On February 4, 2010, the California Court of Appeal, Second Appellate District, issued its opinion in Lukather v. General Motors, LLC, Case No. B209979. (Lukather v. GM ) Because this is a “lemon law” case, it caught my interest. (I conduct a lot of “lemon law” mediations.)
Plaintiff’s story unfolds as follows:

On April 25, 2005, Paul Lukather leased a Cadillac. Within a month, the Cadillac began exhibiting intermittent but recurring problems in the electronic stability control system. Lukather first brought the car in for repair on June 1, 2005 when the vehicle had been driven only 854 miles. Between June 5, 2005 and January 30, 2007, he brought the car in for repair of this same concern on more than four occasions.

Then, in February 2007, the brakes came on by themselves making the Cadillac difficult to drive. So, Lukather took the car to the dealer, requested that General Motors (“GM”) repurchase it and left it. He refused to pick it up, although he continued to make the lease and insurance payments on it. Although GM paid for a rental vehicle for two months, it refused to do so after April 4, 2002.  Lukather  paid $21,290.46 in car rental fees.

For the next two months, GM went back and forth with Lukather, trying to determine  whether Lukather would accept a replacement vehicle or was insisting on a repurchase. Lukather wanted his lease money back. According to GM, it was unclear what resolution Lukather was seeking. In April 2007, a GM representative told Lukather that it would take GM several months to decide whether to repurchase the Cadillac.

Frustrated, if not angry, Lukather hired an attorney. Suit was filed under the Song-Beverly Consumer Warranty Act (“ACT”), Civil Code §1790 et seq.

In March 2008, the matter went to trial before the Honorable Dewey Lawes Falcone, Ventura County Superior Court Judge (Case No. VC 048559). The trial court tentatively ruled that GM had violated the Act. In May 2008, it issued its statement of decision determining that GM did not act promptly in offering to repurchase the Cadillac and that such actions were “willful.” Consequently, in addition to awarding actual damages of $61,389.13, the trial court imposed a civil penalty in the same amount - $61,389.13 - in addition to prejudgment interest and attorneys’ fees and costs and expenses.

GM appealed contending that: (1) the evidence was insufficient to support  the findings that GM violated the Act, and did so willfully; (2) the Court erred in rejecting GM’s mitigation of damages defense; and (3) the Court abused its discretion in awarding prejudgment interest and attorneys’ fees and costs.

The appellate court affirmed. It determined that approximately six weeks (March 8 to April 12, 2007) was more than enough time for GM to decide to repurchase the Cadillac. The appellate court noted that there was “. . .[n]o evidence [to] support(s) GM’s assertion that . . . restitution was a labor intensive process that required months to accomplish.” (Id. at 9).

Citing Kwan v. Mercedes-Benz of North America, Inc. (1994) 23 Cal. App. 4th 174,( kwan-vs-mbz) the appellate court affirmed the trial court’s determination that GM had acted “willfully” in that it made decisions “ “. . .without the use of reasonable available information germane to that decision. . ..” ” and thus were not “reasonable, good faith decision(s)” (Lukather,supra, at 12).

The appellate court rejected GM’s mitigation of damages defense. GM argued that Lukather’s refusal to respond to GM was the cause of his approximate $21,000 car rental expense. The appellate court, noting that there is no authority in the Act for this defense, found that GM, in essence, was attempting to offset this expense. Noting that the Act does not provide for this type of offset, the appellate court rejected this defense.

Further, the court rejected the contention that the trial court abused its discretion in awarding prejudgment interest. GM urged that Lukather prevented GM from performing and so should not be awarded interest. The appellate court disagreed.

Finally, it found no basis to reverse the award of attorneys’ fees and costs.

This case is significant because it upheld the awards of a civil penalty, and prejudgment interest. No doubt, it will cause much discussion within the “lemon law” community.

. . .Just something to think about.

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       As I have mentioned in my blog, I mediate a lot of “lemon law” disputes filed under the Federal Magnuson – Moss Warranty Act, 15 U.S.C. §2301 et seq. and under California’s Song-Beverly Consumer Warranty Act, Cal. Civil Code §1790  et seq. and/or California’s Commercial Code §2313 for breach of express warranty, Commercial Code §2314 for breach of implied warranty of merchantability and Commercial Code §2315 for breach of implied warranty of fitness for a particular purpose. Usually, these disputes involve automobiles. That is, plaintiff believes that her automobile is a “lemon” and wants the manufacturer to repurchase it.
 

