Child Lacked Standing to Bring an Elder Abuse Action on the Mother’s Behalf

In Tepper v. Wilkins (2017) 10 Cal.App.5th 1198, the Court of Appeal affirmed the trial court’s order sustaining a demurrer, without leave to amend, and dismissing the first amended complaint of Belinda Wilkins Tepper alleging elder abuse. Tepper sued her three siblings on behalf of her 88-year old mother, Eileen Wilkins, claiming her siblings, while acting as co-trustees of Eileen’s revocable living trust, were misusing the trust’s assets and committing financial abuse of an elder or dependent adult.  Tepper’s siblings demurred, asserting Tepper had no standing to sue on Eileen’s behalf, and Eileen, separately represented by counsel, joined the demurrer.

Under the Elder Abuse and Dependent Adult Civil Procedure Act an action must be prosecuted by the real party in interest or, while the elder is still living, by a conservator or a trustee of the elder, an attorney-in-fact who acts within the authority of a power of attorney, a person appointed as a guardian ad litem, or other person legally authorized to seek the relief.  Here, as set forth affirmatively in her amended complaint and on appeal, Tepper stated that she did not seek appointment as her mother’s conservator or guardian ad litem.  Further, she did not have her mother’s consent to pursue the action on her behalf through a power of appointment.

On appeal, Tepper contended that section 48 of the Probate Code afforded her standing as Eileen’s child to bring the elder abuse action on behalf of Eileen.  However, simply being Eileen’s child is not enough as section 48 defines an “interested person” by his or her relationship to a “decedent,” i.e., as a child with an interest in a trust estate or estate of the decedent that may be affected by the proceeding.  Tepper never alleged she was named as a beneficiary in Eileen’s revocable trust, and even if she was one, assets held in a revocable trust belong to the settlor who may dispose of those assets at will, effectively eliminating a beneficiary’s interest altogether.  (See, Babbitt v. Superior Court (2016) 246 Cal.App.4th 1135, 1145.)

The Court held that the cause of action for elder financial abuse belonged to the mother as the real party in interest, and found that since Tepper had not been appointed her mother’s guardian, she had no standing to bring suit in the mother’s name or on her claims.

Posted in Elder Abuse, Uncategorized | Tagged , , , , , , , , , | Leave a comment

Under LPS Act, Court Must Either Obtain Waiver of Jury Trial or Provide Jury Trial, Unless Proposed Conservatee Lacks Capacity to Waive

A recent case clarifies the rights of a proposed conservatee in proceedings held pursuant to the Lanterman–Petris–Short (LPS) Act.

In Conservatorship of Heather W. (2016) 245 Cal.App.4th 378, the Public Guardian of San Luis Obispo County had been appointed as conservator to Heather W. in 2013 under the LPS Act (Cal. Welf. & Inst. Code, § 5000 et seq.) on the grounds that she was gravely disabled due to a mental disorder. In 2014, the Public Guardian petitioned to be reappointed as Heather W.’s conservator on the same grounds. Heather W.’s counsel did not request a jury trial, and while the court advised Heather W. of her right to testify at trial, the court did not advise her that she had a right to a jury trial. The trial court set a date for a bench trial.

At trial, Dr. Rose Drago, a psychiatrist, testified that Heather W. suffered from schizoaffective disorder, which caused psychosis and mood swings, and that she had been hospitalized several times because she was gravely disabled and a danger to others. Dr. Drago also testified that Heather W. had a history of refusing to take her medication. At one point, while living in a homeless shelter, she acted “bizarrely, pacing, responding to hallucinations.” Dr. Drago concluded that Heather W. should be in a locked facility until she could become stabilized through treatment. Conservatorship of Heather W., 245 Cal.App.4th at 381–382.

Specifically citing Heather W.’s high number of hospitalizations, the trial court found Heather W. to be gravely disabled. The court appointed the Public Guardian as her conservator with the power to detain and care for her and require placement “in a suitable institution, facility, home or hospital.” Id. at 382.

The Court of Appeal reversed, resting its decision on a wealth of case law from no less than the California Supreme Court. For example, the Court cited Conservatorship of Roulet (1979) 23 Cal.3d 219, 235, in which the California Supreme Court held, “The due process clause of the California Constitution requires that proof beyond a reasonable doubt and a unanimous jury verdict be applied to conservatorship proceedings under the LPS Act.” Id.

