State court rejects child molester’s appeal

State appeals court affirms, again, Solano juvenile murder conviction

FAIRFIELD — The 1st Appellate District of the state Court of Appeals this week affirmed that Latasha Brown does not have the right to a juvenile court transfer hearing under a state law enacted 10 years after the California Supreme Court had already refused to hear a separate appeal of her conviction. Brown had filed a […]

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Nakia BAHNS tell-all about disgraced Clark County Family Court Judge Rena Hughes

Nakia BAHNS tell-all about disgraced Clark County Family Court Judge Rena Hughes

Nakia BAHNS tell-all about disgraced Clark County Family Court Judge Rena Hughes on the Veterans In Politics internet video talk-show

 

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Trump seeks more time to consider appeal in biofuel waiver case

Appeals court upholds ruling Trump cannot block critics on Twitter

NEW YORK — The 2nd Circuit Court of Appeals upheld its decision Monday that President Donald Trump cannot block critics on Twitter, rejecting his long-shot bid to reargue the case. Trump had asked for a nine-judge panel to reconsider the ruling. A majority rejected that bid. Judge Barrington Parker, writing for the majority, said Trump’s […]

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Once More, With Feeling: Business Entities Must be Represented in Court by a Licensed Attorney

Once More, With Feeling: Business Entities Must be Represented in Court by a Licensed Attorney

Originally published by Carrington Coleman.

R2Go Transport LLC a/k/a Ready 2 Go Transport LLC v. Xellex Corp.
Dallas Court of Appeals, No. 05-19-01246-CV (March 18, 2020)
Chief Justice Burns (Opinion, linked here), and Justices Molberg and Nowell
Ken Carroll

The Dallas Court of Appeals reminded us today that business entities in the State of Texas cannot appear in court pro se or through non-lawyer employees or members. Generally, except for the performance of ministerial tasks (like posting bond), only a licensed attorney may represent a business entity in a Texas court. The rule originated with respect to corporations in Kunstoplast of America, Inc. v. Formosa Plastics Corp., U.S.A., 937 S.W.2d 455 (Tex. 1996). It now extends to virtually all “fictional legal [business] entities,” including partnerships and limited liability companies. See, e.g., Sherman v. Boston, 486 S.W.3d 88, 95-96 (Tex. App.—Houston [14th Dist.] 2016, pet. denied). “Allowing a non-attorney to present a company’s claim would permit the unlicensed practice of law.” Id. (trial evidence presented for LLC by non-lawyer “had no legal effect” and was “legally insufficient to support a judgment”). The rule applies in all courts, trial and appellate—other than small claims courts, for which there is an express statutory exception. Tex. Gov’t Code § 28.003(e) (“A corporation need not be represented by an attorney in small claims court.”).

Here, R2Go’s counsel was allowed to withdraw from the appeal. When the LLC did not obtain replacement counsel, despite having been warned and ordered to do so, the Dallas Court dismissed its appeal, because it could not proceed with its appeal without being represented by a licensed attorney.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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“Zoom”ing into a new era

Originally published by Sally Pretorius.

If there was ever a time to be thankful for technology, it is now. During the novel coronavirus  pandemic, a majority of attorneys are finding themselves practicing social distancing, which means working remotely. Given our professions, many times court appearances, emergency motions, client meetings, and emergencies cannot wait. To be honest, I was skeptical of using technology for court appearances and hearings because I have been taught the value of in-person relationships and the power of in-person advocacy. However, after a call with Elizabeth Lippy from Trial Advocacy & Consulting, my mind was quickly changed. Our clients trust us to make sure we are capable of assisting them with their legal problems, and given our current circumstances, attorneys need to make sure we are able to rise to that occasion.

That being said, many courts (Collin County being one of the leading counties on this front) have begun to conduct their hearings via a platform called Zoom. To ensure we are fully capable of representing our clients in whatever platform is necessary, I dug into Zoom to make sure I was prepared to use it as an advocacy platform should the need arise. Here are some tips that should help you get started.

Zoom Basics

Creating an account

Aside from Zoom being user friendly and intuitive, the great thing about Zoom is that it’s free—for three people for up to 40 minutes. If you need more people on a call or need more than 40 minutes, you will need to pay for a plan. Even if you do need to pay for a plan, the cost is minimal: $14.99, which gets you up to 100 participants and 24-hour time limit per call (which I hope you don’t need for a hearing). To sign up for an account, you simply enter your email address and then Zoom sends you a link to verify and you are in. Once you have an account, you log in to Zoom and you are usually immediately logged in to your profile. This is where you can see the details of your account, including your personal meeting ID. You can now go in and change your profile picture and manage your account to do more advanced things (once you are proficient and ready to advance).

Pro Tip: Pin the Zoom icon/app onto your desktop for easy access.

Scheduling

So now you are logged in and ready to go. If you are scheduling the meeting, at the top of the Zoom screen, there is a link to “Schedule a Meeting.” Click on that link and begin to enter the details for your meeting. As mentioned, Zoom is pretty intuitive, so filling in the details of your Zoom meeting is similar to creating a calendar invite. The nice thing about Zoom is you can make it audio only or you can make it video as well. If you want video, make sure you turn on video for the host and participant. For the audio selection, I recommend keeping both clicked on so people using their computer can have the sound capability from their computers as well.

Pro Tip: If you want to mute participants upon entry so you don’t have endless chatter and lots of distractions, click that option. You can also record the meeting on your computer if you want to make sure you have a record of the call. While Texas is a one-party state, I would make sure to let the participants know that you are recording them as a courtesy. If you are setting up a meeting with a judge, I would absolutely ask permission before recording the conference as many judges have local rules and policies on recording their proceedings outside a court reporter. If you want a court reporter, you can also invite your court reporter so he or she can make an official record of the hearing/meeting/conference.

