California Injury Attorney Blog

Conventional wisdom among California homeowners has been that if they go through foreclosure, they will lose their homes, yet be freed from the remaining debt on the mortgage. But that silver lining, distressed borrowers are learning, applies only if they did not previously refinance their loan.

The state Legislature created laws during the Great Depression intended to allow people who lost their homes to get back on their feet. They protected borrowers from being pursued for the difference between what they owed on their mortgage and the decreased value of their former home. But, at a time when refinancing was less common, those laws did not include loans that refinanced the original purchase mortgage - even if it was done only to obtain a lower interest rate.

Now, proposed legislation would extend protections to those foreclosed owners who refinanced their loans. The state Senate approved the new law in June and it was passed by a state Assembly committee on June 29, 2010., but its future is unknown.

State bankers' groups are trying to alter the bill, which was sponsored by the California Association of Realtors, before its final vote this summer. The bankers do not want changes to apply to existing loans, but rather only to future mortgages.

We do not wish for the California Legislature to go in and amend contracts," said Rodney Brown, chief executive of the California Bankers Association. "The banking industry is very supportive of extending these kind of protections, but the idea of breaking a contract between the borrower and the lender is not really consistent with contract law in the U.S. or the way to do business."

The gap between what is owed on a mortgage and the value of a home is known as a deficiency states California Business Attorney Steven C. Peck.

As it stands, homeowners who only have an original purchase loan can walk away from their debt obligation and not worry about bill collectors. Their credit might suffer, but their future earnings will not be threatened by debts from their current crisis.

That has led some owners to pursue so-called strategic defaults, where they have the means to continue paying their mortgage, but choose not to.

In contrast, an owner who refinanced the original loan - whether a strategic defaulter or someone who lost his job and could not pay the monthly mortgage - could be chased down for debts almost indefinitely.

For homeowners in default, the concern is not academic. Real estate lawyers say they increasingly are getting calls from distressed owners who are trying to work with lenders. Many owners are discovering that even if they pursue a short sale - where the bank allows the home to be sold for less than what is owed on the mortgage and ostensibly forgives any remaining debt - they still could be on the hook for the unpaid balance at a later date indicates Los Angeles Business Lawyer Steven C. Peck.

"If the state legislation goes the way the bankers want it to, it could hamper former owners' ability to ever buy a house again and would violate fundamental principles of fairness, according to Alex Creel, senior vice president and chief lobbyist for the California Association of Realtors.

"Our thinking is why should refinancing the loan, and nothing more, result in a loss of protections that you had when you made the loan at the outset," Creel said. "But in California, you lose that protection, and it's not as if the lender tells you about it. But you lose it nonetheless."

Creel points out that the proposed legislation does not protect those who refinanced their loans to get cash, in the form of home equity lines of credit and other second loans. And it shields former homeowners only up to the amount of their original mortgage.

If an owner obtained a mortgage of $400,000, but then boosted the loan to $500,000 by refinancing for cash, the law would allow him to be billed for the $100,000 difference, he said.

Peck notes that pursuing loan deficiency payments requires going to court and is cumbersome, and therefore not favored by banks. But that does not stop lenders from using the threat of court action as leverage in negotiations over the fate of a property verging on foreclosure.

"We've heard of lenders saying, we're not going to agree to a short sale unless you sign a contract to pay all or some of the deficiency," "And it's not a hollow threat because currently, they are entitled to do it."

Peck indicates lenders have four to six years to obtain a judgment against a borrower, but the judgment is good for 10 years and can be extended another 10 years.

The law needs to be changed because there is no express reason for the distinction between those who refinance and those who don't, but the difference has enormous financial implications.

"We feel like it's a fairly arbitrary distinction that is applied to refinanced loans and purchase loans, and we believe that many people did not fully appreciate the potential danger,"

Written by Robert Selna at rselna@sfchronicle.com.

It is an unfortunate fact of life: if you are in business today, you are going to have disputes. They may be contract disputes with suppliers or they may be claims made by your customers. They may be contract disputes or banking disputes. They may very well be disputes with your employees.
Many things can be done to avoid such problems, but this article is intended to deal with the methods in which those disputes can be handled.

There may be occasions where you simply have no input into the method of dispute resolution. There may be no contract in which you can make a choice, or no invoice in which you can insert a dispute resolution requirement. However, where the choice is yours, your basic options are to go to court and litigate, or to choose the alternative dispute resolution of arbitration. Both of those methods of resolution could include a side trip known as mediation, which is a good place to start.

MEDIATION
Irrespective of whether your ultimate dispute resolution may be litigation or arbitration, you may choose to include in your contracts an obligation to mediate before the matter is allowed to proceed. Mediation has become a cottage industry in the last 15 years, as many lawyers have chosen to emphasize their positions as mediators, rather than advocates, and many retired judges have set up shop as mediators.

Mediation is nothing more complicated than having a third party getting involved in your dispute, receiving information from both parties, and then sitting down to talk separately with each party in an effort to find some middle ground in which a settlement of the issues is possible. Mediators emphasize to the participants:

•The cost of arbitrating or litigating their claims;
•The uncertainly of that resolution; and
•The time and effort it will cost both sides to proceed past mediation.
With that framework, a mediator uses his or her training and skills to find a solution that both parties can live with, if not be excited about.

Most people would be amazed at the percentage of success rate enjoyed by mediators in finding a solution to often difficult and complicated issues. In addition to a skilled mediator, a successful outcome is going to depend, to a large degree, on both sides being willing to:

•Listen;
•Continue to engage in the process;
•Keep in mind the cost benefit ratios of moving on in the dispute process; and
•Put aside the "principal" involved.
ARBITRATION

If mediation does not resolve your issues, the alternative is to "try" your lawsuit. You can do that either in the traditional way in front of a court and a jury, or you can put your case before an arbitrator selected by the parties or one selected by the American Arbitration Association ("AAA"). The AAA is a national organization that provides qualified arbitrators (and for that matter mediators) in each jurisdiction and handles the administrative aspects of moving your dispute along to a final arbitration. Once the parties "try" their case to an arbitrator and that arbitrator gives a decision, it is virtually impossible to successfully appeal the result absent fraud on the arbitrator's part. The courts will generally reject an appeal from an arbitration award absent such fraud, and not even a clear error of law or fact by an arbitrator will cause a court to intervene.

The advantages of arbitration are:

•It is quicker than getting entangled in the legal system;
•More likely to result in a final resolution without any prospect of further appeals; and
•The usual "discovery period" provided for in litigation which involves the parties sending questions back and forth to be answered under oath, the parties demanding document exchanges, and the parties taking depositions of witnesses ahead of time, are for the most part reduced or eliminated in the arbitration system.
Offsetting those savings, are the costs of the arbitrator who charges on an hourly basis, and the costs of an organization such as the AAA. Those costs are generally split between the parties. Despite the administrative costs that exist in arbitration and not in litigation, everyone would agree that arbitration is quicker and less expensive than a traditional court setting.

COURTROOM TRIAL
Why then, do you ask, would anyone choose not to arbitrate? Probably because some of the advantages in arbitration turn to disadvantages in certain disputes. If your issues are extremely complicated and you have a concern that it is going to be impossible for an arbitrator to understand the complete story unless you have the opportunity to utilize all of the discovery techniques that are unquestionably available in litigation, you may choose a courtroom setting. In addition, many people believe that arbitrators may choose to "cut the baby in half" more often than a judge or jury would.

Trying your case to a court and a jury does give you the advantage of obtaining fuller disclosures through the discovery process. It also has some disadvantage, including the likelihood that no one on the jury is going to have the background, experience, education, and training of an arbitrator. Many lawyers believe that trying a very complicated piece of litigation to a jury is a major gamble and their client would be better off selecting an arbitrator with background in the industry in question.

Your attorney can help you make a decision about which of your contracts or agreements might prudently include an alternative dispute resolution provision mediation and/or arbitration as a method of resolving your issues depending on the amount of money involved, the complexity of the issues, and the collective view of what makes the most sense in your circumstances.

Continue reading "Business Dispute Resolution" »

While the administration is lauding the advancement of the Financial Regulatory Reform Bill and is expected to sign it into law next week, two key items of the bill actually will hurt the protection of consumers.

One element is that securities brokers will be held to a fiduciary standard enforced by the SEC, just as investment advisers are today. How could this hurt consumers one might ask?

First, the bill specifically allows brokers to earn commissions and sell proprietary products while acting as a fiduciary. Before the bill, fee-only fiduciary registered investment adviser's only compensation was in the form of fully disclosed fees paid by the client leaving conflicted commission based brokers outside of the fiduciary standard. Now, the same brokers that peddled big commission products (or conflicted proprietary products) will be able to call themselves a fiduciary while they earn the same big fat conflicted compensation they have in the past. Although relatively few consumers really understood the difference between the two, at least some have grown to learn the difference. Now the consumer will have no easy means of discerning the difference between the them because the product peddler will be able to call himself a fiduciary too.

For a client to actually collect on a fiduciary breach requires expensive legal action. SEC Registered Fee- Only Investment Advisers had no financial incentive to breach their fiduciary duty so their actions were relatively self policing. But now there is a whole new army of brokers that will be fiduciaries too, except unlike an objective fee-only adviser these brokers will still be tempted by the bribe of a big fat commission. The result will NOT be a wholesale clean-up of brokerage firm activities. Instead, all it will create is a ton of fiduciary violations because they will continue to accept product commission bribes that are specifically allowed in the bill. The real ending result of this means nothing more than being a securities lawyer is going to become a HUGE growth industry.
The other provision in the bill that absolutely contradicts the notion of consumer protection is that Congress has specifically prevented the SEC from enforcing more disclosures for equity index annuities. The SEC has been attempting to have them treated as securities which are subject to many federal disclosure laws designed to protect consumers.

Continue reading "New Financial Regulatory Reform Bill will Change The Way Business Is Handled" »

When you first set up your corporation, you incorporate in one particular state, which is where you file your articles of incorporation and pay the necessary filing fees. All states except for the state you incorporate in are generally referred to as "foreign states." If your corporation is going to be doing business in foreign states, you generally have to register your corporation with that state as a foreign corporation. This is known as qualifying as a foreign corporation says California Business Attorney Steven C. Peck.

The process of qualifying as a foreign corporation is similar to the process of incorporating your corporation. You generally have to file your articles of incorporation (along with any other information required by the foreign state) with the foreign state's secretary of state. You also usually have to include certain filing fees when you do this and you will have to establish a registered agent who is resident in that state. As with your state of incorporation, you will have to make periodic filings and/or fee payments to the foreign states you are qualified in, so you will have to ensure that you keep on top of this indicates California Business Lawyer Steven C. Peck.

While most states require foreign corporations doing business in their states to qualify, many smaller companies generally do not do this. While this is a violation of state law, most states do not actively enforce these violations against small business. However, if you chose not to qualify your corporation, you should realize that you are doing so at your own risk.

Continue reading "Registering Your Corporation In a "Foreign" State" »

One of the biggest advantages to forming a company as an LLC is that, much like C corporations, the owners/members are not personally liable for most losses or debts of the company itself. Thus, there is so-called limited liability and the owners can only, generally, lose whatever money has been invested in the LLC, and nothing more. However, personal liability can attach in certain instances, such as where an owner tries to defraud company creditors or do some other illegal act - in these cases, a court may apply alter ego liability. Similarly, limited liability does not protect an owner for acts taken outside of his or her capacity as a company owner/employee. For example, if an LLC takes out a $500,000 loan and one of its members personally guarantees the loan, the bank could go after that member's personal assets, despite limited liability. Of course, if a co-owner is the one who has committed some bad deed making them personally liable, you would not be personally liable just for being another co-owner, as long as you did nothing wrong (this differs from a partnership, where you are personally liable for your partners' wrong-doings).

A mechanic's lien is a security interest in the title to property for the benefit of those who have supplied labor or materials that improve the property. The lien exists for both real property and personal property. In the realm of real property, it is called by various names, including, generically, construction lien. It is also called a materialman's lien or supplier's lien when referring to those supplying materials, a laborer's lien when referring to those supplying labor, and a design professional's lien when referring to architects or designers who contribute to a work of improvement. In the realm of personal property, it is also called an artisan's lien. The term "lien" comes from a French root, with a meaning similar to link; it is related to "liaison." Mechanic's liens on property in the United States date from the 1700s.

Reasons for existence:
With respect to real property, mechanic's liens are purely statutory devices that exist in every state (although in one state, as noted below, they have a constitutional foundation). The reason they exist is a legislative public policy to protect the contractors. More specifically, the state legislatures have determined that, due to the economics of the construction business, contractors and subcontractors need a greater remedy for non-payment for their work than merely the right to sue on their contracts. In particular, without the mechanics' lien, subcontractors providing either labor or materials may have no effective remedy if their general contractor isn't sufficiently financially responsible because their only contractual right is with that general contractor.

Without the mechanic's lien, the contractor would have a limited number of options to enforce payment of the amounts owed. Further, there is usually a long list of claimants on any failed project. To avoid the specter of various trades, materialmen and suppliers attempting to remove the improvements they have made, and to maintain a degree of equality between the various lienors on a project, the statutory lien scheme was created. Without it, Tradesperson A may try to "race" Supplier B to the courthouse, the project site or the construction lender to obtain payment. Most lien statutes instead mandate strict compliance with the formalized process they create in return for the timely resolution and balancing of claims between all parties involved - both owners and lien claimants.

