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Cory DarnellOn May 10, 2018, the California Supreme Court approved new California Rules of Professional Conduct (“New Rules”). Sixty-Nine New Rules have been implemented. It is the largest overhaul of the State’s rules in over thirty years. To provide some context into the scale of change, the previous Rules of Professional Conduct were thirty-three pages long, where new rules are 106 pages. These are changes that all 267,464 attorneys in California need to study.

The New Rules are significantly more in line with the American Bar Association’s Rules of Professional Conduct (“ABA Rules”). Future California Bar Exam takers will be pleased that one need only memorize one set of Rules, but some discrete and significant differences remain. For example, under ABA Rules, tests the reasonableness of a fee are, in part, based upon “fee[s] customarily charged in the locality for similar legal services.” The New Rules have no such requirement. In part, the test is “whether the lawyer has failed to disclose material facts.”  Lawyers will need to be familiar with these differences to avoid committing sanctionable actions.

One of the most refreshing and forward-thinking changes to the New Rules is the leniencies in connection with work for non-profits and indigent clients. A lawyer may now pay the costs of prosecuting or defending a claim on behalf of an indigent client. Furthermore, the New Rules explicitly define “costs” to include reasonable expenses of litigation, including court costs, and reasonable expenses in preparing for litigation or in providing other legal services to the client. Additionally, the New Rules allow a lawyer to share a court-awarded legal fee with a nonprofit organization that employed, retained or recommended employment of the lawyer in the matter.

There are various other interesting changes, such as modifications to the rules regarding sexual relations with current clients. The New Rules give the State Bar the discretion to not pursue a disciplinary action if the sexual relationship is reported by a third party. The New Rules now forbid gift “solicitations” from clients, in contrast to the old rules which forbid the payment of any “inducements.” Previously, the rules limited accepting gifts from a “parent, child, sibling, or spouse,” but gifts are now allowed from those related both by “blood or affinity” and “spouse or domestic partner.”

There are changes to Conflict of Interest rules, Duties to Former Clients rules, and Duties To Prospective Client rules. Overall, the New Rules make it clear that lawyers owe a duty to clients to be forthright and timely in advice. Also, lawyers owe a duty to themselves and their colleagues to be honest and trustworthy in their zealous pursuits. The New Rules take effect November 1, 2018.

Cory Darnell is a Summer Intern at Friedemann Goldberg LLP. He is a graduate of the University of California, Berkeley, and recently completed his second year of law school at the University of California, Davis.

New California Rules of Professional Conduct

Christopher M. HawsThe United States Supreme Court took action on June 21st that it ordinarily is loath to do:
overturn itself. The law of Quill Corp. v. North Dakota and National Bella Hess, Inc. v. Department of Revenue of Illinois no longer govern.

The case of South Dakota v. Wayfair asked if a South Dakota law requiring retailers with no physical presence in South Dakota to collect and remit sales tax was constitutional.
Previously, the Supreme Court had ruled in Quill and Bella Hess that states could only require sellers and retailers with a physical presence in the state to collect and remit sales
tax. Justice Kennedy stated on Thursday, “Each year, the physical presence rule becomes further removed from economic reality and results in significant revenue losses to States.”
In a 5-4 decision, the Court overturned Quill and Bella Hess, stating that the “physical presence” test was no longer required and states need not adhere to that when drafting laws to collect sales tax.

Justice Kennedy eloquently sums his position on the issue by making an example of Wayfair:
“Its advertising seeks to create an image of beautiful, peaceful homes, but it also says that “‘[o]ne of the best things about buying through Wayfair is that we do not have to charge sales tax.’” Brief for Petitioner 55. What Wayfair ignores in its subtle offer to assist in tax evasion is that creating a dream home assumes solvent state and local governments. State taxes fund the police and fire departments that protect the homes containing their customers’ furniture and ensure goods are safely delivered; maintain the public roads and municipal
services that allow communication with and access to customers; support the “sound local banking institutions to support credit transactions [and] courts to ensure collection of the purchase price,” Quill, 504 U. S., at 328 (opinion of White, J.); and help create the “climate of consumer confidence” that facilitates sales…”

States will no doubt be in a hurry to get laws on the books allowing them to collect sales taxes from out of
state retailers. Consumers, get your checkbooks out.