      But, last week, the U.S. Ninth Circuit Court of Appeals issued an opinion in which the alleged “lemon” was an Apple iPod! Yes – an iPod!
 

      In Birdsong v. Apple, Inc., Case No. 08-16641,(Birdsong v Apple,Inc. ) plaintiffs-appellants Joseph Birdsong (who bought 2 iPods in 2005)  and Bruce Waggoner (who bought one iPod in 2005) filed a class action complaint against Apple, Inc. alleging that the iPod “. . .is defective because it poses an unreasonable risk of noise induced hearing loss to its users.” (Id. at 16870). Plaintiffs did not allege that they suffered actual hearing loss but only that this possibility exists. They sued to force Apple to make a safer iPod. As might be guessed, the district court dismissed plaintiffs’ third amended complaint from which dismissal, plaintiffs appealed.

       According to the third amended complaint, the iPod is capable of producing sounds as loud as 115 decibels. Apple does include a warning about avoiding hearing loss or damage, both in the instructions provided with each iPod and on its website.
 

      As noted, neither plaintiff alleged actual hearing loss or damage but only that such was possible. Apple, Inc. filed motions to dismiss the previous amended complaints to which plaintiff responded by filing new amended complaints. However, its motion to dismiss the third amended complaint was heard and granted by the court.
 

      In assessing each of the legal theories alleged, the Ninth Circuit agreed with the district court. For example, the implied warranty of merchantability (under California’s Commercial Code §2314(2)), implies that goods “are fit for ordinary purposes for which the goods are used.” That is, it ““provides for a minimum level of quality.”” (Id. at 16872). It is breached when
“. . .the product lacks “even the most basic degree of fitness for ordinary use.”” (Id. at 16872-3)
 

      Because plaintiffs did not allege an actual malfunction or history of malfunction, much less actual injury, but only made suggestions on how the iPod could be made safer, the Ninth Circuit agreed with the district court that plaintiffs failed to allege any beach of an implied warranty of merchantability.
 

      As plaintiffs abandoned their claims of breach of an express warranty and implied warranty of fitness for a particular purpose, the appellate court did not address these claims.
 

      However, the appellate court did address plaintiffs’ claim filed under California’s Unfair Competition Law which prohibits unfair competition by means of an unlawful, unfair or fraudulent business practice. (Cal. Bus. & Prof. Code §17200-17210). Once again, because plaintiffs did not suffer an injury in fact as required by California’s recent adoption of Proposition 64, the court agreed that plaintiffs lacked standing to bring the claim. Further, the court rejected plaintiffs’ assertion that they did not receive the value of their bargain and thus lost money or property as a result of unfair competition. The court reasoned, once again, that the plaintiffs have not alleged a cognizable defect, but merely the potential for one. Thus, the court determined that the iPod is worth not less but exactly what plaintiffs paid for them.

       In short, “. . .plaintiffs’ alleged injury in fact is premised on the loss of a “safety” benefit that was not part of the bargain to begin with.” (Id. at 16879). Plaintiffs admitted that Apple, did, indeed, provide warnings against listening to music at loud volumes. Consequently, the appellate court concluded that as plaintiffs’ claims are only hypothetical in nature, the trial court did not err in dismissing the third amended complaint.
 

      Two days before Christmas, I bought a new iPod because my old one crashed. Until I saw this case, I never thought about “the law” when listening to my iPod. Rather, I connected the simple pleasure of enjoying music or podcasts to listening to my iPod. Now. . I know better! The law “works in mysterious ways”. . .everywhere . . .leaving no stone unturned!

       . . .Just something to think about!
 

      Happy New Year! May 2010 bring you peace and prosperity!

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       On November 30, 2009, the California Supreme Court issued its opinion in Roby v. McKesson Corporation, Case No. S149752.(Roby v McKesson ). For the first time, the Court directly addresses the federal constitutional limitations in awarding punitive damages, holding that the punitive damage award should not exceed the amount awarded as compensatory damages:

      “. . .we conclude that a one-to-one ratio between compensatory and punitive damages is the federal constitutional limit here. We base this conclusion on the specific facts of this case. We note in particular the relatively low degree of reprehensibility on the part of employer McKesson and the substantial compensatory damages verdict, which included a substantial award of noneconomic damages.” (Id. at 38-39).

