Publications

In Catalina Island Yacht Club v. Superior Court (2015) 242 Cal.App.4th 1116, the California Court of Appeal (Fourth District, Division Three), squarely addressed the question: “May a trial court find a waiver of the attorney-client privilege and work product doctrine when the objecting party submits an inadequate privilege log that fails to provide sufficient information to evaluate the merits of the objections?” The answer, “No.” Id. at 1120.

In Catalina, Defendants in the underlying matter served responses to Plaintiff’s requests for production of documents that included boilerplate objections asserting the attorney-client privilege and work product protection. Two months later, Defendants served a deficient privilege log identifying 17 “communications.” The log simply provided the date of the communication and stated it was between “counsel for Defendants and Defendants.” A few months later, Defendants served a supplemental privilege log increasing the number of withheld documents from 17 to 36, and identifying the parties to the communications which were email. And, four months later Defendants served yet another supplemental privilege, this time significantly increasing the withheld communications from 17 to 167 log and purporting to identify the parties to each email and the date. Id. at 1122.

Plaintiff filed a motion to compel seeking the production of all 167 identified on Defendants’ production log, arguing that Defendants waived the attorney-client privilege and work production protection by failing to timely serve a privilege log that provided sufficient factual information to enable Plaintiff to evaluate the merits of Defendants’ objections. The trial court agreed, and ordered Defendants to produce the 167 email. In doing, it found that Defendants’ privilege was not untimely but failed to show that that email were privileged or protected. Id. at 1123.

On a writ of mandate filed by Defendants, the Court of Appeal vacated the trial court’s order compelling production of the email. The Court of Appeal explained that attorney-client privilege and work product protection objections are preserved by serving timely written discovery responses asserting such objections. It is irrelevant that the objections are asserted as part of boilerplate responses, or that responding party fails to serve a timely or sufficient privilege log. Once timely asserted, a trial court may not deem the objections waived based on any deficiency in the response or privilege log. Id. at 1129.

When a party submits a deficient privilege log, a trial court may order that party to provide a further privilege log that includes the necessary information to rule on an asserted attorney-client privilege and work product protection objection, and it may impose monetary sanctions and evidence, issue, and even terminating sanctions if a responding party persists in failing to provide the court with the requested information. However, a trial court may not order that privileges are waived because of a deficient privilege log, or for even failing to serve a privilege log. Id. at 1120.

Business attorneys understand that complex business litigation involves complex issues, usually encompassing voluminous amounts of complicated financial data in the form of balance sheets, income statements, and cash flow summaries.  It is certainly possible for jurors who own their own businesses or have accounting backgrounds to quickly synthesize financial information. However, most jurors are unfamiliar with this type of financial information and will find it difficult to comprehend, at best.  A juror who is not able to understand the story that the financial data tells will be a less likely ally to your client’s position in the jury room.  Thus, the biggest challenge for the business attorney is how to effectively present these complex matters to a jury.

The starting point of trial preparation in a complicated business case is to reframe the focus from how complex the case is to how you can go about simplifying the case for the jury.  Should you start your opening by acknowledging how difficult it will be to digest all the technical financial data? No. You never want to start out by telling the jury how complex the case is.  This will only cause them to be fearful of the case, be offended, or to simply tune out.  Instead, you want to tell them a story that is familiar and relatable.  Presenting your complex business case in terms of common themes will go a long way in making the matter more palatable and appealing to the jury.

Tell the jury a story.  How would you describe the case to someone if you were at a dinner party?  What happened between the parties that caused the conflict?  What are the motives of the lawsuit?  What is your client seeking?  If you are asking the jury to award your client damages, why should they want to find in favor of your client, and in what amount?  Telling your case in terms of a story makes your complex business dispute much more jury-friendly.

Once you have identified the appropriate theme or themes for your case, and have plotted out the story line, you will need to create the scenes by which you will tell the story.  The scenes will involve not only the actors (i.e., the witnesses), but also the script (i.e., the evidence), and the props (i.e., the trial graphics).  While the witnesses and the evidence of the case will be dictated by the particulars facts underlying the dispute, the creation of the trial graphics is where you, as the presenter of the story, will have an opportunity to showcase your creative genius.

