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Beat the Clock Visit us online at www.lacba.org 2009
Visit us online at www.lacba.org
March 2010 /$4
EARN MCLE CREDIT
2009
Ethics
Roundup
page 32
Partnership
Jewel Waivers
page 10
Cashing Out
Structured
Settlements
page 14
Buy American
Rules
page 20
Beat
the Clock
Los Angeles lawyer
Honey Kessler Amado explains
the exacting deadlines for filing
notices of appeal
page 26
Chapman University’s 81%
Bar Pass Rate
Tops Statewide Average
Chapman University School of Law continues its rapid gains
in bar pass results, with first-time takers of the July 2009
California State Bar Examination passing at an 81% rate. Not
only is this the highest score in Chapman history, but it also
marks the first time that Chapman has surpassed the
statewide score for California ABA Accredited schools (79%).
Chapman also significantly surpassed the non-California ABA
accredited school score of 69%, and the overall statewide pass
rate for first-time takers of 70%.
July CA bar results, first-time
takers (Chapman University)
Since 2005, Chapman has seen a 36% increase in pass rates for
first-time takers of the California examination. The 81% pass
rate in 2009 puts Chapman among California’s elite schools
with pass rates above the statewide average.
We would like to congratulate all of our graduates who
passed the July 2009 bar exam. In addition to the hard work
of those former students, the gains are attributable to
heightened admissions standards, an active bar preparation
program and an aggressive writing program at Chapman.
More than nine of every ten students who graduated in the
top three-quarters of the class passed the exam on their first
attempt, as did all 21 members of the Chapman Law Review.
w w w. c h a p m a n . e d u / l aw
Follow Chapman Law on Twitter at www.twitter.com/chapman_law
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F E AT U R E S
26 Beat the Clock
BY HONEY KESSLER AMADO
The timelines for filing an appeal can be extended by specified motions,
but the deadlines remain unsparing
32 2009 Ethics Roundup
BY JOHN W. AMBERG AND JON L. REWINSKI
The actions of both prosecutors and private-sector attorneys came under
renewed scrutiny in 2009
Plus: Earn MCLE legal ethics credit. MCLE Test No. 190 appears on
page 35.
Los Angeles Lawyer
D E PA RT M E N T S
the magazine of
the Los Angeles County
Bar Association
March 2010
Volume 33, No. 1
COVER PHOTO: TOM KELLER
8 Barristers Tips
New nondiscrimination law protects
genetic information of employees
20 Practice Tips
Complying with the Buy American
provisions in the federal stimulus act
BY CAMERON W. FOX AND NICOLE M. HERTER
BY GORDON ENG
10 Practice Tips
Applying the unfinished business rule to
dissolved law partnerships
44 Closing Argument
When is humanitarian intervention legal?
BY ASIAN C. UDOH
BY AMANDA A. MAIN
42 Classifieds
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43 CLE Preview
03.10
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4 Los Angeles Lawyer March 2010
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Los Angeles Lawyer March 2010 5
JUDGE
LAWRENCE W. CRISPO
(RET.)
E
verett Dirksen, a respected Republican Senate minority leader in the sixties, once said, “I am a man of fixed
and unbending principles, the first of which is to be flexible at all times.” These days, “compromise” is often seen as
a dirty word, talked about as something politicians do when
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6 Los Angeles Lawyer March 2010
they give in to special interests. When a lawyer suggests to clients that they accept
a deal, too often that suggestion seems to imply that the lawyer simply cannot handle the case. One of the reasons neutrals have become so critical to dispute resolution is that they can alert clients to weaknesses in their position that lawyers might
not be comfortable admitting. But inflexibility and unwillingness to compromise often
come at a serious cost to clients.
This brings to mind a couple of stubborn creatures from the imagination of Dr.
Suess. Among my children’s favorite stories is “The Zax,” from Dr. Suess’s collection, The Sneetches and Other Stories. This cautionary tale features a North Going
Zax and a South Going Zax who happen to come face to face in the middle of
nowhere. Each becomes entrenched and refuses to move even an inch to the side to
allow the other to pass. Eventually, a society is built around them and leaves the two
Zaxes, for all literary eternity, “standing un-budged in their tracks.”
I think all mediators should have a portrait on their office wall of North Going
Zax and South Going Zax standing forever in their intransigence. Most legal disputes naturally lend themselves toward Zax-like face-offs. The parties are already
adversaries. The attorneys have a duty to zealously represent their clients and generally have a financial incentive to keep the parties fighting. “The Zax” is a simple
and clear reminder that complete inflexibility generally leads to unhappy results.
To be clear, I am not suggesting that lawyers sell out their clients. Willingness to
compromise does not mean simply giving in to demands. The point is that often our
clients’ best interests are served by some degree of flexibility and an ability to consider options.
We need look no further than our local soccer team to find a good example. In
2009, David Beckham went on loan to AC Milan in Italy during the Major League
Soccer off-season so he could maintain his form and compete for a spot in England’s
World Cup qualifying games. The MLS season started up again before the Italian
season finished. Beckham wanted to stay, and Milan wanted to keep him. The L.A.
Galaxy understandably demanded their star player back.
The situation seemed intractable and headed for disaster, but the parties found
an unusual way to compromise. AC Milan paid a reasonable sum and kept Beckham
for its season. Beckham reportedly made the unprecedented move of paying the Galaxy
to allow him to stay. The Galaxy gave up their star player for a couple of months
but were compensated for their loss and got him back for the second half of the season in top form. As a result, AC Milan placed well, Beckham earned his record 100th
appearance in a World Cup match for England, and the Galaxy used his return to
help fuel their run to the MLS Cup.
The ability to compromise is not a weakness but a strength. Truly great advocates find a way to achieve good results by creating room for negotiation. It is time
that lawyers and clients alike stop looking at compromise as giving in and instead
see it for what Everett Dirksen did—an important principle in its own right.
■
David A. Schnider is general counsel for Leg Avenue, Inc., a distributor of costumes and
apparel. He is the 2009-10 chair of the Los Angeles Lawyer Editorial Board.
barristers tips
BY CAMERON W. FOX AND NICOLE M. HERTER
New Nondiscrimination Law Protects Genetic Information of Employees
THE GENETIC INFORMATION NON-DISCRIMINATION ACT (GINA) ee’s genetic predisposition to develop a medical condition, in order
was enacted by Congress to allay growing public concern about the to avoid expenses associated with absenteeism, health benefits, or risky
use of genetic information. GINA prohibits the improper use of occupational exposure. These would be prohibited uses of an employgenetic information in health insurance and employment. GINA’s ee’s family medical history or genetic profile as the basis for employemployment provisions, which are contained in Title II of the law, stem ment decisions.
from Congress’s determination that the limited federal and state
laws addressing genetic discrimination in employment are an incom- Other Prohibitions
plete patchwork that warrants uniform, federal legislation. Title II took GINA also provides that covered employers may not intentionally
effect in 2009, and the Equal Employment Opportunity Commission’s gather their employees’ genetic information. This includes requestproposed regulations implementing the law are expected soon.
ing, requiring, or purchasing genetic information relating to employTitle II prohibits employers from engaging
in three types of conduct: 1) discrimination
on the basis of genetic information, 2) the
An employer that possesses genetic information about its employees
intentional gathering of genetic information
about employees or applicants, and 3) retaliation against employees who complain about a
must treat the information as a confidential medical record.
violation of any GINA provision. In addition,
GINA creates new rules regarding the protection of genetic information to the extent it is
obtained by employers. GINA covers employers with 15 or more ees and applicants. However, if an employer does acquire this inforemployees, employment agencies, labor unions, and apprenticeship mation, it will not be found in violation of GINA’s prohibitions as long
or training programs. It protects employees, job applicants, labor union as the acquisition falls into one of several narrow exceptions. The
members, and apprentices and trainees.
exceptions include information revealed in a casual conversation,
GINA makes it unlawful for employers, employment agencies, through a lawful request for medical certification, or through certain
unions, and training programs to discriminate against an individual types of qualified wellness programs, among others. Even if an
on the basis of genetic information in regard to hiring, discharge, com- employer acquires genetic information under one of the exceptions,
pensation, terms, conditions, or privileges of employment. “Genetic however, the employer is still prohibited from discriminating against
information” is defined as information about: 1) an individual’s the employee based on the information and must keep the informagenetic tests, 2) the genetic tests of that individual’s family members, tion confidential.
3) the manifestation of a disease or disorder in the individual’s famAn employer that possesses genetic information about its employily member, 4) an individual’s request for, or receipt of, genetic ser- ees must treat the information as a confidential medical record.
vices, or the participation in clinical research that includes genetic infor- Accordingly, it must maintain the information on forms and in medmation by the individual or a family member of the individual, and ical files that are separate from personnel files. Employers are also gen5) genetic information of a fetus carried by an individual or family erally prohibited from disclosing genetic information about an
member, and genetic information of any embryo legally held by the employee to others, except in very limited circumstances.
individual or family member using an assisted reproductive technolCovered employers also are prohibited from retaliating against an
ogy. Information about the sex or age of the individual or the indi- employee because he or she has opposed any act or practice made
vidual’s family members is expressly excluded from the definition of unlawful by GINA. Employers also may not retaliate against an
genetic information.
employee who makes a charge, testifies, assists, or participates in any
GINA’s definition of “family member” is broad and is defined to manner in an investigation, proceeding, or hearing under GINA.
include a person who is 1) a dependent of the employee as the result
In addition to requiring employers to review and update their poliof marriage, birth, adoption, or placement for adoption, or 2) a cies and forms, GINA will likely also affect the types of health-related
first-, second-, third-, or fourth-degree relative of the employee, or of programs many employers offer to their employees, and how they opera dependent of the employee.
ate them. The other ways in which GINA will affect employers will conUnder GINA’s antidiscrimination provisions, an employer may not, tinue to unfold, particularly as the EEOC finalizes its implementing regfor example, terminate a healthy employee based upon a concern that ulations. The changes will not stop there—just as science rapidly
because his or her mother has Alzheimer’s disease, the employee evolves, so will the laws regarding how that science can be used.
■
may someday suffer from the same disease and be unable to perform
Cameron W. Fox and Nicole M. Herter are associates in the Employment Law
his or her job in the future. Nor may an employer decline to promote
Department of Paul, Hastings, Janofsky & Walker.
an asymptomatic employee, based on its knowledge of the employ8 Los Angeles Lawyer March 2010
2009
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A proud member of the Los Angeles County Bar Association
practice tips
BY AMANDA A. MAIN
RICHARD EWING
Applying the Unfinished Business Rule to Dissolved Law Parternerships
WHEN A LAW FIRM CLOSES ITS DOORS, plenty of other firms are waiting in the wings, all too eager to snatch up partners fortunate enough
to emerge with a book of business. A word to the wise: proceed with
caution. Based on a July 2009 bankruptcy court decision, hiring
partners from bankrupt law firms can yield negative financial and legal
consequences. Specifically, these partners and their new firms may be
on the hook for profits earned from completing the bankrupt firm’s
“unfinished business.”
Since 1984, the unfinished business rule has impacted partners of
dissolved, but not bankrupt, firms. When a law firm dissolves, partners
of the firm typically take unfinished matters with them to their new firm.
Some law firms have agreements addressing the consequences of this
typical business practice. Less cautious firms do not. In Jewel v. Boxer,1
the California Court of Appeal decided what happens when a law firm
dissolves and the firm has no agreement stating whether the partners,
and their matters, are free to profitably move on.
According to Jewel’s unfinished business rule, in the absence of a
partnership agreement to the contrary, former partners of a dissolved law firm have a duty to account to the dissolved firm, and each
other, for profits earned from the dissolved firm’s unfinished business.2
A law partnership’s unfinished business includes “any business covered by retainer agreements between the firm and its clients for the
performance of partnership services that existed at the time of dissolution.”3 In other words, former partners of a dissolved firm can
file lawsuits against each other for an accounting and recoupment of
any profits generated from completing unfinished matters, no matter where those matters are completed.4
However, the unfinished business rule is not absolute. The partners of a law firm can opt out of the unfinished business rule by including a Jewel waiver in their partnership agreement. A Jewel waiver minimizes the disruptive impact of dissolution by eliminating the former
partners’ continuing duty to account to the dissolved firm, and each
other, for profits earned from the dissolved firm’s unfinished business.
If a law firm dissolves and its partnership agreement contains a Jewel
waiver, the former partners of the dissolved firm can complete their
unfinished matters without any financial and legal obligations to
their old firm.
In the bankruptcy context, the unfinished business rule and the
Jewel waiver carry additional implications. To date, only one court
has considered the rule and the Jewel waiver in bankruptcy. When
a firm dissolves and enters bankruptcy, the trustee’s special bankruptcy powers allow the trustee to sue not only the former partners
but also the firms that hire them. In In re Brobeck, the court held
that the Jewel waiver, added to the partnership agreement at the 11th
hour before dissolution, was valid. However, the court also held that
the Jewel waiver constituted a fraudulent transfer under the
Bankruptcy Code and California law. In essence, Brobeck allows a
bankruptcy trustee to capture (from the former partners or their new
firms), and rein into the bankruptcy estate, profits earned from completing the bankrupt firm’s unfinished business.
10 Los Angeles Lawyer March 2010
Jewel made clear that former partners of a dissolved law partnership must share profits earned from their dissolved firm’s unfinished business. In Jewel, former partners of a dissolved firm sued other
former partners, seeking fees received on cases in progress upon dissolution of the firm.5 Because the dissolved firm had no written partnership agreement, the Uniform Partnership Act governed the former
partners’ relationship. Under the act, no partner is entitled to extra
compensation for services rendered in completing the dissolved partnership’s unfinished business. Accordingly, all former partners must
share the net postdissolution income received from completing the dissolved firm’s unfinished business.6
Jewel’s Arguments
The former partners, attempting to keep the fruits of their labor, made
several arguments, each rejected by the court.7 First, the former partners argued that executing “substitutions of attorneys transformed
the old firm’s unfinished business into new firm business.” The court,
however, focused on the circumstances existing on the date of dissolution, not subsequent events, to determine whether business
belonged to the dissolved firm. The court held that the execution of
substitution of attorney forms subsequent to dissolution did not
alter the character of the cases as unfinished business of the dissolved firm. Consequently, even if the client executes a substitution
Amanda A. Main is a litigation associate in the Los Angeles office of White
& Case LLP.
of attorney, the former partners still have a
duty to account to each other for profits
earned on unfinished business matters.
The former partners also maintained that
forcing them to share future profits infringed
upon their clients’ absolute right to select
the attorney of their choice. The court held
that a client’s right to hire the attorney of his
or her choice was irrelevant to the rights and
duties between former partners with regard
to income from unfinished business. The
client’s right to hire the attorney of his or her
choice is distinct from, and does not offend,
the rights and duties between partners relating to profits from unfinished business. For
that reason, as long as the clients choose the
former partner to complete their matters, the
former partner retains his or her obligation
to share profits.
Following the decision in Jewel, at least
one court has held that Jewel’s principles
apply whether the dissolved law firm is organized as a partnership or a professional corporation.8 The court’s decision in Jewel therefore carries serious implications for partners
and shareholders who continue to work on
legal matters from their dissolved firm.
In re Brobeck
In July 2009, the U.S. Bankruptcy Court for
the Northern District of California examined a matter of first impression: the “dramatic intersection” of well-established principles relating to the winding up and
dissolution of a law partnership, including
Jewel claims, with the well-established rights
of third-party creditors in bankruptcy.9 In
Brobeck, the chapter 7 bankruptcy trustee
sought to invalidate an 11th-hour amendment to Brobeck’s partnership agreement and
to recover fraudulently transferred profits
from Brobeck’s unfinished business. Brobeck’s
partners, shortly before dissolution, approved
a final partnership agreement. The final partnership agreement contained a Jewel waiver,
which waived the partners’ and partnerships’
claims to unfinished business, as defined in
Jewel. Thus, if the execution of the Jewel
waiver was valid, then Brobeck’s partners
had no duty to account back to Brobeck, or
each other, for profits earned from completing Brobeck’s unfinished business.10
In 2003, certain Brobeck creditors filed an
involuntary chapter 7 bankruptcy petition. In
2008, the trustee filed complaints against
former Brobeck partners and the law firms
that hired them.11 This case was the first
instance in which the former partners’ new
law firms were sued under Jewel. Under the
Bankruptcy Code, the trustee can sue the
new firms as immediate or mediate transferees of the property.12
The trustee sought an accounting and
turnover order of unfinished business profits.
12 Los Angeles Lawyer March 2010
Alternatively, the trustee argued that the Jewel
waiver was avoidable as a fraudulent transfer under the Bankruptcy Code and the
California Uniform Fraudulent Transfer Act.
The trustee and defendants filed cross-motions
for summary judgment on these issues.13
The court made two significant findings.
First, the court found that the Jewel waiver
was valid and barred the trustee from asserting claims under Jewel.14 Even though the
Brobeck partners added the Jewel waiver to
their final partnership agreement shortly
before dissolution, Jewel encouraged partners to enter into this precise type of agreement, reflecting how they wanted to handle
the firm’s unfinished business. When the final
partnership agreement became effective,
Brobeck no longer had an interest in unfinished business profits.
While the court’s first finding favored the
partners and their new firms, the court’s second holding declared the trustee as the ultimate winner. The court held that the Jewel
waiver could constitute a fraudulent transfer
under state and/or federal law.15 Simply put,
the court found that Brobeck had a property
interest in its unfinished business profits and
the Jewel waiver transferred that interest to
the Brobeck partners.
Although the trustee alleged two types of
fraudulent transfer—actual and constructive—the court only granted summary judgment, in favor of the trustee, as to the constructive fraudulent transfer claim. The
constructive fraudulent transfer claim required
the trustee to prove 1) Brobeck transferred an
interest in property, 2) the transfer occurred
within two years of the bankruptcy filing, 3)
Brobeck was insolvent at the time of the
transfer or became insolvent as a result of the
transfer, and 4) Brobeck received less than reasonably equivalent value in exchange for the
Jewel waiver.16
Only the fourth requirement was at issue
in Brobeck: “Because the policy behind fraudulent transfer law is to preserve assets of the
estate, reasonably equivalent value is determined from the standpoint of creditors.”17
Further, the reasonably equivalent value must
be exchanged contemporaneously with the
transfer.18 Despite numerous arguments made
by the former Brobeck partners, the court
found that the Brobeck partners failed to
provide value to Brobeck in exchange for
the Jewel waiver.19
Good Faith Defense
Even if the requirements for a constructive
fraudulent transfer are satisfied, hiring law
firms can avoid liability by establishing a
good faith defense. The law firms, as immediate transferees, are not liable if they take the
transfer for value, in good faith, and without
knowledge of the fraudulent transfer. 20
Tellingly, the law firm defendants in Brobeck
did not assert this defense.
