The Most Common Types of Business Disputes

Regardless of the type of business you run or the size of your business, it is likely that, at one point or another, a dispute will arise. Business disputes, while common, can still be overwhelming. This is not to mention that they can take up a lot of valuable time and resources as you work to remedy the dispute. You may not be able to prevent any disputes from arising, but there are certainly actions you can take to minimize the chance of disputes and to streamline your processes so that, should a dispute arise, it can be swiftly and effectively addressed. To help you with this, we are going to walk through some of the most common types of business disputes.

The Most Common Types of Business Disputes

Employment claims are extremely common among businesses across different industries. In particular, employment disputes relating to hiring and firing practices often arise. The laws pertaining to the treatment of employees rise to the federal level and require that employees take active steps to prevent discrimination and harassment in the workplace, which begins even before hiring a prospect candidate and running all the way through termination of employment.

When it comes to preventing employment disputes, understanding your obligations as an employer are key. Additionally, developing and maintaining streamline policies and processes for things like hiring and firing. These are things that you can be proactive about in preventing things such as discrimination claims.

Businesses enter into a number of contracts. These contracts will arise from a business working with everyone suppliers to purchasers to contractors and clients. As such, it may be no surprise that contract disagreements are another very common type of business dispute that business owners will likely have to deal with at one time or another. One party may feel that the other side did not completely uphold their end of the deal. Another party may feel it was underpaid for services rendered. Disputes about the terms of the contract and performance of said terms can quickly develop and cause big headaches.

Creating standardized contracts that detail the key terms necessary for both parties to know what is expected of them as far as contract performance is of the utmost importance. Business dealings are not times to trust a handshake promise. Put everything in writing. Set clear expectations for all involved and detail how disputes will be handled should the need arise.

Other disputes can be prevented by putting employment policies in place and other documents governing the day to day running of a business. The key is putting things clearly in writing. Writing solid, comprehensive contracts and policies in place manage expectations as well as detailing everyone’s responsibilities. This can be critical in preventing a variety of business disputes from arising.

Business Law Attorney

At Kumar Law Firm, we are here to help you set your business up for success and continuous growth. That involves putting strong contracts and business agreements in place. We can help you with this. Contact us today.

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Should I Add a No-Contest Clause to My Will?

One section of the estate planning questionnaire I send my clients asks them to rate their level of concern about various issues. One issue about which most indicate a high concern is that someone will contest their Will.

What is a Will Contest?

A Will contest is just what it sounds like — a lawsuit that challenges the validity of a Will.

Who Can Contest a Will?

Generally, only those who have a personal financial interest that will be affected by the probate or defeat of the Will can contest.

On what Grounds Can Someone Successfully Contest a Will?

Wills can’t be set aside just because the challenger doesn’t like what it says. Rather, the person contesting the Will has the burden of proving that the Will is invalid. The following are common grounds on which a Will can be contested:

• Improper Execution: the person making the Will (the testator) did not sign the Will in accordance with state laws.
• Lack of testamentary capacity: the testator was not of sound mind when he or she signed the Will.
• Undue influence: Someone was improperly influencing the testator.
• Fraud: Someone tricked the testator into signing the Will or forged the testator’s signature.

When are Will Contests Likely?

Will contests are most likely when someone who would inherit under the intestacy statutes ends up getting disinherited or receiving a substantially smaller share than they would have received if there were no Will. Intestacy statutes are state laws that control who will inherit your property if you die without a Will.

For example, suppose you are a single person with three children. Intestacy statutes provide that when a single person dies without a Will, his property passes to his or her children equally.

The incentive for a Will contest would not exist if your Will passed the property to all three children equally. That’s because the beneficiaries would receive the same share under the intestacy statutes as they would have under your Will.

However, if you create a Will that disinherits one child from whom you’re estranged, he would have an incentive to challenge your Will. Why? Because a successful Will contest would mean he would get one-third of your estate under the intestacy statutes.

What is a No-Contest Clause?

A no-contest clause is a provision in a Will that disinherits a beneficiary who contests the Will.

Taking the example above, suppose rather than disinheriting his estranged child, he instead decided to give him 10 percent of the estate, and each of his other children 45 percent of the estate.

A no-contest clause would provide that if the estranged child challenged the Will, he would risk losing the 10 percent of the estate allocated to him. A no-contest clause would not have any power if the challenger has nothing to lose by challenging a Will.

Are No-Contest Clauses Enforceable?

No-contest clauses are enforceable in most states. However, many states construe them narrowly and do not enforce them if there is probable or just cause for challenging the Will, and the challenger brings the action in good faith.

Taking the same example above, suppose the estranged child challenges the Will because he has evidence that his estrangement was caused by lies his siblings told their father so they could receive a larger share of the estate. In such a situation, the Court may find that the no-contest clause is not enforceable against the estranged child.

Additionally, courts have found that certain lawsuits do not trigger a no-contest clause. For example, filing an action to compel executors to perform their duty or provide an accounting will likely not trigger a no-contest clause because such actions do not seek to override the testator’s dispositive provisions in the Will.

How to Minimize the Risk Your Will Someone Will Successfully Contest Your Will?

There is little risk anyone will contest your Will if you intend to distribute your property to your beneficiaries in a matter that tracks the intestacy statutes.

If, however, you intend to make an unequal distribution or disinherit someone who would inherit under the intestacy statutes, take the following steps to minimize the risk:

• Engage a lawyer to prepare your Will. A lawyer will be able to evaluate your situation and advise on steps you can take to avoid hurt feelings that can result in litigation after your death.
• Make sure to properly sign your Will in compliance with your state’s laws. This includes not only following the requisite formalities but also going through the process of establishing testamentary capacity and intent.
• Share the reasons you are making an unequal distribution so that no one is surprised after your death. Your beneficiaries are more likely to be dissatisfied if you keep the details of your plan secret.

You can’t control whether someone will challenge your Will, but taking these steps will increase the likelihood a challenge will not be successful.

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Tax Court in Brief | Gonzalez v. Commissioner | Proving Up Business Expenses

The Tax Court in Brief – July 18th – July 22nd, 2022

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

Tax Litigation:  The Week of July 18th, 2022, through July 22nd, 2022

• Pettennude v. Comm’r, T.C. Memo. 2022-79 | July 18, 2022 | Buch, J. | Dkt. No. 636-21L
• Soler v. Comm’r, T.C. Memo. 2022-78 | July 18, 2022 | Marvel, J. | Dkt. No. 18639-19

Gonzalez v. Comm’r, T.C. Summary Opinion 2022-13 | July 18, 2022 | Panuthos, J. | Dkt. No. 1548-19S

Opinion

Short Summary:  In 2015, Petitioner lived in Palo Alto, working full time for an employer in that city.  She also worked with a patternmaker in Los Angeles to make patterns and samples, having become interested the previous year in starting a business there as a wholesaler designing children’s clothing. Every other weekend Petitioner would drive from Palo Alto to a workshop in southern California, a trip of around 400 miles one way. There, she would review the workshop’s progress, provide supplies, and give further direction to the patternmakers.

Petitioner reported wages from her employer on her Form 1040, U.S. Individual Income Tax Return for 2015. On her Schedule C (Form 1040), Profit or Loss from Business, Petitioner deducted advertising expenses, other business property expenses, utilities expenses, car and truck expenses, travel expenses, and other business expenses.

The Internal Revenue Service (“IRS”) allowed Petitioner’s Schedule C deductions for “Rent or Lease—Other Business Property”, advertising, and utilities. Nevertheless, the IRS issued a notice of deficiency disallowing her deductions for car and truck expenses, travel expenses, and other business expenses.

To substantiate her travel expenses, Petitioner submitted logs estimating the miles she traveled and other expenses. She also had receipts for two vehicle services in 2015 and 2016.  To substantiate her other business expenses, Petitioner submitted an invoice from her patternmaker stating that payments were made by cashier check for 25 patterns to a workshop in Los Angeles.

Key Issues

• Was Petitioner entitled to deduct the car and truck expenses, travel expenses, and other business expenses that she claimed on her 2015 return?

