Want to Make a Federal Case of it?

It amuses me when I find myself resorting to one of the many “sayings” or “expressions” I learned early in my childhood, and have always understood, but the derivation of which I did not bother to investigate or learn until much later. Just now, for example, remembering how my mother would say “I don’t want to hear about it… go tell Yehudi!,”, I realize I have no idea who Yehudi might have been. I just googled it, and read that Yehudi was the name of a famous violinist of my parents’ time…and is a common Jewish name, and is sometimes used as an endonym for “jew”. (I’ll let you google “endonym”.)

Some expressions were obvious, like when my father instructed “use your noodle!”, as he often did when he thought we weren’t thinking things through. He meant “think about it”, and “noodle” meant “brain”. And I understood the aphorism, which my parents used to rebuke us for lack of discipline or character, “the road to hell is paved with good intentions.”

But frequently the references were like make-believe. If something was imagined in a far away and exotic place, most likely that would be “Timbuktu”. It failed to occur to me that Timbuktu was a real place that I could find on a map (FYI, it’s in the African nation of Mali). Nor did I have any idea who “Rube Goldberg” was, though he was usually mentioned when my parents complained of some poorly calculated solution or defective device. (I later learned he was a cartoonist who specialized in drawing fictional, complicated mechanical contraptions.)

“DON’T MAKE A FEDERAL CASE OF IT!”

Similarly, when my father thought someone was making too big a deal about some problem or dispute, and needed to “chill”, in today’s parlance,  he would often say, “you don’t need to make a Federal Case out of it!” And just as I rarely considered the literal meaning of my parents’ short-hand expressions, I never thought about what a “Federal case” was, or how it might be something more substantial than an ordinary “case”, i.e. not federal.

But that was before I was even out of grammar school, and long before I became a lawyer and learned that there actually IS such a thing as a “Federal Case”–and it DOES have significant characteristics that distinguish it from other “cases”–like “State cases.”

WHAT IS A FEDERAL CASE?

A Federal case, most literally, is a lawsuit that is filed in a Federal Court, which usually means one of the 94 “District Courts” that Congress has established throughout the United States, one or more in each of the 50 states and the District of Columbia, and a few outside of the United States (in Guam, Puerto Rico, the Mariana Islands). District Courts are courts of “original jurisdiction”, as opposed to the Federal Courts of Appeal, which are courts of
“appellate jurisdiction”. In other words, District Courts are where Federal Cases are first brought for trial in Federal Court.

WHY DID MY DAD THINK A “FEDERAL CASE” WAS SUCH A BIG DEAL?!!

I’m not sure how much my dad knew about the law. He was a smart man, but he had no training in law and never was involved in a lawsuit, as far as I know. I imagine he figured that a “Federal Case” must involve “Federal Law”, which is kind of a big deal since Federal laws apply across the county, and not just in one State–and that’s true. In most situations, Federal laws must be enforced in Federal Court.

But it’s also true that State Courts handle some very “big” and important cases, with no limit on the amount of money damages that might be awarded. This is referred to as “unlimited jurisdiction”, meaning that the amount of money damages that might be awarded is “unlimited.”  However, State Courts DO have limits regarding their jurisdiction over persons and businesses and events outside of their territory, and involving the interpretation and enforcement of Federal Law, which may require that a particular case be brought or removed to Federal Court.

SOME CASES CAN BE FILED IN EITHER STATE OR FEDERAL COURT

The question of whether a particular lawsuit can be filed in only State Court, or only in Federal Court, or either in State or Federal Court, is a bit too complicated to explain here. However, it is a question every lawyer must ask…and answer…him or herself, when devising initial litigation strategy. There are potential significant advantages and disadvantages depending on the particular facts and laws involved.

SOMETIMES IT HELPS TO MAKE A FEDERAL CASE OUT OF IT!

In our law firm’s practice, where our trial lawyers primarily represent small and medium businesses and individuals in commercial, property and professional disputes, most cases must be filed in State Court. That said, however, Federal Court jurisdiction is by no means uncommon even in these sorts of cases. Where it is available, the benefits can be significant. Many Federal Courts, including San Diego’s Federal Courts, typically have greater resources to manage and facilitate prompt resolution of disputes, prominently including their system for “early neutral evaluation” by a Magistrate Judge. The Federal Courthouses and courtrooms are also typically more formal and solemn, and the results of any given dispute can be more predictable in Federal Court. Another advantage of Federal Courts is that the time to trial is often faster than our litigation attorneys see in State Courts.

