author: Carleton Harris, Chief Justice.

text:
    R. H. SIKES v. Joseph William SEGERS, Jr.
    79-60
    587 S.W. 2d 554
    Opinion delivered October 15, 1979
    (In Banc)

      William R. Wilson, Jr., P.A., for appellant.

      Shaw & Ledbetter, for appellee.
   Carleton Harris, Chief Justice.

This is the second appeal of this case. Sikes v. Segers, 263 Ark. 164, 563 S.W.2d 441, reflects that the trial court ruled that appellant’s action for alienation of affection was barred by the statute of limitations, and this holding was not appealed by appellant. The trial court also held that the malpractice action brought by Sikes against appellee was not barred by the statute of limitations, and this ruling was not appealed. However, appellee asked for a summary judgment, which the court granted due to its finding that appellant’s handwritten affidavit (prepared during the recess of the court) had not been timely filed. The affidavit controverted the allegations and statements in the motion for summary judgment, and accordingly, raised a factual issue. We, because of the facts and circumstances of the particular case, concluded that “The only fair and reasonable action would have been to permit the affidavit to be filed;” consequently, we reversed the court’s action in granting summary judgment and remanded the case for further proceedings.

In the present case, appellant filed motions on August 2 (heard by the trial court on August 4, 1978) and August 14 for continuances, it being maintained that his present attorney, because of a previous commitment, could not appear on the date of trial (August 15). The case was already set for August 15 and the trial court stated that it would proceed to trial. On August 15, neither appellant nor his attorney appeared, and the court entered an order reflecting that the motions for continuance had been denied, dismissing with prejudice the complaint of appellant, and awarding all costs to appellee. From the order (judgment) appellant brings this appeal. The case is somewhat difficult to follow because separate hearings were conducted involving different attorneys, and there is considerable background relating to the reasons for the hearings.

It is first argued that the trial court erred in refusing to grant motions for a continuance. These motions were predicated on appellant’s contention that the attorney who had been representing him was no longer in a position to properly present his case. This attorney was C. W. Knauts, who lived in Clay County. The basis of the contention was that Lewis Jones, a partner of appellee, had filed a defamation of character suit against Sikes and Knauts on September 28, 1977 and, according to Sikes, Knauts wanted to settle the matter by swapping dismissals of lawsuits, i.e., Sikes would dismiss his malpractice action against Segers and Jones would dismiss the suit he had filed against Sikes and Knauts. Sikes said that he did not want to follow this suggestion; that he felt the two lawsuits were entirely separate and Knauts had a conflict of interest and could not afford him the best representation in his (appellant’s) action against Segers. The trial court, having received a letter from Knauts concerning his desire to withdraw as attorney for Sikes (in which was enclosed a letter from Sikes wherein Knauts was discharged), conducted a hearing on July 27, 1978 to determine whether there was reason to discharge Knauts. In addition to the reason just given, Sikes complainted that his lawyer did not meet with him or talk with him prior to the taking of his deposition. Principally, however, his complaint was that Knauts wanted to settle both lawsuits in the manner heretofore mentioned.

Knauts said that he and his client had not agreed for several weeks on the manner of handling the litigation and stated:

In accordance with the court’s urging counsel to settle the case, I have endeavored to try to work to that end, by my counseling and discussions with Mr. Sikes, I feel have precipitated a riff between us.

The court interjected:

But it was at my request. I request it in every case. I try to pre-try every case and try to settle it; not just this case.

Knauts added that there was no question but that he and Sikes had completely different viewpoints as to how the case presently before us should be pursued and that:

In keeping with what I have felt was in line with the instructions of the court, to explore all avenues of settlement — in fact, I have passed this information on to Mr. Sikes. And when I did this and during the time that the court asked that it be done, this is when Mr. Sikes felt ill at ease with me, . . .

Knauts stated that he had felt no “pressure” from the case filed by Jones; that his attorney had advised him that that case was completely defensible and he felt that his participation in it was personally defensible, but he did feel that Sikes thought there was a conflict. Sikes, who had caused some tapes to be made of purported conversations between his wife and appellee (subsequently discussed) testified that his attorney had told him that there was “no way” that the court could “touch those tapes during that deposition;” when the court impounded the tapes, apparently his confidence in his counsel was eroded. Knauts stated that he did tell Sikes that since there was no motion filed to suppress the tapes, he did not think it would be proper for the court to do so, and Knauts further stated that one of the differences between him and Sikes was that appellant wanted to take the matter to the State Supreme Court Committee on Professional Conduct for the purpose of disciplining Segers; he (Knauts) was against that procedure and would have no part in it. The court permitted Knauts to withdraw from his representation of Sikes and told the latter that he could get another attorney, but there would be no continuance from the August 15 trial date, and an order was entered to that effect; the court also told Sikes to advise any new attorney that he did not permit the taking of depositions within 30 days before the trial date.

Thereafter, Sikes obtained William R. Wilson, Jr., of Little Rock to represent him, and Wilson filed motion to compel discovery, motion for substitution of counsel, motion for continuance, and motion to Recuse. Appellee filed a motion to impound and to suppress the tapes, heretofore mentioned. As to the motion for continuance, Wilson stated that he had a conflict on August 15 and could not possibly be present on the date of trial. Appellee vigorously opposed the granting of a continuance and points out to this court the length of time that the suit has been pending. Of course, the divorce action commenced in 1973, and there were numerous hearings relative thereto, but in our view, the cases are entirely separate and distinct causes of action. Primarily it must be recognized that the divorce matter involved litigation between Sikes and his wife, while the current action is litigation between Sikes and his alleged attorney. This malpractice action was filed by the Sam Sexton law firm on February 3, 1976, but was dismissed without prejudice the next day and Sexton withdrew from the case. Sikes testified that this dismissal without prejudice was done by one of the attorneys without his knowledge or consent. It does not appear that there is any evidence to the contrary.

Further background reflects that on January 17, 1977, a second malpractice action was filed by Knauts, retained in late 1976 by appellant. On February 3, appellee filed an answer, and on May 12 the trial court granted summary judgment in favor of appellee. This judgment was appealed on July 8. On September 28, Lewis D. Jones, partner of appellee, filed a defamation suit against appellant and Knauts. On March 27, 1978, as earlier reflected, this court reversed the trial court on the granting of summary judgment as to malpractice. Actually, there was nothing for Sikes and Knauts to disagree about until after the reversal, for if we had affirmed the case, instead of reversing it, there would have been no malpractice cause of action to “swap” with Jones. The dissatisfaction of Sikes seems to have commenced (according to the testimony of Sikes) around the last of April when, according to his testimony, Knauts made this suggestion. Other complaints were that his attorney did not brief him on the taking of a discovery deposition which was set for July 7. This deposition was postponed until July 14 because of the illness of Knauts. Sikes testified:

As a matter of fact, he notified opposing counsel that he was sick and I had to call the office to get that information. Then when it was reset I ended up finding out the Thursday morning of the hearing that the deposition was set for that afternoon. I found that out Thursday morning by myself, by calling the office.

Of course, a client has a right to discharge an attorney, though there may not be just cause. Johnson v. MoPac Railroad Co., 149 Ark. 418, 233 S.W. 699; Gentry v. Richardson, 228 Ark. 677, 309 S.W.2d 721. See also Code of Professional Responsibility, DR 2-110(b)(4). While the trial court found that Knauts had represented Sikes in a capable manner, he did grant the attorney’s petition to withdraw. Of course, according to the testimony of both Sikes and Knauts, they were in total disagreement as to the procedure to be followed and apparently had lost confidence in each other. Certainly, their feelings were not compatible with the attitude that an attorney and client should have in preparing for litigation.

The court’s order approving the petition of Knauts was granted on July 27. That left appellant 18 days to obtain an attorney. Obtaining an attorney in the Fayetteville area would have been most difficult, and it is easy to understand his acquiring an attorney from an outside area; even at that, he did obtain the services of Wilson within four or five days, though Wilson advised that he could not try the case on that date. The record reflects that Sikes had also made other efforts to obtain counsel, but had been unable to do so. Of course, if it appeared that appellant was simply trying to delay the trial and had no bona fide reason for a continuance, the court’s denial of such continuance would be correct. The record does not support this inference. Nor is this a matter where the attorney is contending that he had inadequate time for preparation; rather, he simply had a conflict on August 15. As already pointed out, the state of feeling between appellant and his attorney was such that adequate representation by that attorney would have been difficult, if not impossible. Actually, the court advised that no continuance would be granted even before it was requested, so it appears that no consideration was given to the motion, or the reasons therefor. Of course, the question of whether a continuance should be granted is pretty well determined on the facts of the particular case, and vve have reached the conclusion that, under the facts of this case, there was an abuse of discretion in not granting the motion.

It is asserted that the trial court erred in denying appellant’s motion to compel appellee to complete discovery by answering questions concerning appellee’s alleged meretricious relationship with Jolene Sikes. On July 17, 1973, appellant and his wife, Jolene Sikes, had met with appellee for the purpose of discussing a property settlement pursuant to obtaining the divorce. Mrs. Sikes had gone to appellee for representation, and appellant alleged that Segers also represented him. In general, he contended that subsequent to his wife’s obtaining Segers as her attorney, the two engaged in a meretricious relationship, which influenced Segers’ recommendations (to the detriment of appellant) in the property settlement. On July 14, 1978, discovery depositions were taken from Segers and Sikes and made exhibits at a hearing before Judge Cummings on August 4.

