Arave v. Merrill Lynch, Pierce, Fenner & Smith Inc., No E061677 (D4d2, as modified, Jan. 23, 2018)
First things first. A footnote at the beginning of this 95-page opinion says “We certify this opinion for publication under California Rules of Court, rules 8.1105(b) and 8.1110, except for parts I.B., I.C., I.D., I.E., I.F., I.G., II.A.1., II.A.2., II.A.4., II.A.5., II.A.6., II.B., II.C., II.D., II.E., II.F., and II.I.” (On a publication request the court struck II.C from the footnote.) So to figure out what is actually being published, you’ll need to make a list (like literally write it down) then scroll through the opinion and figure out by process of elimination what’s not excluded.
Partial publication, in general, is kind of annoying. But if a court’s going to do it, the 9th Circuit’s practice of writing a stand-alone published opinion and then putting the rest in a separate memdispo is much cleaner. But what’s particularly annoying in California is that Court of Appeal won’t at least least just say, “We certify parts I.A, I.H, II.A (introduction), II.A.3, II.C, II.G, and II.H for publication.” Instead, the footnote has a cryptic negative implication that requires a big effort to figure out what the court is actually putting on the record. It’s like they think nobody reads slip opinions or something.
In any event, the case is a post-trial appeal of a defense verdict in a FEHA case. The published parts of opinion deal with an evidentiary issue, a claim of judicial misconduct, and rulings on costs and fees.
The evidentiary issue concerns the admissibility of Plaintiff’s initial pre-litigation demand letter under Evidence Code § 1154, which renders statements made in connection with settlement negotiations inadmissible. In my experience, the expectations of most California lawyers would be that a demand letter would fall within the scope of § 1154, at least to the extent offered to prove liability or damages.
But the Court of Appeal here forges a different path. It first says that the part of the letter that just lays out plaintiff’s factual position wasn’t a concession, but only an admission. The Court goes on the say that the part of the letter where Plaintiff made his demand sets out his “maximal claim [is] not a compromise position to designed to reach a settlement,” and thus not subject to § 1154. As proof on this final point, the Court notes that plaintiff’s trial expert calculated damages below what plaintiff did in the letter.
This result is at odds with a number of Court of Appeal decisions, none of which are cited in the opinion. See e.g., Zhou v. Unisource Worldwide, Inc., 157 Cal. App. 4th 1471 (2007); Caira v. Offner, 126 Cal. App. 4th 12 (2005).
The first part of the ruling—that the factual discussion is severable from the demand, is in tension with § 1154’s specific application to “as any conduct or statements made in negotiation” of a settlement offer. The relevant language changed the common law rule and was added when §§ 1152 and 1154 were codified into the Evidence Code in 1965. (Technically, § 1152 applies to defendants’ offers to pay and § 1154 to plaintiffs’ offers to compromise, but identical language was added to both and they are generally interpreted together.) The Legislature made the change for the specific purpose of broadening the exclusionary rule to include related statements of fact in order to foster “the complete candor between the parties that is most conducive to settlement.” Viz, to encourage settlements, the law should give an incentive for folks to be candid about their assessments of the facts, without any risk of that being held against them in a future litigation.
But the Court gets crosswise with this policy by relying on a 1970 decision—Moving Picture etc. Union v. Glasgow Theaters, Inc., 6 Cal. App. 3d 395 (1970)—which itself relies on several pre-codification decisions that are expressly rejected in the Law Review Commission Comments to the 1965 enactment. This point is actually specifically made in Caira, 126 Cal. App. 4th at 36, which comes up as the main negative case on a keycite of Moving Pictures. So the Court here is in a fraught place with the precedent, although it doesn’t acknowledge so much.
