The Ninth Circuit recently ruled that an employer’s mandatory arbitration agreement that included a class action waiver violated the National Labor Relations Act (the “Act”) and therefore was unenforceable. Morris v. Ernst & Young LLP (9th Cir. August 22, 2016) 834 F.3d 975. The Ninth Circuit’s ruling endorses the position taken by the National Labor Relations Board (the “Board”) on this issue and is consistent with the position taken by the Seventh Circuit. However, the Ninth Circuit’s ruling is in conflict with the position taken by the Second, Fifth and Eighth Circuits, each of which has held that the Federal Arbitration Act requires that class action waivers contained in employers’ mandatory arbitration provisions must be enforced under the recent arbitration decisions of the United States Supreme Court. This split among the Circuits renders a future United States Supreme Court decision on this issue all but inevitable.
Stephen Morris and Kelly McDaniel brought a wage and hour class action against their employer, Ernst & Young (“E&Y”). E&Y moved to compel arbitration pursuant to a “concerted action waiver” signed by Morris and McDaniel. The concerted action waiver required employees (1) to pursue all claims against E&Y in arbitration and (2) to arbitrate only as individuals. The effect of the two provisions was that employees were prohibited from bringing class action claims “in any forum – in court, in arbitration proceedings, or elsewhere.” 834 F.3d at 979.
The Second, Fifth and Eighth Circuits have held that the Federal Arbitration Act requires that such arbitration agreements be enforced. However, the Ninth Circuit characterized the issue in a very different way: “The problem with the contract at issue is not that it requires arbitration; it is that the contract term defeats a substantive federal right to pursue concerted work-related legal claims.” 834 F.3d at 985. The court also said, “The same provision in a contract that required court adjudication as the exclusive remedy would equally violate the [Act].” 834 F.3d at 984.
Two years ago, the California Supreme Court addressed the identical issue in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 366-374. In Iskanian, the California Supreme Court performed an independent analysis of the issue and concluded that such waivers are enforceable. The California Supreme Court’s analysis was similar to that of the Fifth Circuit, whose decisions the court cited. Since the California Supreme Court’s holding on this issue is contrary to that of the Ninth Circuit, it is likely that California’s trial and appellate courts will follow the California Supreme Court’s lead, and will enforce class action waivers contained in employers’ mandatory arbitration provisions, unless either the California Supreme Court changes its mind or the United States Supreme Court decides the issue.
California Supreme Court Approves Award of Class Action Attorney Fees Based on a Percentage of the Class Action Settlement
Earlier this month, the California Supreme Court issued its decision in a case challenging the traditional method of calculating attorney fees to be paid to the plaintiff attorneys in wage and hour class actions. Laffitte v. Robert Half International Inc., ____ Cal.4th ____, 2016 Daily Journal Daily Appellate Report 8287 (California Supreme Court August 11, 2016). That case involved a $19 million settlement of three related wage and hour class action lawsuits against the staffing firm Robert Half International, Inc. The settlement provided that no more than one-third of the settlement amount would go to the plaintiff attorneys, also known as the “class counsel.” The class counsel sought an award of the maximum amount, $6,333,333.33. A single member of the class objected to the requested attorney fee. Nonetheless, the trial court approved the settlement and awarded the requested attorney fee. The objecting class member appealed, and the Court of Appeal affirmed the trial court’s rulings. The California Supreme Court accepted the objecting class member’s petition for review for the sole purpose of deciding whether a 1977 California Supreme Court decision, Serrano v. Priest (1977) 20 Cal.3d 25, sometimes referred to as Serrano III, prohibited trial courts from calculating an attorney fee award as a percentage of the settlement amount in class action settlements. The California Supreme Court also considered whether trial courts can use various alternative methods of calculating attorney fees as a means of checking whether the percentage amount is appropriate.
