December 2019 Update
The current update includes changes that reflect recent developments in case law, legislation, court rules, and jury instructions. Summarized below are some of the more important developments included in this update since publication of the 2018 update.
Supplemental Causes of Action. Recent decisions, including Sheen v Wells Fargo Bank, N.A. (2019) 38 CA5th 346, indicate that in the contract litigation setting, a tort duty of care in negligence for purely economic losses is, at a minimum, difficult to establish absent a special relationship between the parties. See §1.15.
Prejudgment interest. In Cavalry SPV I, LLC v Watkins (2019) 36 CA5th 1070, the court of appeal held that a creditor could not ignore a contract’s interest provision and instead choose to collect prejudgment interest at the 10 percent rate under CC §3289. See §1.20.
Attorney fees. In Orozco v WPV San Jose, LLC (2019) 36 CA5th 375, the court of appeal held that a plaintiff who successfully rescinded a lease guaranty for fraud was entitled to attorney fees as a prevailing party under the guaranty’s broad fee clause language. See §1.23.
In Dane-Elec Corp., USA v Bodokh (2019) 35 CA5th 761, the court of appeal held that Lab C §218.5(a), which provides for prevailing party fees in certain wage and hour claims, controls over CC §1717: a prevailing employer is entitled to fees only if the employee brought the action in bad faith, and only to the extent that the employee’s wage and contract claims were inextricably intertwined. See §1.30.
Liquidated damages. In Red & White Distrib., LLC v Osteroid Enters., LLC (2019) 38 CA5th 582, the court of appeal held that a stipulated judgment was an unenforceable penalty when it bore no reasonable relationship to damages parties could have anticipated plaintiff would suffer if defendants failed to pay settlement amount. See §1.42.
Insurance bad faith. In Mazik v Geico Gen. Ins. Co. (2019) 35 CA5th 455, the court of appeal engaged in an extensive analysis of “oppression” and “malice” under CC §3294(a) and found that an insurer’s bad faith delay in paying policy benefits justified compensatory damages of $313,508 and punitive damages of $1 million. See §1.58.
The United States Supreme Court agreed to decide whether Title VII’s sex discrimination provisions also prohibit discrimination based on sexual orientation. See Bostock v Clayton County Bd. of Comm’rs (11th Cir 2018) 723 Fed Appx 964, cert granted (Apr. 22, 2019, No. 17–1623) 139 S Ct 1599 in §3.105.
Fair Employment and Housing Act. Effective January 1, 2019, Govt C §12965(b) was amended, in response to a split in appellate authority, to provide that an unsuccessful FEHA plaintiff who rejects a CCP §998 offer is not liable for the defendant’s postoffer attorney fees and costs unless the action was frivolous, unreasonable, or groundless when brought, or the plaintiff continued to litigate after it clearly became so. See §3.105.
Fair Labor Standards Act. The Department of Labor issued an advisory opinion stating that when state wage and hour laws conflict with the FLSA, compliance with state law is not a good faith defense to noncompliance with the FLSA. Department of Labor Opinion Letter, FLSA 2019–1 (Mar. 14, 2019). See §3.42.
In Orozco v WPV San Jose, LLC (2019) 36 CA5th 375, the court of appeal held that a commercial lessee proved lost profits with reasonable certainty when a short time after the lease began, defendant shopping center leased out nearby space to a competing business. See §4.107.
In DeLisi v Lam (2019) 39 CA5th 663, the court of appeal held that actual damages for wrongful eviction under San Francisco’s rent ordinance can be measured by “rent differential,” an amount that may be considerably higher than the tenant’s out-of-pocket losses. Rent differential is the difference between the rent the tenant would have paid for the expected duration of the rent-controlled tenancy and the market rent for the unit from which the tenant was displaced. See §4.49.
Injury to Property
The California Supreme Court is considering in B.B. v County of Los Angeles (review granted Oct. 10, 2018, S250734; superseded opinion at 25 CA5th 115) whether CC §1431.2 (several liability; property damage) limits noneconomic damages to the defendant’s proportionate share of fault even when the defendant’s misconduct was intentional. See §5.40.
In McBride v Smith (2018) 18 CA5th 1160, the court of appeal held that the fact that a plaintiff did not have right to exclusive possession of an easement did not preclude a nuisance claim. See §5.18.
In Hoffman v Superior Ready Mix Concrete, L.P. (2018) 30 CA5th 474, the court of appeal held that CCP §1021.9, which entitles a prevailing plaintiff to attorney fees when a trespass occurs on land “under cultivation,” applies even when the trespass did not damage the portion of property actually being cultivated. See §5.36.
Intellectual Property Infringement and Misappropriation
Patent infringement. Under the entire market value rule, if a patented product has valuable nonpatented features that contribute to driving consumer demand, damages must be apportioned to reflect only the value of the patented feature. In Power Integrations, Inc. v Fairchild Semiconductor Int’l, Inc. (Fed Cir 2018) 904 F3d 965, the Federal Circuit explained that the entire market value rule is appropriate only when the patented feature is “the sole driver of customer demand or substantially creates the value of the component parts.” See §6.8.
Copyright infringement. In Rimini St., Inc. v Oracle USA, Inc. (2019) ___ US ___, 139 S Ct 873, the United States Supreme Court decided that the term “full costs” in the Copyright Act (17 USC §505) does not permit recovery of any costs other than those specified in the general federal costs statute codified at 28 USC §§1821 and 1920. However, the Rimini decision did not address a line of cases holding that out-of-pocket costs that are normally billed to a client may be recoverable from the losing party as attorney fees under fee-shifting statutes. See §6.26.
Trademark infringement. The United States Supreme Court in Romag Fasteners, Inc. v Fossil, Inc. (Fed Cir, Feb. 5, 2019, No. 2018-2417) 2019 US App Lexis 19723, cert granted (June 28, 2019, No. 18-1233) 139 S Ct 2778, agreed to resolve the split in circuit authority as to whether willful infringement is a prerequisite in an award of defendant’s profits. See §6.29.
Sexual harassment settlements. Internal Revenue Code §162(q) of the Tax Cuts and Jobs Act, colloquially called the “Weinstein tax,” provides that settlement payments and attorney fees paid in connection with a sexual harassment settlement cannot be taken as a business deduction when there is a nondisclosure agreement. IRC §162(q). In response to concerns that this provision, intended to punish defendants, also applied to the plaintiff’s legal fees, the IRS posted an FAQ stating that plaintiff’s are not precluded from deducting attorney’s fees related to a confidential settlement or payment, if otherwise deductible. See §7.49.
Contingent attorney fees. The Tax Cuts and Jobs Act’s suspension of miscellaneous itemized deductions through 2025 (see IRC §§67–68) means that contingent attorney fee awards may be taxable income to plaintiffs who do not fall within one of the enumerated classes of claimants qualifying for an above-the-line deduction, e.g., a plaintiff suing an employer, a qualifying whistleblower, or a plaintiff suing for civil rights violations. Robert W. Wood, the author of chapter 7, encourages plaintiffs’ counsel to seek specialized tax advice, ideally before a case is resolved, to help shape their clients’ tax results. See §7.49D.