On the second point, it’s indisputable that a bill—an itemization of expenses a party expects to be paid—doesn’t fall within §§ 1152 or 1154. But the way court describes plaintiff’s letter, it doesn’t sound like a bill. The letter “set out his complaints against the company and offered to resolve them in return for payment of five years’ salary and bonuses and the proceeds of his stock plan.” But the fact that an opening offer is often at, close, or even sometimes better than a plaintiff’s best case scenario of all he could possibly recovershouldn’t make the letter admissible to if it was framed as the opening salvo of a settlement discussion. That’s also the case even when a letter makes claims a plaintiff later abandons at trial. (To avoid this decision in the future, plaintiffs should perhaps say: “My client is entitled to one million dollars!!! But in the spirit of compromise, we’ll accept $999,999.99...” Or defendants, “your client is entitled to nothing, but we’ll give you a penny.”)
Regardless, the court finds that none of this matters because plaintiff opened the door to it by suggesting that he waited long after the letter was sent to retain counsel, which purportedly had some relevance to the merit of his claims. So even if the letter weren’t ordinarily admissible, by putting it into issue, Plaintiff forfeited any right to object.
The next published issue is the plaintiff’s claim that the trial court was biased against him, to the detriment of his case. But the examples raised by plaintiff don’t amount to reversible error. For instance, on several occasions, the trial court told plaintiff’s attorney that he shouldn’t just reading from exhibits and then ask the witness to agree if that was what the document said. (That is kind of annoying.) But the Court of Appeal finds that these were just instances the trial court showing frustration and attempting to keep a long trial moving expeditiously, and not indicative of any manifest bias against plaintiff.
Plaintiff also claims that the trial court refused to decide his objections. But the Court of Appeal reads the record otherwise, finding that either Plaintiff failed to sufficiently object or that the court did, in fact, make requested rulings. Similarly, Plaintiff makes various complaints about disparate treatment of his counsel during the trial. But these examples too were largely just the court doing its best to move the trial along and control the proceedings.
Finally, Plaintiff claims that the judge made prejudicial facial expressions and used a hostile tone of voice in dealing with his attorney. Obviously, unless a party points that out or moves for disqualification, there’s no way to know that from the paper record.
And then there’s attorney fees. The court awarded fees to defendants on one claim and denied as to the rest, based on a finding that although Plaintiff lost, he did not bring his claims frivolously or in bad faith. But the trial Court didn’t think that standard applied to the one claim it awarded fees on. But—as the parties agree on appeal—it did. So that’s reversed, but the denial of the others is affirmed on Defendants’ cross appeal, because the no bad faith finding had evidentiary support.
Finally, there’s an issue of costs. The court awarded Defendants essentially all their costs as a prevailing party under § 1032 and also about $30k in expert witness fees because plaintiff didn’t beat a § 998 offer.
On the ordinary costs, the Supreme Court has held that normal costs statute—Code of Civil Procedure § 1032—doesn’t apply to FEHA claims. Williams v. Chino Valley Independent Fire Dist., 61 Cal. 4th 97 (2015). Like fees, costs can only be shifted in a FEHA case if the court finds the the Chirstiansburg standard has been satisfied. I.e., basically, that the litigation was objectively baseless. Since the trial court missed the standard, it erred in awarding costs on those claims under § 1032. But § 1032 does apply to Plaintiff’s claims under the wage and hour laws. Because the trial court made no effort to segregate the various costs, the case is reversed and remanded on that issue so it can do so.
Finally, following Williams, the court holds that the cost-allocation provisions of the FEHA also trump § 998’s rule about the shifting post-offer expert costs when the plaintiff fails to secure a verdict better than an offer of judgment. Essentially the logic is that the FEHA includes expert costs as “costs,” Williams holds that “costs” only get shifted when the case is objectively baseless, and thus expert costs only get shifted under those circumstances, § 998 notwithstanding. The court recognizes that this ruling creates a split with two prior cases—Sviridov v. City of San Diego, 14 Cal. App. 5th 514 (2017) and Holman v. Altana Pharma US, Inc., 186 Cal. App. 4th 262 (2010). But it doesn’t find those cases particularly well-reasoned. So the Supreme Court is going to be the final arbiter, whether in this case or somewhere down the road.
