Shulman Bastian LLP

August 2017 Archives

California Fair Pay Act Seeks to Expand and Strengthen California Equal Pay Act of 1949

The California Equal Pay Act of 1949 was enacted to eliminate gender discrimination in the workplace by providing "equal pay for equal work." As of January 1, 2016 the California Fair Play Act amended the EPA taking an even more aggressive approach. The amendment now provides for equal pay for "substantially similar work" regardless of work title or work location. Though "substantially similar work" was not defined in the Act, the California Department of Industrial Relations indicated on their website that it means "work that is similar in skill, effort, responsibility, and performed under the same working conditions."

Americans with Disabilities Act Compliance Update

Starting July 1, 2013 California Civil Code § 1938 requires commercial property owners to disclose in every lease whether or not the property has been inspected by a "Certified Access Specialist" ("CASp"). CASps are individuals certified by California as qualified and knowledgeable regarding construction related access to public accommodations.

Ninth Circuit Applies California Supreme Court's Holding in Carmack v. Reynolds, Holding That Spendthrift Trust Distributions Are Property of the Estate and Confirming the Types of Distributions Which Need to Be Turned Over

On August 16, 2017, the Ninth Circuit Court of Appeals, more than two years after it issued an order certifying a probate question to the California Supreme Court, held that a bankruptcy estate is entitled to the full amount of spendthrift trust distributions due to be paid as of the petition date. However, based on the California Supreme Court's opinion in Carmack v. Reynolds, 391 P.3d 625, 628 (Cal. 2017), the Ninth Circuit confirmed that the estate may not access any portion that the beneficiary needs for his/her support or education (so long as the trust specifies that is the purpose of the funds). See also Cal. Prob. Code § 15302. The Ninth Circuit further held that the bankruptcy estate may also reach 25 percent of expected future payments from the spendthrift trust, reduced by amounts needed by the beneficiary to support himself/herself and his/her dependents. Carmack v. Reynolds, 391 P.3d at 632; Cal. Prob. Code § 15306.5.

Contingent Interest in Commissions Earned Post-Petition Can Be Bankruptcy Estate Property

In re Anderson, BAP No. ID-16-13156-JuFB, filed on August 11, 2017, the Ninth Circuit Bankruptcy Appellate Panel upheld the Bankruptcy Court's finding that the debtors' contingent real estate commissions were estate property. The debtors were real estate agents. When they filed their bankruptcy petition, they had 13 transactions which were under contract and in escrow but had not yet closed. Under Idaho state law, the debtors were not entitled to payment of their commissions until the transaction closed. The closings did not occur until after the filing of the bankruptcy. The Bankruptcy Court found, and the BAP agreed, that because the interest in the commissions was sufficiently rooted in the pre-bankruptcy past and especially because the debtors were unable to show that any of the acts necessary to earn the commissions were performed post-petition, the commissions were property of the bankruptcy estate.

On the Seventh Day Thou Shalt Rest - California Supreme Court Clarifies Labor Code's "One Day's Rest in Seven" Requirement

The California Supreme Court recently issued Mendoza v. Nordstrom, Inc., 2 Cal.5th 1074 (2017), clarifying California Labor Code §§ 551 and 552's requirements that an employee is entitled to one day of rest in seven and that an employer shall not cause an employee to work more than six days in seven.

California Court of Appeal Signals Availability of Reverse Veil Piercing Doctrine Against LLCs

In the context of a creditor which had for five years sought enforcement remedies against an individual who had created an elaborate web of trusts, partnerships, and an LLC to evade payment, the California Court of Appeal distinguished prior case law in holding that, under certain circumstances, an LLC may be held liable to its members' debts. The prior case was Postal Instant Press, Inc. v. Kaswa Corp., 162 Cal. App. 4th 1510 (2008), which held that corporations should not be held liable to its shareholders' debts because exercising such equitable powers would necessarily harm innocent shareholders and creditors when there are remedies at law available, i.e., creditors assuming direct control over debtors' shares. Here, the Curci Investments court noted that, unlike in the corporate context, a creditor of an LLC member may only obtain a charging order to divert an LLC's distributions. However, as was the case here, because the LLC membership retains ultimate control, it may simply halt any further distribution.

California Cities and Counties are Poised to Substantially Increase Assessment of Documentary Transfer Taxes on Stock Transfers in Corporate Entities

In an opinion handed down on June 29th, the California Supreme Court held that notwithstanding the legislature's decision against localities imposing excise taxes on transfers in ownership of stock, it did, however, intend for localities to impose documentary transfer taxes on stock transfers in property-holding entities. In particular, the Court held that Cal. Rev. & Tax. Code §§ 64(c) and (d) applied to transfers for consideration resulting in more than 50% ownership of voting stock in any partnership, LLC, or other entity where the stock transfer effectively changes the owner of the beneficial interest in real property. Unless the stock transfers concern an entity federally-taxed as a partnership and the transfer does not result in a technical termination of that partnership, a city or county is empowered to ignore the corporate form, reassess the underlying real property, and impose documentary transfer taxes for every property held therein. While documentary transfer taxes can be de minimis in amount in cases concerning an individual property, this decision could have a substantial impact on the purchase of large entities, both in and out of bankruptcy. Practitioners who oversee the purchase and sale of business concerns should take note that cities and counties are poised to assert documentary transfer taxes on a range of stock transactions in the future. A copy of the published opinion 926 North Ardmore Avenue, LLC v. County of Los Angeles is available by hyperlink here.

Statutory Tax Lien Can Be Set Aside as Against a Bona Fide Purchaser

In In re Mainline Equipment, Inc., Case No. 15-60069, the Ninth Circuit Court of Appeals held that the County of Los Angeles ("County") could not enforce its tax liens on personal property against a bona fide purchaser when the County had failed to perfect its liens. The Chapter 11 debtor could set aside the County's liens under Bankruptcy Code Section 545 because the liens were only statutory and were unenforceable against a bona fide purchaser based on the enforceability of the liens pursuant to Cal. Rev. and Tax Code section 2191.4. Specifically, the County had recorded tax delinquency certificates with the County Recorder but failed to file its liens with the Secretary of State of California. While this granted the County a lien upon all of the debtor's real and personal property in the county in which it was recorded, such liens were not enforceable against a bona fide purchaser of personal property and thus, could be avoided by the debtor. The result would likely be different if real property were concerned because judgment liens recorded with the County Recorder are perfected as to real property.

Attorneys at Borders - What to Do to Protect Confidential Client Information

Every California attorney knows that he/she owes a duty of confidentiality to the attorney's client. According to Rule 3-100(A) of the California Rules of Professional Conduct, an attorney cannot reveal client information, and the attorney has a duty to "maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client." But not every attorney may know how to uphold this duty in a situation where he/she is coming back from a trip and has his/her electronic device(s) that contains confidential client information seized or is subject to inspection by a U.S. Customs and Border Protection ("CBP") agent; especially since the law is not clearly settled on this issue yet.

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