April 24, 2019

Archives for May 9, 2014

Alternative Lawyer Relationships: Ethical Implications of Contract Lawyering

DavidCLittleOutsourced legal work and contract lawyers are becoming more prevalent. There are many reasons to outsource legal services or hire contract lawyers. David C. Little of Montgomery Little & Soren, PC, in Chapter 3, “Alternative Lawyer Relationships,” of Lawyers’ Professional Liability in Colorado – Preventing Legal Malpractice and Disciplinary Actions, proposes four hypothetical scenarios:

  1. A lawyer is not comfortable drafting a special needs trust to settle a minor client’s personal injury claim and seeks assistance from another lawyer (a specialist experienced in the intricacies of such arrangements) to create the trust.
  2. The general counsel of a business corporation being sued in an environmental damage claim hires a contract law firm that specializes in the defense of environmental damage claims.
  3. A lawyer in one state is not admitted to practice in another state and must retain local counsel in order to participate pro hac vice in the other state.
  4. A firm lawyer in charge of the management of complex litigation asks a temporary lawyer service agency to provide a contract lawyer to organize the client’s documents for discovery production.

These scenarios occur regularly in practice, and there is nothing inherently unethical about hiring contract lawyers or outsourcing legal work. However, each scenario has unique ethical pitfalls, as explained by Little:

In the first example, what happens if the contract lawyer engaged to draft the special needs trust makes a mistake and the minor client loses the benefits the trust would have provided? Does it make any difference if the principal lawyer informed the minor’s guardian about the contract lawyer or had the guardian’s consent? Does the knowledge or consent of the client to the contract lawyer arrangement make any difference?

In the second example, what happens if the specialized law firm hired by the corporation’s general outside counsel discovers that the general counsel has been giving incorrect advice to the client that may have compromised the corporation’s defense to the environmental damage claim? What obligations does the contract firm (the specialist) have to the client to advise the client about the incorrect advice? Is there an independent client-lawyer relationship between the contract specialist and the client, and does the existence of any such relationship depend upon the client’s knowledge of and consent to the arrangement?

In the third example, what are the obligations of local counsel to the client for the procedural aspects of the case in the local lawyer’s jurisdiction? Does the local counsel  have any responsibility to either the client or the referring counsel to advise on either procedural or substantive matters involved in the claim?

Finally, what happens in the fourth example if the contract lawyer fails to recognize the proprietary nature of many of the client’s scientific documents and the client is damaged when its scientific secrets are disclosed without a protective order? In this example where a temporary lawyer service agency or referral agency is involved, does the agency have any exposure for the temporary lawyer’s errors or omissions?

On May 12, 2014, David Little will discuss ethical considerations involved in alternative lawyer relationships at a lunchtime CLE program, “Alternative Lawyer Relationships: Contract Lawyering and Its Ethical Implications.” Join us for this informative program.

CLE Program: Alternative Lawyer Relationships: Contract Lawyering and Its Ethical Implications

This CLE presentation will take place on May 12, 2014. Click here to register for the live program and click here to register for the webcast. You can also register by phone at (303) 860-0608.

Can’t make the live program? Order the homestudy here — MP3 audio downloadVideo OnDemand

Judge Carlos A. Samour, Jr., Named Chief Judge of 18th Judicial District

On Thursday, May 8, 2014, the Colorado State Judicial Branch announced that Colorado Supreme Court Chief Justice Nancy Rice appointed Judge Carlos A. Samour, Jr. as the Chief Judge of the 18th Judicial District. This appointment will be effective upon current Chief Judge William Sylvester’s retirement on July 1, 2014.

Judge Samour is a graduate of Columbine High School and graduated with honors from the University of Colorado at Denver with a degree in psychology. He received his law degree with honors from the University of Denver. Following law school, Judge Samour clerked for Judge Robert McWilliams of the Tenth Circuit Court of Appeals. He then joined Holland & Hart in Denver and was in private practice for five years before serving as a deputy district attorney in Denver for 10 years. Judge Samour was appointed as a district court judge in 2006 and took the bench in 2007.

