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Actual Intent to Cause Injury is Not Required Under Bankruptcy Code Section 523(a)(6)

In In re Hamilton, BAP Nos. SC-17-1126 and SC-17-1123, the Ninth Circuit Bankruptcy Appellate Panel ("BAP") considered the intent requirement for non-dischargeability of a debt under Section 523(a)(6). The debtor argued that the Supreme Court case of Kawaauhau v. Geiger, 523 U.S. 57 (1998) required actual intent or specific intent to cause injury to meet the "willful" injury requirement of Section 523(a)(6). The BAP clarified that while Geiger held that an intent to cause harm was required, it did not elaborate as to "the precise state of mind required," as stated by the Ninth Circuit in Petralia v. Jerchich (In re Jercich), 238 F.3d 1202 (9th Cir. 2001). The BAP commented that the holding in Jercich that the debtor must intentionally commit the act with a substantial certainty that injury will occur is controlling and not at odds with Geiger. As such, the BAP confirmed that a specific intent to cause injury is not required to meet the "willful" standard under Section 523(a)(6) but rather, only a substantial certainty that injury will occur as found in Jercich.

To Be Enforceable, Default Interest Must Be Supported by Contemporaneous Evidence of a Relationship Between It and Foreseeable Actual Costs

In In re Altadena Lincoln Crossing LLC, Case No. 2:17-bk-14276-BB, the Bankruptcy Court for the Central District of California disallowed default interest on a large commercial loan after conducting an exhaustive review of California law concerning the enforceability of default interest.

Bankruptcy Code section 506(b) provides that a secured creditor is entitled to include within its claim "interest . . . and any reasonable fees, costs or charges provided for under the agreement." 11 U.S.C. § 506(b). The Ninth Circuit has held that default interest is to be enforced unless the default interest provision is not enforceable under applicable nonbankruptcy law. General Electric Capital Corp. v. Future Media Productions, Inc., 547 F. 3d. 956, 961 (9th Cir. 2008). The applicable law is California Civil Code section 1671(b), which provides that "a provision in a contract liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made." Cal. Civ. Code § 1671(b). California courts have held, for example, that a liquidated damages clause will generally be considered unreasonable and unenforceable under Cal. Civ. Code § 1671(b) if it "bears no reasonable relationship to the range of actual damages that the parties could have anticipated would flow from a breach" at the time the contract was made. See, e.g., Ridgley v. Topa Thrift & Loan Ass'n, 17 Cal 4th 970, 977 (1998); Morris v. Redwood Empire Bancorp, 128 Cal. App. 4th 1305, 1314 (2005). 

A Note on the Types of Trusts Recognized in California

I have recently encountered many issues stemming from whether assets are held by one person in trust for another. Below is a discussion of the various trusts recognized in California.

First, there are two basic categories of trusts: express trusts and implied trusts. An express trust exists when there is "an explicit declaration of trust followed by an actual conveyance or transfer of property to the trustee." Bainbridge v. Stoner, 16 Cal. 2d 423, 428 (1940) (citations omitted). 

SCOTUS Finds Section 523(a)(2)(B) Financial Condition Can Relate to a Single Asset

In a June 4, 2018 decision, the Supreme Court of the United States ("SCOTUS") held that a "statement in writing . . . respecting the debtor's or an insider's financial condition" in Bankruptcy Code Section 523(a)(2)(B), which requires the statement to be in writing, can relate to a single asset and does not have to be a financial statements regarding all of the debtor's assets and liabilities. 


The California Supreme Court recently issued a ruling that should cause every California employer utilizing the services of independent contractors to consider whether those workers should be reclassified as employees subject to California's wage and hour regulations.

In Dynamex Operations W. v. Superior Court, 4 Cal.5th 903 (2018), the Court made it significantly more difficult for employers to classify their workers as independent contractors and thereby avoid complying with many federal and state wage, hour and working condition regulations. The Court held that when an employer is deciding whether to classify a worker as an independent contractor as opposed to a common law employee subject to wage and hour rules and regulations, the employer should begin by presuming that the worker is a common law employee. To overcome this presumption and classify a worker as an independent contractor, the employer must then be able to establish all of the following elements: 

Ninth Circuit Removes Requirement to Attend Hearing and Object to Confer Standing to Appeal Bankruptcy Court Orders

In In re Point Center Financial, Inc., No. 16-56321, slip op. (9th Cir. May 29, 2018) the Ninth Circuit Court of Appeals decided whether attendance at a hearing and an objection to a bankruptcy court ruling are prerequisites to having standing to appeal the same. Generally, only a person aggrieved by a bankruptcy court order may appeal entry of the same. A person aggrieved is someone who is directly and adversely affected pecuniarily by a bankruptcy court order, such as when an order diminishes one's property, increases one's burdens, or detrimentally affects one's rights. Duckor Spradling & Metzger v. Baum Tr. (In re P.R.T.C., Inc.), 177 F.3d 774, 777 (9th Cir. 1999); Fondiller v. Roberson (In re Fondiller), 707 F.3d 441, 443 (9th Cir. 1983).

