Basics of Estate Planning

BASICS OF ESTATE PLANNING

I. INTRODUCTION

There’s an old adage which says there are only three certainties in life:  Life, Death, and Taxes.  Even children understand this (at least the life and death part), as captured by the more modern adage:  “He who dies with the most toys…still dies.”

But there is another certainty:  everyone who lives will acquire an estate.  An “estate” is simply the sum of a person’s assets, minus all debts and liabilities.  [For those who like equations:  Estate = (Assets) – (Liabilities).]  Even the homeless guy on the corner holding a sign, “Will work for food,” has an estate:  the clothes on his back and his sign.  Everyone has an estate!  But this presents a problem:  since everyone has an estate, and since everyone will eventually die (and since nobody can take their estate with them), what happens to a person’s estate after they die?  Is it up for grabs to whoever wants the person’s stuff?  Does the government confiscate the estate?  Do the person’s relatives take the estate?  If so, how is it distributed?  In what percentages?  And to whom?  Are there any rules of law that address these problems or otherwise govern the division of one’s estate?

Fortunately, the laws of wills and trusts developed to address these issues, and provide mechanisms for dealing with the distribution of one’s estate.  Accordingly, “estate planning” is simply the process of planning for the disposal of one’s estate.  Today, there are essentially two ways in which an estate can be distributed:

1. Probate Code
2. Estate Plan

II. PROBATE v. ESTATE PLAN – What’s the Difference?

A. Probate

When a person dies without a written estate plan, the government will provide for the distribution of that person’s estate through a process called “probate,” which is governed by the state’s Probate Code.  In California, the Probate Code provides a default, one-size-fits-all scheme for distributing one’s estate, where the estate is distributed according to the Probate Code’s rules of distribution, without exception.

Probate is initiated by filing a “petition” with the Superior Court (similar to a lawsuit).  A personal representative (“administrator” or “executor”) is then appointed to oversee and manage the estate property throughout the probate process.  If the person dies testate (i.e. with a will), the executor will normally be appointed in the will; however, if the person dies intestate (i.e. without a will), the court will have to appoint an executor. 

Once the petition is filed, an official “Notice to Creditors” must be published three times in a local newspaper and mailed directly to everyone named in the will, giving creditors a set amount of time to file any claims they have against the estate.  The executor will collect all the assets, pay off the creditors, and distribute the remaining estate.  Finally, when the process is complete, the executor will file a petition for discharge, and the estate will be closed.

While probate may sound fine and dandy, it has considerable drawbacks.  First, since the estate is distributed according to the one-size-fits-all Probate Code scheme, there is no discretion as to how the assets will be distributed, or to whom.  And just like a one-size-fits-all t-shirt never fits anyone quite right, the Probate Code distribution scheme rarely fits anyone’s particular circumstances appropriately.  For example, under the Probate Code, an estate is distributed in the exact same percentages to each of the decedent’s children.  But did your father really intend to give you and your brother the exact same share of his estate when your brother is Charles Manson?  Or for another example, in probate, a person’s entire share of the estate will be distributed immediately (in one lump sum), regardless of whether that person is a minor.  But do you really want your entire estate to be given to your 16 year-old son as a gigantic one-time payment – especially when your son is Charlie Sheen and intends to blow his entire inheritance on hookers and drugs before his 18^th birthday?!?!  [Or would you rather arrange for “staggered” (limited) distributions of your estate until lil’ Charlie is old enough to manage his inheritance responsibly?]  Unfortunately, with probate, you are stuck with these problems.

Probate is also extremely expensive, as property distributed through probate is subject to an estate tax, and the probate process includes various fees to the court, fees to the probate attorney, fees to a “probate referee,” and fees to the executor.  Most of these fees are set by California statute as a percentage of the gross estate, and can ultimately cost more than 10% of the total estate!

Probate is public and litigious, as the probated estate (including a list of assets) must published in a local newspaper and any person can file a “will contest” claiming to be a beneficiary or creditor of the estate.  A will contest is a lawsuit, and the parties must litigate the validity of these third party claims.  If the estate is large, it’s not uncommon for scam artists to file will contests to try to get a piece of the action.  If the scammer wins, he will take part of the estate; if he loses, his claim will still need to be litigated (using funds of the estate) – so either way, the value of the estate will be further diminished.  Ultimately, with the combination of fees, will contests, lawsuits and sub-lawsuits, and estate taxes, it’s not uncommon for probate to end up costing 50% of the total estate!

If you’re already seeing the significant drawbacks and limitations of probate, don’t abandon all hope and think your beloved parents’ estate will be reduced to nothing more than a collection of belts and your dad’s first generation iPod – a carefully drafted estate plan can solve all these problems!

