07.24.10
Posted in Constitutional and Civil Rights Law, Litigation at 08:24 by Administrator
Q. The U.S. Supreme Court recently concluded its October 2009 Term. What cases did the Court decide this Term that are (or should be) of particular interest to the general public?
A. Although some in the general public may find a different selection of this past Term’s cases of particular interest, two cases topping almost any list would be Citizens United v. Federal Election Commission and McDonald v. Chicago. Citizens United raised issues concerning the First Amendment; McDonald involved the Second and Fourteenth Amendments. The last of the top three cases this Term – and one which has received less media attention – is Free Enterprise Fund v. Public Company Accounting Oversight Board, which concerns separation of powers among the three branches of government.
Citizens United challenged a section of the McCain-Feingold Bipartisan Campaign Reform Act of 2002 (”BCRA”), which made it illegal for corporations and labor unions to use their general funds for political advocacy, that is, to pay for advertisements and other materials which are political in nature or content. Contrary to some news stories, the portion of the BCRA which was at issue in Citizens United did not involve direct contributions to political candidates or their campaigns.
Citizens United brought suit because the BCRA made it illegal for it to distribute during the 2008 presidential election season a movie critical of then-presidential candidate Hillary Clinton. During oral argument before the Supreme Court, Solicitor General Elena Kagan (the government’s lawyer who was defending the constitutionality of the BCRA and whose own nomination to become a Justice of the Supreme Court is now pending in Congress), informed the Court that the BCRA would allow the government to ban books.
In striking down the section of the BCRA which was at issue, Justice Kennedy, writing for the Court’s 5-4 majority, said, “If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.” So, “when government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought. This is unlawful. The First Amendment confirms the freedom to think for ourselves.”
McDonald v. Chicago was the second of two recent Supreme Court cases dealing with the Second Amendment’s “right to keep and bear arms.” The first case, District of Columbia v. Heller, decided in 2008 (5-4), held that the Second Amendment secures an individual, rather than a collective, right to keep and bear arms. McDonald, also 5-4, held that the Second Amendment applies to the States as well as to the federal government. The issue of whether the Second Amendment applies to the States did not arise in Heller, as the District of Columbia is a federal enclave.
Free Enterprise Fund concerned a provision of the Sarbanes-Oxley Act that protects members of the Public Company Accounting Oversight Board (”Board”) from removal except for good cause. The Court held, 5-4, that the section at issue violates Article II of the Constitution because members of the Board, which is overseen by the Securities and Exchange Commission and whose members are removable only for cause, also are removable only for cause. The Court said “such multilevel protection from [Presidential removal] power is contrary to Article II’s vesting of the executive power in the President.” The Court noted that the Constitution gives the President the responsibility to ensure that the laws are faithfully executed and that, in fulfilling this responsibility, the President must be empowered to select and remove inferior government officials. This case is important because it reaffirms that the President, who always can be voted out of office at the next election, must have the ability to direct and control the actions of bureaucrats for whom voters can hold the President to account.
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07.16.10
Posted in Litigation at 07:46 by Administrator
Q. I have a modest sized case and am trying to decide whether to hire a lawyer or represent myself. What should I consider when making this decision?
A. Whether you should hire a lawyer will depend on a number of factors. First, it should be determined whether your case is criminal or civil, and if it is civil, whether your case nevertheless presents the possibility that you may, in the future, be prosecuted for a crime. If you have been charged with a crime or if there is the potential for future criminal prosecution, you should retain a lawyer. If you have been charged with a crime and cannot afford to hire a lawyer, the court will appoint a lawyer to represent you.
Although it sometimes can be difficult to identify civil cases which present the possibility of future criminal prosecution, it is imperative this type of case be identified as early in the process as possible, as you very likely will want to handle this type of case much differently than you would a civil case which does not have criminal law implications.
