Newsletter Archives

The Letter of the Law: October 2014

IN THIS ISSUE:

EMPLOYMENT LAW: Cochran v. Schwan's Home Services, Inc.: Employer Must Reimburse Reasonable Percentage of Employee's Cell Phone Bill

REAL ESTATE LAW: Time for Another Residential Real Estate Boom as FNMA Relaxes Impact of Prior Foreclosure, Short Sale and Bankruptcy

BUSINESS LAW: Understanding Successor Liability

Cochran v. Schwan's Home Services, Inc.: Employer Must Reimburse Reasonable Percentage of Employee's Cell Phone Bill

By: Laura C. Hess and Sachiyo Miller

On August 12, 2014, the California Court of Appeal issued a sweeping opinion in Cochran v. Schwan's Home Services, Inc. (2014) 228 Cal.App.4th 1137. The Court discussed the issue of whether an employer must reimburse an employee for the reasonable expense of mandatory use of a personal cell phone for work purposes, or whether the reimbursement obligation is limited to situations in which the employee incurred an extra expense that he or she would not have otherwise incurred absent the job. The answer is that partial reimbursement is always required.

In this case, an employee filed an action on behalf of customer service managers who were not reimbursed for expenses pertaining to the work-related use of their personal cell phones. The trial court denied class certification due to the lack of commonality, and because a class action was not a superior method of litigating the claims. Thereafter, the California Court of Appeal held that employees must be reimbursed a reasonable portion of these bills for work-related use, and reversed the denial of class certification.

Labor Code § 2802 states that "an employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties...." The ruling noted that the purpose of this statute was to prevent employers from passing their operating expenses on to their employees.

The employer argued that many employees had unlimited plans and did not incur extra expenses due to work-related calls. In addition, the employer pointed out that many employees had phones paid for by third parties, such as family members. The Court rejected both of these arguments, reasoning that the issue was whether the business should be required to reimburse the expense. The Court held that, to show liability under Labor Code § 2802, "an employee need only show that he or she was required to use a personal cell phone to make work-related calls, and he or she was not reimbursed."

The answer was straightforward. To comply with Labor Code § 2802, employers must reimburse a reasonable percentage of the employee's cell phone bill if the employee has to use his or her phone for work purposes. The Court acknowledged that the issue of damages was more complicated. It therefore ordered the trial court to review how damages might be proven.

This ruling will affect the vast majority of employers. Most employers allow employees to use their own personal cell phones for work purposes. Some employers have Bring Your Own Device (BYOD) policies due to perceived productivity gains and cost savings.

In terms of other devices such as tablets, laptops, and home computers, etc., subsequent similar cases might be affected by this court's ruling. Although this ruling remains subject to further appeal, employers should review their cell phone policies to determine best practices related to expense reimbursements to avoid liability on this emerging issue.

Time for Another Residential Real Estate Boom as FNMA Relaxes Impact of Prior Foreclosure, Short Sale and Bankruptcy

By: Anna Greenstin Kudla

Since 2007, maneuvering through the murky waters of government-backed mortgage-finance policies seemed to be nearly impossible for borrowers and real estate professionals alike. Whether you were seeking a short sale from your lender, or you were a borrower forced to endure the painful experience of foreclosure, the end result to your credit was the same. Eventually, real estate professionals were turning away most borrowers with a foreclosure, bankruptcy, short sale, or deed-in-lieu on their credit record. Homeowners with disparaging credit were advised that foreclosures and short sales can stay on a credit report for up to seven years, making it difficult (if not impossible) to qualify for a reasonable loan. Conversely, struggling homeowners were watching their homes decrease in value while trying to avoid foreclosure or short-sale alternatives.

However, this all may be changing. As of July 29, 2014, the Federal National Mortgage Association (FNMA) decreased the waiting period for residential owners who had a previous bankruptcy, foreclosure, short sale or deed-in-lieu of foreclosure to purchase a new residence. Below is a comparison of previous vs. new waiting times for a borrower qualifying to purchase a new residence through FNMA:

  • Foreclosure: Previous: 7 years, Now: 3 years with "Extenuating Circumstances" (including loss/decrease of income). The floodgates will open for this exception.
  • Short Sale/Deed-in-Lieu/Charge-off: Previous: 4 years, Now 2 Years.
  • Bankruptcy (Ch. 7): Previous 4 years, Now 2 years.
  • Multiple Bankruptcies: Previous 5 years, Now 3 years from most recent Bankruptcy.

As indicated above, FNMA lender underwriting requirements are relaxing. Since FNMA is the largest purchaser of conforming residential loans, lenders across the board will follow FNMA's underwriting guidelines. It may take up to 6 months from FNMA's guideline announcement for originating lenders to change their underwriting standards. This would then result in an increase in the number of purchases of residential properties, and an increase in demand and sales. If that happens, the end result would be greater demand than supply, which means increased property values.

Within the next two years, the likely next step for FNMA will be to allow "stated income" or decreased documentation for income under certain circumstances. Another option for a FNMA underwriting change would be to offer new loan options that reduce the required monthly income threshold, such as (1) reduced LTV% (Loan-to-Value percentage) and (2) creative loan options, such as negative amortization loans (which were previously offered before the meltdown). Based on the strength of lending and real estate agent/broker lobbyists and the elapse of time since the last real estate crash (2007-10), additional relaxation may follow. Although the change in FNMA guidelines will be in small increments, when pieced together the result could be the same lending atmosphere that caused the 2007 real estate collapse. It is very possible that we are now embarking on a brand new real estate bubble. Not only will this affect homeowners, borrowers, brokers and real estate agents, but we will also see an increase in construction and development.

The real estate attorneys at Kring & Chung, LLP, some of whom also maintain real estate broker's licenses, are knowledgeable and ready to assist homeowners, agents and brokers with any and all real estate related legal matters in this rapidly evolving market. Whether you have easement issues or construction defects, are a borrower, lender, real estate professional or contractor, if you have any legal questions, please feel free to call Anna Greenstin Kudla.

Understanding Successor Liability

By: Richard C. Hatem

In acquiring some or all of the assets of another entity, companies must be careful to avoid being exposed to liability as a successor to the predecessor entity. Structuring the transaction as an asset purchase had been an effective method of protecting a buyer from a seller's liabilities. However, buying a business in this fashion is no longer a sure way of acquiring the assets free of all liabilities. The courts have now identified several exceptions which could lead to unintended liability.

When courts are tasked with determining the extent of successor liability, they will generally examine a multitude of factors. Each situation is different and the analysis is primarily fact-based. Some of the factors which will be examined include: (1) Is the new company a mere continuation of the previous entity. Courts will look to see if key officers or directors of the predecessor are involved in the new entity, and if the same name, location, or facilities are being used; 2) Did the seller dissolve or cease doing business as a result of or immediately after the sale; 3) were substantially all of the assets of the predecessor acquired, leaving only a corporate shell; and (4) is the successor company benefiting from the goodwill or reputation of the predecessor.

Finally, if the buyer entity continues the production of the predecessor's line of products it may be subject to the product line exception. In this instance, the buyer may assume strict liability for the same product line previously manufactured, if the right of action against the predecessor company is no longer available as a result of the purchase.

There are many strategies available to prospective buyers as they attempt to avoid successor liability. For example, buyers may request that sellers maintain their corporate existence post-closing and retainsurance policies covering pre-closing liabilities.

Additionally, the asset purchase agreement should expressly state that the buyer is not assuming any of seller's debts or liabilities. The Agreement should specifically identify known liabilities or ongoing litigation for which the seller is retaining sole liability. Finally, the agreement should contain an indemnification provision calling for the seller to defend and hold the buyer harmless in the event any post-closing liability arises.

The circumstances of each asset purchase are unique. Consulting experienced counsel during the structuring of any purchase can have a significant impact on lowering a buyer's potential exposure to the debts and liabilities of the seller.

NEWS AND EVENTS:

Melissa Bright Joins Kring & Chung's Las Vegas Office

Kring & Chung, LLP would like to welcome Melissa Bright to its Las Vegas, Nevada office. Bright graduated from the University of Nevada, Las Vegas where she majored in criminal justice and minored in sociology. She received her Juris Doctorate degree in 2011 from University of Nevada, Las Vegas, William S. Boyd School of Law. Bright's practice consists of employment law, personal injury and business litigation.

Sexual Harassment Training

Kring & Chung is reminding California employers with 50 or more employees to provide sexual harassment prevention training to supervisors and managers every two years. Employers must provide training to all employees who have "supervisory authority," which includes anyone who has independent authority to hire, transfer, demote, suspend, lay off, recall, discharge, assign, reward or discipline, or direct other employees. This could include employees that do not have a management title. New supervisors and managers must be trained within six months of being promoted to a supervisory position and, thereafter, every two years. Kring & Chung provides this interactive AB 1825 (Cal. Gov. Code § 12950.1) compliance training at a very competitive rate and attorneys are available to conduct this training on-site. If you have any questions or wish to schedule a training session contact Allyson Thompson, Esq.

Ms. Thompson can be reached at athompson@kringandchung.com or (949) 261-7700.

Kring & Chung 6th Annual Thanksgiving Food Drive - November 1, 2014 - November 14, 2014

In collaborative efforts with Families Forward, Kring & Chung will be preparing 20 food baskets for families to celebrate Thanksgiving. Each year, Families Forward holds a Thanksgiving-themed grocery distribution for local families in need. The weekend before Thanksgiving, local families come to Families Forward to receive all of the traditional Thanksgiving fixings to cook a warm, holiday meal. While parents pick up their baskets, their children participate in fun-filled activities such as arts and crafts, and face painting.

Families Forward relies on the generous support from the local community to fill the needs of the families they serve during this busy time of year. Last year they provided 700 families with food needed to celebrate Thanksgiving. Click here (http://www.families-forward.org) for more information about Families Forward.

Items needed include: 20-$20 gift cards for turkey or produce; 40 boxes of stuffing; 40 jars of gravy; 40 cans of cranberry sauce; 40 boxes of muffin or corn bread mix; 40 cans of sweet potatoes or yams; 40 cans of soup (1 broth & 1 cream); 80 cans of vegetables; 60 cans of fruit; 40 cans of evaporated milk; 40 cans of pumpkin or other pie filling; and 20 boxed pie crust. Items can be dropped off at our Irvine office located at 38 Corporate Park, Irvine, CA 92606.

Please contact Michelle Bennett at mbennett@kringandchung.comif you have any questions. Thank you for your support.

The Letter of the Law: September 2014

IN THIS ISSUE:

EMPLOYMENT LAW: California's Historic Adoption of Paid Sick Leave - AB 1522

EMPLOYMENT LAW: The California Supreme Court Adds Another Hurdle For Employees Seeking Class Certification

NEVADA LAW: Admissibility of Expert Testimony in Nevada

California's Historic Adoption of Paid Sick Leave - AB 1522

By: Allyson K. Thompson

On September 10, 2014, Governor Brown signed AB 1522 otherwise known as the Healthy Workplaces, Healthy Families Act of 2014.

Specifically, the Act amends Labor Code § 2810.5 to provide that an employee who, on or after July 1, 2015, works in California for 30-days or more within a year from the commencement of employment is entitled to paid sick days to be accrued at a rate of no less than one hour for every 30 hours worked. The employee is entitled to use accrued sick days after the 91st day of employment, typically the end of the Introductory Period. The Act authorizes an employer to limit an employee's use of paid sick days to 24 hours or 3 days in each year of employment. Failure to comply with the new law subjects an employer to administrative fines imposed by the Labor Commissioner and authorizes the Labor Commissioner or the Attorney General to recover civil penalties, which includes attorneys' fees and costs.

There are some limits on accrual. An employer will be allowed to cap total accrual at 48 hours or six days. Employers that already provide for paid sick leave per their Company policy that covers the new three paid sick days per year, will not have to provide an additional three days. Employers will be required to provide written notice to its employees of this new law.

Some employers are specifically excluded from this law, including in home supportive services, such as home health care givers. Also excluded are individuals employed by an air carrier as flight deck or cabin crew member, whom are covered under federal labor laws.

Governor Brown proclaimed in a written statement, "make no mistake, California is putting its workers first." California is one of only two states (Connecticut) that has adopted a paid sick leave law.

On the road to the Governor's desk, this bill's passage through the Assembly and Senate was not without its share of drama. According to the Bill Analysis, opponents to the bill argued while many employers voluntarily offer sick leave for full-time employees, expanding this mandate on all employer will create a huge fiscal burden on employers. "For example, many employers currently offer paid sick leave which accrues on a per month or per pay period basis. However, this bill requires them to completely change their existing policies in order to mirror the accrual rate proposed under this Bill." Opponents also argue that this creates new exposure for employers who do not comply, opening up the risk for litigation.

Supporters of the Bill include most unions and employee based associations. The author and proponents of the Bill pointed to studies which have found that providing sick days to workers saves money for businesses by reducing turnover, reducing the spread of illness in the workplace, and improving workers' morale and productivity.

Employers will need to anticipate the change which goes into effect on July 1, 2015 and plan accordingly. Planning should include being prepared to provide written notice to all employees. For those employers not already providing paid sick leave of at least three days a year should ensure that the Sick Leave policy in the Employee Handbook or Manual is revised.

The California Supreme Court Adds Another Hurdle for Employees Seeking Class Certification

By: Alis M. Moon

On May 29, 2014, the California Supreme Court issued its highly anticipated decision in Duran v. U.S. Bank Nat'l Assoc., (2014) 59 Cal.4th 1, making clear that before a court can certify a class action, it should require the plaintiff to have a trial plan addressing manageability of the class claims.

The class in Duran was a group of business banking officers that alleged that they were misclassified as exempt from overtime. According to the class of employees, they did not fall within the "outside sales" exemption, which requires that the employee spend more than half of his or her time on sales activities outside the office.

The trial court indicated that any manageability concerns could be alleviated by using a representative sample of testimony from 20 of the 260 class members along with the two named plaintiffs. U.S. Bank was not permitted to introduce evidence regarding the work habits of any other class member outside of this sample. As a result, based upon the representative testimony heard during trial, the trial court found that the entire class of business banking officers were misclassified as exempt.

On appeal, the Court of Appeal reversed the trial court's decision. Thereafter, the California Supreme Court unanimously affirmed the decision of the Court of Appeal, making it unequivocally clear that "in wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or a de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting." Duran, at 29. The Court went on to state that "trial courts must pay careful attention to manageability when deciding whether to certify a class action."

In its decision, the California Supreme Court heavily criticized the trial court's "seriously flawed" trial plan, stating that the court must preserve a defendant's due process rights by allowing them to have the opportunity to present their affirmative defenses, even if it these defenses hinge upon individualized issues. Further, the Court recognized that although it is not feasible to introduce testimony as to every class member, if individual issues do prove to be unmanageable, the class should not be certified.

What does this mean for employers?

The decision makes it more difficult for employees seeking class certification and prevents trial courts from simply rubber stamping class certification motions. Now, not only must the plaintiff show that common issues predominate, but they must also consider issues related to manageability. If individualized issues predominate, making the case unmanageable, it should not be certified.

Although the Court called this case an "exceedingly rare beast," it certainty brings the issue of manageability into the discussion of class certification, adding one more hurdle for plaintiffs. Nevertheless, Duran provides a clear standard for trial courts to following when deciding whether class certification should be granted.

This decision is certainly good news for employers, and is contrary to a recent trend of decisions in favor of plaintiffs seeking class certification.

If you have any questions concerning these developments, please do not hesitate to contact us.

Admissibility of Expert Testimony in Nevada

By: Justin R. Taruc

Nevada's rule on the admissibility of expert witness testimony is codified in Nevada Revised Statute 50.275, which states that a qualified expert witness may testify as to matters within that expert's scope of knowledge, so long as such testimony will assist the trier of fact to understand the evidence or determine a fact in issue. While the Nevada Legislature laid the foundation to allow expert testimony to be presented and granted judges the discretion as to whether to allow such testimony, it was not until Hallmark v. Eldridge (2008) 124 Nev. 492, that the Nevada Supreme Court gave further clarification on the factors judges were to consider when admitting expert testimony evidence.

In Hallmark, the Nevada Supreme Court clarified the three requirements that must be satisfied before an expert witness is able to testify pursuant to NRS 50.275. First, the witness must be qualified in an area of scientific, technical, or other specialized knowledge (known as the "qualification requirement"). Second, the witness's specialized knowledge must assist the trier of fact to understand the evidence or to determine a fact in issue (known as the "assistance requirement"). Finally, the witness's testimony must be limited to the matters within the scope of the witness's knowledge (known as the "limited scope requirement").

In order to meet the qualification requirement, courts are advised to consider the witness's formal schooling and academic degrees, as well as licensure, employment experience, practical experience, and specialized training. Notably, the Court warned that the enumerated factors were not an exhaustive list, and other factors may be considered. What these factors all have in common is their underlying attempt to show that the witness is competent to provide testimony in a specialized field. Where the witness is not qualified, the witness should not be able to testify.

