Monday, December 12, 2011

SLAPP Victory -- SLAPPs Are Not Always Apparent

One of our latest anti-SLAPP victories provides a beautiful illustration of a “stealth” SLAPP suit that the plaintiff’s attorney failed to recognize, to the great expense of his client.

In this case our (future) client’s business partner, we’ll call him Freddy Fraudster, opened a credit card account at a local bank using our client’s personal information. When our client discovered what Freddy had done, he contacted the bank and informed the personnel there that Freddy had committed fraud, and based on this report the bank closed the account and reported the matter to the police. Our client also filed a police report, and filed for a restraining order against Freddy.

Freddy was not happy. He had a long term relationship with the bank, and based on the report by our client, the bank closed his accounts and would have nothing further to do with him. Apparently thinking the best defense is a good offense, and hoping that winning the race to the courthouse might give him some leverage, Freddy filed an action against our client. He claimed that our client had authorized him to open the account, and that the report to the bank was therefore defamatory since it accused him of fraud.

Do you see why Freddy’s action in Superior Court was a SLAPP suit? Opposing counsel didn't, but we recognized that this was a SLAPP suit and successfully brought an anti-SLAPP motion. You see, a SLAPP suit is one that tries to block a person’s right of petition. Freddy’s attorney realized that the report to the police and the application for the restraining order were protected rights of petition, but he mistakenly thought that the report to the bank, requesting that the credit card be cancelled, was not a petition for redress and therefore did not fall under the SLAPP statute because it did not involve any government agency. No doubt, he thought that by suing our client for defamation, he could make all his evil deeds go away and get back in good stead with the bank by offering to dismiss the case if our client would withdraw his remarks to the bank, court and police. Now it sounds like a SLAPP, doesn’t it?

The interpretation of the SLAPP statutes by Freddy’s attorney was far too narrow. Consider. One day you run a credit report on yourself and you find that someone has fraudulently opened a credit card in your name. What is the first thing you are going to do? Call an official government agency? You might do that eventually, but first you are going to call the credit card company and tell them to cancel the card. Thus, contacting the credit card company, or in our case the bank, is a natural part of the entire “right of petition.”

It’s very similar to the litigation privilege. I occasionally see cases where a defendant tries to sue the plaintiff and his attorney, claiming that the demand letter sent by the attorney was defamatory because it falsely claimed the defendant did something illegal. But under Civil Code section 47, anything said in conjunction with litigation is privileged and therefore not defamatory. The demand letter from the attorney takes place before legal action is ever filed, but it is still part of the litigation process.

So it was here. The report to the bank occurred before any “right of petition” was pursued with a government agency, but calling to cancel the credit card was a natural part of that process. If a plaintiff were permitted to SLAPP a defendant by focusing on the activities leading up to the actual right of petition, then the intent of the anti-SLAPP statutes would be subverted. We explained that to the court, and our motion was granted. 

-- Aaron Morris

Morris & Stone Gets Triple Damages and Attorney Fees for Theft

When is a breach of contract also fraud? When the party never intended to perform.

When do you get triple damages and all of your attorney fees for fraud? When you hire Morris & Stone (although your results could differ).

Breach of contract is easy to spot, but business owners are often confused about what constitutes fraud. Someone fails to pay all the money owed on an invoice, and the client wants us to add a cause of action for fraud. That’s probably not fraud.

The elements of fraud are (1) a misrepresentation of a material fact; (2) made with the intention that the party rely on that representation to his detriment; (3) reasonable reliance on the misrepresentation; and (4) damages. As you can see from the above elements, in the case of a contract, for there to be fraud the fraudulent intent must exist at the time of the contract. If a person enters into a contract intending to perform, if he later fails to perform, that breach will not transmute into fraud no matter now egregious and flagrant his breach. To prove fraud, you must show that at the time the defendant entered into the agreement, he had no intention of performing.

So how do you get into the mind of the defendant to determine if he intended to perform when he signed the agreement? Thankfully, California courts have held that the behavior after the contract was signed can be used to show that the defendant never intended to perform. In our case, the defendant borrowed a significant amount of money from our client, and pursuant to the agreement that money was to be invested in a business venture. The money was never repaid, and our client hired us to recovery the money.

We went her one better. We sued for fraud, because we could see no indication that the money ever went into the business venture. We felt that would be sufficient to show that at the time of the contract the defendant did not intend to perform. He was free to argue that he intended to invest the money at the time of the contract and therefore it was not fraud, but how would he explain that the money was never used for the intended purpose? As we suspected, defendant fought us on discovery, and when we compelled him to respond, he could not provide any proof that the money had ever gone to the business.

But here is where we got really creative. There is a criminal code section that makes it illegal to receive stolen property, and allows a victim to bring a civil action against the criminal to recover three times the value of the stolen property. We sued under that section, alleging that the entire loan process had just been a artifice to relief our client of her money. In other words, he stole the money from our client through a bogus business venture, and kept that money for himself. It was no different than if he had stolen the money by hacking into her checking account. The fact that he used loan documents to steal the money did not make it any less of a theft.

