Appellate Court Invalidates Substituted Service Under CCP 415.20(c) at a Commercial Mail Receiving Agency

B&P Code 17538.5, CCP 415.20, CMRA, Commercial Mail Receiving Agency, Substituted Service

By Tony Klein, © 2022

On October 15, 2021, the California Court of Appeal (2d Appellate District (LA)) issued a ruling in Kremerman v. White 71 Cal.App.5th 358 (2021), invalidating a service based upon declarations and a proof of service that inaccurately described service at a commercial mail receiving agency (CMRA).

The problem, illuminated in the Kremerman decision, invalidated the service because, inter alia, the service did not strictly comply with the statute.

The process server retained in the case made several attempts to personally serve the defendant Angela White (aka Blac Chyna, hereinafter referred to as White) with a breach of contract and negligence lawsuit at several addresses – one where the plaintiff knew she vacated, her new address where she moved, and another at a CMRA where she received mail.

After attempting service and stakeouts at all these addresses, the process server left the summons and complaint at the CMRA and mailed a copy there.

The trial court ordered that the defendant was in default and entered a default judgment. White filed a motion claiming that she was never effectively served which the court denied. The plaintiff then levied White’s bank account and White appealed.

The appellate court reviewed the record and ultimately reversed the trial court’s denial of White’s motion to set aside the judgment and remanded the case with instructions to the trial court to vacate the entry of default and the default judgment and to set aside the garnishment order issued to execute the judgment.

The appellate court found several deficiencies with the service. The process server’s declaration erroneously referenced that he was serving an unlawful detainer action, when in fact the case was for breach of contract and negligence. The server attempted service at the White’s vacated address, her new address, and performed unsuccessful stakeout attempts at both locations, and ultimately sub-served the lawsuit at a CMRA, her mailing address without first establishing due diligence there. The process server provided a proof of service stating that the documents were left there at 11:57 PM with a “competent member of the household”, and then mailed the subserved copy to “the authorized employee at Postal Annex.”

The CMRA employee who accepted service provided a declaration that she received the documents and, within 48 hours of receipt, placed a copy in the defendant’s box, and mailed a copy to the defendant’s mailing address at the CMRA, not her actual address on file, 20 days later.

The court discussed the distinction between a void and voidable judgment and agreed with White’s assertion that the proof of service and declarations describing it were invalid and did not comply with the statutory requirements. The proof of service was deemed “invalid on its face”, based upon the court record, and no further extrinsic evidence was necessary to make that determination.  The trial court, therefore, lacked jurisdiction over the Defendant to adjudicate the action and exceeded its authority to enter the default and default judgment.

Issue #1:  The process server incorrectly described the documents being served on the diligence declaration, and attempted service at a home address known by the plaintiff already vacated by White months earlier; therefore, none of those attempts should count towards due diligence.

Issue #2:  The process server checked the incorrect box [box 5(b)(2)] on the proof of service stating service was effected at the “dwelling house or usual place of abode” of the defendant by leaving with “a competent member of the household”; whereas, the server should have instead checked the box for “usual mailing address” [box 5(b)(3)]. Also, the server mailed the documents to the CMRA employee, not to the Defendant.

Issue #3: CCP §415.20(c) has the statutory requirement that the CMRA address must be the only address reasonably known to the Plaintiff; whereas, here, the Plaintiff knew the Defendant’s current home address.

Issue #4: Because there was no diligence established prior to service at the CMRA, based upon the server’s defective due diligence declarations (see Issue #1 above), the only option for a valid service would fall under CCP §415.20(c) rather than §415.20(b); therefore, the strict language of subsection (c) has become problematic. Had the server properly documented the several due diligence attempts at the known home address of the Defendant, the Plaintiff could have possibly supported valid service under CCP §415.20(b) – notwithstanding the server’s assertion that service was made there 3 minutes before midnight.

Amendment to CCP 415.20

The recent amendment to CCP sec. 415.20 and adding subsection (c) conflated B&P Code section 17538.5(d) into a service of process statute with the phrase “in the manner described in” that section.  That B&P section is not a service of process law. It is a law that limits the liability of a CMRA when receiving service of process for the defendant.

Under B&P Code section 17538.5(d), the CMRA must:

1) make a copy and place one set of the documents in the defendant’s box within 48 hours; and

2) then, within 5 days of receipt of the service, enclose the second copy of the served documents in an envelope, put postage on it, go to a post office, stand in line, and mail it to the defendant at the last known address in the CMRA’s file; and

3) then purchase a Certificate of Mail from the post office for $1.65; and

4) then prepare an affidavit of service by mail with the Certificate of Mail attached and provide a copy to any requesting party or the court.

Then the CMRA is not liable to the defendant, and service is “deemed perfected” within 10 days after said mailing.

Under existing and recently amended CCP sec. 415.20(c), service is only valid if the CMRA does all of that. In other words, the process server is relying on a third person, the CMRA, to comply with B&P Code sec. 17538.5(d).

The defect in the service cannot be cured by the process server’s sub-service mailing to the address of the CMRA because the address for mailing under B&P Code sec. 17538.5(d) must be made by the CMRA to the last known address on file. That address is unknown to the server.  As mentioned previously, the CMRA in this case did not mail the documents to White at her address on file, but instead, to her mailbox.

Service is valid when made at the defendant’s mailing address – any mailing address other than a U.S. Post Office box – under CCP sec. 415.20(b) after making a due diligent attempt to serve.  The mailing to the defendant is complete 10 days after the date of service and mailing.

The process server “effects” service by delivery and mailing, and service deemed complete 10 days after the mailing.  The CMRA “perfects” service by its mailing, and “(s)ervice of process upon the mail receiving service customer shall then be deemed perfected 10 days after the date of mailing.”

The Law.com legal dictionary defines perfected as “having completed all necessary legal steps to achieve a result, such as perfect title to property.”

Merriam-Webster defines “perfect” as follows:

…

1b: satisfying all requirements: ACCURATE …

1e: legally valid

The use of the word “perfect” creates ambiguity in the law.  B&P Code sec 17538.5(d) is a limitation of liability statute. In this context, the CMRA is not liable when service is perfected. The “legal result” here is to specify the dates and all the legal steps the CMRA must take to limit its liability – not when service is deemed “effected”.

But when is service of process deemed “effected”? Is it ten days after the process server mails the sub-service copy, or when (or if) the CMRA mails a copy?  How is the court able to determine when the defendant is in default? This apparent ambiguity still arises when the process server establishes due diligence and subserves the CMRA under CCP sec. 415.20(b) and mails a copy to the defendant.

The phrase in CCP sec. 415.20(c) “if the only address reasonably known for the person to be served is a private mailbox obtained through a commercial mail receiving agency” allows service to be made without due diligence either when the CMRA address is the only known address or due diligence has been made at any known alternative address. The phrase “[n]otwithstanding subdivision (b)…” in CCP sec. 415.20(c) requires it.

What this appellate decision illustrates is that the declarations and proof of service must be accurately prepared to reflect the service event. This service probably could have been defended if the declarations were accurate, although the server’s mailing should have been addressed to the defendant, not the CMRA. The focus on the CMRA’s failure to comply with B&P Code sec. 17538.5, which of course is embedded and referenced in CCP 415.20(c), only piles on to the server’s improperly completed declarations.

Nevertheless, the decision addressed why the service was invalid for purpose of voiding the judgment. It did not address the issue to fix the date when service is deemed complete and will perpetuate the confusion when and if the CMRA does not strictly comply with B&P sec. 17538.5(d).

Since this is now a reported decision, it could provide an affirmative defense for defendants who are sub-served at a CMRA with or without due diligence. It could result in challenges to services made under CCP sec. 415.20(c) since it went into effect in 2018.

