Berger Kahn's monthly e-publication 
The most important court decisions of the month
Welcome to Berger Kahn's monthly e-publication summarizing the most important California state and federal court decisions.

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Denying An Insurer’s Summary Judgment Motion Does Not Establish A Duty To Defend
McMillin Companies, LLC v. American Safety Indemnity Co.
(Ct. App. 4th Dist.), filed January 22, 2015

General contractor McMillin Companies was sued for construction defects. McMillin tendered its defense to American Safety, as an additional insured under subcontractor, B&B Framing’s policies. American Safety denied the tender 6 months later. Two years later, McMillin sued American Safety, alleging it had a duty to defend additional insureds against the construction defect action. American Safety moved for summary judgment, primarily arguing that McMillin was not an additional insured under the policies. The court denied the motion. It ruled that the applicable “blanket’ additional insured endorsement” provided potential coverage American Safety did not disprove as a matter of law. Later, McMillin moved in limine to exclude testimony and any argument disputing American Safety’s duty to defend. But the court rejected McMillin’s argument that American Safety could allocate McMillin’s settlement recoveries to reduce its defense fee obligations. Based on this ruling, the parties agreed that the McMillin could no longer maintain its bad faith claim, so judgment should be entered for American Safety (with the parties reserving their right to appeal). The settlement recoveries ($416,000) exceeded the unreimbursed defense fees ($309,957). The Court of Appeal reversed, clarifying that “in order for the denial of an insurer’s motion for summary judgment to establish a duty to defend, the denial must be based on ‘an unresolved dispute over a factual question,’ because only that type of dispute ‘establish[es] a possibility of coverage and thus a duty to defend.’” Precluding any evidence of American Safety’s duty to defend effectively resulted in a summary adjudication of McMillin’s breach of contract claim. However, the Court of Appeal also determined that American Safety was not entitled to a defense judgment “at this stage of the litigation.” The Court explained that American Safety’s “arguments regarding offsets based on the Settlement proceeds do not defeat McMillin's right to go to trial... [Although] McMillin may have obtained the settlement from 11 other insurers years after the tender of defense” impacts only McMillin’s damages recovery, not “whether McMillin suffered damages as a result of [American Safety’s] alleged breaches.”

On-Call Security Guards Should Be Compensated For All On-Site Hours Spent Under Employer’s Control
Mendiola v. CPS Security Solutions, Inc.
(Cal. Sup. Ct.), filed January 8, 2015

CPS Security Solutions employed on-call security guards for construction worksites. The guards were expected to do some active control, but also expected to be on-call at the worksite to respond if any situation arose. CPS provided a trailer which included a kitchen and bed to stay on site when they were on-call. If a guard wanted to leave the site while on-call, they were required to have a relief employee report to the site. While they were allowed to bring their own personal items, they could not have any alcohol, pets, or children on site. CPS paid the guards for patrolling time. But they did not receive any compensation during on-call time, unless they were required to investigate or if they were denied a relief employee. If 3 or more hours were devoted to on-call time, the guard was paid for the full 8 hours. There were two class action lawsuits filed against CPS for violating minimum wage and overtime laws. The Court determined that the “guards’ on-call time was spent primarily for the benefit of CPS” since their “‘mere presence’ was integral to CPS’s business.” Because the applicable wage order “does not permit the exclusion of sleep time from compensable hours worked in 24-hour shifts covered,” a deduction for “sleep time” was not permitted. Ultimately, the California Supreme Court held that “plaintiffs’ on-call hours constituted compensable hours worked and, further, that CPS could not exclude ‘sleep time’ from plaintiffs’ 24-hour shifts.”

Costco Not Liable For Copyright Law Infringement For Omega Watches Bought On The Gray Market
Omega S.A. v. Costco Wholesale Corp.
(9th Cir. Ct. App.), filed January 20, 2015

Swiss Luxury watch manufacturer, Omega, and discount warehouse corporation, Costco, discussed the possibility of Costco carrying Omega watches. Ultimately, the companies could not reach an agreement and Costco did not become an authorized Omega retailer. A year later, Costco purchased Seamaster Omega watches on the “gray market” - where third parties purchased watches from a foreigner distributor who then sold them to a New York company who sold them to Costco. Costco sold the watches in California. Omega sued Costco for copyright infringement, for importing copyrighted work without Omega’s permission. The District Court granted Costco’s summary judgment motion on the first sale doctrine which said “once a copyright owner consents to the sale of particular copies of work, that same copyright owner cannot later claim infringement for distribution of those copies.” After several appeals, the District Court also granted Costco over $396,000 in attorney’s fees. The Ninth Circuit affirmed. It held “Omega’s right to control importation and distribution of its copyrighted Omega Globe expired after that authorized first sale, and Costco’s subsequent sale of the watches did not constitute copyright infringement.” The Ninth Circuit also upheld the attorney fee award, noting that Omega should have known that copyright law would not protect its actions so fees were proper.


Federal “Regulations” Do Not Provide An Exemption From Whistleblower Protection
Department of Homeland Security v. MacLean
(U.S. Sup. Ct.), filed January 21, 2015

Transportation Security Administration Federal Air Marshal Robert MacLean was assigned to protect airline flight passengers from potential hijackings. In 2003, the Department of Homeland Security issued a confidential advisory about potential hijackings. A few days after the briefing, the TSA sent MacLean a text that missions from his location would be temporarily suspended. MacLean believed that cancelling the missions during the alert was dangerous. When he questioned the missions’ cancellation, he was told that it was to save costs and nothing could be done. MacLean reported this to a MSNBC reporter. After the story aired, and Congress criticized the cancellations, the air marshals were put back on flights. But MacLean was ultimately terminated for disclosing sensitive information without authorization. MacLean protested his termination as protected whistleblowing activity. But the Government argued that MacLean’s disclosure was exempt from the whistleblowing statute because the disclosure was “prohibited by law.” It relied on the statutes authorizing the TSA to prescribe regulations to prohibit disclosures related to carrying out security. But the Supreme Court found that the TSA regulations did not qualify as a “law” under the whistleblower statute. It held, “when Congress used the phrase ‘specifically prohibited by law’ instead of ‘specifically prohibited by law, rule, or regulation,’ it meant to exclude rules and regulations.” Additionally, the Supreme Court held that while the TSA was authorized to prescribe regulations that did not encompass prohibiting MacLean’s disclosure. Finally, while the Supreme Court agreed that the Government’s concerns that providing whistleblower protection to people like MacLean could endanger public safety, it would be up to the Congress or the President to address those concerns. Therefore, the U.S. Supreme Court affirmed the Federal Circuit’s judgment, finding that the TSA violated the whistleblower statute when it fired MacLean.


Our Dedicated Key Decisions Team! 

Lance LaBelle
Orange County

David Ezra
Orange County

Ann Johnston
S. F. Bay Area

Roberta Winston
San Diego
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