http://psblegal.com/psb-update-blog.html hourly 1 1970-01-01T00:00+00:00 “Neighborly” Beach Access http://psblegal.com/pc_url_38841148 <p class="plain">[By Randy Sullivan]</p> <p class="plain"> </p> <p class="plain">Easement rights and beach access have been an ongoing and regular area of dispute.  One strategy to keep neighbors off property recently failed in <i>Ditzian v. Unger</i>.  The case involved years of a Rear Property Owner and their guests walking over another’s property to gain access to the sand dunes of MacKerricher State Park in Mendocino.  The Rear Property Owner had done so for many years.  Their Airbnb guests had also accessed the dunes through the neighbor’s property.  At trial the court found that the Rear Property Owner had secured a prescriptive easement.   Albeit an oversimplified explanation, this is essentially an easement taken by years of use, without the neighbor’s consent, and is attached to the Rear Property Owner’s property.  </p> <p class="plain"><br></p><p class="plain">On appeal the neighbor attempted to argue that the request for a prescriptive easement was really a request for a public easement.  The neighbor hoped to show that if the easement was a public easement it required a written dedication of their land for the access.  Because the neighbor had not signed any written dedication there could be no easement.  The neighbor could then keep the fence up that impaired the Rear Property Owner’s access to the dunes.  The court of appeals disagreed.  </p> <p class="plain"><br></p><p class="plain">The Court found that the access rights granted to the Rear Property Owner and their invitees through Airbnb were not public.  This easement was not one that anyone could use or gain access to.  It was not a public easement, and it was not open to the public.  As a result, the court upheld the trial court’s findings on prescriptive easement rights awarded to the Rear Property Owner.</p> <p class="plain"><br></p><p class="plain">This case illustrates why neighbor access should be monitored to prevent the creation of easement rights.  While not the subject of this case or article, there are neighborly tools available to prevent the creation of prescriptive easement rights. </p> Patton Sullivan Brodehl 2019-02-24T11:52:49-08:00 “Neighborly” Beach Access Beware of Ignoring an Indemnity Clause http://psblegal.com/pc_url_38826488 <font style="" class="plain">[By John Patton]</font><div class="plain"><br></div><div class="plain"><p class="plain">There is a tendency in the business world and in life in general, to ask for more than you really want. The theory is that doing so ensures you will get what you want, and perhaps more.  But sometimes in the law, asking for more than what you want means you will not even get what you need.  It is best to be clear as to what you want.</p><p class="plain"><br></p> <p class="plain">This is often the case with indemnity clauses that are inserted into contracts, frequently as non-negotiated boilerplate provisions that neither party considers very carefully.  In general, an indemnity agreement, or clause, is intended to offer protection for one party from claims brought by third parties, by requiring the other party to the indemnity to provide protection from the legal consequences and/or to pay for the defense of the claim.  These clauses are commonly included in all manner of business contracts — purchase agreements, leases, construction and service contracts, and a host of other situations.  Typically, Party A requires Party B to indemnify Party A from claims that may be brought by reason of the contract.  For example, in a commercial lease, the landlord usually asks the tenant to indemnify the landlord from claims that may be brought by others by reason of the conduct of the business, or from claims brought by visitors to the premises.</p><p class="plain"><br></p> <p class="plain">There is nothing wrong with seeking this protection and it is a prudent consideration for any business arrangement.  But the devil is in the details and there are scores of reported California appellate decisions dealing with these issues.</p><p class="plain"><br></p> <p class="plain">The courts commonly construe indemnity clauses against the drafting party, which typically is the party seeking protection.  If the clause provides indemnity for a particular sort of conduct or risk, it may well be limited to that particular conduct or risk.  But if the clause provides indemnity for very broad and unspecific conduct, it may not provide real protection in the event of a claim.  For example, a clause that does not specify the sort of negligence will be covered may not protect the party who sought the indemnity, unless the negligence is shown to be “active” or “affirmative,” as opposed to simply failing to do something required by ordinary care.</p><p class="plain"><br></p> <p class="plain">Here is another simplified example of the pitfalls in drafting these provisions.  