Selling Your Business in Sacramento

May 17, 2012,

for sale.jpg California business owners may have a number of different reasons they want to sell their business. Among the most common reasons are retirement, change of career, and change of life circumstances. Others make a living starting up small businesses and then selling them a short time later for a profit. Whatever the reason, a California small business attorney is often a valuable asset to guide the process.

In our area, one thing your Sacramento business lawyer will tell you is to be prepared for a lengthy process. The primary reason the process is lengthy is that businesses are living, breathing entities. The sale of a business is unlike selling a tangible object, or even something like real estate. In fact, the sale of a business can actually include tangible objects like equipment and inventory and real estate in the form of retail space.

This is not, however, what makes a business difficult to value. The particular problem with selling a business is that the value of the business is also tied to its current customers and its ability to bring in new customers. These factors determine a business's ability to generate profit. This concept is called the goodwill of a business. Not surprisingly, the goodwill of a business is an ever-changing and shapeless figure.

Your attorney can connect you with financial professionals whose expertise is examining businesses to determine their value. These professionals are skilled at compiling figures on the value of the business's inventory, equipment, property, and goodwill. When these factors are combined, a Sacramento commercial lawyer can utilize the information to prepare the sale documents.

The preparation of these documents is a matter best left to an experienced professional. One reason is that the sale of a business can create sensitivities among certain groups. Employees may feel wary about the sale of a business due to their perception that their job may be in jeopardy. Vendors and business partners may also be wary of the sale of a business due to their perception that their revenue streams and business relationships may be jeopardized. The best way to alleviate these sensitivities is to entrust the business transaction process with someone who recognizes the value of confidentiality. Legal professionals are accustomed to protecting your confidentiality, and can take proactive measures to make sure your decision to sell is private and not panic-inducing.

Your attorney can also help you decide how to structure the sale. Some business sales occur in one lump sum. Others occur once a prospective buyer secures a loan, not unlike a mortgage for a home. Other deals are done in installments over a period of time. It is in your best interest to consult an attorney with ties to the location of your business. This way, your attorney can draw on the local knowledge of business practices and the particular business transaction laws within your jurisdiction.

The sale of a business can be a daunting and stressful prospect. You worked hard to build your business. Make sure its transition to new ownership is in good hands.

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Rent or Own?

Should I Incorporate My Business?

Rent or Own?

May 9, 2012,

Should my Sacramento business purchase or lease commercial property?

contract.jpg Sacramento commercial lawyers would all agree that there is no one-size-fits-all solution. Every business model has unique location considerations, seeks different types of clientele, and has varying amounts of capital with which to work. A Sacramento commercial real estate attorney may be the best resource for determining what it best for your particular business model.

For those just starting a business, leasing may be the only option since there may not be enough initial capital to post a down payment on a commercial space and to maintain a mortgage thereafter. For those with enough capital to choose between purchasing and leasing, however, many Sacramento small business attorneys will tell you that leasing may actually be the more attractive option.

WHY SHOULD I LEASE?

The primary benefit of leasing commercial property is the flexibility it affords the business owner. Leases are most often written for one-year terms, with some ranging from as little as six months to two or more years. Regardless of the lease term, leasing typically locks in the business owner to a particular commercial property site for a shorter period than ownership of the property would. The advantages of this flexibility are particularly appealing to those who are just starting their business, as a lease is far less risky than the purchase of commercial property in the event that the business does not reach its desired profit potential. Further, the flexibility of leasing keeps the business owner from becoming too invested in a property in the event the business wishes to expand. It is easier to finish a short lease term and then move on to lease a bigger space than it is to sell an existing space and purchase a newer, bigger one.

The other advantages of leasing commercial space are similar to the advantages of leasing residential space. Business owners who elect to lease are typically not responsible for the everyday maintenance of the space or its surrounding areas. If something happens beyond a commercial tenant's control, many find comfort in the notion that a property manager is responsible. From a purely financial perspective, lease rates more closely mirror the fair market value of the commercial property at a given time, whereas those who purchase commercial property do so at the fair market value that existed during the purchase. As a result, those businesses who have been renting during the recession have often benefitted from lower lease rates, while owners of commercial property have seen their property values plummet.

WHY SHOULD I OWN?

