Donor Intent and the Failure of the Honor System

by David L. Wilkinson
The private sector of philanthropy is facing huge challenges today, at a time unfortunately when government resources to assist those in need are shrinking. The assets of charitable foundations in the USA declined by 28% in 2008 according to a study by The Chronicle of Philanthropy. See Daniel J. Popeo, Op-Ed., Freedom of Philanthropy?, N.Y. Times, Feb. 23, 2009, available at This was the biggest drop of the past four decades. The loss to the nonprofit organizations they fund and to society was actually much greater due to the multiplying effect of the charitable dollar. A study by The Philanthropic Collaborative calculated that the $43 billion foundations distributed in 2007 generated identifiable social and economic benefits of $368 billion. See id.
The decline in the value of assets of American charitable foundations is only part of the picture. Recently released IRS figures show that charitable giving declined some 20% in 2008-09. See Editorial, Protecting Charitable giving, Deseret News, June 26, 2011.
Charities have come under fire in the eyes of Americans who count the most – those who contribute. Those Americans who contribute include 65% of all households with family incomes below $100,000. A 2007 survey showed that 59% of over 3000 respondents were more concerned than they had been a decade earlier that their charitable donations were not getting to the people who need it the most; 46% said they are more worried today about charity fraud or theft of funds or services. See William Robertson, Donor Intent Revisited, The Washington Times, September 28, 2008, available at
A front-burner issue is that the charitable deduction in the tax code has been under fire from President Obama and members of Congress who are looking to find ways to shrink the nation’s growing deficit. See Lisa Chiu and Suzanne Perry, Charitable Deduction Could Be Under Threat in Coming Deficit-Panel Talks, The Chronicle of Higher Education, Aug. 2, 2011, available at Among those submitting testimony against the possible impairment of the charitable deduction was Elder Dallin H. Oaks representing Utah’s largest, and one of America’s largest, charities, the Church of Jesus Christ of Latter-day Saints. Quoting from his testimony: “Some also assert that reductions in the charitable deduction would not cause charitable organizations to suffer financial losses from decreased private gifts since the government would make up some of these losses by additional appropriations.” Testimony Submitted by Elder Dallin H. Oaks, Senate Finance Committee Hearing, Oct. 18, 2011, available at He then concludes: “[M]ost Americans would not have us relinquish the freedom and diversity of our vigorous private sector of charities in exchange for the assurance that the government would select and manage their functions.” Id.
Donor Intent in Jeopardy
Many scholars believe a more serious threat to the health of charitable giving than the tax code is the widespread and growing disregard for donor intent by recipient charities. One law professor begins a leading law review article on the subject:

The cat is out of the bag: Donors are fast discovering what was once a well-kept secret in the philanthropic sector – that a gift to public charity donated for a specific purpose and restricted to that purpose is often used by the charity for its general operations or applied to other uses not intended by the donor.

Iris J. Goodwin, Donor Standing to Enforce Charitable Gifts: Civil Society vs. Donor Empowerment, 58 Vanderbilt Law Review 1093, 1094 (2005).
The reason many administrators ignore donor intent lies not in their inability to understand the donor’s intent but in their knowing there is no real mechanism to enforce that intent – so they can’t get caught. In most states, the Attorney General is the only person recognized as having standing to enforce restricted charitable gifts. But in a majority of those states, including Utah, there is no reporting law which allows the Attorney General to monitor how each charity administers its restricted gifts. Additionally, the Attorney General gives low priority to charitable gift enforcement, leaving the charities on the honor system. The Uniform Trust Code, adopted in twenty-three states, including Utah, does give the settlor (donor) standing to enforce the restrictions on his or her own charitable gift; but that does not help if the settlor dies before the charity wants to divert the gift to another purpose. Courts are moving in the direction of recognizing standing to sue in the executor of a deceased donor or in one of the heirs. A major recent case permitted standing to a distant heir of a long-since deceased donor to challenge the decision of the administrators of Tulane University to discontinue the operation of Newcomb College as a coordinate women’s college. See Henderson v. Admins. of Tulane Univ. of Lousiana, 426 So.2d 291 (La. App. 4 Cir. 1983), (a continuation of Howard v. Tulane, 970 So.2d 21 (La. App. Ct. 2007), vacated, 986 So.2d 47 (La. 2008)). Earlier, the New York Court of Appeals allowed the executrix of her deceased husband’s estate to sue to enforce his gift. See Smithers v. St. Luke’s-Roosevelt Hosp. Ctr., 723 N.Y.S.2d 426 (N.Y. App. Div. 2001). But those cases are the exception.

In Howard v. Tulane, 970 So.2d 21 (La. App. Ct. 2007), vacated, 986 So.2d 47 (La. 2008), Judge Max Tobias, dissenting from the majority’s holding that an heir does not have the right to sue for injunctive relief pursuant to the cy pres doctrine, succinctly states the case for a more liberal rule governing standing:

Finally, I note that [by agreeing with the Tulane Board we set] a very bad precedent that if allowed to stand would discourage future donations to all charitable entities.… if a donor cannot rely upon…the charitable institution to honor in perpetuity the conditions of a donation, why would one make a donation in the first place? To assume the good faith of a charity that does not want to proceed under the cy pres doctrine to be relieved of the condition of a donation works fine in theory; in practice, I think someone ought to be able to state a cause of action and a right of action to make the charity live up to its obligation when it so graciously accepted the conditional donation in the first place

Id. at 36 (Tobias, J., dissenting).
Legal Diversion – The Cy Pres Doctrine
Where the honor system fails is when the charity wishes to change the original purpose for the gift, giving as its reason that conditions have changed since the date of the donation. The law provides a way for the charity to do this legally, but only where pursuit of the original purpose has become “unlawful, impracticable, impossible to achieve, or wasteful.” Utah Code Ann. § 75-7-413(1) (Supp. 2011). Only a court can sanction a change and must hold a hearing to which all interested parties, including the Attorney General, are to be invited. If the original purpose of the gift is found to no longer fit the new circumstances by the narrow definition, a new purpose may be ordered which is “as near as possible” – “cy pres” in French – to the original.
A Diversion from the Donor’s Intent Only to Facilitate the Administration of the Gift is Not Authorized by the Cy Pres Doctrine
Administrators of restricted gifts frequently change the purpose of a charitable gift simply to make it easier for them to administer the gift. As an example, the Utah-based manager of a gift for student loans to be made only to foreign students for study in their own countries converted it to be available only to foreign students who had emigrated to the United States, knowing that it would be easier to collect from them than from students abroad. The manager did not seek court approval for this radical thwarting of donor intent. Astonishingly, counsel for the manager justified this turning of the donor’s intent on its head as being within the manager’s discretion.
The Failure of the Honor Code
If the charity believes that there will be no objection to whatever new purpose it has in mind, the temptation is great to forget about petitioning a court and going through what could be a time-consuming process. It is much easier to just make the change. The charity is on its honor to go through the prescribed legal channels, but often does not do it.
In preparing this article, the author attempted to ascertain informally how frequently a petition to change the purpose of a charitable gift is filed. In the Fourth District Court, neither the current nor the immediate past probate clerk could remember one such motion, going back over a decade.
Robertson v. Princeton University
That donors are more aware today of what is being done with charitable gifts than they were previously is seen in the rash of lawsuits brought in the last decade. The most publicized recent case is Robertson v. Princeton University, the suit brought against Princeton University by the children of Charles and Marie Robertson, heirs to the A&P grocery fortune. See id., Docket No. C-99-02 (N.J. Chancery Div., Mercer Cnty., 2002). Filed in 2002 and settled several weeks before the scheduled trial date in early 2009, the case amassed almost a half million pages of internal documents in the court file and each side reportedly spent roughly $40 million in legal fees before the prospect of spending millions more in a trial led the parties to settle.
The Robertson case validates the claim by a philanthropy scholar that “no two words in the philanthropic and nonprofit world stir up more passions on all sides of the issue than the words, ‘Donor Intent.’” Presentation by Curtis W. Meadows, Jr., Waldemar A. Nielsen Issues in Philanthropy Seminar Series, Georgetown University, Philanthropic Choice and Donor Intent: Freedom, Responsibility and Public Interest,
Surge in Donor Intent Cases
Other major institutions caught up in recent donor-intent controversies – all of them involving the alleged misuse of donated funds – include Brandeis University, Florida State, the University of New Mexico, the University of South Dakota, Randolph College in Virginia (formerly Randolph-Macon Woman’s College), Trinity College (of Connecticut), Vanderbilt University, Fiske University, St. Olaf College, UCLA, USC, and the Metropolitan Opera.
Two philanthropy scholars note that “While gift restrictions are not new, the increasing number of lawsuits filed by donors and their families to enforce gift intent represent an alarming recent trend.” Kathryn Miree and Winton Smith, The Unraveling of Donor Intent: Lawsuits and Lessons, Planned Giving Design Center (Nov. 12, 2009), available at
Donor Intent and Ponzi Schemes
One gains an understanding of the result of gifts going awry from reading the many horror stories where innocent donors feel cheated or shortchanged in some way in their attempts to have their donations managed as they intended. “Perhaps the most common and emotionally painful risk that philanthropists face,” according to one author on the subject, “is the violation of donor intent.… When donor intent is flagrantly violated it is something akin to a total loss for the ‘philanthropic investor.’” Frederic J. Fransen, Managing Wealth for Philanthropic Risk, Western Wealth Management Business, Oct. 2008, Vol. 1, Issue 9, available at The emotional impact on the donor is like that on an individual who, having invested in what turns out to be a ponzi scheme, learns that one has lost most of or all of the money invested. In Utah especially, this as well as investment-related cheating too commonly occurs within the community of a church. In the words of Diane Smart, a Salt Lake City victim of a ponzi schemer who lost $200,000, “He was in our church. We trusted him.” Bob Carden, Investment Fraud Isn’t Relegated to Wall Street: Beware the Ponzi Schemer Next door, The Washington Post (May 7, 2011).
Just as Elder Oaks observed that donors do not like the government to make their philanthropic decisions for them, so they also do not like to have the administrators of their gifts unilaterally make decisions changing the purpose for which their gifts are intended.
Essential to Hire a Lawyer and Perhaps Other Professionals
In studying the burgeoning body of literature on donor intent, one notices a common characteristic. Every article assumes that the donor will be represented by counsel. It is inconceivable to the veteran practitioners and academics that author this literature that a donor would consider making a six-figure or more gift to charity without seeking continuing help from experienced philanthropy professionals. It is sad but true that it costs money to give money away safely.
Beware of Charity’s Counsel and Accountants
It is understandable that a donor, having warm feelings toward the charity to begin with, would also view with favor the lawyers and accountants working for the charity. The donor might be excused for thinking that the charity’s counsel and accountants would always be looking to correct mistakes made by the charity, among other things. It cannot be assumed, however, that the charity, through its lawyers and accountants, will be neutral in seeing that its administrators of gifts observe donor intent. They are being paid to support the administrators of the gift, not to protect the donor even if he or she is not represented.
It is also a mistake to believe that a state attorney general will become involved on the side of donor intent. Although the attorney general has a common-law duty to police charitable gifts, other interests will usually take precedence. Also, most attorneys general do not want to take on a respected charity so long as money is not being stolen.
Need for Professional Advice Besides a Lawyer
For a restricted gift which will require accounting by the gift’s administrator, a donor may need the advice of an accountant, both in planning and executing the restricted gift and, in monitoring the periodic accounting statements provided by the charity. The annual accounting of a loan fund and a separate fund for the benefit of schools, which was provided by a major Utah charity to members of the donor’s family, was so opaque that a CPA who reviewed it concluded that its numbers were “unauditable.”
Protecting One’s Gift From Future Diversion
First and foremost it is essential that the donor and charity freely communicate with each other at all phases of a restricted gift and that both understand what the expectations of the other are. It is crucial that the parties agree to any restrictions before the instrument is drafted. And the charity should understand what the donor wishes to do with the gift if the circumstances existing at the time of the donation appreciably change.
One traditional way to prevent the charity from diverting the gift away from the purpose stated is to write into the deed instrument a reverter clause, providing that if the charity no longer applies the gift as the donor intended, the gift reverts to another charity, or is to be used for another purpose chosen by the donor. There are other ways to achieve this result which an experienced trust lawyer can recommend.
The donor traditionally wishes to have the gift be “in perpetuity.” But that is the feature of restricted gifts most galling to charities. As John D. Rockefeller said, “Perpetuity is a long time.” And charities lose patience with gifts which can never be changed. More and more scholars advise donors to refrain from making perpetual gifts except for those to museums. They accept as reality that donor intent inevitably erodes over time.
Warren Buffet and Bill Gates do not provide that their gifts be in perpetuity. Instead they select a duration such as seventy-five years, which they calculate will be long enough to accomplish their philanthropic goal and at the same time weaken any petition to a court seeking a substituted purpose. They reason that a judge is less likely to find that the original purpose of a gift is no longer viable if he or she knows that the gift’s purpose is already scheduled to end on a date certain. They thus ensure that the fund they created will be used in the way they will have set forth in the gift instrument.
Not all charities, of course, are as intent on pursuing their own agenda as the above text may suggest. But enough are so that a donor wishing to have his money used according to his wishes, after engaging professional assistance, should interact with every charity at arms length and plan the gift so as to retain control of it after his death. This is particularly true of gifts to higher education, a chronic violator of donor intent. Meanwhile, state legislatures need to address the woeful lack of enforcement mechanisms, a situation which currently encourages charities to further mock the broken-down honor system.

Founder Dallin H. Oaks’ Visit Spurs Call to Join of Utah-born American Inns of Court Movement

by Isaac D. Paxman
Did you know that the American Inns of Court (“AIC”) movement was born here in Utah? Designed to enhance the skills, professionalism, and ethics of the bar and bench, the movement has swept the country, impacting over a hundred thousand attorneys and judges over the last three decades.
Dallin H. Oaks Addresses First Inn
On January 24, 2012, Dallin H. Oaks, who helped found the AIC movement, dined with and addressed the first American Inn at an evening event held in his honor at the courtroom of the Utah Supreme Court in Salt Lake City, Utah.
Utah Chief Justice Christine M. Durham introduced Elder Oaks, as he is now known in his calling as a member of the Council of the Twelve Apostles of The Church of Jesus Christ of Latter-day Saints. Chief Justice Durham, a long-time member of the A. Sherman Christensen American Inn of Court I, served with then-Justice Oaks on Utah’s highest court almost thirty years ago. She recalled the keen intellect, engaging stories, and warm humor Oaks brought to his interactions with fellow justices. Oaks, in turn, spoke highly of Chief Justice Durham as both judge and administrator, noting that the court was good before she arrived, but notably better after her arrival.
Oaks then recounted for those in attendance how he became involved with the founding of the AIC movement.
Oaks was president of Brigham Young University when he received a phone call announcing that Warren E. Burger, Chief Justice of the United States Supreme Court, was vacationing in Utah and wanted to meet with Oaks and Rex E. Lee, dean of the law school at BYU. Although both Oaks and Lee had clerked for justices of the U.S. Supreme Court, Oaks noted that neither had met Burger previously.
On an August morning in 1979, Oaks and Lee drove to a spot near the Upper Provo River. As they arrived at a cabin owned by O.C. Tanner, Burger greeted them in shorts, a tank top, and sandals. It is an image that Oaks said he can recall as though it was yesterday. “His distinction was far greater than his appearance,” quipped Oaks. As the Chief Justice bustled in and out of the kitchen, making and serving breakfast, Oaks and Lee still had no inkling of the reason for the unusual invitation.
After the meal, however, Burger confided that he was concerned about the trial skills of American attorneys. He was impressed with the English system, with its Inns of Court and the mentoring that occurred there, and wondered if BYU would launch a pilot program designed to capture some of the benefits of the English model. According to Oaks, Burger chose BYU because of his high regard for Dean Rex E. Lee, former U.S. Assistant Attorney General, and because he knew that Oaks, another U.S. Supreme Court law clerk, was its president. Burger “had all the authority he needed in that room” to get an immediate decision from the university, noted Oaks. Oaks and Lee accepted the invitation, and shortly thereafter a pilot program was underway.
After speaking about his involvement with the founding of the AIC movement, Oaks spoke fondly of his four “fathers in the law,” including U.S. Chief Justice Earl Warren, for whom he clerked, and described a significant lesson learned from each of them. His points regarding Chief Justice Warren were particularly applicable to members of our legal community. During his clerkship, Oaks learned to separate his affection for the person – and respect for his or her office – from differing views with the person. Near the end of his clerkship, Oaks realized he had disagreed with Warren’s votes roughly 60% of the time – a percentage Oaks found remarkably high, given that many of the votes had no direct tie to judicial activism or any other philosophical leaning. Yet throughout his clerkship and afterward, Oaks felt both deep affection for Warren, who was good and kind to Oaks and his family, and high regard for his office. Oaks declared that our “commonwealth” would be better off if all understood and implemented this principle.

