Newsletter Archives

The Letter of the Law: February 2012

IN THIS ISSUE:

AWARDS: Kring & Chung Super Lawyers

EMPLOYMENT: New Penalties for Misclassifying Employees

FAMILY: Steps to Take After Divorce

EMPLOYMENT: Pre-Employment Arbitration Agreement Held Unconscionable

Kring & Chung Super Lawyers

Congratulations to Kyle Kring and Kenneth Chung for being selected again for inclusion in the 2012 list of Super Lawyers in California. 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.

New Penalties for Misclassifying Employees

By: Laura C. Hess

SB 459, signed by Gov. Jerry Brown in October 2011, prohibits employers from willfully misclassifying an employee as an independent contractor. "Willful misclassification" means that the employer is trying to "avoid employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor." The new law also makes any non-lawyer who advises an employer to willfully misclassify employees jointly and severally liable along with the employer.

Penalties for violation include:

1. $5,000 to $15,000 civil penalty per violation.

2. $10,000 to $25,000 civil penalty for a "pattern and practice of violations."

3. The court or California Labor and Workforce Development Agency ("CLWD") can contact the California State Contractor's Licensing Board and require it to initiate action.

4. Required notice posting, visible to all employees and the public, stating that the employer has committed a serious violation of the law by willfully misclassifying employers and independent contractors; that it has changed its business practice to avoid further violation; that any worker believing he or she is misclassified may contact the CLWD; and that the notice is being posted pursuant to a state order. This notice must be signed by a company officer and must remain posted for one year.

Steps to Take After Divorce

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Once you have received your filed judgment from the court, your divorce is over, but your work is not necessarily done. If you elect to resume using a previous name, you will need to change your driver's license, vehicle titles and registration, passport and social security card.

For information to change the name on your driver's license, visit the DMV website.

We suggest clients make an ongoing checklist as they remember other items that will need name changes. Examples of some of these items are: auto or other insurance, bank accounts, schools, daycare facilities, credit cards, employers, health care providers, pension and retirement plans, utility bills, and so forth.

Once a divorce is final, you should take care to remove your former spouse from any insurance policies that you will maintain. Be sure to remove any automobiles that your former spouse has been awarded, as well. Verify whether your former spouse is still listed as a beneficiary under any continuing life insurance policies.

Joint credit cards are often overlooked, so do not make that mistake. Close all joint credit cards and open new accounts in your own name. Obtain a credit report about six months after doing so to ensure that there are no outstanding joint credit cards. Divide your assets right away, according to the terms of the judgment. Be fair and prompt with your former spouse as the Court has continuing jurisdiction over the division of assets and can sanction a party for improper conduct.

Last, but certainly not least, you would be surprised to learn how many people forget to change their wills, trusts and health care directives after a divorce is final. Don't be one of those knuckleheads!

Pre-Employment Arbitration Agreement Held Unconscionable

By: Allyson K. Thompson

In the recent case of Wisdom v. Accent Care, Inc. (2012) 202 Cal.App.4th 591, the Third District Appellate Court decided that a clause in an application for employment requiring only the applicant to agree that, if hired, all disputes not resolved informally will be submitted to binding arbitration, is both procedurally and substantively unconscionable. AccentCare had filed a Motion to Compel Arbitration. The trial court denied the Motion.

Four of the six plaintiffs signed Acknowledgement forms when they applied for employment at AccentCare. The Acknowledgement was on the last page of an application form. It stated, "I hereby agree to submit to binding arbitration on all disputes and claims arising out of the submission of this application. I further agree, in the event that I am hired by AccentCare, that all disputes that cannot be resolved by informal internal resolution which might arise out of my employment with AccentCare, whether during or after that employment, will be submitted to binding arbitration."

The Appellate Court reasoned that a court can refuse to enforce an unconscionable provision in a contract pursuant to Civil Code § 1670.5. A provision is unenforceable if it is both procedurally and substantively unconscionable. A contract can be procedurally unconscionable if it is oppressive due to the unequal bargaining power of the parties. In this case, the pre-employment arbitration agreement is procedurally unconscionable as few employees are in a position to refuse a job because of an arbitration requirement." The Court was also concerned that the plaintiffs did not understand that they were waiving their right to a trial, nor was this fact explained to them.

The Court also attacked the provision because it lacked mutuality. The lack of mutuality is made apparent by contrast to a post-hire arbitration agreement, also used by AccentCare, which provided that "in exchange for my agreement to arbitrate, AccentCare, Inc. also agrees to submit all claims and disputes it may have with me to final and binding arbitration...." In the context of an arbitration agreement imposed by the employer on the employee, a one-sided term was found to be unconscionable. The key to this case was that AccentCare required its prospective employees to sign the one-sided agreement to arbitrate. The Court distinguished the AccentCare pre-hire arbitration agreement with the AccentCare post-hire arbitration agreement, concluding that the post-hire agreement did not lack in mutuality because it indicated that both the employee and the employer agreed to proceed to arbitration and waive a jury trial. The Court remarked "clearly defendants knew how to draft a bilateral agreement."

This case is a red flag to employers to review their arbitration agreements in any pre-hire and post-hire documents. Make sure the provisions are bilateral, meaning that both sides agree to binding arbitration and agree to waive a jury trial. Also, ensure that you reference that the employee is free to consult with legal counsel before signing any documents.

Harold D. Park Joins Kring & Chung's Irvine Office

Harold D. Park joins Kring & Chung as an Associate in Irvine. He graduated from the University of California, Irvine in 2000 with a B.A. in Psychology and Social Behavior. Prior to attending law school, Park worked for several independent record labels managing their online presence and marketing.

After being admitted to the State Bar of California in 2009, Park started his own solo practice in which he worked in a variety of practice areas such as immigration, contract, licensing, and entertainment law. In 2011, he joined a plaintiff's class action firm in which he worked on nationwide vehicle defect cases against manufacturers such as Mercedes Benz, BMW, and Honda.

Park will be focusing his practice on employment and business litigation.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

The Letter of the Law: January 2012

IN THIS ISSUE:

BUSINESS: Protecting Customer & Client Lists

PERSONAL INJURY: Admissibility of Traffic Citations, Investigating Officer's Conclusions, and Misdemeanor Traffic Convictions

FAMILY: Division of a Thrift Savings Plan in Divorce

Protecting Customer & Client Lists

By: Allyson K. Thompson

When preparing Employee Handbooks, we frequently are asked by clients, "What can I do to protect my client and customer lists from being taken by departing employees?" Client and customer lists are often a company's most important asset. Legally protecting that asset in California can be difficult.

We advise that the best way to protect your client information is to treat it the same way that you would your proprietary products, designs, and methods: as a trade secret. California courts historically have rarely upheld covenants not to compete and non-solicitation agreements as enforceable, even when negotiated in an employment contract. So, if you make reference to the confidentiality of your client lists in a covenant not to compete or non-solicitation agreement, you run the likelihood of that proprietary information not being protected. Trade secrets however, have been given much more enforcement protection by California courts. It therefore makes better sense to make reference to the confidentiality of your client lists in your trade secret or confidential information provisions.

In California, two conditions must be satisfied for information, including customer and client lists, to enjoy trade secret protection. First, the employer must routinely make efforts to maintain the secrecy of the client/customer information, and second, the information must derive independent economic value from not being generally known to the public. California Uniform Trade Secrets Act and Civil Code §§ 3426.1 through 3426.11.

What must a company do to make efforts to maintain the secrecy of client and customer lists? Make certain that your internal policies make it unequivocally clear that this information is secret and is not to be disseminated, and communicate that policy in writing regularly to your employees.

To satisfy the second requirement, showing that the information has independent economic value from not being publicly known, is inherently easy to demonstrate. Client and customer lists have a natural monetary value, especially if considerable efforts were made by the company to compile the information. Clearly if your client list with contact information was to be leaked to a direct competitor, that competitor now has a ready ability to poach your customers. These customers have a known willingness to purchase a competing product, and the poaching company is spared the time and expense of having to work to generate the list. Mark all of your client and customer lists as "Confidential and Privileged." During exit interviews with key staff that may have access to this information, make sure that they have returned all computers and technology devices that were given to them that may have this information. And immediately terminate access to computer drives that contain this information.

The takeaway: the more a company screams, "this information is confidential and privileged," the more inclined a court will be to agree that this information clearly was not meant to be disseminated, and to protect the information as a trade secret.

Admissibility of Traffic Citations, Investigating Officer's Conclusions, and Misdemeanor Traffic Convictions

By: Robert P. Mougin

What evidence will be admissible in Court is often a central issue in prosecuting or defending motor vehicle accident cases. Lay persons, who are often those who end up on our juries, have a tendency to think that issuance of a traffic citation to one party or the conviction of a misdemeanor traffic offense, is evidence of liability. Additionally, jurors tend to give more weight to the investigating officer's conclusions when determining liability. This article will provide a brief overview on Nevada's laws regarding the admissibility of traffic accident reports, traffic citations, the investigating officer's conclusions contained in those reports, and convictions for misdemeanor traffic offenses.

Traffic Citations are Generally Inadmissible. An Investigating Officer's Testimony Regarding Fault is Generally Inadmissible when based on Hearsay.

It is the function of the trier of fact to decide who and what caused the motor vehicle accident. The case of Frias v. Valle, 101 Nev. 219 (1985) best illustrates the Nevada Court's hesitation to admit Traffic Accident Reports and Traffic Citations, and places limits on an investigating officer's testimony regarding liability.

In the Frias case, a taxicab owned and operated by ABC Union Cab rear-ended a small pick-up truck. The trial court admitted the traffic accident report into evidence, which was prepared by the investigating officer. The jury awarded the truck driver damages and ABC Cab appealed.

On appeal, the ABC Cab argued that the trial court erred in admitting the officer's traffic accident report into evidence. The Nevada Supreme Court ultimately agreed with ABC Cab and ruled that "the conclusions of [the] Officer, based upon statements of third parties and a cursory inspection of the scene, did not qualify him to testify as to who was at fault." Frias, at 221. Further, the Court went on to rule that "evidence of the traffic citation was also inadmissible." Id. To be clear, an investigating officer's statements are still admissible as percipient witness testimony. However, Frias places limits on an officer's testimony as to who was at fault when the officer's conclusions are reliant on hearsay statements and not based on first-hand knowledge.

Conviction of a Misdemeanor Traffic Offense is Insufficient to Trigger Imposed Liability under NRS §41.133

The case of Langon v. Matamoros, 121 Nev. 142 (2005) also demonstrates the Nevada Court's reluctance to admit evidence of traffic citations and convictions of misdemeanor traffic offenses. In this case, Plaintiff Langon sued Defendant Matamoros for personal injuries stemming from a motor vehicle accident. The police issued Matamoros a citation for failure to yield the right of way. Matamoros pleaded no contest, forfeited bail and paid a fine in connection with the citation. Id. at 142. The jury returned a defense verdict in favor of Matamoros and Langon appealed.

On appeal, Langon argued that under NRS §41.133, Matamoros' no contest plea and forfeiture of bail is conclusive evidence that she is liable for Langon's alleged injuries. NRS §41.133 states, "If an offender has been convicted of a crime which resulted in the injury to the victim, the judgment of conviction is conclusive evidence of all facts necessary to impose civil liability for the injury." The Court did not agree with Langon, finding that Langon's interpretation was not consistent with the legislative intent of NRS §41.133, which was intended to protect victims of violent crimes, and directly conflicted with NRS §41.141, Nevada's modified comparative negligence statute that insulates a defendant from liability when the plaintiff's comparative negligence is ruled more than 50%. Id. at 145. In conclusion, the Court held that because NRS §41.133 does not apply to misdemeanor traffic offenses, convictions entered upon traffic citations may not be used to conclusively establish civil liability.

Although NRS 41.133 cannot be used to establish civil liability as a matter of law for misdemeanor traffic convictions, opposing counsel may still comment on the misdemeanor at the time of trial. Defense counsel should therefore file all appropriate pre-trial motions to prevent the inclusion of such evidence as being prejudicial to the defendant.

Division of a Thrift Savings Plan in Divorce

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A Thrift Savings Plan ("TSP") is capable of division in a divorce, annulment or legal separation. It can also be garnished to satisfy a participant's past-due alimony or child support obligations.

A TSP is a retirement savings plan for federal civilian employees and some uniformed services. It is a defined contribution plan similar to a 401(k) plan. Whenever there is a TSP, there is usually another retirement system such as a FERS annuity or military retirement.

TSP will provide some basic information to a spouse or spouse's attorney upon written request. The information that they can provide is limited to the account balance, any loan balances, and statements. TSP cannot provide personal identification information for the member such as date of birth or social security number.

A TSP can be divided by presenting TSP with a court order that complies with 5 U.S.C. §§ 8435(c), 8467 and 5 C.F.R. part 1653 subp. A. TSP can provide a "model order" to assist the preparer in complying with the necessary language. From a valid order, TSP will pay out the payee's present designated entitlement, but will not honor an order for a future payment.

It is recommended that once a TSP is identified as part of community property, that a court order be issued to freeze the TSP account. That will prevent or limit post-separation loans or withdrawals.

In the event of a divorce, a member should take steps to file a new designation of beneficiary with TSP to ensure that the beneficiary they want to receive benefits is the person currently named. Otherwise, TSP has no option but to pay out to the beneficiary listed, even if that is a former spouse! That is true even if the former spouse waived any interest in the TSP account.

