When Is a Revocable Living Trust the Best Estate Planning Option in Texas

Texas estate planning attorneys often disagree about what is the best option in estate planning. Sometimes it is best to have a will to transfer your assets and pay your debts after death. Sometimes it is best to have an irrevocable trust for numerous reasons. Sometimes Texans do nothing (usually the worst option) leaving it up to state laws regarding payment of debts and transfer of assets. Each factual situation is different, but this article will address who are best candidates for a revocable living trust.

What is a Revocable Living Trust?

Consider a revocable living trust to be an open box which you can control. You get to purchase, sell, use, or give away your assets. You can change the terms or revoke the trust as long as you have mental capacity. You are not only the one who sets up the trust, but generally the one who establishes the trust is also the trustee and beneficiary of the trust. As a result of the retained control, it is generally tax-neutral (however do not transfer your retirement account into the trust during lifetime).

Best Candidates for a Revocable Living Trust:

1. Probate Avoidance (avoid court) –

Some prefer to not have to go through the probate process that is needed if assets are to be transferred according to the will of the decedent. Sometimes it is easy to probate, and sometimes it is not. There are numerous examples when probate becomes more difficult and costly (i.e., the original will cannot be located, a witness fails to sign or a notary fails to properly complete that the testator and witnesses swore that the will was signed in the presence of the testator and witnesses before the notary, capacity of the testator or undue influence over the testator could be asserted, inadequate powers given to the testators, etc.). If one has a living trust that is properly funded, then the requirements of the probate are avoided.

2. Quicker Representative Authority –

If someone wants a representative to be able to act without delay, then a trust is advantageous. If the decedent had a will, then the executor or administrator would only have authority after a court hearing and the order is signed and after letters testamentary or letters of administration are issued – which often takes months. A trust gives the trustee the ability to pay debts or bills quickly, manage assets without delay and often settle the estate quicker.

3. Privacy –

When a will is probated, it is a matter of public record. If an inventory of the assets that pass by the will of the decedent is filed, then it is also a matter of public record. A trust is private. For those who don’t want others to know their beneficiaries or assets of the estate, then a trust is preferable.

4. Real Estate Owned in More Than One State –

If one owns real estate in more than one state, then it is usually best to consider a trust. If one has a will, then it would be probated in Texas and an ancillary probate would be required in the other state where the real estate is located adding to costs (attorney’s fees, court costs, filing fees, etc. in more than one state).

5. Management Continuity at Death or Disability During Life –

A will becomes effective after it is probated. Thus, if one has a will and nothing else (i.e., financial and medical powers of attorney) and that individual becomes disabled, then a court ordered guardianship may be needed. A revocable living trust is effective immediately. So, if the one who establishes a trust becomes disabled, the trust provides what happens if a trustee becomes disabled without a court order. Even if one has a power of attorney (which terminates at death of the principal), sometimes such a document is not recognized by others. Furthermore, if you own real estate, the original of the power of attorney should be recorded in the county where the property is located (otherwise the agent could not sell or mortgage the property). Also guardianship supersedes the power of attorney. If one has a business, management continuity without delay (due to disability or death) is often needed and thus a trust is often a better choice than a will and a power of attorney.

6. Total Costs Savings –

Although a will is less expensive to prepare, when you add the cost of probate to the cost of preparing a will the total cost is generally less than the cost for trust preparation. However, if one has many real estate properties or notes secured by real estate, this would add to the cost of the trust since those assets should be transferred to the trust to avoid probate.

7. Concern Over Will Contest –

Although trusts can be contested, it is generally easier to contest a will due to the probate laws.

Everyone’s situation is different. Sometimes it is best to have a will. Sometimes it is best to have an irrevocable trust. Those concerned with the preceding issues could consider a revocable living trust. However, it is best to discuss with a professional before any decision is made.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.

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DOJ Weighs in on Laufer and says Laufer loses

Before getting started on the blog for the week, I wanted to let everyone know that the ABA Law Practice Today just published my article entitled AI and Persons with Disabilities: the Good and the Bad. It can be found here.

 

Last week, we discussed Acheson Hotels brief in the Laufer case. Also last week, DOJ weighed in with their view. Their Amicus brief, here, supports neither side. However, it does say that Laufer loses, but the more extreme arguments put forward by the hotel should be rejected. As usual, the blog entry divided into categories and they are: Laufer loses on standing grounds; some of the arguments of Acheson Hotels go too far, and thought/takeaways. Of course, the reader is free to read any or all of the categories.

