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Today, Pillsbury attorneys Matthew Burke and Craig Becker published their client advisory titled Court of Appeal Holds Transfer Tax Applies to Legal Entity Changes in Ownership. The Advisory discusses the 2nd District Court of Appeal decision in 926 North Ardmore Avenue, LLC v. County of Los Angeles. The Court of Appeal held that Proposition 13 changes in ownership prompted by transfers of legal entity interests should also be characterized as “realty sold,” resulting in the imposition of realty transfer taxes under the California Documentary Transfer Tax Act in cases even where no real property interests are transferred at all.

If you have any questions about the content of this blog, please contact the Pillsbury attorney with whom you regularly work or Matthew Burke or Craig Becker, the authors of this blog.

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Governor Edmund G. Brown Jr. declared the drought in California a state of emergency on January 1, 2014 and directed state officials to take all necessary actions to prepare for these drought conditions. In response, the California Contractors State License Board (CSLB), is doing its part, began expediting applications for C-57 Well Drilling Contractors and encouraging Class “A” General Engineering Contractors that are authorized to perform water supply projects (but not well drilling unless they possess a C-57 Well Drilling classification) to add the C-57 classification to their license. More recently, the CSLB voiced its concern that there may be “price gouging” “occurring in some California counties where the drought has taken a serious toll on individual residential water wells,” identifying by name Tulare and Kern counties. It reminds all contractors and, in particular, C-57 Well Drilling and C-61/D-21 Machinery and Pumps contractors to make sure the prices they are charging are within legal guidelines following the declaration of a state of emergency.

The CSLB cautions that “[t]he marketplace demand for drilling services is not justification for raising prices for the same services that would have been charged prior to the declared state of emergency.” It cites to Subdivision (a) of California Penal Code § 396, which states, in part: “While the pricing of consumer goods and services is generally best left to the marketplace under ordinary conditions, when a declared state of emergency results in abnormal disruptions of the market, the public interest requires that excessive and unjustified increases in the prices of essential consumer goods and services be prohibited.”

With specific respect to contractors, Subdivision (c) of Penal Code § 396 states:

“Upon the proclamation of a state of emergency resulting from an earthquake, flood, fire, riot, or storm declared by the President of the United States or the Governor, or upon the declaration of a local emergency resulting from an earthquake, flood, fire, riot, or storm by the executive officer of any county, city, or city and county, and for a period of 180 days following that declaration, it is unlawful for a contractor to sell or offer to sell any repair or reconstruction services or any services used in emergency cleanup for a price of more than 10 percent above the price charged by that person for those services immediately prior to the proclamation of emergency. However, a greater price increase is not unlawful if that person can prove that the increase in price was directly attributable to additional costs imposed on it by the supplier of the goods, or directly attributable to additional costs for labor or materials used to provide the services, provided that in those situations where the increase in price is attributable to the additional costs imposed by the contractor’s supplier or additional costs of providing the service during the state of emergency, the price represents no more than 10 percent above the total of the cost to the contractor plus the markup customarily applied by the contractor for that good or service in the usual course of business immediately prior to the onset of the state of emergency” (emphasis added).

A violation of Penal Code § 396 is a misdemeanor and could result in county jail imprisonment for up to one year or by a $10,000 fine, or both. Such a violation would also constitute an unlawful business practice and unfair competition under California Business & Professions Code §§ 17200 et seq. and could result in additional civil penalties.

Additional Resource: California Expediting Well Drilling Licenses During Drought

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Recently, a California federal district court, in Taylor v. Shippers Transport Express, Inc., found that a class of current and former truck drivers had been misclassified as independent contractors and not employees by Shippers Transport Express, Inc. (STE). In granting the drivers’ motion for partial summary judgment, the court found that, notwithstanding that the drivers and STE’s agreement contemplated that the drivers were independent contractors, the drivers were STE employees premised, in part, on its findings that STE not only retained the right to exercise control over the manner and means of the truckers’ accomplishing the desired results, but it also exercised this control. The order was issued in Taylor v. Shippers Transport Express, Inc., CV 13-02092 BRO (PLAx) (C.D. Cal. September 30, 2014).

