February 2017 Questions and Sample Answers
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In re Ace Chemical
Memorandum to Examinee
Memorandum to file
Article from the Franklin Daily News
Excerpts from the Franklin Rules of Professional Conduct
Franklin Ethics Opinion 2015-212
Hooper Manufacturing, Inc. v. Carlisle Flooring, Inc., Franklin Supreme Court (2002)
Montagne & Parks LLC
Attorneys at Law
760 Main Street, Suite 100
Essex, Franklin 33702
From: Lauren Scott, Managing Partner
Date: February 21, 2017
Re: Ace Chemical: potential conflicts of interest
Our law firm has been approached by Ace Chemical Inc., which wants to sue
Roadsprinters Inc. for breach of a shipping contract. Ace claims that Roadsprinters failed to timely
deliver Ace’s goods to a customer. It is likely that Ace has a good case—the contract has a “time
is of the essence” clause and delivery of the goods was significantly delayed. The work on this
case would be done here at our Franklin office; I would be the lead attorney, and our partner
Samuel Dawes would be the lead litigator. The law firm of Adams Bailey serves as Roadsprinters’
As you know, our firm has 400 lawyers in 14 different offices. Recently, we’ve become
aware of certain circumstances that might affect our ability to represent Ace: 1) our office in the
state of Columbia represents the Columbia Chamber of Commerce, and Jim Pickens, the president
of Roadsprinters, was at one time chair of the Chamber’s board; 2) Samuel Dawes once
represented Roadsprinters in a trademark registration; and 3) our office in the state of Olympia has
interviewed and would like to hire Ashley Kaplan, an attorney who currently works in Adams
Bailey’s Franklin office.
We will not undertake this representation if barred by the Franklin Rules of Professional
Conduct, but we would very much like to take on this client in this matter if it is ethically
permissible. We know that Roadsprinters will not waive any conflicts of interest.
Please prepare a memorandum to me analyzing whether any potential conflicts of interest
are raised by these three circumstances. If you determine that one or more conflicts of interest
exist, for each conflict you should identify the action we need to take to comply with the Rules.
Do not draft a separate statement of facts, but be sure to integrate the relevant facts into your
analysis. Note that Franklin’s Rules of Professional Conduct are identical to the ABA’s Model
Rules of Professional Conduct and that Franklin Ethics Opinions are persuasive but not binding
authority before courts.
Montagne & Parks LLC
MEMORANDUM TO FILE
From: Lauren Scott, Managing Partner
Date: February 17, 2017
Re: Ace Chemical: potential conflicts of interest
Montagne & Parks, through its Franklin office, would like to represent Ace Chemical Inc.
in its suit against Roadsprinters Inc. Ace alleges that Roadsprinters breached its contract with
Ace when Roadsprinters failed to deliver goods to Ace’s customer on time. Roadsprinters is
represented by the law firm of Adams Bailey.
Potential conflict: Columbia Chamber of Commerce
Through our office in the state of Columbia, our firm represents the Columbia Chamber
of Commerce (Chamber); we have represented the Chamber for the last 10 years. (The Chamber
is a membership organization of local businesses that promotes the general interest of the
business community.) In the course of our representation of the Chamber, we have lobbied
before the Columbia legislature for tax reform. For purposes of this lobbying effort, we received
no confidential business information from Chamber members.
In our communications with Chamber members, we clarified that we represented the
Chamber, and not the members, in lobbying, and that the content of our communications with
members was not confidential. The Chamber and its members acknowledged in writing that our
representation was limited to lobbying for the Chamber itself. While we received confidential
information from the Chamber about legislative strategies and tactics related solely to tax issues,
we received no confidential information from or about any of the Chamber’s members.
Roadsprinters has been a member of the Chamber since the Chamber’s inception 15 years
ago. Jim Pickens has been the president of Roadsprinters for the last 20 years and was chair of
the board of the Chamber in one of the years of our representation; however, throughout the
lobbying effort, the firm worked primarily with the Chamber’s executive director and not with
the officers of the board.
Potential conflict: Samuel Dawes
Samuel Dawes, a partner in this firm, has successfully represented Ace against other
adversaries in several other matters, and Ace wants him to handle this litigation.
Seven years ago, while he was in solo private practice, Mr. Dawes represented
Roadsprinters in an uncontested trademark registration. Mr. Dawes has been interviewed
consistent with Franklin Rule of Professional Conduct 1.6(b)(7). We have concluded that no
information that he learned, or could have learned, could possibly be relevant to the litigation
against Roadsprinters. Mr. Dawes reports that he has not had any contact with Mr. Pickens, the
president of Roadsprinters, for the last five years.
Potential conflict: Ashley Kaplan
Our Olympia office has informed us that it recently interviewed Ashley Kaplan for a
position as a senior associate in that office. The Olympia office was very impressed with Ms.
Kaplan and wants to make her an offer—the office badly needs someone with her expertise. Ms.
Kaplan currently works for the Franklin office of Adams Bailey. Ms. Kaplan has provided a list
of the clients for which she has done work at Adams Bailey, and Roadsprinters is on that list.
FRANKLIN DAILY NEWS
Spotlight on a “Rising Star” in the Community
ESSEX—(December 20, 2010) As part of our series profiling rising stars in our business
community, the Franklin Daily News this month shines a spotlight on young attorney Samuel
Mr. Dawes is a graduate of the University of Franklin (B.A. in English and J.D.) and is currently
in solo private practice in Essex, Franklin. He specializes in litigation and intellectual property
work. Although he might one day want to work at a big firm, Mr. Dawes currently enjoys both
the flexibility and the challenge of working alone. Mr. Dawes has been in solo practice for about
five years, and he says he truly loves the independence and the opportunity to form close and
lasting relationships. When asked for a specific example, Mr. Dawes mentioned his relationship
with Jim Pickens, the president of his client Roadsprinters Inc. He stated that “Mr. Pickens
taught me so much. He was so generous with his time and advice. It is people like him who make
me love my job.”
According to Mr. Pickens, he came to Mr. Dawes for help in registering a trademark for
“Roadsprinters” and saw real promise in the young lawyer. “Sam is a great guy and a great
lawyer,” he said. “Although it was not at all necessary for the work on the trademark registration,
I told him how to develop client relationships and I introduced him to community business
leaders. I knew he was someone who was going places—and I wanted to help him get there.”
According to other lawyers with whom we spoke, Mr. Dawes is a rising star in the legal
profession. He combines a strong intellect, a curious mind, and a desire to help others. He listens
to his clients and truly seeks to help them. We expect great things of Mr. Dawes.
Excerpts from the Franklin Rules of Professional Conduct
Rule 1.6 Confidentiality of Information
(a) A lawyer shall not reveal information relating to the representation of a client unless the
client gives informed consent, the disclosure is impliedly authorized in order to carry out the
representation or the disclosure is permitted by paragraph (b).
(b) A lawyer may reveal information relating to the representation of a client to the extent the
lawyer reasonably believes necessary:
. . .
(4) to secure legal advice about the lawyer’s compliance with these Rules;
. . .
(7) to detect and resolve conflicts of interest arising from the lawyer’s change of
employment or from changes in the composition or ownership of a firm, but only if the
revealed information would not compromise the attorney-client privilege or otherwise
prejudice the client.
(c) A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure
of, or unauthorized access to, information relating to the representation of a client.
Rule 1.7 Conflict of Interest: Current Clients
(a) Except 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 client; or
(2) there is a significant risk that the representation of one or more clients will be
materially limited by the lawyer’s responsibilities to another client, a former client or a
third person or by a personal interest of the lawyer.
(b) Notwithstanding 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.
Rule 1.9 Duties to Former Clients
(a) A lawyer who has formerly represented a client in a matter shall not thereafter represent
another person in the same or a substantially related matter in which that person’s interests are
materially adverse to the interests of the former client unless the former client gives informed
consent, confirmed in writing.
(b) A lawyer shall not knowingly represent a person in the same or a substantially related matter
in which a firm with which the lawyer formerly was associated had previously represented a
(1) whose interests are materially adverse to that person; and
(2) about whom the lawyer had acquired information protected by Rule 1.6 . . . that is
material to the matter; unless the former client gives informed consent, confirmed in
Rule 1.10 Imputation of Conflicts of Interest: General Rule
(a) While lawyers are associated in a firm, none of them shall knowingly represent a client when
any one of them practicing alone would be prohibited from doing so by Rules 1.7 or 1.9, unless
(1) the prohibition is based on a personal interest of the disqualified lawyer and does not
present a significant risk of materially limiting the representation of the client by the
remaining lawyers in the firm; or
(2) the prohibition is based upon Rule 1.9(a) or (b) and arises out of the disqualified
lawyer’s association with a prior firm, and
(i) the disqualified lawyer is timely screened from any participation in the matter and
is apportioned no part of the fee therefrom;
(ii) written notice is promptly given to any affected former client to enable the former
client to ascertain compliance with the provisions of this Rule, which shall include a
description of the screening procedures employed; a statement of the firm’s and of the
screened lawyer’s compliance with these Rules; a statement that review may be
available before a tribunal; and an agreement by the firm to respond promptly to any
written inquiries or objections by the former client about the screening procedures;
(iii) certifications of compliance with these Rules and with the screening procedures
are provided to the former client by the screened lawyer and by a partner of the firm,
at reasonable intervals upon the former client’s written request and upon termination
of the screening procedures.
Franklin Ethics Opinion 2015-212
Ten lawyers are forming a new law firm in the state of Franklin. Each of the lawyers has,
until recently, been a partner at a major law firm. All of them were at different firms, and many
of those firms had several offices. In establishing the new firm, the lawyers want to properly
assess potential conflicts of interest and thus determine their obligations regarding clients of their
former firms. Specifically, they ask the following three questions:
1) Under Rule 1.9(a) of the Franklin Rules of Professional Conduct, how does a lawyer
determine whether a matter is “substantially related” to another matter?
2) How do the Rules of Professional Conduct deal with lawyers who move from one
firm to another firm?
3) How do the Rules of Professional Conduct treat a law firm with offices in multiple
Question One. Under Rule 1.9(a) of the Franklin Rules of Professional Conduct, how does a
lawyer determine whether a matter is “substantially related” to another matter?
A lawyer has always been prohibited from using confidential information that he or she
has obtained from a client against that client. But because this prohibition has not seemed enough
by itself to make clients feel secure about reposing confidences in lawyers, the Rules have added
a further prohibition: a lawyer may not represent an adversary of his or her former client if the
subject matter of the two representations is “substantially related.” A substantial relationship
exists when the lawyer could have obtained confidential information in the first representation
that would be relevant in the second representation. It is immaterial whether the lawyer actually
obtained such information and used it against the former client, or whether—if the lawyer is a
firm rather than an individual practitioner—different people in the firm handled the two matters
and scrupulously avoided discussing them. The reason that the disqualification occurs regardless
of whether the lawyer actually obtained confidential information is practical: conducting a
detailed factual inquiry into whether confidences had actually been revealed would likely
compromise the confidences themselves.
In addition, the “substantial relationship” test is in keeping with the profession’s
aspiration to avoid the appearance of impropriety. For a law firm to represent one client today,
and the client’s adversary tomorrow in a closely related matter, creates an unsavory appearance
of conflict of interest that is difficult to dispel in the eyes of the lay public—or for that matter the
bench and bar. Clients will not share confidences with lawyers whom they distrust and will not
trust firms that switch sides.
Question Two. How do the Rules of Professional Conduct deal with lawyers who move from
one firm to another firm?
Rule 1.9 itself removes some of the harshness of the “substantial relationship” test when
a lawyer moves from one firm to another. “A lawyer shall not knowingly represent a person in
the same or a substantially related matter in which a firm with which the lawyer formerly was
associated had previously represented a client: (1) whose interests are materially adverse to that
person; and (2) about whom the lawyer had acquired information protected by Rule 1.6 . . . that
is material to the matter.” Thus the new firm may represent a client with materially adverse
interests to the client of the moving lawyer’s old firm so long as the lawyer did not actually
acquire confidential information. Even if the lawyer acquired confidential information, Rule 1.10
allows the law firm to continue representation of the client so long as the moving lawyer is
screened from all contact with the matter. In order to properly screen, the lawyer must be denied
access to all digital and physical files relating to the client and/or the matter. All digital files must
be password protected and the screened lawyer must not have the password. All physical files
must be under lock and the screened lawyer must not have the key. In addition, all lawyers in the
firm must be admonished that they cannot speak with or communicate in any way with the
screened lawyer about the matter. Finally the lawyer cannot receive any compensation resulting
from representation in the matter from which she or he is being screened. Screening must take
place as soon as possible, but in no case may it occur after the screened lawyer has had any
contact with information about the matter from which he or she is being screened.
In addition, Rule 1.10 requires that the law firm promptly give written notice to any
affected former client in order to enable the former client to ascertain compliance with the
provisions of the Rule. This notice shall include a description of the screening procedures
employed; a statement of the firm’s and of the screened lawyer’s compliance with these Rules; a
statement that review may be available before a tribunal; and an agreement by the firm to
respond promptly to any written inquiries or objections by the former client about the screening
Question Three. How do the Rules of Professional Conduct treat a law firm with offices in
A confidence is defined by Rule 1.6 as “information relating to the representation.” This
is intended to be applied broadly. It includes anything that the lawyer learns that has any bearing
on the matter in which the lawyer is representing the client. Even information that is publicly
available is confidential if it meets the definition in Rule 1.6. The Franklin Rules of Professional
Conduct presume that confidences are shared by members of a law firm. This is why Rule 1.10
presumptively imputes a conflict of one member of a firm to the entire firm. Especially in these
days of telecommuting, electronic files, and multi-state transactions, the imputation of Rule 1.10
applies to all members of the law firm, regardless of the office in which they work. Thus the
conflict of one member of the firm is imputed to the entire firm—every office of that firm,
regardless of the number of offices the firm maintains.
Hooper Manufacturing, Inc. v. Carlisle Flooring, Inc.
Franklin Supreme Court (2002)
In this action, Carlisle Flooring, Inc., has filed a complaint alleging that Hooper
Manufacturing, Inc., has interfered with Carlisle’s ability to contract with other manufacturers
that produce the wax necessary for the creation of Carlisle’s hardwood floors. Carlisle has a
contract with Hooper, and for the last 10 years, Carlisle has bought all of its wax from Hooper.
In its complaint, Carlisle alleges that Hooper has recently raised its prices for wax to the point
that Carlisle can no longer produce hardwoods at a competitive price. In addition, Carlisle
alleges that it sought out other wax producers but was told by each of them that Hooper would
not allow them to sell to Carlisle.
The case is in the early stages of discovery, and Carlisle has filed a motion to disqualify
Hooper’s counsel, the venerable law firm of Klein and Wallace (K&W). The trial court denied
the motion to disqualify, and Carlisle filed an interlocutory appeal to the Franklin Court of
Appeal. The Court of Appeal reversed the trial court, and Hooper appeals.
According to affidavits filed by Carlisle, attorneys from K&W work as lobbyists for the
professional trade association to which Carlisle belongs. Hooper counters that the lobbying
organization is distinct from its members. Thus, according to Hooper, K&W should not be
disqualified as its counsel.
Lobbying is an activity in which attorneys often engage. For purposes of determining
whether a lawyer previously represented or is currently representing a client, we will take for
granted that lobbying constitutes representation by an attorney. The harder question here is
whether K&W’s representation of the trade association is tantamount to representation of a
member of that trade association.