       Charlene J. Roby sued her former employer McKesson (and her supervisor) for wrongful discharge based on her medical condition and related disability. She suffered from “panic attacks” that temporarily and on short notice prevented her from performing her job. Because of these attacks, Roby missed work and these absences led to her termination. The termination devastated her emotionally and financially, causing her to become agoraphobic and suicidal. Eventually, the U.S. Social Security Administration found her to be completely disabled.

       So, she sued McKesson (and her supervisor) alleging wrongful termination in violation of public policy, harassment in violation of California’s Fair Employment and Housing Act (“FEHA”), as well as discrimination and a failure to accommodate in violation of this same state statute, California’s FEHA.

       The jury found that Roby was wrongfully discharged based on her medical condition and related disability. Finding both harassment and discrimination, the jury awarded $3,511,000 in compensatory damages and $15 million in punitive damages against McKesson.

       On appeal, the court of appeal reduced the compensatory damages to $1,405,000 and the punitive damages to $2 million, and otherwise affirmed the judgment.

       The California Supreme Court reversed, with an instruction to the trial court to  reinstate a single harassment award of $500,000 against both Mckesson and the supervisor. Thus, the total compensatory award  equalled $1,905,000. It further instructed the lower court to modify the punitive damages award against McKesson to $1,905,000, or to be the same amount as the compensatory damage at a ratio of 1:1, based on its discussion and application of recent U.S. Supreme Court cases on this issue (see, State Farm Mut. Auto Ins. Co. v. Campbell (2003) 538 US 408 (State Farm v. Campbell )and BMW of North America v. Gore (1996) 517 US 559) ( BMW v. Gore).

       Needless to say, this ruling will evoke much discussion in the cyber world and around the water cooler.

       . . .Just something to think about.

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my dog-Argus

       In my last blog, I discussed one recent California Supreme Court decision that makes absolutely no sense. This week, I want to discuss another, People v. Olguin, Case No. S149303 (California Supreme Court, December 29, 2008.) It caught my eye because it is about pets, and I am a pet lover, (more specifically, dogs!. See Argus, above.)

       It seems that one of the conditions for probation in the County of San Bernardino is that the defendant notify his probation officer of the presence of pets at defendant’s place of residence. The probation officer has no unilateral power to do anything about or with this information (e.g. have it removed), but must get a court order to do so. The defendant must simply inform his probation whether he has a pet.

       Here, the defendant pleaded guilty to two counts of driving with a blood-alcohol level in excess of 0.08 percent by weight. Pursuant to a plea agreement, his prison sentence was suspended and he was placed on three years’ supervised probation.

       During his sentencing hearing, he requested that the word “pets” be stricken from the probation condition requiring him “to [k]eep the probation officer informed of place of residence, cohabitants and pets, and give written notice to the probation officer twenty-four (24) hours prior to any changes.” (Id. at 2.) His attorney urged this condition was unconstitutional and overbroad as it is not reasonably related to his future criminality and limits his fundamental rights.

       The trial court denied the request. Defendant appealed. In a split decision, the appellate court upheld the trial court.

       The Supreme Court agreed with the lower courts, finding that the defendant’s challenge lacked merit. As the Court illogically rationalized it:

      “Probation officers are charged with supervising probationers’ compliance with the specific terms of their probation to ensure the safety of the public and the rehabilitation of probationers. Pets residing with probationers have the potential to distract, impede and endanger probation officers in the exercise of their supervisory duties. By mandating that probation officers be kept informed of the presence of such pets, this notification condition facilitates the effective supervision of probationers, and, as such, is reasonably related to deterring future criminality.” ( Id. at 1.)

       In the ensuing pages of its opinion, the Court points out that proper supervision by a probation officer “. . .includes the ability to make unscheduled visits and to conduct unannounced searches of the probationer’s residence.” (Id. at 6). Thus, the safety of the probation officer is important, here. By being aware in advance that a pet exists on the premises, the Court points out, the probation officer can be “prepared” for the potential situation of a barking,  aggressive or territorial dog protecting her turf, should the officer decide to conduct an “unscheduled” compliance visit. Further, according to the Court, this advance knowledge of the existence of a pet also will facilitate the probation officer’s ability to conduct an unannounced search of the residence. Again, the Court rationalizes:

      “A pet, such as even a harmless small dog barking in the front yard, may act as a warning system, alerting the probationer to a probation officer’s  approach prior to the officer’s knock at the door and allowing the probationer to destroy or hide evidence of illegal activity; it also may distract the probation officer or prevent or delay the officer from entering a residence or conducting a search. . . .” (Id. at 7).

