Page 6 – Adishian Law

Attorney’s Fees do NOT Count Towards the Jurisdictional Limit in Limited Jurisdiction Cases In California.

This article discusses attorney’s fees in one of the rare cases where we would, and have, represented a Plaintiff in a limited jurisdiction case.

As every lawyer knows, and most non-lawyers, the California Superior State Court system is divided largely into three level based on the “amount in controversy.” Amounts in controversy totaling $10,000 are directed to Small Claims Court, where the parties represent themselves without attorneys. Amounts in controversy greater than $25,000 are directed to the Superior Courts of “Unlimited Jurisdiction.” Amounts in controversy GREATER than $10,000 but less than $25,000 are directed to Superior Courts of “Limited Jurisdiction.”

In Unlimited Jurisdiction, there is no cap on jurisdiction, so there is no theoretical cap on attorney’s fees submitted or awarded provided there is a legal basis for the attorney’s fees, which are adequately supported and approved by the Court. That would seem obvious.

Less obvious though, is what happens to attorney’s fees in limited jurisdiction. For example: Plaintiff has a $10,000 breach of contract claim, and the contract has an attorneys’ fee provision. Defendant may believe that his worst outcome in this case is a $25,000 judgment against him plus his own attorneys’ fees (i.e. $10,000 plus $15,000 in plaintiff’s attorney’s fees, thereby totaling the jurisdictional limit of $25,000). Defendant would be wrong, and it could be an expensive lesson.

California’s Code of Civil Procedure Section 85(a) provides that: “The amount in controversy does not exceed twenty-five thousand dollars ($25,000). As used in this section, “amount in controversy” means the the amount of the demand, or the recovery sought, or the value of the property, or the amount of the lien, that is in controversy in the action, exclusive of attorneys’ fees, interest, and costs.

We’ve seen this arise in the context of commercial security deposits, where commercial leases almost always have attorney’s fee provisions.

The lesson of course is to not only do the right thing, but also in assessing your cost-benefit of litigation, understand that on “either side” a $10,000 dispute in limited jurisdiction court, could result in a liability 5-20x the amount in controversy to the losing party if litigated through trial and attorneys fees are awarded.

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

EL SEGUNDO, CA (May/June, 2013)— Adishian Law Group is pleased to announce that attorney Chris Adishian was profiled in the Southbay Magazine 2013 Trusted Advisors issue.

As the magazine states, “Your lawyer may be the most important person on your professional team. Whether your legal issue is large or small, a good attorney will inform you about your options and work with you to select the best alternatives…On the following pages we feature some of the South Bay’s most trusted minds in the field of law, many of them well-known for their innovative solutions and top-notch client care. Read on…” The reproduced text of the article follows.

Chris Adishian is a local kid from Palos Verdes Estates, who moved away after high school to explore the world and eventually came home to the South Bay. He graduated from law school in 1994 and worked outside the field for about nine years as a tax professional, investment banker and financial consultant. He started Adishian Law Group in 2003, practicing in the areas of Corporate, Employment and Real Estate law. Based in El Segundo, the firm also has satellite offices in Palo Alto and San Francisco. Chris enjoys spending time with his family (he and his wife are expecting their second child in May), travelling and practicing martial arts and yoga.

What’s most rewarding about your work?

“When our clients express their appreciation to us for making a major positive difference in their businesses, their careers, their investments and ultimately their lives.”

What is the biggest benefit your clients gain from working with you?

“In response to a similar question on Inside the Actors Studio, Christopher Walken said something like, ‘You know, there are a lot great actors, but if you need that “Christopher Walken-type guy,” there is really only one option.’ The same is true in law.”

“We aim to be a force for good.”

What skills are most necessary to be a successful lawyer?

“A Berkeley study identified factors like ‘situational judgment,’ ‘dispositional optimism’ and ‘emotion recognition.’ We agree. We would add creative problem-solving capabilities and a high tolerance for chaos and ambiguity.”

What would you like potential clients to know about you?

“We aim to be a force for good. We willingly embrace the challenges presented by high-stakes transactions or litigation. We believe that our transactional and litigation experience, breadth of professional experience, network and resources are of unique, high value to our clients.”

Why did you choose this profession?

