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Advising Clients on Litigation Considerations and Pitfalls

Litigation is an expensive endeavor that most companies, regardless of their stage of development, wish to avoid. When California real property is involved in a company’s business — whether it be in the form of a company entering into a long-term lease or a company working on the development of real property — there are additional and frequently unique litigation considerations and pitfalls to consider. Companies typically document transactions related to real property, which affords them the opportunity at the front end of every deal to avoid or minimize litigation risk and expense, or at least improve litigation outlook. Those considerations and pitfalls are as follows:

  1. Alternative Dispute Resolution (ADR) Provisions
    California litigation involves years of delay and excessive expense. That litigation pitfall can be avoided altogether if a company includes in all real property agreements a fast-track arbitration provision that is specifically tailored to anticipate and address the most likely disputes that may arise related to the agreement. Having a streamlined ADR provision within all real property contracts will serve to sidestep a significant portion of litigation costs and delay when doing business in California.
  2. Insurance Policies that Provide Necessary Coverage
    Investing in insurance policies that specifically provide coverage for the types of disputes most likely to arise from the agreement involving real property can give a company peace of mind that if a dispute should arise, the expense of defending against that dispute will not cripple the company.
  3. Negotiating Appropriate Contractual Provisions for Long-Term Deals
    For long-term deals, companies should identify areas that may need to be recalibrated in the future — such as rent during the life of a lease — and include a mechanism in the agreement that specifically addresses a method for recalibration.
  4. Including Guarantees and Secured Interests
    To ensure that dollars spent enforcing rights are not wasted on a judgment-proof adversary, a company can insist at the beginning of a deal on the inclusion of a guarantee agreement with an adequately funded guarantor or the grant of a secured interest in viable assets.
  5. Considerations when Litigation is the Only Option
    In the event a company cannot utilize ADR, it can still reduce or minimize litigation costs by considering the following issues:
    1. Judge vs. Jury
      The ability to resolve litigation matters in front of a California jury or judge is an important item to consider related to California real property disputes. California jurors are some of the most liberal in the country. Companies can seek to waive a jury, or, if that is not possible, understand the dividing line between what will be heard by a judge vs. the jury in order to position the case in a way that is beneficial to the company’s objectives.
    2. Venue/Forum Selection
      The venue of a dispute is very important in California. California’s counties vary drastically in terms of judicial resources and quality. Companies should strongly consider including venue selection provisions requiring the use of business-friendly jurisdictions close to counsel.
    3. Provisional Remedies
      Oftentimes, companies will miss an opportunity to seize control of litigation and increase the chances of a favorable settlement by failing to avail themselves of provisional remedies. These actions, such as seeking a preliminary injunction or writ of attachment, involve forcing the fact finder to make a “probability of prevailing on the merits” determination early in a case. This finding, if favorable, can be used to drive early resolution of cases. Seeking a provisional remedy also communicates a position of strength to opponents at a critical juncture in any case.
    4. Avoiding Unnecessary and Costly Dispositive Motions
      Although summary judgment motions can bring a much-desired end to litigation, they are frequently filed in cases where summary judgment is unlikely to be granted. Companies must be aware of the false allure of such motions and instead focus on the prospects of a rapid trial to create leverage to end a case. Summary judgment motions should be used only in the rare case where a claim is unquestionably barred.
  6. Unique California Land Use Issues
    Developing real property in California presents unique issues for consideration:
    1. CEQA
      The California Environmental Quality Act (CEQA) is routinely used by competitors, unions, and NIMBYs to slow or kill projects. CEQA requires a detailed environmental analysis to be performed and approved by the local government prior to approval of a project with the potential to have a significant impact on the environment (i.e., every significant project). Hundreds of CEQA cases are filed each year. The best way to defend against such a lawsuit is to avoid being targeted — by performing a careful and thorough environmental analysis that is “bulletproof”; and by employing a sophisticated communication strategy to win the support of stakeholders and government officials. If that fails, an aggressive and competent defense is required to move your project forward.
    2. Prevailing Wage
      Any project in California that receives a public subsidy of any kind — including routine tax or fee waivers from local governments or the acquisition of public land at a discount — can trigger the Prevailing Wage Law. The Prevailing Wage Law requires the developer to pay union wages to all workers, regardless of whether they are union workers or not. This can add millions of dollars to the cost of a project. Enforcement actions can be brought before, during, or up to four years after the project is completed. It is therefore critical that prevailing wage issues be addressed early in the life of any project to minimize the risk of prevailing wage litigation and maximize the likelihood of success in any such litigation.

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