Fresno Lawyer – Randolf Krbechek

A recent study published by the U. C. Giannini Foundation of Agricultural Economics reports an increase in the number of agricultural employees in California.  Using data from the Employment Development Department, the authors conclude “since 1990, average employment in [California] agriculture rose 10%.”

To support their conclusion, the authors “extracted all SSNs reported by agricultural employers to EDD in 2007 and 2012, and tabulated their farm and nonfarm jobs in California.”

The report states:

●    “Hired workers do most of the work in labor-intensive FVH agriculture.  According to the National Agricultural Workers Survey, over 85% of the state’s farm workers were born in Mexico.”

●    “Since 2010, average employment by crop support establishments has been rising by 10,000 a year.”

●    “Over 60% of crop workers employed on the state’s crop farms have been unauthorized for the past decade – 10 percentage points higher than the U.S. average of 50%.”

Here’s the part that reminds you why we have persistent poverty in communities with an agricultural-based economy, such as Fresno County:

●    “Four counties – Kern, Fresno, Monterey, and Tulare – had over 40% of all primary farm workers”

●    “Average earnings for all workers with at least one farm employer were $18,000 in 2012,

●    “while average earnings for primary farm workers, defined as those who had their maximum earnings in agriculture, were $15,000.”

Brandon Hooker, Philip Martin, and Andy Wong, “California Farm Labor: Jobs and Workers,” in Agricultural and Resource Economics Update, July 2015 (U. C. Giannini Foundation of Agricultural Economics)

The federal courts continue to narrow the circumstances in which a person can be denied relief in bankruptcy court based on breach of fiduciary duties.  In Double Bogey, LP v. Enea, ___ F.3d ___ (9th Cir. July 22, 2015), an unpaid creditor sought to invoke nondischargeability on the grounds that the debtor, as the alter ego of his corporation, owed fiduciary obligations to the unpaid creditor.

The Ninth Circuit disagreed, holding that “the mere fact that state law places two parties in a relationship that may have some of the characteristics of a fiduciary relationship does not necessarily mean that the relationship is a fiduciary relationship under 11 U.S.C. § 523(a)(4).”

Explained the court, “partnership law clearly and expressly imposes trust-like obligations on partners, explicitly outlining partner’s fiduciaries duties and identifying the assets of the partnership as the trust res over which partners are fiduciaries.”

There is a different result with respect to corporations.  “California’s alter ego doctrine does not explicitly create a trust relationship, either by raising existing legal duties or otherwise … Instead of creating, enforcing, or expounding on substantive duties, California’s alter ego doctrine merely acts as a procedural mechanism by which an individual can be held jointly liable for the wrongdoing of his or her corporate alter ego.”

Thus, “A doctrine which merely supplies an additional judgment defendant after liability exists does not clearly and expressly impose trust-like obligations prior to the creation of that same liability.  Therefore, we cannot conclude, as a matter of federal law, that California’s alter ego doctrine establishes that a corporate debtor’s alter ego is a trustee in that strict and narrow sense required by the Code.”

As a result, the individual, despite a finding of alter ego liability under state law, was not denied his discharge in bankruptcy. “Common-law doctrines – like California’s alter ego doctrine – rarely impose the trust-like obligations sufficient to create a fiduciary relationship under Section 523(a)(4).  Indeed the kinds of trusts typically created by operation of law – constructive, resulting, or implied trusts – never satisfy Section 523(a)(4)’s rigorous requirements.”

Double Bogey, LP v. Enea, ___ F.3d ___ (9th Cir. July 22, 2015)

Several categories of debt are excluded from relief under the Bankruptcy Code, meaning that a debtor cannot obtain a discharge for these debts.

In Bos v. Board of Trustees, ___ F.3d ___ (9th Cir. 2015), the Ninth Circuit considered whether an employer’s contractual requirement to contribute to an employee benefits fund made the employer a fiduciary of unpaid contributions.  The court held that there was no such relationship for purposes of bankruptcy law.

The case involved claims by the Carpenters’ Union against Gregory Bos and his corporation.  Mr. Bos agreed that his corporation would be bound by the Carpenters’ Master Agreement.  The employer was required to make monthly payments to the union’s trust fund based on hours of work.

