Any developer, owner, contractor, subcontractor, material supplier, or design professional should be aware of the changes that have been made to California Mechanic’s Lien Law which have taken effect as of January 1, 2011. Failure to properly implement these changes will have drastic consequences as it will render a Mechanic’s Lien unenforceable as a matter of law.

STATUTORY REQUIREMENTS:

Prerequisites That Remain Unchanged

1. Recording a Mechanic’s Lien After Valid Notice of Completion or Cessation Has Been Recorded
   • General Contractors
     If a claimant is a general contractor on the Project, it must record its Mechanic’s Lien within 60 days after a valid notice of completion or cessation has been recorded.
   • Subcontractor or Supplier
     If a claimant is a subcontractor or supplier on the Project, it must record its Mechanic’s Lien within 30 days after a valid notice of completion or cessation has been recorded.
2. Recording a Mechanic’s Lien If No Valid Notice of Completion or Cessation Has Been Recorded
   
   • General Contractors, Subcontractors, or Suppliers
     Where no valid notice of completion or cessation has been recorded, then all claimants must record their Mechanic’s Liens within 90 days after completion of the work of improvement, as completion is defined in Civil Code section 3260.
3. Mechanic’s Liens Must Include:
   • Statement of the Claimant’s Demand
   • Name of Owner or Reputed Owner
   • Description of Site Sufficient For Identification

Prerequisites Effective January 1, 2011. In addition to existing statutory requirements, the 2011 changes require a claimant to:

1. Include A New Statutorily Defined Warning Notice on Notice of Mechanic’s Lien
   • As of January 1, 2011, a claimant must include the following statutorily defined warning notice on the Notice of Mechanic’s Lien, printed in at least 10 point boldface font:

     NOTICE OF MECHANIC’S LIEN ATTENTION!
     Upon the recording of the enclosed MECHANIC’S LIEN with the county recorder’s office of the county where the property is located, your property is subject to the filing of a legal action seeking a court-ordered foreclosure sale of the real property on which the lien has been recorded. That legal action must be filed with the court no later than 90 days after the date the mechanic’s lien is recorded.
     The party identified in the mechanic’s lien may have provided labor or materials for improvements to your property and may not have been paid for these items. You are receiving this notice because it is a required step in filing a mechanic’s lien foreclosure action against your property. The foreclosure action will seek a sale of your property in order to pay for unpaid labor, materials, or improvements provided to your property. This may affect your ability to borrow against, refinance, or sell the property until the mechanic’s lien is released.
     BECAUSE THE LIEN AFFECTS YOUR PROPERTY, YOU MAY WISH TO SPEAK WITH YOUR CONTRACTOR IMMEDIATELY, OR CONTACT AN ATTORNEY, OR FOR MORE INFORMATION ON MECHANIC’S LIENS GO TO THE CONTRACTORS’ STATE LICENSE BOARD WEB SITE AT www.cslb.ca.gov.

   • Note, failure to include this warning notice prior to recordation will render your Mechanic’s Lien unenforceable as a matter of law.
2. Serve The Notice of Mechanic’s Lien & Copy of Mechanic’s Lien Upon The Property Owner or Reputed Owner
   • As of January 1, 2011, a claimant must serve the Notice of Mechanic’s Lien and a copy of the Mechanic’s Lien via first class mail, registered mail, or certified mail, evidenced by a certificate of mailing, on the property owner or reputed owner prior to recordation of the lien.
     

     The Notice of Mechanic’s Lien must be addressed to the owner or reputed owner at the owner’s or reputed owner’s residence, place of business or at the address shown on the building permit on file with the authority issuing the building permit.

     If a claimant is unable to effect service upon the owner, the Mechanic’s Lien must be served via first class mail, registered mail, or certified mail, evidenced by a certificate of mailing, on the construction lender or prime contractor.

   • Note, failure to properly serve this Notice will render your Mechanic’s Lien unenforceable as a matter of law.
3. Memorialize Service Of Mechanic’s Lien By A Proof of Service Affidavit
   • When recording a Mechanic’s Lien with the county recorder, the claimant must now also include a Proof of Service Affidavit as well as the Notice of Mechanic’s Lien with the lien.
   • The Proof of Service Affidavit must be signed by the person serving the Notice of Mechanic’s Lien and must include the date, place, manner of service and facts establishing that service was made in accordance with the service requirements. It must also include the name and address of the person that was served with a copy of the Notice of Mechanic’s Lien and Mechanic’s Lien.
4. If You File A Complaint to Foreclose A Mechanic’s Lien, You Must Record A Notice of Pendency of Action Within 20 Days
   • The Proof of Service Affidavit must be signed by the person serving the Notice of Mechanic’s Lien and must include the date, place, manner of service and facts establishing that service was made in accordance with the service requirements. It must also include the name and address of the person that was served with a copy of the Notice of Mechanic’s Lien and Mechanic’s Lien.

