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California Shareholders Receive Broader Inspection Rights

March 12, 2019 By Israel Samuels LLP Leave a Comment

The legislature has broadened the rights of California shareholders to inspect corporate records.

Prior law only permitted California shareholders to review records where the corporation maintained them. The new law provides, if the originals of the corporate records subject to shareholder inspection are normally not physically located in California, a shareholder may inspect a true and correct copy of those records at the corporation’s principal office in California. If the corporation does not have a principal office in California, the records may be inspected at the physical location of the corporation’s registered agent for service of process in California. In addition, if the original records have been lost or destroyed, a shareholder has the right to inspect a copy of the records. Also, shareholders may now request that a corporation produce documents by mail or electronically if the shareholder pays for
the reasonable costs for copying or converting the requested documents to electronic format. With this change in the law, shareholders now have the option of asking the corporation to send them records subject to shareholder inspection by mail or email.

There is one, even more important change in the law. Now, corporate “records” independent of “accounting books” are subject to shareholder inspection. Thus, contract files, employment records, letters, and emails may be available for shareholder inspection, subject to the inspection being “for a purpose reasonably related to the holder’s interests as a shareholder or as the holder of a voting trust certificate.”

If you are California shareholder seeking information on the finances and operations of the corporation you now have a basis to review documents in the comfort of your own home or office, however, check with your legal counsel to be certain you are entitled to receive and review the specific documents you seek. If your corporation receives document requests from a California shareholder, it is essential that you discuss the request with corporate legal counsel to determine whether production is mandated.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.

In Memoriam: Larry Israel

March 5, 2019 By Israel Samuels LLP Leave a Comment

Larry Israel

As many of you are aware, Larry Israel, former managing partner of Israel & Samuels LLP, Larry Israel & Associates and the creator and chief editor of Business Briefs (formerly known as “Business Law Update”) passed away last month after a long battle with Parkinson’s Disease, Lewy Body Dementia and other health ailments. Larry passed peacefully at his home surrounded by his loving family. The notes, emails and cards that have been received from many of Larry’s former clients, colleagues and friends are deeply appreciated and speak to the impact that Larry had on so many of us. Many of our readers’ business success can be directly attributable to Larry’s guidance from, not only a legal perspective but, from drawing on his vast business experience. As many of you know, Larry was a very successful business owner and CEO of a large tech company for many years before becoming a business attorney.

Soon after Larry formed Larry Israel & Associates in early 2001 he created a monthly newsletter, to bring matters of interest to the attention of business owners and entrepreneurs, on issues relevant to business. Larry’s creation was not only as a marketing tool, but, essential information that assists readers and clients to be efficient and successful in the operation of a business. Larry loved to write, he loved satirical humor, he loved to fly, he loved to give advice, he loved reading the Wall Street Journal, he loved his law practice and most of all, he loved his readers. With that, we offer a couple of articles relevant to our current readers and then a special look back to the first edition of Business Law Update sent out from the desk of Larry Israel & Associates on November 5, 2001. Enjoy and thank you all again for the support.

How Monterey County Wakes Up

February 25, 2019 By Israel Samuels LLP Leave a Comment

This one takes the capon.

The California Sixth Appellate District in Perez v. County of Monterey County on Valentine’s Day found a rational basis for requiring Monterey County residents to get a County permit to keep more than 4, but less than 200, roosters on their properties. Who knew Monterey County had a detailed regulatory scheme over roosters? County ordinances do not permit residents to keep more than 4 roosters on their property, or less than 200 roosters, without a permit. There are other exceptions to the permitting process. For example, children can keep more than four roosters without a permit and residents cannot keep more than four roosters if they have been convicted of cockfighting.

In Perez, plaintiff was cocksure these rooster-keeping regulations were unconstitutional, and deprived him of his property right to keep more than 4 roosters on his property without a permit, was a taking, and violated the Interstate Commerce Clause.