Oaks then outlined some notable features of the U.S. Supreme Court’s recent decision in Hosanna-Tabor Evangelical Lutheran Church & School v. Equal Employment Opportunity Commission, 132 S.Ct. 694 (2012), a case holding that federal discrimination laws do not apply to a church’s hiring and firing of ministers. Then he opened the floor to questions. When an Inn member asked for advice to anyone striving to excel at their profession but also to be a good spouse and parent, Oaks struck a tone of lighthearted reassurance: “Just muddle through it,” he urged. “Speaking from my own experience, it will work out all right.”
Oaks stayed afterward to greet all who wished to meet him.1
Other Utahns’ Involvement in Founding the AIC
Listening to Oaks caused me to reflect on his and other Utahns’ involvement with the founding of the AIC and on the ways the movement has enriched my life and practice.
Soon after the breakfast meeting described by Oaks, A. Sherman Christensen, a federal district judge in Salt Lake City, was tapped to head the pilot program. Judge Christensen, in turn, assembled a small group of attorneys, judges, and BYU law professors and law students to lend a hand. Among the initial participants were some prominent members of our legal communities today, including Ralph L. Dewsnup and M. Dayle Jeffs. See Ralph L. Dewsnup, the Genesis, The Bencher (September/October 2004); see also J. Clifford Wallace, Birth of the American Inns of Court, 25 Berkeley J. Int’l L. 101 (2007).
The initial group came up with the basic plan of monthly instructive meetings that were designed to be much more than just another method of delivering CLE credit. See Dewsnup, supra at 6.
About a year after the Inn at BYU was launched, an Inn connected with the University of Utah was formed in Salt Lake City. See id. at 8. And soon thereafter, Inns were created in Mississippi and Hawaii. See id. at 9. This rapid growth prompted Chief Justice Burger to assemble an ad hoc committee of the United States Judicial Conference, comprised largely of Utah attorneys and judges, to solidify the movement. See id. at 10. The committee met in Washington, DC, where the movement was formally organized into a nonprofit entity. See id. Over time, the AIC has grown to include more than 29,000 members (and over 100,000 alumni) in over 400 chapters nationwide.
My experience with the AIC and the British Inns
My experience with the AIC began in law school in the late 1990s. I have remained an active member since then, participating in Inns in three cities, as I’ve moved about.
In the summer of 2003, I was chosen by the AIC to participate in a three-month-long immersion experience with the English Inns of Court, mostly shadowing barristers and judges. While there, I became enthralled with the English Inns of Court, and my grasp of the mission of the AIC deepened.
For centuries, every aspiring barrister in England has been required to associate with one of the four English Inns of Court to be called to the bar. Barristers’ chambers (similar to our firms) are located primarily on the Inns of Court properties near the Royal Courts of Justice in London. The area where I spent most of my time is paved by cobblestone and lit at night by gas street lanterns. Film crews use the spot for period pieces.
Within the area is the Temple Church, as seen in the movie The Da Vinci Code, with Knights Templar entombed in its floor. The church was originally built in the 12th century, and by the early 15th century, Inns of Court had been formed in the surrounding area. Eventually, the king granted use of the church to two of the Inns, known as the Inner Temple and Middle Temple Inns, in exchange for the Inns’ agreement to support and maintain the church. Today, you can hear the boys’ choir practicing in the church as you head from the Inns of Court to the Royal Courts of Justice across the street. A church and choir supported by members of the bar across the street from royal courts? Yes, this is a world apart. Oh and did I mention that barristers wear wigs and robes?
Also captivating are the dining halls. Picture the Hogwarts dining hall from the Harry Potter movies (without the ghosts and gimmicks) and you’ve got the basic image. The deep history of the halls is illustrated by the fact that in 1601, the tables in Middle Temple’s dining hall were pushed aside for the premiere of Shakespeare’s Twelfth Night, attended by the queen. Over 400 years later, I got the chance to watch the same play in the same hall.
Originally, the English Inns of Court were actual inns, where members of the legal community could stay while learning the ropes of their profession. The sharing of meals and quarters by members of the legal community undoubtedly ensured a large amount of informal mentoring and contributed to the sense of collegiality among barristers. Shakespeare himself captured this culture when he wrote: “Do as the adversaries in the law, Strive mightily, and eat and drink as friends.” William Shakespeare, The Taming of the Shrew, Act 1, Sc. 2.
While Inn members no longer reside onsite today, they do still take meals in the dining halls, and they also participate regularly in educational and other events sponsored by their respective Inns, including occasional multiple-day training sessions for younger barristers that include an overnight stay (albeit at locations away from the Inns). And the Inn environment still signifies the collegiality and civility the legal profession can and ought to encourage.
American Inns promote these same ideals through their monthly dinners and presentations. Through these events, I have gleaned practice-tip gems and gained a connection with fellow attorneys and with judges that I have felt through no other aspect of my professional life. Beyond that, I have experienced what I think Judge Christensen was describing when he said he wanted the AIC to “renew and inspire joy and zest in trial practice.…” See Dewsnup, supra at 6.
A call to join the AIC
Through my Inn membership, I’ve met people from various parts of the country who are passionate about this movement. In Denver recently, I heard an attorney tell how her AIC pupillage (a presentation group, typically consisting of a dozen or fewer persons) met often throughout the year for lunch and special events. With emotion, she revealed that her pupillage became her primary source of support when one of her children died. Some pupillages gather at a judge’s home or chambers to plan their presentations. Around the country, people have embraced this movement as their own and have adapted it to their needs and circumstances.
Here in Utah, we have Inns in Provo, Salt Lake City (two Inns), and Ogden, as well as an Inn covering Washington and Iron Counties. But we could have more than that. Idaho, with about half the population of Utah, has six Inns to Utah’s five. There are states, albeit populous ones, with over thirty Inns.
It seems to me that the Wasatch front could benefit from additional Inns, perhaps specialty ones, like exist elsewhere for family law, intellectual property, and other practice areas. And perhaps there are geographical areas that could start their first Inns.
I call on more members of the Utah bar and bench to join the AIC. Let’s ensure that Utah’s present-day embrace of the AIC aligns fully with its role in founding the movement. To apply to join an Inn or to help create one, please visit and click on “Join An Inn” or “Create An Inn.” Or talk to an Inn member.
I am confident that if you join, you will be amply rewarded, even as you help others enjoy more fully their lives in the law. Dayle Jeffs recently said that his participation in the AIC has easily been the most satisfying part of his professional life. If you know anything of this man’s legendary career and the breadth of his service to the bar and to the courts, you know that is saying something.
1. The above portion of this article is adapted from an article slated for the May/June 2012 issue of The Bencher, the flagship magazine of the American Inns of Court.

Utah Department of Health Hearing Process

by Drew B. Quinn
While relatively few people have experience filing requests for administrative hearings with the Utah Department of Health, this lack of know-how should not prevent attorneys representing medical assistance beneficiaries or providers from doing so. This area of law may afford attorneys the opportunity to provide pro bono services to Medicaid clients who can benefit from legal representation. The following article describes the steps an attorney must take to assist such a client, pro bono or otherwise.
Administrative fair hearings for Medicaid applicants, beneficiaries, or providers are an interplay of federal law, federal regulations, state law, state administrative rules, and policy and provider contracts. This article provides the ABCs of negotiating the hearing process at the Office of Formal Hearings, Division of Medicaid and Health Financing, Utah Department of Health (“DOH”).
The right to a Medicaid hearing originates in Title XIX of the Social Security Act. The Code of Federal Regulations requires states to provide a fair hearing to a Medicaid applicant or recipient whose claim was denied, given limited authorization, not acted upon promptly, or whose previous authorized service is reduced, suspended, terminated, or denied. See 42 C.F.R. §§ 431.200, -201. Utah rules also grant the right to a hearing to an “aggrieved person,” which includes providers. See generally Utah Admin. Code R410-14. These broad provisions open the door to an applicant, recipient or provider who for some reason disputes the action taken by Medicaid. To request a hearing, the following steps must be followed.
The Department of Workforce Services (“DWS”) determines eligibility for Medicaid and other medical assistance programs such as Children’s Health Insurance Program and Primary Care Network. Appeals from denials of eligibility must be filed with DWS, except for appeals from denials of disability under the Medicaid program. Responsibility for disability appeals was recently moved to DOH, and the request for hearing must be filed with the Office of Formal Hearings.
All Other Claims
Most appeals come from clients or providers who either have not received, or not been paid for, medical services. The correct place for filing these and other appeals is with the Office of Formal Hearings at DOH. However, there is an extra step for Medicaid clients living along the Wasatch Front who are required to enroll with a managed care organization (“MCO”) such as Molina Healthcare or Healthy U. A client or provider who is displeased with an action taken or denial given by an MCO must file his or her appeal and complete the appeal process with the MCO before having the right to a fair hearing with the State.
A hearing request must be filed within thirty days of the agency’s written notice of an intended action, except that an expanded time limit of ninety days in which to file an appeal is given to persons denied eligibility for Medicaid. A request must also be filed within thirty days of an appeal of a denial by an MCO.
A request must be in writing, and should be on the Request for Hearing form found on the Utah Medicaid website under “Forms.” See (last visited May 30, 2012). Please fill the form out as completely as possible and include all relevant documentation. Incomplete information delays the processing of the file. If you are an attorney joining an appeal that was already initiated by a Medicaid client or provider, you must file a notice of appearance in order to have access to information about the case.
Complete information should be included with the hearing request, as indicated by the instructions on the form. Be sure to include a copy of the denial letter or other document you are appealing. If you are appealing a denial on appeal from an MCO, please submit the final decision from the MCO. The type of issue will dictate what sort of supporting documentation is appropriate, whether it be medical records, proof of billing, or other records.
Because most petitioners in this forum are pro se, the procedures of this office are kept as informal and helpful as possible. However, a Medicaid hearing must follow the due process principles outlined in Goldberg v. Kelly, 397 US 254 (1970), which provides the right to a full, evidentiary hearing before an impartial hearing officer, including the right to present witnesses, confront and cross-examine adverse witnesses, and be provided the reason an action was taken or not taken. See id. at 266-71; 42 C.F.R. § 431.205(d). The Utah Rules of Civil Procedure do not apply, and hearsay evidence can be used to supplement or explain other evidence. Hearings must comply with the Utah Administrative Procedures Act, see generally Utah Code Ann. §§ 63G-4-101 to -601 (2011), and the procedure in the Office of Formal Hearings is governed by the Utah Administrative Code, see generally Utah Admin. Code R410-14.
After a file is opened, each timely hearing request is referred to the department within the DOH that took the action or issued the denial that is being appealed. Occasionally, if the problem is straightforward and can be solved easily, the reviewer may call the petitioner directly and work with them to resolve the issue. All others are scheduled for a prehearing conference call with the petitioner, the administrative law judge assigned to the case, and a representative of DOH.
The prehearing conference call provides an opportunity for Medicaid to explain its action or denial and the rule or policy on which it is based. The petitioner has the chance to ask questions and provide additional information that might be helpful. Our goal is to have an informative and substantive discussion about the case. A participating attorney should be prepared to explain the Medicaid action that his or her client disagrees with and why the action was erroneous, and to present the relevant federal and state laws, rules, and policies. At the conclusion of the call, if the issue is not resolved, or neither party agrees to withdraw, the case may be pended for additional information or agency review, another prehearing call, or scheduled for a formal or informal hearing. If there are no material facts at issue, the case may be briefed by the parties or submitted for decision on the existing record, and a written decision is rendered without holding a hearing.
A hearing gives the petitioner a court-like forum in which to present witnesses, evidence, argument, and cross-examine the Medicaid witnesses. Hearings are recorded, either by an audio device or by a court reporter, depending on the expected length of the hearing and the complexity of the issues involved. A written recommended decision is thereafter given to the director of the Division of Medicaid and Health Financing, who can accept, modify, or reject the decision, and who issues a final order.
Formal v. Informal
All agency adjudicative proceedings are conducted formally unless specifically designated as informal. A party wishing his or her case to be designated as informal must make a motion to the court, alleging that changing the proceeding from formal to informal is in the public interest and that its conversion does not unfairly prejudice the rights of any party. The primary reason for asking for a change from formal to informal pertains to what court an adverse decision may be appealed.
Appeal Rights
Any party wishing to challenge a Final Agency Order has two options: judicial appeal or reconsideration. District courts have jurisdiction to review by trial de novo all final agency actions resulting from informal appeals; the Utah Court of Appeals or Utah Supreme Court hears appeals from formal hearings.1 See Utah Code Ann. §§ 63G-4-402, -403 (2011). Prior to a judicial appeal, a party may request a reconsideration of the opinion from the Medicaid director within twenty days of the release of the decision.
The Office of Inspector General of Medicaid Services (“OIG”) was created by the Utah Legislature during the 2011 legislative session. It is an entity separate from DOH that selects and reviews representative samples of claims submitted for reimbursement under the state Medicaid program to determine whether fraud, waste, or abuse has occurred. All questions about requests or letters that come from OIG must be directed to that office, at PO Box 143103, Salt Lake City, Utah 84114-3103, telephone 801-538-6123.
Our office tries to make the hearing process user-friendly while protecting the due process rights of the participants. If you have questions about the hearing process in general you may e-mail me at or call our office at 801-538-6576.
1. The Utah Court of Appeals has original appellate jurisdiction over judicial review of every agency’s decisions except for six agencies reserved to the Utah Supreme Court. See Utah Code Ann. §§ 78A-3-102, 4-103 (Supp. 2011).

I Finally Got My Day in Court

by Peg McEntee
EDITOR’S NOTE: A version of this article was previously published in the Salt Lake Tribune. The Bar Journal does not ordinarily publish material that has appeared elsewhere, but given the subject of the column, an exception seemed appropriate in this case.
Last fall, I was talking to a top cop and mentioned I was on a list for jury duty. Don’t worry, he said, they never choose cops, lawyers, or reporters.
The next morning, I reported to a Third District courthouse, where the jury pool was questioned briefly about age, profession, marriage status, children, and residence. Then the attorneys spent about ten minutes deciding which of us to keep. In the interim, the judge read us a brief history of justice, starting with the hunter-gatherers and ending with the U.S. system, which he deemed the finest in the world.
So it was with considerable surprise that, despite my profession, I was named to a six-member jury for a criminal trial. We were sworn in and took our seats. By serving as jurors, the judge told us, we would not only be doing our civic duty, we would be ennobled by the experience. Then we got down to work.
The trial involved allegations that, in the midst of an acrimonious divorce, one person violated a protective order and engaged in criminal mischief. The protocol was familiar to what I’ve seen covering scores of trials. The defense and prosecution offered opening statements and the first witness took the stand, describing what she believed the defendant had done. More witnesses followed, each with his or her version of the chain of events, some in conflict with the others. Periodically, we’d be led out of court and to the jury room by a bailiff who lightened the mood with truly awful jokes, most involving Utah and BYU football players. When we returned to court, the bailiff would proclaim, “All rise for the jury!” For the first time, people were rising for me.
We were released for lunch, and I headed to a diner the bailiff recommended. As it happened, the accuser and who I assumed was an attorney were there, and I took care to sit as far away from them as possible. Back in court, we heard a last witness, and then the defense attorney and prosecutor gave their closing arguments. But before we were led to the jury room, the judge advised us that one of the charges had been resolved. Meantime, the criminal mischief charge had been reduced to a class B misdemeanor.
The moment the door shut, we chose a foreperson, who seemed to really want the job, then started talking. The judge had given us a general instruction on how to consider the thirty-three specific jury instructions. For example, all the jury instructions were equally important and should be thought of in the context of all the rest. We must obey the instructions and cannot reach decisions that go against the law. (It’s worth noting that after the column dealing with my jury experience ran in the Tribune, a gentleman brought me some literature on jury nullification.) Very important: keep an open mind and don’t look at news reports regarding the case. Most important: we must agree that the prosecution has proven its case beyond a reasonable doubt to reach a verdict of guilty.
There wasn’t much discussion about reasonable doubt. We agreed on its meaning and moved on. We talked intently for an hour, weighing the testimony, using common sense to figure out who had done what and why, and referring often to the instructions. Then the foreperson polled us, and we all said we couldn’t get past the standard of beyond a reasonable doubt. Given the testimony, which included some unsavory family issues, we agreed the prosecution’s case was just too weak to convict. We acquitted the defendant.
There are times when one’s acute attention and focus is paramount. In my business, that may be big breaking news that requires absolute focus and the most ethical decision-making. On that Wednesday in October, everyone involved in that trial was fully engaged, and the urgency of the issue was palpable. After our verdict, we were ushered back to the jury room and the judge came in, sans robe, to talk with us about the experience. He listened as attentively as he had in the courtroom, and we gave him the same respect. He also said the case was weak to begin with, and apologized for wasting our time. All six of us said our time certainly was not wasted, and that we had, in fact, been ennobled.
As dusk was falling, a couple of jurors and I walked out of the courthouse together, then scattered to find our cars. It’s likely we’ll never see each other again, but I’ll always remember that day and those good people.

The Utah Territorial Bar Association: Our Forgotten Heritage

by Michael S. Eldredge
On the official Utah State Bar website, the history of the Utah bar before 1931 condenses into one compound sentence: “The history of the Utah State Bar began in the early 1900s with the association of several Utah lawyers hoping to improve communication within the legal community and to find ways of serving the general public.” See “Utah State Bar History & Purpose,” Utah State Bar,, (last visited April 1, 2012). Whether because of oversight, or a generally accepted lack of relevance, the result is the same; Utah is forgetting its legal heritage, one that is as unique, colorful, and controversial as Utah’s struggle for statehood and beyond.
The seal of the Utah State Bar has emblazoned on the bottom, the year “1931.” However, regarding the organization of the legal community in Utah, 1931 is misleading. If anything, it merely commemorates the year that the Utah State Bar became integrated; all lawyers practicing in Utah were required to be members. The Utah State Bar became a creature of statute and reformed the entity of organizational existence; the people, the goals and ideals remained the same.
Utah attorneys have a heritage similar to Wisconsin, which organized in 1878. Indeed, the American Bar Association also formed in 1878, but because of its multi-jurisdiction membership it remains a voluntary organization today. Wisconsin, Utah, and several other state bar associations went from elite associations of lawyers whose membership did not include all resident attorneys, to becoming fully integrated by the mid-twentieth century. Perhaps revisiting the legal historical roots in Utah will shed some light on what may be misperceptions by many as a gross oversight of our true legal heritage.
The Organic Act for the Territory of Utah passed on September 9, 1850, as part of the Compromises of 1850. However, Brigham Young did not receive word until the following January 28, 1851, when George Q. Cannon returned from California. Cannon had purchased an old copy of The New York Tribune in Los Angeles in December, delivered from a ship traveling from the Panama overland route. Although chagrined at the changes in area and name of the State of Deseret, Young accepted his appointment as governor. See Orson F. Whitney, History of Utah 452 (George Q. Cannon & Sons Co. 1892-1902.
Justices Lemuel G. Brandenbury and Perry Brocchus arrived in August 1851 and joined by Zerubbabel Snow, a Mormon already residing in the territory, gave Utah its first judiciary capable of admitting lawyers to the bar of the federal courts in Utah. The dubious session, however, ended abruptly as Brandenbury and Brocchus fled the jurisdiction in September 1851 in the famous case of the “runaway judges.” Justice Snow was left behind, and on October 6, 1851, an improvised court seal was adopted. The legislative assembly authorized him to hold district court in all three districts, necessitating him to admit members of the bar in the Territory of Utah. Without addressing the history of the troubles of the bench and bar of the Utah Territory over the next forty years, about which much has been written, suffice it to say that the profession of lawyering had some interesting and colorful challenges.
Throughout the latter half of the 19th Century, lawyers who wanted to practice in the Territory of Utah petitioned the Supreme Court for admission, accompanied by the recommendation of an examination committee. Once being admitted, lawyers were members of the bar of all the courts in the territory, much the same as the federal courts continue to do today.1 In essence, there was a Bar of the Territory of Utah, but no bar association existed until 1884. Years later, the Territorial Legislature memorialized the requirements to be admitted to practice law in Section 3100, Volume 2, Page 214 of the Compiled Laws of Utah (1888), which required an applicant to be: (a) a citizen of the United States, or one who has declared his intentions to become the same in the manner as required by law, (b) that he be over the age of 21, (c) of good moral character, and (d) possess the necessary qualifications of learning and ability. It was the latter qualification that was anything but objective.
Education was an integral part of a lawyer’s admission to a bar. The first law school in America was the Litchfield Law School in 1784, followed some sixty years later by Harvard and Yale, and in 1858 at Columbia. The pattern in all law schools was the same, preparation of the student for apprenticeship by studying works such as Abraham Lincoln recommended: Blackstone’s Commentaries, Chitty’s Pleadings, and Story’s Equity and Equity Pleading. The case method of Socratic learning did not appear until Columbus Langdell instituted it at Harvard in 1870, but by 1900 it was gaining favor over the apprenticeship method as the most efficient way to train lawyers in the eastern population centers. However, most lawyers in the 19th Century did not attend law schools, but rather chose to “read” law under the supervision of an experienced lawyer, and serve as the lawyer’s apprentice. An apprenticeship would last preferably two, even three years before applying for admission to a bar. Indeed, as the website of the American Bar Association states,
The legal profession as we know it today barely existed at that time. Lawyers were generally sole practitioners who trained under a system of apprenticeship. There was no national code of ethics; there was no national organization to serve as a forum for discussion of the increasingly intricate issues involved in legal practice.
“History of the ABA,” American Bar Association,, (last visited April 1, 2012).
It is more than a coincidence that the bar associations began appearing the same time legal education was undergoing changes. Though the territory and state did not have a law school until the University of Utah Law School was founded in 1913, the paradigm was certainly not lost on the lawyers of Utah. Law was becoming a sophisticated and organized profession that had infinitely more objective in admission standards and rules of practice.
On January 8, 1894, Elmer B. Jones called a meeting of several attorneys to order, at the Federal Courthouse in Salt Lake City. After preliminaries, Jabez G. Sutherland, Franklin S. Richards, Richard B. Shepard, William H. King, and L. R. Rogers were appointed to form a permanent organization, constitution, and bylaws of a territorial bar association. See Proceedings of the Territorial Bar Association of Utah 4 (Salt Lake City Magazine Co. 1894).