Special thanks to Gretchen Lichtenberger for her input

See related blog post here.

 

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New Procedures and Forms for California Unlawful Detainer Cases – September 1, 2020

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A new law was passed and immediately went into effect on September 1, 2020, entitled the COVID-19 Tenant Relief Act of 2020.  The law will temporarily modify the initiating procedures for all unlawful detainer cases, and especially for non-payment of rent between March, 2020 through January 31, 2020. Process servers should be aware of these changes. The law relates to the impact of Covid-19 rent period from March 1, 2020 through January 31, 2021 and sunsets in 2025.

The intent of the law was to avoid an inevitable increase in homelessness as the pandemic continues to adversely affect the economy.

 Generally, the law addresses two rental periods involving tenants who have not completely paid rent from March 1, 2020 through August 31, 2020 (pre-Sep. rent), and from September, 2020 through January 31, 2021 (post-Sep. 2020 rent).

Unpaid Rent from March 1, 2020 through August 31, 2020

The law required service, on or before September 30, 2020::

  • A15-Day Notice for non-payment of pre-Sep. rent, designating the month(s) and amounts due. The law voids a three day notice for this purpose.
  • Information regarding the new law. 
  • A blank declaration for the tenant to sign, under penalty of perjury, that the failure to pay rent was due to the financial impact of Covid-19.

Each tenant is obligated to sign and return the declaration under penalty of perjury regarding their inability to pay rent due to the financial impact of the Covid-19 pandemic. If the tenant returns the declaration no unlawful detainer action may be filed on the basis of non-payment of rent.

If the tenant does not return the declaration within 15 days of service, and an unlawful detainer is filed, the tenant may submit the declaration once the case is filed which will stay the proceeding.

“High Income Tenants” must provide the landlord proof of income and inability to pay.

If service was not made before September 30, 2020, and a lawsuit is filed later, the tenant may have an affirmative defense to the alleged obligation to pay the unpaid rent for that period. The Judicial Council will be adding that defense as a line item to the form Answer to Unlawful Detainer in the future.

Unpaid Rent from September 1, 2020 through January 31, 2021

The law requires service of:

  • A15-Day Notice for non-payment of post-Sep. rent, designating the month(s) and amounts due. /this may involve multiple services throughout the five months for unpaid rent from September 1, 2020 through January 31, 2021. The law voids a three day notice.
  • Information regarding the new law
  • A blank declaration for the tenant to sign, under penalty of perjury, that the failure to pay rent was due to the financial impact of Covid-19

Each tenant is obligated to sign and return the declaration to the landlord within 15 days. If the tenant returns the declaration no unlawful detainer action may be filed on the basis of non-payment of rent.

If the tenant does not return the declaration, and an unlawful detainer is filed, the tenant may still submit the declaration once the case is filed which will stay the proceeding.

If the tenant returns the declaration, they must defer payment of  25% of the unpaid rent on or before January 31, 2021.

“High Income Tenants” must provide the landlord proof of income and inability to pay.

Manner of Service

The manner of service is still governed by CCP sec. 1161,  Each tenant may personally served or sub-served or posted and mailed. 

Proof of Service

The proof of service should separately and specifically list each document served 

Note that the proof of service form developed by the California Apartment Association specifies that the follow-up mailing when sub-serving or posting, if necessary, was made on the same day of physical service. /that is not a legal requirement, but if that form is used, it should accurately reflect the date of mailing,

You may find a Proof of Service of a 15-Day Notice here under the Landlord / Tenant heading section.

Eviction Moratorias

The federal CARES Act, Center for Disease Control, and some local jurisdictions with eviction moratorium rules and regulations may restrict unlawful detainer filings before they expire. 

Filing an Unlawful Detainer lawsuit for Possession Based Upon Unpaid Rent

TIn addition to the other required Civil Case Cover Sheets the court may require the landlord must also complete a new civil cover sheet, Plaintiff’s Mandatory Cover Sheet, and Supplemental Allegations—Unlawful Detainer for any unlawful detainer. The form requires assertions that they have complied with the new law before the court will file the unlawful detainer action.

Because the assertions are a statutory requirement, the Plaintiff’s Mandatory Cover Sheet and Supplemental Allegations must be served with the Summons and Complaint, and the defendant may assert affirmative defenses based upon the representations in the plaintiff’s form.

After January 31, 2021, if the deferred rent is not paid, an unlawful detainer for possession may then be filed on the basis of unpaid rent, presumably under the current law.  

Filing a Case to Recover Unpaid Rent

The unpaid rent is converted to consumer debt, and may be recovered after March 1, 2021 in a separate lawsuit in small claims court. The new law removes the $10,000 jurisdictional limit specifically for Covid-19 related rent.

The impact on the Small Claims Courts around the state will likely be overwhelmed when these cases are being filed. They will likely need more staff, courtrooms, and judges to handle to increase in filings.  

A box will be added to the Plaintiff’s Claim to Go to Small Claims Court form referencing the special lawsuit for the unpaid rent.

Evictions for unpaid rent may be filed starting October 5, 2020, for tenants that do not submit a financial distress declaration.

Unlawful Detainer Actions for Reasons Other than Unpaid Rent

  • Eviction against nonresidential tenants
  • Evictions for lease defaults stemming from reasons other than nonpayment of rent.
  • Evictions for missed rent payments before March 2020 
  • Evictions for nonpayment of rent unrelated to the coronavirus pandemic.
  • Evictions against tenants willfully damaging property.
  • Evictions against tenants engaged in criminal activity. 
  • Evictions against tenants who violate the lease or rental agreement in other ways.

Of course, the timelines set forth, and procedures may not hold if the pandemic is not brought under control by January 2021.  The legislature may modify or extend the protections during the first months of 2021.

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New Levy Forms – September 1, 2020 (Updated Feb. 2024)

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By Tony Klein

On September 1, 2020 a new series of levy forms were mandated to comply with Senate Bill 616 (SB 616).  The bill amended and added code sections designed to provide an automatic exemption for a debtor whose bank account was levied without them having to file a claim of exemption form. It also extends the time for a debtor to file a claim.

The statutes mandate a new writ of execution and notice of levy form.

Writ of Execution

The most significant change to the form was adding a mandated designation that the judgment was for “wages owed”, “child or spousal support”, or “other” on line 22. This will probably be the most common mistake in filling out this new form because it appears out of immediate view on the upper third portion of page 2.

The new law amended CCP § 699.520 adding to the list of which items of information must be on a writ of execution.  Bolded and underlined below is what was added:

CCP § 699.520. The writ of execution shall require the levying officer to whom it is directed to enforce the money judgment and shall include the following information:
(a) The date of issuance of the writ.
(b) The title of the court in which the judgment is entered and the cause and number of the action.
(c) Whether the judgment is for wages owed, child support, or spousal support. This paragraph shall become operative on September 1, 2020.
(d) The name and address of the judgment creditor and the name and last known address of the judgment debtor. If the judgment debtor is other than a natural person, the type of legal entity shall be stated.
(e) The date of the entry of the judgment and of any subsequent renewals and where entered in the records of the court.
(f) The total amount of the money judgment as entered or renewed, together with costs thereafter added to the judgment pursuant to Section 685.090 and the accrued interest on the judgment from the date of entry or renewal of the judgment to the date of issuance of the writ, reduced by any partial satisfactions and by any amounts no longer enforceable.
(g) The amount required to satisfy the money judgment on the date the writ is issued.
(h) The amount of interest accruing daily on the principal amount of the judgment from the date the writ is issued.
(i) Whether any person has requested notice of sale under the judgment and, if so, the name and mailing address of that person.
(j) The sum of the fees and costs added to the judgment pursuant to Section 6103.5 or Article 6 (commencing with Section 68630) of Chapter 2 of Title 8 of the Government Code, and which is in addition to the amount owing to the judgment creditor on the judgment.
(k) Whether the writ of execution includes any additional names of the judgment debtor pursuant to an affidavit of identity, as defined in Section 680.135.
(l) A statement indicating whether the case is limited or unlimited.

