Appraisals and the Courts

February 21, 2008

Appraisals are viewed with a good deal of suspicion and rightly so. There is inherently a degree of latitude in a determination of market value and appraisers have been used as tools in banking and savings and loan scandals over the years. All that aside, it is impossible to determine market value with the same sort of precision and verifiability as a scientific conclusion.

A recent Division III Court of Appeals case, Washington Beef, Inc. v. County of Yakima (Feb. 14, 2008) reveals the vagaries of the discipline almost to the point of parody.

There we have the county assessor determining determining the value of building and equipment at about $35 million and the owner’s expert valuing the same assets at about $7 million. The owner’s valuation involved the “income approach” which capitalizes cash flow, basing the vlaue on the amount of money the asset is expected to generate. The county used the cost approach which estimates what it would cost a purchaser to acquire the assessed asset. There was credible expert opinion supporting each approach to the valuation of the assets under consideration.

The trial court, when asked to determine the outcome, concluded that neither side was right and came up with a valuation the was supported by none of the experts, but far closer to the county’s position than the taxpayer’s.

The court of appeals began its analysis with the proposition that appraisals are more of an art than a science. It had to remind itself of this at one point in its decision when it attempted to apply the “law of appraisals” to the baffling calculations before it. Finally, the court not seeing any obvious errors made by the trial judge in his independent calculations, affirmed his decision. You can almost hear the collective sigh.

The reader is left with the impression that appraisals are certainly not a science and with no appreciation of them as an art form. They appear to be more of a crap shoot.


The Judicial Branch and the Environmental Protection Agency

February 18, 2008

For many observers the low water mark in recent judicial history was the case Bush v. Gore in which the Supreme Court inserted intelf into state election procedures without any precedent whatsoever, dictated the outcome and stated that its decision should not be given value as precedent. In so doing it handed Florida’s electoral votes to Bush, which gave him the election. As it turned out Gore had in fact taken Florida and Gore garnered more votes nationally than Bush. The Supreme Court’s action in giving the election to Bush was so much at odds with tradition and established precedent that at least one national commentator called it treasonous.

In at least one area the federal courts have demonstrated their independence from the administration. The efforts to change the E.P.A. from watchdog into advocate for polluters have been frustrated by the courts. The U.S. Court of Appeals for the District of Columbia and the U.S. Supreme Court ordered the E.P.A. to follow the law in requiring utilities to install pollution controls when power plants were upgraded. The U.S. supreme Court required the E.P.A. to start regulation green house gas emissions from automobiles. Just recently the D.C. Circuit Court admonished the E.P.A. to require reductions in mercury emissions from coal-powered power plants.

But for the role of these federal courts, which include Bush appointees, the administration would have effectively converted the role of the E.P.A. from policing industry’s compliance with federal environmental law to shielding it from those laws. Certainly during the last seven years the E.P.A. has been compromised but hopefully it will soon be regenerated.


Foreclosure Scam Reaches the Court of Appeals

February 7, 2008

In a decision dated February 4, 2008 the Court of Appeals went against a foreclosure scam victim. In Torkild v. Johnston, the homeowner had made a number of procedural mistakes and the court sided with the so called “investor.” The victims case appears not to have been presented very well at all, so the outcome was not surprising. What was most interesting about this case is that the Court of Appeals decided not to have it published, so it is of no value as precedent at all and will not be an obstacle in a later, better presented case. This decision suggests that the court may be sympathetic to these fraud victims and be waiting for a better case for it to publish an opinion.


Result-Oriented Judicial Decisions

January 31, 2008

Contracts are certainly not inviolate, as there are numerous legal doctrines to set them aside, reform them, even add terms to them. The general idea is to effectuate the intention of the parties as discerned by a judge or appellate court. There are numerous judicial tools to discern the parties intent, often leading to conflicting results. Ultimately though once a contract is in the court system its interpretation is left to an individual or individuals who probably have no experience and limited understanding of the area of commerce from which the contract arose.

When the contract materially departs from the agreement of the parties or the contract turns out to involve performance beyond the expectations of the parties, the court will sometimes say that there has been a “mutual mistake of fact.” This can lead to the court rescinding the contract, or reforming it to comport with the actual understanding of the parties, and sometimes awarding damages and attorneys fees.

This situation occurs throughout the law, in almost every conceivable context. People want to get out of adoption agreements, supply contracts, debts of all kinds, personal service agreements, you name it. For the sake of predictability it is quite important that you be able to determine whether a contract will be canceled or reformed or enforced. Because of the sweeping nature of the situations into which these doctrines are applied, they are defined with a broad brush and often it is impossible to anticipate what a court will do with them.

