Getting Local Governments Where They Need to Go Without Taking Taxpayers for a Ride: “Cabs,” Why They Are Used, and What Can Be Done to Prevent Their Misuse

 

Getting Local Governments Where They Need to Go Without Taking Taxpayers for a Ride: “Cabs,” Why They Are Used, and What Can Be Done to Prevent Their Misuse

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Heather White
Counsel, Nixon Peabody LLP
Fellow, Taxation Law and Policy Research Group,
University of Western Australia Law School

                        Heather White

State and local governments construct hundreds of billions of dollars of public infrastructure in the United States every year, ranging from schools, roads and parks to ports, power plants and water systems.

Ideally, the cost of this infrastructure, much of which is intended to last for decades, would be spread evenly over its life so that neither today’s nor tomorrow’s taxpayers pay more than their fair share.  Borrowing money to finance facilities while also spreading principal and interest payments over the life of the facilities, allows state and local governments to spread the cost in this way. And, state and local governments do borrow.  According to the Securities Industry and Financial Markets Association, they issued more than $400 billion of debt in 2015.  Much of this debt is in the form of “municipal bonds” sold to investors.  Borrowing governments pay interest on the principal amount of the bonds, usually every six months.

In recent years, there has been considerable—some would say excessive—reliance on long-term compound interest bonds (referred to as “capital appreciation bonds” or “CABs”), on which neither principal nor interest is paid until at or near maturity.  The use of CABs by school districts, in particular, has received considerable negative attention in the press, from grand juries and elsewhere and both California and Texas have enacted laws restricting local government issuance of capital appreciation bonds.

There is no doubt that CABs are problematic.  Most of the time, they bear higher interest rates than bonds on which interest is paid periodically (“current interest bonds”).  They can also place an inequitable burden on future taxpayers, and because of the way that they are counted against debt limits, they make it appear that less is being borrowed than actually is.

Nevertheless, as I read articles and reports condemning CABs, my sense was that much of the criticism was incomplete, and at least arguably unfair because it overlooked the context in which CABs were being used and the reasons they were used.

As a result of my years practicing as a public finance lawyer in California, I knew that some local governments were issuing CABs because that was the only way they could issue bonds, and I believed that some local governments could only complete much-needed projects by borrowing.

It seemed unlikely that many local governments were spending too much on infrastructure.  I had heard stories about the sorry state of schools in California, and I recalled the regular roof leaks at my high school in the 1980s.  This experience seemed to reflect the current state of American infrastructure in general.  The American Society of Civil Engineers assigned US infrastructure a “grade” of D+ in 2017 and indicated that nearly $4.6 trillion in infrastructure spending would be needed nationwide in the next 10 years.

I also knew that, most of the time, CABs were issued in conjunction with bonds on which interest is paid periodically—an important piece of the puzzle that seemed to be missing in some of the critiques.

My work with state and local governments had introduced me to many remarkably dedicated, hard-working, intelligent people who were committed to serving the public.  While there probably were some officials engaging in practices to benefit themselves at the expense of their constituents, or to benefit their constituents in the short term without regard for the long-term, I believed that this was rare.

I wanted to understand the complete story, and to test my own assumptions and those of others about why CABs were used.  I believed that identifying reasons that CABs were issued was the only way to come up with ways to prevent their misuse without creating other problems—preventing local governments from repairing or constructing critical facilities, prohibiting borrowing that was beneficial, or driving local governments to other financing structures that simply created different problems or the same problems in a different form.

Because of this, I decided to study CABs and the reasons that they are used, and to propose some alternative ways to prevent their misuse.  I focused on “general obligation bonds”—which are paid from property taxes—issued by school districts in California and Texas. These are two of the states where CABs are used most, and school districts are the most frequent issuers of CABs in both states.

I identified several factors that contribute to the use of CABs, including the desire to avoid near-term tax increases, the need to comply with statutory restrictions, the pressure to meet the needs of a rapidly growing population, the difficulty of fulfilling promises to voters about both projects and tax rates when circumstances change, and lack of information or understanding by board members and officials.

I then considered several potential ways to prevent the misuse of CABs in light of these reasons, including providing additional information to governing board members and the public, providing additional training to local government officials, and prohibiting or restricting the use of CABs, or changing restrictions on debt that have the effect of encouraging their use.

The results of my research are presented in Getting Local Governments Where They Need to Go Without Taking Taxpayers for a Ride: “CABs,” Why They Are Used, and What Can Be Done to Prevent their Misuse, 49 St. Mary’s L.J 363 (2018), http://www.stmaryslawjournal.org/wp-content/uploads/2018/03/White_Local_Governments-Taxpayers-CABs.pdf.  This article provides an introduction to municipal bonds and the legal limits that apply to California and Texas school district general obligation bonds, discusses the most significant problems associated with CABs, details the reasons that CABs are nevertheless used, describes California and Texas legislation restricting their use, and presents alternative ways to prevent the misuse of CABs.