Assuming your case is purely a civil one, in other words, a case in which there is not the possibility of criminal sanctions, the next determination to be made is the value of the case. The value of a case generally is defined as the amount of money the other party may be ordered to pay you if you win, or the amount of money you may be ordered to pay the other party if you lose. In addition to the value of the case, don’t forget to consider whether the court will be able to order one party to pay all or part of the other party’s attorney fees and costs – which in certain cases may far exceed the value of the case.
If the value of the case is modest enough to fall within the monetary jurisdiction of the small claims court in your locale, the law makes the decision for you of whether to retain a lawyer: lawyers are not allowed to represent clients in small claims court. However, consulting with a lawyer before you file court papers or go to court may still be helpful, as a lawyer will be able to assist you in preparing both your written case filings and oral presentation.
If your civil case is one which exceeds the monetary jurisdiction of small claims court, a determination should be made regarding whether you are covered for the loss at issue by a policy of insurance. If you do have insurance coverage for the loss, the insurance company may be required to retain a lawyer for you. If your insurance company contends that the loss is not covered by the insurance policy – and you disagree with this contention – you may need a lawyer to assist you with a separate lawsuit against the insurance company.
If an insurance company will not be retaining a lawyer on your behalf, you should estimate the cost of hiring a lawyer and weigh and consider that cost against the likely cost of losing the case. Furthermore, even if a cost-benefit analysis suggests you should act as your own lawyer, it is also important to consider whether you have the knowledge and skill to competently represent yourself and, even if you do, whether you would be better-served – both financially and emotionally – by simply turning the case over to a lawyer and going about your daily business while the case is being resolved.
Lastly, when considering whether to hire a lawyer, it is always good to remember the age-old adage, “He who is his own lawyer has a fool for a client.”
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07.10.10
Posted in Business Law at 20:42 by Administrator
Q. I am planning to start a small business next year. Do I need to consult with an attorney before establishing a corporation? What kind of corporation do you recommend that I form?
A. Congratulations on your decision to become an entrepreneur! There are several ways in which you might be able to structure your business. Possible options include: sole proprietorship, partnership, limited liability company (LLC), or corporation. Some of the factors that will need to be considered when choosing a business structure include: the number and identities of owners; the type of business (e.g., type of services or products); whether the business will have employees; and how the business will be capitalized.
If, operating alone, you do not affirmatively select a business structure, your business will, by default, be a sole proprietorship. If, operating with one or more persons (other than your spouse), you do not affirmatively select a business structure, your business will, by default, be a general partnership.
Sole proprietorships and general partnerships do not shield their owners from personal liability for debts and obligations of the business. In the case of partnerships, each partner has the legal ability to incur obligations for which each other partner may be personally liable. Thus, in many instances, it probably is not a good idea to operate a business as a sole proprietorship for more than a short period of time. In almost all instances, it probably is not a good idea to operate a business as a general partnership for any period of time.
Businesses may, however, be structured in a manner which will provide its owners with limited liability in certain circumstances, as well as provide its owners with certain other advantages. The business entity which traditionally has been used to obtain these benefits is the corporation. More recently, Limited Liability Companies (LLCs) have been available as an alternative to the corporation.
LLCs have become popular with some businesses because LLCs typically offer more operational flexibility than corporations, and also because they reduce the amount of certain day-to-day record keeping formalities required of corporations. There are, however, some restrictions on the type of business that can be operated through an LLC. For example, some states do not allow certain professionals to conduct business through an LLC. Professionals may, however, be able to structure their practices as professional corporations, limited liability partnerships, or similar entities.
Sources of funding for your new business should also be considered. Although beyond the scope of this article, a determination must be made regarding whether the method used to capitalize your business will subject the business to various federal and state securities laws.
Finally, as with other business decisions, tax law and consequences should be considered when selecting a structure for your business. Although corporations and LLCs are created pursuant to state law, tax law, at least in the first instance, is governed by federal law. For example, if your business is structured as a corporation, a determination should be made regarding whether the corporation is eligible for classification, for federal tax purposes, as an “S corporation” and, if it is eligible for such classification, whether the business should elect to be taxed in this manner, rather than as a “C corporation.”
