SUMMER 2003

I. LEGISLATIVE/REGULATORY UPDATE
Pending Legislation

Senate Bill 688 Faces Scrutiny

Senate Bill No. 688 (“SB 688”) was signed into law by Governor Davis on September 11, 2002, and became effective January 1, 2003. This legislation extended the statute of limitations from one year to two years for actions for assault, battery, or injury to, or for the death of, a person caused by the wrongful act or neglect of another. SB 688 also extended the required notice period for motions for summary judgment and summary adjudication from 28 days to 75 days before the hearing date, in an effort to provide opposing parties with an opportunity to engage in discovery while a motion is pending.

Now, just six months after SB 688 went into effect, Senate Bill 1013 (“SB 1013”) (Ackerman) proposes to amend Sections 340, 340.10, and 437c, and to repeal Sections 335.1, 1281.96, and 1284.3, of the California Code of Civil Procedure, relating to civil actions. SB 1013 would provide that the statute of limitations for an action for assault, battery, or injury to, or for the death of, an individual caused by the wrongful act or neglect of another is again one year, rather than two years, except for the victims of the September 11, 2001 terrorist attacks. Additionally, SB 1013 would revise the summary judgment and summary adjudication motion provisions to narrow the service deadline from 75 days back to 28 days. The bill would also delete related provision of law requiring a reviewing court to grant continuances and allow supplemental briefings under specified circumstances. SB 1013 is currently before the Senate Judiciary Committee.

II. JUDICIAL UPDATE

Court May Enforce Settlement Made Partially in Writing
Outside of Court and Partially Orally Before the Court

In Elyaoudayan v. Hoffman, the dispute concerned Elyaoudayan’s attempt to purchase real property from the Hoffmans. The parties reached a global settlement and all parties and their counsel appeared before the court, with the exception of the Hoffmans who were ill. The Hoffmans’ attorney advised that court that he had authority to enter into the settlement on their behalf. After the settlement was placed on the record and each party provided his or her oral consent to the terms of the settlement, the court approved the settlement. The settlement was to be enforceable under section 664.6 of the Code of Civil Procedure. Later, a proposed written agreement was circulated and the agreement was executed in counterparts. All parties personally signed the written agreement, with the exception of Elyaoudayan, who did not sign. Elyaoudayan filed a motion to set aside the stipulated settlement and reset the case for trial, arguing that the settlement was not enforceable because the Hoffmans had not been present in court when the oral agreement was put on the record.

The Elyaoudayan court held that, under Code of Civil Procedure section 664.6, a trial court may enforce a settlement agreement made during pending litigation if the parties entered into the agreement either orally before the court or in writing outside the presence of the court. Further, a party who agrees to a settlement in writing outside the presence of the court may enforce the settlement against a party who agreed to the same settlement orally before the court. The law does not preclude a “mix and match” approach to the manner of agreement as long as all parties agree to the same material terms.

Judicial Reference Clause in Home Purchase Contract Found Enforceable

Woodside Homes of California, Inc. v. Superior Court of Riverside concerned the judicial reference clause in Woodside’s standard contract for the purchase of homes. Woodside is a developer of home tracts. Buyers purchased homes from Woodside’s affiliated sales arm under standard contracts which required any lawsuit “relating to the condition, design or construction of any portion of the [purchased home]” to be submitted to judicial reference pursuant to Code of Civil Procedure sections 638, subdivision (l), and 641 through 645.1. Under the provision, the referee is to be a retired judge or attorney with substantial experience in real estate matters. The referee shall render a statement of decision and the decision may be entered as a judgment, but is appealable. The contracts also provided that, “Seller shall not be required to participate in the judicial reference proceeding unless it is satisfied that all necessary and appropriate parties will participate.” The parties are to share costs and the referee’s fees equally, “unless the referee orders otherwise.” Each party shall remain responsible for their own attorneys’ fees.

The Woodside Homes court reviewed the recent decision by the court in Pardee Construction Co. v. Superior Court, which had resulted in the invalidation of a clause requiring judicial reference of disputes in the same context of tract homes. The Woodside Homes court distinguished the Pardee case and held that the contracts in Woodside Homes lacked most if not all of the procedurally and substantively unconscionable factors found to exist in Pardee. The court found the provision in the Woodside Homes sales contract, which required homebuyers who sue the builder to submit their disputes to binding judicial reference, to be enforceable, but advised that it had “narrowly tailored” its analysis to the record and the parties’ agreements and did not purport to hold that all agreements for judicial reference are valid and enforceable.

