Let’s Celebrate the Soul in Solo

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2003 Guide toTrial Support Services

Op
Et n N e 11
ini pag
hic o.
o
s 50
9
FEBRUARY 2003, VOL.25, NO.11 / $3.00

Los Angeles lawyers EARN MCLE CREDIT

James C. Martin and The Fate of
Benjamin G. Shatz analyze Settlements
developments in the law of in Bankruptcy
stipulated reversals page 31
page 24
Structured
Settlements

Reverse
page 14

The Lactation

Course
Accommodation
Statute
page 20

Protecting
Trademarks
page 37
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Let’s Celebrate
the Soul in Solo
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LexisNexis and the Knowledge Burst logo are trademarks, and Shepard’s and lexisONE are
registered trademarks of Reed Elsevier Properties Inc., used under license. It’s How You Know
is a trademark of LexisNexis, a division of Reed Elsevier Inc. Matthew Bender is a registered
trademark of Matthew Bender Properties Inc.
© 2003 LexisNexis, a division of Reed Elsevier Inc. All rights reserved.
AL5564
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*The LexisNexis Total Research System “free trial offer” is available to law ﬁrms in the United States who do not subscribe to the LexisNexis online services as of 2.1.03.
Additional restrictions may apply. Current LexisNexis customers should contact their account representative for information.
LexisNexis and the Knowledge Burst logo are trademarks of Reed Elsevier Properties Inc., used under license.
It’s How You Know and SmartLinx are trademarks of LexisNexis, a division of Reed Elsevier Inc. © 2003 LexisNexis, a division of Reed Elsevier Inc. All rights reserved. AL5584
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page 24

Contents
Los Angeles Lawyer departments
The Magazine of the 11 Ethics Opinion No. 509
Attorney office ﬁles—release
Los Angeles County
of client psychiatric records to
former client
Bar Association

February 2003 14 Practice Tips
Making the case for structured
Vol. 25, No. 11 settlements
By Theda “Teddy” Snyder

cover 20 Law Office Management
Complying with California’s new
lactation accommodation law
By Elizabeth L. Graves

53 Computer Counselor
Keeping your ﬁrm’s online content
up-to-date
By Carole Levitt

55 By the Book
The Counselors
Reviewed by Stacy D. Phillips
features

columns

10 Barristers Tips
24 Reverse Course
Estate planning for younger Since the California Legislature overturned Neary, a new body
attorneys of case law governing stipulated reversals has emerged
By Alexis Martin Neely
By James C. Martin and Benjamin G. Shatz
60 Closing Argument
Advising clients about hacker
insurance
James C. Martin (left), a By Robert Steinberg 31 Waiting for the Dust to Settle
partner, and Benjamin G. Shatz,
8 Letters to the Editor
To avoid treatment as a preference in bankruptcy, a settlement
of counsel, practice appellate should be negotiated to not be consummated for at least 90 days
57 Index to Advertisers
By Terence S. Nunan and Jeanne C. Wanlass
law in the Los Angeles office of
58 Classiﬁeds Plus: Earn MCLE credit. MCLE Test No. 113 appears on page 33.
Reed Smith Crosby Heafey.
59 CLE Preview
In “Reverse Course,” they

discuss the impact of recent
37 On Your Mark
Unlike many forms of intellectual property, trademarks can be
legislation on the disposition of
lost if their use is not properly monitored and protected
motions for stipulated reversal By William J. Seiter
before appellate courts. Their

article begins on page 24.

46 Special Section
2003 Guide to Trial Support Services
Cover photo: Tom Keller page 37
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Southland LosAngelesLawyer
VISIT US ON THE INTERNET AT www.lacba.org/lalawyer

Knows You Better E-MAIL CAN BE SENT TO lalawyer@lacba.org

EDITORIAL BOARD
Chair
ABILIO TAVARES JR.
With many financial institutions to choose from, it’s sometimes (In Memoriam)
hard to determine who has your best interests in mind. While most Chair Pro Tem
STEVEN HECHT
offer competitive rates and a wide array of financial products, odds
Articles Coordinator
are you’ll just become another account number. JERROLD ABELES

DANIEL L. ALEXANDER
At Southland Credit Union, everything we do revolves around HONEY KESSLER AMADO
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our Members. How can you be sure? Because as a not-for-profit CHAD C. COOMBS
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you with the best financial services around: GORDON ENG
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s 24-Hour Southland eBranch MICHAEL E. FOX
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Manage your finances online whenever you want JOHN M. GALLAGHER
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Once your Membership is established, your family is eligible LES SECHLER
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Don’t become just another customer. Enjoy the benefits of a Southland Advertising Coordinator
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www.southlandcu.org or call (800) 426-1917 for further assistance.
LOS ANGELES LAWYER (ISSN 0162-2900) is published monthly, except for
a combined issue in July/August, by the Los Angeles County Bar
Association, 261 S. Figueroa St., Suite 300, Los Angeles, CA 90012, (213)
We Do Business In 896-6503. Periodicals postage paid at Los Angeles, CA and additional
Accordance With the
Federal Fair Housing mailing offices. Annual subscription price of $14 included in the
Law and the Equal Association membership dues. Nonmember subscriptions: $28 annually;
Credit Opportunity Act
single copy price: $3 plus handling. Address changes must be submitted six
weeks in advance of next issue date. POSTMASTER: ADDRESS SERVICE
REQUESTED. Send address changes to Los Angeles Lawyer, P.O. Box
55020, Los Angeles CA 90055.
Copyright ©2003 by the Los Angeles County Bar Association. All rights

SOUTHL AND CREDIT UNION reserved. Reproduction in whole or in part without permission is
prohibited. Printed by Banta Publications Group, Liberty, MO. Member
Business Publications Audit of Circulation (BPA).
Southern California’s Preferred Credit Union The opinions and positions stated in signed material are those of the
authors and not by the fact of publication necessarily those of the
Association or its members. All manuscripts are carefully considered by the
Editorial Board. Letters to the editor are subject to editing.

4 LOS ANGELES LAWYER / FEBRUARY 2003
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LOS ANGELES LAWYER IS THE OFFICIAL PUBLICATION OF
THE LOS ANGELES COUNTY BAR ASSOCIATION
ATTORNEY-CPA-LITIGATION CONSULTANT 261 South Figueroa Street, Los Angeles, CA 90012-2503
Telephone 213/627-2727
Experienced Expert Witness Since 1957 Visit us on the Internet at www.lacba.org

Professor of Law and Accounting ASSOCIATION OFFICERS:
President
Special Master, Mediator, Arbitrator MIRIAM ARONI KRINSKY
President-Elect
AUTHOR • LECTURER
ROBIN MEADOW
Senior Vice President
DAVID OSTROVE s ATTORNEY-CPA JOHN J. COLLINS
Vice President
TEL 323/939-3400 E-mail: dostove@attbi.com EDITH R. MATTHAI
FAX 323/939-3500 www.estateplanning.com/ostrove Assistant Vice President
BERNARD E. LESAGE
Assistant Vice President
DANETTE E. MEYERS
Treasurer
CHARLES E. MICHAELS
NEUTRAL REAL ESTATE ARBITRATOR Executive Director
RICHARD WALCH
• More than 30 years experience as a real estate lawyer dealing with BOARD OF TRUSTEES
industrial, commercial, office and shopping centers including purchas-
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es, sales, leasing, ground leasing, financing, development, joint ven- DAVID B. BABBE
tures, construction, real estate brokerage, title insurance, easements and BARBARA J. BACON
protective covenants. LINDA D. BARKER
ELIZABETH M. CALCIANO
• 18 years as counsel to the forms committee of the American Industrial SCOTT W. CARLSON
Real Estate Association, publishers of the AIR lease and purchase forms. FRANK W. CHEN
• Real estate law and ADR lecturer on programs sponsored by the RICHARD E. DROOYAN
California State Bar, the extension divisions of UCLA, UCI, USCB and MICHAEL S. FIELDS
various educational and realty organizations. ERNESTINE FORREST
Arthur Mazirow CRISTINA E. PEREZ GONZALEZ
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PENTHOUSE SUITE 1200, 3415 SEPULVEDA BOULEVARD, LOS ANGELES CA 90034-6060 DANIEL GRUNFELD
PHONE: 310-255-6114 • FAX: 310-391-4042 • E-MAIL: am@ffslaw.com • www.ffslaw.com RITA GUNASEKARAN
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DENA A. KLEEMAN
JOEL W.H. KLEINBERG
Asset Protection Planning Now PHILIP H. LAM
LAWRENCE E. LEONE

Can Insulate Your Clients’ Assets JAMES C. MARTIN
GRETCHEN M. NELSON
JENNIFER F. NOVAK

From Future Judgments DOUGLAS WILSON OTTO
LISA K. KIM PAI
ANN I. PARK
AMY M. PELLMAN
Yes, it’s true. By properly restructuring your clients’ estate plan, their assets and the KENNETH G. PETRULIS
assets they leave to their family will be protected from judgment creditors. Here are MARGARET P. STEVENS
MARIA E. STRATTON
some of the situations in which our plan can help protect your clients' assets: IVAN TETHER
s Judgments exceeding policy limits or exclusions from COMM'R MELISSA N. WIDDIFIELD

policy coverage. AFFILIATED BAR ASSOCIATIONS
s Judgments not covered by insurance. BEVERLY HILLS BAR ASSOCIATION
BLACK WOMEN LAWYERS ASSOCIATION OF LOS ANGELES, INC.
s Children suing each other over your client's estate. CENTURY CITY BAR ASSOCIATION
s A current spouse and children from a prior marriage CONSUMER ATTORNEYS ASSOCIATION OF LOS ANGELES
CULVER/MARINA BAR ASSOCIATION
suing each other over your client's estate. EASTERN BAR ASSOCIATION OF LOS ANGELES COUNTY
s A child’s inheritance or the income from that GLENDALE BAR ASSOCIATION
ITALIAN AMERICAN LAWYERS ASSOCIATION OF LOS ANGELES COUNTY
inheritance being awarded to the child’s former spouse. JAPANESE AMERICAN BAR ASSOCIATION OF GREATER LOS ANGELES
JOHN M. LANGSTON BAR ASSOCIATION

STEVEN L. GLEITMAN, ESQ.
STEVEN L. GLEITMAN,ESQ. KOREAN AMERICAN BAR ASSOCIATION OF SOUTHERN CALIFORNIA
LAWYERS’ CLUB OF LOS ANGELES COUNTY
310-553-5080 LHR: THE LESBIAN AND GAY BAR ASSOCIATION
LONG BEACH BAR ASSOCIATION
Biography available at lawyers.com or by request. MEXICAN AMERICAN BAR ASSOCIATION
PASADENA BAR ASSOCIATION
SAN FERNANDO VALLEY BAR ASSOCIATION
Mr. Gleitman has practiced sophisticated estate planning for 24 years, specializing for more than 12
SAN GABRIEL VALLEY BAR ASSOCIATION
years in offshore asset protection planning. He has had and continues to receive many referrals from SANTA MONICA BAR ASSOCIATION
major law ﬁrms and the Big Four. He has submitted 36 estate planning issues to the IRS for private let- SOUTH ASIAN BAR ASSOCIATION OF SOUTHERN CALIFORNIA
SOUTH BAY BAR ASSOCIATION OF LOS ANGELES COUNTY
ter ruling requests; the IRS has granted him favorable rulings on all 36 requests. Twenty-three of those
SOUTHEAST DISTRICT BAR ASSOCIATION
rulings were on sophisticated asset protection planning strategies. SOUTHERN CALIFORNIA CHINESE LAWYERS ASSOCIATION
WHITTIER BAR ASSOCIATION
WOMEN LAWYERS ASSOCIATION OF LOS ANGELES

6 LOS ANGELES LAWYER / FEBRUARY 2003
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from the chair
By Steven Hecht

awyers are being muzzled more and many generations, a fact that argues for a

L more. We are being put on a shorter
and shorter leash. Recent and acceler-
ating actions aimed at lawyers and their free-
detained American’s access to a lawyer.
Moreover, there is the presumption of inno-
cence. A criminal charge is the government’s
dom of representation are disturbing and, in choice. Access to a lawyer should be an
one instance, shocking. American’s right.
When a U.S. citizen is arrested or physi- Another restriction on the activities of
cally detained in a foreign coun- lawyers is the expanding move-
try, the first words the citizen Steven Hecht ment for so-called tort reform.
utters usually are, “I demand to practices trans- Reform for whom? This effort
see the American consul.” This actional business at reform should really be called
request is usually denied. When law in Century City. the tort restriction movement.
this happens, the conﬂict deep- He is the chair pro The most recent centerpiece of
ens, because the presence of a tem of the 2002-03 this movement may have been
representative and advocate is Los Angeles Lawyer the enactments to the federal
necessary to introduce some fair- Editorial Board. securities laws limiting the ease
ness into the ensuing proceed- with which lawsuits may be ﬁled.
ings. The American consul is the With hindsight, it may have been
functional equivalent of the lawyer in the U.S. better to continue to let predatory trial lawyers
legal system. continue to have a go at avaricious business
If I am detained, I want to see a lawyer. executives. Financial accounting in corpo-
Until the Miranda decision—an aspect of rate America has proven to be corrupt.
which is currently under review in the U.S. Regulators were absent and the lawyers were
Supreme Court—is modiﬁed or eliminated, restrained by reform. The public suffered.
police forces in the United States have an Additional popular cutbacks on the actions
affirmative obligation to inform all people of lawyers are the restrictions on the recov-
taken into custody of their right to a lawyer, er y of damages for medical malpractice.
and if they cannot afford a lawyer’s services California has had caps in place for years, as
they will be provided with a lawyer at no cost. do other states. More state legislatures are
Recent events have revealed a shocking actively considering them. Once lawyers had
exception to the right to see a lawyer. A U.S. the threat of huge recoveries to help the mar-
citizen detained by U.S. military forces as an ketplace police the practice standards of doc-
enemy combatant may not have this right, pre- tors. With the scope of recovery capped, often
sumably because of the government’s fear at fairly modest amounts, has the standard of
that the lawyer will quickly tell the detained care been affected? The desire to limit med-
client to stop talking. That is the lawyer’s uni- ical insurance premiums and thereby allow
versal advice at the beginning of representa- doctors to continue to practice, especially in
tion, for good reason. For their own good more risky ﬁelds, is understandable and wor-
reasons, the police and military authorities thy, but the tool to accomplish this goal
would always like to be free to keep interro- involves restrictions on lawyers. Aggressive
gating. The police are not free to do so, but the lawyers, whether motivated by public ser-
military and related government agencies vice, political ambition, or money (an accept-
now may be. The idea that a U.S. citizen can able impulse in a capitalist economy), have
be held indeﬁnitely without access to a lawyer been agents for social change.
should be unthinkable. If a citizen is charged Allow me to note that none of these restric-
with a crime, then the right to a lawyer tions affect me, as a transactional lawyer. But
attaches. But if the citizen is not charged, they are wrong, and the wrong should be
then there is no right to a lawyer. That cannot righted.
be right. Take off the muzzles, throw away the
Detaining an American engaged in com- leashes. Let a thousand lawyers bloom. s
bat or other harmful activities against the
United States is as sensible as it is neces-
sary. But the war on terrorism may go on for

LOS ANGELES LAWYER / FEBRUARY 2003 7
http://blog-purchasestructuredsettlements.blogspot.com/

Letters
The BSA, the Association, and the Conduct. To give you a more complete under- Association shall encourage diversity
Code of Judicial Conduct standing of the basis of our position, we are among its leadership and among those
I read with dismay the ar ticle in the enclosing a copy of the letter sent to the chief par ticipating at all levels of the
December 17, 2002, Daily Journal that stated justice on this issue and will also soon be Association. It shall be a priority of the
that the Los Angeles County Bar has urged posting a copy of that letter on our Web site Association to promote a climate of
the state supreme court to institute a canon (www.lacba.org/canon2C). When you review public understanding and mutual coop-
banning membership in the Boy Scouts of our submission to the court, we ask you to eration for achieving equality of oppor-
America (BSA) on the part of judges. I do not consider several points: tunity among the membership.
recall this issue coming to a vote and do not 1. The Association did not ask the 3. The BSA is candid and explicit about the
believe it reﬂects the opinion of the majority supreme court to explicitly ban membership fact that it discriminates on the basis of sex-
of the membership. in the Boy Scouts but rather to rescind an ual orientation. While it is true, as you state,
I protest this action by the Bar Association exception to its existing ban on membership that the supreme court has concluded that the
in the strongest terms. The U.S. Supreme in discriminatory organizations, which treats BSA does not discriminate “illegally,” the
Court has already made a determination that differently, and allows for continued mem- Association’s focus is necessarily broader.
the Boy Scouts of America is not a “discrim- bership in, discriminatory youth organiza- We are concerned, at the very core of our mis-
inatory organization” and does not illegally tions. Although we recognize that the effect sion, with the administration of justice. In
discriminate against anyone, let alone gays. of our proposed change may well be to ban addressing that concern, we seek to ensure
The BSA has the right to choose its own judicial participation in those chapters of the that everyone who enters a courthouse feels
members and does so in a fair and unbiased BSA that abide by the national organization’s secure in the knowledge that no bias of any
manner. Anyone may join, so long as they ﬁt policy of discriminating on the basis of sexual kind will taint the decision-making process.
the target group that the BSA tries to serve. orientation, the focus of our concern is not the Regardless of a judge’s actual beliefs in rela-
The Boy Scouts of America has, as its pri- BSA in particular but discrimination in any tion to the BSA’s policies, it could well appear
mary purpose, the mission to build character, form. Discrimination by a youth group or that a judge’s membership in the BSA
citizenship, and personal ﬁtness in boys and any other organization, whatever that group’s bespeaks an endorsement of the BSA’s admit-
girls. It has successfully performed this func- other qualities, is still discrimination. Our tedly discriminatory practices.
tion for almost 100 years, and the ranks of goal is to ensure that the canon is consistent We believe the problem is no different
American leaders with scouting experience is with its stated goal of avoiding judicial mem- from all-too-recent discriminatory practices
a testament to the effectiveness of this organ- bership in organizations that would give rise against women and minorities that prompted
ization at building the leaders for this coun- to a “perception that the judge’s impartiality concerns about, and canons seeking to avoid,
try. Because the BSA tries to build character, is impaired.” Judicial Council Advisor y judicial membership in such organizations.
it is inevitable that someone will object to Committee Commentary. The Association took a similar stand in
how it does so. 2. The Association’s Board of Trustees response to those practices and, in the early
If the BSA ﬁnds that its efforts at charac- (which acts on behalf of the Association) dis- 1970s, our Board of Trustees reiterated its
ter building are failing, it has the right, accord- cussed this issue at length on September 25, policy of nondiscrimination by banning
ing to the U.S. Supreme Court, to eject those 2002, and at the conclusion of that discus- Association functions at clubs that discrimi-
members who are not beneﬁting from the sion voted overwhelmingly to send a letter to nated on the basis of race, sex, religion, or
program. The fact that some members of the the supreme court concerning Canon 2C. national origin (and added sexual orientation
community feel that this standard is dis- During the discussion there was no sugges- or disability in 1987) and urged Association
criminatory is merely a smoke screen for an tion that it was inappropriate to seek a change members’ ﬁrms and the courts to do like-
agenda to force organizations to discriminate in the canon; the only issue was how the wise. In the following decade, both The
in their own preferred manner. Unlike such Association might most effectively pursue Jonathan Club and The California Club
activists, the BSA is quite open about its that goal. reversed their discriminatory membership
agenda, which is to build men and women in The vote is not surprising, given the policies.
a manner that has been proven to work all Association’s longstanding opposition to all In sum, the board’s recent action stems
over the world for almost 100 years. forms of discrimination. Our bylaws end with from our collective and abiding view that the
Donald S. Roberts this paragraph: Code of Judicial Conduct can and should be
Member, The Los Angeles County Bar Associ- crafted to ensure that those who administer
Los Angeles County Bar Association ation shall not restrict membership, justice and seek to enforce the rule of law are
services, or beneﬁts conferred on the not viewed in the public’s mind as endorsing
The President and Executive basis of race, color, national origin, bias or invidious discrimination of any kind.
Director Respond religious creed, ancestry, gender, sex- Thank you again for writing to express
Thank you for expressing your concern as ual orientation, marital status, age, dis- your views.
a member of the Los Angeles County Bar ability and political affiliation, and is Miriam Aroni Krinsky
Association about the Association’s letter to committed to eliminating barriers on President
the California Supreme Court asking for a those bases within the legal profes- Richard Walch
revision in Canon 2C of the Code of Judicial sion and in society as a whole. The Executive Director

8 LOS ANGELES LAWYER / FEBRUARY 2003
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Is A Malpractice Insurance Crisis
Looming In Your Horizon?
Are You Ready?
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barristers tips
By Alexis Martin Neely

Estate Planning for Younger Attorneys
Even recent law school graduates may need to
address important estate planning issues
f you have been practicing law less than ﬁve years and have a sig- spouse while also ensuring that any assets remaining upon his or her

I niﬁcant amount of student loans, you may think that you are not
wealthy enough to need to plan your estate, but if you are a
Southern California homeowner, you should think again. Almost any
death are distributed in accordance with your wishes.
Financial issues are not the only consideration. Are there certain
items, for example, that you have always wanted someone in partic-
homeowner in Southern California has an estate that is large enough ular to have upon your death? If so, you must make your wishes
to need planning. This is especially true for those who are parents, known. I have seen many situations in which the biggest family dis-
those who are contemplating or in a second marriage, those who are pute after a death is not over major assets but instead over a personal
living with a partner in a committed relationship, and those who are item of no great monetary value, such as the decedent’s cherished
living alone—in other words, almost everyone. cigar cutter. In a professionally crafted estate plan, you can provide
In the past many attorneys (or at least women attorneys) delayed who will receive items of signiﬁcant sentimental value.
parenthood until after they attained partnership. Look around your For many attorneys, estate planning will involve not only traditional
ﬁrm now and you will realize that is no longer the pattern. Associates families but nontraditional ones as well. If you are in a committed rela-
are becoming parents at the same time they are becoming lawyers. tionship but not married, estate planning is an absolute must. For
Becoming a parent carries with it a number of important responsi- unmarried couples, estate planning includes consideration of a poten-
bilities, not the least of which is ensuring that your children will be tial dissolution of the relationship or the death of a partner. There are
well cared for in the event of your death or disability. The best way enormous beneﬁts to planning for the dissolution of a relationship
to provide your family with peace of mind is through careful and while it is healthy and loving as opposed to trying to settle issues at
professional estate planning. the devastating time of its end. A well-drafted estate plan will address
When a person without a will dies, the estate is distributed accord- issues of property ownership and support. In addition, if an unmar-
ing to the estate plan that the state of California deems appropriate. ried couple has children, the plan should address custody, child sup-
This default plan is unlikely to meet the needs of surviving minor chil- port, and the parenting relationship. Finally, a plan for unmarried cou-
dren. If you die before your children attain the age of 18 and you have ples must address incapacity, because an unmarried partner lacks a
not provided otherwise, your children may obtain their share of your spouse’s priority in conservatorship.
assets as soon as they graduate from high school. I ask my clients to Many lawyers ﬁnd themselves married to their work. Unmarried
calculate the value of their assets, including life insurance, and con- individuals need estate planning too. An unmarried individual must
sider whether this is an amount of money they could have handled plan not only for his or her death but also incapacity. All too often, trust
responsibly at the age of 18. I urge you to make the same consider- and estate attorneys see how unmarried, incapacitated people can be
ation now. If you believe that your estate will be too large for your chil- taken advantage of by caretakers. These situations may be avoided
dren to handle wisely at age 18, then you must plan. if single people take the time for some
Additionally, when parents with custody of minor children die planning. Many of my unmarried clients
intestate, the courts are left to decide guardianship issues. If your fam- who do not have children have signiﬁcant
ily or friends disagree about who should raise your children, there charitable goals that can only be achieved
could be a legal battle. Even if no dispute occurs, if you have not nom- through proper planning, and many of
inated a guardian your children could be held in foster care while the the single parents that I work with have
court decides who is to be their guardian. a strong desire to ensure that their child’s
Being married does not guarantee that guardianship issues will other parent does not become the unin-
not arise in the future. About 40 percent of marriages end in divorce, tended heir of their estate.
and some sociologists argue that rate is even higher for practicing Lastly, I will mention tax savings as a
lawyers. If you have children from a ﬁrst marriage and expect to reason to plan your estate. For many peo-
remarry, you must plan to protect your children and the relationship ple, tax savings (and they can be sub-
between those children and your new spouse. If you do not plan for stantial) are the least important reason to Alexis Martin Neely is
the distribution of your assets upon your death, your new spouse will engage in estate planning. Planning your an associate at the
have the opportunity to leave all your assets to the children from his estate is about more than saving law ﬁrm of Munger,
or her first marriage, or to friends, relatives, or a future spouse. money—it is about providing peace of Tolles & Olson LLP.
Estate planning can ensure your ability to provide for your surviving mind for your family and yourself. s

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ethics opinion no. 509
Los Angeles County Bar Association Professional Responsibility and Ethics Committee

Attorney Office Files—Release of
Client Psychiatric Records to
Former Client
SUMMARY: Subject to the terms of any applicable court order, an attorney who has received mental health records of
a client in the course of representing that client must release the mental health records to the former client following
termination of the attorney-client relationship when requested by the former client to do so. The attorney does not have
the discretion to refuse the request of the former client on the basis that the disclosure of the mental health records is
not in the best interests of the former client or others.

