Drew Griffin Stark Joins Ezer Williamson Law

Ezer Williamson Law proudly announces the addition of Drew Griffin Stark as an Associate of the Firm.

Prior to joining Ezer Williamson, Mr. Stark was the managing attorney of the Law Office of Drew Griffin Stark where the emphasis of his practice was real property law, probate litigation, and family law.

Mr. Stark graduated cum laude from the University of California, San Diego in 2008 with a Bachelor of Arts degree in History, with a concentration in European history, and a Bachelor of Arts degree in Political Science, with a concentration in International Relations. He received his legal education at the University of California, Hastings College of the Law, where he was awarded a Juris Doctor degree in 2012 and graduated cum laude.

Validity of Employee Nonsolicitation Agreements Now in Question

California, unlike most of the rest of the United States, generally prohibits noncompetition agreements except in very limited circumstances involving the sale of a business. (See Business & Professions Code § 16600 et seq.) But California also recognizes an employer’s right to protect its trade secrets. (See Civil Code § 3426 et seq.) As a result, in California, a former employee’s right to compete with his or her former employer frequently comes into conflict with the employer’s right to protect its trade secrets, and often results in litigation. It is not unusual for the new employer to also become embroiled in the litigation.

For over 30 years, it was generally thought that an employer could prevent its current and former employees from using its trade secret information to solicit its customers and employees, without running afoul of California’s prohibition against noncompetition agreements. For example, in Loral Corp. v. Moyes, 174 Cal.App.3d 268 (1985), a former company officer was subject to an agreement to preserve the confidentiality of all trade secrets and prohibited from disrupting or interfering with the business by raiding its employees or disrupting its relationships with customers. The company sued the former officer for violation of that provision and the court held that the provision did not constitute an invalid restriction on the former employee’s ability to compete. However, in American Credit Indemnity Co. v. Sacks, 213 Cal.App.3d 622 (1989), the court of appeal ruled that when a former employee sends out an announcement of her new employment to customers on a trade secret list, that does not constitute a misappropriation of the employer’s trade secret list as long as she does not actually solicit business from those customers.

AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., Case No. D071924 (4th Appellate District, November 1, 2018) is the most recent appellate decision arising from a claim by an employer that its former employees are misappropriating its trade secret information. AMN was in the business of recruiting nurses for temporary assignments at hospitals and other healthcare organizations. AMN treated those temporary nurses as its employees. AMN’s employees who did the recruiting were subject to a Confidentiality and Non-Disclosure Agreement that, among other things, prevented the employees from soliciting any AMN employee to leave AMN for at least a year. Several AMN employees left and went to Aya Healthcare Services, which was also in the business of recruiting and placing temporary nurses. AMN sued both its former employees and Aya. Ultimately, the trial court granted summary judgment for the former employees and Aya, and enjoined AMN from enforcing its employee nonsolicitation provision. On appeal, the court of appeal affirmed the trial court’s rulings.

In reaching its decision, the court of appeal in AMN Healthcare concluded that the employee nonsolicitation provision violated Business and Professions Code section 16600 and was therefore void. The court engaged in a detailed analysis but, most importantly, the court said, “This provision clearly restrained individual defendants from practicing with Aya their chosen profession – recruiting travel nurses . . . .” (Slip Opinion, at 16.) The court also questioned the continuing validity of the 1985 decision in Loral Corp. v. Moyes.

The facts of AMN Healthcare are unusual in one very important respect: AMN’s former employees were in the business of recruiting the very employees that they were accused of soliciting – temporary nurses. Therefore, preventing them form soliciting temporary nurse employees obviously restricted their ability to compete with AMN. This fact distinguishes the case from the garden-variety situation in which, say, the current and former employers both make widgets. In that situation, preventing a former employee from soliciting its widget makers and widget sellers does not significantly limit the former employee’s ability to compete in the widget business. One might therefore conclude that in the garden-variety situation an employee nonsolicitation agreement is not an unlawful noncompetition agreement. Nonetheless, the broad-stroke language and analysis in AMN Healthcare calls into question all employee and customer nonsolicitation agreements. Therefore, companies should consult with their employment counsel to determine whether it makes sense to remove such provisions from their employee policies, practices and agreements or, alternatively, whether the facts and circumstances of their business, and the trade secret nature of the information they seek to protect, justify their nonsolicitation agreements.

Employee Cannot Pursue PAGA Claims Against Employer After Settling Individual Claims

In one of the final judicial decisions of 2017, a California court of appeal has held that an employee who settled his individual wage and hour claims against his former employer could not continue to pursue his PAGA claims against that employer. The court therefore affirmed the trial court’s judgment dismissing the employee’s PAGA claims. Kim v. Reins International California, Inc., 2d Dist. Case No. B278642 (filed December 29, 2017).

