Tate's Blog

Tate's GRC New COSO Risk Management Papers 011811

2011-01-16T22:10:00.000-08:00

New California trust case holding that trust was not ambiguous as to predeceased son's issue born out of wedlock.

2010-11-08T22:36:00.000-08:00

Citizens Business Bank v. Carrano (California Court of Appeal, Second District, B216632, November 8, 2010) holding that a trust that provided for assets to be distributed to a predeceased child’s issue, which term the trust specifically defined as lineal descendants of all degrees, but expressly excluding persons adopted either into or out of the Trustors’ bloodline, was not unambiguous for failure to address the “special case” of the predeceased child’s out-of-wedlock offspring, did not create a latent ambiguity, and was not in need of interpretation particularly where the Trustors were aware of their predeceased son’s lifestyle and of the several children born to him out of wedlock but nonetheless failed to include trust language excluding such children as beneficiaries, absent the childrens’ adoption into another home.

California Trust Update: joint tenancy property liable for decedent husband's continuing support payments

2010-11-07T06:26:00.000-08:00

This week the Court in Kircher v. Kircher (California Court of Appeal, First District, A125733, November 5, 2010), held that property held in joint tenancy by a husband and wife may be considered when determining the surviving wife’s liability for the husband’s debts after his death pursuant to Cal. Probate Code sections 13550 and 13551. In this case the husband’s wife became obligated to continue making support payments to the husband’s former wife after the husband died.

FCPA actions spark shareholder suits

2010-11-04T00:42:00.000-07:00

FCPA actions spark shareholder suits: XE.com - US bribery investigations spark shareholder suits

» THE VIEW FROM THE BOARD IN THE WAKE OF DODD-FRANK - SEC ACTIONS

2010-11-02T03:17:00.000-07:00

» THE VIEW FROM THE BOARD IN THE WAKE OF DODD-FRANK - SEC ACTIONS

Big firms seek shield against whistleblowers - NYPOST.com

2010-11-01T06:33:00.000-07:00

Businesses and law firms asking the SEC to require whistleblowers to report alleged violations internally to the business first: Big firms seek shield against whistleblowers - NYPOST.com. In theory this proposal seems reasonable to me. It's sort of like requiring mediation before litigation.

New Cal. Trust Case Summary Lickter v. Lickter

2010-10-31T08:15:00.000-07:00

Lickter v. Lickter (California Court of Appeal, Third District, C061782, Oct. 27, 2010)
Dave Tate, Esq.
http://davidtate.us/

The grandchildren of a decedent lacked standing to pursue an elder abuse action as the decedent’s successors in interest because they lacked any interest in her estate that could be benefited or impaired by the action. The grandchildren petitioners were trust beneficiaries of specific monetary bequests which had already been paid.

Petitioners argued they had standing as interested persons under Cal. Welfare & Institutions Code §15657.3(d)(2) because they were beneficiaries of decedent’s trust. The court found that just because petitioners were beneficiaries of decedent’s trust did not make them “interested persons” for purposes of pursuing an elder abuse action. To be an “interested person” for purposes of instituting a proceeding under Cal. Prob. Code §48 — and, by extension, under §15657.3(d) — the person must have an interest that may be impaired, defeated, or benefited by the proceeding. Petitioners were former beneficiaries of decedent’s trust only, as they already had been paid the amounts they were owed under the trust. Thus, petitioners no longer had an interest that could be “impaired, defeated, or benefited” by their legal action.

The court also upheld summary judgment against petitioners on their Cal. Prob. Code §259 claim. Pursuant to §259 a person may be deemed to have predeceased a decedent person where it has been proven by clear and convincing evidence that the person is liable for physical abuse, neglect, or fiduciary abuse of the decedent, the person is found to have acted in bad faith, and the person has been found to have been reckless, oppressive, fraudulent, or malicious in the commission of any of these acts upon the decedent. Petitioners argued that they would have standing as beneficiaries under the trust provisions if it was deemed that the alleged abusers, who were also variously remainder beneficiaries, predeceased the decedent. The court held that as a matter of law the petitioners failed to provide sufficient undisputed evidence in support of their Cal. Prob. Code §259 claim.

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New case: grandchildren lacked standing to bring elder abuse claim

2010-10-30T18:58:00.000-07:00

New California case: Lickter v. Lickter (California Court of Appeal, Third District, C061782, Oct. 27, 2010) holding that grandchildren of a decedent lacked standing to bring an elder abuse action because they did not have an interest in her estate that could be benefited or impaired by the action.

New employment case re employees not taking lunch breaks.

2010-10-30T18:14:00.000-07:00

New California employment case: Hernandez v. Chipotle Mexican Grill, Inc. (California Court of Appeal, Second District, B216004, Oct. 28, 2010).

Holding that an employer was not required to make sure its employees took their lunch breaks. Be careful here, other cases and different fact situations hold otherwise.

SEC fund set with $452 million to reward whistleblowers

2010-10-30T15:06:00.000-07:00

SEC fund set with $452 million to reward whistleblowers, CLICK HERE.

Article: 20 Ethics & Compliance Officers Who Matter

2010-10-30T12:35:00.000-07:00

Article, 20 Ethics & Compliance Officers Who Matter, CLICK HERE.

Internal Audit: A Pivotal Time to Take a Close Look

2010-10-28T19:32:00.000-07:00

Internal Audit: A Pivotal Time to Take a Close Look, interesting article from KPMG.

Strategy and Compliance As Competing Imperatives For Corporate Boards

2010-10-27T14:03:00.000-07:00

Strategy and Compliance As Competing Imperatives For Corporate Boards

New Corruption Study

2010-10-27T07:03:00.000-07:00

http://www.economist.com/blogs/dailychart/2010/10/corruption_perceptions

Whistleblower alledges insider trading at GMCR - WCAX.COM Local Vermont News, Weather and Sports-

2010-10-27T06:49:00.000-07:00

Whistleblower alledges insider trading at GMCR - WCAX.COM Local Vermont News, Weather and Sports-

Governace Thoughts About SEC v. Office Depot

2010-10-24T07:15:00.000-07:00

The following is a discussion about the SEC’s Complaint against Office Depot which is an action that was recently settled. To view the SEC’s press release about the settlement CLICK HERE. At various points in the below discussion I have inserted some of my thoughts as talking point comments—my comments begin with “DT” and are bolded and italicized.

Dave Tate, Esq. (San Francisco)
Litigation & Trials, Governance, Investigations, Mediator
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tateatty@yahoo.com

I. THE SEC’S ALLEGATIONS PER ITS COMPLAINT

A. OVERVIEW

The SEC alleged that Office Depot (1) violated Regulation FD in June 2007 by selectively communicating to analysts that it would not meet analysts’ quarterly earnings estimates without issuing a press release or other public disclosure communication, and (2) overstated its net earnings in its financial statements for the third quarter of 2006 through the second quarter of 2007 as a result of accounting violations--Office Depot prematurely recognized approximately $30 million in funds received from vendors in exchange for the company’s merchandising and marketing efforts instead of recognizing the funds over the relevant reporting periods in a manner consistent with Generally Accepted Accounting Principles (GAAP). In November 2007, the company restated the above financials and announced a material weakness in its internal controls over financial reporting, resulting from the failure of its personnel responsible for negotiating agreements with vendors to communicate all of the relevant information to accounting personnel.

Office Depot is traded on the New York Stock Exchange. Its fiscal year ends on the last Saturday in December.

B. THE ALLEGED REGULATON FD VIOLATION

In pertinent part, the SEC alleged as follows (please note that the following allegations were obtained from the SEC’s Complaint—accordingly, they are only unproven allegations):

Office Depot, as a company policy, did not offer specific quarterly earnings guidance during the relevant time period.

In late 2006 and early 2007, the CEO and the CFO believed the significant earnings per share (“EPS”) growth the company achieved in 2005 and early 2006 was not sustainable and set out to temper analysts’ expectations. DT: Just an argumentative allegation, the facts that the SEC can prove are what matter.

In February 2007, during a publicly broadcasted earnings conference call, the CEO and the CFO described Office Depot’s business model, which contemplated mid to upper teens EPS growth over the long-term.

On another public conference call in late April 2007, the company warned investors that its largest business segments were facing a softening in demand that was continuing into the second quarter.

Shortly following the analysts’ publication of EPS estimates for Office Depot in late April (when most analysts lowered their estimates for Office Depot), the company reiterated at a publicly available investor conference in early May that its business model contemplated only mid to upper teens EPS growth over the long-term and that the company faced a softening demand environment.

