Tuesday, March 21, 2017
An opinion of the North Carolina Court of Appeals affirms a disqualification order based on the witness-advocate rule.
This case presents the question of whether a categorical exception to the applicability of Rule 3.7 of the North Carolina Rules of Professional Conduct exists in fee collection cases. Harris & Hilton, P.A. (“Harris & Hilton”) appeals from the trial court’s order disqualifying Nelson G. Harris (“Mr. Harris”) and David N. Hilton (“Mr. Hilton”) from appearing as trial counsel in this action based on their status as necessary witnesses. Because this Court lacks the authority to create a new exception to Rule 3.7, we affirm the trial court’s order.
On 10 June 2015, Harris & Hilton filed the present action in Wake County District Court against James C. Rassette (“Defendant”) to recover attorneys’ fees for legal services the firm had allegedly provided to Defendant prior to that date. The complaint asserted that Harris & Hilton was entitled to recover $16,935.69 in unpaid legal fees. On 13 November 2015, Defendant filed an answer in which he asserted various defenses, including an assertion that no contract had ever existed between the parties.
On 10 June 2016, a pre-trial conference was held before the Honorable Debra S. Sasser. During the conference, Judge Sasser expressed a concern about the fact that Harris & Hilton’s trial attorneys — Mr. Harris and Mr. Hilton — were also listed as witnesses who would testify at trial on behalf of Harris & Hilton. After determining that Mr. Harris and Mr. Hilton were, in fact, necessary witnesses who would be testifying regarding disputed issues such as whether a contract had actually been formed, Judge Sasser entered an order on 20 June 2016 disqualifying the two attorneys from representing Harris & Hilton at trial pursuant to Rule 3.7. On 27 June 2016, Harris & Hilton filed a notice of appeal to this Court.
Harris & Hilton does not dispute the fact that (1) Mr. Harris and Mr. Hilton will both be necessary witnesses at trial; (2) their testimony will encompass material, disputed issues; and (3) none of the three above-quoted exceptions contained within Rule 3.7 are applicable. Nor does it contest the fact that a literal reading of Rule 3.7 supports the trial court’s ruling. Instead, it asks this Court to adopt a new exception based on its contention that Rule 3.7 should not be applied in fee collection actions to disqualify counsel from both representing their own firm and testifying on its behalf.
Harris & Hilton argues that permitting a law firm’s attorney to serve both as trial counsel and as a witness in a fee collection case is no different than allowing litigants to represent themselves pro se. It is true that litigants are permitted under North Carolina law to appear pro se — regardless of whether the litigant is an attorney or a layperson. See N.C. Gen. Stat. § 1-11 (2015) (“A party may appear either in person or by attorney in actions or proceedings in which he is interested.”); N.C. Gen. Stat. § 84-4 (2015) (“[I]t shall be unlawful for any person or association of persons, except active members of the Bar . . . to practice as attorneys-at-law, to appear as attorney or counselor at law in any action or proceeding before any judicial body . . . except in his own behalf as a party thereto[.]” (emphasis added)).
However, the present case does not involve the ability of Mr. Harris or Mr. Hilton to represent themselves on a pro se basis. Instead, they seek to represent their law firm — a professional corporation — in a suit against a third party while simultaneously serving as witnesses on their firm’s behalf as to disputed issues of fact. It is well established that an entity such as Harris & Hilton is treated differently under North Carolina law than a pro se litigant. See LexisNexis, Div. of Reed Elsevier, Inc. v. Travishan Corp., 155 N.C. App. 205, 209, 573 S.E.2d 547, 549 (2002) (holding that under North Carolina law, a corporation is not permitted to represent itself pro se).
Harris & Hilton also makes a policy argument, contending that the current version of Rule 3.7 is archaic and fails to take into account the disproportionate economic burden on small law firms that are forced to hire outside counsel to litigate fee collection cases. However, in making this argument, Harris & Hilton misunderstands the role of this Court given that it is asking us not to interpret Rule 3.7 but rather to rewrite it — a power that we simply do not possess.
we cannot say that the trial court abused its discretion by applying Rule 3.7 as written as opposed to creating a new exception that neither appears within the Rule itself nor has been recognized by North Carolina’s appellate courts. Accordingly, we affirm the trial court’s disqualification order.
Thursday, February 9, 2017
The New York Court of Appeals resolved a dispute among attorneys over fees in a case involving an $8 million settlement
In February 2009, Menkes engaged Manheimer to act as co-counsel and provide advice in the action. Their written agreement provided that Manheimer would receive 20% of net attorneys' fees if the case settled before trial and 25% once jury selection commenced. Neither attorney informed the clients of Manheimer's involvement, although Manheimer believed Menkes had done so.
The co-counsel relationship fell apart
In August 2009, Menkes wrote to Manheimer unilaterally discharging him and advising him that his portion of the fees would be determined on a quantum meruit basis. Manheimer did not respond to Menkes; he did no further work on the case.
The court here affirmed the Appellate Division for the First Department.
We conclude that Menkes's agreements with Manheimer are enforceable and entitle Manheimer to 20% of net attorneys' fees. Menkes's attempt to use the ethical rules as a sword to render unenforceable, as between the two attorneys, the agreements with Manheimer that she herself drafted is unavailing. Her failure to inform her clients of Manheimer's retention, while a serious ethical violation, does not allow her to avoid otherwise enforceable contracts under the circumstances of this case (see Samuel v Druckman & Sinel, LLP, 12 NY3d 205, 210 ). As we have previously stated, "it ill becomes defendants, who are also bound by the Code of Professional Responsibility, to seek to avoid on 'ethical' grounds the obligations of an agreement to which they freely assented and from which they reaped the benefits" (Benjamin v Koeppel, 85 NY2d549, 556  [citation omitted]). This is particularly true here, where Menkes and Manheimer both failed to inform the clients about Manheimer's retention, Menkes led Manheimer to believe that the clients were so informed, and the clients themselves were not adversely affected by the ethical breach.