Consumers, Get Your Checkbooks Out

John N. MacLeod Here are 5 practical tips that can help improve the effectiveness of taking a deposition.

  1. Understanding the purpose of the deposition. Deposition testimony is often taken to confirm or establish testimony which can be used as evidence at trial or in pretrial motions, as well as for impeachment purposes. However, it is also a tool for discovering other sources of relevant information not previously known to the attorney. Where the goal is to use the testimony as evidence it is important make sure the question is clear and has not been properly objected to such that the objection will be sustained and the testimony deemed inadmissible. If you think that the question was not phrased properly and the objection has merit, consider rephrasing and re-asking your question to cure the defect during the deposition. However, do not let opposing counsel’s objections deter you from asking questions concerning proper subject matter.
     
  2. Consider conducting written discovery prior to the deposition. Propounding interrogatories and document requests is an effective method to discover relevant facts, documents, and potential witnesses that may be used to identify witnesses for deposition and incorporated during the deposition. The discovery responses may help counsel develop particularly relevant areas of inquiry in advance of the deposition. The responses and documents can also be explored and tested during deposition. Having written discovery responses in advance of the deposition can reduce the risk of failing to ask relevant questions before the close of the deposition.
     
  3. Knowledge of the claims and defenses. Familiarizing yourself with each element of the relevant claims and defenses is essential. This will get you started formulating relevant questions about those elements in advance of the deposition, which should be considered together with any facts and documents known or obtained during written discovery. This will help avoid gaps in testimony that might be used to establish a claim or defense.
     
  4. Consider preparing an outline. Many lawyers prepare for deposition by drafting an outline in advance of the deposition for use during the deposition. The level of detail of the outline varies by preference, but it may be as detailed as having each question written out and organized by subject matter, claim or defense, chronological order, or some combination of the above. The simple practice of preparing an outline helps counsel be organized, focus on important issues, ask questions with proper form, determine potential exhibits and the timing for introducing exhibits, and develop additional relevant areas of inquiry. This also helps avoid gaps in questioning and helps the attorney stay on track, especially where other areas of inquiry are explored or the testimony is interrupted. While an outline is useful, the attorney should be flexible and willing to depart from the outline to follow up on and explore the testimony given.
     
  5. Be thorough. Because counsel usually has only one opportunity to depose each witness it is important to obtain as much relevant testimony in useable form and explore as many relevant areas of inquiry, as possible. Counsel taking the deposition should attempt to pin down critical testimony so that the witness cannot provide an alternative explanation at a later time. Because counsel has limited time, it may be important to prioritize highly relevant inquiries where counsel has a lot of ground to cover.
Practical Tips for Taking a Deposition

Mia R. BowlerA durable power of attorney is a common part of an estate plan. However, the purpose of the power of attorney is often misunderstood.

The power of attorney names an agent to handle financial affairs for the principal. The Uniform Statutory Form comes with a number of options that the principal can check conferring authority on the agent, for example for real property transactions, banking and financial institution transactions, tax matters, and several other categories. The Uniform Statutory Form does not need to be used, and custom power of attorneys can be drafted; however, use of the Uniform Statutory Form is helpful as it provides options for the most common issues.

Naming an agent under power of attorney is a tool that can prevent a conservatorship if the principal is unable to manage her affairs.

Where an individual has a living trust in place, the power of attorney may be unnecessary if all of the assets are properly titled. But it is generally recommended to include a power of attorney in a living trust package as it is common for individuals to fail to transfer all of their assets into the trust and the agent under power of attorney can transfer assets inadvertently held outside of the trust to the trust in the event of the principal’s incapacity.