On May 31, 2007, the CEO alerted Office Depot’s board of directors and the executive committee that the company would not likely meet the analysts’ consensus $0.48 EPS estimate for the second quarter and that senior management was discussing a strategy for advance communication to avoid a complete surprise to the market. DT: The SEC does not discuss how the board responded to this information. It is already alleged that as a policy Office Depot did not give specific quarterly earnings guidance. Arguably this is a change from that policy. Was there additional discussion about whether to go down this path, and, if so, to have the communications reviewed by counsel and approved by the investor communication disclosure committee? Was there a disclosure committee? Additionally, as alleged, the company had already commented about the softening demand environment.

Office Depot did not have written Regulation FD policies or procedures at the time. The company had also never conducted any formal Regulation FD training prior to June 2007, although its general counsel had occasionally distributed guidance and updates on Regulation FD. DT: If true, good idea to correct this, wouldn’t you say? This might also be an area of involvement for internal audit and/or governance, risk, compliance and ethics. Did the outside auditor ever recommend improvements?

In early June 2007, in response to the CEO’s May 31, 2007 notice to the board of directors, the CFO instructed the director of investor relations and his immediate supervisor to prepare a draft press release for her review previewing certain second quarter earnings information should the company later determine to issue one. By mid June 2007, certain of the company’s preliminary internal estimates forecasted up to $0.44 EPS for the quarter. The CFO and CEO were uncomfortable with issuing a press release because the company’s internal estimates were incomplete at this point. DT: More people involved. Was anyone questioning this course of action? Where is the board, counsel, disclosure committee?

On June 20, 2007, ten days prior to the close of Office Depot’s second quarter for 2007, the CEO and the CFO, both of whom had investor relations experience, discussed how to encourage analysts to revisit their analysis of the company. The CEO, in an attempt to get analysts to lower their estimates, proposed to the CFO that the company talk to the analysts and refer them to recent earnings announcements by two comparable companies that had recently publicly announced results which were impacted by the slowing economy. The CEO further suggested that Office Depot point out on the calls what the company had said to the market in April and May 2007. The CEO and the CFO jointly decided to adopt this approach. The CEO believed that if the analysts looked at Office Depot again in that light, they would come to the point of view that their estimates were too high and likely would lower them. DT: Again, as alleged, a departure from policy.

The CFO, the director of investor relations, and the director’s immediate supervisor, drafted talking points based in part on the CEO’s suggestions for use as a guide for the calls with analysts. The CEO was not asked to review the talking points and did not do so. DT: Is there oversight or involvement by anyone else? Although the allegations in this SEC Complaint were somewhat detailed, I am of the viewpoint that to the reasonable extent possible the SEC has a responsibility to investigate an alleged situation of wrongdoing to a high degree prior to bringing an action, and to then include in the Complaint all of the significant factual allegations. The SEC is an advocate, but it also has a responsibility to objectively evaluate an alleged situation of wrongdoing before bringing an action and to only bring actions that are reasonably warranted. For clarification, it would be relevant to allege that no other people were involved or exercised oversight, if that was in fact the case.

The alleged agreed upon talking points were as follows:

-Haven’t spoken in a while, just want to touch base.

-At the beginning of the quarter we’ve talked about a number of head winds that we were facing this quarter including a softening economy, especially at small end.

-I think the earnings release we have seen from the likes of [Company A], [Company B], and [Company C] have been interesting. On a sequential basis, [Company A] and [Company B] domestic comps were down substantially over prior quarters. [Company C] mentioned economic conditions as a reason for their slowed growth.

-Some have pointed to better conditions in the second half of the year – however who knows?

-Remind you that economic model contemplates stable economic conditions – that is midteens growth

On Friday, June 22, 2007, and the following Monday, June 25, 2007, the director of investor relations spoke individually with all eighteen analysts covering Office Depot and conveyed to them the information contained in the talking points. Office Depot did not regularly initiate calls of this type to all 18 analysts covering the company. Word of these calls quickly spread among analysts, some of whom believed that Office Depot was “talking down” analysts’ earnings estimates. DT: Who at the company was reviewing disclosures that were being made? Did the outside auditor become aware of the disclosures at some point?The CFO and the CEO were in communication with the director of investor relations during and after the calls. On Saturday, June 23, 2007, the CFO emailed the analysts’ revised estimates to the CEO and advised that the director of investor relations had spoken to most of the company’s analysts and that two had reduced their estimates. The CEO responded positively and encouraged the calls to continue so that additional analysts would lower their estimates.

On Monday, June 25, 2007, the CFO asked the director of investor relations’ immediate supervisor whether the director of investor relations had contacted a particular analyst whose EPS estimate was the highest and had not yet been revised. Also on Monday, the CEO requested and received an update, which showed that the analysts’ consensus estimate was still $0.46. With the CFO’s knowledge, the CEO then commented to the director of investor relations that they still needed conversations with a few more analysts.

Office Depot’s calls influenced many analysts to revise and lower their second quarter 2007 forecasts. By the end of the second day of the calls, fifteen of the eighteen analysts lowered their estimates, bringing the consensus estimate down from $0.48 to $0.45.

During a call on Friday, June 22, 2007, one analyst expressed concern to the director of investor relations about the lack of a press release. That same day, the director of investor relations conveyed to the CFO this concern and that one other analyst was informing his customers that he expected Office Depot’s earnings to be down based on his call. DT: If true, this appears to be a wakeup call to consider actions.

On Monday, June 25, 2007, the director of investor relations notified the CFO that another analyst told him that he was surprised at the lack of a press release and indicated that several of his clients were also surprised. Also, late Monday evening, the CFO instructed the director of investor relations to call the company’s top twenty institutional investors and relay the same talking points to them, which he did the following day.

After the close of the market on Thursday, June 28, 2007, six days after the calls to analysts began, Office Depot filed a Form 8-K publicly disclosing, among other things, that its earnings would be “negatively impacted due to continued soft economic conditions.” DT: So, here is a good thing, arguably the company did quickly take action to address the situation.

Between Friday, June 22, 2007 (the day Office Depot began calling analysts) and June 28, 2007 (the last market close before Office Depot filed its 8-K), the company’s stock dropped 7.7%. On the first day of the calls, Office Depot’s stock closed at $33.49 per share. This was a decrease of 2.8% from the previous close, on trading volume of almost 7.5 million shares, which was two and half times the average volume for the remainder of that week. On the second day of calls, the stock dropped another 3.5% to $32.32 per share on trading volume of 7 million shares.

C. THE ALLEGED GAAP AND INTERNAL CONTROLS VIOLATIONS

In pertinent part, the SEC alleged as follows (please note that the following allegations were obtained from the SEC’s Complaint—accordingly, they are only unproven allegations):

Office Depot often arranges with its vendors to receive funding for its various marketing and promotional activities relating to the vendors’ products, such as advertising, store displays, and product exclusivity. For example, vendors frequently pay Office Depot to place their products in prominent store locations.

Under GAAP, the funds from these agreements are recognizable during the reporting period in which Office Depot provides the marketing and promotional activities called for in the agreements. When the activities cover multiple reporting periods, the funds are to be recognized over the relevant reporting periods in a manner consistent with GAAP.

Between the third quarter of 2006 and the second quarter of 2007, Office Depot prematurely recognized funds from approximately 100 vendor agreements. Many of the transactions involved an email arrangement between Office Depot personnel and the vendors that were separate from, but in addition to, the original documented agreement. These supplemental agreements often included terms that bound Office Depot to some kind of future performance and thus, would have caused the recognition of these funds to be deferred into future periods. DT: In other words, the SEC argued that Generally Accepted Accounting Principles require the company to defer recognizing portions of the income and to variously recognize those deferred portions during the period of time covered by the company's merchandising and marketing efforts that were required by the company's agreements with vendors. The SEC's allegations relating to this claim are incomplete. It would really be helpful to know, for example, if some process was different in these transactions which then resulted on the details of the transactions falling through the cracks, or if prior email arrangements were common but in this case they were not reported up the line, and why not. As indicated in the following paragraph, if true, the situation had an impact.

The premature recognition of vendor funds inflated Office Depot’s operating profit from the third quarter of 2006 through the second quarter of 2007 by a total of approximately $30 million. Office Depot’s quarterly and annual financial statements during this period overstated net earnings by 1.3% to 6.7%.

In November 2007, Office Depot announced that it would be restating its financial statements for the third quarter of 2006 through the second quarter of 2007 due to material errors in the accounting recognition of vendor funds that should have been deferred into later periods. The company also announced having a material weakness in its internal controls over financial reporting based on the failure to ensure that complete and accurate documentation was provided to individuals responsible for the proper recognition of vendor funds. DT: Again, I cannot determine from the information alleged by the SEC, but it seems like it might have taken a while to spot the issue or problem.

