Nathan D. Wirtschafter
Nathan D. Wirtschafter - Making Your Case in California

Business & Corporate Litigation
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The Wirtschafter Law Reporter

Vol. II, Q3

The Wirtschafter Law Reporter (“WLR”) is a quarterly publication of Nathan D. Wirtschafter Corp.

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Nathan Wirtschafter



Receivables Management During an Economic Downturn

Challenging economic conditions erode payment integrity. Companies and individuals, facing sinking margins and tough competition, cannot meet their day-to-day cash flow needs. Others struggle under the burden of too much debt or variable interest rates.

However, much of the time, non-payment is deliberate. Corporate debtors ask for time extensions or discounts to fund acquisitions of struggling competitors. Or, the principals cry poverty while financing expensive life-style choices.

Mr. Wirtschafter is experienced in complex debt collection from corporations and their principals. On several occasions, Mr. Wirtschafter has found evidence which allowed his clients to “pierce the corporate veil” and find corporate principals and shareholders personally liable for the corporation’s debts.
In addition, in many instances, a call from “collection counsel” has led the debtor to prioritize payment. Depending on the situation, a company debtor may make immediate payment, or payment in a short period of time.

On some occasions, Mr. Wirtschafter’s review has led to an immediate closure of the account before expensive legal bills send good money after bad.

Before hiring an attorney to collect a significant debt, ask the attorney the following:

  • What experience do you have in collecting large debts?
  • What experience do you have in evaluating the debtor’s ability to pay debts?
  • What approach will you take that will minimize legal fees yet maximize the chance of quick recovery?
  • What options exist to secure payment?
  • Have you ever pierced the corporate veil?
  • Have you ever obtained a court order to review personal bank accounts?
  • Are you familiar with writs of attachment, a procedure to seize assets before trial?
  • Are you experienced with procedures for collecting debts outside of court, such as face-to-face meetings, mediation or arbitration?
  • Are you familiar with the Uniform Fraudulent Transfers Act (UFTA)?

A debtor who is more than 90 days past-due in paying its receivables may be insolvent. Creditors should review every such overdue account for possible assistance from collection counsel.

An overdue debtor whose obligation represents more than 10-20% of a creditor’s receivables is more than a threat to cash flow. Rather, such a debtor is a threat to the creditor’s profitability.

By acting sooner rather than later to request assistance of counsel, a creditor can speed either collection or determination that an account should be closed. If a creditor waits too long, the debtor will be long gone.

Mr. Wirtschafter has extensive experience collecting debts and judgments. Please call to inquire about different options to recover owed funds.

Litigator’s Corner: When Is a Contract a Contract?

Often business partners are in a hurry to get to down to business. Instead of a written agreement, they reach informal arrangements, such as an exchange of emails or a hand-written note.

A binding contract can be reached without a formal written agreement. In 1901, for example, the founders of U.S. Steel did not use a formal written agreement to establish the first billion-dollar company.

In certain instances, courts will enforce promises made verbally, or memorialized on notes or emails. For example, shareholder agreements can be formed based on oral promises and, under certain conditions a written shareholder agreement can be modified by an oral agreement.

However, parties who do not draft and execute a formal written agreement are taking a risky position. When a dispute arises, the court may decide that the parties did not have an agreement. Instead of a contract, the court may decide that the parties merely reached an agreement to draft an agreement and one side may be left with nothing.

In evaluating whether parties using informal arrangements actually made an agreement, the Court is looking to determine the intent of the parties. Did they have the same idea in mind when they shook hands? Significantly, parties do not have to agree on everything before a legally-binding contract is formed. It is enough that they agreed on the essential or “material” terms.

In a recent case between alleged corporate shareholders, Mr. Wirtschafter advised that there was no enforceable oral agreement between the parties and that the hand-written, signed “agreement” presented by claimants was merely an agreement to draft a formal shareholder agreement. The claimants were unable to show that a formal shareholder agreement was ever drafted. At mediation, the claimants settled for less than 10% of their original demand.


