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Poole & Shaffery, LLP
January 2013

Poole & Shaffery, LLP is a full service business firm with attorneys who focus on a variety of different areas of litigation, counseling and transactional services, including: bankruptcy, business litigation, business transactions, commercial litigation, construction law, construction defect claims, employment and labor law, environmental law, government affairs, intellectual property matters, insurance law, land use, non-profit and tax-exempt organizations, product liability, premises liability, real estate law, and toxic torts.

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: Chris S. Jacobsen
IS YOUR NON-COMPETE GOING TO WORK FOR YOU?

Purchasers of businesses frequently require sellers to agree or covenant not to compete for a period of time with the business that they have sold. Such a covenant is designed to protect the goodwill of the business acquired by the purchaser. Employers often seek to insert covenants not to compete in employment agreements with their employees in a similar effort to protect the value of their businesses. Unfortunately for employers in California, not all covenants not to compete are created equal.

The general rule in California (set forth in Business and Professions Code section 16600) is that covenants not to compete are unenforceable. The primary exception (set forth in Business and Professions Code section 16601) to that rule permits covenants not to compete in connection with the sale of a business. In connection with the sale of a business, a seller and/or the owner of a business entity selling the goodwill of a business may agree to refrain from carrying on a similar business within a geographic area in which the business was conducted. When a selling owner also accepts employment with the purchaser and thus may have continuing contact with the customers, suppliers and confidential information of the business, the purchaser needs to exercise particular care in drafting an enforceable covenant not to compete.

In Fillpoint, LLC v. Maas, 2012 DJDAR 11800, the California Court of Appeals recently held that a seller's three-year covenant not to compete included in a stock purchase agreement was enforceable, but that a covenant not to compete for one year following the termination of the seller's employment with the purchaser, that was contained is a separate employment agreement, was not enforceable. While the Court agreed that the stock purchase agreement and the employment agreement were part of a single transaction and should be read together, it concluded that the covenant in the employment agreement was broader and, among other things, sought to restrict sales to customer or potential customers during the two years preceding termination. The restrictions on such solicitations extended beyond the business sold and thus were held to fall outside the exception set forth in section 16601.

However, this ruling should not be read to reject the enforceability of all covenants not to compete that are tied to a period of time after the termination of employment of a seller by the purchased business. In Hilb, Rogal and Hamilton Insurance Services of Orange County, Inc. v. Robb, (1995) 33 Cal. App. 4th 1812, a case cited with approval in Fillpoint, the Court of Appeal upheld a covenant not to compete for three years after termination of the seller's employment that was contained in an employment agreement between the seller and the purchaser and that provided for the payment of a separate consideration for this covenant.

The California public policy of not restricting a person's right to work is a strong one and the California courts will continue to scrutinize covenants not to compete to assure that they fit within the purpose of the section 16601 exception. Thoughtful structuring of the purchase transaction and careful drafting of the documents must be employed in order to assure that the covenant is targeted at the protection of the acquired goodwill for the purchaser and thus will be enforced. So, the question remains, if Fillpoint had merely allocated a portion of the purchase consideration to the non-compete in the employment agreement, would the Court have come to a different conclusion?



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By: Michael S. Little
NEW CALIFORNIA JUDICIAL COUNCIL FORM INTERROGATORIES FOR CONSTRUCTION LITIGATION GO INTO EFFECT IN 2013

Attorneys propounding or responding to written discovery in construction litigation are all too familiar with the difficulties in using standard California Judicial Council form interrogatories for general use in civil cases. These often used and longstanding "general use" form interrogatories are not specifically tailored to address the often unique issues and topics found in construction litigation. After working on various proposals and drafts since 2009, as well as, receiving public comment from numerous attorneys, law firms, attorney organizations, bar associations, state courts, contractors and contractors' trade associations, the Judicial Council of California approved the proposed Form Interrogatories – Construction Litigation (form DISC-005), effective January 1, 2013.

These "construction litigation-tailored" interrogatories were developed over the course of several years by the Civil and Small Claims Advisory Committee after working closely with a small group of attorneys specializing in construction litigation. Early in the development of these construction interrogatories, the Consumer Attorneys of California (CAOC) objected to the committee that the proposed form interrogatories would not be helpful, contending that the format would overly burden plaintiffs in construction defect cases. The committee considered CAOC's objections but disagreed, concluding that form interrogatories would prove useful in construction litigation, particularly in smaller cases. The committee noted that discovery, including interrogatories, is permitted in construction defect cases and concluded that specialized form interrogatories could provide a standard format to help keep discovery questions focused on and applicable to construction-specific issues. Further, the committee concluded that the standardization of discovery requests with form interrogatories is likely to help both plaintiffs and defendants as well as the courts by making discovery more predictable, thus decreasing the number and complexity of any associated motions to compel.

