Poorly Drafted Legal Fee Agreement Leads to a Five-Year Dispute Over Lawyers’ Right to Fee Award

By Patrick M. Maloney, Esq., The Maloney Firm, APC

On September 15, 2020, the Court of Appeal published the decision in Aerotek, Inc. v. Johnson Group Staffing Company, Inc., which held that attorneys’ fees awarded under the California Uniform Trade Secrets Act belong to the lawyer, not the client.  The dispute on appeal in Aerotek was whether the law firm had waived its right to any fee award via pro bono language in its fee agreement and whether a fee award under the California Uniform Trade Secrets Act belonged to the lawyer or to the client.  After Porter Scott, P.C. represented the Johnson Group through two jury trials and in the appellate court on a modified pro bono basis, the Johnson Group claimed it should receive the entirety of an award of attorneys’ fees in the amount of $735,781.27, notwithstanding that it had not paid the lawyers for the bulk of their services.  Ultimately, the Court of Appeal held that, unless the parties had a different agreement, the lawyers should receive the award of statutory attorneys’ fees to the extent those fees exceeded amounts already paid to them. 

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Aerotek presented a unique set of circumstances.  The client, Johnson Group, had fallen behind in paying fees.  The law firm, Porter Scott, sought, and was granted leave, to withdraw due to nonpayment.  After the Court granted the withdrawal motion, Porter Scott agreed to represent Johnson Group on a modified pro bono basis.  Porter Scott agreed to waive the past due legal fees of approximately $92,000, in exchange for a one-time payment of $25,000, and agreed that Johnson Group would not be required to pay any further legal fees.  A footnote in the new fee agreement stated that Porter Scott’s waiver of the past due fees would not apply in the event of a fee award.  Additionally, Johnson Group would be required to pay costs going forward.  Johnson Group claimed the footnote concerning the waiver should be interpreted to mean the lawyers had waived their right to any fee award in excess of the past due amount they had written off.  Likely incensed by the client’s attempt to deprive their former counsel of compensation for its tremendous and successful efforts over an extended period of time, the Court of Appeal soundly rejected each of Johnson Group’s arguments.

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The lesson in Aerotek goes beyond its express holding that legal fees awarded in trade secret cases belong to the attorney.  Beneath the surface, Aerotek teaches that poorly drafted legal fee agreements can pose significant problems for lawyers.  Simply put, had the lawyers in Aerotek prepared a fee agreement that clearly and unambiguously stated that the entirety of any fee award would belong to the law firm, they would have avoided substantial litigation and delay. To put this into perspective, the underlying suit was filed in 2007, the new fee agreement executed in 2009, judgment was entered in 2014, and the appeal on the fee entitlement issue spanned from 2015 to 2020.  Further, the fee dispute resulted in multiple depositions and other litigation activities for which the lawyers were not compensated. 

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When representing clients in matters where there is even a remote possibility of a prevailing party fee award, counsel should be careful to articulate in the fee agreement whether the client or the lawyers will be entitled to receive the fee award.  This is true even if the lawyer intends to follow the holding of Aerotek, namely, that the fee award will belong to the lawyers to the extent the award exceeds the amounts that the client already paid to the lawyers.  This, alone, will go a long way to avoid disputes by creating clear expectations about how the fee award will be treated, since most clients are unlikely to have read the Aerotek decision.

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Also worthy of consideration is the treatment of legal fee awards in contingent fee matters.  Some considerations include:

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1) Whether the lawyer is entitled to both the contingent fee and the fee award;

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2) Whether the lawyer should receive the greater of the contingent fee or the statutory fee award; and

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3) Whether the fee award should be included in the total recovery when calculating a contingent fee award. 

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Where there is a lack of clarity in the fee agreement, clients often feel their lawyer has taken advantage of them.  When counsel proposes to receive both a contingent fee and the fees awarded to the prevailing party, the lawyer should also assess whether the proposed fee may be deemed unconscionable.

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Another issue to address includes what will happen if the Court does not award the full amount claimed by counsel as prevailing parties’ fees.  This may occur because the Court determines that the fees charged were excessive or otherwise improper.  Or, more benignly, because a portion of the fees claimed are outside the scope of the statute authorizing the prevailing party to recover fees.  In the first example, the client may have a legitimate dispute with the attorney for overcharging.  In the latter example, the client may make an unwarranted claim it is not required to pay the full amount of fees. 

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The fee agreement should also cover the handling of sanction awards.  In contingent fee matters, the awarded sanctions likely should be paid and belong to the attorney.  In hourly matters, the client likely should receive a credit against the outstanding balance or, in some instances, a refund. 

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About the Author:

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Patrick Maloney is the founder of The Maloney Firm, APC, a boutique law firm that represents clients in business litigation and related matters.   Mr. Maloney has represented both lawyers and clients in a number of legal fee disputes and legal malpractice matters.  Mr. Maloney may be reached at pmaloney@maloneyfirm.com or 310-540-1505.

ADA Website Accessibility Tax Credits: Find Out How To Maximize Tax Benefits And Expand Your Website’s Audience While Avoiding Litigation

Co-authored by Carl I. S. Mueller, Esq., The Maloney Firm, APC, Ike Song, and Daryn Harpaz

As the September and October deadlines to file 2019 taxes rush by, it is important for business owners to start considering how they can maximize their 2020 tax benefits.