Jewel and Brobeck effectively render law
firm partners or shareholders temporarily
illiquid in the event that their firm dissolves
and declares bankruptcy, unless the firm’s
governing document includes a valid Jewel
waiver. Law firms who wish to avoid the
implications of Jewel and Brobeck should
therefore act now. Specifically, law firms
should draft or amend their partnership agreements, or other governing agreements, such
as corporate bylaws, to include an adequate
Jewel waiver.
Moreover, law firms should execute Jewel
waivers while solvent because the key to the
trustee’s constructive fraudulent transfer claim
is the firm’s insolvency. For example, the
Brobeck partners executed the Jewel waiver
on the eve of dissolution while the firm was
insolvent. This opened the door to the trustee’s
constructive fraudulent transfer claim. If a law
firm executes a Jewel waiver while it is solvent, in contrast to Brobeck, it is unlikely
that any future bankruptcy trustee could
make a viable claim that the waiver constitutes a constructive fraudulent transfer.
Generally, firms distribute profits at the end
of each year. As long as a firm is generating
money and distributing profits to its partners, a trustee would have difficulty establishing insolvency.
The Reach-Back Period
Also, the fraudulent transfer statutes only
apply to transfers made within the statutory
reach-back period. Thus, a bankruptcy trustee
cannot claim that the Jewel waiver constitutes
an actual or constructive fraudulent transfer
unless the transfer occurred within the statutory period. The length of the statutory reachback period relates to the trustee’s “strong
arm” powers, which allow it to avoid fraudulent transfers under state law for the benefit of all creditors.21 Consequently, law firms
and former partners of bankrupt law firms
must evaluate their potential liability in light
of California’s longer reach-back period.
Based on California law, the trustee can reach
back four years before the date of the bankruptcy filing to identify fraudulent transfers.22 The “transfer” date is the date the
partners execute the Jewel waiver. 23
Accordingly, a law firm’s partners generally
no longer risk the financial and legal consequences associated with Jewel and Brobeck
if the law firm dissolves and enters bankruptcy more than four years after the partners
execute a Jewel waiver.
Law firms who wish to hire former partners of dissolved and bankrupt firms should
be cognizant of Jewel and Brobeck. The hiring firm, before taking on qualified partners
with lucrative practices, should determine
whether the former partner’s partnership
agreement, or other agreement, contains a
Jewel waiver. If so, the hiring firm should
exercise due diligence and inquire about the
circumstances surrounding the execution of the
Jewel waiver to determine whether hiring a
new partner who continues to work on matters from the partner’s previous firm would
expose the hiring firm to a fraudulent transfer claim. If a Jewel waiver is not included in
the prospective partner’s former partnership
agreement, or other governing document, the
hiring firm should think twice before making
a hiring decision that invites a lawsuit.
While the economic downturn has provided some economically healthy firms with the
opportunity to recruit unemployed partners in
desirable practice areas, what is clear from
Jewel and Brobeck is that partners from dissolved and bankrupt firms can bring in more
than just their clients. Prudent firms would
do well to expand their due diligence to include
an examination of a prospective hire’s former
partnership agreement or other agreement.
Doing so would enable a hiring firm to generate
new business while avoiding the pitfalls of
protracted and expensive litigation.
■
1 Jewel
v. Boxer, 156 Cal. App. 3d 171 (1984).
re Brobeck, Phleger & Harrison LLP, 408 B.R. 318,
326 (Bankr. N.D. Cal. 2009); Jewel, 156 Cal. App. 3d
at 174, 176.
3 In re Brobeck, 408 B.R. at 333.
4 Id.
5 Jewel, 156 Cal. App. 3d at 174.
6 Id. at 175-76, 180.
7 Id. at 176-78.
8 Fox v. Abrams, 163 Cal. App. 3d 610, 616-17 (1985)
(“The fact that a law corporation is involved is no reason to disregard the fair and reasonable principles of
Jewel….”).
9 In re Brobeck, 408 B.R. at 325.
10 Id. at 325-28.
11 Id. at 330.
12 11 U.S.C. §550(a) (The trustee may recover the
property transferred, or the value of such property, from
the “initial transferee” or “any immediate or mediate
transferee of such initial transferee.”).
13 In re Brobeck, 408 B.R. at 330, 336.
14 Id. at 333-36.
15 Id. at 336-48.
16 Id. at 340-41.
17 Id. at 341.
18 Id. at 342.
19 Id. at 343-47.
20 11 U.S.C. §550(b)(1) (“The trustee may not
recover…from a transferee that takes for value…in
good faith, and without knowledge of the voidability
of the transfer avoided.”).
21 See 11 U.S.C. §544(b)(1) (“[T]he trustee may avoid
any transfer of an interest of the debtor in property or
any obligation incurred by the debtor that is voidable
under applicable law by a creditor holding an unsecured
claim that is allowable under section 502 of this title or
that is not allowable under section 502(e) of this title.”).
22 CIV. CODE §3439.09 (“A cause of action with respect
to a fraudulent transfer…under this chapter is extinguished unless action is brought…within four years after
the transfer.”).
23 In re Brobeck, 408 B.R. at 339 n.30.
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Los Angeles Lawyer March 2010 13
practice tips
BY FREDERICK J. UFKES, PATRICK C. FARBER, AND PETER J. VODOLA
Helping California Courts Protect Settlement Beneficiaries
EVER SINCE CONGRESS AUTHORIZED federal income tax incentives
in 1982, the use of structured settlements in catastrophic injury and
other personal injury cases has provided financial stability to millions
of injured individuals and their families. As an alternative to lump sum
payments of settlement proceeds, structured settlements offer settling
personal injury claimants the flexibility and tax advantages to resolve
a dispute while creating a steady stream of secure income for the
injured.1
The growth of the structured settlement industry also led to a secondary market of factoring companies that specialize in acquiring, at
a discounted price, a structured settlement recipient’s rights to receive
future payments. In response to reports of unconscionable structured settlement factoring transactions and the potential for exploitation of accident victims in factoring transactions, 47 states—including California—have enacted structured settlement protection laws
that restrict structured settlement factoring. In California, the statute
is named the Structured Settlement Transfer Act, but the commonly
used term is “structured settlement protection act,” or SSPA.
This legislative trend also led in 2001 to federal tax legislation that
reinforced those state laws by imposing a punitive excise tax on factoring companies that acquire structured settlement payment rights
without complying with a state’s SSPA. The federal tax code now
imposes excise tax on a factoring company unless the factoring transaction was first judicially approved.2 Thus, state SSPAs typically
require court review of factoring transactions, and the federal tax code
provides a strong incentive to factoring companies to comply, by
penalizing transactions that take place outside of the court approval
process. Together, these laws are designed to stem the abuses of structured settlement factoring, to protect the interests of the parties to structured settlement agreements, and to protect the public’s interest in preventing additional dependency on tax-funded social safety nets.
One key feature of most state SSPAs is that they authorize courts
to approve a factoring transaction only on a finding that the transaction is in the best interests of the structured settlement recipient.
California has revised its SSPA, effective January 1, 2010, to elaborate on the best interests standard, and in doing so has become the
first state to provide statutory guidance on the meaning of that term.
The changes address some of the concerns raised by recent court decisions, but they also leave other questions unanswered.
Periodic Payment Settlement Act
Traditionally, tort claims were resolved either by way of settlement
of a lump sum or payment of a judgment after trial on appeal.
Recognizing the special needs of personal injury victims and especially
of individuals with long-term disabilities, Congress enacted the
Periodic Payment Settlement Act of 1982, creating favorable tax
treatment for qualified periodic payments that constitute damages on
account of physical injury or sickness.3
Although personal injury damages have been excluded from federal income tax for decades,4 for many years there was some uncer14 Los Angeles Lawyer March 2010
tainty about the tax treatment of periodic payments. The 1982 act
made it clear that periodic payments for personal injury damages, when
the payments are funded by an annuity not owned by the personal
injury victim, are excludable from the recipient’s income for tax purposes, if the conditions of the act are satisfied.5 Structured settlements
are generally funded by single-premium annuity contracts held by a
party contractually obligated to make the future settlement payments. Also, typically, the annuity issuer, for the convenience of the
obligor, assumes responsibility for such administrative duties as
ensuring that the scheduled payments are made. The Internal Revenue
Code also allows the party with the payment obligation to exclude
from its gross income the amount funding the periodic payments, as
well as accumulations on that amount.6
Fueled by these incentives, structured settlements have become an
everyday fact of life in personal injury litigation. Structured settlements
are often the settlement vehicle of choice for individuals who have been
severely injured and whose healthcare requirements and income
streams need to be secured over time. Likewise, they have become popular for use in cases involving injuries to children, as well as matters
involving molestation, environmental, and workers’ compensation
claims.
The benefits are numerous: The injured individual (or family) is often
provided with a stream of income sufficient to cover necessities, including medical and living expenses. Because of the flexibility inherent in
the creation of structured settlements, they can be tailored, at the time
of settlement, to the specific needs of the individual or family.
With the economic downturn, the financial stability of insurance
companies recently came into national focus, but state and federal regulations have long required insurance companies to abide by strict solvency standards to protect their assets. The California Department
of Insurance must first approve companies offering structured settlements in California. Those insurers are subject to mandatory
annual audits and other financial compliance requirements.7 The
insurance commissioners in California and other states developed these
regulations to preserve the solvency of general accounts in which assets
are held so that contractual obligations to policyholders are met. These
general accounts typically support only the obligations of the insurance companies—and not the obligations of a parent company or other
subsidiaries.
Structured settlements are subject to noteworthy restrictions. To
qualify for the desirable income tax benefits, the recipient cannot accelerate, defer, increase, or decrease the payments. The payments also
Frederick J. Ufkes is a partner in Hinshaw & Culbertson’s Los Angeles office
and represents chemical, pharmaceutical, and manufacturing companies
in product liability and environmental litigation. Patrick C. Farber is a structured settlements broker at Ringler Associates in Southern California. Peter
J. Vodola is a Connecticut-licensed attorney and partner at Seiger Gfeller Laurie
LLP who represents clients in litigation regarding SSPAs. He represented the
appellants in Rapid Settlements, Ltd. v. Symetra Life Insurance Company.
must be fixed and determinable at the inception of the settlement, and the money used
must come from a party or its insurer in an
amount no greater than the original liability.8
Most structured settlements are designed
by professional consultants who are themselves licensed.9 Also, many individuals have
been certified as structured settlement consultants, pursuant to a program of the
National Structured Settlement Trade Association (NSSTA).10 This professional program trains licensed individuals to assist
insurance companies, banks, and other institutions with organizing and running structured settlement programs. The NSSTA certification program has included instruction in
needs-based evaluations, tax implications,
special needs trusts, guardianship rules, loss
reserving, Medicare set asides, and claim valuations. After completing the course, an individual may become a Certified Structured
Settlement Consultant.11
Factoring
Beginning in the late 1980s, a new wrinkle
emerged in structured settlements. Entities
known as factoring companies targeted individuals who had structured settlements, buying the future structured settlement payment
rights for a discounted lump sum, usually a
fraction of the overall settlement figure. For
the structured settlement payee, the transaction represented instant cash, free of the
structured settlement’s restrictions on acceleration, albeit at a substantial cost.
Many payees sold their settlement payment streams without fully realizing the financial ramifications of their actions. Throughout
the 1990s, significant abuses by factoring
companies were reported,12 leading to SSPA
regulation of factoring transactions. Under
California’s SSPA,13 court oversight is now
required for individuals who wish to sell their
structured settlement payment rights.14
The California SSPA is comparable to those
enacted in other states and is based on model
legislation recommended by the NSSTA. The
statute has three key components. First, a
structured settlement payment recipient, or
payee, must receive from the factoring company a set of disclosures about important
financial and other terms of the proposed
transaction. Second, the factoring company
must initiate court review, providing notice
and copies of the court-filed papers to all interested parties. Third, a court must review the
transaction, and may approve the transfer
only based on findings satisfying the statutory conditions.
California’s disclosure requirements are
more extensive than those of any other state.
The factoring company must provide the disclosure statement at least 10 days before the
payee signs any agreement with the com-
pany.15 The disclosure must identify the dollar amount of the payments being sold, the
present value of those payments (based on a
federally established rate for valuing annuity
interests), the amount being paid to the payee,
and the interest rate calculated as if the transfer were a loan and not a sale of the payment
rights.16 The factoring company must advise
payees that they should get professional advice
from an attorney or accountant and must
explain in the disclosure statement that the
payee may cancel the transaction at any time
before court approval.17 Unlike other state
SSPAs, the California SSPA also requires that
certain disclosures be included in the agreement signed by the payee and the factoring
company.18
The California SSPA’s court filing requirements are also more extensive than those
of most other states. Factoring companies
must file and serve on interested parties copies
of the structured settlement agreement and
annuity contract, along with the disclosure
statement and other required documents.19
Factoring companies also must send documents—including copies of any order that
approved the structured settlement at its outset—to the California attorney general.20 The
attorney general and interested parties (including the payee, the annuity issuer, the structured settlement obligor, and persons who
are entitled to receive payments in the event
of the payee’s death) must receive notice of the
court proceeding and of the hearing that the
court is to hold on the factoring company’s
request for court approval.21
Court approval is necessary for any structured settlement to be valid, so if a transaction does not receive court approval, the
payee may walk away with no obligation to
the factoring company.22 The California SSPA
authorizes a court to approve a transfer only
upon specific factual findings, including that
the transfer of the structured settlement payments is in the best interest of the individual,
taking into account the welfare and support
of any dependents, that the transfer meets the
standards of the statute and does not contravene any other court order, and that the
payee reasonably understands the terms and
conditions of the transfer agreement.23
The California SSPA statute also calls for
independent professional advice, requiring
that the payee be advised to “obtain independent professional advice regarding any
federal and state income tax consequences
arising from the proposed transfer, and that
the transferee may not refer the payee to any
specific advisor for that purpose.”24
The California SSPA is similar to many
other state SSPAs that require that payees be
advised to obtain advice, but California goes
further, requiring the factoring company to
pay up to $1,500 to the payee’s chosen
adviser.25 California is also among a small
number of states whose laws provide that a
violation of the state’s SSPA is also a violation
of the state’s unfair business practice laws.26
Despite these statutory demands, some
courts have been critical of the quality of
disclosures in matters presented for judicial
approval. Some recent California decisions
examined some of these issues, as well as the
public policies underpinning California’s
SSPA.27 For example, in 321 Henderson Receivables Origination LLC v. Sioteco,28 the
court reviewed a string of superior court
orders denying petitions for approval of transfers. The Fresno County superior court judges
had been critical of factoring company 321
Henderson’s petitions, pointing to omissions
in the submissions, perceived violation of the
independent counsel requirements, and violations of the antiassignment clauses in the
annuity contracts.29 At least one trial court
indicated that the company had engaged in a
pattern of judge shopping, by filing petitions
but dismissing them on receipt of adverse
tentative rulings.30 When 321 Henderson
attempted to dismiss new petitions, the court
declined to enter the dismissals.31
The court of appeal reversed the lower
court decisions, concluding that requests for
dismissal must be granted if made prior to the
commencement of trial (or, in this case, hearings on the petitions).32 As to petitions in
which “trial” had commenced, the court of
appeal concluded that, absent objection by an
interested party, a contractual antiassignment clause does not prohibit factoring, and
further that the evidence did not support the
trial courts’ findings of systematic violations
of SSPA requirements.33 To be sure, the appellate court acknowledged shortcomings in the
filings, but those might be cured on remand,
by amendment of the petitions, or were otherwise too intertwined with issues that
required reversal.
Amending California’s SSPA
As cases moved through the courts, California’s
legislature examined the adequacy of the
California SSPA, and in 2009 adopted additional safeguards in order to better protect
consumers who wish to transfer their structured settlement payment rights.34 Revisions
effective January 1, 2010, provide that, when
making the best interest determination, a court
should look to the “totality of the circumstances.”35 The statute supplies a nonexclusive
list of criteria that include, among other things:
• The payee’s age, mental capacity, legal
knowledge, and apparent maturity level.
• The payee’s stated intended uses for the
money to be received from the factoring
company.
• The payee’s “financial and economic situation.”
Los Angeles Lawyer March 2010 15
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• The terms of the transfer agreement.
• Whether the payments were intended to be
used for medical care due to the payee’s original injuries, and whether the payee still needs
the payments for such purposes.
• Whether the payee needs the payments for
future medical expenses.
• Whether the payee lacks insurance or other
resources to cover medical expenses for the
payee’s original injuries.
• Whether the payee has sufficient resources
to cover financial obligations for the support
of the payee’s dependents.
• Whether the payee has previously transferred, or attempted to transfer, some payments.
• If any previous transfers were denied within
the past five years.
• Whether the payee received independent
financial advice about the transfer.
• “Any other factors or facts that the payee,
the transferee, or any other interested party
calls to the attention of the reviewing court
or that the court determines should be considered.…”36
California is the first state to codify the
factors relevant to the best interests examination.37
Court Approval
Notwithstanding the restrictions set forth in
the California SSPA, most factoring transactions receive court approval. While the economy over the past two years has affected factoring companies, and the Fresno County
cases have also had an impact on the number
of transactions in California, there is little reason to believe that the situation has changed
greatly since 2004, when the California attorney general issued a detailed report on factoring of structured settlement payment rights.
The dollar value of structured settlement payments purchased by factoring companies
grew from $10.6 million in 2001 to $53.7
million in 2003.38
The 2004 report revealed that 21 companies were in the structured settlement factoring business, purchasing structured settlement payments in California, with two
companies involved in more than 80 percent
of the transactions. The attorney general’s
report observed that the average effective
annual discount rate charged by factoring
companies—that is, the equivalent interest
rate that the factoring company would charge
if the transaction were treated as a loan—was
19 percent.