The question is how do you creatively distill complex financial data into practical trial demonstratives to effectively communicate your client’s story to the jury?  The first thing to keep in mind is that a demonstrative display of any kind has more impact on a jury than simply an oral description of the matter.  Research supports the common sense belief that any mode of demonstrative display is superior to using no visual evidence to make specific points during expert testimony. See Weiss, H., McGrath, J.B. (1963), Technically Speaking: Oral Communication for Engineers, Scientists, and Technical Personnel, New York, McGraw-Hill; Binder, D.M., Bourgeois, M.J. (2004); Effects of the use of Power Point by expert witnesses, unpublished manuscript, University of Wyoming. This is especially true in today’s world of tech-savvy users, where most jurors have become accustomed to receiving information through digital media.  A 1992 McGraw-Hill study, commonly referred to as the Weiss-McGrath report, found “a one-hundred percent increase in juror retention of visual over oral presentations and a six-hundred percent increase in juror retention of combined visual and oral presentations over oral presentations alone.”  Thus, trial attorneys in all cases should start their trial preparation from the premise that today’s jurors have a greater capacity to understand more in-depth multi-media presentations and, in fact, may now demand trial graphics of greater quality and depth.  The fact is that the use of video and computer capabilities in the courtroom expands a trial attorney’s options for how to present evidence; can assist in delivering large amount of complex information in a format that is familiar and acceptable to today’s population; and helps to keep the jury engaged in your client’s story.

The question then for the complex business litigator is not if she will use trial demonstratives, but how she can most effectively use visual and other sensory aids at trial to successfully engage and educate the jury so that the client’s story will be understood and accepted.  Remember, the need to tell a compelling story to the jury does not disappear just because a case involves complex financial data.  In fact, the task of explaining to the jurors the meaning of the data in a clear and engaging manner that helps them understand the case themes and supports the case story becomes that much more important in cases involving complicated financial material.

The following 4 step process is one way to develop effective trial demonstratives:

1. First, decide what message you wish to convey to the jury by the presentation. Perhaps you are trying to illustrate the fact that distributions of one partner were improperly being accounted for in the financial records as “management expense?”  Or maybe you want to show the jury that the financial transaction that the former partner now seeks to characterize as a “partner loan” was never identified or carried on the company’s books and records as such.  Whatever the message is, you should identify it before you start to assemble the relevant data you will need to make your point.
2. Next, cull through the financial data with your expert to ascertain the best source of the financial data you seek to present. This may be contained in the general ledger, the bank records, or the cash flow summaries.  Wherever it is, you should identify it and understand it so that you can effectively use it to illustrate whatever point you are trying to convey. This point is worth stressing: in order to successfully tell the story, you must have command of the facts and information, regardless of its technical nature.
3. After you have determined the message you want to deliver and have identified the financial records that best illustrate your point, you should start with the creation of a very basic chart of the financial information you have selected using minimal formatting of fonts and colors. Starting with a solid, yet simple, graphic will give you a strong foundation of data upon which to expand your trial graphic, if appropriate.
4. Finally, you should refine and enhance the graphic as necessary to bring the case story to life. Remember that your goal is to tell a story, and that a story has a beginning, middle, and end.  What part of the story does the demonstrative represent?  Perhaps it is intended to reveal to the jurors the financial implications of the former partner’s alleged misconduct, or to evidence the consequences of the managing member’s mismanagement.  Understanding the role of each demonstrative will help to keep you focused on what data you need to highlight for the jury.  Remember that the goal of the demonstratives should be to help you explain the case story with little or no additional explanation.

The design of effective trial demonstratives can seem daunting in the face of years of financial records.  Once you have identified the case story, how do you decide what data best exemplifies your client’s contentions, and how do you reduce that data into meaningful graphic representations for the jury?  Consider the best mode of delivery for your exhibits: electronic, foam board, or hand-written on an easel.  A mix of electronic and print exhibits often works well to keep the jury’s attention.  If possible, you should collaborate with your financial expert and trial graphics vendor early on in the case to strategize about how to effectively utilize financial data to present the case story graphically to the jury.  Taking control of this task from the outset will help you to stay focused on the case story, and to move the case strategically towards trial.