Primary Holdings

• The Tax Court found that Petitioner was entitled to deduct the car and truck expenses and travel expenses that she claimed on her 2015 return. However, Petitioner was not entitled to deduct the other business expenses that she had claimed.
  • The Tax Court determined that Petitioner’s tax home was in Palo Alto and that she was engaged in a trade or business in Los Angeles relating to the production of children’s clothing. As such, and after taking into account Petitioner’s testimony and the IRS’s determination that Petitioner could deduct certain other expenses in connection with this business, the Tax Court found that her traveling expenses were ordinary and necessary for her business in wholesale clothing design.
  • Furthermore, the Tax Court found that Petitioner had properly substantiated her car and truck expenses and therefore was entitled to deduct such expenses. Petitioner had submitted a mileage log detailing the dates traveled, distances traveled, and the purpose of each trip and had testified credibly about the business nature of her trips. Petitioner’s vehicle service receipts also corroborated the miles driven.
  • The Tax Court likewise determined that Petitioner had properly substantiated here travel expenses and therefore was entitled to deduct such expenses. Petitioner had submitted a log estimating her claimed meals and incidental expenses using the standard per diem rate for Los Angeles and had established the time, place, and business purpose of her travel.
  • However, the Tax Court found that Petitioner was not entitled to deduct other business expenses that she claimed for the year. Based on the invoice that Petitioner had submitted, the Tax Court was unable to determine when the payments at issue were made or for what purpose.

Key Points of Law

• The Commissioner’s determinations in a notice of deficiency generally are presumed correct, and the taxpayer bears the burden of proving that the determinations are in error. Welch v. Helvering, 290 U.S. 111, 115 (1933).
• Deductions are a matter of legislative grace, and the taxpayer bears the burden of proving that she is entitled to any deduction claimed. See Tax Court Rule 142(a); Deputy v. du Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
• If a taxpayer can show that she paid or incurred a deductible expense but is unable to substantiate the precise amount, the Tax Court generally may estimate the deductible amount, but only if the taxpayer presents sufficient evidence to establish a rational basis for making the estimate. See Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930).
• Section 162 generally allows a deduction for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” Boyd v. Commissioner, 122 T.C. 305, 313 (2004).
• The taxpayer bears the burden of proving that expenses were of a business nature rather than personal and that they were ordinary and necessary. Rule 142(a); Welch v. Helvering, 290 U.S. at 115.
• Section 162(a)(2) allows taxpayers to deduct traveling expenses if they are: (1) ordinary and necessary, (2) incurred while away from home, and (3) incurred in the pursuit of a trade or business. See Commissioner v. Flowers, 326 U.S. 465, 470–72 (1946).
• A taxpayer’s “home” is generally considered to be his or her regular or principal place of business. Mitchell v. Commissioner, 74 T.C. 578, 581 (1980).
• When a taxpayer engages in business at multiple posts, his tax home is where he spends most of his time, engages in most of his business activity, and derives the greater proportion of his income. See Folkman v. United States, 615 F.2d 493, 496 (9th Cir. 1980) (citing Markey v. Commissioner, 490 F.2d 1249, 1255 (6th Cir. 1974), rev’gC. Memo. 1972-154).
• Certain expenses, including vehicle and travel expenses, require strict substantiation, through adequate records or by sufficient evidence corroborating the taxpayer’s own statement, of the amount, time, place, and business purpose of these expenditures. R.C. § 274(d).
• Substantiation by adequate records requires the taxpayer to maintain an account book, a diary, a log, a statement of expense, trip sheets, or a similar record prepared contemporaneously with the expenditure and documentary evidence (e.g., receipts or bills) of certain expenditures. Reg. § 1.274-5(c)(2)(iii); Temp. Treas. Reg. § 1.274-5T(c)(2).
• Substantiation by other sufficient evidence requires the production of corroborative evidence in support of the taxpayer’s statement specifically detailing the required element. Temp. Treas. Reg. § 1.274-5T(c)(3).
• A self-employed individual can deduct meal and incidental expenses computed at the federal standard per diem rate for the locality of travel for each calendar day of travel away from home. See Proc. 2011-47, § 1, 2011-42 I.R.B. at 520.
• An amount is deemed substantiated for purposes of section 274(d) if the taxpayer can substantiate the time, place, and business purpose of travel. See Treas. Reg. § 1.274-5T(b)(2), (c); Rev. Proc. 2011-47, § 4, 2011-42 I.R.B. at 522–23.

Insights: This case demonstrates the importance of keeping sufficient records to substantiate business expenses.  It may be tedious at the time, but it can really pay off in the long run.

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Applying Texas Sales and Use Tax to New Construction and Real Property Repair and Remodeling Services

One of the more complicated areas involving Texas sales and use tax is the taxation of various new construction and real property repair and remodeling services.[1] Determining what’s taxed and what’s not requires delving through myriad definitions scattered across the Texas Tax Code and Comptroller’s rules. It can get confusing fast. Here’s a quick breakdown.

What’s a “Contractor”?

Let’s get this out of the way up front. When the Comptroller says “contractor,” it may not mean what you think it means. The term “contractor” as used for purposes of the Texas sales and use tax is a term of art.  The term is defined as:

Any person who builds new improvements to residential or nonresidential real property, completes any part of an uncompleted new structure that is an improvement to residential or nonresidential real property, makes improvements to real property as part of periodic and scheduled maintenance of nonresidential real property, or repairs, restores, maintains, or remodels residential real property, and who, in making the improvement, incorporates tangible personal property into the real property that is improved.[2]

Notice what the term doesn’t cover: nonresidential repair and remodeling. That’s because while new construction and residential repair or remodeling aren’t taxable services, nonresidential repair and remodeling is a taxable service and subject to Texas sales and use tax.[3]

This is important, because the Comptroller uses the designation “contractor” as a way to distinguish between taxable and nontaxable construction services. This can cause considerable confusion to those new to the Comptroller’s rules, since the Comptroller has one rule for contractors (i.e., persons who perform new construction and residential repair and remodeling) and one rule for nonresidential repair and remodeling (let’s call them “service providers”).[4]

New Construction vs. Repair or Remodeling

The first thing to ask in determining the taxability of construction services is whether what is being performed is 1) new construction or 2) repair or remodeling.

“New construction” is defined as:

All new improvements to real property, including initial finish-out work to the interior or exterior of the improvement. An example is a multiple story building that has had only its first floor finished and occupied. The initial finish-out of each additional floor before initial occupancy or use is new construction. New construction also includes the addition of new usable square footage to an existing building. Examples include the addition of a new wing onto an existing building. Reallocation of existing square footage inside a building is remodeling and does not constitute the addition of new square footage. For example, the removal or relocation of interior walls to expand the size of a room or the finish out of an office space that was previously used for storage is remodeling. Raising the ceiling of a room or the roof of a building is not new construction if new usable square footage is not created.[5]

On the other hand, “repair” is defined as “[t]o mend or bring back real property that was broken, damaged, or defective as near as possible to its original working order.”[6]  “Remodeling” means “[t]o rebuild, replace, alter, modify, or upgrade existing real property.”[7]

As can be seen through these definitions, the primary factors in determining whether a job is new construction are whether the structure has already been occupied and, if so, whether new usable square footage is created.  If the structure has not already been occupied and the work performed is an initial finish-out, then the work would probably be considered new construction.[8]  If the structure has been occupied but the work creates new usable square footage, the work again probably would be considered new construction.[9] If neither one of these factors applies, the work likely will be considered repair or remodeling.

Again, nonresidential repair and remodeling is a taxable service, while residential repair and remodeling is not a taxable service. So, the next thing to ask whether the real property is residential or nonresidential.

Residential vs. Nonresidential

“Residential property” means:

Property that is used as a family dwelling, a multifamily apartment or housing complex, nursing home, condominium, or retirement home. The term includes homeowners association-owned and apartment-owned swimming pools that are for the use of the homeowners or tenants, laundry rooms for tenants’ use, and other common areas for tenants’ use. The term does not include hotels or any other facilities that are subject to the hotel occupancy tax.[10]

Nonresidential real property is not defined, so apparently any property that is not residential real property is nonresidential real property.