Let it first be understood that a meretricious relationship between Jolene Sikes and appellee would be immaterial to any question here presented unless Segers was representing appellant. Of course, if appellee and Mrs. Sikes were having an affair, any advice given to appellant could have been affected by the personal relationship with Mrs. Sikes. Certainly, such a situation could not be countenanced in observing professional ethics, but the duty of an attorney to his client goes far beyond ethics. Unquestionably, the relationship between Segers and Sikes (if Segers was representing Sikes) was a fiduciary relationship. On American-Canadian Oil & Drilling Corp. v. Aldridge & Stroud, 237 Ark. 407, 373 S.W.2d 148, this court said:

The primary question for determination is whether the Attorneys did, either in fact or as a matter of law, represent conflicting interests by acting in their dual capacity as attorneys for appellant and Aldridge & Stroud, for if such were the case we would unhesitatingly hold that they thereby forfeited all rights to any compensation. No rule of law is more firmly established than that — ‘A fiduciary relationship exists between attorney and client, and the confidence which the relationship begets between the parties makes it necessary for the attorney to act in utmost good faith.’ Norfleet v. Stewart, 180 Ark. 161, 20 S.W.2d 868. This high fiduciary relationship positively precludes attorneys from representing conflicting interests as was well stated in Silbiger v. Prudence Bonds Corporation, 180 F.2d 917, where Judge Learned Hand observed:
‘Certainly by the beginning of the Seventeenth Century it had become a commonplace that an attorney must not represent opposed interests; and the usual consequence has been that he is debarred from receiving any fee from either, no matter how successful his labors. Nor will the court hear him urge, or let him prove, that in fact the conflict of his loyalties has had no influence upon his conduct; the prohibition is absolute and the consequence is a forfeiture of all pay.’

The following portions of the deposition appear pertinent:

Q. So Mrs. Sikes appeared there in the office, herself, first, and then later brought in Mr. Sikes; is that right?
A. Mrs. Sikes appeared there July 9, July 10, and July 16, before Mr. Sikes came into the office with Mrs. Sikes.
Q. I am sure that you have heard the testimony of Mr. Sikes in connection with his statement that you and he — I mean that you talked to him about representing both of them. Can you elaborate on that, Mr. Joe?
A. Yeah, I can, and I had personally a high regard for
R.H., and really didn’t feel sorry but felt remorseful that he and his wife and little ol’ baby were going to split the sheet. I told R.H., with Jolene there, that I represented Jolene Sikes and as long as there was not a controversy that could not be settled between them, as long as there wasn’t a controversy they couldn’t settle that R.H. need not seek outside counsel. If it got to a point where there was a controversy that they could not settle, then in that event, I represented Jolene, and he would have to hire another lawyer, and I don’t, you know, I tried very hard to eliminate controversy because, as R.H. said, everything that she wanted he talked her down and out of, and she was the one that was the giver, and gave, and took away from what was, in my opinion, a fair and equitable settlement, she gave away. And R.H. took away from her, and he never — the only controversies that ever arose, she gave in, which eliminated him having any controversy. But I never said that I would represent R. H. Sikes.

Segers further stated that Sikes had told him that he had discussed the case with another lawyer and appeared to have received advice from the attorney. Continuing with the deposition:

A. He [Sikes] took things out, too. I got off the track; I didn’t answer your question. He took the property settlement agreement as was drawn up, he’d pick it up, take it out of the office, bring it back, with red lines in it or writings or markings or something, with what he wanted changed, and this sort of thing. Sometimes he would leave it there, when I was there, and sometimes he would leave it there when I wasn’t there, and I distinctly recall him telling me that he had seen Jimmy Cypert concerning the property settlement agreement and this conversation came in when there was something he wanted to change; I don’t remember what it was. And I told him that I wouldn’t recommend to my client to accept it, and he said, ‘I have seen Jimmy Cypert and that is what I am going to do.’

Subsequently, Segers testified that Cypert said he had never represented Sikes in the divorce action.

Segers took the acknowledgment of Sikes when he executed the waiver and entry of appearance for the divorce. The record reflects that members of the Sikes family had used Segers as an attorney, the latter representing the mother of appellant a few years before present litigation. Of course, in the first case, we reversed the trial court in granting a summary judgment for Segers on the basis of an affidavit by Sikes which we held raised a factual issue. In that affidavit, Sikes stated, inter alia, “that Segers agreed to represent both he and Jolene Sikes in their divorce, but did not disclose to him the relationship of Segers to his wife, that they were involved in an affair involving a physical relationship. That he paid Segers for his service as an attorney.”

Thereafter, a number of questions were asked, which were objected to by counsel for appellee on the basis of being either of a privileged nature between a client and her attorney, or that they related to the alienation of affections suit which, as previously mentioned, had been dismissed by the trial court because the statute of limitations had run. Without discussing every question asked (which does not seem necessary since the case has never gone to trial), there were some which obviously did not relate to any privilege, and likewise were relevant to a malpractice action. For instance, Segers was asked:

Joe, it is alleged here in the Complaint of R. H. Sikes and it was also previously alleged in pleadings filed by the office of Sam Sexton that you and Jolene Sikes, after your representation of Jolene started and during the time you represented R. H. Sikes, you undertook to have a physical and meretricious relationship with Jolene Sikes?
* m *
Joe, at the time you were representing Jolene Sikes in this matter, did you ever ask her for a date or ask to come over to her house and see her for any physical purpose?
* * IÜ
Joe, did Jolene Sikes ever call you up and ask you to come up to her house for the purpose of sexual relations?

All questions were objected to on the basis that they only related to alienation of affections.

While the particular questions mentioned did not refer to, nor were they objected to on the basis of, privileged communications, it appears certain that this question will arise during a trial, and a discussion of privilege is entirely in order. First, let it be said that any questions referring to acts of appellee and Mrs. Sikes, rather than communications between an attorney and his client, are not privileged. Also, the client is the one who is given the privilege of refusing to disclose confidential communications, and while the lawyer may claim the privilege, he can only do so on behalf of the client. See Uniform Rules of Evidence, Rule 502(b) and (c).

At the hearing on August 4 (passing on the motion to compel discovery), the court held that the questions relating to a meretricious relationship dealt with alienation of affections, and were not appropriate to the question of malpractice, stating:

The duty between this man [Segers] and Mr. Sikes is the only allegation that he has the right to put on testimony about. I think there is a difference between the alienation of affection proof and malpractice.

An order was subsequently prepared to that effect. Counsel for appellant moved that he be allowed to depose the appellee, considering that the deposition previously taken was inadequate, and said that he could take it “at one ’clock today,” but the court denied the motion, pointing out that he had a rule that no depositions could be taken within 30 days of the trial date.

In accordance with what has been said, we hold that the court erred in finding that questions concerning the alleged meretricious relationship related only to the issue of alienation of affections.

It is also urged that the trial court erred in impounding and suppressing the tape recorded telephone conversations between Jolene Sikes and Joe Segers. On August 9, 1973, appellant, who had retained the assistance of Bill Murray, a private investigator, began taping telephone conversations on his home phone, such taping continuing until September 5. Murray explained to Sikes how the operation was carried out and Sikes installed the necessary equipment for the taping. At this time, the divorce action, which had been filed on July 19 by Mrs. Sikes, was still pending, the decree not being issued until August 22. Both Sikes and his wife were still living in the home, although Sikes was gone a great part of the time on golf tours. The tapes were collected by Murray and turned over to Sskes, and Sikes contends that the telephone conversations, as recorded on the tapes, establish his contention that a meretricious relationship existed between his wife and Segers. On July 14, at the taking of the discovery depositions, according to the testimony of Sikes, Judge Cummings entered the courtroom where the depositions were being taken and impounded the tapes. Appellant stated there was no hearing before this was done. The court indicated that the tapes were impounded or sequestered simply as a matter of preserving their integrity. Apparently there was no hearing at the time the tapes were impounded, but 12 days later appellee filed a motion to impound and suppress the tapes. The court entered an order providing:

That the Defendant’s Motion to Impound and to Suppress Tapes should be granted in that the tape recordings of certain telephone conversation were illegally obtained and are, therefore, inadmissible as evidence and shall be retained by this Court until further Orders are issued, and that the Court’s Temporary Order of July 14, 1978 impounding said tape recordings shall remain in full force and effect; the Court further finds that said tapes and the use of said tapes by the Plaintiff or any material obtained therefrom should be suppressed in that the tapes or any material obtained therefrom are inadmissible as evidence.

Congress enacted Title III of the Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C.A. §§2510-2520, for the dual purpose of protecting the privacy of wire and oral communications, and delineating on a uniform basis the circumstances and conditions under which the interception of wire and oral communications may be authorized. To assure the privacy of oral and wire communications, Title III prohibits all wiretapping and electronic surveillance by persons other than duly authorized law enforcement officers engaged in the investigation or prevention of specified types of serious crimes, and only after authorization of a court order obtained after a showing and finding of probable cause. U.S. Cong. & Admin. News, Vol. 2, 1968, P. 2153.

The question of the admissibility of these tapes as direct evidence has been briefed to a degree by both sides, such matters being discussed as to whether under particular circumstances the evidence is admissible, and whether the provisions of the Omnibus Crime Control and Safe Streets Act apply only to criminal matters, and while there are but few cases cited, it is apparent that conflicting views have been expressed. The briefs, however, fail to cite case authority on the question of the court’s right to impound the tapes, particularly whether this can be done prior to a hearing. Likewise, the briefs are inadequate upon the question of whether the tapes, if not admissible as substantive evidence in the case in chief, could be used for impeachment purposes. The second question is as important as the first. Only one case is cited on this last question.