In <i>Heppler v. J.M. Peters Co. </i>(1999), 73 Cal.App.4<sup>th</sup> 1265, a general contractor inserted an indemnity provision in its subcontracts with a roofer, concrete supplier, and landscaper.  The provision called for the subcontractors to indemnify the general contractor “to the fullest extent permitted by law” for “all claims, demands or liability for death or injury to persons or damage to property arising out of or in connection with Subcontractor’s performance of the work. . .”  When claims were brought against the general contractor for construction defects based upon the work of the subcontractors, the court held that the indemnity provision would only cover that work if it was proven that the subcontractors acted negligently or with fault, causing the defects.  In other words, the court held that because the indemnity provision did not address non-negligent work by the subcontractors, the indemnity protection would not extend to such work, and would only provide indemnity for negligent work. The party seeking the indemnity was unable to prove that fault, and thus had to bear the loss on its own, in this case, a considerable amount.</p><p class="plain"><br></p> <p class="plain">The analysis is frequently arcane and often depends on the draftsmanship of the indemnity provision.  In business situations where this protection may be important, it is risky to rely upon pre-printed forms or for the parties to draft the language of the indemnity without the assistance or review of counsel.  In the <i>Heppler </i>case, it made a difference of hundreds of thousands of dollars to the losing party.</p><p class="plain"><br></p> <p class="plain">The moral is to know what you want and ask for it plainly.  But given the complexity of the issues, that may not be enough without the participation of counsel in drafting the indemnity provision.</p><br></div> Patton Sullivan Brodehl 2019-02-10T12:43:04-08:00 Beware of Ignoring an Indemnity Clause Hope of Home Appreciation Isn’t Fraud, Court Finds http://psblegal.com/pc_url_38826487 <font style="" class="plain">[By Randy Sullivan]</font><div class="plain"><br></div><div class="plain"><p class="plain">The American Dream of home ownership, with its implicit promise of value appreciation, turned into a nightmare for many when the housing bubble burst in 2007.</p><p class="plain"><br></p> <p class="plain">That set off a wave of litigation as borrowers claimed representations by mortgage brokers and lenders amounted to fraud. The plaintiffs pointed to loan terms and statements that borrowers would be able to refinance home loans because home values would continue to appreciate.</p><p class="plain"><br></p> <p class="plain">Many of the loans that have been litigated arose in 2005 and 2006, and at this time now are largely barred by statutes of limitation based on the date escrow closed.  As a result, borrowers now plead delayed discovery allegations to circumvent the statute of limitations.  That is, they claim they are excused for not discovering an allegation sooner.  It is a tall order to extend the statute of limitations for claims focused on loan terms because the loans closed years ago.</p><p class="plain"><br></p> <p class="plain">The current trend has been to focus on another allegation commonly found in borrower complaints.  This claim is based on the related allegation that they recently learned the appraisal was incorrect and the borrowers were told home values would appreciate.</p><p class="plain"><br></p> <p class="plain">The recent case of <i>Cancino v. Bank of America</i> addresses the allegation that borrowers were told that their home would increase in value, so that they would be able to sell or refinance. Plaintiffs claimed that they did the refinance because it would allow for the monthly payments to be reduced and with the expectation they could also take advantage of any appreciation, so that they could sell or refinance the home at a future date at an appreciated value before having to pay the principal or higher monthly payments.</p><p class="plain"><br></p> <p class="plain">This is a common allegation found in almost any complaint by any borrower against the lender or mortgage broker. The court in Cancino upheld prior related rulings on issues concerning representations of future value by finding they are not actionable for fraud.  The court also found that the plaintiffs’ claim they did not discover that the appraisal was allegedly false and allegedly inflated due to artificial market conditions created by lenders in 2010, was not reasonable.  Any such claim should have been discovered far sooner, the court found, and thus the claim was time barred.</p><p class="plain"><br></p> <p class="plain">This area is sure to be one that will continue to be litigated in the mortgage broker and lender context – both as to the appraisals and borrowers claims of delayed discovery.  