The attorney general also reported that, of
the 632 decisions on California petitions
from January 2002 through September 2003,
541 (85.6 percent) were approved by the
courts, one was approved with a change, 66
(10.4 percent) were withdrawn, and 24 (3.8
percent) were denied.39 Since 2002, one fac-
toring company alone had secured judicial
approval of more than 2,000 structured settlement transfers.40
One likely reason for routine approval
of transfer petitions is that they are rarely
opposed. The payee typically joins the petition, and objections are infrequent. Before
2009, a single unpublished appellate decision interpreted the California SSPA, and
that was in a case in which the structured settlement obligor and annuity issuer objected,
for various reasons, to a factoring transaction.41 The focus of that opinion was the antiassignment provision, which the appellate
court held validly precluded any transfer—
precisely because the structured settlement
obligor and annuity issuer had exercised their
contractual and statutory rights to object
and prevent the transfer. This contrasts with
the Sioteco court’s conclusion that, because
no party had exercised its rights to object
under the antiassignment provisions, those
contractual prohibitions on transfers did not
bar the transactions.
The public policy embodied in the
California SSPA—as with other state SSPAs
and the federal tax provisions that reinforce
those state laws—reflect a decision to protect
the benefits provided by structured settlements. Those protections extend to payees,
the primary beneficiaries of the statutes. But
payees are not the only parties whose interests are at stake, and safeguarded, by protection acts. The dependents of payees, for
example, are also a focus of the protections—
and the 2010 version of the California SSPA
includes new provisions aimed at arming
courts with information needed to take appropriate actions in favor of the dependents.
Other interested parties, and the public as
well, benefit from the protections. But in
many regards, the protections are only effective when enforced, in the day-to-day decisions by judges in hundreds and even thousands of SSPA proceedings.
The courts have been tasked to ensure
that structured settlements continue to serve
as the financial safety net that they were
intended to be when they were first devised
more than 25 years ago. The newly revised
California SSPA adds important protections
designed to assist the courts in doing their job
of protecting those for whose benefit the
structures were originally made. It will be
up to California’s judiciary to make sure
those safeguards work in practice.
■
1
In 2005, sales of structured settlement annuities
reached $6 billion. See Daniel W. Hindert & Craig H.
Ulman, Transfers of Structured Settlement Payment
Rights: What Judges Should Know about Structured
Settlement Protection Acts, 44 JUDGES’ J. 19 (2005).
2 See 26 U.S.C. §5891.
3 See Pub. L. No. 97-473, 26 U.S.C. §130.
4 See Revenue Act of 1918, §213(b)(6), 40 Stat. 1057,
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1065-66 (1919).
5 See 26 U.S.C. §§104(a), 130.
6 26 U.S.C. §130.
7 See INS. CODE §§729-736, 900-925.4, and 10 CAL.
CODE REGS. tit. 3.
8 See 26 U.S.C. §130(c).
9 See INS. CODE §§1631 et seq.
10 See http://www.nssta.com.
11 See id.
12 See, e.g., P. Corboy, Structured for a Reason, A.B.A.
J., June 2000, at 116.
13 See Structured Settlement Transfer Act, codified at
INS. CODE §§10134 et seq. (also referred to as the
California Structured Settlement Protection Act or the
California SSPA).
14 Cf. 26 U.S.C. §5981, INS. CODE §§10134 et seq.
15 See INS. CODE §10136.
16 The California SSPA also applies to factoring transactions structured as a loan to the payee, with payments
paying off the loan in installments. See INS. CODE
§10134(n) (defining transfer within the scope of the
statute as “any sale, assignment, pledge…or other
form of alienation or encumbrance” of structured settlement payment rights). Most structured settlement factoring transactions are based on documents drafted by
factoring companies that describe the transaction as a
sale or assignment of the payment rights and not a loan.
Some payees have challenged this terminology and
alleged that the factoring transaction was a loan and
that the interest rate violated state usury laws. See, e.g.,
321 Henderson Receivables Origination LLC v. Sioteco,
173 Cal. App. 4th 1059 (2009). These challenges have
generally fared poorly. See id.
17 INS. CODE §10136.
18 INS. CODE §10136(c).
19 INS. CODE §10139.5.
20 INS. CODE §10139(a).
21 INS. CODE §10139.5.
22 Id. See also INS. CODE §§10139.3, 10136.
23 See INS. CODE §10139.5.
24 INS. CODE §10136(a)(9).
25 INS. CODE §10139.5(h).
26 See INS. CODE §10139.4.
27 See, e.g., 321 Henderson Receivables Origination
LLC v. Ramos, 172 Cal. App. 4th 305 (2009); 321
Henderson Receivables Origination LLC v. Red
Tomahawk, 172 Cal. App. 4th 290 (2009); 321
Henderson Receivables Origination LLC v. Sioteco, 173
Cal. App. 4th 1059 (2009); Rapid Settlements, Ltd. v.
Symetra Life Ins. Co., 2007 WL 1576437 (Cal. Ct. App.
4th Dist., June 1, 2007).
28 Sioteco, 173 Cal. App. 4th 1059.
29 Id. at 1067.
30 See Red Tomahawk, 172 Cal. App. 4th at 299.
31 See id. at 297; Sioteco, 173 Cal. App. 4th at 1068;
see also Ramos, 172 Cal. App. 4th at 312.
32 Red Tomahawk, 172 Cal. App. 4th at 303.
33 Sioteco, 173 Cal. App. 4th at 1074-79.
34 S.B. 510 (2009), legislative digest.
35 INS. CODE §10139.5(b).
36 Id. These criteria are similar to those that have been
identified in court opinions in California (as well as in
other states, particularly New York) as important to
the best interest determination.
37 INS. CODE §10139.5(c).
38 See Office of the Attorney General Public Rights
Division/Consumer Law Section, Impact of Prior Court
Approval on the Transfer of Structured Settlement
Payments Rights, submitted to the California Legislature
pursuant to INS. CODE §10139.5(e) (Mar. 2004).
39 Id.
40 321 Henderson Receivables Origination LLC v.
Sioteco, 173 Cal. App. 4th 1059, 1066 (2009).
41 See Rapid Settlements, Ltd. v. Symetra Life Ins. Co.,
2007 WL 1576437 (Cal. Ct. App. 4th Dist., June 1,
2007).
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practice tips
BY GORDON ENG
Complying with the Buy American Provisions in the Federal Stimulus Act
public interest;
FACED WITH A GLOBAL FINANCIAL CRISIS of unequaled proportions,
(2) iron, steel, and the relevant manufactured goods are not prothe United States enacted a program to expend a similarly unprecedented
duced in the United States in sufficient and reasonably availsum to stimulate its economy. The American Recovery and Reinvestment
able quantities and of a satisfactory quality; or
Act—which took effect on February 17, 2009—is intended to steer the
(3) inclusion of iron, steel, and manufactured goods produced
American economy away from meltdown and back toward growth.
in the United States will increase the cost of the overall projARRA generally provides for a combination of government spending
ect by more than 25 percent.
and tax incentives of more than $780 billion, with spending appropriated
(c) If the head of a Federal department or agency determines
at approximately $460 billion and incentives accounting for about $320
that it is necessary to waive the application of subsection (a)
billion. The spending program includes a broad range of construction,
based on a finding under subsection (b), the head of the departprocurement, research, and other projects within the United States. These
projects present many opportunities for domestic and foreign contractors, consultants, manufacturers, and suppliers.
Contractors that are not mindful of the regulations can be at risk
The funds allocated for infrastructure, science, and energy-related projects amount to
approximately $154 billion.1 ARRA funding
for sanctions that could outstrip any profit they plan to receive.
on construction-related projects includes direct
spending by the U.S. government, such as the
construction of an interstate highway or federal
ment or agency shall publish in the Federal Register a detailed
building, and indirect spending in the form of grants or loans made to
written justification as to why the provision is being waived.
state governments. Those in turn will be used to fund construction of
(d) This section shall be applied in a manner consistent with
local roads or facilities.
United States obligations under international agreements.
The ability of contractors and vendors to benefit from this bonanza
Although ARRA limits the domestic content restrictions to the iron,
may be limited, however, by the domestic content provisions they must
follow to participate in ARRA projects.2 Section 1605 of ARRA steel, and manufactured goods used in a project, practitioners immebears the title “Buy American.” This section was the subject of sig- diately identified a number of areas of concern. One critical question
nificant debate within Congress as well as objection from trading part- is whether Congress intended that its reference to iron and steel was
ners of the United States. Interested parties and administrators began applicable only to raw pieces or instead also encompassed iron and
wrestling with the language of the provisions from the moment of steel incorporated into other construction materials or elements.
ARRA’s enactment, struggling to interpret the Buy American terms. Counsel wondered whether, for example, the steel reinforcement
Now, however, federal agencies are providing significant guidance contained in a precast concrete pipe would be subject to an analysis
to clarify the initial confusion. Indeed, reading ARRA Section 1605 in of whether the steel was made in the United States. Another critical
conjunction with recent Federal Acquisition Regulations (FAR) and issue is whether the term “manufactured goods” requires an analyOffice of Management and Budget (OMB) regulations brings the para- sis of the origin of every internal component of a product or merely
meters of the domestic content restrictions in sufficient focus so that where the final manufacturing step took place.
Some commentators suggested interpretations based on similar laninterested parties can move forward with their participation in ARRA
programs. They can do so with greater confidence that they can com- guage used in two other domestic content statutes. One is the Buy
ply with the statute—and administrators will be less likely to issue incon- American Act, which was enacted in 1933 and is applicable to consistent interpretations of the applicable requirements and exemptions. struction projects for which the U.S. government directly buys prodSection 1605 addresses the “use of American iron, steel, and ucts or directly contracts to build public works via a procurement covered by the FAR.3 The other is the Buy America Law, which was enacted
manufactured goods”:
(a) None of the funds appropriated or otherwise made availin 1964 and is applicable to Federal Transit Administration (FTA) grants
able by this Act may be used for a project for the construction,
that are given to states and local governments for the development of
alteration, maintenance, or repair of a public building or pubmass transportation systems and for improvements.4 However, these
lic work unless all of the iron, steel, and manufactured goods
two laws use different standards to define American-made products,
used in the project are produced in the United States.
so attempting to rely on either to interpret the ARRA provisions is prob(b) Subsection (a) shall not apply in any case or category of cases
lematic at best. Furthermore, ARRA appears to mix and match wordin which the head of the Federal department or agency involved
finds that—
Gordon Eng is a business lawyer who focuses on corporate and real property
(1) applying subsection (a) would be inconsistent with the
restructuring and management, and joint venture development and financing.
20 Los Angeles Lawyer March 2010
ing and phrases from each of the two previously enacted statutes, which only adds to
the difficulty of interpreting the new law.
This lack of clarity regarding ARRA is
particularly acute because of the severe potential sanctions contractors and vendors face
for failure to comply. The penalties include
removal of the nonconforming materials from
the project, reduction of the amount of the contract by the cost of the nonconforming materials, termination of the project or its funding,
withholding further payments until the error
is corrected, withholding further awards or
funding for the project, suspension or disbarment of the offender from further contracts,
and criminal prosecution.5 Moreover, the agencies distributing ARRA funds will likely require
parties involved in a covered project to certify
that they comply with the ARRA requirements, including the Buy American provisions.
Contractors that are not mindful of the regulations and do not monitor their compliance
can be at risk for sanctions that could far outstrip any profit they plan to receive.
FAR and OMB Regulations
In response to concerns about ARRA, the
government began providing guidance by
issuing regulations. New subpart 25.66 of
the FAR clarifies some issues relating to federal construction projects that use ARRA
funding. The OMB has also promulgated
new regulations that apply to federal grants
and cooperative agreements.7 These regulations cover the two primary methods that
the federal government will use to distribute
ARRA funds. Additionally, as contemplated
by ARRA Section 1605(c), some federal agencies have already provided guidance for work
directly within their purview.
With regard to the terms “iron” and
“steel,” the FAR and OMB regulations affirm
that when contractors use those materials in
ARRA projects, they must be manufactured in
the United States. The regulations add a useful elaboration, stating that metallurgical
processes involving refinement of steel additives
can take place outside of the United States.8
The regulations further clarify that it is not necessary to determine the origin of iron or steel
that is merely a component of another manufactured construction material.9 Thus, for the
example of concrete pipe containing steel reinforcement, the origin of the steel would not be
at issue.
In addressing the term “manufactured
goods,” the regulations explain that the origin of a manufactured item is determined
based on the final product, not on the origin
of its components or subcomponents.10 For
the concrete pipe example, the origins of the
materials used to mix the concrete (limestone, sand, and clay) are not relevant to
determine whether the pipe was manufac-
tured in the United States. However, the Buy
American provision applies to the geographic
location where the elements of the concrete
were combined to create the concrete.
Before proceeding with a specific project,
contractors and vendors would be wise to
investigate whether additional regulations
have been promulgated by the responsible
agencies. Individual agency actions are particularly critical because the overseeing agency
for a grant has the authority to allow exceptions to the Buy American requirements.
Indeed, an overseeing agency has the express
authority to issue exceptions to the domestic
content restrictions for all or parts of a given
project under ARRA Section 1605(b)(1) (the
public interest exception), Section 1605(b)(2)
(the insufficient domestic supply exception),
and Section 1605(b)(3) (the nominal percent
of the project cost exception).
The FAR and OMB regulations establish
guidance for how agencies can make these
exceptions11—and at least one agency has
exercised its authority. The Environmental
Protection Administration has issued a national waiver of the Buy American requirements on projects for which a Clean or
Drinking Water State Revolving Fund has or
will conclude an assistance agreement using
ARRA funds, so long as the fund solicited bids
on or after October 1, 2008, and prior to February 17, 2009.12 The EPA used the public
interest exemption provision under Section
1605(b)(1) as the basis for issuing this waiver.
The OMB and FAR regulations also provide guidance regarding the application of
ARRA’s Buy American provisions in a manner consistent with international agreements.
A number of international agreements could
be affected by the Buy American requirements. The regulations exempt countries signatory to the World Trade Organization Agreement on Government Procurement (GPA)13
as well as countries establishing various Free
Trade Agreements (FTAs)14 with the United
States.15 Some major trading partners of the
United States—including China, India, and
Brazil—are not GPA or FTA countries and do
not appear to have any basis to seek exemption from the Buy American requirements
under ARRA Section 1605(d).16
Some differences exist between the OMB
and FAR regulations regarding the international agreement exception. The FAR
expressly excludes the Caribbean Basin countries, noting that the Caribbean Basin Trade
Initiative17 is not an agreement listed among
the FTAs. Costa Rica is the only country
within the Caribbean Basin Trade Initiative
that is also an FTA country. The FAR also
includes less developed countries within the
exception, noting that the explanatory report
accompanying ARRA indicates that goods
from “least developed countries” will also be
exempted from the content restrictions.18
The OMB regulations do not expressly
include less developed countries within the
trade agreement exception but do so for
countries covered by the United StatesEuropean Communities Exchange of Letters
(although this appears to be redundant as
these countries are all covered by the GPA).
The GPA and the various FTAs contain differing thresholds that must be met before the
benefits of the respective agreements will apply
to a particular foreign country.19 Generally, the
FAR and OMB regulations provide that the
international agreements exemption will apply
when the business opportunity amounts to
$7.433 million or more.20
Further Issues before Proceeding
Contractors should forego the launch of a
project until the responsible government
agency makes its determination whether the
Buy American provisions are applicable. The
agency will also address compliance issues at
the project’s inception. During these early
stages of the construction process, contractors
have an opportunity to engage in discussions
with agencies about whether an exemption
from Section 1605 is appropriate. Interested
parties should review and familiarize themselves with the general procurement regulations and polices established in the FAR for
guidance on solicitation, procurement, and
contract management. ARRA has adopted
procedures to ensure enhanced transparency
for ARRA-funded projects,21 including the
requirement that pre-solicitation notices must
be posted on the Federal Business Opportunities Web site.22 Interested parties can also
sign up for e-mail alerts for various types of
opportunities.
A contractor that learns it is not in compliance with the Buy American restrictions
after the project has been awarded may still
apply to the appropriate agency for an exemption—a “late request” under the OMB or
“post award determination” under FAR.
However, if the administering agency determines that the contractor should have reasonably foreseen the need to request an exemption at the beginning of the project, the request
for an exemption may be rejected.23 Pursuing
a late request or post award determination is
a high-risk exercise because if the request is
denied, a violation of the Buy American restrictions may be a foregone conclusion. But the
regulations at least leave open the opportunity
for rehabilitation if the violation was not due
to the contractor’s negligence.
ARRA not only has domestic content
restrictions applicable to construction projects. It also contains a similar requirement for
certain textile and fiber-based material purchases by the U.S. Department of Homeland
Security (DHS). This domestic content proLos Angeles Lawyer March 2010 21
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05-2890 The Northwestern Mutual Life Insurance Company, Milwaukee, WI (Northwestern Mutual). Mitchell Craig Beer is a General Agent of Northwestern Mutual (life and
disability insurance, annuities) and a Registered Representative and Investment Adviser Representative of Northwestern Mutual Investment Services, LLC (securities), a
subsidiary of Northwestern Mutual, broker-dealer, registered investment adviser and member FINRA and SIPC. A.M. Best, 2009, Fitch, 2009, Moody’s, 2009, Standard &
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24 Los Angeles Lawyer March 2010
vision received less attention during the legislative process. The DHS includes the U.S.
Citizenship and Immigration Services, U.S.
Customs and Border Protection, U.S. Immigration and Customs Enforcement, Federal
Protective Service, Transportation Security
Administration, U.S. Coast Guard, Federal
Emergency Management Agency, and U.S.
Secret Service.
The ARRA funding allocable to DHS is
about $2.7 billion, but no breakdown is currently available for the portion that would be
covered by textile and fiber-based purchases.
