Binding Arbitration Agreements

When a contract contains a binding arbitration agreement, the parties to the contract are generally agreeing to waive their right to go to court when they want to litigate issues that arise under the contract. When the parties arbitrate a claim it  is submitted to an arbitrator who will have the power to make an enforceable decision in the case. An arbitration agreement is enforceable as long as it is not “unconscionable,” meaning it cannot be unfair or oppressive to one party.  If a party fails to read the terms of a contract before signing it, such as an arbitration clause, they cannot use their ignorance as a defense to being held to the terms of the contract. However, a recent case illustrates a unique exception  to this rule.

Erik Knutson, the plaintiff, sued Sirius XM for calling his cell phone without permission. Sirius XM claimed that the suit was subject to a binding arbitration agreement that was part of the service agreement between the two parties. The U.S. Court of Appeals for the Ninth Circuit, however, held that Knutson was not bound to the arbitration provisions in the agreement.

Knutson unknowingly became a Sirius XM customer in 2011 because he bought a truck that came with a free trial subscription to the satellite radio service. A month after the purchase, Knutson received a Sirius XM’s arbitration agreement, which stated that he was bound to arbitrate unless he canceled his satellite radio subscription within three business days.

The Ninth Circuit Court found that Knutson did not consent to arbitration just because he did not cancel his service. The Court’s decision reversed a 2012 ruling by a judge from the U.S. District Court for the Southern District of California.

The court reasoned that, “a reasonable person in Knutson’s position could not be expected to understand that purchasing a vehicle . . . would simultaneously bind him or her to any contract with Sirius XM, let alone one that contained an arbitration provision without any notice of such terms.”

The court also said this case warranted an exception to the general rule that it cannot avoid a contract’s provisions by failing to read the terms, citing the U.S. Court of Appeals for the Second Circuit’s 2012 decision in Schnabel v. Trilegiant, which held that a party cannot be held to a contract’s arbitration provision if he or she doesn’t know that the contract exists.

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.

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.

Acquiring Real Property

Acquiring Real Property

Buying commercial real estate can be a complicated process, but it does not have to be. Thorough research and hiring qualified professionals can help streamline an otherwise difficult transaction and protect against potential liability and hidden problems. Although there is always some level of risk associated with purchasing property, many common pitfalls can be avoided by considering the items listed below.

Location, Location, Location

For as much emphasis as we put on where we buy property, it is important to remember that the character of any area can change. Because of this, while an area may be hot at the moment, consider researching businesses that may be moving in or developing in the area, as well as those which may be planning to move in the future. Also check current or future municipal plans, such as pending proposals for re-zoning certain areas, or if there are plans for schools, parks, or special housing developments.

Liquidity Concerns for Businesses

Buying property for your business can save lots of money through control over overhead costs.  Also, by purchasing the property, your business or portfolio may also acquire an asset that will (ideally) appreciate over time. That said, if you are going to make this large investment it is critical to make sure you are not tying up too much of your business’ liquidity in real estate.

Plan on Investing Not Only Money, but Time

Not only will you need to spend a lot of time doing due diligence before buying property, but you will want to be or have to be hands-on after the purchase. Particularly if you are buying commercial property that will have to be let to other tenants, make sure to make frequent site visits and schedule routine inspections.

Team of Experts

In addition to an experienced real estate attorney who can help advise you and protect your interests, consider working with a knowledgeable real estate expert who can help you analyze real estate market trends and other pertinent issues, as well as a tax expert who can outline and help navigate the tax implications associated with owning commercial real estate.

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.

 

Interpreting Ambiguous Contract Terms

One of the main reasons that contract disputes arise is because of ambiguous contract terms.  Of course, this can be prevented with meticulous drafting, but in the event that issues do come up after the contract is completed and signed, it is important to understand how the provisions will be interpreted.

Most contracts include an “Interpretive Provision” or “Other Definitional Provision.”  There may also be  certain clauses that provide that some clauses or terms will supersede conflicting clauses or terms found in another part of the contract.  If these clauses do not help solve issues of inconsistency or ambiguity (or simply are not present), California statutes and case law (court rulings) will be guide how the contract clauses or terms will be interpreted.

The California Civil Code §§ 1635-1663 provide rules of interpretation that are used when no provision in a contract helps clear up an apparent ambiguity.

  • All contracts must be interpreted to give effect to the mutual intention of the parties at the time of contracting.
  • The language of a contract is to govern its interpretation, and the whole contract is to be considered together.
  • If there are several contracts between the same parties relating to the same matters, they can be interpreted together to resolve ambiguities.
  • Words in a contract that are technical or particular to an industry will be interpreted as they are understood by people in that industry.
  • California law also allows a contract to be explained by reference to the circumstances under which it was made.
  • If there are words in a contract that are inconsistent with the contract nature, or with the main intention of the parties, they will be rejected.