A power of attorney is only effective during the life of the principal. If a power of attorney is “durable” it continues even in the event of the incapacity of a principal. An agent’s authority can be effective immediately or at a later date, usually upon the incapacity of the principal. If the power of attorney is effective upon incapacity, the power of attorney must set forth the standard for determining incapacity. A default standard is not provided in the California Probate Code.

There is no affirmative duty for an agent under power of attorney to act on behalf of the principal. Thus, simply naming an agent does not mean that the agent will act and the agent has no liability for refusing to act. An agent assumes fiduciary duties to the principal only in limited circumstances. An agent is under a duty to act if he agrees in writing to act. Thus, principals should consider having their named agent agree to act in writing. An agent also is under a duty to act when the agent undertakes a transaction on behalf of the principal such that the agent is obligated to compete that transaction. Choosing an agent carefully, and naming a successor agent, is critically important. If the agent refuses to act, then the power of attorney may be of no use.

An agent who does act must do so at his own risk. Acting agents are fiduciaries and subject to scrutiny of their actions. The agent must act in the best interests of the principal and manage the assets in a manner consistent with the standard of care that would be observed by a prudent person. The agent must keep accurate records of transactions. Under certain circumstances, the agent may be required to account to the principal or others. An agent who breaches his fiduciary duties could face troubling penalties including double damages and payment of the other party’s attorney fees.

The Power of Attorney

Ronald P. WargoIn the entire spirit of the #Metoo movement a client sues her employer and receives a $1,000,000 judgment. Her attorneys take a customary 33% of the judgment ($300,000) after also deducting case costs. Unfortunately, taxes will take a further bite from this award. Many people do not realize that even under current law the client likely pays federal and state taxes on the full $1,000,000. Taking out $500,000 (50%) of the total award in taxes, the $100,000 case costs, and the $300,000 attorney fees leaves the client with only $100,000 from such a large award. On top of that, the attorney also must pay tax on the money received from the client. In effect, the federal and state governments would actually receive $650,000, or 65% of the total judgment, while the client only receives 10%.

The new Tax Cuts and Jobs Act of 2017 (“2017 Tax Act “) does not change this result. In fact, the Act now makes the outcome the same for smaller cases. Before this year, the client might have deducted some attorney fees as miscellaneous itemized deductions, unless a large award would have pushed the client into the Alternative Minimum Tax (AMT) regime. The 2017 Tax Act completely eliminates miscellaneous itemized deductions for all matters no matter how small, so the client would not be able to deduct her attorney fees or case costs even if the award were only $100,000.

Generally, attorney fees used to be possibly deductible as a miscellaneous itemized deduction if they produce or result in the collection of taxable income or are in any way related to taxes. Such a deduction also had to exceed 2% of the client’s adjusted gross income to be deducted. Clients receiving tax advice, clients consulting an attorney regarding alimony, or clients with an emotional distress or harassment case might have been able to deduct their attorney fees if they were not subject to AMT. Those deductions have largely been eliminated under the new Tax Act.

Some Deductions Still Available

Fortunately, for businesses the law is unchanged. A sole proprietorship can still fully deduct attorneys’ fees for business matters on Schedule C of the individual’s tax return. Partnerships, limited liability companies and corporations also may deduct attorney fees for matters related to the business.

Although technically not a deduction, real estate costs reduce the sales price of real property and are subtracted from the capital gain received from the property. Further, employment discrimination fees and costs are taken out “above-the-line,” meaning that neither AMT nor the 2017 Tax Act affect the tax-free attorney fees for those cases.

Finally, attorney fees for personal injury matters involving physical harm are not taxable, since the awards in those cases are not subject to any income tax. This tax-free treatment likely encompasses most fire-related litigation matters where there is some physical injury, such as smoke inhalation.