B. Estate Plan

If you don’t like the Probate Code’s scheme for distributing your estate, you can draft your own personalized estate plan to effectuate your particular needs and desires.  An estate plan is essentially a contract governing how one’s estate will be administered and distributed, but can also be utilized to achieve a variety of other objectives – such as sheltering your assets from various taxes, protecting your assets from creditors, avoiding or minimizing probate costs, authorizing individuals to act on your behalf if you become incapacitated, etc. 

In contrast to probate, the administration of an estate plan is private (not public), significantly less expensive (usually involving the simple one-time fee of drafting the estate plan), is often far more difficult to contest, and devises the estate according to one’s actual wishes and desires.  While the ways to draft an estate plan are essentially limitless, a basic estate plan will usually contain at least four documents:

1. Living Trust
2. Will
3. Financial Power of Attorney
4. Advance Healthcare Directive

The reasons these four documents should be included in any estate plan is because, together, they address essentially every major issue that should be considered when planning for the inevitable – they provide a base, or foundation, upon which you can further develop and tailor your plan to satisfy your particular needs and desires.  A brief description of each of these documents is provided below.

1. Living Trust

Unlike a will (discussed below), which is simply a written document designating what happens with one’s estate when one dies, a “trust” is actually a distinct legal entity, similar to a corporation or partnership.  A trust is an arrangement involving three parties – a trustor, a trustee, and a beneficiary – whereby one person, the trustor, gives legal title to his property to another person, a trustee, and the trustee holds legal title to the property for the benefit of another person, called a beneficiary.  For those who are visually-oriented, think of a trust as a fictional box (a “trust box”) in which you (trustor) place all your assets – your home, your cars, your life insurance, etc. – along with a set of instructions on how the assets are to be used and distributed.  You would then give your trust box to your best friend (trustee), to hold for your benefit of someone else (beneficiary).

The concept of a trust as a distinct legal entity developed in England during the Crusades:  When a landowner left England to fight in the Crusades, he needed someone to run his estate in his absence.  To achieve this, he would convey ownership of his lands to a friend, on the understanding that ownership would be conveyed back on his return.  However, Crusaders would often return to find their “friend” (and now legal owner) refusing to give back title to the property.  While no law existed at the time to protect the Crusader, the English Courts of Equity determined it was unfair for the friend to break his promise and refuse to reconvey the land to the Crusader, and ruled that the legal owner (the friend) held title for the benefit of the original owner (the Crusader), and must be compelled to give it back to him when requested.  Over time, this relationship – where one party would hold property for the benefit of another – became known as a “trust.”  [In the example above, the Crusader was both the trustor and the beneficiary – the friend was the trustee, holding title to the Crusader’s land for the Crusader’s benefit.]  While originally developed to protect property held during one’s life, trusts eventually began to be used as tools to protect and transfer land and other assets after one’s death.

Today, there are many different kinds of trusts (AB trusts, charitable trusts, revocable and irrevocable trusts, etc.), which can all be drafted in different ways and utilized to achieve a variety of objectives – such as sheltering one’s property from taxes during one’s life, reducing or avoiding estate taxes, protecting one’s assets from creditors, planning for the distribution of one’s assets, etc.  But regardless of how they are used, trusts act as the centerpiece of a modern-day estate plan.

2. Will

A will is basically a document stating what will happen with one’s estate when one dies.  Wills have been around even longer than trusts, and originally developed out of the need to convey property at death.

In modern times, wills have largely been replaced by trusts, but are still generally used in two ways:  to address guardianship issues – i.e. to designate who is to become guardian of one’s children in the event of death (something trusts cannot do, since children are not mere “assets” which can be placed in trust); and to serve as a last-ditch catch-all for property not specifically named in the trust (called a “pour-over will”).  A pour-over will basically says that any property owned by the trustor at the time of his death that is not specifically named in the trust will be “poured over” into the trust and distributed according to the terms of the trust.  [Keeping with the cheesy “trust box” analogy, think of a pour-over will as a fictional sac (a “will sac”) that holds all of your assets.  When you die, all property owned by you will be thrown into the will sac.  While most of your property will already be safely stored in the trust box, some of it may not be (perhaps you acquired the property after the last time you updated your trust).  Once all your property is collected in the will sac, the trustee will take out the trust box, place it on the ground, and then take the will sac and “pour” all the remaining property into the trust box.  Then, the trustee will use the trust instructions to distribute all the property contained in the trust box – which now includes all the extra, unidentified, property poured into it from the will sac.]

3. Financial Power of Attorney

In addition to planning for the management and ultimate distribution of one’s estate, a properly drafted estate plan should also anticipate other considerations, such as who will manage and have access to one’s finances in the event one becomes sick, incapacitated (i.e. in a coma), or incompetent.  In general, a document called a “Power of Attorney” allows you to name someone to have the power to make decisions for you under pre-defined situations.  A Financial Power of Attorney specifically elects an individual to manage one’s finances and assets when you are unavailable.