Likewise, in order to meet the assistance requirement, the Court determined that an expert's testimony will assist the trier of fact only when it is relevant and the product of reliable methodology, considering factors including whether the opinion is within a recognized field of expertise, is testable and has been tested, published and subject to peer review, generally accepted in the scientific community, and based more on particularized facts rather than assumption, conjecture, or generalization. Lastly, to meet the requisite limited scope requirement, the witness must only testify as to matters which are within the scope of his specialized knowledge.

While NRS 50.275 tracks the Federal Rule of Evidence ("FRE") regarding admissibility of expert testimony, namely FRE Rule 702, Hallmark and its progeny markedly differ from those holdings handed down in federal court regarding the rigid application of the factors to be considered when determining whether a witness is to be qualified as an expert. Particularly, while the federal court rulings have focused on a stricter application of the factors as enumerated in Daubert v. Merrell Dow Pharmaceuticals, Inc. (1993) 509 U.S. 579, essentially the Federal Court's equal to Nevada Supreme Court's Hallmark, the Nevada Supreme Court struck down a strict application of the Hallmark factors, and has opted to allow more judicial freedom in determining whether to allow a witness to testify as an expert. Accordingly, there is usually room to argue that Plaintiff's proposed expert witness should not be deemed an expert witness, and Hallmark provides the springboard for such an argument.

NEWS AND EVENTS:

Three Partners Named "2014 Top Attorney" by OC Metro Magazine

Congratulations to Managing Partners, Kyle D. Kring and Kenneth C. Chung, and Partner, Laura C. Hess, on being named "Top Attorneys" in Orange County for 2014. Kring was recognized for his work handling construction matters, while Chung and Hess were recognized for their work handling employment and management matters. OC Metro has partnered with AVVO.com to spotlight the leading attorneys in Orange County. This is the second consecutive year Kring has received this distinction and the third year for Chung and Hess. The full article can be seen in the September 2014 issue of the magazine, or at www.ocmetro.com.

California HR Conference 2014

On August 27, 2014, Kyle Kring and Laura Hess presented So You Received a Sexual Harassment Complaint, What Not to Do, a Trial Lawyer's Perspective to approximately one hundred attendees of the 2014 California HR Conference which took place at the Anaheim Convention Center. "The attendees were savvy human resources professionals looking for more than just the basics on how to conduct sexual harassment investigations," said Laura Hess. "We talked about what the HR staff can do at the investigation level that will really help the lawyers trying the case. Kyle and I have tried many sexual harassment cases, so we shared what juries care about and what they do not." We would like to thank those that attended the informative workshop and look forward to speaking at the conference in the future.

Our employment law group represents employers in all aspects of labor and employment law including advising and counseling to prevent costly litigation.

Andrew Yun Joins Kring & Chung's Irvine, CA Office

Kring & Chung would like to welcome Andrew Yun to the Irvine, CA office. Yun's practice focuses mainly on business and transactional matters. Yun provides an extensive range of services to his business clients including drafting and negotiating nondisclosure agreements, operational agreements, employment and consulting agreements, distributorship and licensing contracts, commercial leases, and all forms of mergers and acquisitions and strategic alliance arrangements. After graduating from Loyola Law School, Yun became well-versed in bankruptcy law while working as an extern and clerk.

Grant Mullen Joins Kring & Chung's Irvine, CA Office

Kring & Chung is pleased to announce that Grant Mullen has joined its Irvine, CA office. Mullen's practice areas include business litigation, business transactions, construction, employment law, insurance, personal injury, products liability, real estate and trucking, crane & rigging. Mullen is a member of American Board of Trial Advocates (ABOTA), a national association of experienced trial attorneys and judges that requires members to be responsible for elevating the standards of integrity, honor, ethics, civility and courtesy in the legal profession.

SCORE Workshop - Avoiding Employment Related Litigation

Allyson Thompson of our Irvine, CA office will be presenting a workshop on how to avoid employment related litigation on October 20, 2014 from 6:00 PM to 9:00 PM. This workshop covers the potential pitfalls of employment issues and how these mistakes can lead to costly litigation. Topics include the hiring process and avoiding discrimination; employee handbooks; wage and hour issues; overtime and meal/rest breaks; handling internal complaints; discipline and performance reviews; independent contractor vs. employee; and wrongful termination. A question-and-answer session will follow her presentation. The seminar will take place at Los Alamitos Branch - OC Public Library, 12700 Montecito, Seal Beach, 90740. SCORE is a nonprofit organization dedicated to helping small businesses grow and achieve their goals through education and mentoring.

The Letter of The Law: August 2014

IN THIS ISSUE:

EMPLOYMENT LAW: Breaking News: California Supreme Court Rules in Favor of Employers in Regards to Class Action Waivers, But Not in Regards to PAGA Claims

EMPLOYMENT LAW: Privacy Rights and the Public Records Act

EMPLOYMENT LAW: No Duty to Reasonably Accommodate Employees for Medical Marijuana Use

CONSTRUCTION LAW: Design Professional Liability

NEVADA LAW: Defending Against Requests for Taking Depositions of Apex Witnesses

Breaking News: California Supreme Court Rules in Favor of Employers in Regards to Class Action Waivers, But Not in Regards to PAGA Claims

By: Allyson Thompson

On June 23, 2014, the California Supreme Court issued a long awaited opinion in Iskanian v. CLS Transportation Los Angeles, LLC (2014 WL 2808963). Long awaited is an understatement, as the underlying case was filed in 2006. The issue of whether class action waivers in arbitration agreements are enforceable has been ruled on differently by several courts over the past several years, based on reliance on Gentry v. Superior Court (2007) 42 Cal.4th 443. In Gentry, the California Supreme Court previously ruled that class action waivers in arbitration agreements were unconscionable and against public policy, and were not preempted by the Federal Arbitration Act (FAA).

Court's Rulings

The Iskanian Court took into consideration the AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740 case in reaching its decision. The United States Supreme Court in Concepcion held that even if a class waiver is exculpatory in a particular case, it is nonetheless preempted by the FAA. In the recent Iskanian ruling, the California Supreme Court ruled that under the logic of Conception, the FAA does preempt Gentry's rule that restricts enforcement of class action waivers. This is a big win for employers.

Another issue that the Court addressed was whether class action waivers were unlawful under the National Labor Relations Act (NLRA). Plaintiff Iskanian contended that even if the FAA preempts Gentry, the class action waiver in his case is invalid under the NLRA. Iskanian adopted the position of the National Labor Relations Board (Board) in D.R. Horton Inc. & Cuda (2012) 357 NLRB No. 184 (2012 WL 36274), wherein the NLRA prohibited contracts that compel employees to waive their right to participate in class proceedings to resolve wage claims.

The Iskanian Court rejected this argument and ruled that the class action waiver at issue in the case was not unlawful under the NLRA in light of the FAA's "liberal federal policy favoring arbitration'" (citing to Concepcion, supra, 131 S.Ct. at p. 1745). Sections 7 and 8 the NLRA do not represent "a contrary congressional command"' overriding the FAA's mandate, (citing CompuCredit v. Greenwood (2012) 132 S.Ct. 665.) This was also a win for employers.

There was one win for employees. The Court held that employees' right to 'representative actions' under the Private Attorney General Act (PAGA) may not be waived, and the FAA does not preempt California law as to the unenforceability of PAGA waivers. Plaintiff Iskanian contended that the PAGA, which authorizes an aggrieved employee to file a claim "on behalf of himself or herself and other current or former employees" ( Labor Code§ 2699, subd. (a)), does not permit an employee to file an individual claim. The Court agreed and concluded that where an employment agreement compels the waiver of representative claims under the PAGA, it is contrary to public policy and unenforceable as a matter of state law.

The Court also ruled that PAGA is not preempted by the FAA. "Simply put, a PAGA claim lies outside the FAA's coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state, which alleges directly or through its agents - either the Labor and Workforce Development Agency or aggrieved employees - that the employer has violated the Labor Code."

What Does The Ruling Mean for Employers?

The murky aspect of the ruling involves to how courts and arbitrators will handle claims alleging both class and PAGA allegations. The Iskanian Court did remand the case back to the trial court, so hopefully we will get some insight as to how that court will rule. We anticipate that the trial court will likely rule for separating out the claims, allowing the non-PAGA claims to be arbitrated and the PAGA claims to be resolved either as a class action or in some other forum.

The ruling was also a coup for the enforceability of arbitration agreements in the employment context. In light of the historical legal turmoil regarding enforceability of class action waivers in arbitration agreements, employers can now breathe a sigh of relief that these particular clauses will be enforceable. Employers should still ensure that their arbitration agreements meet the requirements sets forth in the hallmark case Armendariz v. Foundation Health Psychcare Services (2000) 24 Cal.4th 83, to ensure that the terms are neither substantively or procedurally unconscionable.

Feel free to contact Allyson Thompson if you have any questions about the enforceability of your arbitration agreement.

Privacy Rights and the Public Records Act

By: Kyle D. Kring

Competing interests of transparency in government and elected officials and government employees' right to privacy has stirred up a debate throughout California. A recent California appellate court ruled that government officials and employees' private communications sent on personal devices and not stored on public servers are not subject to the California Public Records Act (CPRA). City of San Jose v. Superior Court (2014) 169 Cal. Rptr.3d 840. This case addresses the important debate encompassing transparency in public agencies versus a public employee's right to privacy. The scope of this issue is evident as the California Supreme Court has recently decided to step in and settle the heated debate.

This issue has gained momentum with the dramatic increase in the ability of a person to store personal information and data on personal devices over the past few years. While the CPRA allows for transparency into public records, there must be a line drawn to respect and guarantee the privacy of these public individuals and define what exactly shall be considered "public records". Currently, the definition of public records remains vague and provides that public records are "any writing containing information related to the conduct of the public's business prepared, owned, used, or retained by any state or local agency regardless of physical form or characteristics." Gov. Code § 6252(e).

Public officials and employees are not the only ones to be affected by the high court's upcoming ruling. The debate parallels similar issues within the private workplace and will likely have an effect on future rulings related to the handling of private employee personal communications.

As California remains one of the enduring states in the diminishing pool of those yet to develop clear rules or fundamental case law on the issue, the Supreme Court's ruling will be vital in settling the debate and creating a stronger sense of what is protected and unprotected by the CPRA. The Appellate Court's decision essentially allows public officials and employees to store and arguably "hide" public documents on personal devices or accounts. A practical yet somewhat unrealistic goal would be to have a system where personal devices were prohibited from having any public information stored on them, and not subject to the CPRA. The California Supreme Court will presumably draw the line and set a much needed precedent on the debate by clarifying whether public documents "possessed, used, owned, or retained" on personal devices or accounts are subject to disclosure under the CPRA and included in the definition of "public records". We will keep you posted on this very interesting privacy case.

No Duty to Reasonably Accommodate Employees for Medical Marijuana Use

By: Kyle D. Kring and Grace Pak

The increased decriminalization of marijuana use raises questions of whether employers are required to reasonably accommodate employees who use it for medical reasons, and whether they can terminate the employee for failing a drug test. As prudent employers, it is always a good idea to contemplate how the change in law will affect the workplace. Although sixteen states have legalized medical marijuana, along with two states that legalized recreational use, marijuana is nonetheless an illegal drug under federal law. Consequently, employers are not required to accommodate the use of marijuana, especially during work hours or on the employer's property.

In California, an employee may argue that it is unlawful for an employer to refuse to employ or discharge a person from employment because of a physical disability or medical condition, and that an employer is required to engage in a good faith interactive process to determine reasonable accommodations for disabled employees under the California Fair Employment and Housing Act (FEHA). Furthermore, an employee is likely to claim that FEHA works together with the California Compassionate Use Act (Proposition 215) to shield him/her from discrimination in the work place.

However, the California Supreme Court in Ross v. Raging Wire (2008) 42 Cal.4th 920 held that FEHA does not require employers to accommodate the use of marijuana and that the Compassionate Use Act does not apply in the employment context. The employee in Ross was prescribed medical marijuana because he suffered from strain and muscle spasms as a result of injuries. When the employee was offered a job, he was required to take a drug test which tested positive for tetrahydrocannabinol (THC). The employee had shown his physician's recommendation for marijuana and explained it was for medical purposes.

The Ross Court reasoned that the Compassionate Use Act was enacted in a narrow sense to protect physicians and users from criminal liability. The Court further reasoned that a state law cannot completely legalize marijuana for medical purposes because the drug remains illegal under federal law. As a result, an employer may terminate an employee for failing its drug test, even with a prescription for marijuana use.

The recurring theme in California and other states is, in the absence of laws that specifically allow the lawful use of marijuana in places of employment, employers are not required to accommodate an employee's use of marijuana during work hours or on work premises even with medical prescriptions. If an employer has a drug free workplace policy, hiring one person who has a prescription for medical marijuana and then denying another for the same type of position could open the employer for other discrimination-related litigation. It is always prudent to be consistent across the board for all hires.

Design Professional Liability

By: Brendan J. Coughlin

The California Supreme Court has agreed to review a case greatly affecting construction defect litigation. All working contractors and subcontractors know how difficult it can be to force design professionals to be involved in construction litigation, even when their work is clearly at issue.

From the beginning of a case, established law tips in the favor of design architects and engineers. These are the very persons and firms that make the initial architectural, structural, and landscaping determinations that guide all subsequent work on a project. Simply suing such firms requires an expert's Certificate of Merit, unlike other parties, confirming that the claim is justified.

The California Supreme Court has granted review in Beacon Residential Community Association v. Skidmore, Owings and Merrill LLP (2012) 211 Cal.App.4th 1301. In this case, an appellate court reversed the holding of the trial court that two architectural firms could not be sued by a homeowner's association for negligence and violation of residential construction standards contained in California's Right to Repair Act of 2002, also known as SB 800. The basis for the trial court's decision was the fact that the homeowner's association and homeowners did not contract directly with the architects. Generally, without privity of contract, residential Plaintiffs cannot sue planners for negligent design.

However, in reversing the trial court, the Court of Appeal found that the language and legislative intent of the Right to Repair Act imposed potential third party liability upon design professionals. In other words, SB 800 itself supports possible negligence liability on design engineers and architects to owners.

Active construction contractors and subcontractors can see the potential impact of this development. For now, all await the California Supreme Court's decision. The architectural firms petitioned the Supreme Court for review, arguing that expanded liability for designers and planners should not become the law of our state.

Defending Against Requests for Taking Depositions of Apex Witnesses

By: Merielle Enriquez

An "Apex Witness" is the person that sits at the highest level of a large organization, such as the Chairman of the Board, President of the Company, or Chief Executive Order. Most courts throughout the country recognize that deposition notices directed at an official at the apex of a company creates tremendous potential for abuse or harassment. Celerity, Inc. v. Ultra Cleaning Holding, Inc., 2007 WL 205067 (N.D. Cal. 2007). As such, it is prudent to file a Motion for Protective Order to prevent the deposition of the apex witness, especially when it is clear that there are other less intrusive means of obtaining the same discovery.

A generalized claim that a "corporate president has ultimate responsibility for all corporate decisions or has knowledge of corporate policy is insufficient to establish that the corporate president has unique or superior knowledge of discoverable information." In re El Paso Healthcare System, 969 S.W.2d 68, 74 (Tex. Ct. App. 1998). The Court in AMR Corp. v. Enlow, 926 S.W. 2d 640, 644 (Tex. App. 1996) has held "testimony that a chairman of the board would have ultimate authority over any policy by virtue of his position is nothing more than a simply recognition that the highest-ranking corporate officer of a corporation has ultimate responsibility for all corporate decisions."

When determining whether to allow an apex deposition, the Court should consider the following:

(1) Whether or not the high-level deponent has unique, first-hand, non-repetitive knowledge of the facts at issue in the case; and

(2) Whether the party seeking the deposition has exhausted other less intrusive discovery methods, such as Interrogatories and Depositions of lower level employees.

Affinity Labs of Texas v. Apple, Inc., 2011 WL 205067 (N.D. Cal. 2011).

In our practice, Kring & Chung has successfully suppressed requests for depositions of apex level employees by the filing of a Motion for Protective Order. This shifts the burden to the requesting party to demonstrate to the Court why the deposition of the high-level official is necessary, that the high-level individual has unique knowledge, and why the evidence cannot be obtained through less intrusive means. One added benefit is that if the requesting party is forced to oppose a Motion for Protective Order, the motivations for the deposition will be revealed.

In defense of the Motion, reasonable alternatives should be provided such as offering the deposition of lower level employees who may actually have more knowledge of the facts and issues at hand. Offering a reasonable solution should work to increase the odds that the Court will grant the Protective Order.

NEWS AND EVENTS:

Michelle Philo Chairs the Social Committee for the YLD

Michelle Philo is featured on the cover of the Orange County Lawyer magazine's July 2014 issue for her involvement in the Orange County Bar Association's Young Lawyers Division ("YLD"). The YLD allows new attorneys up to their fifth year of practice to come together to exchange ideas, grow professionally, and also give back to the community.

