The client, a landlord of a large warehouse in Berkeley, leased a commercial building to a famous cannabis dispensary as that company planned to expand operations. As has happened with many cannabis businesses in California, the expansion plans had to be shelved due to crushing tax liability that the tenant faced (thanks to IRS section 280e!). IRS section 280e says that to the extent a business deals in schedule 1 controlled substances (like cannabis), the business may only deduct the cost of goods sold. 280e has created massive tax liability for most cannabis businesses. Dispensaries face steep competition from the unregulated market as well. The tenant could not pay, and our landlord client brought a commercial unlawful detainer action. The matter was settled after sending the first set of discovery requests. Our landlord client has their building back and can now try to lease to another to raise funds. The client is satisfied with the outcome, though frustrated with the cannabis industry at large and will likely never lease to a cannabis business ever again!
Category: Blog
Silicon Valley: “Two in the Box” References Two of Ad Astra’s Cases
Author: Katy M. Young
In HBO’s show Silicon Valley, the story takes place in one character’s home which he opens up to tech entrepreneurs who need a place to live and work in exchange for equity in their companies, called Hacker Hostel. In the episode titled “Two in a Box,” the characters struggle with landlord/tenant issues that are novel in the age of Airbnb. You can read a synopsis of the plot of the episode here.
Ad Astra had a hand in both of the landlord/tenant issues featured in this episode.
First:
“With Pied Piper on its feet, Jared announces he’s moving out of Noah’s guest house and back into his condo, which he’s been renting out on Airbnb. When Jared arrives at his condo he finds his tenant, Ludwig, is still there, claiming he can’t afford to live in the area because people like Jared have raised the cost of living. Ludwig refuses to leave, so Jared begins the long, expensive process of eviction.”
This part of the episode has many similarities to Huang v. Hingorani, Ad Astra Partner Wendy Hillger’s AirBnB-neighbors dispute case which was written up in the San Francisco Chronicle here.
Essentially, the Jared character on Silicon Valley learns the tough truth as the landlord in our case: You get a long, expensive eviction fight. If you rent your property to one who pays to be there for more than 32 days, even if the rental agreement came through AirBnB, the SF Rent Board has held that the renter acquires traditional tenancy rights. Therefore, to remove a short-term vacation renter who pays to stay more than 32 days yet refuses to leave and keeps paying rent, the landlord’s only course of action is an eviction.
Here is the second issue in the episode:
“Erlich shows the Hacker Hostel to a new tenant, and later tries to kick out Jian-Yang so that a new incubee can move into his old room. Jian-Yang doesn’t take the news well and starts freaking out. Later, after Erlich unwittingly reveals why Jared is moving back into the garage, Jian-Yang decides to use California’s tenant laws to his own advantage and also refuses to move out.”
In 2015, Ad Astra represented one of the defendants in the lawsuit Housing Rights Committee of San Francisco v. HackerHome. HackerHome is allegedly a company that rents living space to tech entrepreneurs via the AirBnB platform in violation of San Francisco’s short-term rental law. In Silicon Valley, the storyline begins in Erlich Bachman’s “Hacker Hostel,” which mirrors the alleged HackerHome activities in both name and function. While living and working in the Hacker Hostel, the main character Richard develops an algorithm meant to help musicians avoid copyright troubles but ends up creating the world’s most powerful file compression technology and becomes the darling of Silicon Valley investors after winning the Tech Crunch competition. The character who owns the Hacker Hostel wants to remove one of the tenants, Jian-Yang, whose company is underperforming so that he can make room for more people involved with Richard’s more successful business, but upon listening to Jared’s problem with his Airbnb renter, Jian-Yang realizes that he’s lived in the Hacker Hostel long enough to acquire tenant’s rights like Jared’s tenant and announces that Hacker Hostel will have to evict him because he’s not leaving.
Now Erlich Bachman and Jared each experience the same landlord/tenant problems that Ad Astra’s clients have had to tackle, although thus far, no one has sued Erlich Bachman for his Hacker Hostel activities.