4. Advance Healthcare Directive

Finally, an estate plan should also plan for illness or injury, and designate who will make medical decisions on your behalf (as well as what those decisions should be) in the event you are unable to make them yourself.  An Advance Healthcare Directive is used to achieve this end. 

An Advance Healthcare Directive is a document giving specified individuals the right to one’s medical information (which is otherwise unavailable due to HIPPA and other laws) and authorization to make medical and end-of-life decisions on one’s behalf, as well as instructions as to what those choices should be (e.g. whether to remain on life support, etc.)  A prime example of failure to have an Advance Healthcare Directive was witnessed in the Terry Schievo case – without directions as to Terry’s final wishes, nobody knew what decisions should be made or who should be making them.  While thinking of these end-of-life decisions can be uncomfortable, but failure to plan ahead could result in FAR worse consequences.

III. CONCLUSION

Now that you know the basics of estate planning, keep in mind the only certainties in life:  since Life, Death and Taxes are three things nobody can escape, every person should consider how to improve their life, plan for their death, and minimize taxes to the greatest extent.  An estate plan accomplishes all of these goals.  So regardless of your particular situation – whether you are a young married couple living the American dream with a house, two cars, and a child on the way; or a single entrepreneur with a few assets whose looking for a tax shelter – you should contact us to discuss your specific situation and the various benefits an estate plan could offer.

At E. Johnson Law, we provide our clients with a superior level of estate planning knowledge and services, as we work closely with Brin Legal | Financial – a well-established estate planning law firm with over 25 years of experience.  If you’re interested in learning more about estate planning, or you have a friend or family member you believe could benefit from an estate plan, please do not hesitate to contact us. 

Get Red Light Camera Tickets Dismissed!

Red Light Cameras

Getting Your Red Light Camera Ticket Dismissed

How many of us have faced this situation: You're going with the flow of traffic and the light turns yellow. You're instantly confronted with a problem: hit the brakes and hope the line of cars behind you doesn't slam into you as you screech to a stop (causing a multi-car pile-up); OR maintain your speed and risk running a red. You decide beating the yellow is the safest option for everyone on the road. You run the yellow, but the light turns red just as your front tires cross the limit-line on the other side. You hear the snap, and feel the blinding flash in your rear view mirror ruin your day.

Or perhaps you simply [and safely] pull a "California roll" right turn when no cars are coming from the intersection on your left. Snap. Flash. "F$@&!"

Thanks to California's big-brother red light camera experiment, anyone ticketed by a camera now faces a $480 fine! And a point on your license. And sky-rocketing insurance premiums. (OR, you pay the fine, an additional fee for traffic school, and waste 8 hours of your precious Saturday sitting in a dumpy room watching the clock tick by.)

Most people assume traffic school is the only way out of a red light camera ticket. But wise up: RED LIGHT CAMERA TICKETS ARE ROUTINELY DISMISSED!

History of Red Light Program

A red light camera system (known as an "automated traffic enforcement system") is a situation where a city government contracts with a private company to install a red light camera, and the city pays the red light camera company for use of the camera. Contrary to popular knowledge, these red light camera systems are fraught with legal problems and complications.

For example, the very nature of the program creates a conflict of interest between the city's interest in only issuing tickets for actual violations, and the private contractor's profit-driven interest in issuing as many tickets as possible to increase revenue. Additionally, cities adopting such camera systems are accused of "Big Brother" tactics in over-monitoring public roads. Cities are also accused of using the cameras as a front for revenue raising schemes (which are illegal). Furthermore, there is strong evidence that red light camera systems are ineffective, and actually increase the number of accidents at the subject intersections.

Prerequisites for Red Light Camera Tickets

Despite these considerations, the California Vehicle Code (CVC) was amended to allow cities to issue citations based on photo evidence provided by red light cameras. However, to safeguard against the issues discussed above, the CVC contains many requirements and prerequisites for red light camera tickets to be valid, and failure to satisfy these conditions renders the ticket illegal and unenforceable. Under the CVC, red light camera tickets are defective and can be dismissed on some of the following grounds:

• The signal timing of yellow lights is too short
• The city failed to issue "warning tickets"
• The city failed to make a "public announcement" of the red light camera
• The city failed to post appropriate warning signs
• The city failed to adopt written guidelines governing use of the red light camera system
• The city's contract with the camera vendor contains illegal compensation provisions

Ironically, most cities have failed to comply with many of these requirements, giving motorists an arsenal of defenses to their camera ticket.

However, one of the most common defects with red light camera systems is that many contracts between the city and the camera suppliers are actually illegal!