There are several visual elements of the trial graphics you may want to consider to assist in keeping the financial information manageable while communicating the case story.  First, think about the volume of financial data you need to present, and choose the most powerful visual to represent that information. If your records are limited, a modest chart with just a few rows and columns may be the most effective method of delivering the information.  If you have more data, you may want to consider using color-coded pie charts or bar graphs to illustrate your data points.  Don’t over-explain.  Show only what is necessary to make your point.  An effective method of presentation is to introduce the entire spreadsheet, and then call out only the relevant columns or rows of information needed to illustrate the point in a separate graphic.  Use animation to gradually reveal the case story by calling up the relevant columns and rows on screen one by one.  This adds a dramatic flair to the presentation and serves to engage the jurors in the story-telling journey.  It can also be particularly effective when you need to refute the manner in which the opposing side has interpreted the data.  In addition, make use of colors and highlighting to emphasize your key data, and to help tell the story.  For example, use red to accentuate losses and green to show the positive income that should have been paid to your client.  Finally, add common-sense labels where appropriate to focus the jury on relevant beginning and ending data points or other important details.

Another similar method is present graphics in a lecture-style presentation. For example, walking through an accounting to explain how a party “double-dipped” by mischaracterizing certain entries as fees when they were really profit can be accomplished by physically writing out each line item on an easel or using power point. Hand writing each line, one at a time, helps break the information into easy-to-digest pieces, versus introducing the information to the jury all at once or in a single slide. Interactive presentations like these can also help engage jurors, who are otherwise being presented with slide after slide of information.

So, what do you tell the jury about the case when you know that the financial information you will need to present to them encompasses 10 years of general ledgers, bank records, and cash flow summaries?  Do you tell them that this is going to be a complicated business dispute that is going to require them to listen to weeks of dry testimony and comprehend thousands of pages of financial records?  No.  Instead, you tell them the story of how your client came to need their help, and how you are going to explore, together, the company’s own books and records to reveal the very misconduct that you have told them about.  Then, because you have been thoughtful and diligent in creating your trial graphics, you will be successful at trial in utilizing your demonstratives as compelling visuals to help you tell your client’s case story.

The California Supreme Court has struck back in its ongoing battle with the United States Supreme Court as to the enforceability of arbitration agreements in consumer contracts.  On April 7, 2017, in McGill v. Citibank, the California Supreme Court held that a contractual waiver of the right to seek public injunctive relief—i.e., relief that serves primarily to benefit the public at large rather than redress private wrongs—is contrary to public policy and thus unenforceable under California law.  The McGill court further held that the Federal Arbitration Act (FAA) does not preempt its holding.  Pending a very possible review by the United States Supreme Court, the McGill holding serves to further limit the rights that parties may waive in arbitration agreements.

The Case

In 2001, plaintiff Sharon McGill opened a credit card account with Citibank and purchased a “credit protector” plan.  The credit protector plan required Citibank to defer or credit certain amounts on McGill’s credit card account when a qualifying event such as a job loss or divorce occurred.  Shortly thereafter, Citibank sent McGill a Notice of Change in Terms Regarding Binding Arbitration to Your Citibank Card Agreement (the “Notice”).  The Notice amended McGill’s original agreement by adding an arbitration provision allowing either party to elect mandatory arbitration of any claims arising out of McGill’s account.  The arbitration provision required arbitration of all claims, “no matter what legal theory they are based on or what remedy (damages, or injunctive or declaratory relief) they seek.”  It further precluded McGill from pursuing any claim or obtaining any relief as part of a class action or on behalf of others, whether in arbitration or in any forum.  McGill did have the right to opt out of the agreement by a certain date, but never did so and continued using her card.