Sutherland had been a prominent lawyer, judge, and congressman from Michigan, and came west to Utah in 1873 to seek a better climate. Although Sutherland was a “Gentile,” Brigham Young immediately retained him as counsel to the LDS Church. His good friend and colleague, Franklin S. Richards succeeded him. On January 31, 1884, Sutherland had helped organize the Salt Lake Bar Association, and served as its first president. In 1894, he was seeking to broaden the ideals of the local bar association into a territory-wide bar association. See 4 Whitney 529-532.
The meeting was adjourned until January 11 in the Supreme Courtroom. At that meeting, Sutherland presented a constitution and bylaws, and upon their acceptance, he was acclaimed unanimously as president of the new Territorial Bar Association of Utah. The members next elected vice presidents for the four districts of the organization, and included Samuel R. Thurman of Provo, First District; Presley Denny of Beaver, Second District; Charles W. Bennett of Salt Lake City, Third District; and James N. Kimball of Ogden, Fourth District. The membership then elected Parley L. Williams, John A. Marshall, Franklin S. Richards, E. M. Allison, and William H. King to the Executive Council. In addition, the committee on grievances was appointed by President Sutherland, underscoring the importance that the association placed on its relations with the public and policing the profession. The meeting closed with a call to all lawyers in the territory wishing to become charter members of the Territorial Bar Association of Utah could do so by paying their dues within twenty days. See Proceedings of the Territorial Bar Association of Utah 1-4.
On February 16, the association met in the Supreme Courtroom at the Federal Courthouse, and had a general business meeting. The bar association clearly manifested its intent to petition the legislature for inclusion of the bar in statutes to assist the courts in such functions as establishing a territorial law library. The meeting also expressed an intent to be active in drafting a multitude of bills for consideration by the legislature, including rules regulating appeals to the Supreme Court. Finally, 73 charter members out of approximately 350 attorneys in the entire territory were admitted to the association, roughly one-fifth of the lawyer population of Utah with a standing invitation for all to join. In short, The Territorial Bar Association of Utah was doing in 1894 the same activities that The Utah State Bar does today.
On June 4, 1894, the bar association convened for the first annual meeting on June 4, 1894. The association named J. H. MacMillan, H. P. Henderson, and P. L. Williams delegates to the American Bar Association meeting being held on August 20 at Saratoga Springs, New York. Eight more attorneys were admitted at the June meeting, bringing the total to eighty-one. Jabez G. Sutherland gave the President’s address, followed by Ogden Hiles, who spoke on “The Codification of the Law.” Walter Murphy also addressed the attorneys on “The Use of the Writ of Injunction to Prevent Strikes,” which, interestingly enough, held the premise that “equity and good conscience required that the employees should not cease to do their work.” The meeting adjourned until the next annual meeting on January 14-15, 1895. See id.
At the January 1895 gathering, Jabez G. Sutherland was again elected president for the coming year, and the emphasis of the meeting was on the upcoming Constitutional Convention in March. Seven members of the bar association were also delegates to the Constitutional Convention, and the bar was intent on being heard, especially on what would become Article VIII dealing with the Judiciary. Dennis Eichnor and Franklin S. Richards were instrumental in carrying the recommendations to the convention. The bar association admitted thirty-four new members, bringing the total membership to 115, one-third of the lawyers in Utah. After a banquet where the members had a choice of roast turkey or filet of red snapper, the association adjourned. See Report of the Annual Meeting of the Territorial Bar Association of Utah 1-7 (Grocer Printing Co. 1895).
On January 13, 1896, nine days after Utah attained statehood, the association elected Jacob S. Boreman President, and J. G. Sutherland, Franklin S. Richards, and John A. Marshall were appointed delegates to the American Bar Association meeting in August. Upon motion, the word Territorial was stricken from the name of the association, and the new name was adopted, The State Bar Association of Utah. Outgoing President Sutherland and Charles Zane addressed the convention about the change from territory to state and proudly explained the new Utah Constitution. Sixteen new members were added, and two died, bringing the total to 129. See Report of the Annual Meeting of the State Bar Association of Utah, 1-8 (Grocer Printing Company 1896).
And so the bar association went on. After the association elected former U. S. Attorney Charles S. Varian President of the bar association in 1898, there was a three-year period between 1899 and 1901 when there was no annual meeting and interest waned. The membership fell back to about seventy-five attorneys where it remained for several years. In 1902, Varian reconvened the annual meeting. With a renewed sense of purpose, the bar again reiterated the late Jabez G. Sutherland’s call for “men of learning and integrity” as the foundation of the association, which was yet to have a woman member. See Meeting of Bar Association, Deseret News, January 21, 1902, at 5.
Disbarment proceedings increased beginning in 1903, but it seemed that the Supreme Court was loath to take away an attorney’s rights to practice. In the few cases of disbarment of an attorney, it was usually for a short period of approximately sixty days. See Case of Lawyer Silberstein, Deseret News, February 20, 1903, at 2. The bar fulfilled virtually the same function it does today wherein the bar acted as the plaintiff bringing the action in the Supreme Court. One notable disbarment in which the bar participated was Judge Orrin N. Hilton, attorney for the famous Joe Hillstrom, who was executed in Utah in 1915. At the funeral of “Joe Hill,” in Chicago, Judge Hilton uttered contemptuous remarks about the Utah Supreme Court. Hilton was sarcastic in his defense and consequently disbarred on July 6, 1916. See Hilton Disbarment is to be Started in Few Days, Salt Lake Telegram, December 3, 1915, at 9. At the time, however, the Supreme Court did not have a pro hac vice provision, and just admitted to the bar attorneys from outside the jurisdiction based on their own state membership. Further, no provisions existed for reciprocal disbarments in other states, which explains Judge Hilton’s flippant attitude.
On August 16, 1915, the State Bar Association of Utah hosted the American Bar Association’s annual meeting that saw Elihu Root, former U. S. Secretary of State and former Senator from New York, elected ABA President. Former President William H. Taft, a former president of the ABA, was the keynote speaker. Taft had a special affection for Utah because it was one of two states he carried in the 1912 presidential election. See Root is Elected Head of Bar Body, Salt Lake Telegram, August 19, 1915, at 1.
On December 3, 1923, the bar launched a massive campaign to enlist all attorneys in the state to join the association. The goal was to have all the lawyers in the state on the rolls of the bar by January 19, 1924, the scheduled annual meeting of the association. The drive fell short of its goal, but association members had the pleasure of hearing from charter member and newly appointed Associate Justice of the U. S. Supreme Court, George Sutherland (no relation to Jabez). See Utah Lawyers Seek Members, Salt Lake Telegram, December 5, 1923, at 19. By now, the association had gone to two meetings per year format, with the semi-annual meeting being held in January, and the annual meeting in June, which saw Charles R. Hollingsworth of Ogden elected president.
On Tuesday afternoon, July 31, 1928, bar president Richard W. Young opened the annual meeting with a call to incorporate the bar association, and allow the bar to discipline its own members. The “integrated” bar was fast becoming the popular mode of organization among other state bars, and the idea interested an increasing number of lawyers in Utah. At a special meeting held on Saturday afternoon, December 29, 1928 in anticipation of the upcoming Utah legislative session, the bar recommended that the legislature integrate the bar into a corporation, and control the practice of law in Utah by a board of commissioners. See Utah Bar Urges Board to Define Lawyers’ Status, Salt Lake Telegram, December 30, 1928, at 2. In the 1929 session of the Utah Legislature, Senate Bill 16 was introduced for the creation of a commission of the Utah State Bar, but did not succeed in passage. The next opportunity came in the 1931 session, and this time, the bar reorganized, incorporated, and integrated, into statutory control by a board of commissioners. The new Utah State Bar required membership of every lawyer in the state, and expulsion from the bar was tantamount to disbarment. See Utah Bar Association Meets for First Time Since Its Creation by the Legislature, Salt Lake Telegram, June 13, 1931, at 7.
Although it is understandable why the Utah State Bar took a new direction, and reorganized as a different entity effective in 1931, it is clear that the bar considered this a reorganization from an association to a corporation, especially because it maintained much of the old traditions of the association. Perhaps it was the stigma of a voluntary organization that never commanded the attention of all lawyers in the state, or the emphasis that the bar had new power and control. Whatever the reason, the bar adopted on its seal the year 1931, but in reality, it should never have abandoned the year 1894. The example of the State Bar of Wisconsin is germane to this discussion.
The State Bar of Wisconsin, although existing in various forms, has never lost sight of the fact that its predecessor in interest organized in 1878. Since then, it underwent reorganization in 1947, and finally, integrated by order of the Wisconsin Supreme Court in 1956. Still, it claims that the organization was founded in 1878, even though it has existed under different entities. So it should be in Utah. From 1894 to 1931, the State Bar Association of Utah was a living, viable organization. From 1931 to 1991, it became a fully integrated bar. In 1991, the entity was again changed to a nonprofit corporation, but still, fully integrated. Though its organizational entities, membership requirements, and powers changed, it is still of the same persona and spirit that existed in 1894. The identical spirit of learning and integrity continues to this day, manifest in the women and men who make up the Utah State Bar.
1. See Lawrence M. Friedman, A History of American Law, 3d ed., (New York: Simon & Schuster, 1973-2005) 495-500, for an excellent discussion of organizing the bar and admission throughout the United States in latter half of the 19th Century.

Survey Says…Mentors Reap Benefits of Mentoring

by Elizabeth A. Wright
At the Utah State Bar Summer Convention in Sun Valley, Idaho, the Bar Commission will recognize Sharon Donovan of Dart, Adamson & Donovan and Riley “Josh” Player, an Assistant District Attorney at the Salt Lake County District Attorney’s Office, as Outstanding Mentors in the New Lawyer Training Program (“NLTP”). New lawyers who have been mentored in the NLTP were invited to nominate their mentors for the first “Outstanding Mentor” award to be given in July. Though Ms. Donovan and Mr. Riley are to be commended for their outstanding service, there were many other terrific nominees. The large number of thoughtful nominations indicates that the new lawyers are truly appreciative of the time mentors devote to them and the relationship that is formed. The following comments from mentees demonstrate the significance of mentoring in the early stages of a lawyer’s career:
• “The relationship that [my mentor and I] developed through the mentoring program is one of the most valuable assets I maintain in my practice.”
• “[My mentor] guided me through my first year as an attorney and continues to do so as I become a more experienced attorney. I am a better attorney because of [my mentor’s] guidance.”
• “I gained a life-long friend and confidant.”
• “My mentor taught me how to be a good member of the legal community.”
• “[My mentor’s] encouragement and advice helped me through a very difficult first year as a new lawyer.”
• “[My mentor] was genuinely interested in making sure that I was prepared to be a well-rounded and skilled attorney.”
The Bar’s mentoring program has been humming along nicely since 2009. The NLTP requires new admittees to the Utah State Bar to work with a Utah Supreme Court Approved Mentor during their first year of practice.1 The mentor and new lawyer are required to meet once a month for twelve months to discuss the new lawyer’s legal work, professional development, and adjustment to the practice of law. They are also required to discuss the Rules of Professional Conduct as a means of more effectively teaching and fostering professionalism, ethics and civility. Both the new lawyer and the mentor receive twelve CLE credits for participating in the program. There are 804 approved mentors in the NLTP, 285 of whom are currently mentoring new lawyers. By the time this article appears in print, 561 new lawyers will have completed the program.
As Coordinator of the NLTP, I have the pleasure of interacting on a regular basis with our state’s newest lawyers and have found it extremely rewarding to work with new lawyers as they begin their careers and find their way in the profession and our legal community. I am glad to answer new lawyers’ questions about the Utah State Bar, how it works and what it offers to them professionally and personally.
However, because of the way the NLTP is designed, I have much less interaction with our NLTP mentors. I am aware of the time and effort NLTP mentors are devoting to their mentees, not only because I know what the program requires of them, but because I hear from the new lawyers about the work they do together. I know the practice of law is stressful and time consuming. I know people’s personal lives are busy. I know that mentoring hours are non-billable. So when I see and hear what NLTP mentors are doing to teach and help their mentees I am appreciative, but I also hope and wonder if they are glad they took on this huge task.
Why would a busy, experienced lawyer take the time to mentor a new lawyer? There are multiple studies and articles that discuss the benefits of mentoring for the mentor.2 The benefits of mentoring include building leadership skills, expanding horizons, revitalizing an interest in one’s own career, and expanding one’s professional network. Mentoring is good for business because it helps legal organizations attract and retain good lawyers. Finally, mentoring is community service. Lawyers who are successful and/or who had mentors themselves often like and want to give back to the profession.
To find out if NLTP mentors are reaping the benefits of mentoring, the Bar did a survey of mentors in 2011. The mentors who responded all said they would mentor again and recommend mentoring to other experienced practitioners. 88.7% think that mentoring is an effective way to train new lawyers in the practice of law. 94% will maintain a relationship with their mentee. 87.3% feel they benefitted from participating as a mentor.
Here are some quotes from the survey that support what the studies say about the benefits of mentoring:
• “Mentoring made me reflect on my practice and how I could improve.”
• “It is gratifying to pass on what you have learned in practice.”
• “It gave me an appreciation of how hard it is to commence a practice and what ‘blind spots’ new lawyers have that require assistance.”
• “I had to pay much more attention to detail and it required me to make sure I understood and followed correct procedure. Mentoring required me to update myself on certain areas of the law.”
• “It made me review the Rules of Professional Responsibility.”
• “It helped me share my experience and advice to better help the new lawyer, which in turn made me feel better about my job as an attorney.”
• “I benefited as it was a way of paying back to those that encouraged me in my early legal career.”
• “I had to analyze the ‘why’ of things.”
• “The preparation for each session was good review for me.”
• “New relationships will foster career development for both parties.”
• “I made a much stronger connection to the new attorney than would have taken place otherwise.”
• “It is a great feeling to be a mentor. Both times have been very special, particularly at months 10, 11, 12 as you realize how much you’ve been able to do together.”
• “I enjoyed being around enthusiastic young people.”
• “Acting as a mentor showed me how much my knowledge, skills, and confidence have increased since I was a new lawyer. I confirmed that I actually know a few things about practicing law and doing it well.”
The survey results mirror the scholarship about mentoring and demonstrate that mentors find the mentoring experience personally and professionally beneficial. Serving as a mentor creates an opportunity for mentors to develop new business contacts, friendships that may last a lifetime, the opportunity to pass on some of their insights from years of practice, and the satisfaction of knowing they have contributed positively to the well-being and integrity of the profession.
1. New admittees who have practiced in another jurisdiction for at least two years or who live outside of Utah are exempt from the NLTP.
2. See, e.g., Raymond A. Noe, David B. Greenberger and Sheng Wang, Mentoring: What We Know and Where We Might Go, 21 Research in Personnel and Human Resources Management 129, 151 (2002); Connie R. Wanberg, Elizabeth T. Welch and Sarah A. Hezlett, Mentoring Research: A Review and Dynamic Process Model, 22 Research in Personnel and Human Resources Management 39, 52-53 (2003); Sharon K. Gibson, Being Mentored: The Experience of Women Faculty, 30 Journal of Career Development 173, 173 (2004).

