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LosAngelesLawyerJUNE 2004, VOL.27, NO.4 / $3.00

EARN MCLE CREDIT Admitting Association member Section 1101(b) Don Willenburg analyzes the fate page 31 of punitive damages after Campbell Trends in Class Actions page 22 page 12

Use of Trusts in Fixing Bankruptcy the Damage page 17 Integrating PDAs and Cell Phones page 39 TOO FAST TO BE OVERRULED.

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The Magazine of the 12 Practice Tips The ebb and flow of class action Los Angeles County Bar Association By Donald W. Ricketts

June 2004 17 Practice Tips Vol. 27, No. 4 Avoiding the Bankruptcy Code’s ratable distribution scheme By Daniel J. McCarthy cover 39 Computer Counselor New devices that combine the cell phone and PDA By Gordon Eng

columns

10 Tips Going beyond traditional pro bono features By Rebecca A. Delfino

44 Closing Argument 22 Fixing the Damage A firsthand view of the Middle East By Jeffrey I. Abrams The U.S. Supreme Court has limited punitive damages awards to “single-digit multipliers,” but the results in state court have 41 Classifieds been unpredictable By Don Willenburg 42 Index to Advertisers Don Willenburg, an attorney with Carroll, Burdick & 43 CLE Preview 31 Second Acts McDonough LLP in Section 1101(b) permits allegations of criminal and civil

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Farm v. Campbell. His article begins on page 22.

page 31 Cover photo: Tom Keller Quo Jure Corporation 1-800-843-0660 www.quojure.com [email protected] LosAngelesLawyer ’ WRITING & RESEARCH VISIT US ON THE AT www.lacba.org/lalawyer When you can’t do it yourself, but you still need a brief or E-MAIL CAN BE SENT TO [email protected] memo done—and done well, by experienced attorneys who EDITORIAL BOARD are skilled writers—turn to Quo Jure Corporation. Chair JERROLD ABELES Quo Jure provides premium legal writing and research services Articles Coordinator to practicing attorneys. Our work has contributed to million- GARY RASKIN dollar settlements and judgments. Oppositions to motions for ANN M. AGUILAR summary are our specialty. Call for a free analysis DANIEL L. ALEXANDER The Winning EdgeTM HONEY KESSLER AMADO and estimate. ETHEL W. BENNETT R. J. COMER CHAD C. COOMBS KEITH E. COOPER ANGELA J. DAVIS HEATHER DAVIS KERRY A. DOLAN OVERCROWDED FILES WASTING YOUR TIME AND DECREASING GORDON ENG PRODUCTIVITY? CALL US FOR THE SOLUTION. DANIEL A. FIORE JOSEPH S. FOGEL www.paperlessUSA.com ||818.706.2303 [email protected] MICHAEL E. FOX STUART R. FRAENKEL MICHAEL A. GEIBELSON Finding a document in files stuffed with paper is like looking for a needle TED HANDEL in a haystack. It wastes time and keeps you from completing your work on DEAN HANSELL STEVEN HECHT time. paperlessUSA can help. We scan and integrate documents, KATHERINE M. HIKIDA photos, and videos and post them all in easy-to-navigate visual displays. JOHN P. LECRONE HYACINTH E. LEUS Secure, Easy Access 24/7 • Takes Minimum Space • Provides Maximum Speed PAUL MARKS ELIZABETH MUNISOGLU and Efficiency • Pleadings • Legal Correspondence • Discovery Evidence RICHARD H. NAKAMURA JR. KAREN NOBUMOTO Looking for your most important information is just like “surfing the Net”. Data on Demand! DENNIS PEREZ GERALD F. PHILLIPS EDWARD POLL FREE software—clients only pay for our services. Maximize your resources! CALL TODAY! THADDEUS M. POPE JACQUELINE M. REAL-SALAS NINA RIES SUE CAROL ROKAW KURT L. SCHMALZ JACOB STEIN CARMELA TAN BRUCE TEPPER PATRIC VERRONE JOEL B. WEINBERG

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LOS ANGELES LAWYER (ISSN 0162-2900) is published monthly, except for a combined issue in July/August, by the Los Angeles County Bar Association, 261 S. Figueroa St., Suite 300, Los Angeles, CA 90012, (213) 896-6503. Periodicals postage paid at Los Angeles, CA and additional mailing offices. Annual subscription price of $14 included in the Association membership dues. Nonmember subscriptions: $28 annually; single copy price: $3 plus handling. Address changes must be submitted six weeks in advance of next issue date. POSTMASTER: ADDRESS SERVICE REQUESTED. Send address changes to Los Angeles Lawyer, P.O. Box 55020, Los Angeles CA 90055. Copyright ©2004 by the Los Angeles County Bar Association. All rights reserved. Reproduction in whole or in part without permission is prohibited. Printed by Banta Publications Group, Liberty, MO. Member Business Publications Audit of Circulation (BPA). The opinions and positions stated in signed material are those of the authors and not by the fact of publication necessarily those of the Association or its members. All manuscripts are carefully considered by the Editorial Board. Letters to the editor are subject to editing.

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s I struggled with my first column for to be filled. I suggest that the attorney who the magazine nearly one year ago, I elects to shoulder the frivolous burden Awondered if this, my final one, would start with a representative action against be easier to write. The answer is no. I still have every gas station in the state for overcharg- several meaty topics that I wish I could ing customers by 1/10 of a cent per gallon. address fully in this column. However, just as Social interactions with . In the Carrie Bradshaw’s weekly chronicle about old days, the rules prohibiting parties from dating in New York reached its socializing with judges were final installment, so too has my Jerry Abeles is a fairly clear. Judges did not min- iteration of “Lex in the City.” litigation partner in gle with either party in a pending Had term limits not cut short the Los Angeles of- case, to prevent the appearance my chairmanship, here are some fice of Friedemann of impropriety. The rules of the subjects that perhaps O’Brien Goldberg & changed, though, when U.S. Su- would have graced this page: Zarian LLP. He is the preme Court Antonin Financial crisis at the chair of the 2003-04 Scalia refused to recuse himself courthouse. The impact of the Los Angeles Lawyer from hearing a case involving state’s financial woes on the local Editorial Board. Vice President Dick Cheney, courts has been well docu- even though Scalia and Cheney mented, with judicial personnel had spent time together on a being laid off, court hours shortened, and hunting trip after the Supreme Court had filing fees increasing exponentially. Yet while agreed to hear the case. Since the appear- Staples, Inc. is gladly forking over $100 mil- ance of impropriety is no longer the guiding lion over 20 years for naming rights for Staples principle for conflicts, feel free to advise your Construction Center, the state has branded the Stanley clients to invite the judges who preside over Mosk Courthouse and the Clara Shortridge their cases to backyard barbecues and Foltz Center without accept- Dodger games. Litigation ing a single dime from the namesakes. Granted, the gifted professional staff at orMediation Between the egos and deep pockets of some Los Angeles Lawyer likely would not have of this city’s attorneys, the financial crisis allowed these columns to run. That is why More than 40 years of construction could be solved within two months if naming they are professionals, and I merely volunteer. expertise provides you and your rights for certain rooms in the courthouses Before my final sign-off, I must thank the client with formidable forensic expert could be offered to the highest bidder. Media professional staff. The publisher and editor witnesses, compelling litigation interviews could take place in the Johnnie L. and senior editor were particularly instru- support...or skillful mediation of Cochran Press Center. Need to pick a medi- mental in ensuring that each From the Chair complex and highly technical issues. ator? Visit the Tony Piazza ADR office. Have was coherent and did not exceed its allotted the stomach flu? Run to the Mark J. Geragos space, gently fending off my pleas for a full Men’s Room. Grab a cup of coffee at the page. To fully appreciate the senior editor’s Thomas V. Girardi Cafeteria before meeting job, you should see, as they say in the movie Forensic Expert Witnesses your client at the Marvin M. Mitchelson biz, what was left on the editing room floor. Palimony Assistance Center in the Gloria I must also thank my wife, Debbie, who in Mediation Allred Courthouse. And what addition to feigning interest in my cases, gra- Michael S. Poles GC, CM, RCI, DABFET, ACFE client would not be impressed by the Jerry ciously read and constructively edited my CONSTRUCTION EXPERT/MEDIATOR Abeles Clerk’s Office? columns. While partners, associates, secre- Fill the frivolous lawsuit gap. Ever taries, law firms, and even clients come and PHONE: 323-874-8973 since the Trevor Law Group was put out of go, I know I can rely on Deb’s support. FAX: 323-874-8948 business last year by the attorney general’s I wish next year’s Editorial Board chair, WEB: www.mpgroup.com office, there has been a noted decline in the Gary Raskin, the best of luck. I look forward EMAIL: [email protected] filing of frivolous lawsuits. True, the folks at to reading his columns. 1202 Greenacre Avenue Trevor were not responsible for every inane It has been an honor and a pleasure serv- West Hollywood, California 90046-5708 suit—indeed, they played no role in the ing the Association this year. ■ Mediation Practice Areas recently settled lawsuit against Sony Pictures, Construction - Premises Liability - Real which ran fake movie reviews to bolster Health Care - Medical Malpractice - Elder Care mediocre films. Still, there is a hole that needs

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By Rebecca A. Delfino

Going beyond Traditional Pro Bono Attorneys who lack, or think they lack, the time or training for pro bono have alternatives

recent informal survey of 50 lawyers from different practice Court program, for instance, allows volunteer lawyers to work with areas in the public and private sectors on what they imagine children who are witnesses in criminal to educate and comfort Aas pro bono work revealed that nearly all respondents, includ- them prior to testifying. Lawyers can also assist high school stu- ing those with little or no pro bono experience, defined “pro bono” as dents in participating in mock competitions. In addition, oppor- providing legal services to the poor and disenfranchised for free. In tunities exist to mentor juvenile offenders through the Barristers general, this definition corresponds to those in legal dictionaries and Partners for Success Program, which matches volunteers with resi- relevant legal authorities. Black’s Law Dictionary defines “pro bono” dents of a juvenile probation camp to provide guidance and to serve as “involving uncompensated legal services performed especially as positive role models. for the public good.” The California Business and Professions Code Attorneys with legal experience or interest in pro bono activities contains a similar definition. other than representation and client counseling may also consider serv- It is therefore expected that the surveyed lawyers would define “pro ing as a volunteer community mediator through an organization such bono” using similar language. What is surprising, however, was the as the Association’s Services. Attorneys may also limited type of activities that the large majority of respondents char- serve as volunteer arbitrators or mediators through the Los Angeles acterized as pro bono. When asked what kinds of activities constitute County Superior Court’s ADR program. pro bono, most responses fell into one of two categories: 1) provid- Finally, for those who have the resources but no time to become ing legal advice or counseling, for example, during a law day or at an involved in pro bono, there are a number of nonprofit organizations HIV/AIDS or immigration clinic, or 2) representing a client in a par- and legal service providers that accept monetary donations and con- ticular matter in court, such as assisting a victim of domestic violence tributions. The Los Angeles County Bar Foundation is but one exam- to obtain a temporary restraining order. ple of several nonprofit entities that solicit and accept monetary con- Those lawyers surveyed who had not practiced pro bono held a tributions. With grants, the County Bar Foundation funds programs narrow view of what qualifies as pro bono. Some lamented that while designed to improve the administration of justice and the delivery of they were interested in participating in such activities, they had no legal services, enhance public confidence in the legal profession, training or experience to handle the work, or that the pressure of meet- increase understanding of and respect for the , and provide ing billable hour requirements did not allow them the time to par- law-related assistance on a nondiscriminatory basis. ticipate. A limited view of what activities qualify as pro bono and why Within these broader descriptions of pro bono, nearly all lawyers time restraints and lack of training prevent pro bono work stands in should be able to find some service they can provide. Certainly all pro contrast to the position of many law firms, law schools, judges, and bono work is important and should be encouraged. However, in addi- organizations. Indeed, the ABA Model Rules of Professional Conduct tion to traditional pro bono activities, attorneys searching for some way suggest lawyers should “aspire” to provide at least 50 hours of pro bono to use their legal talents and resources legal service a year. These pressures leave many young lawyers in a for the public good should also consider quandary about how they can participate. Unfortunately, the survey opportunities outside the norm. revealed that the default decision is not to participate at all. Finally, expanding the definition of pro bono will produce other positive and A Better Alternative important results. First, more lawyers It may be time to offer a more flexible definition of pro bono. If could provide pro bono help. Second, a lawyers are not participating in pro bono, maybe the traditional def- greater exposure and recognition of pro initions and impressions of what qualifies as pro bono are too narrow bono service would increase positive and should be expanded. Perhaps pro bono could be thought of in public perceptions of the important con- broader terms that encompass using one’s resources and talents to tributions lawyers make to the commu- help others without compensation. nity at large. This awareness will specif- There are many volunteer activities that require little or no train- ically improve the public image of Rebecca A. Delfino is ing or experience beyond what every lawyer receives in . lawyers as well as promote greater con- a senior judicial Several organizations, including several within the Association, have fidence in the justice system in general. attorney at the court volunteer opportunities to teach children and high school students Such a result will ultimately reap rewards of appeal. about the law and operation of the legal system. The Barristers Kids for all. ■

10 LOS ANGELES LAWYER / JUNE 2004

practice tips

By Donald W. Ricketts

The Ebb and Flow of Class Action Lawsuits

Despite their many under its general joinder .2 change, the court reached back lenged in State of California v. Then, in 1967, in Daar v. Yellow to a 30-year-old commentary, pub- Levi Strauss & Co.7 A variation controversies, class Cab,3 the California Supreme lished after the stock market on the problem of identifying Court, following the lead of the crash of 1929, that advocated the class members raised in Daar action lawsuits federal courts, expanded the sit- use of class actions to vindicate was how money judgments or uations in which class actions shareholder rights. The court’s monetary settlements could be remain favored could be maintained under the comments still resonate: distributed to unidentified or state’s joinder statute to include, What was noteworthy in unidentifiable class members. in California among other suits, damage the milieu three decades The defendants argued that the actions. ago for stockholders is of inability to directly benefit class The Daar decision came one far greater significance members rendered maintenance hree years ago, Justice year after amendments to Rule today for consumers.… of a class action a futile exercise Gary V. Hastings of the 23 of the Federal Rules of Civil Frequently numerous con- that did little more than consume TCalifornia Court of Appeal Procedure had expanded the use sumers are exposed to the the resources of the courts with- signalled a change in attitude in of class actions in federal courts. same dubious practice by out providing any significant California toward class action The amended rule set forth the the same seller so that benefit to any significant number litigation. After pointing out that elements for all class causes of proof of the prevalence of of the class-member plaintiffs. In “as a general proposition” class action—numerosity, commonal- the practice as to one class action terms, the action actions are favored under both ity, superiority, typicality, and ade- consumer would provide failed to meet the requirement of California and federal law, he op- quacy—whether or not they proof for all. Individual “manageability.” The counter- ined, “but, the tide has turned.”1 sought damages or equitable actions by each of the vailing argument was that, while In support of his observation that relief. The requirements of fed- defrauded consumers is compensation to the class mem- “not all class actions are favored,” eral Rule 23 were enacted into often impracticable be- bers was a significant justifica- Justice Hastings cited federal leg- law in California in 1971 in the cause the amount of indi- tion to allow class actions to pro- islation that more closely regu- Consumers Legal Remedies Act4 vidual recovery would be ceed, equally compelling was the lated class securities litigation. which applied, however, only in insufficient to justify bring- notion that such actions pun- One can, however, question limited situations and which con- ing a separate action; thus ished culpable defendants by whether this federal tained requirements that further an unscrupulous seller requiring them to disgorge their is an appropriate barometer by limited its use. retains the benefits of its ill-gotten gains. These two views which to measure the health of Four years later, in Vasquez v. wrongful conduct. A class were reconciled by the California California class Superior Court,5 action by consumers pro- Supreme Court through “the actions. Nearly 40 Donald W. Ricketts the California Su- duces several salutary by- largely uncharted area of fluid 8 years after Calif- is a semiretired preme Court did products, including a ther- recovery.” ornia expanded the attorney in Santa much more than apeutic effect upon those In approving the use of the use of class actions, Clarita whose current express that class sellers who indulge in fluid recovery concept, the court they remain con- practice is restricted actions were fa- fraudulent practices, aid to outlined several particular appli- troversial, hotly to consultation and vored “as a general legitimate business enter- cations of the doctrine that might contested, and con- association on class proposition.” Jus- prises by curtailing ille- be employed once payments to tinue to spawn ap- actions. tice Mosk, writing gitimate competition, and identified class members (by pellate decision for a unanimous avoidance to the judicial claims or otherwise) had been after appellate deci- court, announced process of the burden of made: escheat, price rollbacks, sion. But a trend a broad, sweeping multiple litigation involv- additional payments to class remains elusive: Is the tide com- endorsement of class actions. The ing identical claims. The members, and, as interveners ing in or going out? rationale and holding have never benefit to the parties and had sought, a consumer trust Before 1966, limited use of been criticized by an appellate the courts would, in many fund. The court concluded: class actions was permitted in opinion and stand yet today, still circumstances, be sub- [T]he sound approach of the federal courts under Rule 23 unimpaired as a statement of stantial.6 Vasquez continues to pro- of the Federal Rules of Civil California public policy. In 1986, the California policy vide the proper frame- Procedure and, in California, In making this sweeping favoring class actions was chal- work. The trial courts

