LACBA DIRECTORYINSIDE THE MAGAZINE OF THE LOS ANGELES COUNTY BAR ASSOCIATION 2015-16

OCTOBER 2015 / $4

EARN MCLE CREDIT PLUS New Trial NINGs Procedure page 34 page 29

Mediation Confidentiality in Divorce page 10 Advance Healthcare Directives page 17 Voice Dictation Software Uncertain page 40 Waivers

Los Angeles lawyers Kenneth D. Sulzer (right) and Robert A. Escalante appraise the current state of of PAGA representative actions and class actions page 20

FEATURES 20 Uncertain Waivers BY KENNETH D. SULZER AND ROBERT A. ESCALANTE No California appellate court has ruled that manageability concerns obligate a court to strike PAGA representative actions

29 Maroney's Minefield BY MICHAEL SHIPLEY California offers a very narrow procedural gateway but broad substantive grounds for a new trial Plus: Earn MCLE credit. MCLE Test No. 250 appears on page 31.

34 Considering NINGs BY NEIL SCHOENBLUM AND CATHERINE COLOMBO Subject to caveats such as trustee residency, the Nevada incomplete gift non-grantor trust may benefit Californians with substantial investment assets

Special Pullout Section 2015-2016 Los Angeles County Bar Association Directory

Los Angeles Lawyer DEPARTME NTS the magazine of the Los Angeles County 8 On Direct 40 Computer Counselor Bar Association Silvia R. Argueta Directions for using voice recognition October 2015 INTERVIEW BY DEBORAH KELLY sofeware in legal practice BY PAUL D. SUPNIK Volume 38, No. 7 9 Barristers Tips Recent developments in special needs 44 Closing Argument COVER PHOTO: TOM KELLER trust caselaw What to do when a witness answers BY AURORA BASA “I don’t know” at trial BY MATTHEW D. TAGGART 10 Practice Tips The effect of Lappe upon mediation 42 Index to Advertisers confidentiality in divorce cases BY CLAUDIA RIBET LOS ANGELES LAWYER (ISSN 0162-2900) is published monthly, 43 CLE Preview except for a combined issue in July/August, by the Los Angeles County Bar Association, 1055 West 7th Street, Suite 2700, Los Angeles, CA 90017 (213) 896-6503. Periodicals postage 17 Practice Tips paid at Los Angeles, CA and additional mailing offices. Annual subscription price of $14 included in the Association mem- Incorporating personal values into bership dues. Nonmember subscriptions: $28 annually; single copy price: $4 plus handling. Address changes must be sub- advance healthcare directives mitted six weeks in advance of next issue date. POSTMASTER: BY MARSHALL S. ZOLLA Address Service Requested. Send address changes to Los Angeles Lawyer, P. O. Box 55020, Los Angeles CA 90055. 10.15 VISIT US ON THE INTERNET AT WWW.LACBA.ORG/LALAWYER E-MAIL CAN BE SENT TO [email protected]

EDITORIAL BOARD Chair DONNA FORD Articles Coordinator TED M. HANDEL Assistant Articles Coordinator JOHN C. KEITH Secretary SANDRA MENDELL Immediate Past Chair MARY E. KELLY

JERROLD ABELES (PAST CHAIR) K. LUCY ATWOOD ETHEL W. BENNETT EMPLOYMENT LAW REFERRALS SCOTT BOYER EMILY BRAILEY Paying Highest Referral Fees (Per State Bar Rules) CHAD C. COOMBS (PAST CHAIR) HON. MICHELLE WILLIAMS COURT SAMIRE K. ELHOUTY Honored to receive regular employment referrals from GORDON K. ENG over 100 of Californiaʼs fi nest attorneys STUART R. FRAENKEL MICHAEL A. GEIBELSON (PAST CHAIR) CHRISTINE D. GILLE Stephen Danz 877.789.9707 & Associates SHARON GLANCZ STEVEN HECHT (PAST CHAIR) Main offi ce located in Los Angeles and nearby offi ces in Pasadena, Orange County, Inland Empire & San Diego DENNIS HERNANDEZ ERIC KINGSLEY Stephen Danz, Senior Partner 11661 San Vicente Boulevard, Suite 500, Los Angeles, CA 90049 KATHERINE KINSEY DANIELLE LACKEY JENNIFER W. LELAND PAUL S. MARKS (PAST CHAIR) COMM’R ELIZABETH MUNISOGLU PAUL OBICO TYNA ORREN CARMELA PAGAY DENNIS L. PEREZ (PAST CHAIR) GREGG A. RAPOPORT GARY RASKIN (PAST CHAIR) JACQUELINE M. REAL-SALAS (PAST CHAIR) STEVEN SCHWARTZ HEATHER STERN MATTHEW D. TAGGART DAMON THAYER COZETTE VERGARI THOMAS H. VIDAL

STAFF Editor ERIC HOWARD Art Director Confidence At The Courthouse. LES SECHLER Director of Design and Production Business litigation is increasingly complex. That is why we believe valuation PATRICE HUGHES issues must be addressed with the same meticulous care as legal issues. Analysis must be clear. Opinions must be Advertising Director defensible. Expert testimony must be thorough and LINDA BEKAS articulate. HML has extensive trial experience and can Administrative Coordinator provide legal counsel with a powerful resource for expert MATTY JALLOW BABY testimony and litigation support. Copyright © 2015 by the Los Angeles County Bar Association. All rights reserved. Reproduction in whole or in part without permission is pro- For More Information Call 213-617-7775 hibited. Printed by R. R. Donnelley, Liberty, MO. Member Business Publications Audit of Circulation (BPA). Or visit us on the web at www.hmlinc.com The opinions and positions stated in signed material are those of the authors and not by the fact of publication necessarily those of the BUSINESS VALUATION • LOSS OF GOODWILL • ECONOMIC DAMAGES • LOST PROFITS Association or its members. All manuscripts are carefully considered by the Editorial Board. Letters to the editor are subject to editing.

4 Los Angeles Lawyer October 2015 LOS ANGELES LAWYER IS THE OFFICIAL PUBLICATION OF THE LOS ANGELES COUNTY BAR ASSOCIATION 1055 West 7th Street, Suite 2700, Los Angeles CA 90017-2553 Telephone 213.627.2727 / www.lacba.org

LACBA EXECUTIVE COMMITTEE President PAUL R. KIESEL President-Elect MARGARET P. STEVENS Senior Vice President and Treasurer MICHAEL K. LINDSEY Vice President DAVID K. REINERT Assistant Vice President BRIAN K. CONDON Assistant Vice President DUNCAN W. CRABTREE-IRELAND Assistant Vice President HON. BRIAN S. CURREY Immediate Past President LINDA L. CURTIS Barristers President ROBERT S. GLASSMAN Barristers President-Elect DAMON A. THAYER Chief Executive Officer/Secretary SALLY SUCHIL Chief Financial & Administrative Officer BRUCE BERRA General Counsel & Chief Administrative Officer W. CLARK BROWN BOARD OF TRUSTEES HARRY W.R. CHAMBERLAIN NATASHA R. CHESLER REBECCA A. DELFINO MIGUEL T. ESPINOZA KENNETH C. FELDMAN JO-ANN W. GRACE HARUMI HATA STACY R. HORTH-NEUBERT SAJAN KASHYAP MARY E. KELLY LAVONNE D. LAWSON F. FAYE NIA ANNALUISA PADILLA JUAN A. RAMOS SARAH V.J. SPYKSMA DAVID W. SWIFT JEFF S. WESTERMAN ROXANNE M. WILSON

AFFILIATED BAR ASSOCIATIONS BEVERLY HILLS BAR ASSOCIATION CENTURY CITY BAR ASSOCIATION CONSUMER ATTORNEYS ASSOCIATION OF LOS ANGELES CULVER MARINA BAR ASSOCIATION GLENDALE BAR ASSOCIATION IRANIAN AMERICAN LAWYERS ASSOCIATION ITALIAN AMERICAN LAWYERS ASSOCIATION JAPANESE AMERICAN BAR ASSOCIATION JOHN M. LANGSTON BAR ASSOCIATION LESBIAN AND GAY LAWYERS ASSOCIATION OF LOS ANGELES MEXICAN AMERICAN BAR ASSOCIATION PASADENA BAR ASSOCIATION SAN FERNANDO VALLEY BAR ASSOCIATION SANTA MONICA BAR ASSOCIATION SOUTH BAY BAR ASSOCIATION SOUTHEAST DISTRICT BAR ASSOCIATION SOUTHERN CALIFORNIA CHINESE LAWYERS ASSOCIATION WOMEN LAWYERS ASSOCIATION OF LOS ANGELES

Los Angeles Lawyer October 2015 5 ave you thought about contributing to Los Angeles Lawyer but wondered who our readers are? The HLos Angeles County Bar Association also want ed to learn more about Los Angeles Lawyer’s readership, and so com mis sioned a national research company to conduct a

survey to find out more about the readers, their work, and which articles are of most interest to them. The results indicate that 60 percent of those responding are regular readers of Los Angeles Lawyer and have read at least three of the last four issues. Older lawyers read the magazine more, with more than 82 percent of lawyers over the age of 65 reading the magazine regularly, while only approximately 26 percent of lawyers under the age of 35 read the magazine regularly. Most respondents read only one or two articles that appeal to them, and spend an average of 35 minutes reading each issue. There were several types of articles in Los Angeles Lawyer magazine considered: Practice Tips, feature stories (including those articles offering MCLE credit), Closing Arguments, Barristers Tips, and the CLE preview. Almost 90 percent of respondents to the survey had a moderate to strong interest in Practice Tips and features, which focus on substantive legal issues. Unsurprisingly, lawyers age 35 and under had twice the interest in the Barristers Tips than the older lawyers. More than 64 percent of respondents read the magazine to stay apprised of current law, and about one third clip or copy articles of interest. Many place a copy of the Los Angeles Lawyer in the lobby or reception area of their firm. Respondents’ firms had an average of 35 employees, and the majority of respon- dents had a household income between $100,000 and $350,000. The largest per- centage (42.8) of respondents had a litigation practice, followed by business (24.7), and real property (24). Following behind these practice areas were labor and employment; tort; wills, trusts, and estates; commercial; and corporate. The respondents also expressed interest in other LACBA benefits. A majority of respondents to the survey had a strong or moderate interest in the Daily eBriefs as well as LACBA’s events, sections, calendar, and other publications. One interesting point is that approximately 60 percent of respondents were male and 40 percent female. Females represented approximately 62 percent of the respondents under the age of 35. The gender gap is enormous in the group of respondents over the age of 65—83 percent male and 17 percent female. It is a glorious time to be a young female lawyer in Los Angeles. Respondents who read Los Angeles Lawyer regularly read it with twice the fre- quency of the Daily Journal, and more than California Lawyer, the ABA Journal, and the Metropolitan News. The moral of the survey is that Los Angeles Lawyer has a strong reader base among lawyers in Los Angeles. If you would like to let other Los Angeles attorneys know of your expertise, consider submitting an idea for an article, or an article, for consideration and possible publication to Eric Howard, the editor. He can be reached at [email protected]. We are always on the lookout for articles written by and for lawyers on substantive legal issues, and according to our recent reader survey, that appears to be exactly what Los Angeles lawyers like to read. n

Donna Ford is a retired assistant U.S. attorney, now in private practice handling appeals and serving as a mediator and arbitrator.

6 Los Angeles Lawyer October 2015 on direct INTERVIEW BY DEBORAH KELLY

Silvia R. Argueta Executive director, Legal Aid Foundation of Los Angeles (LAFLA)

in limited circumstances (cases involving the What characteristic do you most admire in Violence Against Women Act, trafficking, or your mother? Her determination—she came unaccompanied minors). We also get grants to this country from Guatemala as a young from the Department of Justice and state widow with me in tow and didn’t know a and IOLTA, EAF, and county funding. word of English. She was determined to get ahead for me and then just built a family Does LAFLA have enough money? Never. that is wonderful.

You started with LAFLA in 1999 and be- If you were handed $10 million tomorrow, came its executive director in 2009. Do you what would you do with it? I would expand have one particular achievement of which LAFLA’s services by hiring and paying better you are most proud? I am building a new salaries to lawyers and support staff. I headquarters for LAFLA at our former loca- would also sit down to plan out how we use tion at 8th and Union. The community used the money in a strategic fashion. to call it Big Red. Our Crenshaw location is being sold, and we needed a new home. What book is on your nightstand? The Checklist Manifesto by Atul Gawande. What do you think is the most urgent public policy need of Los Angeles? Which magazine do you pick up at the SILVIA R. ARGUETA | In Harris v. Board of Super - Affordable doctor’s office? visors, Silv ia Argueta obtained a decision pre- housing. People. I love the gossip. venting the closure of Rancho Los Amigos Does LAFLA work with the homeless popu- You were a staff attorney at the Mexican National Rehabilitation Center and the closure lation Downtown? We have a clinic at LA American Legal Defense and Education of 100 beds at Los Angeles County USC Medical CAN (Community Action Network). We Fund (MALDEF). What was your greatest Center. have had that clinic for over a decade. achievement from that period? Challenging We’ve worked on skid row representing the the denial of benefits to undocumented per- homeless with various partners. What is a perfect day? When a client leaves sons under Prop. 187. We prevailed. with solutions in hand, and we know that Do you think LAPD has been heavy-handed Who is on your music playlist? Miles we have done the best for that person. with the homeless Downtown? We cannot Davis. Bonnie Raitt. When I get to celebrate the staff’s action for solve the homeless problem without better What is your favorite sport as a partici- a client. dialogue. We need to address the affordable pant? housing problem and improve mental I’m really short, but I like basketball. What does LAFLA do? We are the largest healthcare for the homeless. The police have free legal service provider in Los Angeles. Which television shows do you watch? Or- a task, which is to enforce the law, and the We help close to 80,000 people per year. ange Is the New Black. House of Cards. laws we are passing pretty much criminalize We’re a safety net for the poor. everything. Do you have a Facebook page? Yes, I do, What are the financial requirements for re- but it’s terrible because I friend no one. I’m Do you work with vets? Yes, we have al- ceiving help from LAFLA? People have to so afraid of privacy issues. ways helped vets and dealt with the Veter- fall under the federal poverty guidelines. For an’s Administration. When vets get their a family of four, that is $24,250 per year. Who is your favorite fictional hero? Atticus benefits, they are able to improve their lives. Finch. To Kill a Mockingbird made me go to Is there equal access to justice for the $221 per month in general relief is not law school. poor? Not right now, but we’re making enough. headway. What are the three most deplorable condi- What was your best job? This job. I get to tions in the world? Hunger, lack of safety, Who funds LAFLA? Our largest funder is the work with fabulous people who care about lack of housing. Legal Services Corporation, which is a feder- the community they work in. I get to facili- al nonprofit that receives money from Con- tate their ability to help an individual in the Who are your two favorite U.S. presidents? gress, but with that money come restric- worst need. Jimmy Carter and Abraham Lincoln. tions. We can’t do class actions, and we What was your worst job? Babysitting my What is the one word you would like on can’t represent undocumented folks, except younger brother and sister. your tombstone? Happy.

8 Los Angeles Lawyer October 2015 barristers tips BY AURORA BASA

Recent Developments in Special Needs Trust Caselaw

A FIRST-PARTY SPECIAL NEEDS TRUST is often used to receive the Arnold, who had been the conservator of the person and estate of proceeds of a personal injury settlement for a disabled individual. her mother, Etoria Hatcher, as well as the trustee of Hatcher’s court- This trust allows the beneficiary to maintain needs-based government established first-party special needs trust. Hatcher’s special needs benefits and must include a provision for the payback of Medi-Cal trust was initially funded with $450,000 from a personal injury set- expenses. For many years, Shewry v. Arnold1 has guided practitioners tlement. After Hatcher’s death, Arnold distributed all but $2.31 to in efforts to preserve the assets of a first-party special needs trust herself as Hatcher’s sole surviving child. for heirs after a beneficiary’s death. Arnold, who was disabled herself, did not notify the department The Shewry case, however, has not prevented the California Depart - of her mother’s death. The department discovered Hatcher’s death ment of Health Care Services from seeking to recover the assets of during a routine periodic check of the Medi-Cal Eligibility Data deceased Medi-Cal recipients. Herting v. California Depart ment of System. The department wrote a demand letter to Arnold for payment Health Care Services2 is the department’s latest effort to undo of Medi-Cal services rendered to her mother. Arnold refused, stating Shewry’s effects. Key differences between the two cases still leave that she was Hatcher’s sole surviving child and was disabled, and the door open for practitioners to utilize Shewry as a mechanism any property distributed to her was exempt. The department then for opposing the department’s claims against the assets of a special filed suit. needs trust after the beneficiary has passed away. The appellate court in held in favor of Arnold, stating that any Herting was the mother of Alexandra and trustee of her special remaining assets in the special needs trust are treated as part of the needs trust. Alexandra was left a quadriplegic and in need of a ven- beneficiary’s estate for the purposes of Medi-Cal’s payback claim. tilator at the age of 19 after an automobile accident. A first-party Moreover, pursuant to Welfare and Institutions Code Section 14009 special needs trust was established, funded with the proceeds of a .5(b)(2)(c), the department could not seek Medi-Cal reimbursement personal injury settlement in the amount of approximately $1.4 from the estate of a Medi-Cal recipient if there is a surviving child million in 2011. Alexandra passed away in 2013. At the time, there who is permanently and totally disabled. was nearly $1.3 million in cash left in the trust. Herting gave notice A key difference between the facts in Herting and Shewry is the to the department of Alexandra’s death pursuant to Section 9202 of timing the department made its claim. In Herting, the trust assets the Probate Code, which gave four months to file a claim against had not yet been distributed and the trust not yet terminated when Alexandra’s estate. Medi-Cal had paid $418,000 in healthcare costs, the department made its claim. In Shewry, the trust only had $2.31 for which the department claimed reimbursement. remaining at the time of the department’s claim. Another difference Herting filed her final account and petition for termination of is the exemption on which the parties relied in arguing that the the trust, with a request for denial of the department’s reimbursement department should not recover on its claim. In Herting, the trustee claim, invoking the exceptions set forth in 42 USC Section 1396p(b) relied on the statutes that limited the state’s recovery when the Medi- (1)(B) and Welfare and Institutions Code Section 14009.5(b)(1), Cal recipient received services under the age of 55. In Shewry, Arnold both of which limit the department’s right to recover from the estate had argued that the department could not seek reimbursement from of a decedent who received medical care while under the age of 55. her because she herself was permanently and totally disabled. Most The department opposed Herting’s petition, citing 42 USC Section importantly, in Shewry the department had made the claim against 1396p(d)(4)(A) and Title 22 of the California Code of Regulations Arnold not as trustee but as the recipient of the beneficiary’s estate. Section 50489.9, arguing that a special needs trust must provide In Herting, the department had made its claim again the trustee in reimbursement to the state upon the person’s death. Indeed, her fiduciary capacity. Alexandra’s trust did include language to that effect. The department The differences between the facts in both cases were recognized also noted that Probate Code Sections 3604 and 3605 gave it priority by the appellate court in Herting. The appellate court stated that it over funds remaining in the trust after the death of a special needs was only departing from Shewry as it generally interpreted the trust beneficiary. The superior court approved the settlement of statutes to deem the assets of a special needs trust to be part of the Herting’s accounting but also granted the department’s claim. Herting beneficiary’s estate after death; therefore, it did not overturn Shewry. appealed the court’s decision. The variables in each case still present unique opportunities to the The appellate court sided with the department, stating that the special needs trust practitioner. n statutes cited by Herting applied to recovery from the beneficiary’s estate rather than the statutes governing the special needs trust and 1 Shewry v. Arnold, 125 Cal. App. 4th 186 (2004). the terms of Alexandra’s trust. The court specifically stated that 2 Herting v. California Dep’t of Health Care Servs., 2015 Cal. App. Lexis 268 (2015). Alexandra’s trust was not estate property but an instrument to maintain her benefits and enhance her quality of life. In Herting, the appellate court attempted to distinguish Shewry. Aurora Basa serves as vice president and senior fiduciary advisory specialist In that case, the department had sought reimbursement from Brenda for the Special Needs Trust Services group for Wells Fargo Wealth Management.

