April 1, 2015

The Colorado Lawyer: Screen Clients First—Avoid Problems Later

Editor’s Note: This article originally appeared in the December 2014 issue of The Colorado Lawyer. Reprinted with permission.

By J. Randolph Evans, Shari L. Klevens, and Lino S. LipinskyEvans-Klevens-Lipinsky


Authors’ Note
Readers’ comments and feedback on this series of “WhoopsLegal Practice Malpractice Prevention” articles are welcomed and appreciated. References in the articles to “safest courses to proceed,” “safest course,” or “best practices” are not intended to suggest that the Colorado Rules require such actions. Often, best practices and safest courses involve more than just complying with the Rules. In practice, compliance with the Rules can and should avoid a finding of discipline in response to a grievance or a finding of liability in response to a malpractice claim. However, because most claims and grievances are meritless, effective risk management in the modern law practice involves much more. Hence, best practices and safer courses of action do more; they help prevent and more quickly defeat meritless claims and grievances. Other than billing, there is virtually nothing that attorneys dread more than addressing potential conflicts of interest. After all, resolving conflicts issues requires and attorney to focus on why not to take on a new representation rather than how to get the business in the door. However, unidentified or unresolved conflict issues cost lawyers more—in both clients and money—than most attorneys realize.


For many attorneys in today’s difficult economic world, screening clients seems like a far-fetched concept, akin to telling a starving man to watch what he eats. Many firms are just glad to have clients; screening the few they have appears to be the least of the firm’s worries.

However, according to the data, problem clients are often worse than no clients at all. Clients who pay fees, but who also bring legal malpractice claims, only hurt—not help—the attorney and can result in a large net loss for the firm. The challenge comes in screening out the problem clients during the intake process.

Screening clients has a different meaning depending on the size, type, and location of a law practice. For solo practitioners, it will mean identifying the risk factors for new clients (preferably through use of a checklist) and then balancing the risks against the potential rewards of the representation. For smaller and mid-size firms, screening involves identifying standard practices and procedures suitable for the needs and expertise of the law practice, and ensuring that all of the lawyers in the practice consistently follow those rules. For larger firms, effective screening includes systems to ensure consistent compliance with the firm’s policies.

Every representation, whether for a paying client or for a pro bono client, requires that the attorney exercise good judgment about acceptance of the new client; and because it involves judgment, there is no formula for every decision regarding whether to accept a new client. However, there are some practices and procedures attorneys can implement when creating checklists and developing systems for screening prospective new clients.

Developing a Screening Method

Some indicators for problem clients seem obvious. Others are the product of data about legal malpractice claims and the risks of the modern-day law practice. The most important part of client screening is to adopt and follow a set of standard practices and procedures, including referring to a screening checklist, that apply to every new client and matter.

1. Ask the right questions.

Common sense goes a long way in detecting and avoiding problem clients. For example, one of the most telling questions to ask a new client is: “How many attorneys have previously represented you in this matter?” If the answer to that question is “seven,” the attorney will want to think long and hard about becoming the eighth. Clients who have been unhappy enough to hire and fire seven attorneys are unlikely to be happy with the eighth. Of greater concern is that, if their case or transaction does not go well in their eyes, they just might hire a ninth to sue the eighth for malpractice.

The lawyer should ask prospective clients other common-sense questions. For example: How many times have you been a party to litigation? Potential clients who have been parties to several prior cases should raise red flags. This is especially true for potential clients who have made a career of suing other people. Eventually, these serial plaintiffs make their way to also suing their attorney.

The realities of the proposed representation are also relevant when deciding to take on a new client. In making this assessment, consider when the work must get done. This involves calculating the first deadline for the new matter. Representations often do not end well if they begin on the eve of (1) the expiration of the statute of limitations for a plaintiff’s claim; (2) a scheduled closing for completion of a transaction or deal; or (3) any other imminent deadline. Unrealistic deadlines are red flags for a new representation.

Sometimes, there are good reasons a client reaches out to an attorney to undertake a representation on the eve of a pressing deadline. However, they are sometimes the same reasons an attorney should have second thoughts about accepting the representation. It could be that an earlier attorney fired the client because the client did not pay, or there could be insurmountable problems that have left the client desperate for immediate representation. Whatever the reason, the most significant questions attorneys should ask are: (1) When is the earliest deadline? and (2) Why is the client just now reaching out? The answers to these questions are important in deciding whether to accept the representation.

Another good question to ask is whether the prospective client can afford to pay the attorney fees associated with the representation. If there is no realistic chance of getting paid and the attorney takes the case anyway, the attorney assumes the risks of liability with no opportunity for compensation. This is a lose–lose proposition. Thus, a prospective client’s ability to pay is an important pre-representation topic that attorneys should candidly address.

Other things to consider when screening prospective clients include (1) possible conflicts with other clients; (2) whether the attorney has the expertise required to effectively handle all of the client’s issues; and (3) the role the client expects the attorney to play in the context of the client’s overall situation. These determinations are of particular concern, because they relate to an attorney’s ethical obligations toward the client.