Next, click “Save” to create the meeting. The meeting is now saved and ready to share. To invite other people, copy and paste the “Join URL” and send it to other participants. I would suggest including this information in a calendar invite so people aren’t searching for the meeting information.

Participating in a Meeting

If someone is scheduling a meeting and inviting you, he or she will send you a link to join the call or send you a meeting ID. At the top of the Zoom screen, click on the “Join a Meeting” link, enter the meeting ID, and click “Join.” You should then be directed into the meeting space.

Starting the Meeting

To access meetings that you have created, click on the link called “Meetings” on the left-hand side of the screen and you will see all of the meetings you have scheduled. You can use this link to edit your meeting, add the meeting to your calendar, and to share the meeting with other people (remember the three-person limit for a free account).

When it is time for the meeting, click “Start this Meeting.” Follow the prompts to run from a browser or download and run Zoom. You will be asked if you want to join audio—click that selection to hear others and participate.

Tips for Conducting a Hearing on Zoom

Join early

Enter the conference early and make sure that everything is working properly and the features are set up to your preference—just as you would arrive early at a new courtroom to check on things and make sure you are good to go.

Witnesses

If you are going to have witnesses, including your client, present, you need the pro version of Zoom to invite them to participate in the hearing because there is a limit on the number of people allowed on a Zoom session under the free version. Invite witnesses and clients to the session just like any other participant (as detailed above).

Share documents

The easiest way to share documents with the group is through the chat feature. There are more advanced ways, but on a basic level, the best way is to use the chat feature. I would recommend having all of your exhibits ready to go in a folder saved to your desktop. If you have your exhibit stickers added on, that would make it best for everyone present to identify the documents and keep a clear record. I would also recommend emailing your exhibits to the court beforehand, so the court is able to maintain a clear record. Once you have your documents ready to go, click on the chat icon on the bottom middle right of the Zoom screen and a chat feature will be populated on the right side. On the bottom right of that chat feature is a file icon where you can upload a document and everyone on the chat can then see the document. You can proceed as though you are tendering to the court.

Pro Tip: There is an option at the bottom of your home Zoom page to screen share when on a conference call to facilitate the exchange of information and documents. As an attorney, I don’t recommend using the screen share feature because I often have chats and emails coming through on my desktop.

Mute Everyone

It is frustrating to be on a call/conference/chat with background noise because someone did not hit mute. Zoom allows you to mute everyone. To mute everyone on a call, go to the three-dot icon on the bottom right that says “More.” Then click on “Manage Participants” and click “Mute All.” You will then be prompted to either allow or not allow participants to unmute themselves.

Turn Off Video

If you don’t want to be seen on a conference call, simply click the “Start Video/Stop Video” icon on the bottom left-hand corner.

Ensuring Uniform Views

When everyone first logs on, ask them to go to their video settings (the up arrow to the right of the video camera icon) and click the box that says “Hide Non-Video Participants.” If everyone does this and your hearing requires the questioning of witnesses, this ensures that everyone does not have to see all of the Zoom participants on their screen. Similarly, if you click “Speaker View” in the top right corner, the person speaking will be the larger screen in the middle.

Pretty Filter

It is nice to have a softening effect to your video. Under “Settings,” go to “Video” and click the box for “Touch Up My Appearance,” which adds a nice “Pretty Filter” to help out with those blemishes.

Pick a Professional Background

When logged in to Zoom, you will see on the bottom right-hand corner of the screen an icon that looks like a video camera and next to the icon a little carrot arrow pointing up. Click on the carrot arrow and select “Choose Virtual Background.” You can then visit a free background website like unsplash.com and download a free background. This way, it looks like you are in a professional background when you are really in your dining room or home office.

Speaking with your client offline

Once you get proficient at Zoom, there is a capability to use breakout rooms; however, on a very basic level, I would recommend setting up a different call with a client or session with your client to have offline conversations.

Practice makes perfect

Practice! It is going to take some time getting used to speaking into a computer monitor and looking at the right spot for the camera. Try it out with a colleague or by yourself in a practice session. We can do this. Attorneys are trained to think on our feet and adapt.

Sally Pretorius is a shareholder at KoonsFuller Family Law in Dallas. Her practice focuses on divorce, complex property division, child custody litigation, and child support matters. She is certified in family law by the Texas Board of Legal Specialization and has received many notable accolades.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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In A Venue Dispute, Court Held That A Personal Injury Claim Against An Estate Representative Could Be Filed In The County Where The Estate Was Pending

Originally published by David Fowler Johnson.

In UPS Ground Freight, Inc. v. Trotter, parties filed claims against an estate representative based on a car accident in the county where the estate was being administered. No. 12-19-00135-CV, 2020 Tex. App. LEXIS 1127 (Tex. App.—Tyler February 10, 2020, no pet. history). A defendant, employer of the decedent, moved to transfer venue to the county where the accident happened. The trial court denied the motion to transfer, and the defendant filed an appeal.

The independent administrator alleged that venue was proper pursuant to Texas Civil Practice and Remedies Code Section 15.031 because the estate was being administered in that county. The defendant argued that Section 15.031 did not apply because the suit was not one against the administrator “as such, to establish a money demand” against the estate. They contended that the statute limits its applicability to suits involving a claim for a fixed, liquidated sum, and the plaintiffs sought an undetermined amount of personal injury damages.

