Lawyer The Arkansas
A publication of the Arkansas Bar Association
Inside: Sovereign Immunity The Retail Crisis Tax Reform and Estate Planning Employee Harassment Claims New AIA Construction Forms
Vol. 53, No. 2, Spring 2018 online at www.arkbar.com
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Little Rock 2226 Cottondale Lane, Suite 210 Little Rock, Arkansas 72202 Jason Earley, Managing Partner
Fayetteville 129 West Sunbridge Drive Fayetteville, Arkansas 72703 Shawn B. Daniels, Managing Partner
PUBLISHER Arkansas Bar Association Phone: (501) 375-4606 Fax: (501) 375-4901 www.arkbar.com EDITOR Anna K. Hubbard EXECUTIVE DIRECTOR Karen K. Hutchins EDITORIAL BOARD Anton Leo Janik, Jr., Chair Haley Heath Burks Luke K. Burton Dr. Frankie Martin Griffin Judge Brandon J. Harrison Ashley Welch Hudson Jim L. Julian Philip E. Kaplan Tory Hodges Lewis Drake Mann Gordon S. Rather, Jr. David H. Williams OFFICERS President Anthony A. “Tony” Hilliard Board of Governors Chair Paul W. Keith President-Elect Suzanne Clark President-Elect Designee Brian M. Rosenthal Immediate Past President Denise Reid Hoggard Secretary F. Thomas Curry Treasurer Joseph F. Kolb Parliamentarian Aaron Squyres Young Lawyers Section Chair Eric A. Marks BOARD OF GOVERNORS James Paul Beachboard Arkie Byrd Earl Buddy Chadick Sterling Taylor Chaney Brian M. Clary Grant M. Cox Bob Estes Buck C. Gibson Robert (Skip) L. Henry III Joshua D. McFadden J. Cliff McKinney II James McMenis Chalk S. Mitchell Brandon K. Moffitt Brant Perkins Colby T. Roe Robert M. Sexton Amy Lee Stewart Albert J. Thomas III Andrea Grimes Woods H. Wayne Young, Jr.
The Arkansas
Lawyer Vol. 53 No. 2
features
14 Is the Trend Back to Sovereign Immunity? By Chris Burks, Daniel Ford and M. Christine Dillard 20 The Impact of Tax Reform on Estate Planning By Trav Baxter 24 The Retail Crisis Continues: What the Biggest Retail Bankruptcy Cases of 2017 Tell Us About 2018 and Beyond By Robbin Rahman 28 Investigation of Employee Harassment Claims By Kathlyn Graves and Nathan Read 34 New Construction Contract Form from Architects By Jack East III 40 Insurance Requirements Under the 2017 AIA Contracts By David M. Powell 44 Unbundling Arkansas: Why Unbundling is the Future in Legal Service Delivery By Stephanie Blahut
LIAISON MEMBERS Judge Stephanie A. Casady Patti Julian Judge John N. Fogleman Harry Truman Moore Karen K. Hutchins Richard L. Ramsay Sarah C. Jewell Dr. Casey Carder Rockwell The Arkansas Lawyer (USPS 546-040) is published quarterly by the Arkansas Bar Association. Periodicals postage paid at Little Rock, Arkansas. POSTMASTER: send address changes to The Arkansas Lawyer, 2224 Cottondale Lane, Little Rock, Arkansas 72202. Subscription price to non-members of the Arkansas Bar Association $35.00 per year. Any opinion expressed herein is that of the author, and not necessarily that of the Arkansas Bar Association or The Arkansas Lawyer. Contributions to The Arkansas Lawyer are welcome and should be sent to Anna Hubbard, Editor, ahubbard@arkbar.com. All inquiries regarding advertising should be sent to Editor, The Arkansas Lawyer, at the above address. Copyright 2018, Arkansas Bar Association. All rights reserved.
Cover photo by Michael Pirnique of the northeast view of the Arkansas Bar Center located on the banks of the Arkansas River. Contents Continued on Page 2
Lawyer The Arkansas Vol. 53, No. 2
in this issue ArkBar News
4
Book Review
12
Congratulations to New ArkBar Members
13
Arkansas Bar Association Annual Meeting
32
2017-2018 Sustaining Contributors
42
Disciplinary Actions
47
In Memoriam
55
Classified Advertising
56
columns President’s Report
7
Anthony A. “Tony” Hilliard
Young Lawyers Section Report
9
Eric A. Marks
The Arkansas
Lawyer A publication of the Arkansas Bar Association
Vol. 51, No. 1, Winter 2016 online at www.arkbar.com
Inside: Same-Sex Marriage Judicial Campaign Finance The Arkansas Supreme Court During World War II Arkansas LLCs Guardianships of Minors
Advertise in the next issue of The Arkansas Lawyer. Opportunities also available on ArkBar’s website & weekly ebulletins. www.arkbar.com/for-attorneys/ publications/the-arkansas-lawyer/ advertising
Arkansas Bar Association
2224 Cottondale Lane, Little Rock, Arkansas 72202
HOUSE OF DELEGATES Delegate District A-1: Andrew T. Curry, Susan K. Kendall, George M. Rozzell, Ryan Scott, Vicki S. Vasser-Jenkins Delegate District A-2: Earl Buddy Chadick, Leslie Copeland, M. Scott Hall, Brian C. Hogue, Sarah Coppola Jewell, Alan Lee Lane, Richard Kyle Lippard Joshua D. McFadden, John Pesek, W. Marshall Prettyman, Jr., Rick Woods Delegate District A-3: James A. Arnold II, Aubrey L. Barr, Michael Alan LaFreniere, Joseph Karl Luebke, Samuel M. Terry Delegate District A-4: Justice Paul Danielson Delegate District A-5: Johnny L. Nichols Delegate District A-6: John D. Van Kleef Delegate District A-7: Samuel J. Pasthing Delegate District B: Darryl E. Baker, Jordan Broyles, Carrie E. Bumgardner, Bart W. Calhoun, Tim J. Cullen, Thomas J. Diaz, Tony Anthony DiCarlo III, Jason W. Earley, Edie Ervin, Jesse J. Gibson, Shana Woodard Graves, Christopher Heil, Glen Hoggard, D. Michael Huckabay, Jr., Amy Dunn Johnson, Jamie Huffman Jones, Joseph F. Kolb, Victoria Leigh, Kathleen Marie McDonald, J. Cliff McKinney II, Jeremy M. McNabb, David Stockley Mitchell, Jr., Chad W. Pekron, John Rainwater, Scott Michael Strauss, Jonathan Q. Warren, David H. Williams, George R. Wise, Jr., Kim Dickerson Young, Heather Goodson Zachary Delegate District C-1: Roger U. Colbert Delegate District C-2: Michelle C. Huff Delegate District C-3: Robert J. Gibson, Hunter J. Hanshaw, Ryan M. Wilson Delegate District C-4: Kara Lynn Byars Delegate District C-5: Christopher Michael Bryant, Matthew Coe, Brett D. Watson Delegate District C-6: William Ellis Arnold III, Danny M. Rasmussen Delegate District C-7: Ginger M. Stuart Delegate District C-8: Kandice A. Bell, Margaret Dobson, George Leah Delegate District C-9: Katelyn Burch Busby, Lee Douglas Curry, Molly S. Shepherd Delegate District C-10: Amy Freedman, Joshua R. Thane Delegate District C-11: Sterling Taylor Chaney, Taylor Andrew King Delegate District C-12: Kurt J. Meredith, Brenda Sue Simpson Delegate District C-13: Brian M. Clary, John Andrew Ellis Law Student Representatives: Jenna Dale Poe, University of Arkansas School of Law; Taylor Pearson, UA Little Rock William H. Bowen School of Law
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Every George Counts with the ABA Retirement Funds Program.
When saving for retirement every George counts. As a not-for-profit corporation, the ABA Retirement Funds Program features no out-of-pocket firm expenses and low institutionally-priced funds for participants. Learn how the ABA Retirement Funds Program can help you reduce plan costs so that every George can count towards your retirement.
Contact an ABA Retirement Funds Program Regional Representative today. 866.812.1510 www.abaretirement.com joinus@abaretirement.com
All ABA Retirement Funds Program fees are allocated to each investment option (excluding brokerage accounts) and are reflected in each Fund’s expense ratio. These fees are the only costs charged to participants (or employers) for participating in the Program. There are no additional costs to the employer or out-of-pocket expenses for participants. Clients may incur additional expenses through the use of outside service providers, such as a TPA or CPA, to support their plan design or responsibilities as a plan sponsor. Participants may incur costs by opting for certain advisory services or by utilizing the self-directed brokerage account option. The ABA Retirement Funds Program is available through the Arkansas Bar Association as a member benefit. Please read the Program Annual Disclosure Document (April 2017), as supplemented (July 2017), carefully before investing. This Disclosure Document contains important information about the Program and investment options. For email inquiries, contact us at: joinus@abaretirement. com. Securities offered through Voya Financial Partners, LLC (member SIPC). Voya Financial Partners is a member of the Voya family of companies (“Voya”). Voya, the ABA Retirement Funds, and the Arkansas Bar Association are separate, unaffiliated entities, and not responsible for one another’s products and services. CN1018-37928-1119D - 2017
ArkBar News
2018 Arkansas High School Mock Trial Competition Thank you to all of the volunteers who made the 2018 Mock Trial Competition a success For three consecutive years, students from the Springdale Har-Ber High School in Springdale prevailed as the winners of the Arkansas Mock Trial Competition. More than 200 high school students from across the state gathered in Little Rock March 2-3 for the event, with 22 teams competing. The Springdale Har-Ber High School Team Navy won the final match over the Springdale High School team. The team represented Arkansas at the National High School Mock Trial Championship in Reno, Nevada, May 10-12 where they ranked 16th. Arkansas Bar Association President Tony Hilliard presented the trophy to the winning team. Thank you to all of the attorneys and judges who helped make this year a success! Special thanks to the ArkBar Mock Trial Committee, Arkansas Bar Association, Arkansas Bar Foundation, and the Arkansas Bar Association’s annual sponsors.
Travis Alton Adams Charles Greg Alagood Elizabeth Joyce Armstrong Joshua Chester Ashley Caroline S. Bednar Judge Wiley Branton, Jr. Judge Troy Braswell T. Scott Brisendine Kelly Brown Sydney Lynn Brown Randall L. Bynum Erin E. Cassinelli Joei L. Cherry Brian M. Clary Carl Frederic Cooper III Cory S. Crawford Tim J. Cullen Meagan Elizabeth Davis JaNan Arnold Davis John T. Elkins Amy B. Fields Hugh A. Finkelstein Adam B. Fogleman Jenna Reed Fogleman Daniel D. Ford 4
The Arkansas Lawyer
Judge Kristine Baker, Chief Justice Dan Kemp, Andrew Wiederkehr, Caleb Strickland, Olivia Moore, Ethan Jones, Katelyn Capdeville, Tania Martinez, and Tony Hilliard
Brooke Jackson Gasaway Tammy Brasuell Gattis Sarah E. Greenwood Adrienne Morris Griffis Harvey Harris Michael McCarty Harrison Floyd A. Healy Michael B. Heister Anthony A. Hilliard Rick Hogan Glen Hoggard Denise Reid Hoggard Elizabeth Alexandria Hollowell Ben Hooten Max M. Horner, Jr. Johnathan D. Horton Lori D. Howard Risie Rene’ Howard Michael Anthony Hylden Adam Donner Jackson Dawn R. Kelliher Chief Justice John Dan Kemp, Jr. Kyle D. Kennedy Summer Studdard Kersey Alexandra Kosmitis www.arkbar.com
Kent Charles Krause Stephanie Ann Linam Jennifer Liwo William C. Mann III Judge Price D. Marshall Kaylyn Turner Martin Dustyn Codie Martin Skye Martin Heather Renee Martin-Herron Judge Mary Spencer McGowan Matthew Porter McKay Anthony L. McMullen Mary Catherine Molly McNulty Laura Atchley Mitchell Barrett Moore Ben Motal Ashley E. Norman Gregory J. Northen Edward T. Oglesby Allison Christine Pearson Constance Brown Phillips Dequeshia Prude Debra J. Reece Judge Mike Reif Judge W. Michael Reif
Scott P. Richardson Danielle Elders Robertson Hannah Roe Jordan Rogers Herbert C. Rule III Elizabeth Rumley Rusty Rumley Robin C. Smith Jordan Brown Tinsley James D. Tomlin Kaylyn Renee Turner Judge Joe Volpe Charles Thomas Ward, Jr. Judge Morgan Chip Welch Jr. Matthew D. Wells John Mark White Teresa M. Wineland Andrea Grimes Woods Harold Wayne Young Kim Dickerson Young
ArkBar News
Oyez! Oyez! ACCOLADES Melody H. Piazza, of Trammell Piazza Law Firm, PLLC has become a Fellow of the American College of Trial Lawyers. The American Bar Association awarded Cynthia E. Nance, dean emeritus of the School of Law at the University of Arkansas, the 2018 Margaret Brent Women Lawyers of Achievement Award. Paul and Betsy Danielson were awarded the Jeral L. Hampton Lifetime Acheivement Award by the Booneville Development Corporation/South Logan County Chamber of Commerce.
It’s time to renew your membership
APPOINTMENTS AND ELECTIONS
for the 2018-2019
Arkansas Access to Justice Commission announced the following appointments: Skye Martin and Jim McClarty. The Arkansas Access to Justice Foundation announced the following appointments: Stacey Pectol, Sainabou Sonko, Hillis Schild.
Bar year
WORD ABOUT TOWN
The voice of the Arkansas lawyer
Snellgrove, Langley, Culpepper, Williams & Mullally, of Jonesboro, announced that J. Chad Owens has been made partner in the firm. Mitchell Williams Selig Gates & Woodyard, P.L.L.C. announced that Larry Watkins joined the firm as counsel in the Little Rock office. Please send Oyez announcements to ahubbard@arkbar.com.
We need you to help keep the voice of our profession strong. Continue to be a part of the statewide professional
ArkBar at BLI ArkBar President-Elect Brian Rosenthal continued his leadership journey at the American Bar Association’s (ABA) Bar Leadership Institute held in Chicago March 16-18, 2018. Pictured from left, ArkBar Executive Director Karen Hutchins, ABA President-elect Robert Carlson, ABA President Hilarie Bass and Brian Rosenthal.