These are matters that should be presented at the trial itself, and we decline at this time to pass on the admissibility of the tapes, either as substantive evidence or the use of such for impeachment purposes.

On the whole case, for the reasons enumerated herein, the order (judgment) of the circuit court entered on August 15, 1978, is reversed, and the cause is remanded to the Circuit Court of Washington County for further proceedings not inconsistent with this opinion.

      This motion was received in the mail.

      This motion was denied, but is not raised on appeal.

      Sikes was represented by Knauts and present counsel represented Segers on July 14.


source: Caselaw Access Project

author: George Rose Smith, Justice. Conley Byrd, Justice,

license: Public Domain

text:
    ARKANSAS WESTERN GAS COMPANY v. ARKANSAS PUBLIC SERVICE COMMISSION
    79-171
    588 S.W. 2d 424
    Opinion delivered October 15, 1979
    (In Banc)
    [Rehearing denied November 19, 1979.]

      Ball & Mourton, Kathleen D. Gardner and Charles F. Scharlau, for appellant.

      Robert H. Wood, Jr., for appellee.
   George Rose Smith, Justice.

The appellant, Arkansas Western, is a public utility engaged in the distribution of natural gas in 65 towns and communities, in 11 counties, in northwest Arkansas. In 1975 it filed with the Public Service Commission a proposed rate schedule increasing its charges to some of its customers. After extended hearings the Commission approved part of the requested increases in rates and directed Arkansas Western to file redesigned rate schedules conforming to the Commission’s findings. The circuit court affirmed the Commission’s order. Arkansas Western now argues that the Commission’s findings are erroneous and confiscatory in four particulars.

I. Annualized Depreciation. The test year selected for the rate calculations was 1974. The Commission allowed annualized depreciation of $255,795 as an operating expense for the year, and, as a balancing item, added that amount to the depreciation reserve as of the end of the test year, thereby decreasing the rate base by the same amount. Arkansas Western accepts the figure $255,795 as a correct expense allowance, but it insists that the Commission should not have made a like addition to the depreciation reserve.

It is plain enough that if a certain amount of depreciation is allowed as an operating expense of the utility company, then a like amount must eventually be deducted from the rate base. Otherwise, the ratepayers would pay for the same item twice, once as an operating expense and a second time as a return on plant value which had not been correspondingly reduced to reflect the depreciation. The problem is essentially one of accounting, for the test year is admittedly a fictitious one in which no revenue is actually received nor any expenses incurred.

Arkansas Western, however, quite properly presents the issue as one of law, the members of this court not being qualified to explore difficult problems in accounting. As a matter of law, all the authorities seem to support the position taken by the Commission. Counsel for the Commission cites administrative decisions from five different states, all reaching the same conclusion. Typical is the discussion by the Kansas State Corporation Commission in Re United Telephone Co. of Kansas, 6 PUR 4th 350 (1974), where it was said:

The obvious fair matching of operating expenses, capital and rate base necessitates that if the company is alloted twelve months of depreciation expense as recorded on its books, then twelve months of depreciation must be credited to the reserve. Likewise, in a rate proceeding, if the company is to be allowed an additional depreciation expense in the form of new accrual rates, and an adjustment for year-end plant balances, likewise the credit should be made to the reserve.
This commission has consistently held that adjustment to depreciation expense should be offset by a credit to the reserve and we have traditionally approved the types of adjustment proposed by the staff. We find that the proper matching of expense and rate base requires the annualization be made to both in this case.

In its reply brief Arkansas Western recognizes that the cases cited are contrary to its argument, but it insists that “the deduction of the annualized depreciation of $255,795 for the test year 1974 from the ‘rate base’ is incorrect from a theoretical rate making standpoint and as a matter of law.” As to theoretical rate making, the accounting problem embraces not only the deduction of the annualized depreciation at the end of the year but also the coincident addition of new construction completed during the test year. It is evident that the continuous process of depreciation must be continually offset by new construction. How to reconcile those two constants is a matter not discussed in the briefs and one upon which we must defer to the expertise of the Commission. As far as the law is concerned, the company has not submitted any legal argument in answer to the conclusion unanimously reached in other jurisdictions.

II. Minimum Bank Balances. Arkansas Western asked that the rate base include minimum bank balances of $404,500. The Commission denied that request, stating that in calculating the $381,533 allowance for “working capital” it had taken into consideration “the requirements of the Company as relate to the need for having funds available on deposit in their bank accounts to meet their normal financial obligations.” The Company contends that the requested minimum bank balances should have been approved.

Arkansas Western maintains about 35 bank accounts. Two out-of-state accounts do not affect the present issue, as they are depositories for payments of bonded indebtedness and stockholders’ dividends. A substantial non-interest-bearing checking account is carried with the Worthen Bank in Little Rock, where Arkansas Western has a $3,000,000 line of credit. Similar checking accounts are also carried with two Fayetteville banks, where Arkansas Western has smaller lines of credit. The other accounts are not shown to have much bearing on the present issue. Those accounts are maintained in the towns where the company does business and are used for making local payments and for depositing local receipts pending a transfer to one of the three lead accounts.

The Company made no effort to show just how the precise minimum requested, $404,500, was arrived at. It seems to have been used by the Company for many years. In 1963 the Commission approved minimum balances of $404,-000. In 1969 the Commission disallowed the same requested minimum of $404,000. Re Arkansas Western Gas Co., 81 PUR 3d 399, 402 (1969). In the present case two company witnesses — Joe Crumpler, Arkansas Western’s secretary-treasurer, and William V. Martin, the prospective successor to that office — testified that $404,500 should be allowed for minimum bank balances. Each statement was a conclusory opinion given by an interested witness, as neither man explained how that particular figure had been arrived at.

A second difficulty with the Company’s proof, as the Commission pointed out, is that it did not separate basic minimum bank balances, which are kept to avoid bank service charges, from compensatory balances, which are kept to maintain the company’s credit standing with the three lead banks. Five interested witnesses — two company employees and one officer from each of the three leád banks — all testified, essentially as a matter of opinion, that Arkansas Western’s credit standing with the banks would be improved, with a corresponding ability to obtain loans at a lower interest rate, if the Company kept substantial non-interest-bearing checking accounts with the banks.

No actual figures were given, doubtless because Arkansas’ usury law deters a bank from requiring compensatory balances. As the witness Penick, an officer of the Worthen Bank, expressed it: “ ‘Worthen’ does not require, nor does it ask, either in writing or by understanding, a compensating balance. However, adequate balances are one of the factors that go into our pricing procedure in order to reach our target yield.” The witness went on to say that in banking circles a prime loan is defined as one made for a short term to a borrower with the very best credit standing who maintains a bank balance of approximately 20% of the loan while it is outstanding. The Company witness Crumpler testified that Worthen does require a 20% compensatory balance, “upon which we pay interest, but we don’t have the use of the money because we have to leave it on deposit.”

As we have said, no actual figures are given to show the benefit to be derived by the ratepayers from compensatory balances. The disadvantages to the ratepayers, however, are quite apparent. It would cost them about $84,000 a year (as conceded in effect by the Company witness Martin) to maintain minimum balances of $404,500 as part of the rate base. Management would have no incentive to resist the lending banks’ requirements that compensatory balances be maintained, because the stockholders would receive a return on the money anyway. And, finally, the Company would in actuality be paying a higher interest rate on its borrowings, but the ratepayers would not be getting the benefit of the increased interest expense as a deductible item for income tax purposes. Re Boston Edison Co., 16 PUR 4th 1 (1976).

The Company made hardly any effort to separate compensatory bank balances from other checking-account requirements. The witness Lewis testified that his “informed estimate” was that approximately $150,000 in deposits in all the Company’s accounts would be required to maintain checking privileges. Lewis, however, did not explain the basis for his informed estimate. He did say that a number of variables were involved in the estimate and that for an accurate determination each item deposited would have to be identified. Moreover, Lewis is not an officer of the Company, with first-hand knowledge of its various accounts. He is an officer of one of the Fayetteville lead banks.

The question, as we have often said in reviewing issues of fact turning upon the substantial evidence rule, is not whether the testimony would have supported some other conclusion, but whether it supports the conclusion reached by the trier of the facts. The Commission stated that it had considered the Company’s banking needs in making an allowance for working capital. Hiere is a marked absence of actual figures with respect to the entire question of the requested allowance of $404,500 for minimum bank balances as a part of the rate base. We have no sound basis for saying that the Commission was wrong in its final summation: “Without a precise determination of what amount specifically is to be designated a ‘compensatory balance,’ and the production of evidence as to the benefits and the costs to be derived from these balances, the Commission has insufficient information on which to act.” The burden was on the applicant to supply that information.

III. Rate of Return on Equity Capital. This point has to do with the proper return to the common stockholders upon their investment in the Company’s public utility business. The Commission followed the generally accepted rule, which was stated long ago in Bluefield Water Works & Improvement Co. v. Public Service Commn. of West Va., 262 U.S. 679, 692-3 (1923):

A public utility is entitled to such rates as will permit it to earn a return on the value of the property which it employs for the convenience of the public equal to that generally being made at the same time and in the same general part of the country on investments in other business undertakings which are attended by corresponding risks and uncertainties; but it hás no constitutional right to profits such as are realized or anticipated in highly profitable enterprises or speculative ventures. [Italics supplied.]

