Tuesday, March 31, 2009
The Maryland Court of Special Appeals upheld the bond forfeiture against a professional surety that resulted from a defendant's failure to appear for trial. The bondsman hired a bounty hunter ("the very term... evokes a quaint nostalgia for a more robust era of American legal history") who was able to locate the defendant in his native Honduras. The defendant respectfully declined the bounty hunter's importunings to return to Howard County and is not subject to extradition.
The court concluded that "the [bonding company] is very slippery with its use of language" when it claimed to have fulfilled its obligation by locating the defendant: "The...obligation was not to locate the defendant. Nor was it to make a good faith effort to bring the defendant back to Maryland. Its obligation was to produce the defendant at the Howard County Courthouse to stand trial and nothing less than that...It was a matter of sublime unconcern to the State where the defendant is located. That was the [bonding company's] problem. As long as the appellant produced the defendant, the State could not have cared less whether he had been located and brought back from Towson or from Timbuktu."
The court also noted that the bonding company had improperly characterized the prosecutor's indifference as support for their request to set aside the collateral forfeiture. (Mike Frisch)
A press release issued today by the New York Commission on Judicial Conduct reports that a part-time town court judge was censured for reducing speeding charges in five cases without consent of the prosecutor and reduced another speeding charge based on an ex parte discussion with a co-worker (the judge works in a dairy) who was a friend of the defendant. While ticket-fixing might otherwise merit removal from the bench, the judge was new to the job and "erroneously believed that it was his responsibility to negotiate pleas as a way of disposing of contested traffic charges."
The commission's opinion is linked here. (Mike Frisch)
Last evening in my American Legal Profession class, we had a lively discussion of the reach of Model Rule 8.4(b), which prohibits criminal conduct that reflects adversely on a lawyers honesty, trustworthiness or fitness as a lawyer in other respects. The web page of the Tennessee Board of Professional Responsibility reports that a Nashville attorney was suspended for a year for a conviction involving misdemeanor domestic assault. He also pled to misdemeanor charges arising out of an arrest for driving under the influence and child endangerment.
The report states in summary fashion the conclusion that each of the offenses violate Rule 8.4. (Mike Frisch)
In a dispute between lawyers over a $1.9 million award of attorneys' fees in a medical malpractice action, the New York Court of Appeals held that an attorney who had brought in co-counsel to try the case was entitled as a matter of contract to the agreed upon one-third of the entire fee.
Attorney Simal contacted attorney Samuel to serve as trial counsel. They agreed that Simal would get "one-third of the entire legal fee." The client was notified of the arrangement in writing and consented to the agreement. Samuel brought in another attorney to assist in the trial. After three weeks of trial, the matter settled for $6.7 million, resulting in a statutory attorneys' fee of over $800,000.
The two trial counsel moved for an enhanced fee and were awarded $1.9 million. Samuel then sent Simal a check for 1/3 of the fee his firm had received but nothing from the fee award to the firm of the second trial counsel. Simel rejected the amount, demanding one-third of the entire fee. Samuel then sought a declaratory judgment that Simal had violated fee-sharing ethics rules and should get nothing.
The Appellate Division concluded that Simal had complied with ethics rules (the court here agrees) but should only get paid from Samuel's share. The court here concludes that the lower court erred in disregarding the express language of the agreement between Simal and Samuel: "...it is of no moment that Simal did not contribute to that part of the work that resulted in the award of the enhanced fee. In the realm of fee-sharind disputes, 'courts will not inquire into the precise worth of the services performed by the parties.' " The court also noted that Samuel should not be heard to complain about the ethics of an agreement to which he had freely accepted. (Mike Frisch)
Monday, March 30, 2009
My Iconoclastic Approach to Contract Theory (or Its Ultimate Failure) - The Financial Crisis Edition
Posted by Jeff Lipshaw
I was reading Bill Saporito's article in the March 19 Time on how AIG got "too big to fail," and one comment jumped out at this contract theorist, particularly after having just recently looked at another take on the relationship between contract and promise. Last year, Seana Shiffrin (UCLA) published an article in the Harvard Law Review called The Divergence of Contract and Promise, and its thrust was that, to the extent contract law let promise-makers off the hook as, for example, by the doctrine of efficient breach, it was inconsistent with the flourishing of moral agency. I responded to that piece with my own essay in the Canadian Journal of Law & Jurisprudence.
