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RRB’s Stephen Raucher and K. Cannon Brooks’ article “Mixed Causes of Action Get Mixed Anti-SLAPP Results” is published in the Los Angeles Daily Journal on February 17, 2015.

The brave new world of social media represents a challenge to courts trying to apply traditional notions of personal jurisdiction. This was highlighted in the recently published case Burdick v. Superior Court (Cal. Ct. App., Jan. 14, 2015) 15 Cal. Daily Op. Serv. 478, in which the Fourth Appellate District of the California Court of Appeal held that an Illinois resident who posted allegedly defamatory statements on his public Facebook page about Orange County residents was not subject to specific personal jurisdiction in California state court.

Plaintiffs, John Sanderson and George Taylor (“Plaintiffs”), residents of California, sued Douglas Burdick (“Burdick”), an Illinois resident, alleging that Burdick published defamatory statements on his Facebook page. Burdick was a consultant for Nerium International (“Nerium”), a skin care product company. Plaintiffs were bloggers who questioned the science behind Nerium’s products in various blog articles regarding Nerium’s products and marketing. In response, Burdick posted material on his public Facebook page regarding a “Blogging Scorpion” who “lost his medical license…uses multiple social security numbers…[and]…has been charged with domestic violence.” The post instructed readers to “Stay tuned as we reveal the ‘REAL’ truth behind this ‘Blogging Scorpion.’” In his post, Burdick did not specifically mention either of Plaintiff’s names, but repeatedly referred to a “Blogging Scorpion.” Plaintiffs subsequently filed suit in California state court.

Burdick filed a motion to quash service of the summons based on a lack of personal jurisdiction. Burdick claimed that he was a resident of Illinois and that he “has never lived in California; maintained an office or been employed in California; had a bank account, safe deposit box, or mailing address in California; owned or leased real property in California; had employees in California; been a party to a contract with a person or entity in California; or held any licenses or certifications issued by any governmental agency or unit in California.” Plaintiffs opposed Burdick’s motion by claiming that the post was on a “publicly-available Facebook wall.”

The trial court denied Burdick’s motion to quash, citing the “effects” test for personal jurisdiction in Calder v. Jones, 465 U.S. 783, 789 (1984). Burdick filed a writ petition challenging that ruling. Although the Court of Appeal summarily denied the writ, the California Supreme Court granted review and transferred the matter back to the Court of Appeal with directions to reconsider the denial in light of Walden v. Fiore, 571 U.S. _ [134 S.Ct. 1115] (2014). The Court of Appeal then reversed the trial court’s denial of Burdick’s motion to quash. The Court held that even though the post revealed that Burdick knew that Plaintiffs resided in California, there was no evidence that the post targeted California, as opposed to just the Plaintiffs.

The Court’s reasoning focused on whether Burdick’s out of state intentional conduct created the necessary “minimum contacts” with California so as to justify jurisdiction. The court identified Burdick’s contact with California as “the allegedly defamatory posting on his Facebook page.” The “effects test” is one way California and federal courts have assessed whether a nonresident’s intentional torts create the necessary contacts with a forum state. In making its decision, the Court relied on three influential cases interpreting the “effects” test: (1) Calder ; (2) Pavlovich v. Superior Court, 29 Cal.4th 262 (2002); and (3) Walden.

In Calder, Shirley Jones, a prominent actress in California, sued the National Enquirer for libel in California state court. (Calder, supra, 465 U.S. at pp. 784-786.) The National Enquirer, headquartered in Florida, moved to quash service of process. (Id.) The United States Supreme Court held that jurisdiction in California was proper because the “effects” of the libelous story were felt in California. (Id. at p. 789.) The Calder court stated that the libelous story “impugned the professionalism of an entertainer whose television career was centered in California,” that the intentional acts “were expressly aimed at California,” and that the defendants “knew that the brunt of that injury would be felt by respondent in the State in which she lives and works and in which the National Enquirer has its largest circulation.” (Id. at pp. 788-789.)