AUTHORITIES CITED: Civil Code Sections 56, 1798-1798.78, 1798.40(f), 1798.41, and 1798.45-53; Health & Safety
Code Sections 123100 d-123149; California Rules of Professional Conduct, Rule 3-700(D)(1); Santa Clara County Counsel
Attys. Assoc. v. Woodside, 7 Cal. 4th 525 (1994); Blanton v. Womancare, 38 Cal. 3d 396, 406 (1985); Lee v. State Bar,
2 Cal. 3d 927, 939 (1970); People ex rel. Deukmejian v. Brown, 29 Cal. 3d 150, 157 (1981); People v. Stanley, 10 Cal.
4th 764, 804-05 (1995); People v. Masterson, 8 Cal. 4th 965 (1994); Rose v. State Bar, 49 Cal. 3d 646, 655 (1989);
Shephard v. Superior Court, 180 Cal. App. 3d 23 (1986); Sullivan v. Duane, 198 C. 183, 192, 244 P. 343 (1926); State
Comp. Ins. Fund v. WPS, Inc., 70 Cal. App. 4th 644 (1999); Stockton Theatres v. Palermo, 121 Cal. App. 2d 616 (1953);
Tarasoff v. Regents of University of California, 17 Cal. 3d 425 (1976); Watchumna Water Co. v. Bailey, 216 Cal. 564,
571 (1932); Yorn v. Superior Court, 90 Cal. App. 3d 113, 116 (1979); State Bar Formal Opinion Nos. 2001-156, 1994-
134 footnote 3, 1989-112, 1989-111, and 1987-93; Los Angeles County Bar Association, Professional Responsibility
and Ethics Committee, Formal Opinion Nos. 459, 475, and 491; Restatement (Second) of Agency Section 1 and com-
ment, Section 261.

STATEMENT OF FACTS: Attorney is a public defender1 (“Attorney”) who represents defendants in criminal prosecu-
tions. In some cases, Attorney obtains mental health records of Attorney’s clients to assist Attorney in defending them.
A former client (“Former Client”) has instructed Attorney to release to Former Client all mental health records of the
Former Client obtained by Attorney in the course of Attorney’s representation of the Former Client (the “mental health
records”).2 The mental health records include a warning attached by the mental health care provider who transmitted
the mental health records to Attorney that the records should not be provided to the Former Client as the records, in
the opinion of the originating mental health care provider, contain information which if disclosed to the Former Client,
could be detrimental to Former Client’s mental health or treatment, or could put others in danger.

QUESTIONS PRESENTED: Must Attorney release the mental health records to Former Client as the Former Client has
requested? May Attorney withhold those mental health records marked by the mental health provider with a restrictive
warning not to disclose the records to Former Client? May Attorney take any action to interfere with Former Client’s instruc-
tions, such as by bringing the matter to the attention of a court?

DISCUSSION explicitly with the duties of lawyers whose former clients request their
ﬁles. Rule 3-700 states: “(D) A member whose employment has ter-
a. Attorney’s Professional Responsibilities. minated shall: (1) Subject to any protective order or non-disclosure
agreement, promptly release to the client, at the request of the
Rule 3-700 of the California Rules of Professional Conduct deals client, all the client papers and property. ‘Client papers and property’

LOS ANGELES LAWYER / FEBRUARY 2003 11
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includes correspondence, pleadings, depo- minors and is not applicable to this inquiry. Attorney’s general duty under Rule 3-700.
sition transcripts, exhibits, physical evidence, The second exception is contained in Section We recognize that the healthcare provider is
expert’s reports, and other items reasonably 123115(b), which provides: authorized by Section 123113(b) to refuse to
necessar y to the client’s representation, When a health care provider deter- allow his or her patient to see the records if
whether the client has paid for them or mines that there is a substantial risk of the healthcare provider determines that such
not….”3 signiﬁcant adverse or detrimental con- disclosure would create “a substantial risk
Rule 3-700 recognizes that the documents sequences to a patient in seeing or of signiﬁcant adverse or detrimental conse-
and materials created or compiled by a lawyer receiving a copy of mental health quences to [the] patient.…”
during the course of a representation belong records requested by the patient, the If this had occurred, then Attorney, on
to the client, and not to the lawyer, and the provider may decline to permit inspec- behalf of her client, might have been able to
lawyer has no legitimate interest in those tion or provide copies of the records to object to the healthcare provider’s decision
materials except for the purpose of repre- the patient, subject to the following not to release the mental health records under
senting the client in conformity with the conditions: (1) The health care Section 123120. This section gives the patient
client’s instructions. It therefore creates the provider shall make a written record, a right of court action. We do not address
general rule that an attorney is subject to to be included with the mental health the legal issue of whether this procedure
professional discipline for failing to promptly records requested, noting the date of might allow a cour t to limit the right of
release any client papers or property to the the request and explaining the health Attorney to release the mental health records,
former client following a request for them care provider’s reasons for refusing to or portions of them. If a court had issued an
by the former client. permit inspection or provide copies of order limiting Attorney’s disclosure of the
Rule 3-700 does not by its terms authorize the records, including a description of mental health records to Former Client,
the lawyer to exercise any discretion to over- the speciﬁc adverse consequences or Attorney would have been obligated to com-
ride the client’s instructions to release. This detrimental consequences to the ply with that order under Rule 3-700(D),
is consistent with our model of the lawyer- patient that the provider anticipates which states that the duty to make client ﬁles
client relationship: The lawyer is the agent of would occur if inspection or copying available to the client is subject to any applic-
the client and is responsible for carrying out were permitted. (2) The health care able protective order.
the client’s lawful instructions on all sub- provider shall permit inspection by, or
stantive matters after the lawyer has utilized provide copies of the mental health c. Former Patient’s Possible Lack
her training, skill, and experience to counsel records to, a licensed physician and of Competence
the client.4 surgeon, licensed psychologist, The law recognizes that insane and incom-
licensed marriage and family thera- petent clients do not have the same control
b. Mental Health Record pist, or licensed clinical social worker, over substantive issues possessed by other
Legislation designated by request of the patient clients. For example, although the client nor-
The California Legislature has enacted a [who signs a receipt for the records mally controls all substantive decisions, it
comprehensive scheme to encourage and acknowledging that he or she] shall has been held that counsel may waive jury
permit patient access to records of their med- not permit inspection or copying by trial in an incompetency trial over the
ical condition and treatment, including men- the patient. client’s express objection and may urge the
tal health records. These provisions are found Thus, the healthcare provider is given client’s incompetency even though the client
at California Health and Safety Code Sections the right in particular circumstances to pre- expressly directs that counsel argue that the
123100-123149.5. vent his or her patient’s access to mental client is competent. Shephard v. Superior
Section 123100 states the general rule health records either by refusing to release Court, 180 Cal. App. 3d 23 (1986), approved in
that each person is entitled to access to his them to the patient or by releasing them to People v. Stanley, 10 Cal. 4th 764, 804-05 (1995)
or her own health care records. Section other health care providers only when they and People v. Masterson, 8 Cal. 4th 965 (1994).
123100 is based on an explicit legislative ﬁnd- have agreed not to release them to the The foregoing cases do not create any
ing that “ever y person having ultimate patient. To the extent the records are main- general rule allowing a lawyer to make sub-
responsibility for decisions respecting his tained by a state agency, there is a similar stantive decisions on behalf of a client, and
or her own health care also possesses a con- statutor y scheme that is par t of the they do not state a speciﬁc rule that a lawyer
comitant right of access to complete infor- Information Practices Act at Civil Code may withhold a former client’s mental health
mation respecting his or her condition and Sections 1798.40(f), 1798.41, and 1798.45-53. records from the former client based on the
care provided.”5 Neither of these statutor y schemes lawyer’s opinion of the mental condition of the
In addition to the general right of a patient grants to the healthcare provider any author- client.6
to obtain full information about his or her ity to limit the use or disclosure of mental
own health and health treatment, the leg- health records by the patient’s attorney, to d. Does Attorney Have the Right
islative scheme gives the patient certain spe- whom the healthcare provider has given the to Seek Court Intervention to
ciﬁc rights. For example, Section 123111(a) records. Nor do these statutor y schemes Interfere with Former Client’s
gives a patient who believes his or her health grant the patient’s attorney any authority to Instructions to Attorney?
care records are incomplete or inaccurate limit the release of the mental health records, In its Opinion 1989-112, the California
the right to require that an addendum be even if the attorney believes such action State Bar Committee on Professional
attached to his or her records to complete or would be dangerous to his or her client or to Responsibility and Conduct faced a similar
correct them. others. issue: May an attorney institute conserva-
The general rule is subject to two excep- As a result, the written notice that the torship proceedings on a client’s behalf, with-
tions set forth in Section 123115 limiting healthcare provider has placed on the file out the client’s consent, where the attorney
patient access to their healthcare records. provided to Attorney appears to have no legal has concluded the client is incompetent to act
The first involves healthcare records of effect and, if not, the notice does not alter in his best interest? That committee con-

12 LOS ANGELES LAWYER / FEBRUARY 2003
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client may, for reasons known or unknown to the
cluded this would be unethical for the attor-
lawyer, ﬁnd something of signiﬁcant economic or per-
ney because, by doing so, the attorney would sonal value in the file even after the case is
be divulging the client’s secrets and repre- over.…[There is] an ethical obligation to try to return Enhancing lives
senting either conﬂicting or adverse inter- the ﬁles to the former clients or to try to obtain autho- one smile at a time.TM
ests. rization to destroy the ﬁles.” Absent an issue as to the
potential danger to the client or others from releasing
Our situation is not precisely the same as
some or all of the mental health records to Former Perhaps a smile enhancement
that in Cal. State Bar Opinion 1989-112 Client the records must be released to the client in com- program with Dr. Jack Semmens
because here the attorney-client relationship pliance with Rule 3-700(D)(1) (see Rose v. State Bar, 49 could beneﬁt your professional
between Attorney and Former Client already Cal. 3d 646, 655 (1989); State Bar Formal Opinion No. image, career, or more
has ended. We therefore are dealing with 1994-134).
4
importantly, your self-esteem?
Whether employee or independent contractor, an
Attorney’s duties to a former client rather Do you feel that your
attorney will usually be the agent of the client in trans-
than a current client. Never theless, it is actions in which the attorney acts for the client. Sullivan professional image could
implicit in Opinion 1989-112 that the attor- v. Duane, 198 C. 183, 192, 244 P. 343 (1926); RESTATE- enhance your earnings?
ney could not terminate his attorney-client MENT (SECOND) OF AGENCY §1 & cmt., §261; Blanton v.
Is your career stalled and in
relationship with his client and then institute Womancare, 38 Cal. 3d 396, 406 (1985); State Bar
need of a push forward?
conser vatorship proceedings against the Formal Op. 1989-111.
5
Consistent with this legislative scheme, we assume Is your self-esteem worth the
client. We reach the same conclusion here. that Attorney’s Former Client has the legal right to investment that cosmetic
“[T]he attor ney-client relationship control his or her own healthcare decisions. We do not dentistry could provide you
involves not just the casual assistance of a examine the legal issue of when or how a person might with?
member of the bar, but an intimate process lose that right or what duties Attorney might have in
that situation. The ﬁrst step in your new smile is
of consultation and planning which culmi- 6 to call for your evaluation. Call Dr.
As stated in n.5, we assume Former Client has the legal
nates in a state of trust and confidence Semmens today. You will be pleased
right to make his or her own healthcare decisions.
between a client and his attorney.” Cal. State 7
To the extent Former Client poses an actual or appar- and excited that you did!
Bar Opinion 1987-93. Because of the duties ent threat to the safety of others, this opinion is not
of confidentiality and undivided loyalty, an intended to reach the possible application of the “duty JACK L. SEMMENS, DDS
to warn” the California Supreme Court imposed on DENTAL CORPORATION
attorney may not use or disclose to the dis-
psychotherapists in Tarasoff v. Regents of Univ. of 495 NORTH LAKE BLVD., SUITE 270
advantage of a former client any informa- P.O. BOX 1912, TAHOE CITY, CA 96145
Cal., 17 Cal. 3d 425 (1976). The committee also rec-
tion obtained by the attorney in the course
of that relationship, and an attorney may
ognizes the possible argument that the case of State (530)-583-5546
Comp. Ins. Fund v. WPS, Inc., 70 Cal. App. 4th 644
not act against a client in any matter in which (1999), may be instructive in our situation. In that case
1(866) 831-9394 Toll Free
the attorney formerly represented the client. the court held that: www.jacksemmens.com
[T]he obligation of an attorney receiving priv-
Watchumna Water Co. v. Bailey, 216 Cal. 564,
ileged documents due to the inadvertence of
571 (1932); Yorn v. Superior Court, 90 Cal. another is as follows: When a lawyer who
App. 3d 113, 116 (1979); and Stockton receives materials that obviously appear to be
Theatres v. Palermo, 121 Cal. App. 2d 616.7 subject to an attorney-client privilege or oth-
(1953).7 erwise clearly appear to be conﬁdential and
This opinion is advisory only. The com- privileged and where it is reasonably appar-
ent that the materials were provided or made
mittee acts on speciﬁc questions submitted ex
available through inadvertence, the lawyer
parte and its opinions are based only on such receiving such materials should refrain from
facts as are set forth in the questions sub- examining the materials any more than is
mitted. s essential to ascertain if the materials are priv-
ileged, and shall immediately notify the sender
1
that he or she possesses material that appears
Although the inquiry is from an attorney employed by
to be privileged. The parties may then pro-
a governmental entity in connection with a criminal mat-
ceed to resolve the situation by agreement or
ter, the issues raised are not distinguishable from the
may resort to the court for guidance with the
duties owed by private counsel or in civil matters. As
beneﬁt of protective orders and other judicial
a general principle, the duties of lawyers are the same
intervention as may be justiﬁed. We do, how-
for lawyers who are and are not employed by govern-
ever, hold that whenever a lawyer ascertains
mental entities. Santa Clara County Counsel Attys.
that he or she may have privileged attorney-
Assoc. v. Woodside, 7 Cal. 4th 525 (1994); People ex rel.
client material that was inadvertently provided
Deukmejian v. Brown, 29 Cal. 3d 150, 157 (1981); Cal.
by another, that lawyer must notify the party
State Bar Op. 2001-156; L.A. County Bar Ass’n Formal
entitled to the privilege of that fact.
Op. 459 (1991).
2
The committee notes that the mental health records at
We adopt the deﬁnition of HEALTH & SAFETY CODE
issue here are not protected by the attorney-client priv-
§123105(b): “‘Mental health records’ means patient
ilege of an adverse party and have by statute been
records, or discrete portions thereof, speciﬁcally relat-
vested with a preference for disclosure to the client. The
ing to evaluation or treatment of a mental disorder.
committee is not aware of any authority extending
‘Mental health records’ includes, but is not limited to,
State Comp. Ins. Fund v. WPS, Inc., to impose an ethi-
all alcohol and drug abuse records.”
3
cal duty upon Attorney, upon receipt of the marked men-
For a list of advisory ethics opinions that discuss
tal health records or any time thereafter, to notify the
what must be released to the client under Rule 3-700 as
healthcare provider of the apparent inadvertent dis-
being part of the client ﬁle, see L.A. County Bar Ass’n
closure and “resort to the court for guidance with the
Formal Opinion 491 n.2 (1997). We conclude that men-
beneﬁt of protective orders and other judicial inter-
tal health records of a client obtained by the client’s
vention as may be justiﬁed.” The committee declines
attorney are part of the attorney’s client ﬁle for purposes
to express an opinion as to whether or not State Comp.
of Rule 3-700. In Formal Opinion 475 this committee
Ins. Fund v. WPS, Inc., would be so extended.
stated that the “ﬁle belongs to the client. Further the

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practice tips
By Theda “Teddy” Snyder

Making the Case for Structured
Settlements
The advantages paid, or ﬁnal judgment entered star t and end at any time the of the principal can never decline.
and there are no more rights to claimant chooses and, subject to Cases involving settlements of
often outweigh appeal, it is too late. minimum payment rules, fund at more than $50,000 for adults or
Any settlement that calls for any amount. In the most com- $10,000 for minors are good can-
the problems of two or more installments is a mon arrangements, period cer- didates for str uctured settle-
structured settlement. Once a tain payments (payments made ments, but smaller cases can also
the additional judgment is ﬁnal—that is, there for a deﬁned term only) and lump be structured.
are no pending postjudgment sum payments are guaranteed to If the claimant has construc-
complexity motions and the time to appeal be made on the scheduled date tive receipt of a lump sum settle-
has passed—the claimant has whether or not the claimant is ment, the investment income on
constr uctive receipt 1 of the living. A guarantee period within the settlement is taxable, but in a
tructured settlements help money and can compel payment. a lifetime annuity means that pay- structured settlement, there is

S settle cases. Because struc- To pay a structured settle-
tured settlements can earn ment, defendants and insurers
tax-free income, claimants can typically purchase an annuity
ments in the guarantee period
will be made even if the claimant
has died. A claimant who sur-
no constructive receipt until the
time of the deferred payment.
The terms of a structured settle-
get more money, and because from a life insurance company in vives the guarantee period will ment provide that the payments
payments are scheduled to suit order to make the deferred pay- continue to receive payments as cannot be altered or accelerated.
the claimant’s circumstances, the ments. Because of this practice, long as he or she lives. The value The claimant is not the legal
money will be there in time of the plaintiff does not have to rely
need. Using structured settle- on the defendant’s credit but
ments can help settle a case that rather on that of a highly rated
would other wise go to trial, major life insurance company.
because plaintiffs are more likely The defendant or its insurer pays
to settle when they see how the for the annuitized portion of the
money will increase over time. settlement at the same time it
For minors, structured settle- pays the up-front portion. In turn,
ments are better than blocked the defendant receives a release
accounts because the rate of at the time of settlement. Once
return is usually signiﬁcantly bet- the structured settlement is in
ter. Additionally, payouts can be place, neither the defendant nor
timed to match the young per- its insurer is obliged to have any-
son’s growing maturity. More- thing further to do with the claim,
over, str uctured nor do they admin-
settlements can Theda “Teddy” ister the payments.
preserve the pub- Snyder is an attorney The annuities
lic benefits of a and structured used for structured
claimant. And at- annuity specialist settlements are not
torneys who repre- with Ringler the variable ones
sent claimants can Associates in that ﬁnancial plan-
reap tax beneﬁts by Sherman Oaks. ners sell. Annuities
str ucturing their used for settle-
fees. ments require pay-
Lawyers who avoid structured ments that are fixed, typically
settlements may simply misun- guaranteed for a stated period of
derstand the fundamentals of time. The three most common
RICHARD EWING

their application. First, a struc- types are known as lump sums,
tured settlement has to be just period certain payments, and life-
that—a settlement of a disputed time annuities with or without a
claim. Once the settlement is guarantee period. Payments can

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owner of the annuity policy—the assignee exemption is IRC Section 104, which pro- tlement is not tax-free to the claimant, a struc-
affiliated with the life insurance company is. vides that payments made to compensate a tured settlement can provide tax-deferred
Therefore, the claimant does not technically physical injury, whether by lump sum or peri- income on the principal while averaging out
receive the money until the life insurance odic payment, are excluded from gross payments to help avoid high taxation, such as
company pays it, and for physical injur y income.2 Through the use of a uniform qual- in an employment case that involves payment
claimants it is all tax-free. iﬁed assignment,3 the obligor (the defendant of back wages or a business case in which the
and/or the insurer) purchases an annuity recipients want the settlement to fund their
Tax Beneﬁts and assigns the duty to make continuing pay- retirements.
If a lump sum payment to a claimant would ments to an affiliate of the life insurance com- Structured settlements also can help
be tax-free, then in a settlement that takes the pany. All the money—the original settlement claimants avoid the temptations that can arise
form of a structured settlement, the entire plus the investment income—is considered as with a lump sum payment. Studies show that
payment—principal and interest—is tax-free. compensation for the physical injur y and claimants tend to dissipate the money they
The most commonly applied statute for this therefore is tax-free. In cases in which the set- receive in settlements within a short time of
receiving it.4 Then, when the medical bills
that the monies were intended to satisfy come
due, the claimant has no resources to meet
How to Apply Structured Settlements to those needs. With a structured settlement,
Obtain Beneﬁcial Results for Clients payments arrive when the claimant needs
the money. Under a long-term monthly pay-
ment plan, for example, the money is there for
s Bridging the Negotiation Gap the claimant month after month, no matter
what the stock market does and no matter
Structured settlements can help settle cases. For example, the parties to a suit may differ
how much interest rates fluctuate. If the
greatly on how to evaluate a claim by a 40-year-old male with a lower back disk injury.
claimant fritters away all the money from one
The claimant is still working and is concerned about his retirement. This settlement
payment, another one will come along later.
proposal bridges the gap between the demand and offer. The payout of this structured
With a lifetime payout plan, the claimant can-
settlement design assures him of getting the money he needs. The total net cost to the
not outlive this regular flow of income.
insurer is $244,630.
Another beneﬁt is that claimants with struc-
tured settlements typically receive a rate of
Expected Payout
return that is higher than what is available to
Cash at settlement $100,000 the general public. This beneﬁt results from
Supplemental monthly income: $500 per month to age 65 $150,000 the practice by annuity companies of invest-
ing hundreds of millions of dollars at a time
Monthly lifetime income: commencing at age 65,
over long periods. Because of this, the com-
$3,000 per month for life, guaranteed for 10 years $540,000 panies are able to get the best rates of return
Total $790,000 and can reduce the hills and valleys of inter-
est rate ﬂuctuations.