For example, the Colorado Rules of Professional Conduct (Rules or Colo. RPC) require an attorney to avoid conflicts with current and past clients or, alternatively, to take special care when entering into an engagement that could create potential conflicts.[1] The Rules also address attorney competence, requiring that an attorney has the “legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.”[2] Additionally, the Rules allow an attorney to limit the scope of representation at the outset of an engagement, if reasonable.[3] Thorough screening may reveal whether limiting the scope of representation from the outset is a prudent option under the circumstances, as opposed to declining the engagement, based on the client’s stated objectives. If the attorney has captured in writing the scope of the mutually agreed representation at the beginning of the engagement, that attorney will be in a far better position should the client later challenge the attorney on this front.

Certain types of engagements may be permitted under the Rules, but not under the Standards of Professional Conduct of the U.S. District Court for the District of Colorado. Attorneys should be aware that the U.S. District Court has declined to adopt the state’s “unbundling” rule, Colo. RPC 1.2(c), which allows the provision of limited representation to pro se parties, as described in Colo. RPC 11(b) and Rule 311(b) of the County Court Rules of Civil Procedure.[4] For example, in state court matters, an attorney may provide assistance to a pro se litigant without entering an appearance. The same attorney, however, is prohibited from “ghost writing” a pro se party’s filings in federal court. The attorney should turn away a potential client who is seeking the type of behind-the-scenes assistance that the U.S. District Court does not permit.

On October 10, 2014, the U.S. District Court promulgated proposed amendments to its local rules that include an opt-out from comment 14 to Colo. RPC 1.2(d). The comment, which the Colorado Supreme Court adopted on March 24, 2014, states that a Colorado attorney may counsel clients “regarding the validity, scope, and meaning” of the medical marijuana and recreational marijuana provisions of the state constitution, and “may assist a client in conduct that the lawyer reasonably believes is permitted by these constitutional provisions” and the laws implementing them, as long as the attorney also “advise[s] the client regarding related federal law and policy.” If the District of Colorado ultimately decides not to adopt comment 14, attorneys admitted to practice in that court would need to carefully consider whether they could accept engagements involving advice regarding the state’s marijuana laws.

In sum, thorough screening provides a double benefit to the prudent attorney. It decreases the attorney’s exposure to malpractice suits and fulfills several ethical obligations.

2. Consider what’s expected.

An attorney should inquire about the prospective client’s expectations—of both the representation and the attorney. Some clients simply expect their attorney to achieve a successful result on their behalf, without consideration as to how that end is achieved. These attorney-client relationships rarely end well. A candid conversation about what is possible, along with a description of what the attorney can and cannot do, is an important part of the screening process. If there are things the prospective client expects that the attorney is unable or unwilling to do, the attorney should decline the representation.

One other thing to watch for is a client who is “too good to be true.” Often, these are the same clients who expect an attorney to bend (or ignore) the rules. Their stories are full of contradictions, and they expect results regardless of means. Avoid the temptation of agreeing to represent them without conducting a thorough investigation; these may turn out to be problem clients, too.

3. Conduct some background research.

The Internet provides attorneys cost-effective tools for conducting fast preliminary background research on prospective clients. The research might turn up little, or it might disclose a prospective client with a history of problems that often extend to anyone and everyone around the client. Credit checks (with the consent of the prospective client) could reflect someone who either cannot or does not pay. A simple litigation search might reflect a prospective client who has sued his or her attorney before. These possible clients require a long look before an attorney would agree to the representation.

4. Create a client-screening system.

Inevitably, the client who creates the most problems is the one who escaped the screening filters. Effective systems make it next to impossible for potential problem clients to slip through the cracks. This means that a file cannot be opened or a matter billed unless the screening questions have been asked and the data collected. Hence, the certainty of the system is as important as the content of the screening itself.

NOTES

[1] See Colo. RPC 1.7 and 1.8. Comment 3 to Rule 1.7, which addresses conflicts with current clients, states, in part, “[a] conflict of interest may exist before representation is undertaken, in which event the representation must be declined, unless the lawyer obtains the informed written consent of each client . . .” under the conditions provided in the rule.

[2] See Colo. RPC 1.1.

[3] Colo. RPC 1.2, cmts. 6 and 7.

[4] See D.C.Colo.L.Atty.R. 2(b)(1).

 

Randy Evans is an author, litigator, columnist and expert in the areas of professional liability, insurance, commercial litigation, entertainment, ethics, and lawyer’s law. He has authored and co-authored eight books, including: The Lawyer’s Handbook; Georgia Legal Malpractice Law; Climate Change And Insurance; Georgia Property and Liability Insurance Law; Appraisal In Property Damage Insurance Disputes; and California Legal Malpractice Law. He writes newspaper columns (the Atlanta Business Chronicle, the Recorder, and the Daily Report) and lectures around the world. He served as counsel to the Speakers of the 104th – 109th Congresses of the United States. He co-chairs the Georgia Judicial Nominating Commission. He serves on the Board of Governors of the State Bar of Georgia. He handles complex litigation throughout the world. He has been consistently rated as one of the Best Lawyers in America, Super Lawyer (District of Columbia and Georgia), Georgia’s Most Influential Attorneys, and Georgia’s Top Lawyers for Legal Leaders. Along with numerous other awards he has been named the “Complex Litigation Attorney of the Year in Georgia” by Corporate International Magazine, and Lawyer of the Year for Legal Malpractice Defense in Atlanta. He is AV rated by Martindale Hubble.

