Source: http://www.kringandchung.com/blog/2013/01/
Timestamp: 2019-04-21 08:43:11+00:00

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On behalf of Kring & Chung, LLP posted in News and Events on Thursday, January 17, 2013.
On behalf of Kring & Chung, LLP posted in Publications on Wednesday, January 2, 2013.
If you have any employees that receive commissions as part of their compensation package, you need to be aware of a new law that went into effect as of January 1, 2013. AB 1396 amended California Labor Code section 2751.
The new law provides, "Whenever an employer enters into a contract of employment with an employee for services to be rendered within this state and the contemplated method of payment of the employee involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid."
On behalf of Kring & Chung, LLP posted in Newsletter on Tuesday, January 1, 2013.
CONSTRUCTION: Can an Intervening Insurance Company Sue for Breach of Contract?
In 1996, California voters approved Proposition 215, the Compassionate Use Act (CUA), allowing medical patients in California the right to obtain and use marijuana. The intent of the CUA was to provide patients with terminal illness and sever health conditions access to the use of medical marijuana, which is not to be confused with recreational use. However, the CUA did not address specific issues of enforcement. In 2003, the California legislature passed Senate Bill (SB) 420, establishing the Medical Marijuana Program clarifying some of these issues, including the establishment of a voluntary state medical marijuana identification card (MMIC). The MMIC identifies the cardholder as a person protected under the provisions of Proposition 215 and SB 420. It is used to help law enforcement identify the cardholder as being able to legally possess certain amounts of medical marijuana under specific conditions. Dispensaries must require customers to maintain a MMIC. Controversy arises as to whether the MMIC is valid, and whether the dispensaries strictly sell to MMIC holders.
Can an Intervening Insurance Company Sue for Breach of Contract?
Does an intervening insurance company have any legal basis for bringing breach of contract causes of action against subcontractors?
The short answer, Yes. An intervening insurance company has a legal basis for bringing a breach of contract cause of action against subcontractors. Although there are no cases directly on point, Western Heritage Ins. Co. v. Superior Court, (2011) 199 Cal.App.4th 1196, does provide insight into the rights and remedies of an intervening insurance company. Western Heritage involved claims of negligence and breach of contract against Grateful Home Care, Inc. (GHC) and its employee (Reyes) which resulted in the death of GHC resident. Western Heritage Insurance Company (WHIC) insured GHC and its employees. Upon tendering the case to WHIC, WHIC proffered a defense for both GHC and Reyes. Reyes' counsel filed an answer on her behalf. However, it was later stricken and default entered against Reyes because it appeared she permanently left the country.
A defaulted party, like a suspended corporation, has no legal rights or remedies before a court until the default is set aside or the suspended corporation pays its taxes. ( Mackie v. Mackie (1960) 186 Cal. App.2d 825; Cal. Rev. & Tax Code § 23301.) Since a default was entered against Reyes, WHIC requested to intervene on Reyes' behalf to protect its own interests as insurer of GHC's employees. The trial court denied WHIC's motion to intervene on the theory that a defaulted party is unable to contest liability. Therefore, the insurance company is not permitted to defend its insured's liability, but is allowed to litigate damages assessed against the insured.
"It is therefore apparent that an intervening insurer is not limited to those defenses to which its insured might be restricted due to the procedural default. The entire purpose of the intervention is to permit the insurer to pursue its own interest, which necessarily include the litigation of defense its insured is procedurally barred from pursuing."
Is a breach of contract cause of action considered a "defense?"
The answer is dependent on the terms of the insurance policy. Many insurance policies commonly use commercial general liability forms regarding assignments. If a policy contains a broad assignment of rights, an insurance company may stand in the shoes of its insured and sue for breach of contract (including failure to obtain additional insured endorsements, and breach of a duty to defend). The breach acts as a defense to any potential liability the insured may face, and thus the potential liability of the insurance company itself.
Suppose the intervening insurance company sues for 1) Breach of Contract - Additional Insured Obligations, 2) Breach of Contract - Duty to Defend, and 3) Breach of Express Warranty. Where the breach of contract action can be directly linked to the damages sought by plaintiffs (i.e. breach of express warranty), this is considered a defense, and allows an intervening insurance company to continue the claim. Otherwise, it would prevent the intervening insurance company from arguing but for the breach of express warranty by the subcontractor, it would not be defending against plaintiffs' claims for damages to their property.