As the Social Chair, Philo believes the relationships built through social networking as young lawyers develop into professional referral sources. Philo and her committee plan and execute social events including Day at the Races in Del Mar, happy hour mixers and the YLD annual holiday party.

Alis M. Moon Joins Kring & Chung's Irvine, CA Office

Kring & Chung is pleased to announce that Alis Moon has joined its Irvine, CA office as an Associate attorney. Moon specializes in the areas of employment law and business litigation. She represents and advises employers in labor and employment matters including unpaid wages, misclassification, wrongful termination and discrimination to name a few. In addition, she represents individuals and classes of employees in matters relating to wage and hour laws.

2014 California HR Conference - Anaheim Convention Center

Kyle Kring and Laura Hess will present "So You Received a Sexual Harassment Complaint, What Not to Do, a Trial Lawyer's Perspective," on Wednesday, August 27, 2014 from 8:00 AM to 9:15 AM at the 2014 California HR Conference taking place at the Anaheim Convention Center. The workshop will include discussions on failing to implement appropriate policies and procedures prior to the alleged incident, failing to perform mandatory sexual harassment training, conducting a timely investigation and documenting the investigation, retaliating against the victim and many other topics that will assist you when dealing with a sexual harassment complaint.

Our attorneys have represented employers in all aspects of employment law. They defend employers against claims for sexual harassment, wrongful termination, retaliation, disability and age discrimination, failure to accommodate whistleblower, gender discrimination, misclassification and unpaid wages.

SCORE Workshop - Common Legal Questions for Start-up Businesses

Michelle Philo of our Irvine, CA office will be conducting a workshop on August 28, 2014 from 6:00 AM to 9:00 PM at the Digital Media Center located at 1300 S. Bristol, Santa Ana, 92704 regarding common legal questions for start-up businesses. New business owners often have questions regarding the formalities required to get their business off the ground. This workshop assists the small business owner in determining the best legal structure for their business. In addition, it will address the common types of contracts small business owners encounter and provides attendees with tips for entering contracts. Finally, the workshop will also touch on protecting the intellectual property of a small business. There is no cost for this workshop.

The Letter of The Law: June 2014

IN THIS ISSUE:

EMPLOYMENT LAW: She Is An At-Will Employee - I Can Fire Her, Right?

EMPLOYMENT LAW: Beware: A Snazzy Job Title Does Not Automatically Make An Employee Exempt

NEVADA LAW: Evidence Preservation, Spoliation, and the Potential for Adverse Inferences

She Is An At-Will Employee - I Can Fire Her, Right?

By: Laura C. Hess

This is a situation we see fairly often. The employer has an employee that it wants to terminate. The employer says, "I don't have to have a reason. I can fire her any time, she's an at-will employee!" What could possibly go wrong?

Well, a lot of things. It is true that the rule in California is that employment relationships are presumed to be at-will. This means that, generally speaking, the employee can quit at any time, with or without a reason, and the employer can terminate the employee at any time, with or without a reason (as long as that reason is not prohibited by law.)

However, what do you think is going to be happen if, for instance, the employee has been working for the same company for 20 years and suddenly is let go? The employee is going to be upset and angry about the fact that she has dedicated a substantial portion of her working career to one company, only to be handed a pink slip one day. More likely than not, that person is going to go talk to a lawyer.

Same thing with an employee that has, for instance, complained about sexual harassment within the last 6 months. Chances are the employee will claim that she was fired for pretextual reasons, and that the real reason she was terminated was because she reported sexual harassment.

Here is the bottom line. Any time you are considering letting go one of the following types of employees, that is when you should talk to your in-house legal department or outside lawyer before you take any action:

  • "Employees from hell"
    • someone who has a bad attitude and/or has been particularly difficult for co-workers to work with;
    • someone who seems to be trying to "poison the well" against the company in online comments or with co-workers, customers, or vendors.
  • "Red flag" employees
    • someone who uses legal terminology that indicates he or she may have already consulted with a lawyer (i.e., "This is a hostile work environment;")
    • someone who appears to be taking particular care to document communications with Human Resources or upper management;
    • someone who refuses to sign requested documentation, i.e., write-ups or negative performance evaluations.
  • Someone who is in a "protected class" - it is illegal under both California state and federal law for employers to terminate employees on the basis of their protected class status. Protected classes include, for example:
    • gender;
    • race;
    • age (40 or over);
    • disability;
    • pregnancy; and
    • religion.

This list is by no means exhaustive. In our practice, these are just some of the common protected classes that we see plaintiffs claim they fall under when they sue for wrongful termination or discrimination. The list of protected classes under California law is far lengthier than under federal law, and includes things such as marital status, sexual orientation, and military or veteran status.

If your in-house corporate counsel or your outside lawyer does not practice in California, you should definitely consult with a California lawyer who specializes in employment law before terminating any of the above employees. California leads the nation in terms of providing expansive legal rights to employees. Employment laws in California are many and complex. There are more employment lawsuits filed in California than in any other state in the country. In short, unless you know what you are doing in California, it is a virtual legal minefield for employers.

Beware: A Snazzy Job Title Does Not Automatically Make an Employee Exempt

By: Allyson K. Thompson

Many unwary employers fall into the trap of giving an employee the title of "Manager" or "Supervisor" only to find out that in fact the employee was misclassified. One of the most common mistakes an employer can make is to assume that a job title alone makes an employee "exempt" versus being "non-exempt."

Amongst other factors, a truly exempt employee is one that is primarily engaged in exempt work, 51% of the workweek. To determine whether an employee is primarily engaged in exempt work, the employer needs to analyze the actual work performed by the employee during the workweek. Most employees who are classified as exempt customarily and regularly exercise discretion and independent judgment in their jobs. Often times employers have Office Managers or Supervisors that do some exempt work, but also do non-exempt work during the workweek. That is how serious problems can arise.

In a recent case, Heyen v. Safeway, Inc. (2013) 216 Cal.App 4th 795, an multi-tasking assistant store manager sued Safeway for wage and hour violations stemming from a misclassification as an exempt employee.

Heyen worked for Safeway as an assistant store manager. The jury found that Safeway improperly classified her, and the Court entered judgment in her favor. The Court of Appeal affirmed, holding that the trial court properly found that time during which Heyen was performing both exempt and non-exempt tasks - for example, when she was both running a cash register and simultaneously managing the front end of the store, including instructing and coaching other employees - should count as non-exempt time for purposes of determining whether she was "primarily engaged in duties which meet the test of the exemption." The Court drew four general principles from the applicable Wage Order and the federal regulations incorporated therein:

1) Work of the same kind performed by a supervisor's non-exempt employees generally is "non-exempt," even when that work is performed by the supervisor. If such work takes up a large part of a supervisor's time, the supervisor likely is a "non-exempt" employee.

2) The regulations do not recognize "hybrid" activities-i.e., activities that have both "exempt" and "non-exempt" aspects. Rather, the regulations require that each discrete task be separately classified as either "exempt" or "non-exempt."

3) Identical tasks may be "exempt" or "non-exempt" based on the purpose they serve within the organization or department. Understanding the manager's purpose in engaging in such tasks, or a task's role in the work of the organization, is critical to the task's proper categorization. A task performed because it is "helpful in supervising the employees or contributes to the smooth functioning of the department" is exempt, even though the identical task performed for a different, non-managerial reason would be non-exempt.

4) In a large retail establishment where the replenishing of stocks of merchandise on the sales floor "is customarily assigned to a non-exempt employee, the performance of such work by the manager or buyer of the department is non-exempt." Similarly, in such a large retail establishment, a manager's participation in making sales to customers is non-exempt, unless the sales are made for "supervisory training or demonstration purposes."

The take-away from this important case is that employers must look at each individual manager or supervisor's job duties on a case-by-case basis. One of the best tools to undertake this analysis is creation of a Job Description for the role. Make sure all of the job duties are outlined in the Job Description. If the majority of the tasks appear to be non-exempt duties, then err on the side of caution and ensure that the employee is classified as non-exempt.

If you have any questions about classification of exempt employees, feel free to call or email Allyson K. Thompson, whose specializes in this type of analysis.

Evidence Preservation, Spoliation, and the Potential for Adverse Inferences

By: Russell D. Collings

The Nevada Supreme Court has held that a litigant is under a duty to preserve evidence which it knows or reasonably should know is relevant to an action, even where an action has not been commenced and there is only a potential for litigation. Fire Insurance Exchange v. Zenith Radio, Corp., 103 Nev. 648 (1987). In fact, sanctions under Nevada Rule of Civil Procedure 37(b) may be imposed for willful suppression or destruction of evidence which is clearly relevant, whether or not the party has been expressly ordered to produce the evidence. See Bass-Davis v. Davis, 122 Nev. 442 (2006). The entry of liability against a party destroying evidence is also an appropriate sanction under NRCP 37. Fire Insurance Exchange v. Zenith Radio, Corp., 103 Nev. at 648.

Spoliation of evidence occurs in a prospective civil action when evidence pertinent to the action is destroyed. A party who destroys evidence interferes with another party's ability to defend a lawsuit and right to discovery. Where a party spoils such evidence, sanctions should be imposed and the non-spoliating party may even be entitled to attorney fees. Stubli v. Bid D. Int'l Trucks, Inc., 107 Nev. 309 (1991).

The Nevada Supreme Court established the following eight factors to determine if such a sanctions are appropriate for spoliation of evidence: 1) the degree of willfulness of the offending party; 2) the extent to which the non-offending party would be prejudiced by a lesser sanction; 3) the severity of the sanction relative to the severity of abusive conduct; 4) whether evidence has been irreparably lost; 5) the feasibility and fairness of alternative and less severe sanctions such as an order deeming facts relating to improperly lost or destroyed evidence to be admitted by the offending party; 6) the policy favoring adjudication on the merits; 7) whether sanctions unfairly operate to penalize a party for the misconduct of his or her attorney; and 8) the need to deter both the parties and future litigants from similar abuses. Young v. Johnny Ribeiro Building, 106 Nev. 88 (1990).

In addition to the above sanctions, when relevant evidence is destroyed, the trier of fact may draw an adverse inference from the destruction. Reingold v. Wet'n Wild Nev., Inc., 113 Nev. 967 (1997), overruled on other grounds. The Ninth Circuit has noted that "simple notice of 'potential relevance to the litigation'" is sufficient when entering an adverse inference. Glover v. BIC Corp., 6 F.3d 1318 (9th Cir. 1993).

A party seeking the presumption has the burden to demonstrate that the evidence was destroyed with the intent to harm. Bass-Davis, 122 Nev. 442. When such evidence is produced, the presumption that the evidence was adverse applies, and the burden of proof shifts to the party who destroyed the evidence. To rebut the presumption, the destroying party must then prove, by a preponderance of the evidence, that the destroyed evidence was not unfavorable. Id. at 448.

Due to the extreme sanctions and consequences that follow negligently or willfully destroying evidence that could be used during litigation, it is imperative for all companies to consult with an attorney prior to destroying or disposing of any potential evidence.

NEWS AND EVENTS:

Allyson K. Thompson Selected to the 2014 Southern California Rising Stars List

Kring & Chung, LLP is proud to announce that Allyson K. Thompson has been recognized by Super Lawyers as a 2014 Rising Star. This is the second consecutive year that Ms. Thompson has been awarded this honor. Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have reached a high degree of peer recognition and professional achievement. Each year, no more than 2.5 percent of the lawyers in the state are selected to receive this honor.

Ms. Thompson's practice consists of employment issues, including sexual harassment, discrimination, wage and hour litigation, and advises employers on how to avoid employment related litigation. She represents individuals and small and large businesses in all aspects of civil litigation. This includes representing employees and defending employers, in lawsuits, class actions, mediations, arbitrations and Labor Commissioner hearings. Ms. Thompson also provides counsel to businesses to avoid litigation, including drafting policies, employee handbooks, and providing sexual harassment training.

Ms. Thompson is currently serving as Vice President of the Orange County Women Lawyers Association and formerly served as the Secretary and Board Member.

Merielle Enriquez Nominated as One of Nevada's Top Attorneys

Kring & Chung, LLP is pleased to announce that Partner Merielle Enriquez has been named as one of Nevada Business Magazine's Legal Elite for 2014. Legal Elite is an annual list that highlights the top attorneys in Nevada. The list of Nevada attorneys is selected through nominations received from their peers. There were 6,454 attorneys nominated for this designation and only 300 were selected and featured in Nevada Business Magazine.

Ms. Enrique joined the firm in June of 2009. Her practice is focused upon the defense of our clients and carriers in high exposure, complex general liability matters, as well as family law and business litigation cases.

2014 California HR Conference - Anaheim Convention Center

Kyle Kring and Laura Hess will present "So You Received a Sexual Harassment Complaint, What Not to Do, a Trial Lawyer's Perspective," at the 2014 California HR Conference taking place at the Anaheim Convention Center August 25, 2014 through August 27, 2014.

The workshop will include discussions on failing to implement appropriate policies and procedures prior to the alleged incident, failing to perform mandatory sexual harassment training, conducting a timely investigation and documenting the investigation, retaliating against the victim and many other topics that will assist you when dealing with a sexual harassment complaint.

Our attorneys have represented employers in all aspects of employment law. They defend employers against claims for sexual harassment, wrongful termination, retaliation, disability and age discrimination, failure to accommodate whistleblower, gender discrimination, misclassification and unpaid wages.

Registration is Open for the 2014 Kring & Chung Newport Beach Triathlon

Registration is open for the Kring & Chung Newport Beach Triathlon, which will take place on Sunday, October 5, 2014 in the Back Bay of Newport Beach, California. Start time for 1st stream is 7:00 a.m. Start time for 1st youth wave is approximately 8:00 a.m. The course includes a 1/2 mile swim, 15 mile cycle, and a three mile run.

Visit www.newportbeachtriathlon.com for more information and to register.

The Letter of The Law: May 2014

IN THIS ISSUE:

IMMIGRATION LAW: The U Visa: Immigration Protection for Those Suffering Serious Crimes

FAMILY LAW: What is "FLARPL"?

FAMILY LAW: Never Lose Sight of the Most Important Aspect of Your Divorce: Your Children

The U Visa: Immigration Protection for Those Suffering Serious Crimes

By: Justin Taruc

The U Visa, specifically provided to aliens who are victims of certain serious crimes, is one of the more recent changes in the United States' immigration scheme. This unique visa was enacted by Congress to serve two important purposes: to enhance law enforcement's ability to investigate and prosecute cases of serious crime; and to offer immigration protection to the victims of such crimes who may otherwise be fearful of assisting law enforcement. Although the United States Citizenship and Immigration Service (USCIS) started rolling out the U Visa in 2009, many aliens and undocumented immigrants are unaware of this potential source of immigration relief.

The Immigration and Nationality Act (INA) Section 101(a)(15)(U) lays out the basic requirements that an alien must meet in order to be eligible for a U Visa. First, he or she must have suffered substantial physical or mental abuse from an act deemed to be in violation of United States law, or that occurred in the United States or one of its territories. Crimes that make such a person eligible for a U Visa include rape, domestic violence, sexual assault, kidnapping, and stalking. Second, he or she must possess information concerning the criminal activity. Third, he or she must be helpful, is being helpful, or is likely to be helpful to law enforcement officials in the investigation or prosecution of the criminal activity. Importantly, this does not mean that the perpetrator of the underlying crime be prosecuted or brought to trial. Rather, such a person only need prove that they have been or will be helpful to law enforcement in the investigation or prosecution of the crime.

The U Visa provides several benefits. Although the U Visa is listed as a nonimmigrant visa, it potentially provides a path to United States Citizenship. The U Visa is valid for four years, but the alien is eligible to apply for legal permanent resident status after three years. During this time, he or she is permitted to lawfully live, work, and provide for their family in the United States. In addition, unlike several of the other nonimmigrant visas, the U Visa regulations allow "derivative" status for the U Visa applicant. Importantly, derivative status allows parents and siblings under the age of 18, if the U Visa applicant is under the age of 21, to also obtain legal immigration status as derivatives under the applicant's visa application. Where the U Visa applicant is married and has minor children, the spouse and minor children of the U Visa applicant will also be eligible for U Visa status. Similar to the U Visa applicant, those family members who are granted derivative status are allowed to live and work in the United States lawfully.

Notably, USCIS has enacted a restriction that only 10,000 U Visas will be approved yearly. Once this limit has been reached, USCIS will cease issuing U Visas for that year, but will continue to review U Visa applications for eligibility. Those applicants that USCIS deems eligible will be placed on a waiting list to receive a U Visa once a visa is available. Therefore, it is important to apply as soon as possible in order for the application to be reviewed by USCIS and, if eligible, to be granted a U Visa.

What is "FLARPL"?

By: David L. Miller

Where am I going to come up with the money to hire an experienced family law attorney to represent me in my divorce? This question is asked by many spouses who have just been served with divorce papers, or who wish to end their marriage. The majority of the time, a client with less financial ability than the other spouse will borrow the money family law attorneys require before accepting a case (i.e., the "initial deposit"). The lender is usually a parent, sibling or good friend. However, for many people, this is just not possible.