CONCLUSION

Whenever I interview a new client with a dispute likely to result in litigation, I always remember by father’s phrase when I ask myself: Do I want to make a Federal Case of this?!!!!”

Free Consultations by Experienced Attorneys at Gehres Law Group, P.C.

The experienced business litigation lawyers at Gehres Law Group understand the importance of analyzing the appropriate jurisdiction and venue where a case should be brought at the outset of a case, and advising the client and planning the case accordingly. We encourage you to take advantage of our knowledge and decades of experience successfully representing clients in litigation.

© 2017 Gehres Law Group, P.C. We hope you found this article helpful and appreciate any comments or suggestions you may have. It is for general information only and should not be construed to constitute formal legal advice nor the formation of a lawyer/client relationship.

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THE “DAY OF REST” REQUIREMENT OF LABOR CODE SECTIONS 551 AND 552

Earlier this month, the California Supreme Court issued rulings on three previously-unanswered questions relating to the “Day of Rest” requirement of Labor Code Sections 551 and 552. In Mendoza v. Nordstrom, Inc., decided May 8, 2017, the Court first addressed the meaning of §551 (“[E]very person employed in any occupation of labor is entitled to one day’s rest therefrom in seven”) and §552 (“[N]o employer shall cause his employees to work more than six days in seven.”)

“SEVEN DAYS” MEANS A REGULAR WORK WEEK

Plaintiff Mendoza, an employee of Defendant Nordstrom, asserted that these Code sections required that in any period of seven consecutive days, the employer is required to provide the employee one day of rest. Nordstrom argued that the reference to “seven” in both sections was to a regular work week (e.g., Sunday to Saturday, Monday to Sunday, etc.) — in other words, the regular work week established by the employer.

Based on an analysis of legislative history and other related Labor Code sections, the Supreme Court ruled that the “day of rest” protection provided to employees applied on a week-to-week basis, and not on a “rolling basis” as asserted by employee Mendoza. Thus, an employer could theoretically require an employee to work 12 straight days without providing the employee a day of rest. For example, the employer could require an employee to work Monday through Saturday in week 1, and Sunday through Friday in week 2, without violating Sections 551 and 552. By providing the employee with a rest day in both weeks (Sunday in week 1 and Saturday in Week 2), the employer would be complying with the mandates of these Sections of the Labor Code.

THE “SIX HOURS IN ANY ONE DAY EXEMPTION”

The second question the Court addressed was how the six-hour day exemption in §554 should be applied. Section 554 provides that “Sections 551 and 552 shall not apply to any employer or employee when the total hours of employment do not exceed 30 hours in any week or six hours in any one day thereof.” Does “six hours in any one day” mean that the exemption from the “rest day” requirement means that, so long as any one day in the seven-day work week is six hours or less, the exemption applies? Or, does it mean that the exemption applies only if every day within the seven-day work week is six hours or less. The Court ruled that every day within the week must be a workday of six hours or less for the exemption to apply. The Court further ruled that the 30 hours per week and six hours per day were in the conjunctive — meaning, the “rest day” exemption applies only if the employee works no more than 30 hours in a work week and no more than six hours in any day of the work week.

WHAT DOES IT MEAN TO “CAUSE” AN EMPLOYEE TO WORK A SEVENTH DAY?

The third and final question addressed and answered by the Court was the meaning of the proscription in §552 that an employer not “cause his employees to work more than six days in seven.” [Emphasis added]. Employee Mendoza contended that whenever an employer allows, suffers or permits an employee to work a seventh day, it has “caused” the employee to work. Nordstrom, on the other hand, argued that unless the employer requires, forces or coerces an employee to work a seventh day, it has not “caused” the employee to work on the seventh day.

The Supreme Court concluded that neither the employee nor the employer was correct. Rather, said the Court, “An employer’s obligation is to apprise employees of their entitlement to a day of rest and thereafter to maintain absolute neutrality as to the exercise of that right. An employer may not encourage its employees to forego rest or conceal entitlement to rest, but is not liable simply because an employee chooses to work a seventh day.”