I was particularly thrilled by this episode of Silicon Valley because usually it relates to my husband’s work in big data cloud computing and the show’s creator goes out of his way to make the show full of inside jokes relevant to tech workers in the real Silicon Valley. This time, our cases featured prominently in the story line and I got to be on the inside of the inside jokes!
What to Expect When You are Going Through a Divorce
Author: Regina Franco
Divorce takes time.
Once you decide to file for divorce, the next thing you want to do is quickly move on to the next chapter of your life, but divorce doesn’t happen that quickly. There is a mandatory waiting period required by California law and no judgment of divorce can be entered sooner than 6 months from the date the Petition for Dissolution was served onto the Respondent.
While 6 months may feel like a long time, there is a lot of paperwork that needs to be done and taking the proper time to work through your case will oftentimes prove to be time well spent. Divorce can be complicated. A divorce is essentially creating two new families out of one. This requires careful thought in order to make sound decisions about support, property division, and custody.
Divorce is not easy and over the course of at least 6 months, divorce will consume you. It is important that you choose your attorney wisely as the right relationship will make a positive impact on you as you transition into your new life.
What is CCP 170.6, and How do Attorneys Use It?
Author: Brian M. Worthington
The situation involving embattled Santa Clara County Court Judge Aaron Persky took a new turn this week when the Santa Clara District Attorney’s Office used California Code of Civil Procedure Section 170.6 to disqualify Judge Persky from an upcoming case. Some of our readers may be wondering, What is CCP 170.6?; When is it used?; and How do attorneys use it? We are here to answer those questions.
CCP 170.6 allows a party to a case (or the attorney representing that party) a one-time opportunity to disqualify a judge who is prejudiced against a party or the party’s cause. It applies equally to criminal and civil cases and has varying time restrictions depending on the type of calendaring system used in the County in which the case is being heard. A party can use CCP 170.6 to disqualify a judge assigned for all purposes, a judge assigned for a trial, or even a judge assigned for a specific motion.
The disqualification must be done in writing or orally under oath. The legal basis for a 170.6 disqualification (sometimes called “papering” a judge) is the bias against a party or cause. But in practice CCP 170.6 has almost unlimited applications—we have seen situations where a judge is disqualified due to personal conflicts with a particular attorney; where a judge has a blind spot toward a particular legal issue; or where a judge is perceived to have a habit of punishing too harshly or too leniently in particular criminal matters.
The ability to exercise a CCP 170.6 disqualification is a major tactical weapon for an attorney. For instance, if an attorney is handling a case where police misconduct is a major element of the defense, the attorney will want to avoid judges with strong law-enforcement ties or history of disregarding police misconduct. CCP 170.6 allows the attorney to do that. But an attorney must exercise great care in making the decision because the attorney can only choose which judge to disqualify, not the new judge assigned. On some occasions, the newly assigned judge may be just as bad on the particular issue as the original judge, or may even be worse on other issues that can come into play. Even using a disqualification and getting a great new judge is not always a cure-all for the client because if the new assigned judge is too favorable, the opposing party can turn around and disqualify the new judge. This leads to an interesting tête-à-tête between the opposing attorneys.
We hope this brief entry helps explain what CCP 170.6 is and how attorneys use to try help their clients. Thank you for reading.