To garnish a TSP for unpaid support, TSP must be presented with a writ, order, or similar legal device that properly instructs them as to the amount to be paid and to whom. TSP can usually provide payment within 60 days of receiving a final order, but additional time will be needed to prepare for that final order.

If you are contemplating divorce, or have additional questions about a TSP Plan incidental to a divorce or legal separation, please contact Kring & Chung, LLP's Family Law Department. Kring & Chung has family law practitioners in its Irvine, Sacramento and Las Vegas offices.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

The Letter of the Law: December 2011

IN THIS ISSUE:

FAMILY: California Child Support

COMMUNITY: Kring & Chung's Annual Thanksgiving Food Drive

FAMILY: Which Model is Best for Your Divorce?

BUSINESS: Additional Insurance Coverage

CONSTRUCTION: Prohibition Against Type I Indemnity Provisions Extended to Commercial Construction Agreements

EMPLOYMENT: Safe Holiday Party Tips

EMPLOYMENT: Sexual Harassment Training Deadlines

California Child Support

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Typical scene at a family law courthouse:

Court: Mr. X, you are hereby ordered to pay child support in the amount of $2,480 per month for Junior, commencing immediately and continuing until the child emancipates.

Mr. X: (Gasps audibly) But your honor, after taxes are deducted, I only bring home $4,025 per month. How am I supposed to pay my rent? How can I afford food?

Court: Not my problem, Mr. X. Your child support is the first check you write.

Attorneys see this scene played out routinely in family court. The amounts may change but the shocked, angry faces are all too similar and familiar.

Family Code section 4053 states that a parent's first and principal obligation is to support his or her minor children according to that parent's circumstances and station in life. That section also states that each parent is mutually responsible for the support of their children.

Another typical scene at a family law courthouse:

Court: Mr. Y, you are hereby ordered to pay child support in the amount of $6,400 per month for Junior and Jennifer, commencing immediately and continuing until each child emancipates.

Mr. Y: What!? Your Honor! It doesn't cost $6,400 a month to raise two children!! She's (pointing at baby-momma) just going to use the support for shopping and lip filler!

Court: Not my problem, Mr. Y. The children are entitled to share in the standard of living that you enjoy.

Mr. Y: I don't mind sharing with my kids, what I care about is her (again pointing at the other party) paying her personal trainer with my support money!

Federal law requires that states establish guidelines for child support in order for those states to receive federal funding for public assistance and enforcement programs. For this reason, the State of California has established severally court-approved software programs that calculate the appropriate, aka guideline, child support amounts after entering relevant financial and custody information for each parent.

In California, our most commonly subscribed support calculation software are Dissomaster, Xspouse and Supporttax. Chances are that any family law attorney you consult for your child support questions will utilize one or more of these calculators. The attorney will start by entering wage information for each party, the custody and visitation timeshare, and depending upon the sophistication of the issue involved, may enter additional information such as other taxable income, mortgage interest deductions, and so forth. There is an algebraic formula for child support that is set forth in Family Code section 4055(a) if you are a math nut. We prefer to use the software.

Child support is based upon each parent's annual gross income from all sources (yes "All"). This may include employer-paid expenses such as living expenses, car expenses and so forth.

Furthermore, in relation to the fact that each parent is responsible for supporting a child, the court has the power to impute earnings to a parent that is deemed to be under-employed, order them to seek work and provide proof, order them to participate in a vocational evaluation, and so forth.

As can be gleaned from the information above, the State of California places the interest and well-being of its children as its top priority. See Family Code section 4053(e).

If you have a need for child support, either an initial order or a modification of a previous order, or if you have an existing order that you believe to be too high or too low, please call the author and schedule a free 30 minute consultation.

Kring & Chung's Annual Thanksgiving Food Drive

Kring & Chung held its 3rd Annual Thanksgiving Food Drive on Saturday, November 19th. The Food Drive benefitted families of the South Orange County Family Resource Center and the Shalimar Learning and Teen Center in Costa Mesa.

The South Orange County Family Resource Center is comprised of four non-profit organizations committed to improving family and community life. The Shalimar Learning and Teen Center is part of THINK Together, a nonprofit organization, that is one of California's leading and largest providers of after-school programs serving 100,000 students throughout Los Angeles, Orange, Riverside, San Diego, San Bernardino and Sacramento counties. We feel honored to have helped the families of these deserving organizations this holiday season.

We want to thank everyone who participated in our food drive. A special thanks to our employees, clients, business neighbors, friends and family who contributed. We were able to provide 38 families with a complete Thanksgiving meal.

Which Model is Best for Your Divorce?

By: Jill L. Barr

The end of a marriage is often equated with death. There are various stages of mourning one undergoes upon a "death" of a marriage. The dissolution of a marriage is also a termination of a partnership and thus, in many respects, a business transaction. It is often difficult to competently enter into a business transaction while undergoing the grieving process. Stresses in marriage do not always equate to dissolution of the marriage, but when it appears that dissolution is inevitable, there are various models one can utilize when going through the dissolution process.

These are the primary models which are available to those individuals who are finding themselves faced with the dissolution of his/her marriage. It is important to choose the model that best fits the parties involved. Consulting with an attorney to discuss the various models is an important first step to making a decision. The models are as follows:

Mediation. The parties can engage in confidential mediation with an attorney of their own choosing. Mediation is voluntary and both parties should be able to discuss and represent their interests adequately in a series of meetings between themselves and the chosen mediator. The mediator is a neutral and will attempt to obtain full agreement on all issues. The mediator does not represent either party and will draft all paperwork needed to obtain the dissolution. If the spouses/parties are not equally able to represent their interests in this process, if for example one party feels that the other party is a superior negotiator or feels intimidated/demeaned by the other party, this is probably not the right process for him or her. However, this process can be very successful for many, and although the process involves the two spouses sitting down together in meetings with a mediator, the spouses can also consult with an attorney of his/her choosing. This consultation can be invaluable in preparing for the mediation sessions.

Collaborative Law. Collaborative law is similar to mediation in that it is a voluntary process to which both parties must consent. The goal is to attain full agreement on all issues. This process involves a "team" approach, in that the parties will each have his/her own attorney. Depending on the specific needs of the particular situation at hand, there may be other professionals involved in this process as well. This process, like mediation, involves a series of meetings with the parties and the professionals involved in the case. The "team" may include a financial specialist or child specialist if the parties decide that the input from these professionals will assist them in reaching an agreement. This process is also not for everyone. It can be very beneficial for parties who do not want to engage in litigation, but feel that mediation is not appropriate for their situation. This process allows for parties to reach agreements which are best for them and are not limited by the limitations which can be imposed upon them via the litigation model.

Litigation. One or both parties may simply decide that neither of the two above models works for them, and they may decide to pursue litigation. Litigation does not necessarily mean that all the issues will ultimately be determined by a Judge. In this process there are opportunities to resolve the matter short of a trial, and most cases ultimately resolve without a full trial on all issues. But the parties will likely have needed a Judge to decide some interim issues along the way.

Additional Insurance Coverage

By: J. Christopher Bennington

In an effort to spread the cost of construction defect litigation, many carriers for general contractors and subcontractors have begun requiring their named insureds to obtain "additional insured" coverage from the named insureds' subcontractors. For example, the policy issued to a general contractor may demand that the general require his or her electrician, plumber and other subcontractors to have the general named as an additional insured on each of the policies issued to those subcontractors. In this way, there are likely to be several policies covering the general contractor against any given claim, which can dramatically reduce the exposure for the general contractor's own liability carrier.

The requirement to procure additional insured status under subcontractor policies is normally added by way of an endorsement to the main policy form. The provision may be included in what appears to be an innocuous form that covers a variety of topics, but it can have a devastating impact on the insured's coverage.

Such provisions normally require that the subcontractor's policy include limits of liability at least as large as the limits provided by the named insured's own policy. There may also be other specific requirements about the form and nature of the additional insured coverage required. For example, subcontractor carriers issuing additional insured endorsements often issue endorsements that provide only "ongoing operations" coverage, which ostensibly ends when the subcontractor has finished his or her work on the project. The named insured's carrier may actually require that the subcontractor carrier provide "completed operations" coverage which applies to losses developing after the subcontractor has finished work and left the site.

The requirement for additional insured coverage can be enforced by the carrier in a number of ways. Some carriers provide that the insured's coverage remains in effect, but that the carrier has the right to audit and rerate the policy to charge extra premium after the fact if the insured does not obtain the required additional insured coverage on each project.

Other policies provide that the limits of insurance available to the insured are reduced if the additional insured coverage is not obtained. Kring & Chung recently handled a matter in which the carrier maintained that coverage was reduced from $1 million to $50,000 because the insured had allegedly failed to obtain additional insured coverage from all of its subcontractors.

It can be even worse. Some carriers have taken the position that obtaining additional insured coverage is a policy warranty, and that failure to obtain the additional insured coverage may void coverage altogether for a given claim, or even allow for rescission of the policy itself. Kring & Chung has also had to deal with at least one case where the carrier claimed the right to rescind its policies because the insured failed to obtain additional insured coverage from two subcontractors on one small project.

This has become a critical issue for our construction clients. It is essential that anyone engaged in construction be familiar with the terms of their liability policies and take steps to insure that they have satisfied any additional insured coverage requirements. This process should be taken as seriously as maintaining worker's compensation coverage or any other element of the client's insurance portfolio.

In order to protect against potential loss of coverage, we recommend that our clients do the following:

1. Discuss with your agent or broker during the application process if there is going to be any requirement that you obtain additional insured coverage from your subcontractors;

2. Obtain complete copies of all your policies, not just renewal notices or declaration pages, so that you know exactly how much coverage and what types of coverage are required;

3. Review your subcontracts to make sure that they require the subcontractor to provide the specific limits and types of coverage demanded by your own carrier; and

4. Obtain certificates of insurance and additional insured endorsements from each subcontractor working on each of your projects.

At Kring & Chung we can assist you with any necessary policy reviews to determine the additional insured coverages that you must obtain. We can also help you amend your subcontracts to require the necessary coverage from your subcontractors. We look forward to speaking with you about this or any other insurance or construction issues.

California Legislature Extends Prohibition Against Type I Indemnity Provisions to Commercial Construction

By: Christopher J. Stipes

In 2008, the California Legislature enacted AB 2738, prohibiting "Type I" indemnity agreements in residential construction agreements. A Type I indemnity agreement requires the subcontractor to pay one-hundred percent of a claim for which the subcontractor and general contractor are jointly responsible, regardless of the respective degree of fault. Thus, if a jury finds a homeowner has suffered $1,000,000 in damages, for which the general contractor is ninety percent responsible and the subcontractor is ten percent responsible, the subcontractor must pay the entire $1,000,000 verdict if it has signed a Type I indemnity agreement. Due to AB 2738, this result is no longer permitted for work performed under residential construction subcontracts entered into after January 1, 2009. Under AB 2738, the general contractor would be forced to pay its $900,000 share of the $1,000,000 verdict, without recourse against the subcontractor.

The California Legislature has now extended the protection against Type I indemnity agreements to subcontractors in commercial construction. On October 10, 2011, Governor Brown signed SB 474 into law. SB 474 prohibits Type I indemnity provisions in subcontracts for commercial construction entered into after January 1, 2013.

However, there is a slight difference between the residential and commercial statutes. SB 474, prohibiting Type I indemnity in commercial construction contracts, only prohibits indemnity for the general contractor's "active" negligence. It still allows the general contractor to pass liability for its own "passive" negligence, such as failure to supervise, on to the subcontractor. AB 2738, prohibiting Type I indemnity in residential agreements, applies to both active and passive negligence by the general contractor. This important distinction is best illustrated by the following two examples.

Example 1 - Passive Negligence: A jury finds $1,000,000 of damages at a structure. They find the grading subcontractor ninety percent at fault, and the general contractor ten percent at fault. Assume in this instance the general contractor is at fault because it failed to detect and correct the improper work of the grading subcontractor. In this situation, the general contractor's negligence is "passive," i.e., an omission rather than a commission. If the structure is a residence, the grading subcontractor can only be forced to pay $900,000, its ninety percent share of the joint liability. The general contractor must pay the other $100,000, its ten percent share, even though its negligence was passive. However, if the structure is commercial, the grading subcontractor will be forced to pay the entire $1,000,000 verdict, even though ten percent of the fault was assessed against the general contractor. The result is different in the commercial context because SB 474 still allows the general contractor to force the subcontractor to pay claims which are based in part on the general contractor's own passive negligence.

Example 2 - Active Negligence: A jury finds $1,000,000 of damages at a structure. It finds the grading subcontractor ninety percent at fault because poor compaction led to excessive soil movement causing damage to the structure. The jury finds the general contractor ten percent at fault because it acted as its own framer and incorrectly nailed shear panels, which contributed to the damage caused by the soil movement. In this case, the general contractor's negligence is active, not passive. Accordingly, whether the structure is residential or commercial, the general contractor must pay its $100,000 share of the verdict, as it may not be indemnified against its own active negligence under either AB 2738 or SB 474.

AB 2738 and SB 474 do not apply to policies of insurance issued to subcontractors by general liability insurance carriers. In particular, neither bill applies to additional insured endorsements. However, the subcontractor itself may no longer be forced to pay for more than its fair share of damages, whether the setting is residential or commercial.

Safe Holiday Party Tips

By: Kyle D. Kring

Believe it or not, it is that time of year again. Holiday parties are a great time to celebrate all the accomplishments your business has achieved throughout the past year. Often it is the only time all the employees get together in a relaxed social setting. Unfortunately, this increased social interaction and alcohol consumption can result in potential liability for your business. This potential liability can arise from alcohol related auto accidents, sexual harassment complaints, and religious discrimination complaints, to name a few.