Affirmed on the merits, reversed and remanded on various costs and fee issues.
First things first. A footnote at the beginning of this 95-page opinion says “We certify this opinion for publication under California Rules of Court, rules 8.1105(b) and 8.1110, except for parts I.B., I.C., I.D., I.E., I.F., I.G., II.A.1., II.A.2., II.A.4., II.A.5., II.A.6., II.B., II.C., II.D., II.E., II.F., and II.I.” (On a publication request the court struck II.C from the footnote.) So to figure out what is actually being published, you’ll need to make a list (like literally write it down) then scroll through the opinion and figure out by process of elimination what’s not excluded.
Partial publication, in general, is kind of annoying. But if a court’s going to do it, the 9th Circuit’s practice of writing a stand-alone published opinion and then putting the rest in a separate memdispo is much cleaner. But what’s particularly annoying in California is that Court of Appeal won’t at least least just say, “We certify parts I.A, I.H, II.A (introduction), II.A.3, II.C, II.G, and II.H for publication.” Instead, the footnote has a cryptic negative implication that requires a big effort to figure out what the court is actually putting on the record. It’s like they think nobody reads slip opinions or something.
In any event, the case is a post-trial appeal of a defense verdict in a FEHA case. The published parts of opinion deal with an evidentiary issue, a claim of judicial misconduct, and rulings on costs and fees.
The evidentiary issue concerns the admissibility of Plaintiff’s initial pre-litigation demand letter under Evidence Code § 1154, which renders statements made in connection with settlement negotiations inadmissible. In my experience, the expectations of most California lawyers would be that a demand letter would fall within the scope of § 1154, at least to the extent offered to prove liability or damages.
But the Court of Appeal here forges a different path. It first says that the part of the letter that just lays out plaintiff’s factual position wasn’t a concession, but only an admission. The Court goes on the say that the part of the letter where Plaintiff made his demand sets out his “maximal claim [is] not a compromise position to designed to reach a settlement,” and thus not subject to § 1154. As proof on this final point, the Court notes that plaintiff’s trial expert calculated damages below what plaintiff did in the letter.
This result is at odds with a number of Court of Appeal decisions, none of which are cited in the opinion. See e.g., Zhou v. Unisource Worldwide, Inc., 157 Cal. App. 4th 1471 (2007); Caira v. Offner, 126 Cal. App. 4th 12 (2005).
The first part of the ruling—that the factual discussion is severable from the demand, is in tension with § 1154’s specific application to “as any conduct or statements made in negotiation” of a settlement offer. The relevant language changed the common law rule and was added when §§ 1152 and 1154 were codified into the Evidence Code in 1965. (Technically, § 1152 applies to defendants’ offers to pay and § 1154 to plaintiffs’ offers to compromise, but identical language was added to both and they are generally interpreted together.) The Legislature made the change for the specific purpose of broadening the exclusionary rule to include related statements of fact in order to foster “the complete candor between the parties that is most conducive to settlement.” Viz, to encourage settlements, the law should give an incentive for folks to be candid about their assessments of the facts, without any risk of that being held against them in a future litigation.
But the Court gets crosswise with this policy by relying on a 1970 decision—Moving Picture etc. Union v. Glasgow Theaters, Inc., 6 Cal. App. 3d 395 (1970)—which itself relies on several pre-codification decisions that are expressly rejected in the Law Review Commission Comments to the 1965 enactment. This point is actually specifically made in Caira, 126 Cal. App. 4th at 36, which comes up as the main negative case on a keycite of Moving Pictures. So the Court here is in a fraught place with the precedent, although it doesn’t acknowledge so much.
