August 25, 2019

Rule Change 2016(11) Adopted, Amending Colorado Rules of Professional Conduct

On Thursday, November 3, 2016, the Colorado Supreme Court adopted Rule Change 2016(11), affecting the Colorado Rules of Professional Conduct. The rules affected are Rule 1.15A, “General Duties of Lawyers Regarding Property of Clients and Third Parties,” Rule 1.15B, “Account Requirements,” and Rule 1.15D, “Required Records.”

A new comment [7] was added to Rule 1.15A to define “reasonable efforts” to find owners of property and explain that it is context-specific. The comment lists several potential scenarios and what would constitute “reasonable efforts” in those cases.

Rule 1.15B was changed by the addition of subsection (k), which also addresses procedures a lawyer should follow when he or she has unclaimed funds in his or her COLTAF account.

Rule 1.15D was changed by the addition of a new subsection (a)(1)(C), which specifies procedures for remitting unclaimed funds to COLTAF.

For a redline and clean version of the rule change, click here. For all of the Colorado Supreme Court’s adopted and proposed rule changes, click here.

But Are You Helping?

Richard Pennington 1By Richard Pennington

In 2009, psychologist and MIT professor emeritus Edgar Schein published a book, Helping, that described a general model for effective helping. Schein is widely known for his work in organization development; he wrote the business classic Organization Culture and Leadership (2004).

I reached Schein circuitously. I had retired from the private of law in 2010 and was researching models for teaming, leadership, project management, problem solving, and organizational learning. In one of the better books on leadership in teams, Lateral Leadership, authors Roger Fisher and Alan Sharp distilled their advice down to one piece: “Choose to help.” But what was helping?

The idea lay dormant for a year while I finished a book on effective team performance. Then, during preparation for a short training seminar about consultancy and learning, the relevance of Schein’s ideas to law practice suddenly dawned on me.

Schein’s model is based on the conclusion that helping relationships – and he uses attorney-client relationship as one of his many examples – have a life cycle much like teams. They move from a period of pure inquiry to various roles: the expert, the doctor, and the process consultant. Here is how Schein would see the development of an effective attorney-client relationship.

1. Begin always with a period of pure inquiry. Effective helping begins with readiness. Early in a relationship, perhaps at the stage when many attorneys have initial consultations, there is an imbalance in the social economics. Clients feel “one down,” a feeling that they don’t bring anything of value to the relationship, uncertainty about their ability to influence the outcome, and insecurity about whether their goals will be achieved. The attorney needs to do something to adjust the imbalance in order to build trust. By simply listening to the client’s story, using “humble inquiry” as Schein calls the process strategy at this stage, the client begins to feel like there is a better balance in the relationship just by being heard. That begins the development of trust.

2. Use caution not to fall into the diagnostic trap too early. Experts are more comfortable with the kinds of questions that lead to solutions. Who was at the meeting? When did you meet? What did the other party say? How did the language in that meeting compare to prior email communications? Use of those kinds of diagnostic questions too early may impede the development of the relationship. The attorney is walking a tightrope here, because this also is the time when attorneys are hoping to gain a client. The quality of informed questions is an important factor in a client’s decision, and informed questions tend to be diagnostic.

3. Start with process inquiry and return to it often. Schein uses process inquiry to describe the underlying process of relationship building and problem solving, not a focus on the substance of the problem. For example, the question, “How would you see a successful outcome?,” at the conclusion of an initial consultation turns the focus to the client’s expectation of the process outcome. That question might uncover a discomfort with the unintended consequences of litigation, for example. Occasional questions during the engagement like, “How can we better communicate about the drafts?,” or “How am I doing keeping you informed about the progress of the case?,” turns the focus to the relationship, keeps it in balance as client input is sought, and continues to build trust. These also are the kinds of questions that help a relationship out of the quicksand when it gets bogged down.

Lawyers eventually move into the expert role in writing documents or handling litigation. This may be where the Schein model pauses in its relevance somewhat, because some consultants stay in the process mode throughout. “Clients own the problem” Schein says, but lawyers are paid to solve them. “Don’t give unwanted help,” counsels Schein, but the cost of legal services probably mitigates the risk of over-helping in unwanted ways.

Still, Schein’s emphasis on the importance of process feedback is relevant. So is the inquiry approach to developing the relationship. Attorneys are taught the art of questioning, but not this way. Pure inquiry and the use of real questions are key to fostering development of the relationship. Competency, professionalism and ethics are critical parts of client relationships. But effective helping may be the most important.

Richard Pennington returned to the practice of law in April 2013 as General Counsel for WSCA-NASPO Cooperative Purchasing Organization LLC. WSCA-NASPO is the nonprofit subsidiary of the National Association of State Procurement Officials that supports cooperative purchasing by the states and what formerly was the Western States Contracting Alliance. Richard is a member of the CBA/DBA Professionalism Coordinating Council. His book, Seeing Excellence: Learning from Great Procurement Teams, is scheduled for release in August 2013.

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.

The Impact of Colorado’s Civil Unions Act on Estate Planning

EmilyBloedelBy Emily L. Bloedel

In the past twenty years, Colorado has gone from being dubbed the “hate state” for its discrimination against same-sex individuals (See Romer v. Evans, 517 U.S. 620 (1996)) to allowing civil unions. Beginning at midnight on May 1, 2013, same-sex couples will be able to enter into civil unions. A number of legal benefits, protections, and responsibilities that are granted to spouses under the law apply to parties to a civil union.

These changes include: the ability to inherit real or personal property from a party in a civil union under the probate code; priority for appointment as a conservator, guardian, or personal representative; survivor benefits; the ability to file a complaint about the care or treatment of a party in a civil union in a nursing home; rights related to declarations concerning the administration, withholding, or withdrawing of medical treatment, proxy decision-makers and surrogate decision-makers, CPR directives, or directives concerning medical orders for scope of treatment forms with respect to a party to a civil union; rights concerning the disposition of last remains of a party to a civil union; and the right to make decisions regarding anatomical gifts (C.R.S. 14-15-101 et seq).

The impact that the new Act will have on estate planning is not yet clear. The previous norm in Colorado for same-sex couples, designated beneficiary agreements, may no longer be necessary for an individual in a same-sex relationship to dispose of his or her property as desired and allow for his or her partner to make important medical decisions. The Act makes it clear that, for the most part, a “party to a civil union has the benefits, protections, and responsibilities under law as are granted to spouses” (C.R.S. 14-15-106 (1)).

