Los Angeles Lawyer July/August2013

Investigative Services

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38 Special Section 2013 Guide to Investigative Services

Los Angeles Lawyer D EPARTMENTS the magazine of the Los Angeles County 9 President’s Page 17 Practice Tips Addressing the profound challenges that Enforcement of debt against the Bar Association the legal profession faces community property of debtor spouses July/August 2013 BY PATRICIA EGAN DAEHNKE BY MATTHEW C. MICKELSON Volume 36, No. 5 12 Barristers Tips 52 Closing Argument Make the Barristers a ﬁrst step toward Can task billing be a cure for the COVER PHOTOGRAPH: TOM KELLER professional achievement unhappiest job in America? BY MARK A. KRESSEL BY EDWARD S. RENWICK

13 Practice Tips 51 Index to Advertisers Weighing the role of juries in patent cases BY REZA MIRZAIE

LOS ANGELES LAWYER (ISSN 0162-2900) is published monthly, except for a combined issue in July/August, by the Los Angeles County Bar Association, 1055 West 7th Street, Suite 2700, Los Angeles, CA 90017 (213) 896-6503. Periodicals postage paid at Los Angeles, CA and additional mailing offices. Annual subscription price of $14 included in the Association membership dues. Nonmember subscriptions: $28 annually; single copy price: $4 plus handling. Address changes must be submitted six weeks in advance of next issue date. POSTMASTER: Address Service Requested. Send address changes to Los Angeles 07/08.13Lawyer, P. O. Box 55020, Los Angeles CA 90055. BUSINESS TRUST DEED FORECLOSURES “Industry Specialists For Over 25 years” VISIT US ON THE INTERNET AT www.lacba.org/lalawyer E-MAIL CAN BE SENT TO [email protected] OPPORTUNITY t Witkin & Eisinger we specialize in the Non-Judicial AForeclosure of obligations secured by real property EDITORIAL BOARD or real and personal property (mixed collateral). When Chair Want to purchase your clients needs a foreclosure done professionally and PAUL MARKS minerals and other at the lowest possible cost, please call us at: Articles Coordinator MARY E. KELLY oil/gas interests? 1-800-950-6522 We have always offered free advice to all attorneys. JERROLD ABELES (PAST CHAIR) K. LUCY ATWOOD Send details to: ETHEL W. BENNETT WITKIN SCOTT BOYER P.O. Box 13557 ERIC BROWN Denver, CO 80201 , LLC &EISINGER CAROLINE BUSSIN ! RICHARD G. WITKIN, ESQ. CAROLE EISINGER PATRICIA H. COMBS CHAD C. COOMBS (PAST CHAIR) HON. MICHELLE WILLIAMS COURT ELIZABETH L. CROOKE BEN M. DAVIDSON GORDON K. ENG DONNA FORD STUART R. FRAENKEL CHRISTY GARGALIS MICHAEL A. GEIBELSON (PAST CHAIR) CHRISTINE D. GILLE SHARON GLANCZ TED M. HANDEL JEFFREY A. HARTWICK STEVEN HECHT (PAST CHAIR) JOSHUA S. HODAS JOHN C. KEITH ERIC KINGSLEY KATHERINE KINSEY JENNIFER LELAND STEPHANIE LEWIS SANDRA MENDELL AMY MESSIGIAN MICHELLE MICHAELS COMM. ELIZABETH MUNISOGLU RICHARD H. NAKAMURA JR. (PAST CHAIR) Do You Need a CPA, Forensic PAUL OBICO 1,25600 Accountant, Fraud Examiner, CARMELA PAGAY AMANDA PAWLYK 2588000 or Private Investigator? DENNIS L. PEREZ (IMMEDIATE PAST CHAIR) 3,252,00 GREGG A. RAPOPORT You probably need them all, but don't know it! GARY RASKIN JACQUELINE M. REAL-SALAS (PAST CHAIR) A. JOEL RICHLIN DAVID SCHNIDER BUSINESS/PERSONAL • ESTATES/TRUSTS NANCY L. SCHROEDER STEVEN SCHWARTZ • NATIONWIDE BANK Whether you represent the plaintiff or defendant, we HEATHER STERN ACCOUNT SEARCHES KENNETH W. SWENSON (PAST CHAIR) can help with your forensic accounting and financial MATTHEW D. TAGGART • NATIONWIDE investigation litigation matters. DAMON THAYER ENHANCED ASSET THOMAS H. VIDAL SEARCHES ALL WE DO IS FRAUD STAFF • DISSOLUTION OF Copas & Copas, Inc., has highly trained licensed and Publisher and Editor SAMUEL LIPSMAN MARRIAGE certified private investigators to help you find assets, Senior Editor • EMBEZZLEMENT trace money, detect fraud, uncover embezzlement, or ERIC HOWARD • FINANCIAL ELDER provide reasonable doubt. Art Director LES SECHLER ABUSE LET US “FOLLOW THE MONEY” SO YOU CAN Director of Design and Production • BUSINESS/CONTRACT FOCUS ON THE LEGAL ISSUES. PATRICE HUGHES DISPUTES Advertising Director LINDA BEKAS • PRETRIAL PREPARATION Copas & Copas, Inc. Administrative Coordinator MATTY JALLOW BABY CCI FINANCIAL INVESTIGATIONS • SETTLEMENT Copyright © 2013 by the Los Angeles County Bar Association. All rights 831.634.9400 • [email protected] NEGOTIATIONS reserved. Reproduction in whole or in part without permission is www.copas-inc.com prohibited. Printed by R. R. Donnelley, Liberty, MO. Member Business • EXPERT TESTIMONY Publications Audit of Circulation (BPA). CA PI#25429 The opinions and positions stated in signed material are those of the authors and not by the fact of publication necessarily those of the 631 Del Monte Drive SERVING ATTORNEYS THROUGHOUT CALIFORNIA FOR CIVIL AND CRIMINAL CASES Association or its members. All manuscripts are carefully considered by Hollister, CA 95023-7213 the Editorial Board. Letters to the editor are subject to editing.

4 Los Angeles Lawyer July/August 2013

LOS ANGELES LAWYER IS THE OFFICIAL PUBLICATION OF THE LOS ANGELES COUNTY BAR ASSOCIATION 1055 West 7th Street, Suite 2700, Los Angeles CA 90017-2553 Telephone 213.627.2727 / www.lacba.org LACBA OFFICERS President PATRICIA EGAN DAEHNKE President-Elect LINDA L. CURTIS Senior Vice President PAUL R. KIESEL Vice President MARGARET P. STEVENS Treasurer MICHAEL K. LINDSEY Assistant Vice President BRIAN S. CURREY Assistant Vice President CHRISTINE C. GOODMAN Assistant Vice President SAJAN KASHYAP Immediate Past President RICHARD J. BURDGE JR. Executive Director/Secretary SALLY SUCHIL Associate Executive Director/Chief Financial Officer BRUCE BERRA Associate Executive Director/General Counsel W. CLARK BROWN BOARD OF TRUSTEES HARRY W. R. CHAMBERLAIN BRIAN K. CONDON DUNCAN W. CRABTREE-IRELAND DANIEL M. CROWLEY REBECCA A. DELFINO ANTHONY DE LOS REYES HOWARD S. FISHER RICHARD B. GOETZ JACQUELINE J. HARDING MARK A. KRESSEL DEVON MYERS JUAN A. RAMOS DAVID K. REINERT DIANA K. RODGERS JENNIFER S. ROMANO HARVEY I. SAFERSTEIN SUSAN KOEHLER SULLIVAN TERESA TRACY SULLIVAN BRENDA E. SUTTON-WILLS DAVID A. TILEM

AFFILIATED BAR ASSOCIATIONS BEVERLY HILLS BAR ASSOCIATION CENTURY CITY BAR ASSOCIATION CULVER MARINA BAR ASSOCIATION GLENDALE BAR ASSOCIATION IRANIAN AMERICAN LAWYERS ASSOCIATION ITALIAN AMERICAN LAWYERS ASSOCIATION JAPANESE AMERICAN BAR ASSOCIATION JOHN M. LANGSTON BAR ASSOCIATION KOREAN AMERICAN BAR ASSOCIATION OF SOUTHERN CALIFORNIA LESBIAN AND GAY LAWYERS ASSOCIATION OF LOS ANGELES MEXICAN AMERICAN BAR ASSOCIATION PASADENA BAR ASSOCIATION SAN FERNANDO VALLEY BAR ASSOCIATION SAN GABRIEL VALLEY BAR ASSOCIATION SANTA CLARITA VALLEY BAR ASSOCIATION SANTA MONICA BAR ASSOCIATION SOUTH BAY BAR ASSOCIATION SOUTHEAST DISTRICT BAR ASSOCIATION SOUTHERN CALIFORNIA CHINESE LAWYERS ASSOCIATION WHITTIER BAR ASSOCIATION WOMEN LAWYERS ASSOCIATION OF LOS ANGELES

6 Los Angeles Lawyer July/August 2013

ADR FOR THE WORLD’S MOST INTRACTABLE DISPUTES

BUSINESS • EMPLOYMENT • INTELLECTUAL PROPERTY FRANCHISE • INTERNATIONAL DEEP Subject Matter Knowledge et’s hear it for pro bono lawyers! And no, I am not talk- ORDERLY Party Driven Process ing about those private counsel among us who have FIERCELY Fair and Impartial large receivables outstanding and uncollected. I am SUPERB Judicial Temperament L talking about National Pro Bono Week, which is sponsored annually by the American Bar Association and is scheduled

to take place early this autumn. Admittedly, exhortations to have lawyers provide free legal services are not rare. One does not need to peruse too many legal periodicals before finding an article extolling the virtues of providing legal services, on an unpaid basis, to those who cannot afford to hire a lawyer. Nevertheless, I believe there are some compelling reasons to take on pro bono cases that people don’t often hear. First, pro bono cases provide young lawyers—especially litigators—with the kind of experience for which no one would be willing to hire them on a paid basis. Let’s face it—legal education still lacks the experiential rigor of, say, medical school res- idency programs. The result is that many lawyers are foisted upon an unsuspecting public without a clue about how to practice law. If few people want to hire a novice, how is the novice to gain experience? One answer is pro bono cases. Most “...Holmes is unsurpassed at customizing the pro bono clients will be extremely grateful to have a young but inexperienced parties' chosen resolution process to ensure speeds, lawyer learn the ropes on their legal matter and won’t mind some hiccups along the economy and justice”—Russell Fransen, Esq., The Business Legal Group way. Most new lawyers will fight hard to get the best possible outcome for their first real clients. It’s a win-win situation. • Large Complex Case Panel, American Second, pro bono cases can actually be financially rewarding. My law firm has Arbitration Association (AAA) National obtained legal fee awards for our clients in a number of pro bono cases. The law Roster of Neutrals does allow for it in many situations—even if the client has not incurred a legal oblig- • International Panel, International Center ation to pay attorney’s fees. In one pro bono litigation that lasted nine years, the client for Dispute Resolution (ICDR) prevailed in a jury trial (with a defense verdict), and then sought the recovery of “pri- • Board of Directors, College of Commercial vate attorney general” legal fees for its troubles. The trial court awarded more than Arbitrators (CCA) $1 million in legal fees, and the award was upheld on appeal (and, best of all, actu- • Board of Directors, California Dispute Resolution Council (CDRC) ally paid by the opposing party). So yes, pro bono cases can and do pay. • Mediation Practice Director, Resolute Third, pro bono service may end up being mandatory for lawyers at some point Systems, LLC in the future. In New York state, it is now a condition of initial licensing that • Fellow, California Academy of lawyers passing the bar examination have provided 50 hours of law-related pro bono Distinguished Neutrals work. Here in California, our State Bar’s Board of Trustees is currently considering whether to adopt a rule similar to the New York rule. One well-positioned appel- THE HOLMES LAW FIRM late justice has opined that the New York rule was an instance of the “camel’s nose under the tent,” and that mandatory pro bono may be a thing of the future, a condition to the privilege of practicing law. Finally, pro bono work is good for the profession. I was going to write “good for the soul,” but for now I will avoid philosophical musings. The mortgage modification scandals of the past few years have done nothing good for the reputation of our call- To schedule your Mediation, Arbitration or other ADR process with Reg Holmes, please ing. Now, more than ever, lawyers need to redouble their efforts to live up to these words, contact: found in the Civility and Professionalism Guidelines that were adopted by our State For American Arbitration Association Bar in 2007: “An attorney should be mindful that, as individual circumstances per- administered matters: Michael R. Powell mit, the goals of the profession include improving the administration of justice and ([email protected]) contributing time to persons and organizations that cannot afford legal assistance.” For independently administrated matters: In short: more pro bono representation, fewer lawyer jokes. That’s a win-win too! I rholmes@theholmeslawfirm.com For Resolute Systems, LLC administered matters: Mike Weinzerl ([email protected] 1.877.FAIR.ADR (1.877.324.7237) Paul S. Marks is the chair of the Editorial Board of Los Angeles Lawyer magazine and a partner with Neufeld Marks, a boutique law firm located in Little Tokyo. He serves as a commis- www.theholmeslawfirm.com sioner on the California Commission on Access to Justice. California • Chicagoland • New York Metro • Atlanta

8 Los Angeles Lawyer July/August 2013 president's page BY PATRICIA EGAN DAEHNKE

Addressing the Profound Challenges That the Legal Profession Faces

WE CONTINUE TO LIVE IN INTERESTING TIMES, and the challenges of 887 skilled court staff. Some courtrooms were closed. Informal juve- we face as members of the Los Angeles legal community did not get nile traffic court was eliminated, and its dedicated referees were laid less interesting during the past year. Unprecedented state budget cuts off. The court also eliminated court reporters for civil trials. Even after have forced court staff layoffs, trial court closures, and restructuring previous and permanent budget reductions of $110 million, at the start throughout the Los Angeles Superior Court (LASC). The need for pro of the fiscal year this July the court faces a projected budget deficit bono legal services continues to rise as financial support and fund- of $85 million. Without the ability to spend reserves, the court has ing for these critical services decline. The number of new law school to cut staff, and that means cutting services. graduates entering the work force still outnumbers that of the num- In November last year, a dramatic budget reduction plan was ber of legal jobs available to them. The now outgoing president, Dick approved. The consolidation plan anticipates reducing another 511 staff Burdge, described these issues in his President’s Page last summer, and positions through courthouse closures and consolidation of services. as I look forward to my own year as president of LACBA, I intend By July, eight courthouses will be closed completely (Huntington to make it a priority to continue to address these urgent issues. Park, Whittier, Pomona North, Malibu, West Los Angeles, San Pedro, Another priority for me as LACBA’s 2013-14 president is the Beacon Street, and Kenyon Juvenile), and most court work will have issue of gender pay equity and the retention of women in the legal pro- been removed from two others (Beverly Hills and Catalina). Certain fession. Equal pay for equal work is a fundamental tenet all lawyers case types will be heard at only a few core courthouses. For example, should wholeheartedly embrace, yet female lawyers continue to be paid small claims cases will be consolidated into six courthouses: Lancaster, less than their male counterparts. The related question of why women Downtown, Alhambra, Norwalk, Van Nuys, and Inglewood. Last year, continue to leave the legal profession in large numbers is one that needs 61,603 small claims were filed, so each bench officer will handle to be addressed and studied, even if there are no easy answers. about 11,000 cases a year, and people will have to travel as far as 24 These challenges are ongoing, and they are complicated. The miles to file a claim. By July, the court will have lost 25 percent of its solutions are imperfect, but working together through our LACBA staff positions to the past five years of budget cuts. sections, committees, affiliates, and pro bono projects, we members Unlawful detainers are being heard in just five locations: Lancaster, of LACBA have joined forces to contribute. I pledge to continue the Downtown, Pasadena, Long Beach, and Santa Monica. Last year there momentum we have gained in many of these areas and remain com- were 67,182 of these cases filed. There are large caseloads for each mitted to facilitate action and education on these issues, consistent bench officer, and people will have to travel up to 32 miles to come with LACBA’s core missions to serve our profession and facilitate access to court. Limited collection cases are now being handled in only two to justice. courtrooms in Chatsworth and Norwalk. There are 83,059 collec- tions cases, and people will travel up to 46 miles to go to court. All Court Budget Cuts remaining limited civil cases will be heard Downtown. We all knew changes were coming and further budget cuts were General civil will have a reduction in court staff in all civil depart- looming; nonetheless, most lawyers present at the several presenta- ments, including reporters, except for a small pool. Civil courts now tions I attended late last year sat in stunned silence listening to Judge have no court reporters at all. There are now 29 stand-alone trial courts Lee Edmon (who has served as the presiding judge of the LASC and (10 downtown and 19 throughout the county), and they will serve president of LACBA) describe the Court Consolidation Plan, which as outlets for the trials from the dedicated courts. These courtrooms entailed a wholesale reorganization of our courts to address the sig- will be staffed by a single judicial assistant. nificant budget shortfall for the fiscal year of 2013-14. This plan began There are 59 individual calendar courts located in every district in to be implemented in March and is anticipated to continue through the county. However, to maintain an equal distribution of cases through- the end of June 2013. out these remaining courts, all personal injury cases will be heard in Since 2008, California trial courts have suffered a reduction in fund- the Downtown Central Civil courthouse and three master calendar ing of approximately 24 percent. The projected net reduction in courts. Last year there were 18,622 personal injury cases filed, and peo- funding to the trial courts for the fiscal year 2013-14 is currently about ple will have to travel up to 67 miles to file a personal injury case. $500 million. The budget shortfall for LASC for July 2013 through There will be similar consolidations in criminal and traffic oper- June 2014 is projected to be $195 million. The court is balancing its ations, requiring the transfer of hundreds of thousands of cases. The budget in the current year by spending its reserves. However, as plan’s reduction and reconfiguration of civil operations will occasion Presiding Judge David Wesley explained at the LACBA Litigation greater delays in getting motions heard and getting cases to trial. The Section’s Annual Bench Meets Bar luncheon, the governor and the leg- court will be identifying even further cuts to operations while still islature took the reserve away and mandated that the court could no attempting to meet its obligations to the citizens of Los Angeles longer maintain a reserve large enough to help in tough times. Accordingly, the court must spend its remaining reserves by June 2014. Patricia Egan Daehnke is the 2013-14 president of LACBA. She may be reached Since the budget cuts began in 2008, the court has suffered the loss at [email protected].