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LexisNexis and the Knowledge Burst logo are trademarks, and Shepard’s and lexisONE are registered trademarks of Reed Elsevier Properties Inc., used under license. It’s How You Know is a trademark of LexisNexis, a division of Reed Elsevier Inc. Matthew Bender is a registered trademark of Matthew Bender Properties Inc. © 2003 LexisNexis, a division of Reed Elsevier Inc. All rights reserved. AL6271 should have the full range of alterna- Respondents point out that no cases Kraus was more explicit in holding that tives at their disposal. In choosing the have been litigated under this sec- fluid recovery was available under the UCL appropriate method, they should con- tion wherein the plaintiff, suing on only when a class action was certified: sider the amount of compensation pro- his own behalf and as a public attor- In sum, the has not ex- vided to class members, the proportion ney general, was not personally dam- pressly authorized monetary relief of class members sharing in the recov- aged by the conduct sought to be other than in UCL actions, ery, the size and effect of the spillover enjoined. Our research, too, has failed but has authorized disgorgement into a to nonclass members, and the costs to disclose any such cases. However, fluid recovery fund in class actions.… of administration.9 we read the statute as expressly Therefore, we decline to read the grant authorizing the institution of action by of equitable power in section 17203 as Representative Actions under the any person on behalf of the general encompassing the authority to fash- Unfair public.14 ion a fluid recovery remedy when the Even as Daar, Vasquez, and a host of other The apparent limitation on the ability of a action has not been certified as a class cases were settling and expanding California court to award damages under the act, which action.21 class action law, plaintiffs were increasingly denominated the economic remedy available This limitation on the use of fluid recovery exploring the use of California’s Unfair under it as “restitution,” was also largely in UCL actions did not, however, represent a Competition Law (UCL) as a vehicle for re- swept away. The California Supreme Court turning of the tide in the development of class dressing a wide variety of wrongs encom- held, in Cortez v. Purolator Air Filtration action litigation. Indeed, Kraus and Cortez passed by the act’s broad description of con- Products Company, “The concept of restora- actually extended the use of the broad UCL demned conduct—“any unlawful, unfair or tion or restitution, as used in the UCL, is not of “unlawful, unfair and fraudulent busi- fraudulent business act or practice.”10 In- limited only to the return of money or prop- ness practices.” creasingly, the act came to be viewed as a erty that was once in the possession of that potentially easier form of representative action person.…[R]estitutionary awards encompass Ebb or Flow? that might supplant class actions. quantifiable sums one person owes to The introduction of the so-called Class At the time of its enactment in 1933, the another….”15 Action Fairness Act in Congress in 2003 rep- UCL provided only for actions seeking injunc- In a companion case decided the same resented a clear attempt to turn the tide tions. But the California Supreme Court, in day, Krause v. Trinity Management Services against class actions.22 The legislation was People v. Superior Court,11 held that trial courts Inc.,16 the California Supreme Court defined sponsored by business interests, including retained their inherent equitable power to “restitution” with even more expansive lan- the tobacco industry, which perceived the order restitution under the UCL. The act was guage: “all money obtained through an unfair federal courts as offering more favorable amended three years later to provide express business practice” and “all profits earned as venues for class actions than state courts. authority to order restitution. a result of an unfair business practice”17— The bill’s goal was to allow removal of class Most significantly, the UCL explicitly abol- definitions that, if not synonymous with “dam- actions filed in state court to federal court by ished any standing requirement—a require- ages,” are very close.18 expanding the diversity of the ment that the plaintiff must have been dam- But Kraus rejected the notion that the act federal courts. aged by a defendant to sue it—by providing allowed “any person” to seek disgorgement The legislation provided that for class that an action under the act could be brought qua restitution on behalf of unrepresented actions there need not be complete diversity by “any person.”12 Viewed in class action third parties without alleging and satisfying between plaintiffs and defendants, and it terms, the representative plaintiff need not the requirements of a class action (which sought to reverse early class action decisions possess a claim typical of the members of would include that the named plaintiff have a holding that the monetary value of individual the class. Equally significantly, the act pro- typical claim—that is, standing) and explicitly class members’ claims could not be aggre- vided that the court “may make such orders held that fluid recovery, the means for dis- gated to reach the minimum federal juris- or judgments…as may be necessary to gorgement, was not a remedy available under dictional amount. In an effort to gain addi- restore to any person in interest any money the UCL, unless a class had been certified in tional support, it tempered that restriction, or property, real or personal, which may have the action.19 somewhat, by providing that the aggregate been acquired by means of such unfair com- The court first hinted at such a holding in value of the claims must be $5 million or petition.”13 On its face, “any person” could 1979 in Fletcher v. Security Pacific National more, an increase from the $2 million ini- seek “restitution” on behalf of a class, even if Bank: tially provided in the bill.23 he, she, or it had not been damaged by the Although an individual action may In July 2003, the bill passed in the House defendant, without giving notice to the class, eliminate the potentially significant by a vote of 253-170. However, despite an and without the right to opt out. expense of pretrial certification and intense lobbying effort, proponents failed The first major challenge to the increasing notice, and thus may frequently be a by one to get the necessary votes to invoke use of the UCL was on its radical “no stand- preferable procedure to a class action, cloture and allow the bill to come to a vote in ing” provision. In 1980 an appellate court the trial court may conclude that the the Senate. While it can be assumed that the affirmed that the words “any person” did, adequacy of representation of all proposal’s supporters will attempt to pass indeed, dispense with traditional standing allegedly injured borrowers would best the bill in this session of Congress, it will requirements: be assured if the case proceeded as a probably be difficult to do so in an election Defendants argue below that this sec- class action. Before exercising its dis- year. tion does not enlarge the number of cretion, the trial court must carefully In contrast to their failure to pass legisla- persons who may seek injunction to weigh both the advantages and disad- tion last year, those who would turn the tide prevent unlawful business practices, vantages of an individual action against on class actions were more successful in 1995 and that traditional concepts of stand- the burdens and benefits of a class and 1998 when securities litigation reform ing must be read into the statute. proceeding for the underlying suit.20 measures were passed and then amended,

14 LOS ANGELES LAWYER / JUNE 2004 providing the specific examples that Justice board application of California law. Once the expanded use of these suits will be the attor- Hastings cited to support his observation defendant does so, the burden shifts to the neys who bring them. That argument was that “the tide has turned.” The Private plaintiff to demonstrate that the class is still put forth vigorously in support of the Class Securities Litigation Reform Act,24 passed in manageable, for example, by the use of sub- Action Fairness Act of 2003, and it is not with- 1995, imposed stricter pleading requirements, classes.30 out merit. An obvious potential for abuse limited precertification discovery, and lim- Washington Mutual also represents an exists when class counsel simultaneously ited the number of actions in which a person effort by the supreme court to reconcile two negotiates the substantive settlement on may be a lead plaintiff. Amendments adopted earlier appellate court decisions, but the deci- behalf of the class and the agreement with in 1998 prohibited class actions by private sion fails to do so fully. First, in 1988, in defendants to pay attorney’s fees. The danger parties (with certain exceptions) based on Osborne v. Subaru of America, Inc.,31 the Third is, of course, that trade-offs will be made that state statutory or .25 This leg- District affirmed an order denying certifica- benefit counsel at the expense of his or her islative activity may well suggest that the tide tion of a national class upon among other class clients. While the practice has not been has ebbed in the limited area of federal secu- grounds “that California has [no] special condemned absolutely, it is a factor that the rities class action litigation. obligation that would fairly call for this state court must consider in evaluating the fair- The tide may have ebbed as well in to assume the burden of adjudicating this ness of the settlement.35 California in one other area: national class nationwide class action.”32 It appears that the However, two other areas equally subject actions. The U.S. Supreme Court first Third District was not referring to the “con- to abuse have been the subject of little com- approved national class actions in Phillips tacts” test of Phillips Petroleum, but what it is ment by the appellate courts. Given the poten- Petroleum Company v. Shutts,26 a case in which referring to is not entirely clear. The opinion tial of class actions for huge damage awards, a Kansas trial court certified a national class speaks of the burdens on the court of adju- large corporations (who are most often the and applied Kansas law to resolve all the dicating a national class and appears to be say- defendants) initially reacted to them by resist- claims. The Supreme Court first swept away ing that these burdens justify a refusal to cer- ing them at all costs. But, as time went on, constitutional and jurisdictional objections to tify a national class unless the state has some sophisticated defendants came to appreciate the maintenance of a national class action in unspecified “special obligation.” Carried to its the value of the full res judicata effect that state court. It held that a forum state may logical conclusion, no state would ever have class actions presented and began to devise “assume jurisdiction over the claims of plain- a special obligation to adjudicate a national ways that would provide that benefit while tiffs whose principal contacts are with other class action and, because class claims cannot minimizing the payout. Two commonly used States” so long as the forum state affords be aggregated to meet the federal court juris- tactics emerged: claims-made settlements due process—notice and the right to opt out.27 dictional dollar minimum, one could never and prospective-relief settlements. But the Supreme Court held that when there maintain a national class action in any court. Under a claims-made settlement, the are conflicts between the law of the forum In Washington Mutual, the California Supreme defendant agrees, often without limitation, state and the of the states where the Court noted Osborne’s “special obligation” to pay claims that are presented by class claims arose, the forum state must have a requirement but neither adopted nor repu- members pursuant to the notice that they “‘significant contact or significant aggregation diated it. are given. The reality is that only a very small of contacts’ to the claims asserted by each Ten years later, in Canon U.S.A., Inc. v. percentage of class members make claims member of the plaintiff class, contacts ‘cre- Superior Court,33 the Second District had and the major payout, usually dwarfing the ating state interests,’” before a state court held that the propriety of national-class cer- payout for damages, is for attorney’s fees. may apply its own law. This is designed to tification could be attacked at the pleading Thus, both goals justifying class actions— ensure that the choice of the forum state’s law stage by a motion to strike (or, presumably, compensation to the numerous damaged per- is “not arbitrary or unfair.”28 Thus national demurrer). While the California Supreme sons and disgorgement—are defeated. If the classes may be certified in state court and Court referred to the Canon holding in Wash- goal of broad compensation cannot be, and have been. ington Mutual, it neither explicitly affirmed often is not met because the class cannot be In Washington Mutual Bank v. Superior nor disapproved it. But it did hold that the identified except through claims, the goal of Court, the California Supreme Court affirmed issues should be resolved at the class certi- disgorgement could be met by approving that “if the relevant laws of each state are fication hearing.34 It would appear, therefore, claims-made settlements only if the defen- identical, there is no problem and the trial that the certification of national class actions dant agrees to a specific reasonable mini- court may find California law applicable to in California will be the subject of further mum payout with fluid recovery employed to class claims.”29 The rock upon which national clarifying opinions. utilize undistributed funds. class actions most often founder appears Under a prospective-relief settlement, the when the court must apply multiple, con- Looking Ahead defendant agrees to pay attorney’s fees and to flicting state laws to resolve all the claims. In These recent court decisions show that modify its practices in the future (in effect, a this situation it is likely that individual legal the tide of class actions unleashed in 1966 by consent ), thus conferring a benefit issues, raised by the various applicable state the amendments to Rule 23 and the warm on its future customers, though not neces- laws, will predominate over common issues, embrace given them by the California courts sarily on the same customers it damaged in and the class will not be certifiable. commencing a year later has not turned. But the past. The problem with prospective relief Washington Mutual represents a careful that is not to say that, at some point, the class settlements is that once the matter is con- attempt by the California Supreme Court to action critics will not have their way and will cluded, no one is left to monitor whether the detail the analyses that a trial court must be able to, if not turn the tide, make it recede defendant is living up to its promises, which make to determine if there are conflict of a bit. were sometimes illusory in the first place. A laws/commonality problems. The decision Ever since the amendments to Rule 23 reporting requirement as a condition of set- seems to indicate that that the burden is first were debated, critics have argued that class tlement approval could ensure that prospec- on the defendant to demonstrate that there actions hold the potential for great abuse and tive relief is meaningful. are conflicts of law that prevent an across-the- that the almost exclusive beneficiaries of an There is tremendous pressure on the

LOS ANGELES LAWYER / JUNE 2004 15 courts and parties to settle cases, and that Alcohol-Drug SEEKING pressure undoubtedly results in class action settlements that, but for attorney’s fees pro- EXECUTIVE visions, are more shadow than substance. It DIRECTOR remains to be seen whether such class action BARRY GERALD SANDS settlements will receive greater scrutiny by The Beverly Hills Bar Association, the largest the courts. If they do not, it may be that CRIMINAL DEFENSE LAWYER non-specialty, non-regional bar in the United Certified Alcohol-Drug Counselor States is seeking a new Executive Director. It mounting criticism will result in a legislative ■ 877-247-2746 is a once in a lifetime opportunity. turning of the tide. Send all inquiries and resumes to: 1 Howard Gunty Profit Sharing Plan v. Superior Court., ★ 25 Years Experience ★ Marc L. Sallus 88 Cal. App. 4th 572, 578 (2001). 16133 Ventura Blvd, Penthouse Suite A 2 CODE CIV. PROC. §378. All credit cards accepted. Encino, CA 91436-2447 3 Daar v. Yellow Cab, 367 Cal. 2d 695 (1967). Daar was brought on behalf of a class of overcharged taxicab patrons who could not be identified unless they indi- vidually stepped forward and identified (“ascertained”) themselves. Daar held that “ascertainability” does not turn on the question of whether individual members of the class can be identified but rather on whether there exists a “community of interest among the class mem- bers in the questions of law and fact involved” so that “the judgment…will be res judicata as to all persons to whom the common questions of law and fact pertain.” Id. at 706. 4 Consumers Legal Remedies Act (codified at CIV. CODE §1781). 5 Vasquez v. Superior Court, 4 Cal. 3d 800 (1971). 6 Id. at 807-08. 7 California v. Levi Strauss & Co., 41 Cal. 3d 460 (1986). 8 Id. at 479. 9 Id. 10 BUS. & PROF. CODE §§17200 et seq. 11 People v. Superior Court, 9 Cal. 3d 283 (1973). 12 BUS. & PROF. CODE §17204. 13 BUS. & PROF. CODE §17203. 14 Hernandez v. Atlantic Fin., 105 Cal. App. 3d 65, 71-72 (1980). 15 Cortez v. Purolator Air Filtration Prods. Co., 23 Cal. 4th 163, 178 (2000). 16 Kraus v. Trinity Mgmt. Servs., Inc., 23 Cal. 4th 116 (2000). 17 Id. at 127. 18 In Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1149 (2003), the supreme court pulled back a bit to restore somewhat the traditional notions of restitution when it redefined UCL restitution as “funds in which [plaintiff] has an ownership interest.” 19 Kraus, 23 Cal. 4th at 137. 20 Fletcher v. Security Pac. Nat’l Bank, 23 Cal. 3d 442, 453-54 (1979). 21 Kraus, 23 Cal. 4th at 132. 22 Class Action Fairness Act, H.R. 2341, S. 1751, 108 Cong., 1st Sess. (2003). 23 Id. 24 The Private Securities Litigation Reform Act, 15 U.S.C. §§77a et seq. (1995). 25 Id. 26 Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985). 27 Id. at 812. 28 Id. at 821-22 (quoting Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-13 (1981)). 29 Washington Mut. Bank v. Superior Court, 24 Cal. 4th 906, 920 (2001). 30 Id. 31 Osborne v. Subaru of Am., Inc., 198 Cal. App. 3d 646 (1988). 32 Id. at 663. 33 Canon U.S.A., Inc. v. Superior Court, 68 Cal. App. 4th 1 (1998). 34 Washington Mutual, 24 Cal. 4th at 926. 35 See Owners v. Southland Corp., 85 Cal. App. 4th 1135, 1158-59 (2000).

16 LOS ANGELES LAWYER / JUNE 2004 practice tips

By Daniel J. McCarthy

Avoiding the Bankruptcy Code’s Ratable Distribution Scheme

A purported held.”3 However, the legislative has obtained property by fraud purchase is provided by another.17 history of Section 541 clearly and that property is identifiable.11 There are various other cir- creditor may be a states that assets held by a debtor However, as to alleged trust cumstances, however, under in trust for a third party are not assets in the debtor’s possession which a resulting trust is created, beneficiary of an part of the debtor’s bankruptcy on the petition date, the con- including the failure of an express estate.4 As one court observed, structive trust remedy is typically trust due to an invalidity, such as express, implied, “Congress plainly excluded prop- useless, unless the constructive lack of a definite purpose or legal- erty of others held by the debtor trust was imposed pre-petition by ity or if the trustee of an express or statutory trust in trust at the time of the filing of a court. Many courts have held trust has remaining property the petition.”5 that the remedy of a constructive after a trust is fully performed.18 Understanding the applica- trust will not be awarded postpe- Once a resulting trust is implied here are very limited cir- bility of these principles requires tition because the remedy is by law to carry out the intention cumstances in which a pur- an awareness of what constitutes “inchoate” as of the petition date of the parties, the trustee’s only Tported unsecured creditor the types of trusts recognized by and because the trustee’s strong purpose is to hold or convey the of a debtor in bankruptcy can bankruptcy courts, which include arm powers under 11 USC trust assets to the beneficiary.19 extract itself from the statutory statutory6 as well as express and Section 544(a) generally are supe- The bankruptcy policy of ratable scheme that gives priority first implied trusts. An express trust, rior to that remedy under the distribution has not been viewed among unsecured creditors hold- according to one court, is “a fidu- laws of most states.12 If a court as applicable to resulting trusts.20 ing claims in the categories iden- ciary relationship with respect to has imposed a constructive trust However, even a determination tified in 11 USC Section 507(a) property, subjecting the person against certain assets pre-peti- that there is a resulting trust does and then to nonpriority unse- by whom the title to property is tion or has issued an order for not always eliminate a bankruptcy cured creditors.1 In part, this is held to equitable duties to deal specific performance from which estate’s interest in the asset. The because of the strong policy in with the property for the benefit a constructive trust must be assets subject to a resulting trust favor of ratable distribution of another person, which arises as inferred, bankruptcy courts ex- will remain in the estate if applic- among similarly situated credi- a result of a manifestation of an clude the assets in question from able state law provides a lien- tors.2 Such circumstances exist, intention to create it.”7 Another the debtor’s estate,13 although holder or a bona fide purchaser however, when the purported court noted, “An express trust there is limited authority to the with superior rights to the bene- creditor establishes that it is not may be created ‘without the use contrary. ficiary of the resulting trust. For really a creditor at all but instead of technical words.’”8 Never- Resulting trusts also are example, a trustee may use is the beneficiary of an express, theless, the everyday dealings implied trusts, but they differ Section 544(a)(3) to avoid an un- implied, or statu- between parties from constructive trusts: “A recorded resulting trust interest tory trust relation- Daniel J. McCarthy is can establish a resulting trust arises by opera- in real property under Florida ship, under which a partner in the Los debtor-creditor re- tion of law to enforce the inferred law.21 alleged assets are Angeles law firm of lationship notwith- intention of the parties to the Finally, while equitable liens collected in trust Hill, Farrer & Burrill standing the exis- transaction.”14 The parties’ inten- occasionally have been recog- by the debtor for LLP. He represents tence of an express tions can be ascertained from the nized by bankruptcy courts,22 the benefit of the creditors and debtors trust relationship language of the parties, but inten- they are conceptually different beneficiary and in complex between them.9 tions also can be determined from trusts. Pursuant to 11 USC then paid to the bankruptcy-related A trust that is from the parties’ conduct.15 The Section 541(d), the better-rea- beneficiary under litigation. implied may be a trust proponent need not show soned cases hold that “[i]f the applicable state or constructive trust an actual intent to establish a debtors do not have an equitable federal . or a resulting trust. resulting trust, but it “must prove interest” in the asset in question, Under 11 USC Section 541, One court wrote, “A constructive the absence of an intent for the then “the trustee takes only bare the debtor’s estate consists of all trust is an equitable remedy transferee to have a beneficial legal title subject to equitable of the “legal or equitable inter- designed to prevent unjust interest in the property.”16 Re- encumbrances that can be ests of the debtor in property as enrichment, and restore legal title sulting trusts often arise in the proved.”23 Express, implied of the commencement of the to one who, in , owns the “straw man” real estate transac- (resulting or constructive), and case,” “wherever [such property res.”10 One species of a construc- tion, in which one person takes statutory trusts all form grounds is] located and by whomever tive trust occurs when a debtor title after consideration for the for excluding property from a