Unsurprisingly, the Court left him little to crow about. It found a rational basis for the regulatory scheme as a –

. . . comprehensive approach to the keeping of five or more roosters that balances promotion of agriculture and agricultural education with prevention of operations that are unsanitary, inhumane, environmentally damaging, and potentially conducive of illegal conduct.

Which brings us to this conclusion, if you live in Monterey County consult your counsel if you own roosters. You may have to permit those cock-a-doodle-dos.

Voluntary Mediation Costs May Be Recoverable

February 21, 2019 By Israel Samuels LLP Leave a Comment

“Mediation costs are not listed among the costs that are expressly allowable or expressly not allowable. (Code Civ. Proc., section 1033.5, subds. (a), (b).)” according to the U.S. District Court in Berkeley Cement, Inc., v. Regents of the University of California, (5th Dist. 1/7/9).

However, the District Court concluded, “mediation fees incurred for mediation that was not ordered by the court are not categorically nonrecoverable as ‘not reasonably necessary to the conduct of litigation.'” It is up to the Court, acting within its discretion, to determine based on the facts and circumstances, whether the voluntary mediation was reasonably necessary to the conduct of the litigation.

In Berkeley Cement, the mediation fee award included $7,500 to University, representing 1/2 of the $15,000 mediator’s fee, for a mediation canceled by Berkeley Cement on short notice, for which the mediator could not fill the time slot with a replacement, making the fee nonrefundable.

Potential cost-shifting of mediation fees adds to the risk of the unsuccessful party if the mediation fails, and may embolden a party that believes it will prevail. Litigants should discuss this potential with their attorneys whenever a offer of mediation is made or being considered.

Arbitrator Can Refuse To Award Attorneys’ Fees To A Prevailing Party

February 18, 2019 By Israel Samuels LLP Leave a Comment

In the Second Appellate District case of Cohen v. TNP 2008 Participating Notes Program, LLC, Case No. B266702 (2d Dist., Div. 7 Jan. 29, 2019; posted Jan. 30, 2019) the Appellate Court was confronted with a superior court’s confirmation of an arbitrator’s decision to deny contractual fees to an arbitration prevailing party based on the unclean hands of the party’s founding member. The superior court also denied attorney’s fees to the prevailing party in post arbitration proceedings.

The appellate court affirmed the arbitrator’s fee denial but reversed the denial of post arbitration fees ruling.

The Appellate Court decided the arbitrator has the power to deny fees to a clearly prevailing party under the arbitrator’s inherent [ower] to “ex aequo et bono” (which essentially means to do what is just and good).

The Appellate Court appeared to concede that a precisely drafted arbitration agreement might compel the arbitrator to award fees to the prevailing party, irrespective of the arbitrator’s inherent power. Therefore, if you are considering a contract that contains an arbitration agreement you should have it reviewed by legal counsel and, if possible, negotiated and drafted to include the precise language necessary to assure the arbitrator must award attorneys’ fees to the prevailing party if such certainty is in your best interests.

Payroll Companies Have No Duty To Employees To Assure Correct Pay Documentation

February 11, 2019 By Israel Samuels LLP Leave a Comment

On February 9, 2019, the California Supreme Court issued its opinion in Goonewardene v. ADP, LLC. The main issue before the Court was whether an employer’s outsourced payroll service could be liable to employees under the applicable labor statutes for failure to pay
wages when due.

In Goonewardene a former employee of Alour International, Inc. sued her former employer for wrongful termination, breach of contract, and violations of the Labor Code. Goonewardene also included a single cause of action against Alour’s payroll company, ADP, LLC, for unfair business practices under the Unfair Competition Law based on its alleged failure to provide her with adequate documentation and records regarding her compensation. The Court of Appeal had concluded that an employee who alleges that he or she has not been paid wages
that are due may maintain tort causes of action for negligence and negligent misrepresentation against a payroll company. However, the California Supreme Court reversed that decision. It held:

. . . in light of a variety of policy considerations that are present in the wage and hour setting, we conclude that it is neither necessary nor appropriate to impose upon a payroll company a tort duty of care with regard to the obligations owed to an employee under the applicable labor statutes and wage orders . . . .