Illegal "Pay-Per-Ticket" Contracts

CVC section 21455.5(g) provides that "A contract between a governmental agency and a manufacturer or supplier of automated enforcement equipment may not include a provision for the payment or compensation to the manufacturer or supplier based on the number of citations generated..."" Basically, the CVC expressly forbids so-called "pay-per-ticket" contract provisions - meaning the compensation paid by a city to a vendor cannot be based on the number of tickets issued. This is because basing compensation on a pay-per-ticket basis provides an incentive to increase the number of tickets issued simply to increase profits (as opposed to legitimate public and safety concerns). [In the words of the actual author of Section 21455.5(g), "Paying red light camera vendors [suppliers] based on the number of tickets issued undermines the public's trust and raises concern that these systems can be manipulated for profit."]

And thanks to a recent California Appellate decision, the vast majority of city contracts are now rendered illegal!

Cost Neutrality Provisions

In a landmark 2011 California Appellate decision, People v. Daugherty, the Court examined a "Cost Neutrality" provision within the contract between the City of Napa and Redflex. [The majority of red light cameras throughout California are supplied by Redflex, and the majority of Redflex contracts contain these "Cost Neutrality" provisions.]  Basically, these cost neutrality provisions specify that the city will never pay Redflex more than a fixed fee, but will pay "to the extent of gross cash received" up to the fixed fee.

The Court found that these Cost Neutrality provisions violated the CVC's restriction against pay-per-ticket provisions. According to the Court, "the contract's cost neutrality provision improperly based the City's payment to Redflex on the number of citations generated, at least to the extent there are not enough citations generated to cover the fixed fee in a given month."  The effect of this ruling is that many city contracts are actually illegal!

This illegality of the city contract is an example of just one of many procedural and foundational grounds used to get red light camera tickets thrown out.

Conclusion

So, if you've been slapped with a red light ticket, don't get a second credit card to pay the fine.  Remember, the legality of red light cameras is seriously suspect, and most cities have failed to comply with the prerequisites necessary for such tickets to even be legally enforceable.  Check out our new Red Light Camera Program and its 100% Money-Back Guaranty, and contact us to see if your ticket can be dismissed.

DISCLAIMER

PLEASE NOTE, THE INFORMATION IN THIS ARTICLE IS NOT PROVIDED IN THE COURSE OF AN ATTORNEY-CLIENT RELATIONSHIP AND IS NOT INTENDED TO CONSTITUTE LEGAL ADVICE OR TO SUBSTITUTE FOR OBTAINING LEGAL ADVICE FROM AN ATTORNEY LICENSED IN THE APPROPRIATE JURISDICTION.  PLEASE CONTACT US FOR A FULL EVALUATION OF YOUR CASE. 

Franchising

In response to my previous article, a good friend of mine and an exceptional real estate agent, Erica Frey, contacted me and expressed interest in opening a restaurant franchise, and asked for some insight regarding the process and legal issues involved.  In light of her concerns, I decided to devote this blog article to the concept of franchising.  Accordingly, the article below will briefly address the advantages, disadvantages, process and legal issues involved in opening and operating a franchise. 

I. A BRIEF INTRODUCTION TO FRANCHISING

What is a “Franchise”?

Voltaire once said, “If you wish to converse with me, define your terms.”  In light of that maxim, the first step in starting a discussion about franchising is to define what is meant by the term, “franchise.”  According to Corporations Code section 31005(a), a “franchise” is a contract between two or more people regarding the sale and purchase of a business having the following three characteristics: 

1. Global Marketing Plan.  A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; and
2. Global Trademark.  The operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and
3. Franchise Fee.  The franchisee is required to pay, directly or indirectly, a franchise fee.

Franchises are regulated on both a State and Federal level.  On the State level, franchises are regulated by and must be registered with the California Department of Corporations (DOC).  On the federal level, franchises are required to maintain a “franchise disclosure document” (FDD), the contents of which are regulated on a national level by the Federal Trade Commission (FTC).

An obvious example of a textbook franchise is McDonald’s:  The marketing plan of every McDonald’s location is dictated by McDonald’s Corporate (which is why every McDonald’s restaurant looks identical, and is also why you can never get a McMuffin after 10:30 am, anywhere!).  Each McDonald’s franchise makes use of McDonald’s trademarks (such as the infamous “Golden Arches”).  Lastly, each McDonald’s franchise pays a franchise fee to McDonald’s Corporate for the benefit of operating the franchise. 

Advantages and Disadvantages

While many people think buying a franchise is a shortcut to success, the ultimate success of any franchise depends on many factors.  If you are interested in starting a franchise, you should consider some of the advantages and disadvantages discussed below. 

