Sacramento Bankruptcy Lawyer Blog

The California Attorney General warned last week about a new scam aimed at struggling homeowners. It is called a "forensic loan audit." The scammer contacts the homeowner to offer an audit of the mortgage loan. The homeowner sends his mortgage documents, and the scammer purports to evaluate the loan for compliance with state and federal laws. The scammer sells this service by claiming that he will arm the homeowner with information about the loan that will provide leverage in loan modification negotiations with the banks. Instead, the homeowner pays upfront fees and receives nothing useful in return.

The scam has been advertised on TV, radio, and in print. It caught the attention of the California Attorney General's office, which partnered with the California Department of real Estate and the State Bar to warn consumers. The Attorney General's Office provides a number of don'ts to avoid foreclosure scams:

• Don't pay up-front fees. By law, foreclosure consultants are prohibited from collecting money in advance of providing services.

• Don't ignore letters from your lender or loan servicer.

• Don't transfer title or sell your house to a "foreclosure rescuer." This scam convinces homeowners they can stay in their home as renters and repurchase the home later. It also could be part of a fraudulent bankruptcy filing. A scammer can evict you and take your home.

• Don't make mortgage payments to anyone except your lender or loan servicer. Fraudulent consultants often keep the money for themselves.

• Never sign a document without reading it. Homeowners have unknowingly signed documents that transferred their home ownership to someone intent on evicting them.

Refinances, loan modifications, and short sales receive most of the attention when alternatives to foreclosure are discussed. However, another option may begin to gain popularity. One of the nation's largest mortgage lenders, CitiMortgage, will soon start a program for borrowers to execute "deeds in lieu of foreclosure."

A deed in lieu of foreclosure is fairly straightforward. A struggling borrower and his or her lender agree that the borrower will turn over the deed to the home in exchange for the bank not foreclosing on the home. The borrower may remain in the home for a number of months and does not suffer as much damage to his or her credit rating as would occur with a foreclosure. The bank releases the borrower from all legal obligations to repay the loan. A deed in lieu involves less legal costs for a bank than foreclosure and also incentivizes borrowers to keep the homes in better condition.

CitiMortgage is planning a pilot program for deeds in lieu in a number of eastern and midwestern states. Qualified homeowners would receive six months to live in the home and $1000 in relocation assistance as long as they maintain the property in good condition. To qualify, a homeowner must be 90 days late on their mortgage and not have a second lien. Citi expects only about 1,000 borrowers to take advantage of the offer because of how many of its customers have second mortgages.

Other lenders consider deeds in lieu on an ad hoc basis. If you are interested in pursuing a deed in lieu or any alternative to foreclosure, contact a specialist who has helped many borrowers find a better option to foreclosure.

Sacramento bankruptcy lawyers have filed a number of lawsuits against OneWest Bank. The common accusation is that the bank is pushing homeowners into foreclosure rather than working with them on a loan modification.

Lawsuits filed in the Eastern District of U.S. Bankruptcy Court in Sacramento allege that OneWest's shared-loss agreement with the FDIC means that the bank profits more from foreclosures than from working out arrangements with borrowers. The lawsuits accuse OneWest of boosting debtors' monthly loan payments after the borrower has entered bankruptcy, which is in violation of the bankruptcy code. Another lawsuit in Sacramento Superior Court accuses OneWest of violating the Truth in Lending Act by not responding to a borrower's attempts to modify the mortgage.

OneWest Bank did not issue the loans in question. IndyMac bank was one of the Sacramento area's top lenders, having made 5312 home loans worth $1.4 billion from mid-2005 to mid-2007. But, once the market tanked, IndyMac was insolvent and the FDIC hastily took over the bank in July 2008. In March 2009, the FDIC sold the IndyMac portfolio to OneWest and agreed to absorb a share of losses.

The Treasury Department released data showing that a dozen lenders have outperformed OneWest in the rate of homes receiving modifications. Still, OneWest has done better than nine other lenders. OneWest had permanently modified 3,087 of its 112,000 delinquent loans by the end of January.

The FDIC has responded to the allegations by pointing out that it has 94 shared-loss agreements with financial institutions that have purchased troubled loan portfolios. OneWest is on the hook for the first $2.5 billion in loan losses before it receives a penny from the FDIC, and the FDIC has not paid OneWest a penny yet. The FDIC can rescind the deal if OneWest does not comply with its agreement to modify loans.

This week, the Credit Card Accountability Responsibility and Disclosure Act of 2009 went into effect. President Obama signed the bill back in May 2009. Obama championed the law as an important step in protecting consumers from credit card companies, which often use not-so-transparent practices to hit consumers with fees and higher interest rates. Credit card companies have a history of innovation. In other words, they find creative ways around regulation to keep the money flooding in. Time will tell whether Obama's efforts will be successful. What follows are the highlights from the law changes.

