los angeles lawyer september 2017 · 6 los angeles lawyerseptember 2017 los angeles lawyer is the...
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THE MAGAZINE OF THE LOS ANGELES COUNTY BAR ASSOCIATION
SEPTEMBER 2017 / $5
Los Angeles lawyers Larry C. Russ (right) and Nathan D. Meyer explain the findingsand consequences of the landmark decisionin Star Athletica v. Varsity Brandspage 20
FashionForward
Filing NewTrial Motionspage 12
PrejudgmentWrits ofAttachmentpage 15
PROP. 213FINANCIALRESPONSIBILITYpage 25
EARN MCLE CREDIT PLUS
PRIORITYSKIPPING IN JEVICpage 32
CORPORATE
COUNSEL’S GUIDE TO
CALIFORNIA ATTORNEYS
20 Fashion ForwardBY LARRY C. RUSS AND NATHAN D. MEYER
The U.S. Supreme Court's decision on cheerleader uniforms strengthens copyrightprotections for the fashion industry
25 Drive Responsibly BY KAREN M. BRAY AND STEPHEN E. NORRIS
Despite a statutory mandate precluding recovery of noneconomic damages by uninsured motorists, many rely on post-accident deposits to claim compliance
Plus: Earn MCLE credit. MCLE Test No. 270 appears on page 27.
32 No Skipping AllowedBY DAVID S. KUPETZ
In Czyzewski v. Jevic Holding Corporation, the U.S. Supreme Court ruled againstchapter 11 bankruptcy distributions not following ordinary priority rules withoutaffected creditors’ consent
Special Pullout SectionCorporate Counsel's Guide to California Law Firms and Attorneys
F EATU RE S
Los Angeles Lawyer
the magazine of
the Los Angeles County
Bar Association
September 2017
Volume 40, No. 6
COVER PHOTO: TOM KELLER
09.17
10 Barristers TipsUnderstanding the "eggshell plaintiff"doctrine and rule BY STEPHANIE TAFT
12 Practice TipsGuidance on when to file a new trialmotionBY VALERIE T. MCGINTY
15 Practice TipsMaking the most of prejudgment writs ofattachmentBY DIANE ROLDÁN
38 By the BookTrials of the Century: A Decade-by-DecadeLook at Ten of America's MostSensational CrimesREVIEWED BY THOMAS H. VIDAL
40 Closing ArgumentThe mandate for certified courtinterpretersBY MARIANA BENSION-LARKIN
DE PARTM E NTS
LOS ANGELES LAWYER (ISSN 0162-2900) is publishedmonthly, except for a combined issue in July/August, by theLos Angeles County Bar Association, 1055 West 7th Street,Suite 2700, Los Angeles, CA 90017 (213) 896-6503. Period -icals postage paid at Los Angeles, CA and additional mailingoffices. Annual subscription price of $14 included in theAssociation membership dues. Nonmember subscriptions:$38 annually; single copy price: $5 plus handling. Addresschanges must be submitted six weeks in advance of nextissue date. POSTMASTER: Address Service Requested. Sendaddress changes to Los Angeles Lawyer, P. O. Box 55020,Los Angeles CA 90055.
4 Los Angeles Lawyer September 2017
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EDITORIAL BOARD
ChairJOHN C. KEITH
Articles CoordinatorSANDRA MENDELL
Assistant Articles CoordinatorTYNA ORREN
SecretaryRENA KREITENBERG
Immediate Past ChairTED M. HANDEL
JERROLD ABELES (PAST CHAIR)
SCOTT BOYER
CHAD C. COOMBS (PAST CHAIR)
THOMAS J. DALY
GORDON K. ENG
MICHAEL A. GEIBELSON (PAST CHAIR)
GABRIEL G. GREEN
STEVEN HECHT (PAST CHAIR)
DENNIS F. HERNANDEZ
JUSTIN KARCZAG
MARY E. KELLY (PAST CHAIR)
KATHERINE KINSEY
JENNIFER W. LELAND
CAROLINE SONG LLOYD
PAUL S. MARKS (PAST CHAIR)
COMM’R ELIZABETH MUNISOGLU
CARMELA PAGAY
ZEKE PERLO
GREGG A. RAPOPORT
JACQUELINE M. REAL-SALAS (PAST CHAIR)
LACEY STRACHAN
YHEZEL ARMANDO VARGAS
THOMAS H. VIDAL
STAFF
Editor-in-ChiefSUSAN PETTIT
Senior EditorJOHN LOWE
Art DirectorLES SECHLER
Director of Design and ProductionPATRICE HUGHES
Advertising DirectorLINDA BEKAS
Senior ManagerMELISSA ALGAZE
Administrative CoordinatorMATTY JALLOW BABY
Copyright © 2017 by the Los Angeles County Bar Association. Allrights reserved. Reproduction in whole or in part without permissionis pro hibited. Printed by R. R. Donnelley, Liberty, MO. MemberBusiness Publications Audit of Circulation (BPA).
The opinions and positions stated in signed material are thoseof the authors and not by the fact of publication necessarily those ofthe Association or its members. All manuscripts are carefullyconsidered by the Editorial Board. Letters to the editor are subject toediting.
6 Los Angeles Lawyer September 2017
LOS ANGELES LAWYER IS THE OFFICIAL PUBLICATIONOF THE LOS ANGELES COUNTY BAR ASSOCIATION
1055 West 7th Street, Suite 2700, Los Angeles CA 90017-2553Telephone 213.627.2727 / www.lacba.org
LACBA EXECUTIVE COMMITTEE
PresidentMICHAEL E. MEYER
President-ElectBRIAN S. KABATECK
Senior Vice PresidentTAMILA C. JENSEN
Vice PresidentPHILIP H. LAM
Assistant Vice PresidentJO-ANN W. GRACE
TreasurerJOHN F. HARTIGAN
Immediate Past PresidentMARGARET P. STEVENS
Barristers PresidentJEANNE NISHIMOTO
Barristers President-Elect JESSICA GORDON
Chief Financial & Administrative OfficerBRUCE BERRA
BOARD OF TRUSTEES
KRISTIN ADRIAN
HON. SHERI A. BLUEBOND
SUSAN J. BOOTH
RONALD F. BROT
TANYA FORSHEIT
JENNIFER W. LELAND
MATTHEW W. MCMURTREY
F. FAYE NIA
BRADLEY S. PAULEY
ANGELA REDDOCK
DIANA K. RODGERS
MARC L. SALLUS
MICHAEL R. SOHIGIAN
EDWIN C. SUMMERS III
KEVIN L. VICK
WILLIAM L. WINSLOW
FELIX WOO
AFFILIATED BAR ASSOCIATIONS
BEVERLY HILLS BAR ASSOCIATION
CENTURY CITY BAR ASSOCIATION
CONSUMER ATTORNEYS ASSOCIATION OF LOS ANGELES
CULVER MARINA BAR ASSOCIATION
GLENDALE BAR ASSOCIATION
IRANIAN AMERICAN LAWYERS ASSOCIATION
ITALIAN AMERICAN LAWYERS ASSOCIATION
JAPANESE AMERICAN BAR ASSOCIATION
JOHN M. LANGSTON BAR ASSOCIATION
THE LGBT BAR ASSOCIATION OF LOS ANGELES
MEXICAN AMERICAN BAR ASSOCIATION
PASADENA BAR ASSOCIATION
SAN FERNANDO VALLEY BAR ASSOCIATION
SANTA MONICA BAR ASSOCIATION
SOUTH BAY BAR ASSOCIATION
SOUTHEAST DISTRICT BAR ASSOCIATION
SOUTHERN CALIFORNIA CHINESE LAWYERS ASSOCIATION
WOMEN LAWYERS ASSOCIATION OF LOS ANGELES
John Keith is the 2017-18 chair of the Los Angeles Lawyer Editorial Board. He practicesbusiness litigation with the law firm of Fenigstein & Kaufman in Century City.
8 Los Angeles Lawyer September 2017
their respective administrations of the exam; and 2) beginning in July 2017, theexam will be shortened from three days to two.
In an article for legal news website Above the Law entitled “California’s BarExam Results Are Absolutely Abysmal,” Staci Zaretsky posits that perhaps thingswill improve with the change to a two-day format. This may be true, but it was notthe ostensible motivation for the change. According to information from the StateBar’s Committee of Bar Examiners Office of Admissions, the committee began con-sidering the change several years ago, and the board of trustees approved it twoyears ago (with final implementation subject to consideration by the CaliforniaSupreme Court). Moreover, while California had been one of a handful of stateswith three-day bar exams, analysis of the proposed change indicated that while atwo-day exam would be more efficient, it would yield essentially the same results asa three-day exam. What caused the decline in bar exam passage rates is too complexa question to address here, and is one the State Bar itself is now studying.
What seems clearer is that California’s bar admission requirements limit themobility of its attorneys. As Patrick Sisson writes for online magazine Curbed in“America’s Declining Mobility Has Millennials Feeling Stuck,” mobility in Americahas been declining for decades, and this decline “creates a domino effect on theeconomy” and “has many worried about the housing market, household formation,and economic vitality.” According to Sisson, one culprit is “the growth in occupationallicensing fees and requirements,” which now “impact anywhere from a quarter to athird of Americans” and are “an indirect tax for moving across state lines.” Sissonposits that it would still be worth it for a lawyer to move from Mississippi to SanFrancisco for the prospect of better pay. However, he does not address the situationof a California attorney moving out of state (whether to attain a lower cost ofliving, follow a spouse or partner, or pursue a better opportunity). Licensing obstaclesto resuming practice in another state reduce mobility and disproportionately impactattorneys not employed by large firms.
These obstacles are higher for California attorneys than most others. Use of theUniform Bar Exam (UBE) has increased in recent years, with roughly half of all stateshaving adopted it for present or near-future use. For some period after passing theUBE (generally two to five years), an attorney can take that result to any of thesejurisdictions and start practicing. California has not adopted the UBE. Californiaalso does not admit out-of-state attorneys on motion, although most states do.Because admission on motion in most of those states is based on reciprocity betweenthe two jurisdictions, California attorneys cannot take advantage of this process inmost cases.
There seems little risk that adopting the UBE or allowing admission on motionwill prejudice California legal services consumers by inundating the state withunqualified out-of-state attorneys. Other large states (e.g., New York, Texas, Illinois)have done one or both of those things. While switching to a two-day bar exam is astep in the right direction, more needs to be done to bring California’s bar admissionrequirements in line with those of other states and increase mobility for Californiaattorneys. n
Here are two facts about the California bar examthat most would think are related but that appearto have no actual causal connection: 1) passage
rates have been on the decline, with the results for the July2016 and February 2017 bar exams the lowest in years for
10 Los Angeles Lawyer September 2017
WHAT IS THE PROPER PROCEDURE to follow in this scenario: Aclient is involved in a low-impact, rear-end automobile collision andsuffers from severe neck pain. The property damage is minor, but theclient has received physical therapy and several epidural injections,with medical specials totaling $175,000. After filing a complaint anddetermining the available policy limits, a settlement demand of $1million is made. However, it is learned during discovery that the clientsustained a neck injury at the gym four years ago and underwentthree weeks of physical therapy. The defense subpoenas physicaltherapy records, and the discharge report mentions residual pain,while X-rays reveal degenerative changes in thecervical spine.
The defense counsel learns about this priorinjury and counters the million-dollar demandwith a $50,000 offer, arguing preexisting con-dition and that neck surgery was inevitable.He or she also provides a reminder of theproperty damage photographs that show cos-metic bumper damage. You counter that theclient is an eggshell plaintiff entitled to full compensation for damages,but the defense counsel stands firm on his offer.
The “eggshell plaintiff” rule states that a tortfeasor is responsiblefor all of the damages that his or her negligence causes another andthat the tortfeasor will not be exonerated from liability simplybecause a preexisting condition makes the plaintiff more susceptibleto injury.1 However, courts have been equally clear that defendantsare not responsible for compensating the eggshell plaintiff for a pre-existing condition, except when the subject incident causes new painor aggravates the preexisting condition.
An attorney should address several matters when litigating a casewith a client who has a preexisting condition. First, the attorneyshould discuss the client’s medical history at the outset of representation.Clients sometimes fail to reveal a prior gym accident, a fall at arestaurant, or even having received chiropractic care for a stiff back.It may be intentional or a lapse in memory. The attorney shouldmake it clear to the client that prior medical issues should not hurtthe case, and may even bolster it. When prior medical issues are com-pletely unrelated to the plaintiff’s claims and do not factor into thedamages sought, the attorney should bar discovery or admission ofthe protected information in the interests of the client’s privacy.
Second, the attorney should obtain all of the relevant medicalrecords and ensure that the client’s treating doctors are aware of thepreexisting condition. While it is bad for the attorneys to be unawareof the client’s medical history, it is even worse for doctors to beunaware. Treating doctors, especially surgeons, must have all relevantmedical records so they can quantify the aggravation of the preex-isting injury while drafting reports or progress notes, and eventuallytestify to those opinions in a deposition or at trial. Expert medicaltestimony is necessary to demonstrate the degree to which the priorinjury was aggravated by the subject incident and to address the
effects on the eggshell plaintiff’s overall health.Cases involving unresolved preexisting conditions become complex
since the insurance adjuster will try to argue that all of the client’sinjuries and pain are attributable to the earlier incident. Insuranceadjusters are also suspicious of low-impact cases in which the injuriesclaimed are beyond soft-tissue. The only way for the plaintiff to beable to resist this defense, and to obtain full compensation for injuriescurrently sustained, is to have all the relevant medical information inpossession when the claim is being prosecuted. Thus, all the medicalrecords and diagnostic studies should be obtained as soon as possible.
Finally, if the case goes to trial and the judge decides that theplaintiff is an “eggshell plaintiff,” the judge may request, and theplaintiff’s attorney should ensure, that Judicial Council of CaliforniaCivil Jury Instructions (CACI) 3928 (eggshell plaintiff doctrine) and3927 (aggravation of preexisting condition) are read to the jury, asthese jury instructions work in tandem.
The latter instruction, CACI 3927, holds defendants responsiblefor aggravating preexisting injuries of a plaintiff, and for any physicalor emotional condition that was made worse by the defendant’swrongful conduct. The former, CACI 3928, states that a plaintiffmust be compensated for all damages caused by the wrongful conductof the defendant, even if the plaintiff was more susceptible to injurythan a normally healthy person would have been. It is important toensure that both instructions are read so that the jury is forced toconsider the plaintiff’s susceptibility.
It is important for attorneys to understand how to litigate acase involving a preexisting condition, as well as how the eggshellplaintiff doctrine and rule on preexisting condition work togetherduring settlement negotiations and at trial. Damages should notbe sacrificed because of a preexisting condition when there is com-petent evidence that the condition was aggravated from the subjectincident. Thus, it is essential to secure the client’s past medicalrecords and relevant diagnostic studies as soon as possible so theattorney can properly litigate the case and provide the treatingdoctors and consultants with all relevant evidence. Being forewarnedis being forearmed. n
1 Rideau v. Los Angeles Transit Lines, 124 Cal. App. 2d 466 (1954).
barristers tips BY STEPHANIE TAFT
Understanding the “Eggshell Plaintiff” Doctrine and Rule
The attorney should make it clear to the client that prior medical
issues should not hurt the case, and may even bolster it.
Stephanie Taft is a first-year attorney at Panish Shea & Boyle in West LosAngeles specializing in wrongful death and catastrophic personal injury cases.
12 Los Angeles Lawyer September 2017
THE NEW TRIAL MOTION is a powerful tool for the losing litigant atalmost every stage, including after judgment on demurrer, summaryjudgment, judgment on nonsuit, or judgment after the jury’s verdict.Yet many experienced lawyers never consider this tool or considerit only after trial. Practitioners should assess the advantages andavoid the pitfalls of the new trial motion.
A new trial motion is proper even when there has been no trialon the merits, including judgment on demurrer, summary judgment,and judgment on nonsuit.1 There are three reasons to file a newtrial motion after a pretrial judgment.
First, the new trial motion may result in afavorable ruling for the litigant. If that happens,the process will take place more rapidly thanthe two-plus years it could take to get thesame result from pursuing an appeal. Partic -ularly in a complex case or when an attorneydevelops a new idea on how to frame or sup-port the arguments, a new trial motion offersthe opportunity to present that idea, as wellas to document it for reference on appeal. For example, a new trialmotion was granted after summary judgment in Doe v. UnitedAirlines, Inc.2 In Doe, the trial court granted summary judgment onthe ground that there was no triable issue that the plaintiff hadsuffered any “bodily injury.”3 Based on the plaintiff’s submission ofa new clinical psychologist’s declaration that the passenger was suf-fering posttraumatic stress disorder, the court granted a new trial.Ultimately, the court of appeal reversed the new trial order in Doe,holding that the opinion was not newly discovered and was not pro-duced with reasonable diligence.
New Evidence
However, as the court in Doe acknowledged, “a party claiming thediscovery of new evidence following summary judgment is held to aless demanding standard of reasonable diligence than a party assertingthis claim after trial.”4 This point was illustrated in Scott v. Farrar,5
in which the “party opposing summary judgment deposed a witnessfor the first time after the hearing on the summary judgment motion,and sought a new trial on the ground that the witness’s testimonyconstituted newly discovered evidence.”6 When the trial court denieda new trial, the appellate court reversed, reasoning that the testimonywas unknown to the moving party prior to the deposition, and thedate of the deposition had been set shortly after the inception of theaction in the regular course of discovery, which had been pursued“with reasonable diligence.”7 Thus, even after pretrial judgments, trialcourts do grant, and appellate courts uphold the right to, a new trial.