The court applied general contract principles in allocation of fees. (Mike Frisch)
Thursday, May 28, 2015
Incurred and future legal fees to defend criminal charges against former Massey Energy chief Don Blankenship must be paid by the company that acquired Massey, according to a Delaware Court of Chancery decision issued today.
This advancement action involves some unusual facts but an all too common scenario: the termination of mandatory advancement to a former director and officer when trial is approaching and it is needed most.
Plaintiff Donald L. Blankenship is the former Chief Executive Officer and Chairman of Massey Energy Company, which is now known as Alpha Appalachia Holdings, Inc. (“Massey”). Blankenship held those positions when there was a tragic explosion at a Massey subsidiary’s coal mine in West Virginia in April 2010, killing 29 miners. In June 2011, after Blankenship had retired from Massey, Alpha Natural Resources, Inc. (“Alpha”) acquired Massey. For several years after the explosion, Massey and Alpha (together, the “Defendants”) honored Blankenship’s rights to advancement and paid his legal expenses relating to various civil proceedings and a federal criminal investigation that had been launched as a result of the explosion.
Alpha paid his fees until he was indicted. The decision to stop paying counsel's bills came after Alpha had sought advice from Cleary Gottlieb
In the wake of the indictment, Alpha stopped paying Blankenship’s legal fees. Alpha management, with approval from Alpha’s board of directors, then initiated a process to review the company’s indemnification and advancement obligations to Blankenship. Alpha focused on an unusual undertaking Blankenship had signed in April 2011 (the “Undertaking”), which states, in relevant part, that Massey’s indemnification and advancement obligations to Blankenship are “contingent upon [certain] factual representations and undertakings,” including a representation that, in performing his duties as a director and officer of Massey, Blankenship “had no reasonable cause to believe that [his] conduct was ever unlawful.” In late January 2015, after a process described below, Philip Cavatoni, an Alpha officer and Massey director, determined that Blankenship had breached that representation (the “Determination”). Based on the Determination, Alpha asserts that Blankenship is no longer entitled to advancement of any of his legal expenses from Massey.
Alpha must pay
Defendants must (1) advance Blankenship’s unpaid legal expenses incurred in connection with the federal criminal investigation and the Criminal Proceeding and (2) pay his reasonable expenses of litigating this action. Counsel shall confer and submit an implementing order within five business days, providing for the foregoing payments to be made within ten business days of entry of judgment.
Defendants have not advanced any substantive argument that the aggregate fees that have not been paid (approximately $5.8 million as of April 1, 2015) are unreasonable. Nor have they identified, in my view, any “gross problem” or other legitimate reason that would warrant injecting a special master to “perform the task of playground monitor, refereeing needless and inefficient skirmishes in the sandbox.” Disputes over the reasonableness of Blankenship’s expenses in the Criminal Proceeding can ultimately be resolved when any determination on indemnification is made
Blankenship is represented by the Zuckerman Spaeder firm. (Mike Frisch)
Friday, May 1, 2015
Claims by the heirs to the Johnson & Johnson fortune against Proskauer Rose LLP on allegations of fraud, excessive legal fees and unjust enrichment may go forward, according to a decision yesterday by the New York Appellate Division for the First Judicial Department.
The court affirmed dismissal of the legal malpractice claim.
The law firm had initiated discussions of the possible sale of long-held J & J stock. The plaintiffs agreed to consider the law firm's proposal.
The issue involved a complex series of steps recommended "to effectuate the tax [avoidance] strategy."
Between October 13, 2000 and November 30, 2000, plaintiffs took the complex series of steps recommended by TDG [a business that developed tax avoidance strategies] and Proskauer to effectuate the tax strategy. They paid TDG a total of $1,379,650 in fees and costs, of which they allege that $425,000 was paid by TDG to Proskauer to cover its legal fee.
In June 2001, Proskauer sent plaintiffs a 63-page opinion letter, dated December 29, 2000, which concluded that "it was more likely than not" that the scheme, already executed, would not generate any gain or loss, or accrue any penalties if it was disallowed by the IRS.
In January 2002, the IRS announced a tax amnesty program which allegedly would have been applicable to plaintiffs' situation. However, Proskauer did not notify plaintiffs of that program. In April 2006, the IRS sent plaintiffs a letter requesting documents and detailed information about the tax avoidance strategy they had implemented over five years earlier. Plaintiffs sought counsel from Waxenberg, but he informed them that Proskauer was conflicted by its representation of TDG. Concerned that the agency would ultimately challenge the scheme and assess penalties against them, plaintiffs secured a tolling agreement from Proskauer which, after a later extension, tolled the statute of limitations for any claims against Proskauer up to and including July 31, 2011. Ultimately, the IRS ruled the shelter transaction was not entitled to favorable capital gains tax treatment and assessed plaintiffs back taxes, penalties and interest amounting to millions of dollars.
