|
Welcome to the third edition of our quarterly newsletter. As always, we are seeking to provide helpful, informative and insightful articles written by our attorneys and based on their experiences in the course of practice.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Welcome to the Salisian | Lee LLP Newsletter
|
|
Announcement: We will be moving to new offices on April 1, 2015. Our new address will be 550 South Hope Street, Suite 750, Los Angeles, CA 90071. Please update your records accordingly. Thanks!
|
|
|
Welcome to the third edition of our quarterly newsletter. As always, we are seeking to provide helpful, informative and insightful articles written by our attorneys and based on their experiences in the course of practice. Please let us know if you have any feedback on how we can improve our offering or if you would prefer to be removed from the distribution list. Thank you and happy reading!
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | |
|
|
|
|
|
In this Issue
|
|
Cases to Watch
By Natalie Rastegari and Katharine Miner,
Salisian | Lee LLP
|
|
|
|
|
|
HLee v. Hanley, S220775. (227 Cal. App. 4th 1295, mod. 228 Cal. App. 4th 793a (2014); California Court of Appeal, Case No. G048501; Orange County Superior Court, Case No. 30-2011-00532352.)
|
|
|
This case considers whether the one-year statute of limitations for actions against attorneys, contained in California Code of Civil Procedure section 340.6, applies to a claim for an attorney's failure to return unearned fees to a former client. The issue arose when an attorney, after negotiating a settlement on his client's behalf, refused to return the balance of the fees shown in her invoice. The client ended her relationship with the attorney and, over one year later, brought suit for the unreturned fees. The defendant attorney demurred. The trial court sustained the demurrer on the grounds that that the claim was barred by the one-year statute of limitations contained in Section 340.6, which governs actions based on "a wrongful act or omission, other than for actual fraud, arising in the performance of professional services." The appellate court reversed, reasoning that because stealing from ones' client is not an act in the performance of professional services, the complaint, on its face, was not barred by the statute of limitations.
|
|
|
Yvanova v. New Century Mortgage Corporation, et al., S218973. (226 Cal. App. 4th 495 (2014); California Court of Appeal, Case No. B247188; Los Angeles County Superior Court, Case No. LC097218.)
|
|
|
This case presents the following issue before the California Supreme Court: In an action for wrongful foreclosure on a deed of trust securing a residential mortgage, does the borrower have standing to challenge an assignment of the promissory note and deed of trust on the basis of alleged defects rendering the assignment void? The plaintiff borrower, Tsvetana Yvanova ("Yvanova"), executed a promissory note secured by a deed of trust on her residence in Woodland Hills, California. The lender and beneficiary of the trust deed was New Century Mortgage Corporation ("New Century"), which later became bankrupt and assigned the deed of trust to Deutsche Bank National Trust Company ("Deutsche Bank") as trustee for various entities. After Yvanova defaulted on the underlying loan and the property was sold through foreclosure, Yvanova filed suit to quiet title in the property against defendants New Century, Deutsche Bank, and other financial institutions. Yvanova alleged, among other things, defects in the assignment of the note and that based on these defects, Deutsche Bank lacked proper title to the trust deed and standing to foreclose on the property. The trial court sustained the defendants' demurrer to the operative complaint without leave to amend, finding that Yvanova had failed to state a quiet title claim because she had failed to allege that she had tendered the loan balance to discharge her debt. While the Court of Appeal affirmed the trial court's finding on that ground, the Court of Appeal also rejected Yvanova's argument on appeal that she should have been granted leave to amend the complaint to state a wrongful foreclosure cause of action based on her allegations regarding the ineffective transfer of the note. The Court of Appeal held that allowing Yvanova to amend her complaint to state a cause of action for wrongful foreclosure would not have provided a more favorable outcome, as Yvanova had no standing to challenge Deutsche Bank's claim to title and therefore could not state a cause of action for wrongful foreclosure. The Court explained that the assignment of a promissory note affects only the parties to the transaction. Thus, the borrower or unrelated third party to the transaction lacks standing to challenge or enforce any agreements relating to such transactions. In other words, even if there is an invalid transfer, a borrower will not be a victim of the transfer because the borrower's obligations under the note remain unchanged. The Court of Appeal cited to Jenkins v. JP Morgan Chase Bank, N.A., 216 Cal. App. 4th 497 (2013) to support its holding, and declined to follow Glaski v. Bank of America, 218 Cal. App.4th 1079 (2013), which is a lone decision holding that a borrower may challenge a nonjudicial foreclosure based on a void transfer of deed of trust.
