Welcome to the winter edition of our newsletter. As always, we aim to provide you timely and useful insights into recent legal, regulatory and industry news in a brief, accessible and interesting way. We look forward to your feedback and to any suggestions you might have on how we can improve our efforts in this regard. Happy reading!
Welcome to the Salisian | Lee LLP Newsletter
Welcome to the winter edition of our newsletter. As always, we aim to provide you timely and useful insights into recent legal, regulatory and industry news in a brief, accessible and interesting way. We look forward to your feedback and to any suggestions you might have on how we can improve our efforts in this regard. Happy reading!
Firm News

Associate Natalie Rastegari will be be voted in as National Representative of the Iranian American Bar Association LA Chapter and serve on the IABA National Board.

In November, Associate Yujin Chun organized, as Major Events Committee Chair for Duke's Women's Forum, the event "A Better LA by Duke: Duke Women Making a Difference in Los Angeles." Organized it as Major Events Committee Chair for Duke Women's Forum. More in formation at: https://alumni.duke.edu/events/better-la-duke-duke-women-making-difference-los-angeles
In this Issue
Cases to Watch
De La Torre v. CashCall, Inc. (pending in the Ninth Circuit)
A putative class alleged that defendant CashCall, Inc. made consumer loans with unconscionably high interest rates above 90% and thus violated California's Unfair Competition Law (the "UCL"). The United States District Court for the Northern District of California granted summary judgment to CashCall, holding that the interest rates were not illegal. The District Court based its decision on the California Finance Lenders Law (California Financial Code § 22302), which was amended in 1985 to remove the caps on interest rates for loans of $2,500 or more and incorporate by reference the general Civil Code provision about contract unconscionability. The plaintiffs appealed to the United States Court of Appeals for the Ninth Circuit.
On appeal, a panel of the Ninth Circuit noted that the central issue is whether the interest rates on consumer loans of $2,500 or more can be deemed unconscionable under California Financial Code § 22302, and thus create a cause of action under the UCL, despite that Financial Code § 22302 does not limit the interest rate on such loans. The Ninth Circuit, finding that the answer could be outcome determinative and that there is no controlling precedent, certified the following question to the California Supreme Court: Can the interest rate on consumer loans of $2500 or more governed by Financial Code § 22303 render the loans unconscionable under Financial Code § 22302?
Disposition of this issue will profoundly affect the consumer loans industry in California. The California Department of Business Oversight noted in a press release that "more than half of the non-bank consumer installment loans for $2,500 to $4,999 ... carried [annual percentage rates] of 100 percent or higher in 2016." California finance lenders should therefore watch closely for the California Supreme Court's upcoming decision.
16-1362 Encino Motorcars, LLC v. Navarro, Hector, et al.
Argument is scheduled for January 17, 2018 for Encino Motorcars, LLC v. Navarro, Hector, et al., where the issue is whether service advisors at car dealerships are exempt under 29 U.S.C. § 213(b)(1)(A) from the Fair Labor Standards Act's overtime-pay requirements. Navarro worked as a service adviser at a Mercedes-Benz dealership and argues that overtime laws do apply to advisers, despite that they do not apply to car salesmen and mechanics.
The Supreme Court did hear this matter in its 2015 term, when it vacated and remanded to the Ninth Circuit, 6-2, in an opinion by Justice Kennedy on June 20, 2016. The Court only held that the Department of Labor's 2011 interpretation of the Fair Labor Standards Act was issued without a reasoned explanation and that therefore the provision should be construed without placing controlling weight on the Department of Labor's interpretation. It did not consider whether service advisers would or would not indeed be exempt from the Act's provision.
On remand, the court of appeals construed the exemption de novo and held that the most "natural" reading of the statute does not exempt service advisors. The case is back on the Supreme Court's docket to consider this provision again, this time on its merits.
National Shooting Sports Foundation v. State of California (Cal. Supreme Court Case No. S239397)
The California Supreme Court granted a petition for review after the Court of Appeal reversed the judgment in a civil action. The suit involves Penal Code section 31910(b)(7)(A), which provides that a semiautomatic pistol is an "unsafe handgun" if "it is not designed and equipped with a microscopic array of characters that identify the make, model, and serial number of the pistol, etched or otherwise imprinted in two or more places on the interior surface or internal working parts of the pistol, and that are transferred by imprinting on each cartridge case when the firearm is fired..." The plaintiff claims it is impossible to effectively microstamp the required characters on any part of a semiautomatic pistol other than the firing pin. This case thus presents the following issues: (1) Can a statute be challenged on the ground that compliance with it is allegedly impossible? (2) If so, how is the trial court to make that determination?
The New Year's Changes and Considerations for Recreational Marijuana in California

