$00:
$10:STEVE BENYO, Plaintiff, vs. ALLSTATE INSURANCE COMPANY, SANDRA BENDER, individually and DOES 1 through 100, inclusive, Defendant.
$20:Case No.: SCV 37386
$25:SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN BERNARDINO, CENTRAL DISTRICT
$40:$%$?$%February 24, 1998, Decided
$45:$%$?$%February 24, 1998, Filed
$110:W. ROBERT FAWKE, Judge of the Superior Court
$115:W. ROBERT FAWKE
$120:$TJUDGMENT BY COURT PURSUANT TO CODE OF CIVIL PROCEDURE SECTION 437c
$TFor the reasons stated in this court's January 14, 1998 Order Granting Defendants' Motion for Summary Judgment,
$TIT IS HEREBY ORDERED, ADJUDGED AND DECREED that:
$T1. Plaintiff Steve Benyo take nothing by way of his complaint, and a judgment be entered in favor of defendants Allstate Insurance Company and Sandra Bender and against plaintiff on the complaint; and
$T2. Defendants Allstate Insurance Company and Sandra Bender shall recover from plaintiff Steve Benyo said defendants' costs incurred herein in the sum of $ 1,610.00.
$%$?$%DATED: FEB 24 1998
$TW. ROBERT FAWKE
$TJudge of the Superior Court
$%$?$%Peter H. Klee, SB# 111707$%Luce, Forward, Hamilton & Scripps LLP$%600 West Broadway, Suite 2600$%San Diego, CA 92101$%(619) 236-1414
$%$?$%Attorneys for Defendants Allstate Insurance Company and Sandra Bender
$TSUPERIOR COURT OF THE STATE OF CALIFORNIA
$TFOR THE COUNTY OF SAN BERNARDINO, CENTRAL DISTRICT
$%$?$%STEVE BENYO, Plaintiff, vs. ALLSTATE INSURANCE COMPANY, SANDRA BENDER, individually and DOES 1 through 100, inclusive, Defendants.
$TCase No.: SCV 37386
$TPROOF OF SERVICE
$TI, Michele McConnell, declare under penalty of perjury that I am, and was at the time of service of the papers herein referred to, over the age of eighteen years, and not a party to the action; and I am employed in the County of San Diego, State of California, in which county the within-mentioned service occurred. My business address is 600 West Broadway, Suite 2600, San Diego, CA. 92101.
$TOn February 5, 1998, I served the following documents:
$%$?$%$=BMEMORANDUM OF COSTS AND DISBURSEMENTS and JUDGMENT BY COURT PURSUANT TO CODE OF CIVIL PROCEDURE SECTION 437c$=R
$%$?$%$U$?$?$?$O by placing a copy in a separate envelope addressed to $%$?$?$? each addressee as indicated below and delivering to$%$?$?$? CalExpress for personal service.
$%$?$%$U$?$?$?$O by sending a copy via overnight mail.
$%$?$%$U$?X$?$O by placing a copy in a separate envelope, with postage $%$?$?$? fully prepaid, for each address named below for$%$?$?$? collection and mailing on the below indicated day $%$?$?$? following the ordinary business practices at Luce,$%$?$?$? Forward, Hamilton & Scripps LLP, at 600 West Broadway,$%$?$?$? Suite 2600, San Diego, California. I certify I am$%$?$?$? familiar with the ordinary business practices of my place$%$?$?$? of employment with regard to collection for mailing with$%$?$?$? the United States Postal Service.
$%$?$%$U$?$?$?$O by sending a copy via facsimile transmission to the$%$?$?$? telefax number(s) indicated below. The transmission$%$?$?$? report was reported as complete and without error. A $%$?$?$? transmission report was properly issued by the$%$?$?$? transmitting facsimile machine and a copy of said $%$?$?$? transmission report is attached to the original proof of$%$?$?$? service indicating the time of transmission.
$%$?$%Gregory L. Bentley$%Law Office s of Bentley and McGreal$%7365 Carnelian Street, Ste. 233$%Rancho Cucamonga, CA 91730$%(909) 941-8000$%(909) 466-7668 (fax)
$TAttorney for plaintiff
$TI declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct.
$TExecuted at San Diego, California on February 5, 1998.
$TMichele McConnell
$200:
$220:#EXTR#$?#BENYO-ALLSTATE-DOCS# 
$00:
$10:STEVE BENYO, Plaintiff, v ALLSTATE INSURANCE COMPANY, SANDRA BENDER, individually and DOES 1 through 100, inclusive, Defendants.
$20:Case No.: SCV 37386
$25:SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN BERNARDINO, CENTRAL DISTRICT
$40:$%$?$%January 14, 1998, Decided
$45:$%$?$%January 14, 1998, Filed
$110:Honorable William R. Fawke
$115:William R. Fawke
$120:ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES
$TOn December 16, 1997, this matter came before the Court on the Motion for Summary Judgment, or in the Alternative, Summary Adjudication of Issues brought by defendants Allstate Insurance Company and Sandra Bender. Peter H. Klee of Luce, Forward Howard & Scripps appeared on behalf of the defendants, and Greg Bently appeared on behalf of the plaintiff.
$TThe Court, having considered the moving and opposing papers filed by the parties, the evidence submitted therewith, and the oral arguments of counsel, hereby GRANTS defendants' motion in its entirety. Pursuant to C.C.P. $S 437c(g), the following sets forth the evidence and other reasons for the Court's decision.
$T$=BI
$T$UFACTS$O$=R
$TIn September 1994, plaintiff Steven Benyo was involved in an accident when a vehicle driven by an underinsured motorist ran a stop sign and collided with the truck he was driving. (Plaintiff's Cmplt., Para. 9.) At the time of the accident, Mr. Benyo was pulling a trailer containing equipment. ($IId.$N) The driver of the other vehicle was insured by Automobile Club of Southern California ("Auto Club"). Mr. Benyo was covered by an Allstate business automobile insurance policy. (Defendants' Ex. 1.)
$TA few days later, Mr. Benyo reported his accident to Allstate. (Defendants' Ex. 4, p. 1.) Mr. Benyo also made a claim to Auto Club for his injuries and damages to his trailer and equipment. Allstate paid Mr. Benyo more than $ 6,000 for damages to his truck. (Defendants' Exs. 6 and 7.)
$TOn May 12, 1995, Sandra Bender, the Allstate claim adjuster who was responsible for handling Mr. Benyo's underinsured motorist benefits claim, received a letter from Mr. Benyo's attorney, Gregory L. Bently, enclosing a copy of a demand letter Mr. Benyo had submitted to Auto Club and some documents. (Defendants' Ex. 12.) In the demand letter, Mr. Benyo demanded that Auto Club pay him $ 3,732.40 for medical expenses, $ 6,689.62 for property damage to his trailer and lawn care equipment, $ 16,200 for present lost earnings and $ 20,000 for future lost earnings from a lawn care business that he operated (Mr. Benyo eventually settled his claim with Auto Club for the Auto Club's policy limit of $ 15,000). ($IId.$N; Defendants' Exs. 5 & 15.) In support of his lost earnings claim, Mr. Benyo submitted prior invoices that apparently had been sent to several of his customers before t he accident. (Defendants' Ex. 13; Bender Dec., Para. 5.)
$TMs. Bender attempted to investigate Mr. Benyo's lost earnings, the largest component of his claim. She requested that Mr. Benyo provide Allstate with copies of tax returns, and the telephone numbers of any customers Mr. Benyo claimed he lost as a result of the accident. (Defendants' Ex. 14; Bender Dec., Para. 6.) Mr. Benyo refused to provide Allstate with copies of his tax returns and despite repeated requests, never gave Allstate the phone numbers of any customers he claimed to have lost as a result of the accident. (Defendants' Ex. 4, p. 18, Bender Dec., Par. 8.)
$TMr. Benyo subsequently demanded arbitration of his claim. (Defendants' Ex. 20.) Allstate's arbitration counsel sent a "Demand for Inspection of Documents" to Mr. Benyo requesting production of his income tax returns. (Defedants' Ex. 25.) Mr. Benyo objected to the demand and refused to produce his income tax returns, citing privacy reasons. (Defendant's Ex. 26.)
$TMs. Bender continued to attempt to obtain information regarding Mr. Benyo's lost earnings. Because she did not have the phone numbers of Mr. Benyo's customers, Ms. Bender attempted to contact the customers in writing. (Bender Dec., Para. 12.) She ultimately was able to make contact with twelve of the customers. Of those twelve, four indicated that they had terminated Mr. Banyo for reasons unrelated to the accident. (Bender Dec., Para. 14; Defendants' Ex. 28) For instance, Mr. Benyo's largest customer, Rancon Financial, stated in writing that it had terminated his services because the property he serviced had been sold, not because of the accident. (Bender Dec., Para. 14; Defendants' Ex. 29.) Eight customers indicated that they had terminated Mr. Benyo because he had not serviced their lawns on a regular basis. (Defendant's Ex. 27, pp. 156-57; Bender Dec., Para. 14.) Of those eight, some attributed Mr. Benyo's inconsistent service to the accident, others did not. ($IId.$N) In evaluating Mr. Benyo's lost earnings claim, however, Mr. Bender gave Mr. Benyo full credit for sixteen months of missed work, even though all eight customers indicated that he had worked periodically during that 16 month time frame (and presumably was paid for that periodic work). Defendant's Ex. 27, p. 156; Bender Dec., Para. 15.)
$TMs. Bender evaluated Mr. Benyo's claim in late February, 1996. The eight customers for which Ms. Bender gave Mr. Benyo credit accounted for $ 8,400 in lost earnings. (Defendants' Ex. 27, p. 96; Deffendants' Ex. 30; Bender Dec., Para. 15.) Ms. Bender determined that Mr. Benyo had also incurred legitimate medical expenses in the amount of $ 4,270, n1 and suffered general damages in the amount of $ 7,300. (Defendants' Ex. 27, p. 123-24; Bender Dec., Para. 16.) The total value of Mr. Benyo's claim was determined to be $ 19,970, which Ms. Bender rounded up to $ 20,000 (less the $ 15,000 Mr. Benyo received from Auto Club = $ 5,000). ($IId.$N) Ms. Bender also determined that Mr. Benyo's claim could be worth as much as $ 30,000, if he were to produce evidence supporting his claim for additional lost earnings. ($IId.$N)
$F$Tn1 The dollar figure Ms. Bender placed on Mr. Benyo's medical expenses was higher than what he actually paid for these services ($ 3,916) (Defendants' Ex. 31.), higher than the amount he requested in his initial demand ($ 3,732.40)(Defendants' Ex. 12.), and higher than what he requested during the arbitration proceedings ($ 3,732.40)(Defendants' Ex
. 32.)$E 
$TMs. Bender subsequently used a computer software program named "Colossus" to provide information concerning the potential value of Mr. Benyo's claim. (Defendants' Ex. 27, pp. 96-97; Bender Dec., Para. 17.) The information generated by the Colossus program placed a higher dollar value on Mr. Benyo's claim than had Ms. Bender. (Defendants' Ex. 27, pp. 206-7; Bender Dec., Para. 17) In response to this information, Ms. Bender increased the value she put on Mr. Benyo's claim by $ 800 to $ 20,800. ($IId.$N)
$TIn order to initiate settlement negotiations, Ms. Bender sent Mr. Benly a letter offering to settle Mr. Benyo's claim for $ 5,300. (Defendants' Ex. 33; Bender Dec., Para. 18.) Mr. Bently rejected Allstate's settlement offer and the case proceeded to arbitration. (Defendants' Ex. 34.)
$TThe arbitration was held February 12, 1997. At the hearing, Mr. Benyo introduced his tax returns for the years 1992 through 1995 -- the very documents that he had earlier refused to provide to Allstate. (Defendants' Ex. 39.) Mr. Benyo's tax returns showed that his gross business income had declined by half, from $ 49,026 in 1994 to $ 24,362 in 1995. (Defendants' Exs. 39 and 40.) The arbitrator awarded Mr. Benyo $ 15,000. (Defendants' Ex. 42.) Allstate promptly paid the arbitration award. (Defendants' Ex. 43.)
$TAfter this litigation had commenced, Allstate learned that Mr. Benyo had filed a bankruptcy petition with the United States Bankruptcy Court for the Central District of California on May 2, 1995 (shortly before Allstate received Mr. Benyo's first demand letter). In support of his petition, Mr. Benyo filed a "Statement of Affairs", declaring, under penalty of perjury, that he had ceased operating the lawn care business in $UJune, 1994,$O three months before the accident. (Defendants' Ex. 10.) Mr. Benyo also filed a for itemizing the value of his personal property. (Defendant's Ex. 11.) Mr. Benyo declared, under penalty of perjury, that the value of his business equipment and supplies was only $ 400. ($IId.$N)
$T$=BII.
$T$UDISCUSSION$O$=R
$TA. $UThe Undispusted Facts Establish that Allstate Acted Reasonably In Handling Mr. Benyo's Claim.$O n2
$F$Tn2 For convenience, defendants Allstate Insurance Company and Sandra Bender will be referred to collectively as "Alstate", except where noted.$E 
$TMr. Benyo contends that Allstate violated the duty of good faith and fair dealing in handling his underinsured motorist claim. The Court finds, as a matter of law, that Allstate acted reasonably in handling Mr. Benyo's claim and that , therefore, Allstate is entitled to summary judgment.
$T"A covenant of good faith and fair dealing is implied in every insurance contract. The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement's benefits." $IFrommothelydo v. Fire Ins. Exc.$N, 42 Cal.3d 208, 214 (1986). The mere fact that an insurance company withholds policy benefits that are ultimately determined to be owed does not establish a breach of the implied covenant of good faith and fair dealing. $IHanson v. Prudential Ins. Co.$N, 783 F.2d 762, 766 (9th Cir. 1985). Rather, to establish a breach of the implied covenant, it mu st be shown that the insurer's decision to withhold benefits was "unreasonable." $IId., Congleton v. National Union Fire Ins. Co.$N, 189 Cal.App.3d 51, 59 (1987); $IAustero v. National Casualty Co.$N, 84 Cal.App.3d 1, 32 (1978). 
$T"While the reasonableness of an insurer's claim handling conduct is ordinarily a question of fact, it becomes a question of law where the evidence is undisputed and but one inference can be drawn from the evidence." $ICarlton v. St. Paul Mercury Ins. Co.$N, 30 Cal.App.4th 1450, 1456 (1994). $IAccord Paulson v. State Farm Mut. Ins. Co.$N, 867 F. Supp. 911, 919 (C.D. Cal. 1994) ("As a matter of law, the conduct of State Farm in handling Paulson's $(uninsured motorist$) claim was reasonable").
$TIn this case, the undisputed facts establish, as a matter of law, that Allstae acted reasonably in handling Mr. Benyo's claim. Ms. Bender conducted a thorough investigation to try to verify the amount of Mr. Benyo's lost earnings. In doing so, she made every effort to reasonably maximize Mr. Benyo's verifiable lost earnings.
$TThrough her investigation, Ms. Bender was only able to verify that Mr. Benyo had sustained $ 8,400 in lost earnings. When Ms. Bender attempted to obtain tax returns and other information that would assist her in determining the amount of earnings Mr. Benyo actually lost, Mr. Benyo refused to cooperate. n3 Ms. Bende ultimately determined that the total value of Mr. Benyo's claim (lost earnings, legitimate medical expenses, and pain and suffering) was $ 20,800 (less the $ 15,000 Mr. Benyo received from Auto Club = $ 5,800). (Defendants' Ex. 27, p. 123-24; Bender Dec., Para. 16.) This evaluation was reasonable, given the information that Allstate had at the time.
$F$Tn3 Any delay that may have occurred while Ms. Bender attempted to verify the amount of Mr. Benyo's lost earnings was reasonable as a matter of law. $IGlobe Indem. Co. v. Superior Court$N, 6 Cal.App.4th 725, 731 (1992) ("There can be no 'unreasonable delay' until the insurer receives adequate information to process the claim and reach an agreement with the insured").$E
$TMr. Benyo argues that because the arbitrator subsequently awarded him $ 15,000, this creates a material issue of fact precluding summary judgment. Mr. Benyo is wrong. The reasonableness of an insurer's conduct is to be measured by the information confronting it at the time, and may not be judged by 20/20 hindsight. $IAustero$N, 84 Cal.App.3d at 32 (1978) ("It is essential that no hindsight test be applied. The reasonable or unreasonable action by the $(insurer$) must be measured as to the time it was confronted with the factual situation to which it was called upon to respond."); $IPaulson$N, 867 F. Supp. at 919 ("The fact that . . . the arbitrator subsequently found that State Farm owed $(the insured$) the limit of his policy does not imply that State Farm acted in bad faith in the first instance.") This rule is particularly applicable here, where the arbitrator was presented with proof of Mr. Benyo's lost earnings (the tax returns) that Allstate had previously been prevented from obtaining and e valuating.
$TMr. Benyo also argues that there is a material issue of fact as to whether Ms. Bender independently evaluated his claim or, instead, relied exclusively on the Colossus computer program to perform the evaluation. The Court disagrees. There is no evidence that Ms. Bender did not independently evaluate his claim. The undisputed evidence shows that Ms. Bender did an independent evaluation of the claim before she ran the Colossus program. (Defendants' Ex. 27, pp. 96-7) Moreover, Ms. Bender testified that she increased the value she placed on Mr. Benyo's claim as a result of the information Colossus provided. (Defendants' Ex. 27, pp. 206-7; Bender Dec., Para. 17.) The undisputed evidence also shows that Allstate claim adjusters have the authority to settle cases above the range recommended by Colossus. (Defendants' Ex. 45, p. 131).
$TFinally, Mr. Benyo's contention that Allstate uses the Colossus program to undervalue claims is directly refuted by undisputed statistical evidence showing that approximately 70% of the time, Allstate's settlement offers are higher than subsequent verdicts awarded by juries on the same claims. (Heiliger Dec., Para. 5; Defeendants' Ex. 46.)
$TBecause the Court finds, as a matter of law, that Allstate acted reasonably in handling Mr. Benyo's claim, Allstate is entitled to summary judgment in its favor as to the entire action.
$TB. $UMr. Benyo's Misrepresentations Voided The Insurance Policy$O
$TAn alternative reason for granting Allstate's motion is the fact that Mr. Benyo made material misrepresentations in connection with his claim. Mr. Benyo's Allstate insurance policy specifically provides that the policy " is void in any case of fraud by you at any time . . . ." The policy further provides that the policy is "void if you or any other 'insured,' at any time, intentionally conceal or misrepresent a material fact concerning . . . $(a$) claim . . . ." (Defendants' Ex. 1, at p. 9.)
$TIn the "Statement of Affairs" he filed with the bankruptcy court, Mr. Benyo declared, under penalty of perjury, that he ceased operating his lawn care business in $UJune, 1994$O -- three months before the accident. (Defendants' Ex. 11.) Nontheless, Mr. Benyo repeatedly represented to Allstate that injuries he allegedly sustained in the accident caused him to lose earning from the lawn care business. Similarly, Mr. Benyo filed a form in the bankruptcy court declaring that the value of his business equipment was only $ 400, but claimed to Allstate that he sustained $ 6,68.62 in damages to his equipment during the accident. (Defendants' Ex. 12.) These misrepresentations breached the above-quoted policy provision and voided the policy. $ICummings v. Fire Ins. Exchange$N, 202 Cal.App.3d 1407, 1418-19 (1988) (affirming summary judgment in favor of an insurance company where the insured made material misrepresentations in making a theft claim, thus voiding the policy); $IImperial Cas. & Indem. Co. v. Sogomonian$N, 198 Cal.App.3d 169, 184 (1988) (insurance company was entitled to rescind an insurance policy where the insured made material misrepresentations in the insurance application); $IBaldwin v. Bankers & Shippers Ins. Co.$N, 222 F.2d 953 (9th Cir. 1955) (insurance policy voided where insured misrepresented the value of equipment that was allegedly destroyed in a fire).
$TIn response to the evidence that he made material misrepresentations to Allstate, Mr. Benyo argues that his p revious sworn statement was "simply a mistake and an oversight." The doctrine of judicial estoppel, however, "precludes a party from asserting a position in a judicial proceeding which is inconsistent with a position previously successfully asserted in a prior proceeding. Thus, the essential function and justification of judicial estoppel is to prevent the use of intentional self-contradiction as means of obtaining unfair advantage in a forum provided for suitors seeking justice. The primary purpose of the doctrine is not to protect the litigants but to protect the integrity of the judiciary. The doctrine does not require reliance or prejudice before a party may invoke it." $IBillmeyer v. Plaza Bank of Comm.$N, 42 Cal.App.4th 1086, 1092 (1995) (emphasis added). $IAccord Billmeyer$N, 42 Cal.App.4th 1086 (plaintiffs judicially estopped from asserting a state lender liability claim where they failed to disclose the claim in a prior bankruptcy proceeding); $IConrad v. Bank of Am.$N, 45 Cal.App.4th 133 (1996) (same); $ISmith v. Fireman's Fund Ins. Co.$N, 1994 U.S. App. LEXIS 423 (6th Cir. 1994) (insured's statements in bankruptcy petition precluded insured from taking contrary position in subsequent insurance claim).
$TSimilarly, because Mr. Benyo swore to the Bankruptcy Court that he was no longer operating his lawn care business at the time of the accident, he was judicially estopped from making a claim to Allstate for lost earnings from that business. Without the lost earnings component of Mr. Benyo's claim, Allstate's settlement offer was more than reasonable.
$TThis is an alternative reason for granting Allstate's motion.
$TC. $UMr. Benyo's Request for Leave to Amend His Complaint$O
$TMr. Benyo also asserts that Allstate's motion should be denied because he recently filed a motion for leave to amend his complaint to add a cause of action for injunctive relief under Business and Professional Code $S 17200. The Court disagrees.
$TAs discussed about, Mr. Benyo has no evidence that Allstate's handling of his claim was unreasonable. Therefore, any claim for relief under $S 17200 must fail as well. $IState Farm Fire & Cas. Co. v. Superior Court,$N 45 Cal.App.4th 1093, 1110 (1996) ("Only a plaintiff who can point to insurer conduct which constitutes a fraud or breach of the implied covenant of good faith would have any basis for an action" under $S 17200).
$TIt is well established under California law that a court is not required to grant leave to amend a complaint where a pending summary judgment motion establishes that the proposed claim is unsupported by evidence. $IBostrom v. County of San Bernadino$N, 35 Cal.App.4th 1654, 1664 (1995); $IFoxborough v. Van Atta$N, 26 Cal.App.4th 217, 230 (1994).
$TMr. Benyo's request for leave to amend his complaint is denied.
$TD. $UMr. Benyo Can Point To No Provision Of The Contract That Was Breached$O
$TMr. Benyo contends that Allstate breached the insurance contract by disputing the value of his claim and resolving the dispute by arbitration. The Court disagrees.
$TAllstate has the express right to arbitrate disputed claims for underinsured motorist benefits. This right is established in both the California Insurance Code and the policy itself. Insurance Code section 11580.2(f) provides:
$=S$TThe po licy or an endorsement added thereto shall provide that the determination as to whether the insured shall be legally entitled to recover damages, and if so entitled, the amount thereof, shall be made by agreement between the insured and the insurer or, in the event of disagreement, by arbitration.$=I
$TMr. Benyo's policy includes the statutorily-required arbitration provision. The policy specifically provides that, if an agreement cannot be reached, the value of an underinsured motorist claim will be decided by arbitration:
$=S$TIf we and an "Insured" disagree whether the "Insured" is legally entitled to recover damages from the owner or driver of an "uninsured motor vehicle" or do not agree as to the amount of the damages that are recoverable by that "Insured", the disagreement will be settled by a single neutral arbitrator.$=I
$%$?$%(Defendants' Ex. 1, p. 3).
$TThe undisputed facts establish that there was a legitimate disagreement between Allstate and Mr. Benyo over the value of his claim and that the disagreement was resolved by arbitration. This procedure is specifically provided for in the California Insurance Code and the policy itself. Mr. Benyo is simply unable to point to any policy provision that was breached. Therefore, Allstate is entitled to summary judgment on his breach of contract claim.
$TE. $UMr. Benyo's Negligent Infliction of Emotion Distress Claim Fails As A Matter Of Law$O
$TAllstate is entitled to summary judgment on Mr. Benyo's negligent infliction of emotional distress claim for several reasons.
$TMr. Benyo has produced absolutely no evidence that he suffered the type of severe emotional distress required to maintain a claim for negligent infliction of emotional distress. To prevail on a cause of action for negligent infliction of emotional distress, a plaintiff must prove that he sustained "severe emotional suffering." $IBogard v. Employers Casualty Co.$N, 164 Cal.App.3d 602, 616 (1985). Severe emotional suffering means "emotional distress of such substantial quantity or quality that no reasonable man in civilized society should be expected to endure it." $IFletcher v. Western Nat. Life Ins. Co.$N, 10 Cal.App.3d 376, 397 (1970).
$THere, Mr. Benyo has not shown that he suffered any emotional distress as the result of Allstate's handling of his claim, much less the kind of emotional distress that "no reasonable man in civilized society should be expected to endure." $ISee Bogard$N, 164 Cal.App.3d at 607 n.4, 617 (allegations that plaintiff became "ill, nervous and upset" insufficient to withstand demurrer); $IGirard v. Ball$N, 125 Cal.App.3d 772, 788 (1981) (contentions that plaintiff could not sleep, suffered anxiety symptoms and was nervous do not constitute severe emotional distress).
$TMoreover, it is well settled under California law that an insurer cannot be held liable for mere negligent conduct in dealing with its insured. Rather, the standard applicable to the conduct of an insurer towards its insured is the $Ubad faith$O standard. $IBrown v. Guarantee Ins. Co.$N, 155 Cal.App.2d 679, 689 (1957) ("Only bad faith should be the basis for an insured's cause of action. Bad faith may involve negligence, or negligence may be indicative of bad faith, but negligence alone is not sufficient to render the insurer liable."); $ILysick v. Walcom$N, 258 C al.App.2d 136, 148 (1968) ("the liability imposed upon negligence"); $IPacific Auto. Ins. Co.$N, 156 Cal.App.2d 652, 659 (1958) (same).
$TBy asserting a negligent infliction of emotional distress claim against Allstate, Mr. Benyo has attempted an end-run around the requirement of proving the higher standard of bad faith. This is true because "negligent infliction of emotional distress" is nothing more than a claim for "negligence." $IMarlene F. v. Affiliated Psychiatric Medical Clinic, Inc.$N, 48 Cal.3d 583, 588 (1989) ("The $Unegligent$O causing of emotional distress is not an independent tort, but the tort of $Unegligence$O") (emphasis in original); $ISoto v. Royal Globe Ins. Co.$N, 184 Cal.App.3d 420, 434 (1986) (holding that emotional distress damages are not recoverable for mere negligent conduct); $IBurgess v. Superior Court$N, 2 Cal.App.4th 1064, 1072 (same).
$TFor these reasons, Allstate is entitled to summary judgment on Mr. Benyo's negligent infliction of emotional distress claim. n4
$F$Tn4 Allstate is also entitled to summary judgment on Mr. Benyo's punitive damages claim. As discussed above, Mr. Benyo has no evidence that Allstate acted unreasonably -- let alone clear and convincing evidence that Allstate is guilty of malice, oppression or fraud -- which is required to maintain a claim for punitive damages.$E
$T$=BIII.
$T$UCONCLUSION$O$=R
$TFor all of the foregoing reasons, IT IS HEREBY ORDERED that Allstate's Motion for Summary Judgment or, in the Alternative, Summary Adjudication of Issues, is GRANTED in its entirety.
$%$?$%DATE: JAN 14 1998
$THonorable William R. Fawke 
$200:
$220:#EXTR#$?#BENYO-ALLSTATE-DOCS# 
$00:
$10:STEPHEN SLESINGER, INC., Plaintiff, v. THE WALT DISNEY COMPANY, Defendant.
$20:CASE NO. BC 022365
$25:SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES
$40:$?$%March 29, 2004, Decided
$90:SSI's complaint against Disney dismissed with prejudice as a terminating sanction.
$110:CHARLES W. McCOY, Jr., Judge of the Superior Court.
$115:CHARLES W. McCOY, Jr.
$120:$TSTATEMENT OF DECISION
$TRE: DEFENDANT'S MOTION FOR SANCTIONS
$T$=BI.$=R
$T$=BPREFACE$=R
$TThe Court here confronts a situation where a party, Plaintiff, Stephen Slesinger, Inc. ("SSI"), has tampered with the administration of justice and threatened the integrity of the judicial process. SSI's misconduct is so egregious that no remedy short of terminating sanctions can effectively remove the threat and adequately protect both the institution of justice and Defendant, The Walt Disney Company ("Disney"), from further SSI abuse. Exercising its inherent powers to preserve and protect the integrity of the judicial process, the Court dismisses SSI's action with prejudice as a terminating sanction.
$T$=BII.$=R
$T$=BOVERVIEW$=R
$TSoon after filing this action in the early 1990s, SSI embarked on a course of conduct extendi ng over many years aimed at secretly acquiring Disney documents related to this litigation. SSI did not keep any records showing when, how and where it obtained Disney material. It did not record the full range, quantity and identity of: Disney documents procured; Disney documents retained; and Disney documents discarded. No reliable chain of custody was established. This absence of records is not, in the Court's view, accidental. The investigator who surreptitiously procured documents for SSI destroyed his notes and shredded his payment records by hand. SSI wanted his activities kept secret.
$TIn the absence of any records, the Court cannot know the full sweep of SSI's activity, and SSI cannot give any sort of satisfactory accounting. The Court has no acceptable assurance SSI has produced all Disney writings acquired through its investigator. Deceptions surrounding SSI's piecemeal and grudging production of Disney documents causes the Court to believe SSI likely still possesses additional Disney material.
$TThe documents examined in these proceedings were created by many Disney organizations operating at multiple, separate facilities. The materials include attorney-client and attorney work product documents. The more than 6,400 pages involved represent only a small portion of the Disney writings SSI acquired through its investigator. SSI claims it, and its agents, reviewed and then discarded the remainder. The Court is not convinced all the remaining acquired documents have been discarded. Only SSI knows what information was, or is, in those materials.
$TSSI characterizes the Disney documents SSI claims to have discarded as "useless," but the Court has no way to confirm that assertion, and doubts it in light of the extensive deceptions SSI has employed to conceal its activities and SSI's demonstrated unwillingness to voluntarily, immediately, and fully produce the materials when required.
$TThe Disney documents which SSI admits keeping are decidedly not useless. A number of key writings SSI retained are directly related to this litigation and reveal, among other things, privileged information useful to an opponent such as SSI. Indeed, after SSI's misconduct came to light, it filed a motion seeking leave to use one of the documents against Disney, arguing the writing was "highly relevant" to SSI's claims. The declaration of SSI's investigator, attached in support of that motion, was wilfully false and calculated to induce the Court to rely on false testimony in deciding a motion in SSI's favor -- an attempted fraud on the Court.
$TSSI principals who read Disney's writings possess in their minds information which no Court order or sanction can purge. The Court does not believe SSI will comply fully with any future remedial order if SSI concludes, as it apparently has in the past, that compliance with a court order does not serve its private tactical objectives. SSI's willingness to tamper with, and even corrupt, the litigation process constitutes a substantial threat to the integrity of the judicial process -- a threat requiring decisive, effective and stern sanctions to fully protect the institution of justice, its processes and its litigants from future abuse.
$T$=BIII.$=R
$T$=BDISCUSSION$=R
$T$=BDisney Documents Unlawfully Obtained and Altered by SSI$=R
$TAfter commencing this litigation in the early 1990s, SSI hired an investigator, Mr. Terry Sands, to surreptitiously procure Disney documents outside the regular discovery process. Ms. Pati Slesinger is SSI's sole shareholder. Her husband, Mr. David Bentson, acti ng for SSI along with SSI's lawyers, received Disney writings from Sands as he acquired them. On occasion, Sands discussed his planned activities with SSI and its agents in advance. In most instances, SSI gave Sands a free hand.
$TNeither SSI, nor any of its agents, maintained logs or other records of what Disney documents Sands provided. SSI claims to have discarded many documents received from Sands, but SSI did not make any record of what it discarded or when.
$TThe absence of records, considered with all the circumstances presented, leads to a rational inference that a candid and complete accounting would: impeach SSI's and Sands' assertions that Disney's documents were lawfully obtained from a single source; impeach SSI's assurances that all involved documents have either been disclosed to the Court or discarded by SSI and that none have been retained; and impeach SSI's claim that Disney's documents were useless.
$TSands attempted unconvincingly in his testimony to narrow his sources of Disney writings to a single dumpster enclosure. He testified that his first search, executed at a Disney convention hotel, netted no documents other than one he removed from a waste paper basket and returned. Other than the hotel waste paper basket, Sands claimed he only took Disney documents from dumpsters located at a single Disney site -- Buena Vista Plaza, 2411 West Olive, Burbank, CA.
$TMr. Sands admitted taking "bags full" of documents on numerous occasions and, once in his possession, SSI became responsible to account for them. Sands delivered some of the bags full to SSI without first sorting through the material. In those instances, he left the sifting task to SSI.
$TThe Court does not believe Sands' testimony that he consciously decided against taking documents from facilities other than Buena Vista Plaza because penetrating those locations would, in his judgment, constitute a trespass. The Court agrees that entering the other facilities would constitute a trespass, but does not believe Sands avoided those other locations for that reason. Mr. Sands does not impress the Court as a person who considers himself constrained by trespass laws.
$TSands testified that before taking Disney material from Buena Vista Plaza, he checked with the Burbank Police Department to make sure his conduct, as he described it to the police, was legal. Sands kept no note of the contact, and no police report or other record was supplied to corroborate the contact. Sands admitted he did not show the police photographs of the Buena Vista Plaza dumpster enclosure, and he did not inform the police that Buena Vista Plaza and Disney were his targets. The Court does not believe the police contact ever occurred.
$TSoon after beginning his work for SSI, Sands obtained a directory of Disney personnel and their corresponding site locations. He used the directory to identify and survey multiple facilities where he might procure documents relating to this litigation. While he claims not to have penetrated any site other than Buena Vista Plaza, the Court does not believe him. Sands' initial survey formed the prelude for multiple trespasses over an extended period of years at many targeted facilities.
$TThe truth emerged, in part, when Mr. Sands failed to provide a credible explanation for his deposition statement that the fruits of his activities depended on how much time he spent at "any given location." Additionally, Sands claimed he removed documents from four dumpsters within the Buena Vista Plaza enclosure. That 10x13 foot enclosure apparently never co ntained four dumpsters. Sands testified the trash bags at Buena Vista Plaza were clear plastic and that he peered through them to determine whether they contained targeted documents. The bags used at the time by Buena Vista Plaza janitors were dark plastic, not clear. It appears Mr. Sands confused his activities at various Disney locations. 
$TA surveyed location of particular interest was the Golden State Fibres site at Canoga Park. Disney contracted with Golden State to dispose of internal company documents -- including writings of the sort involved here. Disney employees dropped documents in special containers located inside Disney offices. Golden State collected the material and transported it, in containers, to the Canoga Park facility, where documents were pulverized. n1
$F$Tn1 Disney employees may have discarded a number of documents in the ordinary trash not serviced by Golden State, but the Court is not convinced the large volume and wide variety of writings Sands procured slipped through the system through a single dumpster source at Buena Vista Plaza as SSI and Sands maintain.$E
$TMr. Sands figured out Golden States' role and followed its trucks to find the Canoga Park site. This facility provided Sands with an obvious goldmine of Disney writings collected from multiple local Disney offices. He was sure to find targeted documents there.
$TMr. Sands denies taking any Disney documents from the Canoga Park site, but the Court does not believe him. Sands testified that Dale Holman, Jr. occasionally went with him on document acquisition trips. Holman, Jr. testified his role was to remain in the car and flash the lights, or honk the horn, if someone approached. Holman, Jr. recalled going with Sands to an industrial site in "Reseda or Canoga Park" surrounded by a fence, where Sands entered private property through a hole in the fence and took documents, stuffing them into a duffel bag. n2 The Court believes Sands entered the Canoga Park site and took Disney documents. n3 The wide variety of Disney documents involved here, originating from multiple Disney organizations at many separate office locations, persuades the Court, along with other evidence, that Golden State Fibres was a primary source of Disney documents procured by Sands.
$F$Tn2 SSI urges the Court to disregard most of Holman, Jr's declaration on grounds he specifically initialed only two paragraphs. The Court finds that Holman, Jr. approved the declaration by placing his initials on all the disputed pages. The Court has not considered Sean Anderson's testimony for any purpose, whether corroborative of Holman, Jr. or otherwise, in reaching a decision here. The Court overrules SSI's objections to other declarations submitted by Disney, except the Court sustains SSI's objections to: Page 3, paragraph 10, lines 9-12 of the Huebner declaration; and all characterizations of the contents of documents stated in the Jih declaration. The Court overrules Disney's objections to declarations submitted by SSI, except the Court sustains Disney's objections to: Page 2, lines 6-7 of the 1/29/04 Fausett declaration; Page 20, lines 9-12 of the Sorensen declaration; and Tabs 10-11 of the SSI Appendix containing a law enforcement bulletin and a Chicago Tribune article.$E 
$F$Tn3 While Golden States' President, Mr. Co llet, wishes to believe his site, and related procedures, were secure from unauthorized penetration, they apparently were not.$E
$TIn the mid-1990s, Disney security personnel received two anonymous telephone calls. The single caller stated he worked with Terry Sands and that he and Sands had been taking Disney documents from locations in Northridge, Burbank, Glendale and trash cans on Flower Street. The caller said documents had been taken off desks inside offices, as well as from trash containers. He indicated David Bentson had hired Sands to obtain documents relating to a lawsuit involving licences and royalties for Winnie the Pooh. Disney security investigated the anonymous tips but developed no actionable information verifying the caller's statements.
$TDale Holman, Sr. later admitted he was the anonymous caller. He and Sands together procured Disney documents on numerous occasions. While Holman, Sr. now seeks to distance himself from the truth of his originally anonymous statements, the Court finds his initial statements constitute the truth, and his attempts to disavow them are false. n4 Holman, Sr. has an obvious motive to avoid admitting he committed potentially criminal acts, as does Sands. Holman, Sr. now claims he made the anonymous calls because he was mad at Sands but cannot remember why he was mad. The Court does not believe Holman, Sr. informed on Sands over a trivial cause which he cannot now remember, especially since Holman, Sr. was implicating himself in serious misconduct.
$F$Tn4 Holman, Sr's attempt at wholesale written correction of his deposition testimony is, in this Court's view, a fabrication unworthy of belief.$E
$TMr. Sands, for his part, claims the anonymous calls coincided with an occasion when Sands discovered Holman, Sr. had molested Mr. Sands' daughter. Contemporaneous court documents relating to Mr. Sands' report of that incident, however, show he did not learn of the molestation until well after Holman, Sr. made the anonymous calls.
$THolman, Sr. now claims only to have participated in taking documents from dumpsters at Buena Vista Plaza, but he admits going with Sands to a location in Canoga Park. Holman, Sr's story now predictably matches that of his accomplice. But, when his deposition was taken earlier, Holman, Sr. drew a diagram of a target facility that did not remotely resemble the Buena Vista Plaza enclosure. Indeed, Holman, Sr's drawing more closely sketches other Disney facilities surveyed and penetrated by Sands and Holman, Sr. When shown photographs of the Buena Vista Plaza site, Holman, Sr. did not recognize it.
$TThe Court is fully convinced the writings procured by Sands did not come from a single dumpster source at Buena Vista Plaza as Mr. Sands claims and SSI asserts. As one of many, many documentary proofs: Sands procured a Disney audit report with the name "Vince Jefferds" highlighted on the distribution list. The document Sands acquired was a copy originally distributed to Mr. Jefferds, who worked in offices at Disney's main studio lot. Jefferds never worked at the Buena Vista Plaza location. Another example: Sands procured a series of documents involving Wendell Mohler, who worked for Jefferds. Many of these materials were stamped "Received" by Mohler's office. Others bear handwritten checkmarks next to Mohler's$=P1 298*13 name on a "cc:" list. Like Jefferds, Mr. Mohler never worked at Buena Vista Plaza. n5
$F$Tn5 The presence of Management Audit and other functions at Buena Vista Plaza does not, on the evidence presented, disturb findings that Mr. Sands acquired Disney documents from multiple sources. The Court is persuaded by other evidence, including Mr. Sands' demeanor on the witness stand, that far more than a single dumpster source was involved.$E
$TSSI's single dumpster thesis is untenable, and the Court rejects it as unpersuasive.
$TEven if Buena Vista Plaza was the only location penetrated by Sands, he still had no right to trespass that property, open the metal gates closing the dumpster site (whether or not they were locked), lift up the metal dumpster lids, climb into dumpsters and/or reach into them, and take targeted Disney documents. n6 The Plaza dumpsters were located on private property, not at a street curb as occurs on trash collection days in residential neighborhoods. The applicable Burbank Municipal Code prohibits unauthorized removal of the contents of any garbage container. B.M.C. $Z 24-108(d), 24-111(f).
$F$Tn6 SSI, through Sands, trespassed Disney's protected leasehold interest at Buena Vista Plaza. (Ex. 209, Standard Form Office Lease P16, Rules and Regulations PP5, 24; Ex. 210 at 14, P25.)$E
$TThe contents of the Plaza dumpsters were not, in this Court's view, made available to the public so as to give SSI a right to treat Disney's documents as abandoned and use them for private advantage. $IAnanda Church of Self-Realization v. Massachesetts Bay Ins. Co.$N (2002) 95 Cal. App. 4th 1273 does not apply, because, here, SSI took Disney's documents unlawfully in the first instance, rendering abandonment inapplicable. $IAnanda$N holds, for insurance purposes, that abandoned trash is not insurable under a property damage policy. $IAnanda$N does not disturb the settled rule that abandonment requires a finding that a party relinquished its right to control its property at the point where the challenged taking occurred. The Court finds, on the evidence presented, that Disney had not relinquished its right to control its documents at any of the many sites where Sands took Disney documents, including Buena Vista Plaza.
$TSSI claims it instructed Sands to only obtain Disney documents by lawful means, but SSI remains fully responsible for Sands' misconduct, even if his acts, as SSI's agent, were contrary to SSI's explicit instructions. $IMartin v. Leatham$N (1937) 22 Cal. App. 2nd 442, 445. In light of all the circumstances, SSI had to suspect Sands was engaged in questionable conduct and that he was procuring documents from many Disney sources. Yet, SSI failed to adequately supervise Sands' activities. Rather, it essentially closed its eyes in circumstances which, if not carefully controlled, could lead to grave consequences.
$TWhile SSI closed its eyes to Sands' activities, it paid close attention to the fruits of his labor. Several examples illustrate the point.
$T$=B$ISuit Overview Document$N$=R
$TMr. Bentson testified that Sands procured a document titled Suit Overview. (Ex. 532.) The writing, when obta ined by Sands, bore a privilege legend on its cover sheet. Material of this nature, prepared by Disney's Strategic Planning Department with its lawyers, always bore a "Privileged & Confidential -- Attorney Work Product" cover sheet legend.
$TEven the most cursory reading of the document's contents indicates its privileged nature. The Suit Overview distills "two central issues" of this case and contains a risk analysis of potential outcomes, with percentage risks assigned. One page, titled "Expected Value of Potential Outcomes," charts various assumed results with corresponding contingencies. While numbers are not assigned to values on the chart, the analytical framework is fully revealed.
$TAt its core, the Suit Overview evaluates Disney's chances for success in this litigation. While the evaluation is preliminary and incomplete, it is hard to imagine a work product document whose contents could be more confidential. Indeed, the work product privilege is absolute for this type of material. SSI had to realize the tactical significance of the document. SSI's attorneys surely did.
$T$=B$IAttorney Memorandum$N$=R
$TSands procured and provided SSI a Disney Legal Department memorandum with the subject line $U"Slesinger v. Disney."$O (Ex. 533.) The document, written on "Office of Counsel" letterhead, was marked "PRIVILEGED AND CONFIDENTIAL." Addressed to Edward Nowak, Disney's senior in-house litigation attorney handling this case, the memo analyzes the meaning of the term "merchandise" for purposes of the Agreement in dispute here. The copy produced by SSI bears a fax header showing it was transmitted from Pati Slesinger's offices to SSI's attorneys.
$TSSI, and its attorneys, circulated the document among themselves and reviewed it in detail. In producing the memo, SSI redacted notes made on it by SSI, or its attorneys, and now claims a privilege for the marginalia. The contrast between SSI claiming privileges for itself, on the one hand, and utterly disregarding Disney's privilege rights, on the other, could not be more revealing.
$TSSI, and its attorneys, secretly read Disney's privileged thinking on a core issue in this litigation. And, as previously noted, they secretly read Disney's privileged analysis of potential outcomes.
$TOne must pause here.
$TConduct of this sort strikes at the heart of the judicial process. Lay persons know that. Lawyers do too.
$T$=B$IRestricted Items List$N$=R
$TMr. Sands procured a Disney Restricted Items List. This 278-page document, maintained by Disney in-house counsel, summarizes information relating to exclusive licenses with third parties.
$TOne copy of the document produced by SSI's attorneys (Ex. 539A) contains a cover page labeled $=B"CONFIDENTIAL"$=R in large, bold letters. That copy also includes within it a Corporate Participants section containing 24 pages of material with $=B"CONFIDENTIAL - For Internal Use Only"$=R stamped in bold letters at the bottom of each page. n7
$F$Tn7 Mr. Sands claims he never knowingly took any documents from Disney marked confidential. SSI, however, concedes it received the Restricted Items List from Sands. The document, conspicuous in bulk and nearly two inches thick, bore on its face, in bold-faced, large capitals, the legend "CONFIDENTIAL." The Court believes Mr. Sands took the document knowing it was marked "CONFIDENTIAL."$E
$TIn contrast, another copy of the same Restricted Ite ms List (Ex. 541A), produced from Pati Slesinger's files, lacks the confidential legend on its cover page and lacks the 24 confidential Corporate Participants pages, creating the false appearance that Disney made no claim of confidentiality as to any portion of the document.
$TSSI suggests Disney may have generated two versions of the document, one confidential and one non-confidential. No evidence supports this hypothesis and, to the contrary, Disney's in-house attorney personally responsible for creating the List, Ms. Vipperman, declared she never generated a non-confidential version and never omitted the confidential Corporate Participants section materials. n8
$F$Tn8 While others apparently participated, at times, in preparing the Restricted Items List ($Ie.g.,$N Shoosh Karpman, Julie White and Lea Adamitz), no evidence demonstrates that any of them varied from Ms. Vipperman's stated practices and procedures.$E
$TExpert testimony by forensics document examiner Erich Speckin establishes that the Restricted Items List from Ms. Slesinger's file, with the confidential legend missing on its face page, is the source document from which SSI and its agents made copies bearing the confidential legend. The legend was removed from Ms. Slesinger's document after copies were made. Unique, identical damage markings common to all copies prove the point beyond all reasonable doubt.
$TPati Slesinger's List and SSI's counsel copies are not independently created versions. The cover page on her List is an altered replacement of a page originally bearing a confidential legend. The cover pages on SSI's counsels' Lists are copies of the cover originally on Slesinger's List before alteration. Ms. Slesinger, or someone acting for SSI, altered her cover page, eradicating the word $=B"CONFIDENTIAL"$=R to create the false appearance that Disney made no claim of confidentiality as to the entire document possessed by SSI in Ms. Slesinger's files and to create the false impression that Disney created both non-confidential and confidential versions of the Restricted Items List. n9
$F$Tn9 Producing in civil discovery documents which the producing party has altered, and which the producing party pretends not to have altered, can constitute a crime. $ISee People v. Pereira$N (1989) 207 Cal. App. 3d 1057. Removing pages, as well as secretly redacting written portions of pages, is equally offensive.$E 
$TThe Court finds that the Restricted Items List which Mr. Sands delivered to SSI contained all 24 pages of the confidential Corporate Participants section, and all those pages were marked $=B"CONFIDENTIAL - For Internal Use Only."$=R An orange divider page immediately following the Corporate Participants title page in the Slesinger List has a tiny piece of white fibrous material on it. While not conclusive, the fibrous material is consistent with a finding that white paper once occupied the space been dividers in Ms. Slesinger's List. The initial pages of the 24-page group from SSI's counsels' copies have damage patterns matching the damage pattern on the Corporate Participants title page in the Slesinger List.
$TThe Court finds that SSI's counsels' copies were made from 
the Slesinger List at a time when the Slesinger List contained the 24 pages of confidential Corporate Participants material. SSI, or someone acting in its behalf, subsequently removed the 24 pages marked confidential from the Slesinger List to create the false impression that the contents of the Restricted Items List were not confidential and to create the false impression that Disney created both non-confidential and confidential versions of the Restricted Items List.
$TSSI eventually produced to Disney certain pages removed from the Restricted Items List, claiming SSI had only recently found the pages in its files, and claiming not to know how the pages got into SSI's files. At about the same time, SSI made statements to the Court calculated to lead it to believe those pages were not confidential. When Disney moved for a protective order, SSI again disclaimed knowledge of confidentiality. Disney ultimately took its motion off calendar when SSI agreed to return to Disney "all copies ... of the contract summaries." That representation proved false. SSI retained copies of the material, including the source document in Pati Slesinger's file.
$TContrary to its representations to Disney and the Court, SSI knew how it had obtained the Restricted Items List and knew it bore conspicuous confidential markings when originally procured by Sands. SSI either knew, or certainly should have known, that it had not returned all copies of the List to Disney. Whether intentionally deceptive, or something less culpable, the Court finds that SSI cannot be trusted to comply fully with any future order requiring it to purge its files of improperly obtained Disney documents. The Court finds SSI knowingly did not return all copies of the Restricted Items List, and the deception was intentional.
$T$=B$IInterrogatory Tables$N$=R
$TIn preparing to respond to a series of interrogatories propounded by SSI in this case, Disney compiled an extensive set of Interrogatory Tables protected by the attorneys' work product privilege. Sands surreptitiously obtained a number of Interrogatory Table pages. n10 (Exs. 535A, 567/567A, 1029A.) A copy of a Table page produced by SSI's counsel (SSI-X 11760) bears the legend "Attorney work product. Privileged and confidential. Created at the request of counsel." This page bears two fax headers showing it was faxed from Pati Slesinger's Goldbook office and from Sirley Lasswell's Slesinger & Ryder office. n11 SSI reviewed the document.
$F$Tn10 Sands may have obtained the entire table. Neither Sands nor SSI have fully accounted for what was taken.$E
$F$Tn11 Ms. Lasswell is SSI's only corporate officer and board member.$E
$TLike the privileged $USlesinger v. Disney$O memo, the Table page has been redacted to remove notations added by SSI which SSI now claims are privileged. The page is part of a larger set of 24 pages of Interrogatory Tables produced from the files of SSI's attorneys during Disney's inquiry into Sands' activities (SSI-X 12943-66). SSI's attorneys disclosed that this 24-page set came originally from Pati Slesinger. While the single page and 24-page group bear the same date, format, and general content, the privilege legend is missing from every page of the 24-page set.
$TThe Court believes all the Interrogatory Table pages presently in question were originally created by Disney with privilege legends. The Court finds the Table pag e produced by SSI's counsel and the Table pages from Pati Slesinger's file all came from the same legend-bearing source. Transient photocopying damage marks prove they came from a common source document.
$TThe Court finds that SSI, or someone acting on its behalf, removed Disney's privilege legends without disclosing the alterations when the material was ultimately produced. The deception was calculated to create a false impression that Disney had originally generated the material without protective legends.
$TMs. Slesinger claimed, in live testimony before the Court, that she did not remove the confidential and privilege legends from the Restricted Items List and the Interrogatory Table documents. Her demeanor on the witness stand when making those denials, coupled with evidence linking her directly to the documents, n12 convinces the Court that Ms. Slesinger's denials were false.
$F$Tn12 Altered Disney documents were produced from her files.$E
$T$=B$IThe Remaining Body of Disney Documents$N$=R
$TMany of the remaining documents contain material which, on its face, appears to constitute confidential business and/or legal information. A few examples include: privileged and confidential memoranda concerning Disney negotiations with the Milne Trust for addition of a Winnie the Pooh attraction at Tokyo Disneyland (Exs. 572-80) and concerning the scope of Disney's legal rights relating to Winnie the Pooh (SSI-X 13325-26), rights at issue here; draft Disney discovery responses in this case (SSI-X 11583-11594); draft agreements with handwritten change suggestions (SSI-X 11709-40); draft answers and counterclaims to be filed by Disney in an unrelated lawsuit (SSI-X 11052-72); and documents discussing matters addressed to Disney's Legal Department (SSI-X 11630).
$TRedactions of marginal notes on over 300 pages of these documents -- cataloged in SSI's redaction logs -- suggest extensive document-by-document review of the material by SSI or its agents.
$TIn late 2002, SSI filed a motion seeking the Court's permission to use one of the Sands-procured Disney documents in this litigation, arguing it is "highly relevant" to the merits of SSI's claims. SSI supported its motion with a declaration of Mr. Sands. The Sands declaration is misleading and outright false in material respects. The Court does not believe Mr. Sands' statement in his declaration that he contacted the Burbank Police Department, and finds he did not. Mr. Sands made the false statement to mislead the Court into believing Sands' conduct was considered appropriate and lawful by local police. Further, Mr. Sands declared: "Although I did visit dumpsters at two other locations $(in addition to Buena Vista Plaza$), I never found any documents related to Winnie the Pooh from those locations and never delivered any documents from those locations to David Bentson or the lawyers." The Court finds, on the evidence previously discussed, that Mr. Sands in fact "visited" more than just two other locations in addition to Buena Vista Plaza. n13 His false statement confining his "visits" to only two other locations was calculated to mislead the Court into believing incorrectly that Sands' activities were very limited in scope.
$F$Tn13 To say in his declaration that he never "found" any documents related to Winnie the Pooh at 
other locations supports, along with other evidence, an inference that he actively searched for documents at those other locations. Mr. Sands did far more than simply "visit" other Disney facilities, he searched them for documents.$E
$TMr. Sands' live testimony, and his demeanor while testifying, along with other evidence, convinces the Court that the Sands declaration of October 11, 2002 is willfully misleading and false and calculated to induce the Court to rely on deceptive, false testimony in deciding a motion in SSI's favor -- an attempted fraud on the Court. n14
$F$Tn14 SSI's motion, with the Sands declaration attached in support, is presently pending before this Court and would be flatly denied if it were not mooted by terminating sanctions. When the motion was originally filed, the facts now presented had not yet come fully to light. Thankfully, the truth emerged in time to thwart the attempt at inducing the Court to rely on falsifications.$E
$TSSI argued at the February hearing that any mistakes it may have made were a product of confusion and inadvertence on its part. The Court does not accept either excuse. On numerous occasions, both formal and informal, on the record and off, SSI had opportunities when it could have, and should have, made a complete and fully candid disclosure. It did not, and, instead, chose the opposite deceptive course, avoiding affirmative, voluntary disclosure at every turn, except on a single occasion in October, 2002, when SSI decided that proactive disclosure of a single Disney writing worked to its tactical advantage.
$TWhen disputed documents first emerged in discovery, SSI claimed falsely not to know how it had obtained them. SSI next claimed falsely that confidential documents bore no confidentiality legends, when SSI had itself removed the legends to support its false assertion that the material was not confidential. SSI next delivered a batch of disputed documents to Disney, claiming falsely to have returned all copies in its possession -- a tactic apparently designed to end the controversy short of full disclosure. The tactic worked at first, as Disney agreed to withdraw a motion which had placed the issue of questioned documents before the Court. Neither Disney nor the Court knew at the time that SSI possessed far more documents than the few then at issue.
$TAt a deposition of Ms. Shirley Lasswell, Disney asked about the anonymous caller's tips, and Ms. Lasswell responded: "I don't know anything about anything like that." Confidential Disney documents taken by Sands and his helpers bear fax transmission headers to and from Shirley Lasswell's Florida office.
$TIn October, 2002, SSI's then attorneys, responding to a subpoena, delivered 1,054 pages of Disney documents obtained by SSI outside discovery. The batch included, among other things, the Suit Overview and the Restricted Items List. Over the following months, more and more documents came to light. Then, after SSI changed counsel, its new attorneys produced a final group of about 500 pages in a file labeled "Documents Received from Terry Sands on 6/7/02." These materials came from the files of SSI's former lawyers. n15
$F$Tn15 It appears Mr. Sands may have removed the documents f rom his possession just days before receiving a deposition subpoena. Disney contends Sands knew in advance he would be deposed and required to produce documents. SSI offers no explanation for how the Sands documents got into its attorney's files. One document in the Sand's file is dated June 5, 2002, indicating that Sands was procuring Disney material long after SSI claims to have halted the activity.$E
$TIn her 2002 deposition, Pati Slesinger was asked if she knew what investigators had done for SSI. She responded: "Whatever investigators do. I don't - no, I don't." At the deposition she was properly instructed by her attorneys not to reveal what her attorneys had told her privately. The Court finds, however, that Ms. Slesinger knew of her investigator's activities through sources and personal experiences independent of conversations with her attorneys. She personally met with Mr. Sands and personally visited the Buena Vista Plaza dumpster site. She maintained Disney documents procured by Sands in her files.
$TMs. Slesinger testified she thought everything to do with Mr. Sands was protected by either the spousal or attorney-client privilege, and she appeared confused in her video-taped deposition. Given her potential confusion, the Court does not weigh her deposition answers on this particular point in the balance against her in deciding this motion. n16
$F$Tn16 The Court is troubled, however, by the fact that in a court proceeding following the Slesinger deposition, her attorney, who represented her at the deposition, apparently referenced her deposition testimony and asserted "she didn't know anything about it, this document stealing." The Court finds she did know all along.$E 
$TSSI was represented by attorneys who had unfettered access to Disney's privileged and confidential documents. SSI's attorneys had a duty, at least in the event of inadvertent production, to inform Disney they possessed Disney documents which appeared potentially privileged and confidential. $IState Compensation Ins. Fund v. WPS, Inc.$N (1999) 70 Cal. App. 4th 644. This duty, if only by analogy here, protects the integrity of the litigation process by insuring, as to inadvertently produced material, that questions of privilege are resolved by courts, when necessary, and not unilaterally by adversaries secretly taking matters into their own hands.
$TAttorneys possessing an adversary's potentially privileged documents, inadvertently produced, must not only notify the opposing side immediately, but must also refrain from examining the materials and return all copies to avoid disqualification. And, more illuminating here, the attorneys must not divulge the contents of such documents to their clients, because to do so incurs the risk that a court may need to terminate the client's case, because clients cannot be disqualified, and clients' minds retain ill-gotten information for potential future use in litigation.
$TIn short, the lawyer's strict duty, in circumstances of inadvertent production, is designed to prevent client contamination. ABA Comm. On Ethics and Professional Responsibility, Formal Op. 92-368. Here, SSI contaminated itself, and the contamination is incurable. Perhaps the contamination could have been contained if SSI's misconduct had come to light early on and an effective remedy applied early in the process, but no disclosure was made, and the document acquisition and contamination process continued unabated for years.
$TSSI now claims Disney waived any privileges it originally may have possessed in connection with documents taken by Sands. The Court finds, on the facts presented, that Disney did not knowingly, intentionally, or inadvertently waive any privileges it could have originally asserted. An operative waiver requires more evidence than exists here.
$TDisney's document processing procedures cut against a finding of waiver. Sands' trespasses at multiple locations, including the document disposal facility operated by Golden State Fibres, contradicts SSI's waiver claims. Sands' admission at the February hearing that he knew Disney would prevent his dumpster activities, if discovered, refutes any SSI claim that it believed, in good faith, that Disney intended to waive its privileges.
$TSSI had no right to break laws to obtain evidence. $ISee Pullin v. Superior Court$N (2000) 81 Cal. App. 4th 1161, 1164-65 (evidence must be obtained lawfully, without trespass); $IStop Youth Addiction, Inc. v. Lucky Stores, Inc.$N (1998) 17 Cal. 4th 553, 577 ("$(A$) private party has no privilege or immunity to employ illegal means to obtain evidence$(.$)") And, SSI had no right to covertly or overtly use unlawfully obtained evidence for its own tactical purposes.
$T$=BOther Information and Documents Withheld from Discovery$=R
$TBeginning near the inception of this lawsuit, and continuing over a period of years, Disney propounded many separate interrogatories and requests for documents requiring SSI to identify all relevant promises, including oral and written representations, allegedly made by Disney to SSI. As far back as March 27, 1991, Disney requested all documents concerning "any agreements" and "any communications" between the parties. Disney had a right to receive this information early on so it could adequately defend itself and obtain relevant evidence.
$TSSI has repeatedly failed to supply certain key information and documents on point, despite court orders requiring compliance. SSI's withholding of its own information and documents called for repeatedly in discovery appears more than inadvertent.
$TBoth sides agree Vincent Jefferds is a central character in this case. He was a Disney employee involved in negotiating the April 1, 1983 Agreement. Both sides knew this from the outset. Disney contends that six years into the case, and following many occasions when SSI had a discovery duty to disclose all representations Jefferds allegedly made to SSI's principals, SSI for the first time supplied certain key documents allegedly written years ago by SSI principals relating to communications with Mr. Jefferds and other Disney employees.
$TWhen asked why the documents, and the information they contain, had not been disclosed earlier, SSI initially claimed disclosure had been made. n17 Later modifying its position, SSI asserted the relevant documents had previously been withheld in a privilege file.
$F$Tn17 SSI argues that a "possibility" exists some of the withheld documents were produced by SSI at an early stage of the litigation, when a number of documents may have been produced without Bates numbers. The Court finds, in light of all the evidence considered here, that the claimed possibility does not rise above unpersuasive speculation.$E 
$TThe Court finds no applicable privilege that would justify not disclosing the documents. At a minimum, SSI's documents should have been listed on a privilege log, unless the material had been previously produced.
$TThe Court does not view SSI's delayed production as merely "belated," as SSI suggests. SSI was obligated early on to disclose fully in discovery the underlying non-privileged facts concerning non-privileged conversations between SSI and Jefferds. SSI did not fulfill this obligation.
$TDisney contends that by the time SSI began disclosing its relevant documents, key percipient witnesses were dead, including Mr. Jefferds, Mr. Dick Floum (one of SSI's principal negotiators) and Mr. Seymour Bricker (negotiator for the Milne Trust). Disney argues that while it was fully aware of Mr. Jefferds and his role in dealing with SSI, the delay in disclosing SSI's information and documents deprived Disney early in the case of a fair opportunity to preserve Jefferds' responsive testimony.
$TIf SSI's failure to timely produce, and active withholding of, relevant SSI information and documents were the only issues here, a remedy short of terminating sanctions might be appropriate. But SSI's other misconduct, discussed earlier in this Statement of Decision, compels the Court to consider and ultimately order terminating sanctions.
$TLifting or modifying, as a counterbalance, sanctions previously imposed on Disney would not, in this Court's view, constitute an appropriate alternative. When the integrity of the institution of justice is threatened by a party such as SSI, two wrongs cannot be placed in the balance so as to generate a single corrective right. n18
$F$Tn18 Disney's request for sanctions arising out of SSI's apparent failure to prevent destruction of SSI's accounting records is rendered moot by the terminating sanctions ordered here.$E
$T$=BIV.$=R
$T$=BCONCLUSION$=R
$TThe Court possess "the inherent power to control the proceedings before it and to make orders which prevent the frustration, abuse, or disregard of the court's processes." $IConn v. Superior Court$N (1987) 196 Cal. App. 3d 774, 785. The Court's inherent powers include the power to sanction misbehavior and to preserve the integrity of the judicial process. $IPeat, Marwick, Mitchell & Co. v. Superior Court$N (1988) 200 Cal. App. 3d 272, 287. Inherent judicial powers to sanction misbehavior are not limited to redressing discovery abuses or confined only to monetary sanctions. The Court's discretionary powers here exercised exist apart from legislative grant. $IId.$N at 285-89; $Isee also Russell v. Dopp$N (1995) 36 Cal. App. 4th 765, 774-75 (fraud on the court).
$TCourts resort to terminating sanctions only as a last resort, where lesser sanctions will not adequately redress the wrong. $IR. S. Creative, Inc. v. Creative Cotton, Ltd.$N (1999) 75 Cal. App. 4th 486, 496. Whatever opportunity the Court may at one time have had to remedy SSI's misconduct with lesser sanctions has long since passed through no one's fault but SSI.
$TOrdering return of Disney's docu ments is not an effective remedy. The Court has no confidence SSI would fully obey the order. Even if SSI did comply, SSI's principals reviewed the documents and retain the contents in their minds. They could, and likely would in the future, consciously or subconsciously use the information in this litigation. No order the Court could fashion would prevent it. No jury instruction could remedy the harm done.
$TDisqualifying counsel will not work. SSI's recently retained counsel have not done anything to warrant disqualification and have represented their client well and honorably in very difficult circumstances.
$TWhile SSI deserves punishment through substantial monetary sanctions, money sanctions cannot purge improperly obtained information from the minds of SSI's principals. Moreover, the Court is not convinced that monetary sanctions would deter SSI's future misuse of the information. SSI is dishonest and shows no remorse.
$TThe Court emphasized at the outset of this process that Disney faces a heavy burden to convince the Court to order terminating sanctions. That burden remained heavy in the Court's mind as it listened to live testimony, assessed demeanor, heard oral arguments, reviewed declarations and documentary evidence, read the thoughtful briefs submitted by counsel and, in the end, wrote this Statement of Decision.
$TThe Court has decided issues in this matter with the burdens of proof and persuasion placed fully on Disney where appropriate. Disney has clearly and convincingly carried both burdens. The credibility of Disney's evidence, the contrasting incredibility of SSI's evidence, and the gravity of SSI's misconduct, along with other relevant considerations, ultimately led the Court to the decision it now renders. Disney's evidence was, by and large, compelling. SSI's evidence, and SSI's attempts at innocent explanations, were unpersuasive. The Court finds that SSI's misconduct was wilful, tactical, egregious and inexcusable.
$TTerminating sanctions, in this instance, are not "merely punitive" as SSI argues. They are restorative and prophylactic. In any event, courts possess inherent powers to order sanctions with elements of punishment where, as here, the integrity of the judicial process has been both threatened and abused. $IMcGinty v. Superior Court$N (1994) 26 Cal. App. 4th 204, 212 (citing $IPeat, Marwick, Mitchell & Co.,$N 200 Cal. App. 3d at 286.)
$TTerminating sanctions are here the proper remedy to restore the integrity of the judicial process and fully protect the institution from further SSI abuse.
$T$=BV.$=R
$T$=BORDER$=R
$TSSI's complaint against Disney is dismissed with prejudice as a terminating sanction.
$%$?$%DATED: March 29, 2004.
$TCHARLES W. McCOY, Jr.
$TJudge of the Superior Court 
$200:
$220:#EXTR#$?#SLESINGER-DISNEY# 
$00:
$10:EMERITUS CORPORATION, a Washington corporation, Plaintiff, v. ARV ASSISTED LIVING, INC., a California corporation, Defendant.
$20:CASE NO. 793420
$25:SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF ORANGE
$40:$?$%June 28, 1999, Decided
$110:Judge: The Honorable Bruce W. Sumner.
$115:Bruce W. Sumner
$120:

$T$=BSTATEMENT OF DECISION$=R
$TComplaint Filed$?$?$?April 23, 1998
$TTrial Date: June 14, 1999
$TPresiding Judge: Hon. Randell Wilkinson
$TDept: 19
$TThis matter came on regularly for trial on June 14, 1999, before the Honorable Randell L. Wilkinson in Department 19 of the above-entitled Court. By stipulation of the parties and pursuant to Article 6, Section 21 of the California Constitution and Rules 244 and 880 of the California Rules of Court, the Honorable Bruce W. Sumner, Superior Court Judge (Retired) was named the temporary judge for all purposes.
$TThe trial of this matter was held on June 14, 15, 17, and 18, 1999 and thereafter the court took the matter under submission.
$T$=BINTRODUCTION$=R
$TThis case arose during a corporate struggle for control of the defendant ARV. In 1997, plaintiff Emeritus expressed an interest in purchasing a controlling interest in ARV. In July 1997, ARV opted instead to enter into a series of agreements with Prometheus Assisted Living ("Prometheus"), an investment vehicle of the investment bank Lazard Freres. These agreements provided for a significant equity investment by Prometheus in ARV.
$TAlong with the equity transactions with Prometheus, ARV also entered into a shareholder Rights Agreement which is the subject of this litigation. The Rights Agreement set various trigger levels of stock ownership for shareholders. If any shareholder exceeded its trigger level, the Rights Agreement obligated ARV to issue Rights to all other shareholders.
$TIts friendly offer to ARV having been rejected, Emeritus made a tender offer for ARV and proposed its own slate of directors for election to the ARV board. In the ensuing proxy battle, Prometheus bought additional shares of ARV stock to ensure Emeritus's defeat at the shareholders' vote on the competing slates of directors. Prometheus won and its directors were elected. The first question at issue in this litigation is whether by its purchase of shares to defeat Emeritus, Prometheus "triggered" the Rights Agreement by becoming a "Beneficial Owner" of more than 50% of ARV's stock.
$T$=BSTATEMENT OF THE CASE$=R
$TPlaintiff Emeritus is, and all times relevant herein was, a Washington corporation with its principal offices located in Seattle, Washington. Compl. P10; Tr. (Brandstrom) at 73-74. n1 Emeritus has been a shareholder of ARV at all times during the period from July 1997 through the present date. Compl. P1, Exs. 241A, 241B; Tr. (Brandstrom) at 76-77.
$F$Tn1 Citations in the form "Ex. ___" are to the exhibits received into evidence at trial. Citations in the form "Tr. ___" are to the transcript of the trial.$E
$TDefendant ARV is presently a Delaware corporation with its principal offices in Costa Mesa, California. Declaration of Sheila M. Muldoon, dated April 28, 1998, at P3 (Ex. 340). At the time the complaint in this action was filed ARV was a California corporation. $UId.$O
$TIn its Complaint for Injunctive and Declaratory Relief, Emeritus seeks: (1) a declaration that (a) ARV had breached the Rights Agreement by refusing to distribute the Rights; and (b) a "Triggering Event" occurred on January 16, 1998, when Prometheus purchased an additional 5.8% of ARV stock; and (2) an injunction ordering ARV to issue the rights to Emeritus. In the alternative, Emeritus seeks money damages equal to the value of the rights Emeritus should have received. Compl. $S VII, at 11-12.
$TAs part of and 
within this Statement of Decision, the Court will resolve each of the issues posed by the Joint Statement of Controverted Issues filed pursuant to Local Rule 450 on June 11, 1999. In reviewing the issues of fact and law as framed by the parties, the Court found that some issues were mixed questions of fact and law. To the extent that is the case, the Court will address both the factual and legal determinations relevant to the issues presented.
$T$=BFINDINGS OF FACT$=R
$TBased upon the testimony and documentary evidence received, the Court finds as follows:
$%$?$%$=BA. ARV's Shareholder Rights Agreement$=R
$TStarting in late 1996, ARV began to consider entering into a shareholder rights agreement. Declaration of Sheila M. Muldoon, dated April 28, 1999, at P8 (Ex. 340). On June 25, 1997, ARV's Board heard a presentation relating to rights agreements from its financial advisor, Salomon Brothers (Ex. 301). ("ChaseMellon"), which served as Rights Agent. Ex. 3. ARV's Board approved the Rights Agreement.
$TOn July 14, 1997, ARV entered into the Rights Agreement with ChaseMellon Shareholder Services, L.L.C. Ex. 18.
$TIn Section 1.1, the Rights Agreement set forth the percentage levels of ARV stock that would cause the Agreement to be triggered. The Rights Agreement defined any person who triggered the Agreement as an "acquiring person" and set separate trigger levels for Prometheus (which, under a stock purchase agreement to be signed the same day, would become a significant holder of ARV stock) and ARV's other shareholders. Section 1.1 of the Agreement provided that if Prometheus became the Beneficial Owner of 50% or more of ARV's stock, the Agreement would be triggered. Section 1.1 also provided that if any other shareholder (excluding other specifically exempted shareholders not at issue here) became the Beneficial Owner of 10% or more of ARV's stock, the plan would be triggered. Ex. 3 at $S 1.1.
$TSection 1.3 of the Rights Agreement set forth three alternate definitions of Beneficial Owner in three separate subdivisions. Section 1.3(i) incorporated the definition of Beneficial Ownership provided in Rule 13d-3 under the Securities Exchange Act of 1934. Ex. 3 at $S 1.3(i). Under Rule 13d-3, a person is deemed to beneficially own any security subject to any agreement through which the person "has or shares . . . voting power which includes the power to vote, or to direct the voting of, such security." 17 C.F.R. $S 240.13d-3.
$TSection 1.3(ii)(A) provides that a person beneficially owns shares which that person has the "right to acquire" pursuant to any agreement, provided, however, that a person is not the Beneficial Owner of shares which the person acquires or has the right to acquire pursuant to any "acquisition agreement between the Company and such Person . . . if such agreement has been approved by the Board of Directors prior to such Person's becoming an Acquiring Person." Ex. 3 at $S 1.3(ii)(A).
$TSection 1.3(iii) provides that a person beneficially owns any shares
$=S$%$?$%"which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person or any such Person's Affiliates or Associates has any agreement, arrangement or understanding . . . whether or not in writing, for the purpose of acquiring, holding, voting . . . or disposing of any securities of $(ARV$)."$=I
$%$?$%Ex. 3 at $S 1.3(iii).
$TTen days after the announcement that a person has become an Acquiring Person and triggered the Agreement, ARV is obligated to instruct the Rights Agent to distri bute Rights Certificates to all shareholders of ARV, except for the Acquiring Person. Ex. 3 at $S 3.1. The Rights Certificates permit ARV's shareholders to buy newly issued ARV shares at half the then-current market price. Ex. 3 at $S 7. Once they have been distributed, the Rights Certificates may be freely traded separate and apart from the shares of ARV common stock. Tr. (Muldoon) at 249.
$%$?$%$=BB. The Contest for Control of ARV Between Emeritus and Prometheus$=R
$TFrom 1997 until early 1998, Emeritus and Prometheus were engaged in a contest for control of ARV. Prometheus ultimately won this contest. Emeritus alleges, however, that in the process of buying ARV stock to defeat Emeritus, Prometheus triggered ARV's Rights Agreement.