The lessons presented in this article apply to local governments, generally, and are critical given the huge infrastructure needs facing the United States and the significant role that local governments and municipal bonds are likely to play in meeting those needs.

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The Seventeenth Annual Symposium on Legal Malpractice & Ethics

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Katina Zampas
Staff Writer
St. Mary’s Law Journal
St. Mary’s University School of Law

The Seventeenth Annual Symposium on Legal Malpractice & Ethics

Katina Zampas

On January 26th, 2018, the St. Mary’s Law Journal hosted its Seventeenth Annual Symposium on Legal Malpractice & Ethics.  This year, the Symposium took place at the Historic Double Height Courtroom at the Bexar County Courthouse, a courtroom recently reconditioned to its original 1896 version.  The Symposium brought in over seventy-five attorneys and guest speakers from all over the nation, including professors and practitioners.  All papers presented at the Symposium, except for one, are published in Volume 8 of the St. Mary’s Journal on Legal Malpractice & Ethics, the sister publication of the St. Mary’s Law Journal.  The Symposium brought the speakers’ papers to life through presentations containing greater detail, and it spurred lively discussion on some of the most relevant and timely issues in Legal Ethics.  Attendance at the Symposium has doubled over the past few years as it has gained well-deserved attention by attorneys and law professors with a special interest in legal ethics and professional responsibility.  In particular, Professor Vincent Johnson, a leading scholar in the Professional Responsibility field, has been instrumental in cultivating the Symposium to its current and prominent status.

The morning began with an opening blessing by Deacon Jack Nichols and was followed by welcoming remarks from St. Mary’s School of Law Dean Stephen Sheppard, who shared his perspective on ethical dilemmas attorneys face and advised, “We must serve our client’s longest and most enduring needs, not immediate whims.”  Dean Sheppard emphasized how dedicated St. Mary’s is to justice, peace, and zealous advocacy, and closed by congratulating those lawyers who are “doing it the hard way.”

The first speaker was Professor Susan Saab Fortney, one of the seven members of the National Conference of Bar Examiners Committee that drafts the Multistate Professional Responsibility Examination.  Professor Fortney focused on attorney accountability, taking responsibility for mistakes made in practice, and provided applicable practice tips and tricks when obtaining malpractice insurance, including how to navigate your malpractice policy, placing special emphasis on indemnification, the duty to defend, and exclusions.  Professor Fortney also reminded attorneys in a supervisory capacity to cultivate an approachable environment where young attorneys may seek advice when they inevitably face ethical dilemmas.

Following Professor Fortney, Professor David Caudill, a Professor at Villanova University Charles Widger School of Law, presented a comparative perspective on experts in the American legal system and those in the Australian legal system.  Professor Caudill distinguished between what the Australian legal system refers to as “dirty” and “clean” experts, making the distinction between a consulting expert and a testifying expert.  Interestingly, Professor Caudill also discussed an attorney’s need to consider her expert’s ethical dilemmas, for example, a scientist feeling pressured to produce a prompt and decisive opinion on a complex scientific issue.  In that vein, Professor Caudill advised the group about the dangers of manipulating or pressuring experts, and emphasized the importance of their unbiased, well-informed opinions.  Professor Caudill also posed thought-provoking questions, such as: Is evidence prepared for trial still good evidence?  Isn’t that precisely what forensic evidence is?

After a morning break Mr. Colin Flora, an attorney with Indianapolis-based firm Pavlack Law, LLC, discussed the intersection between ethical dilemmas and abuse of discovery in litigation.  Mr. Flora began with the inquiry of whether discovery should be combative or cooperative.  He then used Requests for Admission as a practical example of how attorneys may violate ethical rules through serving discovery requests that effectively harass, embarrass, or burden the opposing party.  Mr. Flora highlighted the local rules that apply in each jurisdiction and the importance of knowing the intricacies of the local rules in the jurisdiction in which attorneys practice.

Next, Professor Donald Campbell, the co–author of two leading treatises on professional responsibility, introduced the “Paragraph 20 Paradox” that considers whether the Model Rules create a private civil cause of action for a client to enforce substantive law against their attorney.  Although rules are enforced in the disciplinary context, attorneys may violate a rule of ethics without invalidating a substantive agreement, Professor Campbell explained.  He concluded that there is no bright line answer to this question, and proposed his ideal approach, which is to leave the Model Rules out of the inquiry altogether and, instead, ask whether the client has another common law substantive cause of action against her attorney.