The newly-approved Form Interrogatories – Construction Litigation (form DISC-005) can be found at http://www.courts.ca.gov/documents/disc005.pdf and follow the same format as other Judicial Council form interrogatories. The instructions at the beginning are essentially the same as those in other form interrogatories, with two exceptions:

  • The construction litigation form interrogatories are limited to smaller cases and require leave of court before these interrogatories can be propounded in larger and complex cases. Specifically, the construction litigation form interrogatories may not be used unilaterally in actions that involve more than "six or more single-family homes or housing units." In addition, in a case deemed complex under rule 3.400 et seq. of the California Rules of Court, the construction litigation form interrogatories must not be used until the asking party has obtained judicial approval on a showing of good cause.
  • The instructions recognize that many construction cases utilize document depositories. As such, responding parties are given latitude to simply point to or identify by Bates stamp number documents that are responsive to an interrogatory, so long as the asking party has access to the depository and the referenced document.

Form Interrogatories – Construction Litigation also contain other notable aspects, including the following:

  • As with other civil form interrogatories, additional non-form interrogatories may be attached.
  • The definitions section in the instructions of the construction form interrogatories are similar to the list of terms used in general civil form interrogatories, but add or substitute key terms specific to construction litigation. Recognizing that the standard term "incident" is both confusing and inapplicable as a defined term in construction litigation, the construction form interrogatories replace this term with "construction claim" and "construction defect claim" (and the asking party may craft their own definition to these terms in certain actions).
  • The construction litigation form interrogatories are intended to encompass and integrate topics and issues addressed, not only in construction disputes, but also in general civil litigation. As such, any asking party who uses the construction litigation form interrogatories may not use other form interrogatories such as Form Interrogatories – General (form DISC-001) or Form InterrogatoriesLimited Civil Cases (Economic Litigation) (form DISC-004).
  • Importantly, the personal injury questions from the general civil litigation form interrogatories have been removed from the construction litigation form interrogatories after the committee and the Judicial Council acknowledged that such interrogatories are rarely applicable in construction cases and simply create confusion and unnecessarily complicate the form.

While these newly-implemented construction litigation form interrogatories received some criticism; particularly from the plaintiffs' bar who objected that the new form interrogatories were intended to inundate plaintiffs and plaintiffs' attorneys, and in so doing, deter valid claims. Other commentators noted that responding to these interrogatories would impose more work and expense on plaintiff homeowners to provide information in response to interrogatories that is now generally provided in expert witness discovery, rather than discovery directly from the plaintiff.

After considering these objections, the committee and Judicial Council concluded that the construction litigation form interrogatories would not generally be overly burdensome on plaintiffs, especially in smaller cases, and noted that discovery by interrogatory is already permitted by law in civil actions, including construction defect litigation. The Judicial Council also found that the general civil form interrogatories were not "focused on issues found in construction litigation, and can be ambiguous or inapplicable in that context." Ultimately, the new form does not add anything new to the currently authorized means of discovery, "but instead refines what is already allowed by law."



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By: Cecilie E. Read
THE NEW YEAR BRINGS NEW REGULATIONS FOR DIESEL TRUCKS IN CALIFORNIA

As 2013 rang in, many diesel truck and bus fleet operators were scrambling to bring their fleets in to compliance with the latest phase of the California Statewide Truck and Bus Rule.

In 2008, the California Air Resources Board adopted the rule which requires all heavy-duty diesel trucks, and buses that operate in California to retrofit or replace engines in order to reduce diesel emissions. The latest phase of the rule went into effect January 1, 2013 and requires trucks and buses weighing more than 13 tons with engines built from 2002 to 2004 to either upgrade their equipment or install diesel soot filters, a device designed to remove diesel particulate from exhaust.

The California Construction Trucking Association sought an injunction, attempting to block implementation of this phase of the regulation in federal court. However, in late December, the federal district court dismissed the Association's Complaint after the Environmental Protection Agency approved California's plan to reduce emissions, including the rules for trucks and buses.

Many fleet owners have agreed that it is not economically feasible to bring their vehicles up to spec. Robert McClernon, former president of the California Construction Trucking Association, indicated that the regulations have forced about 40 percent of the state's small trucking companies to close since 2011, with more to close in the new year. The California Trucking Association estimated that meeting the standards of the regulation (inclusive of the diesel soot filter phase) will cost the trucking industry one billion dollars each year.

Despite the burdensome cost of compliance, business owners should be aware that non-compliant vehicles (including out-of-state vehicles that cross into California) may not be legally operated in California. The State will be levying minimum penalties of $1,000 per violation for every month the vehicle is not in compliance. Further, non-compliance can result in the Department of Motor Vehicles issuing a registration block on subject trucks or buses and/or having the vehicle impounded by California Highway Patrol until the vehicle is made compliant.

A list of currently verified diesel emission control strategies can be found at the California Air Resources Board at http://www.arb.ca.gov/diesel/verdev/vt/cvt.htm



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