Limits on Imposing Liability for Wrongful Death

California business attorneyThere are some examples of wrongful death cases in which the law clearly establishes a family has a right to recover damages for the loss of a loved one.  When a negligent driver of a car collides with another vehicle killing one of its passengers, that passenger’s family or representative possesses a right to bring a wrongful death action against that driver. When a factory exposes its workers to a toxic substance which contributes to the death of an employee, that employee’s family may have a cognizable right to a wrongful death claim against the company operating the factory. In each case, the negligent driver or the worker’s employer owed a duty to the deceased: in the case of the driver, the duty to drive safely so as not to harm others on the road and, in the case of the employer, the duty to provide a work environment free from work-related dangers.

 

A recent dismissal of a wrongful death case involving the deaths of two USC students provides a different example. In Wanzi Qu et. al. v. University of Southern California, the 2nd Appellate Division of the California Court of Appeals affirmed the dismissal of a wrongful death action in which the plaintiffs failed to state a cognizable claim. The two graduate students were robbed and killed in a neighborhood around USC’s campus. In the lawsuit, the plaintiffs alleged that the university breached its duty to provide a safe environment for the students “by not providing security; by not warning them it was in a high crime area; and by misleading them into thinking it was safe to live and go into the area.” The plaintiffs claimed that representations made on the university’s website concerning “quick response zones” and “patrolled zone” near the campus created a duty of care which it breached when no security personnel prevented the robbery and killing of these two students.  

 

The plaintiff’s complaint was dismissed at the pleading stage after the University’s demurrer to the allegations in the lawsuit was sustained. The Court found that representations included on the school’s website did not create a duty to provide the security necessary to keep these students safe from criminals in the vicinity. It emphasized that a university does not have the same duty to adult students as owed by schools to minor students. The court also found that published representations about the reputation and status of the university nationally made by others does not create such a duty. The outcome of this case stands in stark contrast to the two types of cases concerning the motor vehicle accident and toxic exposure each of which provide clearer examples of actionable wrongful death claims.

 

The Wilson Law Firm, a Professional Corporation, at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 handles wrongful death cases for the families or representatives of deceased individuals.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at http://wilsonlawfirmca.com /.

Tax Court Reaffirms View Concerning Gain on Abandoned Property

California business lawyerA woman in 2005 purchased a residence in Sacramento which she resided in until 2006. She paid $333,239 for the home. But she moved to San Francisco and decided to rent out the home in 2007. On her 2007 income tax return she listed the receipts from her tenant as rental income and also claimed $12,118 as depreciation of the value of the property. But soon thereafter, she failed to continue renting the home.

 

Subsequently, she learned that the fair market value of the residence was less than the outstanding mortgage loan balance and she stopped making the mortgage payments effectively abandoning the residence. She did not notify her mortgage lender of her decision to refuse to make payments.

 

The mortgage lender foreclosed on the property in early 2008. The lender resold the property for $278,314.84 and sent to the woman a Form 1099-A (Acquisition or Abandonment of Secured Property) reflecting that the outstanding balance of her mortgage obligation was $325,855.06. She submitted her amended 2008 federal tax return reporting a $313,737 ordinary income loss from the abandonment of the residence. This figure represented the difference between the balance shown on that Form 1099-A and the amount of depreciation she previously claimed in 2007.

 

The IRS took issue with her contention that she could declare a loss when abandoning her real estate in the fashion in which she did. They deemed that she realized a capital gain of $4,734 and owed a $737 income tax deficiency. The IRS calculated the capital gain amount by taking the mortgage balance before the foreclosure and reduced it by the adjusted basis of S321,121 which itself represented the difference between the original purchase price of $333,239 and the recaptured depreciation of $12,118.

 

The former owner of the real estate, Ms. Malonzo, took the case  to the United States Tax Court but the Court rejected her view that it constituted an ordinary loss attributable to abandonment of her home in favor of the IRS’s view that it represented capital gain attributable to a sale or exchange.  The court did rely on precedent that one cannot abandon their home in this fashion and lose the property to foreclosure and then declare the unpaid mortgage balance as an offset in order to declare a loss in making their decision.

 

The Wilson Law Firm, a Professional Corporation,  at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 represents shareholders, directors and officers involved in corporate litigation.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at http://wilsonlawfirmca.com /.