Moreover, holdings such as that in Cancino will be applicable in a number of other circumstances where there are claims against person (brokers, or agents) based on their representations of future value for transactions of businesses or real estate.</p><p class="plain"><br></p> <p class="plain">Finally, these rulings are important because they allow lenders a route to avoid discovery and reduce the costs of defense.</p><br></div> Patton Sullivan Brodehl 2019-02-10T12:41:23-08:00 Hope of Home Appreciation Isn’t Fraud, Court Finds Playing Field Tilts in Business Tort Cases http://psblegal.com/pc_url_38826486 <font style="" class="plain">[By John Patton]</font><div class="plain"><br></div><div class="plain"><p class="plain">A California Court of Appeal ruling is changing how the parties in a business dispute calculate whether to go to court by holding out hope of collecting treble damages plus attorney fees.</p><p class="plain"><br></p> <p class="plain">Normally, parties to a civil lawsuit are confined to recovery of the actual damages that they suffered due to another’s wrongful conduct, and must bear their own legal fees in the litigation process. The most common exception is a contract entitling the prevailing party to recover attorney’s fees.</p><p class="plain"><br></p> <p class="plain">These rules typically turn the decision on whether to file a lawsuit into an economic one, in which the risks and costs of pursuing litigation are balanced against the potential rewards of successfully pursuing such relief.  Few practical business owners or individuals want to spend more money pursuing justice than they are likely to recover at the end of the litigation process, and this is a major factor to be considered when a dispute arises.</p><p class="plain"><br></p> <p class="plain">But a fairly recent decision of the California Court of Appeal, interpreting a <i>criminal</i> statute, alters the playing field in civil cases where the claimant can prove the deprivation of money or property by false pretenses.  Such situations could have broad application to tort cases of fraud, cases not uncommon to business and other disputes.  The typical business tort case often involves claims that one party misrepresented something that caused the other to enter into the transaction and suffer loss.</p><p class="plain"><br></p> <p class="plain">In <i>Bell v. Feibush</i> (2013) 212 Cal.App.4<sup>th</sup> 1041, a civil case in which a lender sued a borrower for obtaining a loan under false pretenses, the court examined Section 496 of the California Penal Code, concerning the crime of receiving stolen property.  <i>Bell</i><i> </i>reconfirmed prior criminal cases holding that a party who is a principal in a theft of property may also be guilty of receiving stolen property.  It also held that money, or anything else that can be the subject of a theft, constitutes “property” for purposes of the statute.  It also found that a prior criminal conviction was not required to support a finding of civil liability under Section 496.  Based on these holdings, the court found that the defendant had obtained property from the plaintiff by false pretenses, and thus was guilty of receiving stolen property under Section 496.  It then examined subpart (c) of Section 496, which authorizes any victim of such a crime to bring an action to recover “three times the amount of actual damages… sustained…, costs of suit, and reasonable attorney’s fees.”</p><p class="plain"><br></p> <p class="plain"><i>Bell</i><i> </i>holds that this provision applies to a civil suit for fraud based upon the defendant’s obtaining money from the plaintiff by use of false pretenses. It also holds that a prior criminal conviction is not required to support a finding of civil liability under Section 496, or for imposition of these civil remedies.  Therefore, even without a contract that provided for recovery of legal fees by the prevailing party, the plaintiff in <i>Bell</i><i> </i>was entitled to recover her legal fees, and three times the amount of the loan procured by the fraud, among other recoveries.</p><p class="plain"><br></p> <p class="plain">This holding means that a defendant in a civil action for fraud can be exposed to treble damages and liability for the plaintiff’s legal fees if the plaintiff can prove that the defendant obtained property under false pretenses, and that this caused harm to the plaintiff.  In other words, a plaintiff utilizing a claim under Section 496 may be able to recover additional damages, plus his or her attorney’s fees, where such relief was not previously recoverable.  The holding of <i>Bell</i>means that victims of fraud may be able to economically justify a civil action for recovery of their losses due to the fraud, where such an action previously might not have made business sense.