The court of appeals noted that the term “money demand” was not defined by the statute. It held: “Venue statutes dictating permissible counties in which to sue an administrator of an estate must be read in conjunction with Texas Estates Code provisions regarding procedures for pursuing claims against an estate.” Id. The court noted that the Texas Estates Code defines “claims” as liabilities of a decedent that survive the decedent’s death, regardless of whether the liabilities arise in contract or tort or otherwise. Id. (citing Tex. Est. Code Ann. § 22.005(1)).

The court then discussed the claims process for estate administration. In light of this framework, the court looked to the Texas Civil Practice And Remedies Code to determine the proper county in which the plaintiffs could file suit against the estate administrator for their alleged personal injury damages. The court held:

Pursuant to Section 15.031, a suit against an estate administrator, in her capacity as administrator, to establish a money demand against the estate which she represents, may be brought in the county in which the estate is being administered. A suit for personal injury damages caused by the alleged negligence of the decedent is a suit for unliquidated damages. A suit for personal injury damages against the estate administrator is a “suit to establish a money demand” because the result is that the unliquidated demand is reduced by judgment to a liquidated amount. Therefore, Appellees were entitled to file their personal injury lawsuit against McElduff, as estate administrator, in Rusk County, where Clark’s estate is being administered to establish a money demand.

Id. (internal citations omitted).

The court noted that venue was not exclusive, and that the plaintiffs could have filed suit in the county where the accident occurred. The court also noted: “Because Appellees’ claims against the administrator and Appellants arise out of the same transaction, occurrence, or series of transactions or occurrences, venue in Rusk County is also established as to Appellants.” Id. The court affirmed the trial court’s order denying the motion to transfer venue.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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Texas Supreme Court coronavirus update

Originally published by Staff Report.

Editor’s Note: The Texas Supreme Court issued the following advisory.

Chief Justice Nathan L. Hecht ordered the Supreme Court Building indefinitely closed to the public Wednesday in expanding efforts to thwart spread of COVID-19. The State Preservation Board also closed the adjacent Capitol complex.

Under an order issued late Tuesday the Texas Supreme Court emphasized that court-ordered child-custody schedules following school calendars shall follow the original school schedule as published even as so many schools close to constrain the developing coronavirus pandemic.

“Possession and access shall not be affected by the school’s closure that arises from an epidemic or pandemic, including what is commonly referred to as the COVID-19 pandemic,” the order clarified. But parties were not barred by the order from altering a possession schedule by agreement if allowed by the foundational court order, or courts from modifying their orders.

The latest order follows one Monday that postponed four cases set for oral argument March 25 in Austin. The Court last week canceled oral argument set for April 9 in El Paso.

The Supreme Court has issued two other orders and joined with the Texas Court of Criminal Appeals in one to address potential judicial ramifications from the coronavirus threat in Texas.

In efforts to protect court participants and court staff because of coronavirus concerns, the Supreme Court and Court of Criminal Appeals issued a joint emergency order that clears the way for video- and teleconference proceedings and to postpone deadlines affecting cases.

The order follows Gov. Greg Abbott’s statewide disaster declaration and runs no later than 30 days after the governor’s disaster order ends.

The joint order follows two others by Chief Justice Nathan L. Hecht assigning district and court of appeals judges to hear enforcement cases challenging involuntary quarantines. Both were issued under emergency powers in the Texas Health and Safety Code for controlling infectious disease.

Under the order, state courts may modify or suspend any and all deadlines and procedures, “whether prescribed by statute, rule, or order,” and may extend limitations statutes in any civil case. Court proceedings may be conducted outside a court’s usual location in the venue county but must provide reasonable notice and access to the participants and the public. Any such modifications and limitations may be discretionary and without a participant’s consent but are required when “risk to court staff, parties, attorneys, jurors and the public” exists.

In court proceedings, sworn statements made out of court or sworn testimony given remotely, such as by teleconferencing, videoconferencing or other means, may be considered as evidence. The order allows anyone involved in any hearing, deposition, or other proceeding of any kind – “including but not limited to a party, attorney, witness, or court reporter, but not including a juror” – to participate remotely.

The order notes that its provisions are subject only to constitutional limitations.

The order also:

  • Requires every participant in a proceeding to alert the court if the participant has, or knows of another participant who has, COVID-19 or flu-like symptoms, or a fever, cough or sneezing and that courts take any other reasonable action to avoid exposing court proceedings to the threat of COVID-19.
  • Take any other reasonable action to avoid exposing court proceedings to the threat of COVID-19.

On March 6 the Supreme Court issued a first order assigning 31 district judges to hear cases involving involuntary quarantines outside their judicial administrative regions and followed that March 13 by assigning 21 Texas appeals court judges to hear appeals in any court-of-appeals district from involuntary quarantine cases.

No challenges to ordered quarantines had been reported by March 16.

The joint emergency order runs until May 8, unless extended by the chief justice. Both judicial-assignment orders are scheduled to end September 30.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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What Is Past Is Prologue: The Ninth Circuit Again Rules That Prior Salary Cannot Justify Pay Differences

What Is Past Is Prologue: The Ninth Circuit Again Rules That Prior Salary Cannot Justify Pay Differences

Originally published by Seyfarth Shaw LLP.

By Christine Hendrickson and Nolan R.Theurer

Seyfarth Synopsis: The Ninth Circuit, in an en banc decision following remand from the Supreme Court, held that employers cannot justify pay disparities under the federal Equal Pay Act by showing that those disparities are based on employees’ past earnings. We hope you will join Seyfarth’s Pay Equity Group for an Equal Pay Day 2020 webinar on March 31, 2020, to discuss this case and more about the current state of pay equity law. You can register for the webinar here.