By Yujin Chun, Associate
In November 2016, 20 years after California became the first state to legalize medical marijuana, the citizens of California voted by a margin of 56% to approve Proposition 64, which made recreational use of marijuana legal. The historic vote made California the fifth state in the nation to do so. While it immediately made it legal for citizens to use, possess, and share cannabis without fear of arrest, January 1, 2018 marks the date on which California residents can legally purchase recreational marijuana from businesses.

On January 1, 2018, adults over 21 years of age can legally purchase recreational marijuana from a licensed dispensary. However, this does not mean that this would be possible in any city in California: cities and counties can make their own calls on granting licenses to businesses. Los Angeles, San Francisco, Sacramento, San Jose, and San Diego are among those that are granting such licenses. Further local ordinances will affect what is and is not allowed. For example, the Los Angeles City Council has endorsed regulations under which residential neighborhoods would be largely off-limits to cannabis businesses, with buffer zones to be set up around parks and schools.

This is in line with how Proposition 64 had relied on leaving many of the details to local governments and state regulators. In November 2017, the state unveiled 276 pages of regulations to provide the actual framework by which the marijuana business is to operate in California.

Smoking of recreational marijuana will be limited in the same way smoking cigarettes is limited. Individuals will not be able to smoke marijuana in public, including public indoor establishments such as bars. Proposition 64 allows for local establishments to apply for licenses that will allow people to consume marijuana on the premises, as long as there is no alcohol or tobacco consumption.

Marijuana use in vehicles is also not allowed; using marijuana in a moving vehicle or having an open container for such would be illegal. Moreover, it is still illegal to do drugs and operate a vehicle, boat, aircraft, or any other such vessel. Edibles must be low-dose and in childproof packaging, never advertised or packaged in any fashion that might "appeal to children."

Recreational marijuana purchased in California cannot be taken across state lines. The products must have been grown and consumed in California only, due to the federal prohibition of the drug. Under federal law, cannabis remains a "Schedule 1" drug, meaning that it is considered as addictive as heroin and deemed to have no medical value whatsoever. This federal prohibition creates problems, such as with banking, since few financial institutions would be willing to serve businesses that sell what is still an illegal drug in the eyes of the United States. Insurance companies can also deny coverage based on marijuana usage.

The conflict with federal law impacts housing as well. No one in any federally subsidized housing would be permitted to use marijuana, although monitoring and enforcement would be different issues entirely. Furthermore, even for renters who are not getting federal subsidies, if the residents' lease prohibits "illicit" drugs, which, by federal law, includes marijuana, consuming and growing in compliance with California state law may still result in eviction.

Furthermore, Proposition 64 explicitly provides that California employers are free to penalize workers who test positive for marijuana use even if there is no indication that they became intoxicated by it on the job. Also, federal agencies' employees still are not permitted to consume marijuana even in their off-hours, nor are workers in federally regulated fields like health care permitted such consumption. Attorneys may be deterred from advising marijuana businesses, as they are prohibited from helping clients break federal law.