Los Angeles Lawyer July/August 2013 9 County. One big cut already made was elimination of the court’s ADR program, which provided a vital and necessary service to many citizens. As Judge Wesley has observed, “We are now being forced by budget cuts to make changes that will disadvantage litigants, attorneys, justice system partners, and all court users across the spectrum and across our court.” As of July 1, 177 people will lose their jobs, 139 people will be demoted or suffer pay cuts, and 223 people will be transferred. Although the governor recently agreed to restore some court funding, that will not stop the reductions in access to justice that the cuts have brought. In the face of these severe challenges, Judge Wesley remains conﬁdent and optimistic that we will be able to keep the justice system sur- EMPLOYMENT LAW REFERRALS viving, if not thriving. The judges are dedicated Paying Highest Referral Fees (Per State Bar Rules) to working with LACBA to ﬁnd new efficien- cies. Judge Wesley has stated he can be optimistic about the future because of the incred-

Honored to receive regular employment referrals from ible talent of our judges and the unwavering over 100 of Californiaʼs fi nest attorneys support of LACBA and our legal community. LACBA continues with renewed energy to actively support our court by educating Stephen Danz 877.789.9707 & Associates the legal community about the changes and Main offi ce located in Los Angeles and nearby offi ces in Pasadena, participating in working groups of lawyers Orange County, Inland Empire & San Diego charged with advising the court on various Stephen Danz, Senior Partner 11661 San Vicente Boulevard, Suite 500, Los Angeles, CA 90049 issues involved in implementing the Court Consolidation Plan. Senior Vice President Paul Kiesel is cochair of the Open Courts Coalition, a bipartisan group of attorneys, business leaders, labor representatives, former legislators, and retired members of the judicial community whose sole focus is to raise awareness in the legislature of the need for adequate funding for the courts. LACBA officers and section leaders actively support the Open Courts Coalition’s activities and help spread the word to our affiliate bars and other local bar associations and legal service providers. LACBA leaders have spoken in support of adequate funding for the courts on numerous occa- sions, and we plan to continue those efforts. You can join us in supporting our court. If you have any ideas on ways to help, please contact me or any of the LACBA officers. Gender Pay Equity In 1963, President John F. Kennedy signed the Equal Pay Act, which promised pay parity for women. Fifty years later, women still earn only 77 cents to a man’s dollar. Research by the American Bar Association and other independent groups consistently shows that women earn substantially less than men in the country’s largest law firms. This disparity continues even when hours and business development are equal. Perhaps even more dis- turbing is the increasing trend of women leaving law firms and the practice of law. As only the 11th woman elected to serve as president of LACBA since its inception in 1878, I echo

10 Los Angeles Lawyer July/August 2013 the sentiment of former LACBA president projects, including the Domestic Violence which include summaries of the cases decided Gretchen Nelson, who stated in 2007: “I sim- Project and the Immigration Legal Assistance in the previous 24 hours by the U.S. Supreme ply cannot, and I will not, sit by and watch Project. But we need more volunteers. The Court, Ninth Circuit Court of Appeals, women check out of the practice of law.” number of domestic violence victims lining up California Supreme Court, and California Does the compensation gap cause women at the courthouse has increased dramatically Court of Appeal, are a free service to all to leave law firms? Are women lawyers leav- this past year. Likewise, our many immi- members of LACBA. Likewise, through Know ing the legal profession or reinventing it? grants need immediate assistance. LACBA Your Judges, LACBA provides access to infor- These are complex issues that affect everyone. remains committed to providing opportuni- mation about local judges that is unavail- One thing is clear: The continuing exodus of ties for lawyers to perform pro bono service. able elsewhere. women from the legal profession is having an Our pro bono coordinator, Laurie Aronoff, Equally important are the innumerable immediate and far-reaching impact upon our assists members in finding appropriate oppor- opportunities to meet colleagues and make judicial system. We need diversity in our bar tunities at one of LACBA’s pro bono pro- new friends and mentors through LACBA’s and on the bench in order to provide true jects or at a local legal services organization. many sections and committees. The Barristers access to justice. I am committed to promot- The board of the Los Angeles County Bar Section is dedicated to helping young lawyers ing this dialogue through our Diversity in Foundation, which this year celebrates its create satisfying careers by offering commit- the Profession Committee, the LACBA 50th anniversary, has renewed the Founda- tees, leadership opportunities, support ser- /WLALA Joint Task Force on the Retention tion’s commitment to support LACBA’s proj- vices, and social activities. The Barristers and Promotion of Woman Lawyers, and a ects. When they ask you to contribute, please offers many opportunities to improve skills new ad hoc President’s Advisory Committee make every effort to do so. and make lifetime friends. I began my LACBA prioritizing the issue of gender pay equity involvement as a member of the Barristers and New Lawyers and retention of women in the profession. as a Barristers Section member of LACBA’s Law school graduates continue to outnum- Delegation to the Conference of Delegates to Pro Bono Legal Services ber the legal jobs that are available to them. the State Bar. Being involved in LACBA Access to justice has been adversely affected The LACBA Career Center provides a great truly changed my life. My future husband, by the economic downturn. Traditional resource for new lawyers. While searching, Kevin, spotted me at the State Bar President’s sources for funding pro bono legal services new lawyers who join LACBA will be kept reception at the Museum of Modern Art in have dried up. As law firms strive to survive up-to-date and connected to the Los Angeles San Francisco and decided…well, that is a the economy, it remains important to support legal community. Like all LACBA members, story for another day. Find me at the next pro bono service, which is central to our pro- new lawyers may avail themselves of the ben- LACBA event, and I will tell you the story fessional obligation. LACBA members have efits of timely information related to their if you are interested. I look forward to see- given tremendous support to our pro bono practice. For example, the Daily EBriefs, ing you soon. I

Los Angeles Lawyer July/August 2013 11 barristers tips BY MARK A. KRESSEL

Make the Barristers a First Step toward Professional Achievement

AS THE INCOMING PRESIDENT of the Barristers Section of LACBA, • The Pro Bono Committee connects young attorneys with volunteer I invite the new and young attorneys of Los Angeles to learn about opportunities by teaming with legal services programs to provide free and participate in our activities. Our membership includes any attor- or low-cost MCLE trainings focused on serving the legal needs of low- ney who is under 36 or who has been practicing for five years or less. income or underprivileged individuals. This year, the committee We are the only LACBA section focused exclusively on the needs of organized Law Day 2013, a day-long training series promoting pro new and young attorneys, and our section provides these attorneys bono work among newly admitted attorneys. The committee also with opportunities for networking, pro bono and community service, hosted a panel on In Re Garcia, the pending California Supreme Court and leadership in the profession. case to decide whether an undocumented immigrant can be admit- Many new attorneys do not yet understand the value of being part ted to the state bar, which was followed by a training on providing of a bar association, much less a section that is not specific to a par- pro bono assistance to immigrants seeking relief under the Obama ticular practice area. Some of you have begun working at a law firm Administration’s deferred action plan. and may feel that your firm supplies all the connections and case • The MCLE Committee hosts educational programs to deliver con- assignments you need. Many of you have not yet found your first job tinuing education to new and young attorneys. This year, the com- and feel that you are too busy job hunting and volunteering to have mittee premiered its New Attorney Litigation Survival Guide— the luxury of attending bar activities. But regardless of what you are Getting a Litigation Job and Doing It Well. The committee also doing at this early point in your career, the Barristers provides you offers MCLE programs to help our members obtain those hard-to- an opportunity today to begin to take control of what you will be get credits in substance abuse and elimination of bias in the legal pro- doing in the future. Engagement in the Barristers gives you a chance fession. to meet other new and young attorneys to develop connections out- • The Law Student Outreach Committee connects area law students side your immediate network. Meeting other new attorneys allows with the bar association and ensures that Barristers programming is you to avoid feeling isolated at your firm or alone in your efforts to relevant to law students. Over the years, we have participated in law find work. The Barristers can help you find the kind of close social school panels about job opportunities and in student bar association community that was more readily available in law school. The social events. Section also provides opportunities to let your leadership skills • The Government Relations Committee provides a forum for new shine, so that you can make contributions to the legal community and young lawyers to develop leadership skills by interacting with even as a newcomer and begin to develop a professional reputation elected officials from across the political spectrum. This year, the com- that you carry with you as your career evolves. Indeed, in a profes- mittee cohosted a mixer with Los Angeles County Supervisor Mark sion that generally places a high premium on seniority and experi- Ridley Thomas. ence, the Barristers is unique in providing meaningful opportunities • The Bench and Bar Committee connects the courts with newer mem- for new and young lawyers to lead, to be visible, to develop the pro- bers of the bar. This year the committee held the first of what we hope fession, and to help people in need. to be annual mixers organized for Barristers and other area young lawyers to meet local judicial officers. How to Get Involved The Barristers are more than event planners, however. This year Getting involved with Barristers can take many forms, whether the Barristers partnered with area law schools to provide mock job attending an MCLE event, stopping by our monthly happy hours, or interviews for law students. Over the years, Barristers have also joining a committee. Here is a descriptive list of our committees and walked in the Los Angeles AIDS Walk, sent members to participate events: in Dialogues on Freedom, and provided mentoring at local high • The Legal Profession Committee presents programming on the hot- schools. button issues facing the legal community today. Past programs have I urge new and young attorneys to find out more about the included panels on finding a job in a difficult legal market and start- Barristers. Get involved. Check out some of our events, or start ing a solo practice. This summer, the committee will host a clinic on dropping by our Thirsty Thursday happy hours—maybe you will managing law school debt. The committee also organizes Barristers’ become a regular. If our committees sound interesting to you, let us Annual Summer Party at the House of Blues. know which committees you are most interested in joining. If you have • The Networking Committee hosts networking events geared to new new ideas for programs or activities, let us know, and maybe you can and young attorneys. This year, the committee popularized our start to shape the future direction of our section. We look forward monthly Thirsty Thursdays—happy hour mixers on the first Thursday to working with you as we continue our 80-year tradition of fun and of every month held simultaneously in hot spots in Century City and excellence in serving the new and young attorneys of LACBA. I Downtown. The committee also hosts mixers to raise money and awareness for some of LACBA’s various community legal services orga- Mark A. Kressel is an associate at the law firm of Horvitz & Levy LLP, specializing nizations, such as the Domestic Violence Project. in civil appeals.

12 Los Angeles Lawyer July/August 2013 practice tips BY REZA MIRZAIE

Weighing the Role of Juries in Patent Cases

AS FEDERAL CIRCUIT HAS STATED, “No warrant appears for distin- jury does not necessarily have the right to decide all issues that guishing the submission of legal questions to a jury in patent cases from underlie a claim that gives right to a jury trial. Rather, juries typically such submissions routinely made in other types of cases.”1 Studies con- are allowed to decide issues of fact but not law. firm that patent owners can increase their chances of prevailing at trial Since the ratification of the Seventh Amendment, courts have grad- when they choose to have their case heard by a jury instead of a judge.2 ually placed more significance on the law-or-fact distinction. In Georgia It should therefore come as no surprise that when patent owners v. Brailsford, a U.S. Supreme Court case decided three years after the assert claims against an accused infringer, they very frequently exer- Seventh Amendment was ratified, the Court appeared determined to cise their right to a jury trial. In patent infringement trials, juries are set few, if any, limits on the jury’s decision-making power. Presiding over still frequently empaneled, but their decision-making authority has the jury trial, the Court—the only federal court in the nation at the diminished. In the not-so-distant past, most issues in a patent trial were time—gave the following jury instructions: “[According to] the good for the jury to decide. Over the years, however, courts have taken many issues out of the jury’s hands. To understand why, it is helpful to under- A jury does not necessarily have the right to decide all issues stand the historical development of jury trials in patent cases. The right to trial by jury in patent cases is that underlie a claim that gives right to a jury trial. derived from the Seventh Amendment to the U.S. Constitution, which states: “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, old rule…on questions of fact, it is the province of the jury, on ques- and no fact tried by a jury, shall be otherwise re-examined in any Court tions of law, it is the province of the court to decide. But…you have of the United States, than according to the rules of the common nevertheless a right to take upon yourselves to judge of both.”7 law.” In 1791, the members of the Constitutional Convention agreed Since Georgia v. Brailsford, the Court has made clear that the upon this language to address the fears of the Antifederalists that the jury’s decision-making power is far from unlimited. In Hickman v. Jones, Constitution gave too much power to the federal judiciary. However, the Court made clear that courts and juries indeed have separate and in an attempt to please all interested parties, the drafters of the distinct duties and that courts must “decide questions of law.” The Court amendment used vague language to allow future courts to determine further held that juries “should take the law as laid down by the court precisely how the right would be preserved. and give it full effect. But its application to the facts—and the facts them- Over the years, courts generally have applied a two-part inquiry selves…is for them to determine. [These] checks and balances…are indis- to determine whether a litigant has a Seventh Amendment right to a pensable to the harmony and proper efficacy of the system.”8 As a result, jury trial. First, courts compare the pending action to the closest ana- even in a jury trial, if an underlying issue is one of law rather than fact, log brought in the courts of England in the eighteenth century, before the court is charged with being the ultimate arbiter. the merger of law and equity. Second, courts analyze whether the rem- Patent infringement is an area of litigation that usually involves edy sought is legal or equitable in nature.3 In general, if the action numerous, multilayered issues, which has made it a lively battleground and remedy sought are equitable rather than legal, the litigant has no to set the boundaries of law-or-fact analysis. In the vast majority of right to a jury. cases, patent holders will request relief in the form of money dam- Courts have applied the same two-part inquiry to patent cases. ages for acts of infringement that have occurred and will occur Courts historically have held that if a patent owner brings an infringe- before judgment, as well as an injunction against the infringing acts ment action and seeks damages, which is a legal claim for relief, the that may occur before the patent expires. These claims for relief patent owner can assert a right to a trial by jury.4 But when a patent imply numerous underlying issues. For example, a critical question owner seeks only equitable relief, such as an order enjoining the in any patent case is: What is the precise scope of the patents at issue? accused infringer from committing infringing acts, the patent owner A patent holder can only exclude others from entering within the fence has no right to a jury trial.5 When a patent owner asserts a mixture surrounding the patented property. Once the boundary is precisely of both types of claims, courts have held that all issues common to determined, the patent owner must show that the accused products both types of claims should first be tried to a jury.6 For example, in or services infringe on that boundary. If the patent owner can show a typical “mixed” patent case, all causes of action relating to the dam- that the infringement was committed in a willful manner, the owner ages claim for relief generally should go to the jury first. After the jury is entitled to judgment on that issue, along with treble damages.9 trial, a court may properly decide the claim for injunctive relief. A court’s inquiry into the issue does not end there. Even if a jury Reza Mirzaie is an intellectual property litigator in the Los Angeles office of right exists, courts must determine the precise scope of that right. A Knobbe Martens LLP.

Los Angeles Lawyer July/August 2013 13 The issues are multilayered for defendants question…goes back to the constitutional ments more frequently and better than jurors. as well. In the vast majority of cases, accused standard in every case. We speak with final The Court also held that “[p]atent construc- infringers assert at least two basic defenses: authority on that constitutional issue, as we tion in particular ‘is a special occupation, noninfringement and invalidity. The first do on many others.”18 To Justice Douglas, the requiring, like all others, special training and defense is an assertion that the accused prod- issue of patent validity arose from the con- practice. The judge, from his training and ucts or services do not infringe any properly stitutional directive to issue valid patents and discipline, is more likely to give proper inter- construed patent claim. The second defense, thus properly belonged to the courts. pretation to such instruments than a jury.’” invalidity, is an assertion that, for one or Using similar reasoning, the Supreme In so holding, the Court seemed to suggest more reasons, the Patent and Trademark Court continued to chip away at the jury’s that some issues may be too complex for a Office (PTO) should not have granted the role. In Graham v. John Deere Company, jury to decide, and we all are better off allow- patent. The most common of these reasons are the Court reiterated that the question of ing judges to decide those issues. Since that the alleged patented invention 1) covers whether an alleged invention is invalid due to Markman, some commentators have sug- subject matter that is not patentable, 2) is not obviousness is an issue of law.19 On the other gested that perhaps there is (or at least should novel in view of the prior art, and 3) is obvi- hand, the Court also reiterated that the ulti- be) a “complexity exception” to the Seventh ous in view of the prior art. Another defense, mate question of obviousness involves several Amendment’s right to a jury.25 inequitable conduct, is an assertion that the underlying factual inquiries, including 1) the The law-or-fact battle continues today. In patent was fraudulently obtained with an scope and content of the prior art and 2) the 2012 in Bard Peripheral Vascular, Inc. v. W.L. intent to deceive the PTO. In addition to differences between the alleged patented Gore & Associates, Inc., the Federal Circuit being affirmative defenses, these basic defenses invention and the prior art. Later, in a trilogy held that the ultimate question of whether frequently are asserted by accused infringers of cases, the Court again made clear that the infringement was willful is an issue of law.26 as counterclaims under the Declaratory question of whether an alleged invention was The court explained that willfulness ultimately Judgment Act.10 invalid for failing to cover patentable subject involves the question of whether a reasonable Most of the above assertions have legal matter is also an issue of law.20 person would have believed there was a high and factual aspects to them. To make matters In 1982, Congress created the Federal likelihood of infringement. Borrowing gener- even more complicated, it is difficult to draw Circuit, which would serve as the exclusive ally from the rationale applied by the Supreme bright lines between law and fact. As one appellate court for patent infringement trials. Court in Markman, the Federal Circuit held commentator put it, “‘No two terms of legal It did not take long for the Federal Circuit to that judges, not juries, were better equipped to science have rendered better service than further diminish the jury’s role in patent properly resolve the reasonableness question. “law” and “fact.”…They readily accommo- cases. In one of its early decisions, the Federal In addition to defining issues as legal ones, date themselves to any meaning we desire to Circuit held that whether a patent or prior there is a more recent and subtler way in which give them.…The man who could succeed in publication is prior art is also a question of courts appear to be diminishing the jury’s role, defining them would be a public enemy.’”11 law.21 Shortly thereafter, in GardCo Manu- and that is by granting pretrial motions to For litigators, the important point is that facturing, Inc. v. Herst Lighting Company, the preclude from the jury evidence or argument judges and juries usually analyze these ques- Federal Circuit made clear that the doctrine regarding factual issues. These pretrial filings tions differently and may come to different was an issue of law as well.22 The court rea- typically take the form of a motion in limine conclusions based on the same set of facts.12 soned that the doctrine of inequitable conduct or a Daubert motion to preclude one side from Accordingly, knowing which entity will be the stems from the doctrine of unclean hands, presenting evidence or argument to a jury that ultimate arbiter for a particular issue may be which historically was decided by a judge in concerns a particular factual issue.27 A dis- critical to the outcome of a case. a court of equity. The court went even further trict court, using its inherent power as the and held that it was not improper to hold a gatekeeper of evidence for trial, will preclude Decreasing the Jury’s Role bench trial on inequitable conduct before the if the evidence or argument at issue violates one In the early days of patent litigation, identify- jury trial on other issues. In the court’s opin- or more substantive or procedural standards. ing the decision maker in a patent infringement ion, the issues in the inequitable doctrine Today, these motions are common in relation case was relatively simple. If there was a proper analysis were not “so common” with the to patent infringement damages and have been jury demand, the jury likely would be decid- issues of fact in that case so as to impinge on granted with significantly increased frequency ing almost every issue. This included issues of a patent owner’s jury right.23 since a series of recent Federal Circuit decisions infringement,13 invalidity,14 damages,15 and The next big decision regarding the law- emphasized the need for greater rigor in review- even an early analog to inequitable conduct.16 or-fact dichotomy in patent cases came from ing damages claims. But over the years, courts have taken many the Supreme Court in 1996. In Markman v. In Lucent Technologies Inc. v. Gateway issues out of the jury’s hands. The courts have Westview Instruments, Inc., the Court decided Inc., the Federal Circuit applied that rigor by used at least two different means to do so. that the critical issue of construing the scope using two different principles to overturn a The principal means with which courts of a patent is a question of law.24 As an ini- jury award of $358 million.28 First, the court have chipped away at the jury’s decision- tial matter, the Court stated that “when an held that the patent owner did not satisfy making power is defining an issue as legal issue ‘falls somewhere between a pristine the entire market value rule. Under that rule, rather than factual. In A & P Tea Company legal standard and a simple historical fact, the a patent owner who seeks damages based v. Supermarket Corporation, an early decision fact/law distinction at times has turned on a on the entire market price of an infringing foreshadowing the trend in defining issues determination that, as a matter of the sound product that included unpatented compo- as legal, the U.S. Supreme Court held that the administration of justice, one judicial actor is nents must prove that the patented compo- ultimate question of whether a patent is valid better positioned to decide the issue in ques- nent is the basis for customer demand for the is one of law, not fact.17 As Justice William tion.’” The Court then held that judges were product. Second, the court held that the O. Douglas wrote in his concurring opinion, better capable of determining the acquired patent owner improperly based its damage whether a patent is valid “is that question meaning of patent terms. The Court rea- claim on past license agreements because the which the Court must decide. No ‘finding of soned that judges, who are “unburdened by circumstances involving those past licenses fact’ can be a substitute for it in any case. The training in exegesis,” construe written instru- were not sufficiently comparable to the cir-