On Thursday, February 27, 2020, the Ninth Circuit, sitting en banc, issued a decision in Rizo v. Yovino, holding the prior salary cannot be used as a “factor other than sex” to justify pay differences under the federal Equal Pay Act. The ruling tracks the earlier Ninth Circuit opinion written by late U.S. Circuit Judge Stephen Reinhardt, which was discarded by the U.S. Supreme Court because Judge Reinhardt died before the decision was published. With the February 27th ruling, the Ninth Circuit joined the Tenth and Eleventh circuits in holding that the Equal Pay Act precludes employers from relying solely on prior salary to justify pay differences. This is in contrast to decisions in the Seventh and Eighth Circuits, which held that such reliance does not by itself violate the Equal Pay Act.

The Facts Underlying The Ninth Circuit Case

The original Ninth Circuit case, Rizo v. Yovino, 854 F.3d 1161 (9th Cir. 2017), was brought by Aileen Rizo who worked as a math consultant for the Fresno County public schools. The County classified management-level employees in salary levels that contain progressive pay steps. New math consultants were placed into Level 1, which contained ten salary steps with compensation ranging from $62,133 to $81,461. To determine the starting salary for a new consultant, the County considered the candidates’ most recent prior salary and added 5% to assign the starting salary step within Level 1.

Rizo previously worked as a middle school math teacher in Arizona. Consistent with the County’s practices, Rizo was to receive a 5% increase over her prior salary. However, doing so would have resulted in a starting salary that was lower than the minimum salary level for new math consultants. The County addressed the issue by setting Rizo’s starting salary at the minimum of the Level 1-Step 1 salary range, along with a slight increase to account for her advanced education.

Several years later, Rizo learned that at least one of her male colleague’s starting salary was set at the Level 1-Step 9 salary range and that the other math consultants, all of whom were male, all earned more than she was paid. After raising internal complaints regarding the disparity between her compensation and that of her male counterparts, Rizo filed suit raising allegations under the federal Equal Pay Act, Title VII, and the California Fair Employment and Housing Act.

The Trial Court Decision

The County moved for summary judgment, arguing that although Rizo earned less than her male colleagues, the pay differences were not based on her sex, but were instead based on her prior salary, a legally-permissible “factor other than sex.” The district court disagreed, holding that, under the Equal Pay Act, prior salary alone can never qualify as a factor other than sex. The district court reasoned that basing one’s starting salary exclusively on prior salary carried too great a risk of perpetuating gender-based wage disparities.

The Court of Appeals’ Original Decisions

The Ninth Circuit Court of Appeals initially reversed the District Court, relying on its prior decision in Kouba v. Allstate Insurance Co., 691 F.2d 873 (9th Cir. 1982). which held that an employer can maintain a pay differential based on prior salary (or any other gender-neutral factor) if it shows that the factor effectuates some business policy and if the employer uses the factor “reasonably in light of the employer’s stated purpose as well as its other practices.” The Ninth Circuit held similar reasoning applied to Title VII claims as well.

However, the Ninth Circuit then granted en banc review “to clarify the law, including the vitality and effect of Kouba.Rizo v. Yovino, 887 F.3d 453, 459 (2018) (en banc). On April 9, 2018, the Ninth Circuit, sitting en banc, overruled Kouba, holding that prior salary cannot be the sole justification to explain a pay differential between a man and woman under the federal Equal Pay Act. Writing for the majority, Judge Reinhardt wrote that a worker’s salary history can never be a non-sex factor because women have historically earned less than men. He opined that if the law lets employers point to women’s past salaries to justify paying them less, it would “perpetuate that gap ad infinitum.

The Appeal to The U.S. Supreme Court

Defendant Fresno County Superintendent of Schools Jim Yovino appealed the Ninth Circuit’s ruling to the U.S. Supreme Court, arguing that the en banc opinion relied on Judge Reinhardt’s vote, and should be vacated due to Judge Reinhardt’s death eleven days prior to the date the opinion issued. Agreeing with the Appellant and noting that judges are “appointed for life, not for eternity,” the Supreme Court vacated the Ninth Circuit opinion. Yovino v. Rizo, 139 S.Ct. 706 (2019).

The February 27, 2020 Court of Appeals Decision

This Thursday, the en banc Ninth Circuit echoed Judge Reinhardt’s April 2018 opinion, holding that past salary is not a “factor other than sex” and reviving Rizo’s suit under the Equal Pay Act. Writing for the majority, Judge Morgan Christen wrote that “setting wages based on prior pay risks perpetuating the history of sex-based wage discrimination.” Rizo v. Yovino, No. 16-15372, 2020 WL 946053 (9th Cir. 2020).

“The express purpose of the act was to eradicate the practice of paying women less simply because they are women,” Judge Christen wrote for the majority. Id. at *1. “Allowing employers to escape liability by relying on employees’ prior pay would defeat the purpose of the act and perpetuate the very discrimination the EPA aims to eliminate.” Id.

In concurring opinions, two judges said their colleagues should have taken the more moderate approach of some other circuits.

In her concurrence, Judge Margaret McKeown said Fresno Schools’ policy did not justify the disparity between Rizo’s pay and that of her male coworkers, but salary history “may provide a lawful benchmark” for setting pay if considered alongside other factors such as education and training. Judge McKeown’s concurrence was joined by Judges Richard Tallman and Mary Murguia. Id. at 14.

Judge Consuelo Callahan also concurred, joined by Judges Tallman and Carlos Bea. She stated that an employer should be permitted to use past salary as a factor in setting pay, as long as its use “does not reflect, perpetuate, or in any way encourage gender discrimination.” Id. at 19.