On the second point, it’s indisputable that a bill—an itemization of expenses a party expects to be paid—doesn’t fall within §§ 1152 or 1154. But the way court describes plaintiff’s letter, it doesn’t sound like a bill. The letter “set out his complaints against the company and offered to resolve them in return for payment of five years’ salary and bonuses and the proceeds of his stock plan.” But the fact that an opening offer is often at, close, or even sometimes better than a plaintiff’s best case scenario of all he could possibly recovershouldn’t make the letter admissible to if it was framed as the opening salvo of a settlement discussion. That’s also the case even when a letter makes claims a plaintiff later abandons at trial. (To avoid this decision in the future, plaintiffs should perhaps say: “My client is entitled to one million dollars!!! But in the spirit of compromise, we’ll accept $999,999.99...” Or defendants, “your client is entitled to nothing, but we’ll give you a penny.”)
Regardless, the court finds that none of this matters because plaintiff opened the door to it by suggesting that he waited long after the letter was sent to retain counsel, which purportedly had some relevance to the merit of his claims. So even if the letter weren’t ordinarily admissible, by putting it into issue, Plaintiff forfeited any right to object.
The next published issue is the plaintiff’s claim that the trial court was biased against him, to the detriment of his case. But the examples raised by plaintiff don’t amount to reversible error. For instance, on several occasions, the trial court told plaintiff’s attorney that he shouldn’t just reading from exhibits and then ask the witness to agree if that was what the document said. (That is kind of annoying.) But the Court of Appeal finds that these were just instances the trial court showing frustration and attempting to keep a long trial moving expeditiously, and not indicative of any manifest bias against plaintiff.
Plaintiff also claims that the trial court refused to decide his objections. But the Court of Appeal reads the record otherwise, finding that either Plaintiff failed to sufficiently object or that the court did, in fact, make requested rulings. Similarly, Plaintiff makes various complaints about disparate treatment of his counsel during the trial. But these examples too were largely just the court doing its best to move the trial along and control the proceedings.
Finally, Plaintiff claims that the judge made prejudicial facial expressions and used a hostile tone of voice in dealing with his attorney. Obviously, unless a party points that out or moves for disqualification, there’s no way to know that from the paper record.
And then there’s attorney fees. The court awarded fees to defendants on one claim and denied as to the rest, based on a finding that although Plaintiff lost, he did not bring his claims frivolously or in bad faith. But the trial Court didn’t think that standard applied to the one claim it awarded fees on. But—as the parties agree on appeal—it did. So that’s reversed, but the denial of the others is affirmed on Defendants’ cross appeal, because the no bad faith finding had evidentiary support.
Finally, there’s an issue of costs. The court awarded Defendants essentially all their costs as a prevailing party under § 1032 and also about $30k in expert witness fees because plaintiff didn’t beat a § 998 offer.
On the ordinary costs, the Supreme Court has held that normal costs statute—Code of Civil Procedure § 1032—doesn’t apply to FEHA claims. Williams v. Chino Valley Independent Fire Dist., 61 Cal. 4th 97 (2015). Like fees, costs can only be shifted in a FEHA case if the court finds the the Chirstiansburg standard has been satisfied. I.e., basically, that the litigation was objectively baseless. Since the trial court missed the standard, it erred in awarding costs on those claims under § 1032. But § 1032 does apply to Plaintiff’s claims under the wage and hour laws. Because the trial court made no effort to segregate the various costs, the case is reversed and remanded on that issue so it can do so.
Finally, following Williams, the court holds that the cost-allocation provisions of the FEHA also trump § 998’s rule about the shifting post-offer expert costs when the plaintiff fails to secure a verdict better than an offer of judgment. Essentially the logic is that the FEHA includes expert costs as “costs,” Williams holds that “costs” only get shifted when the case is objectively baseless, and thus expert costs only get shifted under those circumstances, § 998 notwithstanding. The court recognizes that this ruling creates a split with two prior cases—Sviridov v. City of San Diego, 14 Cal. App. 5th 514 (2017) and Holman v. Altana Pharma US, Inc., 186 Cal. App. 4th 262 (2010). But it doesn’t find those cases particularly well-reasoned. So the Supreme Court is going to be the final arbiter, whether in this case or somewhere down the road.
Affirmed on the merits, reversed and remanded on various costs and fee issues.