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Keywords

lawsuitplaintiffdefendantlitigationdiscoverystatuteappealtrialverdictpleamotionbad faithcivil procedurelegislative intent
lawsuitplaintiffdefendantlitigationattorneystatuteappealtrialmotionwillbad faithcivil procedurelegislative intent

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Olmstead v. Arthur J. Gallagher & Co., 32 Cal.4th 804, 86 P.3d 354, 11 Cal.Rptr.3d 298, 04 Cal. Daily Op. Serv. 2636, 2004 Daily Journal D.A.R. 3826

Facts

Following a September 1999 auto accident, plaintiffs Carleen Olmstead and Cheri Rose filed a lawsuit against defendants Arthur J. Gallagher & Company and Vicki Sundgren to recover underinsured motorist benefits. The jury returned a defense verdict on all claims. After the trial, defendants moved for sanctions under sections 128.5 and 128.7, claiming that plaintiffs had engaged in misconduct during discovery and trial, including lying about the existence of a critical document. The trial court denied the motions for sanctions, leading to an appeal by the defendants.

As the result of a September 1999 auto accident, plaintiffs—Carleen Olmstead and Cheri Rose—sued defendants—Arthur J. Gallagher & Company (Gallagher), an insurance broker, and Vicki Sundgren, a Gallagher representative—to recover underinsured motorist benefits allegedly due under an insurance policy.

Issue

Does Code of Civil Procedure section 128.5 authorize trial courts to award sanctions for bad faith litigation actions or tactics that arise from a claim initiated after December 31, 1994?

We granted review in this case to address whether Code of Civil Procedure section 128.5, as amended in 1994, authorizes trial courts to award sanctions, including attorney fees, for bad faith litigation actions or tactics that arise from a claim initiated after December 31, 1994.

Rule

Section 128.5, as amended in 1994, does not apply to conduct arising from a claim initiated after December 31, 1994.

We conclude that the statutory language of section 128.5 and related statutes, and other indicia of legislative intent, establish that section 128.5 does not apply to conduct arising from a claim initiated after December 31, 1994.

Analysis

The court analyzed the statutory language of section 128.5 and its legislative intent, concluding that the statute's limitations apply to all forms of litigation misconduct, not just those related to pleadings or motions. The court emphasized that the amendments made in 1994 were intended to create a clear distinction between the sanctions applicable to pre-1995 actions and those applicable to post-1994 actions, thereby affirming that section 128.5 does not authorize sanctions for actions initiated after the specified date.

The Court of Appeal concluded that section 128.5 applies, even in post–1994 lawsuits, to bad faith litigation tactics except those related to the filing of complaints or cross-complaints, or the making or opposing of motions.

Conclusion

The Supreme Court reversed the Court of Appeal's judgment, reinstating the trial court's order denying sanctions under section 128.5.

Accordingly, we reverse the judgment of the Court of Appeal insofar as it reached a contrary result, which will have the effect of reinstating the trial court's order denying sanctions under section 128.5.

Who won?

Defendants prevailed in the case as the Supreme Court reversed the Court of Appeal's decision, affirming the trial court's denial of sanctions.

The Supreme Court, Baxter, J., held that statute relied on by defendants, authorizing sanctions for bad faith litigation actions or tactics, was not applicable to claims initiated on or before December 31, 1994.

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