Tuesday, March 30, 2004
High Court Rules Sec. 128.5 Sanctions Can No Longer Be Imposed
By a MetNews Staff Writer
A litigant cannot 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 state Supreme Court ruled yesterday.
Writing for a unanimous court, Justice Marvin Baxter said the two schemes are mutually exclusive. Baxter disagreed with a 2002 ruling by the First District Court of Appeal, which held 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.
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the party accused of misconduct a “safe harbor,” under which sanctions cannot be imposed if the paper or pleading is “withdrawn or appropriately corrected” within 21 days following service of the motion.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.
But Baxter said Parrilli’s interpretation “contradicts the most plausible import of section 128.5’s words.”
“In particular, the Legislature would not have enacted section 128.6, and made its operation contingent upon the repeal of section 128.7, if section 128.5(a) was meant to apply concurrently with section 128.7....Section 128.6 expressly states that it does not operate concurrently with section 128.7....It is highly unlikely the Legislature would duplicate section 128.5, word for word, in a statute that expressly does not overlap with section 128.7 if it intended sections 128.5 and 128.7 to apply in tandem. If sections 128.5 and 128.7 did operate concurrently, and section 128.7 became inoperative because the Legislature chose not to extend its sunset date, sections 128.5 and 128.6 would apply at the same time, a result the Legislature cannot reasonably have intended.”
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.
The case is Olmstead v. Arthur J. Gallagher & Company, 04 S.O.S. 1559.
Copyright 2004, Metropolitan News Company