Category: Litigation Tips

When a case settles, most settlement agreements include a confidentiality provision for key terms.  Attorneys often believe they are bound by such terms either when they approve the settlement as to form or even when the agreement has broad language regarding its application to the client’s attorneys.

However, a recent ruling by the California Court of Appeal threw that assumption into doubt.  In Monster Energy Company v. Schechter, the parents of a 14-year old girl sued Monster Energy after she consumed two Monster brand energy drinks, went into cardiac arrest and died.  Thereafter, the parents’ attorney negotiated a settlement agreement which included a confidentiality provision purporting to bind him and his firm.  The attorney subsequently gave an interview in which he said the case had settled for “substantial dollars for the family.”  Monster Energy then sued the attorney and his firm alleging that they had breached the settlement agreement’s confidentiality provision.

The attorney and his firm then filed a special motion to strike under section 425.16 of the California Code of Civil Procedure (an anti-SLAPP motion) arguing that Monster Energy could not show a probability of prevailing on its breach of contract claim because the attorney and his firm were not parties to the settlement agreement.  The trial court denied the motion and an appeal followed.

The Court of Appeal held that “when a settlement agreement provides that the ‘[p]laintiffs and their counsel agree’ to keep the terms of the agreement confidential, and when the plaintiffs’ counsel signs the agreement under the words, ‘Approved as to form and content,” the plaintiffs’ counsel could not be liable to the defendant for breach of the confidentiality provision.  The Court noted: “The only reasonable construction of this wording is that they were signing solely in the capacity of attorneys who had reviewed the settlement agreement and had given their clients their professional approval to sign it.  In our experience, this is the wording that the legal community customarily uses for this purpose.”

Because confidentiality is often a key term of a settlement agreement, attorneys would be well-advised to keep this recent opinion in mind when drafting settlement agreements.  As the Court noted, one way to avoid this issue, and bind attorneys to a confidentiality provision, is “to draft a settlement agreement that explicitly makes the attorneys parties to the agreement (even if only to the confidentiality provision) and explicitly requires them to sign as such.”

On May 23, 2018, the Supreme Court issued a new California Rule of Court which requires most active California attorneys to be re-fingerprinted. This requirement is part of an effort by the State Bar to come into full compliance with statutory mandates that require the Bar to receive notifications of attorney arrests and convictions from the California Department of Justice. The new rule came into effect on June 1, 2018, but attorneys have until April 30, 2019 to come into compliance. For anyone who has yet to do so, you can find the necessary information here.  Don’t wait until the last minute, as LiveScan locations can become crowded and fingerprints aren’t always accepted the first time. Failure to comply with these new requirements can result in monetary penalties, and if new prints haven’t been taken by the final deadline of December 1, 2019, you may face a suspension of your license.

If you are filing a new case in the Northern District of California, and your case is assigned to the ADR Multi-Option Program, be advised that the initial case management scheduling order will no longer set a deadline by which the parties must either file a Stipulation and Proposed Order Selecting an ADR Process or a Notice of Need for ADR Phone Conference.  Instead, the scheduling order will set a deadline regarding when the parties must file a new form of ADR Certification.  This new form will include a space for parties to indicate if (1) they will be filing a Stipulation and Proposed Order Selecting an ADR Process or (2) if they need to discuss ADR at the case management conference.

In short, while ADR phone conferences may be requested or required in individual cases, they are no longer required in the standard scheduling order, effective May 1, 2018.

This new change aligns the ADR Local Rules with Civil Local Rule 16 and should streamline the process for litigation and the ADR.  As a firm that utilizes all tools in federal litigation, we look forward to following this new process.

While California law promotes lawful competition, individuals cannot violate agreements with their former employer with impunity.  This was illustrated last week when a California jury awarded AeroVironment, Inc. $2.4 million after finding three former employees of the drone technology company engaged in fraud and breached patent and confidentiality agreements with their prior employer.  See Aerovironment, Inc. v. Gabriel Torres, et al., County of Ventura Superior Court Case No. 56-2015-00465460.

AeroVironment hired the three defendants to work in its engineering department where the company was developing drone technology for military use.  All three defendants signed agreements to keep AeroVironment’s proprietary information confidential and not to engage in any competing activities during their employment.  Notwithstanding these agreements, and while still employed by AeroVironment, defendants began planning a competing business and went so far as to found the drone sensor company for which they would all eventually work after their resignations.  AeroVironment filed suit soon after discovering such conduct.