The accounting errors leading to Office Depot’s restatements resulted from a communication breakdown between the Office Depot personnel responsible for negotiating and executing vendor agreements (internally referred to at Office Depot as “Merchants”) and the personnel responsible for accounting for the funds. During either the negotiation or execution of vendor agreements, the Merchants often had email or other communications with the vendors that modified the terms of existing agreements. However, the Merchants often failed to provide all of the documentation to the accounting department for consideration. DT: Some good things here, the SEC does not allege or provide facts evidencing any intentional wrongdoing, and these situations are correctible with proper education or instruction, internal controls, and oversight by the CFO, internal audit, the audit committee, and the outside auditor.

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Companies With Strong Physical Risk Management Deliver More Stable Earnings, New Research from FM Global Shows

2010-10-21T23:18:00.000-07:00

Companies With Strong Physical Risk Management Deliver More Stable Earnings, New Research from FM Global Shows

Additional link: Companies with Strong Physical Risk Management Deliver More Stable Earnings, from FM Global

D&O Insurance: Defense Costs Incurred in Informal SEC and Internal Investigations

2010-10-21T19:52:00.000-07:00

D&O Insurance: Defense Costs Incurred in Informal SEC and Internal Investigations

California Trust/Probate Update - Five or Five Provision

2010-10-13T06:53:00.000-07:00

New California Trust/Probate Update.

Estate of Cairns.

Summary: The five or five provision in a decedent's will, which authorized a trust beneficiary to elect an annual receipt of the greater of $5,000 or five percent of the value of the trust principal allowed the distribution to include not only cash, but also an interest in real property.

Options for Effectively Litigating Small California Business Disputes

2010-10-06T23:03:00.001-07:00

Options for Effectively Litigating Small Dollar California Business Disputes(Including Business to Business and Business/Customer Disputes)
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Anyone who has been involved in a business dispute that is relatively small in dollar amount knows that it is challenging to litigate that type of dispute at least in part due to the time that it takes to reach resolution and the attorneys’ fees and costs that can be incurred. The following discussion gives you some ideas about how a relatively small dispute can be effectively litigated to resolution by settlement or adjudication (trial or arbitration) whether you are the plaintiff or the defendant party. For our purpose the term “effectively litigate” means a prompt (as reasonably possible), correct, cost effective resolution. What is a dispute that is “small dollar” in amount? Well . . . there is no formal or legal definition, and of course different people will have different criteria, but for the purpose of this paper I have in mind disputes that are between $1 and $100,000 in amount, not including attorneys’ fees.

For the purpose of this paper, I assume that the dispute is already in progress and that the contract or agreement terms and provisions were previously established—in other words we are not at the contract or agreement drafting stage although the underlying contract or agreement terms could be in dispute. A disagreement over the underlying terms and provisions should be taken as a wakeup call to improve the transaction agreement processes for future transactions. Regardless of already existing contract or agreement terms and provisions, the parties should nevertheless consider and work toward alternative processes or parameters that will promote a prompt, correct resolution by settlement or adjudication.

The Small Claims Court Option. Really small business disputes of $5,000 or less in value can be filed and adjudicated in the Small Claims Court as an effective means of resolution. The parties present their claims to the Court themselves without attorneys. Some Small Claims Courts also have pre-trial mediation programs to help the parties settle their disputes and avoid having the Court impose a resolution by adjudication. A plaintiff party with a claim valued in excess of $5,000 can nevertheless file that claim in the Small Claims Court; however, any award made cannot exceed the Court’s $5,000 jurisdictional limit. Nevertheless, for example, a plaintiff might find it to be cost and time effective to file an $8,000 dispute in the Small Claims Court even if any award made by the Court cannot exceed $5,000. It isn’t necessary to file a claim valued at $5,000 or less with the Small Claims Court—such a claim can also be filed in the Superior Court as a limited jurisdiction case (see below).

The Superior Court Limited Jurisdiction Option. Disputes of $25,000 or less in value can be filed with the Superior Court as limited jurisdiction cases. Limited jurisdiction cases have their own set of procedures which are stated at California Civil Code sections 85 through 100. Briefly, limited jurisdiction cases provide for the option of certain required voluntary disclosures of information, evidence/documents and witnesses at the beginning of the case and prior to trial; limited in number written discovery inquiries (interrogatories, requests for documents, and requests for admissions); limited numbers of depositions; subpoenas for records; physical and mental examinations; the exchange and discovery of expert witnesses; and the option of presenting trial evidence by declaration or deposition testimony.

The limited jurisdiction rules and procedural limitations can be used advantageously to effectively litigate business disputes not exceeding $25,000 in value. My primary concern about the limitations is with the restriction on the number depositions; however a motion can be filed with the court to allow a greater number of depositions (but you cannot predict how a court might rule on such a motion), and the parties can stipulate to a greater number of depositions but that would require the mutual agreement of the parties.

The Superior Court Unlimited Jurisdiction Option. Disputes in excess of $25,000 are filed in the Superior Court as general or unlimited jurisdiction cases. Generally there are few limitations on written discovery and depositions. Typically cases take a minimum of 1 to 1 ½ years or more to reach trial. For a variety of jurisdictional and strategic reasons this may be the most appropriate means of resolving your dispute, for example, the amount in dispute might exceed $25,000, or, for whatever reason, adjudication by arbitration might not be appropriate or acceptable. However, this also tends to be the most expensive and time consuming means of reaching resolution. Thus, even if the parties are adjudicating the case under the unlimited jurisdiction process, they should also consider stipulating to other options that might facilitate a more effective process.

Note that for the purpose of this paper I decided to not discuss federal court as a jurisdictional option; however, a case can be filed in federal court if there is federal question or diversity jurisdiction. Certainly you will find diversity jurisdiction (i.e., parties from different states) in a wide variety of business disputes, but before federal court diversity jurisdiction is available the dispute also must be more than $75,000 in amount. For the purpose of this paper and small amount disputes I am going to assume that in most circumstances a plaintiff will decide not to file the dispute in federal court, and more often than not most defendants will elect not to move the dispute into federal court.

Arbitration (by Clause or by Stipulation). Many contracts contain arbitration clauses that mandate that a dispute be decided by arbitration. Read the wording of the clause carefully as it may apply to all disputes or to only some disputes in select circumstances. Most likely the clause will also contain parameters or requirements relating to the conduct of the arbitration proceeding. Even if an arbitration clause is not applicable, the parties can nevertheless stipulate to arbitrate the dispute. There can be advantages to arbitration. For example, the parties can agree to the scope of discovery, disputes that are arbitrated typically can be resolved more quickly than disputes that are resolved in court, and in an arbitration the parties can select the arbitrator which can be advantageous if the parties want to ensure that the trier of fact has knowledge or experience in a particular subject matter area. A word to the wise: you should be aware that the courts have held that an arbitrator’s decision can seldom be reversed on appeal, unless, for example, the arbitrator clearly exceeds his or her authority as specified in the arbitration clause. By agreeing to arbitration or by signing a contract that contains an arbitration clause, the parties agree to be bound by the arbitrator’s award with all of its good and bad aspects, most likely even if the arbitrator arguably fails to follow the law.

Mediation (Court Required or Voluntary). One way or another in each dispute there should be an attempt to settle the matter prior to trial or arbitration. In fact, if possible and reasonable under the circumstances of the case, I believe there should be several attempts to settle the dispute, or to at least determine how far apart the parties are before any adjudication. Sometimes a contract will contain a clause that requires mediation. Additionally, in all likelihood if the case is being adjudicated in court, most likely the court will require that the parties attend at least one mediation or settlement conference session prior to adjudication. And, the parties and their counsel can voluntarily discuss settlement, or case value, or scheduling mediation whenever they want, including at the beginning of or early in the case.

On my website you will find the PDF format Dispute Resolution & Mediation Questionnaire Form designed to help parties prepare for dispute resolution discussions and settle their disputes.

Here is another option that might be useful in a dispute where the prevailing party is also entitled to recover reasonable attorneys’ fees, such as in cases where there is an attorneys’ fee clause. The recovery of attorneys’ fees by the prevailing party can become a significant issue in any dispute, particularly when the fees become significant in amount when compared to the amount in dispute. It is not uncommon for the attorneys’ fees issue to become an impediment to settlement. To encourage realistic settlement offers, after the parties have had sufficient opportunity to evaluate the case, consider a stipulation by the parties that their last settlement offers at a settlement or mediation session will set the parameters for determining prevailing party status for the recovery of attorneys’ fees and costs if the case ultimately proceeds to adjudication by trial or arbitration.