</p><p class="plain"><br></p> <p class="plain"><i>Bell</i> also means that the court system will likely see the increased use of Penal Code Section 496 in the civil context, and that the Legislature will likely be asked by insurance companies or the business community to reexamine how far its provisions should go toward penalizing such conduct, or rewarding parties with extra damages in such cases.  But absent action by the Legislature or the California Supreme Court, <i>Bell</i><i> </i>is the rule of law for now in California, and a powerful aid to victims of fraud that tips the existing playing field in their favor.</p><br></div> Patton Sullivan Brodehl 2019-02-10T12:39:39-08:00 Playing Field Tilts in Business Tort Cases Stopping The Legal Clock http://psblegal.com/pc_url_38826484 <font style="" class="plain">[By Randy Sullivan]</font><div class="plain"><br></div><div class="plain"><p class="plain">The statute of limitations is a commonly used defense to any claim. But a California court recently took a step toward enforcing contractual modifications to the statute of limitations.</p><p class="plain"><br></p> <p class="plain">With the economy improving, and more deals being reached between sophisticated parties, it is as important as ever to ensure that the contract governing the party’s rights is properly vetted.</p><p class="plain"><br></p> <p class="plain">In the case of <i>Brisbane Lodging, L.P. v. Webcor Builders, Inc.,</i> the court upheld a contract provision that provided that no claim could be brought four years after the substantial completion of the project’s construction. The underlying contract was for the construction of a Radisson Hotel.</p><p class="plain"><br></p> <p class="plain">Ordinarily, any claim based on a breach of contract must be filed four years from the date the contract claim accrued – the point at which a reasonable party knew or should have known that the other party to the agreement had breached the contract. This is an issue that is often a focal point of discovery in litigation between the parties.</p><p class="plain"><br></p> <p class="plain">It is an even greater issue for construction defect matters. If a defect is considered latent — it is not obvious — then the party may have up to 10 years to file a lawsuit under <i>C.C.P. § 337.15</i>.</p><p class="plain"><br></p> <p class="plain">The contract at issue in Brisbane for the design and construction of the Radisson Hotel limited that right. Specifically, the contract provided that the accrual date would be the date that the project was substantially completed. The question presented then for the first time, was whether such a provision could be enforceable in California.</p><p class="plain"><br></p> <p class="plain">In short, the court concluded that the parties to the construction contract for the Radisson Hotel decided to establish a set date from which any contract claim could accrue. The court made its ruling, even though the contractor had been called out and then did work to repair a sewer line more than six years after the parties entered the agreement. The problems apparently returned two years later.</p><p class="plain"><br></p> <p class="plain">Nevertheless, the court concluded that there were two critical reasons for upholding the limitation on when a lawsuit could be filed.</p><p class="plain"><br></p> <p class="plain">First, the parties were sophisticated, commercial parties developing property. That is to say, the contract did not involve a residential homeowner or buyer. Secondly, the contract did not seek to limit the time under which a lawsuit could be filed, such as a modification from four years to one year.</p><p class="plain"><br></p> <p class="plain">This decision, although limited, is important. Before a contract is signed, all of its terms and conditions should be carefully considered.</p><p class="plain"><br></p><p class="plain">After the contract is signed, and if a dispute arises, an attorney should be consulted to ensure that the statute of limitations does not expire.</p> A safe solution in most any construction matter is to have the parties enter into a tolling agreement stating that while the contractor is repairing an item the statute of limitations is not running. This serves to stop the clock, put the matter on ice, and give the parties time to reach a resolution instead of rushing to file suit.</div> Patton Sullivan Brodehl 2019-02-10T12:36:36-08:00 Stopping The Legal Clock SEC Eases Rules for Private Placement Securities http://psblegal.com/pc_url_38826483 [By Ralph Kokka]<div class="plain"><br></div><div class="plain"><p class="plain">The Securities and Exchange Commission (“SEC”) has recently approved final rules that have eased the restrictions against general solicitation and advertising in private placements of securities.  </p><p class="plain"><br></p><p class="plain">Under previous SEC rules, if a company wanted to raise capital by selling stock, it could either register the offering with the SEC, a lengthy and expensive process, or rely on one of the exemptions from registration.