Israel Samuels LLP - Israel Samuels LLP

California Truth in Lending Law Will Apply to Small Business Loans

November 19, 2018 By Israel Samuels LLP Leave a Comment

California has become the first jurisdiction in the United States to provide small business owners with consumer protections under Truth-in-Lending laws.

Under newly enacted Senate Bill 1235, commencing January 1, 2019, lenders are now required to provide certain disclosures with specificity, clarity and consistency to small business owners when they offer them financing and close a transaction. Until enactment of SB 1235, federal and state truth-in-lending and disclosure laws have only applied to consumer borrowers and loans.

With the enactment of SB 1235, a lender will have to disclose certain facts at the time it offers financing of less than $500,000 to a business owner. These factual disclosures include:

The total amount of financing;
The total cost of financing;
The length of the loan term;
The frequency and amount of payments;
Any pre-payment policies; and
The annualized rate of interest.

The new law applies to traditional term loans, lines of credit, merchant cash advances, lease financing, factoring, and asset-based financing as well as online enterprises that act in partnership with banks to market and underwrite any financing ultimately made by a banking institution.

Regulations will soon be forthcoming from the Department of Business Oversight that should provide guidance to lenders on the exact information necessary to be disclosed to comply with California law. Required disclosures will not be mandatory until the Department of Business Oversight adopts the regulations and completes the disclosure requirement formula.

If you are seeking a business loan, or you loan money to small businesses, contact your legal counsel to discuss the impact of this new law.

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.

Are Non-Solicitation Agreements Illegal “Restraints on Trade”?

November 12, 2018 By Israel Samuels LLP Leave a Comment

Although not directly holding non-solicitation agreements as illegal restraints of trade in violation of California law, two recent cases seem to be moving the Courts, and the law, in that direction.

In Donald Golden v. California Emergency Physicians Medical Group, et al., 896 F.3d 1018 (2018) the Ninth Circuit Court of Appeals held, if restrictions in a settlement agreement impose a “restraint of substantial character” on future employment, they run afoul of California Business and Professions Code Section 16600, as an illegal restraint upon a former employee even if they do not prevent the former employee from competing for business with the former employer.

The Court held that Section 16600 prevented any contract from imposing a “restraint of substantial character” on an individual’s employment, irrespective of whether it limited the individual’s ability to “compete”. The Appellate Court engaged in a de novo review of the lower court’s analysis of the degree to which the post-employment restrictions in the settlement agreement hampered plaintiff’s ability to practice medicine and reversed the lower court on the basis that the settlement agreement language clearly imposed a restraint of substantial character upon Dr. Golden’s ability to do so.

The Golden decision supports the view that, under Section 16600, post-employment restrictions will be considered to impose a “restraint of substantial character” on employment irrespective of their impact on the ability of the former employer to compete.

In AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 2018 Cal. App. LEXIS 989 (Nov. 1, 2018), the Court of Appeal of California, Fourth Appellate District, also held that employee non-solicitation agreements are void under California Business and Professions Code Section 16600 when such agreements restrain an individual from practicing their chosen profession, and indicated, in dicta, that employee non-solicitation agreements may be void in general under Section 16600, regardless of the circumstances. However, the Court of Appeal stopped short of holding that all non-solicitation agreements are impermissible under California law. Yet, it expressed doubt over the continuing viability of older case law that applied a reasonableness standard to analyzing non-solicitation agreements.

California law has become extremely antithetical to non-solicitation agreements and companies should not assume they will be enforced by the Courts. Protection can still be provided through Trade Secret and Confidential Information Agreements that impose enforceable restrictions on former employees. If you are still using a non-solicitation agreement in your business, we suggest that you immediately contact your attorney to re-think your approach.

General Partnership Interests May Be Subject to Securities Regulations

November 5, 2018 By Israel Samuels LLP Leave a Comment

In United States Securities & Exchange Commission v. Schooler, 2018 S.O.S. 16-55167 (filed Sept. 26, 2018), the U.S. Court of Appeals for the Ninth Circuit concluded that general partnership interests a defendant sold were “investment contracts” and, thus, securities under federal securities laws.

For more than 30 years, Schooler bought land and then sold investors interests in general partnerships that owned the land. The U.S. Securities and Exchange Commission (“SEC”) sued Schooler and his company for a number of securities law violations and won on summary judgment. Schooler appealed.