 

I

Laufer Loses on Standing Grounds

 

1. In adopting the ADA, Congress recognized that disability discrimination includes both intentional exclusion and the failure to make modification to existing facilities and practices in order to afford equal access to individuals with disabilities.
2. The Reservation Rule was formulated by DOJ to carry out title III’s provision governing public accommodations.
3. The reason behind the Rule was that individuals with disabilities who have reserved accessible hotel rooms often discovered upon arrival, that the room they reserved was either not available or not accessible (happens quite frequently to me).
4. The Reservation Rule requires a hotel to identify and describe accessible features in the hotels and guest rooms offered through its reservation service in enough detail to reasonably permit individuals with disabilities to assess independently whether a given hotel or guest room meets their accessibility needs.
5. The Supreme Court has long held that an individual suffering in violation of the statutory right to be free from discrimination has standing to sue even if she voluntarily subjects herself to discrimination in order to test the defendant’s compliance with the law.
6. In Havens Realty, the Supreme Court said that testers had standing because the tester suffered an injury in precisely the form the statute was intended to guard against.
7. Courts have applied Havens Realty to hold that testers suffering violations of statutory rights to be free from discrimination have standing to sue under a variety of other laws, including title III of the ADA.
8. Tester suits provide an essential complement to the federal government’s limited enforcement resources-as Congress has specifically recognized by funding private tester enforcement of the Fair Housing Act (FHA).
9. The Reservation Rule unlike the provision in Havens Realty, does not provide a freestanding right to information. Therefore, an individual who merely views a hotel’s online reservation service without intending to use the service to make or consider making a reservation does not have standing because she has not suffered any injury within the meaning of title III and the Reservation Rule.
10. Concrete injuries are not limited to traditional tangible harms such as physical harms and monetary harms. That is, various intangible harms can also be concrete.
11. The Supreme Court has held that Congress can elevate to the status of legally cognizable injury concrete, de facto injuries that were previously inadequate in the law.
12. In TransUnion, the Supreme Court identified discriminatory treatment as the classic example of the harm that Congress can elevate into a cognizable injury, which was the case in Havens Realty.
13. Havens Realty granted standing even where a person subjected themselves to the violation in order to test the defendant’s compliance with the law.
14. A suit based upon the violation of a statutory right to be free from discrimination constitutes one circumstance in which a plaintiff need not alleged any additional harm beyond the one Congress has identified.
15. Since Havens Realty, federal courts have consistently held that testers have article III standing to sue under various provisions of the FHA. Similarly, courts have recognized the approval of tester standing to title II of the ADA and to title III of the ADA.
16. With respect to title III of the ADA, courts have uniformly recognized that a plaintiff encountering an architectural barrier at a place of public accommodation has suffered a concrete injury even if she visited only to test for compliance with title III.
17. The right to be free from discrimination does not depend upon the motive behind a plaintiff’s attempt to enjoy the facilities of a particular place of public accommodation. Therefore, anyone suffering an invasion of the legal interest protected by title III has standing, regardless of his or her motivation in encountering that invasion.
18. In the title III context, a plaintiff’s mere awareness of an ADA violation at a place of public accommodation that she had neither visited nor intend to visit does not suffice for standing. Similarly, a plaintiff does not have standing to seek an injunction merely because he or she previously encountered a barrier to accessibility. Instead, the plaintiff must establish a sufficient likelihood that he or she will be affected by the allegedly unlawful conduct in the future.
19. A plaintiff can establish standing by showing that she is currently deterred from patronizing a place of public accommodation.
20. Private litigation is essential to effective enforcement of the ADA because it would be impossible to secure broad compliance with antidiscrimination laws absent suits by individuals experiencing discrimination. Testers are a key component of vast system of private enforcement.
21. Testers are critical to the effective enforcement of the FHA. Most housing discrimination is covert, and testers play an essential role in uncovering and remedying racial steering and other unlawful practices.
22. Testers are critical for enforcement of title III. The unavailability of damages reduces or removes the incentive for most persons with disabilities injured by inaccessible places of public accommodation to bring suit under the ADA. Therefore, testers play an important role in ensuring that the statute yields its promise of equal access.
23. Title III and the Reservation Rule do not create any freestanding informational right. Instead, they give individuals with disabilities the right of equal access to a hotel’s reservation services. Accordingly, Laufer lacked standing because she has not suffered an injury in the form the statute was intended to guard against.
24. The Reservation Rule’s requirements focus on the reservation process and requires a hotel to hold accessible rooms for individuals with disabilities, to allow those rooms to be reserved in advance, and to ensure that, once reserved, those rooms will actually be available upon check-in.
25. While the Reservation Rule requires a bunch of things, it does not confer an informational right upon every individual with a disability who merely visits the hotel’s website without using or attempting to use the reservation service.
26. The Rule interprets the statutory requirement that public accommodations make reasonable modifications in policies, practices, or procedures, when such modifications are necessary to afford their services to individuals with disabilities. The particular service the Rule addresses is the ability to review and reserve available rooms through websites or other means. A plaintiff with a disability prevented from using that service because of a lack of accessibility information suffers a violation of the right secured by the statute and has standing to sue.
27. Laufer has no genuine plan to make a reservation and also disclaimed any intent to travel to Maine. Further, she has not alleged that she used, attempted to use, or plan to use the hotel’s reservation service. Instead, she only alleged that she viewed the website and the third-party booking sites to discover that they violated the Reservation Rule and felt frustration and humiliation as a result. This sort of allegation is not sufficient to satisfy article III.
28. Laufer was not denied equal access to the service because she was not attempting to use it at all.
29. While two individuals driving by a restaurant and seeing that the wheelchair accessibility is lousy would have the same experience, it is only the individual prevented from visiting the restaurant that would have article III standing to sue because it is only that individual that suffered the denial of rights secured by title III.
30. Laufer lacked standing to assert any injury to the rights created by title III and the Reservation rule because none of the rights identified in her suit actually belong to her.