There is no more universal default. Before, credit card companies could scan your credit report and raise your interest rate based on a late payment on another line of credit. Now, existing rates cannot be raised unless the account is 60 days past due, and if the borrower makes on time payments for six months, then the original rate is restored.

Promotional interest rates must last six months and interest rates on new credit card accounts must last one year. Card companies must furnish borrowers with 45 days notice for rate hikes.

There are no more over-the-limit fees. Instead, card companies should decline approval on purchases that would take you over your credit limit unless you opt-in to a program that allows you to go over your limit for a fee, and even then only one fee may be attached per billing cycle.

There are no more fees for making payments over the phone or on the internet. You may still face a fee if you have to speak to a live person to process your payment. Overall, service fees, such as activation and annual fees, may not add up to more than 25 percent of your credit limit in the first year.

Bills must be more forthright. They must print how many months it would take to pay off the balance if the borrower made just the minimum payment and how much to pay if the borrower wants to pay the balance within three years.

There will be less free stuff on college campuses. The bill prevents banks from handing out free gifts on or near college campuses or at college-related events. Cards may not be issued to anyone under 21 without a co-signer unless that individual can prove that he or she has enough income.

When negotiating technology contracts, a technology provider filing for bankruptcy could affect business operations. For example, software sold as software as a service (SaaS) may not be protected, as compared to a licenses model. Licenses are protected by bankruptcy laws, but not services.

SaaS relates to software deployment where a provider licenses an application for use as a service on demand. Instead of installing a product on its own systems as in a licenses model, customers of SaaS allow the SaaS vendors to host the application on their own web servers or download the application to the consumer device, disabling it after the on-demand contract expires. The customer should check the vendors and their service providers for credit risks. For instance, a cloud computing supplier relies on hosting services so even if the supplier does well, the customer's operations could be affected if the supplier's hosting services cannot find funding.

In bankruptcy, a debtor has the right to reject or assume and/or assign executory contracts. These are ongoing contracts where performance remains due by both parties. A non-debtor party must continue to perform post-petition contractual obligations, and is not able to terminate the agreement because of bankruptcy. A customer that does not want to continue paying a vendor who cannot perform should consider making personal service agreements. Personal service agreements are easier to terminate because they are less assignable. Make agreements more personal by naming personnel to do work.

When there are performance difficulties, demand adequate assurance of due performance. Under UCC Section 2.609, if the other side is unable to provide adequate assurance, it is considered anticipatory repudiation allowing the non-breaching party to walk away under UCC Section 2.702(1).

Requesting a source code escrow may be the way to go to maintain access to a vendor's product during bankruptcy. In escrow provisions, request access to engineers who wrote the code to learn how to use source code.

Continue reading "How Bankruptcy Affects Technology Contracts" »

In 2009, there was concern over what happened to personal injury victims, who filed auto products liability lawsuits against General Motors and Chrysler pending the auto makers' bankruptcies.

According to the U.S. Consumer Product Safety Commission, defective products cost lives, contribute to serious injuries, and require consumers to incur monetary losses to replace or repair products. Examples of product liability cases:

• Medical devices
• Hazardous toys
• Dangerous household appliances
• Makeup and lotion that cause dangerous side effects
• Poorly designed vehicles
• Unsafe power tools

In bankruptcy, a lawsuit against the debtor freezes, but the debtor may have counterclaims against the plaintiff. These claims are considered assets in the debtor's estate. Someone considering a products liability lawsuit should consider having to pay a judgment on a counterclaim and not being able to recover on the original claim.

Product liability claims are based on three (3) theories of law: negligence, strict liability, breach of warranty.

In negligence, the plaintiff proves four elements:

• the defendant such as a manufacturer owed a duty to the consumer
• the manufacturer breached its duty
• the plaintiff was injured
• the manufacturer's breach caused the plaintiff's injury

Manufacturers owe a duty to product users and bystanders, and must guard against injuries that are likely to result from reasonable, foreseeable misuse of a product. In some cases, the merchant or distributor who sold the defective product may also be liable.

Strict liability holds the manufacturer of a product responsible to anyone injured by the use of an unreasonable and dangerous product. A plaintiff must show that the product was defective and unreasonably dangerous, and was defective when it left the manufacturer. The defect must have caused the injury to the plaintiff.

Every product comes with an implied warranty that the product is safe for its intended user. Under breach of warranty, a defective product that causes injury is not safe for its intended user and constitutes a breach of warranty.

Continue reading "Products Liability/Defective Products" »

On January 3, 2010, Associated Press' "Foreclosures weigh on home appraisals" made the Yahoo! buzz reporting that the National Association of Home Builders said low appraisals affected a quarter of new home sales. New homes were being compared with foreclosures or short sales. Appraisers determined property value by looking at recent sales of comparable homes.

Borrowers affected by foreclosures can negotiate a loan modification or a Chapter 7, 11 or 13 bankruptcy filing. Sometimes when loan documents violate the Truth in Lending Act (TILA), a civil lawsuit may need to be filed.

