The e-magazine of the Solo and Small Firm Section of the California Lawyers Association
Renee N. G. Stackhouse, Chair
San Diego, CA
Hello, SSF members, and welcome to the new year. On the completion of the successful Inaugural Annual Meeting in San Diego, the Sections of California Lawyers Association have started fresh with new leadership who are preparing for a new year working on your behalf. I am excited to serve as Chair this year, working with three incredible officers: Jeremy Evans, Vice Chair (Los Angeles), Sabrina Green, Treasurer (San Diego), and J. Chris Toews, Secretary (San Luis Obispo), as well as a motivated crew of Executive Committee Members and Advisors. And we are hitting the ground running!
SSF has been actively working to protect our members- someone has to look out for the solos and small firms! Recently, The State Bar of California was looking at an amendment to their policy regarding consumer notices and alerts. The amendment would have authorized "consumer alerts" on attorney State Bar profiles whenever disciplinary charges were filed against an attorney, the Office of Chief Trial Counsel filed a petition alleged the attorney should be placed on inactive status because s/he poses a substantial threat of harm to the public or clients or when felony charges are filed against an attorney in court. While we understand, and support, the desire to protect consumers, the amendment would authorize consumer alerts where charges are filed or allegations have been made but not proven. Such badging could destroy the career of an attorney, especially a solo and small firm practitioner who is their firm and would disproportionately impact those who lack the resources to challenge disciplinary charges. Well, SSF is proud to announce that the proposal has been tabled indefinitely at this time. That's a win.
We plan to continue this work of advocating for our SSF members in the coming year. If there are issues that you see which disproportionately affect SSF practitioners, let us know. We want to hear from you. Feel free to email me any time.
I close with sincere thanks to our Immediate Past Chair, Ritzel Ngo, for her leadership last year and to those finishing their term of service, Immediate Past Chair Megan Zavieh and ExComm Member Trina Chatterjee. We are grateful for your time and commitment to the Section. We hope to make you, and our members, proud to be #SSF moving forward.
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By Robert M. Klein
A law practice devoted to helping personal injury victims.
Artificial intelligence is showing up in the legal world. This article will discuss one platform which aims to assist lawyers in dealing with discovery.
The company is called LegalMation (www.legalmation.com). They call themselves a litigator's trusted assistant. The software produces a first draft of discovery aided by IBM's Watson. The program was developed by trial lawyers and litigators who were assisted by technical experts in software and artificial intelligence.
The website promotes their product as software that creates a preliminary draft of written discovery. Here is how it works: a complaint is uploaded and is then scanned into the LegalMation software program. The program "produces a high set of quality draft initial written documents." It is not clear from the website whether this software is tailored to defense firms or whether there is an application for plaintiff-side practitioners.
This software is different than the document automation programs built into legal case management software, such as Clio and the like. Those programs prepare documents using similar merge features still present in Microsoft Word or WordPerfect. LegalMation appears to be more intelligent, creating a set of discovery, along with an answer to a complaint, using artificial intelligence. Essentially, LegalMation eliminates the “cut and paste” process often used when preparing a set of written discovery requests.
At this stage, it appears LegalMation is geared toward early-stage litigation, creating documents that seem rather general in nature. I have not tried the program nor have I contacted the company to obtain further information in this regard.
Here is the key point I am making. Document automation is making its way into the legal world. The impact is not known but burying our heads in the sand pretending it does not exist will not serve us. Ultimately, all of us will need to understand the process to stay competitive in today's legal environment.
By Steven L. Krongold/Irvine, CA
Unfair Competition—Interest Rate on Consumer Loans
De La Torre v. CashCall, Inc., S241434 (8/13/18)
In a question certified by the Ninth Circuit, arising from a class action brought by borrowers, the California Supreme Court held that consumer loans of $2,500 or more can be ruled unconscionable under section 22302 of the Financial Code. The Court rejected the notion that judicial abstention was appropriate because the issues involved complex economic regulation. Rather, the legislature allowed courts to evaluate such loan contracts for unconscionability. If the contract includes an interest rate term so high that it is “unreasonably and unexpectedly harsh,” “unduly oppressive,” or “so one-sided as to shock the conscience”, then it will be unenforceable. Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 910–911. An interest rate on a loan is the price of that loan, and “it is clear that the price term, like any other term in a contract, may be unconscionable.” Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 926.
