Articles Posted in Commercial Law

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California is falling into line with Congress’ attempt to put an end to the gag clause associated with a number of consumer contracts. Whether you are a consumer or a producer, you know the importance of reviews. Many people turn to quality review sites to better understand what they should expect for certain products or services. As a result, many businesses are including gag clauses in their consumer contracts to avoid potentially negative reviews. In September, California became the first state to outlaw such clauses. The reasoning was that this type of approach is unfair and keeps consumers unaware of the true quality of certain products.

A Need for Change

The reality is that many companies will do whatever it takes to avoid negative reviews about them. In their consumer contract they have been able to include language that not only forbids consumers from speaking out negatively, but also fines them for doing so. This creates a kind of hostage situation where the company controls the situation and will revoke the fine if the individual removes the negative comment. Creating an atmosphere where consumers cannot be truthful about their experience hinders the ability for the marketplace to adequately serve everybody involved. Likewise, the marketplace can no longer operate at a truly competitive rate if nobody is truthful about their experience. Essentially, consumers will hear only good news and all companies are considered to be on the same plane.

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The recent court case of Scafidi v. Hille No. 2014-CA-01261-SCT offers countless reminders for small business owners both experienced and novice about the importance of planning and documenting no matter what the relationship is between the parties involved. While there may be certain factors that may make it seem unnecessary to plan or develop managerial and operational strategies, this case highlights just how messy things can become no matter what the relationship is between the individuals. The overall message is to always plan ahead, document finances and other important information, and remember that when it comes to business, relationships should be set aside.

A Breakdown of the Case

Scafidi v. Hille centers on issues between a brother and sister who inherited a total of three family businesses. Due to the lack of proper planning, the funds were comingled, at one point one or both individuals were kept out of big decision-making processes, funds were not split properly and in the end this led to a huge upset between siblings and a lengthy court battle. The lack of formality in the operation of the business made the case complex and a battle that could have been completely avoided. In the end, each party was awarded a single business each and the third business was sold and funds were split. However, with some planning, not only could they both have been spared legal expenses and the stress associated with such a process, but they could have had three thriving businesses that each one could have benefited from. This case highlights the exact reasons why any business should hire a knowledgeable business attorney to assist with the process.

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New and established businesses are becoming more and more energy conscious as they create business plans and make decisions for the future. However, the costs associated with transforming a building into an energy-efficient hub can be great. With businesses trying to protect their bottom line, how can anyone expect them to be able to fully invest in costly energy-efficient building materials and improvements? Luckily, there are tax incentives to help ease the transition.

Recently, the president signed an extender bill called Protecting Americans from Tax Hikes Act of 2015. The bill itself is in response to some incentives and tax breaks associated with a pre-existing bill that expired at the end of 2014. The new extension creates some permanent incentives while extending other incentives through this year.

Energy-Related Tax Credits

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Being a brand new startup is exciting, but is not exempt from challenges. One of the very first things you have to decide right away is what type of business you will be. This decision alone will greatly impact any other business decision you make. It is absolutely critical that you work with a seasoned business attorney to help you navigate the complicated process of being a brand new business. The three key areas that California businesses should consider are: partnerships, corporations, and limited liability companies (LLCs). The following offers a brief explanation of each entity.

Partnership

A partnership business is exactly what it sounds like. It is a business where there are at least two owners. Each owner has equal decision-making power and is involved in all aspects of the business functions. It is absolutely critical to discussion various aspects of the business including:

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Effective January 2016, California lenders will be able to work more easily with limited liability companies (LLCs). These new changes, referred to as Assembly Bill 506, come in response to the existing Revised Uniform Limited Partnership Act. The amendments simplify the lending process as well as the specifics of mergers in order to make each step run much more smoothly while simultaneously protecting the lenders.