In civil litigation, California Evidence Code Section 1105, comes into play to review habit or custom to prove a specific behavior. The TILA promotes informed use of consumer credit, by requiring disclosures about its terms, and to standardize the manner in which costs associated with borrowing are calculated and disclosed. When a lender regularly responds to a repeated situation, habit and custom may be used to show intent, absent of mistake or accident. People v. Bennett (1969) 276 CA2d 172, 80 CR 706. Andrews v. City & County of SF (1988) 205 CA3d 938, 252 CR 716. People v. Memro (1989) 38 Cal.3d 658, 681.

When evidence is unreliable or public policy requires exclusion, Evidence Code Section 405 applies. A party may introduce evidence before a jury to weigh on credibility under Evidence Code Section 406.

During trial or discovery, Evidence Code Section 702 requires personal knowledge in witness testimonies. Personal knowledge relates to one of the five senses.

Before written evidence may be introduced at trial, Evidence Code Section 1400 requires authentication, meaning a finding that it is the writing the proponent claims, or proof by other means (e.g., stipulation of the parties, by pleadings, or by use of a presumption).

Continue reading "California Evidence Code" »

The Chapter 11 bankruptcy case of Sacramento-area Jack in the Box owner Abe Alizadeh hit a rough patch last week as three Jack in the Box restaurants closed last Sunday. The bankruptcy trustee was trying to renegotiate the leases on the closed stores - located in Granite Bay, Folsom, and Rancho Cordova - but was unable to come to an agreement. The stores were underperforming and could not maintain the rent payments. The trustee transferred some of the employees of those stores to other locations. The future of the shuttered stores is uncertain.

Next week, the fate of the remaining 66 stores will be decided. The company appointed by the court to conduct the auction has divided the stores into three geographic areas - Sacramento, Eureka, and Crescent City. Three different investors have been designated "stalking horses" after their bids established the floor for the bidding, which will take place on Tuesday and Wednesday in federal bankruptcy court in Sacramento. That floor is $27 million, which is a drop in the bucket compared to the $300 million that Alizedeh owed at the time of his development company, Kobra Properties, filed bankruptcy in December 2008. The Sacramento-area stalking horse is a group led by Anil Yadav. If no higher bids are received, then the stalking horses' bids are accepted.

Only those with invitations may attend the auction. The auction represents another step in the bankruptcy process, which still has a ways to go. Even after the 66 Jack in the Box restaurants are offloaded to new owners, Kobra Properties still owns dozens of properties that the trustee will have to determine what to do with.

The Sacramento mortgage industry will be convening at the Sacramento Convention Center on Friday, February 26. Lenders hope to attract Sacramento-area borrowers who want to explore their options for a more affordable repayment plan. The event offers an eight-hour foreclosure prevention workshop that will hope to inform borrowers of their options, including Making Home Affordable, a federal program that helps borrowers work out modifications or refinance their mortgages.

The event will attempt to improve upon a similar session held in December 2008 that attracted 1,000 borrowers and 19 lenders. At that event, many borrowers received help on the spot, but others received promises of help that never came to fruition. At the end of 2008, the country was paralyzed by recession and lenders were slow to respond to the housing crisis. More than a year later, lenders have a better understanding of how to work with borrowers and rewrite loan terms so that the borrower is set up for success.

The latest numbers from the Treasury Department provide reason for borrowers to attend Friday's event with optimism. California leads the nation in securing permanent loan modifications through Making Home Affordable. And, 20,000 more California homes received trial modifications in January than in December. Lenders such as Bank of America and Wells Fargo approved thousands more permanent modifications in January than December, likely reflecting the pressure the federal government has applied to banks.

Still, not all borrowers will find a permanent solution. Unemployment remains high in the Sacramento area and a modification requires monthly income. And many who receive trial modifications, do not receive an offer for a permanent modification even if they successfully complete the trial period without missing a payment.

Friday's free workshop will be from 1 p.m. to 9 p.m. at 1400 J St. Mortgage lenders and nonprofit home loan counselors will be available for borrowers to speak with. If you would like to discuss your options after the session, you may contact a specialist who has worked with many borrowers to achieve lower mortgage payments.

Fortune Magazine published a story online last week that explains why the country may not see too many copycat bankruptcies after Vallejo. With cities all over the country, and especially in California, barely treading water, there has been growing buzz that droves would start filing Chapter 9 bankruptcy.

Vallejo filed bankruptcy in May 2008, the very beginning of the recession. Last March, Vallejo succeeded in convincing the bankruptcy judge to break its union contracts. The judge did not entirely throw the contract out. The decision has been appealed, but if it is upheld, then a number of other cities may see bankruptcy as a prime way to slash labor costs. Even if cities do not file bankruptcy, labor unions may be scared into being more flexible in renegotiating contracts. Besides union leaders, municipal bond investors are nervous that cities will use bankruptcy to renege on their debt. Formerly, municipal bonds were seen as some of the safest investments.