In so ruling, the court noted that “[F]or a century employers have been liable for wages for passively suffering or permitting work (citations omitted), but the Legislature chose not to write the obligation to afford of day arrest so broadly (e.g., “An employer shall not suffer or permit an employee to work more than six days in seven”), and forbade only causing an employee to forego rest.” In conclusion, the court ruled: “An employer cannot affirmatively seek to motivate an employee’s forsaking rest, but neither need it act to prevent such forsaking.”

These interpretations of the Labor Code by our state Supreme Court provide much needed clarification for employers and the lawyers who represent them. For further information on this and other Labor Code issues, contact the award-winning and AV-rated employment law attorneys at Gehres Law Group, P.C. at (858) 964-2314 or by e-mail at info@gehreslaw.com. Our attorneys are pleased to offer complementary evaluations to new clients.

© 2017 Gehres Law Group, P.C. We hope you found this article helpful and appreciate any comments or suggestions you may have. It is for general information only and should not be construed to constitute formal legal advice nor the formation of a lawyer/client relationship.

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PLANNING FOR YOUR “DIGITAL ESTATE”

A few years ago, security software company McAfee, Inc. conducted a study which revealed that, on average, Americans have a “Digital Estate” worth more than $50,000.00.  At the time, these digital assets were at risk of being lost or otherwise inaccessible when the owner died or became incapacitated.

On January 1, 2017, California became one of several states to combat this problem by enacting Assembly Bill 691, commonly known as The Revised Uniform Fiduciary Access to Digital Assets Act or RUFADAA.

What Comprises a Digital Estate?

Before discussing the details of the new law, it is important to learn what makes up a digital estate, and likewise, think about who you want to manage or inherit those digital assets when you’re gone.

• Online accounts, such as email and social media profiles.
• Purchased digital assets, like movies, music, books, software, games, and apps.
• Business tools, such as eBay, Etsy, blogs, and websites.
• Financial accounts, like PayPal and Venmo, or online banking accounts, like Capital One-360 or auto-debit accounts.
• Cloud storage accounts, including DropBox, iCloud, Google Drive, etc.
• Personal memories, including electronic photo libraries and video collections.
• Other assets, like virtual currency accounts (Bitcoin), avatars (which can be surprisingly valuable!), and important personal documents, hobbies, or career information.

When considering the above, it is clear that digital assets have significant value, both financially and emotionally.

Challenges Before the RUFADAA

Before RUFADAA, family members frequently had trouble accessing the digital assets of the decedent or incapacitated loved one because of password protection and other restrictive terms of service.  What’s more, if the family member even attempted to access the digital assets without clear authority, they were likely violating a host of laws, such as anti-hacking and privacy statutes.

How Digital Assets are Handled Under the New RUFADAA

Codified in California Probate Code sections 870 – 884, the RUFADAA gives ‘fiduciaries’ the legal authority to access and manage an individual’s digital assets and electronic communications pursuant to that person’s estate plan.  A ‘fiduciary’ is defined as a “personal representative or trustee,” who is named in a “will, trust, power of attorney, or other record.”

The new law was supported by the likes of Facebook, Yahoo, and AOL as it provides clear guidelines and a single-legal standard for them to abide by, while also absolving them of liability so long as they acted in good faith in disclosing otherwise protected and confidential information.

Make Sure Your Digital Estate is Protected

In order for the provisions of the RUFADAA to be available, an individual or couple must have a trust or will, and other estate planning documents in place. Although the issue has yet to be litigated since the Act is so new, custodians of digital assets, for their own protection from liability, will almost certainly require the estate fiduciary provide certified proof of their authority. Therefore, it is imperative that very specific language be drafted in the estate planning documents.

POWER OF ATTORNEY:  By adding appropriate language in a Durable Power of Attorney, your power of attorney agent will be allowed to manage your digital assets if you ever become incapacitated.

LIVING TRUST:  Your Successor Trustee, who is named in your Revocable Living Trust, will have the authority to access, manage, distribute, and dispose of your digital assets upon your death. Additionally, you can use the trust to specify the succession of your digital estate (i.e., who you want to leave certain things to, such as photographs or digital assets with a significant monetary value.)