The legislature has made it clear that for estate planning purposes, if a partner in a valid civil union dies intestate, his or her partner can now inherit via the intestacy statute. Although the full extent of the benefits to same-sex couples remains to be seen, the best way for any partner to a civil union to ensure the desired disposition of his or her property, or that the proper person handles decision-making when the partner is no longer able, remains, like any marriage, in informing loved ones of his or her wishes and creating valid estate planning documents.

Emily Bloedel joined Felser, P.C. in October 2012 as an associate attorney and can be reached on LinkedIn. She received her bachelor’s degree in Japanese Language and Literature from the University of Colorado and graduated from the University of Denver Sturm College of Law in 2012. She is licensed in Colorado. While in law school, Emily was a traveling oralist on the Willem C. Vis International Commercial Arbitration moot team and served on the board of editors of the Denver Journal of International Law and Policy. She also mediated small claims and FED cases through the Mediation-Arbitration Clinic. She enjoys playing the koto (a traditional Japanese instrument), reading, and traveling. She is a contributor to the DBA Young Lawyers blog, where this post 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.

Report Regarding The 2013 ABA Mid-Year House Of Delegates Meeting In Dallas, Texas

Troy RackhamBy Troy Rackham

I have the privilege of serving the Denver Bar Association as a delegate to the American Bar Association (“ABA”) House of Delegates. The ABA House of Delegates met at the ABA’s midyear meeting held in Dallas, Texas on February 11, 2013. The agenda was relatively light. This Article summarizes the House of Delegates events at the midyear meeting and the action taken by the House.

The House opened with a welcome speech by Senator Kay Bailey Hutchinson. Senator Hutchinson thanked the House for its leadership in maintaining the integrity of the profession and ensuring the quality of judges.

ABA President Laurel Bellows also spoke to the House. She thanked the House for the privilege of serving as President. She discussed the concept of justice as fairness. She raised important questions on how best to improve the quality of justice delivered and how to make justice more accessible. She also discussed the Gender Equity Task Force and commented on the fact that it is addressing issues of unfairness to women, including inequity of pay to women lawyers. Additionally, President Bellows discussed human trafficking and the ABA initiatives relating to the epidemic of human trafficking. Finally, President Bellows discussed promoting programs supporting law students and young lawyers, as well as reforms to legal education.

After hearing some other speeches, the House got to work on resolutions submitted to the house. First, the House passed Resolution 108, which encouraged practitioners, when appropriate, to consider limiting the scope of their representation, including the unbundling of legal services as a means of increasing access to legal services. The House also considered and approved three resolutions relating to administrative law.

Additionally, the House considered and approved Resolution 109 which supported the position that United States Bankruptcy Judges have the authority, upon the consent of all the parties to the proceeding, to hear, determine, and enter final orders and judgments in those proceedings designated as “core” within the meaning of 28 U.S.C. § 157(b) but that may not otherwise be heard and determined by a non-Article III tribunal absent consent. The House voted to revise the resolution and later approved it.

The House considered nine resolutions relating to issues of criminal justice. Those were as follows:

  • Resolution 104A – Indigent Defense. The Criminal Justice Section urged the adoption of Resolution 104A, as revised, which urged Congress to establish an independent federally funded Center for Indigent Defense Services for the purpose of assisting state, local, tribal and territorial governments in carrying out their constitutional obligation to provide effective assistance of counsel for the defense of the indigent accused in criminal, juvenile and civil commitment proceedings. The House adopted the resolution as revised.
  • Resolution 104C – Prohibiting Retaliatory Discharge Against Public Defenders. The Criminal Justice Section also urged the House to adopt Resolution 104C. Resolution 104C urged state and local governments to enact legislation to prohibit the retaliatory discharge of a Chief Public Defender or other head of an indigent defense services provider because of his or her good faith effort to control acceptance of more clients than the office can competently and diligently represent. The House adopted the resolution.
  • Resolution 104D – Increased Funding for Prosecutor Training. The Criminal Justice Section moved the House to adopt Resolution 104D, which urged the federal government to restore, maintain, and, where appropriate, increase funding to organizations which provide training to state and local prosecutors, to better promote justice, increase public safety, and prevent wrongful convictions. The House approved the resolution.
  • Resolution 104E – Investigation of Immigration Status of the Accused. Fourth, the Criminal Justice Section asked the House to adopt Resolution 104E, which urged courts to ensure that defense counsel inquires and investigates a juvenile defendant’s immigration status and informs the juvenile about any possible collateral consequences that may flow from different dispositions of the case. The resolution also sought to minimize adverse immigration consequences. Several revisions were made to the resolution and the House adopted it, as revised.
  • Resolution 104F – Victims of Human Trafficking. Additionally, the Criminal Justice Section urged the House to adopt Resolution 104F, as revised. Resolution 104F urged governments to enact laws and regulations and to develop policies that assure that once an individual has been identified as an adult or minor victim of human trafficking, that individual should not be subjected to arrest, prosecution or punishment for crimes related to their prostitution or other non-violent crimes that are a direct result of their status as an adult or minor victim of human trafficking. The House approved the resolution as revised in the House.
  • Resolution 104G – Affirmative Defenses for Victims of Human Trafficking. Consistent with President Bellows’ focus on Human Trafficking, the Criminal Justice Section also moved the House to adopt Resolution 104G, which urged governments to enact legislation allowing adult or minor human trafficking victims charged with prostitution related offenses or other non-violent offenses to assert an affirmative defense of being a human trafficking victim. The House revised the resolution and later adopted it.
  • Resolution 104H – Vacating Convictions for Victims of Human Trafficking. The Criminal Justice Section further moved the House to adopt Resolution 104H, which urged governments to aid victims of human trafficking by enacting and enforcing laws and policies that permit adult or minor victims of human trafficking to seek to vacate their criminal convictions for offenses related to their prostitution or other non-violent offenses that are a direct result of their trafficking victimization. The House approved the resolution as revised.
  • Resolution 104I – Training Relating to Human Trafficking. As the final human trafficking resolution, the Criminal Justice Section and the Commission on Domestic and Sexual Violence jointly urged the House to adopt Resolution 104I, which was revised. Resolution 104I urged bar associations to work with judges, lawyers, and other professionals with subject matter expertise in human trafficking, to develop and implement training programs for judges, prosecutors, defense counsel, law enforcement officers, immigration officials, civil attorneys, and other investigators that will enable them to identify adult and minor victims of human trafficking and enable them to direct victims and their families to agencies that offer social and legal services and benefits designed to assist adult and minor victims of human trafficking. The House approved Resolution 104I as revised.
  • Resolution 104J – Model Charge for Grand Juries. Finally, the Criminal Justice Section moved the House to adopt Resolution 104J, which urged the Judicial Conference of the United States to amend the Model Grand Jury Charge to clarify that the Grand Jury should be instructed to vote separately on each defendant. After hearing the arguments in support of the resolution, the House passed it without revision.