Summary

Overall, attorney fees and costs are less deductible than under the previous tax law, but the change mostly affects smaller cases. Some larger cases were already not deductible for other reasons. Payments from some cases were always and remain fully deductible. For any specific matter, a client should consult a tax professional before jumping into litigation and again before signing any settlement agreement.

Deducting Attorney Fees After The 2017 Tax Act

Marci A. ReichbachDid you know that you can record your trademark with U.S. Customs & Border Protection? U.S. Customs & Border Protection (“Customs”), a bureau of the Department of Homeland Security, maintains a trademark recordation system for marks registered at the United States Patent and Trademark Office. Trademark owners who register their marks on the Principal Register may record these marks with Customs to assist Customs in its efforts to prevent the importation of goods that infringe registered marks. The recordation database includes information regarding all recorded marks, and includes images of these marks. Customs officers monitor imports to prevent the importation of goods bearing infringing marks, and can access the recordation database at each of the more than 300 ports of entry. Customs has the legal authority to make infringement determinations relating to trademark infringement, and it is empowered to detain and seize, and even forfeit, infringing goods.

A few important points include that a trademark on the supplemental register is not eligible for recordation. 19 C.F.R. § 133.1(a). A separate application is required for each recordation sought. The application fee for trademarks is $190.00 per International Class of goods, per trademark. A check or money order shall be made payable to the United States Customs Service. 19 C.F.R. § 133.3(b). Recordation is effective on the date the recordation is approved, as shown on the recordation notice issued by Customs. 19 C.F.R. § 133.4 (a). Applications for recordation are processed in the order in which they are received. Applicants and recordants will be notified of the approval or denial of an application. 19 C.F.R. §133.1(b). Recordation runs concurrently with the remaining duration of the underlying trademark registration (i.e. up to ten years for registrations issued on or after November 16, 1989). Recordation must be renewed when the trademark registration is renewed, and recordation with Customs is canceled if the registration is canceled or revoked. 19 C.F.R. § 133.4.

Although there is a paper recordation application, in October 2005, Customs released the Intellectual Property Rights e-Recordation (“IPRR”) system. The IPRR System allows trademark holders to electronically file recordation applications. According to Customs, this will “greatly decrease the amount of time and paperwork normally required, thus providing more timely enforcement of your intellectual property rights.”

Recordation of Trademarks with U.S. Customs and Border Protection

John FriedemannWe have a unique opportunity presented to us as a community to evaluate how home owner’s insurance providers treat their customers following a fire loss. Usually, one person’s experience is anecdotal and not sufficient to indicate how any particular insurance carrier generally treats its insureds. But, following the Northern California Fires, we have the potential to create a large database of experience that will provide a guide to others in making purchase decisions. The work by this firm with fire victims has certainly put us in a position to express some opinions, but it would be great to collect even more complete information about claims handling, make comparisons among carriers, and draw conclusions about which carriers are best and which are worst. I already know that I am changing my insurance company.

Some patterns have become clear. First of all, every insurance company starts with sweetness and light. That first adjuster is your buddy and makes it seem like the insurance process will be a dream. Then you get a new adjuster. Adjuster two is not as nice. The first adjuster was “mistaken” when you were told certain things. No, they will not be paying policy limits until you have documented everything. That slide into unpleasantness continues until the fire victim is an insurance victim; worn down to the point of no resistance by an insurance company that seems to specialize in creating frustration.

To fire victims out there I have this message: Don’t give up, don’t give in, don’t settle for less than you are entitled to receive. Be persistent. Be pushy. Be polite. Communicate in writing and tell your adjuster again and again how hard and frustrating it is to meet their endless requirements. By expressing your frustration while giving them what they ask for, you will be building a paper trail that will ultimately cause the insurance company to give in.