However, the DHS clearly purchases significant volumes of materials to which the ARRA
requirements would apply, such as uniforms;
emergency supplies, including tents, tarps,
and clothing; and first aid supplies, including
bandages. The restrictions are found in ARRA
Section 604:
a) REQUIREMENT.—Except as provided in subsections (c) through (g),
funds appropriated or otherwise available to the Department of Homeland
Security may not be used for the procurement of an item described in subsection (b) if the item is not grown,
reprocessed, reused, or produced in the
United States.
(b) COVERED ITEMS.—An item
referred to in subsection (a) is any of
the following, if the item is directly
related to the national security interests
of the United States:
(1) An article or item of—
(A) clothing and the materials and
components thereof, other than sensors, electronics, or other items added
to, and not normally associated with,
clothing (and the materials and components thereof);
(B) tents, tarpaulins, covers, textile
belts, bags, protective equipment
(including but not limited to body
armor), sleep systems, load carrying
equipment (including but not limited
to fieldpacks), textile marine equipment, parachutes, or bandages;
(C) cotton and other natural fiber products, woven silk or woven silk blends,
spun silk yarn for cartridge cloth, synthetic fabric or coated synthetic fabric
(including all textile fibers and yarns that
are for use in such fabrics), canvas products, or wool (whether in the form of
fiber or yarn or contained in fabrics,
materials, or manufactured articles); or
(D) any item of individual equipment
manufactured from or containing such
fibers, yarns, fabrics, or materials.
Section 604, like Section 1605, has an
exception based on a determination by the
DHS that the required material is unavailable
in the United States in sufficient quantities or
adequate prices.24 There is also an express
exemption for goods containing a de minimus
amount of nonconforming fibers—less than
10 percent of the total purchase price of the
item.25 As with Section 1605, Section 604
provides that the domestic content requirement will be applied in a manner consistent
with international agreements.26 However,
unlike Section 1605, which was effective as
soon as it was enacted, the DHS restriction
did not become effective until August 13,
2009—180 days after the adoption of
ARRA.27 Since DHS procurements are likely
to be direct purchases, the additional guidance
provided by the FAR regulations are applicable to clarify and implement the domestic
content restrictions contained in Section 604.
Neither Section 1605 nor Section 604
expressly preempts the application of other
domestic content restriction laws, including
the Buy American Act and the Buy America
Law. So, for example, roadway improvement
projects funded through the FTA must still
comply with the Buy America Law in addition to meeting the ARRA requirements.
The text of the ARRA legislation is over
400 pages, and the current and future implementing regulations will likely fill substantial
volumes. Government agencies are continuing to solicit bids and grant projects under
ARRA, and that process is expected to be
ongoing for several more years. During that
time, the agencies will likely develop new
regulations and practices to provide additional guidance. With careful planning and
advice regarding compliance with existing
regulations, parties wishing to do business
under ARRA should not be deterred.
■
1 See
http://www.Recovery.Gov.
ARRA also includes a “Hire American” provision.
ARRA §1611 encourages the employment of Americans
in projects funded by the Troubled Asset Relief Program
(TARP).
3 41 U.S.C. §§10a et seq.; FAR §§25.100 et seq.,
§§25.200 et seq.
4 49 U.S.C. §§5323(j) et seq.; 49 C.F.R. §§661 et seq.
5 See, e.g. 74 C.F.R. §176.130; FAR §25.607.
6 See also 74 Fed. Reg. 14,623 (Mar. 31, 2009).
7 2 C.F.R. §§176 et seq.
8 OMB §176.70(a)(2)(i); FAR §25.602(a)(2)(I).
9 OMB §176.70(a)(2)(i); FAR §25.602(a)(2)(i).
10 OMB §176.70(a)(2)(ii); FAR §25.602(a)(2)(ii).
11 ARRA §1605(c); OMB §176.100(a); FAR §25.604.
12 See 77 Fed. Reg. 26,397-26,398 (June 2, 2009), available at http://www.epa.gov/fedrgstr/EPA-WATER
/2009/June/Day-02/w12793.htm.
13 OMB §176.160; FAR §25.400. The countries covered
by the GPA include: Aruba, Austria, Belgium, Bulgaria,
Canada, Cyprus, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hong Kong,
Hungary, Iceland, Ireland, Israel, Italy, Japan, Republic
of Korea, Latvia, Liechtenstein, Lithuania, Luxembourg,
Malta, Netherlands, Norway, Poland, Portugal,
Romania, Singapore, Slovak Republic, Slovenia, Spain,
Sweden, Switzerland, and the United Kingdom.
14 OMB §176.160; FAR §25.603(c).
15 OMB §176.160; FAR §25.400. Countries with FTAs
include: Australia, Bahrain, Canada, Chile, Costa Rica,
2
Dominican Republic, El Salvador, Guatemala,
Honduras, Israel, Mexico, Morocco, Nicaragua, Oman,
Peru, and Singapore.
16 Other exemptions may be employed by these countries or others that are not beneficiaries of the international agreements exception. For example, these
countries might be a source of components or subcomponents in an item to be manufactured in the
United States.
17 Caribbean Basin Trade Initiative, 19 U.S.C. §§2701
et seq.
18 The “least developed countries” listed in pt. 25.003
of the current federal procurement regulations are:
Afghanistan, Angola, Bangladesh, Benin, Bhutan,
Burkina Faso, Burundi, Cambodia, Cape Verde, Central
African Republic, Chad, Comoros, Democratic Republic
of Congo, Djibouti, East Timor, Equatorial Guinea,
Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau,
Haiti, Kiribati, Laos, Lesotho, Madagascar, Malawi,
Maldives, Mali, Mauritania, Mozambique, Nepal,
Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal,
Sierra Leone, Solomon Islands, Somalia, Tanzania,
Togo, Tuvalu, Uganda, Vanuatu, Yemen, and Zambia.
19 For state projects covered by the OMB regulations,
a more detailed breakdown of the particular international agreements applicable to specific agencies or
departments within a particular state’s government
should be consulted on a project-specific basis. OMB
app. to subpt. B of pt. 176.
20 OMB §176.90(a); FAR §25.603(c).
21 See FAR §§5.0001 et seq.
22 See http://www.fedbizopps.gov or http://www
.FBO.gov.
23 OMB §176.120; FAR §25.606.
24 ARRA §604(c).
25 ARRA §604(d).
26 ARRA §604(k).
27 ARRA §604(l).
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Los Angeles Lawyer March 2010 25
by Honey Kessler Amado
Beat the
CLOCK
The deadlines for filing notices of appeal are unforgiving
FEW THINGS IN PROCEDURAL LAW are
as critical or as potentially fatal to an action
as the timely filing of a notice of appeal. Not
only does a timely notice of appeal vest the
court of appeal with jurisdiction1 but it is also
an absolute prerequisite to that court’s exercise of jurisdiction.2 If the notice of appeal is
filed after the expiration of the time to appeal,
the court is without jurisdiction to proceed
and is mandated to dismiss the appeal.3
This rule is unforgiving, as illustrated by
In re Hanley’s Estate. In Hanley’s, the notice
of appeal was filed one day late because counsel representing the appellant in her capacity
as executrix told the appellant’s personal
attorney the wrong date on which the appealable order had been filed. The court of appeal
said that “it is immaterial whether the misrepresentations concerning the date…were
26 Los Angeles Lawyer March 2010
willful or inadvertent, whether the reliance
thereon was reasonable or unreasonable, or
whether the parties seeking to dismiss [the
appeal] are acting in good faith or not.”4
The time to appeal is governed by Rule
8.104 of the California Rules of Court.5 The
general rule is that the notice of appeal must
be filed 1) within 60 days after the superior
court clerk mails the party filing the notice of
appeal a document titled “notice of entry” of
judgment or a file-stamped copy of the judgment (“triggering documents”), showing the
date either was mailed,6 or 2) within 60 days
after any party serves on the party filing the
notice of appeal either of the triggering documents, accompanied by a proof of service,
or 3) within 180 days after entry of judgment.7 In the absence of service, the date of
entry is critical for determining the outside
date for filing the notice of appeal (180 days),
but when the triggering document is served
by the clerk or a party, the date of service—
not date of entry—becomes the critical date
for determining the timeliness of an appeal.8
Service by mail requires strict compliance
with the court rules.9 Thus, service on an
incorrect address—indeed, the mere use of an
incorrect zip code—will not suffice as legal
notice.10 Similarly, service of an unsigned
judgment (which necessarily would not
include the file stamp) will not trigger the
60-day period for filing the notice of appeal.11
If the party filing the notice of appeal was not
properly served with one of the triggering
Honey Kessler Amado is an appellate law specialist certified by the State Bar of California Board of
Legal Specialization. She practices in Beverly Hills.
documents,12 or absent proof of service of the
triggering documents by either a party or the
clerk, the party seeking to appeal will have
180 days from entry of the judgment or order
within which to appeal.13
When a party is represented by several
cocounsel, service on one of the counsel and
not the others will suffice as the required
notice.14 One important caveat: If the clerk
or counsel serve the triggering document by
mail, Code of Civil Procedure Section 1013
will not expand the time within which to
appeal.15
To satisfy Rule 8.104(a), the clerk must
mail a single, self-contained document—a
notice of entry or a file-stamped copy of the
judgment or appealable order—which shows
the date of mailing of the document. If the
judgment is not file stamped or the minute
order containing the court’s ruling is not
titled “notice of entry,” the document will not
operate to commence the 60-day appeal
period.16 As the California Supreme Court
has noted, “[T]he rule does not require litigants to glean the required information from
multiple documents or to guess, at their peril,
whether such documents in combination
trigger the duty to file a notice of appeal.
Neither parties nor appellate courts should
have to speculate about jurisdictional time
limits.”17
Thus, in one case, a document titled
“Court Order re Stipulated Judgment” that
did not also bear the title “Notice of Entry of
Judgment (or Order)” did not commence the
60-day time period within which to appeal
under Rule 8.104(a)(1).18 Moreover, in another decision, a 14-page minute order that
contained the ruling on a motion but did not
state under “nature of proceedings” that the
minute order was a ruling on the motion
until page 13, at which point the document
was defined as a “clerk’s certificate of mailing/ [¶] notice of entry of order,” did not
comply with the requirement that the triggering document must be titled “notice of
entry” and did not commence the 60-day
appellate clock. Placing the critical language
on page 13 of the minute order was not the
same as titling the document with the mandated title.19
Within reason, Rule 8.104 must be read
literally and stand “without embroidery.”20
But the rule has been brought into modernity,
albeit in small steps. Thus, when Rule
8.104(a)(1) requires the clerk to “mail” the
triggering document, “mail” refers to the
use of the U.S. Postal Service and does not
encompass e-mail.21 However, when Rule
8.104(a)(2) mentions “service” by a party, service is broader than mail and will include
delivery by fax and e-mail upon agreement of
the parties.22 However, the e-mail being served
must be a copy of the actual triggering doc28 Los Angeles Lawyer March 2010
ument, not a link to the document.23
Under Rule 8.104(d), the date of entry of
a judgment is the date the judgment is filed
or the date it is entered in the judgment book.
Case law has interpreted this to require only
that the judgment be signed by the judge and
file stamped by the clerk. It does not require
that the judgment be entered in the registry
of actions.24 In Los Angeles, where a judgment book is not maintained, entry of the
judgment occurs upon the filing of the document.25
For an appealable order, entry is the date
that the order is entered in the permanent
minutes. However, if the minute order directs
that a written order be prepared, the entry
date for appellate purposes is the date on
which the signed order is filed.26 The operative words in the applicable court rule are
“minute order directs”—not if another rule
directs preparation of the order, and not if
counsel unilaterally prepares the order. If a
proposed order is submitted pursuant to Rule
3.1312, which requires a party who prevails
on a motion to prepare and submit a proposed order, that written order will not supplant the original minute order as the triggering document. Rule 3.1312 does not
abrogate Rule 8.104(d)(2), which requires
that, unless a written order is expressly
directed or required by the minute order, the
time to appeal runs from the minute order, not
from the written order.27 Thus, for the order
required by Rule 3.1312 to begin the appellate clock, the minute order must direct that
the Rule 3.1312 order be prepared.
Similarly, a written order that is gratuitously prepared by counsel without an
express direction in the minute order is not
the operative order for appellate purposes
and will not start the appellate clock.28 If an
appealable order is not entered in the minutes,
the entry date is the date the signed order is
filed, whether or not the minute order directs
preparation of a written order.29
Not only does a late notice of appeal fail
to vest jurisdiction in the court of appeal
but also writ relief will not be available if the
claim could have been raised, but was not,
by a timely appeal.30 However, unlike a late
appeal, which is fatal, a premature appeal
may be treated as timely under some circumstances. Pursuant to Rule 8.104(e)(1), if
the notice of appeal is filed after the judgment
is rendered but before it is entered, the appeal
is valid. It will be treated as if it were filed
after entry of judgment. Under Rule
8.104(e)(2), if the notice of appeal is filed
after the court has announced its intended
decision but before the court has rendered the
judgment, the reviewing court may treat the
notice of appeal as being filed immediately
after entry of the judgment.31 If the notice of
appeal is filed after the filing of the minute
order but before the filing of the written
order required by the minute order, the notice
will be deemed to have been filed after the
written order.32
However, if the notice of appeal is filed
before the court announces its intended decision, the notice of appeal is not valid and cannot be treated as a premature notice.33 For
example, if the notice of appeal is filed after
a default was entered but before the default
prove-up, the appellant is not entitled to
relief under Rule 8.104(e) because the judgment had not been rendered.34
Extending the Time to Appeal
Rule 8.108 extends the time to appeal for
cross-appeals and certain motions—specifically, motions for new trial or to vacate a
judgment or order, for judgment notwithstanding the verdict (JNOV), and for reconsideration. Each of these motions is treated
differently for the purpose of calculating the
time within which to appeal; thus, one cannot rely on the rules applicable to one motion
to determine the time to appeal from another
of the motions. In no event can Rule 8.108
operate to shorten the time allowed to appeal
under Rule 8.104.35 (Worksheets for calculating the time allowed for filing a notice of
appeal after each of the Rule 8.108 motions
are available online at http://www.lacba.org
/lalawyer/appellatetimelines.)
For all the motions, Rule 8.108 uses the
word “valid,” which means that a motion
must comply with all procedural requirements regarding its components and its
grounds.36 For example, in Branner v. Regents
of the University of California, a motion to
reconsider was deemed invalid because the
moving party neglected to include the requisite declaration in support of his relief with
his moving papers. His attempt to cure the
problem by submitting the declaration along
with his reply documents was insufficient to
render the motion valid.37 The court noted
that Rule 8.108 “does not appear to countenance a piecemeal filing of a motion.…[A]
single, complete, valid motion must be filed—
not one that is later assembled from constituent parts like some Frankenstein monster.”38 In Payne v. Rader, a motion to vacate
was declared invalid because it did not contain a recognized ground for that type of
motion.39
Furthermore, “valid” means timely. An
untimely motion is an invalid motion, and an
invalid motion will not extend the time to
appeal.40 This is so even if the trial court
believes it has jurisdiction to act.41 When a
motion is untimely or otherwise invalid and
cannot extend the time to appeal, the court
of appeal expects a litigant to abandon the
invalid motion and file a notice of appeal to
protect the appellate court’s jurisdiction.42
Failure to do so will result in the appeal being
dismissed.
The withdrawal of a Rule 8.108 motion
is equivalent to a denial and will be treated
as such for Rule 8.108 calculation purposes.43
To extend the time to appeal, the ruling on the
Rule 8.108 motion need not be file stamped
or titled “notice of entry of order,” as required
for appealable orders under Rule 8.104.44
However, the order or notice of ruling must
show a date of mailing if sent by the clerk and
must be accompanied by a proof of service if
served by a party.45
Motion for New Trial. Rule 8.108(b)
extends the time to appeal from a judgment
upon the service and filing of a valid notice
of intention to move for a new trial.46 If the
motion for a new trial is denied, the time is
extended to the earliest of 1) 30 days after the
superior court clerk mails, or a party serves,
an order denying the motion or a notice of
entry of that order, 2) 30 days after denial of
the motion by operation of law, or 3) 180
days after entry of judgment.47 If any party
serves an acceptance of a conditionally
ordered additur or remittitur of damages
pursuant to a trial court finding of excessive
or inadequate damages, the time to appeal is
extended until 30 days after the date the
party serves the acceptance.48
Code of Civil Procedure Section 660
requires that the trial court rule on a motion
for new trial within 60 days from the date of
mailing by the clerk or service by a party of
the notice of entry of judgment, whichever is
earliest—and if no notice is given, then within
60 days of the first notice of intention to
move for a new trial. Code of Civil Procedure
Section 1013 does not extend the time within
which the trial court may rule on the
motion.49 Therefore, at the expiration of the
controlling 60 days, if the court has not
ruled on the motion, it is deemed denied by
operation of law, and the trial court has no
further jurisdiction to act on it.50 Once the
motion is denied by operation of law, the time
within which to appeal begins to run under
Rule 8.108(b)(1). Even if the trial court
thereafter enters an order denying the motion,
that late order will not commence the appellate clock, because the court’s jurisdiction to
rule on the motion expired, and the order is
an invalid order.51
Motion to Vacate. Rule 8.108(c) extends
the time to appeal when any party, within the
time to appeal from the judgment allowed by
Rule 8.104, serves and files a valid notice of
intention to move—or a valid motion—to
vacate the judgment. The time to appeal is
extended for all parties until the earliest of 1)
30 days after the superior court clerk mails,
or a party serves, an order denying the motion
or a notice of entry of that order, 2) 90 days
after the first notice of intention to move or
the motion itself is filed, or 3) 180 days after
entry of judgment.
The wrinkle with a motion to vacate is
that it must be filed within the time allowed
to appeal from the underlying order. For
example, a motion to vacate filed more than
60 days after the notice of entry of judgment was mailed by the clerk did not extend
the time for filing the notice of appeal from
the underlying judgment.52 Thus, notwith-
to vacate upon reconsideration.54
Motion for Judgment Notwithstanding
the Verdict. Rule 8.108(d) extends the time
to appeal from a judgment when any party
serves and files a valid motion for JNOV and
the motion is denied. The time is extended for
all parties until the earliest of 1) 30 days
after the superior court clerk mails, or a party
serves, an order denying the motion or a
notice of entry of that order, 2) 30 days after
standing the time frames allowed by Code of
Civil Procedure Sections 473(b) (generally,
within a reasonable time, not exceeding six
months) and 663a (generally, within 15 days
of mailing of notice of entry or within 180
days, whichever is earliest), Rule 8.104 will
control the time for filing the motion if it will
affect the time to appeal from the underlying judgment.