14 Los Angeles Lawyer July/August 2013 cumstances involving the infringement at issue. The Federal Circuit has reiterated these LAW FIRM FOR SALE Rosevart Nazarian principles in several decisions after Lucent.29 ATTORNEY, MEDIATOR, ARBITRATOR Since Lucent and its progeny, district courts have been granting pretrial motions CONTROL YOUR PROFESSIONAL LIFE with relative regularity.30 Because the net with this rare opportunity to own a prominent effect of granting such motions is to dimin- general law practice with a long history of ish, or sometimes eliminate, the jury’s power proﬁtability, a consistent client base, and to decide damages and other factual issues, opportunities for growth. this recent trend has further eroded the jury’s Located in the beautiful Sierra Nevada, Bishop’s Providing the Most Affordable role in patent infringement trials. amenities include a lower cost of living and Mediation & Arbitration Services outstanding outdoor recreation. Advice for Litigators SM CALL ED POLL AT 800.837.5880 818.500.7500 In view of the different roles of judge and jury, www.WWMediators.org patent litigators can employ various strategies to maximize their chances of obtaining favorable results. First, during pretrial, litigants should consider ﬁling motions to preclude EDIATION ERVICES certain evidence or argument from being pre- ROSS M S sented to the jury. For example, patent own- Integrity Commitment Success ers may want to move to bifurcate from the SPECIALTY AREAS jury trial evidence or argument concerning • Real Estate • Business/Commercial any allegations of inequitable conduct against • Mortgage & Lending • Escrow/Title/Agency them. Allowing jurors to hear evidence or • Trusts & Estates • Workplace argument on this issue may adversely taint the • Construction • Multi-Party jury’s decisions on other factual issues, includ- • Personal Injury • Professional Liability ing patent validity. Accused infringers, on the other hand, could use the recent trend of BARRY ROSS, ESQ., MBA decisions on motions in limine and Daubert (818) 840-0950 motions to attempt to exclude evidence on www.ROSSmediation.com issues such as damages. After all, a successful motion to exclude evidence or argument on damages could decrease a patent owner’s chances of obtaining meaningful remedies from the accused infringer. Second, in trial, litigants should pay special attention to how issues are presented to the jury. On this issue, the verdict form is critical because the manner in which the questions are presented in the verdict form can have a significant impact on winning or losing. Both sides should place a premium on negotiating a verdict form that is favorable to their case. If they fail to do so, each should try hard to persuade the judge that its proposed verdict form is the one that is faith- ful to the law and provides a lesser proba- bility of resulting in jury confusion or a mis- trial. Generally speaking, a patent owner should vie for a short, simple verdict form, preferably with single questions on any legal issue, such as, “Is patent claim ‘x’ valid?” Anecdotal and empirical data suggest that the Anita Rae Shapiro SUPERIOR COURT COMMISSIONER, RET. average juror comes to trial with a bias in favor of the plaintiff, which in a patent infringement trial is the patent owner.31 Thus, PRIVATE DISPUTE RESOLUTION the shorter and simpler the verdict form, the PROBATE, CIVIL, FAMILY LAW easier it should be for that bias to be left PROBATE EXPERT WITNESS undisturbed. Moreover, the nature of a single-question verdict form makes a verdict TEL/FAX: (714) 529-0415 CELL/PAGER: (714) 606-2649 difficult to disturb on appeal because the E-MAIL: [email protected] Federal Circuit typically must assume that http://adr-shapiro.com any factual issues underlying the single question were resolved in favor of the verdict

Los Angeles Lawyer July/August 2013 15 winner. Conversely, an accused infringer the evidence or argument at issue would focus on legal issues when deciding posttrial likely should prefer a series of detailed ques- not be compelling if presented to a jury. In strategy. I tions that pertain to each invalidity defense the past, when more issues were in the jury’s it has raised. This approach tends to give the hands, district and appellate courts were 1 Connell v. Sears, Roebuck & Co., 722 F. 2d 1542, accused infringer more opportunities to reluctant to reverse a jury’s decision after 1547 (Fed. Cir. 1983). reverse the average juror’s initial bias. To trial. Today, however, litigants have a far 2 See, e.g., Philippe Signore, On the Role of Juries in Patent Litigation (Part 1), 83 J. PAT. & TRADEMARK OFF. the extent the accused infringer fails to more realistic opportunity to change the SOC’Y 791 (2001), available at http://www.oblon reverse that initial bias, the approach tends outcome of a case after the jury trial because .com/sites/default/ﬁles/news/256.pdf. to give the accused infringer a better chance there are so many issues that courts can 3 See, e.g., Tull v. United States, 481 U.S. 412, 417 at reversing the jury verdict after trial. decide as a matter of law. Put differently, (1987). Third, for posttrial motions and appeals, liti- while the jury trial used to be viewed as the 4 See Markman v. Westview Instruments, Inc., 517 gants should preserve the record throughout whole ball game, it should now be viewed U.S. 370, 377 (1996) (Patent infringement cases with damages claim for relief “must be tried to a jury, as their every phase of the case. Because a failure to as the fourth or fifth inning. The Federal predecessors were more than two centuries ago.”). do so could result in waiver, litigants must Circuit gives no deference to decisions rest- 5 See, e.g., Brian D. Coggio & Timothy E. DeMassi, The take measures to preserve even if they think ing on issues of law, so litigants also should Right to a Jury Trial in Actions for Patent Infringement and Suits for Declaratory Judgment, 13 FORDHAM INTELL. PROP. MEDIA & ENT. L. J. 208-11 (2002) (citing cases). 6 See Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 504 (1959). 7 Georgia v. Brailsford, 3 U.S. 1 (1794). 8 Hickman v. Jones, 76 U.S. 197, 2012-02 (1869); see also Sparf v. United States, 156 U.S. 51, 101 (1895). 9 35 U.S.C. §284. 10 28 U.S.C. §§2201-2202. 11 S.A. Weiner, The Civil Jury Trial and The Law-Fact Distinction, 54 CAL. L. REV. 1867, 1869 n.8 (1966) (quoting GREEN, JUDGE AND JURY 270 (1930)). 12 See generally Kimberly A. Moore, Judges, Juries, and Patent Cases—An Empirical Peek inside the Black Box, 99 MICH. L. REV. 365 (2000) [hereinafter Moore]. 13 Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405, 415-16 (1908). 14 See, e.g., Thompson Spot Welder Co. v. Ford Motor Co., 265 U.S. 445, 447 (1924). 15 Seymour v McCormick, 57 U.S. 480, 490 (1853). 16 In re Lockwood, 50 F. 3d 966, 975 n.9 (1995) (discussing eighteenth-century common law writ of scire facias). 17 A & P Tea Co. v. Supermarket Corp., 340 U.S. 147, 155 (1950). 18 Id. at 156. 19 Graham v. John Deere Co., 383 U.S. 1, 17 (1966). 20 Gottscchalk v. Benson, 409 U.S. 63 (1972); Parker v. A Solution Flook, 437 U.S. 584 (1978); Diamond v. Diehr, 450 U.S. 175 (1981). That Fits 21 Panduit Corp. v. Dennison Mfg., Co., 810 F. 2d 1561, 1568 (Fed. Cir. 1987). You 22 GardCo Mfg., Inc. v. Herst Lighting Co., 820 F. 2d 1209, 1212 (Fed. Cir. 1987). 23 Id. 24 Markman v. Westview Instruments, Inc., 517 U.S. 370, 384-91 (1996). 25 See Jennifer F. Miller, Should Juries Hear Complex Patent Cases?, 2004 DUKE L. & TECH, REV. 4, 5 (2004); see also Markman, 517 U.S. at 388; Miller v. Fenton, 474 U.S. 104, 114 (1985). 26 Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., 682 F. 3d 1003, 1006-09 (Fed. Cir. 2012). 27 Daubert motions are used to exclude the testimony * Commercial, Industrial & Residential of expert witnesses. Daubert v. Merrell Dow Pharms. Inc., 509 U.S. 579, 589 (1993). * Income Property & New Construction 28 Lucent Techs. Inc. v. Gateway Inc., 580 F. 3d 1301 * Personal Property & Holding (Fed. Cir. 2009). * Reﬁnance & Short Sale 29 See ResQNet.com, Inc. v. Lansa, Inc. 594 F. 3d 860 * Bulk & Liquor Business (Fed. Cir. 2010); Uniloc USA v. Microsoft Corp., 632 * Forward & Reverse 1031 Exchange F. 3d 1292 (Fed. Cir. 2011); Laserdynamics, Inc. v. Quanta Computer, Inc., 694 F. 3d 51 (Fed. Cir. 2012). 30 See, e.g., Dataquil Ltd v. High Tech Computer Corp., 1545 Wilshire Boulevard, 6th Floor, Los Angeles, California 90017 No. 08-cv-543 (S.D. Cal. Dec. 1, 2011); Mformation Contact: Mark R. Minsky, President | E-mail: [email protected] Techs. v. Research in Motion, Ltd., No. 08-04990 Telephone: (888) 732-6723 | (213) 484-0855 | Web site: www.comescrow.com (N.D. Cal. Mar. 29, 2012). 31 Moore, supra note 12, at 368.

16 Los Angeles Lawyer July/August 2013 practice tips BY MATTHEW C. MICKELSON

Enforcement of Debt against the Community Property of Debtor Spouses

ALTHOUGH SOME CLEAR RULES govern the enforcement of debts against property held by a debtor’s spouse in California, numerous subtleties apply regarding how and to what extent that property is available to creditor claims. In some instances, debts can be enforced against a married couple almost as if they were the same person. In others, a spouse’s property is completely untouchable by the other spouse’s creditors. To satisfy an obligation held by a creditor, attorneys should therefore explore the possibility of collection against a debtor’s spouse or domestic partner. Creditors are not restricted to enforcing a judgment against a debtor alone. The community property of a debtor’s spouse or domestic partner may be available as well. The community property interests of the debtor and nondebtor spouse are generally liable for debts incurred by either spouse either before or during the marriage and prior to separation, whether the debt is based on contract, tort, or another foundation.1 As a result, spouses may find themselves liable for debts incurred before they married (or even met) their partners. In other words, a spouse “marries into” his or her partner’s debts, including child support debts from a previous relationship—an issue that everyone should consider when getting married. One federal case has suggested, however, that due process requires that liability from marry- ing into debt be attached to the nondebtor spouse only if that person is named as a defendant in a lawsuit. Registered domestic partners in California are also liable to third-party creditors to the same extent as a married partner.2 There is one qualification to this general rule of community property liability for spousal debts. If the debt is the result of a tort of the spouse, and the tort was not the result of an activity undertaken by the tortfeasor for the benefit of the community, then community property may be taken only if the separate property of the tortfeasor spouse is insufficient to pay the obligation.3 The same statute holds execution or other legal process from a creditor: that if the tort was the result of an activity undertaken on behalf of • Wages. Since wages are generally community property, a non- the community, the creditor must first satisfy the debt by applying com- debtor spouse’s wages are subject to garnishment.5 One significant munity property. Only if that is insufficient can the creditor pursue exception is that if the nondebtor spouse “married into” a debt that the separate property of the tortfeasor. This rule could delay collec- arose prior to the marriage, his or her wages cannot be garnished so tion from a tortfeasor who has separate property. long as the earnings are placed into a bank account standing solely A complaint filed in California against a debtor need not name the in the name of the nondebtor spouse and are not commingled with nondebtor spouse in order to later allow judgment enforcement other community property beyond “insignificant” amounts.6 against the community assets. (This is not the case in some other com- Otherwise, wages are fully subject to garnishment, although a cred- munity property states, for example Arizona.) In fact, in California itor must obtain a court order before an earnings withholding order it is improper to add the nondebtor spouse as a defendant if only the is issued.7 community will be held liable for the debt.4 A creditor does not • Formally titled real and personal property. A creditor may fully have to worry about joining a debtor’s spouse in a lawsuit against a enforce a judgment against real or other property formally titled in debtor. The creditor can wait until after judgment to enforce against the name of the community. However, if the nondebtor spouse’s the community property. property is held in some other fashion (such as in joint tenancy), it is presumed to be separate property.8 Evidence that the spouses Community Property intended the property to be community property, however, will dis- After establishing that the community is liable for a debt, the creditor must determine which community assets can potentially be seized. Matthew C. Mickelson is a sole practitioner in Encino who specializes in

RICHARD EWING The following community property assets are typically susceptible to general civil litigation, debt collection, and appeals.

Los Angeles Lawyer July/August 2013 17 pel the presumption and establish the prop- GREG DAVID DERIN - MEDIATOR & ARBITRATOR erty as community.9 For example, a creditor can obtain evidence that a home was meant HONESTY • FAIRNESS • COMMITMENT • CREATIVITY • EXCELLENCE to be owned by the spouses as husband or wife, or establish that the spouses intended AREAS OF EXPERTISE: any sale or transfer of any portion of the • Entertainment and • Contract and Business Torts property would require both spouses’ knowl- Intellectual Property • Real Property • Employment • Corporate and Partnership edge and approval. These details tend to show that the spouses intended to hold the “Power Mediator” - The Hollywood Reporter, ADR SuperLawyerTM house as community property, regardless of Faculty - Harvard Negotiation Institute (2004-2012) the form of title. Fellow - Chartered Institute of Arbitrators • Business property. In circumstances in which a business is separately owned and operated 310.552.1062 I www.derin.com by a nondebtor spouse, the profits generated 1925 CENTURY PARK EAST, LOS ANGELES, CALIFORNIA 90067 by the business may be community property and available to the creditor of the debtor spouse.10 This is true regardless of the fact that the profits are solely in the hands of the nondebtor spouse. However, the title presumption REFER CLIENTS WITH CONFIDENCE! may limit a creditor’s ability to utilize this remedy. For example, when shares of a corporation are solely owned in the nondebtor spouse’s name, it may be impossible to have them seized and sold unless the creditor can obtain proof that both spouses intended that the shares be considered community property, despite the fact they are titled in only one spouse’s name. • Other property. Most personal property purchased during a marriage is community property.11 Notably, money in bank accounts held jointly between spouses is presumptively community property.12 In fact, a bank garnishment is effective against all property held in a bank account jointly held by the judgment HAVE A PAYING CLIENT OUTSIDE OF YOUR LEGAL EXPERTISE? debtor and any other person, including a nonspouse.13 Surprisingly, a bank levy will be Refer to the Los Angeles County Bar Association Lawyer Referral Service. effective against a nonjudgment debtor All LRIS lawyers are vetted for experience, insurance, and good standing. spouse’s bank account, even if it is held in his or her name alone, so long as the creditor files, with the levy, a declaration attesting that the person holding the bank account is the spouse of the judgment debtor.14 A spouse holding traceable separate property seized from a Los Angeles County Bar Association bank account would need to lodge a third- party claim in order to have the property LAWYER REFERRAL & released from the sheriff.15 INFORMATION SERVICE Separate Property Liability (213) 243-1525 A nondebtor spouse’s separate property is generally not subject to liability for the debtor spouse’s debts.16 Separate property can consist of property acquired before marriage, LACBA LOS ANGELES bequests, or gifts received during marriage,17 COUNTY BAR as well as assets obtained after separation.18 SmartLaw However, whether or not a separation has ASSOCIATION occurred terminating the community estate is smartlaw.org a question of fact, especially if a final sepa- LACBA.org ration or divorce judgment has not been entered. Even if a divorce petition has been State Bar of California and American Bar Association Certified filed, there may not be a true separation by the parties so as to end the community property characterization of property acquired by the parties.19 A creditor should consider

18 Los Angeles Lawyer July/August 2013 whether a debtor has commenced a sham divorce in order to protect the earnings or VIGOROUS property of the debtor’s spouse, especially if STATE BAR DEFENSE ERISA the debtor and spouse continue living together LAWYERS even after their divorce filing or continue to JAMES R. DIFRANK hold themselves out as a married couple. A PROFESSIONAL LAW CORP. LONG TERM DISABILITY, LONG Once a judgment of dissolution has been TEL 562.789.7734 TERM CARE, HEALTH, entered, a nondebtor spouse is only liable www.BarDefense.net EATING DISORDER, AND LIFE for debts that have been assigned to him or E-MAIL [email protected] INSURANCE CLAIMS her. Nevertheless, it may be possible to make a nondebtor former spouse liable for debt ¥ Disciplinary Defense ERISA & BAD FAITH under a fraudulent transfer theory.20 Liens ¥ Reinstatements/Admissions MATTERS previously placed on the community property ¥ Malpractice Defense may be enforced regardless of whether the California state and federal courts nondebtor spouse was assigned the debt.21 ¥ Bankruptcy More than 20 years experience There is a notable exception in which a ¥ Criminal Defense Settlements, trials and appeals party’s separate property is liable for a debt incurred by the spouse, and that is for the ¥ Representation within the State of California Referral fees as allowed by “necessaries of life.”22 The phrase “neces- State Bar of California saries of life” is not described in the statute, but it appears to cover medical care,23 includ- FORMER: ing dental care.24 It would also seem to mean State Bar Sr. Prosecutor Kantor & Kantor LLP expenditures for food, clothing, and shel- Sr. State Bar Court Counsel 818.886.2525 TOLL FREE ter.25 However, one case addressing a claim 877.783.8686 of exemption from wage garnishment has suggested that the term of art “necessaries of www.kantorlaw.net life” may encompass “[m]any things, such as 26 recreation, music lessons and insurance.” Dedicated to Helping People Unlike community property, liability on sep- Home of Sir Winston Receive the Insurance Benefits to arate property may be imposed only if the Which They Are Entitled. Pictured Above nondebtor spouse is named as a party in the action.27 Fraudulent Transfer and Bankruptcy A marital settlement agreement in a dissolu- FIRST TIME IN THE LA AREA! tion may change community property into separate property and appoint it to the nondebtor spouse. At the same time, the marital settlement agreement may fail to allocate the preseparation debt to the same spouse. Mar- Basic Mediation Training: The ital settlement agreements are often negotiated Transformative Approach during the divorce proceedings and incorpo- rated wholesale into a final judgment for approval by the family court. Under the Fam- ily Code, the judgment will terminate a creditor’s ability to seize that property.28 However, if the transfer of assets was fraudulent under the Uniform Fraudulent Transfer Act, or under the principles of common law fraud, a creditor may be able to set aside the transfer.29 For example, when a marital settlement agreement allocates all or most of the July 27-29, 9AM - 6PM community property to the nondebtor spouse, but none of the debt, a strong inference of HIGHLY INTERACTIVE, ENLIGHTENING, AND FUN! fraudulent transfer would arise. Similarly, Very highly rated trainer and curriculum. transmutation agreements between current Designed for beginners, but experienced mediators will also benefit! spouses that make community property into separate property of the nondebtor spouse can Pre-approved for 24 CLEs, including 4 Ethics and 1 Elimination of Bias. also be considered fraudulent transfers and attacked as such.30 To register, call 651.699.5000 Sometimes a nondebtor spouse will file for bankruptcy to stop the enforcement of a debt DAN SIMON, MA, J.D. I twincitiesmediation.com against the community property in his or her (Continued on page 24)

Los Angeles Lawyer July/August 2013 19 by Kevin D. Hughes Scouting for LIABILITY A recent Ninth Circuit decision declined to consider a landlord’s accountability for the discriminatory policies of a tenant