Since Vallejo filed bankruptcy, no other municipalities have followed suit. Still, city managers have been closely following the proceedings as the case approaches two years in federal bankruptcy court in Sacramento. Once a bankruptcy exit plan has been approved, those managers will pour over the agreement and figure out what sort of savings it offers. Cuts to city contracts and debt will have to be major, though, because filing bankruptcy itself costs the city millions of dollars. One lawyer claims that the cost for a city may total $100 million or more.

Nearly a year into the program, California is leading the nation in HAMP mortgage modifications. HAMP stands for Home Affordable Modification Program. The Obama Administration championed HAMP as a way to ensure that banks would work with millions of homeowners who are at risk of losing their homes to foreclosure. So far, the results have been mixed.

Through January, HAMP had initiated over 800,000 trial modifications natoinwide. Borrowers must enroll into a Trial Period Plan before receiving a permanent modification. Only about 116,000 homes have been converted to permanent modifications. California led all states by a wide margin with over 191,000 permanent and active trial modifications. Florida came in second with 116,000 and Illinois third at 49,000.

All HAMP modifications include reductions in the borrower's interest rate so that the monthly payment does not exceed 31% of the gross monthly income. If a rate reduction alone cannot drop the payment to 31% of income, then the loan servicer may extend the loan term to up to 40 years, defer a portion of the principal amount until after the loan matures, or forgive a portion of the principal.

HAMP is set to expire on June 10 of this year so the data in the coming months may see a spike as servicers scramble to qualify borrowers for a modification. With housing prices yet to rebound, there will be no shortage of borrowers in need of assistance. If you are interested in seeing if HAMP is a good program for you, contact a specialist in foreclosure prevention who can discuss HAMP and any other options you may have.

The number of businesses seeking bankruptcy protection during the first three quarters of 2009 exceeded the annual filings in every year since 1997. See American Bankruptcy Institute, Quarterly Business Filings by Year (1994-2009), available at http://www.abiworld.org. In 2008, business filings rose to 43,000 nationwide; in 2009 the numbers are not compiled yet, but may exceed 60,000, nearly 38 percent increase over 2008.

Because of the rise of bankruptcy filings, businesses should be sure to look into insurance issues. Once concern is to make sure the contractors they are hiring have insurance to cover in the event of liability since they may not collect a judgment after a lawsuit if a vendor files for bankruptcy. With this, contributing insurance comes into play where the party engaging the vendor who is not the tortfeasor does not want to be stuck paying a third party's claims. Contributing insurance occurs if two insurance companies insure the same risk and a loss occurs, then they both participate. Example, a distributor causes injuries from its negligence to end customers of a manufacturer. Both the manufacturer and the distributor have separate insurance.

Another insurance issue is Side A in a D & O insurance contract. Side A indemnifies directors and officers when the company cannot, such as when company is insolvent. In bankruptcy, the insurance coverage may be considered an asset. Claims under liability policies, like E&O and D&O insurance, may be pursued by the trustee/debtor against third parties or by creditors against the debtor/insiders. To protect one director or officer from the others, review whether coverage has full severability, meaning intentional bad acts of one insured director or officer cannot cause an innocent director or officer to lose the benefit of insurance coverage.

In obtaining insurance, a company should look to see if the coverage is non-rescindable, making it difficult if not impossible for the insurance carrier to deny payment, or break insurance contract for any reason. Understanding what insurance coverage is available to liquidate a claim in bankruptcy means the difference between a full recovery or no recovery for creditors.

Continue reading "Insurance Coverage and Bankruptcy" »

Avvo rates and profiles attorneys in the United States with the goal of assisting people to choose the right attorney. The company pulls information from state bar databases and law firm web site bios. Attorneys may claim the profiles and input their own data.

The Avvo Rating comes from a mathematical model based on a lawyer's years in practice, disciplinary history, professional achievements, and industry recognition.

Several of the executives appear to have legal backgrounds including Avvo co-founder Mark Britton, an attorney for 16 years, formerly at Expedia.com. There has been criticism of the site from attorneys with privacy and defamation concerns. Michael Fertik, CEO at ReputationDefender, who appeared on a Dr. Phil episode in December 2009, has commented about the site on his blog.

To address the privacy and defamation concerns, it appears Avvo censors reviews and comments on attorneys' profiles. Who is to know the real truth on an attorney's rating. In order to post a client review, the person has to open an account, and allow Avvo to review the rating prior to posting. If Avvo does not agree with the client or believe that the person is a real client, the review does not post. As for comments following the reviews of others, Avvo allows them to post right away, but seems to review profiles periodically to remove negative comments. There is also a feature for people including attorneys themselves to flag comments as inappropriate for removal.

Continue reading "Avvo" »

These days, there is trend towards companies taking advantaged of unemployed workers by making it difficult for them to turn away job offers based on disagreement with pro-employer provisions such as non-competition agreements.

