A publication of the
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Inside: The Paperless Law Office LLC Fiduciary Law Arkansas Bar Association 113th Annual Meeting
Vol. 46, No. 2, Spring 2011 online at www.arkbar.com
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Publisher Arkansas Bar Association Phone: (501) 375-4606 Fax: (501) 375-4901 www.arkbar.com editor Anna K. Hubbard executive director Karen K. Hutchins Editorial Board Gordon S. Rather, Jr., Chair Judge Wiley A. Branton, Jr. O. Milton Fine, II Judge Victor A. Fleming Brandon J. Harrison William D. Haught Philip E. Kaplan Mary Beth Matthews Drake Mann David H. Williams Teresa M. Wineland OFFICERS President Jim L. Julian Board of Governors Chair Sean T. Keith President-Elect Tom D. Womack Immediate Past President Donna C. Pettus President-Elect Designee Charles L. Harwell Secretary F. Thomas Curry Treasurer William A. Martin Parliamentarian Charles D. Roscopf Young Lawyers Section Chair Brandon K. Moffitt BOARD OF GOVERNORS Thomas M. Carpenter Richard C. Downing Jeffrey E. McKinley Robert R. Estes, Jr. Amy Freedman David M. Fuqua Amy Grimes L. Kyle Heffley Anthony A. Hilliard Don Hollingsworth Paul W. Keith Harry A. Light Jeffrey Ellis McKinley Laura E. Partlow Jerry D. Patterson Brian H. Ratcliff John C. Riedel Brian M. Rosenthal Gwendolyn L. Rucker Brock Showalter John T. Vines Danyelle J. Walker Dennis Zolper
Lawyer Vol. 46, No. 2
10 The Paperless Law Office Tom Overbey 14 Revising Arkansas LLC Fiduciary Law to Protect the Unrepresented John M. Cunningham and Frances S. Fendler 20 Practice Tip: Update Your Investor Questionnaires to Reflect the SECâ€™s Revised Definition of Accredited Investor Under Regulation D John F. Griffee 22 Arkansas Bar Association 113th Annual Meeting
Arkansas Bar Association 113 th Annual Meeting JOINT MEETING WITH THE ARKANSAS JUDICIAL COUNCIL
JUNE 8-11, 2011 HOT SPRINGS ARLINGTON HOTEL & HOT SPRINGS CONVENTION CENTER
Touchdown Arkansas Bar!
24 Crossing Borders Stirs Opinions W. Christopher Barrier
LIAISON MEMBERS Zane A. Chrisman Frank B. Sewall Jack A. McNulty Harry Truman Moore Judge Kim Bridgforth Carolyn B. Witherspoon Judge Ralph E. Wilson, Jr. Karen K. Hutchins The Arkansas Lawyer (USPS 546-040) is published quarterly by the Arkansas Bar Association. Periodicals postage paid at Little Rock, Arkansas. POSTMASTER: send address changes to The Arkansas Lawyer, 2224 Cottondale Lane, Little Rock, Arkansas 72202. Subscription price to non-members of the Arkansas Bar Association $35.00 per year. Any opinion expressed herein is that of the author, and not necessarily that of the Arkansas Bar Association or The Arkansas Lawyer. Contributions to The Arkansas Lawyer are welcome and should be sent to Anna Hubbard, Editor, firstname.lastname@example.org. All inquiries regarding advertising should be sent to Editor, The Arkansas Lawyer, at the above address. Copyright 2011, Arkansas Bar Association. All rights reserved.
Scan the QR code to go to www.arkbar.com Contents Continued on Page 2
Lawyer The Arkansas Vol. 46, No. 2
in this issue Association News
Lawyer Community Legacy Award
columns President’s Report
2011 Mock Trial Competition
Jim L. Julian
Young Lawyers Section Report
Brandon K. Moffitt
Thank You to the 2010-11 Association Sustaining Members
Judicial Disciplinary Actions
Attorney Disciplinary Actions
Arkansas Bar Foundation Memorials and Honoraria
Your Name in Print For information on submitting articles for publication, go to www.arkbar.com and click on The Arkansas Lawyer or email email@example.com
Arkansas Bar Association
2224 Cottondale Lane Little Rock, Arkansas 72202
HOUSE OF DELEGATES Delegate District A-1: Anthony W. Juneau, Anthony W. Noblin, Kristin Pawlik, William J. Trentham, and Hollie Greenway Delegate District A-2: Brock Showalter, Tim Tarvin, Debby Thetford Nye, Paul D. Reynolds, W. Marshall Prettyman, Jr., Charles M. Duell, Troy L. Whitlow, Suzanne Clark, Stan B. Baker, Matthew L. Fryar, and Tina M. Hodne Delegate District A-3: Farrah L. Fielder, C. Michael Daily, Jeffrey D. Rickard, Joel D. Johnson, Stephanie Harper Easterling Delegate District A-4: John C. Riedel Delegate District A-5: Brent Capehart Delegate District A-6: Emily Sprott McIllwain Delegate District A-7: Michael E. Kelly Delegate District B: Gwendolyn L. Rucker, M. Stephen Bingham, Joel M. DiPippa, Khayyam Eddings, Christian Harris, Gill A. Rogers, Alan G. Bryan, Tim J. Cullen, JaNan A. Davis, Jennifer W. Flinn, Anne Hughes White, Tasha Sossamon Taylor, Patrick L. Spivey, Shaneen Kelleybrew Sloan, Jason Earley, Jerald “Cliff” McKinney, II, John P. Perkins, III, Victor D. “Trey” Wright, Mark W. Hodge, Cathy Underwood, Jodie Lynn Hill, Grant M. Cox, James Paul Beachboard, Phillip M. Brick, Jr., Whitney L. Foster, Stephen R. Giles, Aaron L. Squyres, Adam Wells, Dan C. Young Delegate District C-1: Jay Scurlock Delegate District C-2: Jerrie Grady Delegate District C-3: Keith Chrestman, Brant Perkins, Teresa M. Franklin Delegate District C-4: Curtis Walker Delegate District C-5: Albert J. Thomas, III, A. Jan Thomas, Jr. and Winston B. Collier Delegate District C-6: Charles E. Clawson, III, Shane A. Henry Delegate District C-7: William N. Reed Delegate District C-8: Brandon C. Robinson, Paul T. Bennett, Charles D. Roscopf Delegate District C-9: Timothy R. Leonard, C.C. Gibson III, Leslie Jo Ligon Delegate District C-10: Shivali Sharma and George M. Matteson Delegate District C-11: John C. Finley, III, J. Philip McCorkle Delegate District C-12: Jonathan D. Jones and Wade T. Naramore Delegate District C-13: Cecilia Ashcraft, Sam E. Gibson Law Student Representatives: Malcolm Means, University of Arkansas School of Law; Kimberly Eden, UALR William H. Bowen School of Law
The Arkansas Lawyer
Please visit the ABA Retirement Funds Booth at the upcoming Arkansas Bar Association Annual Meeting for a free cost comparison and plan evaluation. June 8 - 11, 2011 Arlington Hotel & Hot Springs Convention Center, Hot Springs, AR
WHO’S WATCHING YOUR FIRM’S 401(k)?
• Is your firm’s 401(k) subject to quarterly reviews by an independent board of directors? • Does it include professional investment fiduciary services? • Is your firm’s 401(k) subject to 23 contracted service standards? • Does it have an investment menu with passive and active investment strategies? • Is your firm’s 401(k) sponsor a not-for-profit whose purpose is to deliver a member benefit? • Does it feature no out-of-pocket fees to your firm? • Is your firm’s 401(k) part of the member benefit package of 37 state and national bar associations? If you answered no to any of these questions, contact the ABA Retirement Funds to learn how to keep a close watch over your 401(k).
Unique 401(k) Plans for Law Firms Phone: (877) 947-2272 • Web: www.abaretirement.com • email: firstname.lastname@example.org The American Bar Association Members/Northern Trust Collective Trust (the “Collective Trust”) has filed a registration statement (including the prospectus therein (the “Prospectus”)) with the Securities and Exchange Commission for the offering of Units representing pro rata beneficial interests in the collective investment funds established under the Collective Trust. The Collective Trust is a retirement program sponsored by the ABA Retirement Funds in which lawyers and law firms who are members or associates of the American Bar Association, most state and local bar associations and their employees and employees of certain organizations related to the practice of law are eligible to participate. Copies of the Prospectus may be obtained by calling (877) 947-2272, by visiting the Web site of the ABA Retirement Funds Program at www.abaretirement.com or by writing to ABA Retirement Funds, P.O. Box 5142, Boston, MA 02206-5142. This communication shall not constitute an offer to sell or the solicitation of an offer to buy, or a request of the recipient to indicate an interest in, Units of the Collective Trust, and is not a recommendation with respect to any of the collective investment funds established under the Collective Trust. Nor shall there be any sale of the Units of the Collective Trust in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or other jurisdiction. The Program is available through the Arkansas Bar Association as a member benefit. However, this does not constitute an offer to purchase, and is in no way a recommendation with respect to, any security that is available through the Program. C09-1005-035 (07/10)
The Arkansas Lawyer
by Jim L. Julian
The Promise of Justice and the Federal Budget Recently, I travelled to Washington, D.C. with a group from our Bar Association to attend ABA Day. This event gathers bar leaders from across the country to meet with our congressional delegations to discuss matters of interest to the organized bar. I attended with Past President Rosalind Mouser, President Elect Tom Womack, President Elect designee Charlie Harwell and Executive Director Karen Hutchins. While we addressed a number of issues with our lawmakers, our focus was to seek continuing support of funding for the Legal Services Corporation. We arrived days after a last minute deal had been reached to avoid a government shut down over budget disputes. With these events fresh on the minds of our senators and representatives, we were given an education into the intricacies of the budgeting process and the impacts that can be felt at the local level by decisions made at the highest levels of our government. In Fiscal Year 2011, funding for LSC was set at $420 million. In the original version of HR1 (the resolution used by the House of Representatives to address budget issues), funding for LSC was slated to be cut by $70 million, a reduction of approximately 17%. Had HR1 passed as originally proposed, significant cuts would have been required at both legal service providers in Arkansas. The compromise reached to avoid the government shut down resulted in a decrease in funding for LSC of approximately $18 million. The legal service entities in Arkansas receive about $4.4 million annually from LSC. Private sources contribute additional
funds for these agencies to assist them in providing legal services to those who qualify. Since the economic downturn began in 2008, the ranks of eligible citizens for legal services have risen by 17%. In Arkansas, those eligible now total almost 600,000 persons. This funding allows for the employment of 48 lawyers statewide to satisfy the legal needs of this sizeable group. Our members who contribute their time to pro bono work provide legal services to a significant percentage of these individuals. We learned that the future of funding for LSC is tenuous at best. LSC funding has bipartisan support but the realities are that funding cuts are to be expected as our nation grapples with its burgeoning debt. The LSC and our local agencies will likely continue to receive some level of funding but we should expect that more funding from private sources will be needed. In Arkansas, our Access to Justice Commission continues to raise funds for these purposes through their foundation. Those who can afford to do so can assist in this effort by making a contribution to this foundation. We can all do our part by providing pro bono services through Legal Aid of Arkansas and the Center for Arkansas Legal Services. There are many pro bono opportunities available to us. We have the opportunity to use these agencies as the referral source for indigent clients to help us each reach our goal of 50 hours of pro bono service each year. Contact the legal aid provider in your area and offer to take on pro bono clients. It will allow you to meet your professional obligations as an attorney and will also enrich your professional life.
It has been an honor and a privilege to serve as president of this organization this year. I am proud of the commitment of our lawyers to the betterment of our communities and our state. I don’t recall being turned down by any lawyer I asked to provide a service to our bar association. The lawyers of this state are to be commended for their commitment to service to our profession. We have a lot to be proud of and I know our bar will continue to add to our legacy in these areas. It has been an honor and a privilege to serve as president of this organization this year. I am proud of the commitment of our lawyers to the betterment of our communities and our state. I don’t recall being turned down by any lawyer I asked to provide a service to our bar association. The lawyers of this state are to be commended for their commitment to service to our profession. We have a lot to be proud of and I know our bar will continue to add to our legacy in these areas. Our Association is in good hands with Tom Womack taking over as your new president. I have been very impressed with Tom’s calm demeanor in addressing pressing issues which have faced our Association. It has been a pleasure serving with him and he is well prepared to lead this Association in 2011 and 2012. I hope you can plan to see him sworn in at our Annual Meeting June 8 – 11 in Hot Springs. I look forward to seeing you there. n
Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
Value of Membership Free online legal research with Fastcase
President-Elect Designee Charles L. Harwell at ABA BLI
Free meeting space at the Arkansas Bar Center $200/day value To reserve call 501-375-4606
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Discounts on ArkBar CLE Seminars $ave $60/Day Free Weekly Case Summaries Free subscriptions to The Arkansas Lawyer and ArkBar weekly e-bulletins priceless!
l to r: American Bar Association (ABA) President Steven N. Zack, Arkansas Bar Association President-Elect Designee Charles L. Harwell and ABA PresidentElectWm. T. (Bill) Robinson III at the ABAâ€™s Bar Leadership Institute (BLI) held March 15-16 in Chicago. The BLI is held annually for incoming officials of local and state bars.
Arkansas Bar Association Mid Year Meeting January 27-28, 2011 at the Peabody Hotel in Memphis, TN
Photos by Tasha Chloe Photography
Members and guests who attended the Mid Year Meeting in Memphis this January enjoyed CLE, CNA, BBQ at the Rendezvous and desserts at the top of the Peabody Hotel overlooking downtown Memphis. Save the date for next year â€” January 26-27, 2012. 6
The Arkansas Lawyer
ACCOLADES W. Christopher Barrier of Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C. in Little Rock has been recognized by Hendrix College as the recipient of the 2011 Humanitarian Award. Ken Cook of Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C. in Little Rock has been named a Fellow of the American College of Trial Lawyers. John Keeling Baker of Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C. in Little Rock has been selected for membership in the Federation of Defense and Corporate Counsel. Cross, Gunter, Witherspoon & Galchus received the American Psychological Association’s Psychologically Healthy Workplace Award. Judge David Bogard was featured in the High Profile Section of the Arkansas Democrat Gazette for his work as a film maker. Phillip H. McMath of McMath Woods, P.A. in Little Rock was honored with the Booker Worthen Prize for his novel “The Broken Vase.” Hosto, Buchan and Prater, PLLC, was recognized as the top performing law firm in its category for Ford Motor Credit. JaNan Davis, City Attorney for Maumelle, was featured in the Maumelle Monitor for her work as co-chairman of the Maumelle Relay for Life. APPOINTMENTS AND ELECTIONS Colette Honorable, chairman of the Arkansas Public Service Commission, was named chairman of the National Association of Regulatory Utility Commissioners’ Pipeline Safety Task Force. David R. Bridgforth of Ramsay, Bridgforth, Robinson and Raley LLP in Pine Bluff, is serving as President of the Economic Development Alliance of Jefferson County. Ann H. Gilbert with Arkansas Transit Association in North Little Rock was recently elected President of the Community Transportation Association of America. The U.S. Senate has confirmed William Conner Eldridge Jr. of Arkadelphia as the U.S. Attorney for the Western District of Arkansas. Gov. Mike Beebe appointed John Goodson of Texarkana to the University of Arkansas Board of Trustees. President Obama nominated Susan O. Hickey, a circuit judge of the 13th Judicial District in El Dorado to be a U.S. District Judge for the Western District of Arkansas. Will Bond of McMath Woods, P.A. in Little Rock is the new chairman of the Arkansas Democratic Party. Lt. Gov. Mark Darr appointed William Bird of North Little Rock to fill an unexpired term on the state Ethics Commission. Chad Causey has been appointed to the Foundation for the Mid South board of directors. Gov. Mike Beebe appointed Coby Logan with the Arkansas Department of Finance & Administration in Little Rock to the State and Public School Life and Health Insurance Board. Judge Joyce Warren was appointed to the Children’s Behavioral Health Care Commission. Niki Cung of Kutak Rock LLP in Fayetteville was appointed to the Emergency Medical Services Advisory Council. State Representative Davy Carter has been named division president for Centennial Bank in Cabot. Debby Thetford Nye was elected first vice president of the Women’s Foundation of Arkansas. The Winthrop Rockefeller Foundation announced that Baxter Sharp of Sharp & Sharp PA in Brinkley and deputy prosecuting attorney for the 1st Judicial District, has been named chair of the Foundation and Regan Gruber Moffitt, senior associate for public policy at the Winthrop Rockefeller Foundation, has been named secretary. WORD ABOUT TOWN Wilson & Associates, P.L.L.C. made the following announcements: Randy Bueter now oversees both Bankruptcy and Closing for Arkansas and Tennessee. Jonathan Luedloff is now the Supervising Attorney over the Arkansas Closing Offices. Kim Burnette is the Bankruptcy Partner in charge of Arkansas Bankruptcy Legal. Barron & Tucker, P.A. announced that its office has relocated from 212 Center #600 in Little Rock to 1012 W 2nd in Little Rock. Quattlebaum, Grooms, Tull & Burrow PLLC in Little Rock announced that F. Clark Jennings has joined the firm as an associate. Mr. Jennings will practice in the area of litigation in the firm’s Little Rock office until August 2011, when he will take a one-year leave from the firm to serve as a law clerk to the Honorable D. P. Marshall Jr., of the United States District Court for the Eastern District of Arkansas. Marcia Barnes announced the opening of Marcia Barnes & Associates, P.A. located at 400 West Capitol Avenue, Suite 1700 in Little Rock. Conner & Winters, LLP announced the move of its Northwest Arkansas office to the new Park Centre Office building located at 4375 N. Vantage Drive in Fayetteville. Womack Landis Phelps & McNeill in Jonesboro announced that Chad Causey has joined the firm. McMath Woods P.A. in Little Rock announced that Ross Noland has joined the firm as an associate. Gill Elrod Ragon Owen & Sherman in Little Rock announced that Kelly W. McNulty and Kelly M. McQueen are new shareholders with the firm. Hamlin Dispute Resolution, LLC in Little Rock announced the association of Mike Kinard as a mediator/ arbitrator. Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C. announced the opening of new Washington, D.C. office. We encourage you to submit information for publication in OYEZ! OYEZ! To do so, please send information to: email@example.com. Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
Association News Lesley Rogers Honored with the Lawyer Community Legacy Award
Lesley Rogers and Arkansas Bar Association President Jim L. Julian at an award ceremony at a meeting of the West Pulaski Fire Department.
