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Arbitrators' Authority Extends Post-Award for § 998 Claims

In Heimlich v. Shivji, 2017 Cal. App. LEXIS 499 (May 31, 2017), Plaintiff (Attorney) sued Defendant (Client) in the trial court for unpaid invoices despite a retainer agreement providing for arbitration. After answering, Client made a § 998 offer to Attorney for $30,001 and later demanded arbitration. The trial court ordered the matter to arbitration which ultimately resulted in zero recovery for either side. Six days after the arbitration award, Client requested that the arbitrator award costs pursuant to § 998. The arbitrator refused on the grounds that he no longer had jurisdiction to take further action on the matter post-award. Client then asked the trial court to confirm the arbitration award and to award costs pursuant to § 998. The court confirmed the arbitration award but denied Client's demand for costs under § 998 as untimely. Client appealed.

Revocation of Bankruptcy Discharge Statute of Limitations Is Not Jurisdictional

In Weil v. Elliott, decided June 14, 2017, the Ninth Circuit Court of Appeals decided the statute of limitations for the filing of an action to revoke a debtor's discharge is not jurisdictional and can be waived if not timely raised as an affirmative defense.

Cap on Landlord's Claim Applies Only to Damages and Fees Resulting From Termination of Lease

In In re Kupfer, No. 14-16697, the Ninth Circuit Court of Appeals, in an opinion published on December 29, 2016, has determined that the cap on the amount of damages a landlord can claim under Bankruptcy Code Section 502(b)(6) applies only to damages directly related to the termination of the lease and not to collateral claims. In particular, fees related to litigating a landlord's claim for future rent were capped because such fees would not have been incurred absent termination of the lease. But fees related to litigating claims for past rent and for litigating a debtor's claims for breach of lease were not capped because such fees would have been incurred regardless of a termination of the lease.

In Kupfer, the debtors stopped paying rent and the landlord commenced an action in state court for breach of the lease and other claims. Debtors counterclaimed. The matter went to arbitration where the arbitrator found in favor of the landlord and awarded unpaid past and future rent as well as attorney fees to the landlord. Debtors then filed Chapter 11 bankruptcy. When the landlord filed a proof of claim based on the total amount of damages awarded in arbitration, the debtors objected saying that the claim amount must be capped based on the calculation provided in Section 502(b)(6) of the Bankruptcy Code. The Bankruptcy Court and the District Court found that Section 502(b)(6) capped past and future rent but not the fees incurred in the litigation.

Ninth Circuit Holds Courts May Entertain Hypothetical Preference Actions Within Section 547(b)(5)'s Hypothetical Liquidation Analysis

In Schoenmann v. Bank of the West (In re Tenderloin Health), No. 14-17090, D.C. No. 4:13-cv-03992-JSW, the Ninth Circuit Court of Appeals reversed the district court's order affirming the bankruptcy court's summary judgment in favor of Bank of the West ("BOTW") in an adversary proceeding for avoidance of a preferential transfer brought by a Chapter 7 trustee ("Trustee"). Specifically, the Ninth Circuit held "that courts may entertain hypothetical preference actions within section 547(b)(5)'s hypothetical liquidation when such an inquiry is factually warranted, supported by appropriate evidence, and so long as the hypothetical preference action would not result in a direct conflict with another section of the Bankruptcy Code."

In 2009 and 2011, Tenderloin Health ("Debtor") obtained a $300,000 loan from BOTW, secured in part by the Debtor's deposit accounts with BOTW. In late 2011 or early 2012, the Debtor wound up its affairs and sold its only real property. From the sale proceeds, the Debtor paid BOTW $190,595.50 ("Transfer") to fully satisfy its outstanding loan obligation and the Debtor deposited the remaining sale proceeds of $526,402.05 in its BOTW deposit account. On July 20, 2012, the Debtor filed for Chapter 7 bankruptcy ("Petition Date"). As of the Petition Date, the Debtor's BOTW deposit account contained $564,115.92.