The first issue we must address is what law to apply to this case. Both parties have cited
the Franklin Rules of Professional Conduct. We acknowledge that the Rules of Professional
Conduct are only intended to govern the regulation of lawyers. They are thus not binding on
courts when faced with questions other than attorney discipline. Nonetheless, it would be foolish
for courts to ignore those Rules when they are applicable to a lawyer’s conduct. In the absence of
any overriding policy considerations, courts in this state will be guided by the Rules of
Professional Conduct, in addition to any other applicable law, in determining motions for
disqualification based on conflicts of interest.
Since this case involves a concurrent conflict of interest, we look to Rule 1.7 of the
Franklin Rules of Professional Conduct.
K&W is representing Hooper in direct opposition to Carlisle. The question thus posed is
whether the representation of the trade association to which Carlisle belongs is equivalent to the
representation of Carlisle itself.
In making this determination, the Court must be guided by the facts of the particular
situation. The critical question one must ask is whether the trade association member provided
confidential information to the lawyer that was necessary for the lawyer’s representation of the
trade association. If the answer is “yes,” then the representation of the trade association is
equivalent to representation of the member. However, even if the answer to that question is “no,”
the representation might still be deemed equivalent if the lawyer advised the member of the trade
association that any and all information provided to the lawyer would be treated as confidential.
Confidential information is any information related to the representation of the client and
learned during the course of the representation. Franklin Rule of Professional Conduct 1.6. The
definition is very broad and includes all information, even publicly available information, that
the lawyer discovers or gleans while representing the client. The information must, however, be
related to the representation. A client cannot protect extraneous information simply by telling his
or her lawyer. A client may have many conversations with the lawyer about any number of
matters which have no relevance to the representation for which the lawyer was retained. These
conversations cannot later be used by the client to prevent the lawyer from representing a party
who is adverse to the client.
In this case, Carlisle, as a member of the trade association, provided only publicly
available information to K&W lawyers for their work of lobbying on behalf of the trade
association. While information related to the representation is normally treated as confidential if
it meets the other requirements of Rule 1.6, we hold that a member’s provision of publicly
available information to counsel for the trade association does not, in and of itself, disqualify
counsel for the trade association from representing a client who is adverse to the member.
We must then ask whether the lawyers for the trade association (here K&W) advised the
member (here Carlisle) that information provided to the lawyers for the trade association would
be treated as confidential. Affidavits submitted by attorneys from K&W state that they informed
the members of the trade association, including Carlisle, that the information provided to K&W
and in support of the representation of the trade association would not be kept confidential.
Based on the fact that Carlisle provided only publicly available information to K&W in
its representation of the trade association and that K&W told Carlisle that any information
provided to K&W would not be kept confidential, we hold that representation of the trade
association is not equivalent to representation of Carlisle. Thus, K&W’s representation of
Hooper is not directly adverse to a former client (i.e., the trade association).
But our analysis does not end there. Under Rule 1.7(a)(2), we must next ask whether
representation of both Hooper and the trade association will materially limit the firm’s ability to
represent either client.
The critical factual inquiry is whether an employee of Carlisle had an important position
in the trade association and, in that position, worked closely with the lawyers for the trade
association. The affidavits filed by Carlisle state that Carlisle’s chief executive officer, Nina
Carlisle, serves as one of three members of the trade association’s legislative and policy
committee. In this capacity, Nina Carlisle works closely with K&W attorneys, developing
legislative strategy and directing K&W lawyers on legislative tactics. The affidavit notes that
Nina Carlisle meets with these attorneys in person and communicates with them via email every
day during the legislative session, and an average of every two weeks during the rest of the year.
Under Rule 1.7(a)(2), this contact between K&W attorneys and Carlisle’s chief executive
officer materially limits K&W’s ability to represent both Hooper and the trade association. The
language of Rule 1.7(a)(2) refers to the “personal interest of the lawyer.” This standard requires
us to focus on the nature and extent of the relationship between the attorneys and Carlisle’s
representatives. The closer and more frequent the contact and the more active the role of the
member representative in directing the lawyer, the greater the risk that the lawyer’s ability to
engage in concurrent representation is “materially limited.” In this case, Carlisle’s CEO plays an
active role in directing K&W’s attorneys and has frequent contact with them. This creates a
substantial risk that the K&W attorneys’ personal interests would materially limit the concurrent
Carlisle’s motion to disqualify Hooper’s counsel should have been granted. The order of
the Court of Appeal is AFFIRMED and the matter remanded to the trial court.
TO: Lauren Scott, Managing Partner
Date: February 21, 2017
Re: Ace Chemical: potential conflicts of interest
You have asked me to prepare a memorandum in connection with our potential representation of Ace Chemical Inc. ("Ace") in their breach of contract lawsuit against Roadsprinters, Inc. ("Roadsprinters"). You have identified three particular circumstances in which we may be ethically barred from taking on this case for Ace. I have analyzed whether any potential conflicts of interest arise from these circumstances and have detailed them below including any actions we may have to take in order to comply with the Franklin Rules of Professional Conduct (the "Rules").
1. Does our representation of Columbia Chamber of Commerce (the "Chamber") raise a potential conflict of interest because Jim Pickens ("Pickens"), president of Roadsprinters, served as chair of the Chamber's board for one year?
Under Rule 1.7, "a lawyer shall not represent a client if the representation involves a concurrent conflict of interest." "Concurrent conflict of interest" is defined as when "(1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another a client, a former client or a third person or by a personal interest of the lawyer."
Under this rule, one may determine that since Roadsprinters is a member of the Chamber that our representation of the Chamber may be imputed to be a representation of its members, especially where Pickens served as the chair of the board for one year during our represenation. However, under Hooper v. Carlisle, the Supreme Court held that "representation of the trade association is not equivalent to representation" of a member of that trade association and, therefore, "is not directly adverse to a former client (i.e., the trade association.).
Similarly, our client is Chamber, a trade association as its membership comprises of local businesses that promote the general interest of the business community. One of its members is Roadsprinters, who we will be adverse to should we take on this Ace case. Roadsprinters may attempt to disqualify us stating that since we represented Chamber and because Roadsprinters is a member of Chamber, that we actually represented them, too, as a client.
However, this is not what the Supreme Court held especially where no confidential information was exchanged between the member and the law firm it is trying to disqualify. The Court specifically stated that a law firm's representation of the trade association would flow to its individual members where the "member provided confidential information to the lawyer that was necessary for the lawyer's representation of the trade association". Furthermore, even if this was not the case, there would only be representation of the member where the lawyer advised the member that any communications between them would be treated as confidential.
As applied to our representation of Chamber, we have specifically communicated to Chamber members that we represent the Chamber and not the members and that the content of our communications with members was not confidential. The Chamber and the members acknowledged this in writing that our representation was limited to lobby for the Chamber itself. Admittedly, we did receive confidential information from the Chamber about legislative strategies and tactics related solely to tax issues, but we never received any confidential information from or about any of the Chamber's members.
Furthermore, under Hooper, the Court made a factial inquiry as to whether an employee of the trade association member had an important position in the association and whether that employee "worked closely with the lawyers for the trade association." The Court found that "the closer and more frequent the contact and the more active the role of the member representative in directing the lawyer, the greater the risk that the lawyer's ability to engage in concurrent representation is 'materially limited.'" In applying this rule, a court would find that since our firm worked primarily with the Chamber's executive director and not with the officers of the board it would find that we did not have a "substantial risk...that [our] attorneys' personal interest would materially limit the... representation."
Therefore, a conflict of interest should not arise with regard to our representation of the Chamber in contrast to the fact that Roadsprinters is a member of the Chamber and that Pickens served as president of the Chamber before.
2. Does Samuel Dawes ("Dawes") prior representation of Roadsprinters in a trademark registration matter raise a potential conflict of interest because Ace has requested Dawes to represent them in this breach of contract suit?
Under Rule 1.9(a), "a lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing." Furthermore, under Rule 1.9(b), "a lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer was associated had previously represented a client: (1) whose interests are materially adverse to that person; and (2) about whom the lawyer had acquired information protected by Rule 1.6...that is material to that matter, unless the former client gives informed consent, confirmed in writing."
Under this rule, it may seem that a potential conflict of interest may arise with regard to Dawes representing Ace in this case against one of Dawes' former clients, Roadsprinters. However, the key phrases of rule that will help us with regard to the fact that Dawes' prior representation with Roadsprinters was limited to an uncontested trademark registration. This prior matter involves intellectual property and not anything related to contract breach. Furthermore, this prior matter was uncontested, therefore Dawes' representation of Roadsprinters was limited to just registering the trademark (as opposed to having to obtain additional confidential information in order win a contested trademark registration).
What further bolsters our position is in Franklin Ethics Opinion 2015-212 (although admittedly ethics opinions are merely persuasive claims and not binding on courts) it interprets Rule 1.9(a) as "a lawyer may not represent an adversary of his or her former client if the subject matter of the two representations is "substantially related." The opinion further explains that "a substantial relationship exists when the lawyer could have obtained confidential information in the first representation that would be relevant in the second representation."
We have already complied with Rule 1.7(b)(7) which requires us to "detect and resolve conflicts of interest arising from the lawyer's change of employment" and we have concluded that no information that Dawes learned, or could have learned could possibly be relevant to the litigation against Roadsprinters. Also, Dawes reports that he has not had any contact with Pickens for the last five years.
Therefore, we should not have a conflict of interest with regard to Dawes' prior representation of Roadsprinters in an uncontested trademark regstration and his impending representation of Ace in this contract breach matter.
3. Does our potential hiring of Ashley Kaplan ("Kaplan") for our Olympia office raise a potential conflict of interest because she has worked on matters for Roadsprinters while at Adams Bailey in their Franklin Office?
Under Rule 1.10, "while lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing along would be prohibited from doing so by Rules 1.7 or 1.9, unless...(2) the prohibition is based upon Rule 1.9(a) or (b) and arises out of the disqualified lawyer's association with a prior firm, and (i) the disqualified lawyer is timely screened from any participation in the matter is apportioned no part of the fee therefrom...."
Since Kaplan worked for Adams Bailey, the counsel for Roadsprinters in the impending Ace matter, there is a potential for conflict of interest because she disclosed to us that she has worked on multiple matters for Roadsprinters before. Even though she will be based in our Olympia office, and the Ace matter will be handled out of the Franklin office, because Rule 1.10(a) states that any "lawyers associated in a firm" would be disqualified as a whole should any one of those lawyers be barred from taking on the potentially questionable representation, we should make sure to comply with Rule 1.10(a)(2)(i) and ensure that she is timely screened from any participation in the matter.
We can comply with this rule, as outlined in Franklin Ethics Opinion 2015-212, to properly screen Kaplan by making sure she is "denied access to all digital and physical files relating to the client and/or the matter", that "all digital files...be password protected" and make sure that Kaplan does not have the password, and "all physical files must be under lock" and Kaplan must not have the key. Furthermore, we just need to make sure that we "admonish" to the entire firm, and especially to the attorneys and staff who will be working on the Ace matter, to make sure to not discuss anything related to Roadsprinters with Kaplan when she arrives.
Finally, there should be no concern regarding Kaplan receiving any fee generated from the Ace case as she is an associate and associates don't receive fees from matters, especially where they did not generate the business to begin with.
4. Inform Roadsprinters
Despite the above contentions that we do not have any potential conflicts of interest and despite our ability to make sure we can take the necessary steps to comply with the Rules, we can also take the further step of getting written confirmation from Roadsprinters stating that our representation of Ace is not something they will contest.
To: Lauren Scott, Manging Partner
Date: February 21, 2017
Re: Ace Chemical: potential conflicts of interest
1. Montagne & Parks, LLC ("Montagne") will be able to represent Ace in its breach of contract action against Roadsprinters, because Montagne's representation of the Columbia Chamber of Commerce ("Chamber") is not equivalent to representation of the members of the Chamber and Montagne's representation of Ace and the Chamber of Commerce does not materially limit its ability to represent either client.
A. Montagne representation of the Chamber is not equivalent to representing the Chamber's members.
The issue is whether Montagne & Parks, LLC's ("Montagne") representation of the Chamber in its lobbying activities is equivalent to representation Roadsprinter, as a member of the Chamber.
Lobbying constitutes representation for purposes of determining whether a lawyer previously represented or is currently representing a client,. Hooper v. Carlisle (2002). However, in determining whether representation of a trade organization is equivalent to representation of its members, "the critical question is whether the trade associate member provided confidential information to the lawyer that was necessary for the lawyer's representation of the trade association." Hooper v. Carlisle (2002). Confidential information is any information related to the representation of the client and learned during the course of the representation. See Rule 1.6 of the Franklin Rules of Professional Conduct; Hooper v. Carlisle (2002). If confidential information was provided by the member to the attorney or firm, representation of the trade organization is equivalent to representation of the member. Id. Further, if the attorney or firm advised the member that all information shared with the firm would remain confidential, then the representation of the organization is equivalent to the representation of the member. Id.
Here, the Columbia office of Montagne has represented the Chamber for ten (10) years with respect to its lobbying efforts on the issue of tax reform before the Columbia legislature. Montagne claims that it represents the Chamber as an organization, but does not represent its individual members. In support of this claim, Montagne notes that while it received confidential information from the Chamber about legislative strategies and tactics related solely to tax issues, it received no confidential information from or about any of the Chamber's members. In addition, in its communications with Chamber members, Montagne clarified that it represents the Chamber, but not its members, and that the content of its communications with members was not confidential.
For these reasons, it is unlikely that the representation of the Chamber is equivalent to representation of Roadsprinter, because Montagne received no confidential information from or about Roadsprinter and did not represent to Roadsprinter that its communications with them would be confidential. Therefore, a Court will likely hold that Montagne represented the Chamber, but not Roadsprinter.
B. Montagne's representation of Ace and the Chamber of Commerce does not materially limit its ability to represent either client.
The next issue is whether Montagne's representation of both Ace and the Chamber of Commerce materially limits the firm's ability to represent either client.
The Franklin Rules of Professional Conduct guide Courts in determining motions for disqualification based on conflicts of interest. Hooper v. Carlisle (2002). Under Rule 1.7 of the Franklin Rules of Professional Conduct, "a lawyer shall not represent a client if the representation involves a concurrent conflict of interest." A concurrent conflict exists if there is a significant risk that the representation of one client or the other will be materially limited by the lawyer's responsibilityes to another client, a former client, or a third person or by a personal interest of the lawyer. Rule 1.7(a). "The critical factual inquiry is whether an employee of Carlisle had an important position in the trade association and, in that position, worked closely with the lawyers for the trade association." Hooper v. Carlisle (2002).
Here, Roadsprinters has been a member of the Chamber for 15 years and Jim Pickens, president of Roadsprinters, previously served on the board of the Chamber for one year. However, throughout Montagne's involvement in the Chamber's lobbying efforts, Montagne worked primarily with the Chamber's executive director and not with the officers of the board. Therefore, Montagne had limited involvement with Jim Pickens and certainly did not work closely with him during the one year that held a position on the board.
For these reasons, it is unlikely that there is a concurrent conflict of interest, because there is no significant risk that Montagne's representation of Ace will be materially limited by its representation of the Chamber, given that it works primarily with the Chamber's executive director, not officers of the board, and Jim Pickens no longer holds a position with the board.
2. Samuel Dawes will be able to represent Ace in the current breach of contract action against Roadsprinters, as there is no former client conflict of interest.
Former Client Conflict
The issue is whether a conflict of interest exists with respect to Samuel Dawes' representation of Ace in the instant action against Roadsprinters, based on his former representation of Roadsprinters in an uncontested trademark registration matter.
The Franklin Rules of Professional Conduct guide Courts in determining motions for disqualification based on conflicts of interest. Hooper v. Carlisle (2002). Under Rule 1.9 of the Franklin Rules of Professional Conduct, "a lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing."
