Key Terms for Your LLC Operating Agreement

If you are considering establishing your business as a limited liability corporation (LLC), then you are going to need an LLC operating agreement. Not only does this agreement govern the operation of your LLC, but it sets forth key details relating to the inner workings of the LLC that will be critical to clearly communicate to the LLC members. In setting forth key provisions in the LLC operating agreement, you provide clear guidance on how important matters are to be handled within the LLC. You also can help set clear expectations for LLC members and, therefore, avoid needless misunderstandings and disagreements down the road.

Key Terms for Your LLC Operating Agreement

In order to reap the many benefits having an LLC operating agreement in place can bestow upon your business, you must set forth key terms. After all, there is quite a large variety of terms you can include or choose to exclude from your LLC operating agreement. You should, however, at least consider including the following important terms in your LLC operating agreement:

• LLC Identifying Information: This section should include the name of the LLC as well as the addresses of both the initial registered office and the principal business office.
• Statement of intent: This should state that the operating agreement was created in alignment with the laws of your state. It should also state that the LLC will officially come into existence once the requisite documents and official LLC forms have been filed with the state.
• Business purpose: What is the purpose of the LLC? What is the nature of your business? Be sure to include this in your operating agreement.
• Term: Sometimes, an LLC is formed only to serve a specific purpose. Once that purpose is achieved, the LLC ends. Other times, the LLC is only to exist for a specific period of time and then will come to an end. In many cases, an LLC is to continue until it is terminated for one reason or another pursuant to the terms of the operating agreement or pursuant to state law. Whatever you plan for the term of your LLC, set it down in your operating agreement.
• Admission of new members: Members play a critical role in an LLC. Over time, you may wish to bring in new members. Providing for how a person can acquire an interest in the LLC and, thus, become a member of the LLC in your operating agreement can streamline the process.

These are just a few of the important terms you should include in your LLC operating agreement. Other terms that can be helpful to include may address:

• The distribution of profits and losses
• Member meetings and voting rights
• Management structure
• Duties of members
• Compensation of members
• Withdrawal of members
• Transfer of member interest
• Dissolution of the LLC

Business Law Attorney

For assistance drafting a strong LLC operating agreement, reach out to The Kumar Law Firm. Contact us today.

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State Bar of Texas Executive Committee to meet April 4

The State Bar of Texas Executive Committee will meet at 10 a.m. CDT on April 4 at the Texas Law Center in Austin. The meeting is open to the public and will be streamed live on the State Bar of Texas YouTube page.

The full agenda can be viewed here.

Among other items, the committee will:

• hear an update on the bar’s proposed budget for fiscal year 2023-2024,
• review the bar’s financial trends and projections,
• consider and discuss approval of Committee Review Task Force recommendations regarding standing committees, and
• discuss the latest regarding the 1415 Lavaca building project.

Anyone wishing to address the Executive Committee in person should fill out a speaker card at the beginning of the meeting and submit it to a staff member onsite. To sign up to speak remotely, please email lowell.brown@texasbar.com or call 512-427-1713 or 800-204-2222 (toll free) before 5 p.m. CDT on April 3. Please provide the agenda item number you wish to speak on.

Written comments regarding agenda items must be received by 5 p.m. CDT on March 30 for timely distribution to the Executive Committee members before the meeting. Please submit written comments by email to boardofdirectors@texasbar.com and indicate the agenda item you are referring to.

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4 reasons to update a child custody order

Parents who have children and are going through a divorce will need to make a child custody arrangement.

Parents often fear that they have one shot at making the perfect custody arrangement. However, there may be times when the arrangement needs to be altered. Here are four times that commonly happens:

1. Moving to a new home

Many parents move after a divorce. This can create some issues if the move is great enough to impact their parental obligations. In other words, the parent may struggle to uphold their end of a child custody order and provide the care their children need. In some cases, this may require an altered custody order, especially if it negatively impacts their child.

2. A parent won’t follow the agreement

Even after hours of debate, one parent may not want to follow the terms of a child custody order. This can create issues, such as the other parent not seeing their child, the child not being picked up for visitation or the parent refusing to give the other the right of first refusal. Providing evidence that this is happening may create a strong case for a custody modification.

3. An unfit parent

Some parents struggle after divorce. This may cause them to be unfit to care for their child. An “unfit” parent can mean several things; for example, they may neglect or abuse their child or they may suffer from substance abuse.

4. A child has matured

One of the most common reasons a custody order needs to be updated is because a child has grown up. This may lead them to have new needs and wants. For example, the child may want to spend more time with one parent or their school schedule has changed.

Do you believe it’s time to update your child custody arrangement? With the right legal knowledge, you may be able to make alterations that greatly benefit you and your child.

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The Merger Doctrine Says “Stay In Your Lane”

 

As we discussed in a previous article on the Daniher v. Pixar Animation Studios lawsuit, the U.S. Copyright Act extends federal copyright protection to original, creative works that are “fixed” in a “tangible medium of expression,” and expressly declines to extend such protection to ideas—regardless of the form in which the idea is embodied. 17 U.S.C. § 102. In essence, this means that copyright protection extends to the way an idea is expressed in a perceivable form (e.g., on paper, screen, or recording), but copyright protection does not extend to the idea itself. This policy helps support and maintain the integrity of the Constitution’s Copyright Clause, which recognizes the importance of promoting the progress of the arts, fostering competition, and supporting access to information (U.S. Const. art. I, § 8, cl. 8). This so-called “idea / expression dichotomy” is not always easy to ascertain, however, for sometimes creative, original expressions, even when fixed in a tangible medium, are unprotectable. Although the Copyright Act’s “originality” threshold generally only requires independent creation plus at least some minimal degree of creativity, there are sometimes only a limited number of ways a single idea can be expressed.

 

 

This is where the “Merger Doctrine” comes in. Some ideas can be expressed intelligibly only in one or a limited number of ways (e.g., mathematical expressions, rules of a game, depictions of nature, scientific theories, or factual information). In such cases, any original elements of a created work would “merge” with the idea being expressed—meaning the resulting expression would not be protectable under copyright law. The Merger Doctrine thus promotes competition and freedom of expression, and it is often invoked when it would be unreasonable to force would-be defendants to express themselves another way.

Thus, the Merger Doctrine is often used to defend against copyright infringement claims. In these situations, the defendant must prove to the court that the copyright allegedly being infringed can only be expressed in a limited number of ways, therefore, the Merger Doctrine should strip any federal protection that copyright currently enjoys. After all, courts cannot enforce a copyright infringement claim when the work allegedly being infringed upon is itself invalid.

In the often-cited case Mason v. Montgomery Data, Inc., the Fifth Circuit Court of Appeals found that the Merger Doctrine did not apply to certain real estate maps because the author’s ideas embodied in the maps were able to be expressed in a variety of ways. Mason v. Montgomery Data, Inc., 967 F.2d 135, 141 (5th Cir. 1992). In coming to its conclusion, the court stressed that the initial focus must be on “identify[ing] the idea that the work expresses, and then attempt[ing] to distinguish that idea from the author’s expression of it.” Id. at 138-139. If the court can distinguish the idea from its expression, then the expression will be protected because the fact that one author has copyrighted one expression of that idea will not prevent other authors from creating and copyrighting their own expressions of the same idea.” Id. at 139. In all cases, the difference between an unprotected idea and protected expression is one of degree; the guiding consideration in drawing this line is the preservation of the balance between competition and protection. 17 U.S.C. § 102(b).