The foregoing advantages of leasing should not entirely eliminate the option of ownership. The primary advantage of owning commercial property is the freedom to use the property as the business sees fit. Commercial leases often contain "use clauses" that can limit what activities are permissible in the leased space. For some types of businesses, the inability to engage in certain activities within the leased premises can really inhibit the growth of the business.

Owning one's own commercial space also enables the business to accumulate wealth in the form of equity in the property, not unlike a homeowner accumulates equity by paying into their mortgage. Some business owners insist that it is wasteful to "throw away" lease payments without acquiring some form of permanent interest in the property.

As mentioned before, the decision to rent or own commercial property is a matter of personal preference and opportunity. Your Sacramento commercial real estate lawyer can help you determine which option is right for your Sacramento business.

New Workplace Break Regulations Take Effect

May 2, 2012,


California Supreme Court mandates employee meal and rest breaks

On April 12, 2012, the California Supreme Court handed down a decision in Brinker Restaurant Corp. v. Superior Court (Hohnbaum), No. S166350 that may affect California business law. Brinker Restaurant Corporation, a subsidiary of Brinker International, Inc. and its related entities, own and operate a number of restaurant chains, including Chili's Grill and Bar, Maggiano's Little Italy, and Romano's Macaroni Grill.

State law requires California employers to provide employees with meal breaks and rest breaks during the workday pursuant to California Labor Code 226.7 and 512, and Industrial Welfare Commission (IWC) Wage Order No. 5-2001. The case originated when a class of restaurant workers filed suit, claiming that their employer, Brinker Restaurant Corp., 1) failed to provide meal breaks or premium wages in lieu of meal breaks, 2) failed to provide rest breaks or premium wages in lieu of rest breaks, 3) required employees to perform work duties off the clock during meal and rest breaks. Additionally, the plaintiffs contended that the employers deliberately altered the employees' time sheets in order to hide and misrepresent work time and break time. Finally, the plaintiffs objected to Brinker's alleged practice of requiring employees to take an early lunch soon after their shift began and then to work 6 to 8+ hours without a meal break thereafter.

coffee mugh (DeaPeaJay).jpgWhat must employers provide now?

The Court's decision represents a dramatic shift in California commercial law and employment rules. The following is a summary of the new provisions:

MEAL BREAKS

At designated meal breaks, the employer MUST relieve the employee of their duty for at least thirty (30) minutes. The employee may use the break time for any purpose he or she desires. The employer is NOT responsible for ensuring that the employee uses the time for a meal, or that the employee does not engage in any work. The meal break must occur after no more than five hours of work. A second meal break must occur after no more than ten hours of work.

REST BREAKS

Employees are entitled to a rest break of ten minutes for every shift of 3.5 to 6 hours in length. Twenty minutes is to be allotted for any shift of 6 to 10 hours in length. For shifts of 10 hours or more, thirty minutes must be allotted for rest breaks. Rest breaks are distinct from meal breaks.

How do I make sure my business complies with these regulations?

In our area, a Sacramento business law attorney can examine your workplace policies and even redraft the policies in accordance with the new law. Your attorney can also ensure that your policies are conspicuously available to your employees. It may be prudent to have your Sacramento business lawyer prepare documents for your employees to sign that acknowledge their understanding of your new business practices.

It is important to note that the law applies to out-of-state businesses that employ workers in the State of California. Out-of-state employers should consider the expertise of local legal professionals to make sure that their California employees enjoy the benefits of this new law and that their business remains in compliance.

Continue reading "New Workplace Break Regulations Take Effect" »

JOBS Act Permits Crowdfunding for New Business Ventures

April 25, 2012,

New start-up funding option emerges for entrepreneurs

The recently-passed JOBS Act has given new life to a novel business investment model that many new age small business owners are finding much less risky or difficult. For those seeking business investment in Sacramento, it may very well be cause for celebration.

crowd (James Cridland).jpgThis business investment model is called crowdfunding, and it may be the future of securing start-up capital for business ventures. Crowdfunding works on the premise that it is easier to get many people to pitch in a little bit than it is to get comparatively few people to pitch in a lot. Through web sites like Kiva, Kickstarter, Crowdtilt, and IndieGoGo, small business entrepreneurs are finding it much easier to connect with groups of small value investors who are willing to pool their resources together in support of a business venture.

