or thank you for hearing this very important case in the insurance coverage arena the case has profound consequences with regard to application of california insurance code section five thirty three both with respect to the carrier's duty to defend and its duty to indemnify its policyholder be force addressing some of the core arguments i think it's important to reemphasize that the underlying sure one case at issue here involved allegations only those allegations were raised in a series of complaints but in the show one case there was no trial there were no findings of fact there were not even a summary judgment motions or  evidentiary motions filed such that any evidence in the case was weighed so we're dealing solely with allegations here ensure one in the case settled without any admission of liability by office depot that settlement was approved by the court thus and the rulings by the district court in this case in the office depot case applying section five thirty three are particularly significant because if they are upheld they would permit and arguably encourage insurance companies to invoke section five thirty three to deny claims based soley on a review of allegations rather than proven facts or even submitted facts and this could be the case even though it is black letter law that section five thirty three does not apply to the duty to defend now by this appeal office depot contends that the district court erroneous lee granted summary judgment in favor of a i g on the duty to defend one despite the fact that those claims were never proven and instead again were settled with without any admission of liability with respect to the summary judgment order the court made to core erroneous rulings first the court ruled that section five thirty three precluded any potential for coverage of sure one as a matter of law and secondly the court concluded that if you assume five thirty three does apply office depot could not could never have had a reasonable expectation of a defense of the case if either of these rulings is reversed office people respectfully submit that partial summary judgment should be entered in its favor on the need to defend with the remaining issue to be tried office depot office depot is damages for that duty now with respect to the application of section five thirty three that your own claims the court's rulings the district court's rulings  premised on the notion that the california false claims act has a quote unquote addition or additional say into requirement not present in the statute and that is the intent to induce reliance  but respectfully the statute does not contain that element the c of ca specifically precludes the knowing presentation of a false claim and it defines knowing as including in reckless disregard of the truth or falsity of the information it also specifically states that specific intent to defraud is not required for liability to attach as we state said in the briefing we pointed to some of the legislative history of the federal false claims act on which the c of ca is based in which congress specifically stated that no showing of willfulness was required for liability to attach and that's an additional reason why five thirty three should not apply in this case there is no authority that extends the district court's reasoning to the california cop false claims act or the false claims a on which it is based to the contrary the case is repeatedly told that the se into required under the false claims act is for recklessness this this principle is also illustrated in the r case which are similar to the c c of c a considered whether the five thirty whether section five thirty three applied to a ten b five violation for the purchase of sale securities and rakin concluded that it we rely on in sight from the policies of pages five and six of our opening brief but essentially the policy covers wrongful acts in damages flowing from those wrongful acts in the wrongful acts must occur in pricing practices are alleged well it's a case that has really brought allegations as we said no breach there are literally five different theories of potential liability here and to go back to your original question though that is a starting point the question here isn't whether there's coverage under the policy we're talking here about the duty to defend so the question is whether  advertisements brochures links to its websites to mislead the purchasers of its products into believing they were purchasing products for essentially the best deal that they could get ok so so but but but the allegation of that misconduct is really is really complicated i mean for example sure one alleges that office depot would discontinue products you know office depot switched products that were for sale from a quote unquote supplier or third party many factor in put in its own products for sale thereby deceiving the purchaser into the purchas materials that essential we misled or potentially deceived the purchasers into believing they were getting the best deal possible so it is the use of those materials in those i should say allegations of the use of those materials that gives rise to at least the potential for everett and that's because the public entity  as no ownership relationship and made its purchase decisions based on the context of the material that your argument that's correct that's correct that the material was used in an effort to  mislead or deceive the purchasers into believing they were getting a good deal when in fact there were other alternatives out there the district court clearly understood your argument and acknowledged that the c f c only required recklessness with regard to the conduct or the truth or falsity of the statement but relying pretty heavily on california law particularly that california important decision for purposes of this case and it's really important to understand that in california amplifier the specific issue was whether health warning corporation who'd section twenty five fifty was whether there was whether or whether there could be coverage for recklessness under that under that section so twenty five c twenty five five hundred creates a private cause of action for someone who is is accusing another of violation of twenty five four hundred in the language and twenty five five hundred creating that private cause of action is critical because it it that only someone who willfully quote unquote willfully participates in a violation of twenty five four hundred can be liable for the private cause of action and so the kelley in court looked at that language and it said and i quote the most reasonable interpretation of the phrase willfully participates is