Not Exactly A Midsummer Night’s Dream for Some
Author: David Nied
The Ninth Circuit has handed down two significant decisions under the Computer Fraud and Abuse Act in the past week. In the first decision, United States v. Nosal, the court affirmed the CFAA conviction of David Nosal, a former Korn/Ferry employee who left to start his own competing business with several co-workers. After Nosal and his co-workers left, Korn/Ferry revoked their computer access credentials. Nevertheless, the departed employees used the computer access credentials of Mr. Nosal’s executive assistant—who remained at Korn/Ferry—to obtain access to the company’s proprietary database. The court held that “without authorization” under the CFAA was unambiguous and means “accessing a protected computer without permission.” Nosal argued that since his former executive assistant was authorized to access the company’s computers, he had not violated the statute. Not so, said the court: “once authorization to access a computer has been affirmatively revoked, the user cannot sidestep the statute by going through the back door and accessing the computer through a third party. Unequivocal revocation of computer access closes both the front door and the back door.” Ad Astra’s David Nied and Michael Dorsi, and former associate, Keenan Ng, submitted an amicus brief on behalf of a former client and in support of the United States in which they discussed the importance of the remedies under the CFAA to small, entrepreneurial businesses in the Bay Area. You can read The Recorder’s summary of the decision here. The Recorder quoted Mr. Nied’s observation that the decision “confirms that [small businesses] have a tool available to them under the CFAA to protect their business, their intellectual property, and their trade secrets from former employees.”
In the second decision, Facebook v. Vachani, the court concluded that a social-media aggregator, Power.com, and its principal, Steven Vachani, had violated the CFAA by continuing to use Facebook users’ accounts to send spam email and messages to other Facebook users to promote Power.com after Facebook had sent them a cease and desist notice. Like Mr. Nosal, the defendants argued that they had not violated the CFAA because they had the consent of the Facebook users to send out the emails and messages. The Ninth Circuit, however, concluded that the cease and desist notice revoked any permission the defendants had to use Facebook’s computers and that the defendants used Facebook’s computers “without authorization” after that point in time. The court returned the case to the trial court to re-calculate Facebook’s damages from the date of the cease and desist notice. The takeaway for small business owners is to send out a cease and desist notice the moment you become aware that a third party may be accessing your computers or cloud-based accounts without permission. You can read more about the decision in The Recorder.
A Fact Investigation Conducted by Outside Counsel in response to an Employee’s claim of Harassment and Discrimination is Privileged
Author: Wendy Hillger
The California Court of Appeal recently held that outside counsel’s fact investigation of an employee’s harassment and discrimination claims conducted prior to litigation was protected by the attorney-client privilege and work product doctrine.
It has long been California law that when there is a claim of discrimination, harassment or retaliation, the employer must investigate. This investigation must be thorough, objective and complete. To help assist with these requirements, some companies have hired outside legal counsel. This ruling resolves the issue about whether outside legal counsel’s work and communications were privileged. Companies now should not hesitate to investigate an employee claim with outside counsel.
The Court also ruled that assertion of the “avoidable consequences” defense (the employer took reasonable steps to prevent and correct harassment, but the employee failed to use those measures) in the subsequent lawsuit did not waive the privilege as to a post-employment investigation.
[City of Petaluma v. Superior Court (Andrea Waters), Case No. A145437]
Court Declines to Enforce Uber’s Terms of Service
Scripta Ad Astra is extremely pleased to present a guest post by Nicole Syzdek. Ms. Syzdek is an Associate with our friends at Brand & Branch LLP, who focus on branding (trademark protection, registration and enforcement), and provides advice on privacy and data security practices.
Author: Nicole Syzdek
On July 29, 2016, the Southern District of New York in Meyer v. Kalanick declined to enforce the arbitration provision of Uber’s Terms of Service on the grounds that the plaintiff did not have adequate notice of, and consequently did not consent to, Uber’s Terms. Since each online user interface differs, there is no bright-line rule to ensure the enforceability of your terms of service. Nevertheless, decisions like Meyer are instructive in helping business owners understand how to ensure that their own terms of service are enforceable if violated.
The central issue in Meyer v. Kalanick was whether the plaintiff actually agreed to Uber’s Terms of Service when he signed up to use Uber through his mobile phone. Below is an image of what the plaintiff saw prior to registration:
The court categorized this as a “sign-in wrap” since the user was notified of the existence and applicability of the Terms while registering as a user but was not required to view them. The court took issue with the appearance and placement of the terms of service language, which was located below the options to use PayPal or Google Wallet and stated:
By creating an Uber account, you agree to the
TERMS OF SERVICE & PRIVACY POLICY
The court found that this language was in a font barely legible on a smartphone and not prominently displayed in relation to the color and size of the overall design of the registration screen. This layout, the court said, did not adequately draw users’ attention to the Terms of Service—let alone to the fact that by registering to use Uber, a user was agreeing to Uber’s Terms.