So, do you represent yourself against the experienced family law attorney your spouse hired, or do you simply agree to whatever terms are offered to you? Well, you may be in luck. The California legislature realized that it is extremely unfair for one spouse (i.e., the spouse with the superior financial ability) to take advantage of the other in a divorce situation merely because they had the ability to hire a family law attorney while the other did not. The legislature recognized that a family law action is perhaps the most serious legal action the majority of residents will ever participate in because of the issues involved. For instance, the divorce action will effect when and under what circumstances you will see your children, where you will live, how much take-home pay you will have in the years to come, and how your retirement benefits will be divided, just to name a few.

To level the legal playing field, the legislature created a law that permits a spouse to grant a lien on their home in favor of their family law attorney. This is known as a "Family Law Attorney's Real Property Lien," or FLARPL. Here is how it works.

Let's say you found a family law attorney you would like to represent you in your divorce. The attorney quotes you the amount of the initial deposit and their hourly rate. They explain that each month you will receive an invoice detailing the work performed, and how much was deducted from your deposit to pay that particular invoice. They further explain that when the deposit is gone, you will be required to make a "supplemental deposit" or pay as you go (e.g., each invoice is paid as they are received). Otherwise, the attorney will withdraw from the case and leave you to represent yourself or find another attorney.

If you are unable to come up with the initial deposit and/or the supplemental deposit later in the case, you may wish to ask the attorney if they will accept a FLARPL. In essence, you are promising to pay the attorney for the legal services they provide and securing your promise by granting them a lien on your home (i.e., a promissory note secured by a deed of trust). If the attorney is willing to wait for payment, they will determine if there is enough equity in the property to cover the amount of the promissory note. For example, the attorney asks for a promissory note in the amount of $20,000. The attorney determines that the home has a fair market value of $700,000 and a mortgage of $200,000. This leaves $500,000 in equity. As long as the home is community property, you as the client have a $250,000 interest in the equity. The attorney would be satisfied that adequate security exists in the home to secure your promissory note. The FLARPL would only attach to your interest in the property.

The attorney would then prepare the necessary documents which include certain mandatory disclosures required by the California Rules of Professional Conduct. These rules exist to protect the client, not the attorney. You would then be given the opportunity to have the documents reviewed by an independent attorney of your own choosing to ensure that your rights are being protected.

Once you understand your rights and responsibilities under FLARPL, you sign the necessary documents and return them to the attorney. A Notice of FLARPL would then be sent to your spouse and the court to provide an opportunity for a spousal objection to be made. If no objections are made within 20 days of the notice, the attorney would record the lien in the county recorder's office. The attorney would then represent you throughout the divorce proceedings without worrying about being paid for their services.

Usually, at the end of the divorce proceeding and following the division of property, the client is in a position to pay their legal bills. This may occur because they receive 50% of the savings accounts, deferred compensation accounts, IRA's, liquidation of other assets, etc. Sometimes, the former family residence is sold to a third-party because neither spouse wants the home, or because neither spouse can afford to keep it. In any event, once the client pays their legal bills, the attorney releases the lien on the property and the lien no longer exists.

If you find yourself in the unenviable position of needing a family law attorney without the present financial ability to hire one, consider asking the attorney if they would accept a FLARPL. Many attorneys are not comfortable accepting a client's case using this payment method. Some simply are not able to wait to be compensated for 6 to 9 months. If you are lucky enough to find an attorney willing to use a FLARPL, just remember they are doing you a favor at a very serious moment in your life. It is these types of attorneys who generally care about your situation, and who will prove this to you during your case.

Never Lose Sight of the Most Important Aspect of Your Divorce: Your Children

By: Hoang-Anh Zapien, Esq.

Couples going through a divorce are often so immersed in fighting with the other party that they forget the most important thing about their divorce: their children. Instead, parties become short, aggravated and distant with their children because they have expended all of their energy fighting with their ex-spouse.

Below are some questions and comments compiled by C. Paul Wanio, PhD, LMFT, that remind parents about the most fundamental needs of every child.

1) How can I caringly protect my child from excessive conflicts and frustrations at home?

A child must have a feeling of safety and protection at home. A child needs to know that someone is in charge who will not allow overwhelming emotions or situations to occur, will set limits with fairness, will listen compassionately, and will explain confusing situations to alleviate the child's fears.

2) How can I help my child to not feel guilty or ashamed about mistakes, accidents or failures?

Children need to learn from their mistakes, not feel put down or punished. They need to believe in themselves, to know that it is okay to make a mistake, and that you still love them no matter what.

3) How can I assist my child to feel a sense of self-esteem and encouragement?

Children need to feel that their self-worth does not merely depend upon accomplishments, but upon who they are as individuals. They need to feel accepted by you even if you or others do not always approve of their behavior. It is especially important during divorce that children know that they are loved by both parents. Putting down the other parent is like putting down a part of your child since he or she is a part of that parent. Avoid disparaging remarks about the other parent even if you are angry.

4) How can I encourage independence and a feeling of competency in my child?

In general, children need a sense of their very own achievement. They need to handle some things on their own, to be given choices and to feel some sense of being trusted and capable. During the time of divorce, your child may become more vulnerable and regress to an earlier stage of development. Do not demean your child for this, but understand that he or she may need to feel more "like a little kid" than "Mommy's or Daddy's big boy or girl." If handled with compassion, this should be a temporary situation. If long-lasting, it may represent undue emotional stress.

Rather than expending all of your energy in to negative feelings about your ex-spouse, redirect that energy into ensuring that your children remain happy, healthy and well-adjusted despite the divorce. Remember, there is nothing in your divorce that is more important than your children.

NEWS AND EVENTS:

Laura Hess Nominated for the 2014 Women in Business Awards

Kring & Chung, LLP would like to congratulate Partner Laura Hess for being nominated for Orange County Business Journal's 2014 "Women in Business" award. The Orange County Business Journal ("OCBJ") recognizes women in Orange County for their career achievements and contributions to the community. Her professional achievements and dedication to the community have resulted in Ms. Hess being honored by the OCBJ in 2012 and 2014.

"Ms. Hess is a dedicated and passionate attorney who works tirelessly for her clients and yet still makes the time to give back to the community and care for her family," said Allyson Thompson, a colleague of Ms. Hess and Vice President of the Orange County Women Lawyers Association. Ms. Hess currently serves as President of the Orange County Women Lawyers Association, whose mission is the advancement of women in the legal community as well as providing charitable support and services to those less fortunate in Orange County.

The awards ceremony and luncheon will take place on Tuesday, June 17, 2014 from 12:00 p.m. to 2:00 p.m. at the Hotel Irvine Jamboree Center located at 17900 Jamboree Road, Irvine.

John Schroeder Featured in the CHP 11-99 2014 Annual Report

For over twenty years, John Schroeder of our Irvine office has served as a board member of the CHP 11-99 Foundation. He is currently serving as the Scholarship Committee Chairman and is featured in the CHP 11-99 2014 Annual Report. The scholarship committee provides direct grant support to worthy students. Those eligible to apply for the General Scholarship Program include dependents of uniformed and non-uniformed employees who are active or retired from the California Highway Patrol. The Fallen Hero Scholarship Program is for sons, daughters and spouses of Fallen Heroes. "There is no better feeling than to provide a helping hand to these hardworking students, " Schroeder said. A total of $1.6 million will be provided in scholarship grants in 2014.

Kring & Chung would like to thank Schroeder for all his time and dedication to the CHP 11-99 Foundation and to the community.

2014 California HR Conference - Anaheim Convention Center

Kyle Kring and Laura Hess will present "So You Received a Sexual Harassment Complaint, What Not to Do, a Trial Lawyer's Perspective," at the 2014 California HR Conference taking place at the Anaheim Convention Center August 25, 2014 through August 27, 2014.

The workshop will include discussions on failing to implement appropriate policies and procedures prior to the alleged incident, failing to perform mandatory sexual harassment training, conducting a timely investigation and documenting the investigation, retaliating against the victim and many other topics that will assist you when dealing with a sexual harassment complaint.

Our attorneys have represented employers in all aspects of employment law. They defend employers against claims for sexual harassment, wrongful termination, retaliation, disability and age discrimination, failure to accommodate whistleblower, gender discrimination, misclassification and unpaid wages.

The Letter of the Law: April 2014

IN THIS ISSUE:

EMPLOYMENT LAW: Employer May Recover Attorney Fees Under FEHA Where Plaintiff's Evidence of Discrimination is Solely Speculation

FAMILY LAW: When Co-Parenting Seems Impossible

CONSTRUCTION LAW: Offers of Judgment in Construction Defect Cases in Nevada

Employer May Recover Attorney Fees Under FEHA Where Plaintiff's Evidence of Discrimination is Solely Speculation

By: La ura C. Hess

In the recent case of Robert v. Stanford Univ. , No. H037514, 2014 WL 793112 (Cal. Ct. App. February 25, 2014), plaintiff brought an action against his former employer for discrimination under the California Fair Employment and Housing Act (FEHA.) He alleged that he was terminated because of his ancestry, American Indian. At trial, defendant presented evidence that plaintiff was terminated because of his harassment of a female coworker, and that plaintiff had received several warnings before he was terminated. The only evidence of discrimination that plaintiff presented at trial was his own testimony that he believed those who investigated the co-worker's harassment complaint and terminated him, had discriminated against him.

At the close of evidence, the employer moved for nonsuit on the discrimination claim. The trial court granted the motion for nonsuit. Likely to plaintiff's surprise, the trial court then granted defendant's motion to recover its attorney's fees under FEHA. The court did so on the basis that it found plaintiff's discrimination claim was without merit, frivolous, and vexatious. The court found that plaintiff's case was "a legal theory in search of facts," and no facts were presented.

The plaintiff appealed the attorney fee award. The California Court of Appeal affirmed. The record indicated that the trial court had considered the plaintiff's financial condition. The appellate court also found there was no abuse of discretion. Other than his own opinion, plaintiff never had or even claimed to have any evidence that his race played a role in his termination. This reflected the meritless nature of the claim.

This is an interesting opinion for employers. One of the biggest "hammers" in plaintiff arsenals in FEHA cases such as this is the one-sided nature of the right to recover attorney fees. The general rule in FEHA cases (i.e. for discrimination) is that the plaintiff may recover attorney fees from the defendant if he or she prevails, but the employer may not recover attorney fees from the employee if the employer prevails. There is a limited exception to this rule if there is truly no evidence in plaintiff's favor and the plaintiff's claim is frivolous. However, courts are generally reluctant to ever award attorney fees to prevailing employers in FEHA cases. The reason for this is because the employer is in a better position to afford the cost of attorney fees than the plaintiff, and because of the potential chilling effect on employees bringing claims to enforce their rights. In recent years, though, employers are seeing an increasing number of questionable discrimination claims brought by terminated employees. If an employer finds itself on the receiving end of one of these claims, it may be able to use as settlement leverage the fact that the court could invoke the exception and award attorney fees to the employer if it finds the discrimination claim is solely based on speculation.

When Co-Parenting Seems Impossible

By: Hoang-Anh Zapien

When you cannot stand to be in the same room as your ex-spouse, having to co-parent with the other person seems difficult, if not impossible. But as unattainable as it seems, giving up on co-parenting is not an option if you want to do what is in the best interests of your children. Effective co-parenting is integral in helping children overcome divorce.

Psychologist Dr. Peggy Kruger Tietz recently shared some advice about what to do when co-parenting is not going as well as you would hope:

  1. Accept where you are. You are not in an ideal situation and it is not helpful to deny that. Do not get caught up in the "it isn't fair" game. It will only hinder your progress. Accept the fact that you will have a tougher time than some parents, and be willing to put in the work.
  2. Trust yourself. If your ex is a less than perfect parent. That is not something you can control. You cannot make up for that. You are already trying to be the best parent that you can be, so doing more will not make up for what your ex is not doing. Trust that you are doing your best, and know that every parent makes mistakes along the way.
  3. Create a support system. Make sure that you have people in your life who know your situation and generally give good advice. It can be a therapist, or you can talk to a good friend or family member. You need to strengthen yourself and have your own support if you are going to support your children.
  4. Be flexible. Dealing with your ex may not be fun. It will not be easy, but the more flexible you are, the more flexible he or she most likely will be. Being unwilling to change plans or to work things out will only make it harder on both of you. Do not cause yourself unnecessary headaches.
  5. Different houses have different rules. Your kids might "hate" you in that moment because you are more strict than your ex, but they will understand one day. Do what you think is best, and let your ex do what he or she thinks is best.

As the old saying goes, "no one ever said raising kids would be easy." Raising children with an ex-spouse makes this already difficult task even more difficult, but it is not impossible. If both parties are committed to doing what is best for the children, the emotions from the divorce will diminish in time, and the parties will be better suited to focus on co-parenting. When there is a committed effort from both parties, co-parenting may never be simple, but it can get easier.

Offers of Judgment in Construction Defect Cases in Nevada

By: Robert L. Thompson

Offers of Judgment in Nevada are governed by Nevada Revised Statute 17.115 and Nevada Rule of Civil Procedure 68. At any time, up to ten days before trial, any party may serve on one or more of the parties, a written offer to allow judgment to be taken in accordance with the terms and conditions of the offer. The opposing party has ten business days to either accept or reject the written offer. If the party rejects the offer but then receives a verdict that is less than the offer at trial, the party that made the offer may be entitled to recover their post-offer fees and costs through trial, including attorney fees. Utilizing such Offers of Judgment can be an effective way to entice the parties to settle before taking a case to trial.

On paper, an Offer of Judgment would seem ideal in a construction defect case due to the large amount of expert fees that are involved. Serving a homeowner with one might make them reconsider the risks of taking a case to trial, since they could be faced with the developer's fees and costs should they recover a smaller verdict at trial. However, there have been ambiguous interpretations of the rule largely due to the fees and costs that are associated with NRS 40.655, which governs awards of fees and costs for construction defect allegations, and NRS 18.020, which generally governs the awards of fees and costs for prevailing parties in Nevada civil lawsuits. For example, a developer could issue an Offer of Judgment to a homeowner which is greater than the verdict received at trial. Nevertheless, if the homeowner receives a judgment in their favor, although smaller than the Offer of Judgment, he or she can argue that as prevailing parties in the lawsuit, fees and costs should be awarded pursuant to NRS 40.655 and NRS 18.020. When added to the verdict the total may overcome the amount that was included in the Offer of Judgment. As such, the homeowner will claim that he or she beat the Offer of Judgment, and the defense would not be entitled to any fees and costs associated with NRS 17.115 and NRCP 68.

The Nevada Supreme Court recently weighed in on this issue in Gunderson v. D.R. Horton, 130 Nev., Advanced Opinion 9 (February 24, 2014). In Gunderson, 40 homeowners brought a complaint for construction defects against D.R. Horton. Prior to trial, D.R. Horton issued individual Offers of Judgment to all 40 homeowners based on the extent of each of their property's respective defects. 39 of the homeowners rejected those offers. The jury awarded each homeowner $66,300 in damages, which was below each of the previously made Offers of Judgment. Following the verdicts, both Plaintiffs and D.R. Horton brought motions for costs and attorney's fees, with D.R. Horton arguing they were entitled to fees under NRS 17.115 and NRCP 68. Plaintiffs claimed they were entitled to fees and costs under NRS 40.655 and NRS 18.020. The district court awarded D.R. Horton post-offer fees and costs, but refused to award attorney fees, and both sides filed appeals to the Nevada Supreme Court.

The Supreme Court ruled that NRS 40.655 does not preclude the application of the penalty provisions of NRCP 68 and NRS 17.115, which govern Offers of Judgment in civil cases. Additionally, the Court ruled that when an offeree rejects a valid Offer of Judgment but fails to obtain a more favorable verdict, NRS 17.115 and NRCP 68 preclude the offeree from collecting fees and costs after the service of the offer. The Court held that the homeowners were not entitled to any fees and costs under NRS 18.020 or NRS 40.655. Essentially, the Court ruled that Nevada's Offer of Judgment statute supersedes Chapter 40.

This ruling will benefit general contractors and subcontractors in future construction defect cases because it will bring additional force to Nevada's Offer of Judgment rule. Previously, attorneys for the homeowners would disregard reasonable Offers of Judgment because they believed they could overcome any verdict after additional fees and costs were awarded pursuant to Chapter 40. As such, general contractors and subcontractors would also have to calculate the individual homeowners' Chapter 40 fees and costs into the Offer of Judgment. Since the Nevada Supreme Court has now ruled that the Offers of Judgment will supersede any prevailing party fees and costs under NRS 18.020 and 40.655, the attorney for the homeowners will have to take extra precautions to advise their clients that Chapter 40 protections no longer apply. This ruling should be utilized by counsel during settlement negotiations as an effective tool to counter the Chapter 40 entitlement arguments that are often made by opposing counsel.

