California Court of Appeal, Bartel v. Chicago Title Insurance Co., Docket No. H052083

Insurance Law

 

Bad Faith Claim

 

Breach of the Implied Covenant of Good Faith and Fair Dealing

 

Range of Possible Damages

 

Availability of Tort Remedies

 

Recovery of Attorney Fees in This Context—Often Called Brandt Fees

 

Emotional Distress

 

Declaratory Relief

 

California Law

 

 

 

“The law implies in every contract, including insurance policies, a covenant of good faith and fair dealing.” (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 720.) “‘The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement’s benefits.’” (Ibid.; see Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818 (Egan).) In other words, it “ ‘imposes upon each party the obligation to do everything that the contract presupposes they will do to accomplish its purpose.’” (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335, 345 (Chateau Chamberay).) “An insurer is said to act in ‘bad faith’ when it not only breaches its policy contract but also breaches its implied covenant to deal fairly and in good faith with its insured.”  (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1071.) In this context, “the term ‘bad faith’ is used as “a shorthand reference to a claimed breach by the insurer of the covenant of good faith and fair dealing.” (Bosetti v. United States Life Ins. Co. in City of New York (2009) 175 Cal.App.4th 1208, 1235.) “An insurer’s tortious ‘breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself.’” (Howard, supra,187 Cal.App.4th at p. 528.) That is, “an insurer’s responsibility to act fairly and in good faith in handling an insured’s claim ‘is not the requirement mandated by the terms of the policy itself—to defend, settle, or pay. It is the obligation ...under which the insurer must act fairly and in good faith in discharging its contractual responsibilities.’” (California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 15, quoting Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573–574.)“ In simple terms, an insurer’s tortious bad faith conduct is conduct that is unreasonable.” (Howard, at p. 529.)

Reasonableness is an objective standard (Bosetti, at p.1237) and must be evaluated as of the time of the insurer’s decisions and actions, not “in the light of subsequent events that may provide evidence of the insurer’s errors.” (Chateau Chamberay, at p.347.)

 

 

“Ordinarily, reasonableness is a factual issue to be decided by a jury.”  (Fadeeff v. State Farm General Ins. Co. (2020) 50 Cal.App.5th 94, 102.)  However, the reasonableness of an insurer’s conduct “can be decided as a matter ‘of law where the evidence is undisputed and only one reasonable inference can be drawn from the evidence.’” (Ghazarian v. Magellan Health, Inc. (2020) 53 Cal.App.5th 171, 186–187; accord Chateau Chamberay, supra, 90 Cal.App.4th at pp.346, 350; Mt. Hawley Ins. Co. v. Lopez (2013) 215 Cal.App.4th 1385, 1424 (Mt. Hawley).)

 

 

The relevant facts related to Bartel’s tender requests and Chicago Title’s investigation and denials of tender are neither in dispute nor susceptible to competing reasonable inferences. We therefore review the trial court’s determination on Bartel’s bad faith claim de novo, and we do not defer to the trial court’s determination that Chicago Title did not act in bad faith. Regarding the legal principles governing Bartel’s claim for damages in relation to Chicago Title’s alleged breach of the implied covenant of good faith and fair dealing, a finding of bad faith exposes the insurer to a broad range of possible damages. (See Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 400 [“The availability of tort remedies in the limited context of an insurer’s breach of the covenant [of good faith and fair dealing] advances the social policy of safeguarding an insured in an inferior bargaining position who contracts for calamity protection, not commercial advantage”].) Such damages include any damages, including attorney fees, that are the proximate result of the insurer’s breach of the implied covenant of good faith and fair dealing. (Brandt v. Superior Court (1985) 37 Cal.3d 813, 817(Brandt); see Civ. Code, § 3333.) The recovery of attorney fees in this context—often called Brandt fees—is an exception to the generally applicable rule that parties to a lawsuit must ordinarily pay their own fees. (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 806 (Cassim).) “If an insurer fails to act fairly and in good faith when discharging its responsibilities concerning an insurance contract, such breach may result in tort liability for proximately caused damages. Those damages can include the insured’s cost to hire an attorney to vindicate the insured’s legal rights under the insurance policy. ‘When an insurer’s tortious conduct reasonably compels the insured to retain an attorney to obtain the benefits due under a policy, it follows that the insurer should be liable in a tort action for that expense. The attorney’s fees are an economic loss—damages—proximately caused by the tort. [Citation.] These fees must be distinguished from recovery of attorney’s fees qua attorney’s fees, such as those attributable to the bringing of the bad faith action itself.’ ” (Ibid., quoting Brandt, supra, 37 Cal.3d at p. 817.) Stated differently, because the “entitlement to attorney fees as compensatory damages is premised on an insured’s need to hire an attorney to vindicate his or her contractual rights under an insurance policy” (Cassim, supra, 33 Cal.4th at p. 807), our high court has “placed a critical limitation on the amount of fees recoverable. ‘The fees recoverable, . . ., may not exceed the amount attributable to the attorney’s efforts to obtain the rejected payment due on the insurance contract. Fees attributable to obtaining any portion of the plaintiff’s award which exceeds the amount due under the policy are not recoverable.’ ” (Ibid., italics omitted.) To the extent the claimed legal fees for both the contract and tort recoveries are intertwined, the plaintiff bears “the burden of demonstrating how the fees for legal work attributable to both the contract and the tort recoveries should be apportioned.” (Cassim, supra, 33 Cal.4th at p. 813.) Further, “to the extent some overlap in legal work occurs, the trial court should exercise its discretion to apportion the fees” (id. at p. 811) to ensure that the Brandt fee award reflects only those fees attributable to the attorney’s efforts to recover under the breach of the insurance contract. (Id. at p. 813.) Similarly, while noneconomic damages such as for emotional distress are available, those damages must flow from the initial breach of the implied covenant and resulting economic loss. (Gourley v. State Farm Mut. Auto. Ins. Co. (1991) 53 Cal.3d 121, 128–129; see also Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1215 (Major).) 

