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When Loral Corp., now part of Lockheed Martin Corp., landed a huge military contract with the government of South Korea in 1995, one of its competitors claimed that Loral had gotten the deal because of bribes and sexual favors. Korea Supply Co. sued under California’s unfair competition law, seeking disgorgement of Lockheed’s allegedly ill-gotten gains — even though none of the money paid South Korea ever came directly from Korea Supply. On Wednesday, the California Supreme Court appeared unwilling to let a third party seek disgorgement of funds for a business deal in which it was not a direct party. As more than one justice pointed out, Korea Supply had never given money to Lockheed and had no direct interest in the profits of its competitor. That bothered Korea Supply’s lawyer, Maxwell Blecher, a partner in Los Angeles’ Blecher & Collins, who warned of dire consequences if the high court sided with Lockheed. “If you allow Lockheed and its predecessor to walk away and keep that money,” he said, “I say, with all due respect, we’ve committed an act almost as immoral as what they have done.” In two other cases Wednesday, the high court seemed leaning in favor of employees in deciding whether the Legislature intended disabled workers to have broader rights against discrimination under state law than federal law, and in determining whether an employer’s arbitration requirement was unconscionable. In the Lockheed case — Korea Supply Co. v. Lockheed Martin Corp., S100136 — Korea Supply contended that Lockheed interfered in a radar systems contract between MacDonald Dettwiler, a client of Korea Supply, and the South Korean government. Specifically, Korea Supply maintained that South Korea awarded Lockheed’s predecessor the contract through bribes and following a passionate affair between the country’s defense minister and a Loral employee, a former model and L.A. nightclub owner. Los Angeles County Superior Court Judge Brett Klein dismissed the suit, but L.A.’s Second District Court of Appeal reversed last year, holding that Korea Supply could seek disgorgement of funds, which could amount to a good chunk of the $30 million commission MacDonald Dettwiler had anticipated. That appalled Lockheed and many others in the business community, who argued that the only remedies allowed under the state’s unfair competition law — which allows a non-affected party to sue on behalf of others — are injunctive relief or restitution. Damages, as in disgorgement of funds, aren’t allowed, they argued. “If it were the Republic of Korea asking to have funds returned to it, we could say those are restitutionary,” Lockheed’s lawyer, James Colbert III, a partner in L.A.’s O’Melveny & Myers, told the court Wednesday. “The prospective relationship that was frustrated was between MacDonald Dettwiler and the Republic of Korea. Korea Supply suffered entirely derivatively.” When Blecher argued that what he was seeking was “equitable conversion” and not damages, Justice Marvin Baxter piped up. “In terms of the relief sought,” he said, “it’s the same.” Several justices, including Ming Chin, worried aloud that following Blecher’s suggestion would “open the floodgates” to litigation not anticipated by the drafters of the state’s unfair competition law. Colbert said that all Lockheed sought was for the court to “reaffirm that disgorgement is only available when restitutionary. And that’s clearly not what we have here.” The court Wednesday also heard an arbitration case — Little v. Auto Stiegler Inc., S101435 — and seemed bothered by an employer’s mandatory arbitration policy that allowed appellate review only if the award exceeds $50,000. “Obviously, that was intended to prevent large awards against companies,” San Francisco’s Cliff Palefsky, representing the California Employment Lawyers Association as amicus curiae, told the court. But Christopher Hoffman, of San Diego’s Fisher & Phillips, argued that the terms were neutral. “It does not allow both sides the opportunity to appeal,” he said. “If an employee gets an award of $52,000 and had sought $5 million, it’s obvious the employee would appeal that award.” The 2nd District Court of Appeal last year said the policy was unenforceable in that it contained no statutory claims, as was the case in Armendariz v. Foundation Health Psychcare Services Inc., 24 Cal.4th 83, the 2000 ruling in which the California Supreme Court held that certain minimum requirements must be met for an arbitration policy to be enforceable. Justices also took a disability rights case — Colmenares v. Braemar Country Club, S098895. In it, Francisco Colmenares was appealing a Second District ruling that said amendments enacted to the state’s Fair Employment and Housing Act in 2000 were not retroactive to cover his 1997 claims. Colmenares, who has back problems, had argued that state law had defined disability for the purpose of discrimination claims as any limitation that makes a major life activity difficult, not just a substantial limitation, as required under federal law. The high court on Wednesday, however, seemed inclined to believe that retroactivity was not the issue at all, instead indicating that the Legislature in 1992 had already changed its law to allow claims under the “mere limits” test. Justice Joyce Kennard noted that the Legislature that year inserted the federal substantial limits test into all kinds of state codes, “but expressly chose not to insert the federal test of substantial limits into the FEHA code.” But even if the 1992 amendments don’t solve the problem, Kennard said, it appears that the more recent 2000 amendments to the code were clarifications, not changes to the law, and, therefore would be retroactive. Littler Mendelson partner Alan Levins, who represented the employer, disagreed, saying the legislative history “makes it clear this is a revision, not a clarification. It speaks in not a retro voice, but a prospective voice.” Levins also argued that case law interpreting the 1992 legislative statutes, beginning with the Supreme Court’s own 1993 ruling in Cassista v. Community Foods Inc., 5 Cal.4th 1050, has defined a disability as one that substantially limits a major life activity. Linda Kilb, of Berkeley’s Disability Rights Education and Defense Fund, called the comments in Cassista mere dicta, and said that courts that followed it were wrong. “So it’s your opinion that we don’t even need to look at the [2000 amendments to the law]?” Justice Kathryn Mickle Werdegar said. “Everything you need,” Kilb responded, “is in the 1992 amendments.” The court has 90 days to rule in all three cases.

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