</p><p class="plain"><br></p> <p class="plain">The most widely used exemption was Rule 506 under Regulation D, which allowed the sale of an unlimited amount of securities to an unlimited number accredited investors (individuals with net worth of $1 million or more (not including residence) or $200,000 annual income for past two years), and up to 35 non-accredited investors.</p><p class="plain"><br></p> <p class="plain">As a “safe harbor” exemption, Rule 506 was a fairly company-friendly exemption as there were very few formal disclosure obligations if securities were being sold to accredited investors only.  One of the main prohibitions in qualifying for the Rule 506 exemption, however, was that the sale of the securities could not be accomplished through a general solicitation or general advertising.  This essentially limited companies to relying on finding investors through institutional investors, such as venture or private equity funds, or networks of interested, high-net worth individuals, such as angel groups.</p><p class="plain"><br></p> <p class="plain">Under the recently approved final SEC rules, companies can now sell securities through a general solicitation or advertising and qualify for the Rule 506 exemption provided that the existing terms of Rule 506 are satisfied, the sale is to accredited investors only, and the company has taken reasonable steps to verify that the purchasers are accredited investors.   Reasonable steps include consideration of the nature of the purchaser and the type of accredited investor the purchaser claims to be, how much information the company has concerning the purchaser, the nature of the offering, how the purchaser was solicited and the amount of investment.  A company can satisfy its obligations by reviewing tax forms of the purchaser for the past two years, bank and brokerage statements, credit reports, or obtaining written confirmation from an attorney, CPA or registered broker-dealer that the person has taken reasonable step to verify the purchaser is an accredited investor.</p><p class="plain"><br></p> <p class="plain">Finally, the new SEC rules disqualify an offering from Rule 506 exemption if certain “bad actors” are involved.  Disqualifying involvement can range from being an officer, director or 20% or more shareholder of the company, to being compensated in some way in connection with the offering.  A bad actor is someone guilty of a felony or misdemeanor or subject to an SEC order involving the sale of securities, acting as an underwriter, broker-dealer or adviser, or fraudulent or deceptive conduct.  The “bad actor” disqualification will not apply if the company can establish that it did not know, in the exercise of reasonable care, that there was a “bad actor” involved in the offering.</p><p class="plain"><br></p> <p class="plain">While the new rules allow companies to go out and advertise as broadly as they want to sell stock, it remains to be seen whether and to what degree companies will take advantage of these new rules.</p><br></div> Patton Sullivan Brodehl 2019-02-10T12:34:56-08:00 SEC Eases Rules for Private Placement Securities Businesses Beware: California Supreme Court Decides Verbal Side Agreements May Be Part Of Written Contract http://psblegal.com/pc_url_38826482 <p class="plain">People who enter into written contracts usually want to achieve clarity as to their rights and obligations. In a decision with far-reaching consequences for businesses and consumers, and practically anyone who enters into a written contract, the California Supreme Court just issued a decision that overrules a line of cases more than 75 years old, and permits a party to claim that the true agreement differs from the written agreement.</p><p class="plain"><br></p> <p class="plain">In <i>Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Association</i> (Jan., 2013), the Court held that a borrower has the right to prove that side promises were fraudulently made to obtain a loan, even when those side promises directly contradict the terms of the loan documents. Prior to <i>Riverisland</i>, case law was uncertain whether a signing party would be allowed to prove that the writing was not the true agreement. Parties relying on the written terms frequently asserted what is known as the “parol evidence rule” to defeat lawsuits at early stages. The term “parol” has nothing to do with prison sentences. Rather, it is Latin in origin, and means “word of mouth,” as opposed to written. The parol evidence rule generally holds that where the parties contemplate that their agreement is completely set forth in a written contract, the courts will not permit claims that contradictory promises were made outside the “four corners” of that contract.