What Happens At the End of an LLC’s Term?

In its operating agreement, a Limited Liability Company, or LLC, may specify a termination date or other event that will result in the dissolution of the LLC. On the termination date or occurrence of another specified event, the LLC is “dissolved” (Corporations Code section 17707.01(e)), with only limited powers to “wind up” its affairs (Corporations Code section 17707.04).

Generally, after the dissolution has occurred, a certificate of dissolution must be filed with the California Secretary of State. Corporations Code section 17707.08(a). Upon the completion the winding up of the LLC’s affairs, a certificate of cancellation of the articles of organization must be filed with the California Secretary of State. Corporations Code section 17707.08(b). When the certificate of cancellation is filed, “a limited liability company shall be cancelled and its powers, rights and privileges shall cease.” Corporations Code section 17707.08(c).

Even after the filing of a certificate of cancellation, the LLC continues to exist for the purpose of prosecuting and defending actions by or against it in order to collect and discharge obligations, disposing of and conveying its property, and collecting and dividing its assets. Corporations Code section 17707.06(a). However, “A limited liability company shall not continue business except so far as necessary for its winding up.” Corporations Code section 17707.06(a).

Even after a certificate of dissolution has been filed, the LLC can be revived under limited circumstances enumerated in Corporations Code Section 17707.09, by the filing of a “certificate of continuation,” which has the effect of nullifying the certificate of dissolution.

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.

New Rules For Businesses Offering Automatic Renewals To Their Customers

Governor Jerry Brown recently signed SB 313, which is a significant change in law for businesses offering automatic renewals of contracts for their goods or services. The legislative counsel’s digest described the new law as prohibiting businesses from “charging a consumer’s credit or debit card, or the consumer’s account with a 3rd party, for an automatic renewal or continuous service that is made at a promotional or discounted price for a limited period of time without first obtaining the consumer’s consent to the agreement.”

Commencing on July 1, 2018, Business and Professions Code Section 17602 as amended by SB 313, will require that businesses who offer automatic renewals or continuous services that include a free gift or trial will also have to include a clear and conspicuous explanation of what happens to the price when the trial period ends. Businesses will also have to disclose how to cancel, and allow cancellation of the automatic renewal, before the consumer pays for the goods or services. To allow cancellation under the new law, businesses will have to provide consumers with an easy method such as a toll-free telephone number, electronic email address, or mailing address. Yet if the consumer accepts an offer online, they must be able to cancel online. And further, if there are any material changes to the terms of the automatic renewal or continuous service, the new law requires that the consumer receive a clear and conspicuous statement of the changes.

This new law applies only to businesses that offer automatic renewals or continuous services to consumers. Businesses that offer automatic renewals or continuous services should become familiar with the new law and change their policies in an effort to avoid violations.

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.

Shareholder Obstacles Under the Business Judgment Rule

Previously on our blog, we described what information members of a corporation’s Board of Directors can rely on in discharging their duties and explained how they can use the Business Judgment Rule (“BJR”) as a defense to liability imposed in the event of an alleged breach of their duty of care. The use of the BJR as a defense by directors creates an obstacle to shareholders attempting to hold directors personally liable for a breach of the duty of care. Under the BJR, courts will not review directors’ business decisions if the directors were disinterested, acting in good faith, and reasonably diligent in informing themselves of the facts. Shareholders must show directors have not met those requirements in order for courts to evaluate the directors’ business decision.

Shareholders may show that directors are not disinterested by proving that the director(s) have a personal interest in the corporate decision underlying the dispute. However, under California law, it is unclear what amount of personal interest is necessary to find directors interested in a corporate decision.

Arguably the toughest element for shareholders to overcome, courts generally will assume disinterested directors acted on an informed basis and with the honest belief that their decision was in the best interest of the company. This presents an even further obstacle; if a court does find directors did not act in good faith, shareholders must show more than ordinary negligence. In other words, it is not enough for shareholders to prove directors did not act as reasonably prudent people.

