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GEA’s Demand Letter to Union Bank Secures Release of Erroneous Loan

June 10, 2022/in All Blog Posts/by John Ahn

Gupta Evans & Ayres was successfully able to secure a release of a bank loan that was erroneously accounted for as due when the bank had previously discharged the loan years prior. All it took was a simple and effective demand letter, saving our client time and money.

Our client obtained a $50,000 loan from Union Bank in early February 2006. A little over ten years later, Union Bank sent our client a notice of cancellation stating that the remaining balance on the loan had been discharged. Shortly thereafter and to fulfill IRS requirements, Union Bank sent our client a 1099-C Form titled “Combined Tax Statement for Year 2016” which stated and confirmed that the loan had indeed been discharged. Relying on this 1099-C Form, our client promptly paid the taxes on the discharged debt to the IRS.

Around mid-June of 2020, our client sought to secure a loan to purchase real estate and performed a title search. Much to our client’s surprise, the preliminary report included the 2006 loan for $50,000. To sort out this confusion, our client contacted Union Bank directly multiple times requesting access to our client’s bank records and any records of communications or correspondence between our client and Union Bank. However, and unsurprisingly, Union Bank’s representatives’ responses had largely been the same—that the Loan was still showing as due.

GEA stepped in and drafted a demand letter to Union Bank which included documents sent by Union Bank themselves telling our client that the 2006 loan had been discharged, and alluded to Union Bank’s potential violations of the Rosenthal Act given the inaccurate accounting on the loan and Union Bank’s inaction in investigating the errors. In response, Union Bank agreed to release and reconvey the deed of trust on the loan, fully clearing the 2006 loan from our client’s name. As a result, our client was able to freely secure the mortgage loan he was seeking and avoid potential litigation costs and expenses.

Which State’s Law Governs? Domesticating Out-of-State Judgments in California

January 19, 2022/in All Blog Posts/by John Ahn

I ran into an interesting legal question regarding the collection of out-of-state judgments: when an out-of-state judgement is domesticated in California, which state’s law controls? Let’s say a creditor secured a judgment against one spouse outside of California in another community property state, but that state’s community property laws prevented the married couple’s community property from being encumbered by the judgment. The rub is that the couple also own property in California. Can the creditor secure a lien against the California property by domesticating the judgment in California?

California Sister State Money Judgments Act and Domesticating Judgments

The California Sister State Money Judgments Act, Code Civ Proc section 1710 deals with sister state judgments and domesticating judgments in California, which states: “Except as otherwise provided in this chapter, a judgment entered pursuant to this chapter shall have the same effect as an original money judgment of the court and may be enforced or satisfied in like manner.” Code Civ Proc § 1710.35. Courts have taken the plain language of section 1710.35 and determined that the legislative intent of the “[a]ct was not intended to alter any substantive rights or defenses which would otherwise be available to a judgment debtor or a judgment creditor in this state.” Washoe Dev. Co. v. Irving Sav. Ass’n, 47 Cal.App.4th 1518, 1524 (1996); see also Kahn v. Berman,198 Cal. App. 3d 1499, 1505-1507 (1988).

In Washoe, a judgment was entered in Nevada and then renewed by court order, which revealed that Respondents had money due from Appellants remaining. 47 Cal.App.4th at 1521. Respondents obtained a judgment in California (domesticated judgment) to recover the remaining amount through the sister-state judgment process under Code Civ Proc section 1710. Id. There was an issue raised regarding whether the California judgment was unenforceable in light of conflicting Nevada law. Id. at 1523. However, the court in Washoe determined that defenses against sister-state judgment enforcement cannot be asserted because “the court rendering the judgment had fundamental jurisdiction”, which in this case, was California. Id. at 1524.

In light of Washoe and section 1710 of the California Sister State Money Judgments Act, the answer seems relatively straightforward. However, not all community property states are created equal, and will sometimes conflict with one another in terms of whether the community property can be encumbered by a judgment lien. For instance, Ariz. Rev. Stat. (“A.R.S.”) section 25-214 states that binding community property for “[a]ny transaction of guaranty, indemnity or suretyship” requires a joinder of both spouses. Ariz Rev. Stat. § 25-214. This effectively prevents the creditor in the situation supra from securing a lien on any of the couple’s community property. However, California has no such rule. In fact, California’s Code of Civil Procedure states that “[a]ll property of the judgment debtor is subject to enforcement of a money judgment.” Code Civ. Proc., § 695.010. This begs the question: if the creditor decides to domesticate the Arizona judgment in California, will the creditor be able to secure a lien on the community property located in California?