California Rule of Court Rule 1.42(9) states that a court must not reject a form if “[t]he form is not the latest version of the form adopted or approved by the Judicial Council.” When this rule was adopted, the Judicial Council report further explained that if the form is otherwise legally sufficient, the obsolete form may be used.

Writs are not filed; they are presented to the court to be issued.  Certainly, the calculations of the judgment amount, interest, credits, etc. do not change and have not been affected by the new law, but the law amends CCP 699.520(c) requiring that designation be on the writ. The question is, therefore, does that make the prior writ form now “legally insufficient” if it was issued by a court prior to September 1, 2020?

Because this writ form is an “Approved” and not  “Mandatory”, an easy add-on statement designating the type of judgment could be included to comply with the spirit of the law.  This could be a solution for creditors who have had validly writs issued during the prior 180 days wondering if they need to return the old writ and pay the court $40.00 to issue another on the current form. On the other hand, it may require a return to the court to have the clerk initial the “change” or “alternation” to the issued writ by attaching the designation.

Notice of Levy 

There are significant changes to the form. In addition to the judgment designation, it further explains the automatic exemption and extensively describes the deadlines and the claim process.

This is also an “Approved” and not a “Mandated” form, but it would be impracticable to use the old form for current levies. 

Exemption from the Enforcement of Judgments

The form has been revised, updating federal and state law citations, adding FEMA funds, benefit funds, a hardship exemption, etc.

Current Dollar Amount Exempt from the Enforcement of Judgments

This form adds reference the U.S.C. bankruptcy law and the automatic exemption by statute. This form changes triennially on April 1, and now will have to be changed annually because the automatic exemption dollar amount changes on July 1 each year.

Levies on Multiple Deposit Accounts

There are a series of forms that are new for the creditor or debtor to file a motion when a levy is made and it involves money in multiple bank accounts.

Amount of Automatic Exemption

The original automatic exemption amount contemplated when SB 616 was introduced was $2000. The final chaptered version referenced the automatic exemption in new CCP 704.520 which automatically increases yearly on July 1.   Bolded and underlined below is where it is
hidden:

CCP § 704.220.
 (a) Money in the judgment debtor’s deposit account in an amount equal to or less than the minimum basic standard of adequate care for a family of four for Region 1, established by Section 11452 of the Welfare and Institutions Code and as annually adjusted by the State Department of Social Services pursuant to Section 11453 of the Welfare and Institutions Code, is exempt without making a claim.
(Emphasis added.)

(2024 Update)
Originally I spent 45 minutes on the State Department of Social Services’ website in June, 2020, looking for this amount and found it on a chart.  The amount was $1724. 

As of February 2024, the amount is $2.040.00, an amount that will be adjusted every July 1.

This link, as of today, shows that amount on a chart embedded into a long Glossary of benefit definitions. You can go to it by clicking “M” at the top and it will eventually take you to the Minimum Basic Standard of Adequate Care chart for a family of four for Region 1.

Sheriff Policies

It is unknown how each sheriff will handle these changes.

The CALSPro Legislative Committee are calling the sheriffs across the state to find out what their policies are regarding the new forms, and the change in the laws, and whether they will open a file with a writ that was issued on the old form.

The consensus is developing that if the files were opened and pending prior to September 1, 2020 the sheriff will continue the levy. There is no consensus as to what will happen if the file is opened with a writ that was issued before September 1, 2020.

Certainly, the new notice of levy should be used. The older form does not comply with the new law.

____________________________________

The 79-page Judicial Council Report of May 15, 2020 that created the new forms can be found here:

https://jcc.legistar.com/View.ashx?M=F&ID=8265089&GUID=6EC572EC-72D4-4961-944D-CC5756FEB873

The proposed “Writ of Execution form” can be viewed on page 16.

The current forms can be found here under Latest Changes, and scroll down to the Forms Approved 5/28/2020, Effective on 9/1/2020 > Enforcement of Judgement link.

 

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New Policy for 3-Day Notice Services Update

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Today the California Judicial Council revised its website posting in the Self Help section and removed the statement about service being complete ten days after mailing of a subserved or posted 3-day notice to pay rent or quit.

Presumably, they will be sending this to the courts statewide.

At least one court, Contra Costa Superior Court, is no longer following that directive.

How to Give Notice

You have to serve the notice on the tenant properly. You can do it yourself, or you can ask a friend to do it. You can also hire a process server. The person who serves the notice must be at least 18 years old.

There are 3 ways to serve the notice:

Personal service: You or someone else gives the notice directly to the tenant in person.

Substituted service: If the tenant is not home, you can leave the notice with a member of the household, at least 18 years old, where the tenant lives AND then mail a second copy to the tenant at the property. With substituted service, the notice is considered served the day of mailing of the second copy, and you start counting the notice period the day after mailing.

Posting and mailing (“nail and mail”) service: If there is no one home to leave the papers with, you can tape or nail the notice to the front door or somewhere where it can be seen easily AND send a copy by mail to the tenant at the property. With this type of service, the notice is considered served the day of mailing of the second copy, and you start counting the notice period the day after mailing.

You can see it here: https://www.courts.ca.gov/27723.htm

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New Policy for 3-Day Notice Services?

CA Service Laws, CCP 1162, Court Rules, Landlord Tenant Law

Note: See 2/27/20 Update here: https://psinstitute.com/new-policy-for-3-day-notice-services-update/

There is a new interpretation changing the effective service date when deemed complete after a 3-day notice is subserved or posted. It may be finding its way to a court near you.

The California Judicial Council has apparently sent all California courts a new directive about extending that date by 10 days. This directive, which is morphing into policy, is posted on the Judicial Council’s website here:

https://www.courts.ca.gov/27723.htm

This new policy is beginning to be adopted by courts in the bay area. Highlighted are the parts that add 10 days to a subserved or posted notice. The courts that are adopting this policy will not allow the unlawful detainer case to be filed unless the service is complete.

It is not uncommon for the Judicial Council to write directives for self-represented litigants in their “Self-Help” pages. They cover several legal topics. They create forms explaining procedural requirements, such as a small claims form entitled How to Serve a Business or Public Entity (which is reasonably accurate), and how to fill out a proof of service. There are several family law topics that are posted on their website.

But this explanation on how to serve a 3-day notice is flawed in so many ways.

The issue of when service is deemed complete after subserving or posting a notice has been to the appellate courts on several occasions in the past 70+ years. The issue has mainly focused on whether the mailing should be extended 5 days, similar to the extensions for mailing a notice to an opposing party in litigation under CCP sec. 1013. That issue has been repeatedly rejected for the service of a 3-day notice, noting that the 3-day notice is a pre-litigation document, the unlawful detainer action is a summary proceeding where time is of the essence, and that service must be made that strictly complies with the requirements in Unlawful Detainer Act.

It has NEVER been 10 days.  It is for service of a summons, but never a 3-day notice.

Furthermore, not only are courts following this. Pro per or pro se litigants or non-professional process servers will also be reading this.  Note, for instance, the phrase “nail and mail”. Although the description is a colloquial term, some might read it literally. Just think what a nail might do to a $10,000 door.

The law governing service on 3-day notices is found in CCP sec. 1162

CCP section 1162.  