Additionally, the House considered several resolutions proposed by the Ethics 20/20 Commission. The resolutions largely sought amendments to the Model Rules of Professional Conduct, or other Model Rules, to address the realities of increasing lawyer mobility. The Ethics 20/20 Commission resolutions are discussed in turn.

First, the House approved revised Resolution 107A, which approved proposed amendments to Model Rule of Professional Conduct 5.5(b) and the ABA Model Rules of Professional Conduct (Unauthorized Practice of Law; Multijurisdictional Practice of Law) to allow foreign lawyers to serve as in-house counsel in the United States, as long as the foreign lawyers not advise on United States law except in consultation with a U.S.-licensed lawyer. There was a variety of interesting debate and discussion on this resolution. Ultimately, the House passed Resolution 107 as revised.

Second, the Ethics 20/20 Commission urged the House to adopt Resolution 107B. Resolution 107B proposed amendments to the ABA Model Rule for Registration of In-House Counsel so that the model rule would permit foreign lawyers to serve as in-house counsel in the United States with some restrictions. The House revised the resolution and adopted it.

Third, the House considered Resolution 107C, which proposed amendments to the ABA Model Rule on Pro Hac Vice Admission. The amendments were designed to provide judges with guidance about whether to grant limited and temporary practice authority to foreign lawyers to appear in courts in the United States. There was some interesting discussion prior to the House, and during the House debates, on the resolution. Ultimately, after an amendment, the House adopted the resolution.

Finally, the Ethics 20/20 Commission urged the House to adopt Resolution 107D, which proposed amendments to Model Rule of Professional Conduct 8.5. Rule 8.5 relates to choice of law applicable to conduct standards and lawyer discipline. The proposed amendments were designed to address common choice of law problems that are more frequently occurring in the context of conflicts of interest. The House approved the resolution.

The House considered a number of resolutions in addition to the nine resolutions proposed by the Criminal Justice Section and the four resolutions urged by the Commission on Ethics 20/20. Those are described below:

  • Resolution 10A – Court Funding Crisis. The New York State Bar Association moved the House to adopt Resolution 10A, which urged federal elected officials to adequately fund the federal courts and the Legal Services Corporation as they negotiate deficit reduction with the imminent threat of the implementation of sequestration if they fail. The House approved the resolution.
  • Resolution 101A – Patentable Subject Matter. The Section of Intellectual Property Law moved the House to adopt Resolution 101A, which was revised. Revised Resolution 101A provided that the ABA would support the principle that laws of nature, physical phenomena, and abstract ideas are not eligible for patenting as a process under 35 U.S.C. §101, even if they had been previously unknown or unrecognized. The House approved the resolution as revised.
  • Resolution 101B – Standards for Finding Direct Infringement. Additionally, the Section of Intellectual Property Law urged the House to adopt Resolution 101B, which supported clarifying the standards for finding direct infringement under 35 U.S.C. § 271(a) for a patent directed to a multiple-step process in the fact situation where separate entities collectively, but not individually, perform the required steps of the patented process. After a revision, the House approved the resolution.
  • Resolution 106 – Principles for Jury Trials. As its one resolution, the Commission on the American Jury Project asked the House to adopt Resolution 106, which proposed amendments to the 2005 ABA Principles for Juries and Jury Trials. The amendments were to Principles 1(C) through (F), 6(C), 10(C) and 11(A) of those Principles. After an interesting discussion in support of the resolution, the House approved the resolution.
  • Resolution 100 – Medicare Reimbursements. The ABA’s Standing Committee on Medical Professional Liability moved the House to adopt Resolution 100. Resolution 100 supports timely and efficient resolution of requests from a claimant or applicable plan for conditional payment reimbursement amounts where Medicare has a right to reimbursement from a recovery by way of settlement, judgment or award. The resolution also urged Congress and the Department of Health and Human Services to establish reasonable time limits and procedures for responding to such requests. The House approved the resolution.

Finally, the House of Delegates also considered a number of uniform acts proposed by the National Conference of Commissioners on Uniform State Laws. It is fairly typical for the House to consider proposed uniform laws at its meetings. The three uniform laws that the House considered were the Uniform Asset Freezing Orders Act, the Uniform Deployed Parents Custody and Visitation Act, and the Uniform Premarital and Marital Agreements Act. The House approved all three resolutions.


I hope this Article sufficiently highlighted many of the more interesting or important the agenda items considered by the House of Delegates at the midyear meeting in Dallas. The annual meeting this year will be in August 2013 in San Francisco. I appreciate all input that any members of the Denver Bar Association have regarding any of the issues that have been considered, or will be considered, by the ABA House of Delegates.

Troy Rackham defends lawyers, hospitals, nursing homes, long term care facilities and other health care organizations in a wide variety of cases and claims. He regularly advises legal professionals on ethics, malpractice and professional liability issues. Mr. Rackham co-wrote a treatise on Colorado Legal Malpractice litigation, which is updated annually. He has orally argued and prepared briefs in dozens of appellate cases, most of which involved claims against lawyers, hospitals, physicians, or health care systems. Mr. Rackham is a member of the American, Colorado, and Denver Bar Associations, and he is a member of the CBA Ethics Committee and the ABA House of Delegates.

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.

Funding a Small Business with Retirement Funds? Think Twice

AlexWenzelBy Alexander Wenzel

If you have listened to AM radio in the last three years, you may have heard advertisements for arrangements by which small business owners could use tax-deferred funds to inject some capital into their small business from their retirement funds. The IRS refers to these arrangements as Rollovers as Business Start-Ups (or “ROBS”), although the scheme is not limited to start-ups.

Structure of ROBS

One may be able to understand how the IRS feels about these arrangements by the acronym it has chosen for them. The ROBS arrangement is a fairly simple tax work-around that takes funds from an existing tax-deferred retirement account, rolls-over those funds to a new tax-deferred retirement account (the “ROBS Plan”) that has but one client (the business owner) and one investment (the small company). The ROBS Plan would acquire shares of stock in the company as an “investment”by making a nice tax-deferred injection of capital into the company. While this arrangement may be acceptable to the IRS in a narrow set of circumstances, there are some dangers to this type of funding.

Items of Concern

The IRS is most concerned with two aspects of these arrangements: (i) violations of nondiscrimination requirements of retirement plans; and (ii) faulty valuations of the small business stock traded for the capital injection.