In December 2010, plaintiffs became aware of a decision in a federal case in Massachusetts District Court (Fidelity Intl. Currency Advisor A Fund, LLC v United States, 747 F Supp 2d 49 [D Ma 2010]). That case was brought by a former Proskauer client who had executed a tax avoidance plan similar to that recommended to plaintiffs by Proskauer and Akselrad. The District Court, after a 44-day trial, issued findings of fact and conclusions of law which stated that the attorneys "agreed in advance to provide favorable legal opinions in order to induce taxpayer-investor" to get involved in the shelter opportunity, and that Proskauer and another law firm had "derived substantial profit from the promotion and sale of the tax shelter strategy, and therefore had a financial interest in upholding the strategy" (747 F Supp 2d at 212, 213).
In July 2011, plaintiffs commenced this action against defendants.
this Court has stated that, where an attorney enters into a business transaction with a client whereby the two parties' interests may at some point diverge, the ethics rules place on the attorney the burden of obtaining the client's consent, after full disclosure, "irrespective of the sophistication of the client" (Forest Park Assoc. Ltd. Partnership v Kraus, 175 AD2d 60, 62 [1st Dept 1991] [holding that law firm should have been disqualified from representing the plaintiff in a litigation, which was an entity in which 49 of its partners were investors, where the firm had previously represented the defendant in connection with the transaction in which the entity was formed]; accord Schlanger v Flaton, 218 AD2d 597, 602-603 [1st Dept 1995]). Accordingly, defendants were required to place plaintiffs' interests above all else, without regard to their perceived pedigrees, fortunes or business savvy.
Indeed, the mere facts that plaintiffs were wealthy and could afford high-priced counsel are insufficient for us to draw the conclusion that, as a matter of law, they should have known that there was almost a 50% possibility that the tax strategy would not succeed. On this record, defendants cannot establish the specific backgrounds of plaintiffs and their familiarity with the tax code and IRS practices such that defendants can argue that plaintiffs were not justified in relying on defendants' advice. Ironically, this argument by defendants bolsters plaintiffs' excessive fee claim, since it invites the question why, if they were truly so sophisticated, they needed a $425,000 opinion from Proskauer to convince them to pursue the TDG/Proskauer strategy. Further, it is worth noting that one of the things a sophisticated investor is presumed to know to do before entering a transaction is to consult with its attorney (see Stuart Silver Assoc. v Baco Dev. Corp., 245 AD2d 96, 99 [1st Dept 1997]). That is precisely what plaintiffs did, and they were entitled to rely on defendants' advice.
Finally, plaintiffs' claim for punitive damages properly survived dismissal. Defendants' conduct is alleged to have been directed at a wide swath of clients, and the first amended complaint sufficiently alleges intentional and malicious treatment of those clients as well as a "wanton dishonesty as to imply a criminal indifference to civil obligations" (Walker v Sheldon, 10 NY2d 401, 405 ). Indeed, although we offer no opinion regarding whether the particular scheme at issue was criminal in its manipulation of the tax laws, plaintiffs have demonstrated that similar tax avoidance schemes resulted in the indictments of some of their promoters. Accordingly, the demand for punitive damages is adequately stated. Defendants cite Denenberg v Rosen (71 AD3d 187 [1st Dept 2010], lv dismissed 14 NY3d 910 ) for the purported proposition that an attorney's involvement in promoting an unsuccessful tax avoidance scheme can never support a claim for punitive damages. However, this Court made no such declaration in that case. Nor did this Court find in Denenberg that the pension plan at issue was generally defective. Rather, it held that "it was the operation of plaintiff's particular plan that caused the problems with the IRS" (71 AD3d at 195) (emphasis added).
Tuesday, April 1, 2014
A verdict for a plaintiff law firm for fees allegedly due on a contingent fee contract was reversed by the New York Appellate Division for the First Judicial Department.
There was a problem with an inconsistent jury verdict
Plaintiff, Bellinson Law, LLC, brought this breach of contract claim against its former client, defendant Robert Iannucci, to recover an unpaid contingent fee following its representation of defendant in a federal civil rights action. Pursuant to a Retainer Agreement and an Addendum to the Retainer Agreement (Addendum), defendant agreed to pay plaintiff a contingent fee if the case settled before jury selection was completed. However, when the case settled prior to trial for the amount of $2.125 million, defendant refused to pay plaintiff the agreed upon fee, asserting that plaintiff failed to perform under the contract. Plaintiff then commenced this action, seeking the unpaid attorney fees.
During the jury charge, the trial court presented the jury with a verdict sheet containing the three following interrogatories: (1) was there a contract between the parties? (2) did plaintiff perform its obligations under the contract? (3) was defendant obligated to pay plaintiff for its services under the contract? Following deliberations, the jury answered question one yes, concluding there was a contract between the parties, but responded no to question two, finding that plaintiff had not performed its obligations under that contract. When asked by the court, in response to the third question, if the defendant was obligated to pay plaintiff for its services under the contract, the jury answered "yes." Before the jury was discharged, defendant's counsel asked to speak to the court and a side bar was held. We do not know what was discussed at the side bar. The jury was then discharged.
The appropriate remedy is a new trial. (Mike Frisch)
Wednesday, March 26, 2014
A recent decision of the Massachusetts Supreme Judicial Court:
This case presents an issue of first impression: whether an association that has provided support for litigation, without being a named party in that litigation, has engaged in protected petitioning activities for the purposes of G.L. c. 231, § 59H. The defendant, the New England Regional Council of Carpenters, appeals from a Superior Court judge's denial of its special motion to dismiss a suit by the town of Hanover (town) claiming that the defendant engaged in abuse of process in prior legal proceedings. Because we conclude that support of litigation constitutes protected petitioning activity within the meaning of G.L. c. 231, § 59H, and that here, the town did not demonstrate that the defendant's right to petition was "devoid of any reasonable factual support or any arguable basis in law," Office One, Inc. v. Lopez, 437 Mass. 113, 123 (2002), we allow the defendant's special motion to dismiss.
