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California, Particularly Los Angeles and Humboldt Counties

California has a history of wacky consumer class actions that further encourages plaintiffs’ lawyers to sieze on minor missteps as a means to lots of cash. And though state voters passed an initiative attempting to rein in this kind of litigation in 2004, it remains big business for certain California plaintiffs’ lawyers. Two such class actions in 2010 made headlines, including one in Orange County that claimed certain olive oil labeled as “extra virgin” is not extra virgin enough, and another that challenges Apple’s claim that “reading on the iPad is just like reading a book.”

Thankfully, at least some judges have resisted these shameless lawsuits, often filed primarily to benefit the lawyers who concoct them. For example, a California appellate court, for the second time, rejected a class action challenging a claim that using Listerine is as “effective as flossing.” It did so because most of the 34 different Listerine mouthwash labels never included any such statement, commercials making such claims ran only sporadically, and therefore most people who purchased Listerine during the six-month period at issue did so not because of any allegedly deceptive conduct, but more likely because they were brand-loyal customers or for other reasons. A federal judge in California also threw out a class action challenging I Can’t Believe It’s Not Butter’s claim that it is “made from a blend of nutritious oils,” finding the “plaintiff ’s complaint implausible on its face.”

California, with a not coincidentally high unemployment rate, also remains the site of predatory lawsuits against small business owners premised on technical violations of disability access requirements. For instance, Scott Johnson filed more than 1,000 Americans with Disabilities (ADA) access lawsuits since 2003 in the Eastern District of California. His average settlement is $4,000 to $6,000, primarily from restaurant owners. Such results stem from a California state law that effectively provides the right to seek damages for technical violations of ADA architectural guidelines, a right not afforded by the federal law itself. Johnson isn’t the only one filing such suits. A relatively small number of California attorneys have made a livelihood of such litigation, making claims that range from the lack of a restroom grab bar to a restaurant chair temporarily blocking an aisle. Such shakedown lawsuits take a harsh toll on small businesses, even when business owners do all they can to quickly address accessibility issues.

In a real blow to the California civil justice system, the state’s highest court rendered meaningless an earlier ruling that prohibited state and local officials from hiring private lawyers to represent the government on a contingency fee basis. In its prior ruling, which governed since 1985, the court properly understood that attorneys who work on behalf of the government to enforce the law have an obligation to seek justice, not to maximize their profit.  The new ruling clears the way for more pay-to-play arrangements by which plaintiffs’ law firms with political connections pitch speculative, yet potentially lucrative, lawsuits to the government in exchange for a percentage of the state’s recovery.

In addition to this California Supreme Court ruling, two state appellate courts issued particularly unsound decisions. Rather than requiring the defendant to compensate the plaintiff the amount actually paid to the doctor for the plaintiffs’ medical care, the courts awarded the plaintiffs the sticker-price value of the care. Some refer to these overpayments as “phantom damages” because neither the insurer nor the patient ever paid this extra amount. It’s like refunding a person who buys a defective car the full manufacturer’s Suggested Retail Price even though various promotional discounts and cash back incentives reduced his final price considerably. Phantom damages, which can amount to over a hundred thousand dollars in a single case, drastically drive up the cost of health care. Under the “collateral source rule,” juries are not allowed to consider how much the plaintiff paid for treatment or the reasonable value of the medical services. The California Supreme Court is currently considering the issue.

Los Angeles

In a reminder about why Los Angeles courts had earlier earned a collective reputation as “the bank,” a jury in late April 2010 awarded $200 million in punitive damages, on top of $8.8 million in compensation, in an asbestos case. Such punishment makes little sense when one considers the city’s power and water authority, which was held liable for one-third of the award, stopped selling asbestos-containing products 18 years ago, and all of the company officials there at the time are long gone. And punitive damages are rare in such cases because, four and five decades ago, people were not aware of the danger of asbestos. Moreover, the size of the punitive damages award in this case – 23 times the size of the plaintiff ’s loss – is out of line with the U.S. Supreme Court’s guidelines for determining excessiveness. If upheld, this decision would become the largest mesothelioma lawsuit award in California history. Some legal observers anticipate the award will be overturned and that the plaintiffs will be required to either accept a smaller award or have a new trial.

In an encouraging development, Los Angeles County Superior Court Judge Victoria Chaney threw out a $2.3 million verdict against Dole Food, finding that plaintiffs’ attorneys had orchestrated a “massive fraud” on the court by preventing the defendants from interviewing witnesses in a case wherein Nicaraguan banana harvesters claimed their exposure to a pesticide left them sterile. Evidence showed that lawyers coached their clients, fabricated medical and work records, and intimidated Dole’s investigators.

Humboldt County

Humboldt County, the self-described “Pot Capital of the World,” may also become known for very high verdicts.

California law and court rulings too often put defendant companies at risk of bankruptcy, even when no one has suffered a demonstrable injury. The latest example from the small Humboldt County community of Eureka comes in the form of a jaw-dropping $677 million class-action verdict against Skilled Healthcare Group, Inc., which operates 22 facilities throughout the state. And that extraordinary amount does not include punitive damages, which were to be determined in a second phase of the proceedings. The plaintiffs did not claim any injury, but merely alleged that staffing at the facilities occasionally fell below 3.2 nursing hours per patient per day, the level required by the
California health code.

The local district attorney, in the midst of an election year, teamed up with the plaintiffs’ lawyers to also allege deceptive practices based on the staffing levels at the facilities. During the six-month trial, defendant’s counsel filed a motion to remove trial judge Bruce Watson, detailing numerous instances of uneven treatment in the handling of the trial. They also requested that the court declare a mistrial when it was revealed that one of the jurors concealed during pre-trial questioning that she knew one of the plaintiff class members and had a strong bias against the defendant company, which was obvious to her fellow jurors. The trial court judge denied the defendant’s requests. Burdened by an unjust California law that requires a defendant to post an appeal bond for 150% of the judgment, Skilled Healthcare – with just $2 million in assets – settled for an undisclosed sum. Forbes.com called the case “a tort reform advocate’s dream – meaning a defendant’s worst nightmare.”

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