Los Angeles Lawyer October 2015 9 practice tips BY CLAUDIA RIBET

The Effect of Lappe upon Mediation Confidentiality in Divorce Cases

UNDER EVIDENCE CODE Sections 1119 et seq. and cases decided by the California Supreme Court, confidentiality surrounding medi- ation is given great deference. Mediation confidentiality is intended to provide the assurance that what a party reveals in mediation cannot later be used against that party in litigation. This serves the public policy goal of encouraging settlement of cases without the attendant cost and uncertainty of litigation. However, a recent case, Lappe v. Superior Court,1 offered a challenge to mediation confidentiality. The Second District recently held in Lappe that declarations of disclosure exchanged by divorcing parties to assure full and fair disclosure of assets and liabilities must be produced in litigation following a mediation because the disclosure documents are not created and exchanged solely for the mediation. Rather, they are created and exchanged because the legislature demands it in all dissolution cases so divorcing spouses will have full and accurate information upon which to base fair and equitable divisions of assets. To understand how the Lappe decision has clarified that declarations of disclosure exchanged in mediation can be produced in subsequent litigation, it is necessary to review the mediation confidentiality rule as well as the statutes governing full disclosure in divorces. Evidence Code Section 1119 creates a privilege barring discovery of writings prepared for mediation. It states, in relevant part, “No writing…that is prepared for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation, is admissible or subject to discovery, and disclosure of the writing shall not be compelled, in any…civil action.”2 The California Supreme Court has interpreted the mediation privilege strictly, “except in rare cir- cumstances.”3 The mediation privilege indicated in Section 1119 is designed to encourage parties to engage in the mediation process. The argument is that if parties cannot be confident that what happens in mediation stays in mediation, they will be deterred a result would violate due process, or would lead to absurd results from mediating. that clearly undermine the statutory purpose.”7 Cassel reiterated a The seminal California Supreme Court case interpreting Section similar statement of the Foxgate court that because the language of 1119 is Foxgate Homeowners’ Association, Inc. v. Bramalea Cali - Sections 1119 and 1121 is “clear and unambiguous, judicial con- f ornia, Inc.4 In Foxgate, the court held that a mediator was prohibited struction of the statutes is not permitted unless they cannot be applied from reporting on communications or conduct by a party that the according to their terms or doing so would lead to absurd results, mediator believed represented evidence of refusal to cooperate, even thereby violating the presumed intent of the Legislature.”8 The Cassel though the result was the unavailability of sanctions for failure to opinion notes only one case in which mediation confidentiality was participate in good faith mediation. The court’s rationale was that pierced. In Rinaker v. Superior Court,9 the court held that a mediator allowing a mediator to be a tattletale, so to speak, could discourage could be required to testify in a juvenile delinquency action about frank sharing of views during a mediation.5 Thus, application of inconsistent witness accounts in a previous civil harassment action the mediation privilege fostered, rather than eviscerated, the competing based on the same conduct. This was because the juvenile’s due policy encouraging effective mediation. process right to confront witnesses outweighed the policies behind Later, in Cassel v. Superior Court,6 the high court held that the mediation confidentiality. mediation privilege protected discussions between the petitioner and In another case construing the mediation privilege, Rojas v. his attorneys prior to and during a mediation of a business dispute, and thus were not discoverable in the petitioner’s subsequent mal- Claudia Ribet is a certified family law specialist who practices with Ribet & practice action. Cassel said, “We must apply the plain terms of the Silver in Century City. Her prior firm, Barbakow & Ribet, and she were counsel

RICHARD EWING mediation confidentiality statutes to the facts of this case unless such for the petitioner in Lappe v. Superior Court.

10 Los Angeles Lawyer October 2015 Superior Court, the California Supreme Court facts and information regarding the existence, when parties to a divorce agree to settle their explained that since statutory exceptions to characterization, and valuation of all assets property and support issues by mediation, the mediation privilege are described in Evi- in which the community has or may have they may do so without strictly complying dence Code Section 1122 and allow for dis- an interest.14 The legislature has explicitly with the technical requirements of Family closure of protected communications when codified the state’s interest in full disclosure Code Section 2104 or 2105.18 However, ex - parties agree to disclosure, no further excep- and fair distribution of marital assets when change of a final declaration of disclosure tions should be implied unless clear legislative spouses opt to end their marriage.15 To imple- remains mandatory before entry of judgment intent indicates otherwise.10 The court reached ment this policy of full dis closure, the Family of divorce can occur.19 this conclusion based on the maxim of statu- Code mandates that parties exchange pre- Marital Settlement Agreement Cases tory construction of expressio unius est exclu- liminary and final declara tions of disclosure: Pre-Lappe sio alterius, which holds that if exemptions “In order to provide full and accurate dis- are specified in a statute, no additional exemp- closure of all assets and liabilities in which Neither of the two cases prior to Lappe tions are to be inferred unless there is a clear one or both parties may have an interest, squarely addressed the admissibility of doc- legislative intent to the contrary.11 each party to a proceeding for dissolution uments, including declarations of disclosure, of the marriage or legal separation of the submitted in connection with a mediation. Family Law Disclosure Rules parties shall serve on the other party a pre- The trial court in Lappe relied substantially In Lappe, the court addressed the conflict liminary declaration of disclosure under on one of the cases, Marriage of Kieturakis, between the public policy favoring confiden- Section 2104 and a final declaration of dis- which concerned a wife’s attempt to set aside tiality unless all parties agree to disclosure closure under Section 2105.”16 a marital settlement agreement and undo and the public policy in favor of full disclo- The exceptions to the statutory mandate the property division on grounds of fraud, sure. California has a strong and explicit that divorcing spouses exchange declarations duress, and lack of disclosure.20 After a thor- public policy in favor of full disclosure in of disclosure are few and narrow. Preliminary ough discussion of the cases concerning the all stages of dissolution proceedings. “Ma r - declarations of disclosure can almost never mediation privilege, the court analyzed the riage is a matter of public concern. The pub- be waived. The only statutory provision for content of documents submitted for the medi- lic, through the state, has interest in both waiver of the preliminary declarations is ation and testimony by the mediator and its formation and dissolution.”12 Spouses Family Code Section 2107(b)(3), which allows appraiser, all of which the trial court had ad- owe each other a fiduciary duty “of the high- a complying party to move for an order grant- mitted for review in camera, as to the wife’s est good faith and fair dealing” with respect ing a voluntary waiver of the other party’s claim that her husband did not disclose con- to community assets.13 This duty includes preliminary or final declarations of disclosure tinuing royalty payments from his surgical the obligation to make full and accurate dis- upon a finding of good cause.17 invention. The court did not reach the legal closure to the other spouse of all material Two cases prior to Lappe instruct that question whether the mediation privilege

Los Angeles Lawyer October 2015 11 covered the documents disclosed in media - agreement could be invalidated.”23 Thus the was a stay-at-home mother during the mar- t ion or the mediator’s testimony, finding case created different standards for the admis- riage, and Murray was a medical doctor and instead that admission of the evidence was sibility of evidence and different standards successful businessman. Without counsel, harmless error because both spouses would of proof as between mediated and nonmedi- Gilda and Murray went to a mediator to have waived the privilege on remand for ated marital settlement agreements, a result divide their assets and resolve their divorce. retrial, and the evidence belied the wife’s for which, the appellate court conceded, there Notwithstanding declarations by Gilda and claim that she was ignorant of the royalty exists rational criticism.24 Murray that they served each other with pre- income. Clearly, the court of appeal was The other case involving the mediation liminary and final declarations of disclosure, swayed by the probative value of this evi- privilege and a marital settlement agreement Gilda maintained that she never got any such dence, and the court raised the possibility was Eisendrath v. Superior Court.25 The issue declarations. that, even in light of Foxgate and Rojas, in that case was whether the husband had During the mediation, the parties executed there might still be a good cause exception impliedly waived the mediation privilege when a marital settlement agreement under which to the mediation privilege.21 Curiously, the he sought to introduce evidence of conversa- Murray was to pay Gilda a total of $10 mil- Kieturakis court did not even mention the tions he had with his wife during the medi- lion in full satisfaction of her entire community Family Code disclosure statutes. ation but outside of the sessions with the interest in shares of a community business Kieturakis does, however, present a pos- mediator. The court of appeal held that there known as eScreen, Inc. However, a year later, sible legal conundrum. If a case is not medi- is no im plied waiver of the mediation privilege Gilda fil ed an application to set aside the ated, and one party claims that he or she when a party places at issue the content of a judgment on grounds of perjury, fraud, duress, entered into an agreement in which the other confidential communication and that the medi- and mistake. She asserted in her application party gained an advantage, the advantaged ator’s testimony was protected by the media- that less than five months after the judgment party bears the burden of demonstrating that tion privilege absent express waivers by both was entered she learned that Murray was in the agreement was not obtained through parties and the mediator. Nevertheless, in that the process of selling eScreen and all equity undue influence.22 Kieturakis, however, in - case, the wife was willing to waive confiden- shares he acquired in the company through structs that this presumption of undue influ- tiality. The husband, who was contesting the the marital settlement agreement. As a result ence cannot be applied to marital settlement settlement agreement’s terms, was the one of the sale, Murray received approximately agreements entered into in mediation because seeking to keep certain parts of the mediation $75 mil lion pretax for the eScreen shares. applying the presumption to mediated set- discussions confidential. Gilda stated that Murray never disclosed that tlement agreements would severely undermine he was shopping eScreen for sale and that Lappe the practice of mediation. The presumption had she known this fact, she would not have would “turn the shield of mediation confi- Gilda and Murray Lappe were married for agreed to surrender her community interest dentiality into a sword by which any unequal 16 years and had two children together. Gilda in the company for only $10 million.

12 Los Angeles Lawyer October 2015

Gilda served a request for production of documents on Murray, which included a request for the declaration of disclosure that Murray said he served upon Gilda prior to entry of judgment. Murray objected, refusing to produce the declaration on the grounds that it was protected from disclosure by the mediation confidentiality statutes. Gilda brought a motion to compel. A discovery referee believed that the motion should be granted on the grounds that declarations of disclosure have “indepen- dent legal significance,” but the trial court refused to confirm the referee’s proposed order. Murray argued, and the trial court agreed, that the referee erred by relying on a non- statutory exemption for documents having EXPERT WITNESS I CLAIMS CONSULTANT independent legal significance in violation of the California Supreme Court’s repeated — Over 45 Years Experience as a Claims Adjuster — instruction that courts may not craft judicial LICENSED IN THREE STATES AND QUALIFIED IN STATE AND FEDERAL COURTS exceptions to mediation confidentiality. EXPERT IN GOOD FAITH/BAD FAITH, STANDARDS AND PRACTICES Gilda brought a petition for writ of man- and standard in the industry. Specialties in property/casualty construction defect, date to overturn the trial court’s ruling, argu- fire/water, uninsured/un d eri nsured motorist, warehouse and cargo claims. Failure ing that the Evidence Code’s mediation con- EXPERIENCE to defend and/or indemnify. Litigation support, case review and evaluation claim fidentiality provisions cannot be applied in — consultation, coverage review and valuations. Appraisal, Arbitration and Claims a marital dissolution proceeding to bar the INTEGRITY Rep. at MSC & MMC. discovery and admissibility of financial dis- — Contact Gene Evans at E. L. Evans Associates closures mandated by the Family Code. The HONESTY Tel 310.559.4005 • Fax 310.559.4236 • E-mail [email protected] court of appeal issued an order to show cause 9854 NATIONAL BOULEVARD, SUITE #225, LOS ANGELES CA 90034 why the petition should not be granted. The appellate court agreed with Gilda on the basis that “manifest as this [exclusionary] rule is, it does not answer the threshold ques- tion presented by this case…that is, do the mediation confidentiality statutes apply in the first instance to statutorily mandated dis- closures that must be made regardless of whether the parties participate in mediation? We conclude the answer to this question is ‘no.’”26 The court of appeal decision reminds practitioners that family code disclosure re - quirements are important to ensure full and accurate disclosure of assets and liabilities at the early stages of marital dissolution pro- ceeding, to ensure fair and sufficient child and spousal support awards, and to achieve a proper division of community assets and debts.27 The court of appeal decision emphasizes that it was not doing what the state supreme court has forbidden, namely, creating a judi- cial exception to the mediation confidentiality doctrine. Because the declarations were not prepared “for the purpose of, in the course of, or pursuant to, a mediation,”28 the court simply recognized that the confidentiality statutes do not apply in the first instance, because the statutorily mandated declarations do not fall within any category delineated by Section 1119. The Lappe appellate decision does not instruct whether ancillary papers associated with a disclosure declaration, like a work- sheet prepared to finalize it, are similarly

14 Los Angeles Lawyer October 2015

admissible. The answer will likely turn on the facts of a specific case. Very recently, in ROSS MEDIATION SERVICES addition, some family law practitioners have Integrity Commitment Success argued that there should be a different med- iation confidentiality rule for family law SPECIALTY AREAS actions, one that creates an exception to • Real Estate • Business/Commercial mediation confidentiality for communications • Mortgage & Lending • Escrow/Title/Agency in mediation between spouses or registered • Trusts & Estates • Workplace domestic partners that result in a fraudulent • Construction • Multi-Party breach of fiduciary duty. Such a rule, how- • Personal Injury • Professional Liability ever, would eviscerate the idea that “whatever BARRY ROSS,ESQ., MBA happens in mediation stays in mediation.” (818) 840-0950 What documents would fall within the new law and thus be subject to production? How www.ROSSmediation.com related to the alleged fraud must the docu- ments be? Given the interest of the divorce bar in the question of the parameters of mediation confidentiality, the Lappe decision will not likely end litigation over which doc- ument is or is not part of the parties’ decla- rations of disclosure. n

1 Lappe v. Superior Court, 232 Cal. App. 4th 774 (2014). 2 EVID. CODE §1119(b). 3 See Cassel v. Superior Court, 51 Cal. 4th 113, 118 (2011). 4 Foxgate Homeowners’ Ass’n, Inc. v. Bramalea Cal., Inc., 26 Cal. 4th 1 (2001). 5 Id. at 14-15, 17. 6 Cassel, 51 Cal. 4th 113. 7 Id. at 119. 8 Foxgate, 26 Cal. 4th at 14; Cassel, 51 Cal. 4th at 124-25 (citing Foxgate, 26 Cal. 4th at 1, 17). 9 Rinaker v. Superior Court, 62 Cal. App. 4th 155, 167 (1998). 10 Rojas v. Superior Court, 33 Cal. 4th 407 (2004). 11 Id. at 424 (citations omitted). 12 Marriage of Haines, 33 Cal. App. 4th 277, 287 (1995) (citations omitted). 13 FAM. CODE §721. 14 FAM. CODE §§2100, 2102. 15 See Marriage of Kieturakis, 138 Cal. App. 4th 56, 93 (2006) (citing Olam v. Congress Mortg. Co. 68 F. Supp. 2d 1110, 1131-32 (N.D. Cal. 1999)) (holding that Olam “creates a nonstatutory exception to medi- ation confidentiality when a balancing of the need to do justice in a case against the potential for discouraging mediation weighs in favor of compelling a mediator to testify”). 16 FAM. CODE §2103. 17 See Marriage of McLaughlin, 82 Cal. App. 4th 327, 333 (2000) (noting the difference that preliminary declarations of disclosure, unlike final ones, are rarely waiveable); HOGOBOOM & KING, CAL. PRACTICE GUIDE: FAMILY LAW 11:66 (1997). 18 Elden v. Superior Court, 53 Cal. App. 4th 197 (1997); Marriage of Woolsey 220 Cal. App. 4th 881 (2013). 19 FAM. CODE §2106. 20 Marriage of Kieturakis, 138 Cal. App. 4th 56 (2006). 21 Id. at 93-94. 22 Marriage of Bonds, 24 Cal. 4th 1, 27 (2000). 23 Kieturakis, 138 Cal. App. 4th at 85. 24 Id. at 87. 25 Eisendrath v. Superior Court, 109 Cal. App. 4th 351 (2003). 26 Lappe v. Superior Court, 232 Cal. App. 4th 774, 784 (2014). 27 Id. at 780. 28 EVID. CODE §111(b).

16 Los Angeles Lawyer October 2015 BY AUTHOR practice tips BY MARSHALL S. ZOLLA

Incorporating Personal Values into Advance Healthcare Directives

THE PATIENT PROTECTION AND AFFORDABLE CARE ACT,1 health providers and the consent or refusal of particular medications, tests, insurance, Medicare, deductibles, prescription medication, copays, and treatments? portability, stop-loss caps—the components of healthcare in California • What should happen to my body and organs after I die? are a mélange dizzying enough to confuse most people. Nevertheless, • What legal action(s) may be needed to carry out my wishes? the California Health Care Decisions Law2 grants individuals the • What end-of-life care steps do I wish to direct to my physician power to make their own decisions about their healthcare plans, and designated agent(s) to take? including decisions regarding future incapacity. Attorneys advising This last question involves many choices. An advance healthcare clients with respect to the designation of a healthcare agent or agents, directive addresses whether a person elects to prolong his or her life end-of-life decisions, alleviation of pain directions, and other aspects artificially under certain circumstances such as: 1) the person is close of medical care, should encourage discussion of these issues with to death, which mechanical life support would only delay, 2) the family members and ensure that their decisions are recorded with specific and appropriate doc- umentation. The U.S. healthcare system is costly. Am - Even if a healthcare agent is properly designated, the reach erica’s total healthcare bill for 2014 was $3 trillion.3 The complicated insurance maze also adds to the stress that a spouse or family mem- of the agent’s authority is often less than certain. ber faces when making healthcare decisions for another person. Given this daunting land- scape, an advance personal healthcare directive can help prevent person is unconscious or in a persistent vegetative state, and the uncertainty, family tensions, and decisions that may run contrary treating doctors do not expect the person to recover, 3) the person to the patient’s wishes. A completed advance healthcare directive has a terminal illness, and there is little or no likelihood of improve- should be given to and discussed with one’s designated agent(s), ment, 4) the person’s quality of life would not be acceptable to the primary care physician, and personal attorney. Many hospitals will person under standards described in the directive. Alternatively, the scan an advance directive into one’s personal medical record for advance healthcare directive may specify that the person has chosen ready reference and safekeeping. to prolong his or her life as long as possible within the limits of gen- As the legislative findings set forth in Probate Code Section 4650(a) erally accepted healthcare standards. Whatever one’s choices are acknowledge, “an adult has the fundamental right to control the about artificially prolonging life, additional decisions may be made decisions relating to his or her own health care, including the decision about its end. Hospice and palliative care preferences may be specified to have life-sustaining treatment withheld or withdrawn.” In furtherance in an advance healthcare directive. of this policy, Probate Code sections 4670 et seq. provide the statutory Recent Cases guidance for advance healthcare directives. The key term “healthcare decisions” is defined in specific statutory provisions.4 To validly execute an advance healthcare directive, however, a person Selection and appointment of an agent or agents5 to make healthcare must have legal capacity.12 The mental capacity of a client is measured decisions is a threshold consideration. In the event of one’s incapacity, by the standards set forth in the Due Process in Competence Deter - an advance healthcare directive authorizes that agent or agents to mination Act,13 and the attorney’s role in assessing a client’s capacity follow the directive’s detailed instructions, including end-of-life-deci- to sign an advance directive is not without ethical considerations.14 sions, relief from pain, organ donation, and the designation of a In addition, the scope of a designated healthcare agent’s authority primary care physician.6 The statutory form may be modified or sup- has been the subject of recent California appellate court decisions, plemented as an individual may desire7 to include personal preferences particularly regarding the scope of an agent’s authority to consent and values, treatment desires and directives, and requested consulta- to arbitration of healthcare disputes. These cases offer guidance for tions. Preprinted forms are available from the California Medical the drafting of advance directives and counseling of clients about Association (CMA),8 the California Hospital Association (CHA),9 how to set forth their healthcare goals. and local hospitals such as Cedars-Sinai Medical Center.10 In Garrison v. Superior Court,15 the court held that a daughter It can be instructive (and personally beneficial) for attorneys, who had a durable power of attorney to make healthcare decisions before counseling clients, to complete our own advance healthcare for her mother could bind her mother to an arbitration agreement directives.11 The decisions to be made include: • Whom should I choose to be my healthcare agent(s)? A fellow of the American Academy of Matrimonial Lawyers, Marshall S. Zolla • Which decisions can my healthcare agent make? has practiced law in California since 1964 and is certified as a specialist in • What guidelines will I set for the selection or dismissal of healthcare family law.