In 2011, McGill filed a class action against Citibank based on its marketing of the credit protector plan and the handling of a claim she made when she lost her job in 2008.  McGill alleged claims under California’s consumer protection statutes: the Consumer Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq.); the unfair competition law (UCL; Bus. § Prof. Code, § 17200 et seq.); and the false advertising law (id., § 17500 et seq.).  Among the relief McGill sought was “an injunction prohibiting Citibank from continuing to engage in its allegedly illegal and deceptive practices.”  Citibank then petitioned to compel arbitration pursuant to the arbitration agreement.  The trial court granted the petition in part, but denied it as to the claims brought under the consumer protection statutes.  The trial court applied the Broughton-Cruz rule, which holds that agreements to arbitrate claims for public injunctive relief under the CLRA, UCL, or the false advertising law are not enforceable in California.  The Court of Appeal reversed, holding that the U.S. Supreme Court’s holding in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333 (“Concepcion”) preempts the Broughton-Cruz rule.  In Concepcion, the court held that the FAA preempts state law that prohibits the enforcement of arbitration agreements containing class action waivers.

The California Supreme Court reversed the appellate court, but did not reach the issue of whether Broughton-Cruz rule survived Concepcion.  The Court first determined that the Broughton-Cruz rule was not even invoked by the Citibank arbitration agreement.   Specifically, the Citibank agreement did not purport to require arbitration of the consumer protection claims, but instead precluded McGill from seeking public injunctive relieve in any forum.   That provision functioned as an outright waiver, not a mandate to arbitrate.  According to the Court, such a waiver is invalidated by California Civil Code section 3513, which provides that “a law established for a public reason cannot be waived by a private agreement.”  The Court held that the consumer protection laws, insofar as they allowed McGill to seek an injunction precluding Citibank from engaging in deceptive advertising practices, existed for a public reason and could not be waived.  If allowed, the Court reasoned, pre-dispute arbitration agreements waiving the right to seek public injunctive relief “would seriously compromise the public purposes [the CLRA, UCL, and false advertising law] were intended to serve.”  The Court held that such a waiver was therefore contrary to public policy and unenforceable under California law.

The Court next held that the FAA did not preempt this rule.  In asserting preemption and citing to Concepcion, Citibank argued that the FAA requires courts to “place arbitration agreements on an equal footing with other contracts and to enforce them according to their terms.”  The Court rejected Citibank’s argument, holding that the FAA only precludes courts from invalidating arbitration agreements based on defenses that apply only to arbitration.  By contrast, the defense at issue—Civil Code section 1513’s mandate that a law established for public reason cannot be waived by contract—applied to contracts generally, not solely to arbitration agreements.  That is, “a provision in any contract—even a contract that has no arbitration provision—that purports to waive” the right to public injunctive relief under the consumer protection laws is unenforceable.  According to the Court, the FAA does not require enforcement of such a provision.

The Court also distinguished the issue at hand from arbitration agreements waiving parties’ right to pursue class actions, which were addressed and allowed in Concepcion.  Whereas class action waivers only waive procedural rights—i.e., the mechanism by which substantive rights are pursued—a waiver of the right to seek public injunctive relief in any forum waived the substantive right to bring the claim at all.  That waiver went too far according to the Court.

Takeaway from McGill

For now, the McGill holding means that arbitration agreements purporting to waive a party’s right to pursue public injunctive relief in any forum are void.  But while the McGill court did not see the FAA as preempting this rule, the U.S. Supreme Court may disagree.  Also, because the McGill court concluded that the Broughton-Cruz rule was not invoked, it did not reach the issue of whether that rule was preempted by the FAA in light of Concepcion.  Unless and until the Supreme Court weighs in on these issues, businesses are advised to craft arbitration agreements carefully to ensure the desired provisions will be enforceable.  This includes provisions that address how to treat claims for injunctive relief under the CLRA, UCL, and false advertising laws.

Under California law, non-complete provisions are generally unenforceable.  But what happens when the non-compete provision appears in an employment contract that is governed by another state’s law with a forum selection clause limiting any dispute to that particular state?  All California courts in the past have refused to enforce a choice of law provision (absent a forum selection clause) that requires a California court to apply the law of a state that may be more favorable to non-competes on grounds that it violates California’s public policy concerning such restrictions.  Courts in California, however, have been more tolerant of forum selection clauses that will send a dispute over a non-compete provision to a forum that views them more favorably.  This dichotomy was recently on display in the case, Scales v. Badger Daylighting Corp.