The Supreme Court also went to great lengths to find that employees are not intended third party beneficiaries of the contracts between the payroll company and the employer and, therefore, could not maintain a cause of action for breach of contract against the payroll company.

It is essential that employers seek legal review of the indemnification provisions in their payroll company contracts. If a claim by the employee is due to an alleged error by the payroll company, the indemnification provisions should require the payroll company to indemnify and defend the employer.

Discrimination Based On Hairstyle May Be Prohibited

February 4, 2019 By Israel Samuels LLP Leave a Comment

California’s Fair Employment and Housing Act may soon protect a person’s coif and prohibit discrimination in housing and employment based on hairstyle and hair texture.

Senate Bill 188 would add to the list of prohibited bases for determining employment or housing “traits historically associated with race, including, but not limited to, hair texture and protective hairstyles, and would define protective hairstyles for purposes of these provisions.”

At present, under the California Fair Employment and Housing Act it is unlawful to engage in specified discriminatory employment practices, including hiring, promotion, and termination based on certain protected characteristics, including race, unless based on a bona fide occupational qualification or applicable security regulations. The Act also prohibits housing discrimination based on specified personal characteristics, including race, religious beliefs, sex or age.

Senate Bill 188, should it pass and be signed by the Governor, will expand the bases upon which prospective home purchasers, renters and employees could allege illegal discrimination. If you are a home seller, landlord or employer you should consult with your legal counsel
before looking for buyers, tenants or employees to ensure you do not run afoul of the California Fair Employment and Housing Act.

What Employers Must Provide To Departing Employees

January 29, 2019 By Israel Samuels LLP Leave a Comment

Whether you are terminating an employee or an employee resigns, federal and state laws require the departing employee receive:

A COBRA notice and election form prior to termination of the employee’s benefits (if the employer has 20 or more employees in California and the departing employee participates in the employer’s group health plan).
A notice of Cal-COBRA continuation rights. Cal-COBRA must be offered to terminated employees of small employers (2-19 employees), and terminated employees covered under federal COBRA when their 18 months of federal COBRA coverage expires.
A “For Your Benefit” (DE 2320) pamphlet from the EDD, which describes the unemployment benefits available to all discharged employees. The pamphlet must be provided no later than the effective date of the termination.
An Unemployment Insurance Code section 1089 written notice informing the discharged employee of a change in the relationship (i.e., it has been terminated).
A Health Insurance Premium Payment (HIPP) notice (DHCS 9061)
for employees covered under the program (if you employ 20 or more employees).
A notice pursuant to California Labor Code Section 2808(b) of all continuation, disability extension, and conversion coverage options under any employer-sponsored coverage for which the employee may remain eligible after employment terminates.

There may be additional documents that an employer will need to provide depending on the employer’s industry, so it is always wise to contact your legal counsel if you have any questions when seperating from an employee.

Settlement Not Deductible If It Includes A Non-Disclosure Agreement

January 22, 2019 By Israel Samuels LLP Leave a Comment

Congress, in the new Tax Cuts and Jobs Act (the “Tax Act”), has made settlements of sexual harassment cases more expensive for employers who seek to keep these settlements private.

Current tax law allows an employer to deduct the ordinary and necessary expenses it incurs in carrying on its trade or business. This deduction generally includes legal settlements or payments to a plaintiff (including plaintiff’s attorney fees) and any legal fees the employer has incurred in its defense. However, now a provision in the Tax Act deter employers from using nondisclosure agreements in sexual harassment settlements. Internal Revenue Code Section 162(q), prohibits employers from deducting “any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement” or “attorney’s fees related to such a settlement or payment.” Section 162(q) applies to payments made after December 22, 2017.