This model differs greatly from the traditional business start-up model. Traditionally, those wanting to start a business in Sacramento needed a Sacramento business lawyer and a source of start-up capital. The traditional sources of start-up capital were a) one's own savings; b) a bank funded business loan; or c) funds accumulated from a business investor.

Each source of funding had its own drawbacks. Few business entrepreneurs have enough of their own savings to launch a business, and many of those who do are unwilling to risk the entirety of their savings on launching a business. Bank loans were similarly risky in that high interest rates could eat into the profitability of the business, and if the business flopped, the business owner could be on the hook for considerable debt. Traditional business investment was a difficult source of funding because there are few people out there with enough capital to invest in the launching of a business, and fewer still who would invest large sums of money on certain business models they deem to be risky.

Crowdfunding eliminates the need for any of these three traditional funding sources. Much like it is easy to convince huge numbers of people to donate small sums of money to a political campaign, disaster relief, or to non-profit online software ventures like Wikipedia or Firefox, it is similarly easier to convince the average investor with a small amount of extra capital to risk that small sum in conjunction with their peers. Pooling the funding sources eliminates much of the risk in business investment, as the gains are proportional to the amount invested, and the losses are marginal and spread across many peer investors. In short, the low risk-modest reward model brings more investors to the market since comparatively few investors are capable of absorbing losses in the high risk-high reward model.

Are there any drawbacks to crowdfunding?

Your Sacramento small business attorney should be able to explain to you whether crowdfunding is right for your business venture. Some things to be mindful of when considering crowdfunding are the reporting provisions of the JOBS Act, which require the business owner to disclose the sources of business funding. Much like political campaigns must disclose their funding sources, your business funding information will be available to any inquiring minds, including your family, friends, competitors, business partners, or vendors. Often, business owners need to hire a Sacramento business law firm to assist with these filings.

See Related Blog Posts:

New Workplace Posting Requirements Under Appeal

Should I Incorporate My Business

Continue reading "JOBS Act Permits Crowdfunding for New Business Ventures" »

New Workplace Posting Requirements Under Appeal

April 18, 2012,

Federal law may soon require employers to hang additional workplace posters for employeescontract.jpg

Employers in the State of California may be familiar with Federal and California commercial law regulations requiring that they post various fliers in conspicuous places for the benefit of their employees. These postings typically explain employee rights and responsibilities; wage, leave, and disability information; emergency and workplace injury procedures; and workplace safety information, among other things.

A new federal regulation under the National Labor Relations Act, slated to take effect on April 30, 2012, requires that employers who meet certain criteria must hang an additional employee rights notice posting in a similarly conspicuous place. The purpose of the notice is to ensure that employees are properly informed about their rights to engage in collective bargaining.

The proposed posting is to be hung wherever the employer posts similar labor-related rights information (often a break room or similar space). Additionally, the employers whom this law affects will be required to post a link to the same posting in a conspicuous place on the employer's website, if applicable.

NOTE: Employers in at least two jurisdictions have filed oppositions to the proposed law. The United States District Court for the District of Columbia upheld the National Labor Relations Board's authority to enforce this provision of the National Labor Relations Act. The United States District Court for South Carolina held that the enforcement of this provision of the Act was not within the NLRB's authority. In light of the conflicting judicial opinions, The District of Columbia Circuit Court of Appeals has granted a temporary injunction, which is currently barring the NLRB's enforcement of the mandate. The NLRB is presently appealing the injunction.

How do I know if my business will be subject to the new law?

The law is in a state of flux at the moment. Groups of employers are presently challenging the constitutionality of the workplace posting requirement. Additionally, not all employers are required to comply with the new regulation in its present form, depending on the nature and size of the business. In our area consider consulting a California business attorney to help you evaluate whether your business is among those required to post the new labor relations information.

What workplace information must I post for my employees?

The California Department of Industrial Relations maintains a resource page in an effort to inform business owners of their employee rights posting obligations. The types of postings you are obligated to maintain for your employees is dependent on the nature and size of the business you operate. Many postings are required of all employers, while others are tied to the number of employees employed by your business or the degree to which your employees engage in certain activities or expose themselves to certain substances or conditions.

Additionally, there are a number of federal posting requirements like the proposed collective bargaining rights provision above. The United States Department of Labor maintains a similar resource page to inform qualified employers about their employee rights posting obligations.

