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Poole & Shaffery, LLP

Sidebar Issue 98 | January 2019

Poole & Shaffery, LLP, a full service business law firm, focuses on the following areas of law:

Disclaimer: The articles contained herein are intended for general information purposes only. Nothing contained in this document is legal advice, nor should it be relied upon as such.

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By: David S. Poole
Employment and Business Law: "In 2019 I resolve... "

You’ve started your post-holiday diet. Joined a gym. Sworn off the use of credit cards – except for the automatic charges to Weight Watchers. You’ve finally agreed to go to marriage counseling. You’ve told anyone who will listen that 2019 is the year you are finally going to “get it together.” This time it’s for real. No more messing around. No more excuses.

While many will use the start of the new year as a moment to finally face their demons and try to seriously deal with their personal challenges and weaknesses, far too many business owners will continue to keep their heads in the proverbial sand when it comes to the legal risks they face, either personally or in the businesses they manage. You know that “ignorance is bliss” only until reality bites.

With apologies to those who feel that they can’t handle one more thing that needs fixing, let me suggest a few legal risks that are worthy of your attention in 2019.

Employment Law

Have a competent employment attorney or human resources specialist perform an audit of all your business employment practices, policies and procedures. That should include, at a minimum:

  • a review of and any necessary update to your Employee Handbook to address all the recent changes in the law;
  • a review of the job descriptions and actual job performed by anyone who is categorized as an exempt employee;
  • a review of the status of any “independent contractors” who you use, to determine if they meet the new requirements to allow then to be so classified; and
  • a review with your insurance broker of your Employment Practices Liability Insurance policy to assess the adequacy of coverage terms and limitations.

If you want to do a quick self- assessment of additional areas that may need attention, please click on this link to go to our firm's California Employer Checklist.

The consequences of failing to strictly comply with the law in each of these areas can be catastrophic to a small business and the fact that your non-compliance has gone undetected thus far is no predictor of what may happen to you in 2019. Assume that they (either government agencies or more likely plaintiff attorneys) will eventually find you out.

Corporate/Limited Liability Company Operations

Have a competent attorney, who is knowledgeable in the law governing your entities operations, review, at a minimum:

  • all corporate organizational records including articles of incorporation, bylaws, minutes of required annual meetings, director’s meetings, and annual reports to ensure that they are in order and provide adequate protection from anyone who would try to “pierce the corporate veil” and get at your individual assets;
  • all LLC organizational records including Operating Agreement, capital contributions, buy-sell provisions, documents required to be created and maintained annually by the LLC, minutes of meetings of members and managers (or written consents in lieu of);
  • all required company filings including Fictitious Business Name Statements, Statement of Information for Secretary of State, appropriate IRS and FTB filings if it intends to be taxed as an S Corporation;
  • all management and asset protection practices, including a review of key contracts with third parties and a review (with the company insurance broker) of all insurance policies;
  • all notices, filings and practices required to comply with securities law;
  • all required permits, licenses and registrations;
  • all company intellectual property to determine if it is protected by, where appropriate, patents, trademarks, copyrights, non-disclosure agreements and company practices to ensure that trade secrets are properly maintained; and
  • company succession planning including agreements covering owners and key personnel and related estate planning.

For self-assessment of additional areas that may need attention, please click on this link to go to our firm’s California Corporation & Limited Liability Company Checklist.

Make 2019 the year you finally get serious about things with your business that you know need attention or that you have chosen to ignore. I know from experience that our law firm will see many new clients this year who will say something to the effect of “if I’d only taken care of this before this got out of hand and we got sued; I would have saved so much grief and money!” Now is the time. No more messing around. No more excuses.

Have a great 2019!

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By: Chris S. Jacobsen
Business Law: New Administrative Dissolution Processes for California Corporations and LLCs

In the past, it has been all too common for a corporation or a limited liability company (“LLC”) to be formed in California and either never to commence actual business operations, or to close the business after some operations, but the entity is never formally dissolved. State law requires the Franchise Tax Board (“FTB”) to continue to impose a minimum franchise or annual tax for up to 20 years before it is allowed to extinguish the uncollected taxes. As time passes, many business owners simply elect to let their entities remain inactive or suspended rather than pursuing formal dissolution as they do not want to pay the accrued taxes and related interest and penalties. In order to remedy this situation, as of January 1, 2019, California has added new administrative dissolution processes for California corporations and LLCs. The new law created two types of administrative dissolutions: voluntary and involuntary.

Certain corporations and LLCs may apply to the FTB for voluntary administrative dissolution. The benefit of applying for such a dissolution is that an eligible entity need not pay the minimum franchise or annual taxes, interest or penalties relating to any years in which the entity did not actually do business. The two types of entities eligible for this treatment are: (1) a California corporation or LLC that never did business in California at any time after the time of its incorporation or formation; and (2) a California corporation or LLC that conducted business in California but that has ceased doing business and has filed all required California income tax returns for the years in which it did business. To quality, the entity must certify that it did not operate or has ceased operating the business, that there are no remaining assets in the business, and that a certificate of dissolution or cancellation has been filed with the Secretary of State. The abatement of taxes is limited to the years in which the entity did not conduct business. However, if an entity obtains a voluntary administrative dissolution but is found to have continued to do business, the entity is punished by restoration of the abated tax, interest and penalty liability plus a penalty equal to 50% of the restored liability.

