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August 1995 
Vol. 1 No. 2 ISSN 1087-6219
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The California Supreme Court has ruled that the Unruh Civil Rights Act applies to a private country club that engaged in regular and repeated business with nonmembers. The ruling came in a lawsuit filed by a woman real estate agent who was denied full membership in the club.
Mary Ann Warfield had enjoyed regular access to the Peninsula Gulf & Country Club through her husband's family membership. After her marriage dissolved, the club terminated the membership (which carried a proprietary interest in the club), and offered her a nontransferable, nonproprietary membership. She refused what she considered "second class citizenship," and filed a lawsuit.
The Supreme Court ruled that the club was a "business establishment" subject to California anti-discrimination law. Truly private social clubs do not fall within the statute's purview. However, the Peninsula Club opened its pro shops to the general public, and allowed nonmembers to host events at the club an average of once a week under the sponsorship of members. The court rejected an argument that application of the Unruh Act violated the club members' constitutional right to "intimate association," because the club had a large membership (700 members) and substantial interaction with nonmembers.
The Supreme Court may revisit the Unruh Act in two pending cases-Randall v. Orange County Council, 33 Cal. App. 4th 731 (1994) and Curran v. Mount Diablo Council, 34 Cal. App. 4th 299 (1994)-which took opposite positions on application of the Unruh Act to the Boy Scouts. In those cases, the court would have to consider the impact of the United States Supreme Court's recent decision in Hurley v. Irish-American Gay, Lesbian and Bisexual Group of Boston, 1995 U.S. LEXIS 4050 (June 19, 1995). That case held that the organizers of Boston's St. Patrick's Day parade had a right to exclude marchers expressing a gay pride message.
Warfield v. Peninsula Golf & Country Club, 10 Cal. 4th 594 (1995).
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The California Supreme Court has ruled that a liability insurer's obligation to defend and indemnify its insured is triggered by the occurrence of bodily injury or property damage during the policy period. Bodily injury and property damage that is continuous or progressively deteriorating throughout several policy periods is potentially covered by all policies in effect during those periods. The ruling came in a case involving coverage for lawsuits arising out of alleged DDT contamination.
In Prudential-LMI Commercial Ins. v. Superior Court, 51 Cal. 3d 674 (1990), the Supreme Court had dealt with first party property insurance. It held that only the insurer insuring the property when appreciable damage first became apparent had a duty to indemnify the party who suffered damage. However, the standard comprehensive general liability policy defines the "occurrence" that triggers coverage to include "continuous or repeated exposure to conditions." That language and analytical differences between the two types of policies required a different rule for liability insurance.
The Court also ruled that the insurer could not avoid its obligations to indemnify and defend by resort to the "loss-in-progress" rule. Under that rule, a policy does not cover a loss that was "known or apparent" before it was issued.
In this case, the insured chemical company received notice that it was a potentially responsible party under federal environmental law, before issuance of the policy in question. That did not make injuries that occurred during the policy period uninsurable. While injury of some kind may have been inevitable in light of the contamination, the company did not know exactly what injuries would occur. It also could not know which parties would attempt to impose liability.
The Supreme Court left open the possibility that it might adopt a different rule for asbestos-related bodily injury claims, which involve what it called unique facts. The Court granted review last year in a case involving the duty to indemnify for asbestos claims, but has so far deferred briefing. See Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co., 35 Cal. App. 4th 192 (1993), review granted, 866 P.2d 1311, 27 Cal. Rptr. 2d 488 (Jan. 27, 1994).
Montrose Chem. Corp. of California v. Admiral Ins. Co., 10 Cal. 4th 645 (1995)
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The First District Court of Appeal in San Francisco has ruled that a secured lender lost most of her damages claims against an escrow agent, when she purchased her real property security with a full credit bid at a foreclosure sale. She may pursue a claim for payment of an unauthorized broker's commission, because that was a loss beyond the unpaid loan.
