Fresno Lawyer – Randolf Krbechek

The federal bankruptcy courts publish detailed statistics on bankruptcy filings.  California has four federal judicial districts, with Fresno located in the Eastern District.

The 2011-2015 bankruptcy filings for the Eastern District of California continue to show a substantial decline, as shown in this table:

Truly, the overall decline from 2011 to 2015 is astonishing, and suggests that our economy is improving.

As the jurisdiction of small claims court has increased (now up to $10,000), attorneys are called on more frequently to assist on appeal.  (Ground rule – attorneys are not permitted to assist at the original trial, only on appeal.)

In Dorsey v. Superior Court (Oct. 22, 2015) __ Cal.App.4th __, “The small claims court dispute [ ] arose out of a condominium lease, which contain[ed] a prevailing party attorney fee provision.  [The trial court] entered judgment in favor of the tenants [ ] against the landlord [ ] in the principal amount of $1,560.”

This is where it gets interesting.  “After judgment, [the tenant] sought $11,497.50 in attorney fees as the prevailing parties under the attorney fee provision in the lease.  [The landlord] opposed the motion, asserting Code of Civil Procedure section 116.780(c) trumped the contractual attorney fees provision, limiting any award to $150.  The superior court awarded Crosier $10,373.”

Fort Sumter

Explained the court, “Small claims court exists so people with meritorious claims for small amounts may have those claims adjudicated without spending more on attorney fees than the claims are worth.”

Note – English law has recognized “small claims” jurisdiction for at least five centuries.  As the court discussed, “The small claims court system has been refined over hundreds of years with recurring attention from the courts, legal commentators, and the Legislature.”  It’s not like California invented small claims court.

Continued the court, “Section 116.780(c) reflects a legislative determination that a small claims appeal should require no more than minimal attorney time.  The small claims appeal procedure was intended to be integral to the legislative scheme for expeditious and cost-effective resolution of small claims.

“Therefore, as we explain, section 116.780(c) must be construed to override contractual attorney fee provisions and limit the attorney fee award here to $150.”

The court also discussed the unusual procedure of the case.  “The superior court’s judgment on a small claims appeal is ‘final and not appealable’ … However, if law is to be made settling a significant issue of small claims procedure, ‘the appellate courts must have jurisdiction to entertain petitions for extraordinary review in appropriate circumstances.’  Writ relief is appropriate here to review this significant issue in small claims law and to ensure uniform interpretation of the governing statutes.”

Bottom line – The court can award attorney’s fees up to $150.00 in small claims court.  Dorsey v. Superior Court (Oct. 22, 2015) __ Cal.App.4th __

In 1927, Prof. William Holdsworth delivered four lectures on legal history to American audiences, which lectures were collected in Some Lessons from Our Legal History (The Macmillan Company 1928).  Holdsworth, a law professor at Oxford, held “the oldest University Chair in English law in the world,” a chair first held by William Blackstone in 1758.

Read his remarkable analysis of Lord Mansfield’s 1772 decision in Sommersett’s Case.

“As the history of the writ of Habeas Corpus shows, Parliament and the common lawyers were careful to guard the principle of the thirty-ninth clause of the Great Charter, that a man could not be imprisoned except by due process of law.  That in effect meant that any restraint of liberty must be proved to be legally justified, and that all restraints which could not be thus justified, were illegal.

“That this principle so stated, and safeguarded by the writ of Habeas Corpus, was a better protection to liberty than any number of abstract declarations of right, can be seen by the famous Sommersett’s Case in which the idea that the status of slavery was recognized by English law was finally given its quietus.

“In the eighteenth century the slave trade was a lucrative business, in which many had an interest … Lord Mansfield [ ] decided that … Harrison, in Elizabeth’s reign, had correctly stated the law when he said that ‘if any [slaves] come hither from other realms, so soon as they set foot on land they become as free in condition as their masters.’

“The fact that Lord Mansfield refused to follow the commonly received view of the merchants, and was induced to give a decision opposed to that view, after hearing an argument based mainly on the mediaeval law as to villeinage, probably surprised many of his contemporaries as much as an opposite decision would have surprised us.

“But I think the decision was largely due to maintenance of the view, that any interference with liberty must be justified by law.  There was legal warrant for recognizing the status of a villein: there was none for recognizing the status of a slave.

“As Lord Mansfield said at the close of his judgment, ‘Whatever inconveniences may follow from the decision, I cannot say this case is allowed or approved by the law of England; and therefore the black must be discharged.’”

That’s right – in 1772, Lord Mansfield declared that slavery was not recognized by English law.  Even more, the case came up on a writ of Habeas Corpus.

From Wikipedia: “Mansfield is best known for his judgment in Somersett’s Case on the legality of keeping slaves in England.  The English had been involved in the slave trade since 1553, and by 1768, ships registered in Liverpool, Bristol and London carried more than half the slaves shipped in the world.

“James Somersett was a slave owned by Charles Stewart, an American customs officer who sailed to Britain for business, landing on 10 November 1769.  A few days later Somersett attempted to escape.  He was recaptured [ ] and imprisoned on the ship Ann and Mary, owned by Captain John Knowles and bound for the British colony of Jamaica.  Stewart intended to sell him there.