The Federal and State posting requirements - as we are presently seeing - are constantly changing. With the aid of a Sacramento business lawyer, you can examine whether your California business is complying with federal and California business laws.

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Emerging Sacramento Business Weighs Risks When Selecting a Fictitious Business Name

Foreclosure Rate in Decline

April 10, 2012,

Sacramento foreclosures drop from a year ago

An article in the Sacramento Business Journal last month reported an encouraging trend: the foreclosure rate in the greater Sacramento area dropped 8.8 percent from last year's figure, according to the online foreclosure tracking service, RealtyTrac.

The figure accounts for three types of foreclosure indicators: 1) notices of default, 2) notices of foreclosure sales, and 3) lender repossessions. The total number of foreclosures, according to RealtyTrac was 4,145 during the one year period across the four-county Sacramento area. Stated another way, approximately 1 in every 210 properties in the greater Sacramento area was in foreclosure during that period.

money trouble.jpgBank repossessions in Sacramento remained steady during the same period. Of the 4,145 foreclosures, approximately 24.1 percent (1001 notices) were bank repossessions. A year ago, approximately 23.1 percent (997 notices) of the 4,179 foreclosures were bank repossessions.

The good news about foreclosure decline

Sacramento foreclosure attorneys have observed that the decline in Sacramento-area foreclosures has closely mirrored the national trend. During the same one year period, foreclosures nationwide declined at a rate of approximately 8 percent.

The decline in foreclosure rates, generally speaking, is a good indicator of a nationwide economic rebound taking effect. Foreclosures often coincide with unforeseen financial hardships like market-wide job loss, unexpected unemployment for individuals, higher rates of divorce or family death, demotions and promotion denials, and medical emergencies, among others. A decrease in foreclosures can sometimes mean that one or several of these unforeseen expense categories are either stabilizing or declining in a particular market.

The bad news about foreclosure decline

Statistics can often be deceiving. Sacramento real estate lawyers would caution the casual reader from concluding that Sacramento's real estate market is outperforming the national market. Although the percentage decline in foreclosures in Sacramento has closely mirrored the national percentage decline, Sacramento real estate is in much worse shape than real estate nationwide.

In the greater Sacramento area, 1 in every 210 properties is in foreclosure. Nationwide, the current figure places 1 in every 637 properties in foreclosure. Properties owners in Sacramento are three times as likely to have experienced foreclosure in the past year than their national peers. Nevertheless, the local decline in foreclosures is a welcome indicator of economic momentum.

I'm staring foreclosure in the face. What can I do?

If you are in danger of losing your home or commercial space to foreclosure, the new figures may be less encouraging to you. Foreclosures are still a real danger to the Sacramento homeowner.

Creditors can be fierce and tireless in collecting their debts. Your best defense is to contact a Sacramento real estate lawyer skilled in handling Sacramento foreclosures. Make no mistake: debt collection practices are specific to each region. Your creditors have agents who know the ins and outs of the Sacramento real estate market. This local knowledge helps your creditors determine the costs and benefits of pursuing foreclosure.

Your legal counsel should be just as well-versed in the Sacramento real estate market. It is only armed with this particular knowledge that your attorney can craft your particular foreclosure solutions.


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Commercial Delinquencies on the Rise in Sacramento

California Landlord Sued: Lease Goes Up in Smoke

Should I incorporate my business?

April 3, 2012,

business.jpgSo you've take the plunge. You've started your own business. Perhaps you've gone the traditional route and purchased or leased a Sacramento-area storefront. Or perhaps you've capitalized on the infinite merchant opportunities that the internet provides. Perhaps your side source of income has grown into a full-time gig.

No matter the case, the prudent, established Sacramento business owner knows that entity formation is in his or her business's best interest. But perhaps your business is in its infancy. Perhaps you are not yet established among Sacramento consumers. Perhaps you are unsure if you should incorporate your California business. An experienced Sacramento business entity lawyer can help you determine whether your business is a candidate for incorporation.

The Advantages of Business Entity Formation

The advantages of forming a business entity are numerous.