Lesley Rogers was recently honored with the Lawyer Community Legacy Award for her excellence in volunteer public service. Lesley serves as a dedicated volunteer firefighter with the West Pulaski Volunteer Fire Department in addition to her job as a constituent advisor for the Arkansas State Senate. Lesley joined the all-volunteer fire department in 2007 and immediately proved herself as a valuable asset. She meets the challenges of the rigorous job as a first responder and firefighter by responding to medical calls, motor vehicle accidents, structure fires and more. Lesleyâ€™s dedication to her friends and neighbors in her community includes weekly maintenance of vehicles and equipment, monthly department training and local station training and responding to emergency calls. She helps the fire department maintain fire and rescue services 24 hours-a-day, seven days-a-week, on a volunteer basis. According to her nominator, â€œHer professionalism, ability to handle stressful situations and communication skills has helped countless individuals in our fire district. She has quickly earned the admiration and respect of both her colleagues and fellow volunteer firefighters with her positive attitude, professionalism and cheery personality.â€?
Lesley Rogers in action as a volunteer firefighter for the West Pulaski Fire Department. Lesley is pictured in the left of the photos except for the last one where she is on the right.
Awards are presented bi-annually by the Association to attorneys and judges who have performed volunteer public services out of a sense of duty, professionalism, and a genuine desire to give back to the community. Recipients are selected by the Public Information Committee after considering the nominations received by the deadline. Any person may nominate a lawyer or judge by completing the Nomination Form and turning the Form into the Arkansas Bar Association office on or before the nomination deadline. Nomination deadlines are January 31st and July 31st of each year. Nomination forms and guidelines for the award are available at www.arkbar.com or by contacting the Association.
The Arkansas Lawyer
Young Lawyers Section Report
Abundance of Opportunities to Serve in YLS
by Brandon K. Moffitt
and Life to Go:
In brief on
Young er of the
A Legal Handbook for Young Arkansans
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Arkansas of the
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As we wind down this bar year and I write my last article as Chair, I want to take this opportunity to say “thank you” to the current Executive Council, as well as the membership, for their efforts in making this year a success. I began my year as Chair with several goals related to increasing participation in the Section’s leadership and volunteer opportunities. I am happy to report that we have met (and exceeded) most of the goals and have great strides towards others. I believe that the most important goal we accomplished this year was the increased participation of the membership on the Section’s standing committees. We had over 50 new members that served on a committee and this growth allowed the YLS to expand our quarterly publication, In Brief, plan social events across the state, as well as continue our work on 18 & Life to Go: A Legal Handbook for Young Arkansans. As we move forward, I hope to see the involvement in the standing committees grow in an effort to provide additional services to our membership and our communities. I also sought to increase the number of candidates for the YLS Executive Council and Officer positions that we elect at the Annual Meeting in Hot Springs. Each year the YLS elects three (3) Executive Council members (one from each of the State’s Bar Districts – Central, Northwest, and South & East) and the Section’s Chair-Elect and Secretary/Treasurer. The Section’s bylaws were amended last year to have candidates submit their name for open positions by April 1 to be on the ballot for election at Annual Meeting. This year I am happy to report that we have a candidate for every open position and will have a contested elec-
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tion for Chair-Elect at the Annual Meeting. All other open positions were filled by candidates that qualified for election by April 1, 2011, and were unopposed. Although I know that elections can be contentious, I believe they are healthy for every organization because it ensures that the organization maintains focus, is exposed to a diversity of ideas, and is accountable to its membership. Another significant achievement of the Section this year was to produce hard copies of the publication 18 & Life to Go: A Legal Handbook for Young Arkansans. The printing of hard copies of the handbook is the culmination of several years of planning, development, and numerous volunteer hours by members of the Association to develop a basic legal guide for the citizens of our state. Our long-term goal is to provide every Arkansas high-school senior with a copy of the publication before they graduate. Although it is not feasible for our Section to fund hard copies to students every year, we hope to expand electronic distribution of the publication to reach our goal. Currently, the publication is available on our website (www.arkbar.com – Young Lawyers) and the Amazon.com store for Kindle ebooks. I would encourage you to download, review, and share the publication. If you would like to become more involved in the work of the Section, I would like to invite you to attend the Arkansas Bar Annual Meeting this year in Hot Springs. The YLS programming and annual business meeting will be held on Friday, June 10, 2011, in the Fountain Room at the Arlington Hotel. The YLS will follow the overall theme of the Annual Meeting with our CLE speaker, Mr. Christopher Turnage,
and his presentation: The NFL Collective Bargaining Agreement, Can’t We All Just Get Along? Mr. Turnage will be discussing the current collective bargaining agreement between the NFL Players Association and the team owners of the NFL, as well as the legal ramifications of the decertification of the players union. Following the CLE, we will hold our annual business meeting to introduce our new Chair of the YLS, Mr. Brian Clary, and provide him an opportunity to share his vision for the Section for the upcoming year. We will also elect the Chair-Elect position at the business meeting following Brian’s introduction. Also, I want to invite you out to the social events sponsored by the YLS during the Annual Meeting. The YLS will be sponsoring a hospitality suite for members to network thoughout the Annual Meeting. Specific details will be posted in the YLS newsletter, In Brief, and onsite at the Arlington Hotel. Additionally, the YLS and Dover Dixon Horne, PLLC will be sponsoring the entertainment on Friday night in the Crystal Ballroom of the Arlington. This year’s “Overtime Party” will feature food, beverages, music, and a karaoke machine that promises to be a good time for all. In closing, I want you to know that it has been a pleasure serving as your Chair over the last year. I look forward to continuing to work with the YLS and Arkansas Bar Association as a whole, and I hope that you would join me by becoming actively involved in the work of the Association. If you have questions about becoming involved within the Section in any capacity, please feel free to contact me and I will assist in any way that I can. See you in Hot Springs! n
Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
The Paperless Law Office
by Tom Overbey
The concept of the “paperless” law office is often talked about as a highly desirable goal in our current work environments. Working in a paperless office for over three years now has proved to me that it is worth the effort. Access to all client and internal files almost instantly, from your desk or a conference room or while on the road, is marvelous. But the reality of a paperless office is not easily obtained and it requires careful planning and integration at several levels to be successful. The level of planning and integration rises exponentially with the size of the office due to the need to maintain consistency in handling the digital documents. Similar issues have been faced in the paper world for years, but the digital world is perhaps more demanding. In the paper world you had to have a physical file but you could be messy inside the file and inconsistent since, in theory, everything associated with the paper file would at least be contained within it. In the digital world, sloppiness or messiness or lack of consistency with respect to the digital documents could mean that they are placed or lost in a location that may never be found again. Another comment is that the professionals who work in the law firm, particularly the attorneys, are of necessity an integral part of the process of creating, using and saving digital documents in a consistent manner in accordance with an organized structure. In the paper world we have all faced the problem of making sure that the pieces of paper get in the correct file and in the correct order. But they at least exist physically and each office would establish routines for the handling of the pieces of paper. In the digital world, the lack of an organized approach will ultimately result in chaos in terms of document retention. Another observation is that the attorneys somehow expect staff members to handle the digital document world without as much input and assistance from the attorneys as is needed in reality. It is one thing for a staff member to find a paper document in an outbox and not be sure of the file to which it belongs. It is quite another experience for a staff member to never have knowledge of a digital document that the lawyer has stuck in some obscure place on some computer somewhere on the system and then be irritated that it is not where it needs to be when the attorney wishes to make further use of it. My approach to the paperless office is not to deal just with the hardware, software, or other physical aspects of achieving the goal. Instead, my emphasis is to have everyone in the office look at the overall process from beginning to end and to examine how each person who “touches” a digital document handles that particular step. From the overall assessment, then a plan, or protocol, for the handling of digital documents will evolve and fit within the structure of the law firm and be a successful implementation of the paperless approach. A rough outline of some of the steps to be discussed in the work 10
The Arkansas Lawyer
flow of a digital document is as follows: 1. What are the hardware and software systems that will be used to create a digital document? 2. Who will be creating digital documents? 3. What will be the nomenclature for each digital document? 4. Where will each digital document be placed in the digital system? 5. Who has the authority to move a folder or a file to a different location? And under what circumstances? 6. How are the digital documents to be made available for use, review, editing, etc. by others in the law firm? 7. Who is in charge of the structure of the folders and files for each client matter? 8. What level of consistency is needed within the firm, within a department, or for each attorney? 9. What are the procedures for maintaining folders for active clients versus inactive clients versus closed matters? 10. What will be the procedures of the firm with respect to protection of the digital documentation? 11. Will the backup systems be simultaneous, hourly, nightly, or other? 12. What level of redundancy will be employed in the backup systems? 13. Which physical media will be used for backup systems? 14. Will the backup systems be contained within the law office (with offsite storage) or web-based or other? 15. How will branch office access be handled? 16. How will mobile user access be handled? 17. With respect to all of these decisions, how involved in the process will be the attorneys? Staff? IT professionals?
The first big debate in the paperless office world is how to handle large volumes of paper objects and what to do about existing files. Almost everything newly created can be saved in a digital format so the problem in being paperless is generally paper created by outsiders. For example, an appraisal or other report is traditionally prepared in paper format, particularly where it is to be utilized in a filing or is a signed report that will be held for future use or proof. Most firms preparing these kinds of reports have developed systems to deliver them in electronic format. Therefore, upon initial engagement of any third party for the preparation of the appraisal or other similar item, you should request that it be delivered in both electronic and paper format. This will save you the difficulty of scanning and creating an electronic document yourself. If you wish to have a paper version, it can be retained in a supplemental paper file. This leads to one of the decisions to be made in structuring a paperless office. And that is, when a file is created, it should be designated as a digital only file if there is no expectation of paper items being created or as a combination digital and paper file if you know in advance that there will be paper materials. Obviously, this can be changed if paper objects are later determined to be needed for a file. The reason for the question is so that you will know at the time of closing of a file if it was wholly digital or partly digital and partly paper. Obviously, closing a file that has a supplemental paper portion will necessitate locating those paper documents and subjecting them to the normal storage and destruction procedures utilized by the law firm for paper files. Other common sources of â€œoutside paperâ€? are letters and other correspondence received from others. Again, a protocol decision is needed to decide how to handle these types of items. One choice is to scan in all correspondence as received, and shred the original correspondence. While this may be desirable from a digital paperless office perspective, you have to consider which pieces of written correspondence are so important or material that they should be preserved in paper as well as being scanned. Again, the retention of any paper will require a supplemental paper file along with the digital file. Documents initially generated within the law firm can be retained in digital format only in the client folder. Word processing documents can easily be retained. The exist-
ing firm policy with respect to multiple versions of document drafts can be maintained in digital format. The same approach would be true with respect to spreadsheets, and almost any other file created by a program, such as a loan amortization program, an estate tax estimator program, etc. One of the more important decisions to make in planning for the paperless office is how to handle scanning procedures. This decision branches into a hardware question with respect to physical scanners and a software decision with respect to the best type of software to use. The most common denominator for scanned digital documents is the PDF format originated by Adobe, Inc. Preserving many forms of digital documents in PDF format has several advantages. The format is somewhat universal and computer software to read a PDF file is free and readily available (such as Adobe Reader). Therefore, a digital document can be shared quite easily with clients and others. Even the least computer savvy client can usually handle a
PDF file. Most word processing programs will have a feature to allow the creation of a PDF file from within the application. For example, Word has a feature that will allow any document created in Word to be generated in PDF format from within the Word program. This can be quite useful for a variety of purposes. For example, a Word document can be marked with a draft watermark in Word and then generated in PDF
Tom Overbey practices in Little Rock and Fa y e t t e v i l l e and is the State Chair for the American College of Trust and Estate Counsel.
Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
format and sent to a client or others for review. The digital document will be clear, easy to read, easy to print and is a very satisfactory method of sharing draft documents with clients and others. The same applies to spreadsheets and other documents typically generated in a law firm. The other level of decisions in respect to software to create PDF files is the choice of a program to create a PDF file if it is being created outside of another software application. This most often arises in scanning paper items and saving them in PDF format. There are many software companies making less expensive PDF programs than Adobe Acrobat. It is important in setting up the paperless office to carefully study the programs available and to compare the cost savings of the less expensive programs with their features, reliability, and technical assistance available. While less expensive programs will generally create an acceptable PDF file, they will not necessarily handle a variety of tasks that are available with Adobe Acrobat. For example, you will generally want to be able to manipulate a PDF file in certain ways. If a client document is generated in PDF format and is quite lengthy, you may want to have an easy method of adding the signature pages to the originally generated document once the client has signed the document. This is easily done in Adobe Acrobat by appending the signature pages to the original document or by extracting and inserting the signature pages where appropriate. This is less important for certain documents obviously but may be of great importance for many documents, such as retirement plans, trusts, and wills, that you will want to retain
in the digital client file for so long as you represent the client. The next major issue with respect to scanning and scanning software is the issue of the previous paper files, or portions of them. There seems to be a myth that you can scan the old paper file easily and become a paperless office quickly and easily. That is wholly untrue (in my opinion). In fact, attempting to spend time and resources to scan a large amount of paper documents from the previous paper file will often lead to great dissatisfaction with attempting to install paperless office procedures. Your best approach initially is to simply retain the paper files as they are and gradually allow the paperless procedures to replace them. For example, all new files will obviously be paperless on a go forward basis. Any new documents created for existing clients can be maintained within the paperless system with the existing paper file being maintained until there is a need or an opportunity to do something differently. After the office has switched to the paperless system for a year or two, decisions about dealing with the old paper files will be easier. For example, on retirement plan files, you may choose certain documents to be scanned in at such time as other work is done on a file. Then, the paper file can be placed in an archive or processed through the firmâ€™s procedure for destruction of paper files so that eventually it will disappear and the paperless file will be all that is left. A similar approach can be undertaken with respect to estate planning files where the scanning of certain older important documents only occurs at such times as the client comes in for
an estate planning review. This will spread out the work load on scanning old paper documents to the extent that it is desirable at all. Attempting to scan all old paper files either within the office by using the equipment and staff within the office or sending everything to an outside service is a very expensive and time consuming procedure. A very important part of a paperless protocol is to make decisions with respect to scanning hardware and locations for scanners. A network printer with elaborate features for sorting, stapling, etc. may be desirable in an office that is heavily reliant on paper output. It is a common feature of such network printers to have scanning features, usually with good quality and high speed scanning options. However, there is one obvious problem with your scanning equipment being located on a network printerâ€” the scanning must all be done at one physical location. This becomes highly inefficient when almost everyone in the office needs to have quick and easy access to the scanner. As more attorneys and staff members become involved in the routine scanning of documents, the more cost effective it is to have more scanners available, perhaps even a scanner at each computer. Even if the attorneys do not have scanners, it is probably more efficient for each staff member who handles documents to have a scanner on his or her desk rather than relying on centralized network printers/scanners. Obviously it is very important to analyze Paperless continued on page 40
Business Valuation Forensic Accounting Economic Loss Divorce Accounting, Tracing, Appraisal Commercial Damages, Agricultural Damages Accredited Senior Appraisers Court-Appointed Expert Testimony Fair Pricing Steven F. Schroeder JD, MCBA, ASA SFS@Busval.com
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Schwartz & Associates LLC 11510 Fairview Road, Suite 100 Little Rock, AR 72212-2445 501-221-9900 / 501-221-9292 fax
Richard L. Schwartz CPA, MCBA, ASA, ABV, CFE RLS@Busval.com
Paperless continued on page 13
Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
Revising Arkansas LLC Fiduciary Law to Protect the Unrepresented by John M. Cunningham* and Frances S. Fendler**
The limited liability company (“LLC”) has undeniably become the organizational vehicle of choice for small business ventures in Arkansas.1 In addition to allowing pass-through tax treatment,2 the LLC affords a virtual carte blanche in structuring the enterprise’s governance. Insofar as they concern the internal operating rules of the business, the provisions of Arkansas’s LLC Act3 (the “Act”) are almost entirely default and permissive rules. The default rules of the Act should reflect the preferences of the persons or entities creating the enterprise—what most LLC participants would choose if they were bargaining over the business’s internal structure and relationships.4 Specifically, as a matter of simple justice, these rules ought to prescribe standards of behavior that the participants may expect from one another—rules defining fiduciary standards and mechanisms for enforcement when those standards are not met. The problem is that many multimember LLCs are formed by individuals who cannot afford or do not think they need the assistance of lawyers with expertise regarding the fiduciary issues involved in LLC formations.5 This problem is compounded by the fact that the Arkansas LLC Act, which is based on a Draft Prototype LLC Act created by a committee of the American Bar Association,6 principally protects the interests of LLC promoters and managers who can afford lawyers with expertise, and the default rules of the Act reflect the preferences of these savvy participants.7 The default rules crafted for sophisticated parties represented by skilled attorneys often do not comport with the expectations and preferences of unrepresented small businesspeople. Sophisticated parties, often entities, can and no doubt do obtain the assistance of counsel who are skilled in navigating the shoals of the LLC Act and who can and do opt in to, opt out of, and modify statutory rules to mirror the participants’ understandings and expectations. If the default rules of the Act do not comport with the business deal these sophisticated parties are hammering out, they will contract around those rules. As a result, sophisticated parties often view their relationship as purely contractual, with each free, outside the confines of the parties’ negotiated contract, to pursue its own interests. By contrast, when relatively unsophisticated lay people enter into a business venture together, they expect their business “partners” to treat them fairly.8 Mutual trust is essential for the business venture to prosper and continue.9 Today, many such persons opt for an LLC as the vehicle for their venture, but they do so without legal advice. Thus, they do not know what rules, if not changed, will govern their business relationship. For this reason, LLC Acts, including the Arkansas LLC Act, should be drafted with an eye to the interests and likely expectations of those unrepresented persons. They should contain default rules that impose reasonably stringent fiduciary 14
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duties of care and loyalty that managers owe and to which members are entitled. In addition, the default rules of the Act should give LLC members the practical ability to challenge and efficiently obtain full redress for injuries caused by manager misconduct. This article will examine fiduciary-related default provisions of the Arkansas LLC Act and discuss the extent to which these default provisions may fall short of protecting the interests of unrepresented members. Because of space constraints, we will not propose specific statutory language. We hope that this article will spur discussion among members of the Bar about the problem of unrepresented LLC participants and eventually lead to proposed legislation to protect the interests of Arkansas’s small businesspeople. I. Fiduciary Duties The Arkansas LLC Act prescribes default fiduciary duty rules applicable to managers and members, but the provisions are inadequate to protect the interests of unrepresented LLC members. The duty of care10 is too lax, and the duty of loyalty11 is expressed in archaic language that gives little guidance to lay persons about what constitutes disloyal behavior.