Liquidated Damages Clauses. Sometimes a contact or written agreement will contain what is called a liquidated damages clause which specifies that in the circumstance of a dispute damages will be calculated as being in the amount that is specified by the liquidated damages clause. Although a liquidated damages clause in some circumstances can simplify the issue of damages, but not the issue of liability or breach, a liquidated damages clause is only valid, if at all, if at the time that the parties negotiated or entered into the contract there was a reasonable effort by the parties to estimate a fair compensation for the loss that might be sustained in the circumstance of a breach, and it must have been impracticable or extremely difficult to fix the amount of actual damages. On the other hand, when a person signs an agreement, it is presumed by law that that person first read, understood and then agreed to the provisions in the agreement.

The Expedited Jury Trials Act. California enacted the Expedited Jury Trials Act in September 2010. The Act provides that after an action is filed the parties can agree or stipulate to litigate the dispute by the procedures specified under the Act. The Act also requires that the Judicial Council enact applicable rules and forms by January 1, 2011. In summary, the Act provides that when so stipulated by the parties, the dispute will be adjudicated by a jury of 8 or fewer jurors instead of 12, each party will have 3 hours to present that party’s case, and the jury’s verdict is for the most part binding, subject however to high/low or other agreements, with little opportunity for appeal.

Additional Opportunities to Stipulate to Processes and Parameters. Throughout the course of any dispute there are multiple opportunities for the parties to stipulate to procedures and parameters that can expedite effective litigation.

For example, in a high/low agreement the parties mitigate the risk of an unexpected or unacceptable arbitration or trial award by before the arbitration or trial agreeing to a minimum and maximum award range. The range is not disclosed to the arbitrator or trier of fact. If the ultimate award exceeds the high parameter that was agreed to in the high/low agreement, the award is capped or limited at the high parameter amount. Similarly, if the ultimate award is less than the low parameter amount that was agreed to, the defendant must nevertheless pay the low parameter amount.

As another option, a party can make a statutory California Code of Civil Procedure section 998 offer to compromise which is a formal offer to settle the case on the terms stated in the offer if those terms are accepted by the other party. If the offer is not accepted there can be significant ramifications for the party who did not accept the offer—briefly and generally, if the party who declined to accept the offer does not do better than the offer after arbitration or trial, cost shifting mechanisms kick in thereafter for the benefit of the party who made the offer possibly also relating the recovery of attorneys’ fees if attorneys’ fees are recoverable in the case by statute or agreement. Making a section 998 offer gets technical, but 998 offers are an important tool available to the parties, the use of which should be seriously considered in the course of effectively litigating every case.

Attorney Compensation Options. A few final comments about attorney compensation. Compensation is negotiable, of course. Talk with counsel—in small dollar amount cases at least consider possible options for lower hourly rates, contingency recovery, how to handle a possible award of attorneys’ fees after arbitration or trial, fixed fees, hourly fees at a lower rate with a contingency or other kicker, and variable rates or fixed fees at various different stages in the litigation.

I hope you found this discussion helpful. Contact me if you have comments.

Best regards,
Dave Tate, Esq. (San Francisco)
Litigation & Trials, Governance, Investigations, Mediator
Website
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tateatty@yahoo.com

D&O, GRC and Accountant Update 9.17.10, LA DPW and DOT Audits of Stimulus Funds

2010-09-19T12:51:00.000-07:00

D&O, Governance, Risk, Compliance and Accountant Update
News, Analysis and Resource Links
September 17, 2010
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Dave Tate, Esq. (San Francisco)
Litigation & Trials, Governance, Investigations, Mediator
Website
Linkedin
Twitter
Blog

In this issue: the Good, the Bad and the Maybe—the Controller’s Audits of the Los Angeles Departments of Transportation and Public Works Use of Stimulus Funds

The following are the City of Los Angeles Controller’s audit of the City’s Departments of Transportation and Public Works use of stimulus funds, Click Here and Click Here. And the following are my comments.

Initially, let me commend the audits and the fact that they are available for viewing on the internet. The audits identify internal control, compliance, governance, accounting and reporting deficiencies. For the people involved it would have been easier if the audits in some manner did not identify the deficiencies, or if the audits were not made available for public viewing. Hopefully the audits truly identify all of the significant deficiencies. In truth, the Controller’s comments about the deficiencies are watered down, based on my experience with governmental fund audits that are performed by outside independent auditors. For example, the Controller states that “The DPW has made a good faith effort in having processes that will help ensure it complies with ARRA [the American Recovery and Reinvestment Act] requirements and provides complete and accurate reporting.” No the DPW hasn’t—and there really is no place for such a “good faith” statement in an audit. Either there is compliance or there isn’t—“good faith” is irrelevant unless perhaps you are looking at an issue of liability. Simply put, deficiencies are deficiencies, and they need to be fixed. And, how did the Controller determine that there was a good faith effort to comply anyway? If there was a good faith effort to comply, whatever that means, then the lack of compliance must be attributable to an inability to comply or incompetency. Nevertheless, it is noteworthy that the Controller’s comments are made, even in their watered down form, as clearly greater governmental oversight, audit, disclosure and transparency should be encouraged and required.

The Controller states that in March 2010 the City was awarded $594 million of the $1.5 billion that were requested in ARRA funds. The controller’s report/letter is dated September 16, 2010. The DPW projected that it would create or retain only 238 jobs during the life of the projects funded through the ARRA. Those comments by themselves strongly suggest or indicate that the program was a job creation failure from the get go. Where was the initial planning and governance oversight?

At the time of the Controller’s review, the DPW had received $70.65 million in ARRA funding, and had created 45.46 jobs (7.76 new jobs and the remainder are jobs retained or saved). I am not sure how you create .46 of a job. Nevertheless, 45 jobs created or retained for $70.65 million is a job creation failure. Do the math. Where was the initial job creation planning and oversight?

The Department of Transportation had been awarded $40.8 million, planned to create 26 jobs, but had created or saved only 9 public jobs.

Focusing on the DPW, the audit in part states or evidences that the DPW has been slow to provide project funding and create jobs, whereas the creation of jobs was the whole idea behind the stimulus funds; lacks internal, compliance and transparency controls; improperly records and reports transactions; needs to improve its cost billing processes; and overpays for the services and projects for which ARRA money was used. It might also be questioned whether internal controls are even sufficient to allow the performance of an audit.

Where would we go from here? Given the seriousness of the deficiency findings, and that most likely more problems exist than were found (given the statistical extrapolation of deficiencies that were identified), I recommend that the Departments of Transportation and Public Works, and the people who are charged with governance oversight over those departments, go back to the drawing board; review, correct and implement proper transactional, accounting, reporting and internal control processes; and objectively evaluate each proposed ARRA project to determine which of those projects, if any, truly are worthwhile. And then, return to the federal government the money that Los Angeles cannot effectively use to produce jobs of high value as was intended by the stimulus.

And, is there any oversight from Washington?

* * * * * * *

The Audit Committee Agenda and Process, A Helpful Tool

2010-09-12T08:02:00.000-07:00

The Audit Committee Agenda and Processes, a helpful tool, Click Here.

Sept. 21, 2010 SF/Silicon Valley OCEG (GRC) meet/greet and presentation

2010-08-08T18:57:00.000-07:00

See below for information about the September 21, 2010 San Francisco/Silicon Valley OCEG (GRC) meeting/greet and presentation.

San Francisco/Silicon Valley OCEG has started a local group for networking and discussion. Our first meeting will be held at SAP in Palo Alto (address below), and will open with a networking meet and greet, followed by a discussion about how the group will work (e.g., activities and meetings, topics, frequency, locations, etc.), and a discussion by Norman Marks, an OCEG Fellow and Co-Chair of San Francisco/Silicon Valley OCEG, on the topic of “What is GRC and why does it matter?” Additional information is provided below. If you plan on attending, please RSVP, which will allow us to better prepare. Thank you.

Date: September 21, 2010
Time: 8:30 a.m. – 10:30 a.m.
Location: SAP, Hillview Avenue, Palo Alto (specific location will be provided when you RSVP to attend).
Cost: no charge. A special thank you to SAP for sponsoring our first meeting and paying for breakfast. SAP is a Charter Member of OCEG.

RSVP by email to Co-Chair David Tate, Esq. at tateatty@yahoo.com by providing the names of the people who will be attending, their email contact information, and employer/title.

About Norman Marks. Norman Marks, Vice President, Governance, Risk, and Compliance (GRC) at SAP BusinessObjects, is one of the most well known thought leaders in GRC and internal auditing. Mr. Marks is also a CPA and has been a chief audit executive of major global corporations. Mr. Marks is a frequent speaker, the author of several award-winning articles, and a frequent blogger on internal audit, risk management, governance and compliance. Norman is an OCEG Fellow and serves on the OCEG Leadership Council and Technology Council.