Endolio Romo sold her home. She received cash, the proceeds of a loan secured by a first deed of trust, and second and third deeds of trust. After the buyer defaulted, Romo foreclosed on her third deed of trust. She repurchased the home at the foreclosure sale by bidding the full amount owed to her on the loan secured by that deed of trust-a "full credit" bid. She did not keep current the loan secured by the first deed of trust. That lender foreclosed, and Romo lost the property. Romo sued Stewart Title, which was the escrow agent on the original sale transaction. She claimed that Stewart Title participated in fraud and forgery accompanying the original sale of her home.
Stewart Title argued that all Romo's claims were barred by the full credit bid rule, as explained in Cornelison v. Kornbluth, 15 Cal. 3d 590 (1975). In Cornelison, the Supreme Court ruled that a trust deed holder who purchased her real property security with a full credit bid could not sue for waste. The full credit bid established that her security interest had not been impaired. Therefore, she could not prove any damages in a waste action.
After Cornelison, the courts of appeal extended the full credit bid rule to bar other claims aimed at recovering any difference between the amount owed and the amount realized on the real property security. See, e.g., Commonwealth Mortgage Assurance Co. v. Superior Court, 211 Cal. App. 3d 508 (1989) (fraud). Other decisions upheld claims that did not seek to recover the benefit of the bargain in the original loan transaction. See, e.g., Sumitomo Bank v. Taurus Developers, Inc., 185 Cal. App. 3d 211 (1986) (negligent construction).
In Romo's action, the Court of Appeal applied the full credit bid rule to five separate items of damage. (1) She could not recover the amount of the loan secured by the third deed of trust, because that represented the benefit of the loan bargain. (2) She could not recover the amount of the loan secured by the second deed of trust, because her bid at the foreclosure sale established the value of all indebtedness. (3) She could not recover emotional distress damages for worrying about the buyers' failure to pay, because she had established no compensable financial injury. (4) She could seek recovery of a commission that Stewart Title paid to a real estate broker who Romo claimed was unlicensed. That was not part of the loan transaction. (5) If she proved intentional fraud or concealment, she could recover punitive damages.
Romo v. Stewart Title of California, 35 Cal. App. 4th 1609 (1995).
Practice
Tip The Romo case illustrates the need for a secured creditor to evaluate
all possible sources of recovery before submitting a bid at the foreclosure sale. A full
credit bid may also extinguish a secured lender's claims to insurance proceeds and to any
rents collected prior to the foreclosure sale. Since there is no legal requirement to bid
the full amount of the indebtedness, the lender should usually reduce its bid by any
amount that could be recovered from such sources.
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The San Diego division of the Fourth District Court of Appeal has affirmed a jury verdict in favor of a former San Diego Charger football player who was beaten in a restaurant parking lot. The court was responding to the California Supreme Court's direction to reconsider an earlier opinion in the case in light of Ann M. v. Pacific Plaza Shopping Ctr., 6 Cal. 4th 666 (1993).
Joseph Phillips got into an argument with three men while walking from Saska's restaurant to the parking lot provided for its customers. The argument escalated into a physical assault in the parking lot. The evidence established that Saska's was in a high crime area, and that neighbors had complained to Saska's management about "hostile disturbances" in the parking lot. There was no evidence that anyone had ever reported an actual assault in the parking lot, although assaults had in fact occurred there before.
In the Ann M. case, the Supreme Court held that the owner of a strip mall in a high crime area did not have a duty to provide a roving security guard patrol. The plaintiff (who had been raped in her employer's store) had not proved any prior similar incidents of violent crime on the premises. Ann M. held that the foreseeability necessary to establish a duty to provide guards "rarely, if ever, can be proven in the absence of prior similar incidents of violent crime on the landowner's premises."
The Court of Appeal in this case seized on a footnote in the Ann M. decision. The note suggested that certain businesses, such as parking garages and all-night convenience stores, create "an especial temptation and opportunity for criminal misconduct." Such businesses may have a duty even in the absence of prior similar incidents.
Saska's catered to a late night crowd by staying open until 3:00 a.m. Its manager knew that the restaurant was in a high crime area, but forced customers to walk down the street to a parking lot after other businesses in the area had closed. Those facts put Saska's on sufficient notice to create a duty to investigate. Because an investigation would likely have uncovered the prior similar (but unreported) incidents, Saska's was on constructive notice of the prior assaults. Therefore, it had a duty to protect its customers from criminal assaults.