It bears repeating that the best way to avoid ambiguity in contract disputes is in the drafting phase. Even form contracts can and should be tailored to the specific party agreement. If at any point a party guesses or assumes the meaning of a contract provision, a written clarification or definitional paragraph should be added to avoid misunderstanding or ambiguities later.

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 Mechanic’s Lien?

A Mechanics’ Lien is a statutory remedy most often used by contractors and subcontractors.  Nearly anyone who contributes labor or materials to a real estate improvement project can use a mechanics lien as a mechanism to resolve issues with receiving payment.

 

What is a Mechanic’s Lien?

Specifically, California law allows the use of a Mechanics’ Lien to exact payment by placing a lien on the property.  The existence of the lien on the property inhibits the property owner’s ability to sell or refinance his or her property, at least while any debts secured by a lien are unpaid.  If debt payments continue to go unpaid, the lienholder could potentially go to court to have the property sold at auction to pay the debt and/or lien.

 

Removing a Mechanics Lien

Once a Mechanics’ Lien has been recorded, a claimant has 90 days to file a court action to enforce it. If this step is not taken in a timely fashion, the lien will not be valid for most purposes. That said, even if the lien is not timely enforced in court, a title company will likely still require that the lien be removed before passing clear title.

 

A lien can be removed if the lienholder files a Release of Lien. The property owner usually pays the lienholder what is owed and makes this request. If the Release of Lien is not filed, a property owner can petition the court to release the property from the Mechanics’ Lien.

 

Whenever there is a Mechanics’ Lien on property, there is a risk that the property could be sold to pay the lien. This is a motivating factor for property owners to pay off debts, or at least fight the lien. If a property owner chooses to fight a lien, both sides should be prepared for a technical and potentially lengthy legal battle.

Legal Considerations When Buying A Business

Buying a business requires a significant undertaking during which you will want to do your best to protect yourself and navigate around risks and hidden issues. This will include hefty market research, financial analysis, and of course legal advice.  Every transaction is unique, and there will be different considerations for different business types, but there are some general steps that each buyer should take when buying a business or assets.

Investigate Prior to Buying a Business

Once a buyer has decided to purchase a business, he or she should complete an intensive investigation (commonly called “due diligence”) into every aspect of the business before completing a purchase. This includes basic steps such as making sure the seller is the actual owner and if a government agency has closed the business, as well as more specific considerations such as:

  • Scrutinizing the business’ books and financial records for accuracy
  • Researching whether anyone has a claim, lien, or charge against the business or its assets
  • Looking up whether the business is properly licensed and if those licenses are transferable
  • Establishing the terms of any existing agreements to which the business is bound
  • Researching whether the business has been recently sued
  • Determining whether the business assets are in good working condition and under warranty
  • Investigating whether there any problems with the business’ physical structure (i.e., mold, termites, non-compliance with government regulations, etc.)

The Sales Agreement

The actual business sales agreement should list everything that is being transferred to the buyer. This includes all service agreements, inventory, leases, intellectual property, equipment, licenses, and accounts receivables. The purchase agreement should also outline the actual logistics of how all these transfers will proceed.

Before buying a business and signing a purchase and sale agreement, consult with an attorney who can advise you and work with other experts (like tax advisors) to help determine how to hold the company, whether all due diligence was exercised, and if the sales agreement is sound.

Has Your Business Been Served?

If your business has been served with legal papers, it is important to act quickly, and determine whether you have been summoned or subpoenaed.

 

The information below assumes valid service and subpoena requests.  Invalid service or an objectionable request may relieve the recipient from responding, appearing, or producing documents.  It is therefore of vital importance to talk to an attorney to determine if you have been validly served and whether and how you should respond.

 

Summons vs. Subpoena

If you have been served with legal papers, they are likely accompanied by either a summons or a subpoena. A summons means someone has brought a lawsuit against you. If this is the case, it will be important to contact experienced legal counsel without delay. A subpoena, on the other hand, can be served on parties and non-parties to a lawsuit or criminal case, and does not necessarily mean that the recipient is being sued. Instead, the court is commanding your presence or your documents at a deposition, trial, arbitration, or hearing.

 

Any person or business that is a resident of California can be subpoenaed. If a business receives a subpoena, they are required by law to produce the person most qualified on the subject matter to testify.

 

Any existing document or item can be subpoenaed for production, but the subpoena has to adequately describe the documents or items requested for production.

