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Entries in business litigation (16)

Wednesday
Jun062012

Municipal Bankruptcies - When Local Governments Go Belly-Up

 

Los Angeles Litigation AttorneyEnvironmental Law & Civil Litigation AttorneyJune 6, 2012
by Stephen T. Holzer

Los Angeles Environmental Attorney

When an individual opts to declare bankruptcy, he or she generally qualifies for either Chapter 7 Bankruptcy, in which the individual's property is sold to pay some, or all of the debts; or Chapter 13 Bankruptcy, in which options for payment of these debts are offered over a fixed period of time.

Creditors may be notified and may contest the process, as they want to recover as much of the loan and interest as possible.

It's much more complex for local governments under Chapter 9 of the Bankruptcy Code because:

  1. Municipal debts are usually much larger.
  2. Local government employees don't want to have their contracts abolished or reduced. They stand to lose their benefits, pensions and other compensation when a municipality files bankruptcy.
  3. Bonds and other means of financing municipal projects completely complicate the process.

State Assemblyman Bob Wieckowsky attempted to alleviate some of the confusion for municipalities, their employees and their creditors by introducing a bill that became law this year. In a compromise between the unions and the governments, AB 506 requires cities, towns, counties and villages to engage in mediation with creditors in an attempt to stave off bankruptcy proceedings.

Though only enacted several months ago, the Assemblyman wants to amend the law to broaden the powers of the mediators.

The new bill, AB 1692, will subject local governments to an evaluation, or force them to declare a state of fiscal emergency before they can declare bankruptcy. Several state organizations such as the California Professional Firefighters, the California Labor Federation and the California Nurses Association back this new bill.

Many local government officials oppose AB 1692 though, citing as a reason that the process gives the mediators too much power and allows more time for financial resources to be drained.

The new bill limits a neutral evaluation to 60 days following the appointment of the evaluator, unless participating interests elect to extend the process by another 90 days (or longer if the parties agree).


Insolvent Cities – A Look at Stockton, Mammoth Lakes and Vallejo


The gold rush city of Stockton currently stands to be the most populous in America to declare bankruptcy. The municipality projects a deficit of $20-38 million over the next fiscal year, due partly to overgenerous pension packages for city employees, an over-aggressive development plan, and the nosedive of the real estate market in the current recession.

The parties involved in the bankruptcy proceedings just recently voted to extend the mediation period another 30 days, giving offices until June 27th to come to an agreement with creditors.

Mammoth Lakes has a different reason for facing Chapter 9 bankruptcy proceedings: A legal judgment of $43 million stemming from a lawsuit first brought six years ago against the town by a developer. The plaintiff refuses to participate in the mediation process.

Before the Stockton financial crisis, and even before ABs 1692 and 506, Vallejo was one of the first and largest cities to go bankrupt.

Vallejo did so in the spring of 2008, and the move gave the city protection from creditors, as well as time to renegotiate employee contracts and find new sources of revenue, according to an article in the San Francisco Chronicle. Last November, the city came out of bankruptcy status, released from the stigma by a federal judge.

The Vallejo's City Manager says bankruptcy should be a last resort option. Whether or not ABs 506 and 1692 provide other means of deliverance, only time will tell.

Stephen T. Holzer is a business litigation attorney and Chair of our Environmental  Law Practice Group. Contact him via e-mail: sholzer@lewitthackman.com.

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

Thursday
May242012

Medical Marijuana Use Not Protected by ADA, 9th Circuit

Lawyer for EmployerWage and Hour Defense

by Nicole Kamm

818.907.3235

 

In 2008, the California Supreme Court held in Ross v. Ragingwire that an employer may lawfully terminate an employee (or refuse to hire an applicant) who tests positive for marijuana, even if the marijuana use is for lawful medical purposes under California law.  Recently, the Ninth Circuit (the federal court with jurisdiction over California) held the Americans with Disabilities Act (“ADA”) similarly does not protect medical marijuana use.

The plaintiffs in the case entitled James v. City of Costa Mesa, were severely disabled California residents, who claimed conventional medicine and treatments failed to alleviate the pain caused by their impairments, but medical marijuana helped. 

Medical marijuana, as we know, is permissible under California law.  The plaintiffs obtained their medical marijuana through collectives located in Lake Forest and Costa Mesa, California. 

Concerned about the possible shut down of the collectives pursuant to various local ordinances excluding medical marijuana dispensaries, the plaintiffs brought suit in federal district court, alleging the cities’ actions violated Title II of the ADA.