$TOn July 10, 1997, Emeritus wrote to ARV's board proposing that Emeritus acquire the outstanding common stock of ARV for a minimum of $ 14 per share, which represented a premium over the stock's then-current market value of $ 10.25. Ex. 100; Tr. (Brandstrom) at 77-78. ARV's Board rejected Emeritus's proposal. Tr. (Brandstrom) at 78. Then, on July 14, 1997, ARV announced that it had entered into a Stock Purchase Agreement with Prometheus and another affiliate of Lazard Freres (the "SPA"). Ex. 208. Under this agreement, ARV agreed to sell up to 49.9% of its common stock to Prometheus at $ 14 per share. On July 23, 1997, ARV issued to Prometheus the first 16% block of ARV stock at $ 14 per share. Ex. 308; Tr. (Muldoon) at 223-24.
$TPrometheus's right to obtain additional shares of ARV stock under the SPA was subject to the approval of ARV's other shareholders. Ex. 208. If shareholders approved the transaction, ARV would issue additional blocks of ARV stock to Prometheus until it owned 49.9% of ARV. $UId.$O
$TAlso on July 14, 1997, Prometheus entered into a Stockholders' Voting Agreement (the "First SVA") (Ex. 5) with certain directors and officers of ARV and related family trusts and partnerships (the "Inside Shareholders") who owned large blocks of ARV stock. The Inside Shareholders were John A. Booty, David P. Collins, and Graham Espley-Jones. Under the First SVA, the Inside Shareholders agreed to vote all of their ARV shares (a) in support of the SPA, and (b) in support of the Board's and Prometheus's respective nominees to ARV's newly-expanded board of directors. Ex. 5 at $S 1.
$TOn October 12, 1997, Emeritus made a second proposal to ARV's Board to purchase all of the outstanding shares of ARV, this time for $ 16.50 per share in cash. Ex. 238. ARV's Board rejected the offer on October 13, 1997. Tr. (Brandstrom) at 83.
$TThe reaction of ARV's shareholders to the SPA was negative, and ARV's proxy consultant advised ARV's Board that the SPA faced likely defeat in the upcoming shareholder vote. Ex. 240; Tr. (Booty) at 350-52. Accordingly, on October 29, 1997, ARV and Prometheus terminated the SPA and entered into a new set of agreements that were not subject to a shareholder approval vote. Under the new agreements, Prometheus (a) retained the 16% block of ARV stock it had acquired under the SPA, (b) retained the right to acquire additional shares of ARV stock up to 49.9%, and (c) purchased $ 60 million worth of convertible notes from ARV (the "Notes"). Ex. 249. Under the terms of the Notes, ARV was permitted to convert the Notes into common stock at approximately $ 14 per share. This enabled ARV, at its discretion, to place in Prometheus's hands an additional 23% of ARV stock.
$TAlso on October 29, 1997, Prometheus and the Inside Shareholders (except for Mr. Davidson who had resigned as Chairman of ARV (Tr. (Booty) at 346)) entered into a second Shareholders' Voting Agreement (the "Second SVA"). Ex. 6. The provisions of the Second SVA were similar to those of the First SVA.
$TOn November 24, 1997, Emeritus filed proxy materials with the SEC indicating Emeritus's intent to field a slate of candidates to run for election to ARV's board at ARV's annual meeting scheduled for January 1998. Tr. (Brandstrom) at 83. Emeritus also launched a formal tender offer for ARV at $ 17.50 per share. $UId.$O ARV rejected this tender offer. $UId.$O
$TIn response, ARV's board met on December 5, 1997 and voted to convert the Notes held by Prometheus into common stock. Ex. 323. After the conversion of the Notes, Prometheus had ensured, by means of direct ownership of shares and control of the voting of the Inside Shareholders' shares under the Second SVA, that over 48% of ARV's shares would be voted in favor of ARV's and Prometheus's candidates for ARV's board and against Emeritus's candidates. Tr. (Brandstrom) at 84.
$TDespite this near majority, Prometheus decided to take additional steps to ensure the victory of its candidates at the January 28th meeting. On January 16, 1998, Prometheus entered into an agreement to purchase 926,131 shares of ARV stock from Gary Davidson, the former chairman of ARV who had resigned. Ex. 230. Mr. Davidson's shares were equivalent to approximately 5.8% of ARV's outstanding shares and increased Prometheus's direct holdings to approximately 45% of ARV's stock. According to Robert Freeman, the former senior officer of Prometheus who negotiated the purchase from Mr. Davidson, Prometheus's purpose in buying Mr. Davidson's shares was to secure additional voting support at the upcoming annual meeting and "to ensure that the Emeritus slate was defeated." Tr. (Freeman) at 111, 118-19. Finally, on January 20 and 23, 1998, Prometheus purchased an additional 186,000 and 299,700 shares of ARV, respectively, increasing its direct holdings to 7,595,069 shares, or 47.9% of outstanding shares. Ex. 232. Mr. Freeman testified that Prometheus's purpose in buying these additional shares was "to defeat the Emeritus proxy fight." Tr. (Freeman) at 114.
$%$?$%$=BC. ARV Refuses To Distribute the Rights Certificates$=R
$TPromptly after these additional share purchases by Prometheus were announced, Emeritus's counsel sent letters on January 22 and 25, 1998 to ARV's counsel requesting that ARV direct the Rights Agent to distribute the Rights Certificates or provide an explanation why it had not done so. Exs. 7, 8. When ARV did not respond to these letters, Emeritus's counsel sent a similar letter to Prometheus's counsel on January 26, 1998. Ex. 9. When ARV responded by letter dated February 2, 1998, it disputed that the Rights Agreement had been triggered. Ex. 10. On May 16, 1998, nearly four months after Emeritus had given written notice to ARV and Prometheus that the Rights Agreement had been triggered, (Ex. 7, 8, 9) ARV's Board met and passed two resolutions concluding that the Agreement had not been triggered by Prometheus's purchases of additional ARV shares in January 1998. Ex. 12 at 2-3. In passing these resolutions, the Board relied on its authority to "interpret" the Rights Agreement under Section 30. $UId.$O
$T$=BFINDINGS OF FACT AND APPLICATION OF THE LAW TO THE FACTS PROVEN AT TRIAL$=R
$%$?$%$=BIssue No. 1: Did a "triggering event" occur under the provision of the Shareholder Rights Plan of ARV Assisted Living ("ARV") as a result of any action taken by Prometheus Assisted Living LLC ("Prometheus")?
$=R
$TThe Court finds that the Shareholder Rights Plan is a binding contract and that is to be interpreted consistent with California law. The first words of the Agreement state that it is an "agreement . . . between ARV . . . and Chasemellon Shareholder Services, L.L.C., a limited liability company, as Rights Agent." Ex. 3 at 1. The document is signed on behalf of both ARV and Chasemellon and was agreed to be "in consideration of the promises and the mutual agreements herein set forth." $UId.$O In the section entitled "Governing Law," the Rights Agreement states as follows: "This Rights Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of California and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State." Ex. 3 at $S 32. Therefore, this Court will apply relevant California contracts law in interpreting the Rights Agreement.
$TThe California Code provides that "the language of a contract is to govern its interpretation, if the language is clear and explicit, and it does not involve an absurdity." Cal. Civil Code $S 1638. It is well-established in California that "where contract language is clear and explicit and does not lead to absurd results, $(courts$) ascertain intent from the written terms and go no further." $UShaw v. Regents of the Univ. of Cal.,$O 58 Cal. App. 4th 44, 53, 67 Cal. Rptr. 2d 850, 855 (1997) (internal quotes omitted); $Usee also Avemco Ins. Co. v. Davenport,$O 140 F.3d 839, 842 (9th Cir. 1998) ("if the meaning a lay person would ascribe to contract language is not ambiguous, $(courts will$) apply that meaning").
$TMoreover, it is settled law that "any contract is construed against the party who prepared the contract." $UPonder v. Blue Cross,$O 145 Cal. App. 3d 709, 718, 193 Cal. Rptr. 632, 636 (1983). Here, the Rights Plan was drafted by counsel to ARV and should therefore be construed against ARV. Tr. (Muldoon) at 245-46.
$TThe Court finds that, under the provisions of the Rights Agreement, a triggering event did occur as a result of actions taken by Prometheus, as described above. Section 1.1 of the Rights Agreement provides that Prometheus would become an Acquiring Person and trigger the Agreement as soon as it obtained Beneficial Ownership of 50% or more of ARV's stock. As set forth below, with the purchase of Mr. Davidson's shares on January 16, 1998, Prometheus acquired Beneficial Ownership of more than 50% of ARV's stock. The Rights Agreement was triggered at that time.
$TSection 1.3 of the Rights Agreement sets forth three alternate definitions of Beneficial Owner. The Agreement states: "A Person shall be deemed the 'Beneficial Owner' of and shall be deemed to 'beneficially own' any securities:" which are within the definitions of 1.3(i), 1.3(ii), $U"or"$O 1.3(iii). Ex. 3 (emphasis added). The Court finds that, so long as any one of the three definitions is satisfied, a party is deemed to be the Beneficial Owner of the stock.
$TSection 1.3(i) of the Rights Agreement incorporates the definition of Beneficial Ownership in Rule 13d-3 under the Securities Exchange Act of 1934, which provides that "a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding
, relationship, or otherwise has or shares: (1) Voting power which includes the power to vote, or to direct the voting of, such security; and/or (2) Investment power which includes the power to dispose, or direct the disposition of, such security." 17 C.F.R. $S 240.13d-3. $USee Citizens First Bancorp., Inc. v. Harreld,$O 559 F. Supp. 867, 872 (W.D. Ky. 1982) (formation of a group for the purpose of voting shares together at a shareholders meeting was within the meaning of "beneficial ownership" under Rule 13d); $Usee also Bath Indus., Inc. v. Blot,$O 427 F.2d 97, 112 (7th Cir. 1970); $UPennwalt Corp. v. Centaur Partners,$O 710 S. Supp. 111, 115 (E.D. Pa. 1989) (same determination made under analogous Pennsylvania law).
$TThe Court finds that the definition of Beneficial Ownership set forth in Section 1.3(i) includes all shares directly owned by Prometheus. ARV concedes as much, stating in its brief in opposition to Emeritus' summary judgment motion that Section 1.3(i) "incorporated the SEC 13D definition of Beneficial Ownership and conferred Beneficial Ownership immediately for any shares purchased pursuant to an agreement, regardless of conditions or time." Defendant ARV Assisted Living, Inc.'s Memorandum of Points and Authorities In Opposition to Plaintiffs' Motion for Summary Judgment, Or, In the Alternative, Summary Adjudication of Issues, dated April 28, 1999 (Ex. 340), at 4.
$TPrometheus was also the Beneficial Owner of the shares owned by the parties to the Second SVA under either Section 1.3(i) or Section 1.3(iii). Section 1.3(iii) provides that a person beneficially owns any ARV shares owned "by any other Person . . . with which such Person . . . has any agreement . . . for the purpose of . . . voting . . . any securities of $(ARV$)." Ms. Muldoon testified that the Voting Agreement was "an agreement for the purpose of voting shares of ARV," and that, viewed in isolation, the Voting Agreement would fall within the scope of Section 1.3(iii). Tr. (Muldoon) at 267. The Second SVA was entered into between Prometheus and the Inside Shareholders and required the Inside Shareholders to vote all of their ARV shares in support of the candidates for ARV's board nominated by ARV's board and by Prometheus. Ex. 6 $S 1. The purpose of the Second SVA was to create mutual obligations on the parties to the agreement to support each other's candidates for ARV's board. Tr. (Freeman) at 108. The Court finds that under either Section 1.3(i) or Section 1.3(iii), Prometheus was the Beneficial Owner of the ARV stock owned by the three Inside Shareholders who were parties to the Second SVA.
$TARV contends that a proviso located in Section 1.3(ii)(A) exempting shares owned pursuant to an approved acquisition agreement should apply to the definitions of Beneficial Ownership set forth in Section 1.3(i) and Section 1.3(iii) as well. The Court finds that the language and structure of the Agreement do not support this position. A proviso meant to apply to all three independent subsections defining Beneficial Ownership connected by the conjunction "or" would not be located within only one of the subsections. If the proviso were intended to apply to all three subsections, it would have been located within Section 1.3 but outside of the individual subsections. Indeed, Section 1.3 concludes with just such a proviso. After the three subsections (i), (ii) and (iii) the following appears: "PROVIDED, HOWEVER, that no Person who is an officer, director, or em ployee of an Exempt Person shall be deemed, solely by reason of such Person's status or authority as such, to be the "Beneficial Owner" of, to have "Beneficial Ownership" of or to "beneficially own" any securities that are "beneficially owned" ($Uas defined in this Section 1.3$O), including, without limitation, in a fiduciary capacity, by an Exempt Person or by any other such officer, director, or employee of an Exempt Person." Ex. 3 at $S 1.3 (emphasis added). This proviso clearly applies to the entirety of Section 1.3. In contrast, the proviso in Section 1.3(ii)(A) contains no language such as that emphasized above, indicating that it would apply to the entire Section 1.3. In fact, its location within the body of one subsection clearly dictates otherwise.
$TApplying the definitions of "Beneficial Ownership" discussed above, the Court finds that Prometheus caused a triggering event by purchasing Mr. Davidson's shares in ARV. Prior to purchasing Mr. Davidson's shares, Prometheus had direct ownership of approximately 39% of ARV's stock. Ex. 308, 323; Tr. (Muldoon) at 223-25; Tr. (Brandstrom) at 84. Adding the 9% owned by the Inside Shareholders who were parties to the Second SVA, Prometheus beneficially owned more than 48% of ARV's stock prior to the purchase from Davidson. On January 16, 1998, Prometheus purchased Mr. Davidson's stock, thereby giving Prometheus an additional 5.8% block of ARV shares. In total, as of January 16, Prometheus was the Beneficial Owner of more than 50% of ARV's stock and thereby exceeded its trigger level under the Rights Agreement.
$TARV contends that the interpretation of the Agreement's plain meaning proposed by Emeritus requires that the Plan was triggered the instant the relevant agreements were signed, an absurd result which it contends dictates a contrary interpretation. The Court finds that this interpretation of ARV's is not supported by the language of the Agreement and mischaracterizes the correct interpretation of the Agreement. ARV's interpretation is based on Section 1.3(ii)(A) of the Agreement which provides that any shares which Prometheus had the "right to acquire" in addition to those shares which it actually owned, would count toward its 50% trigger level. ARV's proposed interpretation fails to account for the express proviso in Section 1.3(ii)(A), which carves out from the definition of Beneficial Ownership any shares which Prometheus had the right to buy pursuant to an acquisition agreement approved by ARV's Board. Ex. 3 at $S 1.3(ii)(A). ARV's Board in fact approved the July 1997 Stock Purchase Agreement, and the 49.9% of ARV stock that Prometheus had a "right to acquire" under that agreement was not Beneficially Owned by Prometheus under Section 1.3(ii)(A). Thus, the Plan was not triggered immediately upon implementation.
$TARV has introduced evidence that purports to show that the intent of certain of the witnesses was not to trigger the Agreement in the course of the events that precipitated this litigation. California law provides that extrinsic evidence of intent and purpose should be excluded from evidence if the contractual language is clear and if the extrinsic evidence concerning intent and purpose, rather than refining an interpretation of the contract, "seeks to substitute a different meaning." $UGerdlund v. Electronic Dispensers Int'l,$O 190 Cal. App. 3d 263, 273 (1987). "Irrespective of any credibility determination, $(defendant's$) subjective intent or understanding cannot be used to establish an intent 
independent from the express written terms of the agreement." $USunniland Fruit, Inc. v. Verni,$O 223 Cal. App. 2d 892, 284 Cal. Rptr. 824 (1991).
$TAlthough the Court believes the language of the Agreement to be clear, it has considered certain extrinsic evidence in order better to understand the nature of the Agreement. This evidence does not, however, alter the Court's interpretation of the Agreement. The evidence presented was that although the ARV Board intended to permit Prometheus to acquire up to 49.9% of ARV's shares, the Board did not intend to allow Prometheus to Beneficially Own a majority interest in ARV; otherwise, there would have been no trigger level for Prometheus at all. The evidence also was that Prometheus purchased shares owned by Gary Davidson that were outside of the transactions formally approved by the Board.
$TThe Court heard testimony that rights agreements are intended to protect shareholders by preventing non-negotiated seizures of corporate control. The Court finds that these shareholders were potentially impacted adversely by Prometheus's "creeping acquisition" of ARV shares that caused the triggering of the Agreement. The parties to the Second SVA, including Prometheus, formed a voting block that acquired majority control of ARV through open market accumulations in January 1998 without paying any control premium to ARV's shareholders. This occurred at a time when Emeritus was offering to pay $ 17.50 per ARV share to all of ARV's shareholders, a substantial premium over Prometheus's $ 14 per share investment in ARV. Moreover, testimony by Prometheus officers demonstrated that the open market purchases by Prometheus that triggered the Plan were made specifically for the purpose of defeating Emeritus's proxy contest and tender offer. By purchasing additional shares of ARV stock in January 1998, Prometheus seized functional control over ARV, blocked Emeritus's offer, and secured certain shareholder approval of its own deal, without paying any premium to the shareholders outside of the voting block. The Court finds that enforcing the terms of the Rights Agreement in these circumstances is fully consistent with its purpose.
$TARV also presented extrinsic evidence in the form of testimony by ARV's then-general counsel, Sheila Muldoon. Ms. Muldoon testified that she understood that Prometheus would not trigger the Rights Agreement until it had "directly" owned "50% or more." of ARV's shares. Tr. (Muldoon) at 272-73. However, Ms. Muldoon testified that this was based on her "personal understanding" which she never discussed with anyone at the time. Tr. (Muldoon) at 280. Ms. Muldoon was not a member of ARV's Board and ARV did not present evidence that her understanding was a basis for the Board's determination that the Rights Agreement had not been triggered. Ex. 12; Tr. (Muldoon) at 278. Thus, the Court finds this testimony to be irrelevant.
$TThe Court rejects ARV's contention that the triggering event did not occur because the Board could so interpret the Rights Plan under Section 30 of the Rights Plan. Section 30 grants ARV's Board of Directors the authority to "administer" the Rights Plan by "interpreting the provisions" of the Plan. Ex. 3 $S 30. The Court notes that the power conferred upon the Board must be read in conjunction with the requirement of California law that "the language of a contract is to govern its interpretation, if the language is clear and explicit, and it does not involve an absurdity." Cal. 
Civ. Code $S 1638. ARV concedes that such discretion existed only "to the extent that the terms of the pill are subject to interpretation," ARV's Mem. of Points and Authorities in Support of Motion for Summary Judgment, dated Apr. 14, 1999 (Ex. 340), at 10, but contends that, to the extent that the definition of Beneficial Ownership in its Agreement is ambiguous, it may be "interpreted" by the Board under Section 30. ARV Tr. Brief at 10-11. As ARV counsel Ms. Muldoon conceded at trial, however, "Section 30 does not give ARV's Board the right to change its obligations under the Rights Agreement as written." Tr. (Muldoon) at 295. The Court finds first that the definition of Beneficial Ownership is unambiguous and permits no such "interpretation" by the Board.
$TMoreover, although certain arguments were advanced by counsel for ARV concerning the meaning of the Beneficial Ownership, the evidence at trial showed that no such interpretation was ever rendered by the Board. On May 16, 1998 -- nearly four months after Emeritus had given written notice to ARV and Prometheus that the Rights Agreement had been triggered (Ex. 7, 8, 9) -- ARV's Board met and passed two resolutions concluding that the Agreement had not been triggered by Prometheus's purchases of additional ARV shares in January 1998. Ex. 12 at 2-3. In passing these resolutions, the Board relied on its authority to "interpret" the Rights Agreement under Section 30. $UId.$O Initially, the Board resolved that Prometheus was not the Beneficial Owner of any shares owned by the other parties to the Stockholder Voting Agreements, dated July 14, 1997 and October 29, 1997. Ex. 12 at 2. The Board based its resolution on a determination that the Voting Agreements were included within the term "acquisition agreement" used in a proviso contained in Section 1.3(ii)(A) of the Rights Agreement and thereby were excluded from the definition of Beneficial Ownership. $UId.$O The Court has previously found that this interpretation is unsupportable. Moreover, there is no evidence that the Board discussed this interpretation at its meeting and there was no notation made in the minutes to explain how the Voting Agreements were not "agreement$(s$) . . . for the purpose of . . . voting . . . securities" of ARV as defined in Section 1.3(iii). Ex. 3 at $S 1.3(iii); Ex. 12; Tr. (Muldoon) at 280.
$TThe Court finds that the Voting Agreements cannot reasonably be construed as constituting "acquisition agreements" as referred to in the proviso in Section 1.3(ii)(A) of the Rights Agreement. The Voting Agreements did not provide for the "acquisition" of any shares of ARV. Ex. 5, 6; Tr. (Muldoon) at 270. More significantly, the Rights Agreement only exempts "acquisition agreement$(s$) $Ubetween the Company"$O and other persons. Ex. 3 at $S 1.3(ii)(A) (emphasis added). ARV was not a party to either of the Voting Agreements. Ex. 5, 6; Tr. (Muldoon) at 270-71.
$%$?$%$=BIssue No. 2: If a triggering event occurred, is the answer in the "affirmative" to$=R $=B the following three questions: (a) was the triggering event "inadvertent"; (b) were Prometheus's actions which triggered the Shareholder Rights Agreement taken without any intention of changing or influencing control of ARV; and (c)(1) $(EMERITUS STATEMENT OF THE ISSUE$) did Prometheus divest as promptly as possible a sufficient number of shares of ARV so that Prometheus would no longer exceed its share ownership limit under the Shareholder Rights Agreement; or (c)(2) $(ARV STATEMENT OF THE ISSUE$) if Prometheus did not divest as promptly a s possible a sufficient number of shares, should Prometheus be permitted to do so now?$=R
$TUnder Section 1.1, the Plan will not be triggered if three conditions are met: the Board determines in good faith that a triggering of the Plan was "inadvertent"; the Board determines in good faith that the purchase of shares was made "without any intention of changing or influencing control of the Company"; and the acquiring person sells a sufficient number of shares "as promptly as practical" so that its holding falls below the applicable trigger level. Ex. 3 at $S 1.1. Therefore, if the answer to all three questions posed in Controverted Issue Number Two is "affirmative," a Triggering Event did not occur.
$TAs to Issue Number 2(a); the Court finds that the evidence presented at trial did not show that the triggering of the Plan was inadvertent. Although it is clear that the triggering of the Plan was not in Prometheus's best interests, the evidence did not show that Prometheus's actions that precipitated the triggering event were inadvertent; to the contrary, they were part of a deliberate strategy that relied upon several carefully crafted contracts.
$TMoreover, the Court finds that the evidence failed to demonstrate that the Board reached a determination in good faith that any triggering event was inadvertent. Instead, the evidence tended to show that, faced with an acquisition of shares by Prometheus which, Emeritus contended at the time, precipitated a triggering event, the ARV Board simply passed a resolution that mirrored the language of the inadvertence clause of the Agreement, rather than determining whether Prometheus's actions were in fact inadvertent. There is no evidence that ARV's Board, at its May 16, 1998 meeting, ever attempted to investigate or discern Prometheus's motives in making its January 1998 purchases. Ex. 12; Tr. (Muldoon) at 293. In fact, in preparing the minutes of the meeting, Ms. Muldoon testified that she was "just copying the words from the Rights Agreement" into the Board's resolution. Tr. (Muldoon) at 293-94.
$TThe Court finds further that the Board's determination that any triggering was inadvertent is without support in the record. The testimony of Mr. Robert Freeman of Prometheus establishes that Prometheus's intent in buying the additional 9% block of ARV shares in January 1998 was to defeat Emeritus's proxy contest and guarantee that ARV's existing board (including the three representatives of Prometheus) would remain in control of ARV. Tr. (Freeman) at 111, 113-114, 118-119. For a triggering event to be excused as "inadvertent" under the Rights Agreement, the purchases causing the trigger must have been made "without any intention of changing or influencing control of the Company". Ex. 3 at $S 1.1. No conceivable construction of this language would permit Prometheus's purchases, in light of the expressly stated purpose of those purchases, to be deemed "inadvertent" under the Rights Agreement.
$TAs to Issue Number 2(b), the Court finds that Prometheus did purchase the additional shares of ARV in January 1998 for the purpose of influencing the ongoing contest for control of ARV. Robert Freeman of Prometheus, who made the decision to buy the additional shares, testified that Prometheus's purpose was "to ensure that the Emeritus slate $(of directors$) was defeated" at the upcoming election of ARV's board. Tr. (Freeman) at 111. Mr. Freeman conceded, in fact, that the purchase of Mr. Davidson's shares was part of a deliberate effort to defeat Emeritus's director nominees by ensurin g a majority of votes friendly to Prometheus's own nominees. The Court finds that, since ensuring the defeat of a slate of directors is clearly an "intention of . . . influencing control of the Company," ARV cannot meet the conditions of Section 1.1 of the Plan.
$TAs to Issue Number 2(c), the Court finds that Prometheus did not sell a sufficient number of shares to fall beneath its 50% trigger level "as promptly as practicable" and, having not done so, should not be permitted to do so now. Because the Second SVA terminated on October 12, 1998, ARV contends that, even under Emeritus's interpretation of Beneficial Ownership, Prometheus ceased to Beneficially Own 50% or more of ARV's stock at that time. ARV Trial Br. at 12. Emeritus informed Prometheus by letter dated January 26, 1998 of its view that the Agreement had been triggered. Ex. 9. With the crucial shareholders' vote at the January 28, 1998 meeting imminent, Prometheus took no immediate steps to divest itself of the appropriate amount of stock. The fact that, through no additional action of its own, Prometheus's Beneficial Ownership of a majority interest in ARV may have expired nine months later, clearly falls short of the requirements to reverse an inadvertent triggering. The Court finds further than a post-judgment divestiture by Prometheus could in no way render the Triggering Event inadvertent or effect the relief awarded by this Court.
$%$?$%$=BIssue No. 3: Were all rights under ARV's Shareholders Rights Agreement extinguished by reason of ARV's reincorporation as and merger into a Delaware corporation on May 1, 1998?$=R
$TARV contends that the Rights Certificates resulting from the trigger in January 1998 would be extinguished by ARV's May 1998 reincorporating in Delaware. In support of its position, ARV relies on Section 13.2 of the Rights Agreement. That section provides that "the event of any merger or other acquisition transaction involving the Company pursuant to a merger or other acquisition agreement between the Company and any Person... this Rights Agreement and a the rights of holders or Rights hereunder shall be terminated." Es.3 at 13.2. Because the merger provision is limited to mergers involving the actual transfer of beneficial ownership the court disagrees.
$TAccording to Section 13.2 the merger provision may only terminate Shareholder Rights "in accordance with Section 7.1". Section 7.1 provides that the merger provision in Section 13.2 acts to terminate the Shareholder Rights only when the merger is "of the type described in Section 1.3(ii)(A)(2)." $UId.$O The question of whether ARV's reincorporation in Delaware would terminate the Rights therefore hinges on whether the shell merger used to effect the reincorporation meets the definition of Section 1.3(ii)(A)(2). The Court finds that it does not.
$TSection 1.3(ii)(A)(2) determines when a right to acquire shares (e.g., from another shareholder) pursuant to a merger or other acquisition agreement falls outside the meaning of Beneficial Ownership. The section provides that a person does not Beneficially Own
$=S$%$?$%"(2) securities which such person...may acquire...pursuant to any merger or other acquisition agreement between the Company and such person...if such agreement has been approved by the Board of Directors of the Company prior to such Person's becoming an Acquiring Person."$=I
$%$?$%Ex. 3 at 1.3(ii)(A)(2). The kind of merger described by this section is therefore limited to those involving a transfer of shares $Ubetween ARV shareholders$O in conjunction with a Board approve d "merger or other acquisition agreement." $UId.$O
$TThe shell merger employed by ARV to reincorporate in Delaware does not qualify. The minutes of action of ARV's Board dated July 14, 1997 describe the structure of the reincorporation merger. Ex 18. at 8. First, the Board provided for the formation "in Delaware $(of$) a wholly-owned subsidiary of the Company ('ARV Delaware') into which this Company shall merge..." $UId.$O The minutes further provide that
$=S$%$?$%"effective upon the Merger, the shares of ARV Delaware outstanding immediately prior to the Merger shall be canceled and shall cease to exist, and the shares of the Company outstanding immediately prior to the Merger shall converted $(sic$) into a like number and kind of shares of ARV Delaware."$=I
$%$?$%$UId.$O at 9. The July 14, 1997 Board minutes make clear that the merger did not involve the transfer or any shares between ARV shareholders. Rather, the shares of ARV California belonging to any given shareholder were converted into Delaware shares. Therefore, the termination provisions of Sections 7.1 and 13.2 do not apply.
$TThe result is entirely consistent with the purpose of these sections of the Rights Agreement, which is to terminate the Rights when a Board-approved merger is itself the transaction that threatens to trigger the Rights Plan. The provisions are therefore limited to transaction involving a transfer of beneficial ownership between two different persons, in contrast to shell mergers in which Beneficial Ownership remains unchanged.
$%$?$%$=BIssue No. 4: Is Emeritus entitled to the issuance of an injunction?.$=R
$TSection 15 of the Rights Agreement, entitled Rights of Action, provides that ARV's stockholders may "enforce this Rights Agreement, and may institute and maintain any suit, action or proceeding against $(ARV$) to enforce this Rights Agreement . . . ." Ex. 3 at $S 15. Section 15 permits "any suit, action or proceeding against the Company to enforce this Rights Agreement" and then, "without limiting the foregoing or any remedies available to the holders of the Rights," specifically allows claims for equitable relief and specific performance. Ex. 3 at $S 15.
$TEmeritus's complaint in this action requested that the Court issue an injunction ordering ARV to distribute the Rights Certificates consistent with the terms of the Rights Agreement. Compl. P50. ARV contends, however, that the Rights Plan and any associated Rights were terminated on May 1, 1998, when ARV reincorporated in Delaware. After its reincorporation, ARV adopted a new shareholder rights agreement (the "Delaware Agreement"), with terms substantially similar to those of the prior Rights Agreement. Ex. 224. The fact that the old Rights Agreement is no longer in existence does not prevent the Court from ordering the issuance of rights that will make Emeritus whole in this case.
$TA significant concern in fashioning appropriate injunctive relief relates to ARV's stock price. Since January 30, 1998, the date when the Rights Certificates should have been issued, the price of ARV stock has declined from $ 12.8750, Ex. 221 at 8, to the current trading price of approximately $ 4 per share, Ex. 254. As a result of this decline, if the Rights Certificates were issued at the effective exercise price of $ 7.5823 applicable to January 30, 1998, Ex. 221 at 8, then the Rights Certificates would have an effective exercise price substantially $Uhigher$O than the current trading price, and would be of correspondingly limited value. In contrast, had the Rights Certificates been issued as required by the Rights Plan in January 1998, the $ 7.5823 effective exercise price would have been approximately $ 5.29 $Uless$O than the trading price and the Rights would accordingly have been "in-the-money" by the same amount. Tr. (Barenbaum) at 168-69. In short, because of the decline in ARV's stock price, Emeritus can no longer be made whole simply by ordering ARV to issue the same Rights Certificates as should have been distributed in January 1998. If the Court does not adjust the terms of its injunctive relief to account for this decline, ARV would be the direct beneficiary of its own refusal to distribute the Rights. Emeritus's complaint in this action requested that the Court issue an injunction ordering ARV to distribute the Rights Certificates consistent with the terms of the Rights Agreement. Compl. P50. ARV contends, however, that the Rights Plan and any associated Rights were terminated on May 1, 1998, when ARV reincorporated in Delaware. After its reincorporation, ARV adopted a new shareholder rights agreement (the "Delaware Agreement"), with terms substantially similar to those of the prior Rights Agreement. Ex. 224. The fact that the old Rights Agreement is no longer in existence does not prevent the Court from ordering the issuance of rights that will make Emeritus whole in this case.
$%$?$%$=BIssue No. 5: Is Emeritus entitled to an award of damages?$=R
$TARV argues that Emeritus is not entitled to monetary damages because Judge Wilkinson, in ruling on the parties' summary judgment motions, held that Emeritus had failed to plead a claim for breach of contract. The Court's minute order denying the motions for summary judgment states that "there is no cause of action for breach of contract but rather only for declaratory relief and injunction." Ex. 336. The minute order is somewhat ambiguous, given that each of Emeritus's three claims for declaratory, equitable and monetary relief are supported by a breach of contract theory. Judgment Wilkinson did not issue a decision or order before the parties stipulated that this case be heard by this Court. In any event, this Court finds that, notwithstanding that the complaint in this action was styled as a "Complaint for Injunctive and Declaratory Relief," a prayer for money damages "in the alternative" to equitable relief was properly pled. Compl. P51. While it is plausible that Judge Wilkinson intended to narrow the issues for trial and thereby dispose of the need for a jury consider money damages as an alternative because the Court believed that equitable relief was available, this is not clear from the Minute Order. This Court finds that, given the absence of a more definite order, and by stipulating to a trial before this Court which has no other source to discern the rationale behind the minute order, the parties have waived any procedural bars that the minute order may have suggested. Further, the Court finds that no prejudice resulted from the determination that this waiver occurred since both parties included the question of money damages in the Joint Statement of Controverted Issues, and both sides vigorously briefed and argued the availability and size of money damages and presented expert testimony on the subject. Therefore, the Court finds that the minute order did not foreclose monetary damages.
$TSince January 30, 1998, the date when the Rights Certificates should have been issued, ARV has adopted a new shareholder rights plan under Delaware law. In addition, the price of ARV stock has declined from $ 12.8750, Ex. 221 at 8, to the 
current trading price of approximately $ 4 per share. Ex. 254. As a result of this decline, if the Rights Certificates were issued at the effective exercise price of $ 7.5823 applicable to January 30, 1998, Ex. 221 at 8, then the Rights Certificates would have an effective exercise price substantially higher than the current trading price, and correspondingly the Rights Certificates would be of limited value. In contrast, had the Rights Certificates been issued as required by the Rights Agreement in January 1998, the $ 7.5823 effective exercise price would have been approximately $ 5.29 less than the trading price, and the Rights would accordingly have been "in-the-money" by the same amount. Tr. (Barenbaum) at 168-69. In short, because of the decline in ARV's stock price, Emeritus can no longer be made whole simply by ordering ARV to issue the same Rights Certificates as should have been distributed in January 1998. In light of these changes in circumstances, the Court finds that monetary relief is the most appropriate remedy to make Emeritus whole.
$TBecause it is well settled that a party may seek monetary damages for breach of contract, $Usee DeCampos v. State Compensation Ins. Fund,$O 122 Cal. App. 2d 519, 526, 265 P.2d 617, 620 (Dist. Ct. App. 1954) (citing Restatement, Law of Contracts, vol. I, $S 327), and because this provision of the Rights Agreement expressly does not limit any available remedies, the Court finds that Emeritus was entitled to seek money damages.
$T$UDamages Under Black-Scholes Model$O
$TThe Black-Scholes Option Pricing Model is an accepted analytical tool for valuing securities, such as the Rights Certificates, with the characteristics of stock options. Ex. 221 at 6-7; Tr. (Barenbaum) at 155-56. Both the Financial Accounting Standards Board ("FASB") and the securities and Exchange Commission ("SEC") have accepted the Black-Scholes model for this purpose. Ex. 221 at 6-7.
$TUsing a dilution-adjusted Black-Scholes Option Pricing Model, Lester Barenbaum, Emeritus's damages expert, obtained a value of $ 17.5777 per Right, based on an ARV stock price of $ 12.8750, an exercise price of $ 7.5823 per share, a dividend yield of 0, a risk-free rate of 5.5%, a standard deviation of 53% (as a measure of volatility), a term of 9 1/2 years, and a dilution factor of 80.97%. Ex. 221 at 8. Since Emeritus owned 1,077,200 Rights, the total value of Emeritus' Rights as of January 30, 1998 was $ 18,934,729. $UId.$O ARV does not challenge the arithmetic correctness of these calculations. June 17 Rough Tr. (Koehn) at 24-25.
$T$UDamages for Intrinsic Value on January 30, 1998$O
$TAs an alternative to the Black-Scholes analysis Emeritus presented testimony on the "intrinsic value" of the Rights Certificates. The court accepts this as the correct analysis on which to base monetary damages in this case. The "intrinsic value" of a stock option is represented by the extent to which the exercise price of the option is exceeded by the trading price of the associated stock. Ex. 221 at Tab 2. The Court finds that the intrinsic value of the Rights Certificates represents the appropriate measure of Emeritus's damages resulting from ARV's failure to distribute the Rights Certificates. Dr. Lester Barenbaum, Emeritus's damages expert, obtained a dilution-adjusted figure of $ 5,405,482 for the intrinsic value of the Rights Certificates which should have been issued to Emeritus, based on an ARV stock price of $ 12.8750, and exercise price of $ 7.5823 per s hare, and a resulting market price for ARV shares, after full exercise of the Rights Certificates by all eligible shareholders, of $ 8.5893. Ex. 221 at 9. ARV does not challenge the arithmetic correctness of these calculations. June 17 Rough Tr. (Koehn) at 24-25.
$TEven assuming that the Rights were canceled as a result of the reincorporation merger nearly five months after the trigger, which the court does not find, the Court finds that Emeritus would be entitled to the intrinsic value of the Rights or $ 5,405,482. The court is unpersuaded by the testimony of ARV's damages expert, Dr. Koehn that the Rights are without value. Dr. Koehn's estimate of the synergies resulting from ARV's partnership with Prometheus was admittedly "crude" and assumed that Prometheus, a company which, even after seeing its equity position on ARV diluted as a result of the exercise of the Rights, would continue to have hundreds of million of dollars invested in ARV. The court finds it unlikely that Prometheus would abandon its remaining investment when the failure of ARV could only compound Prometheus' losses.
$TThis result is entirely consistent with the purpose of these sections of the Rights Agreement, which is to terminate the Rights when a Board-approved merger is itself the transaction that threatens to trigger the Rights Plan. The provisions are limited to transactions involving a transfer of Beneficial Ownership between different persons, in contrast to shell mergers in which Beneficial Ownership remains unchanged.
$TThe Court was equally unconvinced by Dr. Koehn's arguments regarding the tax disadvantages to ARV shareholders of exercising their Rights. First, if shareholders indeed have no economic incentive to exercise their Rights, as Dr. Koehn asserts, then even a would-be acquirer who triggers a rights agreement would have no reason to fear dilution of its equity position. If this is so, then the fundamental assumption that rights agreements pose a threat to such acquirers is mistaken, and a rights agreement is merely a paper tiger. Given the many hundreds of corporations that rely on shareholder rights agreements as a deterrent to possible takeovers, Dr. Koehn's supposition appears unlikely. Second, the agency costs predicted by Dr. Koehn as a result of the influx of cash used to exercise the Rights ignore the fact that ARV has pursued a strategy of growth by acquisition (Exs. 303 at 24; 333 at 31) and has significant levels of debt which could be paid-down with such cash. Ex. 303 at F-2; 333 at 43. Dr. Koehn's tax analysis also ignores more tax-effective uses of cash, such as the buy-back of shareholder stock. Tr. (Barenbaum) at 179-81.
$TBased on the evidence presented including the testimony of Dr. Barenbaum the court adopts the intrinsic value of Emeritus' rights and awards Emeritus damages of $ 5,405,482.00.
$%$?$%$=B$U.$O Issue No. 6: Is Emeritus entitled to a declaratory judgment that ARV's Shareholders Rights Agreement was triggered by Prometheus?$=R
$TPursuant to $Z 1060 $Uet seq.$O of the California Civil Code, the Court finds that a "Triggering Event," as defined in Section 1.12 of the Rights Agreement, occurred on January 16, 1998, when Prometheus became an "Acquiring Person," as defined in Section 1.1 of the Rights Agreement. The Court also finds that ARV breached the Rights Agreement by failing to distribute the Rights Certificates to Emeritus. Therefore, Emeritus is entitled to a declaratory judgment that Prometheus triggered ARV's Shareholders Rights Agreement.
$%$?$%$=BIssue No. 7: Is Emeritus barred from obtaining the relief it seeks as a result of waiver, estoppel or unclean hands?$=R
$TFinally, the Court does not find that Emeritus is barred from obtaining relief as a result of waiver, estoppel, or unclean hands. While ARV has elicited testimony to the effect that Emeritus is a competitor of ARV's, there is no suggestion in the record of improper or illegal conduct that could sustain a finding of unclean hands. Indeed, the evidence showed that Emeritus informed both ARV and Prometheus at the earliest possible instance of its view that a Triggering Event had occurred. Exs. 7, 8, 9.
$TThe Court also finds that there was no waiver or estoppel of the positions Emeritus asserts in this case resulting from positions Emeritus took in prior litigation with ARV concerning the enforceability of the Rights Agreement. Exs. 327, 328, 329 (filings and proceedings in Emeritus's 1998 action for an injunction against ARV). While it is true that "a beneficiary's right against the promisor is subject to any claim or defense arising from his own conduct," $URestatement (Second) of Contracts,$O $S 309 (1981) (ARV's Trial Br. at 13), Emeritus's position in the prior litigation created no such defense for ARV in the present case. In the prior litigation, which occurred in connection with Emeritus's tender offer, Emeritus contended that the Rights Agreement was unenforceable, and ARV of course took the contrary position. ARV was successful, and the Superior Court upheld the Rights Agreement. Ex. 330. Having failed in its efforts to invalidate the contract, Emeritus now asks only for the Rights that the contract, as upheld by the Court, guaranteed to all shareholders. The doctrine of judicial estoppel would apply only if ARV had taken a position that is now harmful to its interests $Uin reliance$O on Emeritus's position, and if Emeritus had reversed itself to ARV's disadvantage. But this action does not raise the question of the validity of the Rights Agreement, for that has already been decided by a Court. While Emeritus may have preferred that the Rights Agreement be invalidated, it now asks only for its rights under the Rights Agreement in light of the determination as to the contract's validity. There is simply no support in the law of contract for the proposition that a party who challenges a contract and loses is thereafter precluded from the benefits -- and duties -- that were given the force of law by the court which upheld the contract. Accordingly, Emeritus's positions are neither estopped nor waived.
$TIt is the decision of the court that Judgment is for the Plaintiff in the amount of $ 5,405,482.00 and costs as provided by law.
$%$?$%Dated: June 28, 1999
$TJudge Bruce W. Sumner, ret.
$200:
$220:#EXTR#$?#EMERITUS-ARV# 
$00:
$10:EMERITUS CORPORATION, a Washington corporation, Plaintiff, v. ARV ASSISTED LIVING, INC., a California corporation, Defendant.
$20:CASE NO. 793420
$25:SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF ORANGE
$40:$?$%July 22, 1999, Decided
$110:Judge: The Honorable Bruce W. Sumner.
$115:Bruce W. Sumner
$120:$T$=BAMENDED STATEMENT OF DECISION PURSUANT TO PLAINTIFF'S REQUEST FOR TECHNICAL CORRECTIONS$=R
$TComplaint Filed$?$?$?April 23, 1998
$T
Trial Date: June 14, 1999
$TThe only changes in the original STATEMENT OF DECISION made by this AMENDED STATEMENT OF DECISION are the "technical corrections" requested by Plaintiff. In making these changes no substantive change in the original statement was made or intended.
$TThis matter came on regularly for trial on June 14, 1999, before the Honorable Randell L. Wilkinson in Department 19 of the above-entitled Court. By stipulation of the parties and pursuant to Article 6, Section 21 of the California Constitution and Rules 244 and 880 of the California Rules of Court, the Honorable Bruce W. Sumner, Superior Court Judge (Retired) was named the temporary judge for all purposes.
$TThe trial of this matter was held on June 14, 15, 17, and 18, 1999 and thereafter the court took the matter under submission.
$T$=BINTRODUCTION$=R
$TThis case arose during a corporate struggle for control of the defendant ARV. In 1997, plaintiff Emeritus expressed an interest in purchasing a controlling interest in ARV. In July 1997, ARV opted instead to enter into a series of agreements with Prometheus Assisted Living ("Prometheus"), an investment vehicle of the investment bank Lazard Freres. These agreements provided for a significant equity investment by Prometheus in ARV.
$TAlong with the equity transactions with Prometheus, ARV also entered into a shareholder Rights Agreement which is the subject of this litigation. The Rights Agreement set various trigger levels of stock ownership for shareholders. If any shareholder exceeded its trigger level, the Rights Agreement obligated ARV to issue Rights to all other shareholders.
$TIts friendly offer to ARV having been rejected, Emeritus made a tender offer for ARV and proposed its own slate of directors for election to the ARV board. In the ensuing proxy battle, Prometheus bought additional shares of ARV stock to ensure Emeritus's defeat at the shareholders' vote on the competing slates of directors. Prometheus won and its directors were elected. The first question at issue in this litigation is whether by its purchase of shares to defeat Emeritus, Prometheus "triggered" the Rights Agreement by becoming a "Beneficial Owner" of more than 50% of ARV's stock.
$T$=BSTATEMENT OF THE $=R $=BCASE$=R
$TPlaintiff Emeritus is, and all times relevant herein was, a Washington corporation with its principal offices located in Seattle, Washington. Compl. P10; Tr. (Brandstrom) at 73-74. n1 Emeritus has been a shareholder of ARV at all times during the period from July 1997 through the present date. Compl. P1, Exs. 241A, 241B; Tr. (Brandstrom) at 76-77.
$F$Tn1 Citations in the form "Ex. ___" are to the exhibits received into evidence at trial. Citations in the form "Tr. ___" are to the transcript of the trial.$E
$TDefendant ARV is presently a Delaware corporation with its principal offices in Costa Mesa, California. Declaration of Sheila M. Muldoon, dated April 28, 1998, at P3 (Ex. 340). At the time the complaint in this action was filed ARV was a California corporation. $UId.$O
$TIn its Complaint for Injunctive and Declaratory Relief, Emeritus seeks: (1) a declaration that (a) ARV had breached the Rights Agreement by refusing to distribute the Rights; and (b) a "Triggering Event" occurred on January 16, 1998, when Prometheus purchased an additional 5.8% of ARV stock; and (2) an injunction ordering ARV to issue the rights to Emeritus. In the 
alternative, Emeritus seeks money damages equal to the value of the rights Emeritus should have received. Compl. $S VII, at 11-12.
$TAs part of and within this Statement of Decision, the Court will resolve each of the issues posed by the Joint Statement of Controverted Issues filed pursuant to Local Rule 450 on June 11, 1999. In reviewing the issues of fact and law as framed by the parties, the Court found that some issues were mixed questions of fact and law. To the extent that is the case, the Court will address both the factual and legal determinations relevant to the issues presented.
$T$=BFINDINGS OF FACT$=R
$TBased upon the testimony and documentary evidence received, the Court finds as follows:
$%$?$%$=BA. ARV's Shareholder Rights Agreement$=R
$TStarting in late 1996, ARV began to consider entering into a shareholder rights agreement. Declaration of Sheila M. Muldoon, dated April 28, 1999, at P8 (Ex. 340). On June 25, 1997, ARV's Board heard a presentation relating to rights agreements from its financial advisor, Salomon Brothers (Ex. 301). On July 14, 1997, ARV entered into the Rights Agreement with ChaseMellon Shareholder Services, L.L.C. ("ChaseMellon"), which served as Rights Agent. Ex. 3. The Rights Agreement was approved by ARV's Board on July 14, 1997. Ex. 18.
$TIn Section 1.1, the Rights Agreement set forth the percentage levels of ARV stock that would cause the Agreement to be triggered. The Rights Agreement defined any person who triggered the Agreement as an "acquiring person" and set separate trigger levels for Prometheus (which, under a stock purchase agreement to be signed the same day, would become a significant holder of ARV stock) and ARV's other shareholders. Section 1.1 of the Agreement provided that if Prometheus became the Beneficial Owner of 50% or more of ARV's stock, the Agreement would be triggered. Section 1.1 also provided that if any other shareholder (excluding other specifically exempted shareholders not at issue here) became the Beneficial Owner of 10% or more of ARV's stock, the plan would be triggered. Ex. 3 at $S 1.1.
$TSection 1.3 of the Rights Agreement set forth three alternate definitions of Beneficial Owner in three separate subdivisions. Section 1.3(i) incorporated the definition of Beneficial Ownership provided in Rule 13d-3 under the Securities Exchange Act of 1934. Ex. 3 at $S 1.3(i). Under Rule 13d-3, a person is deemed to beneficially own any security subject to any agreement through which the person "has or shares . . . voting power which includes the power to vote, or to direct the voting of, such security." 17 C.F.R. $S 240.13d-3.
$TSection 1.3(ii)(A) provides that a person beneficially owns shares which that person has the "right to acquire" pursuant to any agreement, provided, however, that a person is not the Beneficial Owner of shares which the person acquires or has the right to acquire pursuant to any "acquisition agreement between the Company and such Person . . . if such agreement has been approved by the Board of Directors prior to such Person's becoming an Acquiring Person." Ex. 3 at $S 1.3(ii)(A).
$TSection 1.3(iii) provides that a person beneficially owns any shares
$=S$%$?$%"which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person or any such Person's Affiliates or Associates has any agreement, arrangement or understanding . . . whether or not in writing, for the purpose of acquiring, holding, voting . . . or disposing of any securities of $(ARV$)."$=I
$%$?$%Ex. 3 at $S 1.3
(iii).
$TTen days after the announcement that a person has become an Acquiring Person and triggered the Agreement, ARV is obligated to instruct the Rights Agent to distribute Rights Certificates to all shareholders of ARV, except for the Acquiring Person. Ex. 3 at $S 3.1. The Rights Certificates permit ARV's shareholders to buy newly issued ARV shares at half the then-current market price. Ex. 3 at $S 7. Once they have been distributed, the Rights Certificates may be freely traded separate and apart from the shares of ARV common stock. Tr. (Muldoon) at 249.
$%$?$%$=BB. The Contest for Control of ARV Between Emeritus and Prometheus$=R
$TFrom 1997 until early 1998, Emeritus and Prometheus were engaged in a contest for control of ARV. Prometheus ultimately won this contest. Emeritus alleges, however, that in the process of buying ARV stock to defeat Emeritus, Prometheus triggered ARV's Rights Agreement.
$TOn July 10, 1997, Emeritus wrote to ARV's board proposing that Emeritus acquire the outstanding common stock of ARV for a minimum of $ 14 per share, which represented a premium over the stock's then-current market value of $ 10.25. Ex. 100; Tr. (Brandstrom) at 77-78. ARV's Board rejected Emeritus's proposal. Tr. (Brandstrom) at 78. Then, on July 14, 1997, ARV announced that it had entered into a Stock Purchase Agreement with Prometheus and another affiliate of Lazard Freres (the "SPA"). Ex. 208. Under this agreement, ARV agreed to sell up to 49.9% of its common stock to Prometheus at $ 14 per share. On July 23, 1997, ARV issued to Prometheus the first 16% block of ARV stock at $ 14 per share. Ex. 308; Tr. (Muldoon) at 223-24.
$TPrometheus's right to obtain additional shares of ARV stock under the SPA was subject to the approval of ARV's other shareholders. Ex. 208. If shareholders approved the transaction, ARV would issue additional blocks of ARV stock to Prometheus until it owned 49.9% of ARV. $UId.$O
$TAlso on July 14, 1997, Prometheus entered into a Stockholders' Voting Agreement (the "First SVA") (Ex. 5) with certain directors and officers of ARV and related family trusts and partnerships (the "Inside Shareholders") who owned large blocks of ARV stock. The Inside Shareholders were John A. Booty, David P. Collins, and Graham Espley-Jones. Under the First SVA, the Inside Shareholders agreed to vote all of their ARV shares (a) in support of the SPA, and (b) in support of the Board's and Prometheus's respective nominees to ARV's newly-expanded board of directors. Ex. 5 at $S 1.
$TOn October 12, 1997, Emeritus made a second proposal to ARV's Board to purchase all of the outstanding shares of ARV, this time for $ 16.50 per share in cash. Ex. 238. ARV's Board rejected the offer on October 13, 1997. Tr. (Brandstrom) at 83.
$TThe reaction of ARV's shareholders to the SPA was negative, and ARV's proxy consultant advised ARV's Board that the SPA faced likely defeat in the upcoming shareholder vote. Ex. 240; Tr. (Booty) at 350-52. Accordingly, on October 29, 1997, ARV and Prometheus terminated the SPA and entered into a new set of agreements that were not subject to a shareholder approval vote. Under the new agreements, Prometheus (a) retained the 16% block of ARV stock it had acquired under the SPA, (b) retained the right to acquire additional shares of ARV stock up to 49.9%, and (c) purchased $ 60 million worth of convertible notes from ARV (the "Notes"). Ex. 249. Under the terms of the Notes, ARV was permitted to convert the Notes into common stock at approximately $ 14 per share. This enabled ARV, at its discretion, to place in Prometheus's hands an additional 23% of ARV stock.
$TAlso on October 29, 1997, Prometheus and the Inside Shareholders (except for Mr. Davidson who had resigned as Chairman of ARV (Tr. (Booty) at 346)) entered into a second Shareholders' Voting Agreement (the "Second SVA"). Ex. 6. The provisions of the Second SVA were similar to those of the First SVA.
$TOn November 24, 1997, Emeritus filed proxy materials with the SEC indicating Emeritus's intent to field a slate of candidates to run for election to ARV's board at ARV's annual meeting scheduled for January 1998. Tr. (Brandstrom) at 83. Emeritus also launched a formal tender offer for ARV at $ 17.50 per share. $UId.$O ARV rejected this tender offer. $UId.$O
$TIn response, ARV's board met on December 5, 1997 and voted to convert the Notes held by Prometheus into common stock. Ex. 323. After the conversion of the Notes, Prometheus had ensured, by means of direct ownership of shares and control of the voting of the Inside Shareholders' shares under the Second SVA, that over 48% of ARV's shares would be voted in favor of ARV's and Prometheus's candidates for ARV's board and against Emeritus's candidates. Tr. (Brandstrom) at 84.
$TDespite this near majority, Prometheus decided to take additional steps to ensure the victory of its candidates at the January 28th meeting. On January 16, 1998, Prometheus entered into an agreement to purchase 926,131 shares of ARV stock from Gary Davidson, the former chairman of ARV who had resigned. Ex. 230. Mr. Davidson's shares were equivalent to approximately 5.8% of ARV's outstanding shares and increased Prometheus's direct holdings to approximately 45% of ARV's stock. According to Robert Freeman, the former senior officer of Prometheus who negotiated the purchase from Mr. Davidson, Prometheus's purpose in buying Mr. Davidson's shares was to secure additional voting support at the upcoming annual meeting and "to ensure that the Emeritus slate was defeated." Tr. (Freeman) at 111, 118-19. Finally, on January 20 and 23, 1998, Prometheus purchased an additional 186,000 and 299,700 shares of ARV, respectively, increasing its direct holdings to 7,595,069 shares, or 47.9% of outstanding shares. Ex. 232. Mr. Freeman testified that Prometheus's purpose in buying these additional shares was "to defeat the Emeritus proxy fight." Tr. (Freeman) at 114.
$%$?$%$=BC. ARV Refuses To Distribute the Rights$=R $=B Certificates$=R
$TPromptly after these additional share purchases by Prometheus were announced, Emeritus's counsel sent letters on January 22 and 25, 1998 to ARV's counsel requesting that ARV direct the Rights Agent to distribute the Rights Certificates or provide an explanation why it had not done so. Exs. 7, 8. When ARV did not respond to these letters, Emeritus's counsel sent a similar letter to Prometheus's counsel on January 26, 1998. Ex. 9. When ARV responded by letter dated February 2, 1998, it disputed that the Rights Agreement had been triggered. Ex. 10. On May 16, 1998, nearly four months after Emeritus had given written notice to ARV and Prometheus that the Rights Agreement had been triggered, (Ex. 7, 8, 9) ARV's Board met and passed two resolutions concluding that the Agreement had not been triggered by Prometheus's purchases of additional ARV shares in January 1998. Ex. 12 at 2-3. In passing these resolutions, the Board relied on its authority to "interpret" the Rights Agreement under Section 30. $UId.$O
$T$=BFINDINGS OF FACT AND APPLICATION OF THE LAW TO THE FACTS PROVEN AT TRIAL$=R
$%$?$%$=BIssue No. 1: Did a "triggering event" o ccur under the provision of the Shareholder Rights$=R $=B Plan of ARV Assisted Living ("ARV") as a result of any action taken by Prometheus Assisted Living LLC ("Prometheus")?$=R
$TThe Court finds that the Shareholder Rights Plan is a binding contract and that it is to be interpreted consistent with California law. The first words of the Agreement state that it is an "agreement . . . between ARV . . . and "ChaseMellon" Shareholder Services, L.L.C., a limited liability company, as Rights Agent." Ex. 3 at 1. The document is signed on behalf of both ARV and "ChaseMellon" and was agreed to be "in consideration of the promises and the mutual agreements herein set forth." $UId.$O In the section entitled "Governing Law," the Rights Agreement states as follows: "This Rights Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of California and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State." Ex. 3 at $S 32. Therefore, this Court will apply relevant California contracts law in interpreting the Rights Agreement.
$TThe California Code provides that "the language of a contract is to govern its interpretation, if the language is clear and explicit, and it does not involve an absurdity." Cal. Civil Code $S 1638. It is well-established in California that "where contract language is clear and explicit and does not lead to absurd results, $(courts$) ascertain intent from the written terms and go no further." $UShaw v. Regents of the Univ. of Cal.,$O 58 Cal. App. 4th 44, 53, 67 Cal. Rptr. 2d 850, 855 (1997) (internal quotes omitted); $Usee also Avemco Ins. Co. v. Davenport,$O 140 F.3d 839, 842 (9th Cir. 1998) ("if the meaning a lay person would ascribe to contract language is not ambiguous, $(courts will$) apply that meaning").
$TMoreover, it is settled law that "any contract is construed against the party who prepared the contract." $UPonder v. Blue Cross,$O 145 Cal. App. 3d 709, 718, 193 Cal. Rptr. 632, 636 (1983). Here, the Rights Plan was drafted by counsel to ARV and should therefore be construed against ARV. Tr. (Muldoon) at 245-46.
$TThe Court finds that, under the provisions of the Rights Agreement, a triggering event did occur as a result of actions taken by Prometheus, as described above. Section 1.1 of the Rights Agreement provides that Prometheus would become an Acquiring Person and trigger the Agreement as soon as it obtained Beneficial Ownership of 50% or more of ARV's stock. As set forth below, with the purchase of Mr. Davidson's shares on January 16, 1998, Prometheus acquired Beneficial Ownership of more than 50% of ARV's stock. The Rights Agreement was triggered at that time.
$TSection 1.3 of the Rights Agreement sets forth three alternate definitions of Beneficial Owner. The Agreement states: "A Person shall be deemed the 'Beneficial Owner' of and shall be deemed to 'beneficially own' any securities:" which are within the definitions of 1.3(i), 1.3(ii), $U"or"$O 1.3(iii). Ex. 3 (emphasis added). The Court finds that, so long as any one of the three definitions is satisfied, a party is deemed to be the Beneficial Owner of the stock.
$TSection 1.3(i) of the Rights Agreement incorporates the definition of Beneficial Ownership in Rule 13d-3 under the Securities Exchange Act of 1934, which provides that "a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (1) Voting power which includes the power to vote, or to direct the voting of, such security; and/or (2) Investment power which includes the power to dispose, or direct the disposition of, such security." 17 C.F.R. $S 240.13d-3. $USee Citizens First Bancorp., Inc. v. Harreld,$O 559 F. Supp. 867, 872 (W.D. Ky. 1982) (formation of a group for the purpose of voting shares together at a shareholders meeting was within the meaning of "beneficial ownership" under Rule 13d); $Usee also Bath Indus., Inc. v. Blot,$O 427 F.2d 97, 112 (7th Cir. 1970); $UPennwait Corp. v. Centaur Partners,$O 710 S. Supp. 111, 115 (E.D. Pa. 1989) (same determination made under analogous Pennsylvania law).
$TThe Court finds that the definition of Beneficial Ownership set forth in Section 1.3(i) includes all shares directly owned by Prometheus. ARV concedes as much, stating in its brief in opposition to Emeritus' summary judgment motion that Section 1.3(i) "incorporated the SEC 13D definition of Beneficial Ownership and conferred Beneficial Ownership immediately for any shares purchased pursuant to an agreement, regardless of conditions or time." Defendant ARV Assisted Living, Inc.'s Memorandum of Points and Authorities In Opposition to Plaintiffs' Motion for Summary Judgment, Or, In the Alternative, Summary Adjudication of Issues, dated April 28, 1999 (Ex. 340), at 4.
$TPrometheus was also the Beneficial Owner of the shares owned by the parties to the Second SVA under either Section 1.3(i) or Section 1.3(iii). Section 1.3(iii) provides that a person beneficially owns any ARV shares owned "by any other Person . . . with which such Person . . . has any agreement . . . for the purpose of . . . voting . . . any securities of $(ARV$)." Ms. Muldoon testified that the Voting Agreement was "an agreement for the purpose of voting shares of ARV," and that, viewed in isolation, the Voting Agreement would fall within the scope of Section 1.3(iii). Tr. (Muldoon) at 267. The Second SVA was entered into between Prometheus and the Inside Shareholders and required the Inside Shareholders to vote all of their ARV shares in support of the candidates for ARV's board nominated by ARV's board and by Prometheus. Ex. 6 $S 1. The purpose of the Second SVA was to create mutual obligations on the parties to the agreement to support each other's candidates for ARV's board. Tr. (Freeman) at 108. The Court finds that under either Section 1.3(i) or Section 1.3(iii), Prometheus was the Beneficial Owner of the ARV stock owned by the three Inside Shareholders who were parties to the Second SVA.
$TARV contends that a proviso located in Section 1.3(ii)(A) exempting shares owned pursuant to an approved acquisition agreement should apply to the definitions of Beneficial Ownership set forth in Section 1.3(i) and Section 1.3(iii) as well. The Court finds that the language and structure of the Agreement do not support this position. A proviso meant to apply to all three independent subsections defining Beneficial Ownership connected by the conjunction "or" would not be located within only one of the subsections. If the proviso were intended to apply to all three subsections, it would have been located within Section 1.3 but outside of the individual subsections. Indeed, S ection 1.3 concludes with just such a proviso. After the three subsections (i), (ii) and (iii) the following appears: "PROVIDED, HOWEVER, that no Person who is an officer, director, or employee of an Exempt Person shall be deemed, solely by reason of such Person's status or authority as such, to be the "Beneficial Owner" of, to have "Beneficial Ownership" of or to "beneficially own" any securities that are "beneficially owned" ($Uas defined in this Section 1.3$O), including, without limitation, in a fiduciary capacity, by an Exempt Person or by any other such officer, director, or employee of an Exempt Person." Ex. 3 at $S 1.3 (emphasis added). This proviso clearly applies to the entirety of Section 1.3. In contrast, the proviso in Section 1.3(ii)(A) contains no language such as that emphasized above, indicating that it would apply to the entire Section 1.3. In fact, its location within the body of one subsection clearly dictates otherwise.
$TApplying the definitions of "Beneficial Ownership" discussed above, the Court finds that Prometheus caused a triggering event by purchasing Mr. Davidson's shares in ARV. Prior to purchasing Mr. Davidson's shares, Prometheus had direct ownership of approximately 39% of ARV's stock. Ex. 308, 323; Tr. (Muldoon) at 223-25; Tr. (Brandstrom) at 84. Adding the 9% owned by the Inside Shareholders who were parties to the Second SVA, Prometheus beneficially owned more than 48% of ARV's stock prior to the purchase from Davidson. On January 16, 1998, Prometheus purchased Mr. Davidson's stock, thereby giving Prometheus an additional 5.8% block of ARV shares. In total, as of January 16, Prometheus was the Beneficial Owner of more than 50% of ARV's stock and thereby exceeded its trigger level under the Rights Agreement.
$TARV contends that the interpretation of the Agreement's plain meaning proposed by Emeritus requires that the Plan was triggered the instant the relevant agreements were signed, an absurd result which it contends dictates a contrary interpretation. The Court finds that this interpretation of ARV's is not supported by the language of the Agreement and mischaracterizes the correct interpretation of the Agreement. ARV's interpretation is based on Section 1.3(ii)(A) of the Agreement which provides that any shares which Prometheus had the "right to acquire" in addition to those shares which it actually owned, would count toward its 50% trigger level. ARV's proposed interpretation fails to account for the express proviso in Section 1.3(ii)(A), which carves out from the definition of Beneficial Ownership any shares which Prometheus had the right to buy pursuant to an acquisition agreement approved by ARV's Board. Ex. 3 at $S 1.3(ii)(A). ARV's Board in fact approved the July 1997 Stock Purchase Agreement, and the 49.9% of ARV stock that Prometheus had a "right to acquire" under that agreement was not Beneficially Owned by Prometheus under Section 1.3(ii)(A). Thus, the Plan was not triggered immediately upon implementation.
$TARV has introduced evidence that purports to show that the intent of certain of the witnesses was not to trigger the Agreement in the course of the events that precipitated this litigation. California law provides that extrinsic evidence of intent and purpose should be excluded from evidence if the contractual language is clear and if the extrinsic evidence concerning intent and purpose, rather than refining an interpretation of the contract, "seeks to substitute a different meaning." $UGerdlund v. Electronic Dispens ers Int'l,$O 190 Cal. App. 3d 263, 273 (1987). "Irrespective of any credibility determination, $(defendant's$) subjective intent or understanding cannot be used to establish an intent independent from the express written terms of the agreement." $USunniland Fruit Inc. v. Verni,$O 223 Cal. App. 2d 892, 284 Cal. Rptr. 824 (1991). 
$TAlthough the Court believes the language of the Agreement to be clear, it has considered certain extrinsic evidence in order better to understand the nature of the Agreement. This evidence does not, however, alter the Court's interpretation of the Agreement. The evidence presented was that although the ARV Board intended to permit Prometheus to acquire up to 49.9% of ARV's shares, the Board did not intend to allow Prometheus to Beneficially Own a majority interest in ARV; otherwise, there would have been no trigger level for Prometheus at all. The evidence also was that Prometheus purchased shares owned by Gary Davidson that were outside of the transactions formally approved by the Board.
$TThe Court heard testimony that rights agreements are intended to protect shareholders by preventing non-negotiated seizures of corporate control. The Court finds that these shareholders were potentially impacted adversely by Prometheus's "creeping acquisition" of ARV shares that caused the triggering of the Agreement. The parties to the Second SVA, including Prometheus, formed a voting block that acquired majority control of ARV through open market accumulations in January 1998 without paying any control premium to ARV's shareholders. This occurred at a time when Emeritus was offering to pay $ 17.50 per ARV share to all of ARV's shareholders, a substantial premium over Prometheus's $ 14 per share investment in ARV. Moreover, testimony by Prometheus officers demonstrated that the open market purchases by Prometheus that triggered the Plan were made specifically for the purpose of defeating Emeritus's proxy contest and tender offer. By purchasing additional shares of ARV stock in January 1998, Prometheus seized functional control over ARV, blocked Emeritus's offer, and secured certain shareholder approval of its own deal, without paying any premium to the shareholders outside of the voting block. The Court finds that enforcing the terms of the Rights Agreement in these circumstances is fully consistent with its purpose.
$TARV also presented extrinsic evidence in the form of testimony by ARV's then-general counsel, Sheila Muldoon. Ms. Muldoon testified that she understood that Prometheus would not trigger the Rights Agreement until it had "directly" owned "50% or more." of ARV's shares. Tr. (Muldoon) at 272-73. However, Ms. Muldoon testified that this was based on her "personal understanding" which she never discussed with anyone at the time. Tr. (Muldoon) at 280. Ms. Muldoon was not a member of ARV's Board and ARV did not present evidence that her understanding was a basis for the Board's determination that the Rights Agreement had not been triggered. Ex. 12; Tr. (Muldoon) at 278. Thus, the Court finds this testimony to be irrelevant.
$TThe Court rejects ARV's contention that the triggering event did not occur because the Board could so interpret the Rights Plan under Section 30 of the Rights Plan. Section 30 grants ARV's Board of Directors the authority to "administer" the Rights Plan by "interpreting the provisions" of the Plan. Ex. 3 $S 30. The Court notes that the power conferred upon the Board must be read in conjunction w ith the requirement of California law that "the language of a contract is to govern its interpretation, if the language is clear and explicit, and it does not involve an absurdity." Cal. Civ. Code $S 1638. ARV concedes that such discretion existed only "to the extent that the terms of the pill are subject to interpretation," ARV's Mem. of Points and Authorities in Support of Motion for Summary Judgment, dated Apr. 14, 1999 (Ex. 340), at 10, but contends that, to the extent that the definition of Beneficial Ownership in its Agreement is ambiguous, it may be "interpreted" by the Board under Section 30. ARV Tr. Brief at 10-11. As ARV counsel Ms. Muldoon conceded at trial, however, "Section 30 does not give ARV's Board the right to change its obligations under the Rights Agreement as written." Tr. (Muldoon) at 295. The Court finds first that the definition of Beneficial Ownership is unambiguous and permits no such "interpretation" by the Board.
$TMoreover, although certain arguments were advanced by counsel for ARV concerning the meaning of the Beneficial Ownership, the evidence at trial showed that no such interpretation was ever rendered by the Board. On May 16, 1998 -- nearly four months after Emeritus had given written notice to ARV and Prometheus that the Rights Agreement had been triggered (Ex. 7, 8, 9) -- ARV's Board met and passed two resolutions concluding that the Agreement had not been triggered by Prometheus's purchases of additional ARV shares in January 1998. Ex. 12 at 2-3. In passing these resolutions, the Board relied on its authority to "interpret" the Rights Agreement under Section 30. $UId.$O Initially, the Board resolved that Prometheus was not the Beneficial Owner of any shares owned by the other parties to the Stockholder Voting Agreements, dated July 14, 1997 and October 29, 1997. Ex. 12 at 2. The Board based its resolution on a determination that the Voting Agreements were included within the term "acquisition agreement" used in a proviso contained in Section 1.3(ii)(A) of the Rights Agreement and thereby were excluded from the definition of Beneficial Ownership. $UId.$O The Court has previously found that this interpretation is unsupportable. Moreover, there is no evidence that the Board discussed this interpretation at its meeting and there was no notation made in the minutes to explain how the Voting Agreements were not "agreement$(s$) . . . for the purpose of . . . voting . . . securities" of ARV as defined in Section 1.3(iii). Ex. 3 at $S 1.3(iii); Ex. 12; Tr. (Muldoon) at 280.
$TThe Court finds that the Voting Agreements cannot reasonably be construed as constituting "acquisition agreements" as referred to in the proviso in Section 1.3(ii)(A) of the Rights Agreement. The Voting Agreements did not provide for the "acquisition" of any shares of ARV. Ex. 5, 6; Tr. (Muldoon) at 270. More significantly, the Rights Agreement only exempts "acquisition agreement$(s$) $Ubetween the Company"$O and other persons. Ex. 3 at $S 1.3(ii)(A) (emphasis added). ARV was not a party to either of the Voting Agreements. Ex. 5, 6; Tr. (Muldoon) at 270-71.
$%$?$%$=BIssue No. 2: If a triggering event occurred, is the answer in the "affirmative" to the following three questions: (a) was the triggering event "inadvertent"; (b) were Prometheus's actions which triggered the Shareholder Rights Agreement taken without any intention of changing or influencing control of ARV; and (c)(1) $(EMERITUS STATEMENT OF THE ISSUE$) did Prometheus divest as promptly as possible a sufficient number of shares of ARV so that Pr ometheus would no longer exceed its share ownership limit under the Shareholder Rights Agreement; or (c)(2) $(ARV STATEMENT OF THE ISSUE$) if Prometheus did not divest as promptly as possible a sufficient number of shares, should Prometheus be permitted to do so now?$=R
$TUnder Section 1.1, the Plan will not be triggered if three conditions are met: the Board determines in good faith that a triggering of the Plan was "inadvertent"; the Board determines in good faith that the purchase of shares was made "without any intention of changing or influencing control of the Company"; and the acquiring person sells a sufficient number of shares "as promptly as practical" so that its holding falls below the applicable trigger level. Ex. 3 at $S 1.1. Therefore, if the answer to all three questions posed in Controverted Issue Number Two is "affirmative," a Triggering Event did not occur.
$TAs to Issue Number 2(a); the Court finds that the evidence presented at trial did not show that the triggering of the Plan was inadvertent. Although it is clear that the triggering of the Plan was not in Prometheus's best interests, the evidence did not show that Prometheus's actions that precipitated the triggering event were inadvertent; to the contrary, they were part of a deliberate strategy that relied upon several carefully crafted contracts.
$TMoreover, the Court finds that the evidence failed to demonstrate that the Board reached a determination in good faith that any triggering event was inadvertent. Instead, the evidence tended to show that, faced with an acquisition of shares by Prometheus which, Emeritus contended at the time, precipitated a triggering event, the ARV Board simply passed a resolution that mirrored the language of the inadvertence clause of the Agreement, rather than determining whether Prometheus's actions were in fact inadvertent. There is no evidence that ARV's Board, at its May 16, 1998 meeting, ever attempted to investigate or discern Prometheus's motives in making its January 1998 purchases. Ex. 12; Tr. (Muldoon) at 293. In fact, in preparing the minutes of the meeting, Ms. Muldoon testified that she was "just copying the words from the Rights Agreement" into the Board's resolution. Tr. (Muldoon) at 293-94.
$TThe Court finds further that the Board's determination that any triggering was inadvertent is without support in the record. The testimony of Mr. Robert Freeman of Prometheus establishes that Prometheus's intent in buying the additional 9% block of ARV shares in January 1998 was to defeat Emeritus's proxy contest and guarantee that ARV's existing board (including the three representatives of Prometheus) would remain in control of ARV. Tr. (Freeman) at 111, 113-114, 118-119. For a triggering event to be excused as "inadvertent" under the Rights Agreement, the purchases causing the trigger must have been made "without any intention of changing or influencing control of the Company". Ex. 3 at $S 1.1. No conceivable construction of this language would permit Prometheus's purchases, in light of the expressly stated purpose of those purchases, to be deemed "inadvertent" under the Rights Agreement.
