Skin in the Game: Using California Code Of Civil Procedure Section 1030 to Defeat Meritless Claims By Out-Of-State Plaintiffs

July 6, 2021   By Tyler Layton 

California is home to an outsized number of the world’s most innovative and impactful companies.  As a litigation boutique representing California-based technology companies with global reach, The Norton Law Firm understands that a company’s high-profile success can increase the likelihood of meritless “shake-down” lawsuits, brought by out-of-state plaintiffs seeking to leverage unwarranted cash settlements.  An important, if under-utilized, tool for defending against such lawsuits is California Code of Civil Procedure Section 1030.

California Code of Civil Procedure Section 1030

When a defendant is sued in California state court by an out-of-state plaintiff, and can show a “reasonable probability” of ultimately prevailing on the merits, Section 1030 allows the defendant to file a motion for, and obtain, a court order requiring the plaintiff to post an undertaking to secure an award of defense costs and attorneys’ fees that may be awarded in the action.^[1]  Cal. Code. Civ. Proc. § 1030(a)-(b).^[2]  This is a motion with teeth:  if the plaintiff fails to post the required undertaking, the lawsuit “shall be dismissed.”  A defendant may file a motion for a Section 1030 undertaking “at any time.”  Cal. Code Civ. Proc. § 1030(a), (d).

Section 1030 is intended to enable California defendants to “secure costs in light of the difficulty of enforcing a judgment for costs against a person who is not within the court’s jurisdiction.”  See Yao v. Superior Ct., 104 Cal.App.4th 327, 331 (2002).  In effect, Section 1030 requires out-of-state plaintiffs to have skin in the game, and in so doing, discourages “out-of-state residents from filing frivolous lawsuits against California residents.”  See Yao, 104 Cal.App.4th at 331.

The full text of Section 1030 is available here.

Application

A successful Section 1030 motion can stop a meritless lawsuit dead in its tracks. 

For instance, The Norton Law Firm recently represented a Bay Area technology startup that had been sued by out-of-state plaintiffs who falsely claimed an ownership interest in the startup.  We filed a Section 1030 motion at the outset, and plaintiffs, faced with being ordered to post a large cash undertaking, voluntarily dismissed their frivolous claims at the pleading stage.  Section 1030 thus was an effective tool to achieve a swift and efficient victory and avoid costly and disruptive discovery and motion practice. 

Takeaway

California companies (and others that may be sued in California) should be familiar with Section 1030.  The “reasonable possibility” standard for prevailing on a Section 1030 motion is low, a successful Section 1030 motion will secure a defendant’s anticipated costs, and the threat of being forced to post a substantial undertaking can, on its own, discourage and defeat frivolous claims from out-of-state plaintiffs. 

About the author:  Tyler Layton is a Senior Associate at The Norton Law Firm. Tyler represents clients in consumer-protection litigation and other commercial disputes.

[1] For the purposes of Section 1030, “attorney’s fees” means reasonable attorney’s fees a party may be authorized to recover by a statute apart from Section 1030, or by contract.  

[2] The standard for showing a “reasonable possibility” is low, relative to other forms of preliminary relief.  A California defendant need not show it is reasonably likely to succeed or that “there [is] no possibility that [the foreign plaintiff will] win at trial.”  Baltayan v. Estate of Getemyan, 90 Cal.App.4th 1427, 1432 (2001) (emphasis added).