Here, Mr. Dawes represented Roadsprinters in an uncontested trademark registration. However, none of the information he learned, or could have learned, could possibly be relevant to the instant litigation against Roadsprinters. Mr. Dawes has represented Ace in various cases in the recent past, and Ace is comfortable with his representation and would like him to represent Ace in the current action against Roadsprinters. The prior uncontested trademark registration in which Mr. Dawes represented Roadsprinters is not the same or substantially related to the current breach of contract claim. In fact, it is entirely unrelated and the facts and circumstances of the cases are irrelevant to one another. Further, Mr. Dawes has not had contact with Mr. Pickens for over five (5) years, despite their close working relationship during the time that Mr. Dawes was a sole practioner. For these reasons, it is unlikely that a conflict of interest exists based on Mr. Dawes' prior representation of Roadsprinter, and Mr. Dawes will be permitted to represent Ace against Roadsprinter in the instant action.
3. Ashley Kaplan may be hired by the Olympia office of Montagne, but may not be involved in the instant action brought by Ace against Roadsprinters, and must be timely screened in accordance with Rule 1.10.
A. Ms. has a concurrent conflict of interest based on her prior representation of Roadsprinters and will not be permitted to be involved in the instant litigation.
The issue is whether a concurrent conflict of interest exists based on Ms. Kaplan's representation of Roadsprinters in her current capacity as an attorney with Adams Bailey, which serves as outside counsel for Roadsprinters, and her potential new position as a Senior Associate in the Olympia office of Montagne.
The Franklin Rules of Professional Conduct guide Courts in determining motions for disqualification based on conflicts of interest. Hooper v. Carlisle (2002). Under Rule 1.7 of the Franklin Rules of Professional Conduct, "a lawyer shall not represent a client if the representation involves a concurrent conflict of interest." A concurrent conflict exists if: 1) the representation will be directly adverse to another client; 2) there is a significant risk that the representation of one client or the other will be materially limited by the lawyer's responsibilityes to another client, a former client, or a third person or by a personal interest of the lawyer. Rule. 1.7. However, if the lawyer reasonably believes he can represent the client, the lawyer may do so if: 1) the lawyer reasonably believes she will be able to provide competent and diligent representation; 2) the representation is not prohibited by law; 3) the clients are not adversaries in the same litigation; and 4) each client provides informed consent, confirmed in writing.
Here, the Olympia office of Montagne seeks to hire Ms. Kaplan as a Senior Associate. Ms. Kaplan currently works for the Franklin office of Adams Bailey, which serves as outside counsel for Roadsprinters. Roadsprinters is on the list of clients Ms. Kaplan has done work for, although her level of involvement in those matters is unclear. Nonetheless, if Ms. Kaplan were involved in the instant action between Ace and Roadsprinter, her representation of Ace would be directly adverse to her representation of Roadsprinter. Further, there is a significant risk that the representation of Ace would be materially limited by her responsibilities to Roadsprinter prior to leaving her current firm. Ms. Kaplan has worked on matters for Roadsprinter before and had access to confidential information that may play a role in Ace's case against Roadsprinter. For these reasons, it is likely that a concurrent conflict of interest exists, and it is necessary to determine whether this conflict of interest will be imputed to Montagne, such that they should not hire Ms. Kaplan to work in their Olympia office.
B. Montagne may hire Ms. Kaplan, however, the appropriate measures must be taken in order to timely screen Ms. Kaplan's participation in Montagne's representation of Ace against Roadsprinters
The issue is whether Ms. Kaplan's conflict of interest with Roadsprinters will be imputed to Montagne if she is hired as a senior associate in their Olympia office.
Under Rule 1.10 of the Franklin Rules of Professional Conduct, "[w]hile lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so by Rules 1.7 or 1.9," unless 1) the disqualified lawyer is timely screened from any participation in the matter and is apportioned no part of the fee therefrom; 2) written notice is promptly give to any affected former client; and certifications of compliance with the screening procedures and the Rules are provided to the former client at reasonable intervals upon the former client's written request.
Here, Ms. Kaplan has not yet been hired and is only being considered for a position with Montagne. Because a conflict of interest exists that would prevent Ms. Kaplan from being involved in Montagne's representation of Ace in the breach of contract action against Roadsprinters, Montagne must take the necessary measures to timely screen Ms. Kaplan from participation in the matter and provide writtent notice to Roadsprinter as the former client. Timely screening will likely be successful here, because Ms. Kaplan is being considered by the Olympia office of Montagne, and the Franklin office of Montagne is seeking to represent Roadsprinter in the instant case. For this reason, the firm will be able to keep Ms. Kaplan removed from the case and therefore, neither client will be at risk for unfair representation based on the conflict. So long as Montagne provides writtent notice to Roadsprinter that Ms. Kaplan is being hired by the firm, but has been timely screened from involvement in the action brought by Ace against Roadsprinter, the conflict of interest will not be imputed to the firm and Montagne will be able to represent Acme
In re Guardianship of Henry King
Memorandum to Examinee
Office memorandum re: Findings of Fact and Conclusions of Law
Transcript of testimony of Ruth King Maxwell
Transcript of testimony of Noah King
Excerpts from Franklin Guardianship Code
Matter of Selena J., Franklin Court of Appeal (2011)
In re Guardianship of Martinez, Franklin Court of Appeal (2009)
Sibley and Wallace Law Office, P.C.
232 Cable Car Road
Dry Creek, Franklin 33808
From: Eleanor Wallace
Date: February 21, 2017
Re: Guardianship of Henry King
We represent Ruth King Maxwell in an adult guardianship case in which she seeks to be
named as the guardian for her father, Henry King. Ruth’s brother, Noah King, opposes Ruth’s
petition to become guardian. Noah is asking the court to appoint him as guardian instead.
In 2013, Henry King learned that he had a condition that might leave him incompetent to
manage his affairs. At that time, Henry executed an advance health-care directive naming Noah
as his health-care agent and a durable power of attorney giving Noah the power to make financial
decisions for him. Those documents also nominated Noah to become Henry’s guardian if that
later proved necessary.
Since then, Ruth has become increasingly concerned about Noah’s handling of his
authority over their father’s finances and medical care. Her concerns came to a head after a series
of events which led to conflict with her brother and caused her to seek our representation.
We filed a petition to have Ruth named as guardian for Henry. There was an evidentiary
hearing on Ruth’s petition last week; relevant portions of the transcript are attached. The court
ruled that Henry’s nomination of Noah as prospective guardian in 2013 was valid at the time it
was made. It also ruled that Henry is now incompetent, cannot manage his affairs, and needs a
guardian. All counsel (Henry’s court-appointed attorney, Noah’s attorney, and our office on
behalf of Ruth) have been instructed to submit proposed Findings of Fact and Conclusions of
Law. Our proposed Findings and Conclusions should persuade the court that (1) it has authority
to override the nomination, and (2) Ruth should be appointed guardian.
Please draft our proposed Findings of Fact and Conclusions of Law to submit to the
court. Be sure to review and follow our office guidelines on drafting proposed Findings of Fact
and Conclusions of Law so that the court will be more likely to adopt them and rule in our favor.
Sibley and Wallace Law Office, P.C.
To: All attorneys
From: Managing partner
Date: March 4, 2016
Re: Preparation of proposed Findings of Fact and Conclusions of Law
In bench trials, trial courts usually require the parties to file proposed Findings of Fact
and Conclusions of Law. Findings of Fact are the court’s final factual determinations based on
the evidence presented. Conclusions of Law are the court’s legal determinations when it applies
the law to its factual findings. A judge will often adopt one party’s proposed Findings of Fact
and Conclusions of Law. It is thus critical that we draft our proposed Findings and Conclusions
so that the court will adopt them. This memo states our firm’s conventions for this kind of filing.
All proposed Findings of Fact on all issues are grouped together in one section under the
heading “Findings of Fact.” They are then followed by all Conclusions of Law on all issues
grouped together under the heading “Conclusions of Law.”
Each section should consist of separate, sequentially numbered paragraphs. In general,
each “Finding” or “Conclusion” should consist of one sentence stating a single fact or legal
conclusion. Use the following conventions:
(1) Proposed Findings of Fact: Set forth those facts that the testimony and other
evidence support and that are necessary to our claim or defense. Think about how to
sequence and structure your Findings to lead to the legal conclusions that you would
like the court to reach. This will help you to identify the facts that support your legal
conclusions and to put them in the most persuasive order. Be sure that the Findings
accurately reflect the record. (Our paralegal will add citations to the record as
The Findings should cover all the relevant facts, including those not favorable to
our position. For those Findings that are unfavorable to our client’s position, frame
them in a way that minimizes their effect.
Omit any facts not relevant to the Conclusions of Law.
(2) Proposed Conclusions of Law: Concisely state the legal conclusions necessary to
support our claim or defense. Organize this section by first stating general rules and
then applying these rules to specific facts from the Findings of Fact. Include citations
to the legal authorities that support the relevant conclusions.
Your proposed Findings of Fact and Conclusions of Law, while drafted to favor your
client, should not be explicitly argumentative. In re Guardianship of Martinez (Fr. Ct. App.
2009) contains a trial court’s Findings of Fact and Conclusions of Law that the appellate court
approved as an example of how to effectively write proposed Findings and Conclusions.
Contrast the example in Martinez with the example below, which states too many facts in
one paragraph and does not present them in a coherent or persuasive sequence:
1. Testator died on July 3, 2015, and Petitioner submitted Testator’s will for
probate on July 10, 2015. Testator executed a will on May 6, 2003. The will
submitted on July 10, 2015, is identical to the one executed on May 6, 2003. This
will contained signature lines for Testator and for two witnesses; Testator signed
on the line designated for his signature. One of the witness lines was empty.
The following represents a more appropriate draft of these Findings of Fact:
1. Testator executed a will on May 6, 2003.
2. The will contained a signature line for Testator, signed by him.
3. The will contained two signature lines for witnesses, only one of which
contained a signature.
4. Testator died on July 3, 2015.
5. Petitioner submitted this will for probate on July 10, 2015.
Transcript of Testimony of Ruth King Maxwell
February 13, 2017
Att’y Wallace: Could you state your name?
Ruth Maxwell: Ruth King Maxwell.
Wallace: Your address?
Maxwell: 4465 East Canyon Avenue, Dry Creek, Franklin.
Wallace: What is your relationship to Henry King?
Maxwell: I am his daughter.
Wallace: Could you tell the court why you brought this case?
Maxwell: I want to be named guardian for my father and to keep my brother from
becoming guardian. I’m worried about how my brother has treated my father.
Wallace: Your brother already has authority to act for your father, is that right?
Maxwell: Yes. He has my father’s power of attorney for financial matters and is his
Wallace: Tell the court how that came about.
Maxwell: My father is 74 years old now. Our mother died in 2012; a year after that, he
started to have trouble with his memory and began to lose his attention span.
He consulted his doctor, who referred him to a neurologist and a psychiatrist.
He was told that he had early signs of dementia.
When that happened, Dad set up arrangements for his health care and
finances if he did become incompetent. At that time, I lived in a different
state. My brother, Noah, lived here in Dry Creek. We all talked it over and
agreed that it made sense for my father to give Noah the authority to make
health-care and financial decisions for him and to nominate Noah as his
prospective guardian. Noah was closer and could respond more quickly.
So Dad signed an advance directive and a power of attorney and in both
documents nominated Noah as his prospective guardian. Dad was doing well
Wallace: Your honor, we have stipulated to the validity of those documents that were
signed May 20, 2013. Ms. Maxwell, what happened then?
Maxwell: For a while, my father was fine. Then, about two years ago, he began to get
worse. Eventually, he wouldn’t go out of the house; he would sit in his
favorite chair and stare out the window or at a book or at the TV. Sometimes
he would talk with one of us, but he made less and less sense. He wasn’t
upset, but he was very different from the way he had been before. Not as
sharp or funny. It has been like that for nearly two years. His doctor tells us
that his condition is permanent. I know that he can’t take care of himself, and
I’m worried about my brother’s ability to take care of Dad.
Wallace: Why are you worried about your brother?
Maxwell: About a year and a half ago, I came back to Dry Creek to visit my father.
When I talked with him, I saw that he was favoring his right arm, leaning
away from that side in his chair. I asked him what had happened, and he said,
“Nothing.” I insisted, and he eventually said that he had fallen in the shower,
but that everything was okay. I asked him to show me his arm, and he finally
did. It was bruised up and down the back of his arm.
I talked with Noah, and he said that he knew about the fall, but that Dad
hadn’t really complained that much about it, so he didn’t think it was much of
a problem. He agreed to take Dad to the doctor, and I went with him. The arm
was just bruised, badly, but there were no broken bones, thank God.
Wallace: What did you do next?
Maxwell: I had it out with my brother a few days later. He said that I shouldn’t worry,
that he knew how to take care of Dad, and that I should just stay out of it. He
got pretty angry. I couldn’t figure out why, so I let it go.
Wallace: What happened after that?
Maxwell: In August 2016, I was able to transfer to a nearby office for my company. I
started to spend two or three evenings a week with my father. This is when I
found out that my father had broken his wrist in June when he tripped over a
rug in his bedroom. Noah did not tell me about this until I confronted him
about it after I had moved back to Dry Creek.
Wallace: What else did you notice about your father’s condition?
Maxwell: I began to notice that Noah wasn’t buying any food for him. The refrigerator
was always nearly empty, just skim milk and a little bread, and there was only
canned soup in the cupboards. I started buying food and cooking for him,
whenever I could. Eventually, I hired someone to shop and cook for him.
Wallace: What did you learn about the state of your father’s finances?
Maxwell: One day I arrived at Dad’s house and found an overdue notice from the
electric company. I called the company, and they said that they would only
deal with Noah. So I called Noah, and he said that he had missed a few
months’ payments but not to worry about it.
Wallace: What did you do then?
Maxwell: I decided to look through Dad’s bank statements and his bills. Noah kept all of
that at Dad’s house. It turns out that Noah had not been paying a lot of
different bills. Nothing was too far behind, but the electric bill wasn’t the only
one where he had received threatening letters. Some were from Dad’s doctor,
who was about to send his account to collection.
I also saw that Dad had been spending a lot of money. His checking
account statement showed a lot of charges from Amazon and other online
retailers, but I didn’t see anything new around the house. When I asked Dad,
he said that he wanted to give his friends gifts, to make sure that they came to
visit him. All told, for the two months that I reviewed that day, he had spent
roughly $2,200 online. Dad only gets about $2,500 a month between his
pension and his Social Security.
Wallace: Did you talk with your brother?
Maxwell: I confronted Noah the same day. He got very angry and told me to let it go
. . . not so nicely, I’m afraid. He said that he had known about the online
purchases and that it was hard to keep Dad from doing what he wanted. He
said that it was those purchases that made it hard to keep up with the bills.
Noah said that he had all of these other bills under control and that nothing
would get shut off. I said that wasn’t good enough. We had a bad argument.
Wallace: No further questions.
Transcript of Testimony of Noah King
February 13, 2017
Att’y Wallace: Could you state your name?
King: Noah King.
Wallace: What is your relationship to the proposed ward Henry King?
King: I am his son. I am also his health-care agent and have his durable power of
. . .
Wallace: I have here several bank statements. These are your father’s, aren’t they?
King: Yes, these are my father’s bank statements for the last 12 months.
Wallace: How do you know about them?
King: I manage my father’s finances, so I see these every month.
Wallace: Don’t these statements show a series of purchases from Amazon and eBay?
