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September 1995 
Vol. 1 No. 3 ISSN 1087-6219
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In the latest of its cases to set limits on tort liability, the California Supreme Court has overruled a 10-year old decision that held residential landlords strictly liable to their tenants for personal injuries. The old decision-Becker v. IRM Corp., 38 Cal. 3d 454 (1985)-was handed down during the tenure of Chief Justice Bird. Critics of the Bird court frequently cited Becker as evidence of that court's alleged hostility to business interests.
In Becker, the Supreme Court had applied product liability principles to determine that a landlord could be strictly liable for injuries to a tenant who slipped and fell against a glass shower door. Justices Lucas and Mosk, the only justices who remain from the court that decided Becker, dissented. They argued that the decision was an unwarranted expansion of tort liability.
Justice Lucas became Chief Justice Lucas in February 1987. Since then, the Supreme Court has consistently tended to limit, rather than to expand, tort liability. See, e.g., Hunter v. Up-Right, Inc., 6 Cal. 4th 1174 (1993) (restricting wrongful termination plaintiffs to contract remedies, absent proof of a violation of public policy); Moradi-Shalal v. Fireman's Fund Ins. Cos., 46 Cal. 3d 287 (1988) (limiting insurance bad faith lawsuits by overruling Royal Globe Ins. Co. v. Superior Court).
The new case involved a hotel guest who suffered head injuries when she slipped and fell in the bathtub while taking a shower. Rejecting the guest's attempt to rely on Becker, the Supreme Court noted that the case had "drastically" changed the established rules for landlord liability, and had gotten a "chilly" welcome from commentators and other courts. Finding that landlords and hotel owners were not sufficiently similar to retailers of products to justify application of strict products liability, the court expressly overruled Becker. It noted that plaintiffs could still sue landlords and hotel owners for negligence.
Peterson v. Superior Court, 1995 Cal. LEXIS 4785 (Cal. Sup. Ct. Aug. 21, 1995).
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Expressing its surprise at being forced by the Supreme Court to reconsider an earlier decision, the Ninth Circuit has come to the same conclusion the second time around. The court determined that California state law provided the same answer as federal law with respect to the defenses that the defendant may assert in an action brought by the FDIC in its role as a receiver for failed institutions.
After the FDIC took over American Diversified Savings Bank, it sued O'Melveny & Myers. The FDIC claimed that the law firm had not informed the bank about fraudulent activities by the bank's officers. O'Melveny argued that the bank officers' knowledge of the fraud should be imputed to the bank, and through the bank, to the FDIC. O'Melveny then asserted that imputed knowledge as a defense to the FDIC's claims.
The federal district court in Los Angeles granted summary judgment for O'Melveny, but the Ninth Circuit reversed in its initial decision. FDIC v. O'Melveny & Myers, 969 F.2d 744 (9th Cir. 1992). The court decided that federal common law governed the availability of defenses against the FDIC. It then ruled that federal common law precluded O'Melveny's defenses.
The Supreme Court reversed. O'Melveny & Myers v. FDIC, 114 S.Ct. 2048 (1994). It first reminded the litigants that there has been no "federal general common law" since Erie R. Co. v. Tompkins, 304 U.S. 64 (1938). The Court found nothing that would bring the case within the limited situations where the Court had adopted a special federal "common law" rule. Such situations have involved a significant conflict between a federal interest and the use of state law, which was lacking in the O'Melveny case. The Court returned the case to the Ninth Circuit to determine whether state law recognized O'Melveny's defenses.
On remand, the Ninth Circuit decided that California law did not permit O'Melveny to raise imputed knowledge as a defense against the FDIC. A receiver generally occupies no better position than its predecessor-in-interest. However, California law allows a receiver to avoid defenses based on the predecessor's inequitable conduct. This was an appropriate case to apply that principle.
FDIC v. O'Melveny & Myers, 1995 U.S. App. LEXIS 19609 (9th Cir. July 26, 1995).
