New civil procedure laws from 2023

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Contributors

The most important civil procedure-related bill passed by California relates to arbitration in employment actions. Previously, if a court denies an employer’s motion to compel arbitration and the employer files an appeal, the civil action was automatically stayed during the pendency of the appeal. In an effort to protect employee rights, California passed SB 365 which now gives the trial judge the discretion to stay the civil proceedings during the pendency of the appeal.

Contents:

SB 235—Civil discovery

What the law currently requires

The Civil Discovery Act authorizes the court, with the stipulation of the parties to a civil action other than an unlawful detainer or small claims action, to order the parties to provide initial disclosures to the other parties to the action within 45 days of the court’s order.

Existing law requires a party providing initial disclosures to provide information regarding persons who have information, or records containing information, supporting the party’s claims and defenses, and information regarding agreements which would make a person or an insurance company liable to satisfy a judgment in the action through reimbursement or indemnification.

Existing law requires a party to supplement or correct such a disclosure or response, as specified.

Existing law requires initial disclosures to be verified by the party under penalty of perjury.

Under existing law, these provisions do not apply to unlawful detainer actions or actions brought in the small claims division of a court, as specified.

Existing law requires a court to impose a $250 sanction against a party, person, or attorney upon findings that the party, person, or attorney (1) failed to respond in good faith to a document request, (2) produced the requested documents within 7 days of a motion to compel that is filed by the requesting party as a result of the other party, person, or attorney’s failure to respond in good faith, or (3) failed to meet and confer in person, by telephone, by letter, or other means of communication in writing, to resolve any dispute regarding the request.

How this bill changes the law

This bill would instead require each party that has appeared in a civil action to provide initial disclosures, as specified, to the other parties to the action within 60 days of a demand by any party to the action unless modified by the stipulation of the parties. The bill would require a party making initial disclosures of persons or records to additionally disclose persons or records that are relevant to the subject matter of the action, except as specified, and to disclose information and records regarding insurance policies or contracts that would make a person or insurance company liable to satisfy a judgment.

The bill would allow a party who has made, or responded to, a demand for initial disclosures to propound supplemental demands, as specified. The bill would instead require initial disclosures to be verified via the written declaration of the party or the party’s authorized representative, or signed by the party’s counsel. The bill would exempt any party not represented by counsel from these requirements. In addition to the exemptions described above, the bill would specify that its provisions do not apply to actions or proceedings commenced in whole or in part under the Family Code or Probate Code, or to an action in which a party has been granted preference, as specified. The bill would repeal these provisions on January 1, 2027.

This bill would increase the amount of the sanction to $1,000.

Action Items

This law is meant to conform California discovery in civil actions to conform with the requirements in federal law. Lawyers practicing civil litigation in California should be aware of the new requirement regarding initial disclosures.

AB 933—Privileged communications: incident of sexual assault, harassment, or discrimination

What the law currently requires

Existing law provides that libel is a false and unprivileged written publication that injures the reputation and that slander is a false and unprivileged publication, orally uttered, that injures the reputation, as specified.

Existing law makes certain publications and communications privileged and therefore protected from civil action, including complaints of sexual harassment by an employee, without malice, to an employer based on credible evidence and communications between the employer and interested persons regarding a complaint of sexual harassment.

How the bill changes the law

This bill would include among those privileged communications a communication made by an individual, without malice, regarding an incident of sexual assault, harassment, or discrimination, as defined, and would specify the attorney’s fees and damages available to a prevailing defendant in any defamation action brought against that defendant for making that communication.

Specifically, AB 933 will strengthen the legal protection of survivors of sexual assault, discrimination and/or harassment who may face retaliatory defamation lawsuits from speaking publicly about their personal experiences. This bill would make it harder for perpetrators to retaliate against survivors with legal threats and intimidation, but does not apply to unfounded claims. The bill also helps take the burden off of survivors by providing reasonable attorneys’ fees and damages if they successfully defend themselves against meritless defamation lawsuits.

Action Items

As a result of this bill, lawyers should be cognizant that communications alleging sexual assault and/or discrimination, if done without malice and on credible grounds, will be considered a privileged communication for purposes of defamation (liber or slander) lawsuits.

AB 1414—Civil actions: consumer debt

What the law currently requires

Existing law prescribes periods for commencement of various actions, i.e. statute of limitations. Among others, an action upon book account must be commenced within 4 years of the date of the last item on the account, as specified. Existing law defines “book account” for these purposes as a detailed statement constituting the principal record of transactions between a debtor and a creditor.