 

II

Some of the Arguments by Acheson Hotels Go too Far

 

1. The argument that a regulation is involved rather than a statute goes too far because the Rule is an interpretation of title III’s requirement that hotels make reasonable modifications to afford individuals with disabilities equal access to their services. So, the Reservation Rule does not go beyond what title III authorizes.
2. Title III of the ADA applies to services, including those offered on the web.
3. The Reservation Rule ensures that a hotel’s reservation services comply with the requirements of title III.
4. Title III of the ADA provides that failure to make reasonable modifications in order to afford equal access to individuals with disabilities is discrimination. 42 U.S.C. §12182(b)(2)(A)(ii).
5. For an injury to be particularized, it must affect the plaintiff in a personal and individual way even if the person experiences that violation over the Internet.
6. TransUnion did not overrule Havens Realty or any other precedent and it did not address tester standing at all.
7. In TransUnion, the Supreme Court observed that Congress may validly recognize otherwise insufficient harms as being sufficient for standing and it particularly referred to the example of discriminatory treatment. Therefore, no further showing is required to establish standing.
8. The harms accompanying discrimination in public accommodations are sufficiently analogous to injury traditionally forming the basis for such suits and American courts.
9. Title III of the ADA provides a cause of action only to individuals subject to real-world harm of discrimination and not to the public in general.
10. TransUnion did not overrule the Sunshine law cases.
11. Discriminatory action results in downstream consequences long recognized by Congress and the courts.
12. That the injury is self-inflicted does not defeat article III standing. Havens Realty held as much.
13. The case is now moot because the hotel’s website has been updated to supply the information Laufer alleges the Reservation Rule requires. That is, the website has been updated to explain that the hotel was not equipped at this time to provide ADA compliant lodging. Laufer has not disputed that this information is sufficient to allow her to assess independently whether the hotel meets or accessibility needs. Therefore, her claim is moot.
14. While the mootness question is more difficult with respect to third-party services that have not been similarly updated, the Supreme Court could very well conclude that any remaining controversy is simply too insignificant to justify resolving the standing question on which it granted certiorari.
15. The hotel website has been updated by new owners who state they are taking ADA compliance seriously and the website contains no indication that accessibility information will be removed in the future. Courts have held that a defendant’s changes to its website may moot a Reservation Rule claim in analogous circumstances.
16. The Reservation Rule is such that it is very unclear whether the hotel providing accessibility information to third-party services was likely to address any future injury.
17. Regardless of mootness, circumstances have changed so as to greatly diminish the practical significance of the dispute between the parties. So, the Supreme Court could simply say that events have so overtaken things that the anticipated benefits of a remedial decree no longer justifies the trouble of deciding the case on the merits.