Although it certainly is lawful for you to start a business without the assistance of a lawyer, doing so likely is imprudent. As a business owner and entrepreneur, you need not personally possess all the knowledge and skills necessary to make your business successful; however, you should recognize the need for – and obtain – the assistance of professionals who do possess the needed knowledge and skills.
*Anthony F. Earle, Esquire is a California attorney who practices in the Silicon Valley area of northern California. He can be reached at: anthony.earle@earlelaw.com. This article is intended for information and educational purposes only, and is not intended to constitute legal advice.
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07.05.10
Posted in Trusts and Estates at 09:29 by Administrator
Q. My wife and I have been married several years. We have a fast-paced California lifestyle, which, unfortunately has resulted in us having not yet put together a will. Can a will guarantee that our wishes will be carried out when we are no longer here? Is there a better alternative?
A. As the saying goes, nothing is certain except death and taxes. A good estate plan can help you prepare for both.
Any estate plan should, of course, provide for the distribution of your assets after your death. Other goals which can be accomplished with a good estate plan include, for example, designation of an executor for your will or trustee for your trust; nomination of a guardian(s) for your minor child(ren); tax planning; and certain pre-death matters.
Formally stating one’s desires for post-death division and distribution of one’s assets is probably the most recognized and understood purpose of an estate plan. People often, if not usually, want their property divided and distributed in a manner which deviates, in at least some respect, from the division and distribution which would be made pursuant to intestacy laws, the “default” laws which apply when a person does not have an estate plan. Perhaps a person creating an estate plan wants to provide for a distribution to someone who would not be a beneficiary under the intestacy laws or, alternatively, wants to prevent distribution to someone who otherwise would receive a distribution under the intestacy laws. Or, perhaps a beneficiary should receive a distribution in the form of payments over time, rather than as a lump sum. The estate plan is the place where these, and other, deviations from intestacy laws can be accomplished.
If you have a child(ren), chances are that you would prefer to state your preference and order of preference of guardians, rather than leaving that choice to a judge. An estate plan is the place for you to nominate guardians for your minor children so that if necessary, a court can be guided by your wishes. In the absence of such nomination, the court will have no choice but to use its own discretion in determining the “best interests” of your child(ren).
Tax law is complicated and ever-changing. However, with certain trusts, and depending on the value of your estate, certain tax planning strategies can be employed which often will result in significant tax savings. For this reason alone, you should review your estate plan with your attorney anytime there is a significant change in your personal situation, as well as when significant changes occur in tax law.
Although usually not a primary purpose in creating an estate plan, planning for pre-death issues can sometimes be just as important – if not more important – than planning for post-death matters. Pre-death issues include giving decision-making authority to someone – usually one’s spouse, if married – over health care issues (Advance Health Care Directive) and/or over the handling and management of property (Durable Power of Attorney). Such authorizations to make health care decisions or to manage property become effective only when the person who grants those powers becomes incapacitated, for example, in the event of a serious illness.
A comprehensive California estate plan – one that includes a trust, pour-over will, Advance Health Care Directive (ACHD), and durable power of attorney will give most people all the flexibility they need to accomplish their estate planing goals. A trust provides for private (with certain limited exceptions) and efficient handling of one’s affairs; a pour-over will provides for the transfer into the trust of any assets which inadvertently were not placed into the trust before death, and the ACHD and durable power of attorney will provide guidance for decisions relating to medical treatment and management of property, respectively, during periods of incapacity.
You and your spouse should obtain the assistance of an attorney who will help the two of you create, implement, and maintain an estate plan that will best meet each of your individual and joint needs. Doing so will lessen the burden your loved ones will have to endure when the inevitable occurs.
