California Business Lawyer Blog

Since a sole proprietorship is not a separate legal entity from its owner, the owner is on-the-hook for any liability attached to the business. So if someone wins a lawsuit against your sole proprietorship (such as in a claim for negligence, or default on a contract), you will be legally obligated to cover that judgment. This is one of the greatest risks in starting a sole proprietorship (because several other business forms offer their owners limited liability), particularly where there is any potential danger connected to your business, its operation and/or its products.

Continue reading "What Happens If A Sole Proprietorship Is Sued?" »

Most business litigation attorneys will tell you that breach of contract lawsuits are the most common business litigation cause of action in California. Breach of contract encompasses a variety of different scenarios: partnership disputes, breach of lease and other real estate litigation, sales transactions, promissory notes and collections, and any situation where two or more parties have reached an agreement, either orally or in writing says California Business Lawyer Steven C. Peck.

Every breach of contract lawsuit has to establish the following elements: (1) a contract, (2) plaintiff's performance of his or her obligations under the contract or an excuse as to why plaintiff did not perform, (3) defendant's breach of the contract, (4) plaintiff's damage arising from the breach of contract.

A contract can come in different forms. Oftentimes businesses carry on their transactions with written contracts. However, parties may enter into oral contracts. The law can also imply a contract. This is usually the case when there is no express writing but the parties are engaging in a pattern of conduct which evidence an agreement. For example, where one party performs work and the other party begins paying for that work, a court may imply a contractual relationship between the parties even though there is no express written or oral contract.

The second element of a breach of contract lawsuit is that the plaintiff performed her or her obligations under the contract or has an excuse as to why he or she did not. The idea behind this requirement is that you cannot sue another for breach of contract if you did not perform your obligations under the contract.

In California the third element of a breach of contract cause of action is the other party's breach. Breach most often includes a failure to pay monies owed, but can take other forms as well. In real estate litigation a tenant may breach a lease, for example, by failing to maintain property insurance, by failing to maintain the property as required by the lease, or failing to follow the rules and regulations. A landlord, on the other hand, can breach a lease by failing to provide the promised amenities.

In other business litigation contexts, breaches of contract can be almost anything agreed to by the parties that one party has failed to perform. Manufactured goods that are defective or late, a partner that fails to perform his obligations to the other partners, a construction project that is improperly built--all of these can be breaches of the agreement between two or more parties.

Lastly, a breach of contract does not create a viable legal cause of action unless the other party is somehow damaged by it. Usually the breach causes damage, such as an invoice that is unpaid, a rented space that is unusable or even profits that are lost due to some act. Depending on the circumstances, a breach of contract action can lead to an award of damages, an injunction (to prevent an ongoing wrong) and even specific performance. Specific performance is often used in real estate litigation since California finds that real property is unique. Therefore a breach of contract to purchase real property can be specifically performed, meaning the court will order the sale or the purchase of the property rather than just awarding monetary damages.

Continue reading "Breach of Contract Lawsuits Are The Most Common Type of Business Litigation" »

The equitable doctrine of judicial estoppel can be invoked to prevent a party from taking a position contrary to one the party advanced in prior litigation says California Business Lawyer Steven C. Peck.

The purpose of the doctrine has been stated in multiple, but substantially similar, forms: to "protect the integrity of the judicial process," Jackson v. County of Los Angeles; to "protect against a litigant playing fast and loose with the courts"; and to implement "general considerations of the orderly administration of justice and regard for the dignity of judicial proceedings," Prilliman v. United Air Lines, Inc.

While the doctrine of judicial estoppel has long been recognized in California, as of 1998 the California courts had not established a clear set of principles for applying it (i.e., a standard with well-defined elements). Instead, the courts had merely recited certain observations about the doctrine, such as that "one to whom two inconsistent courses of action are open and who elects to pursue one of them is afterward precluded from pursuing the other," that the "seemingly conflicting positions must be clearly inconsistent so that the one necessarily excludes the other," and that the doctrine "cannot be invoked where the position first assumed was taken as a result of ignorance or mistake."indicates California Business Attorney Steven C. Peck.

The uncertainty disappeared in 1998 with the publication of Jackson v. County of Los Angeles by the Second District Court of Appeal, which held that the doctrine of judicial estoppel "should apply" whenever:
(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.

Continue reading "The Equitable Doctrine of Judicial Estoppel" »

A standard form contract (sometimes referred to as an adhesion contract or boilerplate contract) is a contract between two parties that does not allow for negotiation, i.e. take it or leave it. It is often a contract that is entered into between unequal bargaining partners, such as when an individual customer is given a contract by the salesperson of a multinational corporation. The customer is in no position to renegotiate the standard terms of the contract and the company's representative usually does not have the authorization to do so. While adhesion contracts, in and of themselves, are not illegal per se, there exists a very real possibility for unconscionability.