Thank You to those who are currently mentoring a new lawyer in the New Lawyer Training Program. The future of the legal profession is stronger because of your service.
Grace Acosta
J. Keith Adams
Nate Alder
Steve Alder
Stephen Alderman
Brent Anderson
Derek Anderson
Gary Anderson
Kevin Anderson
Robert Anderson
Steve Anderson
Dean Andreasen
Joan Andrews
Anne Armstrong
Patrick Ascione
Spencer Austin
Bruce Babcock
Justin Baer
Stephanie Barber-Renteria
John Barlow
Peter Barlow
Brent Bartholomew
Joseph Bean
Sara Becker
Ryan Bell
Tim Blackburn
Martin Blaustein
Nanci Bockelie
Troy Booher
Richard Bradford
Kenneth Bradshaw
John Braithwaite
Matthew Brimley
Brent Brindley
Allan Brinkerhoff
Berne Broadbent
David Broadbent
Daniel Brough
Robert Brown
Franklin Brussow
Stephen Buhler
George Burbidge
Richard Burbidge
H. Dickson Burton
Martin Bushman
Adam Caldwell
Ryan Carter
Patricia Cassell
Terry Cathcart
Grant Charles
Stephen Christensen
Jordan Christianson
Mary Jane Ciccarello
Perry Clegg
Christian Clinger
Matthew Cox
Daniel Cragun
T. Edward Cundick
David Cutt
Chris Dexter
Lynn Donaldson
Sharon Donovan
Sandra Dredge
Clifford Dunn
Doug Durbano
Matthew Durham
Phillip Dyer
Dawn Emery
David Evans
Mr. Dana Facemyer
Tamara Fackrell
Jennifer Falk
Mr. Dana Farmer
Adam Ford
Stuart Fredman
Steve Garside
Sarah Giacovelli
Barton Giddings
Corbin Gordin
Steve Gordon
Deirdre Gorman
Marlin Grant
Roger Griffin
Andrew Gustafson
Jon Hafen
David Hall
Narvell Hall
Kristy Hanson
Sheleigh Harding
Thomas Hardman
Laurie Hart
James Harward
James Haskins
Deacon Haymond
Bill Heder
Jack Helgesen
Roger Henriksen
Deborah Hill
Lincoln Hobbs
Trent Holgate
Michael Holje
Jeffrie Hollingworth
Randall Holmgren
John Holt
Michael Hoppe
Catherine Hoskins
Jackson Howard
Robert Huges
Loren Hulse
David Hunter
Graden Jackson
Robert Janicki
Annette Jarvis
Lindsay Jarvis
Nathan Jennings
Tyler Jensen
Bryan Johansen
Bart Johnson
Brandon Johnson
Greg Jones
J. Edward Jones
Philip Jones
Richard Jones
Kris Kaufmann
Anthony Kaye
Michael Keller
Steven Killpack
Felshaw King
Jennifer Korb
James Kruse
Jonathan Lear
Reid Lewis
Ben Lieberman
Laron Lind
Margaret Lindsay
Randy Lish
Kenneth Lougee
Howard Lundgren
Nathan Lyon
Paul MacArthur
Ronald Madson
Abigail Magrane
David Mangum
Brent Manning
Elaina Maragakis
Eric Maschoff
James McConkie
Karen McCreary
Benji McMurray
Gwyn McNeal
Stacy McNeill
Jeffrey Miner
Michelle Mitchell
Roy Montclair
Jerome Mooney
Marty Moore
Sophia Moore
John Morris
Mark Morris
John Morrison
Alan Mortensen
Robert Morton
Brennan Moss
Duane Moss
Robin Nalder
Robert Neill
Nathan Nelson
Matthew Olsen
Blake Ostler
Langdon Owen
Stephen Owens
Sheila Page
Bradley Parker
Robert Parrish
Robert Payne
Lisa Petersen
Richard Peterson
Robyn Phillips
Keith Pope
Albert Pranno
Stephen Quesenberry
Laura Rasmussen
Scott Rasmussen
J. Bruce Reading
Kenlon Reeve
Reuben Renstrom
Tupakk Renteria
David Reymann
Rodney Rivers
Charles Roberts
Kristine Rogers
Richard Russell
Scott Sabey
Brent Salazar-Hall
Daniel Sam
Stephen Sargent
Dean Saunders
Stacey Schmidt
Christina Schmutz
Peter Schofield
Kent Scott
Thomas Scribner
Thomas Seiler
Lori Seppi
Paul Simmons
Jeremy Sink
Michael Skolnick
Greg Skordas
Neil Skousen
Everett Smith
Kelly Smith
Trystan Smith
Amy Sorenson
Terry Spencer
Ryan Springer
Justin Starr
Daniel Steele
Steven Stewart
Doug Stowell
Robert Sykes
Cory Talbot
Anne Marie Taliaferro
Reid Tateoka
Benjamin Thomas
Mark Tolman
Justin Toth
Randall Trueblood
Allen Turner
Chad Utley
Richard Van Wagoner
Malanie Vartabedian
Padma Veeru-Collings
Phyllis Vetter
Charles Veverka
Ed Wall
Robert Wallace
Curtis Ward
Beatryx Washington
Judge R. Scott Waterfall
Gary Weight
Todd Weiler
Judge Brent West
Robert West
Gary Weston
Heather White
Nathan Wilcox
Mark William
Donald Winder
Bruce Wycoff
Drew Yeates
Lisa Yerkovich
Brent Young
Jamie Zenger
Linda Zimmerman

The Mortgage Lender’s Primer on a TILA Rescission Claim

by Aaron B. Millar
The latest statistics show that although the Utah foreclosure rate has decreased, Utah foreclosures are still quite high relative to the nation. In Q3 2011, one in 145 Utah homes was in foreclosure, sixth highest in the nation. See Consumers often turn to consumer protection statutes, such as the federal Truth in Lending Act (“TILA”), for protection against foreclosing lenders.
Imagine this scenario: Hours before the foreclosure sale, the mortgage lender receives a fax from the defaulting borrower’s lawyer stating that the borrower rescinds the loan and that the lender is obligated to reconvey its deed of trust because the finance charge in the loan disclosures was understated by $36. The borrower further demands that the lender return all of the fees and interest payments the borrower made on the loan. Possible? Yes. Many lenders have been unprepared to confront a rescission demand under TILA. Given the tight statutory time frame and the risks involved, the lender must proceed expeditiously and with caution when responding to a rescission demand.

TILA is a strict liability statute that requires lenders to provide certain notices and disclosures to consumers so that the consumer can shop interest rates. Failure to provide accurate disclosures subjects lenders to TILA’s damages and rescission remedies. If a consumer elects to rescind the loan transaction, a lender can lose its security interest in the property and be required to pay back all fees, costs, and interest payments that it received from the borrower. Just as daunting, the lender has a mere twenty days to rescind upon receipt of the borrower’s rescission notice. After the lender fulfills its obligations, the borrower must tender the loan proceeds. The lender’s failure to rescind can result in severe penalties. In one case outside of Utah, for example, the court held that because the lender failed to accept the borrower’s valid rescission notice, the borrower did not have to tender and was able to keep the loan proceeds. See Family Fin. Servs v. Spencer, 677 A.2d 479 (Conn. App. Ct. 1995).
Notwithstanding the potentially draconian nature of rescission, the narrow drafting of TILA and the equities taken by federal courts in Utah have limited its application. Thus, a proper TILA analysis will often show that the loan at issue affords no right of rescission. The following is an issue checklist for lenders to consider upon receiving a rescission notice:
Has the statute of limitations run on the TILA rescission claim?
The TILA rescission remedy is popular among consumers because it expires three years after the loan consummation if “right of rescission” or accurate material disclosures are not given to the borrower. (In contrast, a TILA claim for damages has a short, one-year statute of limitations.) The U.S. Supreme Court has held that even if the rescission claim is brought as a defense to a foreclosure proceeding, or is in the nature of “recoupment,” the three-year period is not extended. See Beach v. Ocwen Fed. Bank, 523 U.S. 410, 416 (1998). If the borrower files for bankruptcy protection before the three-year period has run, however, the statute of limitation is extended two years.
Is the subject transaction a refinancing or a purchase money transaction?
Only refinance transactions secured by the consumer’s principal dwelling have a rescission right under TILA, not loans for the purchase or construction of that property. Even if only a portion of the loan proceeds is used to construct or purchase the dwelling, the consumer may not rescind the loan.
What was the consumer’s purpose in obtaining the allegedly offending loan?
Only loans obtained for personal, family, or household purposes are covered by TILA. The security for the loan is not determinative of the loan’s “purpose.” For example, if the borrower gives a trust deed on his home as security for a loan to further his business, the loan is not protected by TILA. To determine whether the purpose of the loan is for consumer purposes, the majority of courts look at the purpose of the original loan, not the subsequent purpose for which that loan was later refinanced.
Has the borrower alleged his ability to tender the amount of the loan?
Under TILA, the borrower need only tender the loan proceeds after the lender rescinds the loan. The majority of courts, however, have exercised their equitable powers to condition rescission on the borrower’s tender. Although the Tenth Circuit has not considered this issue, Judge Kimball followed the Circuit majority and twice held that unless the plaintiff alleges the ability to repay the loan in the borrower’s rescission notice and subsequent complaint, the TILA rescission claim may be dismissed on a motion to dismiss. See Black v. First Choice Fin., LLC, 2011 U.S. Dist. LEXIS 133317, at **5-6 (D. Utah Nov. 18, 2011) (quoting Sanders v. Ethington, 2010 U.S. Dist. LEXIS 133996 (D. Utah Dec. 16, 2010)).
This view is not unanimous in Utah. Judge Campbell, for example, held that a failure to allege repayment ability is not a proper consideration on a motion to dismiss because alleging the ability to tender is not required by TILA. See McGinnis v. GMAC Mortg. Corp., 2010 U.S. Dist. LEXIS 90286, at *14 (D. Utah Aug. 27, 2010). Judge Campbell also noted that generally the borrower must demonstrate an ability to tender the loan proceeds to survive a summary judgment motion. See id. at *13.
The minority of courts have denied conditional rescission, holding that the lender’s obligation to rescind is not dependent on the borrower’s ability to tender the loan amount.
Is the alleged TILA violation a material disclosure violation or a technical violation?
If only a technical violation is alleged, rescission is unavailable – only TILA damages may be available, though subject to the one-year statute of limitations. See id. at *11.
Two copies of the notice of the right to rescind must be given to each person who both (1) lives in the dwelling; and (2) has an ownership interest in the dwelling, even though that person may have no personal obligation for the debt.
With respect to other required disclosures, the failure to accurately disclose any of the following will be considered a material violation subject to a three-year right of rescission: (1) annual percentage rate or “APR,” (2) finance charge,1 (3) the amount financed, (4) the sum of the amount financed and the finance charge (termed the “total of payments”), and (5) the number, amount and due dates of payments to repay the total of payments.
Has the home been sold?
The right of rescission expires once the home is sold or title is transferred.
Has the original lender assigned the loan?
As it relates to TILA rescission, any consumer who has the right to rescind a transaction against the lender may rescind the transaction as against any assignee of the lender.
Is the subject transaction a refinancing (with no new advances) of an existing extension of credit by the same lender?
In some cases, consumers with equity in their homes have refinanced their home mortgage with the same lender multiple times in order to obtain a better interest rate. Such a consumer may be unable to rescind this refinancing transaction. A federal district court in Utah recently declined to rescind a refinanced loan obtained from the same lender that had originated the original loan. See Wright v. Residential Acceptance Network, 2011 U.S. Dist. LEXIS 104305 (D. Utah Sept. 14, 2011). The Wright court’s rationale: TILA affords no rescission right for “a transaction which constitutes a refinancing or consolidation (with no new advances) of the principal balance then due and any accrued and unpaid finance charges of an existing extension of credit by the same creditor secured by an interest in the same property.” 15 U.S.C. § 1635(e)(2).
Has the borrower already refinanced the allegedly offending loan?
Some courts disallow rescission of a loan subsequent to refinancing since refinancing eliminates any security interest (and rescission results in the removal of a security interest). Thus, these courts have concluded that refinancing “supersedes” the deed of trust (security interest) underlying the original loan.
Other jurisdictions have allowed rescission of a refinanced loan, noting that TILA and applicable regulations refer to a right to rescind the transaction, not just a right to rescind the security interest, and rescission would also entitle mortgagors to finance and other charges.
Federal district courts in Utah have not determined whether a loan can be rescinded after it has been refinanced.
A lender must act decisively when faced with a notice of rescission. If the creditor determines that the subject loan transaction may not be rescinded under TILA, then the lender should promptly petition the court for a declaration of its rights.
If the lender determines that the loan is subject to rescission, then the lender should immediately petition the court for an order allowing the lender to condition the reconveyance of its security interest on the tender of the loan proceeds the borrower received. Without such an order, after the lender reconveys its deed of trust, the borrower could sell or encumber the real property. The borrower could use the funds to pay off other debts that are non-dischargeable in bankruptcy. When the lender sues the borrower for failure to return the loan proceeds, the borrower could wait until the bankruptcy preference period had run, then file Chapter 7 bankruptcy to discharge the borrower’s duty to tender the loan proceeds to the lender, leaving the lender with a total loss on its loan. Faced with this possibility, many courts order that the deed of trust will not have to be reconveyed until the borrower tenders back the loan proceeds.
Regardless of the approach taken, the lender should take deliberate action to preserve its rights.
1. If the creditor has not yet instituted foreclosure proceedings when the borrower rescinds, the creditor’s finance charge disclosure must come within one-half of one percent of the total amount of the loan to be within the permissible range of accuracy. If the creditor has initiated foreclosure, the disclosure of the finance charge will be regarded as accurate “if the amount disclosed…does not vary from the actual finance charge by more than $ 35 or is greater than the amount required to be disclosed.” 15 U.S.C. § 1635(i)(2).

Article – Utah Originalism

by Troy L. Booher
The Utah Supreme Court has had a tenuous relationship with originalism. Originalism is a collection of views unified by their treatment of events at the time constitutional text was drafted and ratified as determinative of how that text later should be interpreted. Although originalism is often associated with political Conservatism, it is worth keeping in mind that originalism produces decisions in line with other political viewpoints. Consider, for example, State v. Hernandez, 2011 UT 70, 268 P.3d 822, a recent case in which the Utah Supreme Court, in light of the history and original understanding of Article I, Section 13 of the Utah Constitution, held that a preliminary hearing is required not just in cases involving felonies but also in cases involving Class A misdemeanors. See id. 2011 UT 70, ¶ 29. While originalists look to the views of the founding generation, originalism does not require that those views track any particular political ideology.
The Utah Supreme Court has not settled on what information it will consider when interpreting the Utah Constitution. For instance, in 1993, the court described the relevant considerations as “historical and textual evidence, sister state law, and policy argument in the form of economic and sociological materials.” Soc’y of Separationists, Inc. v. Whitehead, 870 P.2d 916, 921 n.6 (Utah 1993). But in 2006, the court expressly removed “policy argument” from that list of relevant considerations and stated instead that it will consider “text, historical evidence of the state of the law when it was drafted, and Utah’s particular traditions at the time of drafting.” Am. Bush v. City of S. Salt Lake, 2006 UT 40, ¶ 12 n.3, 140 P.3d 1235. Then in 2007, the court declared that historical arguments “do not represent a sine qua non in constitutional analysis.” State v. Tiedeman, 2007 UT 49, ¶ 37, 162 P.3d 1106. It again stated that relevant considerations include “historical and textual evidence, sister state law, and policy argument in the form of economic and sociological materials.” Id.
The primary dispute emerging from those cases is not whether text and historical evidence are relevant to constitutional interpretation, but whether policy arguments also are relevant. See, e.g., State v. Walker, 2011 UT 53, ¶ 32 n.9, 267 P.3d 210 (Lee, J., concurring); Am. Bush, 2006 UT 40, ¶ 73 n.2 (Durrant, J., concurring). Viewed through the lens of originalism, that dispute can be understood in at least two ways: (i) whether originalism is the method by which the Utah Constitution should be interpreted or (ii) whether originalism authorizes courts to consider policy arguments in interpreting the Utah Constitution.
In addressing the relationship between originalism and policy, justices of the Utah Supreme Court in opinions and members of the Utah State Bar in various articles published in this Journal have assumed that originalism dictates the same analysis when applied to the Utah Constitution as when applied to the United States Constitution.1 That assumption is unwarranted. Utah originalism is different because Utah history and the Utah Constitution are different. And those differences make it far from obvious that policy arguments are irrelevant when interpreting the Utah Constitution, even for originalists.
Originalism and the United States Constitution
Nearly all discussions of originalism concern how to interpret the United States Constitution. Justice Scalia has framed national debates concerning originalism in a particularly useful way, i.e., as debates over whether the method of common law judging – by which judges “make” and improve the law in light of policy arguments – should be the method for interpreting constitutions and statutes.2 Justice Scalia argues that it is undemocratic and illegitimate for judges to employ the common law method when interpreting legal texts such as constitutions.
The relationship between democracy and constitutionalism is too complex to summarize here. It is possible, however, to mention some of the most common arguments advanced in support of originalism that involve appeals to democratic principles.
1. Judges are not authorized to employ the common law method when interpreting constitutional text because judges are not politically accountable. Under Article III, Section 1 of the United States Constitution, federal judges have life tenure and their compensation may not be diminished. As the famous anti-federalist Brutus complained, Article III made judges “independent of the people, of the legislature, and of every power under heaven.” Brutus Essay XV (Mar. 20, 1788). Because judges are not politically accountable, their decisions have democratic legitimacy only to the extent judges are merely interpreting laws enacted through appropriate democratic processes, such as ratified constitutional provisions. For that reason, judges should avoid policymaking and instead act, as Justice Roberts put it during his confirmation hearing, as umpires calling balls and strikes.3 Originalism ensures that judges frustrate the views of current majorities only by exercising authority derived from those past supermajorities who ratified the constitutional provision under which the state action is unconstitutional.
2. Judges are not authorized to employ the common law method when interpreting constitutional text because, at the founding, it was understood that judges would enforce statutes as long as those statutes were arguably constitutional. To the extent broad constitutional language was vague or ambiguous (e.g., “freedom of speech” or “due process”), the political branches were authorized to elaborate their meaning. In 1789, not only was judicial review controversial, but, to the extent it was accepted, it was confined to declaring statutes unconstitutional only when those statutes clearly violated the Constitution. As Professor James Thayer put it a century later in 1893, judicial review “was denied by several members of the Federal convention, and was referred to as unsettled by various judges in the last two decades of the last century.”4 And when judicial review became widely accepted, the judiciary could declare statutes unconstitutional only when “the violation of the constitution is so manifest as to leave no room for reasonable doubt.” Commonwealth ex rel. O’Hara v. Smith, 4 Binn. 117, 123 (Pa. 1811). Originalism, therefore, requires judges to defer to political branch interpretations of constitutional text as long as those interpretations fall within a range of reasonable meanings of that text. The political branches, not the judiciary, are authorized to elaborate the meaning of vague or ambiguous constitutional text. As Brutus would have put it, because the political branches are politically accountable, those branches elaborate meaning “at their peril.” Brutus Essay XV.
3. Judges are not authorized to employ the common law method when interpreting constitutional text because, unlike unpopular common law and unpopular interpretations of statutes, both of which can be altered by statute, unpopular interpretations of the constitution are extremely difficult to alter through constitutional amendment. Arguably, legislative bodies tacitly approve of common law by failing to enact legislation to alter it and tacitly approve of judicial interpretations of statutes by failing to amend those statutes. Depending upon the nature of the legislative process, such claims of tacit consent have some purchase. But given how difficult it is to amend the United States Constitution, it is pure fiction to consider citizens as tacitly consenting to a judicial interpretation of the Constitution by failing to amend the Constitution. Because judicial interpretations of the Constitution are nearly impossible to correct through amendment, judges must interpret the Constitution in accordance with its original meaning instead of employing a common law method. Otherwise, the common law method provides a license to unelected judges to change the meaning of constitutional provisions in a way no majority, let alone a supermajority, has authorized.
The combination of those familiar arguments makes a fairly powerful point concerning the relationship between democracy and judicial interpretations of the United States Constitution. Were federal judges authorized to employ common law methods when interpreting constitutional text, five citizens (justices) with no political accountability would have authority to change the Constitution to mean something that no other citizens had authorized and that a majority of citizen realistically could not alter through constitutional amendment.
There are several responses to those arguments, none of which can be explored in any depth here. Alexander Hamilton in Federalist 78 suggested that a political check would be the executive branch’s refusal to enforce the Court’s decisions. As Hamilton put it, the judiciary is the least dangerous branch because it has “no influence over either the sword or the purse.” The Federalist No. 78 (Alexander Hamilton). Instead, the executive branch has the sword, which it can decline to use to enforce the Court’s decisions “at its peril.”
Another response is that the Constitution, and especially the Bill of Rights, was designed to check future majorities as much as to enable future majorities to govern themselves, and, therefore, the anti-democratic implications should be embraced, not lamented. Arguably, even before the Bill of Rights it was understood that members of the federal judiciary would serve as a natural aristocracy, something James Madison recognized in Federalist 49. See The Federalist No. 49 (James Madison). In that essay, Madison articulates a number of arguments “against a frequent reference of constitutional questions to the decision of the whole society.” Id. The “permanency” of judicial appointments would allow judges to thwart the “passions” of current majorities and provide a more stable government based upon “reason.” Id. We created a republic with checks and balances, not a direct democracy, for that very reason.
I mention such responses only to acknowledge them, not to suggest they are decisive. And there are a number of other responses I will not mention because my point here is different. My point is that, even assuming the originalist arguments are compelling with respect to interpretation of the United States Constitution, those arguments cannot be transplanted mechanically into discussions of how to interpret the Utah Constitution. For originalists, any discussion of Utah originalism must rely upon the history surrounding the Utah Constitution.
Originalism and the Utah Constitution
To be clear, this article does not demonstrate that Utah judges are authorized to employ a common law method and consider policy arguments when interpreting the Utah Constitution. That requires much more discussion. Instead, this article suggests that it is a mistake to conclude that Utah judges are not authorized to employ the common law method when interpreting the Utah Constitution merely because federal judges are not authorized to employ the common law method when interpreting the United States Constitution.
Consider how the originalist arguments described above differ when the discussion changes to the Utah Supreme Court’s authority to interpret the Utah Constitution, ratified in 1896.