Taxability of Nonresidential Repair or Remodeling

If a job is purely nonresidential repair or remodeling, then the tax treatment is clear. The total charge (less separately stated charges for unrelated services) is taxable unless an exemption applies.[11]  The service provider generally would be able to issue a resale certificate to vendors for materials that are incorporated into the realty as part of the service.[12]

Taxability of New Construction and Residential Repair or Remodeling

If a job is new construction or residential repair and remodeling, an additional question must be asked: Is the contract lump sum or separately stated?[13]

A contract is lump sum if “the agreed contract price is one lump-sum amount and in which the charges for incorporated materials are not separate from any charges for skill and labor, including fabrication, installation, and other labor that the contractor performs.”[14]

On the other hand, a contract is separately stated if “the agreed contract price is divided into a separately stated agreed contract price for incorporated materials and a separately stated amount for all skill and labor that includes fabrication, installation, and other labor that is performed by the contractor.”[15]

“Incorporated materials” are defined as:

Tangible personal property that becomes a part of any building or other structure, project, development, or other permanent improvement on or to such real property including tangible personal property that, after installation, becomes real property by virtue of being embedded in or permanently affixed to the land or structure constituting realty and which property after installation is necessary to the intended usefulness of the building or other structure.[16]

So, turning at last to the taxability of new construction and residential repair or remodeling, if the contact for such work is lump sum, then no part of the charge generally is taxable, but the contractor must pay tax on the materials purchased for the job.[17]  If the contract for such work is separately stated, then the contractor must collect tax on charges for incorporated materials (unless an exemption applies), but may be able to issue a resale certificate to vendors on its purchase of such materials.[18]

Conclusion

Still confused? Here’s a chart that sums up the taxability of new construction, residential repair and remodeling, nonresidential repair and remodeling under the Texas sales and use tax:

 

	New Construction Residential Repair or Remodeling	Nonresidential Repair and Remodeling
Lump Sum	Total charge to customer is nontaxable; contractor generally must pay tax on incorporated materials used on job.	Total charge to customer is generally taxable; service provider may be able to issue resale certificate to vendors for incorporated materials used on job.
Separately Stated	Only charge to customer for incorporated materials generally is taxable; contractor maybe able to issue a resale certificate to vendors for incorporated materials used on job.

 

And, of course, if you have any questions regarding the Texas sales or use tax or Texas taxes in general, don’t hesitate to give us a call to schedule a free consultation.

*******

[1] Part of the complexity in this area is due to history, that nightmare from which we’re trying to awake.  Prior to 1988, contracting and repair services generally weren’t taxable. See Acts 1987, 70th Leg., 2nd C.S., ch. 5, art. 1, pt. 4, Sec. 12 (adding real property repair and remodeling as a taxable service effective January 1, 1988). However, separately stated charges for materials incorporated into realty as a result of such services even then were subject to tax.  See Acts 1981, 67th Leg., p. 1551, ch. 389, Sec. 1 (distinguishing between the taxability of separated and lump sum contracts for contractors). As we’ll see, this treatment continues for new construction and residential repair and remodeling. Nonresidential repair and remodeling (and maintenance, which we won’t discuss in this post) could just be considered an exception to this rule.

 

[2] 34 Tex. Admin. Code §§ 3.291(a)(3); see also 34 Tex. Admin. Code § 3.357(a)(2); accord Tex. Tax Code § 151.056(d) (defining “contractor” as a person who makes an improvement on real estate and who, as a necessary or incidental part of the service, incorporates tangible personal property into the property improved.”).

For these purposes, an “improvement to real property” is defined as work to:

• erect, construct, alter, or repair any building or other structure, project, development, or other permanent improvement on, under the surface of, or to real property, whether fee or leasehold;
• furnish and install property becoming a part of any building or other structure, project, development, or other permanent improvement on or to such real property, including tangible personal property, which after installation becomes real property by virtue of being embedded in or permanently affixed to the land or to a structure constituting realty and which property after installation is necessary to the intended usefulness of the building or other structure; or
• alter the land surface of real property by such means as creating roads, earthen dams, and stock tanks. However, mining or timber operations do not, in and of themselves, constitute improvements to realty.

See 34 Tex. Admin. Code §§ 3.291(a)(6), 3.347(a).

Generally, the question of whether tangible personal property has been affixed to realty so as to become an improvement to realty is determined by reference to the test set forth by the Texas Supreme Court in Hutchins v. Masterson, 46 Tex. 551 (1887).  See, e.g., Comptroller’s Decision No. 112,152 (2018).  Under this test, one asks three questions:

1. Has there been a real or constructive annexation of the article in question to the realty?
2. Was there a fitness or adaptation of such article to the uses or purposes of the realty with which it was connected?
3. Was it the intention of the party making the annexation that the chattel becomes a permanent accession to the freehold?

Id.

 

[3] See Tex. Tax Code §§ 151.0047(a), 151.0101(a)(13); 34 Tex. Admin. Code § 3.357(b)(2).

 

[4] See 34 Tex. Admin. Code §§ 3.291 (entitled “Contractors” and covering new construction and residential repair and remodeling), 3.357 (entitled “Nonresidential Real Property Repair, Remodeling, and Restoration; Real Property Maintenance. (Tax Code, §§151.0047, 151.0101, 151.056, 151.058, 151.311, 151.350, 151.429)” and covering periodic and scheduled nonresidential real property maintenance but referring back 34 Tex. Admin. Code § 3.291 when tangible personal property is incorporated into realty as part of such maintenance).

 

[5] 34 Tex. Admin. Code § 3.291(a)(9); see also 34 Tex. Admin. Code 3.357(a)(8) (stating that “new construction” also includes “the addition of a new mezzanine level within an existing building”).

 

[6] 34 Tex. Admin. Code § 3.357(a)(12).

 

[7] 34 Tex. Admin. Code § 3.357(a)(11).  Repainting is also remodeling, as is the partial demolition of existing nonresidential real property. Id.  However, a complete demolition isn’t remodeling and is nontaxable. Id.

 

[8] See 34 Tex. Admin. Code §§ 3.291(a)(9), 3.357(a)(8).

 

[9] Id.

 

[10] 34 Tex. Admin Code § 3.291(a)(12); see also 34 Tex. Admin. Code § 3.357(a)(13) (adding that “residential property” doesn’t include “any commercial area open to nonresidents, retail outlets, [or] hospitals”).  “Prisons” also may not be residential property. See The Geo Group, Inc. v. Hegar, No. 03-15-00726-CV (Tex. App.—Austin Aug. 10, 2017, pet. denied) (holding that a prison was a not a residence for purposes of the exemption for the purchase of natural gas and electricity for residential use under Tex. Tax Code § 151.317).

Note that the term “residential property” also doesn’t include “facilities that are subject to hotel occupancy the tax.”  34 Tex. Admin. Code §§ 3.291(a)(12), 3.357(a)(13).  This creates some uncertainty as to whether houses used for short term rentals are residential property, since short term rentals generally subject to hotel occupancy tax.  See Tex. Tax Code §§ 156.001(b) (stating that the term “hotel” includes a short-term rental, and that a “short-term rental” is “the rental of all or part of a residential property to a person who is not a permanent resident . . . .”), 156.051(a) (imposing a tax on a person who pays for the use or possession of a room or space in a hotel).

 

[11] 34 Tex. Admin. Code § 3.357(b)(2). A service is unrelated if it: 1) is not nonresidential repair or remodeling or any other taxable service, 2) is of a type that is commonly provided on a stand-alone basis, and 3) is distinct and identifiable. Id. § 3.357(a)(15).

 

[12] 34 Tex. Admin. Code § 3.357(e)(1).

 

[13] While the distinction between lump-sum and separately stated contracts used when determining the taxability of nonresidential repair and remodeling (presumably before nonresidential repair and remodeling was made a taxable service), it generally is no longer relevant for that purpose. See 34 Tex. Admin. Code § 3.357(b)(2). However, the distinction is still relevant in certain contexts. For example, “labor to repair real or tangible personal property that is damaged within a disaster area by the condition or occurrence that caused the area to be declared a disaster area is exempt from tax if the charge for labor is separately stated to the customer. The materials that are used to perform the repairs are taxable.”  34 Tex. Admin. Code § 3.357(d)(9).

 

[14] 34 Tex. Admin. Code § 3.291(a)(8).

 

[15] Tex. Tax Code § 151.056(b); 34 Tex. Admin. Code § 3.291(a)(13).

 

[16] 34 Tex. Admin. Code § 3.291(a)(7).

 

[17] See Tex. Tax Code § 151.056(a); 34 Tex. Admin. Code § 3.291(b)(3)(A).

 

[18] See Tex. Tax Code § 151.056(b); 34 Tex. Admin. Code § 3.291(b)(4)(A), (B).

 

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Writ(ten) Before Us: Writ of Error Coram Nobis

Writs. We’ve all heard of them. There’s the writ of certiorari, the writ of habeas corpus, and the writ of mandamus, just to name a few. But what exactly is a writ and what does it do? Simply put, a writ is “an order issued by a legal authority with administrative or judicial powers, typically a court.” Historically, in the common law, writs were used to convey real property, grant privileges or rights, and to convey information. They were also written executive directives from the king, instruments by which the king could intervene into matters that were not resolved by feudal courts. Later, writs evolved, adopting a more judicial nature, acting as summonses or the initial documents in legal matters or as an order commanding a person to do something or refrain from doing something.

