| Spring, 1996
Address Change
Propositions 200 & 202 On March 26, California voters will go to the voting booth and confront an array of propositions. Since you will be confronted, also, before that time with a great deal of advertising and information concerning each of the propositions, I will offer a brief observation on those two with which I am professionally familiar. Proposition 200 offers a system of "pure no fault" insurance coverage and complete elimination of a fault based auto insurance system. Proposition 201 attempts to regulate the contingency fee contract in regards to any or all personal injury recovery. My observations are these: 1. "No fault" systems in other states have been tried with generally very poor results and bad consequences. The no fault system starts from a premise, and that is that the primary increase in insurance rates is attributable to legal fees. That is not true. Therefore, these systems all fail to address the forces which account for over two-thirds of the increases in insurance rates: property damage repair and replacement, and healthcare services. 2. Dismantling of the fault system now, without having tried other less drastic innovations, many of which have been around for a long time, can only mean that there are powerful, political forces at work—all jockeying for better economic advantage over other segments of the population. One of the innovations which would simplify the process drastically would be mandatory, binding arbitration of claims and other procedural mechanisms which would address the number one grievance of delay, and severely reduce expense. 3. The primary objection I have to the contingency fee regulation on the table is that it is an onerous statute that surreptitiously seeks to alter, in effect, the balance of "power" between those that can access the system, and those that cannot. Proposition 202, cleverly, seeks to restrict the contingency to 15%, if a claim/case is resolved within 60 days. What is not easily understood, nor communicated, is the "trigger" from which the 60 days is measured. Here, the 60 days will begin to run from "the date of demand". Because of this timing, the effect of which was clearly researched prior to presentation of the statute, I can only conclude the intent was not to reform in favor of fairness, but to reform in a manner to appease political interests. It is difficult for anyone to justify a $100,000 contingency fee on a matter settling for $300,000 policy limits of the insured defendant within the first week of hiring. But that is not what the Proposition solely addresses. Because of the timing provision, all kinds of weird scenarios can get generated. The end result will be, in my opinion, a "disembowelling" of the contingency fee as a method for legal representation. Because of the uncertainty, the potential for conflict between client and attorney, and the increased risk of very limited return, more and more practitioners will drop out of the field. And it is already happening. The number one client call that I get is for healthcare negligence. The number one complaint I get is the unwillingness of attorneys to "tackle" cases on a contingency basis. Over the years I have detailed for you in this newsletter a "swing in the pendulum" which has basically resulted in a stricter legal environment—-stricter in the sense that greater and greater impediments have been placed in the path of parties who have been injured, and are attempting to recover from other parties and their insurance companies for those injuries. The simple fundamental truth that must be understood when evaluating these propositions is that under the present system, the barriers to recovery at a level which is responsive to the injury are already quite difficult—and the balance of power is already quite precarious (as evidenced by the healthcare negligence cases, a field that has undergone its own set of reforms years ago without having reduced the cost of healthcare). Insurance companies do not pay money in the absence of injuries or financial loss. The contingency arrangement is rarely a justification for frivolous litigation. After all, the attorney, the advocate, must produce a result and advance his/her own funds. And juries, insurance companies, arbitrators—-all of these sources are not granting awards, giving verdicts or settling contingency claims simply because they are frivolous. In fact, there is a verdict, an award, or a settlement, almost always, simply because there are damages and potential liability. Bankruptcy Matters. .
We are now starting to see cases interpreting the new legislation. In re Lawrence Kritt involved a debtor married in 1960 and divorced in 1987. The divorce settlement agreement obligated the debtor to directly pay his spouse a sum of money as an award of community property. The sum was payable in installments. The installment schedule ran till 1993. In 1991, the debtor filed for Chapter 7 Bankruptcy, seeking complete discharge. On appeal, the Bankruptcy Appellate Panel upheld the lower court finding that the debt was not dischargeable. In this case, although the new law was not even relied upon--the court concluding that the trial court’s finding that the agreement was for "support"was proper— it was clear the new law was influential. Therefore, please note that in marital settlement agreements where obligations are sometimes assumed as part of the "give and take", where the aggreement or assumption is directly with the ex-spouse, not involving a mutual third party creditor/debt, then the chances are it will not be dischargeable in Bankruptcy. Similarly, where mutually incurred debts to third parties are involved, there is a "balancing test" spelled out in the new Bankruptcy Act which requires a full review for any Bankruptcy involving a Marital Settlement Agreement. —-Private Retirement Funds
Public employment retirement funds and benefits are completely protectible in Bankrutpcy. Protection is asserted through the use of "exemptions", which amount to "safe harbors" granted by the law. administered through ERISA (Employee Retirement Income Security Act) are completely exempted, and those funds need not be identified as "part of the estate" in Bankruptcy. Confusion arises where private IRA’s, Keogh, and Self-Employed Plans (SEP’s) become involved. Although the Courts have gone far in protecting all retirement benefits, this is still one area where a Trustee can seek to "marshall" some of the funds for the benefit of creditors. In a recent case, In re McIntyre, the Court went a little further in giving greater protection to the debtor or consumer who has money saved in such funds. Where the Trustee seeks to "seize" such funds, there is a test which I have previously discussed here that requires the Court to evaluate what is "reasonable" for the support of the debtor and family after retirement. The Macintyre Court suggested there was no logical reason to distinguish between ERISA private retirment funds and funds established by self-employment or individual savings. Although, this had nothing to do with the formal opinion, it will be important in the future direction of protection of all private retirement funds (at the expense of creditors in Bankruptcy)—-further reason to save through your IRA’s or similar accounts!! Did You Know? It is a federal crime to make any false statements on a loan or credit application. It is also a federal crime to misrepresent your Social Security number, or to obtain an Employment Identification Number from the IRS under false pretenses. My further updates will follow. With best regards,
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