Workarounds to Meeting Shareholder Quorum Requirements in California Corporations

In a lot of cases, a California corporation will need shareholders' consent to take action, and in order for shareholders to take action, a quorum must be established. California Corporations Code Section 602(a) states that a quorum is established if a majority of the shares that are entitled to vote are represented in person or by proxy at a shareholders meeting, unless the articles of incorporation provides otherwise. But what happens if the corporation can't take action because its shareholders can never establish a quorum?

The California Supreme Court Prohibits On-Call and On-Duty Rest Periods

On December 22, 2016, the California Supreme Court addressed , in Augustus v. ABM Security Services, Inc., 2016 WL 7407328 (Cal. Dec. 22, 2016), whether California law requires employers to provide employees off-duty rest periods, and whether such requirement permits employers to require that employees remain on-call during rest periods. Specifically, the Augustus Court considered whether defendant employer's requirement that its security guard employees carry radios during rest breaks violated California Law.

Top 5 Things You Should Consider in Your Founders Agreement By Andrew Lee of Shulman Hodges & Bastian LLP on January 10, 2017

A Founders Agreement is an agreement between the cofounders that outlines important terms. Having a Founders Agreement from the outset will provide the founders with a clear understanding of what to expect when the company truly begins to operate.

Below are five key points to consider in your Founders Agreement.

Roles and Responsibilities

When a startup company begins to operate, founders tend to do many different things for the company. However, as the company matures and becomes more complex, founders may find themselves debating amongst each other as to who does what if their roles and responsibilities were not clearly defined from the beginning. It would be prudent for the founders to determine their positions and responsibilities to help avoid potential confusion or contention amongst the founders.

Equity Ownership

There are two trains of thought for granting equity to founders: (a) all founders receive an equal amount, or (b) each founder receives varying amounts depending on certain factors. Whichever option you decide, it would be wise to consider implementing a vesting schedule for the founder's equity because upon resignation or removal, all unvested equity interest would terminate.

Be Careful Representing Debtors in the Gap Period of an Involuntary Bankruptcy Filing

Attorneys representing debtors faced with an involuntary petition may have a difficult time getting paid for their fees incurred in the "gap" period from the bankruptcy estate. Further, even if counsel is paid by the debtor and need not seek payment from the bankruptcy estate, the court will examine the fees paid under Section 329 of the Bankruptcy Code for reasonableness.

If the attorney must seek payment from the bankruptcy estate as an administrative expense, Section 507(a)(2) gives a second priority status to administrative expenses allowed under Section 503(b). Section 503(b) allows an administrative expense for, "other than claims allowed under section 502(f) ... the actual, necessary costs and expenses of preserving the estate." As such, Section 503(b) "expressly excludes from administrative expenses 'gap' claims 'allowed under section 502(f)" which would include attorneys' fees incurred by the debtor during the gap period. In re Baab Steel, Inc., 495 B.R. 530, 533 (Bankr. D. Co. 2013).

Section 507(a)(3) gives a third priority status to claims allowed under Section 502(f). Section 502(f) allows claims in an involuntary case arising "in the ordinary course of the debtor's business or financial affairs after the commencement of the case but before the earlier of the appointment of a trustee and the order for relief."


On November 16, 2016, the First Circuit Court of Appeal certified for publication its opinion in the Tanguilig v. Bloomingdales, Inc. case (San Francisco City and County Super. Ct. No. CGC-14-541208), which addressed the enforceability of PAGA waivers pursuant to Iskania v. CLS Transportation Los Angeles, LLC. Specifically, Bloomingdales moved to compel arbitration of Tanguilig's "individual PAGA claim." The trial court denied the motion and the Appellate Court affirmed, holding that "Iskanian v. CLS Transportation Los Angeles, LLC...and consistent with the Federal Arbitration Act (FAA)(9 U.S.C. et seq.), a PAGA representative claim is nonwaivable by a plaintiff-employee via a predispute arbitration agreement with an employer, and a PAGA claim (whether individual or representative) cannot be ordered to arbitration without the state's consent." The Appellate Court reasoned that, whether a PAGA claim is brought in an individual or representative capacity, the real party in interest is the state. Since a claim cannot be ordered to arbitration without the consent of the real party in interest, the individual v. representative nature of the PAGA claim was not relevant to the analysis. Rather, the analysis turned on the absence of the state's consent to arbitration.

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