California Bar Journal
OFFICIAL PUBLICATION OF THE STATE BAR OF CALIFORNIA - SEPTEMBER 1999
spacer.gif (810 bytes)
Supreme Court
spacer.gif (810 bytes)
Continued from Page 1
spacer.gif (810 bytes)
those who think the George Court is pro-business would be mistaken based on last year's results. Business lost about 56 percent of the time.

Perhaps the most interesting statistics relate to the individual justices. Chief Justice George retains his title as the most influential justice on the court, voting with the majority or concurring a remarkable 99 percent of the time. He dissented only once during this last term. All of the other justices had significantly more dissents: Justice Mosk dissenting in about 20 percent of the cases, Justice Brown in 14 percent of the cases, Justice Kennard in 13 percent of the cases, Justice Werdegar in 11 percent of the cases, Justice Chin in 6 percent of the cases, and Justice Baxter in 5 percent of the cases.

Although the voting patterns are shifting on the George Court, the statistics indicate that the significant correlations are between Justices Mosk, Kennard and Werdegar, on the one hand, and Justices Baxter, Brown and Chin, on the other hand. That leaves the chief in the middle as the swing vote, confirming his central role on the court.

Business cases

About 40 percent of the court's docket involved civil cases, and business interests were at issue in one way or another in the vast majority of these cases. This section reviews a few of the most important decisions.

Last year, in Cedars-Sinai Medical Center v. Superior Court (1998) 18 Cal.4th 1, the court held that there was no tort cause of action against a party to litigation for the intentional destruction or suppression of evidence when the spoliation was or should have been discovered before the conclusion of the litigation. Cedars-Sinai left open the remote possibility of a suit against a non-party for spoliation. However, the court dropped the other shoe this year in Temple Community Hospital v. Superior Court (1999) 20 Cal.4th 464, rejecting a tort claim against a non-party for intentional spoliation. The complaint alleged that the plaintiff had been injured during surgery at the defendant's hospital when oxygen used in the anesthesia ignited after the surgeon applied an allegedly defective electrocautery tool to plaintiff's right eyebrow. The complaint also alleged that plaintiff's counsel had requested retention of the cautery instrument and any other relevant evidence prior to filing suit, but that the hospital had intentionally destroyed the instrument and other evidence knowing that the evidence might be relevant to proving the plaintiff's claims for malpractice and product liability. The opinion for the four-justice majority was written by the chief, and consistent with Cedars-Sinai, it rejected tort liability because the incremental deterrence and compensation benefits of a tort claim (incremental compared to other sanctions that are available such as discovery sanctions, criminal penalties and disciplinary sanctions against attorneys who may be involved in spoliation) were outweighed by the burdens on the judicial process of potentially endless derivative and satellite litigation and the costs to society of a tort claim that might result in onerous record and evidence retention policies.

The chief's opinion is a good example of how a range of policy considerations appropriately can influence a court in deciding whether to recognize a tort claim. It must be recognized, however, that Temple Community Hospital is a very close case, and Justice Kennard, writing for the dissenters, makes a strong case for a limited form of tort liability against a non-party who destroys evidence with the intent of affecting the outcome of the underlying action. In light of the close vote in the case, it would not be at all surprising to find legislation proposed next year to overrule Temple Community Hospital and adopt the reasoning of Justice Kennard's dissent.

There were a couple of important securities cases this year, important particularly in light of the narrowing of federal securities law claims pursuant to the Private Securities Litigation Reform Act of 1995. Section 25400 of the California Corporations Code prohibits market manipulation in the state (i.e., practices that are intended to mislead investors by artificially affecting market activity through such things as wash sales, matched orders or rigged prices). Section 25500 creates a civil remedy for buyers or sellers of stock the price of which has been affected by market manipulation proscribed by 25400. In Diamond Multimedia Systems Inc. v. Superior Court (1999) 19 Cal.4th 1036, the court agreed with the plaintiffs in a nationwide class action that a claim under 25500 would lie in California even if the purchase or sale took place outside the state of California so long as the unlawful conduct, the market manipulation, took place in California. The court recognized that this interpretation of state law made California state law more expansive than federal securities law as amended in 1995, but the court explained that any concerns about the breadth of 25400 and 25500 should be addressed to the legislature and not the courts. The impact of the decision is not as broad as the plaintiff's bar would have hoped because the federal Securities Litigation Uniform Standards Act of 1998 prohibits class actions based on state securities laws in the future; however, individual claims can clearly be brought under the holding in Diamond Multimedia Systems, and the challenge for the plaintiff's bar is to figure out a cost-effective way of bringing such cases in large numbers without the assistance of the class action device.