(a) Except as provided in subdivision (b), the notices required by Sections 1161 and 1161a may be served by any of the following methods:
(1) By delivering a copy to the tenant personally.
(2) If he or she is absent from his or her place of residence, and from his or her usual place of business, by leaving a copy with some person of suitable age and discretion at either place, and sending a copy through the mail addressed to the tenant at his or her place of residence.
(3) If such place of residence and business cannot be ascertained, or a person of suitable age or discretion there can not be found, then by affixing a copy in a conspicuous place on the property, and also delivering a copy to a person there residing, if such person can be found; and also sending a copy through the mail addressed to the tenant at the place where the property is situated. Service upon a subtenant may be made in the same manner.
(b) The notices required by Section 1161 may be served upon a commercial tenant by any of the following methods:
(1) By delivering a copy to the tenant personally.
(2) If he or she is absent from the commercial rental property, by leaving a copy with some person of suitable age and discretion at the property, and sending a copy through the mail addressed to the tenant at the address where the property is situated.
(3) If, at the time of attempted service, a person of suitable age or discretion is not found at the rental property through the exercise of reasonable diligence, then by affixing a copy in a conspicuous place on the property, and also sending a copy through the mail addressed to the tenant at the address where the property is situated. Service upon a subtenant may be made in the same manner.
(c) For purposes of subdivision (b), “commercial tenant” means a person or entity that hires any real property in this state that is not a dwelling unit, as defined in subdivision (c) of Section 1940 of the Civil Code, or a mobilehome, as defined in Section 798.3 of the Civil Code.(Amended by Stats. 2010, Ch. 144, Sec. 1. (AB 1263) Effective January 1, 2011.)
  • CCP section 1162 says that the posting may be made “by affixing a copy in a conspicuous place on the property” – it does not have to be on the door. It could also be posted on a locked metal gate preventing access to the door, or a window close to the entryway, or on a wooden stake, sunk into the ground, 1/4 mile from the house on a farm.  All of those are conspicuous places on the property. Also, the tape is fine, but a nail could damage the door – bad advice if read literally.  
  • The directive doesn’t mention that you must also attempt service at a known business before you can resort to subservice on a person or by posting the notice.
  • The notice does not need to be served on someone 18 or older – the statute stated that it may be served on a person of “suitable age and discretion.” If no person of “suitable age and discretion” can be found, any “resident” may be served. That could mean a 10-year-old, alone, at home from school. 
  • The mailing is to be made to the tenant at the residence, not the subject property unless it is a commercial tenant.

Finally, the directive adds a phantom 10 days to the mailing of the notice yet fails to mention that the September 1, 2019 law that changed the time calculation for service because it cannot include a weekend or holiday. (See CCP sec. 1161(2))

We’ll see how many courts adopt this. It will make for a bumpy ride for lawyers filing unlawful detainer cases in different counties. Process servers may be affected by this too.

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Changes Are Coming to Process Serving Businesses in California

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This article intends to provide a historical context of the changes to the legal definition of an independent contractor for process serving agencies and process servers and the impact of AB5. 

At the time of writing this, several large process serving agencies are warning independent contractor process servers that they will only contract with those who incorporate and will no longer continue business relationships with individuals operating otherwise. Whether you are a process server, or a process serving agency owner, you should start planning.

Each process server and process serving agency should consult with a lawyer and accountant and decide whether to change their business structure, convert servers to employees, or continue to contract with independent contractors. Each company need to evaluate that which is best suited for their unique situation. This law is new, and there will be considerable risks and costs associated with the decisions made about this issue. Solutions suggested in this article may not be appropriate in each circumstance.

What AB5 Does

Assembly Bill 5 (AB5) was signed by Governor Newsom and amends and adds California Labor Code §§ 3351 and 2750.3 and Unemployment Insurance Code §§ 606.5 and 621.  It codified the holding in  Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex). It creates a presumption that a worker who performs services for a hirer is an employee for purposes of claims for wages and benefits arising under wage orders issued by the Industrial Welfare Commission. In essence, the laws redefine an independent contractor in California.

By amending the California Labor and Unemployment Insurance Codes, it expands the application of Dynamex, which was based on a wage-order claim, and applies it to all workers.

Borello Decision

The seminal case defining independent contractor status of a worker, prior to Dynamex, was set forth in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello). That decision instituted a multi-factor test, and opined, inter alia, that a worker is an independent contractor who is free from the control and direction of the hiring entity in connection with the performance of the work,

Process Server Industry Specific Tax Regulation

In 1995, after several tax audits had targeted process serving agencies, the California Employment Development Department (EDD) promulgated an industry-specific tax regulation for the process serving industry. It recognized, with significant CAPPS’ input, that process serving agencies customarily operated using individual process servers as independent contractors.  The regulation considered 15 factors and assigned a certain weight to each, evidencing whether the worker would be considered an employee or an independent contractor. (Title 22, CPR. Section 4304-11) 

The tax regulation tracked the specifically unique features of the process serving business in light of the holding in Borello. The legal status of this specific tax regulation is unknown at this point because Dynamex rejected the Borello decision for a more worker-friendly standard. This regulation is no longer a guide for process serving agencies and individual process servers.  It may offer a reliance defense if Dynamex is deemed to be applied retroactively.

The Dynamex Decision

The Dynamex decision redefined an independent contractor with what is referred to as the three-pronged “ABC Test”.

  1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  2. that the worker performs work that is outside the usual course of the hiring entity’s business; and
  3. that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed

The hirer, the contracting entity, is obligated to show, based on these three factors, that the worker was not an employee but a bone fide independent contractor.

Part B of this “ABC Test” is the most difficult hurdle for a process serving agency because an individual independent contractor process server, heretofore allowed under Borello and the aforementioned tax regulation, would now not be performing work “outside the usual course of the hiring entity’s business.” They will now be presumed to be an employee.

Retroactivity

In May 2019, the U.S. Court of Appeals, Ninth Circuit ruled that Dynamex should be applied retroactively. (Vazquez v. Jan-Pro Franchising Int’l, Inc., 923 F.3d 575, 586-90 (9th Cir. 2019)) However, in July the court suspended its decision, granted the defendant’s petition for rehearing, and certified the question of retroactivity to the California Supreme Court to decide the question.

The California Supreme Court is currently considering that issue which was not addressed in the 2018 Dynamex decision. You can view the progress of that case here.

Legislation – AB5

 There was a cluster of State Senate and Assembly bills introduced to overturn or alternatively, codify Dynamex. AB5 was the bill that ultimately prevailed.

 The law codified Dynamex and created exemptions for over fifty professions and types of businesses which allowed operation under the previous Borello decision.   These exempt occupations would include, among others, licensed insurance agents, certain licensed health care professionals, registered securities broker-dealers or investment advisers, direct sales salespersons, private investigators, real estate licensees, commercial fishermen, workers providing licensed barber or cosmetology services, and others performing work under a contract for professional services, with another business entity, or pursuant to a subcontract in the construction industry.

Since the process serving industry did not receive a specific exemption, they are affected by the new law which changed the definition of an independent contractor. This also affects other businesses that operate in California and use independent contractors such as UBER, LYFT, the construction industry, etc.

This legislation is also a reaction to a changing reality of the workforce.   In 2017, a report from the U.S. Bureau of Labor Statistics estimated that nationally, 35 percent of workers participate in some form in the “gig economy.” 

This will have an enormous impact on the California economy. Businesses might just leave California to avoid it. Those that stay will be paying more in taxes. Workers will lose the flexibility to set their own hours and control when and how they work.  

On the other hand, workers will be protected from work-related injuries, and the worker and the state will not be subsidizing uncovered medical costs. Furthermore, the state and local governments will be receiving more tax money.

The law also authorizes the California Attorney city attorneys and local prosecutors to sue companies for non-compliance. That might be bad news for offending businesses because enforcement may originate locally.