$TAs to Issue Number 2(b), the Court finds that Prometheus did purchase the additional shares of ARV in January 1998 for the purpose of influencing the ongoing contest for control of ARV. Robert Freeman of Prometheus, who made the decision to buy the additional shares, testified that Prometheus's purpose was "to ensure that the Emeritus slate $(of directors$) was defeated" at the upcoming election of ARV's boa rd. Tr. (Freeman) at 111. Mr. Freeman conceded, in fact, that the purchase of Mr. Davidson's shares was part of a deliberate effort to defeat Emeritus's director nominees by ensuring a majority of votes friendly to Prometheus's own nominees. The Court finds that, since ensuring the defeat of a slate of directors is clearly an "intention of . . . influencing control of the Company," ARV cannot meet the conditions of Section 1.1 of the Plan.
$TAs to Issue Number 2(c), the Court finds that Prometheus did not sell a sufficient number of shares to fall beneath its 50% trigger level "as promptly as practicable" and, having not done so, should not be permitted to do so now. Because the Second SVA terminated on October 12, 1998, ARV contends that, even under Emeritus's interpretation of Beneficial Ownership, Prometheus ceased to Beneficially Own 50% or more of ARV's stock at that time. ARV Trial Br. at 12. Emeritus informed Prometheus by letter dated January 26, 1998 of its view that the Agreement had been triggered. Ex. 9. With the crucial shareholders' vote at the January 28, 1998 meeting imminent, Prometheus took no immediate steps to divest itself of the appropriate amount of stock. The fact that, through no additional action of its own, Prometheus's Beneficial Ownership of a majority interest in ARV may have expired nine months later, clearly falls short of the requirements to reverse an inadvertent triggering. The Court finds further than a post-judgment divestiture by Prometheus could in no way render the Triggering Event inadvertent or effect the relief awarded by this Court.
$%$?$%$=BIssue No. 3: Were all rights under ARV's Shareholders Rights Agreement extinguished by reason of ARV's reincorporation as and merger$=R $=B into a Delaware corporation on May 1, 1998?$=R
$TARV contends that the Rights Certificates resulting from the trigger in January 1998 would be extinguished by ARV's May 1998 reincorporating in Delaware. In support of its position, ARV relies on Section 13.2 of the Rights Agreement. That section provides that "in the event of any merger or other acquisition transaction involving the Company pursuant to a merger or other acquisition agreement between the Company and any Person... this Rights Agreement and a the rights of holders or Rights hereunder shall be terminated." Es.3 at 13.2. Because the merger provision is limited to mergers involving the actual transfer of beneficial ownership the court disagrees.
$TAccording to Section 13.2 the merger provision may only terminate Shareholder Rights "in accordance with Section 7.1". Section 7.1 provides that the merger provision in Section 13.2 acts to terminate the Shareholder Rights only when the merger is "of the type described in Section 1.3(ii)(A)(2)." $UId.$O The question of whether ARV's reincorporation in Delaware would terminate the Rights therefore hinges on whether the shell merger used to effect the reincorporation meets the definition of Section 1.3(ii)(A)(2). The Court finds that it does not.
$TSection 1.3(ii)(A)(2) determines when a right to acquire shares (e.g., from another shareholder) pursuant to a merger or other acquisition agreement falls outside the meaning of Beneficial Ownership. The section provides that a person does not Beneficially Own
$=S$%$?$%"(2) securities which such person...may acquire...pursuant to any merger or other acquisition agreement between the Company and such person...if such agreement has been approved by the Board of Directors of the Company prior to such Person's becoming an Acquiring Person."$=I
$%$?$%E x. 3 at 1.3(ii)(A)(2). The kind of merger described by this section is therefore limited to those involving a transfer of shares $Ubetween ARV shareholders$O in conjunction with a Board approved "merger or other acquisition agreement." $UId.$O
$TThe shell merger employed by ARV to reincorporate in Delaware does not qualify. The minutes of action of ARV's Board dated July 14, 1997 describe the structure of the reincorporation merger. Ex 18. at 8. First, the Board provided for the formation "in Delaware $(of$) a wholly-owned subsidiary of the Company ('ARV Delaware') into which this Company shall merge..." $UId.$O The minutes further provide that
$=S$%$?$%"effective upon the Merger, the shares of ARV Delaware outstanding immediately prior to the Merger shall be canceled and shall cease to exist, and the shares of the Company outstanding immediately prior to the Merger shall converted $(sic$) into a like number and kind of shares of ARV Delaware."$=I
$%$?$%$UId.$O at 9. The July 14, 1997 Board minutes make clear that the merger did not involve the transfer or any shares between ARV shareholders. Rather, the shares of ARV California belonging to any given shareholder were converted into Delaware shares. Therefore, the termination provisions of Sections 7.1 and 13.2 do not apply.
$TThe result is entirely consistent with the purpose of these sections of the Rights Agreement, which is to terminate the Rights when a Board-approved merger is itself the transaction that threatens to trigger the Rights Plan. The provisions are therefore limited to transaction involving a transfer of beneficial ownership between two different persons, in contrast to shell mergers in which Beneficial Ownership remains unchanged.
$%$?$%$=BIssue No. 4: Is Emeritus entitled to the issuance of an injunction?$=R
$TSection 15 of the Rights Agreement, entitled Rights of Action, provides that ARV's stockholders may "enforce this Rights Agreement, and may institute and maintain any suit, action or proceeding against $(ARV$) to enforce this Rights Agreement . . . ." Ex. 3 at $S 15. Section 15 permits "any suit, action or proceeding against the Company to enforce this Rights Agreement" and then, "without limiting the foregoing or any remedies available to the holders of the Rights," specifically allows claims for equitable relief and specific performance. Ex. 3 at $S 15.
$TEmeritus's complaint in this action requested that the Court issue an injunction ordering ARV to distribute the Rights Certificates consistent with the terms of the Rights Agreement. Compl. P50. ARV contends, however, that the Rights Plan and any associated Rights were terminated on May 1, 1998, when ARV reincorporated in Delaware. After its reincorporation, ARV adopted a new shareholder rights agreement (the "Delaware Agreement"), with terms substantially similar to those of the prior Rights Agreement. Ex. 224. The fact that the old Rights Agreement is no longer in existence does not prevent the Court from ordering the issuance of rights that will make Emeritus whole in this case.
$TA significant concern in fashioning appropriate injunctive relief relates to ARV's stock price. Since January 30, 1998, the date when the Rights Certificates should have been issued, the price of ARV stock has declined from $ 12.8750, Ex. 221 at 8, to the current trading price of approximately $ 4 per share, Ex. 254. As a result of this decline, if the Rights Certificates were issued at the effective exercise price of $ 7.5823 applicable to January 30, 1998, Ex. 221 at 8, then the Rights Certificates woul d have an effective exercise price substantially $Uhigher$O than the current trading price, and would be of correspondingly limited value. In contrast, had the Rights Certificates been issued as required by the Rights Plan in January 1998, the $ 7.5823 effective exercise price would have been approximately $ 5.29 $Uless$O than the trading price and the Rights would accordingly have been "in-the-money" by the same amount. Tr. (Barenbaum) at 168-69. In short, because of the decline in ARV's stock price, Emeritus can no longer be made whole simply by ordering ARV to issue the same Rights Certificates as should have been distributed in January 1998. If the Court does not adjust the terms of its injunctive relief to account for this decline, ARV would be the direct beneficiary of its own refusal to distribute the Rights. Emeritus's complaint in this action requested that the Court issue an injunction ordering ARV to distribute the Rights Certificates consistent with the terms of the Rights Agreement. Compl. P50. ARV contends, however, that the Rights Plan and any associated Rights were terminated on May 1, 1998, when ARV reincorporated in Delaware. After its reincorporation, ARV adopted a new shareholder rights agreement (the "Delaware Agreement"), with terms substantially similar to those of the prior Rights Agreement. Ex. 224. The fact that the old Rights Agreement is no longer in existence does not prevent the Court from ordering the issuance of rights that will make Emeritus whole in this case.
$%$?$%$=BIssue No. 5: Is Emeritus entitled to an award of damages?$=R
$TARV argues that Emeritus is not entitled to monetary damages because Judge Wilkinson, in ruling on the parties' summary judgment motions, held that Emeritus had failed to plead a claim for breach of contract. The Court's minute order denying the motions for summary judgment states that "there is no cause of action for breach of contract but rather only for declaratory relief and injunction." Ex. 336. The minute order is somewhat ambiguous, given that each of Emeritus's three claims for declaratory, equitable and monetary relief are supported by a breach of contract theory. Judge Wilkinson did not issue a decision or order before the parties stipulated that this case be heard by this Court. In any event, this Court finds that, notwithstanding that the complaint in this action was styled as a "Complaint for Injunctive and Declaratory Relief," a prayer for money damages "in the alternative" to equitable relief was properly pled. Compl. P51. While it is plausible that Judge Wilkinson intended to narrow the issues for trial and thereby dispose of the need for a jury consider money damages as an alternative because the Court believed that equitable relief was available, this is not clear from the Minute Order. This Court finds that, given the absence of a more definite order, and by stipulating to a trial before this Court which has no other source to discern the rationale behind the minute order, the parties have waived any procedural bars that the minute order may have suggested. Further, the Court finds that no prejudice resulted from the determination that this waiver occurred since both parties included the question of money damages in the Joint Statement of Controverted Issues, and both sides vigorously briefed and argued the availability and size of money damages and presented expert testimony on the subject. Therefore, the Court finds that the minute order did not foreclose monetary damages.
$TSince January 30, 1998, the date when the Rights Cert ificates should have been issued, ARV has adopted a new shareholder rights plan under Delaware law. In addition, the price of ARV stock has declined from $ 12.8750, Ex. 221 at 8, to the current trading price of approximately $ 4 per share. Ex. 254. As a result of this decline, if the Rights Certificates were issued at the effective exercise price of $ 7.5823 applicable to January 30, 1998, Ex. 221 at 8, then the Rights Certificates would have an effective exercise price substantially higher than the current trading price, and correspondingly the Rights Certificates would be of limited value. In contrast, had the Rights Certificates been issued as required by the Rights Agreement in January 1998, the $ 7.5823 effective exercise price would have been approximately $ 5.29 less than the trading price, and the Rights would accordingly have been "in-the-money" by the same amount. Tr. (Barenbaum) at 168-69. In short, because of the decline in ARV's stock price, Emeritus can no longer be made whole simply by ordering ARV to issue the same Rights Certificates as should have been distributed in January 1998. In light of these changes in circumstances, the Court finds that monetary relief is the most appropriate remedy to make Emeritus whole.
$TBecause it is well settled that a party may seek monetary damages for breach of contract, $Usee DeCampos v. State Compensation Ins. Fund,$O 122 Cal. App. 2d 519, 526, 265 P.2d 617, 620 (Dist. Ct. App. 1954) (citing Restatement, Law of Contracts, vol. I, $S 327), and because this provision of the Rights Agreement expressly does not limit any available remedies, the Court finds that Emeritus was entitled to seek money damages.
$T$UDamages Under Black-Scholes Model$O
$TThe Black-Scholes Option Pricing Model is an accepted analytical tool for valuing securities, such as the Rights Certificates, with the characteristics of stock options. Ex. 221 at 6-7; Tr. (Barenbaum) at 155-56. Both the Financial Accounting Standards Board ("FASB") and the securities and Exchange Commission ("SEC") have accepted the Black-Scholes model for this purpose. Ex. 221 at 6-7.
$TUsing a dilution-adjusted Black-Scholes Option Pricing Model, Lester Barenbaum, Emeritus's damages expert, obtained a value of $ 17.5777 per Right, based on an ARV stock price of $ 12.8750, an exercise price of $ 7.5823 per share, a dividend yield of 0, a risk-free rate of 5.5%, a standard deviation of 53% (as a measure of volatility), a term of 9 1/2 years, and a dilution factor of 80.97%. Ex. 221 at 8. Since Emeritus owned 1,077,200 Rights, the total value of Emeritus' Rights as of January 30, 1998 was $ 18,934,729. $UId.$O ARV does not challenge the arithmetic correctness of these calculations. Tr. (Koehn) at 419-20.
$T$UDamages for Intrinsic Value on January 30, 1998$O
$TAs an alternative to the Black-Scholes analysis Emeritus presented testimony on the "intrinsic value" of the Rights Certificates. The court accepts this as the correct analysis on which to base monetary damages in this case. The "intrinsic value" of a stock option is represented by the extent to which the exercise price of the option is exceeded by the trading price of the associated stock. Ex. 221 at Tab 2. The Court finds that the intrinsic value of the Rights Certificates represents the appropriate measure of Emeritus's damages resulting from ARV's failure to distribute the Rights Certificates. Dr. Lester Barenbaum, Emeritus's damages expert, obtained a dilution-adjusted figure of $ 5,405,482 for the intrinsic value of the Rights Certificates which should have been issued to Emeritus, based on an ARV stock price of $ 12.8750, and exercise price of $ 7.5823 per share, and a resulting market price for ARV shares, after full exercise of the Rights Certificates by all eligible shareholders, of $ 8.5893. Ex. 221 at 9. ARV does not challenge the arithmetic correctness of these calculations. Tr. (Koehn) at 419-20.
$TEven assuming that the Rights were canceled as a result of the reincorporation merger nearly five months after the trigger, which the court does not find, the Court finds that Emeritus would be entitled to the intrinsic value of the Rights or $ 5,405,482. The court is unpersuaded by the testimony of ARV's damages expert, Dr. Koehn that the Rights are without value. Dr. Koehn's estimate of the synergies resulting from ARV's partnership with Prometheus was admittedly "crude" and assumed that Prometheus, a company which, even after seeing its equity position on ARV diluted as a result of the exercise of the Rights, would continue to have hundreds of million of dollars invested in ARV. The court finds it unlikely that Prometheus would abandon its remaining investment when the failure of ARV could only compound Prometheus' losses.
$TThis result is entirely consistent with the purpose of these sections of the Rights Agreement, which is to terminate the Rights when a Board-approved merger is itself the transaction that threatens to trigger the Rights Plan. The provisions are limited to transactions involving a transfer of Beneficial Ownership between different persons, in contrast to shell mergers in which Beneficial Ownership remains unchanged.
$TThe Court was equally unconvinced by Dr. Koehn's arguments regarding the tax disadvantages to ARV shareholders of exercising their Rights First, if shareholders indeed have no economic incentive to exercise their Rights, as Dr. Koehn asserts, then even a would-be acquirer who triggers a rights agreement would have no reason to fear dilution of its equity position. If this is so, then the fundamental assumption that rights agreements pose a threat to such acquirers is mistaken, and a rights agreement is merely a paper tiger. Given the many hundreds of corporations that rely on shareholder rights agreements as a deterrent to possible takeovers, Dr. Koehn's supposition appears unlikely. Second, the agency costs predicted by Dr. Koehn as a result of the influx of cash used to exercise the Rights ignore the fact that ARV has pursued a strategy of growth by acquisition (Exs. 303 at 24; 333 at 31) and has significant levels of debt which could be paid-down with such cash. Ex. 303 at F-2; 333 at 43. Dr. Koehn's tax analysis also ignores more tax-effective uses of cash, such as the buy-back of shareholder stock. Tr. (Barenbaum) at 179-81.
$TBased on the evidence presented including the testimony of Dr. Barenbaum the court adopts the intrinsic value of Emeritus' rights and awards Emeritus damages of $ 5,405,482.00.
$%$?$%$=BIssue No. 6: Is Emeritus entitled to a declaratory judgment that ARV's Shareholders Rights Agreement was triggered by Prometheus?$=R
$TPursuant to $Z 1060 $Uet seq.$O of the California Civil Code, the Court finds that a "Triggering Event," as defined in Section 1.12 of the Rights Agreement, occurred on January 16, 1998, when Prometheus became an "Acquiring Person," as defined in Section 1.1 of the Rights Agreement. The Court also finds that ARV breached the Rights Agreement by failing to distribute the Rights Certificates to Emeritus. Therefore, 
Emeritus is entitled to a declaratory judgment that Prometheus triggered ARV's Shareholders Rights Agreement.
$%$?$%$=BIssue No. 7: Is Emeritus barred from obtaining the relief it seeks as a result of waiver, estoppel or unclean hands?$=R
$TFinally, the Court does not find that Emeritus is barred from obtaining relief as a result of waiver, estoppel, or unclean hands. While ARV has elicited testimony to the effect that Emeritus is a competitor of ARV's, there is no suggestion in the record of improper or illegal conduct that could sustain a finding of unclean hands. Indeed, the evidence showed that Emeritus informed both ARV and Prometheus at the earliest possible instance of its view that a Triggering Event had occurred. Exs. 7, 8, 9.
$TThe Court also finds that there was no waiver or estoppel of the positions Emeritus asserts in this case resulting from positions Emeritus took in prior litigation with ARV concerning the enforceability of the Rights Agreement. Exs. 327, 328, 329 (filings and proceedings in Emeritus's 1998 action for an injunction against ARV). While it is true that "a beneficiary's right against the promisor is subject to any claim or defense arising from his own conduct," $URestatement (Second) of Contracts,$O $S 309 (1981) (ARV's Trial Br. at 13). Emeritus's position in the prior litigation created no such defense for ARV in the present case. In the prior litigation, which occurred in connection with Emeritus's tender offer, Emeritus contended that the Rights Agreement was unenforceable, and ARV of course took the contrary position. ARV was successful, and the Superior Court upheld the Rights Agreement. Ex. 330. Having failed in its efforts to invalidate the contract, Emeritus now asks only for the Rights that the contract, as upheld by the Court, guaranteed to all shareholders. The doctrine of judicial estoppel would apply only if ARV had taken a position that is now harmful to its interests $Uin reliance$O on Emeritus's position, and if Emeritus had reversed itself to ARV's disadvantage. But this action does not raise the question of the validity of the Rights Agreement, for that has already been decided by a Court. While Emeritus may have preferred that the Rights Agreement be invalidated, it now asks only for its rights under the Rights Agreement in light of the determination as to the contract's validity. There is simply no support in the law of contract for the proposition that a party who challenges a contract and loses is thereafter precluded from the benefits -- and duties -- that were given the force of law by the court which upheld the contract. Accordingly, Emeritus's positions are neither estopped nor waived.
$TIt is the decision of the court that Judgment is for the Plaintiff in the amount of $ 5,405,482.00 and costs as provided by law.
$%$?$%Dated: July 22, 1999
$TJudge Bruce W. Sumner, ret.
$T$IPROOF OF SERVICE BY FACSIMILE$N
$T$I(C.C.P. $S 1012.5 $Uet seq.$O$N$I)$N
$T$II, Denise Mitchell, not a party to the within action hereby declare that on July 26, 1999, I served the following document: AMENDED STATEMENT OF DECISION PURSUANT TO PLAINTIFF'S REQUEST FOR TECHNICAL CORRECTIONS on the parties listed below regarding the within action by FACSIMILE from the offices of$N $I J.A.M.S/ENDISPUTE located at 500 N. State College Blvd., Suite 600, Orange, CA 92868, (714)939-1300, FACSIMILE (714)939-1787.$N
$T$ISEE ATTACHED SERVICE LIST$N
$T$II declare under penalty of perjury the foregoing to be true and correct. Executed at Orange, California on July 26, 1999.$N
$T/s/signature
$T$ISignature
$N
$%$?$%$=BJAMS/Endispute - Service List$=R
$T07/26/99
$%$?$%$=BReference # 1200026901$=R$%$=BCase Name: Emeritus Corporation vs ARV Assisted Living, Inc.$=R$%$=BReferring Judge: Hon. Randell Wilkinson$=R$M02,39,39$D$QKaren Patterson$BDEF (Active$?$?$?)$QLatham & Watkins$Q650 Town Center Dr., 20th Floor$YMain Phone # (714) 540-1235$QCosta Mesa$?$?$?CA 92626$YDirect Phone # (714) 540-1235$QParty Represented:$YFAX # (714) 755-8290$RARV Assisted Living Inc.$Q$QMorris A. Thurston$BDEF (Active$?$?$?)$QLatham & Watkins$Q650 Town Center Dr., 20th Floor$YMain Phone # (714) 540-1235$QCosta Mesa$?$?$?CA 92626$YDirect Phone # (714) 540-1235$QParty Represented:$YFAX # (714) 755-8290$RARV Assisted Living Inc.$Q$QR. Brian Timmons$BDEF (Active$?$?$?)$QLatham & Watkins$Q650 Town Center Dr., 20th Floor$YMain Phone # (714) 540-1235$QCosta Mesa$?$?$?CA 92626$YDirect Phone # (714) 540-1235$QParty Represented:$YFAX # (714) 755-8290$RARV Assisted Living Inc.$Q$QCollie F. James$BDEF (Active$?$?$?)$QLatham & Watkins$Q650 Town Center Dr., 20th Floor$YMain Phone # (714) 540-1235$QCosta Mesa$?$?$?CA 92626$YDirect Phone # (714) 540-1235$QParty Represented:$YFAX # (714) 755-8290$RARV Assisted Living Inc.$Q$QJoseph P. Busch III$BPL (Active$?$?$?)$QGibson, Dunn & Crutcher$Q4 Park Plaza, Suite 1400$YMain Phone # (949) 451-3800$QIrvine$?$?$?CA 92614$YDirect Phone # (949) 451-3800$QParty Represented:$YFAX # (949) 451-4220$REmeritus Corporation$Q$QWayne W. Smith$BPL (Active$?$?$?)$QGibson, Dunn & Crutcher$Q4 Park Plaza, Suite 1400$YMain Phone # (949) 451-3800$QIrvine$?$?$?CA 92614$YDirect Phone # (949) 451-3800$QParty Represented:$YFAX # (949) 451-4220$REmeritus Corporation$Q$QCharles Haake$BPL (Active$?$?$?)$QGibson, Dunn & Crutcher$Q4 Park Plaza, Suite 1400$YMain Phone # (949) 451-3800$QIrvine$?$?$?CA 92614$YDirect Phone # (949) 451-3800$QParty Represented:$YFAX # (949) 451-4220$Q$REmeritus Corporation$Q$QJames Windels$BPL (Active$?$?$?)$QDavis, Polk & Wardwell$Q450 Lexington Ave.$YMain Phone # (212) 450-4000$QNew York$?$?$?NY 10017-$YDirect Phone # (212) 450-4000$QParty Represented:$YFAX # (212) 450-4800$REmeritus Corporation$Q$QThomas E. Haroldson$BPL (Active$?$?$?)$QDavis, Polk & Wardwell$Q450 Lexington Ave.$YMain Phone # (212) 450-4000$QNew York$?$?$?NY 10017-$YDirect Phone # (212) 450-4000$QParty Represented:$YFAX # (212) 450-4800$REmeritus Corporation$Q$QHarry Chernoff$BPL (Active$?$?$?)$QDavis, Polk & Wardwell$Q450 Lexington Ave.$YMain Phone # (212) 450-4000$QNew York$?$?$?NY 10017-$YDirect Phone # (212) 450-4000$QParty Represented:$YFAX # (212) 450-4800$REmeritus Corporation$X
$200:
$220:#EXTR#$?#EMERITUS-ARV# 
$00:
$10:HOME DEPOT OVERTIME CASES, PLAINTIFF(S)
$20:JCCP4229
$25:SUPERIOR COURT OF CALIFORNIA, RIVERSIDE
$40:$?$%February 2, 2006, Decided
$45:$?$%February 2, 2006, Filed
$120:$% $?$%Minute Order
$%$?$%On June 10, 2005, Judge Luebs granted Plaintiffs Motion for Class Certification (The Order is attached as "A"). Defendant, Home Depot, petitioned for writ review. On 9-13-05, the Order issuing a peremptory writ was filed by the 4th District Court of Appeal (4th District) and remittitur was issued. This court was directed to reconsider the motion in light of the views expressed by the A ppellate Court (The 4th District Order and discussion is attached as "B").
$%$?$%After additional briefing, the matter was heard on 1-09-06. Plaintiff's motion for class certification is denied. This court has considerable respect for the diligence and ability of Judge Luebs, but none-the less finds itself in fundamental disagreement with his ruling certifying the class.
$%$?$%As stated by the 4th District in the first page of their decision, the requirements for class certification include: "(a) the questions of law or fact common to members of the class must predominate over such questions that are individual to each member; (b) the claims of the class representative are typical of the claims of the class; (c) the class representative can adequately represent the class; and (d) class action is superior to other methods of adjudication and will confer a substantial benefit on both the court and the parties (cases cited)". After remand from the 4th District, only requirements (a)--whether common issues predominate and (d)--the question of substantial benefit are now contested. In that regard, this court finds that common issues do not predominate, nor would pursuing the matter as a class action be of substantial benefit to either the court or the parties.
$%$?$%Preliminarily, it is appropriate to note the applications of 3 principles of settled law in this area: (1) the plaintiff bears the burden "to establish the existence of both an ascertainable class and a well-defined community of interest among class members" ( $ISav-On Drug Stores, Inc. v. Superior Court$N (2004) 34 Cal. 4th 319, at 326); (2) the certification question is "essentially a procedural one that does not ask whether an action is legally or factually meritorious" ( $ILinder v. Thrifty Oil Co.$N (2000) 23 Cal 4th 429, at 439-440); and (3) class actions do not change substantive law ( $ICity of San Jose v. Superior Court$N (1974) 12 Cal. 3rd 447, at 462). As to the procedural nature of the certification process, it is fair to note that it is not particularly clear how one determines if questions of fact common to the class predominate, without some assessment of the underlying facts. In fact, much of what was presented by both plaintiffs and Home Depot involves evidence arguably going to the merits of the action itself. The point that class actions do not change substantive law is brought home by the 4th District discussion in this case; i.e., Home Depot has a fundamental due process right to raise affirmative defenses as to individual plaintiffs. This right to raise affirmative defenses as to individual plaintiffs, in conjunction with the individual nature of damages in this case makes it difficult to see how class certification would substantially benefit the court.
$%$?$%Plaintiffs are all Merchandising Assistant Store Managers (MASM). MASMs are second level supervisors employed by Home Depot. They work in individual stores and supervise hourly associates and department supervisors. They, in turn, are subordinate to the store manager and operations manager. In some stores, there is a human resources manager, but the relationship between a MASM and a human relations manager is not clear to the court. Home Depot conceded that MASMs are salaried employees and on average work at least 55 hours/week. With these concessions, under California law MASMs are presumptively eligible for overtime pay, which is what Plaintiffs are seeking. Home Depot has characterized MASMs as executive employees, which are exempt from the overtime requirements. Since exemptions from the overtime laws are considered to be affirmative defenses, Home Depot bears the burden of establishing the exemption ( $IRamirez v. Yosemite Waters Co.$N (1999) 20 Cal. 4th 785, at 794-795). Essentially, in order to prevail on the affirmative defense, Home Depot must prove that MASMs are employees: "(a) Whose duties and responsibilities involve the management of the enterprise in which he/she is employed or of a customarily recognized subdivision thereof; and (b) Who customarily and regularly directs the work of two or more other employees therein; and (c) Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring or firing and as to the ... advancement and promotion will ... be given particular weight; and (d) Who customarily and regularly exercises discretion and independent judgment; and (e) Who is primarily engaged in duties which meet the test of the exemption ..." ( $IMurphy v. Kenneth Cole Productions$N (2005) 134 Cal. App. 4th 728, at 738-739, citing Cal. Code Regs., tit. 8, Section 11070, subd. 1(A)(1)(a)-(e)). The plaintiffs and Home Depot are in agreement that virtually all MASMs do both exempt and non-exempt work. And, again, both basically agree that the application of the exemption depends on a strict percentage evaluation. If a MASM does exempt work 50.1 percent of the time, he/she is exempt from overtime. If a MASM does non-exempt work 50.1 percent of the time, he/she is entitled to overtime pay.
$%$?$%Plaintiffs have submitted 42 declarations from individuals who worked as MASMs during the relevant period. Home Depot submitted 58 declarations. It is fair to state that according to the plaintiffs' declarations MASMs do the same non-exempt work as hourly associates for about 80 percent of their time (some more, some less). It is also fair to state that according to Home Depot's declarations MASMS do exempt work 75 percent of their time (some more, some less). The truth, no doubt, lies somewhere between.
$%$?$%Plaintiffs argue that class certification is appropriate because common questions predominate. They argue that Home Depot stores are virtually all the same as to size, layout, hours of operation and organization. Additionally, Plaintiffs assert that there is one job description for the MASM position, that all MASMs are trained the same, and that the duties and activities vary little from MASM to MASM. And, to the extent there is variance, it is from one non-exempt task to another. That is, one MASM might spend more time assisting customers, as compared to another who might be operating a cash register. Plaintiffs put considerable emphasis on Home Depot's detailed Standard Operating Procedures, which according to Plaintiffs ensures uniformity and severely limits individual discretion.
$%$?$%The reality is considerably different. In many ways, each store is unique. Gross sales appear to vary from $ 2.5 million to $ 6 million/month. Stores vary in numbers of hourly associates from 150 to 400, which can change depending on the season. Some stores have only 2 MASMs, some stores have as many as 7. Different MASMs supervise different numbers of associates and departments. According to the MASM declarations submitted by Home Depot, the number of departments supervised by one MASM may vary from 1 to 8 and the number of people directly supe rvised may vary from 6 to 91. The nature of the work changes from department to department, as well. For example, a MASM supervising a specialty department, encompassing floor and wall, kitchen cabinets, etc. will have to interface with customers and contractors in a far different way, than a MASM supervising plumbing and irrigation, which are largely traditional retail operations. Additionally, depending on shift assignment and staffing, the work differs. Namely, when the store manager is off, often a MASM steps in as acting-store manager. As to staffing, there appears to be a relatively high turnover in Home Depot personnel, which create problems both in training and supervision. At times, stores operate without a store manager, an operations manager and one or more MASMs. And depending on experience, different MASMs do different things. It appears that more experienced MASMs are more involved with training and have different responsibilities than newly promoted MASMs. Lastly, due to intangible differences in personality and inclination, it is inevitable that there will be differences even when similar tasks are being performed. For example, in the process of hiring or firing, which is a determinative factor in establishing the management/executive exemption, it is likely the weight given to a MASM's recommendation will vary depending on the level of respect the individual MASM enjoys.
$%$?$%Plaintiffs further argue that class certification is proper, because Home Depot has misclassified MASMs as exempt employees. The argument is that in a class action the court will be able to determine in one trial what are the reasonable expectations for the MASM position. If 50.1 percent of MASMs are engaged 50.1 percent of the time in non-exempt activities, then there has been a misclassification. Plaintiffs argue that Home Depot experts use and reliance on statistical evidence in this case, shows that Home Depot concedes that this determination can be validly made based on representative sampling. In other words, since Home Depot has used representative sampling and has taken the position that the evidence derived therefrom is reliable, it is in no position to object to the use of representative sampling to determine what are the reasonable expectations for the MASM job category. If at the trial, this evidence shows that Home Depot should have reasonably expected that a majority of MASMs are engaged in non-exempt work a majority of the time, then Home Depot has misclassified the position. This then gives rise to the general expectation that all MASMs are entitled to overtime pay. It should be noted that this is apparently what would have been the result under the Luebs Certification Order. That is, depending on whether the 50.1 percent are doing exempt or non-exempt work, either everyone would receive overtime or none would.
$%$?$%Upon remand, Plaintiffs maintain the class certification is still appropriate, but that another step should be added. If by offer of proof, Home Depot can establish that a particular MASM was engaged in exempt activities 50.1 percent of the time, not withstanding the misclassification, Home Depot would have the right to some kind of hearing to establish their affirmative defense as to that MASM. Presumably, if Home Depot were successful, the affected MASM would then not be entitled to overtime.
$%$?$%This court is basic disagreement with Plaintiffs' position that representative sampling may reliably be used to determine the issue of reasonable expectations for several reasons. Representative sampling does not address individual credibility. As previously noted, Plaintiffs' declarants describe their work as non-exempt; Home Depot's declarants see their work as exempt. Also, Home Depot has taken the deposition of approximately 16 of plaintiffs' declarants and in several instances; there has been significant impeachment. In addition to issues of basic honesty, depending on point of view, a MASM may in good faith describe a task differently. If a MASM is stocking shelves with a number of hourly associates, one MASM may see their role as supervisory, which is an exempt activity, while another MASM might describe it as simply stocking shelves, a non-exempt activity. At some point, a trier of fact will have make individual decisions on these characterizations and credibility. Next, this court has considerable concern as to whether tasks can be simply and categorically classified as exempt versus non-exempt. At times, a MASM may be multi-tasking and engaged in both exempt and non-exempt activities. In the process of helping a customer, a MASM might be resolving a personnel issue, or might be interrupted and make a discretionary management decision. Or, if the MASM is helping a customer as part of training exercise, is the activity exempt or non-exempt? If a MASM conducts a focused inventory of a product suspected to be a high theft item for the purpose of making a loss-control policy decision, is the MASM engaged in an exempt activity? At a certain point, customer service, which might otherwise be seen as non-exempt, may reach the level of an exempt activity. For example, if the MASM is dealing with a large special order, or coordinating with a MASM in another store, or negotiating on behalf of a customer with a contractor, one might characterize the work as exempt. Finally, this court disagrees in large part with Plaintiffs argument that Home Depot by submitting statistical proof and using statistical methods has acknowledged that representative sampling is an efficient and reliable way to adjudicate the reasonable expectation issue. Most of Home Depot's statistical evidence has been directed at showing that there is considerable variance in what MASMs do and the time spent doing it. While Home Depot has used statistical evidence to argue that the great majority of MASMs spend the majority of their time on exempt work, this court does not find that evidence particularly persuasive. If one MASM does exempt work 100 percent of the time, and another does non-exempt work 100 percent of the time, the average for the two would be 50 percent exempt and 50 percent non-exempt, which is both meaningless and misleading.
$%$?$%Given that the test for entitlement to overtime will come down to a decision as to whether 50.1 percent of time is spent on non-exempt or exempt work, a basic fairness concern arises in the use of the class action procedure. It is the plaintiffs clearly articulated position that if 50.1 percent of MASMs are doing non-exempt work a majority of the time, everyone in the class presumptively is entitled to overtime. Likewise, if 50.1 percent of MASMs are engaged in exempt work a majority of the time, no one in the class recovers. Theoretically, this would result in a potential windfall to 49.9 percent of the population of MASMs, or a deprivation to 49.9 percent of MASMs deserving overtime pay. Arguably, the 4th District opinion requires a mechanism to protect Home Depot from the windfall scenario, but there is nothing to protect deserving MASMs in the face of an adverse finding as to the cl ass.
$%$?$%Sometimes, a class action is the best way to address an actionable wrong. Sometimes, it is the only way. If the loss per person in small, or the wrongful conduct affects many people in a specific way, class actions are desirable. It would not be economically feasible for an individual to file suit, if the potential recovery will be small. Further, if the question is a narrow one, i.e., was a fee improperly assessed, was a particular policy properly applied, it makes sense to use a class action format and decide the question one time. This case is different. Using Home Depot's conservative 15 hour per week overtime concession, the lowest paid MASM would stand to recover at least $ 25,000/year, plus interest, penalties and attorney fees. In short, an individual MASM does have sufficient incentive to pursue a meritorious claim. Further, there are adequate administrative and legal procedures currently in place to provide appropriate relief. See $IMurphy v. Kenneth Cole Productions, supra,$N for a thorough discussion of the various administrative and legal remedies available.
$%$?$%It seems apparent that both sides wish the tactical benefits of inertia. Plaintiffs seek to maintain a class action so that a potential claimant must act affirmatively in order to not participate. If he/she does nothing, he/she is along for ride. Home Depot wants a more traditional sort of litigation where the person must affirmatively act, or no claim is litigated. If it is a class action, plaintiffs indicate that there may as many as 2800 people in the class. If it is not, Home Depot expects as few as 400 people, and maybe less, to pursue the matter. This 7 to 1 difference makes a huge difference in both potential exposure to Home Depot and potential fees for plaintiffs' attorneys.
$%$?$%If Home Depot stands by the evidence it submitted during this certification process, their opposition to a class action procedure is puzzling. If it is true, as asserted by Home Depot, that MASMs spend 75 percent of their time on exempt activities, then the issue is not close. In that event, one trial sustaining the management exemption would terminate the entire litigation. As it is, with no certification, Home Depot from their point of view still faces up to 400 trials.
$%$?$%By denying certification, this court is not suggesting that MASMs have no legitimate complaints. Apparently, from the moment hired, a MASM is scheduled to work in a store 11 hours/day 5 days a week. Most of plaintiffs' declarations describe working on average well over 60 hours/week. In the declaration prepared by Sherrel Gonzales, she describes working on average 80 hours per/week, once working 32 straight hours. In the declaration submitted by Richard Larson he stated that he worked 20 days straight without a day off on several occasions. In Plaintiffs' declarations, virtually every MASM described having to work extra hours for regularly scheduled special events, inventory time and something called "Gold Cup" contests. Additionally, many stated that they worked at home for hours on paperwork they could not complete at the store. One individual even described refusing to answer the phone on weekends to avoid being dragged into the store on his time off. If these declarations are true, one might fairly characterize Home Depot's requirements as abusive. It is understandable why there is considerable turnover in the MASM position.
$%$?$%Nor is the court by denying certification suggesting that it is likely that every individual 
claim will be separately tried. This is a coordinated action, which has been designated complex. The court has considerable flexibility in case management. All claims from MASMs working in a particular store under the supervision of an identified store manager may be subject to consolidation. Test plaintiffs might be selected and their claims presented in a single proceeding. If one side were consistently unsuccessful, one would expect that side to seek some sort of settlement to minimize losses and litigation expenses. It is highly unlikely that there will be anything close to 400 separate trials.
$%$?$%The court reviewed at some length both $ISav-on Drug Stores, Inc. v. Superior Court,$N supra, and $IBell v. Farmers Ins. Exchange$N (2004) 115 Cal. App.4th 715. Sav-on stands for the proposition that considerable deference will be given to the trial court's exercise of discretion in either certifying or non-certifying a class. In fact, the court at page 331 states "We need not conclude that plaintiffs' evidence is compelling or even that the trial court would have abused its discretion if it had credited defendant's evidence instead. 'It is of no consequence that the trial court believing other evidence, or drawing other reasonable inferences, might have reached a contrary conclusion' (cases cited)". If the trial court had denied certification in Sav-on, it is likely that decision would have been upheld as well. In short, this court finds that Sav-on does not compel a finding that class certification is the preferred course action.
$%$?$%$IBell v. Farmers Ins. Exchange (FIE), supra,$N is of considerable interest in that statistical sampling and extrapolations were used to establish plaintiffs' damages. On appeal FIE argued that this methodology violated its right to due process. The problem for FIE was that their expert statistician participated in creating the methodology used, concurred in the validity of the sampling evidence obtained and largely agreed with the inferences drawn from that evidence. Under these circumstances, the Court of Appeal found no denial of due process. One speculates whether future litigation will see this level of cooperation.
$%$?$%Lastly, plaintiffs vigorously objected to the court reading Judge Ronald Sabraw's order and opinion in $IDunbar v. Albertson's, Inc.,$N Alameda County Superior Court case number RG04-146326 (attached hereto as "C"). This court disagrees. Just as judges may discuss pending cases with each other, so may one judge read another's decision on a similar issue. While this court is not bound to follow such a decision, often the reasoning of a well-written opinion will be of considerable assistance. This court found Judge Sabraw's opinion to be very well written and of considerable value. Any trial court dealing with the executive exception to overtime pay requirements should read it.
$TFor the reasons stated: Plaintiffs' Motion for Class Certification is denied.
$%$?$%Counsel are ordered to meet and confer on a date to return to this department for further proceedings. When counsel have agreed upon a date, the clerk for Department 5 is to be notified either by phone at 951-955-1406 or by fax at 951-955-1768 and the matter will be calendared at 8:30 a.m. on that date.
$TExhibit A
$TSUPERIOR COURT OF CALIFORNIA
$TCOUNTY OF RIVERSIDE
$%$?$%COORDINATION PROCEEDING$%SPECIAL TITLE (RULE 155(b))
$%$?$%HOME DEPOT OVERTIME CASES
$%$?$%Included action:
$%$?$%Adams v. Home Depot U.S.A., Inc.$%Riverside Superi or Court No. RIC 361920
$%$?$%Almeida v. Home Depot U.S.A., Inc.$%Santa Barbara Superior Court No. I06582-7
$%$?$%Scott v. Home Depot U.S.A. Inc.$%Orange County Superior Court$%No. 02CC00230
$TCase No. RIC JCCP 4229
$TORDER -- FILED JUN 10 2005
$TThis action involves the question of whether Merchandising Assistant Store Managers ("MASM") employed by defendant Home Depot U.S.A., Inc. are exempt from state overtime requirements pursuant to the executive exemption. Plaintiffs have moved to certify a statewide class consisting of all MASMs who work or worked at one or more Home Depot stores in the state of California between July 30, 1997 and the present. Plaintiffs argue that there is a well-defined community of interest such that a class action would be the most efficient means of disposing of this litigation. On the other hand, defendant argues that common questions do not predominate and that the named plaintiffs are not typical of the proposed class.
$TOn February 25, 2005, the Court heard argument on plaintiffs' class certification motion and requested supplemental briefing on two alternative formulations for determining whether defendant properly classified MASMs as exempt from state overtime requirements: (i) whether the exemption depends upon an assessment of how individual employees actually spend their work time, including the tasks they perform and the amount of time spent performing each task, or (ii) whether the exemption can be determined based solely upon the reasonable requirements of the position. Plaintiffs argued the later, while defendant insisted that the determination hinges on individualized determinations regarding the tasks each MASM performs and the amount of time spent performing each identified task.
$TThe Court concludes that both theories may be asserted. On the one hand, each MASM may individually pursue a claim based on the theory that he or she was required to perform primarily non-exempt work. On the other hand, as the Supreme Court indicated in $ISav-on Drug Stores$N v. $ISuperior Court$N (2004) 34 Cal.4th 319, plaintiffs can also proceed on a "misclassification" theory, a theory that a particular position was misclassified as a consequence of defendant's class-wide policies and practices.
$TDespite plaintiffs' insistence that the exemption determination is based on the job, not the individual employee, the Court holds that each MASM can bring his or her own individualized claim for overtime compensation based on facts and circumstances peculiar to his or her situation. (See, e.g., $IRamirez$N v. $IYosemite Water Co., Inc.$N (1999) 20 Cal.4th 785, 802, when determining the "realistic requirements" of the job, trial court should consider, first and foremost, how the particular employee actually spends his or her time.)
$TPlaintiffs, however, contend that their theory of recovery does not depend on identifying whether a particular MASM actually spends the majority of his or her time on exempt or non-exempt tasks. They argue that defendant's classification of the MASM position as exempt was improper. Plaintiffs state that they will offer proof regarding what the job realistically requires.
$TWith respect to the misclassification theory, the test for the executive exemption does not require a determination of how each individual MASM actually spends his or her work time. Rather, liability would be established if plaintiffs can demonstrate that misclassification was the rule, rather than the exception. (See
, $ISav-on Drug Stores,$N 34 Cal.4th at 330.) The central issues to be decided would be "the employer's reasonable expectations" and "the actual overall requirements of the job," which the Court believes are susceptible to common proof. ( $IId.$N at p. 337.) However, even under the misclassification theory, evidence regarding how individual employees actually spend their work time would, subject to Evidence Code section 352, be admissible as circumstantial evidence of misclassification or proper classification. To the extent plaintiffs offer such individual evidence of misclassification, defendant would have the right to demonstrate that the employee was not performing in accordance with the realistic requirements of the job. (See, $IRamirez,$N 20 Cal.4th at p. 802.)
$TThere are advantages and disadvantages to pursuing a theory that a particular position was misclassified as a consequence of the employer's class-wide policies and practices. For example, such a theory would ordinarily be more difficult and more expensive to pursue than a simple individual claim. In addition, as explained in plaintiffs' supplemental brief, there is an "all or nothing" aspect to the misclassification theory. If defendant Home Depot prevails -- if it is determined that the realistic requirements of the job involve more than 50 percent of work time on exempt tasks -- no class member would be entitled to overtime compensation, even though some of them might have successfully pursued individualized claims. Conversely, if it is determined that Home Depot did misclassify the MASM position, all class members may be entitled to overtime compensation, even the socalled "over-performing" employees. For this reason, class members who believe that pursuing individual claims would more likely lead to judgment in their favor will want to give serious consideration to not joining in this action, and bringing their own individual claim.
$TThe certification question is essentially a procedural one that does not ask whether an action is legally or factually meritorious. (See $ISav-On Drug Stores,$N 34 Cal. 4th at p. 326.) As the focus is on what type of questions -- common or individual -- are likely to arise in the action, rather than on the merits of the claims, the Court considers whether the theories advanced by plaintiffs are, as an analytical matter, likely to prove amenable to class treatment. (See, $IId.$N at p. 327.) The Court finds that plaintiffs' misclassification theory is amendable to class treatment, but that their individual claims of misclassification are not.
$TAfter consideration of all of the papers filed in support of and in opposition to the class certification motion, the remainder of the record in this action, the arguments of counsel, and being fully advised, the Court hereby finds as follows:
$TPursuant to Code of Civil Procedure $S 382, and by a preponderance of the evidence, plaintiffs have established that (1) the proposed class, namely "all persons who have been employed by Defendant Home Depot U.S.A., Inc. as a Merchandising Assistant Store Manager during the period of July 30, 1997 through the present at one or more of Home Depot's retail stores in the State of California" is ascertainable, (2) common questions of law and fact predominate over individual issues, (3) the claims of the proposed class representatives are typical of those of the absent members of the proposed class, (4) the proposed class representatives will adequately represent the interests of the proposed class, (5) proposed class counsel are well qualified to represent the proposed class, and (6) class treatment is a superior method for the adjudication of the claims in this action on behalf of the proposed class.
$TIT IS HEREBY ORDERED that the class certification motion is granted and plaintiffs' claims alleged in this action may proceed by class action as follows:
$T1. The class of persons defined as: "All persons who have been employed by defendant Home Depot U.S.A., Inc. ("Home Depot") as a Merchandising Assistant Store Manager during the period of July 30, 1997 through the present at one or more of Home Depot's retail stores in the State of California" ("the "Class") is certified as the plaintiff class in this action, excluding therefrom those persons who elect to opt out of the Class in accordance with the procedures established by the Court;
$T2. Plaintiffs Jane Lopez, George Lopez, Peter Malis, James Almeida, Kevin Hamor, Dennis Rydgren and Katie Scott are certified as the plaintiff representatives of the Class;
$T3. Kozberg & Bodell LLP; Anticouni & Associates and Slovak Baron & Empey, LLP are certified as counsel for the Class.
$T4. Class members shall be given notice of certification and the opportunity to exclude themselves from the class in accordance with the following procedure:
$=S$%$?$%a. Defendant shall, at its expense, diligently review its business records to collect the names and last known mailing addresses of all class members and provide that information to plaintiffs' counsel not later than July 15, 2005.
$%$?$%b. Using the names and addresses provided pursuant to subparagraph "a" above, plaintiffs shall, at their expense, mail notice of class certification (defined below) to all class members by first class mail not later than August 1, 2005.
$%$?$%c. The notice of class certification shall be in the form attached as Exhibit "A" hereto and shall include the request for exclusion form attached as Exhibit "B" hereto.$=I
$T5. A Further Case Management Conference is set for October 7, 2005, at 8:30 a.m. in Department 6. The parties shall, prior to the Case Management Conference, file and serve certifications with respect to their compliance with paragraph "4" of this order. Plaintiffs' counsel shall include within their certification information regarding the class members, if any, who have elected to exclude themselves from the class.
$TIT IS SO ORDERED.
$%$?$%Dated: June 9, 2005
$TROGER A. LUEBS
$TJudge of the Superior Court
$TIN RE HOME DEPOT OVERTIME CASES
$TLEGAL NOTICE OF PENDING CLASS ACTION JUNE 9, 2005
$%$?$%TO: ALL PERSONS WHO HAVE BEEN EMPLOYED BY HOME DEPOT U.S.A., INC., ("HOME DEPOT") AS A MERCHANDISING ASSISTANT STORE MANAGER AT ANY TIME DURING THE PERIOD OF JULY 30, 1997 THROUGH THE PRESENT, AT ONE OR MORE OF HOME DEPOT'S RETAIL STORES IN THE STATE OF CALIFORNIA.
$%$?$%THIS COURT ORDERED NOTICE MIGHT AFFECT YOUR RIGHTS. PLEASE READ IT CAREFULLY. PLEASE DO NOT CONTACT THE COURT OR THE COURT CLERK REGARDING THIS ACTION.
$TThis notice pertains to a class action lawsuit currently pending against Home Depot in the Superior Court of the State of California (County of Riverside) called Home Depot Overtime Cases, Case No. RIC JCCP4229. This is to inform you that the Court has certified a class of Merchandising Assistant Store Managers ("MASMs"). You may be a member of this class. You have the right, but not the duty, to participate in this class or you may choose to exclude yourself from the class and not participate in the lawsuit.
$TI. DESCRIPTION OF LAWSUIT
$TThe Home Depot Overtime Cases consist of three separate lawsuits, which originally were filed in Riverside, Santa Barbara, and Orange Counties. The three lawsuits have been combined in the Court in Riverside County and are expected to go to trial in 2006.
$TIn the Home Depot Overtime Cases, plaintiffs allege that Home Depot has failed to pay overtime compensation to its Merchandising Assistant Store Managers who were employed in California, for their hours worked in excess of 40 hours per week or eight hours per day, in violation of California's labor laws. Plaintiffs assert that Home Depot's MASMs should be classified and compensated as hourly employees and not salaried employees. Plaintiffs further allege that Home Depot's failure to pay overtime compensation to its MASMs constitutes an unfair business practice under California's Unfair Competition Law (California Business & Profession Code $Z 17200, et seq.). Home Depot denies the plaintiffs' allegations and contends that it has properly classified its MASMs as exempt from overtime compensation under what is known as California's executive exemption.
$TIn order to qualify for the executive exemption, California law requires that a manager spend more than 50 percent of his or her time performing managerial duties. In the Home Depot Overtime Cases the Court has decided that this determination will be made based solely on whether Home Depot actually and reasonably expected its MASMs to perform managerial duties more than 50 percent of the time. If Home Depot can prove that it actually and reasonably expected MASMs to perform managerial duties more than 50 percent of the time, no member of the plaintiff class will be entitled to recover any overtime compensation -- including individual MASMs, if any, who claim they actually spent the majority of their time performing non-managerial work.
$TThis lawsuit $Iwill not$N determine whether each individual member of the class personally spent more than 50 percent of their time as a MASM performing non-managerial work. $=B$IIf you do not exclude yourself from the plaintiff class, you will be barred from bringing an individual claim for overtime compensation based upon the work you individually performed and will be bound by the determinations made with respect to all class members as a group.$N$=R
$TII. WHO IS AFFECTED BY THIS LITIGATION?
$TOn June 9, 2005, the Court certified as the plaintiff class the group consisting of:
$=S$%$?$%All persons who have been employed by Defendant Home Depot as a Merchandising Assistant Store Manager during the period of July 30, 1997 through the present at one or more of Home Depot's retail stores in the State of California.$=I
$%$?$%Anyone in this group is a member of the plaintiff class. As a member of the plaintiff class, you will waive your right to bring an individual claim against Home Depot concerning your personal entitlement to overtime compensation while working as a MASM in California since July 30, 1997. Final resolution of the lawsuit will determine whether the MASM position is properly classified as exempt from California overtime requirements, and you will be bound by all orders and judgments of the Court, unless you exclude yourself from the plaintiff class, as described below.
$TIII. HOW DOES ONE REMAIN A CLASS MEMBER?
$TIf you would like to be a member of the plaintiff class, you do not need to take any further action because you will be automa tically included in the lawsuit. If a recovery is obtained from Home Depot, the attorneys for the plaintiff class will ask the Court to order reasonable attorneys' fees and costs to be paid by Home Depot or from any funds recovered. You may also seek permission from the Court to hire your own attorney.
$TIV. HOW DO I EXCLUDE MYSELF FROM THIS CASE?
$TIf you do not wish to become a member of the plaintiff class you must mail a signed and dated Request for Exclusion to $(P.O. box address$). Any Request for Exclusion must be received by September 15, 2005. If you elect to exclude yourself from the lawsuit, you will have no right to recover any money recovered under a judgment in favor of plaintiffs or a settlement, if any, in the lawsuit. However, you also will not be bound by a judgment in favor of defendant or a settlement, if any, in the lawsuit.
$TV. NO RETALIATION
$TNo one may retaliate against you because of your decision to participate in the plaintiff class. You are not required to discuss this litigation with the attorneys for the plaintiffs or with the attorneys for Home Depot.
$TVI. WHO IS REPRESENTING YOU IF YOU JOIN THIS CASE?
$TThe Court appointed Jane Lopez, George Lopez, Peter Malis, James Almeida, Kevin Hamor, Dennis Rydgren and Katie Scott as class representatives for all claims. The Court designated and appointed as class counsel the following attorneys:
$TKozberg & Bodell LLP 1620 -- 26th Street, Suite 6000 North Santa Monica, CA 90404
$TAnticounti & Associates A Professional Corporation 23 East De la Guerra Street Santa Barbara, CA 93101
$TSlovak, Baron & Empey LLP 1800 East Tahquitz Canyon Way Palm Springs, CA 92262
$TVII. WHAT IF YOU HAVE QUESTIONS?
$TAnyone with questions about, or information regarding, the Home Depot Overtime Cases may call $(800 number$) or write to Home Depot Overtime Class Counsel, $(PO box address$). All Court records in the Home Depot Overtime Cases may be examined in person and copied at the Clerk's Office, Riverside Superior Court, 4050 Main Street, Riverside, California. PLEASE DO NOT CONTACT THE COURT OR THE COURT CLERK WITH QUESTIONS REGARDING THIS CASE.
$%$?$%Dated: June 9, 2005
$TROGER A. LUEBS
$TJudge of the Superior Court
$TExhibit B
$TIN RE HOME DEPOT OVERTIME CASES
$T$UREQUEST FOR EXCLUSION FROM LAWSUIT$O
$%$?$%I have been a Merchandising Assistant Store Manager ("MASM") during the period July 30, 1997 through the present at a retail store operated by Home Depot U.S.A., Inc. in the State of California, and
$%$?$%I hereby elect to be excluded from the plaintiff class in the action Home Depot Overtime Cases, Case No. RIC JCCP 4229 in accordance with the provisions of the Notice of Pending Class Action.
$%$?$%I worked as a MASM at the following Home Depot Stores for the time periods indicated: 
$T$(e.g., store at 123 Main Street, City; June 1998 through September 1999$)
$%$?$%SIGNATURE: ___$?$?$?DATE: ___
$%$?$%NAME: ___
$%$?$%CONTACT ADDRESS: ___
$T___$?$?$?___$?$?$?___
$TCity$?$?$?State$?$?$?Zip Code
$THome Depot Overtime Cases Exclusion
$TP.O. Box ___
$TLos Angeles, California ___
$TSUPERIOR COURT OF CALIFORNIA, COUNTY OF RIVERSIDE
$T$(x$) 4050 Main Street, Riverside, CA 92501
$T$($) 4175 Main Street, Riverside, CA 92501
$T$($) 880 N. State Street, Hemet, CA 92543
$T$($) 41002 County Center Dr. # 100 Temecula, CA 92591
$T$($) 155 E. Hays Street, Banning, CA 92220
$T$($) 505 S. Buena Vista Ave., Corona, CA 91720
$T$($) 13800 Heacock # D201, Moreno Valley, CA 92553
$TCLERKS CERTIFICATE OF MAILING
$%$?$%PLAINTIFF: NEAL ADAMS VS. DEFENDANT: HOME DEPOT USA INC
$TCase No. JCCP4229
$%$?$%TO:
$%$?$%
I, clerk of the above entitled court, do hereby certify I am not a party to the within action or proceeding; that on the date below indicated, I served a copy of the attached ORDER MAILED TO ALL PARTIES $(by depositing said copy enclosed in a sealed envelope with postage thereon fully prepaid in the mail at Riverside, California addressed as above
$%$?$%Dated: 06/10/05
$TBy: JANA NOCELLA
$%$?$%Notice 'CCM' has been printed for the following Attorneys/Firms or Parties for Case Number RICJCCP4229 on 6/10/05:$TKOZBERG & BODELL LLP
$T1620 26TH STREET
$TSUITE 6000N
$TSANTA MONICA, CA 90404
$TAKIN GUMP STRAUSS HAUER & FIELD
$TAKIN GUMP STRAUSS HAUER & FELD, LL
$T1333 New Hampshire Ave NW
$TSuite 400
$TWashington, DC 20036
$TPILLSBURY WINTHROP SHAW PITTMAN LL
$T650 TOWN CENTER DR, 7TH FL
$TCOSTA MESA, CA 92626-7122
$TSLOVAK BARON & EMPEY LLP
$T1800 E TAHQUITZ CANYON WAY
$TPALM SPRINGS, CA 92262
$TTHE QUISENBERRY LAW FIRM
$T2049 CENTURY PARK EAST
$TSUITE 2200
$TLOS ANGELES, CA 90067
$TAKIN GUMP STRAUSS HAUER & FIELD
$TAKIN, GUMP, STRUSS, HAUER & FELD L
$T2029 CENTURY PARK EAST
$TSUITE 2400
$TLOS ANGELES, CA 90067
$TPILLSBURY WINTHROP LLP
$T50 FREMONT ST.
$TP.O. BOX 7880
$TSAN FRANCISCO, CA 94120-7880
$TANTICOUNI & ASSOCIATES
$T17 EL PASEO, STREET IN SPAIN
$T23 EAST DE LA GUERRA STREET
$TSANTA BARBARA, CA 93101
$TPILLSBURY WINTHROP LLP
$T650 TOWN CENTER DR
$T7TH FLOOR
$TCOSTA MESA, CA 92626
$T$UTRANSACTION REPORT$O
$TJUN-10-05 FRI 03:58 PM
$TBROADCAST$M07,10,22,10,08,08,08,08$GDATE$JSTART RECEIVER$JTX TIME$JPAGES$JTYPE$JNOTE$JM # DP$D$QJUN-10$B03:19 PM 912028874288$Y7' 46"$J12$BSEND$BOK$B980$Q$B03:27 PM 913102291001$Y7' 44"$J12$BSEND$BOK$B980$Q$B03:35 PM 917144362800$Y3' 52"$J12$BSEND$BOK$B980$Q$B03:39 PM 914159831200$Y3' 47"$J12$BSEND$BOK$B980$Q$B03:44 PM 913102640709$Y3' 42"$J12$BSEND$BOK$B980$Q$B03:48 PM 918059627501$Y3' 40"$J12$BSEND$BOK$B980$Q$B03:52 PM 917603222107$Y3' 43"$J12$BSEND$BOK$B980$X 
$TTOTAL: 34M 14S PAGES: 84
$TSUPERIOR COURT OF CALIFORNIA
$TCOUNTY OF RIVERSIDE
$%$?$%COORDINATION PROCEEDING SPECIAL TITLE (RULE 155(b))
$%$?$%HOME DEPOT OVERTIME CASES
$%$?$%Included action:
$%$?$%Adams v. Home Depot U.S.A., Inc.$%Riverside Superior Court No. RIC 361920
$%$?$%Almeida v. Home Depot U.S.A., Inc.
$TCase No. RIC JCCP 4229
$TORDER
$TCOURT OF APPEAL -- STATE OF CALIFORNIA
$TFOURTH DISTRICT
$TDIVISION TWO
$T$U$=BORDER$=R$O
$%$?$%HOME DEPOT U.S.A., INC., Petitioner, v. THE SUPERIOR COURT OF THE COUNTY OF RIVERSIDE, Respondent; NEIL ADAMS et al., Real Parties in Interest.
$TE038449
$T(Super.Ct.No. RIC361930)
$TThe County of Riverside
$%$?$%THE COURT
$TIn this matter we have reviewed the petition and the opposition thereto which we conclude adequately address the issues raised by the petition. We have determined that resolution of the matter involves the application of settled principles of law, and furthermore that issuance of an alternative writ of mandate would cause undue delay in bringing the action to trial. We therefore issue a peremptory writ in the first instance. (Code Civ. Proc., $S 1088; $IPalma v. U.S. Industrial Fasteners, Inc.$N (1984) 36 Cal.3d 171, 178-179; $IAlexander v. Superior Court$N (1993) 5 Cal.4th 1218, 1222-1223.) 
$TThe requirements for class certification include: (a) the questions of law or fact common to members of the class must predominate over such questions that are individual to each member; (b) the claims of the class representative are typical of the claims of the class; (c) the class representative can adequately represent the class; and (d) class acti on is superior to other methods of adjudication and will confer a substantial benefit on both the court and the parties. (Code Civ. Proc., $S 382; $ILinder v. Thrifty Oil Co.$N (2000) 23 Cal.4th 429; $IBartold v. Glendale Federal Bank$N (2000) 81 Cal.App.4th 816.)
$TIn a class action, once the issues common to the class have been tried, and assuming some individual issues remain, each plaintiff must still by some means prove up his or her claim, allowing the defendant an opportunity to contest each individual claim on any ground not resolved in the trial of common issues. (See $ISav-on Drug Stores, Inc. v. Superior Court$N (2004) 34 Cal.4th 319, 334-335, 339-340 ($ISav-on$N).)
$TIn $ISav-on,$N plaintiff employees contended they had been misclassified as exempt and were therefore owed overtime pay. ( $ISav-on, supra,$N 34 Cal.4th at p. 324.) Plaintiffs contended common factual issues existed because they had uniformly been misclassified without reference to the work performed. ( $IId.$N at p. 325.) Defendant argued that the facts varied significantly from employee to employee and from store to store concerning which employees might have been misclassified, and "no meaningful generalizations about the employment circumstances of its managers could be made." ( $IId.$N at p. 325.) Noting that the record contained evidence that deliberate miscalculation was defendant's practice and policy, and also that classification based upon job descriptions alone resulted in misclassification, $ISav-on$N found that "either theory is amenable to class treatment." ( $IId.$N at p. 329.) $ISav-on$N further rejected arguments that individual damages calculations were too cumbersome for a class action, and noted that "the use of statistical sampling in an overtime class action 'does not dispense with proof of damages but rather offers a different method of proof' ( $IBell v. Farmers Ins. Exchange$N (2004) 115 Cal.App.4th 715, 750)." ( $ISav-on, supra,$N 34 Cal.4th at p. 333.)
$T"We long ago recognized 'that each class member might be required ultimately to justify an individual claim does not necessarily preclude maintenance of a class action.' $(Citation.$) Predominance is a comparative concept, and 'the necessity for class members to individually establish eligibility and damages does not mean individual fact questions predominate.' $(Citations.$) Individual issues do not render class certification inappropriate so long as such issues may effectively be managed. $(Citations.$) $(P$) Nor is it a bar to certification that individual class members may ultimately need to itemize their damages. We have recognized that the need for individualized proof of damages is not per se an obstacle to class treatment. $(Citation.$)" ( $ISav-on, supra,$N 34 Cal.4th at pp. 334-335.)
$TThe trial court here concluded that trying the action on a misclassification theory would result in an "all or nothing" verdict, i.e., that either all members of the class were exempt or none were. This is not the holding of $ISav-on.$N The Supreme Court in that case held that the record contained substantial evidence to support plaintiffs' claim of either deliberate or 
de facto misclassification and that either theory would be amenable to class treatment. "A reasonable court could conclude that issues respecting the proper legal classification of $(the managerial employees'$) actual activities, along with issues respecting defendant's policies and practices and issues respecting operational standardization, are likely to predominate in a class proceeding over any individualized calculations of actual overtime hours that might ultimately prove necessary." ( $ISav-on, supra,$N 34 Cal.4th at 331.)
$THowever, proceeding on a misclassification theory does not preclude either side from introducing evidence relating to individual claims. The question is whether common issues predominate. The trial court appeared to have concluded otherwise and to allowed individual plaintiffs to opt out of the class and pursue their own claim if they believed that they had a stronger case that the duties they performed were non-exempt. However, under the court's ruling it would appear that Home Depot would not be able to present evidence the actual duties performed by any individual plaintiffs to show whether he or she was exempt
$T$ISav-on$N recognized that each class member might be required ultimately to justify an individual claim but "neither variation in the mix of actual work activities undertaken during the class period by individual $(managerial employees$) nor differences in the total unpaid overtime compensation owed each class member, bar class certification as a matter of law." ( $ISav-on, supra,$N 34 Cal.4th at 335.)
$THome Depot contends that the trial court changed the substantive law to accommodate the class action by ignoring that the most important consideration in determining an employee's exempt status is how he actually spends his time. ( $IRamirez v. Yosemite Water, Inc.$N (1999) 20 Cal.4th 785, 802.) $ISav-on$N commented that this factor "did not create or imply a requirement that courts assess an employer's affirmative exemption defense against every class member's claim before certifying an overtime class action." ( $ISav-on, supra,$N 34 Cal.4th at p. 337.) It noted that the exemption from the overtime laws is an affirmative defense and therefore the employer bears the burden to prove exemption. "Were we to require as a prerequisite to certification that plaintiffs demonstrate defendant's classification policy was . . . either 'right as to all members of the class or wrong as to all members of the class,' we effectively would reverse that hurden. $IRamirez$N is no authority for such a requirement, nor does the logic of predominance require it." ( $ISav-on, supra,$N 34 Cal.4th at p. 338.)
$TIn contrast, the trial court here certified the class because it believed that it could be shown that either all members of the class or no member of the class were misclassified. This was an equally faulty basis for granting class certification. Moreover, to the extent the trial court would preclude Home Depot from raising an affirmative defense as to individual plaintiffs, it is substantively incorrect and violates due process.
$TFollowing the $ISav-On$N decision, class certification may well be justified in this case, but the trial court erred to the extent that it based its decision on the belief that the "all or nothing" rule applies without the right of the employer to raise an affirma tive defense in individual cases.
$TLet a peremptory writ of mandate issue directing the Superior Court of Riverside County to set aside its order granting class certification and to reconsider the motion in accordance with the views expressed herein.
$TPetitioner is DIRECTED to prepare and have the peremptory writ of mandate issued, copies served, and the original filed with the clerk of this court, together with proof of service on all parties.
$T/s/ GAUT
$TJ.
$%$?$%We concur:
$%$?$%/s/ RICHLI
$TActing P. J.
$%$?$%/s/ KING
$TJ.
$%$?$%cc: See attached list
$TMAILING LIST FOR CASE: E038449
$%$?$%Akin Gump Strauss Hauer & Feld$%Jessica Michael Weisel$%2029 Century Park East, Suite 2400$%Los Angeles CA 90067
$%$?$%Kozberg & Bodell$%Joel M. Kozberg$%1620 26th Street, Suite 6000N$%Santa Monica CA 90404
$%$?$%Joel M. Cohn$%Michele H. Murphy$%1333 New Hampshire Ave. N.W.$%Washington DC 20036
$%$?$%Auticouni & Associates$%Bruce N. Anticound$%23 E De La Guerra Street$%Santa Barbaru CA 93101 2230
$%$?$%Slovak, Baron & Empey, LLP$%Lucion A. Van Hulle$%1111 B. Tahquitz Cyn Way$%Palm Springs CA 92262
$%$?$%Superior Court Clerk$%Riverside County$%P. O. Box 431 - Appeals$%Riverside CA 92502
$%$?$%The Quisenberry Law Firm$%John N. Quisenberry$%2049 Century Park East, Ste. 2200$%Los Angeles, CA 90067
$TExhibit C
$TSUPERIOR COURT OF THE STATE OF CALIFORNIA
$TIN AND FOR THE COUNTY OF ALAMEDA
$%$?$%MAURICE DUNBAR, individually and on behalf of all others similarly situated, Plaintiffs, v. ALBERTSON'S, INC., and Does 1 through 25, inclusive, Defendants.
$TNo. RG04-146326
$TORDER DENYING MOTION OF PLAINTIFFS FOR CLASS CERTIFICATION
$TDate: June 9, 2005
$TTime: 10:00 a.m.
$TDept.: 22
$TThe motion by Plaintiff for class certification came on regularly for hearing on June 9, 2005, in Department 22, the Honorable Ronald M. Sabraw, presiding. Plaintiff and Defendants appeared at the hearing through counsel of record. The Court, after full consideration of all papers submitted in support and opposition to the motion, as well as the oral arguments of counsel, decides as follows: IT IS HEREBY ORDERED that Plaintiff's motion for class certification is DENIED.
$%$?$%FACTUAL BACKGROUND
$TThis is a purported class action by Grocery Managers who are or were employed by Albertson's. Plaintiff alleges that the Grocery Managers at Albertson's were improperly identified as executive employees exempt from California's overtime pay requirements. Plaintiff asserts that he and similarly situated persons were not covered by the executive exemption and are entitled to overtime pay for hours worked in excess of 40 hours per week. Plaintiff seeks to certify a class for all claims in the Complaint.
$TThe Complaint filed March 17, 2004, states four causes of action: (1) Payment of overtime under Labor Code 510; (2) unfair competition prohibited under Unfair Competition Law, Business and Professions Code 17200 ("UCL"); (3) failure to provide meal and rest periods under Labor Code 512 and 226.7; and (4) failure to provide accurate wage statements under Labor Code 226.
$%$?$%LEGAL STANDARD
$TThe guiding principles for deciding a motion for class certification are well defined. "To obtain certification, a party must establish the existence of both an ascertainable class and a well-defined community of interest among the class-members." $ILinder v. Thrifty Oil Co.$N 23 Cal.4th 429, 435 (citing $IRichmond v. Dart Industries, Inc.$N (1981) 29 Cal.3d 462). The latter inquiry involves the following three factors: (1) pred ominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. $IRichmond, supra,$N 29 Cal.3d at 470. Other relevant considerations include the probability that each class member will come forward ultimately to prove his or her separate claim to a portion of the total recovery and whether the class approach would actually serve to deter and redress alleged wrongdoing. $ILinder,$N 23 Cal.4th at 429. In addition, the trial court may assess the advantages of alternative procedures for handling the controversy. $ICaro v. Procter & Gamble Co.$N (1993) 18 Cal. App. 4th 644, 660-662.
$TIt is plaintiffs' burden to support each of the above factors with a factual showing. See $IHamwi v. Citinational-Buckeye Inv. Co.$N (1977) 72 Cal.App.3d 462. However, the determination of whether a class should be certified is a procedural question and does $Inot$N include a weighing of whether the action is legally or factually meritorious. $ILinder,$N 23 Cal.4th at 439-40.
$TAlthough the criteria for class certification are fixed, the trial court is vested with discretion in weighing the evidence and considering the case management concerns on a motion for class certification. $ISav-On Drug Stores, Inc. v. Superior Court$N (2004) 34 Cal. 4th 319, 334 ("questions as to the weight and sufficiency of the evidence, the construction to be put upon it, the inferences to be drawn therefrom, the credibility of witnesses ... and the determination of $(any$) conflicts and inconsistencies in their testimony are matters for the trial court to resolve.").
$%$?$%CALIFORNIA CASE LAW ON CERTIFICATION OF EMPLOYEE MISCLASSIFICATION CLAIMS UNDER THE LABOR CODE.
$TThere is little in the way of directly applicable case law. In $IPrince v. CLS Transp., Inc.$N (2004) 118 Cal. App. 4th 1320, 1328, the court noted, "wage and hour disputes (and others in the same general class) routinely proceed as class actions." This statement appears, however, to be somewhat overbroad.
$TThere are many varieties of disputes that concern wages and hours. For example, $ILos Angeles Fire & Police Protective League v. City of Los Angeles$N (1972) 23 Cal.App.3d 67, concerned whether police officers were eligible for overtime compensation for the "Code 7" mealtime period, and $IRose v. City of Hayward$N (1981) 126 Cal. App. 3d 926, concerned the calculation of benefits under a common contract. In those two cases the common issue was the interpretation of an ordinance or contract where the interpretation could be applied to all class members without the need for an individualized inquiry as to who was covered by the ordinance or contract. Those cases are fundamentally different from this case, which concerns not just an interpretation of how Wage Order 7-2001, 8 Cal. Code Regs. 11070, applies to the types of work performed by the class members but also requires an inquiry into the different factual circumstances of each class member.
$TOf the cases that reference wage and hour class claims, many cases concern procedural issues or the merits of the case and not class certification. See $=L02 344000022000575*000575 $IMorillion v. Royal Packing Co.$N (2000) 22 Cal.4th 575 (claim regarding pay for time spent on employer's buses survives demurrer); $IMadera Police Officers Assn. v. City of Madera$N (1984) 36 Cal.3d 403 (merits determination that lunch and dinner hours are considered worktime for police officers); $IPrince, supra,$N (class allegations for misclassification survive demurrer); $IParris v. Superior Court$N (2003) 109 Cal. App. 4th 285 (pre-certification communications with putative class members); $IBell v. Farmers Ins. Exchange$N (2001) 87 Cal.App.4th 805 (fee award); $IEarley v. Superior Court$N (2000) 79 Cal.App.4th 1420 (form of class notice). These cases are simply not relevant to whether the court should certify a class. See $IPeople v. Casper$N (2004) 33 Cal. 4th 38, 43 ("It is axiomatic that cases are not authority for propositions not considered.")
$TThe only case that concerns a motion for class certification of employee misclassification claims similar to those in this case is $ISav-On,$N and $ISav-On$N does not compel any conclusion. $ISav-On$N focuses on the trial court's decision to grant class certification and the discretion granted to the trial court in the class certification process. In affirming the trial court, $ISav-On$N states, "Presuming in favor of the certification order, as we must, the existence of every fact the trial court could reasonably deduce from the record ..., we cannot say it would be irrational for a court to conclude that $(class certification was appropriate$)''" 34 Cal.4th at 329. In a later section, $ISav-On$N suggests that it would have affirmed the trial court whether the motion for class certification was granted or denied. The Court states, "We need not conclude that plaintiffs' evidence is compelling, or even that the trial court would have abused its discretion if it had credited defendant's evidence instead. It is of no consequence that the trial court believing other evidence, or drawing other reasonable inferences, might have reached a contrary conclusion." 34 Cal.4th at 331.
$TTherefore, the Court applies the general principles of class certification identified above.