Conversely, where the breach of action is for failure to provide additional insured endorsements (AIE) to the contractor, or a breach of contractual duty to defend (we are presuming here a duty to defend is inherent and taken as a given), we believe a court will find this claim to be an affirmative recovery action and not a defense. This leads into a two part question on whether the court will determine the claim an affirmative recovery or a defense.
Is there a link to the damages sought by plaintiffs and the claim, and under what theory does the insurance company claim it has a right to bring such a claim?
On one hand, the argument may stand if an insurance company is entitled to sue, and later receives a judgment for breach of contract for a subcontractor's failure to provide an AIE to the contractor and/or its failure to defend the contractor, it could be considered unjust and a windfall to the insurance company. An insurance company is paid a premium to defend its insured against losses. Based on the above-mentioned theory of recovery, the insurance company is now recouping those loses and keeping the premiums paid (i.e. a windfall). On the other hand, an insurance company may have an argument it is a third party beneficiary to the contract in that it is excess to any AIEs and a subcontractor's duty to defend the claims. These arguments as a third party beneficiary would be speculative and challenging. Either way, it will be a question for the trier of fact.
What should a subcontractor do if sued by an intervening insurance company for breach of contract?
A subcontractor should ensure the intervening insurance company does have a legal basis for suing under the theory of breach of contract. Although it appears an intervening insurance company does have the right to bring breach of contract causes of action, some may be outside the rights afforded to the insurance company.
Can there be a trust without a trustee? If the trust instrument is a California deed of trust, the answer is now yes.
In Shuster v. BAC Home Loans Servicing, LP (2012) WL 5984222, the plaintiff/borrowers had borrowed the sum of $670,000, executing a deed of trust as security for the loan. The deed of trust failed to name a trustee. After the borrowers defaulted, the beneficiary recorded a substitution of trustee "substituting" a new corporate trustee. The substituted trustee held a non-judicial foreclosure sale of the property. The borrowers then filed suit, seeking to set aside the sale. The borrowers argued in their lawsuit that the failure to name a trustee in the deed of trust converted the deed of trust to a mortgage and, therefore, the beneficiary could foreclose, if at all, only by means of a court-supervised judicial foreclosure. The trial court and the Court of Appeal disagreed, finding that "the naming of the trustee is irrelevant to the creation of the deed of trust, so long as a trustee is named prior to the foreclosure."
The Shuster decision is consistent with prior California case law and commentary adhering to the view that a deed of trust is nothing like an ordinary, express trust. In fact, the California courts previously have held that the trustee under a deed of trust is not a true trustee at all and, therefore, is not subject to the general legal principles governing express trusts. (See Lupertino v. Carbajal (1973) 35 Cal.App.3d 742, 747.) Among other things, a trustee under a deed of trust does not act in a fiduciary capacity and is considered the common agent of both parties. Other courts and commentators have characterized the duties of a trustee under a deed of trust as being purely ministerial in nature. ( See Pro Value Properties, Inc. v. Quality Loan Servicing Corp. (2009) 170 Cal.App.4th 579, 583.) Moreover, as a matter of convenience, the appointed trustee is typically the title company whose form document is being used to create the deed of trust, even though the title company typically has not consented to being named as trustee. It makes sense, then, that the court in Shuster would find the parties' initial failure to appoint a trustee to be without legal consequence, so long as a trustee was properly named prior to the foreclosure proceedings.
The Shuster decision is also another example of the courts' general willingness to uphold a non-judicial foreclosure sale against a legal challenge, perhaps in recognition of the fact that the borrowers defaulted after all and, in many cases, would likely default again if the sale were set aside. In short, it is only the rare defect of substance, and not mere form, that will justify the remedy of setting aside an otherwise properly-conducted sale.
Kring & Chung is pleased to announce that Michelle A. Philo has joined its Irvine, CA office as an Associate attorney. Ms. Philo practices general civil litigation, business transactions, and probate. She is an active member of the Orange County Women Lawyers Association, the Orange County Bar Association Young Lawyers Division, and the American Bar Association Young Lawyers Division.
Timekeeping Issues: Can Employers Round Employees' Punch In/Out Times by the Nearest Tenth?
Timekeeping...you already know that all California employers are required to keep copious records of an employee's time in and out for purposes of paying wages and overtime, and ensuring that meal periods are taken. A common and long-standing practice in timekeeping is to round to the nearest tenth of an hour. Recently, this practice was called into question in the case of See's Candy Shops, Inc. v. Superior Court, (2012) D060710.

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