Should You Have Any Questions/Concerns, Contact Lang, Richert & Patch

Failure to properly adhere to the 2011 requirements will render your Mechanic’s Lien unenforceable as a matter of law. The Construction Practice Group at Lang, Richert & Patch has more than 50 years combined construction litigation experience and is available to help protect your interests. Please contact us to address any construction issues, including the proper filing and recording of your Mechanic’s Lien and enforcement procedures through litigation.

I. Nature of the Lien

The Producer’s Lien is a California statutory lien. The lien is upon “any farm product” and upon all processed or manufactured forms of such farm product securing the producer’s labor, care and expense in growing and harvesting the product.² “Farm products” are essentially all agricultural products of the soil and includes honey and beeswax, oil seeds, poultry, poultry product, livestock product and livestock for immediate slaughter.³ Timber, timber products, milk, milk products and aquacultural products are excluded.⁴

The lien is in favor of every producer of farm products that sells the product grown by the producer
to any processor under either an express or implied contract.⁵ A “producer” is a person engaged in the business of growing or producing farm products.⁶ An Illinois Bankruptcy Court construing California law, In re S.N.A. Nut Co. 197 B.R. 642, 652(B.CT.N.D. Illinois, 1996) has held that a California processor could assert a Producer’s Lien as to products it may grow. In SNA Nut Co., supra the Debtor attempted to defeat the California Producer’s Lien by arguing that since the party asserting the lien (in that case Tulare Nut Company) was also a processor, it was precluded from asserting the lien. The Court denied summary judgment on that issue finding an issue of fact as to the extent of product delivered by Tulare Nut Company to the Debtor that was actually grown byTulare Nut Company. Id.

Courts have held that the California Legislature’s intent with the Producer’s Lien statute is that it be
liberally construed to promote and protect the agricultural industry. California Food and Agricultural Code § 3; In re TH Richards Processing Co., 910 F2d. 639643 fn. 3 (9th Cir. 1990); In re Loretto Winery Limited, 898 F2d. 715, 720-21 (9th Cir. 1990). The lien attaches to all delivered product from the date of delivery or any portion of it by a producer to any processor.⁷ The lien extends to every farm product and any processed form of the farm product which is in the possession of the
processor without segregation.⁸ Most controversial is the Producer’s Lien is a preferred lien prior in dignity to all other lien claims, or encumbrances except labor claims or personal services rendered to the processor after delivery of the product and Warehousemen’s Liens.⁹

The lien can be enforced by filing suit and such suit may contain other claims and remedies provided
by law. See California Food and Ag Code § 55631, 55636. A claimant can assert a personal action against the processor and in said action, seek to foreclose the lien.¹⁰ If the producer seeks a writ of attachment as part of the lawsuit, he is not required to state in his affidavit that the demand is not secured by a lien.¹¹ Should a judgment be entered against the processor in favor of the producer a judgment does not impair or merge any lien right or claim held by the plaintiff.¹² In the event there are more claims than value of processed product held by the processor, Producer’s Lien claims should have equal standing and payment is pro-rated among the claimants.¹³ The Producer’s Lien is truly a “secret” lien since it does not require the filing of a Financing Statement or other documentation as a lien under Article 9 of the Commercial Code or elsewhere under California Law. Arguments that the lien should be set aside because it is not effective against bona fide purchasers under 11 U.S.C. § 545 (2) have been rejected. See In re SNA Nut Co. supra.

II. Issues Relating to Producer’s Lien Enforcement

A. Extension of the Lien to Proceeds from Processor’s Sales.
California Food and Ag Code § 55631 states the extent of the lien is on farm products and upon all processed and manufactured forms of such farm products. California Food and Ag Code § 55634 defines the extent of the Producer’s Lien as on “every farm product and any processed form of the farm product which is in the possession of the processor without segregation of the product.” The issue is what happens when the farm product is sold by the processor. California Food and Ag Code § 55638 makes unlawful a processor’s removal of the farm product from its ownership or control to which the liens attach except the excess of what is sufficient to satisfy all existing liens or so long as the total proceeds of the sale are used to satisfy obligations to producers secured by the lien.

The United States Bankruptcy Court for the Eastern District of California held an US Bank N.A. v. Deseret Farms (In Re Sargent Walnut Ranches), 219 B.R. 880 (B.Ct.E.D. California, 1998) that a growers Producer’s Lien did not encumber the proceeds from the sale of walnuts when the processor had no available inventory. The Court noted that the Producer’s Lien was extinguished when the last of the walnut inventory was sold to third parties. Accordingly, in a priority dispute between a lender secured by inventory and inventory proceeds and the Producer’s Lien claimants, the lender with the inventory lien had higher priority.

The California Court of Appeal for the 5 District has th held otherwise and is the controlling authority in California on this issue. Frazier Nuts, Inc. v. American Ag Credit, 141 Cal.App. 4th 1263 (2006). In Frazier Nuts, a secured lender extended a $4,000,000 revolving line of credit to a processor. The line of credit was renewed a few times. The collateral securing the line of credit included the processor’s inventory, accounts receivable and equipment at the processor’s facility. When the processor could not pay off the line of credit after its last renewal, it filed a Chapter 11 bankruptcy petition. It was later converted to Chapter 7. Between the last renewal of the line of credit and its filing for bankruptcy, the processor made nearly $400,000 of payments to the lender. The growers delivered almonds to the processor and in return received a promise of payment. The growers filed a complaint against the lender claiming that the secured lender wrongfully diverted proceeds of the sale of their almonds. The trial court granted secured lender’s motion for summary judgment
holding in part that the grower’s statutory lien did not extend to the accounts receivable or sale proceeds arising out of the crop delivered by the almond growers. The secured lender’s primary argument was the growers legal theory failed because they had no lien or other right at any time in the processor’s almond sale proceeds. Frazier Nuts, supra 141 Cal. App. 4th at 1270.

