February 1997 Question 5 [Professional Responsibility]

I. Should Attorney have told the police officer anything about the shoes or the ring?
After David and Attorney met to discuss David’s murder and robbery charges, a police officer was attracted by the noise of David throwing the stolen shoes out of his cell window. The officer discovered the ring and shoes that David had stolen from his victim.
A. Duty of Confidentiality
Attorney knew that David had stolen the ring and shoes, because David had confessed to the robbery and murder. Attorney learned this information as a result of confidential communications from his client. Attorney’s duty of confidentiality, owed to the client, requires Attorney not to reveal this highly incriminating information to anyone. The police officer asked Attorney what he knew about the ring and the shoes. Attorney refused to tell the police officer anything about them. This was exactly what Attorney was required to do under the circumstances. By refusing to answer the police officer’s question, Attorney lived up to his duty of confidentiality.
B. Duty of Candor
Criminal defense attorneys have to walk a difficult ethical tightrope. While it is true that criminal defense lawyers owe duties of confidentiality and zealousness to their client, they also owe a duty of candor to the system of justice. Accordingly, Attorney cannot actively participate in the obstruction of justice by destroying or hiding evidence. It is important to note that, on two different occasions, Attorney instructed David not to destroy evidence. This shows that Attorney is appropriately concerned with upholding the integrity of our judicial system. Here, Attorney has not lied or otherwise obstructed justice for his client.
C. Conclusion
Lawyer’s conduct was proper. Attorney will not be subject to discipline for refusing to tell the officer anything about the shoes or the ring.
II. Should Attorney tell the Grand Jury that David is threatening to burn the scraps of the shirt?
After his encounter with the police officer, Attorney returned to the jail and spoke to David again. At this meeting, David told Attorney that he had torn the shirt into strips, which he intended to burn. The Grand Jury has called Attorney as part of its investigation of the murder and robbery. Attorney owes the Grand Jury a duty of candor, but he still must protect David’s confidences.
A. Duty of Confidentiality
The attorney-client privilege would be meaningless if grand juries were free to call criminal defense attorneys and force them to reveal their clients’ secrets. Attorney has properly told David not to burn the torn-up, stolen shirt, during their second meeting, but David has insisted that he will burn it. Attorney cannot actively aid his client in destroying evidence. Here again, Attorney has done what he should do.
B. Duty of Candor
Attorney must fulfil his obligation to be honest in his dealings with the judicial system. He is forbidden from destroying evidence or otherwise obstructing justice. The issue here is whether this duty could be interpreted to require Attorney to reveal his client’s confidences. In this case, the answer to this question is no, Attorney’s duty of candor does not require him to reveal information told to him by the client in secrecy.
C. Conclusion
Attorney should not tell the Grand Jury that David is threatening to burn the scraps of the shirt. Had David been threatening to commit a crime that could lead to death or to serious bodily injury, Attorney would have been allowed to disclose the information.
III. May Attorney tell the Grand Jury anything about the other events described above?
A. The Initial Meeting
David confessed to the murder and robbery during his first meeting with Attorney. The confession is absolutely privileged, and Attorney may not tell the Grand Jury about it.
David also admitted he was wearing the victim’s shirt, ring and shoes at the time he was arrested, and that he had discarded the ring and tried to hide the shoes and the shirt. This information is part of David’s confession, so Attorney may not tell the Grand Jury about it.
B Attorney’s Encounter with the Police Officer
Attorney may tell the Grand Jury that he had met the police officer outside the jail. He may also admit that he refused to tell the officer anything about the shoes and the ring. This information does not violate the attorney-client privilege; revealing it would be consistent with Attorney’s duty of candor owed to the Grand Jury.
D. Conclusion
Attorney may not tell the Grand Jury anything about his communication with David, but he is free to tell them about his encounter with the police officer.
IV. Should Attorney Continue to Represent David?
Nothing in these facts obligates Attorney to withdraw from representing David, however it probably would be prudent for Attorney to withdraw. Attorney has consistently advised David not to hide or destroy evidence, but David has refused to follow this advice. Now, Attorney has had to appear before the Grand Jury and do a balancing act with his duties of confidentiality and candor. This could compromise Attorney’s ability to zealously represent David. It is also possible that he could be called as a material witness in David’s trial, since Attorney saw David throw the shoes out of the window.