Non-discrimination Issue: The Internal Revenue Code prohibits contributions or benefits provided under a qualified retirement plan from discriminating in favor of highly compensated employees—those who either own at least 5 percent of the company, or receive more than $80,000 in salary. The Treasury Regulations also provide that the benefits, rights, and features of a qualified retirement plan (including, in this case, the ROBS Plan) cannot be discriminatory in effect. That is, employees must be able to invest in the ROBS Plan, not just the business owner.

As is often the case, employees may not even know of the existence of a ROBS Plan, much less be able to participate in it. If either the business owner or the ROBS Plan holds more than 5 percent of the company’s equity and employees are not permitted to participate in the ROBS Plan, the ROBS Plan is in danger of violating the non-discrimination requirement.

Valuation Issue: The IRS is also concerned that the valuation of the stock issued to the ROBS Plan may be inflated. The business owner may not want to lose control of the business ownership to the ROBS Plan and may seek to sell a small percentage of the shares to the ROBS Plan at a high price not supportable by the company’s operations or financial condition. Any such transaction should be supported by a well-documented appraisal. Additionally, if the company’s only asset is the capital injected, the investment may be characterized as a “prohibited transaction” which may result in a 15 percent tax on the transaction, or even 100 percent tax if not promptly corrected.

Dangers abound with ROBS Plans, and it may be wise to pursue other avenues of funding a small business before using those hard-earned retirement funds.

Alex Wenzel is an associate attorney at Burns, Figa & Will, P.C. His practice focuses on real estate transactions and litigation, securities, and corporate formation and transactional work. Prior to becoming an attorney, Mr. Wenzel was a Presidential Writer for the White House in the Office of Special Letters and Responses. A native Ohioan, he earned his B.A. at the University of Cincinnati and his J.D. at the University of Denver.

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.

SEC Issues Report on Social Media Disclosures


By Trevor A. Crow

The Securities and Exchange Commission (SEC) recently issued a report of its investigation relating to a Facebook post by Reed Hastings, the CEO of Netflix, which stated Netflix’s monthly online viewing had exceeded 1 billion hours. The SEC’s investigation was to determine whether Hastings or the Company violated Regulation FD under the Securities Exchange Act through the posting of this information.

In general, Regulation FD prohibits public companies, or persons acting on their behalf, from selectively disclosing material, nonpublic information to certain securities professionals, or shareholders, where it is reasonably foreseeable that they will trade on that information, before it is made available to the general public. Here, the SEC decided not to initiate an enforcement action against Netflix or Hastings. However, the report also offers guidance to public companies on the application of Regulation FD to disclosures made through social media.

The report explains that, under certain circumstances, public companies may disseminate material, nonpublic information through social media without violating Regulation FD if investors previously have been notified that specific social media will be used to spread such information. The report states that the framework set forth in theSEC’s August 2008 Guidance on the Use of Company Websites should be used when analyzing communications made through social media. Specifically, “the central focus of this inquiry is whether the company has made investors, the market, and the media aware of the channels of distribution it expects to use, so these parties know where to look for disclosures of material information about the company or what they need to do to be in a position to receive this information.”

The report also explained that without prior notice to investors, it is unlikely that a corporate officer’s personal social media site used to disseminate corporate information would qualify as a method “reasonably designed to provide broad, non-exclusionary distribution of the information to the public” as required under Regulation FD. In the Netflix inquiry, Hastings’ Facebook page had never been previously used to announce company metrics, yet the SEC still chose not to initiate an enforcement action against Netflix or Hastings.

Bottom Line: Public companies should have social media policies in place for their directors and executive officers to educate them about Regulation FD. Before a representative of the company posts any material and nonpublic information on a social media platform, the company should take steps to ensure that investors, the market, and the media are aware of this channel of distribution.

Trevor A. Crow is an associate in Dufford & Brown’s corporate transactions group. He focuses on public company securities compliance, M&A, entity formation, and startup company financing. He has counseled clients on a variety of business issues including entity selection, formation, finance, acquisitions, and numerous operating transactions. Trevor’s LLM in taxation makes him uniquely qualified to handle complex issues regarding business transactions and tax planning.

Trevor received his J.D. and LL.M. in Taxation from the University of Denver’s Sturm College of Law.  He is a member of the American, Colorado, and Denver bar associations; an executive member of the Colorado Bar Association Tax Section; he belongs to the Denver Metro Chamber Impact Denver Class of 2012; and he is a member of the Colorado Association of Business Intermediaries (CABI). He writes for the CBA Business Law Section 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.

The American Taxpayer Relief Act of 2012: Bidding Adieu to the Sunset (Part 3)

Editor’s Note: This is Part 3 of a 3-Part Series. For Part 1, click here, and for Part 2, click here.

By Merry H. Balson and Laurie A. Hunter

Return of the Charitable IRA Rollover Through 2013. The 2012 Tax Act extended the IRA charitable rollover rules through 2013. These rules were originally put in place in 2006, and had expired at the end of 2011. The charitable IRA rollover provisions allow individuals who are 70 ½ or older to transfer (or “rollover”) up to $100,000 per year from their IRAs to most charities on a “tax neutral” basis if the transfer is a “qualified charitable distribution” and satisfies certain rules. Qualified Charitable Distributions will not count as taxable income to the individual (as would usually be the case in any other distribution from an IRA) but no charitable income tax deduction is allowed for the contribution. Transfers must be directly from the IRA trustee to the charity to qualify. Additionally, transfers to private foundations, donor advised funds, supporting organizations or split-interest trusts (such as charitable remainder or charitable lead trusts) do not qualify for this special treatment. Because the charitable IRA rollover had expired in 2011 and has now been reinstated retroactively for 2012, taxpayers were also allowed to treat distributions from IRAs made after November 20, 2012 and before January 31, 2013 as a charitable IRA rollover for 2012, if that distribution is made in cash to charity before January 31, 2013. As a result, in 2013 taxpayers had an opportunity to give up to $200,000 to charity from their IRAs (with $100,000 treated as given in 2012) if they acted by the end of January.

Other Annual Extenders. The 2012 Tax Act also extended a number of credits and deductions that have been extended year by year for some time, and did not make them “permanent.” These include the American Opportunity Tax Credit,[1] more favorable conservation easement rules,[2] more favorable depreciation rules, the wind energy credit, and research and development credits.

Health Care Act Changes. Finally, changes taking place in 2013 include raising the medical expense deduction to 10% of adjusted gross income from 7.5%, and the new 3.8% surtax on net investment income for single taxpayers with $200,000 “modified” adjusted gross income and $250,000 for married filing jointly.


The 2012 Tax Act is replete with references to permanence. While that might provide comfort to some, keep in mind that the provisions of the 2012 Tax Act are only truly permanent until Congress and the President decide to change them. Until then, we can all breathe a sigh of relief that sunset never came to pass, and for the first time in decades advise our clients about the tax implications of their gifts during life and at death with some measure of certainty.