The Court of Appeals looked at the legislative history of Food and Ag Code § 55638 which makes the processor removing any farm product from its control without payment of the lien unlawful unless the total proceeds of a sale is used to satisfy the liens. The Court noted that prior to the 1979 amendments to that section, the lien’s duration was limited to 60 days. Frazier Nuts, supra 141 Cal. App. 4th at 1272. The Court of Appeal focused on the provision of California Food and Ag Code § 55638 which provides that the sale of raw or processed farm product is not prohibited “so long as the total proceeds of the sale are used to satisfy obligations to producers.” Id. at page 1274. The Court of Appeal disagreed with the holding Sargent, supra and held that the provisions of California Food and Ag Code § 55638 that the total proceeds of the sale to be used to satisfy producer’s obligations imposed the duty upon processors and/or a right in favor of producers.

The next question is whether that right constituted a lien on the proceeds with priority over the secured lender. The Court of Appeal reasoned that the legal right of grower’s to be paid by the processor from the sale proceeds can be characterized as a lien. The Court continued its logic by stating that grower’s right to be paid from the proceeds (or its correlative, processor’s legal obligation to pay) before the debt processor owes growers is satisfied is an interest sufficient to be a lien. Frazier Nuts, supra 141 Cal. App 4th at 1277 (The Court extended the priority of the lien under California Food and Ag Code § 55633 to the proceeds as “promot[ing] the general purposes of the Producer’s Lien statute as well as the 1979 amendment’s specific purpose of seeing the producers would be paid for their product.”) Id. at page 1278.

Thus under current California Law, the Producers Lien statute’s penalty provisions provide the platform for producer’s assertion of liens with higher priority than general security interests in proceeds from a processor’s sale of encumbered product.

B. Can the Protections of the Producer’s Lien Statute be Waived?
In In re GVF Cannery, Inc. 202 BR 140 (N.D. California, 1996) The District Court for the Northern District California reviewed an appeal from the Bankruptcy Court which found that a subordination agreement that a processor’s lender required to be signed by a producer was a waiver of the statutory right which was ineffective due to the producer’s lack of information about the rights the producer was waiving. The District Court affirmed the Bankruptcy Court’s reasoning that a waiver analysis should be applied to the subordination agreement at issue but reversed and remanded for findings as to whether a valid waiver was obtained. In GVF Cannery, supra a tomato grower executed a subordination agreement which had the effect of waiving his first priority Producer’s Lien rights under the California Food and Ag Code. There were issues concerning whether the processors’ agent mislead the producer. After the Bankruptcy Court ruled in favor of the producer, the lender appealed the decision. The lender argued that the Bankruptcy Court should have analyzed the subordination agreement as an enforceable contract not as a waiver of the statutory right. The lender argued that the producer did not unequivocally relinquish any rights as a creditor by subordinating the lien but “suppressed” its rights until the obligation to the lender was satisfied. The District Court disagreed holding that the producer did give up a right forever by subordinating the Producer’s Lien the right to be first creditor in line. In re GVF Cannery, Inc. supra 202 BR at 144.

The District Court did disagree with the Bankruptcy Court’s ruling that a waiver needed to include a statement regarding the processor’s existing debt to the lender and the relation of the debt to the processor’s existing assets. Instead, the District Court held that the producer be informed that: (1) he had a statutory first priority lien in his tomatoes; (2) by subordinating his Producer’s Lien he was giving up his right to first priority; (3) this waiver would place him behind the lender as a creditor and (4) if the processor went bankrupt and the processor’s assets were not sufficient to cover the debts to the lender, the producer would not receive any further payments for his tomatoes.

Thus a waiver or subordination could be found effective provided the elements of a waiver are established by the parties claiming a waiver. Those elements are the party executing the waiver must be fully informed of (1) the existence of the right being waived; (2) the meaning of the waiver; (3) The effect of the waiver; and (4) a full understanding of the explanation of the waiver. Hittle v. Santa Barbara County Employees 39 Cal. 3rd 374, 389 (1985). The Producer’s Lien statute does provide when a release of the Producer’s Lien will occur by operation of law (e.g., a surety bond or cash deposit or payment or arrangements being made for such payments satisfactory to the producers, California Food and Ag Code § 55637; the processor either pays the value of the farm product, deposits with the director surety bond, deposit of cash sum or delivering the director a receipt;
provision of evidence to a Court that the processor has security or monies on deposit with the director if an action is filed, California Food and Ag Code § 55650).