Attorney would be well-advised to withdraw, but he will not be subject to discipline if he continues to represent David.

July 1997 Question 3 [Professional Responsibility]
I. Ann’s solicitation letter
A. Advertising
Ann, a California attorney, sent a letter to each tenant in a badly run down apartment building. In the letter, Ann truthfully stated that she was “experienced” in landlord-tenant law and offered to represent each tenant.
Attorneys have a First Amendment free speech right to advertise, subject to reasonable regulation. It is prohibited for an attorney advertisement to be false or misleading. Ann’s letter was sent to mostly elderly, poor people - individuals who are particularly vulnerable. The letter truthfully states that the apartment building may have “illegal and unsafe conditions.” It does not appear that Ann’s letter contains false or misleading statements, nor does she appear to be guaranteeing favorable results.
Ann’s letter does not make any reference to the price of her services. Although this omission is of some concern, it is unlikely that it would be deemed a violation of Ann’s professional responsibility. Ann did not appear to seek any up-front money from her elderly and poor prospective clients, and was prepared to undertake the representation of the tenants on a contingency basis.
B. Targeted Direct Mail
Ann was within her rights to send advertising to specific prospective clients through the mail. She appears to have made one significant omission: California requires direct mail attorney advertising to be labeled as such on both the envelope containing the advertisement and the letter within. Since Ann apparently failed to properly label her direct mail solicitation as advertising, she may be subject to discipline.
II. Ann’s joint representation of Tom and Barbara
A. Duties of Loyalty and Competence
Tom responded to Ann’s letter on his own behalf and on behalf of Barbara, another tenant. It is acceptable for a lawyer to represent two clients on the same side of a lawsuit, so long as she can competently represent them both while remaining loyal to each of them.
B. Conflict of Interest
When Ann first met with Tom and Barbara, it was clear that the two prospective clients did not have identical interests. Tom wanted a money judgment and Barbara wanted an injunction forcing Landlord to make repairs. Ann will be subject to discipline for ignoring this potential conflict of interest, particularly in light of how Tom’s interests were met at the expense of Barbara’s interests. It also is notable that Ann’s payment is contingent on a cash recovery, so Ann’s personal interests would not be served by equitable remedy.
1. Waiver
A reasonable attorney could have undertaken to represent Tom and Barbara at the same time, but only after explaining the potential problem to each prospective client, obtaining written consent from each client, and advising them to consider consulting separate counsel. Ann should have informed Tom and Barbara of their potential conflict of interest and received a written waiver acknowledging it. Her failure to do so will subject her to discipline.
2. Tom’s Translation Services
At the initial meeting, Tom acted as a Spanish/English translator between Ann and Barbara. It appears as if Tom did an honest and accurate job of translating during this meeting. Tom’s acting as translator does present another potential conflict of interest, which also should have been acknowledged and agreed to by Barbara in writing. Ann’s failure to both disclose and obtain written consent will subject her to discipline.
Tom’s failure to communicate the settlement offer to Barbara will be discussed in the last section of this answer.
III. The Fee Agreement
A. Contingency Fee
Ann, Tom and Barbara signed a contingency fee agreement in which Ann would receive 40% of any recovery in the case. California requires that contingency fee agreements be in writing, and that any fee be reasonable. While a 40% contingency fee is not unreasonable, the writing appears to be deficient in one significant respect.
B. Costs Omitted
The fee agreement appears to be silent as to just how Ann’s fees will be calculated. Specifically, there is no reference to costs. A legally proper fee agreement would explain what will be defined as costs, and whether or not those costs will be deducted before Ann’s 40% is taken out. Although Ann might be subject to professional discipline for inadequately describing how her fees were to be calculated, at a minimum the agreement would be interpreted in the manner least favorable to Ann.
IV. Ann and Frank’s Fee Splitting Agreement
Ann separately agreed to pay Frank 10% of any fees she was paid from the case. Both the ABA and California standards of professional conduct prohibit attorneys from splitting fees with non-lawyers. Frank is described as a “friend” of Ann’s. Unless he is an attorney, his conduct would be deemed “capping,” and he and Ann might face criminal penalties. Of course, Ann would face professional discipline under those circumstances.
