Corporations and Small Claims Court in California

Question: Our corporation is suing a former client (another corporation) for non-payment of services. Does one of our corporate officers have to show up in small claims as plaintiff or can our business manager represent us - as she knows the full particulars of the actions.

Answer: A corporate officer should attend with the business manager and then ask permission from the judge for the business manager to speak on behalf of the corporation. It is the best way to make sure the case is not continued.

Under most circumstances, Code of Civil Procedure § 116.540 limits who can appear on behalf of a corporation in small claims court. That person appearing must be a "regular employee, or a duly appointed or elected officer or director, who is employed, appointed, or elected for purposes other than solely representing the corporation in small claims court." Your business manager could technically appear on behalf of the corporation. However, most small claims matters are heard volunteer attorneys who are appointed as "temporary" or "pro tem" judges and they are sometimes not familiar with the provisions of this code section.

Sending a corporate officer is not totally necessary, but it can lend credibility to the proceedings. It is common practice for a business to send a credit manager, but all it takes is the inconvenience of one dismissed case to see that the better practice is to also send a corporate officer.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Investigation of Star Ambulance Announced

With the assistance of attorney Carl H. Starrett II, Special Investigations Agency ("SIA") is conducting an investigation into Star Ambulance, Inc., which formerly held its principal office at 4400 Palm Ave., Suite C, La Mesa, CA 91941. Star Ambulance was formed by Larry McEwen in November 2000.

In March 2006, Emergency Medical Technicians employed by Star Ambulance allege that their paychecks began to bounce. A few months later, the former employees allege that Mr. McEwen closed the company bank accounts, sold the ambulances on hand to Fire Etc. which sells used fire equipment and left the employees without paying more than $20,000.00 in wages.

If you or anyone you know has any information regarding Star Ambulance, Inc. or any of the following employees of Star Ambulance, please click here to visit our website.

Larry McEwen - Chief Executive Officer
Frank Westbrook - Chief of Operations, Director of Business Development
Anna Chen - Director of Customer Relations Medical Accounting

About the Author: Kevin M. LaChapelle, director of Special Investigations Agency, began his career as a Loss Prevention and Safety Manager for a retail warehouse in San Diego. He then served as a Police Officer specializing in Street Gang Prevention/Intervention strategies and Community Oriented Policing. Mr. LaChapelle was the recipient for many awards for his leadership within the community.

New Bankruptcy Audit Requirements Announced for Southern California

When Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), one of the reforms included a requirement for random audits of case files. The guidelines for debtor audits for cases in San Diego County and Imperial County have been finalized.

Commencing with cases filed by individual debtors on and after October 20, 2006, Chapter 7 and Chapter 13 cases will be selected for audit pursuant to §603 of the Bankruptcy Code. According the Office of the United States Trustee, these audits will be focused on determining the accuracy, veracity and completeness of petitions, schedules and other information provided by debtors.

Cases will be selected both randomly (one out of at least every 250 cases filed for the Southern District of California) and based upon debtor's income or expenses having a greater than average variance from the statistical norm for the district. The audits will be performed by independent firms selected by the United States Trustee using auditing standards developed by the United States Trustee Program (the "USTP"). These Debtor Audit Standards have been published in the Federal Register and are posted to the USTP's website at: www.usdoj.gov/ust.

The Office of United States Trustee will send a letter to Debtor's Attorney, or a pro se Debtor, indicating that a case has been selected for audit, enclosing a form for the attorney to indicate whether the audit firm can directly contact a represented debtor about documents and an information sheet about the audit for the debtor. The letter will also identify the firm that will be conducting the audit and the documents that must be produced to the audit firm. These documents include the following:

• Pay stubs for the six calendar months prior to filing;
• Two years of federal tax returns, including any schedules and forms;
• Account statements for all depository and investment accounts for the six calendar months preceding the date of the filing of the petition, plus the month in which the petition was filed, along with sufficient documentation to reasonably explain the source of deposits or credits, and the purpose of checks, withdrawals or debits; and
• A copy of any divorce decree and/or property settlement entered within the last three years, and any current child support/alimony obligation involving the debtor.

Debtors will have 21 days to provide the audit firm with the requested documents. Debtors must cooperate with the audit firm and provide records to the auditor. A debtor's discharge may be revoked if the debtor does not satisfactorily explain the failure to make available all documents or property requested by the audit firm.