NEWS AND EVENTS:

Eddie H. Choi Joins Kring & Chung's Irvine, CA Office

Kring & Chung is pleased to announce that Eddie H. Choi has joined its Irvine, CA office as an Associate attorney. Choi specializes in the areas of contractual disputes, construction, employment law, products liability and real estate. He represents individuals and small and large businesses in all aspects of civil litigation.

Real Estate Seminar Presented by Anna Greenstin Kudla

On March 26, 2014, Anna Greenstin Kudla of our Irvine office presented a legal topics seminar at Keller Williams in Los Alamitos. The discussions were centered around fundamental issues real estate agents face in their day to day transactions. Some of the topics included transfer disclosure statements, commissions, real estate contracts, how to handle legal claims, and scope of fiduciary duties. The seminar lasted approximately two hours, with an extended period for questions and answers. Mrs. Kudla has been invited to speak a Keller Williams annually since 2006. If you are a broker, agent, or other real estate professional interested in having one of our attorneys speak at your office, please contact our Marketing Director, Michelle Bennett.

Upcoming Score Seminar - Common Legal Questions for Start-up Businesses

Matthew A. Reynolds of our Irvine, CA office will be conducting a workshop on May 27, 2014 at 6:00 PM regarding common legal questions for start-up businesses. New business owners often have questions regarding the formalities required to get their business off the ground. This seminar assists the small business owner in determining the best legal structure for their business. In addition, the seminar addresses the common types of contracts small business owners encounter and provides attendees with tips for entering contracts. Finally, the seminar will also touch on protecting the intellectual property of a small business. The workshop will take place at the Fountain Valley Library located at 17635 Los Alamos Valley, 92708. There is no cost for this seminar.

2014 California HR Conference - Anaheim Convention Center

Kyle Kring and Laura Hess will present "So You Received a Sexual Harassment Complaint, What Not to Do, a Trial Lawyer's Perspective," at the 2014 California HR Conference taking place at the Anaheim Convention Center August 25, 2014 through August 27, 2014.

The workshop will include discussions on failing to implement appropriate policies and procedures prior to the alleged incident, failing to perform mandatory sexual harassment training, conducting a timely investigation and documenting the investigation, retaliating against the victim and many other topics that will assist you when dealing with a sexual harassment complaint.

Our attorneys have represented employers in all aspects of employment law. They defend employers against claims for sexual harassment, wrongful termination, retaliation, disability and age discrimination, failure to accommodate whistleblower, gender discrimination, misclassification and unpaid wages.

The Letter of The Law: March 2014

REAL ESTATE LAW: Disclosure Guidelines: What Should I Disclose When Selling My House?

REAL ESTATE LAW: The Power of a Sham

EMPLOYMENT LAW: Firing Both Parties Involved in the Sexual Harassment Complaint is Not a Solution

BUSINESS LAW: Will 2014 Finally Be the Year That Nevada Gets a Court of Appeal?

Disclosure Guidelines: What Should I Disclose When Selling My House?

By: Kenneth C. Chung

As a general rule, all sellers of residential real estate property containing one to four units in California must complete and provide written disclosures to the buyer. The most commonly used form for such disclosures is the Transfer Disclosure Statement that the sellers will complete and sign.

What must be disclosed? Under California law, all material facts that affect the value or desirability of the property must be disclosed to the buyer. There is no specific definition or rule on what is considered to be a material fact. The circumstances of each case will be evaluated in determining whether the undisclosed fact was material or not. A fact will generally be deemed material if it has a significant and measurable effect on the value of the property. For example, if a buyer would not have purchased the property or would have paid less for the property had the buyer known about the undisclosed fact, then such fact would generally be deemed material which the seller was legally required to disclose. Examples of material facts that must be disclosed include structural problems with the house, soil problems, a leaking roof, unpermitted construction, neighborhood noise problems, and anything else that a buyer would deem to be important. If there is any doubt about whether a fact should be disclosed, then that fact should be disclosed so that the seller may be protected against the claim that the undisclosed fact was material and was intentionally concealed.

When should the disclosure be made? It's best to give the disclosures to the buyer as soon as possible so the buyer can make an informed decision. If a buyer will cancel the purchase because of the disclosed fact, it is better to know that earlier so that the seller may quickly put the property back on the market. The California Association of Realtors Residential Purchase Agreement requires the seller to provide all disclosures within seven days from when the purchase agreement has been accepted. Many sellers will prepare all disclosure documents prior to listing their property so that everything is ready to be presented as soon as an offer is accepted. Even after a buyer has waived all purchase contingencies, the buyer will have an additional five days to cancel the purchase transaction from the date that he receives a late disclosure. This cancellation period may vary depending on what is stated in the contract. Therefore, it is to the seller's benefit to provide the disclosures as soon as possible after accepting the offer.

Does the seller have to make disclosures when the property is being sold "AS-IS"? The answer is YES. A common misunderstanding by sellers is that disclosures are not necessary if the buyer agrees that the property is being purchased in its "as-is" condition. An "as-is" sale generally means that the buyer is accepting the defects on the property that are visible. The "as-is" sale does not excuse the seller from failing to disclose material facts or conditions that are not easily visible. For example, generally structural or soil problems are not visible to an ordinary person. Therefore, if the seller is aware of such problems, they must be disclosed to the buyer regardless of the "as-is" sale. The safer practice in an "as-is" sale is to include visible problems in the disclosure so as to avoid the possible argument as to whether a problem was visible or not. For example, although a defect on the floor may clearly be visible after the seller has moved out, the buyer claims that it was previously covered by a rug or furniture and thus was not visible.

Does the seller have to disclose a defect that has been repaired? Whether the seller must disclose a prior defect which the seller believes has been repaired is not currently clear under the law. Some court decisions state that if the defect was repaired, then the buyer would not be damaged from the seller's failure to disclose the prior defect and therefore the seller should not be liable. However, in another court decision, the court ruled that the seller was required to disclose prior mudslides on the property even though the seller believed it had been repaired. In addition to the uncertain state of the law, the other issue is how certain must the seller be that the defect was properly and fully repaired so as to avoid disclosure. As most sellers are not engineers or contractors, a defect that the seller honestly believes has been repaired may be susceptible to future recurring failures. Under these circumstances, defects that the seller believes have been fully repaired should still be disclosed to the buyer.

Death in property: Details that you do not need to disclose include whether a prior occupant had Acquired Immune Deficiency Syndrome (AIDS) or whether someone died on the property, as long as the death occurred more than three years before the current potential buyer's purchase offer. However, if a buyer asks you if anyone died at the property, you must still answer truthfully even if the death occurred more than three years before.

What happens if a seller fails to make required disclosures? If a required disclosure is not timely made, then the buyer will have the right to cancel the purchase within the time period stated in the contract. If required disclosures are not made at all, the seller may then be responsible for the cost of repairs and other damages resulting from the undisclosed defect. A seller could also be ordered by the court to take back the property and to reimburse the purchase price and other damages to the buyer. A seller can be held responsible for the buyer's attorney's fees. If the seller intentionally concealed a material disclosure, then the seller may also have to pay punitive damages to the buyer.

Since the consequences of failing to disclose may be quite significant, a seller's duty to disclose should be taken very seriously. In addition to avoiding the potential legal and monetary consequences, the seller will have the benefit of having peace of mind after making the required disclosures. The buyer may file a lawsuit against the seller for fraud and concealment for a period of three years from when the problem is discovered or when it reasonably could have been discovered. Therefore, rather than worrying about a potential lawsuit for three years, the better choice is to make all legally necessary disclosures. In some cases, what a seller believes to be a serious defect may not be as important to a buyer, or the defect can sometimes be resolved by negotiating a repair credit to the buyer during escrow. Sellers should consult with an experienced real estate attorney regarding any disclosure questions, and for assistance in documenting any settlements with the buyer.

Kenneth W. Chung is the managing partner of the real estate litigation and transactions department at Kring & Chung, LLP. He is a licensed real estate broker and has been licensed since 1986. He can be reached at (949) 261-7700 or kchung@kringandchung.com

THE POWER OF A SHAM

By: Anna Greenstin Kudla

Sham Guaranty Defense is a distinct way individual guarantors, partners, trustors/trustees, corporate executives and shareholders can avoid liability when an underlying loan is in default. While this defense may be influential in assisting a select few in certain situations, it is rarely used because it applies only in limited circumstances.

Application of the Sham Guaranty Defense requires proving that the guarantor is actually the principal obligor and thus entitled to the same unwaivable protection of the anti-deficiency statutes. Civil Code § 2787 defines a true guarantor as, "one who promises to answer for the debt, default, or miscarriage of another." A Sham Guaranty arises when a principal obligor purports to take on additional liability as a guarantor. Below are some examples of how California courts have made distinctions (between different types of borrowers and/or guarantors) in the application of the Sham Guaranty Defense.

Trustors and Trustees. If a trust is the principal borrower and the guarantees are executed by the Trustors and Trustees of that trust, the guarantees may be considered unenforceable. Asserting a Sham Guaranty requires proof that the principal obligor of the debt, the trust, is a mere pass-through entity that does not award any separation or protection to the trust principals or the guarantors.

The most well-known, and highly cited case in this area is Torrey Pines Bank v. Hoffman (1991) 231 Cal.App.3d 308. In the Torrey Pines matter, a husband and wife, who were the trustors, trustees and the primary beneficiaries of their revocable living trust, signed personal guarantees in connection with a construction loan to their personal trust. The court applied the "instrumentality" test, defined as whether the trust was "anything other than an instrumentality used by the individuals who guaranteed the debtor's obligation, and whether such instrumentality actually removed the individuals from their status and obligations as debtors." ( Id. at 320) The court determined that the structure of the trust made no significant distinction between the guarantors and the borrower. Thus, the husband and wife were deemed the primary obligors that could not guaranty their own debt. Therefore, the guarantees were deemed unenforceable.

This pivotal case does not protect all trusts. In Torrey Pines the court recognized that the greater the degree of separation between trustors, trustees and beneficiaries that exists, the more difficult it will be to establish guarantor protection. Such was the case in the matter of Talbott v. Hustwit (2008) 164 Cal.App.4th 148. In the Talbott case the court made several distinctions. For example, the husband and wife guarantors were secondary, not primary, beneficiaries of their trust. Moreover, they were not the named trustees, but rather used a limited liability company as trustee, thus limiting their personal liability for their trust's obligations. In Talbott, the court deemed the husband and wife as true guarantors because the trust arrangement "actually removed them from their status and obligations as debtors." ( Id. at 153) Therefore, the guarantees were deemed enforceable.

Partners. Similarly if a partnership is the principal borrower, guarantees signed by the partners may be held to be a Sham. In Riddle v. Lushing (1962) 203 Cal.App.2d 831, real property was purchased in the name of a partnership. The promissory note and deed of trust were signed by each partner. The partners also individually guaranteed the note. The partnership defaulted. The court focused on whether the transaction created different liabilities for the partners as guarantors. Since, by law, partners were already jointly and severally liable for debts of the partnership, the court permitted the "guarantors" to invoke the protections of anti-deficiency law.

The above examples relate to real estate properties, individuals and partners. To draft an exhaustive article addressing various loans, lender's responsibilities, and the many defenses that can be applied to corporate executives and shareholders, would require this author to draft a dissertation. We urge you to contact Anna Greenstin Kudla, or any of the litigation attorneys at Kring & Chung, to discuss what defenses or claims could be asserted on behalf of or against, borrowers and guarantors.

Firing Both Parties Involved in the Sexual Harassment Complaint is Not a Solution

By: Laura C. Hess

A recent California court decision, Mendoza v. Western Medical Center Santa Ana, (2014) 222 Cal.App.4th 1334, highlights the mistakes an employer can make when handling a sexual harassment complaint.

Employers always need to do a good faith investigation, even if the allegations appear to be "he said/she said." When employers terminate a long-term, well-performing employee after he or she has complained about sexual harassment, they run the risk of a being sued for wrongful termination.

In Mendoza, the plaintiff, a male nurse, worked for a hospital for 20 years. He had an excellent work history. Plaintiff alleged he was sexually harassed by a newly hired male supervisor. Both men are gay.

The supervisor claimed plaintiff initiated sexual banter with him, that plaintiff consented to the conduct, and moreover that the supervisor was a reluctant participant to the sexually charged conduct. The hospital decided to terminate both employees for engaging inappropriate and unprofessional behavior.

Plaintiff sued on the grounds that California law prohibits terminating an employee because he made a complaint about sexual harassment. ( Gov. Code § 12940)

At trial, the jury found in favor of the plaintiff, awarding him over $283,000. The appellate court overturned the verdict and ordered a new trial because of errors in the jury instructions.

In doing so, the court pointed out, "The lack of a rigorous investigation by defendants is evidence suggesting that defendants did not value the discovery of the truth so much as a way to clean up the mess that was uncovered when Mendoza made his complaint." It pointed out several flaws in the investigation, such as interviewing the complainant and the accused at the same time rather than separately, not interviewing co-workers, and not using an impartial, trained investigator.

The court noted that a "more thorough investigation might have disclosed additional character and credibility evidence for defendants to consider before making their decision." In a sharply worded footnote, the court said that just because the two parties offer conflicting versions of what happened, this does not relieve the employer of the responsibility to make a good faith decision.

During argument, the employer's lawyer asked what employers must do when two employees provide conflicting accounts. "Our answer is simple," said the court:

"Employers should conduct a thorough investigation and make a good faith decision based on the results of the investigation. Here, the jury found this did not occur. Hopefully, this opinion will disabuse employers of the notion that liability (or a jury trial) can be avoided by simply firing every employee involved in the dispute."

The law requires employers to conduct a prompt, good faith, thorough, and neutral investigation. Mendoza highlights the fact that it is not a "solution" for employers to just fire everyone, rather than try to determine what really happened.

Will 2014 Finally Be the Year That Nevada Gets a Court of Appeal?

By: Merielle Enriquez

Many out-of-state attorneys are often surprised to find that Nevada lacks an intermediate court, or a Court of Appeal. Under the current model, every single appeal from decisions rendered by any of Nevada's District Courts is reviewed by the Nevada Supreme Court. According to reports by the Las Vegas Sun, the Nevada Supreme Court has one of the heaviest caseloads in the nation. This results in a lengthy backlog in the appeals process. Parties often have to wait for months, or in some cases, over a year, to have their appealed issue resolved. Based on data complied with the Nevada State Bar President, the Nevada Supreme Court docket for the year 2012 consisted of 2,500 cases, or 357 for each of the seven Justices. In short, many of our Nevada colleagues are wondering whether 2014 will finally be the year that voters approve the creation of a Nevada Court of Appeal.

In November 2010, 53% of the voters rejected a ballot initiative calling for the creation of a Nevada Court of Appeal. However, when Nevada attorneys were exclusively polled, 78.2% reported that they were in favor of establishing an appeals court.

Support for an intermediate court has grown in strength over the last few years and proponents of the issue are again pushing for this initiative on the upcoming November 2014 ballot.

The proposed new intermediate court would operate under a "push down" model first established in New Mexico. Under this model, all appeals would still be filed with the Nevada Supreme Court. The Nevada Supreme Court would then assign the cases to the intermediate court where it can best be managed. Proponents of this measure argue that this model will allow for a speedier resolution of appealed issues, increased efficiency in the legal process, and will give the Nevada Supreme Court more time to examine cases calling for more intensive review, such as cases involving constitutional issues. Moreover, the increase in written, published opinions would be of great value. Written opinions are important to the legal process because they demonstrate the evolution of Nevada's common law.

If an intermediate court is created, the Nevada Court of Appeal would occupy existing space in the Regional Justice Center located in Las Vegas to minimize the cost to taxpayers.

The population of Nevada has grown significantly in the last two decades and it is time for Nevada's legal system to catch-up with the needs of the populace. Nevada was once a small rural state, but is now home to over 2.7 million people. From the time Nevada became a state in 1864, to roughly August, 1977, the Nevada Supreme Court oversaw 10,000 cases. However, in the following thirty years, more than 40,000 cases were filed.

Senate Joint Resolution 14, which calls for an amendment to Nevada's Constitution to allow for the creation of an intermediate court, received a unanimous vote in both houses. Accordingly, Nevada voters will once again be faced with the decision to approve the creation of the Nevada Court of Appeals this November.

NEWS AND EVENTS:

Announcing Our New Partner, Merielle Enriquez

Kring & Chung, LLP is pleased to announce the promotion of Merielle Enriquez to Partner in our Las Vegas, Nevada office.

Ms. Enriquez has been an integral part of the management and growth of the Las Vegas office since joining the firm in June of 2009. Her practice is focused upon the defense of our clients and carriers in high exposure complex general liability matters, as well as family law and business litigation cases.

"Merielle Enriquez has demonstrated her unwavering dedication and loyalty to our clients and to our firm's mission statement of providing excellence in all matters, and her work ethic is second to none," said Robert Mougin, managing partner of the Las Vegas office. Ms. Enriquez received her bachelor's from San Diego State University and her Juris Doctor from California Western School of Law.