Accordingly, the following are a few things to consider for your upcoming holiday party.

- Consider a luncheon rather than an evening party. It is both cheaper and safer.

- Communicate, via email or memo, a reminder to your employees to use good judgment and be safe (do not drink and drive) at the upcoming event.

- Do not let minors drink.

- Limit the amount of alcohol provided, such as by providing a limited number of drink tickets (2) or limiting firm sponsored drinks to a limited amount of beer and wine. Do not let employees pour their own drinks.

- Provide non-alcoholic alternatives for those who don't drink.

- Do not push drinks!

- Plan activities, drawings, etc. These make for less active consumption of alcohol.

- Designate someone to monitor all employees' alcohol consumption. This person needs to be someone who will take the initiative to tell anyone that is intoxicated that he/she cannot drive themselves home.

- Arrange alternative transportation for anyone who might need it. Have the names and phone numbers of taxi companies ahead of time.

- Stop serving alcohol an hour before the party officially ends.

- Do not rely on coffee to sober up your guests. Only time can make someone sober.

Have a wonderful and safe holiday season!

Sexual Harassment Training Deadlines

Is the clock ticking for your company's workplace sexual harassment training deadline? With only four weeks left, now is the ideal time to get started - with Kring & Chung's Sexual Harassment & Harassment Seminar.

Our training delivers a high-quality learning experience at an affordable price. In addition to complying with California state law, our training also helps minimize legal exposure as we discuss best practices for avoiding litigation exposure for harassment related claims. Here is why so many turn to Kring & Chung for compliance training:

- Engaging live format, as compared to a computer program;

- Inclusion of related issues like race, disability, age, sexual orientation;

- Course customization with inclusion of your company's specific harassment policy; and

- Versions for both employees and managers.

Contact us today if you would like to schedule your company's harassment training.

Attorneys in the Spotlight

On behalf of Starbucks Coffee Company, Sacramento Kring & Chung Partner Shane Singh prepared and prevailed on a motion for summary judgment in a case related to claims of disability access discrimination. The U.S. District Court for the Central District of California sustained Singh's objection to plaintiff's expert report and conclusions, finding that these were insufficiently authenticated. The Court adopted the findings of the expert retained by Kring & Chung on behalf of Starbucks, and granted Starbucks' Motion for Summary Judgment.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

The Letter of the Law: November 2011

IN THIS ISSUE:

CONSTRUCTION: Contractor Not Liable for Independent Contractor's Safety Failures

COMMUNITY: Kring & Chung Hosts Rising Athlete in Annual Triathlon

BUSINESS: "Red Flags" For Business Owners

EMPLOYMENT: Discriminating Against... the Unemployed?

Contractor Not Liable for Independent Contractor's Safety Failures

By: Brendan J. Coughlin

Early November 2005, at San Francisco International Airport, mechanic Anthony Verdun pulled his injured arm from the moving parts of a baggage conveyor belt. The conveyor had no shields or cover, in alleged violation of Cal-OSHA regulations. Verdun was required to be in a tight, cramped space with little light to perform an inspection on the conveyor while it was in operation.

US Airways hired Verdun's employer, Lloyd W. Aubry Co., to maintain and repair the conveyor. US Airways claimed that it did not direct the work done on the baggage conveyor.

Verdun and SeaBright Insurance Company, his worker's compensation insurer, sued US Airways for his injuries and benefits paid. US Airways' motion for summary adjudication was granted, with the trial court finding that, because Verdun worked for an independent contractor, he could not sue the airline. The Court of Appeal reversed, stating that the safety violations alleged created a non-delegable duty of care on US Airways to provide a safe work environment that could not be passed on to Lloyd W. Aubry Co.

In SeaBright v. US Airways, Inc., (2011) 52 Cal.4th 590, the California Supreme Court reversed the Court of Appeal. This new case affirms the line of cases in California holding that injured employees of independent contractors cannot sue those who contract with their employers. SeaBright expands this rule to include even those instances when the injury is caused by a failure to comply with workplace safety requirements.

Essentially, the Court stated that tort law duties owed under Cal-OSHA regulations to employees of an independent contractor are delegable when the duties arise from the contract with the independent contractor. The Court reasoned that the cost of worker's compensation coverage is incorporated into the contract price negotiated by the responsible employer.

As with any case involving independent contractors, a threshold question is the degree of control over the independent contractor and its employees. In this case, US Airways exerted little influence over how Lloyd W. Aubry Co. and its employees operated the baggage conveyor. Cases of this type are extremely fact-sensitive. The existence of a reasonable dispute as to who controls the employees would have rendered summary adjudication inappropriate.

The attorneys at Kring & Chung understand the important elements of independent contractor issues, and can knowledgeably assist with effective contract formation and safety regulation compliance. We are available to answer your questions.

Kring & Chung Hosts Rising Athlete in Annual Triathlon

Congratulations to Madison Himler who placed first in her age category in the Kring & Chung Newport Beach Triathlon on Sunday, October 23, 2011. Kring & Chung proudly sponsored Madison in the race. Equally, if not more impressive, Madison, who is just 13 years old, had the fastest swim time for any female in the race. Madison also swam without a wetsuit, which is a disadvantage for the swimmer. Quite an accomplishment for a thirteen year old!

Madison was recently named the "Junior Lifeguard of the Year" for the internationally acclaimed Huntington Beach Junior Lifeguards. Madison is currently an honors student at Pioneer Middle School. Congratulations Madison for all that you have accomplished. We are very proud of you! We look forward to following your continuing development as an athlete and student. Madison has some big goals, including competing in the Kona Ironman, attending Stanford University and competing in the 2016 Olympic Games. We look forward to sponsoring you next year in the 2012 Kring & Chung Newport Beach Triathlon.

"Red Flags" For Business Owners

By: Laura C. Hess

Here are some common problems that our clients who are business owners come to see us about:

1. One of your customers represents most of your sales. For this reason, you let it run up a large account receivable, whereas otherwise you would have cut it off long ago. However, you are starting to worry now as to whether this customer is ever going to pay you.

2. One of your salespersons recently quit to take a job elsewhere. Since then, your customers are telling you that this salesperson is calling them and trying to get them to move their business over to his new company.

3. An employee came into your office in tears because of the way her supervisor is treating her. She is complaining to her co-workers and starting to use legal catch phrases, like "hostile work environment."

4. You want to fire an employee. However, right before you were going to fire him, you received a doctor's note saying that the employee will be out on stress leave for the next two weeks.

5. Your distributor called you and said that they are getting a lot of customers complaining about and returning your products. The distributor demands that you determine what is causing the problem and implement better quality control. It is going to stop all sales of your products in the meantime.

6. One of your customers is complaining because it sent you a purchase order a long time ago, but due to circumstances beyond your control, you have not been able to fill the order yet. The customer is getting angrier by the day and says that, if it cannot get the product immediately, it cannot fill its obligations to its own customers and it will lose business.

7. You hired a vendor to do a job for you. You have paid it a lot of money so far. However, the project has not been completed yet, and there is no end in sight. Every day that the project drags on is causing more harm to your business.

8. You learned that there is a potential problem with one of your products that, if it happens, could cause the product to fail, or even hurt someone. You do not know yet how likely it is that this failure will happen or how much product is affected. You are wondering whether you may have to do a product recall, but you do not know whether you are required to do so, or how to go about doing it.

9. You want to fire an employee. His job performance is poor. However, he has a medical condition, and you are worried he will sue you if you let him go.

10. You classified someone who works for you as an independent contractor. Now you are not sure if this person really qualifies as an independent contractor, or whether he should be a W-2 employee. If you make this change, you are worried that this will make this person realize that you had misclassified him before, and invite a lawsuit.

These are all "red flag" situations where you should speak to a lawyer right away. We have experience consulting our clients in these matters and can point you in the right direction.

Discriminating Against ... the Unemployed?

By: Laura C. Hess

Congress is currently considering enacting President Obama's American Jobs Act. A portion of this Act would make it illegal for employers to discriminate against unemployed job applicants.

The Act would make it unlawful for an employer to take into consideration the fact of the applicant's unemployed status, or refuse to hire someone because he or she is unemployed.

The Act further would make it illegal for an employer to publish a job advertisement stating that an applicant will not be considered or hired for a position if he or she is currently unemployed.

However, the Act would not preclude an employer from inquiring about or considering the applicant's employment history, or asking about the reasons why the applicant is unemployed, in order to assess his or her ability to perform a job.

If an employer is found liable for violation the Act, an aggrieved Plaintiff can recover liquidated damages of up to $1,000 for each day of the violation, plus reasonable attorney's fees and costs.

Jill L. Barr Joins Kring & Chung's Sacramento Office

Jill L. Barr joined Kring & Chung as a partner in 2011 to manage the Family Law Department in the firm's Sacramento office.

Barr is a Certified Family Law Specialist, Board of Legal Specialization, State Bar of California and has practiced family law for 25 years. Barr handles all types of family law matters, including marital and domestic partnership dissolution, property division, child custody, support matters and modification or post-judgment proceedings. Barr is trained as a Collaborative Attorney and is also on the Special Master panel for the Sacramento County Superior Court.

Evan D. Schwab Joins Kring & Chung's Las Vegas Office

Evan D. Schwab joins Kring & Chung as an associate in Las Vegas.

Schwab received his undergraduate degree from the University of Wisconsin-Madison in 2004 and graduated with honors from Drake University Law School in 2008 with a certificate in Litigation and Alternative Dispute Resolution. While attending Drake, Schwab has worked as a student attorney and worked for law firms focusing on both civil and criminal law. Prior to joining Kring & Chung, Schwab worked at a Las Vegas general practice law firm.

Schwab's practice focuses primarily on family law and business law. Schwab assists parties in reaching the best outcome for them and their families, be it by agreements reached or through aggressive representation before the Court. Schwab is equally focused on making sure his clients are in a position to understand that agreements reached and decisions made by the family court have an impact in other areas of the client's life as well. Schwab focuses on helping family law and business clients take measures to put themselves in the best position for the future.

Attorneys in the Spotlight

Kyle D. Kring and Allyson K. Thompson recently spoke to school administrators and human resource professionals from across the country at the 73rd Annual American Association of School Personnel Administrators Annual Conference in Reno, NV. Allyson addressed "Avoiding Employment Litigation" and Kyle spoke about "Legal Issues Presented by Technology and Social Media in Schools.

Shane Singh, a partner in Kring & Chung's Sacramento office, was recently featured in an in-depth article published in Comstock's Magazine regarding businesses, litigation, and ADA compliance. Comstock's Magazine is a premier monthly business publication for California's capital region, serving Sacramento and the nine surrounding counties. Singh's litigation experience in the representation of businesses in 600 to 700 cases involving disability access code compliance made him uniquely qualified to add his insights into these issues.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

Letter of the Law: October 2011

IN THIS ISSUE:

CONSTRUCTION: The Importance of Construction Contract Review and Negotiation

CONSTRUCTION: Subcontractor Licensing

FAMILY: Death During Divorce

PRODUCTS LIABILITY: Joint and Several Liability Under Nevada Law

You Win or Lose Before You Tee Off: The Importance of Construction Contract Review and Negotiation

By: Kyle D. Kring

I was very fortunate to get to play golf regularly with my dad and Uncle Dean and their foursome. Every Saturday morning was the same, standing on the first tee in the dark and fog at 6 a.m., and a lot of loud "negotiating" back and forth on the numerous bets that would be placed and how many strokes each person would get or give. I was always a bit naïve and cocky. I did not appreciate the fact that it really didn't matter how well I played if I did not negotiate the right bet before we teed off; or in other words, get a fair and reasonable number of strokes before we teed off. I learned quickly that "winning" was really done before we began playing.

The same strategy applies to construction contracting. A lot of the time, whether you win or lose on a construction project or job depends on what you do before you start work. Are there hidden risks that you did not consider because you just wanted to get the work? While getting work is important, so is staying in business; not getting stuck with someone else's liability; not paying liquidated damages; having to pay another subcontractor's union dues or payroll taxes; or after the project is complete, paying your profit on the job to an insurance carrier to cover a deductible or Self-Insured Retention as a result of a construction defect claim.

In this day and age, when margins are tight and owners are squeezing general contractors; general contractors are squeezing subcontractors; and some owners, general contractors, and subcontractors are finding themselves financially insolvent, it is absolutely necessary to have a reasonable and fair contract. No one should have to take on unreasonable and unfair risk. I know this is easier said than done, but you must try to get what is fair and reasonable so you do not regret the consequences after the project. So, before teeing off, please consider the following:

For General Contractors:

  • Make sure your subcontractors are paying materials suppliers, union dues, and payroll taxes (yes, you as the GC are responsible for unpaid payroll taxes).
  • Make sure subcontractors, and their sub- subcontractors are properly insured.
  • Make sure you and the owner are named as Additional Insureds and this documentation is up to date. This is especially important if the project lasts longer than the initial policy period.
  • Make sure you are fully indemnified if a subcontractor screws up his work or injures someone on the job site.
  • Should you have a mandatory arbitration provision? Should you incorporate American Arbitration Association provisions? We generally recommend against it.
  • Should you include a "prevailing party" attorney fee provision?
  • On Federal projects, you must have flow-through provisions advising subcontractors of federal law (as set forth below) and ensuring subcontractors' compliance.