The Court also relied on analogous California Supreme Court decisions from the field of criminal law. For example, in People v. Blackburn (2015) 61 Cal.4th 1113, 1130, the California Supreme Court held that in a mentally disordered offender (MDO) commitment proceeding, “the decision to waive a jury trial belongs to the defendant in the first instance, and the trial court must elicit the waiver decision from the defendant on the record in a court proceeding.” Likewise, in People v. Tran (2015) 61, Cal.4th 1160, 1167, the California Supreme Court held that for extension of hospital commitments for defendants who plead not guilty by reason of insanity (NGI), the NGI defendant has a right to a jury trial, and the defendant’s waiver of that right can be made by his or her counsel only if the defendant “lacks the capacity to make a knowing and voluntary waiver.” Id. at 383.

The Court of Appeal noted that the policy behind all commitment proceedings is “protecting the public and treating severely mentally ill persons.” Id. But in the LPS context in particular, the Court (quoting Conservatorship of Roulet, cited above) noted the importance of carefully balancing the conservatee’s liberty against the public safety, because “the gravely disabled person for whom a conservatorship has been established faces the loss of many other liberties in addition to the loss of his or her freedom from physical restraint. Indeed, a conservatee may be subjected to greater control of his or her life than one convicted of a crime. Consequently, the right to a jury trial to contest an LPS conservatorship is a right guaranteed by the California Constitution.” Id. (Internal citations and quotation marks omitted. Emphasis added.) Citing both Blackburn and Conservatorship of Kevin A. (2015) 240 Cal.App.4th 1241, 1252, the Court noted that the “potentially transitory and treatable nature of mental illness and the potentially limited areas of functioning impaired by such illness preclude any categorical inference that a [conservatorship defendant]…cannot competently decide whether to waive a jury trial.” Id. at 384.

Finally, the Court of Appeal cited Cal. Prob. Code § 1828, which provides in relevant part that “before the establishment of a conservatorship of the person or estate, or both, the court shall inform the proposed conservatee of all of the following․.. [p] The proposed conservatee has the right to oppose the proceeding, to have the matter of the establishment of the conservatorship tried by jury.” Cal. Prob. Code § 1828(a)(6). (Emphasis added.) The Court noted, “Here the trial judge did not give such an advisement to Heather W. and obtain her personal waiver of that right.” Id. at 384.

The Court of Appeal easily rejected the Public Guardian’s reliance on Conservatorship of Mary K. (1991) 234 Cal.App.3d 265 for the simple proposition that “counsel may make the waiver for the proposed conservatee.” That case not only was decided before Blackburn and Tran, but was distinguishable because in Mary K., the client had told her counsel that she wanted to waive a jury trial. In contrast, Heather W. had not even been told she had a right to a jury trial at all. Likewise, the Court of Appeal rejected the Public Guardian’s argument that any error was harmless, citing Tran, which held that “[an error] resulting in a complete denial of the defendant’s right to a jury trial on the entire cause in a commitment proceeding…is not susceptible to ordinary harmless error analysis and automatically requires reversal.” Id. at 385.

The Court of Appeal summed up its holding as follows: “In conservatorship proceedings pursuant to the LPS Act, the trial court must obtain a personal waiver of a jury trial from the conservatee, even when the conservatee expresses no preference for a jury trial. Absent such a waiver, the court must accord the conservatee a jury trial unless the court finds the conservatee lacks the capacity to make such a decision.” Id. at 381. The Court of Appeal did not discuss how a conservatee’s attorney might go about deciding whether to waive a jury trial for a client who lacks capacity to waive. Presumably, counsel would rely on the usual strategic concerns that lawyers consider when gauging whether their clients would get the best result from a jury trial or a bench trial.

The Court remanded the case, ordering the trial court to determine “whether Heather W. lacked the capacity to make a knowing and voluntary waiver at the time of counsel’s waiver.” The trial court had authority to reinstate its order only if it found “substantial evidence that [she] lacked the capacity to make such a waiver.” Id. at 385.