Why Should You Care?
As a business owner, it’s your responsibility to limit risk and keep your business running smoothly. One way to limit liability with respect to your websites and mobile applications is to have strong, enforceable terms of service. Your terms of service are your contract with your website visitors; they protect you by telling your customers what they are and are not allowed to do on your website or mobile app, and what they can and cannot expect from your website or service. Your terms should also enable you to ban users who violate these terms from your website, or terminate their accounts from your service.
Your terms of use are an incredibly important and powerful tool in managing your potential liability—but only if they’re actually enforceable.
The Uber decision makes clear that “click-wrap” agreements—which require a user to click through your terms of service—are the safest bet and most likely to be enforceable. By contrast, “browsewrap” agreements—burying your terms in a link at the bottom of the page or smartphone screen—are usually only enforced against other businesses that should be knowledgeable about the terms. “Sign-in wrap” agreements like Uber’s may be enforceable, but the notice of acceptance and link to the terms of service must be prominently positioned prior to the user completing the registration process.
Nicole Syzdek is an Associate at Brand & Branch LLP, focusing on intellectual property and technology matters, including trademark and copyright prosecution and enforcement, Trademark Trial and Appeal Board proceedings, licensing agreements, Internet policies, and privacy. She may be reached at nicole@brandandbranch.com.
To read additional posts visit www.brandandbranch.com.
Be advised of new federal Overtime Pay rules which start December 1st
Author: Wendy Hillger
The U.S. Department of Labor has revised its rules under the Fair Labor Standards Act concerning overtime pay. As of December 1, 2016, the salary and compensation levels needed for white collar workers (executive, administrative, and professional categories) to be exempt from overtime compensation under federal law will more than double.
California employers need to be cautious, however, because California has a different salary threshold pegged to the state minimum wage that will increase over time. Likewise, California maintains a different test for determining whether an employee is engaged in duties that are exempt from the overtime rules. Hence, an employee may be exempt under federal law but not under California law. If you have questions, please call us at Ad Astra Law Group.
The “Day of Rest” Requirement is Now Clear for California Employers
Author: Wendy L. Hillger
Last month, the California Supreme Court issued an important ruling for employers concerning the state’s “day of rest” statute for employees. California Labor Code sections 551[1] and 552[2] entitle employees to one day’s rest in seven and to not be caused to work more than six days in seven. The question before the Court in Mendoza v. Nordstrom, Inc. was whether this protection applies on a week-by-week basis or on a rolling basis. The Court explained the difference:
Under the weekly interpretation, the calendar is divided into seven-day blocks, and these provisions ensure at least one day of rest in each block, but an early day of rest in one week and a late day of rest in the next may lead to an employee working seven, eight, or more days in a row—though no more than six days out of seven, on average. Under the rolling interpretation, the provisions apply on an ongoing day-by-day basis, so that any employee who has worked the preceding six days in a row is presumptively entitled to rest on the next day.
One of the employees who sued Nordstrom had worked each day from Friday, January 14, 2011, to Friday, January 21, 2011. Nordstrom’s workweek was Sunday to Saturday. The Court ruled this was not a Labor Code violation, after a lengthy review of the statute’s text, the legislative history, the Industrial Welfare Commission Wage Orders and the general statutory scheme. The unanimous Supreme Court noted, “We conclude sections 551 and 552, fairly read in light of all the available evidence, are most naturally read to ensure employees at least one day of rest during each [work]week, rather than one day in every seven on a rolling basis.”
There are some exceptions:
1) This protection is not applicable for workers who do not work more than six hours in any day of the workweek;
2) Employees can work more than seven days in a row if they are given time off equivalent to one day’s rest in seven days.