Writs are generally referred to “extraordinary remedies,” which means that they only issue when there is no other available judicial relief. Moreover, the granting of writs lies within the discretion of the court, which means that their issuance could be rare and not necessarily granted as a matter of right. The most common of the writs seen today are writ of habeas corpus, writ of mandamus, writ of prohibition, writ of certiorari, and writ of quo warranto. In this post, we will look at another writ, the writ of error coram nobis.

The writ of error coram nobis is a common law writ “intended to correct a final judgment by the same court in which it was rendered by redressing a fundamental error” and calls the court’s attention to facts outside the record that would have changed the judgment. The name of the writ comes from the Latin meaning “before us.” It is generally used in criminal cases and is most closely related to the writ of habeas corpus but can provide relief when habeas corpus is not a sufficient remedy. Although cases may differ on the exact number of requirements a petitioner must fulfill to have the requested relief under a coram nobis granted, there is some consensus that the following, at a minimum, must be met: 1) the judgment must have been the result of a fundamental error; 2) collateral consequences exist as a result of the judgment; and 3) the request must be timely, i.e. petitioner could not have sought relief earlier. Because of the high threshold that a petitioner must cross and because the granting of the writs is discretionary, writs of error coram nobis are more often denied than granted. Korematsu v. United States, 584 F.Supp. 1406 (N.D. Cal. 1984), however, was one of those exceptions.

In 1944, Fred Korematsu, a United States citizen of Japanese ancestry, was convicted of violating a civilian exclusion order that prevented persons of Japanese ancestry from a described military area, even though his home was in that area. See Korematsu v. United States, 323 U.S. 214, 65 S. Ct. 193, 89 L.Ed. 194 (1944). More than 40 years after his conviction, Korematsu filed a petition for a writ of error coram nobis seeking to vacate his conviction on the grounds of governmental misconduct. The court granted the motion. The court found that the government had withheld relevant evidence and provided misleading information. Specifically, the government had omitted from its brief any reference to contrary or contradictory reports from other governmental agencies refuting the need for evacuation in the name of national security but instead relied solely upon the assertions made in the “Final Report, Japanese Evacuation from the West Coast” (1942). The court found that the government’s failure to provide a full and accurate account satisfied the requirement that “coram nobis should be used ‘only under certain circumstances compelling such action to achieve justice’ and to correct ‘errors of the most fundamental character.’”

If you would like to learn more about the Korematsu case and the efforts to overturn his conviction through the use of this extraordinary writ of error coram nobis, please watch the recording of “80 Years Later: The Legacy of Japanese American Incarceration and Korematsu v. The United States,” a CLE webinar hosted by the Harris County Robert W. Hainsworth Law Library. [This recording is accredited by the State Bar of Texas for 2.0 hours of MCLE and 1.0 hour of ethics through January 31, 2023.]

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Texas Court Addresses MSA Indemnity Obligations

At issue in RKI Exploration and Production LLC v. AmeriFlow Energy Services LLC and Crescent Services, LLC. were two Master Service Agreements.  RKI was the operator of a well in Loving County; AmeriFlow and Crescent were contractors. A sand separator exploded at the well site injuring or killing three workers who worked for another subcontractor. The result was three suits in New Mexico and a mazelike series of indemnity demands, denials, settlements, and judgments, including settlement of one death case for $9.1 million.

To preserve your patience, and mine, let’s focus on the takeaways from this 72-page behemoth of an opinion based on a 10,000-page record.

Grammar lessons

The court defined a phrase common to Master Service Agreements: “arising in connection herewith”. Indemnitees AmeriFlow and Crescent argued that the phrase “encompasses all activities reasonably incident to or anticipated by the principal activity of the MSA, which was oil well operation”. No, it doesn’t. The court determined that the phrase requires a causal connection between the MSA and the claims for which the indemnitee sought indemnity. The scope of work envisioned in the MSA was defined by work orders, and the indemnity could go no further than the scope of work.

The court considered the plain meaning of “herewith”, referred to the dictionary definition of “arise”, and concluded that although “arise” has a broad meaning it still connotes some causal nexus. If there were no connection between the indemnitee’s contract obligations and the indemnity obligation, an indemnitor would be required to indemnify even if performance was not an alleged cause of a loss. There must be a but-for causal connection between the indemnity claim provided for in the contract provision and “something else”.  What the “something else” turns on is the meaning of “in connection herewith”.

The required connection created by the use of “arise” or “arising” was limited by the additional phrase that narrowed the scope of the connection created by the word “arise”. That limiting phrase was “in connection herewith”. Citing dictionaries, the court concluded that “herewith” means “accompanying this writing or document”.  The court interpreted “arising in connection herewith” to mean originating from the document or writing in which the obligation is contained. The term is a description of the relationship that a purported indemnity claim must bear to the underlying obligations between the parties.

Did RKI waive its right to challenge the settlement?

RKI the indemnitor refused to participate in settlement negotiations, ignored demands for indemnity, and refused to enter an appearance in the suit for the indemnitee. This raised the question about whether RKI waived its right to contest defense and indemnity claims because it wrongfully denied those claims. if denial was wrongful RKI would be bound by the settlement of the underlying suit and unable to insist on adjudication of the indemnitee’s rights to indemnity and damages.

The premise of AmeriFLow and Crescent’s argument was that when an indemnitor denies its obligation, the indemnitee has the right to make good-faith and reasonable settlement with the injured party without judicial ascertainment of liability. Here, whether RKI wrongfully denied indemnity was not established. An indemnitor may not be held liable for an indemnitee’s purely voluntary payment to an injured party. The indemnitees assumed the risk of being able to prove the facts which might have made them liable to the plaintiff and as well as the reasonableness of the amount they paid.

Your musical interlude.

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Nunc Pro Tunc, Sunk.

Fans of appellate terminology will recall a recent blog post about the distinctions among the words “rendered,” “entered,” and “signed” in the context of judgments. The Fifth Court applied those distinctions in In the Interest of C.D.G., a challenge to a judgment entered nunc pro tunc. The Court said:

• “A judgment is ‘rendered’ when the decision is officially announced either orally in open court or by memorandum filed with the clerk. On the other hand, a judgment is ‘entered’ after being signed by the trial court judge.”
• Therefore: “The nunc pro tunc requirement is satisfied only if there is some evidence that the trial court had, at some point before the original order was entered, rendered judgment inconsistent with the language actually entered in the original order. If nothing in the record shows that there is a discrepancy between the judgment as rendered and the judgment as entered, we are compelled to hold that the error in the signed final judgment was a judicial error and thus a judgment nunc pro tunc cannot stand.”
• And importantly: “The focus is … on the actions of the court, not the parties. Thus, the mere fact that the parties entered into an [agreement] or filed it with the court, without more, does not translate that act into the entry of a judgment thereon by the court. A judicial error is an error which occurs in the rendering as opposed to entering of a judgment.”

No. 05-21-00132-CV (July 15, 2022) (mem. op.) (citations omitted, emphasis in original).

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Texas Series LLCs & Recent Changes to The Texas Business Organizations Code

Texas Series LLCs & Recent Changes to The Texas Business Organizations Code

The 2021 Texas Legislature made significant changes to statutory provisions governing Series Limited Liability Companies. Largely, they make Texas law governing Series LLCs more consistent with Delaware’s statute, the leading state series LLC statute. These important changes bring additional flexibility to companies, investors, and entrepreneurs in planning business affairs and intracompany relationships through Texas Series LLCs.

By providing additional definitional clarity regarding the rights and existence of series within an LLC, the recent changes will further the original purpose Texas Series LLCs: to help businesspeople avoid administrative complexity and expenses caused by replication of separate LLCs for related companies, projects, or asset-pools. For instance, instead of forming a separate LLC for each property, a real estate investor group can organize a single company and assign each real estate asset to a separate series, each of which might have a separate distribution of membership interest percentages.

Series LLC Changes to the Code

Principally, the changes establish new categories of Texas “series.” These categories are specifically defined as “protected” and “registered” series and are distinguished from the general category of series defined under Section 101.601 of the Code. The changes are contained in Senate Bill 1523 (87(R)) and they became effective on June 1, 2022. However, it appears the Secretary of State’s office is not yet prepared to implement some of the changes. The full text of the Bill is available here: 87(R) SB 1523 – Enrolled version – Bill Text (texas.gov)). The core changes of the Bill are to Subchapter M of Chapter 101 of the Texas Business Organizations Code (the “Code”), which is the Texas Limited Liability Act, but there are also important changes to other chapters.