King: Yes, they do. About a year ago, I saw that my father had started to buy things
online. I checked his accounts and saw that he had asked to ship these items to
various friends. When I asked my father about it, he said that he wanted to
make those gifts because he felt that he owed his friends favors and because
he wanted them to come visit him. I didn’t feel comfortable calling his friends
to ask for these things back. I also didn’t have the heart to tell him to stop. So
I just let it go on.
Wallace: Your father is on a fixed income, isn’t he?
King: Yes, he is. He gets $2,515 per month, between his Social Security and his
Wallace: These charges total about $9,000 over the past 12 months, isn’t that correct?
King: Yes, it is.
Wallace: In some months, he charged as much as $1,200, isn’t that so?
King: Yes, that’s right. After that month, I did ask him to stop it and tried to explain
how it was hurting him. But he didn’t seem to understand.
Wallace: You didn’t take any other steps to stop the spending, did you?
King: No, I didn’t. Like I said, I didn’t think it was my place to keep him from
spending his money the way he wanted. And he has enough money.
. . .
Wallace: I’m showing you medical records concerning your father’s treatment over the
last year. You’re not familiar with these, are you?
King: Not with these records, no.
Wallace: Are you familiar with your father’s medical condition over the past year?
King: Of course I am.
Wallace: I want to ask you about his condition on June 22, 2016. Your father broke a
bone in his wrist, isn’t that so?
King: Yes, but it was an accident. I went by one evening to check on Dad, and he
complained of being a little stiff, but he didn’t seem in all that much pain. The
next day at lunch, a neighbor called me and said that I should come look at
him, that his wrist was swollen. I came over, and she was right. I took him to
the emergency room right away. I watched them put on a cast. They
discharged him that night.
Wallace: You don’t know how this happened, do you?
King: I wasn’t there and he wouldn’t tell me at the time. I think he was embarrassed.
I later learned that he had tripped on a rug. His wrist is completely healed
Wallace: You didn’t tell your sister about it at the time, did you?
King: No, I didn’t. I just didn’t think she needed to know. I knew she would get
upset with me and blame me for it.
. . .
Excerpts from Franklin Guardianship Code
§ 400 Definition of Guardian
“Guardian” means an individual appointed by a court to manage the income and assets and
provide for the essential requirements for health and safety and personal needs of someone found
§ 401 Order of Preferences for Appointment of Guardian for an Adult
(a) The court shall appoint as guardian that individual who will best serve the interest of the
adult, considering the order of preferences set forth in this Code section. The court may disregard
an individual who has preference and appoint an individual who has a lower preference or no
preference, provided, however, that the court may disregard the preference listed in paragraph (1)
of subsection (b) of this Code section only upon good cause shown.
(b) Individuals who are eligible have preference in the following order:
(1) The individual last nominated by the adult in accordance with the provisions of
subsection (c) of this Code section;
(2) The spouse of the adult;
(3) An adult child of the adult;
. . .
(c) At any time prior to the appointment of a guardian, an adult may nominate in writing an
individual to serve as that adult’s guardian should the adult be judicially determined to be in need
of a guardian, and that nomination shall be given preference as described in this Code, provided:
(1) it expressly identifies the individual who shall serve as guardian; and
(2) it is signed and acknowledged by the adult in the presence of two witnesses who sign
in the adult’s presence.
§ 402 Revocation or Suspension of Guardian
Upon petition of an interested party or upon its own motion, whenever it appears to the court that
good cause may exist to revoke or suspend the guardian or to impose sanctions, the court shall
investigate the allegations and may require such accounting as the court deems appropriate. After
investigation, the court may, in the court’s discretion, revoke or suspend the guardian, impose
any other sanction or sanctions as the court deems appropriate, or issue any other order as in the
court’s judgment is appropriate under the circumstances of the case.
Matter of Selena J.
Franklin Court of Appeal (2011)
This appeal presents an all-too-familiar scenario in guardianship cases, in which one
sibling claims a breach of fiduciary duty by another sibling who has been nominated as the
proposed guardian of a parent.
The proposed ward, Selena J., is 81 years old and lives with her daughter Naomi (a
registered nurse). In 2008, Selena executed an advance directive naming Naomi as her healthcare
agent, and a durable financial power of attorney naming Naomi as her agent to manage her
finances. Both documents nominated Naomi as Selena’s guardian in the event of a later
The petitioner, Michael, is Selena’s son. In 2010, he petitioned to become his mother’s
guardian. He claimed that Naomi had failed to use the power of attorney to manage their
mother’s assets after Selena’s mental decline became apparent. He also claimed that Naomi had
failed to provide care for their mother, ignoring signs of mental decline and failing to seek
medical care for various illnesses that their mother had suffered.
Naomi responded and asked the trial court to name her as guardian. She requested that
the court give priority to Selena’s expressed wishes, as required by Franklin Guardianship Code
After discovery, Naomi moved for summary judgment, which the trial court granted. The
court noted that neither party contested Selena’s competency at the time that she nominated
Naomi, and found that the nominations had complied with the formalities laid out in Franklin
Guardianship Code § 401(c). Both parties conceded that Selena presently needed a guardian. The
trial court ruled as a matter of law that it had to honor Selena’s wishes. It appointed Naomi as
guardian. Michael appealed.
We begin with the proposition that the law recognizes and protects an individual’s right
to make decisions about her medical and financial affairs. An advance directive permits the
individual to specify the medical care she would prefer to receive and to name a “health-care
agent” to make those decisions when she lacks the competency to do so. A durable financial
power of attorney gives the individual the right to name an agent to handle financial matters
when she lacks the competency to do so. Both documents create a fiduciary relationship. Both a
health-care agent and the holder of a durable financial power have a legal obligation to act in the
principal’s best interest and to avoid self-dealing.
These documents can raise difficult questions when someone later petitions for the
appointment of a guardian. Franklin law has long held that a later guardianship overrides an
earlier grant of authority through either an advance directive or a power of attorney. The
authority granted to the guardian supersedes any conflicting authority granted to the agent under
either document. Matter of Collins (Fr. Sup. Ct. 2002).
At the same time, the law also permits an individual to nominate a person (including the
individual’s agent) as a possible future guardian, provided that the nomination is in writing and
complies with certain formal requirements. FRANKLIN GUARDIANSHIP CODE § 401(c). Should
this happen, the statute accords the person so nominated the highest preference for appointment
as guardian. Id. § 401(b)(1).
The trial court correctly relied on these statutes in concluding that Selena had named
Naomi as her preferred guardian. However, the trial court erred in appointing Naomi as a matter
The statute does not make the nomination of a preferred guardian binding in a later
guardianship proceeding. The statute states that a court in a guardianship proceeding “may
disregard an individual who has preference and appoint an individual who has a lower preference
or no preference.” Id. § 401(a). The statute makes clear that a court may disregard an advance
nomination of a guardian, but “only upon good cause shown.” Id. This language creates a
preference in favor of the nominated person. But this preference may be overcome with a
sufficient factual showing of good cause.
In this case, the trial court erred in failing to consider Michael’s evidence that good cause
existed not to appoint his sister as guardian. Michael’s affidavits indicate evidence that Naomi
had neglected her mother’s financial affairs and that she had also neglected to arrange for needed
medical care for her mother. Without assessing the persuasive effect of this evidence, at the very
least it creates an issue of fact on whether “good cause” exists to override Selena’s nomination of
No Franklin case has yet ruled on the “good cause” standard as it relates to overturning a
proposed ward’s previously stated preference for a guardian. As noted, the trial court failed to
discuss the available evidence as it related to good cause.
The trial court on remand should apply a good cause standard to determine whether
Selena’s nomination of Naomi should be honored. This court has previously analyzed good
cause in the context of the removal of a court-appointed guardian. FRANKLIN GUARDIANSHIP
CODE § 402; In re Guardianship of Martinez (Fr. Ct. App. 2009). The same good cause standard
applies in this context: a court may refuse to appoint a proposed guardian when that person’s
previous actions would have constituted a breach of a fiduciary duty had the person been serving
as a guardian. Such conduct is of special concern when that person has actually served as a
fiduciary for the proposed ward under an advance directive or power of attorney.
For these reasons, we reverse the trial court’s judgment and remand the case for
proceedings consistent with this opinion.
In re Guardianship of Martinez
Franklin Court of Appeal (2009)
Evelyn Waters appeals from a judgment against her in connection with expenditures that
she made while guardian of her niece, Marlena Martinez, who is an incapacitated adult. Evelyn
also appeals from an order removing her as Marlena’s guardian.
A trial court has authority to remove a guardian for good cause pursuant to Franklin
Guardianship Code § 402. That statute gives the trial court discretion to determine whether the
available information establishes good cause. Id. That statute also permits the trial court to “issue
any other order as in the court’s judgment is appropriate under the circumstances of the case.”
We will affirm the trial court’s exercise of discretion unless its decision is clearly
erroneous. In this case, the trial court issued written Findings of Fact and Conclusions of Law
that specified the basis for its decision. These Findings and Conclusions, which we adopt, state
FINDINGS OF FACT:
1. Evelyn Waters has served as guardian of her niece, Marlena Martinez, since November
2. Marlena was born in May 1984 and suffered significant injuries at birth that left her
3. In 1988, a medical malpractice action arising from complications during Marlena’s birth
led to a substantial settlement that resulted in an annuity to Marlena of over $8,000 per
4. In 2005, Marlena’s last surviving parent died, after which a trial court appointed Evelyn as
5. Since Evelyn’s appointment, Marlena has lived with Evelyn, who has served as Marlena’s
6. In July 2006, Evelyn purchased a house for herself in her own name, using $25,000 in
funds from Marlena’s estate for the down payment.
7. In August 2006, Marlena moved into the house with Evelyn.
8. In November 2006, Evelyn submitted her first annual report as guardian, which described
the home purchase and mentioned several other expenditures without providing a detailed
9. This first annual report included expenditures during the previous year for an automobile,
for mortgage payments, and for $2,500 per month to Evelyn as “caregiver’s salary.”
10. Despite repeated requests from this court, Evelyn did not submit more detailed reports or
any statement justifying these expenses.
11. In May 2007, this court appointed counsel to represent Marlena.
12. In June 2007, Marlena’s counsel petitioned this court to remove Evelyn as guardian and
to require her to reimburse Marlena’s estate for any expenses not specifically used to provide
for Marlena’s care.
13. This court granted the motion and appointed Marlena’s uncle, Joseph Sears, as guardian
to succeed Evelyn.
14. On July 30, 2007, Evelyn filed her final accounting about Marlena’s estate. Both
Marlena’s counsel and the new guardian objected to that accounting.
15. This court has reviewed both of the reports filed by Evelyn, covering the period from
December 2005 to June 2007. During this period, Evelyn spent over $137,000 from
Marlena’s monthly annuity payments.
16. Evelyn has sufficiently documented that $55,000 in expenditures, including the salary
paid to Evelyn, was necessary for Marlena’s individual needs, and that an additional $35,000
reflected Marlena’s prorated share of household outlays (such as mortgage payments, real
estate taxes, moving expenses, groceries, utilities, and car payments).
17. Evelyn has provided no documentation to justify the remaining $47,000 expended from
Marlena’s monthly annuity.
18. The $25,000 down payment for the house purchased in Evelyn’s name (see ¶ 6) was cash
from the sale of investments in Marlena’s estate.
CONCLUSIONS OF LAW:
1. A guardian has the responsibility to apply the income and principal of the ward’s estate
“so far as necessary for the comfort and suitable support of the ward.” Nonnio v. George (Fr.
Sup. Ct. 1932).
2. A guardian acts in a fiduciary capacity toward the ward, which requires the guardian not to
expend the ward’s funds so as to benefit the guardian. See In Re Samuels (Fr. Sup. Ct. 2002).
3. The law does not require approval of expenditures in advance, but a trial court may
disapprove of expenditures after they have been made. Id.
4. Good cause exists to remove a guardian when a guardian breaches her fiduciary duty by
using the ward’s funds to benefit the guardian. Nonnio v. George.
5. As guardian for Marlena, Evelyn had a fiduciary duty to use Marlena’s funds for
Marlena’s comfort and suitable support and not to benefit herself as guardian. Nonnio v.
George; In Re Samuels.
6. Those expenditures totaling $55,000 that directly benefitted Marlena and those totaling
$35,000 for Marlena’s pro rata share of household expenses did not breach Evelyn’s
fiduciary obligations as guardian. Nonnio v. George.
7. All other expenditures benefitted Evelyn personally and breached her fiduciary obligations
as guardian. Id.
8. The use of $25,000 from the sale of investments from Marlena’s estate to purchase a house
in Evelyn’s name also breached Evelyn’s fiduciary obligations as guardian. Id.
9. These breaches constitute good cause for revoking Evelyn’s authority as guardian for
On appeal from this order, Evelyn claims that the trial court abused its discretion in
removing her as guardian of Marlena. She insists that in managing Marlena’s estate, her
“primary goal” was to make Marlena’s life “as comfortable and pleasurable as possible.” Evelyn
contends that the trial court’s requirement that she repay Marlena’s estate for all undocumented
expenses punished her for insignificant errors in reporting.
A guardian owes a fiduciary duty to her ward. This duty obligates the guardian to act in
the best interest of the ward and not to use her decision-making authority to benefit the guardian.
A guardian can breach this duty by action or neglect, if the action or neglect harms the ward. A
fiduciary can harm the ward through mismanagement of finances, neglect of the ward’s physical
well-being, or similar actions. A fiduciary can also be held accountable if she uses her decisionmaking
authority to benefit the guardian at the ward’s expense.
The Findings of Fact belie Evelyn’s argument that the trial court punished her for
reporting errors. The Findings demonstrate that, even if Marlena received excellent care, Evelyn
almost completely disregarded her fiduciary obligation to preserve and manage the estate to
provide for Marlena’s needs. Instead, Evelyn drew upon estate funds for her own support and
comfort. Far from an abuse of discretion, the trial court’s order carefully distinguishes between
those funds used for Marlena’s needs, those funds used for her fair share of common expenses,
and those funds for the use of which no justification existed. “No abuse of discretion exists
where a trial court identifies clearly and specifically those facts which support its Conclusions of
The trial court’s decision fully accords with the applicable principles of guardianship law.
It does not punish Evelyn for minor failures in accounting. Instead, it uses the court’s statutory
authority to “issue any other order as in the court’s judgment is appropriate under the
circumstances of the case.” FRANKLIN GUARDIANSHIP CODE § 402.
This court acknowledges that caring for Marlena at home may have been an
exceptionally expensive undertaking. But that expense did not relieve Evelyn of the obligation of
establishing which expenses were necessary and related to Marlena’s individual needs. The trial
court’s Findings of Fact established that Evelyn treated the estate not as Marlena’s separate funds
to be used for Marlena’s needs, but as a personal asset available to pay for Evelyn’s food,
housing, and other personal expenses.
To: Eleanor Wallace
Date: February 21, 2017
Re: Guardianship of Henry King.
As requested here are the findings of fact and Conclusions of law that convinces the court that is has the authority to override Henry's nomination of Noah as prospoective guardian in 2013 and convincing them that Ruth should be appointed guardian to be submitted to the court in the matter of Guardianship of Henry Kind.
Finding of Fact
- Henry King is 74 years old and has two chilldren, Ruth and Noah.
- Henry started having trouble with his memory a year after the death of his wife in 2012.
- In 2013, Henry learned that he had a condition that might leave him incompetent (Dimentia).
- Ruth, the daughter of Henry, lived in a different state when all of these arrangements were made.
- Upon learning of the condition, Noah, Ruth, and Henry himself discussed how arrangements should be made in case his health began to detiriorate.
- This discussion concluded with the decision to executed an advanced health care directive naming his son, Noah as his health-care agent and a durable power of attorney giving Noah the power to make financial dicisions.