The essential facts were undisputed.  Mr. Bos had full control over the finances of his corporation.  Mr. Bos had the authority to determine whether payments were made to the union or to other creditors.  Even more, Mr. Bos signed a promissory note for the amount owed to the union.

Section 523(a)(4) of the Bankruptcy Code provides a debtor may not discharge debts due to “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”  Held the Ninth Circuit, “we have consistently held unpaid contributions by employers to employee benefit funds are not plan assets.”

Continuing with its “limited approach … in recognizing fiduciary status,” the Ninth Circuit held that unpaid contributions owed to the union were contractual obligations, not obligations arising from a fiduciary relationship involving control over property belonging to a third person.

The obligation to make payments “is in fact more appropriately classified as a contractual right to bring a claim against the employer for delinquent payments… Even if the language in the trust agreements in the promissory note sufficed to turn unpaid contributions into some form of plan assets, neither [the the corporation] nor [the individual debtor] had control over such asset prior to nonpayment.”

Therefore, the court held that the debtor did not act as a fiduciary under 11 U.S.C. section 523(a)(4).

Bos v. Board of Trustees, ___ F.3d ___ (9th Cir. 2015)

It seems that we’re not afraid to be packin’ down on the ranch.

Here’s a thorny problem.  The trial court found that the seller of a house lied to the buyer.  The buyer sought the remedy of rescission.  The trial court denied relief, in part because of events that occurred with the passage of time.

The court of appeal disagreed in Wong v. Stoler (June 23, 2015) __ Cal.App.4th ___, saying that equity favored the buyers.  The case will embolden aggressive plaintiffs’ attorneys.  Read on.

Let’s start with the facts.  The buyers purchased a 4,400 square foot house in May 2008 for $2.35 million.  The house was located at 2 Sudan Lane, San Carlos.  The sellers misrepresented the sewer hookup, and did not disclose that it was not a city connection.  The buyers first learned of the private sewer system in November 2008.

Here’s an important fact.  “By this time, much of the home was down to the studs as a result of the demolition work.”  By the time of trial, “the court reasoned that the [sellers] had purchased a new home over four years ago and had spent $100,000 in improving it, and the [buyers] had spent $300,000 improving the property and had removed a significant amount of the original landscaping.”

The court found that the sellers acted with reckless disregard in negligently misrepresenting the material facts about the true nature of the sewer system. “The court further found that the misrepresentations affected the property’s value and that the [buyers] would not have bought the property if they had known about the private sewer system.”

Nonetheless, the trial court determined that, given the “burden that rescission would place on the [sellers],” rescission was neither a fair nor appropriate remedy.

The court of appeal saw no reason not to handle the sellers with rough hands.  Explained the court,”Under California law, negligent misrepresentation is a species of actual fraud and a form of deceit … Thus, a single misstatement as to a material fact, knowingly made with intent to induce another into entering the contract, will, if believed and relied on by that other, afford a complete ground for rescission.”

Now comes the hammer. “Where defendant has been guilty of fraudulent acts or conduct which have induced the agreement between him and the plaintiff, courts of equity are not so much concerned with decreeing that defendant receive back [ ] identical property [ ] as they are in declaring that his nefarious practices shall result in no damage to the plaintiff.”

“Persons who attempt to secure profits by deceitful means may not confidently expect to receive special consideration from courts of equity … If his fraudulent acts have resulted in disastrous financial consequences to himself, it is no one’s fault but his own, and he must sustain the necessary inconveniences thereby entailed.”

Ouch.  “We recognize that changes have been made to the property and years have transpired.  But the changes in the property were commenced before the [buyers] learned of the [sellers’] misrepresentations, and much of the time that has elapsed has been due to the [sellers] contesting the rescission … While untangling the deal may not be easy, we are unaware of any insurmountable obstacles.”

“Thus, we remand the case to the trial court to effectuate the Wongs’ rescission … The trial court’s goal [ ] in fashioning this remedy must be, to the extent possible, to restore the Wongs to their status quo ante.”