The standard to be followed — a rate of return comparable to that being made by other businesses attended by corresponding risks and uncertainties — is unquestionably a matter of judgment and opinion, not of demonstrable fact. The Company’s expert witness, Samuel Joseph, was of the opinion that the rate of return should be 14%. The staff’s expert witness, Basil Copeland, recommended a return of 9.63%. Joseph used the earnings-price ratio method of estimating a fair return; Copeland used the capital asset pricing model. The Commission preferred Copeland’s method, but found his figure too low. The Commission adopted, instead, the average rate shown on the staff’s Exhibit Two, which listed 20 other utility companies’ rates of return. That average, as corrected on rehearing, was found to be 12.33%. The situation before us is comparable to our review of a jury verdict in a condemnation case, when the jury must reconcile conflicting expert testimony. We have no basis for saying that the Commission’s conclusion is not supported by substantial evidence or that the return is so low as to be confiscatory.

IV. Adjustment of Capital Structure. Arkansas Western, in addition to its public utility business, also explores for and produces natural gas, which it sells to its ratepayers under our “fair-field price” law. Ark. Stat. Ann. § 73-1903 (Repl. 1957). Over a period of years the Company’s stockholders, instead of distributing the profits from this nonutility business as dividends, have allowed the profits to remain in the Company as a reinvestment. For the 1974 test year those retained earnings amounted to $11,716,227.

The Commission’s staff, in presenting its case against the allowance of the proposed increases in their entirety, made an adjustment by which $6,834,021 was eliminated from retained earnings and was assigned to other accounts. The staff’s principal witness, Copeland, in explaining the adjustment, testified:

Since these retained earnings are the result of fair-field pricing and not the result of the retention of earnings on the rate base, the capital structure used to derive the weighted average cost of capital (and rate of return) must be adjusted or the stockholders will earn a return on retained “earnings” that were actually supplied by the customers.

Copeland’s approach cannot be sustained, for various reasons. First, a utility company is not required to “give up for the benefit of future subscribers any part of its accumulations from past operations. Profits of the past cannot be used to sustain confiscatory rates for the future.” Board of Public Utility Commissioners v. New York Telephone Co., 271 U.S. 23, 32 (1926). Second, it is impossible to earmark the particular dollars that went into the retained earnings account. And third, the fair-field price law provides that in natural gas utility cases the fair value or reasonable market price of natural gas produced by the utility company shall be allowed as an operating expense. § 73-1903, supra. Copeland’s approach in effect would deny Arkansas Western the benefit of fair-field pricing.

The Commission quite correctly rejected Copeland’s approach, saying in its findings:

Mr. Copeland, for the Staff, adjusted the capital structure to reflect recent sources and uses of funds. We do not adopt the Staff’s method of adjusting the capital structure, but we find the end result reasonable. The President of [Arkansas Western] , Mr. Scharlau, testified that if the Company’s balance sheet were restated to give effect to F.A.S.B. (Financial Accounting Standards Board) Rule No. 9, about six million dollars would be taken out of retained earnings and be accounted as deferred taxes . . . The effect would be similar to that resulting from Mr. Copeland’s restatement of capitalization.

Thus it will be seen that although the Commission rejected Copeland’s method, it reached the same result — the elimination of $6,834,021 from retained earnings — by relying upon Scharlau’s testimony. No other supporting evidence was mentioned by the Commission, nor has any been cited by counsel.

On what is essentially an issue of fact we cannot regard Scharlau’s testimony as substantial evidence supporting the Commission’s finding. Scharlau was asked about a trip he made to Washington to testify against a proposed F.A.S.B. rule (which apparently was not in fact adopted), soon after the depletion allowance was abolished by Congress. Scharlau explained that he was not an accountant and would have to use layman’s terms. He said the Board’s first proposal was extremely drastic and “would have changed us to a deficit of something like minus two dollars and seventy-five cents a share, almost three dollars a share, deficit earnings. Scharlau said that if the Company had decided to restate the balance sheet, the retained earnings account would have been greatly diminished.

Q. Do you have an estimate on that amount that you could give the staff?
A. Well, I just have to horseback it. Three bucks a share, and we have a million seven shares outstanding — we’re getting close to six million dollars.

Thus, first, Scharlau’s testimony was not an assertion of fact but a speculation about what might have happened if the proposed drastic rule had been adopted. Second, Scharlau’s horseback estimate of 1,700,000 shares at three dollars a share comes to only $5,100,000, which is about $1,700,000 less than Copeland’s precise figure of $6,834,021, which the Commission approved as a reasonable end result. The Commission’s approval of the adjustment in the Company’s capital structure must be set aside for want of any substantial evidence to support it.

The Circuit Court’s judgment is affirmed except as to Point IV. On that point the judgment is reversed and the cause remanded, through the circuit court, to the Commission, so that the Company’s redesigned rate schedule may conform to the Commission’s order as modified.

Fogleman, J., not participating.

Byrd, J., dissents.

Conley Byrd, Justice,

dissenting in part. The $404,500 bank balances that Arkansas Western wishes to place in its rate base were broken down by the witnesses to include $150,000 for “float requirements” and $120,000 for “bank service costs.” With respect to the latter two items, John M. Lewis, president of First National Bank of Fayetteville, testified that “float” represents the number of days from the date of the deposit of a check to a customer’s account that it takes for the check to reach the drawee bank, be paid by the drawee bank, and the proceeds therefrom returned to the bank of deposit to be available for withdrawal or checking by the customer. Based upon an average daily deposit of $60,000 per day he stated that it would take $150,000 spread out among the 32 collecting banks used by Arkansas Western to cover the “float requirements.”

With respect to “bank service costs” Mr. Lewis testified that the First National Bank of Fayetteville had made cost studies and found that it cost more than $0.04 to handle each check run through its bank.

When the “float requirements” of $150,000 are added to the $120,000 necessary to cover “bank service costs,” the total amount equals $270,000 that I contend should have been added to the rate base.

By multiplying the 12.33%, Cost of Capital allowed by the Commission, against the $270,000, supra, I arrive at an annual cost to the rate payer of $33,291. When the annual cost is divided by the number of collecting banks (32), I find that the monthly return to each of the collecting banks to be something like $86.70 for its total services to the customer and Arkansas Western. Calculated another way, the average monthly costs to the 56,963 customers of Arkansas Western amounts to less than five cents per month — i.e. $0.0483 per month per customer. Since the only testimony in the record is that it costs a bank more than four cents per check to handle it, I must conclude that there is no substantial testimony in the record to support the Commission’s refusal to allow the “float requirements” of $150,000 and the “bank service costs” of $120,000 in the rate base.

For the reason stated I respectfully dissent from that portion of the majority opinion that disallows those items.


author: George Rose Smith, Justice.

text:
    FARMERS & MERCHANTS BANK OF STUTTGART v. Walter SKELTON, Commissioner of Revenues
    79-193
    587 S.W. 2d 561
    Opinion delivered October 15, 1979
    (Division I)

      Macorn, Moorhead & Green, by: William M. Moorhead, for appellant.

      Jack East, III, Barry E. Coplin, H. Thomas Clark, Jr., Timothy Leathers, by: Joseph V. Svoboda, for appellee.
   George Rose Smith, Justice.

For the years 1973, 1974, and 1975 the taxpayer, Farmers & Merchants Bank of Stuttgart, took an annual deduction of $39,145.20 on its Arkansas income tax returns, although the deduction in question was not one listed in the Arkansas income tax law. Ark. Stat. Ann. §84-2016 (Repl. 1960 and Supp. 1977). The Commissioner of Revenues disallowed the deduction for each year. The bank paid the taxes, totaling $7,405.71, and brought this suit for their recovery. This appeal is from a decree sustaining the Commissioner’s position. We agree with the trial court.

All the facts are stipulated. Before the 1973 tax year, banks were exempt from the Arkansas income tax and presumably filed no income tax returns with the state. The deductions now in question arise from a federal income tax regulation that was repealed as of January 1, 1972, while the income of banks was still exempt from the Arkansas tax.

Before the repeal of the federal regulation this taxpayer and other banks were permitted under federal tax law to follow an accounting system by which all the interest called for in installment notes, payable over a period of years, was shown as income in the year in which notes were received. For instance, if this appellant received a note in 1965, payable with interest in three annual installments, the entire amount of interest was shown as having been received in 1965, even though most of it would be paid in later years. Federal income taxes were collected pursuant to that accounting system.

The Federal Internal Revenue Service, beginning with the 1972 tax year, changed the regulation by requiring banks to show interest on installment loans as income for the year in which the interest was paid. The IRS determined that as of December 31, 1971, this appellant had accrued on its books, and paid the federal income tax on, interest amounting to $391,452.00 which had not yet been actually received. To avoid double taxation the IRS adopted a regulation permitting the appellant to deduct one tenth of the $391,452.00 each year for ten years. When Arkansas began to tax the income of banks in the 1973 tax year, the appellant claimed that it was entitled to deduct on its state return the same $39,145.20 item that it was being permitted to deduct on its federal return.

We can find no legal or equitable basis for the appellant’s contention. There is no question of double taxation, as there was with respect to the federal tax, because Arkansas did not tax any part of the $391,452.00 upon which the appellant had paid federal taxes before the federal regulation was changed. Nevertheless, the bank argues two theories to support the allowance of the deduction under Arkansas law.