No, thank God, there was nothing on contract theory as such in Time. It's difficult, however, to avoid the subject of contracts (or their limits) when the issue is financial systemic risk. One way of looking at financial systemic risk is the limit of contract. What AIG provided was an insurance contract against default on a security known as a collateralized debt obligation (CDO). "Credit default swap" or CDS is a fancy name for the insurance contract. The security issuer paid a premium to AIG (which AIG got to book as revenue), and AIG promised to pay the value of the security if there was an underlying default. Of course, the trick in insurance is setting reserves for potential claims, and as long as the risk is diversified it usually works (assuming you reserve enough, which is a good question here). Any middling competent deal lawyer knows that you can have the fanciest indemnification provisions in the world but they are worth diddly-squat if there's no (or not enough) money backing them up. And that's the problem here. The whole system (game?) of contract law breaks down, or becomes irrelevant when this extra-systemic aspect comes into play. Oops, counterparties aren't supposed to go broke.
The article does a pretty good job of spelling this out. What really got my attention, however, was a comment from Maurice Greenberg, the exiled former CEO of AIG, reported thusly:
In a rare interview, former CEO Greenberg, who is suing AIG and being sued by the company over financial-management issues, tells TIME that once the company lost its top credit rating, AIG FP should have stopped writing swaps and hedged, or reinsured, its existing ones. But Cassano's unit doubled down after the spring of 2005, writing more and more subprime-linked swaps as the ratings plunged, which made the possible need for collateral enormous in the event its debt was downgraded. The downgrades occurred in 2008. "Of course they were going to run out of money," says Greenberg. He adds that as the liquidity crunch hit in 2008, AIG FP should have renegotiated terms with the banks to ease their demands on collateral. "You can renegotiate almost anything, anytime." (Emphasis added.)
Wait a minute! For classical contract formalists, what about the "sanctity of contract"? For Professor Shiffrin, what about the morality of promise-keeping? For my friend Rob Kar, late of Loyola-LA and soon of Illinois, what about second-person morality? And for all the economists out there, what about opportunism?
A blog post is no place to do anything other than suggest a direction, and so that's all I will do. My suggestion is that the "theory of everything" explanation of contract law is futile because of the paradox of the search for foundational principles. The morality theory founders because it doesn't take us long to dispose of the idea that promise-keeping (as the moral basis of contract) isn't as foundational as it's cracked to be. The economic theory founders because if the contract obligor is relieved from his opportunistic impulse by the fact the contract obligee gets more utils out of the new deal, then the utilitarian justification for contract law either explains everything or nothing, but is wholly unpredictive.
For more on this, see Freedom, Compulsion, Compliance, and Mystery: Reflections on the Duty Not to Enforce a Contract, 3 Law, Culture, and the Humanities 82 (2007), whose opening hypothetical might well describe the moral-legal dilemma of an AIG employee who had a right to a bonus, but for some reason other than "law" decided to give it up. Also see some of Jody Kraus's later work on this. In the meantime, ponder whether Greenberg's comment is pragmatic or unprincipled, moral or immoral, legal or illegal, reconcilable with law or not?
The Pennsylvania Court of Judicial Discipline has just posted its October 2008 decision finding misconduct on the part of an elected judge of the Luzerne County Court of Common Pleas. The judge was found to be "habitually and egregiously late for court" and was "impatient, undignified and discourteous to court personnel." The judge's court was a "tense and stressful atmosphere." The judge contended that all 30 witnesses who testified against her were lying and part of a conspiracy, a position that the court viewed "to put it gently, as far-fetched."
The sanctions order prohibiting the judge from holding future judicial office is linked here.
A concurring/dissenting opinion would find no misconduct in a remark by the judge to a law clerk to "cut [an attorney] a new asshole." The "statement [was] no more than an off-hand, albeit unprofessional, comment made privately to a member of [the judge's] staff in a moment of anger...Judges are human, have human emotions, and may make comments amongst themselves or their staff about lawyers and litigants while nervertheless fairly deciding cases. The Majority Opinion imposes an unreasonable standard upon judges in their private communications with each other and their personal staff. It is not the stuff that either recusal or disciplinary actions are made of."
Thirty witnesses were called to establish the misconduct, which is set out on over 200 pages of findings and conclusions. I believe that this is the same county court system that gave us the two judges who incarcerated juveniles for a profit.
The Pennsylvania Supreme Court last week ordered that the matter be remanded and the sanction stayed. The judge will be allowed to put on new evidence alleging that the case against her was concocted by the corrupt Luzerne County judges.
