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Miidas Greenhouses v. Global Horticultural (CA2 12/22/10)

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Another economic-loss-rule case.

Miidas bought some peat moss from Global. One batch of it was bad and ruined Miidas’ crops. Miidas sued for breach of contract, strict liability, and negligent misrepresentation. Global moved for summary judgment on the tort claims, arguing the economic-loss rule. The trial court granted it.

See Flagstaff Affordable Housing to brush up on the rule. This is a products case, so the Court of Appeals used the three-factor test. We said that Flagstaff “throws doubt on the three-factor test itself, apparently signaling a willingness to change it when an appropriate products case comes along.” Miidas argued “Flagstaff signals that Salt River‟s three-part test will soon no longer be the law in Arizona products cases.” The court says “Although we acknowledge the Flagstaff court‟s negative comments about the Salt River test, we agree with Global that despite these comments, Flagstaff did not overrule Salt River.” Which proves that you can lead a horse to water, etc.

So, the three-factor test. First, was the product unreasonably dangerous? Yes, it was unreasonably dangerous – to seeds. If that is how the phrase can be used then of course it means anything – and therefore nothing.

Next, the court demonstrates that the best argument against the three-factor test is its application. For what follows is among the most confused and confusing patches of gobbledygook that’ll you ever have to read in a judicial opinion. Flagstaff should have meant (and we’d bet it was intended to mean) never having to read something like this again. Among other things the court tells us that the second factor, which it never really explains, is not “helpful” here. Well, it’s not helpful because the test is largely nonsense – and you’d think that a case that has to try to say that the growing of a crop happened “suddenly” and “accidently,” or that whether it did or not has to be considered but doesn’t matter, would take up Flagstaff’s invitation to admit that. Instead the decision is largely an analysis of Salt River, almost as though Flagstaff didn’t exist.

The court ends up deciding that  Miidas’ seeds were “other property” and that “the third factor of the Salt River test, as well as the first two, supports [sic] a conclusion that the economic loss rule should not be applied in this case.” (What that odd formulation means we’ll leave as an exercise for the reader.)

If you decide to read this one, though, ask yourself afterward just exactly what doing so has added to your knowledge of the law.

 

(link to opinion)

In the Matter of Phillips (12/16/10)

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This is a disciplinary decision. The issues involve ER 5 – a lawyer must make reasonable effort to ensure that his firm and those he supervises act ethically – and what the sanction should be.

Phillips runs one of those high-volume, high-advertising firms.  In 2002 he was put on probation because the firm was doing most of the things those firms can have problems with. The terms of probation included, basically, making sure that it didn’t do them. His suspension ended but the complaints didn’t, so the Bar sought discipline again. The Hearing Officer recommended a six-month-and-a-day suspension; the Disciplinary Commission accepted it by a vote of 6-2, the minority wanting the suspension reduced to ninety days. Phillips sought review. (Arentz, another member of the firm, was also involved in this and also sought review; the court denied his petition.)

What the firm did wrong takes five pages to summarize (boiled down from a Hearing Officer report well over 100 pages long). Read the opinion if you want the gory details; basically, it’s a laundry list of the pitfalls in running those firms (if you don’t know how they work then this opinion will be an eye-opening education). What they have in common is that Phillips didn’t do any of the individual acts (he no longer represents clients) but was responsible for the policies and procedures that allowed them to occur.

Phillips’ argument was that he therefore shouldn’t be responsible for them, that the Hearing Officer merely found him vicariously liable for the offenses of others. But the Hearing Officer “clearly understood and correctly applied” the law that Phillips was liable for his own ethical breaches in not enforcing proper policies and procedures. ER 5 (the opinion deals specifically with 5.1 and 5.3) says so.

That was the legal issue on which the court granted review. The analysis takes about a page. What takes the remaining 11 pages of the majority opinion? The sanction. But the court agrees with the Hearing Officer’s findings and conclusions on everything except the issue of proportionality.

On that the court first says that a case “involving a ‘consumer law firm’ and a high volume practice . . .  is difficult to compare with others.” That is worth a long article. But the short version is: no, it isn’t, unless the suggestion is that “consumer” law firms (whether “consume” refers to lawyer or client isn’t clear) needn’t follow the same rules of ethics as the rest of us.

But rejecting  proportionality allows the court to address “internal proportionality” – i.e., to compare Phillips’ sanction to Arentz.’ Arentz had 19 ethical violations; Phillips scored only 12. Arentz was more directly involved with his violations. But Arentz got only sixty days. And the reason for Phillip’s “and a day” sanction was because that means he would have to go through a formal reinstatement process, lengthening the sanction. Although the court agrees that Phillips deserves worse that Arentz, it concludes that six months – without the complication of the extra day – is enough. (There is also probation, the 21 conditions of which are stated in the appendix. In addition, while suspended “Phillips’s [sic] name may not be used in firm advertisements, letterhead, or other communications” – stand by for some Glen Phillips commercials – and he can’t take any firm income.)