New forms updated regularly. 24 new probate forms!
network by renewing your membership by June 30, 2018 Renew now! www.arkbar.com
www.arkbar.com/arkbardocs/home
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The Arkansas Lawyer
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PRESIDENT’S REPORT
Tag—You’re It Anthony A.”Tony” Hilliard
During my term as president, my theme has been, Tag— we’re it! As I end my term as president, I hope that each and every one of you will continue to take that theme with you. Together, only YOU can continue the good work consistently being done by so many great lawyers in the state of Arkansas. As I wind down my term, I’d like to leave you with a few more examples of the great work being done by Arkansas lawyers. I had the opportunity to speak to the Springdale Rotary Club on March 26. Thank you to Matt Fryar and Karen Talbot Gean for inviting us to join them at their first-rate club. While I spoke on Issue 1, it was also a great opportunity to recognize the Springdale Har-Ber High School Mock Trial team for winning the State Competition and Springdale High School’s Mock Trial team for finishing second. I watched Jason Hendren as Vice President of the Arkansas Bar Foundation present the Har-Ber team with a check for $2,600 to help with the estimated $8,300 cost for nationals. In addition to the gift from the Foundation, the Bar Association spends approximately $11,050 for the use of the Federal Court Building as well as the other administration expenses related to the competition. We know the importance of education and developing the best and the brightest students possible. Mock Trial
is one of the greatest community service efforts that the Arkansas Bar Association sponsors, and requires so many attorney volunteers to make it work. If you have not yet participated, please consider doing so next year. We need more great lawyers like you! I also attended the Elaine Massacre Memorial groundbreaking ceremony in Helena-West Helena on April 10. During the ceremony Judge Brian Miller explained that he lost four great uncles in the massacre. This memorial matters. The late David Solomon had the idea for the memorial, and his family provided the funds to make it happen. David Solomon was a legend in the legal community around the state and was one of those lawyers where the rest of the courtroom stood up when he entered. Some of the lawyers there told me that even on his death bed at over 100 years old he still wanted to know the courthouse gossip. The world needs another lawyer like David Solomon. Afterwards, Deputy Prosecuting Attorney Todd Murray invited me to a program where a community group he works with, in coordination with the county, obtained a grant for bullet-proof vests for all law enforcement officers in Phillips County. The world needs more lawyers like Todd Murray. County Judge Clark Hall was also there. He described for me several of the projects the county
was working on to improve life in Phillips County and asked if they could host some of the mock trial competitions in the David Solomon courtroom. Too often we pass through a community and just see the difficulties, especially in East Arkansas; I could also see the promise and hear people dreaming of a better future and acting on that dream. On April 19 several of us from the Arkansas Bar Association attended the Code Revision Commission meeting to express concerns with proposed changes to the contract for publishing the Arkansas Code. I sincerely appreciate the Chair, Representative Matthew Shepherd, giving us the time to speak on our concerns. Other legislator lawyers on that Commission were Senator Will Bond and Representative Clarke Tucker. The world needs more lawyers like Matthew Shepherd, Will Bond and Clarke Tucker willing to sacrifice their time to serve Arkansas. I deeply appreciate their service and the service of all lawyer legislators who give so much of themselves while also trying to have their private practice. Another Commissioner is Bettina Brownstein. She describes herself as a “retired” lawyer, meaning she only does the legal work she wants to do now. Years ago a client/friend asked me to help his son in prison. The son pleaded not guilty by reason of
Tony Hilliard is the President of the Arkansas Bar Association. He is a partner with the Ramsay, Bridgforth, Robinson and Raley, LLP firm in Pine Bluff.
temporary insanity to an assault and kidnapping charge. He was still found guilty and sentenced to eight years in prison, but because of the temporary insanity plea, he was forced to take a sedative in prison that can only be described as a chemical straightjacket with horrible side-effects if taken for more than a few weeks. He had been forced to take that drug for over two years. I had no idea how to proceed. Fortunately, Bettina had just written an article about prisoner mental health in The Arkansas Lawyer, so I called her. She immediately knew the drug, the issues and the problems associated with it. She promised to make some phone calls. A week later my friend called and said they had taken his son off the drug that week. Thank you again, Bettina. The world needs a lot more lawyers like Bettina Brownstein. I hope I see each one of you at this year’s Annual Meeting. It’s an important event for Arkansas lawyers, where we get a chance to renew friendships, take advantage of some great CLE, and recharge our commitment to our legal community—because, Tag, You’re it! #ArkBarAM (And remember that Wednesday is Seersucker Day and Derby Party Day!)
Vol. 53 No. 2/Spring 2018 The Arkansas Lawyer
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The Arkansas Lawyer
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YLS REPORT
1 2 0 th A r k B a r A n n u a l M e e t i n g
The Big Event
June 13 - June 15, 2018 Hot Springs Convention Center
(HSCC)
Let’s socialize By Eric A. Marks WEDNESDAY
Wednesday Afternoon Derby Party 4:30p - 5:30p • Exhibit Halls C & D, HSCC Wear your Seersuckers and derby hats!
All registrants are invited and all new attorneys* will receive a gift at the reception. *members admitted to practice after July 1, 2016 THURSDAY
Thursday Afternoon Friday Firm Reception 4:00p - 5:30p • Grand Lobby, HSCC YLS Hospitality Suite mr. happy
Start
AT 8:00P
Arlington Hotel Lobby
Thursday 8:00p - 11:00p Hotel Hot Springs, Suite #1411
FRIDAY
YLS Section Meeting and Elections 10:00a - 11:15a • Rooms 203-204, HSCC TGIF Reception Win Prizes! 4:00p - 6:00p • Grand Lobby, HSCC
Learning. Networking. Celebrating.
Register Today! arkbar.com/AnnualMeeting
Finish Strong. Simple enough statement it would seem and one that is routinely used for slogans, logos, and motivation for all sorts of sports. The implication being that people should finish whatever task is at hand as strong they began or as strongly as possible. I chewed on the meaning of this phrase while driving on 67 North, a roughly two-andone-half-hour drive from my home, to finish strong in my own way. I began this year, and in fact this YLS article, writing about a friend. The friend was an older attorney, who influenced my early years of practice and was a part of many good memories learning the art of practice in Arkansas. (Some of those memories at my naïve expense.) It seemed only fitting my last article come full circle from that first memory shared. I was traveling on 67 North that day for one simple reason—books. A library is probably a more accurate statement. That same friend contacted me a few weeks prior, indicated his pending retirement, and asked me if I wanted his law library. I realize in 2018 that this is not something truly functional beyond aesthetics, but the gesture alone and the gift of hundreds of years of our predecessors’ work was humbling and truly kind. I, of course, accepted and made
Eric A. Marks is the Chair of the Young Lawyers Section. He is an attorney with White & Marks PLLC in Arkadelphia. plans to travel north to retrieve the books. I arrived at his office, nothing altered, we greeted one another, and I began to load the hundreds of books for my firm’s library, while he quietly smoked his pipe as Dean Martin played softly over his office speakers. Even in retirement, he continued to give. It struck me that when it’s all said and done, how you spend your time and what you spend it on, can reflect the legacy you leave behind. We should all take a page from his playbook, and finish strong. Congrats on your retirement Red. The easiest way for you to finish strong? Get involved! YLS is a great place to start! We had a good spring, with a YLS Arkansas Derby day that was well attended despite the rain. The YLS CLE track at the Mid-Year meeting was well received and quite enjoyable. The first MidYear Hospitality Suite was extremely well attended for a MidYear Meeting. We are gearing up for a great Annual Meeting and of course the YLS Hospitality Suite. I look forward to this coming year and all that Sarah Jewell will bring to the table as the new YLS Chair. I encourage you all to join us at the Annual Meeting and come say hi at the hospitality suite.
Vol. 53 No. 2/Spring 2018 The Arkansas Lawyer
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Connections with Colleagues
Leadership Opportunities
The Arkansas Bar Center 2224 Cottondale Lane • Little Rock • Arkansas • 72202
Your Professional Hub We Welcome You to Enjoy and Utilize Your Bar Center Your office away from home with the Visiting Attorney’s Office. Meeting rooms for small and large groups. Wi-Fi and state-of-the-art technology. Hold your depositions and meetings (complimentary to members) and arbitrations and mediations (for a fee). Rooms available: Board Room, Conference Center, ADR, Inc. Mediation Office, and Deacon Visiting Attorney’s Office
Pictured below: Friday, Eldredge & Clark Board Room, Wright, Lindsey & Jennings Plaza, Mitchell Williams/Altheimer Foundation Conference Center
Call Michele at 501-375-4606 Ext. 101 or email mglasgow@arkbar.com to reserve your space. Or just stop by for a cup of coffee. Vol. 53 No. 2/Spring 2018 The Arkansas Lawyer
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Book review
Scales of Justice
by Taylor Dugan, CreateSpace Independent Publishing Platform; second edition, 2017, 32 pages, $9.95 Paperback, $2 Kindle. Book Review by Kirsten Mönkemüller The courtroom might be an intimidating place for those unfamiliar with it. Nonetheless, it is never too early to start
learning about how the system operates. In the children’s book, “Scales of Justice,” author Taylor Dugan opens young readers’ imaginations with colorful illustrations of the legal world. It is an inviting story that takes place in an underwater setting called Finland, which is reminiscent of a Pixar film with fish and other sea creatures. Through clever wordplay like “gill-ty” for “guilty” and “off the hook,” children will be able to remember key legal terms and have a laugh as well. In addition, the footnotes are insightful and teach the reader as the pages are turned. Not only does this book explain legal concepts and refer to notable figures such as Justice Scalia and Justice O’ Connor, it also upholds the value of honesty as displayed by
the testimony of the heroic protagonist, Finn. This book shows that telling the truth has its rewards despite its difficulties. Finn is an exemplary character that can inspire children to be upright and law-abiding citizens. After reading this book, children will not be lost at sea wondering what a day in court is like. Scales of Justice presents the readers with a glimpse of the critical roles that witnesses, judges, detectives, and juries play in the justice system. Depending on the reader’s age and attention span, the book might need to be divided into multiple sessions due to the length. Parents, teachers, and those in the legal profession will enjoy sharing this Fin-tastic book with their family or students! This book is also a great resource for acquainting
and comforting child witnesses with the testifying process in the courtroom. Taylor Dugan taught Spanish to elementary school students in the North Little Rock School District using music, stories, and puppets for six years. He served as a deputy prosecutor for the 22nd judicial district from 2015 to 2018. Now he is a Staff Attorney for Legal Aid of Arkansas. Kirsten Mönkemüller is a German-GuatemalanAmerican and bilingual world traveler who holds a BA in International Studies from American University and MA in International Law from SOAS, University of London.
You are an Arkansas lawyer in 1855. Your client is a slave. Your client is the audacious Abby Guy, a slave for three decades who has lived free for ten years, a woman with an unconquerable spirit. Now she has been re-enslaved by a vengeful master. She says she is white, but she was born a slave and her owner says she will always be a slave. You have been retained to persuade a jury of slave owners to give her freedom. The owner has one of the best lawyers in the State, James Yell, a man who has himself gotten away with murder.
How would you present her case for freedom? This is the true story of an actual trial in Hamburg, Arkansas, and its appeal to the Arkansas Supreme Court. Written by an attorney-historian. 12
The Arkansas Lawyer
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What is race? How do you convince the judge and jury? How do you beat the Slave Code that ensnares and oppresses every slave? See how Abby Guy’s lawyers, John C. Waddell and Augustus Garland, took on this daunting task. Available as a printed book or as an e-book from Amazon.com, Barnes & Noble, and other online booksellers.
Congratulations to the New ArkBar Members Admitted to the Practice of Law April 2018 All new members admitted to practice after July 1, 2016, will be welcomed at the Annual Meeting in Hot Springs during the afternoon reception on Wednesday, June 13. Ambere Renee Adkins Kyle Randall Akin Abel Perea Albarran John Alexander Albertson Garron Paul Amos Rachael Ann Bakowicz Taylor Scott Beach Elijah Lane Bentley John Mark Burgess Kathryn Marie Cario Shawnequa C. Clark Michael Joseph Crowe James Gordon Curtis Jason Robert Davis Gabriel Graham DeVaux Kristen Joy Downey Mariah Reid Elkins Piper Fortune Craig Michael Foster Phillip Chase Foster Salmeen Haque Tramisha Harris
Bobby Gene Huddleston Joshua Welch Jackson Bradley Kenneth Jakel Caroline Kelley Norma P. Kirshberger Kristen N. Komander Britney Nicole Lloyd James C. Lloyd Brian Alan McQuiston Justin Charles Meeks Ross Carter Murphy Colton Lee Pace Brandon Chadric Pickett Hayden Alexander Redd John Keary Richards Casey Nicole Richmond Cole Alan Riddell Alexander C. Rogers Brooke Thompson Jeremy Dwain Wann Susan Corie White Michael Lloyd Yarbrough
ARKANSASFINDALAWYER®
A service of the Arkansas Bar Association Connecting clients and lawyers
“I was contacted recently by a person in Michigan who needed to enforce a foreign judgment against assets in Arkansas. I asked how she found me, and she responded she went through the Arkansas Find-A-Lawyer website. She explained that she didn’t trust most online referral sites, but she did feel like she could trust Find-A-Lawyer because of its connection to the state bar association. I earned enough in fees off of that one referral to pay for several years of listings on the Find-A-Lawyer website!” —Matthew L. Fryar, Cypert, Crouch, Clark & Harwell, PLLC Hundreds of calls like this are referred to ARKANSAS FIND-A-LAWYER each week. If you are not on the list—you should be. Only $75/year. Subscribe today at ARKANSASFINDALAWYER.com
Vol. 53 No. 2/Spring 2018 The Arkansas Lawyer
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Is the Trend Back to Sovereign Immunity? By Chris Burks, Daniel Ford and M. Christine Dillard
W
Burks
Ford
Chris Burks and Daniel Ford are members of the Sanford Law Firm, PLLC. Their firm represented Plaintiff Matthew Andrews. M. Christine Dillard is a law student at the Bowen School of Law. Dillard
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hile potential indictments dominate the national stage, sovereign immunity sits at the forefront of Arkansas legal news.1 This surge in interest results from an opinion in The Board of Trustees of the University of Arkansas v. Andrews, issued by the Arkansas Supreme Court on January 18, 2018.2 In Andrews, in what began as an otherwise sleepy single-plaintiff wage case out of Mena, a majority of the Court embarked upon a course-change in sovereign immunity law. In order to understand how a relatively benign dispute starring a bookstore manager may end up mattering for many lawyers’ practices, we have to first look at what exactly the courts mean by sovereign immunity. And no analysis of sovereign immunity is complete without Latin, so let’s get right to it: Rex Non Potest Peccare, “The King can do no wrong.”3 Many think this maxim explains sovereign immunity.4 The traditional view of the doctrine holds that the King of England was sovereign and could do no wrong. Thus the King couldn’t be sued.5 The doctrine expanded so that the sovereignty of the ruler was the essence of the state. So the state is now sovereign. Thus, the state can’t be sued.6 Unlike England, an absolute monarchy that evolved into a parliamentary democracy, America evolved to have at least dual sovereigns: the states and the nation.7 Nottinghamshire and Northumberland do not have a constitution, much less one that protects its citizens as the Arkansas Constitution protects its. Our American system of federalism provides for state and federal constitutions.8
Why has this esoteric topic sparked so much present interest?9 Because the state acts in a number of different legal capacities, many of which could be challenged in court if it were not for the doctrine of sovereign immunity. A historical analysis of sovereign immunity, specifically in the context of the recent ruling in Andrews, reveals a variety of different litigation issues that could arise in the future. This litigation may well impact your practice beyond the immediate impact of Andrews. This article will examine the confusing historical and present-day concepts of sovereign immunity, the Arkansas Supreme Court’s examination and application of sovereign immunity in Andrews and what that decision could mean going forward.10 Let’s first look at what the confusion surrounding sovereign immunity is all about. 1. Are the people, the state, & the government the same body and all sovereign? Arkansas Supreme Court Associate Justice Womack asked in the Andrews oral argument a version of this insightful question that illuminates the concept of sovereign immunity: so as long as the state is willing to overlook the requirements of the constitution, that’s okay?11 Justice Womack’s point was that the state, and by that he meant the people elected to civil office and the civil servants that implement the law they create, is not the same as the people who drafted the requirements of the constitution. And if those people passed
a constitution that said they were sovereign and could not be sued, the legislative branch could not override or abrogate that decision by later legislation. Arkansas Supreme Court Associate Justice Wood took the logic further in another piercing question during Andrews oral argument: if legislation could not override the sovereign immunity established in the constitution, how can the elected judiciary attempt to override sovereign immunity?12 In other words, what is the difference between judicial and legislative abrogation of sovereign immunity? The Andrews court did not fully decide that question, but the following central contradiction in immunity law remains: the Arkansas Constitution clearly says the people are sovereign.13 The doctrine of sovereign immunity says that the state is sovereign. So which is sovereign: the people or the state? Or are they one and the same? Matthew Miller, assistant director of the Bureau of Legislative Research’s legal division, put it well: “I am trying to provide clarity on something that is not clear.”14 One possible way sovereign immunity can remain logically consistent with sovereignty also residing in the people is to define the state as the people acting in concert. The people don’t want their money to be wasted, so they don’t allow themselves to collectively be sued, goes that line of logic.15 But if the state is one and the same as the people, then how can the people hold the state in check? Must it only be through
constitutional amendment? While confusion surrounding the topic ensures it will likely frequently be in front of courts in the future, there is a group currently seeking to amend the Constitution to allow for legislative abrogation of sovereign immunity. Their answer to this thorny problem is to say the state can be checked by the people through legislation that allows for suits against the state.16 Without such constitutional clarification, however, let’s now review the changing case law. 2. Arkansas background on sovereign immunity The people of Arkansas amended their constitution in 1874 following the Reconstruction Era. According to an analysis by a majority of the 1935 Arkansas Supreme Court, the era immediately preceding 1874 shook the foundations of the state.17 During what the 1935 Court labeled as a contentious time, article V, section 45 of the 1868 Constitution read: “[t]he general assembly shall direct by law in what manner and in what courts suits may be brought by and against the state.”18 According to that same 1935 Court, after a period of “fraudulent and unjust claims” against the state, the people replaced this section with the passage of article V, section 20 of the Arkansas Constitution of 1874, which states: “[t]he State of Arkansas shall never be made defendant in any of her courts.”19 Since then, judicial interpretation of article V, section 20 has oscillated.
