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December 1995 
Vol. 1 No. 6 ISSN 1087-6219
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In one of its rare recent decisions in favor of an employment litigation plaintiff, the California Supreme Court has recognized a cause of action for wrongful demotion. The court's ruling rested on evidence of an implied in fact agreement not to demote without good cause.
Pacific Gas & Electric had a written policy of "positive discipline," which provided for a series of "constructive" responses to employee misconduct. The policy provided employees with an opportunity to correct deficient performance, before serious disciplinary measures were invoked.
Byron Scott and Al Johnson worked for PG&E in a senior management capacity. Scott and Johnson had had an outside consulting business for several years. After an investigation by its internal audit department, PG&E concluded that Scott and Johnson were negligent supervisors, and that their outside business had generated conflicts of interest. PG&E then demoted them and reduced their compensation, without considering any responses they may have had to the charges.
The jury determined that PG&E had failed to follow its policy, and had wrongfully demoted Scott and Johnson without good cause. It awarded Scott and Johnson $700,000 and $625,000 respectively in economic damages, and $75,000 each for emotional distress.
The Supreme Court ruled that the evidence established the breach of an implied in fact agreement not to demote without good cause, under the standards of Foley v. Interactive Data Corp., 47 Cal. 3d 654 (1988). The court recognized a presumption that an employee may be demoted at will. Cf. Cal. Civ. Code sec. 2922. However, it saw no reason that a promise not to demote except for good cause could not become an implied term of an employment contract. It is a question of fact in each case whether the employee reasonably understood that the promise created a contractual obligation.
Scott v. Pacific Gas & Electric Co., 11 Cal. 4th 454 (1995).
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The Ninth Circuit has determined that a Berkeley policy officer was not entitled to qualified immunity under section 1983, when he arrested someone for writing a political statement on the sidewalk with chalk. However, the court affirmed summary judgment in favor of the police chief and the municipality.
Christopher Mackinney wrote this slogan on a Berkeley sidewalk with washable chalk: "A police state is more expensive than a welfare state - we guarantee it." He refused to acknowledge an order from two police officers to stop, and protested that his actions were legal. The officers' sergeant then ordered Mackinney arrested for violating Penal Code section 594, which prohibits damaging, or defacing real or personal property "with paint or any other liquid."
The Ninth Circuit explained that qualified immunity protects law enforcement officials who reasonably believe that they are acting lawfully in carrying out their duties. It is a two-part inquiry: Was the law governing the official's conduct clearly established? Under the governing law, could a reasonable officer have concluded that his or her conduct was lawful? See Act Up! Portland v. Bagley, 988 F.2d 868, 871 (9th Cir. 1993).
No reasonable officer would have believed that there was probable cause to arrest Mackinney for violating section 594. Erasable chalk cannot damage a sidewalk. Using such chalk cannot constitute defacement "with paint or other liquid," because it is not a liquid.
The defendants also attempted to justify the arrest under Penal Code section 148, which prohibits obstructing a public officer in the discharge of his or her duties. However, Mackinney's momentary disobedience did not constitute obstruction. His verbal protest was protected by the first amendment right to challenge the police. See Duran v. City of Douglas, 904 F.2d 1372 (9th Cir. 1990).
The court upheld dismissal of the claim against Berkeley's police chief, because the evidence showed no personal involvement in the incident. The claim against Berkeley failed because there was no evidence that an express or implied policy had directly caused the violation.
Mackinney v. Nielsen, 1995 U.S. App. LEXIS 31254 (9th Cir. Nov. 6, 1995).
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The First District Court of Appeal in San Francisco has declared unconstitutional the Rules of Court that authorize electronic recording of superior court proceedings. The Judicial Council, which promulgates the Rules of Court, has vowed to defend the rules before the California Supreme Court.