An order granting a motion to vacate or
set aside operates to vacate the underlying
judgment. Once a judgment is vacated, it
ceases to exist, and there is no appealable
order.53 Moreover, parties cannot appeal from
a vacated judgment. However, if, upon reconsideration of the motion to vacate, the trial
court reverses itself and denies the set aside,
the effect is to reinstate the judgment, and the
appellate clock begins anew. The clock begins
from the date the judgment is reinstated pursuant to entry of the order denying the motion
denial of the motion by operation of law, or
3) 180 days after entry of judgment.55 The
order denying the motion for JNOV is itself
separately appealable,56 and Rule 8.104 governs the time to appeal from that order.57
Motions for JNOV and for a new trial can
be filed in tandem. Indeed, in 1961, the Code
of Civil Procedure was amended to synchronize the times for filing and ruling on the
two motions to eliminate the requirement
that aggrieved litigants elect between the
two remedies. But the motions are not the
same,58 and ultimately they can lead to different paths and may be guided by different
timetables.
The filing of a motion for JNOV does
not extend the time within which to file a
motion for new trial, but the trial court may
not rule on the JNOV motion until the time
to file a motion for new trial has expired.59
The power of the court to rule on the motion
Los Angeles Lawyer March 2010 29
for JNOV does not extend beyond the last
date on which the court has the power to rule
on a motion for new trial—a time set by
Code of Civil Procedure Section 660. If the
court has not ruled on the motion for JNOV
before the date on which it loses the power
to rule, the motion will be deemed denied by
operation of law.60 This date is critical to
determining the time within which to appeal
from the ruling on the motion. A party may
appeal directly from an order denying a
motion for JNOV; the time to appeal is governed by Rule 8.104.61
If a party files a motion for JNOV and a
motion for new trial, and the trial court denies
both, the party may appeal from the underlying judgment and from the ruling on the
motion for JNOV.62 The time within which to
appeal from the judgment is governed by Rule
8.104, as affected by Rule 8.108(b), and the
time within which to appeal from the order
denying the motion for JNOV also is governed
by Rule 8.104, as dictated by Rule 8.108(d)(2).
If it appears to the court of appeal that the
motion for JNOV was wrongly denied, the
appellate court may order that the judgment
be entered either through its review of the
underlying judgment or its review of the ruling on the motion for JNOV.63
If a party files a motion for JNOV and a
motion for new trial, and the motion for new
trial is granted but the motion for JNOV is
denied, the party seeking the JNOV may appeal
directly from the order denying the motion for
JNOV.64 If the court grants both the motion
for JNOV (or on its own motion directs entry
of a JNOV) and the motion for new trial, the
order granting a new trial will be effective
only if, on appeal, the judgment is reversed and
the order granting a new trial is not appealed
or, if appealed, is affirmed.65 Thus, when a
party is aggrieved by the granting of motions
for JNOV and a new trial, it behooves that
party to appeal from both orders.
If a party files only a motion for JNOV and
does not file a motion for new trial, the time
for the court to rule on the motion for JNOV
will be the earliest of 60 days from the mailing of the judgment or notice of entry of judgment by the clerk or 60 days from service of
the triggering document by a party, as outlined
in Code of Civil Procedure Section 660.66
The filing of a motion for JNOV will not be
treated as the equivalent of a notice of intention to move for a new trial for the purposes
of calculating the time within which the trial
court must rule on the motion for JNOV.67 A
denial by operation of law may be critical to
determining the time within which to appeal
from a ruling on a motion for JNOV, so correctly calculating the length of the trial court’s
jurisdiction to act is imperative.
Motion for Reconsideration. Rule 8.108(e)
extends the time to appeal when a party
30 Los Angeles Lawyer March 2010
serves and files a valid motion for reconsideration under Code of Civil Procedure Section
1008(a). This extension of time to appeal
specifically does not apply to a motion for
reconsideration brought on the court’s own
motion pursuant to Code of Civil Procedure
Section 1008(d).68 Rule 8.108(e)—which
became effective January 1, 2002—resolved
the split of authority on whether a motion for
reconsideration would extend the time within
which to file the notice of appeal.69 The rule
extends the time but only upon the filing of
a valid motion for reconsideration.
A motion for reconsideration is not valid
if it is filed after the final judgment is signed
because entry of a judgment divests the trial
court of the power to rule on the motion.70
After the judgment is entered, if the court
does rule on the motion to reconsider, its
ruling will not operate to extend the time
within which to appeal.71 Even if the court
believes itself empowered to rule on the
motion, its beliefs or findings cannot extend
the time to appeal.72
Under some circumstances showing
“extremely good cause,” a motion for reconsideration will be construed as a motion for
new trial, which may be filed after entry of
judgment.73 In one case, the court treated a
motion for reconsideration as a motion for
new trial because the court itself had suggested
that such a procedure would be appropriate.74
In another case, which involved earthquakeinsurance coverage, the trial court granted a
demurrer on several grounds, including the
statute of limitations, notwithstanding that a
law extending the statute of limitations on
earthquake-related suits was awaiting the
governor’s signature. The court invited the
plaintiff to file a motion for reconsideration
once the bill was signed. In fact, the bill was
signed one day after the hearing on the defendant insurance company’s demurrer. The
plaintiff’s motion, titled a motion for reconsideration, was truly one for a new trial.
In the motion she requested that her matter be restored to the court’s trial calendar and
argued error in law by the trial court regarding the statute of limitations.75 The court of
appeal believed that the plaintiff either would
have brought the correct motion or would
have appealed from an unfavorable ruling on
the demurrer had the court not invited a
motion for reconsideration and, thus, treated
her motion as one for a new trial.76 Such circumstances are very limited, and generally
counsel are held to the labels they attach to
their motions and to the remedies they elect.77
Cross-Appeal. Under Rule 8.108(f), if a
party files a timely notice of appeal, the time
for any other party to appeal from the same
judgment or order is extended until 20 days
after the superior court clerk mails notification of the first appeal. However, this exten-
sion only applies when the first appeal is
timely. Thus, if the first appeal is untimely, it
cannot operate to create a 20-day period
within which to file a cross-appeal.78
The Branner case is a cautionary tale.
Appellant Branner miscalculated his time to
appeal—he relied on an invalid motion to
reconsider to extend his time to appeal. The
respondents filed their notice of cross-appeal
within 20 days of Branner’s notice of appeal,
but the cross-appeal was also untimely. The
time to appeal for all parties began from mailing or service of the appealable order. As the
time to appeal could not be extended by an
invalid motion for reconsideration, so the time
to cross-appeal could not be extended by an
invalid—that is, untimely—notice of appeal.79
The right to appeal is entirely statutory,
and the time to appeal is strictly controlled by
court rules. A late filing bars entry into the
court of appeal. It prevents the court from
exercising jurisdiction—either to give relief
from the error or to address the merits of the
case. Few other deadlines will cause counsel
to sit for long hours with worksheets and
calendars to determine the correct final date
for filing—and few other missed deadlines will
be so utterly irredeemable.
■
1 Adoption of Alexander S., 44 Cal. 3d 857, 864
(1988).
2 Ramon v. Aerospace Corp., 50 Cal. App. 4th 1233,
1239 (1996).
3 CAL. R. CT. 8.104(b); People v. Lyons, 178 Cal. App.
4th 1355, 1360 (2009). The only exception is when the
court is closed due to a natural disaster. CAL. R. CT.
8.66. See also In re Hanley’s Estate, 23 Cal. 2d 120,
122 (1943).
4 Hanley’s Estate, 23 Cal. 2d at 122; see also Hollister
Convalescent Hosp. v. Rico, 15 Cal. 3d 660 (1975).
The dissent in Hanley’s Estate pointed out that a
rigid rule against late filings would preclude any remedy if the messenger taking the notice of appeal to the
court clerk’s office were kidnapped or if “the courthouse and all its occupants were destroyed by…earthquake.” 23 Cal. 2d at 127 (J. Carter, dissenting).
How prescient. After the Northridge earthquake of
1994, when courthouses—and clerk’s offices—in Los
Angeles closed down, the Judicial Council modified
the California Rules of Court to extend the time to
file a notice of appeal in the event of a natural disaster.
See CAL R. CT. 8.66.
5 All further references to rules are to the California
Rules of Court.
6 Adaimy v. Ruhl, 160 Cal. App. 4th 583, 588 (2008);
Alan v. American Honda Motor Co., Inc., 40 Cal.
4th 894, 903 (2007).
7 The word “judgment” includes any judgment or
appealable order. CAL. R. CT. 8.10(4), 8.104(f).
8 Ramon v. Aerospace Corp., 50 Cal. App. 4th 1233,
1238-39 (1996); see also Casado v. Sedgwick, Detert,
Moran & Arnold, 22 Cal. App. 4th 1284, 1285 (1994).
9 Moghaddam v. Bone, 142 Cal. App. 4th 283, 289
(2006).
10 Id. at 288.
11 Glasser v. Glasser, 64 Cal. App. 4th 1004, 1010
(1998).
12 Moghaddam, 142 Cal. App. 4th at 288.
13 20th Century Ins. Co. v. Superior Court (Ahles), 90
Cal. App. 4th 1247, 1262 (2001).
14
Adaimy v. Ruhl, 160 Cal. App. 4th 583, 586-87
(2008).
15 Casado v. Sedgwick, Detert, Moran & Arnold, 22
Cal. App. 4th 1284, 1286 (1994).
16 CAL. R. CT. 8.104(a)(1), (2); Hughey v. City of
Hayward, 24 Cal. App. 4th 206, 210 (1994); Cuenllas
v. VRL Int’l, Ltd., 92 Cal. App. 4th 1050, 1054
(2001).
17 Alan v. American Honda Motor Co., Inc., 40 Cal.
4th 894, 905 (2007) (internal punctuation omitted); see
Bi-Coastal Payroll Servs., Inc. v. California Ins.
Guarantee Ass’n, 174 Cal. App. 4th 579, 586 (2009).
18 Bi-Coastal Payroll Servs., Inc., 174 Cal. App. 4th at
586.
19 Sunset Millennium Assocs., LLC v. Le Songe, LLC,
LHO Grafton Hotel, L.P., 138 Cal. App. 4th 256,
260 (2006).
20 Id.
21 Insyst, Ltd. v. Applied Materials, 170 Cal. App. 4th
1129, 1135 (2009).
22 For facsimile service, see CODE CIV. PROC. §1013(e);
CAL. R. CT. 2.306(a)(1); e-mail service, see CODE CIV.
PROC. §1010.6(a)(6), CAL. R. CT. 2.260(a)(1); Insyst,
Ltd., 170 Cal. App. 4th at 1139. See also Benjamin G.
Shatz, E-Notice Something?, Focus Column, L.A.
DAILY J., Feb. 27, 2009.
23 Insyst, Ltd., 170 Cal. App. 4th at 1140.
24 Ten Eyck v. Industrial Forklifts, 216 Cal. App. 3d
540, 544 (1989).
25 See CAL. R. CT. 8.104(d)(1); Filipescu v. California
Hous. Fin. Agency, 41 Cal. App. 4th 738, 741 (1995).
26 CAL. R. CT. 8.104(d)(2); Hughey v. City of Hayward,
24 Cal. App. 4th 206, 209 (1994).
27 Cuenllas v. VRL Int’l, Ltd., 92 Cal. App. 4th 1050,
1053-54 (2001); Hughey, 24 Cal. App. 4th at 209-10.
28 Cuenllas, 92 Cal. App. 4th at 1053.
29 CAL. R. CT. 8.104(d)(3).
30 Adoption of Alexander S., 44 Cal. 3d 857, 865
(1988).
31 CAL. R. CT. 8.104(e)(2).
32 Matera v. McLeod, 145 Cal. App. 4th 44, 59 (2006);
Davaloo v. State Farm Ins. Co., 135 Cal. App. 4th 409,
413, n.7 (2005).
33 First Am. Title Co. v. Mirzaian, 108 Cal. App. 4th
956, 958, 960 (2003).
34 Id. at 958.
35 Matera, 145 Cal. App. 4th at 57; Rolen v. Rhine, 117
Cal. App. 3d 23, 26 (1981).
36 Branner v. Regents of the Univ. of Cal., 175 Cal. App.
4th 1043, 1047, 1048 (2009); Payne v. Rader, 167 Cal.
App. 4th 1569, 1574-75 (2008).
37 Branner, 175 Cal. App. 4th at 1048-49.
38 Id.
39 Payne, 167 Cal. App. 4th at 1574-75.
40 Ramon v. Aerospace Corp., 50 Cal. App. 4th 1233,
1236-37 (1996).
41 Wenzoski v. Central Banking Sys., Inc., 43 Cal. 3d
539, 542 (1987).
42 Ten Eyck v. Industrial Forklifts, 216 Cal. App. 3d
540, 545-46 (1989).
43 Rolen v. Rhine, 117 Cal. App. 3d 23, 26 (1981).
44 Adaimy v. Ruhl, 160 Cal. App. 4th 583, 588 (2008).
45 CAL. R. CT. 8.108(g).
46 Adaimy, 160 Cal. App. 4th at 586.
47 CAL. R. CT. 8.108(b)(1).
48 CAL. R. CT. 8.108(b)(2).
49 Westrec Marina Mgmt. v. Jardine Ins. Brokers
Orange County, Inc., 85 Cal. App. 4th 1042, 1049
(2000).
50 Id. at 1048.
51 See id. at 1048-49.
52 Marriage of Eben-King & King, 80 Cal. App. 4th 92,
108, 109, 115 (2000).
53 Matera v. McLeod, 145 Cal. App. 4th 44, 57-58
(2006).
54 Id. at 58-59.
55 CAL.
R. CT. 8.108(d)(1).
CIV. PROC. §904.1(a)(4).
57 CAL. R. CT. 8.108(d)(2). The time to appeal from the
order denying the motion for JNOV is subject to extension by the filing of a valid motion for reconsideration.
CAL. R. CT. 8.108(d)(2).
58 See Pratt v. Vencor, Inc., 105 Cal. App. 4th 905
(2003).
59 CODE CIV. PROC. §629.
60 Id.
61 CAL. R. CT. 8.108(d)(2).
62 CODE CIV. PROC. §§629, 904.1(a)(4).
63 CODE CIV. PROC. §629.
64 CODE CIV. PROC. §§629, 904.1(a)(4).
65 CODE CIV. PROC. §629.
66 See CODE CIV. PROC. §§629, 660; Pratt v. Vencor,
Inc., 105 Cal. App. 4th 905, 910 (2003).
67 Pratt, 105 Cal. App. 4th at 911.
68 Advisory Committee Comment to C AL . R C T .
56 CODE
8.108(e).
69 Safeco Ins. Co. of Ill. v. Architectural Facades
Unlimited, Inc., 134 Cal. App. 4th 1477, 1480-81
(2005).
70 Id. at 1482; Ramon v. Aerospace Corp., 50 Cal. App.
4th 1233, 1236, 1238 (1996).
71 Ramon, 50 Cal. App. 4th at 1236; Ten Eyck v.
Industrial Forklifts, 216 Cal. App. 3d 540, 545 (1989).
72 Ten Eyck, 216 Cal. App. 3d at 546.
73 20th Century Ins. Co. v. Superior Court (Ahles), 90
Cal. App. 4th 1247, 1259-60 (2001).
74 Passavanti v. Williams, 225 Cal. App. 3d 1602
(1990).
75 20th Century Ins. Co., 90 Cal. App. 4th at 1261.
76 Id.
77 Id. at 1260.
78 Branner v. Regents of the Univ. of Cal., 175 Cal. App.
4th 1043, 1050 (2009).
79 Id.
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Los Angeles Lawyer March 2010 31
MCLE ARTICLE AND SELF-ASSESSMENT TEST
By reading this article and answering the accompanying test questions, you can earn one MCLE legal ethics credit.
To apply for credit, please follow the instructions on the test answer sheet on page 35.
by John W. Amberg and Jon L. Rewinski
2009
Ethics
Roundup
Last year’s economic turmoil brought
legal ethics questions again to the fore
LEGAL ETHICS faced considerable pressure in 2009 as the economy remained weak.1
Superior courts furloughed employees and
closed their doors once a month,2 and law
firm layoffs continued. U.S. District Judge
Stephen G. Larson resigned his lifetime
appointment, complaining his family could
not live on his federal salary.3 Irked by leaks
over his appointment to the California Court
of Appeal of a political insider who had not
practiced law in 21 years and a State Bar
employee embezzlement scandal, Governor
Arnold Schwarzenegger vetoed the State Bar
dues bill (before eventually signing another
version of it in January 2010).4
Reflecting the tidal wave of home foreclosures and related lawsuits, the State Bar’s
Committee on Professional Responsibility
and Conduct (COPRAC) issued an Ethics
Alert, warning California lawyers that ethics
rules prohibit paying referral fees or splitting
attorney’s fees with foreclosure consultants
and filing lawsuits simply to delay or impede
foreclosure sales.5 By year-end, the State Bar’s
loan modification task force had obtained
32 Los Angeles Lawyer March 2010
resignations from or placed on involuntary
inactive status 14 lawyers, and state Attorney
General Jerry Brown and the Justice Department were investigating and suing lawyers for
loan modification scams.6
Major federal criminal cases collapsed
due to prosecutorial misconduct. U.S.