Thus, although the Business Judgment Rule presents an obstacle for shareholders challenging decisions made by a corporation’s Board of Directors, the obstacle may be overcome on a case-by-case basis.

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, including claims involving the business judgment rule. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.

California Supreme Court Issues Important New Wage and Hour Decision

On July 13, 2017, the California Supreme Court issued a decision that California employment law attorneys have been anticipating for over two years. Williams v. Superior Court (Marshalls of California, LLC) (S227228 7/13/17). The Williams decision significantly impacts the nature and extent of the information employers may be forced to give employees who sue their employers on what are commonly called “PAGA” claims. But before explaining that decision, a bit of background information is required.

In California, employees have at least four different ways to make claims against their current or former employers for unpaid wages and penalties: (1) They can make an administrative claim with the State Labor Commissioner (a “wage claim”); (2) they can file an individual lawsuit in court; (3) they can file a wage and hour class action on behalf of themselves and other current and former employees; or (4) they can file a “representative” action under California’s Labor Code Private Attorneys General Act of 2004, commonly known as a PAGA Claim. The first two options, the wage claim and the individual lawsuit, typically seek recovery only of wages and penalties due to an individual claimant or plaintiff. The other two options seek wages or penalties, or both, for a much wider group of employees, represent a risk of far greater liability for the employer and a far greater potential attorney fee reward for the plaintiff’s attorneys. Thus, plaintiff attorneys prefer to bring class actions and PAGA claims rather than wage claims and individual lawsuits. Not surprisingly, class actions and PAGA claims tend to strike fear in employers.

Under the current state of California and federal law, wage and hour class actions may well be less scary for employers than PAGA claims. It used to be the other way around, because in a PAGA claim all that can be recovered are the myriad penalties assessable under the California Labor Code for violation of the wage and hour provisions of the Labor Code. While those penalties can be substantial they are typically (but not always) far, far less than the unpaid wages resulting from an employer’s wage and hour violations.

There are two reasons why PAGA claims have become more problematic for employers relative to class actions. First, the California Supreme Court has held that plaintiffs in PAGA claims do not have to meet certain requirements that they must meet in class actions. Arias v. Superior Court (2009) 46 Cal.4th 969. So PAGA claims can be more difficult to defend against than class actions. Second, as a result of developments in federal law over the last several years, employers can frequently require employees to sign mandatory arbitration agreements that require them to arbitrate all wage and hour claims and give up any right to bring a wage and hour class action in court or in arbitration. Thus, for many employers, the risk from wage and hour class actions has been greatly reduced – in fact almost eliminated.

Employers have argued that PAGA claims are also subject to mandatory arbitration under federal law. They have also argued that they should be able to avoid “representative” PAGA claims in the same way they can avoid class actions. In other words, they have argued that they should be able require employees to sign mandatory arbitration agreements that require them to arbitrate all PAGA claims and give up any right to bring a PAGA claim in court or in arbitration on behalf of anyone other than themselves. However, in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, the California Supreme Court noted that PAGA claims are a form of government action – with the plaintiff acting as a “private attorney general” on behalf of the state of California to collect Labor Code penalties. The California Supreme Court reasoned that forcing plaintiffs to arbitrate their PAGA claims and preventing PAGA claims on behalf of other employees would really be preventing California from bringing such claims, thereby frustrating the purpose of the PAGA law. Therefore, the California Supreme Court held that employees cannot be forced to arbitrate PAGA claims and cannot be forced to give up their right to bring such claims on behalf of other employees.