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06.25.10
Posted in Family Law, Litigation at 09:48 by Administrator
Q. I am a California resident who will soon be getting married. I recently received a substantial inheritance and am considering whether to ask my future spouse to sign a prenuptial agreement. What should I know about prenuptial agreements? Will a prenuptial agreement actually hold up in court, perhaps many years from now?
A. Premarital agreements, also known as “antenuptial” or “prenuptial” agreements, are agreements executed between prospective spouses in contemplation of marriage, which become effective upon marriage.
California is a “community property” state. Subject to certain exceptions, community property is defined as “all property acquired by a married person during marriage while domiciled in California.” Thus, any inheritance (or other property) you receive prior to marriage is your separate property.
Property acquired during marriage by “gift, bequest, devise, or descent” is one of several exceptions to the general definition of community property. Thus, your inheritance, even if it had been received during marriage, would be your separate property.
A writing is required to transmute – that is, change the characterization of – property from separate to community or from community to separate. Thus, a premarital agreement is not needed to prevent your pre-marriage inheritance from being transmuted to community property.
Life, however, is seldom that simple. Although the separate property inheritance you received before marriage will not become community property unless you sign a transmutation agreement which changes its character from separate property to community property, other events may result in the creation of certain non-community property rights to which your spouse will be entitled.
Suppose, for example, the pre-marriage inheritance to which you refer is in the form of a residence, for example the home your parents owned and in which you grew up. Suppose further that there is a loan which is secured by the residence. Such a loan might be one you obtained after inheriting the residence, but before marriage, or one which was obtained during marriage. Absent a premarital agreement, each of these (as well as numerous other) scenarios will result in the creation of certain property rights to which your future spouse will be entitled.
Whether a divorce court will enforce a premarital agreement, perhaps many years from now, will depend on several factors, not the least of which is whether the premarital agreement was created in accordance with all then-existing laws.
Regarding possible future changes in the law, California’s Family Code provides that all statutory amendments are to apply retroactively, thus suggesting that, at a minimum, the continuing validity of premarital agreements is questionable. The argument against amendments which retroactively impair vested (e.g., contract) property rights is that such amendments violate the Due Process clause of the Constitution and, thus, are unenforceable. In any event, the apparent tension between California’s Family Code and the constitutional principle of due process all but ensure future litigation if California attempts to retroactively amend its premarital agreements law. And even if California premarital agreement law is not amended, your future spouse will always be able to challenge whether the agreement is valid under the law that existed when the agreement was signed.
The bottom line: If your prospective future spouse agrees to, and does, sign a premarital agreement that complies with current law, and if the marriage fails at some time in the future, you should expect, at a minimum, that your spouse will challenge the validity of the premarital agreement. From a purely economic perspective, the question is whether (and by what margin) the cost of obtaining, and potentially judicially defending, a premarital agreement is more or less than the present and anticipated future value of the property to be protected. In any event, you should consult with an attorney well in advance of the date on which you plan to marry.
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06.17.10
Posted in Business Law, Litigation at 19:02 by Administrator
Q. We own a small business in northern California, which provides both products and services to individual consumers.
Because our success depends, in large part, on repeat business, we follow various Internet sites that post customer reviews of our business. Many of our customers have posted positive reviews. However, as the saying goes, we can’t please all of the people all of the time.
Negative postings have the potential to significantly harm our business. What can we legally do to protect ourselves from the occasional – and inevitable – disgruntled customer who publishes a negative review of our business?
A. The First Amendment to the United States Constitution states, in part, that: “Congress shall make no law . . . abridging the freedom of speech, or of the press. . . .” Prior to the Civil War, the First Amendment prevented only the federal government from censoring speech. It was not until passage of the 14th Amendment, that the First Amendment became a bar against state censorship of speech.
A government engages in censorship when (among other things) it allows private parties to use its courts to sue others based on what others publish, either verbally or in writing.
