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June 1996 Vol. 2 No. 6 ISSN 1087-6219
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In This Issue

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Supreme Court vacates arbitration award for exceeding school district's statutory rights

In 1992, the Supreme Court ruled that only "exceptional circumstances" would justify judicial review of an arbitration award. Moncharsh v. Heily & Blase, 3 Cal. 4th 1 (1992). It has now drawn on Moncharsh's recognition of the need to protect a party's statutory rights to vacate an arbitration award that conflicted with state law governing employment of probationary teachers.

The Round Valley Unified School District told Kurt Gritts, a probationary teacher, that it would not renew his teaching contract. The collective bargaining agreement between the School District and the Round Valley Teachers Association required a statement of reasons and a hearing. The applicable statute only required notice. Cal. Educ. Code sec. 44929.21(b). An arbitrator sustained Kritts's grievance, but the Superior Court vacated his award. The Court of Appeal reversed, finding no conflict between the statute and the agreement.

The Supreme Court vacated the award under Code of Civil Procedure section 1286.2, because the arbitrator exceeded his powers. Moncharsh held that an arbitrator's legal errors generally do not make an award invalid. Advanced Micro Devices, Inc. v. Intel Corp., 9 Cal. 4th 362 (1994) held that courts must defer to the arbitrator's determination of the contractual scope of his or her powers. However, the present case involved the exceptional circumstance of a statute that the Supreme Court interpreted to have withdrawn authority to grant the relief awarded by the arbitrator.

The Supreme Court then explained that earlier statutes had required cause for a decision not to renew a probationary teacher's contract. When the Legislature enacted the provisions now contained in section 44929.21 in 1983, it intended to eliminate that requirement. The Supreme Court found additional evidence of that intent in Education Code section 44959.5, which afforded a hearing to probationary teachers laid off because of changes in the educational program.

The decision approved two earlier Court of Appeal decisions that had reached similar conclusions. Bellflower Educ. Ass'n v. Bellflower Unified Sch. Dist., 228 Cal. App. 3d 805 (1991); Fontana Teachers Ass'n v. Fontana Unified Sch. Dist., 201 Cal. App. 3d 1517 (1990).

Board of Educ. of the Round Valley Sch. Dist. v. Round Valley Teachers Ass'n, 13 Cal. 4th 269 (1996).

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Court of Appeal explores elements of prima facie discrimination case

Because direct evidence of discriminatory intent is often lacking, employment discrimination plaintiffs often invoke the prima facie case doctrine to get to the jury. The Sixth District Court of Appeal in San Jose has reversed a trial court's application of the doctrine. It should not have required an African-American plaintiff to prove that non African-American employees received benefits that he claimed the company unlawfully denied him.

California courts generally follow the McDonnell Douglas statement of the elements of a prima facie case: (1) Plaintiff was a member of a protected group. (2) Plaintiff was qualified for the job sought. (3) Plaintiff was rejected despite the qualifications. (4) The employer continued to seek applicants with plaintiff's qualifications. McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802 (1973).

Jeffrey Heard was an African-American who worked for Lockheed. He told his manager that he had been convicted of cocaine possession. The company reassigned him to projects that did not involve classified work or travel. He received a poor performance review, and was denied a raise. He sued under the Fair Employment and Housing Act for disparate treatment and retaliation.

The trial court instructed the jury that Heard had to prove as part of his prima facie case that similarly situated non African-American employees received the terms and conditions denied to Heard. The Court of Appeal ruled that there was no such requirement. Heard only needed to introduce evidence from which the jury could infer that the company treated him differently because of his race.

The court also noted that the confusion could have been avoided if "the parties had realized that the McDonnell Douglas framework is a burden-shifting tool-not a subject on which the jury should be instructed." Whether plaintiff has established a prima facie case, and whether defendant has rebutted it are "questions of law for the trial court, not questions of fact for the jury." See Caldwell v. Paramount Unified Sch. Dist.,, 41 Cal. App. 4th 189 (1996).