1. The framers of the Utah Constitution could not have considered it inappropriate for judges to elaborate constitutional text on the ground that Utah judges were not politically accountable. In 1896, the Justices of the Utah Supreme Court were “elected by the electors of the State at large.” Utah Const. art. VIII, § 2 (1896). Today, Utah judges remain subject to retention elections. While a retention election is not a political check equivalent to an election for a legislative seat, it is unclear why that would make much difference, as it is the original understanding of the role of the judiciary that matters in determining the interpretative method contemplated by the framers. In 1896, Utah judges – unlike federal judges – were politically accountable, so Utah originalism should take that into account.
2. By 1896, judicial review was widely accepted with respect to the United States Constitution, as well as the constitutions of Utah’s sister states. And it was unsettled whether judges should confine themselves to declaring statutes unconstitutional only when a statute’s unconstitutionality was “so manifest as to leave no room for reasonable doubt.” In fact, Professor Thayer’s 1893 article mentioned above was written to point out how the judiciary had strayed from its original role with regard to constitutional interpretation. Professor Thayer lamented the fact that the practice of judges’ declaring statutes unconstitutional “has already been carried much too far in some of our States.”5 And unlike the United States Supreme Court, which declared only two statutes unconstitutional in the fifty-eight years from 1789 to 1857, see Marbury v. Madison, 5 U.S. 137 (1803); Dred Scott v. Sandford, 60 U.S. 393 (1857), the Utah Supreme Court declared as many statutes unconstitutional within its first two years, see State v. Armstrong, 17 Utah 166, 53 P. 981, 983 (1898) (declaring a statute unconstitutional but cautioning that “the question whether an enactment of the legislature is void because of its repugnancy to the constitution is always one of much delicacy, and in a doubtful case should seldom, if ever, be decided in the affirmative”); In re Handley’s Estate, 15 Utah 212, 49 P. 829 (1897) (declaring unconstitutional a statute that declared all judgments entered by courts of the territory involving the rights of polygamous children to be non-final). Just prior to statehood in 1889, the Supreme Court of the Territory of Utah declared unconstitutional a statute imposing strict liability on railroad companies for injuries to livestock. See Jensen v. Union Pac. R.R, 6 Utah 253, 21 P. 994, 995-96 (1889). The understood scope of judicial review in Utah in 1896 may not have been the understanding in the United States in 1789.
3.Amending the Utah Constitution is not as onerous as amending the United States Constitution. While it remains difficult – and in my view should remain difficult – to amend the Utah Constitution, the danger that an unpopular interpretation of the Utah Constitution will be practically impossible to correct through the political process pales in comparison to that danger with regard to interpretations of the United States Constitution.
Those considerations reveal that the Utah Supreme Court’s struggle concerning whether to consider policy arguments when interpreting the Utah Constitution perhaps should not be characterized as whether the court will adopt originalism as its method for interpreting the Utah Constitution. Instead, the issue should be characterized as whether Utah originalism sanctions judges to consider policy arguments. If in 1896 it was understood that the judiciary had authority to elaborate the broad language, or a particular vague or ambiguous provision, of the Utah Constitution, then it may be that Utah originalism authorizes – perhaps even commands – Utah judges to consider policy arguments when interpreting the Utah Constitution. For now, we can conclude that such questions cannot be answered simply by appeal to national discussions of originalism. We need Utah originalism for that.
1. See Paul Wake, A Precious Birthright or Federal Porridge: Which Should Utah Lawyers Choose?, Utah B. J., Jan.–Feb. 2007. See, e.g., Boyd Kimball Dyer, A Conservative View of the Originalist View of the Bill of Rights, Utah B. J., Jan.–Feb. 2006; David R. McKinney, The Tyranny of the Courts, Utah B. J., Nov.–Dec. 2005; John J. Flynn, Making Law and Finding Facts” – Unavoidable Duties of an Independent Judiciary, Utah B. J., July–Aug. 2005.
2. See Antonin Scalia, A Matter of Interpretation: Federal Courts and the Law, 9 (Princeton University Press 1997).
3. See I Come Before the Committee With No Agenda. I Have No Platform, N.Y. Times, Sept. 13, 2005, at A28.
4. James Bradley Thayer, The Origin and Scope of the American Doctrine of Constitutional Law, 7 Harv. L. Rev. 129, 132 (1893); see also Note, Judicial Check on Unconstitutional Legislation, 9 Harv. L. Rev. 277, 277 (1895) (“The exercise by the courts of this country of the power to declare acts of a co-ordinate legislature void because of unconstitutionality has become so much of a commonplace, that the peculiar circumstances which led to the establishment of the power are likely to be forgotten.”).
5. Thayer, supra note 4 at 156.

Advice on Not Giving Investment Advice

by Jason D. Rogers and Brad R. Jacobsen
Many people would believe that investment advisers are only those that give opinions on which stocks, bonds, or mutual funds to buy. However, under applicable securities laws “investment adviser” is much more broadly defined than commonly thought, potentially including those who simply give general financial counseling or planning or those who recommend the purchase of a particular asset.
The question of whether or not a person is an investment adviser frequently arises in a real estate, insurance, or other sales context. Such salespeople would not generally think they are subject to the securities laws, but, depending on their activities, they may be.
The following will be addressed:
• What makes an individual an “investment adviser”?
• What steps may be taken to avoid being deemed an investment adviser?
“Investment advisers” generally must be licensed by an applicable regulator. Investment advisers are regulated by both federal and state law.
Federal Regulation
At the federal level, investment advisers are governed by the Investment Advisers Act of 1940 (the “Act”). See 15 U.S.C. § 806-1 et seq. The Act defines an investment adviser as “any person who, for compensation, engages in the business of advising others…as to the value of securities or as to the advisability of investing in, purchasing, or selling securities….” Id. § 806-2(a)(11). “Securities” include a broad array of instruments and agreements, including much more than the commonly-used definition of the word.
Special rules apply to investment advisers, including specific prohibitions against fraudulent practices, undisclosed conflicts of interest, fee splitting with unregistered investment advisers, deceptive advertising, limitations on referral fees, and prohibitions of certain advisory fees. Additionally, investment advisers generally must be registered with federal or state regulators. Violations of these rules can subject investment advisers to civil and criminal penalties.
The U.S. Securities and Exchange Commission (SEC) has set out the following three requirements, all of which must be satisfied to be an investment adviser. A person is an investment adviser if the person:
(1) Provides advice, or issues reports or analyses, regarding securities (“investment advice”);
(2) Is in the business of providing such services; and
(3) Provides such services for compensation.
SEC Interpretive Release No. IA-1092, 1987 SEC No-Act. LEXIS 2555 (Oct. 8, 1987) (referred to as “IA-1092”).
Each requirement will be discussed.
Provides Investment Advice
There are few clear-cut rules to define investment advice. Most of the guidance has come through SEC no-action letters dealing with the following particular situations.
General Rules
Giving advice on specific securities is investment advice, such as providing market timing services. See Lee F. Richardson, 1990 SEC No-Act. LEXIS 32 (Jan. 9, 1990). A person who provides advice concerning securities, even if the advice does not reference specific securities, is generally an investment adviser. See IA-1092. This includes advising clients concerning the relative advantages and disadvantages of investing in securities in general as compared to other investments. See Richard K. May, 1979 SEC No-Act. LEXIS 3967 (Dec. 11, 1979). Encouraging people to liquidate securities to purchase real estate, insurance, or other assets could be considered investment advice.
Situations That May Be Investment Advice
A person could be providing investment advice if, in the course of developing a financial program, he recommends that clients allocate certain percentages of their assets to life insurance, high yielding bonds, and mutual funds. See IA-1092. Investment advice also may include analyzing information to give categories of investments that similar investors historically have been satisfied with. See Financial Psychology Corporation, 1988 SEC No.-Act. LEXIS 413 (Mar. 23, 1988). A person providing advice as to the selection or retention of an investment manager also may be giving investment advice. See IA-1092.
Situations That Are Not Investment Advice
Providing general, impersonal, and historical information does not constitute investment advice. Describing investment options available through an employee benefit plan, without including analysis or recommendation with respect to options, is not investment advice. See Pension & Welfare Benefits Administration, 1996 SEC No-Act. LEXIS 316 (Feb. 22, 1996). Providing merely administrative or ministerial functions does not constitute investment advice. See League Central Credit Union, 1987 SEC No-Act. LEXIS 2369 (Aug. 21, 1987).
In another example, a publisher of a financial bulletin that indicated prices at which it recommended buying or selling publicly-traded stocks gave seminars to promote its bulletin. See Laketon Corporation, 1993 SEC No-Act. 912 (Jul. 26, 1993). At the seminars it offered only general, impersonal advice, explaining the statistical basis for the bulletin’s recommendation, the methods it used to recommend investments and why investors should follow its approach. The seminars were not designed to require attendance for more than one session. The SEC declined to take action against the publisher based on the fact that (1) the seminars were only designed to solicit subscriptions;1 (2) the seminars offered only general, impersonal advice about the publisher’s investment strategy; and (3) each program was discrete and was not designed to attract or require attendance on more than one occasion.
The line between what constitutes giving “investment advice” (requiring a person to be licensed as an investment adviser) and what does not, unfortunately, is not a clear line. The determination of whether any person should be licensed as an investment adviser (or otherwise) will require a review of the facts and circumstances for each individual. See IA-1092. The SEC generally will not issue no-action letters regarding financial planning activities, so it is difficult to obtain further guidance. See George J. Dippold, 1990 SEC No-ACT. LEXIS 748 (May 7, 1990).
Providing general, impersonal, and historic information is not investment advice. However, personalizing the information, if it emphasizes that alternative investments are superior to securities, could become investment advice. Special care should be taken to avoid personalizing the information. Explaining options does not constitute investment advice, but recommending a particular option becomes investment advice.

The “Business” Standard
The second requirement involves whether a person’s activities constitute being “in the business” of an investment adviser. Giving investment advice must be a business activity occurring with some regularity, but even the frequency of giving advice is not determinative.
The SEC considers a person to be “in the business” of an investment adviser if the person satisfies any of the following three tests:
• The person holds himself or herself out as an investment adviser or as one who provides investment advice;
• The person receives any separate or additional compensation that represents a clearly definable charge for providing advice about securities or receives transaction-based compensation if the client implements the investment advice; or
• The person provides specific investment advice on anything other than rare, isolated and non-periodic instances. Specific investment advice does not include advice limited to a general recommendation to allocate assets in securities, life insurance, and tangible assets. See IA-1092.
Individuals not registered as investment advisers should never hold themselves out as investment advisers. This includes not using titles with the words “investment adviser,” “financial adviser,” “financial planner,” “financial consultant,” “financial counselor,” or similar terms. Such terms should not be used for an entity name, on business cards, in an office, or in introductions.
Individuals not registered as investment advisers should not encourage others to sell securities. Additionally, they should not be compensated based on giving investment advice. Individuals not registered as investment advisers should never give any advice concerning specific securities.
The compensation element is interpreted broadly by the SEC, being satisfied by the receipt of any economic benefit, whether specifically for investment advisory services or not. See IA-1092. However, not charging a separate fee for investment advice may be relevant to whether a person is “in the business” of giving investment advice.
Compensation does not need to be paid by the person receiving investment advice; it may come from any source. See IA-1092. For example, a person providing investment advice while receiving insurance commissions would be receiving compensation within the meaning of the Act.
Since the SEC interprets this element expansively, those not registered as investment advisers should focus on not giving investment advice and avoiding being in the business of investment advisers.
There are exceptions to the definition of investment adviser. These include banks, lawyers, accountants, engineers, or teachers rendering such advice incidental to their professions; broker-dealers; and publications rendering impersonal investment advice. See 15 U.S.C. § 80b-2(a)(11). Exceptions are not discussed here.
State Regulation
States also regulate investment advisers. Investment advisers with less than $25 million in assets under management are not regulated federally, but by the states. Generally, state laws are based on the Act and the above analysis should be similar for many states. However, individual state regulations may vary.
In Utah, the Division of Securities has adopted certain rules and regulations in an attempt to add clarity to the “line” where one must be licensed as an investment adviser. Pursuant to Utah Admin. Code R164-4-2(G)(4), those engaging in any one of the following activities are required to be licensed as an investment adviser:
• A person that advertises or otherwise holds oneself out as a provider of investment advice;
• A person who publishes a newspaper, news column, news letter, news magazine, or business or financial publication, which, for a fee, gives investment advice based upon the specific investment situations of clients; or
• A person that receives a fee from an investment adviser for client referrals.
What constitutes “investment advice” in Utah is broadly defined. Utah statute specifically includes advising others “as to the value of securities or as to the advisability of investing in, purchasing, or selling securities” as giving investment advice. See Utah Code Ann. § 61-1-13(q)(i)(A)(2011). Again, this is similar to the definition of investment under the Act.
While the above distinction between giving specific advice and simply offering a “general recommendation” does not provide a clear path to follow, such a distinction should be remembered and any advice should be appropriately tailored. Individuals not registered as investment advisers, therefore, should:
• avoid giving specific securities recommendations (purchase or sale);
• structure services more along the lines of educational instruction where the client makes his/her own decisions as to allocations of financial resources;
• avoid accepting any compensation for any type of advisory or financial planning services;
• avoid holding oneself out as an financial advisor or planner; and
• seek legal advice with any questions.
As good advice to follow, insurance agents, pursuant to the rules and regulations of the Division of Insurance are restricted from using the following terms to describe their services: (i) “financial planner,” (ii) “investment advisor,” (iii) “financial consultant,” or (iv) “financial counseling” unless they are properly licensed to do so. See Utah Admin. Code R590-79-6(C)). Additionally, insurance agents are not permitted to represent insurance instruments as “investments.” In any event, using such terms absent licensing can lead to one being found to have held oneself out as a provider of investment advice and therefore be required to be licensed to do so.
Steps to Take to Avoid Being Deemed Investment Advisers
Unlicensed individuals should NOT:
• Give advice about specific securities.
• Personalize presentations to specific individuals. This includes comparing them to other individuals who may have similar backgrounds or experiences.
• Encourage individuals to sell securities.
• Hold themselves out as investment advisers. This includes not:
– Using titles or descriptions including the words “investment adviser,” “financial adviser,” “financial planner,” “financial consultant,” “financial counselor,” or similar terms.
– Using “investment” without specifically tying it to a non-securities asset. It is best to avoid using the term.
– These should not be used as an entity name, on business cards, in an office or in introductions.
Unlicensed individuals SHOULD:
• Provide only general, impersonal, and historical information.
• Explain options without giving a recommendation.
In Utah, a person may not transact business as an investment adviser without being licensed. See Utah Code Ann. § 61-1-3(3). Acting as an unlicensed investment adviser is a third-degree felony. See id. § 61-1-21(1)(a). A third degree felony is punishable by up to five years in prison and a fine of up to $5,000. See id. §§ 76-3-203(3)(2008), – 301(1)(b).
To avoid risking such heavy penalties, attorneys should review their clients’ activities to ensure that they are not acting as investment advisers without proper licensing. They should also counsel their clients with respect to their obligations to avoid giving investment advice.
The determination of whether or not investment advice is being given or if a person is acting as an investment adviser will always be determined on the particular facts and circumstances of the situation. Counsel should be very careful in advising clients as to the types of communications that are permitted in connection with any investment situation.
1. The bulletin itself was intended to be exempt based on the “publisher’s exclusion” for regular financial publications.