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With much of Southern California still in quarantine and interacting with the world almost completely online, businesses must make sure their websites are compliant with the Americans with Disabilities Act (ADA) to avoid potential lawsuits. Additionally, small business owners that have remediated their websites to comply with the ADA may be eligible for a tax credit of up to $5,000. With ADA Website accessibility lawsuits on the rise, understanding all potential tax benefits available to small businesses is essential during the COVID-19 pandemic.

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“Tax credits” are a dollar-per-dollar reduction on your tax liability, whereas a “tax deduction” simply lowers your taxable income. The ADA tax credit can be taken in conjunction with many other tax credits, including the Research and Development Tax Credit (R&D Credit). R&D and ADA credits are commonly found in businesses with computer programming, manufacturing, and product development. These credits can be taken retroactively, but they also expire.

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Specifically, 26 U.S.C. § 44 allows an “eligible small business” to receive a 50% credit on expenditures for the purpose of increasing access under the ADA, for a maximum credit of $5,000. To be eligible, a business must have gross receipts under $1,000,000 or less than 30 full time employees, and have incurred expenditures “for the purpose of removing architectural, communication, physical, or transportation barriers which prevent a business from being accessible to, or usable by, individuals with disabilities.”

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While many companies are understandably avoiding all additional expenses during the current economic crises, website ADA cases and demand are not going away. California now has the most cases filed of any state, with cases being filed in both California State Court under the Unruh Civil Rights Act and Federal Court under the ADA. And, as shown below, while complaint numbers were down during the lockdown, they have started rising again.

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Picture 1

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Using the tax credit under 26 U.S.C. § 44 allows businesses to save money on improving their websites, by making them accessible to a wider audience. Since businesses can claim a 50% tax credit for costs incurred in improving the accessibility of the website, they can proactively avoid a potential lawsuit, and potentially even claim a tax credit for the legal fees incurred in defending an ADA claim. In summary, while COVID-19 forces more commerce online, it makes financial sense for businesses to make sure that their digital platforms are accessible.

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Ike Song is a tax attorney based in Orange County obtaining tax credits for business owners and defending them against the IRS. Contact him at is@skylawfirm.net or 949-610-7425. If you would like to speak to an expert on ADA website accessibility, please contact daryn@zenythgroup.com or call 310-400-0194. If you need further legal guidance or are facing litigation, please contact Carl Mueller, Esq., of The Maloney Firm, APC at cmueller@maloneyfirm.com or at 310.540.1505.

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Disclaimer: This article is not intended to be and is not legal advice or tax advice. You should not rely on the information in this article as legal advice or tax advice. Rather, please consult the appropriate professional. Reading or receiving this article is not intended to and does not create or imply an attorney-client relationship.

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Computer Counselor: Videoconferencing Legal Venues during the Pandemic

Gregory M. Smith, an attorney in The Maloney Firm, APC’s Business Litigation Department, discusses best practices for videoconferencing legal venues during the pandemic in an article for the Los Angeles Lawyer Magazine. Read the article by downloading the PDF below or clicking the link here.

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Greg Smith represents attorneys in disputes over legal fees and legal malpractice. If you have questions regarding this article contact Greg Smith at gsmith@maloneyfirm.com.

California Enacts Bill Extending AB5 Exemptions

Just eight months after California businesses began to adapt to the rigorous new standards for classifying workers as independent contractors under Assembly Bill 5 (AB5), California lawmakers have enacted AB 2257, which creates additional exemptions for certain occupations and contractual relationships from the restrictions that AB5 posed on many employers and workers. Importantly, AB 2257 upholds the ABC Test for classifying independent contractors, with additional exemptions. Find out more about how AB 2257 affects California businesses and workers below.

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Brief History of AB5

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In response to concerns about the rise of the gig economy in California, AB5 (also known as the “gig worker bill” and the independent contractor law) was signed into law by Governor Gavin Newsom on September 18, 2019. The bill, which went into effect on January 1, 2020, created the ABC Test for determining if a worker is an employee or an independent contractor under California law. The bill originates from the California Supreme Court’s groundbreaking Dynamex Operations v. Superior Court ruling in 2018, in which the Court outlined the significant losses employers, workers, and the state incur as a result of the misclassification of workers as independent contractors.

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Workers’ designation as employees or independent contractors determines their ability to access worker’s compensation benefits and social security plans, as well as other significant workplace protections. In the text of AB5, the Legislature cites “the misclassification of workers as independent contractors” as a “significant factor in the erosion of the middle class and the rise in income inequality” in California. AB5 reclassified millions of California workers previously considered independent contractors as employees in order to grant them access to workplace protections offered by employers to employees.  Many industries found these restrictions problematic and have sought additional exemptions.

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How does AB2257 Amend AB5?