The First Amendment, however, has never been understood to protect against all government censorship. For example, it does not create or protect a constitutional right to make false statements; falsely yelling “fire” in a crowded theater is not protected speech.
Long before the First Amendment banned state government censorship of speech, state laws provided civil causes of action for defamation, the general definition of which is “[a]n intentional false communication, either published or publically spoken, that injures another’s reputation or good name. . . .” Defamation includes both libel and slander.
In the landmark U.S. Supreme Court case New York Times v. Sullivan, the court made a distinction between, on the one hand, public officials/public figures and, on the other hand, all others. For a public official/public figure to recover defamation damages, the Court said that a plaintiff must prove the defamatory statement was published with malice. Malice, in this context, means that the defamatory statement was published with knowledge of its falsity or with reckless disregard for whether it was true or false.
Mere opinions, by definition, are not capable of being either true or false and, thus, are not actionable.
For the purpose of defamation law, the term “public figure” includes businesses. Thus, in order to prevail against a person who publishes a negative review, the business must be able to show that the posting is both false and made with malice. In most cases, the business will not be able to prove falsity, as most such postings are merely the reviewer’s opinion. In cases where falsity can be proven, past court cases inform us that proving malice is usually impossible.
Furthermore, in California, as in many other states, there exists a law against “Strategic Lawsuits Against Public Participation,” or “anti-SLAPP” law, which allows a defendant to obtain summary dismissal of such cases and which mandates an order requiring the plaintiff to pay the successful anti-SLAPP defendant’s reasonable attorney fees.
Thus, businesses who seek to manage their reputations should: (1) provide the best product/service possible, at a fair price; (2) comply with all laws, regulations, and industry standards; (3) engage in a good-faith attempt to satisfactorily resolve disputes; (4) consult with their attorney regarding whether to respond to negative reviews; and (5) have their attorney draft, or at least review, any response to an adverse review that the business intends to publish in rebuttal.
As the U.S. Supreme Court recently said in a case involving censorship of political speech, which was presented in the context of so-called campaign finance reform, “when government seeks to use its full power . . . to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought. This is unlawful. The First Amendment confirms the freedom to think for ourselves.”
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06.11.10
Posted in Real Estate Law at 18:40 by Administrator
Q. In addition to the California residence where we live, my spouse and I own several homes which we rent for investment purposes. Although our rental properties are managed in a responsible and business-like manner, we are still concerned that a lawsuit could ruin us financially. We’ve been told that forming a Limited Liability Company (LLC) can protect our rental properties from civil judgments. Is this true?
A. Real estate investors who own residential properties generally face potential civil liability from two different types of claims: claims based on contract (rental agreements) and claims based on injury to persons or property.
Claims based on contract, in the context of residential rental properties, typically are brought by the property owner, not by a tenant or third party, and generally relate either to the non-payment of rent or the creation of a nuisance (where the tenant disturbs other tenants or engages in illegal activity).
Claims based on injury to persons or property, on the other hand, typically are brought by a tenant or third party, against the property owner. These are the types of claims which owners of rental properties often seek to protect against through the use of LLCs.
The cost of creating an LLC varies from lawyer-to-lawyer and from state-to-state. Legal fees for creating a California LLC generally run anywhere from $1,000.00 or so, to more than $5,000.00. Secretary of State filing fees are in addition to legal fees.
If your rental properties are all located in California, you might consider creating a California LLC. If, however, your rental properties are located in a state or states other than California, you might consider creating an LLC in a state where at least one property is located, or a state such as Nevada or Delaware, which are considered “friendly” to this type of asset protection strategy. However, regardless of where one or more of your LLCs are created, because you are a California resident, California will want you to register your foreign (e.g., non-California) LLCs with the California Secretary of State – and pay California taxes thereon.
California charges the same minimum annual fee for registration in California of a foreign LLC as it charges to maintain a California LLC: $800.00. In addition to California’s minimum annual LLC fee (annual fees may be higher, based on gross receipts), each LLC will be responsible for obtaining and maintaining appropriate business licenses and permits, and for filing various tax returns.