Severance Damages Take a Sea-Change With Admiral Beverage

by Richard E. Danley, Jr.
In October of 2011 the Utah Supreme Court issued its opinion in Utah Department of Transportation v. Admiral Beverage Corporation, 2011 UT 62, 693 Utah Adv. Rep. 16. The opinion has not been released for publication. Admiral marks a sea-change in how Utah determines severance damages involving actual takings. It allows the claimant to recover the full diminution in fair-market value, without limiting recovery under the traditional severance damage rules, simplifies the determination of loss and, for the first time awards severance damages for loss of visibility from changes made to a public highway. However, the Utah Supreme Court limited the eligibility to recover under Admiral to four preconditions. First, an actual taking must occur; second, the property taken must be essential to the project; third, recovery must be limited to real estate; and fourth, the loss must be caused by the taking. See id. ¶ 29. If these four conditions are present the supreme court said the claimant only need prove the taking of a protected property interest to be entitled to full recovery for loss under the State Constitution. See id. ¶ 43.
Historically, recovery for severance damages was limited by a body of common-law rules developed to determine if the loss is constitutionally protected and recoverable. For ease of reference these are referred to as “severance damage rules.” The holding in Admiral appears to set aside some or all severance damage rules when there is a taking and permit the claimant full recovery when the lost value is caused by the taking. Under Admiral, portions of two lots were taken and the owner sought recovery for diminution in value from the lost view out to the east and the lost visibility from the freeway due to its elevation by twenty-eight feet. See id. ¶ 2. Under Utah’s severance damage rules, loss of visibility from a public highway is not a protected property interest. See State v. Harvey Real Estate, 2002 UT 107, ¶¶ 11-14, 57 P.3d 1088. Following the severance damage rules, the lower courts in the Admiral case rejected recovery for any loss in value for visibility from the freeway and also applied the so called “abutment rule” to prevent recovery for the blocked view. See Admiral, 2011 UT 62, ¶ 7. The abutment rule prevents recovery for lost view or other damage if the improvements causing the damage are not constructed, at least in part, on the land taken from the claimant. In Admiral the claimant’s property abutted the frontage road, not the freeway, and none of the elevated freeway was constructed on the land taken from the claimant. See id. ¶ 2. Taking a new direction, however, the supreme court permitted full recovery for all diminution in value for both the lost view out and the lost visibility from the elevated freeway. See id. ¶ 43. The Admiral court held no portion of the elevated freeway needed to be constructed on the property taken from the claimant for recovery to occur and revised the abutment rule so that it does not apply if the property taken is essential to the project for which the taking occurred. See id. ¶ 29. It also said that once a taking of a protected property interest is demonstrated (such as the taking of the owner’s land) recovery for all damages caused by the taking is required under Utah law. See id. ¶ 31. This includes recovery for a property interest that is not a recognized or protected interest under Utah law (i.e., the loss of visibility from the freeway). The supreme court said that the constitutional requirements for just compensation from a taking are only satisfied when the owner is made whole by placing the owner in the same position he or she would have occupied but for the taking. See id. ¶ 28. Quoting Stockdale v. Rio Grande Western Railway Co., 28 Utah 201, 77 P. 849 (Utah 1904), the court said once the landowner demonstrates an actual taking of a protected interest, the owner is entitled to just compensation to the extent of all damage suffered. See Admiral, 2011 UT 62, ¶ 28 (quoting Stockdale, 77 P. at 852).
Severance Damages Rules.
Severance damages occur when the the public takes or damages a portion of a private owner’s property, leaving the owner with some or all of the property. Traditionally the public entity with the power of eminent domain severs the owner’s land by taking the portion necessary for the project and the owner keeps the remainder. Under Utah law when the public takes private property for a public use the private property owner must be compensated for both the land taken and any diminution in value caused by the severance to the land not taken. See Harvey, 2002 UT 107, ¶ 11. The severance damage rules limit what is recoverable and therefore constitutionally protected setting the scope of recovery and the amount the public is required to pay for the damage inflicted by the severance. Utah courts tend to view any claimed recovery which is inconsistent with the severance damage rules as being outside the scope of what is constitutionally protected. To understand the impact of the Admiral holding on these rules it is necessary to understand some of the rules and the fine-line distinctions with which they control and limit recovery.
In reviewing many of the severance damage cases in Utah, most of them involve some aspect of one or more of the following rules. Many of these rules overlap and they are not always consistent. As noted above, the abutment rule, discussed in Admiral, requires that for recovery the improvements causing the damage must be constructed in part on the land taken from the claimant; also, a similar or related rule requires that for recovery to be permitted the improvements causing the damage or loss in value must be constructed, at least in part, on the “severed land taken” from the claimant. See generally Admiral, 2011 UT 62, ¶¶ 17-18; Harvey, 2002 UT 107, ¶ 11, Utah Dep’t of Transp. v. Ivers, 2005 UT App 519, ¶¶ 15-18, 128 P.3d 74, reversed in part by Ivers v. Utah Dep’t of Transp., 2007 UT 19, ¶¶ 19-26, 154 P.3d 802. Another related rule limiting recovery is the “but for” rule. But for the taking and the use of the land taken the project could not have been constructed and the damage to the severed property would not have occurred. See Harvey, 2002 UT 107, ¶ 11; Utah State Rd. Comm’n v. Miya, 526 P. 2d 926, 928-29 (Utah 1974). A separate rule requires that for there to be recovery the interest must be a “protected” or “recognized” property interest. Examples of damage held not to be a protected interest under Utah law include interests in public roads. The loss of a property’s visibility from a public road has been held not to be a protected property interest as noted above and discussed in Harvey, Ivers, and Admiral. The construction of public improvements entirely within the right-of-way of a public street limiting access to and use of both the street and the adjoining property by large trucks has been held to not be a protected property interest. See Bailey Serv. & Supply Corp. v. State Rd. Comm’n, 533 P.2d 882, 883 (Utah 1975). The relocation of a public road causing a substantial loss in traffic volume was held not to be a protected property interest. See Admiral, 2011 UT 62, ¶ 11; Weber Basin Water Conservancy Dist. v. Hislop, 12 Utah 2d 64, 362 P.2d 580, 581 (1961). Another rule prohibits recovery for “consequential damages”; it is said that all damages not caused by the taking are consequential and not within the protection of the constitution, such as the noise from a school or a road or the construction of a public road through an adjoining property in proximity to the claimant’s land. See generally Utah Dep’t of Transp. v. D’Ambrosio, 743 P. 2d 1220, 1221 (Utah 1987); Miya, 526 P.2d at 928; State Rd. Comm’n v. Williams, 22 Utah 2d 301, 452 P.2d 548 (1969); and Bd. of Educ. of Logan City Sch. Dist. v. Croft, 13 Utah 2d 310, 373 P.2d 697 (1962).

Similar to consequential damages is the rule for “common damages.” Damages must be unique to the individual property and not common to all adjoining properties and users or they are “common” and not constitutionally protected. See Croft, 373 P.2d at 699. Finally, Utah courts have held that all properties have certain “appurtenant easements” or rights for air, light, access, and view that when interfered with require just compensation to the owner. See Miya, 526 P.2d at 928.
The primary effect of the severance damage rules is to distinguish protected property interests from those not protected (limiting recovery to protected interests) and to control severance damages. However, the potential conflict between these rules and the broad scope of the supreme court’s language in Admiral is revealed in the opinion itself. Admiral requires payment for the full diminution in value for the property not taken if caused by the taking, to place the claimant in the same position he or she would have occupied but for the taking. But to achieve this holding the supreme court in Admiral was required to overrule part of its holding in Ivers, decided just four years prior to the rendering of the Admiral opinion, and left in confusion whether or not any severance damage rules apply when there is a taking. Understanding the holding in Ivers and why the supreme court determined it does not meet constitutional muster is helpful to understanding where the supreme court is going with Admiral and the importance the court gives to this constitutional issue.
Ivers Case
The Ivers case involved a taking for the expansion and elevation of US Highway 89. See Ivers, 2005 UT App 519, ¶ 3. The severance was caused by the taking of a portion of the Arby’s parcel fronting on US 89 in Farmington. See id. In addition to its taking damages, Arby’s sought severance damages for loss of view and loss of visibility from the elevated highway. See id. ¶ 6. Material to the holding in Ivers is the fact that the severed property taken from Arby’s was only used for the construction of a frontage road. No portion of the property taken was used for the construction of the raised highway, its footings or foundation, causing the Utah Court of Appeals to decide the case consistent with the severance damage rules. See id. ¶ 23. The court of appeals relied on Miya and said Utah property owners do not have a right to loss of visibility from the highway; but an owner of land does have an easement of view which is a private-property right that cannot be taken without just compensation. See id. ¶¶ 22-23. The court of appeals, however, denied recovery for the property’s lost view because there was no causal nexus between the taking of the Arby’s land and the lost view. In Miya, the viaduct blocking the claimant’s view was built in part on the land taken. See Miya, 526 P.2d at 927-28. No part of the Arby’s land taken was used in the construction of the elevated highway, only for the construction of the frontage road. The court of appeals, therefore, applied the abutment rule under Harvey and denied recovery.
The Utah Supreme Court in Ivers v. Utah Department of Transportation, 2007 UT 19, 154 P.3d 802, agreed that there could not be recovery for lost visibility, as visibility from the highway is not a protected property interest. See id. ¶ 1. However, the supreme court rejected the logic of the court of appeals with respect to loss of view out, holding that when property is taken as part of a single project, even if the view-impairing structure itself is constructed on property other than the condemned land, the owner may recover for loss of view if the use of the condemned property is essential to the completion of the project as a whole. See id. ¶ 21. The supreme court reasoned the impairment for view would not have arisen but for the condemnation, thereby preserving the abutment rule in an altered form under its opinion. See id. The preservation of the rule by the supreme court, however, likely evidenced its dissatisfaction with the rule more than its desire to preserve the rule.
Admiral Decision.
The facts in Admiral are almost identical to those of Ivers, which is why the claimants had to push for a reversal of Ivers if they were to receive compensation for the lost visibility. In Admiral a portion of two lots owned by Admiral Beverage Corporation were taken as part of the reconstruction of I-15 through Salt Lake City. See Utah Dep’t of Transp. v. Admiral Beverage Corp., 2011 UT 62, ¶ 2, 693 Utah Adv. Rep. 16. As part of the project, the 500 West frontage road had to be relocated onto part of the two lots owned by Admiral to accommodate the expansion of the freeway. See id. No portion of the freeway or its elevated structure was located on the property taken from Admiral. See id. With these facts, the Utah Department of Transportation sought to rely on the opinion in the Ivers case and the absence of a protected property interest to defeat the visibility claim and the abutment rule to defeat recovery for the lost view out. The two lots abut the frontage road (500 West) and not the freeway, making this a good test of the supreme court’s application of the abutment rule under Ivers. The court of appeals applied the abutment rule and expressly noted that the rule had not been eliminated by the Ivers case; the court then denied the claimant’s recovery for both the view out and the lost visibility from the freeway. Admiral appealed the case to the supreme court.
Inasmuch as Ivers only permits recovery for a recognized property right, it had to be overruled if the supreme court was to permit recovery for loss of visibility from the highway. In Admiral the supreme court had the advantage of and looked seriously at numerous appraisals on value, both before and after the takings, as well as the testimony of several appraisers. See id. ¶¶ 4-5. The court expressly noted the testimony of the appraisers that to value a property, all relevant factors must be considered to determine fair-market value; and one cannot isolate and value view out separately from visibility from the road. See id. ¶ 39. The supreme court said they are two sides of the same coin. The supreme court accepted that to put the owner in the same position meant permitting full recovery for all value lost, including that for lost visibility from the elevated freeway and lost view out, even though the property only abutted the frontage road. See id. ¶¶ 28-29.
The Utah Supreme Court ruled the Ivers holding as unworkable; and by overruling Ivers the court said it was bringing the rules for recovery into conformance with the State Constitution. See id. ¶ 18. Quoting from Stockdale v. Rio Grande Western Railway Co., 28 Utah 201, 77 P. 849 (1904), the supreme court said compensation is triggered when there is any substantial interference with private property which lessens value. See Admiral, 2011 UT 62, ¶ 22. The court then rejected outright any limitation on recovery by the protected property interest rule. See id. When measuring severance damages the court said there should not be any attempt to isolate and separately appraise any item of damage or any loss of value due to noise or any other intangible factor. See id. ¶ 31. Rather, the correct measure of severance damage is the damage in value to the remaining property as a whole as it will be after the construction of the improvements calculated by subtracting any benefits to the property from the harm caused by the severance and the construction of improvements. See id. ¶ 33. The supreme court expressly rejected any limitation on recovery based on the severance damage rules addressed in the case, but failed to state if in a taking, all or just a portion of the severance damage rules are excluded.
Focusing on the rule requiring a protected property interest for there to be a recovery, the supreme court held the purpose of the rule is to determine at the outset if there are compensable damages due the claimant (not to limit the scope of recovery), and said there are two questions in any taking claim. See id. ¶ 22. The first is whether the claimant demonstrates a protectable property interest; and second, the claimant must show a taking of the protected interest. See id. Once the claimant shows the taking of a protected property interest, the court held the claimant is entitled to just compensation for the property taken. See id. With that statement the supreme court required the claimant to be made whole by placing him or her in the position they would be in but for the taking. See id. The landowner is entitled to compensation to the extent of all damages suffered.
The severance damage rules are not going away. The supreme court indicated they will control severance damage cases where there is no taking. Nonetheless, the clarity of the Admiral decision with its application of constitutional principles stands in stark contrast to the subjective and sometimes arbitrary nature of the severance damage rules. As such, Admiral appears to permanently change the course of severance damages when there is a taking. The unanswered question, however, is the scope of Admiral and if it eliminates severance damage rules whenever there is a taking.
It is clear that once there is a taking of a protected property interest, the claimant is entitled to recover all damages, even if part of the lost value is for an unprotected interest under Utah law. That was exactly the case with the loss of visibility from the freeway under Admiral. It also seems likely, given the Ivers and Admiral decisions, the abutment rule will not block recovery in the future for loss of view just because the improvements impairing the view are not constructed on the property taken, so long as the taking is part of a single project.
However, there is still much to be clarified. The Utah Department of Transportation has petitioned the supreme court for a rehearing on the impact of Admiral on issues involving highways and loss of traffic volume for which claimants have traditionally had no protected interest. The appraisal profession complains, with some justification, that the case fails to give adequate direction on how to value interests in real property for which Utah landowners have historically never held any interest or rights of recovery. For example, if land essential for a road is taken, does Admiral require the owner to be compensated for all loss in value to the remainder parcel even if the loss is for traffic volume or altered access? Furthermore, Admiral is silent on whether a claimant can recover consequential damages or common damages as part of its loss in a severance with a taking. Current severance damage rules would block such recovery; and Admiral would appear to permit some or all of such recovery. Perhaps this is the reason the opinion has still not been released for publication by the supreme court? Nonetheless, Admiral states clearly that to comply with the Utah Constitution, when there is a taking, the claimant must be put in as good an economic position as he or she would have been absent the taking, even if the loss is not protected under Utah law. Once the taking of a protected property interest is demonstrated, the claimant under Admiral is entitled to full recovery; and any decision to prevent full recovery seems unlikely to be upheld by the supreme court without its having to limit or overturn Admiral. As such, the intentional and clear sea-change by the supreme court’s decision in Admiral seems to be, depending on one’s viewpoint, very unlikely or inevitable.
AUTHOR’S NOTE: The author expresses appreciation to Rick Carlton, Esq. of Zions Bank for his assistance in reading and commenting on this article.

Books From Barristers

http://www.trelease-on-reading.comhttp://www.trelease-on-reading.comby Elaina M. Maragakis
It’s impossible to imagine my world without books. Not only am I surrounded by them in my office, but they are packed into walls of bookshelves at home. These days, our home is filled with children’s books, as well. I have crammed them into bookshelves, baskets, and bins. I have surrounded myself – and I suspect that you have, as well – in what researchers call a “print rich environment.” It’s little wonder that some of my earliest and fondest memories are of peeling open the pages of The Berenstain Bears or Dr. Seuss or Little Golden Books, and diving into those wonderful and classic stories.
Sadly, many children never have this experience, even though educational research is replete with evidence that reading has a powerful and direct impact on a child’s success. It is such an obvious way to connect children with lifelong skills, that we often overlook it in its simplicity. The harsh reality is that many children have no access to books of their own. In fact, one study found that in low income neighborhoods, the ratio of books to children is an astonishing one book to every 300 children.1 This unimaginable statistic is alarming and troubling, but fortunately, we have the ability to change this course one child at a time. In his book The Read-Aloud Handbook, author Jim Trelease explores and explains the critical nature of reading and the abundant benefits that flow from reading aloud to children. His research is a powerful testament to the transformative power of books. He writes “we have to find a way to get books into the lives of poor urban and rural children.”2
With this simple goal in mind, it’s my pleasure to introduce a new program of the Utah State Bar called “Books from Barristers.” The goal of Books from Barristers is to provide children in underserved communities with new books on the topics of law, government, American history, and civics. Our hope is that if children can own their own book, they will come to understand the value of reading, which will, in turn, help to solidify a lifelong love of learning. While we hope to eventually expand the program, in its inaugural year we are targeting our efforts to first grade children located in Salt Lake, Davis, and Utah Counties.
Statistics underscore the importance of a program like Books from Barristers. A U.S. Department of Education study showed a direct correlation between the number of books at home and average test scores. This study showed that students with more than 100 books in their homes had higher test scores in science, civics, and history than those who reported having fewer books. Not surprisingly, test scores declined steadily as the number of books in the home declined.3 Beyond success in school, frequent readers also fare better in society than their counterparts who read less. For example, proficient readers are significantly more likely to be employed than below-basic readers.4 Notably, the benefits go far beyond the individual, and have a concrete impact on society as a whole. In its groundbreaking 2007 report titled “To Read or Not to Read,” the National Endowment for the Arts reported that adults who read well are more likely to volunteer, vote, attend cultural and civic activities, and exercise.5
Armed with this educational research, Books from Barristers seeks to provide books to underserved children with three principles in mind: (1) value (the book must be new);
(2) ownership (the book must be given to the child); and
(3) investment (the child must choose the book). The first two concepts are based on the proposition explained by author Jim Trelease, namely, that “[o]wnership of a book is important, with the child’s name inscribed inside, a book that doesn’t have to be returned to the library or even shared with siblings.”6 Ownership of a new book conveys a sense of value, and toward that end, each book donated through the Books from Barristers program will not only be given to a child, but will also have a bookplate with a place for the child to write his or her name. The third principle, that the child will have the opportunity to choose from a selection of books, will cause the child to feel invested in the book because he or she has had a hand in selecting it. This year, we have tentatively selected five books for the program. They are:
Woodrow the White House Mouse, by Peter Barnes and Cheryl Barnes
House Mouse, Senate Mouse, by Peter Barnes and Cheryl Barnes
D is for Democracy, by Elissa Grodin
If I Ran for President, by Catherine Stier
If I Were President, by Catherine Stier

Each of these books not only contains important educational lessons, but also rich text and vibrant illustrations, which helps increase the appeal of these wonderful books. And because the benefits of books are increased when people read aloud to children, Books from Barristers will also be distributing with each book a brochure for parents and other family members that discusses how to read aloud to children in a way that maximizes its effectiveness.
Books from Barristers differs from a traditional “book drive” because it encompasses books on topics that are traditionally of interest to lawyers. From explaining the legislative process to describing the presidential election, these books provide a basic foundation for children to learn about our system of government that we, as lawyers, interact with every day.
Moreover, because of generous in-kind donations and monetary support from the Bar, our goal is to have 100% of the proceeds donated by law firms, lawyers, and other businesses go directly to the cost of purchasing books. This means that your donation will directly benefit a Utah child. One of the most attractive aspects of this program is the fact that a modest donation can go a long way. For example, a donation of $100 will buy approximately 178 books. That means that 178 Utah school children will benefit from your generous contribution.
But our goals can only be met through the generous contributions of lawyers and others in the legal community. I invite all of you to join us in making an important contribution to children in our community!
For further resources, visit the following websites: , .
1. See Handbook of Early Literacy Research, Volume 2 at 31 (David K. Dickinson & Susan B. Neuman eds., 2006).
2.Jim Trelease, The Read-Aloud Handbook 122 (6th ed. 2006).
3. See National Endowment for the Arts, To Read or Not To Read: A Question of National Consequence, Research Report #47, 2007, available at
4. See id. at 20.
5. See id at 18-19.
6. Trelease, supra at 35.