LOS ANGELES LAWYER / JUNE 2004 17 bankruptcy estate. The existence of an equi- lected pre-petition by a debtor, commingled ing implied trusts, especially constructive table lien, however, should not prevent the with the debtor’s general revenues, and spent trusts. The biggest hurdle typically faced by debtor’s bare legal interest from becoming an pre-petition, the funds will be gone when the the alleged beneficiary of a constructive trust asset of the debtor’s estate. Instead, the equi- debtor files a bankruptcy petition, and the is that the beneficiary is viewed as a mere table lien “is simply a charge upon the prop- trust beneficiary will be left with a pre-petition creditor when the remedy of a constructive erty, which charge subjects the property to the unsecured claim arising from the wrongful trust has not been imposed pre-petition payment of the debt of the creditor in whose diversion of trust funds. against the debtor and the assets in ques- favor the charge exists.”24 That conceptual Second, if the funds have been collected tion. Nevertheless, “[s]ome courts have con- distinction may limit the rights of an equi- pre-petition and tracing proves that those cluded that pursuant to section 541(d), where table lienholder to being paid on its equitable funds are still held in the debtor’s account on the debtor holds property under conditions in lien from the proceeds of the sale of the asset the petition date, then the alleged trust res still which state law would impress a constructive rather than being able to prevent the sale.25 exists, against which the trust may be trust, the property never becomes property imposed.34 If the collected trust funds remain of the estate and the trustee’s strong arm Tracing Alleged Trust Funds in the debtor’s control as of the petition date powers cannot defeat the creditor’s equitable If an alleged trust beneficiary has con- and later are used for the debtor’s benefit, interest.”50 On the other hand, “[o]ther courts sented to a debtor commingling alleged trust then the trust beneficiary may hold an admin- have found that section 541(d) does not limit funds with its general revenues rather than istrative expense claim. a trustee’s avoidance powers so that the requiring the segregation of the alleged trust Third, if the funds have been collected trustee may avoid the previously undeclared funds, courts are reluctant to determine that postpetition, tracing will not be as important, equitable interest of a constructive trust an implied trust exists, because consent to because it is a virtual certainty that all such claimant.”51 Applying Virginia law, however, commingling typically creates a debtor-cred- funds will be deposited in the debtor’s post- one court has found that a trustee held title itor relationship.26 This is even more true in petition accounts. In these circumstances, to real property subject to a constructive trust the context of an express trust, when courts the trust beneficiary should have an admin- interest of a third party even though a pre-peti- have found a beneficiary’s implied or express istrative expense claim under 11 USC Section tion judgment had not been entered.52 consent to commingling to be inconsistent 507(a)(1)(A) to the extent any such funds Similarly, in a recent decision, a constructive with the existence of an express trust.27 In cir- have been spent by the debtor.35 trust was enforced under Illinois law against cumstances in which it would be unduly bur- personal property in the debtor’s name, densome to segregate alleged trust funds, Recognition of Trusts notwithstanding the lack of a pre-petition however, courts have found that the com- Bankruptcy courts agree that they are judgment. The court reached this decision mingling of funds does not preclude the exis- required to apply nonbankruptcy law to deter- because the constructive trust was deemed to tence of an implied trust.28 Further, a long- mine whether a trust relationship exists. That arise at the time of the wrong rather than at term course of dealing between parties has nonbankruptcy law typically is the law of the the time of the judicial imposition of the rem- been deemed to result in a trust relationship relevant state,36 but it may be federal law if edy, and because the rights of a hypothetical despite the commingling of funds.29 there are significant federal interests lien creditor under Illinois law are not supe- If a trust relationship with a debtor is involved.37 rior to the rights of the beneficiary of the shown and the debtor has wrongfully com- In choosing whether to apply federal com- constructive trust.53 mingled alleged trust funds without the trust mon law, courts have applied the generally Constructive trusts also have been imposed beneficiary’s consent, the court usually will accepted criteria of whether there is a “sig- for purposes of determining whether the prop- impose tracing requirements regarding the nificant conflict between some federal policy erty of the debtor was transferred pre-peti- commingled funds.30 Indeed, wrote one court, or interest and the use of state law,”38 and tion in the context of a voidable preference “The remedies of constructive trust, seques- whether a “unique federal interest exists”39 action, though courts may require the credi- tration, and the like cannot be applied, how- that would warrant the application of federal tor to trace the funds that the debtor had ever, where the subject res cannot be traced common law. The cases in which the Supreme wrongfully withheld.54 One court imposed a or presently identified, and the interests of Court has created and applied federal common constructive trust postpetition against traceable numerous other similarly-situated claimants law are few and restricted,40 and they are “lim- funds in favor of a group of insurers, notwith- are implicated.”31 This involves meeting the ited to situations where there is a ‘significant standing the fact that a constructive trust had “lowest intermediate balance” test, described conflict between some federal policy or inter- not been judicially imposed before the bank- by a court as “[t]he normal procedure for est and the use of state law.’”41 There are, ruptcy filing. The funds had been received tracing trust proceeds which have been com- however, cases in which bankruptcy courts pre-petition by the debtor to reimburse it for mingled in a bank account.”32 When that test have chosen to apply federal common law.42 damages covered by the insurers.55 is applied to trust funds that have been com- Bankruptcy courts have recognized statu- Similarly, one divided court of appeal mingled with other funds, the trust fund is tory trusts under two federal laws—the recently found that the nondebtor spouse treated as lost if all funds are withdrawn. Perishable Agricultural Commodities Act of was entitled to the remedy of a constructive However, if the amount on deposit is reduced 1930,43 and the Packers and Stockyards trust against community assets when the below the amount of the trust fund but is not Act44—as well as under state laws that protect debtor spouse filed for bankruptcy, notwith- depleted, the trust fund claimant is entitled to subcontractors and suppliers.45 Bankruptcy standing the fact that neither a pre-petition the lowest intermediate balance in the courts also have enforced express trusts in division of marital property nor a pre-peti- account—based upon the fiction that non- various contexts, including joint deposit tion state court order had occurred.56 The trust fund monies have been withdrawn first.33 accounts,46 prepaid affordable college tuition court, however, distinguished the case before The timing of the collection of alleged ,47 funds held by a loan servicing it “from those cases in which the courts have trust funds is a critical factor in tracing the agent,48 and properly funded escrow concluded that the filing of a bankruptcy peti- funds and the trust beneficiary’s ability to accounts.49 tion cut off the unrecorded equitable rights of recover. First, if the funds have been col- Courts, however, have wrestled with find- a non-debtor spouse” on the grounds that

18 LOS ANGELES LAWYER / JUNE 2004 the trustee did not attempt to avoid the non- debtor spouse’s interest in the IRA that was at issue but instead supported the award.57 Thus, it would appear that a nondebtor spouse’s inchoate constructive trust claim against marital property that is the subject of a debtor spouse’s bankruptcy estate may not survive the trustee’s strong arm powers in the context of chapter 7 or chapter 11 cases, if those powers are available to the trustee and the trustee asserts them. Resulting trusts, which give effect to the parties’ inferred intentions, have been imposed by bankruptcy courts in many con- texts: • A van paid for by the debtor, registered in the debtor’s name, and used exclusively by the debtor’s boyfriend.58 • A certificate of deposit that was titled a “Joint Account with Right of Survivorship” 4AKING$EFENDING$EPOSITIONS s %XTRACTTHEMOSTEFFECTIVEINFORMATIONFOR USEATTRIAL and that named the debtor as one of four *ULYn  s %XHAUSTTHEWITNESSSKNOWLEDGEOFATOPIC individuals on the account.59 #HAPMAN5NIVERSITY3CHOOLOF,AW s $EALWITHOBSTREPEROUSOPPOSINGCOUNSEL Commingled utility payments collected /RANGE #ALIFORNIA • s 5SEEXHIBITSTOFURTHERYOURTHEORY by a chapter 11 debtor department store, ,ITIGATORSWHOCONDUCTDEPOSITIONSWITHSKILLHAVE AWINNINGADVANTAGEOVERTHEIROPPONENTS)NJUST .)4!ISANAPPROVEDPROVIDERBYTHE3TATE"AROF though the utility company was required to TWO AND ONE HALFDAYSYOUWILLLEARNTOMASTERTHE #ALIFORNIA trace those funds and they were subject to the CRITICALDEPOSITIONSKILLSYOUNEEDTOCOMPETEIN 3CHOLARSHIPSANDINTEREST FREEPAYMENT 60 THECOURTROOM “lowest intermediate balance” test. PLANSAREAVAILABLE Real property to which debtors held bare 4HISPROGRAMOFFERSINSTRUCTIONONHOWTO • .ATIONAL)NSTITUTEFOR4RIAL!DVOCACY legal title because it was placed in their names s 4AKECONTROLOFTHEDEPOSITION sWWWNITAORG to avoid acreage restrictions on an irrigation s 'AINVALUABLEADMISSIONS district, and the property was paid for by the parents of one of the debtors.61 • Bringing real and personal property into a bankruptcy estate after that property had OVER 25 YEARS OF SUCCESS been transferred by a debtor to a nondebtor We spouse and a nondebtor family partnership.62 An analogous nonbankruptcy circum- stance in which courts have found implied Understand trusts occurs in SEC receivership actions, when investors’ monies have been collected under a Ponzi scheme operated by the debtor Bankruptcy but certain investors’ monies have remained segregated and are traceable.63 However, The Legal Side and Clients troubled by debts? “[c]ourts have favored pro rata distribution The Human Side We are experts at: of assets where, as here, the funds of the de- • Debt Restructuring Plans frauded victims were commingled and where • Chapters 7, 11, and 13 Relief victims were similarly situated with respect • Conservative Asset Protection to their relationship to the defrauders.”64 Any practitioner who has litigated the exis- Refer your clients with tence of a trust relationship in bankruptcy confidence: court undoubtedly has been met with com- • AV Rating ments about how the recognition of a trust • Free Consultations relationship would have the effect of prefer- • Reasonable Fees ring the “trust creditor” over other creditors and would reduce the distribution to other Professional, Compassionate Solutions creditors, especially in chapter 7 cases or liq- uidating chapter 11 cases. However, a similar Laurence D. Merritt effect occurs as a result of the recognition of Attorney at Law secured debt, reclamation rights, and setoff Phone: 818.710.3823 • email: [email protected] rights. If a trust relationship exists, the trust Internet: www.legalknight.com beneficiary can and should receive the appro- priate recognition, rather than having its trust claim viewed with skepticism. After all, a Formerly with Merritt & Hagen

LOS ANGELES LAWYER / JUNE 2004 19 secured creditor and a creditor with recla- mation or setoff rights are mere creditors, Steve Fisher whereas a trust beneficiary is not even a cred- itor. Instead, a trust beneficiary simply asks Deposition Summaries that the court recognize that the debtor and Providing comprehensive, accurate, and the debtor’s estate should not be allowed to easy to read deposition summaries for all wrongfully convert the trust beneficiary’s types of civil cases since 1987. assets to the benefit of the debtor and its 818/563-4496 creditors. Proper application of federal and sfi[email protected] state law should assist in the fair recognition of that right. ■ For rate information, summary samples, and client testimonials, please visit www.deposummary.com 1 11 U.S.C. §§507(a), 726(a). 2 Torres v. Eastwick (In re N. Am. Coin & Currency, Ltd.), 767 F. 2d 1573, 1575 (9th Cir. 1985); Carlson Orchards, Inc. v. Linsey (In re Linsey), 296 B.R. 582, 586 (Bankr. D. Mass. 2003). 3 11 U.S.C. §541(a)(1). 4 H.R. REP. NO. 595, 95th Cong., 1st Sess. 368 (1977); S. REP. NO. 989, 95th Cong., 2d Sess. 82 (1977), reprinted in 1978 U.S. CODE CONG. & ADMIN. NEWS 5787, 6324. 5 v. Whiting Pools, Inc., 462 U.S. 198, 205 (1983). 6 In re McGee, 258 B.R. 139, 145-46 (Bankr. D. Md. 2001) (identifying various statutory trusts); Texas Comptroller of Pub. Accounts v. Megafoods Stores, Inc. (In re Megafoods Stores, Inc.), 163 F. 3d 1063, 1067 (9th Cir. 1998) (statutory trust for collected sales taxes); In re Regional Bldg. Sys., Inc., 273 B.R. 423, 440 n.21 (Bankr. D. Md. 2001) (statutory trust in favor of subcontractor). But see Spinoso v. Heilman (In re Heilman), 241 B.R. 137, 162 (Bankr. D. Md. 1999); Bezner v. United Jersey Bank (In re Midway, Inc.), 166 B.R. 585, 591-92 (Bankr. D. N.J. 1994). 7 LFD Operating, Inc. v. Ames Dep’t Stores, Inc. (In re Ames Dep’t Stores, Inc.), 274 B.R. 600, 623 (Bankr. S.D. N.Y. 2002) (citation omitted). 8 Old Republic Nat’l Title Ins. Co. v. Tyler (In re Damer- on), 155 F. 3d 718, 722 (4th Cir. 1998) (citation omitted). 9 In re Morales Travel Agency, 667 F. 2d 1069, 1072 (1st Cir. 1981). 10 Tekinsight.Com, Inc. v. Stylesite Mktg., Inc. (In re Stylesite Mktg., Inc.), 253 B.R. 503, 508 (Bankr. S.D. JACK TRIMARCO & ASSOCIATES N.Y. 2000); accord, Moon v. Anderson (In re Hixon), 295 B.R. 866, 871 (B.A.P. 8th Cir. 2003). POLYGRAPH/INVESTIGATIONS, INC. 11 Manty v. Miller & Holmes, Inc. (In re Nation-Wide Exch. Servs.), 291 B.R. 131, 144 (Bankr. D. Minn. 2003). 12 Airwork, Inc. v. Markair Express, Inc. (In re Markair, Inc.), 172 B.R. 638, 642 (B.A.P. 9th Cir. 1994). 9454 Wilshire Blvd. 13 Poss v. Morris (In re Morris), 260 F. 3d 654, 668 (6th Sixth Floor Cir. 2001); In re Indian River Estates, Inc., 293 B.R. 429, 436-37 (Bankr. N.D. Ohio 2003). Beverly Hills, CA 90212 14 Markair, 172 B.R. at 641. 15 In re Penn Cent. Transp. Co., 486 F. 2d 519, 524 (3d (310) 247-2637 Cir. 1973), cert. denied, 415 U.S. 990 (1974). 16 Mazer v. Jones (In re Jones), 184 B.R. 377, 382 (Bankr. D. N.M. 1995). 1361 Avenida De Aprisa 17 Sacramento Real Estate Corp. v. First Chi. Bank, Ravenswood (In re Sacramento Real Estate Corp.), 201 Camarillo, CA 93010 B.R. 225, 233 (Bankr. N.D. Ill. 1996). (805) 383-8004 18 Bainbridge v. Stoner, 16 Cal. 2d 423, 428 (1940); Jack Trimarco - President accord, Weiner v. A.G. Minzer Supply Corp. (In re UDI Former Polygraph Unit Chief Corp.), 301 B.R. 104, 112 (Bankr. D. Mass. 2003). Los Angeles F.B.I. (1990-1998) 19 Bainbridge, 16 Cal. 2d at 428. email: [email protected] 20 CA. P.I. #20970 Siegel v. Boston (In re Sale Guar. Corp.), 220 B.R. 660, www.jacktrimarco.com 667 (B.A.P. 9th Cir. 1998). 21 In re Loewen Group Int’l, Inc., 292 B.R. 522, 527 Former Polygraph Inspection Team Leader (Bankr. D. Del. 2003). Member Society of Former Special Agents Office of Counter Intelligence 22 Swanson v. Stoffregen (In re Stoffregen), 206 B.R. 939, Federal Bureau of Investigation U.S. Department of Energy 944 (Bankr. E.D. Wis. 1997). 23 Lubman v. Wells (In re Wells), 296 B.R. 728, 732-33 (Bankr. E.D. Va. 2003). 24 In re Surplus Furniture Liquidators, Inc. of High