 

Responding to a Subpoena

A subpoena that commands a person’s attendance will require testimony at a specific time and place. A subpoena that commands production of documents or items will require production of these things at a specific time and place. A subpoena can command both, requiring a person to appear, testify, and produce documents.

 

The subpoena will outline how much time there is to respond, and where the person or documents must be produced. As stated above, a subpoena must be properly served to be effective.  Even if service is proper, a subpoena can be stopped with a protective order, including a protective order filed by another party.  However, if the deadline is approaching and there have been no objections, the witness must testify or produce the documents at the stated place and time. He or she may redact any private information on the documents.

Residential vs. Commercial Leases

California law treats residential and commercial leases very differently. Generally, commercial tenants receive less legal protections than residential tenants. It is therefore critical for both landlords and tenants to be very familiar with the terms of a commercial lease, and not just assume that the same standard provisions are provided in each agreement.

Residential Lease Agreement

For starters, a residential lease agreement is a contract between a tenant and a landlord to use property for living. The agreement is usually a standard form, and the rental property is generally a house, townhouse, apartment, or condominium. Residential leases generally contain a provision that the tenant may not use the property for commercial purposes, or for the purpose of earning a profit. The rent is usually a set amount every month, and the term of the lease is generally a year.

Since a residential lease involves somebody’s future home, federal, state, and local laws provide specific tenant protections to ensure safe and secure housing. Most importantly, a landlord is required to provide safe and habitable housing. To further ensure that tenants are protected, California law allows a tenant’s attorney to collect fees for habitability violations of a residential unit.

Commercial Lease Agreement

A commercial lease, on the other hand, is a contract between a business tenant and a landlord for use of commercial property. Commercial leases are usually uniquely designed for the particular commercial tenant, unlike standard residential lease agreements. The property is intended to be used in a way that will generate a profit, and there is no right of habitability. The property is generally a business space such as a warehouse or office space. The rent is usually based on the amount of square footage occupied by the tenant, and may require the tenant to pay a percentage of their profit earned on the property. Commercial lease agreement terms are usually a set number of years, which sometimes include option rights that must be exercised within a certain period of time before the expiration of the lease.

A commercial tenant, usually a business entity, is presumed to be on equal footing with his or her or its landlord in negotiating a commercial contract, which means that there are fewer laws that specifically protect commercial tenants.

Landlord and Tenant Issues: Mandatory Disclosures

California law requires landlords to make certain mandatory disclosures to tenants, most of which are usually found in the lease or an addendum to the lease, and generally concern the health and safety of potential building inhabitants. It is important for both landlords and tenants to be aware of the mandatory disclosures. If a landlord does not make a required disclosure, or fails to disclose dangerous conditions on the property, the landlord can later be found liable for damages the tenant suffers.

MANDATORY LANDLORD DISCLOSURES IN CALIFORNIA

  1. Registered Sexual Offender Database

    The California Civil Code provides the exact language landlords must put in a lease about the online registered sexual offender database. (Cal. Civ. Code § 2079.10a)

  2. Paying for Utilities of Others

    Before a tenant signs a rental agreement, the landlord needs to let the tenant know if gas or electric service to the tenant’s unit also serves other areas that are not used by the tenant. If it does, the landlord must disclose how costs will be allocated. (Cal. Civ. Code § 1940.9)

  3. Toxic Mold

    The landlord needs to let the tenant know in writing if there is toxic mold that exceeds permissible exposure limits or poses a health threat in the residence. (Cal. Health & Safety Code §§ 26147, 26148)

  4. Ordinance Locations

    If there is a former federal or state ordinance within one (1) mile of the rental property, the landlord must inform the tenant. (Cal. Civ. Code § 1940.7)

  5. Pest Control Service

    If the rental property is serviced for pest control, the landlord needs to tell the tenant about any disclosures the landlord received from the pest control company. This could include what kind of pest is being controlled, what pesticides are used and their active ingredients, whether the pesticides are toxic, and how often the property will be treated. (Cal. Civ. Code § 1940.8, Cal. Bus. & Prof. Code § 8538)

  6. Intent to Demolish

    If a landlord has applied for a permit to demolish a rental unit, he or she must give prospective tenants written notice before accepting any deposits or screening fees. (Cal. Civ. Code § 1940.6)

  7. No Smoking Policy 

    If a landlord prohibits or limits smoking on the rental property, the lease needs to specifically describe the areas where smoking is limited or prohibited. (Cal. Civ. Code § 1947.5)

OTHER MANDATORY DISCLOSURES

On top of California’s mandatory disclosures, there may be additional mandatory disclosures outlined by federal law and local ordinances. For example, federal law requires that landlords disclose if they know about any lead-based paint hazards in the rental premises.