Over lunch, Mr. George Spencer, an attorney at the San Antonio-based firm Clemenes & Spencer, focusing on professional malpractice, spoke about the effect of the decline of jury trials on the jurisprudence of legal malpractice.  Mr. Spencer explained that when the vast majority of cases settle outside of court, litigators suffer from lack of predictability and the jurisprudence lacks the trial and appellate decisions that shape the course of the law.

After the lunch break, Professor Katerina Lewinbuk, a Professor at South Texas College of Law, began with a play on Shakespeare’s “Let’s Kill All the Lawyers” by introducing her article, “Keep Suing All the Lawyers.”  Professor Lewinbuk raised the question of whether a claim alleging aiding and abetting a breach of fiduciary duty against a client is plausible in most jurisdictions.  Professor Lewinbuk explained different jurisdictions have handled these claims differently, which has caused a lack of consistency and predictability for attorneys who face potential liability for aiding and abetting a breach of fiduciary duty.

In the afternoon, Professor Joshua Kastenberg, from the University of New Mexico School of Law with a background representing judges, introduced Federal Judicial Councils and State Judicial Commissions which investigate allegations of judicial misconduct.  Professor Kastenberg focused his article and discussion on District Judge Stephen Chandler and his colorful time spent on the bench.  Professor Kastenberg emphasized there remain significant questions on how judges are held accountable for their actions.

Finally, Mr. Joseph Pileri, a teaching fellow at Georgetown University Law Center, spoke on the implications of representing a benefit corporation, highlighting that Texas is the most recent state to pass benefit corporation legislation.  Mr. Pileri instructed the attendees to ensure they understand the law governing the organization they represent before taking direction from a representative of the entity.  This is important because the attorney should not act contrary to the organization, and the client constituent may no longer be duly authorized.  Mr. Pileri left the attendees with a reminder that “a violation of the corporate form is a violation of fiduciary duty.”

Each speaker presented their unique expertise on a specialized issue of legal malpractice and provided valuable insights and practical take-away’s for practicing attorneys.  The presentations invited interesting and spirited discussions about the ethical dilemmas and unanswered questions attorneys face in practice.  In addition to the six hours of CLE credit attendees earn, the Symposium provides excellent networking opportunities, thought-provoking talks by practice-area experts, and a copy of the corresponding Volume 8 of the St. Mary’s Journal on Legal Malpractice & Ethics.

If you are interested in writing for the St. Mary’s Journal on Legal Malpractice & Ethics and speaking at the Eighteenth Annual Symposium on Legal Malpractice & Ethics in 2019, please email jlegalmalethics@stmarytx.edu.

Ethical Pitfalls of Requests for Admission

Ethical Pitfalls of Requests for Admission
Colin E. Flora

florablog
Colin E. Flora
Associate Civil Litigation Attorney
Pavlack Law, LLC

Among the familiar litigation discovery tools is an often-overlooked device that lends itself to ethical challenges.  Embodied in Federal Rule of Civil Procedure 36 and in various state procedures, requests for admission permit a litigant to convert disputed and inaccurate factual assertions into settled issues in litigation.  As a result, requests for admission can completely end a case through a simple misstep.  The temptation for abuse is often curbed only by adherence to ethical obligations.  The reluctance of courts to address ethical concerns and the deference of disciplinary bodies to courts in policing litigation alongside historical tensions between the adversarial posture of litigation and cooperative duties in discovery, however, have left practitioners often crossing ethical lines in ignorance that they would never dare to traverse if the matter was considered in light of their professional duties.

In modern litigation, discovery is often the most laborious and resource–consuming portion, but that was not always so.  The foundations of American legal tradition stem from adjudication by combat, both literal and metaphorical.  In a purely combative system, cooperative exchanges of information were repugnant.  As a mid-twentieth-century opinion by Justice Robert Jackson observed, “[Counsel’s position is based] on the view that the [Discovery] Rules were to do away with the old situation where a law suit developed into ‘a battle of wits between counsel.’  But a common law trial is and always should be an adversary proceeding.”  Although Justice Jackson’s critique was in the context of the work-product doctrine––a doctrine alive and well today––the angle of his perspective reveals a cultural view shared by many in the transition from the common law tradition of circumscribed discovery to the expansive discovery practice of today.  That view of a lawsuit as gladiatorial combat contrasts with the view of discovery espoused by commentators and several courts, that of cooperation.