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During the early 1900s, the Arkansas Supreme Court construed article V, section 20 strictly, holding that the state does not consent to suits against itself.20 However, as early as 1923, the court recognized that when the state instigates a suit, it must be subject to the ruling of the court in the same manner as a private party.21 The court has continued to allow an exception to sovereign immunity when the state makes itself a party to a suit, once terming it to be the only exception to sovereign immunity.22 In 1938, the Arkansas Supreme Court concluded that, even though the state may not be specifically named, the doctrine of sovereign immunity encompasses officers of the state and state agencies.23 Importantly, the General Assembly subsequently extended sovereign immunity to state officers and employees by statute, except when they act maliciously.24 The court has allowed an agency to be sued when it acts illegally, refuses to perform a statutorily required ministerial action, or acts in an ultra vires manner.25 Another exception to sovereign immunity began to take shape in the 1932 case of Arkansas State Highway Commission v. Dodge.26 There, the court determined that it would allow suits against the highway commission when the legislature authorized suit by statute.27 In cases prior to Dodge, the court debated whether the highway commission was an arm of the state or a private corporation acting on behalf of the state.28 In Dodge, the court determined that, in either situation, a party could bring suit against the highway commission if authorized by statute.29 The court reiterated the finding from Dodge in the 1933 case of Watson v. Dodge, but also noted that consent to suit against the state could not be given by the General Assembly.30 Subsequently in 1935, the court explicitly overruled Dodge and Watson in Arkansas State Highway Commission v. Nelson Brothers, finding that the highway commission was an agent of the state, and that the state could not consent to suits against itself.31 The court noted that the prior decisions were based upon its effort to find a just solution to an injury, but determined that the decisions were not founded in a legal basis.32 Two decades later, the court reaffirmed this holding when it stated that article V, section 20 “is mandatory and cannot be waived by the General Assembly.”33 This understanding of the provision held firm until 1996 16
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when the court declined to disallow suits against the state. In 1996, the court issued two opinions, Staton and Tedder, where it recognized an opportunity for tax-payers to sue the state to recover taxes paid as long as the plaintiffs complied with the statute enacted by the legislature.34 The court continued to allow suits against the state “where an act of the legislature has created a specific waiver of sovereign immunity,” and recognized an express or implied statutory waiver of sovereign immunity.35 The court extended the legislative waiver to a variety of suits: a declaratory judgment sought against the Arkansas Department of Human Services in a case about the applicability or validity of agency rules; a suit under the Arkansas Whistle-Blower Act; a suit against the Arkansas State Police Retirement System regarding underpayment of retired police officers; and a claim against the Arkansas Department of Human Services seeking family services to prevent a child from being removed from his parent, guardian, or custodian.36 The court also acknowledged the existence of the exception in several other cases, although it did not find a waiver of immunity in all circumstances.37 In a notable case, the Board of Trustees of the University of Arkansas raised the issue of the legislature’s authority to allow suit against the state in the case of Johnson v. Butler.38 The court noted the decision from Smith v. Daniel that allowed an employee’s claim against the state under the Arkansas Whistle-Blower Act.39 The majority declined to address the issue of legislative authority raised by the Board in Johnson, but found that the claim was barred by sovereign immunity because the plaintiff failed to sufficiently state a claim under the Arkansas Whistle-Blower Act.40 The court did not issue an opinion on the legislature’s authority to waive sovereign immunity during the rest of 2016 or 2017. As recently as June of 2017, the court continued to acknowledge that the legislature may specifically waive sovereign immunity.41 Even so, the issue that frustrated in Johnson v. Butler arose again in the case of The Board of Trustees of the University of Arkansas v. Andrews.42 3. The Andrews Case Matthew Andrews was a bookstore manager at Rich Mountain Community Col-
lege. He sued in court to recover overtime wages under the Arkansas Minimum Wage Act. He alleges he was misclassified as a salaried employee when his job duties dictated that he should have been paid hourly and received an overtime payment. Rich Mountain took an interlocutory appeal from the denial of its motion for summary judgment on sovereign immunity grounds. On appeal, the state claimed that the Arkansas Minimum Wage Act (“AMWA”)43 was unconstitutional because it violates article V, section 20 of the Arkansas Constitution. The Legislature had allowed suits against the state under the AMWA.44 However, article V, section 20 of the Arkansas Constitution reads that: “[t]he State of Arkansas shall never be made defendant in any of her courts.”45 Plaintiff ’s counsel argued that interpretation of the Constitutional provision, in addition to the intent of the legislature and the statute’s plain meaning, meant that legislative abrogation was allowable. Counsel argued to apply case law that allowed statutory exceptions to sovereign immunity because they are an express waiver created by the legislature. The majority went on to find that the circuit court incorrectly relied on Jacoby v. Arkansas Dept. of Ed. and that the legislative waiver of sovereign immunity in section 114-218(e) is repugnant to article 5, section 20 of the Arkansas Constitution. The majority compared the current constitution to the past constitution and found that the people changed the constitution from allowing the general assembly to waive sovereign immunity to using the word “never.” Rather than rely on the line of case emanating from Staton permissive of legislative abrogation of immunity, the majority concluded that Nelson Brothers, Fairbanks, and Arkansas Department of Human Services were the correct precedent for this court to follow in its conclusion that the General Assembly cannot waive the state’s immunity pursuant to article 5, section 20. The Court directed that Andrews, and other plaintiffs that subject the state to financial liability, should bring their claims to the Arkansas Claims Commission. The majority held that the circuit court erred as a matter of law in denying the Board’s motion to dismiss because it lacked jurisdiction over Andrews’ AMWA claim pursuant to the doctrine of sovereign immunity.
Justice Karen R. Baker disagreed with the majority in a dissent joined by Justice Jo Hart. The dissent’s view was that the majority’s attempt to limit its holding to only legislative abrogation failed. The dissent found that the word “made” in the Constitution should read as “to compel” because any other interpretation renders any waiver of sovereign immunity impossible. The dissent’s view was that the majority interprets the word “made” as meaning “cause to become.” This would mean the text reads “the State cannot be caused to be a defendant in any of her courts.” Thus, no branch could waive sovereign immunity by initiating suit in court, nor would sovereign immunity be limited to lawsuits seeking monetary judgments. The dissent went on to find that the majority’s holding that the legislature may no longer waive sovereign immunity necessarily means that the executive and judicial branches likewise may not waive sovereign immunity because any other interpretation would result in treating the legislature differently from the executive and judicial branches. Ultimately, the Andrews majority decision has a technical impact in several ways. First, the opinion certainly decided legislative abrogation of sovereign immunity was not allowable in Arkansas per the express language of article 5, section 20 of the Arkansas Constitution.46 The majority opinion also touched upon the inconsistently decided issue of whether sovereign immunity is a waivable affirmative defense that must be pleaded prior to appealing or instead is an absolute bar to subject matter jurisdiction that can be brought up for the first time on appeal.47 Whether the sovereign immunity defense is more like an affirmative defense or an issue of subject matter jurisdiction, however, was raised in another recent case before the Arkansas Supreme Court that was decided after Andrews. In a split decision in Walther v. Flis Enterprises, the majority opinion held that “continuing to treat sovereign immunity as an affirmative defense is consistent with our precedent.”48 The synthesis the Andrews majority had previously come up with was that sovereign immunity is jurisdictional immunity from suit that can be raised at any time, but it is also waivable.49 The Andrews majority also potentially hinted that, similar to its holding that the
“Will a future majority of the Court find that other longupheld exceptions to sovereign immunity are not found in the text of the constitution? And that judicial abrogation is no less textually-suspect than legislative abrogation? These and many questions remain.”
legislature may not abrogate statutory immunity, future decisions may hold that the main remaining exceptions to sovereign immunity50 may not be abrogated by the judiciary without a constitutional basis.51 Lastly, the majority strengthened its doctrinal notion that sovereign immunity only applies when an action seeks to bind the purse strings of the state.52 4. Potential impact on your practice Though it may be too early to tell how the Andrews majority decision may fully impact your practice, Andrews has certainly already impacted suits under the Arkansas Minimum Wage Act, the Administrative Procedures Act, and suits against the State Plant Board and Oil and Gas Commission.53 A non-exclusive list of other legislative waivers of sovereign immunity that might be invalidated includes the Arkansas Whistle-Blower’s Act, post-conviction cases, land-condemnation cases, suits against the Arkansas Department of Environmental Quality, Arkansas State Police and Medical Marijuana Commission, illegal-exaction cases, suits against state-owned hospitals and state occupational licensing boards, Freedom of Information Act cases, and suits filed against DHS, including dependency-neglect cases. As mentioned above, taxpayer appeals of the Department of Finance and Administration tax rulings are allowed as either a legislative abrogation of sovereign immunity or a suit not in the nature of one against the state.54 The state is not yet asserting sovereign immunity in seeking to dismiss all types of cases in the list above, and a majority of the Arkansas Supreme Court may find that waivers are allowable in a specific context or that those types of suits are not in the nature of suits as against the state.55 The range of statutes and case-law exceptions implicated, however, may raise issues of judicial abrogation. Will a future majority of the
Court find that other long-upheld exceptions to sovereign immunity are not found in the text of the constitution? And that judicial abrogation is no less textually-suspect than legislative abrogation? These and many questions remain. Endnotes: 1. Andrew DeMillo, Arkansas Court: Lawmakers Can’t Waive State’s Suit Immunity, U.S. News and World Report (Jan. 18, 2018, 6:40 PM) https://www. usnews.com/news/best-states/arkansas/articles/2018-01-18/arkansas-court-lawmakers-cant-waive-states-suit-immunity; John Moritz, Immunity Ruling Shines Spotlight on Arkansas Claims Commission, Arkansas Democrat Gazette (Jan. 20, 2018, 4:30 AM) http://www.arkansasonline. com/news/2018/jan/20/immunity-rulingshines-spotlight-on-cla/; Adrienne Griffis, ‘The King Can Do No Wrong’: Arkansas Supreme Court Removes Right to Sue State, Arkansas Business (Jan. 29, 2018, 1:07 PM) http://www.arkansasbusiness.com/ article/120597/the-king-can-do-no-wrongarkansas-supreme-court-removes-right-tosue-state-adrienne-griffis-commentary. 2. Bd. of Trs. of Univ. of Ark. v. Andrews, 535 S.W.3d 616, 623 (Ark. 2018). 3. Henry-Campbell Black, Black’s Law Dictionary, 1036 (2d ed. 1910). 4. United States v. Lee, 106 U.S. 196, 207 (1882) (“[T]he principle has never been discussed or the reasons for it given, but it has always been treated as an established doctrine.” (citations omitted)). 5. John E. H. Sherry, The Myth That the King Can Do No Wrong: A Comparative Study of the Sovereign Immunity Doctrine in the United States and New York Courts of Claims, 22 Admin L. Rev. 39, 58 (1969). 6. Alden v. Maine, 527 U.S. 706 (1999). 7. Antonin Scalia, Historical Anomalies in Administrative Law, 1985 Y.B. Supreme
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Court Historical Soc’y 103, 104. Interestingly, future Justice Scalia wrote that “at the time of Marbury v. Madison, there was no doctrine of domestic sovereign immunity, as there never had been in English law.” 8. Alden v. Maine, 527 U.S. 706 (1999). 9. Wesley Brown, Lawmakers Express Concerns on High Court’s Sovereign Immunity Ruling, Talk Business (Jan. 24, 2018) https://talkbusiness.net/2018/01/ lawmakers-express-concerns-on-highcourts-sovereign-immunity-ruling/. 10. Erwin Chemerinsky, Against Sovereign Immunity, 53.5 Stan L. Rev. 1201 (May, 2001). 11. Oral Argument at 24:39, Bd. of Trs. of Univ. of Ark. v. Andrews, 535 S.W.3d 616 (Ark. 2018) (No. CV-17-168) http://arkansas-sc.granicus.com/ViewSearchResults. php?keywords=Andrews&view_id=3. 12. Oral Argument at 6:23, Bd. of Trs. of Univ. of Ark. v. Andrews, 535 S.W.3d 616 (Ark. 2018) (No. CV-17-168) http://arkansas-sc.granicus.com/ViewSearchResults. php?keywords=Andrews&view_id=3. 13. “All political power is inherent in the people.” Ark. Const. Art. II, § 1. And that power “shall forever remain inviolate.” Ark. Const. Art. II, § 29. 14. Wesley Brown, Lawmakers Express Concerns on High Court’s Sovereign Immunity Ruling, Talk Business (Jan. 24, 2018) https://talkbusiness.net/2018/01/ lawmakers-express-concerns-on-highcourts-sovereign-immunity-ruling/. 15. Appellant’s Abstract, Opening Brief, and Addendum at AB 22, Bd. of Trs. of Univ. of Ark. v. Andrews, 535 S.W.3d 616 (2018) (No. CV-17-168) (quoting trial court hearing: “That the Constitution is designed to protect the people, not protect the government. Well, it is not Rich Mountain that’s saying that it is sovereignly immune, it is the people. The people of Arkansas are the ones who created the Constitution and as Mr. Sanford acknowledges, if the people do not believe they need more protection, the people can amend the Constitution, create a new amendment, or amend Article 5, Section 20—just like they did in 1874 when they took out the General Assembly’s authority to waive sovereign immunity.”). 16. Max Brantley, Group Seeks to Overturn Supreme Court Sovereign Immunity Ruling with Amendment, Arkansas Times (Jan. 24, 2018, 10:28 AM) https:// 18
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www.arktimes.com/ArkansasBlog/archives/2018/01/24/group-seeks-to-overturn-supreme-court-sovereign-immunityruling-with-amendment. 17. Ark. State Highway Comm’n v. Nelson Bros., 87 S.W.2d 394, 397 (Ark. 1935). This historical analogy by the court may say more about the court at the time, a panel of all white judges, than it does about the reality of the post-reconstruction era constitutional amendments. 18. Ark. Const. of 1868, Art. 5, § 45. 19. Ark. Const. of 1874, Art. 5, § 20; Nelson Bros. at 397. 20. Pitcock v. State, 121 S.W. 742, 745 (Ark. 1909). 21. Ark. State Highway Comm’n v. Partain, 103 S.W.2d 53, 54 (Ark. 1937) (citing Wilson v. Parkinson, 247 S.W. 774, 776 (1923)). 22. Ark. State Med. Bd. v. Byers, 521 S.W.3d 459, 462 (Ark. 2017) (recognizing the exception, but the exception was not at issue in this case); Fireman’s Ins. Co. v. Ark. State Claims Comm’n, 784 S.W.2d 771, 774 (Ark. 1990); Baker v. Certain Lands in Independence Cty, 720 S.W.2d 318, 321 (Ark. 1986); Parker v. Moore, 262 S.W.2d 891, 892 (Ark. 1953). 23. Page v. McKinley, 118 S.W.2d 235, 237–38 (Ark. 1938). 24. Ark. Code Ann. § 19-10-305. 25. Lenard v. Kelley, 519 S.W.3d 682, 688 (Ark. 2017). 26. Ark. State Highway Comm’n v. Dodge, 55 S.W.2d 71, 73 (Ark. 1932). 27. Id. 28. Id. at 71–73. 29. Id. at 73. 30. Id.; Watson v. Dodge, 63 S.W.2d 993, 996 (Ark. 1933). 31. Ark. State Highway Comm’n v. Nelson Bros., 87 S.W.2d 394, 395, 397 (Ark. 1935). 32. Id. 33. Fairbanks v. Sheffield, 292 S.W.2d 82, 84 (Ark. 1956). 34. Ark. Dep’t of Fin. & Admin. v. Staton, 942 S.W.2d 804, 805 (Ark. 1996); Ark. Dep’t of Fin. & Admin. v. Tedder, 942 S.W.2d 755 (Ark. 1996). 35. Ark. Dep’t of Human Servs. v. Fort Smith School District, 455 S.W.3d 294, 299 (Ark. 2015). 36. Id.; Smith v. Daniel, 452 S.W.3d 575, 578–79 (Ark. 2014); Weiss v. McLemore, 268 S.W.3d 897, 902 (Ark. 2007); Ark.