OCEG is a nonprofit organization that uniquely helps organizations drive principled performance by enhancing corporate culture and integrating governance, risk management and compliance processes through guidelines and standards, community of practice, and evaluation criteria and benchmarking. OCEG’s website is http://www.oceg.org

New Calif. Trust/Estate Case, Estate of Kraus (Re Sections 850 and 859)

2010-06-20T07:19:00.000-07:00

Estate of Kraus (Calif. Court of Appeal, 2nd Dist, April 27, 2010), holding that any sufficiently interested party can petition for restitution of misappropriated funds under Cal. Probate Code sec. 850 and it is not necessary for it to have first been finally determined that the petitioning interested person is the person that will ultimately be entitled to receipt of the funds. The Court also upheld the application of sec. 859 which states that “If a court finds that a person has in bad faith wrongfully taken, concealed, or disposed of property belonging to the estate of a decedent ... the person shall be liable for twice the value of the property recovered.”

David Tate, Esq.
http://davidtate.us

New Calif. Trust/Estate Case Update, Estate of Winans (Secs. 21350-21351 Certification)

2010-06-20T07:04:00.000-07:00

Estate of Winans (Calif. Court of Appeal, 1st Dist, March 26, 2010), holding that a certificate of independent review by legal counsel under Cal. Probate Code secs. 21350-21351 (relating to disallowed dispositions) is invalid if the attorney’s counseling and independence are not sufficient, and if the counseling session is not sufficiently confidential. This is an important factually detailed case for estate planning attorneys to carefully review and understand.

David Tate, Esq.
http://davidtate.us

New California Trust/Estate Updates, Soria v. Soria, and Munn v. Briggs

2010-06-20T06:52:00.000-07:00

Soria v. Soria (Calif. Court of Appeal, 4th Dist), holding that beneficiaries could not recover Cal. Probate Code sec. 17211(b) attorney’s fees for a suit against a trustee for breach of fiduciary duty where the suit did not contest the trustee’s account within the meaning of the statute.

Munn v. Briggs (Calif. Court of Appeal, 4th Dist), holding that although California has not recognized a cause of action for tortuous interference with an inheritance expectancy, such a remedy might exist in a circumstance where there is no adequate remedy in probate to challenge a Will, trust, or property transfer.

David Tate, Esq., http://davidtate.us

Review of Recent Trust/Estate Cases About Attorneys’ Fees

2010-06-18T06:46:00.000-07:00

1. Donahue v. Donahue (Calif. Ct. of Appeal, 4th Dist., 2/24/2010), holding that a trustee is not entitled to payment of attorneys’ fees from the trust for the trustee’s defense against a beneficiary’s allegations where the trustee does not establish that the attorneys’ fees were reasonable in amount, necessary to litigation, and reasonable for the benefit of the trust.

2. Leader v. Cords (Calif. Ct. of Appeals, 4th Dist., 3/23/2010), holding that trust beneficiaries who prevailed on their challenge of the trustee’s account and refusal to make a final distribution based on a collateral or separate non-trust related issue were entitled to recover their attorneys’ fees.

David Tate, Esq.
http://davidtate.us

Updated outline re accounting for boards and in-house counsel

2010-06-11T07:25:00.000-07:00

Updated outline re accounting, IA, GRC, governance, internal controls, and fraud for boards and in-house counsel, Click Here

Accounting for In-House Counsel and Board Directors

2010-06-06T09:14:00.000-07:00

In the Works: Presentation for In-House Counsel, Board Directors and Others:

Accounting, Outside Auditor Services and Reports, Internal Controls, Fraud, Internal Audit/GRC, and Audit Committee/Board Oversight.

Completion Date: Late June / Early July. For Information Click
Here.

David Tate, Esq.
http://davidtate.us

Supreme Court holds that a person must affirmatively exercise his Miranda rights or his confession will be considered voluntary.

2010-06-01T21:36:00.000-07:00

Berghuis v. Thompkins (U.S. Supreme Court)

The police wanted to question Thompkins about a shooting. The police informed Thompkins of his Miranda rights, that he had the right to remain silent, and that he had the right to speak with an attorney before answering any questions.

Thompkins did not say that he wanted to remain silent or that he wanted to speak with an attorney. However he remained significantly silent while being interrogated for 2 hours and 45 minutes in an 8 by 10 foot room.

An officer then asked Thompkins, “Do you believe in God?”

Thompkins answered “yes” as his eyes welled up with tears.

“Do you pray to God?”

“Yes.”

“Do you pray to God to forgive you for shooting that boy down?”

“Yes.”

Thompkins refused to make a written confession and the interview ended 15 minutes later.

The Court held in part that since Thompkins never said that he exercised his right to remain silent, or that he wanted an attorney, he did not exercise his Miranda rights, and his confession was voluntary and admissible. A person wishing to exercise rights must affirmatively so state.

Regards,
David Tate, Esq. (San Francisco)
http://davidtate.us

CPA Tax Practice Risk (Malpractice) Management Prudence--10 Recommendations

2010-05-30T07:50:00.000-07:00

CPA Tax Practice Risk (Malpractice) Management Prudence—10 Recommendations
David Tate, Esq. (San Francisco)
http://davidtate.us
tateatty@yahoo.com

1. Although this should be obvious—be technically competent for the engagement. Be honest and realistic about your competency. Decline the engagement if you are not technically competent. If you decline the engagement, do so promptly, and in writing.

2. Be informed about deadlines. Decline the engagement if you cannot realistically meet any of the deadlines. If you decline the engagement, do so promptly, and in writing.

3. Have a written engagement agreement with the client. And, if necessary, also specify the work or matters for which you will not be responsible. Update the engagement agreement if the engagement changes.

4. Be careful about and prudent when working with others or relying upon their work, consulting or advice. This recommendation is difficult to address because the nature and complexity of engagements vary significantly. Let’s just say that everyone involved in the engagement needs to be sufficiently connected and informed, communications between everyone involved in the engagement need to be sufficient and prudent, and in many (perhaps most or all) circumstances the client should engage and have an engagement agreement with the other people who are involved in the engagement, or at least should consider such. For that matter, also be careful and prudent about recommending the services of others to the client. These situations can expose you to additional liability for the work, consulting or advice of others, and can lead to miscommunications, delays, misunderstandings, and other problems. As prudent, in these circumstances consider whether to seek legal and/or carrier advice.

5. Communicate, communicate, communicate, promptly and regularly, and in writing on important matters, but also be careful about what you say and how you say it.

6. Note/record important information and representations in writing for your records during the engagement, but also be careful about what you say and how you say it.

7. As prudent, and as expected, regularly update the client in writing. Of course, the timing and extent of updates in part will also depend on the nature and length of the engagement, and on the importance and extent of the ongoing engagement activities. Include in the update such matters as information and things that you have and don’t have; important client representations and information provided; issues, information and things that are holding you up or delaying you and why; additional information or things that you need and how and when you expect to obtain them; what you have completed, what you will be completing next, and by when; whether the engagement is on budget or if the budget needs to be updated or modified, etc. Is it clear that you are in agreement with the client on the important matters, and that things are progressing as they should throughout the engagement?

8. Don’t acknowledge wrong doing, or that you would have done something different, or that you wished that you had done something different. Talk to legal counsel about these situations.

9. Seek legal and carrier help/advice promptly if you sense potential client or engagement liability issues, or a significant adversarial situation. Remember, potential and actual liability, and disputes can be avoided and/or mitigated and resolved.

10. When the engagement is over, promptly conclude the engagement with the client, and in writing.

* * * * *

Rules v. Principles Based Accting Stds--Which Encourages Litigation

2010-05-17T20:41:00.000-07:00

Interesting article, which encourages litigation more: rules based or principles based accounting standards? Click here.

David Tate, Esq. (San Francisco)
http://davidtate.us
tateatty@yahoo.com

New physical disability case

2010-05-16T23:23:00.000-07:00

Around the web, I saw this article discussing a new physical disability case summarized by Gordon Rees,

Click Here

David Tate, Esq.
http://davidtate.us

FEHA and ADA Disability Reasonable Accommodation Presentation Slides

2010-04-23T22:48:00.000-07:00

Updated FEHA and ADA disability reasonable accommodation presentation slides, Click Here.