The unlucky copyright-owning plaintiff can therefore have its copyright invalidated by a savvy defendant who may have unknowingly copied the way the plaintiff’s idea was expressed in the copyrighted work. The Merger Doctrine can thus be used as a sword, and not only as a shield—so copyright holders beware. It’s always best to consult an experienced copyright attorney before taking the plunge and suing an infringer who could eventually seek to invalidate your copyright. The so-called “infringer” may simply be another creative like yourself trying to express an idea in his or her own unique (albeit limited) way.

As the 8th Circuit Court of Appeals aptly put it: denying copyright protection to an expression that is merged with its underlying idea “prevent[s] an author from monopolizing an idea merely by copyrighting a few expressions of it.” Toro Co. v. R & R Products Co., 787 F.2d 1208, 1212 (8th Cir.1986). So stay in your lane—we don’t want any merging.

 

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When Does Statute of Limitations Begin to Run in Failure to Accommodate Cases and What is the Burden of Proof

Before getting started on the blog entry for the week, breaking news today. The Supreme Court agreed to hear a case involving tester standing involving serial plaintiff Deborah Laufer. We discussed the case here in a blog entry that correctly predicted that the Supreme Court would hear the case. Now if only my predictive abilities were that good when it came to picking teams in the NCAA men’s tournament. For the second year in a row, I finished dead last in the men’s pool I was in. During the first two rounds of the tournament, my daughter was home for spring break, and it was a blast watching her school’s mens and women’s teams win both their conference tournament and participate in the NCAA tournament.

 

Turning to the case of the day it is Makekau v. Charter Communications, LLC decided on February 13, 2023, out of the United States District Court for Hawaii, which can be found here. As usual, the blog entry is divided into categories and they are: facts; when does the statute of limitations begin to run; burden of proof in reasonable accommodation cases; and thought/takeaways. Of course, the reader is free to focus on any or all of the categories.

 

I

Facts

 

Plaintiff worked as a customer service representative for Charter Communications for approximately seven years when she was placed on leave for a worker’s compensation injury. Her essential job duties were sitting at her desk, taking calls, and answering emails to try to sell Charter’s services to current and potential customers. The job did not require any heavy lifting or other physically taxing manual labor. During her seven years she performed her job duties without any substantial issues.

 

Plaintiff is clinically obese with a long history of diabetes and hypertension resulting in physical limitations related to neuropathy in her hands and feet. Her condition may impair her ability to walk, talk, see, work, and perform day-to-day activities. Her supervisors were aware of her symptoms, and her managers assisted her when she had diabetic episodes at work.

 

Over the course of her employment, she made three different requests for reasonable accommodations, including: 1) a parking accommodation request so that she did not have to walk so far to the facility after arriving; 2) requesting additional leave while injured on workers compensation and awaiting surgery; and 3) requesting that she be extended on the recall list.

 

II

When Does the ADA Statute of Limitations Begin to Run

 

1. Request for ADA accommodations not filed with the EEOC within 300 days of the denial of the reasonable accommodation are time-barred.
2. Each denial of a request for an ADA accommodation constitutes a separate and discrete discriminatory act, subject to its own unique statute of limitation timeline.
3. You can have a continuing violation in a hostile work environment claim if: the events as part of that claim were sufficiently severe or pervasive; and 2) whether the earlier and later events amount to the same type of employment actions, occurring relatively frequently, or perpetrated by the same managers.

 

III

Burden of Proof in Reasonable Accommodation Cases

 

1. When an individual notifies an employer of a need for an accommodation, that triggers a duty to engage in an interactive process by which the employer and employee can come to understand the employee’s ability and limitations, the employer’s needs for various positions, and a possible middle ground for accommodating the employee.
2. In Barnett v. U.S. Air, Inc., 228 F.3d 1105 (9^th 2000) (en banc), a case that was vacated by the United States Supreme Court on other grounds, the Ninth Circuit held that an employer failing to engage in the interactive process in good faith is liable under the ADA if a reasonable accommodation would have been possible.
3. At summary judgment, the burden rests with the defendant to demonstrate the unavailability of a reasonable accommodation.
4. “Recognizing the importance of the interactive process, the Ninth Circuit also held that if an employer fails to engage in good faith in the interactive process, the burden at the summary judgment phase shifts to the employer to prove the unavailability of a reasonable accommodation.”
5. Defendant had an affirmative duty to engage in the interactive process to find or attempt to find a reasonable accommodation for plaintiff, and there is no evidence in the record that the defendant did so or even attempted to do so.
6. Defendant also failed to demonstrate at this stage that a reasonable accommodation would have been unavailable to the plaintiff even if it had engaged in the interactive process. Accordingly, a genuine issue of material fact exists as to whether reasonable accommodation would’ve allowed the plaintiff to perform her essential job functions with respect to request to have her leave extended and to be extended on the recall list.
7. In a footnote, the court noted that plaintiff claimed that had defendant engaged in the interactive process to find a reasonable accommodation, she could have been able to return to work with breaks to stand up periodically from her desk, return on limited duty or for limited hours, take an alternative available job placement, work from home, etc. or do anything else to return to work.
8. In a footnote, the court noted that unpaid medical leave may be a reasonable accommodation under the ADA. Even extended medical leave, or an extension of an existing leave can be a reasonable accommodation if it does not pose an undue hardship on the employer.

 

IV

Thoughts/Takeaways

 

1. This is not the first case we have seen using a repeated violations theory when it comes to the statute of limitations. We previously encountered that in a title II case out of Colorado, which we discussed here. It is important to keep in mind that the statute of limitations begins to run at the moment in time a request for a reasonable accommodation is denied and not when the person is terminated.
2. Continuing violations is a doctrine the federal courts talk about a lot, but I rarely see accepted by the federal courts in a particular fact pattern.
3. Magic words are not required to initiate the interactive process as we have discussed many times, such as here.
4. The language of the court is a bit confusing. There is an entirely separate sentence saying that at summary judgment the burden rests with the defendant to demonstrate the unavailability of a reasonable accommodation. However, the very next sentence is quoting from another decision saying that the employer acting in bad faith with respect to the interactive process appears to be a condition precedent to the burden shifting with respect to showing the unavailability of a reasonable accommodation. As a preventive law matter, it wouldn’t be a bad idea, as the plaintiff did in this case, for a plaintiff to put in their complaint the types of accommodations that may work. I have seen many cases talking about the obligation of a plaintiff to put forward accommodations that might work in failure to accommodate cases.
5. The interactive process is absolutely critical whenever a request for a reasonable accommodation is made. Don’t forget about its do’s and don’ts, which we discussed here.
6. Be sure your job description discussing an employee’s essential job functions are current and based upon reality. Ultimately, it is what is happening on the ground that is going to be a critical factor in determining what are essential functions.
7. Depending upon the jurisdiction, courts vary in how far under the hood they will look with respect to determining the essential functions of the job.
8. Extending leave can be a reasonable accommodation. Reassignment to another position if it is a last resort can also be a reasonable accommodation. For that matter, just about anything can be a reasonable accommodation providing it gets the person with a disability to the same starting line as a person without a disability.
9. Don’t forget about the Job Accommodation Network, here.
10. The person who blows up the interactive process bears the liability.
11. It may not always be clear when a reasonable accommodation request is denied. We do know that unreasonable delay in granting an accommodation is actionable under the ADA. We discussed such a case here.