Second, even if the new trial motion is not granted, it allows anopportunity to make the record as complete as possible. For example,in the case of judgment on demurrer, a new trial motion may includean amended complaint that was not previously presented in oppositionto the demurrer. Similarly, after summary judgment a new trial
motion may include newly discovered evidence or a newly amendedcomplaint.8
Third, it is possible, especially in a complex case, that litigantsmay conceive of improved strategies after a failed first attempt. Anew trial motion is a good place to articulate a new strategy ortheory because it can still have an impact on the trial judge and, ifnothing else, it can provide a roadmap for appeal.
After trial, the most important reason to file a new trial motionis to complete the record. Any adverse rulings that were issued offthe record should be documented in a declaration submitted in
support of the new trial motion. If important evidence was erroneouslyexcluded, it should be either attached to (if documentary) or describedin (if testimonial) a declaration accompanying the new trial motion.Also, newly discovered evidence may be grounds for a new trial ifthe evidence could not have been discovered and produced at trial,and the moving party acted with reasonable diligence.9 If the newlydiscovered evidence was concealed by the opposing party, sanctionsshould be requested in addition to a new trial.10
Another reason to file a new trial motion after trial is simply thatthe trial court may grant the motion. For example, a new trial motionwas granted when the trial court concluded “it had given the jury aninappropriate instruction on the workers’ compensation exclusivityrule” in Lee v. West Kern Water District.11 In Lee, the appellate courtultimately reversed this order, holding that the instruction was proper.12
However, an appellate court upheld a new trial on damages inLicudine v. Cedars-Sinai Medical Center.13 In Licudine, the trialcourt granted a new trial on damages on the ground of insufficientevidence to support the jury’s award for lost earnings.14 The courtof appeal agreed, holding that the plaintiff “did not adduce any evi-dence to establish that it was ‘reasonably probable’ she could haveobtained employment as an attorney or any evidence on the earningsof lawyers,” thus warranting a new trial on damages.15
A new trial motion also may be a prerequisite to preserving anargument for appeal. For example, the failure to seek a new trial onthe grounds of inadequate or excessive damages bars the assertionof such grounds on appeal.16
Finally, a new trial motion should be filed posttrial to document
practice tips BY VALERIE T. MCGINTY
Guidance on When to File a New Trial Motion
Even if the new trial motion is not granted, it allows an opportunity
to make the record as complete as possible
Valerie T. McGinty is an attorney in private practice who represents plaintiffson appeal with a focus on affirming plaintiffs’ verdicts and overturningsummary judgments.
and correct juror misconduct, juror bias, andthe prejudicial effect of any erroneous instruc-tional ruling.
Timeliness and Sufficiency
Because the right to a new trial is “purelystatutory,” the procedural requirements mustbe strictly followed.17 Specifically, two of thesedeadlines are jurisdictional—failure to complywith them is fatal and cannot be cured.
First, the notice of intention to move fornew trial must be timely and sufficient. Thenotice has to be filed within 15 days of serviceof the judgment.18 Because the judgment isoften served more than once—either by theclerk or by parties or both—the most con-servative approach is to calendar the deadlinefrom the date judgment was entered ratherthan when it was served.
To ensure that the notice is sufficientrequires that all statutory grounds be includedin the notice.19 The statute lists seven groundsfor granting a new trial motion: 1) irregularityin the proceedings of the court, jury or adverseparty, or any order of the court or abuse ofdiscretion by which either party was pre-vented from having a fair trial; 2) misconductof the jury, and whenever any one or moreof the jurors has been induced to assent toany general or special verdict, or to a findingon any question submitted to them by the
court, by a resort to the determination ofchance, such misconduct may be proved bythe affidavit of any one of the jurors; 3) acci-dent or surprise, against which ordinary pru-dence could not have guarded; 4) newly dis-covered evidence, material for the partymaking the application, which he or shecould not, with reasonable diligence, havediscovered and produced at the trial; 5) exces-sive or inadequate damages; 6) insufficiencyof the evidence to justify the verdict or otherdecision, or the verdict or other decision isagainst law; and 7) error in law, occurringat the trial and excepted to by the party mak-ing the application. Listing all seven groundsin the notice is important since an ordergranting a new trial may not be affirmed onany ground that is not stated in the notice.20
Second, within 10 days after service of thenotice, the points and authorities and all dec-larations in support of the motion must befiled.21 The deadline for this filing, however,may be extended up to 20 days for goodcause.22
Third, it is important to obtain a rulingbefore the court’s jurisdiction expires, viz.within 60 days of service of the judgment.23
After the 60-day period has expired, a courtno longer has jurisdiction to grant the motion,and it is denied by operation of law.24 Toensure that an order has been timely filed it is
helpful to insert the date of the deadline inthe caption of the notice, supporting papers,and reply. Also, raising the deadline at oralargument can serve to keep attention focusedon it.
Fourth, the order must comply with therequirements of Section 660 in the Code ofCivil Procedure. Again, as with the deadlinedate, inserting the requirements in the noticeand raising them again at oral argument willserve as a reminder. The statute requires thatthe court prepare the order and that it mustinclude a statement of grounds and reasonsin support of the order. An order grantingnew trial must recite and analyze the evidencethat shows why a new trial was proper.25
Conclusory statements of grounds and rea-sons may lead to reversal,26 but an orderthat fails to state grounds may be affirmedon any grounds stated in the motion.27
Supporting Papers
Juror declarations must be submitted to showjuror bias, juror misconduct, or prejudice frominstructional error. Although statements onthe jurors’ “mental processes” are inadmissible,juror declarations may report “statementsmade, or conduct, conditions, or events occur-ring, either within or without the jury room,of such a character as is likely to have influ-enced the verdict improperly.”28 Juror decla-
Los Angeles Lawyer September 2017 13
rations proving juror misconduct have beenproduced, for example, that show that jurorsimproperly added plaintiff’s attorney’s feesto the verdict,29 that a juror in a medical mal-practice case concealed that he was a doctor,30
or that one juror contradicted the plaintiff’stestimony with a report of his own low backpain.31
In addition, for claims of juror miscon-duct, the attorney and client should submitdeclarations demonstrating that neither hadknowledge of the asserted misconduct beforethe jury’s verdict.32 These declarations dispelany inference that the moving party wasguilty of waiver or gambled on the verdict.
Juror declarations proving juror bias mayshow that jurors improperly considered therace of the plaintiff and the financial conse-quence to jurors of rendering a verdict againstthe defendant.33 From a strictly proceduralstandpoint, juror declarations proving prejudicefrom instructional error may report statementsabout the instructions to show that jurorswere confused or misled by an instruction.
The drafting of juror declarations mustcomply with Section 1150(a) of the EvidenceCode, which provides:
Upon an inquiry as to the validity ofa verdict, any otherwise admissibleevidence may be received as to state-ments made, or conduct, conditions,or events occurring, either within or
without the jury room, of such a char-acter as is likely to have influencedthe verdict improperly. No evidenceis admissible to show the effect of suchstatement, conduct, condition, or eventupon a juror either in influencing himto assent to or dissent from the verdictor concerning the mental processes bywhich it was determined.
Opposing a New Trial Motion
When opposing a new trial motion supportedby juror declarations, the first step is to obtaincounter declarations when possible. For exam-ple, one declaration in support of a new trialwas effectively countered by eight juror dec-larations in Barboni v. Tuomi.34 Moreover,“[g]iven that neither party attacks the admis-sibility of any of the declarations,” “we findno abuse of discretion in deeming the decla-rations admissible.” 35
If the moving declarations contain hearsayor other inadmissible material, opposingcounsel should object and request that thoseportions of the declarations be stricken.Moreover, opposing counsel should look forthe waiver of any arguments in the new trialmotion. For example, a claim that evidencewas improperly admitted is waived when theparty failed to object to their introductionat trial.36 Also, a claim that jury voting wasdefective is waived by a failure to request
further deliberations.37 Opposing counselshould show that the moving party has failedto demonstrate any “miscarriage of justice,”which is synonymous with prejudice.38
Finally, opposing counsel should carefullyexamine the timeliness and sufficiency of thenotice of intent to move for a new trial andseek denial of the motion for any failure tocomply with the statutory requirements. n
1 CIV. PROC. CODE §656; Doe v. United Airlines, Inc.,160 Cal. App. 4th 1500 (2008); Aguilar v. AtlanticRichfield Co., 25 Cal. 4th 826, 858 (2001).2 Doe, 160 Cal. App. 4th at 1504-05. 3 Id. at 1504. 4 Id. at 1509.5 Scott v. Farrar, 139 Cal. App. 3d 462, 467 (1983).6 Doe, 160 Cal. App. 4th at 1505 (citing Scott, 139Cal. App. 3d at 467-69).7 Doe, 160 Cal. App. 4th at 1505.8 Scott, 139 Cal. App. 3d 142.9 Linhart v. Nelson, 18 Cal. 3d 641 (1976).10 Sherman v. Kinetic Concepts, Inc. 67 Cal. App. 4th1152 (1998); (reversing the denial of a new trial motionbecause additional reports of incidents involving theproduct that defendant withheld were material).11 Lee v. West Kern Water Dist., 5 Cal. App. 5th 606,610 (2016).12 Id.13 Licudine v. Cedars-Sinai Med. Ctr., 3 Cal. App.5th 881, 887 (2016).14 Id.15 Id.16 Campbell v. McClure, 182 Cal. App. 3d 806 (1986)(failure on a new trial to challenge a punitive damageaward on new trial as unsupported bars an appellatereview).17 In re Marriage of Herr, 174 Cal. App. 4th 1463(2009).18 CIV. PROC. CODE §659; Ehrler v. Ehrler, 126 Cal.App. 3d 147 (1981).19 CIV. PROC. CODE §657.20 Id.21 CIV. PROC. CODE §659a.22 Id.23 CIV. PROC. CODE §660.24 Id.; Sanchez-Corea v. Bank of Am., 38 Cal. 3d 892(1985).25 Jones v. Citrus Motors Ontario, Inc. 8 Cal. 3d 706(1973); Kolar v. County of Los Angeles 54 Cal. App.3d 873 (1976).26 Silberg v. California Life Ins. Co., 11 Cal. 3d 452(1974); Smith v. Moffat, 73 Cal. App. 3d 86, 92(1977).27 Bell v. Bayerische Motoren Werke Aktiengesellschaft,181 Cal. App. 4th 1108 (2010).28 EVID. CODE §1150.29 Krouse v. Graham, 19 Cal. 3d 59 (1977).30 Clemens v. Regents of Univ. of Cal., 8 Cal. App.3d 1 (1970).31 Smith v. Covell, 100 Cal. App. 3d 947 (1980).32 People v. Southern Cal. Edison Co., 56 Cal. App.3d 593, 598 (1976).33 Weathers v. Kaiser Found. Hosp., 5 Cal. 3d 98(1971); Tapia v. Barker, 160 Cal. App. 3d 761 (1984).34 Barboni v. Tuomi, 210 Cal. App. 4th 340 (2012). 35 Id. at 349.36 Mosesian v. Pennwalt Corp., 191 Cal. App. 3d 851(1987) (overruled on other grounds in People v. Ault,33 Cal. 4th 1250 (2004)).37 Sanchez-Corea v. Bank of Am., 38 Cal. 3d 892(1985).38 CAL. CONST. art. VI, §13; Kuffel v. Seaside Oil Co.,69 Cal. App. 3d 555, 567 (1977).
14 Los Angeles Lawyer September 2017
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Los Angeles Lawyer September 2017 15
RICH
ARD
EW
ING
A PREJUDGMENT WRIT OF ATTACHMENT operates as a strategic vise:It both secures assets for a final judgment and exerts pressure onthe defendant early in the case. California attachment law, morethan that of other states, favors plaintiffs and creditors and can beused in a wide array of cases. Once obtained, an attachment can tipthe balance in favor of the creditor from the outset. Attachmentsmay encourage early settlement, assist in obtaining jurisdiction overthe defendant, protect against a late-filed bankruptcy, and ensurethat the plaintiff can collect on an eventual judgment.
Attachment is most helpful when the defendant might otherwiseabscond with the money. In addition to real property, creditors mayattach personal property, such as bank accounts. With digital bankaccounts, the money might be here today, gone tomorrow—partic-ularly if the defendant learns that a lawsuit has been filed. Californialaw, however, provides several procedural safeguards—including thefiling of secret complaints and ex parte application rules—that allowthe plaintiff to seek an attachment without notifying the defendantuntil the assets are safely secured.
Despite all their benefits, prejudgment writs of attachment remainuncommon. Perhaps one reason is practical intimidation. There arefew areas of the law more byzantine and susceptible to error than theminutiae of prejudgment writs of attachment. A single attachmentapplication typically involves half a dozen arcane court forms, morethan one memorandum of points and authorities, a certified bond,evidentiary declarations, and attorney declarations. Moreover, convincingthe judge to sign the right-to-attach order is only half the battle.Navigating the bureaucracy of the court clerk and sheriff’s offices toenforce the writ can prove as formidable as litigating the merits.
The reward is often worth the effort, however. Following a fewsimple steps will increase the likelihood of obtaining a prejudgmentwrit of attachment and ensure a relatively painless enforcementprocess. A successful outcome, resulting in a secured lien, mayactually save money by encouraging early settlement, as opposed topushing forward immediately into discovery.
Qualifying for an Attachment
The first consideration facing lawyers considering prejudgment attach-ment is whether the claims alleged qualify for attachment. A writ ofattachment may only issue when the plaintiff asserts a claim for moneythat is based on a contract (express or implied), and the amountdemanded is “readily ascertainable” from the contract.1 If the defendantis a natural person, as opposed to a corporation, the claim must ariseout of the defendant’s trade, business, or professional conduct.2 Theclaim must also be at least partially unsecured by real property.3
A complaint alleging breach of contract is thus an obvious candidatefor an attachment remedy. Even if the complaint also alleges othercauses of action, the plaintiff can still apply for an attachment basedon the contract claim.4 Other forms of implied or quasi contractsmay also serve as the basis for an attachment. For example, theplaintiff may obtain an attachment in an action to enforce a foreign
or domestic judgment.5 Actions to evict a person illegally occupyingproperty or to obtain funds owed by the defendant, but held by athird person, also qualify for attachment.6
To receive an attachment, the plaintiff must show that “the totalamount of the claim or claims is a fixed or readily ascertainableamount” by reference to the contract.7 However, this standard is rel-atively flexible. The contract need not have a liquidated damagesclause or state the exact amount due.8 Rather, so long as the contractfurnishes a standard or loose formula for determining damages, theclaim is “readily ascertainable.”9 According to case law, the exactamount of damages at this stage may still be “uncertain,” so long asit can be proven at trial.10
Given this low standard, no published California case has denieda writ of attachment on the basis that the claim amount was unascer-tainable or could not be determined by proof. The amount of theplaintiff’s damages claim, however, does make a practical difference.The plaintiff must file a $10,000 bond regardless of the size of theattachment sought, thus very small claims likely do not warrant anattachment.11
In addition to showing that its claim generally qualifies for attach-ment, the plaintiff must also defend the merits of the claim by 1)establishing the probable validity of the claim and 2) confirmingthat it is not seeking attachment for an improper purpose.12 A claimhas “probable validity” when it is more likely than not that theplaintiff will obtain a judgment against the defendant on that claim.13
practice tips BY DIANE ROLDÁN
Making the Most of Prejudgment Writs of Attachment
Diane Roldán is an associate in the complex litigation department of the LosAngeles office of Arent Fox LLP.
Courts often issue prejudgment writs ofattachment at the outset of the case, priorto formal discovery. At this early stage, theplaintiff is neither expected nor required tocomprehensively prove the case. The Cali -f ornia Law Review Commission has evenwarned that courts “should avoid convertingthe hearing on a preliminary matter into afull-dress trial of the merits of the action.”14
However, the plaintiff should en sure sufficientevidence to establish a prima facie case. Thisevidence must be presented through a swornaffidavit or a verified complaint.15 If thecourt seems inclined to deny relief, the plaintiffneed not lose hope. Pursuant to statute, theplaintiff can request that the court continuethe hearing and order the production of ad -ditional evidence rather than denying therequest outright.16
At the same time that the plaintiff appliesfor a writ of attachment, he or she shouldseek a temporary protective order (TPO) onthe same basis. The attachment code envisionsthat a plaintiff may seek an attachment and aTPO at the same time.17 The requirementsfor a TPO are similar to those for an ex parteapplication for a writ of attachment, includinga showing of great or irreparable injury.18
However, TPOs sound in equity provide amore flexible remedy than the statutorily basedwrit of attachment. Thus, even if the plaintiff’s
request may not meet the formal requirementsfor an ex parte writ of attachment, the courtmay still grant TPO relief “in the interest ofjustice and equity to the parties.”19
To facilitate the attachment applicationprocess, the Judicial Council of Californiahas prepared various forms conforming tothe statutory requirements. These judicialforms should be used with careful attentionto detail.20 There are 17 separate JudicialCouncil forms related to attachment withdifferent forms used for residents versus non-residents and for ex parte applications versusafter-hearing orders. The key categories are:the plaintiff’s application (AT-105, AT-115),the judge’s right to attach order (AT-120,AT-125, AT-130), and the court clerk’s writof attachment (AT-135).21 In addition tothese forms, the attorney should prepare aseparate memorandum of points and author-ities, declaration supporting the factual aver-ments, and any additional filings needed foran ex parte application.