- The document discussed in 3 also nominated Noah to become Henry's guardian if and when necessary.
- The decision to appoint Noah was predominately made because he lived closer and could respond more quickly.
- The court ruled that these documents and the nomination was valid at the time it was made during an evidentiary hearing.
- Noah King has served as guardian of his father, Henry King, since
- Noah handles Henry's finances through his Durable Power of Attorney.
- Henry is on a fixed income and receives $2,515 per month.
- Henry's bank statements reflect purchases made amounting to over $9,000 over the past 12 months.
- Noah, aware of these charges and in control of Henry's finances, did not feel comfortable trying to get the gifts purchased with these funds back or tell Henry to stop purchasing.
- After Henry made a monthly purchase of over $1,200, Noah attempted to tell him to stop and explain the consequences of these purchases but Henry did not understand.
- Noah, again, made no efforts to stop the spending because he "did not think it was his place to keep him from spending his money the way he wanted because he has enough money."
- On one occassion on or around August 2016, Ruth noticed a over due notice from the electric company.
- When confronting Noah with this notice he stated that he "had missed a few payments but not to worry about it."
- Ruth thereafter made an investigation and noticed that many of Henry's bills where overdue and unpaid.
- Noah also acts as Henry's Health Care Agent.
- When shown Henry's medical records for the past year, Noah indicated that he was unaware of the records but states that he is familiar with his Henry's medical conditions.
- On June 22, 2016, Henry broke a bone in his wrist by tripping on a rug in his home.
- He initially learned of the injury when visiting Henry and Henry complained of stiffness in his wrist. Noah did not think it was a big deal and stated that he did not seem to be "in all that much pain."
- The next day Noah was alerted by a neighbor that he should check on Henry because the wrist was swollen.
- Noah then took Henry to the hospital to get a cast. The wrist is now completely healed.
- Ruth was not informed of the incident.
- In August of 2016, Ruth transfered to a nearby office for work and began spending 2-3 evenings per week with Henry.
- after this date, Ruth noted that Noah was not buying Henry enough food and the refrigerator was constantly empty.
- Ruth took it upon herself to buy Henry food and cook for him throughout the week when she could.
- Eventually Ruth hired someone to shop and cook for Henry.
Finding of Law
- At any time prior to the appointment of a guardian, an adult may nominate in writing an individual to serve as that adult's guardian should the adult be judicially determined to be in need of a guardian, and that nomination shall be given preference if expressly identified and signed and acknoleged by the adult and two witnesses. §400
- The statute above does not make the nomination of a preferred Guardian binding in ia later guardianship matter. Matter of Selena.
- ". . .A court may disregard an individual who has preference and appoint an individual who has a lower preference or no preference. §401(a).
- The court may disregard the preference of the idividual last nominated by the adult only upon good cause shown." §401(a).
- Upon petition of an interested party a court may investigate allegations made to revoke or suspend the guardian or impose sanctions when good cause exists. §402
- Good cause exists to remove a guardian when a guardian breaches her fiduciary duty by using the ward's funds to benefit the guardian. In re Guardianship of Martinez.
- Although no Franklin court has has ruled on a "good cause" standard a court may refuse to appoint a proposed guardian when that person's previous actions would have constituted a breach of fiduciary duty had the person been serving as guadian.matter of Selena J.
- Both a health-care agent and the holder of a durable financial power have a legal obligation to act in the principle's best interest. Matter of Selena.
- A appellate court will affirm the trial courts exercise of discretion unless it decision is clearly erroneous. In re Guardianship of Martinez.
- An Appellate court can and will remand a decision back to the trial court if the trial court failed to discuss the available evidence as it relates to good cause. Matter of Selena J.
- Henry nominated Noah as his guardianand health-care agent, assigning him as Power of Attorney by all proper formalities as found by the trial court in the evidentiary hearing.
- The court is not bound by this decision in a later guardianship matter such as the one at hand where a sibling is claiming a breach of fiduciary duty by another. The court may analyze the facts presented at the hearing and decide whether the agreement should be upheld or a new guardian should be appointed.
- Noah owes a fiduciary duty to Henry. This duty was breached once he missed multiple payments on the bills.
- Noah's fiduciary duty was breached when there was no food in the refrigerator and Henry had missed meals because at that point Noah was not acting in the best interest of Henry.
- The expenditures of over $9,000 over a period of 12 months did not breach the fiduciary duty because they were not made for the benefit of Noah. However Noah failed to take affirmative steps to restrict or otherwise prevent these actions allowing the court to further analyze these actions to determine if a better guardian is available. in re martinez.
- Ruth's hiring of someone to clean for and cook for Henry shows that the task was not impossible or improbable making this fact an important determination in assigning if a new guardian should be appointed.
- The trial court, similar to the court in Matter of Selena J, failed to make the good cause analysis and simply gave deference to the documents previously signed by Henry.
- Similar to Matter of Selena J. "the trial court failed to consider  evidence that good cause existed not to appont his sister as guardian. [The] affidavits indicate evidence that [Noah] had neglected his [father's] financial affairs and that [he] also neglected to arrange for needed medical care." Because of the failure to make this analysis, the appellate court remanded the case to the trial level to make this determination. matter of selena j.
- The trial court has the power and the authority to override Henry's decision of nomination for guardian. §401(a)
- Ruth is now in the vicinity, is willing and is able to care for Henry, becuase of these changes in circumnstances her petition to be appointed guardian over Henry's previous nomination should be considered.
To: Eleanor Wallace
Date: February 21, 2017
Re: Guardianship of Henry King
FINDINGS OF FACT
- Henry King is the father of Ruth King Maxwell and Noah King.
- Henry King is 74 and has early signs of dementia.
- When diagnosed in 2012, Mr. King made arrangements for his future affairs.
- Mr. King signed an advanced directed and power of attorney in which both documents nominated Noah as his prospective guardian, and have been stipulated as valid.
- At the time, Ms. Maxwell lived in a different state that Noah and Henry.
- In 2015, Henry King began to deteriorate to the point of being unable to make sense or participate in the outside world.
- In 2016, Ms. Maxwell visited Mr. King and noticed that his arm was severely bruised, to which he claimed he fell in the shower.
- Ms. Maxwell subsequently persuaded her brother to take their father to the doctor where it was determined no bones were broken.
- Ms. Maxwell transferred to the area in August, 2016 and began to spend 2-3 evenings a week with her father.
- Ms. Maxwell discovered in August 2016 that her father had broken his wrist on June 22, 2016 after tripping on a rug.
- Noah King checked on his father after the accident, but did not take him to the doctor until the next day after a neighbor showed the wrist had become swollen.
- Henry King was put in a cast and discharged the same day.
- Noah King had not advised his sister about the broken wrist, stating he didn't think she needed to know and would become upset with him.
- Ms. Maxwell also determined that Noah was not buying food for their father.
- Ms. Maxwell began to feed her father, eventually hiring help to do the shopping and cooking.
- Ms. Maxwell also discovered her brother had missed a few months payments on the electric bill when she found an overdue notice.
- Ms. Maxwell reviewed her father's finances and learned her brother had not been paying multiple bills, including a medical bill that was about to go to collection.
- Ms. Maxwell also learned her father had been making multiple purchases online to give as gifts, totalling $2,200 over a two month period.
- Mr. King stated he was buying the gifts for friends to persuade them to visit.
- Noah King advised Ms. Maxwell that he was aware of the purchases but couldn't stop his father, and didn't feel comfortable calling the friends to retrieve the purchases.
- Henry King had spent about $9,000 over past 12 months, charging as much as $1,200 in a month.
- Noah attempted to discuss the matter with his father to no avail, and didn't take any other steps to stop the spending.
- Mr. King receives $2,515 a month from his pension and Social Security.
CONCLUSIONS OF LAW
- A durable financial power of attorney and advance health care directive create a fiduciary duty in the agent and holder a legal oblication to act in the principal's best interest and avoid self dealing. MATTER OF SELENA J. (Fr. Ct. of Appeal 2011)
- A guardian is a court-appointed individual that manages the income and assets and provides for the essential requirements for health and safety and personal needs of someone found incompetent FRANKLIN GUARDIANSHIP CODE Sec. 400
- Prior to the appointment of a guardian by a court, an adult may nominate in writing an individual to serve as guardian, as Henry King did in his nomination of Noah, and that nomination shall be given preference as described in Code. FGC Sec. 401(c)
- The court shall appoint the individual that will best serve the interest of the adult, considering the order of preference. FGC Sec. 401(a)
- The court may disregard an individual who has preference and appoint another individual who has a lower preference or no preference only upon good cause shown. FGC Sec. 401(a)
- The court may refuse to appoint a proposed guardian when that person's previous actions would have constituted a breach of a fiduciary duty had the person been serving as a guardian. MATTER OF SELENA J.
- A guardian is obligated to act in the best interest of the ward and...can breach this duty by action or neglect, if the action or neglect harms the ward. In re Guardianship of Martinez (Fr. Ct. of Appeal 2009)
- The fiduciary breach includes mismanagement of finances, neglect of the ward's physical well being, or siminal actions. Id.
- The court should apply a good cause standard when assessing Noah King in determining his failure to adequately monitor Henry King's health care constituted a breach of a fiduciary duty. MATTER OF SELENA J.
- The court will also find that good cause exists to refuse to appoint Noah guardian due to his breach of a fiduciary duty to properly manage Henry King's finances. FGC Sec. 402., MATTER OF SELENA J.
- A later guardianship in favor of Ruth King Maxwell will override the earlier grant of authority given through the advanced directive or power of attorney to Noah King. The authority granted to the guardian supersedes any conflicting authority granted to the agent under either document. MATTER OF COLLINS (Fr. Sup. Ct. 2002)
MEE Question 1
On June 15, a professional cook had a conversation with her neighbor, an amateur gardener with no business experience who grew tomatoes for home use and to give to relatives. During the conversation, the cook mentioned that she might be interested in “branching out into making salsa” and that, if she did branch out, she would need to buy large quantities of tomatoes. Although the gardener had never sold tomatoes before, he told the cook that, if she wanted to buy tomatoes for salsa, he would be willing to sell her all the tomatoes he grew in his half-acre home garden that summer for $25 per bushel.
Later on June 15, shortly after this conversation, the cook said to the gardener, “I’m very interested in the possibility of buying tomatoes from you.” She then handed a document to the gardener and asked him to sign it. The document stated, “I offer to sell to [the cook] all the tomatoes I grow in my home garden this summer for $25 per bushel. I will hold this offer open for 14 days.”
The gardener signed the document and handed it back to the cook.
On June 19, the proprietor of a farmers’ market offered to buy all the tomatoes that the gardener grew in his home garden that summer for $35 per bushel. The gardener, happy about the chance to make more money, agreed, and the parties entered into a contract for the gardener to sell his tomatoes to the proprietor.
On June 24, the cook, who had not communicated with the gardener since the June 15 conversation, called the gardener. As soon as the cook identified herself, the gardener said, “I hope you are not calling to say that you want my tomatoes. I can’t sell them to you because I have sold them to someone else.” The cook replied, “You can’t do that. I called to accept your offer to sell me all your tomatoes for $25 per bushel. You promised to hold that offer open for 14 days. I accept your offer!”
Is the gardener bound to sell the cook all the tomatoes he grows that summer for $25 per bushel? Explain.
1. Contract Formation
The issue is whether the cook and the gardner formed an enforceable contract. A contract is a legally enforceable agreement that is formed by an offer, acceptance, and consideration. UCC Article 2 governs contracts for the sale of goods, whereas common law governs other types of contracts. Because the parties here are contracting over tomatoes, the UCC applies.
a. Firm Offer
The issue is whether the contract between the cook and the gardner was a firm offer that was irrevocable.
An offer is the objective manifestation of the offeror's willingness to enter into agreement with the offeree that creates in offeree the power of acceptance. An offer is irrevocable if the parties create a firm offer, which is created when a merchant signs a writing agreeing not to revoke an offer for the specified amount of time, but no longer than 90 days. An offeree is free to accept the firm offer of a merchant anytime within the specified period. An acceptance is the agreement to all of the terms of offeror's offer and can be effiective by performance or by a promise to perform. Consideration is required to form a contract. Consideration is a bargained-for legal detriment or benefit.
Here, the written document signed by the gardner was an offer because it created the power of acceptance in the cook. The writing was signed by the gardner, who agreed to hold the offer open for 14 days. The agreement would be supported by consideration because the gardner was agreeing to sell his entire crop to the cook and the cook was willing to pay $25 for the tomatoes. However, a court might not consider the gardner to be a merchant. A merchant is an entity who is in the business of selling a certain type of goods. Here, the gardner had never sold tomatoes prior to discussing it with the cook. Therefore, the offer likely was not a firm offer and thus the offer was revocable. Although the cook verbally told the gardner the cook accepted the offer on June 24, which was within the 14 day period specified, the gardner's non-merchant status rendered the offer revocable and the acceptance did not occur soon enough. Therefore, the gardner is not bound by the agreement to sell the tomatoes for $25 per bushel.
b. Output Contract
The issue is whether the agreement between the cook and the gardner contained the essential term of quantity when it was the sale of all the tomatoes the gardner produced.
A contract must contain the essential terms. Under the UCC, the essential terms of a contract are identified buyers and quantity, but not price. Output contracts, which require a seller to sell all that it produces to the buyer, are sufficient to specify a quantity under the UCC.
Here, the agreement between the cook and gardner was an output contract because the gardner agreed to the cook "all the tomatoes I grow in my home garden this summer for $25 per bushel." Although this was not a specific numbered quantity, the essential term of quantity was contained in the parties agreement and would not be a basis upon which to invalidate the agreement.
The issue is whether the gardner breached the contract he made with the cook when gardner sold the tomatoes to the farmers' market proprietor.
Offers that are not firm offers or option contracts are generally revocable up until the offeree accepts or otherwise relies on the promise. Here, the gardner made an offer to the cook on June 15. However, as explained above, the offer was not a firm offer because the gardner is likely not a merchant. Thus, the gardner's acceptance of the farmers' market proprietor's offer on June 19, prior to the cook's acceptance of the gardner's offer, was effectively a revocation of the gardner's offer to the cook. Therefore, the gardner is not bound to sell the cook all the tomatoes he grew for $25 per bushel because the gardner revoked the offer by selling to the proprietor.
It is likely the gardner is bound to sell the cook all the tomatoes he grows that summer for $25 per bushel.
The issue is whether the signed document created an irrevocable offer.
A valid contract requires offer and acceptance (mutual assent), and consideration (legal detriment). Contracts may be express (either written or oral) or implied (by the parties' conduct and intent). A contract for services is governed by common law, whereas a contract for the sale of goods is governed by UCC Article 2. Under Article 2, special rules apply to contracts between merchants. A merchant is one who regularly deals in goods of the kind involved in the contract. A requirements contract is a type of contract wherein a party agrees to meet the requirements of its counterparty, ie a seller may agree to sell all the goods it can can produce, or a buyer agrees to purchase all the goods it requires. The lack of specified quantity is not considered a vague term, as it will be supplied by the needs of the contracting parties. The offeror is master of the offer. An offer may be kept open for a specified, reasonable time. Offers may also be exclusively granted to one party, in which case the offer is an option, and the benefitted party must give some consideration to keep the option. The firm offer rule applies to offers under UCC Article 2. An option is when a party pays some consideration to keep an offer open and irrevocable for a specified amount of time, which must be reasonable and not exceeding three months.
