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9th Circuit Applies California Law to Contract Where Parties Agreed to Apply Georgian Law

The basic facts of the case are an individual entered into an agreement with a bank located in Georgia to borrow money to purchase her home. It is not clear whether the individual even signed the contract or where the contract was signed but it ends up not mattering because the bank sued in California District Court under diversity jurisdiction. Note: in California, if a contract contains an attorney fees clause provision, both sides of the dispute get to use it. That’s not the law in Georgia. The Bank wanted to be able to enforce its attorney fee clause against litigants but to not allow other litigants to use that clause against the bank!

California law was applied to this contract in two instances.

First, the choice of law clause had to be interpreted. It would be circular logic to apply the choice of law clause in determining which states’ laws applied to the choice of law clause. The Court held that in diversity jurisdiction cases, such as this one, it would “apply the substantive law of the forum in which the court is located, including the forum’s choice of law rules.” Since the lawsuit was in California, California’s choice of law clause applied to the case.

California follows restatement second of Conflict of Laws § 187 to determine the law that applies to a contract with a choice-of-law clause. Under § 187, a California court begins its analysis by determining “whether the chosen state has a substantial relationship to the parties or their transaction, or … whether there is any other reasonable basis for the parties’ choice of law. If so, the court then determines whether California would “be the state of the applicable law in the absence of an effective choice of law by the parties.” If the chosen forum has a substantial relationship to the parties or their transaction but California law would apply in the absence of a choice-of-law provision, the court then determines whether the relevant portion of the chosen state’s law is contrary to a fundamental policy in California law.

If there is such a conflict, the court finally determines whether California has a materially greater interest than the chosen state in the determination of the particular issue.

Since California’s Supreme Court has yet to rule on the matter, the 9th Circuit had to predict whether California’s reciprocity law, § 1717, embodies a fundamental policy of the state. The 9th Circuit decided it did and thereby affirmed the lower court’s decision to award attorney fees to the individual.

The case can be found here.

Pop Quiz! How Long After Entry Of Order Confirming A Plan Can The Order Be Revoked? Hint: It’s Not What You Thought!

If an order confirming a Plan of Reorganization is procured by fraud, how many days from entry of order does one have to ask the court to revoke the order?

The answer depends on which chapter of the Bankruptcy Code we’re talking about! In a Chapter 12 or Chapter 13 case, one would have up to the 180th day after the date the order was entered to seek revocation of the discharge. In a Chapter 11 case, one would have up to the 179th day after the date the order was entered to seek revocation. That is a pretty tough lesson to learn the hard way.

The District Court’s decision affirming Judge Ahart can be found here.

The basis of the decision was statutory analysis, compare §§ 1230 and 1330 with § 1144:

§ 1144 “On request of a party in interest at any time before 180 days after the date of the entry of the order of confirmation…”

§ 1230 “On request of a party in interest at any time within 180 days after the date of the entry of an order of confirmation…”

§ 1330 “On request of a party in interest at any time within 180 days after the date of the entry of an order of confirmation…”

Congress apparently intended confirmation orders in Chapter 12 and 13 cases to be revocable if revocation was sought within 180 days but reduced that time by 1 day for Chapter 11 cases.

My first thought was, why not seek revocation of the order under FRCP Rule 60(b)(3) which provides that

“On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons … (3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;”

The time limit under §60(b)(3) is a year:

“A motion under Rule 60(b) must be made within a reasonable time—and for reasons (1), (2), and (3) no more than a year after the entry of the judgment or order or the date of the proceeding.”

But the problem is FRBP 9024 overrides FRCP Rule 60:

“Rule 60 F.R.Civ.P. applies in cases under the Code except that …  (3) a complaint to revoke an order confirming a plan may be filed only within the time allowed by §1144,…”

In turn, FRBP 9024 is protected by FRBP 9006 which explicitly prohibits the Court from extending the time period in FRBP 9024:

“(2) Enlargement Not Permitted. The court may not enlarge the time for taking action under Rules … 9024.”

So what can be done? The Court may allow a party to seek damages caused by the fraud so long as any such award of damages is not an end run around confirmation of the plan.  The plan itself may contain provisions which allow the aggrieved party to obtain some sort of relief.

If any of you have alternate suggestions, please leave a note in the comment box.