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California's anti-SLAPP statute applies to libel actions against newspapers for articles about official proceedings, the First District Court of Appeal in San Francisco has ruled. Therefore, plaintiffs may not proceed with such lawsuits unless they establish a probability that they will prevail.
SLAPP stands for "Strategic Lawsuits Against Public Participation." The term describes an action brought to prevent or punish the exercise of political rights. In a typical case, a developer sues environmental activists for actions arising out of opposition to a planned development. See the discussion in Wilcox v. Superior Court, 27 Cal. App. 4th 809 (1994).
Because of concern that such lawsuits might unfairly chill the valid exercise of rights, the California legislature enacted an anti-SLAPP statute. See Cal. Civ. Proc. Code § 425.16. It applies to any claim that arises from exercising political rights in connection with a public issue. The statute provides that a defendant may have such a claim dismissed on motion unless the plaintiff establishes a "probability" that he or she will prevail.
In the case before the court of appeal, the San Francisco Chronicle published a series of articles about a dispute between the Contra Costa County Board of Supervisors and More University. The articles characterized More as a "sensuality school," and made other unflattering remarks about the school and its founder.
The trial court dismissed the school's ensuing lawsuit pursuant to the anti-SLAPP statute. On appeal, the school argued that the statute was not meant to protect wealthy media defendants, but only defendants like the environmental activists described in the Wilcox case. The court of appeal refused to read such a limitation into the statute. Media defendants fall within the literal terms of the statute, and are entitled to its protection.
The court also rejected More's constitutional arguments. The statute did not unfairly discriminate against SLAPP litigants, nor did it violate the right to a jury trial. The court was concerned that the statute imposed a stay of all discovery upon filing of the motion to strike. However, the court ruled that a plaintiff could still obtain discovery upon a showing that needed evidence was in the hands of someone else.
Lafayette Morehouse, Inc. v. Chronicle Publishing Co., 1995 Cal. App. LEXIS 762 (Cal. Ct. App. Aug. 9, 1995).
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The Third District Court of Appeal in Sacramento has decided that a plaintiff who voluntarily dismisses its action may be liable as a "losing party" under an attorney fees clause in a contract. The court disagreed with a recent decision by the First District Court of Appeal in San Francisco. See Jue v. Patton, 33 Cal. App. 4th 456 (1995). That court had decided that there was no right to attorney fees in such circumstances, in light of the Supreme Court's ruling in International Indus., Inc. v. Olen, 21 Cal. 3d 218 (1978).
The attorney fees clause in a lease provided that "the losing party shall pay the successful party a reasonable sum for attorneys' fees . . . whether or not such action is prosecuted to judgment." After the landlord voluntarily dismissed an unlawful detainer action, the trial court awarded the tenant his attorney fees. The court of appeal affirmed.
Contracting parties are generally free to agree on how to allocate the costs of litigation. Cal. Civ. Proc. Code § 1021. Under Civil Code section 1717, the party who prevails on a contract may recover attorney fees, even if the contractual clause is one-sided. However, by its express terms, the statute does not apply to voluntary dismissals. Cal. Civ. Code, § 1717(b)(2).
In Olen, the Supreme Court had interpreted an earlier version of section 1717 that did not contain the current express limitation on its reach. It ruled that, after a voluntary dismissal, the parties would have to bear their own attorney fees, "whether claim is asserted on the basis of the contract or section 1717's reciprocal right." The Jue decision took the Supreme Court at its word, and decided that there was no contractual right to attorney's fees after a voluntary dismissal.
This court pointed out that the Supreme Court's statement about the limit on a contractual right was not necessary to the decision. There had also been legislative changes to section 1717 in the intervening years. Therefore, the court declined to follow Jue, and allowed recovery of attorney fees under the contract following a voluntary dismissal.
Honey Baked Hams, Inc. v. Dickens, 1995 Cal. App. LEXIS 732 (Cal. Ct. App. Aug. 1, 1995).
