Cal Biz Lit

Contracts and "Extrinsic Evidence"

It’s been two weeks since I got back from vacation, and aside from practicing law, I’m still working my way through significant appellate decisions and events of interest to businesses litigating in California.  One Supreme Court decision issued while I was gone, Sterling v. Taylor, S121676,  has been the subject of surprisingly little discussion (with the exception of May It Please The Court, discussed below), particularly since the Cal Supremes disapproved no fewer than five earlier statute of frauds decisions.  The facts of the case also win this week's "What Were They Thinking?" award.

More after the jump.

Punitive Damages Exceeding Compensatory Damages Held Violation of Due Process

I've been in China for twelve days, completely removed from blogging (and any news other than state-run television and the People's Daily), and have much catching up to do.  With something like 600 posts in my reader, I despair of ever catching up. However, there are a few developments that caught my attention.

The first one appears in Jet Source Charter, Inc. v. Dougherty, where the Court of Appeal held that a $26 million punitive damage award violated the due process requirements of Campbell v. State Farm when the compensatory damage award, including pre-judgment interest, was $6.5 million.  The Court held that the award was impermissibly excessive for just three reasons:  (1)  the compensatory award was already substantial;  (2)  the harm caused was solely economic (this was essentially a breach of fiduciary / fraud case involving business transactions) and (3)  the plaintiff was not a particularly vulnerable victim.

Sean Martin, who manages to blog about nearly every appellate decision in California, sets forth the opposing view here.

Given the amounts involved, I'm betting on a petition to the California Supremes.  And I'm further betting that the decision sticks.

On Contract Language, Film Stars and Charlie's Angels

“When I use a word,” Humpty Dumpty said, in a rather scornful tone, “it means just what I choose it to mean, neither more nor less.”

Most of you who are lawyers or business people (or both) would think that the trick to writing a contract that would stay out of litigation and not be subject to conflicting interpretations would be to use clear, plain, unambiguous language.  And in most of the world, you would be correct.

But not in California – you’re not surprised by this are you?  In California, we had a case called Pacific Gas & Electric Company v. G.W. Thomas Drayage & Rigging Company decided by our Supreme Court in 1968.  The case seems to inject uncertainty into every contract.

Happy to say that a recent twist on the case gives me the opportunity to blog about contract litigation, Charlie's Angels, Robert Wagner and Natalie Wood all at the same time.  (For those readers born after about 1970, Charlie's Angels = cheesy cop show from the 1970's;  Robert Wagner = film and TV actor from the 1970's and, to some extent, up to now, married to the late Natalie Wood = child star of the late forties, film star in fifties and sixties.)

More after the jump.

Tough Year for the Garbage Business in Compton

I don't know how I missed this, but it's out in the most recent Verdict Search California (paid subscription required) and appeared not long ago in The Compton Bulletin. 

The target for this blog is the small to mid-sized business with litigation problems in California, and Hub City Solid Waste Services had some huge ones.  In 2001, it landed a 15-year, $100 million waste hauling franchise agreement from the City of Compton.  Within a matter of weeks, Compton's then mayor and two of its city council members started getting thousands of dollars in campaign contributions from -- guess who? -- Hub City.  Hub's owner tried to get a similar deal from another Southern California city -- Carson -- which resulted in his being convicted of attempted bribery.  At that point, Compton understandably decided to audit Hub's books.  It followed the money and terminated Hub's contract.

Hub decided to sue Compton.  Bad idea.  Compton cross-complained back at Hub, and at its owner, Aloyan, to get all of its money back under California Government Code section 1090 and following.  In mid-2006, the trial judge ruled that Aloyan and Hub were alter egos (so each could be held responsible for the wrongdoing of the other) and that the termination of the contract was proper, given the evidence of bribery.  Then, late last year, she turned the whole thing over to a jury, which ruled in favor of Compton on both the complaint -- finding the termination proper -- and its cross complaint, awarding the city $22,402,759 against Hub and Aloyan.  Read more here.

Electronic Discovery in California Courts -- Not

Lawyers all over the country are being inundated by warnings (almost exclusively from vendors) to "Be Prepared for the New Federal Electronic Discovery Rules," and there certainly is a learning curve for all of us.  I'm working on a longer piece on this. 
But I spend much of my time in the California State court system, and became curious about what law was developing here on that subject. 
Come to find out, a Westlaw search on "electronic discovery" in the California cases brings up ONE case.  It's Toshiba America Electronic Components, Inc. v. Superior Court (2004) 124 Cal.App. 4th 762.  And the case says that the California statue on point means exactly what it says.  Here's California's statute on electronic discovery, Code of Civil Procedure section 2031.280(b) (formerly 2031.(g)(b)): 

 

"If necessary, the responding party at the reasonable expense
of the demanding party shall, through detection devices, translate any data compilations included in the demand into reasonably usable form."

That's the whole thing.  Looks like we may need to get a little more up to date in California.

Look Out What You Ask For -- You Might Get It

California Corporations Code section 1800 allows shareholders to sue for involuntary dissolution of a corporation on a number of grounds, including fraud by the controlling shareholders, and even some situations where an even number of directors is deadlocked or the shareholders just don't get along.  Corporations Code section 2000, though, says that when a suit is filed, the controlling shareholders can have it stayed and submitted to a three-person appraisal, buying out the plaintiff shareholder or shareholders.

This week's VerdictSearch California (available in hard copy only) reports on the recent outcome in just such a case in Sutter County, one of Northern California's rural counties.  One of three brothers in a timer harvesting business sued the corporation for fraud, etc., claiming the two others were using the corporation to enrich themselves with related party transactions.  The defendant corporation exercised its right to stay the case and have an appraisal, taking the position that the planitiff brother's share was worth $24.7 million.  The appraisers were close to agreeing with the corporation, arriving at an appraisal of $29.5 million.

According to VerdictSearch California, that wasn't good enough for Judge Horace E. Cecchettini, who conducted a ten day trial, and awarded the plaintiff a thumping $45,742,423.

Guess the timber harvesting business is better than we thought.