Plaintiffs represent a class of truck drivers operating out of STE’s yards in Carson and Oakland, California; Plaintiffs’ agreements with STE confirmed that they were independent contractors. STE is a trucking and logistics company that provides land transportation services for ocean containers to and from international ports in Los Angeles and Oakland, California; STE’s logistical operations, including scheduling the pick-up and delivery of containers, are performed by regular employees. Plaintiffs filed suit against STE, alleging employment-related claims, and later amended the complaint to add SSA Marine, Inc. (SSA). The amended complaint alleges seven causes of action under California law; six of the causes of action are premised on alleged violations of California’s Labor Code. On April 28, 2014, Plaintiffs filed a motion for partial summary judgment raising the sole issue that STE cannot, as a matter of law, satisfy its burden of establishing that the class members are independent contractors, as STE alleges in its second affirmative defense. Defendants opposed the motion and also filed a motion for summary judgment. The Court heard oral argument on both motions on September 29, 2014, and the Court issued its ruling on September 30, 2014, granting Plaintiffs’ motion for partial summary judgment and denying the Defendants’ motion for summary judgment.

In its order, the Court noted at the outset that, while typically determining whether an individual should be considered an employee and not an independent contractor is involves a factual inquiry that should not be determined on summary judgment, the Plaintiffs had established a prima facie case of employment and that they were employees under the common law analysis set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (Cal. 1989). The Court first focused its analysis on the amount of control that STE retained the right to exercise over the drivers. Relying on the express language in the Plaintiffs’ agreements with STE, the Court found that “STE retains the right under these provisions to terminate a Driver immediately if he or she breaches any provisions of the transportation agreement.” It further found that there was no limitation on STE’s right not to renew the Drivers’ contracts; instead, STE could decide not to renew the contract for any reason or for no reason at all. It ultimately found “that this power evidences a right to control that is ‘a substantial indicator of an at-will employment relationship.'” In addition, [a]fter considering the undisputed facts in the record, the Court determine[d] that the degree of control exercised by STE over the Drivers demonstrates that it has ‘retained all necessary control over the drivers’ work.'”

Applying the secondary Borello factors, the Court found the facts “militate in favor of finding an employment relationship to exist between STE and the Drivers;” the Borello factors, as applied in Air Couriers International v. Employment Development Department, 150 Cal. App. 4th 923 (Cal. Ct. App. 2007), include “some drivers had worked for the courier company for a number of years, which was ‘another factor inconsistent with independent contractor status’; the drivers were performing an integral and entirely essential aspect of the courier company’s business; the drivers were required to use the company’s forms in order to be paid; the drivers were paid on a regular schedule; the courier company sent the drivers to each delivery, provided deadlines, and required them to notify the dispatchers when the delivery was completed; the courier company provided placards for the drivers’ vehicles; the drivers delivered to the courier company’s customers, rather than to their own customers; and the courier company set the rates that were charged to the customers, billed the customers, and collected the payment.”

It also found that, in light of light of Dilts v. Penske Logistics, LLC, 12-55705, 2014 WL 4401243 (9th Cir. Sept. 8, 2014), Plaintiffs’ claims alleged in their first amended complaint are not sufficiently “related to” prices, routes, or services to be preempted by the Federal Aviation Authorization Administration Act, denying Defendants’ motion for summary judgment on this basis. This order follows the California Supreme Court’s recent order in The People ex rel. Kamala D. Harris v. Pac Anchor Transportation, Inc., Case No. S194388 (July 28, 2014), affirming that California’s unfair competition law, Cal. Bus. and Prof. Code §§ 17200 et seq., is not preempted by federal law, which appears to follow the Dilts decision; Supreme Court remanded the matter to the trial court to address the merits.

Additional Resource: U.S. Department of Labor, $10.2M awarded to fund worker misclassification detection, enforcement activities in 19 state unemployment insurance programs (Sep. 15, 2014); Employees and Independent Contractors and Day Laborers … Oh My!; Kansas Department of Labor, Independent Contractor or Employee Fact Sheet (Jun. 2012)

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The Indianapolis Department of Code Enforcement (DCE), which is responsible for licensing persons and business organizations engaged in construction activity in the Consolidated City of Indianapolis, Marion County, is offering a new electronic submittal option for contractors’ license renewal applications.