In the state of California, mechanic's liens are a constitutional right guaranteed to contractors by the California Constitution.This right has been implemented in detail by statutes enacted by the California State Legislature. In Texas the Texas Constitution give builders the right to lien and sub contractors are given the right under Chapter 53 of the Texas State Property Code.
Vehicles:
If a person has repaired, furnished supplies or materials, towed or stored a vehicle and has not been paid for the services rendered, that person has a lien against the vehicle. The lien arises at the time the registered owner is presented with a written statement of charges for completed work or services. Although if services were performed that were not agreed upon and no written and signed estimate was issued beforehand, a mechanic has no right to keep the title owner from reclaiming the vehicle. If a mechanic asserts a fee that is not reasonably related to the work performed, and refuses to return the vehicle until that price is paid, the owner of the vehicle will be able to recoup a storage fee from the mechanic, as the mechanic is in the wrong for refusing to return the vehicle. In doing so the mechanic would commit the crime of conversion, or Embezzlement

If the vehicle is towed by a public agency or private towing company, the lien arises when the vehicle is towed or transported. The lien may be satisfied by selling the vehicle through the lien sale process.

To conduct a lien sale, the person/lienholder must have possession of the vehicle and have lien sale authorization from DMV. Interested parties, including the registered and legal owners of record will be notified before the sale occurs.

Creation:
Mechanic's liens exist to secure payment for services, labor and material on both personal and real property. However, the creation and enforcement mechanisms differ depending on whether real or personal property is involved. The law of mechanic's liens on real property governs the creation and enforcement of these liens on items of personal property that have been attached to real property in such a way as to be a fixture.

Creation and enforcement - personal property:
The English common law recognized mechanic's liens respecting only personal property. The lien was created by operation of law by the fact of the artisan working on the personal property item or attaching additional material to it. However, to maintain the lien, the artisan had to retain possession of the article until he or she was paid. If the property were returned to the owner before that time, the lien was lost. The lien was enforced by a "self-help" sale of the property and applying the sale proceeds to payment of the amount owed for the workmanship. The sales were non-judicial, i.e., they were held in the same way as a sale of property pawned for a debt.

Some 34 states now appear to have statutes providing for mechanic's liens on personal property.] These statutes tend to modify the common law rules. For example, in Virginia, a mechanic's lien can only be enforced up to the amount of $625, and if the property is valued at over $5,000, it must be sold at a sheriff's auction ordered by the court of appropriate jurisdiction.

Creation, perfection, priority and enforcement - real property:
Mechanic's liens on the title to real property are exclusively the result of legislation. Each state has its own laws regarding the creation and enforcement of these liens, but, overall, there are some similar elements among them.

Real property of the government (public property) is ordinarily not subject to the claims of private parties. Therefore, unless the state specifically so provides, mechanic's liens do not attach to the title owned by the state or its administrative subdivisions, such as cities. Similarly, mechanic's liens under state law are invalid on federal construction projects. To protect subcontractors and suppliers working on federal projects where the contract price exceeds $100,000.00 the Miller Act requires general contractors to provide a surety bond which guarantees payment for work done in accordance with the terms of the contract. Many state and municipal governments similarly require contractors on public works projects to be bonded.

Creation and perfection:
Under the statutes, the lien is usually created by the performance of labor or the supplying of material that improves the property. Just what type of contribution counts as a valid basis for a mechanics lien varies, depending on the particular state statute that applies. Some common examples are:

Laborers, carpenters, electricians, mechanical/HVAC contractors and plumbers working on the project site;
Lumber yards, plumbing supply houses and electrical suppliers;
Architects and civil engineers who drew up the construction plans and specifications; and
Offsite fabricators of specialty items that are ultimately incorporated into the project.
Often, there is no simple dividing line that is useful in every state, or even in every case, for determining this eligibility. Deciding whether a party has a legitimate lien right may depend on examining court cases that have either upheld or rejected lien claims in the same state.

Unlike other security interests, in most states, mechanic's liens are given to contractors and material suppliers who may or may not have a direct contractual agreement with the owner of the land. In fact, this is often the norm because in most cases, the owner of the land contracts only with a general contractor (often called a "prime contractor"). The general contractor, in turn, hires subcontractors ("subs") and material suppliers ("suppliers") to perform the work. These subs and suppliers are entitled to liens on the owner's property to secure their payment from the general contractor.

However, to have an enforceable lien, it usually must be "perfected." This means that the holder of the lien must comply with the statutory requirements for maintaining and enforcing the lien. These requirements, which contain time limits, are generally as follows:

Providing the required preliminary notice to the property owner disclosing the entitlement to the lien (some states).
Filing notices of commencement of work (some states).
Filing notices in the required public records offices of the intention to file a lien if unpaid (some states).
Filing the notice or claim of lien in the required public records offices within a specified period of time after the materials have been supplied or the work completed (all states). The law varies from state-to-state on both the triggering event and the timing of this. Some states require the filing within a period measured from the time when the claimant completes its work, while others specify the event as being after all work on the project has been completed. The filing time periods after the triggering event vary, with 4-6 months being common.
Filing a lawsuit to foreclose the lien within a specified time period.
Priority respecting other interests
The statutes creating mechanic's liens usually give them a higher priority with respect to other interests in the title than the law gives most real property security interests. Among other things, priority is the attribute that determines which of several competing security claims will have the first claim to the funds of a foreclosure sale. In this context, the priority of a mechanic's lien is determined either by the time the lien attaches to the title to the property or by the point in time to which it "relates back." With some exceptions, the lien attaches or relates back to a time prior to the time that any notice of it appears in the public records. In many states, this is specified as the time when the first visible construction commences on the building site. In others, it is when the contract is executed for the work to be done. In still others, each contractor or supplier's lien attaches at the time when it commences its own work. Therefore, persons dealing with the owner of the title to the property risk having their interests unexpectedly subject to mechanic's liens of which they had no knowledge.

Special provisions are made in some states for determining the priority between a mechanic's lien and the lien of a mortgage that is financing the construction on the land. For instance, in the State of New York, the appearance of specified language in the mortgage to the effect that it is a construction loan preserves its priority over mechanic's liens arising out of the construction, as long as subsequently filed lien claims that are legitimate are not ignored. In other states, such as Florida, it is an all or nothing proposition. There, the recording of the construction mortgage before the filing of a statutory notice of commencement of construction provides the mortgage with absolute priority over mechanic's liens arising out of the construction. Still other states, such as California, provide priority for a construction loan mortgage recorded before the visible commencement of construction where the lender is obligated to disburse the funds. In the State of Illinois, there is a statutory funds disbursing scheme that, if followed, provides construction loan mortgage priority. In other states, there are still other arrangements and some states, such as Colorado, provide almost no practical means for a construction loan mortgage to obtain priority at all.

Enforcement:
Mechanic's liens are enforced exclusively through judicial foreclosure sales, i.e., through court proceedings similar to mortgage foreclosures. The court must determine whether the requirements of the statute have been met and, if so, the priority of the mechanic's lien being foreclosed relative to the other liens or encumbrances on the title. Once that is determined, the court will order the property sold and the proceeds of the sale applied to the liens in the order of their priority.

Protecting real property from burdens imposed by a mechanic's lien:
Often a mechanic's lien is discovered long after it's been filed in the public records, but by taking a few proactive measures, property owners can ensure their properties are protected from the burdens imposed by such mechanic's liens.

Releases of Lien:
Prior to making any payment, the property owner should receive a Release of Lien from every supplier, contractor and subcontractor, which covers the materials used and the work performed on the project. The Release of Lien is a written statement that removes the property from the threat of lien. If the contract requires partial payments be made before the work is completed in full, the get a Partial Release of Lien covering all workers and materials used up to that point in time.

Before final payment, obtain an affidavit from the contractor that specifies all unpaid parties who performed labor or services, or provided materials to the property. Make sure the contractor obtains releases from all of these parties before making final payment.

Notice of Termination of Notice of Commencement:
At the end of the project and after the contractor is paid in full and obtained all of the necessary Releases of Lien and affidavits as described above are obtained, file a Notice of Termination of Notice of Commencement with the Clerk of the Circuit Court in the county where the property being improved is located.

Arbitration, a form of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the courts, wherein the parties to a dispute refer it to one or more persons (the "arbitrators", "arbiters" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides indicated California Business Lawyer Steven C. Peck.

Other forms of ADR include mediation (a form of settlement negotiation facilitated by a neutral third party) and non-binding resolution by experts. Arbitration is most commonly used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is far more controversial in consumer and employment matters, where arbitration is not voluntary but is instead imposed on consumers or employees through fine-print contracts, denying individuals their right to access the courts. says California Business Law Attorney Steven C. Peck.

Arbitration can be either voluntary or mandatory and can be either binding or non-binding. Non-binding arbitration is, on the surface, similar to mediation. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.

Continue reading "Arbitration is a Legal Technique to Resolve Disputes Outside The Court System" »

fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties, most commonly a fiduciary and a principal. One party, for example a corporate trust company or the trust department of a bank, holds a fiduciary relation or acts in a fiduciary capacity to another, such as one whose funds are entrusted to it for investment. In a fiduciary relation one person, in a position of vulnerability, justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests.

"A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence." says California Business Attorney Steven C. Peck.

A fiduciary duty[ is the highest standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the "principal"): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents.

Continue reading "The Fiduciary Relationship of Confidence or Trust" »

Most business litigation attorneys will tell you that breach of contract lawsuits are the most common business litigation cause of action in California. Breach of contract encompasses a variety of different scenarios: partnership disputes, breach of lease and other real estate litigation, sales transactions, promissory notes and collections, and any situation where two or more parties have reached an agreement, either orally or in writing says California Business Lawyer Steven C. Peck.

Every breach of contract lawsuit has to establish the following elements: (1) a contract, (2) plaintiff's performance of his or her obligations under the contract or an excuse as to why plaintiff did not perform, (3) defendant's breach of the contract, (4) plaintiff's damage arising from the breach of contract.

A contract can come in different forms. Oftentimes businesses carry on their transactions with written contracts. However, parties may enter into oral contracts. The law can also imply a contract. This is usually the case when there is no express writing but the parties are engaging in a pattern of conduct which evidence an agreement. For example, where one party performs work and the other party begins paying for that work, a court may imply a contractual relationship between the parties even though there is no express written or oral contract.

The second element of a breach of contract lawsuit is that the plaintiff performed her or her obligations under the contract or has an excuse as to why he or she did not. The idea behind this requirement is that you cannot sue another for breach of contract if you did not perform your obligations under the contract.

In California the third element of a breach of contract cause of action is the other party's breach. Breach most often includes a failure to pay monies owed, but can take other forms as well. In real estate litigation a tenant may breach a lease, for example, by failing to maintain property insurance, by failing to maintain the property as required by the lease, or failing to follow the rules and regulations. A landlord, on the other hand, can breach a lease by failing to provide the promised amenities.

In other business litigation contexts, breaches of contract can be almost anything agreed to by the parties that one party has failed to perform. Manufactured goods that are defective or late, a partner that fails to perform his obligations to the other partners, a construction project that is improperly built--all of these can be breaches of the agreement between two or more parties.

Lastly, a breach of contract does not create a viable legal cause of action unless the other party is somehow damaged by it. Usually the breach causes damage, such as an invoice that is unpaid, a rented space that is unusable or even profits that are lost due to some act. Depending on the circumstances, a breach of contract action can lead to an award of damages, an injunction (to prevent an ongoing wrong) and even specific performance. Specific performance is often used in real estate litigation since California finds that real property is unique. Therefore a breach of contract to purchase real property can be specifically performed, meaning the court will order the sale or the purchase of the property rather than just awarding monetary damages.

Continue reading "Breach of Contract Lawsuits Are The Most Common Type of Business Litigation" »

Embarking on a new business venture emboldens many entrepreneurs. With a solid business plan and capital assured, opening a new business promises new freedom. Simultaneously, many new businesses owners also feel somewhat overwhelmed. The key for initial success is careful planning.

Choosing the best organizational strategy for a new business creates long-lasting consequences. The choice should optimize ease of operation, protect personal assets, and remain affordable. Owners may consider an assortment of options. Each option includes a full complement of advantages and disadvantages.

The assistance of a skilled business lawyer provides new owners with keen professional insight and a ready source of expert answers for all legal questions. For example, a new owner may consider a sole proprietorship. In the most basic sense, a sole proprietorship is easy to maintain. Yet it provides little protection from personal liability and potential claims.

Operating a business as an individual may initially seem economical since you don't need to spend as much money setting it up. However, the long-term costs of selecting a sole proprietorship can be substantial. Sole proprietors have unlimited personal liability for business actives and the actions of all employees. In addition, tax-planning options are limited.

Multiple owners often consider a simple general partnership because of affordability since it does not require registration. Income earned by a partnership passes through to individual partners according to an agreement. Drafting a partnership agreement quickly becomes complex when partners desire to alter equal distribution of income, joint and several liability, or management authority. The best way to avoid future complications is to discuss agreement options with a competent commercial lawyer.