$%$?$%ASCERTAINABILITY AND NUMEROSITY
$TPlaintiff proposes a class of all Grocery Managers during the relevant time frame. Plaintiff's proposed class is ascertainable, and can be identified through payroll records and other documents in the possession of Albertson's. This proposed class is defined in terms of objective characteristics and common transactional facts making the ultimate identification of class members possible. $IHicks v. Kaufman and Broad Home Corp.$N (2001) 89 Cal.App.4th 908, 915; $IBartold v. Glendale Federal Bank$N (2000) 81 Cal. App. 4th 816, 828. Albertson's does not contest the ascertainability requirement. Any class would be defined as employees who are employed in California. The class would not include persons employed at the 15 Albertson's stores in Reno, Nevada, even though Albertson's may administer those stores together with its California stores. The internal administrative organization of private companies does not determine the reach of California law.
$TThe proposed class includes over 900 members. Albertson's does not contest the numerosity requirement.
$%$?$%COMMON QUESTIONS OF LAW AND FACT.
$TClass certification is determined with reference to each claim asserted and commonality is determined in the context of the claims asserted. $IHicks v. Kaufman & Broad Home Corp.$N (2001) 89 Cal. App. 4th 908, 916 fn 22. The allegedly common inquiry in this case is whether the class members fall with in the executive exemption under Wage Order 7-2001. 8 Cal. Code Regs. 11070(1)(A)(1)(e) states, "The work actually performed by the employee during the course of the workweek must, first and foremost, be examined and the amount of time the employee spends on such work, together with the employer's realistic expectations and the realistic requirements of the job, shall be considered in determining whether the employee satisfies this requirement." Under California law, the Court must determine whether any given class member (or all the class members) spend more than 51% of their time on managerial tasks in any given
$200:
$220:#EXTR#$?#HOMEDEPOT# 
$00:
$10:COORDINATION PROCEEDING, Special Title $(Rule 1550(b)$), ASBESTOS INSURANCE, COVERAGE CASES, INCLUDED ACTIONS: ARMSTRONG WORLD INDUSTRIES, INC., a corporation, Plaintiff, vs. AETNA CASUALTY & SURETY COMPANY, a corporation, et al., Defendants. AND RELATED CROSS-ACTIONS. FIREMAN'S FUND INSURANCE COMPANY, a corporation, Plaintiff, vs. FIBREBOARD CORPORATION, a corporation, et al., Defendants. AND RELATED CROSS-ACTIONS. GAF CORPORATION, a corporation, Plaintiff, vs. INSURANCE COMPANY OF NORTH AMERICA, a corporation, et al., Defendants. AND RELATED CROSS-ACTIONS.
$20:JUDICIAL COUNCIL COORDINATION PROCEEDING NO. 1072
$25:SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE CITY AND COUNTY OF SAN FRANCISCO
$40:$?$%January 24, 1990, Decided
$45:$?$%January 24, 1990, Filed
$80:LOS ANGELES SUPERIOR COURT CIVIL NO. C315367. SAN FRANCISCO SUPERIOR COURT CIVIL NO. 753885. LOS ANGELES SUPERIOR COURT CIVIL NO. C286217.
$110:IRA A. BROWN, JR., Judge of the Superior Judge.
$115:IRA A. BROWN, JR.
$120:$T$USTATEMENTS OF DECISION$O
$TSTATEMENT OF DECISION CONCERNING PHASE IV ISSUES
$T$UCONTENTS$O
$%$?$%I. INTRODUCTION
$%$?$%II. PHASE IV-A - BODILY INJURY ISSUES OTHER THAN DAMAGES
$=S$%$?$%A. Pre-Merger Issue$%B. Short-Term Policies$%C. "Neither Expected Nor Intended" Clause$%D. One Occurrence Issue$%E. Pollution Exclusion$=I
$%$?$%III. PHASE IV-B - RESERVED SCOPE AND DEFENSE ISSUES
$=S$%$?$%A. The Effect of "Other Insurance" Clauses and Principles of Equitable Contribution on the Allocation of Liability Among Insurers Covering the Same Claim
$=S$%$?$%1. Introduction$%2. Indemnity
$Ta. Basis for Proration
$%$?$%3. Defense Obligations$%4. Non-Cumulation Clause$%5. Deductibles$=I
$%$?$%B. Burden of Apportionment
$=S$%$?$%1. Introduction$%2. Discussion$%3. Conclusion$=I
$%$?$%C. The Effect of Settlements on the Allocation of Liability Among Insurers Covering the Same Claim
$=S$%$?$%1. Introduction$%2. Good Faith$%3. Effect of Settlements$%4. Conclusion$=I
$%$?$%D. The Effect of the Wellington Agreement on the Liability of the Policyholders$%E. The Selection 
of Primary and Excess Policies to Respond to Claims$%F. "Stacking" of Policy Limits$%G. Parties Bound by the Phase III Decision Regarding Defense Obligations$%H. Right to Control Defense$=I
$TBy the following statement of decision, this Court resolves issues raised in Phase IV of the Asbestos Insurance Coverage Cases, Judicial Council Coordination Proceeding No. 1072 (included actions: $UArmstrong v. Aetna, et al.,$O Los Angeles Superior Court No. C 315367; $UFireman's Fund v. Fibreboard, et al.,$O San Francisco Superior Court No. 753885; $UGAF v. INA, et al.,$O Los Angeles Superior Court No. 286217). The Court initially issued a Tentative Decision concerning Phase IV Issues on August 29, 1988. Thereafter, the Court ordered the submission of proposals for the Statement of Decision, followed by the submission of a proposed decision and by the filing of objections to the proposed decision, and responses thereto, all of which have been considered. This Statement of Decision is the end result of that process.
$TAs of August 29, 1988, the date of the Court's Tentative Decision in Phase IV, the parties and policies involved were the same as those identified in the Phase III Statement of Decision, at pp. 1-3. Since that date, Armstrong and Travelers settled all coverage disputes between them. In the following statement of decision, the Court will refer to the parties by the shorthand names to which they have been referred throughout this proceeding. Throughout this decision, the Court refers to policy language typical of the language of each of the policies at issue. The specific policies and policy provisions addressed by the Court in this decision are set forth in the appendices filed in connection with the Statements of Decision. Except as specifically noted, there are no material differences between the standard policy language and the provisions of specific policies.
$TI. INTRODUCTION
$TPhase IV of the Asbestos Insurance Coverage Cases involves various coverage issues relating to asbestos bodily injury claims which were not resolved in Phase III.
$TPhase IV-A involves discrete issues among some of the parties to this coordinated proceeding. These issues are referred to as "bodily injury issues other than damages." (See Statement of Decision Concerning Phase III Issues $("Phase III Decision"$) at pp. 79-80.)
$TPhase IV-B involves issues relating to scope of coverage and defense obligations which were expressly left unresolved in Phase III. (See Phase III Decision at pp. 65-67 and pp. 79-80.) These issues are referred to as the "reserved scope and defense issues." The reserved scope issues relate primarily to allocation of costs among insurers covering the same loss. The reserved defense issues are entitled "Parties Bound by the Phase III Decision" and "Right to Control Defense." (The defense obligations of policies which provide coverage concerning "premises/operations" of the insured are no longer an issue in this trial. $(See Order Denying Request to Set "Additional Insureds" and "Non-products" Issues For Trial In Phase IV, filed Sept. 4, 1987.$)) Numerous parties to this proceeding were involved in the reserved scope and defense issues. Briefs were submitted by sixteen insurers and three policyholders. The Court heard two weeks of closing argument, most of which focused on issues of allocation.
$TAll parties have waived their right to trial by jury on all Phase IV issues. Therefore, this Court sat as the trier of both the facts and the law.
$TThe Court notes that in Phase III, the Court held that California law reg arding insurance contract interpretation applied to the issues determined therein. (Phase III Decision at pp. 8-12.) In Phase IV, no party has argued or shown that the law of any other jurisdiction applies or that the law of any jurisdiction differs from California law on these issues. The Court therefore applies California law to the Phase IV issues.
$TII. PHASE IV-A - BODILY INJURY ISSUES OTHER THAN DAMAGES
$TA. Pre-Merger Issue
$TGAF accurately frames the pre-merger issue in its opening Phase IV brief as follows:
$=S$%$?$%$(W$)hether or not three policies of excess insurance which the defendants issued to $(GAF$) prior to May 26, 1967 provide coverage to GAF for liabilities incurred by it with respect to bodily injuries occurring during the applicable policy periods but resulting from exposure to asbestos or asbestos containing products manufactured, sold or distributed by The Ruberoid Company $(which$) GAF acquired . . . by statutory merger on May 26, 1967.$=I
$TThe three excess policies are in evidence as Trial Exhibits ("T.E.") 197 ex. 1, 197 ex. 2, and 198 ex. 2. T.E. 197 ex. 1 was issued by Employers' Surplus Lines Insurance Company, predecessor of Commercial Union. T.E. 197 ex. 2 was issued by Employers' Liability Assurance Corporation, Limited, also a predecessor of Commercial Union. T.E. 198 ex. 2 was issued by Continental. The Court concludes that these three policies must provide coverage to GAF for asbestos-related bodily injury claims arising out of Ruberoid's asbestos enterprise prior to the merger with GAF.
$TCoverage is mandated by the language contained in the insuring agreement of each of the three policies. T.E. 198 ex. 2 incorporates the language of the underlying primary policy, T.E. 203 ex. 30, which provides coverage for "liability imposed upon the insured by law, or assumed by the insured under contract or agreement." T.E. 197 ex. 1 and ex. 2 contain language nearly identical to that quoted above. Courts have imposed liability for asbestos-related bodily injury damages on GAF because of its acquisition of Ruberoid. The plain language in the insuring agreements therefore provides coverage to GAF for that liability.
$TAdditional support for the Court's decision is provided by the definition of "Named Insured" in two of the three policies. T.E. 197 ex. 1 names the insured as
$=S$%$?$%$(GAF$) and/or its subsidiary, associated, and affiliated companies or owned and controlled companies as now existing or hereafter constituted.$=I$% $?$%The language of T.E. 198 ex. 2 is substantially identical. The plain meaning of "hereafter constituted" indicates an intention to provide coverage to GAF despite its assumption of new liabilities resulting from the acquisition of Ruberoid.
$TIt is true that the language in T.E. 197 ex. 2 defines the "Named Insured" in such a way as to include only those GAF-owned companies which are acquired by GAF prior to the expiration of the policy period. However, the Court does not believe that the definition of "Named Insured" in T.E. 197 ex. 2 operates to negate the coverage for Ruberoid-related liabilities provided by the language in the insuring agreement.
$TThe Court's ruling here is consistent with, and perhaps required by, the ruling in $UTravelers Insurance Co. v. Industrial Indemnity Co.$O (1971) 18 Cal.App.3d 628, which held that broad policy language, similar to that found in the policies at issue here, requires coverage for the judicially expanded liability of the policyholder.
$TThis Court's ruling is not inconsistent with 
the decision in $UOliver Machinery Co. v. United States Fidelity & Guaranty Co.$O (1986) 187 Cal.App.3d 1510. $UOliver Machinery$O concerned significantly different policy language, parties with significantly different relationships, and a policy which issued after a merger.
$TThis Court's ruling is not inconsistent with out-of-state cases which hold that a successor corporation is entitled to coverage from an acquired corporation's policies for liabilities arising out of the acquired corporation's activities. (See, e.g., $UAetna Life & Casualty v. United Pacific Reliance Insurance Companies$O (Utah 1978) 580 P.2d 230.) Here, no party raised the issue of insurance policies issued to Ruberoid Company.
$TBecause the language in each of the three policies is plain, the Court need not rely on the extrinsic evidence offered. Furthermore, the extrinsic evidence does not disclose that the parties intended any meaning other than the plain meaning adopted by the Court.
$TB. Short-Term Policies
$TThe short-term policy portion of Phase IV involves policies issued to Armstrong which were canceled prior to expiration and, therefore, were in effect for some fraction of a year. The issue is whether the annual aggregate limits of such policies should be prorated according to the length of time the policies were in effect.
$TThe policies are in evidence as T.E. 484 (Continental), and T.E. 489 (Continental). The Court concludes that the annual aggregate limits of the short-term policies should not be prorated. Full aggregate limits are available to the policyholder for each annual period or portion thereof that the policies were in effect.
$TSince proration of annual aggregate limits would reduce coverage, the burden of proof is on the insurers to show that the limits should be prorated. (See $USearle v. Allstate Life Insurance Co.$O (1985) 38 Cal.3d 425, 437-438.) However, the result would be the same even if the burden of proof were on the policyholders.
$TNothing in the plain language of the policies provides for proration of annual aggregate limits where the policy is in effect for a fraction of a year. The policy language describes the consequences of cancellation; it reduces the period of coverage and reduces the premium paid by the policyholder. There is no provision for the reduction of aggregate limits in the event of cancellation. The insurers could have stated plainly that aggregate limits are to be prorated in the event of cancellation, but failed to do so.
$TT.E. 484 provides that the aggregate limit applies to each "annual period." In the factual setting presented here, the term "annual period" can reasonably be interpreted to mean a fraction of a year commencing with the effective or anniversary date of the policy.
$TWhile T.E. 484 is silent on the issue of proration, the Court notes that another Continental policy, T.E. 22, explicitly provides that the aggregate limit applies to each consecutive annual period of the policy or, "if the last consecutive period is less than twelve months, to such period of less than twelve months."
$TEven if the Court ruled that limits are to be prorated, Continental is not entitled to a declaration regarding proration of T.E. 489 because the issue was raised too late.
$TThe insurers have asserted that it would be unfair or inequitable for the policyholders to receive full aggregate limits while only paying premiums for a fraction of a year. However, both the insurers and the policyholders received the benefit of their bargain. In exchange for a reduction in premiums, the insurers received an equivalent reduction in the amount of time the insurer was on the risk.
$TFor the purpose of adjudicating Travelers' obligations to Armstrong, the canceled policies issued to Armstrong by Aetna (T.E. 468, 471, 472, 473), American Home (T.E. 478, 481), Continental Casualty (T.E. 484, 489), and Fireman's Fund (T.E. 492) are to be treated in accordance with this decision. Although Travelers and Armstrong have since settled, the Court's treatment of T.E. 468, 471, 472, 473, 478, 481, and 492 here remains pertinent to the Court's treatment of these policies in its Phase V-B ruling.
$TC. "Neither Expected Nor Intended" Clause
$TUnder the terms of certain policies issued to Armstrong, claims for bodily injury are covered only to the extent that they are "neither expected nor intended" from the standpoint of the insured. The policies are in evidence as T.E. 490, 537, 538, and 539. T.E. 490 was issued by Employers' Liability Assurance Corporation, a predecessor of Commercial Union. T.E. 537, 538, and 539 were issued by Travelers. As a defense to coverage under the foregoing policies, Travelers and Commercial Union assert that Armstrong expected or intended bodily injury resulting from exposure to asbestos. The Court finds that injury from exposure to asbestos was neither expected nor intended by Armstrong and thus coverage is not excluded.
$TIn Phase III of this trial, the Court determined that "the 'neither expected nor intended' clause applies where the insured acted either wilfully, intentionally, or maliciously for the purpose of causing injury." (Phase III Decision at pp. 69-70.) The Court also established that the clause must be treated as an exclusion and, therefore, the burden of proving that bodily injury was expected or intended is on the insurer. (Phase III Decision at p. 68.)
$TThe evidence presented by Commercial Union does not satisfy this standard. In its brief, Commercial Union focuses on the language in the Phase III decision which reads: "An insurer is not required to produce express testimony or documentation as to an insured's subjective, wrongful intent to cause injury, but may show that reason mandates that by the very nature of the act undertaken, coupled with the knowledge in possession of the insured, harm must have been intended." (Phase III Decision at p. 70.) However, this is not an independent standard. Rather, this language delineates how an insurer may satisfy the standard that the insured acted wilfully, intentionally, or maliciously $Ufor the purpose of$O $U causing injury.$O Here, the Court finds that Armstrong did not act for the purpose of causing injury. This is so even if the insured has the burden of proving that the injury was neither expected nor intended.
$TD. One Occurrence Issue
$TContinental Casualty's 1957-1959 primary policy issued to Fibreboard, in evidence as T.E. 5, contains limits of liability for bodily injury of $ 500,000 for "each person" and $ 1,000,000 for "each occurrence." The issue raised in this portion of Phase IV is whether each individual claim for asbestos-related injuries constitutes a separate occurrence or whether all claims for asbestos-related injuries constitute only two occurrences. The Court concludes that each individual claim is a separate occurrence under the circumstances of this case.
$TRelying on both the policy language and case law, Continental contends that the number of occurrences is determined by referring to the cause or causes of injury rather than to the number of injuries or claims. According to Continental, Fibreboard's manufacturing process is the common cause of all asbestos-related injuries. Continental concludes that since Fibreboard asbestos products were manufactured at two locations, there were only two occurrences.
$TFibreboard does not dispute the assertion that the number of occurrences is determined by the cause of injury. However, Fibreboard contends that it is the immediate rather than remote cause of injury which is the determinative factor. According to Fibreboard, the cause of asbestos-related injury is each worker's continuous and repeated exposure to asbestos fibers. Fibreboard concludes that there are as many occurrences as there are claims.
$TThe definition of "occurrence" in the Continental policy provides as follows:
$=S$%$?$%The word "occurrence" means an event, or continuous or repeated exposure to conditions, which unintentionally causes injury during the policy period. All such exposure to the same general conditions existing at or emanating from each premises location shall be deemed one occurrence.$=I
$TThe Court rejects Continental's assertion that the "occurrence" definition refers to the distribution of asbestos products from Fibreboard plants. Words in an insurance policy must be interpreted according to their plain meaning ( $UReserve Insurance Co. v. Pisciotta$O (1982) 30 Cal.3d 800, 807.) The Court finds, and both Continental and Fibreboard agree, that asbestos-related injuries are the result of "continuous and repeated exposure to conditions" rather than "events" under the "occurrence" definition. It unreasonably strains the plain language of the policy to characterize asbestos products which were shipped from Fibreboard plants as "conditions." The conditions which caused injury were the release and inhalation of asbestos fibers when the products were handled by workers.
$TFurthermore, the "conditions" were not "emanating from each premises location." Both Continental and Fibreboard agree that "premises location" refers to the insured's premises. The exposure to asbestos fibers did not occur until after the asbestos products were shipped from Fibreboard plants and distributed. The "conditions" -- asbestos fibers in the air -- did not "emanate" from Fibreboard plants, but rather from the asbestos products at various job sites. Even if the asbestos products themselves could be referred to as "conditions," it is an unreasonably strained interpretation to characterize the shipment or distribution of products from Fibreboard plants as products "emanating" from those plants. If the insurer wanted to refer to products shipped from the insured's plants, it could have said so clearly and plainly.
$TIn addition, exposure to asbestos fibers by all workers cannot be considered "exposure to the same general conditions." Fibreboard manufactured products containing asbestos for a period of more than 40 years and distributed those products to various end-users. Workers exposed to asbestos fibers in the working environment may have been exposed to similar conditions. However, exposure to different products, at different locations, for different periods of time, over a period of 40 years cannot be characterized reasonably as exposure to the same general conditions. (See $UDucre v. Mine Safety Appliances Co.$O (E.D.La. 1986) 645 F.Supp. 708, 713 $(rejecting assertion that exposure to silica dust by all claimants was exposure to a single condition$).)
$TNo extrinsic evidence was presented which convinces the Court that any special meaning of the language was intended. Consequently, the Court concludes that the "occurrence" definition does not, by its plain language, apply to the distribution of asbestos products from Fibreboard plants.
$TThe Court is not convinced otherwise by the cases from other jurisdictions which find one occurrence even though multiple persons are injured. (See, e.g., $UMichigan Chemical Corp. v. American Home Assurance Co.$O (6th Cir. 1984) 728 F.2d 374 $(each shipment of contaminated livestock feed constitutes one occurrence$); $UChampion International Corp. v. Continental Casualty Co.$O (2d Cir. 1976) 546 F.2d 502 $(continuous and repeated sale of defective paneling over a two-year period constitutes one occurrence$); $UOwens-Illinois, Inc. v. Aetna Casualty and Surety Co.$O (D.D.C. 1984) 597 F.Supp. 1515 $(manufacture and sale of insulation containing asbestos constitutes one occurrence$); $UUnion Carbide v. Travelers Indemnity Co.$O (W.D.Pa. 1975) 399 F.Supp. 12 $(decision to process defective chemical, coupled with failure to warn, constitutes one occurrence$).)
$TFirst, a number of the cases cited by Continental involve per occurrence deductibles. Although these cases hold that there is one "occurrence" where multiple persons are injured over a period of time, the holdings are, nonetheless, in favor of the policyholder. Several of these cases explicitly point out that no claims exceeded the amount of the deductible. Therefore, there would be no coverage under the policy unless there were only one occurrence. (See $UAppalachian Insurance Co. v. Liberty Mutual Insurance Co.$O (3d Cir. 1982) 676 F.2d 56, 61, fn. 11; $UChampion International Corp. v. Continental Casualty Co., supra,$O 546 F.2d at p. 505; $UHousehold Manufacturing, Inc. v. Liberty Mutual Insurance Co.$O (N.D.Ill. Feb. 11, 1987) No. 85 C 8519; $UOwens-Illinois, Inc. v. Aetna Casualty and Surety Co., supra,$O 597 F.Supp. at p. 1525.) Clearly, these cases were decided as they were in order to protect the insured's reasonable expectations of coverage.
$TFurthermore, many of the cases cited by Continental involve "boom-type" accidents. These cases do not support Continental's argument that the number of occurrences is determined by the remote cause of injury (i.e., the manufacture of asbestos products) rather than the immediate cause of injury (i.e., the exposure to asbestos fibers). In such cases, the cause of injury and the injury occur at the same time. The "cause" which governs the number of occurrences is the immediate cause of injury. (See, e.g., $UTravelers Indemnity Co. v. New England Box Co.$O (N.H. 1960) 157 A.2d 765 $(fire at a box factory$); $UHyer v. Inter-Insurance Exchange, Etc.$O (1926) 77 Cal.App. 343 $(automobile accident$).)
$TFinally, the Court finds that the reasoning of the out-of-state cases which focus on the remote cause of injury to determine the number of occurrences is flawed and inconsistent with California law. Although those cases refer to the original or remote cause of injury to determine the $Unumber$O of occurrences, the same cases look to 
the injuries themselves to determine the timing of the occurrence.
$TIn $UAppalachian Insurance, supra,$O 676 F.2d at pp. 61-62, the court stated:
$=S$%$?$%While the "cause" test is appropriate for determining whether there is a single occurrence or multiple occurrences, it is not applicable in determining when an occurrence takes place. We hold that the determination of when an occurrence happens must be made by reference to the time when the injurious effects of the occurrence took place.$=I
$TIn $UMichigan Chemical, supra,$O 728 F.2d at p. 382, the court recognized this dichotomy and observed:
$=S$%$?$%$(U$)sing the cause test in order to calculate the number of occurrences is perfectly consistent with looking to the time and place of injury in order to decide when and where an occurrence or occurrences takes place for purposes of . . . assigning a claim to a particular policy period.$=I
$TThis Court does not agree. It makes no sense to look to the remote cause of injury in determining the number of occurrences and to the timing of injury to determine when the occurrence takes place. More importantly, the Court finds that this rule finds no support in California law.
$TIn California, it is a well-established rule that the time of the occurrence of an accident within the meaning of an indemnity policy is not the time the wrongful act was committed, but the time the claimant was actually damaged. $URemmer v. Glens Falls Indemnity Co.$O (1956) 140 Cal.App.2d 84, 88; $UMaples v. Aetna Casualty & Surety Co.$O (1978) 83 Cal.App.3d 641, 644; $UCalifornia Union Insurance Co. v. Landmark Insurance Co.$O (1983) 145 Cal.App.3d 462, 470; $USchrillo Co. v. Hartford Accident & Indemnity Co.$O (1986) 181 Cal.App.3d 766, 773. 
$TThe two California cases cited by Continental in support of its "causation" theory, $UHyer v. Inter-Insurance Exchange, Etc.$O (1926) 77 Cal.App. 343, and $UState Farm Fire & Casualty Co. v. Kohl$O (1982) 131 Cal.App.3d 1031, involved automobile accidents. Neither case is inconsistent with the California cases which state that an occurrence takes place when the claimant is injured. In both cases, the cause of injury and the injury occurred almost simultaneously. Therefore, there is no dichotomy between the timing of the occurrence and the cause of accident.
$TThe Court is aware of only one case which deals with the number of occurrences as well as the occurrence date. $UCalifornia Union Insurance Co. v. Landmark Insurance Co., supra,$O 145 Cal.App.3d 462, involved a dispute between two insurers of a claimant who had suffered property damage from the leakage of water from a swimming pool. The swimming pool had leaked for more than 18 months, during which time one insurer's policy ended and the other insurer's policy incepted. Both policies contained identical "occurrence" provisions which stated: "$(A$)ll bodily injury and property damage arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence." ( $UId.$O at p. 474.)
$TThe court found that the leakage process was a continuous one and that damage was accumulating a nd becoming progressively more severe during the entire 18-month period. The court held that the facts and circumstances of the case were squarely within the "one occurrence" provisions of the policies. ( $ULandmark, supra,$O 145 Cal.App.3d at p. 473.)
$TThe common thread running through the California cases is that an "occurrence" or "accident" is associated with the time of injury. This leads to the conclusion that the "cause" of injury which determines the number of occurrences undoubtedly refers to the immediate rather than the remote cause of injury. As the court stated in $UMaples, supra,$O 83 Cal.App.3d at pp. 647-648, in reference to both California and out-of-state cases on the timing of "occurrences" or "accidents":
$=S$%$?$%$(T$)his seemingly unbroken line of authority find$(s$) that the term "accident" unambiguously refers to the event causing damage, not the earlier event creating the potential for future injury . . . .$=I
$%$?$%The event causing damage in the asbestos-related bodily injury cases is exposure to asbestos fibers. (See Phase III Decision at pp. 29-30.) Since each individual claimant has a unique work history, each claimant's exposure must be viewed as a separate occurrence.
$TE. Pollution Exclusion
$TThe CCC Companies issued three excess policies to Fibreboard which contain exclusions for bodily injury resulting from pollution. The policies are in evidence as T.E. 22 (Continental), 24 (Columbia), and 25 (Columbia).
$TThe CCC Companies assert that coverage for bodily injury resulting from inhalation of asbestos is excluded under the pollution exclusion. The Court concludes that the pollution exclusion does not exclude asbestos-related bodily injury claims from coverage.
$TThe pollution exclusions contained in the three excess policies are identical. They provide, in relevant part, as follows:
$=S$%$?$%It is agreed that the insurance does not apply to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.$=I
$TWords of an insurance policy must be interpreted according to their plain meaning in order to give effect to the mutual intent of the parties at the time of contracting. (Civ.Code, secs. 1636, 1638; $UReserve Insurance Co. v. Pisciotta$O (1982) 30 Cal.3d 800, 807.) It is well-established that the insurer has the burden of proving that a loss falls within the terms of an exclusion. ( $USearle v. Allstate Life Insurance Co.$O (1985) 38 Cal.3d 425, 437-438.)
$TAccording to the plain language of the pollution exclusion, there is no indication that injury resulting from asbestos inhalation was intended to be excluded from coverage. Although the exclusion lists a number of pollutants or contaminants, it does not expressly include asbestos. By 1973, when the first of the three policies containing the pollution exclusion was issued to Fibreboard, asbestos and asbestos claims were a known risk. If the CCC Companies intended to exclude coverage for asbestos-related injuries, it could have done so simply by including "asbestos" in the exclusion. While the Court recognizes that the 
words used in the exclusion were intended to include "irritants, contaminants or pollutants" other than those expressly listed, "they cannot expand the purposes for which the $(exclusion$) itself was obviously intended." ( $UPepper Industries, Inc. v. Home Insurance Co.$O (1977) 67 Cal.App.3d 1012, 1019.)
$TEven assuming that asbestos is an "irritant, contaminant or pollutant" under the terms of the exclusion, the release of asbestos fibers in the workplace or home cannot reasonably be construed to be a release into the "atmosphere." (See $UNational Standard Insurance Co. v. Continental Insurance Co.$O (N.D.Tex. Oct 4, 1983) No. CA-3-81-1015 D $(pollution exclusion is only relevant to claims based on exposure to chemical carcinogens in the ambient atmosphere; not to exposure to such chemicals in an enclosed, working environment$).) While the CCC Companies argue that "downwind claims" involve the release of asbestos fibers into the atmosphere, they have failed to present sufficient evidence of the existence or nature of such claims to carry their burden of proving that such claims fall within the ambit of the pollution exclusion.
$TThe result would be the same even if the Court were to find the language of the exclusion ambiguous. Any ambiguity or uncertainty in an insurance policy is to be resolved against the insurer. If semantically permissible, the policy is to be construed so as to fairly achieve its object of providing indemnity. ( $UHarris v. Glens Falls Insurance Co.$O (1972) 6 Cal.3d 699, 701.) This rule is particularly applicable to exclusions. Exclusions are to be interpreted narrowly against the insurer. ( $UState Farm Mutual Automobile Insurance Co. v. Partridge$O (1973) 10 Cal.3d 94, 102.) To be effective, an exclusionary clause must be "conspicuous, plain and clear." ( $UPepper Industries, Inc. v. Home Insurance Co., supra,$O 67 Cal.App.3d at p. 1018.) The pollution exclusion does not conspicuously, plainly and clearly exclude coverage for the manufacture and distribution of asbestos products.
$TFor the foregoing reasons, the Court finds that the pollution exclusion does not apply to claims against Fibreboard for asbestos-related injury.
$TIII. PHASE IV-B -- RESERVED SCOPE AND DEFENSE ISSUES
$TA. The Effect of "Other Insurance" Clauses and Principles of Equitable Contribution on the Allocation of Liability Among Insurers Covering the Same Claim
$T1. Introduction
$TIn this Court's Phase III Decision, the Court held that all of a policyholder's policies in effect from first exposure to asbestos or asbestos-containing products until death or date of claim, whichever occurs first, are triggered with respect to an asbestos-related bodily injury claim. (Phase III Decision at p. 42.) The Court further held that every policy triggered by an asbestos-related bodily injury claim has an independent obligation to respond in full to a claim, subject to policy limits, deductibles, exclusions, "other insurance" clauses, and rights of equitable contribution. (Phase III Decision at p. 64.)
$TIn Phase IV-B, the Court has been presented with the difficult task of determining how liability for a claim covering a number of years is to be allocated among multiple primary and excess carriers pursuant to "other insurance" clauses and principles of equitable contribution. As more than one court has noted, "$(f$)ew areas in the field of insurance law give courts and p arties more difficulty than that of duplicating or overlapping insurance." ( $UHome Insurance Company v. Certain Underwriters at Lloyd's London$O (7th Cir. 1984) 729 F.2d 1132, 1133.)
$TSpecifically, the issue before the Court is to what extent the "other insurance" clauses are applicable in allocating liability among insurers covering the same claim. The policyholders, as well as a number of insurers, contend that the "other insurance" clauses should be disregarded and that a uniform system of proration should be imposed based on equitable considerations. Other insurers contend that the "other insurance" clauses should be applied strictly according to their terms on the basis of what they argue are established rules of law. Travelers took the lead among the insurers in advancing this argument and therefore the Court makes reference to Travelers in this context even though Travelers has since settled its disputes with Armstrong. By its reference to Travelers, the Court intends to refer to the other insurers making these arguments as well.
$TThe Court concludes that the "other insurance" clauses shall not be given literal effect and, instead, contribution among insurers shall be based on equitable principles. When more than one policy is triggered by a claim, defense and indemnity costs shall be allocated among all triggered policies according to applicable "per occurrence" policy limits, multiplied by years of coverage. When a policy does not contain a "per occurrence" limit, the "per person" limit shall be used in this calculation.
$T2. Indemnity
$TThe types of "other insurance" clauses contained in the policies at issue are "pro rata," "excess" and "escape" clauses. The pro rata clause provides that if there is other valid and collectible insurance, the insurer shall not be liable for more than its pro rata share of the loss. The excess clause provides that if there is other valid and collectible insurance, the policy shall be excess to such other insurance. The escape clause provides that the existence of other insurance extinguishes the insurer's liability to the extent of such other insurance. ( $UOlympic Insurance Co. v. Employers Surplus Lines Insurance Co.$O (1981) 126 Cal.App.3d 593, 598.) A great majority of the clauses in this case are conflicting clauses.
$TIn $USignal Companies, Inc. v. Harbor Insurance Co.$O (1980) 27 Cal.3d 359, 369 the California Supreme Court stated:
$=S$%$?$%We expressly decline to formulate a definitive rule applicable in every case in light of varying equitable considerations which may arise, and which affect the insured and the primary and excess carriers, and which depend upon the particular policies of insurance, the nature of the claim made, and the relation of the insured to the insurers.$=I
$%$?$%Restating the rule governing the rights and duties of insurers who have covered the same event, the court continued:
$=S$%$?$%Moreover, we affirm the wisdom expressed in $UAmer. Auto. Ins. Co. v. Seaboard Surety Co.$O (1957) 155 Cal.App.2d 192, 195-196 $(318 P.2d 84$): "The reciprocal rights and duties of several insurers who have covered the same event do not arise out of contract, for their agreements are not with each other. . . . Their respective obligations flow from equitable principles designed to accomplish ultimate justice in the bearing of a specific burden. As these principles do not stem f rom agreement between the insurers their application is not controlled by the language of their contracts with the respective policyholders." ($UIbid.$O)$=I
$%$?$%(See also $UCNA Casualty of California v. Seaboard Surety Co.$O (1986) 176 Cal.App.3d 598, 620; $UPacific Indemnity Co. v. Fireman's Fund Insurance Co.$O (1985) 175 Cal.App.3d 1191, 1197-1198; $UNational American Insurance Co. v. Insurance Company of North America$O (1977) 74 Cal.App.3d 565, 577; $UAetna Casualty & Surety Co. v. Certain Underwriters$O (1976) 56 Cal.App.3d 791, 800.)
$TAlthough the above-cited cases resolved the "other insurance" issue on the basis of the policy provisions, "compelling equitable consideration$(s$)" may justify departure from the provisions of the policy. ( $USignal Companies, Inc. v. Harbor Insurance Co., supra,$O 27 Cal.3d at p. 369; see also $UAmerican Automobile Insurance Co. v. Seaboard Surety Co.$O (1957) 155 Cal.App.2d 192, 199 $("In proper cases, . . . (the equities) override the exact terms of the policies in the interest of substantial justice."$).) Here, compelling equitable considerations justify departure from the exact terms of the policies.
$TTravelers argued that there are well-established rules set forth in California cases on "other insurance" clauses which can be applied to determine allocation of liability among insurers. As restated by Travelers, the rules are as follows:
$=S$%$?$%1. A policy with an escape clause must respond before a policy with an excess clause. ( $UEmployers Reinsurance Corp. v. Mission Equities Corp.$O (1977) 74 Cal.App.3d 826, 830-831 $(interpreting a "pure" escape clause$).)
$%$?$%2. A policy with a pro rata clause must respond before a policy with an excess clause. (See, e.g., $UPacific Employers Insurance Co. v. Maryland Casualty Co.$O (1966) 65 Cal.2d 318, 328.)
$%$?$%3. Policies with excess clauses prorate liability in accordance with their respective limits of liability. (See, e.g., $UEmployers Reinsurance Corp. v. Phoenix Insurance Co.$O (1986) 186 Cal.App.3d 545, 557; $UContinental Casualty Co. v. Pacific Indemnity Co.$O (1982) 134 Cal.App.3d 389, 397.)$=I
$TWhile the above cited cases do stand for the propositions Travelers has stated, the body of California case law on the subject of "other insurance" clauses is not so clear and consistent. (See, e.g., $UContinental Casualty Co. v. Pacific Indemnity Co., supra,$O 134 Cal.App.3d at pp. 396-398 $(treating a composite excess-escape clause as an excess clause resulting in proration with a policy containing an excess clause$); $UUnderground Construction Company, Inc. v. Pacific Indemnity Co.$O (1975) 49 Cal.App.3d 62, 68-69 $(giving effect to an "escape" provision of a composite excess-escape clause resulting in no proration with a policy containing an excess clause$); $UAmerican Automobile Insurance Co. v. Seaboard Surety Co., supra,$O 155 Cal.App.2d at p. 199 $(holding that a policy with a pro rata clause and a policy with an excess clause pro rate liability$).)
$TEven if inconsistent cases are reconciled and a clear set of rules emerges, the California cases dealing with "other insurance" clauses provide little guidance for this Court. All of the California cases involve one claim for a loss which occurred at a particular point in time. At most, those cases interpret three or four concurrent policies with conflicting other insurance provisions.
$TIn contrast, this case involves tens of thousands of claims ranging over a period of 40 years, with each claim triggering multiple consecutive policies. Furthermore, each claim may trigger a different set of policies. There are three policyholders before the Court and over 200 primary and excess policies in evidence. Under these circumstances, it is wholly unmanageable, if not impossible, to apply the rules on "other insurance" provisions to this case.
$TIn a case which was much less complex than this one, the Missouri Court of Appeals stated:
$=S$%$?$%With numerous carriers here, some of whom had multiple policies, it would create a Tower of Babel to examine each policy separately and attempt to reconcile apportionment of responsibility.$%( $UCrown Center Redevelopment Corp. v. Occidental Fire & Casualty Co.$O (Mo.App. 1986) 716 S.W.2d 348, 361 $(prorating all policies on the basis of policy limits where 25 insurers covered the collapse of two elevated skywalks$).)$=I
$TCalifornia courts, while attempting to interpret and apply conflicting "other insurance" clauses, have acknowledged the difficulty of such a task. In $UAmerican Automobile Insurance Co. v. Transport Indemnity Co.$O (1962) 200 Cal.App.2d 543, 544, Justice Tobriner stated:
$=S$%$?$%In entering the legalistic labyrinth of the provisions of the policies, we are not favored, like Theseus, with any thread of principle; each case apparently presents a particularistic and unique problem.$=I
$%$?$%More recently, Justice Kaus referred to "other insurance" clauses as "a legal game of scissors-paper-stone." $UWagner v. State Farm Mutual Automobile Insurance Co.$O (1985) 40 Cal.3d 460, 468.
$TIn addition to the difficulty of any attempt to interpret and reconcile the "other insurance" clauses, strict application of the clauses is not mandated by California law. As stated previously, allocation of liability among insurers covering the same loss is based on equitable principles. ( $USignal Companies, Inc. v. Harbor Insurance Co., supra,$O 27 Cal.3d at p. 369; $UAmerican Automobile Insurance Co. v. Seaboard Surety Co., supra,$O 155 Cal.App.2d at pp. 195-196.) Even in cases cited by Travelers, allocation of liability among policies with conflicting "other insurance" clauses is not based on the policies themselves or the parties' intent, but rather on principles of law established to protect the interests of the insured. ( $UEmployers Reinsurance Corp. v. Phoenix Insurance Co., supra,$O 186 Cal.App.3d at p. 557.) If conflicting excess clauses were given literal effect, for example, they would cancel each other out and provide no coverage for the insured. Such a result is contrary to settled policy, and, therefore, the clauses are disregarded and liability is prorated. ($UIbid.$O)
$TIn this case, because tens of thousands of claims have been and are being resolved over a period of time, it is 
impossible to predict all of the adverse effects that Travelers' allocation scheme might have on coverage. However, it is apparent that applying the rules as Travelers suggests would not serve the interests of the policyholders. For example, Travelers, a primary carrier, would pay after some excess carriers. Since excess carriers usually provide defense costs which reduce aggregate limits, an insured would be forced to use up aggregates on defense while Travelers, whose policies provide defense costs in addition to limits, would pay nothing. Travelers would also pay after Liberty Mutual, whose policies contain deductibles. This would mean that an insured would have to pay those deductibles while Travelers would pay nothing. Furthermore, continuing litigation is more likely under the allocation scheme suggested by Travelers because of its complexity.
$TThe Court concludes that the equitable solution is to disregard the "other insurance" clauses and to prorate all policies. Proration protects the interests of the policyholders, provides a manageable method of allocation, and is fair to the insurers. All of the parties agree that, in any event, all primary policies have been or will be exhausted by asbestos-related claims. The method of allocation affects only the timing of payments.
$TCourts in other states have also rejected conflicting other insurance clauses in toto and have instead applied a uniform system of proration. (See $UCrown Center Redevelopment Corp. v. Occidental Fire & Casualty Co., supra,$O 716 S.W.2d 348; $UWerley v. United Services Automobile Association$O (Alaska 1972) 498 P.2d 112; $ULamb-Weston, Inc. v. Oregon Automobile Insurance Co.$O (Ore. 1959) 341 P.2d 110, modified, 346 P.2d 643.) These courts have noted the confusion and circular reasoning involved in applying the "other insurance" clauses. As the Oregon Supreme Court stated, "it is our view that any attempt to give effect to the 'other insurance' provision of one policy while rejecting it in another is like pursuing a will o' the wisp." ( $ULamb-Weston, supra,$O 341 P.2d at pp. 115-116.) Similarly, the Alaska Supreme Court compared the traditional approach taken in resolving conflicting other insurance clauses to "determining the priority between the chicken and the egg." ( $UWerley, supra,$O 498 P.2d at p. 117.)
$TThis Court recognizes that California has not followed the so-called "Oregon rule." (See $UPeerless Casualty Co. v. Continental Casualty Co.$O (1956) 144 Cal.App.2d 617, 623.) However, because of the unique circumstances of this case, compelling equitable considerations mandate that the "other insurance" clauses be disregarded in favor of a uniform system of proration. 
$Ta. Basis for Proration
$TIn California, liability is generally prorated on the basis of policy limits. ( $UCNA Casualty of California v. Seaboard Surety Co.$O (1986) 176 Cal.App.3d 598, 620.) In $UCNA Casualty v. Seaboard,$O the trial court allocated defense costs among four insurers pro rata according to policy limits. On appeal, CNA argued that the most equitable method of allocation was to multiply the number of years of coverage of each policy by the per year aggregate limits of that policy.
$TThe appellate court found that the met hod of allocation was "fair and reasonable" and declined to reverse the trial court "for using a procedure adopted in every California case on point." ( $UCNA Casualty v. Seaboard, supra,$O 176 Cal.App.3d at p. 620.) Citing $USignal Companies, Inc. v. Harbor Insurance Co.$O (1980) 27 Cal.3d 359, 369, the court acknowledged that no definitive rule was applicable in all situations and that courts must apply equitable considerations on a case-by-case basis.
$=S$%$?$%We agree that in given cases, the true scope of an insured's "coverage" might not be confined to the liability limits of a given policy; it may also include the period of time covered by the policy and the interrelation between the terms of the policy and the wrongs alleged against the insured by the claimant. In this case, however, the trial court did not abuse its discretion in assessing damages according to the formula followed by an overwhelming weight of authority. ( $UCNA Casualty v. Seaboard, supra,$O 176 Cal.App.3d at p. 620.)$=I
$TThis Court finds that the most equitable method of allocation is proration on the basis of policy limits, multiplied by years of coverage. This method is consistent with the policy language in that it takes policy limits into consideration. Typically, a pro rata "other insurance" clause provides for proration according to "the applicable limit of liability." This method also reflects the fact that higher premiums are generally paid for higher "per person" or "per occurrence" limits. Since some policies are in effect for more than one year, and injury occurs during every year from first exposure to asbestos until death (Phase III Decision at p. 42), multiplying the policy limits by years of coverage results in a more equitable allocation than proration based on policy limits alone. Thus, when a particular claim triggers more than one policy, each insurer's share of liability shall be determined by the proportion that each policy's applicable "per occurrence" limits multiplied by years the policy was in effect bears to the sum total of the applicable "per occurrence" limits of all triggered policies multiplied by the years each policy was in effect. When a policy does not contain a "per occurrence" limit, the "per person" limit shall be used in this calculation.
$T3. Defense Obligations
$TIt is settled law that defense obligations follow indemnity. (See $UContinental Casualty Co. v. Zurich Insurance Co.$O (1961) 57 Cal.2d 27, 35-38 $(holding that three insurers share in costs of defense in the same ratio that they share in indemnity$); $UPacific Indemnity Co. v. Fireman's Fund Insurance Co.$O (1985) 175 Cal.App.3d 1191, 1198 $(defense costs must generally be shared in proportion to the payment of the loss$); and $UOlympic Insurance Co. v. Employers Surplus Lines Insurance Co.$O (1981) 126 Cal.App.3d 593, 602 $(general rule is that defense costs will be apportioned among the insurers in accordance with contribution to the payment of loss$).) Therefore, the Court finds that defense costs are to be shared in proportion to the contribution formula outlined above for indemnity payments.
$T4. Non-Cumulation Clause
$TPolicies issued by several excess insurers (AIG, Prudential Reinsurance, Employers Reinsurance, and Commercial Union) contain "Prior Insurance and Non-Cumulation of Liabili ty" Conditions. The non-cumulation clause provides:
$=S$%$?$%It is agreed that if any loss covered hereunder is also covered in whole or in part under any other excess policy issued to the Assured prior to the inception date hereof the limit of liability hereon . . . shall be reduced by any amounts due to the Assured on account of such loss under such prior insurance. (See, e.g., T.E. 193.)$=I
$TThe policyholders contend that the non-cumulation clauses are analogous to "escape" clauses and should be disregarded. The insurers assert that the non-cumulation clauses reduce or eliminate "stacking" of aggregate limits of several triggered policies and should be given effect. The Court concludes that the non-cumulation clauses shall not be given effect.
$TThere is no California law interpreting non-cumulation clauses. The only cases cited by the parties are out-of-state cases that involve non-cumulation clauses in fidelity bonds. In that context, non-cumulation clauses have been held to be valid and not against public policy. (See, e.g., $UState ex rel. Guste v. Aetna Casualty & Surety Co.$O (La. 1983) 429 So.2d 106, 110.) However, the fidelity bond cases involve entirely different facts and policy language from this case. Those cases provide little guidance to this Court.
$TThis Court finds no reason to treat the non-cumulation clauses any differently from the "other insurance" clauses. In the allocation of costs among insurers, the Court is guided by equitable principles. (See $USignal Companies, Inc. v. Harbor Insurance Co.$O (1980) 27 Cal.3d 359, 369; $UAmerican Automobile Insurance Co. v. Seaboard Surety Co.$O (1957) 155 Cal.App.2d 192, 195-196.) In the unique context of this case, it would place an enormous burden on the policyholders to require that a determination be made as to the "amounts due" under prior policies, some of which may also contain non-cumulation clauses, for tens of thousands of claims.
$TWhile the insurers argue that the non-cumulation clauses are clear and unambiguous, they interpret the clauses differently. AIG contends that the non-cumulation clause reduces the aggregate limits of a policy by the amount of the claims triggering that policy, but does not affect the amount an insurer pays on a particular claim, providing the claim is within the aggregate limits. Employers Reinsurance and Prudential Reinsurance, on the other hand, assert that where prior insurance covers the same loss as the non-cumulation clause policy, the non-cumulation clause policy is liable only for the amount not covered by prior insurance. In other words, the non-cumulation clause acts as an "escape" clause and reduces liability for a particular claim. In addition, AIG contends that the "amounts due" to the policyholder are determined after taking into account the Court's allocation pursuant to the "other insurance" clauses. In contrast, Prudential Reinsurance argues that the "amounts due" are determined regardless of how the "other insurance" clauses operate in a particular situation.
$TThe Court need not reach the issues involved in the application of the non-cumulation clauses. The Court finds that application of the clause is extremely impractical, if not impossible, given the complexities of this case. However, the Court notes that at best for the insurers, the non-cumulation clause is ambiguous. If given any effect, a reasonable interpretation of the clause is th at it merely prevents the "stacking" of "per person" or "per occurrence" limits. (See $UReserve Insurance Co. v. Pisciotta$O (1982) 30 Cal.3d 800, 807-808.) Since the Court concludes that the "stacking" of "per person" or "per occurrence" limits is not allowed, independent of the non-cumulation clauses ($Uinfra$O at p. 65), the result would be no different if the clauses were given effect.
$T5. Deductibles
$TThe policyholders contend that the plain meaning of the "other insurance" clauses precludes their application to either deductibles or "self-insurance." Travelers argued that the deductibles in the Liberty Mutual policies from 1977 to 1981 (T.E. 512-515) are "other insurance." AIG joined in this argument. (No insurer argued that the "other insurance" clauses apply to periods when the policyholder is "self-insured.") The Court concludes that deductibles are not "other insurance."
$TAccording to their plain language, the "other insurance" clauses do not apply to deductibles. Section 22 of the California Insurance Code provides: "Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event." The term "insurance" does not apply to deductibles because the policyholder remains at risk for the deductible portion of the loss. There is no shifting of the risk of loss to another. "$(I$)nsurance necessarily involves . . . a risk of loss to which one party is subject and a shifting of that risk of loss to another party . . . ." ( $UMetropolitan Life Insurance Co. v. State Board of Equalization$O (1982) 32 Cal.3d 649, 654.)
$TAlthough the issue of deductibles has not been decided by California courts, federal and out-of-state courts have held that deductibles are not "other insurance." (See, e.g., $UKeene Corp. v. Insurance Company of North America$O (D.D.C. May 13, 1983) No. 78-1011; $UAmerican Nurses Association v. Passaic General Hospital$O (N.J. 1984) 484 A.2d 670; $UState Farm Mutual Automobile Insurance Co. v. Universal Atlas Cement Co.$O (Fla.App. 1981) 406 So.2d 1184.) 
$TThe cases cited by Travelers are inapplicable to this case. In both $UNabisco, Inc. v. Transport Indemnity Co.$O (1983) 143 Cal.App.3d 831, 835 and $UUnited States Steel Corp. v. Transport Indemnity Co.$O (1966) 241 Cal.App.2d 461, 475, the policies at issue contained excess "other insurance" clauses which expressly referred to "self-insurance." The policies here contain no such reference.
$TAccordingly, the deductibles are not "other insurance" for purposes of allocation among insurers. If a claim triggers both policies with deductibles and policies without deductibles, and the policyholder selects a policy without deductibles for indemnification, the policyholder shall not be obligated to pay any portion of the liability by way of the deductible provisions. If the policyholder selects a policy with deductibles for indemnification, the policyholder shall pay any applicable deductible. (See $UKeene Corp. v. Insurance Company of North America, supra,$O slip op. at pp. 11-12.)
$TB. Burden of Apportionment
$T1. Introduction
$TThe burden of apportionment of losses and expenses between insurers pursuant to "other insurance" provisions and equitable principles addresses the issue of whet her (1) a policyholder may select a triggered policy for full indemnification and defense and leave the targeted insurer with the burden of seeking contribution, or (2) insurers need respond to a claim only to the extent of their share pursuant to "other insurance" clauses and principles of equitable contribution. The Court concludes that a policyholder may obtain full indemnification and defense from one insurer, leaving the targeted insurer to seek contribution from other insurers covering the same loss.
$T2. Discussion
$TThere are no California cases which have decided the precise issue before this Court. The insurers, contending that "other insurance" clauses limit liability to the insured, cite several cases which state that where policies contain pro rata insurance clauses, each insurer is liable to the policyholder only for its share of the loss and that the policyholder can recover no more. For example, in $UFireman's Fund Insurance Co., Etc. v. Palatine Insurance Co.$O (1907) 150 Cal. 252, 256, the court stated:
$=S$%$?$%Each of the contracts of insurance is entirely separate and independent of all the others. Each insurer is liable directly to the insured for its proportion of the loss, and the insured can recover from any insurer only such proportion of the loss as it is liable for under the terms of the policy.$=I
$TSimilarly, in $UFidelity & Casualty Co. v. Fireman's Fund Indemnity Co.$O (1940) 38 Cal.App.2d 1, 6, the court stated that where two policies contain pro rata clauses, each insurer contracts to pay a portion of the loss and "neither company can be required to pay more than its share."
$THowever, these cases also held that an insurer which pays more than its pro rata share cannot obtain contribution from other insurers covering the same loss because the excess payment is purely voluntary. The "volunteer rule" has since been rejected by California courts. (See, e.g., $UContinental Casualty Co. v. Zurich Insurance Co.$O (1961) 57 Cal.2d 27, 35-38; $UMeritplan Insurance Co. v. Universal Underwriters Insurance Co.$O (1966) 247 Cal.App.2d 451, 464-466.)
$T $UMeritplan, supra,$O has been cited by Travelers to support its argument that the demise of the volunteer rule did not invalidate the rule regarding proration. In $UMeritplan,$O the court stated that $UFidelity & Casualty, supra,$O "has consistently been cited as authority" for the proposition that a pro rata clause renders the insurer liable for only its pro rata share of the loss and that the insured can collect that much and no more from the insurer. ( $UMeritplan, supra,$O at pp. 462-463.) However, the court held that Meritplan, in settling a claim for which there was other insurance, was not a volunteer. ( $UMeritplan, supra,$O at p. 466.) $UMeritplan,$O which rejects the holding of $UFidelity & Casualty,$O does not provide support for the continuing validity of the proration rule. Furthermore, the "proration rule" is only dictum. The California cases cited above involve insurers only. There is no California case in which a court has held that an insured may collect only a pro rata share of the loss from an insurer.
$TThe out-of-state and federal cases which have directly decided this issue are divided. $=L00440000801 001560*001560 $UCooper Industries, Inc. v. Aetna Casualty & Surety Co.$O (Ct. of Com.Pl. Merced County, Pa., 1985, No. 374) and $UJames B. Lansing Sound, Inc. v. National Union Fire Insurance Co.$O (9th Cir. 1986) 801 F.2d 1560, both cited by the insurers, hold that "other insurance" clauses limit liability to the insured. The Court does not find either of these cases persuasive.
$T$UCooper$O was a declaratory relief action between Cooper Industries and 36 of its primary and excess insurers. The basis for the court's holding was that the liability of coinsurers is several and not joint. Therefore, "each insurer's liability is fixed by the face of its policy and its proportionate relation to the coinsurance." ( $UCooper, supra,$O Ct. of Com. Pl., Merced County, Pa., 1985, No. 374, at p. 7.) The court concluded that "'only the pro rata part of the insured loss which was sustained may be recovered by the insured from each insurer in accordance with the terms of the policy.' $(Citations$)." ($UId.$O at p. 8.)
$THowever, as pointed out in $UWilks v. Allstate Insurance Co., infra$O (La.Ct.App. 1967) 195 So.2d 390, 395-397, there is much confusion regarding the implication of "several" liability in the area of coinsurance. According to Couch, the obligation of coinsurers is several, not joint (16 Couch on Insurance (2d ed. 1983), section 62:11, p. 445), and an insurer is only liable for its pro rata share (16 Couch at section 62:7, p. 442). On the other hand, Appleman also states that the liability of coinsurers is several, not joint, but that the policyholder may collect the full amount of a claim from either insurer, leaving the latter to its right of contribution from the other insurer. (8A Appleman, Insurance Law and Practice (1981), section 4908, p. 381). Furthermore, while $UCooper$O cites $UClow v. National Indemnity Co.$O (Wash. 1959) 339 P.2d 82 for its finding of "several, not joint" liability, Clow concludes that the policyholder may collect the full amount from either insurer. ( $UClow, supra,$O at p. 87.)
$T $UJames B. Lansing Sound, Inc. v. National Union Fire Insurance Co.$O (9th Cir. 1986) 801 F.2d 1560 provides no theoretical basis for its holding. The court simply stated that the "rule of proration" applies in California. However, the cases cited by the court are cases in which only insurers were involved. (See $UTravelers Insurance Co. v. Transport Indemnity Co.$O (1972) 6 Cal.3d 514; $UContinental Casualty Co. v. Pacific Indemnity Co.$O (1982) 134 Cal.App.3d 389.) As stated above, no California case has held that an "other insurance" clause limits liability to an insured.
$TOf the out-of-state cases, $UWilks v. Allstate Insurance Co.$O (La.Ct.App. 1967) 195 So.2d 390, is the best-reasoned decision. In $UWilks,$O the defendant insurer sought to reduce an award against it by one-half because of an "other insurance" clause in its policy. The alleged other insurer was not before the court. The court discussed in detail the nature of the obligations of coinsurers as well as the divided case law and conflicting treatises on this issue. The court concluded that the "other insurance" clauses do not limit liability to the insured.
$TThe court's decision was based primarily on the natu re of the obligations of coinsurers.
$=S$%$?$%The ultimate test of whether the obligor could be held for the whole or only a proportionate part of the obligation is essentially whether the two obligors each promised the same (i.e., the full) performance or else whether each had promised only a different performance (i.e., to pay only its proportionate part of the liability). ( $UWilks, supra,$O 195 So.2d at p. 398.)$=I
$%$?$%The court resolved this issue by looking at the intention of the parties as expressed in the language of the policies and the surrounding circumstances. The court found that the promise by each insurer "to pay on behalf of the insured all sums which the insured shall be legally obligated to pay as damages" was a promise to perform the same obligation and that the "other insurance" clauses do not limit that liability with respect to the insured. Therefore, "the policyholder may collect the full amount from either insurer, leaving the latter to its right of contribution from the other insurer . . . ." ( $UWilks, supra,$O 195 So.2d at p. 398.) In so holding, the court took into consideration the possibility that otherwise the insured may be forced to pay a portion of the loss even though such loss is within policy limits.
$TThe court was also influenced by the fact that only one insurer was before the court. According to the policy provisions, "other insurance" must be "valid and collectible" insurance. The court reasoned that other insurance cannot be regarded as "valid and collectible" unless its validity and collectibility are determined by the court. ( $UWilks, supra,$O 195 So.2d at p. 399.) 
$TIn summary, the court stated:
$=S$%$?$%$(W$)ith respect to the interests of the $Uinsured,$O the pro rata clause does not entitle an . . . insurer to reduce below policy limits its coverage of the liability of the insured. Within the intent of the parties, the pro rata clause is simply designed to regulate contribution $Uas between insurers$O which may have provided coverage which happens to apply to the same loss. ( $UWilks, supra,$O 195 So.2d at p. 400, emphasis in original.)$=I
$TThe insuring agreements in this case, like those in $UWilks,$O obligate the insurers to pay "all sums which the insured shall become legally obligated to pay as damages." In Phase III, this Court concluded that such language creates an independent obligation to respond in full to a claim. (Phase III Decision at p. 64.)
$TThe insurers argue that the "other insurance" clauses limit their obligation with respect to the insured. The Court rejects this contention. Typically, "other insurance" provisions state that when other insurance applies to the same loss on the same basis, the insurer shall not be liable for more than its proportionate share as stated in the policy provisions. Nothing in the policy language clearly and plainly limits the explicit obligation of the insurer to pay on behalf of the insured "all sums which the insured shall become legally obligated to pay as damages." While the language does reduce the liability of the insurer where other insurance covers the same loss, the "other insurance" provisions do not mandate that this be done at the expense of the insured.
$TFurthermore, as pointed out in $UWilks, supra,$O 195 So.2d at p. 399, "other insurance" is "valid and collectible" insurance according to the polic y provisions. In this case, unlike $UWilks,$O all of the insurers are before the Court. However, the result reached in $UWilks$O is all the more compelling when one considers the number of claims and policies in this case. Here, each of tens of thousands of claims trigger different groups of policies. The validity and collectibility of "other insurance" cannot be determined for each and every claim. Moreover, no decision of this Court can foreclose the possibility of continuing disputes among insurers regarding their respective shares of liability for a particular claim.
$TTo find that an insured is not entitled to defense or indemnity under a policy until all insurance triggered by a claim is determined to be valid and collectible would be contrary to the "all sums" language and would defeat the insured's reasonable expectations of coverage. The rights of the insureds to defense and indemnity should not be dependent upon what Justice Tobriner called the "internecine struggle" of the insurers over their respective share of liability. (See $UAmerican Automobile Insurance Co. v. Transport Indemnity Co.$O (1962) 200 Cal.App.2d 543, 544.) This conclusion is further buttressed by the Court's holding that the rights and obligations of insurers covering the same loss is based on equitable principles rather than the strict language of the policy, including the "other insurance" clauses. Even if the validity and collectibility of "other insurance" were not at issue, it would place an unreasonable burden on the insureds to require that they obtain contribution for each of thousands of claims from numerous triggered policies.
$T3. Conclusion
$TThe Court concludes that, even if the "other insurance" clauses were assumed to have some application here, these clauses do not limit the liability of the insurers to the insured. When more than one policy is triggered by a claim, the policyholder may select one insurer for complete defense and indemnity of the claim, subject to policy limits. Alternatively, the policyholder may select an insurer to pay a portion of such costs, such portion to be determined in accordance with the methods of allocation described in this decision. The targeted insurer or insurers shall have the right and the burden to obtain contribution from other policies triggered by the same claim.
$TC. The Effect of Settlements on the Allocation of Liability Among Insurers Covering the Same Claim
$T1. Introduction
$TThere is evidence before the Court that the policyholders and certain insurers entered into settlement agreements. One of the issues raised by the settlements is whether (1) the terms and conditions of the settlements define any "other insurance" available to the policyholder, or (2) the settlements are irrelevant in determining the obligations of the non-settling insurers.
$TThe policyholders contend that the settlements establish the amount of "other insurance" and the method of exhaustion of the limits that is now available under the settled policies. The non-settling insurers, as well as some settling insurers, contend that the non-settling insurers' share of liability is to be determined as if there were no settlements. The settling insurers contend that, in any event, the settlements extinguish any rights to contribution from the settling insurers. The Court concludes that the settlement agreements are reasonable, good faith settlements and that the settlements determine the "other insurance" available for the payment of claims for purposes of contributi on among insurers.
$T2. Good Faith
$TBefore determining the effect of the settlements, the Court must determine whether the settlements are reasonable, good faith settlements.
$TThe settlement known as the "Wellington Agreement" is in evidence as T.E. 2508 (Agreement Concerning Asbestos-Related Claims). Also in evidence are copies of the signature pages from the Wellington Agreement (T.E. 2509) and a list of original subscribers to Wellington (T.E. 2510). Other settlements between the parties are in evidence as T.E. 2522 and 2523 (Fibreboard settlements with AIG and Home) and T.E. 2527 through 2538 (GAF settlements with six non-Wellington carriers).
$TA good faith settlement means more than the absence of tortious conduct. A good faith determination also must include an inquiry into the reasonableness of the settlement. (See $UTech-Bilt, Inc. v. Woodward-Clyde & Associates$O (1985) 38 Cal.3d 488, 498-499.) This evaluation is to be made on the basis of information available at the time of the settlement. ( $UTech-Bilt, supra,$O at p. 499; see also $UIsaacson v. California Insurance Guarantee Association$O (1988) 44 Cal.3d 775, 793, mod., $=L00277000044001090A001090 44 Cal.3d 1090A.)
$TAccording to $UTech-Bilt, supra,$O 38 Cal.3d at pp. 499-500, in determining whether a settlement between a joint tortfeasor and a plaintiff is in "good faith" for the purposes of Code of Civil Procedure section 877.6, the burden of proof is on the party asserting lack of good faith. However, under $UIsaacson, supra,$O 44 Cal.3d at pp. 793, 794, in determining whether a settlement between an insured and a plaintiff is reasonable in a later action for reimbursement from the insurer, the burden of proof is on the insured. Since the Wellington Agreement involves settlements among and between producers and insurers, as well as settlements of underlying claims, the principles of both $UTech-Bilt$O and $UIsaacson$O would appear to apply to the settlement issues in this case. However, since $UIsaacson$O involves contractual obligations of insurers, rather than tort liability, the Court will assume the burden of proof is on the insureds to show that the Wellington Agreement is a reasonable, good faith settlement.
$TWith respect to the Fibreboard settlements with AIG and Home and the GAF non-Wellington settlements, the only evidence before the Court is the settlement agreements themselves. No evidence was presented, nor any argument made, that these agreements are not reasonable, good faith settlements. The terms of the agreements set forth the amounts available for claims, the timing of payments, and defense obligations. The agreements also include provisions regarding deductibles or self-insured sums and allocation of liability among insurers. The Court finds that these agreements are reasonable, good faith settlements.
$TWith respect to the Wellington Agreement, evidence was presented in addition to the agreement itself. The main focus of the evidence and the main attack on the Wellington Agreement related to the producer allocation formula.
$TLarry A. Pulkrabek, general counsel for Armstrong, testified on behalf of some of the policyholders. Mr. Pulkrabek testified about the circumstances in which the Wellington Agreement came into existence, the benefits of the Wellington Agreement, and the purpose of the producer allocation 
formula. Doctor William E. Wecker testified on behalf of the non-settling insurers. Dr. Wecker has a Ph.D. in statistics and is a professor of management at the University of California at Davis. Within the field of statistics, Dr. Wecker's research activities are concentrated on "time series analysis." Dr. Wecker testified about inaccuracies of the producer allocation formula as compared to what producers would pay under the tort system.
$TNegotiations between producers of asbestos products and insurers began in 1982 in response to the problems associated with massive, nationwide litigation of asbestos bodily injury claims. During the period the Wellington Agreement was being negotiated, producers of asbestos were faced with literally tens of thousands of bodily injury claims by workers, as well as cross-claims by co-defendants in the underlying cases. In addition, there were numerous and major coverage disputes between producers and insurers. After several years of negotiations, the Wellington Agreement was executed on June 19, 1985. There were 47 original signatories to Wellington, including both insurers and producers. Any other producer or insurer could become a signatory to the agreement.
$TThe purposes of the Wellington Agreement were to resolve the numerous coverage disputes between and among insurers and producers, to resolve the cross-claims among producers, and to reduce the costs of litigation. According to the agreement itself, the subscribers to Wellington desired to take reasonable and practical steps "to ensure the expenditure of funds for the reasonable payment of meritorious claims at reasonable processing costs." (T.E. 2508 at p. 1.)
$TTo this end, the subscribing members of Wellington agreed to establish a non-profit organization, the Asbestos Claims Facility, which would administer, evaluate, settle, pay or defend all asbestos-related claims against the subscribing producers and insurers. The Wellington Agreement sets forth standards for the handling of claims by the facility. The facility is governed by a board of directors which contains an equal number of producers and insurers.
$TSettlement of the cross-claims among producers was essential to the consolidation of the handling of asbestos claims into a single entity. In order to achieve such a settlement, producers agreed to pay a percentage of all claims, whether or not they were named in a claim. The mechanism by which liability on each asbestos-related claim is allocated among producers is the producer allocation formula. The Court does not have before it the percentage that each producer pays, but rather the formula from which the numbers are derived. The percentage allocation is computed based on the number of open and closed claims for each producer as of September 30, 1983 and the amount paid or owing on closed claims.
$TDr. Wecker testified that the producer allocation formula is inaccurate in that it does not replicate the tort system. A major source of inaccuracy, according to Dr. Wecker, is the requirement that producers pay on claims in which they are not named. Dr. Wecker testified that the formula assumes that the frequency with which a producer is named in a claim will not change over time. If new categories of claims arise which apply to a particular producer, the frequency with which that producer is named would increase, and there would be a corresponding decrease in the frequency with which other producers are named. Mr. Pulkrabek testified that there were new categories of claims and that some producers and insurer s have expressed concern regarding their Wellington share.
$TAssuming that the formula has resulted over time in differentials between what producers would pay under the tort system and what producers are paying under Wellington, it does not follow that the producer allocation formula is unreasonable. The Court must evaluate the settlement at the time it was made. It is clear to the Court that at the time the Wellington Agreement was executed, the producer allocation formula was intended to replicate what producers would have paid on claims outside of Wellington. Mr. Pulkrabek testified that Armstrong, for example, looked very hard at the formula and determined that Armstrong's liability would not increase under Wellington. This is borne out by the formula itself, which determines each producer's share on the basis of the producer's litigation experience over the years prior to September 30, 1983. Although a producer pays on all claims, whether or not that producer is named in a particular claim, it is equally true that other producers pay on claims in which they are not named and thus pay a proportionate share of the named producer's liability. In addition, the Court finds that defense costs were reduced substantially by the Wellington Agreement. Given the circumstances in which the Wellington Agreement was executed, the producer allocation formula clearly meets the standard of reasonableness.
$TThe Wellington Agreement represents a unique solution to an unprecedented litigation problem. Given the lengthy negotiations between insurers and producers preceding the execution of the agreement, the procedures and standards set up for handling claims, and the allocation formulas incorporated in the agreement, the Court is convinced that the Wellington Agreement represents a reasonable, good faith settlement among the subscribing insurers and producers.
$T3. Effect of Settlements
$TAt the outset, the Court notes that this issue relates only to the effect of settlements on the operation of the "other insurance" clauses or contribution rights among the insurers when multiple policies are triggered by a claim. This issue does not relate to the effect of settlements by an underlying insurer on the obligations of a non-settling excess insurer. That issue is not a "reserved scope" issue (see Phase III Decision pp. 65-66) and has not been raised by the parties.
$TThere are no California cases which deal with the effect of a settlement between one insurer and the insured on the allocation of liability among insurers covering the same loss. $UKaiser Foundation Hospitals v. North Star Reinsurance Corp.$O (1979) 90 Cal.App.3d 786, and $UHome Indemnity Co. v. Mission Insurance Co.$O (1967) 251 Cal.App.2d 942, are both cited as support for the argument that a settlement between one insurer and the insured is not determinative of the rights and obligations of a non-settling insurer.
$TIn $UKaiser Foundation Hospitals v. North Star Reinsurance Corp., supra,$O 90 Cal.App.3d 786, North Star, an excess insurer, challenged the dates of loss of malpractice claims which were agreed to by Kaiser and Lloyd's, its primary carrier, and which resulted in the exhaustion of primary limits. The court held that North Star had the right to present evidence with respect to the proper allocation of the dates of loss.
$TIn $UHome Indemnity Co. v. Mission Insurance Co., supra,$O 251 Cal.App.2d 942, the court determined the rights and obligations of insurers covering an automobile accident. A claim was settled for $ 40,000, of which $ 9,000 was paid by Tower Indemnity and $ 31,000 by Home Indemnity. Home sought reimbursement from Mission Insurance, a third insurer. The court found that the Tower policy was primary, the Mission policy was excess, and the Home policy was triggered, if at all, only after the Mission policy was exhausted. ( $UId.$O at p. 965.)
$TMission contended that its policy was not triggered because, by the terms of the settlement, the Tower policy, with limits of $ 10,000, was not exhausted. The court rejected Mission's contention. Even though Tower settled and was dismissed from the case, "$(t$)he compromise does not preclude a determination of the rights and obligations of the dismissed parties insofar as those rights and obligations are material to the matters remaining at issue." ( $UHome Indemnity v. Mission, supra,$O 251 Cal.App.2d at p. 966.) The court concluded that if Tower were still in the case, it would be liable to Home for $ 1,000 and, therefore, Home was entitled to reimbursement of $ 30,000 from Mission.
$T$UKaiser$O and $UHome Indemnity$O are inapposite to the issue before the Court. Both cases involve the effect of settlements by primary carriers on excess coverage. Under the terms of an excess policy, coverage attaches only after a predetermined amount of primary coverage has been exhausted. ( $UOlympic Insurance Co. v. Employers Surplus Lines Insurance Co.$O (1981) 126 Cal.App.3d 593, 598.) The issue in this case is the allocation of liability among policies at the same level of coverage. The policies here were issued over a period of years and, unlike excess policies, were not issued in contemplation of one another.
$TAdditionally, in $UKaiser,$O North Star charged that the dates of loss were allocated negligently and fraudulently by Kaiser and Lloyd's. The court held that North Star was entitled to present evidence on this issue. Here, the insurers have had the opportunity to present evidence on whether the agreements entered into are good faith, reasonable settlements.
$TOf the out-of-state cases cited by the parties, the facts of $UCooper Industries, Inc. v. Aetna Casualty & Surety Co.$O (Ct. of Com.Pl. Merced County, Pa. 1985, No. 374) are most analogous to this case. Cooper Industries filed a declaratory relief action against 36 of its primary and excess insurers, seeking contamination clean-up costs and costs of defense. Two of Cooper's insurers settled with Cooper and filed a motion to dismiss all cross-claims against them. The non-settling insurers opposed dismissal because they believed that such action would substantially diminish their legal rights. Noting the strong judicial policy in favor of settling lawsuits, the court granted the motion to dismiss.
$TThe court concluded that the settlements had no effect on the liability of the non-settling insurers because the liability of each insurer was fixed by the face of its policy. According to the court, the effect of "other insurance" clauses is that only a pro rata share of the loss may be recovered by the insured from each insurer. Since there is not any way an insurer can be held liable for more than its pro rata share, no right of contribution arises. ( $UCooper, supra,$O Ct. of Com. Pl., Merced County, Pa., 1985, No. 374, at p. 9.)
$TIn
 $UJames B. Lansing Sound, Inc. v. National Union Fire Insurance Co.$O (9th Cir. 1986) 801 F.2d 1560, the Ninth Circuit Court of Appeals, applying what it perceived to be California law, ruled on the effect of a settlement on the allocation of liability between two insurers. In $UJames B. Lansing,$O two insurers, INA and National, covered the same loss. Both policies contained excess "other insurance" clauses. INA settled with the insured, JBL, and JBL sued National for the remainder of its damages.
$TJBL argued that the rule of proration only applies to actions between insurers and cannot permit an insurer to defeat its liability to an insured. JBL contended that once INA settled with JBL, National became liable for any amount not covered by the settlement. The court rejected JBL's contentions and held that National's liability must be prorated according to the amount of coverage afforded. The settlement between INA and JBL was ignored in determining National's liability.
$TBoth $UCooper$O and $UJames B. Lansing$O conclude that the settlements are irrelevant in determining the non-settling insurers' share of liability. The holdings are explicitly based on the rule that "other insurance" clauses limit liability to the insured. This Court, however, has concluded that each insurer is independently liable in full for a claim, regardless of the "other insurance" clauses. Therefore, the reasoning of those cases on the issue of settlements is not applicable here.
$TAlthough $UJames B. Lansing$O purports to follow California law, this Court does not believe that California cases mandate such a result. The California cases relied upon by the federal court, $UTravelers Insurance Co. v. Transport Indemnity Co.$O (1972) 6 Cal.3d 514, and $UContinental Casualty Co. v. Pacific Indemnity Co.$O (1982) 134 Cal.App.3d 389, address the situation in which one insurer settles a claim on behalf of its insured and then seeks indemnification from another insurer covering the same loss. The interests of the insured are not at issue in either case. As stated previously, no California case has held that an "other insurance" clause limits liability to an insured. Moreover, both $UTravelers v. Transport Indemnity$O and $UContinental Casualty v. Pacific Indemnity$O involve settlements of underlying cases by insurers. In contrast, this issue involves settlements among insurers and insureds.