Many of these conflicts can be problematic to businesses hoping to engage in this industry: getting the right landlords, getting insurance, finding services that would agree to work with them, acquiring business loans, and more can be difficult. Furthermore, despite marijuana being illegal under federal law, this does not exempt these businesses from having to pay taxes to the IRS. And businesses dealing in Schedule I or Schedule II substances are prohibited from writing off common expenses such as rent or utilities, due to tax rules implemented during the Reagan Administration's war on drugs.

Even without these federal conflicts, California's legalization of recreational marijuana is challenging enough, as it attempts to move what was essentially an underground $7 billion industry into a regulated structure with taxes and permit requirements. The state has much to anticipate, as well as to look forward to, in terms of laws and policies that work, and those that do not. Businesses and consumers alike are advised to take precautions and learn about the local rules and regulations to avoid any penalization. The year 2018 looks to be a bumpy ride for California.
Float Like a Social Butterfly (or Influencer), Securities Law Stings Like a Bee

By Stephanie Chau, Associate
Social influencers, i.e., individuals with established credibility and large followings on social media, have become undeniably powerful messengers and effective brand ambassadors in modern times. The monetization of their influence has created newfound problems for both the enterprising social influencer himself or herself, as well as the companies who retain and benefit from their services.

Indeed, no business or industry seems exempt from the reach and proliferation of social influencers these days. But as these social influencers become more entrenched into the way businesses market themselves, such influencers should be careful as they tread - whether inadvertently or deliberately - into heavily regulated industries. So, too, must those businesses, large and small, take precautions.

On November 1, 2017, the U.S. Securities and Exchange Commission ("SEC") issued a warning to investors not to make investment decisions based solely on celebrity endorsements. It is a common-sense plea, as there are far too many examples of (1) influencers who have defrauded companies by inflating their ability to reach consumers, (2) influencers who are disingenuous in their endorsements of those companies and their products, and (3) investment opportunities that are themselves fraudulent.

This is an issue that has piqued the interest of regulators at all levels, local, state and federal.

For that reason, social influencers and companies should strive to achieve transparency, and investors and consumers should remain vigilant, not only to protect themselves from the mendacious few, but to also avoid potential legal liability.

To further underscore the mandate for due diligence and transparency by influencers and companies, the SEC advised that endorsements may be unlawful absent certain disclosures regarding the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement.

This dovetails with the warning issued to social influencers by another federal agency, the Federal Trade Commission ("FTC"), earlier this year. In April 2017, the FTC issued letters to prominent influencers, many of whom are based right here in California, to ensure that they "clearly and conspicuously" disclose brand relationships when promoting or endorsing products through social media.

But the November advisory statement by the SEC goes even further, identifying the rise of legal issues brought about by the advent of social influencers and its convergence with federal securities laws, specifically viewed in the context of another modern development, cryptocurrency, e.g., Bitcoin.

Under federal law, an individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion. Failure to disclose the same is a violation of the anti-touting provisions of the federal securities laws. Individuals who make endorsements may face additional liability for potential violations of the anti-fraud provisions of the federal securities laws, in that those individuals may also be deemed to be participating in an unregistered offer and sale of securities, and/or acting as unregistered brokers. Violations of these laws are not to be taken lightly, and such violations carry significant penalties.

Most recently, on December 11, 2017, SEC Chairman Jay Clayton made an additional entreaty to investors and market professionals, again raising concerns of not only fraud and manipulation, but also the potential inability of enforcement agencies such as the SEC to effectively and meaningfully pursue bad actors across national and international markets. Mr. Clayton cautions that selling securities requires a license, and that promoters should be keenly aware of securities and anti-money laundering laws.

Mr. Clayton urged all parties to operate with a high level of vigilance, and emphasized that the SEC is closely monitoring how cryptocurrencies, and by implication, how cryptocurrencies are marketed, just as the SEC does with more traditional securities transactions.