In addition to maintaining a docket, as chief judge, Samour will be responsible for appointing the district administrator, chief probation officer, and clerks of the court; assisting in the personnel, financial, and case-management duties of the district; and seeing that the business of the courts is conducted efficiently and effectively.

Tenth Circuit: Withheld Disputed Funds Due Upon Resolution of Dispute

The Tenth Circuit Court of Appeals issued its opinion in BP America Production Co. v. Chesapeake Exploration, LLC on Friday, May 2, 2014.

BP and Chesapeake entered into a purchase and sale agreement (PSA) for $1.75 billion regarding certain oil and gas properties. The PSA allowed the purchase price to be adjusted downward or upward based on property defects or benefits discovered by the parties before closing. “Title defects” would decrease the purchase price in favor of BP, and “title benefits” would increase the purchase price in favor of Chesapeake.  However, the adjustments would not affect the purchase price until they met the aggregate defect threshold of $35,000,000. The PSA contained three arbitration provisions: disputes regarding title defects and benefits would be referred to title arbitration, disputes regarding accounting issued would be covered in accounting arbitration, and a third, catch-all arbitration would apply to any dispute arising out of or relating to the PSA.

After closing, the parties agreed on title defects of $116,234,556. Less the aggregate threshold, the parties agreed BP was owed $81,234,556. Title disputes were submitted to title arbitration around the same time.  BP sought approximately $46 million for disputed title defects, and Chesapeake sought approximately $22 million for disputed title benefits and “credits.” While the title arbitration was pending, BP submitted a proposed final accounting statement reflecting the agreed title defects of approximately $80 million. To BP’s surprise, Chesapeake responded with an exception report changing the $80 million to $58 million, which Chesapeake said was the agreed-upon amount minus the amount Chesapeake was disputing in title arbitration. BP did not raise the withheld $22 million in arbitration.

In an effort to wrap up ongoing accounting arbitration, BP sent a letter to Chesapeake offering to settle the final statement. It said that the parties had “reached consensus regarding the minimum price adjustment owed to BP which is $59,857,470” and offered to withdraw from accounting arbitration upon payment of that amount. Chesapeake accepted.

The title arbitration panel issued an award finding $11,526,434 in title defects (favoring BP) and $3,727,031 in title benefits (favoring Chesapeake). In explanatory comments, the panel noted that it made no determination of whether these amounts exceeded the aggregate threshold, or whether its ruling would actually cause any money to exchange hands. BP requested payment from Chesapeake. Because the $3 million in title benefits awarded to Chesapeake did not exceed the aggregate threshold, Chesapeake received no price adjustment to offset the $22 million it previously withheld, and BP requested the full $33 million. Chesapeake paid the $11 million, but refused to pay the $22 million. BP then asked the panel to clarify and modify its award and order Chesapeake to pay the $22 million, and requested attorneys’ fees as the prevailing party. Chesapeake contested the panel’s jurisdiction and claimed it could not entertain BP’s request. Chesapeake also opposed BP’s request for attorneys’ fees, claiming that Chesapeake, not BP, was the prevailing party.

The panel found that it retained jurisdiction over the dispute and noted that it was the panel’s understanding that the withheld amounts would become due if the withholding party did not prevail. The panel said that the parties should submit briefing if they could not resolve the dispute. Chesapeake  continued to dispute the panel’s jurisdiction, refused to comply with the briefing schedule, and would not pay the $22 million. The panel ordered BP to provide a detailed explanation of why it was owed $22 million, which it did, but Chesapeake refused to reply. Chesapeake instead filed a complaint in Oklahoma state court seeking to confirm and modify the panel’s December 30, 2009 award, to vacate all rulings issued by the panel after the December 30, 2009 award, to enjoin the panel from issuing further rulings, and for a declaratory judgment that the panel lacked jurisdiction to adjudicate any further disputes. BP removed to federal court and counterclaimed for fees and a declaration of its entitlement to the $22 million. The district court later granted BP’s motion to stay the litigation pending completion of the arbitration proceedings. The arbitration panel found that Chesapeake owed BP $22 million, subject to any defenses Chesapeake might have outside the scope of the arbitration.

