• California Daily Fantasy Sports

California, Daily Fantasy Sports, and What’s to Come

Many people have long been involved in small fantasy sports leagues with friends and co-workers, but the mega daily fantasy sports companies have seemingly sprung up from out of nowhere. Now ads for the two dominant companies, Fan Duel and Draft Kings, bombard us at every turn. The companies have not operated without contention though, gaining major press recently for issues relating to the legality of the websites themselves, and for insider trading concerns, among other things.

The U.S. criminal gambling statutes are found in Title 18 of the United States Code. The Federal Wire Act prohibits interstate sports wagering, and the Illegal Gambling Business Act prohibits the interstate conduct of wagering activity prohibited under state law. Additionally, the Unlawful Internet Gambling Enforcement Act (UIGEA) generally prohibits the transfer of funds in connection with online gambling.

State laws have varying standards in regards to determining whether a game is one of “skill,” or one of “chance,” games of “chance” being consider gambling. Most state laws are based on whether the skill-based elements are predominant over those of chance. California follows similar standards when evaluating whether a certain activity is considered gambling.

Despite the current legal framework, California has generally allowed daily fantasy sports. All daily fantasy sports operators accept customers from the state, and at least a few are based in the state.

However, amid rising concerns, California is, at some point, going to have to take a major look at the industry and decide where it stands on its legality. If the state finds that daily fantasy sports are in fact gambling, and therefore, illegal, such a determination could have major implications on the daily fantasy sports industry, since California is the most populous state. As a result, it is important to know the current legal framework and climate moving forward.

One could argue that Section 19801(d) of the Business & Professions Code makes “gambling” illegal. Section 19801(d) states:

“Unregulated gambling enterprises are inimical to the public health, safety, welfare, and good order. Accordingly, no person in this state has a right to operate a gambling enterprise except as may be expressly permitted by the laws of this state and by the ordinances of local governmental bodies.”

The issue in making a straightforward application of this Section is that the major fantasy sports companies are trying to get around the “gambling” aspect by claiming that their games are ones of “skill” rather than “chance,” using Penal Code §337a as their support. That statute is where the state differentiates “skill” from “chance.”

Regardless, I think most people would at least consider the idea that there should be additional regulation of the sector, if nothing else. Assembly member Adam Gray (D-Merced) Gray is behind AB1437, which is a bill that could enact a number of restrictions on the daily fantasy sports websites in California. Among other stipulations, the bill is designed to ensure that the state is “not deprived of revenues to which it would otherwise be entitled.” Essentially, the state could impose licensing requirements and taxes, which would protect the consumers and bring money into the state.

Citing some of the law discussed above, Assemblyman Marc Levine (D-Marin County) wrote a letter on November 2, 2015 to the office of California Attorney General Kamala Harris requesting a “cease and desist” order, similar to the one recently issued in New York, until the law is at least clarified and a determination is made on the legality of daily fantasy sports. Kamala Harris declined to respond or issue a cease and desist order, but in declining to respond, cited potential interference with the pending investigation into daily fantasy sports teams.

  • California Water Crisis

Easements & Their Many Forms - Exclusive or Equitable?

Many properties have easements associated with them, oftentimes, stretching back to when a subdivision was created. Easements essentially give someone the right to cross or otherwise use someone else’s land.

Because easements are so prevalent, it is important to take a close look at the title report when purchasing a property. However, if not expressly granted in a title document, easements can be created in a variety of other ways.

Another way easements are recognized is by implication. Civ. Code § 1104. An easement by implication requires that the easement was created when two parcels of land were at one time treated as a single tract, and the use is implied by an existing use or by some sort of necessity.

The common example of necessity would be a situation where after the property was divided into two parcels, one loses all access to a public road. An easement by implication gives the easement holder exclusive rights against the true owner over that piece of land.

Courts will also acknowledge easements by prescription (or adverse possession). Cushman v. Davis, 80 Cal.App.3d 731, 735 (1978). Basically, if you use someone else’s property openly and continuously for the statutory time frame (five years in California), you may gain rights to use that land. See Id.