|
|
|
Horiike v. Coldwell Banker Residential Brokerage Co., et al., S218734. (225 Cal. App. 4th 427 (2014), California Court of Appeal, Case No. B246606; Los Angeles County Superior Court, Case No. SC110477.)
|
|
|
This case presents the following issue before the California Supreme Court: When the buyer and the seller in a residential real estate transaction are each independently represented by a different salesperson from the same brokerage firm, is each salesperson the fiduciary to both the buyer and the seller with the duty to provide undivided loyalty, confidentiality and counseling to both? Plaintiff Hiroshi Horiike ("Horiike") was the buyer of a residential property in Malibu, California, and brought a breach of fiduciary duty claim, among other claims, against Coldwell Banker Residential Brokerage Company ("Coldwell Banker") and the salesperson who listed the property, Chris Cortazzo ("Cortazzo"). Although Horiike was represented by another Coldwell Banker salesperson in the transaction, Horiike claimed that the listing agent Cortazzo breached his fiduciary duty owed to him by overstating the property's square footage in advertising materials. The trial court found that Cortazzo, as the listing agent and not the buyer's agent, did not owe a fiduciary duty to Horiike. But the Court of Appeal reversed, holding that the listing agent Cortazzo owed a fiduciary duty to Horiike because he was employed by Coldwell Banker, which acted as a dual agent of the buyer and seller in the real estate transaction. The Court of Appeal clarified that all salespersons employed by a single broker acting as a dual agent owe the same fiduciary duty to all parties in the transaction. The Court also noted that although the listing agent Cortazzo did not intentionally conceal information regarding the square footage of the property, Cortazzo nonetheless breached his fiduciary duty to the buyer Horiike by failing to provide all material information he knew about the square footage.
|
|
|
DeSaulles v. Community Hospital of the Monterey Peninsula, S219236. (225 Cal. App. 4th 1427 (2014), California Court of Appeal, Case No. H038184; Monterey County Superior Court, Case No. M85528.)
|
|
|
This case presents the following issue before the California Supreme Court: When a plaintiff dismisses her action in exchange for the defendant's payment of a monetary settlement, is she the prevailing party for purposes of an award of costs under Code of Civil Procedure section 1032(a)(4) because she is "the party with a net monetary recovery?" Or is the defendant the prevailing party because it is "a defendant in whose favor a dismissal is entered"? After the termination of her employment, plaintiff Maureen DeSaulles ("DeSaulles") sued defendant Community Hospital of the Monterey Peninsula ("Community Hospital") for disability discrimination and related claims. The trial court granted summary adjudication on DeSaulles' claim for failure to accommodate her disability, resolving the majority of DeSaulles' claims in favor of Community Hospital. The parties agreed to settle the remaining claims in exchange for a $23,500 payment made by Community Hospital. Then, the action was dismissed with prejudice. The settlement agreement did not contain any provision relating to litigation costs. Both DeSaulles and Community Hospital filed memoranda in the trial court asking for an award of litigation costs as the "prevailing party" pursuant to California Code of Civil Procedure section 1032. Section 1032 includes in its definition of a "prevailing party" the party with a "net monetary recovery" and "a defendant in whose favor a dismissal is entered." The trial court found Community Hospital to be the prevailing party since it "prevailed on significant causes of action" and awarded over $13,000 in costs to Community Hospital. The Court of Appeal reversed, holding that the settlement proceeds received by DeSaulles constituted a "net monetary recovery," making her the prevailing party and entitled to costs.
|
|
|
|
|
|
| | | |
|
|
|
| | | |
|
|
|
|
|
|
The Luck of the Draw for California iPoker
By H. Han Pai, Salisian | Lee LLP
|
|
|
|
|
| | | |
|
|
|
| | | |
|
|
|
|
|
| | |
The California gaming industry is the latest seeking to leap forward into the digital age by attempting to integrate the beloved (or perhaps hated) features of the internet into its own business model: mobility, convenience, and anonymity.
Recently, those features are being touted as the hotly-debated issue of legalizing online poker in California is placed back into the spotlight. Despite the millions in potential tax benefits that legal online pokier could bring to a cash-hungry state, those same features could also mean the dawn of a new era of litigation exposure.
Latest Legislative Status
While there have been a host of attempts to legalize online poker in California in the past several years, those attempts have largely been unsuccessful. A combination of economics, conflicting public policy concerns, competing interests of the hundreds of Native American tribes, as well as the typical bureaucratic red-tape common to the legislation process has hindered the process.
Fortunately, two new bills have recently emerged to place the issue back on the table in the current legislative session. AB 9 was introduced on December 1, 2014 by Assemblyman Mike Gatto. AB 167 was recently introduced on January 22, 2015 by Assemblyman Reggie Jones-Sawyer.
