Extraordinary Times I: US Attorney General Institutes Rule
for Monitoring of Attorney-Client Communications. Without notice or public comment,
the US Attorney General has instituted a rule
providing for the monitoring of attorney-client communications
for certain detainees held as material witnesses, or for immigration
violations and/or activities connected with the attacks on US
facilities of September 11, 2001, whenever Attorney General Ashcroft
determines that "reasonable suspicion" exists to believe
that an inmate may use the communications with attorneys to facilitate
acts of terrorism. Communications by mail, telephone and in person
are subject to monitoring. For news reports, see CNN,
Reuters,
MSNBC.
And click here
for commentary
with relevant links.
Extraordinary Times II: SEC Issues Unprecedented Guidelines
Advising When it Will Not Prosecute for Fraud; Offers Deals to
Protect Information Subject to Attorney-Client Privilege.
When Seaboard Corporation of Shawnee Mission, Kansas, discovered
misstatements by the controller of its Miami, Florida division,
it reported the errors to the Securities and Exchange Commission
(SEC) and gave the Commission its full cooperation. Reportedly
because of that cooperation, the SEC decided
not to bring an enforcement action against Seaboard. But
on Oct. 23, 2001, the SEC, which has never even publicly discussed
the reasoning behind its decisions, took the extraordinary step
of outlining the reasons it decided not to prosecute Seaboard,
as a guide to other businesses and their defense counsel. Further,
the Commission reported on November 16, 2001, that it would be
"open" to agreements
to protect certain sensitive information subject to the attorney-client
privilege. One major concern for a company that has discovered
a sanctionable error is that if the information is made public,
it could provide the basis for suits by shareholders and others.
Is IOLTA Heading to the US
Supreme Court? Last
month, we reported that the Fifth Circuit Federal Court of
Appeals had ruled the Texas State IOLTA (Interest On Lawyers
Trust Accounts) Plan unconstitutional, in that it violated the
Fifth Amendment prohibition against taking property without just
compensation. Washington Legal Foundation v. Texas Equal Access
To Justice Foundation, No. 00-50139, 5th Cir.Ct.App. (October 15, 2001).
(Search for docket number 00-50139.) This
month, the Ninth Circuit Federal Court of Appeals has ruled
a similar plan in Washington State constitutionally sound. The
case, Washington
Legal Foundation v. Legal Foundation of Washington, 01 C.D.O.S.
9663, was brought by "limited practice" officers --
professionals with the right to prepare legal documents in connection
with real estate transactions -- who were included in Washington
state's IOLTA program in 1995. The conflict between Circuit Court
decisions may well invite review by the US Supreme Court.
Internet Access Tax Ban Becomes
Law for Two More Years. Although the Internet Access Tax
moratorium expired on October 21, 2001, the Senate
finally voted in favor of a two-year
extension previously voted by the House, and rejected an
amendment which would have permitted future collection of taxes
of online sales.
Congress Considers Federal
Bankruptcy Bill Imposing New Duties on Bankruptcy Lawyers. Congress is considering legislation
designed to overhaul the nation's consumer bankruptcy laws. The
Bankruptcy Abuse Prevention and Consumer Protection Act of 2001,
one of 5 versions of the bill known as H.R.
333, would revise guidelines governing conversion of Chapter
7 bankruptcies to Chapter 11 or Chapter 13 reorganizations, and
in general, make achieving bankruptcy more difficult. In addition,
the bill would affect bankruptcy attorneys by requiring them
to (1) certify the accuracy of factual allegations in the debtor's
bankruptcy petition and schedules, under penalty of mandatory
sanctions; (2) certify the ability of the debtor to make payments
under a reaffirmation agreement; and (3) identify and advertise
themselves as "debt relief agencies" subject to a host
of new regulations. To see the various versions, go to http://thomas.loc.gov/
and search for bill number HR 333.
Company Using Independent
Contractors to Manufacture Goods May Still be a "Producer"
of Goods Under Tax Code. Under 26
USC 263A of the Internal
Revenue Code, a company that does not perform manufacturing,
but rather uses independent contractors to produce goods may
still be deemed a "producer" of goods within the meaning
of that Section. Since taxpayer maintained control over third
party manufacturer, taxpayer did not qualify as small reseller
under 26
USC 263A (b) (2) (B), and could not deduct its production
costs. Suzy's
Zoo v. Commissioner of Internal Revenue, No 00-70461 (9th
Cir., November 21, 2001)
South Carolina Rules Payment
for Net Attorney Referrals OK.
An internet service company which was planning to charge attorneys
for advertising and referrals has benefited from an opinion
of the South Carolina Bar Association that attorneys may
pay a reasonable amount for advertisements based on either the
number of hits or number of referrals withotu running afoul of
prohibitions against fee-sharing with non-lawyers.
ABA: Partnerships with Foreign
Lawyers Do Not Violate Rules. The
American Bar Association's Committee on Ethics and Professional
Responsibility has issued its opinion
that entering into a partnership agreement with foreign lawyers
does not automatically violate the rule against splitting fees
with non lawyers. As long as the foreign attorney is properly
licensed, and the local partnership complies with relevant state
laws, such arrangements are permissible.
Primary Coverage, including
Self Insurance, Must be Exhausted Before Excess Coverage Applies.
Summary judgment was correctly granted to excess insurance carriers
for indemnification claimed against insured for pollution damage
extending over forty years. Insured was required to first exhaust
primary coverage, including years in which the insured was either
uninsured or self-insured, before excess coverage would apply.
The insured had argued in favor of vertical exhaustion, contending
that the express language of the policies provides coverage in
excess of a specific, scheduled underlying policy in a given
policy year. But the insured had failed to introduce evidence
proving the cost of losses in any particular year, so that vertical
exhaustion was not appropriate. Maremont
Corp. v. Continental Casualty Co., No. 1-00-3780, 1st Dist.,
3rd Div. (November 14, 2001).
Club Member Not Guilty of
Insider Trading for Tip Learned at Club.
Even though it was possible that a wrong would go unpunished,
a San Francisco Federal District court Judge ruled that the government
can't prosecute a corporate outsider tipped off through his membership
in an exclusive club. The Judge dismissed
two counts of securities fraud against Keith J. Kim, since
he didn't have a fiduciary-like relationship with the source
of the information.