The Plaintiff, Justin Kim, sued his former employer, Reins International California, Inc. (“Reins”) alleging individual and class claims for wage and hour violations and seeking civil penalties on behalf of the State of California and aggrieved employees under the Labor Code Private Attorneys General Act of 2004 (“PAGA”). Mr. Kim had signed an arbitration agreement at the commencement of his employment; therefore, Reins moved to compel arbitration of Mr. Kim’s individual claims, dismiss his class claims, and stay his PAGA cause of action until the arbitration had concluded. The trial court granted the motion. While the arbitration was pending, Mr. Kim accepted Reins’ offer to compromise under Code of Civil Procedure section 998. As a result, Mr. Kim dismissed his individual claims with prejudice and dismissed the class claims without prejudice, leaving only the PAGA cause of action.

Reins filed a motion for summary adjudication of the PAGA cause of action, arguing that after Mr. Kim dismissed his individual causes of action he was no longer an “aggrieved employee” under PAGA and therefore could not longer pursue the PAGA cause of action. The court granted the motion. Mr. Kim appealed.

PAGA provides that an action may be brought by “an aggrieved employee on behalf of himself or herself and other current or former employees.” Labor Code section 2699(a). The term “aggrieved employee” “means any person who was employed by the alleged violator against whom one or more of the alleged violations was committed.” Labor Code section 2699(c). The court concluded that once Mr. Kim settled his individual claims and dismissed them with prejudice, he was no longer an “aggrieved employee” as defined in Labor Code section 2699, so he no longer had standing to maintain his PAGA action.

The court noted that Mr. Kim’s inability to pursue his PAGA cause of action, because he was no longer an “aggrieved employee,” would not prevent any other aggrieved employee from bringing a PAGA action against Reins. The court rejected Reins’ suggestion that the trial court’s dismissal with prejudice of Mr. Kim’s PAGA cause of action was a “decision on the merits” that would bar any other employee from bringing a PAGA claim against Reins.

The decision in Kim v. Reins International California, Inc. is not surprising, but suggests a likely employer strategy for trying to avoid liability under PAGA. That strategy depends on the employer’s ability to settle a plaintiff employee’s individual wage and hour claims. Such a strategy may be pursued regardless of whether the employee is subject to mandatory arbitration of his or her individual claims. However, such a strategy may have a higher likelihood of success if the employee is subject to mandatory arbitration since the PAGA claims are likely to be stayed while the employee’s individual claims are litigated in the arbitration forum.

Gov. Brown Signs New Ban On Employer Requests For Salary History Information

In October, Governor Jerry Brown signed AB 168, which enacts Labor Code Section 432.3, prohibiting employers from asking job applicants for their salary histories and prohibiting employers from relying on salary history information as a factor in determining what salary to offer an applicant. Labor Code Section 432.3 will affect employers and job applicants alike.

Commencing on January 1, 2018, employers will no longer be able to request salary history information from job applicants. The new law will also require employers to provide to applicants a position’s pay scale upon reasonable request.

Human Resource Managers and other hiring personnel should be instructed to refrain from asking job applicants about their salary history and employers should remove salary history questions from their employment applications. However, job applicants will still be able to voluntarily provide information concerning their previous salaries. If a job applicant discloses salary history information without prompting, the new ban will not prohibit an employer from considering or relying on that information. But, to insulate themselves from potential litigation, employers may want to document the disclosure before using voluntarily disclosed salary information.

Applicants for employment may gain new leverage in salary negotiations once Labor Code Section 432.3 becomes law.

Ezer Williamson Law provides a wide range of employment services to employers and employees. Contact us at (310) 277-7747 to see how we can help you with your employment law concerns.

Attorneys’ Fees Awarded Based on Void Contract

Recently, in California-American Water Company v. Marina Coast Water District, a California court of appeal found prevailing parties could recover attorneys’ fees based on a void contract under Code of Civil Procedure section 1717 (“section 1717”). The non-prevailing party challenged the trial court’s award of attorneys’ fees, posing the question, “How can an attorney fees provision in a contract govern the parties’ fees obligations when the contract itself is deemed to have been void from its inception?”

In Santisas v. Goodin (1998) 17 Cal.4th 599, the California Supreme Court held that “when a party litigant prevails in an action on a contract by establishing that the contract is invalid, inapplicable, unenforceable, or nonexistent, section 1717 permits that party’s recovery of attorney fees whenever the opposing parties would have been entitled to attorney fees under the contract had they prevailed.” (Santisas, supra, 17 Cal.4th at p. 611.)