The Ninth Circuit Court defined an “investment contract,” as “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party” and noted that investment contracts can be present even where a scheme purports to give investors power or responsibility to advance the common enterprise. The Court focused on “whether the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise.”

Consequently, the Appellate Court concluded that if the relevant facts fit within any one of the following three factors there is an investment contract:

an agreement among the parties leaves so little power in the hands of the partner or venturer that the arrangement in fact distributes power as would a limited partnership; or
the partner or venturer is so inexperienced and unknowledgeable in business affairs that he is incapable of intelligently exercising his partnership or venture powers; or
the partnership or venture is so dependent on some unique entrepreneurial or managerial ability of the promoter or manager that he cannot replace the manager of the enterprise or otherwise exercise meaningful partnership or venture powers.

Securities violations can carry huge penalties and consequences for your business. If you are involved in a general partnership where one partner essentially makes all the decisions, you might want to contact your legal counsel to discuss changing to a different type of business entity.

Sexual Harassment Prevention Training and Education Required for All Employees

October 29, 2018 By Israel Samuels LLP Leave a Comment

Since 2005, California employers with at least 50 employees have been required to train and educate all personnel in supervisory positions in the prevention of sexual harassment. Recently, laws were enacted that lower the number of employees to five and now also require such training and education for nonsupervisory personnel.

Under the new provisions covered, employers must provide at least two hours of sexual harassment prevention training and education to all supervisory employees and at least one hour of such training to all non-supervisory employees in California, by January 1, 2020. Training and education must be provided once every two years thereafter.

Although the new law does not take effect until January 1, 2020, in this #Metoo climate we recommend that employers consider complying with this mandate even before it takes effect. If you do not know of an effective sexual harassment prevention training and education program, contact your attorney for a referral.

New – Administrative Dissolution of California Corporations and LLCs

October 22, 2018 By Israel Samuels LLP Leave a Comment

On September 22, 2018, Assembly Bill No. 2503 was signed into law and created a new form of dissolution, administrative dissolution, for California domestic corporations and California domestic limited liability companies. The new laws provide for two types of administrative dissolution, involuntary and voluntary, and are intended address the status of corporations that cease operations and have no assets. Frequently, the owners of these corporations will simply “walk away” from the accruing tax, interest, and penalties due rather than incur the expenses associated with voluntarily dissolving the corporation.

After December 31, 2018, a California corporation may be administratively dissolved if the corporation’s corporate powers have been suspended by the Franchise Tax Board (“FTB”) for 60 consecutive months. Before dissolving the corporation administratively, the FTB must notify the corporation of the pending administrative dissolution by mailing a notice to the last known address of the corporation or, if the FTB does not have a valid address, notify the Secretary of State who will provide 60 days’ notice of the pending administrative dissolution on its website by listing the corporation’s name and the Secretary of State’s file number.

The Secretary of State will provide instructions for a corporation to submit a written objection of the pending administrative dissolution to the FTB before the expiration of the 60 days. If the FTB does not receive the corporation’s written objection to the
administrative dissolution during the 60-day period, the corporation will be administratively dissolved.

If the FTB does receive the corporation’s written objection to the administrative dissolution during 60-day period, the corporation will have 90 days from the date the written objection is received by the FTB to (1) file returns, (2) pay all accrued taxes, penalties, and interest, (3) file a current Statement of Information with the Secretary of State, (4) fulfill any other requirements to be eligible, and (5) apply for a certificate of revivor. If all the foregoing conditions are satisfied, the administrative dissolution will be canceled, but if not, the corporation will be administratively dissolved. The FTB may extend the 90-day period one time.

If the corporation is dissolved administratively, the corporation’s liability for the minimum franchise tax, interest, and penalties, will be abated, as well as the penalties for not filing a statement of information, and no administrative or civil action will be taken or brought to collect those liabilities. An administrative dissolution will not, however, discharge the corporation’s liability to creditors.

An administrative dissolution also will not discharge any liability of the directors or shareholders of the corporation or its transferees. Therefore, if there was an illegal distribution by the corporation or a fraudulent transfer prior to the dissolution, the liability of the directors or shareholders of the corporation or its transferees would not be affected by the dissolution.

Like provisions apply to California limited liability companies.