20 LOS ANGELES LAWYER / JUNE 2004 Point, 199 B.R. 136, 145 (Bankr. M.D. N.C. 1995) (cita- & Rubber Co. v. Goldblatt Bros., Inc. (In re Goldblatt 48 Golden Mortgage Fund #14 v. Kennedy (In re Golden tion omitted). Bros., Inc.), 33 B.R. 1011, 1013 (Bankr. N.D. Ill. 1983), Triangle Capital, Inc.), 171 B.R. 79, 83 (B.A.P. 9th Cir. 25 Id. at 145. appeal dismissed, 758 F. 2d 1248 (7th Cir. 1985). 1994). 26 Foothill Capital Corp. v. Clare’s Food Mkt., Inc. (In 36 Butner v. United States, 440 U.S. 48, 55 (1979). 49 Murphy v. Arrow Elecs., Inc. (In re RISCmanagement, re Coupon Clearing Serv., Inc.), 113 F. 3d 1091, 1100 37 City of Springfield v. Ostrander (In re Lan Tamers, Inc.), 304 B.R. 566, 580-89 (Bankr. D. Mass. 2004) (col- (9th Cir. 1997). Inc.), 329 F. 3d 204, 214 (1st Cir. 2003). lected citations). 27 Evans Fur Co. of Houston, Inc. v. Chase Manhattan 38 O’Melveny & Myers v. FDIC, 512 U.S. 79, 87 (1994) 50 Gurley v. Mills (In re Gurley), 222 B.R. 124, 135 Bank, N.A. (In re Sakowitz, Inc.), 949 F. 2d 178, 182 (5th (citation omitted). (Bankr. W.D. Tenn. 1998). Cir. 1991); LFD Operating, Inc. v. Ames Dep’t Stores, 39 Ledo Fin. Corp. v. Summers, 122 F. 3d 825, 829 (9th 51 Id. Inc. (In re Ames Dep’t Stores, Inc.), 274 B.R. 600, 623 Cir. 1997). 52 Lubman v. Wells (In re Wells), 296 B.R. 728, 734 (Bankr. S.D. N.Y. 2002). 40 O’Melveny & Myers, 512 U.S. at 87. (Bankr. E.D. Va. 2003). 28 Official Comm. of Unsecured Creditors of the 41 Id. (citation omitted). 53 In re DVI, Inc., 306 B.R 496, 503 (Bankr. D. Del. Columbia Gas Transmission Corp. v. Columbia Gas 42 For interline rail carriers, see Missouri Pac. R.R. Co. 2004). Sys. Inc. (In re Columbia Gas Sys. Inc.), 997 F. 2d v. Escanaba & Lake Superior R.R. Co., 897 F. 2d 210 (6th 54 Mitsui Mfrs. Bank v. Unicom Computer Corp. (In re 1039, 1061 (3d Cir. 1993); In re Penn Cent. Transp. Co., Cir. 1990); but see Union Pacific R.R. Co. v. Moritz (In Unicom Computer Corp.), 13 F. 3d 321, 325 n.5 (9th Cir. 486 F. 2d 519, 522, 525 (3d Cir. 1973), cert. denied, 415 re Iowa R.R. Co.), 840 F. 2d 535 (7th Cir. 1988), cert. 1994). U.S. 990 (1974). denied, 488 U.S. 899 (1988). For motor carriers, see 55 American Hull Ins. Syndicate v. U.S. Lines, Inc. (In re 29 Shipley Co., Inc. v. Darr (In re Tap, Inc.), 52 B.R. 271, Parker Motor Freight, Inc. v. Fifth Third Bank, 116 F. U.S. Lines, Inc.), 79 B.R. 542 (Bankr. S.D. N.Y. 1987). 277 (Bankr. D. Mass. 1985); Firestone Tire & Rubber 3d 1137, 1140 (6th Cir. 1997); but see Delta Pride Catfish, 56 Davis v. Cox, 356 F. 3d 76, 84 (1st Cir. 2004). Co. v. Goldblatt Bros., Inc. (In re Goldblatt Bros., Inc.), Inc. v. Marine Midland Bus. Loans, Inc., 767 F. Supp. 57 Id. at 92 (collected citations). 33 B.R. 1011, 1014-15 (Bankr. N.D. Ill. 1983), appeal dis- 951, 962-63 (E.D. Ark. 1991). For refunds due to natural 58 In re Amos, 201 B.R. 184, 187-88 (Bankr. N.D. Ohio missed, 758 F. 2d 1248 (7th Cir. 1985); Weiner v. A. G. gas customers by a power company, see Official Comm. 1996). But see In re Ward, 300 B.R. 692, 696-99 (Bankr. Minzer Supply Corp. (In re UDI Corp.), 301 B.R. 104, of Unsecured Creditors of the Columbia Gas Transmis- S.D. Ohio 2003). 114 (Bankr. D. Mass. 2003). sion Corp. v. Columbia Gas Sys. Inc. (In re Columbia Gas 59 In re Goldstein, 135 B.R. 703, 705 (Bankr. S.D. Fla. 30 In re JD Servs., Inc., 284 B.R. 292, 297-98 (Bankr. D. Sys. Inc.), 997 F. 2d 1039, 1055 (3d Cir. 1993). For pro- 1992). Utah 2002); LFD Operating, 274 B.R. at 625-26 n.16. ceeds from overfunded pension plans, see EBS Pension 60 Pennsylvania Power & Light Co. v. Globe Store 31 Manty v. Miller & Holmes, Inc. (In re Nation-Wide L.L.C. v. Edison Bros. Stores, Inc. (In re Edison Bros. Acquisition Co., Inc. (In re Globe Store Acquisition Exch. Servs.), 291 B.R. 131, 144 (Bankr. D. Minn. Stores, Inc.), 243 B.R. 231, 237 (Bankr. D. Del. 2000). Co., Inc.), 178 B.R. 400, 403 (Bankr. M.D. Pa. 1995). 2003). 43 7 U.S.C. §499e(c)(1980). 61 Torrez v. Torrez (In re Torrez), 63 B.R. 751, 754 32 Carlson Orchards, Inc. v. Linsey (In re Linsey), 296 44 7 U.S.C. §§196 et seq. (1976). (B.A.P. 9th Cir. 1986). B.R. 582, 586 (Bankr. D. Mass. 2003). 45 In re McGee, 258 B.R. 139, 145-46 (Bankr. D. Md. 62 McGavin v. Segal (In re McGavin), 189 F. 3d 1215, 33 Id. 2001). 1218 (10th Cir. 1999). But see Feinman v. Lombardo, 214 34 Golden Mortgage Fund #14 v. Kennedy (In re Golden 46 T & B Scottdale Contractors, Inc. v. United States, 866 B.R. 260, 267 (D. Mass. 1997). Triangle Capital, Inc.), 171 B.R. 79, 82 (B.A.P. 9th Cir. F. 2d 1372, 1376 (11th Cir. 1989). 63 SEC v. Credit Bancorp, Ltd., 290 F. 3d 80, 90 (2d Cir. 1994). 47 Darby v. McGregor (In re Darby), 226 B.R. 126, 129 2002). 35 In re JD Servs., Inc., 284 B.R. at 299; Firestone Tire (Bankr. M.D. Ala. 1998). 64 Id. at 88-89.

LOS ANGELES LAWYER / JUNE 2004 21 By Don Willenburg

ust over one year ago, the U.S. Supreme Court announced judgment was entered, and the insurer refused to pay the excess for new limits on awards of punitive damages. In State Farm 18 months. The Campbells sued the insurer for bad faith. The trial Mutual Insurance Co. v. Campbell,1 the Court acted to rein court found that the treatment the family had received was part of a in “runaway” punitive awards by downplaying the roles of nationwide, decades-long policy by State Farm to defraud insureds and the defendant’s wealth and of harm to anyone other than the courts by not paying legitimate claims. The insurer targeted this plaintiffs in a particular suit. In California and elsewhere, scam at those most vulnerable, such as the poor, the elderly, and the however,J considerable latitude remains. California courts responded sick. The jury awarded, and the Utah Supreme Court approved, $1 to Campbell in a variety of ways: by applying the limits; by extending million in compensatory damages and $145 million in punitive dam- them to new areas; and by apparently ignoring, while pretending to ages. The U.S. Supreme Court reversed and remanded to determine apply, the new limits. Campbell reversed a punitive damages award a “reasonable and proportionate” award pursuant to three “guideposts”: that was 145 times the compensatory award. The Court recom- “(1) the degree of reprehensibility of the defendant’s misconduct; (2) mended punitive damages in an amount “at or near” the compensatory the disparity between the actual or potential harm suffered by the plain- damages in the case, and no more than a “single-digit multiple” gen- tiff and the punitive damages award; and (3) the difference between erally.2 Campbell and its progeny are now required reading for plain- the punitive damages awarded by the jury and the civil penalties tiff and defense counsel. authorized or imposed in comparable cases.”3 Campbell began as a car insurance claim. The Campbells caused an accident that left one person dead and another paralyzed. Their Don Willenburg’s practice focuses on appellate, litigation, and insurance insurer assumed their defense but, against the advice of its investi- coverage matters with Carroll, Burdick & McDonough LLP in San gator, refused to settle within the $50,000 policy limits. A much larger Francisco and Los Angeles.

California courts are struggling to apply reasonable limits on punitive damage awards in light of State Farm v. Campbell Fixing the DamageDamage

22 LOS ANGELES LAWYER / JUNE 2004 KEN CORRAL

The first guidepost is reprehensibility. In particular, according to rage,” and “humiliation.”13 The Court did not find that punitive ele- Campbell, when determining an award a court should consider only ments were actually present but held that because such elements as the reprehensible conduct that is closely related to the plaintiff’s humiliation may be considered in a compensatory award, punitive ele- particular harm. A defendant may only be punished for its actions ments were “likely” present.14 The Court justified its holding on the toward the the plaintiffs in a particular case, not the defendant’s basis of this likelihood rather than any specific evidence as to whether actions toward other people.4 Although the Court agreed that this in fact punitive damages in this case were counting for something insurer’s conduct “merits no praise,” the Court objected to using the already awarded in compensatory damages. Defendants in future case “as a platform to expose, and punish, the perceived deficiencies cases may similarly seek to rely on this likelihood for justifying lower of State Farm’s operations throughout the country,” which “bore no punitive awards. reasonable relation” to the Campbells’ harm. “A defendant’s dissim- This presumption puts plaintiffs in a box. If they win only a small ilar acts, independent from the acts upon which liability was premised, compensatory award, then regardless of the reprehensibility or wide- may not serve as the basis for punitive damages.” The Court also spread nature of the defendant’s acts, the punitive award must be small noted: “A defendant should be punished for the conduct that harmed as well to satisfy the Court’s concern about proportionality. If plain- the plaintiff, not for being…unsavory….” This clear language should tiffs win a large award, then the Court says that it is likely that the limit the applicability and the amount of punitive damages. award includes punitive elements, so the punitive award should be lim- The Court also discounted the relevance of acts outside the state ited to avoid duplication. in which the action was brought. The “conduct [justifying punitives] The Supreme Court may have complicated the “proportionality” must have a nexus to the specific harm suffered by the plaintiff. A jury analysis when it held that the “wealth of the defendant cannot justify must be instructed…that it may not use evidence of out-of-state con- an otherwise unconstitutional punitive damages award.” This pro- duct to punish a defendant for conduct that was lawful in the juris- nouncement has been widely quoted, but it is of uncertain effect. On diction where it occurred.”5 the one hand, the Court held that the reference to State Farm’s This may mean that in-state conspiracies can be fully vetted and assets “had little to do with the actual harm sustained by the punished, but decisions made in a remote corporate office that affect Campbells.”15 This will almost always be true, so this seems to say that multiple states may not. Nevertheless, the Court did allow the use of wealth should not be considered. But the Court also recognized that evidence of nationwide acts to establish “deliberateness and culpability” deterrence and retribution are permissible purposes of punitive dam- of the in-state acts.6 It is not specified how, as a practical matter, age awards, and wealth is relevant to both.16 Wealth is not, however, courts are to distinguish between these uses of such evidence. relevant to a proportionality analysis, which simply compares the The second guidepost is proportionality between punitive damages size of the compensatory and punitive damage awards. and the compensatory award. The Campbell Court declined to “impose The third guidepost in Campbell looks to the relation between the a bright-line ratio which a punitive award cannot exceed,” but held that punitive damages awarded by the jury and the civil penalties autho- “few awards exceeding a single-digit ratio between punitive and com- rized or imposed in comparable cases. The Court found that the pensatory damages, to a significant degree, will satisfy due process.”7 “most relevant sanction under Utah state law for the wrong done to The Court surveyed prior decisions, including Pacific Mutual Life the Campbells appears to be a $10,000 fine…an amount dwarfed by Insurance Company v. Haslip,8 which allowed punitive damages four the $145 million punitive damages award.”17 The Court discounted the times greater than compensatory damages, and observed: “Single-digit Utah Supreme Court’s consideration of other possible penalties, such multipliers are more likely to comport with due process, while still as the loss of business license, disgorgement of profits, and impris- achieving the state’s goals of deterrence and retribution, than awards onment, as speculation.18 with ratios in the range of 500 to 1…or, in this case, of 145 to 1.”9 The Campbell should be comforting to some potential targets of puni- Court did not fix the proper amount but remanded with a recom- tive damage actions. For example, most conduct will be, or can be mendation of “a punitive damages award at or near the amount of com- made to appear, far less reprehensible than the decades-long, nation- pensatory damages…In the context of this case, we have no doubt that wide scheme that was proven in the Campbell trial. So defendants can there is a presumption against an award that has a 145-to-1 ratio.”10 always argue that the awards in their cases should not exceed the ratio The Court announced a general principle that “courts must ensure of punitive to compensatory damages that the Court recommended, that the measure of punishment is both reasonable and proportion- which in the case of Campbell was “at or near” one to one. But the ate to the amount of harm to the plaintiff and to the general damages Court’s language leaves plaintiffs to argue that each state can decide recovered.” “Reasonable and proportionate,” or variants thereof, is a whether wealth is relevant in deciding punitive damages. phrase repeated throughout the decision. “Reasonable” lends little guidance, however, considering that the Utah Supreme Court con- CALIFORNIA CASES sidered the award reasonable. The Court therefore recognizes the pri- California punitive damages law has already felt the effect of Campbell. macy of the “proportionality” prong of the test: “In the context of this Several pending cases were remanded or otherwise rebriefed specif- case, we have no doubt that there is a presumption against an award ically to address Campbell. The first decisions to apply Campbell that has a 145-to-1 ratio.”11 show a wide range of results. The context in Campbell included several significant factors. The In Diamond Woodworks, Inc. v. Argonaut Insurance Company,19 the compensatory award in this case was substantial: The Campbells first California appellate court to interpret Campbell held that it lim- were awarded $1 million for a year and a half of emotional distress. ited punitive awards to no more than four times compensatory dam- The harm arose from an economic problem, not from physical assault ages. The court reduced a punitive award from 13 to 3.8 times com- or trauma; there were no physical injuries; and State Farm paid the pensatory damages. excess before the complaint was filed, so the Campbells suf- In Diamond Woodworks, a worker cut off four fingers on his first fered only minor economic injuries for the 18-month period in which day on the job. Argonaut insured BSC, which leased employees to State Farm refused to resolve the claim against them.12 Diamond under an agreement that BSC’s insurance would cover The Court indicated that the “compensatory damages for the worker-related claims. When this worker was injured, BSC said that injury suffered here, moreover, likely were based on a component his paperwork had not been completed and contested his employment which was duplicated in the punitive award,” such as “distress,” “out- status. Argonaut agreed, refused to defend Diamond, and denied

24 LOS ANGELES LAWYER / JUNE 2004 coverage to the worker for tiplier” limit on punitive 18 months, even in the face damages. In part this was of a contrary court decision because Romo interpreted in virtually identical cir- Campbell to overrule long- cumstances, plus a sub- standing California law as stantial likelihood of dam- set forth in Grimshaw v. ages in excess of the policy Ford Motor Company,27 and limits.20 The court found Rufo v. Simpson.28 Grim- that this insurer bad faith shaw, and traditional Cal- justified “significant puni- ifornia punitive damages tive damages,” but that in law, held that the amount of light of Campbell the jury’s an award should be enough award of punitives of 13 to deter the same conduct times compensatories was against consumers other unconstitutional. Because than the plaintiffs. But the court found the insur- Romo found that Campbell er’s conduct particularly “disapproved of this broad reprehensible, it awarded view” and required that punitives of about 3.8 times courts focus primarily on compensatories, near Has- what the defendant did to lip’s upper limit of 4 times the present plaintiff, rather compensatories.21 than the wealth of the In Romo v. Ford Motor defendant or the defen- Company, a wrongful death dant’s general incorrigibil- and physical injury case, ity.29 The same focus also the U.S. Supreme Court effectively overruled tradi- vacated judgment and tional California punitive remanded for determina- damages law, as stated in tion in light of Campbell.22 Rufo, that the defendant’s On remand, the California wealth is one of the “three Court of Appeal reduced a main factors” in determin- $290 million punitive award ing the proper amount of from 59 times compensato- punitive damages.30 ries to “approximately five Romo did not, however, times.”23 Romo applied the follow Campbell’s lead in Campbell limits to a case presuming that a large that (unlike Campbell) involved physical injury, and in the process over- compensatory award must include punitive elements: “[T]he extreme ruled longstanding California punitive damages law. reprehensibility of defendant’s actions and the undercompensation of Romo arose from an accident in which a sport utility vehicle rolled plaintiffs’ individual losses [addressed in a separate portion of the opin- over. The roof could not support the weight of the car, and three of ion] outweigh the punitive element already contained to some extent four family members inside (who were wearing seat belts) were in the individual compensatory awards.”31 Romo holds that “the killed. The passengers who escaped death were thrown from the deathly harm component of the punitive award in the present case is car and seriously injured.24 The court of appeal had no problem find- [not] strictly constrained by the single-digit multiplier” set forth in ing reprehensibility: Campbell. But Romo nevertheless reduced the award to within that [T]he design and production of the car was the despicable con- range—“about five times” the compensatory damages.32 duct: we think it obvious that putting on the market a motor A third case, Henley v. Philip Morris,33 raises the issue of extreme vehicle with a known propensity to roll over and, while giving reprehensibility as a justification of a 6-to-1 ratio of punitive to com- the vehicle the appearance of sturdiness, consciously deciding pensatory damages. The California Supreme Court remanded Henley not to provide adequate crush protection to properly belted pas- with express directions to reconsider the punitive damages award in sengers (in the words of a corporate memo introduced in evi- light of Campbell.34 The court of appeal reduced the pre-Campbell puni- dence, ‘penalizing’ passengers for wearing a seatbelt) consti- tive award but stretched the limits used by the California decisions tutes despicable conduct.”25 in Diamond Woodworks and Romo. In addition, the court observed: Henley was brought by a smoker for tobacco-related injuries. [D]efendant ignored its own internal safety standards while leav- Henley reduced a punitive damages award from 17 times compensatory ing the Bronco with the appearance of incorporating a roll bar damages to 6 times compensatories. (The compensatory damages into the vehicle’s roof structure. Defendant declined to test the were $1.5 million. Henley reversed subject to remittitur, reducing strength of the Bronco’s roof before placing the vehicle in pro- the punitive award from $25 million to $9 million.) Henley’s reduction duction, and when it did test the roof strength [years later], defen- of the punitive award is noteworthy in several respects. dant concluded the roof in fact failed to meet its own standards.26 First, Henley applied the Campbell single-digit limits in a case Ford modified later models but did not recall or warn purchasers involving physical injury, not just economic injury (as in Campbell). of earlier, weak-roofed models. Second, Henley went beyond the 4-to-1 ratio that Campbell held would Even with this evidence of reprehensibility, and the tremendous be the normal limit for punitive awards but stayed within the single- losses to the plaintiffs, Romo stayed within Campbell’s “single-digit mul- digit ratio beyond which Campbell found awards particularly sus-

