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November 1995 
Vol. 1 No. 5 ISSN 1087-6219
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The San Diego division of the Fourth District Court of Appeal has ruled that counsel for a limited partnership may owe a duty of professional care to the limited partners. The Supreme Court had depublished an earlier opinion in the same case that reached a similar conclusion.
While representing a limited partnership in a real property transaction, Christopher Neils helped prepare a letter to the limited partners. In response to the letter, all but one of the limited partners sold their interests back to the partnership, which then dissolved. The general partner concluded the real estate transaction on terms favorable to itself. The limited partners sued Neils and his law firm.
The trial court initially ruled that the lawyers owed no duty to the limited partners, but the Court of Appeal reversed. Ronson v. Superior Court, 29 Cal. Rptr. 2d 268 (1994). The Supreme Court did not review that ruling, but ordered the opinion depublished-usually a sign that it disagrees with some of the reasoning. See 1994 Cal. LEXIS 3938. If you would like to know more about such directions from the Supreme Court, get the facts about depublication.
On remand, the trial court again ruled that there was no duty. The Court of Appeal found an "implied duty" to the limited partners concerning their entitlement to partnership benefits. It distinguished two decisions, which had held that representing a partnership did not create an attorney-client relationship with the individual partners for conflict-of-interest purposes. See Kapelus v. State Bar, 44 Cal. 3d 179 (1987); Responsible Citizens v. Superior Court, 16 Cal. App. 4th 1717 (1993).
The court did not discuss the Supreme Court's landmark professional liability decision in Bily v. Arthur Young & Co., 3 Cal. 4th 370 (1992). Bily held that professionals (in that case accountants) generally do not owe a duty to non-clients. It also held that one does not become a client through mere official status in an entity that is a client. Further Supreme Court attention to the issue of the scope of an attorney's professiona lduty seems likely.
Johnson v. Superior Court, 38 Cal. App. 4th 463 (1995).
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In yet another ruling that limits the reach of prior case law, the California Supreme Court has decided that the tort of interference with economic relations requires proof of some wrongful act other than the interference itself. The ruling may require a change in the applicable standard jury instruction-BAJI No. 7.82.
At the trial of Della Penna's claims against Toyota for intentionally interfering with his resale of Lexus cars to Japan, the court instructed the jury that it would have to find any interference was wrongful. The Court of Appeal reversed, but the Supreme Court ruled that proof of some wrongful act other than mere interference was required. BAJI No. 7.82 on intentional interference with prospective economic advantage does not currently contain such a requirement.
The Supreme Court disapproved language in two prior decisions that had indicated intentional conduct was sufficient. Seaman's Direct Buying Service, Inc. v. Standard Oil Co., 36 Cal. 3d 752, overruled in part, Freeman & Mills, Inc. v. Belcher Oil Co., 11 Cal. 4th 85 (1995); Buckaloo v. Johnson, 14 Cal. 3d 815 (1975). It also indicated that it would consider further restrictions on the tort in an appropriate case.
Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal. 4th 376 (1995).
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Financial institutions that make loans secured by real property occasionally request letters of credit as additional security. Anti-deficiency laws have posed a threat to the usefulness of that form of security. Recent legislation and two decisions have significantly improved the positions of financial institutions seeking to collect on letters of credit.
Code of Civil Procedure section 580d prohibits recovery of any deficiency on a note secured by real property after a non-judicial foreclosure. Section 726 generally requires a creditor with real property security to foreclose on the security before pursuing the debtor for personal liability. Taken together, those statutes discourage over-valuation of real property security by placing the risk of such over-valuation on the secured creditor. They also prevent secured creditors from buying in at non-judicial foreclosures at artificially deflated prices while pursuing debtors personally for large deficiencies.
Lenders look for ways to make their loans more secure without running afoul of sections 580d and 726. For example, they may require someone other than the borrower to guarantee the debt. As long as the guarantor expressly waives his or her right to the protection of the anti-deficiency statutes, the lender may freely seek recovery on the guarantee. Cal. Civ. Code § 2856. Many lenders felt that letters of credit could provide similar protection.