Speciﬁc Applications
s Structuring a Medicare Set-Aside Trust
Structured settlements should always be
A structured settlement in a workers' compensation case may involve consideration of considered for minors. Because they cannot
Medicare. In specified cases, principally those involving settlements of $250,000 or receive money in their own name, minors
more, Medicare requires that the primary payer take Medicare's interest into account. have fewer settlement alternatives. One alter-
In this example, the structured settlement broker obtains records of the last two years native is to invest the settlement in a blocked
of medical expenditures by the insurer for the applicant, who was born in 1948. These account at a bank until the child turns 18.5
are forwarded to an expert for analysis. The expert's review projects expenses that However, blocked passbook savings accounts
would otherwise be paid by Medicare to be $4,000 per year for the life of the currently are returning little more than .5
applicant. The total cost to the insurer for the settlement is $396,000. percent annual interest, while structured set-
tlements can provide a far better investment
Expected Payout return. Moreover, blocked accounts are paid
Cash at settlement (less attorney fees) $125,000 in full upon majority. In contrast, structured
Money to seed Medicare set-aside trust $ 5,000 settlement payments can be timed to keep
earning tax-free income until the money is
Annual payments to Medicare set-aside trust: needed, such as over four or more years of
$4,000 every year for life $ 92,000 college. If the child will need money for future
Monthly lifetime income paid to the applicant: medical expenses (for example, scar revision
commencing 45 days after WCAB approval, $1,500 every surgery) a sufficient amount can be deposited
month for 10 years certain and for life $423,000 in a blocked account, with the balance to be
structured.
Total $645,000 A structured settlement is also a good
choice for a claimant who needs to preserve
access to public benefits. Low-income
—T. S.
claimants receiving Supplemental Security

16 LOS ANGELES LAWYER / FEBRUARY 2003
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Secure
Income (SSI) will stop receiving full beneﬁts
upon receipt of a settlement that exceeds the
amount allowed by the need-based rules.6
Receipt of a settlement can also render a
claimant ineligible for Medi-Cal benefits.
These rules prescribe strict resource7 and
income8 tests. Using a structured settlement
your to fund a special needs trust9 can preserve SSI
and Medi-Cal beneﬁts while providing sup-
plemental income to make the beneﬁt recip-

client’s ient’s life more comfortable. Structuring
typically produces greater income than de-
positing a large lump sum in a special needs

future! trust, because the payments funding the trust
over time are fully tax-free, and all the money
is working for the injured person. Cautious
trustees often invest only a percentage of the
settlement in order to preserve principal for
If you think a settlement annuity is all there is
the beneﬁciary’s lifetime, thereby producing
to a structured settlement, you need another broker. a lower return than a structured settlement
would. Trustees must also consider the tax
implications of their investment decisions.
Don’t jeopardize your client’s future. At Delta Group, With a lifetime structure, income is maxi-
mized while providing beneﬁts the claimant
we specialize in structured settlements; but we know can never outlive.
innovative Workers’ compensation applicants face
there are other solutions. We know the importance a different set of circumstances that their
^
attorneys need to address when considering
of life care plans and damage analysis and when
structured settlements. As a result of recent
to split-fund with annuities and other investment developments,10 lawyers settling workers’
compensation claims must now consider the
products. We know when to use a special needs or need for a Medicare set-aside trust to ensure
the future access of clients to Medicare ben-
medicare set-aside trust, or when a 468B qualified efits. Under Medicare’s secondar y payer
rules,11 these trusts create a fund to act as the
settlement fund better meets the need. We know you primary payer of expenses arising from the
industrial claim that otherwise would be eli-
need experts to help you help your clients.
gible for Medicare. The trusts are typically
funded through a structured settlement annu-
Your clients are depending on you. You can ity to reduce the trustee’s fees, avoid taxation
of investment income earned on the settle-
depend on us. ment proceeds, and provide payouts timed to
match need. Once the trust is depleted, for the
applicable time period or permanently,
Medicare is supposed to pay the remaining
eligible expenses. Good practice dictates that
the amount that is set aside be approved by
the local center for Medicare and Medicaid
services (CMS).
#0642426

Structured settlement brokers, who are
innovative
trained in the intricacies of funding settle-
Case analysis and funding solutions™ ments, can help lawyers settle cases.
^ Structured settlement brokers attend medi-
LICENSE

ations, settlement conferences, and meet-
Serving the Litigation Industry since 1985 ings. These specialists can calculate what it
will cost to create a benefit stream for a
Damage Analysis | Special Needs Trusts | Medicare Set-Aside claimant’s future needs. Brokers can assist
Complete Settlement Document Service attorneys in creating special needs trusts and
obtaining CMS approval of workers’ com-
Call us at 949.443.4444 pensation settlements. They have access to
David Miranda x4435 | Paul Huber x4437 | John Roeser x4439 banks with low minimums for trusts and to
custodians who can administer medical
Or visit our web site: www.deltasettlements.com expense funds. The parties do not pay for

18 LOS ANGELES LAWYER / FEBRUARY 2003
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3 9
I.R.C. §130 deﬁnes a “qualiﬁed assignment” as “any 42 U.S.C. §1396p. See also Terry M. Magady,
the services of these brokers. Rather, the life
assignment of a liability to make periodic payments as Something Special, LOS ANGELES LAWYER, Feb. 2002, at
insurance companies issuing the annuities damages (whether by suit or agreement) on account of 26.
do. Because these specialists only do one personal injury or sickness, or as compensation under 10
Memorandum from the Center for Medicare
thing—settle cases—lawyers often seek their any workmen’s compensation act, on account of per- Management, Workers’ Compensation: Commutation
experience and expertise to help evaluate sonal injury or sickness (in a case involving physical of Future Beneﬁts (July 11, 2001) (interpreting and
cases. injury or physical sickness).” clarifying Medicare regulations and manuals deﬁning
4
WILLIAM F. FLAHAVEN, CALIFORNIA PRACTICE GUIDE— Medicare as a secondary payer only).
In cases involving a lifetime payout, struc- 11
PERSONAL INJURY §4:213 (Rutter 2002). Medicare regulation 42 C.F.R. §411.46 provides: “If
tured settlement brokers can often boost 5
PROB. CODE §§3602, 3611. a lump-sum compensation award stipulates that the
return by obtaining what is called a rated age 6
SOCIAL SECURITY ADMINISTRATION, A DESKTOP GUIDE TO amount paid is intended to compensate the individual
rather than using a published mortality table SSI ELIGIBILITY REQUIREMENTS, Pub. No. 05-11001 sum- for all future medical expenses required because of
to determine life expectancy. For example, marizes applicable standards. Information is also avail- the work-related injury or disease, Medicare payments
able at http://www.ssa.gov. for such services are excluded until medical expenses
consider a 38-year-old male with a congenital 7
42 U.S.C. §1382b; 20 C.F.R. §§416.1201 et seq.; 22 related to the injury or disease equal the amount of the
condition who settles a physical injury claim C.C.R. §§50401 et seq. lump-sum payment.”
arising from a collision. A beneﬁt stream of 8
42 U.S.C. §1382a; 20 C.F.R. §§416.1100 et seq.; 22 12
Childs v. Commissioner, 103 T.C. 36 (1994), aff’d, 89
$1,000 per month for the rest of his life with C.C.R. §§50501 et seq. F. 3d 856 (11th Cir. 1996).
a 10-year guarantee would cost $172,437 using
a published mortality table. However, because
the congenital condition reduces his life
expectancy, this benefit actually costs
$126,132. Using a personalized mortality table
produces an investment return that is far in
excess of returns offered by generally avail-
able investment vehicles.
Structured settlements can also beneﬁt
lawyers. Attorneys for claimants often choose
to structure their fees as a tax-planning
device.12 Attorneys who structure their fees
get the same beneﬁts of security and high
returns as their clients. Attorney’s fees are tax-
deferred until received; attorneys may struc-
ture their fees to save for their children’s col-
lege expenses or retirement. Structuring
allows attorneys to create tax-deferred funds
without regard to IRS rules about contribution
limits or payout timing. Payment can occur
before age 59 1⁄2 or after age 70 1⁄2 without
penalty. Moreover, attorneys who structure
their fees need not put aside a like amount for
their employees, as is the case with qualiﬁed
beneﬁt plans.
Lawyers who understand the mechanics
of structured settlements appreciate the
benefits to their clients, whether they are
claimants or defendants. These lawyers
actively adopt structured settlements as
another tool in their negotiation arsenal.
Structured settlements are inﬁnitely ﬂexible
and can be designed to meet the claimant’s
individual needs, limited only by the funds
that are available and the imagination of the
parties. s

1
26 C.F.R. §1.451-2 provides: “Income although not
actually reduced to a taxpayer’s possession is con-
structively received by him in the taxable year during
which it is credited to his account, set apart for him, or
otherwise made available so that he may draw upon it
at any time.…”
2
I.R.C. §104(a) excludes from gross income “the
amount of any damages (other than punitive damages)
received (whether by suit or agreement and whether
as lump sums or as periodic payments) on account of
personal physical injuries or physical sickness.” Also
excluded are amounts received as workers’ compen-
sation for personal injuries or sickness.

LOS ANGELES LAWYER / FEBRUARY 2003 19
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law office management
By Elizabeth L. Graves

Complying with California’s New
Lactation Accommodation Law
Employers must states that an employer must 6) the effect on a facility’s re- phrase “undue hardship” does
make “reasonable efforts” to pro- sources and expenses.8 The rea- not appear in Labor Code
allow break time vide a lactating employee with sonableness of the accommoda- Sections 1030 et seq., whether
the use of a room to express milk. tion is determined by applying a an employer can reasonably
and space for Thus an employer’s actions to cost-benefit analysis, with the accommodate an employee’s
accommodate an employee will employer bearing the burden of need for space and unpaid break
their employees be evaluated under a reason- demonstrating that the requested time can be analyzed utilizing the
ableness standard. accommodation would cause an factors and analysis involved in
to express milk Similar language is used in undue hardship. For a showing of the determination of whether an
the ADA: under that law, an undue hardship, the accommo- employer is required to make a
employer must make “reasonable dation costs must be excessive reasonable accommodation
abor Code Sections 1030 accommodations” to enable an compared to the benefit or a under the ADA. A small employer

L et seq., which became employee with a known disability
ef fective Januar y 2002, to perform the essential functions
mandate that every employer in of a position.5 Unless the employ-
threat to the employer’s ﬁnancial
survival.9
In interpreting the reason-
with two employees in one office
will have a greater difficulty than
a larger employer occupying sev-
California provide break time and er can demonstrate that the ac- ableness requirement under the eral ﬂoors in a building in accom-
space for their employees who commodation imposes an “undue ADA, the employee’s preference modating the needs of a lactat-
are nursing mothers desiring to hardship on the operation of the is considered but not controlling ing employee.
express milk for their infants.1 business,” an employer will be if it unduly burdens the employer.
Unlike other statutes governing liable for discrimination under The employer may choose a less Break Time and Private
the workplace such as the Am- the ADA. In interpreting the expensive or easier accommoda- Space
ericans with Disabilities Act ADA, courts have found that an tion than the one requested by Labor Code Section 1030 man-
(ADA)2 or the Family Medical employer must be “willing to con- the employee. For example, the dates that the employer “provide
Leave Act (FMLA), Labor Code sider making changes in its ordi- Seventh Circuit held that among a reasonable amount of break
Section 1030 applies to employers nary work rules, facilities, terms, the requests of a paraplegic time to accommodate an em-
of all sizes. The law does not spec- and conditions in order to enable employee, the desire for a hand- ployee desiring to express breast
ify the minimum number of a disabled individual to work.”6 icapped-accessible sink in the milk for the employee’s infant
employees that an employer must What constitutes a reasonable office to wash coffee cups was child.”12 The break time is to run
have to be subject to the law’s accommodation is one “that reasonably accommodated by the concurrently with the employee’s
requirements and refers in its would enable an employee with a state employer’s suggestion that existing break time, if possible. If
language to “ever y” employer. disability to enjoy an equal oppor- the employee use the handi- not, the break time for expressing
The failure to comply with Sec- tunity for beneﬁts and privileges capped-accessible bathroom sink milk will be unpaid.13
tion 1030 subjects the employer of employment as are enjoyed by rather than the employer rebuild- The law further requires an
to a $100 civil pen- employees without ing the of fice kitchenette. 10 employer to “make reasonable
alty for each viola- Elizabeth L. Graves is disabilities.”7 Although the cost to the em- efforts to provide the employee
tion.3 Practitioners an attorney living in Under the ADA, ployer for lowering the kitchen with the use of a room or other
with employer cli- Lomita, California. whether an employ- sink and thereby making it acces- location, other than a toilet stall,
ents should inform er is required to sible to the employee was only in close proximity to the employ-
them about this re- undertake the dif- approximately $150, the court ee’s work area, for the employee
sponsibility and the ﬁculty or expense found that the “employer [had to express milk in private.”14 For
potential for liabil- to accommodate done] what [was] necessary to employees with their own offices,
ity. Among those an employee de- enable the disabled worker to an employer usually will be able to
who should be particularly cog- pends on 1) the nature and cost work in reasonable comfor t,” comply easily with the lactation
nizant of the new statute are law of the accommodation, 2) the thereby satisfying the duty of rea- accommodation requirements.
firms, whose ranks include a overall ﬁnancial resources of the sonable accommodation.11 Whether an employee will
growing number of female attor- employer, 3) the size of the em- A similar analysis will likely require more than her custom-
neys and support staff with infant ployer’s work force, 4) the loca- be applied to an employer’s rea- ary break time depends on sev-
children.4 tion of its facilities, 5) the number sonable efforts to accommodate eral factors, including the type of
Labor Code Section 1031 of persons employed there, and workplace lactation. While the breast pump she uses (manual,

20 LOS ANGELES LAWYER / FEBRUARY 2003
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battery-operated, or electric) and where she partition, this situation might be acceptable. another location) may be acceptable as a last
must go to express milk.15 If an employee is If an employer is proposing that an employee resort.
allowed to use an area close to the employee’s sit in a corner of the bathroom where she can Employers with more than one employee
work area where she can safely leave her be seen by other patrons or subjected to the seeking to express milk may have to make
pump equipment plugged in and ready, the smells of the bathroom, that will not likely be special arrangements if there is only one area
time it will take the employee to express milk acceptable. available for expressing milk. Ideally, an
and return to work will be significantly It is signiﬁcant that Labor Code Section employer should provide more than one room
reduced. An employee might require more 1031 speciﬁcally mentions privacy. Employers if there is more than one nursing employee.
break time if the room to express milk does who fail to accommodate the privacy interest However, if space is a factor and there is only
not contain a sink and refrigerator or these are of employees risk being found in violation of one room for lactating employees, employers
not located nearby. Pump par ts must be the statute. This is not only because of the may have to adjust employee break times so
washed after each use and many women pre- modesty concerns of employees but also that each employee can express milk pri-
fer to refrigerate their expressed milk.16 If because women must be able to relax in order vately. While some women might be com-
an employee must express milk in one loca- to pump efficiently. If an employee is con- fortable expressing milk in the presence of
tion, wash her pump parts in another area, cerned that she will expose herself to her other women, many are not. No employer
and use a refrigerator in yet another place, her coworkers or that someone could intrude should assume that women would feel com-
break could extend well beyond her autho- while she is pumping, she will have difficulty fortable expressing milk together.
rized time. expressing milk. The ideal breast-feeding The statute exempts employers from pro-
Section 1031 speciﬁcally states that a toi- room contains a door that can be locked from viding break time “if to do so would seriously
let stall is not an acceptable “room” for the inside by the employee to afford her com- disrupt the operations of the employer.”17
expressing milk. The sanitation and odor con- plete privacy. What constitutes a serious disruption is not
cerns are obvious as well as the lack of pri- For the same reasons, a cubicle—even defined in the statute. Presumably, courts
vacy. Some bathrooms, however, have rooms one with a door—offers insufficient privacy. would have to balance an employee’s right to
or areas adjacent to the toilet. Whether such Pumps can be heard outside a cubicle’s walls. breast-feed against an employer’s operational
areas would suffice under the Labor Code Moreover, the noise from outside the cubicle’s requirements. Any employer that permits
will likely depend on the degree of privacy walls could hinder a woman’s ability to relax employees to take regularly scheduled breaks
afforded to the employee expressing her milk and express milk. However, for an employer should be able to accommodate employee
and whether the employee would still be with severe and justiﬁable space limitations, breast-pumping breaks without a serious dis-
exposed to the sounds and smells of other an enclosed cubicle (or alternatively, arrange- r uption in the employer’s operations.
bathroom patrons. If the area in the bath- ments that provide additional break time to However, some employees in particular occu-
room can be closed off, with either a door or permit an employee to return home or to pations, such as those in the police or medical

Advantages for All Program in 1988 that includes prenatal classes, counselors, a lactation
room, and free breast pumps.8 The DWP also offers a Fathering
California has a long history of legislation accommodating the
Program that provides breast-feeding education classes and lactation
right to breast-feed. California law prior to the enactment of Labor Code
counseling as a way of recognizing that the “role of the father…[is]
Sections 1030 et seq. clearly delineates this right by:
one of the strongest inﬂuences on the success of breastfeeding among
• Permitting mothers to breast-feed their babies in any location where
mothers in the United States.”9
they are authorized to be with their babies, except the private home
Since the initiation of the DWP programs, many of the participat-
or residence of another person.
ing mothers breast-fed their children until each child was at least 6
• Allowing a breast-feeding mother to postpone jury service for up to
months old—approximately the same percentage as stay-at-home
a year.
mothers.10 With regard to the fathers participating in the Fathering
• Promoting breast feeding in a State Department of Health Services
Program, 69 percent of their infants were still breast-feeding at 6
public service campaign and making breast-feeding consultation or infor-
months, with an average of 8 months.11 The approximate cost to the
mation available for mothers in hospitals.1
employer was $500 per employee from the prenatal period to the ﬁrst
Despite these laws in California and comparable legislation nation-
six months of the baby’s life (not including the cost of the physical facil-
wide in other states,2 the rates at which infants are breast-fed have
ity for the program).12 An employer, however, saves approximately $331
remained low. In 1997, about 62 percent of all infants were breast-fed
to $475 for each infant breast-fed at least three months—a savings due
while in the hospital, yet when the infants were six months old only
to reduced illness and healthcare expenses.13 A 1990 survey of DWP’s
18 percent of working mothers were still breast-feeding, as compared
Family Care Lactation Program participants revealed that 83 percent
to 29 percent of nonworking mothers.3 One reason the breast-feed-
felt more positive about the DWP as an employer, 67 percent stated
ing rates are so low is the large number of working mothers. Studies
that they intended to make DWP their long-term employer, and 71 per-
show that without a lactation support program, employment signiﬁ-
cent reported taking less time off since participating in the program.14
cantly reduces the length of time a woman continues breast-feeding
As the DWP statistics indicate, there are beneﬁts for employees and
her child.4 A signiﬁcant lactation program, on the other hand, can
employers from corporate lactation programs. Numerous studies have
increase breast-feeding duration to 72.5 percent of working mothers
identified the benefits of nursing for children, including cognitive
at six months and 36 percent at 12 months.5 Employers can encour-
development, reduced risk of childhood diseases such as respiratory
age the rates and duration of breast feeding by initiating breast-
infections and ear infections, and fewer illnesses during the ﬁrst year
pumping policies within the workplace.6
of life.15 In one study, babies who were never breast-fed visited their
Employers that accommodate lactating employees are part of a
doctors 1.8 times more frequently than breast-fed infants.16 The ben-
growing trend.7 The Los Angeles Department of Water and Power, with
eﬁts for nursing mothers include reduced risk of breast cancer, ovar-
a 76 percent male work force, began offering a Family Care Lactation
(Continued on page 22)

LOS ANGELES LAWYER / FEBRUARY 2003 21
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fields, must respond to emergencies, and reg- implementation of policies that support breast cies should be distributed to employees and
ular break times can be delayed. Employers feeding. If an employee takes these initia- included in the employee manual.
of these and similar types of emergency work- tives and her employer is unwilling to provide The minimum requirements of Labor
ers may have a legitimate argument that break time or space to express milk, the Code Section 1030 are a room offering privacy
breast pumping is disruptive to the delivery employee’s attorney may advise her to seek with an electrical outlet and unpaid break
of necessary services and therefore cannot be redress by ﬁling a claim with the state labor time. An employer seeking to truly support a
accommodated. commissioner. breast-feeding employee will ensure that the
Conceivably an employer could be nei- The employee’s attorney should also eval- room has an inside lock, refrigerator, sink,
ther required to provide break time nor a uate whether an employer’s refusal to provide comfortable chair and footstool, wardrobe
place to express milk if the employer could a suitable space for expressing milk as well as hooks, and mirror—and might consider that
demonstrate a disruption of operations and an any retaliatory actions taken by the employer the break period be a paid one. In addition, an
inability to reasonably accommodate the against the employee requesting lactation employer who wants to encourage breast
employee. These exemptions are not likely to accommodation constitute possible grounds feeding and contribute to an increase in the
be applicable to most law offices, particularly for a claim of discrimination. Although breast rate of breast feeding among its female
if courts look to the case law developed under feeding is not covered by the federal Preg- employees with infants can inform employees
the ADA for guidance. nancy Discrimination Act of 1978,19 and courts of its policies and arrangements for breast-
have held that breast feeding is not a “related feeding support before employees go on
Enforcing the Law medical condition” as deﬁned by the PDA,20 maternity leave. Employers can go beyond
Despite the broad impact of Labor Code women “may still have a claim of sexual dis- compliance with Section 1030 and provide
Section 1030, its enactment has received lit- crimination under Title VII because lack of breast pumps and make the services of a lac-
tle publicity, and employers may be unaware accommodation for breastfeeding provides tation consultant available to employees. The
of their legal obligation to support breast- a disadvantage for women.”21 In addition, beneﬁts for employers who fully accommo-
feeding employees. Attorneys representing California’s Pregnancy Disability Act may date breast-feeding employees are numer-
aggrieved employees may ﬁnd that employer provide a cause of action.22 ous. (See “Advantages for All,” page 21.)
education is a more productive ﬁrst step than Law firms and other employers should Employers could either purchase or sub-
an immediate rush to litigation. When applic- explore their space options before an sidize pumps for each nursing employee23 or
able, mothers may be well advised to seek employee requests accommodation. Em- purchase hospital grade electric pumps for
assistance from their union, human resources ployers should also designate a human multiple uses and individual sterilized kits.
department, or employee liaison. Local groups resources person to answer any questions Employers that opt to purchase or subsidize
such as the Breastfeeding Task Force of and serve as a liaison between the employer the cost of breast pumps should at least con-
Greater Los Angeles18 may be helpful in the and employee. Lactation accommodation poli- sider the electric pump models, even though

SOC. POL’Y & L. 471, 480 (2001).
(Continued from page 21) 5
See CIGNA Working Well (2002), the UCLA Center for Healthier Children,
ian cancer, and hip fractures as well as greater bonding between Families and Communities study of CIGNA’s corporate lactation program, avail-
able at http://healthproject.stanford.edu/koop/CIGNA/documentation.html.
mother and child and increased self-esteem.17 6
Christup, supra note 4, at 481.
The health benefits for both mother and child translate into 7
See Melissa Healy, Pentagon Yields to Families with Room for Nursing Moms, LOS
employer and societal beneﬁts in the form of reduced healthcare, ANGELES TIMES, Aug. 11, 1999, at A1.
8
insurance, medical, and welfare costs. One company implementing a Jocelyn Y. Stewart, Breast-Feeding Becoming a Workplace Issue, LOS ANGELES
lactation accommodation program found a $240,000 reduction in TIMES, Jun. 13, 1993, at A1. See also Rona Cohen & Marsha B. Mrtek, The Impact
of Two Corporate Lactation Programs on the Incidence and Duration of Breastfeeding
medical costs, with 62 percent fewer prescriptions.18 Moreover, health- by Employed Mothers, AMERICAN JOURNAL OF HEALTH PROMOTION, July/Aug. 1994, at
ier children and mothers result in reduced maternal absenteeism and 2, 4.
lateness in the workplace.19 Some programs found a 77 percent reduc- 9
Rona Cohen et al., A Description of a Male-Focused Breastfeeding Promotion
tion in maternal absenteeism due to infant illness.20 Corporate Lactation Program, 18 J. HUMAN LACTATION 1, 61 (2002).
10
Cohen & Mrtek, supra note 8, at 5.
Finally, when practices that encourage breast feeding are adopted 11
Cohen, supra note 9, at 63.
in the workplace, breast-feeding mothers “exhibit increased produc- 12
Cohen & Mrtek, supra note 8, at 5.
tivity with higher job satisfaction.”21 Employer policies may encourage 13
T.M. Ball and A.L. Wright, Health Care Costs of Formula-Feeding in the First Year
women to initiate breast feeding if they believe they will be able to con- of Life, PEDIATRICS, Apr. 1999, at 870.
14
tinue breast-feeding upon their return to work. Moreover, since the abil- Sanvita Programs Corporate Lactation brochure, at 2. Copy on ﬁle with author.
15
Elizabeth N. Baldwin, A Look at Enacting Breastfeeding Legislation, La Leche
ity to express milk at work enables women to both work and breast- League International, Apr. 4, 1999, at http://www.lalecheleague.org
feed, it advances gender equality in employment.22 The employer’s sup- /Law/LawEnact.html.
port could even make a difference in whether a mother returns to the 16
CIGNA Working Well, supra note 5, at Documentation.
17
work force after the birth of her child.—E.L.G. Peter Layde, et al., The independent association of parity, age at ﬁrst full-term
pregnancy and duration of breastfeeding with the risk of breast cancer, 42 J. OF
CLINICAL EPIDEMIOLOGY 963, 966 (1989); K.E. Brock, et al., Sexual, reproductive and
1
See CIV. CODE §43.3, CODE CIV. PROC. §210.5, HEALTH & SAFETY CODE §§319.50 et contraceptive risk factors for carcinoma-in-situ of the uterine cervix, 160 MEDICAL
seq. J. OF AUSTRALIA 125, 127 (1989).
2
At least 30 states have enacted legislation to promote breast feeding. See G. 18
CIGNA Working Well, supra note 5, at Evaluation Summary.
Waggett & Rega Richardson Waggett, Breast Is Best: Legislation Supporting 19
Rona Cohen et al., Comparison of Maternal Absenteeism and Infant Illness Rates
Breast-Feeding Is an Absolute Bare Necessity—A Model Approach, 6 MD. J. among Breast-Feeding and Formula-Feeding Women in Two Corporations, AMERICAN
CONTEMP. LEGAL ISSUES 71 (1995). JOURNAL OF HEALTH PROMOTION, Nov./Dec. 1995, at 153.
3
Eleena De Lisser, For Working Moms, Nursing Is Something to Keep in the 20
CIGNA Working Well, supra note 5.
Closet—It Turns Squeamish Colleagues into Unfunny Humorists; A Pumping- 21
Christup, supra note 4, at 477.
Room Sorority, WALL STREET JOURNAL, Aug. 31, 1999, at A1. 22
Id. at 501-02.
4
Shana M. Christup, Breastfeeding in the American Workplace, 9 AM. U.J. GENDER