As an aside:
The original case and adversary proceeding are: 1:13-bk-11804 | Amber Hotel Corporation; 1:14-ap-01113 | Little v. Amber Hotel Corporation.

It is a shame considering how good the Plaintiff writes, I LOVE a good statement of facts,

On the night of March 24, 2008, Mr. Martini was told by Mr. Post to drive to Malibu to meet Mr. Post in the middle of the night, at a time when there would be no other “witnesses.” When Mr. Martini arrived at Mr. Post’s offices, all the lights were off and Mr. Martini was directed to enter the premises from the rear of the building. Upon doing so, he found Mr. Post sitting in a darkened room lit by a solitary light. Mr. Post handed Mr. Martini several bundles of hundred dollar bills, totaling $100,000. Mr. Post told Mr. Martini that he could never mention this payment to Plaintiff, because—if he did—he was certain that Plaintiff would sue him.

6th Circuit Holds That FDCPA Protects Corporations

The FDCPA is a powerful piece of legislature designed to eliminate abusive debt collection practice. The teeth behind the act are an attorney fees clause and provisions that allow for emotional distress and punitive damages to be awarded.

One distinction between consumer debt collectors and commercial debt collectors is that those practicing consumer debt collections had to be very careful not to violate the FDCPA while commercial debt collectors did not have the same worries. Consumers are not as sophisticated as those engaged in business and so this additional protection makes sense.

That distinction now blurred because the 6th Circuit held that corporations may take advantage of the FDCPA.  This is a BIG deal.

You can find the case here.

Hat tip to Professor Dan Schechter, Loyola Law School, Los Angeles and the ABA’s Insolvency Law Committee.

Most Commercial Speech is Not Activity Protected by California’s Anti-SLAPP Statute.

On August 20, 2015, the Los Angeles Division District Court was presented with the issue of whether false advertising on the internet was subject to anti-SLAPP protection. The case is In L.A. Taxi Cooperative, Inc. v. The Independent Taxi Owners Association of Los Angeles and a copy can be found here.

Apparently rival cab companies are purchasing pay per click advertisements on leading search engines which purport to be the rival company but really redirect customers to their own websites and numbers. An example is:

Kia Tehrany, director of operations for Yellow Cab, stated that he conducted a search using the terms “‘Yellow Cab Los Angeles.’” The results included the following:

Yellow Cab Los Angeles – Call 800-521-8294 or Book Online!
www.lataxi.com
Our Cabs get you there Fast & Safe.

Tehrany stated that neither the listed telephone number nor the website was owned or controlled by Yellow Cab. Instead, the website contained information related solely to taxi services provided by ITOA.

So the Yellow Cab Company and affiliates filed a lawsuit against ITOA and its affiliates alleging (1) violation of Business & Professions Code section 17500, which prohibits false or misleading statements when advertising one’s services, and (2) violation of Business and Professions Code section 17200, which prohibits unfair competition in the form of any unlawful, unfair or fraudulent business act or practice. The complaint was amended to include violations of the Lanham Act for false advertising and trade name infringement.

Eventually, the defendants filed an anti-SLAPP motion. As a reminder, there was a time in California where people would file lawsuits just to prevent the opposing side from voicing their opinions (often referred to as strategiclawsuit against public participation). The California legislature passed what are called anti-SLAPP statutes which are designed to quickly end these kinds of lawsuits and punish the party filing the SLAPP motion. Over time, it has become a powerful tool.

In this case, the defendants filed an anti-SLAPP motion alleging that the Yellow Cab Company was filing a lawsuit to prevent them from exercising their right to speech. They not only lost but the loss was affirmed by the appellate court and they are now liable for attorney fees.

The appellate court found that “It is well established that commercial speech that does nothing but promote a commercial product or service is not speech protected under the anti-SLAPP statute.” It then concluded that the particular advertisements were purely commercial speech. Hence the anti-SLAPP statutes wouldn’t even apply.

That’s not the end of the inquiry though. Commercial speech that involves a matter of public interest, however, may be protected by the anti-SLAPP statute. The appellate court found that in this particular case, the advertisements were not a matter of public interest. “The subject advertisements did not constitute participation in any public dialogue about public transportation via taxicabs, the taxicab industry, or taxicab licensing and regulation. Rather, the advertisements on their face were designed to further defendants’ private interest in increasing the use of their taxicab services.”