The total cost of operating an LLC – when taxes, tax return preparation, and licenses and permits, are considered – can easily total $2,000.00 per year or more.
Holding rental properties in an LLC may also complicate financing or refinancing, as well as create future difficulties in structuring tax-deferred exchanges.
Rather than using LLCs for asset protection purposes, married couples or unmarried persons, who solely own rental properties, might be able to adequately protect their assets with insurance. Every parcel of real property must be insured. Thus, the cost of insuring any particular property will be incurred regardless of whether the property is held in an LLC.
In addition to an individual policy insuring each rental property (primary policy), an owner/investor can usually obtain an “umbrella” policy which acts as a secondary policy and which covers that portion of any claim which exceeds the dollar amount of the primary policy. Several millions of dollars of umbrella insurance coverage often can be purchased for much less than the annual cost of maintaining an LLC.
The above-described strategy of using insurance as a means of asset protection is presented for informational and educational purposes only, and does not constitute legal advice. Before selecting an asset protection strategy, owners of rental property should consult with an attorney.
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06.05.10
Posted in Bankruptcy, Real Estate Law at 09:04 by Administrator
Many homeowners are “upside-down” on their home mortgages, and are looking for a way out. In some areas of California, homeowners have seen home values drop 50% or more, and are deciding whether to “strategically default”, that is, to walk-away from their home. Although a strategic default may be the best option is some cases, in other cases the homeowner may want to consider a Chapter 13 bankruptcy, which provides a mechanism to “strip” junior liens.
Following is an example of how lien stripping works:
Current fair market value of residence: $500,000.
First mortgage/trust deed: $500,000.
Second mortgage/trust deed: $200,000.
Section 506 of the Bankruptcy Code provides that a lien is a secured claim only to the extent there is value in the asset to which the lien attaches. To the extent that claims exceed the value of the collateral, that portion of the claim is unsecured.
Thus, section 506 confers on the Court the power to redefine debts as either “secured” or “unsecured.” Upon a proper showing, the Court will allow the lien to be stripped from the property. Once the lien is stripped, the debt can be “discharged,” – eliminated – by completing the bankruptcy.
In the above example, the home owner’s debt to the junior lender will be discharged and the lien (mortgage/trust deed) “stripped.” When the home owner thereafter sells the property, the owner need only pay the first position loan, even if the property has appreciated since the close of the home owner’s bankruptcy case.
Whether a lien(s) can be “stripped” from a parcel of real property requires an individualized analysis of a debtor’s entire financial situation. Furthermore, filing for bankruptcy – even where the debtor is statutorily eligible to do so – may not be the best decision in all cases. In any event, debtors should obtain the assistance of an attorney before deciding whether to file for bankruptcy, walk away from a property, or take other action.
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05.24.10
Posted in Litigation, Real Estate Law at 09:53 by Administrator
Introduction
There are two types of foreclosure actions in California: judicial and non-judicial. The vast majority of California foreclosure actions proceed as non-judicial foreclosures because judicial foreclosures take much longer to complete and to become final than do non-judicial foreclosures and, therefore, generally are more expensive for lenders.
California’s anti-deficiency statutes preclude or limit lenders’ ability to obtain personal judgments against defaulting borrowers in many situations where proceeds from the sale of a property which has been foreclosed upon fail to extinguish the outstanding debt which was secured by the property. See, California Code of Civil Procedure §§ 580a, 580b, 580d, 726(a).
C.C.P. § 580d generally prohibits deficiency judgments after any foreclosure sale, judicial or non-judicial, of property that is secured by a third-party purchase money trust deed or mortgage on owner-occupied residential property, or on a seller-held purchase money trust deed or mortgage on any kind of property. All standard purchase-money transactions are subject to the C.C.P. § 580b bar to deficiency judgments. Spangler v. Memel, 7 Cal.3d 603, 610 (1972).