22 LOS ANGELES LAWYER / FEBRUARY 2003
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they are more expensive, because these mod-
els enable mothers to express milk more
rapidly and thereby reduce the amount of
break time that is required.
Labor Code Sections 1030 et seq. offer
employees the opportunity to continue work-
ing at their jobs while breast-feeding. Most
employers can easily accommodate nursing
mothers by simply providing a space and
time to express milk. Wise employers can
use this legislation as an oppor tunity to
reduce their costs while educating staff and
supporting their employees who are breast-
feeding mothers. s

1
The author wishes to thank Mark Meyerhoff of Liebert
Cassidy Whitmore and Alexis Martin Neely of Munger
Tolles & Olson LLP for their comments on this article.
2
COMPETENT REAL ESTATE BROKERAGE
42 U.S.C. §§12111(10)(A), 12112(b).
3
LAB. CODE §§1030 et seq.
4
See Rona Cohen et al., Comparison of Maternal s Specializing in helping attorneys and their clients buy and sell
Absenteeism and Infant Illness Rates among Breast- real estate in bankruptcy, probate, family, and real estate law
Feeding and Formula-Feeding Women in Two s Experienced negotiator with legal background
Corporations, AMERICAN JOURNAL OF HEALTH PROMOTION,
Nov./Dec. 1995, at 148. s Licensed broker, California Department of Real Estate
5
42 U.S.C. §12111(8),(9); §12112(a). s Call for LACBA member discount
6
Vande Zande v. State of Wis. Dep’t of Admin., 44 F. 3d
538, 542 (7th Cir. 1995).
7
Howell v. Michelin Tire Co., 860 F. Supp. 1488, 1492 O FFICE : (818) 905-7111 EXT. 251
(M.D. Ala. 1994).
O FFICE : (310) 820-2229 TODD RUBINSTEIN, J.D., BROKER ASSOCIATE
8
42 U.S.C. §12111(10)(A), (B).
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Vande Zande, 44 F. 3d at 543. F ACSIMILE : (818) 905-7299 E MAIL : ToddR@realtor.com
10
Id. at 545-46.
11
Id. at 546.
12
LAB. CODE §1030.
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Id.
14
LAB. CODE §1031.
15
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LOS ANGELES LAWYER / FEBRUARY 2003 23
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By James C. Martin and
Benjamin G. Shatz

Reverse
CourseC C P S e c t i o n 128( a ) ( 8 ) h a s s u c c e e d e d
in reversing the presumption in
favor of stipulated reversals
128(a)(8) reverses Neary’s presumption in favor of accepting stipu-
A signiﬁcant number of cases lated reversals and instead creates a presumption against stipulated
settle while on appeal. In fact, in order to reduce caseloads, both state reversals. The statute places the burden on the parties to convince
and federal appellate courts have established settlement or mediation the appellate court to reverse a judgment with the parties’ consent.
programs to encourage this result. Reaching a settlement at the As a result of this legislative action, eight years of precedent
appellate stage, however, is frequently complicated by the fate of the under Neary is slowly being replaced by precedent created under the
underlying judgment, which the losing party may insist be reversed, new statute. Litigants seeking stipulated reversals on appeal accord-
or at least vacated, as part of any settlement. ingly need to be cognizant of the emerging authority and, speciﬁcally,
Litigants can accomplish this end by a stipulated reversal, a pro- its construction of the requirements of Section 128(a)(8).
cedure by which the parties jointly ask a court to resolve an appeal The enactment of Section 128(a)(8) is only the most recent chap-
by reversing the trial court’s judgment. Typically, the reversal is a con- ter in the changing history of stipulated reversals in California. Until
dition of the parties’ settlement. The California Supreme Court 1992, California’s appellate courts were divided on their propriety.
endorsed this procedure in 1992 in Neary v. Regents of University of
RON OVERMYER

California1 by creating a presumption that appellate courts should James C. Martin is a partner and Benjamin G. Shatz is of counsel in the
accept such stipulations in the absence of extraordinary circum- Los Angeles office of Reed Smith Crosby Heafey. Martin is a fellow of the
stances. For the following eight years, Neary’s merits were widely American Academy of Appellate Lawyers and a member of the California
debated, with the controversy resolved only when the state legislature Academy of Appellate Lawyers. Both are certiﬁed by the California State
enacted Code of Civil Procedure Section 128(a)(8) in 1999.2 Section Bar Board of Legal Specialization as Appellate Law specialists.

24 LOS ANGELES LAWYER / FEBRUARY 2003
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e
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Some courts believed that allowing parties to reasoned that because the primary purposes Neary’s reach also received an indirect
stipulate to a reversal demeaned the ajudica- of the judicial system is to resolve disputes, blow from the U.S. Supreme Court in U.S.
tory process. In one opinion, the court of courts should assist parties in settling rather Bancorp Mortgage Co. v. Bonner Mall Part-
appeal declined to approve a stipulated rever- than subjecting them to “the prospect of fur- nership.19 Just as the doctrine of stipulated
sal, noting that it knew nothing about the ther battering” in continued litigation.9 The reversal is available to California appellate
merits of the appeal and thus had no reason court then neatly summed up its reasoning in courts, federal appellate courts have a paral-
to reverse a judgment “with which this court the pithy phrase: “The courts exist for liti- lel body of law that allows them to vacate
has no quarrel at this point.”3 Other courts gants. Litigants do not exist for courts.”10 judgments on appeal,20 which in federal par-
viewed stipulated reversal as a proper device, Neary was not unanimous. Justice Mosk lance is called a “stipulated vacatur.” Before
no different from a stipulated judgment.4 concurred in the result but opined that the U.S. Bancorp, the federal circuits were split
These courts reasoned that whatever the par- majority went too far in creating a broad pre- on the propriety of stipulated vacaturs, with
ties could agree on should be upheld, par- sumption in favor of allowing stipulated rever- many circuit courts opposed to the practice.21
ticularly if it furthered the ultimate resolution sals.11 Justice Kennard voiced much stronger U.S. Bancorp resolved this split of author-
of the controversy. objections, dissenting on the grounds that ity by directly addressing the question
These conﬂicting views were brought to the practice undermines judicial efficiency whether parties’ voluntary settlements could
a head in 1992 in Near y. The California by encouraging par ties to tr y cases and justify the “extraordinary remedy” of vacatur
Supreme Court settled the conﬂict in judi- erodes public confidence by fostering the by stipulation.22 The Court concluded that
cial philosophies by not only allowing stipu- perception that litigants with sufficient wealth the mere fact that parties agreed to vacatur in
lated reversals but by creating a presump- can buy their way out of adverse adjudication. a settlement would not suffice. Instead, the
tion in favor of accepting them. Neary involved In her view, stipulated reversals should be Court held that parties seeking stipulated
an appeal and cross-appeal of a $7 million allowed only if, after balancing public and vacatur of a federal judgment must demon-
libel verdict in favor of Neary, a cattle rancher, institutional concerns, there is no reasonable strate “exceptional circumstances” for such
against the University of California. While possibility that reversal would adversely affect “extraordinary relief.”23 The Court reasoned
the appeals were pending, the parties reached the interests of nonparties or the public.12 that judicial precedents are valuable to the
a settlement. In return for $3 million, Neary legal community and are not merely the prop-
would agree to vacate the judgment and dis- The Neary Era erty of private litigants to erase at will. Thus,
miss his case. To effectuate this resolution, After Neary, some courts applied its rule, by creating a strong presumption against stip-
the par ties asked the cour t of appeal to allowing stipulated reversals without discus- ulated vacaturs, the federal courts adopted a
reverse the judgment and remand the case to sion.13 Continued criticism of the decision, position at odds with Neary.
the trial court for dismissal with prejudice. however, led the California Legislature to Cer tain California cour ts also chafed
The court of appeal refused to do so, noting: attempt to restrict stipulated reversals.14 In under Neary. In Norman I. Krug Real Estate
[F]acilitation of settlement is not the 1994, a proposed statutory amendment (SB Investment v. Praszker,24 the First District
overriding judicial object. The power 102) would have codiﬁed Justice Kennard’s Court of Appeal reasoned that Neary imposed
judges exercise is not deﬁned or con- dissent by amending Code of Civil Procedure “an unusual and difficult responsibility” on
ferred by private agreement.…The 128(a)(8) to prevent appellate courts from appellate courts in ascertaining whether extra-
duty of the judicial branch is not to accepting stipulated reversals unless: 1) there ordinary circumstances existed to justify the
satisfy the parties that appear before it, was no reasonable possibility the public could rejection of a stipulated reversal. This was
or even society at large, but to say be adversely affected, and 2) the parties could so, the court reasoned, because Neary “pro-
what the law is and apply it in particu- show there would be no erosion of public vides little guidance” in outlining what “extra-
lar cases.5 trust or reduction of incentive for pretrial set- ordinary circumstances” overcome the pre-
The California Supreme Court granted tlement. The bill passed the legislature but did sumption in favor of stipulated reversals. Also,
review and began its analysis by conﬁrming not make it past the governor’s desk, and because Neary did not require the parties
that a court of appeal has the authority to Neary remained the controlling law.15 themselves to come forward with evidence
reverse or otherwise vacate a trial court’s While the legislative attempt to constrict regarding the public’s interest, it was difficult
judgment when the parties stipulate to such Neary met with defeat, several efforts in the for a court operating in such a vacuum to
action as a condition to a proposed settle- courts to expand the circumstances in which know if it was doing the right thing in accept-
ment.6 Having conﬁrmed the power, the court stipulated reversals could be obtained proved ing a stipulated reversal.
went on to hold that “as a general rule, the par- unsuccessful as well. In State of California v. In his concurring opinion in Krug, Pre-
ties should be entitled to a stipulated reversal Superior Court (Lovelace), for example, the siding Justice Kline argued that the blanket
to effectuate settlement absent a showing of parties sought a stipulated reversal of an presumption in favor of stipulated reversals
extraordinary circumstances that warrant an appellate decision after the California Su- was “destined to plague the appellate courts,”
exception to this general rule.”7 The court preme Court granted review. The supreme and he encouraged the supreme court to
explained that public policy favors settlement court noted that it could have granted the “reconsider the propriety of stipulated rever-
as an efficient method of resolving disputes. parties’ motion, but declined to do so in favor sal.”25 In his view, the stipulated reversal pro-
Moreover, rejecting stipulated reversals could of deciding an impor tant legal issue of cedure “debases the judicial coin with the
force a wasteful expenditure of resources by statewide importance.16 And in People v. Bar- currency of a false expediency,” wastes judi-
the parties and the courts: “The appellate raza,17 a district attorney and convicted defen- cial resources, and undermines respect for
courts have enough to do without deciding dant sought a stipulated reversal of a misde- judicial institutions.26
cases the parties no longer wish to litigate.”8 meanor conviction. The court denied the In Krug, the court of appeal asked the
The court also favored stipulated reversals motion, pointing out that the relief sought parties to submit letter briefs responding to
as a matter of fairness to the parties. Neary was not authorized by statute or Neary, and a series of questions to help the court deter-
and the university had been litigating for 13 questioned whether Neary could apply in a mine if extraordinary circumstances existed
years before reaching a settlement. The court criminal context at all.18 that would justify denying a stipulated rever-

26 LOS ANGELES LAWYER / FEBRUARY 2003
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sal. Ultimately the court allowed a stipulated
reversal as to one party, but not another. The
case involved a judgment against a real estate
broker who acted unprofessionally and the
broker’s agency. The court refused to reverse
the judgment against the broker because
doing so would interfere with the state’s dis-
ciplinary scheme under which the real estate
commissioner could punish the errant broker.
The court refused to allow a broker to essen-
tially “purchase disciplinar y immunity.”27
Thus, the court relied on the public interest
exception carved out in Neary. The court
did, however, allow a stipulated reversal as to
the broker’s agency, which had subsequently
been sold to a third party who had nothing to
do with the transaction underlying the judg-
ment.
To address the “considerable handicap” in
determining whether extraordinary circum-
stances existed, the First District adopted
Local Rule 8 (effective January 1994; amended
2000). This rule required that motions for
stipulated reversals be accompanied by 1) a
copy of the judgment to be reversed and 2)
declarations from counsel stating that the
judgment did not involve important public
rights or unfair, illegal, or corrupt practices or
torts affecting a signiﬁcant number of persons
not parties to the litigation, and that a rever-
sal would not prejudice any third parties.
But even the addition of this local rule
proved insufficient to assuage Neary’s harsh- in 1994 to make stipulated reversal a statu- requesting reversal outweigh the ero-
est critics. In Morrow v. Hood Commu- torily disfavored procedure. This time there sion of public trust that may result
nications, Inc., the parties sought a stipulated was no veto,30 and in 1999 the legislature from the nulliﬁcation of judgment and
reversal on appeal before the record on appeal enacted Code of Civil Procedure Section the risk that the availability of stipu-
had been ﬁled and before the issues on appeal 128(a)(8), which became effective January 1, lated reversal will reduce the incen-
had been identiﬁed and briefed.28 Given that 2000. The statute modified the appellate tive for pretrial settlement.
the motion for stipulated reversal was accom- court’s power to accept stipulated reversals. Section 128(a)(8) puts the burden on the
panied by the declaration from counsel Indeed, in enacting Section 128(a)(8), the parties seeking stipulated reversals to justify
(required by local rule) stating that no third legislature effectively disapproved the major- the relief sought, and, as expected, has re-
parties would be prejudiced, the majority ity’s holding in Neary and adopted Justice sulted in denials of stipulated reversal re-
allowed a stipulated reversal. The majority, Kennard’s dissenting analysis. quests. For example, in August 2000, a jury
however, made clear that it was following Section 128(a) sets forth enumerated pow- in a racial discrimination lawsuit in San
Neary only because stare decisis required it ers of every California Court. Subdivision Francisco awarded $132 million to employees
to do so, voiced agreement with the funda- (8) provides that every court may “amend of the nation’s largest baking company,
mental principles set forth in Justice Kline’s and control its process and orders so as to Interstate Brands Corporation (makers of
concurring opinion in Krug, and encouraged make them conform to law and justice” and Wonder Bread). The trial court later reduced
the supreme court to reconsider and repudi- goes on to provide that “[a]n appellate court the award to $27 million. While the matter was
ate Neary. shall not reverse or vacate a duly entered on appeal, the parties reached a settlement
Justice Kline himself dissented in Morrow, judgment upon an agreement or stipulation of and asked the First District Court of Appeal
taking his criticism to a new level. Although the parties unless” two conditions are met. to approve a stipulated reversal. In January
Justice Kline acknowledged that Neary re- Thus, in contrast to Neary’s presumption in 2002, the court of appeal denied the request
quired that the stipulated reversal be granted, favor of accepting stipulated reversals, the of the parties.31
he wrote that “as a matter of conscience [he statutory rule is phrased as a presumption Nevertheless, on an appropriate showing,
could not] apply the r ule announced in against granting stipulated reversals. The courts still will accept stipulated reversals.32
Neary.”29 two conditions required for a stipulated rever- For example, in In re Rashad H.,33 the court
sal are: applied Section 128(a)(8) and approved a stip-
Section 128(a)(8) (A) There is no reasonable possibility ulated reversal in a dependency matter.
Although the supreme court declined the that the interests of nonparties or the Interestingly, Rashad H. presented a varia-
request of the Morrow court to reconsider public will be adversely affected by tion on the typical theme. The request for a
Neary, the legislature took up the issue by the reversal. stipulated reversal was not based solely on the
reviving the bill that the governor had vetoed (B) The reasons of the par ties for parties’ desire to settle. Rather, the parties

LOS ANGELES LAWYER / FEBRUARY 2003 27
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agreed that the trial court had committed whether parties seeking a stipulated reversal tlement negotiations to show that the parties
reversible error and that reversal was the are entitled to brieﬁng. did not adopt a wait-and-see attitude about
proper substantive outcome regardless of the results in the trial court. Describing new
their agreement to settle. The court of appeal The Current State of developments in the case that lead to a set-
concur red, finding that reversal was Stipulated Reversal Law tlement breakthrough also may bolster the
inevitable. As a result, the court found that the Given the statutory presumption against stip- showing on this factor. The argument is fur-
public’s interest was advanced by allowing ulated reversal and the burden imposed on ther strengthened if the parties agree that
the judicial error to be corrected by the set- the parties to justify reversal, appellants the judgment at the trial level is legally ﬂawed
tlement agreement. should not routinely ask for stipulated rever- and would have to be reversed as a matter of
Despite its holding, Rashad H. did not sals as part of appellate settlement. However, law regardless of settlement—as in Rashad H.
state whether the parties’ agreement that stipulated reversals remain obtainable, and as Review of precedents governing approval
reversible error existed would become the they are effective tools for posttrial settle- of stipulated reversals is also helpful in deter-
new touchstone for approval of stipulated ment because erasure of a trial court verdict mining appropriate circumstances for the
reversals.34 This question was addressed in is a powerful bargaining chip, they should procedure. Cases involving violations of pro-
Union Bank of California v. Braille Institute of be pursued when appropriate. fessional duties—as in Norman I. Krug—or
America,35 which held that reversible error is Par ties seeking a stipulated reversal other public legal obligations with collateral
not required. The Union Bank case arose should carefully abide by Section 128(a)(8). consequences are not good candidates for a
from a series of judicial disputes between the Following the analysis of Rashad H., litigants stipulated reversal because the court may
trustees and beneﬁciaries of a trust. While the should fashion their motion for stipulated believe the appellant is attempting to pur-
matter was on appeal, the parties reached a reversal around the three statutory factors chase immunity from public responsibilities.
settlement in which they agreed to a stipu- contained in Section 128(a)(8)(A) and (B). The court considered this in Union Bank and
lated reversal of two court orders. Litigants in the First District must also follow speciﬁcally noted that a stipulated reversal
In addressing the parties’ stipulated rever- Local Rule 8.41 And, in light of Whitmore,42 the would not harm the public interest because
sal request, the court parsed Section 128(a)(8) parties should set forth their arguments the case did not involve “allegations of cor-
into three statutory requirements: Stipulated under Section 128(a)(8) in their ﬁrst letter or ruption or conduct which would be reportable
reversal will be accepted if 1) there is no rea- motion to the court on the issue, lest they be to licensing and disciplinary agencies.”43
sonable possibility nonparties or the public preemptively precluded from ever doing so. Even so, stipulated reversals involving
could be adversely affected, 2) the reasons for First, the parties should frame the case as professional malpractice are still possible. In
the request outweigh concerns about the ero- narrowly as possible to emphasize that the Saraswati v. Wildes, in which the plaintiff
sion of public trust, and 3) there is no reduc- stipulated reversal will not affect the public, sued a New York law ﬁrm in an immigration
tion in the incentive for pretrial settlement. nonparties, or the precedential development matter, the court allowed the reversal because
The court found all requirements were sat- of the law. Taking a cue from California Rule the case concerned “the legal representation
isﬁed. The court also explained that although of Court 976(b) governing the publication of of only one party and his private interests
Union Bank was unlike Rashad H. because opinions, the parties could argue that their dis- regarding his immigration status” and the
the litigants did not demonstrate reversible pute does not involve an issue of public inter- appropriate New York disciplinary authorities
error in the orders at issue, “the absence of est and that resolution of their dispute would already were investigating the matter.44
reversible error is not a bar to the accep- not establish a new rule of law or resolve a Conversely, matters involving discrete
tance of a stipulated reversal so long as the conﬂict in the law. In effect, the argument is obligations between specific individuals in
appellate court makes the three ﬁndings” of that accepting the stipulated reversal would their individual capacities may be good can-
Section 128(a)(8). not rob the public of a valuable precedent. didates for stipulated reversals because the
Recently the California Supreme Court Second, parties should provide reasons to issues generally pertain to the parties only
seemed poised to write another chapter in explain that the request will not erode public and do not implicate broader public concerns.
stipulated reversal law when it granted review trust in the court process. Given that one of For instance, the court in Bryer v. Green-
in Whitmore Union Elementary School District the primary criticisms of stipulated reversals Venable, noted that the public or nonparties
v. Shasta County.36 In Whitmore, the parties is that the procedure allows wealthy, repeat would not be affected by a stipulated reversal
reached a settlement sometime after oral litigants to buy their way out of an adverse rul- because the case concerned “collection on a
argument in the appeal, and they notiﬁed the ing, it could help to show that both parties to debt between private parties.”45 Similarly, in
court by letter that they would be seeking a the dispute are not frequent litigants or are at Romo v. Boynton, the court pointed out that the
stipulated reversal.37 Three days later, the least of equal bargaining power. If warranted, case involved no issue of public concern but was
court of appeal published its opinion. In a parties may also argue that without a stipu- simply “a dispute over compensation resulting
footnote, the court of appeal denied the par- lated reversal in the case, there will be a delay from a dog bite.”46 The stipulated reversal may
ties’ anticipated request for a stipulated rever- in resolution and an inefficient waste of pub- also be available in family law matters, as in Rashad
sal, citing Section 128(a)(8), but without any lic and private resources. Further, when the H. and In re Lili P.47
detailed analysis.38 parties reach their settlement through a court- The tortuous legal history of stipulated
The supreme court then granted review of ordered or operated settlement or mediation reversals in California appears to have ended.
two issues, one of which was whether the process, the parties may reasonably contend Yet despite the statutory presumption against
court of appeal had acted improperly in pre- that accepting such a settlement does not stipulated reversals, they remain a workable
emptively denying the parties’ anticipated erode public trust in the courts, given the component of appellate settlement. Courts
request for a stipulated reversal without any court’s assistance in reaching the settlement. are becoming more comfortable with the
brieﬁng on the propriety of a stipulated rever- Third, the parties should emphasize how guidelines of Section 128(a)(8) and when the
sal under Section 128(a)(8).39 Later, however, stipulated reversal will not reduce the incen- factors militating against granting a stipu-
the court dismissed review as improvidently tive for pretrial settlement. One way to lated reversal are not present, the statute’s
granted,40 leaving undecided the question of develop this point is to trace the history of set- presumption can be overcome. In that fashion,

28 LOS ANGELES LAWYER / FEBRUARY 2003
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Expert Witness, Consultant,
Section 128(a)(8) provides a balanced and COMPUTER FORENSICS Mediation, Dispute Resolutions
workable resolution of the intense philo- Certiﬁed Data Discovery
sophical debate that ensued after Neary HANK KRASTMAN, PH.D., J.D.
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Steven Richard Sauer, Esq.
Counselor at Law
incentive for pretrial settlement.
3
In re Marriage of Shapiro, 39 Cal. App. 3d 460, 464
(1974) (Kaus, P.J.). Professional arbitrator and mediator since 1974.
4
E.g., Parker v. Parker, 135 Cal. App. 2d 782, 782-83
(1955).
5
Neary, 3 Cal. 4th at 275-76; see Neary v. Regents of
Univ. of Cal., 278 Cal. Rptr. 773, 777-78 (Ct. App. 1991), Settlement Impasse?
rev’d, 3 Cal. 4th 273 (1992).
6
Neary, 3 Cal. 4th at 277.
Masterful guidance when the stakes are high.
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Id. at 281.
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Id. at 280.
11
Id. at 286.
12
Id. at 294-95.
13
Donnellan v. City of Novato, 86 Cal. App. 4th 1097,
1101 (1999); Wicker v. Oosten, 43 Cal. Rptr. 2d 556, 563
(1995) (ordered not published); Henry v. Monaghan,
40 Cal. Rptr. 2d 655, 655-56 (1995) (ordered not pub-
lished) (court accepts stipulated reversal, ﬁnding no
extraordinary circumstances to deny motion); Lara v.
Cadag, 13 Cal. App. 4th 1061, 1065 (1993) (court com-
plies with Neary in dismissing settled case); see Steven
R. Harmon, Unsettling Settlements: Should Stipulated
Reversals Be Allowed to Trump Judgments’ Collateral
Estoppel Effects under Neary? 85 CAL. L. REV. 479, 540
n.303 (Mar. 1997) (citing seven unpublished 1995 cases
in which the court of appeal granted stipulated rever-
sal motions).
14
Stephen R. Barnett, Judgments for Sale, L.A. DAILY J.,
Aug. 26, 1992 (criticizing Neary); David M. Shacter,
Whose Lawsuit Is It, Anyway? 26 BEV. HILLS B.A.J. 187
(Fall 1992) (questioning Neary); Barnett, Making
Decisions Disappear: Depublication and Stipulated
Reversal in the California Supreme Court, 26 LOY. L.A.
L. REV. 1033 (1993) (arguing that Neary is “disquieting”
because it is “one-sided and poorly reasoned” and
“exaggerates the beneﬁts of stipulated reversal and
belittles the costs”); Judith Resnik, Whose Judgment?
Vacating Judgments, Preferences for Settlement, and the
Role of Adjudication at the Close of the Twentieth Century,
41 UCLA L. REV. 1471 (1994) (noting Neary “sparked
considerable controversy”); Daniel Purcell, The Public
Right to Precedent: A Theory and Rejection of Vacatur,
85 CAL. L. REV. 867 (1997) (criticizing Neary).
15
The governor’s veto message stated that “[t]he pre-
sumption in favor of settlement should be retained,” and
that Senate Bill 102 would “discourage and in most
cases prevent postjudgment settlements, forcing the
parties to continue to pursue an appeal even though
both sides wish to settle and terminate any further lit-
igation.” The veto message is available at http://www
.leginfo.ca.gov/pub/93-94/bill/sen/sb_0101-0150/sb