The parties filed competing motions to confirm in the district court. Chesapeake’s motion sought confirmation of the December 30, 2009 award only and to have all later awards vacated. The district court agreed with Chesapeake and ordered that the panel exceeded its jurisdiction by awarding the $22 million to BP. That order is the subject of BP’s cross-appeal.

The district court requested a joint proposal from the parties on how to proceed with regard to BP’s counterclaim for $22 million and fees. Both sides’ proposals failed, though, and after a 3-day bench trial, the district court found that Chesapeake waived its right to arbitrate the remaining disputes and that Chesapeake’s contract defenses failed. The court entered judgment in favor of BP for $22,265,302 plus interest. Chesapeake appeals from that judgment. The district court later granted in part BP’s motion for attorneys’ fees and costs and awarded $1,403,669.38 against Chesapeake for fees and disbursements. Chesapeake appeals that judgment as well.

The Tenth Circuit reviewed the record and determined that Chesapeake waived its right to arbitrate, and the attempt to arbitrate after that waiver was disingenuous. Chesapeake’s argument that BP’s claim was not timely was ineffective because the dispute did not arise until after completion of arbitration. Chesapeake also argued that BP’s counterclaim was not cognizable under the FAA, citing authority from other circuits. The Tenth Circuit does not have a rule prohibiting counterclaims in confirmation, and it rejected Chesapeake’s proposal. The Tenth Circuit next addressed BP’s cross-appeal. BP advised that if the Tenth Circuit rejected Chesapeake’s arguments, its appeal would be moot, and the Tenth Circuit agreed. Finally, the Tenth Circuit affirmed the award of attorney fees against Chesapeake.

SB 14-223: Authorizing Payment of Claims Arising from Lower North Fork Wildfire

On May 1, 2014, Sen. Jeanne Nicholson introduced SB 14-223 – Concerning the Payment by the State of Legal Claims Arising in Connection with the Lower North Fork Wildfire, and, in Connection Therewith, Making and Reducing Appropriations. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill directs the state claims board (board) to compromise or settle claims brought by certain claimants who have suffered damages or other losses in connection with the lower north fork wildfire (wildfire) in March 2012 to reimburse them for their economic and noneconomic losses as well as interest on such amounts. The bill specifies that the total amount of the moneys paid to each claimant reflects the amount of money in excess of the liability limitations under current law for which the board recommended the claimant recover, any additional damages that the arbiters recommended the state pay these claimants in pending state court litigation, and interest on such amounts.

Upon approval by the board of the payments of the total claims, the office of the state controller is required to make payment to the claimants from the general fund no later than September 1, 2014.

In accepting the payment, a claimant agrees to release the state from any future claims arising out of the wildfire.

The bill specifies the total amount to be paid to each claimant by the state.

On May 2 the Appropriations Committee amended the bill and sent it to the Senate floor for 2nd Reading. On Special Orders on May 2, the bill passed 2nd reading with amendments.

Since this summary, the bill passed the Senate on Third Reading, with amendments. The bill was introduced in the House and assigned to the Judiciary Committee. The Judiciary Committee referred the bill, unamended, to the Appropriations Committee, which referred the bill, unamended, to the House Committee of the Whole. The bill passed Second Reading in the House with amendments and Third Reading with no amendments. The Senate did not concur in the House amendments, and a conference committee was requested. Both the House and Senate adopted the conference committee report and repassed the bill.