to limit section twenty five five hundred liability to situations where there is an intent to defraud through a knowingly false statement so that's the grounds on which callahan held the five thirty three applied to twenty five five hundred now obviously under the sea of ca there's specific language that says the inten defraud is not required for liability to attach so i don't think you can you can look at kelly and kelly amplifier and use it as authority for applying five thirty three the color also claims that regarding honors harvey go around behalf of a i g it's very important to start with what this case is about in this sherwin case office depot was sued in the california false claims act for systematically defrauding over one thousand government and california governmental entities for overcharging them for office supplies office conduct as alleged in the sherman case it is impossible to square with the two media policies at issue in this case those policies provide very specialized coverage not general liability coverage but there's a more important freshwater office depot claims that it was entitle to be indemnified in the sure one lawsuit those claims are foreclosed by section five thirty three of the california durance code for three interconnected principles of california law first even if the knowledge standard for a claim under the california false claims act is satisfied by a showing of recklessness that claim is still considered a willful act under section five thirty three that is because a knowledge standard based on reckless there's not a knock you later claim of fraud they say claim as those y of section five thirty three not the lowest it is that requirement that separates california amplifier from the claims in re cap which is a district court case not a california state case in california amplifier the false statement was made recklessly in that case regarding the purchase or sale of a stock but it still implicated section five thirty three because the statement was statutory were acquired to have been made for the purpose of inducing the purchase or sale of a security as the court stated in that case recklessness satisfies one element of the statute but deliberate intent is required to satisfy another element conversely in ray cam the false statement was made recklessly but it did not implicate section five thirty three because twenty five claims lack the intent for any element of the claim including the extra element of intent to induce reliance and that brings us to the second principle all fraud based claims in california require an intent to induce reliance intent to induce reliance can only be based on intentional conduct and this true regardless of the c enter element used to establish knowledge why should cal and control in this particular case when that involve different statutory provisions so that was an attempt to really drill down on  the what happens when you have two different i guess was that those securities california security saw and so that's what the court was talking about here we have statutory language and so should we then go back to the california false claims act to determine the level of sea entered required and then apply that to california code section five thirty three like why do we need to look at cal early as satisfied the knowledge see enter element when you still have the intent to induce reliance and to the extent there's any question as to whether or not intent to induce reliance is an element of the claim number one it's an element of every fraud claim in california and number two the u s supreme court in discussing the issue and allison engine which was under the federal false claims act stated that the intent to pay the false claim  intent to pay the false claim is part of the act so in other words that is the same intent that judge wilson found here is exists under the california false claims act so we actually don't need to to question whether or not it is an element in the act the u s supreme court has said it is judge well said said the same thing under the california act a false claim necessarily requires you to intend to induce their reliance which is to pay the false claim that's why you submit a false claim is to get paid that is different then the knowledge the standard as to whether or not you knew it was false so the false claims act says it has to be reckless or intentional that goes to knowledge not the real life the intent to induce reliance so i was looking at also reserved rights at the end in that other issues could be raised but but more importantly section five thirty three is a bar set by the california legislature so would it matter what you say in a letter the california legislature has spoken to this issue go that we don't know whether office depot if it had gone to a jury would have its employees would have been found to have been recklessly just charging the public per with  switching out products this wasn't done well fully we don't know if that would have been found just like the insurance company at the outset when the complaints filed doesn't know whether there's a potential for coverage on that basis where the potential for coverage doesn't require a finding of liability that's that's not a requirement under california law otherwise then you know i know that i'm saying when you get the complaint and you're deciding when and when the insurance company gets a complying and the notice of the claim and it's deciding whether or not there's a potential for coverage it has to look at the complaint and look at the statute to see whether there's a potential for liability and found to that acted recklessly and not willfully and therefore it would not have been excluded by section five thirty three at that point in time you're focusing again on the norwood standard the knowledge standard is irrelevant here what's relevant is the intentional standard in every fraud claim which is intent to induce reliance so you have to separate those two as judge wilson did and as the court did in california amplifier you can't find that there was a duty to defend here that we don't look at all these other acts external sources that we can just look at the statute at issue in the complaint  except when when when there is no duty to indemnify this is in the be any case when there's no duty to indemnify as a result of section five thirty three then all the section five thirty three does not on its face extend to the duty to defend it has to inform the analysis because if there's no potential for coverage then there's no duty to defend but would be any said as well but there still may have been an objective lee reasonable expectation of