Los Angeles Lawyer October 2015 17 in the admission documents of a residential Flores v. Evergreen at San Diego LLC19 The court of appeal affirmed the trial court’s care facility. In so holding, the court reasoned reached a different result on different facts. conclusion that there was no statutory or that the decision whether to agree to an arbi- The court of appeal affirmed the trial court’s contractual basis for concluding that Water - tration provision in an admissions document denial of the nursing home’s motion to compel man was authorized to waive her father’s was “part of the health care decision making arbitration, finding that there was no evidence right to pursue legal action rather than arbi- process.” The Garrison court concluded that that a wife, suffering from dementia and tration. Consequently, no valid arbitration under the terms of the durable power of other ailments, had authorized her husband contract existed, and the Evergreen Nursing attorney and the applicable provisions of the to act as her agent to bind her to a nursing Home’s petition to compel arbitration was Health Care Decisions Law,16 the daughter home arbitration agreement. In this case, properly denied. had the authority to enter into the arbitration there was no advance healthcare directive, Another unpublished but instructive case agreement on behalf of her mother. The opin- and husband did not have power of attorney, found no agency authority and no right to ion referenced three provisions in the Probate and he had not been declared her conservator bind the patient to arbitration. In Hatley v. Code. First, Probate Code Section 4683(a) or guardian. The Flores court rejected the Superior Court,23 the Hanford Nursing and provides that, subject to any limitations in nursing home’s contention that the husband’s Rehabilitation Hospital sought arbitration of the power of attorney for healthcare, “An act of signing the arbitration agreement cre- two civil actions for negligence and elder agent designated in the Power of Attorney ated agency status, explaining that the con- abuse. The trial court ordered arbitration of may make health care decisions for the prin- duct of the principal was necessary to show the entire case, but the court of appeal granted cipal to the same extent the principal could agency. The Flores opinion further explained a writ and held that the petition to compel make health care decisions if the principal that although the nursing home presented arbitration should not have been granted. had the capacity to do so.” Second, Probate evidence that the husband had acted as if he (The Supreme Court had granted a hearing, Code Section 4684 provides that “[a]n agent were his wife’s agent, establishment of agency then ordered the case transferred back to the shall make a health care decision in accordance required conduct on the part of the wife con- appellate court with directions.) As in the with the individual’s health care instructions, ferring that status. A person cannot become Waterman case, there was no advance health- if any, and other wishes to the extent known the agent of another merely by representing care directive signed by the patient. The evi- to the agent. Otherwise, the agent shall make himself or herself as such. To be an agent, a dence made it not difficult to conclude that the decision in accordance with the agent’s person must actually be so empowered by the decedent’s nephew did not have authority determination of the principal’s best interests.” the principal.20 to bind the decedent to an arbitration con- Third, Probate Code Section 4688 provides: A different result was seen in an unpub- tract. Another question was whether the dece- “Where this division does not provide a rule lished case.21 Waterman v. Evergreen at Peta- dent’s spouse validly executed the arbitration governing agents under powers of attorney, luma LLC22 was a civil action for personal agreement on the decedent’s behalf. The the law of agency applies.” injuries and elder abuse brought by Waterman answer was no; the evidence established no In Hogan v. Country Villa Health Ser - as successor-in-interest to her deceased father such authority. The court, following Flores, vices,17 following Garrison, the court held and for wrongful death brought in her indi- held that no statutory basis existed for a per- that a mother’s designation of her daughter vidual capacity. She had signed two arbitra- son, including a spouse, to agree to arbitra- in a durable power of attorney for healthcare tion agreements at the time she admitted her tion based solely on a familial relationship authorized the daughter to enter into a bind- father into Evergreen Skilled Nursing Facility. with the patient absent express authority to ing arbitration agreement. The Hogan court Her father had signed an advance healthcare do so.24 explained that “an agent under a health care directive containing a power of attorney for The Flores and Hatley opinions further power of attorney…is empowered to execute healthcare. Waterman was his designated illustrate that a detailed and comprehensive arbitration agreements as part of a long-term agent for healthcare decisions and his attor- statutory scheme exists in the Health and health care facility’s admissions package, ney-in-fact. In this case, the wording of the Safety Code25 regarding the signature of a without violating the principal’s constitutional arbitration agreement signature lines was patient’s agent, responsible party, or legal right to a jury trial.”18 In this case, the mother ambiguous, leaving it unclear whether Water - representative on an admission contract to signed a healthcare power of attorney desig- man signed the agreement as her father’s a nursing home and the authority for medical nating her daughter as her agent, but chose agent or merely as the responsible party. She decisions if a patient lacks capacity. However, not to limit the authority of her agent to also signed the resident agreement with the the statute does not define the precise scope select or discharge healthcare providers or nursing home as her father’s responsible party, of that authority, and case law holds that it institutions. The court considered whether not as his agent or attorney-in-fact. In addi- does not include the right to consent and that grant of authority included the right of tion, neither the advance healthcare directive bind the patient to an arbitration provision.26 the daughter to sign an admission agreement nor the financial power of attorney had been Spousal Authority that contained an arbitration provision. Ap - triggered so as to empower Waterman to plying the general law of agency and Pro - waive her father’s jury trial rights by binding As the cases above indicate, it is often family bate Code Section 4617 (which addresses him to arbitration. The advance healthcare members who become agents for patients the selection and discharge of healthcare directive provided that her authority as her who lack capacity. It is a common misper- providers and institutions as a healthcare father’s agent became effective only when ception, however, that spouses assume agency decision), the Hogan court answered in the his primary physician determined that he when their spouses become unable to make affirmative. The daughter had the authority was unable to make his own healthcare deci- medical decisions. In reality, there is no auto- to sign an admissions agreement containing sions. The financial power of attorney pro- matic right or entitlement of a spouse to an arbitration provision. In following the vided that it would take effect only if Water- make such decisions. Probate Code section analysis in Garrison, the Hogan court deter- man’s father became incapacitated or unable 4717 places a spouse in the generic category mined that in the suit for elder abuse filed to manage his own financial affairs, and that of family member with no expressly provided by children of the decedent against the nursing his incapacity was required to be determined priority. In addition, case law provides that home, the arbitration clause in the admissions by written declaration of two licensed physi- marital status alone does not create an agency contract should have been enforced. cians. None of the trigger events occurred. relationship between spouses.27 Without

18 Los Angeles Lawyer October 2015 direct agency authority (i.e., express appoint- “So appreciate your vigor in the days of your ment of a spouse as designated agent), federal youth, before those days of sorrow come and and state law create obstacles for healthcare those years arrive of which you will say: ‘I Law Firms 4 Sale decisions by limiting access to a patient’s have no pleasure in them.’”34 n medical information and records.28 The chief Want to retire? Want to plan goal of these laws is to guarantee protection 1 Patient Protection and Affordable Care Act, 124 for your life after law! of an individual patient’s health information Stat. 119; 42 U.S.C. §§18001 et seq.; see also National while balancing the need to provide quality Federation of Independent Business v. Sebelius, 132 See Ed Poll’s website S. Ct. 2566 (2012); King v. Burwell, 135 S. Ct. 2480 healthcare. Good practice dictates that when www.lawbiz.com for the tools (2015). you need to make a transition. drafting advance healthcare directives, express 2 PROB. CODE §§4600 et seq. HIPAA29 and California’s PAMRA30 autho- 3 STEVEN BRILL, AMERICA’S BITTER PILL, 473 (2013). Want to buy a practice? rization is to be included.31 4 PROB. CODE §§4615, 4617. 5 PROB. CODE §4607. Ed can help! Gray Areas 6 PROB. CODE §4701. Call today 800.837.5880 7 PROB. CODE §4700. Even if a healthcare agent is properly desig- 8 See California Medical Association (CMA), at nated, the reach of the agent’s authority is http://www.cmanet.org. often less than certain. For example, it is 9 See California Hospital Association (CHA), at http://www unclear whether an agent can consent to the .calhospital.org/sites/main/files/file-attachments/forms off-label administration of a drug or to the _3.pdf. 10 See http://cedars-sinai.edu/AdvanceHealthcareDirective. principal’s enrollment in a clinical trial. Another 11 See Cedars-Sinai Medical Center Advance Healthcare issue is if the patient’s wishes for treatment Directive booklet, available at http://cedars-sinai.edu/ for an unanticipated condition are unknown, AdvanceHealthcareDirective. may the agent apply his or her own values to 12 PROB. CODE §4609 (capacity); see also PROB. CODE make a decision, or can the agent base a deci- §§4120, 4657; CIV. CODE §2296; In re Marriage of Greenway, 217 Cal. App. 4th 628 (2013). sion on the substituted judgment standard of 13 PROB. CODE §§810-813; PROB. CODE §§1801, 1881, Probate Code sections 2580-86? These deci- 3201, 3204. sions often have no clear guidelines, which is 14 Marshall S. Zolla, The California Lawyer’s Grey why hospitals and medical centers have ethics Fog of Uncertainty: Assessing a Client’s Diminished committees to guide healthcare providers, Mental Capacity, CAL. FAM. L. MONTHLY (Nov. 2014). 15 Garrison v. Superior Court, 132 Cal. App. 4th 253 assess risk management, and advise healthcare (2005). agents and families who struggle in the emo- 16 See PROB. CODE §§4600-4643. tionally difficult gray area in which many crit- 17 Hogan v. Country Villa Health Servs., 148 Cal. ical decisions affecting loved ones are made. App. 4th 259 (2007). Another potential source of guidance for agents 18 Id. at 269. 19 and family members is a hospital’s chaplaincy Flores v. Evergreen at San Diego LLC, 148 Cal. App. 4th 581 (2007). service, which offers consultation with clergy 20 Pagarigan v. Libby Care Center, 99 Cal. App. 4th of diverse faiths in times of stress and ultimate 298 (2002); Van’t Rood v. County of Santa Clara, decision making.32 113 Cal. App. 4th 549 (2003). The UCLA Medical Center and Cedars- 21 Cal. R. of Ct. 8.1105, 8.1110, 8.1115. 22 Sinai Medical Center, for example, have chap- Waterman v. Evergreen at Petaluma LLC, 2008 WL 4359556 (2008). laincy programs with clergy from a diversity 23 Hatley v. Superior Court, 2008 WL 240841 (unpub- of faiths. It has been wisely observed that lished). “[c]onversations around the hospital bed cut 24 Cf. Flores v. Evergreen at San Diego LLC, 148 Cal. through the intellectual subtleties of theology App. 4th 581, 589 (2007). into hard core of being.”33 Probate Code sec- 25 HEALTH & SAFETY CODE §§1250(c), 1326, 1418(a) (1), 1430(b), 1599, 1599.60(b). tion 4700 allows an individual to set forth 26 Cf. Flores, 148 Cal. App. 4th at 549. provisions and values regarding personal 27 Id. at 589. healthcare preferences other than those set 28 The Federal Health Insurance Portability and Ac- forth in the statutory form. Well-informed count ability Act of 1996 (HIPAA), Pub. L. No 104- counsel often suggest to clients that they add 191, 45 C.F.R. ¶160, 164 (Aug. 21, 1996, amended their own personal healthcare wishes and 2002); Patient Access to Medical Records Act (PAMRA), codified at HEALTH & SAFETY CODE §§123110-123149 values, including consultation with clergy if .5. they so desire, to assist their designated agents 29 HIPAA, Pub.L. No 104-191, 45 C.F.R. ¶160, 164. in making future healthcare decisions in unan- 30 HEALTH & SAFETY CODE §§123110-123149.5. ticipated medical situations. 31 See Cozette Vergari, Providing Spouses with the Personal healthcare planning in anticipation Power to Make Healthcare Decisions, LOS ANGELES LAWYER 18 (Nov. 2007); Marshall S. Zolla & Deborah of future incapacity should be made in good E. Zolla, Lasting Wishes, LOS ANGELES LAWYER 42 health. Designation of a healthcare agent or (Dec. 2000). agents, end-of-life decisions, alleviation-of- 32 See, e.g., JEFF LEVIN & MICHELE F. PRINCE, JUDAISM pain directions, and other aspects of medical AND HEALTH (2013); WILLIAM CUTTER & MICHELE F. care should be the subject of sober reflection, PRINCE, MIDRASH AND MEDICINE (2012). 33 Rabbi Harold M. Schulweis, Conversation with the discussion with family, and specific and appro- Angel of Death (1991), available at http://www priate documentation. The Book of Ecclesiastes .jewishjournal.com (quoted with permission). provides appropriate guidance in this regard: 34 Ecclesiastes 12.1-12:2.

Los Angeles Lawyer October 2015 19 by Kenneth D. Sulzer and Robert A. Escalante

Uncertain Waivers While California courts follow Iskanian, most federal courts have sharply criticized its preemption analysis

Under the Private Attorneys General Act attorneys could and would act without con- have struggled to figure out exactly how to (PAGA) of 2004, employees harmed by labor sideration for the costs and benefits of bur- apply PAGA—primarily enacted to further code violations have the right to sue employ- dening courts and the business community the public policy of supplementing law ers not only for themselves but also for other with cases. Their interests would primarily enforcement—but thus far have been unable aggrieved current or former employees.1 be focused on the recovery of penalties and to give uniform guidance. Moreover, recovery of penalties includes not importantly, attorney’s fees, for these types Arbitration and Settlement only those exclusively within the state’s of employer alleged misconduct. Accordingly, province (i.e., civil penalties) but also penalties violations, both serious and technical, would As a consequence of the unpredictability con- created by PAGA for any Labor Code pro- be viable predicates for punitive “law enforce- cerning PAGA representative actions and vision not otherwise carrying a civil penalty.2 ment” actions. Coupled with PAGA’s lack class actions, many employers believe it best Any penalties thus recovered are then dis- of an express requirement to satisfy class to avoid such actions altogether through arbi- tributed to the Labor and Workforce Develop- action requirements, these critics feared the tration or settlement agreements. Although ment Agency (LWDA) at the rate of 75 per- exposure created by technical violations cent, with the plaintiff retaining 25 percent.3 would be enormous. Thus, a year after PAGA Kenneth D. Sulzer is president of the Los Angeles Critics within the employer community was enacted, it underwent minor revisions, chapter of the Federal Bar Association and a partner raised concerns at the time of PAGA’s enact- but the issues remained, with multimillion- and cochair of the labor and employment group ment that it created a situation in which the dollar settlements sought for purely technical in Proskauer Rose LLP’s Los Angeles office. Robert state was basically deputizing the plaintiff’s violations based largely on the PAGA expo- A. Escalante is an associate in the labor and em - bar.4 They warned that contingent fee plaintiff sure.5 Since its enactment, California courts ployment group in the firm’s Los Angeles office. HADI FARAHANI

20 Los Angeles Lawyer October 2015 the California Supreme court has provided These critics argue that the California that while the FAA preempts “state law some guidance, uncertainty remains. Supreme Court did not follow through with imposing the presence of certain procedures In Iskanian v. CLS Transportation Los its analysis. They argue the fact that the in the arbitration, the FAA does not preempt Angeles, the supreme court cited public policy PAGA was enacted to serve a public purpose state laws ensuring that a plaintiff may assert as the basis to invalidate arbitration provis - is irrelevant under Con cepcion because, like substantive rights in arbitration.”20 Co n - ions requiring waiver of an employee’s right class actions, PAGA merely provides a pro- sequently, the PAGA representative action in to bring a PAGA representative action even cedural mechanism for persons to sue (albeit that case proceeded to arbitration. The court though it held class action waivers are valid as a state proxy) on behalf of others. With in Martinez v. Leslie’s Poolmart, Inc., came as to non-PAGA claims.6 The court based regard to the California Supreme Court’s qui to a similar conclusion, holding that the FAA its decision in part on the fact that California tam analogy, critics claim the analogy is false, does not preempt PAGA claims and that Civil Code Section 1668 provides that all noting that the purpose of PAGA is to protect employees cannot waive their right to bring contracts exempting a person from respon- employees, whereas the purpose of qui tam a PAGA representative action.21 The court sibility for his or her violation of the law are actions is to remedy an injury sustained by compelled arbitration, but stayed arbitration “against the policy of the law.”7 Because the the government itself. In other words, unlike proceedings pending the completion of the California legislature’s purpose in enacting in PAGA actions, in which the victim is the arbitration in Cunningham.22 PAGA was to supplement the limited enforce- employee, in qui tam actions, the victim is Relatedly, the California Court of Appeal ment capability of the LWDA by enabling the government, though some argue that the recently, in Montano v. The Wet Seal Retail, employees to enforce the Labor Code as rep- government is a victim because it is losing Inc.,23 underscored that an arbitration agree- resentatives of the state, upholding waivers the civil penalty monies. Moreover, the ment can be stricken in its entirety if poorly of this right would serve to “disable one of defense argues that regardless of whether a drafted with respect to PAGA claims. In this the primary mechanisms for enforcing the PAGA action is analogous to a qui tam action, case, an employee brought a class action Labor Code.”8 Namely, employers would PAGA claims are preempted by the FAA against her employer for various wage and not be deterred from mass violations of the because Congress did not provide for an FAA hour violations. The employer moved to com- law because the penalties could only be exception to state-proxy disputes. pel arbitration pursuant to the parties’ arbi- assessed by individual plaintiffs representing While state court judges follow Iskanian, tration agreement, which contained a PAGA only themselves.9 Thus, pursuant to Civil the strong majority of federal district court representative action waiver and a nonsev- Code Section 1668, enforcing PAGA repre- decisions and rulings have sharply criticized erability provision. Because the appellate sentative action waivers that exempt employ- the preemption analysis in Iskanian, holding court found the PAGA action waiver invalid, ers from violations of the law would be con- that PAGA representative action waivers are it denied the employer’s motion to compel trary to public policy. valid and enforceable.15 In Fardig v. Hobby arbitration, holding that the PAGA action The California Supreme Court further Lobby Stores, Inc., the district court held waiver could not be stricken from the arbi- explained that the Federal Arbitration Act that an arbitration provision containing a tration agreement because of the nonsever- (FAA) does not preempt its rule against PAGA representative action waiver prevented an ability clause.24 representative action waivers because the employee from bringing a PAGA represen- Franco v. Arakelian Enterprises, Inc.,25 rule does not “stand as an obstacle to the tative action on behalf of others similarly presents another significant post-Iskanian ac complishment of the FAA’s objectives.”10 situated. The court noted that even in light issue. In this case, the plaintiff filed suit on Specifically, the court characterized the FAA of Iskanian, “the rule making PAGA claim behalf of himself and other similarly situated as primarily focused on private disputes rather waivers unenforceable is preempted by the employees, alleging various Labor Code and than disputes between a government in its FAA” and that the court “is not bound by wage-order violations.26 The plaintiff’s com- law enforcement capacity and individual the California Supreme Court’s understanding plaint included a PAGA cause of action. employers. The court relied heavily on the of federal law.”16 Likewise, in both Chico v. Though the appellate court compelled the FAA’s legislative history in reaching this con- Hilton Worldwide and Langston v. 20/20 plaintiff’s individual claims to arbitration clusion.11 Additionally, the court noted that Com panies, Inc., the district courts concluded pursuant to a valid arbitration agreement, the FAA’s jurisprudence, with one exception, that the FAA preempts the California rule the court, following Iskanian, held that the “consists of disputes involving the parties’ barring PAGA representative action waivers PAGA representative action waiver is unen- own rights and obligations, not the rights of and that such provisions will be enforced forceable. Thus, the court stayed the PAGA a public enforcement agency.”12 Based on pursuant to the parties’ arbitration agree- representative claims pending the outcome this interpretation, the court concluded that ments.17 Similarly, in Ortiz v. Hobby Lobby of the individual arbitration.27 a PAGA claim is not governed by the FAA Stores, Inc., the court upheld a PAGA repre- The defendant in Iskanian sought review because it is not a private dispute between sentative action waiver, noting that “federal by the U.S. Supreme Court regarding the an employer and an employee. Conversely, law is clear that a state is without the right issue of FAA preemption. Contempor - similar to a qui tam action, it is a dispute to interpret the appropriate application of aneously, the defendant in Brown v. Bridge - between an employer and an agent or proxy the FAA.”18 In Ortiz, however, the court stone Retail Operations, LLC, sought review of the state.13 went beyond all of the other cases and dis- regarding similar issues.28 The Supreme Court Employers and other critics (including the missed the claim entirely stating that PAGA denied review of Iskanian on January 20, federal district courts) have been quick to permits only a representative action and not 2015, and Brown on June 1, 2015. Accord- voice their disagreement with Iskanian’s an individual claim. ingly, Iskanian remains good law; however, analysis of FAA preemption. They argue the However, one court in two related cases several federal district courts have been con- FAA preempts California’s rule against PAGA held that PAGA representative action waivers solidated for appeal and framed the issue for representative action waivers because, as held are unenforceable.19 The court in Cun ning - the Ninth Circuit, which heard oral arguments in AT&T Mobility LLC v. Con cepcion, a ham v. Leslie’s Poolmart, Inc., held that on June 3, 2015.29 After the Ninth Circuit state law prohibiting the enforcement of an employees cannot waive their right to pursue rules, perhaps the Supreme Court will rule arbitration agreement pursuant to its terms a representative PAGA claim in an arbitration on FAA preemption of PAGA. is displaced by the FAA.14 agreement. Specifically, the court reasoned If and until the Supreme Court rules, how-

