Source: https://hbbriefly.com/category/california-practice-tips/
Timestamp: 2019-04-25 03:22:40+00:00

Document:
In California, State Compensation Insurance Fund v. WPS, Inc. 70 Cal.App.4th 644 (1999), has served as the rule book for attorneys who obtain inadvertently disclosed and obvious attorney-client information on how to avoid certain disqualification from representation. Under State Fund, regardless of how the attorney came into possession of the information, once it is concluded that the document appears to be attorney-client privileged, the attorney must notify the holder of the privilege and refrain from using it until the parties or court has sorted out the disclosure or finds a waiver of the privilege. The receiving attorney’s reasonable belief that there has been a waiver is not a defense to disqualification that may result if the attorney uses the document in advance of resolving the waiver issue.
A recent example of how courts apply the rule in State Fund is found in McDermott Will & Emery v. Superior Court, 10 Cal.App.4th 1083 (2017). The document involved was clearly attorney-client privileged on its face as it contained an opinion of counsel, but the manner in which came into possession of counsel raised a strong argument of waiver.
There, McDermott had been sued for malpractice by a former client who alleged the firm had represented him and other family members, creating a conflict of interest. McDermott was represented by Gibson Dunn. The document in question had been drafted by the client’s attorney and clearly contained legal advice pertinent to the malpractice claim. However, the client had sent the document to other non-lawyer family members and it ended up with McDermott pre-suit because the firm had been counsel to family members and a family-owned company. This relationship had given rise to the conflict of interest claim being made.
Over objections, the client’s attorney Gibson Dunn had used the document in the litigation arguing that not only had it come from its client’s files and not by inadvertent disclosure in discovery, but it also had passed through the hands of several non-lawyers and any privilege had been waived. Gibson Dunn made the wrong call, and that caused its disqualification from representing McDermott by the trial court.
On appeal, a divided Court of Appeal upheld the disqualification by finding there was no evidence of any intention to waive the privilege by the holder even in the face of several intermediate disclosures that had been made before McDermott had obtained the document from a family member who did not hold the privilege. Disqualification was proper because Gibson Dunn did not follow the guidelines set in State Fund but instead used the document, knowing it was presumptively privileged and that the document should have been either returned or that Gibson Dunn should have sought a court order obtained permitting its use. Disqualification was necessary to prevent future harm and to protect the integrity of the judicial system.
The circumstances causing disqualification in McDermott show how important it is that an attorney refrain from using a document that at least could be argued as attorney-client privileged, no matter how strong the arguments may be that the privilege was waived. Only the holder of the privilege or a court can make that determination. It is a no-win situation and no matter how tempting the document may be, its use outside of State Fund’s ethical pathway will almost certainly result in an expensive and embarrassing disqualification of a client’s choice of counsel.
California defamation law continues to evolve as the courts synthesize well-settled legal principles with ever-changing technological realities. On July 21, 2017, California’s First District Court of Appeal issued a published opinion in ZL Technologies v. Does 1-7 (July 21, 2017) 2017 DJ DAR 6999. In its opinion, the Court amplified existing defamation law as it relates to Internet postings and imposed new hurdles on the ability of parties to ascertain the identities of people who post defamatory statements on the Internet.
It is unlawful for an individual to damage a company by saying or writing something about it that is materially false. However, the courts typically bend over backwards to protect First Amendment rights. Accordingly, they created an exception to defamation for what they call “nonactionable opinion,” that is, statements for which no defamation claim may lie because the statements constitute mere expressions of opinion rather than assertions of fact.
It often can be frustratingly difficult, even for lawyers, to distinguish actionable defamation from nonactionable opinion. In part, this is because people tend to pepper their opinions with facts to support or emphasize them. The advent of the Internet has made this analysis even more complex, because now everyone with a cell phone has the ability to immediately share their views, and entire companies and Internet communities have been formed for the singular purpose of facilitating such discourse. In recent years, the California courts have tried to create some ground rules for distinguishing actionable defamation from nonactionable opinion on the Internet. Under those rules, judges are required to assess not only the specific language the internet poster used (the “what”), but also the online forum in which the poster used that language (the “where”). If the poster’s language is exaggerated or appears on websites that lend themselves to “rants and raves,” rather than considered thought, the California courts tend to view the postings as nonactionable opinion, notwithstanding the fact that it might contain some false facts.