defense and in that particular case would be any convalescence center sad is that there's two paths and there's other cases that fit into this construct but there's two paths to a defense in that situation number one the parties can contract around section five thirty three fo purposes of the defense so if the policies here explicitly extended to false claims then there would be a duty to defend or to if the policy stated that that they would indemnify claim that they would defend claims that were otherwise not indemnify a ball we don't have either one of those situations here so in your beanie convalescent center once there is no duty to defend then you go to that analysis and then there's no excuse me once there's no duty to indemnify then you go the duty to defend they don't satisfy either one of those tests all they said in the district court was well there was an allegation of reckless conduct but that doesn't get you down the two p what does the policy say in that respect now and i would commend the court because be any convalescent has been it's not a controversy of law in california and it's also in downey and it's a mess it's that is their path but even under the duty to defend under gray because even great recognize that the policy if there's  no potential for coverage there's no duty to defend but there could not have been a duty to defend here there could not have been any claim but well intentional conduct in the reason for that is quite simple the relator in the showing case could claim with a lesser standard than the california false claims act because that would be doing an end run around what the california legislature set as the standard in the false claims act so this this concept and  certainly shouldn't speculate about things that could never have happened so there could never have been a duty to defend here now we also have to understand there's two major major public policy issues at issue in this case number one the false claims act exists to prevent people who defraud the government to protect the treasury and then we have the public policy that's inherent in section five thirty three which is that willful x for not going to be indemnified now office depot has taken a very narrow view of what is a willful act in this case and they did two things and i'll speak on a quick because i'm out of time here they said it's either preconceived designed to injure which you'll find in the claim or a case in the corner case everyone every court in california now has recognized has been limited to its fa question so are is your position that because they've complained itself on the alleged intentional knowing or well full x that there was no potential for coverage that lie can relate or not allege anything greater than i mean there's to have standing to bring a claim any a standing under the false claims act but he was not a purchaser of the goods in question so he would have no standing to allege claims against office case and also mez it's an act the willful standard under section five thirty three also includes an act that is intentionally performed with knowledge that damage is highly probable or substantially certain to result and misrepresentation claim that damages and the conduct is considered purposeful under california law that's the case it's mez it's ortega rock which discusses this additional element so you have to you thank you all i'll attempt to be brief just of a few points in response to what counsel argued first of all with respect to the policies at issue here i think it's fair to consider these closer to dno policies than media policy because these policies cover wrongful acts in connection with the use of material so i just wanted to to to point that up counsel mentioned allison engine which i didn't see cited in any of the  briefs for the proposition that in that there needs to be an intent to deceive under the false claims act i don't have a link to that opinion so i don't know if that's correct or not but what i will know that we cite hooper which is a two thousand and twelve ninth circuit case which specifically hill that there is no requirement of the intent to deceive for there to be liability under the false claims  getting to the point about what is actually alleged in the sure when case judge were like you make a good point that if you look at the allegations of sure when there are actually recklessness and even negligence allegations in there so in particular as we said nor briefs when the interveners filed their fraud claim they actually made statements in there to the effect that alec that office depot's conduct was at least reckless there are also factual allegations in the shower when a complaint the relator complaint in which the relator accuses office depot of not having systems and controls that were sufficient to track all of the different product changes and pricing changes and so forth and so that on its face is less than intentional conduct i would submit kelso continues to refer to the california false claims act as in this case as a fraud case but it is not a fraud case the california false claims act defines knowing as including yes that goes only to knowledge there's a different element intently to induce that he reads in the case law so he separating knowledge from the intent induce element which then using seems to suggest an elevated cmdr requirement i don't know how that squares with proof a specific intent to be fraud is not required language but well as the argument yeah yeah and it gets back to my prior point that that intent to reduce reliance is a necessary element of twenty five i can't recall but anybody put into the record what the jury instructions on the california false claim act would be whether the jury instructions i'm your question i don't believe either party did but i also believe that the statute is pretty clear on this face in terms of what is and isn't required but i also think that the language in the statute focusing on the word acts another would knowingly acts in reckless disregard of the truth or falsity of the information which is against this implied term of the intent to induce reliance i mean it's not looking at the specific intent of the person submitting the claim it's looking at their conduct or their case i think counsel is is trying to tease something out of a case that doesn't exist when you look at the be any case the reason very clear reason the court ruled that the insured would not have a reasonable of claims and the court looked at their language and said how could an insured reasonably expected offense where the fence is optional and that's clear on the face of the opinion all right thank you counsel o