The objecting class member argued that Serrano III requires that attorney fee awards by trial courts be calculated based on the amount of time spent by the attorneys on the case rather than a percentage of the settlement amount. The California Supreme Court disagreed, however, stating that Serrano III arose under a “private attorney general doctrine” that was not applicable to this wage and hour class action.
Ezer Williamson Law proudly announces the addition of Robert C. Hayden as Senior Counsel.
Mr. Hayden brings with him over 37 years of legal experience and expertise in the areas of labor and employment law, as well as extensive experience in business and commercial litigation, including contract and intellectual property disputes.
Prior to joining Ezer Williamson, Mr. Hayden was a partner at RG Lawyers LLP where he practiced for over six years representing both employees and companies in employment litigation, including wage and hour class actions, wrongful termination, and employment litigation.
Prior to RG Lawyers, Mr. Hayden was a partner with K&R Law Group LLP. At K&R, Mr. Hayden created and headed the employment law group for approximately 11 years, until the firm’s dissolution. While at K&R, Mr. Hayden also worked on complex commercial, business, contract, and intellectual property litigation.
Mr. Hayden began his career in 1978 in the Labor and Employment Department of Kindel & Anderson and moved with the head of that department to Overton, Lyman & Prince to develop a Labor & employment practice at that firm. He became a partner in 1985 and left in 1989 upon the firm’s dissolution. During his time at Kindel & Anderson and Overton, Lyman & Prince, Mr. Hayden represented employers in all aspects of union organizing campaigns, unfair labor practice proceedings before the National Labor Relations Board, and state and federal litigation. Following the dissolution of Overton, Mr. Hayden spent over six years at Lewis, D’Amato, Brisbois & Bisgaard (now Lewis, Brisbois, Bisgaard & Smith), leaving as a partner in 1995 to develop the Employment Law group at K&R Law Group. While at Lewis, D’Amato, Mr. Hayden worked on a wide range of civil litigation matters, including real estate, construction, contract, and commercial disputes.
Mr. Hayden graduated from Stanford University in 1975 with a Bachelor of Science degree. He then received his legal education at University of California at Berkeley – Boalt Hall School of Law, where he was awarded a Juris Doctor degree in 1978.
To read more about Mr. Hayden, please visit his attorney page here.
Ezer Williamson Law is proud to announce its formal affiliation with Century City’s Leven & Seligman, LLP. With this association, both firms build on their reputations for superior quality, client service, and results.
The association will enable both firms to add depth and breadth to their existing practice areas of Real Estate Law and Litigation, Business and Corporate Transactions, Business and Commercial Law and Litigation, Partnership and Member Disputes, Shareholder Rights, Business Formation, and Estate Planning and Administration.
As part of the affiliation, Ezer Williamson Law gains a physical presence at Leven & Seligman, LLP’s offices in Century City, located at 1801 Century Park East, Suite 1460, Los Angeles, California to further serve Ezer Williamson Law’s West Los Angeles and Valley clients. The association will also provide Leven & Seligman, LLP with the Ezer Williamson Law South Bay office.
Subject to certain limitations, a landlord may withhold tenant security deposits in order to clean, repair, and make ready a rental unit for new tenants. In fact, California Civil Code Section 1950.5 provides that the landlord may use summary “deduct-and-return” procedures (that is, procedures that do not require formal legal process) as long as certain rules are followed.
“Deduct-and-Return” Under Civil Code Section 1950.5
Under California law, after a tenant has vacated the premises a landlord has 21 days or less to notify the tenant either (1) that the landlord will provide a full refund of the security deposit, or (2) mail or personally deliver to the tenant an itemized statement listing the amounts of any deductions from the security deposit and the reasons for the deductions, together with a refund of any amounts not deducted. Civil Code Section 1950.5(g)(1). The landlord must include copies of receipts for the charges that were incurred to repair or clean the rental unit with the itemized statement, or, if the landlord or their employees performed the work or repairs, then the itemized statement must describe the work performed, including the time spent, the hourly rate charged, and the hourly rate must be reasonable. Civil Code Section 1950.5(g)(2).