While the amendments appear to greatly benefit lenders, likewise LLCs will benefit as well. For brand new businesses, this could certainly change the game for loan approval and for existing businesses it can impact how certain business is conducted. It is important that new and veteran LLCs alike take a look at the new amendments in order to better understand how certain aspects of their business will be influenced.

What are the Changes?

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Ever since the Consumer Financial Protection Bureau (CFPB) took over the Department of Housing and Urban Development (HUD) in 2011, the CFPB has turned out to be progressively dynamic in bringing implementation activities claiming infringement of section 8 of the Real Estate Settlement Procedures Act (RESPA). The highlight of today’s article is two such enforcement actions, which also exhibit a troubling diversion from the earlier HUD precedents in this field.

According to Section 8(a) of the RESPA, it is forbidden to give or accept “any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” At the same time, Section 8(c)(2) provides “[n]othing in this section [8] shall be construed as prohibiting the payment of bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.”

Until recently, because of past HUD actions, the settlement administrations industry by and large comprehended Section 8(c)(2) as giving an exemption from liability under Section 8(a). The following two cases in question challenge this.

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In today’s world the title “Chairman of the Board” is rather outdated. Thousands of companies are started or managed by women, men, and transgender individuals. Such outdated titles are addressed in a new law (i.e. SB 351) introduced by the Committee on Banking and Financial Institutions (Senators Block (Chair), Galgiani, Hall, Hueso, Lara, Morrell, and Vidak) and co-sponsored by the Nonprofit Organizations Committee and the Corporations Committee.

The new law amends various portions of the Corporations Code and aims to provide authorization to act during emergencies for consumer cooperative corporations and to broaden the range of titles for both for-profit and not-for-profit corporate officers.

This new law was signed by Governor Brown on July 15, 2015 and will go into effect on January 1, 2016.

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The Consumer Financial Protection Bureau (CFPB) issued its first appellate decision. Because the CFPB supervises banks, credit unions, and financial companies its operations can have an impact on both the corporate and the real estate worlds. This case in particular has broad implications for those affected by the Real Estate Settlement Procedures Act (RESPA).

What is RESPA?

RESPA is a law designed to make sure consumers are provided with certain information about the cost of mortgage settlement and that they are protected from overly high settlement charges that can in some circumstances be considered the result of abusive practices. The law was created because decades ago companies involved with the buying and selling of real estate were engaging in undisclosed kickbacks to one another. This increased the costs of real estate transactions and negatively impacted competition. The law used to be enforced by the Department of Housing and Urban Development, but a few years ago the government transferred the enforcement authority to the CFPB.

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If you are considering leasing space for your business or you are a property owner considering renting out your space, you need to carefully consider the terms of the lease you will be signing. One provision that is important but that often gets overlooked in the negotiations process is the assignment clause. There are some important things you should consider before agreeing to the assignment clause in any commercial lease. Keeping these important issues in mind can save you from a world of headaches in the future.

What is a Lease Assignment and How is it Governed?

Lease assignments are governed by California statute and the actual language of the lease. A lease assignment is a transfer of a lease by the lessee (the renter) to a third party. Because the third party that a lessee may wish to assign the lease to may not be a tenant the landlord would want to enter a rental agreement with, leases often contain limitations on assignment rights.

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An important part of business and commercial law is drafting security agreements and UCC filings. These sorts of documents require a certain degree of specificity to be valid. However, just as with anything, too much specificity can be too much of a good thing. Being too specific in these documents can lead to ambiguities that can lead to protracted litigation.

Court Discusses Whether UCC Financing Statements Adequately Perfected a Security Interest

A federal court in New York recently addressed the issue of specificity in Ring v. First Niagra Bank, N.A. It all started because of a Chapter 7 bankruptcy filing. The trustee started an adversary proceeding alleging avoidable preferential transfers to First Niagra. The issue before the Court was whether what it termed a “needlessly convoluted description of collateral” in a succession of U.C.C. Financing statements caused a claim of security to fail as “seriously misleading” under the U.C.C. as adopted by New York.