If Frank is an attorney in another firm, Ann is permitted to split her fees with him so long as the clients consent. If Frank is an attorney in Ann’s firm, she may split fees with him without obtaining the clients’ consent.
V. Ann’s lawsuit against Landlord
Ann filed a lawsuit against Landlord on behalf of Tom and Barbara. Ann owes her clients a duty of competence, and she owes the court a duty to file actions in good faith and to pursue them properly. The suit had a sound legal basis, and Ann handled it in a professional arrival. The problem is that, although Ann handled the case ‘professionally’ in the eyes of the court, she did not competently serve Barbara’s interests.
VI. Ann and Tom’s Relationship
Both the ABA and California rules of professional conduct urge attorneys to refrain from becoming romantically involved with their clients. The ABA has a blanket prohibition against lawyers starting love affairs with clients during the course of their representation. California has a more lenient approach. In California, attorneys are subject to discipline for abusing heir fiduciary duties to clients with whom they become romantically involved.
Ann and Tom worked together closely on the case, and before the case was resolved Tom dated Ann and gave her a free airline ticket to accompany him to Hawaii. This conduct will not subject Ann to discipline; accepting this sort of gift from a client is not a breach of Ann’s professional duties in and of itself.
The problem, as discussed below, is that Ann concluded a settlement on the case without personally consulting with Barbara. Since the settlement was for money damages only, not for equitable relief, Tom got the relief he wanted and Barbara did not. Thus, it is apparent that Ann allowed her romance with Tom to cause her to breach the duties of candor and loyalty she owed to Barbara. For this, Ann is subject to discipline.
VII. The Settlement Agreement
The settlement agreement is the best evidence of Ann’s misconduct. Landlord made a written settlement offer to pay money damages only. Ann conveyed this proposal to Tom, but she failed to discuss it with Barbara. Instead, Barbara took Tom’s word for it that Barbara accepted the offer. Ann knew perfectly well that Barbara was not really interested in obtaining damages. She had a legal duty to communicate the settlement offer to Barbara. Ann failed to personally meet Barbara and explain the settlement offer from Landlord. She did not have the offer translated into Spanish and given to Barbara for her review. It is obvious that Ann should have taken care to insure that Barbara understood the offer and accepted it.
If Barbara rejected the settlement, Ann should have either secured Tom’s agreement to continue the lawsuit, or Ann should have withdrawn from the case.
In any case, it was wrong for Ann to have concluded the settlement without personally consulting with Barbara. This omission will subject her to professional discipline.
Ann also owes Barbara a duty of competence. Ann must exercise reasonable legal judgment as she represents her clients. In the case we are examining, Ann’s failure to communicate with Barbara was incompetent, as well as being evidence of how Ann’s relationship with Tom prevented her from being a zealous advocate for Barbara. This is further reason for Ann to be subject to discipline.

REAL PROPERTY - PROFESSIONAL RESPONSIBILITY
I. Donna and Paul’s interests in the road
A. Donna
Donna’s interests in the road are based on express or prescriptive easement theories.
1. Express easement: Deed, Delivery and Title
Stan agreed to give Donna a roadway easement across his property to improve Donna’s access to her own property. The road is an appurtenant easement because Donna’s dominant easement benefits from the right to cross the servient estate.
a. Deed
Len, Stan’s lawyer, prepared the deed granting “an easement for a road 30 feet wide” along a designated path. Stan signed the deed. Len’s status as Donna’s lawyer does not invalidate the deed; no facts suggest there are any problems with the legality of the deed.
b. Delivery
A few hours before Stan died, he instructed Len to give the signed deed to Donna. Delivery to a third party under these circumstances satisfies the delivery requirement. Stan had the intent to presently convey the easement, and his delivery to Len is adequate to constitute delivery to Donna, who received the deed from Len the next day.
c. Title
Stan had the title to his property, so he had the right to grant an express easement to Donna.
2. Statute of Frauds
Since the easement is an interest in land, the Statute of Frauds requires a writing signed by the party to be charged. The deed satisfies this requirement, because it describes the easement and is signed by Stan.