Dep’t of Human Servs. v. R. P., 970 S.W.2d 225, 232–33 (Ark. 1998). 37. Ark. State Claims Comm’n v. Duit Constr. Co., 445 S.W.3d 496, 502 (Ark. 2014); Ark. Dep’t of Cmty. Corr. v. City of Pine Bluff, 425 S.W.3d 731, 734–36 (Ark. 2013); Short v. Westark Cmty. Coll., 65 S.W.3d 440, 448 (Ark. 2002); State Office of Child Support Enf ’t v. Mitchell, 954 S.W.2d 907, 911 (Ark. 1997); Cross v. Ark. Livestock & Poultry Comm’n, 943 S.W.2d 230, 232 (Ark. 1997). 38. Johnson v. Butler, 494 S.W.3d 412, 416 (Ark. 2016). 39. Id. at 418. 40. Id. 41. Ark. State Med. Bd. v. Byers, 521 S.W.3d 459, 462 (Ark. 2017). The court noted that the legislature did not specifically waive immunity under the Arkansas Civil Rights Act, the statute in question in this case. 42. Bd. of Trs. of Univ. of Ark. v. Andrews, 535 S.W.3d 616, 618 (Ark. 2018); Johnson v. Butler, 494 S.W.3d 412, 418 (Ark. 2016). 43. Ark. Code Ann. § 11-4-218(e). 44. Ark. Code Ann. § 11-4-218(e)(1): “An employee may bring an action for equitable and monetary relief against an employer, including the State of Arkansas. . . .” 45. Ark. Const. of 1874, Art. 5, § 20. 46. Andrews at 623 (holding that “the General Assembly cannot waive the State’s immunity pursuant to article 5, section 20. To the extent that other cases conflict with this holding, we overrule those opinions.”). 47. Vibo Corp. v. State ex rel. McDaniel, 380 S.W.3d 411, 419 (Other “jurisdictional” issues, like personal jurisdiction, are waivable and, therefore, cannot be addressed for the first time on appeal.) The Court has held sovereign immunity does not raise an issue of subject-matter jurisdiction because “[u] nlike subject-matter jurisdiction . . . sovereign immunity can be waived.” Fegans v. Norris, 89 S.W.3d 919, 924 (2002). See also Short v. Westark Cmty. Coll., 65 S.W.3d 440, 445 (2002) (same); Ark. Tech Univ. v. Link, 341 Ark. 495, 501, 17 S.W.3d 809, 813 (2000) (same); Grine v. Bd. of Trustees, 2 S.W.3d 54, 58 (1999) (same); Newton v. Etoch, 965 S.W.2d 96, 99 (1998) (“Sovereign immunity is jurisdictional immunity from suit, although we have not couched the immunity in terms of subject-matter jurisdiction.”); Ark. State Bd. of Educ. v.
Magnolia Sch. Dist. No. 14 of Columbia Cty., 769 S.W.2d 419, 420 (1989) (“We have been provided no authority whatever to the effect that the points raised, i.e., the defenses of sovereign immunity and lack of standing would, if proven, deprive the court of jurisdiction, nor are we aware of any such authority in this court.”). However, the confusion lies in that the Court has also held that the defense of sovereign immunity does raise a question of subject-matter jurisdiction and, therefore, can be raised at any time. See Carson v. Weiss, 972 S.W.2d 933, 934 (1998); Ark. Dep’t of Fin. & Admin. v. Tedder, 932 S.W.2d 755, 756 (1996); Ark. Dep’t of Fin. & Admin. v. Staton, 934 S.W.2d 478, 479 (1996); McCain v. Crossett Lumber Co., 174 S.W.2d 114, 120 (1943); Pitcock v. State, 121 S.W. 742, 745 (1909). 48. Walther, Director Ark. Dept. of Fin. & Admin. v. Flis Enters., Inc., No CV-17240 (argued Feb. 8, 2018), available at https://caseinfo.aoc.arkansas.gov/cconnect/ PROD/public/ck_public_qry_doct.cp_dktrpt_frames. Meaning administrative agencies may decide not to raise this defense and courts will then not raise sovereign immunity sua sponte.
49. Andrews at 619 (“Sovereign immunity is jurisdictional immunity from suit . . . but that it may be waived in limited circumstances.”). 50. Andrews at 620 (“(i)When the state is the moving party seeking relief (ii) when the state agency is acting illegally or (iii) if a state agency officer refuses to a do a purely ministerial action required by statute.”). 51. Andrews at 619–20 (“This court has recognized that a claim of sovereign immunity may be surmounted in the following three instances . . . .” (emphases added)). 52. Bd. of Trs. of Univ. of Ark. v. Andrews, 535 S.W.3d 616, 623 (“[S]uits subjecting the State to financial liability are barred by sovereign immunity . . . .”). 53. See John Lynch, Ruling Boosts State Agencies’ Suit Immunity, Arkansas DemocratGazette (Jan. 23, 2018, 4:30 AM) http:// www.arkansasonline.com/news/2018/ jan/23/ruling-boosts-state-agencies-suitimmun/ (discussing Hurd v. Ark. Oil & Gas Comm’n, No. 60CV-17-3961 (dismissed Feb. 12, 2018) available at https://caseinfo. aoc.arkansas.gov/cconnect/PROD/public/ ck_public_qry_doct.cp_dktrpt_frames). Mr. Lynch notes that the decision “almost
completely invalidates the administrative adjudication provisions of the Administrative Procedure Act” and “has the immediate effect of voiding the regulatory authority of the Arkansas Oil and Gas Commission.” See also Monsanto Company v. Arkansas State Plant Board, 60CV-17-5964; John Doe 1-50 et al. v. Arkansas Medical Marijuana Comm’n, 60CV-17-6115; 60CV-17-6116, and Jane Doe v. Arkansas Medical Marijuana Comm’n, 60CV-18-110. 54. Walther, Director Ark. Dep’t of Fin. & Admin. v. Flis Enters., Inc., No CV-17240 (argued Feb. 8, 2018), available at https://caseinfo.aoc.arkansas.gov/cconnect/ PROD/public/ck_public_qry_doct.cp_dktrpt_frames. 55. Id.
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The Impact of Tax Reform on Estate Planning By Trav Baxter
A
n estate plan is an arrangement by which a person provides for his or her family or loved ones after death or disability. The goal is to allow chosen beneficiaries to receive property in a way which maximizes the benefits to them after considering both tax and non-tax factors. One of the main issues that estate planning attorneys have to consider, and the focus of this article, is how federal transfer taxes factor into each of their client’s plans. These include the estate tax, the gift tax, and the generation skipping transfer (“GST�) tax. Whether or not transfer taxes will currently impact your clients, attorneys must stay abreast of the ever-changing realm of federal transfer tax laws, because an understanding of those laws is essential when it comes to effective estate planning. With the constant state of legislative volatility, it is important to keep in mind that even if your client may not have an estate tax issue now, tomorrow is a new day and may present a much different set of circumstances. Major tax legislation enacted at the end of 2017 has resulted in numerous opportunities and issues that attorneys will have to address when assisting clients with their estate plans. Hopefully this article will not only bring you up to speed on the most recent federal transfer tax law changes, but also help you and your clients identify and address some of the significant estate planning opportunities and issues resulting from this new legislation. Trav Baxter is a lawyer at Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C. He holds an LL.M. in Taxation from the University of Florida School of Law, and devotes a portion of his practice to estate planning. 20
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History of Federal Transfer Taxes Through a unified transfer tax system consisting of the estate tax, the gift tax and the GST tax, the federal government imposes taxes on transfers of wealth.1 But how did we get to where we are today? Below is a summary of some of the milestones in the development of the federal transfer tax system over the years.
• In 1916, the first federal estate tax was enacted,2 creating a tax on the transfer of wealth from an estate to beneficiaries of the estate. The tax was levied on the estate, an exemption of $50,000 was allowed for residents, and tax rates were graduated from 1% to 10% based on the value of the net estate.3 • In 1932, after coming to the realization that wealthy individuals could merely avoid the estate tax by transferring wealth to others during their lifetimes, thus leaving less in their estates to tax, Congress enacted the first gift tax. Under the first gift tax, a person received a $50,000 lifetime gift tax exemption, as well as a $5,000 per donee annual exclusion amount.4 • In 1948, Congress enacted the first form of the marital deduction for both the estate tax and the gift tax, permitting, to a certain extent, a deduction for the value of property passing from one spouse to another.5 • A series of significant tax legislation was passed in 1976, 1981 and 1986, whereby the estate and gift tax systems were unified under a common framework, using one graduated rate of tax on both testamentary dispositions and lifetime gifts, and providing for a single credit for the estate tax and gift tax, that if not used to offset gift tax liability during life could be used to offset estate tax liability at death.6 Another one of the accomplishments of such legislation was the imposition of a tax on generation skipping transfers.7 • In 2001, George W. Bush signed The Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”),8 which significantly reduced the impact of federal transfer taxes on most people, but only through the end of 2009, whereupon the estate and GST taxes were repealed entirely,9 leaving only the gift tax (at a reduced rate) in effect that year, and in 2011 the pre-EGTRRA law would once again become applicable. From 2001 until 2009, EGTRRA increased the estate and GST tax exemptions from $1,000,000 all the way to $3,500,000, and the gift tax exemption was left at $1,000,000. • The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“TRA 2010”)10 temporarily extended the Bush tax cuts provided in EGTRRA for an additional two years; otherwise on January 1, 2011, pre-EGTRAA law would have reinstated an estate tax exemption amount of $1 million and a 55% top marginal rate. This act also introduced “portability,” which is a concept that allows the first spouse to die
the ability to transfer his or her unused estate tax applicable exclusion amount to his or her surviving spouse, whereupon the surviving spouse can then use such unused amount for his or her own gift or estate tax purposes. • The American Taxpayer Relief Act of 2012 (“ATRA”)11 set the estate tax exemption at $5 million (indexed for inflation), and the gift tax and GST tax exemptions were lined up to correspond with the estate tax exemption. The transfer tax rate was set at 40%. As of December 31, 2017, the exemption amount was $5.49 million. Needless to say, estate planning attorneys are periodically faced with changes in tax laws that may affect their practice and their clients, and with each change they have to respond by rethinking and modifying tax and non-tax plans. The enactment of the 2017 tax legislation is just another one of these scenarios of change that estate planners understand all too well and have come to expect. 2017 Tax Act: Transfer Tax Provisions On December 22, 2017, the President signed Public Law No. 115-97, an Act “[t]o provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” which has also been referred to as the “Tax Cuts and Jobs Act.” For purposes of this article, we can refer to this Act as the “2017 Tax Act.” The transfer tax provisions of the 2017 Tax Act, among others, are effective as of January 1, 2018; however, because of budget considerations these provisions are set to expire (“sunset”) after December 31, 2025 and revert back to pre-2017 Tax Act law.12 Under the 2017 Tax Act, the estate, gift and GST tax exemptions are doubled, and will continue to be subject to increase with inflation. The effective exemption amount for estate, gift and GST tax as of January 1, 2018, is approximately $11.18 million per person, which is a substantial increase from the $5.49 million exemption amount for estate, gift and GST tax as of December 31, 2017. The rate of tax imposed on transfers in excess of the exemption amount is 40%. The gift tax annual exclusion for 2018 has been increased from $14,000 to $15,000,13 meaning that a person can give $15,000 to as many people as he or she wishes without having to file a gift tax return. Unchanged by the 2017 Tax Act is that decedents will continue to receive a step-up in basis for all assets included in their estate upon
death, as under the law in effect on December 31, 2017.14 Portability also remains in effect. With the transfer tax provisions of the 2017 Tax Act set to expire at the end of 2025, concern exists regarding a donor who makes a gift prior to 2025 that is covered by the gift tax exemption amount, but upon such donor’s death after 2025 the gifted amount is in excess of the then-existing estate tax exemption amount. In such an instance, the question is whether the gift will be “clawed back” into the donor’s taxable estate and made subject to the estate tax.15 The 2017 Tax Act states that the Treasury Secretary may issue regulations to avoid a clawback,16 but the concern remains until such regulations are issued, and attorneys should make their clients aware of this risk.17 And so with the 2017 Tax Act, as we have seen in the past, practitioners are now not only faced with having to deal with significant legislative changes that currently affect planning for their clients, they are also having to work through the fact that these laws may change again in the not-so-distant future, either by way of expiration or pursuant to the direction of another administration. Nevertheless, the issues must be addressed and alternatives considered with new and existing estate plans. Estate Planning after the 2017 Tax Act You may be thinking “[W]hat’s the big deal, the 2017 Tax Act has set exemption amounts so high that most people probably don’t even need to worry about transfer taxes or additional planning after January 1, 2018.” However, remember (1) the volatility that surrounds the world of tax law, and that just because someone may be well under the exemption amount today does not mean he or she will be in the same boat next year, and (2) even though planning for transfer taxes may not be necessary for everyone, planning for other issues, such as income taxes and asset protection planning, are still very relevant for most people. In many instances, plans that were once heavily focused on transfer tax techniques and savings can now shift focus to other tax and non-tax issues of greater importance. So, what are some of the opportunities and issues that you and your clients may be faced with due to the enactment of the 2017 Tax Act? While it is not possible for this article to cover every situation that you may encounter, below are some common scenarios that highlight key issues involving transfer taxes, income tax, and general estate and trust nontax considerations.
