Noteworthy Cases                
 

Old Judgment Maintains Jurisdiction Over Out-of-State Resident

Wayne Fiscus, a resident of Arizona, defaulted on a promissory note that was executed in California in 1987 and was held by Union Bank.  Union Bank sold the debt, and along the way a judgment was obtained against Fiscus in California, but never enforced.  The debt was eventually assigned to The Cadle Company.  Although Fiscus resided in Arizona, Cadle brought an action in California to enforce the judgment.  Fiscus responded with a motion to quash service of summons, arguing that the court lacked personal jurisdiction because he is a resident of Arizona and has no property, business, or residential ties to California. The trial court accepted that argument based on the usual rule that you must sue where the defendant resides unless he has minimum contacts with the forum.  Although the promissory note was signed in California, the court reasoned that an independent action enforcing a judgment requires a current basis for asserting personal jurisdiction. Cadle appealed.

The California Court of Appeal reversed.  The court found that it was sufficient that the original judgment was obtained in California. The defendant's contacts are required to show that it would be reasonable for the defendant to expect being taken to court in the forum state.  Here, Fiscus entered into a contract to be performed in California and appeared and answered a complaint when he discovered he was in breach. Hence, the California court established personal jurisdiction properly during the original action.

THE CADLE COMPANY II, INC. v. WAYNE FISCUS

Plaintiff Cannot Recover Emotional Distress Damages Under FMLA, But Can Recover Wages Lost As A Result of the Emotional Distress  

An employee, Frank Farrell, learned he had diabetes prior to working as a bus driver for Tri-County Metropolitan Transportation District (TriMet). Years later, he also suffered from a number of maladies, including asthma, and emphysema and/or chronic bronchitis.  On several occasions, he requested permission under the Family Medical Leave Act (FMLA) to be absent from work due to his medical conditions.  When TriMet denied his requests, Farrell was diagnosed with anxiety and depression, and was ordered by his doctor to take time off from work as a result of the mental distress.  He sued TriMet under the FMLA, seeking lost wages and emotional distress damages.  The jury awarded just $1,110 in lost wages.

Incredibly, TriMet appealed the $1,110 award (see Why Big Firms Don't Work), claiming that while an employee can recover lost wages for an improper denial of leave under the FMLA, it cannot recover those lost wages if they are the result of "psychic injuries."  The Ninth Circuit Court of Appeals agreed with the argument by TriMet that Congress did not intend the FMLA to allow the recovery of emotional distress damages.  However, it found that as to the facts of this case, TriMet's argument failed because the jury's verdict merely required TriMet to compensate Farrell for the wages he lost by reason of TriMet's FMLA violation, not for his psychic injury.  The judgment was affirmed.

FRANK FARRELL v. TRI-COUNTY METROPOLITAN TRANSPORTATION DISTRICT

Attorney Fees Cannot Be Recovered From Plaintiff Under California Disabled Persons Act for a Non-Frivolous Action

Plaintiffs Lynn and Barbara Hubbard alleged various violations against SoBreck LLC under both the Americans with Disabilities Act ("ADA") and the California Disabled Persons Act ("CDPA").  They lost at trial, and the court entered judgment in favor of SoBreck. However, the court did not find the Hubbards' claims to be frivolous. Nonetheless, even though the ADA specifically provides that attorney fees cannot be recovered if the claim is not frivolous, SoBreck moved for attorney fees under the CDPA which does not share that limitation.  The trial court awarded attorney fees under the CDPA, and the Hubbards appealed, contending the CDPA was preempted by the ADA.

For federal law to preempt state law, the state law must conflict with federal law and the violation of both laws must be identical.  Since the claims here were identical and the federal law does not grant fees for non-frivolous ADA claims, preemption principles preclude the award of fees for non-frivolous claims under the state law, the CDPA, as well.  As a result, the Ninth Circuit Court of Appeal reversed the trial court and denied the award of attorney fees to SoBreck.

HUBBARD V. SOBRECK, LLC

California Court of Appeal holds arbitration agreement unconscionable where it provides arbitrator the exclusive authority to determine enforceability issues.

This Court of Appeal decision holds unconscionable the arbitration agreement between the employee, Gina Ontiveros, and her employer, Airbourne Express Inc. At the time she was hired, Ontiveros was advised was provided with a binder of employment materials including an arbitration agreement and advised she needed to sign it to start her new position. She was not given any real time to review the documents she was provided or signed. The arbitration agreement she signed provided that it covered all claims between the parties and that she gave her right to a jury trial.