Is this practical?  The transaction occurred in May 2008.  The trial court judgment was entered in early 2013, and the decision of the court of appeal was entered in June 2015.  How is the trial court going to be able to unwind seven years?  How are the parties going to unwind seven years?  Should we simply refer to the property as “Bleak House”?

When you read the cases, it’s hard not to reach the conclusion that the courts view a liability release agreement with distrust. A new high water mark in this analysis was reached in the recent decision in Etelvina Jimenez v. 24 Hour Fitness USA, Inc. (June 9, 2015) __ Cal.App.4th ___. In Jimenez, the court relied on a manager’s non-verbal gestures to defeat a release from liability.

Etelvina Jimenez joined a 24 Hour Fitness health club in Sacramento in 2009. In 2011, she suffered severe head injuries when she fell backwards off a moving treadmill and hit her head on a nearby exercise machine.

When plaintiff joined the gym, she was required to sign a membership agreement. However, Ms. Jimenez could not read or speak English. The manager “pointed to his computer screen to a figure, $24.99, indicating the membership fee, and made pumping motions with his arms like he was exercising.”

According to the court, plaintiff understood the “physical gestures to mean that if she paid that amount, she could use the facility.” Added the court, the manager “did not point out the release to Etelvina or make any other indications about the scope of the agreement aside from his gestures mimicking exercise and the fee.”

Etelvina believed she signed an agreement only to pay the monthly fee of $24.99.

The court held that the act of pointing at the computer screen and making a pumping motion could constitute a nonverbal gesture giving rise to a claim for affirmative misrepresentation.

Let’s say that one more time: the contract was written in English. It contained a release from liability clause. Plaintiff did not speak or read English. Nobody compelled plaintiff to sign up at 24 Hour Fitness – she could have chosen other gyms. The manager pointed at the dollar figure on his screen and “made pumping motions with his arms.” Based on this non-verbal communication, the court held that a reasonable jury could infer a misrepresentation by the manager, thereby negating the release agreement.

Explained the court, “under the circumstances, already ripe for misrepresentation overreaching, [the manager’s] gestures and pointing may well have misrepresented the nature of the document [plaintiff] signed. This is an inherently factual question for a jury to decide.”

For the life of me, I cannot understand how pointing at a dollar figure on a computer screen and pumping one’s arms could be construed as misrepresenting the terms of a contract that plaintiff was unable to read. Perhaps the legislature should revisit this issue. Perhaps gym membership contracts, like auto sale contracts, should have mandatory Spanish versions for Spanish-speaking customers.

But that’s a question for the legislature, not for the courts. Here, we have a court making a policy decision because it simply did not want to enforce the release clause.

The law is filled with rules.  Rules give guidance to judges.

Sometimes the legal result does not square with the facts.  In Estate of Britel (2015) 236 Cal.App.4th 127, “the court admitted into evidence a DNA test showing a 99.9996 percent probability that the decedent (Amine Britel) was A.S.’s (the child’s) father.”  Yet the court held that the child was not entitled receive any property under the law of intestate succession.  How did this happen?

When a person dies without a will, the judge will look to the law of intestate succession to determine who will receive the decedent’s property.  Explained the court of appeal, “Intestate succession is governed entirely by statute.  The heirs of a person are those whom the law appoints to succeed at the decedent’s death.”

“As relevant here, if there is no surviving spouse or domestic partner of an intestate decedent, the intestate estate passes to the decedent’s ‘issue’ … For the purpose of determining intestate succession, the relationship of parent and child exists between a person and the person’s natural parents, regardless of the marital status of the natural parents.”

Sounds promising for the child.  But here is where the argument ran ashore.  The mother, Jackie Stennett, “contends biological parents are, by definition, natural parents within the meaning of [Probate Code] section 6450.  Not so.”

Instead, when child born out of wedlock wants to show he is the natural child of a man who died without leaving a will, the statute requires “clear and convincing evidence that the father has openly held out the child as his own.”  A paternity test administered after death is not sufficient by itself.