First, our statute defines the word “received,” for the purpose of computing net income, as meaning either received or accrued, depending on whether the taxpayer is on a cash basis or an accrual basis. §84-2002(14) (Repl. 1960). The bank argues that it accrued the income on its books in the years when the installment notes were executed and hence cannot be taxed for that income in later years. The answer to this contention is simply that those years are irrelevant, because the bank was then exempt from our income tax. The Commissioner of Revenues had no occasion to examine the appellant’s books in those years to determine if they correctly reflected the bank’s taxable income. §84-2007(b) (Repl. 1960). What is relevant, however, is that in 1973 and later years, when Arkansas began to tax the income of banks, the appellant’s books showed the interest now being taxed as having been “received” in those years. Hence it was taxable according to the appellant’s own books.

Second, even though our statute does not recognize the deduction now claimed, it is argued that the effect of Section 84-2048 is to adopt all federal deductions. That argument cannot be sustained. In the first place, the statute merely provides that the Commissioner shall, as far as possible and practicable, use the same blank tax forms as those used by the United States. The adoption, for convenience, of the same blank forms certainly does not mean that the state also adopts the federal income tax law in its entirety. In the second place, such a blanket attempt to adopt federal law would be of doubtful validity, as amounting to a delegation of legislative power. Crowly v. Thornbrough, 226 Ark. 768, 294 S.W.2d 62 (1956).

Affirmed.

We agree. Harris, C.J., and Fogleman and Hickman, JJ-


author: John A. Fogleman, Justice.

text:
    Obert M. UNDEM v. STATE BOARD OF LAW EXAMINERS
    79-196
    587 S.W. 2d 563
    Opinion delivered October 15, 1979
    (In Banc)

      Niblock & Odom, for appellant.

      Earnest G. Lawrence, of Little, Lawrence, McCollum & Mixon, for appellee.
   John A. Fogleman, Justice.

Appellant Obert M. Undem applied to the State Board of Law Examiners for admission to the bar of Arkansas by reciprocity under Rule XI of the Rules Governing Admission to the Bar. Undem was admitted to the practice of law in the State of Minnesota on October 7, 1963. There is no evidence that he ever engaged in the active practice of law in that state, except for counseling one family and handling the disposition of an estate for them, all prior to 1972. He came to Arkansas in 1974. He first applied for admission to practice law in Arkansas on September 25, 1978. The Chairman of the State Board of Law Examiners ruled that Undem was ineligible for admission because he has not engaged in the active practice of law for at least three years immediately preceding his application as required by Rule XI. In response to a request by Undem, a hearing was held before a panel of three members of the Board of Law Examiners as provided by Rule XIII A. Upon the record made, the board made the following findings:

A. That the Appellant has been admitted for at least four (4) years to the Bar of the highest Appellate Court of Minnesota, which has requirements for admission substantially equivalent to the requirements of this State, is of good moral character, has removed himself to Arkansas, and intends to practice law in Arkansas; and,
B.That Appellant has been employed as President and Chief Executive Officer of Mcllroy Bank, Fayetteville, Arkansas from 1974 to the date of his application; and,
C.That said employment did not constitute the “active practice of law” as set forth by Rule XI of the Rules of the Arkansas Supreme Court; and,
D.That since Appellant has not been engaged in the “active practice of law” for at least three (3) years preceding application for admission, as required by Rule XI of the Rules of the Supreme Court, he was found to be ineligible for admission by reciprocity.

On review de novo, we agree with the board’s findings and affirm.

The only issue is whether Undem’s service as president and chief executive officer of Mcllroy Bank & Trust constituted “active practice of the law.” Undem has never appeared in court or in any administrative forum in Arkansas on behalf of a client. He has never received a fee for any legal services rendered in this state. He states that, in the course of his work in various areas of the bank and particularly the trust department, he had occasion to work with the bank’s customers, who were in the process of considering different alternatives in the fields of estate planning, tax planning, etc., (which are not necessarily in the exclusive domain of the legal practitioner).

The record, other than Undem’s testimony, consists of letters from prominent judges, lawyers and businessmen in Fayetteville and its vicinity. Were Undem applying for permission to take the bar examination, these letters would undoubtedly foreclose any further investigation into his background and eligibility for admission, if he passed the bar examination.

One prominent lawyer stated that he did not believe that Undem was in the active practice of law in Fayetteville, but that he maintained working experience with a great many legal matters in his position at the bank. Another stated that, while the matters for which Undem was responsible did, on occasion, involve questions of law, he did not think it would be correct to conclude that he was actively engaged in the practice of law but that it would be correct to conclude that Undem was actively engaged in bank management and his involvement with the law was incidental thereto. A Little Rock lawyer attested to Undem’s skill and awareness of the current state of the law as it related to banks, banking and trust and estate matters, but stated that Undem had not, to his knowledge, been actively engaged in the practice of law during the period of his acquaintance with Undem. Another prominent Fayetteville lawyer stated that, to the best of his knowledge, Undem did not actively participate in the practice of law in Northwest Arkansas, but was undoubtedly involved, on a day-to-day basis in the study and application of rules, regulations and law promulgated by various administrative and regulatory agencies with which Mcllroy Bank dealt. A prominent professor of law at the University of Arkansas stated that, even though Undem had not been engaged in the practice of law during the time he served as bank president, he had had much contact with legal problems and, if admitted, would be well prepared to deal with the type of legal problems that might expectedly be presented to him.

A vice-president of Mcllroy Bank, who had daily contact with Undem as her direct supervisor, in which capacity he routinely and on an almost daily basis, reviewed for her such matters affecting her area of responsibility as personnel policies, questions regarding negotiable instruments, surety bonds, safe deposits, and interpretation of federal and state regulatory directives, said that he regularly handled “things” for her and her department that had been referred to outside counsel prior to his joining Mcllroy Bank in 1974. She also said Undem regularly assisted in the preparation and review of instruments relating to legal actions concerning the bank, preparatory to delivery of those matters into the hands of outside legal counsel for courtroom conclusion.

Other letters considered by the chairman had nothing to do with Undem’s practice of law during the three years next preceding his application. On this record, the chairman could not have reached any conclusion other than the one he did, i.e., that Undem had not been engaged in the active practice of law for the preceding three years as required by our rules.

Undem attempted to present a better record for the board’s consideration, after the chairman’s ruling. The conclusion to be reached, however, was not altered. Undem added many activities that fit into the proper functions of the chief executive officer of a bank but that certainly do not constitute the practice of law, such as: preparation for and conduct of the annual stockholders’ meetings; communicating irregularities in banking matters with the FBI; and review of loan files. He also enumerated the following: drafting of security forms for a $1,000,000 unsecured 10-year capital note issue; the transfer and reissuance of securities, debt and equity, with review of lost certificate bonds and probate documents, and observance of the requirements of the State Banking Department, the Arkansas Securities Commissioner, United States Securities and Exchange Commission and the Federal Reserve Board with reference to evidence of compliance or exemption in connection with the maturing of an issue of convertible debentures, part of which were converted to stock; participation in the preparation and review of the bank’s lease of its building from its holding company; completion and reviewing of subleases; reviewing and approving amendments and alterations of leasing contracts; reviewing arrangements of lease financings for bank customers in the light of requirements of the Internal Revenue Service, the Federal Reserve Bank, the Arkansas Statutes and the regulations by the “Commissioner of Banks”; operation of the escrow department, which included review of deeds, notes, probate documents, etc.; creating and reviewing agreements with contractors and suppliers in connection with branch bank construction and remodeling, which involved contact with the problems of compliance with city ordinances; negotiating and effecting material equipment purchases and leases with purchase options; dealing with problems relating to claims for damage in installation, product warranties, etc.; coordination and direction of progress of matters referred to outside counsel; handling most of the questions relating to legal problems of the bank to the point of referral to outside counsel where formal court processing was involved; dealing with questions arising in the safe deposit department and questions from tellers and new account areas concerning negotiability of instruments; making liability determination on “stop payments,” return items, forged endorsements, forged instruments, etc.; discussing claims against a bonding company before presentation; reviewing garnishments, levies and subpoenas for determination of appropriate action; reviewing portions of examination reports completed by bank personnel to determine appropriateness of answers in terms of requirements of regulatory agencies and the consequent liability of the bank, employees and directors relating thereto; reviewing title opinions, adequacy of documentation, collateral pledge forms, personal and corporate guarantees, adequacy of authorizing documents for corporation and partnership borrowing for compliance with United States and Arkansas statutes; dealing with questions regarding bankruptcies, election of remedies, etc.; handling foreclosures and other legal remedies pertaining to the pursuit of legal remedies in satisfaction of customer obligations to the bank; analyzing questions of fraud, forgery and sale of mortgaged chattels, prior to appropriate corrective action; and participating in a complete rewriting of personnel policies to assure compliance with standards of nondiscriminatory hiring and promotion. In the trust area, Undem listed the following activities: reviewing wills, trust agreements, escrow contracts, tax returns, and court orders (preparing some orders on occasion); reviewing documents pertaining to profit sharing, pension trusts, and employee stock ownership trusts; negotiating with the Internal Revenue Service with reference to valuations and other matters pertaining to estate and income tax determinations; preparation of accountings, review of investments and disbursements in accordance with the governing instruments and statutes; involvement in estate and tax planning sessions with bank customers and their legal counsel; commenting on matters being handled by life insurance agents, accountants and attorneys for clients, as sought by them; review of documents pertaining to securities transfers for customers to determine conformance with requirements for transfer; and discussing the use of joint tenancy, tenancy in common, probate procedures, judgment liens, etc.