Posted in conservatorship, conservatee, waiver, jury trial, bench trial, mental capacity, capacity to waive, Uncategorized | Leave a comment


An important question of law — whether a tenant’s breach of a residential rental contract, regardless of the breach’s materiality or impact on the landlord, justifies the landlord forfeiting the agreement and terminating tenancy – was recently decided by the Court of Appeal for the Second District of California, in Boston LLC v. Juarez, 2016 Cal. App. LEXIS 146 (Cal. App. 2d Dist. Feb. 25, 2016.

In that matter, Boston LLC had rented an apartment to Juan Juarez subject to the Los Angeles Rent Stabilization Ordinance (LARSO). The rental agreement contained a forfeiture clause for any failure of compliance or performance by Juarez and a provision which required Juarez to obtain insurance coverage for personal injury or property damage.  After having failed to obtain this insurance for 15 years, Boston gave Juarez a three-day notice to perform or quit.  Boston served its three-day notice to quit on Friday, February 14th, the beginning of a three-day weekend for President’s Day, a legal holiday, which was on Monday, February 17th.  Juarez obtained insurance on February 21st, shortly after the expiration of the three-day period.

Boston then sued Juarez for unlawful detainer in the Los Angeles Superior Court, contending that the forfeiture clause allowed it to terminate Juarez’s tenancy for any breach, regardless of the breach’s materiality.  Juarez argued, among other things, that the law requires a material breach to justify forfeiture and that he should be allowed to present evidence that his breach was immaterial.  The court agreed with Boston that the forfeiture clause made any breach, regardless of materiality, grounds for termination of tenancy.  The parties stipulated to a bench trial and the court ruled that Juarez’s failure to obtain insurance within the three-day notice period constituted a breach of the lease and thus Boston could forfeit the lease.  The trial court did not make a determination about the breach’s materiality.  Juarez appealed to the appellate division of the Superior Court, but it affirmed.

Juarez then appealed to the Appellate Court, arguing that a tenant’s breach must be material to justify a landlord’s forfeiture of a rental agreement.  The court agreed with Juarez, holding that a tenant’s breach must be material to justify forfeiture. In this case, the Court determined that, because the intended purpose of the insurance coverage was to protect the interests of Juarez, the tenant, not Boston LLC, the landlord, Juarez’s failure to obtain the coverage could not have harmed Boston and accordingly was not a material breach constituting grounds for forfeiture.

The Court did not address whether there are any circumstances under which a landlord can seek forfeiture of a rental agreement based on the tenant’s failure to obtain insurance.  Perhaps this is because this case is limited to a residential lease agreement subject to the LARSO, which imposes certain limitations and restrictions landlords are not otherwise subject to under usual freedom to contract purposes.  (L. A. Mun. Code. § 151.01).  However, in a commercial situation where a tenant fails to obtain insurance in compliance with the terms of its lease, the lack of such insurance could be problematic in the event of a loss which prevents the tenant from continuing its business and meeting its obligation to pay rent which could seemingly be construed to be a material and/or substantial breach.

Posted in Uncategorized | Leave a comment


On September 23, 2015, Governor Brown signed AB 139, a bill introduced by Assemblyman Mike Gatto, which allows Californians to take advantage of a new, low-cost way to avoid probate on residential real property – the revocable transfer on death deed (RTDD).  With AB 139, codified at California Probate Code section 5600, et seq., California has joined more        than 20 other states offering this tool, for at least five years – since unless it is extended, the new law will expire January 1, 2021.

An RTDD basically allows a transferor, who has the capacity to contract, to deed his or her property (limited to a condominium, property comprised of one to four residential units, or 40 acres or less of agricultural land improved with a single-family residence) to a chosen beneficiary upon death, bypassing the often costly, time-consuming process of probate. The RTDD would work like the payable-upon-death forms already used to pass on assets like insurance policies, bank and brokerage accounts or IRAs, without going through probate.

The RTDD must be substantially similar to the statutory form described in Probate Code section 5642, subdivisions. (a) and (b), and must be signed, dated, notarized, and recorded within sixty (60) days of signing to be valid.  If recorded and not revoked, the RTDD will be effective upon death to transfer the property to the named beneficiary.  Inasmuch as this would represent a revocable transfer, the transferor can always change his or her mind and either name a new beneficiary or simply revoke the prior transfer.  The property transferred via the RTDD would remain in the transferor’s estate, including for Medi-Cal eligibility and for the transferor’s creditors.  Because the transfer does not occur until the grantor’s death, there is no completed gift for purposes of gift tax.  And there is no documentary transfer tax payable or Proposition 13 reassessment at the time of recording the new RTDD.