Although there may be cryptocurrencies that are not "securities" within the meaning of the law, Mr. Clayton goes to great lengths to make clear that there is no bright-line test. The SEC will look to the characteristics of the given asset. He effectively echoes the position the SEC previously assumed in its July 25, 2017 Report of Investigation in which the report broadly states that whether or not a particular transaction involves the offer and sale of a "security" will depend on the facts and circumstances of the transaction, including certain economic realities.

The line between promoting a non-regulated product, on the one hand, and promoting a stock or other investment defined as a "security" on the other hand, is a close one to toe. Make no mistake, however, that there are real implications for both social influencers and companies within the purview of the SEC's jurisdiction.

The continued issuance of guidance on the topic reveals both the import and scale with which the SEC is treating both social influencers and cryptocurrency itself. Indeed, it is an affirmation that purveyors of and influencers on social media are primed to embrace cryptocurrency and other inventions the way that, for example, stocks, bonds, commodities and property have dominated the conversation in recent years.

With the likelihood that cryptocurrency grows in popularity and substance, we can expect that its relationship with social media and social influencers will evolve, just as we can expect regulators to continue to pursue bad actors in the new paradigm.

The SEC's acknowledgment of the evolving issue only adds complexity to the legal landscape, as there are other looming concerns at the state, local and federal level that companies and influencers must contend with.

Yet cryptocurrencies are hardly the only modern inventions where social influencers face potential legal entanglements. Thus, as these social influencers become more sophisticated and wade into new markets as new technologies and products are developed, it stands to reason that they increasingly will be forced to reckon with securities laws and other heavily regulated industries.

The power of social media and the rise of the social influencer continues to confound some, but also reveals an endless source of opportunity and change. As the saying goes, with great power comes great responsibility. But sometimes, responsibility means liability under local, state, and federal law.
Time Off For Babies: California's SB 63 Expands Family Leave, Much To The Delight of Parents

By Jay Lichter, Associate
California's new parents now have stronger statutory rights to stay home and bond with their newborns. Authored by Senator Hannah-Beth Jackson and approved by Governor Brown on October 12, 2017, Senate Bill 63 now provides 12 weeks of unpaid, job-protected maternity and paternity leave for Californians who work for smaller employers of 20 or more. Far from being universally supported, however, SB 63 has stirred opposition in some, and has left many proponents wanting even more.

A priority bill for the California Legislative Women's Caucus, SB 63 enacts the New Parent Leave Act (NPLA). This makes it illegal for an employer to refuse to allow an employee with more than 12 months and at least 1,250 hours of service with the employer, and who works at a worksite in which the employer employs at least 20 employees within 75 miles, to take up to 12 weeks of parental leave to bond with a new child within one year of the child's birth, adoption, or foster care placement.

SB 63 isn't California's first stab at family leave laws, as it passed against a backdrop of three overlapping policies already governing family leave in California: The California Family Rights Act (CFRA), the Paid Family Leave (PFL) Program, and Pregnancy Disability Leave (PDL).

The new bill, however, requires the employer to guarantee employment in the same or comparable position upon return, and authorizes the employee to utilize accrued vacation pay, paid sick time, other accrued paid time off, or other paid or unpaid time off negotiated with the employer. It also makes it illegal for an employer to refuse to maintain and pay for continued group health coverage for employees for the duration of the parental leave. Under SB 63, an employee is entitled to take PDL in addition to leave under this bill. The bill's provisions do not apply, however, to an employee subject to both the CFRA and the FMLA.

SB 63 is supported by a litany of family and women's rights groups, including the ACLU of California, Equal Rights Advocates, Planned Parenthood Affiliates of California, and Parent Voices California. However, it is opposed by a series of groups representing business interests, including the California Chamber of Commerce, the Los Angeles Area Chamber of Commerce, and the League of California Cities.