Workers’ Compensation—Exclusive Remedy Bar
King v. CompPartners, Inc., No. S232197 (8/23/18)
An anesthesiologist employed by CompPartners, Inc., a licensed workers’ compensation utilization review management company, determined that Klonopin was not medically necessary and decertified the prescription for the injured worker. The decertification did not provide for a weaning regimen, nor did the doctor warn of the risks of abruptly ceasing Klonopin. The plaintiff immediately stopped taking the medication and suffered a series of four seizures. A psychiatrist employed by CompPartners also performed a UR of the prescription and found it was medically unnecessary. Held: worker’s lawsuit for professional negligence seeks to recover for injuries that arose during the treatment of his industrial injury and in the course of the workers’ compensation claims process, and thus fall within the scope of the workers’ compensation system. Labor Code § 3602; Charles J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001) 24 Cal.4th 800, 815. This is true even though plaintiffs seek damages against a third-party U/R organization and its employees.
Labor—Waiting Time Penalties—Attorney FeesNishiki v. Danko Meredith APC, No. A147733 (1st Dist., 8/1/18)
Former employee Taryn Nishiki filed a complaint with the Labor Commissioner seeking vacation wages, rest period premiums, and waiting time penalties. She prevailed on her claim for waiting time penalties, and was awarded $4,250. Defendant appealed the award to the superior court, which affirmed, and awarded Nishiki $86,160 in attorney fees. The court of appeals reduced the award to $2,250 (representing 9 days of waiting time), but affirmed the fee award in its entirety under Labor Code section 98.2: “Moreover, it warrants emphasis that it was defendant, not Nishiki, that chose to appeal and seek a trial de novo after suffering only a relatively modest loss before the commissioner, having defeated two other claims for which Nishiki sought considerably higher damages. If Nishiki consequently was required to incur substantial attorney fees to retry the entire case, including issues on which she did not prevail before the commissioner, defendant has only itself to blame.” A review of the amount will be highly deferential; the ruling will not be disturbed unless the appellate court is convinced that it is clearly wrong—meaning that the trial court abused its discretion.
Knutson v. Foster, No. G054247 (4th Dist., 8/8/18)
The trial court erred in granting a motion for new trial under Code Civ. Proc., § 657 on grounds (1) former client of attorney failed to adduce evidence of fraudulent concealment and breach of fiduciary duty, and (2) jury’s award of $400,000 in emotional distress damages was excessive. Plaintiff Knutson was a high school swimmer with a promising career. In March 2010, Mark Schubert, USA Swimming’s head coach, advised Knutson to swim professionally rather than at college. He orally promised her support to train at a “Center for Excellence,” formed by USA Swimming in Fullerton, California, including room, board, tuition, and stipend until she earned her degree. Knutson accepted Schubert’s offer, moved to Fullerton, and turned professional.
Knutson retained attorney Foster when USA Swimming failed to perform. Foster negotiated a settlement that involved a release of Schubert. Knutson, who lost her NCAA eligibility, later discovered that Foster had undisclosed conflicts of interest. She sued Foster for failing to advise her in writing of his relationships with USA Swimming and Schubert; failing to share “confidential” information provided by USA Swimming; failing to protect her confidential information by forwarding to USA Swimming privileged attorney-client communications, and disclosing her financial condition without her knowledge or consent. Knutson was harmed initially because she did not make an informed decision about entering into the settlement agreement with USA Swimming. Foster also failed to ensure that Knutson’s best interests were being protected during the negotiations. Knutson was also harmed when she later learned of the breaches and suffered emotional distress. This conduct also supports a fraudulent concealment cause of action against Foster.