Practice
Tip This case is a reminder of the need to distinguish between the statutory right
to attorney fees provided by section 1717, and the contractual right set forth in the
parties' agreement. Honey Baked Hams illustrates one possible difference. There are
others:
1. Section 1717 authorizes recovery for the party who prevails "on the contract." The courts have generally defined that phrase to include only contract causes of action. It does not apply to tort causes of action that arise out of or relate to the contract. Reynolds Metals Co. v. Alperson, 25 Cal. 3d 124 (1979). The contractual right is not so limited. Xuereb v. Marcus & Millichap, Inc. 3 Cal. App. 4th 1338 (1992).
2. The courts of appeal are split as to whether the "reasonable attorney's fees" authorized by section 1717 includes expert witness fees. Compare Bussey v. Affleck, 225 Cal. App. 3d 1162 (1990) (expert fees included) with Ripley v. Pappadopoulos, 23 Cal. App. 4th 1616 (1994) (expert fees not included). The contractual right may cover expert fees.
3. There may also be a difference in the procedures for claiming fees. A party normally recovers attorney fees as part of its costs of suit, by filing a post-judgment motion. Cal. Civ. Proc. Code § 1033.5(c)(5); Cal. R. Ct. 870.2. The Ripley court said that expert fees are not "attorney" fees, and, therefore, must be specially pleaded and proved at trial.
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In a case involving several employees fired for drug-related activities, the Ninth Circuit has explained the distinction between discharge based on a disability, and discharge based on misconduct associated with the disability. The court ruled that the Americans with Disabilities Act (ADA) does not prohibit a discharge based on misconduct associated with drug addiction.
Longview Fibre imposed strict rules prohibiting employee use of drugs at the workplace, as government contractors must do under the Drug-Free Workplace Act. The company discharged the plaintiffs after an undercover investigation revealed that they had engaged in drug-related workplace misconduct. Plaintiffs claimed that they suffered from a drug addiction disability and were discharged on the basis of that disability.
The ADA protects a "qualified individual with a disability" from employment discrimination based on that disability. 42 U.S.C. § 12112. It specifically provides that an employer may prohibit drug-related misconduct at the workplace. 42 U.S.C. § 12114(c). The term "qualified individual with a disability" does not include someone who was engaging in illegal drug use in the period immediately before the claimed act of discrimination. 42 U.S.C. § 12114(a).
The ADA does protect individuals who have successfully completed, or are participating in, a supervised drug rehabilitation program, and who are no longer using illegal drugs. It also protects individuals who are erroneously regarded as using illegal drugs when in fact they are not. 42 U.S.C. § 12114(b).
However, the courts have recognized a distinction between discharge of an employee because of misconduct, and discharge because of a disability protected by the ADA. In this case, the Ninth Circuit concluded that because the plaintiffs had either admitted to the misconduct or were observed engaging in the misconduct, summary judgment dismissing their claims was appropriate.
Collings v. Longview Fibre Co., 1995 U.S. App. LEXIS 21709 (9th Cir. Aug. 14, 1995).
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Subsequent treatment of decisions reported on in earlier issues:
Camp v. Jeffer, Mangels, Butler & Marmara (July 1995 issue), review denied (Aug. 17, 1995).
Martel v. County of Los Angeles (July 1995 issue), now reported at 56 F.3d 993 (9th Cir. 1995).
Montrose Chem. Corp. v. Admiral Ins. Co. (August 1995 issue), time for granting or denying rehearing extended (Aug. 15, 1995).
Regents of the University of California v. Superior Court (June 1995 issue), review denied (July 20, 1995).
Resolution Trust Corp. v. Rossmoor Corp. (June 1995 issue), review denied (July 24, 1995).
Trujillo v. G.A. Enter., Inc. (August 1995 issue), now reported at 36 Cal. App. 4th 1105 (1995).
Werner v. Blankfort (August 1995 issue), now reported at 36 Cal. App. 4th 298 (1995).
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