The bank’s general counsel stated that he had almost daily contact with Undem in handling the legal affairs of the bank and that he served with Undem on the trust and audit committee of the board of directors of the bank. He stated that with some assistance from him, Undem had handled the drafting and marketing of capital debenture bonds, redrafting into legal forms such things as notes, mortgages, releases, and escrow agreements and had redrafted the employee pension plan and drafted an ESOT plan and caused the same to be qualified by the Internal Revenue Service. He also stated that Undem reorganized the trust department of the bank and revised many of its legal forms. He also stated that Undem had performed services to the customers of the bank in the fields of estate planning, trusts creation and trust and estate accounting, which usually involved the presence of general counsel, because Undem “was very careful not to engage in what would be deemed as the practice of law. ” The general counsel said that on many occasions he more or less “stood in” for Undem in handling and settling claims against the general contractor that constructed the bank’s building, in negotiating contracts for the construction of the second phase of the new building, and in settling claims pertaining thereto. He stated that Undem’s activities had been more nearly that “of counsellor in matters involving Mcllroy Bank & Trust than purely an executive.”

Another prominent Fayetteville attorney said exactly the same thing with reference to classifying Undem’s activities. Still another stated that it was his opinion that “while Mr. Undem was not engaged in the public practice of law during this time — which he could not, and I am sure would not, do without the requisite license — and further was not exclusively engaged in the legal matters of his employer as house counsel, that he was so substantially engaged in the handling of legal and quasi-legal matters relating to the administration of the Bank and its Trust Department that his activities could justifiably be regarded as a substantial and active practice of law.”

One of the attorneys whose letter was presented with Undem’s application which was reviewed by the board’s chairman wrote another letter to the board. He stated four instances in which he said his law firm had dealt with Undem “in a law capacity equivalent to the practice of law over the past four years,” and had relied upon Undem in a law decision-making and fact-gathering capacity. In the first instance, his firm and Undem held numerous discussions with regard to law and facts surrounding a law suit to be filed based upon a bizarre set of facts. The second occasion related to preparation of a will and trust agreement for a retired individual who was moving from another state. This lawyer said that the individual contacted Undem and that Undem, with the assistance of his law firm, was instrumental in approving and discussing a set of marital deduction wills and assisted in the probate of the estate of this man’s wife and the establishment of certain charitable bequests subsequently made by this individual. He added that this gentleman has an agency account with the Mcllroy Bank in excess of $1,000,-000. The third instance had to do with the sale of the farm of an elderly, physically infirm lady, in connection with which his law firm completed a plan for the best taxable advantage of the client, with Undem’s assistance and active participation. The fourth was a similar instance in which Undem had participated with the firm in the establishment of an inter vivos trust. Other attorneys related that they had consulted with Undem and relied upon his advice in matters pertaining to corporate affairs, contracts for the purchase of real property, oil and gas rights, estate planning, collections, foreclosures, trust arrangements, contracts, property agreements and banking and investment procedures. One of the principal incorporating investors in Northwest National Bank stated that, after that bank had been chartered, following discussions with Undem of the “myriad of unprecedented legal and regulatory matters calling for prompt reaction,” she and her husband were directed by Undem to the bank’s legal counsel for specific action and found that this attorney rarely differed with Undem’s recommendations.

We find little, if anything, in the enumeration of Undem’s activities that were outside the responsibilities and duties of the chief executive officer or the trust officer of a bank, but neither officer can be said to be engaged in the active practice of law. Undoubtedly, Undem’s legal education materially helped him, as it has helped many bank officers and trust officers, to better perform these duties. Perhaps Undem’s education and competence saved the bank considerable sums in attorney’s fees, but he was not employed by the bank to engage in the active practice of the law.

Undem is emphatic in his statements that his time, when employed by Mcllroy Bank & Trust, was spent substantially in activities that are customarily those in which a practicing attorney might be involved, and which are sufficient to meet the requirement of engaging in the active practice of law, adding that he has never appeared in court or received a legal fee. He is equally emphatic in his protestation that he has never engaged in the unauthorized practice of law. The circumstances that he did not appear in court and did not receive fees are facts totally beside the point. One can engage in the unauthorized practice of law without doing either, as we shall show.

The term “engaged in the active practice of law” may, indeed, escape precise definition, but it is not so vague as to be without limitations. It is quite true that the practice of law is not confined to services by an attorney in a court of justice; it also includes any service of a legal nature rendered outside of courts and unrelated to matters pending in the courts. Arkansas Bar Ass’n. v. Block, 230 Ark. 430, 323 S.W.2d 912; Arkansas Bar Ass’n v. Union National Bank, 224 Ark. 48, 273 S.W.2d 408. It is uniformly held that writing and interpreting wills, contracts, trust agreements, and the giving of legal advice in general constitute practicing law. Arkansas Bar Ass’n v. Union National Bank, supra. We held in the case just cited that a bank should properly be enjoined from engaging in the practice of law through two licensed attorneys employed by it in the following:

1. The drafting, re-drafting or modification of wills or other testamentary instruments.
2. The preparing of motions, pleadings or other instruments to be filed in court and the appearing in court on behalf of any beneficiary of a fiduciary estate, any co-trustee, co-executor, co-administrator or other person other than the defendant itself, either in its individual or in some fiduciary capacity.
3. The advising of any persons as to matters of law other than the defendant itself, either in its individual or in some fiduciary capacity.
4. The preparation of notices, motions, precedents for orders and all other pleadings and instruments which are required to be filed in probate court or chancery court or which become necessary and advisable in the administration of an estate or trust, whether the bank be acting as executor, administrator, guardian for an incompetent or otherwise in a trust relationship.

Conveyancing is also the practice of law. Arkansas Bar Ass’n. v. Block, supra. See also, Beach Abstract & Guaranty Co. v. Bar Ass’n of Arkansas, 230 Ark. 494, 326 S.W. 2d 900; Creekmore v. Izard, 236 Ark. 558, 367 S.W. 2d 419. In Block, we held that the preparation of certain instruments for others constituted the practice of law, even when the preparer had an interest in the transaction, but was not a party to it. Those instruments were:

Warranty Deeds; Disclaimer Deeds; Quitclaim Deeds; Joint Tenancy Deeds; Options; Easements; Loan Applications; Promissory Notes; Real Estate Mortgages; Deeds of Trust; Assignments of leases or rentals; Contracts of Sale of Real Estate; Releases and Satisfactions of Real Estate Mortgages; Agreements for the sale of real estate; Bills of Sale; Contracts of Sale; Mortgages; Pledges of personal property; Notices and Declarations of Forfeiture; Notices requiring strict compliance; Releases and discharges of mechanic’s and materialmen’s liens; Printed forms approved by attorneys, including the various forms furnished by title insurance companies to defendants for use by defendants as agents of title insurance companies; and acting as closing agents for mortgage loans and completing by filling in the blanks therein with factual data such instruments as are furnished to them and are necessary and incidental and ancillary to the closing of the transaction between the mortgagee for whom they act as agent and the mortgagor; Leases.

To this list, real estate title examination and curative work were added in Beach Abstract & Guaranty Co. v. Bar Ass’n of Arkansas, supra. In that case, we specifically approved the finding that these acts constituted the practice of law:

(a) Drafting and preparation of warranty deeds, disclaimer deeds and quitclaim deeds.
(b) Drafting and preparation of promissory notes, real estate mortgages, real estate purchase contracts and related instruments.
(c) Drafting and preparation of forms of agreement for the sale of real estate, chattels, and choses in action.
(d) Drafting and preparation of mortgages and pledges of personal property.
(e) Drafting and preparation of forms of conveyances naming husband and wife as grantees.
(f) Drafting and preparation of bills of assurance, dedication instruments, and tract and sub-division restrictions.
(g) Drafting and preparation of escrow instructions, setting forth agreements between buyers and sellers,and the rights and liabilities of buyers and sellers.
(h) Drafting and preparation of affidavits of completion of improvements, affidavits of marital status and heirship, and various and sundry additional forms of affidavits and other instruments to remove clouds and perfect titles.

In neither Arkansas Bar Ass’n v. Block, supra, nor Beach Abstract & Guaranty Co. v. Bar Ass’n of Arkansas, supra, were any charges made for the services held to have been unauthorized practice of law.

These holdings were modified in Creekmore v. Izard, supra, to permit a real estate broker, when the person for whom he is acting has declined to employ a lawyer to prepare the necessary forms for the closing of a simple real estate transaction and has authorized the broker to do so, to fill in the blanks in simple printed forms which have been approved by a lawyer. These forms may be used by a broker only in connection with a transaction actually handled by him as a broker, when the transaction has arisen in the usual course of the broker’s business and no charge is made for the service.

Undem could not engage in the practice of law as an agent or employee of the bank; he could only practice law by being licensed to practice in his own right. Brinton v. City of Jonesboro, 229 Ark. 944, 320 S.W.2d 272. The prohibition against engaging in the practice of law applies to all except those who are members of the Bar of the State of Arkansas. This is not only to insure professional competence, but is, in the public interest, to insure that the public be not led to rely upon the counseling, in matters of law, by those who are not answerable to the courts in this state for the manner in which they meet their professional obligations by compliance with standards of professional conduct imposed upon those engaging in the practice in this state. See Beach Abstract & Guaranty Co. v. Bar Ass’n. of Arkansas, supra.

