Cal Biz Lit

Proposition 65 No Insurance Coverage Decision Certified For Publication

On July 5, CBL discussed Ulta Salon Cosmetics and Fragrances, Inc. v. Travelers Property & Casualty, Inc., an unpublished decision  holding that a liability insurer did not owe coverage or defense for a Proposition 65 enforcement action.  Since the two published decisions dealing with this issue both came out of courts in Illinois, CBL wondered why the Second District chose to make this decision unpublished, and hence unciteable. 

Well, that didn't take long.  On July 11, the Second District changed its mind and ordered the opinion published.  So there is now clear, published California authority to the effect that a Proposition 65 enforcement action with no allegation of injury to the plaintiff does not trigger a defense duty under a general liability policy.  Unless some other Court of Appeal decides the issue differently, this decision is binding on every trial court in the state.

CBL has modified itsJuly 5 post accordingly.

Cal Court of Appeal to US Supremes: "Oh yeah, says who?"

Let's review where we are on arbitration agreements and class action waivers. 

• First, there was Discover Bank v.  Superior Court (2005) 36 Cal.4th 148,  where the Cal Supremes held that "at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion are unenforceable, whether the consumer is being asked to waive the right to class action litigation or the right to classwide arbitration” and that “the FAA [does not preempt] California law in this respect."
• Next, we had AT&T Mobility LLC v. Concepcion (2011) ___ US ___, overruling Discover Bank and holding that the rules it established were preempted by the FAA.
• And now we have a mad scramble in California to try to find the cracks and crevices and exceptions that will keep consumer lawsuits and employment lawsuits out of the clutches of FAA preemption and alive in the good old fashioned California court system..

First out of the box in this regard:  plaintiff in Brown v. Ralph's Grocery Stores (July 12, 2011) ___Cal.App.4th ___ (2nd Dist., B222689).

(Ralph's Grocery Stores sure has been active in high profile appellate news this year.)

In this latest Ralph's case, the Plaintiff brought an action against his employer under Calfiornia's Private Attorney General Act, or "PAGA."  PAGA says that an aggrieved employee who is entitled to Labor Code penalties against his or her employer can sue on his own behalf of "other current or former employees" to recover those penalties for everybody (although 75% of the penalties go the State). 

Brown files a PAGA case against Ralph's.  Ralph's says:  "oh no you don't, you signed an arbitration agreement and class action waiver."  Ralph's loses at the trial court, the case goes to the Court of Appeal, everybody briefs, argues, submits it.  And then the US Supremes decide AT&T.  At which point Ralph's and its lawyers are feeling pretty good.  The Court of Appeal invites more briefing.  And then it lowers the boom.

On Ralph's. 

The purpose of the PAGA is not to recover damages or restitution, but to create a means of “deputizing” citizens as private attorneys general to enforce the Labor Code. . . . Here, the relief is in large part “for the benefit of the general public rather than the party bringing the action” . . . .

Dontcha' know, it's not a class action.  It's a representative action.  And AT&T doesn't say anything about representative actions.

So Ralph's comes in second in the case.  So says the Court of Appeal, 2 - 1.

To which I've got two words in response.

 

NINO SCALIA.

 

Waiting For Insurance Coverage For Your Proposition 65 Case? Not Such A Good Idea

 Update:  The case discussed here has now been certified for publication.  Which means it's citeable for the proposition that liability insurance policies don't cover Proposition 65 matters.  Cal Biz Lit hardly ever reports on unpublished appellate decisions.  Citing them in court is verboten, so I generally figure that discussing them here just confuses things. 

But there are always exceptions, and hey, it’s my law blog, so I guess I can decide when an exception applies.  All of which brings us to Ulta Salon Cosmetics Fragrance Inc. v. Travelers Property Casualty Insurance Company of America  (June 10, 2011), Link provided to Google Scholar – see those great big bold letters that say “NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS” ?  This means you!)

The case stands for a really simple proposition:  A commercial general liability policy neither affords coverage nor provides a defense duty for a claim under Proposition 65.  This is because there is no allegation of bodily injury or property damage. Although we’ve heard an occasional rumor about some insurance company agreeing to defend a Proposition 65 enforcement matter, we’ve never seen one do it. 

But Ulta Salon, and the two other cases we discuss today, offer important cautionary tales for companies sued in Proposition 65 cases.  To learn today’s moral, you’ll have to stick around to the end of the post.

We are aware of two previous published cases relevant to insurance coverage and Proposition 65 cases. Oddly enough, neither are California cases and both are from Illinois.  In Crawford Laboratories, Inc. v. St. Paul Insurance Company of Illinois (1999) 715 N.E. 2^nd 653, the Illinois based plaintiff fell into the clutches of a California bounty hunter was sued by a private party enforcer under Proposition 65.  It sued its insurer seeking a declaration that it was entitled to a defense.  The Illinois Court said nix, based on the same grounds recently cited in the unpublished Ulta Salon opinion:  no bodily injury, so no duty to defend.  Four years later, the same court decided HPF, L.L.C. v. General Star Indemnity (2003) 788 N.E.2d 753.  The insured there had been sued under the old version of California’s Unfair Competition Law, which in the bad old days allowed plaintiffs to sue in the alleged public interest without showing they had been injured (or, for that matter, that they ever had anything to do with the business they were suing – a nifty feature the voters abolished in the 2004 election with Proposition 64). 

And that’s it! No reported California decisions on point at all.   Until this one.  On July 11, the Court of Appeal certified the case for publication.  Which means the scenarios described below are a whole lot less likely.

So why in the world did the Court of Appeal decide not to publish this?  California Rules of Court Rule 81105(c) provides a long list of grounds for publishing appellate decisions, including the following:

(c) Standards for certification

An opinion of a Court of Appeal or a superior court appellate division-whether it affirms or reverses a trial court order or judgment-should be certified for  publication in the Official Reports if the opinion:

(1)  Establishes a new rule of law;

(2)  Applies an existing rule of law to a set of facts significantly different from those stated in published opinions . . . .

Well, CBL doesn’t know if this is a “new rule of law,” or “an existing rule of law” but it isn’t stated anywhere in any California published opinion that CBL has been able to find.

The lack of a definitive published California decision until now has resulted in the following perverse scenarios:

• In Crawford Laboratories, the insured company ran up attorneys’ fees and costs of $117,500 before settling with As You Sow, the bounty hunter, for $3,000.
• In H.P.F., L.L.C. the insured company wasn’t so lucky.  It ran up a fee and cost bill of $317,779.04 before reaching whatever disposition it  came to.
• In Ulta Salon, the case we’re talking about today, Ulta Salon paid fees and costs to its defense counsel of $214,684 before settling the case for – wait for it -- $25K.

Now, it may be that the $200K in legal work is why Ulta Salon only had to pay $25K in settlement, right?  CBL doesn’t know the answer to that question.  But CBL does know this:  Ulta Salon was one of 18 defendants sued by this bounty hunter for alleged Proposition 65 violations involving nail products.  If the Attorney General’s web site is correct, she settled with a grand total of three of them.  All three agreed to take the chemical (DBP) out of their nail products.  One paid her $2,500.  One paid her $6,000.  And Ulta Salon paid her $25,000.

So the moral of this story is this (remember?  CBL told you there was a moral):  If a company gets sued under Proposition 65, it needs to decide what it wants to do at the outset.  Want to defend the case?  Great.  Go for it.  Just prepare to go the distance.  Want to treat the case as an expensive traffic ticket, pay it and get it behind you?  Sorry to hear it.  But do it now.  Don’t do it after $100K or $200K or $300K worth of litigatin’.