John M. Cunningham is a member of the New Hampshire law firm of McLane, Graf, Raulerson & Middleton, Professional Association. Frances S. Fendler is a professor of law at the University of Arkansas at Little Rock William H. Bowen School of Law. She teaches Business Associations, Securities Regulation, Sales, and Drafting Contracts.
A. Duty of Care The duty of care in the Arkansas LLC Act is articulated as follows: Unless otherwise provided in an operating agreement: (1) A member or manager shall not be liable, responsible, or accountable in damages or otherwise to the limited liability company or to the members of the limited liability company for any action taken or failure to act on behalf of the limited liability company unless the act or omission constitutes gross negligence or willful misconduct . . . . This lenient gross negligence/willful misconduct standard of care mirrors Delaware corporate case law.12 The corporate law of Arkansas, by contrast, imposes an ordinary prudence default standard on corporate officers and directors.13 This is a more appropriate default standard for the many LLCs formed by unrepresented persons who want to protect their LLCs from negligent managers, and it likely comports with the expectations of most unrepresented LLC members.14 Surely an unrepresented LLC member who has invested his money or property in an enterprise would be surprised to find out that his manager is subject to a lower standard of care than the employees of his company.15 The ordinary prudence standard will not encourage frivolous or opportunistic claims by investors, because managers who make informed decisions and who do not have a conflict of interest will be protected by the business judgment rule.16 That rule protects disinterested and suitably informed managers from judicial second-guessing as to the wisdom of the managers’ business decisions. Only if the managers act with a conflict of interest or make uninformed decisions are they denied the protection of the business judgment rule.17 B. Duty of Loyalty In its broadest sense, the duty of loyalty requires LLC managers or (in a membermanaged LLC) members, in all matters relating to the business and internal affairs of their LLC, to act in the best interest of the LLC rather than in their own self-interest.18 It is generally agreed that the fiduciary duty of loyalty contains several subsidiary duties.
Among these are: • The duty not to compete against the LLC;19 • The duty not to usurp LLC business opportunities; 20 • The duty not to engage in self-dealing transactions with the LLC;21 • The duty to avoid improper personal benefits from the LLC (such as excessive salaries); 22 • The duty not to use LLC property for personal purposes;23 • The duty of confidentiality;24 • The duty to disclose material information concerning the LLC and its operations to the members;25 and • The duty to act in good faith.26 The language of the duty-of-loyalty provision in the Arkansas LLC Act is murky. It provides that Unless otherwise provided in an operating agreement . . . . (2) Every member and manager must account to the limited liability company and hold as trustee for it any profit or benefit derived by that person without the consent of more
than one-half (1/2) by number of the disinterested managers or members, or other persons participating in the management of the business or affairs of the limited liability company, from any transaction connected with the conduct or winding up of the limited liability company or any use by the member or manager of its property, including, but not limited to, confidential or proprietary information of the limited liability company or other matters entrusted to the person as a result of his or her status as manager or member . . . .27 Read literally, this language simply bars the taking of secret profits or benefits, akin to the agency-law rule that an agent who takes secret profits must disgorge them to the principal.28 In fact, however, the reach of the statute is much wider. It is derived from section 21(1) of the Uniform Partnership Act,29 and case law interpreting that statute should be considered persuasive authority in interpretation of its LLC analog.30 And that case law establishes that the reach of the duty of loyalty is quite broad and embraces all the subsidiary duties set out above.31
Private Placements and Limited Offerings of Securities A Guide for the Arkansas Practitioner By Frances S. Fendler Professor of Law UALR Bowen School of Law
“This book offers a comprehensive and understandable look for the Arkansas practitioner into the sometimes murky, sometimes arcane and always challenging world of securities law. Frances has performed a real service, not only for those who don’t have much experience in the area, but also for those who practice securities law on a regular basis, in providing this basic guide to federal and Arkansas securities law.” -- John Selig, Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C.
Order online at Lulu.com This book will be updated periodically through a Cumulative Supplement posted on the Association’s website www.arkbar.com
Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
Despite the fact that judicial interpretation should give the Arkansas duty-of-loyalty statute a broad compass, this is hardly useful to unrepresented LLC members. These investors need to know on the basis of the Act itself what their obligations and rights are under the duty of loyalty vis à vis their managers and co-members. To be useful to unrepresented LLC members, the Act should clearly and expressly set forth all relevant components of the duty of loyalty and make clear that they are fiduciary in nature. II. Exit Rights The present Arkansas LLC Act’s default rule is that members cannot withdraw from the LLC until it is dissolved and wound up.32 This provision is designed to facilitate estate planning; it allows a decedent’s estate to apply a “minority discount” in valuing an interest in a family-owned LLC.33 But the effect is draconian on members who are not concerned about estate planning issues. Their capital is locked up in the LLC until it dissolves, even if the LLC is being mismanaged or milked for perquisites by the managers. If the members do not have sufficient voting power to remove the managers, the members are subject to the same kind
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of “squeeze out” familiar in the context of closely held corporations.34 A. Voluntary Withdrawal The default rule of the Act should be the rule that existed from the inception of the Act until 1999: in an at-will LLC, a member can withdraw upon giving thirty days’ written notice to the other members.35 Moreover, as in the partnership context, the withdrawing member should receive the fair market value of his interest in the absence of an agreement to the contrary.36 To allay concerns that the withdrawal of capital will injure the LLC, the statute might provide for protections, such as permitting the LLC to make the pay-out over a reasonable period of time. B. Remedies for Oppression Under the present Arkansas LLC Act, a court may order dissolution “whenever it is not reasonably practicable to carry on the business of the limited liability company in conformity with the operating agreement.”37 This statute, on its face, affords no relief to LLC investors who are being mistreated by managers, so long as the business can be carried out in conformity with
the operating agreement. Because of their vulnerability to overreaching by managers, and especially if they have no voluntary withdrawal rights, members should have a default remedy for “oppression,” analogous to the remedy available under the Arkansas Business Corporation Act.38 The Arkansas Supreme Court has approved a definition of oppression as “conduct that substantially defeats the ‘reasonable expectations’ held by majority [sic] shareholders in committing their capital to the particular enterprise.”39 The remedy for oppression should be flexible. It should include judicial dissolution, but also other remedies that may be tailored to the needs of the parties in the particular LLC. For example, the Arkansas Business Corporation Act authorizes the court in a dissolution case to appoint a receiver or custodian to protect the business until dissolution occurs.40 C. Appraisal Remedy for Organic Changes The present Arkansas LLC Act’s default rule is that merger of an LLC with another entity, or conversion of the LLC to another form of entity, must be approved by a majority vote of the members.41 There is no provision for appraisal rights for dissenting
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members. Moreover, there is no specific provision governing sales of substantially all of the LLC’s assets other than in the ordinary course of business; the standard default voting rules would apply to such a transaction (majority of members in a member-managed LLC, majority of managers in a manager-managed LLC).42 In the typical closely held LLC, a member who is dissatisfied with the terms of the merger, conversion, or sale of assets has no remedy under the current Arkansas Act. Without an exit right in these circumstances, the dissatisfied member’s assets are locked into a business enterprise that may be entirely different from the one in which he originally invested. It is unlikely that an unrepresented LLC member would anticipate that such a radical change of his investment might be made over his objection. The unrepresented investor’s expectations would be better met by an appraisal remedy consonant with the appraisal remedy afforded by the Arkansas Business Corporation Act.43 III. Derivative Actions Under the current Arkansas LLC Act, the default rule is that a derivative action cannot be brought unless authorized by a majority vote of the members or managers who do not have an interest in the outcome of the suit that is adverse to the interest of the LLC.44 This rule leaves a member who has suffered a loss because of managerial misconduct without a remedy if the other members or the managers who do not have a direct conflict of interest decide not to pursue the LLC’s rights against the malefactors. Moreover, the objecting member under these circumstances should not be relegated to the usual hurdles attendant upon derivative suits, e.g., the necessity of making a demand or demonstrating that a demand would be futile.45 His expectations would be better served by a default rule that would permit any member to sue in a direct action to recover for the injury worked upon him, without regard to whether his injury is separate and distinct from an injury worked on the LLC.46 This approach is preferable, also, because it would prevent circular recoveries—if another member has injured the LLC, and only the LLC can recover for the injury, then the misbehaving member enjoys his pro rata share of any recovery the LLC obtains.
IV. Conclusion Default rules are important because they become the governing rules for unrepresented business persons entering into LLC ventures. Paraphrasing Professor Moll,47 a statute with no default protections for unrepresented LLC investors (but giving the members the ability to add them) is vastly different from a statute with default protections for unrepresented investors (but giving the members the ability to remove them). It is a truism that in a small business, dissension will eventually arise. The LLC Act’s dissension-related default rules will become the critical provisions for many LLCs formed by unrepresented owners. Those provisions should coincide with the expectations of fairness that LLC members expect from one another and from their managers. Endnotes * John M. Cunningham is a member of the New Hampshire law firm of McLane, Graf, Raulerson & Middleton, Professional Association. He is the author of Drafting Limited Liability Company Operating Agreements (Aspen, 2d ed. 2010) and, with Vernon R. Proctor, he is the co-author of Drafting Delaware LLC Agreements (Aspen, 2009). He was a principal drafter of the New Hampshire Limited Liability Company Act as enacted in 1993 and of the major amendments to that act in 1997. His practice is centered on LLC formations under the laws of Delaware, Massachusetts and New Hampshire. This article is partly based on Mr. Cunningham’s article, Reforming LLC Fiduciary Law: A Brief for the Unrepresented, 19 Bus. Law Today 51 (November/December 2009). Portions of that article are reprinted or restated with permission of the publisher, the American Bar Association Section of Business Law. ** Frances S. Fendler is a professor of law at the University of Arkansas at Little Rock William H. Bowen School of Law. She teaches Business Associations, Securities Regulation, Sales, and Drafting Contracts. She is the author of Private Placements and Limited Offerings of Securities—A Guide for the Arkansas Practitioner (Ark. Bar Ass’n 2010) and has published articles on Arkansas corporate and LLC law. She is currently the chair of the Securities Regulation section of the Arkansas Bar Association.
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1. For the past five years, the annual total of domestic limited liability company filings in Arkansas has outnumbered the annual total of domestic filings for other types of business and non-profit entities combined. See E-mails from Anita Chance, Prod. Manager, Ark. Sec’y of State, to Frances S. Fendler, Prof. of Law, UALR William H. Bowen School of Law (Oct. 4 & 13, 2010) (on file with author). Experience teaches that most of these LLCs are small businesses. 2. LLCs can choose pass-through (partnership) taxation under the Internal Revenue Service’s “check-the-box” regulations. 3. The technical name of the Act is the
Small Business Entity Tax Pass Through Act. Ark. Code Ann. § 4-32-101 (2001). But that prolix appellation is rarely used. The Act is commonly called the Arkansas LLC Act. 4. This article advocates that default rules should be those that are appropriate for unrepresented LLC members. Often, it will be reasonably clear what a majority of unrepresented members would want, e.g., a standard of care more stringent than willful misconduct or gross negligence. But there may be instances in which it is hard to preFiduciary continued on page 46
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Update Your Investor Questionnaires to Reflect the SEC’s Revised Definition of Accredited Investor Under Regulation D by John F. Griffee IV Within the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) is a provision that affects attorneys assisting businesses both public and private in capital raising transactions. Specifically, the Act amends the definition of accredited investor under Regulation D to exclude the value of the investor’s primary residence.1 The U.S. Securities and Exchange Commission (“SEC”) recently issued a proposed rule to guide net worth calculations in light of the Act’s amendment.2 Practitioners assisting businesses raise capital under Regulation D should revise their Investor Questionnaires to reflect the new net worth standard for accredited investors. The SEC’s Regulation D is one of the most commonly relied upon registration exemptions for private securities offerings. To satisfy the Regulation D safe harbor, practitioners generally seek to qualify investors as “accredited investors.” One important category of accredited investors are natural persons who, individually or jointly with their spouse, have a net worth of more than $1,000,000. Prior to the Act, investors were permitted to include their primary
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residence in calculating net worth.3 The Act, however, amended the definition of net worth in Rule 501 of Regulation D to exclude the “value of the primary residence” from an investor’s net worth.4 On January 25, 2011, the SEC issued a proposed rule to provide guidance on calculating the net worth standard in light of the Act’s primary residence exclusion. In its proposed rule, the SEC settled on a net worth calculation that in effect excludes the net equity in the primary residence while at the same time taking into account underwater mortgages.5 The SEC accomplishes this by including the fair market value of the primary residence as an asset and mortgage debt as a liability in the initial netting of assets and liabilities.6 Following the netting of assets and liabilities, the investor must exclude net equity in the primary residence from his or her net worth.7 The SEC’s net worth calculation could implicate various offering documents prepared by legal counsel, particularly Investor Questionnaires. Investor Questionnaires are commonly used by counsel in Regulation D offerings to qualify investors as accred-
ited. To assist investors in completing the Investor Questionnaire, a summary of the net worth calculation is often provided. Counsel should consider either revising existing language or adding the following language relating to net worth: “Net worth” means the excess of total assets at fair market value (including the primary residence) over total liabilities (including indebtedness secured by the primary residence). Net worth should then be reduced by the net equity in the primary residence (i.e. the amount by which the fair market value of the primary residence exceeds the secured indebtedness). Though the SEC pronouncement is currently a proposed rule, practitioners are advised to conform their offering documents promptly. The Act’s provision excluding the value of the primary residence from net worth became effective upon enactment (July 11, 2010).8 Thus, the net worth standard applies to pending and future offerings.
As we continue to grow our firm’s ability to deliver excellent client representation with uncommon responsiveness, we’re proud to spotlight these professionals. After serving our clients for five years, Kelly W. McNulty, JD, earned the position of shareholder in our firm. Kelly M. McQueen, JD, LLM, also joined us as a shareholder with 15 years of environmental and natural resources law experience (not to mention having been recognized as one of “The Best Lawyers in America” for the past five years). And Chad L. Wood, JD has joined the firm as an associate.
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Endnotes 1. The Dodd-Frank Wall Street Reform and Consumer Protection Act, § 413(a), 124 Stat. 1577 (to be codified at 15 U.S.C. § 77b). 2. SEC Release No. 33-9177 (Jan. 25, 2011), available at http://www.sec.gov/ rules/proposed.shtml. 3. Regulation D, Rule 501(a)(5); 17 CFR § 230.501(a)(5) (2010). 4. SEC Release supra note 2, at Part II, A, 2. 5. Id. 6. Id. 7. Id. 8. SEC Release supra note 2, at Part I. n John F. Griffee IV is an associate at Friday, Eldredge and Clark LLP where he primarily practices corporate, securities, and banking law.