At the end of 1993, the Second District Court of Appeal in Los Angeles threw a curveball at real estate lenders. It stated that drawing on a letter of credit after a non-judicial foreclosure was an attempt to recover a deficiency in violation of section 580d. Western Security Bank v. Beverly Hills Business Bank, 20 Cal. Rptr. 2d 318, opinion after rehearing, 25 Cal. Rptr. 2d 908 (1993). The Supreme Court granted review. 29 Cal. Rptr. 2d 151 (1994). The Supreme Court also granted review of another case. The San Diego division of the Fourth District Court of Appeal denied without comment a petition for a writ to review a decision involving a draw on a letter of credit before a non-judicial foreclosure. 1111 Prospect Partners, L.P. v. Superior Court, 1994 Cal. LEXIS 2497 (Cal. Sup. Ct. 1994)
The legislature then enacted new statutes expressly providing that receipt of the proceeds from a letter of credit, whether before or after either a judicial or a non-judicial foreclosure, was not a violation of section 580d or section 726. See Cal. Civ. Code § 2787; Cal. Civ. Proc. Code §§ 580.5, 580.7. The statutes became effective September 15, 1994. The Supreme Court transferred both cases back to the courts of appeal for reconsideration in light of the statutory changes. Western Security Bank v. Superior Court, 37 Cal. Rptr. 2d 840 (Cal. Sup. Ct. 1995); 1111 Prospect Partners, L.P. v. Superior Court, 1995 Cal. LEXIS 700 (1995).
The Western Security Bank court ruled that the new statutes should not be applied to pending cases, because they changed existing law. The court then adhered to its earlier view that a draw on a letter of credit after a non-judicial foreclosure violated section 580d. It also said that a lender could draw on a letter of credit before the foreclosure without violating section 580d.
The 1111 Prospect Partners case did not involve the anti-deficiency provision of section 580d, because the draw on the letter of credit occurred before the non-judicial foreclosure. Instead, it involved the security first rule of section 726. The Court of Appeal ruled that the new statutes did not change existing law with respect to the security first rule, and could be applied in pending cases.
Therefore, a draw on a letter of credit that precedes a non-judicial foreclosure is valid, even if the draw occurred before enactment of the new statutes. Both cases agreed on that principle.
Western Security Bank, N.A. v. Beverly Hills Business Bank, 38 Cal. App. 4th 1241 (1995); 1111 Prospect Partners, L.P. v. Superior Court, 38 Cal. App. 4th 570 (1995).
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The Ninth Circuit has ruled that the Medical Device Amendments (MDA) to the Food, Drug and Cosmetic Act do not preempt common law product liability claims under California state law. The ruling conflicts with the recent state court decision in Scott v. CIBA Vision Corp., 38 Cal. App. 4th 307 (1995), which was discussed in the October 1995 issue of Appellate Decisions Noted.
Charlotte Kennedy claimed that she developed an autoimmune disease from treatment with the Zyderm Collagen Implant. She asserted state law claims for negligence, strict liability, breach of warranty, battery and conspiracy. The District Court decided that the claims were preempted by the MDA. The Ninth Circuit reversed.
The MDA expressly preempts any state "requirement" for a medical device that is different from or in addition to any requirement under the MDA that is applicable to the device. The Ninth Circuit relied on a regulation promulgated by the Food and Drug Administration to interpret that provision. The regulation provided that state requirements of "general applicability" were not preempted. State common law is law of general applicability, because it does not relate solely to a particular device. Therefore, it is not preempted.
Holding otherwise would have left injured consumers without any damages remedy. That would be contrary to the policy of the MDA, which was to assure the reasonable safety and effectiveness of medical devices intended for human use.
Kennedy v. Collagen Corp., 1995 U.S. App. LEXIS 28839 (9th Cir. Oct. 17, 1995).
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The Third District Court of Appeal in Sacramento has ruled that a party must personally agree to an oral settlement in order for it to be enforceable under Code of Civil Procedure section 664.6. The ruling calls into question the effectiveness of any settlements agreed to before the court solely on counsel's oral representation.