Kring & Chung LLP Recognized in Orange County Business Journal

Kring & Chung, LLP has once again been named to the Orange County Business Journal's 2014 list of largest law firms in Orange County. Kring & Chung made the list, ranking No. 47 with 20 attorneys. Rankings are based on the number of attorneys located in each of the firm's Orange County office. Kring & Chung, LLP is a full service firm servicing U.S. and international clients. Our experienced attorneys focus on corporate, business, employment, construction, real estate, and intellectual property.

Upcoming Score Seminar - Avoiding Employment Related Litigation

On March 19, 2014 at 6:00 PM, Allyson Thompson of our Irvine office will be presenting an employment law seminar. Here's your chance to get input regarding your business legal employment questions. This workshop covers the potential pitfalls of employment issues and how these mistakes can lead to costly litigation. The seminar will take place at National University located at 3390 Harbor Blvd., Costa Mesa. There is no cost for this seminar.

Energy Savings Performance Contracting - A Roadmap to Entering, and Pitfalls to Avoid

Partner Kyle Kring and Associate Matthew Reynolds will present, Energy Savings Performance Contracting - A Roadmap to Entering, and Pitfalls to Avoid on April 10, 2014 at the Small School Districts' Associations Annual Conference. With the passage of Proposition 39, the California Clean Energy Jobs Act, $381 million will be awarded to local education agencies including school districts for energy efficiency and clean energy projects. Kring & Chung has significant experience in Energy Savings Performance Contracting ("ESPC"). We will provide impartial technical advice as to the ESPC process, how to explore potential projects and start planning, what to be aware of during the process, how to select reliable contractors, documents for procurement, financial concerns of guaranteed energy savings, and important contractual provisions in Energy Savings Performance Contracts.

Kring & Chung has helped many school districts throughout California, Oklahoma and Idaho with lawsuits involving Energy Savings Performance Contracting. To learn more about this practice area, please visit our website at www.kringandchung.com.

The 31st Small School Districts' Associations Annual Conference will take place at McClellan Conference Center in McClellan Park, CA from April 9-11, 2014.

The Letter of The Law: February 2014

IN THIS ISSUE:

CONSTRUCTION LAW: Construction Law Update: Defending Stucco Defect Allegations

FAMILY LAW: Dating After Divorce

Defending Stucco Defect Allegations

By: Paul McBride

Approximately 80% of construction defect lawsuits which we defend involve stucco-clad houses. Depending on the plaintiffs' expert, alleged stucco defects usually comprise anywhere from 20% to 50% of the total cost of repair. Therefore, it is important for those involved in defending stucco subcontractors to understand, and so be better able to defend, stucco defect allegations. In this article, we will discuss the two most common, and thus most expensive, defect allegations we encounter when defending stucco claims. Those allegations are improper building paper installation and stucco cracks.

A. Improper Building Paper Installation

Stucco installation involves more than just stucco. The stucco subcontractor also installs building paper over the framing before installing stucco. In fact, it is this part of the stucco subcontractor's scope of work, the installation of building paper, which gives rise to the greatest proportion of a stucco subcontractor's potential liability in most construction defect lawsuits.

Whenever the plaintiffs' experts claim that a stucco-clad house suffers from water intrusion at or around window openings - and this claim is made in virtually every case - the allegation is allocated to the stucco subcontractor. The stucco subcontractor is blamed for what are called "building envelope leaks" because the building paper is the primary weather-resistive barrier for the home. It is the home's last line of defense against water that gets behind the stucco. Water that gets behind the stucco hits the building paper and drains down it, exiting the house at the weep screed at the base of the wall.

The two most common defects by which water gets through building paper and into a home are reverse laps and unsealed staple penetrations. If the stucco subcontractor installs the building paper over the sill flashing paper, rather than tucking it under the sill flashing paper, he creates a "reverse lap" that allows water a direct route into the framing cavity below the window. If his lath staples miss a stud, he will tear the paper and create another potential avenue for water intrusion. While it is impossible for the stucco subcontractor to hit the studs with his staples every time, competent stucco workmen inspect the building paper after lath installation and caulk and seal any staple penetrations through the building paper.

If you are defending the stucco subcontractor in a construction defect lawsuit, you should look, first, at the windows section of the plaintiffs' defect report and cost of repair estimate. This is the section where the plaintiffs' expert will allege water intrusion that will be allocated to your stucco subcontractor. A typical description is "water intrusion at sill membrane." When you turn to the corresponding cost of repair, you will typically see that the plaintiffs' expert calls for tearing off the stucco and re-installing the window flashing paper and building paper at most, if not all, of the windows at each home. The corresponding cost for just this repair will typically range from $12,000 to $20,000 per home, which explains why this particular defect allegation is such a large portion of an overall cost of repair in most construction defect cases.

When you see this allegation in a defect report, your first question should be "Did the plaintiffs conduct destructive testing?" If they have not removed drywall below windows and spray-tested the windows, they have no basis for claiming that the building paper is improperly installed and must be repaired.

It is surprising how often plaintiffs' experts raise the allegation of water intrusion through building paper without conducting destructive testing. In fact, most plaintiffs' firms nowadays do not conduct destructive testing, due to its expense. However, their experts continue to make this allegation. They do so to puff up the cost of repair estimate and therefore, increase pressure on the insurance carrier defending the stucco subcontractor to offer more money. It is important to bear firmly in mind that without destructive testing, this allegation is worthless. Just cross it off the cost estimate when you evaluate the claims against your stucco subcontractor.

What about when the plaintiffs do perform destructive testing? First and foremost, the party defending the stucco subcontractor should always retain an expert to observe the plaintiffs' destructive testing. Viewing the plaintiffs' photographs after the fact is no substitute for having your own expert on the spot. Your expert can tell you whether there is a true problem with the stucco subcontractor's work. You should never rely on the plaintiffs' experts' interpretations.

When the plaintiffs perform destructive testing, the first question you should ask is "Is there any evidence of prior water intrusion below the windows?" If the plaintiffs' expert removes drywall below the window and sees that the framing is clean and dry, and the house has also been through several rainy season cycles, the stucco system is obviously doing its job. Even if the building paper is reverse-lapped, or there are unsealed staple penetrations through the paper, if no water has gotten in, this is a "no-harm, no-foul" scenario.

The second question you should ask is, "What happened when the spray rack was turned on?" Typically, the spray rack runs until water enters the home, or until 15 minutes have passed without water entering. If no water enters the building after 15 minutes of spray-testing, the house has successfully withstood a simulated rain event that is orders of magnitude greater than anything it will encounter in the real world. (The spray test puts the equivalent of 8" of rain per hour on the home; no rainfall this severe has ever been measured anywhere on earth.) Nevertheless, it is not uncommon for plaintiffs' experts to report that a window has "failed," even though no water entered during the spray test. Instead, they cite technical errors such as reverse laps or torn building paper. Again, if no water entered during the spray test, these errors should fall under the category of "no harm, no foul."

Finally, if water enters at a reverse lap or an unsealed staple penetration, you should check to see if the plaintiffs' expert has extrapolated this occurrence to additional homes in the case. Just as one robin does not make a spring, one reverse lap does not make a calamity. In our experience, most stucco subcontractors know better than to reverse-lap building paper at windows; when this situation is found, it is usually an anomaly. Only once, in 20 years of defending stucco subcontractors, have I have seen a project where all the windows were reverse-lapped. In that case, the insurance carrier for the stucco subcontractor paid policy limits to settle the claims.

B. Stucco Cracks

By far the most common defect allegation relating to stucco itself, as opposed to the underlying building paper, is stucco cracking. This defect allegation is such a preponderant portion of the typical stucco defect cost of repair estimate that we will not discuss any of the less common, and thus less expensive, stucco defect allegations.

The most important thing to understand about stucco cracks is that stucco cracking is common . This is both a common sense observation and a perfectly valid legal defense. All stucco walls and ceilings are susceptible to cracking, no matter how good the structure, the design, engineering, mix, application, and site supervision. Therefore, when faced with an allegation that stucco cracking is a construction defect, the pertinent inquiry should be whether the cracking is excessive.

The California Building Performance Guidelines for Residential Construction contain specific and easily applied standards for determining whether stucco cracking is excessive. It is excessive in two situations:

First: The stucco crack is over 1/8" thick.

Second: The stucco crack is less than 1/8" thick, but the cracks cover more than 33% of the surface area of one square foot of stucco. This type of stucco cracking is called "spider web cracking."

The Plaster Council, in its Technical Bulletin No. 4, "Crack Policy," adopts a more stringent stucco crack standard than the California Building Performance Guidelines. According to the Plaster Council, stucco cracks wider than 1/16", i.e. the width of a penny, should be repaired. Any cracks smaller than 1/16" are considered "hairline" cracks, and should not be repaired. In fact, repairing hairline cracks does more harm than good. As the Plastering Contractors Association of Southern California points out in its own technical bulletin on stucco cracks, "Small cracks will not accept material and the resulting patch will detract from the natural beauty of the stucco and will serve no useful purpose."

Even if we apply the more stringent standard of 1/16" to judge when stucco cracks should be repaired, we find that the vast majority of stucco cracks shown in a plaintiffs' expert's photo book do not meet this standard. A useful mental exercise when viewing the plaintiffs' photographs of stucco cracks is to ask, "Could I fit a penny into this crack?" If the answer is "No," the crack is hairline, and does not merit repair.

In our experience, approximately 90% of the stucco cracks shown in any given plaintiffs' photo book are hairline. Accordingly, we reduce the plaintiffs' cost of repair estimate for stucco cracks by 90% to arrive at what we consider the legitimate cost of repair for stucco cracks.

Another factor to bear in mind when evaluating stucco cracks is that, even when the cracks are excessive, the fault seldom lies with the stucco subcontractor. Typically, we accept responsibility only for spider web cracks, which are usually due to improper stucco mix, and therefore fall under the stucco subcontractor's responsibility. However, most stucco cracks are due to building movement, not stucco mix. Indeed, the wider the stucco crack, the less likely it is to be the fault of the stucco subcontractor. Instead, some force is being exerted on the building which is cracking the stucco. There is nothing the stucco subcontractor can do to control or resist this force. Put another way, if you removed and replaced the stucco without addressing the underlying problem causing the building to move, the stucco crack would simply recur. Accordingly, whenever you are asked, as the representative of the stucco subcontractor, to pay to repair stucco cracks, ask what your stucco subcontractor should have done differently to prevent the crack from occurring. The most typical response you will receive to this question is a blank stare.

In conclusion, if you understand and apply the defenses to building paper installation and stucco cracking defect allegations we discuss in this article, you will drastically reduce your stucco subcontractor's liability exposure. Knowledge of these issues will make you a much more effective advocate when you negotiate on behalf of your stucco client or insured.

Considerations of space prevent us from a fuller discussion and citation of stucco technical literature that underpins our analysis. Please contact the author for copies of the pertinent literature.

Dating After Divorce

By: Hoang-Anh Zapien

Once a bad relationship or divorce finally comes to an end, parents often yearn for the return of a "normal" life with a companion. In this quest to move on, parents may rush into another relationship. As difficult as dating is, it is even more difficult and complicated when there are children involved. Above all else, parents must first consider how their children will be affected by the introduction of a new partner. Rushing someone into your childrens' lives will not benefit any of the parties involved. An introduction at the appropriate time is the key to success.

Even long after a divorce children often still harbor the hope that their mom and dad will get back together. Seeing a parent with a new partner destroys this fantasy. Therefore, it is essential to TAKE THINGS SLOW. There is absolutely no need to introduce your new partner to your children before the time is right. If this person is as wonderful as you think they are, they will be patient and understand your children's need to adjust. Rather than forcing this new person on your children, allow them to develop their own relationship with the new partner. Your children will then be able to discover the new partner's merits.

Before introducing your children to someone new that you are dating, keep in mind how your children are reacting to the divorce. If your children are still exhibiting signs that they are angry or sad that their family unit has dissolved, introducing a new partner will only cause them to resent your new partner. Allow them time to grieve, and help them to work through the effects of the divorce before forcing them into a new situation. It is important to remember that children are innocent bystanders to your relationships. Also remember that there is always the risk that the new relationship will not work out. Breaking up with a new partner will be even more complicated if your child begins to form a bond with that person.

Talk to your children. It is important to explain that not every dating relationship will end in marriage. Ask them for their thoughts and feelings about meeting a new partner. They might be excited about meeting your new partner, or they may be anxious about allowing a stranger into their lives. As they express their hopes, concerns and fears, help them see the situation clearly.

Dating after divorce can be tricky, but if you take your time and navigate carefully, it can be a win-win for everyone.

NEWS AND EVENTS:

Kring & Chung Attorney Selected for 2014 Rising Stars List

Congratulations to Allyson K. Thompson, Kring & Chung Associate, for being selected for inclusion in the 2014 Rising Stars list. Super Lawyers Launched Rising Stars in 1998 to recognize the top up-and-coming attorneys in the state - those who are 40 years old or younger, or who have been practicing for 10 years or less. Today, Rising Stars honors attorneys in California and 35 other states across the country. No more then 2.5% of the lawyers in each state are named to the list.

Michelle Philo Appointed as Orange County Bar Association Young Lawyers Division Social Committee Chair

Congratulations to Michelle Philo, Kring & Chung, Associate, has been appointed to serve as the 2014 Social Committee Chair for the Orange County Bar Association Young Lawyers Division (OCBA YLD). The Social Committee Chair is responsible for chairing a committee of young lawyers, overseeing the development of networking opportunities, and providing opportunities for young lawyers to engage in the legal community. Events in the past have included happy hour mixers, karaoke, destination events such as Del Mar races, co-hosted events with local affiliate bar associations, and the annual holiday party. Philo is honored to serve in this capacity as she believes the connections made as young lawyers can greatly assist in the development of a young attorney's networking events for the 2014 year.

Upcoming Score Seminar - Avoiding Employment Related Litigation

Presenter: Allyson Thompson, Attorney

Description: Here's your chance to get input regarding your business legal employment questions. This workshop covers the potential pitfalls of employment issues and how these mistakes can lead to costly litigation.

Location:
National University
3390 Harbor Blvd., Costa Mesa 92626 Map link

Cost: No Cost

The Letter of The Law: January 2014

IN THIS ISSUE:

Employment Law Update: New Laws in 2014

EMPLOYMENT: Another Good Reason to Analyze your Business Automobile Policies and Insurance

CORPORATE LAW: LLC Operating Agreements Should be Reviewed in Light of the New LLC Law

CORPORATE LAW: Court of Appeals Ruling Weakens Protection Afforded to Small Business Owners

Employment Law Update: New Laws in 2014

By: Allyson K. Thompson

The California Legislature was busy this year regarding employment law. Several new employment related requirements were enacted that went into effect on January 1, 2014, unless otherwise specified. Some of the more substantive changes deal with workers compensation, wage and hour, and expansions in regards to leaves of absence, among others. While not entirely exhaustive, the following is a brief survey of some of the new employment laws enacted. If you are interested in reading the actual legislation, bill numbers are referenced. You can access the bills at http://www.leginfo.ca.gov/index.html.

Workers Compensation

SB 146 - Among other things, this bill allows an employer, pharmacy benefits manager, insurer, or third-party claims administrator to request a copy of the prescription during a review of any records of prescription drugs dispensed by a pharmacy. It also provides that any entity submitting a pharmacy bill for payment, on or after January 1, 2013, and denied payment for not including a copy of the prescription from the treating physician, shall have until March 31, 2014 to resubmit those bills for payment.

AB 1309 - Limits access to the California workers' compensation system for professional athletes employed by out-of-state teams. The bill provides that professional athletes who are employed by out of state teams may access the California workers' compensation system if: a) the athlete played at least two years for a California team, or b) played more than 20% of his or her career for a California team.

Background Checks

The question of when an employer can conduct a background check of prospective and current employees is a hot button issue. The State of California takes employee privacy seriously. Thus, this area is heavily regulated.

SB 530 - This bill provides that a potential employer may not ask for, seek, or utilize as a factor in determining any condition of employment, information about a conviction that has been judicially dismissed or ordered sealed.

The bill clarifies that an employer is not prohibited from asking an applicant about a criminal conviction or seeking from any source information regarding a criminal conviction of, or entry into a pretrial diversion, or similar program by the applicant, if because of any state or federal law any of the following apply:

  1. The employer is required by law to obtain information regarding a conviction of an applicant;
  2. The applicant will be required to possess or use a firearm in the course of his/her employment;
  3. An individual who has been convicted of a crime is prohibited by law from holding the position sought by the applicant, regardless of whether that conviction has been expunged, judicially ordered sealed, statutorily eradicated, or judicially dismissed following probation; or
  4. The employer is prohibited by law from hiring an applicant who has been convicted of a crime.

AB 218 - This bill requires that state and local agencies determine a job applicant's minimum qualifications before obtaining and considering information regarding the applicant's conviction history on an employment application.