The FTB is also authorized to effect involuntary administrative dissolutions for California corporations and LLCs whose entity powers and privileges have been suspended for at least 60 consecutive months. Prior to such a dissolution, the FTB must provide written notice to the entity at its last known address or, if the address is unknown, the Secretary of State is to post a notice on its website. The notice provides a 60-day period in which the subject entity may object to the administrative dissolution and, if a timely written objection is received, the entity then has 90 days to file returns, pay taxes, file a current Statement of Information, and apply for revival of the entity. If these requirements are not timely satisfied, the administrative dissolution is consummated and the minimum franchise and annual taxes, interest and penalties for the period of suspension are abated.

To be clear, an administrative dissolution, whether voluntary or involuntary, does not discharge any liabilities of the dissolved entity to creditors nor any liabilities that directors, shareholders, managers, members or other persons may have related to the dissolved entity. Further, an administrative dissolution does not diminish or adversely affect the ability of the Attorney General to enforce liabilities otherwise provided by law.

Instead, the Legislature’s aim in these processes is to provide a means to get rid of defunct businesses that are unlikely to be revived or to pay the tax liabilities that continue to accrue while they are not actually doing business. The mechanism to abate these liabilities is hoped to induce an entity’s owners to finally dissolve it and involuntary dissolutions will eliminate bureaucratic backlog and clear the FTB’s accounting system of accounts receivable that are unlikely ever to be paid.

That said, do you have any corporations or LLCs sitting on your shelf that might be eligible for, or subject to, administrative dissolution? The attorneys at Poole & Shaffery, LLP would be happy to assist you in navigating through the administrative dissolution processes.

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By: Kimberly L. Moore
FEATURED VERDICT: FedEx Ordered To Pay $8 Million For Whistle-blower Retaliation Related to Improper Safety Maintenance

Case No. BC512638

On October 19, 2018, a Los Angeles County jury awarded one current and two former FedEx Employees a cumulative total of $8,008,817 in compensatory and punitive damages.

The lawsuit alleged that that Fedex, in an effort to cut costs, ordered that maintenance staff reduce the amount of time spent repairing older aircraft by approximately 33%. As a consequence, Fedex offered management bonuses for getting airplanes out faster and the lawsuit claimed that the end result was that its mechanics frequently signed off on shoddy and incomplete repairs. Subsequently, Gruzalski and Langevin complained to management, but FedEx allegedly did not investigate and instead ordered Collins to write up both employees. When Collins refused, Fedex warned him that he would be written up if he continued to refuse. Ultimately, FedEx terminated Gruzalski, demoted Langevin, and denied Collins a promotion.

FedEx denied the allegations in the suit and instead offered evidence that its actions against the three employees were justified on legitimate business grounds and that, while many of the planes in its fleet were old, that they were flight worthy. Specifically, FedEx maintained they terminated Gruzalski for using inappropriate language, including racially derogatory language; that FedEx demoted Langevin for moonlighting for other airlines with FedEx equipment; and that FedEx denied Collins a promotion for failing to appropriately stop this behavior.

After deliberating for more than a week, the jury found in favor of all three plaintiffs for their claims of retaliation. Specifically, Brian Gruzalski, a former employee and airplane mechanic, was awarded $855,000 in compensatory damages and $3.8 million in punitive damages; Stanely Langevin, a Gruzalski’s former supervior, was awarded $144,000 in compensatory damages and $200,000 in punitive damages; and Mark Collins, current employee and former manager, was awarded $260,000 in compensatory damages and $2.75 million in punitive damages.

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By: Kimberly L. Moore
FEATURED VERDICT: $11 Million Sexual Harassment Verdict Against Winery Who Rehires Lecherous Manager

Plaintiffs Megan Meadowcraft and Amber Brown were jointly awarded a total of $11 million by a Los Angeles County jury for their sexual harassment and retaliation claims against the two companies behind Keyways Vineyard and Winery (“Keyways”) located in Temecula California: Silverton Partners Inc. and Essence Business Group, Inc. Keyways principal place of business was in South Pasadena. The lawsuit principally targeted the actions of a short-term manager, Carlos Pineiro.

Ms. Brown was hired by Keyways in early 2015. Several months later, Keyways then hired Pineiro to serve as the new general manager and then hired Meadowcraft. Almost immediately, both Plaintiffs claimed that Pineiro made numerous sexually inappropriate comments, would flirt with each, would try and find each alone in confined places, and would leer at each. Plaintiff Brown specifically claimed that Pineiro would frequently become drunk at work, where he would scream at her, threaten to physically harm her if she betrayed him or complained about his behavior, and, during one of these incidents, Plaintiff Brown claimed that he grabbed her wrist causing her to fall down a set of stairs. Ms. Meadowcraft specifically claimed that Pineiro took pictures of her at work, physically touched both her rear end and her vagina, and even pushed her against a wall in a shed where he claimed he would give her a promotion if he had sex with her.

Both Plaintiffs alleged that they complained had their work schedules reduced immediately after.

Approximately two weeks after his hire date, Defendants fired Pineiro due to these complaints. However, approximately two weeks later, Defendants inexplicably hired Pineiro back for the same management job and ignored Plaintiffs’ complaints of his return. As a result of the inaction, Plaintiff Brown filed and succeed in obtaining a temporary restraining order.

At trial, Plaintiff Brown testified, with the corroboration of her therapist, that she suffered from symptoms consistent with post-traumatic stress disorder and depression. Similarly, Plaintiff Meadowcraft also testified to symptoms consistent with post-traumatic stress disorder. Plaintiffs waived their economic damages. Moreover, multiple witness, including coworkers and customers, corroborated much of Pineiro’s inappropriate behavior.

The jury found in favor of both Plaintiffs on all counts of sexual harassment, retaliation, failure to prevent harassment, and negligent supervision, retention and hiring. They awarded each Plaintiff $2.5 million for past and future emotional distress, and $3 million in punitive damages.

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