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• Many estate plans can be simplified because of the high transfer tax exemption amounts. In light of this opportunity to simplify, spouses may consider merely leaving assets to the survivor outright and free of trust instead of holding the assets in trust for the benefit of the survivor for their lifetime. However, before making this decision, remember that there are valuable non-tax benefits to holding assets in trust, and the practical considerations of each approach should be reviewed with the client.18 Serious unintended consequences can result if spouses merely leave assets titled in joint names or leave them outright to each other at death. • Individuals with estates in excess of $5.5 million, and couples with estates in excess of $11 million, should consider making significant gifts to family members or trusts for the benefit of family members.19 If a trust is preferred, the donor will need to decide whether to create the trust as a grantor trust for income tax purposes, as well as whether to create a generation-skipping trust for tax and non-tax purposes (e.g. creditor and spousal protection). • Formula clauses in trusts should be reviewed in depth.20 A typical formula clause in a will or trust is where trust property is allocated upon the death of the first spouse to a credit shelter trust in an amount equal to the maximum amount possible without incurring any estate tax (i.e. the decedent’s remaining estate tax exemption amount), with the balance being allocated to the marital deduction trust. However, as a result of the increased exemption amount unintended consequences could result with the use of such a formula clause. For example, say in 2017 husband had an estate of $11 million, and it was his intent that a limited amount of his estate be held in trust upon his death for the benefit of his three children from a previous marriage, and the balance, including any increase in value over and above the increase in the exemption amount due to inflation adjustment, would be held in trust for his wife. Therefore, he provided that the credit shelter trust, which would be allocated his then existing exemption amount of $5.49 million, to be held for his children, and the marital deduction trust would provide for his wife. Under current law, the result would be much different, with the potential that everything would be used to fund the credit shelter trust for the children and no assets would be left to fund the marital deduction trust for the wife. 22
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• Standard credit shelter and marital deduction trust arrangements should be reviewed and possibly replaced with disclaimer trusts or a trust that can elect to be treated as a qualified terminable interest property (“QTIP”) trust in whole or in part. Both the disclaimer trust and QTIP trust can provide greater estate tax and income tax planning flexibility, and remember, flexibility (but not too much!) in this day and age is key when it comes to estate planning. • If a client is faced with the decision of whether to file and incur the expense of an estate tax return solely to elect portability, consideration should be given to the fact that even though under the current law the survivor may not have an estate tax issue, he or she may very well need the unused estate tax applicable exclusion amount of the first decedent if the current exemption amount sunsets prior to the survivor’s death. • A client may have an existing life insurance trust that was created to assist with the payment of estate taxes, and there is no longer a need for such liquidity upon death. In that case, the policy itself should be reviewed to determine if keeping the policy makes financial sense. The client may also want to know whether it makes sense for the trust to continue to own the policy, or whether the trust should be terminated and the policy distributed. • With the increased exemption amounts, resulting in transfer taxes becoming irrelevant for many people, estate plans should provide more of a focus on income tax planning techniques, such as to ensure the maximum stepup in basis upon death. For example, if a client previously created a family limited partnership (“FLP”), he or she may want to consider unwinding the FLP if the perceived income tax benefit of a step-up in basis on the full value of the underlying assets is preferential to having the partnership interest included in his or her estate at a discounted value. In the 2017 Tax Act world, the valuation discounts that could be achieved through some FLP structures may no longer be necessary. • Non-tax considerations should be revisited in connection with consideration of tax issues, such as trustee selection, beneficiary designation, distribution provisions and standards, and use of powers of appointment, as well as creditor and spousal protection. All of these issues can illustrate to clients why a comprehensive estate plan is still extremely important. In other words, remind clients that an estate plan is not only about tax planning.
Conclusion The laws that affect estate planning are ever-changing. In light of the numerous adjustments made by the 2017 Tax Act, as well as the uncertainty that looms because of the provisions that may expire at the end of 2025 or be rolled back by a future administration, it is important for people to review their existing estate plans to ensure those plans continue to satisfy tax and non-tax objectives. Building in as much flexibility into the plan as possible is of the utmost importance. Endnotes: 1. Fleenor, Patrick, A History and Overview of Estate Taxes in the United States, Tax Foundation, 1 (January 1994). 2. The United States Revenue Act of 1916, 39 Stat. 756 (1916). 3. Jacobson, Darien B. et al., The Estate Tax: Ninety Years and Counting, available at https:// www.irs.gov/pub/irs-soi/ninetyestate.pdf. 4. Id. 5. Id. 6. Id. 7. Id. 8. Pub. L. 107–16, 115 Stat. 38 (2001). 9. It should be noted that the TRA 2010 legislation reinstated the estate tax for 2010 but provided estates of decedents who passed away in 2010 with the choice to elect out of estate tax application. 10. Pub. L. 111-312, 124 Stat. 3296, (2010). 11. Pub. L. 112–240, H.R. 8, 126 Stat. 2313 (2013). 12. Akers, Steve, Selected Highlights of Tax Cuts and Jobs Act and Estate Planning Considerations, January 5, 2018, http://www.bessemertrust.com/portal/binary/com.epicentric. contentmanagement.servlet.ContentDeliveryServlet/Advisor/Presentation/Print%20 PDFs/Legislation_2017_Selected_Highlights_Tax_Cuts_WEBSITE_FINAL.pdf. 13. I.R.C. § 2503(b)(1). 14. I.R.C. § 1014. 15. Akers, supra note 12. 16. I.R.C. § 2001(g)(2). 17. Akers, supra note 12. 18. Id. 19. Id. 20. Id.
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The Retail Crisis Continues: What the Biggest Retail Bankruptcy Cases of 2017 Tell Us About 2018 and Beyond
By Robbin Rahman
I
t is no secret that traditional brick and mortar retailers had an extremely tough year. The number of well-known retailers seeking bankruptcy protection in 2017 reached triple digits, involving over 8,000 retail store closings, $15.6 billion in funded debt and a virtual “who’s who” of American retail brands, including: Aerosoles, Alfred Angel, BCBG, Charming Charlie, Gander Mountain, Gymboree, Payless, Perfumania, Radio Shack, rue21, Styles For Less, The Limited, Toys “R” Us, True Religion, Vitamin World and Wet Seal. If the first few months of the new year are any indication, the pace of retail bankruptcy filings in 2018 will be on par with 2017: in the first three months of 2018, three major retailers have sought bankruptcy protection, including The Bon-Ton Stores, Inc., The Walking Company Holdings, Inc. and Claire’s Stores, Inc., filings that are sure to have an industrywide impact.1 As we wait for the next “shoe to drop” in the retail sector, a review of some of the common themes and solutions to retail bankruptcy cases filed in 2017 may help predict what to expect in 2018 and beyond.
Robbin S. Rahman is an attorney at the Barber Law Firm in Little Rock and has over 17 years of experience as a corporate lawyer helping businesses solve critical financial, operational and legal problems.
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The Causes: Shifting Consumer Preferences, Amazon and Massive Levels of Debt Retailers who sought bankruptcy protection in 2017 heaped much of the blame for their distress on external market factors. For example, retailers described the retail environment as one of rapidly changing consumer preference, aggressive competition from big box and online retailers, such as Amazon and Wal-Mart, and too many brick and mortar stores relying on too little foot traffic in stores and malls. However, retailers also pointed to an equally significant, but less well-known factor: shockingly high levels of debt, much of which was incurred at the height of the financial crisis through alternative lending transactions, including “take-private” transactions, dividend recapitalizations and leveraged buyouts. For example, the bankruptcy pleadings in Payless, rue21, Gymboree and Toys “R” Us—four of the largest, most significant retail bankruptcy cases of 2017—each reveal that pre-bankruptcy, private equity-led transactions that heaped billions of dollars of debt
onto their balance sheets were at the center of each company’s financial woes. These retailers found themselves subject to significant debt service payments that impaired their ability to, among other things, invest in other critical capital improvements. Moreover, as cash became tight, financial covenants often tightened as well, creating an untenable situation. For example, as is typical in the retail industry, a retailer’s inventory represents a substantial portion of the ABL facility borrowing base. Accordingly, when vendors (often single-source vendors with significant leverage and bargaining power) inevitably learn of distress and begin to tighten trade terms or delay or cancel inventory shipments, longer inventory cycles limit the retailer’s ability to borrow under the ABL facility, which then limits the retailer’s ability to secure fresh inventory—a self-perpetuating cycle of distress. As a result of these exceptional levels of debt, even top retailers were unable to solve the more fundamental issues of an over-leveraged balance sheet. Bankruptcy was inevitable. The Strongest Retail Brands Restructured Around Prepackaged Chapter 11 Plans Although nearly every retailer that filed for bankruptcy in 2017 suffered from essentially the same set of problems, not every retailer was able to access the same solutions. For example, a handful of distressed retailers were successful in 2017 in moving swiftly through bankruptcy and emerging with improved operations and a significantly de-levered bal-
ance sheet. In each case, the tool of choice was the so-called “prepackaged” chapter 11 plan. A prepackaged chapter 11 plan (referred to as a “prepack”) is a restructuring in which the debtor and its major creditor constituencies negotiate all of the terms of a chapter 11 plan prior to the filing of a bankruptcy case and remain in bankruptcy for only so long as is necessary to obtain confirmation of the chapter 11 plan, normally no more than approximately 100 to 120 days. In 2017, only a few retailers were able to successfully utilize the prepack structure and move quickly through chapter 11 to a confirmed reorganization plan, including Gymboree, Payless, rue21 and True Religion. Although many factors impacted which retailers were able to access this structure, the common theme among these four retailers seems to have been strong, industry-leading brand names and sufficient liquidity to avoid having to seek bankruptcy protection on an emergency basis. The centerpiece of the prepack is the socalled “restructuring support agreement” or “RSA” (also called a lock-up agreement). The RSA is a pre-bankruptcy agreement that is negotiated between the distressed retailer/ debtor and its major creditor constituencies regarding the terms of the retailer’s restructuring, including the terms of a chapter 11 plan. The RSA includes provisions governing, among other things: (a) the amounts and types of bankruptcy financing (so-called “debtor-in-possession” or “DIP” financing) that will be provided; (b) the type of
exit financing that will be provided; (c) any other types of sophisticated financial instruments that will be used to reshuffle the retailer’s capital structure, such as debt-equity exchange offers or other rights offerings; (d) milestones that will govern the chapter 11 case, including, for example, the schedule dictating how quickly the plan confirmation process must be completed; and (e) a commitment by each of the participating creditors to cast their vote in favor of the agreedup chapter 11 plan. To ensure a successful prepack through confirmation of a chapter 11 plan, the RSA must “lock-up” (i.e., secure the affirmative vote of) at least 66% of the debtor’s “impaired” creditors.2 Not surprisingly, the price for a smooth transition through bankruptcy and significantly improved balance sheet was not cheap. As the RSAs of each of the above retailers reveal, significant value was promised to consenting creditors even before the bankruptcy cases were filed. For example, each of the RSAs included extensive release provisions in favor of participating creditors—including valuable releases in favor of the same entities that orchestrated the complex pre-bankruptcy financial transactions (i.e., LBOs and dividend recapitalizations) that arguably caused the distress in the first place. In addition, creditors participating in the RSA received the ability to participate in the DIP financing and the exit financing (and the related benefit of getting a “roll-up” of their liens), the ability to participate in restricted rights offerings and any associated
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backstop rights, the ability to participate in exchange offers at preferential exchange rates, and payment by the debtor of any fees and expenses of the creditors and their professionals incurred before or during the bankruptcy case, a benefit worth millions of dollars. Notwithstanding the significant value given to creditors through RSAs (and ultimately through a confirmed chapter 11 plan), each of the retailers utilizing the prepack/RSA structure saw significant deleveraging of their balance sheets in a very short period of time. For example, True Religion erased $345 million in funded debt; Payless erased $400 million in funded debt; rue21 erased $700 million in funded debt; and Gymboree erased $800 million in funded debt. Moreover, these benefits don’t include the other hundreds of millions of dollars of unsecured debt and other off-balance-sheet liabilities that were scrubbed clean through bankruptcy. In total, it is not difficult to understand why the strongest retailers preferred a prepack in 2017, and will continue to do so in 2018. Most Retailers Sought Bankruptcy Protection Solely to Complete Sales and Liquidations Although a few of the stronger retailers used prepacks, it was not an option for most retailers. Instead, most retailers sought bankruptcy protection not to reorganize, but rather to sell pieces of the business as a going concern or to liquidate all of their assets through liquidator-managed “goingout-of-business” sales. For example, each of The Limited, hhgregg, The Wet Seal and Gander Mountain bankruptcies were filed solely for the purpose of liquidating all of the assets of the company. Although a retailer’s restructuring efforts are guided by many factors, two primary issues tend to push most retailers into opting for bankruptcy sales and liquidations, rather than attempting a more complex and time-consuming reorganization. First, liquidation values for distressed retailers have improved significantly over the past decade, making auction bids from professional liquidators (such as Gordon Brothers or Hilco) as attractive, if not more attractive, than bids from going concern buyers. Most importantly, bids from liquidators often guarantee that a debtor will fully recover the cost value of its inventory on a timeline that is shorter than the process to fully nego26