</p><p class="plain"><br></p> <p class="plain">But as with most rules, there are exceptions to the parol evidence rule, and one is the “fraud exception,” which allows proof that the contract was obtained by fraud. Until <i>Riverisland</i>, the courts’ application of this exception had been far from consistent. The effect of <i>Riverisland</i> is to permit a party to prove that the contract contains unwritten promises that vary from the written terms, where it is claimed that the contract was procured by fraud.</p><p class="plain"><br></p> <p class="plain">Thus, it is probable that no written contract is “ironclad” when fraud is claimed. Of course, this does not mean that the party relying on the written terms won’t prevail, or be able to prove that no side promises were made. It means that when disputes arise, the issue will likely be decided by proof at trial rather than by motion at the outset of the lawsuit, as had frequently been the case before <i>Riverisland</i>.</p><p class="plain"><br></p> <p class="plain">What takeaway is there for people who want to ensure that the written terms of a contract control the rights and obligations of the parties? Here are some general practical suggestions:</p><p class="plain"><br></p> <p class="plain"></p><ol><li class="plain">Be careful about using form or pre-prepared contracts, especially if they may not fit the specifics of the situation. It may be better to start from scratch than trying to adapt pre-prepared terms to a specific situation.</li><li class="plain">Make sure that the terms are clear, legible, and understandable. Sometimes too much legalese or boilerplate can actually make the writing less clear.</li><li class="plain">Cover every important term that should be in the writing, so it is plainly spelled out in the contract what each side can expect as to their rights and obligations as to each such term.</li><li class="plain">Include a clause that confirms that there are no side agreements and that the written terms are the only terms. The clause should also state that all prior negotiations are canceled, and the agreement is the final and only agreement on the contract subjects.</li><li class="plain">Include a clause requiring any changes or amendments to be stated in a writing signed by all parties to be effective.</li><li class="plain">Where feasible, have the contract reviewed and explained by an attorney for each side, before it is signed, and have the parties acknowledge in the contract that such a review was done prior to signing, and that the contract was a product of negotiation, and attorney review for each side.</li></ol><p class="plain"></p> <p class="plain"><br></p> <p class="plain">While doing these things does not guarantee that a party will not later claim that there were promises made that are different from the writing, it will greatly increase the chances that the written document will be upheld, and should decrease the chances of a lawsuit on that basis. And it should be noted that even if such a claim is made, in order to prevail, the claimant likely must still <i>prove</i> the elements of fraud in order to recover, including that the other party acted with fraudulent intent, and that the claimant reasonably relied on the alleged unwritten promise (which may be hard to prove if the contract appears to be clear and complete).</p><p class="plain"><br></p> <p class="plain">The real takeaway from <i>Riverisland</i> is that clarity is even more important than it ever was in the world of contracts.</p> <p class="plain"> </p> Patton Sullivan Brodehl 2019-02-10T12:31:18-08:00 Businesses Beware: California Supreme Court Decides Verbal Side Agreements May Be Part Of Written Contract Winery’s Goodwill Case Changes Game http://psblegal.com/pc_url_38826481 <font style="" class="plain">[By Randy Sullivan]</font><div class="plain"><br></div><div class="plain"><p class="plain">For many companies, goodwill is among their most valuable assets. It’s the accumulated value of years of service to customers, of building your brand, of you reputation for quality.</p><p class="plain"><br></p> <p class="plain">But in a court of law, the value of goodwill is in the eye of the beholder. And, based on a recent case involving a Central Valley winery, that beholder may be a single judge, not a jury.</p><p class="plain"><br></p> <p class="plain">Consider the recent case of <i>People ex rel. Dept. of Transp. v. Dry Canyon Enterprises, LLC,</i> (2012) 211 Cal. App. 4th 486. The court ruled that a plaintiff cannot secure a trial on loss of goodwill, unless there was goodwill in existence prior to a taking by the government. In addition, it is the trial judge that makes this determination.</p> <p class="plain">This case stems from wine made by Dry Canyon Enterprises from grapes in Paso Robles and Madera. Specifically, the state condemned a strip of land that was home to 1,466 of the vines grown for the firm’s estate cabernet off of Highway 46 in Paso Robles. The state paid the winery $203,500 for the land and vines. The only issue to be tried was whether the winery was entitled to damages for the loss of goodwill resulting in the loss of the acreage used to grow the estate cabernet.