In addition, expert evidence established that merely providing a parking attendant would have substantially reduced the risk of harm. Phillips did not claim a duty to provide a security guard patrol, as the plaintiff in Ann M. had.
Justice Froehlich dissented. The record established only that Saska's was in a high crime area, which made the case indistinguishable from Ann M. Creation of a duty to investigate as a means of circumventing the Ann M. ruling was inappropriate. Courts should read Ann M. to mean that "a landlord is not required to provide off-premises protection for customers unless a specific prior incident involving his customers shows with clarity the obligation to do so."
In another recent decision, the Ventura division of the Second District Court of Appeal has ruled that a shopping center that hires a security guard has a duty to control wrongful conduct that threatens its patrons. The duty exists even if the business had no notice of any prior similar incidents on the premises. The court relied on the pre-Ann M. case of Marois v. Royal Investigation & Patrol, Inc., 162 Cal. App. 3d 193 (1984).
Phillips v. Perils of Pauline Food Prod., Inc., 35 Cal. App. 4th 1510 (1995); Trujillo v. G.A. Enter., Inc., 1995 Cal. App. LEXIS 661 (Cal. Ct. App. July 18, 1995).
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The Second District Court of Appeal in Los Angeles has determined that a cancer patient may recover damages for emotional distress damages associated with learning that malpractice reduced his chances of surviving ten years from 40 percent to 13 percent. In the course of its opinion, the court considered, but did not adopt, the controversial "lost chance" measure of damages that has gained a foothold in some other states.
On a referral from Dr. Blankfort, Dr. Schlemenson removed a malignant melanoma from Steven Werner's back. There was evidence at trial that neither doctor provided sufficient cautionary advice about the likelihood of a recurrence. When the melanoma did recur, Dr. Blankfort failed to diagnose it. The doctors' malpractice reduced Werner's chances of surviving for ten years from 40 percent to 13 percent.
Generally, a plaintiff may not recover damages unless he or she proves that the malpractice reduced the chance of achieving a better medical result from more than 50 percent to less than a probability. Because of the all or nothing nature of that rule, some jurisdictions have adopted a "reduced chance" approach to such cases. That approach would award a plaintiff in Werner's position a portion of the future tort damages based on his or her reduced chances of survival. The leading article is Joseph H. King, Causation, Valuation, and Chance in Personal Injury Torts Involving Preexisting Conditions and Future Consequences, 90 Yale L.J. 1353 (1981). For a recent case adopting the rule, see Delaney v. Cade, 255 Kan. 199, 873 P.2d 175 (1994).
California courts of appeal have so far rejected the doctrine. See, e.g., Dumas v. Cooney, 235 Cal. App. 3d 1593 (1991). The Supreme Court has not faced the issue. While this court seemed receptive, it did not have to adopt the doctrine to allow Werner to recover. Werner sought only damages for pain and suffering caused by learning about, and then living with, the fact that the doctors' malpractice had substantially reduced his chance of survival. Recovery of those damages is consistent with traditional principles. See, e.g., Duarte v. Zachariah, 22 Cal. App. 4th 1652 (1994) (allowing recovery of damages for emotional distress associated with learning that injury to bone marrow would prevent cancer treatment).
Werner v. Blankfort, 1995 Cal. App. LEXIS 601 (Cal. Ct. App. June 29, 1995).
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Subsequent treatment of decisions reported on in earlier issues:
Camp v. Jeffer, Mangels, Butler & Marmaro (July 1995 issue), modified, 95 Daily Journal D.A.R. 8693. (The modifications do not affect the substance of the ruling.)
Fleming v. Imperial Corp. of America (July 1995 issue), now reported at 35 Cal. App. 4th 1160 (1995).
People v. Gionis (June 1995 issue), rehearing denied (July 13, 1995).
Standing Committee on Discipline v. Yagman (July 1995 issue), now reported at 55 F.3d 1430 (9th Cir. 1995).
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