Distinguishing Calder, the Burdick court held that unlike the National Enquirer’s article, the Facebook post at issue did not substantially connect Burdick to California. The Court stated that the National Enquirer’s article satisfied the “effects” test because the article was “specifically about an actress living in California with a California-based movie…[with]…largest circulation in California.” In particular, the National Enquirer had its largest subscription basis, over 600,000 circulations, in California. (Calder, supra, 465 U.S. at pp. 784-786.) This was unlike Burdick’s Facebook post, which the Court stated did not have any significant number of readers in California.

The Court also relied on Pavlovich, a California Supreme Court case decided after Calder, in which the Court stated narrowed Calder’s scope and required that intentional acts be “expressly aimed” at the forum state. In Pavlovich, the California Supreme Court held that an Indiana resident with no contacts in California was not subject to personal jurisdiction in California. (Pavlovich, supra, 29 Cal.4th at pp. 266.) The defendant in that case was alleged to have misappropriated plaintiff’s trade secrets on a public Web site. (Id. at pp. 266-267.) The Pavlovich court found no jurisdiction because the only evidence of “express aiming” was defendant’s knowledge that his conduct “could harm industries centered in California.” (Id.) The Pavlovich court held that personal jurisdiction requires “evidence of express aiming or intentional targeting.” (Pavlovich, supra, 29 Cal.4th at p. 273). Although Pavlovich was not a defamation case, the Burdick court found that its reasoning was applicable to the issue of whether Burdick’s Facebook post was expressly aimed at California. Citing cases interpreting Calder, the Court stated that a mere Internet post does not confer nationwide personal jurisdiction without something more connecting the post to the forum state.

Finally, the Court relied on the recent United States Supreme Court case Walden, which further expanded on Calder and personal jurisdiction for intentional torts. In Walden, the defendant was a police officer in Georgia who allegedly helped to draft a false affidavit at the Atlanta airport for purposes of prosecuting travelers in Georgia. (Walden, supra, 571 U.S. _ [134 S.Ct. at pp. 1119-1120.) The traveling plaintiffs, residents of California and Nevada, sued the police officer in Nevada. (Id.) The United States Supreme Court held that Nevada did not have personal jurisdiction over the police officer because his conduct did not “create a substantial connection with the forum state.” (Id. at p. __, [134 S.Ct. at p. 1121-1122]). Although the police officer knew that his actions harmed Nevada residents, the United States Supreme Court held that minimum contacts must be with the forum state itself, and not the persons who reside there. (Id.) The Walden court discussed the Calder “effects” test and stated that the libelous article in Calder had “reputation-based ‘effects’” that connected the National Enquirer to the state California and not just the actress. (Id.) Because libel requires publication to third persons and because the National Enquirer had its largest circulation in California, the article had a devastating impact in California, and not just on the actress. (Id.)

Relying on Calder, Pavlovich, and Walden, the Burdick court established that the proper analysis for jurisdiction assesses 1) the defendant’s contacts with the forum, not with the plaintiff, and 2) whether the contacts form a meaningful relationship between the defendant, the forum, and the litigation. The Court stated that under Walden, the “effects” test is not concerned with the location where plaintiff experienced an injury, but whether defendants actions connect defendant to the forum. Merely posting negative comments about a plaintiff on the Internet, knowing that the plaintiff is from the forum state is not enough. The conduct has to be “expressly aimed or intentionally targeted…at the forum state.”

Burdick’s act of posting defamatory comments on his Facebook page while in Illinois did not have a “California focus,” like the National Enquirer’s publication had in Calder. Although Burdick’s Facebook wall was “publicly-available,” as Plaintiffs claimed, there was no evidence that it targeted California because the post was accessible from every state in the country, and not just California. However, the Court held that on remand, Plaintiffs should be given the opportunity to conduct jurisdictional discovery to see if they could obtain evidence that the defendant’s activity was targeted at California.

Burdick v. Superior Court represents an important step forward in clarifying the application of traditional concepts of personal jurisdiction in the Internet Age.

RRB’s attorney Stephen L. Raucher’s article “Privileges When Law Firms Seek Advice” is published in the Los Angeles Daily Journal on December 3, 2014.