After December 31, 2018, certain California corporations may apply to be administratively dissolved. The benefit of applying for voluntary administrative dissolution is that eligible corporations need not pay the minimum annual franchise tax, interest, or penalties that relate to years in which the corporation did not do business.

Two types of California corporations are eligible for this treatment:

A corporation that never did business in California at any time after the time of its incorporation.
A corporation that did business in California but that has ceased to do business and has filed all required California income tax returns for the tax years in which it did business.

In applying for this benefit, the corporation must certify under penalty of perjury that it has ceased all business operations and that it has no remaining assets. Any abatement would be conditioned on a certificate of dissolution first being filed with the Secretary of State.

The abatement of taxes, interest, and penalties would not apply to any year prior to the cessation of doing business in California.

If the corporation that was voluntarily administratively dissolved continues to do business or has remaining assets that were not disclosed at the time of request for abatement, the taxes, interest, and penalties that were abated will cease to be abated and will be immediately due. In addition, a penalty equal to 50% of the total tax abated (plus interest) will be imposed.

If you have walked away from a corporation or LLC without dissolving it you should contact your attorney to determine whether it makes sense for you to permit involuntary administrative dissolution of the entity or voluntarily administratively dissolve the entity.

Arbitration and Class Action Waivers Are a Must for Employers

October 15, 2018 By Israel Samuels LLP Leave a Comment

It has been an ongoing legal battle between employers and employees over the enforceability of arbitration agreements and class action waivers in employment agreements. However, the battle may be over. In O’Connor v. Uber Technologies, Inc. the United States Ninth Circuit Court of Appeals held the United States Supreme Court decision in Epic Systems Corp. v. Lewis required it to find that Uber’s arbitration agreement, which included a waiver of the employee’s right to participate in class and collective action litigation, was enforceable.

The O’Connor decision is a warning to employers to make sure they include class and collective action waivers in their employment arbitration agreements. The lack of such waivers could expose an employer to expensive and perhaps devastating class and collective actions. Contact your attorney immediately as without such waivers you and your business may be at great legal risk.

Consumers Can Sue Over Fake Advertising Discounts

October 8, 2018 By Israel Samuels LLP Leave a Comment

How many times have you seen former price information that makes the “discounted” present sales price seem like a real deal? Ever wonder whether those former prices were phony?

The California Second Appellate District has handed consumers a weapon to fight back against fake former price information discount claims. In Hansen v. Newegg.com Americas Inc. the Court held that a plaintiff who makes a purchase in reliance on advertisements containing “fictitious former price information” — and who would not have made the purchase absent the misrepresentation — has standing to pursue false advertising claims under California’s unfair competition and false advertising laws.

In Hansen the Plaintiff alleged that the purported “list price” for various products, which Newegg “displayed in gray, struck-through typeface (e.g. ‘$2099.99’),” was misleading because it was not the “prevailing market price” charged by Newegg in the normal course of business. He also claimed he relied on the false price information in making two purchases from Newegg’s website and that he would not have purchased the items had he known the true nature for former price information and discount figures.

Newegg demurred to the Complaint and claimed Plaintiff had not suffered economic injury sufficient to establish standing as he still received the benefit of his bargain at the price he agreed to pay and had not alleged that the products were different from what he wanted or were in anyway unsatisfactory. The trial court concluded that Plaintiff had not suffered any economic loss due to the advertising and had received the exact product that he had ordered. Therefore, it sustained the demurrer. Plaintiff then appealed.

The Appellate Court concluded that the Plaintiff did have standing under California unfair competition and false advertising laws to continue to pursue his claim against Newegg since those laws restrict use of advertisements that tout the “former price of a product” and prohibit false or misleading statements concerning “price reductions.” The Court also sided with the Plaintiff on the issue of economic injury. The Court concluded all plaintiff had to allege was he or she relied on fictitious former price information in making a purchase and would not have made the purchase but for the misrepresentation, in order to have standing to bring an action under the unfair competition and false advertising laws against Newegg.

The Hansen decision is notable because it rejected a more restrictive interpretation of standing requirements that would have effectively insulated companies from false advertising claims based on deceptive former price or discount information. If your company offers discounts off prior prices it would be prudent to check with your attorney before you decide to tout a former price to lead a consumer to believe he or she is getting a discount.