LAST DECEMBER, in Barnes-Wallace v. City of San Diego, the Ninth Circuit made headlines by overruling a trial court’s decision that San Diego was engaging in discrimination by leas- ing city property to the Boy Scouts of America, an organization that recently partially changed its longstanding policy of not allowing gays, agnostics, or atheists to participate as volunteers or members.1 The plaintiffs— a lesbian couple, an agnostic couple, and their scouting-aged sons—ﬁled suit seeking to require San Diego to enforce the lease’s antidiscrimination provision.2 The Ninth Circuit denied relief, ﬁnding no evidence that the Boy Scouts had actually discriminated on the leased premises, but the case raises the question of whether a landlord may be held to account for the discriminatory conduct of its tenant. This is particularly relevant to the owners of shopping centers whose multiple tenants provide public accomodations to customers of protected statuses. Shopping centers are places of public accommodation, and therefore subject to antidiscrimination laws.3 However, a shopping center owner is not liable, as a general rule, to a tenant’s customers for injuries suffered on the leased premises as a result of a condition that comes into existence after the tenant has taken possession.4 The rationale is that a landlord cannot fairly be held accountable for an injury it had no right or ability to prevent.5 By signing a lease and thereby surrendering possession and control of the premises to the tenant, the landlord generally gives up the right and ability to correct conditions that arise thereafter.6 Because a tenant’s discriminatory conduct is a condition that necessarily arises only after the tenant takes possession, this general rule of nonliability would tend to protect landlords in most cases of tenant discrimination. There are two exceptions to the general rule, however: lease renewal and lease enforcement. In some jurisdictions—most notably California and New York—landlords have been held liable for their failure to correct conditions they might have discovered through a reasonable inspection prior to renewal of an existing lease.7 The reasoning is that when a lease is up for renewal, a landlord regains the right to

Kevin D. Hughes is a litigation partner with Tisdale & Nicholson, LLP, in Century City, where he specializes in the repre-

sentation of commercial real estate owners and property managers. MICHAEL CALLAWAY

20 Los Angeles Lawyer July/August 2013 Y reenter the premises and the ability to correct floor to be littered with produce, as well as language in the renewed lease to the effect that any dangerous conditions it may find there.8 whether the floor was unreasonably slippery discrimination shall constitute a material While the term “dangerous conditions” typ- in that condition.11 breach and default entitling the landlord to ically refers to physical hazards such as bro- If a landlord has no reason to suspect dis- terminate, or 4) simple nonrenewal of the ken stairway banisters, it has been inter- criminatory conduct on the part of the ten- tenant’s lease. In Portillo, the court required preted to cover a broad range of causes of ant, then a basic walk-through of the premises nonrenewal, concluding, “The risk of harm harm, providing reason to conclude it may be would likely suffice as a reasonable inspection. to the general public [posed by the dog] applied to discriminatory conduct. However, if circumstances prior to renewal clearly outweighs the presence of a particu- The landlord’s responsibility to inspect indicate a potential problem, the landlord lar tenant on the premises.”15 In a number of prior to lease renewal is limited to what is rea- may be faulted for not questioning the tenant cases in which the landlord was aware of a sonable under the circumstances. The owner about its practices, investigating any com- tenant’s failure to comply with a particular “need not take extraordinary measures or plaints, or inspecting the premises for evidence safety law, courts have imposed upon the make unreasonable expenditures of time and such as discriminatory signage, and perhaps landlord a duty either to compel compliance money in trying to discover hazards unless the even for not taking the time to observe ten- with the law or to terminate the tenancy.16 What corrective measures a court may require a landlord to take in a discrimination context necessarily depend upon the circumstances. Statutory or Tort Damages Antidiscrimination laws often allow for the recovery of statutory damages as well as attorney’s fees, but these laws generally require proof of intentional discriminatory conduct. A landlord’s failure to prevent discrimination by a third party generally will not constitute a statutory violation.17 However, the failure to prevent the tenant’s discrimination may subject the landlord to tort liability if a tenant’s discriminatory conduct against members of the public is reasonably foreseeable, and if a landlord negligently fails to take steps to correct the conduct. A discriminatory denial of public accommodations would tend to cause emotional harm only and not physical injury. To recover damages for the negligent infliction of emotional distress, the harm suffered generally must be severe and usually, but not always, must be accompanied by some physical manifestation.18 circumstances so warrant.”9 In Portillo v. ant operations. The defendant’s failure to prevent a third Aiassa, the court of appeal affirmed a jury ver- As a general rule, a shopping center land- party from causing harm has been the predi- dict holding the landlord liable for injuries suf- lord owes a legal duty to take reasonable cate for a claim of negligent infliction of emo- fered by a delivery person attacked in a ten- measures to correct, or to ensure that a ten- tional distress in only two reported cases.19 In ant’s liquor store by the store’s guard dog. The ant has corrected, conditions that create a rea- both, the court implicitly accepts that the fail- court identified several questions the landlord sonably foreseeable risk of harm before admit- ure to prevent is actionable by itself, but in nei- had failed to ask in the landlord’s inspection ting members of the public onto the ther case does the court directly address the of the premises prior to lease renewal, includ- property.12 The denial of public accommo- issue of whether the failure to prevent harm- ing any questions about the dog’s history, dations on the basis of a protected status is ful conduct is actionable in itself, and nei- whether and by whom it had been trained, outlawed by state and federal statutes13 and ther case involves shopping centers. why the Beware of Dog sign had been posted, entitles victims in most, if not all, states to Antidiscrimination Provisions in Leases whether the newspaper article posted at the recover compensation.14 Consequently, if dis- store’s entrance accurately portrayed the dog’s criminatory conduct is reasonably foreseeable A second exception to the general rule of a dangerous propensities, whether the dog on a particular leased premises, a court may landlord’s nonliability is lease enforcement. could be insured, and whether anyone other deem that to be the sort of risk of harm The lease itself can give the landlord the right than the tenant and his family members could against which a landlord is required to take and authority to reenter the premises and attest to its behavior.10 reasonable steps to protect the public. enforce a prohibition (e.g., against discrimi- In Lopez v. Superior Court, the court The measures a landlord could be required nation) or declare a default and terminate the ruled that, prior to lease renewal, the owner to take to correct discriminatory conduct tenancy. However, if the landlord fails to of a property upon which a tenant operated include 1) obtaining written assurance from enforce the lease or to terminate the tenancy a produce market ought to have inspected not the tenant that discriminatory practices have when the landlord has the legal right to do so, only the slick nature of the cement floor the been discontinued and that culpable employ- the landlord can face liability for any injuries customer had slipped and fallen upon but ees have been terminated, 2) obtaining the ten- the tenant’s breaching conduct later causes.20 also the tenant’s business operations, and ant’s written commitment to require sensitivity In Resolution Trust Corporation v. Rossmoor, specifically whether it was common for the training for employees, 3) the insertion of the court of appeal identified four criteria

22 Los Angeles Lawyer July/August 2013 for determining whether a landlord had acted sue simply for a court order requiring the (1975). with ordinary care in the context of an alleged landlord to enforce the lease, as did the 5 PROSSER, LAW OF TORTS 400 (4th ed. 1971). 6 Id. failure to enforce a lease provision: 1) the like- plaintiffs in the Boy Scouts case. 7 Burroughs v. Ben’s Auto Park, 27 Cal. 2d 449 (1945); lihood of injury, 2) the probable seriousness Insurance and Record Keeping Mora v. Baker Commodities, Inc., 210 Cal. App. 3d of the injury, 3) the burden of reducing or 771, 781 (1989); Lusk v. Peck, 132 A. D. 426, 116 N.Y. avoiding the risk, and 4) the landlord’s degree Standard shopping center leases require the S. 1051, aff’d, 199 N.Y. 546, 93 N.E. 377 (1909); of control over the risk-creating condition.21 tenant to obtain commercial general liability Corrigan v. Antupit, 131 Conn. 71, 37 A. 2d 697 Another issue, which was not addressed insurance. However, CGL policies generally (1944). 8 Only California, New York, and Connecticut have in Rossmoor, is whether the third party com- exclude coverage for harassment or discrim- reported decisions recognizing the lease renewal excep- plaining that the landlord failed to enforce the ination, so landlords would be well advised tion, but no jurisdiction has actually rejected the analy- lease has standing to make that claim as a to require tenants to supplement their CGL sis in the context of a commercial premises open to the third-party beneficiary to the lease. In Barnes- coverage with third-party employment prac- public. 9 Wallace (the Boy Scouts case), the Ninth Cir- tices liability insurance, which covers cus- Portillo v. Aiassa, 27 Cal. App. 4th 1128, 1135-36 (1994). cuit assumed, without deciding, that the plain- tomer discrimination claims. The lease should 10 Id. at 1136. tiffs were in fact third-party beneficiaries also require that 1) the landlord be named as 11 Lopez v. Superior Court, 45 Cal. App. 4th 705, entitled to enforce the lease’s antidiscrimi- an additional insured, 2) proof of coverage be 715-16 (1996). nation provision. In the shopping center con- provided each year, 3) the landlord be noti- 12 Darrington v. Wade, 161 Utah Adv. Rep. 32, 812 P. text, a court may conclude that an antidis- fied immediately of any lapse in coverage, and 2d 452 (Utah App. 1991). See also N.Y. P.J.I.—Civil 2:101 (3d ed. 2000); CACI No. 1006. crimination provision in a lease for premises 4) the tenant be subjected to penalties, such 13 See, e.g., 42 U.S.C. §2000a; CIV. CODE §51; N.Y. CIV. open to the public is intended, at least in as rent increases, in the event coverage lapses. RIGHTS §40; N.Y. EXEC. §296. As a recent example of part, to benefit and protect customers. How- Finally, the lease should, and typically does, the enforcement of antidiscrimination laws in a retail ever, no reported decision has resolved this require that the tenant indemnify the landlord setting, in April, the Washington State Attorney General issue. Moreover, if the lease contains lan- for any claims arising from the tenant’s use sued a florist for violating that state’s Consumer Protec- guage generally disclaiming any third-party or occupancy of the premises. tion Act (WASH. REV. CODE. §§19.86 et seq.) by refusing to provide flowers for a same-sex wedding. See, beneficiaries, this could deny a plaintiff recov- Meanwhile, the landlord should conduct e.g., http://abcnews.go.com/Business/washington-florist ery regardless of whether the circumstances a reasonably thorough inspection of the -sued-refusing-provide-flowers-sex-wedding/story?id suggest that members of the public were in premises in each of three scenarios: 1) before =18922065. fact intended to benefit from an antidiscrim- handing over possession, 2) before entering 14 See, e.g., CIV. CODE §52; N.Y. CIV. RIGHTS §40-d. 15 ination provision. into any renewal, and 3) whenever there is Portillo v. Aiassa, 27 Cal. App. 4th 1128, 1135 (1994). Proving liability for failure to enforce a reason to suspect a breach of the lease that 16 Grant v. Hipsher, 257 Cal. App. 2d 375 (1967) lease can be easier than proving liability for might create third-party liability. Each inspec- (safety of swimming pool on premises of a residence failure to correct a condition prior to renewal. tion needs to be well documented. Separately, owned by defendants but occupied by tenant); Finnegan The tenant need not have been in possession the landlord should document any complaint v. Royal Realty Co., 35 Cal. 2d 409 (1950) (fire safety); for an entire lease term prior to the incident, made against a tenant, respond to any com- Longway v. McCall, 181 Cal. App. 2d 723 (1960) (elevator safety). and there is no need to prove that the harm- plaint, and document the substance of that 17 Coward v. Town and Village of Harrison, 665 F. ful condition predated the lease renewal date. response, whether it be a simple conversation Supp. 2d 281 (S.D. N.Y. 2009) (intentional discrimi- On the other hand, a landlord has no duty to with the tenant or something more in-depth, natory conduct is required to establish a violation of investigate a breach of the lease without some such as an investigation. If corrective action federal Civil Rights Act); Harris v. Capital Growth notice that a breach may have occurred, and is contemplated, legal counsel should be con- Investors XIV, 52 Cal. 3d 1142, 1172-73, 1175 (1991) (A plaintiff seeking to establish a case under the Cal- a landlord likely would have no liability for sulted. In all these matters, good record keep- ifornia civil rights statute must plead and prove inten- failure to enforce the lease without proof of ing is critical. In the event of a lawsuit, thor- tional discriminatory conduct); Westbrook v. City actual knowledge that a breach had ough, well-organized records demonstrate Univ. of N. Y., 591 F. Supp. 2d 207 (2008) (active par- occurred.22 competent, diligent management. They also ticipation in the discriminatory conduct required for vio- A claim for failure to enforce a lease is provide proof of inspections and corrective lation of New York civil rights statute). 18 essentially a cause of action for breach of con- measures. Perhaps most importantly, good Molien v. Kaiser Found. Hosp., 27 Cal. 3d 916 (1980); Ornstein v. New York City Health and Hosp. tract. As a general rule, emotional distress documentation makes it far more difficult Corp., 10 N.Y. 3d 1, 852 N.Y. S. 2d 1, 881 N.E. 2d damages are not recoverable for breach of for a plaintiff to fabricate or exaggerate evi- 1187 (2008). contract.23 Many jurisdictions have recog- dence of prior tenant misconduct, prior cus- 19 Burrow v. Postville Cmty. Sch. Dist., 929 F. Supp. nized exceptions to this general rule, however, tomer complaints, or the alleged inadequacy 1193 (N.D. Iowa 1996) (A student claimed that a including under circumstances in which the of the landlord’s response. I school’s negligent failure to prevent sexual harassment caused emotional distress.); Wall v. Fairview contractual undertaking is nonpecuniary in Hosp. and Healthcare Servs., 584 N.W. 2d 395, 408 nature and in which the contracting parties 1 On May 23, the Boy Scouts of America voted to end (1998) (A psychiatric patient claimed that a nurse’s fail- contemplated that the breach would result in its policy of forbidding the participation of openly ure to prevent her from living with a dangerous fellow emotional distress.24 In the context of an gay members but kept the policy of banning gay lead- patient caused her emotional distress.). ers as well as agnostic and atheist leaders or members. 20 antidiscrimination provision in a shopping Resolution Trust Corp. v. Rossmoor Corp., 34 Cal. See, e.g., http://www.nytimes.com/2013/05/24/us/boy- App. 4th 93, 102 (1995) (landlord not negligent for fail- center lease, the contractual undertaking— scouts-to-admit-openly-gay-youths-as-members.html ure to terminate lease). not to discriminate—is nonpecuniary, and it ?_r=0. 21 Id. at 103-04. is reasonable to conclude that the landlord 2 Barnes-Wallace v. City of San Diego, 704 F. 3d 1067, 22 Id. at 102, 104-05. and tenant would have contemplated that 1086-87 (9th Cir. 2012). 23 24 WILLISTON ON CONTRACTS §64:7 (4th ed. 2000); 3 breach of the antidiscrimination provision See, e.g., Unruh Civil Rights Act, codified at CIV. AM. JUR. 2d Fright, Shock, and Mental Disturbance §23 CODE §§51, 52; In re Cox, 3 Cal. 3d 205, 208 (1970) would result in emotional distress. (1968). (Shopping centers are “business establishments” sub- 24 RESTATEMENT (FIRST) OF CONTRACTS §341; University Alternatively, a shopping center customer ject to the Unruh Civil Rights Act.). of S. Miss. v. Williams, 891 So. 2d 160 (2004); asserting a breach of contract claim could 4 RESTATEMENT (SECOND) OF TORTS, §§355 et seq.; Westervelt v. McCullough, 68 Cal. App. 198, 228 P. choose to forgo monetary relief, and instead Uccello v. Laudenslayer, 44 Cal. App. 3d 504, 510 734 (1924).

Los Angeles Lawyer July/August 2013 23 7 Enforcement of Debt against the Community • Is the debt incurred founded on tort or CODE CIV. PROC. §706.109. 8 Marriage of Brooks and Robinson, 169 Cal. App. 4th Property of Debtor Spouses contract? Community property is always 176, 186-87 (2008); see also Abbett Elec. Corp. v. (Continued from page 19) available to satisfy contract debts but may not Storek, 22 Cal. App. 4th 1460, 1466-68 (1994). be available to satisfy tort debts. 9 Marriage of Brooks and Robinson, 169 Cal. App. 4th possession and will characterize certain prop- • Did the debt arise before the marriage? If at 189-90. erty as community in the bankruptcy. Usually, so, there may be problems in collecting from 10 Beam v. Bank of Am., 6 Cal. 3d 12, 17 (1971). 11 FAM. CODE §760. only creditors of a particular debtor may file the nondebtor spouse’s wage earnings. 12 PROB. CODE §5305(a); FIN. CODE §6852(b). claims in bankruptcy or have standing to • Has there been a transfer of community or 13 CODE CIV. PROC. §700.160(b)(1). intervene in a bankruptcy case. In a situation separate property to a nondebtor spouse 14 CODE CIV. PROC. §700.160(b)(2). in which the bankruptcy estate possesses without consideration? If so, fraudulent trans- 15 CODE CIV. PROC. §§720.110 et seq. community property subject to enforcement, fer law may serve as a remedy to recover 16 CODE CIV. PROC. §913. 17 however, a creditor of the debtor spouse has those funds. FAM. CODE §770(a). 18 FAM. CODE §771(a). standing to file a claim in the bankruptcy With these principles in mind, a creditor can 19 See Marriage of Marsden, 130 Cal. App. 3d 426, estate or to intervene in the bankruptcy to increase the likelihood of recovery by seeking 435-36 (1982). protect its interests.31 It is therefore proper for out the assets of both the debtor as well as the 20 Mejia v. Reed, 31 Cal. 4th 657, 668-69 (2003). a creditor of the debtor spouse to file a claim debtor’s spouse or domestic partner. I 21 FAM. CODE §916(a)(2). 22 in the debtor spouse’s bankruptcy as to a FAM. CODE §914(a). 23 Collection Bureau of San Jose v. Rumsey, 24 Cal. 4th 1 community property interest that is liable FAM. CODE §§902, 910; Litke O’Farrell LLC v. 301 (2000). 32 see under Family Code Sections 760 and 910. Tipton, 204 Cal. App. 4th 1178, 1181-82 (2012); 24 Credit Bureau of Santa Monica Bay Dist., Inc. v. also The affected community property will be dis- United States v. Berger, 574 F. 3d 1202, 1203 (9th Terranova, 15 Cal. App. 3d 854 (1971). Cir. 2009) (An innocent nondebtor spouse’s commu- tributed to claimants pursuant to the rules 25 See RUTTER GROUP, ENFORCING JUDGMENTS AND nity property interest can be taken to satisfy criminal provided in 11 USC Section 726(c). DEBTS §3:21. restitution.). 26 J.J. Macintyre Co. v. Duren, 118 Cal. App. 3d. Creditors should consider the following 2 FAM. CODE §297.5, §915; Reynolds & Reynolds Co. Supp. 16, 18 (1981). factors in determining whether to collect v. Universal Forms, Labels & Sys., Inc., 965 F. Supp. 27 Reynolds & Reynolds Co. v. Universal Forms, Labels against a debtor’s spouse or domestic partner: 1392, 1396 (C.D. Cal. 1997). However, no appellate & Sys., Inc., 965 F. Supp. 1392, 1396 (1997). case, state or federal, so holds. 28 FAM. CODE §916(a)(2). • Determine the kind of property held by 3 FAM. CODE §1000(b). 29 Mejia v. Reed, 31 Cal. 4th at 668-69. the debtor’s spouse. Is it real property held as 4 Reynolds & Reynolds Co., 965 F. Supp. at 1396; 30 community property with the debtor? Does FAM. CODE §851; State Bd. of Equalization v. Woo, Oyakawa v. Gillette, 8 Cal. App. 4th 628, 631-32 82 Cal. App. 4th 481, 484 (2000). the spouse have a wage job? Does the spouse (1992). 31 11 U.S.C. §541(a)(2). 5 own a business? Some or all of this property Marriage of Harrison, 179 Cal. App. 3d 1216, 1226 32 11 U.S.C. §102(2) (A claim against the debtor means (1986). mayCWSL_BBB13_LALawyer_03.qtrpg_Layout be available to the creditor. 1 6/6/13 1:20 PM Page 1 a claim against the property of the debtor.). 6 FAM. CODE §911.