Chad L. Wood, JD
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@ $20 First Child
@ $10 Each
____ AdditionalChild $ __________
*Non-members -- save on registration fee by joining the Association. For more information call (501) 375-4606 or (800) 609-5668.
Sideline Events Ladies VIP Halftime Show Thursday and ticket to Magic Springs on Friday Gentlemen’s Scotch & Cigars Thurs. & Friday afternoon
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Registration includes all CLE Programs (except CNA), Electronic Course Materials, Receptions, Continental Breakfasts, Luncheons, Breaks, Hospitality Area, Exhibit Center, & Entertainment
____ @ $30 Each
____ @ $25 Each
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Register Now for the 113th Arkansas Bar Association Annual Meeting Discount for registering online by May 31st! Arkansas Bar Association 113 t h Annual Meeting JOINT MEETING WITH THE ARKANSAS JUDICIAL COUNCIL
JUNE 8-11, 2011 HOT SPRINGS ARLINGTON HOTEL & HOT SPRINGS CONVENTION CENTER
Touchdown Arkansas Bar!
Over 60 Hours of CLE offered
Two Venues Arlington Hotel & Hot Springs Convention Center • Wednesday and Saturday—Arlington only • Thursday and Friday—Arlington & Hot Springs Convention Center New! Exhibit Hall with Breakfast, Lunch & Breaks is located at the Hot Springs Convention Center
• Sports Law Track featuring Mike Leach and Walt Coleman • ABOTA Masters in Trial Mock Trial Program • Family Law • CNA Risk Management for Attorneys • Trial Track featuring Barry Richard • Professional Development Track • Business Track • Legislation Track The Hot Springs Convention & Visitor’s Bureau is • Health Law Track providing transportation • Lounge & Learn
Events • Golf Tournament on Wednesday • Breakfasts, Luncheons, Afternoon and Evening Receptions • Evening Entertainment with Gridiron, bands and Overtime Party on Friday Night • Leadership Academy Graduation
Sidelines Spouse & Children’s Program • • • •
Ladies VIP Halftime Show Gentlemen’s Scotch & Cigars Children’s Program with karate, magic & dance Tickets to Magic Springs on Friday Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
Crossing Borders Stirs Opinions by W. Christopher Barrier For better or worse, use of the Accord in Arkansas transactional opinions appears to be very rare, even though we live in a global economy and Arkansas lawyers can easily get caught up in transactions involving multiple parties, crossing state lines and generating voluminous electronic documents. In the late 1980’s a concerted effort to bring some order to transactional opinions practice was launched by the Business Law Section of the American Bar Association. That effort culminated in 1991 in what is known as the “Silverado Conference” which produced a document known as the “Accord.” The Accord was intended to dampen traditional flash points in negotiating those opinions, such as choice of law, due authorization, remedies, and scope of the opinion. Parties adopting the Accord for their transactions could assume certain matters, without explicitly addressing them.1 For better or worse, use of the Accord in Arkansas transactional opinions appears to be very rare, even though we live in a global economy and Arkansas lawyers can easily get caught up in transactions involving multiple parties, crossing state lines and generating voluminous electronic documents. Those documents frequently are intended to encumber real estate, everything from fast-food restaurants to student housing, some piece of which collateral is located in Arkansas. So the lender will want your opinion that its preferred forms of documents will in fact be enforceable here or will at least ask your advice as to revisions. In this last regard, take care to avoid squabbles over stylistic issues that don’t impact enforceability (and, hence, your opinion). Mind-numbing, 50-plus page mortgages are the rule, not the exception, so how do you remember what you read 15 or 20 pages back? How can you focus on what are and are not appropriate opinions for local counsel to give? In other words, how do you bring your own sense of order to the process, even without help from the Accord? One good approach is to break a mortgage document into pieces, which correspond to those elements and issues which virtually every mortgage has to reflect. The pieces can give you a checklist to lay beside the document (and the opinion form you’ve been 24
The Arkansas Lawyer
given) as you trudge through your review: (1) Amount Secured – Recitation is not required if the source and scope of the debt is adequately described—that is, a mortgage can reference a note or other source of debt without a specific dollar amount, putting other lenders or lien claimants on notice and duty of inquiry.2 Apparently, there are reasons in some states or transactions for including a maximum amount to be secured. That is almost always a bad idea in Arkansas. Absence of a “dragnet” clause is not necessarily an occasion for comment or correction, but, if asked, you can advise the lender that such clauses are useful and enforceable in Arkansas. (2) Format – Remember the statutory size of margins (2½ inches top of first page and bottom of last, ½ inch elsewhere).3 Inclusion of the preparation block almost always provides the necessary margin, but, failing that, (for example, when the mortgage has already been executed when you see it), a cover page can solve the problem. By the way, indication of authorship is also not actually required, no matter how common the practice (although it may represent a closer’s effort to avoid accusations of unauthorized practice of law). (3) Maturity Date – It may not be absolutely necessary if the loan is genuinely shortterm (i.e., less than five years).4 But, that is a pretty big “if” and there is no reason not to include that date. An occasional visiting lender will assume that its own statute of limitations (some of which are seven years instead of five) controls such things. It doesn’t.5 (4) Granting Clause – You still need to use the magic words of grant, however antique the language may seem, because it is the essence of the document. (5) Waiver of Redemption – Make sure it is there, to avoid a one-year right to redeem (making foreclosed property unmarketable). It may be included with other standard waivers, but the more explicit the better.6
(6) Acknowledgments – Having two statutes on the subject is confusing and the formatting statute references only one.7 It’s still a good idea to include the “consideration and purposes” language, and the capacity of the signer.8 Even Arkansas loan officers frequently use the individual acknowledgment on their printed forms when a corporation, LLC, or other non-human entity is the real mortgagor, which can be deadly.9 In any event, pay attention to the proposed form of acknowledgment. (7) Remedies – Detailed recitals of outof-state remedies may be dangerous, unless the mortgage and your opinion contain the standard qualifiers that the remedies are limited by Arkansas law. If the lender, for some reason, does not qualify to use statutory foreclosure, but reserves that right in its form, that issue should be mentioned specifically to the lender.10 (8) Legal Descriptions – Typically, you won’t even see a final one, but, if you do, find out if you are expected to proof-read it and try to make its accuracy the subject of an assumption, along with your disclaimer of any opinion as to title. (9) Choice of Law – Whatever the form says, foreclosure is going to be governed by Arkansas law, but you can always go on to say that the lender will have the remedies available to Arkansas lenders. If the interest W. Christopher Barrier practices real estate law with Michell, Williams, Selig, Gates & Woodyard, P.L.L.C. in the firm’s Little Rock office.
rate requires that another state’s law apply, this is a good place to recite that Arkansas law applies to recording, perfection and foreclosure, and State X’s law to the rest. For opinion purposes, if you are relying on certain facts in order to choose another state’s law, say so, fact by fact.11 (10) Other Waivers – Dower, curtesy, homestead and appraisements may be waived with redemption or in some separate place, but, again, make sure all such waivers are covered somewhere, clearly and specifically. (11) Non-Merger – The lender can provide for it in the mortgage, but preventing merger of the fee and the mortgage when the lender acquires the fee almost always has to be addressed specifically in a foreclosure, not before. It generally is not an appropriate subject for an opinion at all. (12) Extensions – While a recital in the document is probably not necessary to produce that right, it is not a bad idea to suggest to the lender that the document specifically give the mortgagee the right to unilaterally effect it by recorded document, because standard form mortgages usually call for execution of an extension by both the mortgagor and the mortgagee. This may be especially important if the five-year statute of limitations is about to run and the borrower won’t or can’t (because of jail and/or bankruptcy, for instance) sign an extension.12 (13) Single Action and Partial Foreclosure – These items come up most often in the opinion context. The document may allow foreclosing on real estate collateral one piece at a time, but the law does not, and you may have to craft a qualification for your opinion that explains what is required
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to preserve priorities when, for example, a foreclosing lender has real estate collateral in different counties or states.13 (14) State Specific Riders – If the lender does not want its forms tinkered with, but is comfortable with a rider covering such things as the single-action rule and partial foreclosures, the rider can be very useful. This is not a definitive checklist by any means and you will certainly want to draft one that works for you. But, the practice of law is not going to become less stressful on its own any time soon, the pressure for greater efficiency and cost-effectiveness is clearly increasing, technology is producing tighter deadlines and shorter turn-arounds, and lawyers are squeezed to assume greater exposure for smaller fees. Hopefully, this suggested methodology will help, at least a little. Endnotes: 1. See Selig, J. S. and Barrier, W. C., “Third Party Legal Opinions: Has Some Order
Come Out of the Chaos?” The Arkansas Lawyer, October 1992 and Summer 1993. 2. Natl. Bank of Eastern Ark. v. Blankenship, 177 F. Supp. 667 (E.D. Ark. 1959). 3. Ark. Code Ann. § 14-15-402. 4. Ark. Code Ann. §§ 18-40-103 and 18-49-101. 5. Pettigrew v. Pettigrew, 172 Ark. 647, 291 S. W. 90 (1927). 6. Ark. Code Ann. § 18-49-106. 7. Ark. Code Ann. §§ 16-47-207 and 18-12-201 et seq. 8. Jacoway v. Gault, 30 Ark. 190 (1859). 9. National Home Centers v. First Arkansas Valley Bank, 366 Ark. 522, 237 S.W.3rd 60 (2006). 10. Ark. Code Ann. § 18-50-116(c). 11. Wiseman v. State Bank & Trust, 313 Ark. 289, 854 S.W.2d 725 (1993). 12. In Re Shamus Holdings, Debtor, 2009 WL 2407664 (Bkrtcy, D. Mass.); Ark. Code Ann. §§ 18-49-101 and 18-40-103. 13. Steelman v. Planters Prod. Credit Ass’n, 285 Ark. 217, 685 S.W.2d 800 (1985). n
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Call John Selva 501-291-1620 www.205NWoodrow.info THE HILLCREST EXPERTS! Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
2011 Mock Trial Competition Jonesboro High School State Mock Trial Champions
The Arkansas Bar Association extends its appreciation to the following volunteers who helped make the 2011 Mock Trial Competition so successful. Hon. Beth Deere, U.S. Magistrate Judge, Eastern District Jim Julian, Arkansas Bar Association President Paula Casey, UALR Law School Professor Matthew D. Wells, Mock Trial Committee Chair Johnathan D. Horton, Mock Trial Vice-Chair Rando Hicks, Mock Trial Coordinator
front row l to r: Ashton Cheatham, Maja Majewski, Becca Cato, Emily Richmond, Ashlyn Webb; second row: Niki Clark, Adison Marshall, Drew McJunkin, Brittany Webb, Lillie Pitts, Mitch Edwards; back row l to r: Paula Casey, Jim L. Julian, and Judge Beth Deere Students from Jonesboro High School prevailed as the winners of the Arkansas Mock Trial Competition held in Little Rock at the Pulaski County Courthouse on March 5, 2011. Eight high school teams composed of more than 50 students contended in the state finals. Jonesboro High won the final match in a split decision over Parkview High School. The Jonesboro High School team will compete in the national event in Phoenix, Arizona May 4-8, 2011. The Jonesoboro High School team consisted of teacher coach Wright Porter; attorney coach Thomas Fowler; students Rebecca Cato, Ashton Cheatham, Niki Clark, Mitch Edwards, Maja Majewski, Adison Marshall, Drew McJunkin, Lillie Pitts, Emily Richmond, Paul Shefelton, Ashlyn Webb and Brittany Webb. The Honorable Beth Deere, U.S. Magistrate Judge, Eastern District, presided at the final match. Arkansas Bar Association President Jim L. Julian and UALR Law Professor Paula Casey were scoring judges. Many lawyers and teachers from across the state work with the students for several months to prepare them for the competition. The Arkansas Bar Association sponsors the competition and the Association’s annual sponsors and the Arkansas Bar Foundation assist with the funding.
To volunteer for the 2012 Mock Trial Competition please contact Rando Hicks at firstname.lastname@example.org or (501) 375-4606
Go to www.arkbar.com to watch a you tube video made by this year’s students about their experience. 26
The Arkansas Lawyer
Volunteers: Judge Joe Volpe Judge Michael Maggio Judge David M. Clark Mandy Abernethy Julie Cullen Mary Jennings Sandy Moll Paul Davidson Ben Kent Clark Jennings Ali Brady Meredith Rebsamen Donna Gay Maggie Newton Shawn Johnson Peggy Matson Gil Glover Committee Members: Matthew D. Wells, Chair Johnathan D. Horton, Vice‐Chair Amanda J. Andrews Toney Baker Brasuell Phillip M. Brick J. David Crisp, Sr. Judge Don N. Curdie Judge Beth M. Deere Teresa M. Franklin Floyd A. Healy Kevin L. Hickey Samuel S. High
Valerie L. Kelly Elaine M. Kneebone Brian R. Lester Lynn Lisk William C. Mann, III Quentin E. May Taura L. McDaniel Christopher L. McFarlin Judge Mary S. McGowan Anthony L. McMullen Barrett S. Moore Christopher W. Morledge Wm. Howard Mowery Anne Elizabeth Orsi Byron Cole Rhodes Nick Rogers Melissa N. Sawyer Amanda M. Thomas Brian D. Thomas Jordan Tinsley Brian A. Vandiver Vicki S. Vasser Emily L. White Troy L. Whitlow Judge Ralph E. Wilson, Jr. Danna J. Young Staff: Michele Glasgow Crystal Newton Cindy Westacott
Participating Schools: Berryville High School Central High School Izard County High School Jonesboro High School Marshall High School Mena High School Monticello High School Newport High School
Parkview High School Rogers Heritage High School Russellville High School Springdale Har-ber High School Springdale High School Tuckerman High School Valley Springs High School Wynne High School
CLE CLE CLE Summer CLE Events Arkansas Bar Association 113 t h Annual Meeting JOINT MEETING WITH THE ARKANSAS JUDICIAL COUNCIL
JUNE 8-11, 2011 HOT SPRINGS ARLINGTON HOTEL & HOT SPRINGS CONVENTION CENTER
Touchdown Arkansas Bar!
Fall 2011 CLE Calendar
Arkansas Bar Association 113 th Annual Meeting JOINT MEETING WITH THE ARKANSAS JUDICIAL COUNCIL
JUNE 8-11, 2011 HOT SPRINGS
C LE The Arkansas Bar Association Government Practice Law Section & Administrative Law Section present:
13th Annual Government Practice Institute
Government Practice Seminar October 7, 2011 (tentative) Little Rock
ARLINGTON HOTEL & HOT SPRINGS CONVENTION CENTER C LE Financial Institutions
Arkansas Bar Association 2011 Best of CLE Little Rock • June 20-24, 2011
Financial Institutions Seminar October 14, 2011 Little Rock
Rogers • June 29-30, 2011
Watch for Last Minute CLE Webinars coming on June 30th
C LE The Arkansas Bar Association Young Lawyers Section presents:
Bridging the Gap Filling the Gap Between Law School and Practice
October 20-21, 2011
Bridging the Gap Seminar October 20-21, 2011 Little Rock
For more information contact Lynne Brown or Kristen Scherm 800-609-5668 or 501-375-4606 email@example.com or firstname.lastname@example.org OR go to www.arkbar.com
C LE The Arkansas Bar Association Health Law Section presents:
Free Fastcase Webinars Legal Research (free).
Fastcase puts the whole national law library on your destop. This exclusive member benefit includes free online access to the Arkansas law library, with Arkansas cases, statutes, regulations, court rules, and constitutions. The benefit includes all 50 states, as well as all federal caselaw.