Expect Higher Tort Monetary Awards

October 1, 2018 By Israel Samuels LLP Leave a Comment

Generally, an injured party is entitled to recover the medical costs and expenses reasonably incurred as a result of the tort of another. When the injured party’s health insurer pays those costs and expenses, the amount paid by the health insurer is usually considered the amount that was reasonably incurred. Most health insurers negotiate reduced rates with medical providers. The medical providers agree to accept reduced rates based on an expectation of assured payment and patient volume. Thus, the amounts paid by health insurers may be up to 70% less than the amount actually billed by the health care provider. Since the 2011 California Supreme Court opinion in Howell v. Hamilton Meats & Provisions, Inc., the general rule is that an injured plaintiff with health insurance may not recover economic damages in excess of the amount paid by the insurer for the medical services provided.

Recently, the California Second Appellate District Court in Pebley v. Santa Clara Organics, LLC created an exception to the general rule.

In Pebley, the plaintiff was injured in a motor vehicle accident caused by the defendant, an employee of Santa Clara Organics, LLC. Although plaintiff had health insurance through Kaiser Permanente, he chose to obtain medical services outside his insurance plan after filing a personal injury action against defendants. Specifically, plaintiff treated with an out-of-network orthopedic spine specialist who performed a cervical fusion surgery. Plaintiff successfully moved to exclude evidence that he had health insurance; that he had obtained his medical treatment on a lien basis; and of the amounts an insurance company may pay, or what a medical provider may accept, for medical services, both past and future. Defendant unsuccessfully moved to exclude evidence of “unpaid bills” from health care providers.

Plaintiff’s expert testified that the unpaid full rate medical bills were reasonable and customary charges. The jury awarded plaintiff over $3.6M including $269,000 in past medical expenses and $375,000 for future medical expenses. Defendants appealed arguing that the general rule set forth in Howell should have applied since plaintiff was insured but merely decided not to rely on his insurance coverage to pay the reasonable costs of medical care.

The Court of Appeals affirmed the judgment. It held, had plaintiff elected to treat through his insurance carrier, plaintiff’s recovery would have been limited to the amounts paid by the health insurer for the services provided. However, the Court ruled that plaintiff’s recovery was not so limited in this case, because where “plaintiff chooses to be treated outside the available insurance plan, the plaintiff is in the same position as an uninsured plaintiff and should be classified as such under the law.”

The Pebley decision will likely have an immediate and substantial impact on personal injury litigation and may result in larger verdicts. The decision permits insured plaintiffs to treat with health care providers outside of their insurance plans and then allows those plaintiffs to introduce the entire amount of medical expenses billed (rather than only those paid), as long as those medical expenses are reasonable and customary costs in the community. We anticipate personal injury lawyers will be advising their clients to eschew use of their health insurer and incur medical expenses with physicians and facilities that agree to accept a lien in lieu of payment.

Contractors Face Discipline for Civil Judgments, Settlements and Awards

September 24, 2018 By Israel Samuels LLP Leave a Comment

The Contractors’ State License Law provides for the licensure, regulation, and discipline of contractors. Protection of the public is the highest priority for the Board in exercising its licensing, regulatory, and disciplinary functions.

Extant law requires licensees to report their conviction for any felony or any other crime substantially related to the qualifications, functions, and duties of a licensed contractor to the State Registrar of Contractors within 90 days after the licensee learns of the conviction.

On September 18, 2018, Sections 7071.20, 7071.21 and 7071.22 were added to the California Business and Professions Code. A licensee, and its insurers are now required to report to the Registrar certain final judgments, executed settlement agreements, and final arbitration awards within 90 days.

Licensees and their insurers now must report civil judgments, settlements and awards that arise in an action that alleges fraud, deceit, negligence, breach of contract or express or implied warranty, misrepresentation, incompetence, recklessness, wrongful death, or strict liability by the act or omission of a licensee while acting in the capacity of a contractor, whether as a general contractor or as a specialty contractor; the amount or value of the judgment, settlement payment, or award is $1,000,000 or greater, even though apportioned among contractors; is the result of a claim for damages to a property or person allegedly caused by specified construction activities of a licensee on any part of a multifamily rental residential structure; and is a designated “complex case” because it involves a claim of construction defect or insurance coverage arising out of a construction defect claim.