“However, three people claiming to be Somersett’s godparents [ ] made an application before the Court of King’s Bench for a writ of habeas corpus, and Captain Knowles was ordered to produce Somersett before the Court of King’s Bench, which would determine whether his imprisonment was legal … As a result of Mansfield’s decision, between 14,000 and 15,000 slaves were immediately freed in England.”

Explained Holdsworth, “Sommersett’s Case, decided on a writ of Habeas Corpus, is an excellent example of the fact that the principle of personal liberty is assumed; and that, in practice, its ambit depends upon the scope and application of the remedy for its infringement.”

“In later days it has sometimes been necessary to suspend the right to get a writ of Habeas Corpus; but this can only be done by an act, not of the executive, but of the Legislature; and in England it is not possible by a single act of the executive or the Legislature to suspend all constitutional guarantees, or to proclaim a state of siege.”

William Searle Holdsworth, Some Lessons from Our Legal History (The Macmillan Company 1928)

Roscoe Pound, dean of Harvard Law School, was an influential legal scholar with a large body of writings.  Some say he later contradicted himself; perhaps, but his earlier writings offer deep insight into the American legal system.

(Pound was born in 1870, and was raised in Nebraska.  His chief academic training was as a botanist, and he received a PhD in botany.  Nebraska, and many other midwestern states, were ravaged by locusts in the late 1870s.  Consider how such events transformed the young botanist.)

Here is Pound in full power, writing in 1923:

●    On 19th Century law in America

“The truth that more and more since the sixteenth century and universally in the nineteenth century the end of law was conceived in terns of the maximum of individual self-assertion.  This end was to be attained through a politico-legal ordering of society in which coercive social control was reduced to its lowest terms.”

●    Aka, “frontier justice.”

“Self assertion is one of the fundamental instincts or, if you will, one of the fundamental desires of men … The conception of law as a necessary evil, the doctrine that each rule of law must be justified by showing that it promotes a maximum of individual self-assertion, the doctrine of a minimum of law, restricted to what is demonstrably necessary to the realization of freedom as an idea, are protests against which … eighteenth-century thinking had seemed to lead.”

●    Law and Society

“We cannot develop the utmost that is in human powers in a mad scramble in which values are lost by friction and waste.  We must have a certain ordering of human activities that puts limits to human action, that assigns each to do things in order to protect existing values and to further the creation of new ones.  How far this ordering shall go must depend on the civilization of the time and place, on the values to be conserved and the means at hand to create new ones.”

●    What is Law?

“There is no universal body of legal institutions and legal rules for all civilizations.  Instead there is a universal idea, namely, human civilization.  ‘Different in its details,’ [Kohler] says, law ‘is alike in the fundamental quest, that is, the furthering of civilization through a forcible ordering of things … a relation which takes on a different content with the infinite variety in the conditions of human cultivation’” …

“But law is not only a means toward civilization, it is a product of civilization.  We must look at it, therefore, in three ways: as to the past as a product of civilization, as to the present as a means of maintaining civilization, as to the future as a means of furthering civilization.”

●    Rural America

“In rural, pioneer, agricultural America of the forepart of the last century, there was no occasion to limit the contracts a labourer could make as to taking his pay in goods.  To have done so would have been arbitrary.

“In urban, industrial America of the twentieth century, on the other hand, a regime of abstract freedom of contract between employer and employee often led to a destruction of values.  It led to sacrifice of the social interest in the human life of the individual worker.  Hence it was not unreasonable to put limits upon what employer and employee might contract.”

●    How Society Maintains Order

“There must be some system that does this.  It may be done by political or politico military machinery, as in the extreme case of Sparta; by tradition and stratified society resting on authority, as in the Middle Ages; by free competition, as we sought to do in the nineteenth century, or by an economic regime, as today.”

“In any event it is the place of the law to uphold that system so that civilization may he maintained  … A change of attitude in legal thinking throughout the world, which marks twentieth century jurisprudence, rests on recognition of the social interest in the individual life as something broader and more inclusive than individual self-assertion.”

Roscoe Pound, Interpretations of Legal History (Macmillan Company 1923)

Prof. Andrew McClurg is the author of an excellent guide to the first year of law school.  Below are short excerpts relating to mental health issues that can affect law students.

Self-Doubt

Law school is the undisputed champion of causing talented people, people who have achieved at a high level their entire lives, to almost instantly begin questioning their self-worth.  As one student put it, “It seems that law school is designed to make the student feel unsure of himself and inadequate.”

“Cognitive distortion” is a psychological term used to describe a condition that occurs when a person internalizes neutral or mildly negative external stimuli as signs of severe personal failure.  Law school establishes optimal conditions for this to occur.

Everything a student does is judged and it never seems good enough.  Every word uttered in law school classes is critically scrutinized.  Professors often critique student classroom comments even when they wholeheartedly agree with them.  It’s the nature of the Socratic beast.  Some students shrug it off, but many take it personally and let it diminish their self-image.