The debtor in the case is an originator and servicer of residential and commercial loans. Its business model was to make loans through funding by private investors and to grant those investors shares of the repayment proceeds and deeds of trust securing the same. If properties subject to the debtor's loan went into default, the debtor would then acquire the properties through foreclosure and set up a limited liability company to take title to those properties. Investors would then exchange their loan interests for membership interests in the companies, and the debtor served as manager of each property-holding LLC.

Third District Court of Appeal Holds Higher Penalty Provision Applies to PAGA Claims for Wage Statement Violations

The Private Attorneys General Act of 2004 (PAGA) allows an employee to bring representative claims on behalf of similarly aggrieved employees to recover "civil penalties" previously only recoverable by the Labor and Workforce Development Agency (LWDA) for violations of various Labor Code sections. If there is no existing civil penalty, PAGA also provides a default penalty provision. As such, in determining potential exposure with respect to a PAGA claim, it is critical to determine the applicable civil penalty. But in recent years, California and Ninth Circuit courts have issued a number of conflicting decisions in this area. With respect to wage statement violations, however, a recent decision by the Third Circuit Court of Appeal indicates a growing consensus.

In Raines v. Coastal Pacific Food Distributors, Inc., 2018 Cal.App. LEXIS 468 (May 22, 2018), the plaintiff brought a PAGA action for, inter alia, violation of Labor Code section 226(a), which requires employers to provide employees with accurate itemized wage statements including nine specific pieces of information. Section 226.3 provides that any employer who violations section 226(a) shall be subject to a civil penalty in the amount of $250 per employee per initial violation and $1,000 per employee for each subsequent violation. However, the plaintiff sought recovery not under section 226.3, but under the default PAGA penalty provision set forth in section 2699(f), which provides for $100 per employee per initial violation and $200 per employee for each subsequent violation.

Class Action Waivers in Employment Arbitration Agreements are Enforceable

Today, the United States Supreme Court finally resolved the split of authority among federal circuit courts as to the enforceability of class action waivers in employment arbitration agreements. In issuing its much anticipated opinion in NLRB v. Murphy Oil Co., Ernst & Young LLP v. Morris and Epic Systems Corp. v. Lewis, the Supreme Court held that class action waivers in employment arbitration agreements do NOT violate the National Labor Relations Act and are therefore enforceable. This is good news for employers everywhere and a prime opportunity to consider updating employment arbitration agreements to include class action waivers.

Factoring a Flat Sum Bonus Into An Employee's Overtime Pay Rate

Under California law, an employer is obligated to pay an overtime premium for work in excess of eight hours in a day, 40 hours in a weeks, or for any work at all on a seventh consecutive day. See Alvarado v. Dart Container Corp. of California, 4 Cal.5th 542, 553 (2018), as modified at 2018 Cal. LEXIS 2979 (April 25, 2009). Such work must be compensated at 1.5 times the employee's "regular rate of pay," or, if the employee works in excess of 12 hours in a day or in excess of eight hours on a seventh consecutive working day, at two times the employee's regular rate of pay. Id.

Employers Beware -Post-Dynamex, the Classification of Workers as Independent Contractors Will be Met With Greater Scrutiny

On April 30, 2018, the California Supreme Court issued its opinion in Dynamex Operations West, Inc. v. Superior Court (2018 Cal. LEXIS 3152) wherein it decided what standard applies, under California law, to determine whether workers should be classified as employees or as independent contractors for purposes of California wage orders (which impose obligations relating to, among other things, minimum wages, maximum hours and required meal and rest breaks). In holding that the wage order's definition of "employ" must be used to determine independent contractor versus employee status ("employ," meaning "(a) to exercise control over the wages, hours, or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law employment relationship"), the Court explained what it means to "suffer or permit" an individual to work: 

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