LOS ANGELES LAWYER / JUNE 2004 25 pect. The court reduced the 17-to-1 verdict: should not even be subject to discovery.43 “[A] double-digit ratio will be justified rarely, But wealth is relevant to deterrence and Professional and perhaps never in a case where the plain- retribution, which the Court acknowledged tiff has recovered an ample award of com- are permissible goals of punitive damages.44 Arbitrator pensatory damages.”35 Henley went beyond 4 Unless the requires courts and to 1, however, because of the extreme rep- to act on the assumption that a given and Mediator rehensibility of marketing tobacco to chil- award will have the same deterrent effect dren, and because the “plaintiff’s injuries regardless of the defendant’s wealth, then a were not merely economic, but physical.” lower multiple for less wealthy defendants Steven Richard Sauer, Esq. Third, Henley declined to address the sig- should pass constitutional muster. nificance of the defendant’s wealth as a factor In Simon, the plaintiff was defrauded in his in determining the size of the award, on the attempt to purchase real property. The defen- rationale that the court had already reduced dant’s officer misled the plaintiff pursuant to “He is truly a master the award. This argument, however, seems a “continuous and intricate…pattern of deceit circular. Either wealth played a role in the final that continued into his trial testimony,” includ- in his art.” award or it did not. ing redating documents, filing false declara- Fourth, unlike Campbell, Henley found tions, and lying to the trial court about wrong- “no reason to believe that compensatory dam- ful conduct.45 In Simon, the court noted that Settled over 5,000 Federal ages were inflated” by punitive components— “a defrauded purchaser of real property…may and State Litigated Cases even though the award was significantly recover only his or her out-of-pocket losses, larger than the one in Campbell that prompted not benefit-of-the-bargain losses.”46 “[T]he the U.S. Supreme Court to presume that the use of ratios becomes ‘troublesome, if not compensatories included a punitive compo- unworkable,’ where the actual award comes 323.933.6833 nent. Fifth, Henley acknowledges and dis- in the form of an offset, nominal damages, or misses the argument that punitive damages equitable relief.”47 Even Campbell recognizes Fax 323.933.3184 should be limited because of a potential mul- that “ratios greater than those we have pre- E-mail [email protected] tiplicity of punitive awards for the same con- viously upheld may comport with due process duct. The court did not find this a real, rather where ‘a particularly egregious act has than hypothetical, problem, and held that in resulted in only a small amount of economic 4929 Wilshire Blvd., Suite 740 Los Angeles, CA 90010 any event Campbell limits served to restrain damages.’”48 Simon relied on “California the likelihood and harm of such awards.36 authority holding that a punitive-damage Indeed, it would be disingenuous for a defen- award should not be so small ‘that it can dant to argue that the award should relate be…written off as a part of doing business.’”49 solely to the conduct as to a particular plain- After all this rationalization for an award tiff and that there is a potential for duplication. greatly in excess of any single-digit award The fourth reported California case inter- ratio established by Campbell, Simon never- preting Campbell seems even more distant theless claimed that the punitive award was from Campbell. In Simon v. San Paolo U.S. within the lower, 4-to-1 ratio. Simon cited pre- Holding Co., Inc., the court concluded that Campbell cases saying that the focus should “wealth is still useful in determining a puni- be not on some “bottom-line amount of an tive amount.”37 While paying Campbell lip ser- award of compensatory damages but on the vice, Simon approved punitive damages of nature and degree of the actual harm suf- $1.7 million when compensatory damages fered by the plaintiff.”50 Simon measured the were $5,000 (a ratio of 3,400 to 1 rather than actual harm as the benefit of the bargain, or 4 to 1). This departure may be why the the difference between the proposed pur- California Supreme Court recently granted chase price and the appraised value. Here, review of this decision.38 that difference was $400,000, and “[t]he ratio In Campbell, the U.S. Supreme Court of punitive damages to that loss was just over arguably rejected the notion that punitive 4 to 1.”51 damages may take into consideration the Thus, Simon presents the anomaly of a defendant’s wealth, holding: “The wealth of a decision that espouses the lowest limits of defendant cannot justify an otherwise uncon- any California decision since Campbell (with stitutional punitive damages award.”39 Diamond Woodworks, 4 to 1) but affirms an Therefore, under Campbell, the “wealth of a award with a great disparity between the defendant has been all but removed from the actual compensatory and punitive awards— damages equation.”40 Tellingly, the first 3,400 to 1. Counting as damages those California punitive damages cases after amounts that were not recoverable by law Campbell did not discuss the three traditional seems disingenuous lip service to Campbell factors of California punitive damages, which that employs an extralegal rationale to impose included wealth.41 Instead, they discussed significant punitive damages. the three “guideposts” set forth in Campbell, The California Supreme Court may have which do not include wealth.42 “Under granted review of Simon to address the issue Campbell, finances are no longer in play” and of whether punitive damages should be mea-

26 LOS ANGELES LAWYER / JUNE 2004 sured against compensatory damages or people argued that the punitive award was rea- Campbell imposes on punitive awards seem against all the harm that a plaintiff may suf- sonable because that amount represented inapplicable. Further, enforcing a voluntarily fer, even if not legally compensable. The court “about 10 percent” of what “Reynolds spent on assumed contractual duty does not implicate may also address whether a merely economic magazine advertising during the rele- due process concerns at the same level as a injury, as in Simon, should merit any multiple vant…period, and…less than one percent of state court making punishable what is oth- of compensatory damages rather than an Reynolds’s cash on hand.”57 erwise, and in other states, lawful. There was award “at or near” compensatory damages as The court of appeal, citing Campbell and no evidence that Reynolds’s youth-targeted suggested by Campbell.52 The court may also other federal decisions, held that punitive advertising was lawful or unlawful anywhere address whether Simon’s insistence that puni- damage awards based on conduct in one state else or that the consent decree obligations tive damages be large enough that “they can- cannot be based on “nationwide financial fig- stopped at the state line. not simply be written off as a cost of doing ures without violating…due process rights.”58 One could argue that Lockyer’s $20 million business”53 can be squared with Campbell’s Because “a ‘State cannot punish a defendant sanctions award was not based on either holding that “wealth…cannot justify an oth- for conduct that may have been lawful where nationwide spending or the defendant’s wealth erwise unconstitutional punitive damages it occurred,’”59 and because states may not but that it was reasonable in light of such fac- award.”54 Thus, the California Supreme impose “punitive damages…for unlawful acts tors. A true evaluation of the harm, even Court’s review of Simon has the potential to committed outside of the State’s jurisdic- restricted to one state, would likely result in clarify a broad range of issues under tion,”60 using national advertising spending as a far higher figure than the sanctions that California law after Campbell. a guideline was impermissible. were originally awarded, perhaps even higher In the fifth and most recent reported Lockyer assumes, without discussing or than the company’s national advertising California decision interpreting Campbell, citing authority, that “the principles applica- expenses. Comparing the $20 million People ex rel. Lockyer v. R. J. Reynolds Tobacco ble to punitive damage awards are applicable requested to the national figures was a mat- Company,55 the State of California won sanc- to the sanctions imposed in this case.”61 ter of advocacy by counsel, not a finding of tions against a tobacco company for violating Campbell and the other federal cases that causation by the trial court. Perhaps it is true a consent decree by targeting advertising to Lockyer cites involved , with both com- that neither sanctions nor punitive awards minors. The court of appeal reversed a $20 pensatory and punitive damages awarded. should be based solely on wealth, and that the million sanctions award because it was Lockyer, on the other hand, involved viola- mention by counsel of wealth in assessing “improperly based [upon] (1) Reynolds’s tion of a contractual duty, for which sanctions whether an award is reasonable should not be national advertising spending rather than on were the only award. Because there were no by itself a basis for reversal. Reynolds’s advertising spending in California compensatory damages to which the sanction Lockyer did not decide the ultimate ques- and (2) Reynolds’s wealth.”56 In Lockyer, the award could be compared, the limits that tion of what would be an appropriate amount

LOS ANGELES LAWYER / JUNE 2004 27 for sanctions. To do so, it might have been tion. Other states are awarding significant hensible as it was in Campbell? In that case, forced to confront the poor analogy between punitive damages even after Campbell, a mammoth insurer could have settled a claim punitive damages and sanctions. The although most of these awards use a single- against its insured arising out of a horrific California Court of Appeal remanded Lockyer digit multiplier. In fact, since Campbell, no accident for a relative pittance within policy on damages without specifying how that reported appellate decision from any state limits, ignored the advice of its own advisers amount should be determined and without has limited a punitive award to “at or near” the and chose not to settle, and exposed its older, suggesting or setting a maximum. compensatories, even when it otherwise ill, and impecunious insureds to a judgment reduces an award in light of Campbell.63 of over $1 million and the threatened loss of OUTSIDE CALIFORNIA Campbell and subsequent California deci- their home. Most plaintiffs are not as vul- California courts are not alone in stretching sions provide fodder for both sides in an argu- nerable, and most defendants are not so Campbell’s limits. Although Campbell holds ment over the size of punitive awards in any heavy-handed or unreasonable. that punitives “at or near” compensatories particular case. Defendants seeking to limit Second, the compensatory award already are appropriate in the ordinary case (with the size of awards may consider how the fol- includes some punitive elements, so the puni- Campbell itself belonging to that category),62 lowing points may apply to their cases. First, tive award should be lower to avoid what the state courts have not followed this prescrip- is the conduct in the present case as repre- U.S. Supreme Court called “double count- ing.”64 This argument will most likely suc- ceed in cases in which tangible damages are slight and “soft” damages, such as emotional distress or damage to reputation, are high. Third, evidence of acts against parties other than the plaintiffs, acts outside the juris- diction,65 and the defendant’s wealth66 should not be considered in making an award. If evi- dence relating to these matters is presented at trial, a good ground for appeal may exist. A comparatively impecunious defendant may want to introduce financial condition evi- dence, however, to limit the punitive award to a reasonable percentage of net worth. Fourth, the U.S. Supreme Court held that a 1-to-1 ratio was proper in Campbell and that the ratio should generally be no higher than 4 to 1 and almost never more than 9 to 1. The Campbell ruling effectively declares that the days of super-sized punitive damage awards are constitutionally over. On the other hand, plaintiffs arguing for a large punitive award after Campbell are not bereft of points to emphasize. First, it may be that a defendant’s conduct was more repre- hensible than it was in Campbell, e.g., because it lasted longer or involved physical harm.67 Campbell involved purely economic harm, and only 18 months of uncertainty before State Farm paid the entire underlying judg- ment owed by its insured. Second, despite the U.S. Supreme Court’s pronouncements, the trend in post-Campbell decisions among lower courts is to award punitive damages signifi- cantly more than “at or near” compensatories, and in fact at multiples of four or greater. Third, plaintiffs may also argue that their actual harm exceeds the limited amount that is recoverable as damages. Under Simon, the higher amount may be used to compute an acceptable punitive award.68 Fourth, plaintiffs may argue that the amount of any punitive award should be enough to serve the twin purposes of deter- rence and retribution. Evidence of wealth is necessary to determine what amount of dam- ages might be sufficient to deter and pun- ish. While a defendant’s wealth may not jus-

28 LOS ANGELES LAWYER / JUNE 2004 tify an award of 100 times compensatory dam- ages or more, wealth may still mean the dif- ference between awarding punitives at, for MAKE WRONGFUL TERMINATION example, 2 or 9 times compensatories. A PROFIT CENTER! Fifth, if the compensatory damages are small or pro forma, the Campbell limits should Danz & Gerber will handle your referrals. simply not apply. If they do, however, it is more National origin, age, sex, race, retaliation, federal false likely that the award does not include any claims on behalf of employees. punitive elements, so a higher multiple of com- pensatories may therefore be appropriate.69 Please call to discuss your referral with senior partner Steve Danz. The U.S. Supreme Court has announced Statewide, main office in Sherman Oaks. (818) 783-7300. significant new limits on punitive damage awards. The post-Campbell decisions have All fees paid in accordance with Rules of Professional Responsibility. explored ways to apply, or perhaps evade, these limits. Campbell may have ended puni- tive damage awards dozens or hundreds of times greater than the actual damages suf- fered by plaintiffs. But recent decisions sug- gest that “reasonable and proportionate” puni- tive awards may still be a significant multiple of compensatory damages. ■

1 State Farm Mut. Auto. Ins. Co. v. Campbell, 123 S. Ct. 1513 (2003). 2 Id. at 1524. 3 Id. at 1520 (citing BMW of North Am., Inc. v. Gore, 517 U.S. 560, 575 (1996) (reversing $2 million punitive award accompanying a $4,000 compensatory verdict)). 4 Id. at 1524. 5 Id. at 1521-24. 6 Id. at 1522. 7 Id. at 1524. 8 Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1 (1991). 9 Campbell, 123 S. Ct. at 1524. 10 Id. 11 Id. 12 Id. 13 Id. at 1524-25. 14 Id. at 1525 (citing RESTATEMENT (SECOND) OF TORTS §908 cmt. c.). 15 Id. at 1525. 16 Id. at 1519. 17 Id. at 1526. 18 Id. 19 Diamond Woodworks, Inc. v. Argonaut Ins. Co., 109 Cal. App. 4th 1020 (2003). 20 Id. at 1054. 21 Nonparties unsuccessfully petitioned the California Supreme Court to depublish this opinion. Their lack of success indicates that the court does not find the result outrageous, but neither does it indicate that the court supports the decision. 22 Ford Motor Co. v. Romo, 123 S. Ct. 2072 (2003); see also Ford Motor Co. v. Smith, 123 S. Ct. 2072 (2003) (vacating and remanding similar case with a 5-to-1 ratio). 23 Romo v. Ford Motor Co., 113 Cal. App. 4th 738, 763 (2003). We’re your connection 24 Romo v. Ford Motor Co., 99 Cal. App. 4th 1115, 1124 (2002). to the courts. 25 Id. at 1141. 26 Id. at 1148. For fax filing and process serving. 27 Grimshaw v. Ford Motor Co., 119 Cal. App. 3d 757 (1981). 28 Rufo v. Simpson, 86 Cal. App. 4th 573, 623 (2001). 29 Romo v. Ford Motor Co., 113 Cal. App. 4th 738, 749 (2003). 30 Rufo, 86 Cal. App. 4th at 623. 31 Romo, 113 Cal. App. 4th at 763; cf. State Farm Mut. Auto. Ins. Co. v. Campbell, 123 S. Ct. 1513, 1524-25 Call 1-415-491-0606 or visit www.onelegal.com (2003).

LOS ANGELES LAWYER / JUNE 2004 29 32 Romo, 113 Cal. App. 4th at 763. 47 Id. at *25 (citation omitted). amount); Advocat, Inc. v. Sauer, 353 Ark. 29, 111 S.W. 33 Henley v. Philip Morris, 114 Cal. App. 4th 1429 (2004). 48 Id. (quoting Campbell, 123 S. Ct. at 1524; quoting 3d 346 (Ark. 2003) (allows 4-to-1 ratio for nursing home 34 See Henley v. Philip Morris, 112 Cal. App. 4th 198 BMW of North Am., Inc. v. Gore, 517 U.S. 560, 582 elder abuse); see also Roth v. Farner-Bocken Co., 667 (2003), remanded to 114 Cal. App. 4th 1429 (2004). (1996)). N.W. 2d 651 (S.D. 2003) (reversed a 20-to-1 punitive The court of appeal followed the California Supreme 49 Id. at *26 (citations omitted). award and remanded for retrial without specifying Court’s directions on remand, whereupon the California 50 Id. at *27 (citations omitted). appropriate ratio); Roberie v. Vonbokern, 2003 WL Supreme Court granted review and the opinion was 51 Id. at *28. 22976126 (Ky. App. 2003) (remanded award because depublished. See Henley v. Philip Morris, 81 P. 3d 223 52 Campbell, 123 S. Ct. at 1524. jury not instructed on the three Campbell-Gore guide- (2003). The court required only a technical correction, 53 Simon, 2003 WL 22847318, at *26. posts). Unpublished California decisions have also however, and did not revisit the substance of the court 54 Campbell, 123 S. Ct. at 1525. reduced punitive awards but nevertheless awarded of appeal’s opinion. The court of appeal corrected the 55 People ex rel. Lockyer v. R. J. Reynolds Tobacco amounts exceeding “at or near” compensatories. See, matter and “reiterate[d] our previous decision.” Henley, Co., 2004 Cal. App. LEXIS 354 (4th Dist. 2004). e.g., Taylor Woodrow Homes, Inc. v. Acceptance Ins. 114 Cal. App. 4th at 1437. 56 Id. at *44. Co., 2003 WL 21224088, 2003 Cal. App. Unpub. LEXIS 35 Henley, 114 Cal. App. 4th at 1480. 57 Id. 5208 (2003) (reducing award from 16 times compen- 36 Id. at 1477-81. 58 Id. at *52. satories to almost 4 times); Johnson v. Ford Motor 37 Simon v. San Paolo U.S. Holding Co., Inc., 2003 WL 59 Id. at *53 (quoting Campbell, 123 S. Ct. at 1522). Co., 2003 WL 22794332, 2003 Cal. App. Unpub. LEXIS 22847318, at *26 n.12 (2003). 60 Id. at *53. 11038 (2003) (on $17,000 compensatory damages, 38 Id., rev. granted, 2004 CAL LEXIS 2548 (Mar. 24, 61 Id. at *54. reduced punitive award from $10 million to $53,000, or 2004). 62 Campbell, 123 S. Ct. at 1524. about three times compensatories), rev. granted, 2004 39 State Farm Mut. Auto. Ins. Co. v. Campbell, 123 S. Ct. 63 See, e.g., Hollock v. Erie Ins. Exch., ___ A. 2d ___ (Pa. CAL LEXIS 2549 (Mar. 24, 2004). But see Laursen v. 1513, 1525 (2003). Super. 2004), 2004 WL 100468, 2004 Pa. Super. 13 Pope, 2003 WL 22766141, 2003 Cal. App. Unpub. LEXIS 40 Smith, Generous Punitives Are Trumped, CALIFORNIA (2004) (affirming punitive damages of slightly more than 11064 (2003) (reducing punitive award already less LAWYER, Apr. 2003, at 37, 39 [hereinafter Smith]. 10 times compensatory damages); Daka, Inc. v. than double compensatories when disproportionate to 41 See, e.g., Rufo v. Simpson, 86 Cal. App. 4th 573, 623 McCrae, 839 A. 2d 682 (D.C. App. 2003) (remanded defendant’s net worth); Brandstetter v. Holiday Retreats, (2001). punitive award 26 times compensatories with the sug- Inc., 2003 WL 22391270, 2003 Cal. App. Unpub. LEXIS 42 Diamond Woodworks, Inc. v. Argonaut Ins. Co., 109 gestion that punitives not exceed five times compen- 9863 (2003) (considering wealth and affirming punitive Cal. App. 4th 1020, 1057 (2003) (reducing punitives satories in employment harassment case); Bocci v. award less than compensatories). from 13 to 3.8 times compensatories); Henley v. Philip Key Pharm., Inc., 190 Or. App. 407, 79 P. 3d 908 (Or. 64 Campbell, 123 S. Ct. at 1524-25. Morris, 114 Cal. App. 4th 1429 (2004). App. 2003) (approving a 7-to-1 award); Waddill v. Anchor 65 Id. at 1522-24. 43 Smith, supra note 40, at 39. Hocking, Inc., 190 Or. App. 172, 78 P. 3d 570 (Or. App. 66 Lockyer, 2004 Cal. App. LEXIS 354, at **52-54. 44 Campbell, 123 S. Ct. at 1519. 2003) (reduced a 10-to-1 award to 4 to 1); Votto v. 67 See, e.g., Romo v. Ford Motor Co., 113 Cal. App. 4th 45 Simon v. San Paolo U.S. Holding Co., Inc., 2003 WL American Car Rental, Inc., 2003 WL 21716003, 35 Conn. 738 (2003). 22847318, at *19 (2003), rev. granted, 2004 CAL LEXIS L. Rept. 17 (Conn. Super. 2003) (allowing almost 6-to- 68 Simon v. San Paolo U.S. Holding Co., Inc., 2003 WL 2548 (Mar. 24, 2004). 1 award in car rental dispute); Hudson v. Cook, 82 22847318 (2003). 46 Simon, 2003 WL 22847318, at *24 (citing CIV. CODE Ark. App. 246, 105 S.W. 3d 821 (Ark. App. 2003) 69 See, e.g., Henley v. Philip Morris, 2004 WL 79075, at §3343). (enforced 7-to-1 award; overturned remittitur to smaller **32-33 (2004).