Shari Klevens is a partner in the Atlanta and Washington, D.C. offices of McKenna Long & Aldridge LLP. Shari represents lawyers and law firms in the defense of legal malpractice claims and advises and counsels lawyers concerning allegations of malpractice, ethical violations, and breaches of duty. In addition, Shari is the Chair of the McKenna’s Law Firm Defense and Risk Management Practice and is a frequent writer and lecturer on issues related to legal malpractice and ethics. Shari co-authored Georgia Legal Malpractice Law and California Legal Malpractice Law, which address the intricacies and nuances of Legal Malpractice law and issues that confront the new millennium lawyer. She also co-authored The Lawyer’s Handbook: Ethics Compliance and Claim Avoidance, which is an easy-to-use desk reference offering practical solutions to real problems in the modern law practice for every attorney throughout the United States.

Lino Lipinsky de Orlov is a litigation partner in the Denver office of McKenna Long & Aldridge, LLP.  He represents clients in all aspects of commercial litigation, mediation, arbitration, and appeals.  He has developed particular experience in complex business cases, particularly those involving creditor’s rights, real estate, trade secrets, and employment disputes.  Mr. Lipinsky also frequently speaks and writes on legal issues relating to technology, employment law, and ethics.   He is a member of the Colorado Bar Association’s Board of Governors and serves on the Board of the Colorado Judicial Institute.  He is a former President of the Faculty of Federal Advocates.  Among his honors, Chambers USA has recognized Mr. Lipinsky as one of Colorado’s leading general commercial litigators, and he has been included in The Best Lawyers in America.  He received his A.B. degree, magna cum laude, from Brown University and his J.D. degree from New York University School of Law, where he was a member of the New York University Law Review.

 

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Frederick Skillern: Real Estate Case Law — Lawyers and Professional Liability

Editor’s note: This is Part 14 of a series of posts in which Denver-area real estate attorney Frederick Skillern provides summaries of case law pertinent to real estate practitioners (click here for previous posts). These updates originally appeared as materials for the 32nd Annual Real Estate Symposium in July 2014.

frederick-b-skillernBy Frederick B. Skillern

Gibbons v. Ludlow
Colorado Supreme Court, July 1, 2013
2013 CO 49

Professional negligence; transactional “case within the case”; causation of damage; “better deal” test.

This case was mentioned in last year’s “supplement” to our outline, and is repeated here for convenience, as it is an important case in the professional liability circles. It involves liability claims against both brokers and transactional attorneys, and the key element of causation. If one is negligent in advising a client in a transaction, and the client gains less from a deal than is anticipated, must the plaintiff prove that a “better deal” could be had? The court is required to find the analog to the “case within a case” that is tried in legal malpractice actions arising out of the litigation process. Although the case addresses the liability of a seller’s broker, the same principles apply to a claim against a seller’s attorney.

The trial court answered the presented question affirmatively, and dismissed a negligence claim against the seller’s broker on summary judgment. The court of appeals reversed, but the supreme court reverses and reinstates the summary judgment ruling. To sustain a professional negligence claim against a transaction real estate broker (or attorney), a plaintiff must show causation of damage, in addition to negligence. That is, it must be shown that but for the alleged negligent acts of the broker, the seller either (1) would have been able to obtain a better deal in the underlying transaction, or (2) would have been better off by walking away from the underlying transaction. In the court’s view, the sellers failed to present evidence that any negligence of the broker caused the seller to suffer damage. They did not establish beyond mere possibility or speculation that they suffered a financial loss as a result of the transactional broker’s professional negligence. Because no injury could be shown, the trial court properly granted summary judgment as a matter of law.

The underlying deal was documented in a contract with a set price, with adjustments for construction of infrastructure and cost-sharing with other developers. The sellers claim that the brokers failed to explain that the net income from the transaction could be substantially less than the stated purchase price as a result of the cost-sharing provisions. The brokers argued that their sellers submitted no evidence that they could have sold the property to someone else for more. This is termed the “better deal” test. The sellers respond that they presented evidence that the property was worth the contract price, or $1.6 million more than the net proceeds of the deal. They argue that they can recover in negligence for this “no deal” scenario. The court of appeals agreed and held that the general measure of damages for a total loss of property is the fair market value of the property at the date of loss. In effect, the Supreme Court says — you must prove you could have sold the property for more, or that you would have made more had you walked away from the deal.

 

Baker v. Wood, Ris & Hames

Petition for Writ of Certiorari GRANTED February 3, 2014.