Once the audit is complete, the audit firm will issue a report which must specify any material misstatements of income, expenses, or assets that identified by the audit firm. Before including a material misstatement in an audit report, the audit firm will contact the debtor's counsel, or the pro se debtor, in writing, notifying the debtor of the concern and offering the debtor an opportunity to provide an immediate written explanation for the item(s) in question.

Audit firms file the audit report with the court and transmit it to the United States Trustee. The clerk of court must send a notice to creditors in cases in which one or more material misstatements have identified in an audit report.

If material misstatements are not adequately explained by the debtor, the United States Trustee may take appropriate civil action and, where appropriate, make a criminal referral to the U.S. Attorney.

For more information regarding debtor audits, please contact us.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

Explanation of a Chapter 7 Discharge

For most individual debtors, the purpose of filing for Chapter 7 bankruptcy is to receive a discharge of their debts. What exactly does a does discharge do?

Collection of Discharged Debts Prohibited

The discharge prohibits any attempt to collect from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit, to attach wages or other property, or to take any other action to collect a discharged debt from the debtor. There are also special rules that protect certain community property owned by the debtor's spouse, even if that spouse did not file a bankruptcy case. A creditor who violates this order can be required to pay damages and attorney's fees to the debtor.

However, a creditor may have the right to enforce a valid lien, such as a mortgage or security interest, against the debtor's property after the bankruptcy, if that lien was not avoided or eliminated in the bankruptcy case. Also, a debtor may voluntarily pay any debt that has been discharged.

Debts That are Discharged

The chapter 7 discharge order eliminates a debtor's legal obligation to pay a debt that is discharged. Most, but not all, types of debts are discharged if the debt existed on the date the bankruptcy case was filed. If this case was begun under a different chapter of the Bankruptcy Code and converted to chapter 7, the discharge applies to debts owed when the bankruptcy case was converted.

Debts that are Not Discharged

Some of the common types of debts which are not discharged in a chapter 7 bankruptcy case are:

• Debts for most taxes
• Debts incurred to pay nondischargeable taxes (applies to cases filed on or after 10/17/2005)
• Debts that are domestic support obligations
• Debts for most student loans
• Debts for most fines, penalties, forfeitures, or criminal restitution obligations
• Debts for personal injuries or death caused by the debtor's operation of a motor vehicle, vessel, or aircraft while intoxicated
• Some debts which were not properly listed by the debtor
• Debts that the bankruptcy court specifically has decided or will decide in this bankruptcy case are not discharged
• Debts for which the debtor has given up the discharge protections by signing a reaffirmation agreement in compliance with the Bankruptcy Code requirements for reaffirmation of debts
• Debts owed to certain pension, profit sharing, stock bonus, other retirement plans, or to the Thrift Savings Plan for federal employees for certain types of loans from these plans.

This information is only a general summary of the bankruptcy discharge. There are exceptions to these general rules. Because the law is complicated, you may want to consult an attorney to determine the exact effect of the discharge in this case.

Top 10 Mistakes: Preliminary 20-Day Notice

By Suzanne Ervine, Construction Commando

1. Failing to Provide a Preliminary Notice at All. Any subcontractor who enters into a contractual relationship exceeding $400 is required by law to prepare and serve a Preliminary Notice. Failure to do so constitutes grounds for disciplinary action by the Registrar of Contractors.

2. Serving the Notice Too Late. To preserve Mechanic’s Lien or Stop Notice rights, a Preliminary Notice must be served within 20 calendar days of the first date services were performed or materials were provided on a job. If the Preliminary Notice is served later than 20 days after you first worked on a job, you are entitled to Lien or Stop Notice rights only for work performed within the 20 days prior to serving the Notice.

3. Waiting Until the 19th Day to Prepare the Notice. Putting off the preparation of a Preliminary Notice leaves little time to resolve any problems that may arise, such as difficulty reaching the prime contractor to request additional information, or delays at the governmental offices where you need to verify information in recorded documents and/or building permits. Furthermore, because the law requires the Notice to be sent via certified or registered mail, simply arriving at the Post Office even 5 minutes after the counter closes could result in missing the cutoff. Plan ahead!

4. Mailing the Notice by Regular First Class Mail. The Preliminary Notice may only be served by personal delivery, or by first class certified or registered mail. Sending the Notice by regular first class mail is not sufficient, and the courts have ruled against contractors who did not comply with the strict requirements of the statute. In IGA Aluminum Products, Inc. v. Manufacturers Bank, the court ruled, “The statute clearly states that proper notice is a prerequisite to perfecting a mechanic's lien, and that if service of the notice is accomplished by mail, the notice must be sent by registered or certified mail.” Proof that the Notice was served by mail in accordance with the statute must be accompanied by either the return receipt of certified or registered mail, or by a copy of the record of delivery; or in the event of nondelivery, by the returned envelope itself.

5. Providing an Arbitrary Estimate of the Total Price for the Job. While the law requires a Preliminary Notice to contain an estimate of the total price of a job, any such estimate must be a good faith estimate. The estimate must be “a derived figure, arrived at by rational analysis.” (Rental Equipment, Inc. v. McDaniel Builders, Inc..) Estimates that are “made up out of whole cloth” are insufficient.

6. Deviating from the Required Language in the “Notice to Property Owner” (private works only). California law is very specific about the language required in a Preliminary Notice for private works of improvement. The California Civil Code sets forth the exact language required in the “Notice to Property Owner” contained on the face of the Preliminary Notice. California courts have long held that deviation from this language will render your Notice invalid. In Harold L. James, Inc. v. Five Points Ranch, Inc., the court held that, “Where the Legislature has provided a detailed and specific mandate as to the manner or form of serving notice upon an affected party that its property interests are at stake, any deviation from the statutory mandate will be viewed with extreme disfavor” (emphasis added).

7. Failing to Verify Proper Identities of Notice Recipients. Many subcontractors rely on information obtained from the prime contractor. However, this is insufficient and could render your Notice invalid, thus barring any future mechanic’s lien or stop notice legal action. Contractors seeking to enforce a lien or stop notice remedy have a duty to inspect readily available public records to determine the identities of a property owner or construction lender. In Romak Iron Works v. Prudential Ins. Co., the court held that Civil Code section 3097, subsections (i) and (j) “impose on a prospective stop notice claimant the duty to examine…the building permit and the specially-indexed official records of the county.” The court further ruled that, “If he fails to examine the two sources, subdivisions (i) and (j) operate to charge him with constructive notice of the information recorded in either.” Ignorance is no excuse – make sure you check the official public records!

8. Failing to File the Preliminary Notice with the County Recorder. Although not required by law, filing a copy of the Notice with the County Recorder can help contractors ensure that mechanic’s lien or stop notice rights are fully protected. If a contractor has filed a Preliminary Notice, the County Recorder is required to notify him of any subsequently filed Notice of Completion or Notice of Cessation. If a property owner files either of these documents, the time within which to file a mechanic’s lien or stop notice action is shortened to just 60 days for prime contractors, or 30 days for subcontractors and suppliers. Notification of this shortened time frame enables you to seek legal counsel and initiate legal action before the deadline. Please note, however, that the County Recorder’s failure to notify a potential claimant of a Notice of Completion or Cessation does not extend the amount of time you have to initiate litigation to perfect the lien or stop notice.

9. Failing to Send a Copy of the Notice to the Surety Company. To enforce a claim on a payment bond, notice must be given to the bond surety and bond principal within 15 days of the recording of a Notice of Completion or Notice of Cessation (or within 75 days after completion of the work if neither Notice is recorded). This payment bond notice can be accomplished by simply serving the bond surety with the Preliminary Notice, and further ensures that a very short 15-day deadline is not missed.

10. Serving Only One Notice if Multiple Notices Are Required. Generally, a contractor must serve only one Preliminary Notice per job, regardless of the length of time or amount of materials and services provided. However, if you are providing services or materials to a jobsite under multiple contracts with multiple subcontractors, a separate Notice must be prepared and served pursuant to the contract with you have with each subcontractor. This most often occurs with suppliers who provide materials to many contractors for the same job.

About the Author: Suzanne Ervine is a Registered Legal Document Assistant and owner of Construction Commando. A trained paralegal and bookkeeper, Ms. Ervine specializes in assisting contractors with preliminary notices, mechanic’s liens, stop notices, bond claims, and bookkeeping. She is a member of the American Institute of Professional Bookkeepers and the California Association of Legal Document Assistants. Together with her husband Roger, she owns and operates Fidelity Electric, a full-service electrical contracting company. Contact Suzanne at suzanne@constructioncommando.com.