Foreign Corporation Not Subject to Suit under California Winding Up Provision

business attorney CaliforniaEarlier this year the California Supreme Court reaffirmed the view that the time to file a suit against a dissolved foreign corporation – one formed in another state – is governed by the law of that foreign state. In Greb v. Diamond International Corporation , the Court held that Corporations Code Section 2010 does not apply to foreign corporations.

 

In this case, the wife of the deceased Walter Greb, filed a personal injury and loss of consortium suit against Diamond International Corporation (“Diamond”) in December 2008 for asbestos exposure many years earlier. While Diamond did have substantial operations in California, the Delaware corporation dissolved under that state’s laws in July 2005. Delaware has a three-year survival statute. As Ms. Greb filed her suit more than three years after that dissolution, she could not rely on that statute to assert that the corporation remained an entity that could be sued. So she argued that the California survival statute (Section 2010) applies to the corporation.

 

As is the case for survival statutes in many other states, Section 2010 does not set a time limit for suing a dissolved corporation for injuries arising from predissolution conduct. It does prescribe the limit found in the applicable statute of limitations relating to each type of cause of action. The question addressed by the court was whether Section 2010 does apply to foreign corporations.

 

The court found that neither Section 102(a) of the corporations code nor related statutes within the same articles of the code lead to any conclusion that a “corporation organized under its division (Division I) refer to a foreign corporation. A separate part of the Code addresses foreign corporations. Those provisions which do provide for certification of foreign corporations do not rise to the level of an organizational mandate. This conclusion of the court even applies to corporations which conduct “repeated and successive transactions of its business in this state…” The court also determined that, if California courts reached the opposite conclusion, the state would fall outside the majority of states when it comes to the applicability of survival statutes to foreign corporations.

 

Prior to 1972, former section 15 of Article XII of the California Constitution could subject such a foreign corporation to potential suit but as that section was repealed by the electorate, it cannot stand as a basis for such action at this juncture.  The court’s rejection of that argument by Ms. Greb reinforced the decision that her suit, under these circumstances, could not proceed against this dissolved corporation.

 

The Wilson Law Firm, a Professional Corporation,  at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 represents shareholders, directors and officers involved in corporate litigation.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at http://wilsonlawfirmca.com /.

Citalopram May Cause Serious Side Effects

business lawyer CaliforniaThe anti-depressant, Citalopram (also known by the brand name “Celexa”) causes a serious of side effects to patients who take the prescription drug. Most notably, Citalopram can cause pregnant women to have children with severe lung problems. People suffering from depression should, according to the FDA, tell their doctor if they have any of the following symptoms before the doctor prescribes Citalopram:

 

  • a bleeding or blood clotting disorder;
  • liver or kidney disease;
  • seizures or epilepsy;
  • heart disease, heart failure, a heart rhythm disorder, slow heartbeats, or recent history of heart attack;
  • personal or family history of Long QT syndrome;
  • an electrolyte imbalance (such as low levels of potassium or magnesium in your blood);
  • bipolar disorder (manic depression); or
  • a history of drug abuse or suicidal thoughts.

 

For women taking the drug, they should immediately tell their doctor when they become pregnant. The Food and Drug Administration (FDA) denotes the drug in the pregnancy category C. The FDA assigns these categories to assess their risk. They place in to category C those drugs which have only been tested on animals but have indicated an adverse effect on a fetus while showing potential benefits for pregnant women.  According to Medscape, Citalopram use by women in the third trimester of their pregnancy is associated with complications in newborns, and may require prolonged hospitalization, respiratory support, and tube feeding.   

Some of the side effects, including those mentioned for pregnant women, are dose-dependent. Dr. Kristie Leong, writing for Yahoo Medicine, stresses the need to reduce the dosage should some of these adverse effects occur. In fact, the FDA, in 2011, issued a drug safety alert for the antidepressant Celexa, reducing the recommended maximum daily dosage to 40 mg/day. The alert is due to a new study which found the previously recommended higher dose of 60-mg/day can cause abnormal changes in the electrical activity of the heart.

The Wilson Law Firm, a Professional Corporation,  at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 represents shareholders, directors and officers involved in corporate litigation as well as other legal matters for injured individuals.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at http://wilsonlawfirmca.com /.

