LITIGATION UPDATES – NOVEMBER 2014

California Bans Non-Disparagement Clauses

Governor Jerry Brown signed into law AB 2365, popularly referred to as the “Yelp” bill, on September 9, 2014.  The new law, codified at California Civil Code section 1670.8, will prohibit the use of “non-disparagement” clauses in consumer contracts beginning January 1, 2015.  The new law provides that a “contract or proposed contract for the sale or lease of consumer goods or services may not include a provision waiving the consumer’s right to make any statement regarding the seller or lessor or its employees or agents, or concerning the goods or services.”  Cal. Civ. Code § 1670.8(a)(1).  It will also be “unlawful to threaten or to seek to enforce” such a provision, or to “otherwise penalize” a consumer for making any such statement. Cal. Civ. Code § 1670.8(a)(2).

California Supreme Court Will Not Review Data Breach Case

The California Supreme Court dismissed a request to review a data theft class action against Sutter Health, a potentially $4.25 billion case.  In July, an appeals court dismissed 13 coordinated lawsuits filed after a computer with personal data on 4.24 million patients was stolen from a local office in October 2011.  The reason: There’s no proof anybody actually looked at the data.  Plaintiffs’ attorneys appealed to the California Supreme Court, saying the appeals court did not correctly interpret the law and Sutter didn’t do enough to protect patient records.  The Supreme Court sided with the appellate court.

Los Angeles District Court Judge Strikes Down Forum Selection Clause in Franchise Agreement

A California federal judge’s decision in Frango Grille USA, Inc. v. Pepe’s Franchising Ltd., et al. to strike a forum selection clause as invalid has stirred discussion about their use and applicability in business agreements.  In this dispute, the forum selection clause in Pepe’s Grilled Chicken’s franchise agreement required any lawsuit between a franchisee and a franchisor to be heard in the courts of London, England, where Pepe’s is located.  The franchisee operates in California, and under California law, forum selection clauses that require a franchisee to bring a lawsuit outside of California are void.  The franchisor argued that the U.S. Supreme Court decision in Atlantic Marine Construction Co., Inc. v. U.S. District Court for the Western District of Texas stated any valid forum selection clause should be enforced.  District Judge Dale S. Fischer rejected the franchisor’s position that California law did not apply.  The judge relied on California law to find that the franchisor’s contract provision was invalid and therefore unenforceable.  As a result, the franchisee was allowed to litigate its case in California instead of London, England.