Explained the court, “We conclude [the statute] requires an affirmative representation of paternity that is unconcealed and made in open view.  But although the representation must be a public one, in the sense of being made in open view, the statute does not require an announcement to the world, an official action, or an affectionate fatherly intent.  Each case depends upon its own circumstances.”

The court held that Jackie Stennett [the mother] failed to prove “that Amine openly held out A.S. as his own child.”  Hence, the legal result, which does not square with the facts.

The federal bankruptcy courts publish detailed statistics on bankruptcy filings.  California has four federal judicial districts, with Fresno located in the Eastern District.

The 2011-2014 bankruptcy filings for the Eastern District of California show a substantial decline, as shown in this table:

What does this mean for the future?  Hard to tell, as the Central Valley remains in the grip of a years-long drought.  Agricultural revenues will remain depressed, which will not help the local economy.

Case law reflects a tension in the interpretation of fiduciary duties. One camp favors a “I know it when I see it” approach, while the more rigorous jurists seek to discern the basis for imposition of such liability.

This tension is on full display in the recent en banc decision in U.S. v. Milovanovic, ___ F.3d ___ (9th Cir. April 24 2012). The majority decision found liability under the Mail Fraud Statute, 18 U.S.C. § 1341, based on the holding in Skilling v. U.S., 130 S. Ct. 2896 (2010).

Explained the Ninth Circuit, “A close examination of the Supreme Court’s opinion in Skilling reveals that embedded in the Court’s holding – ‘that § 1346 criminalizes only the bribe-and-kickback core of the pre-McNally case law’ – is the implication that a breach of a fiduciary duty is an element of honest services fraud.”

The Ninth Circuit then reached for soft law, holding that “a fiduciary duty for the purposes of the Mail Fraud Statute is not limited to a formal ‘fiduciary’ relationship well-known in the law, but also extends to a trusting relationship in which one party acts for the benefit of another and induces the trusting party to relax the care and vigilance which it would ordinarily exercise.”

Truly, that’s about as soft and broad a definition of a fiduciary relationship as is possible.  Continued the court, “Because allegations in the indictment, which we must take as true for the purposes of this appeal, assert that the State, through outsourcing the work to private contractors, reposed a special trust in Lamb and Milovanovic to ensure the integrity of the testing of CDL applicants, and thus relied on the provision of their honest services in administering the tests and certifying the results, we hold that a jury could find that Milovanovic’s and Lamb’s conduct falls within the ambit of §§ 1341 and 1346.”

Remember, this is the same Ninth Circuit that held that, when a raisin grower is required to turn over a portion of his crop to an agency of the federal government, there is no “taking without just compensation” for Constitutional purposes.  Horne v. U.S. Dept. of Agriculture, ___ F.3d ___ (9th Cir. July 25, 2011). The Horne opinion is certainly a low point in the scholarly tenure of Judge Michael Hawkins.

Back to U.S. v. Milovanovic. The concurring opinion by Judge Richard Clifton drives home the casual nature of the majority’s analysis. Judge Clifton begins by “repeat[ing] an observation made nearly 50 years ago:

“‘Fiduciary’ is a vague term, and it has been pressed into service for a number of ends.  My view is that the term `fiduciary’ is so vague that plaintiffs have been able to claim that fiduciary obligations have been breached when in fact the particular defendant was not a fiduciary stricto sensu but simply had withheld property from the plaintiff in an unconscionable manner.”

Judge Clifton continues.  “’Fiduciary’ has not gotten any clearer in the half-century since then, and our decision here does not help.  We accede to the agreement of the parties that the Supreme Court defined a breach of fiduciary duty as an essential element required for honest services mail fraud.  But we conclude that ‘fiduciary’ here does not mean a ‘formal, or classic, fiduciary duty.’  Rather, we hold that a fiduciary duty as an element of mail fraud ‘is not limited to a formal fiduciary relationship well-known in the law.’”

Here’s where Judge Clifton shines. “But we should not muddy the meaning of ‘fiduciary’ any further by employing it here to mean something other than ‘fiduciary.’  By doing so we further devalue the term and invite that much more confusion as to what the word means in other situations.”