For Subcontractors:

  • Are there egregiously harmful terms in the prime contract that you are tacitly agreeing to? Have you received and reviewed the prime contract?
  • Are you on the hook for liquidated damages that you never considered?
  • Are you agreeing to provide insurance that you do not have, or that you are unable to obtain?
  • Are you responsible for project delays? Is the General Contractor allowed to accelerate your work without being obligated to pay your overtime wages?
  • Are you agreeing to a warranty that you cannot provide? Are you agreeing to warrant work involving other trades that you have no control over?
  • Are you agreeing to indemnify others whom you have no control over?
  • On Federal projects, have you protected your bond rights? Or have you waived them?
  • On Federal projects, have you complied with E-Verify, Federal Acquisition Regulation (FAR) Contractor Code of Business Ethics and Conduct requirements, Davis-Bacon Act (Prevailing Wage), Buy American Provisions of the American Recovery and Reinvestment Act, Contract Work Hours and Safety Standards Act, and the Copeland "Anti-Kickback" Act (which requires weekly payment of all laborers and mechanics)?

In all cases, we recommend that you have an attorney, well-versed in construction, labor and employment, and the pitfalls of litigation, review your contracts to ensure that when you get to the 19th hole, you have done the best job protecting your business and ensuring that your project is profitable.

Subcontractor Licensing - Recovery Allowed Where Subcontractor Held Class A General Engineering License Rather Than Class C Specialty License Required by Contract

By: Paul T. McBride

California law provides a stiff penalty for unlicensed contractors. They may not sue to recover payment. California Business & Professions Code ("BPC")

§ 7031(a) states:

"No person engaged in the business or acting in the capacity of a contractor may bring or maintain any action or recover in law or equity in any action in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract, regardless of the merits of the cause of action brought by the person." (Emphasis added)

Thus, even if the job is completed competently and to the owner's satisfaction, the owner may still refuse to pay the unlicensed contractor and there is nothing the unlicensed contractor may do.

There are three general classifications of contractors licenses under California's licensing scheme. Class A licenses are general engineering contractor's licenses. Class B licenses are general building contractor's licenses. Class C licenses are specialty trade licenses, e.g. stucco, roofing, grading, etc. BPC § 7055.

In a recent California Court of Appeals decision, Pacific Caisson & Shoring, Inc. v. Bernards Bros., Inc., 2011 DJDAR 12647, the court considered whether a subcontractor who possessed a general engineering license, but not a specialty license, was entitled to recover for work performed under a subcontract which required a specialty license. The court ruled that recovery was allowed, on the theory that the specialty license was subsumed within the greater requirements of the general engineering license.

In the case, the general contractor, Bernards Bros., had a contract from the City of Malibu to build a medical center. Bernards' contract with the City included a requirement that the subcontractor hired by Bernards to excavate the foundation and prepare the ground for the medical center hold a C-12 grading contractor's license. Bernards hired Pacific Caisson & Shoring to perform the excavation work. Pacific did not possess a C-12 license. Instead, it possessed a Class A general engineering contractor's license.

Due to a dispute which is not detailed in the appellate opinion, Bernards Bros. refused to pay Pacific at the conclusion of the work. Pacific filed suit seeking payment of $544,000 owed to it under the contract. Bernard Bros. moved for judgment on the grounds that Pacific did not hold the requisite license, i.e. a C-12 grading contractor's license, and therefore was barred by BPC Code 7031(a) from bringing suit to recover payment. The trial court granted Bernard Bros.' motion, entering judgment against Pacific.

The trial court's ruling was reversed on appeal. The appellate court ruled that Pacific's possession of a Class A general engineering license was more than sufficient to qualify it to perform work expected of a C-12 grading licensee. Accordingly, it was entitled to be paid for its work.

The appellate court carefully detailed the statutory definition of a general engineering contractor. BPC section 7056 states that a general engineering contractor:

"Is a contractor whose principal contracting business is in connection with fixed works requiring specialized engineering knowledge and skill, including the following divisions or subjects: irrigation, drainage, water power, water supply, flood control, inland waterways, harbors, docks and wharves, shipyards and ports, dams and hydroelectric projects, levees, river control and reclamation works, railroads, highways, streets and roads, tunnels, airports and airways, sewers and sewage disposal plants and systems, waste reduction plants, bridges, overpasses, underpasses and other similar works, pipelines and other systems for the transmission of petroleum and other liquid or gaseous substances, parks, playgrounds and other recreational works, refineries, chemical plants and similar industrial plants requiring specialized engineering knowledge and skill, powerhouses, power plants and other utility plants and installations, mines and metallurgical plants, land leveling and earthmoving projects, excavating, grading, trenching, paving and surfacing work and cement and concrete works in connection with the above mentioned fixed works. (Emphasis added).

In contrast to a general contractor, "a specialty contractor is a contractor whose operations involve the performance of construction work requiring special skill and whose principal contracting business involves the use of specialized building trades or crafts." BPC § 7058(a). Specialty licenses are established by the California State Contractors Licensing Board; the criteria for each specialty license is published in the California Code of Regulations ("CCR"). An earthwork and paving contractor (License C-12) "digs, moves, and places material forming the surface of the earth, other than water, in such manner that a cut, fill, excavation, grade, trench, backfill, or tunnel (if incidental thereto) can be executed." 16 CCR 832.12.

Finally, the court detailed the scope of work performed by Pacific under its subcontract with Bernard Bros. Under the subcontract documents, Pacific agreed to excavate the site for footing, grade beams, plumbing and utility lines, backfill and grade, and provide temporary support. It also agreed to prepare and submit "calculations of subsurface conditions and geotechnical design parameters, factors of safety, assumptions, design criteria, overstress values, and serviceability/deflection tolerances." In short, Pacific contracted to perform both grading work and engineering work. The court stated, "The subcontract required of Pacific activities that fall beyond the purview of a C-12 contractor but within the expertise of a Class A licensee."

The importance of this case is its emphasis on the broad qualifications required of a Class A general engineering contractor or, by implication, of a Class B general building contractor. It is difficult to imagine a scenario where the possessor of a Class A or a Class B license would be considered unqualified to perform work under any specialty license.

Death During Divorce

Tomorrow is promised to no man. So what happens to a divorce action and property if one party dies during a dissolution proceeding?

The answer depends upon several things, most notably: 1) Did the other party cause the death? and 2) Was the marital status terminated early by bifurcation?

For purposes of this article, I am going to assume that the death is a result of accidental or natural causes, not criminally expedited.

During a divorce proceeding, either party has the right to ask the court to terminate the marital status before the other issues are finalized. With the current California budget cuts, a typical divorce in California is taking, on average, 1½ to 2 years to finalize. This being the case, a party may wish to remarry before then, or may just want the emotional closure that comes with being pronounced a single person again. By completing a bifurcation of marital status, the parties' marital status is dissolved early.

If a party's death occurs after their marital status is dissolved, then the family court maintains jurisdiction over the assets, and the decedent's personal representative steps into the shoes of the decedent (figuratively speaking), and continues to process the property division.

If a party's death occurs before their marital status is dissolved, then the property passes according to intestate succession or other governing estate plan, including survivorship and community property rights, and the family court loses jurisdiction over the property which now must be adjudicated by the probate court.

Notwithstanding whether a bifurcation of marital status has been completed in a case, there are several things that a concerned litigant may want to do to ensure that the spouse they are divorcing will not inherit any more than is necessary.

With real estate being valued as high as it is in California, probably one of the most important things to consider is severing any joint tenancies to properties. Holding property as joint tenants allows for the surviving spouse to receive the decedent's entire property interest without probate. By severing the joint tenancy, the parties will no longer hold title as joint tenants, but rather as tenants in common. Each party will then be permitted to bequeath their ownership interest to someone else of their choosing. This can be a double edged sword however, because no one knows whether they will outlive their spouse.

Another important consideration is creating a "divorce will." Although the back page of a California Family Law Summons contains automatic restraining orders ("ATROS"), the ATROS do not prevent either party from creating a new will and a new unfunded trust. The new will enables a party to decide an alternate inheritance plan other than their divorcing spouse. I recommend that parties make the effort to do such while their divorce is pending, "just in case."

Joint and Several Liability under Nevada Law

By: Merielle Enriquez

The concept of joint and several liability provides that if a Defendant is found negligent in a case involving multiple negligent Defendants, each negligent Defendant will be responsible for the entire amount of the judgment awarded to the Plaintiff. Common law has dictated that when the negligence of multiple tortfeasors combines to injure the Plaintiff, both tortfeasors will be jointly and severally liable for the damages incurred by the Plaintiff. The most common example of cases where joint and several liability is imposed are those involving product defects. For example, in Nevada, if a product is found to be defective under the legal principals of products liability, then the manufacturer, distributor, and/or supplier will be held jointly and severally liable for the damages the defective product has caused.

In contrast, the concept of several liability provides that tortious Defendants are only responsible for the percentage of fault attributed to them. The most common example of this involves multiple motor vehicle accidents. If one negligent defendant driver is found 5% responsible for the Plaintiff's damages and another negligent defendant driver is found 95% responsible, then each negligent Defendant is only liable in the amount of their proportionate share of the judgment.

Nevada has limited the reach of joint and several liability by statute. NRS § 41.141(5) dictates that joint and several liability is limited to the following actions:

  • Strict liability
  • An intentional tort
  • The emission, disposal or spillage of a toxic or hazardous substance
  • The concerted acts of the defendants; or
  • An injury to any person or property resulting from a produce which is manufactured, distributed, sold, or used in the state (Products Liability Actions).

There is, however, one huge exception to the causes of action articulated in NRS § 41.141(5). Joint and several liability in Nevada can still be imposed in negligence cases where there is absolutely no evidence of comparative negligence by the injured Plaintiff. This exception is best illustrated in the Nevada case, Buck v. Greyhound Lines, 105 Nev. 756 (1989). In Buck, twin three-year old daughters were passengers in a car driven by their mother, Marsha Buck. While attempting to make a U-turn on the I-95 north of Las Vegas, the car stalled, blocking the northbound lane of the highway. Shortly thereafter, a Greyhound bus came into view driving northbound on the highway. The bus was unable to stop in time and struck Ms. Buck's vehicle and her sleeping infants.

The main issue before the Court with respect to damages was whether the twin children were entitled to collect their damages based on the theory of several liability, or whether the twins could collect based on a theory of joint and several liability. If the court ruled that the twins were entitled to joint and several liability, the twins could potentially take advantage of Greyhound's liability policy. In making its decision, the Court focused on the statute itself. The Court held that NRS §41.141 was intended to apply only to those actions where "contributory negligence is asserted as a defense." See NRS §41.141(1). In this case, the court held that the "claims asserted on behalf of the three-year old twins sleeping in Ms. Buck's Mustang at the time of the collision would not, as a matter of law, be subject to the defense of contributory negligence." Buck, 105 Nev. at 764.

In summary, Ms. Buck, who was comparatively at fault, could only collect her damages via several liability. However, her twin daughters, who were not comparatively at fault and did not contribute to the cause of the accident, would be able to collect their damages under the theory of joint and several liability.

As personal injury defense attorneys, we recognize the need to build a strong defense in cases involving multiple tortfeasors. We have successfully defended cases involving motor vehicle accidents, premises liability, commercial trucking, products liability and intentional conduct. Kring & Chung can assist in the defense of any potential joint and several liability claim.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

Letter of the Law: September 2011

IN THIS ISSUE:

PERSONAL INJURY: Measuring Damages Paid by Insurance

PERSONAL INJURY: Vicarious Liability Law in Nevada

EMPLOYMENT: Professional Exemption: Law School Graduates Performing Legal Services are Not Entitled to Overtime

FAMILY LAW: Do Watts Have Anything to Do with Lightbulbs?

Measuring Damages Paid by Insurance

By: Paul T. McBride

The collateral source rule provides that when a plaintiff's injuries are paid for by insurance, a jury may not be told about the insurance payments. Instead, the plaintiff may recover the full cost of medical treatment provided to him without any reduction for the fact that an insurance company, rather than the plaintiff, paid the medical bills. The rationale for this rule is that the defendant, who caused the injury, should not be allowed to benefit from the fact that the injured plaintiff happened to have insurance. Accordingly, the defendant must pay to the plaintiff the full cost of the medical services provided, even though some or all of the services were paid for by the plaintiff's insurance company.

For Example: Joe Adams is injured in a car accident through the negligence of Joy Jefferson. Joe is treated for several weeks at Mercy Hospital. His total medical bills are $150,000. Joe signs an agreement when he enters the hospital acknowledging that he is responsible to pay any bills which his insurance company does not cover. Joe's health insurance carrier is PacifiCare. PacifiCare has an pre-existing agreement with Mercy Hospital which establishes rates it will pay for certain procedures. The pre-existing agreement provides that Mercy will accept the rate reimbursements as payment in full for care provided to a PacifiCare insured. When the $150,000 bill for Joe's treatment is submitted to PacifiCare, it pays $30,000. This amount, $30,000, is the negotiated rate for the procedures afforded to Joe, and so constitutes payment in full. Therefore, Mercy Hospital cannot seek to recover the unpaid amount from Joe.

Joe sues Joy for his injuries. Joy admits liability. She disputes damages. She claims she is only liable for $30,000, the amount paid by Joe's insurance company as payment in full for his medical treatment. Joe claims he is entitled to recover $150,000, i.e. the stated cost of his medical treatment. Who is correct?