While advocated as a convenient and inexpensive way for a non-probate transfer of a residence, there are concerns that the availability of this simple transfer deed raises concerns regarding the risk of fraud, incompetency, and duress in the making of RTDDs by elderly and vulnerable users. Also, since the RTDD option is only effective for transfers of residential real estate and does not include other types of real property and other assets that would still be subject to probate, such as non-residential real property (industrial, large ag, etc.), cars and personal property like jewelry, many commentators find the device too limited in scope and flexibility.  Finally, if the property is held as community property with right of survivorship and the transferor is the first joint tenant or spouse to die, the RTDD is ineffective.

RTDDs may also create difficulties for title insurers. Unlike probate, which transfers the decedent’s real property only after creditors have been paid and there is a clear determination of who owns the property, RTDDs convey real estate immediately upon death—even though claims against the property may subsequently be filed by the decedent’s creditors. Therefore, until the applicable claims period has expired, it is difficult for a company to issue title insurance on the conveyed property.  According to a recent newspaper article, “At least one national title insurance company’s underwriting policy requires an in-depth factual investigation and senior underwriting review and approval to issue a new owner’s policy of title insurance following the death of a revocable TOD deed grantor.”  (Barnes, Usefulness of TOD Deeds Uncertain, S. F. Daily Journal (January 5, 2016).)  Once attorneys, creditors and title companies become more familiar with RTDDs, any wariness about them may lessen, but until then, we can only wait and see.

While the new RTDD holds much promise as a way of simplifying transfer of a home upon the owners’ death, it is not suitable for everyone, and may end up being a fairly limited means of assuring an intended post-death conveyance.  If a grantor wants to leave property in trust, or wants to plan to reduce estate taxes, or wants to make sure that a trusted person can maintain or sell the property during the grantor’s incapacity, an RTDD is not the proper means of doing so and, at the end of the day, is not a substitute for a complete Estate Plan – a Will, Trust, Advance Health Care Directive and/or Power of Attorney.  Before deciding upon the use of an RTDD, it is strongly recommended that individuals seek professional guidance from an elder law or estate planning attorney.

Posted in Estate Planning, Uncategorized | Tagged , , | Leave a comment

Court of Appeals Clarifies What Counts as an Invalid “Donative Transfer” of Real Property Under California Probate Code

The case of Jenkins v. Teegarden (2014) 230 Cal. App. 4th 1128 provides helpful clarification on what constitutes a “donative transfer” for purposes of former Cal. Prob. Code § 21350 et seq. and its current incarnation, Cal. Probate Code § 21380 et seq. Essentially, both the former and current versions of the statute provide that a testamentary “donative transfer” is, under certain specified conditions, presumptively invalid. In the words of the court, “For purposes of this case, the effect of Probate Code section 21380 et seq. is the same as the effect of Probate Code former section 21350 et seq.; a ‘donative transfer’ above a certain minimum value to an unrelated drafter of the transfer instrument is invalid—even if the transferee could disprove fraud, menace, duress, and undue influence—unless it has been either reviewed by an independent attorney or approved by a court.” Id. at 1137.

In Jenkins v. Teegarden, Plaintiff Marilou Jenkins (Jenkins) was the stepdaughter of Robert Perry (Perry), an elderly man. Jenkins lived with her mother and Perry in their home in Riverside until she was 21 or 22. The Perrys also owned a vacant lot next door to their home. In 2002, the Perrys transferred the vacant lot into a revocable living trust. Upon the deaths of both spouses, Jenkins would become the successor trustee and sole beneficiary.

In 2001, Perry hired Defendant Charlotte Teegarden (Teegarden) as a weekend caregiver for himself and his wife, Loyce. (The Perrys employed other caregivers during this time in addition to Teegarden.) Teegarden earned $7,000 to $15,000 per year for helping around the house, including shopping for groceries, cooking, cleaning, and bookkeeping. She also maintained a full-time job during the week. Teegarden owned a house in Sun City, where she continued to live during this time. In 2003, her house was foreclosed. Under an oral agreement, Teegarden deeded the house to the Perrys, and they paid off the mortgage, which was $205,000. The Perrys allowed Teegarden to keep living in the home, and they told her she could pay rent if she could, but she was not required to do so.