Attorney General Eric H. Holder Jr. agreed
to set aside former Senator Ted Stevens’s
guilty verdict on corruption charges and dismissed the indictment due to the government’s withholding of exculpatory evidence
and misrepresentations to the court.7 In the
case involving Broadcom Corporation and
John W. Amberg is a partner in the Los Angeles
office of Bryan Cave LLP, and Jon L. Rewinski is a
partner in the Los Angeles office of Locke Lord
Bissell & Liddell LLP. Both are former chairs and
current members of the Los Angeles County Bar
Association’s Professional Responsibility and
Ethics Committee. Amberg is also a former chair
and Rewinski is a current member of the State
Bar of California’s Committee on Professional Responsibility and Conduct.
allegations of stock option backdating,
Central District Judge Cormac J. Carney
denounced the prosecutors’ “shameful” intimidation of witnesses, which he said “distorted
the truth-finding process and compromised
the integrity of the trial.” The judge dismissed charges against one of Broadcom’s
cofounders as well as a former chief financial
officer, set aside another cofounder’s felony
guilty plea, and signaled his intention to dismiss the SEC’s civil fraud complaint.8
Efforts to disbar or discipline former Bush
Administration lawyers for excusing torture
were met with skepticism. Ninth Circuit
Judge Jay Bybee even set up a legal defense
fund.9 Northern District Judge Jeffrey S.
White, however, refused to dismiss a torture
victim’s lawsuit against John Yoo for crafting
policy that allegedly deprived the plaintiff of
his constitutional rights. “Like any other
government official, government lawyers are
responsible for the foreseeable consequences
of their conduct,” the court held.10
Last year the U.S. Supreme Court made its
own foray into legal ethics issues. In Mohawk
Industries, Inc. v. Carpenter,11 the Court held
that discovery orders compelling the production of information claimed to be privileged do not qualify for immediate appeal
under the collateral order doctrine.
Colleagues and friends mourned the death
of lawyer Jeffrey A. Tidus, who was shot by
an unknown assailant outside his Rolling
Hills Estates home on December 7, 2009. A
member of COPRAC and the Los Angeles
County Bar Association’s Professional
Responsibility and Ethics Committee (PREC),
Tidus left a wife and daughter and a legacy
of selfless service to the bar and the integrity
of the profession.
Attorney-Client Privilege
The attorney-client privilege was the subject
of significant decisions in 2009. In Costco
Wholesale Corporation v. Superior Court,12
the California Supreme Court granted review
after the Los Angeles Superior Court ordered
the production of portions of an opinion letter from the Sheppard Mullin law firm to its
client Costco, and the Second District Court
of Appeal denied a petition for a writ of
mandate to block production. At issue was
whether statements by employees interviewed
by a Sheppard Mullin partner and reflected
in her opinion letter were confidential and
protected by the attorney-client privilege.
The superior court ordered Costco to submit
its lawyer’s letter for in camera review by a
discovery referee, who concluded the
employee statements were not privileged
because they were obtained by the lawyer
“in her role as fact-finder rather than attorney, a role that could have been performed by
a non-attorney.”13 The court of appeal denied
Costco’s writ petition, ruling narrowly that it
had not shown that production of the
allegedly privileged letter would cause
irreparable harm.14
The case settled, but the supreme court
retained jurisdiction because the case raised
issues of continuing public importance. It
unanimously reversed the court of appeal,
holding that the risk of the privilege possibly
resulting in the suppression of relevant evidence was outweighed by the importance of
preserving confidentiality in the attorneyclient relationship.15 The court ruled that the
privilege attached to the opinion letter in its
entirety, “irrespective of whether it includes
unprivileged material,”16 and that Evidence
Code Section 915(a) bars in camera review of
documents claimed to be privileged.
Moreover, it held that a party seeking extraordinary relief from a discovery order that
wrongfully invaded the attorney-client relationship need not establish harm from disclosure.17
Highlighting differences between California and federal law, the Ninth Circuit
Court of Appeals decided an expedited interlocutory appeal by the government in United
States v. Ruehle.18 During the prosecution
of Broadcom’s former chief financial officer,
William J. Ruehle, for his role in backdating
stock options that resulted in a $2.2 billion
restatement of earnings, the government
sought to use statements made by the defendant to attorneys at Irell & Manella. The
Irell lawyers had shared those statements
with outside auditors at Ernst & Young and
the FBI. Ruehle objected that he had an attorney-client relationship with Irell, which represented Broadcom and its officers in various
lawsuits, and therefore his statements were
privileged.
Following a three-day hearing, the district court judge ruled that Ruehle had a reasonable belief that Irell represented him.
According to the court, Ruehle had never
given informed written consent to Irell’s dual
representation of him and Broadcom or the
disclosure of privileged information to third
parties, including the government. The court
suppressed Ruehle’s statements and referred
Irell to the State Bar for possible discipline
(though the State Bar only disciplines individual members of the bar, not law firms).19
The Ninth Circuit reversed, finding that
the district court erred in applying California’s
liberal presumption that all communications
during an attorney-client relationship are
privileged. Instead, the district court should
have followed the federal common law’s strict
view of the privilege, which obliges the party
asserting the privilege to segregate privileged
information from nonprivileged information.20 In contrast to the California Supreme
Court in Costco, the Ninth Circuit stated
that since the privilege is “an obstacle to the
investigation of the truth,…it ought to be
strictly construed within the narrowest possible limits consistent with the logic of its
principle.”21
With the burden on Ruehle, the Ninth
Circuit held that he failed to prove his statements were made in confidence, given that
Ruehle knew the fruits of Irell’s inquiries
would be disclosed to the company’s outside
auditors.22 Though the district court subsequently dismissed the criminal charges against
Ruehle in December 2009, the case serves as
a warning regarding the ethical pitfalls for
lawyers who jointly represent a company
and its officers and fail to obtain proper
informed written consent or to advise the
officers of their need for independent counsel.
Conflicts of Interest
Conflicts continue to hound and at times
confound lawyers. Last year courts analyzed
conflicts in a variety of situations. As these
cases illustrate, lawyers who disregard conflicts risk disqualification, loss of fees, and
malpractice liability.
In PrediWave Corporation v. Simpson
Thacher & Bartlett LLP,23 the Sixth District
Court of Appeal allowed PrediWave to proceed with a malpractice claim against its former counsel, Simpson Thacher. After representing PrediWave in transactional work,
Simpson Thacher jointly represented the company and its CEO in heated litigation by a
PrediWave shareholder alleging that the CEO
was looting the company. Simpson Thacher
also opposed efforts by directors aligned with
the complaining shareholder to investigate the
allegations. Over the next 13 months,
Simpson Thacher collected about $10 million
in legal fees. In the end, the complaining
shareholder obtained a judgment against
PrediWave and the CEO for $2.8 billion.
The CEO fled the country, PrediWave filed for
bankruptcy, and Simpson Thacher withdrew.
When the dust settled, those aligned with
the complaining shareholder controlled
PrediWave. Under new management,
PrediWave sued Simpson Thacher for legal
malpractice, breach of fiduciary duty, constructive fraud, and unfair business practices.
PrediWave alleged that the firm breached its
ethical duties by representing two clients—
PrediWave and its CEO—that had conflicting
interests and by taking steps in the litigation
(such as obstructing the efforts of the new
directors to investigate their concerns about
looting) that were deleterious to PrediWave.
Simpson Thacher moved to dismiss the complaint under the anti-SLAPP statute.24 The
court of appeal concluded that the action
should be permitted to move forward, reasoning that the anti-SLAPP statute cannot
be used to prevent a client from suing a
Los Angeles Lawyer March 2010 33
lawyer for acts ostensibly done in furtherance
of the client’s rights.25
Similarly, in United States Fire Insurance
Company v. Sheppard, Mullin, Richter &
Hampton,26 Sheppard Mullin attempted,
without success, to use the anti-SLAPP statute
to dismiss a lawsuit filed by a former client
claiming that Sheppard Mullin accepted an
engagement notwithstanding a conflict of
interest. The former client, U.S. Fire, alleged
that Sheppard Mullin had represented it on
insurance coverage issues regarding claims
asserted against an insured arising from
asbestos-related bodily injury actions. In subsequent litigation, U.S. Fire filed a declaratory
relief action against a different insured concerning the existence and scope of U.S. Fire’s
duty to defend it in other asbestos-related
bodily injury actions. In this latter litigation,
Sheppard Mullin represented an informal
committee of asbestos creditors and two law
firms providing legal services to creditors in
their asbestos lawsuits against U.S. Fire’s
insured. U.S. Fire objected, contending that
Sheppard Mullin had a disqualifying conflict
because Sheppard Mullin’s new clients were
adverse to U.S. Fire and the two engagements
were substantially related.
U.S. Fire sued to enjoin Sheppard Mullin
from representing any party in the subsequent litigation. Invoking the anti-SLAPP
statute, Sheppard Mullin moved to dismiss
U.S. Fire’s complaint, arguing that the firm’s
representation of parties in the subsequent litigation involved protected “petitioning activity,” and U.S. Fire could not demonstrate a
probability of prevailing on the merits of its
claims.
The First District Court of Appeal held
that U.S Fire could go forward with its action.
The principal thrust of the alleged misconduct
was the acceptance by Sheppard Mullin of the
representation adverse to U.S. Fire, not protected petitioning activity that the firm undertook on behalf of its new clients.27 Thus,
Sheppard Mullin could not invoke the protections of the anti-SLAPP statute. The court
of appeal, however, did not decide the conflicts issue, which was left for the trial court.
A conflict between named plaintiffs and
members of a class created problems for
plaintiffs’ counsel in Rodriguez v. West Publishing Corporation.28 Seven named plaintiffs filed a putative class action against the
providers of bar review courses for violations of the antitrust laws. Five of the named
plaintiffs had incentive agreements through
which their lawyers agreed to pay them compensation tied to the dollar amount of any
settlement. Two of the plaintiffs, represented
by separate counsel, did not. The district
court certified a class with all seven as class
representatives and appointed both sets of
counsel as class counsel. Rather than dis34 Los Angeles Lawyer March 2010
closing the existence of the incentive agreements during the class certification process,
class counsel instead did so for the first time
during proceedings to approve a settlement.
The district court approved the settlement
but denied the plaintiffs’ motion for compensation based on the incentive agreements.
The Ninth Circuit agreed that the incentive agreements “tied the promised request
to the ultimate recovery and in so doing, put
class counsel and the contracting class representatives into a conflict position from
day one….They created an unacceptable
disconnect between the interests of the contracting representatives and class counsel,
on the one hand, and members of the class
on the other. We expect those interests to be
congruent.”29 The court chastised plaintiffs’
counsel for not disclosing the existence of
the incentive agreements during the class
certification process. Although affirming
approval of the settlement (because two of
the class representatives did not have conflicts created by the incentive agreements),
the court reversed the award of attorney’s
fees to plaintiffs’ counsel and remanded that
issue to the district court.
May a law firm that drafted a will represent one beneficiary in probate proceedings
adverse to other beneficiaries? The Fifth
District Court of Appeal addressed this issue
in Baker Manock & Jensen v. Superior
Court.30 The Baker Manock firm drafted a
will for an elderly woman who left a portion
of her estate to her husband and the remainder to a trust for the benefit of two of her sons,
who were also named coexecutors. The
will and the trust omitted the mother’s two
other sons, but her husband had a will designating one of those sons as his executor.
After the woman died, the two coexecutors
of her will instituted probate proceedings
with the Baker Manock firm representing
one of them. While the mother’s will was in
probate, her husband died. As a result, one
of the two sons omitted from the mother’s
will and trust, as the executor of the father’s
will, became a party to the probate proceedings over the mother’s will.
The son serving as executor of the father’s
will moved to disqualify Baker Manock.
Granting the motion, the trial court reasoned
that it was inappropriate for Baker Manock
to represent one beneficiary (the coexecutor)
in proceedings against another beneficiary
(the deceased husband) regarding the estate
plan it drafted. According to the trial court,
Baker Manock had an active and acute conflict of interest.
The Fifth District Court of Appeal
reversed. It reasoned that even though Baker
Manock, in drafting the will for its client
(the mother), may have owed certain duties
of care to its client’s three named beneficia-
ries (the husband and two sons), Baker
Manock did not represent these beneficiaries for purposes of a conflicts analysis:
[T]he potential for negligence liability—a contingency that may never arise
in a particular case and certainly not yet
implicated in the present case—in no
way corresponds to or implicates the
duties of confidentiality and loyalty that
are present in any instance of an attorney-client relationship.…[I]t is incorrect to conclude that potential negligence liability somehow brings into the
attorney-client relationship those who
are merely third-party beneficiaries of
the contract to draft a will.31
Baker Manock should not have been disqualified.
Confidentiality
Generally, only a person who has or had an
attorney-client relationship with a lawyer
has standing, under appropriate circumstances, to move to disqualify the lawyer. In
2007, the supreme court created an exception
to this rule in Rico v. Mitsubishi.32 If a lawyer
improperly obtains and uses confidential
information belonging to a nonclient, the
nonclient has standing to disqualify the
lawyer. In 2009, in Meza v. H. Muehlstein &
Company,33 the Second District Court of
Appeal applied this principle in a different
context.
Plaintiff Meza sued several defendants
for injuries sustained from exposure to toxic
chemicals in her workplace. The trial court
entered a case management order that, among
other things, permitted defense counsel to
share confidential information relating to
their common interests without waiving attorney-client privilege and work product protections. After the trial court entered judgment
for the defendants and the plaintiff’s appeal
was pending, the plaintiff’s law firm hired a
lawyer who had represented one of the defendants. The court of appeal reversed, remanding the matter to the trial court. The defendants then moved to disqualify the plaintiff’s
counsel.
In anticipation of the motion, the plaintiff’s law firm had terminated the side-switching lawyer and dismissed the particular defendant he represented. The law firm also had
erected an ethical screen precluding that
lawyer from disclosing any confidential information shared among the defense group. In
opposition to the motion, the plaintiff’s law
firm submitted a declaration by the lawyer
verifying that he had not disclosed any confidential information to the plaintiff’s law
firm. Nevertheless, the trial court granted
the disqualification motion.
Finding no abuse of discretion, the court
of appeal affirmed. The court rejected the
MCLE Test No. 190
MCLE Answer Sheet #190
The Los Angeles County Bar Association certifies that this activity has been approved for Minimum
Continuing Legal Education legal ethics credit by the State Bar of California in the amount of 1 hour.
Name
1. Federal court orders compelling the production of
attorney-client privileged documents are not immediately appealable under the collateral order doctrine.
True.
False.
2. In California, the attorney-client privilege attaches
to the whole document, even if it contains unprivileged material.
True.
False.
3. A California court may conduct an in camera inspection of a document claimed to be privileged.
True.
False.
4. A party filing a writ petition to block production of
a privileged document must prove harm from the disclosure.
True.
False.
5. In the Ninth Circuit, the attorney-client privilege is
strictly construed.
True.
False.
6. The anti-SLAPP statute shields a law firm from a
malpractice claim for acts done in furtherance of the
client’s rights.
True.
False.
7. A lawyer who drafts a will has an attorney-client
relationship with the beneficiaries for conflict-of-interest purposes.
True.
False.
8. Only a person who has an attorney-client relationship with a lawyer has standing to disqualify the lawyer.
True.
False.
9. A lawyer for a party to an arbitration is not subject
to discipline by the panel conducting the arbitration.
True.
False.
10. A bankruptcy court has authority to suspend a
lawyer from practice in that court if it finds the lawyer
engaged in bad faith and willful misconduct.
True.
False.
11. After the court certifies the class in a class action,
a lawyer may not contact class members whom the
lawyer does not represent.
True.
False.
12. Violations of the Rules of Professional Conduct are
the equivalent of violating a court order.
True.
False.
13. Filing a false State Bar complaint is protected
under the anti-SLAPP statute.
True.
False.
14. Lawyers breach their duty to uphold the law by
changing their votes during deliberations to avoid further jury duty.
True.
False.
15. A lawyer may include a Civil Code Section 1542
release in a settlement agreement with a client.
True.
False.
16. Clients waive their right to arbitration under the
Mandatory Fee Arbitration Act (MFAA) if they seek affirmative relief from the lawyer.
True.
False.
17. Once MFAA arbitration is completed, a lawyer can
enforce a predispute agreement with the client to submit all disputes to binding arbitration.
True.
False.
18. An attorney lien has priority over a medical lien,
even if the latter is first in time.
True.
False.
19. Attorneys who successfully represent themselves
may recover fees incurred by other lawyers in their
firms who also worked on the case.
True.
False.
20. It is unethical for a defense lawyer to make a settlement offer conditioned on a waiver of the plaintiff’s
statutory right to attorney’s fees.
True.
False.
2009 ETHICS ROUNDUP
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ANSWERS
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1.
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■ False
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■ True
■ False
6.
■ True
■ False
7.
■ True
■ False
8.
■ True
■ False
9.
■ True
■ False
10.
■ True
■ False
11.
■ True
■ False
12.
■ True
■ False
13.
■ True
■ False
14.
■ True
■ False
15.
■ True
■ False
16.
■ True
■ False
17.
■ True
■ False
18.
■ True
■ False
19.
■ True
■ False
20.
■ True
■ False
Los Angeles Lawyer March 2010 35
plaintiff’s argument that members of the
defense group lacked standing to file the
motion because although the side-switching
lawyer had never represented them, he was
privy to their confidential information. In
addition, the court rejected the plaintiff’s
contention that an effective ethical screen
could prevent disqualification. Each member of the firm was presumed to have imputed
knowledge of the defense group’s confidential
information. Finally, the court confirmed that
the defendants had not waived the privilege
by sharing confidential information because
Bak v. MCL Financial Group,35 a lawyer
appearing before an arbitration panel of the
Financial Industry Regulatory Authority
(FINRA) argued that the panel exceeded its
authority by sanctioning him. Attorney
Theodore C. Peters represented defendant
MCL Financial Group in a dispute by former
employees over commissions. During prehearing document production, the plaintiffs
inadvertently produced 112 pages of privileged documents to the defendants. After the
plaintiffs demanded immediate return of the
privileged documents, the defendants did so,
conflicts of interest: While serving as the
debtor’s lawyer, he also acted as a loan broker and conditioned her new loan on being
hired as the real estate broker when she sold
her house. The bankruptcy court ordered
Price to disgorge his $1,500 fee and suspended him from practice in the bankruptcy
court of the Northern District of California
for three months. The Bankruptcy Appellate
Panel upheld the bankruptcy court’s authority to sanction Price, and the Ninth Circuit
affirmed.