3. Prescriptive Easement
In the unlikely event that Donna’s express easement claim is unsuccessful, she has a persuasive argument that she has acquired a prescriptive easement. To establish this claim, Donna will have to meet the physical, mental and time requirements.
a. Physical Element
Donna constructed a gravel road 15 feet wide along the designated path in 1976. The road has been continually used since then, and Donna has repaired it over the years. The ongoing presence of the road meets the physical element of a prescriptive easement, but only as to the 15 feet actually used, not the 30 feet originally granted.
b. Mental Element
Had Stan merely given Donna permission to cross his land, she might have been a licensee, in which case her right to use the road would have been freely terminable. But here, Donna believed she had been granted an express easement. She constructed and used the road under claim of right, which satisfies the mental element.
c. Time Element
Donna has used and maintained the road for 21 years. This is long enough to satisfy the time element for a prescriptive easement, which was 20 years at common law, less in some jurisdictions.
4. Conclusion
Donna has a valid express easement as to the full 30 foot right of way. Should her failure to record or Len’s misconduct invalidate the deed, she will successfully claim a prescriptive easement as to the 15 feet she has used since 1976.
B. Paul: Rights as inheritor of the servient estate
Paul is Stan’s son. He inherited Stan’s farm in 1975 and never objected to Donna’s activities. Now that Donna has new, more elaborate plans, Paul objects. Those objections are discussed in section II below. To determine if the burden on Paul’s estate runs with the land, we will examine touch and concern, intent and notice.
1. Touch and concern
The easement touches and concerns Paul’s farm because the road goes across Paul’s land.
2. Intent
Stan intended to grant a permanent express easement. Stan intended for the burden to run with the land.
3. Notice
Despite the fact that Donna never recorded her deed, Paul knew about the road and never objected to Donna’s activities.
C. Conclusion
Donna has a good argument in favor of an express easement. Should that argument fail, she will be able to establish a prescriptive easement.
II May Donna carry out her plans for the road?
Although Donna will be able to continue to use the easement, whether or not she can carry out her elaborate plans for the road will require further analysis.
A. Donna’s plans exceed the scope of the easement.
1. Width of the road
Donna plans to widen the road to 30 feet. As discussed above, if Donna’s express easement claim is successful, she will be free to widen the road to 30 feet. If Donna is limited to the prescriptive easement, she will not be able to carry out her plans to widen the road.
2. Pavement
It seems evident that this aspect of Donna’s plans is reasonably foreseeable, and probably was contemplated by the parties. This aspect of Donna’s plans is the least problematic, although she may be limited to 15 feet, as discussed above.
3. Underground Utilities
Neither Stan nor Donna contemplated that the easement would become an important element of a big commercial development. Although a court might find that some use of the easement for utilities would be foreseeable, it is likely that a court would consider an extensive commercial use of the easement to be excessive.
B. Donna’s plans may constitute a nuisance.
Donna wants to use the road as the main entrance to a big commercial complex. This would cause heavy traffic, and associated noise and pollution. It seems likely this would substantially interfere with Paul’s use and enjoyment of his property.
C. Conclusion
Donna cannot carry out all her plans for the road over Paul’s objection. If her express easement theory prevails, she may be able to pave the road and widen it to 30 feet, and she may even be able to put in some utilities. She will not be able to use the easement as the main entrance to a commercial complex, because it drastically exceeds the foreseeable scope of the original easement.
III. Has Len violated any rules of professional conduct?
A. Duty to Disclose
Len prepared the easement deed for Stan without telling him he also represented Donna. Len had a duty to disclose this fact to Stan, and his failure to do so could subject him to discipline.
B. Duty of Loyalty
Len’s failure to disclose to Stan his representation of Donna was a breach of his duty of loyalty to Stan. Had Stan known of Len’s advice to Donna about acquiring the easement, he might have sought independent legal advice. This act of professional misconduct will subject Len to discipline.
C. Duty of Competence
Len failed to advise Donna to record the deed when he delivered it to her. Perhaps Len was trying to compensate for compromising Stan’s interest in the land, or maybe he was negligent. In either case, this conduct will subject Len to discipline.
1. Whether Alice can compel Graphic to make available for her inspection the shareholders' list and all contracts signed in the last three months.
SHAREHOLDER RIGHT TO EXAMINE CORPORATE INFORMATION.