22 Los Angeles Lawyer October 2015 ever, the untenable situation in which forum conflict by relying on the nature of PAGA ability to opt out of the representative action governs outcome will likely continue with representative actions as a law enforcement and because courts do not inquire as to the respect to the enforceability of arbitration tool, deeming the characterization arbitrary adequacy of plaintiff’s counsel and its ability agreements, making the battle to remove any and irrelevant. In the Medlock court’s view, to fairly represent unnamed plaintiffs, PAGA PAGA claim to federal court even more crit- the dispute was simply framed. While PAGA suits are “fundamentally different” from Rule ical.30 Once a PAGA action is filed, perhaps would permit a representative action to pro- 23 class actions.39 Ac cordingly, the Ninth the first question defendants should ask is ceed in federal court on the basis of diversity Circuit, as a general matter, declined to extend whether they can convince the judge to limit jurisdiction, Rule 23 prohibits the mainte- the CAFA jurisdiction to PAGA claims. The the scope of the representative action based nance of a representative action without Ninth Circuit recently held that non-class upon considerations of the concepts of Rule demonstrating numerosity, commonality, typ- PAGA penalties may not be used to meet the 23 and manageability. While the California icality, and adequacy of representation. Accord - $5 million amount in controversy threshold Supreme Court has indicated PAGA repre- sentative actions need not meet class action requirements, federal courts have remained split on the issue and uncertainty persists in state courts regarding the permissible scope of PAGA claims. Rule 23 In Arias v. Superior Court of San Joaquin County, the California Supreme Court held that employees bringing PAGA representative actions need not comply with California’s class certification requirements.31 Though this is now the rule in California state courts (with some qualification explained below), federal district courts within the Ninth Circuit are split as to whether federal class certifica- tion requirements pursuant to Rule 23 apply to PAGA representative actions in federal court.32 The majority of federal courts follow Arias and hold PAGA representation actions need not meet Rule 23 requirements. For example, in Pedroza v. PetSmart, Inc., the court reasoned that “a PAGA action is fun- damentally different in kind from a class action” and that PAGA claims are not subject to Rule 23 because employees asserting PAGA claims represent the same legal right as a law enforcement agency.33 Rule 23 class actions, which are efficient and promote consistency in decisions as to persons similarly situated, must meet the procedural and notice require- ments of the rule because the rights of absent class members will be affected. On the other hand, PAGA claimants do not represent absent class members. Rather, they bring claims on behalf of themselves, serving as the LWDA’s agent and thus, according to the ingly, because Rule 23 was a valid exercise of under the CAFA.40 Notably, the court also court, are not subject to Rule 23.34 Congress’s rule-making authority, the court declined to decide whether a federal court Other cases uphold the view that repre- found that it controlled and dismissed the may allow PAGA actions otherwise within sentative actions must satisfy Rule 23 require- PAGA claims that did not meet Rule 23 its original jurisdiction to proceed under Rule ments. The cases base their holdings primarily requirements.37 23 as a class action.41 In one case, Baumann on fact that Rule 23 is a federal procedural However, removal to federal court may v. Chase Investment Services Corporation, rule that applies to state law claims invoking be more difficult (particularly in stand-alone the plaintiffs petitioned for certiorari, which a federal court’s diversity jurisdiction.35 PAGA cases) based on a recent Ninth Circuit the U.S. Supreme Court denied on December Recently, in Medlock v. Taco Bell Corpor - decision, which held that PAGA actions are 15, 2014.42 ation, the court explained that there is a not “sufficiently similar” to Rule 23 class Manageability direct conflict between Rule 23 and PAGA actions to trigger Class Action Fairness Act because “Rule 23 would prohibit the main- (CAFA) jurisdiction in federal court.38 Speci - A third line of federal cases has developed tenance of a class action in circumstances fically, the court found that because PAGA that, while not requiring application of Rule where PAGA would permit one.”36 It rejected has no notice requirements for un named 23 per se, still require proof of manageability. other courts’ avoidance of dealing with this aggrieved employees, who do not have the For example, in Ortiz v. CVS Caremark Corp-

Los Angeles Lawyer October 2015 23 or a tion, the court sided with the federal by over a decade. principle of separation of powers. courts in adoptingArias , finding that a PAGA Arias categorized representative actions Having been unsuccessful in defeating the representative action did not need to meet into two groups: those brought as class claim, the last arrow in the quiver may be Rule 23 requirements, but struck the repre- actions and those not brought as class actions. the trial courts’ exercise of the discretion sentative action as unmanageable.43 The case Regarding nonclass action representative expressly provided for under PAGA. PAGA involved claims for off-the-clock work and suits, an appellate court recognized a trial provides that a court may award a lesser unreimbursed mileage. The plaintiff argued court’s obligation to preclude representative amount in civil penalties than the maximum that trial courts routinely managed PAGA status based on manageability concerns. In penalty amount specified under the statute representative actions by, among otherhings, t Bronco Wines v. Frank A Logoluso Farms, “if, based on the facts and circumstances of relying on plaintiffs’ use of statistics or survey a grape grower brought a nonclass represen- the particular case, to do otherwise would evidence to prove damages. Co ncerning each tative action under California Business and result in an award that is unjust, arbitrary of the claims at issue, however, the court Professions Code Section 17200, the Unfair and oppressive, or confiscatory.”54 Because noted that the plaintiff failed to demonstrate Competition Law (UCL), on behalf of other a court can “only exercise its discretion to a means to avoid the highly individualized grape growers for restitution from a winery award lesser penalties based on the enumer- i n q u i r i e s t h a t w o u l d b e r e q u i r e d t o e s t a b l i s h that engaged in allegedly unfair business prac- ated considerations” in the statute, and liability for each allegedly aggrieved em - tices in the purchase of grapes.47 Specifically, because the statute’s penalties are “manda- ployee. As to this point, the plaintiffs failed the plaintiff brought a claim against the win- tory,” defendants have to convince trial courts to point to any trial court’s overcoming indi- ery for “wrongfully rejecting and refusing to to lower PAGA’s penalties.55 vidualized issues of liability with statistical accept grapes, adopting arbitrary quality In determining whether an award would or survey evidence. Accord ingly, the court standards, applying quality standards unrea- be unjust, arbitrary, and oppressive, or con- struck the PAGA representative action as sonably in order to pay less for accepted fiscatory, courts consider several factors, unmanageable. grapes than the price agreed to…and threat- including whether the defendant can afford Ortiz’s manageability concerns and the ening to sue and suing growers who com- to pay the award and whether the defendant California Supreme Court’s recent decision plained….”48 The court found the trial court made attempts at correcting its Labor Code in Duran v. U.S. Bank 44 should arguably erred in allowing the representative action violations either before or after a lawsuit compel state trial courts to take similar action.to proceed, noting, among other things, the was filed.56 In Thurman v. Bayshore Transit PAGA, like class actions, does not expand “insurmountable control and management Management, Inc., in which a group of union substantive rights: plaintiffs may collect penal- problems associated with awarding judgments employees brought suit against their em - ties on behalf of a particular employee only for or against nonparties not subject to the ployer alleging the employer failed to provide upon proof that the employer’s violation court’s jurisdiction.”49 Some courts have run proper rest breaks, a California appellate affected that employee.45 While class actions with this analysis to preclude nonclass rep- court upheld a trial court’s 30 percent reduc- manage such issues by requiring commonality resentative actions in non-PAGA cases and tion in penalties under the PAGA because among the represented parties (and thus some may use it to analyze manageability under declining to do so would have resulted in allowance for common proof), Arias sug- PAGA.50 Other courts have suggested that an award that was unjust, arbitrary, and op - gested PAGA does not require the same. the UCL cases do not support any limitation pressive, or confiscatory. In support of its Accordingly, adjudication of representative on PAGA because of the quasigovernmental decision, the court explained that prior to actions under PAGA may denigrate into the purpose of PAGA.51 filing suit, the union employees had not com- type of drawn out minitrials that courts have plained to the employer nor had they notified Final Judgment consistently sought to avoid in the class action the employer of the rest break issue in writ- context. Assuming the PAGA representative action ing. Further more, prior to the lawsuit, the Plaintiffs may argue that the concerns makes it to verdict, uncertainty remains for em ployer attempted to ensure that the em - regarding manageability may be avoided both parties. The California Supreme Court ployees were taking adequate rest breaks by through the use of statistical or survey evi- in Iskanian recently struck a blow to the posting memorandums advising the employ- dence; however, as recently noted in Duran, defendants’ efforts to avoid liability alto- ees to take 10-minute rest periods and by statistical and survey evidence does not gether based on constitutional ground. The c o un s e l in g i n d iv i d u al e m p lo y e e s of t h e ne e d always suffice to accommodate defendants’ defendant argued that, based on the court’s to take a rest period. In addition, the union due process right to present a defense. Ac - p r e c e d e n t , PA G A r e p r e s e n t a t i v e a c t i o n s v i o - president failed to respond to the employer’s cordingly, when the represented employees’ lated the separation of powers principal letter regarding the implementation of rest claims lack commonality sufficient to make because it provided financial interests to pri- breaks. In light of this evidence, and the the adjudication of all employees’ claims vate counsel prosecuting public claims with- fact that the employer would not have been superior to individual actions, statistical and out governmental supervision. 52 The court able to pay the penalties assessed under the survey evidence may not adequately account rejected this argument, finding the separation PAGA, the appellate court upheld the trial for variations among the employees. Duran of powers’ requirement for absolute neu- court’s 30 percent reduction in the civil can be utilized by the defendant to request trality only applied to cases in which a con- penalties. 57 that the plaintiff should provide a trial plan stitutional “liberty interest” or “the right of Federal courts have similarly exercised that passes muster even though no claim has an existing bus i ness to continued operation” their discretion to reduce PAGA penalties for been certified. is at issue. 53 The court further explained a variety of reasons. For example, inFleming Regardless of the plain practical concerns, that no court has applied rules requiring v. Covidien, Inc., the district court made an no California appellate court has ruled that absolute neutrality of private counsel acting 82 percent reduction to the maximum penal- these concerns empower (or obligate) a court as prosecutors to representative or qui tam ties arising from the issuance of wage state- to strike PAGA representative actions. 46 actions. Moreover, the court noted that be - ments that violated Labor Code Section 226 - Colorable arguments, however, do exist in cause the legislature has discretion to deputize (a).58 The court made the reduction because the gaps left by Arias, most notably based private citizens to bring private suits, the it found the maximum penalties unjust due on appellate authority that predates PAGA PAGA does not violate the U.S. Con stitution’s in part because “the aggrieved employees

24 Los Angeles Lawyer October 2015

suffered no injury.”59 There are also a handful of state court rulings that reduce PAGA penal- ties in various circumstances.60 An appellate court has yet to find a trial court that lessened penalties, still imposed some, but abused the discretion expressly granted under PAGA to do so. However, there is no guidance as to whether a court can make such a determination before trial, and there is no real guidance on what is con- sidered unjust. Accordingly, both plaintiffs and defendants alike face significant uncer- tainty throughout and even after resolution of liability. Thus, courts have many open issues to decide, and practitioners can only watch closely how they will play out in state and federal courts. n

1 LAB. CODE §2699(a). 2 LAB. CODE §§2698 et seq.; see Noe v. Superior Court, 237 Cal. App. 4th 316, 339 (2015) (noting PAGA authorizes the collection of civil penalties not otherwise obtainable directly through a private right of action). 3 LAB. CODE §2699(i). 4 See, e.g., Douglas A. Wickham, The Private Attorneys General Act of 2004: One of California’s Newest Laws Threatens to Flood Employers with Class Action Lawsuits When an Ounce of Prevention Could Avoid Them (Oct. 10, 2003), https://www.littler.com; David J. Murphy & Stephanie L. Fong, “Sense and sensibil- ity”: Legislative Amendments to the California Labor Code’s Private Attorneys General Act, MORRISON & FOERSTER LLP EMPLOYMENT LAW COMMENTARY (Aug. 2004), available at http://media.mofo.com. 5 See, e.g., Umbrasas v. Amgen, Inc., 2007 Cal. App. Over 50 years of service as the Unpub. LEXIS 6858 (Cal. App. Aug. 23, 2007); Elliot charitable arm of the Los Angeles v. Spherion Pacific Work, LLC, 572 F. Supp. 2d 1169 (2008) (Although the court dismissed this cause of County Bar Association action through summary judgment, the employer incurred unnecessary legal costs and attorney’s fees to have the cause of action dismissed.). See also New LACBA Counsel For Justice (CFJ) brings together law firms, foundations, Job Creator Bill Moves; Seeks to Limit Frivolous, corporations, donors and volunteers in support of a more just Los Angeles. Costly Litigation , CALCHAMBER ADVOCACY, July 9, 2015, http://www.calchamber.com. Together, we stand at the forefront of providing equal access to legal 6 Iskanian v. CLS Transp. L.A., 59 Cal. 4th 348, 360 services in our community by raising funds to support LACBA’s services (2014). projects: domestic violence legal services, veterans legal services, 7 Id. at 382 (citing CIV. CODE §1668). 8 Id. at 383. immigration legal assistance, AIDS legal services and civic mediation. 9 Id. at 383-84. 10 Id. at 384 (quoting AT&T Mobility LLC v. Each year more than 18,000 people come to our projects for legal Concepcion, 563 U.S. 321 (2011)). services because they have nowhere else to turn. Your support will 11 Iskanian, 59 Cal. 4th at 385. “Nothing in the text or legislative history of the FAA nor in the Supreme ensure that they too have the access to our legal system. Every dollar Court’s construction of the statute suggests that the you contribute provides hundreds of dollars in pro bono legal services. FAA was intended to limit the ability of states to enhance their public enforcement capabilities by enlist- ing willing employees in qui tam actions.” Id. at 387. 12 Id. 13 Id. at 386-87. 14 Concepcion overruled the California Supreme Court case of Discover Bank v. Superior Court, which pro- hibited arbitration agreements that waived a consumer’s right to bring class claims. Indicating it understood the breadth of preemption under Concepcion, the California Supreme Court in Iskanian applied Concepcion to overturn its holding in Gentry v. To learn more, visit www.lacba.org/counselforjustice Superior Court, which prohibited class action waivers in employment agreements. 15 Nanavati v. Adecco USA, Inc., No. 14-cv-04145- BLF, 2015 U.S. Dist. LEXIS 49053, at *21-22 (N.D. Cal. April 13, 2015) (holding the FAA preempts California’s rule prohibiting the waiver of representative

26 Los Angeles Lawyer October 2015 PAGA claims). See also Estrada v. CleanNet USA Inc., No. 14–01785–JSW, 2015 U.S. Dist. LEXIS 22403, at *13 (N.D. Cal. Feb. 24, 2015); Lucero v. Sears Holdings Mgmt. Corp., No. 14-cv-1620 AJB, 2014 U.S. Dist. LEXIS 168782, at *12-1 4 (S.D. Cal. Dec. 2, 2014); Mill v. Kmart Corp., No. 14-cv-02749- KAW, 2014 U.S. Dist. LEXIS 165666, at *18 (N. D. Cal. Nov. 26, 2014); Langston v. 20/20 Cos., Inc., No. EDCV 14-1360 JGB (SPx), 2014U.S. Dist. LEXIS 151477, at *20 (C.D. Cal. Oct. 17, 2014); Chico v. Hilton Worldwide, Inc., No. CV 14-5750-JFW (SSx), 2014 U.S. Dist. LEXIS, 147752, at *34 (C .D. Cal. Oct. 7, 2014); Ortiz v. HobbyLobby Stores, Inc., No. 2:13-cv-01619 TLN, 2014 U.S. Dist. LEXIS 140552, at *33 (E.D. Cal. Oct. 1, 2014); and Fardig v. Hobby Lobby Stores, Inc., No. SACV 14-00561 JVS (ANx), 2014 U.S. Dist. LEXIS 139359, at *11-12 (C.D. Cal. Aug. 11, 2014). 16 Fardig, 2014 U.S. Dist. LEXIS 139359, at *10-11. 17 Chico, 2014 U.S. Dist. LEXIS 147752, a t *34; Langston, 2014 U.S. Dist. LEXIS 151477, at *20. 18 Ortiz, 2014 U.S. Dist. LEXIS 140552, at *25-26, 33. 19 Martinez v. Leslie’s Poolmart, Inc., No. 8:14-cv- 01481-CAS (CWx), 2014 U.S. Dist. LEXIS 156218, at *14-16 (C.D. Cal. Nov. 3, 2014); Cunningham v. Leslie’s Poolmart, Inc., No. CV 13-2122 CAS (CWx), 2013 U.S. Dist. LEXIS 90256 (C.D. Cal. June 25, 2013). 20 Cunningham, 2014 U.S. Dist. LEXIS 90256, at *33. 21 Martinez, 2014 U.S. Dist. LEXIS 156218, at *14- 16. Notably, the same judge decided bothCunningham and Martinez. 22 In two other recent cases, district courts have fol- lowed Iskanian, holding that PAGA action waivers are unenforceable. See Zenelaj Handybook Inc., No. 14-c-05449-THE, 2015 U.S. Dist. LEXIS 26068, at *24-26 (N.D. Cal. Mar. 3, 2015) and Hernandez v. DMSI Staffing, LLC, No. c-14-1531 EMC, 2015 U.S. Dist. LEXIS 12824, at *17 (N.D. Cal. Feb. 3, 2015). 23 Montano v. The Wet Seal Retail, Inc., 232 Cal. App. 4th 1214, 1224 (2015). 24 Id. 25 Franco v. Arakelian Enters., Inc., 234 Cal. App. 4th 947 (2015) 26 Id. at 925. 27 Id. at 965; see also Williams v. Superior Court (Pinkerton’s), 237 Cal. App. 4th 642 (2015) (reversing an order compelling arbitration of an individual PAGA claim prior to representative component). 28 Brown, et al. v. Bridgestone Retail Operations, LLC, 331 P. 3d 1274 (Aug. 27, 2014), cert. denied by Bridgestone Retail Operations, LLC v. Brown, et al., 2015 U.S. LEXIS 3644 (U.S. June 1, 2015). 29 Sakkab v. Luxottica Retail North Am., No. 12-cv- 00436-GPC-KSC, rev. granted , No. 13-55184 (9th Cir. Jan. 29, 2013) (notice of appeal filed); Sierra v. Oakley Sales Corp ., No. 13-cv-00319-AG-JPR, rev. granted, No. 13-55891 (9th Cir. May 21, 2013) (notice of appeal filed); Hopkins v. BCI Coca-Cola Bottling Co., No. 13-cv-00103-AG-RNB,rev. granted, No. 13- 56126 (9th Cir. June 25, 2013) (notice of appeal filed). 30 Though the Ninth Circuit holds that the Class Action Fairness Act (CAFA) does not apply to PAGA actions brought purely on a representative basis (Baumann v. Chase Inv. Servs. Corp., 747 F. 3d 1117, 1120-21 (9th Cir. 2014)), PAGA penalties do not count toward the amount in controversy when a PAGA claim is brought along with a class claim. Yocupicio v. PAE Group, LLC, No. 15-55878, U.S. App. Lexis 13273 (9th Cir. July 30, 2015). 31 Arias v. Superior Court, 46 Cal. 4th 969, 975 (2009); see also Munoz v. Chipotle Mexican Grill, No. B249505, 2015 Cal. App. LEXIS 579 (Cal. App. June 30, 2015) (finding plaintiffs can no longer rely on a