 

In addition to the NCAA men and women’s tourney, baseball season starts up next week. Good luck to your teams. Go Braves, Cubs, and Chicago White Sox.

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Vacactur Skepticism

In a dissent from a dismissal order in Chapman v. Doe, Justice Jackson questioned whether the Supreme Court had become too quick to vacate judgments, noting, inter alia, that “our common-law system assumes that judicial decisions are valuable and should not be cast aside lightly, especially because judicial precedents ‘are not merely the property of private litigants,’ but also belong to the public and ‘legal community as a whole.’” (reviewing United States v. Munsingwear, Inc., 340 U.S. 36 (1950)).

As she was the sole dissenter on this point, her views are apparently not shared by a majority of that court, but her analysis is still thought-provoking and deserves study, as it examines a part of the appellate process that often goes largely unnoticed. Thanks to Ben Taylor for drawing my attention to this one!

The post Vacactur Skepticism appeared first on 600 Camp.

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Another Double-Fraction Texas Deed Case

Co-author Caleb White*

Davis v. COG Operating, LLC, in construing a Warranty Deed with a reservation of minerals, applied the estate-misconception doctrine and denied the presumed grant doctrine. At issue were three instruments:

• A 1926 mineral lease from the Sesslers to Campbell.
• A 1926 “Royalty Deed” from Sesslers to Haun.  
• A 1939 Warranty Deed from the Sesslers to Roberts, in which the parties acknowledged that Haun had been conveyed 1/32 of the minerals.The conveyance did not include that interest. The Sesslers reserved “one fourth (1/4) of the 1/8 royalty usually reserved …” in an oil and gas lease.

Davis (Sesslers’ successor) sued the Neals and COG (Roberts’ successors) for trespass-to-try-title and a dog’s breakfast of other claims – 11 in total – asserting that she owned a portion of the Neals’ NPRI.  The trial court granted summary judgment for the Neals. Having denied Davis’s trespass-to-try-title claim, the court denied Davis’s remaining claims.

The appeal

The Court of Appeal concluded that the 1926 “Royalty Deed” actually conveyed a 1/32 mineral interest, as the deed did not strip away any traditional mineral rights from Haun.  The 1/32 in the deed was the conveyance of 1/4 of the remaining typical 1/8 reserved by the Sesslers as a result of their lease to Campbell.

Davis argued that the 1926 Deed put Roberts on notice of Haun’s preexisting interest in the mineral estate. The Neals responded that the Sesslers and Roberts intended a literal meaning of the 1/32 fraction and consequently, Roberts was not put on notice of the extent of Haun’s ownership. The Court did not accept the Neals’ argument.

The intention of the parties in using 1/32 in the 1939 Deed to identify what was reserved to Haun depended on whether they were operating under an estate-misconception. If they were not, then the Sesslers failed to provide adequate notice to Roberts of the interest previously conveyed to Haun. If they were, both parties would have understood that the 1/32 was simply a stand-in for the 1/4 mineral interest conveyed to Haun.

The Court concluded that the parties had been operating under estate-misconception, relying on three reasons:

• 1939 was the height of the time estate-misconception was prevalent.
• 1/32 is the product of multiplying 1/4 by 1/8, creating the expectation of a 1/8 lease (citing Hysaw v. Dawkins).
• The double fraction found in the reservation links the reservation to estate-misconception.  

Considering those factors and harmonizing the Deed’s provisions, the Court determined the parties executed the 1939 Deed under an estate-misconception.

The deed effectively put Roberts on notice of the 1/4 interest in the mineral estate previously conveyed to Haun. The intent of the parties was to give Roberts notice of the previous transfer to Haun.

The Neals argued that even if the 1939 Warranty Deed reserved a 1/4 NPRI to the Sesslers, the reservation was ineffective. First, the 1/4 floating NPRI was an over-conveyance because they had already sold the same 1/4 interest to Haun. In such a case, the Duhig doctrine directs courts to make the grantee whole by awarding the missing title to the grantee out of the grantor’s remaining estate. The Court rejected this argument because the Sesslers did not convey more than they owned. The 1939 Deed did not purport to convey a 3/4 interest in future royalties to Roberts.

The Court denied Neals’ presumed-grant doctrine defense. It is an equitable doctrine that applies only in the case of a gap in title. And laches does not apply to a trespass-to-try-title claim.

The trial court erred in granting summary judgment for the Neals because the Sessler successors had clear title to a portion of the Neals’ NPRI. The Court reversed the summary judgment, rendered judgment on trespass-to-try-title in favor of Davis, and remanded the remaining claims to the trial court for further proceedings.

Your post-St. Patrick’s Day musical interlude.

*Caleb is a 3L at Baylor Law School and a Gray Reed intern.

 

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Fifth Circuit: Lawyers can be Sanctioned, Not Law Firms

Lawyers can be sanctioned by the court for “unreasonably and vexatiously” multiplying a lawsuit. That means the lawyer can be sanctioned for creating unnecessary work. In the lawsuit Vaughan v. Lewisville ISD, the plaintiff claimed his vote as a white voter was diluted by some measure taken by the Lewisville ISD. The judge sanctioned the lawyer and his law firm for unreasonably and vexatiously multiplying the proceedings. The district judge said Vaughan did not have standing because he was white and because the lawsuit was frivolous.

On appeal, however, the Fifth Circuit found that standing is a changing concept and the plaintiff simply was seeking to extend voting rights laws. The higher court overturned the sanction of $50,000. It also found that a law firm cannot be sanctioned. Section 1927 of Title 28 applies to lawyers, not to law firms. But, said the Fifth Circuit, the various lawyers from the law firm could be sanctioned for their conduct during depositions of school officials. The lawyers asked about a range of issues not related to voting rights, such as Title IX compliance, standardized testing, mental health accommodations, and individual board member’s personal opinions on various topics, such as allowing teachers to carry guns.

See the ABA Bar Journal report here.

 

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If it Looks Like a Duck, Quacks Like a Duck, it is Not a Duck

Sometimes I just don’t know until the last minute as to what case I will blog on for the week. I originally thought I would blog on a religious accommodation case. Then, this morning I saw a Fifth Circuit decision involving mandatory reassignment. Right when I was finishing up reading that decision, I saw an email come in from my colleagues in the Deaf and Hard of Hearing Bar Association saying that the Supreme Court had just decided Perez v. Sturgis Public Schools, opinion here, which I have previously blogged on before here. Once I saw that email, there was no question as to what I would blog on for this week. Since I have previously blogged on this case, there is no need to go into the facts of the case. So, the blog entry is divided into the categories of Court’s reasoning that plaintiff need not exhaust IDEA before filing suit for violations of the ADA, and thoughts/takeaways. The opinion was unanimous and was written by Justice Gorsuch.