A fact pattern that will support this breach of contract/fraud/theft approach does not arise very often, but we have tried it twice before.  In both of the prior actions, we won on the breach of contract and fraud causes of action, but could not get the judge to consider the theft cause of action.  The theft cause of action provides a real conceptual hurdle for most judges.  Many judges are former District Attorneys or Public Defenders, and their criminal law backgrounds taught them that a criminal cannot be convicted of both stealing property and receiving that property. Yet, here I am arguing to them that I want damages under a statute dealing with receiving stolen goods even though this is the same person that stole the goods (here, the money). In reality, the law says that someone cannot be convicted of both offenses, but can be charged with either. Indeed, the law says that if the statute of limitations has passed for the theft of the goods, the thief can still be charged with receiving the property, because the statute actually states that it is an offense to receive or exercise control over the stolen property. Thus, the same person that steals the property is guilty of exercising control over it if it still has not been returned.

The second conceptual hurdle involves the erroneous concept that the defendant must have been convicted of the offense before the civil suit can take place. After all, the judges reason, the legal standard for the burden of proof on a criminal conviction is beyond a reasonable doubt, whereas in civil court it is just more probable than not. How can a defendant be made to pay under a criminal statute when he has never been convicted of the offense? Complicating the matter, no reported decision has ever discussed the civil remedies under the criminal statute upon which we were relying.

In reality, these concerns are easily disposed of, but the judge must be made to wrap his mind around the concept. In the latter case, no criminal conviction is necessary because it still must be shown in the civil action that the defendant committed the offense. Other cases involving civil enforcement of criminal statutes have made clear that the primary reason the statutes provide for a civil remedy is that law enforcement does not always have the will or resources to go after a criminal. A victim of a crime should not be dependant on the vagaries of the criminal system in order to seek redress. For example, there is a statute that permits cable companies to seek civil damages for the theft of a cable signal. What are the odds that police departments around the state are going to devote resources to going after cable thieves? Therefore, the Court of Appeal held that cable companies can prosecute under these criminal statutes whether or not the defendant has ever been criminally charged. It’s a win-win. The cable company can become its own police force in order to discourage cable thieves, and the government need not devote resources to that purpose.

So it is here. There would be little disincentive to using false pretenses to “borrow” money if the worst that could happen to the defendant was that he would someday be ordered to return the money. Morris & Stone uses this criminal statute to impose a quasi-criminal remedy on the defendant, providing a much greater disincentive regarding this type of fraud, since the defendant must pay back three times the amount he took.
This judge finally got it, and tripled the damages, awarding our client three times what she had loaned to the defendant.  As a huge bonus, the statute provides that the defendant must pay all attorney fees incurred by the plaintiff.  Absent a contract provision, you are not entitled to recover attorney fees under a breach of contract case, and rarely under a fraud claim.  Since we used this criminal statute, the court also awarded our client her attorney fees.

We might just start wearing badges.

Saturday, December 10, 2011

Appeal Victory -- Million Dollar Verdict Reversed

On the old show, The 'A' Team, the trademark phrase of one of the main characters was, "I love it when a plan comes together."  I sometimes think of that when a detailed litigation plan finally comes to fruition.  We were hired by some very nice people to save them from a terrible trial verdict, and after a tough fight in the appeal court we got them a fantastic result.  Here is how it came about.

Our client's business, we'll call it ACME, suffered a crushing defeat when the plaintiff company convinced a trial jury that ACME had caused nearly a million dollars in damages when it allegedly breached a contract between the two businesses. ACME and its trial counsel consulted with our firm to see if anything could be done on appeal.

After a close examination of the record and all the testimony at trial, we agreed to handle the appeal. There was no way to justify the jury's award. The damage award consisted of different components, and they did not make sense when taken together. For example, the jury did not award any future damages on one cause of action, but did on another. But there was no way the defendant could have suffered damages in one instance and not the other, if any damages were suffered at all. Additionally, the judge had handled the admission of the evidence in a very poor manner. We decided to attack the damage award on the basis of a lack of substantial evidence.

By way of background, challenging a verdict by claiming that it was not supported by substantial evidence is usually viewed as a long shot. As set forth in a civil appeal treatise:
"The 'substantial evidence rule' is one of the most formidable hurdles facing appellants after a trial on the merits. When the case was tried on its merits, the court of appeal invokes several presumptions in support of the judgment. All evidentiary conflicts are resolved in favor of the judgment; and, so long as the judgment was supported by "substantial evidence," the appellate court will not reweigh the evidence."
Even the term "substantial evidence" is a complete misnomer. It implies that the verdict will be reversed if the plaintiff cannot show some appreciable amount of evidence, but in reality the verdict will be upheld if plaintiff can show any evidence that supports the verdict. You see, it is the province of the jury to decide whom to believe. Take the case of a traffic accident, where the case comes down to whether a traffic light was red or green. The jury is specifically instructed that even if 20 witnesses testify that the light was green, and only one testifies that the light was red, the jury can find that the light was red. In such a case, the verdict would not be reversed on appeal for a lack of substantial evidence, because the testimony of the one witness is sufficient to support the verdict. This is an essential rule if the advocacy system is going to work. If a case was decided simply by counting the number of witnesses who said one thing versus the number that said the opposite, then a party with no scruples who is willing to pack the witness stand with lying witnesses would always win.
Facing the daunting Substantial Evidence Rule, we took the Court of Appeal through each item of damages, and showed that nowhere in the record did any evidence exist that would support the verdict. The attorneys for the plaintiff company tried valiantly to refute our arguments, pointing to testimony and exhibits that they claimed supported the verdict. In response, we showed why each alleged item of evidence was defective.