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by John C. Keith BANKRUPTCY SHELTERS Public policy continues to weigh against the absolute effectiveness of bankruptcy remote entities

PROBABLY for as long as there has been a that it is having its desired effect of inhibit- stay prohibits any action to enforce the bankruptcy law, lenders have attempted to ing debtors from filing for bankruptcy pro- debtor’s prepetition debt, including the com- make their loans “bankruptcy proof.” The tection. If history is a guide, however, lenders mencement or continuation of litigation, as means by which lenders have tried to do so should not be overconfident of the ability of well as nonjudicial enforcement mechanisms have become more sophisticated in response any mechanism, no matter how clever, to such as foreclosure. If a debtor has significant to the hostility of bankruptcy courts to con- keep them out of bankruptcy court. When debt secured by collateral (whether real or per- tractual waivers of bankruptcy law protec- subjected to enough pressure, efforts to make sonal property), the bankruptcy filing is com- tions. In more recent years, and particularly loans bankruptcy proof have generally tended monly prompted by the secured creditor’s in the context of loans secured by real prop- to fail. efforts to foreclose upon its security interest. erty, lenders have fostered the creation of a The availability of bankruptcy protection Although the same principles apply when “bankruptcy remote,” special purpose entity affects the balance of power in debtor-cred- the debt is secured, cases in which the debt is (SPE) as the borrower, whose internal gov- itor relations, since bankruptcy law offers secured by real property often bring the power erning documents effectively give the lender numerous protections to the defaulting bor- of the automatic stay into sharp relief. In veto power over the entity’s authority to file rower. Perhaps apart from the ability in cer- those cases, borrowers routinely file a bank- a bankruptcy petition. tain types of bankruptcy cases to obtain a dis- ruptcy petition the day before a trustee’s sale The SPE is a recent variation on the theme charge of prepetition (i.e., prebankruptcy) is set to proceed, thereby stopping the fore- of protecting lenders against debtor bank- debts, paramount among these protections is ruptcy. The relative dearth of case law the automatic stay under Bankruptcy Code John C. Keith is a business and bankruptcy litiga- addressing the effectiveness of this permuta- Section 362. Generally speaking, while a tor practicing at the Los Angeles law firm of Valensi tion of bankruptcy proofing may indicate bankruptcy case is pending, an automatic Rose, PLC.

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To access our FREE National Directory of over 800 trusted mediators & arbitrators, please visit www.NADN.org/directory SmartPhone Link closure process. cess in bankruptcy proofing loans through the ruptcy proofing device. The SPE’s organiza- While lenders are often successful in creation of bankruptcy remote, SPE bor- tional documents required that the secured obtaining relief from the automatic stay, rowers. An SPE “is an independent legal lender’s designee on the board of directors thereby enabling them to resume foreclosure entity that can be used to mitigate the dis- consent to any bankruptcy filing. Each of or other enforcement efforts, the outcome ruption caused by a bankruptcy filing by all the 11 SPE debtors was owned or controlled of the relief from stay process is never certain, or some of the members of a corporate at one time by the same principal, and each and the process itself will generally require group.”6 “Essentially, a lender may be more was subject to a limitation on commencing a contested motion practice before the bank- inclined to provide a secured loan to an inde- bankruptcy. When the SPE’s properties were ruptcy court. Thus, even when relief from stay pendent entity rather than to a complex cor- in foreclosure and the board concluded that is granted—a “good” result for the lender porate group with several creditors.”7 following the designated procedures to com- under the circumstances—the borrower’s “Ideally, the SPE will be a newly created cor- mence voluntary bankruptcy would be futile, bankruptcy filing will delay loan enforcement. SPEs are generally designed to be No to Contractual Waivers Given the added risk, delay, and expense that “bankruptcy remote,” in that a bankruptcy filing creates for creditors, it is not surprising that lenders have long engaged restrictions on the SPE’s activities in efforts to make their loans bankruptcy proof. These efforts have taken many forms. make it less likely to become One common device has been to insert an ipso facto clause into the loan documents. The insolvent, and in that if the SPE clause provides that a borrower’s bankruptcy filing, or even a borrower’s insolvent financial does become insolvent, it is condition, constitutes a breach. Another common device has been to require, as a condi- difficult for a majority of board tion of the loan, that the borrower agree in advance to waive one or more of the benefits members or managers to put the of bankruptcy law, such as the right to oppose relief from the automatic stay or the ability business into bankruptcy. to obtain the discharge of a particular debt or of debts in general. Unfortunately for lenders, poration, limited liability company, partner- the principal paid a law firm to solicit unse- courts have generally rejected these sorts of ship, nonprofit, business trust, or limited lia- cured creditors to file involuntary chapter provisions as being against public policy.1 bility partnership,” although, “most 11 petitions. Some trade creditors and pro- At least as far back as 80 years ago, inter- commonly, SPEs are either limited partner- fessionals who worked for the debtors filed preting the Bankruptcy Act (a predecessor ships or limited liability companies.”8 the petitions, and the secured lenders sought to the current Bankruptcy Code), the Southern SPEs are generally designed to be “bank- to dismiss the involuntary cases on the ground District of New York held, in In re Weitzen, ruptcy remote,” in that restrictions on the that the collusion between the debtors and the that an “agreement to waive the benefit of SPE’s activities make it less likely to become petitioning creditors constituted bad faith bankruptcy is unenforceable,” because “[t]o insolvent, and in that if the SPE does become under Bankruptcy Code Section 1112(b). sustain a contractual obligation of this char- insolvent, it is difficult for a majority of board The court held “that a bankruptcy petition acter would frustrate the object of the members or managers to put the business will be dismissed if both objective futility of Bankruptcy Act.”2 Citing to an even earlier into bankruptcy.9 “The SPE’s corporate doc- the reorganization process and subjective bad case, from the Supreme Judicial Court of uments will generally contain restrictive pro- faith in filing the petition are found.”14 Massachusetts,3 the Weitzen court further visions requiring that the SPE be limited to its Accordingly, the court further held that stated that “[i]t would be repugnant to the stated purpose of holding the collateral assets, “although the debtors plainly orchestrated the purpose of the Bankruptcy Act to permit the therefore restricting it from engaging in out- filing of the involuntary petitions, they had circumvention of its object by the simple side activities,” and thereby “reducing the reason to believe that reorganization was device of a clause in the agreement, out of risk of the SPE becoming insolvent.”10 In possible and did not circumvent any court- which the provable debt springs,” since the addition, an SPE’s antibankruptcy provisions ordered or statutory restrictions on bank- “Bankruptcy Act would in the natural course will generally require that in order to file for ruptcy filings such that, absent any evidence of business be nullified in the vast majority of voluntary bankruptcy, the SPE’s directors or of objective futility of the reorganization debts arising out of contracts, if this were per- partners must unanimously consent with an process, the cases ought not be dismissed missible.”4 Over the ensuing decades, numer- “independent” director, partner, or managing now.”15 No formal record had been devel- ous courts have reached much the same con- member who is generally “designated by the oped regarding the futility of reorganization, clusion and invalidated all sorts of provisions lender and can presumably veto any sugges- and there were indications that reorganization inserted into loan documents that would tion of the SPE filing a voluntary bankruptcy was possible (e.g., a favorable appraisal and operate to waive one or another of the ben- petition.”11 SPEs have served as a securiti- expressions of interest in purchasing the prop- efits of bankruptcy law.5 zation tool for some time,12 so they have had erties), so the court denied the motions to dis- at least some success. miss. SPEs The court was fairly dismissive of the Kingston Square Associates While courts have generally rejected advance lenders’ argument against permitting debtors contractual waivers of the benefits of bank- In re Kingston Square Associates13 is an illus- to circumvent the antibankruptcy provisions ruptcy, lenders have had somewhat more suc- tration of the limitations of an SPE as a bank- in their governing documents. “The Movants

28 Los Angeles Lawyer July/August 2013 MCLE Test No. 226 MCLE Answer Sheet #226 BANKRUPTCY SHELTERS

The Los Angeles County Bar Association certiﬁes that this activity has been approved for Minimum Name Continuing Legal Education credit by the State Bar of California in the amount of 1 hour. Law Firm/Organization

1. The general prohibition under the Bankruptcy Code 11. In In re Kingston Square Associates, the bank- on actions undertaken to enforce or collect upon a ruptcy court held that a bankruptcy petition should be Address debtor’s prebankruptcy debt while a bankruptcy case dismissed upon finding subjective bad faith in filing. City is pending is called: True. State/Zip A. The statute of repose. False. E-mail B. The automatic stay. 12. The Kingston Square Associates court dismissed the C. The standstill period. bankruptcy cases because the debtors solicited cred- Phone D. None of the above. itors to file involuntary bankruptcy petitions against State Bar # 2. This general prohibition includes not only the com- them. mencement or continuation of litigation against a bank- True. INSTRUCTIONS FOR OBTAINING MCLE CREDITS ruptcy debtor but also nonjudicial enforcement mech- False. 1. Study the MCLE article in this issue. anisms such as foreclosure. 13. In re General Growth Properties, Inc., involved pro- 2. Answer the test questions opposite by marking True. visions in the organizational documents of the SPEs that the appropriate boxes below. Each question False. required the unanimous consent of one or more nom- has only one answer. Photocopies of this 3. When a bankruptcy court grants a creditor permis- inally independent directors or managers before the answer sheet may be submitted; however, this sion to resume efforts to collect its debt while the bank- SPEs could file for bankruptcy. form should not be enlarged or reduced. ruptcy case is still pending, the creditor has been given: True. 3. Mail the answer sheet and the $20 testing fee A. The green light. False. ($25 for non-LACBA members) to: B. Standstill relief. 14. The General Growth Properties court held that it was Los Angeles Lawyer C. Relief from stay. bad faith for the debtors to circumvent the efforts of their MCLE Test D. None of the above. secured lenders to make their loans bankruptcy proof. P.O. Box 55020 Los Angeles, CA 90055 4. The common name for a provision in a loan document True. to the effect that a borrower’s bankruptcy filing (or False. Make checks payable to Los Angeles Lawyer. insolvency) constitutes a breach is: 15. The Kingston Square Associates and General Growth 4. Within six weeks, Los Angeles Lawyer will A. An ipso facto clause. Properties courts determined that the attempts of the return your test with the correct answers, a B. A default provision. secured lenders to make their loans bankruptcy proof rationale for the correct answers, and a certificate verifying the MCLE credit you earned C. A penalty clause. were against public policy. through this self-assessment activity. D. None of the above. True. 5. For future reference, please retain the MCLE 5. Courts will generally enforce the provision described False. test materials returned to you. in question 4. 16. In In re DB Capital Holdings, LLC, the court upheld, True. against a public policy challenge, a provision in an ANSWERS False. LLC’s operating agreement prohibiting the LLC from fil- Mark your answers to the test by checking the 6. Courts will generally enforce loan document provi- ing for bankruptcy or consenting to any bankruptcy appropriate boxes below. Each question has only sions to the effect that, if a debtor does file bankruptcy, filed against it. one answer. it waives certain benefits of bankruptcy law. True. True. False. 1. I A I B I C I D False. 17. The DB Capital Holdings court found that the oper- 2. I True I False 7. A single purpose entity (SPE) is a type of borrower that ating agreement’s antibankruptcy provision had been 3. I A I B I C I D some secured lenders favor to mitigate the disruption inserted at the behest of the debtor’s secured lender. I I I I caused by a bankruptcy filing by all or some of the True. 4. A B C D members of a corporate group. False. 5. I True I False True. 18. The secured lender in DB Capital Holdings was 6. I True I False False. successful in keeping the borrower out of bankruptcy 7. I True I False 8. Most commonly, SPEs are either _____. court. I I I I A. Public or private corporations. True. 8. A B C D B. Nonprofit corporations or business trusts. False. 9. I A I B I C I D C. Limited partnerships or limited liability 19. If a lender’s “independent” designee with the SPE 10. I True I False companies. borrower vetoes a bankruptcy filing that would be in the 11. I True I False D. None of the above. borrower’s best interest, the lender or its designee 12. I True I False 9. Provisions in an SPE’s corporate documents to make may be liable for breach of fiduciary duty. the SPE less likely to become insolvent and more dif- True. 13. I True I False ficult for it to go into bankruptcy are commonly referred False. 14. I True I False 20. to as ____ . Some LLC operating agreements name a designee 15. I True I Fals A. Ipso facto clauses. of the lender as a member of the LLC even though the 16. I True I Fals B. Bankruptcy remote provisions. designee is not required to make a capital contribution. C. Antialienation provisions. True. 17. I True I False D. None of the above. False. 18. I True I False 10. SPEs are a securitization tool for lenders. 19. I True I False True. 20. I True I False False.

Los Angeles Lawyer July/August 2013 29 may feel bruised because the Respondents erative board members, who then approved In doing so, the court rejected the debtor’s outmaneuvered what the Movants thought the voluntary bankruptcy.21 argument that the antibankruptcy provision was an iron-clad provision in the corporate The court in General Growth Properties in the operating agreement should be void as by-laws preventing a bankruptcy filing, but assessed the merit of that rather bold maneu- against public policy. The court reasoned this does not mean that, without more, the ver and rejected the lenders’ argument of bad that “all of the case law upon which Manager petitions must be dismissed.”16 The court faith. The court held that “it cannot be said relies for this assertion ‘involves a debtor’s also had harsh words for the lenders’ designee that the admittedly surreptitious firing of the agreement with third parties to waive the on the board, stating that “he completely two ‘Independent Managers’ constituted sub- benefits of bankruptcy,’” and the “Debtor ignored the limited partners’ plight in the jective bad faith on the part of the Debtors has not cited any cases standing for the propo- face of foreclosure actions instituted by the sufficient to require dismissal of these cases,” sition that members of an LLC cannot agree group which placed him on the boards of since “[t]he corporate documents did not among themselves not to file bankruptcy, directors…and saw to it that he was paid prohibit this action or purport to interfere and that if they do, such agreement is void as fees, even though the consequence of fore- with the rights of a shareholder to appoint against public policy, nor has the court located closure would be not to simply injure but to independent directors to the Board.”22 As any.”27 In response to the debtor’s argument eliminate the limited partners’ interests.” As support for this conclusion, the court reasoned that the antibankruptcy provision had in fact the court put it: “If he was the ‘independent’ that “the Independent Managers did not have been inserted into the operating agreement at director, it was in name only.”17 One issue on a duty to keep any of the Debtors from filing the behest, and solely for the benefit of, the which the court expressly refused to opine was a bankruptcy case,” but instead “[a]s man- secured lender, the court said it found no whether it should nullify the bankruptcy agers of solvent companies charged to act in evidence to support that contention. proof provision in the debtors’ bylaws.18 the same fashion as directors of a Delaware Therefore, the court declined to opine In 2009, In re General Growth Properties, corporation, they had a prima facie fiduciary “whether, under the right set of facts, an Inc.,19 revisited the question whether bank- duty to act in the interests of ‘the corporation LLC’s operating agreement containing terms ruptcy cases should be dismissed for bad and its shareholders.’”23 coerced by a creditor would be unenforce- faith if debtor SPEs have maneuvered around The court also relied on Kingston Square able.”28 Arguably in dicta, the court further antibankruptcy provisions in their organiza- Associates, which the General Growth supported its conclusion by reasoning that the tional documents. Relying in part on Kingston Properties court described as involving a far operating agreement limited the manager’s Square Associates, the court denied the more egregious action that was “suggestive of authority to operating the business “as secured lenders’ motions to dismiss the chap- bad faith.” As the court noted, the debtors’ presently conducted” and prohibited him ter 11 cases of various debtors owned directly collusion with the petitioning creditors in from doing “any act that would make it or indirectly by General Growth Properties, Kingston Square Associates was still insuffi- impossible to carry on the ordinary business Inc. (GGP), a real estate investment trust and cient to warrant dismissal, since “the collu- of the Company,” two provisions the court the parent of approximately 750 wholly sion was not rooted in a ‘fraudulent or deceit- found incompatible with the manager’s filing owned subsidiaries, joint venture subsidiaries, ful purpose’ but designed ‘to preserve value of a bankruptcy case. and affiliates. The bankruptcy cases com- for the Debtors’ estates and creditors.’”24 Antibankruptcy Provisions menced in the wake of the credit market cri- The court found that the debtors’ bankruptcy sis, which prevented GGP and hundreds of its filings were likewise designed to preserve DB Capital Holdings indicates that, under the affiliated entities from refinancing their debt value for their estates and creditors. As the right set of facts, a court may enforce, even and led them to file what was then the largest court stated forcefully: “It is clear, on this against a public policy challenge, provisions real estate bankruptcy case in history.20 The record, that Movants have been inconve- in a borrower’s organizational documents debtors were project-level SPEs holding sin- nienced by the Chapter 11 filings.…How- that effectively prevent the borrower from vol- gle real estate assets (e.g., shopping centers, ever, inconvenience to a secured creditor is not untarily filing bankruptcy. However, lenders more than 200 of which the group of com- a reason to dismiss a Chapter 11 case.”25 As ought not rely too heavily on this holding. panies owned or managed). In some cases, in Kingston Square Associates, the court did Apart from being unpublished, the holding is provisions in the organizational documents of not address whether the bankruptcy remote also rather narrow, in that the court expressly the SPEs indicated that they were intended to provisions in the SPEs’ governing documents declined to say whether antibankruptcy pro- be bankruptcy remote. Specifically, much as ought to be unenforceable in the first place as visions would be enforceable if there was in Kingston Square Associates, there were a matter of public policy. evidence that they were coerced.29 It seems provisions requiring the unanimous consent that in most cases the borrower would be able DB Capital Holdings of one or more “independent” directors or to present such evidence.30 It also seems that, managers before the SPEs could file for bank- In a 2010 opinion, the bankruptcy appellate if this evidence were presented, a court ought ruptcy. panel for the Tenth Circuit, in In re DB to invalidate an antibankruptcy provision.31 Although the two cases resolved in much Capital Holdings, LLC,26 upheld against a To do otherwise would elevate form over the same way, General Growth Properties public policy challenge a provision in an substance, since a provision of this kind in some respects contrasts with Kingston LLC’s operating agreement prohibiting the achieves the same result as the advance con- Square Associates. In Kingston Square LLC from filing a bankruptcy petition or tractual waivers that courts have routinely Associates, the debtors concluded that they consenting to any bankruptcy filed against it. rejected as against public policy. could not file a voluntary bankruptcy case in The debtor was a Colorado LLC formed to Much as in Kingston Square Associates, the face of the veto power of the secured develop two condominium buildings. After the DB Capital Holdings debtor ultimately lender’s board designee, so they proceeded to defaulting on its secured loans and facing became involved in an involuntary bank- orchestrate an involuntary bankruptcy fil- receivership, the LLC filed a chapter 11 case ruptcy case filed by unsecured creditors.32 In ing. In General Growth Properties, instead of through its manager. The court granted a DB Capital Holdings, during relief from stay bypassing an uncooperative board member, motion to dismiss that one of the LLC’s mem- proceedings the bankruptcy court rejected the debtors simply removed the lenders’ bers filed on the ground that the manager had as against public policy the debtor’s pur- designees and replaced them with more coop- acted without authorization and in bad faith. ported waiver, as part of a prepetition for-