That brings us to the decision issued on July 13, 2017 by the California Supreme Court, Williams v. Superior Court (Marshalls of California, LLC) (S227228 7/13/17). In Williams, the plaintiff, Mr. Williams, had worked in a single Marshalls store in California. He brought a PAGA claim, asserting that Marshalls had violated California wage and hour laws including those governing employee meal and rest breaks. Apparently, Marshalls had over 16,000 current and former employees in the time period covered by Mr. Williams’ lawsuit, spread across a large number of stores across the state. In the course of pretrial discovery, Mr. Williams asked Marshalls for the names and contact information for all of those thousands of employees. Marshalls refused Mr. Williams’ request, claiming the request was unfairly burdensome and would violate the privacy rights of those employees. Marshalls argued that until Mr. Williams had demonstrated that his claim of alleged wage and hour violations had some merit he should only be given information on the employees who had worked at the same store as Mr. Williams. The trial court and the court of appeal (in a 2015 decision) agreed with Marshalls. Mr. Williams sought and obtained review by the California Supreme Court.

At this point, it bears noting that if Mr. Williams had brought his law suit as a class action (assuming he had not signed a mandatory arbitration agreement giving up his right to bring a class action), he probably would have been entitled to the names and contact information for all of the thousands of current and former employees. But Marshalls’ argument was that, as the California Supreme Court has held, a PAGA claim is not a class action. So, logically, the rules governing a PAGA claim should be different. The trial court and the court of appeal agreed.

Yesterday, the California Supreme Court disagreed with each of Marshalls’ arguments, and reversed. Therefore, at least for the foreseeable future, plaintiffs in PAGA actions, just like plaintiffs in wage and hour class actions, can require the defendant employers to provide the names and contact information of potentially thousands of current and former employees impacted by the plaintiffs’ PAGA claims.

Ezer Williamson Law – 2016 Year in Review

In 2016, Ezer Williamson continued to achieve excellent results for its clients, opened a second office, and expanded into the area of labor and employment law.

The Firm is excited to announce the completion of our newly remodeled South Bay office and our expanded team, including the addition of Robert C. Hayden, Esq., as Senior Counsel, and Dominique Stango and Heather Domingo, the Firm’s new legal assistants.  The addition of Mr. Hayden, Ms. Stango, and Ms. Domingo reflects both the Firm’s commitment to providing exemplary service to our clients, as well as the growth and success the Firm has experienced throughout the 2015 and 2016 periods.

In 2016, the Firm achieved many favorable outcomes for our clients, including, (1) securing a settlement valued in excess of $1 million for the plaintiff in a commercial lease dispute, (2) resolving claims valued in excess of $20 million stemming from a Federal Multidistrict litigation matter regarding mortgage-backed securities, (3) resolving claims made against a real estate investor by an alleged employee, for less than 1% of the multi-million dollar amount sought, (4) successfully negotiated a complicated settlement transaction of a partnership dispute that included several business entities, and (5) favorably resolved a substantial wage and hour class action brought on behalf of individuals who claimed to be improperly classified as independent contractors rather than employees.

As we look forward to 2017, Ezer Williamson plans to further deepen and expand the services offered to our clients, including growing the Firm’s Labor and Employment practice group, as well as continuing to develop the Firm’s presence in our Century City office.

Using Power of Attorney in a Real Estate Transaction

A power of attorney is a legal document that grants a person the legal authority to sign documents and enter into transactions on someone else’s behalf.  If you give a trusted professional, friend, or family member power of attorney, their signature on your behalf is legally effective to the same extent as if you had signed.

There are several reasons why you may give someone power of attorney, such as anticipation of your own incapacity or extended travel. In the actual power of attorney document, you can limit the extent of an individual’s powers to sign agreements on your behalf. For example, you may give someone power to only handle medical or only financial matters.

Similarly, some power of attorneys are granted specifically for real estate transactions only.  In fact there are often practical considerations that weigh in favor of considering a power of attorney in a real estate transaction. If you are in the middle of a real estate purchase or sale, it can be hard to predict a close of escrow date, or difficult to coordinate a close date with work or leisure travel schedules.  By granting your attorney or other trusted professional power of attorney in a real estate transaction, he or she can sign all the closing documents while you maintain your travel plans.