Failing to Follow the Section 1950.5 Procedure and Potential Penalties
When a landlord fails to follow the timeline and steps identified in Section 1950.5 in good faith, the landlord loses the ability to use the summary procedure. Put differently, the landlord cannot simply “deduct-and-return” the tenant’s security deposit, but, instead, must return the security deposit in full and bring an action for damages to recover amounts owed to clean and/or repair the rental units.
If the landlord withholds the tenant’s security deposit in bad faith then the tenant may bring an action against the landlord and the landlord may be forced to pay “statutory damages of up to twice the amount of the security, in addition to actual damages.” Civil Code Section 1950.5(l).
A key part of understanding why an integration clause is important is understanding what the parol evidence rule is.
What is the Parol Evidence Rule?
Generally speaking, the parol evidence rule bars (or keeps out) extrinsic evidence of a prior or contemporaneous agreement. In English, this means that once parties to a contract sign and agree to the terms of the contract, the parol evidence rule will keep the parties to the agreement from trying to submit prior oral or written statements to modify or contradict terms or clauses in the contract.
Take the example we posted in our previous blog post on integration clauses. In that example, Party B agreed to buy “industry standard gears” for a specified sum, but in Party B’s conversations with Party A, they discussed “type-1” gears. Thus, when Party A delivers “type 3” gears, Party B will go to court and attempt to submit parol evidence that the agreement was for 100 “type-1” gears.
As we noted in prior posts, the parol evidence rule is codified in California Code of Civil Procedure section 1856, which states that the “[t]erms set forth in a writing intended by the parties as a final expression of their agreement with respect to the terms included therein may not be contradicted by evidence of a prior agreement or of a contemporaneous oral agreement.” Likewise, California Civil Code section 1625 states that “[t]he execution of a contract in writing, whether the law requires it to be written or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.”
As we explained in our prior blog post, most contracts have an integration clause, which will be used to determine whether the contract is “a final expression” of the parties’ agreement. Assuming that is the case, a party will have to show that an exception to the parol evidence rule applies.
What are the Exceptions to the Parol Evidence Rule?
Generally, the parol evidence rule will not allow a party to a written agreement to submit prior inconsistent statements (written or oral), although there are exceptions. The following general circumstances are exceptions to the parol evidence rule:
- Incomplete writings
- Collateral or independent agreements
- Subsequent agreements
- Ambiguity or uncertainty in instrument
- Illegality or bad faith
- Lack of consideration
If one of these exceptions applies a party may then be able to submit evidence that was prior to or contemporaneous with the written contract in order to explain or contradict the terms of the deal.
An integration clause (also known as a merger clause or an entire agreement clause) is found in most contracts and simply provides that the agreement or contract between the parties is the final and complete understanding between the parties, and supersedes all prior negotiations, agreements, or understandings on the subject.
The typical integration clause will say something like this: This Agreement is the entire agreement between the parties in connection with the subject matter of this Agreement, and supersedes all prior and contemporaneous discussions and understandings.1
Integration clauses are key when there is a dispute between two or more contracting parties and one party wants to use prior or contemporaneous discussions to contradict or explain terms within a contract.
By way of example, suppose that Party A negotiates to sell Party B 100 “type-1” gears for a specified sum. The parties sign a contract which states that Party A agrees to sell Party B 100 “industry standard gears” for a specified sum, but with no reference to “type 1” in the description. Party A delivers 100 “type-3” gears (considered “industry standard”) and demands payment. Party B refuses to pay. Party B wants to use communications between the parties before the contract was signed to show that Party A was to deliver 100 “type-1” gears. Party A, on the other hand, claims that the gears delivered are “industry standard” and the contract contains an integration clause that excludes prior or contemporaneous agreements.