The case is
TOWN OF HANOVER vs. NEW ENGLAND REGIONAL COUNCIL OF CARPENTERS, SJC-11396.
Thursday, March 20, 2014
A lawyer's attempt to recover unpaid fees failed in a decision affirming dismissal of the claim by the New York Appellate Division for the Second Judicial Department.
Except in limited circumstances, where an attorney institutes an action to recover a fee, the attorney must provide written notice by certified mail or by personal service of the client's right to elect to arbitrate and must allege in the complaint that the client received notice of his or her right to pursue arbitration and did not file a timely request to arbitrate (see 22 NYCRR 137.6). A plaintiff's failure to provide the defendant with written notice of his or her right to elect to submit the fee dispute to arbitration, and the failure to allege in the complaint that the defendant received such notice and did not file a timely request for arbitration, require dismissal of the complaint (see Herrick v Lyon, 7 AD3d 571). Here, the Supreme Court properly dismissed the complaint upon finding that the plaintiff failed to properly serve the defendant with written notice of his right to arbitrate the fee dispute, and upon the plaintiff's failure to allege in the complaint that the defendant received such notice and did not file a timely request for arbitration (see 22 NYCRR 137.6; Herrick v Lyon, 7 AD3d 571).
In addition, the Supreme Court properly found that the plaintiff failed to comply with the requirements of 22 NYCRR 1215.1 and failed to establish that he was entitled to recover legal fees in quantum meruit. Except in limited circumstances, an attorney must provide his or her client with a written letter of engagement or enter into a written retainer agreement explaining, inter alia, the scope of the legal services to be provided, the fees to be charged, and the expenses and billing practices (see 22 NYCRR 1215.1). An attorney's noncompliance with 22 NYCRR 1215.1 does not preclude him or her from recovering the value of professional services rendered on a quantum meruit basis (see Seth Rubenstein, P.C. v Ganea, 41 AD3d 54). Nonetheless, an attorney who fails to comply with rule 1215.1 bears the burden of proving the terms of the retainer and establishing that the terms of the alleged fee arrangement were fair, fully understood, and agreed to by the client (see id.). Here, the court properly found that the plaintiff failed to comply with 22 NYCRR 1215.1 and failed to establish that the terms of the fee arrangement were fair, fully understood, and agreed to by the defendant.
Thursday, January 30, 2014
The District of Columbia Court of Appeals has affirmed an abritration award that resolved a dispute over the allocation of attorneys' fees in a class action suit that had been litigated in California.
The arbitration involved several attorneys and law firms, most based in the District of Columbia. After receiving the arbitrator's award, appellants... unsucessfully attempted to reopen the attorneys' fees issue in the California trial court. When that efort failed on procedural grounds, [they] filed a motion in the Superior Court of the District of Columbia to vacate the arbitration award on the ground that the arbitrator exceeded his powers and committed misconduct by denying them due process.
The class action case involved discrimination claims by television writers over the age of 40.
Senior Judge Reid wrote for the unanimous court in affirming the trial court judgment. (Mike Frisch)
Tuesday, October 15, 2013
The Tennessee Court of Appeals has reversed and remanded an order dismissing claims brought against a Washington, D.C. attorney by a Memphis law firm.
The D.C. attorney sought the assistance of the Memphis firm in connection with a lawsuit filed in Maryland. A contract was entered into for the attorney and the firm to serve as co-counsel.
The Memphis firm sued the attorney for not paying one-half of the expenses, as provided for in the contract.
The trial court dismissed for lack of personal jurisdiction. The court here disagreed and reinstated the suit. (Mike Frisch)
Monday, April 11, 2011
A case summary from the Kentucky Court of Appeals:
The Court reversed and remanded a summary judgment in favor of a lawyer and law firm on appellant’s claim for reimbursement of all or part of a $10,000 fee paid during representation of appellant in a criminal matter after he plead guilty in lieu of going to trial. The Court held that the written fee agreement between the parties for trial preparation and trial, consisting of letters between the parties, was ambiguous as to the question of whether appellant would be entitled to a partial reimbursement of the subject fee in the event that the case did not proceed to trial. In light of the ambiguous nature of the parties’ fee agreement, there were genuine issues of material fact that could not properly be resolved via summary judgment. Because the parties did not create a fee contract that addressed the issue of who was entitled to what in the event that a trial did not take place, the question would have to be resolved by a finder of fact.
The opinion is linked here. (Mike Frisch)
Friday, December 24, 2010
From the web page of the Rhode Island Supreme Court:
NAIAD Inflatables of Newport, Inc. (NAIAD), engaged the law firm of Duffy & Sweeney, Ltd. (D&S) to defend it in a civil lawsuit brought in 2005 by the plaintiff, Stafford J. King, III. Soon, however, NAIAD became delinquent in its financial obligations to D&S. Concerned with both a large receivable and a looming trial date, D&S filed a motion to withdraw from the case. This motion was unopposed by the client or by opposing counsel. A justice of the Superior Court denied the firm’s motion. On the grounds of abuse of discretion by the hearing justice, the law firm timely appealed.
D&S filed a motion to withdraw based upon NAIAD’s failure to fulfill its financial obligations under the engagement agreement. Supported by an affidavit of counsel, the motion was properly certified and forwarded to all parties of interest in compliance with the Rules of Civil Procedure. Providing its client with ample notice, D&S made numerous requests for payments, sent reminder invoices, and warned NAIAD that D&S—based on a signed engagement agreement between the parties—would seek to withdraw as counsel if the client failed to bring the balance current. Further, D&S informed NAIAD that it would have the right to object before the Superior Court in the event that such a motion was filed. Denying the unopposed motion, the hearing justice cited Article V, Rule 1.16 of the Supreme Court Rules of Professional Conduct, and ruled that granting the motion would have a “materially adverse effect” on the interests of the clients.