Login at www.arkbar.com
September 14th-Fastcase In Depth 22nd-Fastcase Nuts & Bolts October 12th-Fastcase In Depth 20th-Searching for Statutes November 9th-Fastcase In Depth 17th-Fastcase Nuts & Bolts
Health Law Seminar October 28, 2011 (tentative) Little Rock
C LE The Arkansas Bar Association Debtor Creditor Law Section & The University of Arkansas School of Law present:
Fall Legal Institute
Fall Legal Seminar November 3-4, 2011 Rogers
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Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
A Special Thank You to the Your Sustaining Member dues finance a variety of projects and programs. Gene D. Adams, Jr. Christie Gunter Adams H. William Allen Mark H. Allison Allison R. Allred Overton S. Anderson Philip S. Anderson Richard L. Angel Richard Keith Arman Ben F. Arnold Blair Arnold Jess L. Askew III Russell C. Atchley Virginia Atkinson Kenneth B. Baim Barry D. Barber Marcia Barnes Harry F. Barnes Melody Peacock Barnett W. Christopher Barrier Judge Ben T. Barry Anthony W. Bartels Sherry P. Bartley Woodson W. Bassett III Fines F. Batchelor, Jr. David L. Beatty Paul B. Benham III Stephen Bennett Joe Benson M. Stephen Bingham Sam N. Bird Donald E. Bishop James B. Blair C. Tad Bohannon Will Bond William H. Bowen Robert B. Branch Debbie D. Branson Robert R. Briggs Fred E. Briner Bill W. Bristow Thomas E. Brown Lynne Bice Brown Mickey Buchanan Randall S. Bueter John Richard Byrd, Sr. Paul Byrd Robert D. Cabe John C. Calhoun, Jr. 28
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Jerry L. Canfield J. Dale Carlton, Jr. Douglas M. Carson Daniel R. Carter Judge Jerry W. Cavaneau Robert M. Cearley, Jr. Mark B. Chadick John S. Cherry, Jr. Emmett B. (Chip) Chiles IV William M. Clark, Jr. H. Murray Claycomb Ralph M. Cloar, Jr. Roger U. Colbert Randy Coleman Jon B. Comstock Barry E. Coplin Chris P. Corbitt Nate Coulter John F. Courtway Judge James O. Cox Danny R. Crabtree Michael A. Crockett James E. Crouch Tim J. Cullen Casey L. Cullipher Niki T. Cung F. Thomas Curry James D. Cypert Thomas A. Daily C. Michael Daily Carol C. Dalby Justice Paul Danielson Judge Elizabeth Danielson Steven B. Davis Lee Matthew Davis John A. (Jack) Davis III Robert T. Dawson Barry Deacon Beth M. Deere Jack W. Dickerson James F. Dowden Ted N. Drake Robert H. Dudley Warren E. Dupwe Davis Duty Charles B. Dyer, Jr. G. Thomas Eisele Byron M. Eiseman, Jr. Mr. Don R. Elliott, Jr. www.arkbar.com
Stephen Engstrom Bob Estes Judge Audrey R. Evans John C. Everett Judge William Lee Fergus Hugh A. Finkelstein Judge Victor A. Fleming Julian B. Fogleman Robert M. Ford Lyle D. Foster Amy Freedman Matthew L. Fryar David M. Fuqua Price C. Gardner Charles Alan Gauldin Pamela B. Gibson Buck C. Gibson Sam E. Gibson C. C. Gibson III Martin G. Gilbert Stephen R. Giles Greg R. Giles Dent Gitchel Dorsey D. Glover Charles W. Goldner, Jr. Judge Donald Goodner Angela B. Gray Ronald L. Griggs Timothy W. Grooms Judge David F. Guthrie Michael E. Hale Judge Barbara A. Halsey James A. Hamilton Donis B. Hamilton Frank S. Hamlin Stuart W. Hankins A. Vaughan Hankins David M. Hargis Melva Harmon David K. Harp Judge R. Victor Harper James E. Harris Eugene S. Harris Charles L. Harwell Hani W. Hashem Richard F. Hatfield William D. Haught Brad L. Hendricks Rosanna Henry
Joseph Hickey Basil Hicks, Jr. P. Jeffrey Hoggard Cyril Hollingsworth Don Hollingsworth J. Hawley Holman Stephen Holt Robert M. Honea Ron A. Hope R. Howard Hopkins Robert E. Hornberger Eric G. Hughes Karen K. Hutchins James W. Hyden Judge Michael E. Irwin Randolph C. Jackson Bradley D. Jesson Christopher M. Jester David E. Johnson Amy Dunn Johnson Robert L. Jones, III Robert Shepherd Jones Glenn W. Jones, Jr. Jim L. Julian Philip E. Kaplan Paul W. Keith Sean T. Keith William H. Kennedy III Judson C. Kidd Judge Mike Kinard Euel W. Kinsey, Jr. Peter G. Kumpe H. Baker Kurrus Stanley R. Langley John T. Lavey Charles R. Ledbetter John C. Lessel Robert O. Levi Harry A. Light Judge Alice F. Lightle Stark Ligon John G. Lile III Courtney N. Little Coby W. Logan James R. Marschewski William A. Martin David R. Matthews Stephen A. Matthews Gail O. Matthews
2010-11 Sustaining Members This year, your support will sponsor several of the highlights at the Annual Meeting in June. Ronald A. May S. Hubert Mayes, Jr. B. J. McCoy Michael S. McCrary Bobby McDaniel Jeffrey Ellis McKinley James A. McLarty III James E. McMenis Jack A. McNulty Russ Meeks G. Michael Millar Phillip J. Milligan Philip Miron Michael W. Mitchell Mr. Chalk S. Mitchell Margaret W. Molleston Thomas Ark Monroe III Judge James M. Moody Edward O. Moody Harry Truman Moore Charles A. Morgan Christopher W. Morledge Stephen E. Morley Kenneth R. Mourton Wm. Kirby Mouser Rosalind M. Mouser Timothy J. Myers E. Sheffield Nelson William David Newbern George H. Niblock R. Gary Nutter Debby Thetford Nye Conrad T. Odom Edward T. Oglesby James E. O’Hern, III William L. Owen Charles C. Owen Charles R. Padgham Chris L. Palmer Jerry D. Patterson Nicholas H. Patton Claibourne W. Patty, Jr. Kristin Pawlik B. Jeffery Pence Neal R. Pendergraft Edward M. Penick G. S. Brant Perkins Donna C. Pettus Ellis Lamar Pettus
John V. Phelps Judge Christopher C. Piazza Odell Pollard David M. Powell Jerry D. Pruitt Donald C. Pullen Joseph H. Purvis Steven W. Quattlebaum Richard L. Ramsay Brian H. Ratcliff Gordon S. Rather, Jr. Judge J. Thomas Ray Chris R. Reed R. Jeffrey Reynerson Elton A. Rieves III Lewis E. Ritchey Mr. William S. Robinson Judge Charles B. Roscopf Charles D. Roscopf W. Bayless Rowe John L. Rush J. Shepherd Russell III Guy “Randy” Randolph Satterfield Don M. Schnipper Judge John R. Scott Frank B. Sewall Dennis L. Shackleford Stephen M. Sharum J. L. (Jim) Shaver, Jr. Justice Ronald L. Sheffield Matthew J. Shepherd W. Bradford Sherman William F. Sherman Ted C. Skokos James E. Smith, Jr. Robert D. Smith III J. Timothy Smith Laura H. Smith David Solomon J. William Spivey III James D. Sprott Thomas S. Stone Judge John F. Stroud, Jr. Tylar C.M. Tapp III Rex M. Terry William L. Terry F. Mattison Thomas III Floyd M. Thomas, Jr.
Robert F. Thompson Thurston A. Thompson Danny Thrailkill David Throesch Judge Cindy Thyer Robert D. Trammell N. Walls Trimble C. Bass Trumbo Annabelle Imber Tuck Fred S. Ursery James R. Van Dover Marcus W. Van Pelt David B. Vandergriff A. Glenn Vasser William A. Waddell, Jr. John C. Wade Wyman R. Wade, Jr. Eddie H. Walker, Jr. Danyelle J. Walker Bill H. Walmsley Bill Walters G. Christopher Walthall Stan L. Warrick Smilie Watkins Timothy F. Watson, Sr. John D. Watson Richard N. Watts Tony L. Wilcox W. Jackson Williams, Jr. Richard A. Williams David H. Williams Judge Billy Roy Wilson, Jr. Robert M. Wilson, Jr. Zachary D. Wilson Jennifer Wilson-Harvey Carolyn B. Witherspoon Rufus E. Wolff Tom Womack Rhonda K. Wood Marsha C. Woodruff Joe D. Woodward Eric Lane Worsham Susan Webber Wright Truman E. Yancey Damon Young Cary E. Young Dennis Zolper
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Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
Judicial Disciplinary Actions & Attorney Disciplinary Actions The Judicial Discipline and Disability Commission issued the following Final Actions. Full text documents are available on-line at http://www.state.ar.us/jddc/ press_releases.html. The Arkansas Judicial Discipline & Disability Commission announced on March 18, 2011, that an agreed letter of admonishment was issued to Judge Joseph Boeckmann of the District Court of Cross County, Arkansas. Final actions from January 1, 2011, through March 31, 2011, by the Committee on Professional Conduct. Summaries prepared by the Office of Professional Conduct. Full text documents are available on-line at http://courts. arkansas.gov and by entering the attorney’s name in the attorney locater feature under the “Attorney” link on the home page. [The “Model” Rules of Professional Conduct are prior to May 1, 2005. The “Arkansas” Rules are in effect from May 1, 2005.] SURRENDER: BAKER, CINDY M., #2000022, formerly of Berryville and now residing in Missouri, in
Case No. 11-80 petitioned to surrender her law license, in lieu of probable disbarment proceedings, based on her December 2010 guilty plea to felony controlled substance offenses in the Circuit Court of Carroll County, Arkansas. The surrender was accepted by the Supreme Court on February 9, 2011. CLAY, ALVIN D., #96075, formerly of Little Rock and now of Blytheville, in Case No. 11-13 petitioned to surrender his law license, in lieu of disbarment proceedings, based on his 2008 felony conviction in United States District Court for the Eastern District of Arkansas, in Case No. 04-CR274. The surrender was accepted by the Supreme Court on January 20, 2011. CLEMONS, ELGIN R., JR., #2007220, formerly of Little Rock and now residing in New Jersey, in Case No. 11-147 petitioned to surrender his law license, in lieu of facing disciplinary proceedings for serious misconduct, based on his dealings with certain clients and third parties and alleged misrepresentation of his status with a certain foreign financier. The surrender was accepted by the Supreme Court on February 24, 2011.
HARDIN, LUTHER B., #76048, formerly of Conway and now residing in Florida, in Case No. 11-237 petitioned to surrender his law license, in lieu of disbarment proceedings, based on his March 7, 2011, guilty plea to two felony charges in the United States District Court for the Eastern District of Arkansas, in Case No. 11-CR-56. The surrender was accepted by the Supreme Court on March 31, 2011. INTERIM SUSPENSION: HARTSFIELD, LARRY J., 69030, of Little Rock, on March 18, 2011, was placed on interim suspension in Committee Case No. CPC 2011-009, based on the action of a Committee panel to initiate disbarment proceedings against him. LEWIS, KEVIN H. #93019, of Little Rock, on January 7, 2011, was placed on interim suspension in Committee Case No. CPC 2010-118, based on allegations that his conduct, involving alleged fraudulent improvement district bonds and other matters, poses a substantial threat of serious harm to the public and his clients.
JLAP... No longer the state’s best kept secret! Yes, the word is out. Our referrals have doubled this year! There aren’t more legal professionals with troubles; there are more who know they have a safe and confidential place to turn to for help. So, thank you to all who are helping us spread the word! Since 2000, Arkansas Judges and Lawyers Assistance Program has been helping the legal professionals with confidential support guaranteed by the Arkansas Supreme Court. Arkansas JLAP has from its inception been comprehensive, not limited to alcohol and drug issues. JLAP addresses any personal issue that interferes with the professional or personal life of a judge, lawyer, or family member, or law student. Our professional mental health staff can help – whether you need assistance in life’s stresses or whether you face more serious substance abuse, mental health, aging, or physical disability issues. Let us help you take the first step in turning a problem into an opportunity for positive change. Confidential – 501.907.2529 Website – www.arjlap.org Email – email@example.com 30
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Attorney Disciplinary Actions REES, F. DAVID #79238, of Jonesboro, on February 25, 2011, was placed on interim suspension in Committee Case No. CPC 2010-088, based on the action of a Committee panel to initiate disbarment proceedings against him. REMAND: CLOUETTE, JAMES P., #74025, of Little Rock, had the “caution” sanction imposed against him by the Committee panel on June 24, 2010, in Case No. 2010-002, vacated and the case remanded by the Supreme Court of Arkansas, in No. 10-844, on February 11, 2011, for modification of the sanction imposed, based on the Committee panel having found he committed “serious misconduct.” The sanction hearing is set for April 15, 2011. REPRIMAND: COLSON, DONALD W., #2005166, of Benton, was Reprimanded, ordered to pay $750 restitution, and fined $1,000 in Committee Case No. CPC 2010-077, on February 18, 2011, for violations of Rules 1.3, 1.4(a)(3), 1.4(a)(4), and 1.15(b)(2). In
2008, Billy Hale hired and paid Mr. Colson $750 as part of a $1,000 retainer fee in an employment issue. Mr. Colson did not place these client funds in an IOLTA trust account, nor did Colson take any action on Mr. Hale’s behalf. Mr. Hale called on numerous occasions but did not receive information about the matter from Mr. Colson or his staff. Colson responded to inquiry from the Office of Professional Conduct and placed some blame on his former secretary for the lack of information to Hale. Colson did acknowledge that he was ultimately responsible for providing information to Hale. HICKS, RICKEY H., #89235, of Little Rock, was Reprimanded and fined $2,500, in Committee Case No. CPC 2010-079, on January 11, 2011, for violation of Rules 1.3, 1.4(a)(3), 1.4(a)(4), 1.15(b)(1), and 1.15(b)(2). Dondie Ray Franklin, along with three other individuals, hired Mr. Hicks to complete civil litigation which had been filed by another lawyer. Mr. Franklin paid Mr. Hicks $2000 before Hicks made his entry of appearance, and Hicks failed to place the funds in his trust account. Hicks did not return telephone calls made to him
ELECTRICAL ACCIDENTS Paul D. Mixon, Ph.D., P.E. Engineering Consultant P.O. Box 2154 State University, AR 72467 (870) 972-2088 (870) 972-3948 FAX firstname.lastname@example.org email@example.com
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by Franklin seeking information about the pending litigation. Hicks also only sent Franklin two letters during the time Hicks represented Franklin. The lawsuit was dismissed in June 2009 but Hicks did not advise Franklin of this fact, nor did he send the Order of Dismissal to Franklin. Mr. Franklin learned about the dismissal when he called the Court Clerk. After learning of the dismissal, Franklin called Hicks, but Hicks would not discuss the matter. JACKSON, STEVEN R., #97142, of Lowell, in Committee Case No. CPC 2010031, on March 15, 2011, by Committee Findings & Order, was Reprimanded, fined $500, and ordered to pay $50 restitution, on a complaint by Russell Hinton, for violation of Rules 1.3, 1.4(a)(3), and 1.4(a) (4). Hinton had a daughter, Rachel, whose custody was with her mother, Ms. Coffey. In March 2009, Rachel approached her father about having custody changed to her father. Mr. Hinton contacted Mr. Jackson to represent him in a change of custody matter. Hinton paid Jackson $50.00 on March 13,
Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
Attorney Disciplinary Actions 2009, for a reopening filing fee and on that same day a Motion to Modify Custody, Child Support and Visitation was filed, along with a summons to be served upon Ms. Coffey. Hinton made several telephone calls to Jackson inquiring about the status of his pending matter. The Motion was never served upon Ms. Coffey and on August 6, 2009, the court dismissed the matter pursuant to Rule 4 of the Arkansas Rules of Civil Procedure. Hinton discovered the dismissal when he called the court about the matter. Jackson admitted that he represented Hinton in the matter involving Ms. Coffey and stated that he had represented Hinton in two previous child custody matters involving Ms. Coffey and in a divorce from his second wife. Jackson admitted that Hinton did call his office inquiring about the status of his legal matter but that there were numerous meetings between the two concerning both pending matters. Jackson stated that Hinton was fully informed when there were negotiations with Ms. Coffey but the negotiations were halted as there was an issue concerning arrearage in child support owed to Coffey, and Hinton was possibly in contempt in the other legal matter where
Hinton chose to devote his limited financial resources. LEWELLEN, ROY C. “BILL,” #82093, of Marianna, in Committee Case No. CPC 2009-094, by Findings & Order filed March 10, 2011, was reprimanded and fined $10,000 for violations of Rules 1.1, 3.1, 3.3(a)(1), 3.4(c), 4.4(a), and 8.4(d), on a referral from United States Bankruptcy Judge James Mixon and on a complaint from Bill Thompson and Boyd Rothwell. Mr. Lewellen had previously represented Tommy Robinson in state court in 2002-2004 in aspects of Robinson’s legal issues with Thompson, Rothwell, and various business entities in which the three of them were investors. In March 2005, Thompson and Rothwell placed Robinson in an involuntary bankruptcy proceeding. In that matter the trustee settled ceratin matters, which were confirmed by the court in June 2006. One of the matters resolved then was an easement of about $1,635,000 paid in August 2005 by the United States to Wildlife Farms for an easement on the 2,500 acre property owned by Wildlife, in which Robinson, Thompson, and Rothwell had once been investors.