Merry H. Balson is Of Counsel at Wade Ash Woods Hill & Farley, P.C., where her practice emphasizes estate planning, estate and trust administration and forming and advising exempt organizations. She can be reached at or 303-329-2215.

Laurie A. Hunter is a Shareholder at Wade Ash Woods Hill & Farley, P.C., where her practice emphasizes estate planning, probate and trust administration. She can be reached at or 303-329-2227.

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.


[1] Pub.L. 112-240, Sec. 103, H.R. 8, 126 Stat. 2313 (2013).

[2] Pub.L. 112-240, Sec. 206, H.R. 8, 126 Stat. 2313 (2013).

The American Taxpayer Relief Act of 2012: Bidding Adieu to the Sunset (Part 2)

Editor’s Note: This is Part 2 of a 3-Part series. Click here for Part 1.

By Merry H. Balson and Laurie A. Hunter

How does the 2012 Tax Act affect estate planning?

Lifetime Gifts. Many clients who were concerned that sunset would cause the estate tax exemption to decrease from $5 million to $1 million made gifts before the end of 2012 to use all or part of the $5 million exemption. Those who did not make end of year gifts in 2012 (and those who did but did not fully use their exemption equivalent) are given another chance to make such gifts because the historically high exemptions are still in effect. Completed irrevocable gifts can remove future appreciation from the donors’ estates, as well as give trust beneficiaries other benefits of irrevocable trusts generally, such as creditor protection and protection from claims of divorcing spouses (in certain circumstances). In addition, if only one spouse made a gift to an irrevocable trust for the benefit of the other spouse, but because of the “reciprocal trust rule” the other spouse did not make a similar gift, that spouse may now wish to consider, after the passage of time, making a gift of their own.

Keep in mind that the downside of making gifts still applies: no stepped up basis on death. Instead, the gifted assets have a “carryover basis” from the donor.

Continued Use of Family or Credit Shelter Trusts. There are a number of reasons an estate planner should continue to discuss the use of family trusts or credit shelter trusts in estate plans instead of relying solely on portability of the first spouse’s unused exemption. First, future appreciation of assets in the family trust will pass estate tax free. Second, income from the family trust can accumulate outside the surviving spouse’s estate. Third, the family trust can be designed to provide creditor protection for the surviving spouse. Fourth, assets in the family trust can avoid claims of a new spouse to the trust assets either at the surviving spouse’s death or divorce. Finally, the family trust can provide a vehicle for an independent trustee to administer the assets, especially in the case of a blended family.

Addressing Portability Election in Planning Documents. With the permanence of portability, practitioners who are not already doing so should consider the extent to which the portability election should be addressed in wills and trusts. The documents could require the personal representative to elect portability on a timely filed estate tax return or could merely authorize the personal representative to do so. Additionally, consider addressing who should bear the cost of the estate return preparation, particularly where the return is being filed solely to elect portability. Furthermore, issues relating to the portability election may also be a subject for negotiation in premarital or postmaritial agreements.

Income Tax Changes in the 2012 Tax Act. In addition to the estate and gift tax provisions, there are numerous income tax provisions in the 2012 Tax Act. The following is a summary of some of those provisions affecting individuals:

  • Tax rates stay the same for most taxpayers. Individuals will have an increased tax rate (back to Clinton-era rates) if they have taxable income over $400,000, and married filing jointly taxable income is over $450,000. The top tax rate will be 39.6%.[1]
  • Payroll tax rate returns to 2010 level. The 2% reduction in the social security payroll tax has expired.[2] Withholding will increase for all taxpayers back to the 2010 level.
  • Long-Term Capital Gains rates stay at 0% (for 10% and 15% rate taxpayers) and 15% (for up to 35% rate taxpayers). For those in the new 39.6% rate, the capital gain rate will be 20%.[3] Qualified dividend rates stay at the same rates as long-term capital gains.[4]
  • Alternative Minimum Tax changes are made “permanent” so that the income levels are $50,600 for single taxpayers and $78,750 for married filing jointly, and these levels are indexed for inflation.[5] Previously, these changes had to be adopted every year.
  • Personal exemptions will be reduced because the suspended phaseout is again in effect. For $250,000 single taxpayers or for $300,000 for married filing jointly, the personal exemption will be reduced by 2% for each $2,500 over the threshold.[6] These levels will be adjusted for inflation.
  • The limits on itemized deductions that had been suspended will again apply so that for the same threshold for the personal exemption levels discussed above, the total amount of itemized deductions will be reduced by 3% of the amount by which the taxpayer’s income exceeds the threshold, but not more than 80%.[7]
  • Trusts and Estates reach the highest tax rate (now 39.6%) at roughly $12,000 in taxable income, so trusts in particular may be subject to the higher income tax rate, the higher capital gains rate and the new 3.8% surtax on investment income mentioned below.[8]

To be continued…

Merry H. Balson is Of Counsel at Wade Ash Woods Hill & Farley, P.C., where her practice emphasizes estate planning, estate and trust administration and forming and advising exempt organizations. She can be reached at or 303-329-2215.

Laurie A. Hunter is a Shareholder at Wade Ash Woods Hill & Farley, P.C., where her practice emphasizes estate planning, probate and trust administration. She can be reached at or 303-329-2227.

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.


[1] Rev. Proc. 2013-15, Sec. 1.01, 2013-5 IRS 444 (January 11, 2013).

[2] Pub.L. 112-240, Sec. 101 (a-b), H.R. 8, 126 Stat. 2313 (2013).

[3] Pub.L. 112-240, Sec. 102(b), H.R. 8, 126 Stat. 2313 (2013).

[4] Pub.L. 112-240, Sec. 102(a), H.R. 8, 126 Stat. 2313 (2013).

[5] Pub.L. 112-240, Sec. 104, H.R. 8, 126 Stat. 2313 (2013).

[6] Pub.L. 112-240, Sec. 101(b), H.R. 8, 126 Stat. 2313 (2013).

[7] Id.

[8] Id.

The American Taxpayer Relief Act of 2012: Bidding Adieu to the Sunset

Editor’s Note: This is Part 1 of a series. Stay tuned for Parts 2 and 3.

By Merry H. Balson and Laurie A. Hunter

On January 1, 2013, while the ink on many year-end gift tax transfers was still wet, the 112th Congress passed the American Taxpayer Relief Act of 2012 (the “2012 Tax Act”).[1] The 2012 Tax Act was signed into law the following day, ending more than a decade of estate and gift tax uncertainty. This article summarizes the estate and gift tax provisions of the 2012 Tax Act, discusses the Act’s impact on estate planning, and outlines select income tax provisions affecting planning for individuals.