In a companion case, Stormedia Inc. v. Superior Court (1999) 20 Cal.4th 449, the court held that 25400 could be violated even if the securities were not sold in the open market and even though the plaintiff is not in privity with the defendant. Instead, the statute requires only that the defendant is a seller or purchaser of a security when the false and misleading statements were made and that the statements were made with an intent to induce others to buy or sell the stock. In Stormedia, the defendants allegedly made false and misleading statements in connection with the sale of its stock through an employee stock purchase plan, and the plaintiffs allegedly purchased shares on the open market at artificially inflated prices to their detriment.

The defendant first claimed that sales to employees through a stock purchase plan did not qualify as sales under 25400 because the sales did not take place on the open market. The court rejected this argument, finding no support for it in the statutory language. The defendant also argued that the false statements made in connection with the employee purchase plan should be ignored because the statements were not made to induce employees to purchase the stock and the plaintiffs did not purchase the stock through the purchase plan. The court rejected both contentions. First, the court held that the sales to employees qualified the defendant as a seller of securities under 25400(d) even if the misrepresentations were not intended to induce those sales. Second, the court held that 25400 does not require privity between the defendant and the plaintiff. Instead, it is sufficient that the defendant was a seller or purchaser of securities, the defendant made false or misleading statements, and those statements were made with the intent to induce any person or persons to purchase or sell the stock. As the court explained, "the defendant need not have sold stock to the party to whom the false or misleading statement was made."

The court issued an important unfair competition decision in Cel-Tech Communications Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163. The case involved allegations of below cost sales of cellular telephones where the defendant was one of two government-protected providers of cellular services. The below cost sales by the defendant were intended to gain subscribers where the losses on sales of cellular telephones would be offset by increased sales of services. The plaintiffs were competitors in the market for cellular telephones which were not allowed to sell services. The case alleged violations of both the Unfair Practices Act (Bus. & Prof. Code 17043-17044 (below-cost sales and loss leaders)) and Unfair Competition Law (Bus. & Prof. Code 17200 et seq.).

The court held that a violation of the below-cost sales and loss leader provisions of the Unfair Practices Act could be established only with evidence that the defendant had a purpose or desire to injure competitors or destroy competition. Since the evidence established that the defendant's purpose was simply to compete for subscribers and not to injure competitors or destroy competition, the court held that the Unfair Practices Act claims were properly dismissed by the trial court.

However, the claims under the Unfair Competition Law were given different treatment. The court noted that 17200 contained much broader language than the Unfair Practices Act, generally proscribing "any unlawful, unfair or fraudulent" practice. Since the below cost sales were not unlawful under the Unfair Practices Act or any other law, and since there was no allegation of fraud, the issue was whether the practice was "unfair." The court began its discussion by noting that, on the one hand, a practice did not have to be unlawful to be unfair, and, on the other hand, that a practice which fit within a statutory "safe harbor" would be declared fair as a matter of law. A number of lower courts had suggested that a practice was unfair when it offends public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers. The court found these definitions to be too vague. In order to give businesses adequate guidance as to what is fair and what is unfair, the court held that in an action brought by a competitor under 17200, a practice would be unfair only if the practice "threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition." This standard was drawn from analogous federal cases interpreting one part of 5 of the Federal Trade Commission Act (15 U.S.C. 45(a)). The court's holding brings a measure of welcome certainty to the interpretation and application of 17200. But businesses should not rejoice for too long, since the court pointedly warned in footnote 12 that its holding applied only to an action involving a business against its competitor alleging competitive injury and that a different standard might apply in a case where an injury to consumers is alleged.

