How Secure is the “Lock” on Your Business Web Site Door?

California Legislature Amends Data Breach Notification Rules

With all the attention given to state and national political contests and to state-specific initiatives such as California’s Proposition 64, which paves the way for recreational marijuana use within the state, some other important amendments to state law have received less emphasis than perhaps they deserve. One recent change that many California businesses (and some agencies) can ignore only to their detriment relates to Assembly Bill 2828, which amends California’s breach notification laws. Under the new law, approved by the Governor on September 13, 2016, and which becomes effective January 1, 2017, designated businesses must notify affected account holders and others that a breach has occurred, even if the breach only involves encrypted data. How secure is your web site door?

Existing Breach Notification Rules

Under existing law, notification is required when a California resident’s personal information was, or is reasonably believed to have been, acquired by an unauthorized person, and that personal information was unencrypted. In other words, if such an unauthorized person acquires encrypted personal information, notification is not required.

New Rules

Beginning next year, notification will be required for breaches of encrypted personal information of California residents if:

•  Encrypted personal information was, or is reasonably believed to have been, acquired by an unauthorized person;

•  The encryption key (confidential key or process designed to render the data readable) or security credential was, or is reasonably believed to have been, acquired by an unauthorized person; and

•  There is a reasonable belief that the encryption key or security credential could render that personal information readable or useable.

Encryption generally refers to a process that converts data into a form that makes it “unreadable” by an unauthorized person. The California data breach notification law generally defines “encryption key” as the confidential key or process designed to render the data readable.

Some Out of State Businesses Are Also Affected

The amended law is applicable to all persons and businesses that own or license computerized data and conduct business in California, as well as state agencies that own or license computerized data. It is possible, therefore, for a non-California business that conducts business within the state to come under the law.

California Was First State to Require Notification

California was the first state in the country to require notification of security breaches. The original law became effective in 2003. The law has been amended numerous times. The last such amendment (prior to AB 2828) was in October 2015, when the definition of “encrypted” was modified and the definition of “personal information” was expanded.

Number of Breaches has Grown in Recent Years

According to organizations such as the Information Systems Audit and Control Association (ISACA), breaches have become all too common. In 2015, for example, more than 150 million personal records were exposed across the country. In 2016, there have been more than 800 significant data breaches. Ransomware attacks, where a hacker encrypts data until the victim agrees to pay a ransom to obtain the encryption key, have increased by more than one-third. Recent studies indicate that the cost to companies of dealing with data breaches continues to increase, with estimates of more than $150 per lost or stolen record.

Many Businesses Don’t Know They Are Vulnerable

If your California business electronically maintains personal information about personnel or customers, you may be vulnerable to a data breach. Your current business practices may not conform to California law. Failure to follow the data breach law can have expensive consequences for your business. The law firm of CKB VIENNA LLP provides commercial legal advice and counsel to nearly every type of business, from Fortune 500 corporations to startups and nonprofits. Our attorneys provide specialized legal/business consulting services and offer guidance designed to avoid the consequence and cost of litigation including compliance with laws such as those amended by Assembly Bill 2828. CKB VIENNA LLP has a long history of representing clients in all types of business issues. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

Is Trustee in Deed of Trust Bound by Debt Collector Rules?

In an important decision affecting California loan maintenance and foreclosure practices, the Ninth Circuit Court of Appeals, in Ho v. ReconTrust Co., N.A., 2016 U.S. App. LEXIS 18836 (9th Cir., Oct. 19, 2016), recently held that actions taken to facilitate a non-judicial foreclosure, such as sending the notice of default and notice of sale, are not attempts to collect debt as that term is defined by the Fair Debt Collection Practices Act (FDCPA). Nor is the trustee who sends the borrower such notices a “debt collector” under the FDCPA. The Ninth Circuit’s decision, to which one Judge dissented in part, is not in line with several decisions in other circuits, particularly the Fourth and Sixth.

California Lenders Had Been Monitoring the Case

Lenders in the Golden State had been anxiously awaiting a decision from the Ninth Circuit. In the underlying case, the trustee had initiated a non-judicial foreclosure on the plaintiff’s residence under California law. The only actions taken by the trustee were to record and send the legally required notices to the plaintiff/borrower. The plaintiff filed suit, however, alleging that the notice of default and notice of sale violated the FDCPA by misrepresenting the amount she owed on the mortgage loan. The district court granted the trustee’s motion to dismiss, and the plaintiff appealed.

Trustee’s Action Was Not to Recover Money

The majority of the Ninth Circuit panel found, however, that the trustee’s actions had not been an attempt to recover money, but merely had been initiated to retake and resell the property serving as collateral for the underlying loan. The majority pointed out that in California, a non-judicial foreclosure extinguishes the entire debt and does not allow for recovery of any deficiency. The important point: The trustee could recover only the security interest itself. The trustee had no right to recover any money if the security interest did not otherwise cover the balance of the unpaid loan. The majority acknowledged that a trustee’s foreclosure notice might induce a debtor to pay the debt owed the lender, or at least that portion of the debt in order to bring the debt to current status, but “that doesn’t make the guy with the tow truck a debt collector.”

Ninth Circuit Majority Drew Humorous Analogy

The majority drew a humorous analogy to the vehicle owner with a stack of unpaid parking tickets. The majority allowed that one might reasonably fear that one’s car would be impounded due to the accumulation of unpaid parking fines, but that did not turn the "the guy with the tow truck [into] a debt collector.”

Foreclosure Law Still Fraught With Difficulties

Maneuvering through the veritable ocean of state and federal rules and laws related to non-judicial foreclosures is still a daunting task for both the lender and the trustee. Having an experienced, skilled attorney and litigator at the helm can be a true advantage. The law firm of CKB VIENNA LLP has provided both legal and business consultation to mortgage lenders, trustees, and others in commercial lending for years. We have assisted lenders in managing the risks associated with the FDCPA and other complex financial rules. Our firm is skilled in all forms of litigation. Our attorneys provide preventive training and offer guidance designed to avoid the consequence and cost of litigation. CKB VIENNA has offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

Fixed or Floating: Which Type of Rate is Best for Commercial Real Estate?

When it comes to arranging financing for the acquisition of commercial real estate, many borrowers are immediately struck by how different the process is when compared to residential real estate lending. That difference is due, at least in part, to the fact that commercial real estate loans, unlike the vast majority of residential mortgages, are not ordinarily backed by any government entity, such as Fannie Mae or Freddie Mac.

Commercial real estate rates tend, therefore, to be somewhat higher and many banks and commercial lenders want to scrutinize not only the details of the real estate purchase, but the underlying business itself. One issue that is surely to come up: Fixed or floating rates? Which is best for commercial real estate? As with many situations, the devil is in the details.

Fixed-Rate Commercial Mortgages

Many commercial enterprises are drawn to fixed-rate mortgages because the risk is easier to calculate and the number of variables is somewhat less. The primary advantage to fixed-rate financing, of course, is the lack of volatility. It is easier to budget the cash outflow. Depending upon the situation, the fixed-rate mortgage might even be offered on a non-recourse basis – there is no personal liability involved. Fixed-rate financing has some disadvantages, however, including:

•  Since the lender takes the risk of rising interest rates, and not the borrower, the rate tends to be somewhat higher than in floating-rate situations.

•  Many fixed-rate commercial mortgages have pre-payment penalty clauses; the lender, after all, is looking to lock in a rate of return for a fixed number of years.