30 Los Angeles Lawyer July/August 2013 bearance agreement, of its right to oppose stay 9 Id. at 228. 27 Id. at *3. relief, as too closely approximating a waiver 10 Id. at 230-31. 28 Id. 11 29 of the right to file bankruptcy in the first Id. at 231-32. The precise designation of the lender See Alvin L. Arnold & Marshall E. Tracht, designee depends upon the type of business organiza- Bankruptcy: LLC Agreement Can Waive Right to 33 place. These cases illustrate that even the tion. For example, corporations are governed by a Bankruptcy, REAL EST. L. REP. 8 (Jan. 2011); Steven G. most ironclad protections against a borrower board of directors, and a lender designee at an SPE cor- Horowitz, LLC Agreement Prohibiting Bankruptcy voluntarily placing itself in bankruptcy will poration would generally be referred to as an inde- Filing Held Enforceable, COMMERCIAL REAL ESTATE not necessarily keep the borrower out of pendent director. LLCs, by comparison, are owned FINANCING: STRATEGIES FOR CHANGING MARKETS AND bankruptcy court, since its other creditors by members and can be either member-managed or UNCERTAIN TIMES, ST053 ALI-ABA 171, 174-75 (2012) manager-managed. Certain members may act simul- [hereinafter Horowitz] (“[T]he decision should not be may place it there if they feel threatened by taneously as managers or be endowed by the LLC’s viewed as granting carte blanche approval to pre-peti- a dominant secured creditor. operating agreement with specified managerial powers. tion agreements waiving bankruptcy protection.”). In addition, lenders inserting themselves Thus, the lender designee may be referred to as an 30 Horowitz, supra note 29, at 174-75. or their designees into the borrower’s man- “independent manager,” an “independent member,” 31 Sheldon L. Solow & Uday Gorrepati, Can Lenders agement as “independent” directors or man- or “independent managing member.” The lender or its Prevent LLC Bankruptcy Filings? A Recent Decision designee may be a “special purpose member” of the Highlights the Debate, 128 BANKING L.J. 220, 224 agers, with veto power over the borrower’s LLC. (2011) [hereinafter Solow & Gorrepati]. ability to file bankruptcy, ought to be wary of 12 Id. at 228. 32 In re DB Capital Holdings, LLC, 454 B.R. at 809. what may come from the exercise of that 13 In re Kingston Square Assocs., 214 B.R. 713 (Bankr. 33 Id. at 814-16. power. To the extent a lender or a lender’s S.D. N.Y. 1997). 34 Solow & Gorrepati, supra note 32, at 224. agent is deemed to have exercised manager- 14 Id. at 734. 35 A special purpose member is a member of the LLC 15 Id. at 714-15. only in the most abstract sense. Generally speaking, the ial authority over a borrower, it naturally 16 Id. at 736. special purpose member is not required to make any follows that the lender may be subject to 17 Id. capital contribution, and the operating agreement spec- fiduciary duties. If, by refusing to authorize 18 Id. at 737. ifies that, except for the right to authorize or reject any a bankruptcy, the lender has elevated its own 19 In re General Growth Props., Inc., 409 B.R. 43 proposed bankruptcy filing, the special purpose mem- interests above those of its principal, the (Bankr. S.D. N.Y. 2009). ber has none of the rights or duties generally attributed 20 lender may be liable for breach of fiduciary Jesse Cook-Dubin, New York Bankruptcy Court to LLC members or managers. A prudent lender would Topples Contractual Barriers to Filing Chapter 11: also have the operating agreement provide that it could duty.34 This principle is broad and would Part II, AM. BANKR. INST. J. 16 (Dec./Jan. 2010). not be amended without the consent of the special seem to apply regardless of the precise nature 21 In re General Growth Props., Inc., 409 B.R. at 67- purpose member, so that management could not do of bankruptcy proofing device.35 69. away with this bankruptcy veto by amending the oper- Ultimately, lenders should probably 22 Id. at 68. ating agreement. 23 36 assume that any loan they make could draw Id. In Kingston Square Associates, the lenders’ “inde- 24 Id. pendent director” on the borrowers’ boards, a former them into bankruptcy court, no matter how 25 Id. vice president of the lenders, was paid $25,000 a year hard they try to avoid it. Lenders can attempt 26 In re DB Capital Holdings, LLC, 463 B.R. 142, for his service on the board, even though, as the court to minimize the fallout by avoiding riskier 2010 WL 4925811 (10th Cir. B.A.P. Dec. 6, 2010). itself observed, he did very little to earn that money. loans or by hedging or insuring against the riskier loans they do make. While recognizing the creativity that goes into devising bankruptcy proofing provisions (which may serve their purpose well enough, though by no means perfectly), one may ask whether the energy that goes into crafting bankruptcy proof loans would be better spent elsewhere. An attorney with clients who are considering becoming a lender’s designee to an SPE borrower would be well served to advise them to balance the benefits of the post36 against their fiduciary obligations. I

1 See In re Cole, 226 B.R. 647, 652 (B.A.P. 9th Cir. 1998). 2 In re Weitzen, 3 F. Supp. 698 (S.D. N.Y. 1933). 3 Federal Nat. Bank v. Koppel, 253 Mass. 157 (1925). 4 In re Weitzen, 3 F. Supp. at 698-99. 5 See, e.g., In re Cole, 226 B.R. at 651-52; In re Shady Grove Tech Ctr. Assocs. Ltd. P’ship, 216 B.R. 386, 390 (Bankr. D. Md. 1998); In re Gulf Beach Dev. Corp., 48 B.R. 40, 43 (Bankr. M.D. Fla. 1985); In re Tru Block Concrete Prods., Inc., 27 B.R. 486, 492 (Bankr. S.D. Cal. 1983); In re Pease, 195 B.R. 431, 435 (Bankr. D. Neb. 1996); Giaimo v. Detrano (In re Detrano), 222 B.R. 685, 688 (Bankr. E.D. N.Y. 1998); Shaw Steel, Inc. v. Morris (In re Morris), 1998 WL 355510, at *8 (Bankr. N.D. Ill. June 30, 1998); Johnson v. Kriger (In re Kriger), 2 B.R. 19, 23 (Bankr. D. Or. 1979). 6 Samantha J. Rothman, Lessons from General Growth Properties: The Future of the Special Purpose Entity, 17 FORDHAM J. CORP. & FIN. L. 227, 229 (2012). 7 Id. 8 Id. at 230.

Los Angeles Lawyer July/August 2013 31 by James Juo Unauthorized After the death of Aaron Swartz, lawmakers have Excess proposed reforms to the Computer Fraud and Abuse Act

AT AGE 14, Aaron Swartz was working with leading tech- extortion by threat of damage to a computer.9 In addition nologists to craft standards for openly sharing informa- to traditional computer hacking, the statute also has tion on the Internet.1 He then helped Lawrence Lessig with been asserted against employees who take trade secrets Creative Commons, which promotes the use of simple, stored on their employer’s computer before leaving to join standardized copyright licenses that give the public per- the competition.10 In 1984, Congress enacted the CFAA mission to share and use creative works.2 At 19, he was to criminalize the hacking of computers in connection with a founding developer of Reddit, a widely used social national security, financial records, and government prop- news Web site where users can post news links and vote erty.11 The statute was originally designed to cover unau- on them.3 Aaron later became a political activist for thorized access of such protected computers having a Internet freedom and social justice issues and formed the specified federal interest.12 advocacy group Demand Progress.4 At 26, facing a crim- The CFAA has been expanded a number of times.13 inal trial under the Computer Fraud and Abuse Act For example, a 1994 amendment expanded the statute to (CFAA) for allegedly circumventing computer restric- allow private entities to assert a civil cause of action and tions to an online database of academic articles, Aaron obtain compensatory damages and other equitable relief.14 Swartz hanged himself in January.5 In 1996, the CFAA was further amended to expand the Since then, Internet groups have criticized the U.S. class of protected computers to include any computer Department of Justice for its prosecution of Swartz, “used in interstate or foreign commerce or communica- although several legal commentators have noted that the tion.”15 In the space of a dozen years, the scope of this CFAA had been interpreted broadly by some courts to criminal statute has gone from a limited set of protected cover similar conduct in other cases.6 According to computers to possibly every computer in the United States Jennifer Granick, the Director of Civil Liberties at the connected to the Internet.16 Stanford Center for Internet and Society, the CFAA has Without or Exceeding Authorization become a legal regime that as often as not is “used against whistleblowers, disloyal employees, and activists.”7 The CFAA prohibits “access without authorization” and “Aaron’s Law” has become a rallying cry to reform the “exceed[ing] authorized access” to a protected com- CFAA. puter.17 But the CFAA has been called “remarkably The CFAA is a computer trespass statute that has vague” on this point.18 What does it mean to access a com- been called “one of the broadest federal criminal laws cur- puter without authorization or to exceed authorized rently on the books.”8 Prohibited conduct under the CFAA includes theft of computer data, unauthorized James Juo is a partner at Fulwider Patton LLP, a Los Angeles access with intent to defraud, unauthorized access result- law firm specializing in intellectual property, including patents

ing in destruction, trafficking in computer passwords, and and trademarks. HADI FARAHANI

32 Los Angeles Lawyer July/August 2013 ss access? Exactly what makes one person’s narrowly because it is a criminal statute, /Ferry had an express computer usage policy access authorized and another’s unautho- while others have adopted the broad analy- that was reflected in an opening computer rized (or exceeded) has been the subject of sis of Citrin.32 The Ninth Circuit’s recent screen warning: “This product is intended much litigation. Such conduct has been decisions in LVRC Holdings LLC v. Brekka33 to be used by Korn/Ferry employees for work alleged to include exploiting code-based secu- and United States v. Nosal,34 however, appear on Korn/Ferry business only.”42 rity flaws,19 launching a denial of service to be moving toward a narrower interpreta- Relying on Brekka, the district court dis- attack on a Web site,20 “spoofing” IP ad- tion that does not criminalize violations of pri- missed the CFAA claim because Nosal had dresses to avoid access restrictions,21 access- vate use-based restrictions. permission to access the Korn/Ferry coming information stored on an employer’s com- In LVRC Holdings LLC v. Brekka, the puters.43 The district court also relied on the puter for a competing business,22 allowing an defendant was an employee who, as part of rule of lenity to interpret the CFAA nar- unauthorized person to use the valid password his job, had computer access to information rowly.44 A three-judge panel of the Ninth of another,23 and violating a Web site’s terms regarding LVRC’s addiction treatment busi- Circuit reversed the district court on appeal.45 of service.24 ness, including financial statements, budgets, Distinguishing the earlier Brekka decision in Should the question of authorization be and other reports.35 Brekka traveled between which the defendant “had unfettered access focused on the means used to obtain the his Florida home and Nevada for work and to the company computer,” the panel noted data (e.g., whether the defendant is alleged e-mailed LVRC business documents to his that Korn/Ferry had “clear and conspicuous to have broken into the computer system), and his wife’s personal e-mail accounts. LVRC restrictions” on an employee’s computer or should it further look to whether the and Brekka did not have a written employ- access.46 The panel held that “as long as the obtained data was used improperly? Under ment agreement, and LVRC had no employee employee has knowledge of the employer’s the latter approach, if a disloyal employee guidelines that would have prohibited employ- limitations on that authorization, the were to access commercial information on ees from e-mailing LVRC documents to per- employee ‘exceeds authorized access’ when the employer’s computer for any purpose sonal computers. After Brekka left the com- the employee violates those limitations.”47 other than that authorized by his or her pany, LVRC became concerned that Brekka The Ninth Circuit reheard Nosal en banc job, there could be liability under the CFAA. had e-mailed LVRC documents to himself to and reversed the panel decision and affirmed In recent years, many plaintiffs have used the further his own interests rather than those of the district court.48 Writing for the majority, CFAA to federalize cases that otherwise LVRC.36 Chief Judge Alex Kozinski gave a litany of would have been treated as traditional trade The Ninth Circuit expressly rejected hypothetical examples of adverse conse- secret cases but for the involvement of a Citrin’s broad interpretation of the CFAA, quences that may arise from giving the force computer.25 Some recent court decisions, noting that nothing in the plain language of of criminal law to a private party’s computer however, have adopted a narrower inter- the statute suggests that liability for accessing use policies. Numerous dating Web sites, for pretation, so whether such a plaintiff would a computer without authorization turns on instance, have terms of service that “pro- be successful may depend on which court- whether the defendant breached a duty of hibit inaccurate or misleading information.” house hears the case. loyalty to an employer.37 Brekka was autho- Under the government’s proposed interpre- In International Airport Centers, L.L.C. rized to use LVRC’s computers while he was tation of the CFAA, “describing yourself as v. Citrin, the Seventh Circuit relied on the employed at LVRC, so he did not access a ‘tall, dark and handsome,’ when you’re actu- agency relationship between an employee computer “without authorization” under the ally short and homely, will earn you a hand- and employer to determine whether access CFAA when he e-mailed documents to him- some orange jumpsuit.”49 was authorized.26 The defendant, Citrin, self prior to leaving LVRC.38 “Nor did email- Moreover, because a Web site’s terms of decided to start his own business in compe- ing the documents ‘exceed authorized access,’ service or an employer’s policies may change tition with his employer, International Airport because Brekka was entitled to obtain the at any time with little or no prior notice, Centers (IAC). Before leaving, Citrin used a documents.”39 The court further noted the rule what was lawful conduct one day could secure-erase program that permanently erased of lenity, which requires courts to limit the become unlawful the next.50 The court sug- all the data (presumably including evidence reach of criminal statutes to their plain mean- gested that the CFAA would be unconstitu- of his allegedly improper conduct) on a lap- ing and to construe any ambiguity against tionally vague if violating a Web site’s terms top provided to him by IAC.27 Citrin “knew the government in order to avoid imposing of service (which typically are written to give the company had no duplicates of [the unexpected burdens on the defendant.40 the Web site’s owner a broad right to cancel destroyed data].”28 accounts without liability) could be construed Nosal The court noted that an employee’s autho- to be unauthorized or to have exceeded authorization to access the employer’s computer In United States v. Nosal, Nosal was a high- rized access under the CFAA.51 data is based on the agency relationship level employee at executive search firm Korn The tendency of a mind to “wander” and between the employer and employee, and /Ferry International. When Nosal decided to people to “procrastinate” by connecting to the Citrin’s authorization ended when he leave, he signed an agreement to continue Internet at work for a nonwork purpose breached the duty of loyalty to IAC.29 “[T]he working for Korn/Ferry as an independent “would make criminals of large groups of authority of the agent terminates if, without contractor in order to complete several ongo- people who would have little reason to sus- knowledge of the principal, he acquires ing projects, and he agreed not to compete pect they are committing a federal crime.”52 adverse interests or if he is otherwise guilty against Korn/Ferry for one year.41 During For other improper conduct involving a com- of a serious breach of loyalty to the princi- that time, however, Nosal accessed confi- puter, laws such as wire fraud, trade secret, pal.”30 This interpretation of access under the dential and proprietary information in the or contract law may apply instead.53 The CFAA—finding liability for violations of cor- Korn/Ferry computer system to obtain cus- court concluded that the “exceeds autho- porate computer use restrictions or viola- tomer lists and other trade secrets for a com- rized access” language “in the CFAA is lim- tions of a duty of loyalty—was adopted by the peting business that he was starting. Several ited to violations of restrictions on access to Fifth and Eleventh Circuits as well.31 employees also helped access the Korn/Ferry information, and not restrictions on its use.”54 Some district courts, however, have computer system to obtain confidential infor- The Ninth Circuit’s narrow interpreta- observed that the CFAA should be construed mation and trade secrets for Nosal. Korn tion of the CFAA in Nosal has since been

34 Los Angeles Lawyer July/August 2013 adopted by the Fourth Circuit and by district helmet) entering the wiring closet and remov- Fourth Circuits. The CFAA prohibits more courts in other circuits,55 but a circuit split ing the laptop.72 Later that day, he was than just traditional hacking, and Swartz remains between Nosal and Citrin. arrested. JSTOR declined to pursue legal may have found himself on the wrong side of action against Swartz after he turned over his the circuit split. The Facts of the Swartz Case hard drives, which contained 4.8 million The Swartz case was pending in the Dis- Aaron Swartz once wrote, “Stealing is wrong. JSTOR documents.73 In July 2011, however, trict of Massachusetts, and the First Circuit But downloading isn’t stealing.”56 In 2008, a federal indictment charging Swartz with previously had taken a broad interpretation Swartz wrote a computer program that violations of the CFAA was unsealed in the of the CFAA in a case in which the plaintiff rapidly downloaded millions of pages of U.S. District Court for the District of had sought to prevent a competitor from court filings from PACER after a pilot pro- Massachusetts.74 He was accused of violat- using an automated computer program gram was started to allow free access to ing JSTOR’s use policies and circumventing (referred to as a scraper) that would down- PACER.57 Swartz’s downloads were then JSTOR’s and MIT’s technical restrictions. A load the contents of its public Web site to cre- made freely accessible on the servers at pub- press release by the U.S. Attorney’s Office ate a competing travel service.81 Although lic.resource.org.58 Shortly thereafter, the government ended the pilot project of free access for PACER.59 The FBI investigated Swartz but closed its file in 2009.60 About a year later, Swartz allegedly attempted to access and rapidly download a large number of academic articles from JSTOR, a nonprofit that provides a searchable database of digitized articles archived from over 1,000 academic journals.61 Libraries and universities pay a subscription fee for access to JSTOR’s collection of digitized journals.62 JSTOR’s terms of service prohibit downloading or exporting documents from JSTOR using automated computer programs.63 JSTOR also uses technical measures to prevent automated downloading.64 Swartz allegedly used a laptop connected to the computer network of the Massachusetts Institute of Technology (MIT), a JSTOR sub- scriber, to access JSTOR.65 (MIT has a very permissive computer culture, and its network is open and available to anyone on campus. Anyone on the MIT campus could have stated that Swartz “faces up to 35 years in the First Circuit would not infer a prohibition access to JSTOR.66) In response to Swartz’s prison, to be followed by three years of under the CFAA against automated access, the rapid downloading of JSTOR articles, JSTOR supervised release, restitution, forfeiture and circuit did state in dicta that explicit restric- blocked the Internet Protocol (IP) address for a fine of up to $1 million.”75 tions set forth on a public Web site’s terms of MIT that had been assigned to Swartz’s lap- Later, Carmen M. Ortiz, the U.S. Attorney service could be enforced under the CFAA.82 top. Swartz then established a new IP address overseeing the case, stated that “stealing is Thus, a Massachusetts court may not have on the MIT network to sidestep JSTOR’s stealing, whether you use a computer com- followed Nosal’s narrow interpretation of block.67 JSTOR complained to MIT about mand or a crowbar, and whether you take the CFAA, which would have excluded terms- this, and MIT blocked the Swartz laptop documents, data or dollars.”76 It has been of-service violations. Swartz was offered a from its network based on the laptop’s MAC reported that the government asserted the plea bargain requiring a felony conviction, address, which is a unique identifier assigned documents downloaded from JSTOR were under which the government would recom- to each computer’s network interface.68 worth $2 million.77 The downloaded docu- mend a prison term (although his defense Swartz avoided MIT’s block by changing ments apparently included publications such counsel could argue to the judge for proba- (or spoofing) his laptop’s MAC address.69 as the 1942 edition of the Journal of Bo- tion instead).83 Faced with the government's The cat-and-mouse game continued tany.78 As Lessig argued, “[A]nyone who demand for jail time, Aaron Swartz took his about two weeks until Swartz physically says that there is money to be made in a own life in January.84 plugged his laptop directly into MIT’s com- stash of ACADEMIC ARTICLES is either Aaron’s Law puter network in an unlocked wiring closet an idiot or a liar.”79 located in a basement on MIT’s campus.70 A computer expert for the defense asserts In the wake of Swartz’s death, there have There, he allegedly continued to download that Swartz did not hack JSTOR under any been several proposals to amend the CFAA. articles from JSTOR. MIT traced the loca- reasonable definition—Swartz did not use These proposed amendments have been tion of the laptop in the closet and decided parameter tampering, break a CAPTCHA, or referred to as Aaron’s Law. to treat the downloading as a criminal mat- do anything more complicated than auto- Orin Kerr, a professor at the George Wash- ter. Local police were called and were joined mate a process that downloads a file in the ington University Law School and a former by a Secret Service agent, who recommended same manner as clicking Save As from a federal prosecutor, has proposed a number of installing a surveillance camera.71 In early browser.80 It is unclear whether this defense changes to the CFAA, including “(1) elimi- January, the camera allegedly recorded would have been successful, even with the nating liability for exceeding authorized Swartz (with his face obscured by a bicycle recent case law developments in the Ninth and access, (2) tightening the felony thresholds