Dave Tate, Esq.
http://davidtate.us

Financial Management of Cyber Risk

2010-04-09T07:47:00.000-07:00

The following is a link to an excellent paper developed by a task force discussing financial management of cyber risk. The paper is on the American National Standards Institute website--it is free to obtain a copy, but you do have to provide some registration information first,

The Financial Management of Cyber Risk

Regards,
Dave Tate, Esq.
http://davidtate.us

Corp. Gov. paper, The Basel Committee on Banking Supervision

2010-04-09T07:40:00.000-07:00

For those of you interested in improving corporate governance, the following is a link to the March 2010 paper by the Basel Committee on Banking Supervision, Principles for Enhancing Corporate Governance,

Principles for Enhancing Corporate Governance

Regards,
Dave Tate, Esq.
http://davidtate.us

ADA Amendments Act of 2008, Revised Definition of Disability

2010-04-04T16:12:00.000-07:00

The following is a good link to an ongoing, and updated when appropriate, discussion defining the term "disability" under the Americans with Disabilities Act and the ADA Amendments Act of 2008, Click Here.

Regards,
David Tate, Esq.
http://davidtate.us

Proposed Revisions to UK Combined Code

2010-03-28T12:03:00.001-07:00

Proposed revisions to the UK Combined Code on corporate governance, Click Here. Greater emphasis on non-executive directors, their qualifications, experience, rotation and knowledge of the company.

Regards,
Dave Tate, Esq.
http://davidtate.us

New Trust Case: Beneficiary Can Recover Attorneys' Fees

2010-03-27T08:55:00.000-07:00

Leader v. Cords (California Court of Appeal, 4th District, March 23, 2010)

Trust beneficiaries brought an action against the trustee for his failure to make trust distributions. The trustee refused to make trust distributions until a collateral dispute between the trustee and the beneficiaries was globally resolved. At least in part the collateral dispute involved jewelry that was not part of the trust estate. The trial court ordered the trustee to distribute one half of the trust estate to the beneficiaries and the other one half to himself.

The beneficiaries then petitioned to recover their attorneys’ fees under Cal. Probate Code section 17211(b), which the trial court denied. The appellate court reversed, holding that recovery of attorneys’ fees under section 17211(b) should be viewed broadly. Section 17211(b) can allow recovery of attorneys’ fees in a contest or dispute over a trustee’s account. In this case the beneficiaries brought an action for breach of fiduciary duty based on the trustee’s failure to distribute trust assets. Viewing section 17211(b) broadly, the appellate court held that the beneficiaries were entitled to recover their attorneys’ fees under section 17211(b) because the trustee’s account disclosed the trust’s assets and liabilities showing that the beneficiaries were entitled to a distribution for which they petitioned. In other words, the beneficiaries were entitled to recovery of attorneys’ fees under section 17211(b) because their petition for distribution and breach of fiduciary duty at least in part related to the trustee’s account.

Regards,
Dave Tate, Esq.
http://davidtate.us

Employer Risk Mgmt. Tips for Smaller Employers

2010-03-27T07:23:00.001-07:00

Here is a link to a blog article providing tips about employer risk management for smaller employers. Enjoy.
http://risksmartsolutions.com/blog/

Dave Tate, Esq.
http://davidtate.us

School District Duty to Notice Learning Difficulties, Compton v. Addison

2010-03-24T14:11:00.000-07:00

New Case: Compton Unified School District v. Addison (Ninth Circuit March 22, 2010), holding that a public elementary school student could bring an action against the school district under the Individuals with Disabilities Education Act for the district’s failure to identify and evaluate the student for special education services in the face of numerous red flags that the district should have noticed or been aware of indicating that the student had significant learning difficulties or limitations.

Dave Tate, Esq.
http://davidtate.us

EY potential liability from Lehman

2010-03-16T07:18:00.000-07:00

Interesting NY Times article listed on the Daily Update from Securities Docket about potential liability that Ernst and Young might face from the Lehman case. It is more interesting from a learning viewpoint to go down the list of people who may have taken action or who did take action, whether or not they were required to, possibly including, for example, executive officers, internal audit, legal counsel, the auditors, regulators, compliance and ethics, etc.

http://nyti.ms/cFuHQm #

Beginning 2010 fed. gov't has to pay back social security

2010-03-15T20:24:00.000-07:00

Interesting article, beginning in 2010 and apparently each year thereafter social security will fail to receive sufficient funds to pay outlays. Accordingly, social security will have to begin cashing its assets, which are IOU's that are owed by the federal government to social security. I presume the IOU's are there because the federal government borrowed or took from social security in the past. The projected taxpayer tab in 2010: $29 billion.

Click Here

Dave Tate, Esq.
http://davidtate.us

New case: attorney's approval as to form and content

2010-03-13T18:23:00.000-08:00

Freedman v. Brutzkus (March 12, 2010, California Court of Appeal, Second District), holding that an attorney's signature on a settlement document indicating that the attorney "approved as to form and content" is a representation that the attorney was representing his or her clients, had read and understood the document, and that the document was in the proper form and represented the agreement of the parties. However, the approval as to form and content is not a representation by the attorney that any of the parties will abide by or fulfill the agreement.

Regards,
Dave Tate, Esq. (San Francisco)
http://davidtate.us

Recorded Witness Statements Discoverable

2010-03-06T21:51:00.000-08:00

Coito v. Superior Court of Stanislaus County (March 2010, California Court of Appeal, Fifth District).

Holding that written and tape recorded third party witness statements, including not only those produced by the witness and turned over to counsel, but also those obtained by attorneys or attorney investigator agents during interviews of the witnesses are not work product and are discoverable by other parties in the case. The Court further held that the statements are discoverable although they could reveal attorney tactical or evaluative information, stating "[w]e are confident, however, that competent counsel will be able to tailor their interviews so as to avoid the problem should they choose to do so." The decision does not discuss whether the investigator agent notes from the interview are discoverable. The Court in Coito criticizes the holding in Nacht & Lewis architects, Inc. v. Superior court (1996) 47 Cal. App. 4th 214, a Third District case which holds differently.

Dave Tate, Esq.
Linkedin Link (click to connect)
http://davidtate.us

New Case: Breach of Contract as Violation of False Claims Act

2010-03-02T23:12:00.000-08:00

New case: Breach of Contract as Violation of False Claims Act.

SAN FRANCISCO UNIFIED SCHOOL DISTRICT ex rel. MANUEL CONTRERAS et al., v. LAIDLAW TRANSIT, INC., et al. (California Court of Appeal, First Appellate District), holding that a vendor can be liable under the California False Claims Act when the vendor submits a claim or bill for payment when the vendor knows that it is in breach of the terms of its contract with the governmental entity.

New case: arbitration award might not be reviewable for legal error.

2010-03-01T20:22:00.001-08:00

New case: arbitration award might not be reviewable for legal error.

GRAVILLIS v. COLDWELL BANKER RESIDENTIAL BROKERAGE COMPANY (California Court of Appeal, Second Appellate District), holding that an arbitration award in which the arbitrator failed to correctly apply the law is not generally appealable, unless the arbitration clause specifically states that the arbitration award is subject to review for legal error. Unless the arbitration clause specifies otherwise, error of law is a risk that the parties to the arbitration clause agree to accept.

Regards,
Dave Tate, Esq. (San Francisco)

CALIFORNIA TRUST/PROBATE UPDATE

2010-02-24T22:11:00.000-08:00

Estate of Tolman (California Court of Appeal, 2nd Appellate Dist., February 11, 2010)

In her Will decedent Tolman left a share of her estate to her daughter. However, Toleman’s daughter predeceased Toleman. The Will also contained a clause excluding from inheritance any heirs not specifically named in the Will. The daughter was survived by a son who was not named in the Will. Nevertheless, the court held that the daughter’s son was entitled to his mother’s share of Tolman’s estate pursuant to anti-lapse statute Probate Code §21110 although the son was not named as a beneficiary in the Will.

Linkedin Link (click to connect)
http://davidtate.us

CALIFORNIA TRUST LAW DEVELOPMENTS

2010-02-14T16:26:00.000-08:00

Steinhart v. County of Los Angeles (California Supreme Court, February 4, 2010)

Summary. Trustor established a revocable trust, named herself trustee and the sole beneficiary, and transferred her residence into the trust. When the trustor died the trust became irrevocable, provided the trustor's sister with a life estate in the residence, and named siblings as beneficiaries. The County of Los Angeles reassessed the real property for property tax purposes. The sister argued that since she received a life estate, there should be no reassessment for property tax purposes. The California Supreme Court held that at the time that the trust becomes irrevocable, a change in ownership occurs unless the trustor remains or becomes the sole beneficiary or unless otherwise excluded from change in ownership by other statutory rules.