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30 LOS ANGELES LAWYER / JUNE 2004 MCLE ARTICLE AND SELF-ASSESSMENT TEST By reading this article and answering the accompanying test questions, you can earn one MCLE credit. To apply for credit, please follow the instructions on the test answer sheet on page 35.

By Phillip R. Maltin and Michael D. Schwartz Second ACTS The expansive reach of Evidence Code Section 1101(b) provides a basis for effective strategies before and during trial

involving the neighbor’s death, and German including his intent and knowledge, and 2) IN OCTOBER 2003, officials deemed the neighbor’s death acci- that his wife had not died by accident.4 The a Durham, North Carolina jury convicted dental.2 jury convicted Peterson of first degree mur- novelist Michael Peterson of killing his wife. The North Carolina court allowed Peter- der. Afterward, Peterson’s attorney, David Peterson, author of A Time of War, told author- son’s jury to hear the evidence about the Rudolf, called the evidence from Germany ities that his wife had fallen down a flight of neighbor in Germany3 after an autopsy on “very, very damaging.”5 stairs in their home after drinking alcohol the neighbor’s exhumed body conducted just Like the court in North Carolina, Calif- and claimed that the fall killed her. His con- before Peterson’s trial revealed that repeated ornia courts also would have admitted the clusion did not persuade ,1 who strikes to the head, and not the fall, had killed had uncovered remarkable evidence that 18 her. Supplementing the autopsy was testi- Phillip R. Maltin is a partner in The Davis years earlier, Peterson’s next-door neighbor mony from an eyewitness who had seen Maltin Law Firm, where he specializes in in Germany, a woman unrelated to Peterson, Peterson running from the house on the night employment and business litigation. Michael D. had died alone in her home after a fall down the neighbor died. Under the trial court’s Schwartz is a criminal in the Los a flight of stairs. This coincidence had a sin- instructions, the North Carolina jury could Angeles City Attorney’s Office. Maltin has served ister twist, even though Peterson was nei- consider the evidence from Germany rele- as a prosecutor, and Schwartz is a lead instruc- ther charged with nor convicted of any crime vant to show 1) Peterson’s mental state, tor, in the Association’s Project.

LOS ANGELES LAWYER / JUNE 2004 31 evidence from Germany under Evidence ity of any proof of a person’s “disposition to test analyzes prior or subsequent acts to deter- Code Section 1101(b) had Peterson commit- commit” a crime, civil wrong, or other act. mine whether they have a sufficient number ted the crime in California. That section per- Evidence of criminal propensity is excluded of common features and “a high degree of mits a party to present evidence of a person’s “not because it has no appreciable value, but similarity”13 with the alleged acts. Evidence of behavior if the evidence is relevant to prove because it has too much.”9 Character evi- uncharged misconduct, for instance, used to a fact “such as motive, opportunity, intent, dence is not admissible under Section show a common plan or scheme, “must preparation, plan, knowledge, identity, 1101(b). demonstrate not merely a similarity in results, absence of mistake or accident….” The power Character evidence may be admissible but such a concurrence of common features of Section 1101(b) is perhaps unparalleled in under a very few exceptions under statutory that the various acts are naturally to be the Evidence Code. The obvious impact of the and case law, but never under Section explained as caused by a general plan of evidence the section regulates should invite 1101(b).10 According to the Reporters’ Notes which they are individual manifestations.”14 attorneys to use that section whenever pos- to Section 1100, while character evidence car- Nothing unusual or distinctive is required, just sible. Inventive strategies using Section ries a “slight probative” value, it may be a high degree of similarity between the 1101(b) may lead to the introduction of oth- unfairly “prejudicial,” distracts from the “main alleged acts and the prior or subsequent erwise prohibited evidence. question of what actually happened,” and may acts.15 As a practical matter, similarity exists Practitioners can utilize Section 1101(b) in reward or punish people based not on their if the court believes it does. The test is ways that expand its reach and enhance its actions but on their character. In contrast, grounded less in objectivity and more in an influence before and during trial. The statute the evidence that is admissible under Section advocate’s powers of persuasion. lists permissible uses—for instance, to prove 1101(b) is evidence of behavior and can carry Evidence of other crimes that a person motive, identity, and intent—that are not exceptional weight with a jury. committed in an identifiable style may support exclusive. Moreover, courts have developed In theory, a court will admit only relevant the conclusion that the person committed different tests for the admissibility of evi- evidence.11 Traditionally, any evidence that the crime charged. Consider, for example, a dence under Section 1101(b). Understanding tends to prove a fact is relevant.12 That stan- dentist who molests sedated patients over a these various judicial interpretations of dard, however, is too abstract and vague to period of years. Assume that the dentist’s Section 1101(b) is essential to devising cre- offer practical direction. Another way to look most recent patient regains consciousness ative uses of the statute. at relevancy is to answer three questions: during the molestation and reports it. The Section 1101(b) packs a wealth of possi- 1) Did the alleged act occur? dentist denies the act, claiming that the patient bilities in a brief paragraph: 2) Who did it? imagined it as a side effect of the anesthesia. Nothing in this section prohibits the 3) What was the person’s state of mind when Evidence of separate acts that are highly sim- admission of evidence that a person doing it? ilar is sufficient to establish a logical rele- committed a crime, civil wrong, or other Answering each question determines an vance between the two. Evidence that the act when relevant to prove some fact ultimate fact in the case: the act, the actor’s dentist had molested other sedated patients (such as motive, opportunity, intent, identity, and the actor’s mental state. Evidence is enough to establish that the alleged act is preparation, plan, knowledge, identity, presented under Section 1101(b) is relevant part of a general plan. Molesting other women absence of mistake or accident or if it answers any one of the three questions. before or after the act charged is strong evi- whether a defendant in a prosecution for Accordingly, courts have devised three dence of a general plan—and is admissible to an unlawful sexual act or attempted tests for the admissibility of most evidence prove the general plan.16 This is a recognized unlawful sexual act did not reasonably under Section 1101(b). Each test corresponds use of Section 1101(b) evidence. and in good faith believe that the vic- to one of the three questions of relevancy. A nonstandard but equally legal use occurs tim consented) other than his or her No generally agreed name applies to each when the evidence is offered to show a per- disposition to commit such an act. test. However, each test lends itself to a son’s ability to commit an act. In a criminal Lawyers often incorrectly refer to Section descriptive appellation. To determine whether case,17 a defendant was charged with violating 1101(b) as the statute that permits the intro- evidence of the act at the heart of a - Vehicle Code Section 23152(b), driving with duction of evidence of “prior bad acts.” That suit or a criminal prosecution is admissible— a blood-alcohol concentration of .08 or greater. shorthand reference, perhaps as much as or, did the alleged act occur?—courts apply The defendant’s percentage was remarkably anything, perpetuates the misunderstand- what can be called the common features test, high—.48. Typically, .40 is associated with a ing—and limited use—of the statute. In real- which is a moderately difficult test to meet. To stupor, and .50 is associated with a coma.18 ity, the section does not restrict the admissi- determine whether evidence of identity is The defense claimed that the test yielding a ble evidence to “prior” acts or to “bad” ones. admissible—or, who did the act?—courts use .48 result was flawed because no one could It permits a party to introduce behavior that what can be deemed the distinctive acts test, achieve that high level and still drive a car. occurred before or after6 the alleged acts of which is a stringent test. Finally, to deter- The prosecution presented evidence that the the case on which civil or criminal liability is mine whether evidence of mental state is defendant had a prior DUI conviction with an premised. It allows evidence of good and bad admissible—or, what was the person’s state even higher blood-alcohol concentration— conduct7—though prior conduct and bad of mind when doing the act?—courts employ .54. In both instances, the defendant drove conduct, by their timing and character, are what can be termed the sufficient similarity into a parked car. more likely to draw attention under Section test, which is a more relaxed test. Oppor- The “ability” to do an action is not listed as 1101(b). Not surprisingly, most of the cases tunities for creative uses of the statute exist one of the categories in Section 1101(b). analyzing Section 1101(b) emerge from crim- under each test. Nevertheless, ability is a fact relevant to estab- inal prosecutions. Still, the statute applies lish that the act occurred. In this case, pur- equally to civil cases.8 The Common Features Test suant to the common features test, the evi- The last clause of Section 1101(b), fol- To prove the acts charged under a civil or dence that the defendant drove with a lowing immediately after a recital of permis- criminal complaint, Section 1101(b) evidence blood-alcohol concentration of .54 was evi- sible evidence, delineates the impermissibil- must pass the common features test. This dence of his ability to drive with a level of .48

32 LOS ANGELES LAWYER / JUNE 2004 and was relevant to prove that the act had may be a vehicle for determining the essen- ney told the jury in his opening statement that occurred. tial elements of a case. The test for evidence he expected to present evidence of the defen- of motive is different—and more liberal— dant’s motive. The motive, he explained, was The Distinctive Acts Test than the three other tests for relevancy: that the defendant had raped a woman, and The most stringent test for admissibility of evi- In contrast, “the intermediate fact of she told the murder victim about the rape. dence under Section 1101(b) is the distinctive motive” may be established by evi- The defendant thought that the murder vic- acts test for evidence offered to prove identity. dence of prior dissimilar crimes. tim would tell the . During the people’s The test is strict because evidence admitted Similarity of offenses [is] not neces- case, the prosecutor called the rape victim as to show identity is particularly powerful and sary to establish this theory of rele- a witness. The court, however, barred details prejudicial.19 Evidence of prior or subsequent vance for the evident reason that the of the rape. It only allowed the rape victim to acts used to prove identity must be so similar to the alleged conduct that it “share[s] com- mon features that are sufficiently distinctive [to] support the inference that the same per- son committed both acts.”20 What features qualify as distinctive? According to the California Supreme Court, they should be “like a signature.”21 Ordinarily, parties to a lawsuit use Section 1101(b) to present evidence against a defendant or a victim of a crime. However, parties can use the statute to present evidence of behavior by anyone. For example, a criminal defendant may introduce Section 1101(b) evidence to prove that someone else did the crime.22 Still, the section is an effective tool for prosecutors, as illustrated by People v. Lawrence.23 In that case, the police arrested the defendant after they caught him in an apartment in which an informant had pur- chased $500 worth of amphetamines. The police found the drugs—white, double-scored mini-Bennies—in plastic bags that each con- tained either 100 mini-Bennies or 1,000. Some of the plastic bags were stored in a brown paper bag. At trial, the defendant, who did not live in the apartment, testified that he did not know the drugs were there and that they did not belong to him. To prove that the defendant was the person who had tried to sell the drugs to the informant, the prosecution presented evidence that the defendant had tried to sell motive for the charged crime arises testify that she told the murder victim “what two plastic bags, each filled with 1,000 double- simply from the commission of the had happened.”30 scored mini-Bennies and stuffed into a brown prior offense. The existence of a motive After his conviction for murder, the defen- paper bag, to an undercover police officer requires a nexus between the prior dant appealed, claiming that the prosecutor’s just months before his arrest. The trial court crime and the current one, but such comment about motive during his opening and the court of appeal found the earlier evi- linkage is not dependent on compari- statement was unfairly prejudicial. The court dence sufficiently distinctive to warrant its son and weighing of the similar and of appeal disagreed, noting that the trial court admission at trial to prove identity of the per- dissimilar characteristics of the past had erred in not permitting the prosecutor to son who sold the drugs to the informant.24 and present crimes.25 question the rape victim about the facts of the The distinctive acts test to prove identity Evidence presented to show that the rape. The evidence of motive—in this case to is so stringent that it may exclude some defendant had the motive to commit the act prove identity—should have been admitted.31 important evidence. Yet not all evidence that can have little or no similarity between the If identity is an issue, and evidence gath- points to identity is admitted directly to prove prior (or subsequent) conduct and the acts in ered to support it does not meet the rigid it. Other categories of proof that carry a lower the present lawsuit or prosecution. The prior distinctive acts test, evidence of motive may evidentiary burden can substitute for proof of or subsequent acts and the alleged acts can provide a powerful alternative. The test for identity. be entirely dissimilar.26 motive merely requires a “nexus between Motive is one of those categories. Facts Moreover, motive “may be material” when the prior” or subsequent act and the alleged denoting motive can link a party to the alleged evidence of the “criminal’s identity is cir- acts. It does not require a signature. acts. These facts, when used to prove motive, cumstantial.”27 Even in that situation, courts can lead to inferences that prove act, identity, permit considerable latitude in presenting The Sufficient Similarity Test or mental state. Motive is an intermediate evidence.28 For instance, in People v. Gonzales,29 Evidence of mental state under Section

KEN SUSYNSKI fact, not an ultimate fact. As such, motive a prosecution for murder, the district attor- 1101(b) must pass the sufficient similarity