If you fail to give direction on how or who will handle your digital accounts through a will, trust, power of attorney, or “other record”, the RUFADAA states that the Terms of Service of the specific account(s) will control.  This will typically make it difficult or impossible for surviving loved ones to gain access to your digital estate.

Final Thoughts

Digital assets are a part of your legacy and should be treated with the same care used to protect your tangible assets.  The RUFADAA reconciles the user’s interest in privacy with the economic or sentimental value their digital assets hold, and should impact every estate plan prepared in the Internet Age.  To ensure your digital accounts are protected and preserved for your family, consult with an experienced estate planning attorney who can help you determine your specific needs. The knowledgeable estate planning attorneys at Gehres Law Group are dedicated to providing the highest quality services at very competitive prices. Call or write us today for your complimentary consultation.

 

© 2017 Gehres Law Group, P.C. We hope you found this article helpful and appreciate any comments or suggestions you may have. It is for general information only and should not be construed to constitute formal legal advice nor the formation of a lawyer/client relationship.

 

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California Successor Liability

If you are purchasing an existing business or even the assets of a business in California, it is important to consider to what extent your business will have exposure to successor liability following the purchase. California successor liability laws are significantly broader than those in some states, so being informed and taking steps to mitigate your company’s exposure beforehand is critical, especially in higher risk industries.

What is Successor Liability?

Successor liability simply involves the imposition of liability against a successor company for the debts and liabilities of a predecessor. This usually occurs following the sale of a business or a merger of two entities. For example, if your new or existing business purchases the equity interest (shares or LLC membership interest) of a target company, or merges with a target company, the surviving entity will typically be liable for the target company’s past and future debts and other liabilities. See Corporations Code Section 1107(a). While a successor’s liability to creditors can be mitigated in some instances through compliance with California bulk sales laws, most of the obligations of a predecessor will remain with the successor following these transactions. Click here for our discussion on California bulk sales laws.

Ways to Avoid Successor Liability

A purchasing business owner may consider one of several options to avoid the imposition of successor liability, including:

1) The owner of an existing business may create a separate subsidiary to purchase the target business. This option places the acquired liabilities in the subsidiary to avoid exposure to the parent company. This option is, of course, available only for existing companies, not new businesses, and does nothing to prevent successor liability from being imposed on the subsidiary; or,

2) The purchasing company may include certain legal provisions in the purchase agreement which shifts liability back to the seller. This choice is feasible where the selling entity survives the purchase or where a selling company’s owners have the financial ability (and are willing) to indemnify or otherwise compensate the purchasing entity should any predecessor liabilities arise following the sale or merger; or

            3) A purchasing business might also avoid the imposition of successor liability by purchasing only the assets of a target business. However, this is not a foolproof solution as discussed below.

Imposition of Successor Liability Following a Sale of Assets

While the general rule is not to impose liability on a successor business following an asset sale in California, there are a number of exceptions, as explained by the Supreme Court of California in Ray v. Alad Corp. (1977), 19 Cal.3d 22:

            “[T]he rule states that the purchaser does not assume the seller’s liabilities unless

(1) there is an express or implied agreement of assumption,

(2) the transaction amounts to a consolidation or merger of the two corporations,

(3) the purchasing corporation is a mere continuation of the seller, or

(4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller’s debts.”

In the Ray case, the Court added a fifth basis for imposing successor liability–strict tort liability for a defective product. In the context of an asset sale, California courts have been somewhat creative in finding ways to impose liability against a successor where a party has clearly been injured and there is no available remedy against the predecessor, so it is not safe to assume that a purchase of assets alone will provide adequate protection against successor liability.

Successor Liability to Governmental Authorities

Successor entities in California can also be held liable for obligations of the predecessor with regard to various governmental authorities debts, if not already paid by the predecessor. Following are examples of amounts the purchaser may seek to deduct from the purchase price as reimbursement for payments to the appropriate governmental entities.

• Contributions to the California unemployment fund, employment training fund and unemployment compensation disability fund, plus any interest and penalties.
• Franchise and income taxes, plus any interest and penalties
• Sales and use taxes

As an alternative, the purchasing business may seek to obtain, prior to closing of the sale or merger, confirmation from these governmental entities that the predecessor’s obligations have been fulfilled.