Frequently, even if a company believes it can establish a claim for defamation, its battle to obtain relief has only just begun. One common characteristic of Internet posting is its anonymity. Posters sometimes use online monikers and the websites on which they publish their statements actively shield the posters’ identities. Hence, while a company might want to sue, it cannot readily do so because the identity of the person to be sued remains unknown. To address this issue, some businesses file lawsuits against “Doe” defendants and then take discovery to ascertain the posters’ identities. Discovery like that can be expensive and is not always successful.
In ZL Technologies, several anonymous individuals posted allegedly false statements about a company on Glassdoor.com, an employee review website. The company subpoenaed Glassdoor to obtain the posters’ e-mail addresses and other identifying information so the company could sue the posters for defamation. Although Glassdoor was insulated from defamation liability under federal law (as a mere forum for postings), it fought the subpoena on behalf of the posters.
The Court of Appeal allowed the company to proceed both with the case and its efforts to ascertain the identities of the anonymous posters. However, it tried to strike a balance between the company’s interest in obtaining relief and the posters’ interest in remaining anonymous. It held that litigants seeking to subpoena websites to determine the identities of anonymous posters must first (1) give notice of the subpoena to the posters (through the website) so the posters can fight the subpoena; and (2) establish a prima facie case of defamation on par with that necessary to defeat an anti-SLAPP motion. California never applied these two tests before in connection with this type of discovery.
In the aftermath of ZL Technologies, companies may still subpoena websites to ascertain the identities of anonymous posters who write defamatory things about them. However, before doing so, they must now give the posters a chance to challenge the legal propriety of their subpoenas. They also must marshal their evidence and prepare a nearly dispositive motion on their defamation claim, establishing that the posted statements were factual, actionable, material, false, and damaging. These hurdles will require considerably more time and resources to satisfy.
The California Supreme Court in Baral v. Schnitt, No. S225090 (filed 8/1/2016), has clarified a “perplexing” conflict among several Districts of the Court of Appeal about the application of Code of Civ. Proc. Section 425.16(b)(1) (the Anti-SLAPP statute) when applied to strike allegations in a mixed cause of action, where it combines allegations of activity protected by the statute with allegations of unprotected activity.
Protected activity arises out of the defendant’s exercise of the constitutional rights of free speech or petition. When pleadings assert a cause of action that implicates both those activities and unprotected activities, there was a disagreement in the appellate districts and even divisions as to whether the statute supported applying the Anti-SLAPP motion to the whole cause of action, which often resulted in the denial of the motion. In essence, by artful pleading of intertwined allegations, a plaintiff could avoid dismissal of the cause of action and potential exposure to attorney’s fees in those courts that held that the motion lay only to strike an entire count as pleaded in the complaint, even where protected activity was alleged. This result thwarted the purpose of the statute. which is to shield a defendant’s constitutionally protected conduct from the undue burden of frivolous litigation.
In Baral, the plaintiff pleaded in a single cause of action that Schnitt committed both libel and slander by knowingly providing false information about Baral’s possible misappropriation of company assets to an outside accounting firm hired to investigate the company owned by them; this was protected activity. However, the plaintiff linked this assertion with allegations that, once discovered as false, Schnitt refused to correct. The false information was ultimately published, which was not protected activity and would not be reachable by Schnitt’s Anti-SLAPP motion. The trial court’s denial of the motion was upheld by the Court of Appeal, which found that the Anti-SLAPP statute applied only to entire causes of action as pleaded, or to the complaint as a whole, not to isolated allegations with causes of action.