After quoting the law on substantial evidence, and explaining that "every substantial conflict in the evidence is to be resolved in favor of the judgment," in a rare move the Court of Appeal reversed the judgment, agreeing that no evidence had been presented to the jurors that could justify the verdict.  Just like that, we took a million dollar burden off the back of our clients.  I love it when a plan comes together.

-- Aaron Morris

Thursday, December 8, 2011

Deviant Employees Protected from Termination

As you know, Megan’s Law set up a website that lists registered sex offenders.  Before extending an offer of employment, one might think that checking that website would be a quick way to make sure a sex offender is not being hired, especially if the job involves contact with children.  One would be wrong.

California is an at-will employment state, meaning that employers can terminate employees for any reason or no reason at all. Although there are statutory exceptions prohibiting employers from taking adverse employment action on the basis of race, gender, and other protected groups, a loophole in Megan’s Law serves to make sex offenders a protected group giving them rights that other employees do not have.

Sex offenders are filing claims for wrongful termination, utilizing Megan’s Law as the legal grounds to secure and retain employment. The Megan’s Law Statute, set forth in California Penal Code Section 290.46, states that a person is authorized to use information disclosed pursuant to the statute — that a person is a registered sex offender –  “only to protect a person at risk.”  California Penal Code § 290.46(1).  The statute specifically “prohibits, except as authorized to protect a person at risk or pursuant to another provision of law, the use of any information that is disclosed through the statute for purposed related to any of the following: health insurance, insurance, loans, credit, employment, education . . ., and housing and accommodations.” California Penal Code § 390.46(2)(E).

In other words, California employers may not discriminate in employment of an employee on the basis of his or her status as a registered sex offender, if such status is discovered through the Megan’s Law website, unless it is to protect a person at risk or pursuant to some other provision of law.  One such provision of law is Labor Code section 432.7, which addresses what questions an employer can ask an employment applicant.  Labor Code section 432.7 allows an employer to ask and use the fact of a “conviction” in determining any condition of employment; however, legal practice guides have interpreted it to apply only to hiring.  As such, California employers may discriminate in “hiring” sex offenders if that information comes from a questions about convictions.  However, if the employer fails to ask whether the applicant has any convictions, and later discovers through the Megan’s law website that its employee is a registered sex offender, the employer is liable for wrongful termination if it terminates the sex offender employee based on that information.

This serves to put the employer in an unenviable position: it may be held liable for the sex offender employee’s negligent conduct (for instance, if the sex offender employee physically abuses a co-worker) or face a claim by the sex offender employee for wrongful termination if it fires said employee.
Further, it is nonsensical that an employer can learn this information through other sources (i.e. public records search) and legally terminate the employee on that basis, yet is liable if obtained on the Megan’s Law website.  I suppose an employment attorney could suggest to clients that they check the Megan website to see if the employee is listed as a sex offender, and if so, then find the same information from some other source so the termination or rejection would not be based on what was found on the Megan site.  But that would circumvent the absurd result intended by our fine Legislature that sex offenders receive special protections, and I would never suggest such a thing.

Saturday, December 3, 2011

Kicking the Unemployed While They are Down

In a go-go employment market, it might be reasonable to assume that an unemployed job applicant did something wrong to become unemployed.  In other words, most people look for a new job before ditching the old, so when someone is out of work it may well be for job performance.  Refusing to consider unemployed applicants can be an effective, albeit imprecise, initial screening process.

But in the current economy with ten percent unemployment, that assumption is nuts.  Many outstanding employees are without work through no fault of their own.  Nonetheless, many employers are holding onto their policies that "the unemployed need not apply."  And they are not being at all shy about advertising the fact, literally.

Some job postings specifically state that applicants must be currently employed, or even that "unemployed candidates will not be considered".  Sony Ericsson advertised that the unemployed need not apply for jobs at the company's new Georgia facility, and a South Carolina recruiter imposed the same restriction for grocery store managers.

If you have not yet embraced my preference for working for yourself in order to control your own fate, perhaps this news will motivate you to meet me half way.  Even if you work for someone else, you can work for your own company at the same time.  In this way, there will never be a gap in your employment, and you will never be applying for a job as someone who is unemployed.

The story was reported by and can be found here.