavior."

Also worth noting: The Court pointed out that opposing counsel was calm and reserved in the face of attorney Moore's belligerence. Declining to rise to the bait of bad behavior served his client well.

Tim Kowal helps trial attorneys and clients win their cases. He co-hosts the Cal. Appellate Law Podcast at http://www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at https://tvalaw.com/articles. Contact Tim at tkowal@tvalaw.com or (714) 641-1232.

If you question witnesses at trial close to the line of privileged communications, be sure the judge gives the mandatory instruction, if your adversary asks for it, against drawing improper inferences under Evidence Code § 913. Also, asking about a client's intent in communicating with counsel is no different than asking about the communications themselves.

Those are the lessons from Carroll v. Comm’n on Teacher Credentialing (D3 Oct. 23, 2020) No. C083250 (https://www.courts.ca.gov/opinions/documents/C083250.PDF).

Plaintiff, then an employee of the California Commission on Teacher Credentialing, reported the Commission had a backlog of cases of teacher misconduct, including serious discipline cases that had not been reviewed for two years. Plaintiff called the state whistleblower hotline, and the Joint Legislative Audit Committee authorized an audit. The Commission fired plaintiff. The audit confirmed plaintiff's claims, as well as findings of nepotism, favoritism, and that other staff at the Commission feared retaliation. (Nice place.)

At trial, plaintiff's counsel sought to establish the defendants held meetings with HR legal to discuss firing plaintiff. Over the Attorney General's objections (which struck me as inadequate, but my impression is of no moment), the trial court allowed counsel to ask defendants why they sought legal counsel. When defendants denied it was to retaliate against plaintiff, counsel asked whether they sought counsel because they wanted to give plaintiff a raise? (no) or a promotion? (no) or a bigger office? (no). The Attorney General asked the trial court to give the jury an instruction under Evidence Code § 913, that the jury may not draw any inferences from the assertion of privilege. The trial court refused.

The jury awarded plaintiff $3 million.

The Third District reversed the judgment. The requirement to give an instruction under Evidence Code § 913 is mandatory. The privilege may not be avoided by inquiring into the client's intent or purpose for seeking advice of counsel. (There is no citation of law given for this, and I am aware of no authority cases so holding, so this appears to be the first case on this point.) And because of the number of questions concerning privileged communications, the error was prejudicial.