California Business and Professions Code Section 16600 prohibits non-competition agreements. Courts have historically allowed non-competition agreements to protect employer trade secrets, but the recent Dowell v. Pacesetter, Inc. appellate case refuses to recognize an employer's non-compete and non-solicitation agreements prohibiting employees for 18 months after leaving the employer from using employer confidential information to compete against the employer, and from soliciting any customer a former employee had contact with in the year before termination. In Dowell, there was also the concern that the non-competition provision became a basis for an unfair competition claim under Business and Professions Code Section 17200.

A potential employee presented with a non-competition agreement might raise ethical ramifications of including a clause known to be unenforceable. If a non-competition clause is adopted, the termination of the employee for refusing to sign the agreement might lead to a wrongful termination based on violation of public policy. California courts generally do not re-write clearly unenforceable provisions. Business and Professions Code Section 16600 would be circumvented. When unenforceable, a non-competition clause could cause the entire agreement containing the clause invalidated.

Continue reading "Non-competition Agreements in California" »

Six Hollywood Video stores in the Sacramento area will be permanently closing their doors, collateral damage from the parent company's Chapter 11 bankruptcy filing. Three locations in Sacramento and one each in Carmichael, Fair Oaks, and Elk Grove are among 760 stores owned by Hollywood Video's parent company, Movie Gallery Inc., that are closing nationwide. Yet another hit to the local jobs market.

Movie Gallery Inc. filed Chapter 11 bankruptcy in hopes that a reorganization would save enough operating funds to allow it to move forward in other locations. Video rental stores, including the largest chain Blockbuster, have struggled as more consumers download movies online through outlets like ITunes or have movies delivered to their door through Netflix. And despite the recession, people are visiting movie theaters now more than ever. Movies offer relatively cheap entertainment for a struggling family, but renting videos or DVDs from retail stores has still slumped.

Movie Gallery Inc. hopes that its bankruptcy will allow it to restructure its debt and pay creditors with whatever money it can collect from liquidating about one third of its stores. Without bankruptcy, the company would have likely been paralyzed by heavy losses from its underperforming stores. Bankruptcy allows it to regroup, isolate and terminate its unprofitable entities, and attempt to formulate a healthy plan moving forward.

Carla Fiorina made a very understandable gaffe the other day when she suggested that California may have to consider filing bankruptcy to extricate itself from its financial mess. Under the Federal Bankruptcy Code, states may not file for bankruptcy.

Fiorina may have been mixed up because of all of the attention that Vallejo is receiving for its bankruptcy filing. Because of the state's massive deficit, legislators in Sacramento have massively cut the aid California provides to cities. In turn, many cities have had to publicly consider bankruptcy as a way out of their own financial messes. In other words, cities have openly hinted about defaulting on bonds and labor contracts, two issues that California is struggling with as well.

Chapter 9 bankruptcy is a separate chapter of the Bankruptcy Code exclusively available to municipalities. The most famous example of a Chapter 9 bankruptcy was Orange County in 1994. Before bankruptcy protection was extended to cities, the last resort for creditors of distressed cities was to acquire a court order for the cities to raise taxes. In Chapter 9, municipalities can restructure their debt, including pensions, labor contracts, and outstanding bonds.

Because Fiorina's slip-up occurred in the heat of her campaign in the Republican primary for Barbara Boxer's senate seat, her opponents did not waste an opportunity to pounce. Still, the real shame is not that Fiorina did not know the Bankruptcy Code, it was that a serious politician considers California's financial situation possibly impossible to fix through traditional means.

The New York Times highlighted the plight of the housing market in an area that the author called "foreclosure alley." In the article, foreclosure alley refers to the area between San Francisco and Sacramento and includes former boom towns of Lathrop, Manteca, and Tracy.

The article cites economists who have labeled the area the "most stressed region during the Great Recession." And the numbers back that label up. The populations of Lathrop, Manteca, and Tracy nearly doubled in 10 years and home prices tripled. But, median home prices have fallen from $500,000 to $150,000, unemployment hovers around 16 percent, and thousands of homes are in foreclosure and owned by banks. Naturally, crime has risen.

Yet, much of the article's theme is that the exurbs collapsed under their own weight. Cities in California encouraged growth beyond what was healthy because they badly needed the property tax revenue that they could not obtain from existing homes due to California's stiff limits on property tax increases. Natural, bountiful farmland became subdivisions and vineyards became strip malls. Effective restrictions on planning could have prevented the over-expansion.

On the other hand, the author indicates that the Central Valley is not destined to become a string of ghost towns. California's population is rising. The United States as a whole is likely to add 100 million people by 2050. Eventually, the abandoned homes and stores of the Central Valley may be filled. It just may take much longer than speculators once thought.