Corporations remain highly popular because of ironclad protection of personal assets and operational flexibility. A board of directors may delegate authority as needed and change profit distribution at will. Tax planning options and benefits also expand when using a corporation. Because of extensive regulation, consider the assistance of a commercial lawyer whose expertise is essential for legal compliance and maintaining all available benefits.

Limited partnerships include at least one general partner and additionally allow an unlimited number of limited partners. Frequently, a corporation becomes the general partner and individuals contribute capital for business formation. Limited partners are responsible up to but no more than the extent of their registered capital investment but have no management authority. New business owners may find this high degree of flexibility useful while limiting personal responsibility for business liability.

Limited liability companies are distinctly different from limited partnerships. A limited liability company passes income through similarly to a general partnership, but also insulates owners from liability similar to a corporation. The IRS does not consider a limited liability company as a taxable entity because of the pass-through feature. Frequently, with careful planning, a limited liability company may combine the best features of a general partnership and corporate protection while avoiding many disadvantages of both entities.

The advice and assistance of a business lawyer is vital when forming a limited liability company. In a few situations, a lawyer is not necessary to start a business, nevertheless, the prudent choice is to begin the operation all new businesses properly from day one. The risk of loss from legal noncompliance is simply too great. A single mistake could void all benefits and expose owners to unlimited liability and asset loss.

The LLC operating agreement is a document created when setting up an LLC which governs how the LLC is going to be maintained and operated (the LLC operating agreement is similar to a partnership agreement or corporate bylaws) says California Business Attorney Steven C. Peck.

As a result, the LLC operating agreement is considerably more detailed than the articles of organization. The LLC operating agreement should address whether the LLC is going to be member-managed or manager-managed, and should outline what powers the members and/or managers will have. It should also address how the LLC handles meetings - how, when and where meetings are held, what notice is necessary before holding a meeting, what qualifies as a quorum, how voting and elections are handled, etc. The LLC operating agreement typically covers some other related issues, as well, such as who has the power and right to audit the company books and records, how the fiscal year is defined and how the agreement itself can be updated and amended.

Once you have prepared your LLC operating agreement, you do not need to file them, like you do with articles of organization. Instead, they should simply be maintained in your company records. However, you may need to formally adopt the agreement - you should check the laws for the state you are organizing in. In some states, the incorporator has the power to adopt the agreement, other states require the first board of directors to formally adopt the agreement, and the remaining states leave both options open.

Continue reading "The Limited Liaibility Company Operating Agreement" »

While limited liability protects the owners, directors and officers of a corporation, they may still be personally liable in situation where they have severely mismanaged the corporation.

However, it is very rare for directors to be found personally liable because of the business judgment rule. This rule basically says that a director will not be held personally liable for a bad decision as long as he or she was acting in good faith, was diligent in learning information relative to that decision and was not personally interested in the underlying transaction. This rule therefore provides a broad amount of protection to corporate directors.

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A limited liability partnership is a special type of partnership only used by businesses organized by certain types of professionals. For example, a group of lawyers or doctors may start a law firm or a health clinic as a limited liability partnership. The major distinction between this and other types of partnerships is that the owners of an LLP are not personally liable for the negligence of other partners, although they remain liable for their own negligence and for any debts or losses of the business itself say California Business Lawyer Steven C. Peck.

Thus, these are useful in states where the law or professional ethics rules will not allow the professionals to form a corporation or LLC, as it affords the owners at least some limited liability. For example, many state ethics rules do not allow lawyers to form anything other than a partnership, so a limited liability partnership at least affords the owners a little protection in the event that one attorney commits malpractice or some other negligent act.

Continue reading "What is A Limited Liability Partnership" »

There are several advantages to setting your business up as a sole proprietorship. Principally among these advantages is that sole proprietorships are very cheap and easy to setup, and fairly cheap and easy to run. This is because there are not a lot of laws and formalities that you have to worry about complying with. Thus, you do not generally have to hold any formal meetings, make any filings with the state (unless you are using a fictitious name) or pay the state any ongoing fees says California Business Lawyer Steven C. Peck.

Running a sole proprietorship can also make your life easier because you can mix your business and personal assets without worrying about running afoul of any legal requirements (although this is not necessarily a good practice from a practical standpoint), and your business taxes are relatively easy to prepare and file as your profits and losses are simply reported on your personal tax returns. Finally, if you start your business as a sole proprietorship and later find that your needs have grown and you need to run the business in a more complex form (such as an LLC), it is relatively easy to change the business form.

Financing your new business with equity makes sense when you want to share the risk, rather than taking on all the risk yourself by obtaining a loan. The risk is shared because your investors become co-owners, and each offers some money or services which they risk losing if the business fails. In exchange for taking this risk, your investors become co-owners of the company indicates California Business Lawyer Steven C. Peck.

Your investors will typically want some type of protection, so that they know only their invested amount of money is at risk. You can offer this protection by setting your business up as a limited partnership (and making those investors limited partners), a corporation (and selling those investors stock, making them shareholders) or as an LLC (making the investors members of the LLC).

Continue reading "Equity Financing of Your Business" »

Many times, a creditor will ask a court to ignore the liability protection offered by the corporation or LLC status of a business. In doing so, the creditor is asking the court to pierce the corporate veil and make the business owners personally liable for the debts, liabilities and obligations of the business itself (which they generally would not be liable for, due to the limited liability protection afforded to corporations and LLCs). This is generally a remedy which the court will consider where the owners of the company in question used their business to defraud the business creditors, or do some other wrongful and illegal act states California Business Lawyer Steven C. Peck.

This sometimes occurs, for example, where owners are using the business as a shell and a court determines that the business is really just an alter ego of the owners (this is known as alter ego liability, and while there are some technical differences, it boils down to basically the same thing as piercing the corporate veil). Courts are also willing to pierce the corporate veil where not doing so would lead to some type of fraud or injustice. The main idea here is that owners who abuse the company entity in some way which harms others will find themselves personally liable. For example, if a corporation takes on immense debt that far exceeds its assets, so that it's obvious from the start that the business could never hope to repay these debts, the court may pierce the corporate veil so that the creditors are not unjustly out-of- pocket for all of the money they loaned.

Continue reading "What Does it Mean To Pierce The Corporate Veil?" »

Businesses involve contracts, sales, leases, real estate,and various other types agreements with other business entities. Sometimes, these transactions turn into disputes which business disputes arise when one or more party fails to honor their end of the bargain, causing a law suit to be filed and cross-actions should they be deemed appropriate.

In California, along with most courts in the United States, litigated matters may be settled if the disputing parties elect to have the matter resolved outside of the courtroom says California Business Attorney Steven C. Peck.

The Alternative Dispute Resolution or ADR is a series of positive and organized procedures for resolving disputes with the mutual consent of the parties involved. ADR encourages the parties to engage in negotiations to settle the dispute.

Business owners have options in dealing with this matter. They have four options to be precise. These are the following:

1. Direct Negotiation

Direct negotiation is a dispute resolution process wherein the two disputing parties work together and come to a resolution on their own. The parties communicate directly with each other without a third party who shall oversee or help with the dialogue.

This resolution process is the cheapest way to resolve a conflict. It needs no court fees, attorneys' fees, or other payments. It only requires that the two parties are there, willing to exchange sides regarding the disagreement. This form of resolution calls for effective planning, communication and negotiation skills.

2. Arbitration

This is a resolution wherein the parties in a dispute refers it to a third party, called the "arbitrators." The neutral party listens to the problems and arguments of both sides, examines their evidence, and renders a decision (award) after careful analysis.

Arbitration awards are generally an award of damages against a party. Both parties are bound to agree to the award, this is referred to as the "binding arbitration." The arbitrator's decision is final.

3. Mediation

Mediation is another form of resolution which aims to make disputing parties reach an agreement. The parties meet together with a mediator/s. In this case, the mediator assists them in the negotiation of their differences, but leaves the power to decide between the parties. The parties should be able to come to a mutual decision.

Mediation starts on a joint session and then proceeds to a separate caucus between the mediator and each individual party or their attorney. Mediation is strictly confidential. Thus, everything that is said and discussed in this process will be held in private and cannot be deemed admissible in court or in any other proceedings.

4. Litigation

If the parties cannot settle into an agreement by using an alternative dispute resolution, then their last option is to have the matter decided in a Court of Law. The purpose of business litigation is to determine which side is right or wrong.

Continue reading "Business Disputes Can Be Resolved Using Different Forms of Alternative Dispute Resolution" »

Duress or coercion (as a term of jurisprudence) is a possible legal defense, one of four of the most important justification defenses, by which defendants argue that they should not be held liable because the actions that broke the law were only performed out of an immediate fear of injury. Black's Law Dictionary (6th ed.) defines duress as "any unlawful threat or coercion used... to induce another to act [or not act] in a manner [they] otherwise would not [or would]". The notion of duress must be distinguished both from undue influence in the civil law and from necessity which might be described as a form of duress by force of circumstances.[citation needed] Note that in criminal law, a duress defense is similar to a plea of guilty, admitting partial culpability, so it could possibly lead to an easy conviction of a criminal.

Duress or coercion can also be raised in an allegation of rape or sexual assault to negate a defence of consent on the part of the person making the allegation. In this situation, the defendant has actually done everything to constitute the actus reus of the crime and has the mens rea because he or she intended to do it in order to avoid some threatened or actual harm. Thus, some degree of culpability already attaches to the defendant for what was done. In the criminal law, the defendant's motive for breaking the law is usually irrelevant although, if the reason for acting was a form of justification, this may reduce the sentence. The basis of the defense argues that the threats made by the other person actually overwhelmed the defendant's will and would also have overwhelmed the will of a person of ordinary courage (a hybrid test requiring both subjective evidence of the accused's state of mind, and an objective confirmation that the failure to resist the threats was reasonable), so that his or her entire behavior was involuntary. Thus, the liability should be reduced or discharged, making the defense one of exculpation.

The extent to which this defense should be allowed, if at all, is a simple matter of public policy. A state may say that no threat should force a person to deliberately break the law, particularly if this breach will cause significant loss or damage to a third person. Alternatively, a state may take the view that even though people may have ordinary levels of courage, they may nevertheless be coerced into agreeing to break the law and this human weakness should have some recognition in the law.

A variant of duress involves hostage taking, wherein a person is forced to commit criminal act under the threat that their family member or close associate will be immediately killed should they refuse. This has been raised in some cases of ransom wherein a person commits theft or embezzlement under orders from a kidnapper in order to secure their family member's life and freedom.

Requirements
In order for duress to qualify as a defense, four requirements must be met:

1.Threat must be of serious bodily harm or death
2.Harm threatened must be greater than the harm caused by the crime
3.Threat must be immediate and inescapable
4.The defendant must have become involved in the situation through no fault of his or her own
A person may also raise a duress defense when force or violence is used to compel him to enter into a contract, or to discharge one.

Duress in the context of contract law is a common law defense, and if one is successful in proving that the contract is vitiated by duress, the contract may be rescinded, since it is then voidable.

Duress has been defined as a "threat of harm made to compel a person to do something against his or her will or judgment; esp., a wrongful threat made by one person to compel a manifestation of seeming assent by another person to a transaction without real volition". - Black's Law Dictionary (8th ed. 2004)

Duress in contract law falls into two broad categories:

Physical duress, and Economic duress
Physical duress
Duress to the person:

An innocent party wishing to set aside a contract for duress to the person need to prove only that the threat was made and that it was a reason for entry into the contract; the onus of proof then shifts to the other party to prove that the threat had no effect in causing the party to enter into the contract. Duress can be made also by social influence. Courts frown on this type of contract because there is really no manifestation of mutual assent "meeting of the minds" or agreement to the terms. Rather, when someone is threatened and agrees to act to avoid physical harm by the party making the offer, all you truly have is a mirror of the other party's manifestation of mutual assent not the manifestation of mutual assent by the party being forced or induced to assent to the terms of the contract. Therefore, the meeting of the minds "in truth" does not exist. Since, there is no meeting of the minds there can be no contract.

Duress to goods:
In such cases, one party refuses to release the goods belonging to the other party until the other party enters into a contract with them and only after doing so.

Economic duress:
A contract is voidable if the innocent party can prove that it had no other practical choice (as opposed to legal choice) but to agree to the contract.

The elements of economic duress:

1.Wrongful or improper threat: No precise definition of what is wrongful or improper. Examples include: morally wrong, criminal, or tortuous conduct; one that is a threat to breach a contract "in bad faith" or threaten to withhold an admitted debt "in bad faith".
2.Lack of reasonable alternative (but to accept the other party's terms). If there is an available legal remedy, an available market substitute (in the form of funds, goods, or services), or any other sources of funds this element is not met.
3.The threat actually induces the making of the contract. This is a subjective standard, and takes into account the victim's age, their background (especially their education), relationship of the parties, and the ability to receive advice.
4.The other party caused the financial distress. The majority opinion is that the other party must have caused the distress, while the minority opinion allows them to merely take advantage of the distress.