Theoretical issues
There is some debate on a theoretical level whether, and to what extent, courts should enforce standard form contracts. On one hand, they undeniably fulfill an important role of promoting economic efficiency. Standard form contracting reduces transaction costs substantially by precluding the need for buyers and sellers of goods and services to negotiate the many details of a sale contract each time the product is sold. On the other hand, there is the potential for inefficient, and even unjust, terms to be accepted by signatories to these contracts. Such terms might be seen as unjust if they allow the seller to avoid all liability or unilaterally modify terms or terminate the contract.These terms often come in the form of, but are not limited to, forum selection clauses and mandatory arbitration clauses, which can limit or foreclose a party's access to the courts; and also liquidated damages clauses, which set a limit to the amount that can be recovered or require a party to pay a specific amount. They might be inefficient if they place the risk of a negative outcome, such as defective manufacturing, on the buyer who is not in the best position to take precautions. There are a number of reasons why such terms might be accepted:

Standard form contracts are rarely read
Lengthy boilerplate terms are often in fine print and written in complicated legal language which often seems irrelevant. The prospect of a buyer finding any useful information from reading such terms is correspondingly low. Even if such information is discovered, the consumer is in no position to bargain as the contract is presented on a "take it or leave it" basis. Coupled with the often large amount of time needed to read the terms, the expected payoff from reading the contract is low and few people would be expected to read it. Sometimes a standard form contract may literally be dispensed from a vending machine to drivers sitting in line to enter a parking garage, which means that stopping to read the contract risks provoking road rage staqtes California Business Law Attorney Steven C. Peck.

Access to the full terms may be difficult or impossible before acceptance
Often the document being signed is not the full contract; the purchaser is told that the rest of the terms are in another location. This reduces the likelihood of the terms being read and in some situations, such as software license agreements, can only be read after they have been notionally accepted by purchasing the good and opening the box. These contracts are typically not enforced, since common law dictates that all terms of a contract must be disclosed before the contract is executed.

Boilerplate terms are not salient
The most important terms to purchasers of a good are generally the price and the quality, which are generally understood before the contract of adhesion is signed. Terms relating to events which have very small probabilities of occurring or which refer to particular statutes or legal rules do not seem important to the purchaser. This further lowers the chance of such terms being read and also means they are likely to be ignored even if they are read.

There May Be Social Pressure To Sign
Standard form contracts are signed at a point when the main details of the transaction have either been negotiated or explained. Social pressure to conclude the bargain at that point may come from a number of sources. The salesperson may imply that the purchaser is being unreasonable if they read or question the terms, saying that they are "just something the lawyers want us to do" or that they are wasting their time reading them. If the purchaser is at the front of a queue (for example at an airport car rental desk) there is additional pressure to sign quickly. Finally, if there has been negotiation over price or particular details, then concessions given by the salesperson may be seen as a gift which socially obliges the purchaser to respond by being co-operative and concluding the transaction.

Standard form contracts may exploit unequal power relations
If the good which is being sold using a contract of adhesion is one which is essential or very important for the purchaser to buy (such as a rental property or a needed medical item) then the purchaser might feel they have no choice but to accept the terms. This problem may be mitigated if there are many suppliers of the good who can potentially offer different terms indicates Los Angeles Business Attorney Steven C. Peck.

Some contend that in a competitive market, consumers have the ability to shop around for the supplier who offers them the most favorable terms and are consequently able to avoid injustice. However, in the case of credit cards (and other oligopolies), for example, the consumer while having the ability to shop around may still have access to only form contracts with like terms and no opportunity for negotiation. Also, as noted, many people do not read or understand the terms so there might be very little incentive for a firm to offer favorable conditions as they would gain only a small amount of business from doing so. Even if this is the case, it is argued by some that only a small percentage of buyers need to actively read standard form contracts for it to be worthwhile for firms to offer better terms if that group is able to influence a larger number of people by affecting the firm's reputation.

Another factor which might mitigate the effects of competition on the content of contracts of adhesion is that, in practice, standard form contracts are usually drafted by lawyers instructed to construct them so as to minimize the firm's liability, not necessarily to implement managers' competitive decisions. Sometimes the contracts are written by an industry body and distributed to firms in that industry, increasing homogeneity of the contracts and reducing consumer's ability to shop around.

