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I read the New York Times. It is a fascinating source of information. While it is often criticized (usually by the political right wing and sometimes by the very far left), numerous examples of interesting and thought provoking articles are easily found.

The other day -- April 18 – I came across two very interesting articles that exemplified excellent, professional journalism.

The first article featured Steve Ballmer’s new website that tracks government spending at the local, state and federal level. Written by Andrew Ross Sorkin, in his Dealbook column, the article discussed Ballmer’s new website, USAFacts.org. As most people know, Mr. Ballmer is a retired Microsoft CEO, worth an estimated $24 billion. Three years ago, he set out to find out what happens to all tax dollars. Discovered and assembled at a cost of about $10,000,000, most of which came from Mr. Ballmer’s pocket (and not deducted, we are told), the website contains hundreds of facts about how tax dollars are spent at the local, state, and federal level. For example, there are 24,000,000 government employees, most of whom are teachers, doctors and in the military. I will confess that I spent a couple of minutes on the site and did not find it hugely rewarding. However, I think it may become an important source of factual information in the future for anyone interested in actually finding out facts about how tax dollars are spent.

The second article described a nascent criminal court in San Francisco charged with meting out justice to selected young adults who are charged with certain crimes. For example, a young African-American man, arrested for assault after a traffic altercation, was diverted to this court. The court required the young man to attend counseling sessions and to report weekly to the court for about a year. Ultimately, we find out that his case seems to be a success. Young adults court came about because neuroscience tells us that the brains of young adults are not fully formed. By diverting appropriate defendants to this court, the aim is to steer young adults into productive lives, rather than sending them to prisons where criminal behavior will likely be ingrained. The journalist interviewed experts on both sides of this experiment and we learn about arguments on both sides, allowing the reader to reach his or her own conclusions. The journalist may have revealed his own feelings with his concluding paragraphs which revealed the positive outcome of the young man – he ignores a racial epithet hurled at him, despite a rising anger.

There are any number of similar stories every day in the Times. Pick it up and see if you agree.


If you're interested in reading the New York Times articles Steve discussed, please click on the links below:

     
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"We recognize that, under the rule we adopt, a trustee must take into account the possibility that its confidential communications with an attorney about trust administration may someday be disclosed to a successor trustee. This is, however, not unfair in light of the nature of a trust and the trustee's duties." Moeller v. Superior Court, 16 Cal. 4th 1125 (1997).

In Moeller, the California Supreme Court held that a predecessor trustee cannot assert the attorney-client privilege to prevent disclosure of documents to the successor trustee. The attorney-client privilege, in essence, travels with the office of the trustee and upon taking the office, all of the powers of the trustee, including the power to assert the attorney-client privilege, are assumed by the successor trustee. The Court focused on the unique and important role of a trustee finding that the right of access to attorney-client communications must belong to the successor trustee in order to allow for the effective and continuous administration of trusts. Moeller at 1133.

This invasion into the sanctity of the attorney-client privilege was discouraging to many trustees and attorneys alike. However, The Court left open an option for wary trustees: "If a predecessor trustee seeks legal advice in its personal capacity out of genuine concern for possible future charges of breach of fiduciary duty, the predecessor may be able to avoid disclosing the advice to a successor trustee by hiring a separate lawyer and paying for the advice out of its personal funds." Moeller, at 1134. Since Moeller, the prevailing opinion among attorneys has been that a trustee concerned about being removed and having his privileged communications go to his successor can protect that privilege by paying for the attorney with personal funds instead of trust funds.

In the 2017 decision, Fiduciary Trust International of California v. Klein, the Court of Appeals for the 1st Appellate District addressed the attorney-client privilege protection for a trustee then in office who is later removed. In Klein, the predecessor trustee claimed attorney-client privilege to certain communications that occurred prior to removal. Citing Moeller, the trustee took the position that communications sought by the trustee in connection with personal matters and personal liability are privileged from disclosure, whereas communications related to the administration of the trust are not privileged. The probate court permitted the trustee to withhold some documents.

The Court of Appeals considered how to distinguish between confidential communications occurring when the trustee seeks legal advice or guidance on matters of trust administration, and those occurring when the trustee seeks legal advice or guidance in its personal capacity out of genuine concern for possible future charges of breach of fiduciary duty.