 

III

Thoughts/Takeaways

 

1. As mentioned last week, there are important distinctions between the FHA and the ADA in terms of the injuries the statute specifically refers to. In the FHA, emotional injuries are clearly implied in the statute. However, with title III of the ADA that is simply not the case with respect to the remedies as only injunctive relief and attorney fees are available to private litigants.
2. If a statute does not encompass anything for emotional injuries, how is suffering frustration and humiliation something that gives a person standing?
3. Saying that disability discrimination includes both intentional exclusion and the failure to make modifications is a huge indicator that DOJ may argue in the future that failure to accommodate (if it is prosecuting a title I claim against a nonfederal governmental entity), or the failure to reasonably modify a nonfederal governmental entity’s programs, benefits, activities, and services (title II), do not require an adverse action beyond the failure to accommodate/modify.
4. To my mind, a real argument exists whether Laufer has subjected herself to an injury in precisely the form the statute was intended to guard against.
5. Open question to my mind as to whether the Reservation Rule is one of those regulations where a court would decide a cause of action exists for violating that rule.
6. It is really hard to believe that Laufer is going to prevail, especially now with DOJ weighing in against her.
7. The DOJ says that self-harm doesn’t matter with respect to standing in a case like this. The hotel says otherwise. The FHA and the ADA are different enough statutorily that it will be interesting to follow where the Supreme Court goes with this argument.
8. The architectural barrier cases are a completely different kettle of fish than Laufer’s. In the architectural barrier cases, a person is actually showing up to the particular physical site in most cases.
9. The DOJ brief talks about how most housing discrimination is covert. My question is whether most disability discrimination is covert. I am not entirely sure about the answer to that question if my own experience is any indication. That distinction might matter.
10. The economics of practicing law are such that it simply may not be financially doable to prosecute cases if a tester is not involved.
11. With respect to my experience as a deaf (small d intentional), person, I don’t think the Reservation Rule necessarily works very well. I personally have gone on to websites that have said they have rooms that are accessible to the Deaf, deaf, and hard of hearing only to find out that is not the case when I call and get the details of what that means. It also happens all the time with respect to calling the hotel to make the reservation. I can tell you that if a hotel says on their Internet site that they are accessible to the hearing loss community, I don’t believe it. Part of the problem is that the hotels are very focused on structural concerns and much of what a person in the hearing loss community needs doesn’t have much to do with the built-in environment necessarily. The architectural guidelines are also very mobility centric and blind/visually impaired centric with the hearing loss community getting lost in the shuffle. Finally, I am often surprised how often hearing accessible rooms are not available for purchase considering the Reservation Rule’s mandate to ensure availability. It is hard for me to believe that the demand for such rooms is that high at the hotels I frequent.
12. The DOJ in their brief flat out says that title III of the ADA applies services offered on the web and that a person could have standing if only a website is involved.
13. With respect to the DOJ statement, that discrimination has been elevated to be analogous to injury that have traditionally formed the basis for suits and American courts, Cummings, which we discussed here, very much says otherwise.
14. As noted last week, makes sense that the website would be updated to say essentially persons with disabilities need not come because the facility is not accessible. However, there are two problems with that. First, why couldn’t the facility be made accessible to a person in the hearing loss community? Such an individual could have an accessible room without any structural modifications at all if a kit was provided. Second, the statement on the website would be enough to deter an individual from actually visiting the hotel and therefore would give that individual standing providing that individual could show that they had an intent to return to that hotel should it become accessible. So, the website helps them win this particular case and goes a long way to having them lose a case involving a person with a disability that would actually be interested in staying at the hotel.

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Texas Data Privacy and Security Act

Privacy Plus+

Privacy, Technology and Perspective

Texas Data Privacy and Security Act.  Let’s consider the Texas Data Privacy and Security Act (“TDPSA”), which has just been signed into law.  A link to the text of the TDPSA follows:

https://capitol.texas.gov/tlodocs/88R/billtext/pdf/HB00004F.pdf#navpanes=0

We’ll offer this summary:

Who is required to comply?