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AB2257 does not make any changes to the structure of the ABC Test created by AB5, and the ABC Test is still considered the standard for classifying independent contractors under California law. However, swift and acute backlash against the bill has led the state to create several new exemptions from the ABC Test. Businesses exempted from using the ABC Test are required to use the Borello test, which is significantly less rigorous than the ABC Test, to classify their workers as independent contractors. Some significant exemptions that AB2257 creates or amends are:

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  • Business-To-Business Contracting Relationship Exemption:
    • The exemption included in AB5 for contracts between business service providers and businesses is expanded to include public agencies, quasi-public corporations, and a few other arts-related industries. This exemption remains largely unchanged from its status in AB5, and upholds the 12 mandatory criteria established in AB5 for qualifying for the exemption. “Single-engagement” business-to-business interactions, as well as some relationships wherein one individual contracts with another individual to perform services at “a stand-alone non-recurring event in a single location, or a series of events in the same location no more than once a week” may also be exempted from the ABC Test.
  • Referral Agency Exemption:
    • AB2257 upholds, clarifies, and extends the exemption for referral agencies. The phrase “shall include, but are not limited to” is added to an expanded list of referral services that are exempt from the ABC Test. The bill also stipulates that the ABC Test will be used to determine if the worker is an employee of the referred contractor or the client to which the contractor was referred.
  • Expanded List of Exempted Industries:
    • In addition to the industries originally exempted in AB5, AB2257 provides exemptions for many industries related to the music and performing industries, professional services, and other miscellaneous industries, including, but not limited to:
      • recording arts and music
      • performing arts
      • landscape architecture
      • translation of documents
      • copy editing and illustrations
      • registered professional forestry
      • appraising
      • home inspections
      • insurance underwriting inspections, auditing, and risk management and loss control
      • manufactured housing sales
      • international and cultural exchange services
      • competition judging
      • digital content and feedback aggregation
      • master class performance
      • AB2257 also removes the limit on submissions that would cause workers to lose their independent contractor status, and instead stipulates that business cannot let go of existing employees in order to hire independent contractors.
      • Musicians and vocalists who do not receive royalties from the work that they create in any engagement are not completely exempt from the ABC Test. Instead, they “shall be treated as employees solely for purposes of receiving minimum and overtime wages for hours worked during the engagement, as well as any damages and penalties due to the failure to receive minimum or overtime wages.”
      • Relatedly, AB2257 adds several specific conditions for musicians, musical groups, and other performers that, if met, disqualifies them from exemption from the ABC Test.

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Find a full list of the exemptions stipulated in AB2257 here.

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In addition to widening the exemptions from the ABC Test, AB2257 gives district attorneys, along with the Attorney General and specific city attorneys, the ability “to prosecute an action for injunctive relief” for intentionally misclassifying workers as independent contractors.

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How do I apply the ABC Test?

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Under AB5 and AB2257, all workers are still considered employees by default. It is the employer’s responsibility to use either the ABC Test or the Borello test (only if exempted from the ABC Test) to prove that their workers are independent contractors. Non-exempted employers must satisfy all three of the ABC Test’s rigorous conditions to lawfully classify their workers as independent contractors. The three conditions are as follows:

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  • A: The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  • B: The worker performs work that is outside the usual course of the hiring entity’s business; and
  • C: The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

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Willful misclassification of workers as independent contractors may lead to civil penalties of between $5,000 and $25,000 per violation, in addition to potential penalties for wage violations.

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The California Supreme Court and California Labor and Workforce Development Agency clarify the application of the ABC Test as follows:

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Part A:

  • A worker who is subject, either as a matter of contractual right or in actual practice, to the type and degree of control a business typically exercises over employees would be considered an employee.
  • Depending on the nature of the work and overall arrangement between the parties, a business need not control the precise manner or details of the work in order to be found to have maintained the necessary control that an employer ordinarily possesses over its employees.

Part B:

  • Contracted workers who provide services in a role comparable to that of existing employees will likely be viewed as working in the usual course of the hiring entity’s business.

Part C:

  • The hiring entity must prove the independent business operation is actually in existence at the time the work is performed. The fact that the business operation could come into existence in the future is not sufficient. 
  • An individual who independently has made the decision to go into business generally takes the usual steps to establish and promote that independent business.

How Do I Apply the Borello test?

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Unlike the ABC Test, the Borello test does not rely on any single factor to determine if a worker is an employee or independent contractor. Instead, it is a “multi-factor” test that prioritizes “statutory purpose” and requires a wholistic consideration of all of the available facts. The California Supreme Court specified the following factors that are considered in classifying workers as independent contractors or employees under the Borello test:

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  • Whether the worker performing services holds themselves out as being engaged in an occupation or business distinct from that of the employer;
  • Whether the work is a regular or integral part of the employer’s business;
  • Whether the employer or the worker supplies the instrumentalities, tools, and the place for the worker doing the work;
  • Whether the worker has invested in the business, such as in the equipment or materials required by their task;
  • Whether the service provided requires a special skill;
  • The kind of occupation, and whether the work is usually done under the direction of the employer or by a specialist without supervision;
  • The worker’s opportunity for profit or loss depending on their managerial skill;
  • The length of time for which the services are to be performed;
  • The degree of permanence of the working relationship;
  • The method of payment, whether by time or by the job; 
  • Whether the worker hires their own employees;
  • Whether the employer has a right to fire at will or whether a termination gives rise to an action for breach of contract; and
  • Whether or not the worker and the potential employer believe they are creating an employer-employee relationship (this may be relevant, but the legal determination of employment status is not based on whether the parties believe they have an employer-employee relationship). 

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Resources for California Employers

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Find detailed instructions on how to apply the ABC Test here.

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Find out more about the Borello test here.

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Find the full text of Assembly Bill 2257 here.

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Find the full text of Assembly Bill 5 here.

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Read more about what “Control of an Employee” means in California here.

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If you have questions regarding the application of AB5 and AB2257 to your business, contact The Maloney Firm at 310.540.1505.

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California Delays Registration Deadline for Mandatory Retirement Plans

CalSavers, a state-sponsored retirement savings program for private sector workers, has extended its first implementation deadline, which applies to businesses with 100 or more employees, to September 30, 2020. Learn more about how California’s mandatory retirement program will affect businesses and workers below.