The district court sympathized with the plaintiffs, but denied their application for a preliminary injunction on the grounds that the ADA does not protect against discrimination on the basis of marijuana use - even medical marijuana use prescribed by a doctor in accordance with state law - because such use violates federal law.

The Ninth Circuit affirmed the lower court’s decision, holding the ADA does not protect individuals who claim discrimination because of medical marijuana use.  The court reasoned the ADA excludes from coverage disabilities based on illegal drug use, and “illegality” is tied to federal, not state, law.  Because marijuana is still illegal under federal law, medical marijuana use is not covered under the ADA, even if states such as California have legalized the medical use of the drug.

Disability Claims Defense LawyerAgain sympathizing with the plaintiffs’ position, the Court held:

We recognize that the plaintiffs are gravely ill, and that their request for ADA relief implicates not only their right to live comfortably, but also their basic human dignity.  We also acknowledge that California has embraced marijuana as an effective treatment for individuals like the plaintiffs…Congress has made clear, however, that the ADA defines ‘illegal drug use’ by reference to federal, rather than state, law, and federal law does not authorize the plaintiff’s medical marijuana use.

While the James v. City of Costa Mesa decision did not arise in the employment context, the court’s holding is still relevant for employers.  Employers should note that while it is not unlawful to discriminate against an applicant or employee on the basis of their marijuana use (even if for medical reasons), it is still unlawful to discriminate based on an underlying disability, including those for which the individual may be using the medical marijuana. 

Accordingly, employers should use caution in handling these situations to minimize risk and ensure they can demonstrate that any adverse employment action was based solely on knowledge of illegal marijuana use and not on any underlying disability.

Nicole Kamm is an Employment Defense Lawyer who provides counsel and training for employers to avoid discrimination, harassment and other worker claims. Contact her via e-mail: NKamm@lewitthackman.com

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

Tuesday
May012012

Another Blow for Property Owners Challenging Foreclosure

Business LitigationSan Fernando Valley Business Litigation Lawyer

Nicholas Kanter
818.907.3289

When challenging a foreclosure sale, property owners look to defects or irregularities in the foreclosure process, which is strictly regulated by California’s Civil Code, to have the sale enjoined or rescinded.  Recently, one section of the Civil Code has received a lot of attention.

Civil Code Section 2932.5 requires the assignee of a mortgage to record the assignment prior to exercising a power to sell real property.  Parties have relied on this section to challenge foreclosure sales where a deed of trust is assigned, but not recorded, until after the sale. 

California case law, dating back to 1908, established that the predecessor statute to section 2932.5 (section 858) applies only to mortgages, not deeds of trust (Stockwell v. Barnum). 

However, federal and state courts have recently disagreed over the application of Section 2932.5 to deeds of trust.  On the federal side, e.g., Tamburri v. Suntrust Mortgage, Inc., (2011), and In re Cruz (2011), courts have applied Section 2932.5 to deeds of trust.  On the state side, the court in Calvo v. HSBC Bank USA, N.A. (2011), followed the Stockwell decision.

In support of Stockwell and Calvo, the Court of Appeal in Haynes v. EMC Mortgage Corp., (filed April 9, 2012, publication ordered April 24, 2012) found that Section 2932.5 does not apply to deeds of trust.  The Haynes court rejected Haynes’ reliance on the federal decisions finding:

We of course, are not bound by federal decisions on matters of state law…While our Supreme Court has noted in passing on issues other than the interpretation of section 2932.5, that “a deed of trust is tantamount to a mortgage with a power of sale” [citation], the court has not addressed section 2932.5 and the statute, by its plain terms, does not apply to deeds of trust.  

The court also explained why section 2932.5 applies to mortgages but not deeds of trust:

Section 2932.5 requires the recorded assignment of a mortgage so that prospective purchaser knows that the mortgagee has the authority to exercise the power of sale.  This is not necessary when a deed of trust is involved, as the trustee conducts the sale and transfers title. 

The Haynes decision, along with the holding in Calvo, reinforces long-standing California case law that Civil Code Section 2932.5 does not apply to deeds of trust, thus all but taking away a party’s ability to challenge a non-judicial foreclosure sale based on an unrecorded assignment.  

Nicholas Kanter is a Business Litigation Attorney in our Real Estate Practice Group. Contact him via e-mail: nkanter@lewitthackman.com.




 
Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

Friday
Feb032012

Will Madonna Sing “Girls Gone Wild” at the Super Bowl?