Securing the Defendant’s Assets
The most obvious benefit of a prejudgmentwrit of attachment is securing the defendant’sassets. An attachment creates a judicial lienon the defendant’s property.22 Assuming theplaintiff succeeds at trial, the plaintiff gainspriority against unsecured creditors in collecting
on the defendant’s assets. An attachment alsoensures that the defendant’s assets do not dis-appear once the lawsuit is filed, effectivelymaking the defendant judgment-proof. Par -ticularly for a defendant with shaky financialrecords or significant foreign ties, attachmentprovides comfort to the plaintiff that moneyto satisfy claims will be available, and in theUnited States, should he or she prevail.
Prejudgment attachment serves broaderstrategic goals than securing assets. For severalreasons, attachment can encourage early set-tlement. Obtaining an attachment lien requiresthe plaintiff to present evidence supportingthe claims. This helps both sides evaluate thelikely durability of the plaintiff’s allegations.The court’s reaction to the plaintiff’s appli-cation will provide even more insight. If thecourt believes it is “more likely than not”that the plaintiff will prevail on its claims attrial, and other procedural requirements aremet, the court will grant the writ.23 The plain-tiff can also use this early opportunity to pre-sent the best facts to the judge who will beoverseeing the parties’ future discovery dis-putes and eventual trial.
If the writ is granted, the pressure thenfalls on the defendant. Freezing the defen-dant’s assets imposes an immediate financialconstraint on the defendant that can facilitatesettlement. If the defendant is a nonresident,
16 Los Angeles Lawyer September 2017
attaching the defendant’s property may lurethe defendant back within the court’s juris-diction to challenge the attachment.24 In addi-tion, because the plaintiff becomes a securedcreditor after obtaining an attachment, it ismore difficult for the defendant to shake offthe plaintiff’s claims by filing for bankruptcyas a means of avoiding trial.
There are drawbacks to pursuing an earlywrit of attachment as well. First, it costs theclient legal fees upfront. At a minimum,lawyers should expect to spend time collectingevidence supporting a prima facie case onthe merits, searching for assets, completingcourt forms, drafting legal motions, and pur-suing enforcement of the right-to-attach order.If the defendant decides to challenge theattachment application, costs can escalatequickly. A defendant is entitled to oppose anattachment application with his or her ownevidence and may wage battles over exemptproperty.25 Obtaining an attachment mayalso push the defendant to immediately filefor bankruptcy, and if the defendant does sowithin 90 days, courts will set aside the lien.26
Finally, if the plaintiff ultimately fails toobtain a judgment in its favor, the defendantmay sue for wrongful attachment and windamages.27 Because each case is different,the risk-benefit calculation for seeking a pre-judgment writ will be different as well.
Tips for Stealth Attachment
Of course, attachment only works if the defen-dant has assets to attach. Filing a public law-suit, however, may backfire by provoking thedefendant into hiding his or her assets underthe proverbial mattress. When it comes to dis-sipating assets, the defendant has variousoptions. While selling real property locatedin California may take time and raise alarms,at the press of a button the defendant caninstantaneously send electronic assets held inbank accounts anywhere in the world. Thus,if there is any concern the defendant may takethe money and run, the plaintiff should makefull use of the code’s provisions for preservingconfidentiality until the assets are secured.
First, before filing the complaint, the plain-tiff should quietly identify the specific propertyhe or she intends to attach. Here, a privateinvestigator, a public records search, and evena scan of the defendant’s social media accountscan come in handy. If the defendant is a cor-poration, the plaintiff may attach any propertybelonging to the defendant.28 If the defendantis a natural person, however, the defendantmay claim certain exemptions, such as a home-stead exemption and wages needed to supportthe defendant’s family.29 Although in somecases it may be necessary, the plaintiff shouldavoid waiting until the discovery phase toidentify property to attach. By then, the assetsmay be long gone.
For jurisdictional reasons, the assets mustbe located in California. In Pacific DecisionSciences Corporation v. Superior Court, theCalifornia Court of Appeals vacated a writof attachment on the basis that the plaintiffhad attempted to attach bank funds locatedoutside of California.30 Pacific Decision,however, does not mean that a plaintiff mustnow scurry across the country quixoticallysearching for the physical location of intan-gible electronic funds. Rather, Pacific Decisioncautions that the asset holder—in this casethe financial institution—must be subject topersonal jurisdiction in California so theCalifornia county sheriff can appropriatelyserve the writ.31 If the bank only has officesoutside of California, as was the case inPacific Decision,32 the plaintiff may need tolook elsewhere for attachable assets.
Once the plaintiff has identified assets,the plaintiff should prepare all attachmentdocuments and the complaint at the sametime. The Plaintiff should file the complaintshortly (ideally, one day) before filing theattachment application, to get a judge andcase number. To avoid tipping off the defen-dant and potentially triggering an asset-purge,California attachment law specifically allowsthe plaintiff to file a complaint in secret.33
Under Civil Procedure Code Section 482.050,the court clerk will wait until the plaintiffhas served the writ of attachment on thedefendant—or up to 30 days—before listingthe complaint in the court’s public records.34
Note, however, that some clerks are lessfamiliar with this provision, so the plaintiffshould stay in contact with the clerk to pre-vent an accidental public filing.
After filing a secret complaint, the plaintiffmay then submit an ex parte application fora right-to-attach order. As with other ex parteapplications, the plaintiff must show that“great or irreparable injury would result” ifthe defendant were given notice of the attach-ment hearing.35 If the plaintiff wishes to avoidproviding any notice, it must also provide adeclaration explaining the “exceptional cir-cumstances” warranting delayed notice.36 Inthe context of attachments, the great or ir -reparable injury requirement is satisfied whenthere is a risk the property will be concealed,substantially impaired in value, or otherwisemade unavailable to levy.37 Altern atively, theplaintiff may show that the defendant bothfailed to pay the debt and is insolvent (butnot yet in bankruptcy pro ceed ings).38 Gen -erally, the fact that the defendant has failedto pay the debt underlying the attachment,without other evidence, is not sufficient toshow a risk of “great or irreparable injury.”39
The plaintiff should point to some additionalfact beyond the debt, such as the defendant’spast dishonesty, failure to meet obligations,or concealment of assets, to support an ex
parte request.40
Assuming the plaintiff qualifies for an exparte hearing, the judge may sign the right-to-attach order on the same day the plaintiffapplies for the attachment. The path is stilllong, however, from the right-to-attach orderto actually seizing the defendant’s assets.Without supervision, this enforcement processcan take weeks, by which time the defendantmay have gotten wind of the plaintiff’s plansand dissipated the assets. Attorneys are bestadvised to personally navigate the right-to-attach order through each step of the enforce-ment process, rather than simply letting theorder float through the bureaucracy’s tide.
Once the plaintiff has received a right-to-attach order signed by the judge (formAT-120, AT-125, or AT-130), the next stepis to obtain the writ of attachment, signedby the court clerk (form AT-135). The clerkwill need multiple copies of the right-to-attach order and a copy of the bond. In ordernot to lose another day, the plaintiff shouldobtain the bond beforehand while preparingthe attachment applications. (Most bondcompanies will allow this.) If the defendant’sproperty is located in more than one county,the plaintiff will need a separate, signed writof attachment for each county.
Expediting Writs
Some court clerks in Los Angeles and SanDiego have no procedure for expediting writsof attachment. This is true even if the judgegranted the right-to-attach order on an exparte basis, due to the risk of great andirreparable injury from delay. In those cases,court clerks will typically wait one to twodays before signing the writ, after attendingto matters received earlier. If the plaintiffneeds to attach the assets sooner, the bestpractice is to draft a special instruction inthe judge’s proposed order, directing the courtclerk to issue the writ immediately.
After receiving a signed writ of attachment,the plaintiff must then deliver the original tothe county sheriff as the levying officer. Thesheriff will personally serve the writ on thedefendant or the financial institution, or leavea copy at the real property to be attached.As with the court clerks’ offices, many sheriff’soffices in southern California have no proce-dure for expediting writs of attachment, eventhose obtained on an emergency, ex partebasis. The emergency writ will go to the endof the line, like any other process-servingrequest. This process typically takes seven to10 business days. Meanwhile, however, thedefendant’s bank account might be wipedclean. Thus, the ideal solution is to includein the judge’s proposed order a direction thatthe sheriff’s office prioritize service.
Although the process can be cumbersome,the rewards for obtaining a prejudgment writ
18 Los Angeles Lawyer September 2017
of attachment are significant. Attachmenthelps protect a plaintiff from a defendantwho might otherwise cut and run. With thedefendant’s assets secured, the plaintiff canrest assured that they will still be there, evenafter the costs of litigation and trial. n
1 CODE CIV. PROC. §483.010(a).2 CODE CIV. PROC. §483.010(c).3 CODE CIV. PROC. §483.010(b).4 Samuels v. Superior Ct., 276 Cal. App. 2d 264, 267(1969).5 Grotheer v. Meyer Rosenberg, Inc., 11 Cal. App. 2d268, 272 (1936); Korea Water Res. Corp. v. Lee, 115Cal. 4th 389, 402, n.11 (2004), disapproved of onother grounds in Manco Contracting Co. (W.L.L.) v.Bezdikian, 45 Cal. 4th 192, 203 (2008).6 See Samuels, 276 Cal. App. 2d at 267.7 CODE CIV. PROC. §483.010.8 CIT Group/Equip. Fin., Inc. v. Super DVD, Inc., 115Cal. App. 4th 537, 540 (2004).9 Id.10 Id. at 541 (“[U]ncertainty as to the specific amountof ultimate damages is not a basis to deny attach-ment.”).11 CODE CIV. PROC. §489.220.12 CODE CIV. PROC. §484.090.13 Goldstein v. Barak Constr., 164 Cal. App. 4th 845,852 (2008).14 CODE CIV. PROC. §484.090, 1974 Law RevisionComm’n Cmts.15 CODE CIV. PROC. §482.040.16 CODE CIV. PROC. §484.090(d).17 CODE CIV. PROC. §486.010(a).18 See CODE CIV. PROC. §§486.010(b), 486.020.19 CODE CIV. PROC. §486.030.20 As The Rutter Group wisely warns, “While theforms help make this complicated procedural law‘bearable,’ they should not be used under the impressionthat attachment law practice is a mere matter of box-checking. Do not turn the forms over to an inexperi-enced assistant without careful supervision; and in allcases READ THE CODE FIRST!” WEIL & BROWN,CALIFORNIA PRACTICE GUIDE: CIVIL PROCEDURE BEFORE
TRIAL, Ch. 9(II)-D (1983). 21 Browse all Forms, Judicial Branch Home, CaliforniaCourts, all attachment forms are available athttp://www.courts.ca.gov/forms.htm?filter=AT.22 CODE CIV. PROC. §488.500.23 CODE CIV. PROC. §484.090(a)(2); Goldstein v. BarakConstr., 164 Cal. App. 4th 845, 852 (2008).24 The standard for obtaining a nonresident writ ofattachment is easier to meet. See CODE CIV. PROC.§492.030. If the nonresident makes a general appear-ance, however, the plaintiff must meet the higher stan-dard for residents. See CODE CIV. PROC. §§492.040,492.050(c).25 CODE CIV. PROC. §484.060.26 CODE CIV. PROC. §493.030.27 CODE CIV. PROC. §490.010.28 CODE CIV. PROC. §487.010(a).29 See CODE CIV. PROC. §§487.020, 487.025.30 Pacific Decision Scis. Corp. v. Superior Ct., 121Cal. App. 4th 1100, 1108 (2004).31 Id.32 Id. at 1110.33 CODE CIV. PROC. §482.050.34 Id.35 CODE CIV. PROC. §485.010(a).36 CAL. R. OF CT. 3.1203, 3.1204.37 CODE CIV. PROC. §485.010(b)(1).38 CODE CIV. PROC. §485.010(b)(2).39 See Western Steel & Ship Repair, Inc. v. RMI, Inc.,176 Cal. App. 3d 1108, 1114 (1986).40 Id.
Los Angeles Lawyer September 2017 19
20 Los Angeles Lawyer September 2017
is a saying in copyright law thatyou “can’t copyright fashion.”As a “useful article,” clothing
has generally been considered ineligible for copyright protection. Inother words, the cut of a dress, the look of a shoe, or the body-hug -ging properties of a pair of jeans are beyond the domain of copyrightlaw.1 The Supreme Court’s ruling this spring in Star Athletica, L.L.C.v. Varsity Brands, Inc.2 may have shaken—although not destroyed—that core principle, leaving considerable questions for copyrightholders and potential “inspired” clothing makers going forward.
The Copyright Act3 provides that “the design of a useful article,as defined in this section, shall be considered a pictorial, graphic, orsculptural work only if, and only to the extent that, such designincorporates pictorial, graphic, or sculptural features that can beidentified separately from, and are capable of existing independentlyof, the utilitarian aspects of the article.”4 Therefore, even though apictorial, graphic, or sculptural work may be copyrighted, usefularticles such as clothing may not. On the other hand, expressiveworks that appear on a useful article are copyrightable. JusticeStephen Breyer put it best during oral argument in Star Athleticawhen he commented that “the clothes on the hanger do nothing.The clothes on the woman do everything. And that is, I think, whatfashion is about.”5 In this case, a T-shirt imprinted with the imageof Vincent Van Gogh’s painting “The Starry Night” would not becopyrightable, but the image presumptively would be subject to
copyright if it were not in the public domain due to its age. Indeed,copyright litigation over fabric prints (images on clothing) is a majorindustry in Los Angeles.
In most cases, drawing the line between a useful article and a pieceof copyrightable material separate from the useful article is easy. Forexample, most fabric print copyrights are submitted to the copyrightoffice as a JPEG of a piece of artwork that could be applied to clothing,canvas, or anything else and are not even offered as clothing-related.Star Athletica is the Supreme Court’s first decision focused on copyrightprotection for fashion, but the Court had addressed the line betweenuseful articles and copyright once before, in 1954, in Mazer v. Stein,which concerned a set of dancing figure statuettes.6
Although standing alone, the statuettes were clearly works of artdesigned to be sold, and were in fact sold, as lamp bases. Thus, theywere useful objects. The plaintiff company sued several defendantswho created identical knockoffs. The issue before the Supreme Courtwas whether the otherwise copyrightable sculpture was renderedineligible for copyright protection due to the fact that it was onlysold as a useful object. The Supreme Court held that the fact thatthe otherwise clearly copyrightable work was used as a useful objectdid not render it ineligible for copyright. Thus, the Mazer decisionstands for the proposition that making a work of art into a usefularticle does not render it uncopyrightable per se. But in Mazer, theSupreme Court offered little guidance on how to draw the linebetween the useful article and the copyright.
Larry C. Russ is a founding partner and co-head of the litigation department at Russ August & Kabat. He represents apparel companies in copyright,trademark infringement, and business litigation matters. He is also a co-owner of American Rag Cie. Nathan D. Meyer is a partner at Russ August & Kabat,where he practices general litigation and intellectual property, with an emphasis on the apparel industry.
The Star Athletica v. Varsity Brands decision overturnedCopyright Office practices going back half a century
by LARRY C. RUSS and NATHAN D. MEYER
MIC
HA
EL C
ALL
AW
AY
In the more than 60 years since Mazer,the circuit courts, academia, and the U.S.Copyright Office have struggled to come upwith practical guidance on how to apply theprinciples of Mazer to real-world copyrighta-bility issues. Over the decades, the courts, theCopyright Office, and academia have comeup with nine separate tests to determinewhether a copyright registration relating to auseful article is sufficiently distinct from theuseful article to make it copyrightable: 1) TheCopyright Office approach, 2) the Primary-Subsidiary approach, 3) the Objectively Neces -sary approach, 4) the Ordin ary Observerapproach, 5) the Design-Process approach,6) the Stand-Alone approach, 7) the Likeli -hood-of Marketability approach, 8) Patry’s
approach, and 9) the Subjective-Objectiveapproach.7
Although there is no need to address eachtest, the Copyright Office’s approach is worthnoting since a copyright registration is a pre-requisite to litigation. The Copyright Office,in its Compendium of U.S. Copyright OfficePractices (Compendium),8 requires that thecopyrightable element be either 1) physicallyseparable from the useful article “withoutaltering the useful aspects of the article” or2) “capable of being visualized” as existingseparately, but only if “the artistic featureand the useful article could both exist sideby side and be perceived as fully realized,separate works—one an artistic work andthe other a useful article.”9 The CopyrightOffice’s criteria generally controlled, but thevarious circuit courts employ ed slightly dif-ferent tests (sometimes narrower and some-
times broader) in the context of infringementlitigation.