Section 664.6 provides that the court may enter judgment on a settlement by simple motion, "[i]f parties to pending litigation stipulate, in writing or orally before the court, for settlement of the case." In this case, the attorneys had orally agreed to a settlement during a court supervised settlement conference. The plaintiff subsequently stated that he had never intended to agree to one of the provisions of the settlement.
The Court of Appeal determined that, by including the word "parties" in section 664.6, the legislature meant to require the parties' personal assent to any settlement. It relied principally on the recent decision in Levy v. Superior Court, 10 Cal. 4th 578 (1995). In that case, the Supreme Court ruled that a written settlement agreement could not be enforced under section 664.6 if the parties did not sign personally. If other courts follow the Court of Appeal's decision, counsel's recitation of settlement terms on the record will not be sufficient to support a motion for entry of judgment under section 664.6.
Johnson v. Department of Corrections, 1995 Cal. App. LEXIS 991 (Cal. Ct. App. Oct. 11, 1995).
Practice
Tip From now on, cautious counsel will be sure to insist that all parties
verbalize their agreement to a settlement memorialized on the record before the court.
However, section 664.6 does not provide the only method for reducing a settlement to
judgment. It is just the easiest. Other possible methods include a motion for summary
judgment, a separate lawsuit, or an amendment to the pleadings. Levy, 10 Cal. 4th
at 586 n.5. The proponent of the settlement would probably bear the burden of proving the
agreement and its terms. However, such proceedings may provide a way to save a settlement
that does not meet the Johnson and Levy criteria.
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The Second District Court of Appeal in Los Angeles has decided that the statute of limitations for state law wrongful termination causes of action runs from the date of actual termination. It rejected the employer's argument that the statute should run from announcement of the decision to fire the employee. The decision conflicts with the court's reasoning in Regents of the University of California v. Superior Court, 33 Cal. App. 4th 1710 (1995), which was discussed in the June 1995 issue of Appellate Decisions Noted.
In December 1988, Rockwell informed William Romano that it would terminate his employment in May 1991 when he became eligible for early retirement. Although discussions about Romano's status and the terms of his retirement continued for some time, Rockwell appointed his replacement in December 1989. Romano signed his retirement forms on June 5, 1991. He filed his wrongful termination complaint on December 9, 1991.
The Court of Appeal determined that the actual discharge date was a better bright line than notice of discharge. Mere notice may not always lead to actual discharge, because the employer might change its mind. Adopting a notice rule would put the employee in the uncomfortable position of having to file a lawsuit while attempting to change the employer's mind.
Using the actual discharge date is also more consistent with recent Supreme Court decisions. Those decisions have emphasized actual harm and definitive final acts as critical elements in determining when the statute of limitations starts to run. See International Engine Parts, Inc. v. Feddersen & Co., 9 Cal. 4th 606 (1995); Laird v. Blacker, 2 Cal. 4th 606 (1992).
Romano v. Rockwell Int'l, Inc., 1995 Cal. App. LEXIS 1018 (Cal. Ct. App. Oct. 20, 1995).
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Subsequent treatment of decisions reported on in earlier issues:
Collings v. Longview Fibre Co. (September 1995 issue), now reported at 63 F.3d 828 (9th Cir. 1995).
Fleming v. Imperial Corp. of America, (July 1995 issue), review granted (Sept. 28, 1995). The decision may no longer be cited. Cal. R. Ct. 976(d), 977.
King v. AC&R Advertising (October 1995 issue), now reported at 65 F.3d 764 (9th Cir. 1995).
Martel v. County of Los Angeles (July 1995 issue), cert. denied, 1995 U.S. LEXIS 7234 (Oct. 30, 1995).
Phillips v. Perils of Pauline Food Prod., Inc. (August 1995 issue), review denied and official reporter directed not to publish the decision. (Oct. 31, 1995). The decision may no longer be cited. Cal. R. Ct. 977. If you would like to know more about such directions from the Supreme Court, get the facts about depublication.
Scott v. CIBA Vision Corp., (October 1995 issue), now reported at 38 Cal. App. 4th 307 (1995).
Warfield v. Peninsula Golf & Country Club (August 1995 issue), rehearing denied (Sept. 21, 1995).
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