Summary of the Issues:

  • Whether the court of appeals erred in determining that third-party intended beneficiaries of a deceased testator’s estate plan lack standing to pursue a claim for professional malpractice against the testator’s estate planning attorneys based on either breach of contract or professional negligence.
  • Whether the court of appeals erred in confusing petitioners’ claim for fraudulent concealment with the distinct tort of fraudulent misrepresentation in applying the heightened pleading requirements of C.R.C.P. 9(b) to petitioners’ concealment claim as if it were a claim for fraudulent representation.
Frederick B. Skillern, Esq., is a director and shareholder with Montgomery Little & Soran, P.C., practicing in real estate and related litigation and appeals. He serves as an expert witness in cases dealing with real estate, professional responsibility and attorney fees, and acts as a mediator and arbitrator in real estate cases. Before joining Montgomery Little in 2003, Fred was in private practice in Denver for 6 years with Carpenter & Klatskin and for 10 years with Isaacson Rosenbaum. He served as a district judge for Colorado’s Eighteenth Judicial District from 2000 through 2002. Fred is a graduate of Dartmouth College, and received his law degree at the University of Colorado in 1976, in another day and time in which the legal job market was simply awful.

Colorado Court of Appeals: Defendant’s Right to Testify Not Unconstitutionally Usurped by Counsel

The Colorado Court of Appeals issued its opinion in People v. Thomas on Thursday, February 26, 2015.

Self-Defense—Right to Testify—Prejudice.

Thomas had opposed self-defense, and throughout the trial he remained consistent that he wanted to testify to his actual innocence. His attorneys had told him that choosing self-defense was their prerogative, and they told him that once they advanced this defense in opening statement, his testifying to actual innocence would destroy the credibility of the defense. Thomas alleged that his trial counsel rendered ineffective assistance by pursuing a self-defense theory over his objection.

Thomas argued that trial counsel’s self-defense strategy usurped his constitutional right to testify because, if not foreclosed by this strategy, he would have testified that he had not shot the victim.Even assuming that counsel’s decision to proceed with self-defense constituted deficient performance, Thomas made no showing of prejudice. Therefore, his argument fails.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: Fourth Amendment Does Not Require Judge’s Signature on Search Warrant

The Tenth Circuit Court of Appeals issued its opinion in United States v. Cruz on Monday, December 22, 2014.

Raul Cruz was convicted by a jury of knowingly and intentionally possessing methamphetamine with intent to distribute and sentenced to 63 months’ imprisonment. His conviction and sentence were affirmed on direct appeal. Cruz subsequently filed a motion to vacate, set aside, or correct his sentence, alleging his trial counsel was ineffective for failing to move to suppress evidence uncovered during the search of his residence pursuant to an unsigned search warrant. The district court denied relief on this assertion, and Cruz appealed.

The Tenth Circuit found, upon examination of the record, that the affidavit and warrant had been presented to a New Mexico district judge on March 26th, 2010. The judge signed the signature lines on the affidavit but neglected to sign the warrant at that time. Officers executed the warrant on March 29, 2010, and found methamphetamine, horse steroids, cash, and false identification. Officers found no evidence of drug use in the home or by Cruz. Cruz admitted to possession of the drugs but not intent to distribute. Approximately a month later, the judge signed the warrant, dated it March 26, 2010, and wrote “Nunc Pro Tunc on this April 23, 2010″ below the date line.

Cruz asserted that his counsel should have moved to suppress the evidence seized during the search of his residence, as well as his subsequent statements to police about the fruits of the search, because the unsigned warrant was not “issued” by a judge. Cruz claims that such motion would have been meritorious and would ultimately have led either to dismissal of the charges against him or his acquittal at trial. The Tenth Circuit disagreed, finding instead that nothing in the text of the Fourth Amendment conditions the validity of a warrant on its being signed. The First Circuit recently dealt with surprisingly similar facts and rejected the defendant’s argument, concluding that nothing in the Fourth Amendment required the judge who made the probable cause determination to also sign the warrant. The Tenth Circuit exhaustingly examined the meaning of the term “issue” under the Fourth Amendment, and found no reason to impose conditions on a validity of a warrant that were not set forth by the Fourth Amendment itself. The Tenth Circuit therefore concluded that there was no support for an inference that Cruz’s counsel’s motion to suppress would have been meritorious, and found no deficient performance of his counsel.

The district court’s judgment was affirmed.

Compensation During Dissolution of Law Firm LLCs

Editor’s Note: This article originally appeared in the Colorado Bar Association Business Law Section’s January 2015 newsletter. Click here for the Business Law Section webpage.

HerrickLidstoneBy Herrick K. Lidstone, Jr., Esq.

The Colorado Limited Liability Company Act was front-and-center in a January 2015 decision from the Colorado Supreme Court. The case, LaFond v. Sweeney, 2015 CO 3 (January 20, 2015) involved the dissolution of a law firm organized as a two-member LLC with no written agreement regarding the treatment of assets and liabilities on dissolution. Richard LaFond brought a contingent fee case into the law firm and performed a significant amount of work on that case before the firm dissolved. He continued his work on the matter after dissolution. His now former partner, Charlotte Sweeney, claimed an interest in the contingent fee.

Mr. LaFond brought a declaratory judgment action against Ms. Sweeney to obtain a judicial determination regarding her right to any portion of the contingent fee. The trial court entered judgment for Ms. Sweeney, finding that she would be entitled to one-half of the fees earned from the contingency case, up to a maximum of $298,589.24 potentially to be paid to Ms. Sweeney (based on the time spent by the LaFond & Sweeney law firm before dissolution and assumed billable rates).