 

I

Court’s Reasoning That IDEA Need Not Be Exhausted First Prior to Filing the ADA Claim

 

1. IDEA in 1415(l) has two critical features to it. First, it states that nothing in IDEA shall be construed to restrict the ability of individual to seek remedies under the ADA or other federal laws protecting the rights of children with disabilities. Second, IDEA contains a qualification prohibiting certain suits where those suits seek relief available under IDEA, then the procedures in IDEA must be exhausted first. With respect to that exception, IDEA goes on to say that affected children and their parents have a right to a due process hearing before a local or state administrative official followed by an appeal to the state education agency.
2. The first clause of §1415(l) focuses the attention on remedies. A remedy denotes enforcing a right and may come in the form of money damages, an injunction, or a declaratory judgment. The statute then proceeds to instruct that nothing in the IDEA shall be construed as restricting or limiting the availability of any remedies under other federal statutes such as the ADA.
3. The limiting language in the IDEA does not apply to all (emphasis in opinion), suits seeking relief that other federal laws provide. Instead, the administrative exhaustion requirement applies only (emphasis in opinion), to suits seeking relief also available under IDEA. That particular condition is not met in situations like Perez where the plaintiff brings a suit under another federal law for compensatory damages, which is a form of relief everyone agrees IDEA does not provide.
4. Admittedly, this logic treats remedies as being synonymous with the relief a plaintiff seeks. However, a number of contextual clues persuaded the Court that is exactly how an ordinary reader would understand this particular provision of the IDEA.
5. 1415(l) begin by directing a reader to the subject of remedies by offering first a general and then a qualifying rule on the subject. Also, in at least two other places, IDEA treats remedies and relief as synonyms. The Court could not conceive a persuasive reason why IDEA would operate differently only in this section.
6. 1415(i)(2)(C)(iii) direct courts in IDEA cases to grant such relief as the court determines is appropriate. That statutory instruction authorizes a court to grant as an available remedy (emphasis in opinion), reimbursement of past educational expenses. Elsewhere, IDEA, §1415(i)(3)(D)(i)(III), sometimes bars those who reject the school district’s settlement offer from recovering attorney’s fees for later work if the relief (emphasis in opinion), finally obtained is not more favorable than the offer. Here again, relief means the same thing as remedy.
7. Other provisions in the U.S.C. treat remedies and relief as synonyms. For example, in 18 U.S.C. §3626(d) that provision provides that the limitations on remedies in that section shall not apply to relief (emphasis in opinion), entered by a State court based solely upon claims arising under state law. Also, 28 U.S.C. §§3306(a)(2)-(3) indicatethat United States may obtain a remedy (emphasis in opinion), under this chapter or any other relief (emphasis in opinion), the circumstances may require.
8. Influencing the Court’s thinking is the fact that the second clause in §1415(l) refers to claims seeking (emphasis in opinion), relief available under IDEA. To seek relief is to ask for or request according to the Oxford English dictionary. Further, often enough the phrase seeking relief or some variant of it in the law refers to the remedies a plaintiff requests. For example, under the Federal Rules of Civil Procedure, a plaintiff’s complaint must include a list of requested remedies, or what the law calls a demand for the relief (emphasis in opinion), sought.
9. Many Supreme Court opinions similarly speak of the relief a plaintiff seeks as the remedies the plaintiff requests.
10. Fry is of no help to the defendant because it went out of its way to reserve the question now before the Court in Perez.
11. In Fry, the Court held that the IDEA exhaustion requirement does not apply unless the plaintiff seeks relief for the denial of a free and appropriate public education because that is the only relief IDEA administrative processes can supply. This case presents an analogous but very different question, which is whether a suit admittedly premised on the past denial of a free and appropriate education may nonetheless proceed without exhausting IDEA’s administrative processes if the remedy plaintiff seeks is not one IDEA provides. In either case, a plaintiff need not exhaust administrative processes under IDEA because those processes cannot supply what the plaintiff seeks.
12. It is the Court’s job to apply faithfully the law Congress has written. It is not up to the Court to replace the actual text of the law with speculation as to congressional intent.
13. Under Supreme Court decisions, a plaintiff who files an ADA action seeking both damages and the sort of equitable relief IDEA provides may find his request for equitable relief barred or deferred if he has yet to exhaust IDEA remedies.
14. It isn’t difficult to imagine that a rational Congress might have sought to temper demand for administrative exhaustion when a plaintiff seeks a remedy IDEA can supply with a rule of not requiring exhaustion when a plaintiff seeks a remedy IDEA cannot provide.
15. It isn’t necessary for the Court to deal with the issues raised at oral argument about whether a judge made futility exception exists and whether Perez can obtain compensatory damages in his title II of the ADA suit because there isn’t any reason to address those issues at this time in light of the reasoning in this opinion. In the proceeding below, the court held that the IDEA exhaustion requirement included plaintiff’s ADA lawsuit and that is simply not the case.

 

II

Thoughts/Takeaways

 

1. Unanimous opinion! From the oral argument, it looked like it might have been Justice Alito in sole dissent.
2. The issue of when a free appropriate public education is involved will now become paramount. We previously predicted that might be the case in this blog entry when we discussed a case talking about how a free appropriate public education under IDEA necessarily involves specialized instruction. Expect lots and lots of litigation over whether specialized instruction is involved. 504 plans can include specialized instruction pieces. Plaintiff attorneys may want to think twice about doing that if they want to avoid exhaustion litigation.
3. A plaintiff will have to exhaust administrative remedies where they have both IDEA concerns as well as ADA concerns.
4. School districts often have an internal procedure for dealing with both IDEA and §504/ADA claims that are identical to each other. That simply will not work anymore.
5. 504 also refers to a free and appropriate public education but that does not even come close to the same meaning as a free and appropriate public education under IDEA. This case makes it important that §504 plans do not blur into the specialized instruction of IEP’s (See also 2 above). Think of §504 as getting a person with a disability to the same starting line. On the other hand, think of IEP’s as trying to achieve specific goals while utilizing specialized instruction.
6. Per Cummings, which we discussed here, a §504 claim does not allow for emotional distress damages.
7. The Court specifically says that it is not going to deal with the question of whether title II of the ADA allows for compensatory damages. I do expect that question to come before the Court eventually. There are two things to keep in mind with respect to that. First, the remedy provisions of title II of the ADA, 42 U.S.C. §12133, refers to 29 U.S.C. §794a in total and not to any specific provision. Therefore, the argument is created that all of the remedies in §794a are in play. Second, title II of the ADA is not spending clause legislation but legislation based upon enforcing the rights of persons with disabilities per the 14^th amendment to the U.S. Constitution.
8. In my experience with matters that have come across my desk, school districts are very familiar with IDEA. They are also familiar with §504 with respect to “§504 plans.” They are less familiar with §504 in general. They are often not as aware as they should be about title II of the ADA. This case forces school districts get up to speed on title II of the ADA and on §504 outside of the “504 plans.”
9. In light of this decision, this blog entry discussing how IDEA is fundamentally a matter of specialized instruction is now mandatory reading.
10. It will be interesting to see if school districts try to convert §504 plans to IEP’s to ensure that IDEA processes become involved.
11. 504 damages means having to show intentional discrimination, such as deliberate indifference per this case.
12. This decision definitely changes the balance of power between school districts and the parents of those with kids with disabilities.
13. Did I mention that the decision was unanimous?