Badger, a Nevada corporation with its principle place of business in Indiana, provides hydrovac excavation services.  Daniel Scales, who lives in California, was employed by Badger between 2014 and 2016.  Upon his gaining employment with Badger, he signed a confidentiality and non-competition agreement that provided certain restrictions on his ability to work for a competitor following the termination of his employment with Badger.  It also contained both a choice of law provision (i.e., that the laws of Indiana would apply) and a forum selection clause (i.e., any lawsuit would be filed in Marion County, Indiana).

In 2016, Mr. Scales left his employment with Badger and joined a competitor in the same field.  Badger filed a lawsuit for breach of contract in Marion County, Indiana. Shortly thereafter, Mr. Scales and others files a lawsuit in Kern County, California, alleging, among other things, a claim for declaratory relief that the non-compete provision he entered into was unenforceable as being contrary to California public policy.  Badger removed the lawsuit to federal court and then filed a motion to dismiss Mr. Scales’ declaratory relief claim on the grounds of forum non conveniens.

The U.S. District Court began its inquiry by determining whether there was a valid forum selection clause at issue in the agreement.  It noted that the U.S. Supreme Court has recognized that forum selection clauses “are presumptively valid and should be honored `absent some compelling and countervailing reason’.”  Furthermore, the Court would not give any consideration to the fact that Mr. Scales filed in California as the plaintiff’s choice of forum should not be given consideration in the analysis.

Plaintiff argued that the forum selection clause was invalid because it violated California’s public policy as set forth in California Labor Code section 925 and Business and Professions Code section 16600.  Section 925 of the Labor Code was recently enacted and makes any agreement by which a California employee is required to agree to an out-of-state choice of law/forum selection clause without the aid of counsel to be voidable.  However, this section only applies to contracts entered into after January 1, 2017.  Given that Mr. Scales entered into his agreement in 2014, the Court found that he could not take advantage of the recent change in law.

Turning its attention to California’s general prohibition on non-compete provisions in section 16600 of the Business and Professions Code, the Court held that enforcing the forum selection clause would not necessarily contravene the policy set forth by that section.  The primary focus was to determine whether the clause was reasonable and not to focus on the ultimate effect of enforcing such a clause.  In essence, unless Mr. Scales could show that granting the forum non conveniens motion would “foreclose all of [his] remedies,” the Court would uphold the validity of the forum selection clause.

To determine the validity of the forum selection clause, the Court was required to look at the “public interest” factors.  First, the Court was to look at the “localized interests,” i.e., the competing interests between the forum state and the state identified in the forum selection clause.  Badger argued that its headquarters were in Indiana and that Indiana had an interest in protecting its corporations from out-of-state competitors. The Court found this significant as well as the fact that Indiana was already handling litigation between the parties concerning Mr. Scales’ non-compete provision.

The next factor the Court was required to look at was familiarity with governing law.  Because the agreement also had an Indiana choice of law provision, the Court concluded that an Indiana court would be best positioned to apply its own laws especially since it was already considering litigation between the parties.

The final factor to be considered in the analysis is administrative difficulties.  Once again, the Court sided with Badger in its analysis.  The Court concluded that the fact that there was already pending litigation in Indiana warranted dismissal under the grounds of forum non conveniens to avoid duplicative or inconsistent results between the two lawsuits.  Thus, the Court granted Badger’s motion to dismiss Mr. Scales’ claim challenging the non-compete provision on the grounds of forum non conveniens.

Attorneys representing out-of-state employers in litigation involving the enforceability of a non-compete provision should consider whether there is a valid forum selection clause that will enable the defendant to litigate the dispute in a more favorable forum elsewhere. However, attorneys should be aware that if the contract at issue was entered into after January 1, 2017, it may implicate the provisions of section 925 of the California Labor Code and make such provisions voidable.