The Supreme Court determined that this result unduly limited the relief contemplated by the Legislature in enacting the Anti-SLAPP statute. It approached the resolution by starting with the definition of a “cause of action” as intended to be subject to the motion to strike. The high court held that the Legislature intended to require a plaintiff to show a probability of prevailing on “the claim” arising from protected activity, and this result should not depend on the form of the pleading. The purpose of the statute is to protect activity, and courts may rule on the plaintiff’s specific claim of protected activity.
At the first step, the moving defendant bears the burden of identifying all allegations of protected activity, and the claims for relief supported by them. When relief is sought based on allegations of both protected and unprotected activity, the unprotected activity is disregarded at this stage. If the court determines that relief is sought based on allegations arising from activity protected by the statute, the second step is reached. There the burden shifts to the plaintiff to demonstrate that each challenged claim based on protected activity is legally sufficient and factually substantiated. The court, without resolving evidentiary conflicts must determine whether the plaintiff’s showing, if accepted by the trier of fact, would be sufficient to sustain a favorable judgment. If not, the claim is stricken. Allegations of protected activity supporting the stricken claim are eliminated from the complaint, unless they also support a distinct claim on which the plaintiff has shown a probability of prevailing.
Although there was much confusion in applying the Anti-SLAPP motion to allegations which were purposefully jumbled to avoid this special motion to strike, is the solution now cleared of the mud?
In the recent decision of the California Court of Appeal in Rice v. Downs, Second Appellate District, Div. One, B261860 (Filed 6/1/16), the Court held the drafters of an arbitration clause (the parties and their lawyers alike) were experienced and would not have chosen language that they would have expected to be interpreted differently than the judicial interpretations in then-existing California and Ninth Circuit case law where their chosen language was reviewed. That is, the drafting parties were presumed to know the law.
This decision provides a good review of how arbitration language is typically used and litigated. What is important is that most drafters borrow language from other contracts without much thought of what a court would do when a dispute arises over the scope and meaning or what claims are included or not. Having been presumed to know the law, it is important for drafters to read it.
In Rice, the Court parsed through a number of litigated arbitration clause permutations to decide whether certain claims for malpractice, breach of fiduciary duty, and rescission claims that plaintiff Rice brought against his attorney Downs arose out of limited liability operating agreements drafted by the defendant attorney and were properly arbitrated with other disputes between the parties. These claims were not found to have arisen from the agreement under the following language: “any controversy between the parties arising out of this agreement” as they were not contractual claims (and even tort claims) that arose from the agreement itself. In so holding, the appellate court reversed the trial court’s decision ordering Rice’s claims for malpractice to arbitration.
Upon holding that the drafters were experienced and presumed to know the law, the Court held the parties to examine how courts had interpreted the scope of the language being used to determine if a particular claim arose out of or from the agreement.
Discovery sanctions are a fact of life in the courts and becoming more so in high stakes litigation. They can arise from judgment calls that are proved wrong by a court ruling, as in the case of HM Electronics, Inc. v. R.F. Technologies, Inc., 2016 WL 1267385 (S.D. Cal. March 15, 2016). There, the question arose regarding whether parties could compromise sanctions awarded by a magistrate judge in their settlement agreement in advance of the District Court decision to affirm that award.
Defendants (the client and its attorney) objected to the sanction award on the grounds that the parties’ settlement of their dispute, including the sanctions award, mooted the court’s jurisdiction to entertain the motion. The District Court agreed and vacated the sanctions award as moot. How did this happen?
The defendants were sanctioned for discovery misconduct under Rule 37 (for violation of prior discovery orders of the court) and under Rule26(g)(3) (raised by the court for improper certifications of discovery responses). This misconduct caused the plaintiff to incur great expense, and an award of compensatory sanctions was made to compensate plaintiff for the fees and costs involved in collecting discovery from defendants.
Two days before the hearing on discovery misconduct, the parties settled and dismissed the case, notifying the magistrate judge to vacate the motions that were scheduled to be heard. The hearing went forward partly because the magistrate judge held that the settlement could not affect the court’s right to pursue sanctions for the Rule 26 violations, which outlived the settlement. The court proceeded with the scheduled hearing, which resulted in a finding that the violations justified a compensatory sanctions award.

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