•  To counter the pre-payment penalty problem, you may be able to negotiate a “new buyer assumption” provision. Usually, however, the lender will want to approve of any person or firm that purchases the commercial property from you.

Floating-Rate Commercial Mortgages

In years past, floating-rate commercial mortgages were looked down upon. The notion was “why would a borrower take the risk of rising rates?” The truth of the matter is that someone must take that risk, either the lender or the borrower (or sometimes both). If the borrower is willing to assume some, or all, of that risk, the dividend can be some important savings in interest costs, particularly in the first few years of the mortgage. Floating-rate mortgages are particularly attractive for borrowers who do not intend to hold the property for a long period of time. For a sophisticated borrower, particularly one who has a sense of where long-term rates are moving, the floating-rate commercial mortgage can be quite attractive.

The Takeaway

The takeaway here is that floating-rate commercial mortgages are not the “dumb moves” some investors have historically thought and, conversely, fixed-rate mortgages can have disadvantages, depending upon the borrower’s circumstances. Commercial real estate borrowers should make careful assessments of interest rate risk, the stability of the local real estate market, and other factors that are likely to be unique to the borrower’s needs. If a euphemism ever truly fit a lending situation, it does here: When it comes to commercial borrowing related to real estate, one size does not fit everyone.

Commercial Real Estate Lending Calls for Experienced Legal Counsel

The law firm of CKB VENNA has provided both legal and business consultation to commercial mortgage lenders and borrowers for years. We have drafted core loan documentation and have assisted both lenders and borrowers in assessing and managing the risks associated with the commercial real estate. Our firm is also skilled in all forms of litigation. Our attorneys provide preventive training and offer guidance designed to avoid the consequence and cost of litigation. CKB VENNA has offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

Don’t Forget Tax Benefits Related to Qualified Small Business Stock

Many Californians are familiar with the tax-favored treatment allowed under some conditions with regard to the sale of their principal residence. In many cases, married sellers can exclude up to $500,000 of the gain on the sale. But are you familiar with another important tax benefit called the “qualified small business stock” (QSBS) exclusion? If you are involved in a small business, you should be.

IRC § 1202

Internal Revenue Code § 1202 allows the seller of a “qualified small business” to exclude up to 100 percent of the gain attributable to the sale or exchange of qualified small business stock from taxation. In order for the “stock” to qualify for the favored tax treatment, it must have the following characteristics:

•  The stock must have been originally issued by a “qualified small business.” Generally speaking, such a business must be a “C Corporation” that did not have $50 million or more in assets at the time when it was formed.

•  The taxpayer must have acquired the stock at its original issue in exchange for money, property, or as compensation for services provided to the corporation.

•  During the time when the taxpayer owned the stock, at least 80 percent of the corporation’s assets must have been actively used to conduct one or more qualified businesses. Generally, any active trade or business qualifies – except certain excluded businesses such as health, law, and engineering financial businesses including banking, insurance and financing, and certain other businesses (farming, mining, and hotel or restaurant operation).

•  The corporation must be an “eligible corporation” within the meaning of the statute.

•  The corporation must not have redeemed more than a de minimus amount of stock from the taxpayer (as well as certain related parties) during the four-year period beginning two years prior to the issuance of stock to the taxpayer.

Exclusion Percentage Depends on Date When Stock Was Acquired

Those sellers who have held QSBS for more than five years may be eligible to exclude the gain on a sliding scale, depending upon acquisition dates. For example:

•  QSBS acquired after September 27, 2010 is eligible for the 100 percent exclusion

•  QSBS acquired before February 18, 2009 is eligible for a 50 percent exclusion

•  QSBS acquired after February 18, 2009, but before September 27, 2010, is eligible for a 75 percent exclusion

Under any circumstances, however, the excluded gain is limited to the greater of $10 million or ten (10) times the taxpayer’s adjusted basis in the QSBS.

Favorable Tax Treatment Would Have Expired

The favorable tax treatment allowed under § 1202 would have expired this year, but Congress extended it in December 2015 by passage of The Protecting Americans From Tax Hikes Act. Anyone contemplating the sale of an interest in a small business should consult with a business law expert to determine if the transaction can be crafted so as to take advantage of the exclusion.

CKB VIENNA LLP: A Full-Service Consulting and Law Firm

The law firm of CKB VENNA has a long history of representing high-net-worth individuals, substantial closely held and family businesses – many of which qualify for QSBS favorable tax treatment. We help others with all sorts of business and wealth management issues. Our attorneys provide counsel on sales of corporate stock and other appreciated assets. We have designed special client plans to foster estate, gift, and generation-skipping transfer tax planning and sophisticated charitable giving. We have counseled others regarding complex tax controversies. We don’t stamp out cookie-cutter solutions; we first gain a true understanding of the client’s goals, concerns, and unique issues. Then we work with the client to achieve success. CKB VENNA has offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

Does an Employee Commuting via Uber or Lyft Qualify for Tax-Free Treatment?

As many employers recognize, under Internal Revenue Code § 132 and regulations, an employer may provide certain transportation benefits to employees on a tax-free basis, if the transportation expenses are incurred via qualifying commuter highway vehicles, vanpools, transit passes, parking, and bicycles. As ride-sharing services, such as Uber and Lyft, become more and more popular, the issue arises as to whether an Uber or Lyft commute can be provided on the same tax-free basis. As is the case with many legal questions, the answer depends upon the specific circumstances.

Do “Vanpool” Rules Apply to Uber and Lyft?

Of the several qualifying tax-free commuter expenses, only the “vanpool” exemption would appear to apply to Uber and Lyft. Generally speaking, up to $255 per month (for 2016) in vanpool expenses may be excluded from the employee’s income. Somewhat different rules apply, however, depending upon whether the van pool is:

• Employer-operated,

• Employee-operated, or

• “Private or public transit operated”

Employer-Operated or Employee-Operated Vanpools

When it comes to either employer-operated or employee-operated vanpools, the vehicle must seat at least six adults (not counting the driver) and at least 80 percent of the vehicle’s mileage must reasonably be expected to be (1) used to transport employees between their residences and their jobs and (2) used on trips during which the number of employees transported for commuting is at least 50 percent of the vehicle’s adult seating capacity (again, not counting the driver). Neither the employer-operated nor the employee-operated vanpools would appear to work in an Uber/Lyft scenario.

Private or Public Transit Operated Vanpool

Private or public transit operated vanpool vehicles must seat at least six adults (not counting the driver), but it need not meet the “80/50 rule” mentioned above. IRS regulations also require the vanpool to be owned and operated either by public transit authorities or by any person in the business of transporting persons for compensation or hire.

UberPool Service and LyftLine Appear to Qualify, at Least Under Some Circumstances

Uber’s “UberPool” service and Lyft’s “LyftLine” would appear to qualify as private transit operated vanpools, provided that the vehicle had the appropriate number of seats. For example, in some cities, such as Boston, UberPool serves a maximum of four riders. Under that arrangement, it would not appear to qualify for tax-free treatment. In other cities, however, UberPool and Lyft offer six-passenger vehicles. Under that situation, the ride sharing could qualify.

Other Issues

Generally, the IRS requires an employer to provide vouchers, or the functional equivalent, to the employee who then uses the voucher to pay for the ride service. It remains to be seen whether that arrangement can be set up under Uber or Lyft. Employers must also determine the fair reasonable value of each commuter’s ride. Here, some tax experts say the IRS regulations haven’t quite caught up to the ride-sharing model.