C. Does Co-Mingling of the Producer’s Product Mean the producer has a Lien on the Entire Inventory?
Some tension exists between the provisions of California Food and Ag Code § 55631 which provides in part:

Every producer of any farm products that sells any product which is grown by him
to any processor under contract … has a lien upon such product and upon all processed or manufactured forms of such farm products for his labor, care and expense in growing and harvesting such product

This provision limits the extent of the Producer’s Lien to the product grown by the producer and held by the processor.

This lien however is extended by California Food and Ag Code § 55634:

Every lien which is provided for in this article is on every farm product and any processed form of a farm product which is in the possession of the processor without segregation of the product.

Thus the lien extends beyond that product which is produced by the farmer to product in the possession of the processor which is produced by other farmers “without segregation.” The United States Bankruptcy Court for the Eastern District of California in In re California Pacific Rice Mill, Ltd., 265 BR 237, 240 (B.Ct.E.D., California 2001) reasoned that which is not segregated is commingled. Id.at 240. The phrase “without segregation” is properly interpreted to mean “with commingling” or “that is commingled.” Id.

In California Pacific Rice Mill, supra the facts were that the rice processor segregated all the rights held by the processor by variety and crop year. Accordingly, the Bankruptcy Court denied the producer’s requests for a preliminary injunction prohibiting the debtor processor from disposing of, or relinquishing control of any of its rights to inventory regardless of variety or crop year. The Bankruptcy Court held that the extension of the scope of the Producer’s Lien would be only to the extent those farm products are commingled. Because of the facts in California Pacific Rice Mill, the Producer’s Lien was limited. Accordingly, in an appropriate case when crops are segregated, the extent of the Producer’s Lien may not be so vast.¹⁴

Conclusion

The Producer’s Lien provides a substantial remedy for producers who are unpaid. The scope of the lien can be the subject of some debate but California aw at present extends that coverage of the lien to proceeds. The coverage of the lien may be waived. The extent of the lien will be limited if the processor segregates crops

I. Introduction

The Dairy Cattle Supply Lien law in California provides for a statutory lien know as a “Dairy Cattle Supply Lien” in favor of those who provide feed or material (a defined term) to aid in the raising or maintaining dairy cattle.² The Dairy Cattle Supply Lien was added to the Food and Agricultural Code in 1987. Other than very minor amendments to conform with certain provisions the Commercial Code, the law remains as originally drafted. While there are no reported cases construing the law, certain issues have arisen in various bankruptcy cases dealing with enforcement of the lien law. Generally, two of the primary financing constituencies in a dairy bankruptcy case are a traditional lender and grain suppliers. In addition to the substantial defaults facing the traditional lender, grain suppliers often have large balances owed at the time of the petition is filed. Most grain suppliers are sophisticated enough to have filed Dairy Cattle Supply Liens with the Secretary of State.

However, even if the lien is filed with the Secretary of State, certain issues for the enforcement of the lien should be considered. Some of those issues are the subject of this article.

II. Frequent Issues Arising in Enforcing Dairy Cattle Supply Liens

A. Property Charged with the Lien
The Dairy Cattle Supply Lien is only upon the proceeds of the milk or milk products produced from the dairy cattle that have benefitted from the provision of “feed or materials” aiding in the raising or maintenance of the cattle.³ “Proceeds” is defined in the law as funds derived from the sale of milk or milk products which are payable to the lien debtor by the possessor of the funds.⁴ Interestingly, the lien does not extend to the milk itself or milk products produced from the dairy cattle.

The definition of “proceeds” under the law presumes certain deductions which are normally taken by dairy product processors.⁵ Those deductions include taxes, fees and assessments, court ordered deductions, deductions for hauling if the processor has provided hauling services as well as deductions for sums due a processor for the testing of milk. Most processor’s when having received a notice of an assignment of the rights to payment of proceeds respond with a standard disclaimer that certain costs and deductions will be taken from the assigned proceeds before disbursement accordance with the assignment. The Dairy Cattle Supply Lien law contemplates deductions in favor of the processor also.

B. What the Lien will Secure.
The Dairy Cattle Supply Lien is to secure the reasonable or agreed charges for the feed or the materials provided and for the costs of enforcing the lien.⁶ “Feed or materials” is defined as “commercial feed, grain, forage, feed ingredients, mineral feed, drugs, animal health products, customer formula feed, any mixture or preparation for feeding animals, any of the constituent nutrients of an animal ration, or any other food which is used for the feeding of dairy cattle.”⁷ Thus virtually anything used for the feeding of the animals can form the basis for the charges secured by the lien.

Curiously, the amount secured by the Dairy Cattle Supply Lien is affected by the time the “feed or materials” are furnished. The lien can not secure charges in excess of the amount equal to the reasonable or agreed charges for feed or material provided with in a 45 day period. The statute does not specify which 45 day period may be used.