Conclusion

In conclusion, individuals or entities who are contemplating the purchase or merger of an existing business must be aware of the real potential for successor liability being imposed on their company following the acquisition of a business or its assets. Often, a combination of the options discussed here will provide the best protection for a purchasing business against the imposition of successor liability. Assessing the level of risk and determining which of the available avenues are ideal in any given situation should be done by an experienced professional. The business law attorneys at Gehres Law Group, P.C. are adept at identifying these risks and mitigating them as much as possible in a variety of situations. Contact us today for a free evaluation or browse our website for more information.

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Does Your Estate Plan Account for Your Incapacity? ​Benefits of a Durable Power of Attorney

A frequently overlooked part of the estate planning process is deciding who will help you manage your financial affairs if you’re ever incapacitated and unable to manage them yourself. In reality, the likelihood of you needing someone to act on your behalf at some point in time is statistically quite high; accidents happen every day. In order to address the possibility of an eventual incapacitating event, diligent clients (with the help of their estate planning attorney) ensure they have the appropriate documents in place should the need ever arise. Specifically, by executing a Durable Power of Attorney, they have, in advance and with thoughtful consideration, chosen exactly who will help them if or when they need help.

What is a Durable Power of Attorney – An Overview

A Durable Power of Attorney (“DPA”) is a legal document that outlines who will make decisions for you, what decisions that person can make, and when that person can make them.

A Power of Attorney “Agent” is the person or persons you specifically name in your DPA document to act for you if you are ever incapacitated and unable to manage your affairs yourself.

The powers contained in a DPA are generally financial in nature, and usually do not give your named DPA Agent the authority to make any medical or healthcare-related decisions for you. Since we can’t predict what events may transpire in the future, a DPA can and should be quite broad, and drafted to cover a number of different possible scenarios.

This Power of Attorney is “durable” in that it survives a declaration of incapacity. In fact, you can even describe in the document itself what constitutes an incapacity event, or specify who exactly determines whether or not you have the capacity to make decisions (such as your primary care doctor, two licensed physicians, or a panel of family members, for example).

Who should I appoint as my Durable Power of Attorney Agent?

The short answer is: anyone you trust to make legal, business, and financial-related decisions for you.

If you’re married, your spouse is typically listed as your first Agent. This will allow him or her to manage any bank accounts that are in your name alone, or to file your joint-tax return, for example. In addition, it is always advisable to list backup agents as well, especially in the event you and your spouse become incapacitated together, or one of you pre-deceases the other.

Further, a person named as a DPA Agent is under no obligation to act, and may not want to or be able to help you when the time comes (maybe because of their own incapacity). Additionally, an Agent can always resign later on down the road, so having a “next in line” to pick up where your first named Agent left off is always a good idea.

The only real limitation is that a DPA Agent has to be an adult–so your very responsible but not-quite 18 year old child would be a bad choice, at least for now. Keep in mind, however, DPAs are completely modifiable and easily amendable, so when he or she reaches adulthood, you can have your DPA updated accordingly.

When does a POA become effective?

Your Agent usually cannot begin acting on your behalf unless and until there is a formal declaration of incapacity. However, sometimes people chose to make their DPA “immediate”, which means the named Agent can start helping them out upon execution. While this sounds like a really scary thing for some, in the appropriate situation, it is ideal. For example, perhaps an aging parent is starting to need more and more help, and we don’t want to wait until they’re technically “incapacitated” to help them. A few other scenarios where an immediate DPA can be useful is when someone is going out of town for an extended period and would like their Agent to manage their affairs while they are away, or they are going in for a medical procedure and want to ensure they have someone in place that can manage things for them if they end up needing a little extra help while they recover.

How long will my POA last?

Duration: The duration of a DPA can be indefinite, or it can be limited to a specific period of time in advance. Likewise, a DPA can be used long-term or just temporarily. If you are incapacitated for a short time, your Agent can act for you until you regain the capacity to begin acting for yourself once again. If you never regain capacity, your pre-selected Agents can continue caring for you for an unlimited amount of time.