In December 2005, Perry’s wife died. Perry owned a vacant lot next to his home, and in early 2006, he and Teegarden agreed to build a house on the lot that would belong to Teegarden. His stated intent was to provide a nearby place for Teegarden to live while she continued to serve as his caregiver. Perry paid a contractor to build the house, whereas Teegarden contributed about $100,000 for flooring, the electrical system, a water main, fencing, and other additions. Perry eventually sold the Sun City house, and he and Teegarden agreed that the proceeds would be used to offset what he paid to build the house. By early 2007 the house was finished, and Teegarden moved in.

In August 2007, Teegarden bought a blank quitclaim form at Staples, filled in the blanks, and had Perry sign the document. However, Teegarden made several mistakes. The deed listed Perry as an individual, rather than as the trustee, and the description of the property was legally inadequate. Although the deed was recorded in August 2007, because of the errors in the deed, the title remained in the trust established by the Perrys in 2002. In 2011, at the age of 87, Perry was killed in a fire that destroyed his house.

In 2012, Jenkins filed a petition asserting, among other things, that the purported transfer of the property to Teegarden was void because it was a “donative transfer” under former Cal. Prob. Code § 21350. Under that statute, a testamentary “donative transfer” was void under certain conditions, including if the transferee was the same person who drew up the deed or was a caregiver of the grantor, as in this case. See former Cal. Prob. Code § 21350(a)(1), (6).

Teegarden countered that the statute did not apply. She argued that the deed was not a “donative transfer” because it was for adequate consideration—namely, $45,000 equity in her Sun City home that she deeded to Perry; her giving up of the option to repurchaser the Sun City home for $45,000 less than its worth; the approximately $100,000 that she contributed to the new house built on the vacant lot; her “friendship”; and her continued caregiving. The trial court sided with Teegarden, finding that because the transfer was for adequate consideration, it was not “donative” and therefore not void under former Cal. Prob. Code § 21350.

On appeal, the court reversed. The most salient issue was whether the consideration was sufficient to make the transfer not “donative” for purposes of the statute. After a lengthy exposition on the legislative history of the statute, the court concluded that “‘donative transfer,’ as used in Probate Code former section 21350, includes not only a transfer for zero consideration, but also a transfer for unfair or inadequate consideration.” Jenkins, 230 Cal. App. 4th at 1142. Specifically, the court decided that the standard that best fit the legislative intent of the statute was the test from existing law used to determine whether consideration is adequate to require specific performance. Under this standard, consideration, to be adequate, “need not amount to the full value of the property”; rather, the test is whether the seller received a price that is “fair and reasonable under the circumstances.” Id.

Applying this standard, the court found that the consideration received by Perry was not adequate. The court found that the $100,000 contributed by Teegarden towards the new home, while adequate consideration “to support a contract,” was still not adequate for purposes of determining whether the transfer was “donative,” since the $100,000 would merely go back into Teegarden’s pocket when she took ownership of the house. Id. at 1143. As for the option to repurchase the property that Teegarden gave up, the court held that this option was worth “zero” because “there was no evidence that, as of 2007, she could have raised $205,000 for the repurchase.” Id. And Teegarden’s continued care was already being remunerated at around $10,000 per year, so it could not serve as consideration for the property. The court went so far as to say that even if the $100,000 and $45,000 were taken into account, $145,000 “still was not adequate consideration for a $480,000 house.” Id. Therefore, as a matter of law, the quitclaim was a “donative transfer” under former Cal. Prob. Code § 21350 and was invalid.

This decision is pivotal as it appears to be the first published opinion to establish the proper test for whether a transfer is “donative” under the California Probate Code. It is important to remember that even though the opinion dealt with the now repealed Cal. Prob. Code § 21350 et seq., the court explicitly held that its reasoning also applies to the current version of the statute, Cal. Prob. Code § 21380 et seq. Jenkins, 230 Cal. App. 4th at 1131. The current statute is essentially the same as the old one, except that it provides that a donative transfer meeting any of the conditions “is presumed to be the product of fraud or undue influence.” Cal. Prob. Code § 21380(a).