Business to Business Exemption

The law also provides an exemption for business to business contracting relationships and sets forth specific guidelines. Those are codified in new Labor Code § 2750.3(e):

(e) Subdivision (a) and the holding in Dynamex do not apply to a bona fide business-to-business contracting relationship, as defined below, under the following conditions:

(1) If a business entity formed as a sole proprietorship, partnership, limited liability company, limited liability partnership, or corporation (“business service provider”) contracts to provide services to another such business (“contracting business”), the determination of employee or independent contractor status of the business services provider shall be governed by Borello, if the contracting business demonstrates that all of the following criteria are satisfied:

(A) The business service provider is free from the control and direction of the contracting business entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The business service provider is providing services directly to the contracting business rather than to customers of the contracting business.

(C) The contract with the business service provider is in writing.

(D) If the work is performed in a jurisdiction that requires the business service provider to have a business license or business tax registration, the business service provider has the required business license or business tax registration.

(E) The business service provider maintains a business location that is separate from the business or work location of the contracting business.

(F) The business service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed.

(G) The business service provider actually contracts with other businesses to provide the same or similar services and maintains a clientele without restrictions from the hiring entity.

(H) The business service provider advertises and holds itself out to the public as available to provide the same or similar services.

(I) The business service provider provides its own tools, vehicles, and equipment to perform the services.

(J) The business service provider can negotiate its own rates.

(K) Consistent with the nature of the work, the business service provider can set its own hours and location of work.

(L) The business service provider is not performing the type of work for which a license from the Contractor’s State License Board is required, pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code.

                The following is a summary of this section. If a process serving agency contracts with a legitimate business that operates in accord with Labor Code § 2750.3(e), they may operate under Borello.  Under the law, the burden is on the contracting business to show:

  • The process serving business must be legitimate, minimally operating as a sole proprietorship
  • The process serving business is free from the control of the manner and means of the contracting business
  • The process serving business is providing service to the contracting business and not directly to its customers
  • There is a contract evidenced with a writing  
  • If the work is performed in a jurisdiction requiring a business registration or license, it has obtained one
  • The process serving business maintains a separate location from that the contracting business
  • The process serving business is customarily operating as an independently established business of the same nature as the contracting business
  • The process serving business contracts similar services to the other businesses and maintains clientele without restriction from the hiring entity
  • The process serving business advertises and holds itself to the public to provide the same or similar service
  • The process serving business provides its own tools, vehicles, and equipment to provide the services
  • The business can negotiate its own rates
  • Consistent with the nature of the work, the business sets it own hours and location of work

If a process server is truly in business, then a process serving agency will be contracting with another business.

This, however, can make it harder to take on a new person who is looking for a job or wants to become a process server. A person who makes more than ten services of process must register as a process server.  Taking on a new person to provide service assignments will force a business to treat them first as an employee.  Only if they eventually form a business under the directives in Labor Code § 2750.3(e) can they contract as a bona fide business. “Converting” employees to independent contractors is a red flag for EDD auditors.

Individual Independent Contractors   

Labor Code § 2750.3(e)(2) addresses individuals who have not formed a business and are retained by a contracting business for services.  Those individual workers are deemed to be employees under the Labor Code.  

(2) This subdivision does not apply to an individual worker, as opposed to a business entity, who performs labor or services for a contracting business.

This presents an apparent ambiguity in the law. An individual has always been able to and may continue to operate as a sole proprietorship without filing a fictitious business name, as long as they operate as a business. (See link for a summary discussion of a sole proprietorship.) According to the description on the California Franchise Board’s website, the key is that a sole proprietor must pick a name for tax reporting purposes, and obtain all the appropriate licenses, zoning, or permits required.,

Furthermore, operating a business from a home is also not an indicator that negates the status of a bona fide business. The IRS recognizes a proportional deduction for using a home for business purposes.

The following subsection, Labor Code § 2750.3(e)(2) reads as follows:

(3) The determination of whether an individual working for a business service provider is an employee or independent contractor of the business service provider is governed by paragraph (1) of subdivision (a).

That means that if the individual independent contractor complies with the business to business requirements, they are truly an independent contractor and not an employee.

The problem will arise when a contracting agency files a form 1099 reflecting payments of $600 or more to an individual independent contractor who does not have a business name. That would be a red flag to the EDD and could lead to an audit for suspected misclassification of the worker. The issue would be determining whether the person is truly a business or an individual worker. Again, the burden of proof is now on the contracting agency.

Costs for Misclassification

The costs for misclassification of a worker can be devastating to a business.  If an EDD auditor contacts the business and demands to see all of the 1099 forms, they may demand records from the prior four years. If they determine that some or all of the workers were suspected of misclassification, they can make an assessment for unpaid taxes on the full amount paid to the worker, which would also include penalties and interest.

If the workers are determined to be employees and not independent contractors, the employer will be responsible for paying both the employee and employers’ contribution of Social Security and payroll taxes, unemployment insurance and employment taxes.

The employee contribution amounts may be offset by obtaining affidavits from the employee stating that they filed their taxes predicated on the previous amounts reported on the 1099 form they received from the business. They must provide separate affidavits for each yearly quarter at issue.

Nevertheless, the amounts a business may be obligated to pay can be substantial.

Furthermore, misclassified workers would likely be reported to another agency to audit a determination of whether worker’s compensation insurance was paid and add yet another round of assessments to the business.

These audits don’t always come directly from the agencies.  A worker, disgruntled or not, may make a claim to the California Labor Commission alleging they did not make minimum wage, or were given appropriate breaks, or were underpaid for overtime hours. An independent contractor might make a claim to the EDD for unemployment benefits, and if they prevail, the case could ripen into a tax audit and a tax case. That happened to me 30 years ago.

As mentioned earlier, some process serving agencies are urging process servers to incorporate or form a limited liability company. They will ensure compliance with the law in two ways because a) they are operating under the business-to-business exemption under Borello and, most importantly, b) they do not have to send a corporation or LLC a 1099 form. On the other hand, this abrupt change in employment status could trigger a wrongful discharge suit.

Costs for Forming a Corporation

Costs for forming a corporation or LLC vary, but the filing fee is about $100 and the filing of a Statement of information is $25.  It can be done without a lawyer, or an estimate of about $500 through Legalzoom.com.  One lawyer estimated that forming through a lawyer would run about $1500.

Additionally, there are more operating costs by forming as a corporation.

  • There is a minimum yearly tax of $800, credited toward any taxes owed.
  • Yearly documentation to operate (estimated $500 per year for a lawyer to maintain proper records)
  • Maintain books and records which include shareholders, corporate minutes, accounting ledgers, opening and annual meeting minutes
    • Record all corporate decisions and actions of the corporation
    • Corporate resolutions to authorize corporate expenditures
  • Obtain an EIN and pay employees (including officers or managing members)
  • 2 tax returns to file by the business and owner: corporate and individual
  • Annual registration and annual fees

Finally, now is the time for process serving agencies to begin thinking about how to operate starting January 1, 2020.

A business will be taking on a greater burden by converting independent contractors as employees.  If the law changes again making it more advantageous to operate with independent contractors, converting back to treating employees as independent contractors, whether it is the same employee or those performing the same function as an employee will surely trigger an audit.  The presumption is that if the employee did perform or current performs the same job as an employee, all similarly situated workers would be deemed an employee.

There is not only tax liability.  There is also tort liability.  As an employer, a business is vicariously liable for the damages incurred by or to an employee.  If the employee is involved in an accident on the job, the employer is also responsible.  If the employee process server gets into a fistfight with the person being served, the damages incurred by that person is also the employer’s responsibility.  If the employee is injured involving these scenarios, the employer’s workers’ compensation policy will be there to compensate the employee for his or her injuries.

My Solution?

I will be notifying the few independent contractor process servers that, based upon a legitimate business decision, that I intend to contract only with businesses.