On appeal, Price challenged the bank-
The court of appeals explained that a lawyer
disciplinary proceeding is not a criminal
proceeding, and suspension or disbarment is
not ordered for the purpose of punishment
but to maintain the integrity of the courts and
the profession.
the disclosures related to their common interests, they had a reasonable expectation of
confidentiality, and the disclosures were reasonably necessary for the accomplishment
of their purpose.
In Cassel v. Superior Court,34 the Second
District Court of Appeal analyzed the extent
of protection afforded confidential communications made during mediation. Evidence
Code Section 1119 provides that oral and
written communications made “for the purpose of, in the course of, or pursuant to, a
mediation” are inadmissible. The plaintiff,
unhappy with a $1.25 million settlement
reached as a result of a mediation, sued his
former law firm for legal malpractice. The
firm sought to exclude from evidence private communications that its lawyers had
with the plaintiff on the eve of the mediation.
The trial court granted the motion in limine,
but the court of appeal issued a writ of mandate instructing the trial court to vacate its ruling. In a case of first impression, the majority concluded that the communications that
the firm sought to exclude were not between
disputants within the meaning of Evidence
Code Section 1119, because the petitioner
and his lawyers were the same party in the
mediation.
Sanctions
Lawyers challenged the authority of tribunals
to sanction them, with varying results. In
36 Los Angeles Lawyer March 2010
but not before Peters had reviewed the documents, copied them, and sent copies to a
FINRA staff attorney. The panel ordered
Peters to pay $7,500 as sanctions for copying the privileged documents and included the
sanctions in the award confirmed by the superior court.36
On appeal, Peters argued unsuccessfully
that because he was not a party to the arbitration agreement, the arbitration panel lacked
authority to sanction him. The Fourth District
Court of Appeal held that by voluntarily
appearing for the defendants in the proceedings, conducting discovery, and responding
to the plaintiffs’ privilege claims, he had subjected himself to the panel’s authority.37 The
court affirmed the sanctions, noting that
under State Compensation Fund v. WPS,
Inc.,38 Peters should have sought guidance
from the arbitration panel rather than unilaterally copying the material and sending it
to FINRA.39
In a case of first impression, In the Matter
of Lehtinen,40 the Ninth Circuit held that a
bankruptcy court has the inherent authority
to sanction a lawyer by suspending him
from practice in that court. The bankruptcy
court sanctioned Jim Price, the lawyer for the
chapter 13 debtor, after he failed to attend
the meeting of creditors or the confirmation
hearing and falsely informed his client that
her case had been dismissed when the court
had confirmed the plan. Price had multiple
ruptcy court’s authority and argued he was
denied due process because the sanctions
were punitive. The Ninth Circuit held a bankruptcy court has inherent power to sanction
a broad range of conduct not limited to
violations of court orders if the court makes
an explicit finding of bad faith and willful
misconduct. Although the bankruptcy court
did not explicitly state that Price’s conduct
was in bad faith or willful, the Ninth Circuit
concluded that it “impliedly did so” by
stating that his conduct was “outrageously
improper, unprofessional and unethical
under any reading of California’s ethical
standards for attorneys.”41 The court of
appeals explained that a lawyer disciplinary
proceeding is not a criminal proceeding, and
suspension or disbarment is not ordered for
the purpose of punishment but to maintain the
integrity of the courts and the profession.42
The lawyer received notice of the alleged misconduct and the basis for the court’s authority, and thus due process was satisfied.43
In Hernandez v. Vitamin Shoppe Industries, Inc.,44 class action lawyer Jeffrey Spencer
was sanctioned after he wrote to class members he did not represent, urging them to opt
out of a proposed class settlement and join his
parallel class action. Spencer’s actions were in
violation of Rule 2-100 of the Rules of
Professional Conduct, which prohibits contact with a represented party. Superior Court
Judge John A. Sutro Jr. had enjoined Spencer
from further communications with class members. When Judge Sutro was disqualified for
the appearance of probable bias under Code
of Civil Procedure Section 170.1(a)(6), based
on remarks at the sanctions hearing, his
replacement formalized the sanctions and
Spencer appealed, arguing the sanctions were
null and void. The First District Court of
Appeal affirmed the injunctive relief.
The court of appeal held that the disqualified judge’s orders were not null and
void under Code of Civil Procedure Section
170.3(b)(4), which provides that if grounds
for disqualification are first learned or arise
after a judge makes his or her rulings, the rulings will not be set aside even if the judge is
disqualified. Spencer pointed out that Judge
Sutro’s disqualification was based on comments he made before issuing his sanctions
orders, but the appellate court swept aside the
argument, explaining disingenuously that the
finding of bias was prospective only.45 Further,
the court held that Rule 2-100’s “no contact” rule was triggered by the court’s conditional certification of the class, and that
absent class members are “parties” represented by class counsel. Thus the superior
court had the authority to ensure the neutrality and objectivity of the notice to the
class by sanctioning Spencer’s “biased, inflammatory and misleading” letters to the class
members.46
The Fourth District Court of Appeal
reached a different result in Conservatorship
of Becerra.47 The probate court appointed an
attorney to represent the conservatee, the
victim of an industrial accident. After the
appointment, Linda Paquette, a lawyer for the
original trustee, continued to contact the
conservatee without his new attorney’s permission, in violation of Rule 2-100 of the
Rules of Professional Conduct. The court
ordered Paquette to pay $1,000 in sanctions
to the court and attorney’s fees of $2,587
under Code of Civil Procedure Sections 177.5
and 575.2, which authorized sanctions for
violation of a court order or local rule. The
appellate court reversed, because no court
order or local rule was violated.
The court of appeal explained that the
Rules of Professional Conduct are not normally regarded as court orders or local rules
for purposes of awarding monetary sanctions, since trial courts do not have responsibility for enforcing the rules and disciplinary
authority is lodged in the state supreme court,
which has delegated it to the State Bar
Court.48 Although a court order appointed the
attorney for the conservatee, and the
appointed attorney could request that other
lawyers in the case make contact only through
her, violations of that request would violate
Rule 2-100, not a court order. Even if the probate court concluded Paquette had violated
Rule 2-100, this would not be tantamount to
disobeying a court order under the cited
statutes.49
Lawyers Behaving Badly
A lawyer who filed a false State Bar complaint
against his cocounsel could not claim a constitutional right to petition or free speech
because the complaint was an illegal attempt
to extort attorney’s fees from the other lawyer.
This was the ruling in Cohen v. Brown,50 a
dispute between two lawyers over the division
of fees from a personal injury case. Michael
Brown of the California Lawyers Group LLP
induced Arlan A. Cohen to associate into
the case as cocounsel for the plaintiff by lying
about his trial experience, the state of preparation of the case, and the client’s consent to
a division of fees with Cohen. Cohen assumed
the laboring oar, prepared the case for trial,
and obtained a partial settlement at a mediation. When Cohen proposed a new fee-sharing arrangement in recompense for his extra
work, Brown fired him. Cohen served an
attorney’s lien on Brown, defense counsel,
and the defendant’s insurer, but after the rest
of the case settled for $2 million, Brown
informed Cohen that he was not entitled to
any portion of the $800,000 attorney’s fees
because the client had never signed a written
agreement to the division of fees under Rule
2-200 of the Rules of Professional Conduct.51
Adding insult to injury, Brown threatened
to file a complaint with the State Bar if Cohen
did not sign off on the settlement check and
allow all the fees to go to Brown.52 Cohen
offered to sign the check so the client could
be paid if the disputed fees were placed in an
escrow account. Brown refused and filed a falsified State Bar complaint against Cohen in the
name of the client. The State Bar initiated an
inquiry of Cohen, the client sued Brown for
breach of fiduciary duty and conversion, and
Cohen sued Brown for fraud, breach of contract, extortion, and unjust enrichment.
In defense, Brown filed an anti-SLAPP
motion under Code of Civil Procedure Section
425.16, claiming that Cohen’s suit was an
attempt to chill Brown’s exercise of his constitutional right to petition and free speech.
The trial court denied the motion, citing
Flatley v. Mauro53 in holding that the State
Bar complaint was an illegal act of extortion and not a protected activity. The Second
District Court of Appeal affirmed, finding
that Brown had unleashed the State Bar to
make Cohen’s life a living hell unless he
signed the settlement check.54 The appellate
court gave Cohen reason to hope that Brown
would not receive a windfall and that Cohen
could recover his quantum meruit recovery
under Huskinson & Brown v. Wolf.55 Also,
the court noted that it was still possible to fulfill the requirements of Rule 2-200 because the
client (now solidly allied against Brown)
could consent to the fee split anytime before
the actual division of fees.56
In the Matter of Francis T. Fahy involved
the disbarment of a lawyer after he found a
convenient, but unethical, way to cut short his
jury duty.57 The lawyer, Fahy, was serving as
a juror in a medical malpractice case. After
five days of deliberations, the jury was deadlocked, and the court ordered the jury to
return the following week to resume its deliberations. Displaying a misguided dedication
to his law practice, Fahy changed his vote to
break the deadlock and reach a verdict for the
defendant so he could return to his office. The
foreperson reported her concern that jurors
had changed their votes solely to end the
deliberations, but when questioned by the
judge, Fahy stated he had acted consistently
with the court’s instructions and the evidence.
Six weeks later, the plaintiff moved for a new
trial based on jury misconduct and, surprisingly, submitted a sworn declaration from
Fahy in which he stated he had decided to
vote for the defense solely to end deliberations
and return to his practice.58 Confronted with
his declaration in court, Fahy testified that he
was tricked into signing it or that his signature was forged. A new trial was ordered, and
the State Bar filed disciplinary charges against
Fahy.
The State Bar Court found that Fahy
breached his duty under Business and
Professions Code Section 6068(a) to comply
with the law by violating his duties as a civil
trial juror, noting that his vote was decisive
in breaking the jury’s deadlock. His deceit during the judge’s questioning was an act of
moral turpitude and reprehensible conduct by
an attorney under Business and Professions
Code Section 6106. 59 Concluding that
“clients, courts, and the legal profession are
at serious risk of future harm should he be
allowed to continue to practice,” the State Bar
Court recommended Fahy’s disbarment,60
and the supreme court obliged on July 22,
2009.61
Getting Paid
In another difficult economic year, courts,
COPRAC, and PREC gave attorneys new
issues to think about with respect to collecting and splitting fees.
COPRAC, in its Formal Opinion 2009178, analyzed certain ethical duties that arise
when an attorney attempts to settle a fee dispute with his or her client and wishes to
include a Civil Code Section 1542 waiver to
wipe out a potential malpractice claim. The
committee noted that the existence of a fee
dispute alone does not necessarily create a
conflict requiring withdrawal. A decision to
withdraw under Rule 3-700 of the Rules of
Professional Conduct depends on several facLos Angeles Lawyer March 2010 37
tors, including the level of antagonism, the
nature of any other disputes concerning the
attorney’s services, and the degree to which
withdrawal would prejudice the client.
The committee also concluded that it is
ethically permissible to include a Section
1542 waiver in the settlement agreement,
even if the attorney has not withdrawn from
the engagement. However, if the attorney
has not withdrawn, he or she must first 1)
promptly disclose to the client the facts giving rise to any legal malpractice claim, 2)
comply with Rule 3-400(B) of the Rules of
Professional Conduct by advising the client of
the right to seek independent counsel regarding the settlement, 3) give the client an opportunity to do so, 4) advise the client that the
attorney is not representing the client in connection with the fee dispute, and 5) fully disclose to the client the terms of the settlement
in writing, including the effect of the release
and other provisions of the settlement.
The Mandatory Fee Arbitration Act62 permits clients to elect nonbinding arbitration
before a local bar association for their fee disputes with their attorneys. If a client makes
the election, his or her attorney must participate in an MFAA arbitration. Arbitration
under the MFAA is intended to be quick and
inexpensive so that the client need not hire a
new lawyer in connection with the fee dispute.
Clients waive their right to an MFAA arbitration by filing any pleading seeking affirmative relief or a setoff based on alleged malpractice or professional misconduct. MFAA
arbitrations are strictly limited to fee disputes. The Second District Court of Appeal
confirmed this principle last year in Fagelbaum & Heller, LLP v. Smylie.63
The MFAA permits either party to request
a trial de novo within 30 days after the MFAA
arbitration is completed.64 The supreme court
in Aguilar v. Lerner,65 a 2004 decision, held
that an agreement between a client and his
attorney to submit all disputes between them
to binding arbitration was enforceable,
notwithstanding the MFAA, because the client
had failed to elect MFAA arbitration. The
majority opinion left undecided the issue of
whether a client who elects MFAA arbitration
may request a trial de novo after the MFAA
arbitration has concluded when the client
and attorney agreed in their engagement letter to resolve all disputes through binding
arbitration. In 2009, the supreme court
decided this issue in Schatz v. Allen Matkins
Leck Gamble & Mallory LLP.66
The plaintiff, Schatz, retained Allen
Matkins to represent him in a couple of matters. The original engagement memorialized
an agreement to submit any disputes between
them, including fee disputes, to binding arbitration before a retired judge or justice in San
Diego. Schatz disputed a bill of about
38 Los Angeles Lawyer March 2010
$170,000. The parties participated in an
MFAA arbitration that concluded with an
award in favor of Allen Matkins. Schatz
timely requested a trial de novo. At that
point, Allen Matkins petitioned to compel
arbitration in accordance with the arbitration
clause in the parties’ engagement letter.
Following Alternative Systems, Inc. v. Carey,
a 1998 appellate decision,67 the trial court
denied the petition to compel. The court of
appeal affirmed, reasoning that the language
in the MFAA permitting either party to a
“trial after arbitration” means that the parties must thereafter adjudicate the fee dispute
in court rather than through arbitration.
The supreme court, overruling Alternative
Systems, reversed. The court reasoned that
the phrase “trial after arbitration” should be
harmonized with other language in the MFAA
that recognizes that a client and lawyer may
adjudicate disputes between them in court or
in “other proceedings.” Thus, the phrase “trial
after arbitration” means a trial in accordance
with applicable law: “The MFAA confers no
immunity from valid defenses, such as the
existence of a contractual obligation to arbitrate.”68
While an attorney cannot force a client to
forego his or her right to MFAA arbitration,
once the MFAA arbitration is completed (or
if the client fails to elect MFAA arbitration in
the first place or waives his or her right to
MFAA arbitration by seeking affirmative
relief against the attorney), the attorney can
enforce a predispute agreement with the client
to submit all their disputes to binding arbitration. The MFAA “does not foreclose the
possibility that, under a general agreement
between the parties, the nonbinding MFAA
process should be followed by binding arbitration, rather than by a lawsuit.”69
The Third District Court of Appeal in
Gilman v. Dalby,70 a case of first impression, concluded that as a matter of public policy, an attorney lien for fees and costs has priority over a medical provider’s lien even if the
medical provider’s lien was first in time:
As a practical matter, medical liens
have value only if the treated patient
obtains a judgment from which the
liens can be paid.…[U]nless the patient
gets a monetary recovery in a lawsuit,
the medical liens will usually remain
unpaid, and the provider will never
obtain payment for the services rendered.…An attorney lien that includes
fees and the costs of suit is a necessary
incentive for personal injury plaintiffs’
lawyers to represent such clients.71
In general, a lawyer may not split legal fees
with a nonlawyer.72 PREC concluded in its
Opinion No. 523, issued in June 2009, that
an attorney does not violate the fee-splitting
rules by entering into an agreement with the
client in a contingency fee case to include a
statutory award of attorney’s fees in the gross
recovery for purposes of deciding the attorney’s compensation. This is so even though the
statutory award belongs to the attorney, not
the client.
May lawyers who successfully represent
themselves as a party in litigation recover
fees based on their time working on the case
if the prevailing party has a right to fees
under Civil Code Section 1717? The Sixth
District Court of Appeal concluded in
Gorman v. Tassajara Development Corporation73 that the answer is no, even if the
attorney has incorporated or is a member of
a partnership. But the court permitted the
attorney in Gorman to recover fees incurred
by other lawyers and paralegals in his firm
who worked on the matter.
In Formal Opinion No. 2009-176,
COPRAC considered ethical obligations arising when defense counsel implements a policy of making settlement offers conditioned
on the plaintiff’s waiver of his or her statutory right to attorney’s fees. The committee
opined that a defense lawyer could ethically
do so. Further, the plaintiff’s lawyer has an
ethical obligation to transmit the settlement
proposal to the plaintiff and consummate
the settlement if instructed to by the client
even if the settlement, because of the fee
waiver, would result in the lawyer receiving
compensation considerably less than the reasonable value of the lawyer’s services. A concern that this defense strategy could potentially drive a wedge between plaintiffs and
their counsel must yield to the strong policy
encouraging settlements.
The Second District Court of Appeal’s
decision in Karton v. Dougherty74 provides
a cautionary tale to lawyers regarding
aggressive efforts to pursue clients who have
failed to pay. Karton, a lawyer, represented
a client, Dougherty, in a marital dissolution
action. The fee agreement gave Karton the
right to collect 10 percent interest on fees and
costs not paid within 30 days. The fee agreement also included an attorney’s fees clause
that was applicable in the event of litigation
to collect unpaid fees and costs. At the end
of the engagement, Dougherty owed Karton
about $65,000. Karton filed an action in
superior court to collect. When Dougherty
failed to appear, Karton obtained a default
judgment against Dougherty for about
$87,000, which included interest and collection costs.
Dougherty filed several motions to set
aside the default, all of which the superior
court denied. He moved out of state. He filed
a bankruptcy petition. He filed other litigation to set aside the default judgment.
Although Karton in the interim collected
about $56,000 on the $87,000 judgment,
Karton continued to fight every step of the
way. He ultimately asked the superior court
to increase the amount of the default judgment from $87,000 to about $1.3 million to
cover the additional fees and costs he incurred
in his collection efforts. The superior court did
so, and Dougherty filed a motion to set aside
the default under Code of Civil Procedure
Section 473.
The superior court denied the motion.
Dougherty appealed. The Second District
concluded that Karton’s original application
for a default judgment was defective and
reversed the judgment.
Revision of the Rules of Professional
Conduct
After nine years of labor by the Commission
on the Revision of the Rules of Professional
Conduct, the State Bar Board of Governors
approved 35 revisions to the rules. State Bar
President Howard Miller declared that the
remaining revisions will be completed in 2010
so that the new rules can be submitted to the
supreme court for adoption.75
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40 Los Angeles Lawyer March 2010
Dark Day as Law Firms Shed 800 Jobs, L.A. DAILY
J., Feb. 13, 2009.