Generally, a shareholder has a right to examine corporate shareholder voting lists and general corporate information, so long as it is for a proper purpose and the inspection request is in writing, and the inspection will be in a reasonable place such as in the corporate headquarters. In this case, Alice wants to look at a list of shareholders and see all contracts Graphic signed in the last three months.
VOTING LIST.
Alice should probably be allowed to look at the Graphic voting list. Alice wrote to the Graphic corporation regarding her request to look at the voting list; the facts do not indicate what her purpose for inspecting the voting list would be, but so long as it is for something proper a court will enforce this right, such as if she is soliciting proxy voting rights or some activity relating to the benefit of the corporation. Traditionally, some corporate laws required that a shareholder have at least a 5% interest in the corporation for the right to inspect voting lists, but the modern trends do not require a certain
percent, just merely that the request is by a shareholder.
ALL GRAPHIC CONTRACTS.
Alice, however, will probably not get to inspect every Graphic contract signed in the last three months. This is not a reasonable right of shareholders to scrutinize the job of officers or directors. Hence, Alice cannot force the officers to report directly to her by forwarding all contracts they have entered into on behalf of Graphic for the purpose of satisfying a particular shareholders wishes. Officers answer to the directors, and directors to shareholders.
2. Is Alice entitled to recover her loss on her recent stock purchase?
10b-5. The federal act governing fraud in securities, section 10b5 may allow Alice to recover her loss if she can establish that her buying was a result of a material misstatement or omission by Frank at the news conference. A 10b5 action requires a plaintiff to have actually bought or sold stock in reliance on a party's material misstatement or omission.
INTERSTATE INSTRUMENTALITY.
A requirement for a 10b5 action is that there be some use of an interstate instrumentality to perpetuate the fraud. In this case, Frank's news conference which was assumingly broadcast out to possibly viewers in other states or FCC controlled instrumentalities would be sufficient to constitute an interstate factor to satisfy this requirement.
MATERIAL MISREPRESENTATION / OMISSION.
Frank would argue that his statements at the news conference do not qualify as a material misstatement or omission subjecting him to liability under 10b5. Frank would assert that he
merely indicated that he had signed the Papco contract and that he would be announcing other news later. This would most likely be the news of the Graphic report by the accountant's $5 million loss for its current fiscal year. Alice would probably prevail in showing that this "other news to announce" is a material omission; because the major loss is the first in the corporation's 20 years, and Frank sold 100,000 shares of his stock--indicating his loss of confidence in Graphic's value. Hence, Alice would point out the fact of Frank's selling and withholding material information he acted upon as constituting a material omission.
PURCHASE BASED ON MATERIAL MISREPRESENATION.
Here, Alice did purchase 5,000 shares of Graphic in response to Frank's major news; and the facts indicate "Alice heard about the press conference and purchased..." thus demonstrating the reliance factor necessary for a 10b5 action.
REMEDY.
Therefore, Alice would most likely be entitled to recover in a 10b5 suit. Frank would be liable for his fraud to her and would repurchase her 5,000 shares at her purchase price of $28. Thus, restoring her to her pre-purchase position. Although she may elect to recover the damages of the lost value for the stock of $8 price per share.
COMMON LAW MISREPRESENTATION.
Also, Alice may be able to bring a common law action for fraud by Frank, a corporate officer, since she was in privity with him, and he had a fiduciary duty to shareholders. This would basically be the same as the above action except it does not require the federal instrumentality for the interstate commerce connection. The common law stock fraud action, however, does require the privity issue, and in this instance, because Alice was a Graphic holder already, she would fulfill the privity requirement with Frank, an officer of Graphic.
3. Whether Alice can force Frank to disgorge the profits on his stock sale.
16b SHORT SWING.
Directors, officers, and 10% shareholders of corporations that are registered for trading on a stock exchange are subject to a short swing regulation of federal law under section 16(b) of the SEC act. Rule 16b is a strict liability type regulation that forces a director, officer, or 10% shareholder to disgorge profits from buying and selling stock within a six month period. This rule is strictly construed to apply so even if the sale came first and then the subsequent buy is within six months from the sale and the buy is at a lower rate the director, officer, or holder of 10% of stock previous to the buy, will be liable and have to return the difference between the sale price and the lower buy price.
RECORDING COMPANY.