Judge Weisberg, sitting by designation, writes separately to support the stiffer “and-a-day” sanction. “Phillips is not being sanctioned for his second ethics violation [as the majority suggests]. He is being sanctioned for his ethics violations eighteen through twenty-nine.” If you’re keeping score, Phillips’ 29 beats Arentz’ 19.  Phillips had been on probation once already. And Arentz was “working in a system that was developed, implemented, and supervised by Phillips.” He does agree, though, that you can’t compare “consumer” law firms (the court at least has the grace to put that in quotation marks) with the rest of us, who presumably exist merely to grind the faces of the poor.

Now, regardless of what you think of this type of firm or this type of law or this type of lawyer, you have to wonder what was going on here. The court denies Arentz’ petition, grants Phillips’ petition purportedly for an issue that it spends about ten seconds on, then reduces Phillips’ sanction not because of what he did but supposedly because it wasn’t proportional to a sanction it had denied itself the opportunity to review (which, as Judge Weisberg tries to point out, was too light), by pretending that comparing one case to one other is a proportionality analysis. This is one of those times when you don’t know what to hope – that the court didn’t realize how bad this would stink, or that it did.

 

(link to opinion)

Sleeth v. Sleeth (CA1 12/9/10)

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This opinion is published as a major statement on the standards for awarding attorneys fees in guardian/conservatorship cases.

Son, through counsel, petitioned to be appointed his rich father’s guardian and conservator and also trustee of Father’s living trust. The petition was granted. Son had conflicts with Father’s live-in girlfriend; she, joined by Father’s lawyer, eventually sought to remove Son as guardian/conservator/trustee. The trial court found that neither Son nor Girlfriend had acted entirely in Father’s best interests and replaced Son with a private fiduciary.

Son then moved for an award of costs and fees from the estate, despite having done things so badly that he got kicked off of it. Father’s lawyer also sought fees. As usual in theses cases the fee requests were astonishingly large, at top-dollar hourly rates. The court granted them in full. That of Father’s lawyer wasn’t opposed but Father and his new wife opposed Son’s, and appealed.

The Court of Appeals reversed, pointing out this:

“[T]ime expended should not be the exclusive criterion for determining fees . . . [and] should not warrant an award of fees in excess of the worth of the services performed.” “[T]he court must be guided by what is in the best interest of the ward.”  “Both counsel and the fiduciary have a duty to undertake a cost-benefit analysis at the outset and throughout their representation to ensure that they provide needed services that further the protected person’s best interests and do not waste funds or engage in excessive or unproductive activities.”

If this seems intuitive to you, keep in mind that if it were intuitive to the probate/conservatorship people then this opinion would probably not have been published. In that world, the cost-benefit analysis is a mythical beast. In fact, Son and his lawyer argued explicitly that “none of the statutes require that the protected person or his estate derive any benefit from the legal fees incurred.” This opinion is written to try to reverse that mindset. “[W]hether the services provided any benefit or attempted to advance the protected person’s best interests are important factors for the superior court to consider when evaluating a fee request.” The opinion goes so far as to suggest that “[i]f frequent ongoing scrutiny by the superior court appears necessary, the court should require frequent updates so it can monitor and restrain unwarranted charges.” “[B]etween Arizona Probate Rule 33 and the National Probate Standard, superior courts will find adequate support for close examination of fees and costs that ultimately may be borne by a protected person.”

The same is true for costs charged by trustees. The cottage industry of private fiduciaries should take note of this.

(Although that is the thrust of the case, the court also notes the nature of the lawyer’s bills. He billed only in increments of one-half and one hour. He also used “block-billing,” i.e., grouping tasks rather than report the time spent on each one. This area of the profession is apparently being brought up to modern times. The issue of arbitrary increments came up fifteen or more years ago; block-billing-phobia is more recent but hardly new. In this the courts adopt the practices of federal courts, which adopted the practices of major corporations and insurance companies, which took them from consultants of the sort who make a lot of money telling other people how to save money (yes, big corporations fall for them, too). Any biller worth his salt knows how to use flexible increments and detailed billing to make more money, not less. Eventually the courts will catch on to this but it may take another generation. Then they will adopt whatever the latest fad then is for solving the problems of hourly billing – which will never be solved since hourly billing is a cause of excessive fees, not a solution to them.)

These sagas rarely have a happy ending, by the way. On remand the trial court will award merely two or three times as much as anybody deserves rather than five or six. But the legal profession won’t cry long. After Son was no longer his guardian, Father moved back into his house and married Girlfriend. So, when the time comes, probate litigation will threaten what’s left of his estate and trust.

(link to opinion)