2 Furloughs Begin in Los Angeles Courtrooms and
Officials Brace for Confusion, L.A. DAILY J., July 15,
2009.
3 Judge Resignations Highlight Stagnant Salaries, L.A.
DAILY J., Sept. 17, 2009.
4 Schwarzenegger Vetoes State Bar Dues Bill, Says Bar
Must Abandon ‘Business as Usual,’ 25 LAWS. MAN. ON
PROF. CONDUCT 568 (ABA/BNA).
5 Ethics Alert: Legal Services to Distressed Homeowners
and Foreclosure Consultants on Loan Modifications
(Feb. 2, 2009), available at http://calbar.ca.gov
/calbar/pdfs/ethics/Ethics-Alert-Foreclosure.pdf.
6 CALIFORNIA STATE BAR J. (Oct., Nov. & Dec. 2009);
Former Lawyer Is Accused of Defrauding Homeowners, L.A. DAILY J., July 7, 2009.
7 Motion of the United States to Set Aside the Verdict
and Dismiss the Indictment with Prejudice, United
States v. Stevens, Case No. 08-231 (2009).
8 Broadcom Executives Walk Free after Judge Throws
Out Charges, L.A. DAILY J., Dec. 16, 2009; Reporter’s
Transcript of Proceedings, United States v. Ruehle, No.
08-CR-00139 (CJC) (C.D. Cal. Dec. 15, 2009).
9 See http://www.bybeefund.org.
10 Ex Bush lawyer can be sued for justifying abuse, S.F.
CHRON., June 13, 2009.
11 Mohawk Indus., Inc. v. Carpenter, 130 S. Ct. 599
(2009).
12 Costco Wholesale Corp. v. Superior Court, 47 Cal.
4th 725 (2009).
13 Costco Wholesale Corp. v. Superior Court, 74 Cal.
Rptr. 3d 345, 352 (2008), rev’d, 47 Cal. 4th 725
(2009).
14 Id. at 358-59.
15 Costco, 47 Cal. 4th at 741.
16 Id.
17 Id. at 746-47.
18 United States v. Ruehle, 583 F. 3d 600 (9th Cir.
2009).
19 Id. at 606.
20 Id. at 608-09.
21 Id. at 607 (quoting In re Horowitz, 482 F. 2d 72, 81
(2d Cir. 1973)).
22 Id. at 609.
23
PrediWave Corp. v. Simpson Thacher & Bartlett
LLP, 179 Cal. App. 4th 1204, 102 Cal. Rptr. 3d 245
(2009).
24 CODE CIV. PROC. §§425.16 et seq.
25 PrediWave Corp., 102 Cal. Rptr. 3d at 258, 263.
26 United States Fire Ins. Co. v. Sheppard, Mullin,
Richter & Hampton, 171 Cal. App. 4th 1617 (2009).
27 Id. at 1628.
28 Rodriguez v. Schneider, 563 F. 3d 948 (9th Cir.
2009).
29 Id. at 959-60.
30 Baker Manock & Jensen v. Superior Court, 175
Cal. App. 4th 1414 (2009).
31 Id. at 1421.
32 Rico v. Mitsubishi Motors Corp., 42 Cal. 4th 807
(2007).
33 Meza v. H. Muehlstein & Co., 176 Cal. App. 4th 969
(2009).
34 Cassel v. Superior Court, 179 Cal. App. 4th 152
(2009).
35 Bak v. MCL Fin. Group, Inc., 170 Cal. App. 4th 1118
(2009).
36 Id. at 1122.
37 Id. at 1124.
38 State Comp. Fund v. WPS, Inc., 70 Cal. App. 4th 644
(1999).
39 Bak, 170 Cal. App. 4th at 1126-27.
40 In the Matter of Lehtinen, 564 F. 3d 1052 (9th
Cir.), cert. denied sub nom., Price v. United States
Tr., __ U.S. __ , 2009 WL 2251295 (2009).
41 Id. at 1061.
42 Id. at 1059.
43 Id. at 1061.
44 Hernandez v. Vitamin Shoppe Indus., Inc., 174 Cal.
App. 4th 1441 (2009).
45 Id. at 1450-51.
46 Id. at 1458-59.
47 Conservatorship of Becerra, 175 Cal. App. 4th 1474
(2009).
48 Id. at 1483.
49 Id. at 1484.
50 Cohen v. Brown, 173 Cal. App. 4th 302 (2009).
51 Id. at 310.
52 Id.
53 Flatley v. Mauro, 39 Cal. 4th 299 (2006).
54 Cohen, 173 Cal. App. 4th at 317.
55 Huskinson & Brown v. Wolf, 32 Cal. 4th 453
(2004).
56 Cohen, 173 Cal. App. 4th at 319-20.
57 In the Matter of Francis T. Fahy, 5 State Bar Rptr.
141 (2009).
58 Id. at 144-45.
59 Id. at 145.
60 Id. at 150.
61 S.F. Attorney Disbarred for Jury Misdeeds, L.A.
DAILY J., July 23, 2009.
62 BUS. & PROF. CODE §§6200 et seq.
63 Fagelbaum & Heller, LLP v. Smylie, 174 Cal. App.
4th 1351, 1362 (2009).
64 BUS. & PROF. CODE §6204(a).
65 Aguilar v. Lerner, 32 Cal. 4th 974 (2004).
66 Schatz v. Allen Matkins Leck Gamble & Mallory
LLP, 45 Cal. 4th 557 (2009).
67 Alternative Sys., Inc. v. Carey, 67 Cal. App. 4th
1034 (1998).
68 Schatz, 45 Cal. 4th at 572.
69 Id.
70 Gilman v. Dalby, 176 Cal. App. 4th 606 (2009).
71 Id. at 618-19.
72 CAL. RULES OF PROF’L CONDUCT R. 1-320.
73 Gorman v. Tassajara Dev. Corp., 178 Cal. App.
4th 44 (2009).
74 Karton v. Dougherty, 171 Cal. App. 4th 133 (2009).
75 Press Release, State Bar of California, Board of
Governors Takes Significant Vote on Revised Rules of
Professional Conduct (Nov. 16, 2009).
Los Angeles Lawyer March 2010 41
Appraisals and Valuations
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estate homes, apartments, land, eminent domain,
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Business Opportunities
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interests. Send details to: P.O. Box 13557, Denver,
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Accident Reconstruction Specialists, p. 13
Law Offices of Rock O. Kendall, p. 4
Tel. 562-743-7230 www.FieldAndTestEngineering.com
Tel. 949-388-0524 www.dmv-law.pro
Ahern Insurance Brokerage, p. 2
Lawyers’ Mutual Insurance Co., p. 7
Tel. 800-282-9786 x101 [email protected]
Tel. 800-252-2045 www.lawyersmutual.com
The American Institute of Mediation, p. 5
Lexis Publishing, Inside Front Cover, p. 11
Tel. 213-383-0454 www.americaninstituteofmediation.com
www.lexis.com
Lee Jay Berman, Mediator, p. 13
MCLE4LAWYERS.COM, p. 41
Tel. 213-383-0438 e-mail: [email protected]
Tel. 310-552-5382 www.MCLEforlawyers.com
The California Academy of Distinguished Neutrals, p. 22, 23
Michael Marcus, p. 5
Tel. 310-341-3879 www.CaliforniaNeutrals.org
Tel. 310-201-0010 www.marcusmediation.com,
California Eminent Domain Law Group, APC, p. 5
Northwestern Mutual – The Beer Financial Group, p. 24
Tel. 818-957-0477 www.caledlaw.com
Tel. 818-887-9191 www.beerfinancialgroup.com
Chapman University School of Law, p. 1
Pro/Consul, Inc., p. 16
Tel. 877-CHAPLAW (877-242-7529) www.chaplaw.edu/law
Tel. 800-392-1119 www.expertinfo.com
Cheong, Denove, Rowell & Bennett, p. 25
Ringler Associates, p. 18
Tel. 310-277-4857 www.cdrb-law.com
Tel. 888-734-3910 www.ringlerassociates.com
Coldwell Banker-Michael Edlen, p. 6
Anita Rae Shapiro, p. 4
Tel. 310-230-7373 e-mail: [email protected]
Tel. 714-529-0415 www.adr-shapiro.com
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NEED AN EXPERT WITNESS, legal consultant, arbitrator, mediator, private judge, attorney who outsources, investigator, or evidence specialist?
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Commerce Escrow Company, p. 41
Tel. 213-484-0855 www.comescrow.com
Cook Construction, p. 24
Tel. 818-438-4535 e-mail: [email protected]
Lawrence W. Crispo, p. 6
Tel. 213-926-6665 e-mail: [email protected]
Steven L. Gleitman, Esq., p. 4
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Tel. 800-PROCESS (776-2377) e-mail: [email protected]
The Holmes Law Firm, Inside Back Cover
Tel. 626-432-7222 www.theholmeslawfirm.com
Jack Trimarco & Associates Polygraph, Inc., p. 9
Kantor & Kantor, LLP, p. 24
Tel. 877-783-8686 www.kantorlaw.net
Shoreline Investigations, p. 40
Tel. 800-807-5440, 818-344-2193 www.shorelinepi.com,
Steven Sears, CPA-Attorney at Law, p. 40
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Structured Financial Associates, p. 17
Tel. 323-394-6609 www.ReduceMyMSA.com
Thomson West, Back Cover
Tel. 800-762-5272 www.thompsonwestgroup.com
University of LaVerne College of Law, p. 39
Tel. 877-858-4529 www.law.ulv.edu
Waronzof Associates, p. 40
Tel. 310-954-8060 www.waronzof.com
Witkin & Eisinger, LLC, p. 13
Tel. 818-845-4000
The California Electronic Discovery Act
ON TUESDAY, MARCH 16, the Association and the Small and Solo Division will host
a seminar featuring Alexander H. Lubarsky of Class Consultants on how
longstanding rules have been amended pertaining to the handling of electronically
stored information (ESI). The discussion will include case law regarding some of
the less defined areas of the new rules as well as the best practices with respect to
meet-and-confer requirements, cost splitting or shifting, and electronic data
preservation and production. The seminar will also cover when to preserve,
collect, and produce ESI. Finally, the speaker will address ethical guidelines
pertaining to the handling of the ESI of clients and opponents. The program will
take place at the Los Angeles County Bar Association, 1055 West 7th Street, 27th
floor, Downtown. Parking is available at that address for $10 with validation as
well as various lots nearby for less. On-site registration and the meal will begin at
4:30 P.M., with the program continuing from 5 to 8:30 P.M. This event is also
available as a live Webcast ($185 to $235). The registration code number is
010706. The prices below include the meal.
$80—CLE+PLUS member
$140—Small and Solo Division member
$175—LACBA member
$225—all others
3.25 CLE hours
Evidence Skills Workshop
ON WEDNESDAY, MARCH 17, Trial Advocacy and the Litigation Section will host the
Evidence Skills Workshop, which provides step-by-step instruction on how to admit
and exclude evidence in court. Topics covered in the lecture portion of the program
include evidentiary foundations, authenticity of physical evidence, expert and lay
opinion, business records and other hearsay exceptions, expert qualifications and
hypothetical questions, and written and oral motions in limine. In the workshop
portion of the program, participants perform vignettes, in which they seek to admit
and exclude different types of evidence in trial and pretrial settings. The program will
take place at the Los Angeles County Bar Association, 1055 West 7th Street, 27th floor,
Downtown. Parking is available at that address for $10 with validation as well as
various lots nearby for less.
On-site registration will begin at 1 P.M., with the program continuing from 1:30 to
5:30. The registration code number is 010743.
$250—CLE+PLUS member
$350—LACBA member
$500—all others
3.75 CLE hours
What Physician Clients
Need to Know
ON WEDNESDAY, MARCH 24, the Healthcare
Section, along with the Los Angeles County
Medical Association, will host a program
addressing risks affecting physicians and
healthcare lawyers. Regarding employment
practices, speakers Beth Schroeder and Connie
Michaels will address significant risks
currently affecting physicians as employers,
supervisors, and employees. Topics will
include discharging employees, incorrectly
classifying employees as exempt or nonexempt
(or as independent contractors or employees),
and employee leave requirements.
In another segment, Bruce Dizenfeld and
Jeremy Miller will address risks involving
transactions that may run afoul of antikickback
and antireferral laws and the laws prohibiting
the corporate practice of Medicare. Topics will
include risks associated with ancillary services
arrangements (e.g., clinical laboratory and
diagnostic imaging), ambulatory surgery
centers, and professional practice
arrangements (e.g., part-time arrangements at
another practice’s location).
After that, Patric Hooper and Steve
Goldsobel will address risks associated with
RAC audits and Medical Board investigations,
as well as how to respond when law
enforcement arrives and what to do when
presented with a subpoena.
The event will take place at the AON
Building Auditorium, 707 Wilshire Boulevard in
Los Angeles. Parking at the AON Building is
complimentary. On-site registration and the
meal will begin at 5:30 P.M., with the program
continuing from 6 to 9:30. The registration
code number is 010718. The prices below
include the meal.
$75—CLE+PLUS member
$105—Healthcare Section member
$115—LACBA member
$125—all others
$135—at-the-door registrants
3.25 CLE hours
The Los Angeles County Bar Association is a State Bar of California MCLE approved provider. To register for the programs
listed on this page, please call the Member Service Department at (213) 896-6560 or visit the Association Web site at
http://calendar.lacba.org/where you will find a full listing of this month’s Association programs.
Los Angeles Lawyer March 2010 43
closing argument
BY ASIAN C. UDOH
When Is Humanitarian Intervention Legal?
FROM TWO STARKLY CONTRASTING EXAMPLES—the NATO inva- international organizations, nations, and legal scholars accepting
sion of Kosovo and Operation Restore Hope in Somalia—one can the concept that military interventions in the affairs of another state
clearly see both the benefits and drawbacks of humanitarian inter- based on human rights violations were indeed legal. Because of these
vention. As is apparent in the recent U.S.-led invasion of Iraq, abuse recent developments in humanitarian intervention, it is now necesof the obligation of states to protect human rights, especially by sary to establish some type of legal guidelines to govern its use.
Whether one views these legal guidelines as requirements or limnations with military prowess, can have a tremendous impact for a
world not yet ready to deal with the consequences. Humanitarian inter- itations to a state’s right to prevent gross violations of human rights,
vention has always posed a number of difficult and divisive concerns set standards are needed to help judge the validity of a particular milfor international legal scholars and nations. Until those issues are ham- itary action taken under the premise of humanitarian intervention.
mered out, there will continue to be intense debate on when human- I have devised standards that are narrow and strict enough to help
itarian intervention can be an exception to
the United Nations’s prohibition on the use of
force. Underlying this debate is the tension
As noble an idea as humanitarian intervention is, it is easily
between the need to ensure fundamental human
rights and the need to respect state sovereignty,
the principle of nonintervention, and the right
subject to distortion, misinterpretation, and abuse.
of self-determination—all of which are considered essential elements in maintaining peace
and international security.
Although many states agree there is an obligation to protect deter nations from abusing this use of force, but, at the same time,
human rights, there is no official legal definition of humanitarian inter- broad enough to define certain instances of humanitarian intervenvention in international law, leaving the concept open to interpreta- tion as a legal use of force. I propose that nations adhere to the foltion. According to Humanitarian Intervention: Ethical, Legal and lowing criteria in order to validate military missions based on humanPolitical Dilemmas, a book edited by political scholars Robert O. itarian purposes:
Keohane and J. L. Holzgrefe, humanitarian intervention is generally 1) The use of humanitarian intervention must be immediate and
defined as an armed intervention by a state, group of states, or an inter- only occur during the actual commission of the human rights violanational organization into another state’s territory, without the agree- tion or immediate threat of an offense.
ment of that state, to address a humanitarian disaster, particularly one 2) Authorization for intervention must be by a competent body
caused by grave and large-scale human rights violations such as within the United Nations.
genocide, crimes of aggression, and crimes against humanity. The roots 3) Humanitarian intervention must be a collective effort executed by
of humanitarian intervention can be traced back to the writings of more than one nation.
the father of international law, Dutch philosopher Hugo Grotius, and 4) Humanitarian intervention must be used as a last resort when all
his just-war theory. In his treatise, De Jure Belli ac Pacis (On the Law other means have failed.
of War and Peace) written in 1625, Grotius maintained that war taken 5) Humanitarian intervention must only be used for grave and largeon behalf of another sovereign’s citizens is only justifiable if the scale violations of human rights.
6) All military forces involved in the intervention must respect the prinintention is to protect the people from a tyrant.
After World War II and the signing of the U.N. Charter in 1945, ciples and spirit of the Geneva Conventions and all other applicable
the world witnessed an increase in military intervention based on international humanitarian laws.
Given the nature of international relations, it cannot be expected
human rights violations. For example, when the Indian military
entered East Pakistan in 1971 to support Bangladeshi independence, that these proposed criteria for humanitarian intervention would
primarily for regional political reasons, evidence of mass slaughter tak- regulate the conduct of states absolutely. As noble an idea as humaning place in Bangladesh also heavily influenced the Indian government’s itarian intervention is, it is easily subject to distortion, misinterpredecision to go to war. Between 1978 and 1979, Tanzania, prompted tation, and abuse. However, completely abandoning legal restraints
by humanitarian purposes, invaded Uganda to remove the brutal Idi on the use of external military intervention is a dangerous policy that
Amin regime, which was responsible for executing 300,000 Ugandan can lead to devastating consequences. The global community faces
an essential need to formulate standards to test the legality and legitcitizens and raping and displacing many thousands more.
Ultimately, it was NATO’s military invasion of the former Federal imacy of humanitarian intervention in order to guide conduct dur■
Republic of Yugoslavia (Serbia) from 1993 to 1996 that intensified ing that intervention.
the highly controversial debate on the legality of humanitarian interAsian C. Udoh is an attorney licensed in the states of California and Illinois.
vention. NATO’s three-year battle in Bosnia and Herzegovina had
44 Los Angeles Lawyer March 2010
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