In the case at bar, the professional cook would likely not be considered a merchant in the typical sense. Although the cook is a professional, she likely does not regularly deal in tomatoes. Rather, her trade is cooking. The facts state that she is considering "branching out" into salsa, which further indicates she has not, as yet, regularly purchased large quantities of tomatoes. Therefore, although the UCC Article 2 will govern this contract for the sale of goods, the tomatoes, the rules applicable to merchants only (Merchant Memo Rule, etc), will likely not apply. Neighbor's statement that if she wanted to buy tomatotes for salsa, he "would be willing to sell her all the tomatoes he grew in his half-acre home garden that summer for $25 per bushel" is likely to be construed as an offer. Although it at first appears to be an invitation to deal, it does specificy the quantity ("all the tomatoes" he can grow), a term ("that summer") and a price ("$25 per bushel"). Under the UCC, all of those terms are not necessarily required, as the court will supply a reasonable price if one is missing. Cook's June 15 expression of interest probably has little little effect, but the document that she handed him does. The writing states: "I offer to sell the cook all the tomatoes I grow in my home garden this summer for $25 per bushel. I will hold this offer open for 14 days." It is likely that a court would find that a signed document evidencing the terms of the offer and stating it will be held open is a vaild offer, acceptance of whcih creates a binding contract. For an offer to be irrevocable for a specified time, there must be consideration. In other words, the other party must give some legal detriment in order for the guarantee that the offer will remain open for a specificed amount of time. Here, the gardener received a better offer at $35 per bushel and accepted, thus revoking his offer to cook. However, this was within the 14 day time the gardner offered to keep the offer open.
MEE Question 2
Forty years ago, Settlor, a successful businesswoman, married a less-than-successful writer. Settlor and her husband had two children, a son and a daughter.
Two years ago, Settlor transferred most of her wealth into a revocable trust. Under the terms of the trust instrument, a local bank was designated as trustee, and the trustee was directed to distribute all trust income to Settlor during her lifetime. The trust instrument further provided that “upon Settlor’s death, the trustee will distribute trust principal to one or more of Settlor’s children as Settlor shall appoint by her duly probated last will or, in the absence of such appointment, to Charity.” The trust instrument also stated that Settlor’s power of revocation was exercisable only “during Settlor’s lifetime and by a written instrument.”
Following the creation of the trust, Settlor gave written direction to the trustee to accumulate trust income instead of distributing the income to Settlor as specified in the trust instrument. The trustee did so.
Six months ago, Settlor executed a valid will. The will, exercising the power of appointment created under Settlor’s revocable trust, directed the trustee of Settlor’s trust, upon Settlor’s death,
(1) to distribute half of the trust assets to Settlor’s daughter,
(2) to hold the other half of the trust assets in continuing trust and pay income to Settlor’s son during the son’s lifetime, and
(3) upon the son’s death, to distribute the trust principal in equal shares to the son’s surviving children (grandchildren of Settlor).
Settlor also bequeathed $50,000 “to my descendants, other than my children, in equal shares,” and she left the residue of her estate to her husband, whom she also named as the executor of her estate.
Two months ago, Settlor died. At Settlor’s death, the trust assets were worth $500,000 and Settlor’s probate assets were worth $100,000. Settlor was survived by her husband, her daughter, her son, and her son’s child (Settlor’s grandchild, age 18).
A statute in this jurisdiction provides that a decedent’s surviving spouse is entitled to a “one-third elective share of the decedent’s probate estate.” There are no other relevant statutes.
1. Was it proper for the trustee to accumulate trust income during Settlor’s lifetime? Explain.
2. Under Settlor’s will and the trust instrument, what, if any, is Charity’s interest in the trust assets? Explain.
3. Does Settlor’s husband have a valid claim to any trust or probate assets? Explain.
1. It was proper for Trustee to accumulate trust income during Settlor's lifetime rather than distributing that trust income to Settlor as the trust instrument had originally provided. The issue is whether and when a Trustee of a revocable trust may, without being in breach of its fiduciary duties, follow directions of the Settlor that are contrary to the provisions of the trust instrument.
In general, the trustee owes a very high fiduciary duty to the trust and its beneficiaries. When a trust is irrevocable, the trustee's duties are solely to the trust's beneficiaries. However, when a trust is revocable, the trustee has a duty to the Settlor until the trust is made irrevocable. Trustee also has a duty to preserve and make productive the trust's assets. Here, the Settlor expressly made the trust revocable during her lifetime. Her directions to accumulate, rather than distribute, the trust income is also in keeping with the Trustee's duty to maintain the trust corpus for the benefit of the trust and its current and future beneficiaries. Thus, Trustee's duty while Settlor was alive, his duty was to follow her reasonable directions regarding the accumulation of trust income, as provide in writing by Settlor, as long as the trust was revocable. His acts in doing so were therefore proper.
2. Charity's interest in the trust assets: Although Settlor did not validly, strictly exercise her power of appointment in her will, Charity does not have an interest in the trust assets because of such invalid exercise. At issue is what constitutes a legally effective invocation of a power of appointment, and what effect that has. A trust may provide for the disposition of trust assets in a will through the creation of either a general or a special power of appointment. A general power of appointment may be properly exercised by general language in the will instrument. However, a special power of appointment must expressly and with specificity invoke the special power of appointment in its designation of assets to the intended beneficiaries. In either case, in order to properly and effectively exercise powers of appointment, the will must refer to such powers and comply with the terms in the original grant of the powers of appointment. If the will does not properly exercise the powers in this manner, the attempted disposition of trust assets through this power of appointment will be void and the gift will fail. Depending on the jurisdiction, the failed gift will either 1) become part of the residuary of the probated estate, or 2) pass through intestacy. The issue here is whether Settor's exercise of the power of appointment in her will was proper, such that the disposition of assets in her will pursuant to this exercised power of appointment, does not fail. It appears that by her will, Settlor did not properly exercise her powers. The appointment powers were clearly limited to her children and, in the absence of an appointment in favor of her children, to Charity. Yet in her will, in her attempted exercise of the power of appointment, Settlor provided for trust assets to go to her children and to her grandchildren.
However, this does not necessarily give Charity an interest in the trust assets in probate. Settlor did exercise her powers of appointment with respect to her children properly. The trust clearly provides that Charity would be the recipient of the trust assets only upon an absence of Settlor's exercise in her children's favor. That has clearly not happened here. Thus, while the power of appointment was not stricly complied with, it will not result in Charity having an interest in the trust assets.
3. Husband has no claim to trust assets but he does have a claim to the estate's assets. The issue is whether trust assets subject to a power of appointment become part of the estate's asset for purposes of calculating a spouse's elective share. As set forth above in point 2, Settlor attempted to exercise her powers of appointment to designate her children (son and daughter) as recipients of the trust's property. Husband will attempt to argue that the terms of the power of appointment only granted the power to bequest the trust principal, and not a subsequent trust, or a bequest to anyone other than Settlor's children. Here, the will went beyond the language of the power of appointment in the trust instrument, and therefore, Husband will argue that the portion fo the trust assets left to Son should be returned to the estate, and thus be included in the estate's total assets value for purposes of calculating his spousal share. However, the Settlor's power of appointment was validly exercised, and Husband's arguments will fail. The will does dispose of the trust assets as provided. Therefore, the trust assets should not be included in the estate's assets, and Husband has no claim to them.
Under the terms of the will, Husband may receive the residuary of the estate. Since estate is worth $100K, and grandson's gift is $50K, the amount of husband's share of the estate under the express terms of the will is $50K. While Husband is entitled to elect his statutorily allowed spousal share of one-third of the estate, doing so would leave him less than what he is to receive under the will's terms. Thus, Husband will likely elect to receive his actual residuary bequest, rather than his spousal share under the statute.
It was proper for the trustee to accumulate trust income during Settlor's lifetime.
To execute a valid trust instrument, the Settlor, with legal capacity and intent to create a trust must transfer valid property to a Trustee to manage the trust for the benefit of a beneficiary. If a trustee is not named, the trust will not fail. A trustee can be appointed. A trust will fail if a beneficiary cannot be ascertained
In this case, Settlor transferred most of her wealth into a revocable trust and the trustee was directed to distribute all trust income to Settlor during her lifetime. The trust instrument further provided that upon Settlor's death, the trustee will distribute trust principal to one or more of Settlor's children as Settlor shall appoint by her duly probated will or, in the absence or such appointment, to Charity. All trusts are revocable unless they are executed as an irrevocable trust.
Here, the trustee named a local bank and trustee. The Settlor also named her Children or Charity as beneficiaries. Thus the beneficiaries of the trust are definite. This is a valid trust.
A trust that is revocable is modifiable by the Settlor. A Settlor may modify the trust by communicating by written instrument the desired modification. Here, Settlor gave written direction to the trustee to accumulate trust income instead of distributing the income to Settlor as specified in the trust instrument. The trustee, under the fiducuary duties of loyalty, obedience and care must look to the purpose of the trust instument and determine whether a modification is in he spirit of the trust instrument. The trustee asks whether allowing a modification would defeat the purpose of the trust. Since this trust was revocable and therefore, modifiable, Settlor properly made this modification request in writing to Trustee. In an irrevocable trust, the settlor would have to petition the trustee to revoke or modify a trust and this would have to also be done with the consent of all beneficiaries. To instruct the Trustee to accumulate trust income rather than make a distribution during the Settlor's lifetime is in keeping with the purpose of the trust. Therefore, for the foregoing reasons, it was proper for the trustee to accumulate trust income during the Settlor's lifetime.
Charity does not have an interest in the trust assests.
A settlor, in creating a trust, must name beneficiaries to be a valid trust instrument, as discussed above. The beneficiaries of a trust must be ascertainable in order for a trust to be valid. If a charity or non-profit organization is named as a beneficiary of a trust, this also creates a valid trust instument. A beneficiary does not have to be a person. If the charity that it named as beneficiary at the time the trust is created no longer exists at the settlor's death, a court will apply the doctrine of cy pres. The Cy Pres doctrine will look to the settlor's intention in naming the beneficiary and try to get as close to the settlor's intent as possible in finding an alternative beneficiary.
In this case, Settlor instructed the trust principal to be distributed to one or more of her children. In the absence of such appointment to her children, Charity would take in their place. Settlor recently executed a valid will. The will instructed the trustee make various distributions. Notably, however, Charity was not included. In exercising a valid power of appointment, a decedent can instruct an executor or estate administrator to execute the will and trust instrument. Charity was not included in either instrument. Therefore, Charity does not have an interest in the trust assets.
Settlor's Husband does have a valid claim to probate assets. A state statute can entitle a spouse to an elevtive share. An elective share states that a spouse can essentially give up whatever has been left to them in a will and instead take the about the they are statutorily authorized to take. The amount of the elective share varies from state to state. In this jurisdiction, the elective share entitles a spouse to one-third of the decedant's probate estate.
In this case, Husband was left the residue of Settlor's estate. Husband has no entitlement to any of the trust assets. Therefore, after paying any taxes, funeral costs, and attorney's fees associated with probating the will, Husband has an entitlement to the residuary estate. Husband can look to see which would offer his a greater share, accepting the residuary or taking the elective share. Husband also receives compensation as executor of the estate. In summation, Husband is entitled to compensation for his role as executor and is entited to take either the residuary or elective share.
MEE Question 3
In 2005, Andrew and Brenda began living together in State A while both were attending college there. Andrew proposed marriage to Brenda, but she refused. However, after learning that she was pregnant, Brenda told Andrew that she wanted to marry him before the baby was born. Andrew was thrilled and told her that they were already married “in the eyes of God.” Brenda agreed.
Andrew and Brenda did not obtain a marriage license or have a formal wedding. Nonetheless, Brenda started using Andrew’s last name even before their daughter, Chloe, was born. After Andrew graduated from college and started a new job, he listed Brenda as his spouse so that she could qualify for benefits through Andrew’s employer. They also filed joint income tax returns.
In March 2007, just after Chloe’s first birthday, Andrew and Brenda decided to separate. They had little property to divide and readily agreed to its disposition. Andrew agreed that Brenda should have sole custody of Chloe, and Brenda, desiring the cleanest break possible, agreed that Andrew would not be responsible for any child support. Andrew told Brenda that no formal divorce was necessary because they had never formally married.
In June 2007, Brenda and Chloe moved to start a new life in State B. Andrew sent Chloe an occasional card or birthday gift, but otherwise maintained no contact with Chloe or Brenda. Not long after settling in State B, Brenda met and fell in love with Daniel.
In 2008, Brenda and Daniel obtained a State B marriage license and wed. Thereafter, Daniel formed a close and loving bond with Chloe. Indeed, with only very infrequent contact from Andrew, Chloe regarded Daniel as her father and called him “Dad.”
In January 2017, Brenda purchased a lottery ticket. The ticket won a jackpot of $5 million, which was paid that month. Shortly thereafter, Brenda informed Daniel that she wanted a divorce and that she intended to use her lottery winnings to launch a new life with Chloe in a distant state and break off all contact with Daniel. When Chloe learned about this, she became very upset because she continues to regard Daniel as her father.
State A recognizes common law marriage. State B formerly allowed common law marriage until a statute, enacted in 2001, prospectively barred the creation of new common law marriages within the state. Neither State A nor State B is a community-property state.
1. On what basis, if any, would Andrew have a claim to a share of Brenda’s lottery winnings? Explain.
2. Assuming that Andrew and Brenda have a valid marriage, on what basis, if any, would Daniel have a claim to a share of Brenda’s lottery winnings? Explain.
3. If Brenda cuts off all contact between Chloe and Daniel, can Daniel obtain court-ordered visitation with Chloe? Explain.
- The issue is whether Brenda and Andrew were married at the time Brenda won the lottery.
In a state that recognizes common law marriage, a couple is married if (1) they agree that they are married, (2) they cohabit as spouses, and (3) they hold themselves out to the public as married.Couples that have a common law marriage are entitled to all the things to which a formally married couple is entitled, including the equitable division of property acquired during the marriage. A common law marriage that is valid in the state in which it was formed is given full faith and credit by all other states unless the marriage violates a strong public policy. A marriage may only be terminated by annulment, death, or divorce. Divorce requires a judicial divorce decree.
Here, State A recognizes common law marriage. Brenda and Andrew lived together, and when Andrew said that they were already married, Brenda agreed. They held themselves out to the public as married by filing joint tax returns, Brenda using Andrew's last name, and Andrew listing Brenda as his spouse at his new job so Brenda could qualify for benefits. Thus, Andrew and Brenda were married and State B must recognize that marriage. Brenda and Andrew never got a divorce, thus they were still legally married when Brenda won the lottery. Andrew thus has a claim to a share of Brenda's lottery winnings.
2. The issue is whether Daniel is a putative spouse.
A person who is legally married cannot marry another person. The subsequent marriage is void. However, a couple who has an honest, good faith belief that they are married and who attempted to comply with the formalities of marriage will be treated as putative spouses upon termination of the marriage and they will be entitled to equitable property division.
Here, Daniel and Brenda got a marriage license and were wed. However, they were not legally married because Brenda was already legally married to Andrew. Thus, their marriage was void. On the other hand, Brenda believed she was not married because she never formally married Andrew and believed a divorce was not necessary. Brenda and Andrew actually believed they were legally married, and obtaining a marriage license is evidence that they attempted to comply with the formalities of marriage. Brenda and Daniel were putative spouses, and Daniel is entitled to an equitable distribution of property acquired during the marriage. Brenda won the lottery during the putative marriage. Thus, Daniel has a valid claim to a share of the winnings.
3. The issue is whether a nonbiological parent is entitled to visitation of the child.
Children born during a marriage are presumed to be children of that marriage. A man who is not the bioloigical father of a child is not entitled visitation because the biological parent has a constitutional right to make decisions regarding the upbringing of her child.