Newswatch16 reported after the above order:
Given another shot by the state Supreme Court, a former Luzerne County judge looks ahead to a new hearing on the accusations against her.
It wasn't that long ago that Ann Lokuta was considered the disgraced judge of Luzerne County, bounced from the bench on charges of professional misconduct. But a lot has happened since then, and Wednesday the state's highest court ordered the Lokuta case be reopened.
Ann Lokuta always maintained the misconduct charges against her were part of a vendetta by then judges Michael Conahan and Mark Ciavarella. Now that Conahan and Ciavarella have pleaded guilty to corruption charges of their own, the Supreme Court wants the Lokuta case re-examined.
Ann Lokuta told Newswatch 16 she was shocked by Wednesday's decision but still doesn't feel totally vindicated.
According to Lokuta, the ruling means she will again be able to collect her salary and benefits as a judge but she remains suspended from the bench. She said she got the news about the court's decision late Wednesday afternoon from her attorney.
"He kept yelling 'judge, judge, you're a judge again' and I thought he was joking, so I'm very happy with this, however I'm optimistic the future will bring me some good news."
Lokuta told me she wants to get back on the bench as soon as possible. She plans to meet with her attorney Thursday to talk about their strategy. At this point, Lokuta says it will be up to the court of judicial discipline which could or could not decide to re-open her case.
Another news report from PAHomePage.com:
Ciavarella and Conahan testified against Lokuta during proceedings that resulted in her removal from the bench. "Mark Ciavarella and Michael Conahan were the legal puppet masters over all of the staff in the Luzerne County court system and if anyone dared to step up and ask them questions, they stepped on them like little ants. I'm living proof of that."
Lokuta says at her hearing Ciavarella and Conahan also failed to reveal they were business partners.
The Legal Ethics Committee of the District of Columbia Bar opines as follows:
A lawyer may accept credit cards from a client for payment of fees, including unearned fees (commonly referred to as a retainer or advance fees), so long as the lawyer ensures that she complies with applicable District of Columbia Rules of Professional Conduct, including ensuring that she does not enter into a merchant agreement with the credit card company that violates the Rules.
The committee notes the issues presented where the fees are paid in advance:
Before accepting credit cards for an advance fee, the lawyer must have a complete and detailed understanding of the agreement imposed on her by credit card companies. In many cases it may prove impossible for the lawyer to deposit advance fees paid by credit card into trust accounts and adhere to the terms of the agreement. Funds in trust accounts belong to the clients, not to the lawyer. As such, they cannot be attached by the lawyer’s creditors. But because many credit card agreements permit the credit card company to invade the merchant’s bank account and charge back monies already paid the merchant if the customer disputes a bill, there is a danger that funds deposited in a lawyer’s trust account might be “clawed back.” Under some circumstances this could result in a situation where there are insufficient funds in the account.
For example, suppose a lawyer deposits an advance fee of $50,000 into her trust account and, as the fee is earned, transfers $40,000 to her operating account. If the client lodges a protest with the credit card company challenging the lawyer’s right to payment, the credit card company, under its standard merchant agreement, might invade the lawyer’s trust account, and claw back the entire $50,000, pending resolution of the dispute. This would mean that the lawyer had insufficient funds in her account to cover her obligations to other clients whose funds she is holding. In some circumstances, it could even result in the account being overdrawn.
Because the Committee does not and cannot know the details of all contractual arrangements between lawyers and credit card companies, we cannot conclude that credit cards can never be used to pay advance fees into trust accounts. But if a credit card is used in this fashion, the lawyers must ensure that under no circumstances can the credit card company invade her trust account. If that possibility exists, a credit card may not be used. Moreover, the lawyer must understand all the provisions of her agreement with the credit card company to ensure that entrusted client funds are safe and secure. Absent that assurance, a credit card may not be used to advance entrusted funds.
An attorney representing a client in a medical malpractice action brought in a second attorney as co-counsel. The second attorney assumed primary responsibility for the case with a 50-50 split of the contingent fee. Thereafter, the case settled for less than the amount anticipated by the referring lawyer. He then sued co-counsel on a variety of legal theories including improper substantive advice to the client.