It is worth stepping back to consider fash-ion protection before the U.S. Supreme Courtdecided the Star Athletica case and the lawmore generally. Prior to 2000, clothing com-panies tried to protect their design throughtrademark by arguing that their clothing was“inherently distinctive.” For example, whenWal-Mart knocked off Samara Brothers’ lineof children’s clothing in the 1990s, Samarasued for copyright infringement (of specificdecorative items) and trademark infringement(of the layout of the dresses themselves).10
After Samara won at trial and before theSecond Circuit, the Supreme Court reviewedthe trademark ruling.11
In Wal-Mart Stores, Inc. v. Samara Broth -ers, Inc., Justice Antonin Scalia wrote themajority opinion rejecting Samara’s attemptto protect its designs through trade dress,holding that a useful object (e.g., clothing)could never be “inherently distinctive.”12 InWal-Mart Stores the majority argued thatin order to obtain trademark protection, thedesigns must have “secondary meaning.”13
Secondary meaning basically requires thatconsumers would recognize the design dueits ubiquity, something very hard for a brandto achieve.14 The Adidas “three stripe” designis an example of secondary meaning. Thereis currently a bitter fight being litigated overwhether Converse Chuck Taylor All Starssneakers have secondary meaning. How ever,secondary meaning is rare to find in clothingoutside of accessories (e.g., shoes, belts) ortrue “marks” like the pocket designs onjeans.
Within the last decade, attempts to protectfashion designs through intellectual propertyhave shifted to Congress.15 Bills to protectdesigns were introduced through the late2000s and recently in 2012. The most notablebill was the Innovative Design Protectionand Piracy Act (IDPPA) (S. 3728), introducedby Senator Charles Schumer of New Yorkin 2010, and was nearly passed by the lameduck Congress after the 2010 elections.16TheIDPPA would have amended the CopyrightAct to give creators of new fashion designs(broadly defined) a three-year monopoly overtheir original designs and the right to sue forinfringement.17 The legislation did not reachthe Senate floor before the new Congresswas seated in 2011, and after 2011, fashionlegislation ceased to be a priority.18 Thus, asthe fashion industry entered the second decadeof the 21st century with the rise of “fast fash-ion” like Forever 21, the legal environmentand the business environment seemed to favoreither “inspiration” or knockoffs —dependingupon whom you ask.
Enter the rivalry between cheerleader uni-form suppliers, Star Athletica and Varsity
Brands. Varsity Brands is a major manufac-turer of cheerleader uniforms, and over theyears, it has submitted images of more than200 of its uniforms to the Copyright Officefor registration, and received registrations.
Star Athletica began selling cheerleaderuniforms that Varsity Brands contended weresubstantially similar to theirs. Varsity Brandssued Star Athletica for copyright infringementin Ohio. Star Athletica successfully obtainedsummary judgment, with the district courtfinding that the cheerleader chevron designsand the uniforms themselves were not capableof existing independently.
Law on Separability
The Sixth Circuit reversed, finding the uni-forms to be copyrightable, and in doing so,laid out its view of the current law on sepa-rability.
First, the court examined “physical sep-arability,” or whether the decorative itemcould be physically removed from the usefularticle without destroying it (e.g., the hoodornament on a car). It concluded that thecheerleader chevrons were not physically sep-arable from the uniform. Upon finding thechevrons were not physically separable, thedistrict court turned to a “conceptual sepa-rability” test—basically whether the pictorial,graphic, or sculptural feature can be separatedfrom the useful article in concept. The SixthCircuit, possibly setting up the case for cer-tiorari, identified the nine separate variantson the conceptual test.
The bulk of the separability approachesdiscussed by the Sixth Circuit,19 and partic-ularly the approach of the Copyright Office,require that when an artistic element is con-ceptually removed from the useful article,the useful article remains “useful.” Severalof the remaining approaches20 look only atwhether the object as a whole is artistic andnot dictated by function. In other words, thenine competing tests regarding separabilityessentially amount to two competing typesof tests: 1) whether the artistic work and theuseful article could be conceptually separatedwith one part surviving (conceptually) as auseful article and the element as an artisticwork,21 or 2) whether there were aspects ofthe design of the useful article that were notdictated by function.22
The first set of tests requires the usefularticle to survive removal of the artistic ele-ments while the second set does not. TheSixth Circuit adopted a hybrid mix of thesetests, involving a five-step process.23 Applyingthe new test to the uniforms, it found thechevron combinations to be conceptuallyseparable from the uniforms themselves, andreversed, in favor of Varsity Brands.24 StarAthletica petitioned for certiorari.25
In May 2016, the Supreme Court granted
22 Los Angeles Lawyer September 2017
Dancer figurine at issue in Mazer v. Stein.
certiorari on the issue of the appropriate testto determine when a feature of a useful articleis protectable under Section 101 of theCopyright Act. Varsity Brands and the U.S.government argued that the chevron designscould be envisioned separately from the uni-form. Varsity Brands argued that its designsare not “designs of useful articles.” Rather,they are “‘two-dimensional graphic designsthat appear on useful articles.’”26 The gov-ernment, offering an amicus position, offereda similar argument, stating that removal ofthe chevrons would leave the uniforms “sim-ilarly” useful.27 Star Athletica proffered thesame basic tests as the others28 but arguedfor a different result, viz. that removal of thechevrons would not leave the uniformsequally useful.
The Supreme Court, in a 6-2 opinionwritten by Justice Clarence Thomas, rejectedall of these approaches to copyrightabilityand set forth a new test for determiningwhether an expressive element of a usefularticle was copyrightable under Section 101:
A feature incorporated into the designof a useful article is eligible for copy-right protection only if the feature (1)can be perceived as a two- or three-dimensional work of art separate fromthe useful article and (2) would qualifyas a protectable pictorial, graphic, orsculptural work—either on its own orfixed in some other tangible mediumof expression—if it were imagined sep-arately from the useful article intowhich it is incorporated.29
In this context, the Court held that itdoes not matter if removing the decorativeelement would render the useful article use-less. In other words, it did not matter thatwithout the chevrons, the garment wouldno longer be a cheerleader uniform. TheCourt determined that “[t[he statute doesnot require the decision maker to imagine afully functioning useful article without the
artistic feature.”30 The only question iswhether the claimed feature can exist inde-pendently. Applying this test, the Court heldthat the claimed elements (the chevrons)could exist independently and therefore werecopyrightable.
The Court’s decision did not resolve allthe pending issues regarding the ongoing dispute between Star Athletica and VarsityBrands. The Supreme Court granted certiorarion the question of whether the uniforms werecopyrightable, assuming they were originaland sufficiently creative to be copyrighted.This was the issue on which Star Athleticaobtained summary judgment in the districtcourt. However, there were other issues inthe case, on which the Supreme Court ex -pressly declined to rule. For example, StarAthletica claimed that Varsity Brands wasregistering designs that it did not create inan effort to create a monopoly on cheerleaderuniforms.31 That question has yet to beresolved.
Going Forward
The test adopted by the Supreme Court is amajor substantive change, rejecting and over-turning Copyright Office practices going backa half century. As noted, some of the com-peting tests,32 including and most important,that of the Copyright Office, required thatthe useful object remain similarly useful afterremoval of the decorative item, at least inconcept. This was the theory unsuccessfullyadvanced by the government, and thatrequirement has now been unequivocallyremoved from copyright jurisprudence.
Therefore, it is now easier to copyrightan artistic aspect of a useful article like apiece of clothing, although the exact natureof the change is still in flux. While the Court’sdecision replaces various tests with one two-prong test, the standard in Star Athletica isbasically two sentences with no further guid-ance. As a result, litigants and intellectual
property holders, at least for the moment,have no concrete guidance on how the testwill be implemented within the fashion indus-try. As such, in the short period since thecase came down, potential copyright holdershave taken a “shoot first and ask questionslater” approach to copyrightability, in thehope that any type of fashion feature couldbe protectable.
For example, less than two weeks afterthe Star Athletica opinion was released, Pumasued Forever 21 for allegedly knocking offits shoes. The core case was based on previ-ously issued design patents and allegationsof trade dress. But Puma also took pho-tographs of the shoes, sent them into theCopyright Office as copyright applications,and asserted the knockoffs were infringingon their copyrights under Star Athletica.Puma’s claim is likely pushing the envelope.33
However, practitioners also are likely to seesimilar actions until the Copyright Officeissues meaningful guidance.
However, it is unlikely this will remainthe case for long. The initial gatekeeper forcopyrights is the Copyright Office, and thatoffice provides detailed guidance on copy-rightability in its Compendium. For example,prior to Star Athletica, the guidance on theissues decided in Star Athletica comprisedeight single-spaced pages with multiple exam-ples. In most cases, the information providedwas sufficiently clear to provide guidancefor litigants.
On June 1, 2017, the Copyright Officedeleted this section of the Compendium andreplaced it with three short paragraphs, quot-ing the standard from Star Athletica,34 andstating “[t]he U.S. Copyright Office is devel-oping updated guidance on the registrationof pictorial, graphic, and sculptural featuresincorporated into the design of useful arti-cles.”35 In all likelihood, the Copyright Officewill be the first federal office to provide realguidance on the impact of Star Athletica and
Los Angeles Lawyer September 2017 23
From left, cheerleading uniform patterns involved in Star Athletica, LLC. v. Varsity Brands, Inc.: Designs 299A, 299B, 074, 078, and 0815.
probably before meaningful court decisionscome down.
Although plaintiffs may try, Star Athleticadoes not mean the IDPPA has now becomelaw through judicial fiat. The decision movesthe standard in that direction, but it almostcertainly did not move it that far. For exam-ple, the Diane Von Furstenberg wrap dress,often offered as a key example of potentiallyprotectable fashion in discussions of theIDPPA,36 probably does not qualify as havingartistic elements that could be applied toanother medium. However, certain types ofclothing that were earlier refused by theCopyright Office, and therefore would havebeen deemed uncopyrightable by the courts,now would likely pass muster under theCourt’s test. In other words, combinationsof simple shapes that are integral to a pieceof clothing probably would qualify as con-ceptually separable from the garment now,whereas they would not have before.
As an example, since the line has movedfor borderline cases, it is worth looking atthe clothing from Wal-Mart Stores again.There is an arrangement of seersucker andpocket patches that are no less separablefrom the dresses than the chevrons fromthe cheerleader uniforms in Star Athletica.In 2001, it was reasonably clear that thelay out of the Samara dresses were not pro-tectable under copyright law. Indeed, Samaraonly sought copyright for some of the indi-vidual items on the dresses. Today, the out-come would be less clear. Until guidancefrom the Copyright Office comes down, ora few motions to dismiss are granted inpending litigation, the sky will be the limitin the fashion industry. n
1 They may be subject to trademark or patent law,but obtaining this type of protection requires addi-tional elements not always present and at highercosts.2 Star Athletica, L.L.C. v. Varsity Brands, Inc., 137 S.Ct. 1002 (2017).3 Supreme Court copyright case law generally addressestwo successive Copyright Acts, one passed in 1909and one passed in 1976. For purposes of the issuesaddressed in Star Athletica, the two acts are functionallythe same. (Copyright Act of 1909, Pub. L. 60-349, 35Stat. 1075 (Mar. 4, 1909; repealed Jan. 1, 1978);Copyright Act of 1976, 17 U.S.C. §§101-810 (1976)). 4 17 U.S.C. §101.5 Transcript of Oral Argument, 47, Star Athletica,137 S. Ct. 1002.6 Mazer v. Stein, 347 U.S. 201 (1954).7 Varsity Brands, Inc. V. Star Athletica, LLC, 799 F.3rd 468, 484-85 (6th Cir. 2015).8 U.S. COPYRIGHT OFFICE, COMPENDIUM OF U.S. COPY -RIGHT OFFICE PRACTICES, §924.2 (2016). TheCompendium, a guide to the Copyright Office’s prac-tices, lays out its standards for registration, amongother things.9 Id.10 Samara also successfully sued for copyright infringe-ment for copying ornamental items on the dresses—that judgment was affirmed by the Second Circuit,
and the Supreme Court did not grant certiorari on thecopyright claims. See Samara Bros. v. Wal-Mart Stores,Inc., 165 F. 3d 120, rev’d, 529 U.S. 205 (2000).11 Wal-Mart Stores, 529 U.S. at 216 (“[A] product’sdesign is distinctive, and therefore protectable, onlyupon a showing of secondary meaning.”). 12 Id. at 211. 13 Id. at 216.14 Ninth Circ. Model Civ. Jury Instruction 15.11(“[W]hen it has been used in such a way that itsprimary significance in the minds of the prospectiveconsumers is not the product itself, but the identificationof the product with a single source, regardless ofwhether consumers know who or what that sourceis.”)15 These attempts, plus earlier legislative attempts inthe 20th century, were discussed briefly in StarAthletica’s Supreme Court brief. Star Athletica, L.L.C.v. Varsity Brands, Inc., case no. 15-866, 2016 WL3923923 at *22 (U.S. 2016). 16 See, e.g., H.R. 2511 (112th Cong., 2011), S. 3728(111th Cong., 2010), available at Thomas.loc.gov.17 The Copyright Act has two other “interest group”amendments, one for vessel hulls and one for archi-tectural design.18 After 2010, the primary intellectual property legis-lation was in the patent field.19 The Copyright Office approach, ObjectivelyNecessary approach, Ordinary Observer approach,and Stand-Alone approach.20 Primary-Subsidiary approach, Design-Processapproach, Likelihood-of-Marketability approach, andSubjective-Objective approach.21 The government supported this approach in theSupreme Court case, and argued that the plain whiteuniform that would remain after the cheerleaderchevrons were removed would still be a useful article.22 These standards are somewhat similar to those gov-erning design patents.23 Briefly, whether the design is of useful article, iden-tifying the utilitarian aspects of the article, and whethrthe graphic or sculptural featues can eist independently.Varsity Brands, Inc. v. Star Athletica, LLC, 799 F. 3d468, 477-93 (6th Cir. 2015).
24 Id. at 471, cert. granted in part sub nom., StarAthletica, L.L.C. v. Varsity Brands, Inc., et. al., 136S. Ct. 1823 (2016), and aff’d sub nom., Star Athletica,L.L.C. v. Varsity Brands, Inc., et. al., 137 S. Ct. 1002(2017)25 While speculation, it is possible that Star Athleticawould not have made it to the Supreme Court if JusticeAntonin Scalia had lived. On February 13, 2016,before certiorari briefing was completed in this case,Justice Scalia died. Within days, it was reasonablyclear that a replacement would not be appointed beforeNovember 2016. Between Justice Scalia’s death andPresident Trump’s inauguration, the Supreme Courtgranted certiorari on eight intellectual property casesfor the 2016-17 term, out of a grand total of only 64cases argued. Based on a review of SCOTUS blog from2008 to present, in absolute numbers and as a per-centage of the whole, the previous term was the heaviestintellectual property caseload in recent memory. Unlike many other areas of federal law that theSupreme Court confronts on a regular basis (e.g.,voting rights, death penalty, civil rights), and althoughoften controversial in its own right, intellectual propertydoes not track neatly across party lines. As a generalproposition, the divides on intellectual property arenot between Republicans and Democrats. Indeed, theultimate lineup in this case, with Justices ClarenceThomas, Ruth Bader Ginsburg, Elena Kagan, SoniaSotomayor, Samuel Alito and Chief Justice JohnRoberts aligned against Justices Anthony Kennedyand Stephen Breyer, is emblematic of this. It may bethat intellectual property cases are less likely thanothers to lead to 4-4 splits, thus leading them to berelatively overrepresented this term. Then again, itmay be a coincidence as the Supreme Court does notreveal what it discussed in conference.26 Star Athletica, L.L.C. v. Varsity Brands, Inc., caseno. 15-855 2016 WL 4916823, at 18 (U.S. 2016)(emphasis in original), (citing Brief for Respondents at52).27 “If the work and the article can be visualized astwo different things, with the article remaining similarlyuseful (and the work non-useful), then the work canbe identified separately and exist independently of thearticle.” Star Athletica, L.L.C. v. Varsity Brands, Inc.,case no. 15-855, 2016 WL 5116853 (U.S.), at *29(U.S. 2016). 28 Whether a design feature (1) can be recognized as aunit by itself, apart from the article’s utilitarian aspects(the identified separately requirement), and (2) canexist side by side with the useful article with both per-ceived as fully realized, separate works (the exist inde-pendently requirement). Id., (citing Opening Brief at22). 29 See id. at *29. 30 Id.31 See id.32 Arguably, tests that were less friendly to copyrightholders.33 An initial motion to dismiss was granted at the endof June 2017 on the grounds that Puma had failed toattach the filing receipt to the amended complaint.The court granted Puma leave to attach the receiptsto an amended complaint and expressly declined toreach the substantive issue. It is likely the action willproceed once Puma fixes this technical issue.34 Technically, this guidance was only submitted forcomment. It will become effective July 3, 2017.35 Draft COMPENDIUM, §924, available at https://www.copyright.gov/comp3/draft.html until July 30, 2017.It is likely that this will be the operative Compendiumby the time this article is published.36 The wrap dress was key both because the dress wasiconic at the time, and because of Von Furstenberg’sclose affiliation with Senator Schumer. Her husband,Barry Diller, was a major bundler for the senator.
24 Los Angeles Lawyer September 2017
Diane Von Furstenberg’s iconic wrap dress.