Common Law Status
As a general rule, the common law treats standard form contracts as any other contract. Signature or some other objective manifestation of intent to be legally bound will bind the signor to the contract whether or not they read or understood the terms. The reality of standard form contracting, however, means that many common law jurisdictions have developed special rules with respect to them. In general, courts will interpret standard form contracts contra proferentem (literally 'against the proffering person') but specific treatment varies between jurisdiction says California Business Attorney Steven C. Peck.

Standard form contracts are generally enforceable in the United States. The Uniform Commercial Code which is followed in most American states has specific provisions relating to standard form contracts for the sale or lease of goods. Furthermore, standard form contracts will be subject to special scrutiny if they are found to be contracts of adhesion.

Litigation is not only a nuisance for a business; it can also lead to a business's demise. The uncertainty of pending litigation can make existing and potential investors nervous and unwilling to provide the resources necessary for the business to succeed. The damage may be done even if the business is ultimately cleared of any wrongdoing. Of course, if the business is found liable for wrongdoing during litigation then the outcome can be even worse. In addition to losing investor confidence, and possibly good will from customers, the business may be required to pay damages that significantly harm its bottom line. Therefore, it is important for businesses to take precautions to prevent litigation whenever possible says California Business Attorney Steven C. Peck.

It is possible to prevent many types of potential litigation simply by implementing good business practices. There are many different types of litigation that can face a company but if the following policies and records are in good order than many cases can be averted. For example:

· Good Financial Record Keeping: this is essential to any business. You need to have complete financial records that are properly updated and maintained, and that reflect all of your profits, expenses, and other financial transactions. These records can help you avoid litigation on tax issues, investor issues and other important matters.
· Written Policies and Procedures: businesses should have written employment policies and procedures that ensure that similarly situated employees are treated fairly in order to prevent employment related litigation.
Personnel Files: records of employee reviews and employee discipline should be maintained so that any allegation of discriminatory dismissals or other improper employment allegations can be properly defended.
It is important to consult appropriate experts before developing and when implementing business record keeping policies and procedures. For example, an accountant or tax professional can help you set up your financial record keeping system and periodically review it to make sure that it is being implemented correctly. Similarly, an employment lawyer can help you develop nondiscriminatory employment procedures and make sure that any adverse employment actions that you take are done in accordance with established policy and properly documented in personnel files.
Business recording keeping policies and procedures will not provide complete immunity to litigation for businesses but they can greatly reduce a business's likelihood of being sued. They can also be helpful if a business is sued and may provide for a quick dismissal or settlement since it is easy to obtain and interpret the information regarding wrongdoing.
While the best time to start keeping and implementing good records, policies and procedures is when you start your business, it is never too late to implement good practices. You can protect yourself against the threat of future litigation by implementing good financial record keeping systems, establishing employment policies and procedures, and maintaining complete personnel files at any time. Although these steps will significantly reduce, not eliminate, the threat of litigation, you can sleep well at night knowing that if you are sued that you have the necessary documentation to properly defend your business.

Continue reading "Good Business Practices May Help Stave Off Potential Litigation" »

Civil procedure students everywhere may be able to thank the U.S. Supreme Court if it rules as expected and holds that, for purposes of diversity jurisdiction, a corporation's home place of business is in the state where its headquarters is located.

The headquarters test is simpler than the rule established by the San Francisco-based 9th U.S. Circuit Court of Appeals that looks to the state where a company's people and property are located. In oral arguments yesterday, Justice Anthony M. Kennedy worried that the 9th Circuit rule could stump some lawyers, the National Law Journal reports.

"Not all diversity suits have major law firms in them" that could handle the calculations to determine a company's citizenship under the "complex tests" of the 9th and other circuits, he said.

The National Law Journal and Dow Jones newswires both reported that the justices appeared likely to reject the 9th Circuit test. The National Law Journal put it this way: "For a corporation, the U.S. Supreme Court's axiom may soon be: Home is where the headquarters is."

Corporate lawyers are also likely to like such a decision, since it would allow more lawsuits to be tried in federal court based on diversity jurisdiction, rather than more plaintiff-friendly state courts, according to the NLJ.

In the case before the Supreme Court, lawyers representing Hertz employees in a wage-and-hour suit are arguing that the company's principal place of business is in California, where more of its business activities take place, even though its headquarters is in New Jersey.

Chief Justice John G. Roberts Jr. asked where Starbucks' principal place of business would be located under the 9th Circuit test. The coffee company was founded in Seattle, but the lawyer for the Hertz plaintiffs said the answer was California, since it has so many employees there.

Continue reading "Diversity Jurisdiction: Look to the Company's Headquarters State" »