       The Court then emphasizes that this condition requires defendant only to inform his probation officer of the presence of pets and to give timely notice prior to any change in that situation. It neither forbids the defendant from owning a pet nor empowers the probation officer from forbidding pet ownership. (Id. at 8).

        Luckily, this decision was not unanimous. Justice Kennard dissented, noting that the majority’s reasoning is flawed because it treats all pets alike and as life threatening:

       “Falling within that reach would be Jaws the goldfish, Tweety the canary, and Hank the hamster, hardly the kinds of pets one would expect to strike fear in a probation officer.” (Dissent at 2.).

        More pointedly, the dissent points out the illogic of the majority opinion:

      “The majority expresses concern that pets may warn the probationer of the probation officer’s presence . . . I find that concern puzzling for two reasons. First, the probation condition does not solve the problem the majority poses because the probationer need only give notice that he or she has a pet; nothing in the condition prohibits probationers from having a pet (citation omitted.) Second, warning the probationer is irrelevant, because a probation officer cannot just barge into a probationer’s residence. The law requires knocking or other means of notice of the officer’s presence, and an announcement of the purpose of the visit (citation omitted.) This requirement itself warns the probationer of the officer’s presence.”
(Id. at 2-3.)

        Finally, the dissent notes that if anything, pets have proven their rehabilitative worth. The physical and mental health benefits of animal companionship at home have been well documented. (Id.)

       The only rationale I can fathom for this decision is that the California Supreme Court is not a pet loving court. Otherwise, it makes no sense.
 While I recognize this is a criminal and not civil case, it still confirms my view that people should resolve their own disputes and not leave it to the courts to do it for them. I sure am glad I am a neutral in the business of facilitating self-determination!

       . . .Just something (actually quite a lot) to think about!

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       Several months ago, I read an interesting article by Greg Katz in the Los Angeles Daily Journal entitled “Neutral to Take “Mediation Gone Wild” On Tour” (August 29, 2008). It seems that Michael D. Young, a neutral affiliated with Judicate West in Los Angeles, wrote an article in Alternatives (Vol. 25, No. 6, June 2007) about a civil dispute that went totally out of control. The article has brought Mr. Young his “15 minutes of fame.”

       The civil dispute epitomizes the adage that “life is stranger than fiction.” As Mr. Young discusses in his article, Joseph Francis is the founder and auteur of “Girls Gone Wild.” To film a sequel, Mr. Francis rented local houses and condos in Panama City, Florida during Spring Break 2003 and invited unidentified minor girls to be filmed, baring their breasts and engaging in various sexual acts.
 

      When the parents found out, they sued: Doe v. Francis, Case No. 5:03CV260 (N.D.Fla.) A criminal action was also filed, and while it was pending, nothing much happened in the civil suit.

       Then, in October 2006, United States District Court Judge Richard Smoak ordered the parties to mediation, requiring that they jointly select a mediator and share the cost of the mediator’s fee equally. He further ordered which parties must attend the mediation and that their failure to do so would result in the imposition of sanctions. The order also gave the mediator the authority to control the procedures to be followed in mediation and reaffirmed that confidentiality would attach to the process.

       The parties selected a mediator and agreed to a two-day session. On the day after the second session of the mediation, plaintiffs filed a motion for sanctions against defendant Francis.

       It seems that on the first day of the mediation session, the plaintiffs arrived on time. Francis and his attorney arrived four hours late allegedly because Mr. Francis’ private jet from Los Angeles was “running late” due to his Los Angeles’ attorney’s schedule. However, that L.A. attorney did not appear at the mediation.
 

      When Mr. Francis and his current counsel arrived, they were shown to a separate conference room as there was to be no joint session. Mr. Francis was wearing sweat shorts, a backwards base-ball cap and was barefoot;

      “. . . He was playing on his electronic devise [sic]. As [plaintiffs’ counsel] began his presentation, Francis put his bare, dirty feet up on the table, facing plaintiffs’ counsel. [Plaintiffs’ counsel] said four words, “Plaintiffs were minor girls,” when Francis barked, “Are the girls minors now?” Continuing [Plaintiffs’ counsel] said, “Plaintiffs are minor girls who were severely harmed by defendant.”