Continue reading "Duress and Coercion Possible Legal Defenses" »

A negotiable instrument is a specialized type of "contract" for the payment of money that is unconditional and capable of transfer by negotiation. As payment of money is promised later, the instrument itself can be used by the holder in due course frequently as money. Common examples include cheques, banknotes (paper money), and commercial paper. In the United States, the Article 3 of the Uniform Commercial Code covers the use of negotiable instruments except banknotes (money) states California Business Attorney Steven C. Peck.

Differences from a contract:
A negotiable instrument is a contract, albeit not obvious in formation of the required offer, and consideration. Unlike ordinary contract documents, the right to the performance of a negotiable instrument is linked to the possession of the document itself (with certain exceptions such as loss or theft). The consideration for a negotiable instrument is the value given up to acquire it and the consequent loss of value in the prior holder. The instrument itself is understood as a right for payment and an obligation for payment evidenced by the instrument itself with possession the touchstone for the right of payment. The rights of a holder in due course of a negotiable instrument are better than those provided by ordinary contracts as follows:

The rights to payment are not subject to set-off, and do not rely on the validity of the underlying contract giving rise to the debt (for example if a cheque was drawn for payment for goods delivered but defective, the drawer is still liable on the cheque)
A lot of notice needs to be given to any prior party liable on the instrument for transfer of the rights under the instrument by negotiation.

Transfer free of equities--the holder in due course can hold better title than the party he obtains it from. Negotiation enables the transferee to become the party to the contract, and to enforce the contract in his own name. Negotiation can be effected by endorsement and delivery (order instruments), or by delivery alone (bearer instruments). In addition, it includes the rule of a derivative title which does not allow a property owner to transfer rights in a piece of property greater than his own.

Promissory notes and bills of exchange are two primary types of negotiable instruments says Los Angeles Business Lawyer Steven C. Peck.

Promissory note
A promissory note is a written promise by the maker to pay money to the payee. Bank note is frequently transferred as a promissory note, a promissory note made by a bank and payable to bearer on demand. A maker of a promissory note promises to unconditionally pay the payee (beneficiary) a specific amount on a specified date.

A promissory note is an unconditional promise to pay a specific amount to bearer or to the order of a named person, on demand or on a specified date.

A negotiable promissory note is unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at fixed or determinable future time, sum certain in money, to order or to bearer. (see Sec.194)

A promissory note, briefly stated, is a promise to pay a sum of money. There are originally two parties in a promissory note. The one who makes the promise and signs the instrument is called the "maker" and the party to whom the promise is made or the instrument is payable is called the "payee"

Bill of exchange
A bill of exchange or "draft" is a written order by the drawer to the drawee to pay money to the payee. A common type of bill of exchange is the cheque (check in American English), defined as a bill of exchange drawn on a banker and payable on demand. Bills of exchange are used primarily in international trade, and are written orders by one person to his bank to pay the bearer a specific sum on a specific date. Prior to the advent of paper currency, bills of exchange were a common means of exchange. They are not used as often today.

A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at fixed or determinable future time a sum certain in money to order or to bearer. It is essentially an order made by one person to another to pay money to a third person. A bill of exchange requires in its inception three parties--the drawer, the drawee, and the payee.

The person who draws the bill is called the drawer. He gives the order to pay money to third party. The party upon whom the bill is drawn is called the drawee. He is the person to whom the bill is addressed and who is ordered to pay. he becomes an acceptor when he indicates his willingness to pay the bill.The party in whose favor the bill is drawn or is payable is called the payee. The parties need not all be distinct persons. Thus, the drawer may draw on himself payable to his own order.

A bill of exchange may be endorsed by the payee in favour of a third party, who may in turn endorse it to a fourth, and so on indefinitely. The "holder in due course" may claim the amount of the bill against the drawee and all previous endorsers, regardless of any counterclaims that may have disabled the previous payee or endorser from doing so. This is what is meant by saying that a bill is negotiable.

In some cases a bill is marked "not negotiable". In that case it can still be transferred to a third party, but the third party can have no better right than the transferor.

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Arbitration, a form of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the courts, wherein the parties to a dispute refer it to one or more persons (the "arbitrators", "arbiters" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides. Other forms of ADR include mediation (a form of settlement negotiation facilitated by a neutral third party) and non-binding resolution by experts. Arbitration is most commonly used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is far more controversial in consumer and employment matters, where arbitration is not voluntary but is instead imposed on consumers or employees through fine-print contracts, denying individuals their right to access the courts says California Business Attorney Steven C. Peck.

Arbitration can be either voluntary or mandatory and can be either binding or non-binding. Non-binding arbitration is, on the surface, similar to mediation. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.

Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed will be final and binding.

Advantages and disadvantages:
Parties often seek to resolve their disputes through arbitration because of a number of perceived potential advantages over judicial proceedings:

When the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed (as one cannot "choose the judge" in litigation)
arbitration is often faster than litigation in court
arbitration can be cheaper and more flexible for businesses
arbitral proceedings and an arbitral award are generally non-public, and can be made confidential because of the provisions of the New York Convention 1958, arbitration awards are generally easier to enforce in other nations than court judgments
in most legal systems, there are very limited avenues for appeal of an arbitral award

Some of the disadvantages include:
Arbitration may become highly complex
Arbitration may be subject to pressures from powerful law firms representing the stronger and wealthier party
Arbitration agreements are sometimes contained in ancillary agreements, or in small print in other agreements, and consumers and employees sometimes do not know in advance that they have agreed to mandatory binding pre-dispute arbitration by purchasing a product or taking a job
if the arbitration is mandatory and binding, the parties waive their rights to access the courts and to have a judge or jury decide the case
in some arbitration agreements, the parties are required to pay for the arbitrators, which adds an additional layer of legal cost that can be prohibitive, especially in small consumer disputes
in some arbitration agreements and systems, the recovery of attorneys' fees is unavailable, making it difficult or impossible for consumers or employees to get legal representation; however most arbitration codes and agreements provide for the same relief that could be granted in court
if the arbitrator or the arbitration forum depends on the corporation for repeat business, there may be an inherent incentive to rule against the consumer or employee
there are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned. Although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays.

In some legal systems, arbitral awards have fewer enforcement options than judgments; although in the United States arbitration awards are enforced in the same manner as court judgments and have the same effect.

Unlike court judgments, arbitration awards themselves are not directly enforceable. A party seeking to enforce an arbitration award must resort to judicial remedies, called an action to "confirm" an award although grounds for attacking an arbitration award in court are limited, efforts to confirm the award can be fiercely fought, thus necessitating huge legal expenses that negate the perceived economic incentive to arbitrate the dispute in the first place.

Continue reading "Arbitration A Technique For The Resolution of Legal Disputes Outside The Courthouse" »

A business owner should consult an attorney early on and should find an attorney whom he can speak with when the need arises says California Business Attorney Steven C. Peck.

This means that every business owner or operator should make an appointment with an attorney at the very beginning of deciding to open a business, and then keep in touch with the attorney on a periodic basis to make sure that the business is operating within proper legal framework which will help prevent future problems.

Use your attorney to help you decide how to protect yourself and your family from potential liability. If you are not incorporated or operating under some other form of business entity which protects your assets, you need to correct this immediately. A good Los Angeles Business lawyer such as Steven C. Peck can counsel you on the correct business entity to choose depending on your business situation.

The equitable doctrine of judicial estoppel can be invoked to prevent a party from taking a position contrary to one the party advanced in prior litigation says California Business Lawyer Steven C. Peck.

The purpose of the doctrine has been stated in multiple, but substantially similar, forms: to "protect the integrity of the judicial process," Jackson v. County of Los Angeles; to "protect against a litigant playing fast and loose with the courts"; and to implement "general considerations of the orderly administration of justice and regard for the dignity of judicial proceedings," Prilliman v. United Air Lines, Inc.

While the doctrine of judicial estoppel has long been recognized in California, as of 1998 the California courts had not established a clear set of principles for applying it (i.e., a standard with well-defined elements). Instead, the courts had merely recited certain observations about the doctrine, such as that "one to whom two inconsistent courses of action are open and who elects to pursue one of them is afterward precluded from pursuing the other," that the "seemingly conflicting positions must be clearly inconsistent so that the one necessarily excludes the other," and that the doctrine "cannot be invoked where the position first assumed was taken as a result of ignorance or mistake."indicates California Business Attorney Steven C. Peck.

The uncertainty disappeared in 1998 with the publication of Jackson v. County of Los Angeles by the Second District Court of Appeal, which held that the doctrine of judicial estoppel "should apply" whenever:
(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.

Continue reading "The Equitable Doctrine of Judicial Estoppel" »

When it comes to operating and managing your company, business law attorneys can help ensure that all your actions are done in a legal manner -- in recruiting or terminating personnel or high-ranking officers, when entering a deal, or in buying or merging with another firm.

However, finding the right legal mind to handle your business dealings is not that easy, as it may seem. Just when you think that you have found the right one for the job, they may place your company in a bad light by letting you sign an anomalous deal.

The Basic Considerations

Before hiring corporate counsels, you first need to consider the following factors:

1. Integrity - Initially, you want to work with someone who has proven himself or herself in the legal arena. Check their service record. Have they been handling cases for five, ten, twenty years, or are they fresh from law school?

2. Expertise - In what area are they specializing in? Corporate law? Incorporation? Recruitment and termination?

3. Track Record - Of course, you want to hire someone who is capable of winning cases. No matter how impressive their credentials are but if they are not capable of producing favorable outcomes, then it is useless hiring them.

4. Experience - "When the going gets tough, the tough gets going," as they say. More or less, finding experienced attorneys will help bail you out of a tight situation. You may want to hire someone who knows his or her way around and well versed with business law.

How can You Benefit from Your Business Law Attorneys

In general, business law professionals can give the protection that your company needs. They can help you win cases and offer solutions when you find yourself in a tight fix.

Being in a legal battle can be time consuming and costly. If the case carries on for a long time, it may even drain whatever resources you have left. Business attorneys can help you negotiate your way out of possible class suits. Likewise, they can provide measures to prevent the risk of being sued.

Contact Steven Peck's Premier Legal toll free at 866.999.9085 to talk to an experienced California Business Attorney and visit us on-line at www.premierlegal.org.

Continue reading "Business Law Attorneys Can Help Keep Your Business Running Smoothly" »

A standard form contract (sometimes referred to as an adhesion contract or boilerplate contract) is a contract between two parties that does not allow for negotiation, i.e. take it or leave it. It is often a contract that is entered into between unequal bargaining partners, such as when an individual customer is given a contract by the salesperson of a multinational corporation. The customer is in no position to renegotiate the standard terms of the contract and the company's representative usually does not have the authorization to do so. While adhesion contracts, in and of themselves, are not illegal per se, there exists a very real possibility for unconscionability.

Theoretical issues
There is some debate on a theoretical level whether, and to what extent, courts should enforce standard form contracts. On one hand, they undeniably fulfill an important role of promoting economic efficiency. Standard form contracting reduces transaction costs substantially by precluding the need for buyers and sellers of goods and services to negotiate the many details of a sale contract each time the product is sold. On the other hand, there is the potential for inefficient, and even unjust, terms to be accepted by signatories to these contracts. Such terms might be seen as unjust if they allow the seller to avoid all liability or unilaterally modify terms or terminate the contract.These terms often come in the form of, but are not limited to, forum selection clauses and mandatory arbitration clauses, which can limit or foreclose a party's access to the courts; and also liquidated damages clauses, which set a limit to the amount that can be recovered or require a party to pay a specific amount. They might be inefficient if they place the risk of a negative outcome, such as defective manufacturing, on the buyer who is not in the best position to take precautions. There are a number of reasons why such terms might be accepted:

Standard form contracts are rarely read
Lengthy boilerplate terms are often in fine print and written in complicated legal language which often seems irrelevant. The prospect of a buyer finding any useful information from reading such terms is correspondingly low. Even if such information is discovered, the consumer is in no position to bargain as the contract is presented on a "take it or leave it" basis. Coupled with the often large amount of time needed to read the terms, the expected payoff from reading the contract is low and few people would be expected to read it. Sometimes a standard form contract may literally be dispensed from a vending machine to drivers sitting in line to enter a parking garage, which means that stopping to read the contract risks provoking road rage staqtes California Business Law Attorney Steven C. Peck.

Access to the full terms may be difficult or impossible before acceptance
Often the document being signed is not the full contract; the purchaser is told that the rest of the terms are in another location. This reduces the likelihood of the terms being read and in some situations, such as software license agreements, can only be read after they have been notionally accepted by purchasing the good and opening the box. These contracts are typically not enforced, since common law dictates that all terms of a contract must be disclosed before the contract is executed.

Boilerplate terms are not salient
The most important terms to purchasers of a good are generally the price and the quality, which are generally understood before the contract of adhesion is signed. Terms relating to events which have very small probabilities of occurring or which refer to particular statutes or legal rules do not seem important to the purchaser. This further lowers the chance of such terms being read and also means they are likely to be ignored even if they are read.

There May Be Social Pressure To Sign
Standard form contracts are signed at a point when the main details of the transaction have either been negotiated or explained. Social pressure to conclude the bargain at that point may come from a number of sources. The salesperson may imply that the purchaser is being unreasonable if they read or question the terms, saying that they are "just something the lawyers want us to do" or that they are wasting their time reading them. If the purchaser is at the front of a queue (for example at an airport car rental desk) there is additional pressure to sign quickly. Finally, if there has been negotiation over price or particular details, then concessions given by the salesperson may be seen as a gift which socially obliges the purchaser to respond by being co-operative and concluding the transaction.