Litigator’s Corner: Trial Exhibits and Graphics

During the late 1980’s, in advertisements for the Canon “Rebel” camera, a young Andre Agassi claimed that “image is everything.” In trial that just might be true.

It is critical, especially in complex business litigation, to distill the facts into graphic presentations. PowerPoint can power almost any point.

At closing argument in a recent hearing, Mr. Wirtschafter presented each of the defendant’s changing representations. To help the judge picture the lie, for each of the defendants several versions of the truth, the source document was shown, followed by a quote from the defendant. In the decision, the judge found the defendant had made false statements with the intent to defraud.

However, visual aids should be used with caution. In a recent book, “Making Your Case: The Art of Persuading Judges,” (2008) authors Antonin Scalia and Bryan A. Garner caution against the use of a pointer and chart in non-jury trials. The authors note that judges may consider it “schoomarmish” to use visual aids “to drive home a point that can be made perfectly well in words.”

An experienced advocate will use visual aids to persuade the decision-maker, but not annoy the court with charts and graphs which are distracting, patronizing or pedantic.


Drafting Tip: California Supreme Court Limits No-Compete Agreements

Last month, the California Supreme Court, in Edwards v. Arthur Andersen LLP (2008) 44 Cal. 4th 937 unanimously ruled that employers cannot restrict former employees from competing with their former employers.

The California Supreme Court found that the Legislature had broadly intended to forbid restraints on trade. The Court stated that even narrowly-drawn restraints, such as forbidding an employee from competing with a particular customer, will not be enforced.

Interestingly, the California Supreme Court position somewhat contradicts the Ninth Circuit Court of Appeals, the federal appeals court with jurisdiction over California. For example, the Ninth Circuit enforced an agreement which required a former employee who competed within six months of leaving employment to forfeit stock options. The Ninth Circuit also upheld a contract forbidding competition with a particular customer.

Restraints on trade are still valid in certain contexts, such as in the sale of a business or a partnership agreement. Also, an agreement may restrict the use of property from use for a particular type of business, such as a case where the court upheld a contract restricting use of property for a gasoline station, on the grounds that a restriction on the use of property was not a restraint of trade.

In addition, employees are still barred from using confidential information such as customer lists or trade secrets such as designs. For example, in recently-decided Central Valley General Hosp. v. Smith (2008) 162 Cal. App.4th 501, the Court of Appeal noted that a credible threat of misappropriation of trade secrets will create grounds for an injunction.

Mr. Wirtschafter has provided pre-litigation and litigation advice to employers and employees, as well as corporate principals about trade restraint issues. In addition, he has drafted and negotiated agreements with restraint of trade clauses in a variety of contexts.

Recent Legislation: Enforcing Foreign-Money Judgments in California

Judgments for money obtained in foreign countries may be enforced in California under the newly-enacted Foreign--Country Money Judgments Recognition Act. See Cal. Code Civ. Proc. §§ 1713-1724.

To be enforced, a foreign judgment must be final, which is to say that no further proceedings are required and must be for money, not, for example, specific performance of an act.

Another key factor is whether the court in the foreign country had a basis for personal jurisdiction over the defendant. If the defendant is personally served with process, voluntarily appeared, submitted to the foreign court’s jurisdiction or had a principal place of business in the foreign country, the defendant would likely be subject to jurisdiction. A defendant would also probably be subject to jurisdiction if the defendant operated a business office in the foreign country and the cause of action arose out a business dispute connected with the office.

In general, so long as the foreign court acted with integrity, had jurisdiction over the defendant, had authority over the subject of the dispute and afforded the defendant reasonable notice and an opportunity to be heard, a California Court will likely enforce the foreign judgment.

Please contact Mr. Wirtschafter for a free consultation about collecting a foreign judgment under the Foreign Country Money Judgments Recognition Act.