Phase-Ins and Sunsets: A Brief History of the Federal Estate, Gift and Generation-Skipping Transfer Tax System

The federal tax on transfers at death has been in existence since 1916 and the tax on inter vivos gifts has been part of the federal tax system since 1924, with the exception of a brief hiatus during its repeal between 1926 and 1932.[2] Phased in changes to the unified credit against estate and gift taxes and applicable transfer tax rates have been part of the estate planning practice for over three decades. In 1976, with the passage of the Tax Reform Act (“TRA”) of 1976, Congress created a unified estate and gift tax system and added the generation skipping transfer tax (“GST”).[3] It also phased in increases in the estate tax exemption from $60,000 in 1976 to $175,000 in 1981. The Economic Recovery Tax Act of 1981 (“ERTA”), among many other things, phased in increasing unified credit amounts over six years, increasing exemption equivalent amounts from $175,625 to $600,000 by 1987.[4] The top estate tax rate under ERTA was reduced to 55%, down from a maximum tax rate of 70% prior to enactment. Similarly, the Taxpayer Relief Act of 1997 provided for a phased in exemption equivalent from $600,000 to $1,000,000 in 2006.[5] The TRA ‘97 phase in never fully took effect because in 2001, when the exemption was only $675,000 and the estate and gift tax rate remained at 55% (plus 5% for estates over $10,000,000), the Economic Growth and Tax Relief Reconciliation Act (“EGTRRA”) of 2001 changed the estate and gift tax unified credit and rates yet again.[6] EGTRRA increased the exemption equivalent to $1,000,000 in 2002 and then incrementally through 2009 to $3,500,000, maintaining the gift tax exemption at a flat $1,000,000, decreasing the top rate to 45% by 2009 (which was subsequently accelerated to 2007), repealing the estate and gift tax in 2010 (but a carry-over basis regime) and sunsetting all EGTRRA provisions on January 1, 2011, with the effect of reverting to the law as it existed on January 1, 2001.[7] At the end of 2010, after nearly a year of estate and gift tax repeal, Congress passed the taxpayer friendly Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “2010 Tax Act”).[8] The 2010 Tax Act extended EGTRRA’s sunset provisions for two additional years (through January 1, 2013), increased the exemption equivalents to $5,000,000 for estate and gift tax (indexed for inflation starting in 2012) and reduced the tax rate to 35%.[9] The 2010 Tax Act also introduced the concept of “portability,” whereby a surviving spouse could “port” or use his or her deceased spouse’s unused unified credit provided certain conditions were satisfied.[10]

Finally a “Permanent” Tax Bill? After 12 years of planning under a looming sunset, finally there is no automatic sunset date for the 2012 Tax Act (although as noted below, certain extenders are set to expire). The major estate planning provisions include the following:

  • The estate and gift tax exemptions remain unified, and will stay at $5 million, but will be indexed for inflation. For 2013, both exemptions are $5,250,000.[11]
  • The GST exemption will also stay at $5 million, again, as indexed for inflation. The GST exemption is also $5,250,000 for 2013.[12]
  • Portability is permanent.[13] A deceased spouse’s unused estate tax exemption is “portable” if the surviving spouse timely files a U.S. Estate Tax Return (form 706). With certain exceptions, portability allows the surviving spouse to use the deceased spouse’s unused estate tax exemption immediately in addition to their own exemption. Importantly, however, the GST exemption is not portable and any unused portion at the first spouse’s death is lost. The 2012 Tax Act also corrected a technical problem in the 2010 Tax Act to be consistent with Treasury Regulations issued last summer that were favorable to the taxpayer by permitting “tacking on” of more than one former deceased spouse’s unused exemption to the surviving spouse.
  • Gift, estate and GST tax rate increases to 40% on the amount over the exemption.[14] The rate was 35% in 2011 and 2012, but had been 45% in 2009.

Additional effects of the repeal of the EGTRRA Sunset. The result of finally repealing the looming sunset provisions of EGTRRA and the strange results from it disappearing “as if it had never been enacted,” are among the following:

  • QFOBI is truly gone. The Qualified Family Owned Business Interest deduction, a complicated estate tax deduction that had no effect after 2003 due to the increase in estate tax exemptions, is now permanently repealed.
  • The state death tax credit was converted to a deduction, and now stays that way. For Colorado and about half the states, this means no state death tax, but the other half of the states changed their laws to include a state inheritance or estate tax, so continue to check local laws if your clients own real estate outside Colorado.
  • GST automatic allocation rules[15] and GST qualified severance rules both remain in effect.[16] These taxpayer-friendly rules are now permanent.

This is Part 1 of a 3-part series. Stay tuned for parts 2 and 3.


Merry H. Balson is Of Counsel at Wade Ash Woods Hill & Farley, P.C., where her practice emphasizes estate planning, estate and trust administration and forming and advising exempt organizations. She can be reached at or 303-329-2215.

Laurie A. Hunter is a Shareholder at Wade Ash Woods Hill & Farley, P.C., where her practice emphasizes estate planning, probate and trust administration. She can be reached at or 303-329-2227.

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.


[1] Pub.L. 112-240, H.R. 8, 126 Stat. 2313 (2013).

[2] The estate tax was enacted by the Revenue Act of 1916 (39 Stat. 756). The gift tax was first put in place by the Revenue Act of 1924 (43 Stat. 253), repealed by the Revenue Act of 1926 (44 Stat. 9), then reenacted by the Revenue Act of 1932 (47 Stat. 169).

[3] Pub. L. 94-455, H.R. 10612, 90 Stat. 1520 (1976).

[4] Pub. L. 97-34, H.R. 4242, 95 Stat. 172 (1981).

[5] Pub. L. 105-34, H.R. 2014, 111 Stat. 787 (1997).

[6] Pub. L. 107-16, H.R. 1836, 115 Stat. 38 (2001).

[7] See Sec. 901, Sunset Provisions of EGTRRA.

[8] Pub. L. 111-312, Title III, H.R. 4853, 124 Stat. 3296 (2010).

[9] Id.

[10] Id., Sec. 303.

[11] Rev. Proc. 2013-15, Sec. 2.13, 2013-5 IRS 444 (January 11, 2013).

[12] Under I.R.C. Sec. 2631(c), the GST exemption is equal to the basic estate tax exclusion amount.

[13] Pub.L. 112-240, Sec 101, H.R. 8, 126 Stat. 2313 (2013).

[14] Id. at Sec 101(c).