Section 541.002 of the TDPSA provides that the law will apply to any person (inside or outside of Texas) that:

• –      conducts business in Texas or produces a product or service consumed by Texas residents;

• –       processes or engages in the sale of personal data; and

• –       is not a small business defined by the U.S. Small Business Administration (SBA) (though Section 541.107 does require small businesses to receive consent from consumers before selling consumers’ sensitive data). The SBA’s Office of Advocacy generally defines a small business as “an independent business having fewer than 500 employees,” and the SBA also has industry-level small business size standards used in government programs and contracting. A link to the current SBA’s Office of Advocacy guidance follows:

• https://advocacy.sba.gov/wp-content/uploads/2023/03/Frequently-Asked-Questions-About-Small-Business-March-2023-508c.pdf

Relevant definitions: Section 541.001 of the TDPSA contains the definitions.  Under subsection (19), “personal data” is “any information, including sensitive data, that is linked or reasonably linkable to an identified or identifiable individual.  The term includes pseudonymous data when the data is used by a controller or processor in conjunction with additional information that reasonably links the data to an identified or identifiable individual.  The term does not include deidentified data or publicly available information.” Under subsection (8), “controllers” are individuals or other persons that, alone or jointly with others, determine the purpose and means of processing personal data.  Under subsection (22), an organization “processes” (or is a processor of) personal data if it collects, uses, stores, discloses, analyzes, deletes, or modifies such data.  With several exceptions, under subsection (28), an organization engages in the “sale of personal data” if it shares, discloses, or transfers such data for monetary or other valuable consideration to a third party.

Who is exempted?

The TDPSA exempts certain organizations. Exempted entities, which don’t have to comply, include:

• –       nonprofit organizations,

• –       state agencies,

• –       political subdivisions,

• –       financial institutions subject to the Gramm-Leach-Bliley Act (“GLBA”),

• –       covered entities or business associates governed by the Health Insurance Portability and Accountability Act (“HIPAA”),

• –       institutions of higher education, and

• –       electric utilities.

What information is exempted?:

The TDPSA, which generally covers “personal data,” exempts certain information from its scope.  Exempted information includes:

• –       employee/applicant personal data to the extent the data is collected within the context of employment or recruitment and several other related types of data,

• –       Protected Health Information under HIPAA, health records, patient identifying information, and

• –       personal data regulated by other federal laws, including the Fair Credit Reporting Act (“FCRA”), the Driver’s Privacy Protection Act (DPPA), the Family Educational Rights and Privacy Act (“FERPA”), and the Farm Credit Act.

New Consumer Rights for Texas Residents:

Section 541.051 of the TDPSA gives consumers the following personal data rights concerning their personal data:

• –       Right to have a controller confirm whether it is processing a consumer’s personal data;

• –       Right to correct inaccuracies in the personal data;

• –       Right to delete personal data;

• –       Right to access,

• –       Right to portability, and

• –       Right to opt out of sales, targeted advertising, and certain profiling activities.

What Obligations Do Controllers Have?:

Under TDPSA, controllers have certain obligations related to their collection and processing of “personal data.” These obligations include:

• –       Data minimization – Section 541.101(a)(1) – Limiting the collection of personal data to what is adequate, relevant and reasonably necessary for the purpose they’ve disclosed to consumers in their privacy notices.

• –      Data Security – Section 541.101(a)(2) – Establishing, implementing, and maintaining reasonable administrative, technical, and physical data security practices, which should be appropriate for the amount and native of the data they have.

• –       Purpose limitation – Section 541.101(b)(1) – Not processing personal data for purposes they’ve disclosed to consumers in their privacy notices, absent consent;

• –       Non-discrimination – Section 541.101(b)(2)-(3) – Not processing personal data in violation of state and federal laws that prohibit unlawful discrimination against consumers and may not discriminate against consumers for exercising any of their rights under the TDPSA.

• –      Consent to process sensitive data – Section 541.101(b)(4) – Obtaining consent from consumers to process sensitive data and children’s data, if not processed in accordance with the Children’s Online Privacy Protection Act (“COPPA”). “Sensitive data” includes:

  • + personal data revealing racial or ethnic origin, religious beliefs, mental or physical health diagnosis, or citizenship or immigration status;

  • + genetic or biometric data that is processed for the purpose of uniquely identifying an individual (the term, “biometric data” includes a fingerprint, voiceprint, eye retina or iris, or other unique biological pattern or characteristic that is used to identify a specific individual. The term does not include a physical or digital photograph or data generated from a physical or digital photograph, a video or audio recording or data generated from a video or audio recording, or information collected, used, or stored for health care treatment, payment, or operations under HIPAA).