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Texas Mixed Beverage Taxes

The state of Texas imposes two taxes on alcoholic beverages that impact holders of certain permits under the Texas Alcoholic Beverage Code. These taxes are the mixed beverage gross receipts tax and the mixed beverage sales tax. Both are set forth in Texas Tax Code, Chapter 183 (“Chapter 183”) and Texas Comptroller Rule 3.1001 (“Rule 3.1001”).[1]

Who’s Subject to Mixed Beverage Taxes?

The folks who get hit with mixed beverage taxes (other than consumers) are what are called “permittees.” [2] Chapter 183 defines a “permittee” is defined as someone who holds one of the following permits under the Texas Alcoholic Beverage Code:

• a mixed beverage permit;
• a private club registration permit;
• a private club exemption certificate;
• a private club registration permit with a retailer late hours certificate;
• a nonprofit entity temporary event permit;
• a private club registration permittee holding a food and beverage certificate;
• a mixed beverage permit with a retailer late hours certificate;
• a mixed beverage permit with a food and beverage certificate; or
• a distiller’s and rectifier’s permit.[3]

What’s a Mixed Beverage?

Chapter 183 defines a “mixed beverage” as “a beverage composed in whole or part of an alcoholic beverage in a sealed or unsealed container of any legal size for consumption on the premises when served or sold by the holder of a mixed beverage permit, the holder of certain nonprofit entity temporary event permits, the holder of a private club registration permit, or the holder of certain retailer late hours certificates.”[4]

What’s the Mixed Beverage Gross Receipts Tax?

A 6.7% tax is imposed on the gross receipts of a permittee from the sale, preparation, or service of mixed beverages as well as from the sale, preparation, or service of ice or nonalcoholic beverages that are sold, prepared, or served for the purpose of being mixed with an alcoholic beverage and consumed on the premises of the permittee.[5] Taxable mixed beverage gross receipts also include:

• receipts from cover charges, door charges, entry fees, or admission fees when the TABC has determined that the collection of the cover charge, door charge, entry fee, or admission fee is in violation of TABC rules or regulations;
• the normal selling price of alcoholic beverages served with meals with no separate charge;
• any portion of a reasonable mandatory gratuity charge that is not disbursed to qualified employees;
• the entire mandatory gratuity charge when in excess of 20%, regardless of how the gratuity is disbursed;
• miscellaneous charges in conjunction with the sale or service of alcoholic beverages such as bar set-up fees, bartender fees, corkage fees, maîtres d’hôtel charges, etc.;
• all sales or services of alcoholic beverages by caterers;
• all sales or services of alcoholic beverages sold or served by the holder of a temporary permit or by the holder of a beer and wine only temporary permit issued to a mixed beverage permittee; and
• all sales of coupons, tokens, tickets, etc., that are redeemed or used in any manner to purchase or pay for the sale or service of an alcoholic beverage.[6]

Receipts not included in the mixed beverage gross receipts tax base include:

• complimentary alcoholic beverages (although use tax under Texas Tax Code, Chapter 151 (Limited Sales, Excise, and Use Tax) is due on taxable ingredients used to make the complimentary alcoholic beverages);
• complimentary alcoholic beverages served during promotional periods such as happy hours at hotels or motels (although if there is an increase in the guest room rates attributable to these promotional periods, the Comptroller has the option to tax either the increase in the room rate under Tax Code, Chapter 156 (Hotel Occupancy Tax), or assess use tax on the taxable ingredients of the complimentary drinks);
• complimentary alcoholic beverages served to holders of free drink cards or free drink tokens, for which no consideration is paid to the permittee;
• voluntary gratuities;
• reasonable mandatory gratuity charges of 20% or less that are separated from the sales price of the alcoholic beverage being served, identified as a tip or gratuity, and disbursed to employees who customarily and regularly provide the service upon the gratuity is based;
• walked checks or tabs;
• receipts from cover charges, door charges, entry fees, or admission fees that are for entertainment, food specials, and other purposes, and receipts from the sale of temporary membership cards (although these receipts would be subject to sales tax as amusement services under Tax Code, Chapter 151);
• bad debts;
• mixed beverage sales taxes;
• alcohol loss due to spillage or breakage; and
• alcoholic beverages used in cooking.[7]

Permittees are allowed to provide an informational statement to customers disclosing the amount of mixed beverage gross receipts tax to be paid by the permittee in relation to the mixed beverage sold, although they may not separately charge the customer for this tax.[8]

What’s the Mixed Beverage Sales Tax?

An 8.25% tax is imposed on each mixed beverage sold, prepared, or served by a permittee in this state and on ice and each nonalcoholic beverage sold, prepared, or served by a permittee in Texas for the purpose of being mixed with an alcoholic beverage and consumed on the premises of the permittee.[9] The tax base for mixed beverage sales tax generally is the same as for mixed beverage gross receipts tax and is generally administered, collected, and enforced in the same way as sales and use tax under Texas Tax Code, Chapter 151 is administered, collected, and enforced.[10]

What About To-Go Drinks?

In 2021, the Legislature amended the Texas Alcoholic Beverage Code to allow holders of mixed beverage permits with a food and beverage certificate and private club registration permit holders with a food and beverage certificate to sell alcoholic beverages with to-go food orders under certain circumstances.[11]

As you might have noticed, mixed beverage gross receipts tax and mixed beverage sales tax are both keyed to on-premises consumption of an alcoholic beverage.[12] Thus, the sale of alcoholic beverages with to-go food orders generally will not be subject to mixed beverage gross receipts tax and mixed beverage sales tax, but instead sales and use tax under Texas Tax Code, Chapter 151.[13]

So, Alcoholic Beverages Sold by Non-Permittees Aren’t Taxed?

No! Alcoholic beverages sold by folks who don’t hold a permit subject to mixed beverage taxes usually are going to be subject to plain-old sales or use tax under Texas Tax Code, Chapter 151.[14]

 

State and Local Tax Services

Freeman Law works with tax clients across all industries, including manufacturing, services, technology, oil and gas, financial services, and real estate. State and local tax laws and rules are complex and vary from state to state. As states confront budgetary deficits due to declining tax revenues and increased government spending, tax authorities aggressively enforce state tax laws to recapture lost revenues. 

At Freeman Law, our experienced attorneys regularly guide our clients through complex state and local tax issues—issues that are frequently changing as states seek to keep pace with technology and the evolution of business. Staying ahead requires sophisticated legal counsel dedicated to understanding the complex state tax issues that confront businesses and individuals. Schedule a consultation or call (214) 984-3000 to discuss your local & state tax concerns and questions. 