LOS ANGELES LAWYER / FEBRUARY 2003 29
http://blog-purchasestructuredsettlements.blogspot.com/

_102_vt_940925. a narrow means to circumvent the Bancorp rule in 32
Bryer v. Green-Venable, 2002 WL 31186640 (2002)
16
State of California v. Superior Court (Lovelace), 11 Cal. some circuits. This involves ﬁling a Rule 60(b) motion (noting need to resolve longstanding litigation between
4th 50, 60-62 (1995). in the district court, asking the district court to vacate private parties that would not affect the public); Romo
17
People v. Barraza, 30 Cal. App. 4th 114 (1994). its judgment, despite the pending appeal. The district v. Boynton, 2002 WL 3833009 (2002) (noting judicial
18
Neary’s reasoning also was found inapposite in a court does not have the power to grant this motion, but error occurred below); Saraswati v. Wildes, 2002 WL
case in which a party sought a dismissal of appeal and it could issue a short memorandum indicating that its 90452 (2002); In re Lili P., 2002 WL 432441 (2002);
a retraction or depublication of a published court of inclination to do so, which, in turn, might induce the Imai v. Deignan, 2002 WL 415701 (2002); Prudential
appeal decision based on a settlement reched after court of appeals to remand the case. See Scott B. Smith, Props. of Big Bear v. Dwyer, 2002 WL 194262 (2002);
oral argument. Lucich v. City of Oakland, 19 Cal. App. Settling Federal Cases on Appeal: A Trap for the Unwary, Maranto v. Hautman, 2001 WL 1480635 (2001);
4th 494, 501-03 (1993). See Paul D. Fogel & Kay Long- 61 ALA. LAW. 396 (Nov. 2000) (outlining this proce- Scientific Res. Surveys v. Dixon, 2001 WL 1203435
Martin, Settlement Squelch—Appellate Court Rejection dure and providing case citations); Purcell, supra note (2001).
of Stipulated Dismissals Discourages Resolution, L.A. 14, at 873-74 (noting that “[t]his largely undefined 33
In re Rashad H., 78 Cal. App. 4th 376, 280-82 (2000).
DAILY J., Feb. 8, 1999. exception may swallow the Supreme Court’s new rule”). 34
See Purcell, supra note 14, (arguing that stipulated
19
U.S. Bancorp Mortgage Co. v. Bonner Mall P’ship, 513 Note, however, that this approach would not work in the reversal should be allowed only for legally defective
U.S. 18, 29 (1994). Ninth Circuit, which follows different Rule 60(b) pro- judgments).
20
See 28 U.S.C. §2106. cedures. 35
Union Bank of Calif. v. Braille Inst. of Am., 92 Cal. App.
21 24
Scott D. Makar, Vanishing Precedents: Settlements Norman I. Krug Real Estate Inv. v. Praszker, 22 Cal. 4th 1324 (2001).
Vacatur on Appeal, 68 FLA. B.J. 18, 21 (Nov. 1994) (out- App. 4th 1814, 1819 (1994). 36
Whitmore Union Elementary Sch. Dist. v. Shasta
25
lining the split); Howard Slavitt, Selling the Integrity of Id. at 1826, 1828. County, 107 Cal. Rptr. 2d 616 (Cal. 2001).
26
the System of Precedent: Selective Publication, Depub- Id. at 1831. 37
Whitmore Union Elementary Sch. Dist. v. Shasta
27
lication, and Vacatur, 30 HARV. C.R.-C.L. L. REV. 109, 134- Id. at 1822. County, 104 Cal. Rptr. 2d 227, 239 n.56 (Cal. App. 2001).
28
35 (1995) (same). Morrow v. Hood Communications, Inc., 59 Cal. App. 38
Id.
22
U.S. Bancorp Mortgage Co., 513 U.S. at 27. 4th 924, 925 (1997). 39
See Supreme Court Action, 12:5 CAL. TORT RPTR. 193
23 29
U.S. Bancorp did not define “exceptional circum- Id. at 927. (June 2001).
30
stances,” and few decisions have interpreted this stan- The governor both in 1994, when the bill limiting stip- 40
See Supreme Court Order, Case S096088 (July 10,
dard. See Major League Baseball Props., Inc. v. Paciﬁc ulated reversals was ﬁrst vetoed, and in 1999, when a 2002).
Trading Cards Inc., 150 F. 3d 149 (2d Cir. 1998) (ﬁnd- nearly identical bill (AB 1676) was passed, was the 41
FIRST APP. DIST. L. R. 8.
ing exceptional circumstances); In re GMC, 1995 WL same man, Pete Wilson. 42
Whitmore, 104 Cal. Rptr. 2d at 239 n.56.
31
940063 (4th Cir. 1995) (unpublished) (same); Motta v. See Stipulated Reversal Is Rejected, S.F. DAILY J., Jan. 43
Union Bank of Calif. v. Braille Inst. of Am., 92 Cal. App.
INS, 61 F. 3d 117, 118 (1st Cir. 1995) (same); 22, 2002 (discussing Carroll v. Interstate Brands Corp., 4th 1324, 1329 (2001).
Nahrebeski v. Cincinnati Milacron Marketing Co., 41 1st Dist. Court of Appeal No. A093281 (Div. 5), noting 44
Saraswati v. Wildes, 2002 WL 90452 at *1 (4th Dist.
F. 3d 1221, 1222 (8th Cir. 1994) (finding no excep- that the parties would not disclose the terms of their set- Div. 1 2002).
tional circumstances). tlement). Although the court’s order denying a stipu- 45
Bryer v. Green-Venable, 2002 WL 31186640 at *1
This does not mean, however, that parties who lated reversal was without prejudice and noted that (4th Dist. Div. 1 2002).
lack “extraordinary circumstances” but nonetheless the parties could resubmit the request if they set forth 46
Romo v. Boynton, 2002 WL 383009 at *2 (2d Dist. Div.
wish to obtain a stipulated vacatur have no options. more particularized reasons to support it, the parties 5 2002).
Federal Rule of Civil Procedure 60(b) arguably supplies never did so. 47
In re Lili P., 2002 WL 432441 (4th Dist. Div. 3 2002).

30 LOS ANGELES LAWYER / FEBRUARY 2003
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MCLE ARTICLE AND SELF-ASSESSMENT TEST
By reading this article and answering the accompanying test questions, you can earn one MCLE credit. To apply
for credit, please follow the instructions on the test answer sheet on page 33.

Waiting for the

I
magine a scenario in which parties settle a lawsuit after a contentious battle involving a
Creditors that agree to a $1 million claim against a defendant who is in ﬁnancial difficulty. The plaintiff accepts a
settlement of $250,000. Fifty days after the plaintiff cashes the settlement check, the defen-
dant, now the debtor, ﬁles for bankruptcy. More than a year later, the plaintiff calls his
lawyer with the news that he has received in the mail an adversary proceeding complaint
settlement of a debt may ﬁled in Bankruptcy Court asserting that the entire settlement payment has to be repaid to
the debtor’s trustee in bankruptcy since the payment constitutes a “preference.”1
A preference is a transfer of a debtor’s property or an interest therein to a creditor in sat-
isfaction of a past-due debt at a time when the debtor is insolvent. More speciﬁcally, Bankruptcy
find that the payment Code Section 547(b) provides that, with certain exceptions:
[A] trustee may avoid any transfer of an interest of the debtor in property:
(1) to or for the beneﬁt of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before the transfer
constitutes a preference was made;
(3) made while the debtor was insolvent;
(4) made:
(A) on or within 90 days before the date of the ﬁling of the petition; or
in a subsequent (B) between 90 days and one year before the date of the ﬁling of the petition, if such
creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if:
(A) the case were a case under chapter 7 of this title;
bankruptcy proceeding (B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provi-
sions of this title.2
To implement this section of the Bankruptcy Code, the trustee (who is often the debtor
in a chapter 11 case) usually will review the debtor’s records for a period within 90 days or
longer before the case was ﬁled and then sue to recover payments that were made by the debtor
during that period if the payment appears to have been a preference. The underlying policy
is to treat all similarly situated creditors equally so as not to “prefer” one creditor of the debtor

By Terence S. Nunan and Terence S. Nunan is a shareholder in Rutter Hobbs & Davidoff Inc. and Jeanne C. Wanlass is
an associate with the ﬁrm. Nunan specializes in estate planning and trust litigation; Wanlass’s
Jeanne C. Wanlass practice focuses on bankruptcy and corporate reorganizations.

LOS ANGELES LAWYER / FEBRUARY 2003 31
http://blog-purchasestructuredsettlements.blogspot.com/

over any other. For this reason, transfers to establishing that all ﬁve elements of Section business or financial af fairs of the
insiders—who include relatives or officers 547(b) have been satisﬁed. The burden then debtor and the transferee; and
and directors—that were made one year from shifts to the creditor to demonstrate the exis- (C) made according to business
the date the petition was ﬁled can be recov- tence of any of the defenses that are available terms.4
ered. In contrast, transfers to those not ﬁnan- under Section 547(c). Although several If a creditor and a debtor have an ongoing
cially or personally related to the debtor can defenses are available, most creditors utilize business relationship with established pay-
only be recovered if the transfers were made three major defenses: 1) “contemporaneous ment terms, the creditor provides goods or
within the 90-day period before the petition exchange,” 2) “ordinary course of business,” ser vices according to the usual practice
was ﬁled. It is usually difficult to explain this and 3) “new value.” between the two businesses, the payment
procedure to a defendant in a preference Section 547(c) lists when “the trustee may terms are consistent with industry standards,

While there is a rebuttable presumption that a
debtor is insolvent 90 days before the bankruptcy
petition is filed, a person who has received a
preference payment is not without defenses.
action who is struck by the injustice of the not avoid under this section a transfer.” Under and the creditor receives payment in accor-
request for recovery. the ﬁrst defense, Section 547(c)(1) provides dance with the established terms, then the
In the scenario, assume that the plaintiff that the trustee may not avoid a transfer: creditor has an ordinary course of business
(now the creditor) repays the preference and (1) to the extent that such transfer defense.5 For example, a supplier of goods has
then decides to file a claim against the was: been sending goods to a manufacturer for
debtor’s bankruptcy estate. The size of the (A) intended by the debtor and the more than a year. The terms of the supplier’s
creditor’s claim has a major impact on how creditor to or for whose beneﬁt such invoice provide that the supplier must be paid
much the creditor can recover from the transfer was made to be a contempo- within 30 days from the date of the invoice.
debtor’s bankruptcy estate. Assume that the raneous exchange for new value given The payment is received within those 30 days.
net value of the debtor’s bankruptcy estate to to the debtor; and In this circumstance the supplier has been
be paid to creditors is $900,000, and there (B) in fact a substantially contempo- paid pursuant to business terms and the funds
are $3 million in other claims in addition to the raneous exchange.3 need not be returned.
creditor’s claim. If the creditor’s claim is The most common example of a con- The new value defense is available to a
approved for $1 million, he will receive temporaneous exchange is a payment for creditor when two events occur: 1) the pay-
$225,000; if the creditor’s claim is for $250,000, goods delivered on a C.O.D. or other cash ment (now being sought as a preference)
he will receive only $69,231. basis. If the creditor was paid at the same was received by the creditor, and 2) after
When Bankruptcy Code Section 547 was time the goods or services were delivered to receipt of the payment, the creditor deliv-
enacted in 1978, it represented a signiﬁcant the now bankrupt debtor, the creditor can ered new goods or services to the debtor for
change in bankruptcy law. Prior to 1978, it retain the payment since it was intended to which the creditor was not paid. According to
seemed that most practitioners did not be, and actually was, a contemporaneous Section 547(c)(4), the trustee may not avoid
assume that good faith settlements of litiga- exchange. a transfer:
tion could be preferential. In 1986, the legis- The second defense is that the debt was (4) to or for the beneﬁt of a creditor, to
lature established that all five elements of paid in the ordinar y course of business the extent that, after such transfer,
Section 547(b) must be shown to establish an between the parties. Section 547(c)(2) pro- such creditor gave new value to or for
avoidable preference. vides that the trustee may not avoid a transfer: the beneﬁt of the debtor:
(2) to the extent that such transfer (A) not secured by an other wise
Defenses to Preference Actions was: unavoidable security interest; and
While there is a rebuttable presumption that (A) in payment of a debt incurred by (B) on account of which new value the
a debtor is insolvent 90 days before the bank- the debtor in the ordinary course of debtor did not make an other wise
ruptcy petition is filed, a person who has business or financial af fairs of the unavoidable transfer to or for the ben-
received a preference payment is not without debtor and the transferee; eﬁt of such creditor.6
defenses. First, the trustee has the burden of (B) made in the ordinary course of The creditor can reduce the amount of

32 LOS ANGELES LAWYER / FEBRUARY 2003
http://blog-purchasestructuredsettlements.blogspot.com/
MCLE Answer Sheet #113
WAITING FOR THE DUST TO SETTLE

MCLE Test No. 113 Name
Law Firm/Organization
The Los Angeles County Bar Association certiﬁes that this activity has been approved
for Minimum Continuing Legal Education credit by the State Bar of California in the
Address
amount of 1 hour.
City
State/Zip
1. A preference is any transfer of a debtor’s the ordinary course of business.
property or an interest therein to a creditor in sat- True. E-mail
isfaction of a debt. False. Phone
True.
State Bar #
False. 12. The value of goods or services that are
provided to a debtor before a preferential pay- Instructions for Obtaining MCLE Credits
2. To be considered a preference, a transfer of ment is received can reduce the amount of
the debtor’s property or interest must have the preference. 1. Study the MCLE article in this issue.
taken place within 90 days before the bank- True. 2. Answer the test questions opposite by
ruptcy petition was ﬁled. False. marking the appropriate boxes below. Each
True. question has only one answer. Photocopies of
False. 13. The value of goods or services provided to this answer sheet may be submitted; however,
a debtor for which a creditor is paid can reduce this form should not be enlarged or reduced.
3. One public policy behind preference law is to the amount of a preference. 3. Mail the answer sheet and the $15 testing fee
treat similarly situated creditors equally. True. ($20 for non-LACBA members) to:
True. False.
Los Angeles Lawyer
False.
MCLE Test
14. The value of goods or services provided to P.O. Box 55020
4. A preference action must be ﬁled within 90 a debtor after a preferential payment is received Los Angeles, CA 90055
days of the ﬁling of a bankruptcy petition. and for which a creditor is not paid can reduce
True. the amount of the preference. Make checks payable to Los Angeles Lawyer.
False. True. 4. Within six weeks, Los Angeles Lawyer will
False. return your test with the correct answers, a
5. A debtor is presumed to be insolvent within rationale for the correct answers, and a
90 days before the ﬁling date of the bankruptcy 15. Structured settlement payments are con- certiﬁcate verifying the MCLE credit you earned
petition, but this presumption is rebuttable. sidered to be part of the debtor’s ordinary through this self-assessment activity.
True. course of business. 5. For future reference, please retain the MCLE
False. True. test materials returned to you.
False.
6. The burden of proof in a preference action Answers
is completely on the creditor. 16. The contemporaneous exchange defense
Mark your answers to the test by checking the
True. always applies to settlement payments. appropriate boxes below. Each question has
False. True. only one answer.
False.
7. A transfer by check occurs when the check 1. s True s False
is honored. 17. A trustee is not required to pursue all
2. s True s False
True. potential preference actions.
False. True. 3. s True s False
False. 4. s True s False
8. When the debtor and the creditor intend
5. s True s False
for a transfer to be a contemporaneous 18. Under the Bankruptcy Code, ipso facto
exchange for new value, the transfer may not provisions are valid in executory contracts. 6. s True s False
be avoided by the trustee. True. 7. s True s False
True. False. 8. s True s False
False.
9. s True s False
19. A clause that provides that a contract is
9. A creditor who receives a payment that does invalid when a debtor ﬁles a bankruptcy peti- 10. s True s False
not comport with its usual business arrange- tion is an ipso facto provision. 11. s True s False
ments with the debtor may assert the “ordinary True.
12. s True s False
course of business” defense. False.
True. 13. s True s False
False. 20. A debtor’s contract rights become property 14. s True s False
of the debtor’s estate despite the existence of 15. s True s False
10. Only three defenses to preference actions any ipso facto clauses in an agreement between
are available. the debtor and the creditor. 16. s True s False
True. True. 17. s True s False
False. False. 18. s True s False

11. A payment to settle a lawsuit is always in 19. s True s False
20. s True s False

LOS ANGELES LAWYER / FEBRUARY 2003 33
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the preference by the amount of the new tled a million-dollar lawsuit for $250,000, cer- gaining position and can still seek to prove the
value delivered. For example, a creditor deliv- tain issues arise: Does the creditor satisfy validity of the full original claim. With the
ers goods worth $5,000 to the debtor with an the elements of Section 547(b) in this case? addition of the claim preservation clause to
invoice for net 30-day terms. The creditor is Probably yes.12 What about his defenses? Has the settlement agreement, the creditor may
paid in full 60 days later. Two days after the he given the debtor any new goods or ser- be able to recover 25 percent of the $1 mil-
creditor receives the payment, the creditor vices? Has he been paid according to a con- lion—or $250,000—as his share of the bank-
ships additional goods invoiced at $3,000 to tract entered into in the ordinary course of ruptcy estate of the debtor. It should be noted
the debtor. The debtor does not pay for the business? Has there been a contemporaneous that for the creditor to recover $250,000, he
second shipment and ﬁles a bankruptcy peti- exchange? Probably not. Unfortunately, if the will probably need to prove the validity of his
tion two weeks later. The creditor has a new creditor has not already returned the settle- original $1 million claim. At some point, the
value defense of $3,000. The creditor can ment payment, the creditor will likely be creditor may be required to elect to pursue a
reduce the $5,000 preference payment by the forced to do so because the payment consti- contested $1 million claim or acquiesce to
$3,000 value of the second shipment to $2,000. tutes a preference. an uncontested claim for the $250,000 settle-
Under these circumstances, a partial defense On the other hand, will the creditor at ment that was turned over to the bankruptcy
is better than none. least have a claim in the debtor’s bankruptcy trustee as a preference.
In most cases, a payment to settle litigation for $1 million, which comprises the entire The inclusion of a claim preser vation
does not qualify for the ordinary course of amount of the creditor’s loss? Unfortunately, clause also may discourage thoughtful
business defense. In the case of In re Florence no. The creditor agreed to accept $250,000 in trustees from bringing a preference action
Tanners, Inc.,7 for example, the debtor paid a payment of his claim and dismissed his law- since it may reduce the net recovery to other
former employee to settle a sexual discrimi- suit as part of the settlement agreement. creditors. A trustee in bankruptcy is not
nation lawsuit. The debtor subsequently ﬁled Under the circumstances of a typical settle- required to commence a preference action—
for bankruptcy and was able to recover the ment agreement, after repaying the $250,000 and the existence of a claim preservation
settlement proceeds as a preference on the to the trustee for the bankruptcy debtor, the clause may be a powerful deterrent to a pru-
ground that the payment was not made in creditor’s bankruptcy claim will be limited dent trustee from ﬁling a preference action.
the ordinary course of business, which for the to $250,000—not $1 million. Therefore, The claim preservation clause does not
debtor was the sale of fur and leather goods. assuming creditors ultimately receive 25 cents appear to challenge the public policy that
In In re Aero-Fastener, Inc.,8 a court deter- on the dollar for their claims, the creditor negates any agreement that seeks to pre-
mined that a prepetition transfer of goods will be paid $62,500, not $250,000. clude the right to file for bankruptcy. The
pursuant to a settlement agreement was pref- claim preservation clause instead provides a
erential. In reaching this conclusion, the court A Claim Preservation Clause positive incentive for the debtor not to seek
noted that the purpose of the settlement There may be a way to avoid this unhappy bankr uptcy until the preference period
agreement was to resolve a collection law- result. Every settlement agreement should expires. Indeed, if bankruptcy is sought within
suit for goods sold to the debtor and, as a con- include a claim preservation clause with lan- the 90-day period, the creditor will have a
sequence, no new value had been provided. guage that protects the recipient of a pay- claim for the entire amount of the debt rather
The court opined that forbearing to proceed ment to settle a lawsuit in the event of a sub- than the reduced amount that was agreed to
with a lawsuit did not constitute new value and sequent bankruptcy ﬁling. The clause should in the settlement agreement. Having to relit-
therefore was not a defense to a preference provide that: igate a claim that the plaintif f/creditor
action. In the event Defendant shall ﬁle for thought was settled may be cold comfort,
Structured payments in settlement of lit- bankruptcy within 95 days after the but the outcome is far more attractive than
igation are also vulnerable. In In re Maloney- Defendant’s settlement check clears having a claim for less than the amount
Crawford Inc.,9 the court determined that the the bank, Plaintiff shall not be obli- requested in the original litigation.
debtor’s payments to its creditor during the gated to file a dismissal of the pro-
preference period were not made in the ordi- ceeding unless the Bankruptcy Court Enforceability Issues
nary course of business. Moreover, the reduc- having jurisdiction determines that While it may seem that a claim preservation
tion of the creditor’s claim in exchange for payment of the settlement proceeds clause should only be included in settlement
periodic payments did not constitute new does not constitute a preference sub- agreements when there is a fear that the pay-
value.10 ject to avoidance. If the Bankruptcy ing party may seek bankruptcy protection, the
The decisions regarding settlements and Court determines that the settlement recent history of insolvencies of major cor-
preferences are not completely uniform. In payment was a preference pursuant to porations and public entities such as Enron,
Lewis v. Diethorn,11 the Third Circuit held Bankruptcy Code Section 547, the WorldCom, PG&E, Orange County, and
that the debtors’ prepetition payment to set- plaintiff shall not be obligated to dis- Texaco suggests otherwise. It is difficult to
tle a lawsuit and remove a lis pendens was not miss the proceeding and the Plaintiff’s predict who will file for bankr uptcy.
a preferential transfer, because the payment original claim is reinstated in full. Bankruptcy, like death, is often unanticipated
was not for an antecedent debt. In this case, What if this type of claim preservation and seldom welcomed.
the creditor had constructed a house for the clause is incorporated into the settlement The claim preservation clause does not
debtors that the debtors contended was defec- agreement in the scenario, and the trustee solve every problem, however. Courts may be
tive. The debtors agreed to pay for the work asserts the right to recover the $250,000 set- unwilling to agree to defer dismissal of a law-
in exchange for the creditor’s discontinuance tlement payment as a preference? The cred- suit if the settlement agreement provides for
of its lawsuit and withdrawal of the lis pen- itor, would still be able to ﬁle a claim for the periodic payments over a long time. In the
dens. In the view of the Lewis court, the $1 million requested in the original lawsuit event the lawsuit is against an insider, few
debtors’ payment freed them from the risk of rather than just $250,000. While it is possible courts are likely to agree to delay dismissal
litigation and was not for an antecedent debt. the trustee may contest the original $1 million of a settled lawsuit for more than a year.
For the creditor in the scenario who set- claim, the creditor is in a much stronger bar- Practitioners should exercise caution