More specifically, commencing July 1, 2014, this bill prohibits a state or local agency from asking an applicant for employment to disclose, orally or in writing, information concerning the conviction history of the applicant until the agency has determined that he or she meets the minimum employment qualifications, as stated in any notice issued for the position.

Discrimination & Retaliation

California has gone further than almost any other state in the nation to define protected categories for purposes of protection against discrimination and retaliation. California laws heavily favor employee rights and strongly penalize discrimination and retaliation in the workplace. Some of the new laws enacted demonstrate this strong public policy.

AB 556 - The amendment to existing laws adds "military and veteran status" to the list of categories protected from employment discrimination under the Fair Employment Housing Act. Military service was previously a protected category, but now veteran status has been included in the terminology of the category. The bill defines "military and veteran status" to mean a member or veteran of the United States Armed Forces, United States Armed Forces Reserve, the United States National Guard, and the California National Guard.

SB 292 - Clarifies that, with respect to an employment-related sexual harassment claim made under the Fair Employment and Housing Act (FEHA), sexually harassing conduct need not be motivated by sexual desire. This significantly lessens the burden of proof on an employee to prove sexual harassment.

Previously, for a plaintiff to prove a hostile work environment due to harassment based on sex, the United States Supreme Court in Oncale v. Sundowner Offshore Services, Inc. (1998) 523 U.S. 75, 80-81 established three primary evidentiary routes, as follows: (1) sexual intent or desire on the part of the defendant toward the plaintiff; (2) general hostility by the defendant toward a particular sex, of which the plaintiff is a member; or (3) comparative evidence about how the alleged harasser treated members of both sexes in a mixed-sex workplace. Although Oncale was a Title VII sexual harassment case, "California courts frequently seek guidance from Title VII decisions when interpreting the FEHA and its prohibitions against sexual harassment, "because FEHA and Title VII "share the common goal of preventing discrimination in the workplace." Lyle v. Warner Brothers Television Productions (2006) 38 Cal.4th 264, 278.

According to bill analysis, this new law was in direct response to the confusion created by Kelley v. Conco Companies (2011) 196 Cal.App.4th 191, which questioned a plaintiff's evidentiary requirement for a hostile work environment sexual harassment claim. The Court held in Kelley that a plaintiff in a same-sex harassment case must prove that the harasser harbored a sexual desire for the plaintiff in order to survive summary judgment. This decision directly contradicted Singleton v. United States Gypsum Co. (2006) 140 Cal.App.4th 1547, and ignored key provisions of the leading U.S. Supreme Court decision on same-gender sexual harassment, in Oncale.

This bill overturns the decision in Kelley, and clarifies that sexual harassment under FEHA does not require proof of sexual desire towards the plaintiff.

SB 496 - There has been confusion in the past as to whether an employee who makes a whistleblower claim must actually make a report to a governmental agency, as opposed to merely informing someone at the company about potentially illegal activity. This bill expands on whistleblower protections to protect employees who disclose, or may disclose, information regarding alleged violations "to persons of authority over the employee or another employee who has the authority to investigate, discover or correct the violation."

Wage & Hour

Most of the new employment laws for 2014 fall under this category. Wage and hour issues have been a hot bed of litigation for the past five years, with claims continuing to increase.

AB 10 - Increases the minimum wage in California to $9.00 per hour effective July 1, 2014 and to $10.00 per hour effective January 1, 2016.

AB 241 - This bill provides for increased protections for domestic workers, such as live-in maids and nannies. This bill enacts the "Domestic Worker Bill of Rights." "Domestic workers" or "household workers" are generally comprised of housekeepers, nannies and caregivers of children and others who work in private households to care for the health, safety and well-being of those under their care. The new law provides that a domestic work employee who is a personal attendant shall not be employed more than nine hours in any workday, or more than 45 hours in any workweek unless the employee receives one and one-half times the employee's regular rate of pay for all hours worked in excess of those amounts.

SB 435 - This bill covers employees that are entitled to "recovery periods" taken to prevent heat illness. This will affect farm workers and construction workers, amongst other specified trades. Specifically, this bill:

  1. Provides that, in addition to meal and rest periods, an employer shall not require any employee to work during any "recovery period" mandated by any applicable statute, regulation, standard or order of OSHSB or Cal/OSHA.
  2. Provides that an existing provision of law that requires an employer to pay an employee one additional hour of pay at the employee's regular rate of compensation for each work day that a meal or rest period is not provided also applies to work days that a "recovery period" is not provided.

If you are an employer required to provide "recovery periods," you should be taking steps to ensure that your employees are documenting when they are taking their recovery periods to avoid against lawsuits claiming a violation of this new law.

Immigration Issues

Among the new laws in this area, new protections address retaliation against immigrant workers who complain about unfair wages or working conditions.

AB 60 - This bill was designed to address issues regarding undocumented workers' ability to obtain a driver's license. This bill will, by January 1, 2015, require the DMV to issue a driver's license for the sole purpose of operating a motor vehicle, and cannot be used for identification or federal purposes. As a result, the provisions in this bill would allow persons unable to provide satisfactory proof of legal presence to apply for a driver's license, while not jeopardizing the state's efforts to reach Real ID compliance.

The license will bear a notation stating that the card is not acceptable for federal purposes, such as verifying eligibility for employment. That means that a prospective employee cannot use this card as an acceptable document for purposes of the Form I-9.

AB 263 - This bill provides that it shall be unlawful for an employer or any other person or entity to engage in unfair immigration-related practices against any person for the purpose of, or with the intent of, retaliating against any person for exercising any right protected under the Labor Code including complaining about wages or unfair employment practices. This is a penalty based law, authorizing penalties against employers who engage in unfair immigration-related practices, including a private right of action, which allows for attorneys' fees if the employee prevails. This bill adds a civil penalty of up to $10,000 per employee per violation of Labor Code section 98.6.

SB 390 - This bill provides that it is illegal for an employer to willfully fail to remit withholdings from an employee's wages pursuant to local, state or federal law to the proper agency. It also provides that if an employer fails to remit $500 or more in wage withholdings, the employer's violation is a misdemeanor and shall be punishable by imprisonment in a county jail for a period of not more than one year, by a fine of not more than $1,000, or both.

SB 462 - As previously indicated, the laws in California heavily favor employees. This new law further supports this policy. Existing law, Labor Code section 218.5, provides an award of attorneys' fees and costs to the prevailing party in an action brought for nonpayment of wages (other than minimum wage and overtime) fringe benefits, or health and welfare or pension fund contributions. This bill would add to this provision that a non-employee prevailing party (presumably the employer) could only be awarded attorneys' fees and costs if the court finds that the employee brought the court action in bad faith.

According to the legislative analysis for this bill, the sponsor of this bill, the California Employment Lawyers Association (CELA) argued that the two-way fee-shifting provision in Labor Code section 218.5 had a chilling effect on contractual wage claims. Although these claims may be relatively small, CELA asserts that the attorneys' fees racked up by employers as the case goes up and down the court system repel plaintiffs (and attorneys) from bringing these types of claims, which are typically filed with other claims such as for overtime, breach of contract, and breach of fiduciary duty.

SB 666 - This new law permits the state to suspend or revoke an employer's business license if the employer reports or threatens to report the immigration status of an employee because the employee complained about employment issues. It is important to note that the bill does not subject employers to suspension or revocation of their business license for requiring a worker to verify eligibility to work. Similarly, AB 524 was enacted to make it a crime to threaten to report the immigration status of an individual or his or her family members.

Prevailing Wages

It should be noted that there were a handful of laws enacted that affect prevailing wages. These bills include: AB 1336, SB 7, SB 54, SB 377 and SB 776. The most notable change to these premium wage laws is espoused in SB 54, which requires payment of prevailing wages in a privately funded refinery construction project.

Leaves & Benefits

Changes in leave laws may require employers to update their Employee Handbook, at a minimum by way of addendum, so that employees are informed of the right to take certain leaves of absence.

AB 11 - This bill requires an employer employing 50 or more employees to allow an employee who performs duty as a reserve peace officer or emergency rescue personnel to take temporary leaves of absence, for up to 14 days in a calendar year, to engage in fire, law enforcement, or emergency rescue training. The law previously only applied to volunteer firefighters and civil air patrol.

SB 288 - This bill expands on previous crime victim leave rights, and provides that an employer may not discharge or in any manner discriminate or retaliate against an employee who is a victim. This applies to taking time off from work for the following specified crimes: felony child abuse likely to produce great bodily harm or a death; assault resulting in the death of a child under eight years of age; felony domestic violence; felony physical abuse of an elder or dependent adult; felony stalking; solicitation for murder; a serious felony, such as kidnapping, rape, or assault; hit and run causing death or injury; and felony driving under the influence causing injury.

SB 400 - This bill enacts various employment protections for employees who are victims of domestic violence, sexual assault, or stalking.

Specifically, this bill extends specified existing protections for victims of domestic violence and sexual assault to also include victims of stalking. The bill prohibits an employer from discharging, discriminating or retaliating against an employee because of the employee's known status as a victim of domestic violence, sexual assault, or stalking, if the victim provides notice to the employer of the status, or if the employer has actual knowledge of the status. The bill also requires an employer to provide reasonable accommodations for a victim of domestic violence, sexual assault, or stalking who requests an accommodation while at work, including potentially implementing safety measures.

SB 770 - This bill broadens the definition of family within the Paid Family Leave (PFL) program to allow workers to receive partial wage replacement benefits while taking care of seriously ill siblings, grandparents, grandchildren, and parents-in-law. This legislation does not take effect until July 1, 2014.

Health Insurance

Another big area expected to see a bevy of changes is health insurance in the workplace. While no state laws were codified regarding health care, changes should be anticipated in light of the enactment of Obamacare, or formally the Affordable Care Act (ACA), which was signed into law on March 23, 2010, and upheld by the Supreme Court on June 28, 2012.

Stay tuned to the Kring & Chung Newsletter as we will be providing updates regarding employers' requirements pursuant to the ACA.

Another Good Reason to Analyze your Business Automobile Policies and Insurance

By: Kyle D. Kring

You are an employer and your employee is driving home from work when he or she accidentally hits another vehicle, injuring a third party. Do you think your business is legally responsible for the third party's injuries?

Traditionally, an employer would not be liable for the third party's injuries, based on the longstanding "Coming and Going" Rule. This provides that employers are generally not liable for accidents when an employee is coming to, or going home from work. This is because employees are said to be outside the course and scope of employment during their daily commute. Or to put it another way, the act of coming and going to work is for the benefit of the employee, and not the employer. However, a recent ruling by the California Court of Appeals significantly expanded the circumstances in which an employer may be liable for an employee's off-duty automobile accidents.

In Moradi v. Marsh USA, Inc. (2013) 219 Cal. App. 4th 886, the California Court of Appeal ruled that, because an employer required an employee to use her personal vehicle for work-related trips during work hours, the employee was acting within the scope of her employment when she got into an accident which took place while running personal errands on her way home after work. The court found the employee's use of her personal vehicle an "incidental benefit" to the employer. In this case, Judy Bamburger was an insurance salesperson for Marsh USA. As a salesperson, she regularly used her personal vehicle for business. Bamburger left work for the day, intending to stop for frozen yogurt and then go to a yoga studio to attend a yoga class. While Bamburger was running her personal errands, she struck the plaintiff, Moradi, who was driving a motorcycle. Moradi sued Bamburger and Bamburger's employer, Marsh USA, attempting to hold Marsh USA liable for his injuries. Initially, the trial court granted Marsh USA's motion for summary judgment, finding that Bamburger was not acting within the scope of her employment at the time of the accident. The Court of Appeal reversed, holding that Marsh USA could be liable under the respondent superior doctrine.

As stated above, generally an employer is not liable for an employee's actions during the employee's daily commute to and from work in a personal vehicle - a doctrine known as the "Coming-and-Going" Rule. If, however, an employer requires an employee to use his or her personal vehicle for work, the employer can be liable for injuries caused by the employee during her commute to and from work, as well as foreseeable detours during her commute. In this case, Bamburger was required to use her personal vehicle to develop business and visit customers, and frequently gave rides to co-workers to work-related seminars or events. Marsh USA initially provided Bamburger and its other salespeople with company cars, but had switched to a policy requiring salespeople to use their personal vehicles to engage in sales and business development. This placed Bamburger's commute in the long-established "required vehicle exception" to the coming-and-going rule.

Where the Moradi court expanded employer liability was in its analysis of what was "foreseeable" conduct by the employee, Bamburger. Previously, courts said employees with required personal vehicles were still acting in the scope of their employment when they ran brief (foreseeable) errands during their commute, such as stopping at a grocery store to purchase a drink. In this case, however, the Court of Appeal concluded that although Bamberger was running multiple different personal errands, including a yoga workout, her detours were not "so unusual or startling that it would seem unfair to include the loss resulting from it among other costs of [Marsh's] business." Therefore, Marsh USA could be liable.

In light of the Moradi decision, employers should examine whether their business policies might be exposing their business to liability for the automobile accidents involving their employees outside of work. Employers should analyze their written and implicit business policies to ensure that they are not creating a "required vehicle exception" by requiring or allowing employees to use their own personal vehicles during the workday for work related activities. If employees do use their personal vehicles for work duties, "employers" should ensure that the "employee" is covered under the employer's general liability insurance policy. It may also be advisable under certain circumstances to prohibit certain employees from running work related errands with their own personal vehicles, especially if the company has a vehicle that can be used to run the errands.

LLC Operating Agreements Should be Reviewed in Light of the New LLC Law

By: Kenneth W. Chung

Effective January 1, 2014, the California Revised Uniform Limited Liability Act became the new law governing limited liability companies in California. This new law replaced the prior law known as the Beverly-Killea Act which was enacted in 1994. The new law applies to (i) all domestic LLCs existing on or after January 1, 2014; (ii) all foreign LLCs registered with the California Secretary of State prior to, on or after January 1, 2014; and (iii) all actions taken by managers of members of an LLC on or after January 1, 2014.

The prior LLC law generally provided LLC members much flexibility in drafting their operating agreement. The prior law only had a limited number of provisions that were required and the rest were subject to default rules which applied only if the operating agreement did not provide a contrary provision. Therefore, an important consideration in drafting an operating agreement was to make sure to override or address any default rules that the LLC members did not wish to be applicable to their LLC. The new LLC law generally expands the number of such default rules. The following reflects some of the more noteworthy default rules and changes presented in the new law. Existing operating agreements should be reviewed to determine whether the new default rules are consistent with the members' intent, and if they are not, then the operating agreement should be specifically revised to reflect such intent.

Manager-Managed LLC: An LLC will now be deemed member-managed unless the LLC (1) has filed Articles of Organization stating that the LLC is manager-managed; and (2) has a written operating agreement establishing management by a manager. If the LLC does not comply with both of these requirements, then it will be at risk of being deemed a member-managed LLC.

Management Authority: The consent of all members of an LLC will now be required to do any of the following: (1) sell, lease, exchange, or otherwise dispose of all, or substantially all, of the LLC's property, with or without the goodwill; (2) approve a merger or conversion; (3) undertake any other act outside the ordinary course of the LLC's activities; or (4) amend the operating agreement. The operating agreement may be drafted to specify different consent standards. If the operating agreement does not clearly specify a different consent standard, then a member holding a minority ownership interest may now effectively veto certain significant actions of the LLC.

Events Forcing the "Dissociation" of a Member: Certain events will now automatically result in the "dissociation" of a member, changing the member's status to that of a "transferee." These events include: (1) the death of a member who is an individual; (2) for a member-managed LLC, the appointment of a guardian or conservator for an individual who is a member, or a judicial order declaring a member incapable of performing his/her duties as a member, or the initiation of a bankruptcy by a member; and/or (3) for any LLC member that is a trust, the trust's membership interest in the LLC is distributed. If an existing LLC does not wish to have any these events result in the dissociation of a member, the operating agreement should be modified accordingly.

Non-Economic Members: A member may now have voting rights, or other non-economic rights, without requiring that member to make a contribution to the LLC. One effect of this new default rule is that a full LLC member may transfer his economic interest in the LLC while maintaining his voting rights and status as a member. This is different from prior law which equated LLC membership with the holding of the economic rights associated with it.

Transfers of Membership Interests: An amendment to the operating agreement after a person becomes a "transferee" is now effective against that transferee. This new rule clearly gives LLC members the ability to amend their operating agreement to eliminate, reduce, or change the obligations owed to transferees. To reduce the risk of disputes with transferees, an existing LLC should consider modifying the operating agreement to clearly state that the obligations owed to transferees cannot be modified without the consent of the transferee, or at least a majority vote of then-existing LLC members.

Indemnification: An LLC must now indemnify members of a member-managed LLC and managers of a manager-managed LLC, so long as the member or manager has complied with its duties under the law. This is in contrast to the default rule under the prior law that provided that an operating agreement may, but is not required to, provide for the indemnification of any person acting on behalf of the LLC. If the LLC does not want indemnification to be mandatory under these circumstances, the operating agreement should be modified to override this new default rule.