The California Supreme Court ruled on this question on August 19, 2011, when it issued its opinion in Howell v. Hamilton Meats & Provisions, Inc., 2011 DJDAR 12533. The facts of Howell are essentially those of our Joe Adams/Joy Jefferson scenario, above. The Supreme Court ruled that where the health care provider accepts as payment in full, with no further recourse against the patient, the negotiated fees from the insurance carrier for the patient's treatment, the amount actually paid by the insurance company sets the limit of the defendant's liability to the plaintiff. Thus, in our scenario, Joy has to pay $30,000, not $150,000. This decision was endorsed by six of the seven Justices. Only Justice Klein dissented.

In his dissent, Justice Klein argued the majority's decision confers an unwarranted benefit on the defendant merely because the plaintiff has insurance. If the plaintiff did not have insurance, he would be financially responsible for the entire $150,000 medical bill, and the defendant would therefore be liable to the plaintiff for this entire amount. Instead, the defendant reaps a $120,000 windfall simply because she hit an insured, versus an uninsured, motorist.

Justice Klein admitted the $150,000 bill was probably inflated, and that the hospital did not truly expect anyone to pay this full amount. However, he suggested an evidentiary hearing should have been held to establish the "reasonable" value of the services provided to the plaintiff, which presumably would be somewhere between the $30,000 discounted payment by the insurance company and the $150,000 face amount of the medical bill.

The majority opinion viewed Justice Klein's suggestion as simply unworkable. It spent several pages discussing health care pricing in California to prove its contention that there is no such thing as a "reasonable" cost for health care in this state. It noted that market forces are but one of several factors behind health care prices, and that the 80% "discount" obtained by PacifiCare in this case is relatively common for large insurance carriers. To prove its point that there is no consistency or, indeed, rationality, in health care pricing, the majority noted the "list" price charged for a simple chest X-ray, prior to any negotiated discounts with insurance providers, ranges from as low as $200 to as high as $1,500 at various hospitals in California.

The Supreme Court decision establishes a bright line rule limiting recovery to the amount actually paid by the insurance company when the provider accepts the insurance payment as payment in full. It reserved for a later day how to treat the situation of the uninsured patient who is, at least in theory, liable for the full, albeit inflated, amount of the medical bill.

Vicarious Liability Law in Nevada

By: Robert L. Thompson

Vicarious liability is liability that is derivatively imposed. Essentially, this means that one person commits a tortious act against a third party, yet another person or entity becomes and liable to the third party. The most common situations encountered in Nevada are the doctrine of respondeat superior, independent contractor situations, and claims against automobile owners for their drivers.

Respondeat Superior

An employer will be liable for tortious acts committed by its employee if the tortious acts occur within the scope of employment relationship. The scope of employment generally encompasses all acts which occur while the employee is at work or on the clock. If an employee takes a minor deviation from his employer's business for his own purposes, the employer can still be held liable for the employee's acts. However, if the deviation in time or geographical area is substantial, the employer will not be held liable for the employee's acts.

Generally, the employer is not responsible for any intentional torts committed by the employee. There are three exceptions to this rule. First, when the force used by the employee is authorized within the employment. The most common example is a bouncer using force against a patron in a bar. The second exception is when the friction itself resulting in the use of force is generated by the type of employment. This type of exception is common among bill collectors and towing companies. Finally, the employer can be held liable for the intentional torts of the employee if the acts are utilized in furtherance of the business of the employer. Typically, these situations often arise when an employee attempts to remove a rowdy customer from a store.

In contrast to the common law of most states, the Nevada courts generally take a more liberal interpretation and have ruled that when a person is injured by the wrongful act of another, and the tortfeasor is employed by another person or corporation responsible for the employee's conduct, the employer is liable to the person injured. NRS 41.130. See also, Desert Cab Inc. v. Marino, 108 Nev. 32 (1992). Limitations on this rule are recognized by the Nevada courts when: 1) The action was a truly independent venture of the employee; 2) The act was not committed in the course of the very task assigned to the employee; and/or 3) The act was not reasonably foreseeable considering the nature and scope of employment. NRS 41.745.

As you can see, Nevada's rule is more loosely interpreted than other jurisdictions. This allows a plaintiff's attorney to bring a claim for an intentional tort of a defendant's employee and utilize the discovery process to try and tailor the evidence to fit into one of the exceptions. The courts generally will not entertain motions to dismiss on this issue until the close of discovery, which impacts defense fees and costs greatly.

Independent Contractor Situations

Generally, a principal is not held vicariously liable for tortious acts of his or her agent if that person is an independent contractor. There are two broad exceptions that the courts will apply to this rule. First, when the independent contractor is engaged inherently dangerous activities the principal can be found liable for their acts. This commonly occurs on construction sites which are adjacent to public areas, such as when contractors are excavating a sidewalk. The second exception is when public policy considerations simply make the situation a "nondelegable duty." In Rockwell v. Sun Harbor Budget Suites 112 Nev. 1217 (1997), the Nevada Supreme Court ruled that a landowner who pays a subcontractor to provide security on the premises will be liable for injuries to invitees, even if the injuries are caused by the intentional tort of the subcontractor's employee.

Automotive Owner for Driver

An automobile owner is generally not vicariously liable for the tortious conduct of another person driving his vehicle. Although different states have different exceptions, the one that is most frequently cited is negligent entrustment. An owner may be sued for their own negligence in entrusting their car to another driver. Additionally, in Nevada, liability against a vehicle owner can be imposed under a "family purpose statute" for the damages caused by the immediate family member. NRS 41.440

Professional Exemption: Law School Graduates Performing Legal Services are Not Entitled to Overtime

By: Allyson K. Thompson

The Appellate Court in Zelasko-Barrett v. Brayton-Purcell (2001 DJDAR 12500) recently upheld a trial court ruling that, although the plaintiff had not yet been licensed to practice law in California, he is nonetheless a law school graduate and performed duties that brought him within the professional exemption for those engaged in a learned profession, thus was not entitled to overtime wages. This is an important case that further defines the professional exemption for those engaged in a learned profession.

Labor Code sections 510 and 512 impose overtime compensation and other requirements on California employers, and authorize the California Industrial Wage Commission (IWC) to establish exemptions from the overtime requirements for executive, administrative and professional employees, "provided that the employee is primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises discretion and independent judgment in performing those duties, and earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment." Labor Code section 515.

The applicable IWC Wage Order defines the "professional exemption," as applicable to an employee: "(3)(a) who is licensed or certified by the State of California and is primarily engaged in the practice of one of the following professions: law, medicine, dentistry, optometry, architecture, engineering, teaching or accounting; or (b) who is primarily engaged in an occupation commonly recognized as a learned or artistic profession."

The "learned" professions are described as those requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished from a general academic education, and from an apprenticeship and training in the performance of routine mental, manual or physical processes. 29 C.F.R. § 541.301(a) (2001).

In this case, using section (b) of the applicable wage order, the Appellate Court reasoned that the plaintiff fell within the "learned" professional exemption. Brayton argued that the plaintiff performed tasks customarily performed by junior attorneys. Although plaintiff was supervised by a licensed attorney and did not sign his name to pleadings, he drafted pleadings and discovery demands and responses, did legal research, drafted memoranda of points and authorities, interviewed witnesses, and assisted in deposition preparation.

The plaintiff's principle argument was that because "law" is one of the enumerated professions in which licensure is required, he cannot be deemed to have been employed in a law-related professional capacity unless he was licensed to practice law. In defeating this argument, the Appellate Court relied on Campbell v. Pricewaterhouse Coopers, (E.D.CA 2009) 602 F.Supp.2d 1163, which held that the Wage Order states explicitly that a person employed in a professional capacity is any employee who meets all of the requirements in subsection (a) "or" of subsection (b).

The District Court in Campbell v. Pricewaterhouse Coopers noted that the legislative intent behind creating the "learned profession exemption" was added to the Wage Order in 1989 in response to concerns that the "IWC decided that the professional exemption relied too much on credentialism."

This case is a reminder to all employers to properly classify their employees as "exempt" or "non-exempt." To do that, an employer needs to: 1) make sure that all job positions have a defined job description which sets forth the major job duties and responsibilities and 2) that the job duties and responsibilities; of your employees are reviewed on an annual basis to ensure that they are working within their defined job duties, and that they continue to remain properly classified.

Attorney Spotlight

Laura Hess was selected as an Ambassador for National Association of Women Business Owners-Orange County in July 2011. Orange County is one of the largest chapters of NAWBO. NAWBO's mission is to position women business owners to build their power, passion and profits for success. Its strategic goal is to be the organization of choice for Orange County's 125,000+ women business owners. NAWBO provides leadership training, education on marketing, sales, business development, management, and networking.

As Ambassador, Hess is be responsible for partnering with new members to introduce them into the organization and provide them with information about services and events for business leaders, serving as a table facilitator at monthly member meetings, and serving as a "brand agent" for NAWBO in its community outreach efforts.

Do Watts Have Anything to Do with Lightbulbs?

Short answer: No, at least not in a family law setting.

In a proceeding for the dissolution of marriage or legal separation, there is an opportunity for reimbursement to the community when one of the parties has the sole and exclusive use of an asset while the matter is pending and until a division of the asset is finalized. The reimbursement would be for the reasonable value of the usage. The asset is typically a residence, but can also be a car or other asset. This reimbursement is often referred to as a "right of reimbursement," but that is a misnomer because the reimbursement is discretionary to the Court. The reimbursement issue derives its name from an appellate decision set forth in re Marriage of Watts, (1985) 171 Cal. App. 3d 366.

The Court has the discretion to consider the totality of the circumstances when determining whether it will or will not order a party to reimburse for Watts charges (aka usage charges). For instance, a typical scenario may involve a husband that voluntarily vacates the family home in order to move in with his girlfriend, leaving his wife and kids to stay in the family home until the divorce is final. His reasons for allowing wife and kids to remain the home may be noble, i.e., not wanting to disrupt the children any further as they transition through the divorce. Let's say the house is a million dollar house, which would easily rent for $6,000 a month. There is no mortgage on the house. However, after twelve months of bitter litigation with wife, husband may decide he wants to seek retribution by claiming Watts charges on the house for $6,000 per month (rental value) for 12 months (duration of exclusive use), for a total reimbursement claim of $72,000!

There are several factors that the Court would consider when deciding whether to award husband the Watts charges. Factors such as husband's voluntary vacating of home, the fact that there are children, the reasons for the living arrangements, the relative financial circumstances, the zero mortgage, the division of assets, the amount of support husband was paying, whether wife had advance notice of husband's intention to seek Watts charges, and whether there was domestic violence, would all be considered by the court.

Please mention this article by name for a FREE initial consultation of your family law matter. You can reach our team by calling 949-345-1621 or by completing a short online contact form. Flexible appointments are available by request.

Attorney Spotlight

Allyson K. Thompson was recently selected to be a Society of Human Resources Management A-Team Advocacy Captain for the 48th Congressional District. The SHRM Advocacy Team has been developed by SHRM Government Affairs as a way to assist HR Advocates in making their voices heard on public policy issues impacting the workplace. The SHRM Advocacy Team is a crucial component of SHRM's advocacy efforts, and works with its members to advance the interests of the HR profession at both the federal and state levels. As a member of the SHRM Advocacy Team, Thompson joins the ranks of other HR Advocates committed to moving the HR profession forward, and be the voice of the profession. Each Advocacy Captain serves as the face of HR within the district and acts as the point of contact for SHRM's Government Affairs Team when the need for in-district advocacy arises.

Kring & Chung Employee News

At the American Bar Association's 2011 Annual Meeting, Kring & Chung paralegal Michelle Philo was elected by the SBA Conference (Student Bar Association Presidents from each ABA-approved law school) and confirmed by the Law Student Division Board of Governors to serve a one year term as Vice Chair SBA of the Law Student Division of the American Bar Association. In this position, Philo will oversee the relationship between the SBA and ABA organizations at local, regional and national levels, promote SBA participation and membership in the Division and the ABA, regularly communicate with SBA Presidents at each ABA-approved law school, facilitate discussion on law student issues among the SBA Presidents, and assist with the drafting and filing of policy recommendations on behalf of the SBA Presidents. She will also serve as the SBA Presidents' liaison to the Division and communicate with leadership of national organizations committed to representing interests of student bar associations.

Philo is currently serving her second term as SBA President of Whittier Law School. She is a part-time evening student and currently works as a litigation paralegal at Kring & Chung's Irvine office.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

Letter of the Law: August 2011

IN THIS ISSUE:

CONSTRUCTION: Recovery Against A Contractor's Surety Bond

REAL ESTATE: New Law Prohibits Second Mortgage Lenders From Pursuing a Deficiency After an Approved Short Sale

EMPLOYMENT LAW: Modified Comparative Negligence in Nevada


Recovery Against A Contractor's Surety Bond

By: Timothy J. Broussard

Today's economic environment has created challenges in construction, particularly for subcontractors. The construction industry recession has led to insolvency of builders and general contractors. When builders do not pay subcontractors, remedies available for a subcontractor become challenging. Typically, a subcontractor has no contractual relationship with the owner as it contracts only with a general contractor. Absent a proper lien (Preliminary 20-day Notice), a subcontractor has few remedies against the owner.

One remedy for a subcontractor is to recover against the insolvent contractor's surety bond. A contractor's surety bond is not an insurance policy. It does not afford the protections of an insurance policy. Limits of recovery for the surety bond are $7,500 for contractors and $12,500 for owners. There are several factors to consider:

Statute Of Limitations (Time Limitations)

It is important to commence a lawsuit within two years from expiration of the bond. The claim procedures could take several months to resolve. Also, payment on the bond is first come, first served. Therefore, a speedy claim procedure is necessary.