LOS ANGELES LAWYER / JUNE 2004 33 test. This evidence need only consist of prior a willful and conscious disregard of [the sec- or subsequent acts sufficiently similar to the retary’s] rights.”41 alleged acts to allow the inference that the Similarly, malice is an ultimate fact that is defendant probably had the same mental necessary to prove guilt in some criminal MCLE Test state during the prior or subsequent acts and cases. For instance, to prove the crime of the alleged acts.32 A court wrote, “The least intimidation of a witness, the prosecution degree of similarity (between the uncharged must establish that the defendant “knowingly act and the charged offense) is required in and maliciously” prevented or attempted to No. 127 order to prove intent.”33 This applies to proof prevent the witness from testifying.42 Section of other states of mind,34 such as knowledge35 1101(b) can help to establish malice in crim- The Los Angeles County Bar Association 36 and motive. inal cases by permitting a prosecutor to pre- certifies that this activity has been The case of Nelson v. Gaunt is illustrative. sent evidence of prior or subsequent acts rel- approved for Minimum Continuing In May 1968, a physician assured a patient evant to that fact.43 credit by the State Bar that he could enhance her breasts by a series of California in the amount of 1 hour. of injections of an inert, harmless substance Rethinking Approaches called silicone. At his trial for fraud, he testi- Sometimes, creative approaches to using fied that he had not given any silicone injec- Section 1101(b) can complicate the analysis 1. Evidence under Evidence Code Section 1101(b) tions after 1967. The plaintiff, however, pre- and prompt counsel to overlook an easier consists only of prior bad acts, such as felony and sented evidence that the physician had been strategy. Attorneys must scrutinize the ele- misdemeanor convictions. arrested and convicted of supplying illegal ments of their case and the supporting evi- True. silicone injections three months before she dence to determine which of Section 1101(b)’s False. met him in February 1968. The trial court and categories they can stretch to cover the case 2. Only evidence of acts that occurred before the the court of appeal determined that the evi- and which already apply. For instance, in a crime charged in a criminal case or before the dence was admissible to prove fraud. The prosecution for possession of stolen prop- conduct alleged in a civil action is admissible prior conviction proved that the physician erty, the jury must consider whether the under Section 1101(b). True. knew silicone was unsafe, and his represen- defendant had possession of the property False. tation to the contrary was false.37 and an opportunity to commit the crime. 3. Evidence may be admitted under Section The evidence had the additional impact of While possession is not a category enumerat- 1101(b) to prove only these facts: “[M]otive, impeaching the physician. Thus, Section ed in Section 1101(b), other elements of the opportunity, intent, preparation, plan, knowl- 1101(b) can be used with devastating conse- crime are. Possession occurs when a person edge, identity, absence of mistake or accident or quences to establish direct evidence of knowl- knowingly exercises direct or indirect phy- whether a defendant in a prosecution for an 44 edge and to impeach a witness who claims sical control over something. Thus, the key unlawful sexual act or attempted unlawful sex- 38 lack of knowledge. issue of proof for possession is knowledge, ual act did not reasonably and in good faith The most flexible use of Section 1101(b) one of the existing Section 1101(b) categories. believe that the victim consented.” occurs when applying the sufficient similar- Merely the prospect of a admitting True. ity test to prove a party’s mental state. If war- Section 1101(b) evidence can change the False. ranted, alternatives exist to the categories course of a case, even prompting a settle- 4. If evidence under Section 1101(b) is presented listed in the statute. For example, the need to ment. Consider a scenario in which the plain- to show a party’s disposition to commit the act prove malice or oppression39 arises in civil tiff receives health insurance through his at issue, courts will conduct a thorough analysis actions that seek punitive damages.40 Section employment. He becomes angry at the insur- under Evidence Code Section 352 before admit- 1101(b) can help to prove those elements. ance company’s , so he calls the ting it into evidence. In Weeks v. Baker & McKenzie, a high-pro- insurance company more than 400 times dur- True. file sexual harassment case, a plaintiff sued ing a one-year period to complain about cov- False. a key partner in a large law firm who repeat- erage, berate employees, and threaten crim- 5. Courts have devised three general tests to edly groped female secretaries and made inal charges against them. The insurance determine whether evidence is relevant under salacious comments. The firm had learned of company terminates his policy for failing to Section 1101(b), and each test corresponds to one of three questions: 1) Did the act alleged the partner’s behavior but did nothing to pro- cooperate, which is a violation of the policy. occur? 2) who did it? and 3) what was the per- tect its female employees from it. One of the The insured sues for bad faith. The company son’s state of mind when doing it? secretaries filed a sexual harassment action asserts an unclean hands defense. True. against the partner and his law firm. At trial, In preparing its defense, the insurance False. the secretary presented evidence of the part- company uncovers evidence that the insured 6. Which test is used to determine whether the ner’s sexually harassing behavior directed at has repeatedly visited doctors’ offices and evidence presented under Section 1101(b) is other women. The trial court properly admit- written to and called state administrative agen- admissible to prove that the act alleged has ted that evidence to show malice, one of the cies to “raise hell” about the insurance com- occurred? elements of punitive damages liability. The evi- pany. In some of those visits and telephone A. The distinctive acts test. dence was not, however, admitted to prove calls, the plaintiff has used foul language and B. The sufficient similarity test. that the partner had sexually harassed the threatened criminal and administrative action C. The common features test. secretary: “Evidence of [the partner’s] past against the physicians and their employees. 7. Which test is used to determine whether the conduct, and that he had been warned or But this case has an interesting wrinkle. evidence presented under Section 1101(b) is reprimanded as a result of that conduct, The unclean hands defense is equitable,45 admissible to prove identity? tended to prove that he was fully aware that which means that the judge can require a A. The common features test. similar conduct would cause injury, and acted separate trial for that defense. If the judge B. The distinctive acts test. either with the intent to cause injury or with does so, the jury will not learn about the C. The sufficient similarity test.

34 LOS ANGELES LAWYER / JUNE 2004 MCLE Answer Sheet #127

SECOND ACTS 8. Which test is used to determine whether the with the alleged acts and “must evidence presented under Section 1101(b) is demonstrate not merely a similarity in admissible to prove mental state? results, but such a concurrence of Name A. The common features test. common features that the various acts are Law Firm/Organization B. The distinctive acts test. naturally to be explained as caused by a C. The sufficient similarity test. general plan of which they are individual Address 9. Evidence admitted under the common features manifestations.” test must: 12. A court must admit evidence under Section City A. Have a sufficient number of common 1101(b) once the evidence satisfies one of the State/Zip features and “a high degree of similarity” three tests for admissibility. E-mail with the alleged acts and “must True. Phone demonstrate not merely a similarity in False. results, but such a concurrence of 13. One reason a court may refuse to admit State Bar # common features that the various acts are evidence under Section 1101(b) is that the evi- Instructions for Obtaining MCLE Credits naturally to be explained as caused by a dence may prompt a trial within a trial on the general plan of which they are individual weight of the evidence presented. 1. Study the MCLE article in this issue. manifestations.” True. 2. Answer the test questions opposite by B. Must be so similar to the alleged False. marking the appropriate boxes below. Each conduct that it “share[s] common features 14. Once a court permits a prosecutor to admit question has only one answer. Photocopies of that are sufficiently distinctive [to] support evidence of the defendant’s behavior under this answer sheet may be submitted; however, the inference that the same person Section 1101(b), the prosecutor should argue this form should not be enlarged or reduced. committed both acts.” The features must which of the following during closing argu- 3. Mail the answer sheet and the $15 testing be so distinctive that they are “like a ment? fee ($20 for non-LACBA members) to: signature.” A. The evidence reflects the defendant’s Los Angeles Lawyer C. Be sufficiently similar to the alleged acts propensity to commit the crime. MCLE Test to allow the inference that the defendant B. The evidence powerfully links the P.O. Box 55020 probably had the same mental state in defendant to the crime because Los Angeles, CA 90055 both instances. personalities act in signature ways. Make checks payable to Los Angeles Lawyer. 10. Evidence admitted under the distinctive acts C. The evidence proves an ultimate fact in test must: the case, such as the identity of the 4. Within six weeks, Los Angeles Lawyer will A. Be sufficiently similar to the alleged acts perpetrator, his or her motive, or his or her return your test with the correct answers, a to allow the inference that the defendant mental state. rationale for the correct answers, and a certificate verifying the MCLE credit you earned probably had the same mental state in 15. After balancing the probative value of Section through this self-assessment activity. both instances. 1101(b) evidence with its potential prejudicial B. Have a sufficient number of common effect, a court must state on the record its 5. For future reference, please retain the MCLE test materials returned to you. features and “a high degree of similarity” detailed analysis as well as its conclusion. with the alleged acts and “must True. Answers demonstrate not merely a similarity in False. Mark your answers to the test by checking the results, but such a concurrence of 16. When filing a motion to admit Section appropriate boxes below. Each question has common features that the various acts are 1101(b) evidence, counsel should insist on pre- only one answer. naturally to be explained as caused by a senting as many witnesses as possible. general plan of which they are individual True. 1. ■ True ■ False manifestations.” False. 2. ■ True ■ False C. Must be so similar to the alleged 17. Section 1101(b) is designed for the admis- 3. ■ True ■ False conduct that it “share[s] common features sion of character evidence under certain cir- that are sufficiently distinctive [to] support cumstances. 4. ■ True ■ False the inference that the same person True. 5. ■ True ■ False committed both acts.” The features must False. 6. ■ A ■ B ■ C be so distinctive that they are “like a 18. To convince a court to admit evidence under 7. ■ A ■ B ■ C signature.” Section 1101(b), an advocate should prepare a 11. Evidence admitted under the sufficient sim- limiting instruction for the jury about the use of 8. ■ A ■ B ■ C ilarity test must: the evidence, or invite the court to use one. 9. ■ A ■ B ■ C A. Be sufficiently similar to the alleged True. 10. ■ A ■ B ■ C conduct that it “share[s] common features False. 11. ■ A ■ B ■ C that are sufficiently distinctive [to] support 19. Proof of motive, while typically not the ele- ■ ■ the inference that the same person ment of a crime or a civil action, is an interme- 12. True False committed both acts.” The features must diate fact that can lead to proof of an ultimate 13. ■ True ■ False be so distinctive that they are “like a fact in a case, such as identity and intent. 14. ■ A ■ B ■ C signature.” True. 15. ■ True ■ False B. Be sufficiently similar to the alleged acts False. ■ ■ to allow the inference that the defendant 20. Section 1101(b) evidence of acts more seri- 16. True False probably had the same mental state in ous than the alleged acts may be inadmissible as 17. ■ True ■ False both instances. unfairly prejudicial. 18. ■ True ■ False C. Have a sufficient number of common True. 19. ■ True ■ False features and “a high degree of similarity” False. 20. ■ True ■ False

LOS ANGELES LAWYER / JUNE 2004 35 insured’s disruptive behavior. Clearly the TRUST FORECLOSURES Win More Motions! power of Section 1101(b) lies even in the pos- Š CA Law & Motion Authorities...... $119.95 sibility that a jury may hear highly prejudicial “Industry Specialists For Over 15 Years” evidence. t Witkin & Eisinger we specialize in the Non-Judicial (Over 1,000 pages of pre-researched citations) A Foreclosure of obligations secured by real property Š CA Motions in Limine...... $119.95 Evidence under Section 1101(b) can be so or real and personal property (mixed collateral). (Supporting & opposition citations & samples) prejudicial that the law requires “extremely 46 When your client needs a foreclosure done profession- Š CA Motions to Terminate...... $99.95 careful analysis” before admitting it. Once a ally and at the lowest possible cost, please call us at: (Summary judgment “bible” with samples) court has determined that evidence is relevant 1-800-950-6522 Š CA Interrogatory Index...... $89.95 under Section 1101(b), it must then deter- We have always offered free advice to all attorneys. (Support for objections, motions, privileges, etc.) mine whether the evidence contravenes “other policies limiting admission, such as those con- 888.577.3771 WITKIN tained in Evidence Code section 352.”47 www.litigationone.com EISINGER, LLC Section 352 permits a court the discre- RICHARD& G. WITKIN, ESQ. ✦ CAROLE EISINGER tion to exclude evidence “if its probative value LAL6 is substantially outweighed by the probabil- ity that its admission will (a) necessitate undue consumption of time or (b) create sub- MEDIATOR–ROBERT H. GANS, M.D., LL.B., FCLM stantial danger of undue prejudice, of con- fusing the issues, or of misleading the jury.” OVER 30 YEARS EXPERIENCE IN THE Evidence under Section 1101(b) may invite PRACTICES OF LAW AND MEDICINE evidence rife with suggestion of bad charac- ter and propensity to commit the alleged acts. Telephone: 310-247-1883 Such evidence, of course, is inadmissible Fax: 310-247-1888 under Section 1101(b), but it is impossible to E-mail: [email protected] strip all suggestion of character and propen- sity from evidence of conduct. Section 352, Web site: www.ganslaw.com therefore, is an important bulwark against the unintended but sometimes predictable 433 N. Camden Drive, Suite 600 result that evidence presented under Section Beverly Hills, CA 90210 1101(b) may be unfairly prejudicial or could invite a trial within a trial.48 The protection Section 352 affords is so important to a fair trial that a court must do REAL ESTATE/REAL PROPERTY MATTERS more than state its decision regarding admis- sibility on the record. Proof that the court Specializations: analyzed the evidence must also appear on the Customs & Standards of Practice, Agency Relationships record, though the record need not reflect the actual analysis.49 Material Disclosure in Residential Real Estate Sales Basic strategies can ensure that Section 1101(b) evidence survives Section 352. First, counsel should limit the number of instances of conduct that are offered as evidence. Correctly or incorrectly, courts often link prejudice under Section 352 with the number of specific instances of conduct offered under Section 1101(b). Also, limiting the number of ® witnesses offered to prove the Section 1101(b) TEMMY WALKER, REALTOR evidence may lead a court to determine that Real Estate Consulting Expert Witnessing the amount of time spent on the evidence is SERVICES RENDERED: reasonable. Next, comparing the seriousness of the Litigation Consulting, Expert Testimony, Broker Practice, Section 1101(b) evidence with the serious- Liability Audit, Educational Services, Industry Mediator ness of the alleged conduct helps to give Certified Residential Broker Graduate Realtors Institute, Certified Residential Specialist, perspective to the importance of the prior or California Association of Realtors® Director Since 1981, National Association of subsequent act. Evidence under Section Realtors® Director, State Faculty Master Instructor, Member, Real Estate Education 1101(b) is more likely to survive scrutiny Association, Past President, San Fernando Valley Board of Realtors under Section 352 when the alleged acts are more serious than the Section 1101(b) evi- 5026 Veloz Avenue, Tarzana, California 91356 dence. In that event, unfair prejudice is dif- Telephone (818) 760-3355 • (818) 318-2594 ficult to argue.50 e-mail: [email protected] Third, the evidence presented under CALIFORNIA BROKER LICENSE NO. 00469980 Section 1101(b) should be as similar as pos- sible to the alleged acts. The greater the dis-

36 LOS ANGELES LAWYER / JUNE 2004 similarity, the more likely a court is to per- ceive the Section 1101(b) evidence as inad- missible character evidence.51 Fourth, requesting that the court instruct the jury at the time the Section 1101(b) evi- dence is admitted about the limited use of the evidence may dampen arguments that the evidence generated unfair prejudice. Although it is not necessarily error to wait until the end of the case to instruct the jury, a court’s decision to admit the evidence is more likely to withstand scrutiny on appeal if the instruc- tion occurs both when the evidence is admit- ted and at the end of the case during jury instructions.52 Finally, closing arguments must not over- state the use for which the court admits the evidence. Arguing Section 1101(b) evidence for another purpose could lead to objections that trial counsel violated the court’s pretrial orders, used improper character evidence, or both—and either can cause a mistrial.53 During closing argument, trial counsel should not overstate and transform Section 1101(b) evidence from facts regarding behavior to facts denoting character. The evidence is powerful enough when used correctly. Using Section 1101(b) evidence correctly is critical, but learning to use it at all is para- mount. With so few cases going to trial, liti- gators sometimes overlook the leverage that Section 1101(b) can yield in pretrial maneu- vering. Still, perhaps the most powerful com- ponent of evidence at trial lies in the strategic University of SCHOOL OF LAW ■ use of the intricacies of Section 1101(b). San Diego GRADUATE LAW PROGRAMS

1 Novelist Guilty of Murder, LOS ANGELES TIMES, Oct. 11, 2003, at A14. LL.M. in Taxation 2 See Sonya Pfeiffer, German Woman Claims Seeing LL.M. in Business Peterson Running from Ratliff’s House, available at & http://abclocal.go.com/wtvd/news/060903_NW_ LL.M. in petersongermany.html. 3 See John Springer, Testimony on 1985 death in LL.M. in Germany allowed into novelist’s murder trial, Court (for international lawyers) TV.com, at http://www.courttv.com/trials/novelist LL.M. with a concentration /082203_ctv.html. in 4 See Jury Instructions, Court TV.com, at http://www .courttv.com/trials/novelist/docs/instruction.html ?page=15 (evidence admitted to show intent, knowl- Fall, Spring and Summer edge, and absence of accident). Admissions Available 5 See Stranger than Fiction, at http://www.vanceholmes For information, .com/court/trial_m_peterson2.html. contact us: 6 People v. Massey, 196 Cal. App. 2d 230, 235 (1966). P: 619-260-4596 7 EVID. CODE §1101(b) (“crime, civil wrong or other F: 619-260-4515 act”); People v. Balcom, 7 Cal. 4th 414, 425 (1994). E: [email protected] 8 See Rufo v. Simpson, 86 Cal. App. 4th 573, 586 (2001). 9 People v. Ruiz, 44 Cal. 3d 589, 626 (1988). 10 See EVID. CODE §1101. Character evidence generally is inadmissible in civil actions, unless character itself is at issue in the case. Character may be an element in parental custody proceedings (In re Dorothy I., 162 Cal. App. 3d 1154, 1159 (1984)) and employment proceed- ings involving an employee’s fitness or ability to hold positions of leadership (Pugh v. See’s Candies, Inc., 203 Visit our website Cal. App. 3d 743, 756 (1988)). Character can be at issue to apply online in the penalty phase of a death penalty case if the defense asserts that the defendant is normally a peace- ful and benevolent person. www.sandiego.edu/usdlaw/grad

LOS ANGELES LAWYER / JUNE 2004 37 11 EVID. CODE §§210, 350, 351. 12 People v. Miller, 81 Cal. App. 4th 1427, 1447 (2000). 13 People v. Ewoldt, 7 Cal. 4th 380, 402-03 (1994), super- Anita Rae Shapiro seded by EVID. CODE. §1108. SUPERIOR COURT COMMISSIONER, RET. 14 Id. at 402. 15 Id. at 403. RIVATE ISPUTE ESOLUTION 16 See, e.g., People v. Ing, 65 Cal. 2d 603 (1967). While P D R Ing was questioned in People v. Tassell, Tassell was , CIVIL, FAMILY LAW overruled by Ewoldt. People v. Tassell, 36 Cal. 3d 77, 84 PROBATE EXPERT WITNESS (1984), overruled by Ewoldt, 7 Cal. 4 at 403. 17 The case was settled prior to trial and no documen- tary record is readily available. TEL/FAX: (714) 529-0415 CELL/PAGER: (714) 606-2649 18 See U.S. National Library of Medicine and the National E-MAIL: [email protected] Institutes of Health, MedlinePlus, at http://www http://adr-shapiro.com .nlm.nih.gov/medlineplus/ency/article/001944.htm. FEES: $300/hr 19 People v. Medina, 11 Cal. 4th 694, 748 (1995). 20 Ewoldt, 7 Cal. 4th at 403. 21 People v. Kipp, 18 Cal. 4th 349, 370 (1998) (internal quotation marks omitted). 22 See People v. Davis, 10 Cal. 4th 463 (1995) (The defendant introduced §1101(b) evidence to prove some- 34 Years Experience in the Boardroom one else committed the alleged rape and murder.). CORPORATE 23 People v. Lawrence, 25 Cal. App. 3d 213, 219-20 • Member, Corporations Committee of the (1972). LAW Business Law Section, State Bar of California 24 Id. 25 • Author, Lecturer, Consultant People v. Scheer, 68 Cal. App. 4th 1009, 1018-20 EXPERT (1998) (internal quotations and citations omitted). • Editor of the Southern Nevertheless, the greater the similarity, the more likely WITNESS California Law Review the court will admit the evidence. “Striking similarities” make the best cases. Ewoldt, 7 Cal. 4th at 396; see also Rogers, Sheffield  People v. Ing, 65 Cal. 2d 603, 612 n.18 (1967). campbell,llp 26 Scheer, 68 Cal. App. 4th at 1018-20. 27 People v. Gonzales, 87 Cal. App. 2d 867, 877 (1948). B. Keith Martin, Esq. (805) 963-9721 28 Id. at 877. caltech bsee • usc jd [email protected] 29 Id. at 867. www.high-techlawyer.com 30 Id. at 873. 31 Id. at 877-78; see also People v. Simon, 184 Cal. App. 3d 125, 131 n.4 (1986). 32 People v. Kipp, 18 Cal. 4th 349, 371 (1998). 33 People v. Ewoldt, 7 Cal. 4th 380, 402 (1994), superseded by EVID. CODE §1108. 34 People v. Durham, 70 Cal. 2d 171, 186-87 (1969). 35 People v. McCarnes, 179 Cal. App. 3d 525 (1986). 36 See People v. De La Plane, 88 Cal. App. 3d 223 (1979). 37 Nelson v. Gaunt, 125 Cal. App. 3d 623, 640-41 (1981). JudgmentsEnforced 38 Id. at 639-40. JudgmentsEnforced 39 CIV. CODE §3294(c)(1) & (2). 40 CIV. CODE §3294. Malice is defined as 1) conduct in- tended “to cause injury to the plaintiff,” or 2) “despica- Law Office of Donald P. Brigham ble conduct…carried on by the defendant with a willful and conscious disregard of the rights or safety of others.” 23232 Peralta Dr., Suite 204, Laguna Hills, CA 92653 41 Weeks v. Baker & McKenzie, 63 Cal. App. 4th 1128, P: 949.206.1661 1162-63 (1998). F: 949.206.9718 42 CALJIC §7.14. 43 [email protected] AV Rated People v. Gonzales, 87 Cal. App. 2d 867, 877-78 (1948). 44 CALJIC §1.24. 45 See De Rosa v. Transamerica Title Ins. Co., 213 Cal. App. 3d 1390, 1395 (1986). 46 People v. Ewoldt, 7 Cal. 4th 380, 404 (1994), superseded by EVID. CODE §1108. 47 Id. 48 See People v. Cain, 10 Cal. 4th 1, 64 (1999). 49 Brown v. Smith, 55 Cal. App. 4th 767, 792-96 (1997). 50 See People v. Harris, 60 Cal. App. 4th 727, 737-38 (1998) (§1101(b) evidence excluded because more inflammatory than the alleged conduct); People v. Quartermain, 16 Cal. 4th 600, 625-26 (1997) (§1101(b) evidence admitted because no worse than alleged conduct). 51 People v. Kelley, 52 Cal. App. 4th 568, 579 n.14 (1997); but see People v. Durham, 70 Cal. 2d 171, 181 (1969). 52 See Hart v. Wielt, 4 Cal. App. 3d 224, 234 (1970). 53 People v. Kirkes, 39 Cal. 2d 719, 725 (1952); Harris, 60 Cal. App. 4th 727; Granville v. Parsons, 259 Cal. App. 2d 298, 304-06 (1968).