Standard form contracts may exploit unequal power relations
If the good which is being sold using a contract of adhesion is one which is essential or very important for the purchaser to buy (such as a rental property or a needed medical item) then the purchaser might feel they have no choice but to accept the terms. This problem may be mitigated if there are many suppliers of the good who can potentially offer different terms indicates Los Angeles Business Attorney Steven C. Peck.

Some contend that in a competitive market, consumers have the ability to shop around for the supplier who offers them the most favorable terms and are consequently able to avoid injustice. However, in the case of credit cards (and other oligopolies), for example, the consumer while having the ability to shop around may still have access to only form contracts with like terms and no opportunity for negotiation. Also, as noted, many people do not read or understand the terms so there might be very little incentive for a firm to offer favorable conditions as they would gain only a small amount of business from doing so. Even if this is the case, it is argued by some that only a small percentage of buyers need to actively read standard form contracts for it to be worthwhile for firms to offer better terms if that group is able to influence a larger number of people by affecting the firm's reputation.

Another factor which might mitigate the effects of competition on the content of contracts of adhesion is that, in practice, standard form contracts are usually drafted by lawyers instructed to construct them so as to minimize the firm's liability, not necessarily to implement managers' competitive decisions. Sometimes the contracts are written by an industry body and distributed to firms in that industry, increasing homogeneity of the contracts and reducing consumer's ability to shop around.

Common Law Status
As a general rule, the common law treats standard form contracts as any other contract. Signature or some other objective manifestation of intent to be legally bound will bind the signor to the contract whether or not they read or understood the terms. The reality of standard form contracting, however, means that many common law jurisdictions have developed special rules with respect to them. In general, courts will interpret standard form contracts contra proferentem (literally 'against the proffering person') but specific treatment varies between jurisdiction says California Business Attorney Steven C. Peck.

Standard form contracts are generally enforceable in the United States. The Uniform Commercial Code which is followed in most American states has specific provisions relating to standard form contracts for the sale or lease of goods. Furthermore, standard form contracts will be subject to special scrutiny if they are found to be contracts of adhesion.

FACTUAL and PROCEDURAL HISTORY
Miracle Star, owned and operated by Jeffrey and Staretta Moffatt, provides drug and alcohol treatment and rehabilitation services at a location in Lancaster, California. On June 8, 1999, Miracle Star and COLA entered into contract H210224, for the period of April 1, 1999, to June 30, 2000; twice this contract was later amended in writing to extend to June 30, 2001, and then to extend to June 30, 2003. Under the contracts, Miracle Star provided drug and alcohol services to qualified Los Angeles County residents, and billed COLA monthly. COLA then compensated Miracle Star for performing those services. COLA's maximum obligation for all services provided under the contract was $ 32,098 for April 1 through June 30, 1999; $128,390 from July 1, 1999, through June 30, 2000; and $128,390 from July 1, 2000, through June 30, 2001.

The June 8, 1999, contract stated that "Additional Provisions" was attached to the agreement and that its terms and conditions became part of the agreement. Miracle Star, however, alleged it never agreed to add "Additional Provisions" to the contract, that "Additional Provisions" was not part of the contract, and that "Additional Provisions" was not discussed or presented to Miracle Star until five months after the signing of the contracts.

1. "Additional Provisions" to the Contract: The "Additional Provisions" required Miracle Star to document the delivery of all specific services identified in the contract, by daily and monthly reports of staff activities, records of specific service activities, and other records as specified by COLA's Alcohol and Drug Program Administration (ADPA). The "Additional Provisions" required Miracle Star to retain this documentation and to allow COLA access to it pursuant to the "Records and Audits" section of the contract. The "Additional Provisions" required Miracle Star to maintain service records for each participant and records of services provided by professional personnel, and to provide these records to COLA for program review and fiscal audit.

With regard to financial records, the "Additional Provisions" required Miracle Star to prepare and maintain a written cost allocation plan, and complete financial records in accordance with generally accepted accounting principles and the COLA Department of Health Services Abuse Program Contract Financial Handbook. These records were to reflect the actual cost of each mode of service provided by Miracle Star for which payment was claimed. The "Additional Provisions" also required Miracle Star to provide COLA's Department of Health Services Financial Services with an annual cost report for each mode of service and service delivery site.

COLA also alleged that its "Contract Financial Handbook"--which is not in the record on appeal--required a Miracle Star staff employee who was independent of cashiering, depositing, and bookkeeping functions, to receive and reconcile bank statements.

2. The Contract: The contract required COLA to compensate Miracle Star for its performance of alcohol and drug services, except for fees reimbursed by Medi-Cal, medical insurance, or other third party coverage. The contract required Miracle Star, at the close of each month, to bill COLA monthly in arrears on forms provided by COLA, setting forth information about services provided and for which a claim was being made and any payments due Miracle Star by or on behalf of a participant.

If Miracle Star did not deliver the annual cost report by the date specified, the "Additional Provisions" allowed COLA to withhold payments to Miracle Star until it delivered that report to COLA.

The contract stated that if COLA audited Miracle Star regarding services it provided under the contract, and if that audit found that COLA's dollar liability for those services was less than COLA's payments to Miracle Star, the difference would be either repaid by Miracle Star or, at COLA's option, credited against any amounts due Miracle Star from COLA under the contract. The "Additional Provisions" also authorized COLA to withhold Miracle Star's claims for payment for delinquent amounts due COLA as determined by a cost report or audit report settlement.

The contract contained the following clause regarding breach of the agreement: "Notwithstanding any other provision of this Paragraph, the failure of Contractor or its officers, employees, agents, or subcontractors, to comply with any of the terms of this Agreement or any written directions by or on behalf of County issued pursuant hereto shall constitute a material breach hereto, and this Agreement may be terminated by County immediately."

3. Audit: COLA's Request for Documents: On August 3, 2000, COLA notified Miracle Star that COLA would conduct a fiscal review and provided a list of documents and records that auditors would require Miracle Star to produce. The audit began on August 24, 2000. Claiming that COLA demanded confidential patient files, Miracle Star's Executive Director Staretta Moffatt refused to allow COLA employees access to review requested records and documents needed to verify costs billed. On September 27, 2000, COLA sent a letter to Miracle Star explaining the cost of ownership principle and the necessity of documents needed to calculate allowable costs. In November 2000, COLA resumed its audit and requested that Miracle Star provide census records of its non-County residential days, i.e., of clients whose services were not funded by the COLA contract. Miracle Star again declined to provide these census reports, citing concerns that doing so would violate patients' confidentiality. On February 6, 2001, Miracle Star received a letter from Olga L. Lopez, Head of COLA's Contract Fiscal Compliance Unit, advising Miracle Star that it was required to maintain participant records in accordance with state laws, to maintain reports, studies, statistical surveys, or other information to determine and allocate indirect costs, and to make these records available to COLA representatives for a fiscal audit. The letter requested that Miracle Star provide financial records and census information so that COLA could finalize its audit, and requested that Miracle Star contact the COLA auditor by March 6, 2001. Lopez's letter stated that if COLA did not hear from Miracle Star by March 6, 2001, it would finalize the audit report without reviewing the requested documents.

4. Miracle Star's Response: Miracle Star's written response to Lopez's letter stated that Miracle Star contracted with COLA at a non-provisional rate, which meant that test census records of non-County residential days were not relevant to COLA's audit. Miracle Star's letter asked Lopez to state whether Miracle Star's interpretation of the non-provisional rate contract was correct, and if incorrect, Miracle Star would reconsider providing the test census records. COLA conducted a site inspection of Miracle Star for fiscal year 2000-2001 on March 21, 2001.

5. COLA Requests Plan of Corrective Action: On April 19, 2001, COLA's ADPA sent Miracle Star a draft of the Program Monitoring Summary, which requested a Plan of Corrective Action. COLA's Program Monitoring Summary Report set forth a series of deficiencies and the actions Miracle Star was required to take to correct the deficiencies. Among the deficiencies were incomplete Form of Business Organization, Fiscal Disclosure, and Real Property Disclosure documents, an expired business license, lack of a sexual harassment and contact policy, unauthorized transportation of patients, and defects in the Miracle Star facility requiring repairs. The Program Monitoring Summary noted that Miracle Star leased the property where program services were delivered from its owners, Jeffrey and Staretta Moffatt. The total square footage of the leased premises was charged to the budget, but Miracle Star provided other services at this location, and the Moffatts lived at the location. This use of space was questionable and there appeared to be a conflict of interest between the landlord and the tenant. COLA stated that the matter would be referred to COLA's Contract Fiscal Compliance Unit for a determination.

COLA's auditor's personnel review found numerous deficiencies in staff records. After learning that Miracle Star stopped accepting CalWORKs (California Work Opportunity and Responsibility to Kids) recipients under the contract after December 2000, the auditor advised Jeffrey and Staretta Moffatt that the contract was reimbursed on actual costs, and not on a fee-for-services rate. The auditor advised Miracle Star that the matter would be referred to COLA's Contract Fiscal Compliance Unit, and that reimbursements were subject to disallowance.

COLA's auditor also stated that Miracle Star did not provide adequate records for the audit, which caused the auditor to be unable to determine if Miracle Star had provided all specific services stated in the contract. Miracle Star also did not provide requested time sheets for Dr. Vail, and Staretta Moffatt's time sheets did not include a daily breakdown of hours worked under the contract. Miracle Star also refused to make available all program records pertaining to the COLA contract.

6. COLA Again Requests a Plan of Corrective Action: On May 30, 2001, COLA's Contract Fiscal Compliance Unit sent a draft financial evaluation report to Miracle Star, and gave Miracle Star 30 days to prepare and submit a Plan of Corrective Action. Miracle Star did not provide that Plan of Corrective Action and declined to meet and discuss the audit report findings.

7. COLA's Financial Report Becomes Final: On July 19, 2001, a deputy of COLA's Administrative and Financial Services Department notified Miracle Star that the financial report was final and that Miracle Star must submit a check for $160,487.76 to COLA's financial office. The attached report stated the following deficiencies disclosed by the audit of Miracle Star: (1) bank statements were not reconciled to financial records; (2) the landlord-tenant relationship appeared to be a less-than-arms-length association; (3) Fiscal Year 1999-2000 cost reports were not submitted to the ADPA office; (4) the Executive Director's time sheets did not allocate hours worked on each program; (5) Miracle Star did not develop a written cost allocation plan allocating shared costs between benefitting programs; (6) Miracle Star made no clear separation of duties among staff for handling different aspects of accounting transactions; (7) Miracle Star did not require a second signature on checks issued for cash disbursements; (8) costs on monthly reimbursement claims were reported based on budget estimates instead of actual costs; (9) billing claim costs were not reconcilable to financial records; (10) Miracle Star failed to provide client census data on non-County clients to determine cost allocation; and (11) monthly reimbursement claims reported unsupported costs totaling $160,487.76.

8. Miracle Star Disputes the Audit: Miracle Star disputed that it failed to prepare a written cost allocation plan to allocate shared costs between beneficiary programs. Miracle Star disputed that it did not reconcile bank statements. Miracle Star did not dispute that it refused to allow COLA access to requested records and documents, but disputed that the requested records and documents were necessary to verify costs billed. Miracle Star did not dispute that it did not maintain client fee determination system forms in each client's file, but disputed that the contracts required it to do so. Miracle Star disputed that it did not bill COLA based on actual costs, and disputed that it did not submit cost reports to COLA, as required by the contracts. Miracle Star disputed that the contract required the landlord/tenant relationship between Miracle Star and the Moffatts to be an arms-length association. Miracle Star disputed that the contracts required Miracle Star to maintain a clear separation of duties among staff for handling different aspects of accounting transactions. Miracle Star alleged that the contracts did not require it to maintain a written cost allocation plan to allocate costs among different programs. Because Miracle Star alleged that the COLA-Miracle contracts were non-provisional rate contracts, which provided pre-determined rates at which COLA could reimburse Miracle Star, Miracle alleged that the lack of a cost allocation plan was irrelevant to determining COLA's obligations under its contracts with Miracle Star. Miracle Star alleged that COLA had no authority to unilaterally adjust the predetermined rate in the budgets attached to its contracts with Miracle Star, or to seek overpayment collections against COLA ADPA-contracted service providers. Miracle Star alleged that the COLA contracts did not require it to maintain timesheets allocating time among various programs, to maintain a strict separation of duties among staff handling aspects of accounting transactions, or to reconcile financial records or bank statements, and that COLA suffered no damage from Miracle Star's failure to do so. Miracle Star alleged that during COLA audits, Miracle Star provided documents and records to which COLA was entitled.

Miracle Star alleged that in September 2001 COLA arbitrarily placed Miracle Star on a "do not refer" list, forbidding any patients from being referred to Miracle Star. Citing declarations of Patrick Ogawa, Lopez, and George Weir, COLA alleged that those individuals never placed Miracle Star under a "freeze" or "do not refer" order.