Los Angeles Lawyer October 2015 27 death-knell doctrine after the denial of class certification 39 Id. at 1122-23. 36 (C.D. Cal. 2011); Echavez v. Abercrombie and if a representative PAGA claim remains pending). 40 Yocupicio v. PAE Group, LLC, No. 15-55878, U.S. Fitch Co., Inc., No. CV 11-9754, 2013 WL 7162011 32 Compare Halliwell v. A-T Solutions, 983 F. Supp. App. Lexis 13273 (9th Cir. July 30, 2015). (C.D. Cal. Aug. 13, 2013); Alcantar v. Hobart Serv., 2d 1179, 1183 (S.D. Cal. 2013) and Medlock v. Taco 41 Baumann, 747 F. 3d at 1124. No. CV 11-1600 PSG (Spx), 2013 U.S. Dist. LEXIS Bell Corp., No. 1:07-cv-01314-SAB, 2014 U.S. Dist. 42 Baumann v. Chase Inv. Servs. Corp., No. 14-260, 5443 (C.D. Cal. Jan. 14, 2013). LEXIS 121403, at *19 (E.D. Cal. Aug. 29, 2014) with 2014 U.S. LEXIS 8345 (Dec. 15, 2014). 44 Duran et al. v. U.S. Bank Nat’l Ass’n, 59 Cal. 4th 1 Pedroza v. PetSmart, Inc., No. ED CV 11-298-GHK 43 Ortiz v. CVS Caremark Corp., No. C-12-05859 (2014). (DTBx), 2013 U.S. Dist. LEXIS 53794, at *49 (C.D. EDL, 2014 WL 1117614, at *3-5 (N.D. Cal. Mar. 45 See, e.g., Hibbs-Rines v. Seagate Techs., LLC, No. Cal. Jan. 28, 2013). 19, 2014); see also, e.g., Litty v. Merrill Lynch & Co., C 08-05430, 2009 WL 513496, at *4 (N.D. Cal. Mar. 33 Pedroza, 2013 U.S. Dist. LEXIS 53794, at *49. Inc., 2014 WL 5904904, at *3 (C.D. Cal. Nov. 10, 2, 2009) (Noting plaintiff must “prove Labor Code 34 Id. 2014) (striking PAGA representative action because violations with respect to each and every individual 35 See Halliwell, 983 F. Supp. 2d at 1183 (citing Shady a multitude of individualized issues made the claim on whose behalf Plaintiff seeks to recover civil penal- Grove Orthopedic Ass’n, P.A. v. Allstate Ins. Co., 559 unmanageable); Bowers v. First Student, Inc., 2015 ties.”). U.S. 393 (2010)). WL 1862914 (C.D. Cal. 2015); Amey v. Cinesmark, 46 A recent appellate opinion has, however, given trial 36 Medlock, 2014 U.S. Dist. 121403, at *19. Inc., 2015 WL 2251504 (N.D. Cal., May 13, 2015); courts some guidance on how to and not to manage 37 Id. at *22. but see Solis v. The Regis Corp., 612 F. Supp. 2d uncertified PAGA claims. See Williams v. Superior 38 Baumann v. Chase Inv. Servs. Corp., 747 F. 3d 1085, 1087, 1089-90 (N.D. Cal. 2007); McKenzie v. Court, 236 Cal. App. 4th 1151 (2015), rev. granted 1117, 1122 (9th Cir. 2014). Federal Express, 765 F. Supp. 2d 1222, 1232, 1235- Aug. 19, 2015, No. S227228 (affirmed trial court order compelling production of employee list from plaintiff’s location and deferring multilocation discovery until after plaintiff’s deposition). 47 Bronco Wines v. Frank A Logoluso Farms, 214 Cal. App. 3d 699 (1989). 48 Id. at 715. 49 Id. at 720-21. Proposition 64 essentially validated the Bronco Wines criticism, and now class certification standards are required in a UCL action. 50 See, e.g., Marshall v. Standard Ins. Co., 214 F. Supp. 2d 1062, 1069-71 (C.D. Cal. 2000) (finding a disability claim was not properly prosecuted as a rep- resentative action to the extent that plaintiffs sought disgorgement of profits, given that proof of the alle- gations would require examination of thousands of disabled individuals as well as review of a substantial amount of medical evidence); Lazar v. Trans Union LLC, 195 F.R.D. 665, 673-74 (C.D. Cal. 2000) (refus- ing to permit maintenance of a representative action in which the plaintiff did not necessarily suffer the same injury as other consumers); South Bay Chevrolet v. Gen. Motors Acceptance Corp., 72 Cal. App. 4th 861, 867 (1999) (affirming trial court denial of a rep- resentative treatment because of a lack of sufficient uniformity amongst the representative parties). 51 See e.g., Plaisted v. The Dress Barn, Inc., Case No. 2:12-cv-01679-ODW (SHx), 2012 U.S. Dist. LEXIS 135599, at *9 (C.D. Cal. Sept. 20, 2012) (“Unlike California’s UCL, PAGA does not provide for equitable restitutionary or injunctive relief; instead, plaintiffs bringing representative PAGA actions can recover only statutory penalties in fixed amounts per violation…. And unlike class or representative actions seeking dam- ages or injunctive relief for injured employees, the purpose of PAGA “is to incentivize private parties to recover civil penalties for the government that otherwise may not have been assessed and collected by overbur- dened state enforcement agencies.”). 52 Iskanian v. CLS Transp. L.A., 59 Cal. 4th 348, 389 (2014) (citing County of Santa Clara v. Superior Court, 50 Cal. 4th 35, 59 (2010)). 53 Id. 54 LAB. CODE §2699(e)(2); see also Thurman v. Bayshore Transit Mgmt., Inc., 203 Cal. App. 4th 1112, 1135 (2012). 55 Amaral v. Cintas Corp. No. 2, 163 Cal. App. 4th 1157, 1213 (2008) (holding that though PAGA penal- ties are mandatory, trial courts can reduce these penal- ties if to do otherwise would result in an award that is unjust, arbitrary, and oppressive, or confiscatory). 56 Thurman, 203 Cal. App. 4th at 1136. 57 Id. 58 Fleming v. Covidien, Inc., No. ED CV 10-01487 RGK (OPx), 2011 U.S. Dist. LEXIS 154590, at *8-9 (C.D. Cal. Aug. 12, 2011). 59 Id. at *5. 60 See, e.g., Parr v. Golden State Overnight Delivery Serv., No. RG12-618103 (Cal. Sup. Ct. July 10, 2014).

28 Los Angeles Lawyer October 2015 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 31.

by Michael Shipley

Maroney’s Minefield California’s complicated rules for obtaining a new trial can lead all but the most careful to an unfair result

POSTJUDGMENT PROCEDURE in California’s 1872 codification of the Field court to decide the motion, again providing California state court is governed by com- Code.5 Numerous procedures are unique to three alternatives.12 Failure to rule by the plicated and confusing statutory and case new trial motions. The process starts with deadline is deemed a denial by operation of authority. The procedures for new trial the movant’s filing a “notice of his or her law. The code further dictates the form that motions can be especially perilous. Courts intention to move for new trial.”6 There are an order granting a motion must take,13 to have construed many of their requirements several alternative timeframes during which be followed by a written specification of rea- to be “mandatory and jurisdictional.”1 That the notice must be filed, depending on how sons that the trial judge must draft him- or is, if a party (even the trial judge) makes a the moving party received notice of the entry herself.14 A signed proposed order is not suf- mistake, it often cannot be excused or re - of judgment.7 The code lists the grounds— ficient.15 Oral findings on the record, no mat- paired, even on remand. This results in a sig- seven vaguely worded and conceptually over- ter how lengthy or detailed, are insufficient.16 nificant number of appellate reversals on pro- lapping categories—that are the only bases On top of that, Section 657 of the Code of cedural grounds. A recent decision, Mar oney on which a new trial motion can be brought Civil Procedure contains some perplexing v. Iacobsohn, is illustrative.2 Until the Cal - or granted.8 The notice must state the grounds restrictions on appellate review,17 which can ifornia Legislature addresses this issue,3 attor- and indicate whether the motion will be sup- result in outcomes that are difficult to justify neys moving for new trial would be well- ported by affidavits, the record of the court, from the perspective of fairness and due advised to understand the many nuances of or both.9 The actual brief, along with any process.18 the procedure. supporting affidavits, is not filed until 10 All this makes little sense, particularly to While the Federal Rules of Civil Procedure days later.10 An opposition, with any affidavits address the issue of new trials in less than in support, is filed 10 days after that. And— Michael Shipley practices complex commercial 300 words in four subsections of Rule 59, under an amendment effective January 1, and securities litigation in the Los Angeles office California’s Code of Civil Procedure, in con- 2015—the moving party can file reply papers of Kirkland & Ellis LLP and is the author of 111 trast, uses 12 separate sections4 of thousands five days later.11 North Hill Street, a blog on California Civil of words, many of which were enacted in The code includes a deadline for the trial Procedure.

Los Angeles Lawyer October 2015 29 lawyers more familiar with federal practice. late for the court to act.34 held that the trial court had no authority to Worse yet, the mandatory and jurisdictional19 Perhaps thinking it was doing Maroney enter an order “purporting to grant Plaintiff’s nature of certain rules results in a not insignif- a favor, the trial court proceeded to rule motion for new trial on the condition that icant number of appellate reversals over pro- that—even though it thought it lacked juris- Plaintiff would file an appeal from the order cedural mistakes—including those made by diction to grant her a new trial—it would and secure a favorable appellate ruling on trial courts rather than the moving party.20 grant her motion subject to her appeal of the trial court’s jurisdiction.”44 On this point, Many of these reversals cannot be fixed on the jurisdictional issue. The trial court ex - the appellate court cited LaManna v. Stewart45 remand.21 As Justice Otto Kaus noted in a plained, however, that unless an appellate and Mercer v. Perez.46 These two cases sup- dissent 30 years ago, the various judicial court reversed on the jurisdiction issue, “there port the requirement that a trial court comply interpretations of the new trial statutes have is no new trial.”35 The court thus purported strictly with the requirement of a written created a procedural minefield that can defeat to conditionally grant the motion based on specification of reasons. Based on that author- even the most vigilant attorney or experienced the grounds stated in the court reporter’s ity, the court of appeal held that the “condi- trial court judge.22 transcript.36 tional order in this case is a nullity that we Maroney,23 a recent decision by the Second Maroney appealed. She argued that the can neither reverse nor affirm.”47 District’s Division Three, is a good example.24 trial court erred on the jurisdiction issue and Because the trial court’s order was invalid, The plaintiff, Maroney, won a jury verdict, that its ruling should be affirmed to the the court of appeal treated it as if the trial but the damages awarded were far less than extent that it granted the motion because court entered no order at all.48 So, on the her medical bills.25 The damages were reduced there was evidence that supported the trial next day—61 days from Maroney’s notice further because the jury found her 40 percent court’s broad discretion to order a new trial.37 of intention—the court had effectively failed at fault.26 Although the court entered judg- Perhaps because the trial court said that it to rule. The motion was deemed denied by ment, it is unclear how the parties learned would rule in her favor on the merits, she operation of Section 660 because no valid of its entry. Notice was not served by the did not argue or submit a record establishing ruling was entered within 60 days of her clerk, and neither party served the other with that the trial court erroneously denied the notice of intention. And since Maroney’s ap - a notice of entry of judgment.27 motion on any basis other than jurisdiction.38 peal did not address or provide record sup - At any rate, Maroney definitely had actual Iacobsohn, in turn, argued that the trial port to challenge the merits of the (deemed) notice—she attached the judgment as an court got it right on jurisdiction, but that in denial under the relevant standard of review, exhibit to a motion to tax costs.28 Twenty- conditionally granting a new trial, it failed she waived her appeal on the merits of the two days later, she filed a notice of intention to comply with various jurisdictional for- trial court’s denial, which would have been to move for new trial.29 Maroney then filed malities such as drafting a specification of affirmed.49 There was no new trial for her new trial motion, arguing that the dam- reasons, and that Maroney had not provided Maroney. ages were insufficient, that there was insuf- an adequate record to appeal the judgment This kind of thing happens rather often ficient evidence of her contributory negligence, on the merits.39 in California new trial appeals. An appellant and that the jury should not have been in- The court of appeal first grappled with can correctly argue that the trial court had structed on the contributory negligence the timing issue. Did Maroney’s service of jurisdiction to grant a new trial, only to have issue.30 the judgment in connection with the costs the opportunity to actually conduct that trial At the hearing, the court asked whether a filing amount to a notice of entry under taken away, based on the trial court’s failure notice of entry had been served, prompting Section 664.5(a)?40 Relying on Van Beurden to use the words the code requires it to say Iacobsohn to suggest that the court’s juris- Insurance Services, Inc. v. Customized World - (or, in Maroney’s case, not say). An appellant diction had expired. After a continuance for wide Weather Insurance Agency, Inc.41—a can have an appeal deemed waived because supplemental briefing on the timing issue, the case that stands for the proposition that the trial court’s purported “grant” of the trial court heard the motion. Iacobsohn argued statutes addressing jurisdiction-implicating motion tricked the appellant into arguing that Maroney’s motion was untimely under time limits should be literally construed to for an affirmance of a grant on the merits— Section 659 because her notice of intention avoid guesswork over their meaning—the in which the ruling is presumed correct50— was filed more than 15 days after she received appellate court said no. Under the unam- instead of a reversal—in which the appellant actual notice that judgment had been ente- biguous text of Sections 659 and 660, the bears the burden of showing error on the red.31 The hearing occurred on the 82nd day clock runs only from the service of a written record.51 after Maroney filed her costs motion—exactly notice of entry of judgment “on the moving Granted, Maroney missed some oppor- 60 days after she filed and served her notice party.”42 If the moving party has not been tunities. Most significantly, she probably of intention. Although the trial court said it served with a notice, the time does not run, doomed her appeal from the start by taking was inclined to grant the motion on the merits, regardless of whether the moving party had the trial court at its word that it was granting it perceived the timing of the hearing to have actual notice of the entry of judgment. Be - her motion. A trial court only actually grants divested it of jurisdiction.32 cause Maroney had not been served with a a motion for new trial when it orders a “‘re- Under the third paragraph of Section 660, notice of entry, Section 660’s 60-day window examination of an issue of fact,’ as though the court’s authority to grant a new trial did not open until she filed her notice of no trial had been previously had.”52 “[W]hen expires 60 days after the earliest of three intention, which put the hearing on the 60th a motion for new trial is granted ‘in general events: the clerk’s mailing of a notice of entry day. When the trial court heard the motion terms,’ the cause stands ‘in the exact situation of the judgment, a party’s service of notice and issued its order, it did, in fact, have juris- in which it was before any trial thereof had of entry on the moving party, or the moving diction to rule on and to grant Maroney’s been had,’ and…no subsequent order may party’s filing of its notice of intention.33 The motion.43 be made modifying the judgment previously trial court reasoned that because the costs One would ordinarily expect this to result entered.”53 But a venerable line of cases estab- filing established that Maroney received actual in a harmless error analysis, followed by a lishes that an order purporting to “grant” a notice that a judgment was entered, that was reversal and remand for the new trial that new trial motion that affords no relief or equivalent to service of a notice of entry. It the trial court said it would have ordered if that provides relief other than a full-blown followed that under Section 660, it was too it had jurisdiction. Instead, the court of appeal new trial on at least some issues54 is, for all

30 Los Angeles Lawyer October 2015 MCLE Test No. 250 MCLE Answer Sheet #250 MARONEY’S MINEFIELD The Los Angeles County Bar Association certifies that this activity has been approved for Minimum Continuing Legal Education credit by the State Bar of California in the amount of 1 hour. Name Law Firm/Organization 1. A motion for new trial is timely only if a notice of True. intention to move for new trial is filed prior to the entry False. Address of judgment. True. 11. In Maroney v. Iacobsohn, the court of appeal held City False. that the ultimate result of the trial court’s error in deciding State/Zip it lacked jurisdiction was to render the motion denied E-mail 2. Which of the following is not a statutory ground for by operation of law. Phone new trial? True. A. Irregularity in the proceedings of the court. False. State Bar # B. Misconduct of the jury. C. Misstatement of the evidence during closing 12. After a bench trial, a court that orders an amendment INSTRUCTIONS FOR OBTAINING MCLE CREDITS argument. of its statement of reasons in response to a new trial 1. Study the MCLE article in this issue. D. Excessive or inadequate damages. motion has granted the motion. 2. Answer the test questions opposite by marking True. the appropriate boxes below. Each question 3. A notice of intention to move for new trial must be False. has only one answer. Photocopies of this accompanied by a memorandum of points and author- answer sheet may be submitted; however, this ities. 13. California trial judges have broad discretion whether form should not be enlarged or reduced. True. to order new trials. 3. Mail the answer sheet and the $20 testing fee False. True. ($25 for non-LACBA members) to: False. Los Angeles Lawyer 4. A motion for new trial can raise factual issues outside MCLE Test the record of the court at trial. 14. In deciding a new trial motion, a California judge P.O. Box 55020 True. can disagree with the jury regarding the credibility of Los Angeles, CA 90055 False. witnesses. Make checks payable to Los Angeles Lawyer. True. 4. Within six weeks, Los Angeles Lawyer will 5. An amendment to the Code of Civil Procedure per- False. return your test with the correct answers, a mitting a moving party to file a reply brief became rationale for the correct answers, and a effective in: 15. Maroney v. Iacobsohn affirmed the denial of a new certificate verifying the MCLE credit you earned through this self-assessment activity. A. 1872. trial motion because the plaintiff failed to make a record B. 1973. for reversal on appeal. 5. For future reference, please retain the MCLE test materials returned to you. C. 1997. True. D. 2015. False. ANSWERS Mark your answers to the test by checking the 6. When a court has not acted upon a motion within 16. A dissenting Supreme Court justice once referred appropriate boxes below. Each question has only the relevant time period under Code of Civil Procedure to new trial procedure in California as a procedural mine- one answer. Section 660: field. A. The motion is granted. True. 1. n True n False B. The motion is denied by operation of law. False. 2. n A n B n C n D C. The time to appeal is extended. 3. True False 17. The requirement that the court specify its reasons n n 7. Maroney v. Iacobsohn holds that a party’s time to for a new trial is mandatory and jurisdictional. 4. n True n False serve a notice of intention to move for new trial runs True. 5. n A n B n C n D from the time at which the moving party has actual False. 6. n A n B n C notice of the entry of judgment. 7. n True n False True. 18. Serving a copy of a judgment attached to a pleading False. is sufficient to constitute notice of entry of judgment 8. n True n False under Code of Civil Procedure Section 664.5(a). 9. n True n False 8. The court’s authority to grant a new trial motion True. 10. n True n False expires 30 days after the clerk’s mailing of the notice of False. 11. n True n False entry of judgment. True. 19. California state courts are more willing than federal 12. n True n False False. courts to entertain new trial motions that examine what 13. n True n False occurred during the jury’s deliberations. 14. n True n False 9. To grant a motion for new trial, the court is required True. 15. n True n False to enter an order specifying its reasons. False. True. 16. n True n False False. 20. California courts have vacated new trial orders 17. n True n False based on procedural mistakes by the trial judge that 18. n True n False 10. The court can direct a party to prepare a proposed were outside the control of the moving party. 19. n True n False order specifying the reasons why the court is granting a True. motion for new trial. False. 20. n True n False