[1] “Every person employed in any occupation of labor is entitled to one day’s rest therefrom in seven.”
[2] “No employer of labor shall cause his employees to work more than six days in seven.”
San Francisco Protects Caregiver Employees
Author: Annie Smiddy
The City of San Francisco has recognized the need for protections for caregiver employees, and in particular working parents, by enacting two ordinances providing employees the right to request flexible working schedules and paid family leave for bonding time with a new child. The changes to demographics of the modern workplace have resulted in: (1) more flexible work arrangements regarding the time or place where work is conducted, and (2) more mothers and fathers wanting time to bond with their new children. However, many employees are concerned about requesting flexible work arrangements, or taking time off after the birth of a new child, due to the stigma associated with these additional family responsibilities. These protections extend to employees who have caregiving responsibilities, such as pregnant women, mothers and fathers of young children, and employees with aging parents.
Family Friendly Workplace Ordinance
In 2013 (operative January 1, 2014), the Family Friendly Workplace Ordinance (“FFWO”) was enacted to provide employees the protected right to request a flexible work schedule. The FFWO states that caregiver status is a protected class, and places notice and record keeping requirements on covered employers. The FFWO prohibits employers from retaliating against an employee who attempts to exercise of rights under the ordinance, or makes a claim or complaint pursuant to the ordinance. The Office of Labor Standards and Enforcement (“OLSE”) is authorized to investigate possible violations of the FFWO, and the agency will impose an administrative penalty up to $50.00 requiring the employer to pay to each employee or person whose rights under the ordinance were violated for each day or portion thereof that the violation occurred or continued. In addition, the City may bring a civil action for reinstatement; back pay; the payment of benefits or pay unlawfully withheld; the payment of an additional sum as liquidated damages in the amount of $50.00 to each employee or person whose rights were violated for each day such violation continued or was permitted to continue; appropriate injunctive relief; and reasonable attorneys’ fees and costs.
Paid Parental Leave for Bonding with New Child Ordinance
In 2016, the City further expanded protections for parents by enacting the Paid Parental Leave for Bonding with New Child Ordinance (“PPLO”), which requires employers who have employees working in San Francisco to provide Supplemental Compensation to employees who are receiving California Paid Family Leave benefits to bond with a new child, so that the employees receive up to 100% of their normal weekly wages during 6 weeks of parental leave. The PPLO takes effect on January 1, 2017 for San Francisco employers with 50 or more employees; on July 1, 2017 for employers with 35 or more employees; and on January 1, 2018 for employers with 20 or more employees. The ordinance places notice, posting and record keeping requirements on employers. The ordinance prohibits against retaliation for an employee’s exercise of rights provided by the ordinance. The OLSE may investigate any possible violations of the ordinance by an employer and bring an administrative enforcement or a civil action against an employer. In addition, the City may bring a civil action in court against an employer for violations of the ordinance. A person or entity may also bring a civil action against an employer after he/she/it provides the OLSE and the City Attorney with written notice and more than 90 days have passed without the City Attorney filing suit or the OLSE providing notice of its intent to bring an administrative enforcement action or a determination that no violation has occurred. The employee may be entitled to reinstatement; backpay; payment of any Supplemental Compensation unlawfully withheld or the amount of Supplemental Compensation unlawfully withheld from the employee multiplied by three, or $250.00, whichever is greater; $50.00 for each employee or person whose rights were violated for each day that violation occurred; injunctive relief; attorneys’ fees and costs.
In sum, San Francisco has expanded protections for employees with greater caregiving responsibilities. If you would like to hear more about these ordinances, Ad Astra Law Group LLP is available to help.
For a link to the text of the ordinances, as well as FAQs, please visit the following websites:
FFWO – http://sfgov.org/olse/family-friendly-workplace-ordinance-ffwo
PPLO – http://sfgov.org/olse/paid-parental-leave-ordinance