Posted in Uncategorized | Leave a comment

An Overview of Current Perspectives Concerning California’s Sustainable Groundwater Management Act

I recently attended a two-day seminar entitled Groundwater Regulation and Management in California which involved a comprehensive review of California’s new Sustainable Groundwater Management Act (SGMA). The conference was heavily attended by a number of interested stakeholders, including the heads of large water districts and water agencies; government representatives (Department of Water Resources and Attorney General); prominent water, government, and land use attorneys; consultants; and others. SGMA is a landmark law that is poised to completely change the way groundwater is viewed under the law and used by everyone in California.

The focus in the law is on the various groundwater basins, or below-ground areas where groundwater flows and can be withdrawn by pumping for productive use. There have been a number of stories written recently involving areas, particularly within the Central Valley of California, in which groundwater levels have dropped dramatically and the ground surface has been shown to have subsided substantially. One photograph displayed at least three times during the conference showed an area in the Central Valley where the groundwater had subsided at least 70 feet due to groundwater pumping. Groundwater has typically been legally owned under a scheme that gives priority to the overlying property owner for the owner’s reasonable use and appropriative rights (typically to water agencies or other government agencies) for the differential not used by the overlying owners; any remaining groundwater can be acquired under the law of prescription. A prominent water law attorney advised that it is critical for landowners to immediately document their use, and specifically the pumping of their groundwater wells, in order to later prove the amount and reasonableness of their use, as these issues are certain to come into question over time and as SGMA takes effect. Otherwise, how will landowners prove their starting point or the seniority of their rights?

Historically, where there have been disputes concerning the management and use of groundwater in a particular basin, stakeholders have resorted to the courts and received a handful of adjudications determining priority and reasonable use. Some of these cases have taken more than 10 years to resolve themselves, and there is some suggestion that one of the areas of possible improvement of the SGMA law may be to enact streamlining rules for groundwater litigation. These cases are typically very complex and expensive, and because they focus on what is “fair,” the results are often unpredictable. One important unanswered question under the law is how to deal with unexercised overlying rights, since under current law, ownership of land confers the right to reasonable use of its groundwater. Several presenters warned against the idea that adjudication was a reasonable alternative to compliance with SGMA.

Two critical deadlines under SGMA were discussed at great length during the two-day conference. The first deadline is that Groundwater Sustainability Agencies (GSAs) must be formed by June 30, 2017. The GSAs must conform to a series of medium and high priority groundwater basins that bear no reasonable relationship to current County or political boundaries.  Instead, the configuration of GSAs has everything to do with the below-ground geohydrology of the basins in question and whether or not they are “critically” over-drafted (read: over-pumped). In any area of the state where a GSA is required to be formed by the June 30, 2017 deadline, if no GSA is formed the State of California will step in and assume oversight of the groundwater in that basin and impose sizable costs and other restrictions.  It was universally agreed that having the state as the backstop was a far more draconian situation than local control exercised by a GSA.

There is little guidance in SGMA concerning how GSAs are to be formed. Joint Powers Authorities are available as a mechanism. Local counties are the backstop GSA of last resort, but as indicated above, their political boundaries do not necessarily conform to those of any particular groundwater basin. Several of the presenters at the conference indicated that simply having the local water district act as the GSA and assemble a plan would be a mistake and would not bode well for the success of the eventual groundwater plan: the GSA’s only mission should be to manage groundwater. SGMA provides that the eventual plan can be prepared by a single GSA or multiple GSAs, but if multiple GSAs are involved the plan has to be submitted jointly, as the law compels collaboration or, in other words, utilization of the same data and methodologies. Anything short of this is likely doomed to fail as far as the DWR’s oversight of the eventual groundwater plan is concerned.

The ultimate groundwater plan—or more properly, the Groundwater Sustainability Plan (GSP) —must address the issue of sustainability of the groundwater within a basin and specifically four factors: (1) groundwater levels, (2) water quality, (3) ground surface subsidence, and (4) surface water/groundwater interaction (in other words whether surface waters—lakes, rivers. and creeks—are being impacted by groundwater pumping). There was extensive discussion of the measurement and utilization of recharge of groundwater basins. One representative of a large Southern California water district even offered the following equation to prove sustainability: pumping = recharge. Other concepts utilized by large water agencies that were discussed involve water banking in other jurisdictions, importing and reusing treated water.