First and foremost, incorporating your business adds instant legitimacy in the eyes of your consumers, vendors, and business partners. An incorporated business is more likely to secure a commercial mortgage loan - and at a better interest rate - than an unincorporated business. Products and services from an incorporated business carry with them an implicit quality that products and services from an unincorporated business do not. Anyone can sell produce from the back of a pickup truck and makes some money on the side. But the reality is that today's modern consumers are more likely to purchase produce from "Mom and Pop's Produce Market, Inc." because the full legal entity title implies structure and legitimacy.

Incorporating under such a name also prevents another merchant from operating under the same name, protecting your business's profitability by ensuring name and brand recognition in the market.

Another primary reason to incorporate is to separate one's personal assets from the assets of the business. The main implication of this separation appears on the business owner's income taxes. Suppose your business brings in gross receipts totaling $100,000 in a year. But suppose it cost you $60,000 to maintain your business's daily operations over the course of the year. If your business is an incorporated entity, you can deduct the business expenses, such as rent, mortgage, employee wages, and energy bills before allocating income to the owner. In this example, the business owner pays income taxes on the $40,000 paid from his business rather than on the $100,000 in gross receipts. Your business does not evade taxes altogether, but generally small businesses are taxed at vastly different rates than personal income.

In the same vein, there are legal liability advantages to the separation of one's personal assets from business assets. Suppose a negligent employee drops a banana peel on floor of Mom and Pop's Produce Market. If a customer is injured as a result of slipping on the banana peel, the customer may only sue for assets tied up in the business, and may not sue the business proprietor personally.

This list is by no means exhaustive, but the final advantage worth noting here is that corporate entities exist perpetually, as opposed to sole proprietorships and partnerships that automatically dissolve when one person leaves. The advantage of perpetual existence is that the business entity may exist even when its creator is no longer in the picture. Corporate entities may be bought and sold, or even passed down to one's next of kin.

What options are available to me?

Generally speaking, a business owner may have several options in entity formation. He or she may incorporate under a host of business suffixes, including "Inc.", "LLC", "LP", "LLP", and "PC", among others. There are many considerations that go into deciding which entity type to choose, including the realities of your geographic market. Sacramento business owners should consult a Sacramento business entity attorney, who can help determine which of these entity types are right for your situation.

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Continue reading "Should I incorporate my business?" »

Commercial Delinquencies on the Rise in Sacramento

March 29, 2012,

office building.jpgAccording to a recent article in the Sacramento Business Journal, commercial mortgage delinquencies are up from a year ago. Trepp, LLC, a New York-based analytics and business consulting firm that tracks commercial mortgage-backed securities debt, reports that 16.6 percent of the commercial mortgage loans in the Sacramento area are currently delinquent as of February. That figure climbed from 14.2 percent a year ago. According to Trepp, more than 400 properties in the Sacramento metropolitan area have commercial mortgage-backed securities debt, and 42 of them are currently delinquent in their mortgage payments.

The report reflects the realities of the Sacramento real estate market, where many businesses are failing to make payments on their commercial mortgages. Almost every Sacramento commercial real estate lawyer is seeing an increase in distressed properties and higher rates of short sales for those properties.

What are some commercial loan delinquency solutions?

There are options for those facing these issues in our area. A business and real estate attorney in Sacramento can help alleviate some of the problems with the debt crunch. Each possible solution has its own benefits and drawbacks, and this is by no means an exhaustive list.

One option is to negotiate a modification to the existing mortgage. Businesses who are delinquent on their current payments may request that the mortgage term be extended to a greater period of years. This strategy lessens the monthly payment to a more manageable sum and might allow a business to start taking a bite out of the delinquent debt they have accumulated.

The drawback to this strategy is that the mortgage will cost the business more money in the long run, as interest will accrue over a longer period of time. You must be comfortable with paying more in the long-run to alleviate your current financial hardship. It may also be important to consider other possible effects of these modifications, including potential credit ramifications.

Another option is to maintain your current mortgage payments as best as you can and hire a Sacramento debt settlement firm to negotiate a lump sum settlement of your outstanding business mortgage debt. Your creditors may be willing to accept a lump sum payment totaling less than your current delinquent amount. A debt settlement firm would help you make that lower lump sum payment in order to discharge your total debt.