38 LOS ANGELES LAWYER / JUNE 2004 computer counselor

By Gordon Eng

New Devices That Combine the Cell Phone and PDA

Attorneys may now text messaging) support. These information while speaking on likely to require both hands to devices also can carry and dis- the phone. Hot keys conveniently use the phone and PDA simulta- find phones that play spreadsheet and text docu- open the calendar, telephone, or neously. The Samsung lacks a ments. The major cell phone car- e-mail features. Airline travelers speaker phone and memory also store contact, riers are not equipped to interact will be pleased that they can turn expansion slot. Like the Kyocera, with all these phones, so some off the phone but still use the the Samsung has no camera, billing, and shopping is required to match PDA. Moreover, a software devel- which may be an advantage for the phone and features you want opment community exists online many attorneys, and the calendaring data with your carrier. for the Palm OS. Additional fea- Samsung is a smaller and sleeker Matters are somewhat more tures include an MP3 player, an package than the Kyocera. The settled, however, in the area of expansion memory card slot, Samsung is packaged with an he marriage of the cell operating software. Most of the infrared connectivity, and a cam- extra battery and stylus, has a phone and personal digital devices use either the Palm OS or era. Los Angeles lawyers should voice dialing feature, and can be Tassistant into a single the Microsoft Pocket PC system. note, however, that cell phones used as a PDA with the phone device has long been a dream of Symbian, a Linux compatible OS, with cameras are included in the turned off. many. A PDA—for example a is also making some headway. ban on cameras in courthouses. Palm Pilot or Pocket PC—car- Beginning with the Palm OS The Kyocera 7135 also uses Microsoft and Other ries extensive contact and calen- devices, the Handspring Treo 600 the Palm OS and thus has PDA Devices dar information, copies of docu- is one of the phones that uses features like those of the Treo First in alphabetical order ments and e-mail, and myriad the Palm OS, and it is one of the 600, but unlike the Treo, the among the the Microsoft OS other information. On the other easiest to use of the devices that Kyocera has a clamshell design. devices is the Audiovox Thera. hand, the data-handling capabil- I tested. A user can navigate This has always appealed to me Data entry is accomplished ities of cell phones are somewhat through its PDA and phone fea- because the keypad and screen through the touch screen via limited. Until recently, for exam- tures with a five-way rocker are protected when the phone is either handwriting recognition ple, cell phone users had to make switch or by means of the touch closed. The Kyocera uses Palm’s or a soft keyboard. Users can only do with only 25 to 100 telephone screen and the familiar Palm sty- data entry system and has touch dial the Thera’s telephone on the numbers in their phone’s mem- lus. Data may be entered via a screen navigation and an expan- touch screen, which will be a ory, without complete contact small QWERTY keyboard or sion memory slot. This unit has problem in bright sunlight. The information. As a result, users Palm’s writing method. The keys a more traditional cell phone key- unit has a speaker phone, and carried a PDA and a cell phone are small but shaped so that they pad and a speaker phone. Users additional features include expan- because neither device provided are suprisingly easy to use. may find it hard to use the phone sion memory capability. Like the the complete solu- A user may dial and PDA functions concurrently Palm OS devices, the Thera user tion. Now, how- Gordon Eng is a the phone with the with one hand, because the can benefit from a community of ever, there are bet- business transaction- touch screen or the device lacks the five-way rocker software developers. The Hitachi ter choices. al and real estate keypad that is part switch found on the Treo. You G1000 is another Microsoft OS I tested offer- lawyer in Torrance of the keyboard. need one hand to hold the stylus PDA and phone, but I was unable ings from Audio- and a member of the The keypad is help- and the other hand for dialing. to obtain one for a review. vox, Blackberry, Los Angeles Lawyer ful when using the With the speaker phone, how- Microsoft may be putting Handspring, Kyo- Editorial Board. phone in bright ever, a user can continue a tele- more effort into putting its Pocket cera, Nokia, Sam- sunlight. The Treo phone conversation while using PC software into so-called smart sung, and Sony 600 has a speaker the PDA. Added features include phones such as the Samsung i600 Ericsson. They all phone as well but an MP3 player and infrared con- or the Motorola MPX200. They have color screens, software to lacks built-in voice-activated dial- nectivity port. The Kyocera has can synchronize with a PC as a synchronize with PC contact and ing. The device’s size and its five- no camera. PDA does, but their screens are calendaring programs such as way rocker switch allow for one- Another Palm-based device is much smaller. If your PDA activ- Microsoft Outlook or Lotus handed phone and PDA the Samsung i500, which also ity is passive (e.g., you only use Notes, a plug for a hands-free operation. The user can use the sports a clamshell design and your PDA to find a name or date), headset, e-mail and Web brows- phone and PDA concurrently, uses the Palm data entry system. then a smart phone may suffice. ing capability, and SMS (short reviewing contacts or calendar Like the Kyocera, the Samsung is Those who want to view docu-

LOS ANGELES LAWYER / JUNE 2004 39 ments and add and change information on The dial pad consists of buttons placed rich of the group. The PDA uses the Symbian their PDAs, however, will continue to value in a circle. At first I felt I was about to drop the OS and has one of the largest screens of the the larger screen of PDA phones. phone every time I tried to dial a number. For group I tested. A keyboard can be opened on The Symbian OS PDA phones include the those who cannot adjust to this design, the the touch screen to input and edit information, Nokia 3650. It has been on the market for a Nokia feature list includes voice dialing capa- and there is a built-in character recognition time, so buyers may be able to find discounts. bility and a speaker phone. In addition, the program. Users can view data on the screen The Nokia does not have a touch screen, but phone can include features such as a camera lengthwise, which is great for spreadsheets navigation is eased with a five-way switch. with video ability, Bluetooth or infrared con- and Web pages. The Sony has an expansion Data entry and editing, frankly, is a challenge. nectivity, and an MP3 and video player. The memory slot, and the PDA features can be A user must use the telephone keypad, which Nokia has great features, but data entry and used while the phone is turned off. Users means cycling through the alphabet and sym- dialing challenges make it somewhat diffi- can navigate through the numerous features bol choices on each key for every character cult to use. using a jog dial or touch screen. The docu- entry. This device supports expansion cards, Users who desire a Symbian-based phone, ment viewer works not only with MS Word but unfortunately a user cannot use the PDA however, have another choice: the Sony and Excel but also Adobe Acrobat files. The when the phone is turned off. Ericsson P900. This device is the most feature- telephone has a traditional keypad, which covers a part of the touch screen when in use, and a speaker phone, voice dialing, and speed dial. Additional features include a cam- era, MP3 player, video player, and Bluetooth and infrared connectivity. Rounding out the review is the Blackberry 7230. This new Blackberry represents an evolutionary advance for the successful portable e-mail client. The unit has cell phone and PDA capabilities (older models only han- dle e-mail). For firms that already use the Blackberry e-mail client, the new version may be an easy step forward. The Blackberry PDA runs under Java-based programming. Navigation is straightforward using the thumb dial and back buttons. The new Blackberry does not have a touch screen, so data input takes place only through the QWERTY key- pad. Third-party software development may not be as abundant as it is for the Palm OS, but for lawyers and law firms, software from Timetag can export calendar entries and phone time to popular time-and-billing pro- grams, which may be all that is needed. The Blackberry 7230 is slightly wider than the other cell phone PDAs I examined, which may make one-handed dialing diffi- cult for some. This Blackberry has no speaker phone, but other versions of the device—for example, those that are configured to operate with a Nextel account—may have this fea- ture. The Blackberry lacks such additional features as a camera, MP3 or video player, infrared or Bluetooth connectivity, or memory expansion card slot, which may or may not be of much importance to an individual user. This new generation of cell phone PDA combinations offer an opportunity to improve productivity and cut down on the bulk of what lawyers may need to carry when away from the office. These devices have enough usable features to merit use in a law firm. As always with technological developments, the choice of whether to buy one of these devices or to wait for the next generation depends on many factors, but this group of devices do represent the long-awaited marriage of the cell phone and PDA. ■

40 LOS ANGELES LAWYER / JUNE 2004 Classifieds

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42 LOS ANGELES LAWYER / JUNE 2004 CLE Preview

Food, Animals, and the Law California Loan Documents ON THURSDAY, JUNE 24, the Animal Issues Committee will present a screening of the recently released film, Peaceable Kingdom, a sensitive, ON WEDNESDAY, JUNE 16, graphic, and eye-opening documentary about the animals we eat. The the Real Estate Finance screening will be followed by a panel discussion on legal issues relating to Subsection of the Real Property Section will farm animals. The panel members—David J. Wolfson, Gene Bauston, Sheldon present a basic overview of Eisenberg, and Bruce Wagman—all have extensive experience in legal the loan document advocacy for farm animals and animal law, including contributions to the provisions that are unique book Animal Rights: Current Debates and New Directions and litigation of a to loans secured by false advertising challenge to the California Milk Advisory Board’s “happy California property, including a discussion cows” campaign that is currently pending in the court of appeal. The surrounding the legal basis program will take place at the LACBA/Lexis Publishing Conference Center, 281 for these provisions, South Figueroa Street, Downtown. On-site registration and meal will begin at whether they are critical to 5:30 P.M., with the program continuing from 6 to 9. The registration code the enforceability of number is 008581. CLE+PLUS members can attend for free (meal not included). lenders’ remedies, just $15—law students and nonattorneys good practice, or merely redundant “belt and $25—LACBA members suspenders” rhetoric. The $30—all others speakers are Trudi J. 3 CLE hours Lesser, Clarice F. Silva, Sarah V. J. Spyksma, and Stephanie Tydlaska. The program will take place at Nonprofit Corporations the LACBA/Lexis Publishing Conference Center, 281 ON TUESDAY, JUNE 8, the Business and Corporations Law Section will provide South Figueroa Street, an introduction to the legal issues involved with forming and representing Downtown. On-site nonprofit corporations. Those who attend will gain an overview of how to form registration will begin at 11:45 A.M. and lunch at a nonprofit corporation, how to obtain federal and state tax exemptions, the noon, with the program duties and liabilities of a nonprofit board of directors, and general nonprofit continuing from 12:30 to corporate compliance issues. Panelists will also discuss opportunities for pro 1:30 P.M. The registration bono work with nonprofit corporations. The program will take place at the code number is 005016. LACBA/Lexis Publishing Conference Center, 281 South Figueroa Street, CLE+PLUS members can attend for free ($15 meal Downtown. On-site registration and a meal will begin at 5:30 P.M., with the not included). The prices program continuing from 6 to 7:30. The registration code number is 8311. below include the meal. CLE+PLUS members can attend for free ($15 meal not included). The prices $45—Real Property Section below include the meal. members $20—Business and Corporations Law Section members $55—LACBA members $25—LACBA members $65—all others, including at-the-door payments $30—all others 1 CLE hour 1.5 CLE hours

The Los Angeles County Bar Association is a State Bar of California MCLE approved provider. To register for the programs listed on this page, please call the Member Service Department at (213) 896-6560 or visit the Association Web site at http://forums.lacba.org/calendar.cfm. For a full listing of this month’s Association programs, please consult the County Bar Update.

LOS ANGELES LAWYER / JUNE 2004 43 closing argument

By Jeffrey I. Abrams

A Firsthand View of the Middle East The lessons of mediation provide insight into the obstacles to peace in the region

t the end of last year, I visited Kuwait, Israel, the West Bank, mately removed. By calling it a wall, the Palestinians seek to convey and Jordan as part of a 50-person U.S. delegation to the Middle the image of a solid, permanent, prisonlike structure. The placing of AEast led by former Ambassador Dennis Ross. Over a period such deep meaning in each side’s choice of language not only makes of 10 days, our delegation met with a king, three prime ministers, and peace between the two parties more difficult but increases the risk a host of high-ranking government and officials to discuss the that the dispute will be further inflamed by third parties intentionally major topics of the day, including Israeli-Palestinian relations. (Photos or unintentionally using these value-laden terms. are available at www.jeffreyabrams.com.) As we met with leaders As every trial lawyer knows, presentation matters. This is equally such as King Abdullah of Jordan, Prime Minister Ariel Sharon of Israel, true in a mediation, where clear and effective briefs and visual aids and Prime Minister Abu Ala of the Palestinian Authority, I was struck can not only have an impact on the opposition but on the mediator as by how much my experience as a professional mediator affected my well. In Israel, we saw this truth dramatized by the opposing pre- perspective about the seemingly irresolvable dispute between Israelis sentations discussing the Israeli-built barrier. The Palestinians used and Palestinians. a Powerpoint presentation delivered by an articulate Palestinian One of the principal challenges in resolving a litigated case is to American graduate of the University of Texas School of Law. In con- overcome a spiralling process of creating myths that the parties, and trast, the presentation of General Eival Giladi, chief of strategic plan- often their counsel, engage in toward the opposition: “He hates ning for the Israel Defense Forces, included little more than dis- women.” “They are terrible people.” “The lawyer will never settle while playing a foldout map taped to an easel and distributing a printout with she is getting paid.” Eventually, these myths can grow into perceived handwritten corrections. realities that make settlement harder, if not impossible. Cautious optimism is the greatest tool of any mediator. Even if it This same process is an impediment to peace in the Middle East. appears that there is no hope that a resolution can be reached, an effec- In his cabinet room, Prime Minister Sharon repeatedly spoke of tive mediator keeps the parties talking. The ultimate settlement may Jerusalem as “the eternal, undivided capital of the Jewish people,” not look as the parties envisioned it or occur as quickly as the parties referred to disputed land as the “birthright” of the Jewish people, and might have liked, but a settlement will come only if the parties con- stated that the immigration of one million Jews was the solution to tinue to strive for a solution. Israel’s demographic problems. On the Arab side, this mythmaking This was the clear message that the drafters of the Geneva Accords process takes the form of a consistent focus on Israeli “occupation.” hoped to convey. Amram Mitzna, the former leader of the Israeli In the West Bank village of Abu Dis, Palestinian Prime Minister Abu Labor Party, proudly pointed to the accords as a demonstration that Ala spoke of Israel’s “racist, apartheid wall.” At a dinner party in people on both sides can work together to reach a detailed agreement. Amman, Jordan, a Palestinian Christian investment banker, whose fam- Even for those who oppose its specific ily once lived in Haifa, spoke passionately of his grandfather’s home details (or absence of details), Mitzna being occupied in 1947 by one million European Jews. Reinforced by expressed the hope that it would pro- the public statements of their leaders, this mythmaking process con- voke discussion, which as a process will tinues to grow over time and serves as a true obstacle to peace. lead to peace. This view was shared by a The choice of language also can be critical in both framing and Palestinian member of the team address- resolving a dispute. Consider a private company in which the princi- ing the issue of Jerusalem in the Geneva pals are separating. One views a financial settlement as a “redemption Accords, who expressed the need for of stock,” reflecting his role as a partner. The other views it as a “dis- both sides to simply keep talking. cretionary bonus,” considering the other guy as just an employee. Each My view of the Middle East peace party places certain values behind each term, and a mediator (as well process and my approach to mediating as parties and counsel) need to be conscious of the impact of using litigated cases will forever be changed by Jeffrey I. Abrams is a the wrong term, at the wrong time, with the wrong party. these meetings, as I have seen first hand private mediator In Israel today, there is enormous debate not only about whether that with every dispute, whether it is focusing on enter- to construct a separation barrier, but what it should be called. The over a business or an international bor- tainment, employ- Israelis call it a “fence,” while the Palestinians call it a “wall.” By call- der, there are certain common factors ment, and nonprofit ing it a fence, the Israelis hope to conjure up images of an open that can either enhance or destroy the disputes. structure, easily opened through gates, and easily moved, or even ulti- chance of resolution. ■

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