Burden of Proof

Recovery against the contractor's surety bond is set forth in California Business and Professions Code § 7000-7120. A surety's liability is established by statute. Liability of a surety bond is premised upon a proven violation of Bus. & Prof. Code § 7000. There are two primary violations when a subcontractor is not paid: (a) Diversion of Funds, and (b) Willful and Deliberate Failure to Pay.

A. Diversion of Funds

To establish "Diversion of Funds," a subcontractor is required to show the owner paid the contractor in full and these funds were specifically marked to pay for the work of this subcontractor. (Bus. & Prof. Code § 7108.) Depending upon the surety, the burden of proof can be challenging. A subcontractor will need the assistance of the owner to show evidence of payment.

B. Willful and Deliberate Failure to Pay

Another method to establish liability is to show "willful or deliberate" acts of failure to pay. "Willful or deliberate failure to pay" money due for services when a contractor has sufficient funds, establishes liability by statute. (Bus. & Prof. Code § 7120.) However, a surety will deny a claim if one fails to establish "willful or deliberate" acts by the defaulted contractor. For example, a contractor may plan to pay the subcontractor, but it is unable to pay because of unforeseen circumstances. This contractor may have received sufficient funds, but the surety may deny the claim because there was no "willful and deliberate" act required by statute. Regardless, if a contractor was paid in full for the project, it will be difficult for the surety to argue later that the defaulted contractor's failure to pay was not a "willful and deliberate." However, some sureties take the above stance.

Multiple Surety Bonds

A defaulted contractor may have multiple bonds over a length of time or changed sureties. If the damage occurred during multiple bond periods, a subcontractor may be eligible to seek recovery against multiple bonds. However, the dates of damage by the subcontractor will need to occur within these dates.

Conclusion

Making a claim on a bond must be carefully considered. The subcontractor may have remedies against the defaulted contractor's license bond and multiple bonds may exist. If a subcontractor has properly served a Preliminary 20-Day Lien on the project, Mechanic's Lien and/or Stop Notice procedures against the owner should be first considered. However, recovery of the surety bond against a defaulted contractor can be a wise method to reduce a subcontractor's loss.


New Law Prohibits Second Mortgage Lenders From Pursuing a Deficiency After an Approved Short Sale

By: Anna Greenstin Kudla

Homeowners who are "upside-down" on their loans and want to avoid foreclosure recently received a tremendous benefit from California Governor Jerry Brown. On July 15, 2011, Senate Bill 458 was signed into law extending the anti-deficiency protections of Senate Bill 931. Senate Bill 458 prohibits any deficiency judgment to be requested or rendered for senior or junior liens after a Short Sale of one-to-four residential units.

The previous Senate Bill 931 allowed a homeowner to sell his home at a value less than the existing mortgage, requiring the senior lienholder to accept the sale as a full payment of the existing obligation. The difficulty with Senate Bill 931 was that if the junior lienholders did not forgive the debt, the secondary loan on the property turned into personal debt after the Short Sale was completed. Many junior lienholders sold the lien to debt collectors who proceeded to seek the deficiency from the seller after the Short Sale was completed. This practice is now illegal. Pursuant to Senate Bill 458, all the lenders that agree to a Short Sale must accept the agreed upon Short Sale payment as full payment of the outstanding balance of all loans.

It is important to note that Senate Bill 458 does not apply to: (1) Properties that are residential rentals, commercials, vacant, and retail; and (2) Trustors that are corporations, limited liability companies, limited partnerships, or political subdivisions of the state. The lenders are permitted to seek damages if there is fraud, or if there are other properties intertwined with the loan. In addition, this does not change the process of a Short Sale. The homeowner must still apply and obtain approval from all the lenders. Depending on the homeowner, applying for a Short Sale may have drawbacks. For instance, the seller must disclose his entire financial status honestly and accurately, risking the chance that the lenders may deny the request for a Short Sale and proceed with the foreclosure.

With regards to credit score, unless the bank has specifically agreed not to report delinquent payments or the shortage of the sale, the homeowner's credit score will reflect delinquencies and collections. Real estate agents should not give legal advice to clients facing foreclosure, nor assure sellers involved in the Short Sale process that their credit rating will not suffer adverse effects. Sellers of Short Sales must also seek tax advice before entering into a Short Sale contract. There could be tax ramifications due to debt forgiveness.

It is unclear how new laws will affect the lenders' business practice, and what impact it will have on an already declining market. Sellers, buyers, and agents should seek legal advice prior to proceeding with a Short Sale. In order to protect both parties in a purchase agreement, an addendum should be drafted extending time frames to accept and/or decline a Short Sale pending lender approval, time to obtain legal evaluation, and time to speak with a qualified CPA. In addition, financial obstacles affecting title must be disclosed to buyers involved in Short Sale process. (See Kring & Chung's November 2010 Newsletter discussing Notices under Holmes v. Summers.)

Kring & Chung, LLP has many qualified attorneys to assist with real estate disputes, transactions and concerns.

Anna Greenstin Kudla is an Associate with Kring & Chung, LLP's Irvine, CA office.

Modified Comparative Negligence in Nevada

By: Monica Dean

Nevada follows a variation of the Modified Comparative Negligence Theory, which is a partial legal defense that reduces the amount of damages that a plaintiff can recover in a negligence-based claim based upon the degree to which the plaintiff's own negligence contributed to cause the injury. Specifically, Nevada Revised Statutes ("NRS") 41.141(a) states in relevant part:

"In any action to recover damages for death or injury to persons or for injury to property in which comparative negligence is asserted as a defense, the comparative negligence of the plaintiff or his decedent does not bar a recovery if that negligence was not greater than the negligence or gross negligence of the parties to the action against whom recovery is sought."

Consequently, an injured party can only recover if it is determined that his or her fault does not reach 51%. Under NRS 41.141, a plaintiff who is 50% at fault is not barred from recovery, but his damages are reduced by his own percentage of negligence. See Moyer v. United States, 593 F. Supp. 145 (D.Nev.1984). In other words, a plaintiff may have caused half of the accident and still recover damages from the court, but if it is found that the plaintiff's fault was responsible for more than half of the accident, that plaintiff is barred from receiving any damages determined by the court. We must note, however, that Nevada juries rarely find Plaintiffs to be more than 50% negligent and therefore almost never completely bar their claims.

Thus, in a two-party car accident, a defendant whose negligence constituted 50% of the total causal negligence in connection therewith, is liable to the plaintiff for 50% of her damages. State Farm Auto Ins. Co. v. Commissioner of Insurance, 114 Nev. 535, 542 (1998). In a personal injury negligence-based claim, defendants can use Nevada's Modified Comparative Negligence Theory as a partial and/or complete defense if there is sufficient evidence to support a finding that the Plaintiff's alleged injuries were caused in part or in whole by the Plaintiff's own negligence.

In contrast to a negligence-based claim, Nevada's Modified Comparative Negligence statute can not be interpreted to include strict products liability in a class of actions in which contributory negligence may be asserted as a defense. Young's Mach. Co. v. Long, 100 Nev. 692 (1984). Thus, defendants in a strict products liability action cannot use the ordinary contributory negligence of the plaintiff as a defense to lessen their potential exposure for the plaintiff's alleged damages. However, Nevada recognizes assumption of risk and misuse of product defenses in a strict products liability actions.

Kring & Chung Announces New Associate Christopher Stipes

Kring & Chung, LLP is proud to announce the addition of Christopher Stipes as an associate. Stipes will be primarily practicing construction defect litigation out of Kring & Chung, LLP's Sacramento office. Stipes was born and raised in New York, and earned his bachelor's degree in English from the University at Albany in 2004. Stipes attended McGeorge School of Law and earned his J.D. in 2010. He graduated as a member of the Roger J. Traynor Honor Society, and was an editor on the McGeorge Law Review. While with the Law Review, Stipes published a short article, "Heard it Through the Grapevine: Chapter 28 Saves California Wine Competitions from Prohibition-Era Law," 40 McGeorge L. Rev. 303 (2009). Stipes also studied Fundamental Rights in Europe and America under Associate Justice Anthony Kennedy in Salzburg, Austria.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

Letter of the Law: July 2011

IN THIS ISSUE:

EMPLOYMENT LAW: U.S. Supreme Court Shields Wal-Mart From Gender-Bias Class Action Lawsuit

FAMILY LAW: Overview of the Divorce Process

EMPLOYMENT LAW: U.S. Department of Labor's Latest App: Sue With Your Smartphone

EMPLOYMENT LAW: Two Premium Payments Allowed for Each Meal and Rest Break Missed Per Day

U.S. Supreme Court Shields Wal-Mart From Gender-Bias Class Action Lawsuit

By: Kyle D. Kring

In the most important job-bias case in a decade, Wal-Mart Stores Inc. v. Dukes, the U.S. Supreme Court has dismissed a class action lawsuit of 1.5 million female employees suing Wal-Mart Stores Inc. for gender-based employment discrimination. The lawsuit was first filed in 2001 and aimed to cover every woman who worked at any of the 3,400 Wal-Mart and Sam's Club stores nationwide since 1998. While this historic ruling does not absolve Wal-Mart of its sex-discrimination allegations, it has clearly made class-action discrimination claims much harder to pursue and has altered the power balance between employers and employees. Had the case proceeded and the workers won, Wal-Mart could have faced billions of dollars in back pay and punitive damages as the world's largest employer. However, the Court's ruling has largely eliminated the monetary threat facing big employers and is likely to significantly impact other gender class-action suits, such as the pending case against Costco Wholesale Corp. The decision is the latest in a series of corporate-friendly Supreme Court rulings under Chief Justice John G. Roberts, Jr. The conservative high court majority has been continuously guarding businesses from class actions, including in AT& T Mobility v. Concepcion, an April case regarding a California class action suit against AT&T Inc.

Although all justices agreed that the employees did not have the right to group damages, there was ultimately a 5-4 split based on whether the case should be allowed to continue as a class action. The conservative majority led by Justice Antonin Scalia claimed that the lawsuit brought by the diverse group of class members was too large and the claims too varied to be certified under the federal court rule - Rule 23. Justices Roberts, Anthony Kennedy, Clarence Thomas, and Samuel Alito joined Scalia in holding that a party who wants to certify a class must show that there are common questions of law or fact capable of class-wide resolution. Scalia wrote that the workers provided "no convincing proof of a companywide discriminatory pay and promotion policy." Employees can file a class action lawsuit only if there is "significant proof" of a "specific employment practice" that unlawfully discriminates.

Meanwhile, the dissenting justices-Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor, and Elena Kagan-stressed that there was substantial evidence of discrimination for the case to go to trial. Leading the dissent opinion, Ginsburg wrote that according to the lower court, promotions at Wal-Mart were made by a "tap on the shoulder" process, with vacancies not regularly posted and managers choosing whom to promote on the basis of their own subjective impressions. The employees presented statistics showing pay and promotion differences along gender lines at Wal-Mart. For example, while women held about 70% of hourly jobs, only 33% of management jobs were held by women. However, Scalia claimed that there were no facts under which the women of Wal-Mart could have been discriminated against in the first place because Wal-Mart had a written policy banning gender discrimination.

It is believed that the new strategy of the workers' legal team will be to regroup into smaller, more focused class action lawsuits targeting specific regions or stores, or to proceed with the filing of separate individual lawsuits.

As a result of this case, it may be increasingly difficult for plaintiffs to sue large corporations by way of class action lawsuits for business wide discrimination, where the corporations have written non-discrimination policies, and provide area managers with the exclusive authority to make hiring and compensation decisions.

Overview of the Divorce Process

This article will provide an overview of the divorce process (more properly referred to as "dissolution"). The general process is the same, whether the divorce is amicable (uncontested) or litigated (contested). The contested divorce will generally involve more extensive discovery, court appearances, and usually a trial.

The person (aka party) that initiates a divorce proceeding files a petition with the proper court. This will generally be the court within the state and county within which they have lived for 6 months (state) and 3 months (county). That party will be referred to during the process as the petitioner.

The petition and other necessary documents are then served on the other person. Service of these documents cannot be done by the petitioner. Once service of the petition has been completed, the mandatory six-month waiting period in California begins to run, and the party served now has 30 days (by personal service) within which to file a response. This party will be referred to during the process as the respondent. If the respondent does not file a response within the 30 day period, the respondent could be defaulted. Once the petition has been served on the respondent, the court will have jurisdiction over the parties.

Within 60 days of filing the petition, the petitioner must prepare and serve his/her preliminary disclosures on the respondent. Preliminary disclosures consist of several documents and have the purpose of providing to the other party a full disclosure of all material facts and information pertaining to all assets and debts in existence at that time, whether such assets and/or debts are community or separate property. This is a requirement set forth in the Family Code (sections 2100, et seq.) in order for that party to comply with their fiduciary duties to the other spouse. Within 60 days of filing the response, the respondent must prepare and serve their preliminary disclosures. Both parties are required to comply fully with the disclosure requirements even if they are both aware of all assets and debts in existence. In the event that either party sought in the future to set aside a judgment, the court might require the parties to provide the financial disclosures in order to assess whether there was a failure to disclose or inadequate disclosures.

Some parties may choose to conduct additional discovery, such as serving form interrogatories, demands for production of documents, taking depositions and so forth. Whether these discovery methods are elected depends upon the attorney's judgment based upon the complexities involved, the adequacy of the disclosures, and whether additional information is needed that is not apparent in the disclosures. In the case of uncontested divorces, the parties may be ready to conduct settlement negotiations after the disclosures have been completed.