Here, assuming Brenda and Andrew had a valid marriage, Chloe was born during their marriage. Chloe is therefore the presumed child of Andrew. Even if Andrew and Brenda weren't married, Brenda did not meet Daniel until after Chloe was born. Thus, Daniel is not Chloe's biological father and has no right to demand visitation with Chloe. The court will be reluctant to order Brenda to allow Daniel to see Chloe because Brenda has a fundamental right to choose who her daughter interacts with. However the court may consider what is in Chloe's best interest. Chloe regarded Daniel as her father, called him "Dad" and the two formed a close and loving bond. Chloe was very upset when Brenda left Dan because she considers Dan her father. Meanwhile, Chloe's biological father has maintained no contact with Chloe other than the occassional birthday card, and has no relationship with Chloe. Thus, Chloe has no father figure in her life without Dan and granting Dan visitation would be in Chloe's best interests. Thus, the court may - allow it is unlikely - grant Daniel visitation.
1. Andrew's claim to Brenda's lottery winnings
Andrew can have a valid claim to Brenda's lottery winnings if he can argues that the couple had a common law marriage were never formally divorced in state A.
A common law marriage is treated as a valid marriage so long as the couple has (1) present intent to marry, (2) cohabitates and (3) holds themselves out to the public as a married couple. If all three elements are satisfied, the marriage is deemed valid and gets all the protections and benefits of a real marraige.
Here, Andrew and Brenda lived in State A when they formed a common law marriage, thus State A law would dictate the validity of their marriage because this is the state where thery had the most significant contacts. Here, Andrew and Brenda first got together in 2005. When Andrew initially asked her to marry him, Brenda refused, but upon finding out that she was pregnant expressed her willingness to engage in marriage. In, addition the two deemed themselves married in the "eyes of God," which further illustrates their intent to be married. The second element is a common law marriage is satisfied because Brenda and Andrew were already living together in 2005, ad continued to live together after their intent to marry. Andrew and Brenda also held themselves out in public as a couple. Here, Brenda took Andrew's last name and Andrew listed Brenda as his spouse on his employee paperwork and the two also filed joint tax returns. Thus, they satisfy the elements of a common law marriage. After 2 years of being common law married, Brenda decided to seperate from Andrew how ever the two never took any formal process to have their common law union dissolved.
Therefore Andrew can argue that he is entitled to Brenda's lottery winnings because he was still married to Brenda.
2. Daniel's claim to Brenda's lottery winnings
Daniel may have a claim to a share of Brenda's lottery winnings under the putative spouse doctrine.
Under the putative spouse doctrine, a spouse who unknowingly weds another who does not have capacity to wed, is entitled to relief due to their reliance and the breach of trust.
If, it is found that Andrew and Brenda do in fact have a valid marriage, then Daniel's marriage will be void due to the laws against bigamy. However, the putative spouse doctrine provides protection to a spouse who entered into the marriage unknowingly that the otehr spouse was committing bigamy.
Therefore, if the court finds that Daniel entered into his marriage with Brenda without any intention of committing bigamy, the court might allow him to recover under the putative spouse doctrine.
3.Is Daniel entitled to Court ordered visitation
Daniel may be entitled to visitation because he has been the only constant father figure to Chloe and Chloe's best interest will be served by continued contact with Daniel.
A parent has a fundamental right to raise and rear their child as they see fit. Absent a court finding that the parent poses risk of harm to the child's health or safety, the court will hold that each parent is equally fit to parent, and the court is not entitled to intervene. Each parent has a right to have a relationship with theit child, unless the continued relationship would not serve in the child's best interest.
Here, Daniel is not the actual father of Chloe,nor is he the adopted parent because Andrew's right have not been terminated. Thus he does not have adequate standing to seek visitation. Brenda as the mother of Chloe has the right to cut off all contact between Daniel and Chloe without issue because she she has a fundamental right to raise her child as she deems fit.
However, Daniel may argue that for 9 years he has stood in loco parentis with Chloe and although not the bio-father to Chloe, he has been the only father chloe has known for a majority of her life. Furthermore, Daniel can demonstrate to the court that Chloe's best interest's will best be served by continued contact with Daniel becasue Chloe thinks of Daniel as her father and affectionately calls him Dad. Lastly, he can argue that a harsh breach will have and already has had an adverse effect on Chloe's attitude is she was not allowed to continue a relationship with him.
MEE Question 4
A shareholder owns 100 shares of MEGA Inc., a publicly traded corporation. MEGA is incorporated in State A, which has adopted the Model Business Corporation Act (MBCA).
The shareholder read a news story in a leading financial newspaper reporting that MEGA had entered into agreements to open new factories in Country X. According to the story, MEGA had paid large bribes to Country X government officials to seal the deals. If made, these bribes would be illegal under U.S. law, exposing MEGA to significant civil and criminal penalties.
On May 1, the shareholder sent a letter to MEGA asking to inspect the minutes of meetings of MEGA’s board of directors relating to the Country X factories mentioned in the news story, along with any accounting records not publicly available relevant to the alleged foreign bribes. The shareholder explained that she was seeking the information to decide whether to sue MEGA’s directors for permitting such possible illegal conduct.
In her letter, the shareholder also demanded that the MEGA board investigate the possible illegal bribes described in the news story and take corrective measures if any illegality had occurred.
On June 1, MEGA responded to the shareholder in a letter, which stated in relevant part:
The corporation will not give you access to any corporate documents or take any action regarding the matters raised in your letter. We cannot satisfy the whim of every MEGA shareholder based on unsubstantiated news stories. Furthermore, given our continuing operations in Country X, the board of directors will not investigate or take any other action regarding the matters raised in your letter because doing so would not be in the best interest of the corporation.
On October 1, the shareholder filed a lawsuit in a State A court. Her petition includes (1) a claim against MEGA seeking inspection of the documents previously requested and (2) a derivative claim against all of the MEGA directors alleging a breach of their fiduciary duties for failing to investigate and take action concerning the alleged foreign bribes.
MEGA’s board has asked the corporation’s general counsel the following questions:
(1) Is the shareholder entitled to inspect the documents she requested?
(2) May the board obtain dismissal of the shareholder’s derivative claim if the board concludes that it is not in the corporation’s best interest to continue the lawsuit, even though the board has not investigated the allegations of illegal foreign bribes?
(3) Is the board’s decision not to investigate or take further action with respect to alleged illegal foreign bribes consistent with the directors’ duty to act in good faith, and is that decision protected by the business judgment rule?
How should the general counsel answer these questions? Explain.
1. Shareholders are entitled to inspect corporate documents if the shareholder provides written notice with a reason why and the request to see the documents is reasonably related to their purpose. The shareholder indicated she wanted to see the minutes of meetings relating to Country X factries as well as accounting records relevant to the alleged foreign bribes. This request is detailed enough that the corporation can determine which documents the shareholder is requesting access to. Furthermore, the shareholder explained the reason she wants to see these documents is to determine whether she will sue the directors for breach of their fiduciary duties. This is a valid reason for requesting to see the documents, since there was a news story alleging serious misconduct by MEGA.
MEGA's response on June 1 was improper. While corporations do not have to grant every shareholder request to view documents, they are obligated to grant the reasonble ones. This shareholder request is specific and based on legitimate concerns. The article was published in a leading financial newspaper, a source which is assumed to be credible. Therefore, the shareholder's request is reasonable and within her purview. It should have been granted.
It is important to note that the shareholder has since filed a lawsuit against MEGA and these documents can now be considered discovery. The shareholder can request a court order for them now because they are directly related to the lawsuit and she has no other way of obtaining the information they contain.
2. No, the board cannot obtain a dismissal of the shareholder's derivative claim if the board concludes that it is not in the corporation's best interest to continue the lawsuit. A derivative claim is one that a shareholder brings forth on behalf of the corporation - essentially, she is suing the directors for the corporation and any monetary judgement goes to the corporation. Because it is a derivative claim, the board has the ability to obtain a dismissal of a derivative suit if it can show it is not in the corporation's best interests - after all, the suit is supposed to be on behalf of the corporation. Here, however they cannot obtain the dismissal because no investigation was done. The board can allege the lawsuit is not in the best interest of the corporation, which may very well be true since being sued is rarely in the defendant's best interest, but the shareholder is alleging the directs breached their fiduciary duties and the board has not investigated the matter. For the board to obtain a dismissal at this junction, they would be opening themselves up to suit for breach of fiduciary duty.
3. The board's decision not to investigate or take further action with respect to the alleged illegal foreign bribes is not in good faith, nor is it protected by the business judgement rule. The June 1 letter from MEGA to the shareholder stated the reason the board of directors refused to investigate or take any other action was because of the corporation's continued operations in Country X. If the shareholder's claims were unfounded, the board would be well within its rights to refuse to investigate, but once a leading financial newspaper reproted MEGA paid large bribes and violated U.S. laws, the board could no longer refuse to investigate.
Every corporation is required to conform with U.S. law; the allegations here are that MEGA's dealings in Country X do not. If this is true, the directors are responsible for the decisions and have breached their fiduciary duties to properly manage the corporation. When such allegations are made, the board is obligated to investigate.
The business judgement rule protects the decisions made by a corporation's management when they are made in good faith. Directors have duties to the corporation and its shareholders, including the duty to advance the corporation's assets. This requires business decisions to be made and sometimes they do not turn out to be beneficial for the corporation. The business judgement rule protects these bad decisions so long as they were made in good faith. The point is not to punish directors for market losses that are not their fault. In this case, however, the business judgement rule will not protect them from their failure to investigate. When there are allegations of criminal misconduct and illegal behavior, the board must look into it and, if found, address any problems. Turning a blind eye or failing to do so is a breach of their fiduciary duty of loyalty, as they are potentially opening the corporation up to criminal charges. Illegal activity is never protected by the business judgement rule, nor is failing to investigate it.
Part 1: Shareholder's Right to Inspect Requested Documents:
The issue is whether a shareholder has the right to demand inspection of the board's minutes and accounting records relating to a particular transaction. A shareholder is not granted the right to control the Board of Directors (BOD), just by virtue of owning shares in a corporation. A corporation's BOD had a fiduciary duty to act in the best interests of the corporation and executed these duties with care and loyalty to the corporation. While a shareholder may direct how the BOD takes action, it may upon appropriate demand, request to inspect the corporation's books and records. An appropriate demand to inspect the books and records must give the coporation five days notice and state a valid business purpose for wanting to inspect the books.
Here, shareholder has made an appropriate demand for inspection of at least the accounting records of the corporation. Shareholder has given the BOD the adequate notice with respect to the timing of the demand. Additionally, shareholder has stated a valid business purpose for wanting to inspect the books and records. As a result, MEGA may not deny the shareholder access to the accounting records. To do so would be to deny one of the rights a corporation's shareholder has by virtue of the ownership of shares.
The transaction at issue would not be classified as a fundamental corporate change, as such, the transaction does not need shareholder approval. A fundamental corporate change involves the sale of all or substantially all of the corporation's assets. Here, MEGA has simply decided to branch out into a new area, Country X and does not constitute a fundamental corporate change. However, whenever a BOD holds a meeting and takes an action, the shareholders must be notified about that action. Here, it is arguable that MEGA has not informed Shareholder of this action, since they found out about the new factories from a newspaper article. Further strengthening Shareholder's demand to inspect the BOD meeting minutes, is that the claim that the transaction involves bribes that expose MEGA to significant civil and criminal penalties. As a result of this possible illegal purpose, the shareholder does have a right to inspect the meeting minutes in order to determine if she should enforce the corporation's rights through a shareholder derivative action.
In conclusion, shareholder is entitled to inspect the documents she requested. Shareholder is entitled to inspect at the very least, the accounting records, since she made the appropriate written demand. Additionally, given that a proposed BOD action may expose the corporation to significant civil and criminal penalties, the shareholder should be entitled to inpsect the BOD's meeting minutes in order for her to assess whether a shareholder's derivative action should be filed.
Part 2: Dismissal of Shareholder's Derivative Claim
The BOD is not likely to obtain a dismissal of the shareholder's derivative claim under the facts presented. The BOD has a fiduciary duty to act in the corporation's best interest. This includes the duty of care and duty of loyalty. The duty of care imposes on the BOD to take such action for the corporation in all due care as a reasonably prudent person under the circumstances, if in the corporation's best interests. In order to fully discharge their duty of care, the BOD should investigate the allegation of illegal foreign bribes and publish the investigation results to the shareholders. A blind statement made by the BOD that it is not in the corporation's best interest to continue the derivative suit, without investigating the underlying claims of the suit, would be a breach of the BOD's duty of care. A reasonably prudent person under these circumstances would investigate the allegations, if only so that the BOD could invoke the Business Judgment Rule, discussed below. If the BOD conducts an investigation into these allegations, and in good faith comes to the conclusion that it is not in the best interests of the corporation to continue the derivative suit, then the BOD may obtain a dismissal if the decision withstands scrutiny under the business judgment rule.
Part 3: Is the Board's Decision Entitled to Protection by the Business Judgment Rule
A court, generally, will not insert itself into the shoes of a corporation's BOD and second guess BOD decisions under the business judgment rule (BJR). Under the BJR, decisions made by a BOD are entitled to a presumption that they are in the corporation's best interest so long as there is no evidence that the BOD has breached any of its fiduciary duties.
A BOD's fiduciary duties include the duty of good faith, duty of care, and duty of loyalty. The protections of the BJR will be invoked when the BOD makes a decision that does not breach any of these fiduciary duties. Neglecting to take action, or inaction, generally is not subject to the BJR protections. Here, the BOD's decision not investigate or take further action with respect to alleged illegal foreign bribes is not consistent with the duty to act in good faith. Arguably, this decision amounts to a breach of this duty. It is arguably a breach of duty because if the allegations turn out to be true, then the BOD's action will have exposed the corporation to significant civil and criminal penalties. Given the risk of significant liability, the BOD may only discharge its duty to act in good faith by investigating these allegations, and issuing the findings of the investigation to the corporation's shareholders. As a result, the BOD's decision will not likely be entitled to the protections of the BJR, since it is not consistent with the duty to act in good faith.
MEE Question 5
An inventor retained a woman to act as his agent to purchase 25 computer chips, 25 blue lenses, and 25 lawn mower shutoff switches. The inventor told her to purchase only:
• Series A computer chips,
• blue lenses that cost no more than $300 each, and
• shutoff switches that could shut down a lawn mower in less than one second after the mower hits a foreign object.
The woman contacted a chip manufacturer to purchase the Series A computer chips. She told the manufacturer that she was the inventor’s agent and that she wanted to purchase 25 Series A computer chips on his behalf. The manufacturer told her that the Series A chips cost $800 each but that she could buy Series B chips, with functionality similar to that of the Series A chips, for only $90 each. Without discussing this with the inventor, the woman agreed to purchase 25 Series B chips, signing the contract with the chip manufacturer “as agent” of the inventor. The Series B chips were shipped to her, but when she then took them to the inventor and explained what a great deal she had gotten, the inventor refused to accept them. He has also refused to pay the manufacturer for them.
The woman also contacted a lens manufacturer for the purchase of the blue lenses. She signed a contract in her name alone for the purchase of 25 blue lenses at $295 per lens. She did not tell the lens manufacturer that she was acting as anyone’s agent. The lenses were shipped to her, but when she took them to the inventor, he refused to accept them because he had decided that it would be better to use red lenses. The inventor has refused to pay for the blue lenses.
The woman also contacted a switch manufacturer to purchase shutoff switches. She signed a contract in her name alone for switches that would shut down a lawn mower in less than five seconds, a substantially slower reaction time than the inventor had specified to her. When she signed the contract, she told the manufacturer that she was acting as someone’s agent but did not disclose the identity of her principal. The switches were shipped to her. Although the inventor recognized that the switches were not what the woman had been told to buy, he nonetheless used them to build lawn mowers, but now refuses to pay the manufacturer for them.