What is a Series LLC?

A Series Limited Liability Company is an LLC whose company agreement establishes one or more “series.” In turn, a series is a group, designated by a company agreement, of “members, managers, membership interests, or assets” (1) as having “separate rights, powers, or duties with respect to specified property or obligations of the limited liability company or profits and losses associated with specified property or obligations;” or (2) that has “a separate business purpose or investment objective.” Tex. Bus. Org. Code § 101.601(a).

What are the Benefits of Establishing a Series?

In addition to the general type of series defined in Section 101.601 (an “ordinary series”), the Code provides that a series can be a protected or registered series. The core benefit of these series is that their debts and liabilities can be enforced only against the assets of that series—not the company in general or against another series, unless the Company determines an alternative arrangement. Tex. Bus. Org. Code §§ 101.602(a)(1), 101.602(d). Similarly, Section 101.605 of the Code gives protected series and registered series certain aspects of legal personhood, including the capacity to sue and be sued, to contract, to hold title to all kinds of property, to grant liens and security interest in series property, among other powers. This dynamic essentially allows businesspeople the benefits of limited liability for distinct business units or projects without having to file more than one certificate of formation.

If an LLC fails to meet the requirements for treatment of a series as a protected or registered series, by implication, it would be deemed an ordinary series and the general assets of the Company or any other ordinary series would not be shielded from debts or liabilities associated with any such ordinary series. In contrast, the Code provides that none of the debts or liabilities of the company in general or of another series are enforceable against the assets of a protected series or registered series. Tex. Bus. Org. Code § 101.602(2).

An ordinary series, therefore, is distinguished from protected series and registered series in that:

• its liabilities are not limited to any assets assigned to the series; and
• it does not have the aspects of legal personhood granted to protected series and registered series.

Consequently, an ordinary series does not place a series’ debts and liabilities in a separate “silo” in contrast to a protected or registered series.

Despite the lack of special asset protection for ordinary series, the Code clarifies that ordinary series can still be a useful contractual mechanism for allocating rights within the LLC. Tex. Bus. Org. Code § 101.601(c). With respect to separate series of assets, separate classes of members and managers can be allocated different relative rights, powers, and duties, including different voting rights, which companies can assign on any basis. Tex. Bus. Org. Code § 101.607. In summary, the ability to establish Texas Series LLCs generally creates two types of potential benefits: (1) liability limitations and (2) contractual flexibility to order detailed private rules governing company affairs and assets.

What are the Requirements for a Series to Qualify as a Protected Series or a Registered Series?

For a series to qualify for the special protection of its assets as a protected or registered series, an LLC must meet three requirements:

• Separate Accounting. It must maintain records for the series that account for the assets associated with the series separately from the other assets of the company or any other series;
• Statement of Series Limited Liability in Company Agreement. Its company agreement must contain a statement that (i) the liabilities of a series can only be enforced against the assets of that series and that (ii) the liabilities of the company in general or another series cannot be enforced against the assets of a protected or registered series (subject to certain exceptions); and
• Statement of Series Limited Liability in Certificate of Formation. The certificate of formation of the company must contain a statement similar to that to be included in the company agreement.

Tex. Bus. Org. Code § 101.602(b).

After meeting those threshold requirements, a protected series may become a registered series by the filing of a Certificate of Registered Series with the Secretary of State. Tex. Bus. Org. Code §§ 101.602(c), 101.623. To date, however, the Secretary of State has not finalized an official form for registration of a registered series. The Code requires that a certificate of registered series must contain:

• The name of the limited liability company;
• The name of the registered series; and
• The phrase “registered series” or the abbreviation ‘RS’ or ‘R.S.’ of that phrase.”

Tex. Bus. Org. Code §§ 101.626, (6b), 5.0561.

Security Interests

As a final step to assist Series LLCs in limiting their liabilities to the specific assets of a series, the new changes to the Code provide that:

• The term “registered organization” (defined in Section 9.102(a)) includes a series if the relevant state law requires the filing of a public organic record (i.e., a certificate of registered series or similar document); and
• The definition of “person” (defined in Section 1.201(b)(27)) includes a protected or registered series.

These updates clarify (1) that protected or registered series are separately capable of rights and obligations under the Uniform Commercial Code, including those of “debtors,” and that (2) security interests may be perfected in the assets of registered series through the filing of UCC-1 financing statements specific to registered series.

The existence of Series LLCs and protected and registered series as separate UCC “persons” indicates that Texas Series LLC’s and their lenders should draft cautiously when contracting for security interests in the assets of a series. But aside from the discomfort provided the newness of the law in this area, it appears that the separateness of series’ liabilities and assets may lead to greater certainty in lien creation by helping parties avoid unintended consequences. For example, separating series assets in silos could prevent the overlapping of competing security interests in “unrelated” company assets that can result from overbroad financing statements.

Conclusion

By clarifying the relevant legal framework, these recent Code revisions may bolter the use of Texas Series LLC as a useful tool for people doing business in Texas. However, only time will reveal whether their use will remain narrow or be widely adopted.

The post Texas Series LLCs & Recent Changes to The Texas Business Organizations Code appeared first on Freeman Law.

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Stories of Recovery: Just keep walking your path

Editor’s note: This post is part of the Texas Lawyers’ Assistance Program’s Stories of Recovery blog series. TLAP offers confidential assistance for lawyers, law students, and judges with substance use or mental health issues. Call or text TLAP at 1-800-343-8527 (TLAP) and find more information at tlaphelps.org.

It is amazing how much damage can occur to your life in a few short years, and it literally takes decades to rebuild it.

Tragedy changes lives. For me it was a wonderful beginning—I was the best, the brightest, and well-liked. Around 18 I started using drugs and alcohol, then I started getting in trouble, then I nearly lost it all. The truth is that the void of substance abuse hollows you out like a years-long hangover. You can quickly become part of a subculture of people who are all dancing to the tune of moral depravity. As a result, the police become your nemesis and cease to be protectors, your “good” friends become people you can’t trust anymore, your family becomes people who harass you every day with their social norms. You are low hanging fruit for predators too. When you run out of money, you might even steal cigarettes from a car and get arrested for burglary. Every moment is a mental outrage. Every day a flawed plan that fails. That cycle persists until something happens. Then something did happen. I stopped using. That wasn’t the end.

There was a moment when I thought I was in recovery in my life. Unfortunately, all I had really done was remove the substance users from my life and replace them with people who didn’t use substances but had serious psychological problems. It felt like a cozy home. I was accused of kidnapping a girlfriend. To make matters worse, there was egregious prosecutorial misconduct in my case after I was arrested. Some of it became known to the court at the time of the case. The judge admonished the prosecutors involved and demanded my release that day with probation instead of the 60 years the state offered. Getting arrested and spending a year in jail waiting for trial made the world collapse on me. Day by day without freedom and no hope was sobering. It was surreal.

After I was out, I changed absolutely everything about my life. I was lucky to have a loving family who had a place where I spent more than a year reflecting on how I got to where I was. My life was a train wreck. The silence of solitude was wonderful. I finally decided that my life wasn’t over, and I shouldn’t quit. So, I began to seek a better life. However, it seemed like my life would never start over. Every job application questioned me about my past, and I struggled with the answer. Over the years, my life was a daily fight to live; I fought just to stay free it seemed. I was branded with a mark and shamed by society for something that I had not done. I fought for every inch of ground gained, but I did gain ground. I prayed a lot too. Then the day finally came after nearly a decade that I could not take it anymore. I chose to do something about it all.

I got a GED. I went to junior college. I completed about three semesters. I was accepted to a university and graduated in two and a half years with a Bachelor of Arts. I applied to multiple law schools knowing that it would be very difficult to get in, but I was accepted. The odds were always against me.

While in law school, I clerked for a judge. The judge looked into my case and discovered more evidence that had not been disclosed. When I graduated from law school, my family helped me approach the county where the prosecutorial misconduct occurred. I was finally free.

I became a lawyer and have won many trials. I am helping many people. Now, other people let the past haunt them, but not me. Those experiences in life make me a better me today and help me understand others. I have a lovely family and a happy life. What I can say is that we all have a path to walk in this world—part destiny and part choice—but it’s all yesterday in the end and you have to walk down the path but take nothing with you as you go and just keep on walking.