$TIn $UChilds v. New Jersey Manufacturers Insurance Co.$O (N.J. 1987) 531 A.2d 723, the New Jersey Supreme Court ruled on the effect of settlements on an uninsured motorist claim. Three uninsured motorist ("UM") endorsements covered an automobile accident. Each was treated as having provided primary coverage. Under a pro rata rule, each UM endorsement would be liable for one-third of the total UM liability ($ 30,000). One insurer, Allstate, settled for less than its pro rata share ($ 2,000). The issue was whether the other insurer, NJM, who had two UM endorsements, should receive a "pro rata credit" ($ 10,000) for the settlement, thus paying its pro rata share of $ 20,000, or whether NJM's liability would be reduced only by the amount of the settlement ($ 2,000), thus paying $ 28,000.
$TThe court held that NJM was liable for the full amount of the loss in excess of the settlement. Thus, NJM's liability was $ 28,000, even though absent a settlement it would have been only $ 20,000. The court's reasonin g was that the purpose of the UM legislation is to make the victim whole. If a pro rata credit is allowed for a settlement, this would result in undercompen-sation or overcompensation, depending on whether the settlement is unfavorable or favorable to the victim. ( $UChilds, supra,$O 531 A.2d at p. 727.)
$TAlthough $UChilds$O involved joint tortfeasors and uninsured motorist coverage, the Court finds its reasoning and result persuasive in this case for several reasons. First, if the Court were to adopt the holdings of $UCooper$O and $UJames B. Lansing,$O as some insurers urge, the policyholders could be undercompensated or overcompensated for claims, depending on the amount of the settlement. This is because the non-settling insurers' share of liability would be fixed according to what all triggered policies would pay under the Court's decision on allocation of liability, regardless of the amount of any settlement. Each insurer would be allocated a pro rata share of the loss based on policy limits.
$TIf a policyholder settled with an insurer for less than that insurer's "pro rata share," the policyholder would be responsible for the difference, even though a claim may trigger multiple policies, each of which is independently liable for the loss. The existence of "other insurance" clauses and reasonable, good faith settlements with some insurers should not be permitted to defeat coverage that the policyholder is entitled to receive and that the insurer is obligated to pay.
$TOn the other hand, if a policyholder settled with an insurer for more than that insurer's "pro rata share," the policyholder would receive more than the actual loss represented by a claim. This result is precisely what the "other insurance" clauses were originally designed to prevent and is contrary to policy language which states that an insurer will pay for all sums which the insured is legally obligated to pay as damages. (Although the policyholders appear to assert that the obligations of a non-settling insurer cannot be reduced because of a favorable settlement, the Court rejects this assertion. In no event can an insured receive more than full recovery for a claim.)
$TAnother difficulty with the approach of $UCooper$O and $UJames B. Lansing$O is that it is impossible to know what the share of the settling insurers would have been if not for the settlements. Issues which otherwise would have been litigated were resolved by the settlements. If this Court were to conclude that the allocation of liability among insurers was to be determined as if there were no settlements, the result would be further uncertainty and continuing litigation.
$TThe Court finds it equally unacceptable to hold that a non-settling insurer may seek contribution from a settling insurer on the basis that the settling insurer would have paid more absent the settlement. Strong public policy favors the settlement of litigation. ( $UPhelps v. Kozakar$O (1983) 146 Cal.App.3d 1078, 1082.) Settlements promote peace and reduce the expense of litigation. ( $UFisher v. Superior Court$O (1980) 103 Cal.App.3d 434, 441.) It would greatly discourage settlements to hold that an insurer who enters into a reasonable, good faith settlement with its insured must thereafter pay more or differently from that agreed to in the settlement. The specter of increased litigation among insureds and their insurers becomes particularly ominous when one recognizes that this ca se, involving numerous policyholders and insurers, has been in trial for more than four years.
$TMoreover, no case cited by any party holds that an insurer who has settled in good faith must pay more or differently from that which was agreed to by the settlement. Such a holding would clearly contradict public policy favoring settlements. In order to ensure that the policyholder is compensated in full for claims within policy limits and to encourage settlements, the settlement agreements must be determinative of the amount of "other insurance" that is now available under the settled policies.
$TThe non-settling insurers contend that such a result allows the settlement, to which the non-settling insurer was not a party, to abrogate the rights of the non-settling insurer. The Court rejects this contention. An insurer has no vested right in the policy of another insurer which provides coverage for a different period of time. There is nothing in the policies which requires an insured to carry "other insurance." Furthermore, if the non-settling insurer's policy were the only policy triggered by a claim, the non-settling insurer would be liable in full for the claim, subject to applicable limits. Any settlements between a policyholder and other insurers serve only to reduce the amount that the non-settling insurer is otherwise obligated to pay.
$TThe Court also notes that no evidence has been presented to this Court to indicate that any of the settlements is in fact for less than what the policies would have paid but for the settlements. While a settlement may be for less than what a policy would have paid under the Court's allocation scheme, it may also be for more. This would correspondingly reduce the share that the non-settling insurer would have paid had there been no settlements.
$T4. Conclusion
$TThe Court concludes that the settlement agreements in evidence are reasonable, good faith settlements. The settlements establish the amount of "other insurance" and the method of exhaustion of limits that is now available under the settled policies to pay for asbestos bodily injury claims.
$TD. The Effect of the Wellington Agreement on the Liability of the Policyholders
$TThe policyholders contend that their "liability" for asbestos-related bodily injury claims is determined by the Wellington Agreement producer allocation formula and that the non-settling insurers are obligated to pay that liability. Some non-settling insurers contend that the producer allocation formula is unreasonable and does not define the policyholders' legal liability. The non-settling insurers suggest that they are entitled to evaluate each of the many claims which have been settled by the Asbestos Claims Facility in order to determine the legal liability of the policyholders. The Court concludes that the amounts paid by the policyholders pursuant to the producer allocation formula are presumptive evidence of the legal liability of the policyholders for asbestos-related claims.
$TIn $UIsaacson v. California Insurance Guarantee Association$O (1988) 44 Cal.3d 775, mod., $=L00277000044001090A001090 44 Cal.3d 1090A, the California Supreme Court determined the effect of a settlement of an underlying claim on the legal liability of an insured. In $UIsaacson,$O two doctors were sued by a patient for malpractice. The doctors' insurer assumed their defense. The insurer was later adjudged insolvent and the California Insurance Guarantee Association ("CIGA") assumed the doctors' defense pursuant to Insura nce Code section 1063.2.
$TThe malpractice case was settled for $ 500,000. CIGA paid $ 400,000, which was the maximum amount it offered to settle. The doctors, concerned that they would be liable beyond CIGA's $ 500,000 limit if the case proceeded to trial, paid the additional $ 100,000. The doctors then sued CIGA for reimbursement of the $ 100,000 that they had paid to settle the claim.
$TCiting prior California insurance cases, the court stated that if an insurer wrongfully fails to provide coverage or a defense, and the insured settles a claim, the insured is given the benefit of an evidentiary presumption. Under those circumstances, a reasonable settlement made by the insured may be used as presumptive evidence of the insured's liability on the underlying claim in a later action against the insurer for reimbursement. ( $UIsaacson, supra,$O 44 Cal.3d at p. 791.) Where there is no denial of coverage or refusal to defend, failure to accept a reasonable settlement offer results in a presumption that the amount of the settlement is determinative of the legal liability of the insured. ( $UId.$O at p. 792; see also $UJohansen v. California State Automobile Assn. Inter-Insurance Bureau$O (1975) 15 Cal.3d 9, 14-17.)
$TIn $UIsaacson,$O the situation in which an insurer fails to defend or indemnify is distinguished from the situation in which an insurer fails to accept a reasonable settlement by the burden of proof. In order to establish failure to accept a reasonable settlement, the burden is on the insured to show that the settlement was reasonable. ( $UIsaacson, supra,$O 44 Cal.3d at pp. 793, 794.)
$TThe court found that there was no denial of coverage or refusal to defend by CIGA. The court held that the insureds failed to "offer evidence of sufficient substantiality" that CIGA refused to accept a reasonable settlement offer when it rejected the $ 500,000 settlement demand. Therefore, the insureds were not entitled to reimbursement for their $ 100,000 contribution. ( $UIsaacson, supra,$O 44 Cal.3d at p. 794.)
$TAlthough $UIsaacson$O did not involve a private insurer, CIGA's obligation to pay and defend claims was defined by the terms of the underlying insurance policy. The court relied on the contractual duties of private insurers to determine the scope of CIGA's statutory duties. Consequently, this Court finds that the legal principles of $UIsaacson$O apply to cases involving private insurers.
$THowever, the facts of $UIsaacson$O are distinguishable from this case. In $UIsaacson,$O the court found that it was not clear from the evidence that the doctors were negligent in the underlying case. Here, the policyholders have been held liable for asbestos-related bodily injury claims. In addition, CIGA assumed the doctors' defense and never denied coverage. CIGA also participated in the final settlement by paying $ 400,000. In this case, no determination has as yet been made as to whether the non-settling insurers wrongfully refused to defend or indemnify claims. However, it is clear that the insurers were disputing defense and coverage obligations at the time that the policyholders entered into the Wellington Agreement. The policyholders in this case have "offered evidence of sufficient substantiality" that the Wellington Agreement is reasonable, and that the non-settling insurers had the opportunity to join Wellington b ut declined to do so. ($UAnte$O at pp. 43-48.)
$TIn $UIsaacson,$O the court evaluated the reasonableness of the settlement of the underlying claim in determining whether the insureds were entitled to a presumption of liability. Here, there is no evidence before the Court regarding the specifics of the settlements of the underlying claims. However, in the unique context of this case, the Court finds that the principles of $UIsaacson$O are applicable to the producer allocation formula and to the ongoing process of claims handling by the Asbestos Claims Facility as set forth in the Wellington Agreement. It would place an unreasonable burden on the policyholders and on the judicial system to allow the non-settling insurers to revisit the merits of the many claims which have been settled by the facility since its inception. Moreover, the insureds have offered no evidence of bad faith or unreasonableness in the facility's handling of the underlying claims.
$TUnder the circumstances of this case, the Court finds that the amounts paid by the policyholders pursuant to the producer allocation formula as set forth in Appendix A-1 to the Wellington Agreement (T.E. 2508) are presumptive evidence of the policyholders' liability. Since the insurers have failed to offer sufficient evidence to rebut this presumption, the Court concludes that the insurers are obligated to reimburse the policyholders for their liability for asbestos-related claims as defined by the producer allocation formula, subject to the contribution principles set forth in this decision.
$TE. The Selection of Primary and Excess Policies to Respond to Claims
$TUnder the Phase III Decision, a claim may trigger multiple policy periods. This raises the question of whether (1) excess coverage is triggered only when all primary policies triggered by a claim are exhausted (exhaustion by layers), or (2) excess coverage for a particular year is triggered when the primary coverage for that year is exhausted, even though primary coverage in other years may still be available (exhaustion by years). This issue has been referred to as the "excess drop-down" issue by some of the parties.
$TThe policyholders contend that when a claim encompasses both periods of unexhausted primary policies and periods in which the primary coverage has been exhausted but excess policies are available above this exhausted level, the policyholder should have the right to continue to draw upon its primary coverage for full payment of the claim if this will tend to maximize coverage. The excess insurers contend that exhaustion should be by layers. This method serves to delay payment by excess carriers. The primary insurers contend that exhaustion should be by years. This means that policies which are excess to exhausted primary policies will drop down and share in defense and indemnity with unexhausted primary policies.
$TThe Court concludes that excess coverage is triggered only when all primary policies triggered by a claim are exhausted, with the exception of primary policies without aggregate limits. This result is supported by both California case law and equitable considerations.
$TIn $UOlympic Insurance Co. v. Employers Surplus Lines Insurance Co.$O (1981) 126 Cal.App.3d 593, two primary policies and several excess policies covered a mid-air collision between two aircraft. The issue before the court was the allocation of liability between the two primary policies, Pacific and INA, and an Employers excess policy. The Pacific policy provided coverage to $ 20,000 and the INA policy provided coverage to $ 1 million. Both policies contained excess "other insurance" clauses. The Employers excess policy was written to cover liability in excess of $ 20,000.
$TThe court first concluded that the excess "other insurance" clauses in the two primary policies were irreconcilable and, therefore, the loss should be prorated on the basis of aggregate limits. The court then turned to the issue of whether the Employers excess policy was required to contribute along with the primary policies to a $ 495,000 settlement. The court held that Employers was not liable for any portion of the loss because the primary coverage was not exhausted by the settlement.
$=S$%$?$%A secondary policy, by its own terms, does not apply to cover a loss until the underlying primary insurance has been exhausted. This principle holds true even when there is more underlying primary insurance than contemplated by the terms of the secondary policy. ( $UOlympic, supra,$O 126 Cal.App.3d at p. 600.)$=I
$TAfter reviewing the holdings of California cases with similar facts, the court reiterated that "liability under a secondary policy will not attach until all primary insurance is exhausted, even if the total amount of primary insurance exceeds the amount contemplated in the secondary policy." ( $UOlympic, supra,$O 126 Cal.App.3d at p. 600.)
$T$UOlympic$O thus supports, and perhaps compels, the conclusion reached by this Court. (See also $UAssociated International Insurance Co. v. Bullard,$O (Super.Ct. Santa Clara County, 1988, No. 530754) $(silicosis case in which court cites $UOlympic$O in support of its holding that excess policies cannot be reached until all primary policies are exhausted$).)
$TEquitable considerations also favor exhaustion by layers. Exhaustion by layers maximizes coverage. Excess policies generally pay defense costs which reduce aggregate limits, while primary policies pay defense costs in addition to limits. Year-by-year excess drop-down would require the policyholder to use up aggregate limits of excess policies on defense while primary policies remain unexhausted. However, since policies which contain no aggregate limits will theoretically never exhaust, equitable considerations lead the Court to conclude that excess policies shall drop down when all primary policies which contain aggregate limits are exhausted.
$TThe primary insurers have argued that exhaustion by layers results in a windfall to excess insurers. Even though an excess policy may be written to cover liability in excess of a particular primary policy, the excess policy would not be triggered if primary coverage in other years is available. However, as the $UOlympic$O court stated, "the result is no more inequitable than when a primary insurer, contracting to cover all losses up to a certain limit, finds that a second primary policy has been written, with the result that each primary insurer is liable for only a pro rata share of the loss rather than the entire loss as contemplated by the contract." ( $UOlympic, supra,$O 126 Cal.App.3d at p. 601.)
$TThe Court concludes that excess coverage is triggered only when all primary policies with aggregate limits are exhausted, except in the situation in which a particular claim exhausts the "per occurrence" limit of a triggered primary policy, provided that the excess policy contains provisions which require it to pay upon exhaustion of the "per occurrence" 
limit of the underlying policy. Those policies which contain no aggregate limits shall share in defense and indemnity costs with excess policies which have dropped down in accordance with this decision.
$TF. "Stacking" of Policy Limits
$TMost of the policies in this case contain "per person" limits, "per occurrence" limits, and annual "aggregate" limits. Where one claim exceeds the "per person" or "per occurrence" limits of a triggered policy, the issue arises as to whether the limits of more than one triggered policy are collectively available for payment of the claim. This is referred to as the "stacking" of policy limits.
$TThe policyholders state that as far as they are aware, no single asbestos claim incurred by any of them has exceeded the smallest "per person" or "per occurrence" limits. (See Opening Phase IV Brief of the Policyholders on Reserved Scope of Coverage and Defense Issues at p. 49.) However, two insurers, Pacific Indemnity and Commercial Union, have raised the issue of stacking of policy limits. The Court concludes that the stacking of "per person" or "per occurrence" limits is not allowed.
$TIn Phase III, the Court held that every triggered policy has an independent obligation to respond in full to a claim. (Phase III Decision at p. 64.) However, that does not entitle an insured to get more than it bargained for. According to the plain language of the policies, the insured is entitled to coverage up to a particular "per person" or "per occurrence" limit as defined in each policy. The policyholder cannot reasonably expect more simply because asbestos-related claims trigger more than one policy. As the court stated in $UKeene Corporation v. Insurance Company of North America$O (D.C. Cir. 1981) 667 F.2d 1034, 1049: 
$=S$%$?$%The principle of indemnity implicit in the policies requires that successive policies cover single asbestos-related injuries. That principle, however, does not require that Keene be entitled to "stack" applicable policies' limits of liability. To the extent possible, we have tried to construe the policies in such a way that the insurers' contractual obligations for asbestos-related diseases are the same as their obligations for other injuries. Keene is entitled to nothing more. Therefore, we hold that only one policy's limits can apply to each injury.$=I
$TWhen multiple policies are triggered by a claim, the insured may select the policy under which it is to be indemnified. The limits of the selected policy shall apply to the claim. (See $UKeene, supra,$O 667 F.2d at pp. 1049-1050.)
$TG. Parties Bound by the Phase III Decision Regarding Defense Obligations
$TThe issue of which parties are bound by the Phase III rulings on defense obligations was reserved for Phase IV. (Phase III Decision at pp. 79-80.)
$TThe Court has concluded that the settlements determine the amount of "other insurance" available for the payment of claims for the purposes of allocation among insurers. ($UAnte,$O at p. 56.) This decision also applies to defense obligations. Therefore, the Court need not address the issue of defense obligations of settled policies in this phase.
$TH. Right to Control Defense
$TTwo insurers have raised issues concerning the right to control defense. Pacific Indemnity asserts that under its 1956-1957 primary policy issued to Fibreboard (T.E. 131), Pacific Indemnity has the right to control the defense of claims "tendered" to Pacific Indemnity. Pacific Indemnity states that this issue has not yet ari sen because Fibreboard has tendered its claims to the Asbestos Claims Facility. There does not appear to be any dispute raised here regarding the right to control the defense of claims tendered to the insurer. Therefore, the Court does not reach this issue.
$TAIG contends that under the American Home 1972-1973 excess policy issued to Armstrong (T.E. 480), AIG has the right to control the defense of claims against Armstrong, and if AIG is denied that right by Armstrong's participation in the Wellington Agreement or otherwise, AIG has no obligation to pay defense costs which are payable in addition to applicable policy limits. Armstrong contends that AIG should not be allowed to evade its defense obligations because of Armstrong's participation in the Wellington Agreement. By adding defense costs incurred thereunder against applicable policy limits, the Court concludes that the fact that claims have been tendered to the Asbestos Claims Facility under the Wellington Agreement rather than to individual insurers shall not relieve an insurer from its obligations to pay defense costs.
$TThe American Home policy (T.E. 480) incorporates the terms and conditions of an INA policy issued to Armstrong (T.E. 504(4)). The relevant language in section (2) of the insuring agreement provides:
$=S$%$?$%$(The insurer$) will (a) have the right and duty to defend any suit against the Insured . . . and may make such investigation and settlement of any claim or suit as it deems expedient . . . .$=I
$%$?$%Condition 3(c) provides:
$=S$%$?$%The Insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense . . . .$=I
$TAccording to AIG, the plain meaning of the policy language provides that AIG has the right to defend claims against Armstrong and that AIG has no obligation to pay for defense costs voluntarily assumed by Armstrong. It is undisputed by the parties that Armstrong voluntarily joined the Wellington Agreement and that AIG, who is not a member of Wellington, does not control the defense of claims handled by the facility. It is also undisputed that if a subscribing producer chooses to withdraw from the facility, claims pending at the time of withdrawal continue to be handled by the facility.
$TThe right to control defense is a limited right. When a claim is covered by more than one policy, the insurer which assumes the defense is entitled to contribution from other insurers covering the same claim. (See, e.g., $UContinental Casualty v. Zurich Insurance Co.$O (1961) 57 Cal.2d 27; $UAetna Casualty & Surety Co. v. Certain Underwriters$O (1976) 56 Cal.App.3d 791; $UOlympic Insurance Co. v. Employers Surplus Lines Insurance Co.$O (1981) 126 Cal.App.3d 593; $UPacific Indemnity Co. v. Fireman's Fund Insurance Co.$O (1985) 175 Cal.App.3d 1191.) Where a conflict of interest exists between an insured and its insurer, the insurer has an obligation to provide independent counsel. (See $USan Diego Federal Credit Union v. Cumis Insurance Society, Inc.$O (1984) 162 Cal.App.3d 358.) 
$TThe Court finds that the circumstances of this case compel the conclusion that AIG is not released from its obligation to contribute to defense because Armstrong has tendered claims to the Asbestos Claims Facility. First, even if Armstrong tendered claims to its insurers rather than to the facility, AIG would b e required to share in defense costs incurred by other insurers pursuant to the contribution principles described in this decision.
$TSecond, it would be prejudicial to Armstrong if the Court were to allow AIG to avoid its defense obligations because Armstrong took reasonable steps to protect itself by joining Wellington. Under the Wellington Agreement, even if a producer withdraws from the facility, pending claims cannot be removed. AIG's position is also prejudicial to Armstrong's other insurers. No other insurer has asserted this argument even though many of the policies contain identical or substantially similar language. Those insurers who pay for defense costs incurred by the facility would not be able to obtain contribution from AIG for those costs.
$TThird, AIG has shown no prejudice from not controlling defense. Evidence indicates that defense costs are substantially reduced by the facility's handling of claims. The only case cited by AIG, $UHall v. Travelers Insurance Companies$O (1971) 15 Cal.App.3d 304, actually supports Armstrong's position. In $UHall,$O the insurer was released from liability for a judgment against the insured because the insured refused to cooperate in the defense of the claim. The court's holding was based on a finding of substantial prejudice to the insurer.
$=S$%$?$%$(A$)n insurer may assert defenses based upon a breach by the insured of a condition in the policy, such as the cooperation clause. But such a breach cannot be a valid defense unless the insurer was substantially prejudiced thereby, and the burden of proving that such a breach resulted in prejudice is on the insurer. ( $UId.$O at p. 308.)$=I
$TIn order to establish prejudice, an insurer "must establish at the very least that there was a substantial likelihood the trier of fact would not have found in the insured's favor." ( $UHall, supra,$O 15 Cal.App.3d at p. 308 quoting $UBillington v. Interinsurance Exchange$O (1969) 71 Cal.2d 728, 737.) Here, AIG has demonstrated no such prejudice.
$TFinally, it would be contrary to the public policy favoring settlements to find that AIG could avoid its defense obligations because Armstrong entered into a reasonable, good faith settlement at a time when many of its insurers, including AIG, were disputing their defense obligations.
$TIn the Fibreboard case, Pacific Indemnity and Continental Casualty also appear to contend that they are excused from any obligation for defense costs because Fibreboard's asbestos bodily injury claims initially were handled by Fireman's Fund and later were handled by the Asbestos Claims Facility pursuant to the Wellington Agreement. For the reasons discussed above with respect to AIG, the Court concludes that the provisions in the Pacific and Continental policies giving the insurer the right to control the defense do not excuse the insurer from its obligation to contribute to defense costs on claims triggering its policy that are tendered to another insurer for defense purposes. The Court further finds, as a separate and independent basis for its conclusion, that neither Pacific nor Continental timely or adequately raised any contention that their defense obligations were excused by reason of the fact that the Fibreboard claims were tendered to and handled by other insurers.
$%$?$%DATED: January 24, 1990
$TIRA A. BROWN, JR.
$TJudge of the Superior Court
$200:
SF34#$?#LS060605LEhamielrx#$?#060605PLXC0010146#$?
$220:#EXTR#$?#COORDINATIONPROCEEDING# 
$00:
$10:COORDINATION PROCEEDING, Special Title $(Rule 1550(b)$), ASBESTOS INSURANCE, COVERAGE CASES, INCLUDED ACTIONS: ARMSTRONG WORLD INDUSTRIES, INC., a corporation, Plaintiff, vs. AETNA CASUALTY & SURETY COMPANY, a corporation, et al., Defendants. AND RELATED CROSS-ACTIONS. FIREMAN'S FUND INSURANCE COMPANY, a corporation, Plaintiff, vs. FIBREBOARD CORPORATION, a corporation, et al., Defendants. AND RELATED CROSS-ACTIONS. GAF CORPORATION, a corporation, Plaintiff, vs. INSURANCE COMPANY OF NORTH AMERICA, a corporation, et al., Defendants. AND RELATED CROSS-ACTIONS.
$20:JUDICIAL COUNCIL COORDINATION PROCEEDING NO. 1072
$25:SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE CITY AND COUNTY OF SAN FRANCISCO
$40:$?$%January 24, 1990, Decided
$45:$?$%January 24, 1990, Filed
$80:LOS ANGELES SUPERIOR COURT CIVIL NO. C315367. SAN FRANCISCO SUPERIOR COURT CIVIL NO. 753885. LOS ANGELES SUPERIOR COURT CIVIL NO. C286217.
$110:IRA A. BROWN, JR., Judge of the Superior Judge.
$115:IRA A. BROWN, JR.
$120:$T$USTATEMENTS OF DECISION$O
$TSTATEMENT OF DECISION CONCERNING PHASE V-A ISSUES
$T$UTABLE OF CONTENTS$O
$%$?$%I. INTRODUCTION
$%$?$%II. POLICY LANGUAGE
$%$?$%III. THE UNDERLYING ACTIONS
$%$?$%IV. PROPERTY DAMAGE COVERAGE
$TA. INSTALLATION
$TB. RELEASE
$TC. OTHER CASES
$%$?$%V. TRIGGER
$%$?$%VI. CAUSED BY ACCIDENT
$%$?$%VII. CONCLUSION
$TBy the following Statement of Decision, this Court resolves issues raised in Phase V-A of the Asbestos Insurance Coverage Cases, Judicial Council Coordination Proceeding No. 1072 (included action: $UArmstrong v. Aetna, et al.,$O Los Angeles Superior Court No. C 315367). The Court initially issued a Tentative Decision Concerning Phase V-A Issues on August 29, 1988. Thereafter, the Court ordered the submission of proposals for the Statement of Decision, followed by the submission of a proposed decision and by the filing of objections to the proposed decision and responses thereto, all of which have been considered. This Statement of Decision is the end result of that process.
$TAs of August 29, 1988, the date of the Court's Tentative Decision in Phase V-A, the Armstrong included action involved the following adverse parties: Armstrong World Industries, Inc., Travelers Indemnity Company, Aetna Casualty and Surety Company, Reliance Insurance Company, Liberty Mutual Insurance Company, Insurance Company of North America, Continental Casualty Company, Rokeby-Johnson and Companies, Bird and Companies, Commercial Union Insurance Company, Fireman's Fund Insurance Company, American Home Assurance Company and National Union Fire Insurance Company of Pittsburgh, Pa., First State Insurance Company, Central National Insurance Company, Great American Insurance Company, Fidelity and Casualty Company, Puritan Insurance Company, U.S. Fire Insurance Company and Interstate Fire and Casualty Company. Since that date, Armstrong and Travelers have settled all coverage disputes between them. The Armstrong policies subject to this decision and their relevant provisions are set forth in Appendix C. In the following Statement of Decision, the Court will refer to the parties by the shorthand names to which they have been referred throughout this proceeding. Throughout this decision, t he Court refers to policy language typical of the language of each of the policies at issue. The specific policies and policy provisions addressed by the Court in this decision are set forth in the appendix to this decision. Except as specifically noted, there are no material differences between the standard policy language and the provisions of specific policies.
$%$?$%I. INTRODUCTION
$TPhase V is the property damage phase of the coordinated Asbestos Insurance Coverage Cases. Armstrong, the sole policyholder participating in this phase, seeks a declaration that its insurers must defend and indemnify it for any damages it must pay in the multitude of property damage cases pending against it in courts across the country.
$TAll parties waived their right to trial by jury of all Phase V issues. Hence, this Court sat as the trier of both the facts and the law.
$TThe Court notes that in Phase III the Court held that California law regarding insurance contract interpretation applied to the issues determined therein. (Phase III Statement of Decision, at pp. 8-12.) In Phase V-A no party has argued or shown that the law of any other jurisdiction applies or that the law of any jurisdiction differs from California law on these issues. The Court therefore applies California law to the Phase V-A issues.
$TProperty damage claims against Armstrong and other asbestos producers (building cases) began in the early 1980s after the federal government and others started voicing concern about the safety of asbestos-containing building material (ACBM) in buildings. At the start of Phase V there had been 163 building cases filed against Armstrong, including a number of class actions. Other building cases were either settled or had not yet matured into lawsuits. Although numerous legal theories are advanced in the building cases, the claimants generally seek compensation for the sums they must expend to eliminate the alleged health hazard of ACBM in their buildings and for the diminished value of their buildings.
$TVarious types of buildings are involved in the building cases, including schools, office buildings and private residences. ACBM has been utilized in these structures in a variety of ways. Armstrong is potentially liable primarily for its manufacture of asbestos-containing floor tile and insulation. However, there is some evidence that Armstrong may be held liable for surfacing material in isolated instances. In addition, Armstrong argues it could be held liable on a market-share basis for miscellaneous products it did not manufacture.
$TDuring the time its ACBM has been present in the buildings in question, Armstrong was insured under numerous product liability policies issued by the insurers in this phase. The issues presented in Phase V-A of the proceeding, and resolved in this decision, are whether the underlying building cases involve property damage within the meaning of the policies and, if so, when the defense and indemnity obligations of the policies are triggered. As with other issues in prior phases, these are questions of first impression in California.
$%$?$%II. POLICY LANGUAGE
$TAll of Armstrong's insurance policies contain similar language concerning property damage, with a few significant variations. Many of the policies in question are one of three versions of standard comprehensive general liability (CGL) policies. Other applicable policies either follow form to the CGL policies (most excess policies) or have substantially the same provisions.
$TThe relevant portion of the pre-1966 CGL policies provide indemnifica tion for
$=S$%$?$%. . . all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by accident.$=I
$%$?$%The later pre-1966 policies issued to Armstrong include an "occurrence" endorsement deleting the "caused by accident" language.
$TThe 1966 CGL policies read as follows:
$=S$%$?$%The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . . property damage to which this policy applies, caused by an occurrence.
$%$?$%"Damages" includes . . . damages for loss of use of property resulting from property damage.
$%$?$%"Property damage" means injury to or destruction of tangible property.$=I
$%$?$%The only new restriction included in the 1966 policies is that the property involved must be "tangible."
$TThe 1973 CGL policies read:
$=S$%$?$%The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . . property damage caused by an occurrence.
$%$?$%"Property damage" means i) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or ii) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.$=I
$%$?$%The major change in the 1973 policy is the additional requirement of physical injury contained in the property damage definition.
$TAside from the "caused by accident" language in the early policies, which will be dealt with separately, the 1973 policy contains the narrowest definition of covered property damage. It is therefore this last definition which is the most useful in determining whether the building cases involve property damage within the meaning of all of Armstrong's liability policies.
$TBecause the Court relies on the plain language of the policies in its property damage determinations, reference to the drafting history is not required. (See Phase III Statement of Decision, at p. 38.) In addition, as in Phase III, the drafting history evidence does not indicate that any meaning other than the plain meaning should be attributed to the policy language, or was intended by the parties.
$%$?$%III. THE UNDERLYING ACTIONS
$TThe threshold issue in this phase of the proceeding is the role the building cases should play in this Court's coverage determinations. Indeed, this is a crucial issue, since Armstrong introduced little evidence independent of the underlying allegations to support its position.
$TThe insurers argue that the Court must ignore the allegations of the building cases and determine independently all issues relating to property damage and its nature and timing. Armstrong, on the other hand, maintains that the underlying contentions are dispositive of the issues currently before the Court. The truth lies somewhere between the two views.
$TAs a general rule, when a coverage action proceeds to trial before the underlying action has been tried, "'the resolution of the coverage dispute thus must be accomplished by accepting as true the allegations contained in the complaint in the underlying action.' ( $UState Farm Fire & Cas. Co. v. Kohl$O (1982) 131 Cal.App.3d 1031, 1034. . . .)" ( $UUnderwriters Insurance Co. v. Purdie$O (1983) 145 Cal.App.3d 57, 64.)
$TThe reason a coverage court must rely on the underlying action has nothing to do with any "future contingent collateral estoppel" effect of that action, as some insurers suggest, but rather is based on the contractual nature of the insurance policy. A liability insurer is contractually obligated to defend the insured when a certain type of liability may be incurred, and to indemnify the insured if that liability is established. (See Ins. Code sections 22, 108; $UFraser-Yamor Agency, Inc. v. Del Norte County$O (1977) 68 Cal.App.3d 201, 213; $UGray v. Zurich$O (1966) 65 Cal.2d 263, 275.) The underlying allegations demonstrate the nature of the insured's potential liability, and therefore determine whether the insurer's duty to defend exists and whether the duty to indemnify is invoked if the insured is held liable.
$TThe Court's acceptance of the underlying contentions is subject to important qualifications, however. "$(A$)nticipating imaginative counsel and the likelihood of artful drafting," California courts have recognized that the underlying plaintiffs, third-parties to the insurance contract, should not be allowed to determine the coverage issue solely by the allegations in their pleadings. ( $UFire Ins. Exchange v. Jiminez$O (1986) 184 Cal.App.3d 437, 443 fn. 2; $UGray, supra,$O at p. 276.) Thus, the coverage court must look particularly at the facts alleged, the evidence relied upon, and the general posture of the underlying litigation to determine independently the nature of the insured's potential liability. ($USee Gray$O at p. 276.)
$TThis Court's task, therefore, is to resolve independently questions about the nature of Armstrong's potential liability starting from the factual allegations and the totality of evidence presented concerning the underlying building cases. The Court is concerned with the allegations of the building cases only to the extent they are essential to a finding of liability, and therefore probative of the insurers' contractual obligations. Irrelevant or surplus allegations are not determinative of the coverage issues.
$%$?$%IV. PROPERTY DAMAGE COVERAGE
$TCareful examination of the underlying complaints reveals that the underlying plaintiffs are demanding compensation for physical injury to tangible property. Thus, their claims are for covered property damage under all of Armstrong's policies.
$TIn many cases the nature of the underlying claim has been determined explicitly by the underlying court. Most of these courts hold that the complaints allege property damage under tort law principles, which generally require physical as opposed to economic harm. ($USee, e.g., Board of Education of the School Dist. of the City of Detroit v. The Celotex Corp.$O (Cir. Ct. Wayne Cty., Mich., Feb. 1, 1988) No. 84-429634 NP; $UCity of Manchester v. National Gypsum Co.$O (D.R.I. 1986) 637 F.Supp. 646.) Although these cases involve issues slightly different from the property damage coverage issue, they provide strong support for this Court's legal interpretation of the underlying actions.
$TAllegations that walls, upholstery, fixtures and other building surfaces or spaces have been contaminated by asbestos fibers are equivalent to allegations that a hazardous material has been released from ACBM. Some complaints, however, allege only that ACBM has been installed and do not allege that ACBM has been released or disturb ed. Allegations of potential release or disturbance are not allegations of actual release or disturbance.
$TThe building cases seek compensation for the damage caused by ACBM, including the costs of removing and/or maintaining the ACBM in their buildings. All ACBM-related damages alleged in the complaints result from (1) the installation of ACBM, or (2) the release and reentrainment of asbestos fibers and material. Both occurrences constitute property damage within the meaning of the policies.
$TA. INSTALLATION
$TWhether the incorporation of ACBM in a building can constitute property damage has not been addressed by California courts to date. Under California law generally, incorporation of a defective product is considered property damage for insurance coverage purposes if it results in a diminution in value of the larger property. ( $UGeddes & Smith, Inc. v. St. Paul Mercury Indemnity Co.$O (1959) 51 Cal.2d 558, 565 $U(Geddes I); Economy Lumber Co. v. Insurance Co. of North America$O (1984) 157 Cal.App.3d 641, 649.)
$TIn $UGeddes I$O a contractor recovered from a supplier's insurer after the supplier had provided defective doors which malfunctioned after they were installed. Citing $UHauenstein v. St. Paul Mercury Indemnity Co.$O (Minn. 1954) 65 N.W.2d 122, the court held that there was property damage to the house because the doors lowered the market value of the house. ( $UGeddes I, supra,$O at pp. 565-566.) Similarly, in $UEconomy Lumber,$O the court ruled that installation of defectively milled lumber constituted property damage to the building within the meaning of the supplier's policy because of the diminution in the value of the building which resulted. ( $UEconomy Lumber, supra,$O at p. 650.)
$TThe insurers argue that this Court should follow the rule of $UHamilton Die Cast, Inc. v. United States F&G Co.$O (7th Cir. 1975) 508 F.2d 417. Analyzing whether defective tennis racket frames caused property damage to the completed rackets, the Seventh Circuit held, "$(w$)e do not think that the mere inclusion of a defective component, where no physical harm to the other parts results therefrom, constitutes 'property damage' within the meaning of the policy." ( $UHamilton Die, supra,$O at p. 419.) Although $UHamilton Die$O is a minority view, it has been cited and followed to some extent in California. ($USee St. Paul Fire & Marine Insurance Co. v. Coss$O (1978) 80 Cal.App.3d 888, 892-893.) This minority view is not binding on the Court to the extent it is contrary to $UGeddes I,$O a California Supreme Court opinion.
$TThe Court follows Economy Lumber's explanation of the distinctions between $UGeddes I$O and the cases requiring physical harm to the larger product. ($USee, e.g., Coss, supra; Rafeiro v. American Employers' Ins. Co.$O (1970) 5 Cal.App.3d 799.) The $UEconomy Lumber$O court pointed out the California cases requiring physical harm generally involved contractors and contractors' liability policies in situations where the contractor was liable in the underlying suit for defective workmanship and materials. ( $UEconomy Lumber, supra,$O at pp. 650-651.) In the con tractor situation, courts were concerned about turning property damage policies into malpractice/breach of contract policies. ( $URafeiro, supra,$O at p. 808.) These concerns do not apply to suppliers who have less responsibility over the larger product. $UEconomy Lumber$O therefore held a supplier need only show that the incorporated product diminished the value of the larger property in order to qualify for indemnity under a property damage policy. ( $UEconomy Lumber, supra,$O at p. 650.) 
$TIn this case physical harm to the buildings in question is not required for incorporation of Armstrong's ACBM to be considered property damage. Armstrong has been a manufacturer and supplier of ACBM and not a contractor for the underlying plaintiffs. Therefore, although it is arguable that ACBM has caused physical harm to the larger building structure, all that needs to be shown for property damage coverage is diminution in value. n1 Asbestos-containing buildings have clearly suffered diminished value.
$F$Tn1 Although diminution in value is used as a test and a measure for property damage, the actual property damage can occur before the value of the larger property is diminished. ($USee, e.g., Geddes & Smith, Inc. v. St. Paul Mercury Indemnity Co.$O (1965) 63 Cal.2d 602, 605 ($UGeddes II$O).) In fact, as discussed later in the text, diminution of value is not itself actual property damage.$E
$TCarriers using the 1973 form maintain that even if it is some type of property damage, incorporation of a defective product is not physical injury to property. The Court disagrees. $UEconomy Lumber$O holds that incorporation without physical harm to the larger structure can constitute physical injury. In $UEconomy Lumber,$O the court found coverage in an analogous situation under a post-1973 physical injury policy. ( $UEconomy Lumber, supra,$O at pp. 646, 650.) As the only appellate case resolving the issue, $UEconomy Lumber$O is binding on this Court.
$TIn addition, it makes sense to view incorporation of ACBM as a physical injury. Once installed, ACBM is physically present in the buildings and affects them in a physical way, as opposed to an intangible, non-physical manner. n2 ($USee, e.g., American Motorists Insurance Co. v. Trane Co.$O (7th Cir. 1983) 718 F.2d 842, 844.)
$F$Tn2 Although the Court does not rely on the drafting history in this decision, testimony of drafters also indicates that the physical injury requirement was added to eliminate coverage for intangible losses. The drafters were not seeking to restrict coverage for defective product claims.$E 
$TThe insurers also argue that ACBM is not defective. If this be true, then there will be no liability in the underlying action and the insurers will not need to indemnify Armstrong. Again, the Court need not resolve in this forum whether ACBM ultimately is or is not defective. Clearly, a product which unreasonably endangers health while it functions is defective. ( $UBorel v. Fibreboard Paper Products Co rp.$O (5th Cir. 1973) 493 F.2d 1076, 1087, $Ucert. denied$O (1974) 419 U.S. 869.) It is sufficient for the purposes of this coverage action that underlying plaintiffs uniformly maintain that ACBM in their buildings is a health hazard.
$TThus, allegations in the underlying building cases concerning the installation of ACBM are allegations of "property damage" as that term is defined in all of Armstrong's liability policies.
$TB. RELEASE
$TAside from property damage occurring at the time ACBM is installed, property damage also happens at any time asbestos fiber or material is released from ACBM into the air or on surfaces of the building, and when settled releases are disturbed and reentrained into the air. As mentioned, these occurrences are alleged in the building cases in a number of ways (i.e., ACBMs "have suddenly and silently released asbestos fiber into the atmosphere"; the ceiling, walls, et cetera, "became unsafe and damaged by impregnation with asbestos fibers"; products were "highly harmful" to persons using the buildings).
$TThe alleged acts of contamination fall within the plain meaning of the property damage definitions. The release of a harmful substance onto an area is a "physical injury to tangible property." ($USee, e.g., California Union Insurance Co. v. Landmark$O (1983) 145 Cal.App.3d 462 (water seepage from pool).) The area becomes hazardous and certain measures must be taken to restore the surface to its prior condition. Release of asbestos material and fiber and reentrainment are all property damage events because each is an act of contamination which makes the building more hazardous.
$TC. OTHER CASES
$TThis Court's decision that the underlying building cases assert claims for property damage within the meaning of the policies is supported by the ACBM property damage coverage decisions of trial courts from other jurisdictions.
$TSeveral cases to date directly hold that the building cases in question involve covered property damage. ($UCarey-Canada, Inc. v. Aetna Casualty & Surety Co.$O (D.D.C. March 31, 1988) No. 85-1640, $Uslip op.; Dayton Independent School Dist. v. National Gypsum Co.$O (E.D. Tx. 1988) 682 F.Supp. 1403, $Uappeal docketed sub nom., W.R. Grace Co. v. Continental Casualty Co., Et Al.$O (5th Cir. Sept. 26, 1988) No. 88-2902; $UUnited States Fidelity & Guaranty Co. v. Wilkin Insulation Co.$O (Ill. Ct. of Appeals December 28, 1989) No. 1-87-2684, $Uslip op.$O) As the court in $UCarey-Canada$O stated, "Any doubts as to whether impregnation of buildings by asbestos causes 'property damage' have been conclusively resolved, we believe, by an emerging and nearly uniform body of case law, scientific literature, and commentary." $USupra$O (D.D.C. March 31, 1988) No. 85-1640, at pp. 13-14.
$TAlthough the Court finds that covered property damage is alleged in the underlying cases, response costs and diminution in value do not fit within the policies' definitions of property damage. Rather than actual injury to property, these items are more appropriately understood as "damages because of" property damage under the plain language of the policies. ($USee Aetna Casualty & Surety Co. v. PPG Industries, Inc.$O (D. Ariz. 1983) 554 F.Supp. 290, 293-294 (repair and removal).) Both of these losses occur as a result of other damage events, i.e., installation and release. Similarly, loss of use is a consequential damage under all pr e-1973 policies. ( $UCentral Armature Works, Inc. v. American Motorists Insurance Co.$O (D.D.C. 1980) 520 F.Supp. 283.) However, in the 1973 CGL policy loss of use is specifically defined as a type of property damage if it results from an occurrence during the policy period. (See $Uante$O at p. 5.)
$%$?$%V. TRIGGER
$THaving determined that Armstrong is entitled to defense and indemnification for claims of installation of ACBM, for claims of release of fiber or material from ACBM into the air or on surfaces of buildings, and for claims that settled releases were disturbed and reentrained into the air, the Court turns to the trigger of coverage issue. The question here is which specific policies are required to defend and/or indemnify Armstrong in the underlying claims.
$TThe Court holds that defense obligations are triggered if the allegations of the complaint or other available information would permit proof that ACBM was installed in the building, that fiber or material was released from ACBM into the air or on surfaces of the building, or that settled releases of ACBM were disturbed and reentrained into the air, during any portion of the period that the policy was in effect.
$TThe factual allegations in the complaints in the underlying cases do not all allege the same type of damage. Some complaints allege damage from release of ACBM or from disturbance of settled releases, while others do not. Moreover, the evidence presented to this Court indicates that property damage from ACBM is not always continuous. The continuous trigger adopted by this Court in the bodily injury cases was based upon a finding that bodily injury from asbestos exposure was a continuous process beginning with first exposure. Because property damage from ACBM is not always continuous, the Court cannot adopt a comprehensive "continuous trigger" approach as to which policies owe a duty to defend in the building cases. The Court therefore follows the general rule that the duty to defend is triggered by allegations or other available information in a particular case giving rise to the potential for liability under the policy. ( $UGray v. Zurich Insurance Co.$O (1966) 65 Cal.2d 263, 276-277.)
$TIn any building claim in which the date or dates of property damage are not known, defense obligations are triggered if the allegations of the complaint or other available information would permit proof that ACBM was installed or that fiber or material from ACBM was released into the air or on surfaces of the building or that settled releases of ACBM were disturbed and reentrained into the air during any portion of the period that the policy was in effect.
$TThe Court finds that the duty to indemnify is triggered when Armstrong proves an occurrence during the policy period to which it is held liable. ($USee Royal Globe Insurance Co. v. Whitaker$O (1986) 181 Cal.App.3d 532, 537.) The Court therefore holds that indemnity obligations are triggered if it is shown that ACBM was installed in the building or buildings in question, that ACBM released fiber or material into the air or on surfaces of the buildings in question, or that settled releases of ACBM were disturbed and reentrained into the air, during any portion of the period that the policy was in effect.
$TAs with the duty to defend, the Court declines to adopt a comprehensive rule stating that all policies from the time of installation until the time of removal of ACBM owe a duty to indemnify for property damage. The evidence presented in this phase as to the nature of property damage does not support the "continuous" trigger approach adopted by this Court in the bodily injury cases.
$TCertain insurers contend that the decision in $UHome Insurance Co. v. Landmark Insurance Co.$O (1988) 205 Cal.App.3d 1388 is contrary to the Court's rulings in this proceeding. These insurers claim that the $ULandmark$O decision holds that the policy on the risk at the time of first visible manifestation is responsible for the entire loss. The sole issue in $ULandmark,$O however, was which of two first-party insurers was liable for the loss from continuing property damage manifested during successive policy periods. ( $UId.$O at p. 1390.) The court there explicitly stated that the stipulated facts in the case before it did not allow it to consider the "question whether it is possible for the insured to have a covered loss when the loss is not reasonably observable by the insured during the period of the policy under which the insured seeks payment." ( $UId.$O at p. 1392.) The court took pains to emphasize "the unique factual and legal structure" of the record before it. ( $UId.$O at p. 1394 fn. 1.) "$(A$)s precedent," stated the court, "this case must be considered only for the legal proposition considered. To suggest that this is not a case for all purposes would indeed be an understatement." ($UIbid.$O) Thus, contrary to the contentions of certain insurers, nothing in $ULandmark$O is inconsistent with the holdings or reasoning adopted by the Court in this proceeding.
$%$?$%VI. CAUSED BY ACCIDENT
$TReliance argues that even if the underlying building cases are otherwise covered by Armstrong's policies, they are not covered by the policies issued by Reliance which require that there be injury to or destruction of property "caused by accident." According to Reliance, the "caused by accident" language is more restrictive than the "occurrence" language in the later policies in that "caused by accident" requires a sudden, unexpected event.
$TReliance's arguments assume a finding that continuous, progressive injury is alleged, or that damage occurs solely upon installation. However, as discussed, property damage from ACBM occurs episodically upon release and reentrainment of material and fibers. Episodic ACBM releases fulfill the more restrictive sudden and fortuitous requirement Reliance suggests and therefore the events are "caused by accident." These releases trigger the policies immediately after the ACBM is installed.
$TIn addition, even if the damage involved were gradual, the plain language of the policies provides no support for the suddenness requirement urged by Reliance. Words in an insurance policy must be interpreted according to their plain meaning. ( $UReserve Insurance Co. v. Pisciotta$O (1982) 30 Cal.3d 800, 807.) In ordinary language, an unexpected and unintended event is viewed as an accident. (See $UWebster's Third New International Dictionary$O (1976) p. 11.)
$TWhile California courts have not set forth an "'all-inclusive definition of the word "accident"'" ( $UWilliams v. Hartford Accident & Indemnity Co.$O (1984) 158 Cal.App.3d 229, 233), other courts have explicitly rejected the suddenness restriction. The Seventh Circuit explained:
$=S$%$?$%$(T$)he 
word "accident" has never acquired any technical signification in law, and when used in insurance contracts, it is to be construed and considered according to the ordinary understanding and common usage of people generally. . . . $(C$)ourts have interpreted and applied the term "accident," as used in general liability insurance policies, broadly, and have declined to limit its meaning to an event which happened suddenly and violently.$=I
$%$?$%( $USt. Paul Fire & Marine Insurance Co. v. Northern Grain Co.$O (7th Cir. 1966) 365 F.2d 361, 364-365 (citing California cases); $Usee also Beryllium Corp. v. American Mut. Liability Ins. Co.$O (3d Cir. 1955) 223 F.2d 71.) This Court similarly declines to restrict the meaning of "accident."
$TReliance also asserts that all property damage alleged in the building cases is the result of a design defect and therefore not covered under the "caused by accident" language. At this time it is unnecessary to decide whether a design defect is in fact involved.
$TReliance provides no authority to support its contention that damage stemming from a design defect cannot be accidental. The Court sees no reason to treat design defects differently from other types of occurrences.
$%$?$%VII. CONCLUSION
$TThe Court concludes that the underlying building claims against Armstrong allege covered "property damage" within the meaning of the insurance policies at issue in Phase V when they allege that ACBM was installed, or that fiber or material from ACBM was released into the air or on surfaces of the building, or that settled releases of ACBM were disturbed and reentrained into the air.
$TThe carrier's duty to defend is triggered when the allegations of the complaint or other available information would permit proof that covered property damage occurred during any portion of the period that the policy was in effect.
$TThe duty of the carrier to indemnify is triggered when it is shown that property damage occurred during any portion of the period that the policy was in effect.
$TThe defense obligations of specific excess policies will be resolved in the next part of this phase.
$TSince Armstrong withdrew from consideration the "sanding" cases, which involve improper removal of asbestos-containing floor tile, nothing in this decision applies to those cases.
$%$?$%DATED: January 24, 1990
$TIRA A. BROWN, JR.
$TJudge of the Superior Court
$200:
$220:#EXTR#$?#COORDINATIONPROCEEDING# 
$00:
$10:COORDINATION PROCEEDING, Special Title $(Rule 1550(b)$), ASBESTOS INSURANCE, COVERAGE CASES, INCLUDED ACTIONS: ARMSTRONG WORLD INDUSTRIES, INC., a corporation, Plaintiff, vs. AETNA CASUALTY & SURETY COMPANY, a corporation, et al., Defendants. AND RELATED CROSS-ACTIONS. FIREMAN'S FUND INSURANCE COMPANY, a corporation, Plaintiff, vs. FIBREBOARD CORPORATION, a corporation, et al., Defendants. AND RELATED CROSS-ACTIONS. GAF CORPORATION, a corporation, Plaintiff, vs. INSURANCE COMPANY OF NORTH AMERICA, a corporation, et al., Defendants. AND RELATED CROSS-ACTIONS.
$20:JUDICIAL COUNCIL COORDINATION PROCEEDING NO. 1072
$25:SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE CITY AND COUNTY OF SAN FRANCISCO
13
$40:$?$%January 24, 1990, Decided
$45:$?$%January 24, 1990, Filed
$80:LOS ANGELES SUPERIOR COURT CIVIL NO. C315367. SAN FRANCISCO SUPERIOR COURT CIVIL NO. 753885. LOS ANGELES SUPERIOR COURT CIVIL NO. C286217.
$110:IRA A. BROWN, JR., Judge of the Superior Judge.
$115:IRA A. BROWN, JR.
$120:$T$USTATEMENTS OF DECISION$O
$TSTATEMENT OF DECISION CONCERNING PHASE V-B ISSUES
$T$UTABLE OF CONTENTS$O
$%$?$%I. Introduction
$%$?$%II. Applicable Legal Principles
$%$?$%III. Exclusions
$=S$%$?$%A. Own Product Exclusion$%B. Product Recall$%C. Design Defect Exclusion$%D. INA's Loss of Use Endorsement$%E. Travelers' "Intentional Introduction and Application" Exclusion$%F. Punitive Damages Exclusion
$=S$%$?$%1. Choice of Law$%2. California Law on Coverage of Punitive Damages$%3. Duty to Defend$=I$=I
$%$?$%IV. Other Coverage Issues
$=S$%$?$%A. "Catastrophe" Policies
$=S$%$?$%1. The INA Policy$%2. The Aetna Policies$=I
$%$?$%B. Inception Dates of Fireman's Fund Policy No. XL 90987 and Policy No. XLX 1027683$%C. Aggregate Limit of Fireman's Fund Policy No. 90987$%D. Short-Term Policies$=I
$%$?$%V. Scope and Allocation Issues
$=S$%$?$%A. Scope of Coverage$%B. Allocation of Liability Among Insurers Covering the Same Claim Pursuant to "Other Insurance" Clauses and Principles of Equitable Contribution$%C. Burden of Apportionment$%D. The Selection of Primary and Excess Policies to Respond to Claims$%E. "Stacking" of Policy Limits$=I
$%$?$%VI. Defense Obligations
$=S$%$?$%A. Primary Policies
$=S$%$?$%1. Reliance T.E. 526$%2. Aetna
$%$?$%a. T.E. 466-467$%b. T.E. 471, 473 and 476
$%$?$%3. Liberty Mutual
$%$?$%a. T.E. 508$%b. T.E. 509-516$=I
$%$?$%B. Excess Carriers
$=S$%$?$%1. Aetna
$%$?$%a. T.E. 468$%b. T.E. 469, 470, 472, 474 and 475
$%$?$%2. American Home
$%$?$%a. T.E. 480$%b. T.E. 477, 478, 479 and 481
$%$?$%3. Central National T.E. 482-483$%4. Commercial Union (ELAC) T.E. 490$%5. Continental
$%$?$%a. T.E. 484 and 486$%b. T.E. 485 and 488$%c. T.E. 487$%d. T.E. 489
$%$?$%6. Fidelity & Casualty T.E. 491$%7. Fireman's Fund T.E. 492 Ex. A-D$%8. First State T.E. 493, 494$%9. Great American T.E. 495$%10. INA
$%$?$%a. T.E. 504 Ex. 1-3$%b. T.E. 504 Ex. 4
$%$?$%11. Interstate T.E. 506-507$%12. National Union T.E. 523$%13. Puritan T.E. 524-525$%14. Rokeby-Johnson, Bird and Companies T.E. 519 and 520$%15. U.S. Fire T.E. 540-541$=I$=I
$TBy the following statement of decision, this Court resolves issues raised in Phase V-B of the Asbestos Insurance Coverage Cases, Judicial Council Coordination Proceeding No. 1072 (included action: $UArmstrong v. Aetna, et al.,$O Los Angeles Superior Court No. C 315367). The Court initially issued a Tentative Decision Concerning Phase V-B Issues on February 2, 1989. Thereafter, the Court ordered the submission of proposals for the Statement of Decision, followed by the submission of a proposed decision and by the filing of objections to the proposed decision, and responses thereto, all of which have been considered. This Statement of Decision is the end result of that process.
$TAs of February 2, 1989, the date of the Court's Tentative Decision in Phase V-B, the Armstrong included action involved the following adverse parties: Armstrong World Industries, Inc., Travelers Indemnity Company, Aetna Casualty and Surety Company, Reliance Insurance Company, Liberty Mutual Insurance Company, Insurance Company of North America, Continental Casualty Company, Rokeby-Johnson and Companies, Bird and Companies, Commercial Union Insurance Company, Fireman's Fund Insurance Co mpany, American Home Assurance Company and National Union Fire Insurance Company of Pittsburgh, Pa., First State Insurance Company, Central National Insurance Company, Great American Insurance Company, Fidelity and Casualty Company, Puritan Insurance Company, U.S. Fire Insurance Company, and Interstate Fire and Casualty Company. Since that date, Armstrong and Travelers have settled all coverage disputes between them. The Armstrong policies subject to this decision and their relevant provisions are set forth in Appendix C. In the following statement of decision, the Court will refer to the parties by the shorthand names to which they have been referred throughout this proceeding. Throughout this decision, the Court refers to policy language typical of the language of each of the policies at issue. The specific policies and policy provisions addressed by the Court in this decision are set forth in the appendix to this decision. Except as specifically noted, there are no material differences between the typical policy language and the provisions of specific policies.
$%$?$%I. Introduction
$TPhase V-B of the Asbestos Insurance Coverage Cases involves issues relating to asbestos property damage claims. These issues include the various exclusions raised by the insurers, scope of coverage, allocation of costs among insurers covering the same claim, and defense obligations of insurers.
$TAll parties have waived their right to trial by jury on all Phase V-B issues. Therefore, this Court sits as the trier of both the facts and the law.
$%$?$%II. Applicable Legal Principles
$TThe Court applies the following principles of law in resolving the issues involved in Phase V-B. The insured has the burden of proving an insurance contract and its terms. The burden of proving an exclusion is on the insurer. ( $USearle v. Allstate Life Insurance Co.$O (1985) 38 Cal.3d 425, 437-438.)
$TAn insurance contract must be interpreted so as to give effect to the mutual intention of the parties at the time of contracting. (Civ. Code sec. 1639.) The intention of the parties is to be ascertained from the writing alone, if possible. (Civ. Code sec. 1639.)
$TThe Court may consider extrinsic evidence of intent, provided the evidence is relevant to proving a meaning to which the contract language is reasonably susceptible. (Civ. Code sec. 1639; Code Civ. Proc. sec. 1856, subd. (g); $UGarcia v. Truck Insurance Exchange$O (1984) 36 Cal.3d 426, 435.) The extrinsic evidence must concern the mutual intent of the parties at the time of contracting. The undisclosed, unilateral intent of one of the parties to a contract is immaterial. ( $UCity of Mill Valley v. Transamerica Insurance Co.$O (1979) 98 Cal.App.3d 595, 603.) 
$TWords of an insurance policy are to be interpreted according to their plain, ordinary meaning unless the Court is persuaded that the parties intended a special or technical meaning. (Civ. Code sec. 1644; $UReserve Insurance Co. v. Pisciotta$O (1982) 30 Cal.3d 800, 807.) The contract is to be taken as a whole, each clause helping to interpret the other so as to give effect to every part, if reasonably practical. (Civ. Code sec. 1641.)
$TAny ambiguity in an insurance contract is to be resolved against the insurer. If semantically permissible, the contract will be interpreted so as fairly to achieve its objective of providing indemnity for the loss to which it relates. ($=L00 277000006000699*000701 $UHarris v. Glen Falls Insurance Co.$O (1972) 6 Cal.3d 699, 701.) The purpose of this rule of construction is to protect the insured's reasonable expectations of coverage. ( $UCentury Bank v. St. Paul Fire & Marine Insurance Co.$O (1971) 4 Cal.3d 319, 321.) Coverage clauses are interpreted broadly so as to afford the greatest protection to the insured. Exclusionary clauses, on the other hand, are interpreted narrowly against the insurer. ( $UState Farm Mutual Automobile Insurance Co. v. Partridge$O (1973) 10 Cal.3d 94, 101-102.)$% $?$%III. Exclusions
$TVarious exclusions have been raised by the insurers in the property damage phase of this trial. The insurers contend that application of the exclusions to specific claims must await a determination of actual property damage in the underlying cases. Therefore, the insurers seek merely a declaration from the Court that the exclusions must be construed according to their plain meaning in determining whether any ultimate claim for indemnity under the policies is excluded. Armstrong, on the other hand, asserts that it is entitled to a ruling on all of the exclusions in its policies, whether or not such exclusions were raised by the insurers at trial.
$TThe Court does not adopt either of these views. The factual allegations and the totality of the evidence presented concerning the underlying claims provide a sufficient basis for determining whether the exclusions raised by the insurers apply to the building cases. However, the Court declines to rule on exclusions which were not raised at trial by the insurers.
$TArmstrong argues that Reliance and Liberty Mutual waived their right to assert certain exclusions by failing to inform Armstrong of their reliance on those exclusions in a timely manner. The Court need not resolve the waiver issue because none of the exclusions asserted by Reliance or Liberty Mutual apply to the building cases.
$TA. Own Product Exclusion
$TAlmost all of Armstrong's carriers assert that their "own products" exclusions, relating to coverage for the insured's own products and work, apply to bar coverage of the building cases. The standard versions of the exclusion appear in the 1947, 1966, and 1973 comprehensive general liability (CGL) policies.
$TIn the 1947 CGL policies coverage does not apply
$=S$%$?$%. . . to injury or destruction of . . . any goods or products manufactured, sold, handled, or distributed or premises alienated by the named insured, or work completed by or for the named insured, out of which the accident arises.$=I
$TThe 1966 and 1973 CGL policies exclude
$=S$%$?$%. . . property damage to . . . the named insured's products arising out of such products or any part of such products.$=I
$TUnder the plain language of both standard "own products" exclusions the excluded damage must be to the insured's products (see $UGeddes & Smith, Inc. v. St. Paul Mercury Indemn. Co.$O (1975) 63 Cal.2d 602 (Geddes II)) and arise out of those products (see $UBiebel Bros. Inc. v. United States Fidelity & Guar. Co.$O (8th Cir. 1975) 522 F.2d 1207, 1211). The exclusions therefore do not apply to the damages claimed in the building cases.
$TAs resolved in Phase V-A, the underlying building cases concern property damage to the buildings in which ACBM has been installed. As a general rule, the underlying plaintiffs are not concerned with damage to the ACBM, but rather seek compe nsation for the alleged contamination and diminution in value of their buildings caused by ACBM. Since damage to the ACBM is not in issue, the "own products" exclusion does not apply to the typical building case.
$TArmstrong acknowledges that, although damage to ACBM is not central to the underlying claims, it is possible that ACBM damage may be alleged in isolated instances. However, in no event will any damage to ACBM have arisen from the ACBM itself. Insurers' experts have testified that ACBM does not disintegrate on its own, and that all damage to ACBM arises as a result of external forces. Even if some self-contained release were proven in an underlying case, normal deterioration cannot be considered damage to the product. For these reasons, the "own products" exclusion does not apply.
$TThe insurers attempt to rely on $UVolf v. Ocean Accident & Guar. Corp.,$O (1958) 50 Cal.2d 373, to support the application of the "own products" exclusion to the building cases. In $UVolf$O a contractor constructed a defective house which developed cracks in the stucco because of problems with the stucco ingredients. The court held that the contractor's expenses in applying a new stucco exterior fit within his policy's "own products" exclusion and therefore were not covered by the policy. ( $UVolf, supra,$O 50 Cal.2d at p. 375.)
$TThe $UVolf$O case has little application to the case at hand as its facts differ significantly from those in the building cases. In $UVolf,$O the damage involved was to the stucco (cracking) and arose from the stucco (defective ingredients). Here, as discussed, ACBM is generally not damaged in any way and, in any event, damage to ACBM would not arise from the product itself. In addition, the insured in $UVolf$O was a contractor and the entire house was his product, unlike the situation in the building cases.
$TAlthough the "own products" exclusions contained in other policies differ in some respects from the standard exclusions, most of these exclusions share the requirement of injury to the insured's own products, arising from those products. Therefore, these other "own products" exclusions similarly do not apply to the building cases.
$TThe one related exclusion which is significantly different from the standard "own products" exclusion is contained in the Aetna XS policy, T.E. 468. It reads:
$=S$%$?$%This policy does not apply to . . . such part of any damages or expense which represents . . . the purchase of or the cost of repairing, replacing or recovering any goods or products or any part thereof manufactured, sold, handled or distributed by or on behalf of the Insured.$=I
$%$?$%Armstrong concedes, and the Court agrees, that this exclusion applies to the building cases to bar coverage for the damages specifically enumerated.
$TB. Product Recall
$TA number of excess insurers have asserted the product recall exclusion, also known as the "sistership" exclusion. In the 1966 and 1973 CGL policies the exclusion bars coverage for:
$=S$%$?$%Damages claimed for the withdrawal, inspection, repair, replacement or loss of use of the named insured's products or work completed by or for the named insured or of any property of which such products or work form a part, if such products, work or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein.$=I
$%$?$%Other versions of the exclusion do not differ significantly from the standard form.
$TBy its plain language, the "sis tership" exclusion does not apply to the building cases. For the provision to apply, the insured's products must be "withdrawn" from the market or from use. This has not occurred with Armstrong's ACBM. Armstrong's mere discontinuance of production of ACBM does not fall within the plain meaning of withdrawal. (See $UChampion v. Panel Era Mfg. Co.$O (La. Ct. App. 1982), 410 So. 2d 1230, 1238, $Ucert. denied,$O 414 So. 2d 389 (La. 1982).)
$TIn addition, the "sistership" clause does not apply where actual damage is caused by the defective product. Instead, the provision, "is intended to exclude from coverage the cost of preventative or curative action by withdrawal of a product in which a danger is to be apprehended." ( $UGulf Mississippi Marine Corp. v. George Engine Co.$O (5th Cir. 1983) 697 F.2d 668, 674.) As this Court concluded earlier in this phase, the costs involved in the underlying building cases stem from actual property damage allegedly resulting from ACBM and not simply the apprehension of danger.
$TC. Design Defect Exclusion
$TFour substantively different versions of the design defect exclusion are asserted by the insurers. None of these exclusions bar coverage of the building cases.
$TThe 1966 standard CGL version of the design defect provision excludes:
$=S$%$?$%Property damage resulting from the failure of the named insured's products or work completed by or for the named insured to perform the function or serve the purpose intended by the named insured, if such failure is due to a mistake or deficiency in any design, formula, plan, specifications, advertising material or printed instructions prepared or developed by any insured; but this exclusion does not apply to . . . property damage resulting from the active malfunctioning of such products or work.$=I
$%$?$%A number of other policies contain substantially the same provision.
$TRegardless of whether ACBM suffers from a design defect within the meaning of the exclusion, the active malfunctioning limitation renders this type of design defect exclusion inapplicable.
$TCourts have interpreted the plain language of the active malfunctioning clause to apply to "design errors themselves causing some positive or active harm deemed extraordinary in the insured's business," and not to "mere 'passive' failure to discharge an intended function." ( $UAmerican Employers' Ins. Co. v. Maryland Casualty Co.$O (1st Cir. 1975) 509 F.2d 128, 130; see also $UFresard v. Michigan Millers Mutual Ins. Co.$O (1982, Mich.) 327 N.W.2d 286, 291.)
$TCommon hypotheticals regarding the role of the active malfunctioning clause conclude:
$=S$%$?$%$(T$)he policy is not intended to cover liability resulting from the faulty design of an insecticide which fails to kill insects, a hair tonic which fails to prevent baldness, or a rust inhibitor which fails to inhibit rust. On the other hand, the active malfunctioning exception would apply to provide coverage for liability resulting from an insecticide which harms crops to which it is applied, a hair tonic which causes a scalp rash, or a rust inhibitor which corrodes a radiator to which it is added.$=I
$%$?$%( $UAmerican Employers' Ins. Co. v. Maryland Casualty Co., supra,$O 509 F.2d, at p. 130.) 
$TIn the instant case, the alleged defect in the ACBM is not a "passive" failure to insulate or perform an y of the normal functions expected of floor tile, pipe insulation or surfacing material. Rather, as resolved earlier in this phase, the building cases allege that a positive harm results from ACBM. The alleged contamination of the buildings from ACBM is closely analogous to the hypotheticals considered within the scope of the active malfunctioning clause. As in the above examples, the type of resulting harm is a side effect of the product and has nothing to do with the product failing to perform its primary purpose. Therefore, the active malfunctioning limitation applies to the building cases and renders the 1966 CGL design defect exclusion inapplicable.
$TA number of insurers assert other versions of the design defect exclusion which do not include the active malfunctioning clause. Two other variations of the exclusion read in part as follows:
$=S$%$?$%1) "This policy does not apply . . . to loss of use of tangible property which has not been physically injured or destroyed resulting from . . . the failure of the named insured's products or work performed by or on behalf of the named insured to meet the level of performance, quality, fitness or durability warranted or represented by the named insured. . . ." (1973 CGL exclusion)
$%$?$%2) "This policy shall not apply . . . to claims against the insured . . . for improper or inadequate performance, design, or specification, but nothing herein contained shall be construed to exclude claims made against the Insured for personal injuries or property damage (other than damage to a product of the Insured) resulting from improper or inadequate performance, design, or specification." ("CNA" exclusion)$=I
$TBy their plain language, these exclusions do not apply where there is physical injury to tangible property, or property damage, respectively. Because the Court has determined that the building cases involve property damage and specifically physical injury to tangible property, these two exclusions do not bar coverage of the building cases.
$TA final variation of the design defect exclusion provides:
$=S$%$?$%"This policy does not apply:$%(b) to claims made against the Insured:
$T(i) for repairing or replacing any defective product or products manufactured, sold or supplied by the Insured or any defective part or parts thereof nor for the cost of such repair or replacement;
$T(ii) for the loss of use of any such defective product or products or part or parts thereof;
$T(iii) for improper or inadequate performance, design or specification; but nothing herein contained shall be construed to exclude claims made against the Insured for personal injuries or property damage (other than damage to the product of the Insured) resulting from improper or inadequate performance, design or specification; . . . ."$%("Home" exclusion)$=I
$TParagraph (iii) of the Home exclusion contains a limitation similar to the one in the CNA exclusion providing that the exclusion does not apply to property damage claims. Armstrong argues that the limitation applies to the entire exclusion, including paragraphs (i) and (ii), and that therefore the exclusion does not apply to the building cases. Home, on the other hand, maintains that the paragraph (iii) limitation restricts only the application of paragraph (iii).
$TIt is impossible to tell from the policy itself whether the limitation in paragraph (iii) refers to the entire exclusion. The "herein contained" language can reasonably be read to include paragraphs (i) and (ii). If the insurers had wanted to expressly limit the restriction to paragraph (
iii), they could have done so, as is often done with coverage restrictions. As it stands, the language is ambiguous.
$TBecause ambiguities in insurance policies are to be resolved against the insurer ( $UHarris v. Glens Falls Insurance Co.$O (1972) 6 Cal.3d 699, 701), and exclusions in particular must be "conspicuous, plain and clear" to be effective ( $UPepper Industries, Inc. v. Home Insurance Co.$O (1977) 67 Cal.App.3d 1012, 1019), the Court holds that the limitation in paragraph (iii) applies to the entire exclusion. Therefore, the Home design defect exclusion does not apply to the building cases.
$TThe Court does not reach the issue of whether the problems with ACBM are properly regarded as stemming from a design defect because all the design defect exclusions asserted by the insurers are inapplicable to the building cases for other reasons.
$TD. INA's Loss of Use Endorsement
$TINA included in certain of its policies a coverage extending endorsement providing coverage for pure loss of use claims. INA now seeks a ruling that a limitation to that endorsement applies to the building cases, rendering the endorsement inapplicable to those claims.
$TThe endorsement in question provides coverage:
$=S$%$?$%$(F$)or damages because of the loss of use of physical property of others which itself has not been injured or destroyed provided such loss of use is caused by accident. (INA T.E. 504: 1-2, End. 3)$=I
$TThe limitation reads:
$=S$%$?$%B. The coverage afforded by this endorsement shall not apply to the loss of use of the physical property of others arising out of . . . (2) goods or products manufactured, sold, handled or distributed by the named insured or by others trading under his name, if the accident occurs after possession of such goods or products has been relinquished to others by the named insured or by others trading under his name and if such accident occurs away from premises owned, rented or controlled by the named insured . . . ." (INA T.E. 504: 1-2, End. 3)$=I
$TIt is incumbent upon Armstrong, as the insured in this case, to raise the issues on which basic coverage depends. (See $URoyal Globe Ins. Co. v. Whitaker$O (1986) 181 Cal.App.3d 532, 537.) Because Armstrong does not assert that it is entitled to coverage under the INA endorsement, and in fact calls the endorsement inapplicable, the effect of the limitation on the endorsement is not in issue. The Court, therefore, declines to rule on the meaning of the endorsement and limitation.
$TE. Travelers' "Intentional Introduction and Application" Exclusion
$TThe "intentional introduction and application" manuscript endorsement provides:
$=S$%$?$%This policy does not apply:
$%$?$%(j) under Coverage C, to injury to or destruction of
$%$?$%(4) any goods, products or containers thereof manufactured, sold, handled or distributed or premises alienated by the named insured, or work completed by or for the named insured, out of which the accident arises; or the cost of removal, repair, recapturing, restoration, replacement, or installation of any such goods or products or other property injured by the intentional introduction therein or application thereon of any goods or products manufactured, sold, handled, or distributed by the named insured. (T.E. 534)$=I
$%$?$%The endorsement is contained in Travelers' primary policies issued to Armstrong from January 1, 1956 through December 31, 1962 (T.E. 527-535). INA's excess policy for 1960-1963 (T.E. 504, Ex. 1) a nd Rokeby-Johnson, Bird and Companies' excess policies from 1956-1962 (T.E. 519, 520) follow form to Travelers' primary policies. While Armstrong and Travelers have settled since the Phase V-B trial concluded, this issue remains relevant to those excess policies.
$TThe carriers contend that the endorsement excludes coverage for Armstrong's building claims. According to the carriers, the second clause of the endorsement, which excludes coverage for "the cost of removal, repair, recapturing, restoration, replacement, or installation of any such goods or products or other property," bars coverage for $Uany$O property damage caused by the intentional introduction or application of Armstrong's products.
$TThe Court finds that under the plain language of the endorsement, the second clause only excludes coverage for damage to the $Uinsured's$O goods, products or property caused by the introduction or application of other products of the insured. The phrase "any such goods or products or other property" in the second clause refers to "any goods, products or containers . . . or premises alienated . . . or work completed" in the first clause. Contrary to the carriers' assertion, the word "such" modifies "other property" as well as "goods or products." 
