TVA February Newsletter

  Legal News
_February 2017

The attorneys and staff at Thomas Vogele & Associates hope your year is off to a great start.

Here are some legal articles and news that might affect your business, highlight some best practices, and remind you of the good, bad, and ugly of the justice system.

Checkmating a Checkers Opponent with CCP § 998 Offers

If you’ve been involved in litigation, you likely are aware of the “CCP 998 offer.” CCP § 998 is a statutory carrot-and-stick to entice parties to make reasonable offers, and to threaten penalties for rejecting reasonable offers.

A 998 offer may be made any time up to 10 days before trial or arbitration. The objective is to make, or accept, a reasonable offer, defined as an amount that is less than what the court ultimately awards.

If a party rejects a reasonable settlement — that is, fails to obtain a better award than the offer — that party must pay the other party’s costs incurred after the offer was made.

A 998 offer can change the entire outcome of a case, as happened in Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103. There, subcontractor Scott Co. alleged $2 million in cost overruns and delays concerning the San Jose Convention Center project. Blount made a 998 offer to pay Scott $900,000 to settle. Scott countered, demanding $1.5 million. Negotiations failed, and the parties went to trial.

So Scott’s number to beat was $900,000 — if Scott failed to get a better outcome than that, it would have to pay up to Blount.

Scott did prevail, but only received a judgment of $442,000. Scott was still entitled to its pre-offer costs of $226,000, bringing its total award to a little over $668,000.

Less than $900,000.

This meant Blount was entitled to its post-offer costs — $633,000 in attorney fees and costs, plus $247,000 in expert fees, for a total of $881,000.

This flipped the outcome of the case: instead of writing a check to the judgment creditor, Blount, despite having a freshly-entered judgment against it, was entitled to receive $212,000 for its trouble.

The litigant who ignores the effects of a CCP 998 offer might win at checkers only to realize the game was chess, and he’s been beaten.

You May Be Able to Limit “Consequential Damages” in Your Contracts

Despite best efforts to reduce expectations to a written contract, one can rarely estimate with much accuracy the creative ways a complaining party will claim he has been damaged by an alleged breach. The textbook case from the 19th century in Hadley v. Baxendale arose when a smith delivered a crankshaft too late, and the miller sued not only for the value of the crankshaft, but for all the lost profits caused by the delay — a tenfold increase!

These downstream injuries are called “consequential” damages, as opposed to the “direct” damages (e.g., the value of the crankshaft). The good news: these wild and wooly consequential damages may be limited by agreement.

California Civil Code § 3300 allows plaintiffs to recover both kinds of damages, providing for recovery in “the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.”

Direct damages naturally arise from the breach, such as the cost of a replacement crankshaft, or the cost of hiring a different contractor or professional. (See Brandon & Tibbs v. George Kervorkian Accountancy Corp. (1990) 226 Cal.App.442, 455-56.)

Consequential damages, on the other hand, do not flow immediately from the breach, but follow as some consequence of it, which might be unusual so long as they were reasonably contemplated by the parties, such as lost profits or a real-estate collapse.

While few California cases address the issue, Perini Corp. v. Greate Bay Hotel & Casino (N.J. 1992) 610 A.2d 364 remains a seminal consequential-damages case. When hotel construction fell behind, the hotelier sued the contractor for four-months of lost profits. The delay resulted only from a nonessential ornamental facade, and even though the contractor’s take was only $600,000, it was held liable for a whopping $24 million.

The court held that liability was appropriate because the casino repeatedly told the contractor that time was of the essence and that delays would result in lost profits from the summer tourist season. Had the parties contemplated otherwise in their contract, the contractor would not have been liable for these downstream, consequential damages.

By expressly stating in the written agreement that the parties do not contemplate liability for consequential damages, parties can prevent being held liable for surprising and upsetting circumstances.

Collecting Against Spendthrifts in Bankruptcy, Judgment Collection

Creditors of beneficiaries under a spendthrift trust will find mixed messages in the law about how much you can collect. Sections 15300 -15309 of the California Probate Code determine the maximum interest a creditor or bankruptcy estate can access and take from a debtor-beneficiary’s interest in third party’s asset protection trust, also known as a “spendthrift trust.”
On March 11, 2015, the California Supreme Court accepted the certified question. The matter has been fully briefed, with oral arguments occurring on January 4, 2017. Frealy v. Reynolds, No. 12-60068 (“In re Reynolds” or “Frealy”).

The questions to be decided are:

Does section 15306.5 of the California Probate Code impose an absolute cap of 25 percent on a bankruptcy estate’s access to a beneficiary’s interest in a spendthrift trust that consists entirely of payments from principal, or may the bankruptcy estate reach more than 25 percent under other sections of the Probate Code?

TVA is watching this case.

Yes, You Absolutely Can Sue Pokemon for Trespass – And If You Get the Chance, You Absolutely Should

At California Trespass Law, we write about how the makers of the app Pokemon Go earned a staggering 500 million downloads in 2016 by making certain landowners’ property part of its popular “pocket monster” game. A collaboration between game giant Nintendo and newcomer Niantic, this boundaries-no-object global scavenger hunt is estimated to have earned just under a billion dollars in revenue in 2016 alone, adding several billions to Nintendo’s market value. Under California’s trespass laws, in particular Civil Code section 3334, the property owners trampled underfoot in Niantic and Nintendo’s wildly successful treasure hunt are entitled to their cut, and the trespassers could be disgorged of their benefits obtained.

Read more here:

“Overbearing, autocratic and offensive”

It is said that the tendency to abuse power is inversely proportional to the scope of one’s office. Thus the common stories of tyrannical city councils, homeowner associations — and, in this story from the Southern California Appellate News blog, the Bakersfield Green Thumb Garden Club:

“After being elected president of the Bakersfield Green Thumb Garden Club (the Club), plaintiff John Lucas began to carry out his office in a manner that many Club members described as overbearing, autocratic and offensive. When plaintiff persisted in this style of leadership, the members of the Club took action. At a general membership meeting, a vote was taken that removed plaintiff from office.

“The removed-president sued the Club and individual members. Defendants won at a bench trial, and the 5th DCA affirms. But the decision notes that the litigation expenses pushed the club into insolvency.”