Video, A 9 Word Question Directors Should Ask

2010-01-31T23:03:00.003-08:00

You can view a new Mary & John youtube video, A 9 Word Question Directors Should Ask, at http://www.youtube.com/watch?v=0GZ5ntp39pA

Regards,
Dave Tate, Esq.
http://davidtate.us
http://www.tatecommonsensical.blogspot.com

Reasons for a Trustee to Consider an Investment Advisor (California)

2010-01-29T07:39:00.000-08:00

Although a trustee is not required to retain an investment advisor and retaining an investment advisor may or may not be beneficial depending on the trust and the pertinent factual and investment situation, a trustee might very well find retaining an investment advisor beneficial for the reasons discussed below.

A trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule. However, the language of the trust may expand or restrict the prudent investor rule by express provisions in the trust instrument.

A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution. A trustee's investment and management decisions respecting individual assets and courses of action must be evaluated not in isolation, but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.

Among circumstances that are appropriate to consider in investing and managing trust assets are the following, to the extent relevant to the trust or its beneficiaries:

(1) General economic conditions.

(2) The possible effect of inflation or deflation.

(3) The expected tax consequences of investment decisions or strategies.

(4) The role that each investment or course of action plays within the overall trust portfolio.

(5) The expected total return from income and the appreciation of capital.

(6) Other resources of the beneficiaries known to the trustee as determined from information provided by the beneficiaries.

(7) Needs for liquidity, regularity of income, and preservation or appreciation of capital.

(8) An asset's special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries.

A trustee shall make a reasonable effort to ascertain facts relevant to the investment and management of trust assets.

In making and implementing investment decisions, the trustee has a duty to diversify the investments of the trust unless, under the circumstances, it is prudent not to do so.

Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust assets and make and implement decisions concerning the retention and disposition of assets, in order to bring the trust portfolio into compliance with the purposes, terms, distribution requirements, and other circumstances of the trust, and with the requirements of this chapter.

In investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, overall investment strategy, purposes, and other circumstances of the trust.

However, and with the above rules in mind, a trustee may delegate investment and management functions as prudent under the circumstances. The trustee must exercise prudence in (1) selecting the agent, (2) establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust, and (3) periodically reviewing the agent's overall performance and compliance with the terms of the delegation.

In performing the delegated function, the agent has a duty to exercise reasonable care to comply with the terms of the delegation.

Importantly, except as indicated in the circumstances listed below, a trustee who complies with the requirements that he or she prudently select and oversee the investment advisor agent should not be liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated. Note, that the trustee still remains liable for an act or omission of the investment advisor agent where the trustee (1) directs the act of the agent, (2) delegates to the agent an act that the trustee is under a duty not to delegate, (3) does not use prudence in the selection or retention of the agent, (4) does not review the agent's overall performance and compliance with the terms of the delegation, (5) conceals the act of the agent, or (6) neglects to take steps to compel the agent to redress a wrong where the trustee knows of the agent's acts or omissions.

Nevertheless, the retention of a qualified trust investment advisor can help to transfer risk/liability for investment decisions if done properly. Of course the trustee must prudently select the advisor and continue to oversee the investment advisor and investment situation.

Regards,
Dave Tate, Esq. (San Francisco and Beyond)
http://davidtate.us/
tateatty@yahoo.com
http://www.tatecommonsensical.blogspot.com/
http://www.linkedin.com/in/davetateesq

CALIFORNIA CONSERVATORSHIP DEVELOPMENT

2010-01-23T07:51:00.000-08:00

Conservatorship of Deidre B. (California Courts of Appeal, January 11, 2010)

I found this to be an interesting case, although it involves an LPS (Lanterman-Petris-Short) conservatorship. If you know other people who are involved in trust, estate, conservatorship, elder, or related administration or investment issues, please also pass word of this blog along to them so they can view the regular updates.

The facts in Deidre B. are summarized as follows. In due course the San Diego Public Conservator filed a petition to reestablish the LPS conservatorship of Deidre on the grounds that Deidre was gravely disabled. An LPS conservatorship must be renewed or reestablished each year. The reestablishment was supported by two doctor declarations that identified Deidre’s disabilities as chronic paranoid schizophrenia and inability to provide for her basic needs.

In response to the petition Deidre’s Public Defender attorney filed a stipulation signed by the attorney that she had personally contacted Deidre by telephone, discussed the reestablishment of the conservatorship, and that Deidre agreed to the reestablishment of the conservatorship without need for a formal court trial. However, at the subsequent hearing on the petition the Public Defender represented to the court that they were not convinced based on discussions with Deidre that she was or was not contesting the conservatorship, and that the Public Defender had spoken with Deidre that morning by telephone and Deidre indicated that she did not want to contest the conservatorship or appear in court. The court affirmed the reestablishment of the conservatorship based on the prior stipulation.

In summary, the Court of Appeal upheld the reestablishment of the conservatorship. I mention this case for those o f you who are involved in LPS conservatorships as the case does discuss in detail the procedures for and legitimacy of reestablishing LPS conservatorship based on sufficient declarations from medical professionals, and that the conservatorship can be reestablished and the conservatee can consent to the reestablishment of the conservatorship and waive her right to a trial by a stipulation by her attorney that the conservatee was informed of the proceedings and her rights and that she agreed to not contest the reestablishment of the conservatorship and waived her right to have a trial of the matter in court. The case raises issues of informed consent, or possible lack thereof such as when the proposed conservatee is diagnosed with chronic paranoid schizophrenia.

Regards,
Dave Tate, Esq. (San Francisco and Beyond)
http://davidtate.us
tateatty@yahoo.com
http://www.tatecommonsensical.blogspot.com/
http://www.linkedin.com/in/davetateesq

TRUSTEE STATUTORY INVESTMENT DUTIES

2010-01-16T21:54:00.001-08:00

Trustee Investment Responsibilities Statutory Overview (California)

The following are the primary California Probate Code statutes relating to trustee investment duties. Every trustee should be familiar with these provisions. Although a trustee is not required to seek the assistance of an investment advisor, it might be considered for appropriate trusts and investment situations.

Cal. Probate Code §16046

A trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule.

However, the settlor may expand or restrict the prudent investor rule by express provisions in the trust instrument. A trustee is not liable to a beneficiary for the trustee's good faith reliance on these express provisions.

Cal. Probate Code §16047

(A) A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.

(B) A trustee's investment and management decisions respecting individual assets and courses of action must be evaluated not in isolation, but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.

(C) Among circumstances that are appropriate to consider in investing and managing trust assets are the following, to the extent relevant to the trust or its beneficiaries:

(1) General economic conditions.

(2) The possible effect of inflation or deflation.

(3) The expected tax consequences of investment decisions or strategies.

(4) The role that each investment or course of action plays within the overall trust portfolio.

(5) The expected total return from income and the appreciation of capital.

(6) Other resources of the beneficiaries known to the trustee as determined from information provided by the beneficiaries.

(7) Needs for liquidity, regularity of income, and preservation or appreciation of capital.

(8) An asset's special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries.

(D) A trustee shall make a reasonable effort to ascertain facts relevant to the investment and management of trust assets.

(E) A trustee may invest in any kind of property or type of investment or engage in any course of action or investment strategy consistent with the standards of this chapter.

Cal. Probate Code §16048

In making and implementing investment decisions, the trustee has a duty to diversify the investments of the trust unless, under the circumstances, it is prudent not to do so.

Cal. Probate Code §16049

Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust assets and make and implement decisions concerning the retention and disposition of assets, in order to bring the trust portfolio into compliance with the purposes, terms, distribution requirements, and other circumstances of the trust, and with the requirements of this chapter.

Cal. Probate Code §16050

In investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, overall investment strategy, purposes, and other circumstances of the trust.

Cal. Probate Code §16051

Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of a trustee's decision or action and not by hindsight.

Cal. Probate Code §16052

(A) A trustee may delegate investment and management functions as prudent under the circumstances. The trustee shall exercise prudence in the following:

(1) Selecting an agent.

(2) Establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust.

(3) Periodically reviewing the agent's overall performance and compliance with the terms of the delegation.

(B) In performing a delegated function, an agent has a duty to exercise reasonable care to comply with the terms of the delegation.

(C) Except as otherwise provided in Section 16401, a trustee who complies with the requirements of subdivision (a) is not liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated.
(D) By accepting the delegation of a trust function from the trustee of a trust that is subject to the law of this state, an agent submits to the jurisdiction of the courts of this state.

Cal. Probate Code §16401

(A) Except as provided in subdivision (b), the trustee is not liable to the beneficiary for the acts or omissions of an agent.

(B) Under any of the circumstances described in this subdivision, the trustee is liable to the beneficiary for an act or omission of an agent employed by the trustee in the administration of the trust that would be a breach of the trust if committed by the trustee:

(1) Where the trustee directs the act of the agent.