$TThis interpretation is supported by extrinsic evidence regarding the mutual intent of the parties at the time of contracting. According to the evidence, the endorsement was negotiated as a result of claims brought against Armstrong by building owners in the 1950's. The building owners claimed that an Armstrong ceiling cement used to install acoustical ceiling tiles was defective, resulting in damage to the tiles. Evidence indicates that the purpose of the endorsement was to exclude coverage for damage to one Armstrong product caused by the intentional introduction or application of another Armstrong product.
$TSince the alleged damage caused by Armstrong's asbestos products constitutes damage to property other than Armstrong's (see Phase V-A Statement of Decision), the endorsement does not exclude coverage for the building claims.
$TF. Punitive Damages Exclusion
$TThe insurers contend that punitive damage awards against Armstrong are excluded from coverage either because of (1) explicit punitive damages exclusions contained in policies or (2) public policy precluding insurance coverage for punitive damages. Armstrong acknowledges that those policies which contain explicit punitive damages exclusions bar coverage for punitive damages. Armstrong also acknowledges that California legal authority does not allow coverage of punitive damages based on public policy considerations. However, Armstrong contends that the law of the state governing the underlying claim determines whether or not punitive damages are excluded as a matter of public policy. Armstrong also argues that, in any event, the insurer is not relieved of its duty to defend Armstrong against claims for punitive damages.
$T1. Choice of Law
$TIn Phase III, this Court held that California law concerning principles of contract interpretation are applicable to this action. (See Phase III Statement of Decision at pp. 8-12.) No party asserted otherwise in Phase IV or Phase V, with the exception of Armstrong's contention regarding coverage of punitive damages. Now, at this late date, Armstrong asserts that the availability of coverage for punitive damages is governed by the state in which the claim is made. The Court rejects this assertion for several reasons.
$TFirst, Armstrong has not made a sufficient showing for applic ation of foreign law under the principles set forth in $UHurtado v. Superior Court$O (1974) 11 Cal.3d 574. Although Armstrong has shown that the law of some states differs from that of California regarding insurance of punitive damages, Armstrong has not shown that any other state has a significant interest which would be advanced by the application of its law. (See $Uid.$O at p. 581.)
$TIn addition, Armstrong has not "timely invoke$(d$) the law of a foreign state." ( $UHurtado, supra,$O 11 Cal.3d at p. 581.) Armstrong brought this action in California and has never argued that the law of any other state applied until now. Armstrong's contention that the law of the state in which the underlying claim is made governs coverage of punitive damages comes at a very late stage in this trial.
$TFinally, it is not entirely clear that Armstrong is contending that California law on $Ucontract interpretation$O does not apply to this issue. Armstrong focuses on the state in which the $Uunderlying claim$O is made and argues that the law of that state governs $Ucoverage$O of punitive damages. Armstrong relies, in part, on $UNorthwestern National Casualty Co. v. McNulty$O (5th Cir. 1962) 307 F.2d 432.
$TIn $UMcNulty,$O the Fifth Circuit Court of Appeals considered the question of whether insurance against liability for punitive damages was prohibited for public policy reasons. At the outset, the court stated that "$(t$)he force of public policy on insurance covering punitive damages depends on the nature or character of punitive damages." ( $UMcNulty, supra,$O 307 F.2d at p. 434.) Depending on the function such damages serve, the character of punitive damages may be either compensatory or punitive. ($UIbid.$O)
$TIn $UMcNulty,$O punitive damages were awarded to the plaintiff in the underlying case as a result of an automobile accident. The plaintiff, joined by the defendant, then brought an action to recover on a liability policy. The court stated that the legal rights and obligations between the plaintiff and defendant in the underlying action were governed by Florida law, where the accident occurred and where the case was tried. However, the court found that the rights and obligations under the insurance contract between the defendant and his insurer were governed by Virginia law, where the contract was made and issued, where the defendant resided, and where the contract might be expected to have its more important effects.
$TSince the suit for coverage of punitive damages involved interpretation of the insurance policy, the court held that Virginia law governed the question of whether coverage of punitive damages contravened public policy. ( $UMcNulty, supra,$O 307 F.2d at p. 434.) However, the court stated that in order to ascertain Virginia's policy regarding coverage of punitive damages, the court must look to the law imposing the punitive damages to determine their character. ( $UId.$O at pp. 434-435.) Finding that Florida law viewed punitive damages as a penalty and a deterrent, rather than as compensation, the court concluded that insurance of punitive damages was against public policy and invalid.
$TThus, the $UMcNulty$O court looked to Virginia law, which governed the insurance contract, to determine public policy regarding $Ucoverage$O 
of punitive damages, and to Florida law, which governed the underlying case, to determine the $Ucharacter$O of the punitive damages awarded. According to this analysis, California law regarding contract interpretation applies to the policies in this case. The state in which the underlying claim is brought only determines the character of the punitive damages.
$T2. California Law on Coverage of Punitive Damages
$TUnder California law, public policy prohibits insurance coverage of punitive damages. ( $UCity Products Corp. v. Globe Indemnity Co.$O (1979) 88 Cal.App.3d 31.) This is based on the character of punitive damages under California law. In California, punitive damages may be awarded only for fraud, oppression or malice, as opposed to gross negligence or reckless or wanton conduct. ( $UId.$O at p. 41.)
$=S$%$?$%The rationale underlying the assessment of punitive damages in California, viewed in perspective with the law of other jurisdictions, formed the basis for the $UCity Products$O decision. In California, conduct is sufficiently capable to warrant assessment of punitive damages only if it involves fraud, oppression or malice. $(Citations omitted.$) Mere unintentional carelessness, characterized as negligence or recklessness, is not sufficient. ( $UFord Motor Co. v. Home Insurance Co.$O (1981) 116 Cal.App.3d 374, 380.)$=I
$TIn California, it is clear that the purpose of punitive damages is to punish and deter. This purpose would be frustrated if the party against whom such damages are awarded were allowed to shift the burden to an insurance carrier. ( $UCity Products, supra,$O 88 Cal.App.3d at pp. 41-42; $UFord Motor Co., supra,$O 116 Cal.App.3d at p. 380.)
$TThe Court is not aware of any California case which has determined the impact of this state's public policy prohibiting coverage of punitive damages where punitive damages are imposed in an underlying action in another state. However, in $UCity Products,$O the court cites $UMcNulty, supra,$O 307 F.2d 432, and appears to follow the reasoning of that case. Therefore, this Court concludes that coverage of punitive damages is prohibited for public policy reasons in cases where punitive damages are awarded with a view to punish the defendant for misconduct and to deter the defendant and others from similar misconduct. Such misconduct includes "fraud, oppression or malice" as defined by California law. Thus, non-intentional conduct comes within the definition of malice "when a party intentionally performs an act from which he knows, or should know, it is highly probable that harm will result." ( $UFord Motor Co., supra,$O 116 Cal.App.3d at p. 381.) On the other hand, where punitive damages are awarded for "mere carelessness, characterized as negligence or recklessness," the public policy of this state does not prohibit coverage of such damages. (See $Uid.$O at p. 380.)
$T3. Duty to Defend
$TThe public policy exclusion of insurance indemnity for punitive damages does not establish conclusively that an insurer has no duty to defend a claim for punitive damages. ( $UOhio Casualty Insurance Co. v. Hubbard$O (1984) 162 Cal.App.3d 939, 946-947.) "The duty to defend is broader than the duty to indemnify and is measured by the reasonable expectations of the insured." ( $UId.$O at p. 944, citing $UGray v. Zurich$O (1966) 65 Cal.2d 263, 272-275.)
$TWhere an exclusion is clear and explicit, there is no potential liability, no reasonable expectation of coverage and, thus, no duty to defend. Accordingly, there is no duty to defend claims for punitive damages under policies which contain an explicit punitive damages exclusion. ( $UOhio Casualty, supra,$O 162 Cal.App.3d at p.947.)
$THowever, when an exclusion for indemnification of punitive damages is implied into a policy on public policy grounds, there may be a reasonable expectation of coverage, even though there is no potential for liability. ( $UOhio Casualty, supra,$O 162 Cal.App.3d at p. 947.) Absent a clear and conspicuous exclusion in the policy to the contrary, it is reasonable for the insured to expect that the insurer's duty to defend a claim for general damages gives rise to a duty to defend an ancillary claim for punitive damages. ( $UId.$O at p. 948.)
$%$?$%IV. Other Coverage Issues
$TA. "Catastrophe" Policies
$TINA and Aetna contend that certain excess policies issued to Armstrong provide coverage only if the damages for a single occurrence exceed the per occurrence limits of the underlying insurance and that the policies do not drop down upon exhaustion of underlying aggregate limits. These policies are referred to as "catastrophe" policies. Armstrong contends that the policies drop down upon the exhaustion of either the underlying occurrence or aggregate limits. The policies are in evidence as T.E. 504 Ex. 3(INA) and T.E. 469, 470, 472, 474, 475 (Aetna).
$T1. The INA Policy
$TThe INA policy ( T.E. 504 Ex. 3) is one of nine policies which constitute a $ 30 million quota share layer of excess insurance issued to Armstrong. The policy overlies three other layers of insurance that provide Armstrong with $ 11 million of underlying coverage. The policy provides Armstrong with insurance for "an 8.333% quota share part" of "$ 30,000,000 each occurrence," or "2,500,000" in coverage.
$TAccording to the policy, the $ 2,500,000 quota share "applies in excess to the limits of liability stated in Schedule A and Schedule B." Schedule A states that the limit of liability of Continental policy T.E. 484 (the first excess policy) is "$ 5,000,000 each occurrence . . . excess of primary." Schedule B states that the limit of liability of Aetna policy T.E. 469 (the second excess policy) is "5,000,000 each occurrence" and "applies in excess of the limit of liability as expressed in Schedule A."
$TThus, the INA policy provides coverage of $ 2,500,000 "each occurrence" in excess of primary coverage plus $ 10 million "each occurrence." However, the policy also states that "the insurance afforded by this certificate shall, except as herein stated, follow that of the first excess policy in all respects." The first excess policy, Continental policy T.E. 484, provides that in the event of exhaustion of the $Uaggregate$O limits of the underlying insurance, the policy shall continue in force as the underlying insurance. (T.E. 484.) The Court finds that there is no language in the INA policy which clearly contradicts the drop-down provision in the Continental policy. At best the INA policy is ambiguous on the po int and therefore must be construed against INA since the Armstrong interpretation is a reasonable one. By virtue of the INA following-form provision, the INA policy must drop down upon exhaustion of either underlying occurrence or aggregate limits. The Court further finds that under this construction of the contract, the annual aggregate limit of the INA policy is $ 2,500,000.
$T2. The Aetna Policies
$TAetna policies T.E. 469, 472 and 474 are second layer excess policies. Aetna policies T.E. 470 and 475 are part of quota share layers of coverage issued to Armstrong. All of the policies contain substantially the same language:
$=S$%$?$%"EXCESS NET LOSS" means that part of
$%$?$%The total of all sums which the INSURED becomes legally obligated to pay or has paid, as damages on account of $Uany one accident or occurrence,$O and which would be covered by the terms of the Controlling Underlying Insurance, (excluding Blanket Crime Bond Coverage) $Uif written without any limit of liability,$O less realized recoveries and salvages,
$%$?$%which is in excess of
$%$?$%any self-insured retention and $Uthe total of the applicable limits of liability$O of all policies described in Section 3. Schedule of Underlying Insurance, whether or not such policies are in force.$%(T.E. 469. Emphasis added.)$=I
$%$?$%The "Limits of Liability" section provides:
$=S$%$?$%Aetna Casualty shall not be liable for more than the amount of the limits stated in Section 1. with respect to EXCESS NET LOSS resulting from $Uany one accident or occurrence;$O provided . . .$%2. if a single limit of liability is stated, such limit shall apply to that part of $Uall loss$O which is in excess of $Uthe total of the applicable limits of liability of the underlying insurance policies,$O . . .$%(T.E. 469. Emphasis added.)$=I
$TSection 1. of T.E. 469 provides limits of liability of "$ 5,000,000." Section 3. Schedule of Underlying Insurance provides that the limits of liability of the underlying Continental policy (T.E. 484) are "$ 5,000,000." Unlike the INA policy ( T.E. 504 Ex. 3), the limits of the Aetna policies are not described as limits for "each occurrence." Neither do the policies describe the limits as applying in the "aggregate."
$TAetna apparently relies on the phrase "any one accident or occurrence" in asserting that its policies provide coverage only upon exhaustion of underlying $Uoccurrence$O limits, rather than underlying aggregate limits.
$TThe plain language of T.E. 469 provides that Aetna will indemnify Armstrong for damages which would be covered by the terms of the underlying insurance if written without $Uany$O limit of liability. The policy also provides that coverage is provided for $Uall$O loss which is in excess of $Uthe total of the applicable limits of liability$O of the underlying policies. The limits of liability of the underlying Continental policy are $ 5,000,000 for "any one occurrence" and $ 5,000,000 "in the aggregate."
$TIn addition, the policy contains a notice provision which requires Armstrong to notify Aetna in the event of any change in the underlying insurance, including "exhaustion of $Uany aggregate limit.$O" (T.E. 469. Emphasis added.)
$TViewing the policy provisions as a whole, the Court finds that the Aetna policies provide coverage upon exhaustion of either underlying occurrence limits or aggregate limits. The single limit of each Aetna policy constitutes both an "occurrence" and an "aggregate" limit.
$TB. Inception Dates of Fireman's Fund Policy No. XL 90987 and Policy No. XLX 102 7683
$TFireman's Fund issued two policies to Armstrong with the inception date of January 21. Policy no. XL 90987, in evidence as T.E. 492 Ex. C, provides that the policy period is from January 21, 1966 to January 21, 1969. Policy no. XLX 1027683, in evidence as T.E. 492 Ex. D, provides that the policy period is from January 21, 1969 to January 21, 1972. T.E. 492 Ex. D has an actual expiration date of April 1, 1969, due to cancellation by Armstrong.
$TBoth policies are part of quota share layers of coverage. Armstrong contends that the inception and expiration dates of the policies should be January 1 in order to conform with the inception dates of the other policies in the quota share group. Alternatively, Armstrong argues that the policies should be reformed as a result of mutual mistake. Fireman's Fund contends that the dates on the policies are clearly stated as January 21 and that Armstrong has no basis to assert otherwise. The Court concludes that the inception and expiration dates of the policies are January 21, as stated in the policies, with the exception of T.E. 492 Ex. D, which has an actual expiration date of April 1, 1969.
$TThe inception and expiration dates of both T.E. 492 Ex. C and T.E. 492 Ex. D are plainly stated on the declarations page of the policies as January 21. Furthermore, Armstrong entered into a stipulation with Fireman's Fund which provides that Exhibits C and D are "true and correct cop$(ies$)" of the policies. (See T.E. 492.) The only evidence offered by Armstrong to the contrary is an invoice attached to a letter from Mr. Hoff of Alexander & Alexander to Mr. Hofferth of Armstrong which indicates the effective dates of the quota share policies. The effective date of T.E. 492 Ex. C is listed as "1/1/66." (See T.E. 2849.) However, this communication between Armstrong and its broker is immaterial to a determination of the mutual intent of the parties at the time of contracting. (See $UCity of Mill Valley v. Transamerica Insurance Co.$O (1979) 98 Cal.App.3d 595, 603.) There is no evidence before the Court to justify reformation based on "mutual mistake."
$TC. Aggregate Limit of Fireman's Fund Policy No. 90987
$TFireman's Fund issued Policy no. 90987 to Armstrong for a three-year period from January 21, 1966 to January 21, 1969. The policy is in evidence as T.E. 492 Ex. C. Fireman's Fund contends that the $ 5,000,000 aggregate limit for T.E. 492 Ex. C applies on a policy period basis. Under Fireman's Fund's view, the total aggregate available under the policy is $ 5,000,000 for the three-year period the policy was in effect. Armstrong argues that the $ 5,000,000 aggregate applies on an annual basis, and, therefore, $ 5,000,000 is available for each annual period the policy was in effect. The Court concludes that the $ 5,000,000 aggregate applies on an annual basis.
$TT.E. 492 Ex. C provides that the limit of liability under the policy is "5,000,000 aggregate." The policy follows "the terms, conditions and definitions" of a Continental policy in evidence as T.E. 484. The limit of liability under T.E. 484 is "$ 5,000,000 in the aggregate for each annual period." As Fireman's Fund points out, T.E. 492 Ex. C follows form to T.E. 484 "except for limits of liability." However, the Court finds that the following form exception refers only to the dollar amount of the limits of liability rather than to the basis on which the limits apply. Under the plain language of T.E. 484, and T.E. 492 Ex. C pursuant to the following form provision, the aggregate l imit applies "for each annual period."
$TIn addition, T.E. 492 Ex. C expressly provides that the $ 5,000,000 aggregate is a "$(q$)uota share part of $ 30,000,000." An insurance contract is to be taken as a whole, with each clause helping to interpret the other. (Civ. Code sec. 1641.) No insurer in the quota share group, including Fireman's Fund, contends that the $ 30,000,000 limit applies other than on an annual basis. It would unreasonably strain the policy language to find that the $ 5,000,000 aggregate applies on a policy period basis, when it is explicitly a part of a $ 30,000,000 aggregate which applies on an annual basis. The language of the policy as a whole indicates that the mutual intent of the parties at the time of contracting was that the $ 5,000,000 aggregate apply to each annual period.
$TD. Short-Term Policies
$TIn its Phase IV decision, the Court ruled that annual aggregate limits of short-term policies (policies in effect for some fraction of a year) should not be prorated. (See Phase IV Statement of Decision at pp. 6-8.) The Court also ruled that for the purposes of adjudicating Travelers' obligations to Armstrong, the canceled policies issued to Armstrong by Aetna (T.E. 468, 471, 472, 473), American Home (T.E. 478, 481), Continental Casualty (T.E. 484, 489), and Fireman's Fund (T.E. 492-D) are to be treated in accordance with this decision. (See Phase IV Statement of Decision at pp. 7-8.)
$TThe Phase IV ruling on the short-term policies was based on the plain language of the policies. No insurer has shown that a different ruling should apply to the property damage claims. Aetna argues that cancellation of a policy should result in proration of aggregate limits because Armstrong was entitled to receive a return of premium upon cancellation. This same argument was made and rejected in Phase IV. (See Phase IV Statement of Decision at p. 7.) Fireman's Fund is the only other insurer to address the short-term policy issue. While Fireman's Fund takes the position that the limits of short-term policies should be prorated, Fireman's Fund recognizes that the Court has already decided this issue. The Court concludes that the annual aggregate limits of short-term policies issued to Armstrong by carriers adverse to Armstrong in Phase V shall not be prorated. Full aggregate limits are available to Armstrong for each annual period or portion thereof that such policies were in effect.
$%$?$%V. Scope and Allocation Issues
$TIn Phase III and Phase IV of the Asbestos Insurance Coverage Cases, this Court resolved various issues relating to scope of coverage and allocation of liability for asbestos bodily injury claims. The scope and allocation issues are primarily legal issues. In Phase V, no new evidence was presented to the Court on these issues. Although the factual basis of the property damage claims differs from that of the bodily injury claims, the Court finds no reason to distinguish property damage from bodily injury for the purposes of the scope and allocation issues raised in Phase V.
$TThe Court notes that some issues which were resolved in Phase III and Phase IV were not raised in Phase V. Foremost among these are the issues relating to the effect of settlements. There are no settlements in evidence between Armstrong and any of its insurers regarding coverage for property damage claims. Therefore, the Court makes no ruling on the effect of settlements in Phase V.
$TThe Court concludes that the Phase III and Phase IV rulings apply as follows to Phase V.
$TA. Scope of Coverage
$TEvery policy triggered b y an asbestos-related property damage claim has an independent obligation to respond in full to a claim. This obligation includes indemnification, and if a policy carries defense obligations, the policy must respond in full to comply with those obligations. Armstrong does not have an obligation to share pro rata indemnification and defense costs because of any uninsured or self-insured periods of time simultaneous with the "occurrence" of property damage pertaining to a claim, unless a particular claim triggers no policies. (See Phase III Statement of Decision at pp. 64-65.)
$TB. Allocation of Liability Among Insurers Covering the Same Claim Pursuant to "Other Insurance" Clauses and Principles of Equitable Contribution
$TThe "other insurance" clauses and the "non-cumulation" clauses shall not be given effect and, instead, contribution among insurers shall be based on equitable principles. When more than one policy is triggered by a claim, defense and indemnity costs shall be allocated among all triggered policies according to applicable policy limits, multiplied by years of coverage. (See Phase IV Statement of Decision at pp. 19-32.)
$TDeductibles are not "other insurance" for purposes of allocation among insurers. If a claim triggers both policies with deductibles and policies without deductibles, and Armstrong selects a policy without deductibles for indemnification, Armstrong shall not be obligated to pay any portion of the liability by way of the deductible provisions. If Armstrong selects a policy with deductibles for indemnification, Armstrong shall pay any applicable deductible. (See Phase IV Statement of Decision at p. 34.)
$TC. Burden of Apportionment
$TThe "other insurance" clauses do not limit the liability of insurers to Armstrong. When more than one policy is triggered by a claim, Armstrong may select one insurer for complete defense and indemnity of the claim, subject to policy limits. Alternatively, Armstrong may select an insurer to pay a portion of such costs, to be determined in accordance with the methods of allocation described in part B above. The targeted insurer or insurers shall have the right to obtain contribution from other policies triggered by the same claim. (See Phase IV Statement of Decision at pp. 41-42.)
$TD. The Selection of Primary and Excess Policies to Respond to Claims
$TExcess coverage is triggered only when all primary policies with aggregate limits are exhausted, except in the situation in which a particular claim exhausts the "per occurrence" limit of a triggered primary policy, provided that the excess policy contains provisions which require it to pay upon exhaustion of the "per occurrence" limit of the underlying policy.
$TE. "Stacking" of Policy Limits
$TArmstrong contends that the Court should reconsider its Phase IV Decision on "stacking" of policy limits. Armstrong argues that stacking of "per occurrence" limits should be permitted in the building cases. Reliance, on the other hand, argues that the Court should extend its decision to preclude the stacking of total aggregate policy limits. The Court rejects both of these positions and concludes that the stacking of "per occurrence" limits is not allowed in the building cases. ("Per person" limits do not appear to be applicable to the building cases.) When multiple policies are triggered by a claim, Armstrong may select the policy under which it is to be indemnified for an occurrence. (See Phase IV Statement of Decision at pp. 64-65.) The Court notes that the parties have not raised, and the Court does not decide, 
any issue relating to the number of occurrences in the building cases.
$%$?$%VI. Defense Obligations
$TIn Phase III, the Court determined the defense obligations of primary and excess policies at issue in the bodily injury portion of this trial. (See Phase III Statement of Decision at pp. 79-92.) The Court finds that the same legal principles and rulings are applicable to policies at issue in Phase V.
$TA. Primary Policies
$T1. Reliance T.E. 526
$TThese policies obligate Reliance to assume charge of defense, which ceases after exhaustion of policy limits. The costs of such defense do not reduce policy limits.
$T2. Aetna
$Ta. T.E. 466-467
$TThese policies obligate Aetna to assume charge of defense, which ceases after exhaustion of policy limits. The costs of such defense do not reduce policy limits.
$Tb. T.E. 471, 473 and 476
$TThese policies obligate Aetna to assume charge of defense. These policies contain an endorsement which requires Aetna to continue to provide a defense for any claim that is filed before the applicable limits of liability have been exhausted. The costs of such defense do not reduce policy limits.
$T3. Liberty Mutual
$Ta. T.E. 508
$TThis policy obligates Liberty Mutual to assume charge of defense, which ceases after exhaustion of policy limits. The costs of such defense do not reduce policy limits.
$Tb. T.E. 509-516
$TThese policies obligate Liberty Mutual to assume charge of defense. Under General Amendatory Endorsement No. 1, clause no. 17, Liberty Mutual is obligated to continue to provide a defense on all claims relating to a particular occurrence that are filed and pending at the time that its policy limits relating to that occurrence are exhausted. The costs of such defense do not reduce policy limits.
$TB. Excess Carriers
$T1. Aetna
$Ta. T.E. 468
$TThis policy obligates Aetna to assume charge of defense. The costs of such defense do not reduce policy limits. However, any costs incurred by the $Uinsured$O in the investigation, settlement and defense of a claim are included in "ultimate net loss" and do reduce policy limits.
$Tb. T.E. 469, 470, 472, 474 and 475
$TThese policies carry no defense obligations whatsoever.
$T2. American Home
$Ta. T.E. 480
$TThis policy obligates American Home to assume charge of defense, which ceases after exhaustion of policy limits. The costs of such defense do not reduce policy limits.
$Tb. T.E. 477, 478, 479 and 481
$TThese policies carry no duty to assume charge of defense, but obligate American Home to pay defense costs which reduce policy limits.
$T3. Central National T.E. 482-483
$TThese policies carry no duty to assume charge of defense, but obligate Central National to pay defense costs which reduce policy limits.
$T4. Commercial Union (ELAC) T.E. 490
$TThis policy carries no duty to assume charge of defense, but obligates Commercial Union to pay defense costs which reduce policy limits.
$T5. Continental
$Ta. T.E. 484 and 486
$TThese policies carry no duty to assume charge of defense, but obligate Continental to pay defense costs which reduce policy limits.
$Tb. T.E. 485 and 488
$TThese policies carry no defense obligations whatsoever.
$Tc. T.E. 487
$TArmstrong and Continental have stipulated that this policy obligates Continental to pay defense costs and that such costs reduce policy limits. (See Stipulation between Armstrong and Continental on Defense Coverage dated August 7, 1987.) This stipulation is fully applicable to Continental's defense obligations relating to property damage claims.
$Td. T.E. 489
$TThis policy obligates Continental either to assume charge of defense or to pay defense costs which reduce policy limits.
$T6. Fidelity & Casualty T.E. 491
$TThis policy carries no duty to assume charge of defense, but obligates Fidelity & Casualty to pay defense costs which reduce policy limits.
$T7. Fireman's Fund T.E. 492 Ex. A-D
$TThese policies carry no defense obligations whatsoever.
$T8. First State T.E. 493, 494
$TThese policies carry no duty to assume charge of defense, but obligate First State to pay defense costs which reduce policy limits.
$T9. Great American T.E. 495
$TThis policy carries no defense obligations whatsoever.
$T10. INA
$Ta. T.E. 504 Ex. 1-3
$TThese policies carry no defense obligations whatsoever.
$Tb. T.E. 504 Ex. 4
$TThis policy obligates INA to assume charge of defense, which ceases after exhaustion of policy limits. The costs of such defense do not reduce policy limits.
$T11. Interstate T.E. 506-507
$TThese policies carry no duty to assume charge of defense, but obligate Interstate to pay defense costs which reduce policy limits.
$T12. National Union T.E. 523
$TThis policy carries no duty to assume charge of defense, but obligates National Union to pay defense costs which reduce policy limits.
$T13. Puritan T.E. 524-525
$TThese policies carry no duty to assume charge of defense, but obligate Puritan to pay defense costs which reduce policy limits.
$T14. Rokeby-Johnson, Bird and Companies T.E. 519 and 520
$TThese policies carry no duty to assume charge of defense, but obligate the insurers to pay defense costs which reduce policy limits.
$T15. U.S. Fire T.E. 540-541
$TThese policies carry no defense obligations whatsoever.
$%$?$%DATED: January 24, 1990
$TIRA A. BROWN, JR.
$TJudge of the Superior Court
$200:
$220:#EXTR#$?#COORDINATIONPROCEEDING# 
$00:
$10:COORDINATION PROCEEDING, Special Title $(Rule 1550(b)$), ASBESTOS INSURANCE, COVERAGE CASES, INCLUDED ACTIONS: ARMSTRONG WORLD INDUSTRIES, INC., a corporation, Plaintiff, vs. AETNA CASUALTY & SURETY COMPANY, a corporation, et al., Defendants. AND RELATED CROSS-ACTIONS. FIREMAN'S FUND INSURANCE COMPANY, a corporation, Plaintiff, vs. FIBREBOARD CORPORATION, a corporation, et al., Defendants. AND RELATED CROSS-ACTIONS. GAF CORPORATION, a corporation, Plaintiff, vs. INSURANCE COMPANY OF NORTH AMERICA, a corporation, et al., Defendants. AND RELATED CROSS-ACTIONS.
$20:JUDICIAL COUNCIL COORDINATION PROCEEDING NO. 1072
$25:SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE CITY AND COUNTY OF SAN FRANCISCO
$40:$?$%January 24, 1990, Decided
$45:$?$%January 24, 1990, Filed
$80:LOS ANGELES SUPERIOR COURT CIVIL NO. C315367. SAN FRANCISCO SUPERIOR COURT CIVIL NO. 753885. LOS ANGELES SUPERIOR COURT CIVIL NO. C286217.
$110:IRA A. BROWN, JR., Judge of the Superior Judge.
$115:IRA A. BROWN, JR.
$120:$T$USTATEMENTS OF DECISION$O
$TSTATEMENT OF DECISION CONCERNING PHASE VI-C ISSUES
$T$UTABLE OF CONTENTS$O
$%$?$%I. INTRODUCTION
$%$?$%II. INDEMNITY
$%$?$%III. ALLOCATED EXPENSES AND OVERALL DAMAGE CALCULATIONS
$%$?$%IV. INSURANCE DEFENSE FUND
$%$?$%V. UNALLOCATED COSTS
$%$?$%VI. AMOUNT OF UNALLOCATED EXPENSES
$%$?$%VII. INTEREST
$%$?$%VIII. CONCLUSION
$TBy the following statement of decision, this Court resolves issues raised in Phase V I-C of the Asbestos Insurance Coverage Cases, Judicial Council Coordination Proceeding Number 1072 (coordinated action $UFireman's Fund v. Fibreboard, et al.,$O San Francisco Superior Court number 753885). In the following statement of decision, the Court will refer to the parties by the shorthand names to which they have been referred throughout this proceeding.
$%$?$%I. $UINTRODUCTION$O
$TPhase VI-C of the Asbestos Insurance Coverage Cases involves Fireman's Fund's ("FF's") right to receive contribution from Continental Casualty Company ("CCC") for FF's defense of Fibreboard's ("FB's") underlying asbestos claims. In Phase III, the Court held that all policies in effect from first exposure until death or date of claim, whichever occurs first, are triggered by an asbestos-related bodily injury claim. (Phase III Decision at p. 42.) The court further held that every policy triggered by an asbestos-related bodily injury claim has an independent obligation to respond in full to a claim, subject to policy limits, deductibles, exclusions, "other insurance" clauses, and rights of equitable contribution. (Phase III Decision at pp. 64-65.)
$TIn Phase IV, the Court held that contribution among insurers shall be based on equitable principles. When more than one policy is triggered by a claim, defense and indemnity costs shall be allocated among all triggered policies according to applicable policy limits, multiplied by years of coverage. (Phase IV Decision at pp. 29-30.) In addition, the court concluded that a policyholder may obtain full indemnification and defense from one insurer, leaving the targeted or performing insurer to seek contribution from other insurers covering the same loss. (Phase IV Decision at pp. 41-42.) In Phase VI-C, FF, as the performing insurer, seeks contribution from CCC for those FB claims that CCC also covered.
$TFF seeks from CCC contribution for CCC's share of allocated expenses including reimbursement of Insurance Defense Fund ("IDF") payments FF made as a result of CCC's failure to defend FB, and unallocated expenses of 15% of CCC's share of indemnity and allocated expense payments. In addition, FF seeks interest on accelerated indemnity payments, on allocated expense payments, and on unallocated expenses.
$TThe Court ruled that the issues involved were equitable and therefore the parties were not entitled to a trial by jury. Trial lasted approximately five weeks and the Court heard two full days of closing arguments.
$%$?$%II. $UINDEMNITY$O
$TBoth FF and CCC agree that FF does not seek equitable contribution from CCC for indemnity payments made by FF. FF seeks only to recover for interest on indemnity payments it alleges were made prematurely because CCC did not contribute. FF's claim for interest is discussed later in this decision.
$%$?$%III. $UALLOCATED EXPENSES AND OVERALL DAMAGE CALCULATIONS$O
$TThe Court finds that FF has proved its allocated expenses with reasonable certainty. FF has presented evidence of its allocated expenses that is convincing and certain. It has not been shown that the evidence is incomplete or unreliable or that FF disregarded readily available evidence in calculating its defense expenditures. Allocated expense damages were proved by a preponderance of the evidence and were not speculative.
$TThe Court finds that FF is not required to present evidence of allocated expenses incurred on a claim-by-claim basis, as argued by CCC. Such a record-keeping requirement is unreasonable in this case. FF has proved its allocated expense damages by a preponderance of the evidence a nd no further degree of proof is required.
$TCCC contends that FF entered into a legally binding agreement to maintain allocated expense records on a claim-by-claim basis. The evidence does not support this contention. The Court finds that no such agreement was made. Nor has CCC shown that it was relying upon FF to perform such burdensome record-keeping. CCC has not shown significant prejudice resulting from the method used by FF to document its defense expenses.
$TCCC argues that damages in cases involving equitable contribution between insurance companies are normally calculated on a claim-by-claim basis. The evidence does not support a finding that there is any industry custom and practice to this effect in mass toxic tort cases. To the contrary, insurance company participants in the Wellington Agreement were billed defense costs on an aggregate basis. But even if claim-by-claim calculation were the norm, the unique facts in this proceeding render a claim-by-claim calculation requirement both impractical and inequitable. FF's method of allocating defense expenditures to triggered policies in the same proportion as indemnity for all cases is rational and consistent with this Court's holding that defense expenditures are to be shared in proportion to indemnity. FF has proven its indemnity payments and their proper allocation with certainty. The Court was not persuaded that defense expenses for claims triggering CCC policies were lower than for other claims or that defense expenditures on a particular case should be allocated only when a case has closed. The preponderance of the evidence was to the contrary. The Court accepts the allocation method adopted by FF and finds that it proves FF's allocated expense damages with reasonable certainty.
$TCCC contends that various testimony and documents constituted admissions of FF's agents and employees which are inconsistent with FF's present claims. CCC also contends that FF is guilty of unclean hands and laches, or is otherwise estopped from recovering contribution. The Court rejects CCC's arguments and finds that the evidence upon which CCC relies is unpersuasive and does not outweigh the preponderance of the evidence which supports the Court's findings.
$TCCC claims that it did not refuse to defend and indemnify FB and is not obligated to contribute towards the costs of the cases. The Court rejects this claim. The Court finds that CCC was tendered every case for defense and indemnity, and that even though these cases triggered CCC's policy, CCC contributed toward the costs in only a handful of the earliest cases. The minor contributions CCC did make were properly taken into account in FF's damage calculations. FF is entitled to contribution respecting all the claims that trigger CCC's policy since FF was the performing insurer. CCC has refused to pay that contribution.
$TCCC asserts that it should contribute to FF only in those cases in which exposure to FB asbestos products prior to 1959 is specifically alleged. It would be burdensome and inequitable to require this level of proof in this case. The Court finds that details as to specifically when exposure to any particular manufacturer's products occurred is generally unavailable. FF could not and did not keep records of this detail, nor did CCC or the Wellington Facility. CCC has not shown that such evidence was available in any underlying case or that it would have changed CCC's contribution or FF's damages.
$TFurther, as an independent basis for the Court's decision, there is a distinction between a carrier's con tractual duty to defend and indemnify an insured and a carrier's equitable duty of contribution when another carrier has previously defended and indemnified that insured. ( $USignal Companies v. Harbor Insurance Co.$O (1980) 27 Cal.3d 359, 369.) If asbestos claims against FB resulted in loss to FF, equity requires that all CCC policies in effect from the date of first exposure to asbestos until the date of death or claim, whichever occurs first, be subject to equitable contribution to FF for that loss.
$TCCC points out that FF's damage amount was adjusted before and during trial, allegedly demonstrating the speculative nature of the damages and the untrustworthiness of FF's experts. However, there was an enormous number of claims at issue in this proceeding and the process required to calculate damages was somewhat complex. Given these facts, the adjustments made by FF in its damage amount do not indicate that the damages are speculative or that FF's experts are not believable.
$TFF has shown that it is seeking to recover against CCC for damages only relating to asbestos-related claims against FB which trigger CCC's policy. No non-asbestos claims or claims that did not trigger CCC's policy were included in FF's final calculations. The best information available was used. The damages awarded are based upon amounts actually expended by FF that are properly allocated to CCC. No amounts allocable to other carriers are included in the amounts awarded to FF herein. The preponderance of the evidence shows that FF's experts calculated damages accurately and competently.
$TFF urges this Court to award allocated expense damages that exceed those available under the Court's equitable contribution formula. FF points to equitable considerations allegedly arising from CCC's conduct that should be considered by this Court in its award of damages.
$TThe Court finds that an award of damages to FF under this Court's equitable contribution formula, coupled with an award of statutory interest when the damages are reasonably certain or capable of being made certain, produces an equitable result. The equitable contribution formula was designed by this Court to produce an equitable result given the unique circumstances of this coordinated proceeding. The Court remains convinced that its formula plus interest produces an equitable result in this case.
$TCCC claims that the method used by FF to assign claims with unknown exposure dates and unknown settlement dates to carrier policies was improper. The Court finds, however, that the method proposed by FF is rational, supported by the evidence, and clearly more equitable than excluding those claims entirely, as proposed by CCC. Such an exclusion would penalize FF for providing a defense when liability in a particular case was unclear. The evidence shows that the unknown data was unavailable. The Court rejects the exclusion method of CCC's expert, Dr. Wecker, as being inequitable and not supported by the evidence.
$TThe Court also accepts the grouping system used by FF to trigger policies. The system does not result in CCC liability when there would be no liability under this Court's equitable contribution formula. The Court is persuaded that FF's grouping system produces an accurate measure of CCC's liability. Any distortions created by the system in measuring other carriers' liability are irrelevant in this action against CCC. Any distortion of CCC's liability has been shown to be insignificant.
$TThe use by FF of the date "January 1" as the date of 
exposure in cases in which the exact date is unknown is not significant to FF's damage claim against CCC. Contrary to CCC's assertion, it does not indicate that FF is attempting to inflate its damage claim unfairly or in bad faith. Further, as noted above, the evidence shows this exact data was not available. The use of "January 1" was consistent with the practice employed by the Wellington Facility and by CCC.
$TThe so-called "plant worker" cases were properly included by FF in its damage calculations. Except for the three Bell I cases, which have been excluded by FF, these cases were settled at a time when products liability claims against FB were present in the complaints. The insurance policy between CCC and FB does not exclude these cases from the definition of coverage.
$TCCC claims that FF should reduce its damages to compensate for a "credit calculation" and a "prospective adjustment" that it will receive under the Wellington Agreement. However, CCC has not shown that these prospective refunds or the amounts are more than speculative at this time. CCC has not shown that these calculations will actually be made, or that, if made, they would result in any refund to FF. In fact, the preponderance of the evidence is to the contrary. No offset is necessary for speculative sums.
$TCCC contends that an expected payment of $ 2,515,739.00 from Fidelity & Casualty of New York to FF should be considered in the damage calculations. The Court agrees with CCC that this amount is not speculative and should be factored into the damage calculations. CCC is not required to pay a share of damages on amounts that are owed by other parties.
$TCCC claims that the agreement it reached with FB in December 1988 bars any contribution claim by FF. The Court rejects this contention. That agreement (T.E. 3553.) was not a settlement of any of the issues relevant to FF's contribution claim. It expressly left all prior decisions of this Court except the short term policy issue open for appeal. Contribution rights were also expressly reserved. No pre-1988 payments on claims were involved. Those are the payments involved here. Every payment made under the agreement, except for the initial $ 7.5 million, is interim only and subject to reimbursement to CCC if CCC prevails on its appeal with FB. The $ 7.5 million payment was not made under the primary policy which is the subject of FF's contribution claim. Therefore, the Court finds that the agreement with FB does not bar FF's contribution claim.
$TThe Court finds that FF is entitled to $ 3,155,391.00 from CCC for allocated expenses. This amount is based on damage calculations and adjustments found in both T.E. 3467 and T.E. 3580.
$%$?$%IV. $UINSURANCE DEFENSE FUND$O
$TFF contends that CCC should be liable for all sums paid by FF for the Insurance Defense Fund ("IDF") which are attributable to the defense of FB. FF argues that it was required under the Wellington Agreement to make payments to the IDF only because CCC was not fulfilling its obligations to FB, and that therefore CCC should now reimburse FF for all IDF assessments attributable to the defense of FB.
$TCCC counters that FF had no legal obligation to contribute to the IDF and did so only as part of its settlement with FB. CCC claims that FF should not be allowed to undo its compromise settlement with FB simply because that settlement proved to be unfavorable in light of this Court's decision.
$TThe Court rejects CCC's argument. Equitable principles do not favor penalizing a carrier which pays more than its legally-required share of defense costs. Moreover, all subscribers to the Wellington Agreement fully reserved their rights against all non-subscribing carriers. (T.E. 2380, Art. I, sec. (2).) FF is not attempting to avoid its contractual obligations under Wellington, but merely to assert contribution rights against a third-party that were explicitly preserved under the agreement. The Court finds that had CCC and Pacific Indemnity ("PI") been defending as required by their policies, FF would not have incurred or been required under the Wellington Agreement to incur the IDF payments which it seeks to recover from CCC. Both equity and the facts in this case require that CCC pay its equitable share of the IDF payments made by FF which are attributable to the defense of FB.
$TCCC suggests that any liability it may have for IDF payments should be limited to its pro rata share. The manner in which CCC has calculated its pro rate share, however, is plainly incorrect. Under this Court's decision, carriers are not liable for defense costs after exhaustion of indemnity limits. When the IDF assessments for FB were made all of FB's primary carriers were exhausted except for CCC and PI. Only CCC and PI can be liable for any portion of IDF payments.
$TFinally, CCC contends that any obligation it has for reimbursement of IDF payments should be reduced by PI's equitable share of the obligation to defend FB at the time the IDF assessments were made. FF counters that CCC was obligated to pay all defense costs of FB at any time when its indemnity obligations remained unexhausted and thus should now reimburse FF for all IDF payments attributable to defense to FB.
$TIn this case the Court addresses CCC's equitable duty to reimburse FF for payments which have already been made. CCC's duty to FB to pay all defense costs is not the same as its obligation to reimburse FF for payments previously made on FB's behalf. CCC's duty to reimburse does not include sums which PI or any other carrier has a duty to pay. The evidence establishes that CCC's obligation under the Court's equitable contribution formula to reimburse FF for IDF payments is 65% of those payments. The Court finds that FF paid $ 5,278,698.00 into the IDF on behalf of FB and is entitled to recover 65% of that sum, or $ 3,431,154.00, from CCC.
$%$?$%V. $UUNALLOCATED COSTS$O
$TFireman's Fund argues that it is entitled to compensation for unallocated costs it incurred in handling FB's claims in the amount of 15% of indemnity and allocated expenses. CCC argues that there is no precedent for an award of unallocated costs and, therefore, they should not be awarded. Secondly, CCC argues that if the Court awards unallocated costs, it do so at the rate of 5%, with a credit of 10%, the amount charged for unallocated expenses by the Wellington Asbestos Claims Facility. The Court awards FF unallocated costs at 15% of indemnity and allocated expenses.
$TThe subject of unallocated costs for $Umassive toxic tort litigation$O is one of first impression in California. In Phase IV, the Court determined that an insurer whom the insured selected to defend it could seek contribution from other insurers also covering the insured for the same loss. The Court finds that to deny FF any reimbursement for its internal costs incurred in defending the thousands of FB claims would be inequitable.
$TIn $UContinental Cas. Co. v. Zurich Ins. Co.$O (1961) 57 Cal.2d 27, the California Supreme Court determined the respective liabilities of three insurance companies covering the insured. The Court stated: ". . . no insurer which deliberately breaches its obligation to the insured should be permitted thereby to profit, whether at the expense of the insured, or of an insurer which faithfully discharges its obligation." ( $UId.$O at p. 38.) Here, FF shouldered the burden of defending FB when CCC failed to do so. To refuse to require CCC to reimburse FF for CCC's share of unallocated expenses would allow CCC to profit at FF's expense. Thus, equity demands that CCC pay its share of unallocated expenses.
$TAn award of unallocated expenses is not entirely without precedent. The California Supreme Court has ruled that any insurer which is potentially liable to an insured is liable for all damages reasonably incurred by the insured in the event that insurer failed to defend. $UWint v. Fidelity & Casualty Co.$O (1973) 9 Cal.3d 257, 261. And, in several actions to recover on insurance policies, California courts have awarded overhead as an expense incurred by the breach.
$TIn $UGeddes & Smith, Inc. v. St. Paul Mercury Indem. Co.$O (1965) 63 Cal.2d 602, the plaintiff sued to recover on an insurance policy issued by the defendant to the plaintiff's vendor. The vendor sold defective aluminum doors which the plaintiff installed in houses, requiring the plaintiff to make extensive efforts to repair them. The court found that overhead, including the salaries of supervisors, secretaries, and administrators, was an essential expense incurred in the performance of the work. Therefore, it was included in the damage award. ( $UId.$O at p. 609.)
$TIn $UJen-Mar Constr. Co. v. Brown$O (1967) 247 Cal.App.2d 564, 570-571, the court found that overhead, profit, and attorney's fees were encompassed within the provisions of the bond and therefore the surety was held liable for those costs. Both of these cases demonstrate that California courts have been willing to award costs other than direct expenses to insureds when their insurers fail to fulfill their contractual obligations.
$TCCC argues that an award of unallocated expenses is contrary to case law, relying on $UKeene Corp. v. Ins. Co. of North America$O (U.S. Dist. Ct. D.C.) Civil Action No. 78-011, an asbestos insurance coverage case in which the court denied unallocated costs. This unpublished opinion was later vacated. The Court, therefore, finds CCC's reliance on it to be misplaced.
$TPrevious cases in which insurers were required to share defense costs have involved only one or a few cases to defend. Here, however, FF defended thousands of cases in many state courts and in federal courts. (R.T. 41306:10-11, 41403:25-28.) Prior to 1984, between 60 to 80 persons, or the equivalent of about 22 to 26 full-time employees, directly handled the claims with staff support. (R.T. 41419:22-41420:8.) In 1984, FF set up the Environmental Claims Facility primarily for the benefit of FB. (R.T. 41421:4-9.) Processing the claims took great effort. Counsel needed to be assigned and case-handling strategy had to be determined. The volume of cases required, among other measures, appointment of a nationwide asbestos coordinator, staff training and education, creation of brief banks, and setting up a computer data bank. (R.T. 41402-03, 41410-17.) The evidence clearly establishes that FF incurred great expense in defending FB's cases.
$TCCC argues there is an industry practice not to reimburse t hese costs. The Court finds that the evidence does not support this argument. Mass toxic tort cases involving thousands of underlying claims are leading to new trends in insurance practices, including the sharing of unallocated costs. For example, under the Wellington Agreement, the landmark settlement arranged between some asbestos manufacturers and some of their insurers in June of 1985, insurers were charged 10% to cover unallocated expenses incurred by the Asbestos Claims Facility, established by the agreement. (R.T. 41717:7-11; T.E. 3305.) Clearly, all of the parties to that agreement recognized that cases of this nature, involving thousands of underlying claims, incur costs beyond that which can be determined on a case-by-case basis.
$TCCC, itself, also has recognized the equity in requiring participating insurers to share in the unallocated costs incurred by the lead carrier. In the "Cyprus Agreement," a claims handling agreement between CCC, as the "lead carrier," and other insurers, CCC charged the other insurers 14% for unallocated expenses. (T.E. 3450, p. 6.)
$TFinally, the Court finds that awarding FF unallocated costs is necessary to encourage insurers to fulfill their contractual duties to insureds. Failing to compensate FF adequately for the expenses it incurred in defending its insured would penalize the insurer which steps forward to defend the insured. CCC argues that if the Court shifts these costs from the lead carrier to the others, there is no incentive to keep costs down. The Court disagrees. Since unallocated costs are a percentage of loss and indemnity, which the lead carrier is also required to pay, that insurer has ample incentive to keep its costs as reasonable as it can.
$TAgain, the Court finds that equity compels a sharing of all defense costs. As the court stated in $UContinental Cas. Co. v. Zurich Ins. Co., supra,$O 57 Cal.2d at p. 37:
$=S$%$?$%. . . it is our view that all obligated carriers who have refused to defend should be required to share in costs of the insured's defense, whether such costs were originally paid by the insured himself or by fewer than all of the carriers. A contrary result would simply provide a premium or offer a possible windfall for the insurer who refuses to defend, and thus, by leaving the insured to his own resources, enjoys a chance that the costs of defense will be provided by some other insurer at no expense to the company which declines to carry out its contractual commitments.$=I
$%$?$%A sharing of unallocated costs should be included in an award of defense costs for cases of this nature to avoid the "windfall" referred to above.
$%$?$%VI. $UAMOUNT OF UNALLOCATED EXPENSES$O
$TCCC argues that if the Court awards unallocated costs that it should limit them to 5% instead of the 15% FF requests. The Court finds that FF has proved, by a preponderance of the evidence, that unallocated expenses are commonly measured as a percentage of indemnity and allocated expenses and that unallocated expenses of 15% should be awarded.
$TFirst, Jerome Smith, FF's Director of Underwriting, testified that the Insurance Service Offices ("ISO") issues benchmark factors within ranges as advisory numbers for insurers to use. The ISO recommendation for the "loss conversion factor," a method of measuring the internal costs of adjusting claims, which includes salaries, rent, corporate overhead, outside adjuster fees and similar costs, during most of the relevant period was at least 15%. (T.E. 3464.) That number does not include any el ement of profit. (R.T. 42799:23-26.)
$TNext, FF and FB agreed to 15.2% unallocated expense in their Interim Agreement. (T.E. 2526, p. 2.) All signatories of the Wellington Agreement agreed to cover the unallocated costs of defense, at a rate of 10%. (R.T. 41717:7-11; T.E. 3305.) It is reasonable to assume that the Asbestos Claims Facility, designed solely for the purpose of coordinating asbestos defense, would have a more cost-effective system of defense than FF.
$TFinally, CCC's own actions establish that the 15% rate is reasonable. That figure is within the range CCC charged on some of its own claims services agreements. (See T.E. 3441-3439.) In CCC's Cyprus Agreement, it charged the other insurers 14% for unallocated costs. (T.E. 3450, p. 6.) And, in the 1977 correspondence between FF and CCC attempting to reach a claims-handling arrangement, FF proposed that it receive 15% for unallocated expenses. (T.E. 3384.) While no agreement was ever reached, CCC was willing to agree to that figure. (T.E. 3395.) Thus, the 15% figure is a reasonable and accurate measure of FF's unallocated expenses and is supported by the evidence.
$TCCC argues that a 5% figure developed by its expert, Dr. Wecker, is a more accurate assessment. Dr. Wecker based his estimate on a letter sent by FF's Gary Ibello to other Wellington carriers for purposes of reallocation of expenses pursuant to the Wellington Agreement. Dr. Wecker then turned that total into a percentage of indemnity and expense and arrived at a figure of 5%.
$TThe Court finds that CCC's reliance on this figure is misplaced. The evidence clearly demonstrates that 5% is not an accurate measure of unallocated expenses incurred by FF. William Benz, who prepared the estimate in less than one day, was given a list of employees and asked to estimate the costs to the company of their employment. (Benz deposition, p. 8.) He did a "starting estimate." (T.E. 3317.) Benz testified that there are 20 to 25 types of expenses involved in unallocated costs and his estimate contained only 10 of them. (Benz deposition, p. 23:11-20.) He did not even know that his estimate related to asbestos cases. (Benz deposition, pp. 40:26-41:4.) Even Dr. Wecker agreed that an estimate of this type prepared in one day is inadequate and unreliable. (R.T. 43263.)
$TFinally, CCC raises the argument that had FF not exhausted early as a result of CCC's failure to contribute to FB's defense and indemnity, then FF would have been charged the 10% unallocated expense fee by Wellington's Asbestos Claims Facility. CCC then argues that any unallocated costs assessed to it should be set off by this 10% "windfall" FF received by exhausting early. The Court finds that this argument is without merit and that it would lead to an inequitable result.
$TFirst, the Court determined in Phase IV that an insurer was entitled to contribution for indemnity and defense from other insurers whose policies were triggered by a claim. CCC's theory would require the Court to speculate as to "what would have happened" had CCC lived up to its obligation to indemnify and defend FB. The Court sees no reason to engage in such speculation. Instead, the Court will award damages to FF based on what actually transpired. Here, CCC failed to contribute to FB's defense, thus causing FF damages. FF, then, is entitled to contribution for those damages it did incur. CCC has not adequately proven the facts necessary for an offset. It would also be inequitable to permit CCC to benefit from its failure to contribute.
$TIn addition, the Wellington Agreement itself prohibits CCC from gaining a benefit from its existence. The Agreement expressly reserves all signatories' rights to pursue non-signatories. It also specifies that it is not intended to confer rights or benefits on non-signatories. (T.E. 2380, Art. I, secs. (2), (3).) CCC's failure to fulfill its contractual obligations to FB caused FF to incur substantial costs. To allow CCC to benefit from a "would-have-been" situation and the Wellington Agreement, to which CCC refused to subscribe, would be inequitable. Therefore, the Court finds that FF's unallocated costs are 15% of indemnity and expenses with no set-off. CCC's share of those unallocated costs under the Court's equitable contribution formula is $ 2,377,502.
$%$?$%VII. $UINTEREST$O
$TCivil Code section 3287(a) mandates that prejudgment interest be awarded to anyone who is entitled to recover an amount which is certain or capable of being made certain by calculation, and whose right to the payment was vested at a particular time. FF argues that it is entitled to recover interest on the amounts it paid on indemnity, allocated expense, and unallocated expense on behalf of FB. FF argues that the actual payments made, as well as the dates of payment, were known and certain, and that, therefore, CCC is required to pay interest on its share of those amounts. FF erroneously contends it is entitled to interest at 10% per annum.
$TCCC argues that FF is not entitled to interest on its indemnity and expense payments because no prejudgment interest may be awarded where the sum is not ascertainable prior to judgment. Here, CCC argues, the sum due FF could not be ascertained until the Court made its findings regarding trigger and scope, and furthermore, even after the Court made those determinations, the sum due FF was still uncertain because FF still claimed varying amounts were owed by CCC. CCC also argues that FF's conduct and positions bar any interest award.
$TThe Court finds that FF is entitled to interest at 7% per annum to the date of judgment on CCC's share of the payments FF made on behalf of FB for indemnity and allocated expenses. It is not entitled to interest on unallocated expense.
$TThe Court finds that the damages FF is seeking were certain and ascertainable by CCC. The amounts FF paid for settlements and judgments, and for defense were certain as they were paid out, when they were paid out. FF's difficulty in ascertaining the amount of CCC's share of damages is due to the dispute over CCC's share of the liability and to the extremely large number of claims filed against FB. It would be inequitable to find that FF was not entitled to prejudgment interest because it had difficulty precisely calculating its damages on the tens of thousands of claims processed. The Court has commented previously on the uniqueness of this case because of the large number of claims involved. Given the circumstances of this case, the Court finds that FF damages were sufficiently certain to merit an award of prejudgment interest.
$TThe Court also finds that FF's conduct and positions do not preclude an award of interest. FF is not estopped from claiming interest. Nor has CCC detrimentally relied on any conduct or positions of FF. FF's conduct and positions on which CCC bases its arguments do not make FF's damages any less certain and ascertainable by CCC or otherwise affect FF's right to pre-judgment interest. The Court finds the award of interest is required to equitably compensate FF under the circumstances of this case.
$TCalifornia case law clearly states that disput es over liability do not bar an award of prejudgment interest. In $UE.L. White, Inc. v. City of Huntington Beach$O (1982) 138 Cal.App.3d 366, the court awarded prejudgment interest to the prevailing insurer. In that case, White and Huntington Beach were unsuccessful co-defendants in two lawsuits. Each paid half of the judgments. Then White and its insurer, Royal Globe, sued Huntington Beach for indemnity totaling about $ 140,000. When Huntington Beach's insurer became insolvent, the issue raised was whether White and Royal could recover any part of the indemnity that would have been paid by the insolvent insurer. The trial court ruled that they could not and awarded total indemnity to White and Royal of only $ 6,000, which would not have been paid by the insolvent insurer, and enjoined any action to pay the excess. ( $UId.$O at p. 369.)
$TOn appeal, the court affirmed but awarded White and Royal prejudgment interest on the $ 6,000 from the date they had paid the underlying judgments. The court rejected Huntington Beach's argument that damages were not certain until the trial court made its determination of comparative fault. The court concluded:
$=S$%$?$%Here, White and Royal Globe's claim for indemnity was certain in amount from the date the underlying judgments were satisfied, but was subject to a possible reduction if White was found to have been more than vicariously liable. The possibility of that reduction, or even an actual reduction, does not render White and Royal Globe's damages any less certain. ( $UId.$O at p. 378.)$=I
$%$?$%Here, the payments FF made on behalf of FB were certain when they were made. The fact that CCC's share of those payments had not been determined does not make FF's damages uncertain.
$TSeveral other cases reach similar results. In $UOil Base, Inc. v. Transport Indem. Co.$O (1957) 148 Cal.App.2d 490, the court upheld an award of prejudgment interest to the insurance company from the date it paid the obligation. The court found that the fact that there was a controversy over whether the contesting insurer's policy attached to the risk did not affect that insurer's liability to pay its share of the settlement, and thus the amount owed was certain. ( $UId.$O at p. 492.) In $UNorth River Ins. Co. v. American Home Assurance Co.$O (1989) 210 Cal.App.3d 108, the trial court had to determine the priority of payment among four policies potentially covering the loss. The Court of Appeal upheld the award of prejudgment interest to the plaintiff, despite the disagreement over which policy should apply. ( $UId.$O at pp. 116-117.)
$TFinally, in $UAetna Cas. & Surety Co. v. Certain Underwriters$O (1976) 56 Cal.App.3d 791, the California Court of Appeal upheld an award of prejudgment interest to the plaintiff insurer. In that case the plaintiff was the primary insurer and the defendants were excess insurers of Union Oil during the Santa Barbara oil well blow-out. Plaintiff defended until its policy exhausted. While continuing to defend, it filed a declaratory relief action against the defendants. The Court first ruled that an insurer has no further duty to defend after its policy is exhausted. ( $UId.$O at p. 801.)
$TThe Court then upheld the trial court's decision that Aetna was entitled to reimbursement for the costs and expenses of defense attributable to coverage provided by the defendant excess carriers. ( $UId.$O at pp. 805-806.) Under the court's proration formula, the total amount each carrier was to pay could not be determined until the litigation was complete. ( $UId.$O at p. 806.) The court nevertheless affirmed the trial court's award of interest. ( $UId.$O at pp. 793, 807.) Similarly, this Court awards interest to FF even though CCC's share was not readily determinable until the litigation was complete.
$TCCC raises $UEagle-Picher Industries v. Liberty Mut. Ins. Co.$O (1st Cir. 1987) 829 F.2d 227, in opposition. In that asbestos insurance coverage case, the court determined that prejudgment interest could be awarded, but not until the court, on appeal, determined which theory of trigger applied. The court found that while the payments were certain, whether the claims fell within the insurer's coverage could not be determined until the court made its findings on trigger and scope. ( $UId.$O at p. 249.) $UEagle-Picher$O was decided under Ohio law. Although the language of the Ohio statute is similar to that of the California statute, California cases hold that disputes over the scope of liability do not preclude an award of prejudgment interest. Based on California law, then, the Court finds that $UEagle-Picher$O is not determinative of this issue.
$TCCC also argues that FF is barred from an award of prejudgment interest because the sums FF sought from CCC were not certain, since FF repeatedly changed its damage calculations. CCC relies on $UChesapeake Industries, supra,$O 149 Cal.App.3d 901, an action for an accounting under a lease agreement, in which the court denied an award of prejudgment interest. The court determined that the test for certainty was whether the defendant actually knew the amount owed or from reasonably available information could have computed that amount. ( $UId.$O at p. 907.) CCC argues that it, like the plaintiff in that case, did not know what amount, if any, it owed FF, nor could it calculate that amount.
$TIn $UChesapeake Industries,$O the court found that the plaintiff could not have known the amount it owed because the trier of fact had to determine the plaintiff's liability for breaching the lease by offsetting the time left on the lease against the defendant's recoupment from reletting the premises and the defendant's costs in repairing the premises. That amount could not be determined by an established or reasonably ascertainable market price, but instead required a trial on the evidence. ( $UId.$O at pp. 907-910.)
$THowever, damages are capable of being made certain if the amount due can be determined by reference to a fixed standard such as data supplied by the plaintiff to the defendant. ( $UMarine Terminals Corp. v. Paceco, Inc.$O (1983) 145 Cal.App.3d 991, 995-996.) Damages are also ascertainable if they are based on settlements actually paid out. ( $UOil Base, Inc. v. Transport Indem. Co., supra,$O 148 Cal.App.2d at p. 492.) FF's damages are based on payments it made for indemnity and defense which were fixe d amounts; no further evidence is necessary to determine FF's liability.
$TCCC's argument that it did not know the amount owed is not convincing. Because of the large number of claims involved, the Court finds that it was not necessary for FF to send CCC a bill for each payment. Instead, FF's proof that it offered CCC the opportunity to review its files (R.T. 41901:6-41903:9, T.E. 3309.) and the evidence that another insurer, Fidelity & Casualty, did examine FF's files on more than one occasion (R.T. 41436:26-41437:2, 41466:24-41467:26.) is sufficient to find that the amount due was ascertainable by CCC. Further, the Court finds that CCC never tried to ascertain what it owed and that its failure to pay did not result from its claim that it did not know the amount owed.
$TIn addition, the fact that FF's damage claims varied does not preclude it from an award of prejudgment interest. The changes were relatively minor and did not affect the certainty of the amounts paid out or the timing of the payments. The mere fact that there is a slight difference between the amount of damages claimed and the amount awarded does not preclude an award of prejudgment interest. ( $UMarine Terminals, supra,$O 145 Cal.App.3d at p. 996; $Usee also Esgro Central, Inc. v. General Ins. Co.,$O (1971) 20 Cal.App.3d 1054, 1061-1062, where a dispute over 10-15% of the total damages claimed did not preclude an award of interest.)
$TFinally, CNA's reliance on $UChesapeake Industries$O is misplaced. There, the court clearly limited its decision to the case before it. The court stated:
$=S$%$?$%Although an accounting action is prima facie evidence a claim is uncertain, we do not foreclose the possibility of prejudgment interest in an accounting action where equity demands such an award. We decide only that under the circumstances of this case neither legal rules nor equitable consideration would allow $(the defendant$) to cross-claim for an accounting to determine the amount due under the lease and then charge $(the plaintiff$) with prejudgment interest on the same adjudicated sum. (149 Cal.App.3d at p. 909.)$=I
$THere, given the length of this litigation, the extraordinary circumstances of the case, the large number of underlying claims, and the large sums of money involved, the Court finds that equity does compel an award of prejudgment interest to FF. The Court awards prejudgment interest on CCC's share of FF indemnity payments in the amount of $ 1,201,542 and on its allocated expenses in the amount of $ 1,591,306. ($ 1,411,155 on allocated expenses and $ 180,151 on IDF expense payments.) These amounts represent interest through December 31, 1988. FF is entitled to interest through the date of judgment. Thus, to these amounts must be added a per diem award of $ 1,263 from and including January 1, 1989 to the date of judgment.
$TThe Court does not award interest on unallocated expenses because they, unlike indemnity and expense payments, were not certain. Since FF's payments of unallocated costs on the FB cases were an undifferentiated part of its overall unallocated costs, and the Court did not determine the right to or the amount of unallocated costs until this phase of the trial, they were not certain or ascertainable. As a result, the Court finds that FF is not entitled to prejudgment interest on unallocated costs.
$%$?$%VIII. $UCONCLUSION$O
$TIn summary, the Court holds that FF is entitled to the following damages as e quitable contribution from CCC:$M02,65,13$D$QInterest on Accelerated Indemnity:$Y$ 1,201,542$Q$QAllocated Expenses:$Y$ 3,155,391$Q$QInterest On Allocated Expenses:$Y$ 1,411,155$Q$QAllocated Expenses through the IDF:$Y$ 3,431,154$Q$QInterest on Allocated Expenses through the IDF:$Y$ 180,151$Q$QUnallocated Expenses:$Y$ 2,377,502$Q$QInterest on Unallocated Expenses:$Y$ 0$Q$QTOTAL:$Y$ 11,756,895$X
$%$?$%plus $ 1,263 per day in interest from and including January 1, 1989.
$%$?$%January 24, 1990
$TIRA A. BROWN, JR.
$TJudge of the Superior Court
$200:
$220:#EXTR#$?#COORDINATIONPROCEEDING# 
$00:
$10:Central Valley Fresh Produce, Inc. vs. Wilbur-Elli
$20:04CECG00542 AMS
$25:SUPERIOR COURT OF CALIFORNIA, COUNTY OF FRESNO
$40:June 30, 2005, Decided
$90:Summary Judgment.
$105:For Plaintiff: Sandra D. Peterson, Attorney at Law.
$%$?$%For Defendant: Victoria Allard-Bernhardt, Attorney at Law.
$110:Alan Simpson.
$115:Alan Simpson
$120:$T$(EDITOR'S NOTE: THE ORIGINAL SOURCE CONTAINED ILLEGIBLE WORDS AND/OR MISSING TEXT. THE LEXIS SERVICE WILL PLACE THE CORRECTED VERSION ON-LINE UPON RECEIPT.$)
$T$=BLAW AND MOTION MINUTE ORDER$=R
$%$?$%$($) Off Calendar
$%$?$%$($) Continued to $($) Set for ___ at ___ Dept. ___ for ___
$%$?$%$($) Submitted on points and authorities with/without argument.$?$?$?$(X$) Matter is argued and submitted.
$%$?$%$($) Upon filing of points and authorities.
$%$?$%$($) Motion is granted$?$?$?$($) in part and denied in part.$?$?$?$(X$) Motion is denied$?$?$?$(X$) With prejudice.
$%$?$%$($) Taken under advisement
$%$?$%$($) Demurrer$?$?$?$($) overruled$?$?$?$($) sustained with ___ days to$?$?$?$($) answer$?$?$?$($) amend
$%$?$%$(X$) Tentative ruling becomes the order of the court. No further order is necessary.
$%$?$%$(X$) Pursuant to CRC 391(a) and CCP section 1019.5(a), no further order is necessary. The minute order adopting the tentative ruling serves as the order of the court.
$%$?$%$(X$) Service by the clerk will constitute notice of the order.
$%$?$%$($) Time for amendment of the complaint runs from the date the clerk serves the minute order.
$%$?$%$($) Judgment debtor ___ sworn and examined.
$%$?$%$($) Judgment debtor ___ failed to appear.
$TBench warrant issued in the amount of $ ___
$%$?$%$=BJudgment:$=R
$%$?$%$($) Money damages$?$?$?$($) Default$?$?$?$($) Other$?$?$?___ entered in the amount of:
$TPrincipal $ ___$?$?$?Interest $ ___$?$?$?Costs $ ___$?$?$?Attorney fees $ ___$?$?$?Total $ ___
$%$?$%$($) Claim of exemption$?$?$?$($) granted$?$?$?$($) denied. Court orders withholdings modified to $ ___ per ___
$%$?$%$=BFurther, court orders:$=R
$%$?$%$($) Monies held by levying officer to be $($) released to judgment creditor.$?$?$?$($) returned to judgment debtor.
$%$?$%$($) $ ___ to be released to judgment creditor and balance returned to judgment debtor.
$%$?$%$($) Levying Officer, County of ___, notified.$?$?$?$($) Writ to issue
$%$?$%$($) Notice to be filed within 15 days.$?$?$?$($) Restitution of Premises
$%$?$%$(X$) Other: See attachment.
$T$U$=BTentative Ruling$=R$O
$%$?$%Re: $=B$ICentral Valley Fresh Produce, Inc. v. Wilbur-Ellis Co.$N$=R
$TCase No. 04 CE CG 00542
$%$?$%Hearing Date: June 30<th>, 2005 $=B(Dept. 72)$=R
$%$?$%Motion: Defendant's Motio n for Summary Judgment or Adjudication
$%$?$%$=BTentative Ruling:$=R
$TTo deny the motion for summary judgment, or in the alternative, summary adjudication. (CCP $S 437c.)
$%$?$%$=BExplanation:$=R
$TDefendant's sole argument is that plaintiff's claim is preempted by the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), 7 U.S.C. $S 136 $Iet seq.$N Defendant contends that the gravamen of plaintiff's complaint is that defendant's product label for Ethrel failed to adequately warn of the dangers of using the product on plaintiff's crop, and failed to give adequate instructions to avoid damaging the crop. However, under $IEtcheverry v. Tri-Ag Service, Inc.$N (2000) 22 Cal.4th 316, any state law or common law claims that allege that an EPA-approved pesticide label fails to adequately warn of the dangers of a pesticide are preempted by federal law. ( $IId.$N at 335.)
$TUntil very recently, defendant's analysis was a correct statement of the law, and plaintiff's claims would probably have been barred by FIFRA. However, the U.S. Supreme Court recently handed down its decision in $IBates v. Dow Agrosciences$N (2005) 125 S.Ct. 1788, in which the court overruled $IEtcheverry$N and found that FIFRA preemption was limited to only certain types of state law and common law claims. First, the court found that FIFRA preempts state law labeling standards to the extent that they are inconsistent with federal standards. ( $IId.$N at 1798.) However, state or common law "$(r$)ules that require manufacturers to design reasonably safe products, to use due care in conducting appropriate testing of their products, to market products free of manufacturing defects, and to honor their express warranties or other contractual commitments plainly do not qualify as requirements for 'labeling or packaging.'" ($IIbid.$N) The Supreme Court rejected the reasoning of $IEtcheverry$N and related cases by finding that such state and common law rules do not impose labeling or packaging requirements that are different to or in addition to the requirements under FIFRA. Thus, claims for defective design, defective manufacturing, negligent testing, and breach of express warranty are not preempted, because they do not impose different or additional labeling or packaging requirements. ($IIbid.$N)
$TIn addition, the Supreme Court found that a state or common law cause of action is not preempted if it is equivalent to, and fully consistent with, FIFRA's misbranding provisions. ( $IId.$N at 1800.) Under FIFRA, a product is "misbranded" if its label contains a statement that is "false or misleading in any particular", including a false or misleading statement concerning the efficacy of a pesticide. ( $IId.$N at 1795.) "A pesticide is also misbranded if its label does not contain adequate instructions for use, or if its label omits necessary warnings or cautionary statements." ($IIbid.$N) The plaintiffs in $IBates$N argued that their fraud and failure-to-warn claims were not preempted because the common law duties were equivalent to the FIFRA's misbranding provisions. The Supreme Court agreed that "state law need not explicitly incorporate FIFRA's standards as an element of a cause of action in order to survive preemption." ( $IId
.$N at 1800.) Also, "$(s$)tate-law requirements must also be measured against any relevant EPA regulations that give content to FIFRA misbranding standards." ( $IId.$N at 1804.)
$TApplying the $IBates$N holding to the present case, defendant's argument that any claim that challenges the adequacy of the warnings or instructions on the product label is preempted by FIFRA is no longer a valid contention. As discussed above, if the plaintiff has asserted claims for defective design, manufacturing, negligent testing, or breach of express warranty, those claims would not be preempted because they do not impose labeling or packaging requirements that are different or additional to the ones imposed by FIFRA. ( $IBates, supra,$N at 1798.) In the present case, however, it does not appear that plaintiff has asserted any claims for defective design, manufacture, negligent testing, or breach of express warranty.
$TThe first amended complaint does not set forth separately labeled causes of action, so it is somewhat difficult to determine whether plaintiff has attempted to allege more than one cause of action, and if so, which causes of action it asserts. However, it seems clear that plaintiff's primary claim is that defendant's product label failed to adequately warn of the dangers of using the product on plaintiff's crop, and failed to give instructions necessary to avoid damaging the crop. (See Exhibit A to Mills decl, FAC, PP 16, 17.) Plaintiff also alleges that the product was "defective" because it caused the berries to soften, rendering them unmarketable. ($IId.$N at P 15.) Yet plaintiff has presented no evidence to support its theory of defective design or manufacture, even assuming that plaintiff intended to bring such a claim. All of plaintiff's responses to discovery and deposition testimony point to a failure-to-warn theory rather than a defective design or manufacture theory. (Exhibit G to Mills decl., Peterson depo., 62:6-21, 74:2-14; Exhibit F to Mills decl., responses to special interrogatories 1, 4, 5, 8, 21, 23, 31, 33, 36, 41, 43, 45, 46, 48, 49, 50, 51, 52, 53, 54, 55.) Therefore, plaintiff cannot take advantage of $IBates$N to the extent that $IBates$N permits a claim for defective design or manufacture of a pesticide.
$TOn the other hand, plaintiff's failure-to-warn claim is not preempted by FIFRA if the failure-to-warn claim is equivalent to and fully consistent with FIFRA's misbranding provisions. ( $IBates, supra,$N at 1800.) FIFRA's misbranding provisions prohibit "false or misleading" statements on product labels, as well as inadequate instructions or warnings. ($IIbid.,$N see also 7 U.S.C. $S 136(q)(1(A) and (F).) Here, plaintiff has alleged that the product label failed to provide adequate instructions for use and warnings that the product might damage plaintiff's crop. (FAC, PP 16, 17.) Plaintiff's responses to discovery and deposition testimony also support the theory that the label did not adequately warn of the danger to plaintiff's crop. (Exhibit G to Mills decl., Peterson depo., 62:6-21, 74:2-14; Exhibit F to Mills decl., responses to special interrogatories 1, 4, 5, 8, 21, 23, 31, 33, 36, 41, 43, 45, 46, 48, 49, 50, 51, 52, 53, 54, 55.) Thus, plaintiff's failure-to-warn claim is not necessarily preempted by FIFRA.
