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Conflicts of Interest – An Ethical Dilemma Harming Both Attorneys & Clients

03.19.2019 by Stacey Romberg //

If I taught Professional Responsibility in law school, I would enjoy torturing my students with an ethics final exam in which I first showed them an episode of one of my favorite television shows, Suits, and then required them to analyze all of the ethical dilemmas presented. Since each episode presents a plethora of unethical behavior from the show’s attorneys, it would be challenging to pick which episode would be the best. Season 8, Episode 15 would certainly be a good one.

In this episode, the law firm of Zane Spector Litt Wheeler & Hill represents two business clients – Thomas Kessler, the owner of furniture stores, and Simon Lowe, the owner of a shopping mall chain. Lowe offered Kessler a fabulous-sounding deal to anchor his shopping centers. The offer almost sounded too good to be true! And, indeed, it was. The offer was merely a ploy by Simon to bring another party back to negotiate a more lucrative deal and then leave Kessler high and dry. And, of course, the always entertaining but perpetually ethically challenged lawyers of Zane Spector Litt Wheeler & Hill represented both parties to the potential commercial leasing transaction. To further complicate matters the firm’s Chief Operating Officer Donna Paulsen, who is also Kessler’s girlfriend, spilled the beans and told Kessler about Simon’s nefarious plot. Although Paulsen is not an attorney, nonetheless, the firm is still responsible for her actions pursuant to the New York equivalent of Rule of Professional Conduct (RPC) 5.3, which outlines the responsibilities of attorneys to ensure that their nonlawyer staff members comply with the ethical rules. And, of course, one of the firm’s former main partners, Daniel Hardman, immediately became Lowe’s new attorney of record, and filed a lawsuit against his former firm for its ethical misdeeds. Stay tuned to find out how it all turns out!

Although it would not have been nearly as fun to watch, the firm could have avoided all of this mess if the attorneys had paid attention to RPC 1.7 which governs a conflict of interest between current clients. Note the general rule that “a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if the representation of one client will be directly adverse to another client.” It’s hard to see how representing both the landlord and tenant in relation to a commercial leasing transaction would not be “directly adverse.” The rule does provide various exceptions that would allow representation. But, of course, Zane Spector Litt Wheeler & Hill did not bother to ensure that one of these exceptions applied prior to proceeding forward with the dual representation.

When you approach your business attorney to request that they represent you in a transaction, in all likelihood, the first question they will ask you is “Who are the other parties to the transaction?” The firm will then check its database for any conflicts of interest, precisely to avoid the Kessler – Simon scenario. So, next time you get that question, you’ll know it’s a good question and you should answer it promptly! Otherwise, you never know, perhaps someone’s girlfriend will “spill the beans” on information that you assumed that you told your attorney in confidence.

Is It Done Yet?

03.05.2019 by Stacey Romberg //

Like most attorneys who do estate administration work, our clients frequently ask us, “How long will this take?” And, again like most attorneys, our response is often “It depends.”

I noted with interest a February 7, 2019 article in the Blazer’s Edge, “Evaluating John Canzano’s Column About the Trail Blazers Lease, Potential Sale.” The article cites Portland City Commissioner Nick Fish, who told John Canzano of The Oregonian that Paul Allen’s estate will take “about five or six years to be settled” and that the Portland Trail Blazers will likely be sold at “some point.” It continues:

The 5-6 year span mentioned in the article was linked to two things: the amount of time it takes to settle a large estate and the expiration of the Blazers’ lease at Moda Center. As anyone who’s been through the estate process knows, the former number is variable. Nor are the two processes (estate and lease) intrinsically linked. The estate could take that long to settle. If so, that would coincide with lease negotiations. If the estate resolves earlier or later, it won’t.

It certainly isn’t unreasonable, and indeed it might be ambitious, that a large estate like Paul Allen’s will likely take at least five or six years to be administered. Also, please note that although the article refers to Paul Allen’s “estate,” to be more precise, Paul Allen had a living trust and likely most if not all of his assets were titled in the trust.

But, unlike Mr. Allen, what about an average probate estate? How long does that take to administer? In an average probate, at a minimum the Personal Representative will need to wait until the four-month creditor claim period has expired prior to closing the estate. Another factor in determining how long probate takes is the time frame needed to identify and consolidate estate assets. For example, all of the bank accounts lacking beneficiary designations need to be closed out and deposited into the estate account for eventual distribution to the heirs.

The decedent’s real property holdings tend to be a strong determinant of the time period needed for a probate. Assuming that the property won’t be distributed directly to the heirs, the Personal Representative needs to prepare the property for sale, put it on the market, and hope for the best. The estate needs to remain open until all the real property has been sold unless it is distributed to the heirs. Other assets, such as art, vehicles, furniture, etc. may also need to be sold. The decedent’s business may need to either be dissolved or put on the market and sold. Also, the estate needs to address any tax issues that may be present. The decedent may owe income tax for the year of the death, and the estate may also possibly owe tax as well.

In many probates or trusts, there’s also an X factor – a factor that, from a common sense standpoint, requires the administration process to remain ongoing until it’s definitively addressed. For example, in Paul Allen’s case, one such factor appears to be the expiration of the Trail Blazer’s lease at the Moda Center. The trustee likely has been advised that it’s necessary for the lease to expire before the team can be sold. And the team must be sold before the trust administration can be completed.

As you can see, when it comes to estate administration, a better question to ask than “Is it done yet?” is “How long will it likely take to efficiently administer this estate and close it out, making sure everything is being done correctly?”

U.S. Supreme Court Rules judges can’t issue opinions after death

02.26.2019 by Sherry Lueders //

judge-with-gavel Earlier this week, the U.S. Supreme Court issued a ruling that the vote of a federal judge in deciding a case does not count if the opinion in that case is issued after the judge dies. In the case, Yovino v. Rizo, the Ninth Circuit Court of Appeals issued an opinion announcing a new interpretation by that court of the federal Equal Pay Act, on April 9, 2018, which was authored by Judge Stephen Reinhardt. Judge Reinhardt, however, had passed away on March 29, 2018, 11 days before the court released the opinion to the public.

In a footnote, the opinion indicated that Judge Reinhardt had “fully participated in this case” and that the opinion was final and voting was complete before Judge Reinhardt’s death. The Supreme Court disagreed with this justification for issuing posthumously an opinion authored by Judge Reinhardt, however, writing that “it is generally understood that a judge may change his or her position up to the very moment when a decision is released.” Noting that “federal judges are appointed for life, not for eternity,” the Supreme Court vacated the Ninth Circuit’s ruling because Judge Reinhardt was no longer an active judge when the court issued its decision and, therefore, his vote in the case didn’t count.

While the Supreme Court case involved a specific federal law governing the authority of judges to participate in decisions of the Court of Appeals, the ruling provides a generalized example of what happens to a person’s authority to make legally-binding decisions upon death. In short, your ability to take a legally-binding action dies when you do, and any authority that you have delegated to take action on your behalf while you are alive terminates when you are no longer living. This means that if you are acting as an agent to handle another person’s financial affairs under a General Durable Power of Attorney, the authority to act under that document terminates when that person is no longer alive. When someone dies, their estate assumes legal authority for management of their affairs and, generally, a probate will be required in order for a court to appoint someone to serve personal representative who will have legal authority to act on behalf of the estate.

Questions about how estate planning documents can delegate authority to act on your behalf? Talk to an attorney. We’re happy to help.