Don't Give Up, Don't Give In

Casey J. Edmondson“Fake” is a popular word these days—I probably don’t need to tell you why. Part of our education, from our parents and teachers and peers, is learning how to avoid being taken by a fake. Spotting fakes is the survival skill that the gatherer uses to miss the poisonous berry, the merchant uses to buy the genuine article, and that the spy uses to flush out a double-agent.

What does any of this have to do with the law? Consider the United States Supreme Court. On the bench sit brilliant, well-educated, experienced legal minds. The scales of justice remind us that balancing things is a judge’s core role. How strong is one argument versus another? Which party met its burden of proof or persuasion by adding enough pebbles to its side of the scale? Citations of fact add weight to an argument; the amount of weight depends on a fact’s certainty plus its persuasiveness. But when a court can’t tell the truth from fiction, and a fake goes onto the scale, the law can tip in irrational, harmful ways.

The independent investigative journalism group ProPublica reports that Supreme Court opinions contain an unsettlingly high number of factual errors. The ProPublica team found many errors that, although embarrassing, are not always consequential—say, undercounting the number of U.S. states that have passed a given law.

Other errors are startling.

In one case, the Court recited a fact that “88 percent of all private companies in the country conduct [background] checks,” to deny a lawsuit by Caltech scientists who worked at the Jet Propulsion Laboratory on a contract basis. The scientists argued that the background checks (featuring intrusive questions about sensitive health matters, and questionnaires sent to scientists’ friends and family) were intrusive enough to infringe on protected rights. But the Court reasoned that a practice followed by 88 percent of private companies must not be very intrusive.

Here’s the problem—nobody knows where that number came from, including the attorneys who filed the amicus brief containing that “fact.”

Some errors are even worse. The Court cited fake data about drug-sniffing dogs to water down constitutional requirements for search and seizure. The Court cited a fake fact – that no-bail imprisonment of immigrants awaiting trial averaged 4 months – to validate the practice. But in truth, the average length of detention was 13 months.

Maybe we shouldn’t be too surprised. After all, the Supreme Court’s brilliant minds have gotten a lot of important things wrong over the years. Spotting what you might call fake logic – fallacies – is hard too for the sharpest people; the ability to do it is impaired by biases we carry through our lives. And yet, observation-based facts should be different and easier to keep straight. That is the promise of the scientific method. In the end, blame probably lies with the most pernicious fallacy of all – confirmation bias. People, judges included, don’t spot a fake where the fake matches their expectations or supports their values. “A man hears what he wants to hear and disregards the rest.”

The ProPublica piece referred to here is available at: https://www.propublica.org/article/supreme-court-errors-are-not-hard-to-find

Fake Under Submission

Casey J. EdmondsonCannabis businesspeople have hoped, worked, and lobbied for a “safe harbor” for their industry. These tireless efforts have produced results, but the “safe harbor” which currently exists is, to extend the metaphor, filled with shallow water, difficult to enter, and has plenty of reefs.

Federal law is the supreme law of the land, and where it conflicts with state law, federal law controls. But if Congress refuses to budget money to the executive branch so that it can enforce a law, that law exists in a twilight state—it is unenforceable as a practical matter, but still “supreme.” That is what Congress has done in budget amendments in recent years with laws such as the Controlled Substances Act that would intrude on states’ medical cannabis laws. A recent opinion of the Ninth Circuit Court of Appeals has held that while the Controlled Substances Act is still the law, in-state California operators are (for now) beyond prosecution. So exactly how safe is the harbor under the circumstances?

First, the shallows: the federal government, via the DEA, FBI, financial crimes enforcement, and prosecutors at the Department of Justice, still has funding to go after recreational and “adult use” cannabis users, distributors, processors, and cultivators. Next, getting in: only medical cannabis enjoys the limited protection, regardless of state law. Finally, the reefs: the limited protection depends on Congress continuing to pass budgets that do not fund enforcement, and depends on strict compliance with state and local laws.