Code of Civil Procedure Section 340.9 Held to Revive All Insurance Claims for Damages for Victims of the Northridge Earthquake

Campanelli v. Allstate Life Insurance Company involved the owners of homes that were insured by Allstate and were damaged on January 17, 1994, by the Northridge earthquake. Within a year of the earthquake, all the homeowners made claims to Allstate for the earthquake damage to their homes. All of them received payments for the damage and their claims were closed by Allstate over the next two years. Sometime in May 1998, however, the homeowners learned that there were questions regarding the authenticity of the engineering reports they had received from Allstate during the claims adjustment process. The homeowners alleged that, in fact, the reports were not prepared by engineers, engineers never inspected their homes, and that, as a result, their insurance claims were undervalued, causing the homeowners to receive less than complete compensation for the damage to their homes. Allstate asserted that their claims were barred by the one-year statute of limitations period of their insurance contracts.

The Campanelli court found that Code of Civil Procedure section 340.9, which came into effect on January 1, 2001, revives the time-barred insurance claims for damage arising solely out of the Northridge earthquake, including claims barred by statutorily-mandated contractual limitations periods. Section 340.9 revives all causes of action that fall within the limitations period of Insurance Code section 2071. Under California law, any claim that is “grounded in a failure to pay benefits that are due under the policy” is treated as “on the policy” for purposes of Section 2071’s limitations period. Additionally, the court held that all of the homeowners’ state-law causes of action (negligent and intentional misrepresentation) were revived, removing any limitations-period defense.

Real Estate Developer’s Lawsuit Against Port District
Properly Struck Under Anti-SLAPP Law

In Tuchscher Development Enterprises, Inc. v. San Diego Unified Port District, Tuchscher sued the Port District and one of its then commissioners for inducing breach of contract, intentional and negligent interference with prospective economic advantage, and violation of the unfair competition law (Bus. & Prof. Code section 17200 et seq.), stemming from the Port District’s conduct which was alleged to have interfered with an exclusive negotiating agreement between Tuchscher and other entities relating to the commercial development of certain property. The Port District asserted that the lawsuit arose from its exercise of its rights of petition and free speech in connection with a public issue.

Code of Civil Procedure section 425.16 (commonly referred to as the anti-SLAPP statute; “SLAPP” stands for “strategic lawsuit against public participation”) permits a court to dismiss certain types of nonmeritorious claims early in the litigation by means of a special motion to strike. In the anti-SLAPP context, the critical consideration for the defendant’s initial burden is whether the cause of action is based on the defendant’s protected free speech or petitioning activity. In Tuchscher, the court found no dispute that the proposed development of Crystal Bay was a matter of public interest, and thus, the Port District’s statements and writings fell within the ambit of Section 425.16. The court also found that Tuchscher did not meet its independent burden in opposition to the Port District’s motion to strike under Section 425.16 to demonstrate a probability of prevailing on the merits of its claims. Accordingly, the court affirmed the trial court’s judgment in the Port District’s favor.

Document Inadvertently Produced Was Found Not Protected Under Work Product Doctrine

JumpSport, Inc. v. Jumpking, Inc. involved the important issue of whether a document that was inadvertently produced in response to a discovery request was “prepared in anticipation of litigation” as that phrase is used in Federal Rule of Civil Procedure 26(b)(3) to fix the outer boundaries of the work product doctrine.

JumpSport is a small company engaged in the business of designing, manufacturing and selling trampoline enclosures, trampolines, and related games and accessories. It owns two United States patents for trampoline safety enclosures. JumpSport sued Jumpking, a large manufacturer of trampolines, for patent infringement. In response to discovery propounded by Jumpking, JumpSport produced a large quantity of documents that inadvertently included a draft of a report, assessing the value of the company and the patents it held, and including an independent legal analysis of its patent rights by a lawyer with expertise in intellectual property. The report had been created for purposes of applying for patent litigation insurance, which JumpSport ultimately chose not to obtain. JumpSport, upon realizing its error, promptly asked Jumpking to return the document, contending that it was protected by the work product doctrine. Jumpking refused.

The U.S. District Court, Northern District of California, concluded that when a court is trying to decide whether a document was “prepared in anticipation of litigation” it should apply a two-stage test. In the first stage, the court should determine whether the party trying to invoke work product protection has shown that the prospect of litigation was a substantial factor in leading to the preparation of the document. Only if the party trying to invoke the protection makes this showing does the court proceed to the second stage of the analysis. In the second stage, the court focuses on the policy objectives that the work product doctrine has been developed to promote, and then determines whether denying or conferring Rule 26(b)(3)’s protections would harm or advance those objectives. The court found that JumpSport satisfied the requirements of the first stage of the test, but did not satisfy the second stage because the content of the report and the circumstances of its preparation removed it “too far from the heartland of work product sensitivity to justify ruling that it warrants protection” under the doctrine. Thus, Jumpking did not need to return the document.

If you would like to discuss these or any other construction law matters, please contact a construction law specialist in Klinedinst's Construction Law Department.

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