In reversing the Superior Court’s denial of counsel’s motion to withdraw, the Supreme Court said that the hearing justice did not accord adequate weight to the hardship and substantial financial burden that would befall D&S if the law firm were required to continue in its representation of a nonpaying client. Moreover, the Court was of the opinion that the law firm’s request to withdraw was not presented at such a critical point in the litigation process that withdrawal would be detrimental to either the court or the client.
The opinion is linked here. (Mike Frisch)
Monday, October 11, 2010
Posted by Jeff Lipshaw
Imagine how difficult public debate in these partisan times can be for someone like me whose motto is "extremism in the pursuit of moderation is no vice." I haven't seen Inside Job, but I have read the reviews, good and bad, and I think I get the point. I confess to never having seen a Michael Moore "documentary," A Civil Action, or Erin Brockovitch. But this is from a reviewer, Keith Uhlich in TimeOut New York, who liked it, and it doesn't inspire me to fork over the twelve bucks: "Ferguson uses innumerable tricks of the slick-doc trade (pop-music montages; gotcha smash cuts; celebrity narration—in this case, Matt Damon). Even the title is a loaded, tragedy-invoking provocation." Nor am I enticed by the appeal to post-partisanship in the pursuit of outrage, as Uhlich describes it: "Ferguson’s trying to move beyond the political dichotomies that divide us into bellowing factions and show how rampant greed screws us all."
Since I'm about to fly off to Minneapolis to give a milk-toasty response (see above motto) to the question "Did Capitalism Fail?" (my answer: Capitalism Didn't Fail, But the Metaphors Got a "C"), I decided I ought to think for a little bit this morning whether I was wrong, and director Ferguson was right. I thought that particularly because my friend Frank Pasquale at Concurring Opinions also liked the movie a lot, and that means I have to take it seriously, if for no other reason that Frank has taught me so much on other issues. As I expected, Frank gets past the slick doc stuff (I cringe at the idea of watching the 60 Minutes-style "did you stop beating your wife?" questions) and suggests there are four arguments being made: (1) Wall Street compensation is loopy; (2) the Obama administration hasn't done anything to create reform, instead relying on the same bankers as the Bush administration; (3) the Obama administration is as taken with the revolving door cabal of "Goldman Sach alums and fail-upward regulators" in which it is no longer possible to determine who captured whom; and (4) the U.S. has turned into a financial (rather than mechanical, civil, bio, or electrical) engineering power bound to lose out to China and others in the long run. I also think Frank's review is honest in describing its own position (see contra my motto above): "I’ll be looking beyond the core of the economics profession for a compelling account of a fair and just society. When it comes to finance, progressives should also realize they have few friends in the current administration."
I realize, however, that my milk-toasty approach hasn't quite failed me (I can't speak for others). My essay is about the relationship between causation, as scientists would explore it, and meaning, as the rest of us would derive it. The approach of Inside Job is less an explanation of what happened than a narrative of its meaning. I'm still agnostic on the question whether "rampant greed screws us all" mainly because I like my MacBook and my iPhone, and I think they are the products of rampant greed. On the other hand, I recently turned down the opportunity to invest in a derivative akin to a synthetic CDO in part because the idea of it bugged me, even though I had no good response to my broker why it was any worse than investing in the underlying market.* As I note in the essay, one way to interpret events for their meaning is to decide whether misfortune is the result of gods or demons, and sometimes it is. Sometimes, however, it is "stuff happens." (I decided I wanted this post printable someday in a family newspaper.) We are, however, imbued with a tendency to teleology, that is, the seeing of purpose (even if purpose is no more than "function") when things like solar systems, automobiles, and macro-economies seem to work with a predictability regularity. I like graphs, however, and I came up with this one as I was walking to the T this morning:
As you can see, I had no problem placing the Salem "witches," Saddam Hussein, and Andrew Fastow, one of the architects of the Enron scam, on the continuum. In the spirit of the movie, however, I wasn't quite sure where to place the rest of these names (or the myriad others - like God, the boogie-man, the Trilateral Commission, or the Bohemian Grove - that occurred to me).
My point is not that there are never culpable demons, but that sometimes those who we think are culpable demons are not. I have not yet been persuaded by the level of public discourse (Ann Coulter? Sarah Palin? Michael Moore? Glenn Beck? Jon Stewart? Stephen Colbert?) that we can say we've reached a level of rationality such that witch trials were then, and now is now. What is comforting is that at least I can have a reasoned and civil discussion with Frank, without the sound bites, even if we don't agree!
*UPDATE: Actually, I did come up with a reason or rationalization but it's almost as complicated as the investment vehicle, so I won't bother explaining it.
Tuesday, October 5, 2010
An attorney filed suit in Maryland Circuit Court for a declaratory judgment to enforce his claim to 50% of an award affirmed on appeal. He in turn appealed a decision that removed the case to the District of Columbia Bar's fee arbitration process and thereafter enforced the award in favor of the client.
The attorney argued that there was no arbitration provision in his retainer agreement with the client. The Maryland Court of Special Appeals held that the attorney was obligated to arbitrate and affirmed the judgment:
...when [the attorney] elected to avail himself of the right to practice in the District of Columbia, he agreed to abide by the Rules established by the District of Columbia Court of Appeals. Pursuant to [applicable rules], [he] agreed to arbitrate a fee dispute with [the client] upon her request. [The attorney's] contention that there was no agreement to arbitrate fee disputes is without merit.