</p> <p class="plain">Ordinarily, a business owner is entitled to a jury trial on the amount of goodwill lost by a government taking. In this case, however, after the plaintiff presented their expert testimony and other evidence on loss of goodwill, the trial court granted a motion for judgment and dismissed the plaintiff’s case ruling that the expert opinion on the loss of goodwill was inadmissible.</p><p class="plain"><br></p> <p class="plain">The jury was denied the right to rule on whether there was a loss of goodwill.</p><p class="plain"><br></p> <p class="plain">Plaintiff’s primary hurdle was that the winery had not yet turned a profit and it appears from the decision had only sold a few vintages. In the wine world, it very much appears to have still been in a start-up stage.</p><p class="plain"><br></p> <p class="plain">On appeal, the court addressed the winery expert’s two methods for calculating the loss of goodwill. The court also recognized that the judge is the gatekeeper on expert opinions. Therefore, in all future cases the damage theory needs to be properly designed for admission.</p><p class="plain"><br></p> <p class="plain">The first method used by the winery’s expert was the ‘cost to create’ methodology. The court ruled that allowing all of the costs/expenses incurred to develop the business to equate with the value of the business’s goodwill rarely is acceptable.</p><p class="plain"><br></p> <p class="plain">The court echoed a prior ruling by finding that the ‘cost to create’ method may only be used when there is clear proof of preexisting goodwill, and a total loss of that goodwill. The primary problem with the winery’s expert conclusion here was that the winery had not yet posted a profit. Moreover, in calculating the ‘cost to create,’ the expert used all of the winery’s costs, instead of focusing on the cost associated with developing the vines and the estate cabernet. Since this was a partial taking, the expert needed a more focused approach if the damage theory were to have any chance of being accepted by the trial judge. While this author does not know the underlying business operations well enough for the plaintiff, the ‘cost to create’ valuation method would have had a better chance if the plaintiff had not allocated all the costs of its operations to reach the valuation.</p> <p class="plain">The second theory was the ‘premium pricing’ methodology invented by plaintiff’s expert. The method involved the expert deciding that the estate cabernet wine would “fetch a premium price of $10.62 more per bottle than a hypothetical but inferior” wine grown elsewhere. Then the expert multiplied this figure by the number of bottles that would no longer be produced because of the taking for the next 15 years. The expert did this even though the product had not yet been profitable in the winery’s business. The court found this method entirely speculative and flatly rejected it as a methodology for calculating loss of goodwill.</p><p class="plain"><br></p> <p class="plain">This case is important because it makes clear the judge is the gatekeeper on damage theories. With more cases and less resources, this gives the court a reason to dismiss a case. It is therefore important that all facets of a case be presented in a compelling fashion. This is even greater in the case of representing a new business that has not shown profits, but may have shown great promise.</p><p class="plain"><br></p> <p class="plain">The moral of the story is that in any damage case, the damage theory should be thoroughly vetted in advance of trial, because the court is the gatekeeper for your expert’s damage theory. And it’s that beholder’s eye that needs to be convinced by facts, not speculation.</p><br></div> Patton Sullivan Brodehl 2019-02-10T12:29:26-08:00 Winery’s Goodwill Case Changes Game CROWDFUND Act Brings Big Changes to Start-Up Investing http://psblegal.com/pc_url_38826480 <font style="" class="plain">[By Ralph Kokka]</font><div class="plain"><br></div><div class="plain"><p class="plain">A new investment law could revolutionize capital fundraising or become a new vehicle for fraud. The jury is still out. A few months ago, President Obama signed the JOBS Act into law. One of the key sections of the JOBS Act is the CROWDFUND Act, which will make substantial changes to how private businesses can raise money.</p><p class="plain"><br></p><p class="plain">Under previous SEC rules, a private company was basically limited to seeking investments from accredited investors (i.e., investors with a net worth of $1,000,0000 or annual income in excess of $200,000 for the past two years). These rules limited companies to seeking money from wealthy investors or funds such as angel investors or venture funds.