In addition, the number of providers of feed or materials that can exercise lien rights is limited. The lien law permits only two providers of feed or material to have an enforceable lien at any time, according to statutory priority.⁸ Under the terms of the statute, the number of providers with “an enforceable lien” is limited. However, the statute does not by its terms limit the number of notices of lien that can be filed. Thus under the terms of the statute, it would be possible for more than two providers to file liens. However, at any one time only two could have an enforceable lien. As long as two of the providers either continue to supply the dairy with “feed or material” or remains unpaid, that supplier may have an enforceable lien.⁹

C. Determining Priority.
The Dairy Cattle Supply Lien does not have a “super priority.” Under the statute, the lien has priority in accordance with the time the notice of claim of lien is filed.¹⁰ The statute provides that just as a party with a security interest must perfect a lien by filing a Financing Statement, so does a Dairy Cattle Supply Lien claimant.¹¹ Division 9 of the Commercial Code is specifically incorporated into the Dairy Cattle Supply Lien law. California Food and Ag Code § 57407.

The usual scenario is the traditional lender has liens on not only the milk and milk products but also the dairy cattle and other personal property. Negotiation occurs between the Dairy Cattle Supply claimants and the traditional lenders to try to foster reorganization when that is possible. If it is not possible, there usually are not priority fights between the traditional lender and the Dairy Cattle Supply Lien claimant although that can occur at times.

D. Length of the Effectiveness of the Lien.
When considering a Dairy Cattle Supply Lien claimant and the rights that claimant might have, some consideration must be given to whether the lien is in fact effective. The Dairy Cattle Supply Lien law states that the claim of lien remains in effect as long as the person providing the feed or materials either (1) remains unpaid for amounts secured by the lien, or (2) continues to provide feed or materials on a regular basis to the lien debtor.¹² The statute provides if more than thirty (30) days elapses between supplier deliveries, that supplier is not making deliveries on a regular basis.¹³ Thus if there is an issue as to enforceability or priority of a Dairy Cattle Supply, some inquiry must be made as to frequency of delivery.

E. Enforcement of the Lien.
Initially, the lien itself must be examined to determine if it complies with what must be included in the claim of the lien. Generally, the same information that is required on a UCC Financing Statement must be included on a claim of lien. However, issues have arisen relating to the sufficiency of the lien because not all of the information has been included by the lien claimant. For example, a lien must contain the name and address of the lien claimant and the location of the diary to which the feed and materials were provided.¹⁴ The name and address of the lien debtor must also be provided. Accordingly, care must be taken as to whether the name and the address of the lien debtor and the location of the dairy to which the feed is delivered are the same. If not, both locations must be specified as appropriate in the notice of claim of lien.

In addition, the lien must contain the statement that the lien claimant “has a dairy cattle supply lien pursuant section 57402.”¹⁵

The statute also requires that the notice of claim of lien “should be signed by the lien claimant.”¹⁶ The Commercial Code since 2001 has not required a physical signature by a lien claimant. A lien claimant need only “authenticate” the record.¹⁷ There is no controlling authority dealing with this supposed “tension”. However, in an unpublished decision one Court has addressed the issue and has found that the type written signature of the lien claimant was sufficient.¹⁸

Also, the Dairy Cattle Supply Lien law requires the lien claimant to provide written notice of the claim of lien to the lien debtor within 10 days of the date of the filing of the lien with the office of the Secretary of State.¹⁹ There is no provision in the current law which says that failure to provide that notice does not effect the validity of the lien. That is likely the intent of the law or certainly would be a consistent construction of the law in light of the Commercial Code. However, there is nothing currently dealing with that issue addressed in the law.

Finally, the enforcement of the lien is covered by the statute. First, the only the way the lien is “foreclosed” is by an action to recover the reasonable or agreed charges for feed and material delivered.²⁰ Once a judgment is entered, it can be enforced in accordance with the California Code of Civil Procedure.²¹ However, as a prerequisite, the statute requires the lien claimant provide written notice to secured creditors at least 30 days prior to enforcing the claim of lien.²² Curiously, other than the notice to the lien debtor within 10 days of the date of filing the lien, no further notice needs to be given the debtor before the lien can be enforced. However, secured creditors must receive notice.²³ The creditors that receive notice are not necessarily the creditors who have liens as defined by the statute on the date the action is going to be filed. Rather, the 30 day notice needs to be given to those secured creditors having liens on file when the lien claimant files the notice of lien. Also, not all “secured creditors” need to be notified. Only those having a perfected security interest in the specified collateral need to be notified.

III. Proposed Legislation

In the 2011 legislative session, SB 592 has been introduced which proposes certain changes to the California Dairy Supply Lien law. Currently, the bill is “inactive” although it has passed the senate judiciary committee in May 2011.²⁴ The proposed changes are relatively extensive. First, the proposed change would allow the lien to be placed upon the dairy cattle and offspring. That is not the case under the current law. Second, the 10 day notice required under California Food and Ag Code § 57405 is still required but the proposed law identifies the party to receive the notice depending upon the type of entity the dairy may be. Third, the law as amended would provide that failure to give the written notice would not affect the priority of the lien or the validity of the lien. Fourth, if an enforcement action is filed, the lien holder can apply to the Court for a right to attach order and writ of attachment. Finally, the proposed law would permit a supplier to notify “any person obligated on any proceeds subject to the lien” to pay the claimant.

