BLN Editorial Board: Message from the Editor

Jerome A. Grossman

I am pleased to present to you the first issue of the 2015 Business Law News, featuring a number of articles that we hope you will find of interest. First, Douglas Lan-drum introduces the Sample California Third-Party Legal Opinion for Venture Capital Financing Transactions ("Venture Opinion"), recently completed by the Opinions Committee and published in the Winter edition of the ABA’s Business Lawyer. Doug provides some of the background for the Venture Opinion (which addresses, as issuer’s counsel, legal issues arising in connection the sale of a new series of preferred stock with accompanying warrants), and—among other things—explains the whys and wherefores of the treatment the Venture Opinion accords to several potentially contentious issues: (i) the inclusion of a general qualification of the opinion by the contents of the schedule of exceptions to the governing stock purchase agreement; (ii) coverage of post-closing performance by the issuer; (iii) the delivery by California attorneys of opinions with respect to matters of Delaware corporate law; and (iv) the inclusion (or not) of express assumptions. It should be a welcome companion piece to the Venture Opinion itself.

Next follow four articles addressing decisions that touch upon a broad range of corporate practice areas:

• Rachelle H. Cohen, with the Partnership and LLC Committee, highlights an issue that should be of interest to all California business practitioners with out-of-state clients: the determination by the Franchise Tax Board last July, in Legal Ruling 2014-01, that an out-of-state member of a limited liability company that is taxed as a partnership and is doing business in California is, for tax purposes, also "doing business"—and subject to taxation—in California. Rachelle examines the ruling in light of the treatment of LLCs under federal tax law and the FTB’s own prior decisions, and concludes that the new ruling does not give sufficient weight to the LLC’s existence as a separate entity under state law.
• John Rosenthal tackles the October 29, 2014, decision by the Second Appellate District in Greg Rosolowski v. Guthy-Renker LLC, affirming the lower court’s dismissal, without leave to amend, of a complaint under California Business and Professions Code section 17529.5 seeking statutory damages in respect of commercial email messages that that bore allegedly deceptive "header" information. John presents a short history of California’s legislative attempts to regulate commercial emails, as well as a description of the federal response to those attempts (and to similar attempts by other states)—the Controlling Assault on Non-Solicited Pornography and Marketing Act of 2003 ("CAN-SPAM")—and analyzes their application by the court in Rosolowski. He concludes with a discussion of the practical implications of the decision.
• Robert Wood then presents a discussion of the deductibility of legal fees incurred in connection with corporate transactions—e.g., when, and to what extent, legal fees can be treated as expenses and deducted in calculating a taxpayer’s net income, and when they must be capitalized and written off ratably over the life of the asset acquired in the transaction or held as part of the taxpayer’s basis in the asset. He does this by way of a case note on the Tenth Circuit case, Ash Grove Cement Company v. United States, describing the facts, the issues on appeal, and the court’s analysis of those issues. He then addresses the deductibility of several different categories of transaction expenses in light of the governing precedents, and concludes with a statement of the lessons to be taken.
• In our final case note, on the California Supreme Court’s decision in Patterson v. Domino’s Pizza, LLC, Paul A. Schiffin looks at one of the most contentious issues in franchise law–whether franchisees should be treated as independent contractors, or as agents of their franchisors—in the context of a lawsuit seeking to hold a franchisor liable for the tortious acts of an assistant manager employed by its franchisee. Paul concludes that the decision does not provide a bright line for determining whether a franchisor has exerted sufficient control over a franchisee to justify the imputation to it of the acts of its franchisee, but that it provides some assurance to franchisors that the imposition of certain procedures intended to protect the value of their brand will not, by itself, result in such imputed liability.