Advantages

• Lower Failure Rate.  When you buy a franchise, you are buying an established concept that has already proved to be successful, rather than “reinventing the wheel” on your own venture.  Therefore, it’s not surprising that franchisees stand a much better chance of success than people who start independent businesses.  According to the U.S. Small Business Administration (SBA), independently-owned restaurants have the highest failure rate of any new business, and only about 20% survive the first two years.  In contrast, franchisees have an 80% survival rate. 

• Startup Assistance.  In contrast to independently-owned businesses, franchises are essentially “turnkey” operations, and the franchisor will provide you with a lot of help in starting up and running your business.  Often, the franchisor will provide you with all the equipment, supplies, and instruction needed to start the business.  Additionally, franchisors will usually also provide ongoing training, and help with management and marketing. 

• Economies of Scale.  Franchises have the huge benefit of “economies of scale” – as the franchisor, supplying uniform products and inventory to all of its franchisees, can buy in bulk and pass the cost savings on to the franchisees.  Accordingly, inventory and supplies will usually cost much less to franchisees than to those running an independent business. 

• Brand Recognition.  Probably the most significant advantage of owning a franchise is access to a well-known (often nationally-recognized) brand-name.  Essentially, buying a franchise can be like buying a business with built-in customers.

       Disadvantages

• Large Initial Investment.  Buying into well-known franchises is very expensive, and often requires extremely deep pockets or the ability to arrange the necessary financing.  As discussed below, some franchise agreements may even require a “personal guaranty” by the franchisee for the franchise’s obligations.

• Surrender of Independence (Their Way or the Highway).  The main disadvantage of buying a franchise is the loss of independence – the franchisee must [rigidly] comply with the franchisor’s system, sometimes right down to the way the napkin holders are filled.  True entrepreneurs, or those who highly value their autonomy, will probably find it difficult (or impossible) to successfully operate a franchise, as some franchisors exert a degree of control that can be excruciating.  As a franchisee, you are running the show…but running it their way. 

• Ongoing Costs.  In addition to the initial franchise fee, franchisees must also pay monthly royalties – a percentage of the franchise’s business revenue (often calculated as a percentage of “gross sales”).  The franchisor may also charge additional fees for certain services provided (e.g. the cost of advertising, or share in national marketing campaign). 

Assuming you have evaluated all the pros and cons and determined you still want to start a franchise, you will probably want to know how you can go about accomplishing that goal.  The next section will answer this question by describing the general process of starting a franchise, from beginning to end. 

II. PROCESS OF STARTING A FRANCHISE

From a legal standpoint, the process of starting a franchise can be summarized into four general steps:  completing the franchise application, verifying the legal standing of the franchise, reviewing the Franchise Disclosure Document (FDD), and reviewing the Franchise Agreement. 

        Step 1 – Complete Franchise Application

The first step in buying a franchise is similar to applying for a job, and begins by contacting the franchisor and completing their franchise application.  The franchise application is comparable to your franchise “resume,” and the franchisor will use the application in a similar way – a first level review to screen applicants and determine which applicants it should consider as potential franchisees. 

The franchise application will usually include detailed questions about your finances, your personal assets, your spouse’s financial situation, your experience, background, aspirations and goals, etc.  The franchisor not only wants to determine whether you are financially capable of operating the franchise (especially in the event the franchise runs into financial difficulties and requires the franchisee to tap into personal finances to keep the operation afloat), but also wants to determine whether you are the right type of person to operate their franchise (i.e. somebody who is not a “Maverick”, but somebody who can successfully operate within the franchisor’s pre-made system).  For better or worse, franchises depend on the uniform application of the franchisor’s system, so the franchisors usually don’t want people they view as too independent. 

If your franchise application is accepted by the franchisor, the next step will usually involve a meeting with the franchisor – similar to a job interview.  During this time, the franchisor will continue to explore your interest, commitment and suitability, and you will try to find out as much as possible about the franchise.  At this point, you should retain an attorney to assist you in evaluating the franchise and negotiating the deal. 

        Step 2 – Verify Legal Standing of Franchise

As a preliminary matter, your attorney should conduct several searches of the franchise, in various State and regulatory databases, to verify it is registered in California, in good legal standing, and not subject to any desist-and-refrain orders or other administrative proceedings. 

        Step 3 – Review Franchise Disclosure Document (FDD)

Next, you and your attorney need to review the franchise disclosure document provided to you by the franchisor to verify it is complete and up-to-date.  As stated above, the FDD is a document regulated by the FTC concerning disclosures required to be delivered to prospective buyers of franchises.  As required by the FTC, the FDD must contain 23 specific “items” of information, including the business background of the franchisor, litigation history, franchise fees, territorial rights, intellectual property, financial performance and statistical information, and the franchisor’s financial statements.  The FDD should be reviewed carefully, as it contains vital information about the specific details and “economics” of the franchise opportunity, such as the financial analysis of all fees, the calculation of royalties, and the performance of all franchisees (including existing franchises and those who left). 