Employee Benefit Policies Are Part of an Overall HR System

When considering tax-free commuter plans and any other form of employee benefit, careful attention needs to be given to a host of important details. Failure to follow the Internal Revenue Code and/or the applicable regulations can have tax consequences for both the employer and the employee. Is it time that your business reviewed its employee benefit policies and procedures? CKB VIENNA provides employment/labor counseling and litigation services to nearly every type of business, from Fortune 500 corporations to startups and nonprofits. Our attorneys provide specialized legal/business consulting services and offer guidance designed to avoid the consequence and cost of litigation, including compliance with laws in the areas of hiring, promotion, discipline, termination, compensation, harassment, substance abuse, wage and hour, affirmative action, and independent contractor arrangements. CKB VENNA has a long history of representing clients in all types of business issues. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

Will California Follow Utah in Implementing a White-Collar Crime Registry?

Most of us are familiar with sex offender registry websites. Every state, including California, has one. Some states are beginning to track the whereabouts of other types of offenders. For example, five states, including California, require registration for convictions of arson. In Indiana, a public website allows online visitors to use Google Maps to find the location of homes that have been used as meth labs. Last year, Utah became the first state to implement an online registry for white-collar crime offenders. Anecdotal information indicates that various California legislators are contemplating such a registry for white-collar criminals within the Golden State.

Utah’s Registry Includes Photos and Other Information

The Utah list includes a recent photograph of any criminal convicted of second-degree felonies involving fraud during the last 10 years within the state. While the information is already fully available to the public, supporters of the registry point to the user-friendly aspects of the state database and argue that it can be an important tool in protecting vulnerable citizens against fraud, particularly the type known as “affinity fraud.”

Affinity Fraud: “I’m Just Like You”

Affinity fraud is generally based on the notion that “I’m just like you, so I’m trustworthy.” The perpetrator pretends that he or she has an affinity with a strong group within the states and seeks to leverage that affinity in a fraudulent manner. The most famous affinity fraud case in recent times was that involving Bernie Madoff, who cheated his clients – many of whom were friends or colleagues – out of nearly $50 billion.

In Utah, legislators who supported the registry bill argued that due to its close-knit social and religious ties, the state was particularly vulnerable to the “Madoff-like” type of fraud. In 2014, an insurance agent who belonged to the Mormon Church allegedly cheated some 700 people out of $72 million. At that time, the FBI named Salt Lake City as one of the top five “Ponzi hotspots” in the United States.

California Also Has More than its Share of Ponzi Schemes

The FBI adds that California is another of those fraud “hotspots.” For example, in February 2016, a federal judge sentenced the CEO of a California real estate investment firm to 14 years in prison for running a Ponzi scheme that may have lost as much as $169 million. In June 2016, the U.S. Securities and Exchange Commission charged two California men with operating a Ponzi scheme. The men allegedly specialized in serving middle-class investors and, for a while, provided huge returns by investing in hot "initial public offering (IPO) stocks, such as Uber and Alibaba. According to the SEC, the two never actually invested any money in the IPO stocks, but used money from new investors to provide returns to earlier investors.

California is Getting Serious About White-Collar Crime

California lawmakers are getting serious about white-collar crime and there is always a tendency to cast such a wide net that those who are innocent get caught up in the snare as well. CKB VIENNA offers a full range of advocacy services, including the representation of those charged with white-collar offenses. Legal experts agree that white-collar defense requires not only a thorough knowledge of the California criminal laws, but it requires an understanding of the complex laws and regulations regarding commercial operations. CKB VENNA has a long history of representing clients in all types of business issues and disputes. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

Four Questions To Ask Yourself When Funding Your Startup

You have the perfect business idea. Maybe you’ve designed the best widget ever or you’ve developed a new process that could revolutionize an existing product or service. You’ve received encouragement from friends and colleagues. You’ve carefully crafted a clear and concise business plan, but you’ve determined you may need funding. What do you do?

Issues related to startup funding can be numerous and complex. If only there was a simple, straightforward solution that would let you get on with it. Unfortunately, there really are no true shortcuts. There are a number of initial questions, however, that you should ask yourself. Their answers should get you moving toward the best solution to your funding needs. Here are four that every entrepreneur should address.

How Will I Utilize the Startup Funding?

Most startup experts advise entrepreneurs to make a list of financial needs, the likely amounts needed, and the priority of the need in achieving overall success. Then, working from the bottom of the list, is there anything that you can actually do without? This exercise will give you the best idea of your real needs.

How Soon Will You Be Profitable?

If you project profitability in relatively short order, that may raise the question of whether you need startup funding at all. Understanding the profitability timeframe may at least help you determine the nature of the investment that you should go after. For example, if the profit line is relatively short, a loan may be best, since it won’t dilute your interest in the business.

How Much Control Are You Willing to Give Up?

This is one of the most difficult issues most entrepreneurs face. The more funding you get, the more control you may have to give up. Don’t expect a funding source to share your passion and optimism. They are likely to have that same level of passion about their cash, so expect some candid negotiations in this regard.

Can You “Play in Groups?”

Just as outside funding brings with it a loss of at least some level of control, it also brings the need to work well with others. Can you communicate? Are you stubborn or volatile? Can you take constructive criticism? You may have been the first with the “aha moment,” but funding brings either partners/shareholders or creditors. If you can’t cooperate with others, you may find that your funding issues come at too great a cost.

You May Decide Startup Funding is Appropriate or Perhaps You’ll Resort to Bootstrapping

Armed with the answers to these initial questions and, assuredly, many others, you may have a clear path for your startup funding or you may decide that bootstrapping is the preferred alternative. Either way, you are likely to need the experience and dispassionate counsel that is available through a seasoned group of attorneys.

The law firm of CKB VIENNA LLP provides legal and business consultation to nearly every type of business, from large to small – even startups. We have helped entrepreneurs identify and face funding issues and we have provided broad counsel in other related areas. And while the firm is skilled in all forms of litigation, our attorneys also provide preventive training and offer guidance designed to avoid the consequence and cost of litigation. CKB VIENNA has a long history of representing clients in all types of business matters. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

Recent CashCall “True Lender” Decision Has Broad Implications for Lenders

In a decision that may have far-reaching ramifications for other lenders, a judge in the U.S. District Court for the Central District of California recently held that high interest consumer loans originated by a tribal lending entity formed by the Cheyenne River Sioux Tribe were actually made by California-based, CashCall, Inc., and as such were subject to regulation by the Consumer Financial Protection Bureau (CFPB). Since CashCall – and not the Indian tribe – was the “true lender,” the consumer lending laws of the borrowers’ home states, which prohibited the high-interest loans, applied, indicated the court. As a result, CashCall’s servicing and collection efforts were deemed to have violated the Dodd-Frank Act ban on unfair, deceptive, or abusive acts or practices (see CFPB v. CashCall, Inc., Aug. 31, 2016, Walter, J.).

Totality of the Circumstances Test Used By Court

Judge Walter reached his decision using the so-called “totality of the circumstances” test to determine which party actually had the “predominant economic interest” in the transaction. Legal experts note that other courts have utilized different standards to who is the “true lender.” For example, some courts merely look to what entity is designated as lender in the loan agreement papers. Others have centered their focus on an examination of which party engages in the three non-ministerial acts:

•  The determination to extend credit

•  The extension of credit itself

•  The disbursement of funds resulting from the extension of credit

CashCall Controlled the Entire Lending Scenario

Judge Walter found that it was CashCall and not the Tribe that controlled the entire business process. For example, CashCall “purchased” the loans prior to the first payment due date. It covered most of the Tribe’s operating costs and agreed to indemnify the Tribe against any civil, criminal, or administrative claims. While consumers used the Tribe’s website and telephone number to initiate the loan process, CashCall hosted servers on which the online applications were made. CashCall serviced the loans and, if a loan went into default, the loan was transferred to a CashCall entity for collection purposes.