On Monday, the city of Vallejo had another hearing at the Eastern District Bankruptcy Court in Sacramento in its two-year long bankruptcy case. In response to labor union complaints, U.S. Bankruptcy Court Judge Michael McManus told Vallejo's bankruptcy attorney that Vallejo should have a plan drafted to exit bankruptcy by the summer. McManus did not go so far as to impose a firm deadline, but he made it clear that all parties would benefit from the expectation of an impending resolution.

Monday's hearing addressed how Vallejo may rewrite the terms of retired city workers' pensions and health benefits. Vallejo had given overly generous retirement and health care plans to retired workers. These plans have proven to be unsustainable. Negotiations over how to rework pensions, which often promised to provide a substantial percentage of the worker's full-time wage, are ongoing.

However, it is becoming clearer how dramatically retirees' health care benefits will be cut. The city's plan calls for $300 monthly retiree health payments. The goal is to reduce the annual liability from $135 million to $34 million. Retirees had received 100 percent payment of "any available plan," but now many must switch to a basic Kaiser plan, and all those besides retired police officers will have to pay for a portion of the monthly costs.

Cities around the country are eyeing Vallejo's progress in bankruptcy. If Vallejo is successful in having a plan approved with substantial reductions in payments to retirees, then other struggling municipalities may be inspired to file Chapter 9 bankruptcy as well to solve their budget woes.

Even more sensitive to scrutiny may be labor contracts. Vallejo's labor unions will be fighting over a finite slice of Vallejo's meager revenue stream. A victory in negotiations for one union may mean layoffs or steep salary cuts for other unions.

The following is a fictitious scenario:

At the Stanford Park Hotel for drinks in Menlo Park, an affluent city in San Mateo County with tree-lined neighborhoods. The Stanford Park Hotel is the finest - daily newspapers, little bottled waters, Internet access (complete with MS Office).

See a well-dressed guy leave? Turns out he is a banker. He forgets his stick drive and there's a PowerPoint on his personal goals - decrease debt, put more into 401(k), run a marathon. Haha. He treats his life like a business plan. In the "Personal" folder, he journals on his anger after a relationship with this woman. Guess his life isn't as together as he looked.

Continue reading "Ex-McKinsey Director Pleads Guilty " »

Laura E. Innes of Simpson, Garrity, Innes & Jacuzzi, PC in South San Francisco, CA 94080 gave a talk in San Francisco in April 2009 on internal employee investigations.

Workers looking to keep their jobs might commit to complying with employer policies on equipment usage policy and inform family members and friends not to use the systems for any confidential messages (e.g. confidential vmails, emails, texts) so that their employers do not have the opportunity to look at their communications for reasons to terminate. Generic footers in emails on confidentiality, etc. may make a non-employee third party think that email messages are private so an employee should tell other parties not to expect privacy when they communicate with an employee at work.

On Monday, December 14, 2009, the United States Supreme Court agreed to hear a case to provide guidance to employers about their right to monitor employees' electronic communications. The case is on City of Ontario's appeal of the Ninth Circuit's decision in Quon v. Arch Wireless Operating Company finding that a city police officer had a reasonable expectation of privacy in personal text messages that were sent from his city-issued pager.

In a lower court decision, Quon v. Arch Wireless Operating Company tells employers that it is not enough to have policies. In Quon, a command officer in the police department gave instructions contrary to employer policies that allowed the officer to write whatever he wanted as long as he paid his minute overages. Companies must enforce the policies or risk creating a reasonable expectation of privacy for the employee. Privacy is with a device user not account holder. In Quon, a service provider did not have the right to give texts to a police department. The employer's practice has to mirror the policies. Patterns of conduct change policies. Digital property belongs to employees. Example: Music and photographs belong to employees analogous to physical radios and photos, especially if they are paid by the employees. Difficult for employer to argue they do not belong to the employees since they see people loading wallpaper of photos, listening to music, etc.

When using handheld devices, workers might be wary of connecting to personal accounts. If people use their own personal cell phones or computers, employers may argue people walk away with employer confidential information when they leave. Example: Sales people giving away personal cell numbers will have customers still calling them when they leave the company. Use of an employee's personal computer or electronic device might give an employer reason to subject all equipment to inspection based protection of company related information.

Continue reading "Employee Investigations In California" »

The following is a fictitious scenario:

Guess Laud is working from home. His worn tennies are out front. Haha. Laud works for one of the behemoths in the insurance industry. Once he was too lazy to attack someone's errors when resolving a dispute. To pay a lot of money to settle a lawsuit is not expected. Rational people accept efforts to make amends and move on. When someone thinks a proposed settlement is not enough, let him justify the money he demands. If he's bent on revenge, he'll make mistakes. The court system records irrational behavior to set the appropriate amount.

The media highlights people who live double lives -married lawmaker on family matters committee boasting about lobbyist mistresses, doctor with $150K/month salary overdosing celebrity client, diligent lab technician murdering a co-worker. It's not education, family upbringing, or affluence that motivates people to cross the lines. Everyone is a mystery, changing at every meeting, transforming from kindness to hatred. There are assumptions from prior conduct, but memories do not define people in the moment.