Ms. Sweeney appealed the trial court’s decision to the Colorado Court of Appeals. Ultimately, the Colorado Supreme Court ruled that absent an agreement to the contrary, all profits derived from winding up the LLC’s business belong to the LLC to be distributed in accordance with the members’ or managers’ profit sharing agreement, and the LLC Act does not grant winding up members or managers the right to receive additional compensation for their winding up services.

Court of Appeals Decision

In its decision (2012 WL 503655, Feb. 16, 2012), the Court of Appeals recognized that it would have to decide:

[That since] there was no written agreement that specifically described how the contingent fee generated by the case should be distributed[,] we must look to other authority to decide the ultimate issue raised by this appeal: should the contingent fee be divided between LaFond and Sweeney, and, if so, how?

The Court of Appeals went on to decide that:

  1. Cases belong to clients, not to attorneys or law firms;
  2. When attorneys handle contingent fee cases to a successful resolution, they have enforceable rights to the contingent fee; and
  3. A contingent fee may constitute an asset of a dissolved law firm organized as a limited liability company.

The important conclusion by the Court of Appeals and affirmed by the Supreme Court was that when a limited liability company formed under Colorado law dissolves, the members/managers owe a duty to each other to wind up the business of the LLC, and unless otherwise agreed between the parties, no additional compensation is paid for winding up activities.

Supreme Court Decision

The statute in question is § 7-80-404(1)(a), which provides that members in a member-managed LLC and managers of a manager-managed LLC have a duty to:

Account to the limited liability company and hold as trustee for it any property, profit, or benefit derived by the member or manager in the conduct of winding up of the limited liability company business or derived from a use by the member or manager of property of the limited liability company, including the appropriation of an opportunity of the limited liability company.

The Supreme Court noted that, in 2006, the General Assembly added C.R.S. § 7-80-803.3 (entitled “Right to wind up business”) to Colorado’s limited liability company act, but did not include any provision allowing the person winding up the business of the LLC to be compensated for such actions, absent an agreement for such compensation. The Supreme Court also noted that the 1996 version of the Uniform Limited Liability Company Act did contemplate compensation to members who engage in winding up activities: (“A member is not entitled to remuneration for services performed for a limited liability company, except for reasonable compensation for services rendered in winding up the business of the company.” See Unif. Ltd. Liab. Co. Act § 403(d) (1996)). Colorado did not adopt this provision even though, as the Supreme Court noted, “the General Assembly’s 2006 amendments to the LLC Act incorporated some elements from the Model Act.”

The Supreme Court also noted that, in 1997, the General Assembly enacted the Colorado Uniform Partnership Act which, in C.R.S. § 7-64-401(8) “explicitly states that a partner is entitled to additional compensation for services performed in winding up the business of the partnership.” The Supreme Court went to the next logical conclusion:

If it wished, the legislature could have included language that would give members or managers the right to additional compensation for their services in winding up the LLC, but did not do so in the original LLC Act or its subsequent amendments.

Based on its analysis of the Colorado limited liability company act, the Colorado Supreme Court affirmed the Court of Appeals’ decision and concluded that:

  1. an LLC continues to exist after dissolution to wind up its business;
  2. upon dissolution, pending contingency fee cases are an LLC’s business;
  3. absent an agreement to the contrary, all profits derived from winding up the LLC’s business belong to the LLC to be distributed in accordance with the members’ or managers’ profit sharing agreement; and
  4. the LLC Act does not grant winding up members or managers the right to receive additional compensation for their services in winding up LLC business.

Members and Managers Fiduciary Duties?

In another portion of the opinion (at paragraphs 36–37), the Supreme Court addressed fiduciary duties in the LLC context in a manner that is inconsistent with the Colorado LLC Act. While acknowledging that the client has the right to choose legal counsel and to enter into and to terminate engagements with counsel, the Supreme Court said:

Under Colorado law, members and managers of an LLC cannot act to induce or persuade a client to discharge the LLC for the benefit of a particular member or manager of the LLC to the exclusion of the others; they breach their fiduciary duties to the LLC if they attempt to do so.

Unfortunately this misinterprets the Colorado LLC Act which carefully does not use the term “fiduciary duty” to define the duties of the members and managers. Furthermore the Supreme Court’s language treats the duties of members and managers as being identical, whether or not the LLC is member-managed or manager-managed. For example, the duty to “account to the limited liability company and hold as trustee for it any property, profit, or benefit derived by the member or manager in the conduct or winding up of the limited liability company business” (C.R.S. § 7-80-404(1)(a)) only applies to members of a member-managed LLC, not to members of a manager-managed LLC. Members of a manager-managed LLC only owe the obligation to “discharge the member’s … duties to the limited liability company and exercise any rights consistently with the contractual obligation of good faith and fair dealing.” (C.R.S. § 7-80-404(3)) The Supreme Court’s ultimate conclusion is not dependent on the fiduciary duty analysis which may, in fact, be applicable in other forms of ownership (such as a general partnership).