$TDefendant contends in its reply that plaintiff cannot attack the adequacy of the product label because t he EPA has approved the label, and thus the product cannot have been "misbranded." However, defendant's reasoning ignores the effect of $IBates,$N which expressly allows state law and common law failure-to-warn claims based on misbranding, as long as the state or common law claim is equivalent to the federal misbranding provisions. ( $IBates, supra,$N at 1800.) The Supreme Court in $IBates$N noted that the fact that the EPA has approved a label for use on a pesticide does not mean that the EPA has determined that the product is efficacious, but only that the product does not cause unreasonable adverse effects on humans or the environment. ( $IId.$N at 1795-1796.) Thus, the EPA never passed on the accuracy of the statement by the defendant in $IBates$N that its product was recommended for use "in all areas where peanuts are grown." ( $IId.$N at 1796.) Therefore, the plaintiffs in $IBates$N could still bring fraud and failure-to-warn claims based on the alleged inadequacy of the product's label to the extent that their claims were consistent with FIFRA's misbranding standards. ( $IId.$N at 1800.)
$TLikewise, here plaintiff's claims of inadequate warnings or instructions on the product label appear to be consistent with FIFRA's misbranding provisions, since the statute expressly forbids false or misleading statements on a product as well as inadequate instructions or warnings. (7 U.S.C. $S 136(q)(1)(A), (F), (G).) The fact that the EPA may have approved the label for use on the product does not necessarily mean that the EPA has passed on the efficacy of the product for use on plaintiff's crops, but only that the EPA has determined that the product does not cause unreasonable effects on humans or the environment. ( $IBates, supra,$N at 1795-1796.) Thus, the EPA's approval of the label does not resolve the question of whether or not the product has been "misbranded" for purposes of FIFRA. Nor has the defendant shown that plaintiff's state or common law claims are in any way inconsistent with FIFRA's misbranding provisions. Therefore, defendant has failed to show that FIFRA preempts plaintiff's failure-to-warn claim, and the court intends to deny the motion for summary judgment or adjudication.
$TWith regard to defendant's objections to the declaration of Peterson, the court intends to sustain the objection to paragraph 3 and overrule the objection to paragraph 4.
$TPursuant to CRC 391(a) and CCP $S 1019.5(a), no further written order is necessary. The minute order adopting this tentative ruling will serve as the order of the court and service by the clerk will constitute notice of the order.
$%$?$%$=BTentative Ruling$=R$%$=BIssued By:$=R $(ILLEGIBLE WORDS$) (Judge's Initials) $=Bon$=R 6/29/05 (Date).
$200:
$220:#EXTR#$?#CENTRAL-WILBUR# 
$00:
$10:KISHAN CHAND, ERIC FARLEY, individually, and on behalf of other members of the general public similarly situated, Plaintiffs, vs. TARGET CORPORATION, and Does 1 through 50, inclusive, Defendants.
$20:No. BC315688$
25:SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES
$40:$?$%October 5, 2006, Decided
$45:$?$%October 10, 2006, Filed
$105:JEFFREY D. WOHL (Cal. State Bar No. 96838), KATHERINE C. HUIBONHOA (Cal. State Bar No. 207648), KERRI N. HARPER (Cal. State Bar No. 217377), RISHI N. SHARMA (Cal. State Bar No. 239034), PAUL, HASTINGS, JANOFSKY & WALKER LLP, San Francisco, California, Attorneys for Defendant Target Corporation.
$120:$T$=BNOTICE OF ENTRY OF ORDER DENYING MOTION FOR CLASS CERTIFICATION$=R
$T$=BCLASS ACTION$=R
$TTO PLAINTIFFS AND THEIR ATTORNEY OF RECORD:$TPLEASE TAKE NOTICE that on October 5, 2006, the Court entered the attached Order Denying Plaintiffs' Motion for Class Certification.
$TDated: October 5, 2006.
$T$=BSUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES$=R
$%$?$%DATE: 10/05/06
$%$?$%HONORABLE VICTOR H. PERSON$?$?$?JUDGE
$%$?$%HONORABLE$?$?$?JUDGE PRO TEM
$TF. ALVAREZ, C.A.$?$?$?Deputy Sheriff
$TDEPT. 39
$TA. FAJARDO$?$?$?DEPUTY CLERK
$TELECTRONIC RECORDING MONITOR
$TNONE$?$?$?Reporter
$%$?$%1:53 pm BC315688
$%$?$%KISHAN CHAND ET AL, Plaintiff VS TARGET CORPORATION, Defendant$%R/T BC328936$%170.6 JUDGE WU BY DEFT. TARGET$%deemed non-cplx/assgnD-78 (7-15-
$TCounsel
$TNO APPEARANCES
$%$?$%$=BNATURE OF PROCEEDINGS:$=R
$%$?$%RULING ON PLAINTIFF'S MOTION FOR CLASS CERTIFICATION
$%$?$%The Court having taken the above stated matter under submission on 6/13/06, now rules as follows:$% $?$%After entertaining significant oral argument at the formal hearing of the Plaintiffs' Motion for Class Certification counsel for the parties submitted several items that have been reviewed by the court.
$%$?$%The Plaintiffs' Motion for Class Certification is Denied. The Plaintiff has failed to carry its burden of proof as to the elements of commonality and superiority.
$%$?$%Plaintiffs, Kishan Chand and Bric Farley filed an action on behalf of current and former California based assistant managers who worked for Target ("Defendant") in the areas of hardlines, softlines, logistics, replenishment and Food Avenue. Plaintiffs aver that Defendant has failed to pay overtime wages to employees who are statutorily entitled to receive overtime compensation.
$%$?$%The proposed Class that Plaintiff is seeking certification of is defined as:
$%$?$%All persons who have worked for Defendant in California from May 14, 2000 to the present holding the positions of: Executive Team Leader ("ETL") Logistics, Replenishment, Hard Lines, Soft Lines, and Food Avenue.
$%$?$%Class certification is appropriate when "the question is one of a common or general interest, of many persons, or when parties are numerous and it is impracticable to bring them all before the court." Code of Civil Procedure $S 382. "To obtain certification, a party must establish the existence of both an ascertainable class and a well-defined community of interest among class members. The community of interest requirement involves three factors: '$(1$) predominant questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. The party seeking certification has the burden of establishing the prerequisites for a class action." Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326, citing Lockheed Martin Corporation v. Superior Court (2003) 29 Cal.4th 1096, 1104.
$%$?$%For the reasons that follow, after considering all of the relevant factors,
 the Court finds that the Plaintiffs have not met that burden.
$%$?$%Ascertainability is required in order to give notice to putative class members who may be affected by the judgment. It is defined in terms of "objective characteristics and common transactional facts making the ultimate identification of class members possible. Hicks v. Kaufman & Broad Home Corp. (2001) 89 Cal. App. 4th 908, 915. Whether a class is ascertainable is determined by examining (1) the class definition, (2) the size of the class, and (3) the means available for identifying class members. Reyes v. Board of Supervisors of San Diego County (1987) 196 Cal.App.3d 1263, 1271.
$%$?$%Ascertainability was not directly disputed; Defendant concedes that they have a position of employees called ETLs that are classified as exempt and work over 50 hours per week in the positions listed in the Class Definition.
$%$?$%As such, the definition is valid and the putative class may be ascertained from Defendant's personnel records.
$%$?$%In order to determine whether common questions of fact predominate the trial court must examine the issues framed by the pleadings and the law applicable to the causes of action alleged. Hicks v. Kaufman & Broad Home Corp. (2001) 89 Cal. App. 4th 908, 916. The Court must consider whether the theory of recovery advanced by the proponents of certification, is, as an analytical matter, likely to prove amenable to class treatment. Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 327.
$%$?$%The following issues are common to the instant class as a whole and/or could be proven with common evidence: The ETL position was originally classified as exempt based upon generally applicable grounds (See Deposition of Nancy Williams, the Regional Human Resources Manager for Target Corporation, improperly filed under seal, Volume I, pages 58 and 387); the realistic expectations of Target and the actual overall requirements of an ETL are susceptible to common proof, (See Sav-On supra, 34 Cal.4th at 336-337.); Defendant fails to keep track of the hours worked by their ETLs (See Deposition of Nancy Williams, improperly filed under seal, Volume I page 329.); ETLs are scheduled to work more than forty (40) hours per week (See Deposition of Nancy Williams, improperly filed under seal, Volume I, pages 329 and 352); Defendant fails to pay overtime compensation to ETLs (See Paragraph 3 of any of the 459 Declarations filed by Plaintiff, which stated in summary, ETLs are scheduled to work a minimum of 10 hour days, 5 days a week); There is a finite list of tasks that are performed by ETLs (See the Self-audits or job descriptions for each ETL listed within the class definition located in Binder II of II of Target's Opposition.).
$%$?$%Despite the importance of the common questions listed above, the factual allegations and evidence presented with the moving papers suggest that the primary issue of importance is not subject to common proof. Plaintiffs argue that Defendant's company wide policy and practice of classifying ETLs as exempt and denying them overtime is proof that common issues predominate. This argument is not persuasive as Courts have held that a single policy decision may be improper to some putative class members but proper to others. See Morisky v. PublicServ. Elec. & Gas Co. (2 000) 111 F.Supp.2d 493, The alleged wrongful act of classifying ETLs as exempt and not compensating them for overtime has different effects on some ETLs and not others as is evidenced by the results of the self-audits presented by the parties. Thus, Courts will certify a class, based upon Plaintiffs' theory of commonality, if the defendant's action can be found to be wrong in the abstract and certain circumstances are present. For example, see Reyes v. Board of Supervisors (1987) 196 Cal.App.3d 1263, 1278, an action where a large number of welfare recipients have been allegedly, improperly denied governmental benefits on the basis of an invalid administrative practice. In the instant action, although Plaintiffs are also claiming that the Defendants violated the Labor Code by failing to pay overtime to the ETLs, the evidence presented by Plaintiff has not persuaded the Court that the Defendant's classification of ETLs as exempt is wrong in the abstract.
$%$?$%In the Sav-On case (supra 34 Cal 4th 319) which is Plaintiffs' basis for certification, the Court certified the class and held that the record contained substantial, evidence that deliberate misclassification was defendant's policy and practice. Id, at page 329. The Sav-On Court further opined that the record contained substantial evidence suggesting that the predominant issue in dispute was how various tasks in which AMs and OMs actually engaged should be classified as exempt or nonexempt. Id, at 330. The same cannot be said for the evidence in the instant action. Here, Plaintiffs concede that there are distinct managerial tasks and distinct non-managerial tasks as outlined in the self-audits proffered as evidence. Thus, it would appear that the only common question of substantial importance is how much time the ETLs are spending on the particular tasks.
$%$?$%With regard to determining the amount of time that ETLs are spending on particular tasks, the Sav-Onholding discussed the standard developed in theR 785 case (Ramirez held that in an overtime exemption case task classification is a mixed question of law and fact, and thus, the court should consider how the employee actually spends his or her time) is not authority for constraining the trial court's great discretion in granting or denying certification because Ramirez was not a class action and it did not discuss certification standards. Sav-On supra at page 336. Thus, the Court is only considering the Ramirez test as one factor in determining whether commonality is met. However, there are some other factors that suggest that individual questions predominate, namely, each ETL listed in the Class Definition has different duties that will result in different amounts of time expended on managerial and non-managerial work (See Declaration of Nancy Williams P 23, Ahmed Deposition, page 67:15-68:6). The hierarchy of Target locations depends on the volume of the store, thus, the responsibility of the ETL is also in direct correlation to volume of the store (See Declaration of Nancy Silliams P4, Exhibit 12 A of Volume II of II Binder of Terget's Opposition); the self-audits presented by the Plaintiffs state that the ETLs spent over 50% of their time on exempt duties, while the declarations presented by the Plaintiffs state that some of the ETLs lied on the self-audits and as they actually spent less than 50% of their time on exempt duties (S ee Exhibits D and E of the Declaration of Michael Sullivan). Nonetheless, some of the self-audits were confirmed (and the court found very parsuasive) by deposition testimony wherein former ETLs testified that they always spent more than 50% on exempt duties (See Declaration of Former ETLs attached as Exhibits 4:A-K in Volume I of II Target's Opposition); and Named Plaintiff Farley received low evaluation marks for not delegating properly while under the Defendants employ, an action that supports Defendant's expectations for ETLs (See Corrective Action issued to Eric Parley that was referenced in Exhibit 16, Declaration of Laine and the Exempt Annual Review attached to Exhibit 17, Declaration of McCoy). Consequently, the variance among the percentages of time for every task listed by all ETLs in the self-audits, the varlances among the store volumes and personnel, the variances among the duties and responsibilities of each ETL, the fact that some of the ETLs were properly classified as exempt, suggests that question of how much time an ETL spent on exempt versus non-exempt tasks is an individual one and these individual questions predominate.
$%$?$%Finally, while the Court sees the factual similarities between the instant action and Sav-On supra 34 Cal.4th at 319 the Court cannot ignore differences, namely there is no policy of deliberate misclassification in the instant action; the instant Defendant did not reclassify the putative class from exempt to non-exempt during the class period, the instant defendant requires the ETLs to complete two self audits and a self review that is reviewed by a supervisor and acted upon as opposed to classification solely on job title or description, and most importantly Plaintiff failed to provide convincing evidence of an unwritten policy and/or practice of Target to preclude ETLs from performing managerial tasks less than 50% of the time.
$%$?$%Based upon the foregoing, the Court is not being asked to determine whether the ETLs were properly classified based upon a finite list of exempt tasks, the Court is being asked to determine whether ETLs performed a finite list of exempt tasks over 50% of the time. This request can only be resolved with individual inquiries.
$%$?$%Exempt status for a partioular individual does not depend on title, job description, quantity of work, or how any other person performs the same job. Instead, it seems to the Court that the application of an exemption in this case depends on how the individual actually performs the job. Further, contrary to the argument put forth by Plaintiff at the hearing, the court does not agree that the Defendant must establish, at a class certification motion, every element necessary to establish that the class members are exempt from the wage orders. It seems that this is an argument that should be made at the determination of the merits in the event of certification of a class and not at this stage of the proceedings.
$%$?$%The class representative's claim is typical of class claims if the individual facts applicable to the class representative are very sinilar, but not necessarily identical, to the facts which are common to the class. Classen v. Weller (1983) 145 Cal. App. 3d 27, 46.
$%$?$%Plaintiffs' evidence establishes similar claims between the Plaintiff and some of the putative Class Members.
$%$?$%To maintain a class action, the representative plaintiff must adequately represent and protect the interests of other members of the 
class. Simons v. Horowitz (1984) 151 Cal. App.3d 834, 846.
$%$?$%There are two criteria that a Class Representative has to meet in order to be deemed adequate: (1) that they are zealous fiduciaries: and (2) that there are no existing antagonisms or conflicts with the class members. City of San Jose v. Superior Court (Lands Unlimited) 1974 12 Cal.3d 447, 454.
$%$?$%In accordance with the criteria set out in City of San Jose, both Plaintiffs have proven that they are zealous fiduciaries as they have filed the action on behalf of all similarly situated current and former employees of Target Corporation and participated in discovery. The arguments concerning their behavior while employed at Target is not a conflict that warrants disqualification. Class status may be denied only if antagonism of such a substantial degree is shown that the purpose of class certification would be defeated if the motion were granted. Richmond v. Dart Industries, Inc. (1981) 29 Cal. 3d 462, 471.
$%$?$%The superiority criterion is manifest in the determination that a class action brought under CCP $ 382 would produce substantial benefits to the litigants and the judicial system. Schneider v. Vennard (1986) 183 Cal. App. 3d 1340, 1347. The Court finds that due to the predominance of individual issues in the questions raised in this examination, that there are no substantial benefits to the litigants or the judicial system in handing these particular claims in a class action.
$%$?$%The court has considered both the benefits that a class action would yield, as well as the potential unfairness to the Defendant, which might result from a litigation of the underlying claims through aggregate procedures rather than through separate trials. As discussed above, the court finds that the Plaintiffs did not meet their burden of proof with regard to the Commonality element. The Plaintiff failed to prove that they could use common evidence to prove facts and resolve legal issues which apply to every Class Member's claim.
$%$?$%The Plaintiffs filed requests seeking judicial notice of various court records.
$%$?$%There is a split of authority with regard to taking judicial notice of records of a Court. California Courts have held the following: The Court may judicially notice the existence of each document in a court file, but can only take judicial notice of the truth of facts asserted in documents such as orders, findings of fact and conclusions of law, and judgments." Day v. Sharp (1975) 50 Cal.App.3d 904, 914.
$%$?$%The court may in its discretion take judicial notice of any court record in the United States. (Evid. Code, $S 451.) This includes any orders, findings of facts and conclusions of law, and judgments within court records. (See, e.g., Columbia Casualty Co. v. Northwestern Nat. Ins. Co. (1991 231 Cal. App. 3d 457) However, while courts are free to take judicial notice of the existence of each document in a court file, including the truth of results reached, they may not take judicial notice of the truth of hearsay statements in decisions and court files. ( Williams v. Wraxall (1995) 33 Cal. App. 4th 120, 130, fn. 7 Courts may not take judicial notice of allegations in affidavits, declarations and probation reports in affidavits, declarations and probation reports in court records because such matters are reasonably subject to dispute and therefore require formal proof. Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & . . . . (2001) 91 Cal. App. 4th 875, 882. In the alternative, Courts cannot take judicial notice of a judge's findings because the requirements of res judicata or collateral estoppel must apply pursuant to a final judgment. Well & Brown, Cal. Prac. Guide: Civ. Pro. Before Trial (TRG 2005), 7:15.5 (citing Sosineky v. Grant (1992) 6 Cal.App.4th 1548, 1568-69).
$%$?$%The split of authority seems to infer that it is up to the discretion of the Court, and relevance of the requesting documents to the facts in the action.
$%$?$%Having considered the foregoing limitations on the Court's discretion, the Court grants the request for Judicial Notice of Exhibit 1A and Exhibit 1 in part, (not contents of the Exhibit just the existence of it). The Court denies judicial Notice of Exhibits 2-4.
$%$?$%Plaintiff filed a Supplemental Request for judicial notice and the Court rules as follows: Judicial notice of Exhibit 16, 17, 24, 25 is granted. Judicial notice of Exhibits 1, 4, 6, 10, 11, 12, and 15 is denied; judicial notice of Exhibits 2, 3, 7, 8, 9, 13, 14 is denied; judicial notice of Exhibits 5, 19 is denied; and judicial notice of Exhibits 20, 21, 22, 23 is denied.
$%$?$%Defendant filed two Binders of Documents and a Supplemental Request for judicial Notice as well.
$%$?$%The Court grants the request for judicial notice of Exhibits B-J. The Court denies the request for judicial notice of all of the remaining Exhibits and the case (Sepulveda v. Wal-Mart Stores, Inc. (Central District of California) Order dated May 8, 2006) proffered as a supplemental request for judicial notice.
$%$?$%Both parties filed numerous evidentiary objections to evidence submitted and contained within the associated moving, opposition and reply documents.
$%$?$%In summary the Defendants filed objections to the 459 Declarations filed by Plaintiffs and specific paragraphs within; the Declaration of Dr. Sullivan; and the new evidence filed with the Plaintiffs' Reply.
$%$?$%The Plaintiff filed objections to Declarations of; Paul Grossman; Bruce Fortenbaugh; Diann Everage; Amber Laine; Kathleen Lundquist; Debra McCoy; Richard Post; Nancy Williams; Jeffrey Wohl; Current ETLs; Former ETLs; Store Team Leaders; and ETLS with regard to veracity.
$%$?$%The Court has considered all the declarations submitted, as well as the exhibits attached thereto.
$%$?$%The Court has not considered any inadmissible evidence in evaluating the criteria for class certification. Unlike the statutory requirements for motions for summary judgment, there is no requirement in a motion such as this for individual rulings on each objection.
$%$?$%However, the Court will mantion one apecific area of objection. The Defendant's objection to the Plaintiffs' new evidence submitted with Plaintiff's Reply is sustained. The new evidence submitted with the Reply was disregarded by the Court.
$%$?$%On July 25, 2006 the Defendant filed its Second Supplemental Request for Judicial Notice in Opposition to the Motion for Class Certification. On July 28, 2006 the Plaintiff filed its objection to Defendant's Second Supplemental Request for Judicial Notice. That objection is overruled.
$%$?$%On July 31, 2006 Plaintiff filed its Second Supplemental Request for Judicial Notice in Support of the Motion for Class Certification. On August 4, 2006 Defendant fil ed its Response to Plaintiff's Second Supplemental Request for Judicial Notice. The court, consistent with the position requested by the Plaintiffs and the Defendant's has granted the request for judicial notice of the decisions in the Novak, Dunbar, Home Depot, and Sepulveda cases.
$%$?$%On August 10, 2006, the Defendant submitted a request to cite to the court the case of Dunbar v. Albertson's Inc. (2006) that was ordered published by the Court of appeal for the First Appellate District. The Court has read and considered the Dunbar published opinion in making its ruling in this case.
$%$?$%On September 7, 2006 Plaintiff filed its Third Supplemental Request for Judicial Notice in Support of its Motion for Class Certification. The Defendant on September 8, 2006 filed its Response to Plaintiffs' Third Supplemental Request for Judicial Notice. The court takes judicial notice of the decision itself but denies this request for judicial notice of the reasoning applied.
$%$?$%On September 14, 2006 the Plaintiff filed its Fourth Supplemental Request for Judicial Notice in Support of its Motion for Class Certification. The court takes judicial notice of the decision itself but denies this request for judicial notice of the reasoning applied.
$%$?$%On September 29, 2006 the Defendant filed is Supplemental Memorandum in Opposition to Class Certification (discussing Dunbar v. Albertson's Inc. (2006) 141 Cal. App. 4th 1422). Since this document discusses the published case, the court has considered it. Also submitted by the Defendant was its Third Supplemental Request for Judicial Notice in Opposition to Plaintiffs' Motion for Class Certification. The court takes judicial notice of the decision itself but denies the request for judicial notice of the reasoning itself.
$%$?$%A STATUS CONFERENCE is set on NOVEMBER 16, 2006 at 8:30a.m. in this department.
$%$?$%Counsel for the Defendant is to give notice.
$TCLERK'S CERTIFICATE OF MAILING/NOTICE OF ENTRY OF ORDER
$%$?$%I, the below named Executive Officer/Clerk of the above-entitled court, do hereby certify that I am not a party to the cause herein, and that this date I served Notice of Entry of the above minute order of 10/5/06 upon each party or counsel named below by depositing in the United States mail at the courthouse in Los Angeles, California, one copy of the original entered herein in a separate sealed envelope for each, addressed as shown below with the postage thereon fully prepaid.
$%$?$%Date: 10/5/06
$%$?$%John A. Clarke, Executive Officer/Clerk
$TAnnette Fajardo
$%$?$%JEFFREY D. WOHL$%PAUL GROSSMAN$%PAUL, HASTINGS, JANOFSKY & WALKER LLP$%55 SECOND ST., 24TH FLR$%SAN FRANCISCO, CA 94105-3441
$T$=BPROOF OF SERVICE$=R
$TI am employed in the City and County of San Francisco, State of California. I am over the age of 18, and not a party to the within action. My business address is 55 Second Street, Twenty-Fourth Floor, San Francisco, California 94105-3441.
$TOn October 6, 2006, I served the foregoing document described as:
$=S$%$?$%$=B. NOTICE OF ENTRY OF ORDER DENYING MOTION FOR CLASS CERTIFICATION$=R$=I
$%$?$%on the interested parties by placing faxing a true and correct copy thereof to the facsimile numbers indicated below and by placing true and correct copies thereof in envclopes addressed as follows:
$=S$%$?$%Edward J. Wynne$%J.E.B. Pickett$%Wynne Law Firm$%100 Drakes Landing Road, Suite 275$%Greenbrae, CA 94904$%Facsimile: (415) 461-3900
$TPcter F. Klett
$TStewart, Estes & Donnell
$T424 Church Street, Suite 1401
$TNashville, TN 37219
$T
Facsimile: (615) 256-8386
$%$?$%$(X$) $=BVIA U.S. MAIL:$=R
$=S$%$?$%The envelopes were then sealed. I am readily familiar with the firm's practice of collection and processing of correspondence for mailing. Under that practice the sealed envelopes would be deposited with the U.S. Postal Service on October 6, 2006 with postage thereon fully prepaid, at San Francisco, California.$=I
$%$?$%$(X$) $=BVIA FACSIMILE:$=R
$=S$%$?$%The facsimile transmission report indicated that the transmission was complete and without error. The facsimile was transmitted to facsimile numbers (415) 461-3900 and (615) 256-8386 on October 6, 2006. $(Permitted by written agreement of the parties.$)$=I
$%$?$%$($) $=BVIA OVERNIGHT MAIL:$=R
$=S$%$?$%VIA UPS: By delivering such document to an overnight mail service or an authorized courier in a sealed envelope or package designated by the express service courier addressed to the person(s) on whom it is to be served.$=I$=I
$TI declare under penalty of perjury under the laws of the State of California that the above is true and correct.
$TExecuted on October 6, 2006, at San Francisco, California.
$TMeredith Mitchell
$200:
$220:#EXTR#$?#CHAND-TARGET# 
$00:
$10:KAMIL ISSA and EDGAR RIZKALLAH, Plaintiffs, vs. FEDEX GROUND and STACY SHOUN, Defendants.
$20:No. C-841208
$25:SUPERIOR COURT OF CALIFORNIA FOR THE COUNTY OF ALAMEDA
$40:$?$%August 31, 2006, Decided
$45:$?$%August 31, 2006, Filed
$110:Stephen Dombrink, Judge of the Superior Court.
$115:Stephen Dombrink
$120:$T$(EDITOR'S NOTE: THE ORIGINAL SOURCE CONTAINED ILLEGIBLE WORDS AND/OR MISSING TEXT.$)
$T$UORDER DENYING DEFENDANT STACY SHOUN'S MOTION FOR JUDGMENT NOTWITHSTANDING THE VERDICT$O
$TThis order applies to the motions brought against both Kamil Issa and Edgar Rizkallah because the issues are substantially the same.
$TStacy Shoun's motion seeking a judgment notwithstanding the verdict is DENIED.
$T$USUBSTANTIAL EVIDENCE SUPPORTS THE VERDICT$O
$TEach motion for judgment JNOV is denied on the claim that evidence was not enough to support the verdict.
$TThis is not a close question. Stacy Shoun was the person most responsible for the harassment suffered by each plaintiff.
$TBoth sides set out a summary of some of the wrongdoing but I will not go through each item here.
$TThere is merit in the argument that Mr. Shoun was directly responsible as an "aider and abettor" of harassment by his assistant managers, which often occurred directly in his presence or with his direct knowledge as it was happening. His connection with those who may have said worse things to the plaintiffs than he did goes beyond just not supervising them competently or his failure to take steps to prevent harassment.
$TFor example, the jury could easily find that he was involved directly in sending all of the offensive pager messages even though he did not personally send each.
$TSee my other orders for a further discussion of what the evidence showed the workplace to be like.
$T$UTHERE IS SUFFICIENT EVIDENCE TO SUPPORT THE PUNITIVE DAMAGE AWARDS AGAINST STACY SHOUN$O
$TMr. Shoun argues that the plaintiffs failed to establish by clear and convincing evidence the threshold requirement for a punitive damage claim.
$TWe must note that p unitive damages of $ 28 were awarded against Mr. Shoun in favor of each plaintiff. (It must be noted that the plaintiffs did not ask for more. Mr. Shoun had already been hit with an award of $ 500,000 in actual damages in favor of each plaintiff.)
$TBe it only $ 28 each, we must take this issue seriously.
$TAs always there must be substantial evidence of actual malice and intent to injure, or at least a conscious disregard of each plaintiff's rights.
$TWhen presenting his closing argument, and at the hearing on this motion, the plaintiffs' attorney, Mr. Dolan, argued that the wrongdoers at FedEx Ground were motivated by $Uhate,$O especially when they referred to the plaintiffs as "terrorists" and "Hezbollah."
$TThe plaintiffs may have felt this way, although I do not recall either of them testifying so explicitly. They told us how they reacted to the comments and the reaction of Mr. Rizkallah was particularly understandable in light of his testimony that a Hezbollah bomb had killed his father.
$TMy take on Mr. Shoun is that he was not motivated by hate. He was just incredibly insensitive, immature, and incompetent for a person in his position as terminal manager. He may have thought his pet names for persons of different backgrounds were just funny bantering. I blame FedEx Ground more than him for letting the situation at the Oakland Terminal get out of control. Mr. Shoun was never adequately trained and when complaints came in about him, upper management ignored them.
$TI have carefully reviewed the excerpts of what Stacy Shoun supposedly said to the plaintiffs while he was terminal manager (using the summary found on pages 11 to 32 of "Plaintiff's Statement of Facts in Opposition to Defendant FedEx Ground's and Defendant Shoun's Post Trial Motions."
$TI have also considered that Mr. Shoun may be considered an "aider and abettor" of misconduct in his presence even if he did not personally voice the harassing words.
$TAlthough it is a fairly close question, I find that Mr. Shoun's calling Mr. Issa and Mr. Rizkallah "terrorist" and "Hezbollah" was substantial enough for the jury to find malice under CACI 3941. Most reasonable people would find this to be despicable. It was also something that Mr. Shoun did with a knowing disregard of the rights of the two plaintiffs.
$TThe jury knew that Mr. Shoun is a college-educated man. It could properly infer that he knew that calling an Arab-American "Hezbollah" or "terrorist" could create serious trouble for them. That, taken together with the evidence of the other offensive statements made by him, is enough to support the punitive damage award.
$TDated: August 31, 2006
$TStephen Dombrink
$TJudge of the Superior Court
$TCLERK'S CERTIFICATE OF SERVICE BY MAIL CCP 1013a(3)
$%$?$%CASE NAME: ISSA/RIZKALLAH v. FEDEX GROUND, et al.,
$%$?$%ACTION NO.: C-841208
$%$?$%I certify that, I am not a party to the within action. I served the foregoing ORDER re MOTION JNOV by depositing a true copy thereof in the United States mail in Oakland, California on September 1, 2006 in a sealed envelope with postage fully prepaid thereon addressed to:
$%$?$%$=BChristopher B. Dolan, Esq.$=R$%$=BShawn R. Miller, Esq.$=R$%$=BTHE DOLAN LAW FIRM$=R$%$=B78 First Street$=R$%$=BSan Francisco, CA 94105$=R
$%$?$%$=BBobbie J. Wilson, Esq.$=R$%$=BLinda Q. Foy, Esq.$=R$%$=BHOWARD RICE, et al.,$=R$%$=BThree Embarcadero Center, 7<th> Floor$=R$%$=BSan Francisco, CA 94111-4024$=R
$T$=BDaniel U. Smith, Esq.$=R
$T$=BAttorney at Law$=R
$T$=BPO Box 278$=R
$T$=BKentfield, CA 94914$=R
$T$=BDebra S. Belaga, Esq.$=R
$T$=BRandall W. Edwards,
 Esq.$=R
$T$=BO'MELVENY & MYERS LLP$=R
$T$=B275 Battery Street$=R
$T$=BSan Francisco, CA 94111-3305$=R
$%$?$%I declare under penalty of perjury that the following is true and correct
$%$?$%Executed on September 1, 2006 at Oakland, California.
$%$?$%Pat Sweeten$%Executive Officer/Clerk
$%$?$%by $(ILLEGIBLE WORDS$)$%Deputy
$TSuperior Court of California, County of Alameda
$TRene C. Davidson Alameda County Courthouse
$%$?$%Case Number: C-841208$%Order After Hearing Re: of 08/31/2006
$T$=BDECLARATION OF SERVICE BY MAIL$=R
$%$?$%I certify that I am not a party to this cause and that a true and correct copy of the foregoing document was mailed first class, postage prepaid, in a sealed envelope, addressed as shown on the foregoing document or on the attached, and that the mailing of the foregoing and execution of this certificate occurred at 1225 Fallon Street, Oakland, California.
$TExecuted on 09/01/2006.
$TExecutive Officer / Clerk of the Superior Court
$TBy $(ILLEGIBLE WORDS$)
$TDeputy Clerk
$200:
$220:#EXTR# #ISSA-FEDEX-GROUND# 
$00:
$10:ANDREA SAVAGLIO, JAMES DAVIS, JERRILYN NEWLAND, and CHARLOTTE JOHNSON on behalf of themselves and all others similarly situated, Plaintiffs, v. WAL-MART STORES, INC., a Delaware corporation, SAM'S WEST, INC., a California corporation, GEORGE RODRIGUEZ, VINCENT MARTINEZ, and DOES 1 through 100, Defendants.
$20:Case No.: C-835687
$25:SUPERIOR COURT OF CALIFORNIA, COUNTY OF ALAMEDA
$40:$?$%October 11, 2006, Decided
$45:$?$%October 11, 2006, Filed
$110:Honorable Ronald M. Sabraw, JUDGE OF THE SUPERIOR COURT.
$115:Ronald M. Sabraw
$120:$TJUDGMENT
$TPursuant to Order dated August 22, 2005, the trial in this case was bifurcated. The claims for monetary relief were tried to a jury and the claims for injunctive relief were subsequently tried to the Court.
$T$U$=BJURY TRIAL -- MONETARY RELIEF$=R$O
$TThis monetary relief portion of this action came on regularly for trial beginning on September 19, 2005, in Department 22 of the Superior Court, the Honorable Ronald M. Sabraw presiding. Appearances by counsel were made as indicated on the record on each day of trial.
$TA jury of 12 persons was impaneled and sworn. Witnesses were sworn and testified. After hearing the evidence and the arguments of attorneys, the jury was instructed by the court and retired to consider its verdict with directions to return a verdict on special interrogatories.
$TAfter returning into court and being called, the jurors answered to their names and rendered their verdict in writing in words and figures as follows:
$TThe jury, finding that:
$T1. Between January 1, 2001 and May 6, 2005, did Wal-Mart fail to comply with California laws regarding the provision of meal periods to class members? 
$TYES
$T2. Without considering the deductions about which you are asked in the questions below, what is the amount of Meal Period Premium Payments owed to class members?
$T$ 63,631,858
$T3. What, if any, is the total amount of Meal Period Premium Payments that class members waived?
$T-0-
$T4. How many minutes shorter than 30 minutes, if any, is a minor meal period violation for which class members cannot recover Meal Period Premium Payments?
$T-0- minutes
$T5. How much do you reduce Meal Period Premium Paym ents as a result of your finding in Question 4?
$T$ -0-
$T6. How many minutes later than 5 hours, if any, is a minor meal period violation for which class members cannot recover Meal Period Premium Payments?
$T-0- minutes
$T7. How much do you reduce Meal Period Premium Payments as a result of your finding in Question 6?
$T$ -0-
$T8. Did some class members fail to substantially comply with directions by Wal-Mart about meal periods or fail to perform their services with ordinary care and diligence?
$TYES
$T9. How much, if any, do you reduce Meal Period Premium Payments as a result of answering "yes" to Question 8?
$T$ 6,363,185
$T10. Do you find that Wal-Mart established reasonable policies to detect, investigate and correct meal period violations and that some class members unreasonably failed to use such procedures?
$TNO
$T11. How much, if any, do you reduce Meal Period Premium Payments as a result of answering "yes" to Question 10?
$T$ -0-
$T12. If you reduced Meal Period Premium Payments in response to Questions 3, 5, 7, 9, and/or 11 above, then you must add together the amounts in Questions 3, 5, 7, 9, and 11 and deduct that sum from the amount of payments found in Question 2; the resulting number as set forth below will be the total amount that class members should be awarded for Meal Period Premium Payments:
$T$ 57,268,673
$T13. Besides the loss of Meal Period Premium Payments, do you find that Wal-Mart's failure to provide meal periods as required by California law caused any other actual injury to class members?
$TYES
$T14. Did Wal-Mart act with malice, oppression or fraud in failing to provide meal periods to class members as required by California law?
$TYES
$T15. What amount of punitive damages, if any, do you award class members?
$T$ 115 million
$TIT IS ADJUDGED that:
$T1. Plaintiffs Charlotte Johnson and the certified class of all current and former hourly employees of Wal-Mart Stores, Inc, including Wal-Mart Stores and Supercenters, in the state of California from January 1, 2001, through May 6, 2005, is entered in this action excluding those employees who opted-out of the Meal Period Money subclass or who hold or held the following positions: salaried manager, customer service manager, pharmacist, and/or personnel manager, recover judgment on the merits against defendants, Wal-Mart Stores, Inc. and Sam's West, Inc., in the amount of $ 57,268,673.00 in Meal Period Premium Payments and $ 115,000,000.00 in punitive damages, for a grand total of $ 172,268,673.00.
$T2. Plaintiffs Andrea Savaglio, James Davis, Jerrilyn Newland, and class member Allison Wesling recover no monetary damages from defendants Wal-Mart Stores, Inc. and Sam's West, Inc. on their meal period claims for monetary relief that concern meal periods from January 1, 2001, through May 6, 2005.
$T$U$=BBENCH TRIAL- INJUNCTIVE RELIEF$=R$O
$TThis injunctive relief portion of this action came on regularly for trial beginning on June 26, 2006, in Department 22 of the Superior Court, the Honorable Ronald M. Sabraw presiding. Appearances by counsel were made as indicated on the record on each day of trial. The court heard and considered the testimony, the documentary evidence, and the argument of counsel. The matter having been submitted for decision, and the court having issued its statement of decision,
$TIT IS ADJUDGED THAT:$TPlaintiffs Andrea Savaglio, James Davis, Jerrilyn Newland, Charlotte Johnson, and the certified class of all current and former hourly employees of Wal-Mart Stores, Inc, including Wal-Mart Stores and Supercenters, in the state of California fr om February 6, 1997, through the date judgment is entered in this action, excluding those employees who hold or held the following positions: salaried manager, customer service manager, pharmacist, and/or personnel manager, (collectively, the "Class") are entitled to injunctions as described below against defendants, Wal-Mart Stores, Inc. and Sam's West, Inc. (collectively "Wal-Mart").
$T1. Wal-Mart must comply with California Industrial Welfare Commission Wage Order Nos. 7-80, 7-98, 7-2000, 7-2001 at P12 and California Labor Code $S 226.7(b) concerning rest breaks;
$T2. Wal-Mart must maintain and enforce any existing corporate policies, practices or procedures requiring records be maintained reflecting meal periods and rest breaks for its California employees concerning the following categories:
$=S$Ta. Missed, late or shorted meal periods;
$Tb. Missed, late or shorted rest breaks;
$Tc. Verbal or written employee complaints regarding missed, late or shorted meal periods;
$Td. Verbal or written employee complaints regarding missed, late or shorted rest breaks;
$Te. Requiring store managers to report meal and rest break exceptions, regardless of whether such exceptions constitute a violation of California law;$=I
$T3. To the extent that Wal-Mart does not currently have corporate policies, practices or procedures requiring records to be maintained reflecting meal periods or rest breaks for its California employees, then Wal-Mart must develop such corporate policies, practices and procedures and report the same to the Court within 90 days of the entry of Judgment, such that the Court may be satisfied that Wal-Mart is able to comply with California's meal period and rest break laws, henceforth. If such policies, practices or procedures already exist, then Wal-Mart must nonetheless report to the Court concerning the existing policies, practices and procedures within 90 days of entry of Judgment. By way of clarification, the Court will not mandate that Wal-Mart re-implement the practice of clocking in and out for rest breaks;
$T4. The Class is ordered to provide the names and personal identifying information for the 887 class members who are owed premium payments from May 6, 2005 to January 20, 2006 within 10 days of the entry of Judgment in this matter. Wal-Mart is hereby ordered to pay those 887 class members the aforesaid premium payments within 30 days of receipt of the names and personal identifying information from the Class.
$T5. Wal-Mart must report to the Court within 90 days of entry of Judgment in this matter on its implementation of the California Meal Premium Automatic Payment Program. Wal-Mart must provide a statistical report to the Court and counsel for the Class reflecting the number missed meal periods since inception of the program and the number of premiums paid under the program;
$T6. Wal-Mart must design, develop and propose a date for implementation of policies, practices and procedures that will ensure its compliance with California's rest break laws. Wal-Mart's proposals in this area must include the precise means of documenting and measuring Wal-Mart's compliance with California's rest break law. Wal-Mart's rest break compliance plan must be reported to the Court within 90 days of entry of Judgment in this matter. Wal-Mart's proposed plan must include, inter alia, the following: (1) a means of providing notice to all Wal-Mart's California employees of this Courts injunctive order and their rights under California's rest break laws, such as posting the same in employee break rooms; (2) a simple and c onvenient complaint process available to employees who suffered a missed, short or late rest break; (3) how records will be maintained reflecting Wal-Mart's compliance with California's rest break laws; and
$T7. The Court will require that for the next three (3) years following entry of judgment in this matter, Wal-Mart must provide annual reports to the Court and counsel for the Class. The annual reports must include: (1) Wal-Mart's stated policies and practices for ensuring compliance with California's meal and rest break laws, (2) the implementation of Wal-Mart's policies and practices for ensuring compliance with California's meal and rest break laws, (3) what efforts Wal-Mart is making to monitor the effectiveness of its stated policies and practices for ensuring compliance with California's meal and rest break laws, (4) any data reflecting Wal-Mart's compliance efforts, and (5) any changes to Wal-Mart's ongoing policies and practices concerning meal periods and rest breaks.
$T$U$=BADDITIONAL ISSUES$=R$O
$T1. The Court retains jurisdiction to award costs of suit under C.C.P. $S 1032 and 1033.5.
$T2. The Court retains jurisdiction to entertain a motion by Plaintiffs for reasonable attorneys' fees and costs payable by Wal-Mart under Labor Code $S 218.5 or C.C.P. $S 1021.5.
$T3. The Court retains jurisdiction to oversee the distribution of the common fund created in this action, including a motion by Plaintiffs for reasonable attorneys' fees and costs payable by the fund under the common fund theory and the preparation and implementation of a plan of distribution.
$%$?$%Dated: October 11, 2006
$THonorable Ronald M. Sabraw
$TJUDGE OF THE SUPERIOR COURT
$200:
$220:#EXTR# #SAVAGLIO-WALMART# 
$00:
$10:ESSEX MANAGEMENT CORPORATION., Plaintiff, vs. DAVID McALISTER, Defendant.
$20:CASE NO. CIV 245572
$25:SUPERIOR COURT OF CALIFORNIA, COUNTY OF VENTURA
$40:$?$%February 15, 2007, Decided
$110:Honorable Mark S. Borrell.
$115:Mark S. Borrell
$120:$T$(EDITOR'S NOTE: THE ORIGINAL SOURCE CONTAINED ILLEGIBLE WORDS AND/OR MISSING TEXT.$)
$TNATURE OF PROCEEDINGS: RULING ON SUBMITTED MATTER
$TThis is an unlawful detainer action brought by Essex Management Corporation (Essex), against a tenant, David McAlister (McAlister), seeking possession and related damages. Essex contends that it may terminate the tenancy because McAlister and/or his family members have engaged in conduct disturbing and/or threatening to the other tenants in the complex. McAlister contends that he and his children are disabled, and therefore he is entitled to a reasonable accommodation which would allow him to continue in possession. This matter came on for trial on February 1 and 8, 2007.
$T$UFacts$O
$TMcAlister and his minor son reside at 741 Paseo Camarillo, Unit No. 89, Camarillo, Ventura County, California. This is an apartment in a complex commonly known as "Camarillo Oaks." The complex has 564 units and is managed by Essex.
$TMcAlister is in possession pursuant to a written lease agreement created in September 2002, and renewed in July 2006. Essex is paid $ 1,759 monthly for the rental to McAlister. McAlister and his children are beneficiaries of a federal Section 8 program administered b y the Housing Authority of the County of Ventura. A contribution of $ 263 is paid monthly pursuant to this program. In addition, McAlister and his children are beneficiaries of the City of Camarillo's Below Market Rate housing program. Essex is paid approximately $ 900 monthly under this program on behalf of McAlister. McAlister pays the remaining sum, which is approximately $ 631 per month.
$TAmong other things, the parties' lease provides, "Resident agrees not to harass, annoy, vex or endanger any other person within the Property, or to create any nuisance, or disturb the peace and quiet of any other person . . .. Residents are responsible for the acts of their guests, visitors, or invitees." (Ex. 1.)
$TMcAlister is disabled. He developed complications from back surgery in 2001. As a result, a $Ivena cava$N filter was implanted in his body to minimize the risk of stroke. His condition prevents him from working. The Social Security Administration has determined that he is permanently physically disabled. He could not afford to make the rent payments due under the lease without public housing assistance.
$TMcAlister has two minor children who have lived in the unit with him. His son is presently 15 years of age. The son has a mental disability. He receives treatment under a diagnosis of "mood disorder, autism, and possibly mental retardation." On at least one occasion, the son threatened to throw himself off of a second story balcony in the complex. He and McAlister receive a number of services in furtherance of the treatment of the son's disability. Some of these services are provided at the son's current school.
$TMcAlister has a 17 year old daughter. She resided with McAlister and his son from 2001 to 2004, and again from 2005 through October 5, 2006. She has a mental disability described as bipolar disorder. Symptoms of her condition include suicidal ideation, disruptive outbursts, and combativeness toward family members. She has made repeated suicide attempts. She has been held for evaluation and/or hospitalized pursuant to Welfare & Institutions Code section 5150 in excess of a dozen times. The daughter has demonstrated a propensity to cut herself and to display her self-inflicted wounds to other children. She presently resides in a "high-level" residential treatment facility in Colorado.
$TAt least by the summer of 2006, life in the McAlister apartment was, at times, tumultuous. Yelling, screaming and banging were frequently heard by neighbors coming from within McAlister's unit, sometimes after 10:30 p.m. McAlister was witnessed angrily pursuing his son in common areas of the complex. Each of the children exhibited conduct to the neighbors and their children demonstrating an intention to hurt themselves. Some of the neighbors were fearful of McAlister and his children. The residents of two units expressed an intention to leave the complex, unless the McAlisters were removed.
$TThese disturbances, and the corresponding complaints from other residents in the complex, prompted an exchange of correspondence between Jennifer Arriola, the complex manager, and McAlister in July, 2006. McAlister apologized and offered assurance that "the situation is being dealt with in a proactive way." He stated that his children were in therapy and that the family was receiving anger management counseling.
$THowever, the disturbances continued. On or about September 25, 2006, the daughter was suspended from school. A disturbance then ensued at McAlister's apartment, which prompted complaints from other residents. Essex then ser ved notices to terminate McAlister's tenancy. (Exs. 2, 3.) The notice to perform or quit (Ex. 3) stated,
$=S$%$?$%On 9-25-06, we received complaints from two residents that there was once again screaming, yelling and what sounded like people being thrown against walls. In addition, neighbors continue to state that your minor daughter is showing cuts that she claims she gives herself to neighbors. This behavior has caused the other residents to feel unsafe as well as disturbed.$=I
$TIn response to the notices, McAlister wrote Essex on September 27, 2006. (Ex. 6.) He noted that he had several agencies helping him and that $Ihis health$N had taken a turn for the worse. He asked management to reconsider its intention to terminate the lease. He expressed optimism that a "compromise" could be reached.
$TOn October 5, 2006, McAlister's daughter was voluntarily relocated to a residential treatment facility. (She has not lived in the apartment complex since.)
$TOn October 15, 2006, McAlister asked in writing that Essex "withdraw all actions against $(his$) family." (Ex. 7.) In support of this request he attached an admissions agreement reflecting the placement of the daughter into a group home. (Ex. 8.) The letter directed the reader to the attachment "to explain what has been done."
$TJennifer Arriola responded on behalf of Essex to McAlister's letter. (Ex. 9.) She indicated that management intended to "stand$($) firm" on its intention to end the tenancy. She said management would pursue eviction proceedings in the absence of McAlister's cooperation.
$TOn November 14, 2006, Shamika Harris, a case analyst with the Housing Rights Center, wrote Ms. Arriola. (Ex. 10.) She described McAlister as a person with a disability. She asked that Essex withdraw the notices to terminate as a reasonable accommodation of $IMcAlister's disability.$N Stephen Duringer, counsel for Essex, responded to Ms. Harris' letter November 21, 2006. (Ex. 12.) He noted the history of disturbances attributed to the McAlisters. He declined the requested accommodation.
$TFurther correspondence was exchanged in December, 2006, by the parties' respective attorneys. On December 12, 2006, McAlister's attorney, Liam Garland, wrote Mr. Duringer. Mr. Garland. (Ex. 13.) Counsel noted that, "Mr. McAlister has cured any alleged threat posed by his continued tenancy by moving his daughter to a group home." Mr. Garland stated that if it became necessary for McAlister to retain him, "there will be no resolution of the case absent $(litigation$)."
$TMr. Garland sent another letter on December 15, 2006. (Ex. 14.) This letter specifically requested accommodation for "the disability of Mr. McAlister and those of his children." But the letter more specifically referenced "the denial of $(McAlister$) and $(the son's$) reasonable accommodation request." (There was no direct request for an accommodation of the daughter's disability.) The letter discussed the assistance McAlister's son was receiving. Accompanying Mr. Garland's letter was a handwritten note from Deborah Thurber, Ph.D. (Ex. 19.) This letter described the son's emotional disability, the special services he received through his school, and how he would be adversely affected by a move.
$TOn December 28, 2006, Essex filed and served the instant action for unlawful detainer.
$TOn January 22, 2007, Mr. Duringer indicated that Essex would not rescind the notices to terminate, but offered to allow McAlister additional time to find alternative housing. (Ex. 17.)
$T$UDiscussion$O
$TThe parties agree that Essex has established its $Iprima facie$N case. The evidence established that the McAlister family had a lengthy history of disruptions and disturbing conduct. In the absence of a meritorious affirmative defense, this pattern of conduct would be an adequate ground for Essex to terminate the tenancy. n1 Indeed, it may give rise to an obligation to do so to preserve the right of quiet enjoyment of the other tenants. (See $IAndrews v. Mobile Aire Estates$N (2005) 125 Cal. App. 4th 578.)
$F$Tn1 Because McAlister's tenancy is the subject of a Section 8 program, it cannot be terminated without "good cause." (See 24 CFR $S 982.310; also see $ICalifornia Practice Guide, Landlord Tenant,$N Rutter Group, $S 12:270, and authorities cited therein.) "Good cause" may include a "$(s$)erious violation . . . or repeated violation of the terms and conditions of the lease" and "criminal activity that threatens the health, safety, or right to peaceful enjoyment of their residences by persons residing in the immediate vicinity of the premises." (24 CFR $S 982.310, subd. (a), (c).)$E 
$TMcAlister, however, contends that under the facts of this case termination of the tenancy amounts to discrimination under state and federal law. A tenant may raise discrimination as an affirmative defense to an unlawful detainer action. ( $IAbstract Investment Co. v. Hutchinson$N (1962) 204 Cal.App.2d 242.) In particularly, a landlord's failure to provide a qualified tenant with a reasonable accommodation in violation of federal fair housing laws may preclude eviction. (See $IDouglas v. Kriegsfeld Corp.$N (2005) 884 A.2d 1109; $IRoe v. Housing Authority of City of Boulder$N (1995) 909 F.Supp. 814.) The resolution of this unlawful detainer case turns on whether Essex lawfully refused to provide the accommodation requested by McAlister. For the reasons set forth below, the court determines that it did not.
$T$I$UFair Housing Amendments Act$O$N
$TIn 1988, Congress amended the Fair Housing Act. (42 U.S.C. sec. 3601, $Iet seq.$N). n2 Among other changes, the amendment, known as the Fair Housing Amendments Act of 1988 (FHAA), proscribes housing discrimination based on a "handicap." (Pub.L. No. 100-430, $S 6, 102 Stat. 1619 (1988).) Specifically, the FHAA declares that it is unlawful "to discriminate in the . . . rental, or to otherwise make unavailable or deny, a dwelling to any . . . renter because of a handicap of . . . that . . . renter . . . $(or$) . . . any person associated with that . . . renter." (42 U.S.C. sec 3604(f)(1).) The FHAA defines "discrimination" to include "a refusal to make reasonable accommodations in rules, policies, practices, or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling. (42 U.S.C. sec 3604(f)(3).) "Thus, the FHAA 'imposes an affirmative duty upon landlords reasonably to accommodate the needs of handicapped persons,' not only with regard to the physical accommodations, but also with regard to the administrative policies governing rentals." ( $IGiebeler v. M & B Associates$N
 (C.A.9, 2003) 343 F.3d 1143, 1146-1147; citations omitted.) An accommodation which would not be reasonable in most cases, may nevertheless be reasonable under the unique circumstances of a given case. ( $IGiebeler v. M & B Associates, supra,$N 343 F.3d, at p. 1156.) "Whether a requested accommodation is reasonable is highly fact-specific, and determined on a case-by-case basis by balancing the cost to the defendant and the benefit to the plaintiff." ( $IDadian v. Village of Wilmette$N (C.A. 7, 2001) 269 F.3d 831, 838.)
$F$Tn2 In addition to relying upon the FHAA, McAlister alleges a violation of California's Fair Employment and Housing Act (Govt. Code sec. 12000, $Iet seq.$N). The court's analysis discusses only the federal law because the two laws are sufficiently similar for purposes of this case such that there is no reason to discuss them separately. Even though only the federal law is discussed, the court's determination is based on both state and federal law.$E
$TThe FHAA defines "handicap" as "a physical or mental impairment which substantially limits one or more of such person's major life activities." (42 U.S.C. $S 3602 (h)(1).) The phrase "physical or mental impairment" includes, such diseases and conditions as autism, mental retardation, and emotional illness. (See Joint Statement of the Department of Housing and Urban Development and the Department of Justice, $IReasonable Accommodations Under the Fair Housing Act$N (May 17, 2004) (Joint Statement).) n3
$F$Tn3 The Joint Statement is entitled to substantial deference. ( $IDouglas v. Kriegsfeld Corp., supra,$N 884 A.2d, at p. 1121, fn. 19.)$E
$TA landlord, however, is not required to make an accommodation which is unreasonable. ( $IGroner v. Golden Gate Gardens Apartments$N (C.A.6, 2001) 250 F.3d 1039.) An accommodation is unreasonable where it would require a fundamental alteration in the nature of the landlord's business or impose on the landlord undue financial or administrative burdens. ( $IGiebeler v. M & B Associates, supra,$N 343 F.3d, at p. 1157.) In addition, the FHAA does not require that "a dwelling be made available to an individual whose tenancy would constitute a direct threat to the health or safety of other individuals or whose tenancy would result in substantial physical damage to the property of others." (42 U.S.C. sec 3604(f)(9).)
$TThe FHAA does not allow for exclusion of individuals based upon fear, speculation, or stereotype about a particular disability or persons with disabilities in general. (Joint Statement; also see $IDadian v. Village of Wilmette, supra,$N 269 F.3d 831, 840.) "A determination that an individual poses a direct threat must rely on an individualized assessment that is based on reliable objective evidence (e.g., current conduct, or a recent history of overt acts)." ($IIbid.$N) "The assessment must consider: (1) the nature, duration, and severity of the risk of injury; (2) the probability that injury will actually occur; and (3) whether there are any reasonable accommodations that will eliminate the direct threat." (Joint Statement.)
$T$I$UBurdens of Proof$O$N
$TTo make out a claim of discrimination based on a landlord's failure to reasonably accommodate, a tenant must demonstrate that (1) he suffers from a handicap as defined by the FHAA (or is associated with a person who suffers from a handicap); (2) the landlord knew or reasonably should have known of the tenant's handicap; (3) accommodation of the handicap "may be necessary" to afford tenant an equal opportunity to use and enjoy the dwelling; and (4) the landlord refused to make such accommodation. (See $IDouglas v. Kriegsfeld Corp., supra,$N 884 A.2d, at p. 1129; $IGiebeler v. M & B Associates, supra,$N 343 F.3d, at p. 1147.) "To prove that an accommodation is necessary, '$(p$)laintiffs must show that, but for the accommodation, they likely will be denied an equal opportunity to enjoy the housing of their choice.' $(Citation omitted.$)" ( $IGiebeler v. M & B Associates, supra,$N p. 1155.)
$TOnce the tenant produces evidence showing the requested accommodation is "reasonable" and may be necessary for enjoyment of the premises equal to that experienced by tenants who are not disabled, the burden of production shifts to the landlord to introduce evidence in rebuttal. (See $IDouglas v. Kriegsfeld Corp., supra,$N 884 A.2d, at p. 1129; $IGiebeler v. M & B Associates, supra,$N 343 F.3d, at p. 1156.) The ultimate burden of persuasion is on the tenant who seeks accommodation to show that it is reasonable and may be necessary. ( $IDouglas v. Kriegsfeld Corp., supra,$N 884 A.2d, at p. 1129.) The landlord has the burden to prove that an accommodation is not required because the tenant is a direct threat to others. ( $IDadian v. Village of Wilmette$N (C.A.7, 2001) 269 F.3d 831, 840-841.) To prevail on a "direct threat" theory, the landlord must demonstrate that no reasonable accommodation will eliminate or acceptably minimize any risk the tenant may pose to other residents. ( $IRoe v. Sugar River Mills Associates$N (D.N.H., 1993) 820 F.Supp. 636; $IRoe v. Housing Authority of City of Boulder, supra,$N 909 F.Supp., at p. 822-823.)
$T$I$UMcAlister is a Qualified Tenant.$O$N
$TThe evidence establishes that McAlister is a person qualifying for protection under the FHAA, either as a person with a disability or as someone associated with a person with a disability. McAlister is disabled within the meaning of the FHAA. n4 In addition, McAlister's two children are each "disabled" within the meaning of the FHAA. Each has substantial emotional disabilities.
$F$Tn4 It is not necessary to dwell on McAlister's contention that the eviction may be abated as a result of his own disability. The accommodation which he seeks -- rescission of the termination notice -- is not a "reasonable" accommodation of $Ihis$N disability. First, the reason for the termination of the tenancy is the disruptive conduct flowing from the children's emotional disabilities, which is wholly unrelat ed to McAlister's physical disability. Second, the accommodation offered by Essex -- additional time to move -- was a reasonable accommodation to account for difficulties McAlister would experience with the process of moving to the extent those difficulties would be attributable to his disability. Therefore, the defense to the unlawful detainer action based on McAlister's disability is without merit.$E
$T$I$ULandlord Knew or Should Have Known of the Disability.$O$N 
$TThe evidence fails to clearly establish how much Essex knew about the respective disabilities of McAlister's son and daughter prior to the service of the termination notices. But it is clear that Essex was aware of the son's disability by the time it filed its complaint in this action. That information was conveyed in the letter of McAlister's attorney dated December 15, 2006, and its enclosure. (Exs. 14, 19.)
$TMcAlister need only establish that Essex knew of the disabilities at the time the accommodation was refused, not at the time the eviction proceeding was commenced. (See $IDouglas v. Kriegsfeld Corp., supra,$N 884 A.2d 1109.) n5 Here, Essex implicitly rejected the requested accommodation of the son's disability on December 28, 2006, when it instituted this proceeding, and it expressly refused the requested accommodation of the son's disability on January 22, 2007 (see Ex. 17). McAlister has successfully proven the "knowledge" element of the defense.
$F$Tn5 In $IDouglas$N the landlord served the tenant with a three-day notice to cure or quit on August 23, 2001. The tenant failed to leave the premises and the landlord filed an unlawful detainer action on November 30, 2001. The tenant's attorney in February, 2002, wrote the landlord's attorney and advised on the tenant's disability. The matter proceeded to trial in June, 2002. The court relied upon the attorney's letters, sent while the unlawful detainer action was pending, to show notice to the landlord.$E 
$T$I$UAn Accommodation May Be Necessary$O$N
$TThe evidence establishes that the requested accommodation "may be necessary" for McAlister and his son to have an equal opportunity to use and enjoy the dwelling. "Whether the requested accommodation is necessary requires a 'showing that the desired accommodation will affirmatively enhance a disabled plaintiff's quality of life by ameliorating the effects of the disability.' $(Citation omitted.$)" ( $IDadian v. Village of Wilmette, supra,$N 269 F.3d, at p. 838.) As the court noted in $IGiebeler,$N "the causation requirement poses little hurdle in a case such as this one, where a landlord's policy entirely prevents a tenant from living in a dwelling." (343 F.3d, at p. 1155.)
$T$I$UThe Requested Accommodation is Reasonable$O$N
$TMcAlister expressly requested an accommodation which he has characterized as rescission of the notice to terminate the tenancy. While this may be an accurate description of the effect of the requested accommodation, what McAlister actually seeks is a waiver of the past breaches of the lease agreement to the extent those breaches were causally related to his children's disabilities. The effect of such a waiver would be, of course, to negate the notice of termination predicated on those breaches and allow him to continue in possession.
$TThe request for accommodation -- at least to the extent that it was predicated on the children's respective disabilities -- was initially made in mid-December 2006, well after the notice of termination was served. The timing of the request, however, does not foreclose consideration of McAlister's defense. The FHAA does not require that a request be made at a particular time. (See Joint Statement.) Also see $IDouglas v. Kriegsfeld Corp., supra,$N 884 A.2d 1109 $(request for accommodation made during unlawful detainer proceeding timely$). Essex has not presented any authority to the contrary. This interpretation of the FHAA is also consistent with California lawful detainer law, which recognizes that a tenant may assert a defense of waiver based on conduct occurring after the expiration of a notice to terminate. (See $IHighland Plastics, Inc. v. Enders$N (1980) 109 Cal.App.3d Supp. 1, 11 $(landlord waives breach based on non-payment of rent by accepting rent for period beyond termination date provided in a thirty day notice to quit$).)
$TMcAlister has met his burden to produce evidence. The evidence established that it was both "possible" for Essex to waive the past breaches and that, on the face of things, that it would be reasonable to do so. (See $IGiebeler v. M & B Associates, supra,$N 343 F.3d, at pp. 1156-1157.) The evidence established that McAlister's response to the termination notice -- moving his daughter out of the complex -- effectively abated the disturbing conduct.
$TIt is self-evident that the daughter would no longer be a disturbance to other residents while living outside the complex (indeed, outside the state). n6 In addition, the evidence established that with the daughter outside of the family home, the son's conduct could be expected to, and did, improve significantly. Dr. Thurber noted that the son has done much better since the daughter left. In addition, there have been no serious episodes of excessive noise attributable to the McAlisters since the daughter's departure.
$F$Tn6 McAlister does not anticipate that she will live in the complex again, although he hopes that someday she may be able to live close by.$E 
$TIn rebuttal, Essex attempted to show that its financial interests would be unduly harmed if McAlister and his son were allowed to remain. The testimony established that the residents from two neighboring units might end their leases if McAlister were permitted to stay. The court finds this evidence does not show the requested accommodation is unreasonable and is insufficient to establish the accommodation would create an undue hardship on Essex.
$TFirst, the court's determination cannot be based on actions which are predicated on subjective impressions or stereotypical notions about a disability or the propensities of persons with disabilities. As noted above, removing the daughter from the complex is a reasonable approach to the situation. Whether it effectively remediates all of the existing concerns or not remains to be seen, but at this stage, the evidence fails to substantiate the fears of the other residents. While these residents are free to leave the complex if they wish, the court cannot be swayed in its det ermination by the contention that they will, because to do so would be to condone the very type of subjective notions that the FHAA strives to overcome.
$TSecond, it is not enough that Essex shows $Isome$N adverse financial impact from the requested accommodation. "Accommodations need not be free of all possible cost to the landlord." ( $IGiebeler v. M & B Associates, supra,$N 343 F.3d, at p. 1152.) Congress anticipated that landlords would have to shoulder certain costs involved, so long as they are not unduly burdensome. ($IIbid.$N) Here, the evidence showed that out of 564 units, two may become available if McAlister stays. There was no evidence that if these two units should become vacant that they could not be re-let to new tenants in the ordinary course of business. Were Essex to prevail in this action, at least one unit -- McAlister's -- would become vacant. Therefore, at most, the financial impact of the requested accommodation would be the costs associated with re-letting one unit. No evidence was presented from which the amount of this expense could be determined, but it is reasonable to assume that it is nominal when compared to Essex's overall cost of operation. For these reasons, the evidence does not support an inference that the financial burden to Essex of the requested accommodation would be "undue."
$TFurther, in balancing the benefit of the requested accommodation to the McAlisters with the burden to Essex, the court finds that the former greatly outweighs the later. The obvious advantage to the McAlisters is that they get to keep their apartment and to continue to take advantage of the public assistance which the present tenancy offers. Beyond that, however, is the substantial advantage to the son which flows from continuation of his existing treatment regiment and home/school environments. The evidence established that it would be a set back in the son's treatment to move residences, change schools, and possibly switch care givers.
$T$I$UEssex Failed to Show the McAlisters Would Be a Direct Threat to Other Tenants.$O$N
$TNothing in the FHAA requires a landlord to make a dwelling available "to an individual whose tenancy would constitute a direct threat to the health or safety of other individuals or whose tenancy would result in substantial physical damage to the property of others." (42 U.S.C. sec. 3604(f)(9).) Essex contends that McAlister and his son pose a "direct threat" to the other tenants in the complex.
$TTo prevail on such a contention, a landlord must provide "reliable, objective evidence that a person with a disability poses a direct threat." (Joint Statement.) The determination whether a tenant poses a "direct threat" is made only after a reasonable accommodation is attempted ( $IRoe v. Sugar River Mills Associates, supra,$N 820 F.Supp., at p. 639-40; $IRoe v. Housing Authority of City of Boulder, supra,$N 909 F.Supp., at p. 822), unless the landlord presents evidence demonstrating "that no 'reasonable accommodation' will eliminate or acceptably minimize any risk $(the tenant$) poses to other residents" ( $IRoe v. Housing Authority of City of Boulder, supra,$N 909 F.Supp., at p. 822-823). Further, "in evaluating a recent history of overt acts, $(it is appropriate to$) take into account whether the individual has received intervening treatment or medication that has el iminated the direct threat (i.e., a significant risk of substantial harm)." (Joint Statement.)
$THere, the evidence fails to establish that even at their worst the McAlister children were a danger to anyone other than themselves. No evidence was presented that the children attacked, or threatened to attack, any other resident. Although Dr. Thurber conceded that it was "possible" that the son might harm another person, she could not say it was probable. Further, she noted that the son had benefited from the specialized counseling he was receiving and from no longer being exposed to the adverse influence which his sister presented. Both Dr. Thurber and McAlister credibly described the son's condition as having improved since October, 2006. As a result, the McAlister family has demonstrated an improved ability to adhere to the requirements of the lease. There was no evidence of a recent, serious breach of the peace. To the extent the McAlisters have engaged in excessive noise since October, 2006, the evidence is insufficient to sustain the conclusion that these incidents, standing alone, could constitute a material breach of the lease agreement.
$TFor these reasons, the court finds that Essex has not met its burden to show that McAlister and/or his son are, at this time, a "direct threat" to the other residents or their right to peaceably enjoy their homes.
$T$UConcluding Comments$O
$TNothing in this decision should be construed to minimize the right of each resident of Camarillo Oaks to co-exist in relative harmony. A neighbor's reasonable expectation that he or she will be safe and tranquil at home does "not have to be sacrificed on the altar of reasonable accommodation." ( $IGroner v. Golden Gate Gardens Apartments, supra,$N 250 F.3d 1039, 1046.) Undeniably, until October 2006, the McAlisters were unable to function as "good neighbors" due chiefly to the disabilities of the children.
$TEssex and those witnesses from the complex called to testify have plainly reached the point where, in their eyes, they have "had enough." While their frustration is understandable, their resolve to address the situation by simply getting rid of the McAlisters is inconsistent with the goals of the FHAA. The concept of "reasonable accommodation" is centered on the assumption that the affected parties will work jointly, in good faith, to achieve workable solutions to the challenges presented by a given disability. That said, the effect of the court's ruling is not to grant the McAlisters $Icarte blanche$N for future violations. The extent of this court's ruling is simply to forgive the McAlisters for breaches which have $Ioccurred through the date of $N $Ithe notice to terminate.$N It is now up to the McAlisters to demonstrate that they can co-exist peacefully with their neighbors, with reasonable accommodation if appropriate. The court expresses no opinion as to what accommodations, if any, may be warranted in the future.
$TJudgment is for the defendant, McAlister. Defendant is entitled to possession and attorneys' fees and cost pursuant to a memorandum of costs.
$TCounsel for defendant is directed to prepare the form of a judgment. The clerk is directed to give notice.
$%$?$%Dated Feb 15, 2007
$THonorable Mark S. Borrell
$TCommissioner of the Superior Court
$TSUPERIOR COURT OF CALIFORNIA, COUNTY OF VENTURA
$%$?$%Case No. CIV 245572 Essex Management Corporation $Iv. David McAlister$N
$%$?$%I am employed in the County of Ventura, State of California. I am over the age of 18 years and not a party to the above-entitled action. My business address is 800 S. Victoria Avenue, Ventura, CA 93009. On Feb 15 2007 I served the following document described as:
$T$=B$IRULING ON SUBMITTED MATTER$N$=R
$%$?$%by placing a true copy thereof for collection and mailing so as to cause it to be mailed on the above date, following standard court practices, in sealed envelopes addressed as follows:
$=S$%$?$%R. Scott Andrews, Esq.$%Duringer Law Group$%160 So. Old Springs Rd. # 135$%Anaheim, CA 92808
$%$?$%Nisha N. Vyas, Eq.$%520 S. Virgil Ave. # 400$%Los Angeles, CA 90020$=I
$%$?$%I am "readily familiar" with the County's practice of collection and processing correspondence for mailing Under that practice it would be deposited with the U.S. postal service and/or interoffice mail on that same day with postage thereon fully prepaid at Ventura, California in the ordinary course of business.
$%$?$%I declare under penalty of perjury under the laws of the State of California that the above is true and correct.
$%$?$%Dated and executed at Ventura, California on FEB. 15 2007.
$%$?$%$=BMICHAEL D. PLANET, Superior Court$=R$%Executive Officer and Clerk
$TBy: $(ILLEGIBLE WORDS$)
$TJudicial Secretary
$T$=BDECLARATION OF MAILING$=R
$200:
$220:#EXTR# #ESSEX-MCALISTER# 
$00:
$10:CLIFF GARDNER, DRUG POLICY ALLIANCE, CALIFORNIA SOCIETY OF ADDICTION MEDICINE, Plaintiffs, vs. ARNOLD SCHWARZENEGGER, Governor, BILL LOCKYER, Attorney General, BRUCE MCPHERSON, Secretary of State; CHARLES C. PLUMMER, Alameda County Sheriff, and THOMAS J. ORLOFF, Alameda County District Attorney, Defendants.
$20:RG06-278911
$25:SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF ALAMEDA
$40:$?$%September 14, 2006, Decided
$45:$?$%September 14, 2006, Filed
$110:Winifred Y. Smith, Judge of the Superior Court.
$115:Winifred Y. Smith
$120:$TORDER GRANTING PRELIMINARY INJUNCTION
$TThe Order to Show Cause re: Preliminary Injunction came on for hearing, as previously stipulated by the parties and ordered by the Court, on September 14, 2006, in Department 31 of this Court, the Honorable Winifred Y. Smith presiding. Plaintiffs Cliff Gardner, Drug Policy Alliance, California Society of Addiction Medicine, appeared by counsel Jonathan Weissglass of Altschuler, Berzon, Nussbaum, Rubin & Detrain. Defendants and Opposing Parties Arnold Schwarzenegger, Governor, Bill Lockyer, Attorney General, Bruce McPherson, Secretary of State ("State Defendants") appeared by counsel Kathleen Lynch, Deputy Attorney General. Defendants Charles C. Plummer, Alameda County Sheriff, and Thomas J. Orloff, Alameda County District Attorney ("County Defendants") appeared by Donna Ziegler, Assistant County Counsel.
$TThe Court having considered the pleadings and arguments submitted in support of and in opposition to the preliminary injunction, and good cause appearing, the Court GRANTS a preliminary injunction as set forth herein. The reasons follow.
$%$?$%I. STANDARD FOR ISSUANCE OF A PRELIMINARY INJUNCTION
$TThe California Supreme Court has stated the long-standing test for issuance of a preliminary injunction:
$=S$%$?$%trial courts should evaluate two interrelated factors when deciding whether or not to issue a preliminary injunction. The first is the likeliho od that the plaintiff will prevail on the merits at trial. The second is the interim harm that the plaintiff is likely to sustain if the injunction were denied compared to the harm that the defendant is likely to suffer if the preliminary injunction were issued.$=I
$%$?$%( $IIT Corp. v. County of Imperial$N (1983) 35 Cal.3d 63, 69-70.) "The ultimate goal of any test to be used in deciding whether a preliminary injunction should issue is to minimize the harm which an erroneous interim decision may cause." ( $IId.$N at 73.)
$TA. LIKELIHOOD OF SUCCESS ON THE MERITS
$TPlaintiffs have established a likelihood of success on the merits of their Constitutional challenge to SB 1137. Article II $S 10(c) of the California Constitution forbids the Legislature from amending enactments made pursuant to voter initiatives unless they are made consistent with the terms of the initiative itself. Proposition 36 allows amendment by the Legislature where approved by a two-thirds vote and where such amendments are "to further the act and $($) consistent with its purposes. (Proposition 36, $S9.)
$TThe Legislature, in SB 1137, altered Proposition 36, as codified at Penal Code $S 1210.1. The changes wrought by SB 1137 would permit Courts to order "jail sanctions" as a consequence of probation violations. Those "jail sanctions" could range anywhere from 48 hours, up to an apparent indefinite amount of time at a court's discretion. ($ISee$N Penal Code $S1210(f)(3)(A), (B), (C) $("including jail sanctions as the court deems appropriate"$).)
$TThe "jail sanctions" provisions are directly contrary to Section 1210.1(a), enacted as part of Proposition 36. Section 1210.1(a) restricts a court's power to impose conditions of probation, and states that a court "may not impose incarceration as an additional condition of probation." These new provisions are also directly at odds with the purposes of Proposition 36:
$=S$%$?$%$(t$)o divert from incarceration into community-based substance abuse treatment programs nonviolent defendants, probationers and parolees charged with simple drug possession or drug use offenses; $($) ... $(t$)o halt the wasteful expenditure of hundreds of millions of dollars each year on the incarceration-and reincarceration-of nonviolent drug users who would be better served by community-based treatment; and $($) ... $(t$)o enhance public safety by reducing drug-related crime and preserving jails and prison cells for serious and violent offenders.$=I
$%$?$% $IPeople v. Thurman$N (2005) 125 Cal.App.4th 1453, 1462 ($Iquoting$N Proposition 36, $S3).