Treatment of Term Life Insurance Policies in California Divorce Cases

business attorney Folsom CaliforniaAs a community property state, California treats property obtained during marriage to be the community property of both spouses. This applies to life insurance policies.  For an investment life insurance policy, which accrues value as premiums are paid on the policy, California law utilizes an apportionment policy in the event the spouses get divorced. Generally speaking, the courts look to what percentage of the premiums were paid by a policyholder prior to the marriage and how much was paid during the marriage. Then, if the policy is cashed in for surrender value after the divorce or benefits are paid because the insured dies, a court determines which portion constitutes separate property and community property respectively. (The community property is then divided between the two parties equally.)

 

Disposition of term life insurance policy benefits pose a dilemma for the courts, however. While an insured may make payments on these policies regularly over a period of time, only the last payment made secures the coverage for the benefits to be paid upon the death of the insured. The policy does not accrue value during the course of this period. (Like a lease for an apartment, a tenant may make payments for several months to live there but only the last payment secures the right to live there for the current month.) For purposes of divorce, the courts in California issued divergent opinions on how to characterize and evaluate such policies.  For several years the courts relied on the same apportionment approach applied in the context of investment policies. Then, in the Estate of Logan case, another appellate court held that whether the proceeds from a policy are community or separate property is determined by whether the last premium payment was made before, during or after the marriage. (The issue of who is listed as the policy’s beneficiary is a separate but obviously related, issue.)

 

Because of the split between the appellate courts on this issue, uncertainty persisted about which approach California courts should follow in divorce cases where a term life insurance policy was held by a spouse. Recently, the Court of Appeals for the Fifth District in California sought to settle this issue in the case of In re Marriage of Becky and Gary Burwell.  To the extent that the last payment on the policy is paid solely with separate funds, for instance after the divorce, the proceeds of the policy after the insured’s death, go strictly to the estate of the deceased or, if applicable, a new designated beneficiary. In this limited regard, it agrees with the Logan court. But it considers other factors as well. A person may become uninsurable if their health declines. But if the insured has a policy with a right to renew, the insured can maintain the term policy. Hence, any premium payments that enabled that right do provide a value to the insured. The Logan rule ignores this factor. Also some policies may have a cap on premiums. The insured derives a benefit from this as well. If the insured had to obtain a new policy every year, the premium the insured would have to pay may rise as his or her medical condition deteriorates. The insured, in essence, secures a discount because of prior payments which may have been made by the community. Accordingly, as the insured becomes less insurable, the “the final premium obligation is met by the joint effect of (1) the funds expended by the separate estate to pay the premium and (2) the “discount” embodied in the premium cap, which is a partial-community asset.” So the court in Burwell finds that the community should receive a fraction of the proceeds based on these two factors.  It devised the following formula to account for these: (percentage of total premiums paid by community) × (effective premium discount for final term of coverage) (actual premium paid for the final term of coverage) + (effective premium discount for final term of coverage).

 

Ultimately, the Burwell court found it lacked sufficient information to fill in the variables necessary to perform this calculation.  So it sent the case back to the trial court so that the judge at that level could determine those specific values.

 

The Wilson Law Firm, a Professional Corporation,  at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 handles domestic relation cases for spouses seeking divorce and other forms of relief.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at http://wilsonlawfirmca.com /.

 

State’s Attorney General Bringing Dissolution Action

business attorney Folsom CaliforniaShareholders, directors, and other individuals expressly authorized to dissolve the corporation are not the only ones with the capacity to demand the dissolution of a corporation. The Attorney General of California can move to have a corporation dissolved as well. California Corporations Code Section 1801(a) provides the following grounds necessary for an involuntary dissolution by the Attorney General:

 

  1. The corporation has seriously offended against a provision of the statutes regulating corporations;
  2. The corporation has fraudulently abused or usurped corporate powers or privileges;
  3. The corporation has violated any provision of law or any act or default which, under the law, is a ground for forfeiture of corporate existence under state law; and
  4. The corporation has failed to pay the Franchise Tax Board for a period of five years any tax legally imposed upon it.