Decision May Affect Marketplace (Peer to Peer) Lending

The CashCall decision offers at least indirect support for the CFPB’s recent proposal to subject non-bank marketplace lenders to its supervision. While the Dodd-Frank Act directed the CFPB to supervise various categories of lenders (e.g., mortgage lenders and services, private education lenders, and payday lenders), it also allows expansion of CFPB’s supervision in other consumer markets. Reports indicate the Bureau has its sights on marketplace lenders, such as the Lending Club.

There is also some question, in light of Judge Walter’s ruling, about the continuing ability of a community bank to “export” the interest rate of its home state without regard to the varied usury laws of the 50 states.

Lending Practices Continue to Face Scrutiny at State and Federal Levels

Today, lenders face a host of disparate legal and regulatory rules. The legal landscape can appear like a minefield. Maneuvering through that minefield can best be accomplished by retaining experienced, skilled attorneys and litigators. The law firm of CKB VIENNA LLP has provided legal and business consultation to commercial and consumer lenders, mortgage originators, mortgage servicing companies, and other lending entities for years. We have extensive experience with FCRA and Truth in Lending rules. We are conversant in the sort of “techno speak” found in Dodd Frank. Our firm is also skilled in all forms of litigation, should that need arise. CKB VIENNA has offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

Be Careful With 401(k) Rollovers as You Reach Age 70

Salting away funds in a 401(k) plan is not only prudent; it’s psychologically satisfying. But the IRS doesn’t intend for you to keep funding your plan and deferring the taxes forever; there are special rules that mandate that you begin taking required minimum distributions (RMDs) in the year that you reach 70 ½. Calculating the RMDs can lead to hair pulling; you may even need to hire a professional. Bear in mind that as you reach the age of 70, if you intend to rollover your 401(k) into an IRA account, special rules apply and caution is advised. Here are some points you should keep in mind.

First, IRS is Serious About Required Minimum Distributions

Regardless of a taxpayer’s financial need, the IRS generally requires owners of traditional IRAs, 401(k) plans, simplified employee pensions, and other retirement accounts to begin taking RMDs – and paying the resulting tax – by April 1 of the year after they reach age 70 ½. Failure to do so results in a 50 percent excise tax on the RMD amount not distributed.

Second, In the Year You Turn 70 ½, Take Your RMD from 401(k) Before the Rollover

If you still have the 401(k) account on the first day of the year in which IRS rules require you to take a distribution, you must take that distribution from the 401(k) account before you roll the account over to your IRA account. If you rollover and then take a distribution, it won’t count as an RMD and you’ll be penalized. In the years after the rollover, you will only have to make the RMD withdrawal from the IRA.

Third, Multiple Plans Require Aggregation of RMDs

If you are a participant in more than one ERISA qualified plans, your RMD must be determined for each plan separately, and each RMD amount must be distributed from that particular plan. RMD amounts for qualified plans cannot be distributed from an IRA. If you have multiple IRA accounts (or multiple 403(b) accounts), you may aggregate the RMD for all similar plans and then take that amount from one account in each type of plan.

Fourth, Death or Divorce Do Not Affect Current Year’s RMD Calculations

If the taxpayer is married on January 1, he or she is treated as married the entire year for purposes of RMD. Therefore, if you divorce or if your spouse dies later in the year, the RMD must be calculated without regard to the change in marital status.

Takeaway: Be Careful As You Near 70 Years of Age

The points noted above are not an exhaustive listing of all the factors that come into play with RMD calculations, roll-overs, and the like. Your situation may be unique. It’s always good to check with a professional advisor. As they say, “Better safe than sorry.”

Wealth Management and Asset Preservation

The law firm of CKB VIENNA LLP has a long history of representing high-net-worth individuals, substantial closely held and family businesses, and others with all sorts of wealth management issues. Our attorneys provide counsel on estate, gift and generation-skipping transfer tax planning, sophisticated charitable giving, tax controversies, using life insurance as a planning tool, business succession planning, asset protection, charitable organizations and private foundations. We don’t stamp out cookie-cutter solutions; we first gain a true understanding of the client’s goals, concerns, and unique issues. Then we work with the client to achieve success. CKB VIENNA has offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

Is California’s “Ban the Box” Law Effective in Promoting Minority Hiring?

On July 14, 2014, California joined at least a dozen other states in banning most public and private employers from inquiring about a job applicant’s criminal record on the initial job application. While, in most cases, employers are allowed to inquire about convictions later in the hiring process, they are not allowed to treat criminal convictions as an automatic “disqualifier.” The laws became known as “ban the box” [BTB] laws, since many job application forms historically had required the applicant to check off if he or she had any convictions.

Critics Say Lack of Information Leads to “Guessing” on Part of Prospective Employers

The goal of the laws is to improve employment outcomes for those with criminal records, with a secondary goal of reducing racial disparities in employment. Critics of the laws argue that without prior conviction information at their disposal, all too many prospective employers try to “guess” which applicants may have a criminal record, and avoid interviewing them. Some critics contend the result of this “guessing game” is that many young, low-skilled, black, and Hispanic men are systematically excluded from the hiring process.

New Study: Ban the Box May Have Unintended Negative Consequences

A new study published by the National Bureau of Economic Research (NBER), an American private nonprofit research organization, says the critics may be right: BTB legislation may actually be hurting the segment of society that it is designed to help.

In the study, researchers sent some 15,000 fake online job applications to employers in New Jersey and New York City both before and after those jurisdictions enacted their versions of BTB laws. Each employer was sent two applications containing identical qualifications. The only difference: One was from a man whose name is most commonly found within the white community, while the other included a name most often found among blacks. According to the study, prior to the BTB rules, a “white” applicant was 7 percent more likely to receive a callback than a “black” applicant. After passage of the BTB rules, the disparity jumped to 45 percent.

The researchers further found that BTB policies didn’t just reduce callbacks; they decreased the probability of being employed by 3.4 percentage points for young, low-skilled black men, and by 2.3 percentage points for young, low-skilled Hispanic men. The researchers conclude that the findings support the hypothesis that when an applicant’s criminal history is not available, employers statistically discriminate against demographic groups that are likely to have a criminal record.

Human Resource Departments Should Exercise Care in Processing Applications

HR officials should obey not only the letter, but also the spirit of the BTB legislation. Employers that systematically refuse to interview applicants who “appear” likely to be from one demographic or another can lead to severe legal issues and charges of discrimination. Discrimination is a serious matter – one that costs the employer, both financially and in prestige. Prudent employers monitor hiring practices and assure themselves (and others) that discriminatory practices are not being followed.

Many businesses determine that having experienced, outside counsel is a key to best practices in personnel law. For years now, CKB VIENNA LLP has represented all sorts of businesses in employment law matters. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

Will Recent SCOTUS “Spokeo” Decision Help Mortgage Lenders?

On May 16, 2016, in an action originally filed under the Fair Credit Reporting Act (FCRA), the Supreme Court of the United States held that a plaintiff’s injury must be both “concrete and particularized,” casting at least some doubt on whether the flurry of “no injury” class actions filed in recent years against mortgage lenders and others can stand [see Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 194 L. Ed. 2d 635, 2016 U.S. LEXIS 3046, 84 U.S.L.W. 4263 (May 16, 2016)].

