Some of the Legal Cases I Have Handled
Stu is particularly creative and curious. As a result he often comes up with winning solutions that wouldn't occur to other lawyers. Here are some examples:
Avoiding Probate the Hard Way
Maryann worked for years to make her small business a success. Finally she was making it happen, and she was able to buy her own house in the San Francisco area.
After several years of making her business her whole live, Maryann was able to calm down enough to look for a romantic partner to share her life with. And she found Carl. After a while they married and were very happy for almost two years.
One day Maryann became ill. At the hospital they determined her liver was failing. Even after a transplant, Maryann was not able to recover, and sadly died soon thereafter.
Being fairly young, Maryann had not made a will. The law said that her estate, being her house, would be divided equally between her husband and her mother. They were looking at probate fees of more than $25,000.
Under California law, property going to a surviving spouse does not have to go through a full-blown probate procedure. Instead there is what is known as a "spousal set-aside." This entails an abbreviated probate petition, a one-month wait and one court appearance – at a small fraction of the cost of a full probate. And the set-aside takes only a month or so instead of the year or two for most California probates.
In this case if the husband had been the sole heir, the house wouldn't have had to go through probate. So I talked to Maryann's mother. I told her that we could save her money and time if we claimed the husband was the sole heir, but that he had to pay the mother her half and treat it as if it has been a loan. She agreed. So we filed papers for the set-aside, requesting that the entire house be distributed to the husband, subject to repayment of a loan to the mother equal to the mother's half interest. All parties agreed, and the court went along with it. This saved the heirs many thousands of dollars in probate costs, and avoided the house being tied up in probate for many months.
Battling Partners
Steve and Dan were business acquaintances. They decided to start their own business. On my recommendation, because Steve did not know Dan well, Steve's corporation went into partnership with Dan instead of Steve personally.
To get the business going the partners put up their homes as collateral for a $250,000 loan.
After a few years the business was not doing as well as Steve would have liked, so he told Dan he wanted to close the business. Dan thought that business wasn't so bad, and if Steve were gone there would be twice as much for him. So Dan suggested that he buy Steve out, the only consideration would be Dan assuming all the loans of the business, including what was left on the loan they took out to get the business started.
Dan wrote up a brief contract to that effect, and Steve went away happy. Three years later Dan again contacted Steve. He wanted to rescind the deal, and demanded that Steve pay him half of all money he had spent for the last three years, without any credit for income received or inventory on hand – a total of $350,000.
"And if you don't go along with this," Dan said, "you'll lose your house. The mortgage is still on your house from that original loan, and I haven't made a payment on it in months."
Normally the advice would be to pay off the loan and sue Dan for your money back. I didn't like that idea because it would be expensive, and at the end of the day Dan might not have anything left for Steve to get.
Because Steve's corporation was Dan's partner, Steve's house was on the line as a guarantor, not a partner. Because of that he had certain legal rights. We went to the bank with a check sufficient to pay off the entire loan. But instead of simply paying it off, Steve bought the loan – in effect becoming the bank. The next day Steve filed foreclosure on Dan's house.
Moral: Do your job as thoroughly as you can, and you'll be helped by dumb luck.
Battling Partners Part 2
When foreclosure was noticed on Dan's house, he became desperate. He filed suit against Steve for the $350,000 he had demanded, plus for an injunction against the foreclosure.
Even though the parties had a written agreement, Dan was suing based on an alleged oral understanding not reflected in the written agreement. So a demurrer was filed on grounds of statute of limitations and the statute of frauds.
The demurrer was sustained with leave to amend. So Dan's lawyer re-wrote the complaint. And I filed another demurrer.
From the date a foreclosure is noticed, the property can be sold as soon as 111 days. Dan filed his complaint about a two weeks after foreclosure was noticed. The first demurrer was filed 30 days after that, with the hearing another 30 days later. The new complaint was filed two weeks after that.