In Klein, the Court held, "actual steps must be taken to identify a communication as privileged when the communication is 'sought' from the trustee's personal counsel." Thus, labeling a document as defensive after the fact does not satisfy the criteria described in Moeller.

The decision in Klein is useful guidance for attorneys and trustees alike in evaluating how to proceed with the attorney-client relationship when in the shadows of a potential removal action. While the rule may be imperfect, especially for prudent trustees who, faced with disgruntled beneficiaries, are forced to pay out-of-pocket for their attorney, Klein puts forth a more understandable standard for those circumstances when separate counsel may be needed.

Another outstanding issue from Moeller that remains to be tested is the statement in the decision that "a trust instrument may limit a trustee's statutory powers." Moeller at 1131. Estate planning attorneys might add language to address the powers of the trustee and either strengthen or undermine the attorney-client privilege between trustee and attorney.

     
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Last time we reviewed the content of the declarations page. We pick up here with the coverage provisions of your liability policy. Next time, it’s coverage limitations and insurance company defenses.

The Insuring Clause
The insuring clause sets the scope of coverage. It is often deceptively short, as it relies on definitions elsewhere in the policy and it is qualified by conditions, exclusions, and endorsements. As you parse each insuring clause, maintain focus on the insured qualification (i.e. who is covered); the damages qualification (i.e. the type of loss or harm covered); and the activity qualification (i.e. the type of activity or peril covered).

Insuring clauses are given broad interpretation by the courts. But you will see that what the insuring clause giveth, conditions, exclusions (and, potentially, the endorsements) taketh away. An endorsement can be a stand-alone coverage or limitation, or it might be used to change a definition or even an entire insuring clause. When a coverage question arises, the burden is on the insured initially to demonstrate that the claimed loss is within the coverage provided by the policy’s insuring clause. If the insured satisfies this burden, the burden then shifts to the insurer to demonstrate that an exclusion applies.

Examples of a CGL insuring clause are:

  • “COVERAGE A- BODILY INJURY AND PROPERTY DAMAGE LIABILITY 1. Insuring Agreement a. We will pay on behalf of the insured the ‘ultimate net loss’ in excess of the ‘retained limit’ because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.”
  • “COVERAGE B - PERSONAL AND ADVERTISING INJURY LIABILITY 1. Insuring Agreement a. We will pay on behalf of the insured the ‘ultimate net loss’ in excess of the ‘retained limit’ because of ‘personal and advertising injury’ to which this insurance applies.”

Examples of D&O insuring clauses are:

“Management Liability Insuring Agreement”

  • Individuals: “The Insurer shall pay on behalf of the Insured Persons Loss for which the Insured Persons are not indemnified by the Company and which the Insured Persons become legally obligated to pay on account of any Claim first made against them, individually or otherwise, during the Policy Period, the Automatic Discovery Period, or, if exercised, the Additional Extended Discovery Period, for a Management Practices Act taking place before or during the Policy Period.”
  • Company: “If Company Liability Coverage is granted as set forth in the Declarations, the Insurer shall pay on behalf of the Company Loss for which the Company becomes legally obligated to pay on account of any Claim . . . for a Management Practices Act taking place before or during the Policy Period.”

An example of an E&O insuring clause is:

“PROFESSIONAL LIABILITY COVERAGE PART”

  • “The Insurer will pay on behalf of the Insured, that Loss, in excess of the retention and up to the applicable limit of liability, resulting from any Claim first made against the Insured during the Policy Period, or any Extended Reporting Period, if applicable, for a Wrongful Act by the Insured, or by someone for whose Wrongful Act the Insured is legally responsible provided…”
     
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Tax reform is a promise that the current administration keeps pushing. Despite the delays in addressing other political issues, the administration has not backed down from its announced plan to overhaul the tax code. A big part of that overhaul involves the repeal of the federal estate tax.

Currently, about $5,500,000 of a decedent’s estate is exempt from the federal estate tax. Every dollar exceeding that exemption amount (subject to other deductions) is subject to a tax at the rate 40%. The White House promises a full repeal of this estate tax. Interestingly, eliminating federal estate tax is favored by the vast majority of Americans, even though as it stands it impacts fewer than the top 100th of the top 1%.