All elements of contract formation and enforceability are satisfied with respect to each contract.
1. Who is liable to the chip manufacturer: the inventor, the woman, or both? Explain.
2. Who is liable to the blue-lens manufacturer: the inventor, the woman, or both? Explain.
3. Who is liable to the shutoff-switch manufacturer: the inventor, the woman, or both? Explain.
Agent Principal Relationship
The investor and the woman are in a valid agent principal relationship.
Agent Principal Relationship requires (i) assent by the principal and agent to enter into the relationship, (ii) a benefit to the principal from the relationship and (iii) the principal must have control over the agents actions.
Here, the Investor (principal) hired the woman specifally to be his agen to purchase certain items and gave her a limited list of things to buy. The woman and investor assented to the relationship, the investor is obtaining the benefit from the womans work in purchasing these items for him and the principal has control over what specific items she is to purchase. Thus there is a valid agent principal relationship.
The issue was whether the agent had authority to enter into the contracts.
In a contract claim, a principal will be held liable for any contract the agent entered into under apparent authority. Apparent authority is the express authority of the Principal to the agent giving the agent the power to enter into contracts on his behalf.
Here, the Principal gave express authority to the woman to purcahse 25 Series A computer chips, 25 blue lenses that nost no more than $300 each, and 25 lawn mower shut off swtiches that could shutdown a lawn mower in less than one second after the movet hits a foreign object.
Therefore, there was express authority given to the agent to purchase these specific items.
Series B Chips
The issue is whether the agent had any authority to purchase the Series B Chips.
The agent had no actual authority to enter into the contract for the series b chips. The agent also did not have any implied authority (authority granted from past conduct that was permitted by the principal) or any authority from the principals acquiescence (any past conduct later acquiesced by the principal.
As discussed above, the principal gave specific instructions as to what specific items where to be purchased. Also, there was no implied authority because the woman had never worked for the investor in the past and there was no basis to think that the principal would agree to a purchase that was not specific to the scope of the task assigned to the agent.
Therefore, because there was no authority to enter in to the contract for the 25 series B chips fro the principal, the woman will be liable to the chips manufacturer.
An agent will be liable to a third party when it enters into a contract and does not disclose the principal or the fact that they are working on behalf of an agent. Additionally, if the third party finds out about the principal it may choose to enforce the contract against the principal.
Here, the woman will be liable for the blue lenses because she failed to disclose her principal and her role as the principals agent. The agent will not be liable even though there is actual authority to enter into the contract. However, if the blue lens manufacturer choses to go after the principal, then the principal will be held liable because the agent was acting on his authority.
Shut-off switch manufacturer
An agent will be held liable on a contract that the agent enters into with no authority if the Principal ratifies the contract after he learns of it.
Here, the agent had no authority to purchase the switches that shutoff a lawn mower in less than five seconds which was substantially slower than what the Principal had expressly given her authority to purchase. However, the fact that the investor upon finding that they were not correct, he nonetheless used them to build lawn mowers. Thus ratifying the agents contract and becoming liable. The fact that the principal was partially disclosed will not escape him from liability. The fact remains that the principal ratified the contract and the shut-off switch manufacturer may go after the Principal for his liability on the contract.
1. Chip manufacturer
The principle is liable to the chip manufacturer. The issue here is liability within the principle-agent relationship for an authorized contract.
In contract actions, a principal must authorize his agent's actions to enter into the contract. A principle is liable on authorized contracts. An agent is not liable on authorized contracts. A principle can authorize a contract in four different ways. An actual express contract is a contract created in orally or writing that is narrowly tailored. An implied contract is where a principle gives an agent authorization based on necessity, meaning he can do all small tasks necessary to achieve big tasks, based on custom, meaning the person's title allows him to enter into certain contracts (such as that of lawyer), and by principle's prior acquiesence, meaning that a principle who has approved similar contracts in the past can impliedly authorize an agent entering into a similar contract in the present. Apparent authority is the third type. This is authorization where a principal cloaks his agent in the appearance of authority, which a third party reasonably relies on. Finally a fourth type of authority is ratification, where there is not authority at the time the agent enters into the contract, but that the principle later knowingly or having should have known of the existence of a contract either 1) enjoys the benefits of that contract, or stays silent where a reasonable peson who object to such a contract. One cannot ratify a contract with materially different terms. Furthermore, an undisclosed principle, one whose identity and existance that is not known to a third party, cannot ratify a contract. A unknown principle, one whose existence but not identity is known to a third party, also cannot ratify a contract.
Here, the man likely expressly authorized the woman to contract on his behalf because he told her specifically what to buy, Series A chips. Such specificity indicates that it was narrowly tailored, express authority, and even though it is unclear whether he gave such instruction orally or in writing is irrelevant. The woman told the manufacturer that she was acting on behalf of a principal, so the principal was known. Even though she purchased the wrong type of chip, she was acting under express authority. Because she was acting under authority, the inventor, as principal, is liable for his authorized contract. As stated above, where a principle is liable, an agent is not liable
Therefore, the manufactuerer can hold the inventor (principle) liable but not the woman (agent).
2. The principle and the agent are liable to the blue-lens manufacturer. The issue here is liability within the principle-agent relationship for an authorized contract where the principle is undisclosed. Generally, a principal must authorize his agent's actions to enter into the contract. A principle is liable on authorized contracts. As stated above, both the principle and the agent can be held liable for contracts where the principle is undisclosed. Undisclosed means that the principle is unknown and unidentified to third party at the time of contract formation.
Here, the agent woman did not tell the third party that she was acting as anyone's agent when she contracted for the blue-lens. The principle is undisclosed, as opposed to unknown, because both his existance and his identity where unknown to the 3rd party. As stated above, where the principle is undisclosed, like he is here, both the agent and the principle can both be held liable for the contract.
Therefore, the woman and the inventor (the agent and principle) can both be held liable to the third party because the principle was undisclosed.
3. The woman alone will be liable to the shut-off manufacturer, and the inventor will not be held liable for his ratification.
As stated above, fourth type of authority is ratification, where there is not authority at the time the agent enters into the contract, but that the principle later knowingly or having should have known of the existence of a contract either 1) enjoys the benefits of that contract, or stays silent where a reasonable peson who object to such a contract. One cannot ratify a contract with materially different terms. Furthermore, an undisclosed principle, one whose identity and existance that is not known to a third party, cannot ratify a contract. A unknown principle, one whose existence but not identity is known to a third party, also cannot ratify a contract.
Here, the woman was not authorized to contract for slower switches, yet she did so anyway. man likely ratified the woman's contract after its creation he likely knew that she could enter a contract for switches when visiting a switch manufacturer, which satisfies the knowledge requirement of ratification. The two elements of enjoyment and staying silent to ratify are also met because1) he nonetheless used the wrong switch, which fits with the element of enjoying it and further 2) he did not object to her purchase upon learning of her mistake.
Therefore he ratified the contract. However, he was unknown to the manufacturer, becaise the woman told the manufacturer she worked for someone but did not identify him. An unidentified principle cannot be held liable for ratified contracts. Therefore, the woman alone will be liable as the agent and not the inventor.
MEE Question 6
On January 1, 2015, a landlord who owned a multi-unit apartment building consisting only of one-bedroom apartments leased an apartment in the building to a tenant for a two-year term ending on December 31, 2016, at a monthly rent of $2,000. The tenant immediately took possession of the apartment.
The lease contained the following provision:
Tenant shall not assign this lease without the Landlord’s written consent. An assignment without such consent shall be void and, at the option of the Landlord, the Landlord may terminate the lease.
On May 1, 2015, the tenant learned that her employer was transferring her to a job overseas to begin on August 1, 2015. On May 2, the tenant emailed the landlord that she needed to vacate the apartment on August 1, but that she had found a well-to-do and well-respected lawyer in the community who was willing to take over the balance of the lease term at the same rent. The landlord immediately emailed the tenant that he would not consent to the lawyer taking over the lease. He wrote, “I don’t rent to lawyers because I’ve learned from personal experiences with them as tenants that they argue about everything, make unreasonable demands, and make my life miserable. Find somebody else.”
On July 25, 2015, the tenant vacated the apartment and removed all her personal property from it. She left the apartment keys in an envelope in the landlord’s mail slot. The envelope also contained a note in which the tenant wrote, “As you know, I am moving overseas and won’t be back before my lease ends. So here are the keys. I won’t pay you any rent from August 1 on.”
On July 26, 2015, the landlord sent the tenant an email acknowledging that he had found the keys and the note. In that email, the landlord wrote: “Although this is a problem you created, I want to be a nice guy and help you out. I feel pretty confident that I can find a suitable tenant who is not a lawyer to rent your apartment.”
As of August 1, 2015, the landlord had four apartments, including the tenant’s apartment, for rent in the building. The landlord put an “Apartments for Rent” sign in front of the apartment building and placed advertisements in the newspaper and on a website listing all the apartments for rent. However, because of a recent precipitous decline in the local residential rental property market, the landlord listed the apartments for a monthly rent of $1,000. The landlord showed all four vacant apartments, including the tenant’s apartment, to each prospective tenant.
By September 1, 2015, the landlord was able to rent only two of the apartments at $1,000. The landlord was unable to rent the two remaining apartments, including the tenant’s, at any price throughout the rest of 2015 and all of 2016, notwithstanding his continued efforts to rent them.
On January 2, 2017, the landlord sued the tenant to recover 17 months of unpaid rent, covering the period August 1, 2015, through December 31, 2016.
Identify and evaluate the arguments available to the landlord and the tenant regarding the landlord’s claim to 17 months of unpaid rent.
Rejection of Assignment Unreasonable
The majority view for an assignment under a lease is that even though a landlord prohibits the lease under, the landlord must accept the assignment if it is commercially reasonable.
The facts state that tenant found a well-to-do and well-respected lawyer in the community that was willing to take over the balance of the lease term for the same rent. This shows that the assignment, even though prohibited in the lease contract, was commercially reasonable. Landlord, though, has a personal animosity towards lawyers and therefore rejected the assignment. This was not commercially reasonable,
Therefore, tenant can argue that landlord's rejection of the assignment to the lawyer tenant was a violation of the majority rule.
Mitigation of Damages Not in Good Faith
When a tenant is unable or unwilling to finish out the terms of his lease, the landlord must at least mitigate the damages, or find someone else to rent the apartment. The effort to mitigate must be made in good faith. If he does not, this will limit the recovery he can seek.
When the landlord starting seeking for a new tenant, he listed the apartment for only $1,000 a rent, which is half of what tenant was paying. Tenant will argue that this is a lack of good faith mitigation, and as a result, he cannot be liable for the missed rent, or at least the deficieny.
Therefore, tenant can argue that the mitigation was not done in good faith.
Waiver of Liability
A lease that cannot be fulfilled within one year must be evidenced by a signed writing via the Statute of Frauds. Similarly, a discharge of liability under such a lease must also be satisfied by the Statute of Frauds.
Tenant can argue that because landlord sent an email that wrote he was willing to be a "nice guy" and that he was confident that he could find a suitable tenant who is not a lawyer to rent the apartment was a discharge of liability. This writing would also have to be signed. However, it is unclear whether this is enough to satisfy the Statute of Frauds. The language of the email is somewhat vague, and does not affirmatively waive the tenant's liabilities.
Therefore, tenant may be able to argue that his liability was discharged.
Assignment Landlord's Choice
Under the minority rule to prohibited assignments, a landlord may reject an assignment for any reason he chooses. Therefore, it does not matter if an assignment is commercially reasonable.
Landlord denied the lawyer assignment based on his personal negative feels about lawyers. This is not commercially reasonable, but under the minority view of assignments, it is within the discretion of the landlord to deny on this basis.
Therefore, landlord can argue that the minority view protects his rejection of the assignment
Mitigation of Damages Made in Good Faith
As mentioned, when a landlord mitigates damages, he must do so in good faith.
Landlord can argue that even though the advertised rent was substantially lower than what tenant had paid, that it was still in good faith because of the changed circumstances. There had been a recent deep decline in local residential property value, and landlord can therefore point to this as the reason why the advertised rent was so low. He can argue that he could not have expected anyone to even inquiry at the price the tenant paid, and therefore he had to significantly reduce the price not just to reflect the property value, but to protect his financial concerns as well. In fact, it is shown that he was not able to rent the tenant's apartment for any price whatsoever, even with his continued attempts.
As a result, landlord can argue that he mitigated in good faith.
Tenant Effectively Violated Lease
A tenant for a tenancy in years has to generally finish out the lease, unless there are reasons that excuse that duty, such as a breach of an implied warranty or wrongful eviction.
The facts do not suggest that there was any type of breach of implied or express warranty, and landlord had no party in tenant leaving. While tenant may argue that he had to leave because his job was being trasferred overseas, the fact is that tenant still communicated his intent not to pay on the rest of his lease by leaving the keys in landlord's mailbox and writing a note that he wont pay for any rent from August 1 on. Since there is no excuse for this breach before the end of the years' term, landlord can claim the unpaid rent on the basis of the breach. This is assuming that a court does not accept tenant's arguments.
Therefore, landlord can argue that tenant violated the tenancy for years.
In a landlord tenant relationship, the landlord has the right to limit assignments of the lease pursuant to writtent consent. Here, the term of the lease stated no assignments without consent, and if an assignment occurs without consent, then the landlord can terminate the lease.
Therefore, the landlord would argue that pursuant to this clause had the right to deny any assignment request by the tenant for any reason and the tenant would still be bound to the contract. Furthermore, the landloard would argue that the lease could not be terminated by the landlord under this clause because no illegal assignment was made.
The landlord would also argue that the contract was not terminated when he emailed the tenant that he received the keys and felt confident in finding a sublet. The landlord would simply argue that this was a statement made to evidence the fact that he would make an attempt to mitigate his damages from the tenant. The landlord would then provide evidence to these mitigation attempts through the efforts that he went through to tour the tenant's apartment and fill it with new tenant's even at the reduced rate given the market conditions. Nonetheless, the landlord would argue that his attempts to mitigate were reasonable, but unsuccessful.
Finally, the landlord would also state that the tenant had no right to vacate the premises and terminate the lease because there was no breach of the implied warranty of habitability and no occurrance of a constructive eviction because the premises were still in good repair and certainly in a liveable condition.
The tenant's primary argument would be that he made an attempt to mitigate his damages when he knew that he was going to have to breach his lease due to his change of work circumstances. This was done by finding the lawyer to sublease the apartment at the same rent price as the tenant. Further, a reasonable person would not have rejected the lawyer as a tenant as it appeared he would be a reliable tenant. Under this argument, the tenant would establish that had the landlord accepted his assignment he would not have lost his 17 months of rent at all because the lawyer would have paid the full rental price.
The tenant would also be able to argue that the landlord accepted the tenant's repudiation of the contract in his July 26, 2015 email which did not tell the tenant he still had to pay rent despite the tenant's previous email saying that he would no longer be paying rent. Further, the statement that the landlord felt confident that he would be able to find a new tenant to fill the apartment would suggest the acceptance of this repudiation.
Finally, the tenant could also make the argument that the landlord did mitigate his damages when he rented two of the apartments at $1,000 a month. While it would be unlikely to win an argument that the two apartments cover the rent of the tenant's single apartment, the argument could be used to at least cut the total damages in half for the tenant if needed. The basis of this argument would be that the landlord did not rent the tenant's apartment exactly, but effectively filled his void by filling at least one of the vacant apartments in the building.