Be aware that debt settlement can have an adverse effect on your credit. After all, the creditor may decide to accept an amount lower than what you really owe. This can sometimes be a red flag to future creditors and may impact future interest rates. The reason your current creditors may be motivated to take a lump sum settlement in an amount lower than your current debt is that they would rather take the lesser amount than run the risk of your business filing for bankruptcy. A lump sum settlement, though less than the total sum, provides instant gratification to the creditor, whereas the creditor would have to wait for a business's assets to be liquidated via bankruptcy.

Each debt situation is as unique as its eventual solution. If you are delinquent in your commercial mortgage or are a commercial landlord with delinquent tenents, you should consider consulting an Sacramento commercial real estate attorney to explore these and other possible solutions.

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Sacramento Landlord Sued: Lease Goes Up In Smoke

Continue reading "Commercial Delinquencies on the Rise in Sacramento" »

Fresno LLC Should Take Immediate Steps To Remove Managing Member

October 9, 2011,

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Q: LLC mananging manager is using the rental income for legal issues unrelated to the LLC he/she is managing. Besides breach: of fiduciary duties to the members, is this also considered comingling funds? Thank you in advance for your consideration.
Asked about 1 hour ago in Contracts

A: Commingling of funds occurs when the managing member mixes the business funds with his/her own personal funds. I understood you to say that the managing member is using business funds to pay for his personal legal fees. I assume this to mean that the managing member is writing checks or taking cash straight from the business to the pay his/her legal fees without depositing the business funds into his/her personal account first. If this is the case, the managing member is misappropriating the business funds. Personal use of the LLC's funds could lead to an interpretation by a court or an administrative body that the LLC is merely an alter-ego of the individual members; thus, stripping all the protections afforded to the members by forming an LLC. Since you (and I presume any other members) are aware of the managing members actions, the members should take immediate action to protect the individual members and preserve the LLC. Steps should be taken immediately to remove the managing member from his/her position. The Operating Agreement should detail the steps necessary to change management of the LLC. I would need more information to provide a detailed response about the members rights against the managing member. But, it sounds as if a civil suit for fraud, misappropriation, self dealing and breach of fiduciary duties is a very viable option. The managing member may also have committed the crime of embezzlement.

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California Judgment Creditors Consider Bank Levies and Assignment Orders to Collect Their Judgments

October 9, 2011,

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Q: I have 3 judgements valued at a total of 7K against an experienced BK Attorney. He has 3 personal BK filings in CA in the last 20 years. Will a collection company levying against his operating account get me paid? He has no RE property so see no advantage to Abstract. One attorney suggested a claim against his future client fees. Thank you,
Asked about 2 hours ago in Debt Collection

A: I assume from your post that the BK attorney is a sole proprietor and that your judgment is against him personally. Then, yes, you can levy on his general business account. First, you will need to know the name of his bank branch. When levying on bank accounts, timing is everything. Whether you get paid in full will depend on the amount of money in his account at the time the levy is served on the bank. If the account has insufficient funds to cover your full judgment and costs of collection, you will still have to try another levy or some other collection method to collect the remainder of your judgment and incurred costs. Most people immediately close bank accounts after a levy so that the creditor doesn't get a second chance to take any more money. That leaves you looking searching for his new bank account. Since the debtor is a business owner, I also recommend filing a Notice of Judgment Lien with the Secretary of State to perfect your judgment lien on his personal/business property. The cost of filing a Notice of Judgment Lien is around $20. If he owns business property worth collecting against (valuable copiers, computer equipment, office furniture, etc.), you can take steps to have the property seized and sold to satisfy your judgment. Another option is to obtain an assignment order to collect against his future fees. But, assignment orders are generally directed towards the person paying the fees. The Order tells the person paying the fees to pay you instead. You would have no way of really knowing you is about to pay him fees. An Assignment Order can also direct the debtor to pay you his incoming fees; but, if he ignores the Order (which could be likely), you will still be chasing him for payment. You may also want to consider a Debtor's Exam coupled with a Turnover Order which will require the Debtor to appear and answer questions under oath about all of his assets and, then, Turn Over to you all money on his person, in his bank accounts, etc. Is your debtor married? Does the spouse work? Was the debt incurred while the debtor was married? If so, you could garnish the spouse's wages to satisfy your judgment. There are many different strategies for collecting judgments. Each strategy will have its own pros and cons depending on each particular situation. I would need more information about your judgment debtor to offer more concrete advice.