Continue reading "Misclassification of Employees as Independent Contractors" »

Two more properties are being returned to the bank because the owners cannot afford mortgage payments. While that statement is altogether ordinary, especially with the dismal housing market over the last two years, what is remarkable is what two properties were returned.

Two massive apartment complexes on prime Manhattan real estate were returned to creditors by a partnership led by Tishman Speyer Properties and BlackRock Realty. The two major real estate investors financed and purchased Stuyvesant Town and Peter Cooper Village for $5.4 billion in 2006. The properties are comprised of 110 buildings and 11,000 apartments. Today, Fitch Ratings estimates the properties are worth $1.8 billion.

If the properties had not been returned to creditors, it was likely that the partnership would have had to file bankruptcy. The partnership could not make the $16 million January loan payment. The news represents the latest and largest in a string of major commercial real estate ventures that have ended in default. Many of the sour deals were struck in the middle part of the last decade when money was loose and the rise in real estate property values appeared unstoppable. Now, money is tight and real estate prices have fell off a cliff. Thus, it is nearly impossible for large ventures to refinance their debt.

Commercial real estate defaults have escalated recently. While the residential real estate market has been in turmoil for years, the commercial real estate market may not have reached its nadir. In December, $31 billion worth of commercial apartment properties were in default, foreclosure, or bankruptcy. Construction that began before the recession is finishing up around the country, adding unnecessary supply. And existing deals operate under valuations that are often double what the properties are worth. A dismal commercial real estate market could help impede progress in the broader economy. That's why the news out of Manhattan resonates throughout the country.

The figures from 2009 have been calculated, and as expected foreclosures in California were high in 2009, especially in the Central Valley. However, the real bad news is that a number of factors are conspiring to keep foreclosures high into 2010.

Of all U.S. cities, Merced had the third highest foreclosure rate in 2009 with 10.1 percent of households receiving a filing. Stockton came in fifth at 8.62 percent and Modesto sixth at 8.53 percent. The highest rate in the country was Las Vegas, which saw 12 percent of its homes receive a notice of default, auction, or repossession in 2009.

Unfortunately, projections for 2010 do not include optimism for a decline in these figures. Economists predict that the jobless rate will remain around 10 percent for the new year and that joblessness and underemployment will drive many to be unable to afford their mortgages. The Federal Reserve's $1.25 trillion program to buy mortgage-backed securities is done on March 31. The program helped to suppress borrowing costs, as the rate on 30-year fixed mortgages dropped to 4.71 percent in early December, the lowest level since 1972. When the program expires, there will be less buyers, and homes will linger on the market for longer, leaving vulnerable homeowners more susceptible to foreclosure.

If you worry that you may not be able to maintain payments on your home, you may benefit from speaking to an attorney who has helped many find alternatives to foreclosure.

According to the Washington Post, data from the Federal Housing Administration (FHA) foreshadows a wave of foreclosures that have yet to hit the housing market. The FHA's default rate, which measures the percentage of FHA borrowers who have missed at least three payments, jumped to 9.1 percent in December. The rate in December 2008 was a third less, 6.5%.

The high rate of defaults reflects loans made in 2007 and 2008 that are just now beginning to go south. Many of these were subprime loans with adjustable interest rates that are now resetting to higher rates and minimum payments. The FHA projects that it will have to pay out claims to lenders on one out of every four loans made in 2007 and 2008.

The FHA did not issue these loans, but insures the lenders against losses. The agency collects fees for the loans that it insures, but it may find that its short-term losses exceed its reserves. If that is the case, the federal government will have to use taxpayer money to cover the losses, something that the FHA has never done in 75 years.

The FHA is scrambling to try to stabilize itself. It ended a program that enabled sellers to cover the down payments of buyers. The program is projected to cost the FHA $10.5 billion in losses. In 2009, the loans it backed went to borrowers with substantially better credit scores - the average score now is 690, up from 630 two years ago. The agency is rapidly banning and suspending suspect lenders from making FHA loans. It is proposing a rule to raise the amount of capital that banks must hold to pay the FHA for losses due to fraud from $250,000 to $2.5 million. And, it has developed much tougher rules for borrowers - higher upfront fees, higher required down payments for those with weak credit scores, and restrictions on the amount of money that sellers can pay toward closing costs.

Still, the FHA has dug itself a deep hole. Its reserves as of September 30 were $3.6 billion, down from nearly $13 billion a year before. That latest figure is only 0.53 percent of the value of all FHA single-family-home loans. Congress requires that the rate be no lower than 2 percent. The data only reflects the payouts that the FHA has made and does not project future losses, which may be great considering the high default rate that continues to rise.

Because the FHA plays such a huge role in the housing market, its continued struggles may signal that recovery is still well into the future.

On Monday, the Ninth Circuit ruled that disciplinary fees assessed by the California State Bar are non-dischargeable in bankruptcy. A three-judge panel overruled a Ninth Circuit Bankruptcy Appellate Panel (BAP) decision that found John William Findley III could discharge his $14,000 debt to the State Bar in his Chapter 7 bankruptcy case.