Caveat: Although DPAs are usually indefinite, that doesn’t necessarily mean they will be accepted forever. I advise my clients to revisit and “refresh” their DPA documents every few years. Even if they do not want to change their appointed Agents, it’s nice to get “fresh ink” on the document, which ensures banks and other financial institutions will accept them without hesitation as they reflect the relatively recent wishes of the Principal.

Revocation & Amendment: You are free to revoke your DPA entirely, or you can simply amend it to reflect your current wishes. Things change and relationships are fluid. Obviously if you no longer want a person you had previously named as your DPA Agent handling your affairs, you should update the document to reflect your change of heart. Like I tell my clients: you have to plan for what you know now. So, if you know you do not want your brother managing your affairs, don’t list your brother as an Agent. You can always update your DPA down the road when he gets his act together and you feel confident in his judgment.

Expiration: Finally, DPAs expire at death. Let me repeat that: DPAs expire at death! In my practice, I’ve learned that most people don’t know this, and always look remarkably shocked when they find out. As one of my clients put it, “So you’re telling me that my Power of Attorney expires when I expire?” Yes, that is exactly right.

To put it another way, your named Agent will be able to help you between your incapacity and your death, but not afterward. So, while your Agent can manage your affairs for you because you’re incapacitated, they can’t continue managing those affairs for you upon your death by virtue of being named your DPA Agent.

I Have a Trust – Do I Still Need A DPA?

Yes. You absolutely do. A DPA is designed to work in conjunction with your Trust in that it is used to control assets outside of trust title. Examples of assets outside of your trust that would be managed by a DPA Agent (rather than Successor Trustee) include: managing retirement accounts, paying your debts, applying for government benefits, making support payments, managing your business, etc.

Now this does not mean your DPA Agent and your Successor Trustee have to be different people—in fact, the same person can act for you in both capacities. There are certainly benefits of having the same person in both roles, but there are also practical and logistical implications to consider as well. The best course of action is to sit down with your estate planning attorney and decide what will be best for you and your specific situation.

What if I don’t have a DPA? Then what?

If the time comes and you are no longer able to manage your own financial affairs, but the appropriate planning was not done in advance (i.e., you did not execute a DPA), a conservatorship action will be brought before a court, and a judge will decide who handles your affairs for you. Of course, this will cost you or your loved ones in both time and money—who will foot that bill?; but perhaps even more concerning is the chance that the person the court appoints to manage your affairs is someone you would have never picked yourself. Remember, you’re incapacitated at this point- you will have no meaningful say in the matter without a DPA.

Summary

People often think of an Estate Plan as something that will come into effect upon their death; but comprehensive estate planning will also provide guidance in the event of incapacity. A well-crafted DPA can be used to seamlessly transition the financial affairs of the Grantor/Principal into the hands of the people they know and trust, without court intervention, and in accordance with their wishes.

The attorneys at Gehres Law Group, P.C. are pleased to offer a complimentary evaluation to discuss your estate planning needs. Please remember this information is general in nature and does not constitute legal advice. Nothing in this article should be construed as forming an attorney-client relationship. For specific advice concerning your particular situation, consult personally with an estate planning attorney.

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CALIFORNIA USURY LAWS: What you should know before lending or borrowing money

Introduction

Many business owners and individuals incorrectly believe they can charge any amount of interest to which the parties agree. However, unlike many contract terms, rates of interest charged by non-exempt lenders is limited in California to ten percent (10%) per year, even if the borrower is otherwise willing to pay a higher rate (or begs for a higher rate). If your promissory note or loan agreement exceeds this rate, then it is usurious unless it fits within one of the exemptions, set out below. As a non-licensed lender considering charging a higher rate, any credible business lawyer will have this advice: “Don’t do it!” The risk for civil damages and even criminal charges being brought against you is very real.

What is Usury?

Simply put, usury is the charging of interest beyond the rate permitted by California law. In other words, any rate beyond that set by state law is considered usurious and unenforceable. To prevent lenders from usurping the intent of usury laws by characterizing “interest” as other fees, bonuses, or miscellaneous charges, our courts have typically interpreted the term broadly to include anything of value that is received directly or indirectly by the lender from the borrower regardless of the nature or form of the consideration.