While it isn’t totally clear what the Ninth Circuit will do with the case after remand, the majority of the Supreme Court, in its 6-2 decision, appears to have erected important and real hurdles for primary plaintiffs who seek to sue mortgage lenders. Those same barriers may also make it more difficult for plaintiffs to gain class certification.

The Spokeo Case

Spokeo is one of a number of search engines that provide personal information (e.g., age, address, telephone number, marital, and occupational status). Plaintiff Thomas Robins filed suit against Spokeo after he learned his personal information was inaccurate. Spokeo had apparently reported that Robins was in his 50s, employed, married, and affluent. Instead, he is younger, unemployed, unmarried, and of modest means. Spokeo countered that Robins had not been harmed in any way by the error.

Robins alleged nevertheless that the inaccuracies violated the FCRA and that the violations had been “willful,” entitling him – and the other members of a putative class – to statutory damages plus attorney’s fees and costs. The federal district court dismissed his claim, finding that he had not sustained “an injury-in-fact.” The Ninth Circuit reversed and the Supreme Court granted certiorari in order to answer that question for itself.

What Does This Have to Do With Mortgage Lending?

In recent years, numbers of plaintiffs have alleged that their mortgage lender (or its servicing agent) has violated FCRA through erroneous paperwork. Quite often, the alleged violations have amounted only to inconsequential matters, such as incorrect zip codes or transposed characters in a phone number, but plaintiffs have maintained that errors are errors and that they support class actions against the lenders.

Spokeo Decision’s Implications

Spokeo may have a profound effect on how “no injury” class actions are litigated since the decision erects hurdles not only for those who wish to state a claim against a lender, but also for those seeking certification of a class. Justice Alito, speaking for the majority, indicates at one point that styling a case as a class action “adds nothing to the question of standing” [Opinion at n.6].

Attorneys for some mortgage lenders have said that if named plaintiffs must prove that they have experienced concrete and particularized harm in order to state a claim for statutory damages, it should also follow that the plaintiffs must prove that unnamed plaintiffs have been damaged as well in order to obtain certification. This may take the teeth out of some new filings.

Mortgage Lenders Still Face Difficulties

Even after Spokeo, mortgage lenders still face a number of difficulties. In addition to the general market/business issues, there is the maze of governmental rules and regulations that must be successfully maneuvered. Having an experienced, skilled attorney and litigator at the helm can be a true advantage. The law firm of CKB VIENNA has provided both legal and business consultation to mortgage lenders and others in commercial lending for years. We have drafted core loan documentation and have assisted lenders in managing the risks associated with the FCRA and Truth in Lending rules. Our firm is skilled in all forms of litigation. Our attorneys provide preventive training and offer guidance designed to avoid the consequence and cost of litigation. CKB VIENNA LLP has offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

Employee Stock Ownership Plans May Be Effective in Succession Planning

Many business enterprises find succession planning to be a significant challenge. Business owners often confess that it is difficult to concentrate on “what’s next,” when most of one’s time and energy is concentrated on current performance. In closely held businesses, the challenge can be even more daunting.

A common problem grows from the fact that while the current generation of owners has all the passion and interest in the world, that commitment to the business isn’t always shared by the next generation. The owners would like to sell the business to a new group of committed individuals. What can the owners do?

Answer May Be Right Before the Owner’s Eyes

Recognizing that the answer to succession issues might be right before the owners’ eyes, some of the most astute are turning to employee stock ownership plans (commonly called “ESOPs”). A firm’s employees may be the perfect “new owners,” since they know the business and they have a strong vested interest in its long-term success.

ESOPs: What Are They?

An employee benefit plan is a popular, formalized arrangement that allows employees to take an ownership interest in the company. From a management standpoint, an ESOP can be a very useful tool for aligning key employees’ interests with those of the owner. Properly crafted, an ESOP can allow owners to cash out of the business, either gradually or in one fell swoop. One key advantage: By selling the business over time, owners can gradually transition control to a new management group.

Advantages of ESOPs in Succession Planning

Not only do ESOPs help transition management, they can offer other advantages, including the following:

•  ESOPs can permit transfer of control without the need of borrowing significant sums to purchase all of the owners’ shares. ESOP arrangements usually allow the company to maintain its commercial lines of credit.

•  The ESOP may create a means of selling the owners’ interest where no market exists.

•  The firm’s employees can receive an ownership interest in the firm, yet the ESOP benefits are not generally taxed until the employee receives a distribution.

•  The ESOP can be structured so that it can borrow to purchase shares to fund itself.

•  The ESOP can also be so structured that if an employee retires or leaves the company, his or her interest is repurchased at an appropriate valuation. For key employees, this arrangement can be coordinated with life insurance to fund the repurchase.

•  In some situations, the owners can achieve significant tax savings through the use of trusts, including charitable remainder trusts and charitable remainder unitrusts.

ESOPs Aren’t For Every Business

ESOPs are not for everybody. For example, one obvious limitation: They cannot be used if the business structure is that of a partnership. The same is true for most professional corporations. Since an ESOP is generally a qualified plan for purposes of ERISA, the costs of creating and maintaining such a plan must be carefully weighed. Owners should check with legal and financial advisers as to whether the particular ESOP arrangements they contemplate will result in unwise dilution of the owners’ interest. The costs of running the plan and implications of diluting the owner’s share of the company will need to be weighed against the tax and diversification benefits.  

Succession Planning Is Serious Business

There’s an old adage: If, while you’re running, you concentrate too closely on the ground just in front of your feet, you’ll never see the cliff until you run off its edge. The same applies for succession planning. Prudent business owners don’t just concentrate on execution; they plan for tomorrow. Succession planning involves a host of financial and legal issues that must be carefully considered.

The law firm of CKB VIENNA provides legal and business consultation to nearly every type of business, from large to small – even to startups and nonprofits. We have crafted succession plans of all shapes and sizes and stand willing to assist you and your business with virtually any legal need. While the firm is skilled in all forms of litigation, our attorneys provide preventive training and offer guidance designed to avoid the consequence and cost of litigation. CKB VIENNA LLP has a long history of representing clients in all types of business issues and disputes. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

One Year After Fatal Balcony Collapse, California Apartment Owners Assess Liability Issues

Many Californians recall the tragic June 2015 balcony collapse at the Library Garden apartment complex in Berkeley, which took the lives of five Irish students and a California resident, and resulted in severe injuries to others. Following the incident, at least 13 lawsuits were filed against the apartment owners and various other parties involved in the design and construction of the apartments and their balconies.

Dry Rot and Inadequate Materials May Have Played a Role in Collapse

Several lawsuits allege that the suspect balcony was poorly constructed, sustained dry rot, and that various parties knew or should have known about the problems, but failed to take any steps to address the dangers. Some reports also indicate that the suspect apartment balcony may actually have been constructed according to building codes, but that poor workmanship in the waterproofing of the balcony resulted in water damage that caused the balcony to rot and eventually collapse.

Other Apartment Owners Are Assessing Their Own Vulnerability

Prudent apartment owners around the state have begun to review their own construction and maintenance records to determine if they are vulnerable to claims. Some apartment owners (and owners of commercial properties) are also trying to determine if they have potential claims against suppliers and contractors who may have used substandard techniques or materials during the construction process.

