What is Dual Agency?

Previously on our blog, we discussed the importance of understanding the relationship between an agent and a principal.  Knowing the law that applies to principal-agent relationships is particularly important for business owners, so that they can prepare for and mitigate against potential legal liabilities that can arise from an agent’s actions. Agency laws also establish what fiduciary duties can arise from an agent-principal relationship.  It is particularly important to be familiar with fiduciary duties in a “dual-agency” situation.

What is a Dual Agency?

Dual agency exists when an agent represents both parties to a transaction. This relationship commonly arises in real estate transactions, where a real estate agent represents both the buyer and the seller, often to reduce each party’s commission. Because a real estate broker owes fiduciary duties to their other clients, there is potential conflict of interest and breach of fiduciary duty when one agent represents both parties to a transaction.  However, in many states, including California, dual representation that would otherwise constitute a conflict of interest is permitted when both principals knowingly consent to the dual representation. Where such transactions involve residential real estate comprising of one to four dwelling units, a written statutory disclosure form is required (California Civil Code § 2079.16).  In other situations, such as commercial or industrial real estate transactions, an agent must also disclose all facts which reasonably affect the judgment of each party in permitting the dual representation.  The information required to be disclosed alerts the parties to the potentially harmful consequences of dual representation, enabling them to make an informed judgment.  A dual agency relationship, can be advantageous, but it is often in the best interest of the real estate brokers and sales agents and may not be suited for the parties to a real estate transaction.

Case Example

A recent California case suggests that courts are looking at the dual agency relationship more closely. In Horiike v. Coldwell Banker, 225 Cal. App. 4th 427 (2014), a real estate broker served as a dual agent for a buyer and a seller. This case did not involve one real estate agent representing the buyer and seller, but rather, different agents from different offices of the same firm representing the two parties.  As with law firms, even though different agents at different offices may be working with different clients as their agent, when a single firm represents multiple parties the firm and all of its employees owe each party a fiduciary duty.  Thus, the court held that even when a different salesperson with the broker represents each party, fiduciary duties are not diminished. The firm owed a fiduciary duty to both the buyer and the seller, and therefore each salesperson owed a fiduciary duty to both the buyer and the seller.

In any business transaction, it is always best to consult with an attorney who is representing and looking to protect your interests. It may turn out that having one agent representing both the buyer and seller in a transaction creates a direct conflict of interest. An attorney can help you spot this concern and resolve it.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.

Business Liability for Labor Contractors

On September 28, 2014, California Governor Jerry Brown signed into law Assembly Bill 1897, which created a new Labor Code section. The new law affects businesses that obtain or are provided workers to perform labor from a labor contractor. Once AB 1897 becomes effective, private employers can be held liable for labor contractor’s failure to pay all required wages or to secure valid workers’ compensation coverage for contract workers.

Under AB 1897, a business can be found liable for any contracting entity’s wage-and-hour law violations, lack of workers’ compensation coverage, and failure to remit employee contributions. The business could be held liable even if there is no evidence the contracting entity controlled the working conditions or wages of the contractor’s employees.

Since the new law is being codified as part of the California Labor Code, any violation of it will cause a potential representative action under the Labor Code Private Attorney General Act (PAGA) as well as the Labor Code, compounding the risk of burdensome litigation.

If you are concerned about AB 1987 and whether or not it will affect your business and potential liability, consider contacting an attorney who can give you a detailed analysis on your potential exposure and ways to ensure compliance and mitigate against violations and litigation.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.

What is Respondeat Superior?

Under the doctrine of respondeat superior a principle (employer) is liable for the torts of its agents (employees).  A principle-agent relationship exists where the employee has agreed to work on behalf of the employer and to be subject to the employer’s control or right to control the physical conduct of the employee.

Respondeat superior is Latin for “let the master answer.”  In the employment context, it might be read more accurately as meaning that “the employer must respond and take responsibility.”

The legal doctrine of respondeat superior makes an employer responsible for the actions of an employee, except where the employee’s actions occur outside the course and scope of employment. This makes it important to understand what it means to be “within the course and scope of employment.”

Whether an action is within the course and scope of employment largely depends on the specific facts and circumstances surrounding the action.  For example, if an employee is running an errand for the company in his or her own personal vehicle, and is responsible for an accident, his or her employer is generally liable. At least one point of settled law is that, generally, if the employee is just commuting to or from work, and the same type of accident occurs, the employer is probably not responsible.

As a business owner, it would be in your best interest to make sure your insurance covers such situations. If a situation arises where someone is trying to hold your business liable because of the actions of an employee, consult with an experienced attorney.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.

The Difference Between a Merger and an Acquisition

What is the difference between a merger and an acquisition?  The terms “merger” and “acquisition” are common business terms, but they are often inappropriately used interchangeably, when in fact the two transactions are rather different. If you are planning to combine or purchase assets from another company it is imperative that  you understand the benefits and drawbacks of each.