Another reason to consider a power of attorney for real estate transactions is to protect your interests in the event of your incapacity. Planning for incapacity by creating a power of attorney can make sure your real estate is taken care of as you intend by allowing someone else to step in and take care of your property for you.

Always remember that when an individual uses their power or attorney to sign on your behalf, they are binding you to all agreements just as if you had signed them yourself. A power of attorney does not absolve you of any future responsibilities or obligations associated with a real estate transaction.

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, real estate, construction and property claims. Contact us at (310) 277-7747 to see how we can help you with your business, real estate or construction law needs.

What is Incorporation by Reference in a Contract?

Previously on our blog, we discussed how more complex contracts allude to other existing contracts and documents. Incorporation by reference is the method of making these alluded-to documents part of a contract, and is often used to save space when parties want to include or reference another legal document or contract into a new contract. To properly incorporate another document by reference, it has to be adequately described in a new contract, and it is good practice also to attach a copy of the referenced document to the new contract to which it is being incorporated.

The concept of incorporation by reference is similar to that of flow-down contract clauses in construction contracts.  For example, a flow-down clause is used to bind subcontractors to the general contractor in the same fashion as the general contractor is bound under its contract with the property owner. In the same vein, subcontracts usually incorporate general contracts by reference.

When drafting an incorporation by reference clause, parties have the option to incorporate certain provisions of an existing legal document, or the entire document. If the parties make it clear that only certain provisions are to be incorporated, the incorporation by reference clause should be explicitly clear in its limited scope and purpose. However, if the incorporation clause is very general, this could lead to potential disputes about which provisions to a contract were incorporated. To avoid any confusion, parties should specify exactly which terms are being incorporated.

Any time existing legal documents are incorporated by reference, there is a potential for conflicting terms. It is therefore important that all provisions are reviewed for conflicts, and a contract provision dictating how conflicting terms will be resolved should also be included.

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, real estate, construction and property claims. Contact us at (310) 277-7747 to see how we can help you with your business, real estate or construction law needs.

Complying with the Uniform Electronic Transactions Act

Every contract in California (and across the country) must meet certain legal requirements to be considered “valid,” such as the manifestation of assent by both parties to be bound by the terms of the transaction.  For centuries parties have been “signing on the dotted line” to evidence their assent to the terms of the agreement.

In an increasingly digital economy many contracts are being consummated electronically.  The Uniform Electronic Transactions Act (the “UETA”) (found at Civil Code § 1633.1 et seq.) responds to the proliferation of contracting and business conducted by electronic means in California.  By following the guidelines of the statute the parties can complete all parts of the transaction entirely by electronic means, including through the transmission of electronic signatures.

Recently, the California Court of Appeal ruled on a case that dealt with the UETA’s provisions governing electronic signatures.  In J.B.B. Investment Partners, Ltd. v. Fair, ___ Cal.App.4th ___ (December 30, 2014) 2014 WL 7421609, the issue that the court addressed was whether the defendant’s “printed name at the end of his e-mail was enforceable under both UETA and, if not, by the law of contract.”

Interestingly, the defendant in J.B.B. Investment Partners, Ltd. at first appeared to agree via email to the settlement agreement proposed by the plaintiffs.  However, once the plaintiffs filed suit to enforce the settlement, the defendant said that there had been no agreement under the UETA because he did not intend for his printed name in his emails to be an “electronic signature.”  The trial court disagreed, ruled to enforce the settlement agreement, and the defendant appealed.

The appellate court focused in on the definitional requirement for a signature under the UETA (Civil Code § 1633.2(h)), which requires that an electronic signature have the “intent to sign the electronic record.”   The court further found that another relevant factor was the apparent lack of agreement to conduct the settlement by electronic means, while acknowledging that the statute specifically does not require an express agreement, allowing the intent to be gleaned from “the context and surrounding circumstances, including the parties’ conduct.”