  • + personal data collected from a known child (younger than 13 years of age); or

  • + precise geolocation data (within a radius of 1,750 feet and not connected to a utility).

• –       Privacy Notice – Section 541.101(a) – Providing consumers with a reasonably accessible and clear privacy notice that includes: (1) the categories of personal data and sensitive data processed by the controller, (2) the purposes for processing personal data, (3) how consumers may exercise their rights, (4) the categories of personal data shared with third parties, (5) the categories of third parties with whom the controller shares personal data, and (6) a description of the methods for submitting requests to exercise consumer rights under the TDPSA.

• –      Posting a Notice Alerting of the Sale of Sensitive Data – Sections 541.101(b) and (c) – Posting a particular notice if the controller engages in the sale of sensitive data or the sale of biometric personal data.

• –       Disclosing the Sale of Personal Data / Processing for Targeted Advertising – Section 541.103 – Clearly and conspicuously disclosing such sale and the method by which a consumer may exercise the right to opt out.

• –       Data Protection Assessments – Section 541.105 – Conducting and documenting a data protection assessment concerning the following types of processing activities: (1) targeted advertising; (2) sale of personal data; (3) profiling that presents a reasonably foreseeable risk of unfair or deceptive treatment or unlawful disparate impact, financial, physical or reputational injury, intrusion upon seclusion or private affairs and concern, or other substantial injury; (4) processing of sensitive data and (5) any processing activities involving personal data that present a heightened risk of
  harm to consumers.

• –       Responding to consumer requests – Under Section 541.052(b), controllers must respond within 45 days of receipt of a consumer request, which may be extended for an additional 45 days when “reasonably necessary,” so long as the controller notifies the consumer of the extension within the initial 45-day period.

• –      Consumer right to appeal – Under Section 541.053, controllers must establish a process for consumers to appeal the refusal to take action on a request, make that appeals process “conspicuously available,” and respond within 60 days of receipt of an appeal.

• See also Contracting Requirements, below.

What Obligations Do Processors Have?:

A “Processor” is a person that processes personal data on behalf of a controller. Under TDPSA, processors have this obligation:

• –     Instructions and Assistance – Section 541.104(a) – Adhering to the controller’s instructions for processing personal data and assisting the controller in meeting its obligations, including responding to consumer requests, securing personal data, and providing necessary information for data protection assessments.

Contracting Requirements:

 Like many other privacy laws, Section 541.104(b) of the TDPSA requires a contract between a controller and a processor governing the processor’s data processing procedures.  The contract must include the following: (1) clear instructions for processing data; (2) the nature and purpose of processing; (3) the type of data subject to processing; (4) the duration of the processing; (5) the rights and obligations of both parties; and (6) obligations on the processor to:

• –       Ensure that each person processing personal data is subject to a duty of confidentiality;

• –       Delete or return all personal data to the controller, at the controller’s discretion, at the end of the provision of services, unless retention is required by law;

• –       Make available to the controller upon request all information in the processor’s possession necessary to demonstrate the processor’s TDPSA compliance;

• –       Cooperate with reasonable assessments by the controller or the controller’s designated assessor; and

• –       Enter into a written contract with any subcontractor to meet the requirements of the processor with respect to personal data.

Enforcement
Unlike under the CCPA, as amended by CPRA, which contains a limited private right of action for data breaches, there is no private right of action under the TDPRA. The Texas Attorney General will have exclusive authority to enforce the TDPSA, subject to
its 30-day cure period (Section 541.154). If the controller or processor fails to cure violations of the statute, the Texas Attorney General may bring an action and seek an injunction to restrain any violations, with civil penalties of up to $7,500 for each violation.

Effective Date:

Most of the TDPSA will take effect on July 1, 2024, though its provision under subsection 541.055(e) related to opt-out mechanisms on websites won’t take effect until January 1, 2025.

—

Hosch & Morris, PLLC is a boutique law firm dedicated to data privacy and protection, cybersecurity, the Internet and technology. Open the Future℠.

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Awkward Sanctionable

TicketNetwork, an online ticket marketplace, sued CEATS, a non-practicing IP company, for declarations that Ticket’s business did not violate CEATS’s patents or a related license agreement.

CEATS won at trial, and while its claim for attorneys fees was pending, obtained an order allowing it to see a list of Ticket’s website affiliates. That order restricted access to certain designated in-house representatives.