Stick with the picture of your cannabis business as a ship. Is your ship more exposed when it is off by itself, or when it is in a convoy? Through the ages, staying in tight formation has provided maximum protection from attacks. Putting this into practice in the cannabis business means doing a few things.

One, cannabis business leaders need to maintain the solidarity and camaraderie that have defined the industry for decades. Keeping in touch with your peers—staying plugged in—is key. Two, in an emerging industry, the standards for compliance with local and state law are being created and tested every day. Reliance on experts, officials, and knowledgeable insiders is essential to avoid inadvertently falling out of compliance with state law.

Finally, it means keeping an eye to the sky and a finger to the wind to sense new risks. Recently, the Rules Committee of the House of Representatives advanced an appropriations bill that would not, for the first time in years, any longer include the crucial amendment that prevents federal enforcement against state-legal medical cannabis operators. The House bill still must be reconciled with a Senate appropriations bill that includes the provision, so there is reason to stay hopeful.

On top of everything, cannabis businesses need to deal expertly with everything other businesses handle, from operations, to marketing, to public relations, to unique and general tax issues alike. The increasing public emergence of the industry creates more points of contact with the general public and with government.

As ever, we are in fast-changing times, but there is a great opportunity to stay on top of the state of the industry. Friedemann Goldberg LLP, a business law firm with offices in Santa Rosa, San Francisco, and Sacramento, has organized an event involving “cannabiz” industry leaders in Santa Rosa on Saturday, September 23, 2017. The lineup features John Friedemann, an attorney with decades of banking, business, litigation and real estate law experience, Jim Wood, a California Assemblymember and one of the principal architects in writing California’s marijuana regulations, Hezekiah Allen, Executive Director of the California Growers Association, Tawnie Logan, Chair of the Board for the Sonoma County Growers Alliance, Jamie Garzot, a highly regarded cannabis consultant with Roots Consulting, Tim Ricard, Program Manager with the Sonoma County Economic Development Board, Craig Litwin, Founder of the 421 Group, Jeffrey Titus, an industry tax attorney, and Daniel Garcia, Jr., an insurance broker with Vantreo.

Attendees will hear a full day of insight and have several opportunities to talk to speakers and attendees in a free-form environment. The event is from 9:00 AM to 4:30 PM and will be held at the Friedman Center in Santa Rosa. To register for the event, visit www.frigolaw.com or call (707) 543-4944.

Looking For a Cannabiz Safe Harbor

John N. MacLeodIf you’re a pet owner, chances are you love and care for your pets like they’re people. You might even care for them more than people. I’m not judging.

But you don’t have to be a pet owner to be a pet lover. Even if you don’t own pets, you likely understand the bond that exists between pets and their owners.

Of course, pets rely on their owners for all their needs, including food and shelter, exercise, affection, and overall health and well-being.

And like us, from time to time, pets need medical attention, including routine checkups and vaccinations, or for serious injuries or health issues. Veterinary bills can be an unexpected blow to your budget, especially for emergency surgeries and treatment. While our pets are worth the cost, the reality is that finances play a role in whether a person opts for medical treatment.

California has proposed a new law that would provide a substantial tax write off to pet owners for veterinary costs for dogs and cats. Assembly Bill No. 942, as amended, would provide a tax credit equal to one-half of the amount paid or incurred for qualified veterinary costs, not to exceed two thousand dollars. Qualified veterinary costs means amounts paid for medically necessary expenses paid to a licensed veterinarian, including, but not limited to, vaccinations, annual check-ups, surgeries, and drug prescriptions.

The proposed law would increase the health and quality of life of our pets by incentivizing pet owners to opt for medical treatments, including expensive surgeries and life-saving treatments. The proposed law would also encourage adoption of pets, including older pets more likely to require medical attention. Dogs and cats are not just pets, they are family. And, according to Jules from Pulp Fiction, “Dogs got personality. Personality goes a long way.”

Personality Goes A Long Way

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