The modern federal discovery rules, mirrored in many states, were the product of the Federal Rules of Civil Procedure adopted in 1938.  Among them is Rule 36, which allows service of written requests to another party to admit factual assertions.  Typically known as requests for admission, the power of the tool comes from its decisiveness.  Once admitted, the proposition is conclusively established unless withdrawal is permitted.  What drives requests for admission into ethical quagmire is that a request is deemed admitted if not timely denied.  Consequently, requests pose the grave potential for irrefutably establishing false facts and forcing unjust resolution of matters as a result.

The most frequent abuses of requests for admission can be arranged into three categories: (1) requests that are propounded in bad faith; (2) requests whose magnitude is unreasonable; and (3) requests that the requesting party could not have reasonably expected the responding party to admit.  As to the first category, abuse is typically found where the motive for promulgating the requests is a transparent attempt to circumvent a determination on the actual merits.  A common example arises when requests are sent with service of the initial filings­­, a practice now prohibited under the federal rules, but that remains permissible in many states and is even tried in federal courts despite the prohibition.  Another common example is when the requests are a mere rehashing of the complaint.  Because the responding party is already obliged to admit or deny the allegations, such requests for admission are often just an attempt to trigger a time-bomb.

The second category––an oppressive volume of requests––is also rife with abuse.  A handful of courts have enacted rules limiting the number of requests, often between twenty and thirty, however, even in courts without specific limitations, an implicit rule of reasonableness is imposed.  Nevertheless, it is not wholly uncommon for the number of requests to be in the hundreds or thousands.

Finally, abuse often occurs when the request seeks admission of an obviously contested fact.  As one court colorfully wrote, “Seeking an admission which assumes a contested fact is like asking a man to admit that he has stopped beating his wife.”  Such requests, with aspiration that they be overlooked and deemed admitted are, as a Wisconsin Justice wrote, little more than “a game, and its name [i]s ‘Gotcha.’”

Lawyers who fall prey to the tantalizing allure of abusive requests for admission expose themselves to professional discipline.   Although not an exhaustive list, abuses implicate Rules 1.1, 1.5, 3.1, 3.2, 3.4(d), 4.4(a), and the preamble to the Model Rules of Professional Conduct.  Rule 3.4(d)’s prohibition on frivolous discovery covers each category of routine abuse.  Similarly, Rule 4.4(a)’s dictate that lawyers shall not engage in conduct lacking “substantial purpose other than to embarrass, delay, or burden” is well applied when a litigant uses requests for admission as either a trap for the unwary or as a mountain of labor with scant justifiable purpose.

Less traditionally associated with discovery abuses is Rule 3.1, which obliges an attorney to advance only meritorious claims and contentions.  When a request is used to subvert honest resolution in favor of artificial facts, then a substantial danger of prosecution of a non-meritorious position arises.

Less obviously, Rules 1.1 and 1.5 also constrain abusive requests.  When an attorney takes action in clear violation of settled law, she violates Rule 1.1’s obligation of competent representation.  Ready examples are sending a greater number of requests than are permitted by local rule and tendering requests alongside a complaint when prohibited from doing so.  A violation of Rule 1.5 may occur when an attorney promulgates requests expecting denials, because it serves no justifiable purpose other than to increase her own client’s bill.

Even were no other Model Rule violated, abusive requests undermine the spirit of the Model Rules, which is enshrined in its preamble.  As the Indiana Supreme Court wrote in applying the preamble to litigation conduct, “[L]awyers’ duties are found not only in the specific rules of conduct and rules of procedure, but also in courtesy, common sense and the constraints of our judicial system.”

Only by recognition of professional obligations and of the discovery tool’s proper uses can attorneys avoid requests for admission’s pitfalls.

Reforming Military Justice: An Analysis of the Military Justice Act of 2016

St. Mary's School of Law
David A. Schlueter
Professor of Law
St. Mary’s University School of Law

Reforming Military Justice

David A. Schlueter

A. Overview

The Uniform Code of Military Justice (UCMJ), 10 USC §§ 801–946, provides statutory guidance for the American military justice system.  It was first enacted in 1950, in response to calls for reform to the Articles of War, which had governed the military starting in 1775.

The UCMJ addresses topics such as court-martial jurisdiction, and pretrial, trial, and appellate procedures.  It also includes punitive articles which set out not only common law offenses, such as larceny and murder, but also offenses unique to the military, such as unauthorized absences and dereliction of duty.  In 2016, Congress enacted significant changes to the UCMJ in the Military Justice Act of 2016, which is set out in Division E of the National Defense Authorization Act for Fiscal Year 2017.  It was signed into law by the President on December 23, 2016.  The Act specifies that the President must determine the effective date of those amendments not later than January 1, 2018.  It appears at this point that the President will sign an Executive Order before that date, which will enact implementing amendments to the Manual for Courts-Martial and will indicate that all of the changes will become effective on January 1, 2019.  That will provide ample time for the armed forces to adjust to the dramatic changes in the UCMJ.