I will then form a checklist, predicated on the business-to-business directive, asking for the items on the list. If the server wants to be in business, we’ll do business. I now have a duty to show that the business is a bone fide business,

  • Form of Business
  • Business address
  • confirmation of process server registration.
  • Confirmation of a business license.
  • Employer Identification Number (EIN).
  • Price List and negotiate it.
  • etc.

You get the idea.

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Amendment to CCP § 415.20 will allow substituted service at a CMRA on the first attempt

B&P Code 17538.5, CA Service Laws, CCP 415.20, CMRA, Commercial Mail Receiving Agency, Substituted Service

An amendment to California Code of Civil Procedure [CCP] § 415.20, (effective 1/1/18) has been added allowing substituted service of a lawsuit of an individual defendant on the first and only attempt at a commercial mail receiving agency [CMRA] (e.g., The UPS Store, Postal Annex, etc.). The amendment authorizes service “in the manner described in subdivision (d) of Section 17538.5 of the Business and Professions Code [B&P Code].”

Existing law allows for substituted service of a summons on a) business, and b) an individual. Substituted service on a business may be served on the first attempt by leaving a copy with anyone apparently in charge of the business or at a mailing address. Service on an individual defendant generally requires multiple attempts – due diligence – before substituted service may be made at a home, business, or mailing address. Although due diligence is not defined by statute or case law – only what it isn’t – each venue in California defines it locally.  Generally, 3 to 4 attempts would suffice, provided the time of the attempts and days are varied.  Substituted service requires a follow-up First Class mailing to the address where the service was made whereupon service is deemed complete 10 days after the date of mailing.

The new amendment adds a new manner of service, subsection CCP § 415.20(c), when serving an individual at a CMRA.  The amendment only applies to mailing addresses at a CMRA.  It does not apply to any other mailing address, such as the former co-tenant who collects mail for the defendant who moved out, or the mother of the homeless son or daughter who collects his or her mail, or the father of a student, where a car is registered, who lives on a campus at a distant university.

The main feature of this amendment is that substituted service may be made without due diligence, and is deemed effected upon delivery, pursuant to B&P § 17538.5. Service, however, is not complete until a CMRA complies with B&P § 17538.5(d).

 

What is B&P § 17538.5?

B&P Code § 17538.5, governs how a CMRA must operate. It sets forth requirements and obligations.

It imparts several duties on a CMRA, and upon receipt of service, it shields them from liability to the box holder. As a condition to accept mail for a mail receiving customer, the CMRA must accept 2 forms of ID before renting the customer a box. The mail receiving customer must sign an agreement affirmatively appointing the CMRA as its agent for service.   That form, or any amendment or correction to the form, contains a home or personal address.

Because of this affirmative appointment of the CMRA as its agent for service, it could be argued that service on the CMRA is a personal service, not a substituted service.  Service under B&P Code § 17538.5(d) could be construed as a form of personal service, akin to CCP § 416.90 wherein a defendant authorizes another to accept service on their behalf.  This can only be valid if – and only if – the 3d party, here, the CMRA, fully complies with the B&P § 17538.5(d).

Under B&P Code § 17538.5(d), the CMRA is required to

  • accept any service of process for the mail receiving customer for up to 2 years after the customer terminates the agreement;
  • Within 48 hours after receiving process the CMRA must place a copy of the process in the box of the mail receiving customer (unless the agreement has been terminated);
  • Within 5 days, the CMRA must mail a copy of the served documents to the mail receiving customer to their last known home or personal address;
  • The CMRA must purchase a Certificate of Mailing  (PS Form 3817) for $1.35 which can only be obtained by standing in line and mailing the documents at a US Postal Service office;
  • If the CMRA has complied with these requirements, the CMRA must provide any involved party a declaration under penalty of perjury of the mailing and attach a copy of the Certificate of Mailing, stamped by the USPS.

Service under the new CCP § 415.20(c) is deemed effected 10 days after the CMRA mails the copy to the defendant at the last known home or personal address on the agreement form.

 

What does B&P § 17538.5 really do?

If the CMRA complies with the requirements in B&P § 17538.5 they are not liable to the mail receiving customer if a judgment is rendered against them for failure to receive notice of the action.  This section really isn’t a service of process statute, but describes what a CMRA must do to escape liability to the box holder/defendant.

There is no duty owed to the plaintiff or the process server for failure to comply.  The inference is that liability would only attach if a judgment was rendered against the mail receiving customer.

Cross referencing this section under new CCP § 415.20(c) elevates compliance with B&P § 17538.5, limiting liability exposure, to when and whether substituted service is deemed effective.

 

Why is this statute flawed?

This statute is flawed because CMRAs seldom, if at all, fully complied with these requirements. Generally, they accept the papers and place them in the mail receiving customer’s box. That is all. Many flip the server a ration of attitude and toss the papers in the trash and attempt to refuse service.  Last month I had a CMRA proprietor throw the papers back at me which hit me in the face, then land in the gutter.  There they remained as a got into my car and drove off.

Furthermore, I have heard of several instances where service on a CMRA was invalidated because the CMRA did not comply.  If there is no mailing, the court cannot determine the date that the defendant is in default.

 

Why will this a change in the law lead to confusion?

Because this amendment references this flawed statute, process servers will be unwittingly serving CMRAs on the first attempt, without due diligence, relying on the CMRA to comply with B&P § 17538.5(d).

Substituted service under CCP § 415.20(b) at a mailing address, and service under B&P § 17538.5 are two in-congruent manners of service which cannot be reconciled. Substituted service under CCP § 415.20(b) requires a delivery and a mailing to the defendant’s address where the service is made – in this case, the CMRA location.

Under the new law, B&P § 17538.5 requires delivery to the CMRA, and CMRA must mail to “the mail receiving customer to their last known home or personal address” listed on the agreement signed by both the CMRA and the box holder. In the context of B&P § 17538.5, that “last know home or personal address” is one known only to the CMRA – not the process server.

The server cannot cure a defect in service under CCP § 415.20(c) by mailing to the defendant at the place where the service was made, because it must be mailed by the CMRA to the defendant’s address they have on file.

Therefore, this amendment to CCP § 415.20 does not make it easier and more efficient for process servers.  It will likely induce process servers, and litigants directing their process servers, to sub-serve the mail receiving customer on the first attempt, with a futile reliance that the CMRA will follow through with their statutory obligations. It may lead to defendants filing motions to quash service, or set aside defaults, resulting in delays to commence court cases. It may expose process servers to liability and/or additional costs for re-service.

 

How can you properly serve the mail receiving customer at a CMRA?

A server should continue to rely on CCP § 415.20(b), existing law, by establishing (pointless) due diligence at personal service, and sub-serve the defendant on the 3d or 4th attempt, and mail a copy to that address via First Class Mail.

If the service is made without due diligence under CCP § 415.20(c), and CMRA fails to comply with B&P § 17538.5, it will not likely result in a valid service.

 

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Does AB 2244 Benefit Process Servers?

CALSPro, Court Rules, efiling, eservice, Fax Filings

The passage of AB 2244 in 2016 has been hailed as a ringing success for CALSPro and the process serving industry.  I take issue with that.

CALSPro’s support for AB 2244 has concerned me all year.  The Coalition for Improving Court Access was formed as a separate entity and hired CALSPro’s lobbyist to facilitate access to the court and shepherd this bill through the legislative process, primarily because of inconsistent applications of the efiling rules. It was intended to level the playing field for efiling companies and to facilitate more universally accepted platforms.

The CALSPro Board unanimously agreed to participate as a member of the coalition.  They were joined by 17 other individual members and companies.

What bothered me about this CALSPro’s participation, on behalf of ALL its members, is whether it really benefited the membership as a whole. I feel that this legislation really only benefited a few of our members and non-members who operate or work for efiling companies. It does little for process servers.

This is intended to explain why.