 

The procedure established by Section 1801 provides for, in subsection (b) thereof, the Attorney General giving a corporation the opportunity to remedy any of these defects that serves as a ground for involuntary dissolution prior to filing suit. For instance, the failure to pay some fee or tax to the Franchise Tax Board may constitute a curable problem that the Attorney General may give the corporation a specific period of time to fix. This example, however, does not exhaust all defects which may be remedied.  A shareholder, director, or officer for a corporation facing a potential dissolution action by the Attorney General should immediately consult with legal counsel in order to discuss the possible merit of any allegations made by the Attorney General as well as the procedure necessary to challenge or cure, if so desired, any such contentions.

 

The Wilson Law Firm, a Professional Corporation,  at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 represents shareholders, directors and officers involved in corporate litigation.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at http://wilsonlawfirmca.com  .

 

Part 4- Involuntary Dissolutions

business lawyer Folsom CaliforniaCalifornia law provides for the involuntary dissolution of a corporation in the state. This article discusses who can file such a petition (in the proper superior court) and upon what grounds.

There are four parties or groups of parties that, per California Corporations Code Section 1800(a), can file for an involuntary dissolution of a corporation:

(1)   One-half or more of the directors of the corporation who are in office;

(2)   A shareholder or group of shareholders who own 33 and 1/3rd  % of either the outstanding shares, common shares, or equity in the corporation;

(3)   Any single shareholder where the point of termination of the corporation has occurred; this occurrence may arise where the corporation’s founding document envisioned a termination of its existence at a stated point absent the taking of a specific action to extend the life of the corporation by appropriate authorities; and

(4)   Any other person authorized by its Articles of Incorporation to take such an action at their own behest

California Corporations Code Section 1800(b) sets forth the following grounds necessary for an involuntary dissolution:

(1)   The corporation has abandoned its business for more than one year;

(2)   In the event the corporation has an even number of directors and those directors are so evenly deadlocked that the ability to ensure no damage to its property or business will be impaired or lost; AND the holders of the voting shares of the corporation are so deadlocked that it is unable to elect an uneven number of directors;

(3)   There is such internal dissension between rival groups of shareholders that its business can no longer be conducted to the advantage of the shareholders; AND the shareholders with voting shares, at two consecutive annual meetings of the shareholders of the corporation, have failed to elect successors to the directors whose terms have expired;

(4)   Those in control of the corporation have knowingly countenanced persistent and pervasive fraud, mismanagement or abuse of authority or persistent unfairness towards any shareholders or its property is being wasted or misapplied by its directors or officers;

(5)   In the case of a corporation with 35 or fewer shareholders, where liquidation is reasonably necessary to protect the rights and interests of any complaining shareholder or shareholders; and

(6)   The stated period for which the corporation was formed has terminated.

Any shareholder or director of a corporation who has reason to believe that one of these grounds may exist as the basis for an involuntary dissolution needs to consult with an attorney to see if any such grounds have merit.  Also this review of the grounds does not include some exceptions which may apply to certain corporations, such as banks.  So it is advisable that you consult in order to ensure that one or more of these exceptions does not so apply.

The Wilson Law Firm, a Professional Corporation,  at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 represents shareholders, directors and officers involved in corporate litigation.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at http://wilsonlawfirmca.com  .

Part 3 – Post-Dissolution Matters

Folsom California business litigation attorney In the event that a corporation in California is dissolved, either voluntarily or involuntarily, the corporation must wind up its affairs. Under Corporation Section 2010(a) the corporation continues to exist for the following purposes:

 

(1)   Winding up its affairs;

(2)   Prosecuting and defending against claims and causes of action (or suits);

(3)   Dispose of and convey its property;

(4)   Collect and divide its assets;

 

If a corporation is winding down or is in the process of dissolving, any civil actions in which the corporation is involved, do not abate.  The corporation cannot rely on either process as a mechanism to avoid or stop any civil actions in which it is a party. Any of its undistributed assets are subject to potential recovery as are any insurance assets which can be used to satisfy specific claims.

The corporation itself is not the only party subject to post-dissolution civil litigation.   If assets are distributed to shareholders as part of the dissolution process, shareholders can be sued either (a) to the extent of the pro rata share of their claim or (b) to the extent of the corporate assets distributed to them. But shareholders will not be responsible beyond the total amount of assets that were distributed to them as part of the dissolution process.  So there is a ceiling above which a particular shareholder will not be liable in such a case.