So I filed another demurrer, with the hearing set after the 111 day period. Dan's lawyer realized he was screwed, so he filed a Chapter 13 bankruptcy for Dan, to half the foreclosure sale. And he filed a complaint in the bankruptcy court against Steve, attaching his superior court complaint and incorporating it by reference as his claim.
Dan's lawyer fancied himself a hotshot bankruptcy specialist who had worked for one of the large bankruptcy specialty firms, so he figured he knew it all. There is a statute that says when bankruptcy is filed there is an automatic stay in all proceedings against the debtor.
It did stay the foreclosure. But the lawsuit wasn't against the debtor, it was by the debtor. So the superior court action was not stayed. Not realizing that, Dan's lawyer didn't bother to oppose the demurrer, which, as a result, was granted without leave to amend.
I had judgment entered in superior court in favor of Steve. I then took the judgment to the bankruptcy court and filed a motion for summary judgment.
The hotshot bankruptcy lawyer called me and threatened to have me thrown in jail for violating the automatic stay. I told him to read my points and authorities. He called me a few days later and said, "ok, what do you want?"
Moral: Don't assume you know the law – always check.
The Muffler Man
Bill had his car towed to John's car repair shop to have the transmission replaced. John did the work and told Bill to come and pick it up.
Despite period warnings, Bill never came to get his car. So a year later John foreclosed on his lien and sold the car to pay the debt. There are different procedures for foreclosure of this kind of lien, depending on the value of the car. John felt that the car was worth less than $500 when it was towed into his shop, so he used the procedure for a car of that value.
No bidders showed up at the auction, and John bought it himself.
Soon thereafter John was served with a summons and complaint. Bills claimed that the car was really worth $15,000, and that the lien sale was improper.
I went to Sacramento and got the entire file for the car. It turned out that Bill had obtained the car the same way – someone owed him money and he foreclosed on a lien.
And right there in the file was a declaration by Bill, under penalty of perjury, that the car had a value of under $500.
Summary judgment was a formality.
Moral: leave no stone unturned.
The Missing Executor
A young woman died tragically. She was unmarried, had no children and, not considering at her age that she might die, had no will. By law her heirs were her parents.
The woman's parents were not US citizens and lived overseas. She had a brother locally, who was married and had children of his own.
The family decided that they would like the brother's wife to act as the administrator of the probate estate. The law allows family members and heirs to name the administrator or executor of the estate. So I filed papers with the court having the parents name their daughter-in-law as the estate's administrator.
The court probate examiner called me back and said the appointment wouldn't work. In order to appoint someone as an estate administrator, the person making the appointment had to be a US resident.
The upshot was that the Public Administrator, a function of the county, would otherwise be appointed as the estate administrator, at a cost to the estate and the family of nearly $50,000. Apparently this kind of thing happens fairly frequently, and the Public Administrator sees these estates as a good source of revenue.
The woman's brother was a US resident, and he was also a family member with the power to appoint a personal representative. So I resubmitted the papers to the court, with the brother appointing his wife.
The court called me back again and informed me that wouldn't work, either. In order to appoint someone as the estate administrator, I was told, the person making the appointment not only had to be a US resident, but had to be a beneficiary of the estate. The brother was a resident, but his parents, not he, were entitled to inherit the entire estate.
The Public Administrator was licking his lips.
But then I realized that the brother could become a beneficiary of the estate in place of his parents. The parents didn't have to die. But they could execute a document called a Qualified Disclaimer.
A Disclaimer is a document where someone refuses an inheritance, and it then passes as if the beneficiary had already died. I had the parents execute a qualified disclaimer of $100, which, by law, would then pass to the brother. I submitted that to the court, again with the appointment by the brother of his wife as the administrator.
And again I got a call from the court's probate examiner. But this time he said, "I've never seen anybody do anything like that before. I showed it to the judge, and he said nobody had thought to do anything like that in his 25 years on the bench. But he liked it, and he will allow the appointment."
So in the end the sister-in-law was appointed, and the family saved tends of thousands of dollars in probate fees.