As part of this analysis, you should also contact other franchisees and interview them with respect to their experience – i.e. their success, their relationship with the franchisor, their satisfaction with the franchise, etc.  These interviews should provide real-life, practical information about the franchise opportunity that would otherwise be unavailable.  Even if the economics look good on paper, if all the franchisees interviewed are unsatisfied with the franchise, you may decide to pursue a different opportunity. 

        Step 4 – Review Franchise Agreement

The last step in completing the franchise is the drafting of the franchise agreement.  Usually, the franchise agreement is a long (usually 30-200 pages!) standard-form agreement prepared by the franchisor.  Like any contract, the franchise agreement is technically negotiable.  However, since the franchise’s success depends on the uniform application of the franchisor’s system, the franchisor will most likely be unwilling to change many of the agreement’s provisions.  Regardless, you and your attorney should carefully review the franchise agreement so that you are fully informed of all the franchise details. 

As a note of caution, you should be concerned with any provisions requiring a personal guaranty, indemnification provisions, provisions discussing renewal/transfer/terminations rights, arbitration clauses and non-compete covenants.  If possible, you should have the franchise agreement redrafted so these provisions are as favorable to you as possible. 

Assuming both parties agree to the terms of the agreement, the agreement simply needs to be signed for the process to be complete.  Once the agreement has been signed and all formalities completed, you will be the proud owner of a franchise and [hopefully] ready for business. 

III. CONCLUSION

As discussed above, the process of starting a franchise is complicated and time consuming, requiring extensive background research and due diligence, the careful review of multiple documents and lengthy agreements, as well as a genuine self-evaluation to determine whether you are the type of person who can (and actually desires to) own and operate a franchise.  While a franchise involves the loss of a certain amount of autonomy that could make some entrepreneurs cringe, those devoted to the operation can reap huge economic benefits.  If you are interested in starting a franchise or simply have questions, please do not hesitate to give us a call. 

The Varnish

The Varnish

118 East 6^th Street, Los Angeles, CA 90014 [hidden in the back]

For those who read my last review, I gave a fairly graphic image of my ideal bar.  For this review, I’ve chosen to discuss a bar that matches that ideal almost perfectly:  The Varnish.

The Varnish is essentially a modern-day speakeasy – a modern take on those clandestine establishments where alcohol was served illegally during Prohibition.  In order to be done well, a modern-day speakeasy should, at a minimum, satisfy three general requirements:  it must be hidden; it must have a Prohibition-era theme; it must offer expertly-crafted classic drinks.  [Requiring a password is a plus.]  And by almost any standard, The Varnish is done well.  Really well. 

As for being hidden, The Varnish is essentially a bar-inside-a-bar, and is accessed by walking from the street level on 6th down a short flight of stairs into the partially sunken Cole’s French Dip restaurant and bar, past the hostess, kitchen, bathrooms, and several tables of patrons, to a plain unmarked black door in the back.  There is no bouncer standing outside.  There is no sign.  The door looks like nothing more than an unassuming broom closet.  If you didn’t already know the bar was there, you wouldn’t find it.  [Years ago, when I first discovered The Varnish, I took a date here, and as I was opening the door, she gasped, “No way, you’ve gotta be kidding me.”  No way?  Yeah way.]

In other words, The Varnish is hidden behind a broom closet in the back of a restaurant behind a bar. 

As for the Prohibition-era theme, The Varnish resides inside the recently restored Cole’s – the oldest existing restaurant in DTLA (est. 1908), the original inventor of the French dip sandwich, and recipient of the Los Angeles Conservancy’s coveted Preservation Award recognizing outstanding achievement in the field of historic preservation.  Cole’s itself is nestled within the hollow of the Pacific Electric Building (est. 1905), which served as the main terminal for the Pacific Electric Red Car trolley lines during Los Angeles’ heyday in the early 1900s.  [By the way, the term “varnish” was a railroad expression for passenger trains in the days of wooden cars, which were varnished after painting to provide an elegant finish befitting the high level of craftsmanship typical of late nineteenth-century passenger equipment.  Not surprisingly, the original railway tracks now lay beneath The Varnish, and the same level of craftsmanship has been devoted to the bar.]

Immediately upon entering the bar, you’ll feel transported back to a time gone by – the room is dimly lit by the original glass lighting fixtures; the bartenders are dressed to the nines in vests, ties, garters and slacks; drinks are made with old-fashioned block ice (not cubes); and the small tables and rail car booths sit atop the original penny-tiled floors.  [Cole’s even utilizes the original 40-foot mahogany “Red Car Bar” that was frequented by thousands of Angelinos taking the trolley to and from work some hundred years ago.]

In other words, when you step into The Varnish, you’re stepping back in time. 