Los Angeles Lawyer September 2017 25
California’s finan-cial responsibility
laws, every owner and operator of a vehiclemust be able to establish at all times financialresponsibility through liability insurance orits functional equivalent. Any owner or oper-ator who fails to comply with these laws isgenerally barred by Proposition 2131 (Prop.213) from recovering noneconomic damagesin a personal injury action arising from amotor vehicle accident.
One functional equivalent of liability insur-ance is a cash deposit with the CaliforniaDepartment of Motor Vehicles (DMV) madeprior to the operation of a motor vehicle. Itis clear from the financial responsibility lawsthat in order for a cash deposit to establishfinancial responsibility, the deposit must bemade before the motorist operates a vehiclein California. Nonetheless, in recent years,some uninsured plaintiffs have attempted to
establish their financial responsibility by mak-ing a cash deposit with the DMV after anaccident in which they have sustained injuries.These plaintiffs have argued that making apost-accident deposit entitles them to recovernoneconomic damages just as though, priorto the accident, they had purchased an auto-mobile liability policy or made a cash depositwith the DMV. However, a post-accidentdeposit is contrary to the purpose, terms,and history of Calif ornia’s financial respon-sibility laws and is subject to challenge inlitigation arising from motor vehicle accidents.Accordingly, recovery of noneconomic damagesby these plaintiffs is barred by Prop. 213.
Proposition 213
California motorists must comply with thestate’s financial responsibility laws, which inessence require that they have a source offunds available to compensate others for
injury arising from a vehicle’s operation oruse.2 Vehicle owners and operators typicallycomply with the financial responsibility lawsby purchasing insurance, but there are alter-native ways for motorists to do so, such asby depositing $35,000 cash with the DMVbefore operating a vehicle.3
In an attempt to encourage compliancewith the financial responsibility laws, votersin 1996 approved Prop. 213, known as ThePersonal Responsibility Act of 1996.4 Theact “was intended to punish and deter scof -flaws, i.e., drivers who do not obey the finan-cial responsibility laws,” by precluding theirrecovery of noneconomic damages arisingout of a motor vehicle accident.5 “Prop -
Karen M. Bray and Stephen E. Norris are partnersat Horvitz & Levy LLP in Burbank, where they spe-cialize in civil appeals and consulting with trialcounsel to preserve issues for appeal.
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Figueroa v. United States holds that a post-accident cash deposit in lieu ofinsurance does not establish legal financial responsibility at the time of anaccident in which injury occurs
by Karen M. Bray and Stephen E. Norris
UNDER
osition 213 sought to ‘restore balance to ourjustice system’ by ensuring that those ‘whofail to take essential personal responsibility’would ‘not be rewarded for their irresponsi-bility and law breaking.’”6
The initiative was fueled by the fairnessprinciple that “those who do not contributeto the insurance pool—and thereby drive upthe costs of premiums for automobile insur-ance” should not be permitted “to reap thebene fits of the coverage paid for by law-abid-ing motorists.”7 The initiative was likewiseprompt ed by the desire to reduce the cost ofinsurance by “encouraging motorists to buyliability insurance.”8 Based on these policyconsiderations, after passage of Prop. 213,anyone who owns or operates a motor vehiclewithout a form of financial responsibility inplace—i.e., with no means of compensatingthose who might be injured as a result of theoperation of the vehicle—may recover onlyhis or her economic losses in any actioninvolving damages arising from the operationof the vehicle.
Codified as Civil Code Section 3333.4,Prop. 213 provides that a person injured ina motor vehicle accident may not recovernoneconomic damages if that person was 1)“the owner of a vehicle involved in the acci-dent and the vehicle was not insured asrequired by the financial responsibility laws,”or 2) “the operator of a vehicle in volved inthe accident” who cannot establish “his orher financial responsibility as required bythe financial responsibility laws.”9
Although Prop. 213 has been in effectfor over 20 years, it is only in recent yearsthat plaintiffs have begun relying on post-accident deposits as a basis for claiming theycomplied with the financial responsibilitylaws. Motor ists who make post-accidentdeposits have done so for expediency. Theyargue that the post-accident deposit estab-lishes compliance with the financial respon-sibility laws and entitles them to recovernoneconomic damages, even though theydid not have insurance or other form offinancial responsibility in place at the timeof the accident, and therefore had no meansof compensating anyone they might haveinjured. It appears that the sole purpose ofthe post-accident deposit is thus to avoidthe effect of Prop. 213 since it seems obviousthat motorists relying on such a depositwould not have transferred $35,000 to theDMV were they being sued for causing injuryor property damage in an accident.
The plaintiffs who have resorted to post-accident deposits have attempted to ratio-nalize the tactic by focusing on a narrowreading of a single statute while ignoring themany others that, read together, form thestatutory framework underlying the financialresponsibility laws. Specifically, these plaintiffs
have relied on Vehicle Code Section 16054.2,which states that evidence of financial respon-sibility may be established “[b]y depositingwith the [DMV] cash in the amount specifiedin Section 16056.”10 They point out thatSection 16054.2 does not specifically statethat the deposit must be in place at the timeof the accident. According to the plaintiffs,the lack of any contemporaneous timingrequirement and the use of the present con-tinuous tense “[b]y depositing” means thata deposit made after an accident establishes
compliance with the financial responsibilitylaws for that prior accident. Therefore, theyargue that they are entitled to recover noneco-nomic damages under subdivision (a)(3) ofCivil Code Section 3333.4 as a vehicle “oper-ator” who can “establish his or her financialresponsibility as required by the financialresponsibility laws.” In relying on Section16054.2, plaintiffs contrast its language withthat of Vehicle Code Section 16054, whichstates that compliance with the financialresponsibility laws may be shown with anautomobile liability policy or bond that was“in effect at the time of the accident.”
Plaintiffs who have made post-accidentdeposits also attempt to support their readingof Vehicle Code Section 16054.2 with a legis -la tive history argument, noting that Section16054.2 was derived from former VehicleCode Section 420—the “security followingaccident” law. Former Section 420 requiredthat those involved in an accident must de -pos it funds in an amount determined by theDMV based upon the post-accident reportand other post-accident evidence.
These arguments should be rejected becausepost-accident deposits do not fulfill the require-ments of the financial responsibility laws.
Post-accident Deposit Tactics
California appellate courts have yet to addressthe validity of the unorthodox post-accidentdeposit tactic in light of Prop. 213, thoughthey have left no doubt that financial respon-sibility must be in effect at the time of theaccident in dispute. Specifically, the court ofappeal has noted that financial responsibilityis “a responsibility concurrent with vehicleownership or operation,”11 that the financialresponsibility laws are “intended to providea guarantee that every driver will be finan-cially responsible before he begins driving,”12
and that a motorist’s “involvement in [an]accident does not create the obligation to be
financially responsible,” but “merely providesthe occasion for demonstrating that a pre-existing obligation has been satisfied.”13
In Figueroa v. United States, a federal dis-trict court expressly rejected the post-accidentcash deposit tactic, ruling that the plaintiffin that case, who was injured in an accidentin 2013 but did not make a cash deposituntil 2015, was not entitled to recover no -neconomic damages because “at the time ofthe accident,” the plaintiff “had no form offinancial responsibility in effect to compensate
other parties who might be injured.”14 Thecourt reasoned that Vehicle Code Section16020 requires that both drivers and ownersof motor vehicles “shall at all times be ableto establish financial responsibility” and“‘shall at all times carry in the vehicle evidenceof the form of financial responsibility in effectfor the vehicle.”15 Based on this statute, thecourt concluded that a post-accident cashdeposit cannot establish the plaintiff’s finan-cial responsibility at the time of the accidentgiving rise to the injury.
The Figueroa court’s conclusion that finan-cial responsibility must be concurrent withvehicle operation is supported by express pro-visions in the financial responsibility lawstatutes, the DMV’s interpretation of thosestatutes, the legislative history of the financialresponsibility laws, and the policies underlyingProp. 213.
Numerous Vehicle Code provisions ex -pressly require that financial responsibility bein place at all times. The statutes compris ingthe financial responsibility laws clearly indi -cate that a form of financial responsibilitymust be in place as a precondition to drivingin California. For example, Vehicle CodeSection 16000.7 defines an “uninsured motorv ehi cle” as one “for which financial respon-sibility…was not in effect at the time of theaccident.”
Similarly, Section 16020, discussed by thecourt in Figueroa, mandates that all ownersand operators “shall at all times be able toestablish financial responsibility…and shallat all times carry in the vehicle evidence ofthe form of financial responsibility in effectfor the vehicle.”16 The same section lists var-ious documents that may be carried to estab-lish financial responsibility “at all times,”including a liability insurance form or, in theevent of a deposit under Vehicle Code Section16054.2, a “certificate of…the assignmentof deposit letter issued by the [DMV].”17
26 Los Angeles Lawyer September 2017
Proposition 213 “was intended to punish anddeter scof flaws, i.e., drivers who do not obeythe financial responsibility laws.”
Los Angeles Lawyer September 2017 27
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1. One of the purposes of the Personal ResponsibilityAct of 1996 was to bar drivers who have not compliedwith the financial responsibility laws from recoveringnoneconomic damages in an action arising from amotor vehicle accident.
True.False.
2. Vehicle owners must comply with the financialresponsibility laws to recover noneconomic damagesin an action arising from a motor vehicle accident, butnonowner vehicle operators are exempted from thefinancial responsibility laws.
True.False.
3. One way to comply with the financial responsibilitylaws is to maintain vehicle liability insurance.
True.False.
4. The Vehicle Code defines an “uninsured motor vehi-cle” as one for which financial responsibility was notin effect at the time an accident occurs.
True.False.
5. Under former Vehicle Code Section 420—the “securityfollowing accident” law—an uninsured driver couldavoid license suspension by depositing cash with theDepartment of Motor Vehicles in an amount the DMVassessed would satisfy any potential judgment againsthim or her.
True.False.
6. California appellate courts have held that maintainingfinancial responsibility is an obligation that is concurrentwith owning or operating a vehicle.
True.False.
7. In Figueroa v. United States, a federal district courtconcluded that an uninsured plaintiff who made acash deposit with the DMV after an accident was notin compliance with the financial responsibility laws atthe time of the accident.
True.False.
8. A vehicle owner involved in an accident can complywith the financial responsibility laws by signing a doc-ument assuring the other driver that he or she willsubsequently post a cash deposit with the DMV.
True.False.
9. California Vehicle Code Section 16054.2, which gov-erns cash deposits with the DMV under the financialresponsibility laws, does not expressly state that suchdeposits must be in place as a precondition to owningor operating a vehicle.
True.False
10. A vehicle operator must at all times carry in thevehicle proof of some form of financial responsibility.
True.
False.
11. Vehicle owners must show compliance with thefinancial responsibility laws in order to renew theirvehicle registration.
True.False.
12. To use the cash deposit option as a means of com-plying with the financial responsibility laws, a vehicleowner or operator must deposit $75,000 with the DMV.
True.False.
13. Under California rules of statutory construction,the statutes addressing cash deposits should be readand interpreted separately from the remaining statutescomprising the financial responsibility laws.
True.False.
14. According to the California Driver Handbook pub-lished by the DMV, one way to comply with the financialresponsibility laws is to allow the DMV to secure a lienagainst a registered vehicle.
True.False.
15. The DMV must notify drivers concerning the penal-ties for failing to comply with the financial responsibilitylaws.
True.False.
16. A defendant in an action arising from a motorvehicle accident may file a motion for summary adju-dication on the question whether plaintiff failed tocomply with the financial responsibility laws and there-fore is not entitled to recover noneconomic damages.
True.False.
17. A defendant in an action arising from a motorvehicle accident may file a motion in limine to excludeevidence of noneconomic damages based on Prop -osition 213 if the plaintiff failed to comply with thefinancial responsibility laws.
True.False.
18. The question whether a plaintiff was in compliancewith the financial responsibility laws is a preliminaryfact on which the admissibility of noneconomic damageshinges and may therefore be resolved by the trial court.
True.False.
19. One way to demonstrate compliance with the finan-cial responsibility laws is to carry a certificate acknowl-edging that cash has been deposited with the DMV.
True.False.
20. The DMV may suspend, cancel, or revoke a vehicle’sregistration if the owner fails to provide proof of financialresponsibility.
True.False.
Likewise, Vehicle Code Section 16025requires that “[e]very driver” involved in anaccident provide “[e]vidence of financialresponsibility, as specified in Section 16020”to “any other driver or property ownerinvolved…and present at the scene.”18 Also,Vehicle Code Section 16028 states that everydriver must provide a peace officer who isissuing a citation or investigating an accidentwith “evidence of financial responsibility forthe vehicle that is in effect at the time thedemand is made.”19
Finally, Vehicle Code Section 1656.2 re -quires that the DMV notify drivers concerningpenalties for noncompliance with the financialresponsibility laws, noting that drivers must“carry written evidence of valid automobileliability insurance…[or] a $35,000 cashdeposit” and “must provide evi dence of finan-cial responsibility” whenever they renew theirvehicle registration and after they “are citedby a peace officer for a traffic violation orare involved in any traffic accident.”20
Read collectively, these statutes leave nodoubt that some form of financial responsi-bility must exist from the time a driver firstoperates a vehicle.21 A driver cannot retroac-tively establish financial responsibility anymore than that driver could retroactivelyavoid a citation for failing to comply withthe financial responsibility laws.22
Uninsured plaintiffs point to the fact thatneither Vehicle Code Section 16054.2 norCivil Code Section 3333.4 expressly statesthat a cash deposit must be in place when anaccident occurs. The absence of an expressdeclaration in these two statutes is irrelevant,however, because Vehicle Code Section 16020and the other statutes codifying the financialresponsibility laws unequivocally requirefinancial responsibility be in effect at the timeof the accident. Nothing in the language ofSection 16054.2 suggests that a cash deposit—unlike all other forms of financial responsi-bility—may be secured after an accident toretroactively create compliance with the law.
The DMV interprets the statutes to requirefinancial responsibility at all times. The argu-ment that Vehicle Code Section 16054.2allows for a post-accident deposit also con-flicts with the DMV’s interpretation of thefinancial responsibility laws. Multiple DMVpublications reflect the department’s under-standing that, whether a driver opts for insur-ance or a cash deposit, either must be inplace at all times to comply with the financialresponsibility laws.23
For example, the California Driver Hand -book advises drivers that “[t]he CaliforniaCompulsory Financial Responsibi lity Lawrequires every driver and every owner of amotor vehicle to maintain financial respon-sibility (liability coverage) at all times.”24
The handbook lists “4 forms of financial
responsibility”: liability insurance, a “depositof $35,000 with DMV, a surety bond, or a“DMV-issued self-insurance certificate.”25
The handbook also states that a driver “mustpossess evidence of financial responsibilitywhenever you drive, and show it to a peaceofficer after a traffic stop or collision whenasked to do so.”26
Documents issued by the DMV when aperson provides a cash deposit reflect thefact that the deposit is effective only to estab-lish financial responsibility prospectively.These documents typically include a receiptfor the deposit and an “Acknowledgment
of Cash Deposit” form. The documents 1)state that the form must be carried at alltimes as evidence of compliance with thefinancial responsibility laws under VehicleCode Section 16020, 2) explain that thedeposit number assigned by the DMV maybe used in lieu of insurance policy informa-tion on any accident report, and 3) directthat the form must be provided to a peaceofficer in the event of an accident or citationas proof of financial responsibility. This lan-guage is prospective and does not indicatethat a cash deposit can cure a past failureto be financially responsible.
The “security following accident” law wasexpressly repealed in 1974. Plaintiffs’ post-accident deposit arguments are based largelyon a statute that was expressly repealed bythe legislature in 1974. Speci fically, formerVehicle Code Section 420 permitted uninsureddrivers to make a cash deposit in an amountcalculated by the DMV after an accidentoccurred. Under that law, the DMV was autho-rized to suspend the license of an uninsureddriver who was involved in an accident unlessthe driver deposited security “sufficient in theopinion of the department to satisfy any finaljudgment against him.”27 The legislative historyrelating to the repeal of the law indicates thatthese post-accident proceedings imposed costlyadministrative burdens on the DMV. More -over, allowing this loophole in the financialresponsibility laws resulted in drivers’ operatingtheir vehicles without insurance while optingto avoid the expense of procuring insurancein favor of risking having to post a depositafter an accident. This tactic conflicted with
a key purpose of the financial responsibilitylaws—i.e, to afford monetary protection tothose injured by virtue of the acts of financiallyirresponsible drivers.
The legislature therefore repealed Section420 and enacted provisions listing alternativeforms of financial responsibility and requiringthat one be in place at all times as a precon-dition to operating a vehicle.28 The legislativehistory is replete with statements that the leg-islature’s goal was to make financial respon-sibility an obligation that is concurrent withthe operation of a motor vehicle in California.
Post-accident deposits run counter to the
purposes underlying Prop. 213 and the finan-cial responsibility laws. If post-accidentdeposits could retroactively establish com-pliance with the financial responsibility laws,there would no longer be any consequencefor noncompliance. Injured uninsuredmotorists could simply buy their way backinto compliance when it becomes in theirfinancial interest to do so by obtaining aloan secured by future lawsuit recovery topost a cash deposit. Yet those hurt by theuninsured would be left with no source ofcompensation. The result would be to nullifythe financial responsibility laws, in directcontravention of fundamental rules of statu-tory construction.29
Challenging Post-accident Deposits
Whenever Prop. 213 might be invoked as adefense, the defendant may take appropriatesteps to raise the issue in the trial court andpreserve it for potential appellate review.