In this case, the articles of organization reflect that LaFond & Sweeney was, in fact, organized as a member-managed LLC and, therefore, the members did in fact have the duties to “hold as trustee” for the benefit of the LLC. In a trust as described in C.R.S. § 15-16-302, a trustee “shall observe the standards in dealing with the trust assets that would be observed by a prudent man dealing with the property of another, and if the trustee has special skills or is named trustee on the basis of representations of special skills or expertise, he is under a duty to use those skills.” This arises to a higher duty than the “contractual obligation of good faith and fair dealing. ” The Court should have reached a similar conclusion in the context of this case without using the overly-broad language referring to fiduciary duties.

In the end, Mr. LaFond is obligated to share the contingent fee with his former law partner under the same sharing ratio as the two had shared things during the existence of their law firm, and he was not separately compensated for his efforts in finishing the case as part of his obligation to wind up the business of the LLC. Is it fair that Richard LaFond took the case to a successful conclusion after the dissolution of LaFond & Sweeney while his former partner shares on a 50-50 basis in the award? Is it fair that had the decision been under CUPA or the Uniform Limited Liability Company Act the decision would likely have been different? Whether the Colorado LLC Act should be amended to provide for “reasonable compensation for services rendered in winding up the business of the limited liability company” is an open policy question.

Herrick K. Lidstone, Jr., Esq., is a shareholder of Burns Figa & Will, P.C. in Greenwood Village, Colorado. He practices in the areas of business transactions, including partnership, limited liability company, and corporate law, corporate governance, federal and state securities compliance, mergers & acquisitions, contract law, tax law, real estate law, and natural resources law. Mr. Lidstone’s work includes the preparation of securities disclosure documents for financing transactions, as well as agreements for business transactions, limited liability companies, partnerships, lending transactions, real estate and mineral property acquisitions, mergers, and the exploration and development of mineral and oil and gas properties. He has practiced law in Denver since 1978. He writes for many publications, including the Colorado Bar Association Business Law Newsletter, where this article originally appeared.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Colorado Supreme Court: Actual Conflict Requires Showing of Both Conflict of Interest and Adverse Effect

The Colorado Supreme Court issued its opinion in West v. People on Tuesday, January 20, 2015.

Conflicts of Interest—Post-Conviction and Extraordinary Relief—Ineffective Assistance of Counsel.

In these appeals, defendants alleged that their trial counsel labored under conflicts of interest because counsel concurrently or successively represented trial witnesses against them. The court of appeals remanded both cases to the trial courts to determine whether, under Cuyler v. Sullivan, 446 U.S. 335 (1980), defendants’ attorneys labored under an “actual conflict.” Defendants separately petitioned for review of the court of appeals’ judgments, asking the court to clarify whether the Sullivan standard requires a defendant to demonstrate, in addition to a conflict of interest, that an “adverse effect” arose from the conflict.

In People v. Castro, 657 P.2d 932 (Colo. 1983), the Supreme Court held that an adverse effect was inherent in a “real and substantial” conflict of interest and thus a separate showing was unnecessary. In this consolidated opinion, the Court overruled Castro because the U.S. Supreme Court recently held that an actual conflict, under the Sullivan standard, requires a defendant to show both a conflict of interest and an adverse effect on his or her attorney’s performance.

The Court held that to show an adverse effect, a defendant must (1) identify a plausible alternative defense strategy or tactic that trial counsel could have pursued; (2) show that the alternative strategy or tactic was objectively reasonable under the facts known to counsel at the time of the strategic decision; and (3) establish that counsel’s failure to pursue the strategy or tactic was linked to the actual conflict. The Court therefore affirmed the court of appeals’ judgments in part and instructed the trial courts to consider whether, under this framework, defendants received ineffective assistance of counsel by virtue of their attorneys’ alleged conflicts and are therefore entitled to new trials.

Summary and full case available here, courtesy of The Colorado Lawyer.

The Future of Law (Part One): Beyond the Borg

rhodesWe finished last year talking about the law profession’s cultural ethos, and how new practice models and wellness initiatives are liberating lawyers from its harmful aspects (the Legal Borg). An earlier 2014 series also looked at alternative practice models. Another considered how the law’s cultural ethos can cause stress-induced cognitive impairment and how mindfulness practice can help.

These developments may have sneaked in unnoticed, but now they’ve become the elephant in the room, and it’s time to deal with them. They’re causing a seismic shift in the profession’s ethos, and a new ethos requires a new ethic: i.e., new standards for how to enter the profession and how to behave once you’re in it.

The ABA Journal published a piece on that very topic on New Year’s Day, entitled “Does The UK Know Something We Don’t About Alternative Business Structures?” The article begins as follows:

For two nations sharing a language and legal history, the contrast in the visions at play in the legal systems of the United States and United Kingdom is more than striking. It’s revolutionary.

The debates in the U.S. go on: Should ethics rules blocking nonlawyer ownership of law firms be lifted? Is the current definition of unlicensed law practice harming rather than protecting clients? What about the restrictions on multidisciplinary practices?