In a case with important lessons for business litigators, a California Court of Appeal recently clarified the distinction between aiding and abetting a breach of fiduciary duty and conspiracy to breach fiduciary duty, finding that a defendant can be liable for aiding and abetting even where that defendant owed no independent duty to the plaintiff. American Master Lease LLC v. Idanta Partners, Ltd. 225 Cal.App.4th 1451 (2014).

Plaintiff American Master Lease (AML) developed a business method wherein real property owners would sell their real estate to a larger entity and then buy interests in the larger entity as tenants in common, which allowed them to avoid certain adverse tax consequences. AML called this method FORT. Three members and managers of AML knowingly acted against the firm’s interests and violated the non-compete clause of the Operating Agreement when they formed a new company called FORT Properties, Inc. (FPI) with Defendant Idanta Partners, Ltd. (Idanta) and agreed to issue FPI a non-exclusive license of the FORT business method. AML’s majority in interest holder sent several letters to the three members and managers putting them on notice that they were bound by the non-compete provisions and did not have authority to license the business method to FPI. Idanta’s manager and founder was also sent the letters and knew the authority of AML’s members to license the business method was “questionable.” He was subsequently directly informed by AML’s majority interest holder’s attorney that a majority in interest was required for the license and approval was not granted. FPI proceeded to use the business method anyway and AML brought suit against Idanta for aiding and abetting breach of fiduciary duty, among other things.

Idanta and its managing general partner unsuccessfully argued that they could not be liable for aiding and abetting a breach of fiduciary duty because they did not owe a fiduciary duty to AML. Rejecting prior cases which have suggested that the law should treat conspiracy and aiding and abetting similarly, the Court ruled that while liability for civil conspiracy requires an independent duty to the plaintiff, “a defendant need not owe an independent duty to the plaintiff in order to be liable for aiding and abetting a breach of that duty.” In affirming the trial court, the Court distinguished aiding and abetting from conspiracy, pointing out, “Despite some conceptual similarities, civil liability for aiding and abetting the commission of a tort, which has no overlaid requirement of an independent duty, differs fundamentally from liability based on conspiracy to commit a tort. . . . Aiding and abetting focuses on whether a defendant knowingly gave ‘substantial assistance’ to someone who performed wrongful conduct, not on whether the defendant agreed to join the wrongful conduct.” American Master Lease, 225 Cal.App.4th at 1475, citing Berg & Berg Enterprises, LLC v. Sherwood Partners, Inc., 131 Cal.App.4th 802 (2005).

The jury found that the three members and managers acted against AML’s interests, that Idanta knew they were going to breach their fiduciary duties to AML, and that Idanta gave substantial assistance to them, resulting in unjust enrichment. The Court of Appeal reversed the amount of unjust enrichment, but affirmed the jury’s finding that: “liability for aiding and abetting a breach of fiduciary duty, on a theory of committing an independent tort, did not require that the aiders and abettors owe an independent duty.”

Idanta also unsuccessfully argued that AML’s cause of action for aiding and abetting a breach of fiduciary duty was barred by the two-year statute of limitations for interference with a contract. The Court rejected this claim and explained (1) AML did not allege Idanta aided and abetted by interfering with a contract, (2) the statute of limitations for aiding and abetting a tort is generally the same as the underlying tort, Vaca v. Wachovia Mortgage Corp. 198 Cal.App.4th 737 (2011) and (3) the statute of limitations for aiding and abetting a breach of fiduciary duty is three years or four years depending on whether the breach is fraudulent or nonfraudulent. Here, the fiduciary duties of AML’s managers and members arose from Corporations Code section 17704.09, and therefore the four-year “catchall provision” of California Code of Civil Procedure section 343 applied.

The American Master Lease decision should be required reading in any business litigation case involving breach of fiduciary duty, especially where the breach involves concerted action by multiple defendants.