Today the Washington State Supreme Court issued a decision involving an agreement sought to be set aside. Its treatment of the notion of “mutual mistake of fact” is of interest, although I’m not sure that it goes very far in making things any more predictable.

In State v. John Shannon Codiga, a criminal defendant entered into a plea agreement, pleading guilty to three counts of a crime involving a sentence of seven years. At the sentencing hearing the defendant learned that actually the sentence was life, or could be that. The defendant not surprisingly felt that this ought to invalidate the agreement so that he could go to trial. The prosecutor explained when his office prepared a statement of the defendant’s criminal history it omitted a marijuana-related felony conviction because by its terms it was to be expunged if the defendant stayed out of trouble and it had failed to identify one or more misdemeanors that had occurred to prevent the felony from being extinguished. The prosecutor pointed out that the defendant signed off on this mistaken statement of criminal history but the defendant contended that he too had thought that the felony had been expunged. As it turned out this was a pretty big fact to be mistaken about, as the existence or nonexistence of this conviction .

The Washington Supreme Court has been criticized for deciding what result it wanted then rendering the law in a manner to justify the result. Mutual mistake is a doctrine that applies when there has been a mistake about a material fact but it classically does not apply when the parties have been mistaken about their understanding their rights. This is now a little murky. For example in In Re M.D. it was found that a mistake about the person’s rights before entering into a contract could invalidate the agreement. This decision seemed to gloss over the distinction between law and facts and skip lightly over the idea that the mistake should be mutual.

In todays decision, the State Supreme Court upheld the plea agreement, saying in effect that the defendant had waived the right to claim mutual mistake of fact in the standard printed language of the agreement in which he assumed the risk of a mutual mistake of fact. The court then went on to emphasize that this was a mutual mistake of fact, not of law, as if the doctrine applied only to mistakes of law. This is vertigo inducing language to the average lawyer. The readers’ disorientation is heightened when s/he realizes that an acknowledged mutual mistake of fact is being used by the Court to sustain a contract, not avoid it. This was a unanimous decision!

If we pull ourselves back from behind the looking glass, there is a trend in the law to permit contracting parties to allocate the risk of mistake. Generally speaking this should be bargained for and to be enforceable it should be reasonably clear about what mistakes are being allocated and not a sweeping statement that allocates all mistakes, including those of the party that drafted the agreement with superior bargaining position, to the party presented with the agreement. The court did not analyze the plea bargaining agreement in light of this emerging area of law, it just pointed to the language of the agreement, as if that were the sole determining factor.

It might help in your effort to fit these decisions into a conceptual framework to know that In re M.D. where the doctrine of mutual mistake was contorted to avoid a contract involved a Native American mother trying to reclaim her parental rights which had been contracted away. Today’s decision involved a person arrested for the first time for child molestation. In these two decisions the doctrine was used to affirm parental rights over contractual rights and to incarcerate for life, or most of it anyway, a person who confessed to three acts of child molestation. Another factor that may have come into play is that three State Supreme Court seats are up for re-election this fall.

In these decisions most people would not take issue with the outcome and many would not take issue with the reasoning that obtained the results. Later we will look at decisions that involve other interests. If you go along with this approach in these cases, no fair complaining if a result you don’t like is arrived at through unconventional reasoning.


Statute of Repose: A Vehicle for Fraud

January 19, 2008

Washington’s construction statute of repose gives immunity to responsible people for damages that do not accrue until 6 years after the project — whether a bridge, a highrise, earthquake retrofitting or anything other than a condominium, which is 4 years — is put into the stream of commerce. This puts the burden of catastrophes on the victims.

Statutes of repose have been attacked constitutionally in a number of states. The result has usually been that the state legislature — at the behest of the building and insurance lobbies — passes a new law meeting, or appearing to meet, the unconstitutional aspects of the overturned law. Over the last several years the use of the statute of repose to avoid liability has increased. Increasingly we are hearing outcries about the injustice of its application.

In Minnesota a bridge failed killing many people. The local government had paid for a one hundred year bridge but when it failed after fewer than 20 years because of a design defect, the responsible people were render immune from suit by that state’s 10 year statute of repose. Only this summer — after the disaster — did legal professionals express outrage at the injustice of being unable to enforce warranties and representations that were a material part of the purchase price of the bridge.

In New Jersey the Supreme Court is considering a case in which a condominium developer made express representations to consumers knowing that they would rely on them. When these representation turned out to be false, the developer hid behind the statute of repose.