And those debates are by no means ending: Witness the newly created ABA Commission on the Future of Legal Services. Though ABA President William C. Hubbard does not mention ethics rule changes in the commission’s primary task of identifying the most innovative practices being used in the U.S. to deliver legal services, some of those practices have been questioned as possible ethical breaches. Meanwhile, the rules and restrictions stay in place. The situation in the United Kingdom couldn’t be more different: Such restrictions have largely been lifted, and under the Legal Services Act the creation of new ways of providing legal services—including through alternative business structures—is more than simply permitted; it is actively encouraged.

Nonlawyer ownership of law firms, unlicensed practice, multidisciplinary practice… those are big issues. We’ll let the ABA tackle them. If you’ve been following these issues for awhile, you’ll remember the ABA did just that at their summer convention 17 years ago, and again the following year.

This blog won’t try to keep pace with the pros on that debate’s current version. We will, however, do some guessing of our own about how current trends in law practice and lawyer wellbeing might change not just lawyers and law practice, but our very stock and trade: the law itself. A new cultural ethos in the law will do precisely that. It is already. We’re going to talk about that, and speculate about what it might look like going forward.

According to Wikipedia, futurology is an “attempt to systematically explore predictions and possibilities about the future and how they can emerge from the present.” We’re not going to be systematic here. Instead, we’ll engage in some moderately-well-informed-but-we-don’t-know-what-the-insiders-know curiosity.

Should be fun. So draw the shades and polish up your crystal ball (maybe you prefer this kind, or maybe that) and let’s take a look!

Kevin Rhodes has been a lawyer for nearly 30 years, in firms large and small, and in solo practice. Years ago he left his law practice to start a creative venture, and his reflections on exiting the law practice appeared in an article in the August 2014 issue of The Colorado Lawyer. His free ebook, Life Beyond Reason: A Memoir of Mania, chronicles his misadventures in leaving the law, and the lessons he learned about personal growth and transformation, which are the foundation of much of what he writes about here.

A collection of Kevin’s blog posts, Enlightenment, Apocalypse, and Other States of Mind, is now available as an ebook. Click the book title to sample and download it from the distributor’s webpage. It’s also available on from Barnes & Noble, iTunes, Amazon, and Scribd. The collection includes Forewords from Debra Austin, author of the Killing Them Softly law journal article which has been featured here, and from Ron Sandgrund, author of The Colorado Lawyer article mentioned above.

You can email Kevin at kevin@rhodeslaw.com.

Rules from Chapters 18 and 20 of Colorado Rules for Civil Procedure Amended

On January 14, 2015, the Colorado Supreme Court adopted Rule Change 2015(02), amending Rules 205.3, 205.5, 205.6, 224, and 227 of Chapter 18 of the Colorado Rules of Civil Procedure, and amending Rules 251.1, 260.2, and 260.6 of Chapter 20 of the Colorado Rules of Civil Procedure.

The change to Rule 205.3, “Pro Hac Vice Authority Before State Courts — Out-of-State Attorney,” updated the reference in subparagraph (7) to Colo. RPC 1.15A through E. Rules 205.5, “Pro Hac Vice – Foreign Attorney,” and 205.6, “Practice Pending Admission,” were similarly updated to cite to Colo. RPC 1.15A through E. The updates to Rule 227 were also minor, changing the reference in subparagraph (2)(a)(4) to Colo. RPC 1.15B and updating citations in the Comment to the “Regstration Fee of Non-Attorney Judges” section of the rule.

In Rule 224, “Provision of Legal Services Following Determination of a Major Disaster,” subparagraphs (2) and (3) were amended to change citations from C.R.C.P. 220(1)(a) and (b) to C.R.C.P. 205.1(a) and (b), and from C.R.C.P. 220 to C.R.C.P. 205.1; citations in subparagraphs (5)(a) and (b) were updated from C.R.C.P. 221 and 221.1 to C.R.C.P. 205.3 and 205.4; and subparagraph (6) was amended to change the citation from C.R.C.P. 220(3) to 205.1(3) and add a citation to Colo. RPC 8.5.

Citations were also updated in Rules 251.1, 260.2, and 260.6. Rule 251.1, “Discipline and Disability; Policy — Jurisdiction,” was changed to reference Rules 204 and 205 instead of Rules 220, 221, and 222. Subsection (4) of Rule 260.2, “CLE Requirements,” was amended to clarify that the subsection was repealed and replaced by C.R.C.P. 203.2(6), 203.3(4), and 203.4(6). Citations in subsections (5)(a) and (6) of Rule 260.6, “Compliance,” were also amended, updating references from Rule 201.14 to Rules 203.2(6), 203.3(4), and 203.4(6).

Click here for the Colorado Supreme Court’s 2015 rules changes.

Tenth Circuit: Attorney’s Failure to Appear at Rescheduled Hearing Justified Finding of Contempt

The Tenth Circuit Court of Appeals issued its opinion in United States v. Hernandez on Friday, November 14, 2014.