The verdict in AeroVironment’s favor demonstrates that even in California, juries will hold former employees accountable for misusing protected information and actively competing with their current employers.  In general, California employees may prepare to compete as long as they are not actually pursuing competitive enterprises while employed, or using their employer’s resources to do so.  However, these defendants went too far in the jury’s view.  The case is a reminder that employers should ensure that their employees sign basic confidentiality agreements as well as agreements that they will not compete during employment.  Such agreements can be complemented with strong written policies, including handbooks that prohibit conflicts of interest and describe the employer’s expectations for maintaining confidences.

As with most things, an ounce of prevention is worth a pound of cure.  California employers who wish to remain competitive should take these simple steps, as AeroVironment had done, to protect their technologies.  The existence of standard agreements was key to AeroVironment prevailing at trial.

Lewis & Llewellyn has extensive experience litigating and advising clients on the myriad issues that can arise when an employee transitions from one company to another.  Click here to read more about our practice areas in the field of employee mobility.

In a recent Litigation Tip, we explored the perils that employees face when changing jobs.  But at Lewis & Llewellyn, we represent employers in high-stakes litigation as often as we represent plaintiffs.  And employers face their own unique concerns in the complex and ever-changing world of employee mobility.

It is very common for contracts, including employment contracts, to contain a choice of law clause, a forum selection clause, or both.  These clauses dictate both the venue for any future litigation between the parties, and which state’s law should apply.  In 2017, California enacted Labor Code section 925 which has a direct impact on employment contracts for employees who live and work primarily in California.  In broad terms, the new provision prevents such employees from being bound to a contractual provision that would force the employee to litigate outside of California, or litigate under another state’s laws, on claims that arose in California.  The provision applies to contracts entered into, modified or extended on or after January 1, 2017, and applies to both litigation and arbitration.  Not only that, the provision allows for the recovery of attorneys’ fees and injunctive relief for employees having to enforce their rights under the new section.  There is, however, a carve out for employees represented by counsel during the negotiation of the contract.

Employers with California employees would be well advised to review their employment agreements for compliance with the new provision, and should keep the new provision in mind when extending or modifying existing agreements, or entering into new agreements with California employees.  Where applicable, employers may also want to memorialize the presence of counsel during the negotiations when seeking to avoid the impact of the new section.

Most litigators are generally familiar with Section 664.6 of the California Code of Civil Procedure, which provides a summary procedure to enforce a settlement agreement after dismissal of a lawsuit.  Without such a provision, a non-breaching party would have to file a new lawsuit for breach of contract (the settlement agreement itself), which could then take months or even years to resolve, and thus frustrating the purpose of the underlying settlement.  Many settlement agreements therefore contain a provision specifically providing for the Court to retain jurisdiction under Section 664.6.  However, the California Court of Appeal clarified last week that such a provision is likely insufficient.

In Sayta v. Chu, an opinion issued on November 29, 2017 by the California Court of Appeal, the First Appellate District set forth clear and express requirements for invoking Section 664.6.  The underlying dispute, which arose from the termination of a tenancy, was subsequently resolved by written settlement agreement, and the lawsuit dismissed.  Following an alleged breach by defendant, plaintiff brought a motion to enforce the settlement agreement pursuant to Section 664.6.  The trial court denied the motion, a decision which was affirmed by the Court of Appeal.  This is because the parties failed to request, before dismissal, that the trial court retain jurisdiction to enforce the settlement, or alternatively, seek to set aside the dismissal.

Settlements are very often reached in confidence and therefore there may not be the opportunity to request that the Court retain jurisdiction.  It remains to be seen how the impact of Satya will be addressed in practice.  However, if there is any risk that the opposing side may breach the settlement agreement, the practitioner would be well advised to request that the Court retain jurisdiction on the record or in a minute order.

When deposing a retained expert in California, a party may specify materials to be produced by the expert at the deposition.  In response, experts often appeared for deposition with reams of materials, often disorganized, in an attempt to sandbag the opposition.  This often forced the deposing party to scramble to review the materials during the deposition and waste limited deposition time.

Effective January 1, 2017, the California Legislature amended the Code of Civil Procedure to prohibit this tactic.  Section 2034.415 now requires an expert to produce materials at least three business days before his or her deposition.  Because the new rule requires production of materials three “business days” before the expert deposition, the party noticing the deposition would be well-advised to avoid noticing an expert deposition on a Thursday or Friday so as to take advantage of the weekend’s two extra days.