“When I graduated from law school, practicing law was the last thing on my mind. I was fortunate to meet a number of outstanding individuals, some significantly more experienced than I was, who were kind, strong, wise, fair-minded, lived balanced lives, contributed significantly to their community and were financially comfortable. They had one other thing in common: all were lawyers running smaller practices. Eventually, that made a lot of sense to me. It is hard to believe that this fall will be the firm’s 10th anniversary.”

(To read the magazine version click here. To view the article on the South Bay Magazine website, click here.)

About Adishian Law Group, P.C.

To arrange a call with Adishian Law Group or for more information about this article appearing in Southbay Magazine 2013, please Contact Us.

EL SEGUNDO, CA (March 7, 2013)—Adishian Law Group Plays A Key Role In Reshaping El Segundo as Part of Largest Vertical Land Development Project West of Sepulveda Blvd (PCH) in the South Bay of Los Angeles during 2012-2013

Adishian Law Group in El Segundo, CA announces the closing of a real property transaction that will be among the most beneficial to the City of El Segundo in recent history. It is believed that this project is the largest vertical land development west of Sepulveda/PCH in the entire South Bay of Los Angeles during the last two years. The leaders of the project, known as the “222 Kansas Street Specific Plan,” are SMPO Lab, LLC (www.smpo.com) of Memphis, Tennessee and local developer Mar Ventures, Inc. (www.marventures.com) of Torrance, California. The approximately 4.7 acre parcel in El Segundo had fallen into disuse after International Rectifier (NYSE:IRF) shuttered its computer chip manufacturing facility that had occupied most of the property for many years.

Prior to SMPO acquiring the property, another developer had attempted to develop the site, but was unable to complete its plans. Once SMPO acquired the entire parcel, it entered in a contract to sell approximately 1.6 acres to Mar Ventures. SMPO had plans to build new industrial and laboratory space to house the USDA’s Animal and Plant Health Inspection Service unit that serves Los Angeles International Airport and the Port of Long Beach. Mar Ventures’ plan was to build a 20-unit modern, brick and glass office condo complex fronting Kansas and Grand (www.grandkansas.com). There was only one small detail—Adishian Law Group’s clients owned an existing parcel that was positioned in such a manner as to require their cooperation for the project to go forward as envisioned. Adishian Law Group represented its clients in negotiations with Mar Ventures.

Adishian’s directive was to reach a fair-minded resolution that would protect its clients’ interests, allow the project to go forward, and result in a win for everyone. Had Mar Ventures and SMPO not arrived at a mutually beneficial agreement with Adishian’s clients, the project may not have gone forward all, and certainly would have been delayed and reconfigured.

“All parties wanted the transaction to go forward,” says Adishian Law Group President, Chris Adishian. “Although simple in concept, this deal ultimately required a carefully orchestrated series of transactions that subdivided the original parcel, and then allowed the Mar Ventures’ parcel to be further subdivided into new lots in order to fulfill its ultimate intended use of the land. These transactions included a Lot Line Adjustment, a Letter of Intent, a custom Multi-Party Agreement, a Declaration and Grant of Restrictive Covenants, Conditions and Restrictions, as well as Easements, Grant Deeds, a Conveyance Agreement and an Option Agreement.” Adishian continues, “Like many long range projects of such scale and complexity, this project was a long time in coming. It required the sustained efforts of SMPO, Mar Ventures, the City of El Segundo, Southern California Edison, architects, engineers and some diligent lawyering to steer this project to a successful completion. The SMPO and Mar Ventures teams were first rate, and our friends at Obelisk architects and Denn Engineering also made very valuable contributions.”

The City of El Segundo will benefit in several significant ways. The project transforms land within the city limits that was lying fallow into productive use. The tax base of the city has now improved, and the Grand Avenue corridor has become more aesthetically pleasing. Of course, more employees working within the project will help local El Segundo businesses. Such success in the real estate arena requires a law firm with experience, creativity, credibility and the ability to work cooperatively with a diverse range of parties and interests in order to accomplish the end goal. This successful transaction illustrates why the Adishian Law Group deserves its reputation as a fair-minded, knowledgeable and effective closer of even the most complex real estate transactions.

About Adishian Law Group, P.C.

For more information about this topic or to speak with Chris Adishian:

EL SEGUNDO, CA (October 15, 2012) Adishian Law Group served as exclusive sell-side counsel to Bay Area Pain Center in its sale to Prospira PainCare.

In one of the most significant M&A transactions for a Bay Area healthcare company this year, Prospira PainCare (www.prospirapc.com) announced the acquisition of Bay Area Pain & Wellness Center (“BAPWC”) (www.bapwc.com) as its initial entry into the massive California market.