CEATS’s CEO, who was not supposed to see the list, then sent Ticket’s CEO a settlement demand–attaching the list. After significant proceedings, the district court awarded (1) a 30-month injunction against any dealings with the companies on the list and (2) $500,000 against CEATS, its CEO, and two litigation consultants.

The Fifth Circuit, inter alia:

• Vacated the award against the individuals: “The Individuals did not receive notice that monetary sanctions were pending against them, and they did not receive a pre-deprivation opportunity to defend themselves at a hearing. By the time the district court heard their response, it had already decided against them. That was an abuse of discretion.”
• Vacated the injunction: “We also agree with CEATS that the district court did not make the bad-faith finding that is a prerequisite to litigation-ending sanctions under [Fed. R. Civ. P.] 37(b). Instead, the district court found that CEATS acted recklessly, and then it equated recklessness with bad faith. We have rejected that equivalence.”
• Vacated the fee award: “[T]here was a significant disparity between the rates that the first court approved when it awarded attorney fees to CEATS (at an earlier stage of litigation) versus the rates that it approved when it awarded attorney fees to Ticket (as part of the sanction against CEATS).”

CEATS, Inc. v. TicketNetwork, Inc., No. 21-40705 (June 19, 2023). The Court aptly summarized: “We AFFIRM in (small) part, VACATE in (large) part, and REMAND for further proceedings.”

The post Awkward ≠ Sanctionable appeared first on 600 Camp.

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Potential Consequences of Unlawful DTC Shipments to Texas Residents

The following discussion only concerns alcoholic beverage sales consummated over the internet, which are shipped Direct to Consumer (“DTC”) through a common carrier (such as UPS and FedEX). Local delivery of alcohol from a retailer is a separate and distinct concept with a different set of regulations, and outside the scope of the discussion.

DTC shipping of alcoholic beverage products to Texas residents is prohibited except for wine sold by in-state and out-of-state wineries holding proper permits with the Texas Alcoholic Beverage Commission (“TABC”). DTC shipment of spirits, malt beverage and beer products to Texas residents is illegal. See, Tex. Alco. Bev. Code § 11.01(c). This is because any activity not expressly authorized under the Code is prohibited. Any seller who ships spirits, malt beverage and beer products through a common carrier could be subject to civil and criminal action.

Wine manufacturers holding a Winery (G) permit or Out of State Winery Direct Shipper’s (DS) permit may ship wine to a Texas consumer through a common carrier. Any seller shipping wine without a TABC permit could be subject to civil and criminal action.

Potential consequences include seizure of illicit beverages, see Tex. Alco. Bev. Code § 103 et seq, injunctive actions in State and Federal Court under the Texas Alcoholic Beverage Code, see Tex. Alco. Bev. Code § 101.01, Texas Deceptive Trade Practices Act (“DTPA”), see Tex. Bus. Comm. Code §§ 17.46(b)(2) and (b)(5) and 17.47, 21st Amendment Enforcement Act, see 27 USC § 122a, substantial civil penalties under the DTPA, see Tex. Bus. Comm. Code § 17.46(c), as well as criminal prosecution for a litany offenses, such as unlawful shipment of alcohol, see Tex. Alco. Bev. Code § 11.01(c), deceptive business practices, see Tex. Penal Code § 32.42(b)(12), money laundering, see Tex. Penal Code § 34.02, and organized criminal activity, see Tex. Penal Code § 71.02(10).

The seriousness of potential remedies cannot be overstated. Each unlawful shipment of alcohol is a potential violation of the DTPA, which carries a maximum penalty of $10,000. Tex. Bus. Comm. Code § 17.46(c). Furthermore, money laundering and organized criminal activity, which go hand in hand with illegal shipping operation are also felonies. Felony criminal offenses can carry maximum penalties of 5 years to 99 years in prison and $10,000 fine, depending on the dollar amount of proceeds derived from the illegal scheme. See, Tex. Penal Code §§ 12 et seq, 34.02(e), and 71.02(b).

Unlawful shipment of alcohol is an area of concern for TABC, according to June 12, 2023 National Conference of State Liquor Administrators (“NCSLA”) presentation by TABC Executive Director Thomas Graham. The Commission estimated that 57% of wine was shipped illegally to the State last year alone. To automate detection and identification of bad actors, the Commission has implemented recent technological measures.