It has been held that employment in work of a legal character (preparation of cases for trial in the United States Departments of Justice and the Interior and administrative-legal work as state director of the National Youth Administration for Connecticut) cannot be regarded as actual practice of law for the purpose of reciprocity admission. Application of Dodd, 132 Conn. 237, 43 A. 2d 224 (1945). This principle would apply to any purely legal services Un-dem might have rendered to the bank.

It might be said that an inconsiderable number of the acts enumerated by Undem did constitute the practice of law, at least when they were performed for others than Mcllroy Bank & Trust itself. We do not include consultation with licensed Arkansas attorneys in matters pertaining to estate planning, tax avoidance and business practices to be in that category. But whatever did not fall in that category was unauthorized practice of law. The active practice of law means that the legal activities of the applicant must have been pursued on a full-time basis and constituted his regular business. Petition of Jackson, 95 R.I. 393, 187 A.2d 536 (1963). Anyone who attempts to perform legal service for others in a state where he has not been first duly admitted to practice does so at his peril. Rhode Island Bar Ass’n. v. Automobile Service Ass’n., 55 R.I. 122, 179 A. 139, 100 ALR 226 (1935). To permit one to qualify under the requirement that he be engaged in the actual practice of law upon the basis of legal activity principally performed in this state for a single corporate client-employer would be tantamount to affixing an ex post facto imprimatur of approval on what might be construed as the unauthorized practice of law, and is contrary to the policy expressed by our rule. See In re Petition of Church, 111 R.I. 425, 303 A.2d 758 (1973). It was never intended that the requirement of three years of active practice of law could be met by practice in Arkansas. This could only be done by engaging in the unauthorized practice of law. Such a construction of the rule would result in an absurdity.

Appellant’s reliance upon Application of Payne, 430 P. 2d 566 (1967) is misplaced. In that case, the term “active practice of law” was not controlling. What was controlling was a definition of “active practice of law” which included rendering legal services to an agency, branch or department of a civil government in the United States or a state or territory of the United States, in an elective, appointive or employed capacity. It was held that the appellant qualified by reason of the fact that 65% of the services he had rendered in the employment of the United States Corps of Engineers were legal services in handling contract claims, tort claims, real estate transactions, condemnation cases, quiet title proceedings and numerous other legal problems of a general and advisory nature.

Mr. Undem appears to have an excellent academic educational background. His character and reputation certainly meet our requirements. He simply is not eligible for admission to practice without examination. Admission to practice based upon certification by practicing lawyers of a candidate’s ability is a relic of the distant past in Arkansas.

The action of the Board of Law Examiners is affirmed.

Mr. Justice Byrd concurs in the result.


author: Conley Byrd, Justice.

text:
    Sammy DUKE v. STATE of Arkansas
    CR 79-149
    587 S.W. 2d 571
    Opinion delivered October 15, 1979
    (Division II)

      James E. Davis, for appellant.

      Steve Clark, Atty. Gen., by: Robert J. DeGostin, Jr., for appellee.
   Conley Byrd, Justice.

Appellant Sammy Duke while on parole from two previous convictions for burglary and grand larceny was charged on February 12, 1979, with the offense of burglary of Union Supply Company, allegedly committed on or about February 9, 1979. Following plea negotiations during which appellant was told that habitual criminal charges would be filed against him if he did not enter a plea of guilty, the State, without further notice to appellant, amended the information on March 8, 1979, to allege that appellant had two or more previous felony convictions and therefore was a habitual offender pursuant to Ark. Stat. Ann. §41-1001 (Repl. 1977). Appellant’s actual knowledge of the amended information alleging the habitual criminal charge came after the jury was chosen on March 12, 1979. After a trial on that day appellant was found guilty and sentenced to 20 years imprisonment. For reversal appellant contends that the trial court erred in proceeding to trial on the amended information charging him as a habitual offender and that the enhanced portion of the imposed sentence is invalid because the proof at trial did not demonstrate that appellant was represented by counsel in the proceedings that were used to enhance the punishment.

We find no merit to either contention. Appellant, being on parole from the former convictions, and having been advised during plea negotiations that such charges would be filed, is not in a position to complain of prejudice or allege surprise. See Finch v. State, 262 Ark. 313, 556 S.W.2d 434 (1977). Furthermore, the record shows that appellant upon being advised of the charges did not request a continuance. See also Bordenkircher v. Hayes, 434 U.S. 357, 98 S.Ct. 663, 54 L.Ed.2d 604 (1978).

The suggestion now made, that the proof does not show that appellant was represented by counsel on the prior convictions, was not raised in the trial court. Consequently, we will not consider such an objection for the first time on appeal. In making this disposition, we point out that appellant does not contend that he was not represented by counsel on the prior convictions, but only states that the proof does not show that he was represented by counsel.

Affirmed.

We agree: Harris, C.J., Holt and Purtle, JJ.


author: Frank Holt, Justice.

text:
    Cecil WALTERS v. STATE of Arkansas
    CR 79-104
    587 S.W. 2d 831
    Opinion delivered October 15, 1979

      John W. Achor, Public Defender, by: Jeffrey Rosenzweig, Deputy Public Defender, for appellant.

      Steve Clark, Atty. Gen., by: Alice Ann Burns, Asst. Atty. Gen., for appellee.
   Frank Holt, Justice.

Following our reversal in Walters v. State, an unpublished opinion dated February 27, 1978, a jury convicted appellant of assault with intent to kill and robbery with the use of a firearm. He was sentenced to twenty-one years on the assault charge, twenty-one years on the robbery charge, and fifteen years for having employed a firearm in the commission of a felony. Appellant’s sole ground for reversal is that the trial court erred in holding that the in-court identification of him was not tainted by an imper-missibily conducted lineup.

He argues that the lineup procedure was tainted because his sixth amendment right to counsel was denied. Before the lineup and after the appellant had been advised of his rights, he requested that a named attorney be present at the lineup. Appellant was unable to locate the attorney, and the officers offered to contact an attorney with the public defenders office. Appellant refused the offer. The lineup was delayed a half hour past the scheduled time and then conducted without appellant’s requested attorney being present.

We have held that the accused has no per se right to counsel at a lineup which is conducted prior to the initiation of adversarial judicial proceedings against him. King v. State, 253 Ark. 614, 487 S.W.2d 596 (1972). There, as in this case, the lineup followed appellant’s arrest and preceded the filing of formal charges against him. We held that the lineup was not a “criminal prosecution” at which appellant was constitutionally entitled to assistance of counsel, citing Kirby v. Illinois, 406 U.S. 682 (1972). Here, the lineup was conducted nearly two weeks prior to the filing of a felony information against the appellant. Clearly, the fact that appellant was without counsel at the lineup did not render it impermissibly conducted or tainted.

Neither do we agree that the lineup procedure was im-permissibly suggestive. It is well established that we must consider the “totality of circumstances” to determine whether a lineup was conducted in such a manner that there was “a very substantial likelihood of irreparable misiden-tification.” Neil v. Biggers, 409 U.S. 188 (1972), citing Simmons v. United States, 390 U.S. 377 (1968). See also Pollard v. State, 258 Ark. 512, 527 S.W.2d 627 (1975); and Hinton v. State, 260 Ark. 42, 537 S.W.2d 800 (1976).

Here the six-man lineup was conducted the day following the appellant’s arrest and approximately three weeks after the 1973 robbery. Appellant asserts that a photograph of the lineup reveals that he was the shortest person. It appears he was about two inches shorter than the tallest one. At the trial, however, one of the detectives testified that the apparent discrepancy was partially due to the angle from which the photograph was taken. The detective stated that one of the men in the lineup was approximately the same height as the appellant but noted that “it appears in the photograph” that appellant was the shortest. Even so, there is no evidence to indicate that any of the three victim-employees, who identified him, were uncertain in their identification of the appellant. Even if there was some height variation among the participants in the lineup, and even if the appellant was the shortest, there is no evidence that he was identified due to this discrepancy.

Appellant specifically questions the reliability of the identification at the lineup by a witness who later identified him at trial. It is true that prior to the lineup, the witness viewed “mug shots” or photographs of a number of individuals, some of whom appeared in the lineup. She could not remember if she identified a photograph of appellant. She further testified at the suppression hearing that she was an employee-victim of the robbery, was able to get a “good look” at the appellant, recognized the appellant because she “remembered his facial features,” and could also identify him independent of the lineup. The officers did not attempt to influence her thinking or focus the lineup procedure on any particular individual. In short, the record reflects that the witness was able to positively identify the appellant. We cannot agree with the appellant’s contention that the lineup was impermissibly conducted or suggestive. We affirm the holding of the trial court that the identification of appellant was not tainted by an impermissibly conducted lineup.

Affirmed.


author: Darrell Hickman, Justice. George Rose Smith, Justice, Conley Byrd, Justice,

text:
    John O’NEAL & Eileen O’NEAL, his wife et al v. Leonard & Billie Langston ELLISON, his wife
    79-79
    587 S.W. 2d 580
    Opinion delivered October 15, 1979
    (In Banc)

      Henry J. Swift, for appellants.

      Moore & Gibson, for appellees.
   Darrell Hickman, Justice.