Indianapolis DCE’s contractor license renewal process is as follows:

  • Email your renewal application, insurance certificated and bond to DCE
  • DCE staff will review your renewal application, update your information and add the appropriate fees to your contractor’s license ~ if additional information is required, you will receive an email identifying the additional information that is needed to process your renewal application
  • Once its review of your renewal application is complete, you will receive an email from the DCE confirming that it is ready to re-new your license ~ the title of the email will be “Your License is Ready to Re-Issue” and it will include a link to the DCE website where you may pay the renewal fee
  • You may pay the renewal fee online with a credit/debit card or eCheck
  • After you pay the renewal fee, you will receive an email with your license card attached

This new process is expected to streamline contractors’ license renewals and to avoid licensees having to go into a DCE office to renew their contractors’ licenses.

If you have questions, contact the DCE or call (317) 327-1291.

Additional Resource: Indianapolis Department of Code Enforcement, Contractor License

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On October 6, 2014, the U.S. Court of Appeals for the Eleventh Circuit issued its ruling in the case of Adinolfe, et. at. v. United Technologies Corporation. The Court of Appeals reversed the decision of the lower court to dismiss, with prejudice, two toxic tort cases, involving hundreds of homeowners, at the pleading stage. United Technologies Corporation (UTC) is responsible for the operations of Pratt & Whitney, which operated an aircraft and rocket engine manufacturing plant that the plaintiffs allege released large quantities of toxic materials that migrated through groundwater to the properties of the plaintiffs, damaging their properties and even causing personal injuries.

The District Court presiding judge used a “Lone Pine” order which is used to manage discovery to require the plaintiffs in mass tort cases to provide prima facie factual support, including expert testimony, for their claims or run the risk of having those claims dismissed. See Lore v. Lone Pine Corp., No. L-33606-85, 1986 WL 637507, at *3-4 (N.J. Sup. Ct. Law Div. Nov. 18, 1986). The Court of Appeals decided that a Lone Pine order should not be used as a pre-discovery case management tool before the District Court judge rules on the legal sufficiency of a complaint, and therefore the decision to dismiss must be reversed.

Among the matters reviewed by the Court of Appeals was the District Court’s conclusion that the plaintiffs could not state a claim without alleging that the contamination on their property exceeds the Florida numerical regulatory safe drinking water standard. UTC argued that under Florida law, only contamination above the applicable regulatory standard is actionable, and cited a 2005 decision of a Florida intermediate state appeals court. However, the Court of Appeals held this was an erroneous statement of Florida law: “In sum, while the applicable regulatory standard may be instructive for a trier of fact as evidence of what the government deems safe for the public, it does not amount to an all-purpose benchmark for determining as a matter of law how much one can reasonably contaminate another’s private property, much less a threshold issue that plaintiffs must preemptively address at the pleading stage to state tort claims under Florida law”. The Court of Appeals noted that several courts have ruled that pollution must exceed the relevant regulatory levels to be actionable, but many others have not.

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Illinois Governor Pat Quinn recently signed into law Senate Bill 3023 (Public Act 98-764, amending the Illinois Mechanics Lien Act, 770 ILCS 60/ et seq., to provide protection against subordination of mechanics liens on Illinois construction projects. S.B. 3023 makes an express or implied agreement to subordinate a mechanic’s lien, where the agreement is in anticipation of and in consideration for the awarding of a contract or subcontract to perform work or supply materials for an improvement upon real property against public policy and unenforceable, except where the agreement to subordinate a mechanic’s lien to a mortgage lien that secures a construction loan if that agreement is made after more than 50% of the loan has been disbursed to fund improvements to the property. The new law was effective July 16, 2014. This new law represents the culmination of the Illinois legislative efforts over the past few legislative sessions to provide further protection to mechanics lien claimants.

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Clients call from time to time with questions about liens that have been filed on their property, or about liens that they want to file. The questions follow a pattern. What is the deadline to file a lien? What about foreclosing? Can a lower tier subcontractor file a lien? Does the lien claimant have to file a preclaim notice? I got one of these questions recently and sent the in house attorney a card stock printout of our quick lien reference chart for the three jurisdictions closest to my office: Virginia, DC, and Maryland. She found it so useful that she put it on her bulletin board in her office.

Given how useful most clients find this information, we decided to post it. You can see it to the right under the “Resources/Links” tab. Our California construction lawyers prepared a similar chart a couple of years ago when California revamped its lien laws. They are going to convert that into a format that looks like the VA/DC/MD one. And then we’ll also prepare one for the northeast, where our New York area construction lawyers frequently answer similar questions.