 

[1] For those interested, which admittedly is probably only me, the mixed beverage gross receipts tax (then the only mixed beverage tax in the state and imposed at a rate of 14%), was administered originally by the Texas Alcoholic Beverage Commission (“TABC”). In 1993, the Legislature reassigned administration of the tax to the Texas Comptroller by enacting Chapter 183. See Acts 1993, 73rd Leg., ch. 934, Sec. 106. The idea being the Comptroller was already performing tax collection and auditing functions similar to what the TABC was then performing and was already auditing holders of alcohol permits and licenses for sales and use tax (more on that later), so moving administration of mixed beverage gross receipts tax to the Comptroller “would elimination duplication of effort, institute a more balanced auditing process and provide a more cost effective and convenient tax system.” House Research Organization, Bill Analysis for HB 1445 at 7 (May 6, 1993). The problem being that since splitting Chapter 183 off from the Texas Alcoholic Beverage Code, the Legislature sometimes forgets to incorporate changes made in the Texas Alcoholic Beverage Code in Chapter 183, and vice versa.

In 2013, the Legislature decided to reduce the mixed beverage gross receipts tax rate to 6.7% and create a new mixed beverage sales tax imposed at rate of 8.25%. Acts 2013, 83rd Leg., R.S., ch. 1403, Sec. 12. As we’ll discuss, mixed beverage gross receipts tax is a tax on permittees selling the mixed beverage and can’t be passed on to the consumer (although permittees presumably build the tax into the cost they charge to consumers), while mixed beverage sales tax is a tax ultimately imposed on the consumer. House Research Organization, Bill Analysis for HB 2572 at 2 (May 2, 2013). Separating out a mixed beverage sales tax from the mixed beverage gross receipts tax was intended to promote transparency, because consumers would know that mixed beverage sales tax applies to the stated cost on the receipt. Id.

[2] See Tex. Tax Code §§ 183.001(b)(1), 183.021, 183.041.

[3] See Tex. Tax Code § 183.001(b). Comptroller Rule 3.1001 provides a slightly different list of permits whose holders would be mixed beverage taxes:

• mixed beverage permit;
• mixed beverage late hours permit;
• mixed beverage permit holding a food and beverage certificate;
• daily temporary mixed beverage permit;
• private club registration permit;
• private club exemption certificate permit;
• private club late hours permit;
• daily temporary private club permit;
• private club registration permit holding a food and beverage certificate;
• caterer’s permit; or
• rectifier’s and distiller’s permit.

34 Tex. Admin. Code § 3.1001(a)(6).

[4] See Tex. Tax Code § 183.001(a); Tex. Alc. Bev. Code § 1.04(13). Under Chapter 183 (incorporating the Texas Alcoholic Beverage Code), a mixed beverage apparently does not include an alcoholic beverage sold by a holder of a distiller’s and rectifier’s permit. This results in a discrepancy between the list of permittees subject to mixed beverage taxes (which includes holders of a distiller’s and rectifier’s permit) and the definition of a mixed beverage (which does not include those holders), raising the question of a where holders of distiller’s and rectifier’s permits are even making sales of mixed beverages that are subject to tax.

Perhaps attempting to avoid potential discrepancies resulting from the Chapter 183’s reliance on the Texas Alcoholic Beverage Code, Rule 3.1001 defines a “mixed beverage” more broadly as “[a] serving of a beverage composed in whole or in part of an alcoholic beverage in a sealed or unsealed container of any legal size for consumption on the premises where served or sold by a permittee.” Tex. Tax Code § 183.021.

[5] Id.; 34 Tex. Admin. Code § 3.1001(b).

[6] 34 Tex. Admin. Code § 3.1001(c)(1).

[7] 34 Tex. Admin. Code § 3.1001(a)(9), (f), (g), (h), (i).

[8] Tex. Tax Code § 183.0212(a)(1), (c); 34 Tex. Admin. Code § 3.1001(b)(3).

[9] Tex. Tax Code § 183.041; 34 Tex. Admin. Code § 3.1002(b).

[10] 34 Tex. Admin. Code § 3.1002(b), (c)(1).

[11] Acts 2021, 87th R.S., ch. 6.

[12] See Tex. Tax Code § 183.021, 183.041.

[13] See STAR Accession No. 202108009L (Aug. 2021).

[14] See Tex. Tax Code § 151.010, 151.051, 151.101, 151.308(a)(5).

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Living Revocable Trusts in Texas

Are you a Texas resident considering the future of your estate? It’s important to understand how Living Revocable Trusts in Texas can help. A revocable living trust is an important legal document that serves as an instrument for managing assets and distributing them after death—it puts into effect while you are still alive, making it …

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Texas Supreme Court Rules on “Bespoke” Add-Back Royalty Clause

In Devon Energy Production Company, LP et al v. Sheppard et al, the Supreme Court of Texas construed what it referred to as a “bespoke” and “highly unique” royalty clause in several oil and gas leases to prohibit the producers from deducting out of the lessor’s royalty post-production costs incurred downstream of the point of sale to unaffiliated third parties.

The provisions (redacted; read them yourself):

The royalty clause

Under 3.(a) and 3.(b), : Lessor’s royalty was 1/5^th of the gross proceeds realized from sales.

3.(c): “If any … sale of oil or gas shall include any reduction or charge for the expenses or costs of … [specified PPC’s] … then such deduction, expense or cost shall be added to . . . gross proceeds so that Lessor’s royalty shall never be chargeable directly or indirectly with any costs or expenses… .”

Addendum L: Payments of royalty … shall never bear or be charged with, either directly or indirectly, any part of the costs or expenses of …  [specified PPC’s], post-production expenses, marketing or otherwise making the oil or gas ready for sale or use, …” 

The terms of L were controlling over 3.(c).

The general rules …

The court reiterated the rule that unless agreed to the contrary, the lessor shares in the burden of PPC’s, and proceeds leases ordinarily authorize the lessee to deduct from royalties PPC’s incurred after the point of sale to an unaffiliated third party.

However, the Court also reiterated the rule of contract construction that unambiguous contracts in Texas will be enforced according to the plain language of the instrument.  

… applied to this case

The court construed the royalty provisions as requiring an “add back”, and the key provisions in the lease plainly required that certain sums be “added to” the producers’ gross proceeds for royalty calculation purposes. The cost at issue was an $18 per barrel deduction for the buyer’s anticipated post-sale costs for “gathering and handling, including rail car transportation.” The producers did not add the $18 to the royalty base.

The question was not whether a buyer’s PPC’s were gross proceeds under the leases or the law. They weren’t. The question was whether the leases nonetheless required the producers to pay royalty on those costs. The broad language in paragraph 3.(c) was clear in requiring any reduction or charge for PPC’s that were included in the producers’ disposition of production to be added to gross proceeds so that the landowner’s royalty would never bear those costs, even indirectly. The leases contemplated royalties payable on amounts that may exceed the consideration received by the producers.

The Court denied the producers’ assertion that paragraph 3C was surplusage because the payment of royalty on non-proceeds is so at odds with the usual expectations that it could not be required unless such an intent was stated plainly and in a formal way, The court agreed that for continuity and predictability of oil and gas law the courts should construe commonly used terms in a uniform and predictable way; however, there was nothing usual or standard about the language in 3(c), which was clear in expressing the intent to deviate from the usual expectations.

The Court also denied the producer’s argument that leases’ references to Heritage Resources and Judice was surplusage.