This is an appeal from a decree of the Mississippi County Chancery Court which decided the title to about 9.2 acres of land. The land lies between two farms, one owned by the O’Neals, who are the appellants, and the other owned by the Ellisons, the appellees. The chancellor found title to be in the Ellisons.

The appellants argue on appeal the chancellor was wrong for three reasons: First, the Ellisons had no title, or color of title, to the land; second, the chancellor improperly applied the law of landlord-tenant to this case; and, finally, there was no adverse possession of the land by the Ellisons.

We agree the chancellor improperly applied the law. However, on appeal we review a chancery case de novo, and if the chancellor’s decision can be sustained on other grounds, it will be done. Pharris v. Vanderpool, 230 Ark. 233, 321 S.W.2d 757 (1959). We find a preponderance of the evidence supports the appellees’ claim of adverse possession and accordingly affirm the decree.

The O’Neals own farmland in Section 27, having bought it in 1965. The Ellisons own farmland in adjoining Section 26, having purchased it in 1951. The two farms were separated at the disputed place by a turn-row, a dirt road of sorts that was used by tractors to turn around at the end of a row.

In 1967, the O’Neals leased the Ellisons’ farmland in Section 27 and it was agreed since the O’Neals would farm land in both Section 26 and Section 27, the turn-row should be plowed under. It was plowed under and for 9 years the O’Neals farmed the Ellisons’ land under a lease.

At about the time the lease was made, some sort of agreement was made between the parties about having the land surveyed later to locate the boundary between the farms. Mr. O’Neal testified the agreement was to establish the boundary line; the Ellisons’ testimony was that the survey was to simply relocate the boundary line, which they considered to be the old turn-row.

After 9 years had lapsed and the O’Neals had surrendered possession of the Ellisons’ land, a survey was made. According to the survey the 9.2 acres was an encroachment on Section 26, land to which the O’Neals had record title.

The Ellisons filed a quiet title suit relying on their record title; the O’Neals were not named parties. The O’Neals joined in the suit anticipating there might be a dispute over the 9.2 acres by adverse possession.

At the conclusion of the trial the chancellor ruled the O’Neals were estopped as a matter of law from disputing the Ellisons’ claim because of the landlord-tenant relationship that had existed between the parties. While the chancellor did not directly rule on the claim of adverse possession by the Ellisons, he did rule there were no other adverse claimants except the Ellisons to this land.

We have no difficulty affirming the decree on the basis of adverse possession. The Ellisons had purchased their land in 1951; the farm was leased to others for several years. The Ellisons then farmed this particular 9.2 acres for one or two years before they leased it to the O’Neals; it was farmed by the O’Neals for 9 years under lease, without any hint of an adverse claim.

The O’Neals argue that since they had record title to all land in Section 26 and the Ellisons had no record title, or color of title, the chancellor was wrong in his decision.

Color of title is not an essential element to a claim of adverse possession if there is actual possession, and there is no doubt the Ellisons possessed the land in excess of 11 years. Coons v. Lawler, 237 Ark. 350, 372 S.W.2d 826 (1963).

Mr. O’Neal’s testimony actually buttressed the Ellisons’ claim of adverse possession. He readily admitted he farmed the land in question for 9 years thinking it belonged to the Ellisons; he never knew of anyone else who claimed it; he recognized that the Ellisons claimed the land east of the turn-row, and never controverted it. The O’Neals’ claim is like many in a boundary line case. Once it is discovered that land lies within legal land calls, it is presumed it is owned by the record title holder. As our many cases demonstrate, that is not always the case. The virtually undisputed evidence was that the Ellisons had possessed and claimed this land since they bought it, with no objection from anyone, including the O’Neals.

The chancellor, no doubt, thought he found a ready answer to the question of adverse possession. He ruled the question of title was resolved because the O’Neals had been tenants of the Ellisons and were estopped from disputing their landlord’s claim.

The O’Neals were not estopped because there was no longer a landlord-tenant relationship and the O’Neals were not in possession of the land.

Generally, a tenant is estopped to deny his landlord’s title when the tenant is in possession of the land. Lewis v. Harper, 149 Ark. 43, 231 S.W. 874 (1921). However, after the tenant surrenders his possession, he is no longer estopped to deny his landlord’s title. See Washington v. Moore, 84 Ark. 220, 105 S.W. 253 (1907) and 49 Am. Jur. 2d §130. There are exceptions to these general rules. There are circumstances wherein a tenant can deny a landlord’s title while possession is retained. We recognized this principle in the case of Worthen v. Rushing, 228 Ark. 445, 307 S.W.2d 890 (1957). There are also instances in which a tenant can be estopped, after surrending possession, to deny a landlord’s title; for example, where fraud or misrepresentation on the part of the tenant is involved. See generally 49 Am. Jur. 2d § 129. However, none of these circumstances are present in this case.

While the O’Neals were not estopped as a matter of law to contest the Ellisons’ claim, a preponderance of the evidence clearly supports the finding of the chancellor that the Ellisons should have title to this land.

Affirmed.

George Rose Smith, Byrd and Purtle, J.J. concur.

George Rose Smith, Justice,

concurring. Inasmuch as we try chancery cases de novo, I see no reason to bother ourselves with the question of the O’Neals’ possible estoppel to dispute their landlords’ title. The Ellisons’ proof of title by adverse possession was overwhelming. They acquired their title in 1951 and, through tenants, continuously farmed the land, including the 9.2 acres now in controversy, for some 14 years before the O’Neals bought the land to the west. The O’Neals’ property had been mostly wooded and was first cleared and cultivated by O’Neal in 1966. Before that, Ellison had farmed his land up to the line that was marked by the edge of the woods and eventually became the turnrow that is admitted to have existéd.

O’Neals’ testimony that he and Ellison agreed, when the turnrow was plowed under, to fix the true line by means of a survey at some indefinite future date is of no consequence. The Ellisons already had title by adverse possession; so any executory agreement to readjust the boundary line would not reinvest the title. Hudson v. Stillwell, 80 Ark. 575, 98 S.W. 356 (1906). Moreover, although O’Neal was decidedly evasive on the witness stand, he eventually admitted that under the lease from the Ellisons he cultivated the tract now in controversy and understood that the tract belonged to the Ellisons. He also admitted that his only claim to title is based on the survey that was made shortly before this suit was filed. Thus the great weight of the evidence shows that the Ellisons acquired title by adverse possession through tenants for about 25 years. Any possible question about the O’Neals’ estoppel to question the Ellisons’ title becomes immaterial.

Conley Byrd, Justice,

concurring. I concur in the result but I disagree with the majority’s statement that the trial court erred in stating that the O’Neals were estopped to deny Ellisons’ claim of adverse possession.

The facts show that the Ellisons had possessed the area from sometime in 1951. Beginning in 1967, the O’Neals leased the land in dispute for nine consecutive years. Thus during the nine years that the O’Neals leased the lands without renouncing the tenancy, the possession of the O’Neals was the possession of the Ellisons. In Worthen v. Rushing, 228 Ark. 445, 307 S.W.2d 890 (1957), the authority upon which the majority relies, we stated:

“As a general rule, the possession of a tenant is that of his landlord, and will be so deemed until the contrary appears. This rule affects all who may succeed to the possession, immediately or remotely, through or under the tenant. Therefore, so long as the relation of landlord and tenant exists, the tenant cannot acquire an adverse title as against his landlord. This is merely one application of the rule that the tenant cannot deny his landlord’s title. It is equally well settled that one who enters as tenant is not, merely because of that fact, precluded from subsequently holding adversely to his landlord. To do so, however, it is necessary to renounce the idea of holding as tenant, and to set up and assert an exclusive right in himself. It is also essential that the landlord should have actual notice of the tenant’s claim, or that the tenant’s acts of ownership should be of such an open, notorious, and hostile character that the landlord must have known of it. Such conduct on the part of the tenant necessarily furnishes the landlord with the legal title to enter and repossess himself of the premises.”

We also held in Cox v. Daugherty, 75 Ark. 395, 36 S.W. 184 (1896), that in computing the adverse possession of a landowner for purposes of the statute of limitations, the time during which his tenant held adversely to the landlord by at-tornment to another should not be included until the notice of the tenant’s attornment was made known to the landlord. To the same effect see Kimble v. Willey, 204 F. 2d 238, 38 A.L.R. 2d 814 (8th Cir.1953), holding that a tenant’s attornment to another would not interrupt the computation of the landlord’s period of adverse holding until such time as the landlord obtained knowledge of the attornment. The annotator at 38 A.L.R. 2d 826 §2 quotes the general rule to be that the acknowledgment or recognition of title of a third person by one occupying land as the tenant of an adverse claimant does not interrupt the continuity of the landlord’s (adverse claimant) possession.

Therefore as I view the authorities, including those cited by the majority, the possession of the tenant is the possession of the landlord until such time as the tenant gives notice to the landlord that the tenant is repudiating the landlord’s title. Since appellants, the O’Neals, leased the lands from the Ellisons for more than the seven year adverse possession period without giving notice to the Ellisons that the O’Neals were repudiating the Ellisons’ title, the O’Neals were es-topped to deny that the Ellisons had been in possession under a claim of right for the statutory adverse possession period.

The title of the Ellisons of which the trial court addressed itself was Ellisons’ claim of title by adverse possession.

For the reasons stated, I respectfully concur.

Purtle, J. joins in this concurrence.