The appellate court seemed to espouse the view that consumer information that goes beyond a particular interaction between the parties and implicates matters of public concern that can affect many people is generally deemed to involve an issue of public interest for purposes of the anti-SLAPP statute.

As if all this was not enough, there is a commercial speech exception to the anti-SLAPP statute! As set forth in section 425.17, subdivision (a), the Legislature was concerned with the abuse of the anti-SLAPP statute. To curb such abuse, it placed limits on when an anti-SLAPP motion may be brought. One such limitation is set forth in section 425.17, subdivision (c), the commercial speech exemption, which provides that the anti-SLAPP statute does not apply to claims brought against a person primarily engaged in the business of selling goods or services, arising from any statement or conduct by that person, if two conditions exist:

  1. “[t]he statement or conduct consists of representations of fact about that person’s or a business competitor’s business operations, goods, or services, that is made for the purpose of obtaining approval for, promoting, or securing . . . commercial transactions in, the person’s goods or services,…”; and

  2. “[t]he intended audience is an actual or potential buyer or customer, or a person likely to repeat the statement to, or otherwise influence, an actual or potential buyer or customer….”

The appellate court then held that the exception applied to the facts of this case. Finally, the court found that the anti-SLAPP motion was frivolous and awarded attorney fees and costs to the Plaintiff.

Author’s comment: anti-SLAPP motions have teeth but sometimes they bite you! Attorneys have to be more diligent and aware of the possibility of being hit with an anti-SLAPP motion than ever before but they must be just as cognizant of the possibility that they will be sanctioned for filing frivolous anti-SLAPP motions.

Fair Use is a Defense to DMCA Takedown Notices and Could Subject Copyright Holders to Attorney Fees

The Digital Millennium Copyright Act provides a potent mechanism for copyright owners to demand that certain copyrighted materials be taken off of websites. This is because online services providers are given immunity from liability as long as they “expeditiously” remove content after receiving notification from a copyright holder that the
content is infringing.

The idea behind giving service providers immunity is rooted in the idea that if all the service provider is dong is allowing people to post content, then the content poster, and not the provider, should be liable for the copyright violation. That makes sense. Service providers like YouTube would go out of business if they were held liable for all the copyrighted videos posted on there.

The process requires the copyright holder to send a notice to the service provider which essentially identifies the infringement and provides a statement that the copyright holder believes in good faith the infringing material “is not authorized by the copyright owner, its agent, or the law. This is often referred to as a “takedown” notice.

The alleged copyright infringer then can restore the content by sending the service provider something referred to as a “put-back” notice. At that point, the service provider will restore access to the allegedly copyrighted material unless a lawsuit is filed within 14 days against the alleged infringer.

Here is the catch. Violating a copyright has some severe consequences so accidentally filing a takedown notice carries reciprocal consequences. If the copyright holder made a mistake either in identifying the alleged violation or in assuming the content was an infringement, they are hit with the following:

“…shall be liable for any damages, including costs and attorneys’ fees, incurred by the alleged infringer, by any copyright owner or copyright owner’s authorized licensee, or by a service provider, who is injured by such misrepresentation, as the result of the service provider relying upon such misrepresentation in removing or disabling access to the material or activity claimed to be infringing, or in replacing the removed material or ceasing to disable access to it.” 11 U.S.C. 512(f).

Fair use is an exception to copyright infringement. So what happens when the alleged violation is fair use? On September 14, 2015, in Lenz v. Universal Music Corp., the 9th Circuit Court of appeals made it clear that the copyright owner must be certain that it does not issue a takedown notice in situations where the alleged infringement is allowed due to fair use.

The Court also took it a step further. Typically, a copyright holder need only form a subjective good faith belief that a use is not authorized but the Court allowed for a “willful blindness theory” which means that if the copyright owner fails to consider fair use, one way, or another, then under the willful blindness theory, it could never have formed a subjective belief and is therefore, liable under the statute. The actual test is:

(1) the defendant must subjectively believe that there is a high probability that a fact exists and
(2) the defendant must take deliberate actions to avoid learning of that fact.

You can find a copy of the 9th Circuit decision here.

Charging Extra Fees to Credit Card Users in California Soon to Be Legal

I wrote a three part article here which explained California law as it applied to a retailer’s ability to surcharge for the use of credit cards. The second part discussed the loopholes embedded into the law and discussed why the law is actually bad for consumers and retailers alike. In the final part, it discussed the legality of the law in light of a similar law being struck down by Federal Courts in New York.