Berkeley Apartment Builder May Have Had Earlier Undisclosed Problems

As litigation regarding the Berkeley balcony collapse moved forward, various parties discovered that the firm that constructed the Berkeley apartment complex had faced other claims and, in previous years, had paid out some $26.5 million dollars in construction defect settlements. Legal experts point out that while California law requires architects and engineers to disclose any settlements or judgments related to their professional capacities, there is no such requirement for construction contractors. Currently, therefore, one can be dealing with a contractor whose past practices have been called into question and never know it.

Proposed Law Would Require Disclosure of Settlements

All that may soon change. State senators Jerry Hill and Loni Hancock have introduced SB 465 which, among other things, would require disclosure of settlements and adverse matters by construction contractors. On August 10, 2016, one of the survivors of the balcony collapse testified in front of a California legislative committee regarding the proposed law. According to one report, she tearfully noted that she and her friends had been celebrating her 21st birthday on the day of the tragedy. Now, instead of a day of joy for her, the date now marks the anniversary of the death of her friends.

Real Estate Ownership Requires Ongoing Vigilance

As recently reported, some municipalities now require regular inspection of apartment balconies and other areas on a regular basis. Owners of commercial structures should be concerned as well. All landlords have a responsibility to maintain their rental properties in reasonably safe condition and good repair for their tenants. The time to act is before the next tragedy, not after it.

Construction Defects Often Involve Complex Legal Issues

Any dispute related to construction defects will likely involve one or more complex legal issues. Having experienced, aggressive legal counsel on your side is ordinarily a key to success in any such dispute. For years now, CKB VIENNA LLP has represented landowners, property owners, construction contractors, construction professionals, and others in all sorts of disputes related to California properties. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909.980.1040 or complete our online form.

Businesses Must Exercise Caution When Classifying Workers as Independent Contractors

At the heart of the American economic and legal system is the relative freedom given to parties to contract with each other regarding the purchase and sale of goods and the delivery of services. For example, firms have historically been free to create business models that utilize independent contractors instead of employees – think Uber, Federal Express, delivery services, construction companies and trucking firms. The goal of the business is often to save employment taxes, overtime pay, workers’ compensation insurance premiums, and other employee-related expenses.

California Regulators Say Independent Contractor Designation is Often Unfair to Worker

In recent years, a number of states – particularly California – have determined that in all too many situations, the business firm is taking unfair advantage of the worker. The headlines have been filled with class action lawsuits and regulatory intervention. New laws have been passed. One California law now makes it clear that cheerleaders for professional athletic teams must be classified as employees; they are not independent contractors. Settlements in the millions of dollars have been negotiated with firms such as Uber and FedEx.

Steep Fines and Other Sanctions

All businesses should carefully examine their employment/contracting practices to make certain they are within the law. Violations can be expensive. Under current California law, the misclassification of employees as independent contractors can result in steep fines and other sanctions, including:

•  Stop orders and penalty assessments pursuant to California Labor Code § 3710.1

•  Tort liability for injuries suffered by employees when the business entity has failed to secure workers’ compensation insurance (see Labor Code § 3706)

•  Exposure for unfair business practices

•  Liability for overtime premium, meal period pay, and other remedies available to employees under the Labor Code

•  Liability for additional taxes and penalties

•  In some cases, criminal liability under Labor Code § 3700.5

Factors Generally Considered in Determining the Legal Nature of the Employment Relationship

Business owners should recognize that the issue of employee vs. independent contractor is an extremely fact-driven matter. No two businesses are identical. There is no single factor that governs the situation. Just because you have a contract that designates the workers as an independent contractor, it does not necessarily follow that a court or regulatory body will agree to your characterization. There are a number of issues that should be considered, including the following:

•  Is the work of the so-called contractor integral to the business? If so, the worker is likely an employee and not an independent contractor.

•  Does the worker operate a stand-alone business, with his or her own tax identification number, business bank account, business address, etc.? If so, he or she may be an independent contractor. If not, the situation points to an employee relationship.

•  Is the worker to be paid by the job or the hour? If payment is made on a time basis, that points to an employee relationship.

•  Does the contract work have a fixed beginning and ending date? If not, this tends to point toward an employee relationship.

•  Does the worker require a specialized license? If so, that usually points toward independent contractor status. If not, the worker may be designated as an employee.

•  Is the worker free to work for someone else? If so, that may point to an independent contractor relationship.

•  Does the worker supply his or her own tools of the trade? If so, that points to an independent contractor relationship. If the business leases the tools to the worker, that points instead to an employee relationship.

•  Does the work require skill? If so, that may point to independent contractor status.

•  Is the worker’s job closely supervised? If so, that points to an employment relationship.

Employee Misclassification is Serious

As noted above, the penalties for misclassifying an employee can be serious and expensive. Many businesses determine that they need the counsel provided by an experienced lawyer to maneuver within the maze of employment regulations and laws. For years now, CKB VIENNA LLP has represented all sorts of businesses in employment law matters. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone – 909.980.1040 – or complete our online form.

Four Ways in Which the Recent U of Texas Affirmative Action Case Will Affect Businesses

Attorneys and legal scholars are still sifting through the intricate 4-3 decision reached by the United States Supreme Court earlier this summer in Fisher v. University of Texas. The majority’s decision essentially put down a challenge to the race-conscious admissions program that has been in place at the Longhorn State’s flagship university for more than a decade. Drawing criticism and praise from the usual suspects, one law professor at Harvard indicated that it is the most important educational case since Brown v. Board of Education. The sharply divided decision will likely have broader impact, however. Since it affirms some rather broad social ideas related to diversity within our society, the decision will likely affect American businesses in at least four ways. Here are some takeaways.

Takeaway One: Diversity of Thought Churns Creative Juices

As pointed out recently in a Forbes magazine report, business that embrace diversity tend to be the sort of incubators within which creativity bubbles and churns, with new ideas, new problem-solving methods, and innovation being the positive by-products.

Takeaway Two: Company Diversity Sets Appropriate Tones With Customers and Suppliers

When a business is too monolithic, that lack of diversity can cause tensions with customers and suppliers. Often, these tensions are suppressed; they aren’t overtly communicated. But the tensions are still there. If your business seems closed to diverse persons, thoughts, and/or ideas, your customers and suppliers may decide that your business seems closed to them as well. A diverse business is generally much more appealing to customer or supplier that operates internationally.

Takeaway Three: Diversity Shouldn’t Be Seen as a Way to Stay Off the Radar Screen

All too many businesses view the push for diversity only in terms of avoiding legal risk – of staying on the “good” side with regulators. Most studies say diversity with a company’s workers results in lower turnover, reduced recruitment and training costs, and improved worker attitudes. In short, better performance is usually the result. For example, in one report from a few years ago, researchers discovered that companies with the highest representation of women board directors actually performed better financially than those with the lowest representation of women on their board of directors.

Takeaway Four: Diversity Isn’t Just an Issue at Hiring

While the Fisher case dealt with the “front door” to the University of Texas, businesses should not view diversity merely in terms of hiring practices. Diversity efforts have much broader implications. Should the firm be more open to alternative work schedules that cater to growing families? Should the business bear in mind the changing attitudes and needs of employees as they age within the firm?

Diversity Planning: A Mixture of Business, Social & Legal Concerns

The issues facing today’s business decision-makers usually don’t come neatly packaged as “legal,” “financial,” or “operational.” Instead, challenges are usually a mixture of complex questions, with a myriad of alternative “opportunities.” The law firm of CKB VIENNA LLP provides employment/labor counseling, business consulting, and litigation services to nearly every type of business, from large to small – even to startups and nonprofits. Our attorneys provide preventive training and offer guidance designed to avoid the consequence and cost of litigation, including compliance with laws in the areas of hiring, promotion, discipline, termination, compensation, harassment, substance abuse, wage and hour, affirmative action, and independent contractor arrangements. CKB VIENNA LLP has a long history of representing clients in all types of business issues and disputes. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone – 909-980-1040 – or complete our online form.