$TThus, based upon the record before the Court, Plaintiffs have established a likelihood of success on the merits of their claim that the amendments to Proposition 36 made by SB 1137 violate the constitutional restrictions set forth in Article II $S 10(c) on amendment of initiatives.
$TB. BALANCE OF HARMS
$TPlaintiff Gardner alleges standing both as a taxpayer, pursuant to CCP $S526a, and as a citizen acting in the public interest. Section 526a authorizes suits by a taxpayer against officers of a county, town, city, or city and county to obtain an injunction restraining and preventing the illegal expenditure of public funds. "The primary purpose of this statute. . . is to 'enable a large body of the citizenry to challenge governmental action which would otherwise go unchallenged in the courts because of the standing requirement." ( $IBl air v. Pitchess$N (1971) 5 Cal.3d 258, 267-68 $(internal citation omitted$).) "California courts have consistently construed section 526a liberally to achieve this remedial purpose." ( $IId.$N at 268.)
$TThe State Defendants urge that, while Plaintiffs may have sufficient standing to bring the instant complaint pursuant to CCP $S526a as taxpayers, improper expenditure of tax dollars is not, by itself, sufficient to show the interim harm that is necessary for preliminary injunctive relief, citing $ICohen. v. Board of Supervisors$N (1986) 178 Cal.App.3d 447. However, in reaching that decision, the $ICohen$N court found it appropriate to consider whether the record revealed evidence of harm not just to plaintiff, but potential for imminent harm to the "community at large." ( $ICohen, supra,$N 178 Cal.App.3d at 454.) n1 
$F$%$?$%n1 The Court also notes that the Supreme Court in $IWhite v. Davis$N (2003) 30 Cal.4th 528, 557, specifically left open the question of whether a taxpayer's interest could ever, in itself, be sufficient to establish interim harm and justify a preliminary injunction.$E 
$TPlaintiffs have offered evidence, unrebutted by Defendants, that non-violent drug offenders will be jailed who would not have been jailed under Proposition 36 as enacted by the voters. ($ISee$N Declaration of Sujung Kim P3; Declaration of James Austin, Ph.D. P9, 10, 14.) Plaintiffs have also offered evidence, again unrebutted, of the risk that incarceration of these non-violent drug offenders may, due to overcrowding in the jails, result either in greater overcrowding or premature release of others currently in jail. ($ISee$N Declaration of Jackie Goldberg P7.)
$TIn addition, as Plaintiffs herein have argued, the importance of expenditure of tax dollars takes on a different meaning in light of the fact that Proposition 36 was specifically enacted "to halt the wasteful expenditure of hundreds of millions of dollars each year on the incarceration-and reincarceration of nonviolent drug users." (Proposition 36, $S3.)
$TThere is a probability of harm to the public, both in terms of expenditures that Proposition 36 apparently meant to prevent, and in terms of potential incarceration of persons that Proposition 36 apparently meant to avoid incarceration. Moreover, there is a significant harm worked when the will of the voters appears to have been ignored by the Legislature in contravention of the Constitutional restrictions on amendment of legislation enacted pursuant to voter initiatives.
$TDefendants have offered no evidence to show that maintenance of the status quo will result in interim harm. Thus the balance of harms tips in favor of granting a preliminary injunction.
$TII. PROPRIETY OF ISSUANCE OF INJUNCTION AGAINST COUNTY DEFENDANTS
$TThe County Defendants argue that no preliminary injunction should issue as to them since they are not proper defendants to any cause of action in the complaint. n2 First, County Defendants' argument that no person within their jurisdiction is a plaintiff here, or is alleged to have had the new provisions in SB 1137 enforced against him by the County is inapposite. Plaintiffs' challenge is a facial challenge to the validity of SB 1137. Moreover, Defendants are charged with enfo rcing the provisions of SB 1137, either in seeking "jail sanctions" in connection with non-violent drug offenders' probations, or in enforcing those sanctions. Based upon the allegations and evidence before the Court, Plaintiff Gardner has standing under CCP $S526a to seek an injunction to prevent the enforcement of an enactment which, if enforced by the County Defendants, would result in expenditure of tax funds. ( $IBlair v. Pitchess, supra,$N 5 Cal.3d at 269 $(Plaintiff had standing wader section 526a to enjoin county officials from expending time and effort in carrying out ministerial function of executing law alleged to be unconstitutional$).)
$F$Tn2 By separate motion, the County Defendants demurred to the complaint, in response to which Plaintiffs sought leave to amend. Plaintiffs sought to add factual allegations regarding County Defendants' role in the claimed violations, as well as a cause of action for a writ of mandate. The Court dropped the demurrer as moot in light of the proposed amendments and granted Plaintiffs leave to file their proposed First Amended Complaint, by separate order of this date. The Court takes judicial notice of and takes into consideration, the allegations of that First Amended Complaint in reaching this decision.$E
$TAnd, while County Defendants argue that the evidence offered by Plaintiffs all relates to potential consequences in counties other than Alameda County ($Ii.e.$N Declaration of Sujung Kim $(San Francisco County$); Jackie Goldberg $(Los Angeles County$)), that evidence is persuasive with respect to a law of state-wide applicability, and one that the County Defendants would be bound to apply just like any other county. n3 
$F$%$?$%n3 Because it does not affect the ruling on the preliminary injunction, the Court does not reach of the question of whether other defendants ought to be joined in this action, as argued by the County defendants.$E
$T$=BPRELIMINARY INJUNCTION ORDER$=R
$TTherefore, Defendants Arnold Schwarzenegger, Governor, Bill Lockyer, Attorney General, Bruce McPherson, Secretary of State, Charles C. Plummer, Alameda County Sheriff, and Thomas J. Orloff, Alameda County District Attorney, are HEREBY ENJOINED AND RESTRAINED from taking any action to implement, enforce or give effect to Senate Bill 1137 (signed by Governor Schwarzenegger on July 12, 2006) until such time as a trial on the merits may be had or until further order of this Court.
$TIT IS SO ORDERED.
$%$?$%DATED: SEP 14 2006
$T/s/ Winifred Y. Smith
$TWinifred Y. Smith
$TJudge of the Superior Court
$200:
$220:#EXTR# #GARDNER-SCHWARZENEGGER# 
$00:
$10:Jou-Chou v. Starbucks Corporation
$20:Case No. GIC836925
$25:SUPERIOR COURT OF CALIFORNIA, SAN DIEGO
$40:$?$%March 19, 2008, Decided
$105:David A. Lowe, Esq., RUDY, EXELROD & ZIEFF, L.L.P., San Francisco, CA.
$%$?$%Laura L
. Ho, Esq., GOLDSTEIN, DEMCHAK, BALLER, BORGEN & DARDARIAN, Oakland, CA.
$%$?$%Catherine A. Conway, Esq., Gregory W. Knopp, Esq., AKIN GUMP STRAUSS HAUER & FELT LLP, Los Angeles, CA.
$120:$%$?$%The Court, having taken the above-entitled matter under submission on 03/18/2008 and having fully considered the arguments of all parties, both writtenand oral, as well as the evidence presented, now rules as follows:
$%$?$%See the Court's Letter Ruling of 03/19/08, a copy of which is attached hereto and incorporated herein.
$%$?$%Dear Counsel:
$THaving taken the remedies' phase testimony and argument thereon under submission on March 18, 2008, the court rules as follows:
$TPlaintiff class (baristas during the class period) are entitled to restitution against Starbucks in an amount equal to the amount paid out of pooled tips to shift supervisors during the class period. The court finds said sum to be $ 86,687,926.00, plus awards interest of 7% thereon as requested by plaintiffs. The testimony supports an estimate of an hourly tip rate of $ 1.71 ($ 1.87-$ 0.16) and hours worked by shift supervisors of 50,694,694.
$TPlaintiff class is also entitled to an injunction based on the uncontroverted testimony that Starbucks continues to utilize the distribution of tips from the tip pool to compensate shift supervisors as well as baristas. Said injunction would provide that Starbucks be enjoined from continuing to engage in said practice and that shift supervisors being agents are precluded from sharing in tips from the tip pool.
$TPlaintiffs are hereby directed to prepare a proposed judgment to be submitted to the court and counsel on or before April 21, 2008 and both sides are to submit proposals to this court on or before April 29, 2008 as to a distribution plan that should be implemented. Plaintiffs' attorney may also file and serve motions for attorneys' fees and costs, if any, on or before April 29, 2008. A briefing schedule and hearing dates thereon will be set at the May 1, 2008, 9:00 a.m. hearing on the distribution plan.
$%$?$%Very truly yours,
$%$?$%/s/ Patricia Y. Cowett$%PATRICIA Y. COWETT$%Judge of the Superior Court
$200:
$220:#EXTR# #JOU-CHOU-STARBUCKS# 
$00:
$10:THE PEOPLE OF THE STATE OF CALIFORNIA, Plaintiff, v. DERMAQUEST, INC., Defendant.
$20:Case No. RG10497526
$25:SUPERIOR COURT OF CALIFORNIA, ALAMEDA
$45:$?$%February 23, 2010, Filed
$110:Steven A. Brick, Superior Court Judge.
$115:Steven A. Brick
$120:$T$=B$(PROPOSED$) FINAL JUDGMENT INCLUDING PERMANENT INJUNCTION$=R
$TThe People of the State of California ("California"), plaintiff, appearing through Edmund G. Brown Jr., Attorney General of California, by Deputy Attorney General Jonathan M. Eisenberg, and DermaQuest, Inc. dba DermaQuest Skin Therapy ("DermaQuest"), defendant, appearing through its counsel, Pillsbury Winthrop Shaw Pittman LLP, by Roxane A. Polidora, have consented to the entry of this Final Judgment Including Permanent Injunction (hereinafter, the "Judgment").
$TThis Judgment is entered without any taking of evidence or proof, and without any adjudication of any issue of fact or law. This Judgment does not constitute evidence of or any admission by DermaQuest regarding any issue of fact or law alleged in the complaint in this matter. This Judgment and the accompanying stipulation for entry of final judgment constitute the complete, final, and exclusive agreement between California and DermaQuest resolving this matter, and supersede any prior oral or written agreement between these parties.
$TCalifornia and DermaQuest having approved this Judgment as to form and content and having waived their rights of appeal,
$T$=BIT IS HEREBY ORDERED THAT:$=R
$T1. This Court has jurisdiction over California and DermaQuest and the subject matter of this lawsuit, and venue for this matter is proper in this Court.
$T2. This Judgment's injunctive provisions, stated in paragraph 3, $Iinfra,$N shall apply to and cover:
$=S$%$?$%a. DermaQuest, as well as its agents, employees, officers, directors, owners, representatives, partners, successors, assigns, and all entities or persons acting in concert with them and/or under DermaQuest's direct or indirect control (collectively, the "Enjoined Parties"); and
$%$?$%b. All articles, articles of commerce, articles of consumption, articles of merchandise, articles of produce, articles of trade, articles of use, commodities, commodities of commerce, commodities of merchandise, commodities of produce, goods, merchandise, produce, products, or transportation:
$=S$%$?$%i. Developed, manufactured, packaged, marketed, or distributed by the Enjoined Parties, individually, collectively, or in any subset of the collective group; and/or
$%$?$%ii. Bearing (by the Enjoined Parties, individually, collectively, or in any subset of the collective group under), or being marketed by the Enjoined Parties, individually, collectively, or in any subset of the collective group under, the brand name or trademark DERMAQUEST, DERMAQUEST SKIN THERAPY, DERMAMINERALS, BUILDABLE COVERAGE, BREATHABLE COVERAGE, ON-THE-GO FINISHING POWDER, or any brand name or trademark including the term "derma" (collectively, the "Subject DermaQuest Products").$=I$=I
$T3. Under Business & Professions Code sections 16750, 16754.5, and 17203, the Enjoined Parties (individually, collectively, or in any subset of the collective group), are permanently enjoined and restrained from:
$=S$%$?$%a. Making with any third party, including but not limited to an independent contractor of any type, any contract, obligation, or agreement, oral or written, to "increase the price of merchandise or any commodity" (Bus. & Prof. Code $S 16720(a)), relating to one or more of the Subject DermaQuest Products.
$%$?$%b. Making with any third party, including but not limited to an independent contractor of any type, any agreement or contract, oral or written, "to fix at any standard or figure, whereby its price to the public or consumer shall be in any manner controlled or established, any article or commodity of merchandise, produce, or commerce intended for sale, barter, use or consumption in this State" (Bus. & Prof. Code $S 16720(d)), relating to one or more of the Subject DermaQuest Products.
$%$?$%c. For any of the Subject DermaQuest products, "$(m$)ak$(ing$) or enter$(ing$) into or execut$(ing$) or carry$(ing$) out any contracts, obligations, or agreements of any kind or description $(including oral or written$), by which $(any Enjoined DermaQuest Entity and any third party, including but not limited to an independent contractor of any type$) do all or any or any combination of the following:
$=S$%$?$%i. Bind themselves not to sell, dispose of or transport any article or any commodity or any article of trade, use, merchandise, commerce or consumption below a common stan dard figure, or fixed value$(;$)
$%$?$%ii. Agree in any manner to keep the price of such article, commodity or transportation at a fixed or graduated figure$(;$)
$%$?$%iii. Establish or settle the price of any article, commodity or transportation between them or themselves and others, so as directly or indirectly to preclude a free and unrestricted competition among themselves, or any purchasers or consumers in the sale or transportation of any such article or commodity$(; and/or$)
$%$?$%iv. Agree to pool, combine or directly or indirectly unite any interests that they may have connected with the sale or transportation of any such article or commodity, that its price might in any manner be affected." (Bus. & Prof. Code $S 16720(e).)$=I$=I
$T4. To ensure compliance with this Judgment's injunctive provisions, stated in paragraph 3, $Isupra,$N DermaQuest shall do the following:
$=S$%$?$%a. Within ten calendar days of the entry of this Judgment, DermaQuest shall provide a copy of this Judgment to each current DermaQuest director and officer, as well as any current DermaQuest employee whose job responsibilities have ever included calculating, determining, establishing, estimating, monitoring, or setting retail prices for any DermaQuest products. Thereafter, within two weeks of the provision of said copies of this Judgment to the above-mentioned people, a DermaQuest director, officer, or attorney shall prepare a declaration under penalty of perjury under the laws of the State of California stating, "DermaQuest has complied in full with the requirements of paragraph 4(a) of the final judgment in $UPeople v. DermaQuest, Inc."$O (with no other verbiage contradicting same), and shall have that declaration delivered (by personal messenger or U.S. mail) to Jonathan M. Eisenberg, c/o Office of the Attorney General, 300 South Spring St., Ste. 1702, Los Angeles, CA 90013.
$%$?$%b. Within two weeks of the entry of this Judgment, DermaQuest shall send written correspondence to each entity that, since January 1, 2007, made any agreement with DermaQuest to maintain in any manner resale prices established or set by DermaQuest for any DermaQuest products, with each piece of said correspondence stating, "This letter is to inform you that DermaQuest is immediately, unilaterally disavowing all parts of DermaQuest's distributor or resale agreement with you that purportedly obligated you to maintain certain resale prices for DermaQuest products. As far as DermaQuest is concerned, you do not have an agreement with DermaQuest to maintain any resale prices for DermaQuest products" (with no other verbiage contradicting same). Each piece of said correspondence shall be on DermaQuest letterhead, signed by a director or officer of DermaQuest, addressed to the last known U.S. mail address of the recipient entity, and delivered by U.S. mail, return receipt requested. Thereafter, within two weeks of the delivery of all said pieces of correspondence to the above-mentioned entities, as confirmed by the return receipts (to be maintained by DermaQuest), a DermaQuest director, officer, or attorney shall do the following:
$=S$%$?$%i. Prepare a declaration under penalty of perjury under the laws of the State of California stating, "DermaQuest has complied in full with the requirements of paragraph 4(b) of the final judgment in $UPeople v. DermaQuest, Inc."$O (with no other verbiage contradicting same); and
$%$?$%ii. Have that declaration delivered (by personal messenger or U.S. mail) to Jonathan M. Eisenberg, Deputy Attorney General, c/o Office of the Atto rney General, 300 South Spring St., Ste. 1702, Los Angeles, CA 90013.$=I$=I
$T5. Upon entry of this Judgment, DermaQuest shall pay to California the sum of $ 70,000 as civil penalties under Business & Professions Code section 17206. Said civil penalties shall be paid by DermaQuest in equal installments of $ 17,500 due on March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010; however, nothing in the foregoing shall limit DermaQuest's ability to pay said civil penalties prior to these dates.
$T6. Upon entry of this Judgment, DermaQuest shall pay to California the sum of $ 50,000 for the costs of the investigation in this matter, attorney fees, and other expenses, under Business & Professions Code section 16750. Said costs, attorney fees, and other expenses shall be paid by DermaQuest in equal installments of $ 12,500 due on March 30, 2010, June 30, 2010, September 30, 2010 and December 31, 2010; however, nothing in the foregoing shall limit DermaQuest's ability to pay said costs, attorney fees and other expenses prior to these dates. These attorney-fees/costs payments are designated for the exclusive use of the Office of the Attorney General for the investigation and prosecution of antitrust violations, and for consumer education and outreach.
$T7. The sums of money described in paragraphs 5 and 6, $Isupra,$N shall be paid by certified checks made payable to "California Attorney General's Office" and delivered promptly (by personal messenger or overnight courier) to Jonathan M. Eisenberg, Deputy Attorney General, c/o Office of the Attorney General, 300 South Spring St., Ste. 1702, Los Angeles, CA 90013.
$T8. The payments required by this Judgment are not dischargeable in bankruptcy.
$T9. This Judgment fully and finally resolves only those matters specifically set forth in the allegations of the complaint in this lawsuit, for conduct that occurred before entry of this Judgment.
$T10. Nothing in this Judgment shall be construed to relieve DermaQuest of its obligations to comply, or to prohibit DermaQuest from complying, with all applicable local, state, and federal laws, regulations, or rules, or to permit DermaQuest to engage in any acts or practices prohibited by any applicable local, state, or federal law, regulation, or rule.
$T11. This Court shall retain jurisdiction over this matter for purposes of enabling California or DermaQuest to apply to the Court at any time for further directions or orders as may be necessary or appropriate for the construction or carrying out of this Judgment, for modification of any of the injunctive provisions of this Judgment, for enforcement of or compliance with this Judgment, and/or for the punishment of any violation of this Judgment.
$T12. This Judgment shall be binding and effective immediately upon entry by the Clerk of this Court, and the Clerk is ordered to enter this judgment forthwith.
$%$?$%Dated: February , 2010
$T/s/ Steven A. Brick
$TSuperior Court Judge
$200:
$220:$?#EXTR#$? $?#CALIFORNIA-DERMAQUEST#$? 
$00:
$10:WILLIAM D. HOFFMAN, et al, Plaintiffs, v. AMERICAN EXPRESS TRAVEL RELATED SERVICES CO., a New York Corporation; and Does 1 through 50, Defendants.
$20:No. 2001-022881
$25:SUPERIOR COURT OF CALIFORNIA, ALAMEDA COUNTY
$40:$?$%June 23, 2006, Decided
$45:$?$%June 23, 2006, Filed
$110:Judge Rona
ld M. Sabraw.
$115:Ronald M. Sabraw
$120:$TORDER GRANTING IN PART THE MOTION OF DEFENDANT FOR A PROTECTIVE ORDER REGARDING APEX DEPOSITIONS.
$TDate: June 22, 2006
$TTime: 2:00 pm
$TDept.: 22
$TThe motion of Defendant American Express Travel Related Services ("AmEx") for a protective order regarding apex depositions came on for hearing on June 22, 2006, in Department 22 of this Court, the Honorable Ronald M. Sabraw presiding. Counsel appeared on behalf of Plaintiff and AmEx. After consideration of the points and authorities and the evidence, as well as the oral argument of counsel, IT IS ORDERED: The motion of Defendant American Express Travel Related Services ("AmEx") for a protective order regarding an apex deposition is GRANTED IN PART.
$%$?$%FACTS.
$TDuring most of the relevant time period Mr. Ciak was the president of AmEx Assurance Company, which operated the flight related travel insurance programs that are the subject of this case. Mr. Ciak is currently the President of a division of a company that was a spin-off of AmEx in 2005.
$TMr. Kisting is not employed by AmEx or any of its current or former affiliates..
$%$?$%MERITS OF MOTION.
$TThere are no complex legal issues at play in this motion. Under $ILiberty Mutual Ins. Co. v. Superior Court$N (1992) 10 Cal. App. 4th 1282, the Court should ordinarily issue a protective order if a Defendant makes a showing that (1) it is a large corporation, (2) the subject matter of the action concerns an act or omission at the lower levels of the corporate pyramid, and (3) the executive at issue lacks significant knowledge of or involvement in the subject matter of the action. 10 Cal. App. 4th at 1287. The Court may deny or lift a protective order if the Plaintiff can provide a reasonable indication that (4) the executive has unique or superior knowledge related to the subject matter of the action and (5) the Plaintiff has exhausted less intrusive discovery methods to obtain the information. 10 Cal. App. 4th at 1287, 1289. The Court should also consider (6) whether Plaintiffs can test the executive declarations through depositions and (7) the burden and risk of harassment.
$T$UWhether Defendant is a large corporation.$O The size of a corporate defendant will affect the strength of any presumption that its senior executives were removed by layers of administration from the matters at issue and therefore have little or no knowledge of those matters. In $ILiberty Mutual$N the apex deposition was of the president of a large insurance company and the cases cited in $ILiberty Mutual$N concerned large companies. Case law suggests that the executives of smaller businesses testify regularly about matters affecting those businesses. See, e.g., $IColgan v. Leatherman Tool Group, Inc.$N (2006) 135 Cal. App. 4th 663, 691 ("plaintiffs introduced evidence, consisting of Leatherman's discovery responses and the deposition testimony of Leatherman's executives, ..."); $IBarclay v. Jesse M. Lange Distributor, Inc.$N (2005) 129 Cal. App. 4th 281, 288 ("Lange president John Crowston testified in deposition ..."); $IIslas v. D&G Manufacturing Co., Inc.$N (2004) 120 Cal. App. 4th 571, 577 ("In opposing the request for a preliminary determination, Islas also submitted deposition testimony from Jimmy E. Smith, a vice-president of National.").
$TThe evidence before the Co urt and subject to judicial notice demonstrates that AmEx is a large financial company with thousands, if not tens of thousands, of employees. The size of AmEx supports an initial presumption that its the senior executive was removed by layers of administration from the corporate employees who actually made the decisions or took the actions that allegedly injured the Plaintiffs.
$T$UWhether the subject matter of the action concerns acts at the lower levels of the corporate pyramid.$O The subject matter of the case is AmEx's policy regarding flight related travel insurance programs. The focus is on the corporate policy, not on the negligence of a lower level employee in implementing the policy. This affects the Court's evaluation of whether Plaintiffs have presented evidence that the executive has knowledge of the subject matter, that the knowledge of the executive is unique or superior, and that Plaintiffs have pursued less intrusive means to obtain the information.
$T$UWhether the executives have significant knowledge of or involvement in the subject matter of the action.$O The Court cannot make the presumption that senior executives in large companies have little knowledge about the subject matter of an action where the subject matter concerns acts or omissions at the executive level. The claims in this case concern corporate policies. The claims in this case are different from the claims in $ILiberty Mutual$N and most similar cases. Although it is unlikely that the president of a large insurance company has knowledge of how individual claims are handled or that auto executives have information about specific alleged design flaws, senior executives should have some information about the purpose, design, and implementation of corporate policies.
$T$UWhether the senior executives possess unique or superior personal knowledge of relevant information.$O Plaintiffs must demonstrate that the senior executives possess unique or superior information. $ILiberty Mutual,$N 10 Cal.App.4th at 1289. This is to prevent the harassment of senior executives when the same information could be obtained from lower level employees. It is unclear whether Mr. Ciak has superior information about AmEx's policies. There is no testimony to the effect that "Mr. Ciak would know ABC," but there is also no declaration by Mr. Ciak that his involvement with the regarding flight related travel insurance programs was limited to XYZ and that some specifically identified lower level persons would have superior personal knowledge of the information relevant to this case. AmEx offers only the statement of counsel that he has spoken with knowledgeable employees at Amex Assurance, who have stated that Mr. Ciak has limited knowledge of he day-to-day operations and issues involving the flight related travel insurance programs. (Miller Dec, para 3.)
$T$UWhether Plaintiffs can test the senior executive declarations through depositions.$O As a general matter, parties are permitted to cross-examine testifying witnesses. In the context of civil law and motion, this means that persons who submit declarations can usually be deposed to examine misstatements, omissions, and inconsistencies in their testimony and to probe for bias or motive. $IWestly v. Superior Court$N (2004) 125 Cal. App. 4th 907, 911-912. Because AmEx has not submitted any statement by Mr. Ciak, the Court does not reach this issue.
$T$UThe burden and risk of harassment.$O The Court can place limits on the number
, duration, and location of apex depositions to ensure that the burden is appropriate to the case. C.C.P. 2019.030 and C.C.P. 2025.420(b). There is authority for limiting the number of apex depositions and the length of those depositions. $IBaine v. General Motors Corp.$N (M.D. Ala., 1991) 141 F.R.D. 332, 336 (permitting plaintiff to depose 3 of the 18 persons who received a critical memorandum); $IVan Den Eng v. The Coleman Co.$N (D. Kan., 2005) 2005 U.S. Dist. LEXIS 40720 (limiting the apex deposition "to a total of four hours in length, excluding any time for breaks.")
$%$?$%CONCLUSION.
$TThe evidence demonstrates (1) AmEx is a large corporation, (2) the subject matter of the action concerns action at the executive levels of AmEx, (3) Mr. Ciak has knowledge of or involvement in the subject matter of the action, (4) Mr. Ciak has knowledge related to the subject matter of the action, (5) Plaintiffs have diligently pursued less intrusive discovery methods to obtain information, and (6) restrictions on depositions are appropriate to limit the burden and the risk of harassment.
$TPlaintiffs are permitted to take Mr. Ciak's deposition. That deposition will be limited to four hours, exclusive of breaks, and will take place at a location convenient to Mr. Ciak.
$TPlaintiffs are not permitted to take Mr. Kisting. AmEx explained that Mr. Kisting no longer works for AmEx. Plaintiffs made no argument concerning Mr. Kisting.
$%$?$%Dated: June 23, 2006
$T/s/ Ronald M. Sabraw
$TJudge Ronald M. Sabraw
$200:
$220:#EXTR# 
$00:
$10:HEATHER PETERS, Plaintiff, vs. AMERICAN HONDA MOTOR CO., INC., Defendant.
$20:NO. SBA 11S02156
$25:SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES
$40:$?$%February 1, 2012
$45:$?$%February 1, 2012
$110:DOUGLAS G. CARNAHAN, Superior Court Commissioner
$115:DOUGLAS G. CARNAHAN
$120:$T$(EDITOR'S NOTE: THE ORIGINAL SOURCE CONTAINED ILLEGIBLE WORDS AND/OR MISSING TEXT. THE LEXIS SERVICE WILL PLACE THE CORRECTED VERSION ON-LINE UPON RECEIPT.$)
$TMEMORANDUM OF DECISION
$TThe court provides the following Memorandum of Decision in the captioned matter.
$T$=BProcedural history.$=R
$TThe case was filed November 29, 2011 and regularly set for trial in Department 8 of the above-entitled court for January 3, 2012. The narrative portion of the Plaintiff's Claim reads, in answer to the prompt "Why does the Defendant owe the Plaintiff money?": "Fraudulently represented gas mileage and hybrid performance. Also fraudulently induced me to do software update that made things worse."
$TThe original monetary demand on the Plaintiff's Claim was for $ 7500, the then jurisdictional limit of the small claims court. However, on December 20, 2011, plaintiff amended the monetary portion of her claim to the $ 10,000 limit that went into effect on January 1, 2012 and which was operative on the date of trial. See California Code of Civil Procedure (hereinafter "CCP") 116.221. In the amended pleading the operative date alleged by the plaintiff for the defendant's alleged unlawful behavior is "April 23, 2006." (In the original complaint the plaintiff alleges bracketing dates of "September 23, 2010 to November 24, 2011.")
$TThe original claim was regularly served on the defendant, but service of the amended claim was not accomplished within the time provided by the Small Claims Act. Therefore, the defendant at trial was offered by the court a statutory postponement of the trial for that reason. Defendant declined the continuance.
$TBetween the original filing of the claim and the trial date there were various requests for postponement of the trial (for other reasons) by the defendant, and requests for a pretrial inspection of the subject vehicle. There were also several requests for outright dismissal of the claim. All of these requests were denied by the court in chambers (see CCP 116.130$(h$), 116.,310$(b$) and 116.510), with notice given.
$TPrior to trial, the plaintiff requested that the clerk's office issue three subpoenas duces tecum, with compliance date for January 3. The clerk did this. Two of the SDTs were served prior to trial by the plaintiff. The third was withdrawn by her at trial on January 3, Of the two that were served, one of them (on the defendant) was also withdrawn (although the plaintiff was offered by the court a chance to enforce partial compliance with it through a postponement of the trial). The third subpoena was responded to by the witness Maala and the plaintiff was satisfied with his compliance. Materials produced by Maala at trial were shared with both sides immediately prior to trial.
$TOn the original trial date the court received a number of requests for media coverage of the trial under California Rules of Court, Rule 1.150 and Los Angeles Superior Court Rule 2.17. A hearing was held off camera before the trial at which the media representatives and the parties were invited to comment further on these requests. Neither party objected to the requests and they were all granted and orders regarding them signed by the court before the merits of the case were heard.
$TAt the opening of the case on January 3 the court disclosed its knowledge of a Honda employee and the fact that the courtroom clerk in Department 8 and her husband are members of a class of Honda owners subject to a certain relevant class action (see below regarding the class action). The parties waived further comment on these disclosures.
$TTrial proceeded on the merits on January 3, pursuant to all the above orders and rulings, before Douglas G. Carnahan, Court Commissioner. n1 Ms. Peters appeared for herself. n2 Honda was represented by Mr. Neil Schmidt, a Technical Specialist at Honda (not an attorney).
$F$Tn1 California law provides that each Superior Court may appoint court commissioners to hear "subordinate judicial matters," and to hear other matters as temporary judges. Cal.Const., Art. VI, Secs. 21, 22. When a commissioner sits as a commissioner, rather than as a temporary judge, he or she has the plenary power of a judge of the court in the subordinate matter being heard. Ironically in light of the case at bench, a small claims case is by law a "subordinate matter." thereby giving judicial power to a commissioner to hear and determine the proceeding. Govt.Code 72190. Commissioners must have been licensed attorneys for ten years prior to appointment to the bench, and serve at the pleasure of the judges of their courts.$E
$F$Tn2 Note that the general prohibition against attorney representation in the initial small claims hearings (CCP 116.530) does not apply to an attorney, such as Ms. Peters, representing him-or herself. CCP 116.530(b)(1). On a small claims appeal, available to a dissatisfied small claims defendant, the parties may be re presented by counsel (CCP 116.770$(c$)), although the general informality of small claims proceedings still applies (CCP 116.770$(b$)).$E 
$TThe cause was regularly submitted for decision on January 3.
$TOn January 4, filings by the plaintiff reached the court in chambers, mainly having to do with plaintiff's objecting to a previous submission on defendant's behalf filed by an attorney.
$TOn January 9, 2012 the court issued an order removing the matter from submission and resetting it for further hearing on January 25, 2012, largely to address issues connected with relevant statutes of limitation. In this order the court sustained plaintiff's objection to the defense attorney submission.
$TOn January 13, 2012, in response to a request by the plaintiff for clarification of its January 9 order, the court ruled that while the January 25 hearing would focus on the statute of limitations issue, the court would consider any further factual or legal presentations made at that time. In her request for clarification, the plaintiff submitted certain legal arguments regarding the statute of limitations issue, and further factual presentations.
$TOn January 25, 2012, the parties appeared again. One new media order was granted and the plaintiff withdrew a previously made request to videotape the proceedings herself.
$TFurther legal and factual arguments were made, not only on the statute of limitations questions, but also on the plaintiff's underlying claims. The defendant offered an additional witness, Darren Johnson, a Honda expert on the relations between Honda's and the EPA's testing for mileage standards. Honda had filed (January 24) an additional brief of legal and factual points that the court discussed with the parties and has read and considered.
$TThe case was again submitted for decision. This judgment and memorandum ensue.
$T$=BAppropriateness of the small claims forum.$=R
$TThe California Small Claims Act (CCP 116.110, et seq.) is "established to provide a forum to resolve minor civil disputes," in order to hear them "expeditiously, inexpensively, and fairly..." CCP 116.120. In establishing the small claims system, the California Legislature has also expressed something of a procedural preference for individual over corporate parties; CCP 116.120(d) states, "The small claims divisions, the provisions of this chapter $(of the CCP$), and the rules of the $(California$) Judicial Council regarding small claims actions shall operate to ensure that the convenience of parties and witnesses who are individuals shall prevail, to the extent possible, over the convenience of any other parties or witnesses."
$TNoting all this, and noting that CCP 116.120(d) applies to procedural convenience only (and not to the ultimate outcome of the case), it is also true that the complexity of a case, or the numbers of plaintiffs, or the widespread import of the controversy, do not prevent a matter from being brought in small claims. (See $ICity and County of San Francisco v. Small Claims Court$N $(1983$) 141 Cal.App.3d 470, in which the Court of Appeal noted that, "The language of the $(Small Claims Act$) makes it clear that the word 'minor' $(in CCP 116.120$) refers to the financial value of the claim to the individual plaintiff," and not necessarily to the complexity or public interest in the case itself.) n3 A plaintiff with a claim valued at greater than the jurisdictional limit of the court is free to remit down t o that limit, for judgment purposes, to come into the small claims court, CCP 116.220(d).
$F$Tn3 In the $ISan Francisco v. Small Claims$N case, 183 small claims plaintiff's were consolidated and heard together in a complex case involving airport noise.$E 
$TYet a case of the nature of the one at bench, in small claims, does present practical and legal problems. There are no formal pleadings to frame the issues (CCP 116.310$(a$)). There is no pretrial discovery (CCP 116.310$(b$)), although, as noted above, subpoenas are available to procure evidence at the trial itself. Lawyers are not permitted to assist the parties and the court, at trial, in the presentation of evidence or in the focus on particular issues (CCP 116.530). n4 The small claims hearing itself is informal and expedited, before the court alone, without a jury, $ICrouchman v. Superior Court$N (1988) 45 Cal.3d 1167. CCP 116.510 states: "The hearing and disposition of the small claims action shall be informal, the object being to dispense justice promptly, fairly, and inexpensively." ($IPeters v. Honda$N took approximately 90 minutes of in-court time to try, on January 3, and another 90 minutes or so on January 25, all of which is longer than the average small claims case, but still expedited considering the issues involved.)
$F$Tn4 Although counsel are free to advise small claims litigants outside the confines of the trial itself. CCP 116.530(c)(2).$E 
$TIn short, the plaintiff here is certainly not prevented from prosecuting her case in the small claims court, but there remains a question of what public resources can be brought to bear on a case which has obvious widespread implications yet is brought within the limited confines of the small claims system. Furthermore, a small claims judgment, whether final after an appeal, or if there is no appeal, has no collateral estoppel (i.e., precedential) effect, except in a subsequent suit between the same parties on the same cause of action. The $ICalifornia Judges Benchbook Small Claims Court and Consumer Law$N (Administrative Office of the Courts, Thomsen/West, 2011, Sec. 10.26) comments: "The judgment in small claims court is not given collateral estoppel effect because the parties are not bound by formal rules of pleading, evidence, and procedure, and therefore, the issues may not be fully (i.e., technically) framed and considered. Consequently, issues decided in small claims proceedings should not be considered conclusively decided in a second action between the parties on a different cause of action, whether the second action is commenced in small claims court or in a different division of the superior court." Of course the same reasoning would apply to a subsequent suit on the same theory brought by a different plaintiff. See $ISanderson v. Niemann$N (1941) 17 Cal.2d 573 and $IRosse v. DeSoto Cab Co.$N (1995) 34 Cal.App.4th 1047.
$TThe subject of the appropriateness of the small claims forum, in light of plaintiff's testimony (see below) that she has actually suffered more than $ 100,000 in damages, was discussed among the court and the parties, 
and the plaintiff insisted on remaining in the small claims forum. This is her right
$T$=BSources of evidence.$=R
$TThe court has reviewed or been exposed to the following potential sources of evidence in arriving at its factual and legal conclusions:
$TThe testimony of the four witnesses (Peters, Maala, Schmidt, and Johnson). (Ms. Peters's husband gave brief testimony on January 3, but only generally corroborating plaintiff's own presentation.)
$TThe court file, which by now has a good deal of evidentiary material in it accompanying the defendant's various motions, n5 and the plaintiff's responses thereto.
$F$Tn5 Note, however, that one of Honda's most recent set of motions, signed by a David Peim, the court has not considered for evidentiary or legal argument purposes, since Mr. Peim is apparently a licensed attorney. Plaintiff objected to this consideration in a late-filed document and that objection was sustained. Small claims courts do not react to motions filed by counsel at the trial level.$E 
$TA voluminous file of documentary evidence submitted by the plaintiff.
$TA number of large placards submitted by the defendant reproducing the subject vehicle's window sticker and a printout from "www.fueleconomy.gov" regarding EPA mileage estimates for the subject vehicle, along with other factual and argumentation points.
$TPlaintiff's motion for clarification filed January 12, 2012.
$TDefendant's detailed submission of January 24. Note, however, that accompanying this was a large stack of purported testimonials from satisfied hybrid owners that were "filed under seal." The court exercised its discretion to not review these, largely because of their voluminous nature and because the plaintiff was in a poor position to digest and respond to them. Plaintiff herself attempted to submit a smaller list of dissatisfied owners (and indeed had some with her in court). These presentations by the plaintiff were also rejected by the court (although it would be fair to observe that the court is certainly aware that there are hundreds of hybrid owners lined up on each side of this dispute; that fact, and the opinions of all of these well intentioned people, are only peripherally germane to the dispute between Peters and Honda).
$TArticles from the $ILos Angeles Times,$N of December 27, 2011, January 4, 2012, January 11, 2012, and January 26, 2012.
$TArticles from the $ILos Angeles Daily Journal$N of January 11, 2012 and January 26, 2012. n6
$F$Tn6 The January 26 $IDaily Journal$N piece has some interesting legal discussion in it concerning the possible effects of multiple small claims cases on related class actions. Whatever effects these might be, they play no part in the decision on the instant dispute.$E
$TAn article reprinted from an Associated Press report in the Los Angeles $IMetropolitan-News Enterprise$N for January 26, 2012.
$TEvening news stories on the case broadcast the evenings of January 3, 2012 by the local NBC channel, Channel 4, and on January 25, by the local ABC outlet, Channel 7.
$TAn evening news story on the NBC national news broadcast the evening of January 4, 2012
$TThe Kelley Blue Book internet listing for Honda Civic Hybrids of a similar vintage to plaintiff's.
$TThe court is of course 
aware that media interest in the case has been high, and that coverage of it has occurred in many other outlets.
$TNote also that the media reports do not add much in the way of information about the case beyond what was presented in open court and what is already in the court file. To the extent that they do, a small claims court is given latitude in reviewing evidence outside the trial itself CCP 116.520 (subsection $(c$)) states: "The court may consult witnesses informally and otherwise investigate the controversy with or without notice to the parties." This rule, specific to small claims and inapplicable in the higher courts, must be used with caution, for obvious reasons of fairness and notice to the parties.
$TMs. Peters also filed a number of pieces of correspondence immediately subsequent to the first hearing, including the objections to Mr. Peim's motion. The court has reviewed these but they also do not add much to the substantive consideration of the case.
$T$=BFactual background.$=R
$TOn April 23, 2006, plaintiff purchased a 2006 Honda Civic Hybrid (HCH) with a Continuously Variable Transmission from Honda of Santa Monica. She paid $ 30,485.96 in cash for it. n7
$F$Tn7 The contract, which was offered in evidence, indicates that the car was financed, but plaintiff testified that the deal was later modified to be a cash purchase. The issue is unrelated to the determination of the case, since even under the originally written contract the car was to be paid off by May 7, 2011.$E 
$TPlaintiff was always dissatisfied with the car's mileage, and starting in March of 2008 she began a series of technical consultations and repairs with the Honda dealer having to do with the hybrid operations of the vehicle. These lasted between 2008 and 2011.
$TIn August of 2010 she received a "Product Update" from Honda. The update stated, in part, "Your vehicle's integrated motor assist (IMA) battery may deteriorate and eventually fail before its normal usable life is reached. Frequent stop-and-go driving during warm weather speeds up the IMA battery deterioration. $=BTo help prevent early IMA battery deterioration, a software update Is needed for the IMA battery$=R $(bold in the original$)." The product update also stated that the customer "may notice":$T"- When the vehicle is in auto idle stop, the engine restarts sooner. It also now restarts with only two bars displayed on the IMA battery level gauge.
$T- Even with up to four bars displayed on the IMA battery level gauge, auto idle stop may not occur.
$T- To ensure there's plenty of power for engine starting and accelerating from a stop, the IMA system reserves more battery power. This reduces the IMA assist as the vehicle speed increases. 
$T- The IMA battery level gauge more accurately indicates the battery's state-of-charge. You will also notice that the level bars stay in the middle of the gauge much longer."
$TPlaintiff testified, believably, that after the software update, which she did solicit (at no charge) the car's performance actually deteriorated, and that the first condition noted above was not present. She also persuasively testified that her mileage remained considerably lower than the 50 mpg she had originally been led to believe would be the case, and links performance of the battery running the vehicle with the use by the vehicle of gasoline. For purposes of further analysis, the court acc epts plaintiff's conclusions regarding the effects of the software update.
$TOn November 18, 2011 plaintiff wrote to Honda asserting that the software update had been misrepresented, and demanding compensation for a diminished value of the vehicle, not only for that reason, but based on other theories of misrepresentation relating to the car's mileage.
$TWhen no accommodation was reached between the parties this suit resulted.
$T$=BContentions of the parties.$=R
$TPlaintiff contends, generally, that the original mileage performance of the vehicle, and, later, the utility of the software update, were misrepresented to her, in advertising and otherwise, causing her pecuniary damage. She bases her legal theories on several California statutes and on certain common law tort and contract theories. In sum, she alleged by testimony, and in her documentation, that she has suffered a total loss of $ 122,113.46, summarized as being comprised of: "difference between MSRP LX v. Hybrid ($ 5440.00); premium paid over MSRP for "Hybrid Premium" ($ 3290); interest on both premiums paid ($ 4974); reduced resale value due to stigma ($ 5208); actual increased gas cost to date ($ 1110.48); future increased gas cost ($ 8200); IMA battery replacement costs ($ 2304.98); punitive damages for fraud ($ 91,585,09)." The punitive damage figure is apparently derived by trebling the claimed compensatory damages.
$TDefendant contends that neither the mileage of the vehicle nor the effect of the software update was misrepresented, and that it has violated no laws. In summary, it further contends that:
$T- Plaintiff's complaint is barred by the equitable doctrine known as "laches."
$T- Honda is not liable for mileage estimates provided by the Environmental Protection Agency, and that there have been no misrepresentations made by the defendant based upon such, and that, in any event, plaintiff has not materially relied upon any representations made.
$T- Certain of plaintiff's claims are preempted by federal law.
$T- The court should depend on the mileage achievements of other satisfied Honda hybrid owners.
$T- Plaintiff has shown neither an entitlement to damages nor the suffering of actual damage.
$TNote that, in a small claims court, even a lawyer-plaintiff is not restricted to a recovery based on only the legal theories she presents. The Small Claims Act refers only to judgments for "recovery of money," without reference to any need for the small claims bench officer to restrict him- or herself only to claims which are pleaded, and indeed the pleadings in small claims are extremely informal, consisting only of a "Claim of Plaintiff," which itself is in summary form. Thus, if the plaintiff is entitled to a recovery of money based on any legal theory, she is entitled to it CCP 116.220(a)(1). The same is true, naturally, concerning affirmative defenses and defensive factual responses that would normally be raised in pleadings by attorneys, such as statutes of limitations and laches.
$T$=BRelevant other litigation.$=R
$TThe court has become aware through the evidence of three relevant pieces of litigation that have some potential bearing on this case.
$T- $ILockabey.$N A class action suit currently pending in the San Diego County Superior Court, styled "Lockabey v. American Honda," and bearing the case number 37-2010-00087755-CU-BT-CTL. This case, involving claims by a potential class similar to those brought by Ms. Peters, is currently, as best this court can tell, in a status such that a class has been certified for settlement purposes and a Class Acti on Settlement Notice has gone out, or is the process of going out, to potential members of the class. The suit is actually a compendium of five related class actions on issues similar to Ms. Peters's, the first of which was filed March 9, 2007. The Settlement Notice, which is in the court file, bears a deadline for class members to opt out of the class of February 11, 2012. Honda had attempted to argue, before trial here, that the current small claims case is enjoined by the court in the class action, but it seems rather that Ms. Peters's has adequately opted out of the class (by letter to a claims administrator in December of 2011) and that she is therefore not bound by any injunction or proposed injunction in the class action. The arguments that Peters is enjoined was not pursued by Honda at trial on January 3. n8 The class action apparently contemplates awarding members of the class from $ 100 to $ 200 each and provides them other rights. Since no judicial findings have yet been made in the class action, the case has no collateral estoppel effect here, although, as noted below, the filing of the class action operates to toll what probably would have otherwise been expired statutes of limitation on plaintiff's causes of action.
$F$Tn8 It is quite clear, and Peters has never denied, that one of her motives is to influence members of the class in the class action to not settle with Honda. She has apparently done this, using a website and other means, because she has confidence in her case. The parties' subjective feelings about each other have no bearing on the outcome of this trial.$E
$T- $IPaduano.$N A trial and appellate court action, also in San Diego County, styled "Panduano v. American Honda Motor Company." and bearing the trial court number GIC85441 and the Court of Appeal (Fourth District) number D050112. $IPanduano$N is now a published opinion of the Court of Appeal (citable as 169 Cal.App.4th 1453). It has much interesting language in it about the history of the "Honda hybrid controversy," as it were. It is legally significant to the case at bench since it is a published opinion, by which this court is bound, holding that any breach of warranty claims asserted by Peters are preempted by federal law and fail on that ground. This court is bound by that holding.
$TOn the other hand, the $IPaduano$N court goes on (in a 2-1 decision) to hold that the trial court in the Paduano case erroneously granted summary judgment in favor of Honda on Mr. Paduano's otherwise pleaded state law claims under the California Consumer Legal Remedies Act (CRLA) (Civil Code 1770 et seq.) and the California Unfair Competition Law (UCL) (Business & Professions Code 17200 et seq.). At that, the Court of Appeal, after an extensive discussion of the legal principles involved, reversed the trial court (In part) and remanded the case to the trial court for further proceedings, in effect extinguishing Paduano's warranty claims but leaving his other two theories intact.
$TThis court is not presented with much further information about the Paduano case. Ms. Peters testified that her information is that Paduano settled with Honda for $ 100.000 (see discussion below), which still leaves the case of limited usefulness here, on its facts. This court has no information before it indicating that the Padua no trial court made any factual or legal findings that would collaterally estop the Peters case (other than in connection with the preemption argument). To the extent that Paduano settled with Honda, that fact, while not exactly inadmissible in small claims court (where strict rules of evidence, including the general inadmissibility of settlements to prove liability, are not applied), is of limited use for the basic reason contained in the rule. Settlements can occur for all sorts of reasons, and it is difficult to pin liability on Honda in the Peters matter simply because it settled with Paduano. While the outcome in $IPaduano$N is of interest, Peters requires independent proof of liability to obtain a judgment here.
$T- $ITrue v. American Honda Motor Co.$N This is a federal class action apparently still pending in the United States District Court for the Central District of California (Riverside). It bears the case number EDCV 07-0287-VAP and has been reported, initially at 749 F.Supp.2d 1052 (2010). In this case a United States District Judge (Judge Virginia Phillips) declined to approve a class settlement between a representative pair of plaintiffs and American Honda based on the court's ultimate conclusion that the proposed settlement was unfair. As best this court can determined, this action is currently stayed pending the outcome of the $ILockabey$N case, but the court has read Judge Phillips's decision and there is some further interesting language in it concerning the District Court's analysis of the $IPaduano$N case. n9 although, again, this relates largely to the District Court's analysis of the efficacy of a proposed class action settlement, and does not control the actual outcome in $IPeters v. Honda.$N
$F$Tn9 "Developments in a California state court lawsuit alleging substantially similar claims suggest it may be the claims of the representative plaintiff's $(in $ITrue$N$), not the claims of the entire class, that are weak. In $IPaduano v. American Honda Motor Company, Inc.$N, 169 Cal.App.4th 1453, 1470-1473,88 Cal.Rptr.3d 90 (2009), the California Court of Appeal reversed a grant of summary judgment to AHM, holding that an HCH owner had presented a sufficient question of fact for his UCL and CLRA claims based on the false or misleading nature of AHM's fuel economy misrepresentations to go to trial. $IPaduano$N has now been settled, and AHM has agreed to pay Gaetano Paduano $ 50, 000 to settle his claims, in addition to a minimum of $ 50,000 for his attorney's fees....This suggests the claims of class members may have significant value."$E 
$T$=BPossible legal theories of relief.$=R
$TIn reviewing the evidence, the court has been able to identify the following potential theories of relief upon which the plaintiff might depend.
$T1. Federal claims under the Magnuson-Moss Warranty Act (15 U.S.C. 2301 et seq.) This was a theory considered and rejected in $IPaduano$N, on its merits.
$T2. State warranty claims under the California Song-Beverly Consumer Warranty Act (Civil Code 1793.2 et seq.). This was also rejected in $IPaduano$N based on conclusions largely having to do with federal preemption.
$T3. The California Consumer Legal Remedies Act (CLRA) (Civil Code 1770 et seq.) (although no te that in her January 12 submission, plaintiff states, "Ms. Peters is not making a claim under the CLRA....Instead she has elected to pursue alternative claims that have no...pre-filing notice requirement including: common law theories of intentional and negligent misrepresentation, as well as claims pursuant to California Business & Professions Code Sections 17200 & 17500.").
$T4. The California Unfair Competition Law (UCL) (Bus. & Prof. Code 17200 et seq.).
$T5. California statutory law regulating false advertising (Bus. & Prof. Code 17500 et seq.).
$T6. Common law theories of misrepresentation (see Civil Code 1571-72 and 1709-1710 and related case law).
$T7. A claim for punitive damages, based on plaintiff's assertion that mileage figures and the problems with the software update were intentionally, fraudulently, maliciously, and oppressively concealed.
$T$=BAnalysis.$=R
$TThe warranty claims having been obviated by the decision in $IPaduano$N, the court proceeds to discuss the case using the framework of the other theories of relief. As will be seen, the court is of the view that plaintiff has stated a claim in several respects.
$T$IThe California Consumer Legal Remedies Act.$N Civil Code 1770(a)(7) does say that one of the statute's enumerated deceptive practices is, "Representing that goods or services are of a particular standard, quality or grade, or that goods are of a particular style or model, if they are of another." "Goods" are "tangible chattels bought or leased for" personal use (Civil Code 1761$(a$)). Thus, a car is "goods," and if it is deceptively represented a statutory violation can occur.
$TA serious bar to a CLRA action based on the advertising and the software raises its head, though. Civil Code 1782 requires that thirty days prior to commencement of a CLRA action the plaintiff notify the defendant of the acts alleged to have been committed, Here, plaintiff's demand was dated November 18, 2011 and the suit was filed November 29. Thus, the action is facially barred by the lack of the presuit notice. The court has given some consideration to whether that bar operates definitively, or merely to abate the action, but the acceptance by the court of certain of plaintiff's other theories moots the question, and, additionally, as noted above, plaintiff has withdrawn any CLRA theory, apparently acknowledging the pre-suit notice requirement.
$T$ICalifornia Unfair Competition Law.$N Bus. & Prof. Code 17200 states, "...unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by...Section 17500 $(et seq.$)...of the Business and Professions Code." The statute has a four-year statute of limitations (B&P 17208).
$TThis brings to the fore the question of whether, since plaintiff's case was not filed until November 29, 2011, her claims are barred by any relevant statute of limitations, the four-year statute of B&P 17200 being the longest she would have had to face. The answer is no. Both controlling federal (and state) law provide that putative members of a class have statutes of limitation on their individual claims tolled during the pendency of the related class action. This principle, an outgrowth of the older, general, principle of "equitable tolling" of statutes of limitation, is encapsulated in a basic United States Supreme Court decision, and is discussed in a number of lower federal and state court decisions. Since the relevant related class action was filed in 2007, well within 
operative time periods from the sale of Peters's car to her, she is not barred by any state statute of limitations. See $ICrown, Cork & Seal Co. v. Parker$N (1983) 462 U.S. 345, $IHatfield v. Halifax PLC$N (2009) 564 F.3d 1177, and $IBecker v. McMillin Construction$N (1991) 226 Cal.App.3d 1493.
$TDefendant, beyond the limitation of actions defense, argues that plaintiff is guilty of laches, the equitable defense that eliminates relief for a plaintiff who has "slept on her rights," as the equitable maxim (Civil Code 3527) goes. Defendant's main argument is that since Peters declined to opt out of $ITrue$N she was on notice at least by then ($ITrue$N had an initial opt-out deadline of December 2009) that she should have complained about her mileage earlier. Peters responds that it was really the unfairness in the software patch of 2010, and the effects thereof, that attracted her attention and began her inquiry, The court finds this persuasive, and is otherwise reluctant to penalize a plaintiff who is within operative legal statutes of limitation. The plaintiff's claim is not barred by laches.
$TThis then brings the court squarely face to face with whether Honda misrepresented the mileage of the hybrid in 2006.
$TThe court believes, for purposes of this statute, that it did.
$TThe statute uses the word "misleading." This is a strict liability rule (see $IPaduano$N). The requirement is met. At a bare minimum, Honda was aware (in part from the Paduano case) that by the time Peters bought her car there were problems with its living up to its advertised mileage. Misleading representations that plaintiff has correctly identified include:
$T- That the HCH would use "amazingly little fuel."
$T- That the vehicle would help her "save plenty of money on fuel - with up to 50 mpg during city driving." This figure is supported by the window sticker.
$T- That the HCH's "motor adds extra power when needed..."
$T- That the vehicle "provides plenty of horsepower while still sipping fuel."
$T- That "under most conditions, an idle stop feature automatically shuts off the Hybrid's gasoline engine when you stop, so gas consumption ceases."
$TActual performance of plaintiff's vehicle did not live up to these standards. n10
$F$Tn10 Two related points: 1) Both sides wish to depend on comparisons between Mr. Paduano's situation and Ms. Peters's. Apparently Honda did weaken its advertising somewhat between the sales brochures that were available to Paduano (relating to a 2005 hybrid) end the ones available to Peters, However, in connection with the basic 50 mpg estimate still offered to Peters, the court sees little practical difference between the two cases. 2) Buried in the advertising and other data available on the vehicle has always been cautionary language - about which the court can probably even take judicial notice - words to the effect that "actual mileage may vary." This obvious fact needs to be judged in context with the advertising.$E 
$TAs plaintiff pointed out in court, a difference in mileage of only a couple of miles per gallon would not have affected her, but when she (as Paduano) began receiving much less than the advertised mileage she knew she had a problem.
$TAs with Paduano, Peters was told that her driving habits would starkly affect 
her mileage. No doubt this is true, but drivers in large urban areas, such as Los Angeles, or San Diego, are naturally going to experience stop-and-go driving and are normally going to make use of their air conditioning, both of which will have an effect on mileage that deserves to be explained, in advertising and elsewhere.
$THonda responds that it is stuck with EPA mileage figures provided to it. This does not seem to be the case. Honda's own testing should be the guideline for how it advertises its vehicles' mileages, not the generalized work, valuable though it is, done by the EPA. Can a Honda hybrid driven in careful and tested ways achieve 50 mpg? No doubt. Did it happen with Peters's car? No. n11
$F$Tn11 Note also that there are apparent deficiencies in the EPA protocols for testing, in that, as testified to by the witness Johnson, the EPA does not require testing under all extreme urban driving conditions. No air conditioner use is involved, for instance.$E 
$TOn the question of the alleged misrepresentations regarding the software update the plaintiff has a further point. This did not come up until 2010, and upon relying upon it to have the software installed (admittedly free of charge) the plaintiff's mileage did not improve, and indeed at least one of the distinct promises made in the Product Update regarding the engine starting sooner was not fulfilled. Plaintiff's mileage continued to be unsatisfactory and her engine had trouble turning off at stops, let alone restarting.
$T$IFalse advertising.$N The statute in question, Business & Professions Code 17500, indeed prohibits false advertising, but there is a general problem for plaintiff in that the statute (except as it is read in conjunction with B&P 17200) does not provide a right of private relief for monetary damages. The section allows injunctive relief, which small claims courts cannot give, and may provide relief by way of restitution. It has a three-year statute of limitations (CCP 338$(h$)). See, as to the question of the election of damages under the statute. $IBuckland v. Threshold Enterprises, Ltd.$N (2007) 155 Cal.App.4th 798.
$TAs to rescission and restitution, plaintiff prefers to keep her car, so the court cannot unwind the deal in the usual way. There will be fuel costs which should be restituted to her (see below), but the general question of injunction-rescission-restitution is mooted by the court's other findings on other theories.
$T$IMisrepresentation.$N Beyond the rights in the plaintiff stemming from the UCL, plaintiff of course can fall back on common law misrepresentation theories. Peters argues that as to both the original purchase of the vehicle and the installation of the software, she was victimized by the usual elements of fraud - that either intentionally or negligently the defendant made material representations to her that were untrue, upon which she depended, reasonably, to her detriment. See Witkin, $ISummary of California Law,$N 10th Ed., "Torts," See. 772 (and the exposition of the statutory bases for California fraud actions in Sec. 767).
$TAt least as to negligent misrepresentation, for the reasons noted above, the court finds for the plaintiff.
$TAs to intentional fraud, it is difficult for the court to isolate any information before it from which to conclude that Honda behaved as to intentionally misrepresent$=P 1298*32 this vehicle. (Here the generalized results Honda had obtained from customers does have some relevance.)
$T$IPunitive damages.$N Civil Code 3294 requires proof of punitive damages by clear and convincing evidence. As noted above, however, the court is not finding there is clear and convincing evidence that Honda concealed or misrepresented the problems with the vehicle generally, or with the software patch, out of oppression, malice or intentional fraud, as required by the statute.
$T$IDamages.$N Plaintiff would be entitled to the lowest figure that would make her whole for her found losses. If part of the found loss is due to the misrepresentation regarding the software patch, the price of a new IMA battery would solve that problem in compensatory terms. Plaintiff has provided an estimate for this for $ 2304.98 from Honda of Hollywood, which seems a reasonable effort to provide this damage figure.
$TBut there is the larger issue of plaintiff's damages stemming from the original misrepresentation, and running from purchase of the vehicle (April 23, 2006) to the date of the software patch (September 23, 2010). There is also a question of whether Honda should be credited with the fact that Peters was entitled, on her 2006 federal income taxes, a tax credit for the purchase of the vehicle.
$T$ITax credit.$N The tax credit would have been $ 2100. Peters did not take it. She testified that somehow she thought the tax credit was some kind of rebate, and did not claim it. This is not an issue that can be laid at Honda's door. The tax credit was available and thereby diminishes Peters's other damages. n12 A California state tax credit for hybrid vehicles apparently went into effect for vehicles purchased after Peters's car.
$F$Tn12 Because of the court's other calculations, and the jurisdictional limit of the small claims court, the point is, in practical terms attenuated.$E
$T$IMileage methodology.$N
$TAt the time of the patch the car's odometer reading was 43536.
$TAt 50 mpg that number of miles equals 870.72 gallons (the court accepting plaintiff's mileage figure).
$TAt 40 mpg (the court accepting plaintiff's figure) that number of miles equals 1088.4 gallons.
$TThe difference is 217.68 gallons, Using the average gas price figure provided by plaintiff of 53.69 per gallon, this is a difference in fuel costs of $ 803.24.
$TIn addition, plaintiff would be entitled to compensation for increased fuel costs since the installation of the software patch, which occurred September 23, 2010, and which would run to the date of filing. At the time of the patch the car's mileage was 43536 miles and as of December 2, 2011 the mileage was 48361 (both figures come from repair records submitted by the plaintiff). The December 2 is close enough to the filing date to be usable (since mileage costs will be estimates in any event). The calculation of damages based on lost mileage during the subject time frame thus goes:
$TThe miles differential (48361 less 43536) is 4825 miles.
$T4825 miles at 50 mpg uses 96.5 gallons (the court accepting plaintiff's mpg figures).
$T4825 miles at 30 mpg uses 160.83 gallons.
$TThe difference in usage is 64.33 gallons.
$TUse $ 3.69 as the average California gas price, as provided by plaintiff's research.
$T$ 3.69 times 64.33 gallons is lost fuel cost of $ 237.38.
$T$IOther damages; loss of use?$N Plaintiff has not claimed lost use of the vehicle during 
the time it was being examined by mechanics on the mileage issue, nor is there any specific evidence of this before the court. The car was apparently regularly maintained as to other issues than mileage and there is some suggestion that the mileage issues were addressed contemporaneously. The court awards nothing for loss of use.
$T$IOther damages: diminution in value theory.$N Peters wishes to argue that she should be compensated both for the difference in price paid for the hybrid and what she would have paid for a gasoline-powered Civic. This argument must fail because it would amount to double recovery, i.e., if the compensation for mileage costs makes her whole on that question then she should not be entitled to a diminished cost for the purchase of the vehicle. Since the mileage losses are the lesser of the two figures, she is entitled only to that. However, having said that, the court notes that she persuasively argues that now she is stuck with a car that has a diminished sales value, and provides persuasive documentation (comparing auction figures to the Kelley Blue Book) that this loss amounts to $ 5208. The court accepts this.
$T$IOther damages; loss of future fuel costs,$N Even if the reinstalled battery is helpful, plaintiff argues that she will suffer enhanced costs of fuel since the car would no doubt return to the 40 mpg rate. Of course this argument, to avoid speculativeness, must depend on a found intention by Peters to keep the vehicle for some period of time. She testified that this was her intention, and wants to claim $ 8200 in these losses (figured at a future odometer addition of 150,000 miles). While this may be extreme in terms of the cost mathematics, the court is constrained to accept Peters's stated desire to keep the car for the mileage indicated, which would end its useful life with about 200,000 miles on it. That would amount to fuel losses, using the above methodology, of $ 2767.50 ($(150,000/40 x $ 3.69) - $(150,000/50 x $ 3.69$)). n13 This would make the vehicle older than the average length American car owners are statistically keeping vehicles nowadays, n14 but would not be unreasonable. See CCP 116.510.
$F$Tn13 Defendant argues that plaintiff should be benefitted, and her claim reduced, by having had access to California's high-occupancy vehicle lanes as a solo driver in a hybrid vehicle. While this "benefit" may have been available to Peters for some period, damages in this area are highly speculative. No actual evidence was adduced regarding Peters's use of the carpool lanes in Los Angeles and, even if she had had such a driving pattern the value of it to her, or to any driver, is legally vague (some people who have the right to drive in the HOV lanes prefer not to, for instance). In a more common type of automobile-related property damage case - the highway "fender bender" - would the loss of a hybrid's use also include lost time in the HOV lane? It is doubtful. The use of the carpool lanes is convenient to drivers, and a potential selling point, but is difficult to translate into monetary terms. The "hybrid-in-the-carpool" program for HOV lanes ended, in any event, under California law, on July 1, 2011.$E 
$F$Tn14 See autoremarketing.com, citing the Polk research firm on auto sales data (see www.polk.com).$E
$TAdditionally, on the cost of the battery, plaintiff would be entitled to prejudgment interest
, since that sum is readily ascertainable (see Civil Code 3287). The interest would run from September 23, 2010 to the date of judgment (February 2, 2012) and would equal, at 10%, $ 313.22 ($($ 2304.98 x .10$)/365 x 496 days).
$TThese sums come to: $ 2304.98 (battery) + $ 803.24 (fuel) + 237.38 (fuel) - $ 2100 (the tax credit) + $ 5208 (diminution in value) + $ 313.22 (interest) + $ 2767.50 (future fuel) - $ 9534.32.
$TThe jurisdictional limit of small claims court for this sort of claim is $ 10,000, exclusive of costs (interest is subsumed into the award within the $ 10,000 limit).
$TThus, plaintiff's award is:
$T- Principal of $ 9534.32.
$T- Costs of $ 85 (filing fees).
$T- Costs of $ 247.87 (copying). These costs, in the court's view, were "reasonably necessary to the conduct of the litigation" (CCP 1033.5$(c$)$(2$)). (Note that plaintiff's claimed service of process cost of $ 35 was not reflected on any of the proofs of service filed by her.)
$TThus, the total award is $ 9867.19.
$T$=BJudgment/disposition.$=R
$TFor all the above reasons, judgment is for the plaintiff and against the defendant for $ 9867.19 ($ 9534.32 plus costs of $ 332.87).
$TThe clerk is directed to enter judgment in accordance with the above and give notice. The clerk is also directed to maintain the exhibits for pick up by the respective parties in Department 8 for sixty days.
$TIT IS SO ORDERED.
$%$?$%Dated: 2/1/12
$T/s/ Douglas G. Carnahan
$TDOUGLAS G. CARNAHAN
$TSuperior Court Commissioner
$T$(SEE PLAINTIFF'S CLAIM AND ORDER TO GO TO SMALL CLAIMS COURT IN ORIGINAL$)
$200:
$220:#EXTR# 
$00:
$10:DEBRA MACDONALD, Plaintiff, vs. TEVA PHARMACEUTICALS USA, INC., GATE PHARMACEUTICALS; DURAMED PHARMACEUTICALS, TEVA RESPIRATORY, TEVA NEUROSCIENCE, and DOES 1-200, Defendants.
$20:Case No.: PC 046482
$25:SUPERIOR COURT OF CALIFORNIA, COUNTY OF LOS ANGELES-NORTH VALLEY DISTRICT (CHATSWORTH)
$45:$?$%February 16, 2012, Filed
$105:ULMER & BERNE LLP, Kenneth R. Craycraft (Pro hac vice), Cincinnati, Ohio, Attorneys for Defendants, TEVA PHARMACEUTICALS USA, INC., TEVA WOMEN'S HEALTH, INC. f/k/a Duramed Pharmaceuticals, Inc., TEVA RESPIRATORY, LLC, TEVA NEUROSCIENCE, INC.
$110:Stephen P. Pfahler
$120:$T$=BORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT, ENTERING JUDGMENT AND DISMISSING ACTION$=R
$T$=BTO ALL PARTIES, AND TO THEIR ATTORNEYS OF RECORD:$=R
$TThe Motion for Summary Judgment of Defendants Teva Pharmaceuticals USA, Inc.; Teva Women's Health, Inc. f/k/a Duramed Pharmaceuticals, Inc.; Teva Respiratory, LLC; and Teva Neuroscience, Inc. (hereinafter, collectively "Defendants") came on regularly for hearing on January 17, 2012, at 8:30 a.m., in Department F-49 of the above-entitled Court, the Honorable Stephen P. Pfahler presiding. Plaintiff Debra MacDonald appeared in pro per, Wendi J. Frisch appeared on behalf of Defendants and Kenneth R. Craycraft Jr. (pro hac vice) appeared via CourtCall on behalf of Defendants.
$TSummary judgment shall be granted if there is no triable issue as to any material fact and the moving party is entitled to judgment as a matter of law. (Code of Civ. Proc. $S 437c(c); $IHartline v. Kaiser Found. Hosps.$N (2005) 132 Cal. App. 4th 458, 464-65.) After full consideration of the evidence, and the written an d oral submissions by the parties, the Court finds that there is no triable issue of material fact and that Defendants are entitled to judgment as a matter of law for the following reasons:
$TPlaintiff alleges that she sustained personal injuries after ingesting a prescription drug manufactured and distributed by Defendants, known as "flurbiprofen," and that Defendants failed adequately to warn of the risk of developing such injuries. ($ISee,$N Complaint; Plaintiff's Separate Statement at PP 13, 30, 31.) ($ISee also, Brown v. Superior Court (Abbott Laboratories)$N (1988) 44 Cal. 3d 1049, 1061, 1069.) The prescription pharmaceutical Plaintiff claims she ingested was an FDA-approved generic drug known as flubiprofen. (Defendants' Separate Statement, PP 4, 12, 13; Declaration of Jean Zwicker n1 ("Zwicker Dec."), P 3; transcript of the deposition of Plaintiff at page 132:2-7.)
$F$%$?$%n1 Plaintiff's objections to the Zwicker Declaration are overruled, as explained $Iinfra.$N$E 
$TUnder $IPLIVA, Inc. v. Mensing$N (2011) 564 U.S. $U$?$?$?$O, 131 S. Ct. 2567, 180 L. Ed. 2d 580, state law failure-to-warn claims against manufacturers of generic drugs are preempted by federal law. Because it is undisputed that Plaintiff alleges she sustained personal injuries after ingesting a generic drug known as flubiprofen and that Plaintiff's lawsuit is based on a failure- to-warn claim, Plaintiff's claims are preempted, the lawsuit is barred, and Defendants are entitled to judgment as a matter of law on Plaintiff's claims.
$TDefendants' Separate Statement and supporting evidence shows that Plaintiff's prescribing physician, Dr. Morgan, was aware of the risk of allergic reactions from use of flurbiprofen, and he was aware of the warnings regarding allergic reactions in the labeling, and that with knowledge of those risks and warnings, he prescribed flurbiprofen to Plaintiff. (Defendants' Separate Statement PP 7-9; transcript of the deposition of Phillip Morgan, M.D.) Plaintiff does not dispute those facts. (Plaintiff's Separate Statement at PP 7-9.) As a matter of law, a plaintiff cannot prove causation between an alleged failure to warn and injury where the prescribing physician was aware of the risk at issue at the time the physician prescribed the medication. ($ISee, Carlin v. Superior Court (Upjohn Co.)$N (1996) 13 Cal.4th 1104, 1116; $IPlenger v. Alza Corp.$N (1992) 11 Cal. App. 4th 349, 362.) Thus, Plaintiff cannot prove causation, and her lawsuit is barred. (Code of Civ. Proc. $S 437c(p)(2); $IParsons v. Crown Disposal Co.$N (1997) 15 Cal. 4th 456, 464.)
$TPlaintiff also cannot prove proximate causation. Plaintiff has failed to show by substantial, competent evidence that a triable issue of one or more material facts exist as to her causes of action or that her injuries are proximately caused by Teva's flurbiprofen. ($ISee, Sangster v. Paetkau$N (1998) 68 Cal. App. 4th 151, 162.) Plaintiff's argument that she did not have a condition before taking the drug, but had a condition after taking the drug is an example of the $Ipost hoc ergo propter hoc$N ("after this because of this") causation fallacy that has been rejected by California courts. ($ISee, e.g., Miranda v. Bomel Construction Co., Inc.$N (2010) 187 Cal. App. 4th 1326,1339; $ISarti v. Salt Creek Ltd.$N (2008) 167 Cal. App. 4th 1187, 1196.)
$TPlaintiff has failed to come forward with any competent, admissible evidence that flurbiprofen was the cause of her alleged injuries. Therefore, Plaintiff cannot meet her burden to prove proximate causation, and Defendants are entitled to judgment as a matter law on that basis as well. (Code of Civ. Proc. $S 437c(c), (p)(2).)
$TThe Court makes the following additional rulings:
$T1. The Court grants Defendants' Request for Judicial Notice in Support of Their Motion for Summary Judgment and judicially notices the Complaint herein.
$T2. The Court overrules Plaintiff's Evidentiary Objection to the Declaration of Jean Zwicker. Plaintiff's objections to the Zwicker Declaration fail to comply with Rule 3.1354 of California Rules of Court. Moreover, the Court finds that Plaintiff failed to explain how the declaration was lacking in foundation or why Ms. Zwicker could not make the statements in her declaration. Plaintiff's objections to the Zwicker Declaration are thus overruled.
$T3. The Court sustains Defendants' Objections to Evidence Submitted in Support of Plaintiff's Opposition to Defendants' Motion for Summary Judgment as follows:
$Ta. The Court sustains Defendants' objections to the newspaper article from the $ILos Angeles Times,$N attached as Exhibit K to the Declaration of Debra MacDonald in Support of Plaintiffs' $(sic$) Opposition to Defendants' Motion for Summary Judgment, on the grounds of hearsay, relevance, and lack of authentication. (Evid. Code. $Z 1200(b), 350, 351, and 1401(b).)
$Tb. The Court sustains Defendants' objections to the statement in Plaintiff's Opposition to Defendants' Statement of Undisputed Materials $(sic$) Facts and Supporting evidence, P 12, that "Dr. Morgan stated to Plaintiff that he would not prescribe flurbiprofen any longer" on the grounds of hearsay. (Evid. Code $S 1200(b).)
$T$=BIT IS THEREFORE ORDERED THAT:$=R
$T1. The Motion for Summary Judgment of Defendants Teva Pharmaceuticals USA, Inc.; Teva Women's Health, Inc. f/k/a Duramed Pharmaceuticals, Inc.; Teva Respiratory, LLC; and Teva Neuroscience, Inc. is hereby $=BGRANTED.$=R
$T2. $=BJUDGMENT IS HEREBY ENTERED$=R in favor of defendants Teva Pharmaceuticals USA, Inc.; Teva Women's Health, Inc. f/k/a Duramed Pharmaceuticals, Inc.; Teva Respiratory, LLC; and Teva Neuroscience, Inc. and against plaintiff Debra MacDonald.
$T3. The Complaint of plaintiff Debra MacDonald is hereby $=BDISMISSED$=R in its entirety against defendants Teva Pharmaceuticals USA, Inc.; Teva Women's Health, Inc. f/k/a Duramed Pharmaceuticals, Inc.; Teva Respiratory, LLC; and Teva Neuroscience, Inc., with prejudice.
$T4. Defendants shall be entitled to any recoverable costs of suit, pursuant to a memorandum of costs to be filed in a timely manner following notice of entry of judgment pursuant to this order.
$T$=BIT IS SO ORDERED.$=R
$%$?$%Dated: $UFEB 16 2012$O
$%$?$%$USTEPHEN P. PFAHLER$O$%Judge of the Superior Court 
$200:
$220:#EXTR#