Los Angeles Lawyer October 2015 31 relevant purposes, a denial.55 under the standard of deferential abuse of complications arising from new trial proce- Were the order treated as a denial, two discretion, the denial of a new trial motion dure in state court. n key and related consequences would follow. based on error of law—such as the trial court’s First, the unusual formalities that apply to an erroneous construction of Sections 659 and 1 See La Manna v. Stewart, 13 Cal. 3d 413, 422 (1975). order granting a new trial motion—such as 660—is just such an abuse.63 Finally, given 2 See Maroney v. Iacobsohn, 237 Cal. App. 4th 473 (2015). in those at issue in La Manna, which was the trial court’s comments that it was inclined 3 See Smith v. Ibos, 22 Cal. App. 2d 551, 554 (1937) relied upon by the court of appeal—do not to grant the motion, it would be difficult to (“The power of the Legislature [in] specifying procedural apply to an order denying a new trial motion.56 say that the court’s error about its lack of steps for new trials is exclusive and unlimited.”); see Second, the rules against remanding to correct jurisdiction was not prejudicial.64 also Oakland Raiders v. National Football League, 41 a trial court’s procedural errors are based on Another curious feature of California’s Cal. 4th 624, 635 (2007). 4 Section 657,57 which facially applies only on rules is that they offer a narrow procedural CODE CIV. PROC. §§656-662.5, 663.1-2. 5 See generally Gould v. Wood, 205 Cal. 141, 143 “appeal from an order granting a new trial.” gateway but very broad substantive grounds (1928) (noting that the Field Code was “the basis of There thus should be no bar to a reversal and for a new trial. For example, a trial judge our own Code of Civil Procedure adopted in 1872”). remand58 to correct a timely,59 but procedurally can simply decide that the jury got it wrong65 6 CODE CIV. PROC. §659(a). erroneous, denial on an appeal from the under- and is afforded significant appellate deference 7 CODE CIV. PROC. §659(a)(2). 8 lying judgment, into which the new trial if he or she does so.66 California courts may See CODE. CIV. PROC. §657. 9 CODE CIV. PROC. §659(a). 60 motion is subsumed. Provided, of course, delve much more deeply into the jury’s delib- 10 Id. that it was an abuse of the trial court’s discre- erations than would be acceptable in federal 11 Id. tion to deny the motion61 and that the appel- court.67 On the other hand, a California trial 12 CODE CIV. PROC. §660. lant can establish the prejudice necessary to judge is micromanaged on new trial procedure, 13 Id. 14 merit a reversal on procedural grounds.62 and if a case falls into one of the code’s many CODE CIV. PROC. §657. 15 See La Manna v. Stewart, 13 Cal. 3d 413, 424 From there, Maroney might have had a traps, an innocent party may pay the price. (1975). fairly clear path. The conditional nature of Over the past 50 years, the California 16 See id. the order, which the court of appeal found Supreme Court has repeatedly noted the 17 The final paragraph of §657 provides that an order to be so fatally and jurisdictionally flawed as unfairness inherent in new trial procedures granting a new trial on insufficiency of the evidence or to render it void when treated as a grant, and—in tacit recognition of the California excessive or inadequate damages cannot be affirmed unless those grounds are stated in the order granting would just be dicta in an order denying the Legislature’s unusual primacy over civil pro- the motion. 68 motion on jurisdictional grounds. That avoids cedure —has essentially invited that body 18 See, e.g., La Manna, 13 Cal. 3d at 424 (reversing any issues of nullity or arguments that the to address the problem.69 Until these issues new trial order on insufficiency of the evidence because motion should have been deemed denied by are addressed, however, practitioners must the trial court failed to specify its reasons); see also operation of law under Section 660. Even remain extremely diligent regarding the many generally Sanchez-Corea v. Bank of Am., 38 Cal. 3d 892, 903-06 (1985); accord Marriage of Beilock, 81 Cal. App. 3d 713, 725 (1978) (explaining policy ratio- nale behind appellate review provisions). 19 La Manna, 13 Cal. 3d at 422. 20 See, e.g., id. at 424; accord Sanchez-Corea, 38 Cal. 3d at 905 n.5. 21 See Clemens v. Regents of Univ. of Cal., 8 Cal. App. 3d 1, 20 (1970); Mercer v. Perez, 68 Cal. 2d 104, 120 (1968). 22 Sanchez-Corea, 38 Cal. 3d at 911 (Kaus, J., dissent- ing); see also Thompson v. Friendly Hills Reg’l Med. Ctr., 71 Cal. App. 4th 544, 550 (1999). 23 Maroney v. Iacobsohn, 237 Cal. App. 4th 473 (2015). 24 The opinion was modified on rehearing, but its rea- soning remained essentially the same. The original opinion, now vacated, was published as Maroney v. Iacobsohn, 233 Cal. App. 4th 900 (2015). 25 Maroney, 237 Cal. App. 4th at 478. 26 Id. 27 See CODE CIV. PROC. §664.5(a). 28 Maroney, 237 Cal. App. 4th at 477. Iacobsohn had the right to recover his costs because he had made an offer of judgment under Code of Civil Procedure §998, which Maroney had rejected, and Maroney recovered less than the offer. 29 Maroney, 237 Cal. App. 4th at 477-78. 30 Id. at 478. 31 Id. 32 Id. 33 See CODE CIV. PROC. §660. 34 Maroney, 237 Cal. App. 4th at 479. 35 Id. 36 Id. 37 See Maroney v. Iacobsohn, No. B249890, Appellant Keely Maroney’s Br. Supporting Appeal, 2013 WL 7019816 (Cal. App. Dec. 17, 2013). 38 Id.; see also Maroney, 237 Cal. App. 4th at 486. 39 Maroney v. Iacobsohn, No. B249890, Combined Appellants’ and Respo’ts’ Br., 2014 WL 986487 (Cal.

32 Los Angeles Lawyer October 2015 App. Feb. 4, 2014). 56 See Laabs v. City of Victorville, 163 Cal. App. 4th erroneously denied a new trial motion for lack of juris- 40 Maroney, 237 Cal. App. 4th at 480. 1242, 1272 n.17 (2008). diction, but declining to reverse on that ground because 41 Van Beurden Ins. Servs., Inc. v. Customized 57 See Mercer v. Perez, 68 Cal. 2d 104, 120 (1968); “no prejudice resulted to appellants from the trial Worldwide Weather Ins. Agency, Inc., 15 Cal. 4th 51, Oakland Raiders v. National Football League, 41 Cal. court’s erroneous ruling that it had no jurisdiction to 62 (1997). 4th 624, 635 (2007). hear the motions for new trial.”). 42 Maroney, 237 Cal. App. 4th at 481. 58 See, e.g., Krouse v. Graham, 19 Cal. 3d 59, 82 63 David, 226 Cal. App. 4th at 592. 43 Id. at 484. (1977); see also Barrese v. Murray, 198 Cal. App. 4th 64 See Mercer v. Perez, 68 Cal. 2d 104, 127 (1968); 44 Id. at 485. 494, 508 (2011) (60-day time limit to decide new trial CAL. CONST. art. VI, §13. 45 La Manna v. Stewart, 13 Cal. 3d 413, 418 (1975). motions under §660). 65 Id. at 112 (noting that the trial judge is “vested with 46 Mercer v. Perez, 68 Cal. 2d 104, 118 (1968). 59 After rehearing, the Maroney court added a footnote the authority, for example, to disbelieve witnesses, 47 Maroney, 237 Cal. App. 4th at 485. asserting that it could not remand the matter for recon- reweigh the evidence, and draw reasonable inferences 48 Id. sideration. Maroney v. Iacobsohn, 237 Cal. App. 4th therefrom contrary to those of the trier of fact”). 49 Id. at 486. 473, 485 n.11 (2015) (citing Siegal v. Superior Court, 66 Id. (ruling will be upheld “unless a manifest and 50 See Wayte v. Rollins Int’l, Inc., 169 Cal. App. 3d 1, 68 Cal. 2d 97, 101 (1968); Westrec Marina Mgmt., unmistakable abuse of discretion is made to appear”). 22 (1985); Cook v. Bordi, 177 Cal. App. 2d 112, 116 Inc. v. Jardine Ins. Brokers Orange Cnty., Inc., 85 Cal. 67 Compare Tramell v. McDonnell Douglas Corp., 163 (1960). App. 4th 1042, 1048 (2000); and Meskell v. Culver Cal. App. 3d 157, 173-76 (1984) (considering affidavits 51 See Hearn v. Howard, 177 Cal. App. 4th 1193, City Unified Sch. Dist., 12 Cal. App. 3d 815, 822 to determine whether the jury committed misconduct 1207 (2009); Girch v. Cal-Union Stores, Inc., 268 Cal. (1970)). None of the cited cases stands for the propo- by adjusting verdict to account for anticipated attorney’s App. 2d 541, 549 (1968). sition that the court of appeal cannot remand for recon- fees and income taxes); Krouse v. Graham, 19 Cal. 3d 52 Bureau of Welfare v. Drapeau, 21 Cal. App. 2d 138, sideration of a timely but erroneous denial of a new 59, 81 (1977) (remanding for trial court to consider 150 (1937) (citing CODE CIV. PROC. §656). trial motion. Indeed, the Maroney footnote also cites juror affidavits attesting that a verdict was inflated to 53 Id. at 149-50 (emphasis in original) (citation omit- to Barrese, 198 Cal. App. 4th at 496, 502-03, 508, in compensate the plaintiff for her attorney’s fees); with ted). which the court of appeal reversed and remanded for Warger v. Shauers, 135 S. Ct. 521, 529 (2014) (juror 54 See CODE CIV. PROC. §662 (permitting an award of reconsideration a trial court’s timely denial based on affidavits admissible only as to evidence extrinsic to other relief in lieu of a new trial when the right to jury its erroneous belief that it lacked the authority to dis- the jury’s deliberations). trial is not implicated). regard the jury’s fact-finding on a new trial motion. 68 See In re Alonzo J., 58 Cal. 4th 924, 937 (2014); 55 Concerned Citizens Coal. of Stockton v. City of 60 Although a granted new trial motion is directly CAL. CONST. art. VI, §6 (procedural rules adopted by Stockton, 128 Cal. App. 4th 70, 78 (2005); La Borne appealable under Code of Civil Procedure §904.1(a)(4), the Judicial Council cannot conflict with statutes); see v. Mulvany, 43 Cal. App. 3d 905, 920 (1974); Avery a denial of a new trial motion is not. See Walker v. also Glenn S. Koppel, Populism, Politics, and Procedure: v. Assoc. Seed Growers, Inc., 211 Cal. App. 2d 613, L.A. Metro. Transp. Auth., 35 Cal. 4th 15, 22 (2005). The Saga of Summary Judgment and the Rulemaking 621 (1963); Moklofsky v. Moklofsky, 79 Cal. App. In that case, an appeal lies from the judgment into Process in California, 24 PEPP. L. REV. 455, 462-64 2d 259, 264 (1947); In re Perkins’ Estate, 21 Cal. 2d which the denial order is subsumed. Id. (1997) (discussing California’s unusual “legislative pri- 561, 568 (1943); Roraback v. Roraback, 38 Cal. App. 61 David v. Hernandez, 226 Cal. App. 4th 578, 592 macy” over civil procedure). 2d 592, 596 (1940); Drapeau, 21 Cal. App. 2d at 150; (2014) (standard of review for denied new trial motion). 69 See Oakland Raiders v. National Football League, see also W. Electro-Plating Co. v. Henness, 196 Cal. 62 See CODE CIV. PROC. §475; CAL. CONST. art. VI, 41 Cal. 4th 624, 635 (2007) (citing Mercer, 68 Cal. App. 2d 564, 569 n.2 (1961); Spier v. Lang, 4 Cal. 2d §13; cf. Weisenburg v. Molina, 58 Cal. App. 3d 478, 2d at 117; La Manna v. Stewart, 13 Cal. 3d 413, 422 711, 715 (1935). 486 (1976) (holding that the trial court erred when it n.8 (1975)).

Los Angeles Lawyer October 2015 33 by NEIL SCHOENBLUM AND CATHERINE COLOMBO CONSIDERING NINGS The Nevada incomplete gift non-grantor trust may allow investors to avoid California income tax and federal gift tax

WITH THE MAXIMUM FEDERAL INCOME TAX RATE at 39.6 percent, the Medicare surtax on net investment income at 3.8 percent, and the California income tax rate as high as 13.3 percent, California residents with especially high incomes from investments or anticipating substantial capital gains are seeking strategies to lessen a substantial combined tax burden of 55 percent or more. Largely as a result of a series of private letter rulings issued by the IRS beginning in 2013, it may now be possible to reduce the tax burden by eliminating California income taxes on investment income. However, there are three critical caveats: first, this reduction only applies to investment income. It does not apply to compensation, to income from a trade or business, or to rents, royalties, or gains derived from ownership of tangible property in California. The second caveat is that the individual owner of the income-producing asset must transfer it into a special trust. Third, that trust must be administered from Nevada by a Nevada trustee and must not have a California trustee, no other California fiduciaries, and no California resident beneficiaries, except if their interests are contingent. The trust is a Nevada incomplete gift non-grantor trust, or NING. Under California law, a trust is only taxed on the income from intangible investment assets if either a fiduciary (including a trustee) or a beneficiary (other than one whose interest in the trust is contingent) is resident in the state.1 If these criteria are not met, California has no authority to tax the investment income of the trust. Unlike tangible property, intangible investment assets not associated with a business situs in California2 are deemed to be situated where the trust is administered, which in the case of a NING is Nevada. Unlike the income from tangible property, which is traced to the location of the asset, the income from intangible property—for example, the passive investments of a typical trust portfolio—is traced to the residence of the owner. With a NING, the residency is Nevada, a state that imposes no income tax.

Neil Schoenblum is a senior vice president at First American Trust in Las Vegas. Catherine Colombo is the

founding member of CMC Law Group, LLC, a boutique estate planning firm in Las Vegas that specializes in AMANE KANEKO estate, business, and asset protection planning.

34 Los Angeles Lawyer October 2015

The residency of the trust administrator ity at any time. The SBE, however, offered with regard to the administration of the par- is not the only criterion that a NING ad- no reasons for its reversal of the FTB. Further- ticular NING. The reason is that neither Cali - dresses in order to avoid taxation in Cali - more, the opinion states that it is not to be fornia statutory law nor the California rev- fornia. The state requires that there be no cited as precedent. enue authorities have yet clarified how a California-resident fiduciaries, so a Nevada This decision nevertheless offers a ratio- determination is made regarding where the independent entity is utilized as the trustee.3 nale for shifting tax residence of a trust to “major portion of trust administration” is The trustee ordinarily serves purely as the another state, thereby avoiding California being carried out for purposes of determining legal owner of the transferred property. The income tax. Another question, however, con- the residence of the trust.10 actual decisions as to investments are reserved cerns the residency of delegees. If the Cali - In addition to addressing the issue of the to a committee or committees that may or fornia delegees have significant responsibilities residency of a fiduciary (including a trustee), may not include the settlor. Decisions as to regarding trust administration, there is a risk a NING addresses the second criterion for a distributions are typically decided by a com- of taxation under the implicit logic of King trust’s taxation in California—beneficiary mittee. That committee ordinarily consists Family Trust and Tunney Junior Trust. With - residency. A beneficiary’s residence in Cali - of beneficiaries and the settlor, who may also out any reasoning being offered by the SBE fornia will spur at least partial taxation by be a beneficiary. To avoid tax liability, every in the case, however, it is not possible to the state. The exact amount taxed will depend effort should be made to ensure that no one deter mine which of several grounds argued on the interests of the beneficiaries.11 Not on the committee is classified as a fiduciary. by the appellant trusts, if any, led to the out- all resident beneficiaries count. In particular, There should be an express provision to this come. Even assuming the SBE relied on the a beneficiary who has a contingent interest effect. Persons who make distribution or argument of the appellants that trust admin- is ignored, even if resident in California.12 investment decisions could be considered istration took place out of state by Morgan This is true even if all the trust’s beneficiaries fiduciaries. Under California law, a resident Guaranty, this argument could be flipped in are resident in California.13 Thus, a crucial fiduciary justifies the taxation of at least the case of the NING. That is, the committee issue is what qualifies as a contingent interest some of the investment income.4 If the com- members are analogous to Morgan Guaranty, under California income tax law. The Instruc- mittee members are explicitly not fiduciaries and the corporate trustee in Nevada is anal- tions for Schedule G of Form 541, found on and are recognized as such, then even if they ogous to the individual official trustees in page 14 of 2014 California Forms and In - are California residents, their residence should King Family Trust & Tunney Junior Trust.7 structions 541, the fiduciary income tax not generate income taxation of the trust. As such, California has jurisdiction to tax return, states that “[a] noncontingent or A clear and unambiguous statement in trust income. Thus, there should not be Cal- vested beneficiary has an unconditional inter- the trust instrument that no one on the com- ifornia delegees. est in the trust income or corpus. If the interest mittee is a fiduciary is therefore important, As for the inclusion of an unambiguous is subject to a condition precedent, something even if this does not end all doubt. The in - statement in the trust instrument that the must occur before the interest becomes pre- structions for the California Fiduciary Tax committee members are not fiduciaries, this sent, it is not counted for purposes of com- Return, Form 513—especially Schedule G would no doubt prove very helpful. Still, there puting taxable income.” This language echoes addressing apportionment of income between are some practical and legal concerns. From in part the position of the California Franchise California and non-California sources—only a practical standpoint, the settlor may be con- and Tax Board in Technical Advice Memo - discusses the residence of trustees when deter- cerned that the people making important deci- randum 2006-0002, which states that “[a] mining the allocation of trust income.5 How- sions about the trust are not bound by fidu- resident beneficiary whose interest in a trust ever, notwithstanding this focus on trustees, ciary standards. If the settlor has confidence is subject to the sole and absolute discretion there is still some risk that California-resident in the committee members on a personal level, of the trustee holds a contingent interest in committee members could be re garded as however, the legal constraint of a fiduciary the trust. The exercise of the trustee’s dis- fiduciaries, and this could be the case notwith- status may not matter. As for the legal side cretionary power is a condition precedent standing any disclaimer in the trust instru- of the matter, the issue is whether the settlor that must occur before the beneficiary obtains ment. If counted as fiduciaries, they would or trust instrument has the ability to waive a vested interest in the trust.”14 shift pro rata the allocation of trust investment the legal obligations of persons engaged in Based on the foregoing, there can be little income to California and make that invest- making distributional or investment decisions doubt that a trust that is characterized by ment income taxable. for a trust. This question has been discussed such discretionary interests is not subject to There is virtually no authority about what in recent years with regard to trust protectors.8 California tax even if all the beneficiaries are a fiduciary is under these circumstances and While the emerging consensus about trust resident in California, as long as their interests whether the specification of nonfiduciary sta- protectors is that the settlor should be allowed are discretionary. Therefore, a NING should tus in the trust instrument will be effective. to waive the fiduciary duty, there are excep- be drafted in this manner, along with the The principal tax administrative ruling that tions.9 In light of the lack of California author- committees as described above that make comes close to addressing the situation is ity, California courts may defer to the trust’s distribution and investment decisions. Tech - King Family Trust and Tunney Junior Trust.6 choice of Nevada law. Still, there are no guar- nical Advice Memorandum 2006-0002 re - In that decision, the State Board of Equali - antees. fers to the “sole and absolute discretion of zation reversed the Franchise and Tax Board, Because of this, the safest course is to the trustee.” While the language does not holding that a delegation of powers to populate NING distribution committees solely directly address the NING and only references Morgan Guaranty in New York and the car- with individuals who are not and do not trustees, the definition of contingent interest rying out by that corporation of all admin- become residents of California. One potential should still apply as long as any distribution istrative functions removed the trusts from problem with this approach is that California to a beneficiary is subject to the decision of exposure to California income tax liability. residents may be the only people a California others, especially if they are not fiduciaries, This was held even though the named indi- settlor knows and trusts. Another is that even since nonfiduciaries may act arbitrarily. vidual trustees with title to trust assets were if committee members reside outside Cali- With respect to beneficiaries, another issue resident in California and could have with- fornia, those who are corporate trustees must that must be considered when structuring drawn Morgan Guaranty’s delegated author- take care not to engage in acts in California and administering a NING is when they are