Attorneys—Confidentiality of Settlement
Monster Energy Company v. Schechter, No. E066267 (4th Dist., 8/13/18)
Attorneys typically sign settlement agreements under the words, “Approved as to form and content.” The issue presented: can plaintiffs’ counsel be liable to the defendant for breach of the confidentiality provision of the settlement agreement? The answer is “no,” even if the plaintiffs sign individually as well as on the behalf of their respective beneficiaries, trustees, principals, attorneys, officers, directors, shareholders, employers, employees, parent companies, affiliated companies, subcontractors, members, partners, subsidiaries, insurers, predecessors, successors-in-interest, and assigns. It is hornbook law that “[t]he declarations of an [alleged] agent are not admissible to prove the fact of his agency or the extent of his power as such agent. [Citations.]” (Howell v. Courtesy Chevrolet, Inc. (1971) 16 Cal.App.3d 391, 401.) Court followed an out-of-state case on point, RSUI Indem. Co. v. Bacon (2011) 282 Neb. 436 [810 N.W.2d 666]. Court notes that one could draft a settlement agreement that explicitly makes the attorneys parties (even if only to the confidentiality provision) and explicitly requires them to sign as such. Even without such explicit provisions, defendants have a cause of action against the plaintiff, and possibly could state a cause of action as a third-party beneficiary of the attorney-client contract between the plaintiffs and the attorneys.
Offset Compensatory Damages—Punitive Damages Remain
Colaco v. Cavotec SA, No. G052619 (4th Dist., 8/10/18)
Trial court erred in denying motion for judgment notwithstanding the verdict (JNOV) on grounds because Cavotec did not dispute it failed to make the final $2 million earn-out payment. The fact Inet breached the same contract by failing to forward customer payments merely provided an offset, not an excuse for nonperformance. The obligations were independent; therefore, breach by one party does not excuse the other party’s performance. Denial of JNOV resulted in a windfall for Inet because the verdict both excused Cavotec from its obligation to make the final $2 million payment and awarded Cavotec $1.3 million in damages. After offsets, the trial court should enter a new judgment in favor of Inet and against Cavotec for $687,000 in compensatory damages. Although the offset wipes out liability for compensatory damages, it does not mean those damages were never awarded. The offset merely means the award was effectively paid. Where a claimant’s “award of compensatory damages was completely offset, he could still receive punitive damages.” (Fullington v. Equilon Enterprises, Inc. (2012) 210 Cal.App.4th 667, 686-687.) Thus, the $2 million award for punitive damages remains on the judgment.
Pre-filing Requirements for Attorney-Client Conspiracy
Cortese v. Sherwood, No. A152351 (1st Dist., 8/21/18)
The elements of a cause of action for an attorney’s participation in breach of trust are active participation and conduct in furtherance of the attorney’s own financial gain. Pierce v. Lyman (1991) 1 Cal.App.4th 1093, 1104. When such a claim is alleged, the plaintiff must obtain a pre-filing certificate of merit. Civ. Code, § 1714.10. The prefiling requirements apply to a “cause of action against an attorney for a civil conspiracy with his or her client arising from any attempt to contest or compromise a claim or dispute, and which is based upon the attorney’s representation of the client.” § 1714.10, subd. (a). The petition by daughter against her step-father strongly implied an agreement between him and his attorney to defraud the mother’s estate and trust. Therefore, the order overruling a demurrer was reversed.
Forum-Selection ClauseSun v. Advanced China Healthcare, Inc., No. 16-35277 (9th Cir., 8/22/18)
Share Purchase Agreement contained this forum-selection clause: “With respect to any disputes arising out of or related to this Agreement, the parties consent to the exclusive jurisdiction of, and venue in, the state courts in Santa Clara County in the State of California.” Plaintiffs sued in the State of Washington, alleging their $2.8 million investment for the development and opening of medical centers was procured by fraud. The district court dismissed the complaint for failure to comply with a valid and enforceable forum-selection clause. The Court of Appeal affirmed. The clause is broadly worded to cover any dispute that has some logical or causal connection to the parties’ agreement. The clause was enforceable under Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Tex., 571 U.S. 49, 60 (2013). The practical result is that a forum-selection clause “should control except in unusual cases.” Id. at 64. Limited exceptions exist if the other party makes a strong showing that: (1) the clause is invalid due to “fraud or overreaching,” (2) “enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision,” or (3) “trial in the contractual forum will be so gravely difficult and inconvenient that [the litigant] will for all practical purposes be deprived of his day in court.” M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15-18 (1972). None of the exceptions applied.