Heard v. Lockheed Missiles & Space Co., 1996 WL 223215 (Cal. Ct. App. May 3, 1996).

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Lawyer not liable for emotional distress arising from bad tax advice

The First District Court of Appeal in San Francisco has ruled that a legal malpractice plaintiff may not recover emotional distress damages for bad tax law advice. The court explained that plaintiffs may not recover emotional distress damages where a lawyer's negligence causes only economic loss.

Shela Camenisch advised Robert Burns that, as a result of her establishment of a life insurance trust, the proceeds of his insurance policy would not be taxed. After other attorneys advised him that there would be taxes, Burns alleged that he suffered severe emotional distress. The Court of Appeal ruled that the Superior Court should have struck the demand for emotional distress damages.

California cases have almost uniformly barred recovery of emotional distress damages in legal malpractice actions. Merenda v. Superior Court, 3 Cal. App. 4th 1 (1992); Quezada v. Hart, 67 Cal. App. 3d 754 (1977). The only exception is Holliday v. Jones, 215 Cal. App. 3d 102 (1989). In that case, a client convicted of manslaughter through his attorney's negligence recovered emotional distress damages. This court distinguished Holliday as a case in which the plaintiff's damages were wholly non-economic. In the present case, the clients' protected interest was economic-avoidance of unnecessary taxes.

For another discussion about the availability of emotional distress damages, see Three Court of Appeal decisions discuss availability of emotional distress damages in the February 1996 issue of Appellate Decisions Noted

Camenisch v. Superior Court, 1996 WL 218206 (Cal. Ct. App. Apr. 30, 1996).

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Prisoner may have right to be heard before transfer to administrative segregation

The Ninth Circuit has overturned the dismissal of a prisoner's claim that the state wrongfully changed his custody status without a hearing. The court based its decision on the Supreme Court's announcement of a new test for determining the existence of a protected liberty interest in prison cases. Sandin v. Conner, 115 S.Ct. 2293 (1995)

Prison authorities caught Charles Keenan with homemade weapons for the third time. After a classification review, they transferred him to administrative segregation. Keenan had notice and an opportunity to appeal, but was not allowed to attend the proceeding. He claimed that the conditions of his new confinement were intolerable.

The trial court dismissed his procedural due process claim, using the Supreme Court's mandatory/discretionary test to determine whether Keenan had a protected liberty interest. The Ninth Circuit ordered the court to reconsider its decision in light of Sandin.

Sandin held that the existence of a protected liberty interest depends upon whether a restriction "imposes atypical and significant hardship on the inmate in relation to the ordinary incidents of prison life." On remand, the trial court will have to determine whether the difference between incarceration in the general prison population and confinement in administrative segregation was sufficiently great to implicate the due process clause.

Keenan v. Hall, 1996 WL 230066 (9th Cir. May 8, 1996).

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Corporation's lack of capacity to defend must be raised at earliest opportunity

The Second District Court of Appeal in Los Angeles has ruled that a party must raise an opposing corporate party's lack of capacity at the earliest opportunity in litigation. Lack of capacity is an affirmative defense that must be raised by a plea in abatement.

Abrams sued Color-Vue for unpaid legal fees. Color-Vue sued Abrams for legal malpractice. Abrams learned on March 21, 1994, that the Secretary of State had suspended Color-Vue for failure to pay franchise taxes. He did not mention it in his pretrial conference report. On May 11, the day set for trial, Abrams presented a certificate of suspension. The Superior Court (1) denied Color-Vue's motion for a continuance to cure the suspension, (2) dismissed Color-Vue's claim, and (3) permitted Abrams to prove up his claim as a default.

The Court of Appeal reversed and remanded for trial. Lack of capacity is a disfavored defense that must be raised at the earliest opportunity. Since the time to demur or answer had passed, Abrams should have asked for leave to amend his pleadings as soon as he learned of the suspension.

