By: Micaela L. Neal

Ron Miller Enterprises, Inc. v. Lobel Fin. Corp., Inc.,No. F076205, 2019 WL 1199523 (Cal. Ct. App. Feb. 15, 2019).

A frequent source of heartburn for lenders who find it necessary to collect upon a debt is the realization that the loan documents, including specifically the security agreement, are less than perfect –  not all of the “t’s” are crossed, and not all of the “i’s” are dotted.  Often a question arises as to whether the lender actually has the secured interest in collateral that it thought it had.  A recent decision out of California’s Fifth District Court of Appeal should alleviate some of that anxiety.

In its February 2019 decision, the Court found that a lender does not need to have one, perfect “security agreement” in order to have a valid security interest in the personal property or fixtures serving as collateral for a debt.  Instead, a security agreement and the parties’ intent to create a security interest can be ascertained through consideration of several different documents.

In order to create a security interest with respect to specific collateral, the Uniform Commercial Code requires: (1) the debtor signed/authenticated a security agreement adequately describing the collateral; (2) value has been given; and (3) the debtor has rights in the collateral.  The Court noted that no special wording or language is necessary to evidence an intent to create a security interest, but rather the creation of the interest depends on whether the parties intended to the transaction to have effect as security.  Additionally, to prove that a security interest exists, the lender can rely upon a number of documents, including the loan application, financing statement, promissory note, and other documents.

In the case at hand, the Court found that the lender (which had filed suit) and the car dealerships to which the lender loaned money had intended to create a security interest in certain vehicles.  Each time the lender made a loan advance, the dealership signed a separate collateral agreement identifying a specific vehicle, stating the advance was “for” that particular vehicle, requiring repayment of the advance upon sale of that same vehicle or by a date certain, and noting that if the vehicle is returned to lender for non-payment, the dealership would pay the deficiency balance when the lender disposed of the vehicle.  The Court found that all of this together indicated an intent to create a security interest.

Additionally, the lender took physical possession of the title certificates for the vehicles identified, which the Court found bolstered the evidence of an intent to create a security interest (although it was not necessary for the creation of a security interest).  Further, while the UCC-1 Financing Statements filed by the lender were insufficient alone to create a security interest, the Court found them to constitute further evidence of the intent to create a security interest. (As a side note, the Court found that UCC-1 Financing Statements are proper and sufficient where they only generally describe collateral, including describing categories of items.)

While it remains important for lenders to properly document their loan transactions and associated security interests, lenders can rest a little easier knowing that the totality of loan documents may be considered in determining whether a security interest exists.

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Micaela L. Neal is an attorney with Wanger Jones Helsley PC and practices in Fresno and Sacramento.  Her practice includes frequent lender representation, with an emphasis on disputes involving contracts, debt collection, creditor’s rights, bankruptcy, partnership dissolution, breach of fiduciary duty, and indemnity.  This article is intended to notify our clients and friends of changes and updates to the law and provide general information.  It is not intended, nor should it be used, as legal advice, and it does not create an attorney-client relationship between the author and the reader.

By: Micaela L. Neal

Many California employers likely recall the debacle that ensued in 2016 when the U.S. Department of Labor announced it was going to increase the salary threshold for the “white collar” exemptions to federal overtime compensation requirements under the Fair Labor Standards Act (“FLSA”).  The 2016 announcement provided that the salary basis would increase from $455 per week to $913 per week, which was enough of a jump to surpass even California’s salary threshold.  The result was a frenzy at the end of 2016 to reclassify workers not meeting the new salary requirement, only to have a federal court in Texas enjoin the new rule. Many diligent employers who had already reclassified their employees were punished for their diligence with resulting misclassification claims in the years that followed.

The DOL has now announced a new proposed rule that falls somewhere in between the existing rule and the 2016 proposal.  The salary threshold under the newly proposed rule is $679 per week (or $35,308 per year).  However, should this new rule go into effect, it will not affect California employers, as it does not surpass the existing California salary threshold, which is $45,760 per year for employers with 25 or fewer employees, and $49,920 per year for employers with 26 or more employees.  There is thus no need for a reclassification frenzy in California this time around.

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Micaela L. Neal is an attorney with Wanger Jones Helsley PC and practices in Fresno and Sacramento.  She regularly represents employers in wage and hour and other employment matters.  This article is intended to notify our clients and friends of changes and updates to the law and provide general information.  It is not intended, nor should it be used, as legal advice, and it does not create an attorney-client relationship between the author and the reader.

By: Giulio A. Sanchez

Wadler v. Bio-Rad Laboratories, Inc.,No. 17-16193 (9th Cir. Feb. 26, 2019)

The Sarbanes-Oxley Act (SOX) prohibits public traded companies from retaliating against employees who report conduct that the employees “reasonably believe” violates specific federal statutes regarding mail fraud, wire fraud, bank fraud, or securities fraud, any rule or regulation of the Securities and Exchange Commission (“SEC”), or Federal law relating to fraud against shareholders. Under the Foreign Corrupt Practices Act (“FCPA”), it is illegal to bribe a foreign official, fail to keep accurate and reasonably detailed books and records, falsify such books and records, or circumvent or fail to implement a system of accounting controls. Last month, the Ninth Circuit Court of Appeals, holding that the FCPA’s “books-and-records” provisions are not “rules or regulations” of the SEC, vacated a jury verdict against a products manufacturer (“Corporation”) that fired its general counsel (“General Counsel”) for reporting possible violations of the FCPA.