Ironically, both bills are called "The Internet Poker Consumer Protection Act of 2015," but the resemblances end there. The bills address the two primary hurdles of prior legislation in markedly different ways: a so-called "bad actor" clause, and the exclusion of the horseracing industry from the online poker market.
AB 9 and prior bills include a "bad actor" clause, which prohibits an entity from obtaining an Internet poker license in California if any online wagering was offered to California residents in violation of a 2006 federal anti-gambling law. The effect of the clause would be to block PokerStars - one of the most active online cardrooms in the world - from the California market and its 38 million population.
In contrast, and perhaps in recognition of the potential financial benefits, AB 167 contains softer language leaving the door open to PokerStars. The bill is supported by the Morongo Band of Mission Indians, San Manuel Band of Mission Indians, and California's three largest card clubs - the Commerce Club, the Hawaiian Gardens Casino and the Bicycle Casino – who banned together to form an alliance with PokerStars.
Provisions to exclude the horseracing industry followed closely on the heels of the "bad actor" clause as sticking points to the passage of prior legislation. Similar to its differing approach on the “bad actor” clause, AB 167 likewise deviates from its predecessors by explicitly permitting those in the horseracing industry to apply for a license. Not surprisingly, tribes and card rooms have been opposed to offering a slice of the gaming pie to yet another hungry faction.
Potential Litigation Exposure
As if the competing interests of the various stakeholders were not enough, another relevant concern that should not be ignored is the inherent litigation risks posed by a legal, online poker scheme in California.
One example is potential claims arising from gambling addiction brought by compulsive gamblers for online gambling. Such claims have historically been brought against brick-and-mortar casinos for live gambling, essentially asserting breach of a duty of care to the compulsive gamblers by allowing them to lose money even though they knew that the players were pathological gamblers. Generally speaking, these lawsuits have been unsuccessful in the U.S., with many courts concluding that no such duty exists.
But a different analysis could apply with the advent of online gambling. On the one hand, convenience and ease of access may render online casinos comparable to online retailers marketing their goods to a compulsive shopper. On the other hand, potential plaintiffs could argue that because online gambling is accessible 24/7, it is easier for them continue gambling to their detriment, in an attempt to analogize to "dram shop" laws, which impose liability on those who provide alcohol to "any habitual or common drunkard" or any person "obviously intoxicated."
Class actions present another avenue for exposure. With online casino operators serving thousands of patrons governed by the same, potentially actionable online policies and procedures, it not difficult to imagine ambitious plaintiffs eagerly applying the call signs of class actions to online gambling - numerous parties, common interests, and impracticability of individual lawsuits.
Indeed, this potential exposure is already on the radar of one group of lawyers and academics, calling themselves a "gambling litigation study group." Shortly after Nevada became the first state to go live with online poker rooms, the group met to discuss the merits of a class action claiming that online gaming further promotes gambling addiction, and how cases against the tobacco industry for addiction could be precedent.
California-based casinos could become the next deep pocket for would-be plaintiffs to target once online gambling is legalized in California. Potential claims could not only be based on gambling addiction, but also others concerns unique to online forums, such as data and other privacy breaches, online payment processing problems, and use of software to enable collusion amongst players, to name a few.
Finally, further litigation exposure could arise if California opens its online gambling doors to non-California residents, which remains a possibility in both recent bills.
In February 2014, Delaware and Nevada — two of the three states where online poker is legal — entered into the Multi-State Internet Gaming Agreement, which establishes a framework for regulating interstate online poker. While commentators mainly highlight the potential revenue benefits of such interstate and even international agreements, litigation risks abound.
Jurisdictional hurdles pose an immediate example. For example, could a California-based online casino be hauled into a non-California court? It's not inconceivable in states with a personal jurisdiction standard similar to California's for Internet activities, where an online casino could arguably be found to be actively doing business over the Internet, and engaged in knowing and repeated transmissions of computer files over the Internet.
Similarly, non-California patrons of the online casino could also potentially be subject to California jurisdiction. But additional factors such as whether the patron was the targeted by the casino's marketing efforts, the level of marketing, and forum selection clauses in any online agreement could further complicate the analysis.
While lawmakers have more than enough political roadblocks to deal with on the road to legalizing online poker, the potential legal risks are a wild card and cannot get lost in the shuffle. On the whole, it is only a matter of time before the jackpot presented by online poker in California is within reach.
|
|
|
|
|
|
| | | |
|
|
|
| | | |
|
|
|
|
|
|
Changes to Stipulated Judgments May Be in Fashion
By Jay Lichter, Salisian | Lee LLP
|
|
|
|
|
| | | |
|
|
|
| | | |
|
|
|
|
|
| | |
New case law now opens the door for stipulated judgments to exceed amounts paid in their corresponding settlement agreements. Some gray areas in the court's ruling, however, leave such stipulated judgments vulnerable to challenges.