34 LOS ANGELES LAWYER / FEBRUARY 2003
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LITIGATION SUPPORT SPECIALISTS
regarding the dismissal of the civil lawsuit in
the event of a settlement. The lawsuit should
not be dismissed until the settlement check
actually clears the debtor’s bank to avoid
problems determining the transfer date.13
Water &
Practitioners should make sure to wait the full Land Offices
90 days after the funds are transferred before
the dismissal of the lawsuit is ﬁled.
Water, Environmental
Does any provision of the Bankruptcy
Code invalidate the claim preservation clause?
and Brownﬁeld
Bankruptcy Code Section 365 permits a Redevelopment Expertise
trustee in bankruptcy to assume or reject
any executory contract of the debtor. Is a set- Richard Vogl, R.G., CHG, CEG
tlement agreement with a claim preservation HydroGeo Consultants
clause an executory contract that the trustee 714.966.5333
in bankruptcy can reject?
Joe Odencrantz, Ph.D., P.E.
The established deﬁnition14 of an execu- Tri-S Environmental
tory contract in the bankruptcy context is a 714.966.8490
contract that is substantially unperformed
Anthony Silva, R.G.
by both sides.15 For example, if the plain- The Brownﬁeld
tiff/creditor in the scenario had agreed to Redevelopment Group Co.
furnish goods and ser vices to the defen- 714.966.9020
dant/debtor for the next two years in
exchange for periodic payments, the contract
Water & Land Offices
would be an executory one and the debtor in 3151 Airway Avenue
bankruptcy could reject the entire contract. Building H1
A consummated settlement in which the only Costa Mesa, California 92626
remaining action required is the dismissal of Fax 714.966.5222
the case is arguably not executory. Once the
www.waterandland.com
defendant pays the plaintiff, the only perfor-
mance remaining on either side is the dis-
missal of the lawsuit by the plaintiff/creditor
after 95 days. While the settlement is proba-
bly not an executory contract, a challenge
on this ground is possible nevertheless.
Another challenge may arise based on
Bankruptcy Code Section 365(e)(1), which
serves to invalidate ipso facto provisions in
executory contracts. Ipso facto16 provisions
are contractual provisions for the “automatic”
termination of the contract due to: 1) the
insolvency or ﬁnancial condition of the debtor
at any time before the closing of the case, 2)
the ﬁling of a bankruptcy petition, or 3) the
appointment of a trustee under Title 11 or a
custodian before the ﬁling of a bankruptcy
petition.17
The response to these challenges is that
a settlement agreement is not an executory
contract, since only the creditor has any
remaining contractual obligation to perform
ConfidenceAtThe Courthouse.
Business litigation is increasingly complex. That is why we believe valuation
on the petition ﬁling date. Whether the claim
preservation clause is truly an ipso facto pro-
issues must be addressed with the same meticulous care
as legal issues. Analysis must be clear. Opinions must be
vision is debatable. The bankruptcy court—
defensible. Expert testimony must be thorough and
not the mere act of ﬁling for bankruptcy—will articulate. HML has extensive trial experience and can
determine if a payment was preferential, thus provide legal counsel with a powerful resource for expert
relieving the creditor of the obligation to dis- testimony and litigation support.
miss the creditor’s lawsuit.
The creditor should be aware that, pur-
suant to Bankruptcy Code Section 541(c),
For More Information Call 213-617-7775
the debtor’s interest in property (including the
Or visit us on the web at www.hmlinc.com
debtor’s contract rights) becomes property of BUSINESS VALUATION • LOSS OF GOODWILL • ECONOMIC DAMAGES • LOST PROFITS
the bankruptcy estate notwithstanding any

LOS ANGELES LAWYER / FEBRUARY 2003 35
http://blog-purchasestructuredsettlements.blogspot.com/

not necessarily create a new obligation for which a
ipso facto provision in an agreement between a prepetition settlement agreement that
payment may be deemed a contemporaneous exchange
the debtor and the creditor. Again, the debtor included a release of fraud and tort claims con- for new value.).
and the creditor may be forced to address stituted a novation. By doing so, a potentially 4
11 U.S.C. §547(c)(2).
whether the claim preservation clause qual- nondischargeable claim was converted to a 5
See In re Loretto Winery, Ltd., 107 B.R. 707 (9th Cir.
iﬁes as an ipso facto provision, but the cred- claim for breach of contract, which is dis- 1989).
6
itor at least has the opportunity to dispute the chargeable in bankruptcy. The District of 11 U.S.C. §547(c)(4).
7
In re Florence Tanners, Inc., 184 B.R. 520 (Bankr.
reduction of the creditor’s claim to the amount Columbia Circuit in United States v. Spicer20 Mich. 1995).
under the settlement agreement. and the Eleventh Circuit in Greenberg v. 8
In re Aero-Fastener, Inc., 177 B.R. 120 (Bankr. Mass.
In the final analysis, the courts—espe- Schools, Inc.,21 however, have reached differ- 1994).
9
cially bankruptcy courts—may find claim ent results, and the Supreme Court should In re Maloney-Crawford Inc., 144 B.R. 531 (Bankr.
preser vation clauses enforceable because resolve this uncertainty in bankruptcy law. Okla. 1992).
10
See also In re Bob Grissett Golf Shoppes Inc., 44
they are fair. Bankruptcy courts are courts of The Supreme Court’s decision will provide
B.R. 156 (Bankr. Va. 1984) (Monthly installments were
equity. It is manifestly unfair for a plaintiff to attorneys with a valuable lesson about set- preferential transfers. Antecedent debt was incurred
settle a dispute and allow the defendant sev- tlements—and possibly place an even greater when original contract was executed.).
eral years later to renege on the settlement emphasis on establishing clawback provi- 11
Lewis v. Diethorn, 893 F. 2d 648 (3d Cir. 1990).
12
and make the plaintiff return the settlement sions for both the nature and value of a par- See In re Lewis Shurtleff, Inc., 778 F. 2d 1416 (9th Cir.
1985).
payment. Claim preser vation clauses pro- ty’s claims. A claim preservation clause, which 13
Barnhill v. Johnson, 503 U.S. 393, 112 S. Ct. 1386, 118
mote the settlement of litigation. The law would maintain the creditor’s rights to pursue L. Ed. 2d 39 (1992) (A transfer by check occurs when
should and does encourage settlement of dis- the underlying litigation, could avoid many of the check is honored.).
putes short of trial.18 Nevertheless, plaintiffs the problems inherent in Archer. 14
See Countryman, Executory Contracts in Bankruptcy,
who are knowledgeable about the bankruptcy While a claim preservation clause may 57 MINN. L. REV. 439, 446 (1973).
15
3 COLLIER ON BANKRUPTCY §365.02[1] (15th ed. revised).
preference law would be reluctant to settle dis- not be a panacea, it may well help a disap- 16
The legal term “ipso facto” is Latin and means ”by the
putes if claim preservation clauses are deter- pointed client minimize the loss of a litigation fact itself.”
mined to be invalid. settlement payment because of a bankruptcy 17
11 U.S.C. §365(e)(1).
Recently, the U.S. Supreme Court granted ﬁling. s 18
See CAL. BUS. & PROF. CODE §465.5(b).
19
cer tiorari to hear the case of Archer v. Archer v. Warner (In re Warner), 283 F. 3d 230 (4th
Warner,19 a prebankruptcy settlement case 1
11 U.S.C. §547(b). Cir. 2002), cert. granted, June 24, 2002.
20
2
Id. United States v. Spicer, 57 F. 3d 1152 (D.C. Cir.
that does not involve a preference issue. In
3
11 U.S.C. §547(c)(1). See In re Upstairs Gallery, Inc., 1995).
Archer, the Fourth Circuit, following the leads 21
Greenberg v. Schools, Inc., 711 F. 2d 152 (11th Cir.
167 B.R. 915 (9th Cir. B.A.P. 1994) (A settlement does
of the Seventh and Ninth Circuits, held that 1983).

36 LOS ANGELES LAWYER / FEBRUARY 2003
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By William J. Seiter

On Your
Mark
Recent Ninth Circuit opinions indicate
what should and should not be included
in a trademark licensing agreement

t is only natural that vineyards should can be reaped from a harvest of Ninth Circuit for trademark infringement after Gallo intro-

I be fertile ground for trademark dis-
putes. After all, one of the world’s
oldest trademarks—Vesvvini—may
be seen on wine amphorae excavated
from the ruins of Pompeii,1 and its owner
was probably battling infringers right up to the
day Vesuvius erupted.
cases recounting the trademark woes of
California wineries.
Counsel seeking to help a client launch a
new mark must first learn the lesson of
Kendall-Jackson Winery, Limited v. E. & J.
Gallo Winery,4 which addressed the issue of
distinctiveness. In Kendall-Jackson, the Ninth
duced a line of premium wines called Turning
Leaf that featured labels, like Kendall-
Jackson’s, with a downward-pointing grape
leaf design in similar colors.
The district court granted summary judg-
ment in Gallo’s favor. The Ninth Circuit Court
of Appeals affirmed, noting that to prevail on
In modern times a trademark owner in Circuit offered a veritable primer on this a federal trademark infringement claim, a
the United States seeking to enjoy federal aspect of trademark law. plaintiff must preliminarily show the mark is
trademark law protections under the Lanham Kendall-Jackson, a producer of high-qual- distinctive, since to be protected under the
Act2 must use the mark in interstate com- ity, mid-priced California varietals, features on Lanham Act, a trademark must be capable of
merce and do so in a way that does not its Vintner’s Reserve bottle labels a down-
deceive the public.3 A federally registered ward-pointing, stylized grape leaf design in William J. Seiter, P.C., practices trademark,
trademark can last forever, but should it cease shades of green, yellow, orange, red, and copyright, and licensing law in Paciﬁc Palisades.
to identify the source and quality of goods or brown, with a banner intersecting the leaf His practice focuses on the ﬁelds of branded
services, it is vulnerable to loss. Happily for that contains the name Kendall-Jackson. The consumer products and entertainment. Seiter
lawyers advising consumer brand owners, company sued E. & J. Gallo in the U.S. District serves on the Regulatory Analysis Committee of
abundant guidance on how not to lose a mark Court for the Northern District of California the International Trademark Association.
LOS ANGELES LAWYER / FEBRUARY 2003 37
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distinguishing the applicant’s goods from the grape leaf as a mark for wine.9 impor ters since 1979. In 1996, Tyfield
goods of competitors.5 Following the dictates of Kendall-Jackson, Importers, Inc., became the exclusive U.S. dis-
The Ninth Circuit explained, “Marks are counsel’s advice to a client in the selection of tributor for Cantine’s Leonardo da Vinci
often classiﬁed in one of ﬁve categories of a new mark is simple. In tandem with an wines, booking substantial sales and spend-
increasing distinctiveness: (1) generic, (2) appropriate trademark availability search, the ing liberally on advertising and promotion of
descriptive, (3) suggestive, (4) arbitrary, or (5) client should be urged to choose a mark that the brand. Around the same time, Cantine
fanciful.”6 Quoting the U.S. Supreme Court will be distinctive in its market. Counsel filed a U.S. trademark application for its
decision in Two Pesos, Inc. v. Taco Cabana, should tell the client to make the mark fanciful Leonardo da Vinci mark—and ﬁrst learned of
Inc.,7 the court of appeals stated: or arbitrary, if possible, and, at the very least, Barcamerica’s registration.15
“The latter three categories of marks, suggestive. Due to Barcamerica’s asserted continuous
because their intrinsic nature serves to use of its Leonardo da Vinci mark for ﬁve
identify a particular source of a prod- Trademark Abandonment consecutive years after registration, by 1989
uct, are deemed inherently distinc- Once an owner launches a new trademark, its trademark had become “incontestable”
tive.”…These three categories of the simplest way to lose it is to abandon actual under the Lanham Act.16 So-called incon-
marks therefore meet the distinctive- use of the mark. A mark will be deemed aban- testability creates a conclusive presumption
ness element automatically. At the doned under the Lanham Act if its use is dis- of the validity of a registered mark and of
other end of the spectrum are generic continued with “intent not to resume such the registrant’s ownership of it,17 yet an incon-
marks, which can never meet the dis- use.”10 “Intent not to resume” is inferred from testable mark remains subject to attack on
tinctiveness element. the circumstances, and “use” means the bona several statutory grounds.18 One such ground
Marks that are descriptive fall in ﬁde use of the mark in the ordinary course of is that the mark has been abandoned by the
the middle of these two extremes. trade, not token use that is undertaken merely registrant.19
Descriptive marks are not inherently to reserve rights in the mark.11 Nonuse for Although Cantine’s ﬁrst use in the United
distinctive and hence do not initially three consecutive years creates a rebuttable States of Leonardo da Vinci as a name for
satisfy the distinctiveness element. But presumption of abandonment.12 wine predated Barcamerica’s ﬁrst use, it was
descriptive marks can acquire dis- Sometimes an owner may have a valid too late for Cantine to challenge Bar-
tinctiveness if the public comes to asso- explanation for an interval of nonuse that camerica’s incontestable registration on that
ciate the mark with a speciﬁc source. serves to evidence an intent to resume use. basis. But Cantine investigated and concluded
Such acquired distinctiveness, which For instance, an owner may take a trademark that Barcamerica was no longer selling any
is referred to as “secondary meaning,” off the market for a while for the purpose of wine products using the mark, so Cantine
allows [Lanham Act] §43 to protect repositioning it. Nonuse may also be justi- ﬁled an action at the Patent and Trademark
descriptive marks that otherwise could fied when the owner is making bona fide Office seeking cancellation of Barcamerica’s
not qualify for protection as trade- efforts to license the mark. registration based on abandonment.
marks.8 However, an owner cannot merely license Barcamerica in turn filed suit in the U.S.
In affirming the district court’s ruling that its mark and forego further responsibility District Court for the Eastern District of
no jury could reasonably conclude from the while collecting royalty checks, because a California, moving to suspend the cancellation
evidence that consumers view the colored trademark owner’s duty under the Lanham action and seeking an injunction against
leaf mark as a symbol of Kendall-Jackson Act not to use the mark in a manner that Cantine and Tyﬁeld’s use of the mark. Cantine
apart from its name and crest, and following deceives the public entails a duty to control and Tyﬁeld moved for summary judgment,
the reminder of the Two Pesos Court that the quality of its licensees’ products.13 Lawyers which the district cour t granted, ruling
generic marks cannot be registered as trade- drafting trademark licenses ignore this duty Barcamerica had abandoned its trademark
marks, the Ninth Circuit concluded: at their peril after the Ninth Circuit’s ruling by engaging in “naked licensing.”20
Grape-leaf designs have become in Barcamerica International USA Trust v. Barcamerica appealed, challenging the
generic emblems for wine. Thus, they Tyﬁeld Importers, Inc.,14 the court of appeals’ district court’s ﬁnding of abandonment. While
are not protectable as trademarks.… most recent case of wine and trademarks, in ﬁrst noting that “[a] trademark owner may
The use of a grape leaf as a mark for which an inattentive California vintner let its grant a license and remain protected pro-
wine would normally be inherently dis- licensed mark wither on the vine. vided quality control of the goods and services
tinctive because it suggests, rather The plaintiff, Barcamerica International sold under the trademark by the licensee is
than describes, the product.… USA Trust, held a 1984 trademark registration maintained,”21 the Ninth Circuit stated that
[However,] because wine bottlers for Leonardo da Vinci, a mark for wines, and “[u]ncontrolled or ‘naked’ licensing may
other than Kendall-Jackson have long claimed continuous, albeit scant, use of the result in the trademark ceasing to function as
used grape leaves to decorate their mark in the early years after its registration. a symbol of quality and controlled source.”22
labels, that emblem has become In the late 1980s, Barcamerica entered into a Therefore, when a trademark owner fails to
generic.…By itself, a grape leaf cannot licensing agreement granting Renaissance exercise adequate quality control over
differentiate one brand from another Vineyards the exclusive license to use the licensees, it may be found to have abandoned
because precisely the same reasoning mark in the United States. The agreement, the mark and can be estopped from asserting
links the same emblem to the prod- drafted by Barcamerica’s counsel, contained rights in it.23 Such abandonment is purely an
uct in each case: A grape leaf suggests no quality control provisions. involuntary forfeiture of trademark rights,
a grapevine, which suggests a grape, The challenge to Barcamerica’s mark since it need not be shown that the trade-
which suggests wine. Because the emerged from an Italian wine cooperative, mark owner had any subjective intent to aban-
grape leaf is used widely in the indus- Cantine Leonardo da Vinci Soc. Coop. a.r.l. of don the mark.24 Thus, the proponent of a
try, it has lost the power to differenti- Vinci, Italy—Leonardo’s birthplace. Cantine naked license theory must satisfy a stringent
ate brands.…Thus, there is nothing had sold wine products under the Tuscan standard of proof.25
inherently distinctive in the use of a savant’s name in Italy since 1972 and to U.S. Barcamerica’s vulnerability to summary

38 LOS ANGELES LAWYER / FEBRUARY 2003
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judgment, despite the daunting burden of
proof that Cantine and Tyﬁeld had to satisfy,
stemmed from the absence of quality con-
trol provisions in Barcamerica’s license agree- Sample Trademark License Provisions
ment with Renaissance. Although the lack of To avoid “naked license” exposure, which results when licensed products or services
an express contractual right to inspect and bearing a trademark are not monitored for quality, a trademark owner should include—
supervise a licensee’s operations is not con- and enforce—the following provisions in its licensing agreements:
clusive evidence of a lack of control—and
the right to inspect and supervise may not be QUALITY CONTROL
necessary if the licensor is familiar with and 1. Quality Assurance. Licensee acknowledges that if the Licensed Products designed, manu-
relies upon the licensee’s own efforts to con- factured, and sold by it were to be inferior in quality, design, material or workmanship as com-
trol quality—Barcamerica offered no evi- pared to Licensor’s products associated with the Licensed Mark, the substantial goodwill that
dence that it was familiar with or relied upon Licensor possesses in the Licensed Mark and its favorable public recognition would be impaired.
Renaissance’s efforts to control quality, and Accordingly, Licensee represents and warrants that all Licensed Products shall be of a high stan-
the two companies lacked the type of close dard of quality suited to exploitation of the Licensed Mark to its best advantage.
working relationship that is required to estab- 2. Sample Approvals. Before commencing production of any new Licensed Product or signif-
lish adequate quality control in the absence icant modiﬁcation of an existing Licensed Product, Licensee shall furnish Licensor at Licensee’s
of a formal agreement.26 The testimony of expense a reasonable number of samples thereof, including associated labels and packaging, and
Barcamerica’s principal that he had on occa- shall not manufacture, promote, advertise, distribute, or sell any such new or modiﬁed Licensed
sion informally tasted the wine and relied on Product without Licensor’s prior written approval. Upon request from time to time, Licensee shall
the reputation of a “world-famous winemaker” furnish to Licensor without charge additional samples of any Licensed Product to facilitate
employed by Renaissance when the agree- Licensor’s veriﬁcation of the conformity of such Licensed Product to the approved form thereof.
ment was signed, as well as Barcamerica’s 3. Inspection Rights. Throughout the term of this Agreement, Licensor and its designated rep-
conclusory statements as to the existence of resentatives shall have the right, and Licensee shall ensure such right, at any time during ordi-
quality controls, were insufficient to create a nary business hours to inspect any factory, warehouse, showroom, business office, retail store,
triable issue of fact on the issue of naked or other facility or premises used or occupied by Licensee, its employees, agents, affiliates, or sub-
licensing.27 contractors engaged in the manufacture, promotion, distribution, or sale of Licensed Products
On appeal Barcamerica essentially argued or associated labels or packaging, to inspect and test Licensed Products, and to take any other
that because Renaissance makes good wine, action necessary or useful, in Licensor’s opinion in its sole discretion, to assure that the Licensed
the public is not deceived by its use of Products are produced and sold in compliance with this Agreement.
Barcamerica’s trademark, and thus the license
was legally suf ficient. The Ninth Circuit Trademark licensing agreements should also contain provisions like the following,
bluntly rejected this argument: “Whether which spell out the parties’ respective intellectual property rights and enforcement duties:
Renaissance’s wine was objectively ‘good’ or INTELLECTUAL PROPERTY RIGHTS
‘bad’ is simply irrelevant. What matters is 1. Form of Licensed Mark. Licensee shall use the Licensed Mark only in the form, colors, and
that Barcamerica played no meaningful role manner authorized by Licensor in writing, and cause to appear on all labels and tags affixed to
in holding the wine to a standard of quality— any Licensed Products, and all packaging, advertising, and promotional materials produced or
good, bad, or otherwise.” The court then used in connection therewith, such notices and legends as Licensor may direct regarding the license
quoted from McCarthy on Trademarks and herein granted and Licensor’s trademark and other intellectual property rights.
Unfair Competition: “It is important to keep 2. Preservation of Licensor’s Rights. Licensee acknowledges that Licensor is the sole and exclu-
in mind that ‘quality control’ does not neces- sive owner of the Licensed Mark, and shall not at any time during the term of this Agreement
sarily mean that the licensed goods or ser- or thereafter challenge or contest directly or indirectly the validity, exclusive ownership, title, or
vices must be of ‘high’ quality, but merely of registration of Licensor in and to the Licensed Mark, or the validity of the license herein granted.
equal quality, whether that quality is high, During the term hereof and at any time thereafter, Licensee shall execute such documents and
low or middle. The point is that customers are instruments as Licensor may request to secure and preserve Licensor’s right, title, and interest
entitled to assume that the nature and qual- in and to the Licensed Mark.
ity of goods and services sold under the mark 3. Goodwill. Licensee acknowledges that all uses by it of the Licensed Mark, and any goodwill
at all licensed outlets will be consistent and arising therefrom, shall inure to the beneﬁt of Licensor, and that only Licensor is and shall be enti-
predictable.”28 tled to registration of the Licensed Mark in any jurisdiction of the world. Licensee shall take no
The level of quality control required to action detrimental, in Licensor’s sole judgment, to the goodwill associated with the Licensed Mark.
sur vive a naked license assault will var y 4. Infringement. Licensee shall assist Licensor, whenever requested, in protection of the
depending on product type and the relation- Licensed Mark. Licensor in its sole discretion may commence and prosecute any claims or suits
ship between the licensor and the licensee. for infringement of the Licensed Mark in its own name, or in the name of Licensee, or join Licensee
Never theless, the cour t in Barcamerica as a party thereto. Licensee shall immediately notify Licensor in writing of any infringement of
hinted that a little common sense can go a the Licensed Mark of which it becomes aware. Licensee shall not institute any suit or take any
long way: action on account of any such infringement without obtaining Licensor’s prior written consent.
[I]n this case we deal with a relatively To the extent Licensor grants such consent, Licensee may at its expense prevent such infringe-
simple product: wine. Wine, of course, ment by legal action. Any award of damages or compensation obtained by Licensee, net of
is bottled by season. Thus, at the very Licensee’s out-of-pocket expenses in obtaining such award, shall be included in Licensee’s Net
least, one might have expected [Mr.] Sales hereunder if, as, and when collected by Licensee. Licensor may elect to retain counsel and
Barca to sample (or to have some des- prosecute any infringement, but shall not be obligated hereunder to do so, to bear any costs or
ignated wine connoisseur sample) on expenses, or to institute legal or other action to prevent or remedy same.—W.J.S.
an annual basis, in some organized

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way, some adequate number of bot-
tles of the Renaissance wines which
were to bear Barcamerica’s mark to
ensure that they were of sufficient
quality to be called “Da Vinci.”29
The moral of the story for counsel repre-
senting trademark licensors is clear. They
should draft a proper written license agree-
ment that includes express quality control
provisions. These provisions need teeth, yet
they also need to achieve a balance. For one
thing, a trademark license containing exces-
sively detailed controls risks being deemed a
franchise agreement. For another, although
a good licensee will not object to reasonable
licensor oversight, it will object to its actions
being excessively constrained. To work, qual-
ity control provisions and the framework
implementing them have to manage the costs
of quality control in a way both parties are able
to live with. The licensor can protect its good-
will and royalty stream without consuming the
licensee’s margin.
Trademark licensing agreements should
set forth the licensee’s obligation to adhere
to the relevant standard of quality, and the
licensor’s rights to inspect and approve
licensed products, packaging, advertising,
and licensee facilities. (See “Sample Trade-
mark License Provisions,” page 39.) Yet while and broadcast advertising directed to its con- Chianti Classico, a Florence-based trade asso-
written contractual terms addressing quality sumer base, attend trade shows, and expend ciation promoting wines from the Chianti
control can do much to protect a trademark, a reasonable amount of shoe leather visiting region, started using the symbol of a black
Barcamerica at the same time warns licensors the retail outlets, high and low, where com- rooster—gallo nero in Italian—to represent
to play a meaningful role in the process of peting products are offered to the public. them. The symbol, with historic regional ties,
quality control. Licensors should craft a sen- One basic step in deterring infringers is to appeared on the neck seal of the Consorzio’s
sible program for monitoring and inspecting use the ™ and ® symbols properly, which bottles. Six decades later, in 1986, attempting
the actions of their licensees and not rely on puts the public on notice of the owner’s rights. to establish a presence in the United States,
the contract as a pro forma ﬁg (or grape) leaf The ™ symbol should appear in conjunction the Consorzio purchased a full-page magazine
to cover a naked license. with a trademark that has not yet been reg- advertisement in the Wine Spectator for its
istered to show that the owner claims the Chianti using the words “Gallo Nero.” E. & J.
Policing the Market term as a trademark. Once the mark is reg- Gallo sent the Florentines a cease-and-desist
Another way to weaken and possibly lose a istered, the ® symbol should appear in con- letter, warning that the ad constituted infringe-
trademark is to fail to deter infringers. Since junction with it. Use of the ™ and ® symbols ment of its Gallo trademark. The Consorzio
trademarks identify the source of products, often stops would-be copycats from launching desisted and halted its campaign. However, its
provide quality assurance, and help con- confusingly similar marks. successor association formed in 1987 adopted
sumers distinguish among competitors, trade- The owner should assert an infringement the name Consorzio del Gallo Nero, and in
mark owners should police their markets for claim under the Lanham Act if an interloper 1989 launched a second U.S. marketing cam-
infringing marks so that consumers are not starts using the same or a similar mark for the paign, again using the words “Gallo Nero” in
misled. For a licensed trademark, licensee same or related types of products and the advertisements.
cooperation in protecting the mark against use is likely to cause confusion or mistake or Gallo sued the Consorzio del Gallo Nero
infringers is as crucial as quality control. (See to deceive consumers as to the source of the for trademark infringement. The U.S. District
“Sample Trademark License Provisions,” products. 30 In many instances, a sternly Court for the Northern District of California
page 39.) worded cease-and-desist letter will put an end granted summary judgment in Gallo’s favor,
Policing the market need not be costly or to the problem, and in the ideal scenario will observing:
laborious beyond what a serious competitor reap a settlement that will make the owner Trademark infringement under the
should do in the process of preparing to sell whole. But the owner should stand ready to Lanham Act is established when the
its products. Searching the Internet for marks back up stern words with legal action when infringer’s use of the plaintiff’s trade-
identical or similar to the owner’s mark is a necessary. mark creates a “likelihood of confu-
good way to ferret out infringers. However, a A classic example of how to protect a mark sion.”…In the Ninth Circuit, courts
considerable amount of traffic in counterfeit proactively can be found in E. & J. Gallo Win- consider several factors in determining
KEN CORRAL

and infringing goods transpires offline in the ery v. Consorzio del Gallo Nero.31 The word whether an allegedly infringing prod-
brick-and-mortar world. A trademark owner “gallo” means rooster in Italian (and Spanish). uct creates a likelihood of confusion
needs to read trade publications, peruse print In Italy in the 1920s, the Consorzio Vino with a protected one:

40 LOS ANGELES LAWYER / FEBRUARY 2003
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(1) strength of the plaintiff’s mark;
TRUST DEED FORECLOSURES A T T O R N E Y
KERN R V I C E
S E (2) similarity between plaintiff’s and
“Industry Specialists For Over 15 Years” “We try to be the Best–Not the Biggest” defendant’s marks in sound, appear-
t Witkin & Eisinger we specialize in the Non-Judicial ance, and meaning;
A Foreclosure of obligations secured by real property
or real and personal property (mixed collateral).
DEPENDABILITY SINCE 1961
Integrity s Competence s Fair Prices (3) similarity in the class of goods sold;
(4) similarity in the marketing chan-
When your client needs a foreclosure done profession- COURT HOUSE SERVICE
nels used;
ally and at the lowest possible cost, please call us at: PROCESS SERVING
INVESTIGATIVE RESEARCH (5) degree of care likely to be exer-
1-800-950-6522 cised by the purchaser…;
We have always offered free advice to all attorneys. COURT FAX FILING
Agents in major cities throughout the State & Nation (6) evidence of actual confusion; and

& WITKIN CALL FOR INFORMATION • NO OBLIGATION (7) evidence of defendant’s intent in
TEL: (213) 483-4900 adopting the allegedly infringing mark.32
EISINGER, LLC
RICHARD G. WITKIN, ESQ. ✦ CAROLE EISINGER
FAX: (213) 483-7777
533 N. GLENDALE BLVD., SUITE 101, LOS ANGELES 90026
As to the strength of a plaintiff’s mark, the
court noted that under the Lanham Act, a
registered mark is presumed distinctive, and
its registration is “conclusive evidence of the
validity of the registered mark and of the reg-
istration of the mark, of the registrant’s own-
ership of the mark, and of the registrant’s
exclusive right to use the registered mark in
commerce.”33 Moreover, “the Gallo mark
itself has been held by a sister court of this
Circuit to have achieved ‘virtually universal
recognition as a trademark for wine,…known
both nationally and in California, and has
become an extraordinarily strong and dis-
tinctive mark.’”34
As for the similarity between the marks,
the court concluded that since Gallo is the sin-
gle dominant or substantive term used by
the plaintiff on all of its products, the defen-
dant’s Gallo Nero name, even printed in small
script on the neck seal, was, as a matter of law,
overly similar.
Regarding the similarity of goods sold,
although the Consorzio del Gallo Nero argued
that its members produce only Chianti while
Gallo produces every type of wine except
JACK TRIMARCO & ASSOCIATES Chianti, the head office of the Consorzio del

POLYGRAPH/INVESTIGATIONS, INC. Gallo Nero admitted that the Gallo Nero
Chiantis compete with every other available
red wine.35 The clincher, as Gallo argued, is
that “the Patent and Trademark Office has
9454 Wilshire Blvd. repeatedly found that wines of all types con-
Sixth Floor stitute a single class of goods.”36
Since both parties market their wines
Beverly Hills, CA 90212 through such retail establishments as wine
(310) 247-2637 shops and liquor stores, and both use magazine
advertising, the court found as a matter of law
that both use similar marketing channels.
1361 Avenida De Aprisa Addressing the issue of the degree of care
Camarillo, CA 93010 exercised by consumers in choosing wines,
the court reasoned:
Jack Trimarco - President (805) 383-8004 Confusion between marks is generally
Former Polygraph Unit Chief more likely where the goods at issue
Los Angeles F.B.I. (1990-1998) involve relatively inexpensive, “im-
email: jtrimarco@aol.com
CA. P.I. # 20970 pulse” products to which the average,
“unsophisticated” consumer does not
Former Polygraph Inspection Team Leader devote a great deal of care and con-
Member Society of Former Special Agents Office of Counter Intelligence sideration in purchasing.…Wine has
Federal Bureau of Investigation U.S. Department of Energy been deemed an “impulse” product,
and certainly so with respect to the
average consumer, effectively com-

42 LOS ANGELES LAWYER / FEBRUARY 2003
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pelling the consumer’s reliance “on LAWSUIT & ASSET PROTECTION
faith in the maker.”37
Disregarding with commendable sang-
froid the existence of wine snobs in its part of RINGLER ASSOCIATES
California, the district court characterized
Manuel R. Valdez, CSSC
the wine-buying public as generally unso- MRValdez@RinglerAssociates.com
CA License No. 0623820
phisticated impulse buyers who are an “easy Over 20 Years of Experience in Structured Settlements, ✔ Calif/Nevada Corporations, Family LPs & LLC’s
mark for a trademark [infringer],”38 and found Insurance, Financial Services, and Healthcare.
✔ Offshore Companies, Trusts, Private Banking
that the lack of consumer sophistication sig- Manny J. Valdez, CSSC ✔ Estate Planning, Real Estate, IRS, Tax Matters
niﬁcantly enhanced the likelihood of confu- MJValdez@RinglerAssociates.com ✔ Financial Strategies, Investment Planning
CA License No. 0C76457
sion between the two products. Over Four Years of Structured Settlements,
The court observed that if evidence of
Insurance and Financial Services Experience. STEVEN SEARS CPA, ATTORNEY AT LAW
actual consumer confusion is available, it pro- 1145 Linda Vista Drive, Suite 104
San Marcos, CA 92069 • 1-888-471-7051 Professional 949-262-1100
vides strong support for a ﬁnding of a likeli- (760) 471-7051 • Fax (760) 471-9175 Conﬁdential www.searsatty.com
hood of confusion. However, this evidence
is merely one factor to be considered, and the
lack of a showing of actual confusion is not dis- Quo Jure Corporation 1-888-MEMO-911
positive, since the court must ﬁnd only a like- www.quojure.com
lihood of confusion.39 In Gallo Nero, evidence LAWYERS’ WRITING & RESEARCH jschenkel@quojure.com
of actual confusion was unlikely to emerge
given that no bottle of wine bearing the Gallo When you can’t do it yourself, but you still need a brief or
Nero name had been sold in the United memo done—and done well, by experienced attorneys who
States, and the survey evidence presented are skilled writers—turn to Quo Jure Corporation.
by the two sides was inconclusive.
Moreover, a showing of intent to infringe Quo Jure provides premium legal writing and research services
is not necessary to support a ﬁnding of a like- to practicing attorneys. Our work has contributed to million-
lihood of confusion, according to the court. dollar settlements and judgments. Oppositions to motions for
However, if an alleged infringer adopts a name summary judgment are our specialty. Call for a free analysis
with knowledge of the plaintiff’s mark, courts and estimate. The Winning EdgeTM
presume that there was an intent to copy the
mark.40 Gallo Nero was patently aware of the
Gallo trademark prior to beginning its U.S.
marketing campaign, given that Gallo had
successfully halted the ef for ts of the
Consorzio del Gallo Nero’s predecessor with
a cease-and-desist letter a mere three years
prior to the Consorzio del Gallo Nero’s mar-
keting efforts. Although the Consorzio del
Gallo Nero said it had no intent to infringe and
that the adoption of the Gallo Nero name was
made in good faith and for sound business rea-
sons, the court concluded that the Consorzio
was at least cognizant of the potentially infring-
ing nature of its use of the Gallo name.41
After weighing all the relevant factors, the
court concluded the Consorzio’s use of the
words “Gallo Nero” in promotion of its wines
in the United States would create a likelihood
of consumer confusion with Gallo’s products.”42
Occasionally, the ﬁnal outcome of a trade-
mark owner’s failure to act against infringe-
ment can be that the untrammeled use of the
same or similar marks by competitors causes
the owner’s mark to lose all signiﬁcance as an
identiﬁer of the source of a product. In this
way an originally valid and valuable trade-
mark is degraded to a mere generic term. A
registered mark that becomes the generic
name for a product is vulnerable to cancella-
tion under the Lanham Act.43
Hence, a trademark owner should try to
prevent the public from referring to the mark
in ways that equate it with a generic term.

LOS ANGELES LAWYER / FEBRUARY 2003 43
http://blog-purchasestructuredsettlements.blogspot.com/

This misuse of a mark can lead to dire con-

Anita Rae Shapiro sequences. Examples of marks that lost their
trademark status in this fashion include esca-
SUPERIOR COURT COMMISSIONER, RET. lator, kerosene, linoleum, and nylon. Some-
times, however, popular usage simply over-
PRIVATE DISPUTE RESOLUTION whelms the trademark owner’s best efforts to
PROBATE, CIVIL, FAMILY LAW control the use of the mark, and the name be-
PROBATE EXPERT WITNESS comes generic, losing trademark protection.
Luckily for Cantine Leonardo da Vinci,
TEL/FAX: (714) 529-0415 CELL/PAGER: (714) 606-2649 its product—wine—has a ﬁrmly entrenched
E-MAIL: PrivateJudge@adr-shapiro.com generic name. The risk of its Leonardo da
http://adr-shapiro.com Vinci trademark becoming generic for that
FEES: $300/hr time-honored beverage seems remote. But
who knows? In some Venice Beach pizzeria
of the late twenty-ﬁrst century, a customer
may sit down one evening and say, “Waiter,
I’ll have a da Vinci and a pepperoni calzone,
double cheese.” Sitting at the next table, Can-
tine’s man in Los Angeles will turn his head

Judgments Enforced and remark diplomatically, “Pardon me, but
I think you meant to say, ‘May I please have
a bottle of your finest Leonardo da Vinci®
wine?’” s

Law Office of Donald P. Brigham 1
The author thanks attorney Peter Eriksson, of Groth
& Co., Stockholm, for providing this information.
23232 Peralta Dr., Suite 204, Laguna Hills, CA 92653 2
The Lanham Act, 15 U.S.C. §§1051-1127.
3
P: 949.206.1661 A domestic applicant for trademark registration with
F: 949.206.9718 the United States Patent and Trademark Office may
base its application on use in commerce under §1(a) of
dbrigham@earthlink.net AV Rated the Lanham Act, 15 U.S.C. §1051(a). The applicant
must use the mark in commerce in connection with all
goods and services listed in the application on or before
the application ﬁling date. Alternatively, the applicant
may ﬁle an “intent-to-use” application under §1(b), 15
U.S.C. §1051(b), but then must ﬁle a statement of use
or an amendment to allege use before the mark may be
registered. An applicant asserting the beneﬁt of a for-
eign application or registration under §44 of the Lanham
Act, 15 U.S.C. §1126, which implements various inter-
national treaties and agreements, may claim use or
intent-to-use as an additional ﬁling basis or may rely
solely on the foreign application or registration. In the
latter case, the applicant is not required to assert actual
use of the mark in the United States prior to registra-
tion with the PTO, but to retain a valid registration, the
applicant ultimately must establish use in commerce or
excusable nonuse. 15 U.S.C. §1058.
4
Kendall-Jackson Winery, Limited v. E. & J. Gallo
Winery, 150 F. 3d 1042 (9th Cir. 1998).
5
Id. at 1047.
6
Id. See also n.8.
7
Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 778
(1992).
8
Kendall-Jackson, 150 F. 3d at 1047 (quoting Two
Pesos, 505 U.S. at 778).
9
Id. The court observed, “A producer’s depiction of a
grape leaf, may, however, be so distinctive as to warrant
protection from copying. If a particular rendering of a
grape leaf has the power to distinguish one brand from
another, it is the rendering that should be evaluated for
its distinctiveness.” Id. at 1049. The court found no
distinctiveness in Kendall-Jackson’s rendering of its
grape leaf.
10
15 U.S.C. §1127.
11
Id.
12
Id.
13
Lanham Act §5 provides that “a registered mark or
a mark sought to be registered may be used legiti-
mately by related companies…provided such mark is

44 LOS ANGELES LAWYER / FEBRUARY 2003
http://blog-purchasestructuredsettlements.blogspot.com/

not used in such manner as to deceive the public.” 15
U.S.C. §1055. Lanham Act §45 deﬁnes “related com-
pany” as “any person whose use of a mark is controlled
by the owner of the mark with respect to the nature and
quality of the goods or services on or in connection with
A Lawyer’s Therapist
which the mark is used.” 15 U.S.C. §1127. Hence, in
order for an applicant or registrant to enjoy rights to a
Dennis Sapire, LLB PhD

Ψ Ψ
mark under the Lanham Act when it licenses the use
of the mark, its licensee or licensees, which are within
Clinical Psychologist
the ambit of the term “related company,” must not use Formerly Associate Attorney
the mark in such a manner as to deceive the public, and
the licensor must control the use with regard to the
Brobeck, Phleger and Harrison
nature and quality of the goods or services licensed.
14
Barcamerica Int’l USA Trust v. Tyﬁeld Importers, Inc., 337 S Beverly Dr, Suite 212, Beverly Hills, CA 90212
289 F. 3d 589 (9th Cir. 2002). (310) 772-9100 • www.lawpsychology.com
15
Id. at 593.
16
Eves/Sats • CA Lic. PSY 18734
15 U.S.C. §1065.
17
15 U.S.C. §1115(a).
18
15 U.S.C. §1115(b).
19
Id. Other statutory defenses or defects providing
bases to attack an incontestable registration include: 1)
the registration was fraudulently obtained, 2) the reg-
istered mark is being used in a way that misrepresents
the source of products or services, 3) the registered
mark is being used to violate U.S. antitrust law, or 4)
equitable principles—including laches, estoppel, and
acquiescence—are applicable.
20
Barcamerica Int’l USA Trust v. Tyﬁeld Importers, Inc.,
289 F. 3d 589, 593 (9th Cir. 2002).
21
Id. at 595 (citing Moore Bus. Forms, Inc. v. Ryu, 960
F. 2d 486, 489 (5th Cir. 1992)).
22
Id. at 596 (quoting MCCARTHY ON TRADEMARKS AND
UNFAIR COMPETITION §18:48, at 18-79 (4th ed. 2001)).
23
Id. (citing Moore, 960 F.2d at 489).
24
Id. (citing MCCARTHY ON TRADEMARKS AND UNFAIR
COMPETITION §18:48, at 18-79).
25
Id. (citing Moore, 960 F. 2d at 489).
26
Id. at 597.
27
Id.
28
MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION

We
OVER 25 YEARS OF SUCCESS
§18:55, at 18-94 (footnotes omitted), quoted in Barc-
america, 289 F. 3d at 597-98.
29
Barcamerica, 289 F. 3d at 598.
30

31
15 U.S.C. §1114(1)(a), (b).
E. & J. Gallo Winery v. Consorzio del Gallo Nero, 782
F. Supp. 457 (N.D. Cal. 1991). No stranger to trademark
Understand
litigation, Gallo—founded in 1933 and now the largest
wine producer in the world—victoriously defended an
opposition to its ﬁrst federal application for registration
Bankruptcy
of the word “Gallo” as a trademark for wines in a Commis-
sioner of Patents case decided under the Trademark Act
of 1905. This decision was handed down the week the The Legal Side and Clients troubled by debts?
We are experts at:
Lanham Act went into effect. See Gallo v. E. & J. Gallo
Winery, 74 U.S.P.Q. 136 (1947).
The Human Side • Debt Restructuring Plans
32
E. & J. Gallo Winery, 782 F. Supp. at 461, 462 (citing • Chapters 7, 11, and 13 Relief
Eclipse Assocs. Ltd. v. Data Gen. Corp, 894 F. 2d 1114,
• Conservative Asset Protection
1117 (9th Cir. 1990) and AMF, Inc. v. Sleekcraft Boats,
599 F. 2d 341, 349 (9th Cir. 1979)). Refer your clients with
33
Id. at 462 (quoting Lanham Act §33(b), 15 U.S.C. § confidence:
1115(b)).
34
• AV Rating
Id. (quoting E. & J. Gallo Winery v. Gallo Cattle Co.,
12 U.S.P.Q. 2d 1657, 1661, 1667 (E.D. Cal. 1989), aff’d • Free Consultations
as modiﬁed, 955 F. 2d 1327). • Reasonable Fees
35
Id. at 464.
36
Id. (citing Krug Vins Fins de Champagne v. Rutman
Wine Co., 197 U.S.P.Q. 572 (T.T.A.B. 1977)). Professional, Compassionate Solutions
37
Id. at 465 (quoting Taylor Wine Co. v. Bully Hill
Vineyards, Inc., 569 F. 2d 731, 733-34 (2d Cir. 1978)).
38
Laurence D. Merritt
39
Id. Attorney at Law
Id. at 465.
40
Id. at 467 (citing AMF, Inc. v. Sleekcraft Boats, 599 Phone: 818.710.3823 • email: Lawlar@aol.com
F. 2d 341, 354 (9th Cir. 1979)). Internet: www.legalknight.com
41
Id. at 467.
42
Id.
43
15 U.S.C. §1064(3). Formerly with Merritt & Hagen

LOS ANGELES LAWYER / FEBRUARY 2003 45
http://blog-purchasestructuredsettlements.blogspot.com/

2003 Guide to
TRIAL SUPPORT SERVICES
Making an Impression with
Courtroom Presentation Technology
By Joe C. Hyman
e have all been affected by the digital revolution. needed. The technology does not preclude counsel from oper-

W Telephones, cars, home appliances, and office equip-
ment have all incorporated digital technology. Is it
any surprise that this new technology would ﬁnd its way into
ating the system. Litigators may choose to utilize a bar-cod-
ing technique that allows the presenter to access documents
by moving a reader pen over a precoded document in
the courtroom? While the venerable old Elmo overhead pro- order to call it up and project it, usually on a 6- or 10-foot
jector, videotape and poster boards have been valuable ﬂat screen.
tools for litigators, they are rapidly becoming obsolete. Enter For those desiring the latest in hi-tech courtroom presen-
the world of database case management, point-and-click tation, there is the interactive touch-board system, which
presentations, and large-format interactive plasma touch takes the place of the traditional ﬂat screen. Counsel may
boards—scary for some, exciting for others. Whatever the case, choose to add a little dazzle quotient by approaching the
there is an obvious need for litigators to accept and embrace board (which might best be described as an electronic
the current technology that is shaping all our lives. chalkboard) and perform annotating, magnifying, and under-
Live Note and Sanction II are good examples of this new lining by simply touching the board with an electronic pen,
breed of case management and trial presentation software. or even a ﬁnger. This is possibly because the board is con-
Utilizing this type of software can be valuable for organizing nected by a cable to the laptop and functions as an exten-
and presenting a case at trial, but these advantages are not sion of the laptop’s screen and touchpad.
gained without a learning curve and some preparation. First, These are just some of the features of the SMART Board,
all paper documents must be scanned to create a database, which, when combined with a laptop, Sanction II, and a pro-
and all traditional tape needs to brought into the digital envi- jector, eliminates the need for an Elmo, video player, CD
ronment (through a process called encoding) and stored on player, cassette player, paper documents, posters, video, audio-
CDs. These may be video depositions, audiotapes, day-in-the- tapes, and CDs. The presenter has the ability to put up a doc-
life tapes, documentary evidence, or animated re-creations. ument next to a video (while it is running), annotate it, and either
Synchronized video with transcript is also available for depo- save it and readmit it as a modiﬁed or demonstrative document,
sitions that were originally videotaped. This requires an ASCII or erase it with an electronic eraser as if it were on a chalkboard.
disc from the court reporter, which is brought into the database Once acclimated to this new technology, attorneys real-
and merged with the video. This yields the court reporter’s tran- ize how many options they have before and during a pre-
scribed text at the bottom or side of the video operator’s shot sentation. Judges appreciate how much time is saved by the
of the deponent. efficiency of the system. Jurors are immediately drawn into
An entire case that might have included expensive picture any presentation just by the visual excitement and the amount
blow-ups, graphs, and poster boards can be available and of information they are seeing and listening to. When prop-
presented in a large format with the touch of a ﬁngertip. A erly using a digital pre-
point-and-click instantly calls up the data needed. Video sentation system, counsel
searches and editing are also expedited, since rendering to may discover that it Joe C. Hyman is the
tape is no longer necessary. If a document is needed at trial requires less time looking president of Viking
that was not scanned in as part of the original database, this through boxes for docu- Video Inc., located in
is not a problem. A scanner connected to the laptop can ments or videotapes and Santa Monica, and has
instantly bring the document into the database. allows more time to focus
provided litigation
Using a digital system at trial generally requires an oper- on the case and the effect
ator. The technician follows the lead of the counsel, bringing it is making on a judge support services
up documents, highlighting, underlining, or magnifying as or jury. since 1984.

46 LOS ANGELES LAWYER / FEBRUARY 2003
http://blog-purchasestructuredsettlements.blogspot.com/

VIKING VIDEO INC.
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http://blog-purchasestructuredsettlements.blogspot.com/

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ence rooms located throughout California. Cele- joe@vikingvideo.com. Contact Joe C. Hyman.

48 LOS ANGELES LAWYER / FEBRUARY 2003
http://blog-purchasestructuredsettlements.blogspot.com/

Paperless Trial™ specialists. See article on page 46. trations, mediations, and settlement negotiations. DOCUMENT MANAGEMENT
Established in 1984, Viking Video is a full-service Full-service production capabilities include anima-
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deposition or site documentation, dispute resolution sentations. We are also a Livenote service provider. (213) 624-7595, e-mail: rsinker@legalx.com. Contact
or trial, we will help you integrate all your eviden- Z-Axis provides courtroom setup, trial support, and Roger B. Sinker. With the largest scan-to-ﬁle service bureau
tiary material and present it using equipment rang- electronic presentation systems, including our Vu- located in the heart of downtown Los Angeles, we have the
ing from an Elmo overhead projector to an interac- Point touchscreen system. technology and staff to manage all project types and sizes. Ser-
tive computer-based SMART Board. We will work vices include image scanning, coding-indexing, and electronic
with you to provide the conﬁguration you need and DEPOSITION SUMMARIES data discovery for information trapped in e-mail, videotapes,
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designs visual presentations for complex trials, arbi-

LOS ANGELES LAWYER / FEBRUARY 2003 49
http://blog-purchasestructuredsettlements.blogspot.com/

JURY CONSULTANTS
HAMILTON, RABINOVITZ & ALSCHULER,
INC.
6033 West Century Boulevard, Suite 890, Los
Angeles, CA 90045, (310) 645-9000, fax (310)
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tiary material and present it using equipment rang-

50 LOS ANGELES LAWYER / FEBRUARY 2003
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ing from an Elmo overhead projector to an interac- MOLLY MURPHY TRIAL TRIAL SUPPORT SERVICES
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group dynamics; demographic analysis; trial ex-
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litigation support. Degrees/license: 22 Ph.Ds in eco-
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and consumer behavior, and political science. Also
CPAs, JDs, and MBAs. See display ad on page 51.