Often during the divorce process, the parties may need court orders to resolve issues until the divorce is ready to finalize. These would be referred to as temporary orders because they last until further order of the court or until the entry of the final judgment. The issues usually pertain to child custody and visitation, support, attorney fees allocation, restraining or injunctive orders, and so forth. Some cases may never see the inside of a court room. Other cases may be in court on a regular basis.

There are only two ways to resolve issues in any legal proceeding. Either the parties come to agreements and those agreements are reduced to writing and submitted to the court, or the court makes orders on some or all issues. There are several mechanisms that can be used to help reduce the amount of court appearances, and thereby help reduce to the overall cost of the divorce process on the parties. The parties can discuss matters between themselves; the parties and their attorneys can conduct settlement meetings and/or correspondence; the parties can utilize assistance of mediators, outside professionals such as joint experts, private judges or arbitrators, therapists, etc.

Any issues not resolved by the methods discussed above are resolved by trial. The trial process is instigated by submitting a form to the court that informs the court that a trial is being requested. Upon receiving this form, the court will schedule a trial setting conference. Only the attorneys will attend the trial setting conference. At the trial setting conference, the attorneys will choose dates for the mandatory settlement conference (if requested) and/or the trial date. Sometimes the attorneys or the court will not schedule a trial date until it is determined that the mandatory settlement conference proves unsuccessful.

A family law trial does not involve juries. The judge will make final decisions (rulings) on the issues put before him/her. The trial will usually be the conclusion of the divorce process.

U.S. Department of Labor's Latest App: Sue With Your Smartphone

The United States Department of Labor recently launched its first smartphone application-one that will arguably lead to more wage and hour lawsuits by employees. Available in English and Spanish, the new timesheet app allows employees to track their work hours, including break time and overtime, and the wages their employers owe them. Users can add comments related to their work hours; view a summary of work hours in a daily, weekly and monthly format; and email the summary of work hours and gross pay as an attachment. In addition, links to the Web pages of the department's Wage and Hour Division provide easy access to a glossary, contract information, and materials about wage laws.

Although this free app is currently compatible with only the iPhone and iPod Touch, the Labor Department is looking to develop versions for other platforms as well, such as Android and Blackberry. The department will also explore developing other pay features: tips, commissions, bonuses, deduction, holiday pay, pay for weekends, shift differentials, and pay for regular days of rest.

According to Secretary of Labor Hilda L. Solis, "This app will help empower workers to understand and stand up for their rights when employers have denied their hard-earned pay." The app will presumably make it easier for the Wage and Hour Division to make investigations. Nevertheless, it will be important to not rely on the new wage and hour calculator too much. An employee's own calculations and assumptions may be accidentally wrong, or even purposely false.

Overall, the launch of the application should remind employers to maintain accurate employment records. It is understandable that employers today have a harder time keeping track of employee work time when the employees work outside the boundaries of a traditional work day and office space. However, an employer can mitigate this difficulty by communicating to their employees that correct time records are desired, and if the employees believe there is any discrepancy in their time records, they should immediately notify the employer.

The app can be downloaded from the Wage and Hour Division's home Web page at http://www.dol.gov/whd. When necessary, employers should consult legal counsel regarding this application or any other wage and hour concerns.

Meal & Rest Breaks: Two Premium Payments Allowed for Each Meal and Rest Break Missed Per Day

By: Allyson K. Thompson

On June 2, 2011, the California Court of Appeal, Second Appellate District held in United Parcel Service, Inc. ("UPS") v. Allen, 2011 DJDAR 8073 that Labor Code Section 226.7 allows for two premium payments per work day, one for failure to provide a meal break and one for failure to provide a rest break. This is in an important clarifying ruling, because often in wage and hour litigation there is a dispute as to the number of premium payments owed based on the number or type of break periods that the employer failed to provide.

This case is also a reminder to employers that, while we still do not have a ruling in the Brinker matter regarding when meal breaks must be provided, California laws are being interpreted favorably towards the employees when it comes to ensuring that employers comply with the current applicable California laws and Wage Orders in providing meal and rest breaks to its employees.

Labor Code Section 226.7 provides, "(a) No employers shall require an employee to work during any meal or rest period mandated by an applicable order of the Industrial Welfare Commission ("IWC") . . . (b) If an employer fails to provide an employee a meal or rest period in accordance with an applicable IWC, the employer shall pay the employee on additional hour of pay at the employees regular rate of compensation for each work day that the meal or rest period is not provided."

In the case at issue, UPS was sued by 32 employees in a coordinated action seeking compensation for UPS's alleged failure to provide meal and rest breaks. UPS argued that only one premium payment is allowable per work day, regardless of the number or type of breaks periods that were not provided. The employees argued that Labor Code Section 226.7 uses the language "meal or rest period," which means the employees are entitled to a premium payment for a meal period and another premium payment for a missed rest break. The Court agreed with the plaintiff employees' interpretation.

Kring & Chung, LLP has considerable experience defending meal and rest break violation cases. We can provide your company with guidance on how to defend against and avoid these kinds of lawsuits by implementing sound employment practices and guidelines.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

Letter of the Law: June 2011

IN THIS ISSUE:

EMPLOYMENT LAW: A Waiver of Rights to Assert Class Action Claims in Arbitration Agreements

FAMILY LAW: Automatic Restraining Orders

CONSTRUCTION: California Civil Code Section 2782 - Schwarzenegger and the Legislation's Legacy

A Waiver of Rights to Assert Class Action Claims in Arbitration Agreements

By: Kyle D. Kring & Brendan J. Coughlin

In a potentially far-reaching decision affecting wage/hour and other class action litigation brought against employers, the United States Supreme Court has held in the case of AT&T Mobility LLC v. Concepcion et ux. (2011) 131 S.Ct. 1740, that an arbitration agreement may legally require a waiver of the right to assert class action claims in arbitration. Many important aspects of this ruling specifically abrogate or potentially alter previously controlling California employment case law. The holding is on the cutting-edge of employment dispute resolution, and employers should immediately consider adopting or having their existing employee arbitration agreements reviewed with knowledgeable counsel to take full advantage of the new law.

AT&T Mobility v. Concepcion began in February 2002, when Vincent and Liza Concepcion purchased wireless phone service from Cingular Wireless that included free phones. The cellular telephone contract between the parties provided for arbitration of all disputes, and required that claims be brought in the parties' individual capacity, and not as a plaintiff or class member in any purported class. AT&T acquired Cingular in 2005. After the Concepcions were charged sales tax on the retail value of the phones, approximately $30, they sued AT&T in California Federal District Court in March 2006. Their lawsuit was consolidated with a class action alleging that AT&T had engaged in false advertising and fraud by charging sales tax on the "free" phones.

The Federal District Court denied AT&T's motion to compel arbitration pursuant to the Concepcions' contract, relying on the California State Supreme Court's decision of Discover Bank v. Superior Court (2005) 36 Cal.4th 148. Discover Bank held that class waivers in consumer arbitration agreements are unconscionable if the agreement is in an adhesion contract, disputes between the contracting parties predictably involve small amounts of damages, and if it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately defraud. The Ninth Circuit Court of Appeal in California agreed that the provision was unconscionable under California law, and held that the Federal Arbitration Act (FAA), which makes arbitration agreements "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract," did not preempt its ruling.

In AT&T Mobility v. Concepcion, the United States Supreme Court found that nothing in the FAA suggests an intent to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA's objectives, which include the encouragement of arbitration to foster dispute resolution. The Court stated that the principal purpose of the FAA is to ensure "that private arbitration agreements are enforced according to their terms."

This new case is causing controversy because practitioners of employment law have quickly seen that the holding may extend to employment contracts between businesses and their employees. AT&T Mobility v. Concepcion relates to a consumer contract, not an employment contract. But the possibility that an employee arbitration agreement that includes a class action waiver could now be enforceable in California is receiving great and instant attention.

The California Supreme Court set out the requirements for an enforceable employment arbitration clause under the state Fair Employment and Housing Act in Armendariz v. Foundation Psychcare Services, Inc. (2000) 24 Cal.4th 83. This case has subsequently been applied to hundreds of employment law claims in California of various types. The requirements of an enforceable arbitration clause sufficient to resolve an employment dispute have become numerous. For example, the agreement cannot limit the remedies available to an employee in a court action, and must provide for sufficient discovery by the Plaintiff. The employer cannot require an employee to pay for the arbitrator or any additional costs beyond those routinely faced in court litigation. Also, there should be a written decision by the arbitrator capable of review, and the employer cannot unfairly limit the kinds of claims that are subject to the arbitration. Any employer in California seeking to add an enforceable dispute arbitration clause to its employment agreements with its employees has been required to satisfy the Armendariz requirements.

Currently, it is premature to conclude that AT&T Mobility v. Concepcion is so sweeping as to overrule Armendariz in its entirety. The Federal Supreme Court specifically held that a state would be free to enact a law "requiring class-action-waiver provisions in adhesive arbitration agreements to be highlighted" or other laws requiring adequate notice of arbitration agreements, so long as the laws do not "conflict with the FAA or frustrate its purpose to ensure that private arbitration agreements are enforced according to their terms." We may not learn the full extent that the Armendariz requirements remain valid after AT&T Mobility v. Concepcion until a sample case is brought to challenge Armendariz. Established restrictions on employment arbitration agreements may still be controlling, even if California courts can no longer invalidate an arbitration agreement for the sole reason that it prohibits class action arbitrations.

Businesses of all sizes therefore should consider revising their employment agreements to include arbitration provisions that bar class action claims in arbitration. The ability to successfully compel arbitration of employment disputes, and to prevent claimants from pursuing class action remedies in arbitration, are potential benefits to businesses, reducing exposure to the costs of traditional litigation, as well as significant class action damages. But such employment agreements must be properly drafted in light of the latest law. The experienced employment attorneys at Kring & Chung are well-versed in these issues, and are available to help your business draft employment agreements that minimize your liabilities, and maximize your rights under the law.

Automatic Restraining Orders

In a family law matter, the Family Law Summons contains automatic restraining orders on its second page. These automatic restraining orders, referred to as ATROS and pronounced "at-röse," take effect immediately against the petitioner upon issuance of the summons, and take effect immediately against the respondent upon service of the petition on the respondent. These ATROS should be taken every bit as seriously as any other court-issued restraining order as the court enforces ATROS equally. In Goold v. Superior Court (2006) 145 Cal.App.4th 1, the Court sanctioned and incarcerated a husband for repeated violations of the ATROS. In Marriage of McTiernan & Dubrow (2005) 133 Cal.App.4th 1090, a Court awarded the wife one-half of the lost profits from the husband's sale of community securities that were sold by the husband without written consent or Court Order.

The ATROS restrain either party from taking several enumerated actions, which are explained in further detail below.

1) The parties are restrained from removing minor children from the state of California without the prior written consent of the other party or an order of the court. I have seen other parties and even other attorneys attempt to argue that "remove" means a relocation rather than an out-of-state visit. Due to the lack of case law interpreting this specific ATRO, I err on the side of caution in my practice and instruct my clients not to take the children out of the state of California, for any purpose, without first obtaining written consent of the other parent or a court order.

2) The parties are restrained from:

(a) Transferring. Example - gifting, selling, bequeathing, etc. Having a "garage sale" during a divorce and selling anything without the other party's written consent is a very typical "no-no" (yes, that is legal jargon);

(b) Encumbering. Example - borrowing against, putting at-risk, or using as collateral. Using a pre-established HELOC during a divorce without the other party's written consent is "no-no";

(c) Hypothecating. Does anyone really know what this means? Actually, it means to pledge something as collateral in order to secure a debt. An example would be taking a wedding ring to a pawn shop;

(d) Concealing. Example - moving to a storage facility without notice and access to other party. Opening up a safety deposit box to protect certain things during a divorce without notifying the other spouse is a "no-no";

(e) Or in any way disposing of any property, which is liberally interpreted, whether

(1) real; or

(2) personal; whether

(i) community;

(ii) quasi-community (Property outside of California); or

(iii) separate (Yes - even your own separate property!)

without the written consent of the other party or an order of the court...except...

(A) In the usual course of business. The party had better be able to prove to the court how their action falls within this category; or

(B) For the necessities of life. Example - party can sell an asset for fair market value in order to feed your children before a support order is in place if your spouse is not voluntarily supporting party and kids - the key is that it must be sold at "fair market value"; and

(C) Requiring each party to notify the other party of any proposed extraordinary expenditures at least five business days before incurring those expenditures and to account to the court for all extraordinary expenditures made after service of the summons on that party.

However, the ATROS do not prevent the following types of actions.

1) A party may use community funds and that party's separate funds to pay for reasonable attorney's fees and costs in a dissolution or legal separation proceeding, but an accounting must be made for such;

2) Creation, modification or revocation of a will. I always stress to my clients that they create a "divorce will" while the divorce is pending and then amend their divorce will after the divorce if necessary. A divorce will can provide some, but not all, protection in the event that the party dies during a dissolution in that at least they can designate someone other than their spouse to inherit their share of community assets;

3) Revocation of a nonprobate transfer, including a revocable trust, pursuant to the instrument, provided that notice of the change is filed and served on the other party before the change takes effect. A nonprobate transfer means an instrument, other than a will, that makes a transfer of property on death, including a revocable trust, pay on death account in a financial institution, Totten trust, transfer on death registration of personal property, or other instrument of a type described in Section 5000 of the Probate Code. A nonprobate transfer does not include a provision for the transfer of property on death in an insurance policy or other coverage held for the benefit of the parties and their child or children for whom support may be ordered, to the extent that the provision is subject to paragraph (3) of subdivision;

4) Elimination of a right of survivorship to property, provided that notice of the change is filed and served on the other party before the change takes effect; and

5) Creation of an unfunded revocable or irrevocable trust.