Plead Prop. 213 as an affirmative defenseand conduct discovery on the financial re -sponsibility issue. A plaintiff’s failure to com-ply with the financial responsibility lawsshould be asserted as an affirmative defensein the defendant’s answer. The defendantshould also conduct discovery to determinewhether the plaintiff was insured at the timeof the accident or had some other form offinancial responsibility in place. If the plaintiffposted a deposit with the DMV, it is criticallyimportant that discovery be conducted toverify whether the deposit was posted beforeor after the accident.
Do not pursue a motion for summary ad -
28 Los Angeles Lawyer September 2017
Section 16020, dis cussed by the court in Figueroa, mandates that all owners and opera tors “shall at all times be able to establishfinancial responsibility…and shall at all timescarry in the vehicle evidence of the form offinancial responsibility in effect for the vehicle.”
judication based on Prop. 213. The summaryadjudication statute—Code of Civil ProcedureSection 437c—provides that a party cannotobtain summary adjudication on a damagesclaim that does not dispose of at least onecause of action.30 A party may move for sum-mary adjudication “as to…one or more claimsfor damages…if the party contends that thecause of action has no merit, that there is noaffirmative defense to the cause of action,that there is no merit to an affirmative defenseas to any cause of action, that there is nomerit to a claim for damages, as specified inSection 3294 of the Civil Code, or that oneor more defendants either owed or did notowe a duty” to plaintiff.31
Section 437c therefore “does not permitsummary adjudication of a single item ofcompensatory damage which does not disposeof an entire cause of action.”32 The statuteallows only for summary adjudication of apunitive damages claim, not a component ofcompensatory damages.33 As one court ob -served: “The reference to ‘one or more claimsfor damages’ in the first part of the sentenceis thus still qualified by, and limited to, puni-tive damages” and “there is no other rea-sonable interpretation of the sentence whichgives effect to all of its words.”34 The reasonfor the distinction is that “it is a waste ofcourt time to attempt to resolve issues if theresolution of those issues will not result insummary adjudication of a cause of action.”35
“Since the cause of action must still be tried,much of the same evidence will be consideredby the court at the time of trial.”36
File a motion in limine. Defense counselshould file a motion in limine to exclude evi-dence of noneconomic losses based on Prop.213, explaining why a post-accident depositdoes not comply with the financial responsi-bility laws.37 The motion should be supportedby plaintiff’s discovery responses and otherevidence needed to establish that, at the timeof the accident, plaintiff was not insured anddid not have any other form of financialresponsibility in place and that plaintiff insteadbelatedly deposited cash with the DMV.
If the trial court denies the motion in lim-ine on the ground that Prop. 213 does notbar plaintiff’s noneconomic damages claim,defense counsel should make an offer ofproof during trial concerning all evidencesupporting the Prop. 213 defense. The offershould include admissions from the plaintiff’sdiscovery responses that he did not haveinsurance at the time of the accident as wellas copies of the DMV documents acknowl-edging that cash was deposited after the acci-dent. The offer of proof is necessary to pre-serve the issue of the impropriety of the cashdeposit for appeal.
File a motion to bifurcate. Because thereis a chance that the trial court may deny the
motion in limine (either as a matter of lawor on the grounds that there are factual dis-putes pertaining to the Prop. 213 defense),counsel should also file a timely motion tobifurcate the trial requesting that the trialcourt separately resolve the Prop. 213 issuesfirst. The question whether plaintiff was incompliance with the financial responsibilitylaws at the time of the accident is a “prelim-inary fact” upon which the admissibility ofevidence of pain and suffering hinges.38 Thedetermination of that preliminary fact isproperly submitted to the court in accordancewith Evidence Code Section 405.39
Thus, the motion should argue that bifur-cation is necessary because, if the defense iscorrect about the application of Prop. 213,none of the plaintiff’s noneconomic damagesevidence, which will invariably be used toplay to the jury’s sympathies, should be pre-sented to the jury. If Prop. 213 applies, admis-sion of such evidence will serve only to taintthe jury’s evaluation of liability, fault alloca-tion, and other damages claims. Moreover,resolving the Prop. 213 defense in advancewill streamline the trial by avoiding potentiallyunnecessary discussions concerning the admis-sibility of noneconomic damages evidence,the propriety of noneconomic damages juryinstructions, whether noneconomic damagesmay be included on the verdict form, andwhether the plaintiff’s counsel may arguenoneconomic damages to the jury.
If the plaintiff opposes bifurcation or thecourt is reluctant to grant it, defense counselshould argue that, absent bifurcation, thedefense should be entitled to offer during thetrial before the jury all of the evidence neces-sary for the jury to determine whether plaintiffwas not insured or otherwise financiallyresponsible at the time of the accident. If thejury finds against the plaintiff on that issue,then the verdict form should instruct the jurynot to award noneconomic damages.
Oppose any effort to defer a Prop. 213issue to a second trial phase of post-trialmotion. In opposition to a motion in limineor mo tion to bifurcate, plaintiff may arguethat the court should deny the motions andallow the jury to award noneconomic dam-ages. The plaintiffs likely will argue that thecourt should resolve the Prop. 213 issue bymeans of a second phase of trial before enter-ing judgment or even by way of a post-trialmotion for partial judgment notwithstandingverdict. The plaintiff may contend that pro-ceeding in such a manner would promotejudicial economy because, if the court rulesthat noneconomic damages should bestricken, a court of appeal can simply reinstatethe award in the event of reversal rather thanhaving to order a new trial on the noneco-nomic damages claim. These argumentsshould be rejected for two reasons.
First, trying the Prop. 213 issue in a secondphase of the trial after the admission of evi-dence of pain and suffering is contrary tothe public policy underlying Prop. 213, whichdictates that a jury should never hear evidenceregarding a plaintiff’s noneconomic damagesif the plaintiff was uninsured and cannototherwise establish financial responsibilityat the time of the accident. Moreover, theprejudice from admitting irrelevant evidencethat could potentially color the jury’s delib-erations on other issues cannot simply beundone on appeal by striking an award thatthe plaintiff should not have received in thefirst place based on evidence that should nothave been introduced.
Second, there is no procedural basis fordeferring submission of the evidence in sup-port of a motion in limine until the filing ofa motion for judgment notwithstanding ver-dict. This motion must be based on evidencepresented during trial; it cannot be based onevidence submitted with a motion for judg-ment notwithstanding verdict—and the plain-tiff presumably will not want the jury to hearevidence that he or she failed to have insur-ance in place at the time of the accident.
Until a California appellate court issuesa decision rejecting post-accident deposits asa basis for establishing financial responsibility,uninsured plaintiffs will continue to employthis tactic in their effort to recover noneco-nomic damages—often one of the largestcomponents of a personal injury plaintiff’sverdict. Defense counsel should therefore beprepared to challenge these noneconomicdamages claims by employing the appropriatearguments and procedures. n
1 Enacted as CIV. CODE §3333.4.2 VEH. CODE §§16000 et seq.3 SeeVEH. CODE §16021, which provides that “financialresponsibility” is established if the driver or owner ofthe vehicle involved in an accident is:
(a) A self-insurer under the provisions of thisdivision.(b) An insured or obligee under a form of insur-ance or bond that complies with the require-ments of this division and that covers the driverfor the vehicle involved in the accident.(c) The United States of America, this state,any municipality or subdivision thereof, or thelawful agent thereof.(d) A [cash] depositor in compliance with sub-division (a) of Section 16054.2.(e) An obligee under a policy issued by a char-itable risk pool that complies with subdivision(b) of Section 16054.2.(f) In compliance with the requirements autho-rized by the department by any other mannerwhich effectuates the purposes of this chapter.
See also VEH. CODE §16000.7, which provides that avehicle is deemed uninsured if the owner cannot estab-lish that some form of “financial responsibility” forthe vehicle was “in effect at the time of the accident.”4 Allen v. Sully-Miller Contracting Co., 28 Cal. 4th222, 225 (2002).5 Hodges v. Superior Ct., 21 Cal. 4th 109, 115, 117(1999).
Los Angeles Lawyer September 2017 29
6 Day v. City of Fontana, 25 Cal. 4th 268, 275 (2001);accord Allen, 28 Cal. 4th at 229; see Hodges, 21 Cal.4th at 116.7 Hodges, 21 Cal. 4th at 115.8 Yoshioka v. Superior Ct., 58 Cal. App. 4th 972, 983(1997).9 CIV. CODE §§3333.4(a)(2),(3). This article does notaddress other provisions of CIV. CODE §3333.4 pre-cluding recovery of noneconomic damages by driversconvicted of operating a motor vehicle while intoxi-cated.10 See VEH. CODE §16056.11 Goodson v. Perfect Fit Enters., 67 Cal. App. 4th508, 515 (1998).12 Ruttenberg v. Dep’t of Motor Vehicles, 194 Cal.App. 3d 1277, 1285 (1987).13 Anacker v. Sillas, 65 Cal. App. 3d 416, 422 (1976).14 Figueroa v. United States, No. CV 15-555-JFW(ASx), 2015 WL 11438605, at *3 (C.D. Cal. Dec. 9,2015) (emphasis in original). 15 Id. (emphasis in original).16 VEH. CODE §16020(a).17 VEH. CODE §16020(b)(1), (b)(2), (d).18 VEH. CODE §16025(a)(2).19 VEH. CODE §16028(a)-(c).20 See also VEH. CODE §§4750(e) (DMV must refusevehicle registration, renewal, or transfer absent evidenceof financial responsibility), 4000.37 (registrationrenewal requires evidence of insurance or cash deposit),and 4000.38 (vehicle registration suspended, canceled,or revoked absent proof of financial responsibility).21 See generally Bighorn-Desert View Water Agencyv. Verjil, 39 Cal. 4th 205, 218 (2006).22 See Yoshioka v. Superior Ct., 58 Cal. App. 4th 972,986 (1997).23 See Yamaha Corp. of Am. v. State Bd. of Equaliza -tion, 19 Cal. 4th 1, 7 (1998).24 DMV, CALIFORNIA DRIVER HANDBOOK 88 (2017),available at https://www.dmv.ca.gov/web/eng_pdf/dl600.pdf (last viewed June 29, 2017).25 Id.26 Id.; accord Important Facts About The CompulsoryFinancial Responsibility Law SR 104, DMV, availableat https://www.dmv.ca.gov (last viewed June 29, 2017)(citing VEH. CODE §§16054.2, 16056); Financial Re -spon sibility (Insurance) Requirements for VehicleRegistration (FFVR 18), DMV, available at https://www.dmv.ca.gov (last viewed June 29, 2017).27 Rios v. Cozens, 7 Cal. 3d 792, 794 (1972).28 See, e.g., VEH. CODE §§16020, 16021, 16054,16054.2, 16056.29 See, e.g., Tuolumne Jobs & Small Business Alliancev. Superior Ct., 59 Cal. 4th 1029, 1039 (2014); Metcalfv. County of San Joaquin, 42 Cal. 4th 1121, 1131(2008).30 CODE CIV. PROC. §437c(f)(1).31 Id.32DeCastro West Chodorow & Burns, Inc. v. SuperiorCt., 47 Cal. App. 4th 410, 419-23 (1996); see alsoHindin v. Rust, 118 Cal. App. 4th 1247, 1259-60(2004).33 DeCastro, 47 Cal. App. 4th at 419-23.34 Id.35 Id. at 419 (internal quotation marks omitted).36 Id. (internal quotation marks omitted). There isone exception to this rule, but it is of limited utilitybecause it requires a joint request and declarationsfrom both sides explaining how the motion will promotejudicial economy by decreasing trial time or increasingthe likeli hood of settlement. (See CODE CIV. PROC.§437c(t).)37 Hindin, 118 Cal. App. 4th at 1260 (citing DeCastro,47 Cal. App. 4th at 423).38 See EVID. CODE §400.39 EVID. CODE §405(a); see People v. Chapman, 50Cal. App. 3d 872, 879 (1975).
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32 Los Angeles Lawyer September 2017
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conventional ways for exiting a chapter 11 bankruptcy caseare: 1) confirmation of a plan of reorganization under which
the debtor’s prebankruptcy obligations are replaced and superseded by the terms of the plan,2) dismissal of the case, which results in the parties’ return to the status quo of their pre-bankruptcy positions, and 3) conversion to a chapter 7 case in which the trustee takes overcontrol and liquidates the assets of the debtor.1 In recent years, a fourth alternative knownas a “structured dismissal” has received increasing acceptance.2 In Czyzewski v. Jevic HoldingCorporation, on appeal from the Third Circuit, the U.S. Supreme Court recently addresseda situation in which the structure of the dismissal provided for payments skipping a class ofobjecting creditors in favor of more junior creditors.
The Court in Jevic examined whether bankruptcy courts have the power to approve thestructured dismissal of a chapter 11 bankruptcy case “that provides for distributions thatdo not follow ordinary priority rules without the affected creditors’ consent?”3 It held that“[o]ur simple answer to this complicated question is ‘no.’”4 The Court explained that “thequestion…[in Jevic] concerns the interplay between the priority rules of the BankruptcyCode (‘Code’) and dismissal of a Chapter 11 case.”5 The Court, however, declined toexpress an explicit view on structured dismissals in general, situations in which no creditoropposition is present, and/or cases in which priority skipping is not at issue.6
In a structured dismissal, the chapter 11 case is wound up with certain conditions attached,rather than simply dismissing the case and restoring the status quo ante. The Third Circuit’sopinion in Jevic,7 which was reversed, recognized that while the Bankruptcy Code does notexpressly authorize this procedure, “structured dismissals are simply dismissals that arepreceded by other orders of the bankruptcy court (e.g., orders approving settlements, grantingreleases, and so forth) that remain in effect after dismissal.”8 Moreover, under Section 349 ofthe Bankruptcy Code, dismissal ordinarily reinstates the prebankruptcy state of affairs, revestingproperty in the debtor and vacating orders of the bankruptcy court, unless “for cause” the
David S. Kupetz is a shareholder in SulmeyerKupetz PC. He is an expert in bankruptcy, business reor-ganization, restructuring, assignments for the benefit of creditors, and other insolvency solutions.
NOSKIPPINGALLOWED
Although Jevic does not address structured dismissalsgenerally, concern exists that expansion of the rulingmay undermine future bankruptcy court discretion
THE THREE
by DAVID S. KUPETZ
court orders otherwise.9 The Third Circuit,accordingly, found that “the [Bankruptcy]Code does not strictly require dismissal of aChapter 11 case to be a hard reset.”10
In contrast, the Supreme Court took amore restrictive view of the scope of Section349. It viewed a court’s discretion underSection 349 to be limited, finding that it only“appears designed to give courts the flexibilityto make the appropriate orders to protectrights acquired in reliance on the bankruptcycase.”11 It found no other authority in theBankruptcy Code for priority skipping dis-missals, stating:
Nothing else in the Code authorizes acourt ordering a dismissal to make gen-eral end-of-case distributions of estateassets to creditors of the kind that nor-mally take place in a chapter 7 liqui-dation or chapter 11 plan—let alonefinal distributions that do not help torestore the status quo ante or protectreliance interests acquired in the bank-ruptcy, and that would be flatly imper-missible in a chapter 7 liquidation ora chapter 11 plan because they violatepriority without the impaired creditors’consent. That being so, the word“cause” is too weak a reed upon whichto rest so weighty a power.12
Accordingly, the Court found the prior-ity-skipping aspect of the structured dismissalin Jevic to be highly problematic.
By way of background, “[a] business mayfile for bankruptcy under either Chapter 7or Chapter 11…. In Chapter 7, a trustee liq-uidates the debtor’s assets and distributesthem to creditors. In Chapter 11, the debtorand creditors try to negotiate a plan that willgovern the distribution of valuable assetsfrom the debtor’s estate and often keep thebusiness operating as a going concern.”13
The Bankruptcy Code’s statutory priorityscheme “ordinarily determines the order inwhich the bankruptcy court will distributeassets of the estate.”14 Secured creditors holdthe highest priority and are entitled to receivethe proceeds of the collateral that securestheir debt. Special classes of creditors, suchas administrative, wage, and tax claimants,come next in the priority waterfall. Belowthem are general unsecured creditors. Equityholders are at the bottom of the priority list.15
The Supreme Court emphasized that theBankruptcy Code’s priority system is a fun-damental underpinning of business bank-ruptcy law:
Distributions of estate assets at the termination of a business bankruptcynormally take place through a Chapter7 liquidation or a Chapter 11 plan,and both are governed by priority. InChapter 7 liquidations, priority is anabsolute command—lower priority
creditors cannot receive anything untilhigher priority creditors have been paidin full.…Chapter 11 plans providesomewhat more flexibility, but a pri-ority-violating plan still cannot be con-firmed over the objection of an impair -ed class of creditors.16
In chapter 7 liquidation cases, distributionsmust be made in the statutorily prescribedorder. The Court stressed that chapter 11“provides somewhat more flexibility for dis-tributions pursuant to Chapter 11 plans,which may impose a different ordering withthe consent of the affected parties. But abankruptcy court cannot confirm a plan thatcontains priority-violating distributions overthe objection of an impaired creditor class.”17
Chapter 11 Cases
In recent decades, an increasing percentageof chapter 11 cases have involved sales inwhich the debtor’s business is sold as a goingconcern or where all or substantially all ofthe assets of the estate are sold. This is accom-plished frequently through a streamlined saleprocess that commonly involves a stalkinghorse bidder identified by the debtor, overbidopportunity, and an auction if overbids arereceived. The sale procedures and the ultimatesale are presented to the court for approvalthrough a motion based on Section 363 ofthe Bankruptcy Code.18
The use of Section 363 to sell substantiallyall assets of a bankruptcy estate evolved overthe years from a disfavored approach to onethat is essentially routine—so long as somefinancial or business justification exists.Nonetheless, despite the significant develop-ment in the law of Section 363 sales, theCourt, in Jevic, cited the leading early appealscourt cases rejecting Section 363 sales as subrosa plans as apparent examples of improperattempts to “circumvent the BankruptcyCode’s procedural safeguards.”19
In the context of a Section 363 sale, inwhich sufficient net proceeds are generatedto pay all claims in full, a structured dismissalconditioning dismissal of the case on distri-bution of the sale proceeds to pay creditorclaims may be more cost effective and efficientthan distributing the proceeds through a liq-uidating chapter 11 plan. A structured dis-missal may provide the same benefits whenfollowing the sale little, if any, proceeds areavailable to pay unsecured creditors. Confirm -ing a chapter 11 plan generally involves amore complicated procedure.