Non-Judicial Foreclosure
By choosing non-judicial foreclosure, the creditor waives the right to a deficiency judgment. Roseleaf Corp. v. Chierighino, 59 Cal.2d 35, 43-44 (1963). When a deficiency judgment is barred following a non-judicial foreclosure under a deed of trust, the trustee has a duty to cancel the underlying note. Kerivan v. Title Ins. & Trust Co., 147 C.A.3d 225, 230-231.
Section 580d does not, however, bar recovery on a debt by a sold-out junior lienholder whose security has been rendered worthless by non-judicial foreclosure of a senior lienholder. Roseleaf Corp. v. Chierighino, 59 Cal.2d at 43.
Judicial Foreclosure
A creditor may generally obtain a deficiency judgment following a judicial foreclosure, except where the purchase-money rule would bar such a judgment. C.C.P. § 580b. When recovery of a deficiency judgment is allowed, recovery is limited to the amount by which the outstanding debt exceeds either the fair market value of the property at the time of sale or, if less, the sale price. C.C.P. § 580a.
The purchase-money rule does not apply in cases where the property has been refinanced and the purchase-money loan replaced with a different loan which also is secured by the subject property. Union Bank v. Wendland, 54 C.A.3d. 393, 399-400 (1976).
Deficiency Judgments Generally
The “One-Form-of-Action” rule provides that foreclosure is the only form of action to recover any debt or enforce any right secured by a deed of trust or mortgage. C.C.P. § 726(a). The rule has two purposes: to compel a secured creditor to resort first to the security and to protect the debtor from multiple suits when a creditor holds multiple security interests. Savings Bank v. Central Market Co., 122 Cal. 28 (1898).
The security-first requirement of the One-Form-of-Action rule does not preclude, as mentioned above, an action on a debt by a creditor whose security has been rendered worthless without any fault on the part of the creditor. Id., at 33-36. The most common example is the sold-out junior lienholder, whose security has been rendered worthless by foreclosure of a senior lien. Roseleaf Corp. v. Chierighino, 59 Cal.2d at 39-44.
Legislative Update
Senate Bill (SB) 1178 was introduced in the California legislature on February 18, 2010. If enacted, SB 1178 would amend C.C.P. § 580b to extend anti-deficiency judgment protection to homeowners who have refinanced purchase-money loans which are secured by their residence. It would become effective on June 1, 2011 and apply only to actions filed after that date.
Bad-Faith Waste
California’s anti-deficiency statutes also do not bar actions for bad-faith waste, a judicially-created tort action which was first recognized in California in 1975, by the state supreme court. Cornelison v. Kornbluth, 15 Cal.3d 590 (1975).
The traditional definition of “waste” involves conduct by a person in possession of real property that impairs the value of the property, which serves as the lender’s security interest. Evans v. California Trailer Court, Inc., 28 C.A.4th 540 (1994).
Waste includes dimunition in value of real property which is caused solely or primarily as a result of economic pressures of a market depression.
Bad-faith waste, on the other hand, involves conduct which is “reckless,” “intentional,” or “malicious” and is distinguished from ordinary waste, which results from the neglect that occurs due to an owner’s financial inability to properly maintain real property. Cornelison v. Kornbluth, 15 Cal.3d at 604.
Loan Fraud
The One-Form-of-Action rule also does not bar an action for damages for fraud, if the action is brought by a person authorized by California to make or arrange loans, or by any subsidiary, affiliate, or successor in interest that originated the loan or purchased the loan or any interest in the loan, against a borrower for fraudulent conduct that induced the original lender to make a loan secured by a trust deed. Civil Code § 1572. Punitive damages are authorized in an amount equal to fifty percent (50%) of actual damages. C.C.P. § 726(f), (h); Financial Code §§ 779(a), 7460(a), 15102(a). This exception does not, however, apply to loans secured by single-family, owner-occupied residential real property if the property is actually occupied by the borrower as represented to the lender in order to obtain the loan and the loan was for less than $150,000, adjusted for inflation.