Senate Bill 726, introduced by California State Senator Scott Wiener in late February, would replace a repealed federal estate tax with a California estate tax. In effect, if the federal estate tax is repealed, the California law would spring to life and levy a California estate tax equal to what would have been levied by the IRS. As envisioned under this bill, if the federal estate tax is repealed, California residents would simply replace “US Department of Treasury” with “California” as the payee on a check to pay estate taxes.

The wealthy and aging California population hanging on for an estate tax repeal shouldn’t hold their breath. In fact, a federal estate tax repeal could result in dramatically higher taxes. Many believe if the federal estate tax gets repealed, it will be replaced by removing the “basis step-up on death.” Current law provides that basis in assets held at death are stepped up to fair market value. For example, if an individual’s only asset is a home worth $1,000,000, the basis in that home will be stepped up to $1,000,000 at that individual’s death regardless of what it was before. The heirs could sell that home the next day and not owe any capital gains tax. If the federal estate tax is repealed, many believe that basis will no longer get a step-up on death and heirs will simply inherit the basis the decedent had prior to death. Therefore, assets later sold would be subject to capital gains tax.

Senate Bill 726 coupled with potential new federal tax basis rules could dramatically raise taxes on California residents. Residents could end up paying both the estate tax and a capital gains tax upon sale. A wealth exodus from California would not be out of the question. Proactive planning now, however, may keep you from holding the proverbial bag.

     
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I strive to be as civil as possible with my fellow attorneys. After all, as litigators, we are all officers of the court. This is why a recent article regarding a case in the Northern District of California involving allegations of trade secret sharing caught my eye. During the course of discovery in the case, Magistrate Judge Ryu, ordered Plaintiff’s counsel to pay opposing counsel for “coffee stains inflicted at a deposition.” Judge Ryu had previously issued a ruling that the same attorney had coached deposition witnesses, among other things, and sanctioned the attorney. The transcript from the deposition provides a primer in how to conduct yourself if you are in a situation involving opposing counsel who is less than civil. For example, the deposition transcript states:


MR. WALLERSTEIN: Sir, I think you should take five and think about it.

MS. HEALY: No. I think you should take a f*****g break. You should take—

(Interruption in proceedings.)

MR. WALLERSTEIN: Oh, my goodness.

MS. HEALY: Take a f*****g break.

MR. WALLERSTEIN: I need help. She just threw her coffee at me. She’s going crazy.
Sir, you should get a lawyer. You’re a witness. Oh, my God. Sorry about that. We’re
going to go off the record.


You have to admire Mr. Wallerstein for his seemingly calm narration of events. He says, “I need help.” Presumably, he is looking for someone to bring him napkins or a paper towel. That statement is merely reactive to the situation. But the next sentence shows impressive foresight. Mr. Wallerstein says, “She just threw her coffee at me.” It seems that he knows that what just happened will be significant someday and the act of throwing coffee may be denied later. Experienced lawyers know that there is a need to put on the record those things which are not otherwise captured by the record. For example, a lawyer might say, “let the record reflect that counsel for the witness has just shown the witness a note written on counsel’s legal pad.” The observation that opposing counsel is “going crazy” underscores how far beyond the pale of appropriate behavior opposing counsel has gone.

Mr. Wallerstein’s reaction and description of opposing counsel’s actions create a clear account and record of Ms. Healy’s coffee attack on Mr. Wallerstein. Predictably, Ms. Healy denied throwing the coffee saying that she "very simply slammed it on the table causing the remains of my coffee to spill on the table.” Everyone else at the incident ultimately said that Ms. Healy threw the coffee. Of course, the immediate recitation into the record of events helps insure the accuracy of after the fact recollections as well. And kudos to the court reporter for staying on task through the fray and keeping the record going.

This tawdry story provides a helpful pointer to lawyers in any deposition that is not being videotaped or where conduct takes place off-camera. It is critical to stay calm. Only with calm reflection in the heated moment can a lawyer create for the record a description of events not otherwise captured on the record. This is one of the job duties that makes the life of a litigator challenging. And one can only hope that this incident provides a lesson to ill-mannered litigators that there are consequences to incivility.

     
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The articles on this site are for informational purposes only. Nothing on this internet site or affiliated social media sites can or should be regarded as legal advice. You should not take action on any legal matter without first consulting with an attorney.