There was some relief for the producers.  The lessors didn’t challenge the trial court’s summary judgment for the producers on:

• adjustments for volumes of gas used for the producers’ operations and never sold;
• adjustments for volumes of production deemed to be lost or unaccounted-for by third parties; and
• value retained by the producers as a result of contractually fixed recovery factors. 

The dissent

Justice Blacklock dissented, reasoning primarily that the transaction between Devon and the purchaser did not involve a reduction or charge from PPCs that reduced the proceeds received by Devon or the royalty received by the royalty owners.  It is an accounting gimmick when Devon is required to pay an inflated royalty just because it left behind a paper trail indicating that it calculated its initial sales price with reference to a downstream market.

Your musical interlude

 

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Stanford Apologizes

An unfortunate incident involving out-of-hand heckling of Judge Duncan at Stanford Law School, compounded by an administrator fanning the flames, led to an apology from Stanford’s president. Aside of general problems with good manners and common sense, this sort of thing isn’t even good protesting; cf. Tinker v. Des Moines ISD, 393 U.S. 503 (1969) (protecting “a silent, passive expression of opinion, unaccompanied by any disorder or disturbance on the part of petitioners”).

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Reserved Royalty Interest is “Floating”

Co-author Tiereney Bowman*

Texas courts continue to address the “fixed or floating” non-participating royalty interest question. The El Paso Court of Appeals’ answer in Bridges v. Uhl et al. was floating, based on the language in that particular reservation,

In 1940 the Klattenhoffs sold a 640-acre tract in Upton County to Virgil Powell, reserving, “an undivided one-half (1/2) of the usual one-eighth (1/8) royalty in, to and under the above-described land….” Over the following decades, Uhl collectively came to own 100% of the mineral estate after a series of conveyances. In 2007, Powell’s successors executed an oil and gas lease with Hanley Petroleum. Separately, in 2010, other of Powell’s successors executed a lease with Concho Operating. Both leases provided for a ¼ royalty.

The Klattenhoffs conveyed the reserved NPRI to their daughter, Ms. Bridges, granting an undivided “1/2 of the usual 1/8 royalty interests.” After Bridges learned of production from the land Concho acknowledged her right to royalties, which it calculated as a 1/16 “fixed” NPRI rather than ½ of ¼ of production. Bridges sued alleging several causes of action. The trial court entered a judgment granting Uhl’s motions for summary judgment and denying Bridges’.

On appeal Bridges argued that the trial court erred in interpreting the deed to reserve a fixed 1/16 NPRI, not a ½ floating. She also argued that granting Uhl’s motions was not supported by their affirmative defenses.

The 1940 Deed

In concluding that the deed reserved a floating ½ NPRI, not a 1/16 fixed, the Court applied Texas deed construction principles rather than a purely mathematical approach. According to the Court, “courts must holistically review the language to ascertain the intent of the parties from all of the language in the deed by a fundamental rule of construction known as the ‘four corners rule.’” (The court was reluctant to invoke the estate misconception rule.) A royalty interest may be conveyed or reserved in one of two ways: ‘as a fixed fraction of total production’ (fractional royalty interest) or ‘as a fraction of the total royalty interest’ (fraction of royalty interest).

The granting language in the text and the deed’s overall structure confirmed the grantors’ intent to reserve a ½ floating royalty. Using the double fraction could demonstrate a grantor’s intent to give the grantee half of his entire royalty interest. When the deed was drafted, 1/8 was the standard royalty for oil and gas leases.

The deed had many recognized features of a floating royalty: (1) it included double fractions; (2) the fractions included multiples of 1/8; (3) repeatedly referenced the “usual 1/8 royalty”, which relates to the parties’ use of the then-standard 1/8 royalty as a proxy for the landowner’s royalty; and (4) the prospective contemplation of the royalty taking effect at a later time is reflected by the phrase, “if, as and when production is obtained.” The deed was not ambiguous, and reserved a floating ½ NPRI.

Among other unsuccessful affirmative defenses, Uhl argued quasi-estoppel and waiver, asserting that the Bridges was “on notice” about the nature of her royalty payments as a fixed 1/16, which constituted waiver. The Court disagreed. The fact that she previously accepted royalty payments was not dispositive because Uhl failed to show conclusive evidence of Bridges’ knowledge of what she was receiving and what she should have been receiving, and she changed her position. That affirmative defense could not support summary judgment for Uhl.

The Court reversed summary judgment for Uhl, rendered partial summary judgment for Bridges, declared that the deed reserved a floating ½ royalty interest, and remanded the cause for further proceedings.

Your musical interlude.

*Tiereney is in her third year at SMU Law School and an intern at Gray Reed.

 

 

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When the Ship Sinks

When a company files for bankruptcy, the media plasters photos of their “going out of business” signs and empty storefronts to announce that the company could be no more. What is not shown is the complex, often long process of actually filing for bankruptcy. Filing for bankruptcy also comes in different flavors and different factors may help employees’ situations. To give a general idea of how bankruptcy affects employees, below we’ll look at the types of bankruptcy as well as examine the additional factors that may change the outcomes for employees. All in all, the announcement of bankruptcy can be terrifying for any employee that is currently employed by that company, but by learning more about the process it can help employees make more informed decisions. 

Beginning with types of bankruptcy, if a company files under Chapter 11, it means that the company may attempt to reorganize and continue operating under court supervision. In this case, the company may have to make difficult decisions such as reducing its workforce, closing unprofitable departments, or renegotiating contracts with suppliers and creditors. The company may also be able to negotiate with labor unions to reduce salaries or benefits temporarily. However, in some cases, employees may be able to keep their jobs or be rehired once the company emerges from bankruptcy. 

Another potential filing is under Chapter 7 or where a company is liquidated. Liquidation means that a business’ assets will be sold to pay off its creditors. In this case, employees will likely lose their jobs, and the bankruptcy trustee will use the proceeds from the asset sales to pay any outstanding wages and benefits owed to them. This situation is not ideal, but there’s still another option.

Continue reading ›

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3 things to know about QDROs

Going through a divorce is a challenging undertaking. You must ensure that you’re making decisions that are in your best interests. Your ex is going to do the same.

For many people, dividing retirement accounts during divorce is stressful. Only when parties have their own accounts and those accounts are roughly equal in value is this particular asset division issue relatively straightforward. Outside of that scenario, dividing financial assets, like 401(k) accounts, can be a complicated process. One option that spouses may wish to consider involves enacting a QDRO.

1. Only certain plans require a qualified domestic relations order

QDROs are only required for plans that are covered by the Employee Income Security Act. This classification doesn’t include IRAs. A QRDO can affect a former spouse, children, and anyone else who is considered to be a dependent.

2. Plan administrators can deny a QDRO

Plan administrators can deny a QDRO if there’s anything incorrect with it. The order must include very specific information, including:

• The payee’s name and address
• The plan participant’s name and address
• Identifying information for each plan included in the QDRO
• Percentage or dollar amount that must be paid to the payee
• Type and duration of payments, such as one-time or installments

If the plan administrator denies a QDRO, it will be returned for clarification. The court can correct the QDRO so the plan administrator can follow the corrected orders.