Non-exempt lenders may charge a maximum of  (i) 10% interest per year (1% per month) for money, goods or things used primarily for personal, family or household purposes; or, (ii) for other types of loans (home improvement, home purchase, business purposes, etc.), the greater of 10% interest per year, or 5% plus the Federal Reserve Bank of San Francisco’s discount rate on the 25th day of the month preceding the earlier of the date the loan is contracted for, or executed. Any consideration charged on a loan by a non-exempt lender which exceeds these rates is usurious and may lead to legal action against the lender.

California usury laws can be found in various sections of the California Civil Code and the California Constitution, including:

• California Const. Art. XV §1 (Previously passed as Art. XX §22)
• California Civil Code §§1912-1916.12
• California Civil Code §§1916-1 to 1916-3 (Constitutional provisions implemented here)
• California Civil Code §§1917-1917.006
• California Civil Code §§1917.060-1917.069
• California Civil Code §§1917.160-1917.168
• California Civil Code §§1917.610-1917.619
• California Commercial Code §§9201-9208
• California Corporations Code §§25116-25118
• California Financial Code §§22000-22064
• California Government Code §§5900-5909

Note: Cal. Civ. Code §1916-1 permits a maximum interest rate of 12% per annum. However, it is presumed that the 10% maximum of the Constitution at Art. XV §1 would prevail where a conflict arises.

Remedies for Usurious Interest Rates

The previously cited Constitutional provision clearly states that usurious contracts are unenforceable, raising the possibility that the lender may not be able to recover its principal. However, California courts have held that wherever possible, a contract will be construed so as to make its effect non-usurious. See Thomassen v. Carr, 250 Cal. App. 2d 341 (1967). In addition, the underlying intent of the usury laws are to prevent a lender any excessive profit, not their principal.

Nevertheless, applicable sections of the California Code go further than disgorging unlawful interest by assessing civil and even felony criminal penalties against lenders who violate usury laws. Section 1916-2 of the Civil Code can work to prevent a lender from collecting any interest on a loan that contains a usurious rate of interest, as well as delay repayment of the loan principal. It provides, in relevant part:

Any agreement or contract of any nature in conflict with the provisions of this section shall be null and void as to any agreement or stipulation therein contained to pay interest and no action at law to recover interest in any sum shall be maintained and the debt can not be declared due until the full period of time it was contracted for has elapsed.

Subsection 1916-3(a) further provides for treble damages for usurious payments and Subsection (b) allows for criminal penalties as well:

(b) Any person who willfully makes or negotiates, for himself or another, a loan of money, credit, goods, or things in action, and who directly or indirectly charges, contracts for, or receives with respect to any such loan any interest or charge of any nature, the value of which is in excess of that allowed by law, is guilty of loan-sharking, a felony, and is punishable by imprisonment in the state prison for not more than five years or in the county jail for not more than one year.

Depending on the nature of the lender, any willful violation of the usury laws may also be a violation of Business & Professions Code §17000, et. seq., which exposes a lender to criminal liability. In sum, our business lawyers advise non-exempt lenders to steer clear of charging usurious interest rates, which can ultimately cost them significant amounts of money and their freedom, or consider fulfilling the criteria of one of the many exemptions which permit lenders to charge higher rates of interest.

California Usury Law Exemptions

Following are a brief description of some exemptions to California’s usury laws:

• Licensed Lending Institutions: Licensed lending institutions engaged in the business of making consumer and/or commercial loans such as banks, savings and loans, credit unions, finance companies, horticultural or dairy cooperative associations, bank holding companies and their subsidiaries, and pawn brokers are exempt from California’s usury laws (although regulated through other laws, including federal law). See California Financial Code §5102, §7675 §15000, §21000, §21200, §22002, §22009, §22303, and §28000; Home Owners Loan Act of 1933, 12 U.S.C.A §1464(5)(c)(4)(B) and the Building and Loan Association Act of 1931 (as amended).

 

• California State and Local Public Retirement Systems

 

• Loans Secured by Real Property or Used to Purchase, Build, or Improve Real Property: If properly originated and negotiated, such loans are typically exempt when made or arranged by a licensed real estate broker. See California Civil Code §1916.1.

 

• Seller Financing – Seller Carryback Loans: When a seller of real estate finances the purchase for the buyer with a note secured by a deed of trust, the financing is commonly referred to as a seller carry back loan.