How would a court decide whether the pre-contract communications about “type-1” gears can be used? Determining whether the written contract was meant to be the exclusive embodiment of the parties’ agreement is known as determining whether the contract is “fully integrated.” Thus, the existence of an integration clause is a key factor because an integration clause is typically conclusive as to the issue of integration. The court will therefore look at the contract to determine whether the parties intended the written agreement to be a final and complete expression of their understanding. (Code Civ. Proc., § 1856, subd. (d).)
California has codified (i.e., set out by statute) many rules of contract interpretation; these rules apply to all contracts, absent exceptional circumstances. Civil Code § 1635. The basic goal of contract interpretation is to give effect to the parties’ mutual intent that existed at the time of contracting. Civil Code § 1636. When an agreement is set forth in a final written contract, the parties’ intent is determined from the writing alone, if possible. Civil Code § 1639. “The words of a contract are to be understood in their ordinary and popular sense” (Civil Code § 1644), and the terms of a final, integrated contract “may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement” (CCP § 1856).
Nevertheless, in our example above, Party B may still be able to submit evidence that the agreement was for 100 “type-1” gears. This is because a written contract “may be explained or supplemented by evidence of consistent additional terms unless the writing is intended also as a complete and exclusive statement of the terms of the agreement.” Code Civ. Proc., § 1856, subd. (b). Also, technical words are to be interpreted as usually understood by persons in the profession or business to which they relate, unless clearly used in a different sense. Civil Code § 1645; Cal. Civ. Proc. Code § 1856 (“The terms set forth in a writing described in subdivision (a) may be explained or supplemented by course of dealing or usage of trade or by course of performance.”).
Thus, the dispute between the parties in our example above will center on the court’s determination as to whether the prior and contemporaneous statements are admissible as consistent additional terms and/or to explain what “industry standard” means in this context.
1 Grey v. Am. Mgmt. Servs., 204 Cal. App. 4th 803, 805 (2012).
California provides various exclusions from reassessment of property tax when a “change of ownership” occurs. One of the most common exclusions is used to prevent reassessment for transfers from a parent to a child or from a grandparent to a grandchild (often referred to as the “parent-child exclusion”). However, it is important to understand when a “change in ownership” occurs and how long you have to apply for an exclusion from property tax reassessment.
“Change of Ownership”
Generally, Revenue & Taxation Code Sections 60 through 62 define the events (i.e., the sales and transfers) that trigger property tax reassessments under provisions of the California Constitution, commonly known as Proposition 13. These trigger events are known as a change of ownership. Generally, whenever a change of ownership occurs that is not subject to an exclusion provided under the Revenue and Taxation Code, the transferee must file a change in ownership statement in the county where the real property is located. Cal. Rev. & Tax. Code § 480(a).
Revenue and Taxation Code section 60 defines a “change in ownership” as “a transfer of a present interest in real property, including the beneficial use thereof, the value of which is substantially equal to the value of the fee interest.” The transfer of a fee interest is commonly accomplished via a sale from one person or entity to another.
Transfers can also be through legal trusts. In fact, transfers between parents and children typically take place through trusts that are set up by the parent(s) for the benefit of the child after the parent passes away. The Revenue and Taxation Code also provides that circumstances constituting a “change in ownership” occur when any interests in real property which vest in persons other than the trustor (i.e., the trust creator) or when a revocable trust becomes irrevocable (such as the parent/trustor passing away).
Thus, there is a change of ownership when the children receive the full present interest in real property, even when the property remains in the trust. Luckily an exclusion is available to prevent a costly property tax reassessment, but must be timely claimed.
The Parent-Child Exclusion
Certain constitutional initiatives (including Propositions 13, 58, and 193) were passed that provide for exclusions to reassessment when the transfer is from a parent to a child or from a grandparent to a grandchild. Those initiatives were codified in the California Revenue & Taxation Code, which states (in relevant part) that “a change in ownership shall not include the purchase or transfer of real property . . . between parents and their children.” Cal. Rev. & Tax. Code § 63.1.