In the this case, somewhat surprisingly, the appellate court found that despite the defendant’s repeated emails saying “I agree,” the plaintiff’s failed to meet their burden of showing that the parties had agreed to consummate the transaction via electronic means.  While the court acknowledged that simple “names typed at the end of emails can be electronic signatures,” the issue here was that the agreement that plaintiffs were attempting to bind defendant did not appear to be a final agreement (here, meaning that additional terms were added later).  The court also found that later versions of the settlement agreement contained specific electronic signature provisions not found in the version that the defendant said he agreed to (such provisions requiring the use of commercially available electronic signature software), and that there was no agreement between the parties that a simple printed name at the bottom of an email would constitute a signature.  These same facts also led the court to conclude that there was no agreement under “the law of contract.”

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 needs.

Selling Partnership Shares

Selling partnership shares often involves various considerations.  In most partnerships, partners can choose to sell their share of the partnership to the partnership or a new potential partner as part of the resolution of a partnership dispute or simply because the individual or entity no longer desires to be part of the partnership.

Selling partnership shares will be governed by a partnership agreement, or if there is no partnership agreement, state law will govern sale of a partnership share. It is especially important to check the provisions of a partnership agreement before selling a partnership share, as there might be restrictions on share sales.  For example, a “right of first offer” provision may subject the selling partner to financial penalties or a lawsuit if there is no initial offer to existing partners before offering to sell to outsiders. Also, a partnership agreement might have certain notice requirements that a partner must follow when considering selling his, her or its share.

It is also important to consider what will and will not change as a result of the  sale of a partnership interest.  For example, according to California Corporations Code Section 16201, “partnership is an entity distinct from its partners.” Therefore, if a partner sells their share, that change alone will not dissolve a partnership or create a new one. The original partnership entity will continue to exist despite such changes.  Similarly, section 16502 of California’s Corporation Code provides that a partner’s only transferable interest is “the partner’s share of the profits and losses of the partnership and the partner’s right to receive distributions.” This means that when a partner is selling partnership shares, they are really only transferring their financial interest in the partnership. All other interests are separate, and must be dealt with separately.

If the partner had a managing role in the partnership, the new partners should update the partnership agreement to make sure the new ownership and responsibilities are memorialized in writing.

If you have any questions about selling partnership shares, 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, real estate, construction and property claims. Contact us at (310) 277-7747 to see how we can help you with your business, real estate or construction law needs.

What Constitutes Doing Business in California?

Even if your business is not based in California, you may be held to certain California filing obligations and tax liabilities if your business meets the legal definition of “doing business” in California.

There are two definitions for doing business in California. One is from the Franchise Tax Board, and determines whether an individual or business will have tax liabilities in California. The other is established by the California Corporations Code, and it determines what corporate filing obligations an out-of-state business will have with the California Secretary of State.

Doing Business in California According to the Franchise Tax Board

According to the Franchise Tax Board, doing business in California consists of “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.” An out-of-state entity is treated as “doing business” in California if:

  • The entity is commercially domiciled in California (meaning the entity is controlled in California, like a headquarters);
  • Sales in California exceed the lesser of $500,000 or 25% of the entity’s total sales;
  • The entity has real or tangible property in California exceeding the lesser of $50,000 or 25% of the entity’s total real and tangible property; or
  • The amount paid in California by the entity for compensation exceeds the lesser of $50,000 or 25% of the total compensation paid.

If none of those situations apply, an entity organized in a jurisdiction outside of California could still be considered to be doing business in California if it is a member or general partner of an entity that does business in California, or if any of the entity’s members, managers, or other agents conduct business in California on behalf of the entity.

Doing Business in California According to the California Corporations Code

Under the California Corporations Code, “doing business” is referred to as “transact[ing] intrastate business,” which is defined as “entering into repeated and successive transactions of its business in [California], other than interstate or foreign commerce.” An entity might need to register with the California Secretary of State if it meets this definition. However, the application and meaning of this definition differs from entity to entity. Because of this varied application, it is best to consult with an experienced business attorney to determine your precise tax liabilities  and filing obligations.

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 needs.