Whether these provisions will be enacted remains to be seen.²⁵

Conclusion

The Dairy Cattle Supply Lien law provides a valuable remedy for grain suppliers to financially troubled dairies. However, as a statutory lien there are numerous issues that surround lien enforcement that must be considered. Certain clarifying and other changes are proposed but are not yet enacted. Until then the lien law must be carefully consulted by analyzing the enforcement of the lien and its affect on other creditors.

“We have learned that going green today can mean saving green” said partner, Robert Patch II.  Lang, Richert and Patch has shown that you can reduce your carbon footprint without installing costly solar roofing shingles and wind turbines. Implementing greener paper management protocols and reducing energy-use are two economical ways to go-green.

Paper Management
Given the paper-intensive nature of practicing law, Lang, Richert & Patch has focused on adopting greener paper management. “Along with recycling over ninety percent of our mixed waste paper, we have adopted a policy to only use paper products that are made with at least 30% recycled content. We also encourage employees to print all internal documents double sided to reduce paper consumption,” said Rene Lastreto, a partner of Lang, Richert and Patch. By embracing green practices, Lang, Richert & Patch is making a commitment to lead the Central Valley as a steward of the environment and hopes that other law firms and other businesses will follow suit.

Reducing Energy Use
Small businesses pay more for energy than big businesses, and adopting green practices can dramatically reduce energy costs. Simple things like replacing traditional light bulbs, regularly servicing heating and air conditioning, or installing motion sensor lights can cut energy bills by 20% to 30%. Replacing office equipment? Make sure to get Energy Star compliant models with “sleep mode” to reduce energy when not in use. Green policies don’t have to be complex or burdensome. To get the attorneys and staff in your office to become more environmentally conscious, start with something simple: turn off the lights when you leave. This includes when you leave for lunch – a novel concept that eliminates hundreds of hours of unnecessary energy consumption every week.

Lang, Richert and Patch has already seen the intangible benefits of going green. For one it breeds loyalty. “Our employees appreciate our efforts – they want to work for companies who are socially responsible,” said Mr. Patch. The firm has also found greenness is a valuable tool for recruiting young, talented attorneys who have made it clear that environmental consciousness is a factor in their decision making. “In order to get the best and brightest recruits, we have to keep pace with the eco-friendly firms in the Bay Area and Los Angeles” said Mr. Patch. Moreover, sophisticated clients and large corporate clients, who already have green policies, expect their outside counsel to adopt environmentally friendly practices. Like their corporate clients, Lang, Richert and Patch is discovering that taking steps that are good for the environment can also be good for the bottom line.

It won’t be long before we will all drive to work in an energy efficient car, enter our environmentally-friendly “LEED”certified building, and transact business in a paperless environment. In the meantime, Central Valley law firms and other businesses should follow the leadership of Lang, Richert and Patch and implement environmentally friendly policies that can help business and save money.

The Court of Appeal for the First Appellate District in Nadaf-Rahrov v. Neiman Marcus Group, Inc., et al. (Sept. 10, 2008, Cal. Ct. App. 1st) __ Cal.App.4th __ [2008 DJDAR14314] held the federal definition of “reasonable accommodation” applies to disability-based discrimination claims under California’s Fair Employment and Housing Act, Government Code section 12940 et seq. (the “FEHA”), perpetuating a split among California Courts of Appeal regarding the scope of protections available under the FEHA to qualified disabled workers.  The following holdings are of particular significance.

First, Nadaf-Rahrov holds that an employer is liable for failing to provide a reasonable accommodation under Government Code section 12940, subdivision (m) (“Section 12940(m)”) “only if the work environment could have been modified or adjusted in a manner that would have enabled the employee to perform the essential functions of the job.”  (Id. at p. 14322, italics added.)  This holding directly conflicts with that in Bagatti v. Department of Rehabilitation (2002, Cal. Ct. App. 3d,) 97 Cal.App.4th 344, which rejected application of the ADA definition of “reasonable accommodation” under the FEHA and held that liability under Section 12940(m) may attach even if the plaintiff is not able to perform the essential functions of the position held or desired.  (Id. at p. 362.)

Second, Nadaf-Rahrov holds that the availability of an effective, reasonable accommodation is a material element of a claim against an employer for failing to engage in a good faith, interactive process under Government Code section 12940, subdivision (n) (“Section 12940(n)”). (Nadaf-Rahrov, supra, __ Cal.App.4th at p. __ [2008 DJDAR at p. 14325].)  Thus, absent proof of the availability of a reasonable accommodation, an employer cannot be held liable for failing to engage in the interactive process.  This directly conflicts with Wysinger v. Automobile Club of Southern California (2007, Cal. Ct. App. 2d ) 157 Cal.App.4th 413, which held that the FEHA imposes liability on employers under Section 12940(n) regardless of the availability of a reasonable accommodation.  (Id. at p. 425.)

