Sullivan v. Pulte Homes (7/31/13)

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We blogged the Court of Appeals opinion here. The Supreme Court took review only of the economic-loss issue. In a brief opinion the court agrees with the Court of Appeals but vacates that part of its opinion, perhaps to remove the weaker aspects of its analysis of Flagstaff.  The take-away: “We decline to extend the [economic-loss] doctrine to non-contracting parties.” The Sullivans can pursue a tort claim – though the opinion cites a Restatement note suggesting that they don’t have one.

This is one of the new slip opinions formatted to look like those from the SCOTUS. We’re going to assume that somebody got new software and that that’s the easiest way to use it. The other explanations involve unfortunate perceptions of the relationships between the courts and, also, vanity. But at least its good to see that our Supreme Court can afford printers than can handle decent fonts.

(link to opinion)

Clark v. Renaissance West (CA1 7/30/13)

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Businesses that use arbitration agreements with consumers will want to look at this one.

While in a nursing home Clark signed an agreement to arbitrate claims. When he later brought suit against it the nursing home raised the agreement as a defense. After an evidentiary hearing the trial court ruled it procedurally valid but substantively unconscionable: Clark’s expert testified that the arbitrators’ fees would exceed $22,000, Clark couldn’t afford that because he was retired and lived on a fixed income. The nursing home appealed; the Court of Appeals affirms.

“An arbitration agreement may be substantively unconscionable if the fees and costs to arbitrate are so excessive as to ‘deny a potential litigant the opportunity to vindicate his or her rights,’” citing Harrington, 211 Ariz. 241. The court in Harrington said that was a valid argument but that those plaintiffs hadn’t proved it. That’s why Clark got an evidentiary hearing and proved up the purported arbitration costs and his income. On appeal the nursing home questioned the expert’s conclusions and qualifications and whether Clark’s income was enough to cover the arbitration fees but those were factual and discretionary matters concluded by the trial court.

Harrington pointed out a solution: AAA rules allow fees to be reduced or waived in cases of “extreme hardship.” The nursing home wasn’t using those rules; it was a private, you-pick-one-and-we’ll-pick-one agreement that split costs equally. A provision that lets the arbitrator shift costs on a showing of extreme hardship may be the price to pay for keeping some of these agreements alive.   

(link to opinion)

Lund v. Myers (7/16/13)

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We blogged the Court of Appeals’ opinion here; go there for the facts.The Supreme Court vacates that decision, largely undoes the damage it caused, and gives some fairly clear directions on how to deal with the problem.

Rule 26(1)(f)(2) does not require the return of allegedly-privileged documents produced inadvertently. The party receiving the documents may return them, destroy them, or, if the party wants a ruling on them, file them under seal.

If the documents are filed under seal the trial court may not look at them until “the receiving party makes a factual showing to support a reasonable, good-faith belief that the document is not privileged.” (That involves briefing by both sides and since the trial judge in this case did not wait that long the case is remanded.)

How can the receiving party know enough about the documents to make such a showing? The rule’s prohibition on the “use” of the documents “does not preclude filing the documents with the court under seal and other conduct allowed by the rules” (our emphasis). The rule allows the party to “present to the court” . . . “the questions of privilege and waiver.” The opinion does not specifically say “you can examine the documents enough to figure out if they’re really privileged” but that seems to be the lesson we’re to draw. “Although . . . these actions involve a literal “use” of the documents, Rule 26(1)(f)(2) contemplates that the privilege claim may be ‘resolved’ through such use.”

If a proper showing is made, an in camera review determines if the documents are privileged. As to who should do that, “the trial judge should consider whether another judicial officer [note that it doesn’t say “judge”] should conduct the review in light of the possibility that a review of privileged documents may be so prejudicial as to require the judge’s recusal. If the trial judge conducts the review and upholds the privilege claim, the judge should consider whether recusal is then necessary.”

(link to opinion)