However, California has found that easements by prescription do not necessarily equal exclusive rights, like with implied easements. Silacci v. Abramson, 45 Cal.App.4th 558 (1996); Harrison v. Welch, 116 Cal.App.4th 1084, 1093 (2004). The typical scenario goes as follows:

One party, we'll call them the “surprised neighbor,” discovers that a fence encroaches on their side of the property line by 2 feet.

The encroacher has expended lots of money and labor planting and maintaining a garden in this 2-foot strip, for twenty years.

The surprised neighbor complains and wants the two feet of land back.

The encroacher retorts back with claims of an exclusive prescriptive easement, since they clearly meet the statutory requirements, and a legal battle ensues.

However, California courts have held that exclusive prescriptive easements have no application in this type of dispute. Harrison, supra. The idea is that it is illogical and inequitable to give an encroaching party the effective equivalent of title to the property based simply on a prescriptive use, when actual transfer of legal title is prohibited. Silacci, supra.

Courts do, however, have the power to reach an “equitable” solution that is technically different from a prescriptive easement. Linthicum v. Butterfield, 175 Cal. App. 4th 259, 262 (2009); Hirshfield v. Schwartz, 91 Cal.App.4th 749, 767(2001).

This solution is oftentimes called an equitable easement and it can grant the trespasser some legal rights, though those rights may come at a cost. In granting an equitable easement, the courts will “balance the hardships” of the parties. Hirshfield, supra, at 759.

Clearly easements can be tricky, but it is important to understand your rights in and outside of court.

  • California Water Crisis

The California Water Crisis Raising New Legal Questions: Property Law, Takings and Senior Water Rights

Though California recently received encouraging news when officials announced that residential water use had dropped 29% during May 2015, the legal climate surround water issues is far from calm in California.

One of the big questions many want answered is, “Whether California can tell farmers and other Californians to stop diverting water?” Some lawyers are phrasing the question as, “Is California attempting to “take” property without just compensation?”

This year the California State Water Resources Control Board has issued nearly 10,000 curtailment orders restricting the diversion of water. This had riled up many water users, particularly so called “senior rights holders,” whose claim to divert and use water dates back more than a century.

In fact, several irrigation districts have somewhat successfully challenged the orders in the Superior Court of California.

The Court on July 10, 2015, issued a temporary restraining order preventing the State Water Resources Control Board from enforcing a curtailment notice against the West Side Irrigation District, Central Delta Water Agency, South Delta Water Agency and Woods Irrigation Co. because the notices as issued, without a formal hearing, violated the agencies' constitutional due process rights. The court did not, however, rule on whether or not water rights were in fact a “property right,” though raised by the agencies.

Another case, from the San Joaquin Tributaries Authority, Oakdale Irrigation District and South San Joaquin Irrigation District, took a more direct approach, contending that the board's action was an unconstitutional taking for which the state has not paid just compensation.

This “takings” issue has had lawyers, environmentalist, and business people alike speculating on how the courts might eventually rule on that issue. The debate tends to center around two important cases, Horne v. Department of Agriculture and Leonard & Leonard v. Earle.

In Leonard, a Maryland regulation mandated packers of oysters to turn over 10 percent of their empty shells after they are shucked for state public use purposes. In that case, the court ruled that the policy was not a taking because the oysters and, consequently, their shells belonged to the state to begin with.

In Horne, the court ruled that a government program that required farmers to turn over their raisin crop for limited or no compensation was a “clear physical taking” and that the government must pay just compensation for such taking.

Some people argue that the Horne standard should apply to water rights, as well, prohibiting the government from taking water rights without just compensation. Others believe that the Leonard standard should apply because, they argue, water was never a property right held by individuals, but rather property that belonged to the state.

Additionally, the Horne opinion clearly distinguished the two cases when Roberts stated, “Raisins are not like oysters: they are private property -- fruit of the growers' labor.” Similarly, water conservationist argue, water is not a “fruit of the growers’ labor.”

In the meantime, the State Water Board has remained undeterred by the legal bumps, issuing new water rights curtailment notices in mid-July to thousands of farmers and other Californians.

For now, they were able to sidestep the ruling and temporary restraining order issued earlier in July by clarifying that the notices themselves were not enforcement documents or legal orders. Instead, they simply say that water users “should be aware that they may be subject to enforcement if they do not stop diversions due to insufficient water supply.”