So, check back for these quick reference charts. We think you’ll find them useful.

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Effective August 19, 2014, New Jersey Senate Bill 2363 went into effect, requiring contractors required to register under the Contractors’ Registration Act, N.J.S.A. §§ 56:8-136, et seq. — home improvement contractors — to wear a state-issued identification badge “on the upper left corner of his torso when the contractor is performing, or engaging, or attempting to engage in the business of selling home improvements” at all times on the job. The badge includes a color photograph of the employee’s face along with his/her name, and the contractor’s registration number and business name. A new badge is required every six years. Governor Chris Christie signed into law S.B. 2363 on August 19, 2013. The bill was reportedly prompted by fears of potential scams on Superstorm Sandy victims. It is believed that requiring contractors’ employees to wear these badges will add another layer of protection against fraud.

New Jersey isn’t the only state that requires certain contractors’ employees to wear badges. The Washington State Department of Labor & Industries October 2014 Electrical Currents newsletter reminds all electricians and trainees that they are required to possess, wear and visibly display their certificates. Washington’s Administrative Code WAC §§ 296-46B-940 and 296-46B-942 require all electricians and trainees to “possess, wear, and visibly display on the front of the upper body, a current valid [certificate].” WAC 296-46B-940(3) further provides that “[t]he certificate may be worn inside the outer layer of clothing when outer protective clothing (e.g., rain gear when outside in the rain, arc flash, welding gear, etc.) is required. The certificate must be worn inside the protective clothing so that when the protective clothing is removed, the certificate is visible. A cold weather jacket or similar apparel is not protective clothing. The certificate may be worn inside the outer layer of clothing when working in an attic or crawl space or when operating equipment (e.g., drill motor, conduit threading machine, etc.) where wearing the certificate may pose an unsafe condition for the individual.” “The certificate must be immediately available for examination at all times.” It is believed that requiring the visible display of the certificates while performing work “allows the public, customers, and other workers to have the knowledge that properly certified persons are the ones doing the work.” In its newsletter, electricians and trainees are encouraged to “Wear your certificate with pride – you earned it!”

In California, the Contractors State License Board issues a “pocket license” and encourages consumers to not only confirm that the contractor is properly licensed but to review the contractor’s pocket license to confirm that the name on the pocket license is the same as the name the contractor originally provided. Like New Jersey, California and other states are acutely aware that homeowners are most vulnerable to fraud by unlicensed contractors after a natural disaster. In California, these illegal operators face serious prison time if caught working or trying to get contracting work over $500 in a state-declared emergency area. California Business & Professions Code § 7028.16 provides that: “A person who engages in the business or acts in the capacity of a contractor, without having a license therefor, in connection with the offer or performance of repairs to a residential or nonresidential structure for damage caused by a natural disaster for which a state of emergency is proclaimed by the Governor pursuant to [California Government Code § 8625], or for which an emergency or major disaster is declared by the President of the United States, shall be punished by a fine up to [$10,000], or by imprisonment … for 16 months, or for two or three years, or by both that fine and imprisonment, or by a fine up to [$1,000], or by imprisonment in a county jail not exceeding one year, or by both that fine and imprisonment.”

 

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Effective January 1, 2015, all contractors bidding on or performing work within the City of Shasta Lake, California involving connects to or modifications of the City of Shasta Lake’s potable (fit or suitable for drinking) water distribution system will be required to have and to maintain a Water Distribution Operator, Grade 2 certification. This requirement applies to both work performed on the City of Shasta’s system under contract with the City of Shasta and to work for a private developer or property owner. If you have questions, contact Jeff Tedder, City Engineer, 530-275-7423.

Examples of work that require a certification include, but are not limited to:

  • Water distribution or transmission main installation, extension, or replacement
  • Water main fitting, valve, or fire hydrant installation or replacement
  • Miscellaneous work involving depressurizing existing water mains for any reason

Under the regulations adopted in January 2001, becoming certified is a two-step process. The applicant submits an initial application and filing fee to take the required examination. This application will be evaluated to determine if the applicant meets the educational requirement. Once that initial application has been approved, the applicant will be permitted to take the examination. If the applicant passes the examination, he/she will have 3 years (from the date of the exam) to submit the second application and filing fee, and to obtain the certification. The second application is evaluated for the experience portion of the certification requirement. If the applicant has fulfilled the experience requirement, he/she will be issued a certificate; if the applicant has not fulfilled the experience requirement, he/she will have 1 year (from the date the second application was submitted) to obtain the required experience.