Implications For Employers

As a result of Thursday’s ruling, there is a clear Circuit court split regarding the use of prior salary to explain pay disparities. Employers should be aware of the split and approach this area with caution. Following this decision, the Ninth, Tenth and Eleventh Circuits have held that the Equal Pay Act precludes employers from relying solely on prior salary, whereas the Seventh and Eighth Circuits, have ruled that such reliance does not by itself violate the Equal Pay Act. Id. at 19.

Employers should also be aware of numerous salary history bans that prohibit employers from seeking and, in some cases, relying on prior pay in setting starting wages.

Careful evaluation of your policies and practices around the use of prior salary is encouraged. Given the maze of federal, state, and local laws that govern the use of wage history, employers should evaluate the laws that apply to their operations to ensure they are not unwittingly running afoul of these potentially conflicting obligations.

Seyfarth’s Pay Equity Group continues to track these developments closely. We hope you will join us for a webinar on March 31, 2020, Equal Pay Day 2020, to hear more about the current state of pay equity law. You can register for the webinar here.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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Family Law: Getting What You Need in Divorce – When It Isn’t Possible to Get All That You Want

Family Law: Getting What You Need in Divorce – When It Isn’t Possible to Get All That You Want

Originally published by J.R. Smith.

“You can’t always get what you want
But if you try sometimes, well, you might find
You get what you need”

You Can’t Always Get What You Want, The Rolling Stones

In addition to Mick Jagger’s legendary performances on stage and vinyl, the song lyrics of The Rolling Stones reflect wisdom that often goes unappreciated. This post focuses on issues that arise when spouses divide their private company ownership interests in the context of family divorce proceedings. When the private company ownership stakes held by the couple are highly valued, there is a potential for a win-win property division and settlement in the best interests of both spouses. You Can’t Always Get What You Want therefore aptly describes the prospects of negotiating a successful Business Divorce in a marital divorce action.

Important Legal Disclaimer

This discussion will consider different scenarios that regularly arise in marital cases that involve private company ownership interests. Please note, however, this post does not provide legal advice or guidance for any specific situation. The thorny issues that are involved in these matters require a case-by-case analysis, and in a blog post, we cannot address all legal issues that should be carefully reviewed in each case with legal counsel and tax advisors.

Ownership Transfer Concerns – Fair and Full Transfer of Interest

The most common Business Divorce scenario that arises in divorce proceedings is the transfer of one spouse’s ownership interest in a private company to the other spouse as part of the divorce settlement. It is rare for divorcing spouses to be able to continue working together in a business after a divorce. Even if they are not active in the business, the co-ownership of business interests by divorced spouses can often lead to conflict, which is why dividing the couple’s ownership interest in businesses is a typical part of the divorce settlement.

When one spouse transfers an ownership interest in a private company in the divorce, it is vital to remember that the transfer of this ownership stake gives the company a seat at the table in the divorce. Therefore, when the transfer takes place of an interest in a private company, the spouses need to address the following points:

  • The transferee spouse (who receives the interest being transferred) needs to provide the transferor (who is transferring the interest) with a release of claims from the business, and not just from the spouse. The transferor spouse may have been quite active in the business before the transfer took place, and does not want to be subject to any future claims that are asserted by the business (at the direction of the transferee) after the divorce is final.
  • The transferor should also seek an indemnity from the business for any future claims that are made against the transferor by third party creditors or others after the divorce. If the transferor is dragged into a lawsuit by a third party after the divorce, the business should indemnify the transferor against the claims, which covers both the transferor’s legal expense and any resulting liability. The transferee may insist on including a carve-out that eliminates the indemnity if the transferor is found to have acted in bad faith or was grossly negligent, which caused the lawsuit to be filed by the third parties.
  • In the year after the divorce becomes final, the company may issue a K-1 tax document to the transferor, which is based on his/her ownership in company during the prior year. The transferor needs to secure a representation from the business that this K-1 will not include any “phantom income” that would require the transferor to pay taxes based on income that was not distributed to the transferor in the preceding year.
  • Finally, the transferee needs to make sure that all rights, title and interests of every kind and character are transferred by the transferor in the transaction, and that there are no hold backs of any retained interest by the transferor in the company or any of its assets.

The Liquidity Problem – High Value But No Cash Available

Another common scenario is the liquidity conundrum.  This situation arises when the company in the marital estate is highly valued, but the couple does not have enough other value in assets outside the business to allow either spouse to pay the other spouse one-half of the value of the business.   One spouse generally wants to buy the other spouse’s ownership interest in the business, but this spouse (the proposed buyer) lacks the funds necessary to purchase the interest and cash out the other spouse (the proposed seller).

In this situation where sufficient funds are not available at the time of the divorce to permit one spouse to buy the other spouse’s interest in the business, there is a creative solution we have presented that does work for some couples. We refer to it as the “kick the can down the road” strategy in response to this problem created by the liquidity crunch, and the elements of this approach are summarized below.