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What is CalSavers?

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CalSavers was created in 2016 to serve the millions of California workers that lack retirement savings programs through their employers. California employers who do not already sponsor retirement plans must either register with CalSavers or offer an alternate retirement plan by the applicable deadline, which is based on employer size. CalSavers accounts are also available to self-employed workers. The program gives employers an uncomplicated, low-cost means of helping their employees build retirement savings.

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A CalSavers account is set up as a payroll-deducted Roth Individual Retirement Account (IRA), which an employee can opt in or out of at any time. This account belongs to the employee, and will remain with the employee even if they change jobs. Employees that do not opt out of the CalSavers plan proactively will automatically be enrolled 30 days after their eligibility or hiring date. The standard contribution rate for eligible employees is 5 percent, with 1 percent automatic escalation, up to 8 percent of the employee’s salary. Employees also have the option to choose their own savings and investment rates.

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How will CalSavers affect California business owners?

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Business owners that register for and implement CalSavers have no fiduciary duties, reporting tasks, or employer fees associated with the program. The plan is designed to give employers minimal responsibilities in implementing the program; after a business is registered with CalSavers, the employer must only continue to add new employees and submit participating employees’ contributions via payroll deduction.

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Any employer can register for the CalSavers program at any time at this link. All businesses with 5 or more employees are required by California law to offer a retirement plan or register for and facilitate the implementation of CalSavers by the appropriate deadlines, which are staggered by business size over three years. The deadlines are as follows:

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  • Businesses with 100 or more employees: September 30, 2020
  • Businesses with 50 or more employees: June 30, 2021
  • Businesses with 5 or more employees: June 30, 2022.

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Non-compliance with these deadlines may result in penalty fees of either $250 or $500 per eligible employee, depending on the length of time an employer has failed to comply with the mandate.

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Resources for California Employers

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If you anticipate California’s retirement program mandate affecting your business in the next couple of years, it is important to begin weighing your options. Below are some resources to help you navigate this process:

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Register for CalSavers or certify your exemption here.

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Access the CalSavers Employer Overview PDF here.

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Access resources for implementing CalSavers here.

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If you have questions regarding this article, contact The Maloney Firm at 310.540.1505.

Is Nonparty Discovery Permissible in Arbitration?

By Nicholas Grether, Esq., The Maloney Firm, APC

Many businesses utilize arbitration as an efficient means of dispute resolution for different types of legal claims.  If you have been to your doctor recently or purchased a cell phone, you likely agreed to arbitrate any dispute with them.  Other common examples are employment claims (e.g. wage and hour issues, discrimination, harassment) and misappropriation of confidential information. 

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Arbitration is a method for private dispute resolution that is subject to state and federal laws and that has important limitations that differentiate it from a lawsuit in court.  These limitations are either defined by state and federal statutes or are modified by an agreement between an employer and employee or consumer and business (most commonly).  For example, the U.S. Supreme Court has consistently held that the Federal Arbitration Act (“FAA”) provides that class action procedures available in court are not available to plaintiffs who agreed to arbitrate their claims individually.

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The FAA and California Arbitration Act (“CAA”) were designed to take advantage of the efficiency of the arbitration process.  Both the FAA and CAA give arbitrator(s) relatively broad powers to subpoena documents for and to compel witnesses to attend arbitration hearings, similar to a judge’s power to compel individuals to testify at trial in court.  However, an arbitrator’s power before the actual hearing is limited; while, in court, the parties to a lawsuit have broad powers to seek testimony and documents before trial in a process known as “discovery,” parties engaged in arbitration may not have these abilities before the hearing. A recent California Court of Appeals case shows how important it is for the drafter of the agreement to consider what an actual arbitration may look like, so they do not inadvertently limit what can be done in the arbitration. 

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Former Employee Allegedly Took Confidential Information to New Employer

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In Aixtron, Inc. v. Veeco Instruments, Inc., Appellate Nos. H04516 and H045464 (July 16, 2020), an employee of Veeco resigned and accepted an offer with Aixtron.  As part of his employment with Veeco, the employee signed a confidentiality agreement drafted by Veeco, which contained a clause requiring disputes to be resolved in binding arbitration.  The clause requiring arbitration did not refer to discovery, only the use of an arbitration company’s rules.1

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Shortly after he began employment at Aixtron, Veeco claimed the employee had retained confidential information because it was copied onto the employee’s personal computer.  Veeco claimed that the employee did not delete the confidential information and that this confidential information may have made its way to Aixtron, a claim that Aixtron and the employee denied. 

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Veeco Sought Discovery from a Nonparty

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During the arbitration, Veeco sought discovery from Aixtron in the form of a subpoena for documents and data.2 It is undisputed that Veeco and the employee were parties to both the agreement containing the arbitration clause and the arbitration.  Aixtron was a non-party to the arbitration.  Veeco wanted to review documents and data from Aixtron to determine if Aixtron had received confidential information.  Unlike a lawsuit in court, parties to an arbitration generally must request that the arbitrator sign a subpoena for it to be valid.3 

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After failed negotiations on the extent of a subpoena, the arbitrator signed off on the subpoena to be sent to Aixtron.  Aixtron objected by claiming that the subpoena was overbroad and sought Aixtron’s confidential information, and that the arbitrator did not have the power to issue the subpoena.  The arbitrator disagreed and issued an order compelling Aixtron to comply.  Aixtron and Veeco both filed motions in the superior court, which were won by Veeco, and Aixtron appealed the rulings.