And as for quality drinks, The Varnish was created by the nationally-renowned mixologist, Eric Alperin (2011 American Bartender of the Year), and the bar has repeatedly won awards for being the “Best American Cocktail Bar” – a place where you can order drinks like The Highlander, The Bee’s Knees, and Coffee Cocktails. 

In other words, the drinks are good.  Really good. 

Additionally, one of the best aspects of The Varnish is that it’s located in the bustling, up-and-coming area of Los Angeles’ Historic Core – a neighborhood that fell into serious decline after WWII, but recently attracted significant investment and revitalization after the Los Angeles City Council passed the Adaptive Re-Use Ordinance in 1999, allowing the old and unused office buildings to be converted into apartments and lofts, with the purpose of attracting new residents who would bring vitality to the City’s urban core.  As a result, The Varnish, while intimately tucked away in the backroom of a historic landmark, is also centrally located among an increasing number of new, hip bars and restaurants (such as Mignon and The Gorbals).  In bar owner Eric Alperin’s own words, this location was deliberately chosen because it’s an area of Downtown that has an “NY vibe,” with “more of a walking life.”  As more residents flock to the Downtown area, Alperin’s words continue to ring true. 

All in all, The Varnish is a truly timeless experience.  Fortunately, Prohibition is over and this review shouldn’t tip off the authorities to any illicit activity in my favorite watering hole.  So definitely add this bar to your list for 2012.  Just remember to keep your list in your bootleg. 

Breathalyzer "Science" Shown Defective

Breathalyzer “Science” Shown Defective

Accuracy of science behind Breathalyzer tests provides defense in DUI cases

In the landmark case, People v. Timmie Lance McNeal, the California Supreme Court recognized that Breathalyzer tests produce variable [and inaccurate] results for different people, and unanimously ruled that juries can consider the accuracy of Breathalyzer tests to rebut the presumption of intoxication in DUI cases.  This ruling represents a major victory for California DUI defense attorneys, who have long-held the “science” used in Breathalyzer tests is highly questionable. 

Henry’s Law

Breathalyzer devices measure the amount of alcohol vapor in a person’s breath (presumably representing the level of alcohol contained in the person’s lungs, after being consumed, absorbed in the blood, and circulated throughout the body), and use a breath-to-blood ratio to convert the breath-alcohol level to an estimated blood-alcohol level.  Currently, a nationally accepted scientific formula, known as “Henry’s law,” is used to accomplish this breath-to-blood conversion.  However, the problem is that breath-to-blood ratios vary greatly from person to person, and are influenced by many factors which are not taken into account by the Breathalyzer devices – such as body temperature, atmospheric pressure, medical conditions (such as the person having a lung condition, like asthma, or only having one lung) and the precision of the measuring device.  In other words, the same Breathalyzer result for one person could show severe intoxication, while for another person it could show complete sobriety! 

California’s DUI Law

The Supreme Court’s holding in McNeal resolved inconsistencies between California’s two different DUI laws, where results from Breathalyzer tests under one law simply establish a presumption of intoxication, whereas in the other law, those same results define legal intoxication (essentially creating an irrebuttable presumption). 

Law 1 – Presumption of Intoxication.  California’s first DUI law requires proof that a driver was intoxicated, such as slurred speech and bloodshot eyes, and Breathalyzer tests may be used to establish a legal presumption of intoxication – jurors may presume someone is drunk if the Breathalyzer test shows a blood-alcohol level of at least 0.08 percent. 

Law 2 – Definition of Intoxication.  California’s second DUI law, passed by the Legislature in 1981 and updated in 1989, defined a drunk driver as someone with a blood-alcohol level of 0.08 percent, regardless of the person’s behavior or appearance.  Then, a 1994 Supreme Court decision extended that definition to include Breathalyzer results – meaning Breathalyzer tests showing a blood-alcohol level of at least 0.08 percent provide definitive evidence of legal intoxication.  The effect of this 1994 ruling was to bar drivers charged with this second law from attacking the accuracy and variability of Breathalyzer tests. 

Since this ruling, DUI defense attorneys have been unable to dispute Henry’s law as a basis for challenging the breath-test results or defending against DUI charges. 

McNeal Decision

In its unanimous decision, Justice Carol Corrigan explained that “defense evidence is relevant to rebut the presumption that the defendant was intoxicated, but not to remove the presumption altogether.”  Prosecutors believe this ruling will seriously hamper their ability to win convictions in DUI cases. 

The takeaway is that the Supreme Court’s decision in McNeal essentially overrules previous laws restricting DUI defense strategies, and provides drivers with an extremely strong weapon in their arsenal to combat DUI convictions.  If you’ve been charged with a DUI based on a Breathalyzer test, especially if your test results are very near the legal limit (0.08-1.00 percent), don’t wait – contact us today! 