9. Miracle Star Files a Claim for Damages: On March 15, 2002, Miracle Star filed a claim for damages against COLA based on (1) a mandated reporter violation, (2) a do not refer" status placed on Miracle Star, and (3) illegal audits, fraud, conspiracy, and failure to pay Miracle Star in the current fiscal year. The COLA Board of Supervisors denied Miracle Star's claim for damages on April 2, 2002.

10. The Complaint: The operative complaint is a third amended complaint filed on June 25, 2004, by plaintiffs Miracle Star, Jeffrey D. Moffatt, and Staretta Moffatt. Miracle Star alleged a cause of action for breach of written contract against COLA; all plaintiffs alleged a cause of action for breach of oral contract against COLA; and all plaintiffs alleged a cause of action for intentional interference with prospective economic advantage against COLA and three individual defendants, COLA employees Patrick Ogawa, Olga Lopez, and George Weir. In this appeal plaintiffs have abandoned their claims against these individual defendants.[ 1 ]

The complaint alleged that on May 11, 1999, Miracle Star and COLA entered into a written "Alcohol and Drug Services Agreement" contract that required Miracle Star to provide in-patient alcohol and drug treatment services to welfare recipients and services to persons who qualified under CalWORKs. COLA agreed to pay specified sums for Miracle Star's services. The complaint alleged that Miracle Star had performed all conditions required by the contract and its amendment, except for those which defendants prevented Miracle Star from performing. The complaint also alleged that Jeffrey Moffatt and Staretta Moffatt were third party beneficiaries of the contract who, in reliance on the contract and its amendment, leased premises to Miracle Star to the enrichment of defendants. The complaint alleged that on April 1, 2001, COLA breached the contracts by refusing to pay Miracle Star sums due, and that on July 1, 2001, COLA breached the contracts by refusing to refer, and refusing to allow referral of, individuals and families to Miracle Star for treatment.

The breach of oral contract cause of action alleged that COLA referred persons to Miracle Star for in-patient alcohol and drug treatment services to welfare recipients, and at COLA's request, Miracle Star also provided services to persons qualifying under CalWORKs. The complaint alleged that defendants breached their agreement by failing to pay Miracle Star sums due under the contract, and that COLA's refusal to refer such persons to Miracle Star for treatment proximately caused plaintiffs to sustain damages.

The cause of action for intentional interference with prospective economic advantage alleged that on July 1, 2001, COLA and the individual defendants put plaintiffs' facilities under a "do not refer" order, prevented COLA personnel and agencies from referring persons to plaintiffs for treatment, and refused to grant plaintiffs a contract under Proposition 36, with the specific intent of destroying plaintiffs' business opportunities and for the purpose of preventing plaintiffs from obtaining individuals and families for treatment and receiving compensation.

11. Answer and Cross-Complaint: On July 28, 2004, COLA filed an answer and a cross-complaint against cross-defendant Miracle Star for breach of contract and declaratory relief.

12. COLA's Motion for Summary Judgment: On December 30, 2005, COLA moved for summary judgment, or in the alternative for summary adjudication.

13. Trial Court's Grant of Summary Judgment: On March 20, 2006, the trial court granted defendants' motion for summary judgment. The trial court found that plaintiffs had admitted they failed to prepare a written cost allocation plan to allocate shared costs between beneficiary programs, and failed to reconcile bank statements as required in the contract, and therefore breached the contract. The trial court found that Miracle Star presented no evidence of an oral agreement, and that the parole evidence rule barred any oral agreements which were inconsistent with the integrated written contracts. Regarding the cause of action for interference with prospective economic advantage caused by COLA's alleged issuance of a "do not refer" order against Miracle Star, the trial court found that Miracle Star had only an ongoing economic relationship with COLA and not with third party clients. Therefore Miracle Star failed to establish that COLA's conduct was wrongful by some legal measure other than the fact of interference itself. The trial court also found that the "do not refer" order was issued in the exercise of COLA employees' discretionary authority and that no evidence rebutted the immunities pertinent to such a discretionary act under Government Code section 820.2.

Judgment in favor of COLA and individual defendants Ogawa, Lopez, and Weir was entered on April 10, 2006. Notice of entry of judgment was served on the same day. Plaintiffs filed a timely notice of appeal.

Plaintiffs claim on appeal that:

1. There are triable issues of fact as to the breach of contract claims with regard to COLA's disallowance of $160,487.76, COLA's placement of Miracle Star on "do not refer" status, whether Miracle Star materially breached the written contracts so as to relieve COLA of its contractual obligations, and whether Jeffrey and Staretta Moffatt are third party beneficiaries of the contracts;
2. There are triable issues of fact as to whether COLA intentionally interfered with plaintiffs' prospective economic advantage.
DISCUSSION
1. The Appeal Is Not From a Final Judgment, But This Court Exercises Our Discretion to Treat the Appeal as a Petition for Writ

The existence of COLA's unadjudicated cross-complaint against Miracle Star means that no final judgment exists in the action as to those parties, even though the judgment is final as to individual plaintiffs Staretta and Jeffrey Moffatt in their complaint against COLA (and against individual defendants Ogawa, Lopez, and Weir, as to whom plaintiffs do not appeal). Thus the judgment is not appealable as to COLA and Miracle Star, because the judgment has not disposed of all causes of action framed by the pleadings. (Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725, 741.) Because the briefs and record before us contain all the elements prescribed by rule 8.490 of the California Rules of Court and extraordinary circumstances justify the exercise of our discretionary power, we treat this appeal as a petition for writ. (Angell v. Superior Court (1999) 73 Cal.App.4th 691, 698.)

2. Standard of Review

"A trial court properly grants summary judgment where no triable issue of material fact exists and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) We review the trial court's decision de novo, considering all of the evidence the parties offered in connection with the motion (except that which the court properly excluded) and the uncontradicted inferences the evidence reasonably supports. [Citation.] In the trial court, once a moving defendant has `shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established,' the burden shifts to the plaintiff to show the existence of a triable issue; to meet that burden, the plaintiff `may not rely upon the mere allegations or denials of its pleadings . . . but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action. . . .' [Citations.]" (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476-477.)

3. Plaintiffs Have Not Created Triable Issues of Fact as to the Breach of Written Contract Cause of Action

Plaintiffs claim that the existence of triable issues of material fact precludes a grant of summary judgment as to the cause of action for breach of contract. We disagree.

a. COLA's Disallowance of $160,487.76 in Compensation to Miracle Star

Pursuant to the "Records and Audits" section of the "Additional Provisions" to the contract, beginning in August 2000, COLA conducted a financial evaluation of Miracle Star and its performance of the contract. COLA's financial evaluation noted deficiencies in financial records and billing substantiation. Specifically, the financial evaluation found that: bank statements were not reconciled to financial records; the landlord/tenant relationship appeared to be a less-than-arms-length association; fiscal year 1999-2000 cost reports for the contract were not submitted to the Alcohol and Drug Program Administration office; the Executive Director's time sheets did not allocate hours worked on each program; Miracle Star did not develop a written cost allocation plan allocating shared costs between benefiting programs; there was no clear separation of duties among staff for handling different aspects of accounting transactions; Miracle Star did not require a second signature on checks issued for agency cash disbursements; on monthly reimbursement claims, Miracle Star reported costs based on budget estimates instead of actual costs; billing claim costs were not reconcilable to financial records; Miracle Star failed to provide client census on non-COLA clients to determine cost allocation; and Miracle Star reported unsupported costs of $160,487.76 on monthly reimbursement claims.

b. The Recitation in the Contract That Miracle Star Received the "Additional Provisions" Is Conclusive, and No Triable Issue of Fact Exists Whether "Additional Provisions" Were Part of the Contract

The first issue concerns whether these audit requirements were included in the contract. As we have seen, COLA stated that it conducted its financial audit pursuant to the "records and audits" section of the "Additional Provisions." The COLA-Miracle Star contract states: "Contractor [Miracle Star] hereby acknowledges receipt of the above referenced documents numbers (1) through (3) attached hereto." Document No. 3 is "Additional Provisions." Elsewhere the contract states: "ADDITIONAL PROVISIONS: Attached hereto and incorporated herein by reference, is a document labeled `Additional Provisions'. The terms and conditions therein contained are part of this Agreement." The contract also contained an integration clause specifically referencing the "Additional Provisions:" "This Agreement, together with the Additional Provisions, Exhibit(s), Schedule(s), and any Budget(s) and/or Statement of Work forms, attached hereto, fully expresses all understandings of the parties concerning all matters covered and shall constitute the total Agreement. No addition to, or alteration of, the terms of this Agreement, whether by written or verbal understanding of the parties, their officers, agents or employees, shall be valid and effective unless made in the form of a written amendment to this Agreement which is formally approved and executed by the parties in the same manner as this Agreement." (Italics added.)

Plaintiffs Jeffrey Moffatt and Staretta Moffatt stated in their declarations that the "Additional Provisions" were not present at the time the contract was signed, and the County delivered the "Additional Provisions" five months after signing. The recitation in a contract that the plaintiffs received "Additional Provisions," however, is conclusive. (Evid. Code, § 622; Banco Do Brasil, S.A. v. Latian, Inc. (1991) 234 Cal.App.3d 973, 995, fn 30.) Therefore no triable issue of fact arises as to whether Miracle Star received the "Additional Provisions."

c. No Triable Issue Exists as to Whether Breaches of the Contract Were Material

Plaintiffs claim that the contract provision making any failure to comply with any contract terms a material breach is unenforceable. The contract states: "Notwithstanding any other provision of this Paragraph, the failure of Contractor or its officers, employees, agents, or subcontractors, to comply with any of the terms of this Agreement or any written directions by or on behalf of County issued pursuant hereto shall constitute a material breach hereto, and this agreement may be terminated by County immediately." COLA's disallowance of $160,487.76 as unsupported costs reported by Miracle Star on monthly reimbursement claims relied on this contract clause, as did the trial court in granting summary judgment for COLA.

i. The Contract Provision Making Non-Compliance With Any Contract Term a Material Breach Is Enforceable

Plaintiffs cite authority that whether a breach is sufficiently material as to give the injured party cause to terminate a contract is a question for the trier of fact. (Superior Motels, Inc. v. Rinn Motor Hotels, Inc. (1987) 195 Cal.App.3d 1032, 1051-1052; Gold Min. & Water Co. v. Swinerton (1943) 23 Cal.2d 19, 28; Assoc. Lathing etc. Co. v. Louis C. Dunn, Inc. (1955) 135 Cal.App.2d 40, 49; Whitney Inv. Co. v. Westview Dev. Co. (1969) 273 Cal.App.2d 594, 601; Integrated, Inc. v. Alec Fergusson Electrical Contractor (1967) 250 Cal.App.2d 287, 297; Pacific Allied v. Century Steel Products (1958) 162 Cal.App.2d 70, 77.) However, these cases did not involve contracts with a provision like the one in the COLA-Miracle Star contract, stating that the contractor's failure to comply with any contract terms constituted a material breach and gave COLA the right to terminate the contract.

The contract provision stating that the contractor's failure to comply with any contract terms constitutes a material breach is enforceable. (See Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1341 [California courts enforce time deadlines in real estate sales contracts, permitting the seller to cancel after the time specified where time is specifically made of the essence, unless there has been a waiver or potential forfeiture].) Moreover, "[a] contract may contain a valid provision giving one or the other party an option to terminate it on specified conditions." (Call v. Alcan Pac. Co. (1967) 251 Cal.App.2d 442, 447.) Therefore plaintiffs did not create a triable issue of fact as to the materiality of Miracle Star's failure to comply with contract terms.

ii. Because Plaintiffs Failed to Create a Triable Issue of Fact as to Their Performance of the Contract, Which Is an Essential Element of Their Breach of Contract Cause of Action, the Grant of Summary Judgment Was Appropriate

Plaintiffs admitted that they did not provide all documentation required by COLA's fiscal review; that Miracle Star failed to keep time sheets for employees to allocate hours worked on each program of the contracts administered by Miracle Star; that Miracle Star refused to allow COLA employees access to review requested records and documents necessary to verify costs billed; that Miracle Star failed to maintain client fee determination system forms in each client's file; and that Miracle Star made no clear separation of duties among staff for handling different aspects of accounting transactions as required by the contracts. Although plaintiffs disputed that they did not comply with contract terms, they provided no evidence creating a triable issue of fact that they failed to reconcile bank statements as provided by the contracts.[ 2 ] Although Miracle Star disputed that they did not reconcile their billing claim costs to financial records as required by the contracts, they provided no evidence creating a triable issue of fact as to this issue.[ 3 ]

Because of the contract provision stating that Miracle Star's failure to comply with any term of the contract constituted a material breach, plaintiffs' admission of numerous breaches prevents plaintiffs from showing that they performed the contract. To prevail on a breach of contract cause of action, plaintiff must prove: (1) the contract; (2) plaintiff's performance or excuse for nonperformance; (3) defendant's breach; and (4) resulting damages to plaintiff. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.) Thus by showing that an essential element of the breach of contract cause of action cannot be established, COLA met its burden of showing that a cause of action has no merit. (Code Civ. Proc., § 437c, subd. (p)(1).) The burden then shifted to plaintiffs, who failed to create a triable issue of fact as to this essential element of their cause of action. Thus the trial court correctly granted summary judgment as to plaintiff's breach of contract cause of action.

