Thursday, April 17, 2003
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S.C. to Decide Whether Sec. 128.5 Sanctions Can Still Be Imposed
By KENNETH OFGANG, Staff Writer/Appellate Courts
The California Supreme Court yesterday agreed to decide whether a litigant can obtain sanctions for an opponent’s bad faith under Code of Civil Procedure Sec. 128.5 in an action filed after Sec. 128.7 took effect in 1995.
The justices, at their regular Wednesday conference, voted unanimously to review that issue, as presented in Olmstead v. Arthur J. Gallagher & Co. (2002) 104 Cal.App.4th 858, decided by the First District Court of Appeal Dec. 20.
The lower panel ruled that Sec. 128.5 is alive and well, and can form the basis of a sanctions order on even a recently filed case as long as the offensive conduct did not take the form of a pleading or paper.
Div. Three upheld an award of Sec. 128.5 sanctions against two plaintiffs who sued an insurance broker but lied about being able to get other insurance and making other claims following their automobile accident.
The opinion by Justice Joann Parrilli of Div. Three attempted to clarify the arsenal of sanctions that lawyers and their clients have at their disposal when they believe an opponent is lying, cheating, or using what used to be known as “Rambo” tactics.
Two Laws
The Legislature passed Sec. 128.5 in 1981 to permit sanctioning lawyers or litigants for frivolous motions or delay tactics. Sec. 128.7 passed in 1994 but by its terms applies only to bad-faith assertions in pleadings or papers, and only to cases filed in 1995 or later.
The new law, based on Rule 11 the Federal Rules of Civil Procedure, also gives the party accused of misconduct a “safe harbor,” under which sanctions cannot be imposed if the paper or pleading is “withdrawn or appropriately corrected” within 21 days following service of the motion.
The safe harbor was originally 30 days, but was later reduced to match the federal rule.
Sec. 128.7 was originally passed with a sunset date of Jan. 1, 1999, but has been extended twice—the first time through the end of last year, the second time until Jan. 1, 2006.
Lawmakers also enacted a section not discussed by Parrilli, Sec. 128.6, with provisions nearly identical to those of Sec. 128.5. But Sec. 128.6 never became operable because it contains a clause rendering itself null and void in the event of an extension of Sec. 128.7.
Because Sec. 128.7 still could eventually lapse, Sec. 128.5 remains standing in the wings and absent further legislative action would return to the fore on the sunset of the newer law, Parrilli said.
The justice reasoned that the two statutes operate concurrently. Sec. 128.5 is still in effect, she said, and not just for cases filed before 1995.
High Court Dicta Rejected
Bucking the Legislative Counsel’s Digest that accompanied the newer Sec. 128.7, and also bucking the state Supreme Court’s view expressed in dicta, Parrilli said the Legislature left Sec. 128.5 intact for all kinds of litigation abuses except pleading misconduct when it passed the second law.
“[I]nterpretations found in the Legislative Counsel’s Digest are not binding on the courts,” Parrilli said. “And while dicta from our Supreme Court are persuasive and should ordinarily be followed, this sound advice is only controlling when the Supreme Court has conducted ‘a thorough analysis of the issues and such analysis reflects compelling logic.’”
The justice noted that when the Legislature approved Sec. 128.7 and made it effective only for pleadings filed on or after Jan. 1, 1995, it did not amend Sec. 128.5 to apply only to pleadings filed earlier.
“Thus, the Legislature limited the scope of section 128.5, narrowing its application after 1994 to sanctions for conduct not involving pleading,” Parrilli wrote.
In the trial court, San Francisco Superior Court Judge Thomas H. Mellon Jr. rejected a motion by insurance broker Arthur J. Gallagher & Company for Sec. 128.5 sanctions against plaintiffs Carleen Olmstead and Cherie Rose.
Mellon said the conduct could well have been sanctionable under Sec. 128.5, but that the statute did not apply because the action was filed after Dec. 31, 1994. No recovery was available under Sec. 128.7, the judge ruled, because the company failed to comply with the 30-day safe harbor provision then in effect. Parrilli said Mellon erred by failing to apply Sec. 128.5.
In other action at the conference, the justices:
-Agreed to decide whether California may prohibit wines not made with Napa County grapes from using the word “Napa” in their brand names. The Third District Court of Appeal held on Jan. 16 in Bronco Wine Co. v. Espinoza(2003) 104 Cal.App.4th 598 that the prohibition was preempted by federal law permitting such appellations if the label correctly states where the gapes come from.
-Agreed to review a decision by this district’s Div. Seven granting a new trial to a probationer who suffered a nonsuit in his action against officers for false arrest and unreasonable search and seizure.
The Court of Appeal, in an opinion by Los Angeles Superior Court Judge Aurelio Munoz, sitting on assignment, said a jury must decide whether officers had probable cause to arrest David Venegas in connection with an investigation into an auto theft ring. Venegas was apparently mistaken for his brother, whose home was subject to search pursuant to a warrant.
The case is Venegas v. County of Los Angeles (2002) 105 Cal.App.4th 636.
Copyright 2003, Metropolitan News Company