The court also rejected the contention that the issue between the parties was not a fee dispute.
The client's case involved injuries sustained at a hotel in the District of Columbia. (Mike Frisch)
Wednesday, July 28, 2010
Thursday, June 24, 2010
An order denying the disqualification of Buchanan Ingersoll based on a former client conflict was reversed by the West Virginia Supreme Court, which granted a writ of prohibition. The court recited the following facts:
Bluestone Coal and Bluestone Coal Sales, the petitioners herein, are companies engaged in the production and sale of coal. Both Bluestone companies are part of a conglomerate of twenty-nine affiliated closely-held companies owned and operated by James C. Justice, II (hereinafter “Mr. Justice”). These affiliated companies share one common General Counsel, Mr. Stephen W. Ball (hereinafter “Mr. Ball”), and the majority of these companies, including the two Bluestone companies involved in this case, are headquartered in the same office building in Beckley, West Virginia.
Mountain State, one of the respondents herein, owns and operates a coke plant in Follansbee, West Virginia, and purchases coal to convert into coke; Mountain State's principal place of business is in Wheeling, West Virginia. On October 5, 2007, Mountain State and Bluestone Coal Sales entered into a coal supply agreement whereby Bluestone Coal Sales agreed to supply all of the coal required by Mountain State's Follansbee coke operations. Bluestone Coal served as the guarantor for Bluestone Coal Sales' obligations under this agreement. When Bluestone Coal Sales failed to deliver the requisite amount of coal in accordance with the agreement's terms, Mountain State filed suit against both Bluestone Coal Sales and Bluestone Coal in the Circuit Court of Ohio County on September 9, 2008.
The law firm representing Mountain State in the underlying litigation, whose disqualification the Bluestone companies seek, is Buchanan Ingersoll. Buchanan Ingersoll is a large, nationwide, law firm, whose principal place of business is in Pittsburgh, Pennsylvania. At various times, Buchanan Ingersoll has been retained as counsel for certain of Mr. Justice's companies, including Dynamic Energy, Inc.; Harlan Development Corporation; James C. Justice Companies LLC; and Sequoia Energy, LLC, for which representations engagement letters were signed. Buchanan Ingersoll also has either directly represented or provided legal counsel to both Bluestone Coal and Bluestone Coal Sales; however, the exact nature of the relationship between Buchanan Ingersoll and the Bluestone companies, as well as whether there currently exists an attorney-client relationship between these entities, is disputed by the parties and will be discussed in further detail in Section III.B. of this opinion. See Section III.B., infra. It appears that Buchanan Ingersoll began
providing legal services for both Mountain State and Mr. Justice's companies in approximately 2005.
Following Buchanan Ingersoll's institution of Mountain State's Ohio County lawsuit, the Bluestone companies moved the circuit court to disqualify Buchanan Ingersoll from continuing its representation of Mountain State. In support of their motion, the Bluestone companies variously contended that they were current clients of Buchanan Ingersoll such that continued representation of Mountain State in an adverse capacity would violate Rule 1.7 of the West Virginia Rules of Professional Conduct; that they were former clients of the law firm such that continued representation would violate Rule 1.9; and that, because certain, individual attorneys had formerly represented the Bluestone companies, their disqualification should be imputed to the entire law firm in accordance with Rule 1.10. By order entered November 20, 2009, the circuit court denied the Bluestone companies' motion to disqualify Buchanan Ingersoll, ruling that “no disqualifying conflict exists with respect to Buchanan Ingersoll & Rooney, LLP's representation of Mountain State Carbon, LLC, Plaintiff, in this action.”
The court found the matters substantially related:
...it is apparent that the nature of Buchanan Ingersoll's representation of Mountain State in the underlying proceedings is “substantially related” to its prior representation of Bluestone Coal insofar as both the former and subsequent representations concern the Bluestone companies' performance, or lack thereof, under coal supply agreements under the factual, circumstantial, and legal contexts of the two cases.
Factually, the two representations are virtually the same. Both the Coal Sourcing case and the instant litigation involve the same type of contract: a coal supply agreement. The agreements both involve the same mine, i.e., the Keystone Mine, and the same coal from that same mine. In both proceedings, Bluestone Coal has been named as a party defendant with respect to the failure to deliver coal as specified by the subject coal supply agreements and is ultimately liable for any obligations arising thereunder.
Circumstantially, the two representations also are substantially related and strikingly similar insofar as “the current matter involves the work the lawyer performed for the former client.” Both cases allege deficient performance of a coal supply agreement, which is precisely the type of case in which Buchanan Ingersoll formerly represented Bluestone Coal. Specifically, Buchanan Ingersoll formerly represented Bluestone Coal as a defendant defending against allegations of a failure to perform a coal supply agreement in the Coal Sourcing case, and now is currently representing Mountain State as a plaintiff claiming that the coal for which it had contracted has not been delivered pursuant to the governing coal supply agreement in the instant litigation.