Such civil actions against shareholders of a dissolved corporation must be filed before the earlier of expiration of the statute of limitations for that particular cause of action or four years after the effective date of the dissolution. This provision should give shareholders some expectation as to when they can be free from further liabilities related to the activities of the corporation.

The Wilson Law Firm, a Professional Corporation,  at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 represents shareholders, directors and officers involved in corporate litigation.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at http://wilsonlawfirmca.com

Corporation Dissolutions under Section 2000 – Part 2

Folsom California business litigation lawyer In part 1 of this series on corporate dissolutions in California, we discussed the opportunity that purchasing parties – shareholders opposing a voluntary dissolution or involuntary dissolution by a different group of shareholders (the “moving parties”) have to purchase at fair value the shares of the corporation owned by the moving parties. This article focuses on the procedure the purchasing parties and the court follow if the moving parties and purchasing parties fail to agree to a value for the purchase.

 

First, the purchasing parties must give notice of their election to purchase the moving parties’ shares. Then if the parties fail to agree on the fair value of the shares, the purchasing parties must post a bond as security for the expenses of the moving parties. The amount of the bond should be enough to cover the moving parties’ expenses, including attorney’s fees.

opinion also reduces the issues remaining for the court if the parties do not reach agreement.

Once the appraisers file their report in court, the court proceeds to incorporate the purchase amount into an order in the alternative 1) requiring the purchasing parties to make that purchase by a certain set date, or 2) dissolving the corporation  Once payment, as required by the court, is made to the moving parties, they shall transfer their shares to the purchasing parties.  In the event that the payment is not made by that date, the court can then enter a judgment against not only the purchasing parties but also the surety or sureties that put up the bond on behalf of the purchasing parties. The dissolution will go forward and the corporation will be wound down. Any party which takes exception to this order can appeal it.

The Wilson Law Firm, a Professional Corporation,  at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 represents shareholders, directors and officers involved in corporate litigation.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at http://wilsonlawfirmca.com .

Corporate Dissolutions under Section 2000 – Part 1

California business litigation attorneyWilson Law Firm, A Professional Corporation, represents corporations and shareholder groups in corporate dissolution actions. Because there are a variety of dissolution actions that shareholders may file, as well as multiple responses a corporation or rival group of shareholders may make to such suits, we will discuss the topic of corporate dissolution in a series of blogs. This initial article focuses on the basics of resisting corporate dissolutions under Section 2000(a) of California’s Corporations Code.

Section 2000(a) provides a way for shareholders (known as the “purchasing parties”) facing the filing of either a suit for involuntary dissolution (a subsequent article discusses grounds for an involuntary dissolution) or a suit for voluntary dissolution initiated by shareholders of the corporation who own only 50% of the voting power to preserve the corporation by buying out the other shareholders.. Those initiating such a dissolution are known as the “moving parties”.

If the purchasing shareholders seek to buy out the moving shareholders per Corporations Code section 2000 and follow the required steps, the court hearing the case appoints three appraisers to value the corporation. Their cost to purchase will depend on the “fair value” of the shares being purchased on the “valuation date.”

“Fair value” is different from “fair market value,” which represents the value of shares as agreed to in an arms-length transaction between two or more parties who are not under unusual pressure to make the transaction.  Fair value, by contrast, represents the liquidation value of the shares. This fair value shall, however, take into consideration the possibility of the corporation continuing to be a going concern during the liquidation process.

Determination of the fair value shall be as of the “valuation date.”  This date is the date that the involuntary dissolution lawsuit under Section 1800 of the Corporations Code is initiated or the date, in the context of a voluntary dissolution, that the moving parties filed the voluntary dissolution action in court.

The net amount the purchasing parties must pay can be reduced by the amount of any damages that the moving parties incur if the court finds that the action for dissolution constitutes a breach of the moving parties’ shareholders’ agreement with the purchasing parties.  We will discuss this topic, as well in a subsequent post that will also point out an exception to this particular rule.

The Wilson Law Firm, a Professional Corporation,  at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 represents shareholders, directors and officers involved in corporate litigation.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at http://wilsonlawfirmca.com /.