It is terribly hard to find a reasonable justification for Washington’s 6 year statute of repose, particularly when a new building is usually given a useful life of around forty years. Projections, pricing and even tax depreciation are based on the useful life of the building, bridge or other improvement. Despite all this we give immunity to everyone in the construction industry after 4 or 6 years.

The excuse — and it is a transparent excuse — for the law is that it would be too hard to determine the cause of a catastrophe after 4 years in the case of a condomium and 6 years with all other construction. The 4 year condominium law was passed however only because the responsible parties could be identified with certainty and there is absolutely no engineering difficulty determining causation that occurs after 6 years. Furthermore, the burden is on the plaintiff to prove causation so if it can’t be proven the suit fails. It is said sometimes that there might be intervening causes but this too is something that the system is supposed to address anyway before a judgment can be entered.


Tort Reform

January 19, 2008

The insurance industry and Chamber of Commerce have been resolute in the steady drum beat for tort reform. The “free-market think tank” Pacific Research Institute last March published a “report” assessing the annual cost of the American tort system at $865 billion per year. That’s a couple billion per day! (A number that wildly exceeds the sum of all tort judgments and is mostly attributable to “secondary effects.”) A month ago a Washington D.C. “nonprofit organization” the American Tort Reform Foundation, produced another “report” called Judicial Hellholes. This paper condemns judges and courts that have permitted high damage awards or are otherwise “unfriendly” to business interests. (Washington should be ashamed that it did not even register mention.)

These tort reform arguments are remarkably similar in that they do not make any serious effort to weigh competing interests or examine the nature of the the American people’s interest in inhibiting the action complained of in the lawsuits. It is presupposed that any harm done to business interests is a wrong to be avoided. This is propaganda not reasoning. This is one of those areas where the proponents take such an extreme position that discussion and dialogue cannot be pursued.

PRI’s “research” is a good example of how silly things have gotten. This report takes into account the amount of business lost as a result of lawsuits without considering what sort of business was lost, how the curbed business activities might have harmed society or how the absense of the business practices might have benefited people in general. The tobacco industry of course has lost a lot of money because of lawsuits but not everyone would call that wrong. This drop in profit by tobacco companies is offset by reduced health care costs and longer life spans, both of which are generally viewed favorably. Tort lawsuits have have resulted in a marked, measurable improvement in the environment, something that is favored in most circles. The tort of outrage has been used in Washington to abate racial slurs at work, a laudatory achievement in the eyes of many. Lawsuits substantially increased the safety of automobiles and reduced traffic deaths. Lawsuits are the means by which renegade corporations and corporate officers have been made responsible for criminal and fraudulent activity. They have been the means of recouping losses by stockholders and pension plan members.  There are countless other examples.

I hope some day these issues will be resolved by sane discussion of policy issues in which business interests will be seriously weighed against the interests of society.


Reform Washington’s Judicial Appointment Process

January 2, 2008

debra-stevens.jpgJudge Debra Stephens, Washington’s Newest Supreme Court Justice already has a website for her election this fall

While I know little about the newest Washington State Supreme Court Justice, Debra Stephens, I do take issue with the process by which she was appointed to the state’s highest court. Little is known about her except that the people quoted in the print media uniformly praise her scholarship and ability. The qualities are certainly essential for any appointment, but there was a certain amount of disinformation circulated from the governor’s office. We were told that she had argued before the State Supreme Court over one hundred times, but a Westlaw search shows only 56 appearances, never on behalf of a litigant but always (except once) filing a brief as a “friend of the court” on behalf of the Washington State Trial Lawyers Association (again, except once). As a “friend of the court” filing an amicus brief, more often than not in the normal course of events she would either not have argued at all or argued only a few minutes as the litigants (the parties directly involved in the case) have a relatively short period of time to present their cases.

She was praised for the diversity of views she encountered as an appellate judge , but she had only just been appointed there and had not participated in one opinion (again according to Westlaw). The governor’s office took some license in promoting her qualifications, which of course does not reflect on her but calls attention to problems with the process.

Justice Bobbi Bridge retired in the time-honored fashion by departing the bench a year before the election, so that the governor could appoint her successor, who could then run as the incumbent in the 2008 election. The strong tendency to reelect an incumbent justice gives the appointing governor great influence on make-up of the supreme court bench. This has made one of the State’s most vital and sensitive offices the subject of political patronage and in the past has diminished the stature and potential of the Court.

Washington needs to seriously examine this appointment process and consider alternatives adopted by other states, such as Arizona. That state has a blue ribbon panel which creates a short list of qualified candidates from which the governor must select her appointee.