 

Business Litigation Los AngelesLos Angeles Business Litigation AttorneyFebruary 3, 2012
by Nicholas Kanter


Joe Francis, the founder of Girls Gone Wild, just sent a cease and desist letter to Madonna, NBC and the National Football League threatening to file a lawsuit if Madonna sings a track from her new album entitled “Girls Gone Wild, ” according to TMZ.com. In the letter, Francis claims Madonna’s use of the name violates his trademark rights in the brand.

Should Madonna be concerned?

Francis may have an uphill battle in light of the Ninth Circuit’s ruling in Mattel, Inc. v. MCA Records, Inc., 296 F.3d 894 (9th Cir. 2002).  The Mattel case involved Mattel’s famous Barbie doll and the Danish band Aqua’s song entitled “Barbie Doll.”  Mattel sued the music companies that produced, marketed and sold “Barbie Girl,” including MCA Records, Inc. and Universal Music International.  Mattel claimed that the use of “Barbie” in the title of the song “Barbie Doll” infringed its trademark.

The Ninth Circuit followed a test developed by the Second Circuit in Rogers v. Grimaldi, 871 F.2d 994 (2nd Cir. 1989) which involved a claim by the actress Ginger Rogers against the film “Ginger and Fred”; a movie about two Italian cabaret performers who made a living by imitating Ginger Rogers and Fred Astaire. 

The Rogers court “concluded that literary titles do not violate the [Trademark Act] ‘unless the title has no artistic relevance to the underlying work whatsoever, or, if it has some artistic relevance, unless the title explicitly misleads as to the source or the content of the work.’”  Mattel, 296 F.3d at 902.

Using the Rogers’ test, the Ninth Circuit concluded that the use of “Barbie” in the song title “Barbie Doll” did not infringe Mattel’s trademark.  Id.  The Ninth Circuit held: “the use of Barbie in the song title clearly is relevant to the underlying work, namely, the song itself.  As noted, the song is about Barbie and the values Aqua claims she represents.  The song title does not explicitly mislead as to the source of the work; it does not, explicitly or otherwise, suggest that it was produced by Mattel.  The only indication that Mattel might be associated with the song is the use of Barbie in the title.”  Id.

Based on the Mattel decision, Francis may have a difficult time prevailing on an infringement claim unless: (1) the title “Girls Gone Wild” has no artistic relevance to Madonna’s song; or (2) if it has some artistic relevance, Madonna’s song explicitly misleads consumers  as to the source of the song.  Madonna’s “Girls Gone Wild” track has not been released yet, so it is too early to say whether Madonna can satisfy the first prong of the test.  However, given Madonna’s popularity, it is unlikely that consumers will believe that Joe Francis wrote the song. 

Will Madonna perform “Girls Gone Wild?”  Will Francis sue if she does?  Will Tebow’s attendance at the Super Bowl overshadow the game itself?  We’ll have to wait until Sunday to see. 

 

Nicholas Kanter is a Los Angeles Business & Civil Litigation attorney whose practice focuses on intellectual property, employment, franchise & distribution, and real estate matters. You may reach him by calling 818.990.2120, or by e-mail: nkanter@lewitthackman.com.  




 
Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

 

 

Tuesday
Nov292011

Franchise Law – 23 Items of the Franchise Disclosure Document (Part 2 of 2)

Business Litigation Attorney EncinoFranchise & Business Litigation Attorney

 

by David Gurnick
818.907.3285

This is the second of a two part blog on the Franchise Disclosure Document, or FDD.  Anyone who offers or sells a franchise in the United States must prepare an FDD and present it to their prospective franchisees.

A prospective franchisee must receive the FDD at least fourteen (14) days before any agreement is signed, or before the franchisor receives any consideration relating to the sale of the franchise.

The FDD contains information about the franchisor, its history, management personnel, litigation, terms and obligations of the franchise and other key aspects about the franchise that an investor should know.

The first 12 points of the FDD are explained in: Franchise Law – 23 Items of the Franchise Disclosure Document (Part 1 of 2). Items 13-23 are discussed below.

13. Trademarks.

One of the defining elements of every franchise is the existence of a trademark that the franchisor permits the franchisee to use, and that the franchisee uses to identify the business.

In this disclosure the franchisor identifies its principal trademarks, provides details as to their registration status in the United States Patent and Trademark Office and the trademark office of any state, and discloses if there have been any infringements of the trademark.