The appellant in California-American argued that the trial court’s attorney fees award contravened section 1717’s limitation that fees be awarded only in an “action on a contract.” In California-American, no contract-based claims were at issue. The only issue litigated was the effect of a board member’s conflict of interest on the validity of certain contracts. In other words, the action was one to declare certain contracts void. The losing party argued that such a claim is not an “action on a contract.” However, the appellate court in California-American found “a party’s entitlement to attorney fees under section 1717 turns on the fact that the litigation was about the existence and enforceability of the contract, not on the presence of particular contractual claims . . .” The court noted that a California appellate court had previously found a suit brought by litigants seeking to have a contract declared void is an “action on a contract” for the purposes of section 1717. (Eden Township Healthcare Dist. v. Eden Medical Center (2013) 220 Cal.App.4th 418, 426.) Since an action to declare a contract void is an “action on a contract” for purposes of section 1717, attorneys’ fees can be awarded based on an attorney fees provision of a void 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 concerns.

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.

U.S. Supreme Court Declines To Rule On Large Fees For Homebuilders

Recently, the United States Supreme Court denied certiorari in 616 Croft Ave., LLC v. City of West Hollywood (2016) 3 Cal.App.5th 621, in which the issue for review was whether the City of West Hollywood’s in-lieu housing fee was an exaction. While the Supreme Court did not rule for or against the homebuilder claiming city fees were invalid, the decision not to hear the case affirms precedent. Just five months earlier, the Supreme Court issued a takings decision, authored by Justice Kennedy, in Murr v. Wisconsin (2017) 137 S. Ct. 1933. This most recent Supreme Court ruling is the latest in a line of cases that deprive property owners of power over their properties. The Court in Murr held the two parcels along the St. Croix River, combined under common ownership in 1995, were required to be evaluated as a single parcel in determining whether the regulations constituted a regulatory taking. Ultimately, the Court found the regulations, which did not allow petitioners to sell one parcel as part of an improvement plan for the lots, did not constitute a compensable regulatory taking.

Declining to hear a case like 616 Croft Ave., for now, continues the trend. The California Appellate Court in 616 Croft Ave. found a half a million dollar in-lieu fee imposed by the City of West Hollywood, to permit the homebuilder to build a condominium, was not an exaction or a taking. The Supreme Court declined to hear a similar case last year. For now, the Court is leaving open to interpretation the constitutionality of large fees upon homebuilders. With rumors of Justice Kennedy retiring soon and New Justices entering the Bench, perhaps a changed Supreme Court may tackle the constitutionality of fees upon homebuilders in coming years.

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 property law concerns.

California Court Eases Employee’s Burden in Proving Employer’s Wage Statement Violations

In 2004, the State legislature enacted the Labor Code Private Attorneys General Act of 2004 (“PAGA”), which authorizes California employees to sue their employers for Labor Code violations and collect civil penalties that would otherwise be collectible only by California’s Labor and Workforce Development Agency. PAGA suits are known as “representative actions,” in which an employee sues “on behalf of himself or herself and other current or former employees.” Civil penalties recovered in a PAGA action are distributed 75% to the State of California and 25% to the employees.

Recently, a California appellate court, in Eduardo Lopez v. Friant & Associates, LLC, held that an employee can sue his or her employer under PAGA for failure to provide accurate wage statements without showing that the employer’s conduct was “knowing and intentional.” The ruling is significant because employees can also sue their employer for wage statement violations without using the PAGA statute. But when they do, they must show that the employer’s violation was “knowing and intentional” in order to win their case. Thus, the Lopez decision is likely to significantly impact how suits for wage claim violations will be filed in the future. After Lopez, it is unclear why employees would bring lawsuits for “knowing and intentional” wage statement violations when they can bring PAGA claims without proving the wage statement violations were knowing and intentional.

In the Lopez case, the plaintiff, Mr. Lopez, filed an action seeking recovery of civil penalties under PAGA for his employer’s failure to include the last four digits of its employees’ social security numbers or employee identification numbers on their itemized wage statements. The trial court found that the employer had been unaware that this required information was missing and therefore ruled in favor of the employer. The trial court reasoned that Lopez could not prevail because the employer’s omission was not “knowing or intentional” within the meaning of Labor Code section 226, which specifies what information must be included in employee wage statements.

The appellate court reversed the judgment. The Lopez court reasoned a PAGA claim is not subject to Section 226’s “knowing and intentional” requirement, and that the “knowing and intentional” requirement applies only to non-PAGA lawsuits.

Ezer Williamson Law provides a wide range of employment services to employers and employees. Contact us at (310) 277-7747 to see how we can help you with your employment 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.