</p><p class="plain"><br></p> <p class="plain">The CROWDFUND Act democratizes the fund raising process by enabling a company to seek investments from just about anyone, subject to certain limitations. Under the CROWDFUND Act, companies can raise up to $1,000,000 during any 12 month period from crowdfunded investors. Investors who make less than $100,000 per year can invest up to the greater of 5% of annual income or $2,000 in a single company. Investors who make more than $100,000 can invest up to 10% of their annual income or net worth in a company.</p><p class="plain"><br></p> <p class="plain">Crowdfunded investments are required to be conducted through an intermediary, such as the current websites, Launcht and Kickstarter. Presumably, others will join the fray. Intermediaries must register with the SEC as either a broker or funding portal. The regulations for funding portals is lighter because funding portals agree not to solicit purchases, offer investment advice or handle investor funds.</p><p class="plain"><br></p><p class="plain"> Companies are required to disclose certain basic information to crowdfunded investors, including CPA reviewed financial statements for offerings between $100,000 and $500,000 and audited financials for offerings between $500,000 and $1,000,000.</p><p class="plain"><br></p> Presently, the CROWDFUND Act is being reviewed by the SEC as part of its rulemaking process, which is expected to be completed by the end of the year. The CROWDFUND Act’s lower income thresholds for investors and its streamlined disclosure requirements could revolutionize the capital raising process for small companies. At the same time, however, these same features could make it easier for scammers and frauds to prey upon the unsophisticated investor. Whether the CROWDFUND Act is an investment boon or bane remains to be seen.</div> Patton Sullivan Brodehl 2019-02-10T12:27:31-08:00 CROWDFUND Act Brings Big Changes to Start-Up Investing Rural Landowners Look for Cooperation from Department of Fish and Game http://psblegal.com/pc_url_38826472 <font style="" class="plain">[By Martin Inderbitzen]</font><div class="plain"><br></div><div class="plain"><p class="plain">To download a PDF of the newsletter, <a rel="" link="" target="_blank" href="http://alamowebsolutions.com/Tools/file_direct_link.html?node_id=38826479" class="plain">click here</a>.</p> <p class="plain"><br></p><p class="plain">Rural landowners have reason to be encouraged by the recent actions of the California Department of Fish and Game (DFG) and the Alameda County Resource Conservation District (ACRCD). The two are working with each other, rather than against each other, to forge a program that will facilitate agricultural activities by helping landowners move through the permitting process more efficiently.</p><p class="plain"><br></p> <p class="plain">Too often the DFG, through its enforcement efforts of the California Endangered Species Act (CESA), becomes an impediment to the ongoing agricultural activities of the ACRCD’s constituent farmers and ranchers. As a result, either agriculture suffers or protection of threatened and endangered species suffers.</p><p class="plain"><br></p> <p class="plain">But now, ACRCD and DFG are working together to advocate a Voluntary Local Program (VLP) for farmers and ranchers engaged in agricultural activities in Alameda County.</p><p class="plain"><br></p> <p class="plain">Recognizing the ranchers and farmers are good stewards of the land, the purpose of the VLP is to create a process whereby landowners who wish to restore and enhance the natural resources on their property are provided with technical assistance and also provided with protection from the incidental “take” of endangered, threatened or candidate species.</p><p class="plain"><br></p> <p class="plain">The ACRCD is the lead agency in an Initial Study and Mitigated Negative Declaration issued July 2012 requesting authorization of the VLP and take authorization pursuant to Section 2086 of the California Fish and Game Code. If approved, the program will cover public and private lands managed as agricultural lands within the County. Landowners will still have to obtain any other applicable permits such as, Section 1600 permits and compliance with Federal Endangered Species Act regulations.</p><p class="plain"><br></p> <p class="plain">There is still a long way to go before the VLP is implemented. Comments on the IS/MND closed on August 17, 2012. However, it is definitely a step in the right direction for DFG to recognize that landowners know their land best and their efforts at restoration and enhancement for agricultural purposes may also serve as enhancements for protection of endangered species.</p><br></div> Patton Sullivan Brodehl 2019-02-10T12:21:56-08:00 Rural Landowners Look for Cooperation from Department of Fish and Game