Legally, the two representations are nearly identical such that “there is a substantial risk that representation of the present client will involve the use of information acquired in the course of representing the former client, unless that information has become generally known.” ...Under the facts of this case, not only is there a substantial risk that the attorney could have used information obtained from the former client in the prior representation, there is actual evidence that such knowledge has been used to the former client's detriment. In both cases, Bluestone Coal was named as a party defendant. During the course of the Coal Sourcing litigation, Bluestone Coal asserted a defense of force majeure to excuse its nonperformance of the subject coal supply agreement. Reliance on this defense required Bluestone Coal to reveal its confidential coal supply agreements to its counsel. During the litigation initiated by Mountain State, Buchanan Ingersoll, on behalf of Mountain State, requested documents from Bluestone Coal regarding its prior reliance on the defense of force majeurebefore Bluestone Coal had filed an answer to Mountain State's complaint or had indicated what, if any, defenses it intended to assert in response to such claims. Because Bluestone Coal had not yet attempted to rely upon the defense of force majeure, and had not even had an opportunity to respond to Mountain State's complaint, it is apparent that Buchanan Ingersoll, from its former representation, possessed sufficient knowledge of Bluestone Coal to anticipate the defense upon which it may have relied in response to Mountain State's complaint. This strategy indicates that Buchanan Ingersoll used information it obtained from its former representation of Bluestone Coal to the detriment of its former client. Thus, because the subject matter of Buchanan Ingersoll's former and subsequent representations are virtually the same, it is clear that the third criterion for disqualification has been satisfied.
The court found that the elements of a prohibited former client conflict had been established. (Mike Frisch)
Tuesday, May 4, 2010
The web page of the Ohio Supreme Court reports:
The Supreme Court of Ohio ruled today that an award of attorney fees in a civil lawsuit is distinct from an award of punitive damages, and the public policy of the state does not prevent an insurance policy from providing coverage for attorney fees when they are awarded solely as a result of an award for punitive damages.
Applying that analysis to a Cuyahoga County personal injury case, the Court found that an auto insurance policy issued to Linda Lahman provided coverage for a jury’s award of attorney fees to another motorist, Kimberly Neal-Pettit, who was injured in an auto accident caused by Lahman. The court’s 4-2 majority decision was authored by Justice Judith Ann Lanzinger.
Neal-Pettit was injured in 2003 when her vehicle was hit by Lahman, who was driving while intoxicated and fleeing the scene of an earlier collision. Neal-Pettit sued Lahman for damages arising from her injuries.
A jury awarded Neal-Pettit compensatory damages of $113,800 and an additional $75,000 in punitive damages. Based on a finding that Lahman had acted “with malice” in causing Neal Pettit’s injuries, the jury also awarded Neal-Pettit attorney fees that the court later set at $46,825 along with an additional sum for litigation expenses. Lahman’s insurance company, Allstate, paid Neal-Pettit the amounts awarded as compensatory damages, interest and expenses, but denied any coverage under its policy for either the punitive damages or attorney fees awarded by the jury.
Neal-Pettit filed suit against Allstate in the Cuyahoga County Court of Common Pleas seeking payment for the attorney fee portion of the jury verdict. The trial court granted summary judgment in favor of Neal-Pettit. Allstate appealed, arguing that it had not contracted to pay attorney fees and that an attorney-fee award is an element of punitive damages, which public policy prevents an insurer from covering. The 8th District Court of Appeals affirmed the trial court’s decision, holding that attorney fees are “conceptually distinct” from punitive damages and that attorney fees were not expressly excluded from coverage by the language of the Allstate policy issued to Lahman. Allstate sought and was granted Supreme Court review of the 8th District’s decision.
In today’s decision affirming the 8th District, Justice Lanzinger rejected Allstate’s argument that the attorney fee award is an element of the jury’s award of punitive damages because both types of relief are based on a finding that the defendant acted “with malice.” Quoting from the Supreme Court of Ohio’s 1859 decision in Roberts v. Mason, she wrote: “(T)he fact that the awards have similar bases is irrelevant. We have recognized that attorney-fee awards and punitive-damages awards are distinct: ‘In an action to recover damages for a tort which involves the ingredients of fraud, malice, or insult, a jury may go beyond the rule of mere compensation to the party aggrieved, and award exemplary or punitive damages ... In such a case, the jury may, in their estimate of compensatory damages, take into consideration and include reasonable fees of counsel employed by the plaintiff in the prosecution of his action.’”
With regard to an exclusion of coverage in Lahman’s policy for “punitive or exemplary damages, fines or penalties,” Justice Lanzinger wrote: “(T)he exclusion does not refer in any way to attorney fees or litigation expenses. It specifically mentions only punitive or exemplary damages, which, as we have discussed, are conceptually distinct from attorney fees. Therefore, the term ‘punitive or exemplary damages’ does not clearly and unambiguously encompass an award of attorney fees. We decline to read such language into the contract. We instead construe the policy strictly against the insurer. ... Allstate, as the drafter, is responsible for ensuring that the policy states clearly what it does and does not cover.”
Finally, the Court disagreed with Allstate’s claim that it would be against public policy for an insurer to pay attorney fees on behalf of a policyholder when those fees are awarded solely as a result of a punitive damages award.
Justice Lanzinger wrote: “It is true that public policy prevents insurance contracts from insuring against claims for punitive damages based upon an insured’s malicious conduct. … In addition, R.C. 3937.182(B) prohibits insurance coverage of punitive damages: ‘No policy of automobile or motor vehicle insurance ... shall provide coverage for judgments or claims against an insured for punitive or exemplary damages.’ But R.C. 3937.182(B) mentions only punitive and exemplary damages, not attorney fees. The General Assembly chose not to mention attorney fees when it drafted the statute, and we decline to add them. ... Our holding will not encourage wrongful behavior merely because it permits insurers to cover attorney fees for which tortfeasors become liable. The tortfeasors remain liable for punitive damages awarded for their malicious actions, and these punitive damages remain uninsurable. Payment by the insurer of an attorney-fee award violates neither public policy nor R.C. 3937.182(B).”