A Preference Is Not Preferred
My client was a freight forwarder. One of their customers had filed bankruptcy. And the bankruptcy trustee wanted the forwarder to pay them $35,000.
The reason for the demand is what in bankruptcy law is called a "preference." Whenever someone is paid a bill in arrears and the payor files bankruptcy within 90 days, the money has to be paid back. And in the 90 days before the customer filed bankruptcy, they had paid the forwarder $35,000. While the customer had always paid within 30 days in the past, these payments were all more than 30 days after billing. So the trustee called them preferences.
But only about $3,500 of that actually went to the forwarder. The rest were charges imposed by and paid to the shipping company. The trustee had neglected to get the money back from the shipping company, and was trying to get it from the forwarder.
I researched the law, and it is pretty merciless in these cases. For example if someone buys a plane ticket from a travel agency, the agency then pays the airline. But if the customer files bankruptcy, the travel agent has to pay all that money back to the bankruptcy trustee, even though he didn't get to keep it and had already paid the airline.
The case looked bleak, but I kept looking.
It turns out there is an obscure federal law stating that the job of a freight forwarder is to arrange transportation of goods and nothing else. Because of that, the courts say that the shipper had no obligation to pay the shipping charges (the amount over $3,500) to the freight forwarder. Their only obligation is to pay them to the shipping company. The forwarder was only billing the customer as an accommodation, but the real contract was between the customer and the shipping company.
The customer legally didn't owe that money to the forwarder. It had every right to ignore the shipping company's part of the forwarder's bills, and pay the shipping company directly. As I said before, for there to be a preference a payment must be in arrears. In other words it has to be paid late. I argued that even if payment was more than 30 days after billing, it couldn't be later if it was never legally owed to the forwarder at all.
My argument carried the day. The forwarder had to pay back $3,500, but he got some of that back when the bankruptcy estate was liquidated and distributed. They were saved from having to pay an additional $31,500 that they never would have been able to get back.
Disability Insurance Tango
My client was a chiropractor who had taken out a disability insurance policy several years before. She had wanted a policy that would pay her $6,000 per month if she became disabled, and that's what she was told that she got.
When she did become disabled, however, she found out that what her agent had told her was not exactly the case. Instead of a $6,000 per month payment, she would get $2500 per month for overhead and $3500 per month for herself.
And the overhead payments would only last up to two years.
It appeared that the chiropractor's disability would last for less than two years. But in that time she would only be getting a bit more than half what she thought she had paid for.
During her illness, the chiropractor planned to refer her patients to someone else, who would pay her a referral fee. But she wouldn't be able to get any benefit from the overhead portion of her insurance.
I had the chiropractor enter into a lease/referral agreement with the other chiropractor. She would lease space in his office for $2,500 per month. She would also agreed to refer her patients to him during her illness. In exchange for the referrals the other doctor would pay her a flat fee of $2,500 per month, plus a percentage of fees he earned from her patients.
In other words, she was technically paying rent, but getting the money right back as a minimum referral fee.
In order to avoid possible problems with the insurer later, I sent the contract to the insurer for their review. And they approved it! So the chiropractor got the disability payments she thought she had contracted for after all.
Insurance Scam
A client with a small apartment building was being sued by a tenant. The tenant had tripped in her apartment as she walked across the floor with her lights out, and she blamed her landlord.
The client submitted the claim to his insurance company, and it was denied. He was told that he had contents coverage but not liability coverage.
The client had a similar experience with an insurance company a few years earlier, when they denied coverage. His lawyer sent many threatening letters and ran up a large bill, but in the end could not get them to agree to cover the claim.
This time I wrote a letter to the insurance company asking for coverage. But instead of threats, I wrote a low-key letter explaining that the client was not a native English speaker, and that he had been told by the agent who sold him the policy that it would include coverage for tort claims.
About two weeks later, without another letter or phone call from me, the insurance company informed me that, under the circumstances, they would cover the claim, as long as the client would be willing to upgrade his policy [and pay the premium] for the current year and in the future to include tort liability. Of course, the client was thrilled to do that.