LOS ANGELES LAWYER / FEBRUARY 2003 51
http://blog-purchasestructuredsettlements.blogspot.com/

VIDEOTAPING ESQUIRE DEPOSITION SERVICES grate document images, photographs, graphics,
www.esquirecom.com (800) 496-4969. Looking for video, animation, and other exhibits into a clear and
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They provide American-trained machine writers, the worldwide Web at www.esquirecom.com. See VIKING VIDEO, INC.
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capability. Conference rooms available. ASCII, 90404, (310) 828-2820, fax (310) 828-2063, e-mail:
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C rafting Litigation Strategy
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• Over 5,000 cases
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SETTING THE STANDARD SINCE 1975

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Email: njpwest@njp.com • www.njp.com

CASE ANALYSIS • MOCK TRIALS • SURVEYS • JURY SELECTION • WITNESS PREPARATION

52 LOS ANGELES LAWYER / FEBRUARY 2003
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computer counselor
By Carole Levitt

Keeping Your Firm’s Online
Content Up-to-Date
Current content tomer’s site. For $59 per month well-known marketing coach, is a for repurposing existing mater-
(and a one-time set-up fee of $150 strong believer in using attorney ial can direct an associate in the
on a law ﬁrm’s that is waived for annual sub- referrals to increase a ﬁrm’s busi- firm to write the ar ticle. This
scribers) attorneys select from a ness. A good way to reach this exercise can serve as a learning
Web page draws list of 13 practice areas and then audience can be with an educa- experience for the writer as well
receive a link each week to auto- tional site or having a part of your as for the Web site visitor who
visitors who may matically update their site’s site dedicated to attorneys rather reads the ﬁnal product.
newsletter with ﬁve new articles. than clients. An informative site Another avenue for original
become clients Two thousand attorneys sub- can attract attorney referrals in content is the Web. Lawyers who
scribe to Next Client, and the the same way it can attract clients. lack usable background material
company is now establishing a Most attorneys are likely to feel in-house may create somewhat
nce a ﬁrm has launched system to allow customers to more conﬁdent making a referral original content in a relatively

O its Web site, the next chal- send their newsletters via e-mail.
lenge is to keep the site’s E-mail newsletters are unobtru-
content updated. Clients, poten- sive marketing tools that keep
to a ﬁrm with an educational site
than one with nothing more than
an online brochure. Biren
short amount of time by writing
summaries of recently decided
cases or reviews of publications in
tial clients, and other attorneys clients educated about the legal Katzman is a firm that under- their practice area. To research
need a reason to return to the issues affecting their industry. stands how to use their site for articles for review, lawyers may
site on a regular basis. Unfor- Another company that pro- referrals and specifically dedi- use Findarticles.com, a free full-
tunately, many attorneys view vides similar services is Practice cates a section of the site to attor- text database with articles from
their site as little more than an Development Institute, with 10 ney referrals (see www.biren.com over 300 popular journals. The
extension of their firm’s print practice area newsletters to and then click on Potpourri and National Library of Medicine’s
brochure, and as a result their choose from (www.pdiglobal.com then For Lawyers). Gateway (at http://gateway.nlm
sites include the same biogra- /lawﬁrms.html). For ﬁrms that Many avenues are available .nih.gov/gw/Cmd) may be useful
phies, practice area descriptions, want more than newsletter con- for creating the original articles to medical malpractice attorneys
and list of clients and verdicts as tent, Consultwebs.com develops that can gather clients and refer- who are searching for scholarly
the brochure. A Web site, how- or edits content for law ﬁrm sites. rals. Most attorneys already have medical articles.
ever, can and should be a more The staff includes three writers, the raw material for informational To add summaries of recently
dynamic creation. one with newspaper writing expe- articles about their practice areas. decided cases within the ﬁrm’s
Keeping a site fresh can take rience and another with a para- For example, rather than write practice area, attorneys can start
more effort than a busy attorney legal background. something entirely new, an attor- with the Los Angeles County Bar
can give. Attorneys Karen Sugi- Before adding content to your ney can review and copy and Association’s Daily EBriefs, a
hara and Lar r y site, it is important paste from motions, briefs, forms, summar y of recently decided
Tjan soon learned Carole Levitt, to know your tar- and contracts. Then the attorney state and federal cases. (They are
this lesson after attorney and get audience. For can take some time to reshape free to Association members.)
launching their president of Internet example, if your these writings into plain English Because the cases are labeled by
site. As a result, For Lawyers, provides target audience in- for Web site visitors. This is not as practice area, attorneys can avoid
they developed Internet research cludes a signiﬁcant daunting a task as it may appear. checking every recent decision in
Next Client (found seminars for MCLE number of Spanish- For newsletters, less is often order to find a few per tinent
at www.nextclient credit. speaking clients more. An attorney can select one cases. After reading the full case,
.com), which pro- consider posting issue from a brief and write a an attorney can write a summary
vides fresh content your site and news- short article about that single and an analysis for Web visitors.
for the Web sites of letter in Spanish as issue, for example. Web site con- Many other free e-newsletters
attor neys. Their customers well as English. In addition, con- tent does not have to be lengthy of fer fresh ideas. Some are
choose the design and title of a sider developing new audiences. or scholarly—and, in fact, it geared to speciﬁc courts only and
customizable, private-label Your fellow attorneys, for exam- should not be. Rather, an article others to speciﬁc practice areas.
newsletter that contains articles ple, may reward your efforts to can make a single point, in plain Some newsletters geared to spe-
written by legal scholars and draw them to your site. Robert English on approximately one ciﬁc courts are Find Law’s e-sum-
attorneys (without bylines). The Kohn (Web site: http://www page, about an area of law. Finally, maries of recently decided cases
newsletter appears on the cus- .kohncommunications.com), a those who do not have time even (available for California and many

LOS ANGELES LAWYER / FEBRUARY 2003 53
http://blog-purchasestructuredsettlements.blogspot.com/

other jurisdictions) and Law.com’s California available. Other multimedia ideas to consider titioners. The site contains numerous cur-
News Alert. Some newsletters that are geared for your site include posting the Power Point rent educational articles, with topics ranging
to speciﬁc practice areas are Find Law’s top- slides that you presented at a conference or from “B-1/B-2 Visitor Visas” to “Grounds for
ical newsletters and EPIC Aler t, a free audio or video excerpts from a class or sem- Asylum and Refugee.” Also available at the
newsletter of interest to First Amendment inar you recently taught. Google indexes SSHD site are various documents, charts,
litigation attorneys (www.epic.org). Power Point presentations, so search for pre- and forms.
If you do not have time to write sum- sentations that others have placed online and Some attorneys may question SSHD’s
maries, you may add content to your site by ask the authors of the suitable ones for per- practice of offering intellectual property for
creating links to articles that are relevant to mission to place them on your site. free (especially the forms), but numerous
your practice but published by others. Google can also be the starting place for arguments can be made for the good business
Another option is to request permission to a search for law ﬁrm sites in your practice sense of this policy. First, it is one way of
post other people’s articles (with attribution area. For example, users who type “immi- adding valuable content to a site without hav-
to the authors). To ﬁnd suitable articles, use gration attorney” into a search engine and ing to create it from scratch. Second, many
Findarticles.com and other similar sites. A then review the results are likely to note that attorneys have learned that clients generally
Web page that contains one case summary, a the Siskind, Susser, Haas & Devine site (www appreciate knowing that the forms are there
few links, and a boilerplate description of .visalaw.com) is more educational than most. for the taking but prefer to have the attor-
your experience with the matters discussed Greg Siskind, who began as a sole practi- ney do the work. Third, even when clients do
in the case and links can be updated weekly tioner in immigration in Memphis, Tennessee, choose to use the simple forms on their own,
with a small investment of time. now has a worldwide immigration practice most attorneys ﬁnd the client will later return
with offices in the United States, Canada, and to the ﬁrm for their more complex transac-
Greater Sophistication Mexico—thanks in part to his early use of the tions. So that visitors may reach an attorney,
Attorneys whose clients (or potential Internet. SSHD claims to be the very ﬁrst a site should contain request forms for a con-
clients) have a large amount of bandwidth ﬁrm on the Web, having established its site in sultation. Finally, once a client is signed, many
should consider placing Web content into a 1994. The site claims to receive more than attorneys realize that providing substantive
multimedia format. Attorney Larry King’s 200,000 hits every week from over 60 coun- content on their site can help clients become
site (www.larrykinglaw.com), which has audio tries. Siskind also claims to be the ﬁrst to better informed and more satisﬁed.
clips on over 50 legal topics, offers a good distribute a firm newsletter electronically Search engines can be a somewhat hap-
example. Realizing that not all visitors have (Siskind’s Immigration Bulletin has over hazard way to ﬁnd sites with excellent content,
the bandwidth to take advantage of multi- 30,000 subscribers). Another of SSHD’s online however, so a ﬁrm’s site developer should
media, a print version of each clip is also newsletters is restricted to immigration prac- also research lists of law ﬁrm sites. Law Office
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54 LOS ANGELES LAWYER / FEBRUARY 2003
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by the book
Reviewed by Stacy D. Phillips

The Counselors
Prominent women allow their subjects to mentor the in her occupation and experience ering her speech bidding farewell
reader. In her introductor y the joys of motherhood. Her sub- to her run for president. “Those
lawyers share their remarks, Vrato asks the reader to jects also talk about handling per- seventeen seconds were treated
focus on his or her influences sonal obligations to their signiﬁ- like a total breakdown.…I went
experiences and and mentors, asking: “Would you cant others. In some instances on with my speech, but it was my
have been able to get this far with- Vrato also gets them tears that got the
remember those out them? Could you perhaps to comment on man- headlines, not my
beneﬁt from more help from oth- aging a par tner’s words,” Schroeder
who inspired them ers?” These questions, and a sen- ego gracefully. In conﬁdes.
sitive foreword by former Pres- other books that Margaret Hilary
ident Bill Clinton, address her chronicle the ascent Marshall, chief jus-
The Counselors purpose in creating the book and to professional pro- tice of the Supreme
by Elizabeth Vrato motivate readers to explore their minence, these de- Cour t of Massa-
Running Press, 2002 professional and personal expe- tails are often over- chusetts and for-
$24.95, 220 pages riences from a reﬂective vantage looked. Vrato is not merly vice presi-
point. It certainly stirred me, and afraid to ask, how- dent and general
omen on the rise, I merely intended to critique her ever, and these wo- counsel of Harvard

W women star ting their work.
careers, and women in Vrato’s style is compelling and
between will no doubt be highly simple. Although the author is
men are not afraid
to answer.
University, tells
Vrato to instr uct
her readers to “ignore the
motivated when they read an attorney, she does not write What They Overcame ‘shoulds’ of your life” and look
Elizabeth Vrato’s The Coun- speciﬁcally for women of the legal For example, L ynn Hecht instead at what “you genuinely
selors—and not just women attor- community. The book is a fast Schafran, the director for the enjoy doing every day.” Certainly
neys and political ﬁgures but all and entertaining read. The writer National Judicial Education this message is a shot in the arm
women. The Counselors is an in- starts by offering a conﬁdential, Program to Promote Equality for to those of us who need to exam-
sightful book encompassing can- behind-the-scenes glimpse of Women and Men in the Courts, ine if what it is we do gives us
did conversations with 18 recipi- what she knows about the sub- tells Vrato that she concealed her fulﬁllment and pleasure.
ents of the highly prestigious ject, how she feels about the pregnancy as an employee at Ruth Bader Ginsburg, associ-
Margaret Brent Women Lawyers inter view, and her concer ns MOMA. “I hid my pregnancy ate justice of the U.S. Supreme
of Achievement Award. In this about what to ask and whether with baggy clothes,” Schafran Court, holds nothing back in her
book, the author examines how she can address what is impor- relates, and “took a two-week interview. “Firms were just start-
these women have changed the tant. The author need not have vacation to give birth to my son, ing to turn around on hiring
world. What’s most appealing worried, because she does a mas- and came back to work—a preg- Jews,” she tells Vrato while ex-
about the book, terful job of invit- nant employee no longer! As a pressing her frustration about
however, is how Stacy D. Phillips is a ing each of these woman at that time, my condi- being passed over for a Supreme
the author encour- certiﬁed family law 18 women to share tioning was to outsmart the sys- Court clerkship and not receiving
ages each recipient specialist with her fears, frustra- tem to get what I needed, not to job offers from prestigious law
to explore the Phillips, Lerner & tions, and secrets. change the system.” I am certain firms in 1959. “Here I was, a
whos and whats in- Lauzon, LLP. By so doing, she that many women, after reading woman, a Jew, and a mother—it
volved in making certainly made me, Schafran’s interview, will be able was a bit much for them!” I found
her life and accom- as a reader, feel to relate to her professional strug- myself cheering her moxie!
plishments so ex- more comfortable gles. Vrato’s ability to strike a As I read the book, each sub-
traordinary. in my own professional skin. tone of appropriate familiarity ject became an important mentor
Each interviewee shares her For example, she addresses with the reader is one of the most to me by offering interesting and
struggles, dreams, and motiva- the travails of seeking a career enjoyable aspects of the book. applicable advice. In every inter-
tions. But most important, each and balancing the constant Former member of Congress view, aside from encouraging the
speaks of those who helped her demands of raising a family. This Patricia Schroeder shares her women to share their obstacles
in either a negative or positive is a nagging issue for any woman feelings candidly with Vrato about and challenges, Vrato asks them
way. Vrato’s incisive interviews who wants to grow and succeed breaking into tears while deliv- to name some of the important

LOS ANGELES LAWYER / FEBRUARY 2003 55
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inﬂuences in their lives and to comment on California and the ﬁrst African American to be agement and support, they may never have
how they provided motivation. Some of these appointed to the House Armed Ser vices reached their noteworthy positions.
guiding presences were fellow professionals, Committee. The two found only one chair There should be more books like The
some were family members, and some were left available in the committee meeting room, Counselors. Women in the legal community
neither. In fact, some were adversaries who so rather than jeopardize their appointment, might like to read a similar book on some of
spurred them to do great things and some they decided to sit on the same chair together. the great women who shaped the history of
magically appeared at pivotal, life-altering After this politically symbolic meeting, this country—women such as, for example,
moments. All the mentors were fascinating in Dellums became Schroeder’s wise and Abigail Adams and Eleanor Roosevelt. I would
terms of how they helped and why these trusted friend. beseech Vrato not to restrict such a book to
women hold them in such high esteem. Marshall cites Martin Luther King Jr. and presidential wives or political ﬁgures. Rather,
Senator Robert F. Kennedy as two leaders I would be enchanted to see sequels that
The Mentors whose work had great impact upon her. She include similar insights from the diaries and
For example, Schafran cites her mother, also mentions how, shortly after leaving Yale recorded conversations of Amelia Earhart,
a brilliant woman who wanted to do great and taking a position in a powerful Boston law Susan B. Anthony, and Mary Pickford, to
things with her intelligence but who never ﬁrm, she closely observed attorneys in dif- name a few. It would be wonderful to learn
had the chance to realize her potential. She ferent situations to see what she could learn about who inspired and counseled these
nudged Schafran into living her unfulﬁlled from them. Marshall states that by observing notable women—and learn about those whom
dream. Justice Ginsburg also changed her and studying many of those attorneys she they mentored in turn.
life. Schafran credits Ginsburg with guiding learned to value some of them as role models. The Counselors will leave any woman
her on the path of law beginning while Later, many of them also became her mentors. (whatever her opinions about law or politics
Schafran was a law student. Shafran also tells Marshall also salutes Neil L. Rudenstine, may be) highly motivated and inspired. It
how Ginsburg showed her how the same president of Harvard, who offered her a posi- will also leave readers—men included—pon-
civil rights laws that were aiding minorities tion at the university that had never before in dering their personal history of mentoring.
could be used to gain equality for women. the institution’s 350-year history been held by Readers will remember who inspired and
Ginsburg, in turn, points to her husband, a woman. helped them in their lives and how they can
Martin, with whom she has shared a rela- The most valuable element of the book is give and have given special gifts back to oth-
tionship of equality and who constantly and that the advice that each subject offers is ers. It seems clear that Vrato would like her
unselﬁshly has offered her strength and sup- clear, deﬁnitive, and inspirational. Suggestions readers to come to terms with their grati-
port. and recommendations differ, but all the inter- tude toward those who have inspired and
Schroeder points to former member of viewees wholeheartedly agree that without mentored them and to consider how they
Congress Ron Dellums, a Democrat from someone to whom they could go for encour- may mentor others. s

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58 LOS ANGELES LAWYER / FEBRUARY 2003
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CLE Preview
Going Solo Tax Court
Practice
ON THURSDAY, FEBRUARY 13, the Small Firm and Sole Practitioner Section will present
its annual update on the nuts and bolts of starting a small ﬁrm or solo practice. The ON SUNDAY, FEBRUARY 26,
program will cover the practical aspects of starting a small ﬁrm or going it alone as a the Taxation Section will
sole practitioner. Speakers Richard Clements, Harold Gould, Kelly Ryan, Gerald M. present a seminar titled
Sallus, and Cynthia Dersh Schein will cover the various positive aspects of small ﬁrms “The Do’s and Don’ts of
and the difficulties encountered in forming and maintaining a small or solo practice. Tax Court Practice.” This

This event will be held at the LACBA/LEXIS Publishing Conference Center, 281 South dynamic program offers a
rare opportunity to hear
Figueroa Street, Downtown. Parking at the Figueroa Courtyard Garage will be
Judge Juan Vasquez of the
available for $7 with LACBA validation. On-site registration, along with the meal and
U.S. Tax Court and a
reception, will begin at 5:30 P.M., followed by the program from 6 to 9 P.M. The event
distinguished panel of tax
code number is 824DB13. Preregistered CLE+PLUS members attend for free.
attorneys (M. Katharine
$45—Small Firm and Sole Practitioner Section members
Davidson, Nancy McCurley,
$55—LACBA members
and Dennis Perez) who will
$65—All others
represent the perspectives
3 CLE hours
of private practitioners and
the government. The
Trial Advocacy Project program will provide
valuable insights for those
ON TUESDAYS AND THURSDAYS, MARCH 4, 6, 11, 13, 18, AND 20, the Los Angeles County
interested in learning how
Bar Association will present its introductory TAP (i-TAP) trial advocacy skills course. This is
to succeed in the U.S. Tax
one in a series of three courses constituting LACBA’s acclaimed Trial Advocacy Project,
Court. The program will
which allows attorneys to get trial experience quickly. This course provides introductory
take place at the New
trial advocacy instruction, emphasizing mock trial performance. Participants perform
Otani Hotel, 120 South Los
several phases of a jury trial for DUI and domestic violence cases. They learn to mark
Angeles Street,
exhibits, lay evidentiary foundation, deliver opening statements, conduct direct and cross-
Downtown. On-site
examination, and deliver closing arguments. This is a 3-week course, starting the ﬁrst full registration will begin at
week in March, on Tuesday and Thursday nights from 6 to 9 P.M. Classes are taught at the 11:30 A.M. and lunch at
LACBA/Executive Presentations Mock Courtroom, 281 South Figueroa Street, Downtown. noon, with the program
Parking at the Figueroa Courtyard Garage will be available for $7 with LACBA validation. continuing from 12:30 to 2
Course instructors are seasoned prosecutors with local agencies. Successful completion of P.M. The event code
this course meets the prerequisites for admission to the Association’s six-week traditional number is 806LB26.
TAP course, which is taught in October. Completion and certiﬁcation of traditional TAP Preregistered CLE+PLUS
qualiﬁes attorneys for a pro bono practicum trying criminal cases. Written course materials members attend for free
and a course syllabus will be distributed via e-mail prior to the ﬁrst class. Attorneys who (meal not included).
wish to participate in i-TAP/March should send, via e-mail, their correct e-mail addresses to $65—Taxation Section
rlamia@lacba.org. Enrollment is limited. The event code number is 1709C04. members
$995—LACBA members $80—LACBA members
$1,095—all others $90—all others, including
18 CLE hours, including 3 ethics hours and 2 substance abuse and emotional distress all at-the-door registrants
hours 1.5 CLE hours

The Los Angeles County Bar Association is a State Bar of California MCLE approved provider. To register for the programs listed
on this page, please call the Member Service Department at (213) 896-6560 or visit the Association Web site at
http://forums.lacba.org/calendar.cfm. For a full listing of this month’s Association programs, please consult the February County Bar Update.

LOS ANGELES LAWYER / FEBRUARY 2003 59
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closing argument
By Robert Steinberg

Advising Clients about Hacker Insurance
Breaches of computer network security can
lead to signiﬁcant liabilities for companies
he ﬁnancial losses facing corporate America as a result of net- to maintain proper network security. The scenarios leading to third-

T work security breaches are staggering—hundreds of millions,
if not billions, of dollars each year.1 A 2002 joint survey by the
FBI and the Computer Security Institute estimates that losses for just
party damages abound. For example, hackers launching malicious
code into company networks can expose conﬁdential customer infor-
mation to the public—including credit card numbers—which can
44 percent of the 503 survey participants—primarily, large U.S. cor- lead to claims against a company by its own customers. In a denial-
porations—already exceeded $455 million, with the theft of proprietary of-service attack, hackers hijack one company’s computer system to
information and ﬁnancial fraud representing the two most serious cat- launch an attack against a second company, redirecting the ﬁrst com-
egories of losses ($170 million and $115 million, respectively).2 pany’s traffic to the second’s site and overwhelming the second com-
The reality is that these estimates, however considerable, likely rep- pany’s servers. This increasingly familiar scenario can lead to a claim
resent only the tip of the iceberg, given that companies continue to noto- by the second company against the ﬁrst company for inadequately
riously underreport network attacks while apparently paying millions securing the technology that led to the second company’s loss.
in hush-hush out-of-court settlements. Indeed, the ﬁnancial toll from Stand-alone network-risk, hacker, or cyber insurance is now being
network breaches mounts each year as a result of threats originating offered by numerous big-name insurers. Depending on the selected
within and outside the ﬁrewall, including: 1) viruses, worms, and coverage, these policies offer protection against intangible data loss
Trojan horses, 2) system penetration or unauthorized access, 3) denial- from viruses, denial-of-service attacks, and theft of consumer infor-
of-service attacks, 4) theft of computer transaction information, includ- mation—and the protection can extend to third-party liabilities.
ing conﬁdential customer data, 5) cyber-extortion, and 6) vandalism. Insurance premiums remain considerable, and prequalifying security
These losses should ensure that attorneys do a better job of edu- assessments can be demanding; moreover, legal advice is often a pre-
cating their clients about the true magnitude of the risk confronting requisite for navigating the various gaps and exclusions written into
them as well as the key role that new insurance products—known as such policies.
network-risk, hacker, or cyber policies—can play in protecting com- Clearly attorneys cannot afford to leave network security to a
pany interests. In fact, informed legal guidance is certain to become client’s IT department. Practitioners cannot simply become involved
indispensable for many clients in the 2003 insurance renewal cycle, only after a loss when the client needs to either defend against or set-
when many general policies—such as CGL, D&O, E&O, and prop- tle a hefty claim. Clients must be advised to be proactive on security.
erty—will expressly disclaim losses resulting from network breaches, Moreover, hacker insurance may be a
including those from viruses and e-vandalism. This will leave many nearly indispensable business tool. For
clients dangerously exposed and forced to scramble to choose among corporations with well-known brand
the available coverage options and vehicles. names, in high visibility industries, with
By all indications, corporate America continues to misunderstand signiﬁcant Web presences, or sensitive
the dynamics of the network security problem. For example, execu- information, a single breach, with the
tives appear to believe that so long as their core business is not potential for third-party claims, can be
dependent on pure e-commerce, their companies remain insulated ﬁnancially devastating. For companies
from signiﬁcant losses from network security breaches. The reality less likely to be targets, especially those
is that most companies are reliant on some form of in-house technology that cannot easily af ford the cost of
for transacting important company business. Company computers hacker insurance, practitioners can
might be shielding key assets or trade secrets, maintaining or retriev- advise a strategy of self-insurance via
Robert Steinberg, a
ing customer data, providing customer service, or coordinating wide- technology and procedural upgrades.
partner in the Los
spread business operations. Another common misconception is that Either way, the bottom line is that com-
Angeles office of
existing technology alone— such as ﬁrewalls, virus software, intru- panies need legal guidance. s
Latham & Watkins,
sion detection devices, and encryption systems—can provide sufficient
focuses his practice
protection. While this technology can help defend against network 1
The author wishes to thank Latham & Watkins
on transactions and
breaches, it cannot eliminate the risk. associate Ilana Makovoz for her assistance with
this article. litigation involving
The dangers facing uninformed corporate clients are not simply 2
C OMPUTER S ECURITY I NSTITUTE /FBI, 2002 technology and
the result of direct ﬁrst-party losses from lost income. Companies also
COMPUTER CRIME AND SECURITY SURVEY, available media.
face the risk of third-party claims arising from the companies’ failure at www.gocsi.com.

60 LOS ANGELES LAWYER / FEBRUARY 2003
http://blog-purchasestructuredsettlements.blogspot.com/

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