The Adishian Law Group represented BAPWC as exclusive sell-side legal counsel throughout the transaction, from letter of intent through execution of deal documents. Prospira’s transaction team included three law firms — two ranked in the Top 60 in the United States by size — and three private equity firms.

Representing BAPWC in the sale of the enterprise to such a sophisticated buyer as Prospira was the type of challenging, complex assignment that lies right in our wheelhouse, states Chris Adishian, President of the Adishian Law Group. â€œOur team brought a wealth of transactional experience to the table, which leveled the playing field and helped the Company reach a “full value” deal that was fair all around.

This confidence in the Adishian firm is testimony to the Principal judgment and the firms breadth and depth of knowledge in sell-side M&A transactions. Prior to quarterbacking corporate and transactional matters as a lawyer, Adishian spent time at Arthur Andersen and the West Coast’s leading investment banking firm, Montgomery Securities.

Says Adishian, We appreciate the trust placed in us by BAPWC, and are grateful for the opportunity to apply our talents towards achieving success for our clients.

About Prospira Pain Care. Prospira PainCare, located in Mountain View, California was founded in August 2012. Prospira PainCare partners with world class interventional pain management physicians and rehabilitation specialists. (www.prospirapc.com)

About Bay Area Pain Center. Since 1999, BAPWC has offered a full complement of pain therapies, from highly specialized interventional treatments, to the most sophisticated interdisciplinary pathways and programs. The Company addresses one of the most complex and challenging problems in society chronic pain. Bay Area Pain & Wellness Center has increased its sphere of influence through geographic expansion from its headquarters facility in Los Gatos to San Francisco and Santa Cruz along with education through publications, lectures and teaching. (www.bapwc.com)

About Adishian Law Group, P.C. Adishian Law Group is a California law firm with a statewide M&A practice led by Chris Adishian. To see other transactions, please view our Case Studies and review other M&A Press Releases.

For more information about this transaction, or if you need help with your sale or acquisition, please contact Chris Adishian:

Today the Division of Labor Standards Enforcement (“DLSE”) published a template that employers can use in order to comply with the new notice requirements set forth in Labor Code section 2810.5. A Word version can be downloaded here and a PDF version can be downloaded here. www.dir.ca.gov/DLSE

All California employers are required to provide a notice to all employees hired beginning on January 1, 2012 that complies with the requirements of section 2810.5. The new law required the Labor Commissioner to publish a template for employers to use in order to comply with the new law. For more information regarding the notice, and the new law, see my previous post.

I’ve only had a chance to do a quick review of the template, but one area of new information that the DLSE is apparently requiring on the notice is whether the “employment agreement” is oral or written in the wage information section of the template. The new Labor Code section 2810.5 did not require this to be on the notice to the employee, but the law does provide that there may be “[o]ther information added by the Labor Commissioner as material and necessary.” I am wondering if the fact that all employers are required to provide this information on the form necessary means that the “employment agreement” is therefore always going to be written.

In this article we review an unpaid bonus in the context of an MBO plan. An unpaid bonus claim is straightforward. The Company promised the employee a bonus for hitting certain targets. The employee hit the targets. The Company failed to pay, resulting in a claim for unpaid bonus. The unpaid bonus can run from low thousands to hundreds of thousands of dollars based on employee role and company size.

What is an MBO Compensation Plan?

Also known as a “bonus plan,” “quota plan,” “incentive compensation plan,” “performance based compensation plan” and an array of other terms, “MBO” literally means management by objective, and in practice refers to any compensation plan where total compensation is determined based on a “pre-set” formula tied to volume, gross margin, revenue or another objective metric or metrics. MBOs are commonly used for the employees working in sales, business development or the executive suite.

Everybody Wins, Right?

Employers like MBO plans because if the employee does not perform, then typically no additional compensation is due under the MBO plan, which helps the Employer match revenue and expenses. Employees love MBO plans because there is theoretically no limit on how much money they can make. These plans appeal to the enterprising, self-starter who wants to work hard, and get a clear, direct reward for his or her performance.