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The Court of Appeal did not get to Aixtron’s other arguments, because it found that the arbitrator had no authority to issue the subpoena to a nonparty.  In its detailed analysis, the Court identified three different scenarios where an arbitrator could issue a subpoena to a nonparty.  The first scenario is where the governing law, the FAA or CAA, grants the arbitrator this power.  The second scenario is where the arbitration rules are incorporated into the agreement and provide the arbitrator with this power.  The third is where the arbitrator is given that power in the actual arbitration agreement or clause.  However, the third scenario was inapplicable to this case because the arbitration clause at issue made no reference to discovery. 

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The FAA and CAA Did Not Permit Nonparty Discovery for a Misappropriation of Confidential Information Arbitration

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Moving on to the governing law, the Court found that whether using the FAA or CAA, the arbitrator was not permitted to issue a subpoena to nonparties in the case.  Under the FAA, the Ninth Circuit follows the majority rule that an arbitrator is not granted the power to order a nonparty to produce documents as part of pre-hearing discovery.  See CVS Health Corp. v. Vividus, LLC, 878 F. 3d 703 (9th Cir. 2017).  This power is granted to arbitrators to subpoena nonparties and documents only for the arbitration hearing.  The CVS Health court reasoned that permitting pre-hearing discovery to nonparties would encourage fishing expeditions, thus undermining the quicker and cheaper system of arbitration.  878 F. 3d at 708. 

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Under the CAA, the Court similarly found the arbitrator did not have the power to issue subpoenas to nonparties.  Under the CAA, arbitrations arising from wrongful death or personal injury claims are permitted to use the same discovery as allowed in court.  However, the CAA does not grant arbitrators this power for arbitrations stemming from any other types of claims.  In response, Veeco then argued that the CAA authorized discovery subpoenas whenever signed by the arbitrator.  The Court of Appeal disagreed and found that the CAA only explained the types of subpoenas that could be issued by an arbitrator, and that this power was limited to the arbitration hearing.  This was confirmed by reviewing legislative history, which stated that subpoenas to nonparties were limited to attending the arbitration hearing, not for discovery.

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The JAMS Rules Did Not Provide for Nonparty Discovery

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Lastly, the Court of Appeal reviewed the arbitration company’s rules to determine if they provided the arbitrator with the power to issue a subpoena for a nonparty.  The Court of Appeal found that: first, the arbitration company’s rules explained that limited discovery was available “between the parties;”  second, the arbitration company’s rules allowed for subpoenas to compel attendance at the hearing, but not for purposes of discovery; and third, Aixtron was not a party to the agreement.  The Court noted that an arbitrator’s authority is derived from consent, and Aixtron never consented to be bound by the rules or the agreement to arbitrate the dispute over confidential information.  In its conclusion, since none of the FAA, CAA, the arbitration company’s rules, or the agreement permitted the arbitrator to issue a nonparty subpoena for discovery, the Court held that the subpoena should never have been issued and was rightfully quashed.

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How Does This Apply to Your Business?

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  1. The Arbitration Agreement should be separate from any other agreement.  This is especially important in the employment context, because employees often claim they were unaware of the agreement and it is unenforceable.
  2. Meet with your legal counsel and think through what an arbitration might look like.  In the above case, Veeco would likely have wanted to take some limited discovery of nonparties to narrow the issues before the arbitration hearing.  The Court signaled that the parties to the arbitration agreement could have agreed to broad subpoena powers in the agreement or by referring to discovery available in court. 
  3. Check the company’s rules for arbitration and incorporate them into the agreement if they are adequate for your needs.  If there is specific discovery you may need, consider spelling it out in the agreement, and emphasize that it may be used by both parties.  Remember that for employment-dispute arbitration agreements, the agreement must provide for at least adequate discovery by the employee and the business.
  4. Determine if arbitration is really the best forum for the dispute.  By using arbitration, Veeco could use someone as an arbitrator with experience in the field of trade secrets and confidential information.  On the other hand, while arbitration is perceived to be quicker and cheaper, arbitrator fees can quickly make it undesirable.  You will need to determine if avoiding the whims of a jury are more important than the potential costs of an arbitrator.  In some circumstances, it may be preferable to waive the right to a jury trial, and have the case heard in court.

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These are all conversations to have with your legal counsel to make sure arbitration will provide the benefits sought.  While companies generally default to arbitration, a careful analysis of how arbitration will play out in reality and the rights of the parties in an arbitration is necessary to make an informed decision about using arbitration and draft any agreements accordingly.

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About the Author:

Nicholas Grether is an employment attorney in the Employment Law Department at The Maloney Firm, APC. If you have questions regarding this article, contact Nicholas Grether at 
ngrether@maloneyfirm.com.


1 The agreement refers to the American Arbitration Association Rules. However, the Court noted that while the record was not entirely clear, it appeared that Veeco and the employee agreed to utilize the Judicial Arbitration and Mediation Services, Inc. (“JAMS”) rules to arbitrate the dispute.  This was not disputed by the parties to the arbitration, but there was no written agreement on the record that would have superseded the original confidentiality agreement.

2 The court noted the distinction between requiring pre-arbitration discovery and requiring witnesses and documents to be present at the actual arbitration hearing.