No one likes to think about it, but sole practitioners should take some time to plan for what will happen in the event of their death or disability. Do you have a plan for who will handle your practice if the need arises?
Your death or disability could leave your family members to deal with many tricky issues around your practice, including what happens to client files and funds on deposit in a trust account. These problems can be avoided easily by nominating another attorney to act as your practice administrator.
The only requirement for a practice administrator is that he or she be an active member of the State Bar of California and appointed by the probate court on petition by the member’s conservator, personal representative, or trustee. See Prob C §2468 (attorney with disability under conservatorship), §9764 (deceased attorney’s estate subject to administration), §17200(b)(22)–(23) (deceased or disabled attorney’s practice transferred to trust); Bus & P C §6185 (powers of practice administrator). The practice administrator can’t be the attorney representing the personal representative, conservator, or trustee.
The nominated attorney will have priority in a petition for appointment of a practice administrator—unless the court concludes that it would be contrary to the best interests of the estate or would create a conflict of interest with any of the clients of the disabled or deceased attorney.
The State Bar of California has approved a model “Agreement to Close Law Practice in the Future” that allows California attorneys to designate a successor who can petition for appointment as a practice administrator if the attorney dies or becomes disabled or incapacitated. The agreement details the typical responsibilities of the lawyers involved in the agreement and is intended to facilitate compliance with Bus & Prof C §6185 and the relevant provisions of the Probate Code. The agreement is sometimes referred to as a model surrogacy agreement.
The agreement also includes a duty for the original attorney, i.e., to notify all clients in engagement letters that a successor attorney has been designated.
How do you decide who to nominate? Ask yourself these questions:
And review the nominee periodically to make sure it’s still the right person to act as practice administrator.
Planning for your death or disability is part of your professional responsibility. Get guidance on nominating a practice administrator, including a sample nomination form, in
CEB’s California Will Drafting, chap 1
By Marilyn A. Monahan/ Marina del Rey, CA
Do you sometimes supplement your income working as a contract lawyer? Do you hire contract lawyers when you get busy? A groundbreaking opinion from the California Supreme Court could impact the status of lawyers who work for law firms as contract lawyers, turning them into employees of those firms rather than independent contractors.
On April 30, 2018, the California Supreme Court issued a significant opinion: Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018). Dynamex changes the standard that employers must use to distinguish between common law employees and independent contractors for wage order purposes. The new standard—referred to as the ABC test—places the burden on the employer to establish that an individual is not intended to be included within the coverage of a wage order, and is instead an independent contractor, by establishing each of three factors:
(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Unless the employer meets its burden of establishing each one of these factors, the individual is deemed an employee.
The second factor—that the worker performs work that is outside the usual course of the hiring entity’s business—is particularly problematic for lawyers who want to work as independent contractors, and for the firms that want to hire them. Under the ABC test, these lawyers may have to be treated as employees of the firm they are working for, and not as independent contractors. Lawyers and law firms should watch for further developments on this very important topic.
In May, the California Supreme Court approved comprehensive changes to the Rules of Professional Conduct governing lawyers in California to take effect on November 1, 2018. These changes are designed to bring California rules in line with the rest of the country. The changes include:
For more information, the new rules are available on the State Bar's website.
On May 23, 2018, the Supreme Court issued California Rule of Court, rule 9.9.5, requiring the re-fingerprinting of most active attorneys licensed in California, effective June 1, 2018.
Our records indicate you are required to be re-fingerprinted. The deadline to submit proof that you have been fingerprinted without penalty is April 30, 2019.
For more information, please go to your My State Bar Profile and the Fingerprinting Rule Requirements. The State Bar also sets out FAQ on the Bar’s website.
The cost of the re-fingerprinting falls to the attorney. There are multiple locations where you can go to have this done. The DOJ provides locations and related costs. But there are also private companies that can provide ou with these services. For example, the National Notary Association offers locations in numerous counties.
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