Contractors are cautioned that the certification process takes several months due to exam scheduling requirements. Distribution exams are offered twice a year in March and September and the final filing date for the March exam is January 1 and the final filing date for the September exam is July 1; and treatment exams are offered twice a year in May and November and the final filing date for the May exam is March 1 and the final filing date for the November exam is September 1.

For additional information on the certification process, check out the California State Water Resources Control Board’s Drinking Water Treatment & Distribution System Operators resource webpage, which includes information on continuing education, training and guidance, exam information, operator certification information (including the regulations), and the treatment exam application and distribution exam application.

The Drinking Water Treatment and Distribution System Operator Certification Program is located at 1001 I Street, 17th Floor, Sacramento, California, 95814. For general information or inquiries, contact the Operator Certification Program at:

Operator Certification Program – Drinking Water (OpCert)
State Water Resources Control Board P.O. Box 944212 Sacramento, CA 94244-2120 Telephone: (916) 449-5611 Fax: (916) 449-5654

Additional Resource: City of Shasta Lake, California

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The celebrated case of Mingo Logan Coal Co. v. EPA was returned to the U.S. District Court of the District of Columbia after the Court of Appeals reversed the District Court’s ruling that EPA had illegally invalidated a Army Corps of Engineers (“Corps”) 404 permit issued to Mingo Logan’s proposed coal mining operations in West Virginia. On March 14, 2014, the Supreme Court rejected any appeal of the DC Circuit’s opinion, which is reported at 714 F. 3d 608. The District Court completed its review of the remaining APA issues and on September 30, 2014, ruled that EPA had broad authority under the law to veto a Corps permitting decision.

Mingo Logan requires Clean Water Act (CWA) National Pollutant Discharge Elimination System (NPDES) permits to conduct coal mining operations at the Spruce No. 1 Mine in West Virginia. The permit application process was initiated by Mingo Logan’s predecessor in 1998, and the State of West Virginia issued an NPDES permit to Mingo Logan pursuant to its delegated CWA Section 402 authority, and the Corps issued a CWA 404 permit in 2007. The operations triggered opposition because of the perceived consequences of “mountain fills” in West Virginia and their impact on navigable waters and wildlife in the area. Two years later, EPA asked the Corps to revoke or modify its permitting action, but the Corp refused to do so. EPA accordingly invoked its authority under CWA Section 404(c) to withdraw the disposal sites that were designated in the Corps permit. In 2011, EPA completed its action to withdraw theses designated disposal sites. Mingo Logan sued EPA, and the District Court agreed with its argument that EPA acted too late, a ruling the Court of Appeals reversed in view of the plain language of the statute.

The District Court has now reviewed the remaining APA arguments, in particular whether EPA’s determination that discharges permitted under the 404 permit would cause unacceptable adverse environmental impacts was arbitrary and capricious. The District Court held that EPA’s determination was reasonable, supported by the record, and based on considerations within EPA’s purview. The District Court noted that EPA had continually expressed its concern about the impacts of the proposed discharge while the permit was under review by the Corps. It also held that an email by an EPA official to Mingo Logan that the agency had no interest in pursuing the matter any further after the Corps acted could be disregarded since this kind of statement could not bind the agency. The agency was always free to change its mind, and the email was not the product of a formal legal process requiring APA compliance to do so. While the District Court was critical of EPA’s argument that the proposed discharge would likely harm an endangered species that had never been seen in the area of the proposed coal mining operation, there were plenty of other species that could be harmed.

Finally, the District Court rejected the argument that EPA’s concerns about water quality somehow invaded the State’s regulatory sphere. Under the CWA, West Virginia is given the authority to make water quality rules and designations under CWA 401. EPA’s concerns about downstream water quality were authorized by other provisions of the CWA, and indeed, the agency is not required to consider West Virginia’s water quality determinations at all when it exercises its veto power under CWA Section 404(c). In the District Court’s view, in these circumstances, EPA can impose even stricter water quality standards than those required by the State.