  • The spouses will continue jointly owning the company after their divorce, but one spouse will operate the business, and they will also receive an option they can exercise at a set point years down the road (usually 3, 4 or 5 years). This is known as a put/call option, with the operator spouse having the right to purchase the non-operator spouse’s interest in the business at the agreed point. The non-operator spouse will have a put right that, when exercised, requires the operator spouse to purchase the non-operator’s interest in the business at the agreed point.
  • Importantly, the spouses’ ownership interest in the business is not valued at the time of their divorce. Instead, the couple will adopt a specific, detailed valuation formula, which will be applied to determine the value of the ownership interest at the point at which they exercise the put/call option years down the road.
  • During the holding period before the put/call is exercised, the operator spouse will be required to provide full transparency regarding the operation of the business. This will require the operator spouse to issue regular financial reports and also require the operator to obtain/provide audits of the business at least on a yearly basis by independent auditors.
  • Also during the holding period, the non-operating spouse will have a set of veto rights regarding the operation of the company to protect him/her during this multi-year period. These veto rights do not permit the non-operator to micro-manage the business, but they protect the non-operator and ensure that the fundamentals of the business will remain the same. Some examples are that, without the consent of the non-operator, the operator spouse cannot declare bonuses for management, add new partners to the business, require the non-operator to contribute capital or dilute the ownership interest of the non-operator.

This kick-the-can approach has three attractive features. First, it avoids a fight about the value of the business during the divorce, which can be both time-consuming and very expensive. Second, it gives the operator spouse several years after the divorce concludes to determine how to secure the funds necessary to purchase the interest of the non-operator spouse. This can be accomplished by finding another investor to take the place of the non-operator, by securing a loan or by selling the business, in whole or in part. Third, the delayed division of the business does not have any tax impact – a division of the business within 3, 4 or 5 years is still regarded by the IRS as incident to the marriage and it is therefore is not deemed to be a taxable event.

The delayed division of ownership interests until a set period of years after the divorce only works, however, when there is some liquidity in the marital estate at the time of the divorce. The non-operator spouse can afford to wait for a buyout of his/her interest only when the couple does have some liquid assets to divide at the time that the divorce becomes final.

Continued Ownership Challenges – A Buy-Sell Provision Is Essential

In some cases, both spouses want to continue to maintain an ownership in the business. This is not due to liquidity problems, but it may be because: (i) they both enjoy working at the company and it is providing them with high compensation, (ii) while they are not active in the business, they are receiving sizable annual profits distributions from the business or (iii) they believe that the business has the potential for very significant appreciation, and they want to realize the benefit of its increased future value.

When couples continue to own a shared interest in a business, however, they will want to ensure they have the right to obtain a buyout of the interest they continue to hold in the business after the divorce. This will require that the spouses themselves, or other partners in the business agree to provide them with a buy-sell agreement that applies to their interest. Stated simply, a spouse who becomes a minority interest owner in the business will not want to be left holding an illiquid and unmarketable ownership stake in the company. The value of the ownership interest is not really relevant if the spouse has no way to ever monetize that value.

The subject of a buy-sell agreement goes beyond the scope of this post, but we have written about these agreements in other posts. Issues that will need to be addressed in the buy-sell agreement include all of the following; (i) when can the buy-sell be triggered, (ii) how will the interest be valued when the buy-sell agreement is triggered and (iii) how will the purchase price be structured once the value of the interest has been determined.

Conclusion

Divorcing couples have many areas of disagreement in the dissolution of their marriage and their ownership interests in private companies is no exception. But when these private company ownership interests are highly valued, there are paths to the division of the interests that can be negotiated to provide them with an outcome that is mutually beneficial. The couple and their business and legal advisors therefore need to focus on how to optimize that high value in the divorce settlement so that they can both get as much of what they want as possible.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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bust of Julius Caesar

ADA and FHA Quick Hits – Great Caesar’s Ghost edition.

Originally published by Richard Hunt.

bust of Julius Caesar“Beware the Ides of March” was what the prophet warned Caesar according to Shakespeare. It didn’t go well for him, but the latest batch of ADA and FHA decisions are something of a mixed bag. Before getting to that news though I want to make sure everyone who wants one has a copy of my white paper on HUD’s new guidance on service and assistance animals. If you are interested just email me. You will be added as a subscriber to this blog and I’ll email a copy of the paper. But now on to the news.

Standing and intent to return – the Strojnik factor

It is elementary that an ADA plaintiff must establish some likelihood of a future injury in order to have standing. Strojnik v. 1530 Main LP, 2020 WL 981031 (N.D. Tex. Feb. 28, 2020) is one of a small number of Texas cases addressing this issue. Judge Brown’s analysis is worth reading because it looks at the 5th Circuit authorities and explains why the “deterrent effect” doctrine is not sufficient to give a plaintiff standing in the absence of any intent to return. The “deterrent effect” doctrine is, in fact, a mis-named and mis-used substitute for intent to return. A plaintiff who never intended to go back cannot have been deterred from going back by some condition at the defendants’ place of business. Sloppy language and slopping thinking in the Nnth Circuit are the origin and support of the ADA litigation industry.

Strojnik suffered a similar fate in Strojnik v. IA Lodging Napa First LLC, 2020 WL 906722, at *3 (N.D. Cal. Feb. 25, 2020) although the Court found his pleadings to be more comprehensively inadequate. The opinion ends on the heartening note that the Court will have more to say about Strojnik’s litigation tactics in an upcoming order on the defendant’s motion to declare Strojnik a vexatious litigant.

ADA Pleading

Strojnik v. 1530 Main LP also adopts a helpful pleading standard for a showing of present injury. Instead of pleading specific ADA violations Strojnik simply attached photographs of allegedly non-compliant features of the hotel to his Complaint. Without an explanation of how each pictured condition affected his disability the Court found the Complaint was inadequate.