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tiate and close a more complex going concern sale (and certainly shorter than the full process to negotiate and execute a prepack). In addition, other assets such as a retailer’s intellectual property (i.e., customer lists, trademarks, websites, IT, etc.) have become valuable assets that are bid upon aggressively by bidders not identified as going concern buyers.3 In sum, the liquidation value of a retailer can easily exceed its going-concern value, on a similar if not faster timeline—an extremely attractive option for debtors and their secured lenders. The second issue making sales and liquidations a more attractive option for most distressed retailers is the extremely limited time in which a retailer must make one of the most critical decisions in a retail bankruptcy case: the decision to “assume” or “reject” its store leases. In particular, as a result of a 2005 amendment to the bankruptcy code, section 365(d)(4) of the bankruptcy code requires that the lease-assumption/rejection decision be made no later than 210 days after the bankruptcy case is filed, unless a landlord has consented to a longer period.4 Because lenders typically demand that the retailer reserve at least 60 to 90 days to conduct the sale/liquidation process, the remaining balance of approximately 120–150 days is the maximum amount of time a retailer has to try and figure out an alternative restructuring. In light of the complexity of the operational, financial and other restructuring considerations of most retail debtors, 120–150 days is an extraordinarily short period of time to pursue restructuring alternatives. When this short, 120-day time frame is coupled with the very high values achieved through liquidation, it is not surprising that most distressed retailers that sought bankruptcy protection in 2017 did so for the primary purpose of selling assets and liquidating. Toys “R” Us—Different Strategy, Same Result One notable exception to the general framework described above (i.e., prepack or liquidate) was seen in the recent bankruptcy case of Toys “R” Us, filed in September 2017.5 Toys “R” Us filed bankruptcy as a result of a significant liquidity crisis, without a clear path to a restructuring and no plans to sell its assets to strategic buyers or to liquidate. In an effort to give itself the time it needed to consider restructuring alternatives, Toys
“R” Us negotiated an unlimited extension of the 210-day deadline of section 365(d) (4) with each of its landlords in exchange for a compensation package that included, among other things, a waiver of potentially valuable “preference” claims, cash payments, reimbursement of attorneys’ fees, and partial payment of “additional rent” claims.6 Without the pressure of the section 365(d) (4) deadline unnecessarily forcing the debtor’s hand, the Toys “R” Us debtor retained maximum flexibility to negotiate a comprehensive restructuring during its bankruptcy. Unfortunately, this novel approach was not sufficient to overcome the prevailing market forces that favor liquidation. On March 14, 2018, Toys “R” Us announced its intention to liquidate all of its U.S. stores. Recoveries: the Winners and Losers of Retail Bankruptcy Cases Not surprisingly, there were winners and losers arising out of the restructurings and liquidations of distressed retailers in 2017. The obvious winners include the senior lenders with first-priority liens on substantially all of the debtor’s assets. Not only did these lenders almost universally receive a full recovery, but in the case of restructurings, they also received the ability to participate in other post-petition financing facilities, rights offerings and other transactions at preferential pricing. Even in pure liquidation cases, senior lenders received a full recovery—further explaining why lenders are quick to push distressed retailers toward liquidation rather than reorganization. The prepackaged chapter 11 plan process also created a few additional winners. For example, winners included the secured lenders that were deeper in the collateral stack and would have been out of the money in a liquidation scenario, often referred to as the “fulcrum” security because they end up owning the company post-restructuring. These lenders received significant benefits and potential “upside” through the prepackaged plan process, often including post-bankruptcy control of the retailer. In addition, private equity firms and hedge firms had great success obtaining releases from liability related to prepetition transactions with the debtor, plus the right to participate in rights offerings and debt-equity exchange offers. Although it is nearly impossible to determine the ultimate recovery of these parties due to the complexity of their holdings, it is not dif-
ficult to imagine a scenario where their negotiated settlements in bankruptcy, coupled with prior recoveries, are far in excess of their initial investment. Other non-obvious winners include the CMBS investors and landlords with significant investments in the malls and shopping centers that, as a result of the restructuring, likely kept their anchor tenant. In addition, the win-list includes the management teams for the reorganized retailers, each of which received equity stakes in the reorganized company through management incentive plans negotiated into the restructuring deals. And of course, the professionals for these reorganized retailers were paid handsomely. For example, in the Payless bankruptcy case, fees and expenses for the five core debtor firms doing approximately four months of work exceeded $15 million (not including the fees and expenses paid by the debtor before filing for bankruptcy, which likely matched or exceeded this amount). The professional fees in the Toys “R” Us case exceeded $15 million in the first month. On the other hand, the most obvious losers were the non-priority, general unsecured creditors, whose recoveries were generally less than one percent.7 This class of creditors did fairly poorly whether the retailer successfully reorganized or liquidated. In a few instances, the work of the unsecured creditors committee was successful in achieving additional value for unsecured creditors. For example, the Payless creditors’ committee successfully negotiated an additional $20 million cash payment from plan sponsors for the benefit of unsecured creditors in exchange for certain releases (releasing the sponsors from liability arising out of prepetition transactions with the Debtor).8 Similarly, the True Religion creditors’ committee successfully negotiated additional cash consideration, and a small share of new equity being issued for the benefit of unsecured creditors.9 But on the whole, unsecured creditors saw most of their claims eliminated through the bankruptcy process. Conclusion The retail bankruptcy cases filed in 2017 demonstrate that most distressed retailers did not use bankruptcy as a “breathing spell” or to negotiate and devise a broader restructuring among all of its creditor groups, the goal with which bankruptcy is most commonly associated. Rather, in 2017, stron-
ger retailers used bankruptcy as a means to “bless” pre-bankruptcy deals among senior lenders. Weaker retailers used bankruptcy as a means to quickly liquidate assets for the benefit of their lenders. Only the Toys “R” Us case presents the more traditional restructuring scenario. And even after giving significant concessions to its landlords and buying unlimited time to work out a deal, Toys “R” Us still could not escape the fate of liquidation. Ultimately, two things seem certain for 2018: first, expect a continued reduction in every retailer’s brick and mortar presence. Second, just like in 2017, a few strong companies will negotiate deals before ever accessing the courts, emerging from bankruptcy as leaner, more competitive entities.10 The rest will seek bankruptcy protection to liquidate. Perhaps other retailers will experiment with the Toys “R” Us model, but it’s more likely that traditional restructurings will continue to be scarce. Endnotes: 1. See, e.g., Donna Mitchell, How Much Pain Will the Bon-Ton Bankruptcy Cause for the Mall Sector?, National Real Estate Investor, Feb. 15, 2018 (noting that debtor’s plan to close 42 stores implicates approximately $435.8 million in CMBS exposure). 2. See 11 U.S.C. § 1126(c) (providing that plan is “accepted” if at least two-thirds in amount and one-half in number of an impaired class of creditors has voted in favor of the plan). 3. See, e.g., Order, Pursuant to Sections 105 and 363 of the Bankruptcy Code, (I) Authorizing the Sale of Certain Intellectual Property Free and Clear of Liens, Claims, Encumbrances, and other Interests, and (II) Granting Related Relief, In re The Wet Seal, LLC, et al., Case No. 17-10229 (Bankr. D. Del., Mar. 3, 2017) (Doc. No. 234). 4. See 11 U.S.C. § 365(d)(4). 5. In re Toys “R” Us, Inc., et al., Case No. 17-34665 (Bankr. E.D. Va.). 6. See Order (I) Authorizing the Debtors to Provide Consideration to Landlords in Exchange for Extending the 365(d)(4) Deadline, (II) Approving the Extension Letter, and (III) granting Related Relief, In re Toys “R” Us, Inc., et al., Case No. 17-34665 (Bankr. E.D. Va., Jan. 25, 2018) (Doc. No. 1614). 7. Recovery percentages for non-priority, general unsecured claims: (1) In re BCBG Max Azria Global Holdings, LLC, et al. (0%
- 0.2%); (2) In re rue21, Inc., et al. (2.0% 4.0%); (3) In re The Gymboree Corp., et al. (0.66% - 0.92%); (4) In re True Religion Apparel, Inc. (4.1% - 7.7%); (5) In re Hancock Fabrics, Inc., et al. (1.3 – 2.1%); (6) In re Limited Stores Co., LLC (less than 1%). 8. See Disclosure Statement for the Fourth Amended Joint Plan of Reorganization, In re Payless Holdings, LLC, et al., Case No. 1742267 (Bankr. E.D. Mo., Jun. 23, 2017) (Doc. No. 1257) at 2. 9. See Disclosure Statement for First Amended Joint Chapter 11 Plan of Reorganization (As Modified), In re True Religion Apparel, Inc., et al., Case No. 17-11460 (Bankr. D. Del., Aug. 24, 2017) (Doc. No. 383) at 2–3. 10. In fact, two of the retail bankruptcy cases filed in 2018 contemplate a restructuring through a prepackaged chapter 11 plan. See In re The Walking Co. Holdings, et al., Case No. 18-10474 (Bankr. D. Del.), and In re Claire’s Stores, Inc., et al., Case No. 1810584 (Bankr. D. Del).
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Investigation of Employee Harassment Claims
By Kathlyn Graves and Nathan Read
T
he recent media attention to claims of sexual harassment has highlighted the duty of employers to prevent and resolve harassment claims in the workplace. Employers should be prepared to properly handle workplace harassment claims. These claims include not only sexual harassment, but harassment based on race, national origin, age, disability and any other status protected by law.1 The purpose of this article is to provide guidance on how to recognize and investigate a claim of workplace harassment.
Graves
Read
Kathlyn Graves and Nathan Read are lawyers with Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C. who represent employers in all areas of employment, including state and federal employment litigation. 28
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Duty to Investigate. Once a harassment complaint arises, an employer has the affirmative duty to investigate. This duty arises whether the complaint is made formally pursuant to an established grievance procedure or harassment policy or made in some informal manner. The employer’s duty to investigate a complaint of harassment was highlighted in two Supreme Court decisions. In Burlington Industries. Inc. v. Ellerth, the court stated that the “[e]mployer is negligent with respect to sexual harassment if it knew or should have known about the conduct and failed to stop it.”2 In Faragher v. City of Boca Raton, the court added that an employer can avoid or minimize liability for actionable harassment by investigating and taking prompt remedial action to end the harassment.3 Under Ellerth and Faragher, an employer is absolutely liable for any harassment which results in a “tangible employment action” (defined to include “hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits”) regardless of its policies or remedial efforts.4 When there is no tangible employment action, the employer becomes vicariously liable for the actions of its supervisors, but can prevail on an affirmative defense by showing (a) “that it exercised reasonable care to prevent and correct promptly any sexually harassing behavior” and (b) that the plaintiff “unreasonably failed to take advantage of any preventative or corrective opportunities provided by the employer to avoid harm otherwise.”5 An employer may lose the opportunity to prevail on these affirmative defenses by failing to investigate. A fact finder may find that the employer failed to “exercise reasonable care to prevent and
correct [harassment] promptly” if the employer fails to investigate. Further, when an employer is known to be reluctant to investigate, it has more difficulty showing that the complainant unreasonably failed to take advantage of any preventative or corrective opportunities provided by the employer or to otherwise avoid harm. Every employer should have a written internal complaint procedure such as a harassment policy which contains a complaint procedure designed to encourage victims of harassment to come forward. Obviously, complaints made pursuant to the complaint procedure must be investigated. However, informal reports of harassment or indications from an aggrieved or third person that inappropriate conduct is occurring must be investigated, even if the term “harassment” is not used. Further, an employer’s obligation to investigate is triggered by a supervisor’s observations of inappropriate comments or conduct, general office knowledge of harassing behavior, and requests that inappropriate conduct cease. In most cases the employer has a duty to investigate instances of harassment even where the alleged victim does not request or consent to the investigation. At a minimum, an employer should continue to monitor the situation by checking with the victim of the alleged harassment to determine whether or not the conduct has ceased and whether the victim still stands by the request not to take action. The employer’s investigation should commence and conclude promptly. In some cir-
cumstances it may be necessary to take interim measures before the conclusion of the investigation. This might include a temporary transfer of the alleged harasser or placing the alleged harasser on a leave of absence pending conclusion of the investigation. Care should be taken not to disadvantage the victim of the alleged harassment in order to avoid the perception of retaliation. Delay in commencing an investigation can be considered as indifference on the employer’s part to a hostile working environment. Further, as time passes, memories fade and evidence may disappear. More importantly, the opportunity to put a prompt end to inappropriate conduct is lost. As a result the complainant is less likely to be satisfied with employer’s responses to his or her complaints. Conducting the Investigation. The aim of every investigation is to determine certain basic facts: what happened, who the alleged harasser(s) were, where and when the incident took place, how the complainant’s work was affected, whether anyone else witnessed the incident, whether the incident was isolated or part of a continuing practice, what the reaction of the complainant was, how the complainant has been affected, whether the complainant has talked to anyone else about the incident and whether there is any documentation of the incident. The adequacy of an investigation will be judged on the facts and circumstances of each situation. Normally, harassment policies advise the complainant to either contact a supervisor or a designated official in the Human Re-
sources Department. It is critical that supervisors and managers have instructions with respect to reporting to the Human Resources Department any complaints they receive so that a decision can be made about the appropriate person to investigate the complaint. Having the wrong person investigate can discourage harassment victims from reporting meritorious claims and cause the employer to make decisions based on faulty or incomplete information. Ideally, the investigator should be a person who has the respect of employees and who has an understanding of the issues under investigation. Perhaps most importantly, the investigator must be willing and able to devote the time necessary to the investigation. The investigator must not appear to advocate for either the complainant or the alleged harasser. Interview with the Complainant. The initial interview with the complainant should establish as to each alleged incident of harassment: 1. When and where the incident occurred; 2. What was said or done by both parties; 3. Whether there were any witnesses; 4. The effects of the incident; 5. Whether there are any documents containing information about the alleged incident; and 6. Whether the complainant has knowledge of any other person who has been similarly harassed.