As the many legal battles rage on, so too does the water crisis. California is being forced to confront many of their old and unworkable laws and regulations, and will likely have to look at changing the legal landscape as it desperately tries to find ways to ensure water security and stay afloat.

  • California Water Crisis

Construction Contractors and Subcontractors - Beware

If you accept work on a public or publicly funded project, whether a county road, public high school, or a city hall, a whole panoply of laws and regulations come into effect, and if not understood and complied with, are an expensive “trap for the unwary” contractor.

Most of us have a passing familiarity with the procedures available to a subcontractor to enforce payment against a general contractor and for a general contractor to enforce payment against the private owner for construction and related work done on the owner’s property – that is, the recordation of a mechanics lien and its subsequent judicial foreclosure. In public works projects, however, the contractor, whether a sub or the general contractor, uses a “stop notice” to enforce payment against the public agency, whether state or local, owning the project or having supervisorial authority over it. (Civil Code section 9100). If the contractor or subcontractor is not paid within 10 days after the “stop notice” is served on the public agency, the contractor is justified in stopping work. If a subcontractor records the stop notice, claiming the general contractor has not paid the sub, the public owner must withhold an amount sufficient to satisfy the amount claimed in the subcontractor’s “stop notice” from the general contractor. If the public owner and the involved contractors cannot reconcile their differences, then the matter will proceed to court for as an action on the “stop notice” and for breach of contract. The claimant may file the legal action in court no earlier than 10 days after the completion of the public works project and/or its cessation or the recordation of a notice of cessation or completion.

If the federal government through its various agencies and departments is the owner, the unpaid contractor proceeds by way of a Miller Act Claim. The Miller Act of 1935 authorizes subcontractors who furnished labor or materials on federal government projects valued in excess of $150,000 to bring a civil action in federal court in the name of the government against the general contractor’s payment bond, which the general contractor is required to obtain before commencing any work on a federal public project.

Equally important for any contractor, who is seeking to do work on public construction projects, is to appreciate and comply with the extensive statutory schemes in both state and federal law for payment of laborers engaged/working on the project. California law requires that workers on state or local public works projects must be paid “prevailing wages” whether or not they are members of a union/collective bargaining unit. The legislative intent is that by requiring both unionized contractors and their non-union competitors to pay “prevailing wages”, both are on a level financial “playing field” when it comes for them to bid against each other on public projects. “Prevailing wages” as that term is defined in California law (Labor Code Section 1770) means not only hourly wages and the usual benefits to include medical and retirement plan contributions, but as well, travel, lodging, and subsistence payments to the respective employees. The Department of Industrial R elations - Division of Labor Standards Enforcement oversees the obligation of all public works contractors to pay “prevailing wages” in California.

A contractor or subcontractor’s failure to pay prevailing wages in a public works project can spell economic disaster. The State through the Division of Labor Standards Enforcement (DLSE) can file a Civil Wage and Penalty Assessment Claim demanding payment from the contractor and subcontractor, jointly and severally, of the amount it interprets as unpaid “prevailing wages”. DLSE usually adopts the negotiated wage, benefits, travel, lodging, and subsistence rates negotiated between the local union collective bargaining unit and the local management council as the amount it deems “prevailing wages” that must be paid on all public works projects within the jurisdiction of the local bargaining unit. In addition, the State can impose penalties for failing to pay prevailing wages at the rate of $40 per day/per employee for each day that “prevailing wages” were not paid. Worse, if the contractor/subcontractor either cannot or fails to deposit the unpaid “prevailing wage s” as determined by the DLSE within 60 days of the initiation of the enforcement action, the State can impose “liquidated damages” equal to 100% of its claim, essentially “doubling” the cost to the employing contractor.

The bottom line is that while public contracting is often the best and maybe the only “construction opportunity in town,” contractors and subcontractors must have a solid understanding of public contracting law – at the state or federal level, as the case may be. They must scrutinize the master contract with the public agency and carefully negotiate, or at least understand, the terms of their subcontract with the general contractor. This plus careful contract administration during the life of the project will increase the probabilities of an economically positive and non-litigious outcome.