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05.14.10
Posted in Constitutional and Civil Rights Law, Litigation, Real Estate Law at 18:38 by Administrator
Introduction
California housing discrimination law originated in 1959, with passage of the Unruh Civil Rights Act, which required all “business establishments” to provide “full and equal accommodations” regardless of race, color, religion, ancestry, or national origin. In 1963, California passed the Rumford Fair Housing Act. The Fair Housing Act was expanded in 1988 and later, in 1993, amended to conform to federal housing discrimination law. The Act, as currently denominated, is known as the Fair Employment and Housing Act (FEHA).
Procedural Issues
The statute of limitations for filing a FEHA housing discrimination action is two years, and one year for a claim under the Unruh Civil Rights Act.
Any person or entity who can show an “injury in fact” has standing to sue. This includes rental applicants, tenants, the spouse of an applicant or tenant, or children or other adults who reside with the applicant or tenant, regardless of age or relationship.
Standing in housing discrimination cases also extends to “community-based” organizations whose “mission” is advancing “fair housing”, or who unilaterally assume a responsibility to investigate “fair housing” complaints.
Most FEHA provisions apply both to “owners” and “any person”. Thus, potential housing discrimination defendants include, for example, lessees, sublessees, assignees, managers, and real estate brokers and salespersons. “Person” includes individuals, corporations, legal representatives, trusts, unincorporated organizations, and the like.
Housing Discrimination Law
Protected classes for the purpose of housing discrimination law include the ususal classes: race, color, religion, sex, sexual orientation, marital status, national origin, and disability, but also include other classes, such as familial status (children), source of income, age, and occupation.
Prohibited acts include a refusal to sell, rent, or negotiate for housing; the provision of inferior terms, conditions or privileges relating to housing; discrimination in lending; and refusal to provide reasonable disability accommodation. Unlawful acts also include: falsely representing that housing is unavailable; inquiring about a person’s race or sexual orientation; or making any statement that indicates a preference, limitation, or discrimination for or against a protected class.
Proof of housing discrimination can be in the form of actual intent or adverse impact. In cases of intentional discrimination, a violation “may be established by direct or circumstantial evidence.” To successfully defend against a disparate impact case, the disputed practice must be shown to be “necessary to achieve an important purpose sufficiently compelling to override [its] discriminatory effect and effectively [carry] out the purpose it is alleged to serve.”
Damages
Housing discrimination plaintiffs may be awarded: (1) actual damages, (2) emotional distress damages, (3) injunctive relief, (4) punitive damages, and (5) attorney fees.
Actual damages include out-of-pocket expenses and lost housing opportunities. Out-of-pocket expenses may include moving, storage, or travel costs when alternative housing is sought; attorney fees paid to contest an eviction; wages lost to attend a court hearing, deposition, or trial; and other expenses incurred to file or prosecute a housing discrimination claim.
Organizational plaintiffs must prove that, rather than spending resources on its other work, it spent resources to redress the defendant’s discriminatory conduct, or that it will have to spend resources to counteract the harm caused by the defendant to the organization’s mission.
The FEHA also provides for awards of emotional distress damages which are caused by housing discrimination.
Under the Unruh Civil Rights Act, a plaintiff may be awarded “up to a maximum of three times the amount of actual damage but in no case less than four thousand dollars ($4,000), and any attorney fees that may be determined by the court in addition thereto.”
Injunctive relief, in the form of temporary or permanent restraining orders may also issue. Such orders may include “cease and desist” orders, orders requiring the development of non-discriminatory policies or procedures, or attendance at courses designed to prevent housing discrimination.
Punitive damages may also be awarded in appropriate cases. The FEHA does not provide for any “cap” on punitive damage awards, thus the only limit on such awards is that which is imposed by the requirements of constitutional due process.
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