Five Things You Might Not Know About Life Insurance for Estate Planning

Because of its flexibility, life insurance is a component within virtually every estate plan. It can provide cash and other support for a host of interests, including:

•  The cost of college and graduate school

•  Liquidity to pay for estate or inheritance taxes

•  Cash to fund business buy-sell agreements

•  Investment options to fund the retirement years

Unfortunately, the landscape is littered with misinformation about life insurance. Here are five things you might not know about the operation of life insurance in estate planning.

Tip Number One: A Policy Has Four “Players”

A life insurance policy typically has four “players” or components:

•  The owner: Generally the person or entity responsible for paying the premiums.

•  The insurer: The insurance company that is responsible for paying out the benefits under the terms of the policy.

•  The insured: The person whose life is being insured.

•  The beneficiary: The person, trust, or other entity that will receive the proceeds of the policy at the death of the insured.

While the owner is sometimes the insured, this need not be the case. Having a different owner and insured can offer significant tax advantages in some instances.

Tip Number Two: Terms of Your Will Do Not Usually Control Life Insurance Payouts

Some persons are surprised to hear that the carefully crafted will that they have in force will likely have no effect on how (and to whom) your life insurance is paid. Generally speaking, unless your estate is the beneficiary of the policy, the life insurance proceeds will not pass through probate. They will generally flow to your beneficiary without income tax ramifications. There are three situations in which the proceeds are included in one’s estate:

1. The proceeds are payable to the estate or to the estate’s executor.

2. The decedent possessed an “incident of ownership” in the policy at the time of death.

3. There was a transfer of ownership of the policy within three years prior to the date of death.

Tip Number Three: Transferring Ownership of Policy Early in the Policy’s Life Can be Inexpensive

As noted in tip number one, you can avoid having the life insurance taxed as part of your estate by transferring (subject to the three-year rule) the policy to another (usually a trust). That transfer may be subject, however, to gift tax if the cash value of the policy exceeds the annual exclusion (currently $14,000). Transferring a policy early in its “life” can, therefore, often be done without incurring liability.

Tip Number Four: Insurance Should Be Used to Manage Risk

While there are exceptions to this rule, insurance policies are not usually used as investment tools. They are more appropriately designed to manage risks. If someone looks to you or relies upon you for financial needs and stability, you likely need life insurance. Note that the list is much longer than you may think. In addition to spouse and children, you may have dependent parents or siblings. If you are a partner in a business, the others are almost always dependent in some form upon you. It goes without saying, therefore, that once you are stably retired or financially independent, or otherwise at a point where no one would suffer financially if you were to die, your need for insurance is substantially less.

Tip Number Five: Life Insurance Can Be Effective in Long-Term Charitable Giving

Utilizing life insurance for a charitable giving program involves some complex issues, but structured correctly, life insurance can be a great tool to honor or endow universities, religious organizations, and other charitable enterprises.

Life Insurance & Estate Planning: Skilled, Experienced Legal Counsel is Key

The law firm of CKB VIENNA LLP has a long history of providing legal and business consultation to individuals to nearly every type of business. We have represented entrepreneurs both in their early, creative years and later as well, when their interests have moved toward managing their legacy. We are skilled in drafting and coordinating all sorts of estate planning documents, from wills to trusts to buy-sell agreements and succession planning arrangements. While the firm is skilled in all forms of litigation, our attorneys provide preventive training and offer guidance designed to avoid the consequence and cost of litigation. CKB VIENNA LLP has offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone – 909-980-1040 – or complete our online form.

Five Mistakes to Avoid in Your Distributor Agreements

Distribution agreements have been an important force within the American economy for well over a century. The agreements, which are generally entered into between a supplier (or manufacturer) of goods and a distributor of those goods, operate so as to take advantage of each firm’s assets or skills. The supplier or manufacturer may be skilled at crafting the product, but lack the local expertise to sell it in numbers. The distributor may have skills in moving products and making sales, but not in the design and crafting of it initially. Properly drafted, a distribution agreement can push both the supplier/manufacturer and the distributor to performance beyond their usual limitations. Improperly drafted, the agreements can lead to headaches, loss of business for one or both parties, and bitter litigation. We have identified five common mistakes to avoid in drafting your distributor agreements.

Mistake One: Falling in Love With Legal Terminology

Many businesses become so caught up with current business buzzwords that either (a) they demand that the words be used within an agreement – even when inappropriate – or (b) they become easily satisfied with an agreement’s language just because it has the “correct” labels and headings. Many in business are familiar with terms such as “strategic partnering” and even “joint venture.” They forget that the terms have no actual legal meaning outside the meaning given them in an agreement. Remember: Substance over form.

Mistake Two: Poor Drafting of Termination Clauses

The parties to a distribution arrangement should view the arrangement in a somewhat similar fashion to prospective spouses, both of whom come to the marriage with significant assets. Both parties want things to work out; indeed, both expect them to work out. Sometimes, however, they don’t. Since neither side to the distribution agreement wants to be viewed as a pessimist, and since each side is so sure of its own performance, the parties will sometimes agree to allow termination only for cause. Remember this, if the parties can’t agree on whether one side or the other is performing, they likely aren’t going to agree about whether the accused party has committed a serious enough breach to warrant termination. The alternative: Select an annual or semi-annual date for the agreement to terminate automatically. This gives both parties an incentive to perform.

Mistake Three: Failing to Distinguish Between an Agent and Principal Relationship

Is the distributor’s role to find and service buyers or customers without actually taking ownership of the goods? If so, in most situations, such a relationship would be characterized as one of agency. An agency relationship has a specific set of business and legal risks about which the manufacturer would want to be aware. Alternatively, if the distributor “takes title” to the goods, the shoe is on the other foot. The distributor should consider the business, insurance, and legal ramifications of its choice.

Mistake Four: Failing to Consider Antitrust Issues

Since distributor agreements often allow for exclusive territories and rights, the parties must be aware of any antitrust implications. Will regulators view the agreement as a restraint of trade? Where a manufacturer is negotiating with a group of distributors, this antitrust issue can be particularly problematic.

Mistake Five: Failing to Handle Judicial Jurisdiction Within the Agreement

Since both parties enter the agreement with optimism and hope, there may be a tendency to avoid any issue that leads to a potential business divorce. This can be a huge mistake, however. Just as the distributor is likely to be more familiar with local customs, trade policies, and the like, it also will be most familiar with local courts and regulatory bodies. The supplier/manufacturer should carefully consider the legal implications of any particular jurisdictional clause (or the implications of omitting the clause from the agreement).

Distribution Agreements: Skilled, Experienced Legal Counsel a Key

The law firm of CKB VIENNA LLP provides legal and business consultation to nearly every type of business, from large to small – even to startups and nonprofits. We have crafted distribution agreements for manufacturers and distributors alike. While the firm is skilled in all forms of litigation, our attorneys provide preventive training and offer guidance designed to avoid the consequence and cost of litigation. CKB VIENNA LLP has a long history of representing clients in all types of business issues and disputes. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone – 909-980-1040 – or complete our online form.

