Cal Biz Lit

Liquidated Damages and Penalties in California

Generally speaking, the enforceability of a liquidated damages provision in a contract is governed by Civil Code section 1671, with the relevant part reading:

(b) Except as provided in subdivision (c), a provision in a
contract liquidating the damages for the breach of the contract is
valid unless the party seeking to invalidate the provision
establishes that the provision was unreasonable under the
circumstances existing at the time the contract was made.

On the other hand, according to the Cal Supremes:

A liquidated damages clause will generally be considered unreasonable, and hence unenforceable under section 1671(b), if it bears no reasonable relationship to the range of actual damages that the parties could have anticipated would flow from a breach. The amount set as liquidated damages "must represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained." [ Citation omitted].  Ridgley v. Topa Thrift & Loan Assn. (1998) 17 Cal.4th 970, 977.

This brings us to this month's Court of Appeal decision in Greentree Financial Group, Inc. v. Execute Sports, Inc. (May 6, 2008, Ordered published May 28, 2008) ___ Cal.App.4th___ (Fourth Dist. No. G039326).  Greentree provided financial advisory services to Execute, which allegedly failed to pay the $45,000 bill.  The parties settled, and memorialized the settlement in a stipulated judgment.  The stipulation provided that Execute would pay a total of $20,000 in two installments, but that if it missed either payment, the judgment could then be entered for the entire $45,000, plus interest, attorneys' fees and costs.

Execute defaulted on the first payment (that's why there's a case, right?) and Greentree proceeded to get a judgment entered for $61,232.50.  Better luck next time, said the Court of Appeal.  First of all, while Greentree argued that the amount set forth in the stipulation was reasonably related to its damages from the breach of the underlying contract, "...the breach we are analyzing is the breach of the stipulation, not the breach of the underlying contract."

Furthermore, "Greentree and [Execute] did not attempt to anticipate the damages that might flow from a breach of the stipulation.  Rather, they simply selected the amount Greentree had claimed as damages in the underlying lawsuit, plus prejudgment interest, attorney fees and costs."  So the Court ordered the trial court to correct the judgment by reducing it to $20,000, the amount in the stipulation that Execute had failed to pay.

Now, here's one from real life, and I've been on both sides of it:  the parties enter into a settlement for installment payments, say, $500,000 in thirty days and $550,000 in ninety days, but with a discount of $50,000 if the second installment is paid in sixty days rather than ninety.  In other words, if the settling defendant pays everything within sixty days, it costs him a million bucks, but if he takes longer to pay, it costs an extra $50K.  Is that a liquidated damages provision, or simply a bargained-for discount?  I think that it's a lawful discount, but I don't have any cases that say so.  Anybody else have experience with this?

Great Big Huge Proposition 65 Decision? -- Well, Sort Of

This morning's San Francisco Chronicle reports on a $10 million Proposition 65 judgment against T-A Creations for selling 100,000 lead-tainted children's lunch boxes to the California Department of Public Health Services (maybe if you're going to sell toxic lunch-boxes, the Department of Public Health isn't such a good choice as a customer).

Hmm, thought I, that's a mighty big judgment even in these modern times, I wonder what the trial was like and what the decision says.  Well, it turns out there wasn't a trial, and there wasn't a decision -- this was a default judgment, the kind the plaintiff gets when the defendant doesn't get around to filing an answer to the complaint.  Here's the judgment.

Battle of the Free Newspaper Titans -- Multi-Million Dollar Judgment Under California's Unfair Trade Practices Act

California's Unfair Trade Practices  Act, Business & Professions Code sections 17000 and following, makes it unlawful to engage in the "production, manufacture, distribution or sale" (section 17040) of an article or product with the intent to destroy competition.  Section 17043 makes it unlawful for a person in business to sell a product at less than cost or to give away an article or product, for the purpose of injuring competitors or destroying competition.  Section 17044 makes loss leaders (defined in section 17030) illegal.

This brings us to The San Francisco Bay Guardian and the SF Express.  Almost every  major city has one or more of these  progressive, free, tabloid  weeklies.  The most venerable one in San Francisco is the Bay Guardian, founded in 1966 with the  stated plan to "Print the news and raise hell."  In its early years, the BG and its founder, Bruce Brugman engaged in a lengthy, and ultimately unsuccessful, anti-trust action against San Francisco's two more traditional dailies, the Chronicle and the Examiner.

Enter the SF Weekly, an upstart, hip tabloid owned by Village Voice Media.  According to the Bay Guardian, the Weekly tried to muscle its way into the market, and muscle BG out, with predatory, loss-leader advertising policies.  In March, a San Francisco jury agreed, awarding BG $6.3 million in damages.

Now, the trial judge has trebled the damages under section 17082 (or at least trebled most of them -- I haven't quite figured out how the math worked) and issued an injunction preventing the Weekly from doing this any more (required by section 17078).  Story here in The Chronicle.