Utah Law Developments

Young Living Essential Oils, LC v. Marin: Clarifying the Limited Scope and Content of the Implied Covenant of Good Faith and Fair Dealing
by Cory A. Talbot and J. Derek Kearl
“[S]hrouded in mystery.”1 “[F]rustratingly elusive.”2 “[I]nexact.”3 Each phrase has been used to describe the implied covenant of good faith and fair dealing. In general terms, this implied covenant imposes a duty on contracting parties to act consistently with the parties’ agreed upon common purpose and to not do anything to destroy or injure the other party’s right to receive the benefits of the contract. See Oakwood Vill. LLC v. Albertsons, Inc., 2004 UT 101, ¶ 43, 104 P.3d 1226; St. Benedict’s Dev. Co. v. St. Benedict’s Hosp., 811 P.2d 194, 200 (Utah 1991). The doctrine “is based on judicially recognized duties not found within the four corners of the contract,” Christiansen v. Farmers Ins. Exch., 2005 UT 21, ¶ 10, 116 P.3d 259, and, although it has long been a part of Utah law, continues to pose difficulties to contracting parties, practitioners, and judges alike.

Young Living Essential Oils, LC v. Marin, 2011 UT 64, 266 P.3d 814, represents the latest Utah Supreme Court decision on this important, but all-too-often misused and misunderstood, doctrine, and the Young Living court took the opportunity to “clarify…the proper scope” and emphasize that the court has “chart[ed] a limited role for the covenant of good faith and fair dealing.” Id. ¶¶ 1, 9. The result is a framework that should provide more predictability to Utah law, a very good thing.
This article briefly describes the decisions that have shaped the implied covenant of good faith and fair dealing in Utah and informed the court’s decision in Young Living, explores the reasoning and holding in Young Living, and discusses the impact that Young Living will have on legal claims made pursuant to the implied covenant.
Leading Up to Young Living – Good Faith and Fair Dealing in Utah Law
Utah courts adopted the implied covenant of good faith and fair dealing over the late 1970s and early 1980s and have continued to refine the margins and contours of that doctrine ever since. In doing so, these courts have admittedly experienced some difficulty, noting that the doctrine is “inexact” and “not susceptible to bright-line definitions and tests” and “should therefore be used sparingly and with caution.” Berube v. Fashion Ctr, Ltd., 771 P.2d 1033, 1041 (Utah 1989); Olympus Hills Shopping Ctr. v. Smith’s Food & Drug Ctrs., 889 P.2d 445, 450 (Utah Ct. App. 1994).
Nonetheless, a few key cases have served as guideposts in explaining the role of the implied covenant under Utah law. The first is Beck v. Farmers Insurance Exchange, 701 P.2d 795 (Utah 1985). In Beck, the Utah Supreme Court established that a claim for breach of the implied covenant of good faith and fair dealing sounds in contract, not in tort. See id. at 798. In rejecting a position taken by other courts, the Beck court held that the ability of a plaintiff to recover in tort for the breach of the implied covenant of good faith and fair dealing “has the potential for distorting well-established principles of contract law” and will not be permitted. Id. at 799; Berube, 771 P.2d at 1046 (citing the same). Thus, Beck established a more restrictive, contract approach to this doctrine.
The second key case is St. Benedict’s Development Co. v. St. Benedict’s Hospital, 811 P.2d 194 (Utah 1991). Perhaps more than any other decision up to that point, St. Benedict’s established the parameters of the implied covenant. Noting that the “covenant of good faith and fair dealing inheres in most, if not all, contractual relationships,” the court held that under the implied covenant, “each party impliedly promises that he will not intentionally or purposely do anything which will destroy or injure the other party’s right to receive the fruits of the contract.” Id. at 199. The court further held that “[t]o comply with his obligation to perform a contract in good faith, a party’s actions must be consistent with the agreed common purpose and the justified expectations of the other party.” Id. The purpose, intentions, and expectations of the parties are to be determined “by considering the contract language and the course of dealings between and conduct of the parties.” Id. An examination of the contract’s express terms alone is not sufficient to determine whether there has been a breach of the implied covenant. See id.
Third, and finally, in Oakwood Village LLC v. Albertsons, Inc., 2004 UT 101, 104 P.3d 1226, the Utah Supreme Court took the opportunity to further define the doctrine, holding that, while the covenant of good faith and fair dealing inheres to essentially every contract, the following general principles limit its scope:
First, this covenant cannot be read to establish new, independent rights or duties to which the parties did not agree ex ante. Second, this covenant cannot create rights and duties inconsistent with express contractual terms. Third, this covenant cannot compel a contractual party to exercise a contractual right “to its own detriment for the purpose of benefitting another party to the contract.” Finally, we will not use this covenant to achieve an outcome in harmony with the court’s sense of justice but inconsistent with the express terms of the applicable contract.
Id. ¶ 45 (citations omitted). Relying on these guiding principles, the court rejected Oakwood’s invitation to infer a promise that was not supported by, and in contradiction to, the express and unambiguous provisions of the relevant contracts. See id. ¶¶ 46, 56.
It is within the context of these decisions that the court decided Young Living.
The Facts Behind Young Living
Young Living was a breach of contract suit in which defendant Carlos Marin sought to define the contracting parties’ rights under an agreement through the implied covenant of good faith and fair dealing. See Young Living Essential Oils, LC v. Marin, 2011 UT 64, ¶ 1, 266 P.3d 814. Marin and Young Living Essential Oils, LC (“Young Living”) entered into an agreement whereby Marin would market and distribute Young Living’s products. See id. ¶ 2. Among other duties set forth by the distributorship agreement, Marin agreed to meet certain sales quotas, or “performance guarantees.” Id. In exchange, Young Living agreed to make monthly advance payments to Marin that would be offset by any commission payments due under Young Living’s commission plan. See id. ¶ 3. The purpose of the advances was to assist Marin in focusing on contractual duties and to provide an incentive to develop a marketing base for Young Living’s products. See id. The agreement contained an integration clause providing that no other representations or understandings would be valid under the contract. See id. There was no reference to marketing materials to be used in distributing the product. See id.
In spite of several advances by Young Living, Marin only met one performance guarantee. See id. ¶ 4. Young Living filed suit against Marin, alleging breach of contract for failing to meet the performance guarantees set forth by the agreement. See id. ¶ 5. In response, Marin claimed that his lack of performance under the contract was excused by Young Living’s failure to provide him with the marketing materials necessary to assist him in meeting his performance guarantees. See id. Marin alleged that during the months he had difficulty meeting the performance guarantees, he had conversations with representatives of Young Living in which they acknowledged that they had failed to provide him with the marketing materials and indicated an understanding that those materials were essential to Marin fulfilling his duties under the contract. See id.
The trial court disagreed and granted Young Living’s summary judgment motion, holding that the parol-evidence rule barred extrinsic evidence of a condition not set forth in the parties’ integrated agreement and that such a condition could not be inferred through the implied covenant of good faith and fair dealing. See id. ¶ 6. The Utah Court of Appeals affirmed. See id.
The Young Living Court’s Analysis of the Implied Covenant
The Utah Supreme Court granted certiorari “to review the court of appeals’ treatment of the covenant of good faith and fair dealing in its affirmance of Young Living’s summary judgment.” Id. ¶ 7. The court began its analysis recognizing that the implied covenant “performs a significant but perilous role in the law of contracts.” Id. ¶ 8. On the one hand, the implied covenant appropriately “infer[s] as a term of every contract a duty to perform in the good faith manner that the parties surely would have agreed to if they had foreseen and addressed the circumstance giving rise to their dispute,” a critical function because “the parties to a contract cannot feasibly anticipate all possible contingencies nor reasonably resolve how they would address them in writing.” Id. On the other hand, “the judicial inference of contract terms is also fraught with peril, as its misuse threatens ‘commercial certainty and breed[s] costly litigation.’” Id. (alteration in original) (quoting Kham & Nate’s Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351, 1357 (7th Cir. 1990)).4 The court “balanced these concerns by charting a limited role for the covenant of good faith and fair dealing.” Id. ¶ 9. This limited role finds expression in two types of implied contractual duties.
The first type of implied duty is proscriptive. Contracting parties have “an implied duty” to “‘refrain from actions that will intentionally destroy or injure the other party’s right to receive the fruits of the contract.’” Id. ¶ 9 (additional internal quotations omitted) (quoting Oakwood Vill. LLC v. Albertsons, Inc., 2004 UT 101, ¶ 43, 104 P.3d 1226). The Court found the rationale for such an implied duty to be self-evident: “‘To hold that one may employ another…to do a specific thing, and yet may with impunity deliberately prevent the other from doing that thing, is…plainly violative of good faith….’” Id. ¶ 9 n.3 (omissions in original) (quoting Carns v. Bassick, 175 N.Y.S. 670, 673 (App. Div. 1919)).
[This] duty advances the core function of the covenant, as no one would reasonably accede to a contract that left him vulnerable to another’s opportunistic interference with the contract’s fulfillment. And that same fact protects commercial reliance interests, since a term that all reasonable parties would agree to is not likely to be imposed on the mere basis of a judge’s subjective ‘sense of justice.’
Id. ¶ 9 (quoting Oakwood Vill., 2004 UT 101, ¶ 45).
The second type of implied duty is affirmative. The Young Living court made clear that it has “set a high bar for the invocation of a new covenant” and proceeded to set out a two-prong framework. Id. ¶ 10. Under this framework, a court may find that the parties are bound by an affirmative implied covenant “where it is clear” either “from [1] the parties’ ‘course of dealings’ or [2] a settled custom or usage of trade that the parties undoubtedly would have agreed to the covenant if they had considered and addressed it.” Id. As a further limitation, “[n]o such covenant may be invoked…if it would create obligations ‘inconsistent with express contractual terms.’” Id. (quoting Oakwood Vill., 2004 UT 101, ¶ 45).
The court explained the basis for this limited, two-prong framework as follows:
These limitations likewise protect the reliance interests of the parties to a contract and foreclose the imposition of a code of commercial morality rooted merely in judicial sensibilities. Where the court adopts a covenant enshrined in a settled custom or usage of trade, it is simply endorsing a universal standard that the parties would doubtless have adopted if they had thought to address it by contract. Where the parties themselves have agreed to terms that address the circumstance that gave rise to their dispute, by contrast, the court has no business injecting its own sense of what amounts to “fair dealing.” By enforcing these standards and limitations, our cases preserve the core role of the covenant of good faith while controlling against its misuse to the detriment of commercial security and reliance.
This discussion of a “new covenant” may come as a shock to practitioners who have relied on the court’s prior statements that the implied covenant “cannot be read to establish new, independent rights or duties to which the parties did not agree ex ante.” Oakwood Vill., 2004 UT 101, ¶ 45. The Young Living court correctly recognized that this statement is really incomplete: “Properly conceived, however, that proviso merely restates the proscription against using the covenant to establish new rights or duties that are ‘inconsistent with express contractual terms,’ as the covenant would be completely negated if it could never establish any independent rights not expressly agreed to by contract.” Young Living Essential Oils, LC v. Marin, 2011 UT 64, ¶ 10 n.4, 266 P.3d 814 (quoting Oakwood Vill., 2004 UT 101, ¶ 45).
Measured against these standards, the court found that Marin fell “far short in his attempt to invoke the covenant of good faith and fair dealing.” Id. ¶ 11. Marin made no allegations that Young Living had violated any proscriptive implied duty “to refrain from actions that will intentionally destroy or injure the other party’s right to receive the fruits of the contract.” Id. (internal quotation marks omitted). Instead, Marin sought “to impose on Young Living an affirmative duty to provide a particular set of marketing materials by a certain date.” Id. But the court rejected that argument because such an affirmative duty was “not even allegedly based in a universally accepted obligation established through industry custom or the parties’ course of dealing.” Id. Thus, the court determined that Marin’s arguments – based on oral representations by Young Living personnel that Young Living would provide certain “marketing tools,” and suggestions by Young Living personnel that Marin’s inability to satisfy the performance guarantees under the contract would not affect his receipt of certain advance payments – did not “come close to establishing a basis for a judicially imposed covenant of good faith.” Id. ¶ 12.
The court further explained that any course of dealing must “conform to the core terms of the legal doctrine, by demonstrating a settled, longstanding pattern of dealing that the parties unquestionably would have relied on (but failed to memorialize) in entering into their contract.” Id. ¶ 15. Marin, however, could not point “to some universal industry custom or standard to that effect.” Id. In sum, the court declined to “impos[e] [its] own sense of commercial morality at the expense of the express terms of the parties’ contract.” Id.
Accordingly, the court affirmed the Utah Court of Appeals’ decision upholding summary judgment in Young Living’s favor. See id. ¶ 16.
Import of This Case
Young Living sends a clear message to the Bar, the courts, and contracting parties: Utah law will not step in to add affirmative duties to contracts unless it is absolutely clear – through either course of dealing or industry custom – “that the parties undoubtedly would have agreed to the covenant if they had considered and addressed it.” Id. ¶ 10. The court is leery of overusing the implied covenant of good faith and fair dealing, whose application is “fraught with peril” and whose “misuse threatens ‘commercial certainty and breed[s] costly litigation.’” Id. ¶ 8 (alteration in original).
Young Living also provides practitioners with a viable and more transparent framework in which to analyze matters involving potential violations of the implied covenant of good faith and fair dealing. The Young Living court clarified that prior discussions of the implied covenant in Oakwood Village and St. Benedict’s provided this framework and were not merely selective examples of instances where the implied covenant came into play. Thus, the implied covenant of good faith and fair dealing applies as follows:
1. Contracting parties have a proscriptive duty to “refrain from actions that will intentionally destroy or injure the other party’s right to receive the fruits of the contract.”
Young Living Essential Oils, LC v. Marin, 2011 UT 64, ¶ 9, 266 P.3d 814 (internal quotation marks omitted).
2. Contracting parties have an affirmative duty “where it is clear” either “from [1] the parties’ ‘course of dealings’ or [2] a settled custom or usage of trade that the parties undoubtedly would have agreed to the covenant if they had considered and addressed it.”
Id. ¶ 10.
This decision also sends a message that plaintiffs hoping to appeal to a court’s sense of justice and fairness by asserting this cause of action do so at their peril: The court will not impose “judicial morality” into contract cases, and should not subject contracting parties to a “vague standard of good faith” which would prevent them from “‘profitably us[ing] their contractual powers.’” Id. ¶ 8 n.2 (quoting SW Sav. & Loan Ass’n v. Sunamp Sys., Inc., 838 P.2d 1314, 1319 (Ariz. Ct. App. 1992)).
Young Living by no means represents a sea change in Utah law regarding the implied covenant of good faith and fair dealing. But it provides much-needed clarity and the best guidance to date as to the application of the implied covenant – “limited.” See id. ¶¶ 9, 16.
1. Thomas A. Diamond & Howard Foss, Proposing Standards for Evaluating When the Covenant of Good Faith and Fair Dealing Has Been Violated: A Framework for Resolving the Mystery, 47 Hastings L.J. 585 (1996) (declaring that “efforts to devise workable standards or relevant criteria for determining when the covenant has been violated have been unavailing”).
2. Emily M.S. Houh, Critical Interventions: Toward an Expansive Equality Approach to the Doctrine of Good Faith in Contract Law, 88 Cornell L. Rev. 1025, 1033 (2003).
3. Olympus Hills Shopping Ctr. v. Smith’s Food & Drug Ctrs, Inc., 889 P.2d 445, 450 (Utah Ct. App. 1994).
4. The court’s concern with the costs of litigation in Young Living is consistent with the court’s newly-promulgated rules of civil procedure regarding discovery, which were enacted “in an effort to reduce the cost and delay of civil litigation.” See June 6, 2011 Notice from Utah Supreme Court Adv. Comm., available at

Blow the Whistle: The Dodd-Frank Act Creates New Incentives for Whistleblowers – and Compliance Issues for Utah Businesses

by Barry Scholl and Kevin Timken
A new client makes an appointment to discuss an employment issue with you. When you talk, she tells you that she works in the warehouse for a widget distributor. Recently, right before the end of the prior fiscal year, her warehouse received an unusually large shipment of widgets from a public company. She heard her boss tell the public company’s auditor that he requested the shipment and that the widgets were not returnable – but she also heard the public company’s president thank her boss for accepting the unusual shipment and assure him that as soon as the audit was completed, he could return all of the widgets he had not sold. Her boss owns the company she works for, and when she mentioned the difference between what he told the auditor and what the agreement really was, he threatened to fire her.