If you are contemplating divorce, or have additional questions about what actions you may take while a divorce or legal separation is pending, you can reach our team by calling 949-345-1621 or by completing a short online contact form. Flexible appointments are available by request.

California Civil Code Section 2782 - Schwarzenegger and the Legislation's Legacy

By: David P. Ramirez

In general, under the recent amendment to Civil Code § 2782, the subcontractor is now only obligated to provide indemnification for construction defect claims to the extent that such claims arise or result from the subcontractor's scope of work. Subcontractors cannot be required to indemnify a builder or general contractor for liability or defense costs for construction defect claims which arise out of the builder's, general contractor's or other subcontractor's negligence.

Regardless of what you think about Governor Arnold Schwarzenegger and the legacy he has left the State of California, during his tenure the California legislature made various revisions to California Civil Code § 2782 within the last four years which have significantly changed the impact of the section on indemnity provisions in residential construction contracts. Rather than go through the various changes made from 2005 to 2007, we will restrict our review today to those more recent revisions made back in 2008 when Governor Schwarzenegger signed into law California State Assembly Bill 2738. These revisions addressed indemnity and defense obligations in non-wrap situations. The revisions and additions to the Civil Code became effective on January 1, 2009 and only applied to those contracts and contract amendments entered into after January 1, 2009. This date is important because it rescinds prior revisions to § 2782 which would have restricted the use of Type I and Type II indemnity provisions in residential construction contracts beginning on January 1, 2006.

That's the good news. As we all know, Governor Schwarzenegger and the State legislature were well known for providing us with a mixed bag of goods. The bad news is that the subcontractor now has defense obligations related to construction defect claims to the builder and/or general contractor pursuant to subsection (d) and (e) of Civil Code § 2782. Subsection 2782(d) requires the builder or general contractor in a residential construction setting to tender the claim to the subcontractor before any defense obligation arises. The builder or general contractor must also provide information that directly implicates the subcontractor's scope of work. Details of the claim are set forth in Civil Code § 910 (a).

Upon receipt of the tender, the subcontractor has the option to either provide a complete defense of the builder at its cost or pay its reasonable portion of defense so long as an itemized invoice of defense fees and costs has been sent to the subcontractor (Civil Code § 2782(d)(1) and (2)). However, if the subcontractor elects to defend the builder at its own cost, then the subcontractor will be liable for any vicarious liability imposed upon the builder. (Civil Code § 2782(d)(1)). Should the subcontractor elect to pay an allocated portion, that allocation must be reasonable and is subject to reallocation upon final resolution of the claim (Civil Code § 2782(d)(2)). Subsection (f) of 2782 also provides builders, general contractors, subcontractors the right to seek equitable indemnity for any claim governed by this section.

Please note that if the subcontractor breaches its duty by failing to timely accept the tender, to adequately conduct the defense, or by failing to pay allocated attorney fees and costs, the subcontractor will be liable to the builder or general contractor for damages, potentially including attorney fees and costs.

In short, with the myriad of overlapping laws regarding Civil Code § 2782 and its application to residential construction contracts entered into after January 1, 2009, as a subcontractor you will need to be mindful of the duties and obligations required under this section. Additionally, builders and general contractors also have obligations and duties that they have to comply with in order to fully take advantage of this amended provision. Counsel who is quick to respond on your behalf and provide you guidance in regard to these rights and obligations may be needed until further clarification is received from the courts regarding the indemnification duties under this amended provision.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

Letter of the Law: May 2011

IN THIS ISSUE:

Liability for Serving Alcohol

Offer of Judgment in Nevada

How to Collect on a Bad Debt

Liability for Serving Alcohol

By: Brendan J. Coughlin

Concern about serving alcohol to drivers who later cause injury is not just for the holidays anymore. The recent case of Ennabe v. Manosa (2010) 190 Cal.App. 4th 707, emphasizes just how greatly California law in this area is changing. And as instructive as the case is, review has been granted by the State Supreme Court, meaning the case is not citable, and the last word on the subject has yet to be published.

Plaintiffs filed a wrongful death civil action on behalf of themselves and the estate of their son. The principal defendant was a twenty year old who hosted a house party at a vacant rental residence owned by her parents. Procedurally, the case was before the Court of Appeal because the trial court below granted defendant's motion for summary judgment. Plaintiffs did not appeal the granting of summary judgment in favor of defendant's parents. In reviewing the lower decision, the factual allegations of the case and the record were reviewed in the light most favorable to the plaintiffs.

The house party in question was publicized to defendant's friends and non-friends by word-of-mouth, telephone and text messaging. The majority of the people at the party were under age twenty-one. It was claimed that defendant's friends used fake identification to purchase alcoholic beverages. Some guests brought their own alcoholic beverages to the party. There were several cases of beer, three to four bottles of tequila and rum, and a cooler of hard alcoholic beverages mixed with fruit juice, known as "jungle juice." Unfamiliar party goers were charged from $3 to $5 to enter. Some of the money collected was used to buy more alcohol.

Decedent, the plaintiffs' son, arrived at the party in a state of obvious intoxication, and continued to drink. Similarly, another guest also arrived at the party in a state of obvious intoxication, and continued to drink. This guest acted in a rowdy and belligerent manner. After this guest harassed female guests and dropped his pants several times, he was asked to leave the party. In driving away, this guest struck plaintiffs' son, who died a week later of injuries. The driver was convicted of a felony in connection with the death, and was sentenced to fourteen years in prison.

The case involves analysis of Civil Code § 1714, and Business and Professions Code § 25602.1. The Court noted that Civil Code § 1714 provides broad immunity from civil liability to a social host who furnishes alcoholic beverages to any person. Civil Code § 1714 states that it was the intent of the legislature with this law to abrogate the holdings of several cases expanding social server liability, and to reinstate the prior judicial interpretation "that the furnishing of alcohol beverages is not the proximate cause of injuries resulting from intoxication, but rather the consumption of alcoholic beverages is the proximate cause of injuries inflicted upon another by an intoxicated person."

Business and Profession Code § 25602.1 is relevant to this discussion because it provides that a social host loses his immunity if he or she "sells, or causes to be sold, any alcoholic beverages, to any intoxicated minor."

In Ennabe, the Court of Appeal found that charging admission to a party was not a sale within the meaning of the exception to social host immunity, and that defendant was not required to be licensed within the meaning of Section 25602.1, although she charged a fee to unknown and uninvited guests.

The Court of Appeal therefore affirmed the trial court's granting of summary judgment in favor of the hostess. But the California Supreme Court sees something in this case that it wants to review. And just as significantly, on January 1, 2011, an amended version of Civil Code § 1714 took effect which reads "Nothing in subdivision (c) shall preclude a claim against a parent, guardian, or another adult who knowingly furnishes alcoholic beverages at his or her residence to a person under 21 years of age, in which case, notwithstanding subdivision (b), the furnishing of the alcoholic beverage may be found to be the proximate cause of resulting injuries or death."

Clearly, this is an area of law in a state of flux. For the present, liability is expanding relating chiefly to the service of minors. Unfortunately, it is not difficult to imagine situations in which an employer or parent could find themselves with important questions on this topic.

The attorneys at Kring & Chung are available to address all issues and concerns related to work safety and holiday parties, as well as other insurance, employer or employee issues. Moreover, if you or someone you know recently was involved in an accident involving alcohol, do not hesitate to contact Brendan Coughlin at Kring & Chung to discuss your questions.

Offer of Judgment in Nevada

By: Merielle Enriquez

The Offer of Judgment can be an effective tool in getting an opposing party to seriously consider the settlement of a case. Rule 68 of the Nevada Rules of Civil Procedure and Nevada Revised Statute §17.115 provides that any party may serve an Offer of Judgment to any other party at any time more than 10 days before trial begins. The purpose of an Offer of Judgment is to "save time and money for the court system, the parties, and the taxpayer by rewarding the party who makes a reasonable offer and punishing the party who refuses to accept such an offer..." Albios v. Horizon Communities, 122 Nev. 409 (2006).

Once an Offer of Judgment is made, it stays open for 10 days and cannot be withdrawn by the offering party. If the Offer of Judgment is not accepted within 10 days, the offer is automatically withdrawn. The parties may stipulate to keep the Offer of Judgment open for longer than 10 days, which may help in facilitating settlement negotiations.

However, if the party who rejects an Offer of Judgment fails to obtain a more favorable judgment than the Offer of Judgment, the refusing party may be liable for the fees and costs incurred by the offering party from the date the Offer of Judgment is served.

Example No. 1: A defendant makes an Offer of Judgment to a plaintiff in a negligence lawsuit to settle for $50,000. Plaintiff rejects the Offer and takes the matter to trial. At trial, plaintiff obtains a judgment of $40,000. Since the judgment is not "more favorable" to the plaintiff than the Offer of Judgment, then the plaintiff could potentially be liable for defendant's fees and costs incurred from the date the Offer of Judgment is made.

Example No. 2: A defendant makes an Offer of Judgment to plaintiff in a negligence case in the amount of $100,000. Plaintiff rejects the Offer and takes the matter to trial. At trial, plaintiff obtains a judgment of $125,000, but plaintiff is also found to be 30% contributorily negligent. Since Nevada is a modified comparative negligence jurisdiction, Plaintiff's judgment is reduced by 30% of $125,000, leaving $87,500. Since the resulting judgment is not "more favorable" to the plaintiff than the amount of the Offer of Judgment, the plaintiff may potentially be liable for defendant's fees and costs incurred from the date the Offer of Judgment is served.

Example No. 3: A plaintiff makes an Offer of Judgment to defendant in a Negligence case in the amount of $50,000. Defendant rejects the Offer and takes the matter to trial. At trial, plaintiff obtains a judgment in the amount of $75,000. Since defendant failed to obtain a judgment that is "more favorable" than the previously served Offer of Judgment, the defendant could potentially be liable for plaintiff's fees and costs incurred from the date the Offer of Judgment was served.

Other considerations in making an Offer of Judgment:

  • The last valid Offer of Judgment in time extinguishes all prior offers of judgment. In other words, if multiple Offers of Judgment are made during the course of litigation to the same party, the last Offer of Judgment in time extinguishes all prior offers and will serve as the court's baseline.
  • Unapportioned Offers of Judgment are typically invalid unless the damages are derivative of the plaintiff's injuries or there is a single common theory of liability claimed by all plaintiffs to whom the offer is made. NRS §17.115(9)(b).
  • Consider whether you want to include or exclude costs and prejudgment interest from your Offer of Judgment. Unless specifically excluded, the Court will include pre-offer prejudgment interest along with the principal judgment amount when comparing the judgment obtained and an Offer of Judgment. McCrary v. Bianco, 122 Nev. 102 (2006).

When considering serving an Offer of Judgment, it is therefore important to consider the opposing party's likelihood of success at trial, what the opposing party may reasonably settle for, and what you are reasonably willing to offer for an out of court settlement of your case. Offers of judgments remain a good strategy in motivating an opposing party to engage in settlement negotiations.

How to Collect on a Bad Debt

By: Laura C. Hess

Question: One of my customers has an account receivable that is more than 120 days past due. It is not returning my calls. How can I collect?

Answer: The first thing to do is find out why the customer has not paid. If the customer is withholding payment because it is unsatisfied with your product or service, then you should try to work out those issues by investigating the complaint and providing a discount or replacement, if appropriate. If you still cannot reach an agreement, you should offer going to mediation to try to resolve the dispute outside of court. Otherwise, if you start a collection action when the customer has a complaint, the customer will likely respond by filing a cross-complaint against you.

If the customer is just avoiding paying, you should have a lawyer send a demand letter to the customer advising that you may file a collection action if the balance is not paid by a certain date.

If the customer does not respond to the demand letter, and you have security for the debt, then you should have your lawyer file a lawsuit to foreclose on the security interest. For instance, you may have a security interest in the products that you sold to the customer. In this situation, it is important to act as quickly as possible, before the customer does something with the security interest to try to prevent you from recovering it.

If you do not have any security for the debt, then the next step is to have your lawyer find out whether the customer has filed for bankruptcy protection. If the customer has filed for bankruptcy, you will need to file a notice of claim with the bankruptcy trustee and get in line with all of the customer's other creditors.

If the customer has not filed for bankruptcy, then your next step is to file a collection lawsuit. In most jurisdictions, you can usually file in small claims court if the amount owed is up to $7,500 if the plaintiff is a natural person or up to $5,000 if the plaintiff is an entity. Small claims court is great because it is inexpensive and you can get a judgment fairly quickly. You cannot have a lawyer represent you in small claims court, but you can have a lawyer help you fill out the paperwork.

In situations where the customer owes you more than $7,500, you will need to hire a lawyer to file the collection lawsuit in the regular court. Sometimes you can get a pretrial writ of attachment to freeze the money in the defendant's bank account pending trial. Again, the key here is to act very quickly. If the defendant figures out what you are trying to do, it could move the money out of its bank account to try to keep you from freezing its assets.

The lawyers at Kring & Chung can help you collect on your accounts. Call us if you can use some help with your collections.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

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