The second important deadline under SGMA that must be borne in mind involves when the GSP is due to the DWR. For critically impacted high or medium priority basins, the GSP is due by January 31, 2020. All other high or medium priority basins for which he GSP is required must submit their reports by January 31, 2022. Although there is already a widely known document (DWR Bulletin 118) published which defines the high and medium priority basins, a DWR report is due out within days which will offer further definition of exactly where the “critically” impacted high and medium priority basin are located.

There are some important but potentially confusing exemptions under the SGMA law.  One is that the preparation of a GSP is exempt from CEQA. A prominent land-use consultant spoke about the significant disconnect between land use decisions and water supply projects. He pointed out, for example, that in a county general plan water is not a required element, and there is no requirement of consistency between a land-use and water supply. Further, the recent enactment of SB 610, which tried to bring together concepts of land-use and urban water management, only applies to projects of 500 or more units. Given the project-based, disclosure focus of CEQA, this presenter predicted that concepts within the SGMA law (for example, “sustainable yield” and “undesirable result”) would eventually make their way into land-use planning and CEQA, and that there would also be cleanup legislation enacted by the CA Legislature in the not-too-distant future.

Another exemption from the SMGA law involves basins in which the water rights of the parties have already been the subject of an adjudication.  However, various participants questioned whether adjudicated basins were really exempt. No court has thus far tested the “sustainable” part of the new law. As one large urban water district manager pointed out, the law still requires exempt parties to an earlier adjudication to report their groundwater storage and use, which means to him that the sustainability of those numbers could still (and will likely be) subject to challenge. As a practical matter, he offered, if the state Attorney General came into the court in which matter had been adjudicated and began to raise arguments that the water use was not reasonable or sustainable, the local judge could be pressured into modifying or setting aside the earlier adjudicated conclusion. Another consultant even went so far as to suggest that ultimately, sustainability under the new law could trump existing concepts of groundwater rights altogether. Many predicted further significant litigation and “a wave of legal challenges” to come. The manager of the larger urban water district opined that counties should right now be conducting an audit of groundwater supply and demand and that there are likely to be further enactments in the future which will increase the scope of regulation of groundwater in California.

There was also discussion of funding available for GSAs in connection with the preparation of their GSPs.  Areas identified as needing funding included preparation of the sustainability plan; conducting inspections/enforcement; project construction, where necessary; and operations and maintenance. Revenue sources identified included taxes, assessments, project-related fees, and regulatory fees. The SGMA law has some tools of its own available to GSAs for raising revenues. Funding for operations, for example, can be levied from groundwater extractions.

Notably absent from this conference were any agricultural groundwater users or stakeholders from those areas, particularly in the south and southwestern portions of the California Central Valley. Apparently the strength of the agricultural industry resulted in the original removal by amendment of a provision which essentially stated there could be no more agricultural use of groundwater in any particular basin unless it was proven to be sustainable. One presenter predicted this provision would be coming back in further future enactments amending the SGMA law. Most of the stakeholders agreed that some form of management or regulation of agricultural groundwater use was going to be necessary in the future in order to make the SGMA law work.

Additional questions were also raised, and it was agreed that these also posed significant additional uncertainties under the new SGMA law—for example, environmental concerns regarding the impacts of extensive groundwater pumping on surface waters (lakes, rivers, streams, and creeks) and untested legal theories regarding the existence and quantification of native Californians’ rights to groundwater and groundwater storage.

Public management of groundwater use is coming – for everybody.  The new SGMA notwithstanding, questions concerning the reasonableness of any party’s use of groundwater and of the sustainability of groundwater pumping in a particular area will continue to present uncertainty for the various stakeholders for the foreseeable future.


Posted in Uncategorized | Tagged , , , | Leave a comment

California Court Holds That Individual Members of an LLC Can Be Personally Liable for Debts of a Dissolved LLC Under Certain Conditions

The case of CB Richard Ellis, Inc. v. Terra Nostra Consultants has important implications for anyone seeking to collect on a judgment against the individual members of an LLC that has no assets, that has been dissolved, and that was unable to pay the debt as a result of failing to set aside sufficient funds to pay creditors.