Justice Lanzinger’s opinion was joined by Justices Paul E. Pfeifer, Maureen O’Connor and Robert R. Cupp.
Justice Evelyn Lundberg Stratton entered a dissenting opinion, joined by Justice Terrence O’Donnell, in which she disputed the majority’s conclusion that an award of attorney fees that is based solely on an award of punitive damages is nevertheless separate and distinct from those punitive damages.
Justice Stratton wrote: “The Allstate policy here agrees to pay for damages because of bodily injury and property damage. The policy excludes coverage for ‘punitive or exemplary damages, fines or penalties.’ There is an attorney-fee award in this case only because of the punitive-damages award; thus, the attorney-fee award is a ‘penalty’ designed to punish. The attorney fees are not compensable damages ‘because of bodily injury.’ I believe that the award is punitive in nature and is expressly excluded by the Allstate policy. Because of the punitive nature of an attorney-fee award, I also believe that it is against public policy for an insurer to pay attorney fees on behalf of its insured when the fees are awarded in connection with and as a direct result of a punitive-damages award.”
Chief Justice Eric Brown did not participate in the Court’s deliberations or decision in the case.
The decision is linked here. (Mike Frisch)
Tuesday, April 13, 2010
The Maryland Court of Appeals affirmed a trial judge's order that a husband pay his wife's attorney's fees in a case involving custody, visitation and child support for the couple's minor children. The wife's submissions documented legal work on her behalf by a non-profit domestic violence clinic that had represented her on a pro bono basis. The trial judge awarded the wife custody of the children and ordered the husband to pay $5,000.00 to the clinic for its legal work on her behalf.
The court here rejected the claim that the fee award was improper. Fees may be awarded when it is "just and proper under all the circumstances." The fees may be paid directly to the clinic pursuant to Family Law Article provisions that govern fee shifting in domestic cases. (Mike Frisch)
Monday, April 5, 2010
The District of Columbia Bar Legal Ethics Committee has recently opined on the practice by immigration attorneys of executing affidavits of support for their clients. The conclusion:
Lawyers in immigration matters may not execute an Affidavit of Support (U.S. Citizenship and Immigration Services Form I-864) on the immigrant’s behalf as a joint–sponsor while continuing to represent the immigrant in the matter. Typically, a person who signs an Affidavit of Support agrees to support the immigrant at an annual income that is not less than 125% of the federal poverty level so that the immigrant will not become a public charge. The ensuing contractual obligations continue for years after the immigrant is admitted on the basis of the Affidavit of Support. The Affidavit of Support is a guarantee of financial assistance to a client. Such guarantees are generally prohibited by Rule 1.8(d). Because the obligations continue long after the completion of the immigration proceeding, the undertaking does not fit within the narrow safe harbor of Rule 1.8(d)(2), which allows, but does not require, financial support strictly necessary to sustain the client during a proceeding. An Affidavit of Support undertaking by a lawyer to a client is also fraught with peril under Rule 1.7(b)(4) (conflicts of interest). Thus, a lawyer who wishes to serve as a joint sponsor for an immigration client by executing an Affidavit of Support on the immigrant’s behalf must withdraw from the representation of that client before doing so.
Monday, March 29, 2010
The Connecticut Appellate Court affirmed the dismissal of a case brought by a student who had attended law school at Quinnipiac University. The student requested that the university issue certificates of good standing in order for her to enroll and take courses as a visiting student for transfer credits and to submit transfer applications to institutions that included the University of Minnesota Law School. The student had an unpaid tuition balance and the university refused to issue transcripts and a letter of good standing so long as the balance remained unpaid. An associate dean wrote a letter to the Dean of Minnesota Law advising that the student was no longer in good standing.
The student filed a diversity action in federal court alleging that the associate dean's letter was defamatory. The case was dismissed at the close of the plaintiff's case-in-chief based, among other things, on the legal conclusion that financial delinquency was a ground for denial of the issuance of a certificate of good standing.
The student then filed a state court action, which was dismissed after a six-day trial in which the student represented herself. The court here affirmed the judgment. (Mike Frisch)
Saturday, January 30, 2010
The Rhode Island Supreme Court granted the application of James Sokolove to register Sokolove Law LLC to practice law as a Rhode Island limited liability entity pursuant to rules governing admission to practice. The court noted that it had never before been confronted with an objection to such an application.
The objection to the petition came from several law firms, who had also filed bar complaints alleging that Sokolove's television and print advertisements violated Rhode Island ethics rules. The complaint was dismissed by a screening panel of the Disciplinary Board on a finding that the evidence "did not rise to the requisite clear and convincing standard." The objectors then filed an unauthorized practice complaint, which resulted in a finding of probable cause and an informal resolution.
Here, the court described Sokolove LLC as "a national law firm with a complex referral system that can refer clients to attorneys throughout the country." The firm practices in every jurisdiction except South Dakota and Rhode Island. The Rhode Island entity would have an office in the state staffed by a member of the Rhode Island Bar.
The court concludes that "[n]othing in the [licensing] rule requires that each member of the LLC must be licensed to practice law in Rhode Island." The court discussed concerns about fee-sharing and referrals, noting that attorneys must strictly adhere to the rules governing fees and that "we are confident that Disciplinary Counsel will pay close attention to these concerns." As to possible unauthorized practice, "[the court] note[s] that, although Sokolove LLC, may not fall within the traditional boundaries of the practice of law in Rhode Island, we are hopeful that, as represented, the LLC will operate in compliance with our rules." (Mike Frisch)