Existing law permits actions to recover money damages. Under existing case law, courts recognize that common counts may be used to do so as a simplified form of pleading to assert the existence of various forms of monetary indebtedness.

How this bill changes the law

This bill would exclude consumer debt from the definition of “book account,” therefore an action on a consumer debt is not subject to the 4-year statute of limitations. The bill would require a creditor in an action alleging a book account to have in the creditor’s possession records of all debits and credits forming each and every transaction used to determine the amount alleged to be due if the obligation, incurred on or after January 1, 2024, is not initially payable on the face of a note or contract.

The bill would define consumer debt to mean any obligation or alleged obligation incurred on or after January 1, 2024, of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services that are the subject of the transaction are primarily for personal, family, or household purposes and that is initially payable on the face of a note or contract.

This bill would prohibit the use of common counts, as defined, to recover consumer debt, as defined.

Action Items

None recommended.

SB 365—Civil procedure: arbitration

What the law currently requires

Existing law authorizes a party to appeal, among other things, an order dismissing or denying a petition to compel arbitration. Existing law generally stays proceedings in the trial court on the judgment or order appealed from when the appeal is perfected, subject to specified exceptions.

How the bill changes the law

This bill would provide that, notwithstanding the general rule described above, trial court proceedings would not be automatically stayed during the pendency of an appeal of an order dismissing or denying a petition to compel arbitration. Specifically, Code of Civil Procedure section 1294(a) will now read:

An aggrieved party may appeal from: (a) An order dismissing or denying a petition to compel arbitration. Notwithstanding Section 916, the perfecting of such an appeal shall not automatically stay any proceedings in the trial court during the pendency of the appeal.

In essence, this bill allows trial courts to continue actions in the trial court after a motion to compel arbitration is denied and pending on appeal. Although the revised statute is not clear, we assume the trial judge will have wide discretion in deciding whether to stay the trial court proceedings once an appeal from a denial of a motion to compel arbitration is filed.

Action Items

By allowing trial proceedings to continue during the pendency of an appeal from a denial of a motion to compel arbitration, the bill could have the effect of undermining, or even eliminating, arbitration in employment disputes.

SB 365 follows a trend of recent California laws adverse to arbitration. In October 2019, Gov. Newsom signed AB 51, which prohibited employers from requiring employees to enter into certain arbitration agreements, including agreements to arbitrate claims under California’s Fair Employment and Housing Act and California’s Labor Code. The law also imposed certain criminal and civil penalties upon would-be violators.

AB 51 was immediately challenged by business groups led by the U.S. Chamber of Commerce, who argued the law was preempted by the Federal Arbitration Act (“FAA”). Eventually, in February 2023, the Ninth Circuit declared AB 51 was preempted by the FAA in its entirety because the law stood as an obstacle to entering into arbitration agreements.

Similar to AB 51, it is likely SB 365 will be challenged on preemption grounds. The law stands as an obstacle to arbitration, which promotes streamlined and expedient dispute resolution as an alternative to court. By requiring parties to litigate in court while appealing the enforceability of an arbitration agreement, the central purpose of arbitration would be lost.

SB 365 also stands in stark contrast to the U.S. Supreme Court’s recent decision in Coinbase, Inc. v. Bielski, which resolved a circuit split on the issue of automatic stays pending appeal under the FAA. The Court held that a district court must stay proceedings while an interlocutory appeal on the question of arbitration is ongoing. In reaching this decision, the Court found Congress intended trial court proceedings to be automatically stayed when it provided for the right to an automatic appeal upon the denial of a motion to compel arbitration under the FAA.

While it is not certain the U.S. Supreme Court will determine the fate of SB 365, the Court’s position on this issue is clear: “The common practice of staying district court proceedings during the pendency of an interlocutory appeal taken under §16(a) reflects common sense.”

If there ever were a time to ensure that your arbitration policies are explicitly governed by the FAA, now is the time to do so. Given the FAA’s preemption of California’s other attempts to undermine arbitration, the FAA should preempt SB 365. However, arbitration policies that are governed by the California Arbitration Act will be subject to SB 365, prohibiting any stays upon the appeal of denial of a motion to compel arbitration, and force employers to litigate the merits of the underlying claims while the case is appealed.