 

On March 8, 2013, the California Court of Appeal ruled in favor of ABC in an idea submission lawsuit regarding the television series LOST.  Spinner v. American Broadcasting Companies, Inc., 215 Cal. App. 4th 172 (2013).  The lawsuit centered on Anthony Spinner’s allegations that an implied-in-fact contract was created when he submitted scripts to ABC in 1977, 1991 and 1994 (although Spinner’s 1991 and 1994 scripts dealt with a spaceship crash, which he admitted were not substantially similar to LOST).  Ruling that the uncontradicted evidence showed that ABC independently created the TV series LOST, the Court of Appeal affirmed the trial court’s earlier decision granting summary judgment against Spinner.

Spinner’s 1997 script was tentatively entitled “L.O.S.T.” and revolved around a plane crash similar to LOST.  The 1977 script focused on eight survivors connected to the U.S. Olympic team, who crawl through a mountainside tunnel and emerge in a prehistoric world inhabited by dinosaurs and primitive humans – interestingly, an idea itself reminiscent of a different show, Land of the Lost.  In addition to the survival aspect of the show, several of the characters in the 1977 script bore some similarities to those in LOST (i.e. a former military man and a spoiled rich girl).  The script was deemed too expensive for ABC to produce at the time and thus, was not developed.  Spinner alleged that ABC did use his ideas in the 1977 script years later when it developed and produced LOST in 2004.

Ordinarily, an idea can be the subject of an express or implied contract if 1) the plaintiff can show that he clearly conditioned the submission of his idea on an obligation by the defendant to pay for any use, 2) defendant voluntarily accepts submission of the idea knowing of the condition, and 3) the defendant actually uses the idea.  When the plaintiff cannot show direct evidence of actual use, an inference of use can be raised by showing defendant had access to the ideas and that the defendant’s work is substantially similar to plaintiff’s ideas.  If the plaintiff is able to raise this inference, the defendant can try to dispel the inference with evidence that conclusively demonstrates that the defendant independently created the project.  If the defendant can show this, it is appropriate for a court to grant summary judgment on an implied-in-fact contract claim.  In this case, the Court rested its holding on 1) Spinner’s insufficient showing of access and 2) ABC’s uncontroverted and conclusive evidence of independent creation.

When analyzing access, the Court assumed for the sake of argument that there were substantial similarities between the 1977 script and LOST.  The Court borrowed from the reasoning of copyright infringement cases and concluded that Spinner had only “shown a bare possibility of access based on speculation, supposition, and guess work.”  None of the executives involved in the creation of LOST had a reasonable opportunity to view the 1977 Script because there was no evidence that ABC kept a “script library” with old, unreturned scripts.  Further, the nexus between the creators of LOST and the people to whom Spinner submitted the 1977 script was weak – none of the individuals around in 1977 were still employed by ABC when LOST was developed.

The Court then summarized the evidence of independent creation assuming that an inference of use had been successfully raised:  LOST was originally conceived as the melding of TV show Survivor and the movie Cast Away, the idea was transcribed by ABC during an initial brainstorming session, and various writers wrote and revised the script.  Thus, the evolution of the creation process of LOST was well-documented.  Additionally, the Court gave weight to uncontradicted declarations by the creators of LOST that they had no connection to or knowledge of Spinner or his 1977 script.  Concluding that ABC independently created LOST, the Court put an end to years of litigation nearly three years after the series aired its final episode.

On January 24, 2013, the California Supreme Court decided the case Aryeh v. Canon Business Solutions, Inc., 55 Cal. 4th 1185 (2013), and clarified the common law theory of continuous accrual as it pertains to statutes of limitation.  The Court also settled a split of authority among appellate courts and held that continuous accrual does apply to causes of action arising under California’s unfair competition law codified in the Business and Professions Code § 17200 et seq. (UCL).

The ability to bring a lawsuit depends on whether the time period on a statute of limitations has run on a particular cause of action.  The statute of limitations begins to run when a cause of action accrues.  Under the common law “last element” accrual rule, this typically occurs when the elements of wrongdoing, harm and causation are complete.  Because certain harms have the potential of recurring and repeating over time, courts and the California Legislature developed a series of equitable exceptions that modify the rules governing the initial accrual of a claim and the subsequent running of the statute of limitations period.