In 2011, an internal investigation discovered evidence that Corporation’s employees in Vietnam, Thailand, and Russia had violated the bribery and books-and-records provisions of the FCPA. The investigation also noted “red flags” in China, including “unexplained commissions” and a “history of widespread corruption” in the market, but did not find evidence of improper payments.

Yet, in June 2012, General Counsel received the results of an audit, which showed that Corporation owed its licensor millions in royalty obligations caused by missing sales documentation in China. Upon receiving a portion of the missing documents, the attorney working under General Counsel informed General Counsel that he thought the documents showed bribery.  Around this time, Counsel also learned about an “under the covers” scheme allegedly occurring in China, which involved padding Corporation’s shipments with ehttps://www.wjhattorneys.com/xtra products that were not included in import/export documentation.

Then, in January 2013, General Counsel discovered that employees in China had entered into unauthorized contracts with distributors.  These agreements were not accurate translations of approved distributor contacts, excluded FCPA compliance provisions, and contained unauthorized sales incentives.

On February 8, 2013, General Counsel delivered a memorandum to Corporation’s Audit Committee stating his belief that there were violations of the FCPA” in China. However, on June 4, 2013, a law firm firm hired by Corporation to investigate the contents of General Counsel’s memorandum reported that there was “no evidence to date of any violation or attempted violation – of the FCPA in China.”  Corporation fired General Counsel 3 days later.

General Counsel brought an action for compensatory and punitive damages against Corporation and its CEO, claiming that Corporation had violated SOX and California public policy by firing him for reporting possible violations of the FCPA.

Following the close of trial, the trial judge instructed the jury that the General Counsel had to prove that he engaged in “protected activity” under SOX, which depended on whether the conduct he disclosed violated a “rule or regulation of the” SEC.  The trial court’s instruction provided that “under ‘the rules and regulations of the [SEC] applicable to [Corporation],’ it was unlawful to (1) bribe a foreign official; (2) fail to keep accurate and reasonably detailed books and records; (3) knowingly falsify books and records; and (4) knowingly circumvent a system of internal accounting controls.”  The jury returned a verdict in favor of the General Counsel and against Corporation.

On Appeal, the Ninth Circuit held that the trial court incorrectly included all of the FCPA’s bribery and books-and-records provisions as “rules or regulations” of the SEC.  The Court explained that, because SOX uses the phrase “rules or regulations” in conjunction with an administrative agency, “rules or regulations” must refer to administrativeregulations and rules only, not statutes like the FCPA.  Further, the Court noted, Congress’s use of “any rule or regulation” of the SEC in the same list as “any provision of Federal law relating to fraud against shareholders,” suggests a difference between “rules or regulations” and the “law.” The “law,” not “rules and regulations of the [SEC],” encompasses statutes like the FCPA.

Despite the improper instruction, the Court sent the matter back to the trial court instead of reversing the verdict because a properly instructed jury could still reach a verdict in favor of General Counsel. Corporation had previously conceded that one of the FCPA’s “books-and-records” provisions is also a regulation of the SEC.  Like the FCPA, the SEC regulations prohibit the falsification of any book, record, or account.  Furthermore, the Court explained, SOX only requires that an employee “‘reasonably believed that there might have been’ a violation and that he [or she] was ‘fired for even suggesting further inquiry.’” Based on the evidence provided at trial, the Court concluded that a jury could find that General Counsel had a reasonable belief that Corporation falsified books and that General Counsel’s memorandum suggested further inquiry into whether Corporation falsified the books.

In addition to the SOX claim, the Court also addressed General Counsel’s public policy argument, which had been successful at trial. Tameny v. Atlantic Richfield Co.27 Cal.3d 167 (1980) allows discharged employees to bring an action for damages where the discharge violates a fundamental public policy that is “tethered to” a constitutional or statutory provision.  Corporation argued that the error as to the SOX instruction tainted the General Counsel’s Tamenyverdict.  However, per the Court’s holding, a plaintiff may bring a Tamenyclaim on the grounds that his or her discharge was retaliation for reporting SOX-protected activity, or for reporting a violation of the FCPA’s bribery and books-and-records provisions, irrespective of whether the latter is covered by the SOX. Accordingly, as General Counsel’s Tamenyclaim did not depend on the SOX claim, the SOX instructional error did not affect the Tamenyverdict.

Overall, the main takeaway is that SOX does not protect any and all reports of wrongdoing by a publicly traded company.  Employees seeking protection under SOX must have reported conduct reasonably believed to violate either the fraud statutes enumerated by SOX or a specific regulation of the SEC.

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Giulio A. Sanchez is an associate at Wanger Jones Helsley PC in Fresno, CA.  Giulio’s practice focuses on business and employment litigation.  This article is intended to notify our clients and friends of updates to the law and provide general information.  It is not intended, nor should it be used, as legal advice, and it does not create an attorney-client relationship between the author and the reader.