Depression

Law students also suffer disproportionately higher rates of depression than the general population and other graduate students.  On depression scales, 17-40 percent of law students in the second University of Arizona study mentioned above were found to suffer from much higher rates than exist among the general population.

A 2000 study of University of Michigan law students found that more than half of law students showed symptoms suggestive of clinical depression by the end of their first year and that these high levels remained throughout their law school careers.

Comparing the law students’ scores on the Center for Epidemiologic Studies Depression Scale to scores for other groups subject to extreme stress yielded somewhat startling results.

The 50 percent of law students who scored above the depression cutoff compared to rates of:

●    30-45 percent for unemployed people
●    30-45 percent for people testing HIV-positive two weeks after they received notice
●    50 percent for people experiencing the death of a spouse or marital separation in the past year
●    50-60 percent for persons being treated for substance abuse, and
●    50-70 percent for homeless people.

This isn’t to suggest, of course, that being a law student is as bad as the listed traumatic events, but law school can strongly push the brain’s depression buttons.

As with anxiety, the gloominess pattern continues after graduation.  A Johns Hopkins University study found that lawyers ranked fifth in the overall prevalence of depression out of 105 occupations.  When the data were adjusted to focus on the association between depression and the particular occupation by taking into account non-occupational factors contributing to depression, lawyers moved into first place.

The study of Arizona and Washington lawyers mentioned above found that 21 percent of male lawyers and 16 percent of female lawyers exceeded the clinical cut-off measure for depression, significantly higher than depression rates found in the general population.

1L of a Ride: A Well-Traveled Professor’s Roadmap to Success in the First Year of Law School (2nd Ed.) by Andrew McClurg

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 ___

A recent study published by the U. C. Giannini Foundation of Agricultural Economics reports an increase in the number of agricultural employees in California.  Using data from the Employment Development Department, the authors conclude “since 1990, average employment in [California] agriculture rose 10%.”

To support their conclusion, the authors “extracted all SSNs reported by agricultural employers to EDD in 2007 and 2012, and tabulated their farm and nonfarm jobs in California.”

The report states:

●    “Hired workers do most of the work in labor-intensive FVH agriculture.  According to the National Agricultural Workers Survey, over 85% of the state’s farm workers were born in Mexico.”

●    “Since 2010, average employment by crop support establishments has been rising by 10,000 a year.”

●    “Over 60% of crop workers employed on the state’s crop farms have been unauthorized for the past decade – 10 percentage points higher than the U.S. average of 50%.”

Here’s the part that reminds you why we have persistent poverty in communities with an agricultural-based economy, such as Fresno County:

●    “Four counties – Kern, Fresno, Monterey, and Tulare – had over 40% of all primary farm workers”

●    “Average earnings for all workers with at least one farm employer were $18,000 in 2012,

●    “while average earnings for primary farm workers, defined as those who had their maximum earnings in agriculture, were $15,000.”

Brandon Hooker, Philip Martin, and Andy Wong, “California Farm Labor: Jobs and Workers,” in Agricultural and Resource Economics Update, July 2015 (U. C. Giannini Foundation of Agricultural Economics)

The federal courts continue to narrow the circumstances in which a person can be denied relief in bankruptcy court based on breach of fiduciary duties.  In Double Bogey, LP v. Enea, ___ F.3d ___ (9th Cir. July 22, 2015), an unpaid creditor sought to invoke nondischargeability on the grounds that the debtor, as the alter ego of his corporation, owed fiduciary obligations to the unpaid creditor.

The Ninth Circuit disagreed, holding that “the mere fact that state law places two parties in a relationship that may have some of the characteristics of a fiduciary relationship does not necessarily mean that the relationship is a fiduciary relationship under 11 U.S.C. § 523(a)(4).”

Explained the court, “partnership law clearly and expressly imposes trust-like obligations on partners, explicitly outlining partner’s fiduciaries duties and identifying the assets of the partnership as the trust res over which partners are fiduciaries.”

There is a different result with respect to corporations.  “California’s alter ego doctrine does not explicitly create a trust relationship, either by raising existing legal duties or otherwise … Instead of creating, enforcing, or expounding on substantive duties, California’s alter ego doctrine merely acts as a procedural mechanism by which an individual can be held jointly liable for the wrongdoing of his or her corporate alter ego.”

Thus, “A doctrine which merely supplies an additional judgment defendant after liability exists does not clearly and expressly impose trust-like obligations prior to the creation of that same liability.  Therefore, we cannot conclude, as a matter of federal law, that California’s alter ego doctrine establishes that a corporate debtor’s alter ego is a trustee in that strict and narrow sense required by the Code.”

As a result, the individual, despite a finding of alter ego liability under state law, was not denied his discharge in bankruptcy. “Common-law doctrines – like California’s alter ego doctrine – rarely impose the trust-like obligations sufficient to create a fiduciary relationship under Section 523(a)(4).  Indeed the kinds of trusts typically created by operation of law – constructive, resulting, or implied trusts – never satisfy Section 523(a)(4)’s rigorous requirements.”

Double Bogey, LP v. Enea, ___ F.3d ___ (9th Cir. July 22, 2015)