As a result of Section 162(q) the price for confidentially has increased. The inclusion of a nondisclosure provision in a settlement agreement, will prevent the employer from taking business expense deductions for any payments related to the matter, including the settlement payment and attorney’s fees.

The language of Section 162(q) is broad but unclear as to whether the IRS will consider payments made pursuant to a confidential agreement that does not settle sexual harassment claims, but which contains a broad waiver of claims, including for sexual harassment, or as “related to sexual harassment” will preclude getting the business expense deduction.

It is also unclear exactly which deductions the IRS will preclude in connection with the confidential settlement of a sexual harassment claim. The statute clearly applies to the settlement payment as well as attorney’s fees, but is silent as to costs such as those incurred with investigators and experts to assist with the case. It is presently unknown whether these costs will still be deductible. What if the employer provides outplacement services for the plaintiff or pays the plaintiff’s COBRA premiums, are those costs deductible?

There is also concern for employers who have an Employer Professional Liability Insurance insurer that steps up and defend these actions. It is presently uncertain whether an insurer will be denied a deduction for settlement and/or attorney’s fees payments, if it enters into a settlement on behalf of the employer that contains a non-disclosure agreement.
The statute explicitly provides that attorney’s fees related to the confidential settlement of a sexual harassment or sexual abuse matter are not deductible.

It appears the new statute prohibits any deduction for an employer’s own attorney’s fees incurred for defense, or the payments made to the plaintiff’s attorneys. It also appears to prohibit a plaintiff from deducting any attorney’s fees the plaintiff pays to his or her attorneys. Thus, a plaintiff may now owe tax on income that the plaintiff never received and significantly reduce his or her net recovery.

Employers will now have to carefully evaluate the cost/benefit of confidentiality. The boundaries of this new law are just being developed. It is therefore imperative to analyze with your attorney the real necessity for a non-disclosure agreement as part of a settlement.

Statutory Offers To Compromise Must Be Made In Good Faith To Grant Fee Shifting

January 15, 2019 By Israel Samuels LLP Leave a Comment

California Code of Civil Procedure section 998 provides a mechanism whereby a litigant can offer to have judgment entered against him or her in an amount and on terms that the litigant specifies. If the opponent rejects the statutory offer and the offeror obtains a more favorable judgment than he or she would have received had the offer been accepted, the opponent cannot recover his or her post-offer costs and must pay the offeror’s post-offer costs, as well as the reasonable costs the offeror incurred for the post-offer services of expert witnesses. Thus, Section 998 offers can be effective weapons to settle cases and recover expenses in the litigation to which a litigant may not otherwise be entitled.

Recent cases have tacked on a “good faith” requirement to Section 998 offers. Thus, an offeror can rigorously follow the Statute, prevail with a more favorable verdict at trial, and still be denied recovery of his post-offer costs and expert witness fees even though the Statute requires that they be recoverable.

In Licudine v. Cedars-Sinai Med. Center, (2d Dist., Div. 2 Jan. 3, 2019) a determination that a Section 998 offer was not made in good faith cost the offeror $2.335 million in prejudgment interest on a jury verdict of $5,594,557 where the defense rejected an early-on Section 998 offer for $249,999.99.

The trial and appellate courts found three factors were especially pertinent to an evaluation as to whether the offer was made in good faith: (1) how far into the litigation the offer was made; (2) the information available to the offeree prior to the 998 offer’s expiration (such as voluntary exchanges of information or pre-existing relationships between the parties); and (3) whether the offeree let the offeror know it lacked sufficient information to evaluate the offer, and how the offeror responded.

In Licudine, the offer was made 19 days after the plaintiff filed a “bare bones” complaint; it was clear the hospital needed more discovery information to evaluate the offer; and the defense requested more information. The Courts found that, under such circumstances, the Section 998 offer could be disregarded.

If your business is involved in litigation a Section 998 offer may have many advantages and you should vet them with your attorney. However, do not expect them to result in fee-shifting if you get a more favorable verdict if you made the offer early in the litigation before significant informal or formal discovery occurs.