In CB Richard Ellis, Defendant Jefferson 38, LLC (“Jefferson”) sought a buyer for 38 acres of land in Murrieta, California. To this end, in March of 2004 Jefferson signed an exclusive sales listing agreement with Plaintiff CB Richard Ellis, Inc. (CBRE). Under the agreement, Jefferson agreed to pay CBRE a sales commission of 6 percent of the gross sales price for any sale completed within the term of the listing agreement.

Eventually, a buyer contacted Jefferson. Normally, any commission to the listing agent is paid out of the escrow funds, and there is no problem. However, according to the court’s recitation of the facts of this case, Jefferson, in spite of its agreement with CBRE, excluded CBRE from its sale of the property. Sometime around September 2004, a representative of Jefferson told a potential buyer, Covenant Development, Inc. (“Covenant”), that Jefferson had fired CBRE because Jefferson was dissatisfied with CBRE’s performance. Moreover, Jefferson took the position that it did not owe CBRE a commission because the listing agreement had expired in September 2004, well before the sale was completed.

On July 11, 2005, escrow closed on Jefferson’s sale of the property to an entity to which Covenant had assigned its interests for a gross sales price of $11,800,000. As the court explains, “On July 12, 2005, $11,025,625 was transferred into Jefferson’s bank account as a result of the close of escrow. The next day, Jefferson transferred all but $474.45 out of its account. This money was ultimately transferred in varying amounts to defendants and others.” The commission for the sale was split between NAI Capital (the buyer’s agent) and L. James Grattan & Associates (Jefferson’s agent). CBRE received no commission.

In July 2005, pursuant to an arbitration clause in the listing agreement, CBRE brought an arbitration claim against Jefferson. CBRE was awarded $960,649.30, which included the 6 percent commission, pre-award interest, and attorney fees and costs. The Los Angeles Superior Court confirmed the award and a  judgment for $985,439.80. However, by this time, Jefferson had no assets and was unable to pay CBRE. Eventually, the LLC was dissolved.

In June 2008, CBRE filed a complaint for breach of contract and prohibited distributions against the four (former) individual members of Jefferson. A jury trial began in 2011. The jury ultimately found that Jefferson had failed to perform under the agreement, that Jefferson had been dissolved, and that Jefferson had made a distribution to the members upon dissolution. The court entered judgment against the defendants for $354,000.

Defendants appealed the judgment, claiming, among other things, that the trial court had improperly instructed the jury regarding dissolution of the company, an issue that hinged partly on interpretation of the California statutes governing LLCs. However, the court rejected this and other arguments, found that the jury had been correctly instructed, and upheld the trial court’s judgment.

Generally, the individual members of an LLC are not liable for the debts, obligations, or judgments of the company. Indeed, as the name implies, the whole point of forming a limited liability company is to protect its members from personal liability. Nevertheless, there are exceptions to this rule. As the court explained, “Part of CBRE’s case involved proving Jefferson was a dissolved limited liability company, which lacked the ability to pay CBRE as a result of its distribution of assets to its members without reserving sufficient funds to pay CBRE.” With respect to its interpretation of California’s LLC law, the court further explained,

It is self-evident that former section 17355, subdivision (a)(1), was designed to prevent the unjust enrichment of members of limited liability companies, when such members have received assets the dissolved company needs to pay creditors. (See Gottlieb v. Kest (2006) 141 Cal.App.4th 110, 154 [former § 17355 “simply creates an enforcement mechanism so that company liabilities can be recovered out of distributed assets; it ‘compel[s] [a member] to return distributed assets’”].) Other sections contemplated that limited liability companies will not distribute funds to members without reserving sufficient assets to pay debts and liabilities. (Former §§ 17254, 17353.) If defendants’ interpretation of the statutory scheme were correct, companies (and their members) could avoid the force of former section 17355, subdivision (a)(1)(B), by the simple expedient of transferring assets out of the company the day before voting to dissolve.

In other words, even though LLCs are intended to limit liability against individual members, it would be unjust to allow members to dissolve their company and divert funds to themselves that should have been set aside to pay a creditor to satisfy a company debt. This case is important because it appears to be the first published opinion that involves a plaintiff getting a judgment against individual members of an LLC. It sends a clear message that the California courts are not willing to let individual LLC members abuse the LLC system in order to enrich themselves personally.

Posted in Limited Liability Companies | Tagged , , , | Leave a comment