At least two further issues, however, remain to be tried in COLA's cross-complaint for breach of contract.

iii. Plaintiffs' Failure to Timely Raise the Defense of Unconscionability Forfeits This Claim in This Appeal, But This Forfeiture Is Not a Ruling on the Merits and Does Not Bar Plaintiffs From Raising This Defense to COLA's Cross-Complaint

In their reply brief, plaintiffs asserted for the first time that the contract with COLA was a contract of adhesion which should not be enforced against Miracle Star.

The "courts will not enforce provisions in adhesion contracts which limit the duties or liability of the stronger party unless such provisions are `conspicuous, plain and clear' . . . and will not operate to defeat the reasonable expectations of the parties[.]" (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 710.) Characteristically, in adhesion contracts the stronger party drafts the contract and the weaker party has no opportunity to negotiate its terms; the weaker party lacks any realistic opportunity to look elsewhere for a more favorable contract, and must choose either to adhere to the standardized contract or forego the needed service; and adhesion contracts contain "weighted contractual provisions which served to limit the obligations or liability of the stronger party." (Id. at p. 711.) The determination that a contract is one of adhesion does not make that contract invalid or unenforceable; after a finding of adhesion, the question becomes "whether a particular provision within the contract should be denied enforcement on grounds that it defeats the expectations of the weaker party or it is unduly oppressive or unconscionable." (Intershop Communications AG v. Superior Court (2002) 104 Cal.App.4th 191, 201.)

Plaintiffs' opposition to the summary judgment motion did not argue that the contract provision stating that the contractor's failure to comply with any contract terms constituted a material breach was unenforceable as a contract of adhesion that defeated the weaker party's expectations or was unduly oppressive or unconscionable. A party may not raise an argument that was not factually presented or fully developed in the trial court for the first time on appeal. (Wilson v. Blue Cross of So. California (1990) 222 Cal.App.3d 660, 673, fn 7; Kilroy v. State of California (2004) 119 Cal.App.4th 140, 149.) Moreover, by raising this argument for the first time in their reply brief, plaintiff forfeited this claim on appeal. (Locke v. Warner Bros., Inc. (1997) 57 Cal.App.4th 354, 368.)

We hasten to add, however, that the forfeiture of this claim applies only to this appeal, and is not a ruling on the merits of the defense. We do not regard the forfeiture of this claim in this appeal as something that stops or prohibits plaintiffs from timely arguing, as a defense to COLA's cross-complaint for breach of contract, that the contract provision stating that the contractor's failure to comply with any contract terms constituted a material breach was unenforceable as a contract of adhesion that defeated the weaker party's expectations or was unduly oppressive or unconscionable. We express no opinion as to the resolution of this issue.

iv. COLA Must Prove Its Damages in the Proceeding on Its Cross-Complaint for Breach of Contract

An additional point will have to be addressed in the trial of COLA's cross-complaint. COLA's cross-complaint alleges the same breaches of contract terms as have been found to constitute material breaches of the contract in this summary judgment proceeding, and alleges audit disallowances of $160,487.76. There has not yet been any adjudication of whether COLA's determination of the value of these breaches of contract was correct, and what, if any, damages COLA sustained as a result. In the trial of its cross-complaint, COLA will have to provide evidence linking those material breaches of contract terms to specific monetary damages. COLA has not yet made this showing. Instead it has simply asserted that for Miracle Star's breaches of contract terms, $160,487.76 was due COLA for audit disallowances, of which $74,662.00 remains owing by Miracle Star. COLA must prove a causal connection between the breach and the damages sought: "For the breach of an obligation arising from contract, the measure of damages . . . is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom." (Civ. Code, § 3300.) The nonbreaching party is entitled to recover only those damages "proximately caused" by the specific breach. (Postal Instant Press, Inc. v. Sealy (1996) 43 Cal.App.4th 1704, 1709.) To put it another way, "the breaching party is only responsible to give the nonbreaching party the benefit of the bargain to the extent the specific breach deprived that party of its bargain." (Ibid.) Damages must also be certain: "No damages can be recovered for a breach of contract which are not clearly ascertainable in both their nature and origin." (Civ. Code, § 3301.) These issues remain to be tried in the proceeding on COLA's cross-complaint.

d. Jeffrey Moffatt and Staretta Moffatt Have Not Proved That They Can Enforce the COLA-Miracle Star Contract as Third Party Beneficiaries

Although the cause of action for breach of written contract was brought by plaintiff Miracle Star only, that cause of action alleged that plaintiffs Jeffrey Moffatt and Staretta Moffatt were third party beneficiaries of the Miracle Star-COLA contract, and based on that contract the Moffatts leased premises to Miracle Star to the enrichment of the defendants. COLA's summary judgment motion argued that Jeffrey and Staretta Moffatt could not establish their status as third party beneficiaries to the contract, because they could not provide evidence that the Miracle Star-COLA contract intended to confer a direct benefit on the Moffatts.

A third party beneficiary may enforce a contract made expressly for his benefit. (Civ. Code, § 1559.) The putative third party's contract rights, however, are predicated on the contracting parties' intent to benefit that third party. (Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 436.) "`The circumstance that a literal contract interpretation would result in a benefit to the third party is not enough to entitle that party to demand enforcement.'" (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524.) "The party claiming to be a third party beneficiary bears the burden of proving that the contracting parties actually promised the performance which the third party beneficiary seeks." (Sessions Payroll Management, Inc. v. Noble Construction Co. (2000) 84 Cal.App.4th 671, 680.) "Ascertaining this intent is a question of ordinary contract interpretation. [Citation.] `[T]he circumstance that a literal contract interpretation would result in a benefit to the third party is not enough to entitle that party to demand enforcement.'" (Hess v. Ford Motor Co., supra, at p. 524.)

We see nothing in the contract that the parties promised the performance plaintiffs seek. Plaintiffs' opposition to the summary judgment motion argued only that COLA knew Staretta and Jeffrey Moffatt were owners and directors of Miracle Star and that money in the budget specifically paid Staretta Moffatt's salary and rent to the Moffatts for leased premises. The sole evidence cited for this assertion was Jeffrey Moffatt's declaration, which stated: "At the time of contracting, the County was aware that Star Moffatt would be paid a salary and Star Moffatt and I would [be] paid the rent under the Contract." Plaintiffs' separate statement of disputed material facts contains no reference to this evidence. The contracts do not name Jeffrey Moffatt, although he signed the June 20, 2000, amendment and the June 19th, 2001, contract as CEO on behalf of Miracle Star. The contract names Star Moffatt as Executive Director in giving the address to which notices to Miracle Star are to be sent. Staretta Moffatt also signed the initial June 8, 1999, contract as Executive and Program Director on behalf of Miracle Star. None of these contracts, however, contains any statement that Staretta Moffatt would be paid a salary and that the Moffatts would be paid rent under the contract. Thus the contract was not made expressly for the benefit of Staretta Moffatt or Jeffrey Moffatt, and does not show that COLA and Miracle Star actually promised the performance the Moffatts seek. The Moffatts have not proven that they are third party beneficiaries of the COLA-Miracle Star contract. The Moffatts are at best remotely benefited, and as incidental beneficiaries cannot enforce the contract. (Martinez v. Socoma Companies, Inc. (1974) 11 Cal.3d 394, 406-407.)

4. Plaintiffs Have Not Created a Triable Issue of Fact as to the Breach of Oral Contract Cause of Action

Plaintiffs claim on appeal that triable issues of fact require reversal of summary judgment as to the breach of oral contract cause of action.

a. Allegations of the Breach of Oral Contract Cause of Action

The breach of oral contract cause of action alleged that COLA referred individuals and families to plaintiffs for the purpose of providing in-patient alcohol and drug treatment services to welfare recipients. At COLA's request, plaintiffs also provided services to men and women qualifying under the CalWORKs program. COLA agreed, orally and in writing, to pay plaintiffs specified sums for these services. The complaint alleged that Jeffrey and Staretta Moffatt were third party beneficiaries of this oral contract, and based on that oral contract and Miracle Star's anticipated income from prospective referrals by COLA, leased certain premises to Miracle Star and to the enrichment of COLA.

b. Plaintiffs' Opposition to the Summary Judgment Motion Produced No Evidence Creating a Triable Issue of Fact as to the Breach of Oral Contract Cause of Action

Defendants' summary judgment motion argued that plaintiffs could not carry their burden of demonstrating the existence of any oral agreement between plaintiffs and COLA, and could not carry their burden of demonstrating that Staretta and Jeffrey Moffat were third party beneficiaries of such an oral contract. Plaintiffs' separate statement in opposition to the summary judgment motion contained no evidence showing that plaintiffs and COLA made an oral contract.

Plaintiffs cannot create a triable issue of fact by the allegations in the complaint. (Lyons v. Security Pacific Nat. Bank (1995) 40 Cal.App.4th 1001, 1014.) The opponent of summary judgment cannot rely on pleadings, but must make an independent showing of sufficient proof of matters alleged to raise a triable issue of fact. (Tressemer v. Barke (178) 86 Cal.App.3d 656,668.) Without a separate statement of undisputed facts with references to supporting evidence in the form of affidavits or declarations, it is impossible for the plaintiff to demonstrate the existence of disputed facts. (Lewis v. County of Sacramento, supra, 93 Cal.App.4th at p. 116.) We therefore conclude that the trial court correctly granted summary judgment as to the cause of action for breach of oral contract.

5. Plaintiffs Have Not Created a Triable Issue of Fact as to Their Cause of Action for Intentional Interference with Prospective Economic Advantage

Plaintiffs claim that the trial court erroneously granted summary judgment as to their cause of action for intentional interference with prospective economic advantage.

a. Allegations of the Complaint

The cause of action for intentional interference with prospective advantage alleged that COLA and its employees Ogawa, Lopez, and Weir, acting within the scope of their employment, interfered with plaintiffs' business opportunities, prospective clients, and prospective contracts, with the purpose and specific intent of harming plaintiffs' business.

The complaint alleged that plaintiffs operated alcohol and drug treatment facilities for the State of California Department of Alcohol and Drug Program since 1998, and provided similar services to persons and families referred by COLA. The complaint alleged that a shortage of facilities of the type plaintiffs operate existed and continued to exist, and that there was a substantial number of eligible persons who qualified for and would ordinarily be referred to plaintiffs for care and treatment. The complaint alleged, however, that on July 1, 2001, COLA put plaintiffs' alcohol and drug treatment facilities under a "do not refer" order, prevented COLA personnel and agencies from referring any persons to plaintiffs for treatment, and refused to grant plaintiffs a contract under the provisions of Proposition 36, with the specific intent of destroying plaintiffs' business opportunities.

b. Plaintiffs Have Not Alleged or Proved the Necessary Elements of This Cause of Action, and Their Failure to Present a Claim Against the County of Los Angeles Bars Them from Filing a Lawsuit Against COLA

The cause of action for intentional interference with prospective economic advantage requires that plaintiff plead and prove: (1) an economic relationship between the plaintiff and a third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts by the defendant designed to disrupt the relationship; (4) defendant's conduct which was wrongful by some legal measure other than the fact of interference itself; (5) actual disruption of the relationship; and (6) defendant's acts which proximately caused economic harm to the plaintiff. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153.)

A defendant's summary judgment motion necessarily includes a test of the legal sufficiency of the complaint. In this context, the court applies the rule applicable to demurrers, accepts the allegations of the complaint as true, and treats the summary judgment as a motion for judgment on the pleadings. (American Airlines, Inc. v. County of San Mateo (1996) 12 Cal.4th 1110, 1117-1118.) Here the complaint failed to plead an economic relationship between plaintiffs and a third party. No relationship between plaintiffs and future COLA-referred patients yet existed. Moreover, that relationship was not an economic relationship, because COLA, not the patients themselves, paid plaintiffs for treatment of those patients. The relationship must exist at the time of defendant's allegedly tortious acts, "lest liability be imposed for actually and intentionally disrupting a relationship which has yet to arise." (Westside Center Associates v. Safeway Stores 23, Inc. (1996) 42 Cal.App.4th 507, 526.) No such relationship existed between plaintiffs and those persons not yet referred to Miracle Star by COLA and not yet known by plaintiffs.

On appeal, plaintiffs change the allegations of the complaint to instead allege their economic relationship with the federal government. In a summary judgment motion, however, the issues which are material are limited to the allegations of the complaint. (Lewinter v. Genmar Industries, Inc. (1994) 26 Cal.App.4th 1214, 1223.) Summary judgment cannot be granted on a ground not raised by the pleadings. (Bostrom v. County of San Bernardino (1995) 35 Cal.App.4th 1654, 1663.) Neither can it be reversed on appeal on a ground not raised by the pleadings or on a triable issue of fact which has not been shown by evidence placed before the trial court. This court's review of summary judgment is limited to facts presented in documents submitted to the trial court. (Monteleone v. Allstate Ins. Co. (1996) 51 Cal.App.4th 509, 514-515.) Nothing in plaintiff's separate statement in opposition provides evidence of plaintiffs' existing economic relationship with the federal government. We additionally find no evidentiary showing in plaintiffs' separate statement in opposition of any evidence of defendant's conduct which was wrongful by some legal measure other than the fact of interference itself.