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Claiming he had been defrauded by his former partners in Wildlife on the easement payment, in December 2006, Robinson engaged Lewellen to file a state court suit and lis pendens against the 2,500 acre property which was set for a nationally advertised auction sale on December 19, 2006. Lewellen filed suit on December 18 and derailed the auction sale, on which Wildlife had pre-paid auction expenses exceeding $100,000. Thereafter, Lewellen and other counsel filed pleadings in the Robinson bankruptcy cases, seeking relief from the stay as to the 2.500 acre property for the purpose of pursuing Robinson’s fraud claim in his new state court case. The Robinsons’ bankruptcy counsel at the time was not counsel with Lewellen on the new December 18, 2006, state court complaint, and was not consulted by Lewellen before he filed this new state court action. Later, Lewellen basically admitted before Judge Mixon that he filed the new state court suit in December 2006 based solely on information given him by Tommy Robinson and Lewellen made no real independent investigation into the attendant facts and circumstances, and did not consult with Robinson’s bankruptcy
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Attorney Disciplinary Actions
fees, jailed them, and ordered them to release the lis pendens, which they did a day later. Much litigation followed, in bankruptcy, federal district, and federal appellate courts. Lewellen was assessed judgments for attorney’s fees and costs of about $30,000 for his involvement in the Robinson-Wildlife 1 3/15/11 12:03 PM Page 1 matters, which judgments were eventually
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affirmed. Wildlife, Thompson, and Rothwell had unsatisfied counterclaim judgments against Mr. and Mrs. Robinson from the state court case in Monroe County. In March 2009, Wildlife, Thompson and Rothwell filed writs of garnishment in Monroe Circuit Court against the Robinsons and attempted to collect on the state court judgments. On April 10, 2009, the Robinsons filed a pro se Motion to Squash [sic] Writ of Garnishment and for Injunctive Relief, asserting that any judgment arising from the foreclosure on the Robinsons’ interest in Wildlife should be deemed to have been satisfied by the Robinsons’ share of the large equity Wildlife had in proceeds from Wildlife’s sale of the conservation easement on the farm property (alleged to be in the $6-8 million range) to the USA in 2005. On May 19, 2009, Lewellen entered his appearance as the Robinsons’ attorney and filed an Amended Motion to Squash [sic] Writ of Garnishment, Request for Injunctive Relief, etc., subsequently supported with Brief, for the Robinsons. The basis for both motions was a matter already ruled on or settled adversely to the Robinsons by unappealed orders - the Wildlife foreclosure, acts by the bankruptcy trustee that were approved by that court, and the Robinsons having no claim on the funds from the USA easement on the Wildlife farm. On June 3, 2009, counsel for Wildlife wrote Mr. Lewellen, asking him to delete certain portions of his Amended Motion and certain claims in it or be faced with a motion for Rule 11 sanctions in the state court case and a motion for contempt in the Robinson bankruptcy case. On July 6, 2009, Wildlife (now “Mallard Pointe Lodge”), Rothwell, and Thompson filed their Motion for Order of Contempt in the Robinson bankruptcy case. The Motion was set for hearing on September 17, 2009. By agreement of the attorney for Wildlife, et al. and the attorney for Lewellen, in late July, Mr. Lewellen filed a Motion to Withdraw as Counsel for Writ of Garnishment. On August 3, 2009, an Order Relieving Counsel [Lewellen] and Withdrawal of Pleadings was filed. In return for the withdrawal of the representation and withdrawal of pleadings, Wildlife, et al. agreed not to pursue state court sanctions or a bankruptcy contempt order against Mr. Lewellen, but did not release him from any other claims based on such conduct. Wildlife, Thompson, and Rothwell have unpaid judgments against Lewellen of $29,329.53 for sanctions and attorneys fees in bankruptcy court, plus $1,920.32 attorneys fees and costs awarded in the state court case.
Attorney Disciplinary Actions STONE, WILLIAM MATTHEW, #2001143, of Mountain Home, by Findings & Order filed March 29, 2011, was Reprimanded, fined $1,000, and ordered to pay $3,500 restitution in Committee case No. CPC 2010-101, on a complaint by Charlene Acklin, for violations of Rules 1.3, 1.4(a)(3), 1.4(a)(4), 1.15(b)(1), 1.15(b)(2), 8.4(c), and 8.4(d). Ms. Acklin hired Mr. Stone in August 2005, to seek a remedy for her against a contractor who had caused damage to her home with siding. Stone was paid $3,500 before any work was undertaken and failed to place the funds in his IOLTA trust account. Stone provided false information to Acklin on numerous occasions. Stone also failed to take action in a diligent fashion and did not file a lawsuit on her behalf until May 2007. Stone was not forthcoming with information for Acklin when she sought information about the status of the litigation. TAPP, JOHN SKYLAR, #76123, of Hot Springs, by Findings & Order filed March 28, 2011, was Reprimanded and fined
$1,000 in Committee Case No. CPC 2010095, on a referral by District Court Judge Jerry Ryan, for violations of Rules 1.7(a)(1), 3.4(c) and 8.4(d). Judge Ryan reported Mr. Tapp for continuing to represent a party in litigation against Tapp’s former law partner after having been disqualified by order from the representation. Tapp represented Ronald Kirk against Jonathon Jones, who had represented Kirk in a divorce proceeding. During the course of the Kirk representation,
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Jones and Tapp were members of the same law firm. When Kirk terminated Jones from representing Kirk, Jones discussed the matter with Tapp and sought his advice on how to handle the situation. It was on the issues Jones discussed with Tapp which Kirk sought legal recourse against Jones in district court. Judge Ryan disqualified Tapp from representing Kirk against Jones, but Tapp continued to file pleadings for Kirk. Judge Ryan held Tapp in contempt of court.
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Attorney Disciplinary Actions TRIMBLE, DON, #91078, of Little Rock, was Reprimanded and fined $500 on January 26, 2011, by Consent Findings & Order in Committee Case No. CPC 2010103, for admitted violations of Rules 1.3, 1.4(a)(3), 1.15(b)(1), 1.15(b)(2) and 8.1(a). Mr. Trimble was hired by Raymond Jones of New York to represent him in a land matter. Jones had been informed there was construction on his property in Morrilton. Mr. Jones contacted Mr. Trimble, and paid him a $2,500 retainer, which was not placed in a trust account nor maintained there until earned. Jones provided Trimble with the documentation related to his legal issue. Trimble cashed the retainer check and acknowledged receipt of it and the file contents in an e-mail in January 2010. Trimble assured Jones that he would provide Jones with monthly status reports, which he failed to do. Trimble did not respond to requests for information from Jones, nor did he take action on Jones’ behalf. After being contacted by the Office of Professional Conduct, Trimble returned the $2,500 to Jones. The refund did not resolve the delay experienced by Jones in having his legal issue addressed. In his letter to the Office of Professional Conduct, Trimble was not forthright in two of the reasons he gave for his delay in addressing Jones’ legal matter. Trimble incorrectly stated he was preparing to go to St. Louis and then going there to argue orally before the 8th Circuit Court of Appeals, allegedly causing a delay in addressing the Jones legal matter. Court records show Trimble’s only recent oral
argument was in September 2009, months before he was hired and paid to assist Jones. CAUTION: ALDWORTH, JOHN C., #82001, of Clinton, was Cautioned, fined $250, and ordered to pay $300 restitution by Consent Findings & Order in Committee Case No. CPC 2010-109, on January 26, 2011, for violations of Rules 1.15(a)(1), 1.15(b)(2) and 1.16(d). David Connolly hired Mr. Aldworth in September 2009 to represent him in a divorce, and paid Aldworth a total of $5,200 in September-October 2009. Aldworth failed to place any of the payments into his IOLTA trust account, although part of the payments were for costs and legal services to be provided in the future. In mid October 2009, Connolly advised Aldworth that he and his wife were going to attempt reconciliation and he wanted the divorce dismissed. Connolly asked for refund of the advanced payment of fees. Aldworth put Connolly off for months and then paid him in installments, instead of paying him the funds owed diligently and promptly when the representation was terminated. BARTON, MARK E., #96248, of El Dorado, was Cautioned and ordered to pay $400 restitution in Committee Case No. CPC 2010-085, by Findings & Order filed February 23, 2011, for violation of Rules 1.3, 1.4(a)(3), 1.4(a)(4), and 1.15(b)(2). Tim Wilson hired Mr. Barton to represent him in probate of his mother’s estate. Barton
was paid $400, with $250 to be used for court costs. Barton never placed those funds in an IOLTA trust account until expended. Barton filed a probate document which contained numerous errors. Barton was not diligent in either the filing, the service of the other heir, or any actions after the other heir hired counsel. Barton failed to return telephone messages left for him by Wilson or on Wilson’s behalf and failed to keep Wilson informed of any actions taken by Barton on Wilson’s behalf. DAVIS, RONALD L., JR., #98016, of Little Rock, was Cautioned by Consent Findings & Order on February 21, 2011, in Committee Case No. CPC 2010-074, for violations of Rules 1.1, 1.3, and 8.4(d), in the dismissal of the appeal involving his client McCastle, No. CACR09-933. Mr. Davis requested and received two extensions to file the brief. Davis then filed a Petition for Writ of Certiorari to Complete the Record, which was granted. Davis received the record in February 2010, did not file it with the Clerk, and took no further action in the appeal for his client. The State filed its Motion to Dismiss in August 2010, Davis did not respond, and the appeal was dismissed. After the disciplinary matter was initiated, Davis took the necessary steps to have the appeal reinstated and pursued for McCastle. DAVIS, RONALD L., JR., #98016, of Little Rock, in Committee Case No. CPC 2010-098, by Consent Findings & Order filed February 21, 2011, was Cautioned for
Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
Tom M. Ferstl, MAI, SRA, J.D. J.T. Ferstl, MAI, J.D. 621 E. Capitol Ave. Little Rock, AR 72201 Phone: 501-375-1439 or 501-376-1439 Fax: 501-375-8317
Expert Witness Testimony Real Estate Related Matters •Tax Appeals •Court Testimony •Condemnation •Divorce 40 Years Experience See Web Site for References www.arkansasappraisers.com email: firstname.lastname@example.org violation of Rules 1.3 and 8.4(d) in an appeal involving his client Johnson, No. CACR091050. Appellant’s brief was due November 2, 2009. After two extensions and a grant of a Petition for Writ of Certiorari to Complete the Record, Appellant’s new brief deadline was set as March 1, 2010. No brief was filed, and on March 30, 2010, the Attorney General’s Office filed a Motion to Dismiss the appeal for failure to file the required appellant’s brief. The Court dismissed the appeal on April 21, 2010. On April 22 and May 15, 2010, OPC contacted Mr. Davis about the status of possible reinstatement of Johnson’s appeal. On June 11, 2010, Davis filed a Motion to Reinstate Appeal and File Belated Brief, accepted full responsibility for the brief not being timely filed, and tendered the brief. On June 30, 2010, the Court granted the motion, noted the brief was filed, and one Judge noted he would refer Davis to the Committee on Professional Conduct. FISHER, STEPHEN, #91073, of Little Rock, was Cautioned, ordered to pay $1,000 restitution, and fined $500, in Committee Case No. CPC 2010-078, on January 26, 2011, for violations of Rules 1.4(a)(3) and 8.4(d). Brenda Day hired and paid Mr. Fisher $1,000 to represent her in seeking guardianship of her sister who was bedridden 38
The Arkansas Lawyer
and in a nursing facility. Fisher failed to communicate with Ms. Day, and he never filed a Petition for Guardianship on her behalf. HOPKINS, CARL W., #94215, of Van Buren, was Cautioned, fined $150, and ordered to pay $400 restitution by Consent Findings and Order in Committee Case No. CPC 2010-069, on February 21, 2011, for violations of Rules 1.3, 1.15(a)(1) and 1.15(b) (2). Carolene Ramer hired Mr. Hopkins in October 2007 to represent her in a bankruptcy proceeding. Hopkins was paid $699 for fees and costs but failed to place the funds in his IOLTA trust account. He negotiated the check and none of Ramer’s funds were maintained or protected. There is no proof of any action taken by Hopkins to pursue the Ramer bankruptcy as he was hired to do. HOPKINS, CARL W., #94215, of Van Buren, was Cautioned and ordered to pay $450 restitution by Consent Findings and Order in Committee Case No. CPC 2010097, on February 21, 2011, for violations of Rules 1.3, 1.15(a)(1), 1.15(b)(2), and 8.1(b). Raymond and Tamra Chastain hired Mr. Hopkins in December 2006, to file a bankruptcy proceeding on their behalf. Hopkins was paid in full the amount
requested. He did not place the full amount in his trust account nor did he maintain the amount in the trust account or safeguard it. Hopkins never filed the Chastain bankruptcy proceeding for Complainants. Hopkins failed to provide his complete trust account records as requested by the Office of Professional Conduct. JACKSON, STEVEN R., #97142, of Lowell, in Committee Case No. CPC 2010-011, by Findings & Order filed March 15, 2011, was Cautioned, fined $1,500, and ordered to pay $600 restitution, for violation of Rules 1.1 and 1.4(a)(3) on a complaint by Rose Marie Linares. Ms. Linares employed Mr. Jackson to represent her in a divorce and paid him the attorney’s fee, filing costs, and publication fees. On April 29, 2008, Jackson filed a Complaint for Divorce. A warning order was published twice in May 2008. On September 2, 2008, Ms. Linares’ divorce case was dismissed by the court pursuant to Rule 4(I) of the Arkansas Rules of Civil Procedure, for lack of prosecution and activity. Linares stated that she was unaware that her divorce case had been dismissed, but Jackson stated she was so informed. In March 2009, Linares called the Washington County Clerk to get a copy of her divorce decree, and was informed that the divorce case had been dismissed in 2008. Linares called Jackson and spoke to him. Jackson stated that he would check into the matter and that Linares should call him the following Monday. Linares was unable to speak to Jackson for a period of time thereafter. In May, 2009, Jackson filed a second Complaint for Divorce for Ms. Linares. On October 2, 2009, Ms. Linares’ divorce case was dismissed by the court because Mr. Linares had not been served. Jackson stated that Ms. Linares had failed to pay for the second publication notice and he had not agreed to advance those costs. Ms. Linares then employed new counsel. RICKARD, ROBERT L., #2001065, of Bentonville, in Committee Case No. CPC 2007-135, by Consent Findings & Order filed March 18, 2011, was Cautioned and ordered to pay $1,204.70 restitution, for violation of Rules 1.3 and 8.4(d) in a case that came to the attention of the Office of Professional Conduct from the dismissal of No. 07-936, a civil appeal, in October 2007. Mr. Rickard represented Midd Development, LLC, (MIDD) in a civil suit in Benton County Circuit Court. Following an adverse judgment of $63,000, on May 30, 2007, Rickard timely filed MIDD’s notice of appeal. Rule 5(a) of
the Rules of Appellate Procedure–Civil, requires the record to be filed with the clerk of the Arkansas Supreme Court within ninety (90) days from the filing of the first notice of appeal, unless the time is extended by order of the circuit court. On August 31, 2007, Rickard tendered the record to the Supreme Court Clerk, who refused it as being untimely tendered. On September 11, 2007, Rickard filed a Motion for Rule on Clerk, stating that the record was not tendered timely because of error by the court reporting service in forwarding its portion of the completed record to another court reporter, rather than to Rickard. The record was eventually tendered to the appellate clerk three days after the deadline. On October 4, 2007, the Arkansas Supreme Court denied Rickard’s Motion for Rule on Clerk, and the appeal was dead. MIDD funds paid for the $150.00 filing fee and the $1,054.70 cost of the appeal transcript. VESS, STUART C., #73124, of North Little Rock, in Committee Case No. CPC 2010-105, by Consent Findings & Order filed February 21, 2011, was Cautioned for violation of Rules 1.3 and 8.4(d) in a complaint based on information related to civil appeal No. 10-144. Bob’s Bail Bonds (Bob’s) employed Mr. Vess to seek judicial review in circuit court of an agency decision. The court affirmed the decision of the Bail Bond Licensing Board. Vess appealed, and Bob’s brief was to be filed by March 23, 2010. On March 22, 2010, Vess was granted a one-week clerk’s extension, making his brief due March 30, 2010. On March 30, 2010, Vess filed a motion for extension of time, stating his workload included numerous court appearances and the appeal had complex issues which necessitated an additional thirty days. The Court granted the motion making his brief due by April 30, 2010. On April 29, 2010, Vess filed a motion for a stay of briefing as he discovered that the order of the Bail Bond Licensing Board had not been included in the record. The motion was granted, briefing was stayed, and the record was to be supplemented by June 4, 2010. In the Order, the Court stated that the brief was due to be filed fifteen days after the supplement to the record was filed. The record was supplemented on June 3, 2010. The brief was due to be filed by June 18, 2010, but none was filed. On September 30, 2010, the State filed a motion to dismiss as no brief had been filed. Though a response to
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the motion to dismiss was filed, the Arkansas Supreme Court granted the State’s Motion to Dismiss on October 28, 2010. Vess attributed the failure file his brief to his failure to place the new due date on his calender, as there was no exact date set in the Order, and no additional scheduling order issued after the record was supplemented. n
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Paperless continued from page 12
the cost of scanners with their features. Again, the scanning of a large volume of paper is very time consuming and the value of a 55 ppm scanner versus a 20 ppm scanner becomes obvious even with the price differential. An automatic sheet feeder is almost mandatory. As stated, the law office should carefully consider placing a multifunction printer/scanner on many desks rather than relying on more expensive centralized devices. For example, purchasing six $3,000 multifunctional machines is much less expensive than one highly efficient $18,000 machine when you consider the footsteps necessary to utilize the single machine. At a minimum, a law firm should consider shared equipment for staff members in the same general physical location. These can be shared over a network easily and will be more efficient for the grouping of staff and attorneys. At the hourly billing rates for attorneys, I submit that a printer/scanner should be located on the desk of each attorney on the premise that the digital world will involve more direct action by each creator and handler of documents. It often is more efficient to handle the document directly than to take the time to instruct or supervise others as to the desired result.