Whether a party is entitled to a particular measure of damages is a question of law. (Atkins v. City of Los Angeles (2017) 8 Cal.App.5th 696, 738).

 

 

(…) As our Supreme Court has stated in connection with the duty to defend, “an insurer must defend against a suit even ‘“where the evidence suggests, but does not conclusively establish, that the loss is not covered.”’” (Hartford, supra, 59 Cal.4th at p. 287.) Any doubt must be resolved in favor of the insured (ibid.), such that the insurer is excused from defending against a third party claim “only when ‘“the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.”’”(Id. at p. 288, italics added; see also Montrose, supra, 6 Cal.4th at p. 300, italics omitted [stating, to prevail in an action seeking declaratory relief on the issue of the duty to defend “the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot”].)

 

 

The implied covenant in this context did not require Chicago Title to divine the outcome or speculate as to unpleaded legal theories. Rather, in the face of a claim against the property based on ambiguous maps and road designations, Chicago Title had an implied promise to take reasonable steps to fulfill the expectations of its insured and provide a defense to the claim arising from circumstances conceivably within the scope of the policy. (See Lambert, supra, 53 Cal.3d at p.1081 [“The contract of insurance is unique in that the purchaser seeks not commercial advantage, but rather peace of mind and security in the event of unforeseen calamity.”].)

 

 

 

(California Court of Appeal, Bartel v. Chicago Title Insurance Co., May 30, 2025, Docket No. H052083, Certified for Publication)

 

U.S. Court of Appeals for the Federal Circuit, Thermolife International LLC, Board of Trustees of the Leland Stanford Junior University, v. GNC Corp., Docket No. 2018-1657, 2018-1666

Patent

Infringement

Adequate Pre-Suit Investigation into Infringement

Discovery

Attorney Fees Award

35 U.S.C. § 285

Enforceable Patent Rights to Research Institutions and their Exclusive Licensees

Appeals from the United States District Court for the Southern District of California in Nos. 3:13-cv-00651-JLS- MDD, 3:13-cv-00830-JLS-MDD, 3:13-cv-01015-JLS-MDD, Judge Janis L. Sammartino.

ThermoLife International, LLC exclusively licensed four patents from the Board of Trustees of the Leland Stanford Junior University. It filed infringement suits, asserting selected claims of four patents, against numerous defendants, including Hi-Tech Pharmaceuticals, Inc. and Vital Pharmaceuticals, Inc. After Stanford became a co- plaintiff of ThermoLife’s, a bench trial was held involving Hi-Tech, Vital, and a trio of companies from the GNC family as defendants (all other defendants having settled). The district court held all asserted claims invalid. That ruling ended the cases on the merits and is not at issue here.