SB 14-222: Limiting the Duration of a License to Use a Registration Number When Auctioned to Raise Money for the Disability-Benefit Support Fund

On May 1, 2014, Sen. Irene Aguilar introduced SB 14-222 – Concerning the Duration of a License to Use a Registration Number When Auctioned to Raise Money for the Disability-Benefit Support Fund. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill changes the duration of a license to use a registration number purchased at auction from perpetual to a limited time determined by the license plate auction group.

On May 2, the Health & Human Services Committee approved the bill and sent it to the full Senate for consideration on 2nd Reading.

Since this summary, the bill passed the Senate on Second and Third Readings with no amendments. It was introduced in the House and assigned to the Committee on Health, Insurance, & Environment, which referred the bill, unamended, to the House Committee of the Whole. The bill passed the House on Second and Third Readings with no amendments.

SB 14-220: Requiring Mediation or Arbitration of Construction Defect Claims Where Required by Owners’ Association Governing Documents

On April 30, 2014, Sen. Jessie Ulibarri introduced SB 14-220 – Concerning Prerequisites to the Authority of a Unit Owners’ Association to Pursue Resolution of Disputes Involving Construction Defects. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill states that when the declaration, bylaws, or rules of a common interest community require mediation or arbitration of construction defect claims and the requirement is later removed, mediation or arbitration is still required for a construction defect claim based on an alleged act or omission that occurred when the mediation or arbitration requirement was in place. Section 1 also specifies that the arbitration must take place in the judicial district in which the community is located and that the arbitrator must:

  • Be a neutral third party;
  • Make certain disclosures before being selected; and
  • Be selected as specified in the community’s governing documents if possible or, if that is not possible, in accordance with the uniform arbitration act.

The bill adds to the disclosures required prior to the purchase and sale of property in a common interest community a notice that the community’s governing documents may require binding arbitration of certain disputes.

The bill requires that before a construction defect lawsuit is filed on behalf of the association, the executive board of the association must give advance notice to all unit owners, together with a disclosure of the projected costs, duration, and financial impact of the litigation, and must obtain the written consent of a majority of the unit owners.

The bill is assigned to the State, Veterans & Military Affairs and the Judiciary Committees; the State Affairs Committee will take up the bill first at 1:30 p.m. on Monday, May 5.

Since this summary, State, Veterans & Military Affairs Committee referred the bill, unamended, to the Judiciary Committee, which voted to postpone the bill indefinitely.

SB 14-215: Specifying the Disposition of Moneys Collected by the State in Connection with the Marijuana Industry

On April 28, 2014, Sen. Pat Steadman introduced SB 14-215 – Concerning the Disposition of Moneys Collected by the State in Connection with the Legal Marijuana Industry, and, in Connection Therewith, Making an Appropriation. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Joint Budget Committee

The bill specifies the cash fund into which the moneys collected by the state in connection with the retail marijuana industry will be deposited and determines the disposition of such moneys received by the state during the 2013–14 state fiscal year.

Beginning July 1, 2014, the bill requires all retail marijuana excise tax revenues, all retail marijuana sales tax revenues, and all marijuana state sales tax revenues to be deposited in the marijuana tax cash fund, which the bill creates in the state treasury. The bill requires the state treasurer to transfer all moneys in the marijuana cash fund on July 1, 2014, that are attributable to retail marijuana excise tax revenues, retail marijuana sales tax revenues, and marijuana state sales tax revenues to the marijuana tax cash fund. All moneys attributable to fees will remain in the marijuana cash fund and will continue to be deposited in the marijuana cash fund.

The bill modifies the authorized uses of the moneys in the marijuana cash fund. Beginning July 1, 2014, the general assembly may appropriate the moneys in the marijuana cash fund only to the department of revenue for the costs associated with the regulation, control, and taxation of medical and retail marijuana.