Finally, proximate cause was the issue in PPG Industries Inc. v. Transamerica Insurance Co. (1999) 20 Cal.4th 310, where an insured sued its liability insurer for a breach of the covenant of good faith and fair dealing arising out of the insurance company's failure to settle the underlying claim and sought to recover as compensatory damages in that action the amount of punitive damages that had been assessed against the insured in the underyling lawsuit. The insured asserted that the failure to settle was a proximate cause of the punitive damage award. The court agreed that the failure to settle was a cause in fact of the punitive award, but that it was not a proximate cause of the punitive award. The case is a good example of how proximate cause really has very little to do with causation and has everything to do with public policies regarding the existence and extent of liability. As the court emphasized, proximate cause "is ordinarily concerned, not with the fact of causation, but with the various considerations of policy that limit an actor's responsibility for the consequences of his conduct." In this case, the court found that permitting the insured to recover from the insurer punitive damages that had been assessed in the underlying action against the insured would run afoul of important state policies that generally prevent a tortfeasor from avoiding the sting of punitive damages. An insurance company can be liable for punitive damages because of its own misbehavior, but the insured cannot shift the burden of the insured's punitive damages to his or her insurer.

Media and First Amendment

It was a mixed year for the media, with an important victory but some very disappointing defeats. The most significant victory was in NBC Subsidiary (KNBC-TV) Inc. v. Superior Court (1999) 86 Cal.Rptr.2d 778, where the court held that both the "open courts" statute (C.C.P. 124) and the First Amendment requires that ordinary civil trials be opened to the public. Courts can close ordinary civil trials only after giving adequate notice of a contemplated closure and after making specific findings establishing an overriding interest in closure, that the interest would probably be prejudiced absent closure, that closure is narrowly tailored to serve the interest, and that there is no less restrictive means of protecting the interest.

The court's opinion, by the chief, is a virtual handbook for counsel and courts about public and media access, and a lot of the details are found in the many and lengthy footnotes in the opinion. Although the case is a big victory for the media, which for many years has been seeking a clear holding establishing a constitutional right of access to civil trials, the opinion is a model of balance. For example, the court recognizes in footnote 46 a substantial number of interests that might justify closure (e.g., protection of minor victims of sex crimes from further trauma, privacy interest of juror during voir dire, protection of witness from embarrassment or intimidation so severe that witness would be unable to testify, national security, preservation of confidential investigative information, and, most important to business, protection of trade secrets and enforcement of contractual non-disclosure obligations).

The press and the cameras are in the courtroom, but after Sanders v. ABC Inc. (1999) 20 Cal.4th 907, we won't be seeing cameras quite as often hidden in the backpacks or purses of investigative reporters attempting to snag lucrative, even though not Pulitzer Prize-winning, stories. The reporter in this case used a "hat cam" (just imagine the fun Dave Letterman could have with a "hat cam" on the streets of New York) to record workplace conversations as part of an investigation of the telepsychic industry. The reporter had secured employment with the Psychic Marketing Group ("PMG"), no doubt under false pretenses since there was no evidence the reporter was actually psychic, and began work in one of PMG's one hundred cubicles (in case you wondered, the days of the crystal ball are gone; all you need now is a cubicle and a 1-900 number). One of the employees who had been videotaped sued for invasion of privacy by intrusion. A jury found in the employee's favor and awarded $335,000 in compensatory damages and $300,000 in punitive damages.