Before us is the court’s later grant of Hi-Tech’s and Vital’s motions for attorney’s fees under 35 U.S.C. § 285, which authorizes an award of fees to a prevailing party (like Hi-Tech and Vital) in “exceptional” cases. The district court found the cases exceptional, but not based on an assessment of the validity position taken by plaintiffs ThermoLife and Stanford or how they litigated validity. Rather, the court relied on its conclusion that plaintiffs were unjustified in alleging infringement in the first place, having failed to do an adequate pre-filing investigation.

ThermoLife and Stanford appeal the district court’s award of fees, challenging the determination that these were “exceptional” cases, not the amounts the court awarded after finding the cases exceptional. We recognize that these are unusual cases in that the basis for the fee award had nothing to do with the only issues litigated to reach the judgment on the merits: Infringement had not been adjudicated in reaching the final judgment, and even discovery on infringement had been postponed early in the proceedings so that validity could be litigated first. Nevertheless, we see no abuse of discretion in the district court’s determination of exceptionality based on plaintiffs’ inadequate pre-suit investigation of infringement in these and related cases. We therefore affirm.

Stanford owns U.S. Patent Nos. 5,891,459, 6,117,872, 6,646,006, and 7,452,916, which claim methods and compositions involving the amino acids arginine and lysine, to be ingested to enhance vascular function and physical performance. See, e.g., ’459 patent, Abstract. The ’459 patent, the ’916 patent, and the relevant claims of the ’006 patent share a priority date of June 11, 1993, and expired on June 11, 2013. The ’872 patent has a priority date of June 23, 1998, and expired on June 23, 2018. All asserted claims of the ’459, ’872, and ’916 patents are method claims, whereas all asserted claims of the ’006 patent are composition claims.

(…) Pursuant to applicable local rules for patent cases, ThermoLife notified the defendants of specific infringement contentions shortly after the suits were filed. In its December 12, 2013 amended infringement contentions, ThermoLife identified specific Hi-Tech products and the corresponding allegedly infringed patent claims.

(…) By January 2014, with dozens of cases before it, the district court had set a schedule in which discovery was to begin for claim construction, invalidity, unenforceability, and standing—but not for infringement.

(…) On October 12, 2016, Hi-Tech and Vital (but not the GNC entities) moved for attorney’s fees under 35 U.S.C. § 285. Rhetoric aside, they made two related arguments for exceptionality that are relevant here. Their main argument was that plaintiffs did not conduct an adequate pre-suit investigation into infringement, an investigation that would have revealed that the accused products did not infringe claim 1 of the ’459 patent, the only claim Hi-Tech and Vital specifically discussed.

(…) In February 2018, the district court awarded $903,890.13 to Hi-Tech and $406,131.76 to Vital for attorney’s fees and expenses, including pre- and post- judgment interest.

ThermoLife and Stanford appeal the district court’s exceptional-case determination. We have jurisdiction under 28 U.S.C. § 1295(a)(1).

A court “in exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285. An exceptional case is one that, under the totality of the circumstances, “stands out from others with respect to the substantive strength of a party’s litigating position” or “the unreasonable manner in which the case was litigated.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014).

We conclude that the district court in this case acted within its discretion in determining, on the limited arguments plaintiffs made in response to the fee motions, that plaintiffs did not conduct an adequate pre-suit investigation into infringement by Hi-Tech and Vital. That determination would suffice to support the exceptional-case determination. And we read the district court’s additional discussion of plaintiffs’ filing of numerous suits on the patents at issue here as itself ultimately resting on the same lack of adequate pre-suit investigation, not simply on ThermoLife’s limited product sales, the expiration dates of three of the four patents, the number of suits filed, or the amounts of the settlements. For those reasons, we affirm the exceptional-case determination.

(…) The district court thus properly focused on whether, when plaintiffs sued in 2013, they had done an adequate investigation of whether the accused products were being administered in amounts that would produce the claimed effect. The district court found that one gram was needed for that purpose. That finding had adequate support in the record.

The deposition and trial testimony given by ThermoLife’s validity expert provides such support. In the deposition, the expert described knowledge available before the 2013 filing of these cases (…).

All the studies that were performed after Dr. Cooke’s initial study and that showed an increase in nitric oxide utilized doses higher than 1.5 to 2 grams per day in a chronic dosing, whereas several studies that have been published and claimed that L-arginine is ineffective in increasing nitric oxide were using doses of 1 to 1.5 grams and below.

(…) J.A. 10456. Asked “you said showed 1 gram was ineffective; is that correct?,” he replied, “1 gram and below was ineffective.” Id. “Q: According to studies? A: Yes.” Id. At trial, he was asked: “And administering 1 gram or less of a supplement is not going to affect the arginine—excuse me, is not going to meaningfully affect the arginine level in one’s plasma, correct?” J.A. 10463. He answered: “That’s correct.” Id. The district court committed no clear error in finding one gram necessary for the claimed efficacy.