When departing a company to join a competitor, employees should proceed with caution before downloading “personal” information saved on their work computer.  While this material is not a company trade secret, downloading it shortly before departing the company can unnecessarily expose the employee to a legal headache.  After the employee has departed, the former employer will likely forensically examine her work computer, which will reveal whether and when external storage devices were connected.  But the exam will rarely determine what materials were actually transferred—meaning the former employer doesn’t know whether the employee downloaded family photos or key business documents.  So, connecting an external device to a work computer in the days/weeks before the employee’s departure can set off alarm bells, often resulting in the former employer sending a cease and desist letter to the departed employee and her new company.  The new company will then be concerned about liability for knowingly acquiring and/or using trade secrets, which leads to investigation, legal fees, and a less than stellar first impression of the new employee.

Lewis & Llewellyn has extensive experience advising individuals and companies on the myriad issues that can arise when an employee transitions from one company to another.  Click here to read more about this practice area.

On April 6, 2017, the California Supreme Court handed down a unanimous decision that will likely become a seminal case on the subject of class-action waivers and arbitration clauses in consumer contracts.  In McGill v. CitiBank, N.A., No. S224086 (Apr. 6, 2017), the Court held that an arbitration clause in Citibank’s credit card agreement purporting to waive a plaintiff’s right to seek public injunctive relief in any forum was contrary to California public policy and therefore unenforceable.  The Court further held that the Federal Arbitration Act does not preempt California’s consumer protection statutes.

In 2011, McGill brought a putative class action against Citibank based on alleged violations of three well-known California consumer-protection statutes—the Consumers Legal Remedies Act (CLRA), the False Advertising Law (FAL), and the Unfair Competition Law (UCL)—each of which provides injunctive relief as a remedy.  Citibank responded by seeking to compel arbitration of each of these claims.

The trial court declined to force McGill to arbitrate her public injunctive relief claims, finding that agreements to arbitrate claims for public injunctive relief under the CLRA, FAL, or UCL are unenforceable.  The Court of Appeal, however, disagreed and ordered all of McGill’s claims to arbitration, reasoning that the Broughton-Cruz rule was preempted by the Federal Arbitration Act.  The California Supreme Court reversed, holding that the contractual waiver of McGill’s right to seek public injunctive relief in any forum was unenforceable.  The Court side-stepped the issue of whether the Broughton-Cruz rule was preempted by the Federal Arbitration Act, focusing instead on the fact that the arbitration clause at issue purported to prevent McGill from seeking public injunctive relief in any forum, be it a court of law or arbitration.  By agreeing to submit her claims to arbitration, therefore, McGill was in effect also agreeing to limit the remedies to which she would have been entitled if she prevailed on her claims, reasoned the Court.  Because the public injunction remedies are intended to benefit the public, the Court held that their waiver is invalid.

Two takeaways from the Court’s decision are apparent.  First, savvy companies should review their consumer contracts to ensure that they do not contain the arbitration language at issue in McGill, and should consider adding carve-outs for public injunctive relief, or else they risk a finding that an agreement to arbitrate is “permeated by unconscionability” and therefore unenforceable.  Second, given that the U.S. Supreme Court has repeatedly ruled against California’s High Court in recent cases centered on arbitration—most notably AT&T Mobility v. Concepcion in 2011—it is almost certain that Citibank will petition the Court to review this decision.  And with the recent confirmation of Judge Neil Gorsuch to the long-vacant ninth seat on the Court, efforts to limit what rights consumers may waive through arbitration agreements are entering treacherous waters.

A few weeks ago, in A.M. v. Ventura Unified School District, et al., 2016 WL 5936851 (Cal. Ct. App. Oct. 12, 2016), the Court of Appeal overturned a trial court decision limiting the ability of childhood sexual abuse victims to file suit.  The Court of Appeal found that California Government Code section 905(m), which waives the requirement that a tort claim be filed before suing a public agency for childhood sexual abuse, is not limited to cases in which the alleged abuser was employed by the public agency.  In other words, if a child files suit alleging that he or she was abused by his or her fellow students, no tort claim form is required.

The underlying complaint in A.M. alleged that the victim was bullied, battered, and sexually abused by some of her fellow students.  Even though her mother complained to the school district, no action was taken.  The trial court granted summary judgment in favor of the student defendants, finding that the plaintiff had failed to file a claim form and, therefore, was barred from filing suit against them.  The Court of Appeal rejected this narrow interpretation of the statute and reversed the trial court’s decision.

This decision is a welcome development for victims of childhood sexual abuse, and removes another barrier for victims seeking recourse through the courts.