‘Deep-Pockets’ Reform Ruled Not Retroactive : Divided Court Says Prop. 51 Applies Only to Cases Filed After Its Passage; Constitutionality Upheld

SAN FRANCISCO —  The state Supreme Court on Thursday substantially limited the impact of Proposition 51, the “deep-pockets” liability-reform initiative, ruling that it does not apply to the tens of thousands of cases pending when it was passed overwhelming by the voters June 4, 1986.

The decision came as a sharp setback to municipalities, businesses, insurers and other backers of the initiative that had urged it should apply to any case that had not yet come to trial when it was passed.

But a deeply divided court, while holding unanimously that the initiative is constitutional, ruled 4 to 3 that the measure’s limitations on damages for pain and suffering and other non-economic injury cannot affect plaintiffs who brought suit or suffered harm before it was passed.

Civil Liability Limited

Proposition 51 limited a defendant’s civil liability for non-economic damages in personal injury, property loss and other cases to his proportion of fault. Economic damages--such as for medical costs or lost pay--were not affected.

Under the previous law, governmental agencies, businesses and other defendants with “deep pockets” could be held liable for damages based on their ability to pay, regardless of their degree of fault. In some cases, where other defendants in a case could not pay their shares, these wealthier defendants wound up paying damages far exceeding their portion of the blame.

The court majority, in an opinion by Justice John A. Arguelles, said the measure must be applied only in future cases because it had failed to state whether it was to apply retroactively. Further, the court said, it would be unfair to impose new rules on litigants who had expected to resolve their cases under the law existing when they suffered injury.

Applying the initiative’s limits only to cases arising after its passage, Arguelles said, reflects “the common sense notion that it may be unfair to change ‘the rules of the game’ in the middle of a contest. . . .”

But the court’s dissenters strongly criticized the ruling, saying the majority was ignoring the obvious intent of an electorate that had passed the measure by a resounding 62% of the vote.

The measure was adopted amid a perceived “liability crisis,” with the aim of avoiding bankruptcies, increased taxes and higher prices brought on by spiraling liability insurance costs, Justice Marcus M. Kaufman wrote in a dissenting opinion joined by Justice David N. Eagleson and Appellate Justice Carl West Anderson, sitting temporarily in the case.

“The electorate . . . clearly voted for immediate relief, not gradual reform five or 10 years down the line,” Kaufman said. “A crisis does not call for future action. It calls for action now, action across the board, action as broad and as comprehensive as the Constitution will allow.”

The ruling was praised by plaintiffs’ lawyers and others who had urged the court to strike down the initiative or at least substantially limit its impact by holding it was not retroactive.

“The court definitely reached the correct result on retroactive application,” said Bryce C. Anderson of Concord, an attorney who represented the California Trial Lawyers Assn. as a friend of the court in the case. “It unquestionably would have been very 1970169441court had reached the opposite conclusion.”

Anderson predicted that the ruling will ease the way to prompt settlements in countless pending cases and said that, contrary to their fears, municipalities, businesses and other defendants will suffer fewer costs in pending cases than they will in future cases where the initiative’s restrictions will apply.

“This is a vague and complicated statute that will lead to a lot of future litigation,” he said. “And it’s litigation that drives up the cost of such cases.”

Backers of Proposition 51 expressed gratification that the justices had upheld its constitutionality. But they were dismayed with the court’s ruling on retroactivity and said it would be at least five years before the tens of thousands of pending cases worth millions of dollars are finally resolved and the measure thus takes full effect in the civil justice system.

“This will delay any cost-savings that could have been passed on to the insurance premium-payers, taxpayers and consumers,” said Fred J. Hiestand of Sacramento, attorney for the Assn. for California Tort Reform, a business and taxpayer group that supported the in1769236833will have a dual system in the courts.”

Hiestand acknowledged that the authors of the measure had purposely avoided stating whether it was to apply prospectively or retroactively, hoping that the courts eventually would rule it applied to pending cases.

“We felt that opponents would focus on the issue of retroactivity and that would detract from what the initiative was all about,” he said. “We took a chance, thinking the law was pretty clearly in our favor, but we lost.”

Roy G. Weatherup of Santa Monica, an attorney for the defendants in the case, said that while he was disappointed with the ruling on retroactivity, the fact the justices upheld the measure’s constitutionality will ultimately prove beneficial.

“In the long run, this will save cities and counties and the public a great deal of money because, in the future, the financially burdensome effects of the old system will be ameliorated,” Weatherup said.

The decision was a personal triumph for the plaintiff in the case the court decided, Gregory Evangelatos of Sherman Oaks. He is now 26 and is a “special Olympics-class skier of considerable renown, competing in international events” for the handicapped, according to his attorney Daniel C. Cathcart of Los Angeles.

In 1980 when he was 18, Evangelatos was blinded and lost some of his fingers in an accident while he was trying to mix chemicals for making firecrackers. A year later Evangelatos filed a suit seeking damages from the retailer from whom he bought the chemicals, the wholesale distributor, and the four manufacturers of the products, saying they should be held strictly liable for his injuries.

Before the case could come to trial, however, the voters enacted Proposition 51, and the defendants asked for a judicial determination that the initiative’s protections applied in their case.

Los Angeles Superior Court Judge Bonnie Lee Martin upheld the defendant’s claims and a state Court of Appeal affirmed the ruling. Lawyers for Evangelatos appealed to the state Supreme Court, contending that the measure should be held unconstitutional, or, alternatively, limited to cases arising after its passage.

Arguelles’ majority opinion, joined by Justices Stanley Mosk, Allen E. Broussard and Edward A. Panelli, said that under “widely recognized legal principles,” the initiative must be applied only to future cases because of its failure to state it was to be applied retroactively.

As a practical matter, Arguelles said, it would be unfair to impose new “ground rules” on plaintiffs and defendants in pending cases. And retroactive application could also provide an unwarranted “windfall” to insurance companies that had computed pre-initiative premiums to reflect the higher damage awards anticipated under the “deep-pockets” doctrine--rather than providing direct benefit to those they insured, the court said.

It is “no doubt possible” the voters would have chosen to make the initiative retroactive, Arguelles said, but because the measure did not address the question, there was “no reliable basis” to reach that conclusion.