“In some contexts, after all, the term ‘fiduciary’ is intended to mean ‘fiduciary,’ not our variation on that concept.  We should instead simply define the essential element for honest services mail fraud as the trusting relationship described in the majority opinion and leave the word ‘fiduciary’ out of it.”

The concurrence has the better of the argument. A published opinion that establishes a soft, murky definition for the essential term “fiduciary” does no benefit to the development of the law.

U.S. v. Milovanovic, ___ F.3d ___ (9th Cir. April 24 2012).

The recent decision in Araiza v. Younkin (Sept. 30, 2010) 188 Cal.App.4th involved the disposition of a bank account following the death of the parent.  Under the law of wills, the beneficiary named on the account would have taken the funds, regardless of contrary language in the will.

Ah, but the mysterious law of estate planning trusts.  Instead of providing a decision that is consistent with probate law, the court broke rank and gave a contrary decision based on its interpretation of the trust agreement.

Folks, this is dumb.  The artificial dichotomy between the law of wills and the law of trusts, at least when the trust is simply a will substitute, must change.  We need conformity in the law, so the rules and outcomes are in conformity.

Here is the decision.  “In 2001, Mrs. Howery opened a checking account and a savings account at the Bank of America. Although she named [Lori Younkin] as the beneficiary of the savings account, Howery was the only person authorized to withdraw funds from it.”

To my analysis, this is a contract-based question.  Lori Younkin is the named beneficiary on the bank account, and should take the funds at death.

“In August 2005, Mrs. Howery established the Lucia Howery Living Trust . . . The Schedule listed ‘Savings accounts’ as among the categories of personal property delivered to the trust.”

Mrs. Howery died on April 29, 2009. The Trust Agreement provided that Mrs. Howery gave the Bank of America account to Gabriella Reeves.

On appeal, Lori Younkin contended that “she was the sole owner of the savings account because Mrs. Howery named her as the beneficiary and never changed that designation in a manner authorized by Probate Code section 5303.”

That is a great argument under the law of wills.  But this court was determined to muddy the waters, by creating an artificial distinction involving estate planning trusts.

Explained the court, “The type of savings account Howery established is referred to in the Probate Code as a ‘Totten trust’ account. The term Totten trust describes a bank account opened by a depositor in his or her own name as trustee for another person where the depositor reserves the power to withdraw the funds during his or her lifetime. If the depositor has not revoked the trust then, upon his or her death, any balance left in the account is payable to the beneficiary.”

Bingo.  End of analysis.  “Subdivision (b) lists the methods by which the terms of a multiple-party account may be modified. It provides: ‘Once established, the terms of a multiple-party account can be changed only by any of the following methods: [¶] (1) Closing the account and reopening it under different terms. [¶] (2) Presenting to the financial institution a modification agreement that is signed by all parties with a present right of withdrawal.’”

Not so fast.  “This narrow reading of the statue, however, fails to harmonize it with section 5302. Section 5302, subdivision (c)(2) provides that sums remaining on deposit in a Totten trust after the death of the sole trustee belong to the person named as beneficiary, ‘unless there is clear and convincing evidence of a different intent.’”

“Here, although the signature card for the savings account named appellant as the beneficiary, there is clear and convincing evidence that Mrs. Howery had a ‘different intent’ at the time of her death. She established a living trust that expressly stated her intention to give the savings account to Gabriella Reeves. The trial court properly relied on the living trust to find that Mrs. Howery intended to change the beneficiary of the her Totten trust from appellant to Gabriella Reeves. Because the change was made by a living trust rather than by a will, it is not invalidated by section 5302, subdivision (e).”

According to this court, a change in beneficiary designation for a Totten trust cannot be made by Will, but it’s ok to make such a change by way of an estate planning trust.  There is no substantive difference in result between a will and an estate planning trust.  Both serve the same purpose.  The procedural  difference is that a Will involves probate, while an estate planning trust is handled in private, without court supervision.  The court provided a careless analysis.

Araiza v. Younkin (Sept. 30, 2010) 188 Cal.App.4th 1120, 2010 Daily Journal D.A.R. 15,225