[15] See I.R.C. Sec. 2632(b-c) for deemed GST allocation rules.

[16] See I.R.C. Sec 2642(a)(3) for qualified severance rules.

Amendment 64 Passed in Colorado: Now What?

On Tuesday, November 6, 2012, Colorado voters approved Amendment 64, and Washington state voters approved Initiative 502. In enacting these ballot measures, Colorado and Washington become the first states in the country to decriminalize marijuana outside of the medical marijuana context.

What does Amendment 64 mean for Colorado?

Amendment 64 has two basic parts: (1) within certain defined parameters, it decriminalizes adult possession, use and cultivation of marijuana for recreational purposes; and (2) creates a framework for the establishment of a regulated and taxed retail marijuana industry, which would include cultivation, marijuana-infused products manufacturing, and retail sales. Respectively, these can be described as the “decriminalization,” and “regulation” components of Amendment 64.

As an initial matter, it is important to note that Amendment 64 does not affect the federal prohibition on marijuana. Marijuana remains illegal for all purposes at the federal level, and possession of any amount can lead to serious federal civil and criminal penalties. Thus, it will still be a federal crime for adults in Colorado to possess, cultivate, or distribute marijuana. Indeed, Colorado law would be irrelevant, and likely inadmissible, in a federal criminal prosecution or asset forfeiture proceeding arising from federal marijuana charges.

The status of federal marijuana law will have a significant impact on what happens in Colorado, but the effect of the conflict between Colorado and federal law will likely play out differently with respect to different components of Amendment 64. Decriminalization will go into effect as soon as the results of the election are made official (which could take several weeks). At that time, Colorado law enforcement authorities will no longer be able to arrest or prosecute adults possessing small amounts of marijuana, or growing up to six plants for personal use, provided they are otherwise acting in compliance with the requirements of Amendment 64. Accordingly, though it is inaccurate to say that marijuana is “legal” in Colorado in light of continued federal prohibition, as a practical matter, Amendment 64 largely eliminates the risk that any adult acting within the limits of the amendment would be arrested or convicted of marijuana crimes in Colorado. There are simply not enough federal law enforcement authorities on the ground in Colorado to deter adult recreational use of marijuana, and federal authorities cannot force Colorado authorities to enforce federal law. This reduced practical risk of prosecution will certainly have an effect on people’s behavior, and there is likely little that federal authorities will be able to do to meaningfully enforce marijuana prohibition as it relates to adult personal use of the drug.

Regulation, however, is likely a different matter, and its success hinges greatly on the federal attitude and approach toward the creation of the first state-regulated recreational marijuana market in the country. Because of federal forfeiture laws, the implications of regulation will be of particular concern to real estate owners, landlords and real estate lenders who may be faced with the opportunities to provide industrial and retail space to this new industry. In a future post, I will discuss some of the real estate-related issues that will arise from regulation.

The critical period will be the next year or so, while the state enacts regulations, and possibly statutes, to control a newly created recreational marijuana industry. Implementing regulations are supposed to be approved by July of 2013, and it would likely be late 2013 or early 2014 before licenses would be issued to new marijuana businesses. Thereafter, licensed businesses would be able to cultivate marijuana, produce marijuana-infused products, and sell marijuana to persons 21 and over at retail stores. Until then, Colorado adults will have the benefit of decriminalization, and will be able to grow their own without violating Colorado law, but will not be able to purchase marijuana at a retail establishment for recreational use, nor will marijuana be taxed.

Given the uncertain federal reaction to Amendment 64, it remains to be seen whether such a regulated marijuana industry will even get off the ground in Colorado. Whereas federal efforts to mitigate personal marijuana use would likely be futile in light of state-level decriminalization, federal authorities would have very effective tools at their disposal if they were inclined to prevent the establishment of a regulated and taxed recreational marijuana market in Colorado.

As a legal matter, it is well-established that state law changes to marijuana laws have no effect on federal marijuana laws, and nothing prevents federal authorities from prosecuting what might appear to be otherwise law-abiding marijuana businesses. This power is already on display in the context of medical marijuana in Colorado. Colorado’s existing medical marijuana industry currently survives solely due to Department of Justice and the United States Attorney for Colorado’s restrained exercise of prosecutorial discretion. These federal authorities have generally not taken any action against licensed medical marijuana operations that are in compliance with Colorado’s extensive medical marijuana industry regulatory regime. However, earlier this year, the Colorado U.S. Attorney’s Office made a determination that its restraint in exercising its prosecutorial discretion would only go so far. Specifically, Colorado U.S. Attorney John Walsh has determined that his office will not tolerate the continued operation of medical marijuana businesses located near schools. Since the decision, his office has been successful in systematically shutting down such businesses merely by making threats of criminal prosecution and asset forfeiture.

In the circumstances, it is entirely reasonable to question whether federal authorities will allow the development of a regulated market for marijuana outside of the medical context. If national or Colorado-based federal authorities decide to draw a line in the sand on this issue, it could set up a significant conflict. Alternatively, if Colorado’s medical marijuana experience is any guide, federal authorities may decide to simply weigh in at the margins, thereby constraining the retail recreational marijuana industry in Colorado, without entirely foreclosing its development.

Colorado’s governor appears to recognize this distinction between the effect of decriminalization and regulation. Following the announcement of the voters’ approval of Amendment 64, Governor Hickenlooper made a statement strongly affirming Colorado’s intent to push forward with decriminalization, while expressing skepticism about the prospects for regulation:

I think the federal government is probably going to come down just like in prohibition–you can’t do it by state by state–but I think at the very minimum we should work aggressively to decriminalize it; make sure kids don’t get felony records. I mean, the voters–the voters are pretty clear what they feel and what they want, so within the limits of federal law and whatever the federal government will permit, we have to figure out what’s a–how are we going to go forward.

He continued, acknowledging the difficulties involved in regulation of marijuana:

If the federal government says its going to be illegal and they’re going to prosecute, we don’t have much of a voice there. We’re not going–we’re not going to secede from the union. But, we do recognize that the public has spoken loudly and we’re going to communicate that to our friends in Washington.”

It will be very interesting to see how this plays out over the next weeks and months.

Bill Kyriagis represents business and real estate clients in litigation, bankruptcy and land use matters. In the land use context, Bill counsels clients on a variety of local government issues, including posturing land use matters for potential litigation and pursuing claims when necessary. Bill has also developed expertise regarding the issues faced by landlords and  property owners related to Colorado’s medical marijuana industry. Bill has worked on a number of pro bono cases, including a successful First Amendment challenge to local government land use regulations, and assisting tenants in landlord/tenant disputes. Bill contributes to his firm’s blog, where this post 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 Businesses Beware – ADA Public Accommodation “Drive-By” Lawsuits On The Rise

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.