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Backup Issues Once a law firm has determined to become a “paperless” law firm, an important component of the analysis and implementation is to create a bullet proof backup system for data files. While it is important for all law firms to have an adequate backup system for digital files of all types, it is imperative when the digital files constitute the complete records for a law office. There are a variety of solutions to and advice on the backup issues. This paper will deal with the solutions that are working for a five lawyer office with one full time satellite office and most of the attorneys accessing the firm files at various times from remote locations using laptops. The first analysis has to be the level of backup protection that is desired. With that determined, the design of the backup system can be completed. In our case, we wanted a backup system with the following features: • Digital data files to be located on one device in the main office as much as possible. • Full accessibility to data files by each user on the network and by remote users. • A daily, fully automated backup of every data file within the main office each day to a remote backup device.
• The remote backup device is to be located off site from the main office. • The remote backup device is not to be accessed by anyone other than the system administrator except in the case of an emergency. • Backup systems to be digital as much as possible (as opposed to tape systems, etc.). One of the main goals was to have an offsite fully automated backup system so that a theft or fire in the main office would allow the data files to be reconstructed easily from the remote backup system. While seemingly simple, these goals are multi-faceted and each is important on its own. Experience shows that tape backup systems, for example, have several deficiencies. First, they are often set up not to back up every single file in the office due to time constraints and volume requirements. As a result, restoring from such a system may not bring back all desired files. A tape system obviously only works completely if the tapes are rotated each day so that there is always a full backup tape outside of the office. That rarely, if ever, occurs in the real world. The fully automated aspect has to result in the systems operating without any human intervention (after installation). Except in the instance of power failures or equipment failures,
the backup system should be designed to run each day on its own. This is an obvious issue with respect to the data files in the law firm. It may be adequate for each user to backup his or her personal files weekly or monthly, but that is not acceptable for the main firm files. The element of backing up to a remote location is again critical. We all know the stories of friends who have lost their offices due to fire, tornado, hurricane or other maladies. While such events are rare, they will happen to someone, and unfortunately everyone needs to be prepared for such an event. It is much easier to design a backup system that resides wholly within the main offices of the law firm. As we discuss below, a system in the main office can be attached via Ethernet cable to the local area network and this would greatly increase backup speeds. However, having the backup system within the same building as the law firm (even if located on different floors) would not provide the same level of protection as having it in a truly remote location. Once the design parameters are determined, the next step is choosing hardware and software to implement the design. In our case, the first step was placing all data files on a single device within the main office. For this purpose, we chose to use network attached storage (“NAS”) devices. These devices are basically stand alone drives that typically operate on a Linux operating system and connect to your network by an Ethernet connection. They come in various sizes and with different functionality. We chose a 2 Terabyte (“TB”) device to have a significant amount of storage in one device. Current NAS units from the manufacturer we chose range from 1TB up to 24 TBs. In addition to Linux operating systems, that vendor now offers units with Microsoft Windows Storage Server already installed to provide compatibility with Windows based network systems. We have not had any specific Linux issues, but they could arise in a system. As an aside, we have found that we are using less than 11 percent of the storage capacity of the 2TB NAS at this point. At the time of this paper, that is around 468,000 files with approximately 113 GB of storage space utilized. In hindsight, we could have been serviced by a smaller unit. However, the price differential between a 2TB NAS and a 4TB or larger NAS is relatively minor. Excess capacity is not undesirable since growth of digital files is increasing at a fast pace. One of the choices you have in activating an
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NAS is to determine how the various drives are configured. In our system, there are 4 identical drives constituting 2TB of storage capacity. We chose to implement a RAID 5 setup for the drive system which provides for the spreading of all files on the device over all 4 drives on a continuous basis. The reason for this setting is to eliminate the risk of a drive failure causing a loss of files. If any one drive fails, the other 3 will continue to carry the load. The RAID 5
setting uses approximately 25% of your storage capacity otherwise available, but it is obviously a much safer system than a setup under which you could lose data files if any single drive were to fail. Once the NAS device was purchased and installed, we restructured our folder and file system by moving any folder that had only data files in it to the NAS. Part of this process is to determine a folder structure, file structure,
Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
and file nomenclature that will be easily understood and used by everyone in the firm. The next step in implementing the backup system was to purchase a second NAS identical to the first one and locate it in the remote location for backup purposes. As will be discussed below, the second NAS device will contain a copy of every file that is stored on the first NAS device in the main office. The next step was to deal with data files that were located on drives on other computers in the firm that also needed to be part of the backup system. To properly back up all the files in folders on drives on the server itself, a special folder was set up on the main NAS device and given a drive letter and name that identified it for backup purposes. This special folder on the main NAS device was not made available to anyone but the system administrator. This covers files in folders that remain on the server due to the design of a software application. Some programs do not readily allow the data files to be located on a NAS. They must be located in the program folder in order for the software to work correctly. These data folders have to be copied over to the main NAS in order for the main NAS to have all data files on it for the backup to the secondary NAS to work. The next step was to set up a backup folder
on the main NAS device for each user in the network. In our case, we simply established a folder labeled as “BACKUPS” and then established a subfolder for each user. We then developed a written protocol which was given to each user so that he or she could utilize the backup procedures in the Windows operating system on each computer to backup files from the local computers which were important and place them in the correct user folder on the main NAS device. An example is some of the files in the Documents and Settings folder that Windows uses. A user with several personal folders on a computer should purchase a backup program and install it on the personal computer to backup to the main NAS device folder for each user. The personal files on the separate computers of each user are actually more vulnerable than the files on the main systems since they are subject to the consequences of a single drive failure. Once the main NAS device is properly set up to hold (1) all of the data files that are accessible on the network, (2) copies of the files from other drives on the server, and (3) any files from the personal computers of each user, you are ready to set up the remote NAS device. This is the most difficult aspect of setting up the backup system and one that may require a great deal of experimentation until it is working properly.
The next major subject is the synchronization of the main NAS device to the remote NAS device. We chose to do this with the synchronization program described below in the bibliography using our internet connections between the main office and the satellite office. Those two offices are continuously connected by two firewall routers running a constant VPN connection between the two offices (referred to as “branch office VPN”). The firewall router in the main office is the entry point for our DSL connection and serves as the gatekeeper for allowing any remote VPN connections for users away from the office. This is done utilizing the VPN protocol provided by the firewall router manufacturer for lawyers using laptops while out of the office. In the case of the satellite office, a matching firewall router was set up on the DSL connection for the satellite office and then the branch office VPN connection between the two firewall routers was activated. In this way, anyone in the satellite office connecting to that router would have a constant connection to the network in the main office. The main purpose for the constant VPN connection is so that the users in the satellite office can be connected to the LAN in the main office. A side benefit is the nightly synchronization between the main NAS device located in the server room at the
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main office and the remote NAS device located at the satellite office. The next important step is to set up the synchronization program to perform a full backup of all new files and changed files from the main NAS device to the remote NAS device once the initial load of files has been completed via portable drive. The various NAS devices come with backup software typically. Some software is adequate for most purposes, but may not serve the purposes of a complete backup of a large number of files. Also, there may be a built in backup program in the management console of the NAS device. We attempted to utilize this procedure and were not pleased with the results. Therefore we bought independent synchronization software described in the bibliography. We feel that the software that we utilize is very good and sophisticated, and contains many safeguards and procedures that are important in a synchronization program. However, it requires a level of understanding to set up properly and use the software. Again, experimentation is the key. A recommendation is that you practice on one or two folders until everything is working properly and then expand the backup list to all the remaining files on the main NAS device. Another issue is comparing the use of a
second remote NAS device and synchronization software with the various online backup services that are available. Our study of them resulted in our decision to utilize our own hardware and software. In the various articles discussing online storage services, it quickly became apparent that the time required to back up files would be enormous. We short circuited this by using a portable drive. One website service indicated that to backup fully the main NAS device via the internet to their online storage was going to take 13 days; we had 72 GB of files on our system at that time. This is obviously unacceptable. One of the articles observed that even if you got all of the files backed up to an online service, if you had to have a full restoration it would take the same length of time to restore fully all the files. Some services will download your files for a restoration to a portable drive and ship them to you via overnight. That was not comforting to us. In the end, we opted for total control and privacy with our own systems and offices. A very important issue in designing a backup system is speed. Files that can be backed up in a few minutes via Ethernet connections take hours via internet connections. You need to assess carefully what is available to you at a rea-
sonable cost in setting up your backup system. There are variations in internet connectivity, depending on whether the connections are cable, DSL, fiber optic, etc. DSL connections seem to be the most common and are available in various speeds. Our particular connections are at 6 mbps at each office. However, this is the download speed, and the upload speed is much less, typically 500 kbps. Therefore, one end of your backup system is always going be much slower than the other with a DSL type service. In some areas, fiber optic systems are becoming available. In our area, these have speeds of 18 mbps for about $15 per month more than our current DSL system. However, they are not available in all locations and there may be other problems with fiber optic connections since they are relatively new. For example, one commentator indicated that it was not possible to have a constant VPN connection with a fiber optic internet connection. Depending on cost and availability, another solution is to utilize a T1 internet connection, particularly if the connection is between a main office and a satellite office or other remote backup location. T1 internet connections typically have the same upload and download speeds. One that is available to us
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has 1.5 mbps speeds on both the upload side and the download side. Another approach to the speed issue is to set the synchronization software for constant synchronization instead of a nightly backup. The constant backup would put a larger load during the day on the main NAS device and could affect internet connectivity and speed available to other users on the network. In our case, we utilize two profiles in our backup system. The first profile backs up all of the files on server drives to the special folder on our main NAS device. This runs at 10:00 p.m. and takes only 3 or 4 minutes. The main backup profile then runs at 11:00 p.m. to backup all of the files on the main NAS device that are new or which have changed since the night before. The comparison of the files is the first step utilized with the synchronization program and takes approximately 3 hours with the amount of files on our system. The program then copies the added files and the modified files from the main NAS device to the remote NAS device. This is currently running between five and six hours for the amount of files that are changed on our system on a daily basis. Obviously, a larger number of users generating more files to be backed up could result in the nightly backup being so long that it could not be completed by the next morning. Despite misgivings about a system that is within the same building as the main office, it is possible to have an adequate backup system to a remote NAS device within the same building. For example, if the building has a fairly secure basement area that is relatively fire proof and secure, an Ethernet cable could be run from the location of the LAN server down through the building utility areas to the basement location. This will permit much faster backups than utilizing an internet connection. We implemented this method and no longer use the VPN connections for backing up. We located a good place on the floor below our main office where we would relocate our second or remote NAS device. We ran an Ethernet wire to the remote location and are able to have the remote NAS far enough away from the firm offices and in a locked space in a locked cabinet. Our risk will be a fire in the whole building or a tornado destroying the whole building. The advantage will be a serious reduction in the time it takes to run the nightly synchronization between the two NAS devices. At the end of the process, we are pleased with our systems. They are operational and easy to
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use. We now finally feel safe and secure in this digital world in which we live. To conclude, going paperless in this digital age is desirable and cutting edge (at least at the moment). It is a worthy goal with many rewards in our experience, but the process is neither simple, nor direct. As with all such projects, planning and perspective are very important. The rest is just working hard to get it done, as usual. The author wishes to acknowledge the leadership of Greg Graham in developing paperless techniques.
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Weekly Case Summaries Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
Fiduciary continued from page 19
dict what default rule a majority of unrepresented LLC participants would choose, e.g., whether profit sharing should be equal or, on the other hand, in accordance with the size of a member’s investment. In those cases, the default rule should be, to the extent that it is determinable, what a plurality of these participants would probably prefer. 5. See, e.g., Larry E. Ribstein, Fiduciary Duties and Limited Partnership Agreements, 37 Suffolk U. L. Rev. 927, 930, 942 (2004) (LLCs [as well as close corporations and general partnerships] should be designed “to accommodate relatively unsophisticated business people” because they “are likely to be used by small businesses, often with minimal planning and possibly without sophisticated legal advice.”). 6. The Prototype Act, together with commentary, appears at 3 Larry E. Ribstein & Robert R. Keatinge, Ribstein and Keatinge on Limited Liability Companies (2d ed. 2010), app. C. For an account of the creation of the Prototype Act, see Carol R. Goforth, Why Arkansas Should Adopt the Revised Uniform Limited Liability Company Act, 30 U. Ark. Little Rock L. Rev. 31, 32 (2007). The Prototype Act should be distinguished from the Revised Uniform Limited Liability Company Act (“RULLCA”), which is the product of the National Conference of Commissioners on Uniform State Laws. 7. Professor Campbell explains this phenomenon by reference to public choice theory. “Drafters of society’s rules may be captured by particular interest groups. . . . [Their] professional interests and life experiences cause rule-makers to align with the preferences of managers. This alignment may result from the fact that managers (as opposed to investors) are the most likely clients of the drafters. . . . [T]he views and biases of lawyers tend to drift toward those of the clients they serve over time.” Rutheford B Campbell, Jr., Bumping Along the Bottom: Abandoned Principles and Failed Fiduciary Standards in Uniform Partnership and LLC Statutes, 96 Ky. L.J. 163, 167-68 (2007-2008). 8. See, e.g., Sandra K. Miller, What BuyOut Rights, Fiduciary Duties, and Dissolution Remedies Should Apply in the Case of the Minority Owner of a Limited Liability Company?, 38 Harv. J. on Legis. 413, 43738 (2001). 9. Cf., e.g., Taylor v. Hinkle, 360 Ark. 121, 129, 200 S.W.3d 387, 392 (2004) (“Closely held corporations are unique creatures. Because of their small size, these corporations require 46
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‘close cooperation’ and ‘mutual respect’ between shareholders.” (quoting Meiselman v. Meiselman, 307 S.E.2d 551, 557 (N.C. 1983))); Donahue v. Rodd Electrotype Co., 328 N.E.2d 505, 512 (Mass. 1975) (“Just as in a partnership, the relationship among the stockholders [in a close corporation] must be one of trust, confidence and absolute loyalty if the enterprise is to succeed.”). 10. Ark. Code Ann. § 4-32-402(1) (2001). 11. Ark. Code Ann. § 4-32-402(2) (2001). 12. “[T]he standard of care that the Delaware courts impose on managers is a very lenient one—namely, that of avoiding gross negligence. Under the relevant Delaware corporate case law, gross negligence as applicable to directors consists of ‘[i] reckless indifference to or a deliberate disregard of the whole body of stockholders or [ii] actions which are without the bounds of reason.’ Benihana of Toyko, Inc. v. Benihana, Inc., 891 A.2d 150, 192 (Del. Ch. 2005) (citation and internal quotations omitted); McPadden v. Sidhu, 964 A.2d 1263, 1274 (Del. Ch. 2008). The Delaware courts would undoubtedly apply this same standard to LLC managers.” John M. Cunningham & Vernon R. Proctor, Drafting Delaware Limited Liability Company Agreements: Forms and Practice Manual § 14A.03[A], at 14A-27. 13. Ark. Code Ann. § 4-27-830(a) (Supp. 2009) provides: A director shall discharge his duties as a director, including his duties as a member of a committee: (1) in good faith; (2) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) in a manner he reasonably believes to be in the best interests of the corporation. Corporate directors may, by an appropriate charter provision, be relieved of fiduciary liability in damages for ordinary or even for gross negligence, but not for, inter alia, “acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law.” Ark. Code Ann. § 4-27202(b)(3)(ii) (Supp. 2009). This is not a default rule, however, because it does not apply unless a provision to this effect appears in the articles of incorporation. 14. The drafters of RULLCA similarly rejected the gross negligence/willful misconduct standard, defining the duty of care as the duty to “act with the care that a person in a like position would reasonably exercise under
similar circumstances and in a manner the member reasonably believes to be in the best interests of the company.” 3 Ribstein & Keatinge, supra note 6, app. E-1, § 4.09(c). While this article does not advocate that Arkansas repeal its existing LLC Act and adopt RULLCA, we cite RULLCA’s provisions as examples of the recent judgments of preeminent scholars examining the issues we discuss here. 15. See Norwood P. Beveridge, Jr., Duty of Care: The Partnership Cases, 15 Okla. City U. L. Rev. 753, 765-66 (1990). 16. See Long v. Lampton, 324 Ark. 511, 52122, 922 S.W.2d 692, 698-99 (1996); Hall v. Staha, 303 Ark. 673, 678, 800 S.W.2d 396, 399 (1990) (business judgment rule adopted as tool of judicial review). While no reported Arkansas decision applies the business judgment rule in the context of LLCs, courts in other jurisdictions have applied it. 1 Ribstein & Keatinge, supra note 6, § 9:2, at 489-90 n.5; see also RULLCA § 409(c); cf. Elizabeth S. Miller & Thomas E. Rutledge, The Duty of Finest Loyalty and Reasonable Decisions: The Business Judgment Rule in Unincorporated Business Organizations?, 30 Del J. Corp. L. 343, 388 (application of business judgment rule inappropriate where standard of care is gross negligence). 17. See Hall, 303 Ark. at 679, 800 S.W.2d at 400 (conflict of interest makes business judgment rule inapplicable). In corporate law, an interested director can defend a transaction involving a conflict of interest by showing that it was fair to the corporation. Id. at 681, 800 S.W.2d at 401. This defense should be available in LLC cases, too. But see Carter G. Bishop & Daniel S. Kleinberger, Limited Liability Companies: Tax and Business Law, Westlaw database LLCO ¶ 10.03 (current through 2010). 18. This is the import of the duty of loyalty in business organizations generally. See, e.g., Taylor v. Terry, 279 Ark. 97, 99, 649 S.W.2d 392, 393 (1983) (corporate president “owes a duty not to do an unfair or fraudulent act which will result in his private gain at the expense of the corporation.”); Leo E. Strine, Jr., Lawrence A. Hamermesh, R. Franklin Balotti, & Jeffrey M. Gorris, Loyalty’s Core Demand: The Defining Role of Good Faith in Corporation Law, 98 Geo. L.J. 629, 633 (2010) (“[F]iduciary power [must] be exercised for proper corporate reasons and not to advance a personal agenda of any kind.”). 19. See RULLCA § 409(b)(3), (g)(1) & (2); cf., e.g., Raines v. Toney, 228 Ark. 1170, 1179-80, 313 S.W.2d 802, 808-09 (1958) (officer and manager of insurance agency
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breached fiduciary duty by excluding 50% shareholders from business, causing corporate property to be foreclosed upon, and then buying it himself at the foreclosure sale). 23. See RULLCA § 409(b)(1)(B), (g); 1 Ribstein & Keatinge, supra note 6, § 9:3, at 496 (“A manager may not appropriate for personal use property belonging to the LLC without the firm’s informed and disinterested consent.”). The current Arkansas LLC Act makes clear that the ban on use of the LLC’s property includes the use of confidential or proprietary information. Ark. Code Ann. § 4-32-402(2) (2001). 24. PT China LLC v. PT Korea LLC, C.A. No. 4456-VCN, 2010 WL 761145, at *6-7 (Del. Ch. Feb. 26, 2010); Bishop & Kleinberger, supra note 17, at ¶ 10.03 [a][vii] n.150; cf. 2 Restatement (Third) of Agency § 8.05(2), at 314 (2006) (“An agent has a duty . . . (2) not to use or communicate confidential information of the principal for the agent’s own purposes or those of a third party.”). 25. See, e.g., VGS, Inc. v. Castiel, 2000 WL 1277372, at *5 (Del. Ch. Aug. 31, 2000) (holding that failure of minority members of LLC to disclose merger plans to majority member was breach of duty of loyalty); Herring v. Offutt, 295 A.2d 876, 879 (Md.
1972) (stating that it is “the obligation of each member of the partnership to make full disclosure of all known information that is significant and material to the affairs or property of the partnership.”); Bishop & Kleinberger, supra note 17, at ¶ 10.01 n.12 (duty of loyalty includes “duty to keep the organization and its owners informed”); Sandra K. Miller, What Fiduciary Duties Should Apply to the LLC Manager After More Than a Decade of Experimentation?, 32 J. Corp. L. 565, 592 (2007); see also RULLCA § 410(a)(2)(A), (3), (b)(1); cf., e.g., Wal-Mart Stores, Inc. v. Coughlin, 369 Ark. 365, 37374, 255 S.W.3d 424, 430-31 (2007). 26. Delaware identifies the duty of good faith as a subset of the fiduciary duty of loyalty. E.g., Stone v. Ritter, 911 A.2d 362, 370 (2006) (“[T]he requirement to act in good faith ‘is a subsidiary element[,]’ i.e., a condition, ‘of the fundamental duty of loyalty.’”). Arkansas case law, on the other hand, appears to classify it as an independent fiduciary duty. Frances S. Fendler, A License to Lie, Cheat, and Steal? Restriction or Elimination of Fiduciary Duties in Arkansas Limited Liability Companies, 60 Ark. L. Rev. 643, 646 n.16 (2007). As a practical matter, the distinction between good faith as an independent fidu-
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ciary duty and good faith as a component of the duty of loyalty is probably irrelevant. But there is a difference between the fiduciary duty of good faith and the contractual duty of good faith and fair dealing that is implied in every contract governed by Arkansas law. Cantrell-Waind & Assocs., Inc. v. Guillaume Motorsports, Inc., 62 Ark. App. 66, 72, 968 S.W.2d 72, 75 (1998). As Professor Sandra K. Miller has noted, “[T]he implied covenant of good faith and fair dealing connotes reasonable commercial standards rather than moral mandates.” The contractual duty of good faith “stands as a non-waivable pillar of contract law that ensures that reasonable expectations will be enforced. It is designed to prevent trickery, deceit, or fraud. Ultimately, the implied covenant of good faith prevents one party from depriving the other of the fruits of the contract. It is a constraint that underlies every contractual relationship and is a fundamental tool that prevents parties from violating the spirit of the bargain.” Sandra K. Miller, What Fiduciary Duties, supra note 25, at 595-96; see also Alan R. Bromberg & Larry E. Ribstein, Bromberg & Ribstein on Partnership § 6.07(a) (2010). 27. Ark. Code Ann. § 4-32-402(2) (2001). 28. E.g., Reading v. Regem, 2 All Eng. Rep. 27 (K.B. 1948); Thomas E. Rutledge & Thomas Earl Geu, The Analytic Protocol for the Duty of Loyalty Under the Prototype LLC Act, 63 Ark. L. Rev. 473, 496 (“culpable member or manager must disgorge to the LLC all profits and benefits derived from the improper transaction”); 2 Restatement (Third) of Agency § 8.02, cmt. e (2006). 29. Prototype Act § 402(B) cmt. 30. Id. (“Because of the similarity of this section with the UPA, it is anticipated that the courts will interpret a section such as this to impose duties similar to those in the general partnership . . . .”). Even though Arkansas has adopted the Revised Uniform Partnership Act, Ark. Code Ann. §§ 4-46-101 et seq. (2001 & Supp. 2009), the provenance of Ark. Code Ann. § 4-32402(2) makes section 21(1) of the UPA, not the fiduciary duty provisions of RUPA, the touchstone for interpreting the LLC Act. Nonetheless, we note that the RUPA standards, set out in Ark. Code Ann. §§ 4-46403-404 (2001), include all of the subsidiary duties we have identified (except, perhaps, the duty of confidentiality in the absence of self-dealing or competition), although good faith and disclosure of material information are not classified as fiduciary in nature.
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31. See generally Bromberg & Ribstein, supra note 26, §§ 6.06-6.07. But see Rutledge & Geu, supra note 28, at 501 (Under Prototype Act section 402(B), “broad recourse to the general common law for a normative scope and standard of particular fiduciary duties is misplaced.”). 32. Ark. Code Ann. § 4-32-802(c) (2001) provides: A member may withdraw from a limited liability company only at the time or upon the happening of an event specified in the articles of organization or an operating agreement. Unless the articles of organization or an operating agreement provides otherwise, a member may not withdraw from a limited liability company prior to the dissolution and winding up of the limited liability company. Moreover, there is no market for the minority’s interest; minority owners of a closely held business will usually find it impossible to locate third parties who will buy the minority interest. Douglas K. Moll, Minority Oppression & the Limited Liability Company: Learning (or Not) from Close Corporation History, 40 Wake Forest L. Rev. 883, 89899 (2005). 33. See, e.g., Larry Ribstein, Close Corporation Remedies and the Evolution of the Closely Held Firm, U. Ill. College of Law Research Paper No. LBSS10-03 at 14, available at http://papers.ssrn.com/pape.tar?abstract_ id=1710006. 34. E.g., Franklin A. Gevurtz, SqueezeOuts and Freeze-Outs in Limited Liability Companies, 73 Wash. U.L.Q. 497 (1995); Sandra K. Miller, What Buy-Out Rights, supra note 8, at 431; Moll, supra note 32; cf. Taylor v. Hinkle, 360 Ark. 121, 129-30, 200 S.W.3d 387, 392-93 (2004) (recognizing vulnerability of minority shareholders in
closely held corporations); Larry E. Ribstein, The Rise of the Uncorporation 24, 26 (2010) (linking exit rights to the need for strong fiduciary duties). 35. Prior to its amendment by 1999 Ark. Acts 1528, § 4, subsection (c) provided that “[u] nless an operating agreement provides in writing that a member has no power to withdraw by voluntary act from a limited liability company, the member may do so at any time by giving thirty (30) days’ written notice.” Ark. Code Ann. § 4-32-802 (Publisher’s Notes). 36. Sandra K. Miller, What Buy-Out Rights, supra note 8, at 435-48. 37. Ark. Code Ann. § 4-32-902 (2001). 38. Ark. Code Ann. § 4-27-1430(2)(ii) (2001). References to the Arkansas Business Corporation Act are to the 1987 Act. 39. Smith v. Leonard, 317 Ark. 182, 193, 876 S.W.2d 266, 272 (1994) (quoting In re Kemp & Beatley, 473 N.E.2d 1173, 1179 (1984)); see also Taylor v. Hinkle, 360 Ark. 121, 129, 200 S.W.3d 387, 392 (2004). 40. Ark. Code Ann. §§ 4-27-1432, 1433 (2001). An LLC Act might provide even greater flexibility, such as allowing the defendants in a dissolution suit to buy out the plaintiff’s interest. See Model Bus. Corp. Act § 14.34 (Election to Purchase in Lieu of Dissolution). 41. Ark. Code Ann. § 4-32-1203(a) (Supp. 2009) (conversion); Ark. Code Ann. § 4-321207(a) (Supp. 2009) (merger). 42. Ark. Code Ann. § 4-32-403(a) (2001). 43. Ark. Code Ann. § 4-27-1302 (Supp. 2009). 44. Ark. Code Ann. § 4-32-1102 (2001). 45. See Ark. R. Civ. P. 23.1. 46. See, e.g., Daniel S. Kleinberger, Direct Versus Derivative and the Law of Limited Liability Companies, 58 Baylor L. Rev. 63 (2006); Larry E. Ribstein, Litigating in LLCs, 64 Bus. Law. 739, 743 (2009). 47. Moll, supra note 32, at 968. n
Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
George Emerson Campbell George Emerson Campbell of Little Rock died February 13, 2011, at the age of 78. He received his Juris Doctorate from the University of Arkansas at Fayetteville. He was admitted to the Arkansas Bar in 1955, but soon entered the U.S. Navy, serving 18 months aboard the U.S.S. Preston in the Formosa Straits, according to an obituary in the Arkansas Democrat Gazette. He remained on active duty in the U.S. Navy from 195559 and following his discharge from active duty remained enlisted in the U.S. Naval Reserves, retiring as Commander. Upon his return to Arkansas, he clerked for Supreme Court Chief Justice George Rose Smith. George joined the Rose Law Firm July 1, 1960, and practiced actively in the areas of real estate, commercial lending and as a municipal bond lawyer. In August 2006, he became “of counsel” to the firm. He was a member of the Arkansas Bar Association and a Sustaining Fellow of the Arkansas Bar Foundation. He served as executive director for the Arkansas Constitutional Convention of 1969-70 and an elected delegate to the Convention of 1979-80. He is survived by daughters Dianne Campbell, Carole Campbell Mange, Martha Chowning Groff; and son Robert Marks Chowning. Richard Hartley “Dick” Wootton Richard Hartley “Dick” Wootton of Hot Springs died April 17, 2011, at the age of 75. He graduated from Western Military Academy in Alton, IL in 1942 and earned his Juris Doctorate from the University of Arkansas at Fayetteville School of Law in 1951. He served as a pilot in the Army Air Corps from 1943-1946, according to an obituary in the Arkansas Democrat Gazette. He joined his father’s law firm, Wootton, Land and Matthews in 1952 and enjoyed an extraordinary 58-year long career in the 50
The Arkansas Lawyer
practice of law. He served for many years as a Bar Examiner for the University of Arkansas School of Law. He was a member of the Arkansas Bar Association where he served on the Senior Task Force and Juvenile Justice Committee. He was a Fellow of the Arkansas Bar Foundation. He is survived by his wife of 27 years, Carol Jones Wootton; sons Hartley and Birkett Wootton.
Bar Foundation. He was a member of the Pulaski County Bar Association and a Fellow of the American Bar Foundation. He was a member of the Board of Directors of American Judicature Society. He is survived by his wife, Martha Elizabeth (Betty) Stockley Mitchell; two sons, H. Maurice (Maury) Mitchell Jr. and David Stockley Mitchell; and daughter, Nancy Elizabeth Mitchell.
H. Maurice Mitchell H. Maurice Mitchell of Little Rock died April 2, 2011, at the age of 85. He attended public schools in Little Rock and graduated from Little Rock Senior High School in 1942. He went on to study at The Citadel, The Military College of South Carolina, from 1942-43. He earned his Juris Doctorate from the Law School at Washington and Lee University in 1948, and quickly began his long and distinguished professional career, according to an obituary in the Arkansas Democrat Gazette. He first served as an agent of the Internal Revenue Service (1948-49), and then joined the Arkansas State Revenue Department as Assistant Attorney (19491951). He was admitted to the state bar in 1949 and entered the private practice of law in Little Rock in 1951. On January 1, 1954, he became a member of the law firm now known as Mitchell, Williams, Selig, Gates & Woodyard, PLLC. He was a member of the Arkansas Bar Association where he received two Golden Gavel awards for his service as Chair of the Legal Services Committee. He served on numerous committees including the Underwriting Committee, Senior Task Force, Membership and Health Law Committee. He was the Outstanding Lawyer Citizen Award from the Arkansas Bar Foundation and Arkansas Bar Association in 1991. He was a Fellow of the Arkansas
John M. Shackleford, Jr. John M. Shackleford, Jr. of El Dorado died February 22, 2011, at the age of 89. He was a graduate of El Dorado High School and the University of Arkansas School of Law, where he was a member of Sigma Chi fraternity, according to an article in the Arkansas Democrat Gazette. He served in the U.S. Army beginning in 1943 with duty in the South Pacific as a captain in the 43rd Infantry Division. Other combat assignments included the invasion of Luzon. Upon his discharge from military service in 1945, he joined his father in the practice of law in El Dorado. In 1958, they were joined by his brother, Dennis Shackleford. The Shackleford Law Firm continues with Brain Ratcliff and Chase Carmichael. He served in the House of Representatives in 1951 and 1953. He was elected to the Arkansas Senate in 1955, serving until 1963. He was a member of the Arkansas Bar Association where he served on the Tort Law and Civil Procedure Committees. He was a Fellow of the Arkansas Bar Foundation. He was a member of the Union County Bar Association and a Fellow of the American Bar Association. He is survived by a son, John Marshall Shackleford III; daughters, Sheryl Shackleford Wray and Cicile Shackleford Taylor; and brother, Dennis L. Shackleford.
Arkansas Bar Foundation Memorials and Honoraria The Arkansas Bar Foundation acknowledges with grateful appreciation the receipt of the following memorial, honorarium and scholarship contributions received during the period January 1, 2011 through March 31, 2011: In Memory of Dixon Bowles Cathi Compton and Judge Bill Wilson In Memory of George E. Campbell Mr. and Mrs. Philip S. Anderson Susie and Brian Rosenthal Ellen and Shep Russell Marietta and Judge John Stroud Fred S. Ursery Mike Wilson In Memory of Raymond Forrest Galloway Judge John M. Pittman Roscopf & Roscopf, P.A. In Memory of Ray A. Goodwin Hyden, Miron & Foster, PLLC Womack, Landis, Phelps & McNeill In Memory of Ruby Stiles Hedges* Cathi Compton and Judge Bill Wilson In Memory of Hugh L. Hembree III Philip S. Anderson In Memory of Claude R. Jones, Sr. Charles T. Coleman Judge James G. Mixon Jan and Jim Sprott In Memory of James R. McCauley Shirley Jones In Memory of DeLoss McNight W. Frank Morledge Judge John M. Pittman In Memory of Toney McMillan Judy and Glenn Vasser In Memory of David McVay Dennis L. Shackleford In Memory of C. Wayne Matthews Jefferson County Bar Association Fred S. Ursery
In Memory of C. Wayne Matthews (Cont.) Judge Robert C. Vittitow Cathi Compton and Judge Bill Wilson In Memory of Senator Ralph M. Patterson, Jr. B. Jeffery Pence Sue and Judge John Plegge Mike Wilson In Memory of John M. Shackleford, Jr. Designated to the Shackleford/Phillips Scholarship Fund Jeanne Baumgardner Alicia and Joe Bradley, Jr. Baim, Gunti, Mouser & Havner, PLC Martha and Larry Chisenhall Betty Brown Cowger Sharon and Charles Johnson Margaret S. Meyer Edward T. Oglesby Evelyn and Edward Penick Roscopf & Roscopf, P.A. Fred S. Ursery Mary S. Vestal Judge Robert C. Vittitow Laura H. Ward Teresa M. Wineland In Memory of Judge Franklin Waters Cathi Compton and Judge Bill Wilson In Memory of Judge Randall Williams Fred S. Ursery Judge Robert C. Vittitow Other Contributions John H. Jackson Donis B. Hamilton Deborah Hardin *Please note this reprint from the last issue: Ruby Stiles Hedges was inadvertently listed as Ruby Stiles Hodges.
Vol. 46 No. 2/Spring 2011 The Arkansas Lawyer
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