Airbourne Express was subsequently acquired by DHL Express Inc., and Ontiveros remained an employee of DHL Express. Ontiveros filed a complaint for sexual harassment in 2005. DHL filed a motion to compel arbitration, but the trial court denied it holding that the arbitration agreement was unenforceable because, inter alia, the clause providing that the arbitrator must decide disputes relating to applicability, enforceability or formation of he agreement is not sufficient to require the Court to compel arbitration if the contract is unconscionable. The Trial Court found that it is required, as a threshold issue, to determine whether the arbitration contract is unconscionable despite any provision requiring arbitration of issues relating to arbitrability. The court then held that the arbitration agreement was unconscionable because the employee did not even know she had signed an arbitration agreement until after she filed suit and the arbitration agreement was an adhesion contract in that the employee did not have the opportunity to review it or negotiate it.

The California Court of Appeals affirmed, stating that the reasoning and holding of the court, in Bruni v. Dideon, 160 Cal. App. 4th 1272 (2008) and Murphy v. Check ‘n Go of California, Inc., 156 Cal. App. 4th 138 (2007), supports the trial court’s conclusion that it had the authority to determine the unconscionability issues raised by the employee. The Court of Appeal also affirmed the trial court’s ruling that the arbitration agreement was unconscionable.

Ontiveros v. DHL Express (USA) Inc., June 30, 2008.

UPDATE ON WHETHER EMPLOYEES NEED ONLY PROVIDE, NOT ENSURE, MEAL BREAKS:

Recently, the 4^th District Court of Appeal struck down class status for approximately 60,000 California restaurant workers who sue over rest and meal breaks. This ruling is the first time an appeals court has defined the legal requirements for employee rest and meal breaks. The Appellate Court concluded that while employers cannot discourage or keep employees from taking rest periods, "they need only provide, not ensure, that rest periods and meal breaks are taken;" employers must only authorize and permit rest breaks during a set time, but they do not have to occur in the middle of the work period; employers are not required to provide a meal break for every five consecutive hours worked (instead employees may take their first meal break right away, and the second meal period need not occur within five hours of the end of the first five hour period but is due only after 10 hours of total work, even if the first meal period occurs very early in the shift); and employers can only be held liable for employees working off the clock if the employer know or should have known the employees were doing so. The Appellate Court further concluded that "the off-the-clock claims are also not amendable to class treatment as individual issues predominate" on the issue of whether an employer forced employees to work of the clock, whether the employer changed the time records, and whether the employer knew or should have known that employees were working off the clock.

Brinker Restaurant Corp. v. Sup. Ct. of San Diego County, D049331.
 

A recent California Appeals case held that a out-of-state choice of law provision is not enforceable where California has a greater interest in the parties’ transaction. Since the California loans were made to California consumers, secured with collateral located in California, provided cash that was likely spent in the California, and deprived California competitors of the opportunity to make those loans, the Appeals court held that California had a greater interest in the parties’ transaction and, thus, the Nevada choice of law provision was unenforceable.

Omni Loan Company is a Nevada corporation, with its principal place of business also located in Nevada; it is in the business of providing consumer loans to members of the military. Omni opened loan offices in Oceanside and San Diego, California. Joshua Brack was a nonresident member of the military stationed at Camp Pendleton. Brack applied for a loan with Omni, and his loan agreement included the Nevada choice of law provision. Brack filed a class action suit against Omni, alleging that Omni’s practices violated the borrower’s rights under the California Finance Lenders Law. The trial court held that Nevada had a substantial relationship to the loan contracts because Omni incorporated in Nevada and the loans were approved in Nevada, entering judgment in favor of Omni. The California Appeals Court reversed. While California Courts will generally enforce a contractual choice of law if he state whose law was has an interest in the parties’ controversy, if California’s interests are materially greater than the interests of the state whose law was contractually chosen by the parties, California State law applies. Here, the Appeals Court found the Nevada choice of law provision unenforceable because the application of Nevada law conflicts with the fundamental policy set forth in the Finance Lenders Law and California has a greater interest in the parties’ transaction.

Brack v. Omni Loan Company, CA Court of Appeal - 4^th District, No. D049198, July 16, 2008.
 

Meanwhile, proposed legislation aims to curb mandatory arbitration clauses in contracts. In mid July, 2008, the House of Representatives’ Judiciary Subcommittee on Commercial and Administrative Law approved three arbitration-related bills, including the Arbitration Fairness Act which, if passed, would ban pre-dispute arbitration clauses outright. The other two bills would ban mandatory arbitration agreements in contracts involving automobile sales and nursing homes. The Senate Judiciary Committee is considering its own legislation concerning nursing home arbitration.

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Morris & Stone, LLP, is located in Santa Ana, Orange County, California.  The practice areas of Morris & Stone include employment law (wrongful termination, sexual harassment, wage/overtime claims), business litigation (breach of contract, trade secret, partnership dissolution, unfair business practices, etc.), real estate and construction disputes, first amendment law, Internet law, discrimination claims, defamation suits, and legal malpractice.