(2) Where the trustee delegates to the agent the authority to perform an act that the trustee is under a duty not to delegate.

(3) Where the trustee does not use reasonable prudence in the selection of the agent or the retention of the agent selected by the trustee.

(4) Where the trustee does not periodically review the agent's overall performance and compliance with the terms of the delegation.

(5) Where the trustee conceals the act of the agent.

(6) Where the trustee neglects to take reasonable steps to compel the agent to redress the wrong in a case where the trustee knows of the agent's acts or omissions.

Regards,
Dave Tate, Esq. (San Francisco and Beyond)
http://davidtate.us
tateatty@yahoo.com
http://www.tatecommonsensical.blogspot.com/
http://www.linkedin.com/in/davetateesq

CALIFORNIA TRUST LAW DEVELOPMENTS

2010-01-15T23:05:00.000-08:00

Balian v. Balian (California Courts of Appeal, December 11, 2009)

Mary J. Balian Revocable Trust provided that upon Mary’s death the trust residue would be divided equally into four parts for her four children, Alexander, George, Patricia and Diane. Upon Mary’s death Alexander and George became the designated co-trustees. A special needs provision provided that Patricia and Diane would receive monthly payments. The trust also contained a no contest clause that stated that a beneficiary who contested the trust would be disinherited.

Patricia petitioned the court to determine whether a petition to modify the amount of her monthly distribution would violate the no contest clause. The probate court granted the petition, holding that the proposed petition would not violate the no contest clause. On appeal, the appellate court affirmed the probate court’s decision, holding that the trustor’s intent controls, and that a proposed petition to modify a special needs provision in a trust must be pursued under section 15409, which specifically does not violate a no contest clause pursuant to section 21305.

This case also is of note because on January 1, 2010, pursuant to new legislation, many of the California probate code no contest statutes changed for instruments that became irrevocable on or after January 1, 2001. These changes will be the subject of later blogs.

Regards,
Dave Tate, Esq. (San Francisco and Beyond)
http://davidtate.us
tateatty@yahoo.com
http://www.tatecommonsensical.blogspot.com/
http://www.linkedin.com/in/davetateesq

Mary & John Top 5 Reasons Why People Don't Settle Disputes

2010-01-12T00:56:00.000-08:00

Video. Mary and John: Top 5 Reasons Why People Don't Settle Disputes.

Link: http://www.youtube.com/watch?v=McDzYVAXzP4

Dave Tate, Esq.
http://davidtate.us/

California Trust Law Developments

2010-01-01T06:32:00.000-08:00

Rudnick v. Rudnick (California Courts of Appeal, December 2, 2009).

If a trust beneficiary brings an unfounded suit against a trustee in bad faith, in the Court’s discretion attorneys’ fees can be awarded to the trustee in defending the action, and those fees can be charged against the beneficiary’s trust interest. In dicta the Court also noted that it has been similarly held for beneficiaries who have incurred attorneys’ fees to vindicate their position as a beneficiary.

The trial Court’s ruling on these issues will be reversed only in circumstances where the Court manifestly abused its discretion. In this case attorneys’ fees were awarded to the trustee because the Court noted that the objecting minority beneficiaries had not only lost on their objections but that the objections were disingenuous and a demonstration of bad faith as the objecting beneficiaries intended to delay and derail the trustee’s sale of property (which had been approved by the majority beneficiaries) even with arguments that lacked sufficient merit or that contradicted prior positions taken by the objecting beneficiaries. The Court also noted with regard to one action that was taken by the beneficiaries that their bad faith was further evidenced when they could have stipulated to a record for appeal and proceeded by declaration but instead insisted on an evidentiary hearing that lasted eight days.

The trial Court’s determination of what constitutes reasonable attorneys’ fees also will not be overturned unless the award appears to be clearly out of proportion to the services performed so as to be an abuse of discretion. See the facts of the case for the discussion justifying the out-of-town attorneys’ fees and costs awarded ($226,000).

Regards,
Dave Tate, Esq. (San Francisco and Beyond)
http://davidtate.us
tateatty@yahoo.com
http://www.tatecommonsensical.blogspot.com/
http://www.linkedin.com/in/davetateesq
http://twitter.com/DavidTateEsq

CALIFORNIA TRUST LAW DEVELOPMENTS

2009-12-22T22:57:00.000-08:00

Chatard v. Oveross (California Courts of Appeal, Nov. 30, 2009).

Holding that the beneficiaries of a trust were entitled to charge the share in the trust of another beneficiary who was also the trustee where the beneficiary/trustee was found liable for breach of her trustee duties, and that a spendthrift clause in the trust, stating that the interest of a beneficiary in the trust could not be subject to that beneficiary's creditors, did not prohibit the surcharge where the trust did not contain language that indicated that the trustors would have wanted to insulate the beneficiary/trustee's share in the trust if she breached her trustee duties.

Regards,
Dave Tate, Esq. (San Francisco and Beyond)
http://davidtate.us
http://www.linkedin.com/in/davetateesq
http://twitter.com/DavidTateEsq

CALIFORNIA TRUST LAW DEVELOPMENTS

2009-12-09T09:20:00.000-08:00

Presta v. Tepper (California Courts of Appeal, November 24, 2009)

Presta and Tepper entered into two partnership agreements as trustees of their respective trusts. The partnership agreements included a clause stating that upon the death of a partner the partnership shall purchase the entire partnership interest of the deceased partner in the partnership. Tepper died. The issue was whether Tepper or his trust was the partner for the purpose of the partnership agreement. The court held that although some trusts can legally be partners, with respect to the trusts in question (typical estate planning trusts) the trustees, and not the trusts, are the partners. Therefore, although Tepper’s trust was ongoing, Tepper’s death triggered the buyout clause. By law, the trusts in question are not entities separate from their trustees and cannot independently do anything—the trusts cannot sue or be sued, cannot enter into agreements, and cannot fulfill the fiduciary duties of a partner.

Regards,
Dave Tate
http://davidtate.us
http://www.tatecommonsensical.blogspot.com
tateatty@yahoo.com

CALIFORNIA TRUST LAW DEVELOPMENTS

2009-12-03T21:01:00.000-08:00

1680 Property Trust v. Newman Trust (California Courts of Appeal, Nov. 17, 2009).

A person who has a claim against a trust must bring that claim against the trustee as a trust has no capacity to sue, be sued, or defend an action. And where the trustee against whom the claim should be brought dies before the expiration of the statute of limitations, pursuant to Cal. Code Civ. Proc. Section 366.2, the action must be commenced within one year after the date of death of the trustee. Further, there is no distinction between the decedent trustee and the successor trustee for the purpose of Section 366.2.

Regards,
Dave Tate, Esq. (San Francisco and Beyond)
http://davidtate.us
http://www.linkedin.com/in/davetateesq
http://twitter.com/DavidTateEsq

California Trust Law Developments

2009-11-26T01:48:00.000-08:00

The following is an important November 2009 California trust law court decision:

King v. Johnston (California Courts of Appeal, Fourth Appellate District, No. D054136, 2009 DJDAR 15871).

In a developing area of trust law, the court reaffirmed and clarified that a trust beneficiary has the personal right to sue a third party individual who actively participates in or knowingly benefits from a trustee’s breach of trust. The trial court held that the beneficiary did not have standing. The appellate court reversed, holding that the beneficiary had independent standing to sue the trustee, the trustee and the third party, or the third party alone.

There are only a few California cases that address these issues. The facts of each case must be carefully analyzed. In King v. Johnston, for example, the trial court found that the third party influenced the trustee’s decision making and received trust property. However, pursuant to case law, arguably it should be sufficient to show only that the third party in some manner actively participated or assisted in the trustee’s breach. Beneficiary standing also may vary depending on the facts and circumstances of the case and the terms of trust. Nevertheless, beneficiary standing to bring suit is an increasingly important tool available to help pursue people who unduly influence or merely misadvise trustees.

Regards,
Dave Tate, Esq.
http://davidtate.us

King III Governance Report

2009-11-18T23:38:00.000-08:00

The following is a link to the new King III Report for corporate governance in South Africa. The report contains a good summary of the history of corporate governance codes, and many worthwhile provisions although I certainly do not agree with some of its emphasis. I am warming to the "adopt or explain" approach to corporate governance. Generally I also like the provisions that encourage dispute mediation. However, in many instances the provisions lack specificity to avoid disagreement over what is required and what is not required.

Link: http://www.iodsa.co.za/downloads/documents/King_Code_of_Governance_for_SA_2009.pdf

Greetings

2009-11-18T23:35:00.000-08:00

Greetings. This new blog was started on November 18, 2009. You can view my prior blog by the link at the bottom of my website, http://davidtate.us.