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JULY 1978 VOL. 12, NO.3
THE OFFICIAL PUBLICATION OF THE ARKANSAS BAR ASSOCIATION
OFFICERS Walter R. Niblock, President Wayne Boyce, President-Elect Cyril Hollingsworth, Secretary-Treasurer
EXECUTIVE COUNCIL Don. M. Schnipper John Mac Smith Herman L Hamilton Charles L. Carpenter G. Alan Wooten Randall W. Ishmael Joe D. Woocward Robert D. Ross Robert L. Jones, III E. Harley Cox, Jr. Tom B. Smith W. Christopher Barrier
EX..QFFICIO Walter R. Niblock Wayne Boyce Cyril Hollingsworth Herschel H. Friday
J. Steven Clark James D. Cypert
EDITOR C. E. Ransick
EDITORIAL COMMITTEE Robert T. Dawson E. Alvin Schay James M. Moody
We
Arkansas Lawyer SPECIAL FEATURES Cover Story80th Annual Meeting Tax Reform Act of 1976 Alcohol Abuse Toward a New Judicial Article Are You Insured for Securities Malpractice? How to Save Blackacre from the Federal Tax Collector
128 Ralph G. Brodie 108 .Dean R. Morley 136 George E. Campbell 118 Harvey L. Bell 124 Wayne Boyce 116
REGULAR FEATURES President's Report Wayne Boyce Juris Dictum C. R. Huie Legal Economics Fran Shellenberger Law School News Oyez-Oyez B. Tarkington Executive Council Notes Cyril Hollingsworth Service Directory Lawyer's Mart . . . . . . . . . . . . . . . . . .. Aegis Addenda C. E. Ransick Ethics Context ..............•.........W. Christopher Barrier AICLE News Claiboume Patty, Jr. The Arkansas Bar Foundation John P. Gill
106 144 131 149 114 142 1BC 107 134 151 141 138 148 143
PublIshed quarterly by the Arkansas Bar Association. 400 West Markham. Little Rock. Arkansas 72201 second class postage paid at Lillie Rock. Arkansas SUbSCription price 10 non-members of the Arkansas Bar ASSOCiation $600 per year and to members $3.00 per year included in annual dues Any opmion expressed herein is thaI ollhe author. and not necessarily that of lhe Arkansas Bar Association. The Arkansas Lawyer. or the EditOrial Committee ContributIons (0 The Arkansas Lawyer are welcome and should be sent In two COpies to the Arkansas Bar Center, 400 West Markham. Little Rock, Arkansas 72201
All InquIries regardmg advertiSing should be sent to The Arkansas Lawyer, above address.
July 19781Arkansas Lawyerl105
PRESIDENT'S REPORT by Wayne Boyce
"My God, is that what we passed through the Legislature?", a former Speaker of the House said to me with anguish on his countenance as the last of a long line of lawyers finished his explanation of the Uniform Commercial Code. Mr. Speaker was not alone. Everyone in practice for more than a few years recognizes that empty feeling when the fixed and familiar features of the law dissolve with
the enactment of a new Code or disappear in a sweeping judicial decision. Harry Meeks' joke about the Legislature repealing his legal education is almost too true to be funny. Someone has ventured the estimate that there has been more change in the legal profession in the last decade than there had been in the preceding century.
HOW DOES ONE COPE WITH CHANGE? It cannot be avoided. At worst, we can hang back, deplore change and be dragged kicking into the Twenty-first Century. At best, we may try to hold firm the wheel and steer a course that makes the most sense. In the latter event, we must first recognize the inevitability of change. The common law tradition rooted in stare decisis is iIIequipped to handle rapid change and it is the rapidity that is so upsetting. A change that evolves slowly over a whole professional career can be accommodated. A lawyer in midlife looking back to "When I came to the Bar" may feel comfortable with the change that has taken 20 years to develop and be able to look ahead with equanimity to the evolution he expects over the coming 20 years he may practice. But change that occurs so rapidly that the landmarks are completely obliterated between the last case and the next gives one a chill. If recent histroy shows us anything, it demonstrates that change is not only continuing but the rate of change is increasing in velocity. We lawyers must cope with an accelerating rate of change.
SPECIALIZATION Specialization holds a strong appeal for many General Practitioners. By narrowing the fieid, Specialization seems to hold out some help in a rapidly changing profession. At least it lets one concentrate on the relatively fewer changes in a smaller area of the law. We should beware the fate that has befallen the medicine men. When Lindburg flew the Atlantic, the yellow pages of the Little Rock telephone book listed almost no medical specialists. Today their number is legion. It has become difficult to find a physician to treat the whole person,let alone the whole family. A few years ago, I got a card from an eminent Little Rock orthopedist announcing that thereafter he would restrict this practice to problems of the hand. He did not specify whether he meant left or right. Specialization is fraught with the twin perils of appearing to claim more skill than is warranted on one hand, and over restricting the scope of practice on the other. A day of reckoning is surely coming for those States which permit one to become a legal expert much like a backwoods church permitted one to become a preacher, selfproclaimed and self-ordained.
LEGISLATIVE EFFECTIVENESS The State Legislature is one of the principal instruments of change. If we are to guide and control change we must have the best possible legislative rapport. In the past, a large number of lawyer-legislators assured us a powerful group of friends in the lawmaking process. Now the legal profession has a dwindling presence in the General Assembly, and we must look elsewhere for means to advise the Legislature about our views. Last year we took a significant step in this direction with the formation of LawPac - an organization whose goal is to have sufficient money to employ year round staff to keep the Bar and the Legislature in continUing contact for the mutual benefit of both. I hope this coming year will see this Bar-oriented organization flourish.
CONTINUING LEGAL EDUCATION I was privileged to be a Delegate to the 1968 National Conference of Continuing Legal Education at Chicago. There we could look back to the first Arden House Conference 10 years before when as George Seward said "CLE was still a vision". At Chicago our first item of business concerned the then beginning proliferation of CLE programs in some parts of the country. Now, a decade later, mandatory CLE is emerging in a growing number of states. No doubt, adequate ContinUing Legal Education, well designed and properly presented, can go a long way toward easing the stress of rapid change in the law. The format used in the past my be insufficient but the concept of learning beyond the law school door is surely a firm basis for coping with change.
l06/Arkansas Lawyer/July 1978
ADVANCE TECHNOLOGY Finally, a word about the machines in this Brave New World speeding ever nearer. Since I have great difficulty understanding anything with more than two moving parts, it is very difficult for me to comprehend how a computer can research a legal question or examine an abstract. A recent demonstration at a bar meeting was not lost on me, however. The salesman showed a miniature television screen which perched on a lawyer's desk adjacent to his telephone, connected to a computer in a distant city and able to calculate a client's bill before he could get out of the office. If the engineers can accomplish this, who is to say what their limitations are. CONCLUSION The salient feature of each of these tools for coping with rapid change is the implicit requirement of a strong Bar Association for its implementation. As your President, I pledge you my best efforts this coming year to see that our Arkansas Bar Association retains its vigor, purpose and direction, and I earnestly solicit your help and cooperation.
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CJS Set for Sale. A. Jan Thomas, Jr. P.O. Box 1368, West Memphis, Ark. 72301. 501-735-7700.
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Norelco dictating and transcribing equipment, in good condition. Contact Shackleford, Shackleford & Phillips, 100 East Church Street, EI Dorado, Arkansas. (501) 862-5523.
Annual Meeting Arlington Hotel, Hot Springs June 7-9, 1978 Summer Course Income Tax, UCC, Probate U of A Law SChool Fayetteville June 26-30 Regional Workers' Compensation Institutes--July, August, 1978 Dates and locations to be announced Fall Legal Institute Camelot Inn, Little Rock September 14-15, 1978 Quality of Life Seminar Inn of the Ozarks, Eureka Springs November 3-4
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Complete bound set of the Arkansas Law Review.. Might also consider buying only volumes 1-21. Brown & Etter Professional Association, Attorneys at Law, P.O. Box 3773 Little Rock, Arkansas 72203. Phone (501) 378-7877.
Glass front legal bookcases - Globe Warneke Luscomb - Macy - need 15 sections with tops and bottoms for each five sections. Hobbs and Longinotti, 500 Ouachita Avenue, Hot Springs, Arkansas 71901. Phone No. 501-623-6666.
July 1978/Arkansas Lawyer/107
THE TAX REFORM ACT OF 1976 PART I: Reasons Underlying Selected Changes In Gift And Estate Taxation By: Ralph G. Brodie
Nothing erodes confidence in and support for a democratic government more than the popular beliefs that tax laws are unfair or inequitable or both; Congress promotes and protects tax inequities that allow wealthy individuals and corporations to avoid paying taxes; and the legal profession is behind it all. By completely revamping the federal system of gift and estate taxation in the Tax Reform Act of 1976 (TRA 1976), Congress made giant strides to restore the basic concepts of fairness and tax equity' to the gift and estate tax law. Simplicity, which is another basic concept, suffered a setback and, except in certain areas like the unified tax credit and unified rate schedule, is not the word to use in describing the gift and estate tax changes made by TRA 1976.' Another even more basic concept of the tax law-tax stability'-was ignored once again,' but there is a growing opinion that it should be quickly restored. The purpose of Part I of this article is to acquaint the general practitioner with the reasons Congress thought selected changes in the gift and estate tax laws were necessary and to provide a perspective for how much gift and estate tax reform was accomplished by TRA 1976 and how much more is still needed in those areas.' This article will discuss three major changes in the gift and estate tax area, the unified tax credit, the unified rate schedule, and certain gift and estate tax avoidance techniques. The purpose of Part II of this article will be to discuss the need for the restoration of tax stability and to lOS/Arkansas Lawyer/July 1978
examine a relatively new approach which can be used to achieve and maintain tax stability through the indexation' of the unified tax credit and the unified rate schedule. It is a tradition in the legal profession that lawyers have an obligation not only to understand the underlying principles of tax law, but also to encourage a public acceptance of those laws that meet the tests of fairness, equity, simplicity (and necessary complexity)', and stability and to promote public support for changes that correct the laws which do not meet those tests. When lawyers understand the reasons for the changes made in TRA 1976, they can beller explain to clients why most of the changes were needed and why additional changes are still needed to complete this task. Perhaps then confidence in and support for government, for Congress, and for the legal profession itself will be measurably increased. INTRODUCTION The general effect (maybe even intent) of the Federal gift and estate tax system is to significantly increase the progressivity of the tax system and to help prevent excessive concentrations of inherited wealth. In 1942 when the old $60,000 estate tax exemption was passed, only 1% of estates were affected by estate taxes. The percent of estates affected increased to 8% in 1976.' This increase was part of the impetus behind certain changes made by TRA 1976.
Editor's Note: This article is the first of
a two-part sequel by Ralph G. Brodie on Gift and Estate Taxes and Indexation. Mr. Brodie received his B.S.I.E. and J.D., University of Arkansas, 1963 and 1966, and his LL M. (in Taxation), New York University, 1973. He is with the Brodie and Peterson, Ltd. law firm in Uttle Rock; past Executive Director of the Arkansas Tax Revision Commission; past President of the Pulaski Tax Counsel; and current Chairman of the Taxation, Trusts and Estate Planning Section of the Arkansas Bar Association.
Two of the major purposes for the gift and estate tax changes in TRA 1976 were (1) "to reduce the substantial variations in the tax burdens that ... exist(ed) for people with the same amount of wealth,'" I.e., to minimize the different tax consequences caused by the transfer of wealth to heirs at different times (during lifetime and at death); (2) "to eliminate ways by which estate planners ... reduce(d) the estate and gift tax burden through special patterns of transferring ... property."" I.e., to remove tax avoidance techniques from the gift and estate tax system. Under prior law there were substantial differences in the treatment between the gift laxation of transfers made during life (inter vivos) and the estate taxation of transfers made at death. These differences, in addition to the tax avoidance techniques available, provided a decided prefer-
ence for inter vivos transfers (gifts) which were used primarily by taxpayers wealthy enough to afford gifts and still maintain financial security. In general there were three factors which provided a decided preference for gifts: separate specific exemptions; separate rate schedules; and certain gift tax avoidance techniques. " UNIFIED TAX CREDIT: SEPARATE SPECIFIC EXEMPTIONS COMBINED AND MODIFIED
First, under prior law every taxpayer was allowed a $30,000 gift tax exemption and every decedenfs estate was allowed a $60,000 estate tax exemption. These exemptions were deducted in determining the total amount of the taxable gift or taxable estate and reduced the amount of each gift or estate subject to tax in the highest gift or estate tax brackets. When considering the gift tax exemption, Congress found that the exemption provided a preference for inter vivos transfers (gifts) that, as a practical matter, was available only for wealthy taxpayers who were financilly able to make them." Congress believed that merging the gift and estate tax exemptions into one overall transfer tax exemption which applied to both gift and estate taxes would achieve tax equity and provide equal tax relief without regard to the time the transfers were made (inter vivos or at death)." When considering the effect of the exemption itself, Congress found an obvious inequity. This ineqUity resulted from the fact that the amount of tax savings from an exemption, because of the graduated or progressive rate schedule, depended solely on the size of the gift or the estate transferred. This meant that the actual tax savings from an overall transfer tax exemption was effectively greater for wealthy taxpayers." Example 1: Under prior law, the tax savings from the $30,000 gift tax exemption ranged from $0 to $17,325, and the tax savings on the $60,000 estate tax exemption ranged from $0 to $46,200. The reason for this result was that the exemption reduced the total amount of the taxable gift or estate subject to tax at the highest tax rates (up to 57 ~% for gifts and up to nOlo for estates).
Congress also found that for a given revenue cost, the tax credit conferred more tax saVings on small- and medium- sized estates, whereas an exemption (deduction) conferred more tax savings on larger estates. ,. As a matter of equity, Congress belieVed that the overall transfer tax exemption should be changed to an overall transfer tax credit which would provide an equal dollar reduction against the tentative tax due for every transfer without regard to the size of the gift or estate. Congress, in a major step, adopted one unified tax credit for gift and estate taxes whch treats all transfers, and therefore all taxpayers, equally. Apparently to avoid an enormous revenue loss, the unified tax credit is being phased in over a five-year period. Year 19n
1978 1979 1980 1981
Credit
Exemption Equivalent
$30,000 $34,000 $38,000 $42,500 $47,000
$120,000 $134,000 $147,000 $161,000 $175,625
In 1981 the cred~ will reduce the percent of decedents' estates subject to estate tax to 1.7%.,. Congress should be commended for the fairness, tax equity and simplicity of the new unified transfer tax credit. However, Congress completely failed to provide the new transfer tax credit with tax stabilty. They failed to account fully for the effect of past inflation on the original 1942 exemption in setting the value of the new credit, and further, they failed to provide a method to automatically compensate for the effect of future inflation on the value of the new credit. Indexation is a method presently used by several other countries" to provide tax stability. UNIFIED RATE SCHEDULE: SEPARATE RATE SCHEDULES COMBINED
Second, under prior law there were separate tax rate schedules for both the gift and estate taxes. Each graduated tax rate schedule started the tax rate at the lowest percentage (2 Y4% for gifts and 3% for estates), and the rates became progressively higher as the value of the gift or estate became greater. Because of these
two separate rate schedules, the net tax paid was always smaller and the net after tax estate transferred to heirs was greater when gifts were made. The fact is that even if the rates had been identical, separate rate schedules provided a decided preference for making both inter vivos and deathtime transfers rather than having the total transfer subject to one
tax. 11 In addition, the inter vivos transfers had another significant tax advantage over transfers at death because the tax rates were not identical; the gift tax rates were approximately 75% of the estate tax rates in each corresponding rate bracket. The combination of lower rates and separate rate schedules provided a decided preference for gifts, which can be clearly seen in the following example showing the tax consequences of making a gift and not making a gift. Example 2: Consider a single taxpayer w~h a $1,000,000 estate in 1976. Under prior law, the tax consequences of making gifts was signfiicant. If a gift of $500,000 had been made more than three years prior to the donor's death, the gift tax paid by the donor (aferthe $3,000 annual exclusion and the $30,000 lifetime exemption) would have been $101,355. The gift tax would have been paid by the donor out of his remaining estate, leaving a taxable estate of $398,645 on which the estate tax would have been $70,550. The total tax would have been $171,905. In comparison, if no gift had been made, the estate tax due (after the $60,000 exemption) on the $1,000,000 estate would have been $303,500. Thus the incentive to make a $500,000 gift in this example was a $131,595 tax saving or a 43.4% tax reduction compared to the maximun tax due when subject only to the estate tax. When considering these differences, Congress found once again that the tax incentives built into the separate rate schedules provided a preference for gifts that were available only for wealthy taxpayers who were able to afford them. The preference for gifts was not generally available for taxpayers of small or moderate wealth since they usually had to retain their property until death to assure financial security during their lifecontinued on page 110
July 1978/Arkansas Lawyer/l09
Tax Reform Act continued from page 109 time. Congress also found that the preference resulted in an erosion of the transfer tax base." Congress believed that merging the gift and estate tax rate schedules into one overall rate schedule, which provided identical graduated or progressive tax rates based on cumulative lifetime and death transfers, would achieve tax equity and impose substantially equal tax burdens On transfers of the same amount of wealth, regardless of when the transfers were made (inter vivos or at death)." In a second major step, Congress adopted a single unified gift and estate tax rate schedule (now called the transfer tax rate schedule) which treats all transfers equally. Congress should be commended for the fairness and tax equity of the new unified transfer tax rate schedule. However, Congress has not cimpleted its work in this area. A close examination shows that the gift tax and estate tax have not been completely unified into a single transfer tax. Instead, there are still overlapping rules to determine when a gift is complete and when a taxable gift also becomes taxable in the estate." Further, Congress once again failed to achieve tax stability and to provide tax payers with relief from the greatest tax inequity of all-the disproportionate estate tax increase which resuits from the interaction of inflation and progressive tax rates. Indexation, which is already being used in the United States in two areas of the tax law," can provide tax. stability.
GIFT TAX AVOIDANCE TECHNIQUES: (ELIMINATED)
Third, under prior law, when gifts were made, part of the donor's estate (an amount equal to the nontaxable gifts made and the gift taxes paid on taxable gifts) avoided being subject to tax because that amount was not included as part of the taxable gift and also reduced the size of the taxable estate. As a result, that amount escaped both the gift and estate tax; this caused the net tax paid to be smaller and the net after tax estate transferred to heirs to be greater when gifts 110/Arkansas Lawyer/July 1978
were made. In contrast, if all property in an estate was retained until death, the taxabe estate included the full value of the property, even though part was required to pay estate taxes. When considering the third factor, Congress found several techniques that were used by estate planners to avoid taxes and that in most instances they were used only by wealthy taxpayers who could afford to make gifts. The tax avoidance techniques were the annual gift tax exclusion of $3,000 per donee; the lifetime gift tax exemption of $30,000 per donor; the gifts made three years prior to the donor's death which were excluded from the taxable estate; and the gift taxes paid On taxable gifts which were excluded from the taxable gift and the taxable estate. In addition, Congress was aware of the considerable litigation caused by lifetime transfers made in contemplation of death (gifts made within three years of the donor's death) and the presumption which, if successfully rebutted, excluded the entire gift from the taxable estate for the computation of tax. The next two examples show the different tax consequences that occured under prior law depending on the timing of the gift. Example 3: Consider the same single taxpayer in Example 2 with a $1,000,000 estate in 1976. Example 2 shows the tax consequences of a gift made more than three years prior to the donor's death. What that example implies bUl does not point our is that $194,355 of the $1 ,000,000 estate avoided being subject to either gift or estate tax. This was caused by the combination of the $3,000 annual gift tax exclusion, the $30,000 lifetime gift tax exemption, the $60,000 estate tax exemption and the failure to add back or "gross up"" in the taxable estate the $101,355 in gift taxes paid. In addition, because the gift was made more than three years prior to the donor's death, the gift was subject to lower gift tax rates, and the entire gift avoided being subjected to the higher estate tax rates. Example 4: If the same gift had been made within the three-year period prior to the donor's death, the donor's estate had to deal with the rebuttable presumption that the gift was made in contemplation of death. If successfully rebutted, the tax consequences would have been the same as those in Exampies 2 and 3. If
the presumption was not overcome, the following events would have occurred in 1976. First, the entire gift would have been brought back "grossed up" into the estate for estate tax purposes; second, the $101,355 gift tax paid would have not only avoided being subject to estate tax or "grossed up", but would have been a credit against the estate tax due. In this example, the taxable estate would have been $1,000,000 less $60,000 (estate tax exemption) and less $101,355 (gift tax paid) for a total remaining taxable estate of $838,645. The estate tax would have been $265,999, and the $1 01 ,355 gift taxes paid would have been credited against this amount. When the tax consequences of this example, $265,999, are compared with estate taxes paid when no gift is made, $303,500, as shown in Example 2, the popularity of the deathbed gifts is easily understood. In this example the incentive to make a $500,000 gift (even though it might be a deathbed gift in contemplation of death) was a $37,501 tax saving or a 12.4% overali tax reduction. Apparently, Congress believed" that in order to futher reduce the preferences for gifts, most of these tax planning techniques should be eliminated. As a result, Congress eliminated the $30,000 lifetime gift tax exemption by merging it into the unified tax credit. They also eliminated the exclusion from the taxable estate for gift taxes paid within three years of the donor's death by adding them back ("grossing them up") into the taxable estate and avoided double taxation by continuing to credit the gift taxes paid against the cumulative tax determined. In addition, Congress eliminated the problem of transfers in contemplation of death by including in the taxable estate all gifts made within three years of the donor's death at the value of the gift at the donor's death (or at the alternate valuation date) regardless of the donor's motive at the time of making the gift. Congress retained some of the incentive for gifts, however, by keeping the annual gift tax exclusion for present interest gifts of$3,000 per donee and the exclusion for all nontaxable gifts made three years prior to the donor's death from the taxable estate. In contrast, a $4,000 gift made within three years of the donor's death will incur an estate tax even though it may escape the gift tax." Split gifts which
allow this result is an area which needs additional simplification. The proposed Technical Corrections Act of 1978 (TCA 1978) will correct part of this problem. Apparently, Congress also intended to exclude the appreciation on nontaxable gifts valued at $3,000 or less when made and which increased in value between the time of the gift and the date of the donor's death. The proposed TCA 1978 will correct this oversight. Congress also continued to exclude from the taxable estate the gift taxes paid on taxable gifts made three years prior to the donor's death by not requiring that they be grossed up in the taxable estate even though they are credited against the transfer tax determined. In contrast, gift taxes paid within three years of the donor's death are grossed up in the estate and the gift taxes paid are credited against the cumulative transfer tax determined. Grossing up is obviously the proper approach for all taxable gifts, whenever made; because the estate tax is automatically grossed Up.211
Congress should be commended for the fairness, tax equity, and (except for the problems noted) simplicity achieved by these changes. However, Congress failed to come to grips with split gifts or understand the significance of grossing up all taxable gifts (regardless of when made). Congress did not grasp that the mechanics, which are somewhat difficult to orally describe, are not that complex for the practitioner. These are important defects in TRA 1976. 21 CONCLUSION In conclusion, there were three basic reasons for the changes in TRA 1976. Having found that gift tax preferences were used primarily by weathy taxpayers, Congress believed that (1) there should be no tax preference for gifts solely because of the size of the estate from which the property was transferred; (2) there should be not tax preference for gifts solely because of the timing of the transfer of property; and (3) there should be no major tax preference for gifts allowed solely by tax avoidance techniques. Congress eliminated the first preference by changing from an exemption to a credit which treats all trans-
fers and all taxpayers equally. Congress eliminated the second preference by having a unified tax schedule which applies equally regardless of when property is transferred and treats all transfers equally. Congress minimized the third preference by eliminating many tax avoidance techniques. By eliminating the three factors which provided a preference for gifts, Congress restored several basic concepts to the tax law and achieved a level offairness, tax equity, and (except for needed changes noted) simplicity which is rare in the tax field. However, Congress continues to ignore another basic concept which is even more fundamental- tax stability. Congress should seriously consider indexation, which is the focus of Part II of this article, to achieve and maintain tax stability in the gift and estate tax law.
9. Supra al 5.
10. Supra at 5. 11. STAFF OF THE JOINT COMMmEE ON TAXATION, 94th CONG" 2nd SESS.• GENERAL EXPLANATION OFTHE TAX REFORM ACT OF 1976, (HR 10612, Public law 94-455), at S26
(Dec. 1976).
12. Supra al 531. 13. Supra at 531. 14. Supra at 531. 15. Supra at 531.
16. STANlEY SURREY, REFLECTIONS ON THE TAX REFORM ACT OF 1976, TAX NOTES, THE JOURNAL OF RELEVANT TAX ANALYSIS, Vol. VI, No. 12, March 20, 1978,291.301.
some form in Canada, SWeden, Brazil, Colombia, ChHe, l$fael, F'lIlland, France and lhe United Kingdom. W~liam A. Ketly, Jr., etal, "INDEXING FOR INFLATION", TAX LAWYER 31 (Fall 1977), 17-35.
17. Indexatfon has been adopted in
18. Supra, footnote 11, at 526. FOOTNOTES
19. Supra at 526.
1. Tax equity-echleving the same tax treatment for
taxpayers In slmHar economic circumstances. 2. Technical compleXity, though usually undesirable, becomes acceptable when there Is no other way 10 achieve other basic concepts, I.e., fairness, lax equity or lax stability.
3. Tax stabllty-echieving the same tax treatment every year for taxpayers with estates of equal
buying pclWElf regardless of the combined effects of inflation and progressive lax rate schedules. For example. an estate in 1978 should not be taxed greater than one with an indentical buying power in 1942 solely because innation has ir creased the doftars required to retain that buying power. Vel in 1978 this incfeased number ofdol· lars places the estate In a higher lax bracket where ills taxed at a greater percentage than it was in 1942 when fewer dofIars were required for the same buying pclW8f'. 4. Section 507 of TRA 1976, caUed tOf the Joint Commltee on Taxation k)"make a full and c0mplete study and inY8Stigatbn with respect to smplifying and Indeq the tax laws of the United States," end 10 complete its work and recommendations by Jliy 19n. The first part 01 this study has been c:::ornpMted. STAFF OF JOINT COMMITTEE ON TAXATK)N _ CONG., _ SESS., ISSUES IN SIMPUFlCATION OF THE INCOME TAX LAWS, Sept. 19. 19n.
5. h is the author's hope thet this article is neither so simple that it insutts YOU' intelligence nor so c0mplex that It leaves you b'lssfuHy happy in the incor· rect belief that you are not a tax practitioner.
6. Indexation achkwes tax stablHty (see footnote 3) by counteracting the disproportionate tax In· creases caused by the Interaction of inflation end progressive tax rates, thereby maintaining a tax equivalence from year to year on estates of equal buying power.
20. Supra at 526. 21. Supra, lootnote 18, at 302. 22. The United States has already applied the con· cept of Indexing to the lax law in two areas: (1) ·'IRC 1415 (I) (1),,, amended by lheSociaJ$eclKity Amendments of 1972, Pub. L No. 92-336 1202,88 Stat. 406 (providing for automaticcosl of living adjustments in the maximum taxab'e wage base lor FICA taxes beginning in 1975)"; and (2) "IRC 1415, as added by the Employee Retirement Income Secldy Act of 1974, Pub. L. No. 93-406, 88 Stat. 879 (providing for cost of Iivng adjustments in the maximLm benefits allowable lor qualified pension and profit sharing plans)." Supra, footnote 17, at 20.
23. The term "grossed up" or Mgrossing up" means inchJdIng all gifts and all gin taxes paid ,.. the taxable estate. The theory is to align the facts and the tax consequences as nearly as possible as though gifts had never been made and gift taxes had never been paic:l. The resutt Is that the estale tax Is ~ to a "grossed up" estate. The gift taxes previously paid are then subtracted from the estate tax to a'o'Oid a doub6e tax. Present law does not r8QUII"e a compfete "gross up" of gift taxes,le., the taxes paic:l over three years prior 10 the donor's death are exduded from the taxabkt estate.
24. Only congressional action supports this stalement. 25. The split gift provision in IRC 12513 would this result.
aJk)w
26. Supra, footnote 18, al 302 and footnote 23.
27. Supra, footnote 16, at 302.
7. lbkl, foocnote 2.
8. H.R. REP. 94-1380, 94th CONG., 2nd SESS., ESTATE AND GIFT TAX REFORM ACT OF 1976, at 5 (Aug. 1976).
July 1978/Arkansas Lawyer/111
IMPACT OF OSHA AND PRE-INSPECTION COMPLIANCE BEING FELT NATIONWIDE As of May 1977, the Occupational Safety and Health Administration had issued some 275,000 citations for 1.4 million violations of standards and regulations. It has proposed penalties 01 $43 million for these violations. OSHA jurisdiction covers 65 million employees and 5 million places of employment. Last year 380,000 inspections were made. The far-reaching nature of this law which took effect in 1972 has made OSHA a familiar word to employers and employees throughout the nation. At the same time, it has meant numerous questions and problems for resolution in the courts. In turn, it has resulted in a need by lawyers for guidance in dealing with the many and complex issues raised by OSHA. West Publishing Company has announced publication of a new West Handbook, Occupational Safety and Health Law, designed to help provide the kind of assistance lawyers will find useful in coping with clients' questions and concerns. The new West publication covers all recent OSHA developments. It examines and discusses common legal issues raised by OSHA jurisdiction, standards of promulgations, and employer and employee rights and duties under the Act. The author is Mark A. Rothstein, Assistant Professor of Law at Ohio Northern University, and a former attorney-advisor to Commissioner Timothy F. Cleary fo the Occupational Safety and Health Review Commission. Professor Rothstein serves on the American Bar Association OSHA Committee and has written extensively on the Occupational Safety and Health Act. In individual chapters Professor Rothstein considers enforcement aspects such as inspections and citations, and contested issues. He discusses notices of contest, abatement, degree of violation, penalties, the Occupational Safety and Health Review Commission, pre-hearing procedures, the hearing, Review Commission procedures and judicial review. The concluding section examines state plans-24 states have approved plans comparable to 112/Arkansas Lawyer/July 1978
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OYEZ
•
,, OYEZ ••
by Barbara Tarkington Membership Secretary
John Mann was named in January as
"Personality of the Week" in the Forrest City Times-Herald. Fred livingston has been named as the sponsor of the Batesville membership drive for the Mental Health Association in Arkansas. Donald Poe, Sr., Waldron, has been chosen as
one of the Notable Americans of the Bicentennial Era. Ron Mills has joined the lomanco, Inc. of Jacksonville as general counsel. lloyd Henry, Jr. formerly associated with lawyers Hie of Ark., Inc of little Rock, has assumed duties as manager of Guaranty Title Company of Hot Springs. Philip R. Dixon, formerly of Jonesboro, has been appointed trust officer of the People Bank and Trust of Mountain Home. Jack T. lassiter, little Rock, was named by Governor Pryor to the Supervisory Board oflhe Criminal Justice and Highway Safety Information
Center. Robert Jones, Jr., Fort Smllh, was named recipient of the 1978 Salvation Army's "Others" award. JUdge Milas H. Hale, Sherwood, has been elected 1978 president of the North Pulaski County Chamber ot Commerce. D. Malcolm McNair, Jr. has been elected vice president of the FayetteVille SaVings & loan Association. The oldest member of the Columbia County Bar Association, A. A. Thomason, age 81 , has retired, but will continue in an advisory capacity for Thomason & Thomason. Jeanene Dunham Dellllle, lillie Rock, has been promoted to Director of Development for 114/Arkansas lawyer/July 1978
UAlR. Kathleen Bell has been sworn in as the first woman member of the state Claims Commission. Hillary Rodham, Little Rock, has been appointed to serve as attorney for the Airport Commission. Ms. Rodham also spoke at the February annual meeting of the Arkansas Home Economics Association. Jim Hannah, Searcy, spoke at a March luncheon meeting of the Bald Knob Rotary Club. Sid McMath spoke at the March meeting of the Judsonia Post 113 of the American Legion. William A. Mclean was a guest speaker at a March dinner meeting of the EI Dorado Business & Professional Women's Club. Robert A. Keegan, FayelleVille, spoke at a February meeting of the Northwest Arkansas Advertising Federation. Frances Holtzendorff spoke at the National Association of Women Lawyers' meeting in New Orleans. Andre E. McNeil spoke to members of the Newcomers Club of Conway at a February meeting. Jeff Starling and John A. Davis, Pine Bluff, spoke at a lillie Rock conference for Arkansas businessmen sponsored by the Arkansas Chamber of Commerce. Wlillam H. Bowen, little Rock, was guest speaker at the annual Bryant Chamber of Commerce banquet
C_ Rea has moved his office to 1700 First National Building, little Rock. John B. Peace has become associated with Davidson, Plastiras, Horne, Hollingsworth & Arnold, lid. Bill Henslee has moved his law office to 902 West 2nd, little Rock. Richard H. Mays has moved his lillie Rock law office to 1100 North University. David Capes, formerly of Virginia, is now located in SI. louis, MO. Albert l. Cox, lormerly of Mountain Home, is now 10cated in Sikeston, MO. Thomas E. Moore, Eureka Springs, has taken over the law practice of John O. Maberry. WiIlIam Kirby Mouser became a partner of a Pine Bluff firm and its name changed to Bairn & Mouser. Robert l. Brown, formerly of Washington, D.C., is now located in little Rock. Mike Lonsberry, formerly of Texas, has joined the Monticello law firm Williams, Ball & Bird. Harold l. Hall, former public defender for the 6th Judicial District, has opened his own law office in the 300 Spring BUilding, Ste 415, Little Rock. George E. Butler, Jr_, formerly of lillie Rock, has joined the FayetteVille law firm of Pettus & Johnson. G. Wayne Mooney has joined the law office of John R. Henry, Harrisburg. John Tennant, formerly with Social Services Fraud De-
held in January. Thomas Hayden Arnold
taction Service, is now in law practice with
has become associated with Offenhauser Roscoft & Epes of Helena. Paul E. & Company in Texarkana, Texas. Danielson, former deputy prosecuting atMichael R. Greene, formerly of Texas, is forney for 6th Judicial District, has formed now located in Basking Ridge, New Jera law partnership at 623 Garrison, Fort say. Donald R. Bennett has become a Smith wllh Tony Skogen who has remember of the Rogers law firm Kelley, turned from California where he worked Luffman & Jennings. John Forster, Jr. with Pacific Telephone and Telehas joined the North little Rock law firm of graph. The Pope-Yell Bar Association's Wallace, Hilburn, Clayton, Wilson & Hanbasketball team, Burger's Bandits, lost to kins, lid. A new law firm has been formed the Russellville's Police Department Blue in North littie Rock of Andrew l. Clark, Fuzzies, but they must have had a great Jim Hamilton & Harold W. Madden with lime. The Pulaski County Bar Association offices located at 108 East 4th. Alfred F. and UALR School of law presented 8 Thompson, formerly of Ash Flat, has weekly sessions on basic income taxation opened a law office in Batesville. William tor general practitioners. NEW BAR OFFICERS Southwest Arkansas Bar Association Monroe County Bar Association President Philip B. Purifoy President Raymond Abramson V-President Ed W. McCorkle Secretary Steve Elledge Sec.-Treas. Talbot Feild, Jr. Treasurer John McKnight NEW LOCAL BAR Lonoke County Bar Association Hot Spring County Bar Association President Lawson E. Glover President Howard L. Martin V-President Bill Gilliam V-President Navada Roberts. Sec.-Treas. Chris Walthall Sec.-Treas. William Reed ~
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HOW TO SAVE BLACKACRE FROM THE FEDERAL TAX COLLECTOR by Wayne Boyce
The tremendous increase in recent prices paid for farm land in Arkansas poses a very difficult problem for heirs who have inherited the family farm. If the farm is valued in the Federal Estate Tax Return by the traditional test of fair market value as determined by sales of comparable land in the area, the amount of the tax may make it impossible to continue to own and operate the farm. Fortunately, the Tax Reform Act of 1976 provides an alternate method of valuation that will greatly reduce the Estate taxes where the qualified land is a major asset. In a nut shell, Internal Revenue Code Section 2032A permits land to be valued by a formula which would capitalize the cash rent for comparable land, less aver路 age real estate taxes, divided by the average interest for Federal Land Bank loans. In our example, Blackacre is a 500 acre farm. Other comparable farms in the area produced an average cash rent of $34.00 per acre over a period of the five most recent calendar years ending before the date of death of the decedent. Over the same period, the real estate taxes for comparable farms averaged $1,000. The Federal Land Bank average interest is reported to be 8V2%. Applying these figures to the formula given in 搂 2032A would yield the following:
$17,000 rent (500 acres x $34)
minus
1,000 taxes 16,000
divided by
.085
= $188,235 value.
116/Arkansas Lawyer/July 1978
A little further calculation will show this to be $375 an acre which compares most favorably with recent agricultural land sales of $1,000 an acre and up. Thus, use of the optional value may reduce the adjusted gross estate and the resulting tax by thousands of dollars. In practice, the use of the formula provided in Section 2032A(e) (7) may not be so easy. Under the old comparable sales approach to value, one could go to the Recorders Office and either read the consideration stated in the conveyances or count the Document Stamps affixed theretoat$1.10 perthousand. Only in rare instances will cash rental arrangements be a matter of public record. In much of Arkansas, all comparable land In the locality may well be farmed on a crop share bases. Until Regulations are issued "comparable land" and "locality" are imprecise terms that give an opportu'nity for considerable difference of opinion. Obviously the taxpayer should select "comparables" that produce the lowest value under the formula. An appraiser might be able to obtain written statements from landlords or tenants of cash rent paid on land he deemed comparable to support his opinion. Determination of the real estate taxes should be much easier since taxes are a matter of public record. The "locality" would have to be Iim~ed to the same taxing district for the figure to be valid. The appraiser could submit a letter from the tax collector in support of his determination of the average annual taxes for comparable land. If taxes are properly and equally administered, taxes on the land in the decedent's estate should be the same as the taxes on "comparable land".
On the surface, the easiest factor in the formula should be the "Average annual effective interest rate for all new Federal Land Bank loans...on the basis of the five most recent calendar years ending before the date of the decedent's death". Unfortunately no such figure exists. There are twelve Federal Land Bank districts in the United States and each district determines its own interest rate. Arkansas is in the district headquartered at St. Louis. Federal Land Bank of St. Louis is providing the following figures:
1/01/72-5101/74 7V2% 5101/74-8101174 8% 8/01/74-11/01/75 8V2% 11/01/75-8101/76 9% 8/01/76-9/01176 8'1'% 9/01/76-12/31/76 8V2% In order to obtain a Federal Land Bank loan, stock must be purchased in the Land Bank. The Federal Land Bank of St. Louis suggests that .5%-one half of one percent-be added to the rate otherwise determined to take into account this stock purchase requirement. For all decedents dying in 1977 the weighted average annual interest rate for 1972 to 1976 based on the above is 8.58%. A TAX TRAP FOR THE UNWARY
An election to use the benefits of 2032A must be made within the time for filing the Estate Tax Return, including all ex1ensions. Failure to make a timely election would forfeit the right to use the optional valuation method. Decision should be made well before the expiration of nine
months from the date of death filing period. ~ might be desirable to make a protective election of Section 2032A valuation, since presumably the election could be revoked within the three year statutory period if the sUbsequent issuance of Regulations made the election undesirable. The revised Form 706-Federal Estate Tax Retum-has a question at the top of page three asking whether ยง 2032A has been elecled. Checking the "yes" box indicates the eleclion has been exercised, but the instructions following the question should be carefUlly read and followed. There are nine reqUirements provided for in the instructions. A schedule should be attached to the Estate Tax Return providing the following information: (i)
Items of real property which are being used for the optional valuation by Estate Tax Return Schedule and lIem number. Legal description of the land should be included or attached.
(ii)
List of personal property included in the "qualified use" for optional valuation.
(iii)
A statement showing that the assets had been used in a "qualified
use", (iv)
(v)
(Vi)
The "fair market value" of the qualified property determined by traditional methods and without regard to the valuation methods of Section 2032A. The method used to arrive at the special value under the optional valuation provision of Section 2032A. Copies of written appraisals supporting values should be attached.
(vii)
The date the decedent acquired the property. If the qualified use commenced on a different date than acquisition, that date should also be given.
(viii)
The periods of time, if any, during which the decedent (or a member of his family) failed to "materially" participate in the operation of the farm.
(ix)
The name and the relationship of the Decedent to each heir inheriting an interest in the property.
In completing the Estate Tax Return, care should be taken to indicate on the appropriate schedule that the valuation is
a "Section 2032A valuation". Since the "fair market valuation" is reqUired, it probably should be given as a footnote, in a special attachment, or parenthetically in the "Item" column olthe schedule to avoid confusion in computation. In addition to the items specified on page 3 of Form 706, Section 2032A requires the "qualified heir" (there can be more than one) to sign an agreement with the Internal Revenue Service. The Code anticipates that the Secretary of the Treasury will promUlgate the form of the Agreement but no form has as yet been prOVided. In the absence of an approved form, careful reading of Section 2032A(d) (2) is recommended before attempting to draft your own Agreement. The purpose of the agreement is to bind all persons with an interest in the qualifying land to pay any taxes that may become due in the future should a "recapture event" occur. In completing the Estate Tax Return the traditional "fair market value" of the land must be given. Section 2032A (a) (2) provides that the maximum reduction in value of the farm real estate that can be obtained by using the optional valuation method is $500,000. Because of this limitation, the fair market value must be given as well as the optional valuation. In both the Agreement and in the Form 706, the legal description of the land qualifying for the ยง 2032A treatment must be given. Considerable thought should be given to which land should be included. While it would be unnecessary to include more than enough land to produce the $500,000 limit, still SUbsequent adjustments by the Revenue Agent during audit may change values to such an extent that a closely restricted use of the election might resu~ in not making full use of the permissible $500,000 reduction. IS BLACKACRE ELIGIBLE? In order for Blackacre to be valued under the provisions of ยง 2032A it is necessary to establish that the Decedent or a member of his family "materially participated" in farming Blackacre for five of the last eight years before Decedent's death. The Code provides that "material participation" shall be determined in a manner similar to the way that test is applied in determining whether selfemployment tax is due on income to qualify for Social Security purposes. IRC Section 1402(a) (1). Does this mean that if Decedent did not in fact pay self-employment tax on his farm income that Blackacre is disqualified? In the absence of Regulations it is difficult to say how far the "similarity" of the tests in the two different sections may go. In advising elderly
clients whether they should report income as rent or self-employment earnings, it would seem to be the safer course to report and pay self-employment tax on the farm income. The IRS would not be bound to accept this self-employment tax payment as conclusive evidence of meeting the "material participation" test, but it would certainly be a persuasive point. Where one is now faced with a situation where the self-employment tax was in fact not paid for five of the last eight years, one should marshall such other evidence of material participation as he has available and agressively contend that the Decedent did materially participate.
WHO IS A "QUALIFIED HEIR"?
The Code defines a "qualified heir" as a member of the decedent's family. The family relationship is restricted to descendants or ancestors or a descendant of a grandparent. Perhaps this means a "qualified heir" must be a child, grandchild, parent, grandparenl, brother, sister or cousin of the decedent. Spouses and legally adopted children are "qualified heirs". There are probabiy some other familial relationships that would qualify. The best thing to do is take the given relationship and carefully read ยง 2032A(e) (2) the part of the law that deals with the definition of this particular term.
WHAT IN THE WORLD IS "MATERIAL PARTICIPATION"?
If Decedent is farming the land there is no question. The problem arises when the defunct is doing something less than making the crop. How much less can one do and still be materially participating? " .. .Material participation in the "man-
agement of the production means that the landowner or tenant has to participate in the management decisions or physical work relating to the farming activities. If an owner wishes to have his rentals included as self-employment income, he may establish material participation by showing that he periodically advises or consults with the share-farmer and inspects the production activities...the furnishing of a substantial portion of the machinery, implements and livestock used in the production activities and assumption of some of the financial responsibility would be considered as material participation." CCH Federal Tax Service, 58,053" 4862.061. continued on page 122 July 1978/Arkansas Lawyer/117
TOWARD A NEW JUDICIAL ARTICLE By George E. Campbell In November, 1979 or 1980, the voters of Arkansas are expected to consider a new Constitution for the State. ' It is likely that this document will contain a Judicial Article significantly changing the structure of our courts. This new Judicial Article is yet to be written, by delegates as yet unchosen, but can be expected to find its roots in several official examinations of the court structure of the State which have taken place in the preceeding fifteen years. Based on various recommendations of official bodies submitting proposals since 1963the following will be the likely major issues of judicial reform before the convention of 197980: "A unified court system with stronger administrative power in the Supreme Court. "A system for discipline and removal of judges in substitution for impeachment proceedings. "Creation of an intermediate court of appeals, affected to a large degree by voter action on a proposed constitutional amendment at the 1978 general election. "A more uniform system of limited jurisdiction courts with increased monetary limits on jurisdiction. "Consideration of more concurrent law and equity jurisdiction at the general trial court level. "Elimination of judicial functions of the county judge, and establishment of separate juvenile jurisdiction in general trial courts or subordinate divisions. "Possible alternatives to direct legislative selling of judicial salaries. "Examination of the function and relationship of locally elected circuit and county clerks to the operation of local courts. "Judicial selection compared with popular election, and possible geographic districting for appellate court positions. Whether the new Judicial Article will represent a marked departure from the present fragmented structure cannot yet be judged. Observers 118/Arkansas Lawyer/July 1978
who participated in the Constitutional Convention which produced the proposed Constitution of 1970, consider that several events in recent years may be expected to cause the delegates assembling in 1979 to be primarily concerned with the basic structures of the executive, legislative and judicial branches, and local finance and taxation. Some of the more controversial provisions of the proposed Constitution of 1970 have been enacted into law, either directly or in substance,' and other largely economic issues such as the usury limit and right-to-work have since been considered by the voters in proposed constitutional amendments. The proposed provisions regarding changes in county government were largely effected through the adoption of Amendment No. 55, and while clarification may be expected in this area as it relates to judicial functions of the County Judge, it is not likely that county government reform will consume a great deal of delegate attention. Based upon this writer's experience as a delegate it is unlikely that the convention once it has progressed to a reasonable degree will be satisfied with disbanding, and the delegates will make every effort to reach a common understanding so as to propose a document considered acceptable to a majority of the voters. It may be assumed that with few social or economic constitutional issues of uncertain political reality, the product of the convention will be a moderately conservative, but nonetheless significant, revision of the basic articles. Concern for judicial revision has not been solely limited to recent years. No less than six amendments to the Constitution of 1874 related to the courts have been adopted at various times since 1874. While these amendments largely dealt with salary limitations, others addressed themselves to the organization and power of the courts.' A summary review of the work of official bodies since 1963 may better
EDITORS NOTE: Serving first as Executive Secretary to the Arkansas Constitutionai Revision Study Commission, and later as a delegate to the Seventh Arkansas Constitutional Convention, George E. Campbell has participated in recent constitutional revision efforts. He was
chairman of the Constitutional Convention Advisory Commission charged with preparatory work for the convention, and has served as chairman of the Constitutional Reform CommiNee of the Arkansas Bar Association. A 1955 graduate of the University of Arkansas School of Law, he is a member of the Utl/e Rock firm of Rose, Nash, Williamson, Carroll, Clay & Giroir, a Professional Association. He
serves as a regional vice路president of the National Municipal League, and is a member of the American Law Institute.
acquaint Arkansas lawyers with the problems and solutions proposed in recent years for judicial reform in Arkansas. ARKANSAS JUDICIARY COMMISSION
The creation of the Arkansas Judiciary Commission in 1963, as the result of legislation,' had its origin in a general dissatisfaction within the General Assembly over the lack of a fair distribution of the judicial workload among the various courts in the State when faced with continuing request for increases in judicial salaries and expenses. The lack of reliable statistical information necessary to evaluate the various judicial workloads led to a determination by the Arkansas Bar Association to call upon the Governor and General Assembly for the creation of a commission to
!
conduct research relating to the improvement of the judicial system of the State including its administration, rule-making power, methods of selection of judges, revision of boundaries of judicial districts, matters relating to compensation and retirement benefits, improvements in the minor courts system, and other changes as might provide for the efficiency and quality of the judicial system. Recommending constitutional amendments, numerous legislative measures, and presenting the most complete gathering of statistics available to that time, the report of the Arkansas Judiciary Commission regrettably accomplished only two significant enactments. First, the establishment of the Chief Justice of the Supreme Court as the administrative director of the Judicial Department, with the authority to establish an office for the administration of these functions under the direction of an executive secretary was accomplished by Act No. 496 of 1965.' This office has provided a means of establishing regularly reported statistical information concerning the operation of the courts within the State, and, among other duties, has provided assistance in the temporary assignment of judges to reduce court congestion. Secondly, improvements were made in judicial salaries and statutory provisions concerning retirement. The principal recommendation of the Judiciary Commission was a proposed constitutional amendment providing for the selection of judges for the Supreme Court rather than popular election. The proposal was similar in most respects to the "Missouri Plan". Other portions of the amendment would have established a Court on the Judiciary which would have been empowered to hear all matters conceming the disciplining and removal of judges, and a separate family court to be conducted by existing chancery judges, with jurisdiction over juveniles. The proposals of the Judiciary Commission were not in themselves revoluntionary, though the provision on selection of judges may have seemed so to some. For the most part, they reflected a careful study of the better of solutions to similar problems developed by other states. An effort to develop public support for the proposals of the Judiciary
Commission was the Citizens Conference on the Courts held in 1965 at Hot Springs under the joint sponsorship of the Arkansas Bar Association and the Amerian Judicature Society. This Conference produced a report endorsing in general many of the proposals of the Judiciary Commission, and when the General Assembly failed to act on the Judiciary Commission's major proposal a serious effort was undertaken by lawyers interested in reform to propose by initiative a constitutional amendment for the revision of the judicial article generally along the lines suggested in the report of the Judiciary Commission. The Arkansas Judiciary Commission was chaired by Associate Justice John A. Fogleman who was then a practicing attorney. Justice Fogleman has stated that his work with the Commission later affected his decision to seek election to the Supreme Court. Walter R. Niblock, later to serve as President of the Arkansas Bar Association, served as Executive Secretary of the Judiciary Commission. CONSTITUTIONAL REVISION STUDY COMMISSION
Following on the work of the Judiciary Commission, though not by specific design, was the creation of the Constitutional Revision Study Commission by the 1967 General Assembly. While earlier statements of incoming Governor Winthrop Rockefeller were indicative of support for calling a constitutional convention, he chose instead in his 1967 inaugural address to propose a study commission. There was support in the 1967 House of Representatives for a direct call of a convention but the bill was defeated by a vote of 43 to 44, with 51 votes needed for passage. The creation of the Study Commission and the possibility of a constitutional convention or proposed judicial amendment coming from its work brought a halt to independent efforts toward major judicial reform. The Constitutional Revision Study Commission consisted of 30 members appointed by the Governor, the leadership of the General Assembly, as well as by the Chief Justice of the Supreme Court and the President of the Arkansas Bar Association. Judge Robert A. Leflar, then Distinguished Professor of Law at the University of
Arkansas School of Law in Fayetteville, served as Chairman of the Study Commission. This Commission began a study of all phases of the Constitution of 1874 and its amendments in March 1967, and shortly thereafter determined that the need for revision was 50 large in scope that it could only be accomplished by a constitutional convention. While this determination was not unanimous, it represented the opinion of a substantial majority of the members. The Study Commission determined its best assistance to the recommended convention would be to prepare a series of draft articles, with many provisions in the alternative, which might be used as a beginning point for the convention which it recommended to follow. Its report was presented to a special session of the General Assembly in 1968,' and legislative measures were adopted providing for the submission of the question of whether to hold a convention, as well as providing for the election of delegates, in the 1968 general election. While the StUdy Commission, as distinguished from the JUdiciary Commission, addressed all phases of constitutional revision, it did propose a draft Judicial Article which recommended the creation of a unified court system with the Supreme Court as administrative head of all courts with districting and rule making power; elimination of justice of the peace courts and consolidation of other minor courts into a system of municipal courts with county-wide jurisdiction; the selection of judges by a nominating commission at both the Supreme Court and trial court level; the creation of a Court on the Judiciary with the power to discipline, suspend, remove or retire judges of all courts; and the establishment of a family court system by the Supreme Court within a circuit court district. The power to adjust boundaries of district courts would have been established with the Supreme Court as a matter of administrative detail although the General Assembly would fix by law the number of the districts and the number of judges to be selected within a district. No judicial power would have been retained in the present office of County Judge, and such office would be converted to an administrative rather than judicial continued on page 120
July 1978/Arkansas Lawyer/119
Judicial Article continued from page 119 office. Additionally, prosecuting attorneys would be prohibited from engaging in the private practice of law. The report of the Study Commission recommended submission to the people of the question of holding a constitutional convention. At the 1968 general election the issue carried favorable, though by a narrow margin of 227,429 to 214,432, or 51.5%. Companion legislation also provided for election of delegates at the same general election. This was largely to save the expense of a special election, but the campaign for delegate positions also served to acquaint voters with the question of the convention call. CONSTITUTIONAL CONVENTION OF 1970 The Seventh Arkansas Constitutional Convention convened in 1969 and primarily accomplished its work in that year, submitting the final document on February 10, 1970. Judge Leflar served as President of the Convention as its unanimous choice. Various studies of the composition of the Convention and its work have been published and analysis here is unnecessary.' The proposed Constitution of 1970 was defeated by a substantial margin (42.5% For, 57.5% Against). Various reasons contributed to its defeat, not the least of which was the direct opposition from certain judges and members of the bar to provisions of its Judicial Branch Article. While the campaign against the proposed Constitution of 1970 was publicly directed against provisions which would have permitted the increase in certain local property taxes, the impetus for such opposition came more directly from members of the judiciary and the bar than any other group. Many county judges were opposed to the changes which would have established an effective legislative body at the county level. These same county officials were willing a few years later to exchange that objectionable portion -for provisions which removed salary limitations for county officers as embodied in Amendment No. 55. Fifty-one of the 100 delegates to the Convention of 1970 were lawyers or legally trained, most of whom sought appointment to the judicial 120/Arkansas Lawyer/July 1978
branch committee. Such appointments were not available because of the large number of lawyers and the necessity to have committees of approximately equal size. Substantially all of the members of the committee were, however, lawyers. No substantive provisions of the draft document brought forth as many amendments and proposed substitutions, and no debates were as confused or frustrating as those related to the judicial provisions. Lawyer delegates were not only influenced by their particular experience and view of judicial reform, but were heavily influenced by the attitude of local bar associations and trial judges. Utimately, the Convention of 1970 determined not to recommend the selection process for judges, but this was a heaVily debated and much amended proposal. The resulting Judicial Branch Article,' determined largely by votes of lay delegates since the lawyers were divided, established provisions for substantial change including: 'A unified court system with the Supreme Court at the head with expanded supervisory powers over other courts. 'District courts having the functions of present circuit, chancery, probate and county courts. 'County trial courts having the functions of municipal, juvenile, mayor's police, courts of common pleas and justice of the peace courts. 'A Judicial Ethics Commission to recommend discipline of judges to Supreme Court for the determinination, but not as a total substitution for impeachment or criminal or civil proceedings. 'Permissive language for legislative creation of an intermediate appeals court (in substance the same as the constitutional amendment proposed by the General Assembly to be voted on in November, 1978). 'Prohibition against private law practice by prosecuting attorneys. THE CONSTITUTION OF 1980 Predictions of what will be significant constitutional issues one or two years from now is difficult. Concern over local finance and taxation will, as in 1970, be no less of a central issue since the problems in that area have grown more intense. Economic pressure related to inflation and federal
taxation may create a more conservative bloc than existed in the Convention of a decade ago. The "energy crisis" was unknown in 1968 in Arkansas, as indeed in most of the nation. Environmental and ecological considerations were discussed but not yet governmental doctrine as in 1978. The shortcomings of the jUdicial system as a national problem then, as now, is an identifiable probiem with a degree of application in Arkansas. The Watergate experience and prior cries for "law and order" have largely come and gone between 1968 and 1978. This time the Convention will be different, but how different is more to be determined by the quality and personality of the delegates, than by known external forces at this writing. While in part conjecture, it is observable that the proposals submitted by largely distinct and separate public bodies in the past fifteen years have several common areas where reform is recognized as desirable. These include: 'Greater administrative control over all the courts by the Supreme Court in a unified court system, with less dependence upon and interrelation with the legislative branch. 'A desire to eliminate the confusion of law and equity jurisdiction between general trial courts which is difficult to comprehend to the average layman, and has largely been abandoned by most other states, as well as Great Britain from which it descended. 'A desire for a body having disciplinary power over judicial officials, other than reliance on the legislative impeachment process. (To a degree, 1977 legislation in the area provides a tentative solution, but a constitutional change is required to effect a court on the judiciary, as it is generally in use in other states.) 'An awareness of the need to broaden the jurisdiction of minor local courts to relieve the trial courts of general jurisdiction of claims for lesser monetary amounts. 'Authority for the creation of an intermediate appeals court with the view to reducing the workload of the Supreme Court. 'A recognition that more flexible administrative procedures are re-
I
quired at the general trial court level to balance workloads, prevent unnecessary delays, and restore confidence of the public in the working of the court system. -Flexibility to establish a "family court" with juvenile, custody, divorce and related jurisdictions to provide a single forum for interrelated family crises. Opposition to the proposed Constitution of 1970 by segments of the jUdiciary and bar will not go unnoticed by the delegates in 1979, but parallels cannot easily be drawn since subsequent events may have altered the public's perception of the need for judicial reform. The Supreme Court and the General Assembly have publicly identified the need for an intermediate appellate court. The legislature in the recent redistricting legislation has provided for the merger of law and equity courts under a single judge in certain districts, and the experience of these courts may dispel concern over the ability of trial courts to function with merged jurisdiction. The recent publicity and the apparent ineffectiveness of the General Assembly in dealing with the discipline of trial judges, short of impeachment, has focused public attention on the need for a better disciplinary mechanism. Coupled with these recent events are the increased demands which may be placed on our State's court system as the result of the emphasis in the federal judiciary to limit the filing or removal of cases based on diversity of citizenship, as well as the likelihood that the growing numbers of practicing lawyers will indirectly effect a material increase in the workload of the courts. The various experiments with publicly funded assistance by lawyers to indigent clients in the civil area, as well as other experimental efforts in the improvement of the delivery of legal services will surely result in increased utilization of the courts. The election of delegates to the Constitutional Convention convening in 1979 will, according to some observers, result in the selection of delegates more nearly committed to specific points of interest than was the experience i n 1968. A person choosing to run for the position of delegate in 1968 had no assurance that a convention would ever be held since the question of holding the conven-
tion was on the ballot at the same election, and the position was not sought, in most cases, by persons with political or special interest identification. Some delegates even ran on a platform of opposing the idea of a convention, but urging their election as a protection to the people in the event a convention was held. These factors may contribute to the election of a lesser percentage of lawyers in the delegate body than was the experience in 1968, as candidates of special interest groups may be numerous and well financed. Lawyers, however, tend to be represented more heavily in a state constitutional convention than any other business or professional class when viewing statistics of state constitutional conventions in the nation. Public statements of some legislators indicate that more office holders may seek election as delegates since the enabling legislation provides that holding of other public office is not a disqualification for election as a delegate.' Few rational delegates, whether lawyers or laymen, can be expected to consider our present system of courts totally suited for today's needs, much less those of the 21st Century. There is no reason to suppose the delegates elected in 1978 will be any more or less representative of the people than at other conventions in the State's history. Common sense does tell us, however, that by seeking election most delegates will be interested in reform of the basic document, rather than protectors of the present system. Thus, it is clear that proposals of major proportion will be made. RESPONSIBILITIES OF THE BAR
Given the certainty that a convention will be held, and the near certainly that a revised judicial article will result in changes in the basic stnucture of the courts, members of the bar have a particular responsibility to the State and to the profession to be active in the deliberations of the convention, either as delegates or by contribu1ing directly or through the Arkansas Bar Association, in the work of the convention to achieve the most desirable reforms. In recent years the Arkansas Bar Association has largely been concerned in the area of judicial reform
with legislative measures directed to procedural and technical reform. Emphasis must now be placed on planning for the constitutional convention so that responsible and informed members of the bar may contribute to the understanding of needed reforms through appropriate committees of the convention and assure that consideration is given by the convention to comprehensive, yet practical, reforms lest the potential narrow interest of a few influential delegates deter the convention from a full consideration of desirable measures. The author recognizes that his analysis of what is "desirable" may not reflect the considered judgment of other members of the bar, and it is not suggested that the solu1ions proposed by our Association should likewise be considered more "desirable" than those which may be ultimately chosen by the convention. However, no other organization can more forcefUlly or intelligently speak for the legal profession than our Association. Consideration should be given by every member of the bar as to whether he or she can serve as a delegate.,. The rewards of genuine pUblic service are modest, but the author's experience has been that no effort strengthens one's belief in the rule of law more fUlly than participation in the examination of and efforts to improve the fundamental document under which our State's government operates. If you do not choose to seek election as a delegate, your influence in your commun路 ity to encourage those with the requisite judgment and desire to become delegates should not be underrestimated or unexercised. The jUdicial system under which most of us will practice for the remainder of our professional careers may very well be determined during 1979 and 1980. We bear a particular responsibility in seeing that that system is stnuctured in a manner consistent with the present and future needs of our State and its citizens. FOOTNOTES
Session> provides''''''''
1. Act 3 of 19n(F.., Ex. call of the convention, the method of selection of delegates and provides that the people in the 1978 general election sha禄 designate the vote on a proposed document to be eithef at the 1980 general election or at a special election in November, 1979. This act Is complied 8S a noIe to
Ark. Stats. Ann. section 2路104 (1977 SUppl.). 2 As an example, the provisions lor reorganization
continued on page 122 July 1978/Arkansas Lawyer/121
Judicial Article
BLACKACRE
continued from page 121
continued from page 117
of the executive branch were substantially implemented in the administration of Governor Dale
Bumpers. The "price-fixing" of liquor was repealed by Act 106 of 1971. Separation of intangibles for purposes of property taxation was pennltled by Amendment No. 57 taken directly from Article 7, Section 3, of the proposed Constitution 011970. The reversal of~Dillon's Rule" as to cities of the first class in Ark. Slats. Ann. Sections 191042 and 1043 (1977 Suppl.), and the expressions of "home rule" are directly adapted from
Article 6, 5ectk)n 12. of the proposed Constitution of 1970.
3.
See Constitutional Amendments Nos. 9, 15, 24,
28, 37 and 43. 4. Act 116 of 1963. 5. M. Slats. Ann. Sections 22路142路3 (1977 Suppl.). 6. Revising the Arkansas Constitution, a Report to the Governor and the Sixty-Sixth Ge08faJ Assembly (1968). 7. Ledbetter, Dyer, Johnston and Nunn, PoNties in Arkansas: The Constitutional ExperIence, Academic Press of Arkansas (1972), and Nunn and Collett, Political Paradox: Constitutional Revision in Arkansas, National Municipal League, New YOl1< (1973), are particularly Interesting in their analyses of the movement toward the Constitutional Conventon 01 1970, and the relationships of delegates within the Convention. The Spring, 1970, issue oftheArkansas Law Review (Volume 24, No.2) examined in detail various substantive provisions of the document. 8. 24 Ark. L Rev. 162 and 24 Ark. L Rev. 221 (1970) comment on specific judicial reform provisions. 9. Section 2, Act 3 of 1977 (First Ex. Session). In HafV8Y v. Ridgeway, 248 Ark. 35, 450 SW2d 281 (1970) the SUPfeme Court determined In a 4-3 decision that the office of delegate under prior legislation was not a "civil office" within lhemeaning of Artlde 5, Section 10 of the Consti1ulion of Arkansas prohibiting legislators from appointment or election to any "civil office". 10. The qualifications of delegates and convention time table are Pfescrlbed In Act 3 01 1977 (First Ex. Session).
The Regulations and the examples given therein show that a rather liberal definrtion has been given to "Material participation" for purposes of including what would otherwise be rental income as self-employment income. Attention is called to Reg.1.1402(a)4(b) where "material participation" is defined for self-employment tax purposes. It requires that there be an "arrangement" either written or oral whereby the owner will participate in the production or the management of the farming operations. "Production" refers to physical work performed and expenses incurred in such activities as the planting, cultivation and harvesting of crops and the furnishing of machinery, tools, seed and livestock. "The mere undertaking to furnish machinery, implements, and livestock and to incur expenses is not, in and of itself, sufficient". The term "management of the production" refers to ... managerial decisions...such as when to plant, CUltivate, dust, spray or harvest the crop, and includes advising and consulling, making decisions as to matters such as rotation of crops and the type of crops to be grown, type of livestock raised, and the value of machinery and implements to be furnished." The RegUlation emphasizes the importance of the services of inspection, advice and consultation and gives a strong inference to satisfying the requirement where these elements are called for in the arrangement. "Thus, if in addrtion to the understanding that the owner. . .is to advise or consult periodically wrth the other person as to the production of the commodities and inspect periodically the production activities on the land, rt is also understood that the owner is to select the type of crops and livestock to be produced and the type of machinery and implements to be fumished and to make decisions as to the rotation of crops, the arrangement will be treated as contemplating material participation of the owner in the management of production of such commodities". Reg搂 1.1402(a)-4(bX3XIli).
Editor's Note: Bob Wallach's "InterviewIng the Client" outline will be published in the next issue of The Arkansas Lawyer. 122/Arkansas Lawyer/July 1978
The arrangement for "material participation" alone is not enough, the owner must actually participate either in the physical farming or in management decisions or a combination of both. Periodic advice, consultation and inspection are "strong evidence". If in addition, the owner shows that he fumishes a substantial portion (If the machinery, implements and livestock or that he fumishes funds or assumes financial responsibility for a
substantial part of the expense, he will have established the existence of materiai participation. Reg. 搂 1.1402(a)-4(b) 4. Section 2032A does not adopt the specific tests developed under the older Code provision and its RegUlations, but rather says that "material participation" for the optional valuation of land shall be determined in "a manner similar" to the earlier provision. Other requirements to enable Blackacre to qualify are: 1. The iand must have been used for farming during the five year period of "material participation" and on the date of death. 2. The Decedent must have been a citizen or resident of the United States on the date of death. 3. 50% or more of the adjusted value of the gross estate consists of the adjusted value of real or personal property being used for a qualified use and passing to a qualified heir. 4. 25% or more of the adjusted value of the gross estate consists of the adjusted value of qualified real property. Section 2032A(b) AT WHAT COST HAS BLACKACRE BEEN SAVED? Since nobody seems to know the ultimate result of the carry over basis (referred to by one expert as COB because it is as rough as a) provided for in the Tax Reform Act of 1976, there is a potential adverse capital gains tax consequence from exercising the election. Beyond this the most severe problem is the restriction on use and transferability of the farm real estate for up to fifteen years after the death of the decedent. Sale or non-farm use would result in a recapture of all or part of the tax avoided. These restrictions must be met for 15 years or until the death of the qualified heir, and death of the heir will eliminate the restrictions only if he had a fee simple interest in the land. With all the problems, clearly Section 2032A can produce substantial estate tax savings. In many family farm situations it may indeed be the answer. There are yet many uncertainties in the application of the law, but taxpayers should aggressively assert the benefits contained in the optional vaiuation method, being ever mindful that the intent of the law was to preserve Blackacre for the family and protect it from the tax collector. ~
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ARE YOU INSURED FOR SECURITIES MALPRACTICE? PART II. THE LAWYER'S INSURABILITY POSTURE By: Harvey L. Bell (Editor's Note: This is Part II of the arti:;/e on "Socurities" by Arkansas Socurities Commiss ioner Harvey L. Bell.) Part I of this review focused on the definition of a "security". It was observed that a security included more than a stock, bond, note or fractional mineral lease-it encompasses countless labels wherein a person mayor may not know he is risking his capital in an offeror's venture or is being set up as the victim of a ftim Nam's scheme. Once a given transaction involves a security, both federal and state securities laws mandate a statutory standard of expected conduct on sellers, buyers and other third persons, including accountants and lawyers who act solely as professionals. This statutory mandate is in addition to the common law and is currently undergoing judicial clarification. If an accountant's financial opinion is professionally wrong, then numerous third persons who rely on such opinion can be financially harmed. The same concept is true with lawyers. If the lawyers opinion is wrong and third persons are financially harmed as a consequence of the client's use of the legal opinion, should the lawyer himself be held responsible? Are there limits on the attorney-client relationship? Should a lawyer be permitted to accept at face value all those things told to or given him by his client? Does a lawyer have a duty of inquiry to verify the truth and accuracy of a client's representations where ~ is known that the client is going to use the attorney's opinion to obtain money or property from others? the judicial barometers indicate lawyers are indeed responsible to third persons under certain circumstances. The problem at this time is that the lines of demarcation are not clearly drawn. Until such clarification is given, lawyers should appreciate where the cases and courts are looking for answers. Additionally, the malpractice insurance carriers are reacting to these evolving clarifications and an attorney will want to examine his policy to understand whether he is covered.
A. ARE YOU A PUBLIC ATIORNEY??? "In our complex society the accountant's certificate and the lawyers opinion can be instruments for inflicting pecuniary loss more potent than the chisel or the crowbar" [U.S. v. Benjamin, 328 F.2d 854 124/Arkansas Lawyer/July 1978
at page 863 (2nd Cir 1964),.cert. denied, 377 U.S. 953 (1964)]. Each lawyer reading this provision should pause and reNect on the expected role of a lawyer in our commercial environment. A lawyer is chargeable with independent professional judgment. A lawyer should preserve the confidences and secrets of a client. A lawyer should represent a client zealously within the bounds of the law. These concepts have both foundations and limits. The ABA Code of Professional Responsibility ("CPR") attempts without clarity to draw guidelines as to these canons. The law of torts, the law of contracts and criminal law also have applicability to an attorneys standards of expected relationship to a client and to third persons. A lawyer's responsibility to represent his client zealously is not a carte blanche for all conduct. For example, DR 7-102 (B) states: "A lawyer who received information clearly establishing that: (1) His client has, in the course of the representation, perpetrated a fraud upon a person or tribunal shall promptly call upon his ciient to rectify the same, and if his client refuses or is unable to do so, he shall reveal the fraud to the affected person or tribunaL" A lawyer reading this must ask himself "what is fraud"? Inquiry will reveal that fraud and deceit are variable concepts; once more, "fraud, dece~ and defraud" are not limited to common law deceit when used in the securities laws. A lawyer should preserve the confidences and secrets of a client. DR 4-101 (C) states: "A lawyer may reveal:... (3) the intention of his client to commit a crime and the information necessary to prevent the crime." Section 1 of the Arkansas Securities Act provides: It is unlawful for any person, in connection with the offer, sale or purchase of any security, directly or indirectly. (1) to employ a device, scheme, or artifice to defraUd, (2) to make any untrue statement of a material fact orto omit to state a material fact necessary in order to make
the statements made, in the light of the circumstances under which they were made, not misleading, or (3) to engage in any act, practice or course of business which operates or would operate as a fraud or deceij upon any person. What should a lawyer do if he is reasonably placed on notice that his client is omijting to state a material fact from documents which the lawyer is preparing for the ultimate use of obtaining money or property from third persons. What should a lawyer do if he finds that his oral or written opinion is being used by his client in violation of the above statute? These principals apply to the lawyer representing the public corporation and the lawyer participating as counsel in the issuance of stock by a small corporation with as few as two stockholders.
The Restatement of Torts ยง876 (1939) provides: For harm resulting to a third person from the tortious conduct of another, a parson is liable if he (a) orders or Induces such conduct, knOWing of the conditions under which the act is done or intending the consequences which ensue, or (b) knows that the other's conduct constijutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself, or (cl gives substantial assistance to the other in accomplishing a tortious result and his own conduct, separately considered, constitutes a breach of duty to the third person. Should this standard from the Restatement of Torts apply to the lawyer as a "person acting in concert" with his client? Can the lawyer simply put his head in the sand? Does the lawyer have a duty to third persons not to allow his expertise to be used in a securijies violation? The courts are beginning to face some of these issues. Much to the lawyers dismay, the judicial barometer's are indicating that a lawyer can be held accountable for certain conduct when third persons are injured as a consequence of his opinions, his nonfeasanse or the documents he drafted. The trend is clear. A lawyer can not rely on obtaining immunijy because he was not the principal tort-feasor. The lawyer, because of his expertise, will not be permijted to design or draft documents or advise his client so as to facilitate a fraudulent scheme or implement an act, practice or
course of business which would act as a deceit on any person. Even absent a wrongdoing, a lawyer can be held responsible for a technical violation. A lawyer can not insulate himself from liability by the use of his client.
ney liability has occurred under both of these theories. A lawyer can be held accountable for the misadventures of his client. The following cases should shed some light on the law in this emerging area.
Assume the lawyer's prospective client states: "I have this idea for a new approach to marketing insurance. I want you to help me to set up a 'fine little insurance company'. I'll buy all the class "A" voting stock. I've already arranged to sell each of five selected friends and acquaintances $20,000 worth of class "B" non-voting stock. They understand I'll get 15% sales commission for putting this idea together. They understand I'll get an annual salary of $10,000 paid in advance for the first year. I have negotiated a $25,000 insurance consulting agreement with a Nevada consulting firm specializing in this new insurance approach. I have entered into an option contract to buy eo acres of land at the intersection of interstate 30 and 40 in Uttle Rock for our proposed building sije at the price of $40,000 which my accountant brother-in-law says can be appraised and put on the books at $1,500 per acre or $120,000. I am prepared to pay you $10,000 legal fee for your services." If the lawyer accepts employment, who does he represent? Does he have any legal obligation to the corporation; to the client; to any one or more of the five class "B" stockholders; and, to credijors? Does he have a duty of inquiry to verity the validity of each of his clienfs material representations? What if the lawyer actually knows the clienfs wife owns the recently formed Nevada corporation, ij has minimal assets and no expertise? What if the lawyer knows or is chargeable wijh knowledge that the eo acres is under water? What if the lawyer recklessly disregards the disclosure that the client recently paid $5,000 for the 80 acres? What if the lawyer negligently forgets to obtain verification of the clients statements? What should the lawyer do if he discovers an arrangement with accountant for the preparation of "friendly financials"? What should the lawyer do when he dicovers this is a scheme to defraud the Class "B" stockholders out of $100,000, for which he, the lawyer, could appear to be a ten percent participant? Clad in these questions is the fundamental issue of to whom does a lawyer have a duty and what standard of conduct is needed to give rise to a cause of action against the lawyer. The answer is evolving. It is generally acknowledged that liabilijy under the securities laws may be primary, as where a lawyer is a "participanf' wijh others in an unlawful course of conduct or is too otherwise guilty of a tortious act (or omission), or liability may be secondary, as where a lawyer conspires with or aids and abets the unlawful conduct of principals. Expansion of attor-
The U.S. Supreme Court recently spoke on the Iiabilijy of accountants as professionals in Hochfelder v. Ernst & Ernst, 425 U.S. 185 (1976). The plaintiffs in Hochfelder were victims of a fradulent securities scheme perpetrated by Mr. Nay, the president of a small brokerage firm. Between 1942 and 1966, Nay induced plaintiffs to invest funds in "escrow" accounts which Nay personally represented would yield a high rate of retum. This scheme required investors to draw personal checks payable to Nay or a designated bank for his account with the monies being immediately converted by Nay. Nay commijed suicide leaving a confession note thereby revealing the fraud. Plaintiffs sued the accountants for damages. The accountants had been retained by the brokerage firm to perform periodic audits and to file registered broker reports wijh the SEC. The plaintiffs contended that the accountants "aided and abetted" Nay's violations of the federal anti-fraud Rule 10b-5 provision by the accountants failure to conduct proper audits of the brokerage firm. The theory basically was negligent nonfeasance. In theory, plaintiffs contended that if the accountants had utilized appropriate accounting procedures as part of ijs audit procedures, the accountants would have discovered Nay's intemal practice of having certain mail given only to him and thus would have discovered the fraUd. The defendant accountants contended that they could not be held liable for aiding and abetting their c1ienfs violation of the Rule 10b-5 anti-fraud provision absent and allegation that it knew of the other's improper conduct. The U.S. Supreme Court held that Rule 10b-5 requires proof of scienter for relief against the accountants. The court did not define "scienter", but ij would appear safe to say that in order for a lawyer or accountant to be liable as an aider and abettor for a Rule 10b-5 securijies violation, ij takes something more than mere negligence. The Hochfelder decision did as much to confuse the boundary lines of when an attorney can he held liable for his clients misadventures as ij did to daritythe issue. Rule 10b-5 is a rule adopted by the SEC pursuant to rule making authority under ยง1Db of the Securijies Exchange Act of 1934. In ijs view that Rule 10b-5 was restricted to the perameters of the concepts set forth in ยง 1Ob, the Court left open whether negligence could be the standard for an attorney's conduct in other sections continued on page 126 July 1978/Arkansas Lawyer/125
Are You Insured . .. continued from page 125 of the securities laws. In addition, most states' blue sky laws or other federal antifraud provisions could be judicially interpreted to hold that negligence alone on an attorneys part is all that is necessary. A statutory "per se" rescission, an injunction, a receivership, an administrative censure and other remedies exist under the securities laws. The SEC has brought a number of actions against lawyers both before and after Hochfelder to enjoin lawyers fortheirconduct concerning violations of the securities laws. One such case is SEC v. Universal Major Industries, 546 F. 2d 1044 (2nd Cir. 1976). In UMI, the corporation's former counsel was permanently enjoined from violating the registration provisions of the securities laws on the basis of aiding and abetting the sale of the corporations unregistered securities on the basis of the attorneys opinion letters. The court noted that there are compelling reasons to impose secondary liability on lawyers where the lawyers issue opinions whereby their clients are selling unregistered securities. The Second Circuit noted that injunctions could be granted in SEC proceedings upon negligence alone, and scienter is not required. The Court observed that the sale of unregistered securities constituted a criminal violation. Several other cases offer insight as to judicial analysis of the lawyers posture in securities matters. In SEC v. Frank, 388 F. 2d 486 (2nd Cir. 1968), the court said " ... a lawyer, no more than others, can escape liability for fraud by closing his eyes to what he saw and could readily understand." Also, "A lawyer has no privilege to assist in circulating a statement with regard to securrties which he knows to be false simply because his client has fur-
nished it to him," In SEC v. National Student Marketing Corporation, 402 F. Supp. 641 (Dist. of Columbia 1975) the court stated: "Lawyers are not free to ignore the commercial substance of a transaction which could obviously be misieading to stockholders and the investing pubiic. Courts have not hesitated to pierce through legalistic form in order to circumvent violation of the securrties laws," And at page 648, "Thus, this Court rejects the proposition that a member of the bar can seek refuge behind a legal technicality, elevating form over SUbstance, when he is a party to and fully familiar with the circumstances which indicates that an illusory transaction is being undertaken which could be utilized to mislead third parties," The Court observed that the lawyer knew his opinion would be used to make certain representations in financial statements. or he ignored what should have been evident to him as a lawyer with some expertise in corporate mergers and acquisitions. The Court noted that an attorney 126/Arkansas Lawyer/July 1978
could be enjoined if the lawyer negligently issued an opinion which ultimately is deemed to be false and misleading to the investing public. The Court held that the lawyer either actually knew that a fraudulent scheme was envisioned by the corporation, or else he recklessly ignored what should have been readily apparent. This case is to be remembered because ~ points out what the courts can consider as reckless conduct. SEC v. Spectrum, Ltd., 489 F. 2nd 535 (2nd Cir 1973) offers further insight. "The legal profession plays a unique and pivotal role in the effective implementation of the securities laws. Questions of compliance with the intricate provisions of these statutes are ever present and the smooth functioning of the securities markets will be seriously disturbed if the public cannot rely on the expertise proferred by an attorney when he renders an opinion on such matters... In the distribution of unregistered securities, the preparation of an opinion letter is too essential and the reliance of the public too high to penmit due dillegence to be cast aside in the name of convenience. The public trust demands more of its legal advisors than 'customary' activities which prove to be careless," It should be obvious to each lawyer reading this article that at a minimum, the roie of the relationship between a lawyer and his client is being examined. The trend appears to be that iawyers can be held financially accountable to injured third persons. It is not yet known when the standard will be negligence, when the standard will be actual or constructive knowiedge and when it will be reckless or intentional conduct. The lawyer acting as a counselor in securities matters shouid insure himself that he is not drafting documents, issuing opinions or advising his client in a transaction which violates the securrties laws.
(i) Does your basic policy exclude any claim arising out of an actual or alleged, violation of Federal Securities Law or State Securities Laws?
Most insurance carriers exclude securities coverage in the basic policy. The reasons for such approach should be obvious after reading the above evolution of the possible risks attached to a lawyers conduct as a professional. It must be understood at the forefront that a securities practice involves not only the establishment of small corporations, but also many other transactions such as drafting certain partnerships designing non-profit corporation financing techniques, advising on certain real estate financing arrangements and other transactions wherein no communication is made directly wrth the SEC or a state biue sky authority. (ii) Does your basic policy exclude coverage for any claim based upon common law principles of liability made in connection with any violations of federal or state securities laws? Common law fraud counts frequently are made as part of a complaint in a securrties lawsurt. Also, equrtable concepts of deceit, such as constructive fraud, can be used to obtain relief for securities violations absent the use of more adaptable and suitable provisions of the securities laws. Query, does this clause exclude coverage where a security is invloved even though the complaint fails to ailege a securities law violation? (iii) Does your poilcy exclude any dishonest, fraUdUlent, criminal or malicious act or omission?
B. THE LAWYER AND HIS MALPRACTICE POLICY. Lawyers are increasingly appreciating the concept that a lawyer is practicing securities law when he sets up small corporations, renders an opinion orally or in writing as to certain transactions wherein securities are involved. Insurance carriers were quick to recognize the potentially large losses which could result from a lawyers exposure to numerous third persons as well as to a client who has had to return funds to third persons. The insurance carriers responded by promptly amending insurance policies. Most insurance carriers now require the purchase of a rider in order to obtain insurance coverage; however, even the language of the rider has been written with carrier in mind. The following list of questions are designed to assist each lawyer in reviewing his own policy.
What are the precise meanings of these exclusions tenms? Can a lawyer's conduct under this provision be construed as something less than a purposeful violation? Purposely, knowingly, recklessly and negligently are defined in the Arkansas Criminal Code. Which civil or criminal standard applies to the above exclusions? How do the standards of care and culpable mental state concepts apply to an omission? Most of the securities law violations are malum prohibitum type crimes. What factor should this have on insurability? It appears that securrties fraud is a tenm of legal art not to be confused with oommon law fraud. In fact, Ark. Stat. Ann. 搂67-1247(d) provides: "(d) 'Fraud', 'decert路 and 'defraud' are not limited to common law decert," How does this statutory fraud to the insurance carriers exclusionary provision?
In 51. Paul Fire & Marine Ins. Co. v. Clarence-Raines & Co., 70 Misc. 2d 1082, 335 N.Y.S. 2d 169 (Sup. Ct. N.Y. Co. 1972), affd. men. 41 App. Div. 2d 604, 340 N.Y.S. 2d 587 (1st Dept. 1973) the accounting company's policy excluded "any dishonest fraudulent, criminal or malicious act or omission." The insurance carrier disclaimed liability under the policy and commenced a declaratory judgement action after the accounting firm was
could sue the defendant client and the aider-abettor lawyer for statutory rescission. The plaintiff gets back his money plus interest and attorneys fees less dividends and the defendants get back the pieces of paper. Is securities statutory rescission covered under the concept of "damages" under your policy? It appears that many policies do not cover the lawyer for these causes of action.
named in a common路 law and securities
(v) Even If a lawyer purchases a rider, does the policy exclude coverage for conduct where the lawyer knowingly or recklessly participated, or colluded with others, in a violation of a federal or state securities law?
fraud lawsuit. The carrier contended it was not obligated to defend and that it had no Iiablity for any ultimate recovery against the accounting firm. The court was unable under a declaratory judgement proceeding to decide the ultimate liability issue but held the complaint did state causes of action which could reach the policies coverage. In reaching its conclusion, the court applied the view that the obligation to defend is broader than the duty to pay. Brown v Underwriters at L1oyds, 53 Wash. 2d 228 (1958) held that "fraud" in the subject policy meant "dishonesty" or "lack of integrity" in a real estate broker's professional liability policy. There are cases which indicate that fraud as used as an exclusion in a policy requires "intent to harm". On the other hand, W. Prosser, Law of Torts 搂 105 (4th ed. 1971) states the "fraud" is "a term so vague that it requires definition in nearly every case." The answer for the lawyer is evolving. During this evolution, however, it must be recognized that depending on the amount of the suit, a lawyer may be placed squarely at odds with his carrier.
(iv) Does your policy limit itself to actions for "damages"?
Lawyers may find themselves the target of securities lawsuits aimed at remedies other than damages. Frequently, the action is to enjoin the lawyer from aiding and abetting in the violation of the securities
laws. The consequence of a permanent injunction against a lawyer are manyfold: possible loss of ability to practice before the SEC; inability to participate in certain kinds of securities transactions; loss of licenses such as real estate or insurance; bar disciplinary proceedings; and, the image of his conduct to the public as a named party to a violation of the law. While the injunction proceedings are normally initiated against the lawyer by the SEC or state blue sky authority, it must be recognized that civil actions frequently follow. These civil actions are often caged in part of the statutory "per se" violation provisions of the securities laws-in other words, if you failed to comply with technical requirement, such as an unregistered non-exempt security, then the plaintiff
For civil purposes, what is the definition of knowingly, recklessly, participated or colluded? Could coverage be excluded under the concepts where there existed ordinary negligence plus some other factor(s)? Is reckless conduct for a lawyer to represent a client in establishing a small corporation where the lawyer does not actually know or properly research the federal securities laws applicable to issuing the securities? Does the law impute a reckless intent to a lawyer who renders the opinion that the corporation was set up in compliance with the securities laws when the truth or falsity of such opinion is not known to the lawyer? Does "knowingly" as used here encompass either "actual" or "constructive knowledge"? Can recklessly mean conscious disregard of implementing a reasonable inquiry through legal research as to what is the law?
While this evolution is being emphasized in the securities area, tax, real property, insurance, trial practice and other areas of concentration of a lawyer's talents are also getting some attention. It is to be recognized that our complex society is spun on equaily complex laws. The securities laws are nothing more than our society's mandate of honesty and fair dealing in an area that is very sensitive to our economic existence. The lawyer is the person who represents to his client and to the public that he understands these technical provisions and can place his client in compliance. The lawyer and the accountant are the pivotal forces in seeing that financial integrity is a part of a securities transaction. In such capacity, why should these professionals not be held accountable to third persons when their participation allowed the client to violate the law? It would be absurd for a lawyer to escape accountability after he had advised his client on how to rob a bank; it would be equally absurd for a lawyer to escape accountability after he placed paper bullets in a securities paper gun in a securities transaction and the victim of the robbery happened to be a few individuals instead of a bank. Civilly, where innocent third persons would not have been economically harmed had it not been for the lawyers misfeasance or nonfeasance, why should the lawyer not be held accountable?
C. CONCLUSION Many lawyers are knowingly and unknowingly engaging in a securities practice without securities malpractice insurance coverage. Those who feel they have coverage may be shocked to find that carriers are one step ahead of them by having adequately implemented exclusions in the policies. While it is recognized the dUty to defend will insert the carrier in what will likely be a case settled outside of a lawsuit, the lawyer's exposure when large amounts are involved may cause the carrier to defend but with reservations that it has no duty to pay. In this rapidly evolving area, the attorney must analyze his own policy, the attitudes of his carrier and should obtain written confirmations where he is uncomfortable. The medical, accounting and other professions have acclimatized themselves to the malpractice delimma. Now, it appears the legal profession is squarely coming into focus under the malpractice eye.
Arkansas Securities Commissioner Harvey L Bell (1974- ) received his J.D. University of Arkansas, 1971; and his LL.M., SMU, 1972, in corporation, tax and securities law. He is a member of the Arkansas and American Bar Associations; and Past Chairman of the Taxation, Trust & ESfate Planing Section ofthe Arkansas Bar Association.
JUly 1978/Arkansas Lawyer/127
COVER STORY - - - -
By now, you have received the printed program for our 80th Annual Meeting, June 7-9, at the Arlington Hotel, Hot Springs. We have structured the technical sessions according to your wishes, as shown by the Membership Survey. Afternoons have been left "free" for those wishing to relax. However, optional professional programs are available each afternoon for those interested in added "CLE". WALTER R. NIBLOCK
There is no need here to recount the credits of our "best of the best" speakers. Notice that we changed the format of our printed program to provide biographical data and photographs of our speakers. Take time and re-read about these fine lawyers. You will agree that Annual Meeting Chairman Henry Woods has outdone himself in lining them up for us. We know of no program in the United States-"CLE" or Annual Meeting-with as fine array of the speakers appearing at our 80th Annual Meeting.
I do particularly want to highlight the entertainment side of our program. The '78 Gridiron of the Pulaski County Bar Association is "tops". It's title-"Bar Trek or Close Encounters of an absurd kind"-ilives you some indication of what to expect-ilet there early I The Bar B-O will have the "best of bluegrass" in the Sugarhill, with oldtime-ilewtime-iloodtime music. Again, the "Common Good" will furnish uncommonly good music for our Annual Dance. You all comel
Walter R. Niblock President
BAR B-O, MAJESTIC LODGE, LAKE HAMILTON
GRIDIRON '78
BAR TREK or
CLOSE ENCOUNTERS
\ I~
of
an absurd kind
v
The Pulaski County Bar Association, with President Bill Terry, will proudly present Gridiron '78 at 5:00 p.m., Friday, June 9th in the Conference Center of the Arlington Hotel. Gridiron '78 has been moved from the Crystal Ballroom to give an additional 500 attendees a chance to see and hear the famous production.
"SUGARHILL" (Newbern, Richardson, Ryland, Sandage, Treadway) with
Impresario Bill Blair and Writer-Director Griffin Smith are to be congratulated on this year's outstanding show. The title selected for Gridiron '78 is most informativeyou will "close encounter" nothing but great entertainmentl"Trek" early to get a good seat. The "Bar" follows with the President-Elect's Reception in the Crystal Ballroom, immediately after Gridiron '78.
"Oldtime-Newtime-Goodtime Music" "BLUEGRASS" played on Fiddle. Guitar. Banjo. Harmonica Autoharp • Mandolin. Bass. Pickin' Bow. Dulcimer. Dubro
The Bar B-O follows the President-Elect's Reception at 7:30 p.m., Friday, June 9th, and is a great way to relax with one's family and others. Helping you to enjoy this year's outing will be "Sugarhill"-the great "Bluegrass" aggregation from N.W. Arkansas under the lead of Professor David Newbern of the Law SChool, University of Arkansas. Note the oldtime instruments in "Sugarhill". You'll hear "Bluegrass" as it should be played. Maybe you'll even want to "stomp" a mite!
Introducing the new Videotype 1000: Lexitron features. Lexitron capabilit~ Lexitron qualit~ Half the price. It costs less than $10,000. Incredible. You'd pay about the same for an ordinary word-processing system - or even a "blind" unit, with no screen, and half the capability. The new Videotype"1000 is a real Lexitron, with everything that makes Lexitron the leader in CRTtext-processing. Unique features that give you the ultimate in office efficiency and productivity. Consider how much more you. get with the new Videotype 1000. it's microprocessor-controlled. That means new capabilities can be programmed in any time. For "open-end" expansion and easy, economical growth of the system. It's compatible with all other Lexitron Videotype models. And just as easy to operate. We'll teach any secretary how in less than a day. The performance is unbelievably good, the price just plain unbelievable. See for yourself. Call or write: AUTOMATED BUSINESS SYSTEMS 6701 West 12th Street, Suite 10 Little Rock, Arkansas 72205 Phone 663-6304
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130/Arkansas Lawyer/July 1978
LEGAL ECONOMICS by Fran Shellenberger
Is Your Office Ready For A Fire? About a year ago while attending a convention in a large hotel, I awoke during the night to find my room warm and stuffy. Only partially awake, I was vaguely aware of the sound of sirens nearby. I got up to open the window to let in some fresh air; then I noticed that the sirens were very close; however, I couldn't see any sign of an accident or disturbance nor could I see any police cars or ambulances. Suddenly, the sirens stoppedright at my feet. I knew then that something was seriously wrong at my hotel. "Probably a heart attack," I thought, "and that's the rescue squad." As I started back to bed I became aware of voices nearby and footsteps clumping down a stairway. Strange, I hadn't noticed a stairway near my room. And why did I hear those footsteps-aren't hotel stairways usually carpeted? "Probably drunks," I thought and then started back to bed. But those footstepsthere were more of them now, much louder than before. Finally awake and frightened, I knew I dared not fall asleep w~hout knowing what was going on in the hotel. Once more I got up, this time to check the corridor. "Maybe there'll be someone out there who'll know what's happening." As I gingerly opened the door, I saw the empty corridor beginning to fill w~h smoke. A red "ex~" sign could still be seen through the smoke, right over the doorway next to my room. That's where the ex~ stairway was located----behind a closed door which looked like every door on the floor; that's why I hadn't noticed it earlier in the day and why the footsteps were so loud.
I ran to wake my husband, assuring him that I was not having a nightmare, that there was a fire and that we had to get out. We grabbed towels to cover our faces on the way out and started down the eight floors to the lobby. By then the corridor was filled w~h smoke and the exit sign could not be seen. The stairway opened onto the main lobby which was filled with pajamaclad guests milling about. No one seemed in a hurry to leave the building. Firemen could be seen coming and going, not paying attention to the guests, so I walked quickly to a hotel phone to rouse my co-workers whose room was three floors up from mine. At that moment the power went out. After cursing myself for not going straight outside while I had the opportunity, I tried to recall the lobby floorplan to find my way out. I'd met someone earlier in the day at a side entrance and I remembered that the side entrance was straight across from where I stood. My husband and I held onto each other and started groping our way out. I'd forgotten about the flight of stairs leading down to that side entrance and we stumbled momentarily. Then we were outdoors in the clear, chill air of the early spring night where we waited on the street until the all-clear sign was given at about 8 a.m. Luckily, the fire was contained to the basement thanks to the 2-ft. concrete walls and ceiling. Although the hotel had no water or electricity, we were given the opportunity to return to our rooms for much needed sleep or to gather our luggage to leave. There was no need to check out; there was no charge for the night's stay.
Shortly after my return home I received a request from Beth Goodrich Executive Director of the Vermont Bar Association, seeking information to be included in a legal secretaries' seminar on the subject of fire safety for law offices. Did I have any information to contribute? Haunted by my own mistakes during the hotel fire, the inadequacy of ~s fire-fighting apparatus, and embarrassed that I could find nothing to offer for the seminar, I started a file that day for the preparation of this article. Interestingly, planning for fire safety results in planning for other disasters as well, so that much of the steps suggested here, if carried out, will result in protection from floods or tornados, etc., as well as fires.' HOW TO TURN IN AN ALARM
1. State the complete address of your building and the nearest cross street. Include your floor number, room number and the name of the building. 2. Know the location of a building interior alarm. They are usually located in the corridors near exit stairways or next to the elevators. These alarms are for building occupants and do not necessarily alert the Fire Department. Once you reach a place of safety, use a telephone or street fire alarm box to make sure the fire department has been called.' 3. Don't assume that someone else has turned in the alarm. It doesn't matter if the fire department receives several alarms. 4. Tape the fire department phone number on every telephone in the office, together with a building security number, if any. continued on page 132 July 1978/Arkansas lawyer/131
HOW TO LEAVE A BUILDING WHICH IS ON FIRE
1. Know at least two exits from any point in the building. 2. Know the location of exit stairways. 3. Know the location of the interior fire alarm box. 4. Cover your face and crawl along the floor, where air is cooler. 5. Close doors behind you to slow the spread of fire. 6. Don't use building elevators; you can be trapped in one if the power goes out. Also, they'll be needed by firemen. 7. Don't open a door which is warm to the touch. If it is cool, open it slowly to check for smoke in the corridor. Place your weight against the door as you open it. This will allow you to close it quickly if necessary. 8. Go quickly to the nearest exit. 9. Pull the building fire alarm box to alert others on your way out, if you can. 10. Don't re-enter the building until permitted to do so by the fire department. 11. Don't attempt to remove your car from its parking place. This will only cause traffic congestion and perhaps delay the Fire Department from reaching the building promptly.'
PROTECTING OFFICE RECORDS
There are many preventive steps law firms can take to protect personnel, files and office records from fire and other disaster. Whether you can continue in business after a fire can and will be decided by your attention to this matter. 1. First, appoint an office fire inspector. He or she should survey the various office records, office floor plan, recommend preventive steps from those listed below, be responsible for a yearly review and for educating the staff.' 2. The office inspector should begin by obtaining or creating simple drawings of the building layout, clearly showing exit stairways, the location fire alarms, fire extinguishers and flashlights. He should investigate the installation of sprinkler systems and smoke alarms if they are not al132/Arkansas Lawyer/July 1978
ready present and should see that all fire-fighting equipment is in working condition. (In the hotel fire I described, the alarm system didn't workthafs why there was no alarm-the hoses were rotted, the ex1inguishers had not been charged, and the sprinkler system was clogged with paint). 3. A visit with the office fire inspector should be a part of orientation for each new employee. During this visit the inspector has an opportunity to impress upon new personnel their personal responsibility in maintaining fire safety, including the office rules regarding smoking, use of hot plates or kitchen equipment such as coffee makers and office machines, such as copiers. Additionally, a copy of your building's requirements and recommendations regarding fire safety and other disaster planning should be given to the new employee. 4. Fire drills should be held at least annually, followed by staff meetings where fire extinguishers are demonstrated. Everyone attending the meeting should be asked to review his own personal work situation and the state of his/her desk or office at the time of the alarm. This will demonstrattl clearly the heavier loss in terms of files and valuable documents for those who leave files stacked everywhere compared to those who return files to cabinets frequently and who work with a clean desk. The inspector's survey of office records will result in lists of (1) vital, (2) important, (3) useful and (4) nonessential records.' This survey will illustrate how disastrous a fire can be for a law office, even when there is no injury or loss of life. A criteria to use in surveying records could be something like this: A vital record is one necessary to continue operating the business of the firm; an important record is one which could be reconstructed only at considerable time and expense; a useful record is one which would be nice to have but which can be acquired fairly quickly (books, for example); nonessentials are old closed files and those not necessary to the con-tinuation of the business of the firm. They should not be stored at all, as their accumulation increases the risk of fire.' Vital records should be duplicated and the copies stored away from the
office building. Your office copies of vital records should be stored in Class A (resists temperatures of 35~ for up to 4 hours) fire-resistant file cabinets, vaults or safes. Examples of vital records are: accounts receivable, original books of account, tax returns, equipment inventory, time inventory, stocks and bonds, Social Security records, wage and hour records, corporate minutes (yours and those of clients), litigation evidence, unrecorded agreements and client records for which the firm serves as custodian;" client indexes, • " an estimate and list of personal items located in each office for each person in the office, office calendar, docket or reminder system, and a list of the items listed on this list," showing the location of the originals. These vital records should be located in an area of the office which is the least vulnerable to fires-near the center of the bUilding near a bearing wall." Fire-resistant cabinets should be placed in short sections with ample aisles to retard the spread of fire." If possible they should be stored on lower floors to reduce the possibility of damage due to the impact of a fall." If this is not possible, try to store them where they are easiiy accessible to fire-fighting equipment. The firm's "important" records should be given the same protection as vital records if possible. Examples of important records are: 1) active file contents 2) title references 3) brief-memo files 4) form files 5) your law practice "systems" and any magnetic media used with them; I.e., floppy disks, tapes and magnetic cards 6) partnership agreement 7) insurance policies 8) current financial statement 9) current client/matter list 10) recently closed cases
Useful records, such as recorded deeds, recently closed files and law books should be stored in file cabinets away from combustible areas.
HELPFUL SUGGESTIONS
INSURANCE COVERAGE
Donald A. Senter in "Fire In the Office," Washington St. Bar Journal, April 1976, recommends keeping client index cards in closed rolodex files and the rolodex in a fire proof cabinet. He writes that the loss of the client index was the most frustrating loss after a fire destroyed his office in 1971.
Every article in my research for this column mentioned inadequate insurance coverage and the special problems in recovery for destroyed "valuable documents."
Lester Gerber in "Records Protection-Fire and Water," The Lawyer's Newsletter, March-April 1976, recommends discussing types of extinguishers with the fire department as water and chemical damage can be worse than fire damage. Altman & Weil in "How to Manage Your Law Office," recommend locating shut-off valves for sprinkler systems outside file rooms to permit turning the water off promptly after a fire to reduce water damage.
Verne L. Moseman in "Disaster Planning for CPAs," The Journal of Accountancy, June 1976 recommends microfilming active files as an inexpensive practice. Backup film can easily be stored in a second location- -invaluable in the event of a disaster. It would be helpful to tag closed files with a color representing the year the file is closed. In this way "recently closed files" could be readily distinguished from "old closed filed", stored accordingly and disposed of regularly according to the color code. As information changes, route updated records to the second location and toss out old copies. The volume may be small enough to make the effort possible. [
Many lawyers routinely send copies of legal documents and correspondence to clients as a method of keeping the client informed. It's good lawyer-client relations to do so. The client's copy takes on new importance when you consider what it's availability will mean in the event of fire or other disaster. The storage of duplicate media for automatic typewriters and word processing systems is particularly inexpensive and simple to do on the floppy disk or magnetic tape systems. The availability of these duplicates would be invaluable after a fire.
Suggestions to insure adequate coverage were:
FOOTNOTES
1. "Olsaster Planning for CPAs," Verne l. M0seman, the Joumal of Accountancy, June 1976.
2. DMskm of Fire Safety, City of Uttle RocK, Arkan-
sas. 3. Ibid. 4. "How to Manage Your Law Office." Attman and
Weil. 5. Ibid.
1) include an inventory of office contents and update it each year at the policy anniversary; your coverage is only as good as your ability to prove loss. 2) Define "valuable documents" specifically lest the "value" turn out to be the cost of the paper plus stenographic costs. This has proven to be the most difficult area to negotiate after a fire. '5 3) Obtain a letter from the underwriters clarifying the term, "valuable documents" outlining what documents will be covered and how they will be compensated in the event of loss." 4) Include business interruption insurance. Can you afford to be without income for as long as six weeks? 5) Include the value of the building in obtaining legal liability insur-
ance. 17 If the above steps toward protecting office records seem time-consuming and expensive, try to measure that expense against the time and expense in recreating them after a fire. Then estimate the value of the duplicates as the firm relocates, obtains new equipment and productive practice continues. Add up the client good-will created by your attention to records protection (Immeasurable after a fire). You'll find that the time it takes to implement a fire safety program for your firm to be the most valuable time ever spent if disaster strikes. The cost in dollars will be small compared to the value to the firm in case of fire or other disaster.
6. Ibid.
7. "Records Protection-Are and Water:' lester Gerber, The Lawyers Newsletter, March路April
1976. 8. "Fire In the Office," Donald A. Senter. Washington Slale Bar News, April, 1976. 9. Moseman, Ibid.
10. Ibid. 11. Ibid. 12. Ibid. 13. Altman & WeH, Ibid. 14. "What To Do If Fire Strikes," Charles W. Shorter, Legal Economk:s, Winter 1978. 15. Senter, Ibid.
16. Ibid. 17. Ibid.
RECOMMENDED READING
1. Communications Center of the 21st Century. Ben She/yo 26 Reproductions Review and Methods 58. November 1976.
2. Emergency Procedures In a Law Ann. Marjorie A. Miller. 6 The Legal Administrator 7. July 1976. 3. Management's Role In Loss Prevention. Chartes F. Hemphlll. Amacom 1976.
4. The Office of the Future: How We Will Get There and What it Will Be Uke. George A. Simpson. 4 Word Processing and The American Office 1. Juty 1, 1976.
5. Planning an Office at Home. William L Thompson. 6 Management W()(ld 9. January
19n. 6. P1anning an Office security Program. Otto E. Sanalbom and John Gunter. 84 The Office 20. December 1976.
ACKNOWLEDGEMENTS
Robert Altman, Altman & Wei! S. Z. Katzan, Editor, lawyer'. Newsletter
Col. Charles P. O'Sullivan, Vice--President and Director, Property Management Division, Worthen Bank & Trust Company
Editorial Staff, Legel Economics
Ask yourself and every member of the firm, "Are you ready for a fire in this office?"
Gordon-Rather, Wright, Undsey & Jennings' "
July 1978/Arkansas Lawyer/133
•
Editor's
Comment:
AEGIS is a feature of the Arkansas Bar Association's educational pro-
gram concerning dock-
et control and other areas of high risk experience in professional liability cases.
SAFEGUARDING YOUR PROFESSIONAL FUTURE
To think is good... to know is better! the problem
An insured attorney represented the purchaser of a used automobile in a case against the seller. The odometer of the vehicle had been turned back to show half its actual mileage. The suit was filed, but, shortly before the trial date, a key witness could not be located. The attorney filed a voluntary non-suit thinking it would extend the statute of limitations for one year. In that particular jurisdiction, however, filing a voluntary non-suit will only extend the statute of limitations if it is filed after the trial has begun. As a result, the statute ran and the attorney was unable to bring action against the seller. The client initiated a claim against the attorney for his failure to bring action before the statute ran.
134/Arkansas Lawyer/July 1978
the result
The attorney was clearly liable for his failure to act in a timely manner. A compromise settlement was made with the client through the attorney's professional liability insurance carrier.
advice
Always check the current law and procedure carefully. Do not rely on what you think or on what it has been in the past.
I
I<
Are 1'00 Willing To Pay The Price?
It could be a big one! It's not uncommon for attorneys to be hit with suits by clients who feel badly served. Whether the grievance is real or imaginary, the jury may be generous ... to the plaintiff. In view ofthe growing number of claims and the vast amounts paid in settlement, the time may come when the only practicing attorney will be a well-protected attorney. CNA and the Arkansas Bar Association have worked together to come up with a comprehensive program of professional liability insurance for its members that can help protect both your financial and professional future. First, it helps to minimize the causes ofliability suits through loss prevention programs. Then, it provides financial protection to help guard you against professional and business liability with a maximum of $100,000 per claim ($300,000 annually) after a deductible. Thinkyou need more? Supplemental protection of$1,000,000 for business and professional coverage is also available.
Ifyou can't afford the price of a lawsuit, it's time to learn more about your Association sponsored Comprehensive Lawyers Professional and Business Liability Plan, including the exclusions, any reductions or limitations and the terms under which the policy may be continued in force. Just send the coupon below to the administrator: Rather, Beyer & Harper.
,---------------------, I I
I
Please send me information for the Arkansas Bar Association sponsored Lm..vyers Professional and Business
Liability Insurance. Send to:
Arkansas Bar Association Administrator Rather, Beyer & Harper Suite 362, Prospect Building, 1501 North University, Little Rock. Arkansas 72207. Or call (501) 664-8791.
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july 1978/Arkansas Lawyer/135
ALCOHOL ABUSE by Dean R. Morley
In a profession, the hallmark of which is-or should be-objective reasoning, there is an area in which at least a small minority fail. Some of us refuse to understand the problem involving the use of alcohol as a beverage. The issue is of sufficient magnitude that the American Bar Association has established a Committee on Alcohol Abuse in its section of Criminal Justice. This article is part of the response to a request by this committee for action by our Bar. What do we do? Do I have the problem? Does a Judge, fellow member of the Bar or a client have the problem? If so, what is the next step? We have th questions-let's study the possible answers. p) Begin with self analysisrecognizing the fact that to "know thyself" is monumental-for some an insurmountable-task. If· in doubtconsult an expert. What now? We suggest contact with the Mid-South Center on alcohol problems. A description of the structure and functions of this agency follows: The Mid-South Center occupies approximateiy 5,500 square feet (21 offices, group rooms, and meeting facilities) in Hendrix Hall on the grounds of the Arkansas State Hospital-University of Arkansas for Medical Sciences Campus in Little Rock. Also located in this building, and adjacent to Mid-South Center offices are the Central Arkansas Regional Social Services offices, SCAN (a child abuse and neglect agency), the Central Arkansas Family Planning Agency, the Greater Little Rock Mental Health Center Drug Abuse Program, and the Arkansas Area Health Education Center. This proximity provides unique opportunities for staff and student interaction with service providers in a variety of health and social problem areas. The Uni136/Arkansas Lawyer/July 1978
versity of Arkansas Medical Center, the Arkansas State Hospital, and the Greater Little Rock Community Mental Health Center are also located on this campus. The Graduate School of Social Work occupies one floor of Stabler Hall, a new multi-use facility on the campus of the University of Arkansas at Little Rock. The Graduate School of Social Work has immediate access to the modern facilites and equipment of the University of Arkansas at Little Rock Multi-Media Center, the Continuing Education Center, and the University of Arkansas at Little Rock Computer Center. The University of Arkansas at Little Rock library houses an extensive collection of books, films, and other materials in the areas of health, social, and behavioral sciences. The Mid-South Center on Alcohol Problems is a program of the University of Arkansas at Little Rock, Graduate School of Social Work that provides a comprehensive program of academic and community training, community consultation and education, research, and direct client services in alcohol problems. The Center's ultimate goals are to facilitate optimal services to persons with alcohol related problems, and to serve as a catalyst to increase interest and knowledge of the problem area among social welfare and health manpower and the general public. Begun in 1973, the Center is located on·the grounds of the Arkansas State Hospital - University of Arkansas for Medical Sciences Campus in Little Rock and has a staff of 14 persons (six with faculty status in the Graduate School of Social Work). Working in close cooperation with other program units of the Graduate School of Social Work, the Arkansas Office on Alcohol Abuse and Alcoholism, the Arkansas Alcoholism
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Counselors Association, and a variety of other state and community organizations, the Mid-South Center offers a Comprehensive system of alcoholism education. The basic philosophy of the MidSouth Center Clinical Program is, in a University setting, to explore, innovate, and demonstrate unique, pragmatic, high quality services to persons experiencing alcohol related problems. The Clinical Program assists individuals and their families to assess personal difficulities that are interfering with healthy development and to implement a plan to act on these difficulties. Essential to the process of assisting a client to increase his awareness of alternatives and methods for coping with life problems, is a program of group and individual services with focus on the recognition of feelings and their import to behavior. Through a process of structured, intensive interaction in group and individual treatment, the client is
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able to cope more effectively with life problems. To meet diverse needs of clients, a range of counseling services, medical and legal consultations, and follow-up services are available. The client, significant others,and program staff work together to design and implement a treatment plan to meet the specific needs of the client, rather than the client adapting to a specific treatment. Extensive evening programs are available for clients who work during the day. The involvement of family and significant others is stressed in all phases of treatment. Community involvement plays an important role in the provision of services in the clinical program. Because the scope of the Center's clinical services is limited to out-patient counseling, other resources in the community are extensively utilized to develop an optimal treatment plan for each client. Additionally, because the program is designed to meet community needs, community representatives are integrally involved in the planning, development, and evaluation of all services prOVided. In summary, the philosophy of services and treatment at the Mid-South Center is based on the provision of high quality services that are generic in nature and that are adaptable to
meet the specific needs of clients. The involvement of family, significant others, and the larger community is stressed. The focus of treatment is on total human growth in addition to a specific focus on problem drinking. Some statistical data fumished by the Mid-South Center may be of interest: Beller educated people tend to drink more than less educated. The highest proportion of abstainers is found among those with less than grade 8 education. Moderate or heavy drinking is more common among those who are financially beller off. There are more abstainers among the poor. Farmers are in the lowest proportions of drinkers and heavy drinkers. Professionals and businessmen are in the highest proportions of drinkers. Among male executives in the "Fortune 500" there are substantially fewer abstainers (3%) than among the general population (27%). There are also fewer light drinkers, and a much higher proportion of moderate drinkers (53% versus 20%). Think - and think rationally and objectively. If the problem exists - act.
(EDITOR'S NOTE: This is a timely article. Many bar associations have "alcoholism programs" lor their members. Judge Morley is particularly well-qUalified to discuss this problem area with members 01 the Arkansas Bench and Bar. He is Chairman 01 the State Commission on Alcoholism, Past Chairman 01 the Arkansas Alcohol Abuse Advisory Council, and member 01 the State Alcohol and Drug Abuse Authority and 01 the Alcohol and Drug Abuse Council. He has received an award from the US DOT tor outstanding community service in connection with the Alcohol Salety Action Program.
Judge Morley is a Past President 01 the Pulaski County BarAssociation and a Delegate 01 the Arkansas Bar Association. He is a member of numerous profes~ sional groups. Employment includes 14 years in the F. B.I., 3 years as Arkansas Commissioner 01 Revenue, and 7 years as Municipal Judge in North UWe Rock. Since it is a lact that "professionais are in the highest proportion 01 drinkers", we all need to read and re-read Judge Morley's article-il not lor ourselves, then tor our associates.)
July 19781Arkansas Lawyer/137
CONTEXT By W. Christopher Barrier Chairman, Public Education Committee Arkansas Bar Foundation
THE LAWYER COMPETENCE DEBATE: AMERICA'S NEWEST INDOOR SPORT For some reason, no one said much about nwhen Chesterfield Smith, while he was serving as American Bar Association President, classified 20% of the nation's lawyers as incompetent. Only when Chief Justice Burger questioned the way roughly 50% of our brethren try lawsuns did hackles begin to rise. And, when the question made the cover of Time magazine, (putting it right up there in importance with the crisis in the Middle East and "Charlie's Angels") we obviously had arrived. But is lawyer competence really a serious problem? Of course, you are confident of your own competence, but what about your fellow Arkansas lawyers? I will try to get at the question with two brief quizzes, the first primarily concerned with trial practice and the second covering practice in general: TRIAL LAWYERS ON TRIAl. .. 1. Do trial lawyers that you know spend time unnecessarily on witnesses, eliciting testimony which is less than coherent, be-
cause (a) they did not thoroughly interview the witness ahead of time, or (b) the opposing lawyer did not take the time 10 depose Ihe witness before the trial? Yes----.No_ _ 2. Do trial lawyers, particularly in multi-party litigation, insist on asking Ihe same wnness the same question alleast six different times, because (al it did not get asked by Ihe other lawyers Just exactly the way they wanted it asked, or (b) it did not get answered wilh exactly Ihe nuances they wanted? Yes----.No_ _ 3. Do trial lawyers ever fail to (a) prepare their pleadings to correspond with what Ihey intend to prove, or (b) present their case with reference to what they have plead that they can prove? Yes----.No_ _ 4. Do trial lawyers ever fail to organize their presentation, including their opening statement, with the realization that the judge has only a slight acquaintance with their case and the jury none at all? Yes----.No_ _
7. Do trial lawyers ever fail to narrow the issues, eliminating undisputed ones, wilh discovery prior to trial, resulting in trials that are unnecessarily long and ledious? yes----.No_ _ 8. Do lawyers ever fail to appreciate the proper use of the summary jUdgment procedure as a means for resolving cases which are actually undisputed, in whole or in part? yes----.No_ _ 9. Do lawyers (and judges) ever fail to grasp the utility of a pre-trial conference in shortening trials? yes----.No_ _ 10. Do lawyers ever file a suit wnh doubtful merit in hopes of a settlement, then delay the trial because they do not want to try the case, until all of the facts have grown cold and Ihe witnesses scattered? yes----.No_ _ 11. Do lawyers ever raise unnecessary objections or attempt 10 badger or trip up an opposing witness, as substitutes for adequate preparation of their own case? yes----.No_ _ 12. Do lawyers ever attempt to substnute gamesmanship for the thorough examination of the issues which is supposed to conslnute a trial? yes----.No_ _ By now you should be shaking your head in knowing disapproval, recognizing almost of all of these foibles of Irial lawyers. (Although asking lawyers for "yes-or-no" answers may be unfair). But we all know that these types of lapses are not the sole province of the lrial bar. See if you recognize any of your brother lawyers in the following quiz: WONT THEY EVER LEARN...
5. In wrning trial briefs, do lawyers ever cite cases which they have not read, relying simply on the head notes for a statement of the law? yes----.No_ _
1. Do lawyers of your acquaintance ever farm out cases or matters they do not like (domestic relations, tnle examinations, marijuana trials) to inexperienced lawyers in their office, without assisting them? yes----.No_ _
6. In those same briefs, do they ever simply throw together a group of citations or legal maxims, bound togelher with jargon, as a substitute for clarity of expression? yes----.No_ _
2. Do lawyers ever handle matters (taxation, securities, pension plans) beyond their actual competence, because they are afraid to admn their inability to their client? yes----.No_ _
138/Arkansas lawyer/July 1978
3. Are lawyers ever reluctant to associate another, more skilled lawyer on a difficult case, simply from reluctance to share the fee? Yes-----No_ _ 4. Do lawyers ever try to handle unfamiliar cases as quickly as more familiar mailers, as a mailer of economy? Yes-----No_ _ 5. Do lawyers fail to use the Bar Association systems now available, despite their low cost? Yes-----No_ _ 6. Do lawyers go for years wilhout attending seminars, even in their own field, because they can't charge a client for the time away from their office? Yes-----No_ _ 7. Do lawyers allow the advance sheets to stack up, hence, missing new developments in the law? Yes-----No_ _
handle. The lawyer of the 70's and 80's will have to know more about more things, while at the same time practicing in fewer areas. As in medicine, the general practioner will become a diagnostician who identifies problems and refers them for treatment, rather than trying to cure them all himself. On the other hand, the use of systems will enable the general practioner to continue to render quality services in areas where local representation is almost a necessity, such as will drafting, probate and basic corporate organization. Lawyers should not feel pressured by the growing horde of young lawyers now being churned out by our law schools to hold on to every piece of a client's business. Experience has shown that clients will come back to a referring lawyer in whom they have confidence more quickly than they will stay with a general purpose lawyer who tries to handle cases beyond his competence. BETTER THAN EVER-BUT GOOD ENOUGH?
By now, you have probably guessed what I am getting at. There is probably no real way to objectively determine whether 5, 15 or 50% of the trial bar is incompetent, any more than we could statistically measure whether 2, 10 or 20% of the bar generally is incompetent. Despile all of the discussion, there dioes not even seem to be any consistent definilion of the term "competence." However, the incompetence of a few reflects on the remainder of the profession. And, perhaps more importantly, when we make mistakes due to ignorance or inexperience, the causes can be overcome with education and training. But, when we know how to render first-rate legal services and still do not do It, the problem is much more difficult to get at. A NATION OF LAWYER-WATCHERS... It is a more serious problem in that clients and the public generally are less inclined to be forgiving in such instances. More people use lawyers. Due at least in part to the efforts of the organized bar itseft, people are becoming more sophisticated about lawyers. They are more Interested in what lawyers do and in the impact they have on society generally. This is indicated nowhere more strongly than in the area of lawyer discipline, where consumers are pressing to take part In the process. The vision of Archie Bunker trying to find a "sharp" lawyer to make a profitable case out of a poor one is fading, as is the flamboyant closing statement to the jury-we have to be able to perform, to deliver quality services wilhout hokus-pokus, mumbo jumbo or bombast.
I would be reluctant to admit that Judge Burge(s 50% figure is correct. In fact, my unscientific judgment would be that the generallevel of legal ability, in the courtroom and out, has never been higher. On the other hand, I am sure each of us could come up wilh an estimated figure for instances where lawyers do not perform as well as they know how to. We are dealing with an increasingly sophisticated and critical public, which has come to expect more and more from lawyers. Continuing legal education; systems; a realistic appraisal of our own abilities; and a frank recognition of the fact that we sometimes know how to perform better than we actually do will raise the quality of the services we render-help us detiver more and more-and do much to quiet the doubts about lawyer competence. ~
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LAWYER, HEAL THYSELF... So what do we do to make ourselves more competent? In an era of increasing legal complexity, particularly in the fields of employment and lending, lawyers are simply going to have to spend more time reading and attending seminars, to be able to spot potential problems when they arise. On the other hand, lawyers, even in rural areas, are going to have to discard the notion of being all things to all clients. Your client will respect and value you more if you are able to recognize a complex problem and locate competent counsel to associate than if you try to take on cases you and he both know you can not
"Hey Peggy! Max down at the cannery wants us to do one of them qualified pension Thing-s-ma-jigs -we got 8 form tor that?"
July 1978jArkansas Lawyer/139
Fines, this is great! First, the "Corporation System". Now, the "Probate System".
Clay, the new Arkansas Wills & Trusts System is going to be a great publication! The Colonel concurs.
ARKANSAS WILLS & TRUSTS SYSTEM
CHVAS
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o Norwood, the new Arkansas Workers'
Compensation System and the Workers' Compensation Institute are "odds-on" tavorites!
o
o o
ORDER FORM ARKANSAS PROBATE SYSTEM
@ $n (includes mailing costs)
$--
ARKANSAS WILLS & TRUSTS SYSTEM @ $n (includes mailing costs)
$--
ARKANSAS CORPORATE SYSTEM
@ $52 (includes mailing costs)
$
_
ARKANSAS WORKERS' COMPENSATiON SYSTEM
@ $52 (Includes mailing costs)
$---
TOTAL $ --ARKANSAS BAR ASSOC1A110N 400 West Markham Little Rock, Arkansas 72201
Mail ORDER With Check to:
CHVAS
140/Arkansas Lawyer/July 1978
NOTE: Non-members of the Arkansas Bar Association pay an added $20 per system.
CODE Of PROfESSIONAL RESPONSIBILITY CANON 9 A Lawyer Should Avoid Even the Appearance of Professional Impropriety ETHICAL CONSIDERATIONS EC 9-1 Continuation of the American concept that we are to be governed by rules of law requires that the people have fa~h that justice can be obtained through our legal system. A lawyer should promote public confidence in our system and in the legal profession. EC 9-2 Public confidence in law and lawyers may be eroded by irresponsible or improper conduct of a lawyer. On occasion, ethical conduct of a lawyer may appear to laymen to be unethical. In order to avoid misunderstandings and hence to maintain confidence, a lawyer should fUlly and promptly inform his client of material developments in the matters being handled forthe client. While a lawyer should guard against otherwise proper conduct that has a tendency to diminish public confidence in the legal system or in the legal profession, his duty to clients orto the public should never be subordinate merely because the full discharge of his obligation may be misunderstood or may tend to subject him or the legal profession to criticism. When explicit ethical guidance does not exist, a lawyer should determine his conduct by acting in a manner that promotes public confidence in the integr~ and efficiency of the legal system and the legal profession. EC 9-3 After a lawyer leaves judicial office or other public employment, he should not accept employment in connection w~h any matter in which he had substantial responsibility prior to his leaving, since to accept employment would give the appear-
ance of impropriety even if none exists. EC 9-4 Because the very essence of the legal system is to provide procedures by which matters can be presented in an impartial manner so that they may be decided solely upon the merits, any statement or suggestion by a lawyer that he can or would attempt to circumvent those procedures is detrimental to the legal system and tends to undermine public confidence in ~. EC 9-5 Separation of the funds of a client from those of his lawyer not only serves to protect the client but also avoids even the appearance of impropriety, and therefore commingling of such funds should be avoided. EC 9-6 Every lawyer owes a solemn duty to uphold the integrity and honor of his profession; to encourage respect for the law and for the courts and the judges thereof; to observe the Code of Professional Responsibility; to act as a member of a learned profession, one dedicated to public service; to cooperate with his brother lawyers in supporting the organized bar through the devoting of his time, efforts, and financial support as his professional standing and abil~ reasonably permit; to conduct himself so as to reflect cred~ on the legal profession and to inspire the confidence, respect, and trust of his clients and of the public; and to strive to avoid not only professional impropriety but also the appearance of impropriety.
DISCIPLINARY RULES DR 9-101 Avoiding Even the Appearance of Impropriety, (A) A lawyer shall not accept private employment In a mailer upon the merl1s of which he has acted In a judicial capacity. (B) A lawyer shall not accept private employment In a mailer In which he had substantial responsibility while he was a pUblic employee. (C) A lawyer shall not state or Imply that he Is able to Influence Improperly or upon Irrelevant grounds any tribunal, legislative body, or pUblic official. DR 9-102 Preserving Identity of Funds and Property of a Client. (A) All funds of clients paid to a lawyer or law firm, other than advances for costs and expenses, shall be deposited In one or more Identifiable bank accounts maintained In the state In which the law office Is situated and no funds belonging to the lawyer or law firm shall be deposited therein except as follows: (1) Funds raasonably sufficient to pay bank charges may be deposIted therein. (2) Funds belonging In part to a client and In part presently or potentially to the lawyer or law firm must
be deposited therein, but the portion belonging to the lawyer or Isw firm may be withdrawn when due unless the right of the lawyer or law firm to receive It Is dispuled by the cllent,ln which event the dlspuled portion shall not be withdrawn until the dispute Is finally resolved. (B) A lawyer shall: (1) Promptly notify a client of the receipt of his funds, securities, or other properties, (2) Identify and label securities and properties of a client promptly upon receipt and place them In a safe deposit box or other place of safekeeping as soon as practicable. (3) Maintain complete records of all funds, securities, and other properties of a client coming Into the possession of the lawyer and render appropriate accounts to his client regarding them. (4) Promptly payor deliver to the client as requested by a client the funds, securities, or other properties In the possession of the lawyer which the client Is entitled to receive.
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July 1978/Arkansas Lawyer/141
EXECUTIVE COUNCIL NOTES by Cyril Hollingsworth Secretary-Treasu rer
HOUSE OF DELEGATES HIGHLIGHTS April 14, 1978-Special Meeting At Hot Springs Joint Meeting With Judicial Council Prepaid Legal Services. Harold Simpson reported on his work in development of a possible prepaid legal services program. Two insurance companies have indicated some interest in such a program, but such companies would need an assessment of successful marketing before undertaking such a program. There are various alternatives regarding rates and amounts to be paid the consulting lawyer, all of which is negotiated in any formulation of a plan. After discussion, a motion was passed authorizing the committee to proceed to discuss a plan in detail for Arkansas with either or both of the insurance companies. News Media Seminar. Tom Carpenter reported on a seminar to be held for the news media on May 12 and 13 in Little Rock. This program will enable the media to learn more about trials, and the Association in printing a handbook for persons in the news media In conjunction with the seminar. Copies of the handbook will be sent to JUdges and local bar presidents. Report of ABA Delegate. Herschel Friday, the Association's delegate to the American Bar Association, reported on the highlights of the midwinter meeting in New Orleans. There was considerable discussion regarding the structure of the ABA, including a suggestion that there be two nominees for each office and that the election actually be held in the House of Delegates. Other proposals con142/Arkansas Lawyer/July 1978
cern more representation for various sections and more representation for states with more lawyers. No vote was taken on the proposals but they likely will be considered at the annual meeting in New York. Only one of the various proposals submitted by the Medical Malpractice Committee was adopted and that concerned the statute of limitations. Proposed modifications of the collateral source rule and contingent fee contracts, for example, were not approved. No Fault Insurance. The Executive Council at its regular March 4, 1978 meeting directed that the past position of the Arkansas Bar Association on no fault legislation be communicated to the Arkansas Congressional Delegation. The House of Delegates, by motion, authorized the President of the Association to inquire of candidates for the United States Senate and the House of Representatives regarding their positions on no fault insurance. Telephone Advertisement. The Executive Council at its March 4, 1978 regular meeting considered a telephone listing by the Legal Aid Bureau of Pulaski County under "attorneys-certified specialists". The Executive Council requested that Russ Meeks and Ed Dillon confer with Vince Foster, Chairperson of Legal Services Committee to inquire into the situation. At the House of Delegates meeting a report was made on the responses of Southwestern Bell
Telephone Company and the Legal Aid Bureau confirming that an error was made in the listing, with a letter from Southwestern Bell regarding its responsibility for the same. On motion, the Secretary was directed to write the Legal Aid Bureau and Southwestern Bell Telephone explaining the dissatisfaction of the Association with the error and that the Association would appreciate their assistance in the future in correcting such errors. Interprofessional Committee Regarding Medical Malpractice. Charlie Brown reported on the work of the Committee and the need for accurate information to be disseminated. A motion carried that the Association subscribe yearly to the Report of the National Association of Insurance Commissioners so that information would be available. Positions on Legislation. There was discussion concerning the taking of positions on legislation by individual sections or committees. The President was asked to reinform committees and sections of the Association that proposed positions on legislation should be referred to the House of Delegates and that such proposals should be sent to members of the House of Delegates in advance of House meetings. Anyone interested in presenting proposed legislation should secure a copy of the legislation timetable of the Association.
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ARKANSAS BAR fOUNDA r'ON by John P. Gill Chairman
ARKANSAS BAR FOUNDATION TRUST FUND REACHES $250,000. At the end of the first quarter of 1978, the Arkansas Bar Foundation Trust Fund reached its goal for the 1977-78 bar year of $250,000.
I wish to express my thanks to every man, woman and child associated with the legal profession and particularly to my fellow lawyers for your generosity in giving a quarter of a million dollars to the Arkansas Bar Foundation. This support of the legal profession and especially the Foundation's efforts to improve the administration of justice make me very proud of the word "lawyer". The achievement of this milestone in the four-year history of the fund is a brilliant reflection of the dedication of Arkansas lawyers to the improvement of the administration of justice. All of these contributions have been made by individual lawyers or members of their family and others associated with the practice of law. The funds are invested so that the income may be used for Foundation purposes, which include financial contributions to Law Review publication and writing, granting scholarships to law students and construction and maintenance of the Law Center. The increased fund will support other programs such as the writing award, which is open to the public; this year's topic in the field of administration of justice is "Should Circuit and Chancery Courts in Arkansas be combined?" Another Foundation activity is research in the field of law and the current research project deals with the effect of raising the jurisdictional limit of municipal courts. Another project now in its first phase is the establishment of minimum criteria for courtrooms.
THE GUARDIANS. The Guardians' exhibit prepared by the Arkansas Bar Foundation as part of its public education program is now on a four-month tour of city halls, courthouses and schools all over Arkansas. The exhibit emphasizes the role of local law enforcement officials in guarding citizens against crime and other dangers and honors these men and women who daily give their lives in public service as guardians of our freedom. The schedule is as follows: FEBRUARY- Paragould, Pocahontas, Swifton, Marianna and Helena (First) MARCH- Hot Springs, Ozark, Fort Smith, Rogers and Benton County (Third) APRIL- Star City, Dumas, Magnolia, Prescott, Magnet Cove, Arkadelphia (Fourth) MAY-Little Rock, Bryant, Des Arc, Conway (Second) The exhibit will be displayed in the State Capitol Rotunda in connection with Law Day observances and will end its tour at the Bar Association annual meeting in Hot Springs. DON'T MISS IT! ~
These and many other projects are for the benefit of the public, not just lawyers, but they are made possible solely by contributions from lawyers and those associated with the legal profession. To date, over 1,150 persons have contributed to the Foundation. It is no wonder that the National Association of Bar Executives' Handbook calls the Arkansas Bar Foundation "outstanding" .
July 1978{Arkansas Lawyer{143
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JURIS DICTUM by C. R. Huie Executive Secretary, Judicial Department
A very important and little publicized segment of our Judicial system consists of the various committees of the Supreme Court. Members of these committees serve without compensation and very often at a substantial sacrifice of both time and finances. In order that members of the Bar may be made aware olthe personnel of these committees whose membership changes periodically, we supply the following information. STATE BOARD OF LAW EXAMINERS This Board prepares the questions for the Bar examination which it conducts twice yearly. Membership is as follows: (3 year term) CONGRESSIONAL DISTRICT FIRST SECOND THIRD FOURTH AT LARGE
TERM EXPIRES Don M. Burge Charles B. Roscopf Robert W. Henry Guy Amsler. Jr. J. H. Evans Ernest G. Lawrence, Jr. Kenneth B. Baim Joe D. Woodward John W. Walker Phillip E. Dixon John Burris
Biytheville Helena Conway Little Rock Fort Smith Bentonville Pine Bluff Magnolia Little Rock Little Rock Pocahontas
9130178 9/30179 9/30178 9/30179 9130179 9/30180 9130/80 9130179 9130/80 9/30180 9130179
Mr. Robert L. Rogers II, Ex. Secy. State Board of Law Examiners P.O. Box 5133 Little Rock, Arkansas 72205 Phone: 663-4619 By January 23. 1978 per curiam order of the Supreme Court, attorney Stephen E. Safly of Littie Rock was appointed Executive Secretary to the State Board of Law Examiners effective September 1, 1978, succeeding Robert L. Rogers, II. His law office is in the Worthen Bank Bldg. His address for Law Board matters will be: P.O. Box 5133 Little Rock, AR 72205 Phone: 375-8693 CLIENT SECURITY FUND This committee administers the Client Security Fund which has been established to reimburse, at least partially, clients who may have suffered financial loss by reason of misconduct of their attorney. (5 year term) CONGRESSIONAL DISTRICT FIRST John W. Mann, Jr. SECOND J. E. Lightle, Jr. THIRD Robert T. Dawson FOURTH Worth Camp STATE AT LARGE W. J. Williams, Jr. Chairman: Mr. W. J. Williams, Jr. 2200 Worthern Bank Building Little Rock, Arkansas 72201 Secretary: Mr. J. E. Lightle, Jr. 310 North Spring Street Searcy, Arkansas 72143 144/Arkansas Lawyer/July 1978
TERM EXPIRES Forrest City Searcy Fort Smilh EI Dorado Little Rock
6130179 6130/80 6130181 711/82 6130178
COMMITIEE ON PROFESSIONAL CONDUCT Hears complaints against attorneys and, when necessary, files disbanment proceedings. (7 year term) CONGRESSIONAL DISTRICT FIRST SECOND THIRD FOURTH AT LARGE
Caldwell T. Bennett Jerry Winston Cavaneau Ben Core (Chairman) Clint Huey
Batesville Searcy Fort Smith Warren
TERM EXPIRES 12/31/82 1011/84 12/31/78 12/31/83
Russell Elrod James W. Steinsiek Dale Price
Siloam Springs Blytheville Little Rock
12/31/79 2/12/82 2/12/82
Mr. Taylor Roberts, Ex. Secy. Committee on Professional Conduct Room 227 Prospect Building 1501 N. University Little Rock, Arkansas 72207 Phone: 664-8658 MODEL JURY INSTRUCTIONS COMMITIEE The Committee on Civil Model Jury Instructions meets periodically to update the AMI. The Committee on Model Jury InstructionsCriminal has almost completed its work and ~ is anticipated that these Instructions will be pUblished in the near future. CRIMINAL Bill Wilson, Esquire, Chairman, Little Rock Justice George Rose Smith, Little Rock JUdge Harrell Simpson, Pocahontas Judge William Lee, Clarendon Jack Lessenberry, EsqUire, Little Rock John C. Calhoun, Jr., Esquire, Little Rock Rafael Guzman, EsqUire, FayetteVille Wayne Matthews, Pine Bluff Frank Newell, Esquire, Little Rock Frederick S. Ursery, Esquire, Little Rock Judge William Enfield, Bentonville
CIVIL Henry Woods, Esquire, Little Rock, Chairman Philip S. Anderson, Jr., Esquire, Little Rock W. H. Arnold, III, Esquire, Texarkana Justice Lyle Brown, (Ret.), Hope Phillip Carroll, Esquire, Little Rock Winslow Drummond, Esquire, Little Rock Robert L. Jones, Jr., Esquire, Fort Smith Dale Price, Esquire, Little Rock W. B. Putman, Esquire, Fayetteville Jacob Sharp, Jr., Esquire, Little Rock Justice George Rose Smith, Little Rock Prof. Frederic K. Spies, Fayetteville Paul B. Young, Esquire, Pine Bluff
STATE-FEDERAL JUDICIAL COUNCIL FOR ARKANSAS This Council was created by Per Curiam order of the Supreme Court and meets twice a year to discuss problems of mutual interest to the State and Federal JUdiciary. Chief Justice of the Supreme Court-Ghairman Circuit JUdge, United States Court of Appeals-Vice Chairman Council to select one to serve as Secretary The Circuit JUdge who is serving as President or Vice-President of the Arkansas State Judicial Council shall serve as a member of this Council during his tenm. Honorable Carleton Harris, Chief Justice Supreme Court, Chainman Honorable J. Smith Henley, Judge, United States Court of Appeals, Vice Chainman Honorable G. Thomas Eisele, Chief Judge, United States District Court, Eastern District of Arkansas Honorable Paul X. Williams, Chief JUdge, United Sta1es District Court, Western District of Arkansas Honorable G. B. Colvin, Circuit Judge, Tenth Judicial Circuit, Vice President Arkansas State Judicial Council. (2 year term) Honorable Darrell Hickman, Justice of the Supreme Court Honorable George Howard, Justice of the Supreme Court Honorable John Anderson, Circuit Judge, 1st Judicial Circuit Honorable John Holland, Circuit Judge, 12th Judicial Circuit Honorable Gerald Pearson, Circu~ Judge, 2nd Judicial Circuit Honorable Joe Villines, Circuit Judge, 14th Judicial Circuit Honorable Bill Clinton, Attorney General
TERM EXPIRES 1-27-80 1-27-80 1-27-80 1-27-80 1-27-80 1-27-80
Acting Secretary: C. R. Huie, Executive Secretary, Judicial Department, Justice Building Little Rock, Arkansas 72201, Phone: 375-7001 July 1978/Arkansas Lawyer/145
COMMITIEE ON RULES OF PLEADING, PRACTICE, AND PROCEDURE IN CIVIL CASES (Per Curiam Order-May 20, 1974) It shall be the function of this committee, in accordance with Act 38 of the 1973 Acts of Arkansas, to prepare for the Court's consideration rules governing pleading, practice, and procedure in civil cases in proceedings in all courts in the State of Arkansas and prescribe the time for and manner of taking appeals. Frank J. Huckaba, Mountain Home Steve A. Matthews, Pine Bluff Prof. William David Newbern, Fayetteville Judge Alex Sanderson, Texarkana Dennis Shackleford, El Dorado W. H. Sutton, Little Rock Walter B. Cox, Fayetteville
JUdge Andrew Ponder, Newport, Chairman David Blair, Batesville Judge Thomas Butt, Fayetteville Judge W. H. Enfield, Bentonville John P. Gill, Little Rock Wendell Hall, Benton Phil Hicky, Forrest City Project Director: Walter B. Cox Attorney at Law P.O. Box 477 Fayetteville, Ark. 72701
November 16, 1977-Proposed Arkansas Rules of Civil Procedure with Rules of Appellate Procedure and Rules for Inferior Courts ordered filed. COMMITIEE ON TRAFFIC COURT JUSTICE Established by Senate Concurrent Resolution 17. passed by the Senate of the Seventieth General Assembly, the House of Representatives concurring therein. Resolution provides that the current President of the Municipal Judges' Council shall serve as the chairman of the Committee and the remaining seven members shall be appointed by the Chief Justice. Judge Dean Morley, North Little Rock, Chairman Judge Lawson Cloninger, Fort Smith Judge Lindsey Fairley, West Memphis
Judge Charles Goldberger, Pine Bluff Joseph McQuany, Director EOA Alcoholism Program Tommy Mitchum, House of Representatives, Batesville
Deputy Prosecuting Attorney, Pulaski County STATE JUDICIAL RETIREMENT BOARD This Board determines the retirement eligibility of jUdges and certifies to the State Auditor the names of judges or survivors entitled to receive benefits. (Elected by State Judicial Council) (6 year term) TERM EXPIRES Supreme Court 9th Judicial Circuit 1st Circuit
Justice John Fogleman, Chairman Circuit JUdge Bobby Steel Chancellor John T. Jernigan
10131/84 10/31/78 10131180
Ex-Officio secretary: C. R. Huie, Ex. Secy., Judicial Department Justice Building Little Rock, Arkansas 72201 DELEGATES TO SPECIAL ORGANIZATIONS NATIONAL CONFERENCE OF STATE TRIAL JUDGES (Appointed by Chief Justice) (3 year term) TERM EXPIRES 13th Judicial Circuit 19th Judicial Circuit 1st Circuit
Judge Melvin Mayfield Judge William Enfield Chancellor Bruce Bullion
9130179 9/30178 9/30/80
NATIONAL CONFERENCE OF SPECIAL COURT JUDGES (Appointed by Chief Justice) (1 year term) Municipal Judge William Eckert Municipal Judge Edward Grauman Municipal Judge Milas Hale 146/Arkansas Lawyer/July 1978
Magnolia Helena Sherwood
9130178 9/30178 9130178
JUDICIAL PLANNING COMMITTEE (2 year term) This committee was established by per curiam order of the Court on December 6,1976, as amended January 12, 1977, as follows: In accordance with the resolution adopted by the Arkansas Judicial Council on October 9, 1976, whereby the Council requested that the Supreme Court establish a permanent Judicial Planning Committee to improve the administration of justice in Arkansas, the Judicial Planning Committee of Arkansas is hereby established. 1. The name of the Committee shall be the "Judicial Planning Committee". It shall meet regularly to perform research and make recommendations on a long-range basis to improve the administration of justice in the Courts of Arkansas. The Committee shall prepare an annual master plan and a multi-year plan for improving the state court system and shall incorporate into its plans special provisions pertaining to criminal justice in the Courts. the Committee may establish advisory committees to assist it in its deliberations and promote involvement of the public, the executive and legislative branches of government, and other interested parties, in its efforts to upgrade the state court system. The Committee shall be empowered to review applications to the Law Enforcement Assistance Administration for assistance in court projects, to establish priorities for improving the state court system, and to develop and coordinate programs for improving the courts. 2. The Committee shall consist of sixteen members as follows: One Supreme Court Justice to serve as chairman, the Attorney General or his designee, four Circuit JUdges, four Chancery Judges, three Municipal Judges, one Prosecuting Attorney, one criminal defense attorney or public defender, and two practicing attorneys, to serve terms of two years' duration. A majority shall consmute a quorum. The Arkansas Judicial Department shall assist the Committee, administer its operations, and provide necessary staff SUbject to the approval of the Committee and this Court. (Per Curiam Order January 10, 1977.) 3. This Court may request recommendations of persons to serve on the Committee from the Arkansas Judicial Council, the Arkansas Municipal Judges' Association, the Arkansas Prosecuting Attorney's Association, and the Arkansas Bar Association. 4. This order shall be effective on December 13, 1976. Term Expires Supreme Court Justice: Justice J. Frank
Ho~-Little
Rock
12/31/78
Attorney General's Designee: Arthur J. Anderson, Jr.-Little Rock
12/31/78
Circuit Judges: Judge judge JUdge judge
Randall Williams-Pine Bluff Tom F. Digby-Little Rock Melvin Mayfield-EI Dorado Maupin Cummings-Fayetteville
12/31/78 12/31/78 12/31/78 12/31/78
Chancery JUdges: Judge Judge judge Judge
Thomas F. Butt-Fayetteville Robert H. Dudley-Pocahontas Eugene S. Harris-Pine Bluff James W. Chesnutt-Hot Springs
12/31/78 12/31/78 12/31/78 12/31/78
Municipal JUdges; JUdge Lindsey Fairley-West Memphis Judge William Isch-Mountain View Judge Charles Yingling, Jr.-8earcy
12/31/78 12/31/78 12/31/78
Prosecuting Attorney: Frank Wynne, Esq.-Fordyce
12/31/78
Criminal Defense Attorney: Jack Lessenberry, Esq.-Little Rock
12/31/78
Practicing Attorneys: James H. McKenZie, Esq.-Prescott William H. Sutton, Esq.-L~tle Rock
12/31/78 12/31/78
fJuly 1978/Arkansas Lawyer/147
AICLE NEWS by Claibourne W. Patty, Jr. Executive Director Arkansas Institute of Continuing Legal Education
Regional Estate Planning Workshops And Summer Institute In Fayetteville Round Out "CLE" Year
In response to the Annual Survey of Attorneys' Continuing Legal Education Interests, a summer institute will be conducted on the University of Arkansas campus in Fayetteville during the last week in June. The format will include basic and advanced Income Tax subjects in the morning sessions, UCC subjects in the afternoon sessions and a one day workshop on the use of the Arkansas Probate System will be conducted on Friday The tuition will be determined by the courses selected by each registrant and whether the registrant attends all five days, three days or one day. For those who wish low cost accomodations for themselves and their families a dormitory on campus will be available. Also, family activities will be planned each day and on certain evenings.
This summer workshop is jointly sponsored by the Fayetteville Law School faculty, the Taxation, Trust & Estate Planning Section of the Arkansas Bar Association and AICLE. A brochure will be mailed to the membership shortly which will contain the necessary details. Regional Estate Planning Workshops Regional Estate Planning Workshops using the Arkansas Wills & Trusts Sys-
148/Arkansas Lawyer/July 1978
tern have been scheduled as follows: Friday, April 21, 1978, at School of Law, Fayetteville, conducted by Richard A. Williams, F. H. Martin, and Robert C. Taylor; Friday, April 28, 1978, at Jonesboro, conducted by Thomas L. Overby, Lewis Mathis and Richard Hatfield; and Friday, May 5, 1978 at EI Dorado, conducfed by Byron M. Eiseman, Jr., Ted Drake, and William B. Roberts. These workshops, sponsored jointly by AICLE and the Arkansas Bar Association, are a follow up to the Mid Year Meeting wllh many of the same speakers. Due to the inclement weather and the distance for some to travel, the lower attendance at the Mid Year Meeting indicated a need for Regional Workshops to present this most important topic.
Labor Law Inslilute Rated Very High
The First Annual Labor Law Instllute conducted March 16-17, 1978 at the Camelot Inn received a very high rating by those in attendance. The seminar dealt with a diversity of subjects which were timely and of interest to the General Practllioner as well as the Labor Law Specialties or Personnel Manager. For the benefit of those who could not attend, an audio cassette of each speaker plus an 80 page
soft bound handbook are available from AICLE. In conjunction with the Labor Law Institute, the Labor Law Committee of the Arkansas Bar Association voted to assume Section Status and to co-sponsor with AICLE a second annual Labor Law Institute in 1979. Programs In Progress AICLE is working with the Real Estate Committee of the Bar Association to prepare a program for the Fall Legal Institute to be held in Little Rock in September the 14-15. The Nineteenth Annual Law Practice Skills Course (formerly Bridging the Gap) jointly sponsored by AICLE and the Young Lawyers Section of the Bar Association will be held in Little Rock at the UALR School of Law early in October. A Quality of Life Seminar is in the planning stage a joint project of AICLE and The Economics of Law Practice Committee to be held at the Inn of the Ozarks in Eureka Springs on November 3-4 with busses available to transport the participants to the Razorback-Rice game in Fayetteville on November 4th. Additional details will be available in future mailings and issues of the Arkansas Lawyer.#.....
au
LAW SCHOOL NEWS Assistant Dean Jarnes K. Miller Assistant Dean Susan Webber
•
•
SCHOOL OF LAW, UNIVERSITY OF ARKANSAS AT LITTLE ROCK MOOT COURT COMPETITION The first annual UAlR law School rnoot court competition was held during this semester and was completed with final arguments in the south courtroom of the Old Federal Building on Saturday, April 8th. Winners were Gary Hartrnan and James Richardson, who defeated Kathy Goss and Anne Owings. The four finalists were judged by a distinguished panel, Justice John Fogleman of the Supreme Court of Arkansas, Judge G. Thomas Eisele of the United States District Court of the Eastern District of Arkansas, and the Honorable Henry Woods. Judge Eisele commented that he had sat with the Eighth Circuit Court of Appeals on occasion and the arguments presented at our moot court finals would be in the top 10'% he has seen by the practicing bar. Judge Fogleman agreed, and Henry Woods complimented the students on their grammar, spelling and syntax, emphasizing the importance of these fields to an attorney. Hartman, Richardson and another student to be selected by Jacqueline S. Wright, Director of the Moot Court Competition, will represent the school at the Regional Moot Court Competition to be -held in Houston next October. The preliminary, second round and semi-final arguments of the single elimination compet~ion were judged by members of the Pulaski County Bar Association. The competition began with 26 second and third year students who were paired in teams of two. They then briefed and argued a hypothetical problem based on actual cases. Mr. Hartman is a senior student in the night division who writes for the UAlR law Journal and is employed by the Governor's Office of Management and Planning. Mr. Richardson is also a senior in the night division and is Associate Notes Editor for the UAlR law Journal. He is Claims Manager of the little Rock Service Office of Transamerica Insurance. Hartman and Richardson won the competition arguing for the petitioner despite the fact that during the first three rounds of arguments they had argued for the respondent. Because both teams in the finals had briefed as respondents the students flipped a coin to determine who should take the petitioner's side. BUILDING DEDICATION On July 14 and 15, the UAlR School of law will hold dedication ceremonies for ~s renovated courtrooms in the Old Federal Building. On Friday, July 14, a panel of the Eighth Circu~ Court of Appeals consisting of Chief Judge Floyd Gibson, Judge J. Sm~h Henley, and Judge G. Thomas Eisele will hear three actual appeals in the large restored south courtroom on the third floor of the building. During that day, the public will be inv~ed to attend the court sessions and to have guided tours of the building. On Saturday, July 15,the dedication ceremony ~self will take place in the courtrooms. Associate Justice Byron R. Wh~e of the Un~ed States Supreme Court will be the main dedication speaker. FACULTV NOTES From April 3 to AprilS Dean Robert K. Walsh was part of a team which inspected laVerne University College of law in southern
California on behalf of the Accreditation Committee and Council on legal Education of the American Bar Association. Other members of the team were Richard G. Huber, Oean of Boston College law School, Caroline Chandler Heriot, librarian of the Marshall-Wythe School of law at the College of William and Mary, and the Honorable Thomas Cullen, an attorney from Washington, D.C. Donaghey Distinguished Professor Robert R. Wright was chairman of a joint ABA-AALS reinspecfion team of the University of Georgia School of law at Athens April 10 through 12. Other members of the team were Igor Kavass, Professor and librarian at Vanderbilt University School of law, Kristine Strachan, Professor at the University of Utah, Herbert Reid, Professor and Dean Emeritus of Howard University School of law, and the Honorable Clyde Compton, an attorney of Gary, Indiana. Professor Wright also attended the spring meeting of the Council and Officers of the General Practice Section of the ABA, which was held at the Hyatt Regency in downtown Chicago. Professor Wright's article "Const~utional Rights and land Use Planning: The New and the Old Reality" appears in 1977 Duke law Journal 841 (1978). Assistant Professor O. Fred Harris, Jr., was moderator of a panel on employment discrimination at the Spring labor law Inst~ute held in little Rock. Assistant Professor l. lynn Hogue published an article ent~led "RegUlating Obscenity Through the Power to Oefine and Abate Nuisances" in the February, 1978 issue of the Wake Forest law Review. Associate Professor Glenn Pasvogel and Associate Professor Ken Gould were panelists on the KARN Radio program "Dialogue" which was broadcast Sunday, April 9. The topic was current trends in law. Professor Fred W. Peel appeared before the Oversight Subcommittee of the House Ways and Means Committee in Washington, D.C. on Tuesday, March 21, as one of a panel of witnesses invited to discuss the implication for tax simplication and administration of President Carter's income tax proposals. The subcommittee is chaired by Congressman Sam Gibbons of Florida. Professor Frederick K. Spies has been appointed to the Arkansas Health Manpower Planning Board of Arkansas Hea~h Planning and Oeveloprnent. Professor Spies presented a paper on the legal implication of single vehicle fatality at the annual meeting of the American Academy of Forensic Sciences in February at St. louis. Professor Spies, a Fellow of the Academy, was elected chairman of the Jurisprudence Section. On March 16 Professor Spies addressed the clinical psychology staff of Fort Roots Veterans Hospital at North little Rock on medicolegal issues. On March 30 thru April 1 the professional law library staff attended the Southwestern Association of law libraries Annual Meeting. Catalog librarian Melanie Nelson was elected Secretary. Professor Ruth Brunson, Director of our law library is serving as continued on 152 July 1978/Arkansas lawyerl149
> SCHOOL OF LAW, UNIVERSITY OF ARKANSAS, FAYETIEVILLE The Student Bar Association presented the second annual Trial Tactics Seminar on April 7 at the Arkansas Union Theater. Participants included Arkansas Bar Association President Walter Niblock; Bill Putman of Putman, Davis, Bassett, Cox & Wright, Fayetteville; Keith Schultz, of Schultz & Taylor, Fayetteville; Judith Rogers, Juvenile Court Judge, Little Rock; Robert Compton of Brown, Compton & Prewett, EI Dorado; Winslow Drummond of Wright, Lindsey &Jennings, Little Rock; Bill Wilson, Little Rock, and Dr. Henry Hicks, Jr., Professor of Engineering, University of Arkansas at Fayetteville.
PRESENTATION OF 100,OOOth VOLUME
• Assistant Professor Steve Nickles has been promoted to the rank of associate professor.
• Associate Professor Charies Sullivan has announced his resignation. Professor Sullivan will join the faculty of Seton Hall University School of Law, Newark, New Jersey.
• An article by Dr. Robert A. Leflar entitled, "Choice of Law: a Well-Watered Plateau," appeared in the issue on Contemporary Perspectives in Conflict of Laws: Essays in Honor of David F. Cavers, published as the Spring, 1977 issue of Law and Contemporary Problems, Duke University School of Law.
On March 24, 1978, Dean Wylie Davis presented the 1OO,OOOth volume to the Law Library. Dean Davis presented the book, entrtled The American Bench; judges of the Nation, to library staff member Ruby Biddle and Professor George Skinner, Law Librarian. Professor Skinner stated that the library has doubled in size in the past nine years.
OFFICE OF THE DeAN
WII ...mWlHan \!lO1 I Sl6-MOO FIr-lie-iii., Arkanl", 1m,
• An article by Professor Richard F. Richards entitled, "Preliminary Relief in Employment Discrimination Cases," was recently published in the Kentucky Law Journal.
Ii!NIVERSITY OF ARKANSAS . Schoo< of Law
April 15, 1978
DEAN WYLIE H. DAVIS
MEJ1)RANOUH TO MEMBERS OF THE ARKANSAS BAR
ASSOCIAtION AND ARKANSAS BAR FOUNDATION:
Dean Wylie H. Davis has resigned his deanship to return to fulltime teaching and research. He will resume his former position as distinguished professor of law on August 14, 1978. In announcing his resignation, Dean Davis said, "After five and one-half years in the deanship, I would like to return to fulltime teaching and research and, particularly in the immediate future, to participate in the revision of a leading casebook on insurance law." University at Arkansas President Dr. Charles Bishop stated, "We regret losing Dean Davis'leadership. He has done a praiseworthy job, particularly in his outstanding success at recruiting exceptional faCUlty members. In his tenure as dean of the Law School, Dean Davis also played an important role in the enrichment of the Law Library and in the improvement of the Law School facilities. Under his leadership, the School of Law has developed a national and international reputation for excellence in scholarship." Dean Davis has taught at the UA Law School for 15 years. He joined the faculty as an assistant professor in 1948 and resigned in 1955 as a full professor to join the Law School faculty at the University of Texas. He returned to the UA Law School in 1970, and became dean on February 1, 1973. Dean Davis received his LL.B. degree in 1947 from Mercer University, where he graduated magna cum laude. He earned an LL.M. from Harvard in 1948. Since 1972, he has been Chairman of the Committee on Contracts for the MultiState Bar Examination. He is a member of the Arkansas Bar, the Georgia Bar, and the Illinois Bar. 150/Arkansas Lawyer/July 1978
My dear Friends:
I am grateful indeed to Colonel Ransfck for permitting me to address you briefly in the pages of the Arkansas lawyer. Colonel Ransfck, I would add, has been--extremely helpful to me as Dean of the Law School at fayetteville in numerous matters and problems of mutual concern to us and the Bar in his positions as Executive Director of the Bar Association and Executive Secretary of the Bar Foundation. The Law School is greatly in his debt. As many of you know, I recently decided to resign the deanship and to return to full-time teaChing and research, effectively August 13, 1978. None of my reasons for this, however, are negative ones; and 1 will particularly miss the frequency of close association that a dean of this Law School necessarily has with judges and lawyers throughout the state. Innumerable members of the Arkansas Bar, in addition to the present and past leadership of the Association and Foundation, have helped to make my tenure as dean a personally rewarding one for me. You have my deep and abiding esteem and appreciation.
xc: Dr. Charles E. Bishop President, University of Arkansas
ADDENDA by C. E. Ransick Editor
NEWS MEDIA SEMINAR One of the finest programs developed by the Arkansas Bar Association during the past year is the news Media Seminar, May 12-13, 1978, Courtroom, UALR Law School (Old Federal Building), Little Rock. The Association's News Media Handbook will be used as the program handout. Representatives from some 165 newspapers and 125 electronic (radio and T.V.) media are being invited to attend. The Arkansas judges and the Presidents of all local bar associations in Arkansas are also being invited to attend. An outstanding faculty of practicing lawyers has been assembled for the program. It is planned to video tape the sessions for later use in regional programs. The following excerpts are reproduced from the printed program:
ENDORSEMENTS The Arkansas Chapter of the Society of Professional Journalists is pleased with the efforts of the ABA's seminar for journalists. We are encouraging all our members in Arkansas to attend this meeting. Bob Fisher, President Little Rock Chapter The Society of Professional Journalists Sigma Della Chi The Arkansas Press Association welcomes the opportunity to participate in this Arkansas News Media Seminar. There has long been a need for a meeting olthe various groups involved because we have many mutual interests and problems. While we probably have divergent viewpoints on some issues, a sharing of information can have very beneficial results. We commend those who have worked so diligently to make the seminar possible, and are urging our members to attend. Louise Bowker Executive Director Arkansas Press Association The Arkansas Broadcasters Association is extremely pleased to be involved in this most worthwhile effort. We feel it is most important for there to be a good working relationship and mutual respect between the bench and all media. Patricia C. Willcox Executive Director Arkansas Broadcasters Association There isn't a journalist in Arkansas who couldn't benefit from this snminar on the anatomy of a trial and legal terms. Press Wom", members should rush to take advantage of it. .. Carol Griffee President Arkansas Press Women
FOREWORD I am very excited about the News Media Seminar and feel it is one of the most significant projects undertaken during my year as president of the Arkansas Bar Association. Our goal is to present information about the law for working journalists to help them give the public a more clear view of the often complex field of legal news. I want to thank the news groups which are cooperating in this endeavor, and give well earned recognition to three attorneys who have made the project a reality. Mr. Tom Carpenter, law clerk to Supreme Court Justice Darrell Hickman, came up with the idea for the Seminar after serving on the American Bar Association's Committee on Criminal Justice and the Media. He got the excellent help of Mr. Art Anderson, director of the Criminal Justice Division of the Attorney General's office, in planning the seminar and getting it funded through the State Crime Commission. The idea for the News Media Handbook came from Mr. AI Schay, an attorney in private practice who used to be a newsman. The handbook was prepared by the state bar association's Public Information Committee, of which Mr. Schay is chairman. My wish is that the seminar will be only the beginning of a structured relationship between the bench, bar and news media wilh our citizens being the ultimate beneficiaries. Walter R. Niblock, President Arkansas Bar Association
THE NEWS MEDIA HANDBOOK Before I became an attorney, I spent 11 years as a newsman with The Associated Press, The Commercial Appeal at Memphis and KARK Television. I also spent three years as a press aide to Congressman Bill Alexander. During those 14 years, I met a lot of news people and came to realize that they have to be very versatile because they cover so many different subjects. With the exception of a handful of "beat" reporters who cover only court news, most reporters don't have the time to develop a thorough working knowledge of this type of coverage. The idea behind the handbook is to give reporters a place to look up law-related topics quickly. I asked the judges and attorJuly 1978/Arkansas Lawyer/151
• nays who wrote the sections to aim for clarity and briefness, since a reporter on a deadline simply doesn't have time for anything more. The handbook is in five sections. "The Courts" section gives a concise picture at the function of each type of court; the "Judges-Prosecutors" section is simply a listing of who holds these pos~ions; the "Features" section includes several topics we feel can be of help to reporters; the "Glossary" section contains definitions of many of the legaltenms a reporter is likely to run into; and the "Bar Association" section lists officers of the state and local lawyer groups who might be helpfUl if a reporter runs into a really sticky area of legal coverage. Based on my experience as a newsman, a political press aide and an attorney, I think the main advice I could give a reporter is don'l be afraid to ask questions and ask them until you feel you can tell the public what really happened. One thing to keep in mind is that a given attorney may have to adm~ to you that he doesn't know the answer because the legal profession has its specialists, too.
E. Alvin Schay, Chairman Public Infonmation Committee Arkansas Bar Association
REGIONAL SEMINARSWORKERS' COMPENSATION LAW
The Second Annual Workers' Compensation Institute, March 24,1978, at Little Rock introduced the new Arkansas Workers' Compensation System, and both were outstanding successes. When the Association's House of Delegates approved the new Arkansas Inst~ute for ContinUing Legal Education, the Delegates retained to our Committees and Sections the right to sponsor "CLE" programs. The Workers' Compensation Committee, under the direction of Chairman W. W. "Bill" Bassett, Jr. and of the System's Co-Aulhors Bud Whetstone and Norwood Phillips, put on the Second Annual Workers' Compensation Institute, and is planning follow-up regional programs for the benefit of our members who were unable to attend.
LAW SCHOOL NEWS Continued from page 149 Chairperson of the Memorials Committee of the American Association of Law Libraries. VIDEOTAPE EQUIPMENT Videotape equipment recently acquired by the UALR School of Law is being used this spring in the Law School's Practice Skills programs. In addition to the traditional appellate moot court program, the Practice Skills program at the UALR School of Law includes the Legal Clinic course, the Practice Skills course, and the Trial Advocacy course. The four credit-hour Legal Clinic course involves the students in actual representation of clients under the supervision of a law school faculty member. The Practice Skills course, also a four credit-hour course, examines and gives students simulated classroom experience in the lawyering 152/Arkansas Lawyer/July 1978
The first regional is the N. W. Regional Workers' Compensation Institute at the Law School, University of Arkansas, Fayetteville on May 5, 1978. This program is "tops" with outstanding speakers. We hope that you were able to attend. There will be some four additional "regiona'" seminars in the June-August period at locations around the State. The details will be announced shortly. If you miss one, you will be able to get to another at your convenience. Your attention is invited the AICLE Executive Director Clay Patty's article in this issue of The Arkansas Lawyer for information concerning other regional "CLE" meetings on different subjects.
THE DEAN It is an understatement that we wish Wylie Davis would remain as Dean of the Law School. He has served particularty well in a troublesome pos~ion in difficult times. We would like to call the attention of all to little publicized efforts of Dean Davis.
Under his aegis, the Arkansas Law Review has caught up on three issues in arrears. This was done with a rather marked increase in quality of the law review. Few remember that when he was the faculty advisor for the law review years ago, he established and maintained high goals of excellence for the publication. We also note Dean Davis' interest in the continuing legal education of Arkansas lawyers at the Univers~. Whether it was a Fall Legal Inst~ute, the Scriveners' Symposium, or a regional seminar, he gave his full-hearted support to the program. He has also been serving on the AICLE Board of Directors and ~s Programs Committee. Wylie Davis has not only been a fine dean, but also a contributing member of the Arkansas Bar Association. He will continue to be a splendid teacher of the Law. Noblesse oblige! " ....
skills of interviewing and counseling, negotiation, and drafting. The Trial Advocacy course is a four credit-hour course required of all graduates of the UALR School of Law. II is in the Trial Advocacy course that the most extensive use to date has been made of the videotape equipment. The first two thirds of the semester-long course is devoted to training the students in specifIC trial skills, including direct examination of witnesses, cross-examination, opening statements and closing arguments, and examination of prospective jurors. The method of instruction is primarily student participation in simulated court room proceedings. All student perfonmances in the Trial Advocacy course are videotaped by cameras hidden from view under plexiglass domes. The cameras are operated electronically from a lab in a room adjoining the court room. Even the jury deliberations are videotaped. Following each performance, the videotape is played back for critique by the inslructor and for self-critique by the students........
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