Miguel Ramon Velasco was Adrian Hernandez’s criminal attorney. In the criminal proceeding, Hernandez pleaded guilty to two counts of an indictment charging conspiracy to distribute a controlled substance. On the day before a scheduled hearing to change his client’s plea, Velasco filed a motion for continuance, citing a problem with his computer. The court granted the continuance and the hearing was rescheduled for a date two months later. Again, the day before the hearing, Velasco filed a motion to continue. The court granted the motion but admonished Velasco that no more continuances would be granted. The parties agreed on August 7, 2013, for the hearing date.

Ten days before the third hearing date, Velasco again filed a motion to continue, citing a family vacation that could not be postponed due to his children’s school schedules. Velasco asserted that his client would not agree to substitute counsel. The court did not grant the continuance, and substitute counsel appeared at the hearing, to which Hernandez objected. Substitute counsel made an oral motion for continuance, and the court, recognizing the prejudice to Hernandez if a continuance was not granted, agreed. The court directed Velasco to show cause why he should not be held in contempt of court. At the show cause hearing, the court discovered that Velasco had knowingly made vacation plans after agreeing upon the hearing date. The court held Velasco in contempt and imposed a $2,000 fine. The following day, Velasco filed a motion to reconsider, citing the fact that his client’s brother had agreed to substitute counsel, but not explaining why the brother had any authority to so agree. The court entered an opinion and order reaffirming its finding of contempt, and Velasco appealed.

Velasco asserted five points of error, each generally arguing that the court erred by employing the summary contempt procedures in F.R.C.P. 42(b) for direct contempt rather than the full notice-and-hearing procedures from F.R.C.P. 42(a) for indirect contempt. Velasco contended that review should be conducted for abuse of discretion. However, since he did not properly raise his objections in the lower court, the Tenth Circuit reviewed for plain error and found none. Under a plain error review, the court must find that (1) there was error, (2) that was plain, and (3) the plain error affected his substantial rights. If these three criteria are met, the court may act to correct the error if it seriously affects the fairness or integrity of the proceedings. The Tenth Circuit found that Velasco’s arguments failed at the second step because it is not plain that his contempt was direct. The Tenth Circuit briefly explained the differences between direct contempt and indirect contempt, and found that it was plain to the trial judge and to the Tenth Circuit that his planned vacation was directly subversive of the court’s previous ruling.

The contempt order and fine were affirmed.

Colorado Court of Appeals: Reasonableness Implied Term in All Contracts for Attorney Fees

The Colorado Court of Appeals issued its opinion in Southern Colorado Orthopaedic Clinic Sports Medicine & Arthritis Surgeons, P.C. v. Weinstein, M.D. on Thursday, December 18, 2014.

Attorney Fees—Employment Agreement—Fee-Shifting Provision—Reasonableness.

In this litigation between a professional corporation and Dr. David M. Weinstein, the professional corporation alleged that the doctor had breached his employment agreement with the professional corporation. Dr. Weinstein filed counterclaims.

This appeal involves a fee-shifting provision in an employment agreement. The provision stated that the prevailing party in any action to enforce the agreement “shall be entitled to recover . . . all attorney fees [and] costs.” The trial court held that neither the professional corporation nor the doctor had prevailed at trial; it then declined the professional corporation’s request for attorney fees and costs under the provision. The appellate court reversed, holding that the professional corporation did prevail at trial. The trial court thereafter ordered Dr. Weinstein to pay a portion of the professional corporation’s attorney fees.

On appeal, the professional corporation contended that the trial court erred by not awarding it all of its attorney fees and costs. As a matter of public policy, reasonableness is an implied term in every contract for attorney fees, and trial courts must consider whether the requested attorney fees and costs are reasonable even if the contract does not mention reasonableness. Therefore, the trial court did not err when it determined reasonableness in awarding fees. Further, the trial court did not abuse its discretion when it reduced the award of attorney fees based on all the relevant reasonableness factors set forth in Colo. RPC 1.5(a), including the professional corporation’s success at trial. The case was remanded to the trial court for a determination of attorney fees to award Dr. Weinstein as the prevailing party in this appeal.

Summary and full case available here, courtesy of The Colorado Lawyer.

Colorado Rules of Judicial Discipline Amended by Colorado Supreme Court

On Friday, December 12, 2014, the Colorado Supreme Court announced Rule Change 2014(16), amending the Colorado Rules of Judicial Discipline. The rule change was adopted and effective December 10, 2014.

The rule changes were extensive and covered many of the rules. Significant changes were made to the rules regarding review of complaints, investigation, determination, statement of charges, and many others. For a redline of the changes, click here.

Comment Period Open for Changes to Colorado Rules of Judicial Discipline

The Colorado Supreme Court is seeking comments regarding proposed changes to the Colorado Rules of Judicial Discipline. The public comment period is now open, and will close at 4 p.m. on October 14, 2014. Comments should be submitted to Christopher Ryan, the clerk of the supreme court, at 2 E. 14th Ave., Denver, 80203.

The changes to the Rules are extensive. Several rules have been moved or deleted, including the rules on confidentiality, screening of complaints, investigation, discovery, and special masters. For a redline of the changes, click here.

For all of the Colorado Supreme Court’s adopted and proposed rule changes, click here.