36 Los Angeles Lawyer October 2015 residents of California. If a beneficiary receives turned within 12 months after.20 This makes the company are instead sold by the NING, a distribution while resident in California, it quite difficult under the ordinary set of this tax will not be imposed. The trustee could he or she will be subject to taxation and must circumstances to avoid the tax by a temporary shortly thereafter distribute the gain from the report the distribution of investment income move. There is a considerably less disruptive trust to Jane’s beneficiaries who are not resi- on his or her income tax return for the year means of avoiding the tax, however. The dent in California. This would not generate of the distribution, assuming some portion trust may be designed so that the beneficiaries California state income tax, although it may of it is gross income.15 Ordinarily, the amount are contingent. This is actually highly desir- result in taxation in states in which the ben- reportable will be based on distributable net able for a reason other than taxation—it eficiaries reside. On balance, it may be advis- income, or DNI, calculated under federal tax affords maximum asset protection to the able to accumulate instead. Certainly with law principles.16 Generally, this amount beneficial interests of the beneficiaries should respect to Jane and other beneficiaries resident would not exceed the portion of the invest- creditors seek the trust. It also introduces in California it would be advisable to accu- ment income of the trust mulate. Making distri- for the current year that butions of the proceeds has been distributed to of sale to the California the particular beneficiary resident beneficiaries and may be somewhat would defeat the pur- less, after taking into ac- pose of the NING. count certain deductions When the discre tion - and other adjustments. ary beneficiaries are Cal ifornia resdents, the The Throwback Rule true value of a NING is This relatively simple as an accumulation consideration is not the trust. The longer the end of the story, however. bulk of the untaxed in - California’s throwback come remains in the rule, borrowed from the trust, the greater the tax Internal Revenue Code, savings. If California did is designed to prevent not have the throwback income accumulated in rule, this retention for an out-of-state trust from a long period would not escaping California in- be an issue. The trustee come tax when it is dis- could simply wait until tributed. Without this the new year and make rule, only the income the distribution. The for the current tax year income tax would be would be subject to tax, limited to the current and the accumulated year’s income, and the income from prior years excess would pass to the would basically be treat- beneficiary tax-free.22 ed as a principal distrib- From a financial ution.17 On account of the throwback rule, tremendous flexibility, especially if the settlor, standpoint, the benefit from retaining the accumulated income is not allowed to mas- in conjunction with other trusted persons, gain in trust is not merely that the gain escapes querade as principal and is treated instead as can effectively control distributions. California income taxation. In addition, when a delayed distribution of taxable income.18 The NING has this structure. If the settlor that gain is reinvested, any income or gains This presents some difficult questions about can live with surrendering formal legal title, earned thereon will also avoid California when accumulated income can be taxed. the assets will remain available to the settlor tax, and so on. This permits an acceleration Recall that for income of a trust to be taxable, as beneficiary to the extent the need arises. of the return on investment and the growth either a trustee or a noncontingent beneficiary Routine distributions make no sense, since of the trust estate. Admittedly, at some point must be resident in California. Accordingly, the point of the NING is to avoid state income there will need to be more substantial distri- the income tax on accumulated income can taxation, which is generated by distributions butions. The throwback rule should not apply only be imposed to the extent that the trustee to the settlor-beneficiary. If the settlor can to claw back the growth enhancement but or noncontingent beneficiary was resident in forego routine distributions and leave the instead only the portion distributed.23 the year the accumulated income was earned. assets in trust, significant tax savings are pos- The throwback rule spreads the distrib- A requisite nexus with California must be sible. These will add substantially to the uted amount over the year of distribution shown.19 wealth ultimately available to the settlor or and the preceding five years, or shorter While a beneficiary may consider moving to the settlor’s beneficiaries. An example is period if the accumulation has been for a out of California in the year of distribution, illustrative. shorter period.24 The rest of the accumulated this is often impracticable. Familial and busi- Jane created a high-tech company with income will not be subject to tax as it con- ness obligations may deny the beneficiary essentially no capital but a great idea. Her tinues to grow free of state tax. Furthermore, that flexibility. Even if it is possible to move, company is being bought by Tech Giant, and even with respect to the amount distributed, California presumes the beneficiary to have she is going to receive $50 million. This gain no interest charge is imposed with respect been resident at the time of a distribution will be taxed at California’s top rate—which, to the delayed payment of taxes. In short, even if the beneficiary left the state within including the millionaire’s tax, is 13.3 percent, the NING is especially suited to serve as a 12 months before the distribution and re - or $6,650,000.21 However, if the shares in dynasty trust. In this regard, Nevada has a

Los Angeles Lawyer October 2015 37 365-year rule against perpetuities,25 in sharp utive powers must be crafted in a way that the possessor’s death and may exercise it at contrast to California’s rule, which would makes them qualify as retained interests under that time in favor of himself, his estate, his likely allow for a trust of less than a third the gift tax, but not so under the income tax. creditors, or the creditors of his estate.”33 that duration.26 Of course, with respect to At the same time, the design must comport The consent power was specifically designed former resident beneficiaries, including the with the settlor’s actual dispositive intent. to comply with this statement. Thus, the settlor who has left the state, there will be With respect to the income tax, the grantor power terminated at the death of the settlor, no barrier to distribution. While there may trust rules set forth in IRC 671-679, specify thereby making the beneficiaries nonadverse be tax imposed by another state upon dis- those strings of control that allow the IRS parties. As a result, the settlor retained a tribution, an increasing number of states do to ignore a trust for income tax purposes power that made the transfer into trust incom- not impose tax or at least impose tax at a and tax the settlor on the income. These rules plete for gift tax purposes. considerably lower rate. have also been incorporated into the Cali - Another power retained by the settlor in This does not take account of certain poten- fornia tax law.31 If they are not avoided, Ca- the NING examined in Private Letter Ruling tial offsets to the proclaimed income tax savings lifornia income tax applies, even if the trust 201310002 was a sole power. This power resulting from accumulation. For example, is resident in Nevada. The taxing authorities allowed the settlor to make distributions to the IRS taxes irrevocable accumulation trusts will look beyond the trust to where the settlor issue of the settlor for their health, education, more progressively than is does individuals,27 resides. If the settlor is a California resident support, or maintenance and to do so in a with the result that a built-in additional tax he or she will be taxed fully on the net invest- nonfiduciary capacity. Designed to mimic a applies when a NING is used. To the extent ment income that he or she sought to avoid specific treasury regulation, this sort of power that relatively small amounts of investment by use of the NING. An examination of the also makes the purported transfer incomplete income are involved, this makes the use of grantor trust rules reveals, however, that if for federal gift tax purposes.34 Still another the NING inefficient. However, the persons the settlor retains certain limited powers, the power is reserved to the settlor in the nature seeking the benefits of the NING are likely to transfer will still be deemed complete and of a testamentary power to appoint the trust have substantial income and be in the highest the trust will not be a grantor trust. Signi - property to persons other than the settlor, bracket anyway. For them this federal tax cost ficantly, these very same powers will be his estate, his creditors, or the creditors of is easily offset by the Cali fornia state tax sav- deemed substantial enough so that the settlor his estate. Because of the settlor’s power over ings that the NING delivers. will be regarded as having retained control the remainder, there is no completed gift with Another arguable offset of the NING’s for federal gift tax purposes. respect to the remainder.35 benefits is the deduction afforded on the fed- While the IRS has shifted positions on While the foregoing powers afford the eral tax return for income taxes paid to this issue for the last decade or so, it did settlor considerable authority and indirect states.28 In other words, state taxes are not recently issue a number of private letter rul- control over the assets, why not then just as bad as they seem, because they are offset ings that provide a template that can be relied give the settlor the power to appoint to him- by a reduction in federal taxes. Admittedly, upon.32 The rulings do not stand as precedent, or herself and without the need to work with there may be some benefit here. Again, it however, so it is advisable, but not required, a committee that can direct the trustee? The does not significantly diminish the savings to seek a private letter ruling in each case reason is the income tax law, especially the of the NING, especially since the deduction before engaging in the NING strategy. Never - grantor trust rules. Any such solo power itself is treated as a preference for alternative theless, much can be learned from studying would result in the NING’s being a grantor minimum tax purposes.29 In other words, these private letter rulings. trust, which means it would be subject to much of the deduction relief afforded with For example, IRS Private Letter Ruling income tax under California law in the case respect to state income taxes may be washed 201310002, issued March 8, 2013, scruti- of a California resident settlor.36 With that away to the extent the AMT is applicable, nized a distribution committee that consisted question settled, the next is: At least do the which is the case with increasing numbers of the settlor and other adult beneficiary powers that were designed to make the trans- of individuals, especially high-income in - family members, though not necessarily all. fer incomplete for gift tax purposes constitute vestors. The committee could direct the Nevada trust powers sufficiently weak to make the transfer entity through the exercise of certain powers complete for income tax purposes? The Gift Tax regarding distributions, which the trustee One important consideration affecting One may ask: If the trust is deemed the owner would have to carry out. First, the committee the answer is the presence of an adverse inter- for income tax purposes, will not the shift was granted a consent power to appoint est, as defined for income tax purposes. Ad - in ownership of assets to the trust result in a property to the settlor or other persons by verseness comes into play with respect to the gift tax, or at least the need to use up some majority vote of the beneficiaries other than gift tax. Under the grantor trust rules, if a or all of the applicable exclusion amount of the settlor. It also required the consent of the nonadverse party other than the settlor has $5,430,000 in 2015?30 And if so, then does settlor. No doubt, as a practical matter, a the requisite power, even if the settlor does not the gift tax cost offset any income tax majority of the committee members would not have it, the income will be attributed to savings? likely defer to the settlor. the settlor. But the meaning of “adverse” for The NING exists, however, to establish Not surprisingly, the ruling considers the income tax purposes is not in harmony with arbitrage between differing federal income settlor to have not surrendered control. Were the gift tax law. Thus, for purposes of the tax and federal gift tax concepts of what the beneficiaries adverse to the settlor, how- income tax law, the beneficiaries on the dis- constitutes retention of strings of control by ever, the result might be different. In this tribution committee would be deemed to be the settlor. Before addressing that difference, regard, the beneficiaries are not adverse to adverse parties. They are treated as such it is important to note that while California the settlor for gift tax purposes merely because because they have a substantial beneficial imposes an income tax, it does not impose a they are coholders of a power with the settlor interest in the trust that would be adversely gift tax. The objective in designing the NING or they are permissible appointees. Rather a affected by the exercise or nonexercise of the is to avoid California income tax while also beneficiary who is the coholder of a power power. For example, were they to approve a avoid ing federal gift tax. Walking this tight - is only considered as having an adverse inter- distribution to the settlor or anyone else, the rope is not easy. Administrative and distrib- est “where he may possess the power after result would be to diminish the amount poten-

38 Los Angeles Lawyer October 2015 tially available for themselves.37 on net investment income without being con- Is a Trust Protector a Fiduciary?, 27 QUINNIPIAC PROB. To avoid grantor trust status, each grant- sidered to have made a taxable gift for pur- L.J. 277 (2014). 9 See, e.g., MICH. COMP. LAWS ANN. §700.7809(2) or trust rule must be sidestepped. Running poses of the IRC. The benefits to be obtained (providing that the trust protector, even if designated down the list of grantor trust rules, IRC by this avoidance of state income tax are a nonfiduciary by the terms of a trust, nevertheless, is Section 673 applies if the settlor has a rever- especially appealing when the state in question not relieved from the requirement to exercise “any sionary interest. None of the powers con- is California, which has a high tax rate. By power, duty, or discretion in good faith and in accor- sidered in the private letter ruling afford avoiding the jurisdictional contacts with the dance with the terms and purposes of the trust and the settlor a reversionary interest. With re- state that must exist before a trust’s investment the interests of the beneficiaries”). 10 See REV. & TAX. CODE §17742(b). spect to IRC Section 674, it provides several income can be taxed under California law, 11 See REV. & TAX. CODE §17744(a). safe harbors, even if the settlor can affect investment income can be successfully shifted 12 See CAL. CODE REGS. tit. 18, §17744 (tax is imposed the beneficial interests of the beneficiaries. to a Nevada trust and California income tax on resident “noncontingent beneficiaries” based on The private letter ruling found the trust in on the investment income of assets held in “that proportion of all net income…which eventually compliance and fitting within these safe har- the NING can be avoided. This strategy does is to be distributed to the noncontingent beneficiaries who are residents of this State.”); see also REV. & bors. For example, the sole power was found not necessitate the settlor’s moving from TAX. CODE §17742(a). to comply with IRC Section 674(b)(5) in California, nor does it require the beneficiaries’ 13 See REV. & TAX. CODE §17742(a). that it was limited by a reasonably definite moving away and staying away from Cali- 14 FTB Tech. Adv. Memo. 2006-0002 (Feb. 17, 2006). standard. With respect to certain adminis- fornia while income is being accumulated in 15 Id. The memo makes clear that the income is taxable trative powers, IRC Section 675 provides trust. It permits the administration of wealth when the trustee decides to make the distribution, even though that may be before actual receipt, essen- that they can produce grantor trust status. in trust for generations, far longer than under tially constructive receipt. See also REV. & TAX. CODE However, in the private letter ruling there California law. It allows for a committee of §17745(c). Thus, the trustee must take care not to were no such fatal administrative powers the settlor and select beneficiaries to direct make such decisions even on a preliminary basis subject in the particular trust instrument. IRC Sec- the trustee with respect to distributions. There to review, since it could be regarded as a decision to tion 676 treats the trust as a grantor trust are many traps along the way, so careful plan- distribute. 16 if the settlor has a power to revoke. No ning and design of the NING are required. See, e.g., I.R.C. §§651-62; REV. & TAX. CODE §§17731 et seq. such power had been granted to the settlor Never theless, the NING may prove for a 17 See REV. & TAX. CODE §17745. in the trust instrument under consideration highly select group of clients a powerful tax 18 See REV. & TAX. CODE §17745(c). in the private letter ruling. planning tool that deserves to be considered 19 See McCulloch v. Franchise Tax Bd., 61 Cal. 2d With respect to IRC Section 677, if income by Californians and their estate planning 186, 194 (1964). 20 may be distributed to the settlor or the settlor’s advisers. n See also REV. & TAX. CODE §17745(e). 21 See REV. & TAX. CODE §17043; FTB TAX NEWS spouse without the consent of an adverse (Dec. 1, 2012), available at https://www.ftb.ca.gov; 1 See REV. & TAX. CODE §17742(a), (b). party, even if not actually distributed, the WELF. & INST. CODE §§5890-5899. 2 trust is a grantor trust. The problem here is See also CAL. CODE REGS. tit. 18, §17952(b): 22 See, e.g., I.R.C. §643(a). “Intangible personal property has a business situs in that if creditors can reach the trust, then the 23 See REV. & TAX. CODE §17745(d). this State if it is employed as capital in this State or 24 settlor is essentially receiving a distribution Id. the possession and control of the property has been 25 See Nev. Rev. Stat. Ann. §111.1031(1)(b). to satisfy his or her debts. In the case of a localized in connection with a business, trade or pro- 26 See also PROB. CODE §21205. There may also be discretionary self-settled trust, such as a fession in this State so that its substantial use and several more complex and untested strategies for avoid- NING, a creditor can generally reach the value attach to and become an asset of the business, ing tax on distribution that may be worth exploring. maximum that could have been distributed trade or profession in this State.” 27 Compare I.R.C. §1(e) (trusts) with §1(a)-(d) (other 3 If there is more than one trustee serving, then none to the settlor. However, Nevada does not individual and joint filers); see also Rev. Proc. 2014- should be a California resident. If there is a California 61 §3.01. allow creditors to do so. Indeed, unlike some trustee as well as a nonresident trustee, income is 28 See I.R.C. §164(a)(3). other asset protection states, it bars even sat- apportioned based on the number of California-resident 29 See I.R.C. §56(b)(1)(A)(ii). isfaction of claims for maintenance and child trustees as a fraction of the total number of trustees. 30 See I.R.C. §§2505(a)(1), 2010(e); Rev. Proc. 2014- support. Since No creditor, short of a fraud- See REV. & TAX. CODE §17743; see also, e.g., Sara A. 61 §3.33. Hosey, F.T.B. Info. Ltr. 2015-02 (Apr. 21, 2015), ulent conveyance, can break the trust, the 31 See also REV. & TAX. CODE §17731. available at https://www.ftb.ca.gov/law/infolette 32 settlor cannot receive a benefit indirectly and See, e.g., I.R.S. Priv. Ltr. Ruls. 201310002 to r/2015/02_04212015.pdf. 201310006 (Mar. 8, 2013); 201410001 to 201410010 4 the trust will not be a grantor trust under See id. See also CAL. CODE REGS. tit. 18, §17743. (Mar. 7, 2014). There have been numerous favorable 5 IRC Section 677. See FTB, CALIFORNIA FORMS & INSTRUCTIONS: 541, private letter rulings since. Finally, IRC Section 678 addresses when at 14, available at https://www.ftb.ca.gov/forms 33 See Treas. Regs. §§25.2511-2(c), 25.2511-2(e). /2014/14_541bk.pdf. a power holder who is not the grantor will 34 See Treas. Regs. §§25.2514-3(c). The distribution 6 Appeal of Yolanda King Family Trust & Mary L. be treated as the owner of the trust. This committee in the private letter ruling under discussion, Tunney Junior Trust, 2007 WL 3275357 (Oct. 4, 20131002, also had “Unanimous Member Powers” provision is of particular concern for pow- 2007). See also the Hearing Summary, which sets forth that could be exercised without the consent of the erholders such as the beneficiaries, other than the positions of the parties and the analysis of the settlor and pursuant to which trust property could be the grantor, serving on the distribution com- staff of the State Board of Equalization, 2007 WL appointed to the settlor or the settlor’s issue. The 3275358 (Oct. 2, 2007). mittee. Fortunately, Section 678 is limited in private letter ruling determined that each powerholder 7 The parties in King Family Trust & Tunney Junior a very important manner—it will not treat had an adverse interest with respect to each other and, Trust disagreed as to how to apply the statutory def- thus, did not have a general power that would constitute any such powerholder as the owner in any inition of corporate and/or individual trustee residence. a taxable gift upon exercise. In fact, the analysis arriving case in which the powerholder cannot exercise The question of what makes the parties fiduciaries is at this conclusion is complex and may depend on the the power alone. Since in the NING being also not entirely answered. Federal authorities do not ability of the committee to shrink, but no lower than discussed no powers can be exercised by such offer clear guidance either. I.R.C. §7701(a)(6) defines two members. For a discussion of this issue, see Jeffrey a fiduciary as “any person acting in any fiduciary Schoenblum & Neil Schoenblum, Avoid Income Tax beneficiaries on the committee solo, Section capacity for any person.” See IRS Tech. Adv. Mem. 678 would not apply. with the Right Kind of Trusts, ESTATE PLANNING 19, 200733023 (Aug. 17, 2007). 33 (May 2014). 8 As the foregoing consideration makes See, e.g., Gregory T. Denson, Trust Protectors: 35 See Treas. Reg. §25.2511-2(b). clear, the NING is a very specially designed Powers, Capacity, and Selection, COLO. L. 63, 68 36 See, e.g., I.R.C. §676. trust vehicle for avoiding state income tax (Sept. 2012). See generally Richard C. Ausness, When 37 See I.R.C. §672(a).