First of all, it must be acknowledged that participation by the Coalition and CALSPro substantially assisted the legislature and Judicial Council in its understanding of how the whole process worked.  Based upon the presentations made at the 2016 CALSPro Conference, and private conversations I had with members in the know, CALSPro and the Coalition clarified in real life examples how efiling worked and explained how excess charges that were being assessed to litigants.

The decision makers in the legislative committees and Judicial Council expressed sincere appreciation for that effort.

In earlier discussions, a white paper was distributed and the progenitors of the Coalition gave valuable input to the standards for efiling and eservice.  For instance, the paper made no distinction between primary and secondary service when eservice was addressed. Not doing so could have easily introduced eservice of primary service (service of a summons) into efiling standards.

Nevertheless, the Coalition and CALSPro’s participation was instrumental in the passage of AB 2244, but the result benefited the efiling companies – not the rest of the members in CALSPro or process servers.

What Does AB 2244 do?

Convenience fees for court costs

CCP § 1010.6 is amended to allow the Court, Electronic Filing Manager (EFM), or EFSP to collect a “convenience fee” for processing a payment of a filing or other fee when required to complete the filing. The convenience fee is limited to the actual costs for processing the transaction. That means fees for using a credit card, or any other form of payment that is normally charged to the merchant in a transaction can be legally passed on to the end user. Those fees may range between 2% and 3.5%. This is expected to bring it closer to 2%.

The reason for this restriction was implemented to address the practice of a prominent EFM, a third party vendor that creates the portal through which an EFSP electronically files documents into the court’s case management system, that was routinely charging a 3.5% fee for these court fees. The EFM dictated that the court fee be paid specifically by credit card.

This amendment benefits the EFSPs by allowing them to pass on convenience fees to the end user. It also locks the fees to the actual cost, not an apparent arbitrary fee charged by the Court or EFM. Fees charged are subject to audit.

Fees for efiling

The amendment requires that the EFSP’s fees for e-filing to be “reasonable.” It also requires the EFSP to charge no fee for litigants who have a fee waiver in place, or in instances when the court deems a waiver of fees is appropriate.

Recoverable costs

CCP § 1033.5 is being amended to make the costs for electronic filing recoverable for the prevailing party.

The legislation authorizes that the fee paid for efiling and eservice to an Electronic Filing Service Provider (EFSP) may be a recoverable cost, if the particular court mandates efiling. This legislation results in a “sea change” for the awarding of recoverable costs to the prevailing party for efiling charges.

Heretofore, a filing with the court was accomplished by

  • signing them
  • printing the documents and making copies to be conformed by the court after the original was filed, and perhaps an internal file copy
  • serving them.

Then, getting the documents to the court

  • walking them into the court by the lawyer or staff
  • mail
  • Federal Express or courier
  • messenger
  • internal or out-sourced daily court runner, or
  • on-demand process server

All added to the cost of filing.  None of these fees were ever recoverable costs, and “postage, telephone, and photocopying charges, except for exhibits” were expressly not allowed by statute. These costs were absorbed by the litigant. Filing over-the-counter with a daily court runner, whether in-house or through a monthly retainer agreement with a service provider, or an on-demand special filing by courier was never considered a recoverable cost.

Since all parties must efile in courts that require it, each are incurring efiling costs, this could increase more litigation if a motion to tax costs is filed challenging excessive efiling and eservice fees.

For instance, there are a variety of add-ons to a bill from an EFSP: rush fees, special handling fees, copies made, deliveries to the department, or even personal service on opposing counsel are all potentially line item charges.  One prominent efiling company offered $50 “Loyalty Program” gift certificates to law firm secretaries for frequent filings and expensive, perhaps unnecessary, services.  The more rushes, needed or not, and the more efilings pushed through the system benefited both the EFSP and the secretaries. These bills, of course, were passed onto the client. The lawyers used that benefit to funnel indirect raises to their staff.

The question, subject to a motion to tax costs, is what is a “reasonable fee” charged by the EFSP? Were the add-on fees necessary? Were they reasonable? Given that fees charged by an EFSP range from free to around $10, a benchmark “reasonable fee” will vary considerably.

Unlike the recoverable fee for service by a registered process server that has been matched with a statutory fee for service by the sheriff (currently $40), efiling fees have no analogy. The fee is established by private industry, which in turn, is set by demand and competition.

The EFSP as an agent of the Court

Gov’t Code § 6159 is amended to say that the EFSP is an agent of the court, and mandates that they must periodically report its actual costs for processing court filing fees. They are subject to audit by the Judicial Council, and permit access to its premises for interviewing employees, and inspect and copy relevant records. Records must be maintained for at least four years.

An EFSP is prohibited from collecting filing fees or court fees from a party whose fees have been waived.

The law is being amended to limit the fee to the “actual cost” for processing the transaction for court fees charged by the Court, EFM and the EFSP. It will mandate the court or the EFM to accept other forms of payment such as electronic fund transfers, Automated Clearing House (ACH), and payment methods that do not charge a transaction cost, such as an electronic check.

Unfortunately, history has demonstrated that EFSPs have not been acting like an agent of the court.  They have been acting like private companies (which of course they are), and have made huge investments and are currently scrambling for market share.  During the formative years of efilng, EFSPs refused to allow process servers to efile through their portals into the court. One major EFSP continues to restrict efiling by litigants themselves, foreclosing any ability for a process server to participate in efiling in a court that approved them as a preferred vendor.  EFSPs have deliberately arranged unannounced secret meetings with the courts, and made invitation only, exclusive presentations to the legal community to capture market share of the efiling business destined to the court.

Once the EFSP is in place in a court, they provide a court portal which displays not only their efiling and eservice, but a variety of other service – process serving – local, nationwide, and international – court reporting, investigations, mobile photocopy, records searches, etc.

This has been my initial primary objection to EFSPs and the courts’ apparent acquiescent relationship to them.

Who are Electronic Filing Service Providers (EFSPs)?

There are about 20, give or take, EFSPs in California that have the ability to directly file documents into a court through an EFM.  Not all EFSPs have arrangements with all courts to file electronically. Due to the accident of history, the California Judicial Council blew half a billion dollars on a failed effort to develop a statewide e-filing system, and the state legislature cut the funding.  As a result, each county court was forced to look to private industry to implement efiling, and make exclusive contracts with one or a few EFSP vendor.

There are several other companies, primarily process servers or process serving agencies, which have contracts with those EFSPs providers that contract with the particular court. The EFSP charges a retail end user between free and $10.  The companies that are not EFSPs market this service and file through an EFSP are charged an amount as the end user, depending on the relationship, volume, handling, etc., and mark the fee up to their clients ranging from $9 to $45.

Process serving companies facilitate the process so that their existing clients can efile through their website without using an EFSP directly. After all, the EFSP is a competitor, and if contacted directly by the client, it makes it easier to capture just the efiling assignment, but then convert it into a process service or investigative assignment.

Costs vary considerably for a process serving agency not already in the efiling business to set up an arraignment for a seamless portal that passes efilings through to an EFSP.  One EFSP will build a portal on a process server’s website for free.  One company will do it for $10,000.  Another will do so for a fee, but bundles the build with an integrated process serving program for generating service instructions, proofs of service, declarations for the server, billing and statements, and online statuses, and with the setup fee, will take a fee for each and every invoice generated during the term of the contract.

A lawyer or law firm may efile through the branded portal on their website, or the process server may file for the client through an EFSP. Does that make the process serving agency an EFSP also? There are several inferences throughout CCP § 1010.6 that refer to the EFSP as the entity that files electronically through the EFM. There is apparently no definition of an EFSP in either the law or court rule.

At the very least, process servers to file through an EFSP are an agent of the EFSP, and hence, a sub-agent of the court. To distinguish these, hereinafter in this article I will refer to them as an Electronic Filing Service Provider Agent (EFSPA).  Local courts make no distinction between an EFSP and an EFSPA.