      “ Francis then erupted. Don’t expect to get a fucking dime – not one fucking dime!” This was Francis’ mantra which he repeated about fifteen times, during his tantrum that ensued.”
                                                                        . . .
     

      “As [Plaintiffs’ counsel] was walking out of the room, Francis got up and faced off with [Plaintiffs’ counsel]. Right in [Plaintiffs’ counsel] face, Francis barked, “I’m going to ruin you, your clients, and all of your ambulance chasing partners!”  
                                                                        . . .
     

      “Francis then made the only offer he was to make that day, “suck my dick,” Francis shouted repeatedly, as plaintiffs’ counsel left the mediation room.”
     (Id. at Alternatives at 2.)

        Based on the above, the motion sought an order that Francis pay sanctions and behave civilly.
 

      The court conducted a hearing on the motion, continuing it for purposes of holding an evidentiary hearing one-week later. Although both parties requested that the matter be kept under seal, the judge refused. The court further directed defendant Francis to appear personally at the evidentiary hearing dressed in proper business attire and abiding by the rules of etiquette. The court also warned Francis’ counsel that if, at the hearing, it determines the allegations of plaintiffs to be true, Mr. Francis may well end up in jail.

       One week later, the court conducted the evidentiary hearing. The court took testimony of witnesses as to what transpired during the mediation in terms of everyone’s conduct and communications. Mr. Francis was forced to testify and, according to his own attorney, may have committed perjury.

       Following this evidentiary hearing, the court found that defendant Francis “willfully and contumaciously violated” the pertinent provisions of the Court’s Scheduling and Mediation Order. (Id. at 4) As such, the court determined that Francis’ behavior could not be protected by the mediation privilege. Concerned that a financial sanction alone would not have the appropriate effect on Mr. Francis, the court ordered both that he reimburse plaintiffs their attorney’s fees and costs and ordered Francis to be incarcerated. But, the court delayed the commencement of the jail sentence until 4:30 p.m. the next day, ordering the parties to participate in another mediation session and to give defendant Francis time to participate in good faith and in appropriate business attire at such a session. The court ordered that defendant Francis would be released from jail “when the mediator certifies in person to the court that Mr. Francis has fully complied with this order and has participated in the mediation in good faith.” (Id. at 5)
 

      On the next day, the parties mediated and reached a settlement in principal. However, an impasse was reached regarding one of the terms of the settlement during the drafting of the agreement. The court viewed this impasse as an attempt by Francis to renege on his commitment to settle and so ordered Francis to report to the U.S. Marshall for incarceration. (The court had suspended the jail time pending the settlement.) When Francis failed to surrender as required, the court issued a warrant for his arrest, and Francis was arrested. The court issued an order to show cause why Francis should not be held in criminal contempt, setting a hearing date for several weeks later. The bases of the criminal contempt were his alleged perjury at the evidentiary hearing and his failure to surrender to the U.S. Marshalls as ordered.

       The next day, the civil case finally settled in full. But defendant Francis remained in jail pending the criminal contempt charges. Francis eventually pleaded guilty to violating the order to surrender to the U.S. Marshall. The first charge (that is,  committing perjury at the evidentiary hearing) was dismissed after his attorney submitted an affidavit stating that he did not believe Francis’ March 30 testimony was intentionally false. Based on the one charge, Francis was sentenced to 35 days in prison with credit for time served and fined $5,000.

       Needless to say – this episode raises a multitude of issues and concerns such as mediation confidentiality, the voluntariness of mediation, the self-determination of mediation, the admissibility of evidence,  the place, if any, of coercion in mediation, the concept of negotiated resolutions, good faith in mediation, and the  role of the mediator in the process as well as his/her immunity in this process. To address these issues would take quite a few more blogs. But I raise them in my continuing effort to give you. . .

       . . . Just something to think about.

*“Mediation Gone Wild: How Three Minutes Put an ADR Party Behind Bars” by Michael D. Young, appearing in Vol. 25, No. 6 issue of Alternatives, (June 2007).

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