Off-Topic Heat Wave Musical Post

It's 86 degrees at 3:30 p.m. in San Francisco.  Martha Reeves and the Vandellas time.

Another California Runaway Verdict

    That is, the jury ran away from the plaintiff as fast as they could.  Dish Network sues News Corp.'s NDS Unit for over a billion bucks, contending an NDS employee hacked into its network, stole code, posted the code on the internets so everybody could watch satellite tv for free.  Jury finds for plaintiff.  Awards $1,500 dollars.

    Hat tip to California Punitive Damages.

Attorneys' Fee Awards in California III: More Attorney Fee Shifting Statutes

    In an earlier post, I wrote about contractual fees to the prevailing party, how a one-sided fee provision in a contract becomes bilateral by operation of law, and how a narrow fee provision can relate to all disputes between the parties to a contract.  In a second post, I discussed fee awards in civil rights, employment and public interest litigation.

    There are scores of fee-shifting statutes in California, many of them dealing with fairly rare and obscure kinds of litigation.  But in this post, I’m going to talk about a few of them, roughly in the order of likelihood that a business litigating in this state is likely to encounter them.

    The post continues after the jump.

Ford's Petition for Review in Buell-Wilson Punitive Damages Case

I blogged in March, here, on the Court of Appeals' decision in Buell-Wilson v. Ford (2008) ___ Cal.App.4th ___ (Fourth Dist., D045154).  There, after the Cal Supremes remanded so the court could take another look at the $55 million punitive damage award, the court of appeals did.  And affirmed it again.  I looked in my crystal ball at the time, and wrote that this might be the end of the road for Ford, because "[t]he Court of Appeal seems to have set up enough procedural obstacles that the Supremes won’t get involved unless they really, really, really are determined to slap down excessive punitive damages awards."

Well, we'll find out.  Not unexpectedly, Ford has petitioned the California Supreme Court yet again.  The California Supremes do not accept cases to correct error:  instead, under California Rules of Court, rule 8.500(b)(1), that court generally grants review in civil cases "When necessary to secure uniformity of decision or to settle an important question of law."

Ford is contending that both reasons are present here.  Interestingly, its third basis for requesting review has to do with proffered evidence of government and industry standards and custom and practice in this product liability suit.  While Ford's immediate quarrel is that the trial court excluded this evidence as irrelevant to the punitive damage claim, Ford seems to go farther, suggesting that if it conformed to such standards, customs and practices, punitive damages would be barred as a matter of law.  The chances of ever establishing that proposition seem pretty slim, but if Ford ever carried this off, it would be about the biggest event in the California history of punitive damages / product liability jurisprudence.

Anyway, the Supreme Court has sixty days from April 28 in which to grant review, or ninety days if it grants itself an extension, so we'll know by this summer what the Court has in mind.
 

Contractual Attorney Fee Awards When There's No Jurisdiction over the Defendant

I'm still trying to finish my three-part series on attorneys' fees.  Soon, I promise.  But I keep seeing new cases.  Since part of the audience for this blawg is non-California companies who find themselves ensnared in litigation here, this story with a happy ending for an out-of-state litigant might be of interest.

I previously blogged here about contractual attorneys' fees.  The fundamental principal is in Civil Code section 1717:  if the contract says Party "A" gets fees if he wins, and Party "B" wins instead, the law makes the contractual provision mutual:  Party "B" gets fees, even if the contract only addresses party "A's" rights.

Which brought us, yesterday, to Profit Concepts v. Griffith  (2008) ___ Cal.App.4th ___ (4th District, G039077).  Profit Concepts was a California corporation with an ex-employee, Griffith,  residing in Oklahoma.  It sued him for breach of contract, trade secrets violations and for an injunction (perhaps not a wise idea in general, but that discussion is for another day).   Griffith moved to quash service on the ground that the California courts had no jurisdiction over him.  Profit Concepts filed a "statement of non-opposition," and now I really don't know what the company, or its lawyers, were thinking.  So the motion to quash was granted.

Now comes the attorneys' fees part.  There was an employment contract, which provided that if Griffith breached the contract, Profit Concepts could get an injunction, damages and attorneys' fees.  In other words, the contractual right to fees was unilateral in Profit Concepts' favor. 

The parties agreed that the unilateral language had to be enforced mutually under section 1717.  (What was this employer doing here, anyway?)  But Profit Concepts contended that Griffith wasn't a "prevailing party" just because he got the case dismissed for lack of jurisdiction.

Wrong.  Fees awarded to Griffith, the non-California resident.  The case was going no further, he was dismissed, so he was the prevailing party.  Oh, and the amount of the fees and costs?  $3,400.78.  That's what was at stake in this appeal.  What was this employer thinking?