Color-Vue had paid its taxes and obtained a certificate of revivor by the time judgment was entered. That sufficiently served the main purpose of a statutory suspension, which is to collect the tax.

Color-Vue, Inc. v. Abrams, 52 Cal. Rptr. 2d 443 (1996).

Practice Tip This case is a valuable lesson for the one litigating against a suspended corporation: Laying in wait to sandbag your opponent on the eve of trial will not work. However, there are still traps for the unwary suspended corporation. The following principles should be kept in mind:

1. If you represent a corporation, check its status at the outset of any litigation. A suspended corporation may not prosecute or defend a lawsuit. Cal. Rev. & Tax. Code secs. 23301, 23301.5.

2. If the corporation has been suspended, it may obtain a certificate of revivor by paying its taxes, and any interest and penalties. That will validate all procedural steps taken during the suspension, including the prosecution and defense of a lawsuit. Traub Co. v. Coffee Break Service, Inc., 66 Cal. 2d 368 (1967); Benton v. County of Napa, 226 Cal.App.3d 1485 (1991).

3. Revivor does not affect substantive rights or defenses that may come into being during the suspension. If a corporation commences an action while suspended, and the statute of limitations runs before it obtains a certificate of revivor, its claim is barred. ABA Recovery Services, Inc. v. Konold, 198 Cal. App. 3d 720 (1988).

4. Any contracts that the corporation enters into while suspended are voidable at the election of the other contracting party. Cal. Rev. & Tax. Code sec. 23304.1. The suspended corporation may obtain relief from that provision at the time of revivor, by paying an additional $100 per day for the period as to which relief is sought, up to the amount of tax owed. Cal. Rev. & Tax. Code sec. 23305.1.

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Court of Appeal applies Della Penna to intentional interference claim

In Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal. 4th 376 (1995), the Supreme Court explained that a tortious interference claim must be based on wrongful conduct other than the interference itself. The Second District Court of Appeal in Los Angeles has ruled that a competitive motive cannot supply the wrongful conduct element.

The Della Penna case was discussed in the November 1995 issue of Appellate Decisions Noted.

PMC, Inc. v. Saban Entertainment, Inc., 1996 WL 256488 (Cal. Ct. App. May 16, 1996).

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Subsequent treatment of decisions reported on in earlier issues:

Bishop v. Hyundai Motor America (May 1996 issue), now reported at 44 Cal. App. 4th 750 (1996).

Brown Group Retail, Inc. v. Franchise Tax Board (May 1996 issue), now reported at 44 Cal. App. 4th 823 (1996).

Garcia v. Superior Court (March 1996 issue), review denied (May 15, 1996).

Kellogg v. Asbestos Corp. Ltd. (February 1996 issue), review denied (May 15, 1996).

Lafayette Morehouse, Inc. v. Chronicle Publishing Co. (September 1995 issue), petition for certiorari filed (Feb. 28, 1996).

Lovell v. Poway Unified Sch. Dist. (May 1996 issue), now reported at 79 F.3d 1510 (9th Cir. 1996).

Macy's California, Inc. v. Superior Court (February 1996 issue), review denied (Apr. 18, 1996).

Rosenbaum v. Security Bank Corp. (April 1996 issue), now reported at 43 Cal. App. 4th 1084 (1996).

Smith v. FEHC (May 1996 issue), now reported at 12 Cal. 4th 1143 (1996).

Stephens v. Superior Court (reported as Smith v. Superior Court) (February 1996 issue), review denies (Apr. 18, 1996).

Stiesberg v. State of California (May 1996 issue), now reported at 80 F.3d 353 (9th Cir. 1996).

Waters v. United Services Auto. Ass'n (February 1996 issue), review denied (Apr. 11, 1996).

Zuniga v. Housing Authority of the City of Los Angeles (January 1996 issue), review denied (Apr. 11, 1996).

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