Proponents of the bill argue that under existing law, only those who work for an employer of 50 or more are eligible for job-protected parental leave, which means many workers must struggle with an impossible choice between the well-being of their new child and their financial security. Further, SB 63 only impacts businesses with 20-49 employees, which is six percent of the businesses in California, but would benefit up to 16 percent of the California workforce. Proponents also argue that paid family leave is also a critical component to addressing gender and social inequality in California.

Opponents of the bill argue that SB 63 would overwhelm employers, and that combining the 12-week leave under this bill with the 4 months of pregnancy disability leave required on employers with five or more employees, would be unreasonable for employers to accommodate. Further, as a "protected leave," the leave under SB 63 must be given at the employee's request, regardless of whether the employer has other employees out on other required leaves. This may create a significant problem for employers.

Aside from the bill's proponents and opponents, some cite the bill as having critical shortfalls, or otherwise does not go far enough. For instance, under the bill, if the employer employs both parents entitled to leave, the parents' total mandated parental leave is capped at the amount granted to one parent. This can be problematic or arguably unfair for parents employed by the same company.

The bill also specifically provides that the leave granted is unpaid, which leaves the bill a far cry behind the policies adopted in other affluent countries, like Finland, Denmark, and England.

SB 63 accordingly offers Californians new steps toward stronger family and parental rights in the face of business interests concerned about their bottom line. The bill, however, might not be all that helpful for parents who cannot afford the cut in pay that comes along with the bill's benefits.
What the Tax Cuts and Jobs Act of 2017 Will Mean for California Businesses

By Melissa Pender, Associate
Republican leaders of the House and Senate released the final version of the Tax Cuts and Jobs Act of 2017 on December 15, 2017, clearing the way for both chambers to vote on the merged bill. The $1.5 trillion tax cut represents the most sweeping change in 31 years and would profoundly affect businesses of all sizes in California and throughout the nation.

At the heart of the legislation is a massive cut for corporations. The bill permanently reduces the corporate tax rate from its current 35 percent to 21 percent, effective on January 1, 2018. The reduction represents the largest one-time rate cut in U.S. history, amounting to roughly $1 trillion in tax cuts for big businesses over the next decade. Corporations will also benefit from repeal of the corporate alternative minimum tax, a separate calculation that requires a minimum payment from businesses with extensive deductions that might otherwise pay little or no tax.

Another significant provision proposes to change how U.S. companies are taxed on foreign profits. Specifically, "territorial" taxing whereby only income earned in the U.S. is taxed would replace the current "worldwide" system which requires companies to pay U.S. taxes on all income, regardless of its source. In the interim, the legislation allows companies to repatriate foreign assets at a one-time, low tax rate of 8% on non-cash assets and 15.5% for liquid assets.

The bill also implements "full expensing" of business capital investments. This means that all businesses can immediately deduct the cost of capital investments, such as new buildings and equipment. Current rules for expensing vary by industry and among other metrics. The provision will begin immediately, but begin to phase out after five years.

For companies with "pass through" taxation, the bill allows owners, partners, and shareholders to deduct from their taxable income 20% of their qualified business earnings from S corporations, LLCs, partnerships, and sole proprietorships. To prevent individuals from characterizing their salaries as business profits, the bill includes a limit on the amount of income that can qualify for the deduction. The new deduction is phased out for owners of professional services businesses whose yearly income is $157,500 for individuals or $315,000 for couples filing jointly. This took effect on January 1, 2018, and expires after 2025.

Proponents of the bill contend that these tax breaks will not only benefit businesses of all sizes, but also boost the American economy at large. But its critics worry that the overall market will be hurt by the provisions offsetting these tax breaks, such as reduced individual deductions for mortgage interest and state and local taxes. In fact, several California Republican lawmakers expressed concerned that this effect will be strongest in their state and others with high local taxes and expensive housing. In response, Republican leaders made changes to the final bill purportedly aiming to reduce the negative effect of the challenged provisions, in the hopes of securing sufficient votes for passage.

Republicans recently expected the bill to pass in time for certain provisions to have taken effect on January 1, 2018.
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