Where It Goes Wrong

It all seems so easy, how can there be any problems? Issues arise when the performance period (whether quarter or year) comes to a close, performance has been delivered and it is time to measure performance and deliver on payment promises. For the employee, there is an obvious motivation to get as many transactions as possible to count towards their totals. For the employer, there is an opposing motivation to lower it payment obligations either by (1) aggressively applying the MBO by using any ambiguities to disqualify deals or (2) retro-actively revising the MBO outright (when management wishes to revise the MBO plan retroactively for any number of reasons — these revisions only mean one thing, compensation paid to the employees covered by the MBO plans, in general and in specific, is going DOWN.).

This situation occurs frequently across companies of all shapes and sizes and can quickly cause the employment relationship to deteriorate. In many cases, the employee will claim that the employer has received all the benefits (i.e. new revenue), and is now failing to deliver on it payment promises. Likewise, in such cases the employer will claim that the employee is counting improper deals, claiming credit for the performance of other employees and/or even engaging in unethical behavior!

If you find that your compensation plan has been retroactively revised, or if your employer has failed to pay bonuses or other compensation that is owed to you, we recommend that you consult with an attorney immediately.

About Adishian Law Group, P.C.

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In this article we tackle the question: “Are stock options wages under California law?”

The Definition of Wages in California

Under California Labor Code §200 wages are defined to include “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” Further, California courts have specifically held that a “bonus” constitutes wages. See Ralphs Grocery Co. v. Sup. Ct. (Swanson) (2003) 112 Cal. 4th1090, 1103, 5 Cal. Rptr. 3d 687, 697 International Business Machines Corp v Bajorek. Pursuant to California Labor Code §201 et. seq., if an employer discharges an employee, the wages earned and unpaid at the time of discharge are due and payable immediately. The California Labor Code goes on to provide for waiting time penalties, interest and attorneys’ fees should an employer fail to timely page wages in whole or in part.

Traditional Rule: The “Fixed or Ascertainable” Test

In 1999, stock options were held to not fall within Labor Code § 200 because they are not “amounts” of money, and their value cannot be ‘fixed or ascertainable.’ Int’l Bus. Machines Corp. v. Bajorek (191 F3d 1033, 1039-1040). The Court in IBM wrote:

“The statute does not apply because its words read literally and in light of its purposes do not apply — stock options are not “wages.” Wages are defined by the statute as “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” *fn17 Stock options are not “amounts.” They are not money at all. They are contractual rights to buy shares of stock. . . . The amount of money for which the shares can be sold on the market varies unpredictably from time to time, so it is not “fixed or ascertainable” by any method of calculation when the agreements are made or exercised. . . . they ordinarily do not give rise to an expectation of a calculable sum of money. *fn18. The value of the stock awarded in options may be as much affected by the fortuities of stock market behavior as by the profitability of the company.”

Does the IBM decision still make sense?

Int’l Bus. Machines Corp. v. Bajorek was decided in 1999, three years before Sarbanes-Oxley and about six years before US GAAP adopted the standard practice of “expensing” the value of stock options.

If stock options can in fact be “expensed” — then it must be that Companies are capable of assigning options a “fixed or ascertainable” value (either through Black-Scholes, the binomial model or some other methodology). Thus, if stock options are “fixed or ascertainable”, then it would seem to follow naturally that they are wages and subject to all the protections afforded to employees under the California Labor Code.

Examining the contrary position, saying that stock options are “fixed or ascertainable” for financial reporting purposes but not “fixed or ascertainable” for the purposes of calculating wages under law would seem to contort reason. In fact, to our understanding, that is the very purpose of “expensing” options — so that the shareholders know how much the Company is paying in wages via stock options!

Implications for Employees with Stock Option Compensation

It is well settled that California public policy requires the prompt payment of wages. With the development of significant secondary markets for securities in privately held Companies, we believe that the recognition of stock options as wages has potentially significant impact for owners and employees in start-up companies in Silicon Valley and elsewhere where compensation packages are typically well-below market in salary and heavily weighted with stock options. We also believe that this issue is significant for Senior Executives of publicly-traded Company whose compensation consists of significant stock option grants. Some questions to consider:

What if your stock options are vested but unexercised and you are terminated?
What if you are terminated just prior to your first block of stock options vesting (e.g. cliff vesting)
What if you are terminated just prior to additional stock options becoming vested?
What if your vested stock options expire after your termination?

What if we substitute the words “earned wages” for “stock options,” in the preceding questions? Does your answer change?

About Adishian Law Group, P.C.