True Conflict Test

In Gaughan v. First Cmty. Bank (In re Miller), 517 B.R. 145, 152 (D.Ariz. 2014), a judgment was entered against the husband Larry Miller and not his wife, Kari Miller, in Arizona. 517 B.R. at 147. The judgment was later domesticated in California, and the Arizona District Court determined that Arizona laws should apply under the principles of full faith and credit. Id. at 155. However, the Ninth Circuit reversed this decision in First Cmty. Bank v. Gaughan (In re Miller), 853 F.3d 508, 519 (9th Cir. 2017).

The Ninth Circuit drilled down on this issue of conflicting statutes due to the presence of a choice-of-law provision and applied a three-prong test based on Kearney v. Salomon Smith Barney, Inc., 39 Cal. 4th 95, 111-12 (2006). 853 F.3d at 516. In determining which state’s law applies, they analyzed three questions: (1) does relevant law vary between the potentially affected jurisdictions?; (2) If there is a difference in law, does a true conflict exist such that “each of the states involved has a legitimate but conflicting interest in applying its own law[?]”; (3) If there is a true conflict, “which state’s interest would be more impaired if its policy were subordinated to the policy of the other state[?]” Id.; see also Kearny, 39 Cal. 4th at 111-12.

On paper, there seems to be a “true conflict” between the Arizona and California community property laws—applying Arizona law would mean the community property is exempt or protected from encumbrance, while applying California law would mean the community property can be encumbered. This is exactly what the court in Gaughan concluded prior to the Ninth Circuit’s reversal. However, the Ninth Circuit held that the differences in the two statutes did not necessarily compel the conclusion that a true conflict existed. In re Miller, 853 F.3d at 516. Instead, the “existence of such a conflict turns on whether the circumstances of the case implicate the policies underlying the ostensibly conflicting laws.” Id. at 517.

The Ninth Circuit dove deeper in light of this finding and analyzed the true purpose of each state’s ostensibly conflicting rules to see whether a true conflict actually existed. In doing so, the Ninth Circuit relied on Hamada v. Valley National Bank, 27 Ariz. App. 433 (1976). In Hamada, the Appellees Valley National Bank secured a judgment against the Appellants Hajime and Toshiko Hamada, a married couple. Id. at 436. However, Toshiko Hamada, Hajime’s wife, did not sign the promissory note on which the judgment was based. Id. The Arizona Court of Appeals explained that “[t]he husband, as a member of the community, has no power under the law without the knowledge and consent of his wife, to use community assets to guarantee the payment of a debt of a stranger to the community, it deriving no benefit therefrom.” Id. Therefore, the “policy underlying Arizona’s dual-signature requirement is to ensure that a spouse who lacks knowledge of, and does not acquiesce to, a guaranty is not bound.” In re Miller, 853 F.3d at 516.

Given that the Millers in In re Miller did not defend on the ground that Kari Miller lacked knowledge or acquiescence to justify her lack of signature on the guaranty, A.R.S. § 25-214 was not invoked and therefore, there was no true conflict between California and Arizona law. Id. at 518. Further, because there was no true conflict, the Ninth Circuit determined that California had a compelling interest in applying its law, one of which is “fostering the growth of commercial activities that require ready access to credit—a policy that would be undermined by limiting the ability of California creditors to enforce obligations for activities undertaken in California and made subject to the operation of California law by consent of the parties.” Id.

In light of the Ninth Circuit’s ruling in In re Miller, if the creditors in the hypothetical supra were to domesticate the out-of-state judgment in California and there are differences in the two states’ statutes, this might trigger the three-prong analysis to determine whether a true conflict actually exists. However, even if the analysis is triggered, it would probably be prudent to assume Washoe and California’s procedural laws would be controlling.

Author: John Ahn

Standing to Sue: Possession vs. Ownership of Trade Secrets

January 10, 2022/in All Blog Posts, Corporate Litigation/by John Ahn

Trade secrets encompass a unique area of intellectual property law that where protection is granted without any formal filings. Unlike patents, trademarks, and copyrights, which generally require filing an application with a government office, trade secrets are protected via—you guessed it—secrecy.

Once you have a protectable trade secret, you will generally have recourse to sue for misappropriation. However, the courts have given standing to sue for this cause of action not just to the originator of the trade secret, but also to those who are in possession of the trade secret and have an obligation to protect the confidentiality of the information.

This blog will explore the topic of a third party’s right to bring a cause of action for misappropriation even though the third party is not the owner of the trade secret.

Trade Secret Protections, Generally

Trade secrets are defined under 18 U.S.C. § 1839[1] and Cal Civ Code § 3426.1[2]. Boiled down, three things must be true for the information you seek to protect:

Derives independent economic value;
Not generally known to the public;
Reasonable measures were taken to keep the information secret.

A good way to understand whether the information you want to protect as a trade secret derives independent economic value is to ask whether competitors would be able to gain immediate economic benefits if they got their hands this information. If so, your information likely derives independent economic value.

As to the second point, it is important to understand that the law only requires the information be not generally known to the public; it does not have to be a secret from everyone.

Finally, your efforts to protect the information have to reasonable under the circumstances. This does not mean or require that “confidential information be kept completely clandestine or mandate the use of nondisclosure agreements in all instances.” BladeRoom Grp. Ltd. v. Facebook, Inc., 219 F. Supp. 3d 984, 992 (N.D.Cal. 2017). However, if you disclose your information to those who have no obligation to protect that information, you will have extinguished your rights to protection. In re Providian Credit Card Cases, 96 Cal.App.4th 292, 304 (2002).

Non-originator’s Standing

It is widely understood that owners of intellectual property will be able to seek damages for infringement or misappropriation. This is true for patents, trademarks, copyrights, and trade secrets. However, within the realm of trade secrets, courts have ruled that rather than ownership, rightful possession of the protected information can be enough to give a party standing to sue.

Let’s say a ABC Company (“ABC”) has developed a novel, efficient method of producing a widget using proprietary software and machine sequences. Rather than disclosing this information to the public by attempting to secure a patent, ABC decides to go down the trade secret route and keep this information confidential. ABC then discloses this information to you, and you are able to incorporate this secret method and incorporate it into your own business practices. The disclosure is protected by non-disclosure agreements wherein you can use but not disclose the trade secret, and now you have a duty to maintain the secret. A few years down the line, you discover that despite reasonable efforts, one of your vendors hacked into your servers and pulled information—specifically, ABC’s trade secret—and began using it for economic gain.

The Plaintiff in BladeRoom faced a similar situation. In BladeRoom, the Plaintiff, as a licensee of another’s trade secret, filed a complaint alleging misappropriation against Facebook. 219 F. Supp. 3d at 989. Facebook argued, citing Nextdoor.com, Inc.v. Abhyanker, No. C-12-5667 EMC, 2013 U.S. Dist. LEXIS 101440, at *27, (N.D. Cal. July 19, 2013), that in order for plaintiff to bring a viable claim for misappropriation, the plaintiff must own the trade secret. Id. at 990. However, the court in BladeRoom stated that the citation denotes recognition of the “first element of a prima facie misappropriation claim” and that the term ownership is over-simplified in the cited text. Id.

Surprisingly, the court in BladeRoom placed great emphasis on possession rather than ownership of a trade secret. In following the rulings of courts in other jurisdictions, the court in BladeRoom stated that a party “has standing to bring a trade secrets claim if it has possession of the trade secret.” Id. “Those courts reason that ‘fee simple ownership’ as an element of a trade secret misappropriation claim ‘may not be particularly relevant’” because the confidential and proprietary aspect of a trade secret “flows, not from the knowledge itself, but from its secrecy.” Id. (quoting DTM Research, L.L.C. v. AT&T Corp., 245 F.3d 327, 332 (4th Cir. 2001)). Rather than ownership, “it is the secret aspect of the knowledge that provides value to the person having the knowledge.” Id. Further, although the confidential or proprietary secret information can be transferred, as with personal property, the continued secrecy within the transfer provides value, and any general, unprotected disclosure will destroy value. Id. Because trade secrets derive independent economic value from being not generally known to the public, “the better focus for determining whether a party can assert a misappropriation claim is on that party’s possession of secret knowledge, rather than on the party’s status as a true ‘owner.’” Id.

This emphasis was echoed more recently by the 3rd Circuit in Advanced Fluid Sys. v. Huber, 958 F.3d 168, 177 (3d Cir. 2020). In Huber, the Respondent obtained a license to use another company’s trade secrets. 958 F.3d at 178. Appellant Kevin Huber (“Huber”), while employed by Respondent, had access to the licensed trade secret information. Id. at 175. After Huber resigned, he continued to use the information he obtained during his employment, and Respondent filed a claim for misappropriation. Id. Appellants argued that because Respondent did not actually own the trade secret, Respondent lacked standing. Id. at 177. However, the court in Huber stated that while ownership is generally sufficient to bring a claim for trade secret misappropriation, ownership is not a necessary condition. Id. “A per se ownership requirement for misappropriation claims is flawed since it takes account neither of the substantial interest that lawful possessors of the secrets have in the value of that secrecy, nor of the statutory language that creates the protection for trade secrets while saying nothing of ownership as an element of a claim for misappropriation.” Id. Moreover, Respondent, as a licensee, had standing to sue because it was given possessory interest by the owner of the trade secret, even though full ownership interest was not transferred. Id. at 179.

Although both cases involve licensees, there is no distinction made by the courts in either BladeRoom or Huber between a licensee and a possessor of trade secret information. Rather, it appears that anyone who has been granted a possessory interest in a trade secret—and thereby an interest in keeping the information a secret—has standing to sue for misappropriation. The key takeaway here is that in light of these rulings (and referring back to the hypothetical above), the fact that you possess this information while not owning the trade secret may allow you to sue for misappropriation, as ownership may not be a strict requirement. It will be interesting to see if these rulings will be further adopted by other courts moving forward.

[1] (3) the term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.

[2] (d) “Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Author: John Ahn

Landlord’s Limitations in Preventing Tenant’s Sale of Business

October 25, 2021/in All Blog Posts, Real Estate/by John Ahn

Landlord-tenant relationships can be difficult. What should be a relatively simple relationship based on contractual obligations often turns sour. To make matters worse, COVID-19 has created a litany of financial problems worldwide which has further strained already stressful situations. Due to the pandemic, many small businesses have struggled to make rent if not already completely shuttered. Some business owners have been able to successfully sell their business or find a new lessee to take over their tenancy to make ends meet. However, some business owners, due to unreasonable landlords, have been unable to sell their business and are stuck in a strange predicament where they are seemingly forced to slowly bleed out money.

This article will explore how much power a landlord has in preventing the assignment of a tenant’s lease.

I recently encountered this specific issue with two prospective clients as they were hoping to offload their business and move on with their lives. Both of these clients each owned and operated a restaurant in the same building with the same landlord. However, despite their best efforts to work with the landlord and having found viable assignees with solid business plans, the landlord simply refused without any good reason. The only complaint the landlord presented to these tenants is that he did not trust the potential assignees. It is difficult enough to find someone to buy your business and take over your lease, but it has unquestionably been a struggle during the pandemic. Tenant one and tenant two—over the course of twelve and fifteen years, respectively—had dutifully and timely paid rent and continued on with their respective businesses despite other alleged inequities on behalf of the landlord. However, the landlord in this case likely found the two existing tenants to be very reliable sources of income and refused to take on the uncertainty of new tenants.

Limitless Discretion?

If the situation above seems unreasonable, you are likely not alone. However, landlord’s do not have unmitigated discretion and cannot prevent the sale of a tenant’s business without good reason or a provision in the lease restricting transfer. In fact, a tenant’s right to assign her interest in the lease remains unrestricted unless the subject lease includes a restriction. (Cal Civ Code § 1995.210.) Conversely, the lease may include restriction provision which may absolutely prohibit transfer. (Cal Civ Code § 1995.230.) In either of these situations, the answer is fairly cut and dry; transfer may be fully prohibited or wholly unrestricted depending on the language of the lease.

But what if the restriction provision requires a landlord’s consent? Does the landlord have full control of the outcome of a tenant’s request to assign the lease? The courts have discussed this issue at length prior to codifying some of the rulings into law.

For instance, the court in Cohen stated that the duty of good faith and fair dealing prohibits landlords or lessors from arbitrarily or unreasonably withholding consent to an assignment. (Cohen v. Ratinoff, 147 Cal.App.3d 321, 329 (1983).) A lease is generally considered both a leasehold conveyance and a contract. (Medico-Dental etc. Co. v. Horton & Converse, 21 Cal.2d 411, 418 (1942).) Because a lease is also a contract, “there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract, which means that in every contract there exists an implied covenant of good faith and fair dealing.” (Universal Sales Corp. v. California Press Mfg. Co., 20 Cal.2d 751, 771 (1942).) “This covenant not only imposes upon each contracting party the duty to refrain from doing anything which would render performance of the contract impossible by any act of his own, but also the duty to do everything that the contract presupposes that he will do to accomplish its purpose.” (Harm v. Frasher, 181 Cal.App.2d 405, 417 (1960).)

Arguably, being able to sell one’s business for a profit is an eventual fruit of a contract. As such, the implied covenant of good faith and fair dealing protects a tenant’s right to assignment of a lease. Although this right is not absolute, assignments are specifically allowed whenever there’s prior written consent from the lessor. (147 Cal.App.3d at 329.) “Accordingly, we hold that where, as here, the lease provides for assignment or subletting only with the prior consent of the lessor, a lessor may refuse consent only where he has a good faith reasonable objection to the assignment or sublease, even in the absence of a provision prohibiting the unreasonable or arbitrary withholding of consent to an assignment of a commercial lease.” (Id. at 330.) Some examples of a good faith reasonable objection include the “inability to fulfill terms of the lease, financial irresponsibility or instability, suitability of premises for intended use, or intended unlawful or undesirable use of premises.” (Id. at 329.) This reasoning was repeated in Schweiso v. Williams, 150 Cal.App.3d 883, 886 (1984) and in Kendall v. Ernest Pestana, 40 Cal.3d 488, 497 (1985) before being codified into law as Cal Civ Code §§ 1995.210-1995.270.

A key takeaway here is that in a situation where the existing lease contains a provision prohibiting the assignment of a lease without the consent of a lessor, the lessor needs to act reasonably in withholding consent. This presumption of reasonableness is what allows for freedom of contract between parties of commercial real property leases as intended by Cal Civ Code §§ 1995.210-1995.270. Determining whether the lessor is unreasonable is a question of fact, and the outcome will depend on whether a lessor’s withholding consent was objectively unreasonable. (Moore v. Wells Fargo Bank, N.A., 39 Cal.App.5th 280, 291 (2019).) Going back to the facts of the two tenants above, if the lessor refused consent because he simply did not trust the potential assignees—despite said assignees allegedly having solid business plans, good credit histories, or whatever else positive attributes—the tenants might each have a strong case to show the lessor is being objectively unreasonable. The burden to prove that will ultimately lie on each tenant and the outcome will depend on the facts surrounding the withholding.

It is also important to note that Cal Civ Code § 1995.230 allows for lease provisions where a tenant may be absolutely prohibited from transfer. (Cal Civ Code § 1995.230; See also Harara v. ConocoPhillips Co., 377 F.Supp.2d 779, 787 (N.D.Cal. 2005); “A lease term actually prohibiting transfer of the tenant’s interest is not invalid as a restraint on alienation.” Cal Civ Code § 1995.230.) In light of this, it is imperative that you carefully review the lease before signing to make sure you haven’t unintentionally placed yourself in a bind.

Author: John Ahn

FTC x Influencer: the FTC’s Rules on Influencer Marketing Disclosures

October 8, 2021/in All Blog Posts, Corporate Litigation/by John Ahn

The rise of social media has facilitated the birth of influencers, and over the past several years, influencer marketing has ballooned to become a multi-billion-dollar industry according to various sources. (See https://www.shopify.com/blog/influencer-marketing-statistics#7.) It comes as no surprise that the FTC has already extended advertising rules into the world of influencer and social media marketing. This article will explore the rules around influencer marketing, specifically on brand/influencer collaborations.

An Intro to Influencers

Influencers are individuals who generally have high social net worth and who have developed large social media followings. (Colgate v. Juul Labs, Inc. (N.D.Cal. 2019) 402 F. Supp. 3d 728, 742.) Influencers can be anyone from a professional athlete to a built-from-scratch social media sensation. However, whether your favorite influencer is an A-list celebrity or a stay-at-home dad who gained millions of followers by making comical TikTok videos, influencers share a key characteristic: they have the ability to greatly affect the purchasing decisions of their followers.[1]

An influencer’s ability to affect the purchasing decisions of followers boils down to relatability and authenticity. In essence, uploading content on social media is a type of disclosure of one’s personal life to the public. This in turn allows influencers to connect with the general public on a more personal level, which ultimately leads to an increase in followers. An influencer’s followers feel connected to the person they follow and are willing to trust this person’s words.

Influencer Marketing

Businesses have recognized the impact influencers have in the market and have continued to tap into these connections to create lucrative business opportunities. For instance, one frequently used method of marketing through influencers involves brand collaborations wherein businesses release limited edition products in collaboration with a popular influencer. You have likely seen the shorthand “x” to denote collaborations between brands: “Nike x sacai”, “adidas x Disney”, “Fendi x Versace”, etc. This moniker stylization can also be used for brand/influencer collaborations, e.g., “Brand x Influencer”.

Whenever a business decides to partner with an influencer on a marketing venture, it is important to be familiar with the FTC’s rules regarding disclosure. 16 C.F.R. Section 255.5 states that “[w]hen there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed.” (16 C.F.R. § 255.5) “[I]nfluencers should clearly and conspicuously disclose their relationships to brands when promoting or endorsing products through social media.” (Ariix, LLC v. NutriSearch Corp. (9th Cir. 2021) 985 F.3d 1107, 1116; quoting Federal Trade Commission, FTC Staff Reminds Influencers and Brands to Clearly Disclose Relationship (Apr. 19, 2017), https://www.ftc.gov/news-events/press-releases/2017/04/ftc-staff-reminds-influencers-brands-clearly-disclose.) The reasoning behind this requirement is that the courts simply view influencer marketing as a form of advertising, and disclosure is necessary to prevent false, misleading, or fraudulent advertising.

Generally, disclosure is required if the connection is not reasonably expected by the audience. (16 C.F.R. § 255.5.) That said, disclosure isn’t always necessary. Section 255.5 includes several examples describing various scenarios where disclosure is not required by law. For instance, let’s say a food business ran an ad featuring an endorsement by an A-list celebrity and the endorsement regards only points of taste and individual preference. The celebrity’s compensation is likely ordinarily expected by viewers and so no disclosure is required. (Id.) The key here is that when assessing whether or not disclosure is required, a business should take into account whether a representation is being made by the endorser, whether the endorsement relationship is clear and conspicuous, and whether the connection should be reasonably expected by the audience.

Going back to our collaboration scenario, what happens with “Brand x Influencer”? Does the “x” between the names require additional disclosures by the influencer? In this specific situation, the answer is arguably “no”. It is well known in the industry that the “x” in, for instance, “Brand x Influencer” implies a collaboration between the brand and the influencer. It is also likely apparent to consumers that a collaboration generally implies a financial relationship if not a material connection between the Brand and the influencer. This arguably should be enough to make consumers aware of such relationship/connection, especially considering the “x” between names is commonly used to announce a collab (see examples above). In this instance, the audience should reasonably expect that both names on either side of the “x” will incur some sort of benefit, if not a financial one due to the clear and widely accepted implications. In short, “Brand x Influencer” should be enough of a disclosure to make consumers aware of the financial relationship between the two because the expectation of such a relationship is baked into the name via the “x” between the names.

If you plan on venturing into the world of influencer marketing, be sure to follow the FTC’s guidelines surrounding disclosure.

[1] Sometimes, this power can even influence stock prices of companies. For example, Cristiano Ronaldo, for all intents and purposes, is a mega influencer. During a press conference earlier this year, he moved a bottle of Coca Cola out of frame and instead, held up a water bottle and said, “Water!” in Portuguese. This immediately resulted in a $4 billion dollar drop in Coca Cola’s market value.

Author: John Ahn

Low Chance of Survival: Scripps Health Data Breach and Negligence Causes of Action

July 26, 2021/in All Blog Posts, Corporate Litigation/by John Ahn

On April 29, 2021, Scripps Health (“Scripps”) suffered a ransomware attack in the unauthorized access of over 147,000 patients’ personal information. A few weeks later, Scripps announced the breach. As of writing this article, Scripps is still trying to determine the full extent of damage caused by the breach.

I previously wrote about the CCPA and California’s plaintiff’s rights in the event of a data breach. This article will explore California’s Plaintiff’s rights against healthcare providers in the event of a data breach.

Scripps is a private non-profit organization and one of San Diego’s largest healthcare providers. Scripps also processes the personal information of over 50,000 California residents. Scripps seemingly fits the description of a qualified business under CCPA 1798.140. However, the CCPA actually does not apply to Scripps for a few reasons.

First, Scripps is a non-profit private business, and the CCPA specially states that non-profit entities are exempt from this law. This also means that there can be no private right of action under the CCPA for those individuals who have been affected by this breach.

Second, because Scripps is a healthcare provider, it is required to abide by the Health Insurance Portability and Accountability Act (“HIPAA”) and Health Information Technology for Economic and Clinical Health (“HITECH”). Generally, all private businesses that conduct business in California and control data including personal information are subject to data breach notification laws under the Customer Records Act (Cal. Code. Civ. § 1798.82). Further, under California law, personal information includes “medical information” which is defined as any information regarding an individual’s medical history, mental or physical condition, or medical treatment or diagnosis by a health care professional.” (Cal. Code. Civ. § 1798.81.5.) However, HIPAA and HITECH are federally regulated. Given that Scripps is a healthcare provider defined by HIPAA and HITECH, California rules regarding breach notification generally play second fiddle to the federal regulations. In fact, 1798.81.5(e)(5) states that compliance with these federal laws “shall be deemed compliance with this section” regarding disclosure.

HIPAA and HITECH have tighter standards for breach notification than most state laws. Unfortunately, there is also no private right of action for HIPAA or HITECH violations, including widespread data breaches like the Scripps incident. (See Acara v. Banks (5th Cir. 2006) 470 F.3d 569, 571. “Every district court that has considered this issue is in agreement that the statute does not support a private right of action.”) This doesn’t necessarily preclude Plaintiff’s from filing lawsuits. In fact, Plaintiffs may be able to file lawsuits for damages resulting from violations of state laws.

For instance, Section 56.101(a) of the California civil code requires healthcare providers such as Scripps to preserve the confidentiality of medical information. (Cal. Code. Civ. § 56.101.) Any healthcare provider who negligently fails to preserve this confidentiality “shall be subject to the remedies and penalties provided under subdivisions (b) and (c) of Section 56.36.” (Id.) This seemingly opens the door for lawsuits against data breaches by healthcare providers. Indeed, there has been an increase in class action lawsuits involving data breaches by healthcare providers in California. However, the court in Sutter has made it more difficult to prove a breach of confidentiality under 56.101(a).

In Sutter, the court stated a plaintiff must allege that negligently released medical information was viewed by an unauthorized person. (Sutter Health v. Superior Court (2014) 227 Cal.App.4th 1546, 1557 [174 Cal.Rptr.3d 653] “No breach of confidentiality takes place until an unauthorized person views the medical information.”) In Sutter, Sutter Health had a computer stolen from one of its offices, wherein the computer contained medical records of over four million patients. (Id. at 1551.) The computer’s hard drive was password-protected but the files themselves were unencrypted. (Id.) The court briefly compared their facts to Regents, where the data thief stole both the encrypted information and the encryption key, clarifying that this was to “tantamount to leaving the files unencrypted.” (Id. at 1555, citing encryption Regents of University of California v. Superior Court (2013) 220 Cal.App.4th 549, 554 [163 Cal.Rptr.3d 205].) The facts in regents arguably show a more clear-cut case of the release of unencrypted personal information. However, the court in Sutter seemingly ignored any arguments of encrypted versus unencrypted. Instead, the court determined that, because there was no allegation that the released medical information had been viewed by an unauthorized party, there can be no breach of confidentiality. (Sutter at 1557.)

This was a critical blow to plaintiff’s rights because currently, HIPAA, HITECH, and California do not require breach notifications to include information of whether an unauthorized party has viewed the released medical records. Moreover, given that data breaches are mostly digital, it would be next to impossible for plaintiffs to determine whether an unauthorized party has viewed their personal information. Plaintiffs, then, are essentially forced to wait until they suffer actual injuries. However, by then, the damage done could be severe, long-lasting, or irreversible. As such, any plaintiffs currently engaged in class action lawsuits against Scripps may be in for a disappointment, especially for negligence causes of action under 56.101.

There may be other viable causes of action, but negligence is a big one. The healthcare industry spends billions of dollars on cybersecurity to eliminate the probability of negligence, and yet there have been nearly 800 breaches since the beginning of 2020. (ocrportal.hhs.gov.) This shows that even when careful, data breaches occur, which implies that negligence causes of action related to data breaches were likely already difficult to prove. Adding the requirement of “viewership” by an unauthorized party makes this obstacle that much more difficult to overcome. Still, one can only wait and see how courts will handle these new cases.

Employer’s Liability for Independent Contractor’s Copyright Infringement

May 25, 2021/in All Blog Posts, Corporate Litigation/by John Ahn

You just hired a young web designer as an independent contractor to revamp your website. After struggling through the creative process, you and your web designer ultimately come to a decision on the final product, and you launch your site. However, a few months later, you receive a letter from the Law Office of Koppi & Wright, PC accusing you of infringing on its client’s intellectual property—specifically pointing to a few graphics and photographs scattered throughout your homepage. Koppi & Wright demands that you remove the graphics and photographs from your website or else it will file a lawsuit against you and your business for copyright infringement.

The main question is—did you do anything wrong? Are you liable if the pictures and graphics are actually protected by copyrights? After all, the web designer you hired placed the questionable graphics and photographs on the website—not you. The simple answer to each of these questions is a resounding “maybe” depending on a few key circumstances, of course.

Copyrights, In General

Copyrights are a type of intellectual property that grants the owner or originator certain exclusive rights including the right to reproduce, copy, distribute, and perform the work created. (17 U.S. Code § 106.) Specifically, copyrights protect original works of authorship including architectural, audiovisual, cartographic, choreographic, dramatic, graphic, literary, musical, pantomimic, pictorial, and sculptural creations. (copyright.gov.)

And to cover our bases, patents protect inventions and discoveries as opposed to works of authorship. (uspto.gov). On the other hand, trademarks generally protect names or logos that are associated with goods and/or services. (Id.).

As a general rule, if you want to use someone else’s property, you should probably ask for permission. The same principle applies for intellectual property, and in this case, copyrights. Once you receive permission from the owner or originator of the content or authored work, you should be able to use the work—such as a song or photograph—in your desired capacity. For instance, if you wanted to use a certain artist’s photograph as a backdrop on your website, you may do so with the permission of said artist. In another example, if you wanted to use the name and likeness of one of Disney’s fictional characters in your own business, you will need to get permission. Conversely, any time you decide to go rogue and use someone else’s authored work without that person’s permission, you are likely infringing on a Copyright.