14. Patents, Copyrights and Proprietary Information

In addition to trademarks, most franchise systems also claim to own trade secrets. In a few systems, the franchisor claims to own valuable copyrights or patents that are licensed to the franchisee. Information on trade secrets, copyrights and patents is disclosed in this disclosure item.

15. Obligation To Participate In The Operation of the Franchise Business.

Often, an individual or couple buys and actively operates their franchise. It is common to see the owner behind the counter of a Subway sandwich shop, or local gas station, or in the management office of a franchised hotel. Franchisors prefer this and sometimes require that the franchisee actively participate in operation of the business.

Some franchisees acquire multiple units. When that occurs, the franchisee cannot possibly be in all locations at once. Sometimes investors buy franchises, planning to hire others to run them.  This item discloses the extent that the franchisor requires the franchisee to actively participate in operating the business or will allow the franchisee to be absent or passive with the franchise operated by others.

16. Restrictions On What The Franchisee May Sell.

All McDonalds sell hamburgers, fries and shakes. Imagine if some locations also sold tacos, burritos and enchiladas, and other locations sold spaghetti, ravioli and macaroni, and still others sold chop suey and won ton soup. Soon the public would be confused about the system’s products.

To maintain uniformity between locations, franchisors set limits on the products and services that their franchisees may sell. This disclosure item summarizes those limits.

17. Renewal, Termination, Transfer and Dispute Resolution.

At its core, a franchise is a license that permits a franchisee to do business using the system and identity and know-how of the franchisor. Because franchises involve a sizeable investment, some important considerations in buying a franchise, are the duration of the license, circumstances in which the license could be terminated early, whether it can be renewed and any restrictions on the franchisee’s ability to transfer the franchise to someone else.

This disclosure item is a table that identifies and summarizes key provisions of the franchise agreement on these and related subjects.

18. Public Figures.

In the 1970s franchisors often enlisted famous people to endorse their business and lend their names and reputation to the process of offering and selling franchises. Typically, these famous people were getting paid, but that was not disclosed to naive franchisee investors. Therefore, the FDD is required to disclose whether any famous people are involved in offering and selling franchises, and summarize their compensation for doing so.

19. Earnings Claims.

A question that many potential franchisees ask is “how much money will I earn?” By presenting selective data, or even manipulating numbers, the answer to this question could potentially be overly positive, or even misleading.

The FDD permits a franchisor to present information on the past financial results and even future projections. But they must be accurate, have a reasonable basis, and be accompanied by certain disclaimers specified in the disclosure rules. Any such earnings claims are contained in this item of the FDD.

20. List of Outlets.

The franchisor is required to attach a list of locations, with names and contact information for the owner of each franchise.  A list of ex-franchisees who recently left the system must also be attached.  This information assists a prospective franchisee who may wish to contact and interview some existing and former franchisees to hear and evaluate their satisfaction with the franchise system.

22. Financial Statements

A franchisor is required to provide its audited financial statements for the past three years. This is useful for the prospective franchisee to evaluate the franchisor’s financial performance and financial condition.

22. Contracts.

A copy of each contract to be entered into, must be attached as an exhibit to the FDD. This provides the potential franchisee an opportunity to review the actual contracts before they are entered into.

23. Receipt.

The last item of the FDD is a receipt. Two copies of the receipt are attached to the FDD. One copy is to be signed by the recipient of the FDD and returned to the franchisor. The recipient may keep the other copy.

The franchisor is required to present the FDD to the prospective franchisee at least 14 days before any agreement is entered into and any consideration is paid. The receipt, when signed and dated to acknowledge receipt of the FDD, provides the franchisor a record confirming that this requirement was satisfied.

Franchise Law in the United States

The FDD is a useful tool for prospective franchisees in evaluating a franchise being offered. Even though the categories of information are uniform, each company’s FDD differs from each other company, and a particular company’s FDD will differ from year-to-year.

This article has summarized the contents of the FDD’s 23 disclosure items, but the discussion is only a summary. The detailed regulatory instructions for preparing the FDD include various additional subjects and requirements within the above categories.

David Gurnick is a franchise law attorney and author of two books, Distribution Law of the United States and Franchise Depositions, both available through Juris Publishing, Inc.  Mr. Gurnick is certified as a specialist in Franchising and Distribution Law by the State Bar of California, Board of Legal Specialization. You may reach him at Lewitt Hackman: 818.990.2120 or dgurnick@lewitthackman.com.

 

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

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