Schutza v. Union City Investments LLC, 2020 WL 905605 (S.D. Cal. Feb. 25, 2020) is a must-read opinion for anyone faced with generic ADA pleadings. The complaint, like most of those from serial filers, alleged the existence of access barriers without saying just what was wrong. That was not enough for the Court:

But were the dining tables too high? Were they too low? Where were the paths of travel? How were they inaccessible? Plaintiff leaves everyone guessing. As Plaintiff’s allegations are only “naked assertions devoid of further factual enhancement, and the Court need not accept “legal conclusions” as true, the Court finds Plaintiff’s allegations for this element of an ADA claim insufficient.

The Court grants leave to amend, and the nature of the problems is such that they can be cured by amendment if the problems really exist, but forcing the plaintiff to do the work of identifying ADA barriers to access with some specificity will at least test the legitimacy of the claims.

ADA Title II and sovereign immunity

As a starting note, readers interested in this issue should read William Goren’s recent blog on the 11th Circuit’s decision concerning the State of Florida. Bailey v. Bd. of Commissioners of Louisiana Stadium and Exposition Dist., 2020 WL 874042 (E.D. La. Feb. 21, 2020) looks at the issue in the context of a state funded stadium. The discussion is worth reading, but the plaintiff’s decision to concede sovereign immunity for damage claims makes the holding  somewhat unimportant. For more about this case see the discussion below on the merits of the ADA claims in the same lawsuit.

The cost of default

In California small businesses continue to find that the cost of default in a typical serial plaintiff lawsuit is cheaper than any amount of defense. In Acosta v. Martinez et al, 2020 WL 1026890 (E.D. Cal. Mar. 3, 2020) the defendant was ordered fix ADA violations and pay $4000 in statutory damages plus $1,823 dollars in attorneys’ fees. The usual warning applies of course – if the cost of repair is excessive a defense based on the readily achievable standard doesn’t make sense.

The defendant didn’t do quite so well in Arroyo v. Melendez, 2020 WL 869211 (C.D. Cal. Feb. 21, 2020), but no statutory damages were awarded because the court declined to exercise jurisdiction over Unruh Act claims, so total monetary award was only $3245.75.

The defendant lost even more in Johnson v. Johnson, 2020 WL 901517 (N.D. Cal. Feb. 25, 2020), with an award of $4492 in fees and costs. A default strategy needs to take into account the individual court to guess at what the cost will be.
The same strategy can be even cheaper outside of California. In Hillesheim v. SNA LLC, 2020 WL 1077570 (D. Neb. Mar. 6, 2020) the plaintiff recovered only $2718.40 in attorneys’ fees and costs. If the injunctive relief was inevitable the result was a bargain.

Rutherford v. JJ’s Mkt. and Liquor, 2020 WL 883220 (C.D. Cal. Feb. 24, 2020) reached a similar result, with an award totaling $2591.00 in fees and costs. The Court had previously refused to exercise jurisdiction over Unruh Act claims, so there were no damages.

Halfway moot

You can absolutely moot an ADA claim by shutting down the public accommodation and selling the property on which it operated according to Johnson v. Baird Lands, Inc., 2020 WL 978629 (N.D. Cal. Feb. 28, 2020). That does not, however, eliminate a damage claim under California’s Unruh Act. Johnson recovered $4000 in statutory damages, but nothing more.

All the way moot

I have categorized Harty v. Nyack Motor Hotel Inc., 2020 WL 1140783 (S.D.N.Y. Mar. 9, 2020) as a mootness case because that is the most obvious basis for the court’s holding. The defendant simply took down their allegedly inaccessible website, an act sufficiently dramatic to moot any claim about it. The rest of the opinion catalogues the pro se plaintiff’s other failures, which were many. It is worth reading because some of the failures are common in complaints from more sophisticated plaintiffs.

Pleadings, franchises, and claims based on admitted ignorance.

In Chapman v. CKE Restaurants Holdings, Inc. 2020 WL 1230130 (E.D.N.C. Mar. 12, 2020) the plaintiff managed all the usual standing hurdles only to be tripped up by the fact that ignorance is not a reasonable basis for a lawsuit. The plaintiff sued the purported owner of a large number of franchised restaurants. The court agreed that she had alleged both injury and intent to return, but found that she had not connected the defendant to her injuries because she did not plead the necessary ownership and control. Equally important, her class allegations rested on the existence of a policy that failed to make the restaurants accessible or, in the alternative, the lack of an effective ADA policy. The court was unwilling to accept mutually inconsistent alternatives as a sufficient basis for a lawsuit since the plaintiff was clearly only speculating. The case was dismissed without prejudice and the plaintiff can in theory plead a claim that can withstand a motion to dismiss; whether she will be able in fact to do so remains to be seen.

Underline those hyperlinks if you want your arbitration clause to stick

Theodore v. Uber Techs., Inc., 2020 WL 1027917 (D. Mass. Mar. 3, 2020) is one of several cases concerning Uber’s arbitration agreement with its customers, and deals with the broader issue of “clickwrap” agreements.* It is most interesting because it contains a detailed analysis of much of the relevant law and draws a very specific distinction between hyperlinks that are underlined and those that are merely in a different color. Comparing a 2nd Circuit case in which a clickwrap agreement was found to give sufficient notice with a 1st Circuit case in which it was not the Court concludes that because the relevant hyperlinks were not underlined they were insufficiently conspicuous. I think the lesson is clear – app and website operators need to say to hell with sleek design and make sure it isn’t possible for a user to fail to notice a clickwrap agreement. Aesthetics are nice but it is unlikely a good looking interface drives enough profits to make up for the legal expense of litigating a case instead of arbitrating it.