Finally, given this evidence, we see no error in the district court’s attribution to plaintiffs of knowledge of the one-gram minimum. Their expert testified that this minimum was revealed in the public literature. It is not an abuse of discretion in these circumstances to fault plaintiffs for failing to learn this public-literature information before bringing suit, whether by hiring an expert or otherwise.

The district court also committed no reversible error in determining that plaintiffs did not conduct adequate investigations to apply the one-gram minimum to the accused products. Importantly, it was not disputed in the district court that “all the relevant products were publicly available.” Fees Op., 2017 WL 1235766, at *5. Nor was it disputed that plaintiffs could have determined the amounts of L-arginine or its hydrochloride salt (in the recommended servings of the accused products) by performing what Vital characterized as a “simple test.” J.A. 10537; see also J.A. 10710 (Hi-Tech’s motion). Nor, finally, does the record reveal that plaintiffs performed such a test.

We have explained that testing of an accused product is not necessarily a required part of an adequate pre-filing investigation. See Intamin Ltd. v. Magnetar Techs., Corp., 483 F.3d 1328, 1338 (Fed. Cir. 2007) (testing not required where high obstacles to testing); Q-Pharma, Inc. v. Andrew Jergens Co., 360 F.3d 1295, 1302−03 (Fed. Cir. 2004) (testing unnecessary for purposes of Rule 11 and § 285 where the product labels, among other things, supported infringement). Whether testing is necessary for a responsible accusation of infringement necessarily depends on the availability of the products at issue, the existence and costs of testing, and whether other sufficiently reliable information exists. Here, given the deficiencies of the two possible alternatives to testing (product label ingredient lists and product advertising), we see no error in the district court’s determination that this matter was one in which there was no adequate substitute for simple testing of publicly available products.

The district court noted that there was some, though slim, evidence that plaintiffs examined the labels of the accused products. Fees Op., 2017 WL 1235766, at *5; Reconsideration Op., 2017 WL 4792426, at *6; see J.A. 10187 (deposition testimony of ThermoLife’s president). But the court agreed with Vital and Hi-Tech that the labels of at least some, perhaps many, of the accused products made clear that they did not contain one gram of L-arginine or its hydrochloride salt in a serving. Fees Op., 2017 WL 1235766, at *5–7. The evidence supports that determination.

The label of Vital’s NO Synthesize does not list L-arginine or its hydrochloride salt as an ingredient at all. J.A. 10509.9 The labels of other accused products list L-arginine but in amounts that preclude one gram per serving.

Had plaintiffs investigated, they might have found, as stated in Vital’s evidence credited by the district court, that the amount was less than 5 milligrams per serving. See Fees Op., 2017 WL 1235766, at *6 (citing J.A. 11586).

(…) Those deficiencies in labels either preclude an accusation of infringement or, at a minimum, strongly suggest a need for testing.

(…) Ingredient lists on the labels aside, plaintiffs also relied for their pre-filing investigation on what may be described as advertising by the defendants for their products—including the non-ingredient portions of labels. In some circumstances, a potential infringer’s public assertions about its products may supply, or help to supply, a reliable basis for a patent owner to allege infringement. See Q-Pharma, 360 F.3d at 1302−03 (“Because Q-Pharma obtained a sample of the accused product, reviewed Jergens’ statements made in the advertising and labeling of the accused product, and, most importantly, compared the claims of the patent with the accused product, we conclude that its claim of infringement was supported by a sufficient factual basis.”). But the nature and setting of the assertions can significantly affect their reliability for that purpose. Here, the district court properly found that defendants’ advertising claims were no substitute for simple testing.

(…) The patent statute does not restrict enforceable patent rights to those who practice the patent, to the exclusion of research institutions and their exclusive licensees engaged to perform needed enforcement activities in which the inventors, or research institutions, may lack expertise or experience. See Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405, 424−25 (1908); Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 703 (Fed. Cir. 2008); Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1547 (Fed. Cir. 1995); cf. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 393 (2006) (rejecting categorical exclusion of non-practitioners from injunctive remedy).

(U.S. Court of Appeals for the Federal Circuit, May 1, 2019, Thermolife International LLC, Board of Trustees of the Leland Stanford Junior University, v. GNC Corp., Docket No. 2018-1657, 2018-1666)