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Reflections on 100 Episodes

This week, co-hosts Todd Smith and Jody Sanders celebrate the Texas Appellate Law Podcast’s 100th episode! When they started the podcast just before the pandemic hit in 2020, neither of them could have imagined how much they would learn, how much fun they would have, and all the great people they would meet. To celebrate, Todd and Jody count down their top ten tips from their guests—from finding your niche to riding out

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Fifth Circuit Explains Sham Affidavit Doctrine

Much of litigation has become about dispositive motions- motions that dispose of the case. Typically, that means motions for summary judgments. The employer submits a motion for summary, or quick judgment, saying the employee lacks evidence for the lawsuit. Both sides may offer affidavits. What happens when a plaintiff’s affidavit contradicts – or appears to contradict – his deposition testimony. Some judges would find the affidavit to be a sham and not worth considering. This reasoning is known as the “sham affidavit doctrine.” in Seigler v. Wal-Mart Stores Texas, LLC, No. 20-11080 (5th Cir. 4/5/2022), the Fifth Circuit found the lower court applied the sham affidavit doctrine incorrectly.

The sham affidavit doctrine, said the Fifth Circuit, does not rule out an affidavit for minor or supplementary information. Ms. Siegler said her affidavit did not contradict her deposition testimony. It simply supplemented her prior testimony and added nuance. The higher court agreed. The court noted that yes, the plaintiff’s testimony did provide new details on matters that were asked about at the deposition. But, an explanation is not necessary if the affidavit only supplements prior testimony, instead of actually contradicting that prior testimony.

Ms. Siegler slipped at a Wal-Mart. Her affidavit added new details about the substance on which she allegedly slipped. Two of the new details involved the smell and color of the substance. The Fifth Circuit panel found that these details were not asked about at her deposition. The other details were her new testimony that described the substance on the floor as congealed, cold and “thickened up.” Wal-Mart objected that at her deposition, she testified that she did not know how long the substance had been on the floor. But, noted the court, Siegler was not asked at her deposition about the temperature or consistency. She did say at her deposition that the substance was “some sort of greasy liquid.” That description does not contradict her new testimony that it was congealed or cold.

The court did allow that the new details might call her credibility into question. But, the new details do not require that her new information be disregarded. The court then reversed the grant of summary judgment. See the decision here.

 

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Anne-Marie Rábago and Joe Lawson among 2022 Fastcase 50 winners

This year’s Fastcase 50 award winners include two from the Texas legal world. Attorney Anne-Marie Rábago and law library director Joe Lawson are among those honored as “the law’s smartest, most courageous innovators, techies, visionaries, [and] leaders.”

Rábago is the founder and principal of Modern Juris, a program designed to provide tools and training to help lawyers and legal professionals to build sustainable businesses. Prior to this, she was the first director of the State Bar of Texas-sponsored Texas Opportunity & Justice Incubator. The incubator program also fostered self-sustaining lawyers with an emphasis on closing the access to justice gap. Through her leadership, TOJI became one of the largest legal incubators in the country.

Lawson is the director of the Harris County Robert W. Hainsworth Law Library. Under his direction, the library has increasingly looked to technology to make legal information even more equitable. Lawson engineered the Synchronous Touchless Assistive Node, or STAN, a device composed of a TV screen, printer, and CPU stationed in the library lobby. Run by one library staff member, STAN is used to assist patrons through a virtual meeting.

For information on the 2022 Fastcase 50 award winners, go to fastcase.com.

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EEOC Latest on Covid-19 and DOT’s Airline Passengers with Disabilities Bill of Rights

Last week, both EEOC and the Department of Transportation came out with guidances related to people with disabilities. The EEOC added to their running guidance on Covid-19, while the DOT came out with a bill of rights for airline passengers with disabilities. The blog entry is divided into two categories: latest amendment to the long-running EEOC document on Covid-19; and the DOT Bill of Rights for airline passengers with disabilities. With respect to the DOT Bill of Rights, what I did for that is cut and paste the entire Bill of Rights and then add my thoughts where appropriate, which is a tactic I have done before in this blog with other guidances.

 

I

Latest Amendment to the Long-Running EEOC Document on Covid-19

 

With respect to the EEOC guidance, Robin Shea in her blog, here, does a fabulous job of breaking down the new additions to the EEOC document. I am just going to add a few of my own thoughts. Otherwise, you can’t go wrong by looking at Robin’s discussion of the latest additions to the EEOC document. The EEOC document can be found here. My thoughts are immediately below:

 

1. CDC guidance has changed radically over time and so has American behavior. The CDC guidance combined with American behavior means that direct threat is really more of a macro issue in a way that it wasn’t before. Direct threat is still going to be an issue with respect to a particular individual that is at increased risk of consequences should they get Covid-19. Otherwise, the CDC guidance, which really can only focus on hospitalization because so few people are reporting Covid-19 due to utilizing home tests, becomes very difficult to apply as a matter of practice.
2. The CDC guidance can all change in a matter of moments. The BA5 omicron variant is becoming quite prevalent, and so everyone has to be prepared for changes at any moment in time.
3. The interactive process is more critical than ever. The do’s and don’ts of the interactive process we discussed here.
4. While the EEOC talks about how accommodation process might be delayed because of the pandemic, you do need to remember, as we discussed here, that an unreasonable delay in granting an accommodation is actionable.
5. I recently read that 60% of legal professionals no longer want to work in the office full-time. I also recently read that for all kinds of employees the number is close to 50% for those not wanting to work in the office full-time. So, expect a lot of telecommuting reasonable accommodation requests.
6. Direct threat to others in light of American behavior and the latest CDC guidance is almost impossible now to divine. The current CDC guidance and the direct threat analysis get a bit easier with respect to direct threat to self.
7. The EEOC document talks about fully vaccinated. What does that even mean? Two shots? Two shots and a booster? Two shots and two boosters? I recently read an Israeli study that found a second booster was very helpful for individuals over 50. It wouldn’t surprise me at some point if the CDC says everybody should get a second booster. Even so, “fully vaccinated,” is a really uncertain term, especially if it is meant to convey a certain level of Covid-19 protection.

 

 

II

DOT Bill of Rights (Here)

 

Airline Passengers with Disabilities Bill of Rights

This Bill of Rights describes the fundamental rights of air travelers with disabilities under the Air Carrier Access Act and its implementing regulation, 14 Code of Federal Regulations (CFR) Part 382.

Please click this link to download the latest version of the Bill of Rights.

The Bill of Rights consists of:

1. The Right to Be Treated with Dignity and Respect.
2. The Right to Receive Information About Services and Aircraft Capabilities and Limitations.
3.  The Right to Receive Information in an Accessible Format.
4. The Right to Accessible Airport Facilities.
5. The Right to Assistance at Airports.
6. The Right to Assistance on the Aircraft.
7. The Right to Travel with an Assistive Device or Service Animal.
8. The Right to Receive Seating Accommodations.
9. The Right to Accessible Aircraft Features.
10. The Right to Resolution of a Disability-Related Issue.

Click on any of the rights above to be linked to an explanation of that right in this document. The Bill of Rights does not expand or restrict the rights of air travelers with disabilities. Rather, it provides a convenient summary of existing law. Because the explanations in this document may not be as precise as the regulations themselves, the explanations link to the actual regulatory text for your reference.

Important Information About the Bill of Rights

Does the Bill of Rights reflect current information?

• The Bill of Rights is a living document. DOT will update the Bill of Rights as regulations change.
• DOT published this Bill of Rights in July 2022.

My thoughts: interesting question as to whether the Bill of Rights, which interprets DOT Air Carrier Access Act’s regulations, will be given deference per Kisor v. Wilkie, here.

Does the Bill of Rights apply to me?

• The Bill of Rights applies to individuals with a disability which is defined in Part 382 as persons with a physical or mental impairment that permanently or temporarily impacts a major life activity such as walking, hearing, or breathing.

My thoughts: the Air Carrier Access Act doesn’t always work the same way as the ADA. For example, it is possible that a temporary disability under the ADA may not be protected. We have talked about temporary disabilities and the ADA numerous times before, such as here. It also makes sense that temporary disabilities would be protected under the Air Carrier Access Act because it is quite foreseeable that a person with a temporary disability could be flying and need assistance.

Does the Bill of Rights apply to my trip?

• The Bill of Rights applies to all flights of U.S. airlines, and to flights to or from the United States by foreign airlines.

My thoughts: what is a U.S. airline? The Air Carrier Access Act actually applies to all carriers, see here, which is a far broader term than what we think of as U.S. airlines.