Code of Civil Procedure section 269 provides for the official record of superior court proceedings to be taken down in shorthand. In 1986, the state legislature authorized a pilot project to assess the feasibility of using electronic recording. However, in 1992, the legislature rejected a Judicial Council bill that would have authorized electronic recording. In November 1993, the Council adopted rules that allowed electronic recording after January 1, 1994. See Cal. R. Ct. 33(e), 891, 892, 980.3.
The state constitution authorizes the Judicial Council to adopt rules that are "not inconsistent with statute." Cal. Const., art. VI, sec. 6. The Court of Appeal determined that the challenged rules were inconsistent with the "statutory scheme" governing the making of an official record in superior court. It noted that the Government Code specifically provided for electronic recording in the municipal and justice courts.
In a press release announcing its intent to seek review in the Supreme Court, the Judicial Council estimates that use of electronic recording would have saved California more than $8 million a year.
California Court Reporters Ass'n v. Judicial Council, 39 Cal. App. 4th 15 (1995).
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The Supreme Court has ruled that the question of when a legal malpractice plaintiff sustains actual injury is normally a question for the trier of fact to decide at trial. The case may represent a move away from some recent decisions in which the court had adopted bright line rules for the statute of limitations defense in professional malpractice actions.
Aaron Paul gave faulty advice to Katherine Adams in connection with her claim against her deceased husband's estate. As a result, she filed her lawsuit on the claim after the statute of limitations had run. Nonetheless, she was able to settle the lawsuit after the court ruled that there was a question of fact as to a possible tolling of the statute. Adams filed her malpractice lawsuit against Paul within a year after the settlement, but seven years after the statute of limitations on the underlying claim had run.
Code of Civil Procedure section 340.6 provides that a malpractice action against an attorney must be filed within a year after plaintiff's discovery of the wrongful act, or four years after the act, whichever occurs first. However, the statute is tolled until the plaintiff sustains "actual injury."
Two recent decisions involving section 340.6 had established fairly clear rules for what constituted "actual injury." Laird v. Blacker, 2 Cal. 4th 606 (1992) (statute tolled until entry of judgment in underlying action, not determination of ensuing appeal); ITT Small Business Finance Corp. v. Niles, 9 Cal. 4th 245 (1994) (statute on claim for transactional malpractice tolled until entry of judgment in litigation over the effectiveness of the inadequately prepared documents).
In this case the court said that in most "missed statute" cases the client would suffer "actual injury when the statutory period lapses. At that point the right to recover is substantially impaired. However, there may be instances in which tolling or some other legal principle will nonetheless preserve the right. Then, there may well be factual issues about when "actual injury" occurs.
In the case before it, the court said that there were at least three possibilities for where "actual injury" occurred: (1) at the settlement of the underlying action, (2) when the statute expired, and (3) when the plaintiff had to oppose the limitations defense in the underlying action. On remand, the trial court will have to determine "the point at which the fact of damage became palpable and definite even if the amount remained uncertain, taking into consideration all relevant circumstances.
Chief Justice Lucas dissented. He would have held that "actual injury" occurs upon disposition of the client's underlying lawsuit, whether by dismissal, settlement or entry of adverse judgment.
Adams v. Paul, 1995 Cal. LEXIS 6790 (Cal. Sup. Ct. Nov. 22, 1995).
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In a case decided before the Supreme Court's ruling in Adams v. Paul, the Ventura division of the Second District Court of Appeal ruled that "actual injury" under Code of Civil Procedure section 340.6 occurs when the plaintiff settles an arbitration proceeding.
Relying on Laird v. Blacker, 2 Cal. 4th 606 (1992) and ITT Small Business Finance Corp. v. Niles, 9 Cal. 4th 245 (1994), the plaintiffs claimed that they did not sustain "actual injury" until entry of a subsequent adverse judgment based on the arbitration settlement. This court ruled that the settlement altered the plaintiffs' legal relations with their adversaries enough to constitute actual injury.
Pompilio v. Kosmo, Cho & Brown, 39 Cal. App. 4th 1324 (1995).