One of these exceptions is the theory of continuous accrual.  The theory posits that a series of wrongs or injuries may be viewed as each triggering its own limitations period, allowing for newer violations to come within the applicable limitations period.  Thus, although the initial violation might be time-barred because it occurred before the limitations period, events occurring within the statue of limitations are deemed timely.  Further, Aryeh clarified that in continuous accrual cases, the series of wrongs are discrete and independently actionable.  This is in contrast with the continuing violation doctrine, another exception to the “last element” accrual rule, which involves a series of small harms, any one of which may not be actionable on its own and does not trigger its own limitations period.

Following the federal trial court decision in Stutz Motor Car of America v. Reebok Intern., Ltd., 909 F. Supp. 1353 (C.D. Cal. 1995), a split of authority developed over whether continuous accrual applies in UCL cases.  Stutz held that the UCL categorically foreclosed application of another accrual rule exception – the discovery rule.  Cases following Stutz extended the reasoning to the continuous accrual rule.  The contrary view was expressed in Broberg v. The Guardian Life Ins. Co. of America, 171 Cal. App. 4th 912 (2009), where the court reasoned that it is the underlying nature of the claim, not its form, that should control.  Thus, just because a cause of action is pleaded under the UCL, application of the continuous accrual exception is not precluded.

The Aryeh case articulates and clarifies the nature of the continuous accrual exception, and distinguishes it from similar exceptions to the traditional common law “last element” accrual rule.  But beyond holding that the continuous accrual exception applies to UCL claims, the decision also has important implications for many other types of claims, such as breach of contract and employment discrimination.  After Aryeh, claims which might have been assumed to be stale in the past may have new life.

 

The California Supreme Court recently decided Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association, 55 Cal.4th 1169 (2013), and changed the fraud exception to the parol evidence rule. The Court departed from the highly criticized Pendergrass rule, which took a narrow view of the fraud exception and limited the type of evidence that could be introduced when interpreting contracts. The Riverisland decision makes it easier to challenge a contract by expanding the type of evidence of fraud that can be introduced by a party.

The parol evidence rule is codified in Code of Civil Procedure §1856 and Civil Code §1625. It is intended to protect the integrity of written contracts by prohibiting courts from considering extrinsic evidence to alter or add to the terms of the contract itself. The fraud exception allows a party to introduce extrinsic evidence, including oral representations not included in the final written agreement, to establish that an agreement was tainted by fraud.

In Bank of America etc. Assn. v. Pendergrass, 4 Cal.2d 258, 263 (1935), the California Supreme Court imposed a limitation on the fraud exception by holding that “parol evidence of fraud to establish the invalidity of the instrument . . . must tend to establish some independent fact or representation, some fraud in the procurement of the instrument or some breach of confidence concerning its use, and not a promise directly at variance with the promise of the writing.” This effectively disallowed a party from introducing parol evidence of an alleged misrepresentation if it contradicted the written terms of the final agreement.

The Pendergrass rule received much criticism over the years. The Pendergrass rule had the potential to actually further fraudulent practices by encouraging individuals to make oral promises they never intended to perform because evidence of these promises would be inadmissible. In 1977, the California Law Revision Commission ignored the Pendergrass rule when proposing modifications to section 1856, even though it could have codified the limitation. Finally, the Pendergrass rule was a minority view in the United States, as the majority of states, the Restatements, and most commentators declined to subscribe to the limitation.

The seminal decision in Riverisland abrogates a rule that not only had little legal support, but that was also unpopular in other jurisdictions and among commentators. Proving fraud through parol evidence will still require a showing of justifiable reliance on the defendant’s misrepresentation. However, the stringent limitation that prohibited parol evidence of promises at odds with the terms of a written agreement is no longer a part of California law.

Reuben Raucher & Blum attorney Stephen Raucher’s article, co-authored with Matthew Bartek, “Vacating Arbitration Awards, Now Less Daunting of a Task?” is published in the Los Angeles Daily Journal on December 9, 2009.