Third, under Nadaf-Rahrov, the employee bears the burden of proving  the availability of a reasonable accommodation for purposes of Sections 12940(m) and (n), to wit: that he or she was qualified to perform the essential functions of the job held or desired and that the job was available.  (Nadaf-Rahrov, supra, __ Cal.App.4th at pp. __ [2008 DJDAR at pp. 14323, 14325].)  In so holding, the Nadaf-Rahrov court recognized that “[a]lthough it would be unfair to require and employee in the workplace to unilaterally identify available accommodations, an employee in litigation can use discovery procedures to do so.”  (Id. at p. __ [2008 DJDAR at p. 14325].)  Thus, while it is the employee’s burden under Section 12940(n) to identify the availability of an accommodation for which he or she is qualified, the employer is liable if such a position is identified to have existed for the first time during litigation.

Finally, regarding Section 12940(n), it is not enough that an employer consider reassigning an employee only to vacant positions in the employee’s immediate workplace or to those which the employee specifically requests reassignment if a vacancy exists elsewhere in the employer’s organization that would not amount to a promotion.  (Id. at p. __ [2008 DJDAR at pp. 14319-14320].)  Thus, an employer’s failure to consider vacancies outside the employee’s immediate workplace may provide grounds for liability under Section 12940(n), as well as justify broad discovery regarding vacancies within the employer’s organization.

In adopting the federal definition of “reasonable accommodation,” Nadaf-Rahrov harmonizes certain protections afforded to disabled workers under the FEHA and the ADA.  Other California courts, however, continue to view the FEHA’s protections as broader.  Because this division among California’s Courts of Appeal runs to the very elements required to state a claim under Section 12940, subdivisions (m) and (n), the issue is ripe for Supreme Court review.

On October 22, 2008, the California Supreme Court granted review of Brinker Restaurant Corp. v. Superior Court (2008) 165 Cal.App.4th 25.  The Court of Appeal found, among other things, that employers need only provide, not ensure, that meal and rest periods are taken.  Because the Supreme Court has granted review, the findings by the Court of Appeal are no longer good law and should not be followed.

Original Article Posted Below:

www.calchamber.com

(July 23, 2008) In a decision that will have an impact on the laws governing meal and rest breaks, the 4th District Court of Appeal yesterday ruled that California law requires that employers need only provide meal periods, and, as a result, as with the rest period claims, the plaintiffs’ meal period claims are not amenable to class treatment.

The issue before the court in the case of Brinker Restaurant Corporation et al., v. The Superior Court of San Diego County, is did the trial court err in certifying this matter as a class action without first determining the elements of plaintiffs and real parties in interest against the defendants?

The court ruled that the class certification order is erroneous and must be vacated because the lower court failed to properly consider the elements of the plaintiffs’ claims in determining if they were susceptible to class treatment.

The court concluded that:

1. Employers cannot impede, discourage or dissuade employees from taking rest periods; they need only provide, not ensure, rest periods are taken;
2. Employers need only to authorize and permit rest periods every four hours or major fraction thereof and they need not, where impracticable, be in the middle of each work period;
3. Employers are not required to provide a meal period for every five consecutive hours worked;
4. While employers cannot impede, discourage or dissuade employees from taking meal periods, they need only provide them, not ensure they are taken; and
5. While employers cannot coerce, require or compel employees to work off the clock, they can only be held liable for employees working off the clock if the employer knew or should have known the employees were doing so.

Furthermore, the court concluded that because the meal and rest breaks need only be “made available” and not “ensured,” individual issues predominate and based on the evidence presented to the trial court, they are not amenable to class treatment.

Finally, the court concluded the off-the-clock claims are also not amenable to class treatment as individual issues predominate on the issue of whether Brinker forced employees to work off the clock, whether Brinker changed time records, and whether Brinker knew or should have know employees were working off the clock.

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Understanding the Intentions
At first read, the legislation seems straightforward and reasonably defined. However, when applying real-world scenarios, the ambiguities begin to appear. The aim of SB 1137 is to avoid residential, non-judicial foreclosures whenever possible, by requiring additional communications between the borrower and lender.

What Loans are Affected by the New Foreclosure Law?
The answer is not as clear as one might hope, but the text of the legislation identifies loans made between January 1, 2003, and December 31, 2007 that are “secured by residential real property and are for owner-occupied residences.” Loan agreements signed and dated during these periods meet this initial requirement. Whether these loans are “secured by residential property and…are for owner-occupied residences” is the more difficult determination. Many legal professionals agree that this section is not limited to “1-4 residential properties.” More likely this covers any loan secured by property on which the borrower principally resides.

What are the New Notification Requirements for Affected Loans in Default?
The new notice provisions affect both Notice of Default (“NOD”) and Notice of Sale (“NOS”) requirements. The new laws require lenders to contact borrowers at least 30 days prior to filing a NOD. If contact cannot be made, lenders must file a declaration with their NOS stating that “due diligence,” as defined by the statute, has been followed. Some very limited exceptions exist.
The new NOS provisions require increased compliance for any loan secured by residential property, where the mailing address of the borrower is different from the mailing address of the property. Presumably, the legislature included these provisions for the protection of tenants who might not otherwise get notice. Lenders are required to provide statutory language to tenants including posting and mailing notices in English, Spanish, Chinese, Tagalog, Vietnamese, and Korean. There are statutory fines for anyone tearing down the notices.