Merger

In a merger, usually two or more businesses wind down as separate entities, and then a new entity is formed – that is, two entities merge into one new entity. The assets and liabilities of both the original businesses are often carried over to the new company.

Recently, mergers have been especially prevalent in the healthcare and airline industries. For example, one of the biggest mergers has been American Airlines and U.S. Airways. Final steps of the 2010 merger, such as a single reservation system and consolidating frequent flyer programs, are still not complete because of the size of this operation.

Acquisition

In an acquisition, usually one business purchases all or part of another business. As in a merger, most acquisitions involve lengthy negotiations, due diligence, and portfolio transfers. In addition, sellers are generally required to provide information about its’ or their finances, personnel, business opportunities, marketing practices, insurance, and legal status.

Acquisitions are unique and fact-specific.  For example, a seller may finance part of the sale in one transaction, or complete an acquisition using a transfer of stock or cash or both.

Examples of major acquisitions just this year include AT&T’s $69.8 billion purchase of DirectTV and Comcast’s $45 billion acquisition of Time Warner Cable.

If you are considering an acquisition or merger it is always best to consult with an attorney who can help find the most advantageous transaction in light of all the factors and issues in your particular case.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.

Considerations Before Investing in a Business

There are many reasons to invest in a business, such as joining a new startup, or becoming part of an established and successful business poised for more growth.  Sometimes these new or established companies just need a little additional working capital to be successful.  Before committing, however, it is important to approach the opportunity with objectivity, weigh all investment considerations, and understand the risks and goals associated with the potential investment.

First, assess whether your interests are best served by an equity investment, which entails potentially greater risk but also greater returns, or a loan, which is less risky but has limitations on returns.  Whichever you decide, make sure you and the business management and other investors are on the same page about the terms of the deal. Research the company and its key players (e.g., essential management or personnel) to get a good idea of the experience and integrity of the individuals that are essential to the operation.

Second, decide whether you want your investment to come with the power to have input or control over the businesses’ operational decisions and practices. If you do seek this type of relationship, make sure you understand the risks of any potential personal liability you could be faced with, such as officer and director liability.

Finally, establish what kind of reporting and feedback you want on business operations. If you are to receive any feedback including potentially negative feedback about the business’ poor performance, will you have any remedies to salvage part of your investment? For example, if you choose a debt based investment, as a secured investor you would have priority in a bankruptcy.  Alternatively, if you choose an equity based investment, consider having preferred stock rights that will allow you to get paid before others if the corporation dissolves or there is a dividend payment.

If you are considering investing in a business, it is highly advised that you work closely with a competent and experienced attorney. Legal counsel can help you evaluate the risks and terms of an investment opportunity.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.

What is a Choice of Law Clause?

A Choice of Law clause (also referred to as The Governing Law clause) is a provision in a contract that specifies which laws will govern in the event of a dispute between the contracting parties. A Choice of Law clause allows the parties to pick the laws of jurisdiction that will govern the interpretation and enforcement of the terms of the contract.

The jurisdiction chosen for a Choice of Law clause does not need to match the jurisdiction chosen in a Forum Selection Clause. For example, the parties may stipulate to have California as the forum but agree that Delaware substantive law will apply. In that circumstance, California procedural law will apply.  The parties can even choose different jurisdictions for different types of disputes.

In the absence of a Choice of Law clause a court will use long established legal principals or, more likely, a state’s “long arm statute” to determine what law to apply, typically looking in commercial disputes to where the defendant “resides.”  In many cases a business resides where its principal place of business is located. Similarly, a partnership will reside in the state where any one of the partners reside.  However, another way to determine residence is the state where the business entity was formed.

Even if there is a Choice of Law clause, it may not be honored. For example, one party may contest the clause, arguing that the whole contract is invalid, making that specific provision invalid as well.  A court may also ignore a Choice of Law clause if it is dealing with a contract involving the Uniform Commercial Code (UCC) or secured transactions and there is a conflict with choice of law rules.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with any business dispute or related concerns you may have.

What is a Forum Selection Clause?

Whether you are drafting a contract or reviewing one before signing it, it is important to understand the significance of a Forum Selection Clause. Although you may never need to use it, in the event of a dispute a Forum Selection Clause may become critical.

A forum selection clause is a provision in a contract in which the parties agree that any litigation resulting from that contract will be initiated in a specific forum. In other words, it establishes what court (usually which court in a specific county in a specific state) will have jurisdiction over the dispute. Oftentimes, these clauses are contested. The reasons vary, but most commonly one party does not want to be held to a specific forum because it is either inconvenient or the law of the forum is not in their favor.

If there are multiple causes of action in a lawsuit they might not all be governed by the forum selection clause in the contested contract.  The clause may specifically say which actions will be covered.   For example, derivative suits and claims for breach of fiduciary duty are typically governed by a forum selection clause. Similarly, state statutes may also provide, absent a specific agreement to the contrary, that all violations of a particular statute will be governed by the laws of the state.