How to Get a Liquor License in California

How to Get a Liquor License in California

The First Step to Starting a Bar

Many people dream of starting and owning their own restaurant or bar.  Especially in the City of Angeles, owning a restaurant or bar carries a very distinct level of acclaim, panache, and sophistication.  However, while the concept itself is exciting to most, the work required in simply starting the process of opening a restaurant or bar is confusing, complicated, expensive, frustrating, and fraught with pitfalls!

The first step in starting any successful restaurant or bar is acquiring a liquor license.  In the State of California, the Department of Alcoholic Beverage Control (ABC) controls the issuance of liquor licenses.  While the process of acquiring a liquor license is multifaceted, complicated, and infinitely varied based on the type of establishment you wish to operate (e.g. bar, club, restaurant, etc.), the general steps to acquiring a liquor license are as follows:

1.       Control a Business Location

2.       Obtain Zoning Permits

3.       Buy Liquor License

4.       File Liquor License Application

Step 1 - Control a Business Location

The first step in acquiring a liquor license is obtaining control over an actual business location.  The ABC will only issue a liquor license to a real, physical retail location, and the basic ABC requirements for controlling a business location are as follows:

1.       Commercial Location - the proposed location for license must be a commercial location (no residential units allowed).

2.       Own Property - you must own the property for the proposed location, or have a lease agreement granting you right to control the proposed location.

3.       Name of Entity on Deed - the name on the property (or lease) must be in the name of the entity (e.g. corporation, partnership, LLC, etc.) who will apply with the ABC for a liquor license.

As stated above, the ABC will require proof that you have control over your proposed business.  However, even if you don't currently own or lease a location, you can still apply for a liquor license by providing the ABC with a signed lease for a business location, or a "letter of intent" with a prospective landlord to lease a commercial location. [Note, to reduce your risk, you should sign your lease so that it is subject to the final approval of your liquor license application.]

Step 2 - Obtain Zoning Permits

The second step in acquiring a liquor license is to comply with any local zoning regulations and obtain zoning permits that may be required by your city.  These zoning permits are generally called "Conditional Use Permits" (or "CUPs").

Zoning Permits

In order to find out if your city requires a zoning permit for the sale of alcoholic beverages at your business location, you will need to contact the zoning department of your local city or county and speak with a planner.  The planner will research the location's zoning information and tell you whether a zoning permit is required for your location. If a zoning permit is required, you will need to prepare and file a zoning application with the city or county - a task that requires the drafting of specialized maps, careful research, notification of local residents of your application, negotiation and the preparation of a written application. You may even have to attend a public hearing before the zoning board to make a case as to why your business should have the right to sell alcoholic beverages.

Zoning Affidavit

The ABC liquor license application requires that the applicant also file a "Zoning Affidavit" (ABC Form 255), indicating whether or not your local city requires a zoning permit for your business location.  Due to the complexity involved in acquiring the necessary zoning permits in any given city or county, it is strongly advised that you get professional help for this step. 

Step 3 - Buy Liquor License

The third step in acquiring a liquor license is actually buying a license from a private seller.  The State of California no longer issues hard liquor licenses, and therefore, these licenses can only be acquired by finding someone in your county who is willing to sell their license to you.  You can use a liquor license broker or try to negotiate the purchase of one directly from a private seller.

Additionally, the State of California requires an escrow account to be opened for the transfer of the liquor license (regardless of whether the liquor license is purchased through a broker or directly from a private party).  This liquor license escrow is not the same thing as a real estate escrow, and has a unique set of escrow requirements mandated by the ABC.  There are several escrow companies throughout California that specialize in liquor license transfers.

Step 4 - File California Liquor License Application

The fourth, and final, step in acquiring a liquor license is actually filing the liquor license application with the ABC.  The type of application you file depends on the specific type of business you intend to operate (e.g. those intending to start a bar could apply for License No. 40, which allows for On Sale Beer, whereas those intending to start a restaurant could apply for License No. 41, which allows for On Sale Beer & Wine at a "bona fide eating place").

After successfully filing your liquor license application, you will need to notify the surrounding community that you are applying for a liquor license.  The ABC requires three forms of notification:

1.       Building - posting a notification on your building for 30 days.

2.       Mail - mailing an official ABC notification to residents within 500 feet of your business.

3.       Newspaper - publishing a public notice in a local newspaper.

As you can see, the process of acquiring a liquor license - one step in a myriad of steps required to successfully start a restaurant or bar - is infinitely complex and highly specialized.  If you are thinking of starting a restaurant or bar, please contact us immediately!  We will provide you with ongoing representation and start-up document preparation - we will prepare all of the ABC documents (other than escrow documents) required by the ABC for a complete application, gather the required information from you and then carefully prepare your application paperwork for filing with the ABC.