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Sacramento Commercial Landlords Leasing to MMEs Face Losing Their Property To Civil Forfeiture

October 8, 2011,

Last month, I discussed the risks to a commercial landlord leasing to medical marijuana enterprises ("MME") when the tenant's business operations violate local ordinances. This post discusses the commercial landlord's greater risk of losing ownership of their commercial property. This week, the federal prosecutors in California announced that they will begin targeting commercial landlords leasing to MMEs by filing "civil forfeiture lawsuits against properties involved in drug trafficking activity." Their goal is to force real property owners to ensure that their property is not used to promote illegal activities.

Under Civil Forfeiture laws, any real property from which illegal drugs are sold can be seized and taken by the government. In a civil forfeiture action, the property owner is not accused of any crime. Interestingly, it is the property that is sued. The Federal Government files suit against the property and names the property owner as a third party claimant. The Federal Government need merely establish probable cause that the property was used for an illegal purpose. The burden is on the property owner to prove by a "preponderance of the evidence" that the property was not used for illegal purposes or that the illegal use was made without the property owner's "knowledge, consent, or willful blindness." The commercial landlord will spend large sums of money in attorneys' fees in an attempt to keep its property. But, in the end, the commercial landlord will more than likely lose if its tenant was, in fact, selling marijuana from the premises.

Commercial property owners leasing space to tenants operating a MME should take all steps to minimize their risk. The Federal Government stated that it will be sending out warning letters to property owners and lien holders. Commercial landlords are advised to heed these warnings and take steps to remove the offending tenants from their property. The landlord should immediately serve the tenant with a Notice to Perform (i.e. stop the illegal activity) or quit the leased premises. If the tenant fails to stop the illegal activity, the landlord should follow through with an unlawful detainer to remove the tenant from the premises.

Emerging Sacramento Business Weighs Risks When Selecting a Fictitious Business Name

October 8, 2011,

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Q: Can I include the name of any city or state in my business name or DBA?: I am planning to start my professional training business (sole proprietorship, but might file for LLC in future). Can I name my business as "California School/Collge of...xxxx or Sacramento center for XXXX....? I understand it will be subject to availability of the name, but I want to make sure that as a 'sole proprietorship', there are no hidden 'legal issues' in using the city/state name? We will have disclaimer on the website that we are NOT a city/state affiliated business. Any guidelines will be appreciated.


A: Yes, you can more than likely use the name of the City or State in the name of your business. City/State names are not given trademark protection so they are not protected from private use. However, if the name you select is substantially similar to that of an existing established company in the same industry, you could have a problem. The existing company could sue you, claiming that your use of a substantially similar name to theirs causes injury to their business reputation, dilutes the the distinctive quality of their business, and/or is unfairly confusing to the general public. To avoid this possibility, you should search the Fictitious Business Name database for Sacramento County (and other surrounding Counties), as well as, do a business name search with the California Secretary of State.

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As Green Buildings Grow in Sacramento, Sacramento Landlords Should Revise Commercial Leases to Allocate Costs

September 22, 2011,

The City of Sacramento was selected to receive an infusion of money from PACE Commercial Consortium to retrofit commercial buildings to green energy. Next week, the City of Sacramento will consider a contract giving the green light to the City's participation in the PACE program.

solar panels.jpgUnder the PACE program, commercial property owners are loaned the money to complete upgrades recommended after an energy audit performed by Lockheed Martin. The loans are backed by long-term bonds that are sold to institutions like public pension funds. The loan payments will be paid over the course of 20 years and are attached to the building's property taxes. The property owners will be reimbursed for the difference between the monetary savings due to the upgrades and the the payments on the loan.

As more and more buildings turn to green energy, landlords will need to revamp their lease agreements to deal with the allocation of costs. For instance, the cost to improve or build a green building is substantially higher than conventional building costs; while operating costs will be lower in green buildings. Landlords should determine how these costs and savings will be allocated. While a gross lease, which allows the landlord to offset capital expenditures for green building improvements by capturing the savings of the operating cost savings, may be preferable; a modified gross lease may best suit both landlords and tenants. In using a modified gross lease, the base rent will include base operating costs and will pass through any annual increase of the base operating costs. Landlords should also consider who benefits from tax credits from carbon off-sets,