Consultation with a licensed Texas attorney experience in liquor law is strongly recommend before shipping any alcoholic beverage product to a Texas resident, regardless of where a participant is involved in the transaction, e.g. third party e-commerce site, industry member, or common carrier. Additionally, a Texas liquor law attorney may be able to help identify other permit designations, which would allow for local delivery of wine, spirits and beer to Texas residents located in areas that are wet for those categories of beverages.

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Beyond Bankruptcy Jurisdiction

The Fifth Circuit was unwilling to extend a bankruptcy court’s “core” or “related-to” jurisdiction to reach a settlement agreement when:

“[T]he settlements contradict the plan. Whereas the plan discharged debts unless a timely proof of claim was filed, the settlements require Chesapeake to pay the non-filing lessors a portion of their royalty claims far higher than other creditors’ timely filed general unsecured claims. Whereas the plan assumed that Chesapeake’s leases would ride through bankruptcy unaffected, the settlement requires a mandatory alteration in the terms of thousands of Pennsylvania leases. Far from merely enforcing the plan, the settlement accomplished a self-described ‘fundamental reset of Chesapeake’s relationship with its Pennsylvania lessors.’”

No. 21-20232 (June 8, 2023).

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JOA Cross-Netting Question Almost Answered

Co-author Emily Morris *

One of the questions raised in 1776 Energy Partners, LLC v. Marathon Oil EF, LLC was whether Marathon as operator could apply revenues owed to non-operator 1776 under one joint operating agreement to satisfy unpaid debts owed on another. Unfortunately, we don’t have an answer. (FWIW, this is the same “1776” from a recent post, whiffing at the plate again with runners in scoring position.)

The litigants were parties to the Culberson, Longhorn and Bordovsky JOAs. 1776 stopped paying its share of expenses under the Culberson and Longhorn JOAs and advised it was going to drill a well on Bordovsky, in which it was the operator. Marathon questioned how 1776 could fund a new well when it owed millions on other wells. 1776 responded that the new well would be funded by outside investors.

Marathon began cross-netting revenues against expenses and sent an AFE proposing three wells under the Culberson JOA along with a $9.4 million cash call. 1776 had 30 days to elect whether to participate and if it elected to participate, 15 days to pay the cash call or it would be deemed non-consent.

1776 elected to participate in the new wells but would not pay the cash call. The parties engaged in a series of complicated negotiations over two years in an attempt to resolve the situation. The negotiations failed.

Practice tip

One tactic that probably should have been avoided was an employee of 1776 responding to Marathon’s notice of default by emailing a picture of a man pulling out empty pants pockets.

Litigation ensued. Witnesses at trial disagreed on pretty much everything, including, for example, whether a certain phone call ever even happened.

The court entered a final judgment for Marathon based on the summary judgment order and evidence presented at trial showing principal and interest owed under the Bordovsky JOA and credits owed on the Culberson and Longhorn JOAs.

What about cross-netting?

The trial court declared that the Culberson JOA did not require 1776 to pay debts under other JOA’s in order to participate in the drilling of the three proposed wells under that JOA. This was based on Marathon’s refusal to assure 1776 and its outside funders that it would not cross-net the new wells’ cash call under one JOA against debts on the others.  The court of appeals agreed with Marathon that the ruling resolved a hypothetical question rather than a live controversy. It was an advisory opinion because 1776 never paid the Culberson cash call.

1776 had one last bottom-of-the-ninth opportunity on cross-netting. After partial summary judgment in favor of Marathon for $1.9 million plus interest for breach of the Culberson and Longhorn JOAs, 1776 moved to amend its counterclaim to assert that Marathon’s cross-netting was a repudiation and anticipatory breach of the Culberson JOA and to seek a declaration that cross-netting was not allowed. The trial court denied the amendment on the basis that it was not timely filed. That ruling was upheld on appeal.  Result: No answer to the cross-netting question.  

Procedural issues

In addition to reversing 1776’s declaratory judgment, the court of appeals overruled challenges by 1776 to the final judgment on issues including admissiblity of expert testimony, the jury charge, fraud by nondisclosure, calculation of damages, the effect of an “alternative judgment”, and segregation of attorneys’ fees.

Your musical interlude. Our regretfully tardy remembrance of D-Day!

*Emily is a rising 3L at University of Texas Law School and a Gray Reed summer associate.

 

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