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Under normal circumstances the complainant should be asked to put this information in writing or should be requested to sign the interview prepared by the interviewer. This is necessary in order to make sure that the proper information is being investigated and that the complainant stands by the allegations down the line. The complainant should be assured at the outset that he or she will be protected from any unlawful retaliation and that during the course of the investigation the employer will limit the disclosure of the information to those with a need to know. However, the complainant must understand that it will be necessary to discuss the information with the alleged harasser(s) and others. Only in rare circumstances will it be possible to investigate the charge of harassment without identifying the complainant to the alleged harasser. However, it may be possible to avoid disclosure to third-party potential witnesses. If the complainant is reluctant to divulge names and details or sign a statement, the adequacy of the investigation will obviously be limited, as the employer can only go forward on the basis of what the complainant provides. Interview with the Alleged Harasser. Whether the alleged harasser is interviewed prior to other witnesses will depend on the factual circumstances. In some instances it may be helpful to interview other witnesses prior to talking to the alleged harasser. The alleged harasser should be informed of the purpose of the investigation, assured that no conclusion has been made regarding the investigation, and told that the investigation will be conducted as confidentially as possible. The alleged harasser should be told the allegations of harassment in enough detail to allow him or her to respond fully to the claim(s). Further, the alleged harasser should be made aware that he or she must avoid any appearance of reprisal against the complainant and that any reprisal could serve as an independent basis for discipline. If the alleged harasser believes there is a motive for the complainant making the claim(s) to lie, then facts supporting that belief should be explored as should any claim that the harassment was not unwelcome. Additional Interviews. All persons with knowledge of the facts including those identified by the complainant and the alleged harasser should be investigated. In many cases 30
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it may be necessary to re-interview the complainant after talking to witnesses and particularly after talking to the alleged harasser. In serious cases, signed written statements should also be obtained from the significant witnesses. In addition, the alleged harasser should be provided with an opportunity to respond to adverse statements made by witnesses. Concluding the Investigation. In reaching a conclusion of the investigation, the investigator should evaluate whether the facts given are based on first-hand knowledge, hearsay, rumors or gossip and should assess the parties’ motivations to lie or embellish. Documenting the investigation will enhance the credibility of the investigation, particularly if it is documented as it progresses with signed statements from the witnesses interviewed. Employers should remember that a written record will be discoverable when litigation follows. Having written statements will be of great value should a disciplined harasser later challenge the action and will give a basis for establishing that the employer in fact had an appropriate basis for taking such a disciplinary action. Likewise, if no action is taken as a result of the investigation, the various statements should be helpful in supporting that there was insufficient evidence to support discipline. The sexual harassment investigative file should not be kept in the personnel file. However, if there is discipline imposed, a copy of the discipline should be placed in the alleged harasser’s file. A copy of the investigative report can be kept in corporate counsel’s office or filed separately by the human resources manager. Taking Prompt Remedial Action. When the investigation has been completed, a conclusion should be reached and some specific action should occur. First and foremost, the results of the investigation should be communicated promptly to the complainant as well as the alleged harasser. The employer should always be mindful of potential liability for defamation when specific harassment allegations are disseminated and such information should never be disseminated beyond those persons with a direct need to know. There may be many situations in which it cannot be determined whether sexual harassment has occurred because there is no
information available except for the complainant’s accusations and the harasser’s denial. In this type of case the complainant should be assured that although no finding could be made, the employer intends to enforce its sexual harassment policy and protect employees from harassment as well as from retaliation for participating in any investigation and that any future harassment should be reported promptly. It is very important in these situations to check back with the complainant on a periodic basis to make sure that no retaliation occurs and that no other instances of harassment have occurred. The alleged harasser should be advised that although no determination could be made as to the truth of the claim, all employees are expected to comply with the company’s policy against harassment and retaliation. Further, the employer should remind the alleged harasser that retaliation will not be tolerated. The employer should also consider a transfer or reassignment of work to prevent future contact between the complainant and the alleged harasser. This is a touchy subject and can best be handled by offering both the complainant and the alleged harasser an opportunity to make a voluntary move. Employers should be careful, however, about involuntarily moving a complainant when that move would result in less favorable terms and conditions of employment. Remedial measures should not adversely affect the complainant. Thus, for example, if it is necessary to separate the parties, then the harasser should be transferred (unless the complainant prefers otherwise). Remedial responses that penalize the complainant could constitute unlawful retaliation and are not effective in correcting the harassment. If at the conclusion of the investigation it is determined that harassment has occurred, the employer must take “prompt remedial action.” This will include some type of disciplinary action against the alleged harasser and advising the complainant of the action taken. Remedial action is generally considered to be adequate if it is “reasonably calculated to prevent further harassment.” It is not sufficient to simply end the current harassment. It is also necessary to discipline the harasser. The remedial action taken need not be the most severe sanction available. Most courts are satisfied as long as the action is reasonably calculated to prevent further harassment. Discipline may range from an oral
warning to termination of employment. Several factors to be considered in determining the appropriate discipline are: the severity of the conduct; discipline imposed for previous cases of sexual harassment; discipline imposed for violations of other company policies; and the harasser’s disciplinary and employment history. Generally, a written reprimand is preferable since it creates a record of the employer’s action and can be seen as more concrete evidence of the employer’s desire to deter the conduct. For incidents of sexual harassment that warrant stronger discipline than a mere warning, short of discharge, a suspension or demotion may be an appropriate remedy. Particularly, demoting a supervisor from a supervisory position to an hourly position may be appropriate. Denying a salary increase, bonus or otherwise imposing a monetary penalty may also serve as appropriate disciplinary measures. The employer is, of course, obliged to respond to any repeat conduct; whether the employer’s next response is reasonable may very well depend on whether the employer progressively stiffens its discipline or vainly hopes that no response, or the same respons-
es as before, will be effective. Repeat conduct may show the unreasonableness of prior responses. On the other hand, an employer is not liable, although a perpetrator persists, so long as each response was reasonable. An employer is not required to terminate a perpetrator except where termination is the only response that would be reasonably calculated to end the harassment. An internal investigation should protect the reputation of both complainant and the alleged harasser. The allegations and information obtained should be discussed only with the involved parties; each person interviewed should be admonished not to discuss the matter with others, and should be informed of the risk of defamation if the incident is discussed outside the investigation. However, emphasizing the need for confidentiality should not result in intimidating the complainant or the supporting witnesses. A qualified privilege usually protects company investigators and witnesses who make defamatory statements in good faith and for a proper purpose to one who has a legitimate interest in or duty to receive the information. However, statements not made for good cause but made maliciously
or recklessly abuse the privilege and will result in the loss of the privilege. In the wake of the recent media coverage of sexual harassment, an employer must realize that it cannot stick its head in the sand with respect to harassment complaints. Employers should strive to ensure that employees understand its policies and procedures, as well as its commitment to preventing and correcting inappropriate conduct in the workplace. Endnotes: 1. Title VII of the Civil Rights Act of 1964, as amended (race, color, religion, sex, and national origin discrimination); the Americans with Disabilities Act, as amended (disability discrimination); the Age Discrimination in Employment Act (age discrimination). 2. 118 S. Ct. 2257, 2267 (1998). 3. 118 S. Ct. 2275 (1998). 4. Ellerth, 118 S. Ct. at 2268. 5. Id. at 2270.
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New Construction Contract Forms from Architects
By Jack East III Jack East III is a solo practitioner whose practice has concentrated on representing those involved in construction and construction disputes since 1980.
T
he most commonly used commercial building construction forms are published by the American Institute of Architects (AIA). This family of forms includes contracts, general conditions, and administrative forms such as pay applications, change orders and change directives. Many, if not most, architects utilize the contract forms for their contracts with the project owner and recommend the owner/contractor forms for the owner/contractor construction contract (Contract). Perhaps the most important construction document utilized in commercial building construction— other than the owner/contractor contract itself—is the AIA document A201, which contains the “general conditions” of the Contract and is incorporated by reference into the AIA Contract. The A201 General Conditions are not, however, forever etched in stone. Every 10 years or so the AIA documents committee—after consultation with Owners, Contractors and other interested parties—seeks to improve and clarify the AIA forms, including the A201. The AIA has recently gone through this process, resulting in the new version, AIA Document A201-2017, General Conditions of the Contract for Construction. This article will review the new General Conditions (GCs) and note important changes from the previous (2007) general conditions. Focus will be upon revisions to Article 15, Claims and Disputes, because that article was modified more than the other parts of the general conditions. Because major changes were also made to the insurance requirements, including a new form covering insurance, a separate article by David Powell will review those changes. Words capitalized in this article, i.e. “Work,” are terms defined in the new GCs. While this article seeks to describe what the author considers significant changes to the A201, it must be noted that there are other modifications not described in this article. Readers are cautioned to review this new standard form on their own in the event a question arises. The GCs are divided into 15 “Articles.” Article 1 includes definitions applicable to the remaining GCs and the use and exchange of electronic “Instruments of Service,” i.e., the architect’s drawings and specifications. A significant addition to Article 1 is the new requirement of written notice to the other party whenever the “Contract Documents” require notice from one party to the other party. Subsection 1.6.1 now requires an Article 15 “Notice of
34
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Claim” to be delivered only to the designated representative of the other party by certified or registered mail, or by courier providing proof of delivery. Other required notices may be delivered by electronic transmission if such a method is included in the Contract. Section 1.1.8 contains the definition of the “Initial Decision Maker” (IDM), the person the parties have agreed will first render a decision on disputes. Usually, the IDM is the Owner’s Architect. This definition has been modified to delete the IDM’s authority to certify to the Owner that cause exists to terminate the Contractor “for cause.” (This authority continues to reside with the Architect under Section 14.2.2.) A new sentence added to the IDM definition requires the IDM to be impartial in disputes brought before him as IDM. It also absolves the IDM from liability for interpretations or decisions rendered in good faith. New Section 1.2.1.1 provides that if a provision of the Contract Documents turns out to be unenforceable or illegal the offending provision “shall be revised” to the extent necessary to make the provision legal. Section 1.7 deals with the use of digital data and the transmission of it. This section has been changed to require the parties to agree upon protocols governing the transmission and use of the Architect’s drawings and specifications and other digital information. Should these protocols not be put in place any use or reliance on a building information model shall be at the using or relying party’s sole risk. Articles 2 (Owner), 3 (Contractor), 4 (Architect), 5 (Subcontractor) and 6 (Construction by Owner or by Separate Contractors) each describe the rights and obligations of the parties, architect, subcontractors and separate contractors generally, but certain rights and obligations are covered in greater detail in Articles 7 through 15. Under Article 2 the Owner still has the obligation to furnish the contractor with proof of financial arrangements to pay for the project if: (1) requested by Contractor in writing before commencement of the work; and (2) if such arrangements are “materially” varied after the Owner initially discloses the financial arrangements. Note, however, that the new 2017 GCs have been reworded with respect to Owner’s disclosure obligations after the work starts. Owner must still disclose financial arrangements if Owner fails to make timely payment when due and also if a change
order materially changes the amount of the
of Contractor’s written notice of a “differing
The 2017 AIA General Conditions do not constitute a radical modification of the existing 2007 General Conditions; however,
the new GCs do significantly affect certain procedural requirements in the event of a dispute. Lawyers involved in advising and representing Owners, Contractors, Subcontractors and Architects should become familiar with the revised requirements to benefit their clients and the courts hearing construction disputes.