The Maryland Court of Special Appeals held that the defendant lawyer owed no tort duty to referring counsel, that she had fulfilled the contractual obligation between counsel and could not tortiously intertfere with a contract to which she was a party. (Mike Frisch)
A doctor who had entered an Alford plea to charges that he had sexually assaulted a patient was found by the medical license board to have committed a crime involving moral turpitude. He contended, and the circuit court held, that he was entitled to a hearing prior to the imposition of professional discipline. On appeal, the Maryland Court of Special Appeals reversed and concluded that summary discipline was appropriate based on the plea. Although the judgment of conviction was vacated as a result of the sentence, discipline was linked to the guilty plea. The court further concluded that the crime was one of moral turpitude. (Mike Frisch)
An attorney who had been suspended in Colorado for a year and a day violated ethics rules by bringing legal actions against persons who had reported his misconduct, according to a hearing board report imposing additional sanctions. Interestingly, the Colorado immunity for bar complaints rule is not absolute, as in many jurisdictions. Rather, a lawyer may sue a complainant for violating confidentiality rules or for complaints brought in reckless disregard of the truth or in bad faith. The board found that filing the suit against the complainants was conduct prejudicial to the administration of justice but not frivolous because the suit "is still pending in federal district court where substantive legal issues are yet to be resolved."
The story starts with the termination of a two-lawyer firm. The lawyers agreed to pay each other from the proceeds of pending cases. The suspended lawyer (Rasure) failed to pay the former partner (Dugan) his share of a contingency case that had settled for $200,000. Dugan consulted a second lawyer (McLachlan), who in turn contacted Rasure's then associate Sitter. As a result, Sitter terminated his business relationship with Rasure. When Dugan got paid, he did not follow McLachlan's advice to report the misconduct to the People. McLachlan later told a member of the People's staff of a number of things about Rasure which were "substantially true."
Sitter also decided not to report the misconduct. However, he was contacted in the wake of McLachlan's disclosures and reluctantly cooperated (the reluctance "stemmed from his fear that Respondent would retaliate if he cooperated with the People)." A disciplnary complaint was brought and violations were found concerning the contingent fee.
Rasure, after stipulating to the violations, sued McLachlan and Sitter (whose fears proved well-founded) in federal district court for malicious prosecution, abuse of process, slander, civil conspiracy, intentional interference with contract, and extreme and outrageous conduct. The board here found that Rasure had admitted the conduct reported by McLachlan and Sitter. He thus could not prove that they had acted in reckless disregard of the truth. The board concluded that the reporting attorneys did not act in bad faith or fail ito nvestigate: "If such level of scrutiny were required in any instance before citizens could report perceived lawyer misconduct, few reports would be made."
The attorney was again suspended for a year and a day and will be required to submit to an independent medical examination before applying for reinstatement. (Mike Frisch)
Sunday, March 29, 2009
Posted by Jeff Lipshaw
Tamara Relis, whom I met at the 2007 Faculty Recruitment Conference, has two pieces of good news. First, she's joining the faculty at the Touro Law School next year. Second, she has a book coming out from Cambridge University Press entitled Perceptions in Litigation and Mediation: Lawyers, Defendants, Plaintiffs and Gendered Parties. Here's an abstract:
The book is an analytical study exploring the internal dynamics and realities of case processing in the legal system leading up to and including mediation. In juxtaposing lawyers’ and parties’ understandings, objectives and experiences on all sides of ongoing injury and fatality cases (131 interviews, questionnaires, observations), the data shed new light on how lawyers and disputants think and speak about the meaning of their cases as well as their expectations and aims on how to resolve them. The findings additionally offer insight into how female and male attorneys practice law, and how female and male victims, plaintiffs and defendants experience legal processes.
Three recurrent themes run through the book. The first theme relates to the parallel worlds of understanding and meaning inhabited by legal actors versus lay disputants, reflecting materially divergent interpretations and functions ascribed to litigated case processing and dispute resolution. In providing a unique look into the diversity of prevalent realities, I demonstrate through lawyers’ and parties’ own discourse that both the formal and informal justice systems are not serving many of disputants’ intrinsic, often overriding, needs; and I challenge the notion that disputants and their representatives broadly understand and want the same things during case processing. As such, the parallel worlds’ findings reveal inherent problems with the core workings of the legal system. The second theme, termed lawyers’ “reconceptualization,” pertains to the role of mediation experience in transforming attorneys’ understandings of their cases and their roles within them, with extralegal considerations increasingly becoming inherent within lawyers’ thinking. The third theme relates to the diverse understandings of conflict and its resolution by males and females in professional and disputant groups
Congrats to Tamara on both scores!
March 29, 2009 in Abstracts Highlights - Academic Articles on the Legal Profession | Permalink | Comments (0) | TrackBack (0)