 

• Most Retail Installment Contracts and Revolving Accounts: Some types of these contracts/accounts are regulated by industry specific laws.

 

• Credit Cards

 

• Licensed Pawnbrokers: Regulated by California Financial Code §21000, et seq.

 

• Loans to Certain California Businesses: See California Corporations Code §25118;

Whether you are a borrower or lender, it pays to reach out to an experienced business lawyer beforehand in order to avoid the potential for costly litigation. For lenders, a simple loan can turn into a devastating learning experience without the proper knowledge and planning. An ounce of prevention can be worth a pound of cure when it comes to deciding on an appropriate interest rate on your loan or note.

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If you need a promissory note or loan document reviewed, negotiated and/or drafted, call the trusted business attorneys at Gehres Law Group for help. With more than 80 years of collective experience, we work diligently to ensure our clients’ interests always come first, whether addressing usury laws or a wide range of other business-related legal issues. Contact us today for your free evaluation.

© 2017 Gehres Law Group, P.C. This article is for general information only. The information presented should not be construed to constitute formal legal advice nor the formation of a lawyer/client relationship.

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BATTLING A TRADEMARK INFRINGEMENT LAWSUIT

What is trademark infringement? In a nutshell, trademark infringement is the unlawful use of an established trademark or a confusingly similar one with the same or similar goods or services.

Depending on the circumstances, a trademark owner who believes its mark is being infringed may file a civil lawsuit in either state or federal court. For a variety of reasons, most trademark infringement matters arise in federal court.

Proving Allegations of Trademark Infringement

How does a trademark owner prove infringement? A plaintiff alleging trademark infringement must prove (1) that it owns a valid mark, (2) that it has priority (its rights in the mark(s) are “senior” to the defendant’s), and (3) that the defendant’s mark is likely to cause confusion in the minds of consumers about the source or sponsorship of the goods or services offered under the parties’ marks. When a plaintiff owns a federal trademark registration, there is a legal presumption of the validity and ownership of the mark, as well as of the exclusive right to use the mark nationwide on or in connection with the goods or services listed in the registration. These presumptions may be rebutted in the court proceedings.

What type of evidence will the courts consider?  Courts will consider evidence addressing various factors to determine whether there is a likelihood of confusion among consumers. The key factors typically considered include the degree of similarity between the marks at issue and whether the parties’ goods and/or services are sufficiently related that consumers are likely to assume (mistakenly) that they come from a common source. Other factors that courts will often consider include how and where the parties’ goods or services are advertised, marketed, and sold; the purchasing conditions; the range of prospective purchasers of the goods or services; whether there is any evidence of actual confusion caused by the allegedly infringing mark; the defendant’s intent in adopting its mark; and the strength of the plaintiff’s mark.

Defenses to Allegations of Trademark Infringement

A defendant can use descriptive words to accurately convey information about its goods or services regardless of the plaintiff’s trademark rights. This is a form of “fair use”, and is readily recognized in the law.  Another limitation on a trademark owner’s rights is geographic remoteness, meaning that if an unregistered trademark is only used in a single state, for example, the trademark owner has no rights to assert claims against a competing trademark owner in another state.  Other possible defenses include: a) that no likelihood of confusion exists because the parties’ marks are different; b) the goods/services sold with the marks are different; c) the target consumers are different; d) the parties advertise and sell through different marketing channels; and e) the parties have coexisted for a long period of time without consumers being actually confused.

Remedies for Unlawful Trademark Infringement

If the trademark owner is able to prove infringement, available remedies they may obtain include the following: (1) a court order (injunction) that the defendant stop using the accused mark; (2) an order requiring the destruction or forfeiture of infringing articles; (3) monetary relief, including defendant’ profits, any damages sustained by the plaintiff, and the costs of the action; and, (4) in appropriate cases, an order that the defendant pay the plaintiffs’ attorneys’ fees. Given these broad remedies, the cost of losing a trademark infringement matter are often enormous.

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If you are involved in a trademark infringement matter, contact the dedicated and trusted trademark attorneys at Gehres Law Group today for a free evaluation. Our experienced trademark attorneys can provide you with an opinion as to the validity and strength of each claim and help you achieve the best possible outcome in your case.

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