The only issue before the court was whether the intrusion tort extended to situations where one person surreptitiously videotaped a conversation between coworkers in a work setting where the conversation could be overheard by other coworkers but not by the general public. Last year, in Shulman v. Group W Productions Inc. (1998) 18 Cal.4th 200, the court struck a blow at "emergency scene" television shows by holding that a person who had been severely injured had a privacy interest that was potentially invaded by having a rescue nurse record a conversation with the victim using a small microphone which had been attached to the nurse. The court in Shulman held that even though the injured victim was in a public place and the conversation with the nurse could have been overheard by other rescue workers, the conversation was still potentially private for purposes of the intrusion tort since the conversation could not have been overheard by the general public.

In Sanders, the court extended that reasoning to covert videotaping of coworkers conversing in the workplace, holding that the reasonableness of a plaintiff's expectation of privacy depends not only upon a head count of who might have heard or seen the plaintiff, but also upon the identity of the intruder and the means of intrusion. The media defendant predictably protested that "the adoption of a doctrine of per se workplace privacy would place a dangerous chill on the press' investigation of abusive activities in open work areas, implicating substantial First Amendment concerns." The court brushed this concern aside, noting that it had not adopted a "per se" rule and that the First Amendment issues had not been decided below or presented for the court's review. In other words, chill out about the so-called chill.

The final media case worthy of mention is Khalid Iqbal Khawar v. Globe International Inc. (1998) 19 Cal.4th 254. The Globe, a weekly tabloid, republished the substance of an allegation that had been made in a recently published book that one "Ali Ahmand" was the real killer of Robert Kennedy. The book contained a photograph showing the alleged "Ali Ahmand" standing near Kennedy holding a camera, which the book claimed was actually a gun. The Globe republished the photograph with an arrow pointing at the alleged murderer. The plaintiff, Khalid Iqbal Khawar, was the young man in the picture, and he sued for defamation. The evidence established that the plaintiff was a free-lance photojournalist at the time of the Kennedy assassination, that the plaintiff had been questioned by both the FBI and LAPD, but that neither agency had ever considered him a suspect. The jury awarded him $675,000 in compensatory and presumed damages, and $500,000 in punitive damages.

In unanimously affirming the verdict, the court limited the category of "involuntary public figures" (which the U.S. Supreme Court had very briefly mentioned in Gertz v. Robert Welch Inc. (1974) 418 U.S. 323) to those persons who had either (a) engaged in purposeful activity inviting public criticism, or (b) acquired such public prominence in relation to a public controversy that they had sufficient media access to counter the media-published defamation.

Applying this test, the court found the plaintiff to be a private figure. The Globe also argued that it should be protected by the so-called "neutral reportage privilege" which would absolutely protect the press when it simply reports information of public interest. The court held that the neutral reportage privilege, if it exists at all in California, does not extend to defamatory republications of accusations against private figures.

Criminal cases

On the criminal side, the court continues to struggle with Three Strikes. In People v. Garcia (1999) 20 Cal.4th 490, the court held that the trial court's discretion to dismiss prior conviction allegations should be exercised on a count-by-count basis, which means that a prior conviction allegation can be dismissed with respect to one count but not another. As a result, the court affirmed the trial court's sentence of 30 years to life for the first count, and only one year and four months, to run consecutively, for the second count. As the court noted, 31 years, 4 months to life is not a lenient sentence, which is why the court rejected the attorney general's contention that the trial court's sentence "eviscerated" the Three Strikes law.

In People v. Garcia (1999) 1999 Westlaw 548383, the court resolved an extremely knotty problem of interpretation by holding that a prior juvenile adjudication for an offense that would qualify as a prior felony conviction if it were the subject of an adult conviction, would qualify as a strike if, in the prior juvenile proceeding, the juvenile was adjudged a ward of the juvenile court because the person committed an offense listed in subdivision (b) of 707 of the Welfare and Institutions Code. Anyone with the stamina to wade through the strange twists and gyrations of this opinion is ready for the next generation of roller-coasters. But it's not the court's fault; the relevant provisions in the Three Strikes law are essentially irreconcilable, and the court had to do the best it could under difficult circumstances.

Conclusion

The cases described above are just a few of the many important decisions rendered this year, but they do give an indication of the intellectual diversity that characterizes the California Supreme Court.