• The obligation to comply with government safety and security laws is a general exception to airlines’ obligations described in this Bill of Rights.
• Also, some airlines are approved by DOT to use an alternative method to comply with a regulation when it provides an equivalent level of accessibility or it meets the objective of Part 382. Visit the docket for the Equivalent Alternative Determinations and Conflict of Law Waivers for more information.

Are airline contractors subject to the same obligations as airlines?

• Airlines must make sure their contractors that provide services to the public meet regulatory obligations. Airlines are legally responsible for the action or inaction of their contractors.

My thoughts: there are several Different Air Carrier Access Act regulatory provisions, such as here, that make it crystal clear that airline responsibility to persons with disabilities is a nondelegable duty.

 1. The Right to Be Treated with Dignity and Respect.

An airline, including its employees and contractors, may not discriminate against an individual with a disability because of his or her disability.

My thoughts: what does “because of,” mean? The answer is no longer simple after Bostock, as we discussed here.

• For example, an airline may not refuse transportation or other services because of one’s disability or resulting appearance or involuntary behavior.
• An airline cannot require air travelers with disabilities to accept special services or subject them to restrictions that do not apply to other passengers, except passengers with disabilities may need to check-in early, provide advanced notice or documentation, or pre-board to receive certain disability-related services.
• Airline personnel who deal with the traveling public must be trained to be aware of passengers with disabilities’ needs and how they can be accommodated safely and with dignity.
• Airline employees and contractors must receive refresher training at least once every three years. Complaint Resolution Officials (the airlines’ experts in resolving disability-related issues) must receive refresher training annually.

My thoughts: get someone knowledgeable to do the training (providing training on ADA and on ADA related laws is a big part of my practice). Keep in mind, that there are several intersecting laws when it come to airlines dealing with people with disabilities and they are: Airline Deregulation Act, Air Carrier Access Act, Americans with Disabilities Act, and state negligence laws. It may be worthwhile for a trainer to have a background in each of these laws because the obligations vary depending upon the law involved. Making it even more complicated is that issues of preemption are also involved as a result of the Airline Deregulation Act.

Reference links (14 CFR): Section 382.11 (General Discrimination Prohibitions); Section 382.19 (Prohibition on Refusal to Transport); Section 382.23 (Medical Certificates); Section 382.27 (Advance Notice to Obtain Certain Services); Section 382.33 (Discriminatory Restrictions); Section 382.141 (Training of Airline Personnel and Contractors); Section 382.143 (Recurrent Training of CRO).

Click Back to The Bill of Rights Section

 2. The Right to Receive Information About Services and Aircraft Capabilities and Limitations.

Airlines must provide air travelers with disabilities information upon request about the facilities and services available to them. The information must be
specific to the aircraft scheduled for the flight, unless unfeasible (for example, an unpredictable aircraft substitution occurs).

The information airlines must provide includes:

• any aircraft-related, service-related, or other limitations on the ability to accommodate passengers with a disability, such as limitations on level-entry boarding (Airlines must provide this information to any passenger who states that he or she uses a wheelchair for boarding, even if he or she did not request the information.).
• any limitations on the availability of storage on the aircraft
• for assistive devices.
• the specific location of seats with movable aisle armrests.
• whether the aircraft has an accessible lavatory.
• the types of services that are not available on the flight.

Reference link (14 CFR): Section 382.41 (Advance Information).

Click Back to The Bill of Rights Section

 3. The Right to Receive Information in an Accessible Format.

An airline’s primary website must be accessible if the airline uses an aircraft with more than 60 seats. In addition, airlines must ensure that automated kiosks they install after December 2016 at U.S. airports with 10,000 or more enplanements per year are an accessible model, until 25% of kiosks at each airport location are the accessible model.

My thoughts: we discussed this issue in this blog entry, here.

Passengers who identify as needing visual or hearing assistance must receive prompt access to the same trip information as other passengers at the gate, ticket area, customer service desk, and on the aircraft (so long as it does not interfere with airline employees’ safety duties).

My thoughts: with respect to the Deaf, deaf, and hard of hearing communities, I can assure you that this is simply not happening, especially with respect to the aircraft (don’t even get me started on the lack of captioning with respect to the behind the seat viewing options), if my experience flying recently is any indication.

Airlines must train personnel to recognize requests for communication accommodation. The personnel must be trained to use the most common methods for communicating with individuals who are blind, deaf, or hard of hearing that are readily available, such as writing notes, for example. Personnel must also be trained to use established means for communicating with deaf-blind passengers when they are available, such as passing out Braille cards if available, reading an information sheet that a passenger provides, or communicating through an interpreter, for example.

My thoughts: I simply do not understand the focus on deaf-blind in this regulation apart from other disabilities that have communication challenges. Perhaps, DOT was rather inartfully trying to say that airlines must also be aware of deaf-blind passengers and their needs, which is absolutely true. It could have been phrased a lot better.

Reference links (14 CFR): Section 382.43 (Website Accessibility); Section 382.53 (Information for Blind, Deaf, or Hard of Hearing at Airports); Section 382.57 (Kiosk Accessibility); Section 382.119 (Information for Blind, Deaf, or Hard of Hearing on Aircraft); Section 382.141 (Training of Airline Personnel and Contractors).

Click Back to The Bill of Rights Section

 4. The Right to Accessible Airport Facilities.

Airlines and U.S. airport operators are both responsible for the accessibility of airport facilities. The Air Carrier Access (ACAA) and Department’s implementing regulation in 14 CFR Part 382 cover airlines’ obligations. Various other federal statutes and regulations apply to U.S. airport operators, for example, the Americans with Disabilities Act (ADA), Section 504 of the Rehabilitation Act of 1973, and their implementing regulations. Airlines and airport operators have concurrent obligations to ensure accessibility of airport facilities.

My thoughts: airports are invariably but not always owned and operated by nonfederal governmental entities. As such, most airports, which are owned by nonfederal governmental entities, are subject to title II of the ADA and to §504 of the Rehabilitation Act because they take federal funds. If it is a private airport, the airport would be subject to title III of the ADA and to §504 of the Rehabilitation Act as you have to assume a private airport would take federal funds. The obligations of the title II or title III entity are nondelegable, as we discussed in this blog entry and in this blog entry.

This Bill of Rights describes the obligations of airlines under the ACAA. In general, airlines must ensure that terminal facilities that they own, lease, or control are readily accessible and usable by passengers with disabilities at U.S. airports, and readily usable at foreign airports. Airports are responsible for ensuring compliance of facilities that they own, operate, or lease to other parties, including airlines.

Airlines must ensure an accessible route between the gate and the aircraft boarding location. When level-entry boarding is not available, such as boarding via a jet bridge, airlines and U.S. airports must ensure ramps or mechanical lifts are available to service most flights. Airlines, in cooperation with airport operators, must also provide service animal relief areas at the airport.

My thoughts: I am consulting on several cases where a person with a disability under the care of an airline suffers a personal injury. When that happens, you have to deal with the intersection of the Airline Deregulation Act, the ADA, the Air Carrier Access Act, and state negligence laws. There are also issues of preemption, so it can all get pretty complicated.

Reference links (14 CFR, unless otherwise noted): Section 382.51 (Accessibility of Airport Facilities); Section 382.95 (Assistance With Respect to Boarding and Deplaning); Section 382.99 (Agreements Between Airlines and Airports); Section 382.101 (Other Boarding and Deplaning Assistance); 28 CFR 35 (Nondiscrimination on the Basis of Disability in State and Local Government Services); 49 CFR 27 (Nondiscrimination on the Basis of Disability-Receipt of Federal Financial Assistance); 49 CFR 37 (Transportation Services for Individuals with Disabilities).

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 5. The Right to Assistance at Airports.

Passengers with disabilities must be provided prompt and timely enplaning and deplaning assistance, upon request, from properly trained airline personnel.

 

My thoughts: the Air Carrier Access Act regulations, such as here for example, make it quite clear that “upon request,” is not parenthetical. Also, the phrasing is confusing because it is upon request of the person with a disability and not the airline or its subcontractor’s personnel that is the critical question.

 

This must include:

• the services of personnel and the use of ground wheelchairs, accessible motorized carts, boarding wheelchairs, on-board wheelchairs, and ramps or mechanical lifts, as needed.
• assistance with moving from the curb to the departing flight, assistance with transportation between gates to make connections, and assistance with moving from the arriving flight to the curb for pick-up.
• assistance with accessing key functional areas of the terminal such as the ticket counter or baggage claim, or to a restroom entrance (if time allows).
• escorting a passenger with a service animal to an animal relief area at a U.S. airport.