3 In arbitration, the arbitrator is technically issuing the subpoena.

Employees Commuting with Company Equipment May Need to be Paid for Travel Time

By Nicholas Grether, Esq., The Maloney Firm, APC

In this article, we discuss the California appellate court ruling in Michael Oliver v. Konica Minolta Business Solutions U.S.A., Inc. (June 2, 2020) Appellate No. H045069, Santa Clara County Super. Ct. No. 2014-1-CV-263183, which states that commute time could be paid while carrying employers’ tools and equipment. The Court found that there was a factual dispute as to whether or not the employees were under the employer’s control. If the employees were under the employer’s control during their commutes, they must be paid for that time.

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Service Technicians Carried Their Tools in Personal Cars

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The Plaintiff in this matter was a former service technician for Konica Minolta Business Solutions’ (Konica) printing, copying, and scanning products.  Service technicians were responsible for maintaining or repairing products at the customer’s site.  They were required to commute in their own cars and to be at the site of the first customer by 8:00 a.m.  The technicians were expected to leave their last customer site by 5:00 p.m.  The technicians were paid for their work hours and reimbursed for mileage between 8:00 a.m. and 5:00 p.m., which included drive time between customer sites during regular work hours.  The technicians were not paid wages or reimbursed for mileage for commuting to the first site or commuting home from the last site.

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Ordinarily, when an employee has no regular, fixed location, they are not entitled to be paid for the time spent commuting to and from work.  However, Konica required service technicians to have a car with at least 25 cubic feet of space to “hold their tools and anything else they need for the job.”  Konica supplied all the tools and parts needed to work on the machines, and expected technicians to have all the tools and parts necessary to do their job.  Depending on the machines worked on by the particular technician, they carried different tools.  Storing the tools in the technician’s residence or other non-approved area was forbidden, unless the technician received written permission.

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Technicians were judged on the percentage of jobs that were completed on their first visit, which meant that it would be in a technician’s interest to carry as many tools and parts as necessary to complete jobs on the first visit.  Additionally, Konica had a policy where it could perform a check on their technicians.  During this check, the technician was expected to find 20 items within 20 seconds.  This meant that for all practical purposes during working hours, a technician needs to have at least 20 tools and parts with them in the event Konica decided to perform a check.  For these reasons, the technicians argued that driving with the tools and parts constituted “hours worked,” and they should be compensated for the time spent traveling from home to the first customer site and traveling from the last customer site back home.  The Plaintiff filed a class action lawsuit for unpaid wages and unreimbursed business expenses. 

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The Santa Clara Superior Court granted summary adjudication in favor of Konica.  It found that transporting tools did not mean Konica controlled the technicians’ routes or prevented them from completing personal errands before arriving to the first customer site or when returning home. The Plaintiff appealed the ruling, arguing that there was a question of fact whether technicians’ commutes constituted “hours worked.”  The Appellate Court found there was sufficient evidence that the technicians were under Konica’s control and reversed the grant of summary adjudication. 

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What Does Control of an Employee Mean in California?

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In California, hourly (non-exempt) employees must be paid at least the minimum wage for all “hours worked,” which is defined in California as the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, “whether or not required to do so.”  In its analysis, the Court reviewed cases for what is considered “control.”  Typically, this is when an employer “directs, commands, or restrains” an employee.  An employer may also hire an employee “to do nothing, or to do nothing but wait for something to happen…”  Courts observed that readiness to serve may be hired, just as service itself.  There is no requirement that an employee actually be working to be compensated. The level of control exercised over employees is determinative when deciding if the time is compensable.

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The Court noted the general proposition that commute time is not compensable.  If an employer provides optional free transportation, commute time is not compensable.  On the other hand, compulsory commute time is compensable where employees must meet at a certain time and place and use the employer’s transportation. 

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The analysis evolves when employees are transporting tools or equipment required for the job.  In Hernandez v. Pacific Bell Telephone Co., (2018) 29 Cal.App.5th 131, the court found that an optional program that allowed employees to drive a company vehicle home did not require that employees be paid for their commute time to the first work site and from the work site home.  Even though the employees could not use the company vehicle for personal use and contained the company’s tools and equipment, the program was optional.  Employees could also choose to start their day at the employer’s premises and drive the company vehicle from there, and they would be paid for the travel time from the employer’s premises to the first work site.

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Sufficient Evidence Existed that the Technicians were Under Konica’s Control1

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The court noted two undisputed facts.  One, technicians were required to use their personal vehicle to commute to the customer site.  Two, they were free to engage in other activities prior to their first service appointment at 8:00 a.m. 

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However, the Court found there were factual disputes that warranted reversing the grant of summary adjudication.  It focused on two issues essential to determining if the technicians were under the employer’s control.  First, there was a dispute as to whether the technicians were required to carry the tools.  Some technicians had access to and the option to use a field stocking location where parts could be stored, but some did not have access.  The Court found there was a reasonable inference that technicians were better able to accomplish their performance goals by carrying tools and parts in their vehicle.  In effect, a jury could find that while not required to carry the tools and parts in their vehicles, the demands of their job did not afford the technicians a real option.

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Second, there was a factual dispute about the volume of tools and parts the technicians were required to carry.  Konica required at least 25 cubic feet of space.  Some technicians drove vehicles without sufficient space.  One technician claimed he had to carry upwards of 400 pounds, another claimed his trunk was full, and another claimed he could fit everything in an Audi coupe.  The Court noted that one technician drove his spouse’s car on weekends to avoid unloading his car, and another took all the tools and parts out each weekend and put them back in Sunday night.