Marijuana tax cash fund. The bill specifies that the general assembly may appropriate the moneys in the newly created marijuana tax cash fund for specified purposes, including the purposes that were eliminated from the currently existing marijuana cash fund.

The bill prohibits the general assembly from appropriating the moneys in the marijuana tax cash fund until the fiscal year following the fiscal year in which the moneys were received by the state; except that the general assembly may appropriate moneys in the marijuana tax cash fund to the department of revenue in the fiscal years in which they were received by the state for the costs associated with the regulation, control, and taxation of medical and retail marijuana.

The remaining moneys in the marijuana tax cash fund are subject to annual appropriation by the general assembly, initially based on the most recent revenue estimate, in the fiscal year following the fiscal year in which they were received by the state. The general assembly may also direct the state treasurer to make transfers from the marijuana tax cash fund to the general fund for specific purposes.

The governor is required to include the governor’s requested expenditures of moneys in the marijuana tax cash fund and the purposes of such expenditures in the governor’s budget request submitted to the joint budget committee each November. In addition, the executive director of the department of revenue is required to include in its budget request submitted to the joint budget committee in November of each year the amount that the department requests from the moneys in the marijuana cash fund and from the marijuana tax cash fund for the costs associated with the regulation, control, and taxation of medical and retail marijuana.

Beginning with appropriations made for the 2015–16 state fiscal year, the total amount that the general assembly appropriates from the fund shall not exceed 93.5% of the amount of moneys in the fund available for appropriation.

The bill delineates the permissible purposes for which the general assembly may appropriate moneys in the marijuana tax cash fund.

The bill makes changes to the 2014 general appropriation bill that are required due to the transfer of moneys from the marijuana cash fund to the marijuana tax cash fund.

The bill passed the Health & Human Services and Appropriations Committees on April 30 and May 1 respectively. On May 2, the bill passed the 2nd Reading Consent Calendar in the Senate.

Since this summary, the bill passed the Senate on Third Reading, with amendments. It was introduced in the House and assigned to the Committee on Health, Insurance & Environment. The Committee on Health, Insurance & Environment referred the bill, amended, to the Appropriations Committee, which referred it, amended, to the House Committee of the Whole. The bill passed on Second Reading with amendments and on Third Reading with no amendments. The Senate repassed the bill with the House amendments.

SB 14-213: Increasing Statutes of Limitations for Civil and Criminal Proceedings Against a Person Who Leaves Scene of Vehicular Homicide Accident

On April 24, 2014, Sen. Michael Johnston introduced SB 14-213 – Concerning Increasing the Statutes of Limitations for Commencing Proceedings Against a Person Who, After Committing a Vehicular Homicide, Leaves the Scene of the Accident, and, in Connection Therewith, Requiring a Post-enactment Review of the Implementation of this Act. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

In current law, the statute of limitations for bringing a criminal proceeding against a person who commits vehicular homicide is five years. For offenders who also leave the scene of the accident, the bill changes this limit to 10 years.

In current law, the statute of limitations for bringing a civil suit for wrongful death is two years. The bill changes this limit to four years for a wrongful-death suit against a defendant who committed vehicular homicide and, as part of the same criminal episode, committed the offense of leaving the scene of an accident that resulted in the death of a person.

Five years after the bill becomes law, the legislative service agencies shall conduct a post-enactment review of the implementation of the bill and report their conclusions to the judiciary committees of the house of representatives and senate, or any successor committees.

On April 30 the Judiciary Committee approved the bill and sent it to the Appropriations Committee. The Appropriations Committee approved the bill on May 11. The bill cleared 2nd Reading in the Senate on Friday, May 2.

Since this summary, the bill passed the Senate on Third Reading with no amendments. It was introduced in the House, where it was assigned to the Judiciary Committee. The Judiciary Committee referred the bill, unamended, to the Appropriations Committee, which referred it, unamended to the House Committee of the Whole. The bill passed the House on Second and Third Readings with no amendments.