Sacramento Landlord Sued: Lease Goes Up In Smoke

September 15, 2011,

Since the passage of Proposition 215, medical marijuana dispensaries are popping up all over Sacramento County. Throughout Sacramento County, businesses operating medical marijuana dispensaries are leasing commercial premises. These businesses are not licensed to dispense medical marijuana and are leasing space in areas not zoned for such dispensaries. What is a landlord to do when it receives a Notice of Violation from the County that one of its tenants is illegally operating a medical marijuana dispensary on its property? That is exactly the situation faced by a local commercial landlord who is being sued by the County of Sacramento and is facing a judgment for the sum of the County's attorney's fees and costs of the litigation. FiftySeven Madison, LLC is being sued by the County of Sacramento for nuisance and various code violations. The County is seeking to collect monetary damages and attorneys' fees and costs incurred by the County. FiftySeven Madison, LLC is also a party to an administrative action and could be assessed substantial fines and penalties.

Up In Smoke.jpgReceiving such a Notice of Violation puts a landlord in a precarious situation. There are no great options when a landlord faces exposure to a lawsuit, with the attendant costs to defend versus the expenditure of valuable monetary resources to give notice of breach of the lease to the tenant and risk a loss of rental income. Either way, the landlord's rental income from this tenant will go up in smoke.

Under current law, the tenant operating a medical marijuana dispensary in Sacramento County will be shut down. Typically, the tenant vacates the leased premises and re-opens under another name in another location. Since the vacating tenant is usually an under-capitalized business entity, the landlord will more than likely never collect the rent owed under the lease. Of course, if the lease was guaranteed by a person with assets, the landlord may be able to file a lawsuit and ultimately collect the sums owed under the lease. But, the landlord will still have a vacancy to fill and will have to expend resources on the hope of collection in the future.

Landlords are wise to minimize their risk in these situations. Whenever a landlord receives a Notice of Violation from the City or County about one its tenants, or it has knowledge that a tenant is conducting illegal activities on its property, the landlord should immediately serve the tenant with a Notice to Perform (i.e. stop the illegal activity) or quit the leased premises. If the tenant fails to stop the illegal activity, the landlord should follow through with an unlawful detainer to remove the tenant from the premises.

Data Breaches Now Require Expanded Notification to California Consumers

September 1, 2011,

Thumbnail image for computer data.jpgOn August 31, 2011, Govern Jerry Brown strengthened California's Computerized Data Security Breach laws by signing into law Senate Bill 24 (Simitian). SB 24 was enacted in response to recent data revealing that over 500 million sensitive records have been breached since 2005 and that individuals receiving notice of the breach do not understand the consequences of these security breaches. SB 24 sets forth detailed steps for notification and lists the exact information that must be provided to California residents affected by the security breach.

SB 24 applies to any person or entity conducting business in California that owns or licenses computerized data that includes personal information. If any personal information was, or is reasonably believed to be, taken by unauthorized means, California residents must be immediately advised of the security breach with a detailed notice. The new law also requires that the California Attorney General be notified of any security breach that affects more than 500 residents.

The notice to California residents must "be written in plain language" and contain, at least, the following information:

• The date of the notice and the name and contact information of the person or business whose computerized data was breached.
• A list of the types of personal information that was breached.
• To the extent known, the actual or estimated date or date range of the breach.
• A general description of the breach incident.
• If the breach exposed a Social Security number, driver's license number, or California identification card number, the toll-free telephone numbers and addresses of the major credit reporting agencies.

Although not required, a noticing person or business may include information about what the person or business has done to protect individuals whose information has been breached and advice on steps that the person whose information has been breached may take to protect himself or herself.

Substitute notice can be used in limited circumstances. Substitute notice can only be used if the cost to provide the required notice exceeds "two hundred fifty thousand dollars ($250,000), or that the affected class of subject persons to be notified exceeds 500,000, or the person or business does not have sufficient contact information." Substitute notice must be sent via e-mail, posted in a conspicuous place on the website, and by provided the Office of Privacy Protection.

Entities covered by HIPAA are excluded from the requirements of the new law so long as the entities have complied with the breach notification provisions of the federal HITECH Act.

SB 24 will become effective January 1, 2012. Individuals and business subject to the new law are advised to review their current notice letter and make revisions necessary to ensure that the information provided in their notice letters complies with the new law.