California Business Litigation Blog

Disregarding Company Separateness Cancels Loan

In Mountain Air Enterprises, LLC v. Sundowner Towers, LLC, decided on July 31, 2017, the California Supreme Court upheld a Marin County trial court decision, that the integration clause in an agreement between the plaintiff and the owners of a company, cancelled a completely separate loan agreement between the plaintiff and the company, when the company was determined to be the alter ego of those owners.

The integration clause is one of those boilerplate sections at the end of most written contracts, that the written contract supersedes and replaces all previous contracts, proposals, negotiations and communications. If the parties have other relationships and contracts, such a clause in a new agreement, will reach out and cancel or at least alter all of the parties' prior agreements, even if either of them might not have meant to. For example, when a commercial dispute between a landlord and a tenant or a lender and a borrower, is resolved by negotiations and the compromise is recorded in a settlement agreement, if an integration clause is included in the settlement agreement and the lease agreement or promissory note is not excluded from the integration clause, then it will cancel the lease or promissory note, destroying the landlord's right to the rent, the tenant's right to occupy the premises, or even the lender's right to collect the remainder of the amount owed.

Breaking Anonymity on the Internet

In ZL Technologies, Inc v. Does, issued July 19, 2017, the California Court of Appeal in San Francisco explained the test for deciding when a plaintiff's need to identify the human beings behind internet usernames outweighs those users' First Amendment right to remain anonymous. The U.S. and California Supreme Courts have not addressed this issue, yet.

The First Amendment protects anonymity, because it encourages free and frank expression and debate, without fear of reprisals. However, the First Amendment does not protect false defamatory statements. Society receives no benefit from lies. Therefore, the threshold issue was whether or not ZL had made a sufficient showing that the statements were false, and not just opinions, and caused harm to ZL, to justify forcing Glassdoor to break its promise to its users, of anonymity. Every false statement is not subject to court intervention. In order to be defamatory, the statements must not only be false, but also must cause real harm.

Employee versus Independent Contractor

Businesses are examining the option of treating the people who do the work for them as independent contractors and not employees. Independent contractors can be denied most of the protections the law provides to employees. These include, but are not limited to, withholding taxes, employer's share of Social Security contributions and State Disability Insurance premiums, overtime compensation, overtime premiums, breaks, reimbursement of expenses for business use of employees' vehicles or other tools and equipment, vacation pay, sick pay, and health benefits. Some businesses also feel less inhibited about terminating, reducing compensation and reducing hours of independent contractors than of employees, even with respect to at-will employees.

There are at least 14 factors a court, tax authority or employment-related government agency will look at to determine whether or not your workers are really independent contractors or are employees. Only one of those factors is the language in the contract which says that the worker is an independent contractor and not an employee. In the July 2017 case of Espejo v. The Copley Press, Inc., a class action by the men and women who deliver the San Diego Union, the Court of Appeal held that, "The label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced."

The principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired. 

Call Your Lawyer Fast

If you are injured by someone, your property is damaged, or someone breaches a contract with you, call a lawyer immediately. Even though the statute of limitation for personal injury and property damage is 3 years, and for breach of contract is 4 years, if one of the bad guys is a governmental agency, then you must file a claim with the government within 6 months for personal injury and property damage and within 1 year for breach of contract and other claims. If the claim is rejected in writing, then you have to file the lawsuit within only 6 months.

Own Rental Property as an LLC

You should own their commercial rental property in a limited liability company to protect your other assets and savings from claims and liability for the actions or omissions of tenants, contractors and others. All sophisticated and well-advised owners of real estate do.

We practice what we preach. All of my family's apartment buildings are owned by limited partnerships and limited liability companies. My law practice is a limited liability partnership. Before I had partners, the lawyers I employed all worked for my professional corporation.

Putting your rental property in a limited liability company is easy, fast, inexpensive, and provides a lot of protection.

Landlord Loses Over Definition of "Affiliates"

The dictionary definition of "affiliated" may be narrower than you think. It only covers companies who are related by ownership. It does not cover persons who have some interest in common. As will become apparent, the thing affiliates have in common is that someone is in control. If the accused person was not controlling the person who caused the injury, whether directly or indirectly, or at least under the common control of a person who controlled the bad actor, directly or indirectly, then that accused person was probably not an affiliate.

If you see the words "affiliate" or "affiliated" in a contract, ask what the author means. The two sides may need to further define it or delete it.

Buyers' Broker Loses $925,000.00 Commission!

In Westside Estate Agency, Inc. v Randall, released on December 1, 2016, the Los Angeles Court of Appeal held that a broker representing a buyer, who did not have a written representation or commission agreement with the buyer, could not collect a $925,000.00 commission when the client bought the property the broker found, even though the buyer had signed an offer naming the broker as the selling broker entitled to receive a share of the commission, because that offer had been rejected by the seller, and the same property was ultimately purchased with another broker for the buyer.

Supreme Court Rules On Dual Agency

This morning, November 21, 2016, in a unanimous decision, the California Supreme Court re-affirmed that when the real estate agent for the seller and the separate real estate agent for the buyer, both work for the same real estate brokerage company, then they both are fiduciaries for both the seller and the buyer. That means both agents must tell the buyer anything they know about the property which would tend to lower the price, and they must tell the seller anything they know about the buyer's situation which might tend to raise the price. The only exception is a statute which says that the agents cannot tell the buyer that the seller is willing to accept a lower price and cannot tell the seller that the buyer is willing to accept a higher price. 

Deed of Trust Sham Guaranty

If a borrower for a loan secured by commercial real property applies for the loan in the person's own name, the lender is likely to insist that the property and the loan be in the name of a Single-Purpose-Entity (SPE). The lender does this in order to qualify for expedited relief from the automatic stay in bankruptcy, if the borrower tries to slow down or stop foreclosure by filing for bankruptcy. The lender also usually requires a guaranty by the parent company or owner of the SPE. If the money recovered in a foreclosure does not satisfy the loan, almost always the lender cannot recover the shortage from the borrower, but it can recover it from the guarantor. An important exception and defense for the guarantor is available where the lender required the borrower to be an SPE as a subterfuge to circumvent the anti-deficiency laws which protect the borrower against such a claim for the shortage. The law refers to such a lending structure as a sham guaranty.

A recent Court of Appeal decision holds that the sham guaranty defense is not available if the borrower applied for the loan to be in the name of an SPE, but only available when the owner or parent of the SPE applied for the loan directly and was re-directed to the SPE-and-owner/parent-guaranty structure by the lender.