In Jade Fashion & Co., Inc. v. Harkham Industries, Inc., 229 Cal. App. 4th 635 (2014), the defendant, Harkham Industries, Inc., sought to invalidate a written agreement that governed the repayment of its debt to Jade Fashion & Co., Inc. As set forth in the agreement, Harkham acknowledged that it owed Jade the principal balance of $341,628.77, and agreed to make weekly payments of a fixed amount until the balance was paid in full. The parties further agreed that, if Harkham made all payments timely, it could take a discount of $17,500.00 from the total amount owed. When Harkham failed to make timely payments, Jade refused to honor the discount provision, and then sued Harkham for the remaining balance due.
At trial, Harkham argued the $17,500.00 discount provision was an unenforceable penalty under Civil Code section 1671, which prohibits liquidated damage provisions in contracts if they bear no reasonable relationship to the range of actual damages the parties could anticipate would flow from a breach.
To support its position, Harkham cited multiple cases, including Greentree Financial Group, Inc. v. Execute Sports, Inc., 163 Cal. App. 4th 495 (2008). The settlement agreement in Greentree provided the defendant would pay the plaintiff $20,000.00 in two installments, but in the event of default, the plaintiff would be entitled to a judgment for the entire amount sought in its complaint. After the defendant defaulted on the first payment, the plaintiff obtained a judgment for $61,000.00. The Court of Appeal held that the judgment was an unlawful penalty under Section 1671, because it bore "no reasonable relationship to the range of actual damages the parties could have anticipated would flow from a breach of their settlement agreement." Id. at 497. The court observed, "the judgment would have been enforceable if it had been designed to encourage [the defendant] to make its settlement payments on time, and to compensate [the plaintiff] for its loss of use of the money plus its reasonable costs in pursuing the payment." Id. at 500.
Jade, however, distinguishes Greentree by noting the agreement between Jade and Harkham was not an agreement to settle or compromise a disputed claim. Rather, it was an agreement to forbear on the collection of a debt that was admittedly owed for goods that had been delivered, so long as timely installment payments were made. Critical to this analysis is the fact that Harkham expressly agreed that it owed Jade the total balance of $341,628.77, and agreed to satisfy the full amount via weekly installment payments.
Against this backdrop, the $17,500.00 discount in Jade is not considered a liquidated damage provision, or an additional payment over and above any debt that was owed. Instead, the $17,500.00 is part of the principal debt which Harkham specifically admitted it owed to Jade. The restrictions of Section 1671 thus do not apply, and the enforceability of the $17,500.00 does not depend on whether it bears a reasonable relationship to the actual damages suffered from the late payments.
While Jade does not specifically consider a stipulated judgment between the parties, the court's reasoning logically extends to such agreements. In this context, a settlement agreement may side-step the ruling of Greentree and the liquidated damage restriction of Section 1671 if its terms include: (1) the debtor's acknowledgement of the full principle debt amount, and (2) a discount from the full debt amount if initial timely payments are made. That is, where stipulated judgments under Greentree generally may not exceed the amount of a settlement agreement, a stipulated judgment under Jade may exceed it under the guise of a "discount," coupled with an acknowledgement of the full debt.
One significant wrinkle to this analysis, however, is that in addition to the above two points, Jade also distinguishes Greentree by noting the $17,500.00 discount would not be available until the final installment payment, and would not apply unless all prior installment payments had been fully and timely made. Put another way, the discount in Jade applied only after the entire balance due was paid in full.
Unfortunately, the court does not explain why such a provision carries weight in its analysis, or how it represents a material difference from the agreement in Greentree. By its terms, such a provision would force a creditor to reimburse the discount amount to the debtor after the debtor pays the full amount. This may prove an obstacle to a debtor's ability to agree, given the debtor has already demonstrated difficulty in repaying the full debt amount. The court's failure to provide reasoning as to the importance of this provision, however, may obviate the need to include this provision in such agreements.
Although it does not specifically examine stipulated judgments, Jade provides a reasoned argument that stipulated judgments may be entered for a full debt amount, while the terms of a corresponding settlement agreement provide for payment of a "discounted" figure. With Jade as support, such settlement agreements should be sure to include the following provisions: (1) the debtor's acknowledgement of the full principle debt amount, and (2) a discount from the full debt amount if initial timely payments are made. Despite the court's lack of reasoning, such agreements should also include a provision that the discount is to be applied after the full debt amount is paid in full.