Findley is a suspended Ventura attorney who the State Bar disciplined in 2005 for failing to perform legal services competently, communicate with clients, and obey court orders. Pursuant to Business and Professions Code section 6086.10, the State Bar assessed a fee of $13,463 to cover the cost of Findley's disciplinary proceedings, $406.80 to cover certification costs of court documents, $128.25 for transcript costs, and $56.89 in witness fees.

The State Bar argued that under 11 U.S.C. section 523(7) its fee assessment could be excepted from discharge because the debt is "a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss." The District Court agreed, but the BAP overruled citing State Bar of California v. Taggart , 249 F.3d 987 (9th Cir. 2001), which held that attorney disciplinary costs imposed under a previous version of section 6086.10 were eligible for discharge because those cost awards were not intended as punishment.

However, the California Legislature in 2003 amended the section and added subsection (e), which states that "costs imposed pursuant to this section are penalties, payable to and for the benefit of the State Bar of California...to promote rehabilitation and to protect the public." The Ninth Circuit believes that the amendment evidences the Legislature's disagreement with Taggart and its intention to undermine the result in Taggart.

The case is In re Findlay, 08-60024.

Attensity is the text mining and analytics for companies that use social media to market their products, and to understand their customers.

The San Francisco Chronicle reported on January 8, 2010 in "Cafes juggle needs of Wi-Fi regulars, walk-ins" that this is the age of Yelp, Twitter and Foursquare. Looked at alone, online comments may seem like babble. Attensity allows people to get feedback from their customers, get into conversations with the public on their products, and innovate products and services in response.

When regular customers defect and rant online about a business' products and services rather than tell it to a business owner's face, a business needs an application to access structured and unstructured data to find information in response to queries and present insights for decision-making to respond to consumer feelings.

Attensity has an office in Palo Alto, CA, with many of its management seeming to come from Business Objects, a French enterprise software company, specializing in business intelligence that became a part of SAP AG since 2007.

In November 2009, Equifax revealed data that Northern California remains particularly vulnerable to small business bankruptcies. Three Northern California areas made the top 15 among the country's hardest hit small business bankruptcy regions during September: Sacramento, Oakland-Fremont-Hayward and the San Jose-Sunnyvale area of Silicon Valley. Whether a business fails may have a lot to do with understanding the customer voice. Companies reorganizing from bankruptcy might consider tools to better interpret and manage an organization's customer data to get information for operations decision making.

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Corel Corporation is a popular software company with more than 100 million active users in over 75 countries. It is headquartered in Canada, with its main competitors Microsoft and Adobe. It's product portfolio includes CorelDRAW® Graphics Suite, Corel® Paint Shop Pro® Photo, Corel® Painter™, VideoStudio®, WinDVD®, Corel® WordPerfect® Office and WinZip®.

While many software companies are moving to cloud computing and software as a service models, Corel seems to be stuck in the past delivering software in packaged box format through its online store, OEM, or other partner relationships.

In January 2010, Corel announced that it reduced its global workforce by approximately 20% worldwide. This comes at the same time that it got a notice from The Nasdaq Stock Market that it no longer maintains the minimum number of publicly held shares required by Listing Rule 5450(b)(1)(B) for continued listing.

In a proxy statement dated December 29, 2009, Corel intends to terminate registration under U.S. securities laws and to delist shares on both NASDAQ and the TSX promptly following the special meeting of shareholders held on January 26, 2010.

In November 2009, Board of Directors of Corel unanimously determined to recommend, on behalf of the company, that shareholders tender their shares pursuant to a tender offer.

The news on Corel demonstrates that companies are still adapting and evolving in order to meet new consumer demands and an ever changing competitive business landscape. In building operating plans for 2010, companies continue to layoff to align cost structure for financial flexibility to continue to innovate and deliver new products to the market, and to drive brand.

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The following is a fictitious scenario:

An attorney working 5 years at Formaldehyde, a start up in Silicon Valley, rolls in $170K+/year. It's spot on what they say in school on "A" students becoming professors, "B" students becoming judges, and "C" students making money. Who would have guessed earning a 1.8 GPA and not even knowing what "res judicata" means could lead to a house in the sun just 5 years after graduation.

What a "cool" life Andy says. Andy moved to the Aptos neighborhood two years ago after selling the townhouse he bought following his divorce. Aptos is a small town in Santa Cruz County popular for freeride biking. On first meeting, it is surprising Andy ever married. He is short tempered. One minute he's soft, advertising in a local paper about giving thanks to a guy at the Carmel Mission, one of nine missions along California's Central Coast. The next minute he's yelling, never apologizing. He has a mean face, forehead lines, and thinks he can read someone's mind by staring with his big brown eyes. He's usually wrong, and it sucks when someone misinterprets.

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