While California’s law remains unchallenged, the 11th Circuit Court of Appeals recently struck down the Florida version of the same law after the District Court upheld it! You can read the case here.

 

The 11th Circuit did not give any weight to the actual negative effects of this law, at least it did not write about it. The 11th Circuit simply applied current standards with respect to restrictions on speech and ruled on those grounds alone.

These two cases should form a strong basis for any challenge to the constitutionality of California’s ban on surcharges for credit card usage.

Credit Card Companies Beware, California Appellate Court Finds That Their Evidence of Debt May Not Be Admissible

This is a summary of Sierra Managed Asset Plan, LLC, vs. Hale which was published by the California Court of Appeals on August 20, 2015. You can find the case here.

Consumer opened a credit card account with Citibank, N.A. He accumulated an unpaid balance of $10,138.41. Through a series of assignments, Sierra acquired Citibank’s rights as creditor. Sierra sought to enforce those rights through a lawsuit. Consumer did not deny the account, but he testified that he did not recall any of the details of the purchases on or the accrued balance of the account.

To prove that the defendant owed the money, Sierra had its agent testify and attach exhibits which substantiated the assignments leading to Sierra’s acquisition of rights as creditor on the account in question, the account agreement, and the account statements reflecting all of the charges culminating in the unpaid balance due. The account statements reflect purchases by a “David C. Hale,” with a listed address the same as that acknowledged by appellant at trial.

Consumer objected to receipt of the credit account exhibits attached to Sierra’s agent’s declaration on a variety of grounds, including hearsay and the lack of any foundation which would support their admission under the business records exception. (Evid. Code, § 1271.)

The Appellate Court agreed with Consumer, finding that the testimony did not provide substantial evidence of the foundation necessary for admission of the records pursuant to the business records exception to the hearsay rule.

Evidence Code, section 1271 provides as follows:

“Evidence of a writing made as a record of an act, condition, or event is not made inadmissible by the hearsay rule when offered to prove the act, condition, or event if:
(a) The writing was made in the regular course of a business;
(b) The writing was made at or near the time of the act, condition, or event;
(c) The custodian or other qualified witness testifies to its identity and the mode of its preparation; and
(d) The sources of information and method and time of preparation were such as to indicate its trustworthiness.”

In order for business records to meet the above elements for admission as an exception to the hearsay rule, either the person who created the documents, or an authorized custodian of the documents, or some “other qualified witness” must testify “as to the identity and mode of preparation of the documents.” The trial court has wide discretion in determining whether a “qualified witness” possesses sufficient personal knowledge of the “identity and mode of preparation” of documents for purposes of the business records exception. – This foundation requirement may be met by any “qualified witness,” meaning the witness need not be the custodian or the person who created the record.

Finally, based on the above, the Appellate Court found that there was no way for the particular declarant to know about Citibank’s business practice to form the foundation of the evidence presented!

Author’s comments: This is going to help a lot of pro se people fight credit card debt because most of the time, it is pursued by third parties similarly situated with Sierra but how does it affect bankruptcy practice?

The key here is that the Consumer’s testimony that he did not deny the account, but he testified that he did not recall any of the details of the purchases on or the accrued balance of the account was sufficient for the Appellate Court to shift the burden onto the creditor to prove the claim. So we should be able to file claim objections on the basis that our clients do not recall the particular purchases (assuming this is actually true). This would shift the burden onto the creditor thereby allowing us to successfully object to these claims.

Request for Admissions Are a Powerful Tool Which Should Not Be Taken Lightly

I found the following case very interesting because based on my limited experience, litigators tend to take a deny everything and admit nothing approach. But as the litigators here found out, this can be a dangerous game.

This is a quick summary based on the California Court of Appeals decision in TIMOTHY GRACE et al. vs. LEVIK MANSOURIAN et al. which was published on September 15, 2015. You can find the case here.

Defendants were served with requests for admissions seeking admissions on negligence, causation, and damages. Plaintiffs asked defendants to admit defendant failed to stop at the red light and that the failure was negligent, the actual and legal cause of the accident, etc.