The new Business and Profession Code section requires the Registrar review the reports, keep or return them to the licensee, and take no further action if, upon review, the registrar or a designee determines the facts of the reportable event would not substantiate an allegation that the licensee has violated the Contractor’s State License Law; or there are reasonable grounds to believe that the public interest is sufficiently served by the existing resolution or disposition of the reportable event as reached by the parties to the action or by the court; or it is determined disciplinary action is unnecessary. Each returned report is conclusively determined to be a complaint resolved in favor of the licensee. For those not returned, the Licensing Board may impose discipline. Failure of a licensee to report to the Registrar in the time and manner required is also grounds for disciplinary action.

It is far, far better to resolve contractor disputes before a civil action early, especially before a determination is made as to whether the action is a “complex case.” Once a civil action is filed, the Contractor risks having to report the judgment, settlement or award and face possible disciplinary actions by the Contractor’s State License Board.

It is imperative the Contractors immediately respond to and resolve complaints before any determination that the case is “complex.” If successfully resolved before the Court designates the civil action a “complex case”, Contractors can avoid the new reporting requirement.

Contractors should try to resolve issues as they arise and, if settlement is not possible prior to litigation, seek alternative dispute resolution well before a Court can decide whether the case is a “complex case.” Such strategies require competent legal counsel to navigate the intricacies of contractor-related claims. If you are a Contractor and an issue does arise make sure your attorney is on speed dial.

Attorney Not Bound by Client’s Confidentiality Agreement Signed “Approved as to Form And Content”

September 20, 2018 By Israel Samuels LLP Leave a Comment

If you want your attorney to be subject to the confidentiality and nondisclosure provisions of your settlement agreement you better get him or her to sign it, not as your attorney, but, as a party.

In Monster Energy v. Schecter, the California Fourth Appellate District Court ruled that an attorneys’ signature under the notation “Approved as to Form and Content” on a settlement agreement did not make the attorney a party to the settlement agreement. Therefore, the attorney was no bound by the confidentiality and nondisclosure provisions in the settlement agreement.

Attorney Bruce Schecter represented Richard Fournier and Wendy Crossland (the Fourniers) in an action against Monster Energy Company (Monster) and a related defendant when their 14-year-old daughter went into cardiac arrest and died in 2011 after consuming two Monster brand energy drinks.

In 2015, Schechter negotiated a settlement for the Fourniers that included a confidentiality provision purporting to bind him and his firm. However, Schechter signed the agreement as “Approved as to form and content.”

Schecter later gave an interview to the website Lawyersandsettlements.com, in which he had handled a recent case against Monster, involving a 14-year-old girl, and had settled it for “substantial dollars for the family.”

Lawyersandsettlements.com then published an online article that included Schechter’s statements.

Monster sued Schechter and his law firm in which it alleged Schecter had breached the terms of the settlement agreement. Schechter and his firm then filed a special motion to strike in which it argued, among other things, that Monster could not show a probability of prevailing on its breach of contract claim because Schecter and his firm were not parties to the settlement agreement.

The trial court granted the motion as to every cause of action other than breach of contact cause of action. Schecter and his firm appealed.

The Appellate Court held, when a settlement agreement provides that a plaintiff and his or her counsel agree to keep the terms of the agreement confidential – and the plaintiff’s counsel signs the agreement under the words “approved as to form and content,” the plaintiff’s counsel could not be liable to defendant for breach of the confidentiality provision. The Court reasoned:

The only reasonable construction of this wording is that they were signing solely in the capacity of attorneys who had reviewed the settlement agreement and had given their clients their professional approval to sign it. In our experience, this is the wording that the legal community customarily uses for this purpose.

The Court instructed that a way to avoid this issue is:

. . . to draft a settlement agreement that explicitly makes the attorneys parties to the agreement (even if only to the confidentiality provision) and explicitly requires them to sign as such.

An attorney’s signature under the words “approved as to form and content” does not impose any specific obligation on the attorney to maintain the confidentiality of the settlement. Thus, if you want to bind opposing counsel to the confidentiality provision of a settlement agreement, the confidentiality provision must be specifically drafted to encompass opposing counsel as well as the party represented by the opposing counsel. The settlement agreement should also include an express statement signed by opposing counsel agreeing to be bound by the settlement agreement’s confidentiality provision.