Jevic, a trucking company, was acquiredby a private equity firm, Sun, in a leveragedbuyout financed by secured lenders, CIT.20
Two years after Sun’s buyout, Jevic com-menced its chapter 11 bankruptcy case.21
Jevic owed more than $53 million to its first-priority senior secured creditors and over
$20 million to its tax and general unsecuredclaimants. Moreover, two significant lawsuitswere brought in Jevic’s bankruptcy case.22
One lawsuit was brought by a group ofJevic’s terminated truck drivers based on allegedviolations of federal and state Worker Adjust -ment and Retraining Notification (WARN)acts. The second lawsuit, a fraudulent transferaction, was brought by the official unsecuredcreditors committee. It alleged that Sun, facil-itated by CIT, “acquired Jevic with virtuallynone of its own money based on baseless pro-jections of almost immediate growth andincreasing profitability.”23 The committeealleged that the leveraged buyout had saddledJevic with debt and led to Jevic’s bankruptcyas “the foreseeable end of a reckless courseof action in which Sun and CIT bore no riskbut all other constituents did.”24
Three years after the fraudulent transferlawsuit was initiated, all the major playersin the case met to attempt to negotiate a set-tlement. By then, the only remaining assetsin the bankruptcy estate were $1.7 millionin cash (subject to Sun’s lien) and the fraud-ulent transfer lawsuit. Jevic’s tangible assetshad been liquidated. The lack of estate fundsto finance litigation, the risks, uncertainty,and anticipated length of the litigation ledthe committee to conclude that a settlementresulting in a modest distribution to unsecuredcreditors would be desirable.25
A settlement agreement was entered intoby the committee, Jevic, Sun, and CIT thatprovided for: 1) the dismissal of the fraudulenttransfer action and the release of claimsbetween the parties, 2) CIT’s payment of $2million into an account earmarked for pay-ment of Jevic’s and the committee’s legal feesand other administrative expenses, 3) Sun’sassignment of its lien on Jevic’s remainingcash to a trust, which would pay tax andadministrative creditors first and then generalunsecured creditors on a pro rata basis, and4) the dismissal of the chapter 11 case inaccordance with this structure.26
There was a problem, however, since thesettlement left out the drivers. Further, thedrivers’ claim was estimated at $12.4 million,with $8.3 million entitled to treatment as apriority wage claim. The drivers and the U.S.Trustee objected to the settlement and dis-missal primarily on the basis that it distributedproperty of the estate to creditors of lowerpriority than the drivers. The U.S. Trusteealso contended that the Bankruptcy Codedoes not permit structured dismissals.27
Court Decisions
In approving the structured dismissal, thebankruptcy court found that there was noprospect of a confirmable chapter 11 planin the case and that conversion to chapter 7was not a feasible alternative. Accordingly,
34 Los Angeles Lawyer September 2017
either continuing in chapter 11 or convertingto chapter 7 would be a bridge to nowhere.28
The drivers appealed the bankruptcycourt’s ruling to the district court, whichexplained the standard of review to be applied:“In undertaking a review of the issues onappeal, the court applies a clearly erroneousstandard to the bankruptcy court’s findingsof fact and a plenary standard to that court’sconclusions [of law].”29 The district courtfurther stated that it “must accept the bank-ruptcy court’s finding of historical or narrativefacts unless clearly erroneous,” and that
“[a]ppellants largely do not contest the bank-ruptcy court’s factual findings.”30 The findingsregarding the WARN litigation were that itwas in its early stages, would be lengthy andexpensive, with no certainty of success, andthat the bankruptcy estate had insufficientfunds to support any litigation.31 Moreover,the bankruptcy court had found that the dri-vers’ claims were effectively worthless sincethe estate lacked unencumbered funds to payand that, in contrast, the settlement offeredthe prospect of a meaningful distribution tounsecured creditors, recognizing that nothingwas provided for the drivers whom the bank-ruptcy court found had “opted out” of thesettlement.32 The bankruptcy court also foundthat the settlement funds were indisputablyCIT’s collateral, and while recognizing thefraudulent transfer litigation existed, foundthe committee lacked resources to pursueit.33 The district court did not conclude thatany of the bankruptcy court’s findings wereclearly erroneous.
The district court determined that the pri-ority skipping structure of the dismissal didnot constitute an insurmountable impediment,stating that “[a]s discussed by the bankruptcycourt, the settlement does not follow theabsolute priority rule. However, this is not abar to the approval of the settlement as it isnot a reorganization plan.”34 Instead, thedistrict court found that the structured dis-missal satisfied the criteria for approval of acompromise under Bankruptcy Rule 9019and was properly found to be fair and equi-table.35
On appeal, the Third Circuit found thatthe structure of the dismissal must be fairand equitable and stated that compliance
with the priorities of the Bankruptcy Codewill “usually be dispositive of whether a pro-posed settlement is fair and equitable.”36 Itrecognized that “[s]ettlements that skip object-ing creditors in distributing estate assets raisejustifiable concerns about collusion amongdebtors, creditors, and their attorneys andother professionals.”37
The Third Circuit explained that struc-tured dismissals devised by certain creditorsto increase their recovery at the expense ofother creditors are not fair and equitable.38
Accordingly, it held that bankruptcy courts
can only approve structured dismissals thatdeviate from the priority scheme of theBankruptcy Code when specific and crediblegrounds justify the deviation.39 As such, “itsuffices to say that absent a showing that astructured dismissal has been contrived toevade the procedural protections and safe-guards of the plan confirmation or conversionprocesses, a bankruptcy court has discretionto order such a disposition.”40
Concluding that bankruptcy courts havethe power to approve structured dismissals,the Third Circuit next considered whetherthe structure can skip a class of objectingcreditors in favor of more junior creditors.It held that the structure of the dismissalmust be fair and equitable and stated thatcompliance with the priorities of the Bank -ruptcy Code will usually be dispositive ofwhether a proposed settlement is fair andequitable.41 The Third Circuit found the caseto be a “close call” and the structured dis-missal, under the circumstances, to be “theleast bad alternative.”42 While regrettablethat the drivers were excluded, it explainedthat if settlements were required to be perfect,they would seldom be approved.43
Based on the record, the Third Circuitfound Jevic to be a rare case in which a pri-ority-skipping structured dismissal settlementunder Bankruptcy Rule 9019 should beupheld.44 It recognized that settlements arefavored in bankruptcy and found that bank-ruptcy courts have more discretion in approv-ing settlements than chapter 11 plans.45
Importantly, the Third Circuit found thatthis was a case of “no harm, no foul” in that“[t]he Bankruptcy Court, in Solomonic fash-ion, reluctantly approved the only course
that resulted in some payment to creditorsother than CIT and Sun.”46
In reversing, the Supreme Court declinedto express any view regarding the legality ofstructured dismissals in general.47 It implicitlyacknowledged them to be appropriate whencreditors consent. It also acknowledged thatit is standard practice to violate ordinary pri-ority rules during the course of chapter 11cases with, for example, “first-day” wageorders, “critical vendor” orders, and “roll-ups” in debtor-in-possession financing.48 Yetthese types of out-of-priority distributionsare found necessary to enable successful reor-ganization and benefit even disfavored cred-itors.49 Moreover, the Court emphasized theinterim nature of such relief and distinguishedthe Second Circuit’s decision in In re IridiumOperating LLC50 as approving “an interimdistribution of settlement proceeds to funda litigation trust that would press claims onthe estate’s behalf.”51 In contrast, the prior-ity-violating distribution under the Jevic struc-tured dismissal was a final disposition thatdid not benefit the drivers.
The Supreme Court found fatal flaws inthe Third Circuit’s analysis:
In a structured dismissal like the oneordered below, the priority-violatingdistribution is attached to a final dis-position; it does not preserve the debtoras a going concern; it does not makethe disfavored creditors better off; itdoes not promote the possibility of aconfirmable plan; it does not help torestore the status quo ante; and it doesnot protect reliance interests. In short,we cannot find in the violation of ordi-nary priority rules that occurred hereany significant offsetting bankruptcy-related justification.52
The Court also rejected the findings ofthe bankruptcy court that: 1) without thedriver-skipping settlement, there would beno settlement, 2) the settlement was the onlymeans for any recovery by any unsecuredcreditors, and 3) the drivers were not harmedsince they would receive nothing under anyscenario.
Reasonable Possibility
Instead, the Court found that a settlementarrangement with the drivers respecting ordi-nary priorities remained a reasonable possi-bility.53 It also found that the fraudulent trans-fer litigation against CIT and Sun might beviably pursued, that is, either the case couldbe converted and a chapter 7 trustee couldpursue the litigation using contingency counselor the case could be dismissed without stringsattached and unsecured creditors, includingthe drivers, could pursue the claims in statecourt.54 “Consequently, the Bank ruptcy Court’s approval of the structured dismissal
Los Angeles Lawyer September 2017 35
There was a problem, however, since the settlement
left out the drivers. The dri vers and the U.S. Trustee
objected to the settlement and dismissal primarily
on the basis that it distributed property of the estate
to creditors of lower priority than the drivers.
cost [the drivers] something. They lost achance to obtain a settlement that respectedtheir priority. Or, if not that, they lost thepower to bring their own lawsuit….”55
In addition to rejecting the underlyingfindings of the bankruptcy court, the Courtfound that the Third Circuit’s rare case lim-itation would prove to be illusory and threat-ened to warp into a more general rule.56
Moreover, the Court found the consequencesof allowing priority-skipping structured dis-missals to stand would depart from protec-tions Congress granted to particular classesof creditors (e.g., employee wage priority)and create risks of collusion and uncertaintymaking settlements more difficult to accom-plish.57 As a result, the Court struck downthe Third Circuit’s limited approval of non-consensual priority-violating structured dis-missals in “rare cases.”
Focusing on the importance of the Bank -ruptcy Code’s priority system and its perceivedsilence regarding structured dismissals, theCourt stated “we would expect to see someaffirmative indication of intent if Congressactually meant to make structured dismissalsa backdoor means to achieve the exact kindof nonconsensual priority-violating final dis-tributions that the Bankruptcy Code prohibitsin Chapter 7 liquidations and Chapter 11plans.”58 Finding no such indication and thelack of “any significant offsetting bankruptcy-related justification,” the Court rejected theviolation of ordinary priority rules througha structured dismissal.59
Minority Opinion
The dissent authored by Justice Thomas andjoined by Justice Alito characterized Jevic asinvolving a “novel and important questionof bankruptcy law.”60 The dissent lamented,however, as follows:
Unfortunately, it [the majority] doesso without the benefit of any reasonedopinions on the dispositive issue fromthe courts of appeals (apart from theCourt of Appeals’ opinion in this case)and with briefing on that issue fromonly one of the parties. That is because,having persuaded us to grant certiorarion one question, petitioners chose toargue a different question on the mer-its. In light of that switch, I would dis-miss the writ of certiorari as improv-idently granted.61
Certiorari had been entered to decide“[w]hether a bankruptcy court may authorizethe distribution of settlement proceeds in amanner that violates the statutory priorityscheme.”62 After certiorari was granted, thedrivers recast and narrowed the question pre-sented to “[w]hether a Chapter 11 case maybe terminated by a ‘structured dismissal’ thatdistributes estate property in violation of the
Bankruptcy Code’s priority scheme.”63
The dissent was offended by this “bait-and-switch” tactic.64 While both questionsinvolved priority-skipping distributions, therecast, narrower question was cited by thedissent as being different from the issue forwhich certiorari was granted and not thesubject of a circuit conflict.65 Accordingly,the dissent would have avoided ruling on themerits and dismissed the appeal.
Consequences
Shortly following the Court’s decision inJevic, a bankruptcy court in Tennessee, in Inre Fryar,66 considered the ramifications ofJevic in addressing a proposed settlementthat included a sale in the course of a chapter11 case. The Fryar court characterized theJevic ruling as follows:
The United States Supreme Courtrecently accepted certiorari on thisissue [the employment of settlementsto avoid the distribution priority re -quirements of the Code], but opinedon a more specific question involvingthe approval of a structured dismiss -al which did not follow the Code’s priority distribution.…The SupremeCourt held that bankruptcy courtsmay not approve structured dismissalsthat provide for distributions that donot follow ordinary priority rules with-out the consent of affected creditors.67
The Fryar court quoted the Court’s dictathat “acknowledged that there are instanceswhere interim distributions that violate theordinary priority rules have been approved.”68
Next, it found that the proposed settlementprovided for a distribution that violated theordinary priority rules.69 Nevertheless, thecourt stated that “[t]his might be acceptableif all of the creditors were consenting….”70
They were not.71 Accordingly, the court, apply-ing Jevic, turned to considering “whetherthere are Code-related objectives being servedthat are so significant that deviation [fromordinary priority rules] is justified.”72
The Fryar court put the circumstances ofthe proposed settlement into context that ledit to conclude the reorganization case wasdoomed,73 and stated:
The court’s review of the facts in thiscase leads it to conclude that this set-tlement is more of a preamble to aconversion or structured dismissal thanit is to the situation in Iridium, wherethere was a reorganization anticipated.The Debtor has failed to prove thatdisregard of the priority scheme willpromote “a significant Code-relatedobjective.” Jevic, 137 S. Ct. at 985.As with the situation in Jevic, this casemore closely resembles the proposedtransactions that lower courts have
refused to allow on the ground thatthey circumvent the Code’s proceduralsafeguards. Id. at 986.74
Expanding the ruling in Jevic beyondstructured dismissals to settlements in gen-eral, the Fryar court explained that, in lightof Jevic, settlements that provide for distri-bution different from the Bankruptcy Code’spriority scheme must not only be fair andequitable, but must also be supported by asignificant Bankruptcy Code-related objectivejustifying the deviation, stating that “[t]heproposed settlement should state that objec-tive, such as enabling a successful reorgani-zation or permitting a business debtor toreorganize and restructure its debt in orderto revive the business and maximize thevalue of the estate. The proposed settlementshould state how it furthers that objectiveand should demonstrate that it makes eventhe disfavored creditors better off.”75 It foundno such significant objective to be presentand denied the debtor’s motion to approvethe settlement.
Prior to the Supreme Court’s decision inJevic, bankruptcy practitioners and commen-tators were concerned that the Court mightaddress more than priority-skipping struc-tured dismissals. But the Court’s relativelynarrow ruling may alleviate some of theseconcerns. Jevic can be viewed as limited tostructured dismissals involving priority-skip-ping in which creditor consent is lacking. Asthe Court recognized, bankruptcy courts fre-quently authorize payments that do not followthe ordinary priority scheme in order to: 1)avoid potentially devastating disruption inthe reorganization effort, 2) advance the goalof successful reorganization, and/or 3) max-imize the value of the estate for the benefitof all creditors.