Reimbursements: An LLC is now required to reimburse members of a member-managed LLC, and managers of a manager-managed LLC, for payments made by them while acting on behalf of the LLC. If the LLC does not want to maintain a mandatory reimbursement obligation, or if it desires the completion of specified conditions before the member or manager is eligible for reimbursement, the operating agreement should clearly override this new default rule.

Death of a Sole Member: If the sole member in an LLC dies, his/her heirs may be admitted as substitute members, thus allowing the LLC to remain existence. Under the prior law, if the sole member of an LLC dies, leaving no remaining LLC members, the LLC is automatically dissolved.

Member Consent Assumed: A member in an LLC will now be assumed to have agreed to the terms of an operating agreement even if that member did not physically sign the operating agreement.

Scope of Fiduciary Duties: The prior law did not specifically identify the fiduciaries duties owed by managers or members. The new law provides that the manager or member(s) in control of the LLC owe a "duty of loyalty" and a "duty of care" to the non-controlling member(s). The duty of loyalty under the new law is limited to specified activities, and the duty of care is limited to refraining from grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. In addition, all LLC members owe a "duty of good faith and fair dealing" to each other. The new law limits the extent to which the members of an LLC can modify the managers' or managing members' fiduciary duties. The duty of care, the duty of loyalty, and the contractual duty of good faith and fair dealing may not be eliminated, but they may be modified. In addition, the duty of care may not be "unreasonably reduced."

Under the new law, significant changes have been made to the law governing LLCs in California. The discussion above summarizes only some of the changes established by the new law. The operating agreement should be reviewed with corporate counsel to ensure that the intent of the members are not superseded by a new default rule, and to minimize disputes that may arise from provisions or standards that are vague and subject to alternative interpretations. The corporate attorneys at Kring & Chung, LLP are experienced and adept in the formation and maintenance of legal entities including LLCs and corporations. Please contact Kenneth Chung or one of our corporate attorneys to schedule the review of your operating agreement.

Court of Appeals Ruling Weakens Protection Afforded to Small Business Owners

By: Paul T. McBride

How many small California businesses operate along these lines?

Wayne and Linda, husband and wife, form a limited partnership, Airborne Turbine LP, to operate an airplane leasing business. Wayne and Linda are the limited partners. They form a corporation, Airborne Turbine, Inc., to act as the general partner of Airborne Turbine LP. Wayne and Linda are the sole shareholders and directors of Airborne Turbine, Inc. They are the sole employees of Airborne Turbine LP. They take "draws" from Airborne Turbine LP as needed to pay their personal bills, as the entity is their sole source of income. They hold one pro forma partnership meeting per year.

Many small businesses in California operate along the lines described above, either as limited partnerships or limited liability companies. The owners make their living from the organization while enjoying the shield against personal liability afforded under California law to limited partners ( Corporations Code Section 15903.03(a)) and to members of a limited liability companies ( Corporations Code Section 17703.04). Indeed, it is this shield against personal liability which is the chief attraction of the limited partnership and limited liability company organization forms.

A recent California Court of Appeals ruling substantially weakens the shield against personal liability afforded to limited partners and, by logical extension, to members of limited liability companies. The case is Relentless Air Racing LLC v. Airborne Turbine LP, appearing in the January 3, 2014 edition of the Daily Appellate Report, 2013 WL 6858475. In this case, the Court of Appeals holds that merely paying personal debts from the assets of a limited partnership may be sufficient to lose the shield against personal liability afforded to limited partners.

Relentless Air Racing LLC obtained a judgment of $175,000 against Airborne Turbine LP. Unable to collect the judgment from the limited partnership, it filed a post-judgment motion to have the two limited partners named as judgment debtors. The two limited partners were Wayne and Linda, the couple described above in our introduction. At a post-judgment hearing, Linda testified that the limited partnership was their sole source of income, that they took draws from limited partnership funds as needed to pay their personal obligations, and that they held one pro forma meeting per year.

At the trial level, the judge applied the three-pronged test enunciated in Greenspan v. ADT LLC (2010) 191 Cal.App.4th 486 to determine when a judgment against a limited liability company may be enforced against the personal assets of a member of the limited liability company. That test is: 1) the parties to be added as judgment debtors had control of the underlying litigation and were virtually represented at trial; 2) there is such a unity of interest and ownership that the separate personalities of the entities and the owners no longer exist; and 3) an inequitable result will follow if the acts are treated as those of the entity alone.

Applying this test, the trial judge found that the first two factors were easily satisfied, given that Wayne and Linda were the sole employees of the limited partnership and the sole shareholders of the general partner, and that they took money out of the limited partnership as needed to pay their daily living expenses. However, he ruled that the third factor, an inequitable result, was not satisfied because there was no evidence that Wayne and Linda diverted funds or assets from the limited partnership for the purpose of shielding them from a judgment in favor of the plaintiff. Accordingly, the trial judge denied the motion to have Wayne and Linda added as judgment debtors on the judgment in favor of Relentless Air Racing LLC.

On appeal, the Court of Appeals for the Second Appellate District overturned the trial judge's ruling and entered an order adding Wayne and Linda as co-judgment debtors. In the opinion of the appellate court, whether Wayne and Linda took assets out of the partnership for the purpose of shielding them from creditors was irrelevant. The mere fact that they used partnership assets to pay personal debts, combined with the fact that the partnership had no assets with which to satisfy the judgment, was sufficient to constitute an "inequitable result," in the appellate court's decision.

We expect the Court's decision to be challenged on appeal

In summary, this recent Court of Appeals decision highlights the need for careful planning in business organization formation and conduct. In order to avoid or minimize the risk of having your LLC or limited partnership personal liability shield disregarded, thereby exposing your personal assets, obtaining an annual review and maintenance of your entity documents is recommended. Kring & Chung LLP offers a full range of legal counseling and services related to entity formation and business transactions.

News and Events:

Managing Partner, Kenneth W. Chung And Partner Laura Hess Selected As 2014 Super Lawyers

Congratulations to Managing Partner, Kenneth W. Chung, and Partner, Laura Hess, for being selected for inclusion in the 2014 Southern California Super Lawyers list. Super Lawyers is a rating service of outstanding lawyers from various practice areas who have attained a high-degree of peer recognition and professional achievement.

The selection process is multi-phased and includes independent research, peer nominations and peer evaluations. Each candidate is evaluated on 12 indicators of peer recognition and professional achievement. Selections are made on an annual, state-by-state basis with no more than 5% of the attorneys in California being selected as Super Lawyers.

Upcoming Score Seminar - Common Legal Questions For Start-Up Businesses

On January 16, 2014 at 6:00 PM, Michelle Philo will be presenting a seminar regarding questions new business owners may have as to the formalities required to get their business off the ground. This seminar assists the small business owner in determining the best legal structure for their business. In addition, the seminar addresses the common types of contracts small business owners encounter and provides attendees with tips for entering contracts. Finally, the seminar will also touch on protecting the intellectual property of a small business. There is no cost for this seminar. The seminar will take place at the  Fullerton Public Library located at 353 W. Commonwealth Avenue, Fullerton.

The Letter of The Law: December 2013

IN THIS ISSUE:

FAMILY LAW: Surviving the Holidays During Divorce

PERSONAL INJURY: Pre-Existing Conditions and Future Surgery in Personal Injury Cases

News and Events: Laura Hess, Allyson Thompson, and Michelle Philo Appointed to Orange County Woman's Lawyer Association Board

Surviving the Holidays During Divorce

By: Hoang-Anh Zapien, Esq.

It's that time of the year again. Lights are being put up on rooftops, stores crowd with shoppers buying presents, and holiday planning for family gatherings begin. The holiday season is usually an occasion of festive and happy times. However, for those who are coping with divorce, the effects of separation and loss are magnified as the holiday season approaches.

Although there are no magical tools to help alleviate the stress and pain that one may experience during the holiday season, it is important to keep some things in mind that may help make the holidays bearable, and even enjoyable.

  1. MAKE NEW RITUALS AND FAMILY TRADITIONS - While you may want to hold on to some of the past traditions, it's a good idea to create some new rituals with friends and family. Reassure your children that holiday celebrations will continue, but in a different way.
  2. LISTEN TO YOUR CHILD - Children of divorce often find the holiday season to be a very difficult and stressful time. They are the ones that are being shuffled around between two different families and feeling the stress of their parents. So talk to your children and make the holiday season about what is best for them. Find out how they feel the holiday season should be spent.
  3. MAKE A SCHEDULE - Decide how the holidays will be divided. Most children of divorce secretly feel the divorce is their fault, so do not give them more reason to feel this way by making your children feel guilty for being with the other parent. Reassure your kids that you will be okay while they are with the other parent, and encourage them to enjoy their time there.
  4. BE REALISTIC - "Picture perfect" holidays are usually just an illusion. Have realistic expectations about the holiday season, especially the first year after a divorce.
  5. THINGS GET EASIER - Getting through the holidays is always a difficult task for those going through a divorce, and even after the divorce is over. Remember to take it ONE DAY AT A TIME. It does get easier, it does get better, and eventually it does hurt less.

Do I Have To Let An Employee Take A Medical Leave of Absence

By: Laura C. Hess

You receive a doctor's note stating that one of your employees is receiving medical treatment, cannot work, and is expected to be unable to work for several months. Do you have to hold the employee's job open for him?

The federal Family Medical Leave Act ("FMLA"), and its California counterpart, the California Family Rights Act ("CFRA"), require an employer with at least 50 full time and part time employees to hold the employee's job open up to 12 work weeks, if the employee has worked for the company for at least 12 months. If CFRA leave is for the employee's own serious health condition, the employee may elect or the employer may require the employee to use any accrued vacation time or other accumulated paid leave, including any accrued sick leave.

Even if the employee does not qualify for leave under the FMLA or CFRA, an employer may still be required to let an employee take a medical leave of absence. This is also true if the employee needs to take an extended medical leave of absence past the 12 week guarantee under FMLA or CFRA.

California's Fair Employment and Housing Act ("FEHA") requires employers to make reasonable accommodations for their employees' disabilities and medical conditions, so long as providing the accommodation does not cause the employer undue hardship. Gov. Code § 12940(m). The obligation to provide reasonable accommodation is an affirmative duty. 2 C.C.R. § 7293.9(a).

"Disability" is broadly construed to include any physical or mental condition which makes performance of a major life activity difficult. Gov. Code § 12926.1(j)(1)(B); 2 CCR§ 7293.6(d). "Working" is considered a major life activity. Gov. Code § 12926.1(c).

If the employee cannot presently perform the essential functions of the job, or otherwise needs time away from the job for treatment and recovery, holding a job open for an employee on a leave of absence or extending a leave provided by the CFRA, the FMLA, other leave laws, or an employer's leave plan, may be a reasonable accommodation provided that the leave is likely to be effective in allowing the employee to return to work at the end of the leave, with or without further reasonable accommodation, and does not create an undue hardship for the employer. 2 C.C.R. § 7293.9(c).

However, employers are not required to allow employees to take indefinite leaves of absence, where the employee does not know if and when he will ever be able to return to work. Id.

The court looks at several factors in deciding whether it would be an undue hardship for an employer to allow an employee to take a leave of absence as a reasonable accommodation. They include, for instance, the nature and cost of the leave, the company's ability to pay that cost, the impact on operations, and the number of employees. 2 C.C.R. § 7293.6(r). For instance, if the company is a small, family owned business with only four employees, the company may not have the financial or staffing resources available to allow an employee to take an extended leave.

If the employer can show that the cost of allowing the employee to take leave is an undue hardship, (for instance, the cost of providing the employee with benefits while he is on leave,) the employer is still required to permit the leave of absence if funding is available from another source, e.g., a state vocational rehabilitation agency, or if federal, state or local tax deductions or tax credits are available to offset the cost. In the absence of such funding, the employer should give the employee the option of paying the employer's portion of the cost of continuing his benefits while he is on leave. 29 C.F.R. pt. 1630 app. §§ 1630.2(p).

If the employer fires the employee because it claims it would be an undue hardship to allow the employee to take a medical leave of absence, the employer risks being sued for disability discrimination, wrongful termination in violation of public policy, and failure to accommodate disability. These claims all carry the risk that the employer may have to pay the plaintiff's attorney's fees and costs if the employee wins his case.

Pre-existing Conditions and Future Surgery in Personal Injury Cases

By: Merielle Enriquez

In a personal injury action, whether a Plaintiff has pre-existing injuries and whether a Plaintiff alleges the need for future surgical intervention is relevant to the issue of medical damages in Nevada.

In order to minimize liability exposure for a Defendant, it is important to conduct focused and aggressive discovery on a Plaintiff's prior medical history to determine if the Plaintiff has any pre-existing injuries. A pre-existing condition is a medical or physical condition that a personal injury plaintiff had prior to the subject accident, related to current claims. See e.g. Grover C. Dils Medical Center v. Menditto, (2005) 121 Nev. 278. A person who has a condition or disability at the time of an injury is not entitled to recover the damages therefor. Nevada Jury Instructions - Civil 2011 Ed. Inst. 5PID.3. However, a plaintiff is entitled to recover damages for any aggravation of such pre-existing condition or disability proximately resulting from the accident. Id.

In defense of a personal injury claim, it is crucial to obtain all of the medical records of a Plaintiff that pre-date the accident for a minimum of five years. The prior medical records should evidence whether or not Plaintiff suffers from a pre-existing condition, and should also provide a history of any past surgical procedures performed. Often, Plaintiff's attorney will not voluntarily provide this information. As such, prior medical record information should be early on in discovery via interrogatories and requests for production. Defense counsel should also obtain a HIPAA compliant medical records release, and subpoena all prior medical records from any of the Plaintiff's medical providers.

Another common scenario a Defendant faces is the Plaintiff's allegation that he or she will require future surgery as a direct result of the alleged accident injuries. In Nevada, in order for a Plaintiff to recover damages for future surgery, a medical expert must testify that the surgery is needed to a "reasonable degree of medical probability." Banks v. Sunrise Hospital, (2004) 120 Nev. 822.

If a medical expert testifies that one will need future surgery to a reasonable degree of medical probability, then recovery for the costs of the surgery can be had as part of future medical expenses and future pain and suffering.

Therefore, in addition to determining whether a Plaintiff has any pre-existing injuries, the Defense must also conduct targeted, defense-oriented discovery regarding future surgery allegations. If the accident occurred two years prior and the Plaintiff still has not undergone any surgery, the Plaintiff should be cross-examined on this, as the surgery allegations are more credible for Plaintiffs who have actually undergone surgery shortly after incurring accident injuries. The Plaintiff's reported pain scores on their medical records should be analyzed and used during cross-examination as well. If the Plaintiff's medical history reports relatively low pain scores of 3-4 out of 10, this too can be used in Plaintiff's cross-examination. Likewise, any treating physician who recommends surgery should also be cross-examined as to whether there are more conservative treatment options available and whether Plaintiff has actually undergone more conservative treatment prior to opting for surgery.

In summary, minimizing exposure to past and future medical expenses will often translate into lower exposure to lost wage, and pain and suffering allegations. In the case of both pre-existing injury and future surgery allegations, retaining a medical expert to conduct a records review as well as an Independent Medical Examination will also serve to bolster the defense.

News and Events:

Laura Hess, Allyson Thompson, and Michelle Philo Appointed to Orange County Woman's Lawyer Association Board

On Monday, December 9, 2013, Kring & Chung, LLP was a proud sponsor of the Orange County Woman's Lawyer Association ("OCWLA") 2014 Board of Officers and Directors Installation and Holiday Celebration.

Partner Laura C. Hess was sworn in as the 2014 President of the Executive Board of Directors. She served on the Board of Directors for five years prior to being President.

Senior Associate Allyson K. Thompson was sworn in as the 2014 Vice President of the Executive Board of Directors. She formerly served as the Secretary and Board Member.

Associate Michelle Philo was sworn is a member of the Board of Directors for 2014. Michelle served as Student Representative for two years prior. She was honored with the Everyday Hero Award in recognition for her exceptional commitment to OCWLA and her efforts in planning the OCWLA Annual Gala. The Gala recognizes the organization's Attorney of the Year and Judge of the Year and serves as the organization's primary fundraiser for the year.

With over 200 members, OCWLA is one the largest affiliate bars to the Orange County Bar Association. OCWLA is dedicated to the advancement of women in the legal profession and the support of diversity in judicial positions and law firm partnerships. OCWLA has grown to fulfill not just the educational needs of its members, but also the needs of the community at large.

Upcoming Score Seminar - Common Legal Questions For Start-Up Businesses

On January 16, 2014 at 6:00 PM, Michelle Philo will be presenting a seminar regarding questions new business owners may have as to the formalities required to get their business off the ground. This seminar assists the small business owner in determining the best legal structure for their business. In addition, the seminar addresses the common types of contracts small business owners encounter and provides attendees with tips for entering contracts. Finally, the seminar will also touch on protecting the intellectual property of a small business. The seminar will take place at the Fullerton Public Library located at 353 W. Commonwealth Avenue. There is now cost for this seminar.

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