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The San Diego division of the Fourth District Court of Appeal has ruled that guarantors may invoke the benefits of the debtor's fair market value protections after a non-judicial foreclosure. It also suggested that the protections may not be waivable. However, the court only held that the purported waiver was insufficient.
Bank of Southern California had a first and a fourth deed of trust on property in Oceanside. After the debtor filed a bankruptcy petition, the bank foreclosed on the property nonjudicially, and purchased it at the trustee's sale with a full credit bid of the amount owed on the first deed of trust. It then sought the unpaid balance on the note secured by the fourth deed of trust from the guarantors of the note.
The guarantors claimed the protection of the fair value provision of Code of Civil Procedure section 580a- a little-used statute that requires a judicial determination of the fair value of the real property security when a creditor pursues a deficiency judgment after a nonjudicial foreclosure. It is little-used because the subsequently enacted section 580d generally prohibits any deficiency judgment against a debtor after a nonjudicial foreclosure.
The bank first argued that no anti-deficiency protections applied, because it was a sold-out junior lienholder with respect to its fourth deed of trust. Sold-out junior lienholders generally may proceed without regard to either section 580a or 580d. See Roseleaf Corp. v. Chierighino, 59 Cal. 2d 35 (1963). However, a junior lienholder who closes itself out by foreclosing on a more senior lien may not claim that advantage.
However, a creditor may pursue a deficiency judgment against a guarantor, so long as the guarantor waives its right to claim that the creditor is estopped from seeking a deficiency judgment. See Union Bank v. Gradsky, 265 Cal. App. 2d 40 (1968); Cal. Civ. Code § 2856. In this case, the court found a valid Gradsky waiver.
The court then determined that the fair value provisions of section 580a applied to guarantors. By its terms, the statute applies "[w]henever a money judgment is sought for the balance due upon an obligation for the payment of which a deed of trust or mortgage with power of sale upon real property or any interest therein was given as security." That is sufficiently broad to encompass guarantees. The public policy of preventing creditors from overreaching also supported the application of the statute to guarantors.
Finally, the court decided that the waiver language in the guarantees was not sufficiently broad to waive the protection of section 580a. The language purported to waive "any and all rights . . . arising by reason of . . . any . . . 'anti-deficiency law.'" However, to be a valid waiver of section 580a protection, the language must provide the guarantor with "actual awareness" of the right to a fair value hearing. The language that the bank relied on was too broad.
Practice Tip Henceforth,
careful counsel should be sure to include in any guarantee of a debt secured by an
interest in real property language that specifically waives the fair value provisions of
section 580a. To satisfy this Court of Appeal, it will apparently be necessary to include
a recitation of the right to the hearing in front of the waiver.
Bank of Southern California v. Dombrow, 39 Cal. App. 4th 1457 (1995).
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Subsequent treatment of decisions reported on in earlier issues:
Collings v. Longview Fibre Co. (September 1995 issue), petition for cert. filed (Nov. 13, 1995).
Engalla v. Permanente Medical Group, Inc. (October 1995 issue), review granted (Nov. 2, 1995). The decision may no longer be cited. Cal. R. Ct. 976(d), 977.
Honey Baked Hams, Inc. v. Dickens (September 1995 issue), review denied (Oct. 26, 1995).
Johnson v. Department of Corrections (November 1995 issue), now reported at 38 Cal. App. 4th 1700 (1995).
Kennedy v. Collagen Corp. (November 1995 issue), amended 1995 U.S. App. LEXIS 32816 (9th Cir. Oct. 17, 1995).
Lafayette Morehouse, Inc. v. Chronicle Publishing Co. (September 1995 issue), time for granting or denying review extended (Nov. 13, 1995).
Romano v. Rockwell Int'l, Inc. (November 1995 issue), now reported at 39 Cal. App. 4th 140 (1995).
Waller v. Truck Ins. Exch. (October 1995 issue), modified and rehearing denied (Oct. 26, 1995).
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