The Missing Landlady
A young couple rented an apartment in a duplex in San Francisco's Mission district. The wife's mother was friendly with the elderly owner of the duplex, which is how they moved there in the first place.
The old lady only charged them $500 a month rent – a good but not absurdly low price at the time they moved in. The low price was in part due to the friendship of the old lady and the wife's mother, and in part because the couple agreed to do work to keep the place in good condition, and even to improve it.
Rent was normally paid in cash, at the landlady's request. And she kept no records of the payments. Perhaps she didn't want to report the income to the IRS. We don't know. But this situation went on for more than 15 years without a problem.
One day there was a knock on the tenant's door. A woman claimed to be the god-daughter of the landlady. The landlady, she said, was mentally incompetent, and had been taken away. Now she, the god-daughter, was the successor trustee in the old lady's trust, and as a result was then in charge.
As a result, in spite of the requirements of the rent control ordinance, she demanded that the tenants immediately increase their rental payments to more than $2,000 per month. I told the tenants that they had no legal obligation to pay the increased rent, and we communicated that to the new landlady.
Within a few days the tenants were served with eviction papers. The claim was that they hadn't paid rent at all over the last four years, the limit of the statute of limitations. Of course, we sued the landlady back for harassment, wrongful eviction and to establish that all required rental payments had, in fact, been made over the years.
I sent a discovery request to the landlady's lawyers asking on what basis they claimed that no rent had been paid. They stated that they had found no records showing rent had been paid. That was it. The old lady, of course, couldn't and wouldn't testify in their favor.
Their evidence was easily contradicted. Not only would the tenants testify that they had, in fact, paid rent, but on several occasions the old lady had accepted a check. In addition, the wife's mother, friend of the old lady, had been present on a number of occasions during those four years, and would testify to that.
In short, we had lots of evidence that rent had been paid, and they had none that it had not. We were bound to win on that basis, and I told the other lawyer so. And he had to agree with me.
"But," he said, "ìI have another theory." He said that the old lady was mentally incompetent now, so she might have been 15 years before when she rented the place to the young couple. If that were the case, the rental agreement could legally be canceled, and the tenants evicted.
"Your client is the god-daughter, right?" I asked. "That's right," he replied. "And the trustee of her trust. Not only is she the trustee, but she's the sole beneficiary when the old lady dies."
"And just how long ago was the trust drafted?" I queried.
"Oh, about six or seven years ago." he said.
"So your only real claim that the tenants can be evicted is that the landlady was incompetent 15 years ago when they entered into their rental agreement?"
"That's right."
"But you know," I added, "that if you win on that ground, your client loses. Because if she was incompetent 15 years ago, she was incompetent six or seven years ago, which would make her trust invalid. That would mean your client is the trustee of nothing. Not only that, since she is not a blood relative, when the old lady dies she would inherit nothing instead of everything."
"Oh ... good point," he blurted out.
The next day we received an offer for the landlady to pay the tenants $35,000 if they would move voluntarily. Which they were more than happy to do.
The Unpaid Employee
After Julie left her job, her employer didn't pay her a $4,500 commission she was entitled to. And she filed a claim with the California Department of Labor claiming the employer owed her that much. A month or two later, when the Department still hadn't gotten to her claim, she consulted me.
In addition to her final commission, there were other partial commissions her employer had failed to pay her in the past, claiming for some reason she was only entitled to part. In addition her company didn't pay her for the vacation time she had not taken over the prior year.
For failure promptly to pay wages when an employee leaves or is fired, California law imposes a penalty on the employer of one day's wages for every day the payment is late, up to 30 days.
I filed an amendment to Julie's claim at the Department of Labor, asking for the balance of other unpaid commissions, for payment for unused vacation time, and for the statutory penalty of 30 days of wages.
At the hearing several months later, the employer finally had talked to a lawyer, and admitted they didn't have a leg to stand on. In the end they paid $12,000, nearly three times what Julie had originally asked them for.