These clauses are quite common in commercial contracts. It is therefore crucial to know what you are agreeing to if there is a forum selection clause in your contract, and it is important to know what forum you want in your contracts for your business purposes.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with any business dispute concerns you may have.

Protecting Your Business from Defamation

Consumer review based websites like Yelp have grown in popularity and power. Consumer voices are often trusted, and a bad online review can have costly consequences. However, online anonymity has led to abuse, and if someone has posted an online review about your business that is false there may be legal recourse for your injuries.

Defamation is an action brought to defend reputation. It involves intentional publication of false, defamatory, and unprivileged information that has a tendency to injure or cause special damage.

One recent case involving defamation claims, mLogica, Inc., et al., v. Pankaj Karan, CA Super. Ct. No. 30-2010-00342873 (December 30, 2013), shows how defamation for online activity works.  Two companies entered into a contract for the creation of some custom software. The party purchasing the software posted numerous negative reviews about the other company on its blog, and emailed its business partners and customers alleging that the software was delivered late and that the company employees were “swindlers” who “milked many of their clients of money and time.” The emails were very damaging to the company’s reputation in the industry, caused many projects to be cut, and a resulted in a significant loss of income.

While truth is an insurmountable defense in defamation actions,  the software company was able to show at trial that the software was fully functional and delivered on time. Furthermore, at trial, the defendant could not identify one unpaid vendor or defrauded customer.

A jury in Orange County, California awarded $1.23 million  to the software company for the damage to its reputation. The decision and verdict were affirmed on appeal.  In fact, the appellate court believed that the evidence supported damages of  “about $10 million. Maybe more.”

This case shows that there is a balance between preventing people from being critical on the Internet, and limiting false speech that does not promote the “marketplace of ideas.”

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with any business dispute concerns you may have.

Enforcing Arbitration Provisions

Many contracts between businesses contain arbitration provisions, where the parties agree that if a dispute should arise, it will be resolved through arbitration. Sometimes when disputes arise, one party will not want to go before an arbitrator or will disagree that the type of conflict is one bound by the arbitration provision. Whatever the reason may be, there are laws that guide whether the contract provision should be followed and enforced.

Whether There Should be Any Arbitration

If one party does not want to submit a dispute to arbitration, the other party may petition the court to compel arbitration under the agreement. The court will then decide whether one of the following applies:

  • whether there is an agreement to submit the dispute to arbitration;
  • whether there are any valid defenses to the enforcement of the arbitration provision; and
  • whether the arbitration provision is enforceable.

If one party opposes arbitration but the other party does not take steps to compel the arbitration, the right to compel arbitration will be waived.

Except in certain very limited circumstances, a person who was not a party to a contract containing an arbitration clause cannot be compelled to participate in arbitration.

An arbitration clause is likely to be found invalid if there was fraud in the inducement of the overall contract or if enforcement of the arbitration clause would be unconscionable.

Which Claims Are Covered by Arbitration Provisions

Courts are often also asked to decide which claims are covered by arbitration and which are not. To make this determination, a court will identify the issue and then determine whether it is within the scope of the contractual arbitration clause.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. Contact us at (310) 277-7747 to see how we can help you with any business dispute concerns you may have.

5 Common Contract Drafting Mistakes

Both experienced and inexperienced contract drafters can make costly mistakes while creating contracts. Glossing over the contract formation stage is unwise. Painstaking care should be taken to make sure that all the details of an agreement are spelled out. To help guide you with your next contract, below are five of the most common mistakes to avoid.

  1. Inadequately Describing the Parties’ Duties and Responsibilities

A well written agreement should carefully set out the duties and responsibilities of each contracting party.  The duties and responsibilities of each party must be explicitly stated to avoid ambiguity or discord later down the road.  Avoid using generic words and describe with specificity each parties’ duties and responsibilities.

  1. Allowing One Side to Draft the Contract

If one party drafts the entire contract, they have the advantage of putting in terms and conditions that are most favorable to them. They could end up sending you a lengthy document that you merely “skim,” resulting in terms or conditions that favor one party over another, and potentially leading to costly conflicts and possible litigation later.

  1. Failing to Outline Dispute Resolution

Often times the parties will draft a great and detailed contract, but neglect to provide for a mechanism for dispute resolution. It is important to have terms in the contract that will guide how to address a conflict or dispute, such as an arbitration clause or a forum selection clause.

  1. Failing to Establish a Contract Endgame or Termination Provision

If a contract does not have a term or end date there is a risk of ambiguity that could obligate a party beyond the period desired.  Likewise, these provisions can often implicate time and costs, especially when they establish the when, why, where, and how in circumstances like winding-up, the ramifications of a default, and/or the failure to cure a breach.

  1. Working Without an Attorney

Some agreements are so basic that an attorney may not be necessary, and a standard form contract might be sufficient. More often than not, however, transactions operate more smoothly with the help of an attorney. An experienced attorney will have an eye for specific issues to spot, will know what terms to look for and avoid, will scour the document, and will advocate for you in the drafting process.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.