Penny-Wise & Pound Foolish: Skimping in Branding Can Cause Legal Problems

For Meghan Trainor, Grammy Award winning music performer, it may indeed be “all about that bass,” but in the modern business world with its short attention span, page view counters, and widespread social media, “it’s all about that brand.” Entrepreneurs and established business alike are search for their brand. Even those businesses that have one already are spending enormous amounts on keeping it before the eyes and ears of customers.

There is a lot to consider as one contemplates building one’s brand. Properly prepared and run, a branding campaign can spell success. Skimp on your program, and your business could flounder. Moreover, it could easily run into legal trouble. We offer four special insights into how skimping can be legally deadly to your future.

Insight One: Branding Requires Deliberative Work

Branding isn’t a web site; it’s much more than a logo. It cannot be captured by the 500 business cards for $10 offering at the local office supply store. It’s your story and only you can really tell it. What’s more, if you can’t tell your story, no one else will be able to do so. Recognize, therefore, that branding is deliberative work. Yes, it requires creativity, but it requires focus and research. Will your brand conflict with existing trademarks in the current market? Will it conflict with trademarks in markets that you have not yet contemplated? Skimp on trademark research and could face expensive litigation in the future.

Insight Two: Don’t Skimp on Domain Names

Every brand should be intertwined with an Internet presence. Attorneys circulate stories of businesses that spent thousands of dollars on a slick logo and brand campaign only to discover that the Internet domain name is unavailable. Check this out before you’ve written the first check for branding. Moreover, if you’ve settled on a domain name, don’t stop just with the “dotcom” or the “dotorg” domains; tie up misspellings, singular and plural versions of your brand, and phonetically similar domain names. This will cost you extra in the beginning; it will save in the long run.

Insight Three: Don’t Try Registering Your Trademark on Your Own

Many in business think that a trade name must be identical to another in order to be problematic. It isn’t true. In a significant segment of trademark litigation, the issue is whether there could be a likelihood of confusion between your brand and another in the consumer’s mind, not in your mind.

Insight Four: Failing to Enforce Your Brand Trademark

Once you have your trademark – your brand – you need to guard it. Following federal trademark registration for your brand, you can stop others from using it in the marketplace. You can waive the right to do so, however, if you fail to monitor and enforce your trademark. You must regularly spend some time (and usually some money) to find infringements, and then take action to stop the infringement. Once you have allowed one business to infringe, it becomes difficult – sometimes impossible – to enforce your brand in the future.

Distribution Agreements: Skilled, Experienced Legal Counsel a Key

The law firm of CKB VIENNA LLP provides legal and business consultation to nearly every type of business, from large to small – even to startups and nonprofits. We have helped with branding issues and have assisted numbers of businesses in trademark research, due diligence research, and in various forms of associated litigation. And while the firm is skilled in all forms of litigation, our attorneys also provide preventive training and offer guidance designed to avoid the consequence and cost of litigation. CKB VIENNA LLP has a long history of representing clients in all types of business issues and disputes. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone – 909-980-1040 – or complete our online form.

Department of Labor Releases Final Version of Overtime Exemption Rules

On May 18, 2016, the federal Department of Labor (DOL) announced the publication of its new final rule regarding overtime exemptions. Some estimates indicate that the new rule will extend overtime pay protections to as many as 4 million U.S. workers during the rule’s first year.

Many may recall that two years ago, President Obama penned a memorandum that directed the DOL to update its regulations so as to define more clearly which white collar workers were protected by the terms of the Fair Labor Standards Act (FLSA), which sets the federal minimum wage and defines overtime payment standards.

Some within and without the federal government had become concerned that a growing number of employees were working more hours and yet were not being compensated for them. Others pointed out that the initial white-collar exemption level was set in 1975 and had not been changed since. In response to these and other pressures, 11 months ago, the DOL published proposed rules and invited responses from interested parties. According to government data, the DOL received more than 270,000 comments. The DOL advises that some of those comments were reflected in the final rule.

Key Provisions

The primary effect of the new Final Rule is to update the salary and compensation levels required for executive, administrative, and professional workers to be exempt from being paid overtime. As such, the Final Rule:

•  Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region – currently, the South ($913 per week; $47,476 annually for a full-year worker)

•  Sets the total annual compensation requirement for highly compensated employees subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004), and

•  Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles, and to ensure that they continue to provide useful and effective tests for exemption.

The Final Rule throws a bone at employers; allowing them to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

Women and Minorities May See Additional Overtime Benefits

Some employment experts say the DOL’s Final Rule could significantly benefit women and minorities in the workplace. They contend that the “gender gap” now places many women in middle management firmly within the salary range that would now be covered by the salary exemption increase. In other words, since female managers on average earned $981 per week in 2014, according to DOL data. Their male counterparts earned $1,346 weekly. Many of those men would be exempt from overtime pay, whereas the women would not be.

Rules Affect Both Small and Large Businesses

The DOL’s new rules are pervasive in their affect on businesses, both large and small. Many businesses have found the rules confusing. They worry whether their human resources practices are in sync with the new requirements. For years now, CKB VENNA LLP has represented businesses in all types of legal issues, from litigation to employment-related matters. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909-980-1040, or complete our online form.

“A Room With a View”: Government’s Action Obstructing Owner’s View Not Actionable

In the classic 1908 novel (and 1985 film), A Room With a View, the female protagonist laments the fact that while she has been promised hotel accommodations in Florence that feature a view of the beautiful River Arno, she instead finds herself housed in a room that overlooks a meager courtyard. Alas, she must make do.

In a recent decision out of the Court of Appeal of California, Second Appellate District [see Boxer v. City of Beverly Hills, 246 Cal. App. 4th 1212 (Apr. 26, 2016)], disgruntled owners of real estate learned a similar lesson. Not only did they lose their unobstructed views from their backyard when the defendant municipality planted a stand of coastal redwood trees in a nearby park, the owners lost their lawsuit for inverse condemnation. The impairment of their view did not alone amount to “a taking” or damaging of their property under California condemnation law.

Inverse Condemnation Differs from Eminent Domain

While most California real estate owners have heard of eminent domain, many fewer understand the related, but decidedly different legal rules involving inverse condemnation. With eminent domain, a governmental entity has the right “to take” one’s property for a public good, but must pay fair value for that taking. Inverse condemnation occurs, on the other hand, when – in the eye of the real estate owner – the government has taken, acquired, or otherwise appropriated property without following the required eminent domain procedures. Inverse condemnation can even occur when the landowner’s right to use his or her property has been detrimentally affected by regulation or some other burden.

Landowners Contended the Planting of Trees Affecting Their View was “a Taking”

In Boxer v. Beverly Hills, the landowners contended that the government’s action in planting the trees (and spoiling their view) amounted to an inappropriate taking without compensation. The appellate court held that obstruction of view did not constitute a taking. The court went on to say, however, that if the landowners had otherwise proven a taking by the government, then (and only then) the loss of the view might have been considered by a California court in assessing the appropriate diminution in value of the property.

Eminent Domain and Inverse Condemnation Are Complex Legal Issues

Both eminent domain and inverse condemnation involve complex legal issues. Having experienced, aggressive legal counsel on your side is generally a key to success in any struggle with a government entity. Have you or your business been contacted by a governmental entity regarding a planned condemnation of all or part of your property? Has a governmental action amounted to a burden or a taking of your property interests? For years now, CKB VENNA LLP has represented landowners, homeowners, lessees, and others who have an interest in real property in California as they face the harsh reality of a governmental condemnation proceeding. Our team understands the complexity of the issues and stands ready to represent you aggressively. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone at 909-980-1040, or complete our online form.