Los Angeles Lawyer October 2015 39 computer counselor BY PAUL D. SUPNIK

Directions for Using Voice Recognition Software in Legal Practice

THE FIRST DRAGONDICTATE voice recognition program for Windows mation is stored as a profile for the dictator within the computer. 1.0, which came on the market around 20 years ago, was an improve- The program can be trained to recognize uncommon words, unusually ment over the old dictating machines. The Dragon software allowed spelled words, and frequently used phrases. For example, you may the user to connect a microphone to a computer and speak into the wish to have an abbreviation for “Ninth Circuit” so that it will be microphone. Then, voilà, words magically appeared on the computer spelled out as “9th Cir.” whenever you speak the phrase.2 screen. However, that program required painstaking enunciation of There are several other competing voice recognition programs each word. Accuracy left a lot to be desired, but it was much faster available to help the practicing lawyer. One is the dictation feature to dictate thoughts than to write or even type them. built into the Mac computer. The feature must first be installed, Since then, the Dragon NaturallySpeaking1 software (that suc- which is a relatively simple matter. Then, simply pressing twice on ceeded the first program) has gone through many iterations: ownership the Mac’s function key and speaking into the Mac’s built-in micro- has changed and new versions have come out, each promising greater accuracy than the prior version. The program still has a voracious The advantage of Dragon NaturallySpeaking over other voice appetite for computer resources, and only the best and the fastest computers can utilize it to maximum advantage. Also, the most impor- recognition approaches is that it can be trained by the individual tant feature a dictation program can have is high accuracy, and while accuracy of Dragon NaturallySpeaking has improved, it is far from user to better recognize your voice and can be trained to perfect. Even though it has been advertised as “up to 99% accurate,” as a practical matter errors tend to be greater. Even a high accuracy recognize specific words that may have unusual pronunciations. rate is insufficient to avoid considerable proof- reading and rewriting because of new names, unusual abbreviations, and the program’s refusal to acknowledge the individual dictator’s specific manner of phone results in dictation appearing on the computer screen. The speech. Poor or inconsistent enunciation and failure to speak directly disadvantage of the Mac system, however, is that unlike Dragon into the microphone can negatively affect output. Despite these infir- NaturallySpeaking, the Mac computer does not adjust for an indi- mities, Dragon NaturallySpeaking has become a useful, if not essential, vidual’s voice and speech idiosyncrasies. No matter who is speaking tool for practicing law. into the computer, it will transcribe everybody’s voice the same way. Besides straight dictation of text, other features of the program Therefore, it does not take advantage of any differentiation of specific are the ability to dictate various commands, such as “New Line,” words or language, and there is no way to train the built-in Mac “New Paragraph,” “Cap That,” or “All Caps That.” More soph is - program. Nevertheless, it is rather quick and convenient, employing ticated commands are available, but I find them to be a mere novelty. artificial intelligence quite well to adjust words to the context of To use commands, they must either be committed to memory before what is being dictated. The overall accuracy, though, is less precise dictating or written on a separate reference card for use when than Dragon NaturallySpeaking. Windows also comes with a built- dictating, and I have found that neither approach is practical. in voice recognition program, Cortana, which is similar to Apple’s Dragon NaturallySpeaking runs on a PC computer and will also Siri. Dragon itself has a Mac version of its full program, Dragon for work on laptops using the laptop’s built-in microphone. The advantage Mac.3 Although I have not reviewed this product, I have read that of Dragon NaturallySpeaking over other voice recognition approaches its performance has improved. Another form of voice recognition is that it can be trained by the individual user to better recognize program in apps that may become important in the near future is your voice. It also can be trained to recognize specific words that being offered by Google. So far, its use has been limited primarily to may have unusual pronunciations and has the ability to add to its conducting searches rather than for dictation. Speed and accuracy vocabulary special words, client names, and commonly used case are remarkable in this technology, although it still suffers from the abbreviations. infirmities present on the Apple computer because it does not allow Upon installing the program the dictator speaks to the computer through a microphone for a brief period of time so the program can Paul D. Supnik practices copyright and trademark law in Beverly Hills. He is learn the idiosyncrasies of the dictator’s personal speech pattern. a past chair of LACBA’s Entertainment and Intellectual Property as well as While that used to take as much as 20 minutes of training, it now International Law Sections, and authored Los Angeles Lawyer’s first Computer works satisfactorily with only a few minutes of dictation. The infor- Counselor article.

40 Los Angeles Lawyer October 2015 training to adjust the program to a specific at a nominal cost.4 An iA Writer stores dic- that note to a Word file for editing. An assis- dictator’s voice. Dictation delivered to the tation on Dropbox or sends it to an e-mail tant would certainly be helpful for reviewing Google system is presumably translated on address. the initial copy and making preliminary edits a remote server, and of course, may be stored The third approach to employ for dicta- to correct inevitable errors. in Google’s archives. tion is the combination of Dropbox,5 Drop - The third dictation method allows dicta- Using an iPhone 6 as the microphone of V ox,6 and Dragon NaturallySpeaking. Drop - tion anywhere in the world. As long as the choice is often a matter of convenience. The box allows files to be stored in the cloud. smartphone is connected to or will be con- quality is also high. This microphone can Stored Dropbox files typically contain data nected to cellular data or a Wi-Fi connection take advantage of several specific apps. For and documents. Dropbox also allows main- for uploading, the voice file can be uploaded example, Nuance has a Dragon Remote taining other types of files, including voice and stored. It is even possible to transcribe Microphone app that is downloadable from files and MP3 files. A voice app Drop Vox and retrieve the documents remotely, such as the App Store at no charge and that works can be combined with Dropbox and Dragon with GoToMyPC.com,8 by accessing Dragon with the iPhone and Dragon Naturally- NaturallySpeaking to provide the ultimate NaturallySpeaking on an office computer and Speaking. solution to dictation. Dropvox is an app transcribe the DropVox MP3 file. The iPhone is not the only microphone to available on the iPhone app store. A similar After becoming familiar with the dictation use for dictation. Alternatives include dedicated app, NetMemo,7 is available for Android process, it is no longer necessary to review microphones that will plug into the computer, users. It allows dictating into an iPhone with what is being dictated on the screen. It is, as well as wireless headset microphones that the voice file being stored on Dropbox. nevertheless, helpful to create a rough outline work with Bluetooth or Wi-Fi. Dragon Why DropVox? Ultimate simplicity. When of the general topics to communicate before NaturallySpeaking boxed versions, as opposed the app is activated, a big red dot appears starting dictation. The outline need not be to those that are available by download, are on the iPhone. Tapping the red dot begins detailed, but even having a general roadmap usually accompanied by a basic headset that the recording, and the red dot turns into a is useful. This is especially beneficial when plugs directly into most computers. Dragon red square. Tapping the red square twice dictating a brief or anything more than a also sells a wireless Bluetooth wireless micro- causes the recording to pause, and the red short letter. It is also a good idea to keep phone for use with the program. However, dot again appears. Then, pressing the red notes on words and names commonly used there are issues that occur with Bluetooth dot again continues the recording. When the for dictation so that the user profile in the microphones. One is storing yet another device dictation is over, tapping the red square one program can be updated periodically with in the office. Also, some dictators may dislike more time will automatically upload the voice this information. the discomfort and look of wearing an earpiece. message or dictation in the form of an MP3 Will every word dictated be accurate at This may not be an annoyance if the Bluetooth file to the cloud. The cloud is Dropbox, and all times? Absolutely not. Yet the results are earpiece is regularly used for telephone calls. a special subfolder can be created in a Drop - close enough to what was dictated that this Another issue is maintaining a charged headset box folder that stores the DropVox MP3 system becomes an exceptionally useful tool battery since if it is not always charged or not files with the dictation. in the practice of law, particularly given the easily charged when not in use, it is easy to The next step in making the DropVox minimal time and effort required and its func- lose the ability to dictate. file useful is to go to a desktop or laptop tionality in an increasingly mobile practice Three approaches to dictation are recom- com puter in which Dragon NaturallySpeaking of law. n mended. The first approach is to team up the resides. Whether it is a minute or a week Dragon Remote Microphone app on the after the dictation took place, the Dragon 1 Dragon NaturallySpeaking, Nuance Communications, iPhone with Dragon NaturallySpeaking. The Naturally Speaking program can transcribe Inc., available on http://www.nuance.com/dragon Dragon Remote Microphone app syncs with any dictation residing in the DropVox folder /index.htm. Premium 13 sells for $149.95 and Dragon Professional for $599.99 (allows creation of macros the Wi-Fi network in an office. When speaking on the Dropbox cloud. No administrative as well as other features). I use the Preferred version, into an iPhone using the Dragon Remote assistant is required to create that transcrip- which has recently been renamed Premium. I do not Microphone app, the iPhone acts as if it were tion. recommend the Home version as it apparently does a microphone directly connected to the com- After the Dragon NaturallySpeaking pro- not work with Bluetooth headsets and does not tran- puter. Words spoken to the smartphone are gram loads, tapping on a drop-down menu scribe audio files. At the time of publication, a new communicated to the Dragon Naturally - and clicking on Transcribe opens a dialog box. version, Dragon Professional Individual, has been released, which sells for $300. Added features include Speaking program on a desktop computer, It will ask to identify which particular file to macros, monitoring folders for automatic transcription, and the transcription by Dragon Naturally - transcribe. After a few times, the program and the ability to transcribe voices of speakers from Speaking shows up immediately on the com- automatically opens the same DropVox folder speeches or podcasts. A mobile-based version—likely puter screen. An Android version of the Dragon in Dropbox so there is no need to search fur- subscription-based—called Dragon Anywhere, is said Remote Microphone app is also available for ther for the Dropvox files. The dialog box to be available sometime this fall. 2 A legal version of Dragon NaturallySpeaking, which those who use Android smartphones. This opens, and the MP3 files are listed in chrono- retails for $799, has a built-in legal vocabulary facili- approach may be used to insert a paragraph logical order. Then, it is simply a matter of tating dictation of legal words and citation but does into an existing document or to draft a very clicking on the most recent file, hitting Enter not provide sufficient advantage to justify its higher simple letter. and then Transcribe. cost. 3 The second approach involves using a The MP3 file will then be transcribed, Dragon for MAC, Nuance Communications, Inc., available on http://www.nuance.com, sells for $200. note-taking iOS app, which uses Siri’s micro- but it takes a little time to do so—maybe 4 iA Writer, iA Labs GmBH, available on the Apple phone feature, allowing the dictator to see five minutes or about a minute per page. App Store, sells for $4.99. the dictation immediately on the iPhone. During this time, it is possible to work on 5 Dropbox, https://www.dropbox.com/home. That transcribed dictation can then be emailed another matter or get a cup of coffee. Mean - 6 Dropvox, Irradiated Software, LLC, available on so that it can be accessed from the office while, the text is transcribed on a notepad http://www.irradiatedsoftware.com/dropvox, sells for $1.99. computer. Examples of these apps are Write - on the computer or directly into a Word doc- 7 NetMemo sells for $4.99. Room—no longer available from the Apple ument. Often, it is preferable to transfer the 8 GoToMyPC, available on Gotomypc.com, sells for App Store—and iA Writer, which is available transcription to the notepad and later save about $12 per month and up.

Los Angeles Lawyer October 2015 41 4x Forensic Engineering Laboratories, Inc., p. 26 Lawrence W. Crispo, p. 5 Lawyers’ Mutual Insurance Co., p. 7 Tel. 714-450-8500 www.4xforensic.com Tel. 213-926-6665 e-mail: [email protected] Tel. 800-252-2045 www.lawyersmutual.com

Albertson & Davidson, LLP, p. 13 E. L. Evans & Associates, p. 14 LEVEL Furnished Living, p. 2 Tel. 909-466-1711 www.aldavlaw.com Tel. 310-559-4005 Tel. 213-873-8400

American Arbitration Association, Back Cover Fragomen, p. 14 Michael Marcus, p. 4 Tel 800-778-7879 www.adr.org Tel. 310-820-3322 www.fragomen.com Tel. 310-201-0010 www.marcusmediation.com

Fay Arfa, A Law Corporation, p. 19 Girardi Keese, Inside Back Cover Noriega Clinics, p. 33 Tel. 310-841-6805 [email protected] Tel. 213-977-0211 www.girardikeese.com Tel. 213-716-3744

California Western School of Law, p. 12 Higgins, Marcus & Lovett, Inc., p. 4 Ross Mediation Services, p. 16 Tel. 800-255-4252 www.californiawestern.edu Tel. 213-617-7775 www.hmlinc.com Tel. 818-840-0950 www.rossmediation.com

Chapman University School of Law, Inside Front Cover The Holmes Law Firm, p. 6 Southwestern University School of Law, p. 11 Tel. 877-CHAPLAW (877-242-7529) www.chaplaw.edu/law Tel. 626-432-7222 www.theholmeslawfirm.com Tel. 213-738-6731 www.swlaw.edu

CMM, LLP, p. 27 Jurisco, Inc., p. 5 Stephen Danz & Associates, p. 4 Tel. 818-986-5070 e-mail: [email protected] Tel. 800-274-2663 www.Jurisco.com Tel. 877-789-9707 www.employmentattorneyca.com

Isabel R. Cohen, p. 14 Kantor & Kantor, LLP, p. 27 Stout Risius Ross, Inc., p. 16 Tel. 323-465-5336 email: [email protected] Tel. 877-783-8686 www.kantorlaw.net Tel. 310-601-2300 e-mail: [email protected]

Commerce Escrow—A Division of Opus Bank, p. 28 LawBiz Management, pp. 5, 19 Walzer & Melcher, p. 1 Tel. 213-484-0855 www.comescrow.com Tel. 800-837-5880 www.lawbiz.com e-mail: [email protected] Tel. 818-591-3700 e-mail: [email protected]

CPT Special Needs Trusts, p. 32 LawPay/Affinipay, p. 25 Tel. 877-695-6444 Ext: 2 www.snthelp.com Tel. 866-376-0950 www.lawpay.com

42 Los Angeles Lawyer October 2015 LACBA Domestic Violence TAP Expert Witness Workshop Project Volunteer Training ON MONDAY, OCTOBER 12, Trial Advocacy and the Litigation Section will host the ON THURSDAY, OCTOBER 1, the Domestic expert witness workshop, which provides introductory and advanced level Violence Project will host its volunteer instruction on how to use expert witnesses in civil and criminal actions, with training program. Volunteers provide a special emphasis on expert testimony. Topics covered will include evidentiary valuable service to a vulnerable rules regarding expert opinions, taking and defending expert depositions, how population and gain expertise in the area experts can help and hurt a case, direct and cross-examination of expert of family law. No previous experience is witnesses, establishing and challenging expert qualifications, and advanced required. Attorneys, legal professionals, expert testimony techniques. In the workshop portion of the program participants and law students volunteer for two three- conduct direct and cross-examination of an expert witness. Written course hour sessions per month for seven months. In order to volunteer for LACBA’s materials will be distributed via e-mail prior to the first class. Please provide a Domestic Violence Project, LACBA correct e-mail address at the time of registration. The workshop will take place at membership is required. This training the Los Angeles County Bar Association, 1055 West 7th Street, 27th floor, provides a very comfortable learning Downtown. Parking is available at 1055 West 7th and nearby lots. On-site atmosphere with a great opportunity for registration will begin at 1 P.M., with the program continuing from 1:30 to 5:30. The open dialogue with the presenters. registration code number is 012465. Program attendees will receive $250—CLE+ member substantial materials, and dinner is $500—all others included. Last year, LACBA’s Domestic 3.75 CLE hours Violence Project helped more than 5,000 persons. During the course of a shift, a volunteer can help as many as three TAP Witness Examination Workshop victims seek protection from their abusers. Volunteers interview victims on a ON MONDAY, OCTOBER 12, Trial Advocacy and the Litigation Section will present the one-on-one basis, gathering information witness examination skills workshop. This workshop will provide introductory and with which to complete complicated legal advanced level instruction on how to examine a witness under oath. The first part of documents. This allows the victims to file the program is a lecture with a question and answer component, covering how to lay for restraining orders with professionally the foundation for demonstrative evidence, create a strategy for cross-examination, prepared petitions. The program will take control the witness, and employ techniques such as leading by prior question and place at the Los Angeles County Bar anticipatory rebuttal. The second part of the program is a workshop in which Association, 1055 West 7th Street, 27th participants conduct direct examination and cross-examination of witnesses. floor, Downtown. Parking is available at Participants receive constructive feedback on their performance. The workshop will 1055 West 7th and nearby lots. On-site take place at the Los Angeles County Bar Association, 1055 West 7th Street, 27th floor, registration and a meal will be available at 5:15 P.M., with the program continuing Downtown. Parking is available at 1055 West 7th and nearby lots. Registration begins from 6 to 9:15 P.M. The registration code at 8 A.M., with the program continuing from 8:30 A.M. to 12:30 P.M. The prices below number is 012675. include the meal. The registration code number is 012446. $30—law student $250—CLE+ member $50—paralegal $350—LACBA member $85—LACBA member $500—all others $175—nonvolunteer attendee 3.75 CLE hours 3 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://calendar.lacba.org, where you will find a full listing of this month’s Association programs.

Los Angeles Lawyer October 2015 43 closing argument BY MATTHEW D. TAGGART

What to Do When a Witness Answers “I Don’t Know” at Trial

WHEN QUESTIONING A WITNESS at trial it is worthwhile to remember with a witness. This tendency can be mitigated if the lawyer shows that the answer “I don’t know” does not mean no. It means “I have that the witness is a liar. If the lawyer fails to do this, however, he or no recollection” or “I am incompetent on that topic” unless the she may seem unctuous and unprepared. witness clarifies that he or she means no. “I don’t know” does not Second, try to refresh the witness’s recollection. This can be accom- mean yes either. Some lawyers get frustrated by an answer of “I plished with leading questions, which are permitted with a forgetful don’t know,” convincing themselves that a witness should volunteer witness, or through a document authored by the witness. The answer an admission the lawyer wants but that prior deposition discovery may appear in another record that can be introduced with a proper gives no reason to expect. This frustration cannot turn a lack of evi- foundation. The third option, often the best, is to move on to what dence for impeachment or inability to refresh recollection into a the witness actually knows. This can salvage the examination and claim that the witness has no basis to challenge a point or supposed avoid making a friendly witness seem like an ignoramus (if on direct) fact the examiner wants to prove but cannot. “I don’t know” can also be catnip to aggressive or bellicose lawyers who treat that answer as an opportunity to prove a point, arguing with Quizzing witnesses about their lack of knowledge while on the a witness about the weight of other testimony and documents hoping to force an admission of truth, although the witness admitted to stand accomplishes little and risks much. having no personal knowledge of the matter. This type of questioning may be the result of a good habit: preparation. Sure of his or her own theory of the or a victim (if on cross). Arguing with a forgetful witness on cross is case, and spellbound by detailed outlines, trial binders, and exhibits, very dangerous. If the witness is unfriendly, failure to swiftly impeach a lawyer can mistakenly try to argue a witness from ignorance into may imply that you have no basis to impeach. knowledge. Disinclined to listen to the witness’s profession of igno- When forgetful witnesses are hostile, a less experienced lawyer rance, the lawyer bounds forward, arguing the case to the witness, may justify protracted questioning as a way to “box them in.” but it is not a witness’s role to weigh extrinsic evidence or testimony Further questioning may keep the other side from making any use as a jury does. There are other options. The answer may be merely of the testimony. More seasoned trial lawyers recognize this is a bad the most common refrain of the recalcitrant witness. In courtrooms idea. Irving Younger’s first commandment of cross examination is and conference rooms around the country, witnesses claim not to to be brief. With some exceptions, trying to reinforce the ignorance know the answer to a question. The answer is not a revelation, a of a witness, even a hostile one, is rarely desirable. It undermines grand climax, or a breakthrough. It may be only a failure of memory the value of any useful answers the witness provided, unless the or a strong indication that the witness cannot or will not provide impeachment is based on poor memory. the desired testimony. “I don’t know” is just not compelling. Trying to make it so At deposition, the answer “I don’t know” is usually neutral and annoys the witness and makes fact finders feel like the examiner is not necessarily indicative of a lack of cooperation. It may indicate wasting their time. The only thing worse than continuing to question honesty or merely a failure to understand the question. At trial, the forgetful witness is having the witness read from documents that however, it is less likely to be neutral, and the lawyer should not ask may relate a narrative the lawyer seeks, especially when the forgetful a question to which the answer will be “I don’t know” unless planning or lying witness cannot authenticate the documents. This amounts to impeach. If the answer is given at trial, it should not indicate that to basically arguing with a forgetful witness for being forgetful. the lawyer lacks a clear picture of what he or she is trying to prove Choose witnesses carefully. Call them at trial because they have or of what the witness is competent to testify about. It also could be necessary information or knowledge that, if credited, will lead the a sign that the questioner is on a fishing expedition, which is never a fact finder to endorse your claim or defense. The witness must be good idea, especially on cross. competent to testify about that information or knowledge. At trial, Time passes. People forget or don’t care. Quizzing witnesses about always know what every witness, whether friendly or combative, is their lack of knowledge while on the stand accomplishes little and going to say. If one says, “I don’t know,” do not get fooled into risks much. When a witness says, “I don’t know,” you have three trying to force a yes or no. Refresh the witness’s recollection, offer a choices. First, if you have evidence that the witness does know, you document showing past recollection, impeach, or move on. n can impeach with a prior inconsistent statement, thus attacking the witness’s credibility or getting the inconsistent statement into evidence Matthew D. Taggart is a commercial litigator at Steptoe & Johnson LLP in as affirmative proof of a fact. If you cannot impeach, arguing with Century City who specializes in antitrust, securities, and general business lit- the witness is badgering, which tends to cause fact finders to sympathize igation and is a member of the Los Angeles Lawyer editorial board.

44 Los Angeles Lawyer October 2015