3. Limitations apply

A QDRO can’t require a plan to pay out any benefit amounts that aren’t part of the plan. There’s also a limitation in re: how many people can benefit from a QDRO tied to one account, so if a retirement plan already has a QDRO attached to one person, another QDRO can’t take away that other person’s benefits. QDROs are applicable based on a first-come, first-served basis.

Before committing to implementing a QDRO, take time to learn about all of your options concerning property division during divorce. Working with someone familiar with cases similar to yours can be beneficial because you can draw on their experience. Remember that you must consider how each option may impact your future, not just your present.

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Factors that can complicate a divorce

Typically, spouses enter marriage with the best of intentions. They aim to be happy and united for the rest of their days. However, the reality is that many marriages just don’t make it.

In an ideal world, spouses would realize when the marriage has stopped working and mutually part ways. In some cases, this is exactly what happens. Nonetheless, most divorces are a bit more complex than this. The following factors all have the potential to complicate your divorce.

A family-run business

If you had your own business established before the marriage and your spouse had nothing to do with it, then you may be able to run this as normal post-divorce. However, if your business was family-run or your spouse contributed either in terms of capital or day-to-day management, then the business will likely be subject to the community property division rules of Texas.

If this is the case, then you’re going to have some big decisions to make. Do you want to sell your share of the company, buy your spouse out or is there a way that you can continue running the company together?

If you have children together

The dynamic of divorce becomes much different when children are involved. You and your spouse will not only have to manage your own emotions but think about how the separation is impacting the kids. If you and your spouse get it right, then your children can continue to thrive post-divorce. If you make errors, then these could have lasting impacts on the children.

The two of you are going to have to decide on custody and access, maintenance and much more. Your priority should be the best interests of the children, and if you and your spouse cannot agree on key issues, then this is the basis on which the court will come to their rulings.

Facing divorce on your own can make it seem much more complex. Having legal guidance behind you will help to clarify contested issues and ensure that your rights are protected.

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No, you can’t challenge the arbitration award.

Dream Medical Group v. Old South Trading Co. reminds how hard it is to challenge the merits of an arbitration award.

Dream Medical bought medical face masks from Old South. They had a contract dispute that went to arbitration with the AAA. Dream Medical won and Old South opposed confirmation.

Among other arguments, Old South complained that its fraudulent-inducement claim was mishandled, in that the panel violated a AAA rule by not fully considering Old South’s fraudulent-inducement claim, and thus came within the FAA’s provision about arbitrators who “exceeded their powers.”

The Fifth Circuit rejected that argument as an invitation for us to reasses the merits of the Panel’s decision.” It also noted that “manifest disregard of the law” is not a viable, nonstatutory basis for opposing confirmation under Fifth Circuit precedent. No. 22-20286 (March 6, 2023) (unpublished).

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The Chevron That Wasn’t There

The poem Antigonish begins:

Yesterday, upon the stair,
I met a man who wasn’t there
He wasn’t there again today
I wish, I wish he’d go away.

In that spirit, the majority and concurrence in Mexican Gulf Fishing Co v. U.S. Dep’t of Commerce, No. 22-30105 (Feb. 23, 2023), disagreed about the continuing viability of Chevron.

The case presented a dispute about the authority of the Commerce Department, under a Congressional mandate to conserve the nation’s offshore fisheries, to require charter boats to carry a GPS-location device and submit specified records about fishing  activity.

3-0, the Fifth Circuit concluded that the government had exceeded its boundaries. The majority used a Chevron approach to the relevant statute; a concurrence joined but argued that recent Supreme Court cases have tacitly overruled Chevron, and the third judge joined specific parts of the majority opinion.

Colorfully, the majority and concurrence disputed whether Chevron is fairly called the “Lord Voldemort of administrative law,” due to the Supreme Court’s unwillingness to refer to it recent administrative-law opinions. While that’s witty and good fun, the lack of clear guidance from the Supreme Court about this fundamental doctrine is clearly a problem–as this very opinion shows, since three judges approached the same issue in three different ways under the current state of the law. If the Supreme Court wants to overrule Chevron, it should overrule Chevron. 

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Long-Running Texas Boundary Dispute Continues

Co-author Travis Nadilini

Ellison v. Three Rivers Acquisition LLC et al., on remand from the Texas Supreme Court, is the third round of a boundary dispute between mineral lessees in Irion County.  

For the history of Ms. Ellison’s odyssey from court to court to court, see our 2019 post discussing the first Court of Appeals decision, and our 2021 post discussing the Supreme Court decision. But first,

The players

Ms. Ellison: Lessee of one of the tracts at issue, plaintiff in the trespass to try title action alleging the boundary stipulation was void.

Samson: Lessee of the Suggs lease on the adjoining tract; its landman negotiated the boundary stipulation with her late husband.

Three Rivers: Acquired the Suggs lease and wells from Samson.

Concho: Acquired the Suggs lease and wells from Three Rivers.

The decision

The Supreme Court had held that the boundary stipulation at the heart of this dispute was valid and that the defendants conclusively established their ratification defense, and remanded to the Court of Appeals.  

In addressing Concho’s breach of contract counterclaim, the Court noted the Supreme Court’s holding in favor of Concho that the absence of the contemplated “more formal and recordable document” was not fatal to the ratification defense. The Supreme Court held that “in light of the boundary stipulation and the signed 2008 letter, Ellison as a matter of law ratified the boundary line in the stipulation as the boundary of Ellison’s leasehold.” The Court overruled Ellison’s issue related to the existence of a contract.

Meeting of the minds

Ellison contended that the 2008 letter was unenforceable as a contract because there was no “meeting of the minds” as to all the material terms. Specifically, terms such as consideration, effective date, grantee identification, warranty of title information, specific well location, and the “form of the Second Document were missing” Because Ellison’s denial was not verified, Ellison waived this argument.

Ellison argued that the lack of an effective date meant that the contract was void. However, the material terms of a contract are determined on a case-by-case basis. And Ellison failed to present an argument as to why an effective date would be considered an essential material term.

Ellison provided no support for her contentions that title warranties should be an essential term, and that the well’s location was material to the contract.

Standing

Ellison argued that Concho, as assignee of Samson’s lease, lacked standing to sue for breach of contract because the cause of action was never assigned to Concho.  But because Concho had acquired all of Samson’s assets related to the 2008 letter agreement, it necessarily obtained privity with the contract. As an assignee of Samson’s contract, Concho had standing.

Public Policy

Ellison asserted that the 2008 letter was illegal and thus unenforceable as against public policy, because Concho made misrepresentations in an attempt a “land grab” to “steal” her land and oil. However, “When the illegality does not appear on the face of the contract, it will not be held illegal and thus void unless the facts showing its illegality are before the court.”

The 2008 letter was not facially illegal; it merely set out boundaries and sought acceptance of the boundary line as set forth in the stipulation. Accordingly, Ellison had the burden to plead and prove the illegality, which she did not do. Ellison waived her illegality claim.

Other issues

The Court reversed Concho’s $493K damage and $850K attorney fee award because the Property Owner Rule to establish damages does not apply when specialized knowledge is required.

And there were evidentiary and jury charge issues not relevant to this discussion.

Your musical interlude

 

 

 

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