  • Is an EFSPA bound by these changes in the law?
  • Is an EFSPA subject to audit by the Judicial Council?
  • Is an EFSPA obligated to file at no charge for parties that have obtained a fee waiver?
  • Is an EFSPA able to pass on an additional “convenience fee” if they pay an EFSP with a credit card, resulting in 2 “convenience fees”?
  • Is an EFSPA’s add-on markup fee for efiling through an EFSP a “reasonable cost”, subject to recovery?
  • If not, could these charges be subject to challenge with a motion to tax costs?

Most of the owners of the EFSPAs I spoke to at the CALSPro conference in October, 2016 who have entered into this arrangement have yet to break even.

So here are my questions.  CALSPro devoted considerable resources, time, energy, and support to this bill.  Did this effort benefit the membership and process servers? If so, how?

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Forms Committee Report – March, 2017

Forms, Judgment collection, Revised Forms, Uncategorized, Writs

March 20, 2017

CALSPro Board Meeting 3/25/17

There are 2 form proposals I am monitoring and commenting on which will have an impact on process servers in 2018.

  • Request for Entry of Default (revise form CIV-100; adopt form CIV-105)

 There are proposals to revise the existing Request for Entry of Default form, and to adopt another specifically for default judgments against defendants whose debt was purchased and assigned to a third party.

Requirements of the Fair Debt Buying Practices Act

The Fair Debt Buying Practices Act, which took effect January 1, 2014, imposes a number of requirements on debt buyers pursuing collection efforts, including that no default judgment may be entered against a debtor defendant unless the debt buyer plaintiff submits certain documents, authenticated through a sworn declaration, to establish specified facts (Civ. Code § 1788.60(a), (b)). If the debt buyer has not complied with the Act’s requirements, the court cannot enter a default judgment for the debt buyer (Civ. Code § 1788.60(c)).

  • Writ of Execution (revise form EJ-130)

The writ of execution form changes were initiated last year, and were not revised due to a number of comments received.

The form is going through a significant revision.  The identifier as to whether the case is a limited or unlimited case has been refined, eliminating the apparent confusion and rejection for a failure to distinguish small claims case and family law case as limited or unlimited cases.  The designation is critical for the sheriff to determine timeliness for the time to appeal (30 vs. 60 days) when a claim of exemption is filed.

The item numbers are being rearranged, a belief that making the entries fall more logically while calculating debits, accrued interest, and how credits are applied.

To accommodate notice to the Judgment debtor, a third page is being added.

The committee is also revising and cross-referencing the Memorandum of Costs After Judgment, Acknowledgment of Credit, and Declaration of Accrued Interest (form MC-012) to more fully integrate the information on this form to prepare the writ form more accurately.

The committee is also developing a proposing a new form, Information Sheet for Calculating Interest and Amount Owed on a Judgment (new form MC-013-INFO) to explain how credit payments received from the debtor towards interest, costs, and judgment principal, and refers the creditor to form MC-012.

The Judicial Council Invitation to Comment Memos are linked below and explain these changes in more detail, and displays the proposed changes to the existing forms, and the proposed new forms.  You may also register comments.

Civil Practice and Procedure: Request for Entry of Default

Civil Practice and Procedure: Writ of Execution

Tony Klein

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Contra Costa Superior Court Enforces Fax Filing Rules

Court Rules, Fax Filings, Fax Filings

Contra Costa Superior Court is enforcing fax filing rules that will impact attorney services.

It will affect all efilings, but the rule particularizes and singles out attorney services who  file fax filings that are not in compliance with California Rule of Court sec. 3.1110(f) when the filings are not properly tabbed.

It will require any fax filing to be 1) stamped with the name, address, and phone number of the attorney service filing documents by fax, and 2) a certification of an employee that the document filed complies with CRC sec. 3.1110.

For those fax filings that do not comply with the local rule, the clerk will submit the non-compliant filing to the presiding judge who may then levy sanctions.

What is particularly offensive about this rule is that it targets attorney services, and authorizes sanctions for violating the local and California Rule of Court.  This appears to be unprecedented. Also, it seems to demonstrate a pointed frustration with attorney services who have been submitting non-compliant documents to the court.

This is the new rule, and the portion that will affect attorney services is bolded in red:

Contra Costa Superior Court Rule 3.42. Papers to Comply with State Rules

(1) Moving, opposing and reply papers must be filed and served with the Court and parties within the time prescribed by law. The Court will not consider late filed papers unless good cause is shown at the hearing.

(2) All memoranda and other papers filed in support of, and in opposition to, motions shall comply with the requirements of the California Rules of Court.

(3) Despite rule 3.1110 of the California Rules of Court, subdivision (f), a large number of documents filed with the Court include exhibits that are not properly tabbed. The majority of these non-compliant documents are fax-filed through an attorney service. The attorney service prints out the documents and files them without tabbing the exhibits. The purpose of this rule is to discourage such rule violations, which impose a substantial burden on judges and staff.

(A) Every fax-filed document shall be stamped on the first page with the name, address, and telephone number of the attorney service that prepared the document for filing.

(B) Every fax-filed document or set of fax-filed documents shall include, as a separately filed document, a certification by an employee of the attorney service that the document or documents have been reviewed for compliance with rule 3.1110 of the California Rules of Court, subdivision (f), and that all exhibits have been properly tabbed.

(C) If a particular attorney service repeatedly files documents with untabbed or improperly tabbed exhibits, the matter will be referred to the presiding judge for appropriate action.

(D) Counsel of record should take note the Court has and will continue to impose monetary sanctions on attorneys who file documents with untabbed or improperly tabbed exhibits, regardless of whether such documents were fax-filed through an attorney service, and in some instances will disregard those documents or drop a hearing from calendar based on the rule violation.

(Rule 3.42(3) new effective 1/1/17)
(Rule 3.42 revised effective 1/1/17)

The California Rule of Court sec. 3.1110(f) referenced in the local rule is included below:

. . .

(f) Format of exhibits

Each exhibit must be separated by a hard 81/2 x 11 sheet with hard paper or plastic tabs extending below the bottom of the page, bearing the exhibit designation. An index to exhibits must be provided. Pages from a single deposition and associated exhibits must be designated as a single exhibit.

 . . .

 

This will likely spread to other courts if it hasn’t already.

This highlights a rather onerous effort to perform a fax filing. Perhaps it was always there and I didn’t realize it.

  • Does the stamping of the name of the attorney service, address, and phone number constitute an alternation of the faxed document? It isn’t a material alteration of the content of the document, but comes close to an alteration nonetheless.
  • Does this local rule contradict the California Rule of Court for fax filings?
  • Does adding “a hard 8-1/2 x 11 sheet with hard paper or plastic tabs” constitute an alteration if the faxed copy does not?
  • If not, who is subject to reprimand and/or sanction?
  • Has anyone priced plastic exhibit tabs lately?

The CRC apparently does not require tabs for courtesy copies to the Dept. Once efiling takes hold, all of this would be moot.

Furthermore, each fax filing now must accompany a stand-alone certification by an employee of the attorney service will add yet more time and handling for fax filings.

  • Does that signed Certification limit the use of independent contractors for fax filings​?
  • Does that make the employee liable for sanction by the court?
  • Vicarious liability imputed​ to the employer is not presumed in the rule.
  • Are we now required to pick through several the 200+ pages of exhibits after a firm shoves the documents into an email or fax machine without delineating where the exhibits start and stop?
  • Are attorney services required to plow through the exhibits and separate out the
    Exhibits A,B, or C, that are attached to Exhibits A, B and C appended to the actual exhibits to the filed document?

Fax filings are going to get a whole lot more expensive with all of this handling.

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