Known as “Drive-By Litigation,” Colorado is getting hit by a rash of lawsuits alleging that businesses are violating Title III of the Americans With Disabilities Act (ADA). Since April of this year, 20 lawsuits (and counting) have been filed against Denver area businesses by the same Plaintiff who is represented by the same two attorneys from Florida, for alleged violations of Title III of the ADA, including things like lack of ramps, narrow doorways, missing signage, doorknobs that can’t be opened by a closed fist, and misplaced soap dispensers and coat racks.

Most of the businesses are in well-to-do areas of Denver, such as The Highlands, LoDo, LoHi, and SoBo, and include everything from popular restaurants, hair salons, day spas, tobacco shops, muffler shops, delis, and donut shops, to even a motel and a tile and linoleum shop. Channel 7 News recently ran a news story that is worth viewing called “Colorado Businesses Claim Identical ADA Lawsuits Filed By Florida Attorney ‘Extortion.’”

What Is “Drive-By Litigation”?

Although premised on the altruistic goal of fighting disability discrimination, these suits have become a profit-driven, litigation machine of high volume, boilerplate complaints, filed with the ultimate goal of squeezing business owners so that the plaintiffs and their attorneys can profit quickly from cash settlements in the tens of thousands of dollars.

The problem with these cases is that the vast majority are not situations where a disabled individual truly felt discriminated against and sought out an attorney to help redress an injury due to a lack of accommodation. Instead, it is the lawyers who hire investigators to identify local businesses that are not in technical compliance with the ADA, and then recruit plaintiffs from disability advocacy groups to serve as the front person. The investigators take pictures and build the case while the plaintiffs merely “drive by” the establishment, without any honest intentions of ever servicing the establishment.

Once the boilerplate suit is filed, questionable litigation tactics are then employed, such as serving immediate discovery in violation of the rules, asking the courts to order the parties to a settlement conference to force a quick settlement, and refusing to accept agreements or assurances of ADA compliance without monetary payments, even though the ADA itself does not allow damages to be awarded to plaintiffs (the ADA allows only injunctive relief and attorneys’ fees).

Earlier this year, the New York Times reported that “[i]n the last year, 3,000 [accessibility] suits, including more than 300 in New York, were brought under the Americans With Disabilities Act, more than double the number five years ago.” Other states hit hard have been Ohio, Florida, California and North Carolina. This is an unfortunate and lucrative cottage industry in the legal profession, preying on small businesses who often times opt for settlement over litigation to avoid legal costs since they don’t have resources like Wal-Mart. But, in some cases, where business owners decide to fight back, courts have dismissed the suits, sanctioned the plaintiff’s attorneys for unscrupulous litigation tactics, and/or awarded attorneys’ fees to prevailing business owners.

What Can Businesses Do Before They Get Sued?

If you have not done an audit lately, or ever, it is a good idea to conduct an ADA accessibility audit. Self-audits can be done with good checklists, or by a professional. Also, it is important for business owners to review their insurance coverage to see if they have, or can obtain, insurance coverage for accessibility lawsuits.

What Can Businesses Do If They Get Sued?

You are not alone, so don’t go it alone. Engage competent counsel to protect your rights as a business owner. Legal arguments can be made to dismiss certain claims or to dismiss the entire case at the onset of litigation or after discovery, which can save thousands of dollars in legal fees.

Jennifer L. Gokenbach is the founder and principal attorney of Gokenbach Law, a boutique law firm that specializes in labor and employment matters. As a trial lawyer, Jennifer has successfully handled a wide variety of employment disputes, including discrimination, harassment, retaliation, disability, wage & hour, breach of contract, and other employment-related claims under both federal and state law. She also writes the Colorado Employer’s Law Blog, where this article originally appeared.
She also provides consulting services with respect to workplace investigations, fair pay and wage & hour audits, training, and drafting workplace policies. Prior to starting her own firm, Jennifer was a Shareholder with Ogletree, Deakins, Nash, Smoak & Stewart, P.C., one of the nation’s largest labor and employment firms.

Hearsay, the Confrontation Clause, and the Colorado Rules of Evidence

Hearsay is governed by Article VIII of the Colorado and Federal Rules of Evidence. In criminal cases, the use of hearsay by the government against the defendant is also governed by the Confrontation Clause. Colorado Rule of Evidence 802, the hearsay rule, provides that “[h]earsay is not admissible except as provided by these rules or by the civil and criminal procedural rules applicable to the courts of Colorado or by any statutes of the State of Colorado.” The general ban on hearsay is premised upon the same beliefs that underlie the Confrontation Clause in the federal and Colorado constitutions, namely, that the reliability of a statement can be most accurately determined when the declarant comes before the fact-finder in person, testifies under oath, and is tested by cross-examination.

Most hearsay testimony is admitted under one of the hearsay exceptions. The exceptions to the general ban are usually premised on a belief that the circumstances surrounding the making of certain types of statements satisfy the reliability concerns that gave rise to the general ban.

CRE 803 enumerates 23 exceptions to the hearsay rule for which the availability of the declarant is immaterial. These include spontaneous present sense impression, excited utterance, recorded recollection, records of regularly conducted activity, public records, and more. Statements can fall under multiple exceptions, such as excited utterance and spontaneous present sense impression.

Rule 804 lists hearsay exceptions that apply when the declarant is unavailable. “Unavailable” is defined and the exceptions are listed, including previous testimony, statements against interest, and statements of personal or family history.

CRE 807 is the “catch-all” or “residual” hearsay exception. It was developed after a 1984 Colorado Supreme Court decision, W.C.L. v. People, 685 P.2d 176 (Colo. 1984), in which the statements of a child victim of sexual assault did not fall into any of the specifically enumerated hearsay exceptions. Rule 807 was carved out of CRE 803(24) and 804(b)(5). The residual exception contained in CRE 807 is an under-utilized tool for admitting hearsay statements that do not fit neatly into any of the specific exceptions set out in the rules of evidence.

It is important for every litigator to know and use the hearsay rules, both as the proponent of the hearsay testimony and in opposition. Visit the CLE offices on Tuesday, October 23, when Pat Furman, law professor at the University of Colorado, will present on “Using, Misusing, and Abusing the Hearsay Rules.”

CLE Program:Using, Misusing, and Abusing the Hearsay Rules

This CLE presentation will take place on Tuesday, October 23, at 12:00 p.m. Participants may attend live in our classroom or watch the live webcast.

If you can’t make the live program or webcast, the program will also be available as a homestudy in two formats: video on-demand and mp3 download.