B. The Path to the 2016 Reforms

Several factors contributed to the massive amendments to the UCMJ.  First, not since 1983 had Congress reviewed the UCMJ in a comprehensive fashion; amendments over the years had amounted to largely piecemeal changes, addressing specific problem areas.  Second, over the last decades commentators had offered suggested changes to the military justice system, including proposed changes to court-martial jurisdiction, the role of the commander, court-martial sentencing, and appellate review of court-martial convictions.  The third factor leading to the 2016 amendments was Congress’ increasing concern over the military’s ability to address the intractable problem of sexual assaults.

At the urging of the Joint Chiefs of Staff, the Department of Defense in October 2013 created the Military Justice Review Group, chaired by the Honorable Andrew Effron, the former Chief Judge of the United States Court of Appeals for the Armed Forces.  The Group’s report, numbering approximately 1300 pages, provided a comprehensive review of every article of the UCMJ; it addressed the history of each article, its application over the years, and the proposed changes to the articles.  The Group provided its Report to the Department of Defense, which in turn forwarded it to Congress as a legislative proposal.  Congress, without holding any hearings on the proposed changes, adopted most of the proposals.

C. Selected Key Changes

Before the 2016 amendments, the UCMJ consisted of 161 articles.  The 2016 Act added sixty-seven new articles and amended ninety-six articles.  The following list covers some of the key changes.  The 2016 Act —

Creates the position of military magistrate;

Permits military judges and military magistrates to conduct specified pre-referral proceedings;

Increases the number of members on a general court-martial from five to eight and in a special court-martial from three to four members;

Requires the military to promulgate rules which will address the issue of uniform minimum tours of duty for military judges;

Changes the number of votes for conviction from two-thirds to three-fourths;

Provides that in a court-martial with members, unless the accused requests sentencing by those members, the military judge will impose the sentence;

Provides that the government may appeal a court-martial sentence to the Court of Criminal Appeals;

Revises the UCMJ articles addressing the convening authority’s post-trial responsibilities;

Provides that the military judge will enter a judgment in the court-martial, which completes the proceedings at the trial and post-trial level;

Reorganizes and renumbers a significant number of punitive articles;

Moves a large number of Article 134 offenses, which are currently covered in the Manual for Courts-Martial, Part IV, to new punitive articles; and

Requires greater transparency in the military justice system.

D. Observations About the 2016 Changes

First, the amendments solidify and expand the role of military judges in the American military justice system.  Although commanders continue to play a critical role in military justice, military judges will not only be able to address issues raised before charges are referred to a court-martial, but will also have the final say in the disposition of the court-martial by issuing the “judgment” in a case, after the convening authority completes his or her limited review of the court-martial.

Second, over the years, there have been persistent calls for removing the commander from the military justice system.  It is important to note that despite those sometimes heated proposals, the 2016 amendments maintain the traditional role of the commander.  The commander still retains authority to prefer and refer charges to a court-martial, appoint the court members, enter into pretrial agreements with an accused, and retain, albeit in a more limited form, post-trial review powers.  In retaining the commander’s traditional role, Congress apparently recognized that one of the hallmarks of the military justice system is the maintenance of good order and discipline.

Third, the changes demonstrate the continuing view that the military justice system should more closely parallel the federal criminal justice model.  Throughout its Report, the Military Justice Review Group recommended changes to the UCMJ, which create new procedures and use terminology reflecting federal criminal procedure.

Finally, the 2016 amendments reflect the fact that there has always been change in the American military justice system.  The issue is not whether there should be changes to the UCMJ.  The questions instead are: When will the changes be made and how significant will they be?  The 2016 Military Justice Act reflects the traditional purpose of past amendments—modify military justice procedures to reflect contemporary notions of due process.  That process has sometimes been referred to as the evolution of military justice and a civilianization of military justice.  The labels for making those changes are not important.  What is important is that the procedures and protections in the UCMJ keep pace with emerging notions of due process.

The 2016 Military Justice Act is discussed in greater detail in Reforming Military Justice: An Analysis of the 2016 Military Justice Act, 49 St. Mary’s L.J. 1 (2017), by David A. Schlueter, available at http://www.stmaryslawjournal.org/wp-content/uploads/2017/07/Schlueter_Reforming-Military-Justice.pdf.  That article includes a chart as an appendix which lists the amended and new articles to the UCMJ, the substance of each change, the legislative source for those changes, and comments about the changes.