Shulman Hodges & Bastian LLP

May 2016 Archives

Disqualification in Derivative Actions

Litigation involving members of close corporations may create issues with attorney representation. In Ontiveros v. Constable, 245 Cal. App. 4th 686, 199 Cal. Rptr. 3d 836 (2016), a minority shareholder brought derivative claims against the corporation, the majority shareholder and the majority shareholder's wife, who all retained the same counsel for representation. The minority shareholder argued disqualification was automatic because the corporation's interests were adverse to the majority shareholder's and his wife's. The minority shareholder also argued that counsel could not withdraw from representing the corporation and continue representing the majority shareholder and his wife because of counsel undoubtedly " derived sensitive confidential information" regarding the corporation's position vis-à-vis the corporation's claims against the majority shareholder and his wife. The trial court disqualified defendants' counsel.

California's Fair Day's Pay Act Creates Personal Liability for Wage and Hour Liability

As of January 1, 2016, any individual who is an owner, director, officer, or managing agent of an employer may be held liable as the employer if he or she violates, or causes to be violated, wage and hour provisions. Cal. Lab. Code § 558.1. The California Supreme Court has defined "managing agent" as an employee who "exercise[s] substantial discretionary authority over significant aspects of a corporation's business." White v. Ultramar, 21 Cal. 4th 563, 577.

Leave To Amend And Compulsory Cross-Claims: A Note About Code Civ. Proc. § 473

By its terms, California Code of Civil Procedure Section 473 allows a court to grant leave to amend "any pleading." This broad language, however, is misleading. When a party fails to plead a compulsory cause of action in a cross complaint, a motion for leave to amend should be also brought under California Code of Civil Procedure Section 426.50 rather than just Section 473. While Sections 473 and 426.50 are quite similar, section 473 uses the permissive "may" and provides the court with full discretion in determining whether or not to grant leave to amend, while section 426.50 dictates that the court "shall" grant leave to amend a cross-complaint if the moving party acted in good faith.

Debt Non-Dischargeable Without Making False Representation to Creditor

In Husky International Electronics, Inc. v. Ritz published on May 16, 2016, the Supreme Court of the United States ("SCOTUS") found a debt not dischargeable because of the debtor's intercompany transfer scheme to avoid paying the debt. The debt was owed by Chrysalis Manufacturing Corp. but its director Daniel Lee Ritz, Jr. ("Ritz") drained any assets available to pay that debt by transferring money to other entities owned by Ritz. Ritz then filed for bankruptcy when Husky came after him to recover the debt. Reversing the lower courts, the SCOTUS found the debt non-dischargeable. Even though Ritz made no direct false representation to Husky, the SCOTUS found his intercompany transfer scheme constituted actual fraud such that the debt was non-dischargeable, holding that Section 523(a)(2)(A) "encompasses fraudulent conveyance schemes, even when those schemes do not involve a false representation." 

Ninth Circuit Approves 15 Minute Wage Rounding Policy and One Minute of Uncompensated Time as De minimis

In Corbin v. Time Warner Entm't-Advance/Newhouse P'ship, the Ninth Circuit was recently asked to determine whether hourly compensation policies at a California call center which rounded hourly time stamps to the nearest quarter hour and which required employees to spend uncompensated time logging into a computer based time program violated the Fair Labor Standards Act of 1938 ("FLSA"), 29 U.S.C. § 201, et seq., and various California state employment laws. 

President Obama recently signed the Defend Trade Secrets Act of 2016 ("DTSA")

President Obama recently signed the Defend Trade Secrets Act of 2016 ("DTSA"), which provides California businesses with another tool to protect their trade secrets. Specifically, the DTSA provides trade secret owners with a federal civil right of action to pursue businesses and individuals which have misappropriated their trade secrets. The DTSA states in part that "[a]n owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce." DTSA, 114 S. 1890. 

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