Passengers who request assistance in advance of arriving at the airport need to identify to airline personnel once they arrive at the airport or the gate to receive the assistance.

Airlines cannot require the passenger to accept a specific form of assistance that he or she does not request (ex: requiring a wheelchair when a sight guide was requested).

In addition, the airline cannot leave a passenger unattended for more than 30 minutes in a wheelchair or other device, in which the passenger is not independently mobile.

Reference links (14 CFR): Section 382.11 (General Discrimination Prohibitions); Section 382.91 (Assistance in Moving Within Terminal); Section 382.95 (Assistance With Respect to Boarding and Deplaning); Section 382.103 (Prohibition on Unattended Immobile Wheelchair Passenger).

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 6. The Right to Assistance on the Aircraft.

Airlines must allow a passenger with a disability who self-identifies at the gate as needing additional time or assistance to board, stow accessibility equipment, or be seated, the opportunity to board before all other passengers.

• Except, an airline with an open seating policy has been approved by DOT to accommodate extra-time passengers after an initial group of passengers have boarded, but early in the boarding process.

Passengers with disabilities must be provided prompt and timely boarding and deplaning assistance, upon request, from properly trained airline personnel.

• This includes assistance with moving to and from seats.
• If level loading bridges are not available, a lifting device must be provided to assist persons with limited mobility safely on and off the aircraft at most U.S. airports, except when boarding smaller aircraft (less than 19 seats).
• For smaller aircraft and non-primary U.S. airports or foreign airports, airlines must ensure boarding and deplaning assistance by any available means acceptable to the passenger.
• However, airlines must never hand-carry a passenger (directly pick up a passenger’s body in the arms of airline personnel) on or off an aircraft, except in an emergency.

Once a passenger with a disability has boarded, airlines must provide assistance, if requested, such as:

• moving to or from the lavatory, including using an on-board chair to assist, if requested.
• stowing and retrieving carry-on items, including assistive devices.

Reference links (14 CFR): Section 382.93 (Preboarding); Section 382.95 (Assistance With Respect to Boarding and Deplaning); Section 382.101 (Other Boarding and Deplaning Assistance); Section 382.111 (Services Required On the Aircraft); Section 382.113 (Services Airlines are Not Required to Provide On the Aircraft).

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 7. The Right to Travel with an Assistive Device or Service Animal.

Traveling with Assistive Devices on Aircraft

Airlines must allow assistive devices as carry-ons in the cabin free of charge consistent with safety rules.

• This includes medical devices and/or a personal amount of medication that assist the passenger with his or her disability.
• Assistive devices must not count against the passenger’s carry-on limit.
• Priority in-cabin stowage (either a closet or a row of seats designated for seat strapping) must be available for at least one normal-sized collapsible manual wheelchair in any aircraft with 100 or more passenger seats.
• Airlines that use seat strapping should provide space for at least two of these wheelchairs if stowing the second wheelchair would not displace passengers.
• The priority stowage requirements do not apply to older aircraft.

Manual wheelchairs that cannot be transported in the cabin must be transported in the cargo compartment consistent with safety and security requirements. Airlines must accept a battery powered wheelchair, if it fits in the cargo compartment and can be transported consistent with safety and security requirements. Airlines must also provide for the checking and timely return of assistive devices at the gate for use in the terminal. Should an airline lose, damage, or destroy the wheelchair or other assistive device, the airline must provide compensation in an amount up to the original purchase price of the wheelchair or device.

Reference links (14 CFR): Section 382.67 (Priority Stowage of Wheelchairs In-Cabin); 382.121 (Assistive Devices In-Cabin); Section 382.125 (Stowage of Assistive Devices In Cargo); Section 382.131 (Liability for Loss, Damage, or Delay of Assistive Devices).

Traveling with Service Animals

Airlines must permit a service dog to accompany a passenger with a disability in the aircraft cabin unless:

• the dog poses a direct threat to the health or safety of others;
• the dog causes a significant disruption or misbehaves in the cabin or at an airport gate area;
• the dog’s carriage would violate a U.S. or foreign law;
• current DOT forms weren’t provided as required by the airline for the trip.

A decision by airline personnel to refuse transportation of a service dog with the passenger must be based on an individualized and objective assessment of the dog that considers the nature of the risk and the likelihood that harm will actually, or continue to, occur. The assessment should also consider whether mitigations are available.

Airlines cannot deny transportation of the service dog if there are means that would mitigate the problem.

Reference link (14 CFR): Sections 382.72 -382.80 (Service Animals).

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My thoughts: we discussed the DOT final rule when it comes to animals on airplanes here.

 8. The Right to Receive Seating Accommodations.

Airlines must provide specific seats to the following passengers who identify to airline personnel as needing the seat, if the seat exists on the same class of service on the aircraft:

• Movable Aisle Armrest–When the passenger uses an aisle chair to board and cannot transfer readily over a fixed aisle armrest.
• Bulkhead Seat or Other Seat–When the passenger travels with a service animal that is best accommodated at a particular seat.
• Greater Leg Room–When the passenger has a fused or immobilized leg.
• Adjoining Seat–For a companion providing a certain type of assistance, such as:
  • A personal care attendant who performs a function that is not required to be performed by airline personnel, for example assisting a passenger with a disability with eating;
  • A reader for a passenger who is blind or low vision;
  • An interpreter for a passenger who is deaf or hard of hearing; or
  • A safety assistant if a passenger with a disability cannot assist with their own evacuation.

For passengers not specified above, airlines must provide a seat assignment that best accommodates his or her disability if the passenger meets the airline’s procedures.

Airlines must provide seating accommodations using one of three methods: the block method, the priority method, or preboarding (if the airline does not provide advance seat assignments). Visit our Seating Accommodation Methods page to learn more about these seating methods and for the seating methods of the largest U.S. airlines and their operating partners, which account for approximately 95 percent of domestic passenger air traffic. Information regarding seating methods of certain foreign air carriers is also provided.

Reference link (14 CFR): Sections 382.81-382.87 (Seating Accommodations).

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 9. The Right to Accessible Aircraft Features.

New aircraft delivered to U.S. airlines after April 1992 and to foreign airlines after May 2010 must have accessible features that include:

• Movable aisle armrests on half of the aisle seats, if the aircraft has 30 or more seats.
  • DOT has approved some airlines to meet the purpose of this requirement by alternative means that provide substantially the same or greater accessibility to passengers with disabilities.
• Priority stowage space for wheelchairs in the cabin for aircraft with 100 or more seats.
• At least one accessible lavatory, if the aircraft has more than one aisle.
• An on-board wheelchair, if the aircraft has an accessible lavatory, or the passenger gives the airline advance notice that he or she can use an inaccessible lavatory and needs an on-board chair to reach it.

Airlines with older aircraft with 30 or more seats that replace the aisle seats, must ensure half of these seats have movable aisle armrests. Also, if an airline replaces a lavatory on a twin-aisle aircraft, there must be an accessible lavatory.

Reference links (14 CFR): Section 382.61 (Movable Aisle Armrests); Section 382.63 (Lavatories); Section 382.65 (On-Board Wheelchairs).

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 10. The Right to Resolution of a Disability-Related Issue.

Airlines must make available a Complaint Resolution Official (CRO) in a timely manner, this may be by phone.

• The CRO should be trained as an expert in resolving disability-related issues and be able to resolve disability-related issues on the spot.
  • Passengers with disabilities who are not satisfied with air travel services, may file a complaint with the airline or DOT. Complaints concerning issues under the airport’s responsibility can be filed with the airport, FAA or DOJ.
• Airlines must respond and directly address the disability related issues in your complaint in writing within 30 days, but airlines are not required to address complaints sent more than 45 days after the incident unless the complaint is referred to the airline by DOT.
• DOT will refer all disability-related complaints it receives within 6 months of the incident for response by the appropriate carrier.
• DOT investigates all disability-related complaints it receives to determine whether a violation of the Air Carrier Access Act occurred.
• Passengers with disabilities who have pressing questions about their rights should ask to speak with the airline’s CRO. Airlines must have a CRO available at each airport they serve during all times the airline is operating at that airport. Passengers may also contact the DOT Disability Hotline at 1-800-778-4838. The hours for the hotline are 8:30am to 5:00pm Monday-Friday.

Reference links (14 CFR): Section 382.151 (CROs); Section 382.155 (Carrier Responses to Complaints); Section 382.159 (Filing a Complaint with DOT).

 

My thoughts: as we have discussed previously in the blog, here for example, no private cause of action exists for violations of the Air Carrier Access Act regulations.

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