Los Angeles Lawyer July/August 2013 35 throughout the statute, and [3] eliminating acceptable use policy or terms of ser- F. Supp. 2d 766, 771 (2008). several sections of the statute, including… vice agreement with an online service 11 The CFAA was a 1986 amendment to 18 U.S.C. the civil liability provision which is chiefly provider, Internet website, or employer; §1030, but the convention is to refer to §1030 as a whole as the CFAA. The original 1984 statute was responsible for the overly expansive read- or (ii) efforts to prevent personal iden- called the Comprehensive Crime Control Act (CCCA). ings of the statute.”85 Kerr also proposed tification of a computer user, or iden- Orin S. Kerr, Vagueness Challenges to the Computer that “access without authorization” mean tification of a user’s hardware device or Fraud and Abuse Act, 94 MINN. L. REV. 1561, 1561 “to circumvent technological access barriers software, through a user’s real name, n.2, 1563-64 (2012) [hereinafter Kerr]. 12 to a computer or data without the express personally identifiable information, or Matthew Kapitanyan, Beyond WarGames: How the Computer Fraud and Abuse Act Should Be or implied permission of the owner or oper- software program or hardware device Interpreted in the Employment Context, 7 I/S: J.L. & 86 96 ator of the computer.” Kerr later posted a identifier(s). POL’Y FOR THE INFO. SOC’Y 405, 410 (Winter 2012). series of scenarios in an attempt to help iden- In March, a group of Internet companies 13 Kerr, supra note 11, at 1566. tify what should be the proper line between and organizations signed a letter to the House 14 Id. (citing 18 U.S.C. §1030(g)). 15 authorized and unauthorized access to a Subcommittee on Crime, Terrorism, and Id. at 1567–68 (citing 18 U.S.C. §1030(e)(2)). 16 Id. at 1571. computer.87 The scenarios include examples Homeland Security in support of the efforts 17 See 18 U.S.C. §1030(a)(2); see also Jennifer Granick, 97 of circumventing cookie-based restrictions led by Lofgren to reform the CFAA. Thoughts on Orin Kerr’s CFAA Reform Proposals: A and CAPTCHA gates.88 Even with the bipartisan support of Great Second Step, The Center for Internet and Society The Electronic Frontier Foundation (EFF) Representative Darrell Issa and Senator Ron (Jan. 23, 2013), https://cyberlaw.stanford.edu/blog has proposed defining “without authoriza- Wyden, the fate of these proposals is uncer- /2013/01/thoughts-orin-kerrs-cfaa-reform-proposals -great-second-step [hereinafter Granick, Thoughts] tion” to mean “to circumvent technological tain.98 As Tim Wu, a professor at Columbia (“Historically, the CFAA partitioned the world of com- access barriers to a computer, file, or data Law School, has observed, “Congress rarely puter criminals into two camps, outsiders who ‘access without the express or implied permission scales back criminal laws.”99 Moreover, pro- without authorization’ and wayward insiders who abuse of the owner or operator of the computer to posals to narrow the scope of a criminal their position of trust to ‘exceed authorized access’ and access the computer, file, or data, but does not statute often include provisions for increased obtain information they were not entitled to.”). 18 include circumventing a technological mea- penalties.100 According to Lofgren, the effort Investigating and Prosecuting 21st Century Cyber Threats: Hearing before United States House of sure that does not effectively control access to pass Aaron’s Law “will likely take sub- Representatives Subcommittee on Crime, Terrorism, to a computer, file, or data.”89 The EFF wants stantial time and require sustained and intense Homeland Security and Investigations, 113th Cong. 1 to avoid penalizing “people who have per- support.”101 Time will tell whether Aaron’s (Mar. 13, 2013) (written statement of Orin S. Kerr), mission to access data but use light technical Law will become law. I available at http://www.volokh.com/wp-content workarounds to access that data.”90 Language /uploads/2013/03/KerrCFAATestimony2013.pdf. 19 See, e.g., United States v. Morris, 928 F. 2d 504, 1 in the EFF proposal appears to be borrowed Tim Carmody, Memory to Myth: Tracing Aaron 505 (1991) (using an Internet “worm” to exploit a secu- from the anticircumvention provisions of the Swartz through the 21st Century, THE VERGE (Jan. rity flaw in a computer’s programming code); Digital Millennium Copyright Act, which 22, 2013), http://www.theverge.com/2013/1/22 YourNetDating, Inc. v. Mitchell, 88 F. Supp. 2d 870, /389858/aaron-swartz-profile-memory-to-myth. have been interpreted to mean that a tech- 871 (2000) (hacking a dating service Web site and 2 Lawrence Lessig, Prosecutor as Bully, LESSIG BLOG, nological measure restricting one form of diverting its users to a porn site). V2 (Jan. 12, 2013), http://lessig.tumblr.com/post 20 See, e.g., Pulte Homes, Inc. v. Laborers’ Int’l Union access but leaving another route wide open /40347463044/prosecutor-as-bully [hereinafter Lessig]. of N. Am., 648 F. 3d 295, 299-98 (6th Cir. 2011) 3 does not “effectively control access” and Larissa MacFarquhar, Requiem for a Dream, THE (impairing a computer network by directing a large would not be given the force of law.91 This NEW YORKER (Mar. 11, 2013), http://nyr.kr/ZUnMMv amount of e-mail at a specific address). [hereinafter MacFarquhar]. 21 See, e.g., Four Seasons Hotels & Resorts B.V. v. appears intended to exempt IP and MAC 4 See DEMAND PROGRESS, http://www.demand- Consorcio Barr, S.A., 267 F. Supp. 2d 1268, 1298 address spoofing and similar forms of tech- progress.org/ (Mar. 25, 2013); see also Justin Peters, nological circumvention that Swartz was (S.D. Fla. 2003) (“[S]poofing is forging an IP address The Idealist: Aaron Swartz Wanted to Save the World. so that when a person receives a data packet or com- 92 accused of committing. The EFF also has a Why Couldn’t He Save Himself?, SLATE (Feb. 7, 2013), munication they believe it is coming from somewhere link on its Web site encouraging people to take http://slate.me/YevwGC [hereinafter Peters]. else.”), aff’d in part, rev’d in part, 138 F. App’x 297 5 action to amend the CFAA.93 John Schwartz, Internet Activist, a Creator of RSS, Is (11th Cir. 2005); Facebook, Inc. v. Power Ventures, Dead at 26, Apparently a Suicide, N.Y. TIMES (Jan. 12, Inc., 844 F. Supp. 2d 1025, 1037 (N.D. Cal. 2012) Representative Zoe Lofgren has posted a 2013), http://www.nytimes.com/2013/01/13/technology draft bill, christened as “Aaron’s Law,” to (“[O]ne of the objectives of the [proxy system] design /aaron-swartz-internet-activist-dies-at-26.html?_r=0 was to reconfigure the IP connections if an IP address 94 revise the CFAA. A revised draft of the bill [hereinafter Schwartz]. was blocked.”). 6 eliminates the “exceeds authorized access” See, e.g., Orin Kerr, The Criminal Charges against 22 See, e.g., Meats by Linz, Inc. v. Dear, No. 10-1511- language from the statute and adds a more Aaron Swartz (Part 1: The Law), THE VOLOKH CON- D, 2011 WL 1515028, at *1 (N.D. Tex. Apr. 20, 2011) SPIRACY (Jan. 14, 2013), http://www.volokh.com/2013 detailed definition of “access without autho- (downloading employer’s confidential information after /01/14/aaron-swartz-charges; Jennifer Granick, With the rization.”95 The revised draft states: hours and then e-mailing resignation two hours later). CFAA, Law and Justice Are Not the Same: A Response 23 See, e.g., State Analysis, Inc. v. American Fin. Servs., “[A]ccess without authorization”— HE ENTER FOR NTERNET AND OCIETY to Orin Kerr, T C I S 621 F. Supp. 2d 309, 316 (E.D. Va. 2009) (“KSE (A) means (i) to obtain or alter infor- (Jan. 14, 2013), https://cyberlaw.stanford.edu/blog accessed StateScape’s Web site using usernames and mation on a protected computer; (ii) /2013/01/cfaa-law-and-justice-are-not-same-response passwords that did not belong to it.”). 0-orin-kerr. that the accesser lacks authorization to 24 See, e.g., America Online, Inc. v. National Health 7 Jennifer Granick, Towards Learning from Losing obtain or alter; and (iii) by circum- Care Discount, Inc., 121 F. Supp. 2d 1255, 1260 (N.D. Aaron Swartz, THE CENTER FOR INTERNET AND SOCIETY Iowa 2000) (violating AOL’s terms of service to send venting one or more technological (Jan. 14, 2013), https://cyberlaw.stanford.edu/blog bulk e-mail). measures that exclude or prevent unau- /2013/01/towards-learning-losing-aaron-swartz [here- 25 See, e.g., Chas. S. Winner, Inc. v. Polistina, 2007 WL thorized individuals from obtaining inafter Granick, Learning]. 1652292, at *2, (D. N.J. June 4, 2007) (“Absent diver- 8 or altering that information; and (B) Paul J. Larkin, Jr., United States v. Nosal: Rebooting sity jurisdiction, a case of this kind sounds in state statu- the Computer Fraud and Abuse Act, 8 SETON HALL CIR. does not include the following, either tory and common law and is heard in state court.”). REV. 257, 261 (2012); see also id. 26 International Airport Ctrs., L.L.C. v. Citrin, 440 F. in themselves or in combination—(i) a 9 18 U.S.C. §1030. 3d 418 (7th Cir. 2006). 10 violation of an agreement, policy, duty, See Incorp Servs. Inc. v. Incsmart.Biz Inc., No. 11- 27 Id. at 419-20. or contractual obligation regarding 4660, 2012 WL 3685994, at *4 (N.D. Cal. Aug. 24, 28 Id. at 421. Internet or computer use, such as an 2012); American Family Mut. Ins. Co. v. Rickman, 554 29 Id.; see also Shurgard Storage Ctrs., Inc. v. Safeguard

36 Los Angeles Lawyer July/August 2013 Self Storage, Inc., 119 F. Supp. 2d 1121, 1125 (W.E. ?_r=0 [hereinafter Schwartz]. great practical risk in pleading to a felony) Wash. 2000) (cited and relied upon by Citrin). 58 Ryan Singel, FBI Investigated Coder for Liberating 84 Peters, supra note 4; see also Lessig, supra note 2 30 Citrin, 440 F. 3d at 421. Paywalled Court Records, WIRED (Oct. 5, 2009), (“[T]he question this government needs to answer is 31 United States v. John, 597 F. 3d 263, 273 (5th Cir. http://www.wired.com/threatlevel/2009/10/swartz-fbi why it was so necessary that Aaron Swartz be labeled 2010) (bank employee accessed customer accounts for [hereinafter Singel]. a ‘felon.’ For in the 18 months of negotiations, that was the purpose of incurring fraudulent charges on those 59 Schwartz, supra note 57. The RECAP add-on for the what he was not willing to accept.”). accounts); United States v. Rodriguez, 628 F. 3d 1258, Firefox browser now allows users to automatically 85 Orin Kerr, Proposed Amendments to 18 U.S.C. 1030, 1263 (11th Cir. 2010) (employee of the Social Security save paid-for court filings downloaded from PACER THE VOLOKH CONSPIRACY (Jan. 20, 2013), http://www Administration used an SSA database for personal onto a public server that can later be accessed for free .volokh.com/2013/01/20/proposed-amendments-to reasons). by other RECAP users. Singel, supra note 58. -18-u-s-c-1030/. 32 Compare ViChip Corp. v. Lee, 438 F. Supp. 2d 60 Id., see also Aaron Swartz, Wanted by the FBI, RAW 86 Orin Kerr, Proposed Amendments to 18 U.S.C. 1087, 1100 (N.D. Cal. 2006) (following Citrin’s broad THOUGHT (Oct. 5, 2009), http://www.aaronsw 1030, THE VOLOKH CONSPIRACY (Jan. 20, 2013), interpretation of CFAA) with United States v. Drew, .com/weblog/fbifile. http://www.volokh.com/wp-content/uploads/2013/01 259 F.R.D. 449, 467 (C.D. Cal. 2009) (noting that a 61 Superseding Indictment at 1, United States v. Swartz, /Amended10302.pdf. broad interpretation of the CFAA would result in a No. 11-cr-10260, Dkt. No. 53 (D. Mass. Sept. 12, 87 Orin Kerr, More Thoughts on the Six CFAA “standardless sweep”). 2012). Scenarios about Authorized Access vs. Unauthorized 33 LVRC Holdings, LLC v. Brekka, 581 F. 3d 1127 (9th 62 Id. at 2. The subscription fees are shared with the Access, THE VOLOKH CONSPIRACY (Jan. 28, 2013), Cir. 2009). publishers who hold the original copyrights. Id. http://www.volokh.com/2013/01/28/more-thoughts-on 34 United States v. Nosal, 676 F. 3d 854 (9th Cir. 63 Id. -the-six-cfaa-scenarios-about-authorized-access-vs 2012) (en banc). 64 Id. -unauthorized-access/. 35 Brekka, 581 F. 3d at 1129-30. 65 Id. at 4. (Swartz registered under the name “Gary 88 Id. 36 Id. Host” and gave his computer the client name “ghost 89 Cindy Cohn & Marcia Hofmann, Part 2: EFF’s 37 Id. at 1134. laptop.”) Id. Additional Improvements to Aaron’s Law, DEEPLINKS 38 Id. at 1135. 66 Id. at 2; see also MacFarquhar, supra note 3. BLOG (Jan. 23, 2013), https://www.eff.org/deeplinks 39 Id. at 1129. 67 Superseding Indictment, supra note 60, at 5. JSTOR /2013/01/part-2-effs-additional-improvements-aarons 40 Id. at 1134; see also Warren Thomas, Lenity on Me: also temporarily blocked other IP addresses at MIT. Id. -law [hereinafer Cohn & Hofmann]. LVRC Holdings LLC v. Brekka Points the Way toward at 6. 90 Id. Defining Authorization and Solving the Split over the 68 Id. 91 Granick, Thoughts, supra note 17 (citing Lexmark Int’l, Computer Fraud and Abuse Act, 27 GA. ST. U. L. 69 Id. at 7. Inc. v. Static Control Components, Inc., 387 F. 3d 522 REV. 379, 400 (2011). 70 Noam Cohen, How M.I.T. Ensnared a Hacker, (6th Cir. 2004)); but see Stewart Baker, A Dubious 41 United States v. Nosal, 676 F. 3d 854, 856 (9th Bucking a Freewheeling Culture, N.Y. TIMES (Jan. 20, Proposal for Amending the Computer Fraud and Abuse Cir. 2012) (en banc). 2013), http://www.nytimes.com/2013/01/21/technology Act, THE VOLOKH CONSPIRACY (Jan. 28, 2013), 42 Id. at 856 n.1. /how-mit-ensnared-a-hacker-bucking-a-freewheeling http://www.volokh.com/2013/01/28/a-dubious-proposal 43 United States v. Nosal, No. 08-0237, 2010 WL -culture.html?pagewanted=all. -for-amending-the-computer-fraud-and-abuse-act/. 934257, at *7 (N.D. Cal. Jan. 6, 2010), rev’d, 642 F. 71 Motion to Suppress No. 1 at 3-5, United States v. 92 Cohn & Hofmann, supra note 89; see also EFF, Ex- 3d 781 (9th Cir. 2011), rev’d en banc, 676 F. 3d 854 Swartz, No. 11-cr-10260, Dkt. No. 59 (D. Mass. Oct. planation of Effects of Aaron’s Law with EFF Proposed (9th Cir. 2012). 5, 2012); see also Two Days Before MIT and Amendments to “Access Without Authorization” (Jan. 44 Id. Cambridge Cops Arrested Aaron Swartz, Secret Service 23, 2013), https://www.eff.org/sites/default/files 45 United States v. Nosal, 642 F. 3d 781, 789 (2011), Took Over the Investigation, EMPTYWHEEL (Jan. 13, /Explanation%20of%20Aaron%E2%80%99s%20law rev’d en banc, 676 F. 3d 854 (2012). 2013), http://www.emptywheel.net/2013/01/13/two %20with%20EFF%20access%20amendments.pdf 46 Id. at 787. (“Because LVRC had not notified Brekka -days-before-cambridge-cops-arrested-aaron-swartz (public discussion draft). of any restrictions on his access to the computer, -secret-service-took-over-the-investigation/ (arguing that 93 EFF.org, The Computer Fraud and Abuse Act Is Brekka had no way to know whether—or when—his under the Secret Service’s Electronic Crimes guide- Broken. Tell Congress to Fix It, https://action.eff access would have become unauthorized.”) Id. lines, the agency should not have been involved). .org/o/9042/p/dia/action/public/?action_KEY=9005. 47 Id. at 788. But see id. at 790 (Campbell, J., dis- 72 Peters, supra note 4; see also Superseding Indictment, 94 Adam Clark Estes, The Congressional Backlash over senting). supra note 60, at 8. Aaron Swartz’s Suicide Has Begun, THE ATLANTIC 48 United States v. Nosal, 676 F. 3d 854, 863-64 (2012) 73 See Lessig, supra note 2. WIRE (Jan. 15, 2013), http://www.theatlanticwire (en banc). 74 Press Release, United States Attorney’s Office for the .com/politics/2013/01/congressional-backlash-over 49 Id. at 861-62. District of Massachusetts, Alleged Hacker Charged -aaron-swartzs-suicide-has-begun/61048/. 50 Id. at 862. with Stealing over Four Million Documents from MIT 95 Discussion Draft, http://lofgren.house.gov/images 51 Id.; see also United States v. Drew, 259 F.R.D. 449, Network (July 19, 2011), http://www.justice.gov /stories/pdf/aarons%20law%20revised%20draft%2001 466 (C.D. Cal. 2009) (finding the CFAA did not apply /usao/ma/news/2011/July/SwartzAaronPR.html [here- 3013.pdf. to violations of a Web site’s terms of service). inafter Press Release]. 96 Id.; see also Orin Kerr, Drafting Problems with the 52 Nosal, 676 F. 3d at 859-60. 75 Id. See also Steven Musil, U.S. Attorney Defends Second Version of “Aaron’s Law” from Rep. Lofgren, 53 Id. at 863. Office’s Conduct in Aaron Swartz Case, CNET (Jan. THE VOLOKH CONSPIRACY (Feb. 2, 2013), http://www 54 Id. at 864. In a jury trial after the remand, Nosal was 16, 2013), http://news.cnet.com/8301-1023_3- .volokh.com/2013/02/02/drafting-problems-with-the found guilty of violating the CFAA because he used a 57564414-93/u.s-attorney-defends-offices-conduct-in- -second-version-of-aarons-law-from-rep-lofgren. borrowed password to access Korn/Ferry’s computer aaron-swartz-case/. 97 See Mark M. Jaycox, Startups and Innovators Send database. See Vanessa Blum, Nosal Found Guilty in 76 Press Release, supra note 74. Letter to Congress Demanding CFAA Reform, Trade Secret Case, THE RECORDER (Apr. 24, 2013), 77 MacFarquhar, supra note 3. DEEPLINKS BLOG (Mar. 12, 2013), https://www http://www.law.com/jsp/ca/PubArticleCA.jsp?id=12025 78 Id. .eff.org/deeplinks/2013/03/startups-and-innovators 97433473. Nosal’s attorneys vowed to appeal the ver- 79 Lessig, supra note 2 (emphasis in original). -send-letter-congress-demanding-cfaa-reform. dict. Id. 80 Alex Stamos, The Truth About Aaron Swartz’s 98 Tony Romm, After Activist Aaron Swartz’s Death, 55 See WEC Carolina Energy Solutions LLC v. Miller, “Crime,” UNHANDLED EXCEPTION (Jan. 12, 2013), a Tough Slog for Aaron’s Law, POLITICO (Feb. 8, 687 F. 3d 199, 203 (2012); Dana Ltd. v. American http://unhandled.com/2013/01/12/the-truth-about 2013), http://politi.co/XVjnau [hereinafter Romm]. Axle & Mfg. Holdings, Inc., No. 10-450, 2012 WL -aaron-swartzs-crime/. 99 Tim Wu, Fixing the Worst Law in Technology, THE 2524008, at *4-5 (W.D. Mich. June 29, 2012); 81 See EF Cultural Travel BV v. Zefer Corp., 318 F. 3d NEW YORKER NEWS DESK (Mar. 18, 2013), http://nyr Wentwoth-Douglass Hosp. v. Young & Novus Prof’l 58 (1st Cir. 2003) (EF Cultural II); EF Cultural Travel .kr/YCubsS. Assoc., No. 10-120, 2012 WL 2522963, at *3-4 (D. BV v. Explorica, Inc., 274 F. 3d 577 (1st Cir. 2001) (EF 100 See Orin Kerr, Recent Developments—Both in Conn. June 29, 2012); JBCHoldings NY, LLC v. Cultural I). the Courts and in Congress—on the Scope of the Pakter, No. 12-7555, 2013 WL 1149061, at *5 (S.D. 82 EF Cultural II, 318 F. 3d at 63. Computer Fraud and Abuse Act, THE VOLOKH N.Y. Mar. 20, 2013). 83 MacFarquhar, supra note 3; see also Jennifer Granick, CONSPIRACY (July 30, 2012), http://www.volokh.com 56 See http://www.aaronsw.com/weblog/001112. Towards Learning from Losing Aaron Swartz: Part 2, /2012/07/30/recent-developments-both-in-the-courts 57 John Schwartz, An Effort to Upgrade a Court Archive The Center for Internet and Society (Jan. 15, 2013), -and-in-congress-on-the-scope-of-the-computer-fraud System to Free and Easy, N.Y. TIMES, Feb. 12, 2009, https://cyberlaw.stanford.edu/blog/2013/01/towards -and-abuse-act. http://www.nytimes.com/2009/02/13/us/13records.html -learning-losing-aaron-swartz-part-2. (discussing the 101 Romm, supra note 98.

Los Angeles Lawyer July/August 2013 37 investigative services guide

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See display ad Nationwide Asset Reports to help identify aliases, family studies, business and intangible asset valuations, on page 41. members, and unknown business associations, where appraisals, fraud investigations, troubled company money and other assets may be hidden. CA Private consultation, statistics, forensic economic analysis, ZIVETZ, SCHWARTZ & SALTSMAN, CPAS Investigator License #25429. For more information, royalty audits, strategic and market assessments, 11900 West Olympic Boulevard, Suite 650, Los please visit www.copas-inc.com. See display ad on computer forensics, electronic discovery, and analysis Angeles, CA 90064-1046, (310) 826-1040, fax (310) page 4. of computerized data. Degrees/licenses: CPAs, CFAs, 826-1065. Web site: www.zsscpa.com. Contact ASAs, PhDs and MBAs in accounting, finance, Lester J. Schwartz, CPA/CFF, DABFE, DABFA; PARRENT SMITH INVESTIGATIONS & RESEARCH economics, and related subjects. See display ad on Michael D. Saltsman, CPA, MBA; David L. 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Expert has 40 years in the field conducting investigations for expert witness testimony in a variety of practice areas: witness testimony preparation, settlement negotiations, attorneys in thousands of civil and criminal cases. We commercial damages, ownership disputes, economic and consultations. See display ad on page 47. specialize in all types of litigation support including analysis, business valuation, lost profits analysis, asset searches; witness interviews; complex litigation fraud/forensic investigations, taxation, personal injury, ARCHITECTURE investigations; corporate, family, and environmental wrongful termination, professional liability, and expert cases. Nic Smith is a court-qualified expert in security cross examination. Extensive public speaking ARCHITECT AND GENERAL CONTRACTOR and investigative standards. Joanne Parrent, formerly background assists in courtroom presentations. 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FULCRUM INQUIRY earnings, malpractice defense, expert witness 888 South Figueroa Street, Suite 2000, Los Angeles, 631 Del Monte Drive, Hollister, CA 95023, (831) 634- testimony, and business valuations. Experts include CA 90017, (213) 787-4100, fax (213) 891-1300, e-mail: 9400 or (408) 357-4114. Web site: www.Copas-inc CPA, CFF, CFP, CFE, ABV, JD. [email protected]. Web site: www.fulcrum.com. .com. Contact Sandra Copas, scopas@copas-inc Contact David Nolte. Our professionals are WHITE, ZUCKERMAN, WARSAVSKY, .com, or Bryan Copas, [email protected]. CCI experienced CPAs, MBAs, ASAs, CFAs, affiliated LUNA & HUNT Financial Investigations (Copas & Copas, Inc.) provides professors, and industry specialists. Our analysis and nationwide individual and business asset searches 15490 Ventura Boulevard, Suite 300, Sherman Oaks, research combined with unique presentation specifically for attorneys, individuals, and businesses CA 91403, (818) 981-4226, fax (818) 981-4278, e-mail: techniques have resulted in an unequaled record of throughout California for litigation purposes at flat rate [email protected]. Web site: www.wzwlh.com. successful court cases and client recoveries. Our

38 Los Angeles Lawyer July/August 2013 expertise encompasses damages analysis, lost proﬁt studies, business and intangible asset valuations, appraisals, fraud investigations, troubled company consultation, statistics, forensic economic analysis, royalty audits, strategic and market assessments, computer forensics, electronic discovery, and analysis of computerized data. Degrees/licenses: CPAs, CFAs, ASAs, PhDs and MBAs in accounting, ﬁnance, economics, and related subjects. See display ad on back cover.

BUSINESS

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Los Angeles Lawyer July/August 2013 39 HIGGINS, MARCUS & LOVETT, INC. CELL PHONE FORENSICS professors, and industry specialists. Our analysis and 800 South Figueroa Street, Suite 710, Los Angeles, CA research combined with unique presentation 90017, (213) 617-7775, fax (213) 617-8372, e-mail: DIGITAL FORENSIC INVESTIGATIONS, INC. techniques have resulted in an unequaled record of [email protected]. Web site: www.hmlinc.com. P.O. Box 1288, Costa Mesa, CA 92628, (714) 867- successful court cases and client recoveries. Our Contact Mark C. Higgins, ASA, president. The firm 7286, e-mail: [email protected]. Web site: expertise encompasses damages analysis, lost profit has over 30 years of litigation support and expert www.dfinvestigations.com. Contact Mark J. studies, business and intangible asset valuations, testimony experience in matters involving business Eskridge, CFCE, DFCP, EnCE, ACE. 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Our professionals are experts in over 10,000 cases nationwide. We respond experienced CPAs, MBAs, ASAs, CFAs, affiliated in one hour or less. ForensisGroup is an expert witness

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50 Los Angeles Lawyer July/August 2013 Affiniscape Merchant Solutions, p. 5 The Holmes Law Firm, p. 8 Ross Mediation Services, p. 15

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AMFS, Inc. (American Medical Forensic Specialists, Inc.), p. 44 Huron Law Group, p. 10 Roughan & Associates at LINC, p. 43

Tel. 800-275-8903 www.amfs.com Tel. 310-284-3400 www.huronlaw.com Tel. 626-303-6333 x16 e-mail: [email protected]

The California Academy of Distinguished Neutrals, p. 26, 27 IncidentResponse.us, p. 31 Anita Rae Shapiro, p. 15

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California Western School of Law, p. 24 Jack Trimarco & Associates Polygraph, Inc., p. 2 St. Thomas More Society, Inside back cover

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CMM, LLP, p. 39 James R. DiFrank, PLC, p. 19 Stephen Danz & Associates, p. 10

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Commerce Escrow Company, p. 16 JAMS, The Resolution Experts, p. 11 The Esquire Network (“TEN”), Inside front cover

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Copas & Copas, Inc. p. 4 Kantor & Kantor, LLP, p. 19 URS, p. 43

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Twin Cities Mediation, p. 19 KARS Advanced Materials, Inc., p. 49 Walzer & Melcher, p. 1

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E. L. Evans & Associates, p. 45 Krycler, Ervin, Taubman & Walheim, p. 44 Waronzof Associates, p. 47

Tel. 310-559-4005 Tel. 818-995-1040 www.ketw.com Tel. 310-954-8060 www.waronzof.com

Econ One Research, Inc., p. 45 LawBiz Management, p. 15 White, Zuckerman, Warsavsky, Luna, & Hunt, p. 41

Tel. 213-624-9600 e-mail: [email protected] Tel. 800-837-5880 www.lawbiz.com e-mail: [email protected] Tel. 818-981-4226 www.wzwlw.com

ForensisGroup Inc., p. 39 Lawyer Referral and Information Service, p. 18 Witkin & Eisinger, LLC, p. 4

Tel. 626-795-5000 www.forensisgroup.com Tel. 213-243-1525 www.smartlaw.com Tel. 818-845-4000

FULCRUM Financial Inquiry LLP, back cover Lawyers’ Mutual Insurance Co., p. 7 Woodard Mediation, p. 10

Tel. 213-787-4100 www.fulcruminquiry.com Tel. 800-252-2045 www.lawyersmutual.com Tel. 626-584-8000 www.woodardmediation.com

Gerber & Co., p. 15 MCLE4LAWYERS.COM, p. 31 World Wide Mediators, p. 15

Tel. 310-552-1600 http://gerberco.com Tel. 310-552-5382 www.MCLEforlawyers.com Tel. 818-500-7500 www.wwmediators.org

Greg David Derin, p. 18 Michael Marcus, p. 4 Zivetz, Schwartz & Saltsman, p. 47

Tel. 310-552-1062 www.derin.com Tel. 310-201-0010 www.marcusmediation.com Tel. 310-826-1040 www.zsscpa.com

Higgins, Marcus & Lovett, Inc., p. 43 Noriega Clinics, p. 50

Tel. 213-617-7775 www.hmlinc.com Tel. 213-716-3744

Los Angeles Lawyer July/August 2013 51 closing argument BY EDWARD S. RENWICK

Can Task Billing Be a Cure for the Unhappiest Job in America?

ACCORDING TO A SURVEY RECENTLY REPORTED in the electronic edi- quotas for billable hours. Instead, any productivity quotas they have tion of the American Bar Association Journal, an associate attorney are based on completing prepriced tasks. If a lawyer is falling short, has the unhappiest job in America.1 The reason given is “a structured the solution is to complete more tasks. Each completed task will move environment that is heavily centered on billable hours.” Earlier, the the case closer to its conclusion. There will be no incentive to record same journal reported a fee dispute between a large national law firm billable time on unnecessary tasks. and a client. The client’s discovery found an indiscreet internal e-mail Clients should be receptive to prepriced task billing since it is a referring to the firm’s billing process as “Churn that bill, baby.”2 means to control litigation costs. However, it should be equally Is there a connection between unhappy associates and churning attractive to law firms. First, law firms can make their clients happy that bill? Most certainly, yes. Focusing on billable hours unavoidably by helping them control costs. As the case proceeds, the law firm will invites associates and partners to record their time with a heavy receive regular agreed-to payments as tasks are completed. When the hand or spend time on unnecessary projects. Small wonder that idealistic young associates are unhappy. The same undoubtedly goes for many partners. Would lawyers be happier if No longer will clients feel they have to obsessively review they could avoid living or dying by the billable hour? I think so. Is it possible to abandon the billable hour and still make an adequate living? invoices and micromanage their trial counsel. The answer is yes. The solution is to stop focusing on time and start focusing on results. I am not suggesting lawyers stop keeping time. I am suggesting that case is completed, if the results are good, the firm will receive an agreed- time is a good measure of cost but not value. to bonus. Second, it should be attractive to law firms because it pro- How do we arrange to be paid for results rather than hours with- motes trust between lawyer and client. That should improve firm out restricting our practices to contingency work? One answer is to morale and help cement good relations with valued clients. switch to a prepriced, task-based billing system. Under such a system Third, task-based billing benefits not only the client but also the each task would be prepriced and the firm paid as discrete tasks are firm because the case will practically manage itself. Both client and completed. In addition, the firm should be paid a negotiated bonus for firm are able to easily monitor the progress and cost of the case by good results. This system will work in any litigation in which legal fees consulting the case budget and noting which tasks have been com- are significant enough to justify the time spent preparing a budget. pleted and which have not. No longer will clients feel they have to Some clients and firms may resist task billing in the belief that bud- obsessively review invoices and micromanage their trial counsel in an geting cases and prepricing tasks accurately are too difficult. They are effort to control litigation costs. If the firm wants trial counsel to take wrong. An experienced trial lawyer who takes the time to understand an extra lawyer to a deposition, it is the firm’s decision and will not his or her case well in advance of filing a complaint or answer, who matter to the client because it does not change the budgeted and understands the budgeting process, who has the necessary tools, and prepriced cost of the task. who has the skills to use those tools can budget a case. The first tool Fourth, the financial interests of counsel and client will be aligned. is a detailed trial task list arranged in chronological order. The sec- No longer will every monthly invoice present a chance for a dispute. ond tool is a simple electronic spreadsheet upon which the parties Instead, lawyer and client can concentrate on what is important: work- record the estimated cost of each task and subtask. When completed ing together to achieve the best possible result. If law firms can find and totaled, the spreadsheet becomes the case budget, which describes ways not to live and die by the billable hour, it will be a giant step in detail which tasks will be performed and which not. toward ending rampant associate and partner dissatisfaction. I What if, as the case moves forward, client and counsel find that some budgeted tasks are unnecessary while other unbudgeted tasks 1 Debra Cassens Weiss, Associate Attorney Is the Unhappiest Job in America, are necessary? The answer is to amend the budget. What if client and Survey Says, ABA J. (Apr. 1, 2013), available at http://www.abajournal.com counsel fail to budget every task accurately? There will be multiple /news/article/why_a_career_website_deems_associate_attorney_the_unhappiest_job_in _america. budgeted tasks. Some will come in under budget and others will come 2 Martha Neil, “Churn that bill, baby!” Email Surfaces in Fee Dispute with DLA in over budget. Over the course of an entire case one would expect Piper, ABA J. (Mar. 25, 2013), http://www.abajournal.com/news/article/sued_by these out-of-budget items to cancel out. _dla_piper_for_675k_ex-client_discovers_lighthearted_churn_that_bill. The system takes advantage of human nature. We know that most law firms give their attorneys quotas for billable hours. Each Edward S. Renwick, a partner with the law firm of Hanna and Morton LLP in month lawyers check their hours and, if they are short, find ways to Los Angeles, specializes in trial and appellate work, particularly in the areas record more hours. Under a task-based system, lawyers do not have of oil and gas and natural resources law.

52 Los Angeles Lawyer July/August 2013 THE ST. THOMAS MORE SOCIETY OF LOS ANGELES invites the entire legal community to the

31stTHE CATHEDRALAnnual OF OUR LADYRed OF THE ANGELSMass 555 W. Temple St., Los Angeles, California Thursday, October 3, 2013 - 5:30 p.m. Mass Celebrant: Archbishop Jose Gomez RECEPTION FOLLOWING IN THE CATHEDRAL CONFERENCE CENTER

History of the Red Mass The Red Mass was first celebrated in Paris in 1245 and began in England about 1310 during the reign of Edward I. The entire Bench and Bar would attend the Red Mass together at the opening of each term of Court. The priest and the judges of the High Court wore red robes, thus the Eucharistic celebration became popularly known as the Red Mass. The tradition of the Red Mass has continued in the United States. Each year in Washington, D.C. the members of the United States Supreme Court join the President, and members of Congress in the celebration of the Red Mass at the National Shrine of the Immaculate Conception. The Mass is attended by government officials, judges, members of the legal profession and their supporters and is open to all faiths. Portrait of St. Thomas More used with permission of the Frick Collection, New York

Benefactors Latham & Watkins LLP – Roger M. Sullivan, Esq. – Panish Shea & Boyle LLP Patrons Oscar A. Acosta, Esq. – Cole Pedroza LLP – Hon. Lawrence W. Crispo (Ret.) - Daniel V. DuRoss, Esq. Mancini And Associates – Phillip R. Marrone, Esq. – William M. Wardlaw, Esq. – Paul Hastings Anderson Kill Wood & Bender, P.C. Sponsors and Friends Suzanne L. Austin, Esq. – Stuart Alan Chapman – Rosa M.C. Cumare, Esq. – Christopher A. Duenas, Esq. Rolando Hidalgo, Esq. – Nancy L. Iredale, Esq. – Hon. Lawrence Waddington (Ret.) – Paul C. Workman, Esq. Enrique Arevalo, Esq. – Thomas Patrick Beck, Esq. – Martin Boles, Esq. – Thomas P. Cacciatore, Esq. – Steve Cooley, Esq. George D. Crook, Esq. – Lawrence W. Dailey, Jr., Esq. – William J. Emanuel, Esq. – Vincent Farhat, Esq. Michael Scott Feeley, Esq. – Thomas L. Flattery, Esq. – George Hawley, Esq. – Manuel Hidalgo, Esq. – Philip F. Lanzafame, Esq. Stephen G. Larson, Esq. – Thomas J. Loftus, Esq. – Lopez Law Group, APC - Michael J. Maloney, Esq. – Michael Norris, Esq. Michael O’Connor, Esq. – Odion L. Okojie, Esq. – Dean Francis Pace, Esq. – Armando Paz, Esq. – Thomas H. Reilly, Esq. Patrick G. Rogan, Esq. – Rickard Santwier, Esq. – Robert F. Scoular, Esq. – Prof. Daniel P. Selmi, Esq. – Margherita Underhill, Esq. Thomas J. Viola, Esq. – Molly M. White, Esq. – Robert M. Keane, Jr., Esq. – James J. Farrell, Esq. – Ursula Hyman, Esq. Maria Hoye, Esq. – Paul D. Tosetti, Esq. – John D. Cahill, Esq. – Hratch J. Karakachian, CPA, Esq. – Patrick McLaughlin, Esq. Frances L. Martin, Esq. – Eugene F. McMenamin, Esq. - Chad T-W Pratt Associates, Inc. – Younger & Associates Metropolitan News – Loyola Law School – La Salle High School of Pasadena –

St. Thomas More Society of Los Angeles website: www.stmsla.org