Without case law that specifically applies this reasoning to stipulated judgments or expounds upon the court's analysis, however, these provisions may be vulnerable to challenge. Attorneys are thus advised to proceed with caution in this area.
|
|
|
|
|
|
| | | |
|
|
|
| | | |
|
|
|
|
|
|
|
The Price of Privacy: California's Newest Consumer Protections Burdens Businesses
By Katharine Miner, Salisian | Lee LLP
|
|
|
|
|
| | | |
|
|
|
| | | |
|
|
|
|
|
| | |
On January 1, 2015, California's newest data security legislation, Assembly Bill No. 1710 ("AB1710"), went into effect. AB1710 was enacted in response to recent high-profile data breaches and amends California's already stringent privacy protections under Civil Code section 1798.80 et seq. Most notably, the new law applies California's consumer data security procedures to a broader group of businesses, further restricts disclosure of social security numbers, and confusingly outlines identity theft monitoring protections, leaving business entities vulnerable to litigation. Entities that do business with California residents must take note of the new regulations and evaluate whether their consumer data policies and procedures are in compliance.
AB1710 institutes the following noteworthy changes to California's consumer protection laws:
I. Expanded Application of Security Procedure Requirements
Previously, only businesses that owned or licensed a consumer's personal information were required to "implement and maintain reasonable security procedures and practices appropriate to the nature of the information, to protect the personal information from unauthorized access, destruction, use, modification, or disclosure." Businesses that own or license personal information are defined under the law as those that retain the information as part of its internal customer account or for the purpose of using that information in transaction with the person to whom the information relates. Civ. Code § 1798.81.5(a)(2).
AB1710 significantly expands the application of these security procedure requirements to businesses that merely "maintain" personal information. See Civ. Code § 1798.81.5(b). The law was less explicit in defining what businesses "maintain" personal information, stating only that "the term 'maintain' includes personal information that a business maintains but does not own or license." Civ. Code § 1798.81.5(a)(2). Despite the vague wording, what is clear under the newly amended regulations is that many more businesses will be swept in under California's data security regulations.
II. Offer for Creditor Monitoring
In the event of a breach, California's privacy laws, like those of many other states, require businesses to follow certain notification requirements. AB1710, however, takes a significant step beyond these notification regulations to now require that businesses provide free credit monitoring services in some cases of breach.
The law provides that, if a business was the source of the breach, and the breach involves an individual's name and SSN, driver's license number or California identification card number, "an offer to provide appropriate identity theft prevention and mitigation services, if any, shall be provided at no cost to the affected person for not less than 12 months." Civ. Code § 1798.82(g).
The ambiguous "if any" language has created much debate regarding the scope and application of this provision, with some reading the provision to require all businesses to provide no-cost credit monitoring for one year, and others arguing that only those businesses that already offer such services will be required to comply. Further complicating matters, the law provides no clarity on what constitutes "appropriate identity theft and mitigation services."
Until the California courts or the Attorney General sheds some light on the interpretation of this provision, businesses must be aware that, in the event of a breach, they may be required to provide credit monitoring services.
III. Social Security Number Disclosures
Lastly, AB1710 restricts disclosures of Social Security numbers, prohibiting the sale, advertisement for sale, or offer to sell an individual's Social Security number. Civ. Code § 1798.85(6). Exceptions apply where the release of a Social Security number is incidental to a larger business transaction, and the release is necessary to identify the individual in order to accomplish a legitimate business purpose, but the law is clear that the release of Social Security numbers for marketing purposes is not permitted. Id.
IV. Conclusion
AB 1710 is undoubtedly a significant expansion of California's consumer data protections, but it remains to be seen how broadly these protections, specifically the credit monitoring requirements, will be interpreted. As large-scale data breaches continue to occupy headlines, it will also be worth watching whether other states follow in California's footsteps and enact similar legislation, or if the federal government will step in to address the diverse state approaches to consumer privacy protection. Until that time, businesses that handle consumer data must be vigilant and ensure that their policies are compliant with the laws of each state where they do business.
|
|
|
|
|
|
| | | |
|
|
|
| | | |
|
|
|
|
|
Legal Disclaimer: The information contained in this newsletter is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients of content from this newsletter, clients or otherwise, should act or refrain from acting on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the state of California.
|
|
|
|
|
|
| | | |
|
|
|
|
|
|
|
|
|
|
|
|
Copyright © 2015 Salisian Lee | LLP. All rights reserved.
|
|
|