Fresno Lawyer – Randolf Krbechek

Many smart people think about attending law school.  The stress factor is not always considered by prospective students.

Prof. Carroll Seron at the UC Irvine School of Law candidly acknowledges this issue. “It is a rite of professional passage that the first year of law school is highly stressful and, indeed, is designed to be so.  Five interrelated factors contribute to this stress.

“First, students are called on to learn a new, often arcane body of knowledge; this is stressful in itself.

“Second, [ ] there is, as a general matter, relatively limited feedback to students about the quality of their work, which tends to create great uncertainty and anxiety among students about how they are doing by way of mastering these new materials.

“Third, though the Socratic method is not the only pedagogical style used by law faculty these days, it remains nonetheless popular with many.  As a result, students find themselves in a situation where they confront the daily possibility of exposure and embarrassment for not knowing how to answer a question.

“Fourth, all students admitted to a highly selective law school have known academic success; in law school, they are confronted with equally successful counterparts and must become accustomed to being below average.

“Finally, there is the competitive aspect of law school as students seek to impress their peers and their teachers … In a word, first-year law students are simply worried about getting through the hurdle.”

Carroll Seron, A Law School for the 21st Century: A Portrait of the Inaugural Class at the University of California, Irvine School of Law, 1 U.C. Irvine L. Rev. 49, 55-56  (2011).

The Uniform Commercial Code covers a wide scope of commercial transactions, from the sale of goods to warehouse receipts to secured transactions.  Article 3 deals with promissory notes, sometimes referred to as negotiable instruments.

In his 2012 book,  The End of Negotiable Instruments, James Steven Rogers argued that most of the law contained in Article 3 of the Uniform Commercial Code lost real-world relevance long ago.

Rogers echoed Grant Gilmore, who famously described Article 3 as “museum of antiquities – a treasure house crammed full of ancient artifacts whose use and function have long since been forgotten.”  Grant Gilmore, Formalism and the Law of Negotiable Instruments, 13 Creighton L. Rev. 441, 461 (1979).

Gilmore had a brilliant mind, and glib turn of phrase.  His quote is often-repeated:  “Codification … preserve[d] the past like a fly in amber.”

Not so fast.  Article 3 continues to provide useful guidance, right through the mortgage crisis.  One of the pre-eminent scholars of commercial law is Alvin C. Harrell, a Professor of Law at Oklahoma City University School of Law.  Prof. Harrell is the Executive Director of the Conference on Consumer Finance Law; a member of the American Law Institute (ALI); and a member of the American College of Commercial Finance Lawyers.

Heed carefully Prof. Harrell’s following comments on the Uniform Commercial Code.

“These cases reinforce the observation that the UCC is the most carefully-drafted statute in history.  It can be noted that UCC Articles 3 and 4 are written in relatively clear and simple terms and yet answer most of the legal questions that arise within their scope.  It is rare for a modern statute to do this, but the UCC does so on a regular, even continual basis.

“The result is exceptional legal clarity as to important yet routine transactions.  Those of us who conduct these transactions should not fail to appreciate the benefits of this legal environment.  It is surely a key factor in the continuing prosperity that we often take for granted.

“Obviously, and as noted by others, it is easier to disrupt such a structure than to create or preserve it.  The UCC was one of the great achievements of the Twentieth Century.  Keeping it may be one of the great challenges of the Twenty-first.”

Alvin C. Harrell, “2014 UCC Articles 3 and 4 Update,” in Consumer Finance Law Quarterly, Vol. 68, No. 3 (2014)

The recent decision in Tribeca Companies, LLC v. First American Title Insurance Company (Aug. 26, 2015) ___ Cal.App.4th ___ reaches an unsurprising result – an escrowholder is not liable for damages when it delivers money to the owner of the funds.

If you continue to the end of the decision, however, you’ll find a peculiar analysis of the “fiduciary” obligations of an escrowholder, a relationship that is better defined by reference to the obligations of a bailee.

The facts were as follows.  “Tribeca is a California limited liability company formed in October 2005 by William Faidi, its sole shareholder. It is a San Francisco-based private equity investment firm that makes investments in ‘distressed’ real estate by purchasing and foreclosing on defaulted mortgage loans.”

An escrow was opened at First American.  Explained the court, “Tribeca and First American engaged in extensive negotiations regarding the form and content of the [escrow] instructions.  The negotiations continued for more than a month.”

Memo to litigants – If the contract you helped write is unclear, don’t expect the court to reform it in your favor.

The transaction fell through and First American returned the funds on hand to the person who deposited them.  A lawsuit followed.  “Tribeca’s claim of damages was based entirely on its contention that First American’s failure to transfer the escrow funds pursuant to its instructions, and to instead refund the money to Grishin, caused Faidi to lose the $1 million in liquidated damages.”

After reviewing the liquidated damages, the court turned to the escrowholder’s duties.  The key to the decision was a finding that “damages would not have been recoverable from the First American escrow account because, again, Grishin maintained ownership over those funds.”

More to the point, “the deposit of moneys in the escrow does not alter or change the ownership thereof.  First American held Grishin’s money in trust for his benefit, and no other party had any claim to his funds because he never designated another party as the beneficiary.

“Because Grishin retained ownership, he was entitled to withdraw the money regardless of whether another party contended he was liable in damages for failure to consummate a transaction.  It is established law that on failure of escrow the funds deposited with the escrow holder are returnable to the respective depositors.”

Query:  Why is this escrow described as being “fiduciary” in nature?  It more resembles a bailment than a fiduciary relationship.

Further straining its analysis, the court stated that “The breach of fiduciary duty can be based upon either negligence or fraud, depending on the circumstances.”  That’s a peculiar analysis of breach of fiduciary duty – to require the injured party to show negligence or fraud.

Tribeca Companies, LLC v. First American Title Insurance Company (Aug. 26, 2015) ___ Cal.App.4th ___