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California is home to over 35,000,000 people. With all those real estate transactions happening in the State, it has become common for an allegation of a “failure to disclose” to arise after escrow has closed on a residential sale (e.g. condo or single family residence). This article does not address any failures to disclose in commercial transactions.

What should you do if you believe a Seller has “failed to disclose” a material item?

California courts have answered this question by empowering a the Buyer with a common sense choice, called an “election of remedies” — the Buyer can (1) file a Complaint for Rescission or (2) Affirm the Contract and Sue for Damages. In English, Option 1 means that a Buyer can ask a Court to order the Seller to take the property back and repay the Buyer (with certain credits and offsets for the time period the property was owned by the Buyer), such that both parties are returned to their prior positions before the sale. Option 2, means that a Buyer can simply elect to keep the property and sue the Seller for damages (i.e. money). (The calculation of damages will be the subject of another post).

Liability v. Damages

The law makes a fundamental distinction between liability and damages. Liability means that a party is legally responsible for the “damages” caused by his wrongful act (i.e. he/she broke the law). Damages is a legal attempt to quantify the harm so that a Court can order the party liable to pay money.

In some failure to disclose cases, there may be liability but no damages, and in such cases the Courts want the parties to move on with their lives, even where one party clearly failed to disclose something that they should have disclosed. In such cases, the rule boils down to “no harm, no foul” (or “he / she lied, but so what”).

In other failure to disclose cases, there can often be SUBSTANTIAL AMOUNTS of money at stake, climbing into the HUNDREDS OF THOUSANDS or even MILLIONS!

About Adishian Law Group, P.C.

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Selling a minority interest in a privately held business in California must be handled thoughtfully. First, if you are able to sell a minority interest in a privately held business for a profit (whether small or substantial) you are already on a good path. This article addresses some considerations for an individual minority owner who is also an employee.

The good news is that you are getting paid for your hard work and getting a return on your investment. These are the rewards that capitalism provides. The bad news is that your Company may try to limit your ability to own and operate a similar business for a period of years or within a specific geographic region through a non-compete agreement.

You may say, “Wait, I read ‘Non-Competition Clauses In California: It’s No Contest after Edwards,’ which says non-compete agreements are void in California.” They are ….for pure employees. However, there are narrow exceptions under 16601, 16602 and 16602.5 which provide that a seller of “substantially all” of his/her/its assets, goodwill or interest in a business “may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein.”

Here, there are elements of both the employee relationship and the owner relationship. Despite being an “owner” many “owner-employees” are not financially independent such that they can afford to not work for an extended period of time, even with a substantial payout from the sale of their shares — taxes, mortgages, school tuition and debt incurred during the formation and growth of the business all add up quickly. Therefore, the owner-employee must tread carefully so as to not restrict his or her future ability to earn a living or maintain his or her lifestyle when agreeing to sell his or her shares.

On the one hand the owner-employee is often not required to agree to any and every restriction, on the other hand the employer is often not required to repurchase the shares. The “may“ language will naturally result in a negotiation of the future restrictions on the activity of the owner-employee, which will often become a material business point affecting the purchase price paid for to the owner-employee for the shares or whether the sale will even be consummated at all.

Adishian Law Group, P.C. assists owners of privately held companies in the negotiation and sale of their shares or membership interests to maximize the value of their ownership interest while allowing them reasonable freedom to pursue their next entrepreneurial dream or investment. If you are contemplating the sale of your interest in a corporation, limited liability company or partnership, we recommend that you consult and attorney before concluding the purchase and sale agreements.

About Adishian Law Group, P.C.

For more information about this topic or to speak with Chris Adishian:

Selling a your minority interest in a privately held business in California must be handled thoughtfully. First, if you are able to sell a minority interest in a privately held business for a profit (whether small or substantial) you are already on a good path. This article addresses some considerations for an individual minority owner only (e.g. not an owner-employee).

You may say, “Wait, I read ‘Non-Competition Clauses In California: It’s No Contest after Edwards,’ which says non-compete agreements are void in California.” They are ….for employees.

However, there are narrow exceptions under 16601, 16602 and 16602.5 which provide that a seller of “substantially all” of his/her/its assets, goodwill or interest in a business “may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein.”

Due to the “may“ language this will naturally result in a negotiation of the future restrictions on the activity of the seller, which will often become a material business point affecting the pruchase price paid for the Seller’s shares or whether the sale will even be consummated.

About Adishian Law Group, P.C.

For more information about this topic or to speak with Chris Adishian: