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ATLADOCKET FALL 2013

A publication of the Arkansas Trial Lawyers Association

The Arkansas Deceptive Trade Practices Act Investor-Loss Arbitration Unraveling the Mystery of Arkansas Foreclosure Defense I am a Municipal Attorney and My Client is Who?

COMMERCIAL LAW


DOCKET

ARKANSAS TRIAL LAWYERS ASSOCIATION

Table of Contents FALL 2013 COMMERCIAL LAW CONTRIBUTORS: Ethics and Image: Your Name Here? .................................................................2 Don R. Elliott, Jr., ATLA President IMPACT and Membership: Do we want to be like Texas? ..............................3 George Wise, ATLA President-Elect

FEATURE ARTICLES: Publisher Matthew J. Hass Editor Becky Gordy Advertising Manager Jennifer Irwin Publications Committee (2013-2014)

George Wise, Chair Charlie Boyd Laurie Bridewell Brian Brooks Beth Burgess Neil Chamberlin Chris Heil Todd Jones Caroline Lewis Drake Mann Jim Nickels Robert Tschiemer Breann Walas ATLA Docket is published quarterly by the Arkansas Trial Lawyers Association, 1400 W. Markham, Suite 307, Little Rock, AR 72201. Telephone (501) 376-ATLA. All rights reserved. Statements or expressions of opinions are those of contributors and are not necessarily those of the Arkansas Trial Lawyers Association or the editor of ATLA Docket. The editor of ATLA Docket reserves the right to edit and condense all materials herein. All advertising copy is the sole responsibility of the advertisers.

ATLA Docket • Fall 2013

The Arkansas Deceptive Trade Practices Act ...................................................6 Eric Estes, Esquire, and Bart Calhoun, Esquire Investor-Loss Arbitration ................................................................................12 Drake Mann, Esquire Unraveling the Mystery of Arkansas Foreclosure Defense ............................19 Kathy Cruz, Esquire I am a Municipal Attorney and My Client is Who? .......................................22 Chris Madison, Esquire

SPECIAL FEATURES: Good Works ......................................................................................................26 Chad Trammell, Esquire Case Note: Standard Fire Insurance Company v. Knowles............................23 Breean Walas, Esquire

DEPARTMENTS: New Members ...................................................................................................34 Contributors ......................................................................................................35 Advertising Directory .......................................................................................36

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Ethics & Image

Your name here? by Don R. Elliott, Jr., Esquire ATLA President

W

ith each new ATLA president comes the responsibility of restructuring the committees that serve as our organization’s arms and legs, eyes and ears. To search our membership to appoint members who will constitute the best team, who will work together and who also have the drive to maintain a growing and strong momentum is never an easy task, especially when considering the depth of passion and engagement of our members. We have an exceptional group of leaders who are community-minded, protectors of the vulnerable and champions of justice. I’m proud to serve as president this year, and in that service to name the committees that will carry out our mission to preserve the civil justice system for all Arkansas citizens. These committee members are upholding our service ethic and strengthening our image so that we remain strong in our fight to keep our communities safe and our families protected. Thank you to everyone who is serving this year! I look forward to working with all of you!

COMMITTEES Legislation David Williams, Chair Steve Bell, Vice-Chair One-Year Term (2013-14) Joel Hargis Charles Hicks Sean Keith Joey McCutchen Nathan Chaney Scott Poynter Bruce Flint Jason Hatfield Alan Lane Mike Rainwater Zac White Breean Walas David Scott Darren O’Quinn Bob Edwards Jesse Gibson

Bobby McDaniel Nate Coulter Sam Ledbetter Paul Byrd Two-Year Term (2012-14) Bob Sexton Brad Hendricks Rob Leflar Three-Year Term Lamar Porter (2011-14) David Couch (2012-15) George Wise (2012-15) Ex-Officio Ralph Cloar Lobbyist Matthew Hass Robbie Wills

Legislation Bill-Drafting Brian Brooks, Chair Brad Hendricks David Williams George Wise Rob Leflar Breean Walas Beth Burgess

Publications George Wise, Chair Jim Nickels Alan LeVar Rick Woods Neil Chamberlin Breean Walas Robert Tschiemer Todd Jones Denise Hoggard Kathleen McDonald Caroline Lewis Beth Burgess Drake Mann Charlie Boyd Brian Brooks

Listserve Paul Ford, Chair Chris Heil Bryce Brewer Brandon Clark Cephus Richard Garland Watlington Alex Bigger Conrad Odom Alan LeVar Michael Boyd George Wise Ralph Cloar Harvey Harris

Program George Wise, Chair Sach Oliver Neil Chamberlin Bobby McDaniel Robin Smith Brian Brooks David Couch Benjamin McCorkle Jeff Priebe Jerry Kelly David Price

Fundraising Tom Buchanan, Chair Ralph Cloar John Patterson Greg Giles Sandra Bradshaw Frank Bailey Taylor King Melody Piazza David Price Bob Edwards David Scott Rick Woods Justin Zachary Matthew Coe Justin Minton Matthew Jackson

Annual Convention David Williams, Chair Thomas Buchanan David Couch Connie Grace Paul Byrd Caroline Lewis Jeff Priebe Robin Smith continued on page 5

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impact & membership

Do we want to be like Texas? by George Wise, Esquire ATLA President-Elect

T

he question we should ask of ourselves is: Do we want to be like Texas? We know tort deform has been pushed, is being pushed and will always be pushed. The greed of the corporate immunity lobby and those who do not want to be held accountable for hurting others seems unending. To know what the civil justice system will look like with tort deform and why we must always be ready to fight it, one need only look to Texas and what has happened there since 2003 when severe limitations on the right to a jury trial were enacted. HB 4, passed in Texas in 2003, created a one size fits all cap on noneconomic damages. Thus the value of a case in Texas does not depend on the merits of the lawsuit or the value of the person but on the size of one’s paycheck. The “I got mine, you get yours” attitude of the corporate immunity crowd is reflected in this harsh and unfair limit. Damage caps devalue life. Families, children, our elders and the most vulnerable among us have their lives cheapened by arbitrary caps. The value of one’s life should be measured by human value and not by the size of one’s paycheck. With caps, justice is reserved for the most privileged. Texas tort deform also included a provision that gave immunity to emergency room doctors in almost all cases. A patient in Texas harmed by the negligence of an emergency room doctor must prove that the doctor acted willfully and wantonly, an impossible standard to meet in almost every case. Go here to read about Connie Spears: www.arktla.org/docketlink1

Ms. Spears lost both legs to amputation due to an emergency room doctor’s misdiagnosis. Her case was thrown out because she could not prove the doctor acted willfully and wantonly. Adding insult to her injury, under Texas’ loser pays provision, she was ordered to pay thousands of dollars in defense costs. Ms. Spears died in April without seeing a final and just resolution of the harm she suffered. Further problems with the Texas brand of civil justice is revealed in nursing home cases. If your elder loved one dies from negligence in a Texas nursing home, it is virtually impossible to find a lawyer to take the case. Not only is the $250,000 cap on such a case an impediment to suing, but in 2003, HB 2292 repealed a law requiring mandatory liability insurance as a condition of operating a nursing home. Giving ATLA Docket • Fall 2013

nursing homes the State’s permission to go bare gave them state authority to act irresponsibly. Stories coming out of Texas about the decline in the level of nursing home care are numerous. To read about a case where family members watched their elderly loved one drown before their eyes due to a misplaced feeding tube visit:

We know tort ‘deform’ has been pushed, is being pushed and will always be pushed.

www.arktla.org/docketlink2 Despite the propaganda spread by the corporate immunity lobby, tort deform in Texas has had no impact on health care costs, the supply of doctors or the practice of defensive medicine. Links to two studies debunking this propaganda are provided. www.arktla.org/docketlink3 www.arktla.org/docketlink4 In his disastrous presidential bid, Rick Perry claimed that tort deform in Texas brought in 21,000 new doctors. The fact checking group PolitiFact found this to be false. The study cited above found that Texas actually suffered a decline in doctors. Study authors found that the research Perry relied on ignores “doctors who left the state or retired, creating vacancies for their jobs; physicians who don’t treat patients but do research or administrative work; and physician growth compared with other states.” When these factors are taken into account, the study found, doctor growth has actually declined slightly since 2003. Texas allows nonparty defendants to be placed on verdict forms and fault allocated to the nonparty. We fought and are still fighting this. One message we need to get out which I have not seen emphasized enough is an explanation as to how this is unfair to the injured plaintiff. Juries think they are actually helping the injured party by allocating fault and do not realize they are actually reducing the plaincontinued on page 5

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ETHICS

continued from page 2

Don Elliot Sach Oliver Ralph Cloar Paul Byrd

Amicus Curiae David Williams, Chair Brian Brooks, Vice-Chair Dustin Jones Deborah Riordan Alan LeVar David Scott George Wise Ex Officio Rob Leflar Bobby McDaniel

Membership Jesse Gibson, Chair Thomas Buchanan Alan LeVar Lyndsey Dilks Justin Minton John Ogles Alex Bigger Tara Huggins Wheaton Caroline Lewis Rick Woods J.D. Hays Paul Byrd

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Awards David Williams, Chair Brad Hendricks Jesse Gibson John Belew Laurie A. Bridewell Ralph M. Cloar, Jr. Sach Oliver John Houseal John Patterson Chris Heil

Ex-Officio, Non Voting Members for all committees George Wise Don Elliott Bob Edwards Robin Smith Chad Trammell

IMPACT

continued from page 3

tiff’s claim. We need to work on refining this message. We must always remember that tort reform is a lie. Taking away the right to a jury trial does not promote patient safety or improve medical care. Tort deform does not benefit regular folks or the general public in any way. Limits on the right to a jury trial are pushed by the corporate immunity lobby whose goal is to boost insurance company profits, protect incompetent doctors from liability and promote propaganda about non-existent frivolous lawsuits. Patients harmed by negligence pay the price for those who benefit from being unaccountable. Texas is often promoted as a model for tort reform. I don’t want this model and I don’t want to be like Texas. If we are to avoid being like Texas, we need to consider what happened in Texas in 2003 when Texas voters amended their constitution to pave the way for tort deform. Mistakes were made in fighting that constitutional change. One of the biggest mistakes was not spending enough money educating key voter groups. A recent study showed that by spending more money and focusing that money on educating the right voters, Texas voters would have rejected tort deform. As we gear up for our continual fight to protect the right to a jury trial, we must raise the money needed to educate the people of Arkansas about the perils of tort deform. I don’t want to look back in 2014, 2015 or 2016 or beyond, and realize that if we had only spent a little bit more money, we would not be like Texas. Protect the right to a jury trial. Join and contribute to IMPACT.•

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The Arkansas

Trade

Practices Act by Eric Estes, Esquire, and Bart Calhoun, Esquire Introduction and the Private Right of Action “[N]o sooner is one fraud specifically defined and outlawed than another variant of it appears.”1 This quote, which was written about the deceptive trade practice laws of Pennsylvania, is both shocking in breadth and accurate in assessment. For these reasons, the Supreme Court of Arkansas acknowledged in its interpretation of the Arkansas Deceptive Trade Practices Act (“ADTPA”) that it is impossible for lawmakers to envision every conceivable unconscionable or deceptive act.2 Although the Office of the Attorney General is the primary enforcement agency under ADTPA, in 1999, the Arkansas General Assembly recognized that private litigants also play an important role in the enforcement of the law.3 That year, a private right of action was created.4 Litigants proceeding under this allowance are permitted “actual damages, if appropriate, and reasonable attorney’s fees.”5 For private litigants, the Arkansas appellate courts have held that “[t]he elements of such a cause of action are (1) a deceptive consumer-oriented act or practice which is misleading in a material respect, and (2) injury resulting from such act.”6 “A private cause of action does not arise absent a showing of both violation and resultant damages.”7 Since the ADTPA allows private causes of action, it is important that private practitioners understand the basic principles regarding the ADTPA. While the ADTPA has no ATLA Docket • Fall 2013

litigation road map, this article is written to highlight some of the chief decisions that must be made in evaluating and pursuing a claim under the law. What Is Not Covered Knowing what conduct is covered by a statute is a good first step in litigation. In some situations, however, knowing what conduct is excluded is even more important. The ADTPA falls within this category. Those acts and practices that are excluded from the scope of the Act typically fall into two general groups: statutory and judicial. The statutory limitations to ADTPA jurisdiction are found Ark. Code Ann. § 4-88-101. These limitations include acts and practices: (1) which are subject to and comply with the laws administered by the Federal Trade Commission;8 (2) permitted under the laws administered by the Department of Insurance, Securities Department, State Highway Commission, Bank Department, “or other regulatory body or officer acting under statutory authority of this state or the United States;”9 or (3) in the case of a public utility, which have been authorized by the Arkansas Public Service Commission, a municipal authority, or similar federal regulatory body, including the Federal Communications Commission.10 Furthermore, media organizations “who continued on page 8

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do not have actual knowledge of the intent, design, purpose, or deceptive nature of the advertising or practice[s]” of others are not within the authority of the ADTPA.11 Both the state and federal courts have treated the statutory exclusions found within the ADTPA expansively. Neither has given much credence to arguments that the acts and practices of regulated entities do not “comply with,” are not “permitted” by, or have

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not been “authorized by” the applicable regulators. Rather, these courts have typically looked at whether the acts and practices would normally fall within the agency’s jurisdiction purview. As surmised by the United States District Court for the Eastern District of Arkansas, “[n]o regulatory body permits deceptive and unconscionable trade practices such as those permitted by the [ADTPA].”12 “Because no regulatory body permits deceptive and

unconscionable trade practices,” the court stated, “no conduct that violated the [ADTPA] would ever fall within the exception provided [by that Act], which would mean that that provision is meaningless.”13 In other words, if the statutory exceptions were not given their widest possible breadth, there would have been no purpose in even including them within the statute. This analysis has been widely accepted by the courts. In cases involving insurance agreements, for example, the Eastern District of Arkansas has exempted almost all transactions from ADTPA jurisdiction, finding that the limitations apply to “essentially … all insurance activity in the State of Arkansas.”14 Similar limitations have been applied to fuel economy estimates administered by the Environmental Protection Agency,15 sales of agricultural seed and pesticides by a dealer licensed by the State Plant Board,16 and advertising and labeling claims for medicines approved by the Food and Drug Administration.17 In addition to these statutory exclusions, the courts have also carved out additional exceptions to ADTPA jurisdiction. For example, in one case, the Court of Appeals of Arkansas held that a breach of contract does not necessarily equate to a violation of the ADTPA.18 The Supreme Court of the state has similarly held that the ADTPA does not apply to the practice of law, including the unauthorized practice of law.19 Rather, the court stated, “[o] versight and control of the practice of law is under the exclusive authority of the judiciary.”20 This remains true even where attorneys are acting as debt collectors.21 In Bennett & Deloney, P.C. v. State of Arkansas, the State brought a claim against out-of-state attorneys under the ADTPA alleging that the attorneys were attempting to collect penalties on dishonored checks greater than the amount permitted by statute.22 The Court found that Bennett & DeLoney was a law firm that was practicing law while engaged in the practice of debt collecting. As a result, the State’s ADTPA claim was not permitted.23 The law on ADPTA jurisdic-

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tion remains less clear in price fixing cases, where courts have reached conflicting rulings.24 What Is Covered Ark. Code Ann. § 4-88-107 and § 4-88-108 set forth the conduct which is deceptive and unconscionable and, thus, prohibited by the ADTPA. Two of the most commonly pled provisions are Ark. Code Ann. § 4-88-107(a)(1) and § 4-88107(a)(10). Ark. Code Ann. § 4-88-107(a)(1) prohibits “[k] nowingly making a false representation as to the characteristics, ingredients, uses, benefits, alterations, source, sponsorship, approval, or certification of goods or services or as to whether goods are original or new or of a particular standard, quality, grade, style, or model.” As is readily apparent, this provision is extremely broad. However, because the provision contains the term knowingly, a litigant bringing a cause of action under this provision must prove a certain state of mind of the defendant. This provision requires that the plaintiff prove that the “defendant knowingly and intentionally engage[d] in a deceptive trade practice.”25 Simply stated, the state-of-mind requirement for this provision, as well as the other two mentioned, is identical to the state-of-mind requirement for traditional fraud.26 In contrast with the provision mentioned above, Ark. Code Ann. § 4-88-107(a)(10) does not require a litigant to prove knowing or intentional deception on the part of the defendant.27 Ark. Code Ann. § 4-88-107(a)(10) simply states that it is unlawful to engage “in any other unconscionable, false, or deceptive act or practice in business, commerce, or trade.” This is the “catch all” provision of the ADTPA. It is the broadest, the most used, and the most interpreted by Arkansas courts. An “unconscionable act” is broadly defined as an act that “affront[s] the sense of justice, decency, or reasonableness.”28 Because it lacks the state-of-mind requirement and covers such an ample spectrum of conduct, this provision is pled more frequently than any other provision in Ark. Code Ann. §§ 4-88-107 and 4-88-108 of the ADTPA. Ark. Code Ann. § 4-88-108 contains two provisions prohibiting certain behavior in the connection with a sale or advertisement of any goods, services, or charitable solicitation. Ark. Code Ann. § 4-88-108(1) states that “[w]hen utilized in connection with the sale or advertisement of any goods, services, or charitable solicitation . . . [t]he act, use, or employment by any person of any deception, fraud, or false pretense” shall be unlawful. This provision has not been interpreted in great depth by the courts. However, the Court in Curtis Lumber Co., Inc. v. Louisana Pac. Corp. acknowledged that the provision did not require a litigant to prove state-of-mind, as the terms fraud and deception cannot be coterminous, “as that result would violate the basic principle that a statute must be construed so that every word is given meaning and effect.”29 Ark. Code Ann. § 4-88-108(2) states that “[w]hen utilized in connection with the sale or advertisement of any goods, services, or charitable solicitation . . . [t]he concealATLA Docket • Fall 2013

ment, suppression, or omission of any material fact with intent that others rely upon the concealment, suppression, or omission” shall be unlawful. Like the provision immediately preceding it, Ark. Code Ann. § 4-88-108(2) does not require a plaintiff to prove knowing or intentional deception on the part of the defendant.30 State-of-mind is immaterial, and even innocent misrepresentations may be actionable. “By its own terms, the statute requires only that a violator intend for a purchaser to rely on his acts or omissions. A party is considered to intend the necessary consequences of his own acts or conduct.”31 Per Se Violations of the ADTPA Various statutes contain a provision stating that a violation of the said statute is a per se violation of the ADTPA. These provisions enable private litigants to seek damages through the ADTPA, as well as allowing the Office of the Attorney General to seek civil penalties for violations of such statutes. A prime example of the per se provision is contained in the Refund Anticipation Loan Act (“RALA”). A violation of RALA is a per se violation of the ADTPA pursuant to Ark. Code Ann. § 4-116-108. RALA prohibits facilitators of anticipation loans from engaging in certain conduct such as requiring a consumer to enter into a loan agreement to complete a tax return, failing to process the application for a refund anticipation loan promptly after the client applies for the loan, misrepresenting a material fact in connection with a refund anticipation loan, and various other conduct.32 Private litigants are specifically allowed to pursue private causes of action pursuant to RALA. Other statutes that contain the per se provision include, but are not limited to, the Used Motor Vehicles Buyers Protection Act,33 the Arkansas Home Solicitation Sales Act,34 and the Arkansas Consumer Telephone Privacy Act.35 Resources A complete analysis of the ADTPA is impossible in an article of limited scope and length. Hence, there is quite a bit more to the law than outlined herein that a practitioner should become familiar with before filing an ADTPA claim. While the annotations to the Arkansas Code and legal search tools may provide some guidance to the breadth of the Act, other materials will undoubtedly prove helpful to practitioners. This is especially true where litigation matters focus on the provision of the ADTPA that declares unlawful any “unconscionable, false, or deceptive act or practice in business, commerce, or trade.”36 In these cases, national compendiums prove to be of great use. Such publications are commercially available; one of the best, however, is published and sold by the National Consumer Law Center (“NCLC”).37 The NCLC also has regular conferences on consumer matters that are open to practitioners of all types. Conclusion The ADTPA is a powerful law and provides both the State of Arkansas and private litigants with an excellent continued on page10

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DECEPTIVE

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resource to protect the consumer public, as well as the legitimate business community, from those who are unscrupulous. As with all cases of great power, however, there must also be great responsibility. Any claim under the ADTPA should be well-researched and deliberately pled; to include a weak claim as a mere afterthought endangers the continued ability of all practitioners, government or private, to do good. Cognizance of both the exclusions and inclusions highlighted herein provides a good start to this endeavor.• Endnotes 1 Pennsylvania v. Monumental Props, Inc., 329 A.2d 812, 826 (Pa. 1974). 2 See State ex rel. Bryant v. R & A Inv. Co., Inc., 336 Ark. 289, 295, 985 S.W.2d 299, 302 (1999). 3 Wallis v. Ford Motor Co., 362 Ark. 317, 327, 208 S.W.3d 153, 161 (Ark. 2005) (holding that “civil enforcement of the ADTPA rests largely with the Attorney General”). 4 See 1999 ARK. ACTS 990. 5 ARK. CODE ANN. § 4-88-113(f) (Lexis 2001). Based upon this language, courts have concluded that the ADTPA does not permit private litigants to seek injunctive relief. See Baptist Health v. Murphy, 2010 Ark. 358, *28, 373 S.W.3d 269, 288 (Ark. 2010). 6 Forever Green Athletic Fields, Inc. v. Lasiter Constr., Inc., 2011 Ark. App. 347, *18, 384 S.W.3d 540, 552 (Ark. Ct. App. 2011). 7 Id. 8 ARK. CODE ANN. § 4-88-101(1) (Lexis 2001). 9 ARK. CODE ANN. § 4-88-101(3). 10 ARK. CODE ANN. § 4-88-101(4). 11 ARK. CODE ANN. § 4-88-101(2).

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(479) 530-1740 john@lawrenceengineering.net www.lawrenceforensicengineering.com 10

12 RM Dean Farms v. Helena Chem. Co., 847 F.Supp.2d 1125, 1127 (E.D. Ark. 2012). 13 Id. 14 Jones v. Unum Life Ins. Co. of Am., 2006 WL 3462130, *3 (E.D. Ark. 2006). However, in a recent opinion the United States District Court for the Western District of Arkansas disagreed, providing the first opposing interpretation of the “safe harbor” provision in regards to insurance activity and the Insurance Trade Practices Act. The Court stated that “the plain meaning of the safe harbor provision only excludes activity permitted by the Insurance Trade Act.” Thus, the Court held that an act or transaction in violation of the Insurance Trade Practices Act was not beyond the realm of ADTPA jurisdiction. See Willsey v. Shelter Mutual Ins. Co., Case: 2:12-cv02320, Docket Entry # 49, August 16, 2013. 15 Godfrey v. Toyota Motor N. Am., Inc., 2008 WL 2397497 (W.D. Ark. 2008). 16 RM Dean Farms v. Helena Chem. Co., 847 F.Supp.2d 1125 (E.D. Ark. 2012). 17 DePriest v. AstraZeneca Pharm., L.P., 2009 Ark. 547, 351 S.W.3d 168 (Ark. 2009). 18 See CEI Eng’g Assocs., Inc. v. Elder Constr. Co., 2009 Ark. App. 259, 306 S.W.3d 447 (Ark. Ct. App. 2009). 19 Preston v. Stoops, 373 Ark. 591, 295 S.W.3d 606 (Ark. 2008). 20 Id. at 594, 609. 21 Boyajian v. State of Arkansas, 2012 Ark. 210, 2012 WL 1739107 (Ark. 2012). See also Bennett & DeLoney, P.C. v. McDaniel, 2012 Ark. 119, 388 S.W.3d 12 (Ark. 2012). 22 Bennett & Deloney, P.C. v. State of Arkansas, 2012 Ark. 119, 388 S.W.3d 12 (Ark. 2012). 23 Id. at 6-7, 388 S.W.3d at 15-16. The consequences of the Court’s decision have yet to be fully realized. In its opinion, the Court neglected to define “practice of law.” The broad decision by the Arkansas Supreme Court has made it difficult for the Attorney General’s Office and private litigants alike to determine when an ADTPA claim is possible against an attorney or one engaged in the practice of law. 24 Compare In re TFT-LCD (Flat Panel) Antitrust Litigation, 586 F.Supp.2d 1109 (N.D. Cal. 2008), with In re Chocolate Confectionary Antitrust Litigation, 602 F.Supp.2d 538 (M.D. Pa. 2009). 25 Curtis Lumber Company, Inc. v. Louisiana Pac. Corp., 618 F.3d 762, 776 (8th Cir. 2010) (The Court noted that this standard also applies to ARK. CODE ANN. § 4– 88– 107(a)(3) and ARK. CODE ANN. § 4–88–107(a)(5)). 26 Id. 27 Id. at 776-77. 28 Baptist Health v. Murphy, 365 Ark. 115, 128 n.6, 226 S.W.3d 800, 811 (2006), quoting Black’s Law Dictionary 1561 (8th ed. 2004). 29 Curtis Lumber Company, Inc., 618 F.3d at 779. 30 Id. at 776. 31 Id. at 778, quoting Warren v. LeMay, 142 Ill.App.3d 550, 491 N.E.2d 464 (1986) (The provision interpreted in Warren is nearly identical to Ark. Code Ann. § 4-88-108(2)). 32 ARK. CODE ANN. §4-116-107 (See ARK. CODE ANN. §4-116-102(3) for the definition of a facilitator). 33 ARK. CODE ANN. § 23-112-601 et seq. 34 ARK. CODE ANN. § 4-89-101, et seq. 35 ARK. CODE ANN. § 4-99-401, et seq. 36 ARK. CODE ANN. § 4-88-107(a)(10). This provision often incorporates violations of other consumer-oriented laws. For instance, numerous courts have held that a violation of the Fair Debt Collection Practices Act is also a violation of state consumer protection laws. See, e.g., Becker v. Montgomery, Lynch, 2003 WL 23335929, *2 (N.D. Ohio 2003) (violation of the FDCPA is a violation of the Ohio DTPA); Ballard v. Equifax Check Servs., 158 F.Supp.2d 1163, 1176 (E.D. Cal. 2001) (violation of the FDCPA is a violation of the California DTPA); Dean v. Compass Receivables Mgmt. Corp., 148 F.Supp.2d 116, 119 (D. Mass. 2001) (violation of the FDCPA is a violation of the Massachusetts DTPA); In re Scrimpsher, 17 B.R. 999, 1015 (Bankr. N.D.N.Y. 1982) (violation of the FDCPA is a violation of the New York DTPA). 37 The website of this organization may be found at www.nclc.org.

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Investor Loss

Arbitration by Drake Mann, Esquire

A

56-year old North Little Rock housewife with no experience, education, or interest in investments entrusts her million-dollar inheritance to a new stockbroker, an attractive and charismatic career woman, with whom the housewife has developed a close, trusting, sister-like relationship. Over the course of 18 months, the stockbroker buys and sells more than $21 million of securities in the housewife’s account, netting over $300,000 in commissions, while leaving the balance of the housewife’s account largely unchanged. The chief financial officer of a large regional construction firm, educated as a certified public accountant, receives a cold call from a Long Island stockbroker. Impressed with his pitch and willing to risk a small portion of a small, sixfigure inheritance, he transfers his securities account to the broker and authorizes one small trade. They talk daily and the broker incrementally gains the CFO’s trust, steadily increasing his securities-trading activity. Within four months of opening his account, the client has only $8,000 left of his original inheritance, while the broker takes in over $67,000 in commissions. A successful East Arkansas farmer with limited experience in trading stocks receives a cold call from a New York stockbroker. After months of trading with little to show for it, he decides to close his account, but the broker refuses. The farmer asks to speak to his supervisor. The supervisor 12

says there is nothing he can do to help. The farmer then opens an account at a different firm and tries to have his old account transferred to the new firm, a routine practice using the Automated Customer Account Transfer Service. But the old firm changes his account number and continues trading until the farmer has almost no money left in his account. The Securities Industry Favors Arbitration Besides a crook and a victim, these stories all have one thing in common: the victim has waived his right to trial in a court of law. Ever since the Supreme Court upheld waivers of an investors’ right to trial in Shearson/American Express Inc. v. McMahon, 482 U.S. 220 (1987) on the ground that arbitration was an adequate means to protect the substantive rights of investors, virtually all agreements with securities broker-dealers include mandatory arbitration clauses. Some think that the securities arbitration system has a reputation of favoring the brokerage industry, and the industry has sought to maintain it. There is some movement toward altering the landscape, however. Congressman Keith Ellison (D-MN) recently introduced The Investor Choice Act of 2013 (H.R. 2998), a bill intended to enable investors to access the judicial system by prohibiting use of mandatory pre-dispute securities arbitration agreements. Arkansas Securities Commissioner Heath Abshure, who is also servcontinued on page 14

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ing as the president of the North American Securities Administrators Association, has been a vocal supporter of the bill. “This legislation is all about preserving investor choice and ending an investor protection gap,” Abshure has said, noting that a recent decision by Charles Schwab & Co. to expand its mandatory pre-dispute arbitration contracts to require that customers waive their right to participate in class actions heightens the urgency of passing the Ellison bill to uphold and restore the rights of investors. “Mandatory pre-dispute arbitration clauses, especially when coupled with class action waiver provisions, effectively eliminate any reasonable chance for a small to medium size investor to have her claim heard in an unbiased and fair forum.” The bill has been referred to the House Committee on Financial Services, but, at present, mandatory arbitration clauses force almost all investors to arbitrate their disputes, and one arbitration forum leads the field. This article examines the arbitration process administered by the Financial Industry National Regulatory Authority (FINRA), the largest non-governmental regulatory organization for securities brokers and dealers doing business in the United States, which was created in 2007 through the consolidation of the National Association of Securities Dealers and certain operations of the New York Stock Exchange. This article does not examine lawsuits by individuals who have bought unregistered securities, a practice which commonly arises when small businessmen either innocently or corruptly take money from friends or family for a promising-looking venture – suits that often amount to unpromising searches for remaining cash. No Lawyers Needed While the FINRA arbitration process is designed to be accessible to investors without lawyers, defense strategies commonly used by lawyers defending broker-dealers would leave even the most capable unrepresented investor reeling. For example, brokers sometimes argue comparative fault in cases alleging fraud, breach of contract, or violations of security statutes or regulations. While this principle may seem obviously inapplicable, arbitration panels sometimes seem to find them attractive, rendering decisions that look like one form or another of “splitting the baby.” Similar defense tactics include claiming that respondeat superior liability is inapplicable in securities cases or that there can be no broker liability for negligence alone; arguments that there is no private right of action for violations of securities regulations; and attempts to limit damages to “net out-of-pocket” losses. Even experienced arbitrators can be misled by these tactics. Because FINRA arbitration panels are not required to contain any lawyers (though they usually do), parties with substantial claims are well-advised to be represented by counsel, and those lawyers should be prepared to educate arbitration panels and keep their attention consistently focused on the applicable law. The FINRA Arbitration Process Because the process is designed to be consumer friendly, 14

however, counsel should take full advantage of its features. These features include liberal rules of pleading, limited discovery, and a loose adherence to the rules of evidence. The Statement of Claim To initiate an arbitration, a claimant must pay a filing fee, file a signed and dated submission agreement, and file “a statement of claim specifying the relevant facts and remedies requested.” FINRA Code of Arbitration Procedure for Customer Disputes Rule 12302. The rules offer no more guidance or limitation on the statement of claim than that. The statement of claim can be filed online or it can be filed on paper, taking any form from a letter to a traditional pleading. Because the statement claim is the first, and most likely only, written presentation the panel will see before a hearing, counsel should take advantage of the opportunity presented by this liberal pleading rule. Like any pleading, the statement of claim must be factual and accurate. But its presentation of facts need not, and should not, be set out in dry, legalistic forms. Instead, the statement of claim should come across more like a compelling opening statement than a traditional complaint. It should humanize your client and captivate the panel by laying out the relevant facts in a lean, absorbing narrative. Although members generally know securities law better than jurors off the street, securities claims can proceed under any number of legal theories, from breach of contract to breach of fiduciary duty to negligence to fraud, among others. Although it is perfectly acceptable to lay out alternate theories for recovery, panels may find that cases framed within a single, simple, and clear legal theory exhibit a quality of confidence that is in itself persuasive. Finally, the statement should set forth a simple, reasonable, and logical measure of damages. Fees The fees associated with a FINRA arbitration are significant. There are filing fees, hearing fees, and various ancillary fees that may arise, including adjournment fees, discovery motion fees, contested subpoena fees, explained decision fees, injunctive relief fees, and nonsufficient fund fees for bounced checks. The initial filing fees range from $50 for claims of $1000 or less to $1,800 for claims over $1 million. FINRA Arbitration Panel Selection Process After filing a claim, parties go through an arbitratorselection process. If the claim is for $50,000 or less, FINRA will appoint one arbitrator and the claim will be subject to simplified arbitration procedures. For claims between $50,000 and $100,000, the parties will select one arbitrator, unless the parties agree in writing to three arbitrators.  Claims of more than $100,000 are heard by panels of three arbitrators.  Arbitrators are not FINRA employees, but are independent contractors who serve at the discretion of FINRA and must have a minimum of five years of paid business and/or professional experience—inside or outside of the securities ATLA Docket • Fall 2013


industry—and at least two years of college-level credits. FINRA uses a Neutral List Selection System to generate lists of arbitrators from FINRA’s arbitrator rosters. The arbitrator selection process typically begins after the answer is due, regardless of whether a respondent files an answer.  After the answer is due, FINRA will send the parties arbitrator disclosure reports, which include arbitrators’ educational backgrounds, work experience, and other information that may bear on potential conflicts of interest such as their securities accounts, professional affiliations, and the like.  Parties can strike any arbitrators from the lists and rank the remaining choices.  They then submit their ranked lists to FINRA, which combines the parties’ ranked lists and appoints the highest ranked available arbitrator from each list to serve on the panel. In three-arbitrator cases, investors – and only investors – can choose either a panel with two public arbitrators and one non-public arbitrator, called a Majority-Public Panel, or a panel of all public arbitrators, called an Optional AllPublic Panel. Non-public arbitrators either work or have recently worked in the securities industry or have experience as regulators, while public arbitrators are not affiliated with the industry. Although most public arbitrators are lawyers, some are educators, accountants, and business professionals. They all must first complete FINRA’s Basic Arbitrator Training Program. (The pool of qualified FINRA arbitrators in Arkansas is comparatively small, and, as a result, panel members often travel from out of state to sit

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on panels here.) Arbitrators are paid a small honorarium for their service – presently, arbitrators receive $200 per fourhour-or-less hearing session with an additional $75 for service as chair; other compensation is available for discovery motions, postponed hearings, and certain travel expenses. Under the Majority Public Panel option, FINRA will send three lists: one with 10 chair-qualified public arbitrators, one with 10 public arbitrators, and one with 10 nonpublic arbitrators. Each party may strike up to four arbitrators on each list, leaving at least six names on each of the three lists. If no ranked arbitrators remain on a classification list, or if the remaining arbitrators of the required classification are not available, FINRA will appoint an arbitrator of that class by using the Neutral List Selection System. Under the All Public Panel option, FINRA will send the parties three same three lists: one with 10 chair-qualified public arbitrators, one with 10 public arbitrators, and one with 10 non-public arbitrators. Each separately represented party may strike up to four arbitrators on each of the chairqualified public and public lists, leaving at least six arbitrator names remaining on each party’s lists. This option, however, allows each party to strike up to all 10 arbitrators on the non-public arbitrator list. If the parties strike all of the non-public arbitrators, FINRA will not appoint a non-public arbitrator to the case. Instead, FINRA will appoint the next highest ranked available public arbitrator to complete the panel. continued on page 16

15


ARBITRATION

continued from page 15

Discovery Depositions are not allowed in FINRA arbitrations, except in rare instances where witnesses are seriously ill or otherwise likely to become unavailable or unless the parties voluntarily agree. Likewise, there are no interrogatories or requests for production. Rather, the Code of Arbitration Procedure requires parties to cooperate “to the fullest extent practicable” in the exchange of documents and information, a process which is accomplished through the exchange of documents that appear in categorized “lists” published on-line in the FINRA Discovery Guide. Although discovery procedures are limited in comparison to traditional discovery, they can seem intrusive and oppressive to clients who

16

have already suffered abuse at the hands of their stockbroker. Lawyers, therefore, should discuss what will be required of their clients at the very outset of the representation, going over with the client the demands of the applicable lists the Discovery Guide to ensure that the client knows exactly what will be called for in the course of the arbitration. The kinds of documents that a customer is required to produce in all cases include the following: • federal income tax returns of both the customer and all businesses the customer owns for the three years prior to the first transaction at issue through the date the statement of claim was filed; • financial statements, including statements within loan

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applications, or similar statements of the customer assets, liabilities and/or net worth for the period covering the three years prior to the first transaction at issue; • all documents the customer received from the firm and from any entities in which the customer invested, including account opening documents, prospectuses, research reports, and correspondence; • all account statements for each non-party securities firm where the customer has maintained an account for the three years prior to the first transaction at issue; • all documents, including agreements and forms, relating to the account for the firm or transactions with the firm; • all account analyses and reconciliations prepared for the customer; • all notes, including diary entries for calendars, relating to the account; • all recordings and notes of telephone calls for conversations about the customer’s accounts for transactions between the firm and the customer and all telephone records evidencing telephone contact between the customer and the firm; • documents relating to other claims the customer has filed; and • documents showing the customer’s ownership and more control over any business entity, including general and limited partnerships and closely held corporations. Although the documents described in the Lists are presumptively discoverable, the parties and arbitrators retain flexibility in the discovery process. Arbitrators can (1) order the production of documents not provided for by the Lists, (2) order that parties do not have to produce certain documents on the Lists in a particular case, and (3) alter the production schedule described in the rules. Nothing in the Discovery Guide precludes the parties from voluntarily agreeing to an exchange of documents in a manner different from that set forth in the Discovery Guide, and the parties can agree to exchange documents voluntarily and to stipulate to various matters. Only named parties are required to produce documents pursuant to the discovery guide. However, non-parties may be required to produce documents pursuant to a subpoena issued by the arbitration panel. Counsel should begin communicating with counsel for the respondent about discovery issues as soon as the respondent has filed an answer. Ideally, counsel for claimant should be prepared to deliver to the respondent all material he is required to produce as soon as the respondent files its answer. (Production is required within 60 days of the date an answer is due anyway.) Producing documents early will establish a cooperative tone, or else it will bring into high relief an uncooperative respondent’s behavior. It will also enable the parties to bring to the panel’s attention welldeveloped discovery disputes before the Initial Prehearing Conference. ATLA Docket • Fall 2013

Prehearing Procedures After the panel is appointed, FINRA will schedule an Initial Prehearing Conference with the arbitration panel. The Initial Prehearing Conference will almost always be held by telephone and will be attended by counsel only. At the Initial Prehearing Conference, the panel will set discovery, briefing, and motions deadlines, schedule subsequent hearing sessions, and address other preliminary matters. Counsel should prepare for the Initial Prehearing Conference by downloading a copy of the arbitrator’s hearing script from the FINRA website. Although the parties may agree to forego the Initial Prehearing Conference if they provide certain information to FINRA, doing so deprives counsel of an opportunity to establish rapport with, and learn more about the temperament of, the panel that will be hearing the case. Hearing Procedures FINRA encourages mediation and many cases are resolved prior to hearing. If the case is not settled, however, a hearing will be held, unless the parties agree in writing not to have one. Because few cases can be easily distilled into a package that an arbitrator can be reliably expected to digest, cases are best presented through live witnesses at a hearing. Any lawyer handling a FINRA arbitration should download a copy of the hearing script that the chairman of the panel uses to govern the proceedings. Counsel should expect a 5- to 15-minute delay at the beginning of the first hearing session while the members of the panel learn to operate the recording equipment. The hearings are tape-recorded, and copies of the recordings are available for a nominal fee. Any party may make a stenographic record of the hearing, but, even so, the tape recording will be the official record, unless the panel determines otherwise. If the panel determines in advance that the stenographic record will be the official record, FINRA will not record the hearing. If the stenographic record is the official record of the proceeding, a copy must be provided to each arbitrator and every other party. The cost of making and copying the stenographic record will be borne by the party electing to make the stenographic record, unless the panel decides that one or more other parties should bear the cost. The parties and their representatives can attend all hearings, and absent some persuasive reason to the contrary, expert witnesses can attend all hearings. The panel decides if anyone else may attend. The Code of Arbitration Procedure provides that the panel will decide what evidence to admit and that the panel is not required to follow state or federal rules of evidence. Generally, panels admit most evidence, answering most objections to admissibility with some form of the familiar principle that they will consider the objection when weighing the objected-to evidence or its credibility. There may nevertheless be stout reasons for excluding evidence, and on those occasions when a panel sustains an objection to the admissibility of evidence, the members appear to honor continued on page 30

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Unraveling the mystery of

Arkansas

Foreclosure Defense

by Kathy Cruz, Esquire

S

o, what’s different about foreclosure defense in Arkansas from any other state, or, for that matter, just defending any case? Let’s start with the fact that Arkansas has two very different foreclosure laws: Ark. Code Ann. § 18-49-101, the judicial foreclosure act and Ark. Code Ann. § 18-50-101, the non-judicial or Arkansas statutory foreclosure act (ASFA). Entities alleging an interest secured by real property have always been able to file a lawsuit for foreclosure, serve a summons on the mortgagor, prove up their interest in the real estate, prove that a default has occurred pursuant to the terms of the mortgage, and comply with all the Rules of Civil Procedure. Proper completion of this process would result in a court order that the real estate be sold at auction to the highest bidder, and then a court order certifying the sale (with certain other statutory requirements such as selling for a minimum of 2/3 of the value of the land). That process could take as little as 61 days, assuming service on the day the summons was issued, a non-appearing defendant, and a court order for the sale on the 31st day, and no appeal. Then in 1987 Arkansas enacted the ASFA, via Act 53 of 1987, alleging that this procedure was quicker and cheaper than judicial foreclosures. Under the ASFA there is no lawsuit, no summons, and no civil procedure rules. A foreclos-

ing entity files of record a Notice of Default and Intent to Sell (NOD) at least 61 days before the sale date, sends a copy of the notice to the mortgagor at least 30 days prior to the sale date, complies with the notice procedures in ACA 18-50-103 through 117, and conducts the sale on the 62nd day, assuming no intervening event. The trustee’s deed is then filed of record. Thus, on the face of it, there doesn’t seem to be very much difference since it takes a minimum of 61 or 62 days regardless of which foreclosure procedure is invoked. The cost isn’t that much different either, as it is the normal filing fee of $165 to file a complaint for foreclosure, and $140 to file the NOD. Plus concurrent with the filing of the NOD, you have to file the Deed and Mortgage which is an additional fee of $15.00 for the first page of each document and $5 for each additional page thereafter. Approximately 28 states have both judicial and nonjudicial foreclosure laws, and they vary greatly in procedure. Some states only allow government entities to use nonjudicial foreclosures, while others will not allow residential foreclosure via non-judicial foreclosure. Arkansas restricts access to non-judicial foreclosure by limiting which entity may use the ASFA. ACA 18-50continued on page 20

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FORECLOSURE

continued from page 19

116 restricts the use of the ASFA to banks, savings and loan companies, mortgage companies who are themselves the mortgagees or beneficiaries, and pursuant to ACA 18-50-117 to entities who are authorized to do business in Arkansas, (more on this ongoing legal proceeding below). Although ACA 18-50-116 does not allow the use of the ASFA for agricultural land (ACA 18-50-116(c)), this requirement can be waived by failing to raise it prior to the sale, Cockrell v. Union Planter Bank, 194 S.W. 3d 178 (2004), as ACA 18-50116 (d)(2)(B) has a self-curing clause that all defenses are waived if not raised before the date of sale, with the exception of fraud and failure to strictly comply with the procedures of ACA 18-50-101, Henson v Fleet Mortgage Co., 892 S.W.2d, 250 (1995). Now, you’re sitting in your law office late Friday afternoon and an old friend of a friend calls to hire you to stop the foreclosure sale of the family home scheduled for Tuesday. As we all know, clients think Arkansas lawyers have super human skills and can leap tall court buildings in a single bound, and can file pleadings faster than speeding bullets. So, you ask the obvious question, “Did you make all your mortgage payments?” T h e client swears 1) all mortgage payments were timely made; 2) they tried to

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make the mortgage payments, but the mortgagee would not accept the payments; 3) they have already paid off the mortgage in full; or 4) the mortgage company was working with them to lower their mortgage payments while promising not to conduct the foreclosure sale as scheduled. None of these answers make any legal sense as we all know the mortgage payment was either paid or it was not paid. And, financial institutions keep pretty darn good payment records and probably would not start foreclosure proceedings unless the financial institution had a good reason. How on earth do you unravel this mystery over the weekend, and what do you have to do to stop a foreclosure sale set for Tuesday? We all know the law school answer to that question: “It depends.” If it is a judicial foreclosure, and even though the time to answer has probably passed, you can file a motion to file a late answer based on excusable neglect by the client, and raise the defenses the client claims to have, since the sale has not yet occurred. While we all know it is not quite that simple, filing a motion to file a late answer may allow you some time to get the client’s defense before the court. But, what if the Tuesday sale is pursuant to the ASFA? There is no court to turn to, no complaint to check out the allegations, and no documents attached to review. In fact, there is nothing unless the client has a copy of the only document they received, the NOD. This will list the foreclosing entity and the name of the trustee or attorney in fact. If the foreclosure is in a county with electronic files, you can find the NOD filed of record over the weekend, and perhaps email the attorney filing the notice to get some information so you can take some action first thing Monday morning. Absent an electronic filing county and the client getting you a copy of the NOD, you’re stuck until you can get to the courthouse on Monday morning and get a copy of the

NOD. If this wasn’t a friend of a friend you would not put yourself under this time pressure and wreck your weekend worrying about what to do. In the not too distant past, you could just call the bank that held the mortgage and try to work out a deal. But as Bob Dylan might say, “The times, they are a changing.” Your local bank probably doesn’t hold any residential mortgages because it is too financially lucrative to sell residential mortgages on the same day the loan closes to huge securitized trusts with no phone numbers. The closest you can come to having a phone conversation with any human is to call the local attorney who filed the NOD. Unfortunately, in most cases the local attorney has no authority to take any action, and if they could get some authority, it is not immediate. The local attorney is usually not retained by the trust/mortgagee itself, but rather by a default servicer who specifically bars the local attorney from ever speaking directly with the trust/trustee/mortgagee, and requires all communication to go through the default servicer who is at any given time handling thousands of foreclosures. At the height of the foreclosure crisis, one local attorney filed nearly 1,200 foreclosures a month in Arkansas - so trying to slow down an individual foreclosure is like trying to stop a large ocean liner on a dime. If you do manage to track down someone who has some authority to intervene on short notice, just what do you give as a good reason to slow down or discontinue the sale? At this point in time, you are not really talking to a local attorney you are providing information to a default servicer who only recognizes certain legal arguments to suspend a foreclosure sale. So, what are those magic words that might have some immediate impact? The best and simplest are, “My client did not get the notice timely because it was sent to the wrong address”—it does happen, so be sure and ask the ATLA Docket • Fall 2013


client to check the mailing address. It’s possible that the notice did not go to all required parties, like co-owners, or judicial lien holders, so again ask the client to provide this information. Once you ascertain that notice was properly delivered, compare the contents of the notice with the statutory notice requirements found in ACA 18-50-103/104. Ensure the client got all the information required, especially since there is a lot after the 2011/2013 amendments to 18-50-103/104. If your client received the notice timely, and all the statutory information has been provided, move on to issues your client can address, such as the payment history, and if the client is really in default. You’d be surprised at the number of foreclosures that are caused by a default not due to the monthly payments in arrears, but because of other added fees, and pure accounting errors. Currently, one of the leading causes of foreclosures is the failure of the finan-

ATLA Docket • Fall 2013

cial institutions to timely process loan modifications. Ask if your client was offered a loan modification because it is required before foreclosure. While the financial institution starts this process with your client filling out lots of forms and submitting lots of documentation, the financial institutions have a track record of not receiving the documentation, even though your client has proof it was sent. In some cases the same documentation may have been sent several times before the financial institution acknowledges receipt. Unfortunately, by that time, much of the documentation provided is ruled to be untimely because all documents have to be less than 30 days old upon receipt. More than likely, if your client has been providing information for a loan modification, it has been sent more than once. There is ongoing litigation on this issue, and the federal government is probing several financial institutions for not complying with federal requirements to offer loan modifications.

Another loan modification issue is the requirement for trial payments before a permanent modification is offered—usually three monthly payments are required before a permanent loan modification will be granted. In many cases, homeowners have successfully made all three monthly trial modification payments only to later be told they do not qualify for a loan modification. When this happens, the reduced payment your client has been making is deemed insufficient to pay the contract monthly mortgage payment, and they are now much further in default. The only way to stop your client’s Tuesday ASFA sale is to file a complaint for a Temporary Restraining Order (TRO) and comply with ARCP 65 in that pleading. An unsettled issue is that ARCP 65 was modified in 2011 and now has a bond requirement. It is unclear as to whether it is mandatory or within the discretion of the Court, and there are no specific instructions for continued on page 31

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I am a municipal attorney and

My client is who?

by Chris Madison, Esquire

A

s a municipal attorney, my client is the City, therefore I advocate on behalf of the City. With that clarified, there are no issues with conflict of interest, right? I know it is difficult to believe, but sometimes and on some issues the City Council and the Mayor disagree over a course of action on behalf of the City. What should the municipal attorney do then? Who is the client when you represent a City? The City is your client, but the “city” cannot act on its own and must act through its authorized agents. The authorized agents are the Mayor and City Council in a mayor/ council form of government. The Council is responsible for financial affairs of the city and for enactment of general laws affecting the population. The Council is also responsible for providing policy statements through Resolutions. The Mayor acts as the chief executive officer and is responsible for the day-to-day operations of the City. The Mayor generally has the authority to determine the priorities of city action and staff resources for completion of those priorities. What types of attorneys represent a City? An attorney working for a city can be elected, appointed as a department head, or hired for a specific purpose. An

attorney who is elected must meet the statutory requirements for election and cannot be terminated from the position by neither the Council nor the Mayor. An attorney appointed as a department head reports to the Mayor and may be terminated at the will of the Mayor. The hiring or firing decision can be overturned by a 2/3 vote of the Council. So an appointed attorney is responsible to both the Mayor and the Council. An attorney hired for a specific project is governed by the retainer agreement or scope of services agreement and is generally responsive to the Mayor. However, a retained attorney may have to report and communicate with Council depending on the matter underlying the agreement for services. What theories have developed to guide identification of the client for municipal attorneys? Several theories have developed to guide municipal attorneys, and they generally include the Client is the “Public Interest” (PI), the client is the “Whole Governmental Entity” (WGE), and the client is the “Governmental Agency Employing the Attorney” (GAEA). See Solutions to the City Attorney’s Charter-Imposed Conflict of Interest Problem, 66 Ohio St. L.J. 1075 (2005) (article addressing conflicts of interest when a municipal attorney must represent indicontinued on page 24

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WHO?

continued from page 22

vidual city officials in competing objectives). Municipal Attorney works for the Public Interest Public interest sounds appropriate when determining who the client is. While it is easy to say the public interest is the client, in reality, it is simply unworkable. Generally, an elected city attorney has more leeway using this theory for representation, as he is elected by the citizens at large. However, an elected attorney is only part of the policy making group for a city. The City Council and the Mayor are elected to represent the public’s interest and are held accountable to the public for decisions affecting the city. While the electors can hold elected officials accountable, they are not in a position to affect day-to-day operations and daily decisions. An appointed or department head attorney faces a more difficult challenge when utilizing PI as the client model, because he is not elected. He serves at the pleasure of the Mayor with consent of the City Council. In either the elected attorney or the appointed attorney, pursuing the public interest is unworkable because the attorney is using his own interpretation of what the public interest is and thereby defines what he will and will not do on behalf of the city. If only this view is followed, the attorney is establishing the goals of the representation, rather than the client establishing the goals.

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Municipal Attorney works for the Whole Governmental Entity The “Whole Governmental Entity” theory follows a general counsel’s representation of a corporation. A city is an entity created by statute, much like a corporation. A city has many of the same responsibilities as a corporation has to its shareholders. Much like a corporation the City Council acts as the board of directors and the Mayor as the Corporation’s CEO. Unlike corporations, however, a Mayor is not directly accountable to the Board of Directors. Similarly, if a city uses ward elected positions, then council members are only accountable to citizens of their ward. The WGE model works when the Mayor and the City Council agree on a policy direction or decision. However, when they do not agree, or the direction they wish to take has a significantly negative potential for the City, then the attorney does not have a clear direction to follow for the benefit of the city. Following the WGE model works perfectly when everything is moving in the same direction, but every city has conflicts between the Mayor and the Council, often sooner rather than later. As such, sole reliance on this model is not effective in the realistic world of Arkansas’ small town politics. Municipal Attorney works for the Governmental Agency Employing the Attorney The GAEA’s approach works in large governmental

ATLA Docket • Fall 2013


agencies, such as State or Federal government because each agency has a director, a top policy making official. An attorney for that agency has a clear idea who is making the policy decisions for the agency. This model simply does not work in a municipal context because it is inefficient and ineffective to have an attorney for each department within a municipal entity. As discussed below, this theory does provide some workable ideas when the Council and Mayor are diametrically opposed on a policy issue. My experience as a Municipal Attorney In my short time as a city attorney, hired at the behest of the Mayor and approved by the Council, I have found that a combination of all the theories above should be used to address issues of identifying the client. A second principle I have come to understand is that it is of paramount importance to identify the respective responsibilities of the Mayor and the Council. When the different roles of Council and Mayor are clearly delineated, identifying which policy maker to receive direction from becomes clearer. Once that is understood, the attorney can look to the above models to help guide his representation of the City’s position. First step for any ethical consideration is to read the rules In every case of ethical consideration, especially when in doubt, read the rules and commentary to provide insight and direction. Model Rule 1.7 provides that “[e]xcept as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: (1) the representation of one client will be directly adverse to another clients; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyers responsibilities to another client, a former client or a third person or by a personal interest of the lawyer….” A lawyer may avoid this concurrent conflict under Model Rule 1.7(b) wherein, “[n]otwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent, confirmed in writing.” This rule illustrates why client identification is so important. This rule does not address when a client, the city, has competing interests among its policy makers. If an attorney can identify which policy maker is responsible for a particular issue, i.e. Mayor or Council, then identifying what policy to follow is easier. Along these lines, once identification of the appropriate policy maker is made, then there is no concurrent conflict to resolve. In this case, the attorney is simply following the directives of the appropriate policy ATLA Docket • Fall 2013

making voice. It is important to remember that the public interest should be pursued, as identified by the appropriate policy maker. For those part-time city attorneys, review the numerous opinions affecting potential conflicts between private clients and municipal clients and partners in a law firm. This article only addresses the conflicts within a city government and reaching policy decisions, but a realistic and everyday concern for part-time municipal attorneys is that of conflict checking before representation of private clients. Policy decision is both the Mayor and Council’s responsibility and they cannot agree What should an attorney do when a policy decision is both the Mayor’s and the City Council’s responsibility and they have opposite positions on a matter? It is my belief the attorney must be neutral in the matter and provide both the Mayor and the Council his unbiased opinion. This scenario brings about the quintessential law school exam answer of arguing both sides of an issue. The Attorney must provide what-ifs, arguments in support, and arguments against for both the competing policy directions. By following this approach, the attorney is pursuing the public interest, by informing the policy makers of the costs and benefits of a particular course of conduct. He is representing the whole governmental entity because he is giving clear information and opinions to the appropriate policy makers. By remaining neutral to the fight between politically driven entities, he is fulfilling his ethical obligation to provide effective representation to the whole client. When the City Council and the Mayor are both appropriate policy makers for a particular issue and they are on opposite sides of an issue, what should the municipal attorney do? As my favorite attorney answer goes, “It depends.” It depends on what stage the policy making decision is in, whether it is being debated, or has been made and is now being challenged for change or support. Policy decision is being debated If the policy direction is being debated, then I believe the municipal attorney has an ethical obligation to provide fair evaluation to both the Mayor and the Council. It is his responsibility to not only simply respond to questions from either party, but to anticipate problems for either party and provide that information as part of the policy making process. Some municipal attorneys take the position of staying quiet unless specific questions are asked. While that position is understandable for staying neutral, I believe that providing unbiased and objective opinions during debate for both sides is the better approach. The underlying theme of all policy decisions are the betterment of the public interest. As such, my role as a city attorney is to provide knowledge and professional opinions on the legal ramifications of a decision. An attorney’s failure to provide that information continued on page 32

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Good

works!

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ATLA Docket • Fall 2013


Good Works is a section of The Docket in which we highlight members who are giving back to the community. The name “Good Works” is meant to express the dual nature of community outreach. Doing good in your community not only benefits the community as a whole, but it also helps the profession. As we show our friends and neighbors that trial lawyers put the health, welfare and safety of the community above all else, the public perception of trial lawyers will reflect those efforts.

by Chad Trammell, Esquire

I

strive to give back to my community by helping others. So I could spend more quality time with my son, Charlie, I have served the Boy Scouts as an Assistant Scout Master to Troop 16 in Texarkana since the spring of 2010. I got involved with Boy Scouts when my son made the move up from Cub Scouts, and he’s almost an Eagle Scout now. The time has flown by for both of us. Boy Scouts foster a love of the great outdoors in young men and teaches them a number of life lessons like teamwork, diligence and perseverance through the challenges faced on the campouts and other activities. Once a scout reaches the age of 13, he’s eligible for one of the Boy Scouts of America High Adventure Camps of which there are three. Philmont is a desert mountain hiking challenge in New Mexico; Sea Base is a sailing challenge through the Florida Keys, and Northern Tier entails canoeing the flat waters of the Great North. I took some boys and fathers from our patrol on the Northern Tier High Adventure last summer. Northern Tier actually has three base camps, two are in Northern Minnesota but the one that is the most remote is the base camp in Bissett, Manitoba. We chose Bissett because it was the most remote and it posed the greatest challenge. It was 10 day adventure. Charlie went along with three other scouts and two other Dads who were ASMs — for a total crew of 8 including our guide. That’s actually a very good number for a crew. Our trip was planned as follows: Day One: We flew into Winnipeg, Manitoba and spent our last night in civilization in luxury at the historic Fort Garry Hotel in downtown Winnipeg. Day Two: We made the 3 hour drive from Winnipeg to Bissett — half the drive is on a dirt road. Somewhere along the way all of us lost cell phone coverage and did not get it back until we returned. That day at base camp we were briefed and packed for the trip.  Day Three: We flew on a sea plane from Base Camp to the middle of the Atikaki Wilderness and were dropped off. This was on a Saturday and the plane would come back to get us in 6 days. There are no people, there is no civilization, and there is nothing but wild wilderness in the Atikaki. There are no roads, no power lines, and no phones. You can only access this region by foot or sea plane. There are a number of natural lakes in this region. Following routes of the French Fur traders from many years ago, we went from lake to lake. There are hundreds of aluminum canoes stored on Scout Lake in this wilderness — all put there by the Boy Scouts. Everybody starts from

this point. The seven of us traveled in three canoes that we selected from the inventory. When we set out, we passed a similar sized group returning from their adventure. Their looks seemed to say, “You have no idea what you’ve gotten yourself into.” We did not see another human being until we returned to Scout Lake in five days when we passed another group on its way out. Our route took us from Scout Lake to Little Pepper Lake to Noname Lake through a series of small lakes and a river to Kawaseecheewank Lake. From there, we went through two small and unnamed lakes and onto Thunder and then Sawdon Lake and back through Noname, Little Pepper and Scout Lake. It’s all flat water canoeing. Just imagine paddling all day long with no help from a current. All of our gear and food were packed into packs that weighed approximately 150 pounds; each canoe weighed about 85 pounds. Other than the lactic acid burn in our arms, shoulders and backs from paddling all day, the real challenge came when we had to portage. That is — get out of the canoe, load up those 150 pound packs or the 85 pound canoe and make our way through the wilderness; up and down hills and over rocks to the next lake. Our 13 year old boys are all very athletic, and the Dads had worked really hard to get in good physical condition, so we were ready. But when you are actually climbing out of a canoe on an uneven surface, continued on page 34

ATLA Docket • Fall 2013

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CASE NOTE

Standard Fire Insurance Company v. Knowles by Breean Walas, Esquire CIVIL PROCEDURE – CLASS ACTIONS – JURISDICTION UNDER CAFA – UNANIMOUS SUPREME COURT HOLDS THAT A NAMED PLAINTIFF’S PRECERTIFICATION STIPULATION AS TO THE AMOUNT IN CONTROVERSY CANNOT BIND ABSENT CLASS MEMBERS – Standard Fire Insurance Company v. Knowles, – U.S. –, 133 S.Ct. 1345, 185 L.E.2d 439 (2013) Introduction It is not a secret that plaintiffs who have brought class actions in Miller County have been very successful. Classaction litigants and their counsel utilized an effective strategy recommended by the Eighth Circuit in Bell v. Hershey Co., 557 F.3d 953 (8th Cir. 2009), in which the class action complaint filed in state court included “a stipulation made by the plaintiff purporting to limit class damages to below” the federal jurisdictional minimum set forth in the Class Action Fairness Act (“CAFA”), 28 U.S.C. §1332; thereby insuring that the case would fall within the state court’s jurisdiction.1 Not surprisingly, class-action defendants and their counsel have viewed this legal strategy as a way for plaintiffs to avoid Congressional intent “to protect defendants … against the kind of State court class action abuses that are occurring in Miller County, Arkansas” by keeping class actions “in the State courts through abuses and manipulations of the amount in controversy.”2 With these two polarized views regarding the legitimacy of the class action plaintiffs’ strategy it is not surprising that class action defendants rejoiced in their “big win”3 when the high court held last March that “the District Court, when following the [CAFA] statute to aggregate the proposed class members’ claims, should have ignored the stipulation” because a class action plaintiff cannot bind the absent class members to a reduction in the value of their claims.4 To be sure, the United States Supreme Court’s decision in Standard Fire Insurance Company v. Knowles, -- U.S. --, 133 S.Ct. 1345, 185 L.Ed.2d 439 (2013), signifies the end of an era. Yet, what does the Knowles decision really mean? Does it drastically impact a plaintiff’s ability to avoid federal jurisdiction in class action litigation? Is it as bad as some members of the plaintiffs’ bar believe it to be? This case note (which may be considered by some to be more of an editorial) seeks to answer those questions.

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The Supreme Court’s Decision in Standard Fire Insurance Company v. Knowles The Knowles case began like many other class actions. On a spring day in 2011, Plaintiff Greg Knowles filed a putative class action complaint in the Circuit Court of Miller County, Arkansas, against Defendant, the Standard Fire Insurance Company (“Standard Fire”), for breach of contract.5 The underlying allegations supporting Knowles’ cause of action were Standard Fire’s “underpayment of claims for loss or damage to real property” – more specifically, “that, when the company had made certain homeowner’s insurance loss payments, it had unlawfully failed to include a general contractor fee.”6 Knowles further alleged that (a) the general contractor’s fee was “routinely assessed by contractors when repairing damaged property,” and (b) Standard Fire “fraudulently concealed its obligation to pay [these] charges and forced” him and other policyholders to bear this cost.7 Thus, “Knowles sought to certify a class of ‘hundreds, and possibly thousands’ of similarly harmed Arkansas policyholders.”8 In explaining the relief sought, the complaint included a stipulation as to the amount of monetary damages at issue; specifically stating that ‘“Plaintiff and Class stipulate they will seek to recover total aggregate damages of less than five million dollars.’”9 Knowles also attached an affidavit to the complaint further stipulating that he would ‘“not at any time during this case … seek damages for the class … in excess of $5,000,000 in the aggregate.’”10 Shortly after the complaint was filed, Standard Fire removed the case to federal district court.11 Removal was based on CAFA’s jurisdictional provision, which “provides that federal ‘district courts shall have original jurisdiction’ over a civil ‘class action’ if, among other things, the ‘matter in controversy exceeds the sum or value of $5,000,000.’”12 Knowles, not surprisingly, opposed removal and argued for remand on the grounds that the amount in controversy fell beneath the $5,000,000 jurisdictional threshold.13 After reviewing the evidence submitted by Standard Fire, the district court made the following determination: “the ‘sum or value’ of the ‘amount in controversy’ would, in the absence of the stipulation, have fallen just above the $5 million threshold. Nonetheless, in light of Knowles’ stipulation, … the amount fell beneath the threshold.”14 After the district court ordered that the case be remanded to state court, Standard Fire appealed to the Eighth Circuit, who declined to hear the case, and then petitioned for writ of certiorari with the Supreme Court, which the high court granted “in light of divergent views in the lower courts.”15 ATLA Docket • Fall 2013


The issue, as framed by the Supreme Court, was simple: Can a class-action plaintiff stipulate, prior to certification, that the amount of damages sought by the class would never exceed $5,000,000 in total and, as result of this stipulation, remove the case from CAFA’s jurisdictional scope?16 The high court’s unanimous response was, likewise, straightforward: In our view, it does not. Our reason is a simple one: Stipulations must be binding. The stipulation Knowles proffered to the District Court, however, does not speak for those he purports to represent. … That is because a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. … Because his precertification stipulation does not bind anyone but himself, Knowles has not reduced the value of the putative class members’ claims.17 The Court further explained that its inquiry, for jurisdictional purposes, “is limited to examining the case ‘as of the time it was filed in state court’” and “[a]t that point, Knowles lacked the authority to concede the amount-in-controversy issue for the absent class members.”18 Accordingly, because of the nonbinding nature of Knowles’ stipulation, the Supreme Court concluded that the district court was required to ignore the stipulation and, as it would in any other case, to determine whether it had jurisdiction based on its own calculation of the aggregate amount in controversy.19 In other words, the Supreme Court followed the basic tenet of statutory construction and held that 28 U.S.C. §1332(d)(6) must be applied as written by the legislature.20 Conclusion: The narrowness of the Knowles holding is clear and unmistakable: in those limited circumstances, where at the outset of litigation the named class-action plaintiff stipulates to an amount at issue that is below CAFA’s jurisdictional threshold, the stipulation must be ignored and the district court must determine the amount-in-controversy as it would any other case.21 In reaching this conclusion, the high court did not nullify a class-action plaintiff’s right to be the master of her complaint and, if she so desires, to avoid removal to federal court.22 To be sure, exceptions to CAFA jurisdiction are written into the statute and a class action plaintiff can still craft his complaint in such a way so as to invoke one of these exceptions.23 Moreover, in reaching the conclusion that it did, the Supreme Court likely prevented future problems at the class certification stage. For instance, by removing the precertification, amount-in-controversy stipulation “option” from class-action plaintiffs’ playbook, the high court took away a class-action defendant’s argument that the proposed class representative cannot “fairly and adequately protect

ATLA Docket • Fall 2013

the interests of the class”24 because he sought to restrict the amount his fellow class members can recover. Failing to get a class certified is far worse than being in federal court – even if it means you don’t get to keep your case in your preferred venue. So was the Knowles case really that big a win for classaction defendants? In my view, no, but it sure gave the Arkansas legal community something to talk about.• Endnotes

1 Knowles v. Standard Fire Ins. Co. (“Knowles II”), No. 4:11-cv-04044, 2013 U.S. Dist. LEXIS 108822, *3-4 (W.D.Ark. Aug. 2, 2013) (citing Bell v. Hershey Co., 557 F.3d 953, 958 (8th Cir. 2009)); see also Rowling v. Nestle Holdings, Inc., 666 F.3d 1069, 1073-74 (8th Cir. 2012) (holding that stipulation of the plaintiffs was sufficient to establish that the amount in controversy did not exceed $5,000,000). 2 Transcript of Oral Argument at 3 & 7, Standard Fire Ins. Co. v. Knowles, (No. 11-1450), available at http://www.supremecourt.gov/oral_arguments/argument_transcripts/11-1450.pdf (statements made by counsel for Standard Fire, Theodore Boutros, Esq.) 3 Mark Friedman, Inside the Miller County Class-Action Strategy Invalidated by U.S. Supreme Court, Arkansas Business (Mar. 25, 2013), available at http://www.arkansasbusiness.com/article/91542/miller-county-classaction-strategy-invalidated-by-us-supreme-court?page=all 4 Standard Fire Ins. Co. v. Knowles (“Knowles I”), – U.S. –, 133 S.Ct. 1345, 1349-1350, 185 L.Ed.2d 439, 445-446 (2013). 5 Knowles I, 133 S.Ct. at 1347, 185 L.Ed.2d at 442; Knowles II, 2013 U.S. Dist. LEXIS 108822, at *2. 6 Knowles II, 2013 U.S. Dist. LEXIS 108822, at *2; Knowles I, 133 S.Ct. at 1347, 185 L.Ed.2d at 442. 7 Knowles II, 2013 U.S. Dist. LEXIS 108822, at *2. 8 Knowles I, 133 S.Ct. at 1347, 185 L.Ed.2d at 442 (citation omitted). 9 Knowles I, 133 S.Ct. at 1347, 185 L.Ed.2d at 442 (citation omitted). 10 Knowles I, 133 S.Ct. at 1347, 185 L.Ed.2d at 442-443 (citation omitted). 11 Knowles I, 133 S.Ct. at 1348, 185 L.Ed.2d at 443. 12 Knowles I, 133 S.Ct. at 1347-48, 185 L.Ed.2d at 442-443 (quoting 28 U.S.C. §§1332(d)(2), (5); also citing 28 U.S.C. §1453). 13 Knowles I, 133 S.Ct. at 1348, 185 L.Ed.2d at 443. 14 Knowles I, 133 S.Ct. at 1348, 185 L.Ed.2d at 443. 15 Knowles I, 133 S.Ct. at 1348, 185 L.Ed.2d at 443 (comparing Frederick v. Hartford Underwriters Ins. Co., 683 F.3d 1242, 1247 (10th Cir. 2012) with Rowling v. Nestle Holdings, Inc., 666 F.3d 1069, 1072 (8th Cir. 2012)). 16 Knowles I, 133 S.Ct. at 1357, 185 L.Ed.2d at 442. 17 Knowles I, 133 S.Ct. at 1348-1349, 185 L.Ed.2d at 443-444 (citations omitted). 18 Knowles I, 133 S.Ct. at 1349, 185 L.Ed.2d at 444 (citation omitted). 19 Knowles I, 133 S.Ct. at 1350, 185 L.Ed.2d at 445 (citing 28 U.S.C. §1332(d)(6)). 20 See Knowles I, 133 S.Ct. at 1350, 185 L.Ed.2d at 445-446. 21 See Scimone v. Carnival Corp., 720 F.3d 876, 886 (11th Cir. 2013) (explaining that Knowles “pertains to the amount-in-controversy requirement and to the unique situation where a lead plaintiff merely creates the appearance of a smaller amount in controversy with a nonbinding stipulation to that effect”). 22 Knowles I, 133 S.Ct. at 1347, 1349-1350, 185 L.Ed.2d at 441, 444-446; see also Scimone, 720 F.3d at 886. 23 See 28 U.S.C. §1332(d)(3)-(5); see also Scimone, 720 F.3d at 886; Curts v. Waggin’ Train, LLC, No. 13-0252-CV-W-ODS, 2013 U.S. Dist. LEXIS 74298, *6-7 (W.D.Mo. May 28, 2013) 24 Fed. R. Civ. P. 23(a)(4).

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ARBITRATION

continued from page 17

those rulings in their deliberations. The experience and temperament of FINRA panels varies widely, and counsel should be prepared for a wide range of rulings and other feedback at a hearing. Generally, the claimant presents its case first, followed by the respondent’s defense. The panel has the discretion to vary the order in which the hearing is conducted, provided that each party is given a fair opportunity to present its case. Although opening statements are usually allowed, panels sometimes suggest to counsel that they do not need to hear closing arguments when the case is simple and the hour is late. At the end of the hearing the chairman will state that the record will remain open until the panel has arrived at its decision or until the panel decides that the record is closed. The parties are not allowed to contact any member of the arbitration panel, and all communications about the case must be directed to the FINRA staff member who is assigned to the case. At the close of the hearing, the chairman instructs the parties to leave the room at the same time, taking with them all documents not needed for the official record. The panel then remains in the room, conducts its deliberations, and notifies FINRA in writing of its decision. The decisions are rendered without any written opinion, unless a reasoned decision has been requested and paid for, in which case the

panel will issue its decision with only a brief statement of its reasoning. About two or three weeks later, the parties receive notice of the decision by mail. Like any case involving financial or other data that is susceptible to analytical manipulation, counsel would be well-advised to hire an expert (1) to assess the viability of the claim on the front end and offer insight on potential damage calculations, (2) to package and frame the data in a simple, clean manner for the hearing, and (3) to expose manipulative analytical techniques used by the defense to mask their misconduct or damages. In addition to analytical input from experts, counsel will find the on-line resources at FINRA’s website (www.finra.org) useful. The best resources, however, are available to members of the Public Investors Arbitration Bar Association (PIABA), an international bar association whose members represent investors in disputes with the securities industry. Based in Oklahoma City, PIABA seeks to promote the interests of the public investor in securities and commodities arbitration by protecting public investors from abuses in the arbitration process, such as those associated with document production and discovery; making securities arbitration as fair as possible; and creating a level playing field for the public investor in securities and commodities arbitration. Its website is www.piaba.org.•

Have you ‘liked’ ATLA? Have you joined the nearly one billion Facebook users around the world? If so, have you “liked” ATLA’s Facebook page yet? If not, you’re missing out on CLE and Convention updates, political and legal news and the lighter side of ATLA staff. So far we have over 350 followers and growing, so tell your friends, family and colleagues to surf on over. It’s a great way to connect with like minded folks and make you feel a little better about putting off working on those briefs....

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FORECLOSURE

continued from page 21

determining the amount of a bond. The courts have split over the issue of mandatory or discretionary. At least one court in Pulaski County has ruled that the bond is mandatory and must be in the amount of the total arrearage with the clients also required to make their monthly payments into the registry of the court to get the TRO issued. Other courts have found that the bond requirement is discretionary and have issued TROs with no bond required. However, the TRO can only remain in place for a short period of time before a hearing must be held. It is during this period of time that you will have to ascertain just what the issue is with your client’s mortgage. The best way to do this is to go to the courthouse and get the real estate files. Check that the original mortgage is recorded and look for any assignments. Buy a copy of the NOD. Make sure the party filing the NOD is the party holding the latest assignment of the mortgage because ACA 18-50-103 requires the mortgagee moving for foreclosure to have a recorded assignment. Many times you will find that the mortgage was assigned to the moving party just prior to the issue of the NOD, and it may also be signed by the local attorney who signs as a vice-president of Mortgage Electronic Registration Systems (MERS). It is always amazing to me how local attorneys hold the additional title of vice president of MERS, a Virginia corporation. Seems that title is available from MERS to any MERS member for a price of around $25. Next, look at the original mortgage and start checking the chain of title through the current assignment. Check for notary stamps from states different from the address of the person signing the document. Check for stale notary seals as there have been cases wherein financial institutions had thousands of forms notarized, but did not fully execute the assignment until after that notary’s seal expired. Check the signaATLA Docket • Fall 2013

tures of those purporting to be authorized to bind the financial institution against actual employees of the financial institution. There have been cases where those signing the assignments of mortgages did not work for the financial institution, but were employed by the default servicer to create missing documentation, the so-called “robosigning” problem. You may also find that the original mortgage had a specific assignment to a second financial institution, but the recently recorded mortgage assignment was not from the second financial institution, the so-called “A to D assignment” problem. This places the most recent assignment in question as to the authority of the person authorizing the latest assignment. Next check with the Arkansas Security Department to make sure the originator of the mortgage was authorized to write mortgages in the state of Arkansas at the time the mortgage originated. Also check with the Arkansas Secretary of State to make sure the financial institution bringing the ASFA is authorized to do business as a foreign corporation in Arkansas. Be sure to check online for information about the signatories to all these documents as quite a bit of legal history about certain mortgage problems is posted online and easy to check. You can also check online to get information about your client’s mortgage if it is part of a securitized trust, as those trusts must file reports with the SEC. This report will also tell you who really owns your client’s note-usually Fannie, Freddie, or a private securitized trust--as a majority of all mortgages in the United States are now bundled and sold as securities. Be prepared that the circuit court judge is not going to be happy with you asking for a TRO as an emergency, and is probably going to ask you to explain why you waited so long, or why your client waited so long. Also, be sure to call the local attorney listed on the

NOD and give them a heads up, as the court will want to know that you have at least attempted to get the mortgagee to voluntarily stop the scheduled foreclosure sale. The court may also ask for a telephone conference between you, the court, and the local attorney for the financial institution. Local attorneys are usually cordial and try their best to cooperate, assuming they have or can get some authority from their client to do so. The major problem, as previously stated, is that these financial institutions are so large and so compartmentalized that it is difficult to find someone with authority in a timely fashion. It seems there is layer upon layer of hierarchy required to bless your request. Assuming you can get the TRO signed without a bond required and can get a hearing scheduled, be prepared for the dreaded Holder in Due Course (HIDC) argument. The local attorney will argue that since his client has the note and the mortgage follows the note under the UCC, all his client has to do is produce the original note to prevail, regardless of any discrepancies with the assignment of the mortgage. Substantial compliance doesn’t work under ASFA as it requires that the assignment to the moving party be filed of record prior to recording the NOD. The HIDC rule will get them standing if they can prove the note is a negotiable instrument under Article 3 of the UCC. However, if the note is not negotiable, it is covered by Article 9 of the UCC which requires the entity in possession of the note prove up the chain of title, just as in criminal evidence. So, brush up on your UCC Article 3 and 9 laws before this first hearing. At least there is a lot of this information posted on the internet to point you in the right direction under Arkansas law. Now, you are ready for that 5:00 pm Friday call.•

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WHO?

continued from page 25

during debate is an abdication of his role as legal advisor to the city’s policy makers. By providing professional knowledge and opinions during debate, rather than waiting for questions, an attorney is helping to inform the policy making bodies so that they can reach better decisions. Policy decision is made but now being challenged by either the Council or the Mayor If the policy decision has been made and debate is not the issue but rather how to overturn, or change a policy, then the ethical considerations are changed. Assuming that both the Mayor and the Council are appropriate voices for policy direction and they are opposite, the attorney has an obligation of remaining neutral, but focused on the ramifications on the public at large. I see the attorney’s responsibility as providing unbiased, objective information, governed by the Public Interest, even as interpreted by the attorney, with a dash of understanding the whole governmental concept added in. This circumstance is more difficult when the attorney is appointed and the Mayor is the one wanting to change

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a prior policy supported by Council. Here the attorney has a financial interest in keeping his employer happy, but at the same time has a responsibility to protect and pursue the stated policy of the City. This is a difficult line to walk at times and must be approached cautiously. It is important to have a trusting and open relationship with the Mayor and one where the Mayor appreciates an attorney’s honesty and openness with the issue. At least in this circumstance, the attorney and the Mayor can meet privately without fear of violating the Arkansas Freedom of Information Act. The Attorney has the duty to provide unbiased and objective opinions and legal knowledge. If the policy direction the Mayor wishes to achieve can be achieved without changing the declared policy of the Council, the attorney must help to find that solution. If it cannot be reached without a change of policy the attorney must make that clear as well. Policy decision is made and the challenge to it is going to be litigated In the final circumstance where potential for litigation may occur

between Council and the Mayor, the approach would be for the municipal attorney to stay neutral. He must provide objective information to both, but once the decision to actually litigate occurs or appears a certainty, then he must withdraw. In this circumstance, it may be necessary for the Council to retain separate counsel to represent them. The challenging issue is whether the attorney can continue to represent the Mayor or not. The better practice would be to withdraw completely from the issue. This approach allows the hired city attorney to continue in the neutral role of advisor and advocate for the city as a whole and not take sides in a battle between Council and Mayor. Conclusion The role of municipal attorney is challenging and exciting, and fraught with difficult and complex decisions. The municipal attorney must walk a thin line of neutrality while zealously advocating for his client, however that is defined. In my experience identifying which policy maker has responsibility to make the policy helps to clarify which policy to follow. In the circumstances where both Mayor and Council have authority, reaching agreement or modification so that both sides achieve their objective is optimal. When that outcome is not possible, the attorney must remain neutral, even if it requires hiring additional counsel for the Council and Mayor to represent each independently. When in doubt, read the rules, their comments and notes, and opinions of the Bar and Attorney General’s office. Finally, don’t be afraid to phone a friend, as I have done on numerous occasions when faced with these challenging issues. Being a municipal attorney is much like being a corporate general counsel, many directives from competing interests, all while representing the shareholders who have no direct say in the course of the enterprise.•

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ATLA Docket • Fall 2013

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GOOD WORKS

continued from page 27

putting a 150 pound pack on your back and hauling it up and over the hills in humid and hot weather, it’s completely different. For all of us, the trip was one of the most challenging things we have ever done — both physically and mentally. It took a lot of teamwork to finish the trek. Our first night in the wilderness we pulled up to an island in the middle of one of the lakes in a driving rain storm. It gets chilly at

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night. In the wilderness, there is no place to go and get out of the rain. Of course that’s obvious, but when you live it, well, that’s a completely different story. We had to put up our tents in a torrential downpour and try to get in and somehow stay dry overnight — while our clothes from that day were soaked and stayed out of the tent. It rained all night long, so our clothes were still soaked in the morning. We kept going and did a good amount of fishing, catching mostly Northern Pike — they sure were good to fry up and eat at camp. Then we went through the biggest portage of all, a trail known as Mini-Heartbreak — an area of swampy muck that does not qualify as dry land between Thunder and Sawdon Lakes. Step in the wrong spot, and you would literally sink to your waist in muck. We had to get ourselves and our canoes and all of our gear through this mess. The feeling of accomplishment for the boys after getting through that portage was indescribable. That’s the picture with all of the dead trees behind us with big smiles on our faces. During the trip, one of the boys had a face-plant on a rock and almost broke his nose, had some dehydration, and homesickness — but luckily no other injuries. I’ve heard men need physical challenges. This was one, and it will be an unforgettable experience for these young men. I was glad I took the time to organize and lead the PG Hawk Crew through the Northern Tier Bissett Wilderness in July 2012. I treasured the time spent with my son and also feel good about having a positive impact on young men during their formative years. Giving back to the community in this way has been very powerful for me. When people see lawyers giving back to the community, it underscores our desire to help our communities become better and stronger. Volunteerism and community service is just the right thing to do. Don’t preach when you volunteer, just do it, giving of yourself with no other expectations. If your practice is very busy, pick one passion. Just one. And throw yourself into it.•

ATLA Docket • Fall 2013


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Richard L. Schwartz CPA, MCBA, ASA, ABV, CFE Our Founder

ATLA Docket • Fall 2013


‘Almost’ doesn’t cut it.

You need both strength and strategy. Supplement your strengths by securing support from the right people. For complex cases, associate the experience and expertise of The Law Office of David H. Williams. Our areas of strength and knowledge include ˆ7XV]OIVLMTVITPEGIQIRXVIGEPP ˆ(ERKIVSYWHVYKW VIGEPPW ˆ'SQQIVGMEPZILMGPIEGGMHIRXW ˆ%WFIWXSWI\TSWYVI ˆ%YXSTVSHYGXHIJIGXW ˆ%ZMEXMSR%GGMHIRXW ˆ2IKPMKIRGI

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PLATINUM FOUNDER Contributing $25,000 or more

BRONZE BARRISTER Contributing $6,000 or more

SILVER DIPLOMAT Contributing $12,000 or more

CHAMPION BENEFACTOR Contributing $3,600 or more

Hare Wynn Newell & Newton Nix, Patterson & Roach

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6000 CLUB

George Niblock Nicholas H. Patton WAYS & MEANS

Paul Byrd Brad Hendricks

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Greg Giles Murray & Murray Rainwater, Holt & Sexton

3000 CLUB

Frank Bailey Neil Chamberlin Michael A. Crockett Phillip J. Duncan Michael Easley Don R. Elliott, Jr. Gary Green Samuel E. Ledbetter Taylor King Clark W. Mason Bobby R. McDaniel

CHAMPION PATRON Contributing $1,800 or more

Michael Boyd Ralph M. Cloar, Jr. Jason Hatfield

GUARDIAN OF JUSTICE Contributing $1,000 or more

Matthew Bishop

J. Bruce McMath Phillip H. McMath Peter Miller John Patterson Frederick S. (Rick) Spencer Hugh Spinks William J. Stanley Les Weisbrod Phillip John Wells David H. Williams George R. Wise, Jr.


2013 fall atla docket