Their response was to deny almost every request for admission. On the eve of trial, certain requests were admitted to through stipulation. Plaintiffs won the trial and filed a motion seeking to recover costs of proof under Code of Civil Procedure section 2033.420. The Court found defendants liable, in part, and awarded attorney fees and costs for the portion of the trial that could be earmarked towards proving certain requests for admissions that were denied by defendants.

It reasoned as follows. First, it found that the purpose of requests for admissions is

“… primarily aimed at setting at rest a triable issue so that it will not have to be tried. . . . For this reason, the fact that the request is for the admission of a controversial matter, or one involving complex facts, or calls for an opinion, is of no moment. If the litigant is able to make the admission, the time for making it is during discovery procedures, and not at the trial.”

It also held that,

“[S]ince requests for admissions are not limited to matters within personal knowledge of the responding party, that party has a duty to make a reasonable investigation of the facts before answering items which do not fall within his personal knowledge.”

So it concluded that

“When a party propounds requests for admission of the truth of certain facts and the responding party denies the requests, if the propounding party proves the truth of those facts at trial, he or she may seek an award of the reasonable costs and attorney fees incurred in proving those facts. (§ 2033.420, subd. (a).) The court is required to award those costs and fees unless it finds the party who denied the requests “had reasonable ground to believe [he or she] would prevail on the matter” or “[t]here was other good reason for the failure to admit.”

Based on the above, you would think that many of the games litigators play are prevented by this code sections; however, the Court also found that those amounts cannot be awarded if the parties stipulated to facts, even if the responding party had previously denied them.

Sometimes the State Court Gets it Right!

Instead of delving into the actual facts of In re Marriage of Walker, I will use similar facts as they will be easier to understand. You can find the actual case here.

House is worth $350,000 with a $150,000 1st priority lien. In a divorce proceeding, a judge will order the sale of the property with proceeds split evenly. Assuming no cost of sale, taxes, etc., this would mean husband is paid $100,000 and wife is paid $100,000.

The result should not be different if there was an intervening bankruptcy, or should it!?

Prior to the divorce, the wife had file for Chapter 7 bankruptcy and obtained a discharge. Her argument was that the discharge extinguished her personal liability for the first priority lien. Assuming the 1st lien could not be enforced against her, the proceeds would then need to be divided as follows:

Sale at $350,000. $175,000 to Wife, $175,000 to Husband and Husband obligated to pay 1st lienholder $150,000. So the division would be $175,000 to Wife and $25,000 to Husband!

She is right you know, she is not personally liable for the 1st mortgage. The state court judge agreed and she was awarded the $175,000. Part of the judge’s reasoning was that enforcement of the 1st lien against Wife could be a violation of the discharge injunction.

Fortunately for the Husband, there was a guru at the appellate court level who recognized that even though the Wife was no longer personally liable for the debt, the real property was! Enforcement of this obligation then, was not against wife but against Wife’s interest in the encumbered community property asset; an obligation not discharged by the bankruptcy.

The Court of Appeals reversed the trial court and all is as it should be.

Tenants Beware: Stipulation to Judgment May Be Treated as Res Judicata

This blog is a quick review of Needelman v. DeWolf Realty Company which was entered on July 21, 2015.

The tenant entered into a stipulated judgment that specifically provided that Tenant waived “any claims he may have, which [the lessors] assert do not exist, to bring an attempted wrongful eviction against [the lessors] or any action in any way arising out of or concerned with his tenancy…” and stated that Tenant “agrees that any of his personal property remaining in the unit after he vacates or is evicted therefrom shall be considered abandoned property, and [the lessors] shall be entitled to dispose of it without any notice to Tenant or his attorney.”

The res judicata doctrine is codified under Code of Civil Procedure § 1908. It provides that “a judgment or final order in an action or special proceeding” is conclusive as to “the matter directly adjudged.” It applies to situations where (1) the issues decided in the prior adjudication are identical with those presented in the later action; (2) there was a final judgment on the merits in the prior action; and (3) the party against whom the plea is raised was a party or was in privity with a party to the prior adjudication.

The Court found that the stipulated judgment in the unlawful detainer action had preclusive effect.

Author’s comment: This is an interesting twist as landlords have a lot of power when entering into these stipulations. For example, what if the landlord has the tenant stipulate that it waives any right to the states anti-forfeiture laws or that the property is not necessary to an effective reorganization? Would a bankruptcy judge then be forced to grant a relief from stay motion?

You can read the case here.