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Given these factual disputes, the Court determined that if carrying the tools and parts was optional, the technicians would not be under the control of their employer.  If technicians had to carry tools and parts, this would not be control if the technicians could use the time commuting for their own purposes.  On the other hand, if being required to carry the tools and parts as a practical matter prevented the technicians from using the time effectively for their own purposes, the technicians would be subject to Konica’s control and must be compensated at least the minimum wage for this time.  Since the evidence was disputed on these issues, summary adjudication for Konica was not warranted.2

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What Can Employers Do?

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This case underscores a key issue in California employment law.  Namely, when an employee is subject to the control of the employer, an employee needs to be paid.  We have just seen that employers must pay for employees waiting for and undergoing bag checks.  Even small amounts of time that are for the employer’s benefit must be recorded and paid.  Commute time mandated by the employer as to type and time should be paid. 

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In addition, employers should make sure they are not exposing themselves to liability when employees carry around tools and parts.  Think if your employees are required by policy or practicality to carry tools, equipment, or parts to do their jobs.  A policy that allows employees to either pick up their tools before the start of the work day or carry the tools with them at the employee’s convenience would not necessitate paid commute time. 

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If your business requires employees to carry company property, now is a good time to determine if there is potential wage and hour liability.  If this practice is essential to your business, consider if you need to pay your employees for their commute time.  If employees cannot use the commute time for their own purposes, a court could find that employees are subject to your control, subjecting your business to wage and hour liability.  Lastly, ensure that your policies are up to date in your employee handbooks and that optional practices are clearly communicated to your employees.  If an employee chooses to use a company vehicle or wants to carry tools in their car to make their work day easier, have them sign an acknowledgment that this is an optional practice and is provided for the benefit of the employee.

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.A copy of the opinion can be found here.

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About the Author:

Nicholas Grether is an employment attorney in the Employment Law Department at The Maloney Firm, APC. If you have questions regarding this alert, contact Nicholas Grether at 
ngrether@maloneyfirm.com.


1 This court is reviewing an order granting summary adjudication.  Thus, all reasonable inferences must be drawn in the light most favorable to the opposing party.  The court did not find that commute time was compensable, rather that triable issues of fact existed as to whether the technicians were under Konica’s control during their commutes.  A jury may find that the Konica did not subject their technicians to control and did not have to compensate them for commute time.

2 The Court noted that if service technicians are owed wages for their commute time, then they are also owed reimbursement for their mileage while commuting under Labor Code section 2802.  Konica only provided reimbursement when the travel took the technicians outside of a defined area for this commute time from home to the first customer site and from the last customer site back home.  Konica reimbursed technicians for mileage driven during regular work hours.


Pending Legislation May Protect Employers From COVID-19 Related Liability

Note: This article was posted on August 12, 2020 at 9:30am PDT. Because the COVID-19 situation is rapidly changing as the federal government and State of California continue to fight this pandemic, individuals and businesses should consult with counsel for the latest developments and updated guidance on this topic.

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Senate Bill 4317, or the “SAFE TO WORK Act,” would provide employers engaged in interstate commerce with extensive immunity from liability for COVID-19 related claims. The Act was introduced to the United States Senate by Texas Senator John Cornyn on July 27th, and is meant to “lessen the burdens on interstate commerce by discouraging insubstantial lawsuits relating to COVID-19 while preserving the ability of individuals and businesses that have suffered real injury to obtain complete relief.”

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The Act, as it is currently drafted, offers sweeping liability protections to many businesses, non-profit organizations, schools, and healthcare providers that have made “reasonable efforts” to comply with applicable public health guidelines. Significantly, the Act establishes a more rigorous evidence standard, limits compensatory damages, and prohibits punitive damages for COVID-19 exposure claims, except in the case of intentional misconduct. The Act establishes a one-year statute of limitations for COVID-19 exposure claims, and covers business actions, services, activities, and accommodations that occur between December 1, 2019 and the later of either the end of the coronavirus emergency declaration or October 1, 2024.

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While the Act creates a floor for liability, it does not preempt state laws that create further liability limitations. The Act also does not preempt or supersede stricter workers’ compensation laws, government enforcement actions, intentional discrimination claims, or maintenance and cure benefits.

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Resources for California Employers

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Although the “SAFE TO WORK Act” could potentially protect businesses from liability for COVID-19 exposure claims, it is important that employers follow appropriate guidelines to mitigate the risk of COVID-19 exposure in the workplace and create and abide by a documented return-to-work policy.

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Read more on Creating a Return to Work Policy here.

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Read more on California’s Industry Guidance to reduce risk here.

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Read the California State’s Employer Playbook for a Safe Reopening here.

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Read the full text of the draft of the pending “SAFE TO WORK Act” (Senate Bill 4317) here.

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If you have questions regarding this article, contact The Maloney Firm at 310.540.1505.

Paycheck Protection Program (“PPP”) Loan Update

By Nicholas Grether, Esq., The Maloney Firm, APC

Note: This article was posted on August 7, 2020 at 12:21pm PDT. Because the COVID-19 situation is rapidly changing as the federal government and State of California continue to fight this pandemic, individuals and businesses should consult with counsel for the latest developments and updated guidance on this topic.  Specifically, the federal government continues to update the regulations related to PPP Loans.  The federal government may create additional exemptions and procedures that affect forgiveness.