Without getting too much into detail about fair use and other copyright exceptions (doing so would triple the length of this article), it is important to note that knowing when you are required to ask for permission can be a bit confusing. This is especially true if your “use” of the copyrighted work is more than simply copying or reproducing the work. For example, let’s say you wanted to take inspiration from a copyrighted work to create something of your own. Do you need to ask the author/originator of that copyrighted work to begin creating? The safe (albeit simplified) answer to that is “yes” unless you very clearly fall into an exception such as fair use. Rogers v. Koons is a notable case addressing this very issue. In Rogers, the court found that a sculptor’s faithfully copied sculpture of a copyrighted postcard photograph—which so blatantly copied the creative expression of the postcard photograph—did not fall under any fair use exceptions and therefore, constituted copyright infringement. (Rogers v. Koons (2d Cir. 1992) 960 F.2d 301, 307.) Although a sculptured version of a postcard photograph requires more work and transformation than simply photocopying, a faithful reproduction of an original copyrighted work can constitute copyright infringement.

Vicarious Liability of Copyright Infringement of Independent Contractors

We know that your direct actions can constitute infringement, but what happens when the infringement occurs due to a third party’s actions? For example, what if the third party is the independent contractor you hired to create your website?

In these instances, courts have held that anyone who has the “right and ability to supervise the infringing activity” of an independent contractor will be held vicariously liable for copyright infringement if he/she enjoys a “direct financial benefit from said infringing activity.” (See Rosen v. Martin. Cal. Apr. 19, 2013, No. CV 12-0657 ABC (Ex)) 2013 U.S.Dist.LEXIS 201985, at *12.)

In Rosen v. Martin, the court found the defendant had the ability to supervise the work of his independent contractors when they downloaded and uploaded copyrighted works without the Plaintiff’s permission. (Id.) Even though the defendant directed the independent contractors to not list these works again after the fact, the court still held the defendant vicariously liable for the independent contractors’ infringement. (Id.) In other words, even if your web designer is the one who actually infringed on an existing copyright, you could still be held accountable for the actions of your independent contractor.

The “What Ifs”

What if you completely unaware of the infringement? Could you try to make the argument that as the employer, you did not know your independent contractor would or could be infringing on intellectual property? The court in Hitek Software LLC echoed the ruling in Rosen but added that an employer who had the right to supervise the infringing activity would still be vicariously liable “even if the defendant initially lacks knowledge of the infringement.” (See Hitek Software LLC v. Timios, Inc., (C.D.Cal. June 18, 2012, No. CV 12-709 CAS (AJWx)) 2012 U.S.Dist.LEXIS 86560, at *11.) In Hitek Software LLC, the alleged infringement occurred when Timios, Inc. (the “Defendant”) employed an independent contractor computer specialist who installed software for the Defendant using an illegally generated product key and spoofing the software activation process. (Id. at 3.) However, the court determined that the Defendants had the right and ability to “oversee, govern, control, and direct” the independent contractor at all relevant times and was therefore liable for the independent contractor’s actions. (Id. at 13.) The idea here is that if you had the right and ability to supervise your independent contractor during employment, you should have known better and are not excused by your ignorance.

What if the independent contractor was simply negligent? Would employers be absolved of liability? As a general rule, employers will not be held vicariously liable for the negligent acts of their independent contractors. (See Secci v. United Independant Taxi Drivers, Inc. (2017) 8 Cal.App.5th 846, 859 [214 Cal.Rptr.3d 379].) This rule has a few caveats and exceptions like the peculiar risk doctrine, which states an employer can be held liable for an independent contractor’s negligence if the contractor was hired to perform work that is inherently dangerous, and the contractor’s negligence causes injury to others. (Privette v. Superior Court (1993) 5 Cal.4th 689, 691 [21 Cal.Rptr.2d 72, 854 P.2d 721].) However, assuming you haven’t hired an independent contractor for work that is inherently dangerous (and without getting into whether the court’s current view will continue to prevail) courts still generally view copyright infringement as a strict liability tort. (See Educational Testing Serv. v. Simon (C.D.Cal. 1999) 95 F.Supp.2d 1081, 1087.) Plaintiffs can merely show the defendant used their authored work without permission (e.g., copied, distributed, or performed) in order to prove a prima facie case of copyright infringement. This essentially means that you will likely be unable to use your independent contractor’s negligence as a defense to vicarious liability for your independent contractor’s infringement.

The takeaway here is simple: ask for permission. When you are dealing with situations where you encounter authored work that catches your eye, and you plan on using the copyrighted material in some shape or form, make sure to ask for the owner’s permission. Not all owners or originators of copyrights will ask for money. In fact, many just want credit and recognition for their hard work. If you don’t have the budget (or maybe you just don’t like talking to people), find something that is public domain including free stock images and try to make it work (because you don’t really have that many other legal options). As an employer, make sure your independent contractor is taking the same precautions to avoid letters from firms like Koppi & Wright, PC to save yourself the headache.