Conclusion
In addition to notice requirements, the new laws also have post-foreclosure implications for lenders. Any REO’s (properties retained by the lender after an unsuccessful foreclosure sale) that are not properly maintained may expose lenders to fines of up to $1000 per day by local government entities. While this is just a brief introduction to the new compliance regulations, it is easy to see that lenders need to make immediate changes to their current foreclosure practices. Policies and procedures need to be implemented to ensure that lenders are following the proper time line and notice requirements. Although the laws may be more complex and ambiguous than they first appears, compliance is mandatory, but manageable.

If you have questions or concerns related to this or any other legal issue, please contact Lang, Richert and Patch at (559) 228-6700.

E-discovery rules have caused in-house counsel to take a harder line with some of the e-mails that workers think are private

“Don’t put this in writing, but … ” Those are the opening words of an e-mail that got the writer’s company in legal hot water. And there are plenty more where that came from.

“This is off the record,” started the e-mail that in fact put it all on the record.

How about this one? “We may be in breach of contract, and here’s why.”

These examples of troublesome e-mails general counsel say they’ve run across don’t include the countless off color so-called jokes forwarded to contact lists of colleagues, interested or not, or links to Web sites that are definitely not part of a corporate job description.

The “send” button — together with its evil cousins, “forward” and “reply all” — are causing a world of trouble for corporations as they connect to evidence in legal proceedings and create a new mess for in-house lawyers to clean up.

“We all need to educate ourselves and our clients about the large bucket of problems that come up with e-mails,” said R. Scott Meece, global general counsel, senior vide president and secretary of CIBA Vision Corp. “People send e-mails as though they were having conversations with someone in a bar.”

The problem with e-mails has been a recurring topic recently in GC roundtable discussions and elsewhere — including protracted legal battles.

“We’ve broken open a lot of investigations just because of what we find in the e-mails,” said W. Scott Sorrels, a partner with Powell Goldstein specializing in corporate securities and regulatory matters and a former enforcement attorney with the U.S. Securities and Exchange Commission. He and Jennifer D. Odom, a Powell Goldstein partner specializing in securities, corporate and regulatory litigation as well as electronic discovery, have given a series of presentations on the perils of e-mail.

“We had one example that started out, ‘don’t put this in writing but … ‘” Sorrels said. The writer “then proceeded to shoot himself in the foot, the knee and the elbow.”

It has now become routine even in civil investigations for computers to be subpoenaed so lawyers can look at e-mails and hard drives. And one thing always leads to another. “We have forensic software that shows multiple levels of deletions. It shows thought processes. We can learn far more than from just a document alone,” said Sorrels. “E-mails have taken over the world.”

“You wouldn’t believe the things that people say — as though they’re just talking to a buddy,” said CIBA Vision’s Meece. Yet these e-mails are saved, backed up, forwarded or otherwise preserved — even when people think they’ve deleted them. “They very well can live forever.”

Even worse, sometimes e-mails tell a part of the story, but not all of it. So their continuing existence amounts to a sound bite taken out of context, multiplied and amplified forever.

“My biggest fear with e-mails is not that it can be used against you in some way, but that the assumption is it’s telling the whole story, and it’s not,” said Meece. “It may be the truth but not the whole truth, and there may be some silly stuff in there that’s not ‘nothing but the truth.’”

Ask just about any GC or labor and employment lawyer, and you’ll hear similar concerns. “We deal with this issue all the time — more and more,” said Matthew W. Clarke, a partner in Smith, Gambrell & Russell’s employer services. “The main problem that occurs over and over is that people have such a casual attitude and approach when it comes to writing and sending e-mails.”

The resulting problem is not just a matter of taste but a matter of law — as in harassment or hostile work environment. “People will put something in an e-mail that they would never say in front of other people or in a drafted memo,” said Clarke. “They’ll just put catty comments or frankly inappropriate language. They don’t think the e-mail will ever come back to bite them or ever see the light of day. Now, with e-discovery rules, plaintiffs are dredging up e-mails that go back years. They call people names. They make inappropriate comments.”

These include, Clarke said, “can you believe that [expletive] is complaining about this?” Or, “I can’t believe she’s pregnant at such an inconvenient time at work.” Or, “we need to get rid of the dead wood.”

E-mails, text messages, BlackBerry communications all are potential time bombs if not worded thoughtfully and with discipline. “It just creates the potential for a permanent record for all this type of stuff,” Clarke said. “People don’t realize that to some degree, if it’s in an e-mail, it’s analogous to etching it in stone.”

Clarke’s best advice to in-house counsel is to work with other departments to regularly repeat training in e-mail etiquette. Remind employees that their communications on office computers — and even company cell phones, BlackBerrys and home computers used for work — belong to the company and are not in any way private. If it’s off the record, don’t write it. Pick up the phone or better yet, walk over. Don’t hit the send button in the heat of anger.

And above all, said Clarke, never say anything in an e-mail that you wouldn’t want to see displayed on a giant screen in a court room in front of a judge and jury even years from now. Because that is exactly where it might end up.