Graphics is probably a recording company under the Securities Exchange Act of 1934. Its stock is registered for trading on a stock exchange.
INSIDER.
As an officer of the corporation, Frank is an insider. To be liable, he must have been an officer at either the purchase or sale of the stock. The facts show that he was an officer when he sold the 100,000 shares of stock for $25 per share. 20,000 of the shares were purchased two months ago for $22/share.
PURCHASE AND SALE WITHIN SIX MONTHS.
The facts here indicate that Frank, an officer of the corporation purchased 20,000 shares within six months of the sale of his stock, so the short swing of buying and selling the 20,000 will make Frank liable to the corporation for the difference in the purchase and sale price. Frank bought at $22 a share multiplied by the 20,000 and, then sold for $25 a share; so the profit was $3 a share multiplied by 20,000 shares yielding a total of $60,000 profit Frank took from his short swing, 16b trading that he must disgorge to the corporation.
4. Whether Alice can have the Papco contract declared invalid.
DERIVATIVE SUIT.
If a director or officer is acting contrary to a corporation's interest or objectives, a shareholder may bring suit to remedy the injury situation to the corporation. A shareholder can bring a derivative suit to enjoin a corporation from performing an ultra vires act. There are four requirements for bringing a derivative suit: the party must have owned stock at the time the cause of action arose on through the time of the suit; the shareholder must make a demand that the directors take action to remedy the activity injuring the corporation, unless that demand on the board would be futile or if after the demand on the board of directors, the board still refuses to bring the action, and the board is not just exercising a good faith business judgment in refusing to take action, then the holder may proceed with the derivative action. Also, the holder may be required to post a bond for any possible adverse consequences to the corporation from the derivative action, and the holder may be required to have the other holders vote to ratify or reject the action of the directors.
SHAREHOLDER.
Alice is a proper shareholder.
DEMAND ON THE BOARD.
Alice must make a demand on the board, unless it is excused or futile.
ULTRA VIRES ACT.
In this case, Graphic's Articles of Incorporation prohibit Graphic's sale of paper products. An ultra vires act is committed when Graphic directors or officers act outside of the Articles of Incorporation in doing business prohibited by the scope and purpose of the corporation and their authority. At common law an ultra vires act was void, but now it is voidable. If the corporation adopts or ratifies the ultra vires act then the corporation must perform the transaction, otherwise
it is voidable, and they can avoid their obligation. If the corporation wants to amend its articles then the holders must do it by a majority vote and the directors cannot unilaterally modify the articles. Alice would argue that Frank's entering the contract with Papco is contrary to the articles of the corporation and would be ultra vires because Papco is a paper company and Graphic is prohibited from selling paper products; thus, Frank should not have authority to enter Graphic into this transaction. On the other hand, Frank would argue that Graphic's buying a mill does not constitute "the sale of paper products." Frank would claim that his contract for the mill is not ultra vires because Graphic may not "sell" paper products.
However, this argument will probably not succeed because a mill primarily produces paper for sale and profit. Hence, if the directors do not take action to set aside this contract, then Alice can bring derivative action on behalf of the corporation to set aside the contract as it is voidable on account of the ultra vires nature of the transaction. Additionally, Frank the officer that entered into this ultra vires action would be liable personally. In conclusion, Alice will probably prevail in having the Papco contract declared invalid.
I. LIABILITY OF COMPCO AND/OR ARTIS TO BEN FOR LOAN
COMPCO'S LIABILITY.
CORPORATE LIABILITY FOR PRE-INCORPORATION CONTRACTS.
ADOPTION.
DEFECTIVE INCORPORATION.
ARTIS' LIABILITY as CORPORATE PROMOTER.
Novation.
Intent of the parties.
II. LIABILITY OF ARTIS FOR ISSUING STOCK TO HERSELF AND CARLA
ISSUING STOCK TO HERSELF.
STOCK FOR CONSIDERATION.
ISSUING STOCK TO CARLA.
NO VIABLE CONSIDERATION.
LACK OF DUTIES OF CARE AND LOYALTY.
III. BEN'S LIABILITY TO COMPCO FOR HIS STOCK
DEBT AS CONSIDERATION-LOAN
IV. IS CARLA LIABLE TO COMPCO FOR HER STOCK
MADE NO PROMISE OF CONSIDERATION