Thanks to the Dodd-Frank Financial Reform and Consumer Protection Act (Dodd-Frank) signed into law in 2010, this is not only an employment law problem, but now also a securities law issue. See 15 U.S.C. § 78u-6 (2010).1 Sometime this year, the Securities and Exchange Commission (SEC) is expected to pay its first rewards to whistleblowers who provided original information about violations of the federal securities laws that led to enforcement penalties. Those violations do not necessarily need to involve public companies – there are a number of ways in which a privately held company can violate the federal securities laws, particularly when it is seeking investors and selling securities.
Spurred by calls for greater oversight of Wall Street in the aftermath of the financial crisis, Dodd-Frank included provisions requiring the SEC to pay a bounty to financial insiders and others who voluntarily provide information about violations of the securities laws. See id. § 78u-6(b). Tipsters whose original information leads to an SEC enforcement action resulting in monetary sanctions of more than $1 million are to be paid between 10% and 30% of the money collected by section 78u-6(a)(1), (b)(1). Awards are available to employees, vendors, investors, financial analysts, and others – essentially anyone who provides “original information,” which is defined as information that is derived from an individual’s independent knowledge or analysis, not exclusively derived from a judicial or administrative hearing, and not known to the SEC from any other source. See id. § 78u-6(a)(3).
Although the SEC had previously adopted rules paying bounties to those who reported insider-trading violations, this represents new ground for the SEC, and the new provisions continue to provoke strong reactions. Because the rules allow whistleblowers to go straight to the SEC and bypass internal reporting mechanisms, critics have expressed concern that they may divert important resources away from daily business and force companies to investigate and defend allegations of wrongdoing, regardless of the validity of the tips. Supporters, on the other hand, have praised the provisions as a giant leap for whistleblowers and a boon for employer-employee communications in the corporate sector.
Despite their disagreements, however, both detractors and supporters agree that the new whistleblower provisions have the potential to dramatically increase SEC enforcement activity. Since the rule became effective late last summer, the SEC has already begun to amass a growing pile of whistleblower tips. The SEC filed 735 enforcement actions in 2011, the most ever in a fiscal year. See U.S. Securities and Exchange Comm., FY2011 Performance and Accountability Report (2011) at 2. It seems likely that number will increase – perhaps substantially – in 2012, given the SEC’s increasing commitment to enforcement and the new wave of whistleblower complaints to investigate.
Significance of the Rules
In a recent report, the SEC said it received 334 whistleblower tips during the seven-week period between August 12, when the final rules became effective, and the end of the financial year on September 30. See U.S. Securities and Exchange Comm., Annual Report on the Dodd-Frank Whistleblower Program, FY, 2011 (2011) at 5. Two of those reports came from the state of Utah. See id. at Appendix B. According to a November article in The Wall Street Journal, the quality of the initial tips has been high, with many of the tips concerning senior employees at large entities – typically difficult sources to target in enforcement actions.2 And this is just the first trickle from the faucet: it is widely predicted that tips, complaints, and referrals will continue to flood into the SEC each year under the new Dodd-Frank provisions.
Eligibility and Awards
Reports to the SEC must be based on a reasonable belief that a possible violation of the federal securities laws has occurred, is occurring, or is likely to occur.3 In the situation discussed above, the employee has reason to believe that her boss and the public widget company are engaging in “channel-stuffing” – a scheme to use falsified shipments of products to make the public company’s financial statements look better than they otherwise would at the end of the fiscal year. If proven, “channel-stuffing” would be a violation of the federal securities laws. Lying to the auditor would constitute an additional violation.
As noted above, nearly anyone may be eligible for an award, other than officers and directors who learn about misconduct through an employee’s report to them, attorneys who obtain information in the course of representing a client, as either in-house or outside counsel, and accountants who obtain information while providing outside auditing services to a client. If your new client were to file a whistleblower complaint with the SEC, she would be eligible for a bounty if the SEC were able to collect monetary sanctions related to the violation. Even if she had knowingly given false information to the auditor at her boss’s request, she might still be eligible: the rules do not exclude individuals who may be responsible for a violation from receiving a bounty unless and until they are convicted of a crime related to the information they reported.
The award amount will range between 10% and 30% of the monetary sanctions collected by the SEC, at the SEC’s discretion. See 15 U.S.C. § 78u-6(b)(1)(2010). Significantly, the monetary sanctions include “any monies, including penalties, disgorgement, and interest.” Id. § 78u-6(a)(4)(A). The SEC has identified criteria that will both increase and decrease the size of an award. Criteria that may increase the size of an award include the significance of the information and the degree of assistance, law enforcement interest in making the award, and compliance with internal reporting procedures. See 17 C.F.R. 240.21F-6(a) (2011).4 Criteria that may reduce the size of an award include culpability on the part of the whistleblower, delay in making the report, and interference with internal reporting procedures. See id. 240.21F-6(b). Whistleblowers can appeal the denial of an award directly to a United States Circuit Court of Appeals, but cannot appeal the size of an award that is within the statutory range. See 15 U.S.C. § 78u-6(f).
Who Benefits?
Will attorneys benefit from the new provisions? Some financial and insurance industry insiders have argued that the new provisions may dramatically expand fraud prosecutions. Furthermore, the new rules allow whistleblowers to be represented by legal counsel and mandate that those whistleblowers who want to remain anonymous must be represented by legal counsel. An Internet search will quickly reveal a number of law firms that are advertising for Dodd-Frank whistleblowers. An attorney representing an anonymous whistleblower must certify that he or she has verified the whistleblower’s identity and will provide the whistleblower’s signed Form TCR to the SEC within seven days if the SEC has concerns about false statements or fraud. See SEC Form TCR, Section G. Despite a number of comments in response to the SEC’s initial rule proposal requesting a ban on contingent fees, there is no limit on the amount or nature of fees charged by attorneys.
But if the new rules will impact the legal profession, they are likely to have an even greater impact on business entities. Although the SEC rules reward those who make internal reports before they file with the SEC, some industry observers have argued that potential tipsters will no longer be as willing to report suspected internal malfeasance to a company compliance officer if they believe it will reduce their chances of receiving an award. If reports to the SEC increase, which seems almost certain, companies will be forced to contend with greater scrutiny from regulatory agencies. Additionally, like cholera after a hurricane, private securities litigation is likely to follow in the aftermath of any SEC action. Forward-looking businesses are already increasing communication with employees in order to encourage prospective whistleblowers to work through internal channels. At the same time, these companies are reviewing their compliance programs and anti-retaliation policies and educating employees about both their internal policies and the mechanics of the Dodd-Frank whistleblower provisions.
The Award Mechanics
As one might expect, critics of the new provisions question the efficacy of the awards process and point out that there are a number of steps that must be completed before an eligible whistleblower receives an award. These steps include submitting information on a designated federal form, agreeing to testify if requested, entering into a confidentiality agreement if requested, and providing other forms of requested cooperation with the SEC investigation. Consequently, even if the SEC recovers the minimum of $1 million and the tipster is deemed eligible, a period of years may transpire between the time a tipster provides information and when he or she receives an award.
Evaluating and Enacting Corporate Compliance Controls
Attorneys representing companies with potential exposure should encourage them to fine-tune their compliance program and make sure that each employee is fully aware of what constitutes a “reportable event” under the new provisions. Whenever possible, employers should create a culture that encourages open communication, so that employees will feel comfortable reporting possible instances of internal misconduct first to their supervisor, company compliance officer, or in-house attorney, without fear of retaliation. To develop this culture, attorneys should encourage their corporate clients to provide a forum for anonymous tips about possible malfeasance. Companies should also consider drafting and distributing policy manuals, newsletters, and similar materials to make employees aware of what types of tips the company considers important. Larger companies should consider organizing an internal ethics committee made up of employees from various levels of seniority and different departments to review and make recommendations about company ethics policies. Some companies have gone as far as requiring employees to sign an annual acknowledgement that they have reported any potential issues about which they have information.
When an employee-whistleblower levels an internal complaint about a possible securities law violation, the company should have a well-organized system in place to assess, investigate, and respond to such complaint. What should a company do if it receives an anonymous whistleblower tip? Some sources have suggested that it should retain outside counsel to help it create a swift, nondiscriminatory approach to identifying the tipster. Although it is true that identifying the source may aid the company in investigating a claim and pinpointing possible ulterior motives or inaccurate information, if a company proceeds along this path, it should do so with the utmost caution. Even supporters of this approach caution that if the identification of a whistleblower is perceived rightly or wrongly as a witch-hunt, it might prompt whistleblowers to go straight to the SEC in the future. It could also lead to liability for the company under the anti-retaliation provisions discussed below.
Anti-Retaliation Provisions
It is likely that the best strategy for protecting the hypothetical client discussed above would be to have her file a whistleblower complaint with the SEC and to make sure her boss is aware of the complaint. Dodd-Frank makes it unlawful for any employer to “discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower.” 15 U.S.C. § 78u-6(h)(1)(A)(2010). The anti-retaliation provisions are not entirely new; they merely expand the anti-retaliation provisions adopted as part of the Sarbanes-Oxley Act of 2002 to match the scope of the new whistleblower provisions. If her boss were to take any adverse employment action against her after learning the whistleblower complaint was filed, she would appear to have an additional claim for retaliation.
It should be emphasized that the Dodd-Frank anti-retaliation provisions protect those who make a report based on a reasonable belief in accordance with the reporting procedures. See id. There is no requirement that the whistleblower received an award or that a violation was found to have occurred for the whistleblower to be protected against retaliation. See id.
Whistleblower confidentiality is also protected. The SEC may not disclose “any information, including information provided by a whistleblower to the Commission, which could reasonably be expected to reveal the identity of a whistleblower.” Id. § 78u-6(h)(2)(A). The provisions include a private cause of action for alleged retaliation for disclosure of information. See id. § 78u-6(h)(1)(B). Possible forms of relief include reinstatement, double back-pay, litigation costs, and attorney fees. See id. § 78u-6(h)(1)(C). Under Dodd-Frank, employee-whistleblowers can sue their employers civilly for up to six years after any alleged retaliatory conduct. See id. § 78u-6(h)(1)(B)(iii).
Dodd-Frank significantly expanded the opportunities for whistleblowers to benefit financially from identifying possible securities law violations to the SEC. Attorneys practicing in areas outside the securities realm – and particularly in employment law – should be aware of the opportunity to report violations, the need for corporate compliance to prevent violations and minimize those that occur, and the power of the anti-retaliation provisions.
1. The Securities Whistleblower Incentives and Protection provisions of the Dodd-Frank Act, codified at 15 U.S.C. § 78u-6 (2010), are commonly referred to as Section 21F of the Securities Exchange Act of 1934 (the “Exchange Act”). The Securities and Exchange Commission rules, published in the federal register at 17 C.F.R. 240.21F-1 to 240.21F-17 are commonly referred to as Exchange Act Rules 21F-1 to 21F-17. Where a provision is included in both the statute and the rule, we have cited to the statute.
2. Jean Eaglesham, After Tip, the Claim for Reward, Wall St. J., Nov. 16, 2011,
3. It is important to note that the SEC whistleblower program only applies to violations of federal securities laws. Accordingly, the Utah Legislature adopted the Securities Fraud Reporting Program Act (the “Utah Act”) in 2011. Patterned after the whistleblower provisions of Dodd-Frank, the Utah Act gives the Utah Division of Securities the authority to grant awards to reporters of securities violations and prohibits retaliation against them. See Utah Code Ann. §§ 61-1-101 to -106 (2011).
4. Because the amount of an award depends on the amount of monetary sanctions – including disgorgement – collected by the SEC, whistleblowers would seem to have an incentive to allow schemes to “ripen” to the point where the penalties – and therefore the award – would be the largest. This is particularly true when the securities violations involve fraudulently soliciting money from investors. For that reason, the SEC should consider increasing awards for reports that come in before securities violations have resulted in substantial losses. Additionally, awards should be increased when whistleblowers are able to identify the location of hidden proceeds from securities violations.

Focus on Ethics & Civility

The Civic-Minded Lawyer
by Keith A. Call
In the summer of 1988, the lawyers at Fabian & Clendenin were kind enough to give me a job as a court runner. I now grin to think about how genuinely exciting it was for me, a small-town son of a country lawyer, to deliver important documents – complaints, thick motions, and even interrogatory answers – around town to court and other law firms. A few years later, I experienced an even more exhilarating feeling when I first signed my name as a bona fide lawyer on an actual complaint that was about to be filed in the Maricopa County Superior Court.

I still love representing clients and helping them resolve difficult legal problems, but somehow middle age has removed the pure, innocent exhilaration I felt about complaints, motions, and interrogatories. I think it may have something to do with that darn billable hour.
The billable hour is probably also largely responsible for the negative perception of lawyers, not only in modern popular culture but in ancient religious texts as well. Even the Bible gives a strong rebuke to lawyers: “Woe unto you also, ye lawyers! for ye lade men with burdens grievous to be borne, and ye yourselves touch not the burdens with one of your fingers.”1
One of the best ways I know to maintain a love for the legal profession and to improve our image as lawyers has a lot to do with civility. The word “civility” has the same etymology as words like civilization, civilized and civic. These words all come from the Latin root civis, which means “citizen.”
As a lawyer, are you being a civic-minded citizen? Presiding Judge Royal Hansen of the Third District Court has said, “Lawyers have unique skills, and therefore a unique ability to impact the community. No lawyer should abdicate to others his responsibility to give service.”2
There are many great examples all around us. In 1994 Debra Brown was sent to the Utah State prison on a life sentence after being convicted of a murder. She spent the next seventeen years of her life there. But Debra Brown was innocent. Debra would most likely still be in prison today except for the pro bono assistance of two Utah attorneys, Alan Sullivan and Chris Martinez. After spending untold hours and personal sacrifice, Alan and Chris were able to overturn Debra’s wrongful conviction in 2011, developing new law under a “factual innocence” statute in the process. Instead of spending the rest of her life wrongfully imprisoned, Debra is now a free citizen, gainfully employed and happily living with her family. Alan reports this experience was “one of my most difficult and satisfying experiences as a lawyer.”3
Civic service need not be so dramatic to be satisfying and meaningful. Some of my most memorable and rewarding experiences as a lawyer involve helping people who were frightened and intimidated by the prospect of small claims court.
In addition, civic service need not be limited to pro bono or reduced-fee legal services. There are countless ways to use one’s legal training and skills to get involved and serve the community. I greatly admire lawyers who are willing to run for political office on national, state, and local levels. School boards, citizen review boards, and numerous other organizations can greatly benefit from what legal professionals have to offer.
Volunteer civic service will not only help those you serve, but it will also improve the reputation of lawyers generally. It is also a guaranteed way of making sure your practice maintains purpose for you personally. So make a point this year to give of yourself professionally. If you are not sure how to get involved, shoot me an e-mail and I’ll be happy to discuss some ideas with you.
1. Luke 11:46 (King James).
2. Interview with Presiding Judge Royal I. Hansen, Third District Court (October 12, 2011).
3. Telephone Interview with Alan Sullivan (December 29, 2011).

E-mail Privacy

by Keith A. Call
Like most people, I have a love-hate relationship with my e-mail. I love the convenience of communicating with groups of people at once, especially at irregular times. But I absolutely hate how e-mail tries to take over my law practice and my life.
A friend recently told me that he was on the verge of “e-mail bankruptcy.” He was so overloaded with e-mails that he was simply going to delete all of them – read and unread. Anyone who had a message they really wanted him to read was going to have to send him a new “claim.”

Love it or hate it, e-mail transmission is here to stay, at least until they perfect telepathic transmission. In order to maximize e-mail efficiency and minimize e-mail misery, here are some ideas that will help keep your attorney-client e-mails private instead of seeing them listed as your adversary’s “Exhibit A.”
E-mail Communication is Allowed
Fortunately, Utah recognizes that generally there is a reasonable expectation of privacy when communicating through unencrypted e-mail. See Utah State Bar Ethics Advisory Op. Comm., Op. 00-01 (2000). So, as a baseline, lawyers can transmit confidential client communications through e-mail without violating the confidentiality requirements of Utah Rule of Professional Conduct 1.6. See Utah R. Prof’l Conduct 1.6.
That is not a free pass, however. As explained below, careless e-mail communication can still get you into ethical trouble.
Lawyers Must Warn Clients about the Risks of E-mail
Imagine lawyer “Larry” is advising client “Carl” about a potential dispute Carl has with his employer “BigCo.” Should Larry advise Carl about the risks of using BigCo’s computers or e-mail accounts to communicate with Larry? The answer is, “Absolutely!”
The American Bar Association recently issued an opinion that concluded:
A lawyer sending or receiving substantive communications with a client via e-mail or other electronic means ordinarily must warn the client about the risk of sending or receiving electronic communications using a computer or other device, or e-mail account, where there is a significant risk that a third party may gain access.
ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. 11-459 (2011).
Many employers have policies that allow the employer to access and review all activity on company computers and servers. That may include the “private” communications a lawyer has with his or her client about the client’s dispute with the client’s employer. If you don’t warn your clients when there is a significant risk that others may access the client’s e-mails, don’t be surprised if you end up seeing your own e-mails on your opponent’s exhibit list.
Must Adverse Third Parties Disclose the Receipt of Private E-mails?
Now, imagine BigCo gathers all of its electronically stored information and delivers it to BigCo’s outside litigation counsel “BigLawyer.” Upon review, BigLawyer discovers BigLawyer possesses dozens of “private” e-mails between Larry and Carl. Is BigLawyer obligated to disclose that BigLawyer possesses those “private” e-mails?
Utah Rule of Professional Conduct 4.4(b) provides, “A lawyer who receives a document relating to the representation of the lawyer’s client and knows or should know that the document was inadvertently sent shall promptly notify the sender.” Utah R. Prof’l Conduct 4.4(b). According to a recent opinion from the American Bar Association, Rule 4.4(b) would not require BigLawyer to return or even disclose the fact that she possesses Larry’s and Carl’s “private” e-mails. See ABA Comm. on Ethics & Prof’l Responsibility, Formal Op. 11-460 (2011). The opinion reasons that the e-mails were not “inadvertently sent.” See id. Rather, both the employee and his lawyer intentionally sent the e-mails. See id. Apparently, the fact that they exchanged the e-mails using the employer’s computer and e-mail account eliminated the reasonable expectation of privacy. See id. The opinion concludes that any such disclosure obligation is governed by the applicable rules of civil procedure, court decisions or other law, and not the Rules of Professional Conduct. See id. (Note that ABA opinions are instructive for Utah lawyers, but they may not be binding.)
The lesson here is to pay attention to what computers and what e-mail domains you and your client use to communicate. If there is a significant risk that an employer or other third party may have access to the e-mails, play it safe and use a different mode of communication. At a minimum, you have an ethical obligation to advise your client of the risks. Finally, consider how these rules might apply to other forms of communication, such as text messages using an employer-issued smart phone.