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If your business was fortunate enough to receive a Paycheck Protection Program (“PPP”) loan, you likely have questions about what to do next.  We’ve provided several resources to assist you in applying for forgiveness and some updates on the process of applying for PPP loan forgiveness.  

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Pending Legislation May Ease Forgiveness

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Currently pending in the U.S. Senate, is Senate Bill 4321 , which provides that loans made to eligible recipients for under $150,000, will be forgiven if the borrower submits a one-page form attesting that the borrower complied with the PPP requirements.  The Senate also proposes easing forgiveness requirements on for loans between $150,000 and $2,000.  The bill would also establish provisions to protect lenders that rely on the documentation and certifications provided by the borrower.  It also proposes limiting enforcement actions to borrowers who commit fraud or spend the loan proceeds improperly.  If and until the bill is passed and signed, we will not know the exact details, but the bill has bipartisan support and it is expected to pass in some form.

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Resources to Help Apply for PPP Loan Forgiveness

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The Association of International Certified Professional Accountants (AICPA) had created a downloadable tool to estimate loan forgiveness. 

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If using one of the forms created by the Small Business Administration (“SBA”), the SBA has provided instructions on filling out the Form 3508 or 3508 EZ.  If the borrower did not reduce any employee’s pay more than 25% and did not reduce the number of employees, they will likely be able to use the EZ version.  Review the instructions for the Form 3508 EZ to find out if you are eligible.

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Link to the SBA Form 3508 here and instructions here.

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Link to the SBA Form 3508EZ here and instructions here.

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Some Borrowers May Choose an 8-week or 24-week Period for PPP Loan Forgiveness

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The amount of the loan forgiven depends on how the funds have been spent during a certain time period after receiving them.  If the borrower received their PPP loan funds prior to June 5th, 2020, the borrower can choose between an 8-week period or 24-week period.  The borrower should calculate potential forgiveness amounts for both periods and select the period that is more beneficial.  Use a tool like the AICPA calculator to assist in that process.  Please note that if the borrower received the PPP loan funds after June 5th, 2020, they must use a 24-week period.

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 If you have questions regarding your PPP loan or this article, contact The Maloney Firm at 310.540.1505.


Sometimes Zealous Advocacy Requires Helping Your Adversary

By Carl I. S. Mueller, Esq. and Sam Fogas, Esq., The Maloney Firm, APC 

Although it may seem counterintuitive, certain situations may require an attorney to advocate to a court on behalf of the due process rights of an adversary. In June 2020, the California Court of Appeal published its opinion, Davis v. Superior Court (Sathre) (2020) 50 Cal.App.5th 607, emphasizing that indigent, pro-per judgment debtors have the same access to the courts as litigants represented by an attorney and encouraging the superior courts to embrace remote appearances, particularly during the COVID-19 pandemic era. The opinion encourages attorneys to consider when to treat adversaries combatively versus when to look out for adversaries’ rights.

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In Davis, Plaintiff Curtis Sathre attempted to enforce an almost $160,000 judgment against Defendant Jamie Davis, an indigent, pro-per judgment debtor, and conduct a judgment debtor examination. A 16-month battle ensued in which Davis filed multiple ex parte applications, motions to quash service, and a motion to stay proceedings pending appeal. At their crux, Davis’s motions centered around the fact that she lived too far away to be compelled to come to Los Angeles for a judgment debtor exam because she was indigent and unable to afford to travel. Many of Davis’s efforts were thwarted as the trial court’s department rules did not allow a pro per litigant to appear telephonically, even though Davis claimed she could neither travel to Los Angeles or afford counsel for the hearings. When Davis was finally able to hire an appearance attorney, the trial court denied Davis’s request for a court appointed court reporter, despite the fact that the court had previously granted Davis’s request for a waiver of court reporter fees.

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The Court of Appeal vacated the trial court’s rulings, ordered that Davis’s motions be reheard, and ordered that Davis be allowed to appear telephonically and without counsel, if so desired. The Court of Appeal emphasized three points in its opinion. First, court rules and policies should be consistent with increasing access to the courts by indigent and pro-per litigants. Rules functionally requiring pro-per litigants to hire appearance attorneys or restricting indigent, pro-per litigants from appearing telephonically are inconsistent with this principle. Second, trial courts need to embrace remote appearances by everyone, particularly during the COVID-19 pandemic. Third, and finally, indigent litigants must be provided a court reporter at hearings, given a timely request.

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Attorneys are trained to continuously push their adversaries, challenge them, and take advantage of any possible leverage over an opponent. However, as the Davis Court instructed, this strategy can sometimes backfire. Attorneys cannot take a blanket combative approach in litigation if it means their adversary is denied basic rights. While it is unclear what exactly Sathre’s attorney could have done differently, the trial court’s rulings blocking Davis’s access to the courts resulted in increased costs, appearances, an appeal, and sixteen months the client will never get back. Attorneys should endeavor to remind all courts to protect the minimum rights and access of all litigants, when possible. Failure to account for your adversary’s rights may ultimately cost your client additional time and money.

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About the Authors:
 
Carl Mueller is a business litigation attorney and represents clients in attorney-client disputes of all kinds. Sam Fogas is a civil litigation attorney. If you have questions regarding this article, contact Carl Mueller at cmueller@maloneyfirm.com or Sam Fogas at sfogas@maloneyfirm.com
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