Group homes, zoning and the Fair Housing Act

Valencia v. City of Springfield, Illinois, 2020 WL 1035229 (C.D. Ill. Mar. 3, 2020) is the latest in a series of decisions in the long-running dispute between two group homes, the Department of Justice and the City of Springfield. This decision is critical because based on its holding many municipal zoning ordinances are intentionally discriminatory on their face. The City’s zoning ordinance distinguished between group homes in which unrelated individuals resided together and “family” residences in which up to five unrelated individuals could live together. Group homes were subject to minimum spacing requirements while “family” homes were not. Thus, a group home with five unrelated residents would be treated differently than a “family” home with the same number of unrelated residents. The Court had no trouble finding the ordinance was discriminatory on its face.

That finding could have an impact on many municipal zoning ordinances because in the last twenty to thirty years municipalities have adopted zoning plans intended to permit group homes for the disabled in residential districts while continuing to regulate such homes. A typical ordinance will do what the City of Springfield ordinance did – define a permitted group home as one providing some service to unrelated individuals, define a “family” as a number of related individuals plus some number of unrelated individuals, and then impose limits on the group home whether or not it has fewer unrelated individuals than a “family.” The Court’s finding that such limits are intentionally discriminatory is a warning to municipalities to review their zoning practices for provisions that were originally intended to comply with the FHA but, because their consequences are discriminatory, in fact violate the FHA.

Stadium line of sight litigation

Bailey v. Bd. of Commissioners of Louisiana Stadium and Exposition Dist., 2020 WL 874046 (E.D. La. Feb. 21, 2020) and the companion opinion Bailey v. Bd. of Commissioners of Louisiana Stadium and Exposition Dist., 2020 WL 874039 (E.D. La. Feb. 21, 2020) are too long to summarize, but there are a couple of key holdings. First, the Court rejects the idea that limitations on an ADA claim based on a failure to make altered areas accessible runs from the first date the plaintiff visits the altered premises. The Court finds that limitations runs from the last visit, not the first. Second, the Court rejects a claim that the plaintiff’s standing is limited to the particular seats he occupies, finding that he faces at least a threat of discrimination from all discriminatory conditions. Beyond this the opinion demonstrates that line of sight litigation is complicated because stadiums are complicated and what can be done is therefore subject to reasonable disagreement. The same is true of comparing lines of sight for wheelchair bound spectators and standing spectators and even deciding which of many entities involved in owning and operating the stadium may be liable. Unless settled these cases seem doomed to go to trial.

And more on alterations

In Lewis v. Phan, 2020 WL 885751 (W.D. Wash. Feb. 24, 2020) the Court ultimately denied a summary judgment on the central claim of discrimination, but the discussion of alteration claims is a reminder that clear thinking is required for businesses planning on a renovation of some kind. The court points out that when a building is “altered” there are two obligations; to make the altered area accessible to the “maximum extent feasible” and, if the altered area is a primary function area, to create an accessible route to it from the building exterior, subject to the limit that the cost not be “disproportionate.” If the altered area includes the route from the building exterior to the interior then it is part of the “maximum extent feasible” standard. If not, it is subject to the “disproportionate” cost standard.  The parties in this lawsuit failed to tell the Court which standard applied, with the result that they were sent away to think further about it.

City sidewalks as services

Hamer v. City of Trinidad, 2020 WL 869818 (D. Colo. Feb. 21, 2020) is a lawsuit that has been around awhile, with a trip to the 10th Circuit and the Supreme Court along the way.** In this latest decision the principal substantive ruling is that sidewalks constitute a “service” of the City that are therefore required to be accessible under the ADA. The Court also takes up limitations again in light of the Tenth Circuit’s holding, but only to conclude that fact issues preclude summary judgment.

Am. Council of Blind of Metro. Chicago v. City of Chicago, 2020 WL 1139243 (N.D. Ill. Mar. 9, 2020) is one of those cases that reaches what seems to be a momentous result without the least discussion. In contrast to Hamer v. City of Trinidad, which included extensive discussions in the District Court and Court of Appeals concerning how and why to apply the ADA’s statute of limitations to city services in the form of sidewalks, American Council of the Blind disposes of the issue with a single sentence: “As noted above, however, plaintiffs are not seeking damages for those (or any other) events, but instead seek to remedy dangerous conditions they claim are ongoing.”  This decision seems likely to provide the tail end of a string cite about continuing violations, but nothing more.

Is an auto repair shop a public accommodation?

Pomponio v. Brand Motors, LLC, 2020 WL 922450 (N.D. Cal. Feb. 26, 2020) is one of those rare cases in which the defendant claims it is not a public accommodation. The Court granted a motion to dismiss based on the lack of fact allegations to support the claim it was a public accommodation, but granted leave to amend. It is frankly hard to imagine an auto repair shop that is not a public accommodation, at least with respect to the area in which customers are dealt with, but it is imaginable that an appointment only shop that never allowed customers on the premises could avoid ADA coverage.

ADA Website lawsuits – long arm jurisdiction

Mercer v. Rampart Hotel Ventures, LLC, 2020 WL 882007 (S.D.N.Y. Feb. 24, 2020) is the District Court’s confirmation of the magistrate’s recommendation I discussed in ADA and FHA Quick Hits – Hearts & Flowers Edition. That discussion covers the same material.

* See my earlier Quick Hits blog, Quick Hits or just search “Uber” above to find all my blogs on ride-sharing issues. For arbitration, see “Browsewrap could tame the ADA website litigation monster.” and other blogs with the word “arbitration.”
** See my earlier blogs, Another ADA case heads to the Supreme Court – City of Trinidad v Hamer, and Eternal liability under ADA Title – It’s what you don’t do that matters, as well as the mention in Quick Hits – He’s making a list and checking it twice, which will provide a link to William Goren’s discussion of the topic.

 

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Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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