In addition, plaintiffs' claim for damages, dated March 15, 2002 with the COLA Board of Supervisors contains no claim for intentional interference with prospective economic advantage. Government Code section 945.4 states, in relevant part: "no suit for money or damages may be brought against a public entity . . . until a written claim therefor has been presented to the public entity and has been acted upon by the board, or has been deemed to have been rejected by the board[.]" Failure to present a claim for money or damages to a public entity bars a plaintiff from filing a lawsuit against that entity. (Sofranek v. County of Merced (2007) 146 Cal.App.4th 1238, 1246.) This constitutes a separate ground for the grant of summary judgment as to this cause of action.

We conclude that plaintiffs have not shown error in the grant of summary judgment as to this cause of action.

Appellant tenants contend that the trial court erred when it denied their motion for contractual attorneys' fees arising from an action brought against them and later voluntarily dismissed by respondent landlords. Relying on Santisas v. Goodin (1998) 17 Cal.4th 599, the tenants say the case falls outside the bar set out in Civil Code section 1717, subdivision (b)(2), on contractual attorneys' fees in voluntarily dismissed cases because the action contained noncontract claims covered by the fee clause. We disagree. The trial court correctly held that all the claims in the action were claims on the contract--the parties' lease--since none of those claims, however styled, could have been established in any way except by proof of a breach of the lease. The judgment is affirmed.

FACTUAL AND PROCEDURAL HISTORIES
James and Sharon Norris, the landlords, leased commercial property in 2003 to Oliverio Herrera and George Thomas, the tenants. In 2006, the landlords filed a complaint against the tenants in superior court. The complaint alleged that the tenants had stopped using the property and had sublet it or assigned the lease to third parties in violation of the no-sublet and no-assignment clauses in the lease. The complaint alleged six additional breaches of the lease: (1) placement of large signs on the property in violation of a covenant not to alter, add to, or improve the property without consent; (2) painting of the building in violation of the same covenant; (3) operation of an unlicensed business in violation of a provision prohibiting illegal activities; (4) failure to maintain insurance in violation of a covenant requiring the tenants to maintain insurance; (5) failure to maintain the property in a good and safe condition in violation of a covenant requiring this; and (6) failure to maintain equipment on the property in good and working condition in violation of a covenant requiring this be done.

On the basis of these alleged breaches of the lease, the complaint included three causes of action. The first, titled ejectment, stated that the tenants were withholding possession of the property despite the landlords' demands that they vacate because of their breaches of the lease. On this cause of action, the landlords prayed for a decree that they were entitled to possession; a writ of execution directing the sheriff to remove the tenants; and damages. The second cause of action, titled declaratory relief, asked the court for a declaration that the tenants breached the lease; that the lease, including a purchase option, was of no further effect; and that the tenants were in possession unlawfully because of their breaches. The third, titled quiet title, stated that the landlords sought to quiet title to the property in their favor on the ground that the tenants had breached the lease. On this cause of action, the landlords prayed for a judgment that they were the sole owners of the property; a decree that the landlords would retain all money paid to them by the tenants; restitution of the property to the landlords; and damages. The tenants filed a cross-complaint claiming they attempted to exercise the purchase option but the landlords refused, and in doing so breached the lease.

The parties later reached an agreement on the exercise of the option, and the property was sold to the tenants. The complaint and cross-complaint were voluntarily dismissed.

The tenants filed a motion for $53,532.75 in attorneys' fees. They relied on an attorneys' fees clause in the lease:

"In case suit shall be brought for recovery of the premises, or for any sum due hereunder, or because of any act which may arise out of possession of the premises, by either party, the prevailing party shall be entitled to all costs incurred in connection with such action, including reasonable attorney's fees."
They cited Code of Civil Procedure section 1032, subdivision (a)(4), which defines "a defendant in whose favor a dismissal is entered" as a prevailing party for purposes of awarding costs, and Code of Civil Procedure section 1033.5, subdivision (a)(10), which allows attorneys' fees to be awarded as costs if authorized by contract.

The trial court issued an eight-page written order denying the request for fees. It relied on Civil Code section 1717. Subdivision (a) of this section provides for the enforcement of contractual attorneys' fees clauses by prevailing parties, but subdivision (b)(2) makes an exception for voluntarily dismissed cases: "Where an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section." The court acknowledged that Santisas v. Goodin, supra, 17 Cal.4th at page 617, held that the Civil Code section 1717, subdivision (b)(2), exception does not apply if the action is not an action on the contract and the fee clause is broad enough to cover noncontract claims. In that situation, Code of Civil Procedure section 1021 authorizes--and Civil Code section 1717, subdivision (b)(2), does not bar--enforcement of the parties' fee-shifting agreement. The court concluded, however, that all the causes of action in the complaint were based on the contract and that the action was an action on the contract, so Civil Code section 1717, subdivision (b)(2), did bar a fee award. The tenants filed this appeal.

DISCUSSION
The tenants' argument on appeal is the same as the argument they made before the trial court: The landlords' claims are not contract claims, as ejectment is a tort theory, quiet title a real property theory, and declaratory relief an equitable remedy. The tenants contend that, regardless of the fact that all the landlords' claims were based on alleged breaches of the lease, each of those claims "sounds in" something other than contract in the abstract, and that is what matters. They argue that, because the Supreme Court stated that Civil Code section 1717 bars contractual attorneys' fees in voluntarily dismissed cases only with respect to "causes of action sounding in contract" (Santisas v. Goodin, supra, 17 Cal.4th at p. 617), our consideration must be limited to the labels attached to the causes of action in the complaint, and the fact that the only basis of liability alleged in the complaint for any of the causes of action is a breach of a contract is irrelevant. This is a question of law that we review de novo. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799.)

The tenants' view that the labels control over the substance is not supported by authority or reason. The superior court refuted this view in a well-reasoned and detailed analysis. We adopt the following portion of it:

"We must determine if the three causes of action are contract or noncontract causes of action. There is no bright line rule for determining if an action is on the contract. Such a finding depends on the facts of each case.
"The complaint contains three causes of action: ejectment, declaratory relief and quiet title. There was no `breach of contract' cause of action alleged. However, this does not mean that the action is not on the contract.
"The court gives more weight to the substance of an action than to its form[;] therefore the court looks beyond the parties' characterization of whether an action is on a contract in determining whether the action is `on a contract' for purposes of CC §1717. See Boyd [v.] Oscar Fisher Co. (1989) 210 Cal.App.3d 368, 377. The court held that, in determining whether a party prevailed on the contract, `the court should consider the pleaded theories of recovery, the theories asserted and the evidence produced at trial, if any, and also any additional evidence submitted on the motion in order to identify the legal basis of the prevailing party's recovery.' Id.
"In applying the approach set out in Boyd the court finds that the three causes of action in the present case are all based on the contract. The suit fundamentally was based upon the lease, in that plaintiff sought redress for breaches of the lease. See Beeman [v.] Burling (1990) 216 Cal.App.3d 1586, 1608.
"Ejectment is a legal action to recover possession of real property wrongfully withheld from the plaintiff. Caperton [v.] Schmidt (1864) 26 Cal. 479[, 495]; McNulty [v.] Copp (1954) 125 Cal.App.2d 697[, 705-706, 708]. The gravamen of an ejectment action is frustration of the plaintiff's right to possession. B & B Sulfur Co. [v.] Kelley (1943) 61 Cal.App.2d 3[, 9].. . . In this case, the plaintiff was seeking to eject the defendant and recover the property under the lease agreement because of a breach. The cause of action is on the contract.
"The declaratory relief COA alleges a dispute under the lease. Under CCP §1060, any person interested under a contract or under a written instrument, excluding a trust or will, may seek declaratory relief and obtain a judicial declaration of respective rights and duties under the instrument. In this case, the cause of action for declaratory relief is based upon the lease agreement. In his claim for declaratory relief, the plaintiff is requesting that the court determine the parties' rights and duties under the lease. Such a claim is `on a contract' for purposes of section 1717. See Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 707; City and County of San Francisco v. Union Pacific R.R. Co. (1996) 50 Cal.App.4th 987, 999-1000; Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1259.
"Also, the quiet title cause of action seeks to quiet title based upon a breach of the lease.. . . The court therefore finds that the cause of action is based on [the] contract.
"The action was voluntarily dismissed and there is no prevailing party on the contract for purposes of §1717. CC §1717 (b)(2); Santisas [v.] Goodin (1998) 17 Cal.4th 599[, 619]. Because there are no noncontract causes of action in this case, attorney's fees will not be awarded."
In sum, relief was sought for nothing but a set of alleged breaches of contract. The landlords sought an order ejecting the tenants from the property because they breached the lease; they sought a declaratory judgment that the tenants breached the lease; and they sought an order quieting title in their favor on the ground that the tenants breached the lease. In substance, the complaint alleged breaches of the lease and asked for remedies called ejectment, declaratory relief, and quiet title. The conclusion that this action, or any portion of it, was not an action on a contract would plainly not be correct.

The tenants contend that B & B Sulfur Co. v. Kelley, supra, 61 Cal.App.2d 3 supports their position. They point out that, although the court there had to consider the terms of a lease to decide the plaintiffs' ejectment claim, the claim nevertheless was "based on a . . . tort of defendants." (Id. at p. 6.) The case is easily distinguished. The defendants there were not parties to the lease; the complaint did not allege that they breached any lease; and the significance of the lease was simply that it gave the plaintiffs a right of possession against the defendants as trespassers. (Id. at pp. 5-6.) In this case, by contrast, the landlords' right of possession could be asserted against the tenants only if the tenants breached the lease. The tenants' breach was the only alleged basis of their liability.

The tenants also rely on Stout v. Turney (1978) 22 Cal.3d 718 and Lerner v. Ward (1993) 13 Cal.App.4th 155, in which fraud claims arising out of contractual relationships were held not to be claims upon a contract for purposes of awarding attorneys' fees under Civil Code section 1717. Neither case is helpful to the tenants. In both, the fraud claims were independent of any contract claims--i.e., they were claims that the defendants were liable for fraud whether they breached the parties' contract or not. (Stout v. Turney, supra, at pp. 721-722, 730; Lerner v. Ward, supra, at pp. 157, 158-159.) To prevail on the fraud claims, the plaintiffs did not have to prove breach of contract. All the claims in the present case did depend on proof of a breach of contract. The tenants' citation of McKenzie v. Kaiser-Aetna (1976) 55 Cal.App.3d 84 is similarly not helpful. There, the court held that a claim for negligent misrepresentation was not "on [the] contract" for purposes of Civil Code section 1717. Again, unlike here, the plaintiffs did not need to show a breach of the contract to prevail on the claim in question. (McKenzie v. Kaiser-Aetna, supra, at pp. 88-89.)

The tenants next argue that the landlords' suit was not an action on the contract to the extent that it sought other remedies than damages. They say that "[b]ecause [the landlords] elected the non-contract remedies, they must bear the consequences of their actions." The tenants' assumption is that only a claim for contract damages is a contract claim. Under this reasoning, a complaint consisting of a cause of action for breach of contract and a prayer for specific performance would not be an action on a contract. To state this view is to refute it. In their reply brief, the tenants acknowledge that an unlawful detainer action seeking an eviction order would also be an action on a contract. There is no authority for the idea that a lawsuit is a contract action only when the remedies sought are damages or an eviction order, however.

Finally, the tenants say the trial court, in its discussion of declaratory relief, should have relied on Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141 instead of the cases it cited. The tenants claim Persson "superseded" the cases on declaratory relief the trial court relied on, but we do not see how. In fact, the holding of Persson is not applicable to the present case at all. In Persson, the Court of Appeal held that a declaratory relief action was not an action on a contract for purposes of applying Civil Code section 1717. The suit in Persson, however, sought declaratory relief for fraud, deceit, negligent misrepresentation, securities fraud, and breach of fiduciary duty. Unlike in the present case, the complaint did not allege that the defendants breached a contract; proof of breach of a contract was not necessary to show liability. (Persson v. Smart Inventions, Inc., supra, at pp. 1174, fn. 23, 1149-1150.) Where, as here, the relief sought is a declaration that the defendants breached a contract, the claim is a contract claim. As the Court of Appeal stated in City and County of San Francisco v. Union Pacific R.R. Co., supra, 50 Cal.App.4th at page 1000, the contention that an action for declaratory relief to determine the rights of the parties under a contract is not an action on the contract is "patently absurd."

In their reply brief, the tenants argue for the first time that "a careful review of the complaint shows the gravamen of the case claims is actually trespass ab initio," which, if correct, arguably would mean that the tenants could have prevailed without showing a breach of the lease. We generally do not address arguments made for the first time in an appellant's reply brief. (Feitelberg v. Credit Suisse First Boston, LLC (2005) 134 Cal.App.4th 997, 1022; California Recreation Industries v. Kierstead (1988) 199 Cal.App.3d 203, 205, fn. 1.) Further, the tenants have not cited any authority for, or made any genuine argument supporting, the proposition that a complaint alleging breaches of a lease and praying for ejectment, declaratory relief, and quiet title is, in reality, a suit for trespass ab initio. We need not address a point that has been inadequately briefed. (Associated Builders & Contractors, Inc. v. San Francisco Airports Com. (1999) 21 Cal.4th 352, 366, fn. 2.)