But, in order to avoid reassessment under the parent-child exclusions described above, once there is a change in ownership a claim for the exclusion must be filed within three (3) years after the date of the purchase or transfer of real property, or prior to transfer of the real property to a third party (whichever is earlier). If no claim for a parent-child exclusion is filed within the three (3) year period, then it may be filed within six months from the date of mailing of a notice of supplemental or escape assessment that was issued as a result of the purchase or transfer of the real property. Cal. Rev. & Tax. Code § 63.1.
In certain types of litigation, including litigation involving real property and corporate assets, a party (typically the Plaintiff) will request that the Court appoint a receiver, or the Court may decide to appoint a receiver without being asked.
A receiver is neutral person who is not a party to the litigation who takes possession of and manages property or assets belonging to one or more of the litigants. California Rules of Court Rule 3.1179.
A receiver is an agent for the court, not the litigants. Thus, the receiver holds or manages the property or the assets “for the benefit of all who may have an interest in the receivership property.” California Rules of Court Rule 3.1179.
Generally, a receiver has the power to bring and defend legal actions, to take and keep possession of property, to receive rents, collect debts, to make transfers, and generally do anything with respect to the property that the Court may authorize. Code of Civil Procedure § 568.
There are specific circumstances that control when to appoint a receiver. Code of Civil Procedure § 564. One common circumstance is the appointment of a receiver to manage and hold the property and assets of a corporation that is in the process of being dissolved. Code of Civil Procedure § 565.
At the request of any creditor or stockholder of the corporation, the Court in the county where the corporation conducts business or has its principal place of business may appoint one or more persons to be the receiver of the corporation. The receiver may take charge of the corporation’s property, collect the debts and property due and belonging to the corporation, and to pay the outstanding debts of the corporation as necessary. The receiver may also divide any of the corporation’s income, money, and other property among the stockholders of the corporation.
A receiver is particularly helpful in circumstances where one or more shareholders of a corporation believe that other shareholders are embezzling funds by paying phony accounts payable, transferring assets to other entities, skimming accounts, etc. By appointing a receiver, the Court and the requesting party may be able to stop improper or illegal activity and preserve the remaining assets and property of the corporation. Also, as stated above, the receiver can bring an action to recover assets and property as it sees fit.
As we discussed in our blog last week, a foreign corporation or other business entity transacting business within California must comply with the certification requirements of Corporations Code § 2105 and obtain a Certificate of Qualification. As set forth in the following list, the consequences for failing to comply with the California Corporations Code (the “Code”) can be harsh.
A foreign entity is not permitted to maintain an action or proceeding within California regarding business transacted intrastate until it comes within compliance of the Code.
Transacting unauthorized intrastate business is deemed as consenting to the jurisdiction of California courts in any civil action arising in California in which the entity is named as a defendant.
The entity may be subject to a per diem (per day) penalty of $20.00 for each day that unauthorized intrastate business is transacted.
Prosecution may be brought by the California Attorney General and an additional money penalty may be sought against the entity.
The harsh consequences described above can be avoided by obtaining a Certificate of Qualification. Under Corporations Code § 2105, in order to obtain that certificate a foreign corporation or other business entity must file a form prescribed by the Secretary of State that is signed by a corporate officer or a trustee stating, among other things:
Its name and the state or place of its incorporation or organization.
The street address of its principal executive office.
The street address of its principal office within California, if any.
The name of an agent for service of legal process located within California.
Irrevocable consent to service of process directed to it upon the California agent designated
Affirmation of compliance with certain insurance requirements, if applicable.
Once the foreign entity makes all appropriate filings and pays the associated filing fees it receives a Certificate of Qualification from the Secretary of State.
The corporation may then maintain or refile a case that had been dismissed because of its non-compliance. However, and importantly, the corporation must be cognizant of the otherwise applicable statute of limitations and refile promptly if necessary. If refiling an action that had previously been dismissed, the entity must file receipts and evidence of compliance (such as the Certificate of Qualification) with the clerk of the court.