Even though the Court did not explicitlyventure beyond the interplay between priorityrules and dismissal of a chapter 11 case, con-cerns persist that the scope of the Court’sruling may be expanded. Such an expansioncould undermine necessary bankruptcy courtdiscretion with regard to settlements in gen-eral, unopposed structured dismissals thatinclude priority-skipping, structured dis-missals with no priority-skipping involved,and/or interim distributions authorized duringchapter 11 cases to avoid harm to the reor-ganization process and advance the goal ofreorganization and/or maximization of thevalue of the estate. n
1 Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973,979 (2017).2 Id.3 Id. at 983.4 Id.5 Id. at 979.6 Id. at 985.7 Official Committee of Unsecured Creditors v. CIT
36 Los Angeles Lawyer September 2017
Group/Business Credit Inc., et al. (In re Jevic HoldingCorp.), 787 F. 3d 173 (3rd Cir. 2015).8 Id. at 181.9 11 U.S.C. §349.10 In re Jevic Holding Corp., 787 F. 3d at 181.11 Jevic, 137 S. Ct. at 984 (citing H. R. Rep. No. 95-595, at 338 (1977) and Wiese v. Community Bank ofCentral Wis., 552 F. 3d 584, 590 (7th Cir. 2009)).12 Jevic, 137 S. Ct. at 984-85 (citing United Sav. Ass’nof Tex. v. Timbers of Inwood Forest Associates, Ltd.,484 U.S. 365, 371 (1988); Kelly v. Robinson, 479U.S. 36, 43 (1986); and In re Sadler, 935 F. 2d 918,921 (7th Cir. 1991)).13 Jevic, 137 S. Ct. at 978.14 Id. at 979.15 Id.16 Id. at 983.17 Id.18 11 U.S.C. §363.19 Jevic, 137 S. Ct. at 986 (citing In re Braniff Airways,Inc., 700 F. 2d 935, 940 (5th Cir. 1983); In re LionelCorp., 722 F. 2d 1063, 1069 (2nd Cir. 1983); In reBiolitec, Inc., 528 B. R. 261, 269 (Bankr. N.J. 2014);cf. In re Chrysler LLC, 576 F. 3d 108, 118 (2nd Cir.2009), vacated as moot, 592 F. 3d 370 (2nd Cir. 2010)(per curiam)).20 Jevic, 137 S. Ct. at 980. The Court, at some length,explains the typical structure of a leveraged buyoutand the risk that the deal may sour, descend into bank-ruptcy, and subsequently be attacked as a fraudulenttransfer enriching equity holders and lenders at theexpense of unsecured creditors. It states that this iswhat happened in Jevic. Id.21 Id.22 Id.23 In re Jevic Holding Corp., 787 F. 3d 173, 176 (3rdCir. 2015).24 Id.25 Id.26 Jevic, 137 S. Ct. at 981.27 In re Jevic, 787 F. 3d at 177-78.28 On appeal from the bankruptcy court, the districtcourt, in Jevic, stated that “[t]he factual backgroundis largely undisputed and is taken from the UnitedStates Bankruptcy Court for the District of Dela -ware’s…oral order dated November 28, 2012 andsupplemented by the parties’ briefing.” Czyzewski v.Jevic Holding Corp. (In re Jevic Holding Corp.), No.13-104-SLR, 2014 U.S. Dist. LEXIS 8813, *3-4, n.1(D. Del. 2014). 29 Id. at *8.30 Id. at *8-9 (internal quotations and citations omit-ted).31 Id. at *10.32 Id. at *10-11.33 Id. at *11-12.34 Id. at *12 (footnote and citations omitted). Thedistrict court held that it had no reason to questionthe bankruptcy court’s conclusion that there was noprospect of a confirmable plan. Id. at *13.35 Fed. R. Bank. P. 9019.36 In re Jevic Holding Corp., 787 F. 3d 173, 184 (3rdCir. 2015). (citing In re Iridium Operating LLC, 478F. 3d 452, 455 (2nd Cir. 2007)).37 In re Jevic, 787 F. 3d at 184.38 Id.39 Id. (citing In re Iridium Operating LLC, 478 F. 3dat 466).40 In re Jevic, 787 F. 3d at 182.41 Id. at 184.42 Id. at 184-85.43 Id. at 185.44 Id. at 186.45 Id. at 185.46 Id. (no support in the record for the propositionthat a viable alternative existed that would have better
served the estate and the creditors as a whole).47 Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973,985 (2017) (“[w]e express no view about the legalityof structured dismissals in general.”)48 Id.49 Id.50 In re Iridium Operating LLC, 478 F. 3d 452 (2ndCir. 2007).51 Jevic, 137 S. Ct. at 985 (emphasis in original).52 Id. at 985-86.53 Id. at 983 (“the record…makes clear…that Suninsisted on a settlement that gave petitioners [drivers]nothing only because it did not want to help fundpetitioner’s WARN lawsuit against it.…But, Sun hasnow won that lawsuit.…If Sun’s given reason foropposing distributions to petitioners has disappeared,why would Sun not settle while permitting some ofthe settlement money to go to petitioners?”).54 Id.55 Id.56 Id. at 986.57 Id. at 986-87.58 Id. at 984.59 Id. at 986-87.60 Id. at 987.61 Id.62 Id. There was an identified circuit split on this issue.See In re AWECO, Inc., 725 F. 2d 293, 298 (5th Cir.1984) and In re Iridium Operating LLC, 478 F. 3d452, 464 (2nd Cir. 2007).63 Jevic, 137 S. Ct. at 987.64 Id. at 988.65 Id.66 In re Fryar, 2017 Bankr. LEXIS 1123 (Bankr. E.D.Tenn. 2017).67 Id. at *12.68 Id.
69 Among other things, the proposed settlementinvolved a sale free and clear of an Internal RevenueService lien, without the lien attached to the sale pro-ceeds, and the payment of one unsecured creditorahead of other parties with priority and other unsecuredcreditors. Id. at *1-2, 8-9, and 13-14.70 Id. at *14.71 Three creditors and the U.S. Trustee objected. Id.72 Id.73 The court explained:
This settlement is not part of a “first day”order to ensure the Debtor’s survival to get toa plan. This case has been here for eight monthsand was filed on the heels of prior chapter 11which was dismissed for failure to propose aplan. At the initial hearing on the motion, thecourt asked counsel whether there were otherproperties which would provide an incomestream to fund a plan and pay unsecured cred-itors, but the Debtor and the U.S. Trustee bothcontended there was very little income in thecase and that funding would have to comefrom the liquidation of assets. The court ishard pressed to determine what businessremains to be revived or reorganized. This isan individual chapter 11 in which the Debtorsought settlement approval on the basis thathe believes he can provide the same 53% div-idend to all unsecured creditors. Under thelaw in the Sixth Circuit, an individual maynot retain anything in a chapter 11 unless eachclass of creditors consent or are paid 100%.…The Debtor has not provided any proof thatthe objecting creditors would support a planif they were paid 53%. Id. at *14-15.
74 Id. at *15.75 Id. at *16-17.
Los Angeles Lawyer September 2017 37
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38 Los Angeles Lawyer September 2017
AN ENDURING INCONGRUITY of Amer -icans—and perhaps all humanity—is thesimultaneous desire to harshly punishcriminals coupled with the absolute,unwavering fascination to hear, read,and discuss every lurid detail of the mostheinous of criminal acts. In Trials of theCentury: A Decade-by-Decade Look atTen of America’s Most SensationalCrimes, authors Mark J. Phillips andAryn Z. Phillipsanalyze “trials ofthe century”throughout thetwentieth century,juxtaposing theconsistent collec-tive public senti-
ment that a criminal defendant is—withoutdoubt!—guilty and should be swiftly andseverely punished against that same public’svoracious consumption of every tidbit of newsabout the crime: the participants, witnesses,victims, law enforcement, jurors, judges, andadvocates.
There is no real definition of a “trial of the century.” It is a labelthe media proclaims over a high-profile court case. The Phillipsesdescribe a trial of the century as “an overblown, overused bit ofmedia hype so frequently used to label high-profile murder trials,the frequency and selection of which are limited only by the prurienttaste of Americans, and the imagination of the editors.” (p. 15.)They note that we have a trial of the century in America at a rate ofabout one per decade.
Thus, each chapter of the book focuses on a trial of the centuryfor every decade of the twentieth century, from the trial of HenryK. Thaw that commenced January 23, 1907, to the trial in ThePeople v. O.J. Simpson that commenced January 23, 1995. Thereis even an epilogue covering the first trial of the century of thetwenty-first century: the Casey Anthony trial. The authors notethat each case is different in crime, character, and context, but“alike in telling ways.” (p. 16.)
Each chapter of the book provides a detailed background on thetime period, a description of the crime narrative, events of the trial,and a description of the aftermath of the case. The chapters alsofeature in-depth discussion of the media’s activity and involvementas well as public reaction. A wonderful feature of the book is thatthe authors do a very good job of identifying the connection betweenthe themes and personalities of the case with the themes of the timeperiod in which the case occurred. Additionally, each chapter highlightsquite clearly the involvement of the press in the case, including pro-
viding the number of articles that a particular paper wrote, the cir-culation of the newspapers—The Los Angeles Times, for example,wrote nearly 1,000 articles on the Simpson case, including 398 onthe front page—TV viewership numbers, and the like.
The strand of similarity among these 10 cases is three-fold: thesignificance of the crime at hand, the inquisitive press that fuels thepublic’s interest in the case, and the public’s consistent reaction toprejudge the defendant’s guilt and concomitant demand for swiftjustice (in the form of punishment, of course). The thesis of the bookis a little hard to tease out, though, because the authors devote a
great deal of space to setting up the background of the time period,describing the people involved in the crime, laying out the crimenarrative, and chronicling the trial, leaving little room to developtheir argument.
Despite that challenge, the book appears to have two theses.The more dominant one is identified right in the introduction—thepress plays an important role in ensuring that the court systemoperates in “a fair, even-handed manner,” but an unrestrained pressneeding to sell newspapers and advertisements will “so inflame acommunity that the environment becomes toxic, inhospitable to afair judicial process.” (p. 14.) Regarding the media frenzies thatalways accompany these high-profile trials, the secondary thesisaddresses whether the press manufactures the deep, abiding interestamong the public through its hype machine or whether the press ismerely delivering what the public demands. While not perfectlyclear, it seems that the authors argue that the public’s passion forthese cases is fueled by the press.
There is somewhat of an irony about this book in that while it is critical of the media hype of these trials of the century, it is a very product of, and benefits from, that hype. There is no Trials ofthe Century book without decades of media-fueled trials of the century.
by the book REVIEWED BY THOMAS H. VIDAL
A wonderful feature of the book is that the authors do a very
good job of identifying the connection between the themes and
personalities of the case with the themes of the time period in
which the case occurred.
Thomas H. Vidal is a partner in Pryor Cashman’s litigation, media and enter-tainment, intellectual property, and technology groups. He also serves as amember of the Los Angeles Lawyer editorial board.
Trials of the Century: A Decade-by-Decade Look at Ten ofAmerica’s Most Sensational Crimes
By Mark J. Phillips & Aryn Z. PhillipsPrometheus Books, 2016$19.00, 340 pages
Los Angeles Lawyer September 2017 39
Looking at the criticisms of Trials of theCentury, there are three. First, for a bookabout trials of the century, the chronicles ofthe trials are rather sparse; instead the back-ground and narrative of the crime receivemore attention. To focus more on the trials,the same narrative might have been drawnout by reliance on the events in the trial. Onthe other hand, the authors do a superb jobof focusing on the elements in each trial thatwere of greatest impact to the outcome ofthe case.
Second, each chapter focuses on the facts,circumstances, results, and aftermath of thetrial under consideration, but does not domuch to develop the authors’ theses. Thechapters are rich with detail but provide lessin the way of an argument as to whether thetrial-of-the-century concept is harmful, help-ful, or a combination of the two. Neitherdoes it make any argument as to whetherthe trial-of-the-century media frenzy shouldbe changed or whether it even could bechanged.
Finally, without a deeper tie-in to theauthors’ theses, the book is just anotheraccount of 10 trials that have already receiveda great deal of commentary. There is littleadditional insight into the trials, the media,or human nature that adds a deeper level ofunderstanding into the relationship and inter-play among the public, the press, the courtsystem, the (alleged) criminals, and the vic-tims.
These criticisms speak to the extras thatPhillips and Phillips could have done withTrials of the Century to make it really standout among the true-crime literature; however,the criticisms do not diminish what is still agood book. Each of the 10 chapters is a con-cise synthesis of a massive body of work thatsurrounds the particular case under consid-eration. In but a few pages the authors areable to consolidate a remarkable amount ofinformation while presenting the key issues,questions, and concepts at issue in each case.Anybody reading this book will be thoroughlyfluent in each of the cases that are describedin its pages.
The authors are deft in drawing the nar-ratives. Each chronicle is well placed, sus-penseful (which is saying a lot for a readerwho knew most of these cases), and enjoyableto read. The O.J. Simpson chapter is partic-ularly impressive in how it condenses one ofthe most written-about trials of all time intoone concise chapter.
While there are a few criticisms of theTrials of the Century, it is still a good, enjoy-able read. With engaging narratives, colorfulcharacters, and great information on theinvolvement of the media and the public,Los Angeles Lawyer readers will likely enjoythis book. n
40 Los Angeles Lawyer September 2017
DUE TO THE MULTICULTURAL NATURE OF CALIFORNIA, chances arepretty high that most lawyers who practice in the Golden State haveworked with a court interpreter at some point during their careers—or sooner or later will work with one. In spite of this, in almostdaily interactions with attorneys, my colleagues and I find that thereare misconceptions and misinformation about the court interpretingprofession.
One of the most important things to be aware of when workingwith an interpreter is that California law mandates the use of certifiedcourt interpreters for court proceedings, including depositions.1 Statecourt certification from the Judicial Council of California is attainedby passing an examination that tests bilingual proficiency, the threemodes of interpretation,2 and specialized terminology, legal termsobviously being of paramount importance.
California currently has certified court interpreters in the followinglanguages: American Sign Language, Arabic, Armenian (Eastern andWest ern), Cantonese, Farsi, Japanese, Khmer, Korean, Mandarin,Portuguese, Punjabi, Russian, Spanish, Tagalog and Vietnamese. Span -ish is by far the language with the greatest number of certified courtinterpreters while Mandarin is next.3
Court interpreters for all other languages are registered since, unliketheir certified peers, they were not required to pass an examinationthat tests the areas covered in the certification examination. Somecourt interpreters currently deemed registered have never even beentested on their alleged bilingual proficiency. The issue, howevertroubling, does not seem to be something California officials are tryingto address.
Creating examinations to certify interpreters for languages thatcurrently require only registration and hiring qualified professionalsto grade them would be an expensive endeavor, particularly whenthere may not be enough applicants to cover the costs. One possiblesolution may be to explore partnering with other states to offer anationwide examination to certify languages that currently have nocourt certification, but for now the status quo remains with onemajor exception: Farsi, which had for years been a registered languageand has recently been changed to require certification. However,not all registered court interpreters for Farsi have passed the newexamination, which has resulted in both certified and registeredcourt interpreters for Farsi statewide, at least for a while.
Two other types of certification for interpreters also exist inCalifornia. One is administrative, from the State Personnel Board,which qualifies an interpreter to interpret for administrative proceedings,for example a workers compensation hearing. The other type of certi -fication is medical, which is exclusively for medical evaluations. Theexamination for administrative certification is no longer offered inCalifornia, and medical certification is obtained by passing the exami -nation offered by the National Board for Certification of MedicalInterpreters or the Certification Commission for Healthcare Interpreters.
A certified court interpreter in California is deemed qualified tointerpret in the administrative and medical fields in addition to the
judicial arena. However, administrative and/or med ical interpretingcredentials do not qualify an interpreter to interpret for court pro-ceedings, including depositions for a case filed in superior court. Yetit happens all too often. Even interpreters with no credentials whatsoeverare found to be interpreting in court, as well as in administrative ormedical settings—an unfortunate reality akin to an individual’s practicinglaw without a license. As long as the legal requirements regardinginterpretation remain a nebulous concept, this situation will remainunchanged and could even backfire on unsuspecting attorneys bybeing used as grounds for an appeal.
Federal court certification—deemed the highest level of certificationdue to the difficulty of the examination—is offered by the AdministrativeOffice of the U.S. Courts and is currently available only in Spanish,Haitian Creole, and Navajo.4 The Administrative Office does not pub -lish a list of its certified interpreters, but its recently released list ofsuch interpreters can be found on the National Association of JudiciaryInterpreters and Translators website.5
Verification of federal court certification credentials, unlike thosefor the state, is not available online to the public unless the interpretersin question contract with the local district court. Petitions to theAdministrative Office of the U.S. Courts to remedy this have so farbeen unsuccessful.
Raising the matter of interpreted proceedings in law schools wouldbe an exceptionally good way to introduce future lawyers to thestatutes that apply to this field and adequately prepare them by creatingawareness of the rules of the court that should be followed wheneveran interpreter is used for a court proceeding. For example, is it appro-priate for an interpreter not to interpret if the person testifying answersanyway after his attorney or the judge instructed him not to? Areinterpreters bound by attorney-client privilege? Is it a conflict of interestif the interpreter works for the defense for the preparation of the caseand later interprets for the prosecution’s witnesses? Should an interpreterinterpret something that a witness says in English? Should an interpreter,like all other parties in a case, avoid interacting with jurors? Theanswers to these and other questions might surprise you. n
1 GOV’T CODE §§68560.5, 68561. Court certification or registration can be verifiedonline at Search for an Interpreter, California Courts, available at http://www.courts.ca.gov/3796.htm (last viewed July 24, 2017).2 Simultaneous, Consecutive, and Sight Translation.3 See Court Interpreters Program, California Courts, available at http://www.courts.ca.gov (last viewed July 24, 2017).4 SeeCertified interpreters, Interpreter Categories, U.S. Courts, available at http://www.uscourts.gov (last viewed Aug. 3, 2017) 5 See Public Release Roster of Federally Certified Court Interpreters, available athttps://najit.org/wp-content/uploads/2017/07/Federally-Certified-Court-Interpreters-FCCIs-Public-Release-Roster.pdf (last viewed Aug. 3, 2017).
closing argument BY MARIANA BENSION-LARKIN
The Mandate for Certified Court Interpreters
Mariana Bension-Larkin is a California and federally certified court interpreterin Spanish and president of the Association of Independent Judicial Interpretersof California.