contract. The new language further obligates Owner to furnish such information only if “Contractor identifies in writing a reasonable concern regarding the owner’s ability to make payment when due.” What is a “reasonable concern” is not defined, so this revision may lead to significant disputes. (Note that if Owner fails to furnish financial arrangements within 14 days of the written request the Contractor may suspend the work under § 2.2.2 and is entitled to a time extension and the “reasonable costs of the shutdown, delay and start-up, plus interest as provided in the Contract Documents.”) Also new is subsection 2.2.4 authorizing Owner to designate the financial arrangements disclosed to the Contractor as “confidential” except as may be necessary to obtain performance of subcontractors and other necessary parties. Several changes to Article 3 (Contractor) should be mentioned. Section 3.3 covering “means and methods” of performing the work has been modified. The AIA has deleted a clause which limits Contractor responsibility over means and methods in the event the Contract Documents themselves “give specific instructions concerning these matters.” This deletion may lead to greater Contractor risk of liability for jobsite injuries resulting from Owner-specified means and methods. Further, jobsite safety is now completely delegated to the Contractor under revised Subsection 3.3.1. Article 3, Section 3.5 concerning the Contractor’s warranty obligations has been expanded to include a requirement that “material, equipment or other special warranties required by the Contract Documents” must now be issued in Owner’s name or must be transferable to the Owner. Another modification of Article 3 is the reduction in time
site condition.” Under Subsection 3.7.4 the time for such notice is 14 days rather than the 21 days as stated in previous Versions of the A201. Section 3.7.4 has also been modified to specify that a Contractor claim of a differing site condition which has been denied by the Architect is an Article 15 “Claim,” which must be presented to the IDM for resolution following the Architect denial. Likewise, if the Architect decides that there is a differing site condition and the Owner disagrees, the Owner must pursue it as an Article 15 Claim as well. Perhaps this makes sense if the IDM is someone other than the Architect. Where the Architect is the IDM, however, this additional step makes little sense. Section 3.10—Contractor’s Construction and Submittal Schedules—has been modified to require the Contractor to provide greater detail in the construction schedule, including interim milestone dates, apportionment by construction activity and the time required for completion of each portion of the work. Previous versions of the A201 did not include these schedule requirements. These new requirements should benefit all parties involved in the progress of the work. In view of these more specific schedule requirements it is suggested the AIA may move to CPM (Critical Path Method) scheduling in the next revision of the A201. CPM scheduling is now the standard for a great many construction projects. Section 3.12—Shop Drawings, Product Data and Samples—has been modified to delete language protecting the Contractor in the event design criteria specified in the Contract Documents by the Owner or Architect are inadequate. The last sentence of the 2007 version of the A201 document at Subsection 3.12.10 read, “The Contractor shall not be responsible for the adequacy of the performance
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and design criteria specified in the Contract Documents.” This section has been deleted from the 2017 version. Instead, new Subsection 3.12.10.1 includes a new sentence stating that the Contractor “shall be entitled to rely upon the adequacy and accuracy” of Contract required performance and design criteria. The reason for this change is unknown. Article 4—Architect—contains one change of note. Section 4.2.4 now fully allows the Owner and Contractor to communicate with each other directly rather than through the Architect. (Whether this direct communication will be beneficial to job progress and good relations is open to question. It is believed by some that the Architect is a valuable buffer between Owner and Contractor, especially on difficult jobs or when personalities clash.) There is one significant change to Article 5 —Subcontractors. The new A201, at Section 5.3, requires all subcontracts to be written. The 2007 version only required they be in writing “where legally required for validity.” Article 6—Construction by Owner or by Separate Contractors—has been clarified. Article 6.1.1 now defines “separate contractor” and rewords section 6.1.1 to clarify Owner’s right to hire others to perform work related to the project. Section 6.2.2 concerning Contractor’s obligations when proper performance of its Work depends upon the proper construction of prior work by Owner or another Contractor hired by Owner has been changed. Under the new A201 the Contractor must notify the Owner of faulty prior work if that work is “reasonably apparent.” This is a welcome change from the old “reasonably discoverable” standard because “reasonably discoverable” was open to differing interpretations. Article 7—Changes in the Work—has been revised and reorganized; however, the basic framework of handling changes in the work has not been modified. The principal differences in the old and new Article 7 are: (1) the relocation of the unit price variations in estimated quantities subsection to Section 9.1.2 of Article 9— Payment; and (2) the designation of a Contractor disagreement about time or compensation as a “Claim” governed by Article 15. Further, if the Contractor believes a minor change in the work as ordered by the Architect affects time or increases costs the Contractor must notify the Architect of its claim for additional time or money and, “shall not proceed to implement the change in the Work.” Failure to give such notice constitutes a waiver of any claim for additional time or money. 36
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Article 8 (Time), Subsection 8.3.1, has been expanded to explicitly state that documented adverse weather conditions may provide grounds for a time extension. (It should also be noted here that the AIA Standard Agreement Forms between Owner and Contractor have been modified substantially as respects time of performance. The new Standard Agreement Forms, which incorporate the A201 form by reference, have become more specific with respect to when time of performance starts and how time is counted, i.e., calendar or working days. It has been suggested by some that this specificity may lead to more Owner claims for liquidated damages. This is an added reason for Contractors to follow the Article 15 Claim procedures when additional time to perform is sought.) Modifications to Article 9—Payment and Completion—are not insignificant. Section 9.2 now requires the Contractor to furnish “data” supporting any change in the line item values on the schedule of values if the Architect requires such information. The second principal change in Article 9 concerns an Architect’s decision to withhold, in whole or in part, the certification that the Contractor is entitled to be paid. The revised Section 9.5.2 requires the Contractor to submit a Claim under Article 15 if it disagrees with the Architect’s Section 9.5.1 decision to withhold certification for payment. Contractors should be warned to pursue Article 15 remedies in Section 9.5.1 payment disputes. A new Section 9.6.8 now requires—as current Arkansas lien law similarly requires —the Contractor to defend and pay all costs arising out of, and in defending against, a lien claim or any other claim for payment by a subcontractor or supplier as long as Owner has paid Contractor in accordance with the terms of the Contract. Article 10—Protection of Persons and Property—has not been significantly modified. Article 11—Insurance and Bonds—has been completely overhauled. A separate article on these major revisions has been written by David Powell. Article 12—Uncovering and Correction of Work—and Article 13—Miscellaneous Provisions—have not been materially changed except for the relocation of written notice requirements (former Section 13.3) to Section 1.6, relocation of Time Limit on Claims (former Section 13.7) to Section 15.1.2, and mandating that the law of the state in which the project is located governs Contract inter-
pretation and enforcement even if that state’s choice of law rules allows another state’s laws to govern (Section 13.1). Article 14—Termination or Suspension of the Contract—has been modified in Section 14.1.3 to clarify that if the Contractor terminates the contract “for cause” the Contractor is entitled to recover reasonable overhead and profit on work that has not been performed at the time of the termination plus Contractor costs resulting from the termination. Deleted from this section is a reference to recovery of Contractor “damages” resulting from owner breach. Apparently, this deletion is to limit the scope of a Contractor’s recovery to “recovery for Work executed as well as reasonable overhead and profit on Work not executed, and costs incurred by reason of such termination.” Section 14.4.3, describing the damages recoverable by the Contractor in the event of Owner termination for convenience, has been modified. This section has been clarified to allow the Contractor to recover the costs of termination, including those costs attributable to termination of Subcontracts, a “termination fee, if any, as set forth in the Agreement [between Owner and Contractor],” and the amount due for Work already properly performed. The remainder of this paper is devoted to Article 15—Claims and Disputes—which has been substantially modified. First note that an Article 14 Contract termination or suspension is not a claim or dispute under Article 15. The rights and obligations of the parties to terminate or suspend performance are governed by Article 14. Article 15, on the other hand, governs the rights of the parties when performance under the Contract continues. For example, under Article 2, an Owner has the right to carry out Work as described in the Contract Documents if the Contractor defaults or neglects to perform such Work, and fails to do so within and after a 10-day notice period from Owner. Under this section 2.5 the Owner may recover the costs of such work upon prior approval of the Architect. Further, the Architect “may withhold or nullify a Certificate for Payment in whole or in part, to the extent reasonably necessary to reimburse the Owner for the reasonable cost of correcting such deficiencies…” But if the Contractor disputes the actions of the Owner and Architect, or the claimed costs or time requirements, the Contractor “may” file an Article 15 Claim. Second, note that Article 15 has a threetiered remedy structure. Claims are first pre-
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www.bushmanreporting.com sented to the “Initial Decision Maker,” who is usually the project Architect. Article 15 is very detailed as to when a Claim must be made (Section 15.1.3.1), and the duties and power of the IDM to resolve the Claim with applicable time frames noted in Section 15.2. The second tier in Article 15 is mediation, and the time frames for requesting mediation. See Section 15.3. The third tier is arbitration or litigation. Since arbitration is a contractual remedy Section 15.4 describes the arbitration rights of the parties if the parties choose to resolve their disputes in this way. The new GCs have modified Article 15 in several significant ways. Section 15.1.1 defines the word “Claim.” The definition has been expanded to include a change in the Contract Time as well as a claim for money; however, a clause also has been added exempting the Owner claims for liquidated damages from the process. Contractors must take note of this and strictly comply with the claim requirements when seeking time extensions. It will not be advisable for contractors to seek additional time only after learning of Owner’s withholding of liquidated 38
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damages from amounts otherwise due. Section 15.1.2 is not a new section, but it has been relocated from section 13.7. This section is entitled “Time Limits on Claims.” It adopts the statute of limitations as the relevant outer time limit for filing claims; however, note the time limits in other Article 15 sections as discussed above and below. Section 15.1.3—Notice of Claims—replaces former section 15.1.2. This Notice of Claims section has been modified to differentiate between claims occurring prior to expiration of the warranty period (Section 12.2.2) and claims occurring after the expiration of the warranty period. A notice of claim occurring prior to expiration of the warranty period must first be presented to the IDM. A notice of claim occurring prior to expiration to the warranty period must be given “within 21 days after occurrence of the event giving rise to such claim or within 21 days after the claimant first recognizes the condition giving rise to the claim, whichever is later.” After expirations of the warranty period the notice need not be given to the IDM or Architect because their obligations are usually over once the warranty period expires. Remember, also,
the new requirement that the Notice of Claim must be served on the other party by certified or registered mail or by courier. See Section 1.6. The section requiring performance by the Contractor to continue pending resolution of a Claim (15.1.4) has been modified. This continuation of performance section has been segregated into two subsections. The first (15.1.4.1) requires the Contractor to diligently continue performance and requires the Owner to continue to pay the Contractor in compliance with the Contract Documents. The second subsection (15.1.4.2) requires the Contract Sum and Contract Time to be adjusted in accordance with the IDM’s decision regarding the claim, subject to the right of either party to contest this decision in accordance with the Mediation and Arbitration (or litigation) remedies of the Agreement. Section 15.1.7—former section 15.1.6— has been renamed “Waiver of Consequential Damages” to make the Section clear as to its intent. Under this Section both parties fully waive claims for consequential damages. Section 15.2, entitled “Initial Decision Maker,” has not been significantly changed. It should again be noted that the parties usually do not choose the IDM in their Agreement, thereby making the Architect the IDM by default. A new and beneficial provision has been added to the Mediation requirements. New Section 15.3.3 addresses what time frames apply in the event a claim is not resolved by mediation. This new section allows one of the parties to demand in writing that the other party file for binding dispute resolution within 30 days after mediation has been concluded, “without resolution of the dispute or 60 days after mediation has been demanded without resolution of the dispute.” If the demand is made and the other party does not make a demand for arbitration, or file suit, within 60 days after receipt of the demand, then both sides waive their right to further challenge the IDM’s decision. In conclusion, the 2017 AIA General Conditions do not constitute a radical modification of the existing 2007 General Conditions; however, the new GCs do significantly affect certain procedural requirements in the event of a dispute. Lawyers involved in advising and representing Owners, Contractors, Subcontractors and Architects should become familiar with the revised requirements to benefit their clients and the courts hearing construction disputes.
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Insurance Requirements Under the 2017 AIA Contracts
By David M. Powell
David M. Powell is a partner in Williams & Anderson PLC, having joined it after over 30 years as a partner in another Little Rock firm.
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n another article in this issue, Jack East has penned an overview of the 2017 American Institute of Architects (“AIA”) new contract documents. However, he could not cover it all, and thus this is a review of the specific insurance changes and requirements under the 2017 documents, perhaps the most noteworthy changes to earlier AIA contract versions. For decades, the AIA construction contracts have been recognized as the industry standard for construction contract documents, serving as a template or source even if a particular AIA document is not itself the contract used by the parties. The core document of the AIA family is the A201General Conditions, a comprehensive document referenced by other AIA documents, whether owner-architect, owner-contractor, contractor-subcontractor or architect-consultant forms. Article 11 of A201 has addressed insurance and bonds in previous editions of the AIA standard construction contract documents. Article 11 continues that topic, but now a separate exhibit expands upon the insurance provisions of Article 11. The new document is AIA Document A101-2017 Exhibit A (the “Insurance Exhibit”), intended to be used where the cost of the work is a stipulated sum. Other versions of the Insurance Exhibit are to be used where the contractor is compensated, on the basis of the actual cost of the work plus a fee, whether with or without a guaranteed maximum price. Those exhibits are merely mirror images of the Insurance Exhibit. So what does the Insurance Exhibit do? By not burying insurance provisions in the depths of A201, the Insurance Exhibit calls early attention to insurance options for the parties. It facilitates review of those insurance options, hopefully encouraging more thoughtful consideration of risk management by the parties on the very front end of a project. Presumably, the parties will choose appropriate options and thus avoid the “I wish I had had that insurance” moment when something untoward happens later. The Insurance Exhibit details the types of insurance that are to be provided by the owner and contractor respectively. Of course, through contract negotiation, the parties may shift those responsibilities from one to the other. Owner’s Required Insurance The owner is understandably required to maintain its usual general liability insurance. The Insurance Exhibit continues the owner’s responsibility for builder’s risk insurance, the coverage for loss to the project as it is being built. The Insurance Exhibit requires that the builder’s risk insurance policy be written on an “all risk” basis. Rather than enumerating every cause of loss, the Insurance Exhibit prohibits certain exclusions for direct physical loss or damage—risk of fire, explosion, theft, vandalism, malicious mischief, collapse, earthquake, flood or windstorm.
In a significant expansion of coverage, the Insurance Exhibit specifically requires that the policy cover “ensuing loss” or “resulting damage” from error, omission or deficiency in construction means, methods, design, specifications, workmanship or materials. This risk reallocation is a dramatic development. Insurers have typically contended that construction defects do not fall within policy definitions of “occurrence” and if they do, fall within an exclusion for “your work,” the work of the contractor or design professional. While Arkansas Code Annotated § 23-79155 requires that commercial general liability (“CGL”) policies have a definition of occurrence to include property damage or bodily injury resulting from faulty workmanship, the statute still permits a policy exclusion for such if the insurer chooses to do so. The Insurance Exhibit does not allow the exclusion in builder’s risk policies. This requirement is not likely to sit well with insurers. The Insurance Exhibit obligates the owner’s builder’s risk insurance to be maintained not only through the point of substantial completion, but also through expiration of the period for correction of the work, unless the owner opts to purchase other property insurance after substantial completion. In addition, the builder’s risk policy must extend to the existing structure if the work involves remodeling or construction of an addition. Finally, the Insurance Exhibit includes a menu, “check-the-box” for certain optional builder’s risk coverages, often not considered when the parties are discussing builder’s risk during contract negotiations. These optional coverages include Loss of Use, Business Interruption, and Delay in Completion; Ordinance or Law (costs necessary to comply with laws regulating demolition or repair); Expediting Costs (costs necessary for temporary repair and expediting permanent repair); Extra Expense (reimbursement for costs above what normally would have been incurred during the same period but for the loss); Civil Authority (costs because a civil authority prohibits access); Ingress/Egress (loss as a result of physical access because of the damage); and Soft Costs (loan fees, marketing expenses, additional professional fees, property taxes and the like). A more exotic option is cybersecurity insurance, a relatively new coverage to protect the owner from loss due to data security and privacy breach. With the increasing amount of digital information being stored by contractors and owners on projects, consider-
ation of such coverage may not be as bizarre as one might think upon first impression. The prime example is the 2013 Target data breach, resulting in the theft of over 40 million credit card numbers and private data from over 70 million customers from nearly 2000 Target stores. The cause of the breach was supposedly an email opened on a computer of the HVAC subcontractor on a construction project at one Target store. Contractor’s Required Insurance With respect to the contractor, the Insurance Exhibit mandates significant, expanded changes for its insurance as well. As is the case with the owner’s builder’s risk insurance, the contractor’s required insurance must be maintained through the “correction of work” period rather than the date of final payment or substantial completion, as previously required. The contractor is required to disclose to the owner any deductible or self-insured retentions applicable to its coverages. Again, as with the builder’s risk insurance, the contractor’s CGL prohibits certain exclusions from its coverage, instead of listing each coverage required. Thus, the CGL cannot exclude, for example, claims by one insured against another insured, claims of property damage to the contractor’s work arising out of the product’s completed operation hazard where the damaged work or the work out of which the damage arises was performed by a subcontractor, claims for bodily injury to employees (other than the insured’s own employees), claims for the contractor’s indemnity obligations for bodily injury to that contractor’s own employees, claims for prior work for similar exclusions, and claims related to certain material applications and work hazards, if the work involves such products or hazards. There are additional forms of coverage that a contractor must obtain depending on the nature of the work. These types of insurance include: Jones Act and Longshore and Harbor Workers’ Compensation Act liabilities, professional liability, pollution liability, maritime liability (think of the barges used during the construction of the new Broadway Bridge between Little Rock and North Little Rock) and aircraft liability (think of helicopters being used to install HVAC or other equipment upon or inside buildings). As is the case with the owner, there are optional types of insurance which may be required of the contractor. Included are railroad protective liability insurance (where
work is near railroad property), asbestos abatement liability insurance, physical damage insurance for property while it is in storage or in transit to the construction site, and coverage for property owned by the contractor and used on the project. The Insurance Exhibit expands the obligation of the contractor to include as additional insureds the owner, the architect and the architect’s consultants. The coverage has to be for claims caused in whole or in part by the contractor’s negligent acts or omissions during the contractor’s operations. Moreover, the owner’s additional insured coverage has to extend to such negligent acts or operations when the loss occurs during completed operations. In an heroic effort to mandate specific insurance language, the Insurance Exhibit states that “to the extent commercially available,” the additional insured coverage shall be no less than that provided by certain Insurance Services Office, Inc. forms. The additional insured coverage is to be primary and non-contributory to any of the owner’s general liability coverage. Query whether the Insurance Exhibit’s attempts to specify the scope and type of additional insured coverage will work in practice and eliminate litigation in the area. Both with respect to the owner and the contractor, the Insurance Exhibit also understandably permits the parties to specify insurance other than those listed as mandatory or optional on the form. Conclusion The Insurance Exhibit is thus a thoughtful and comprehensive attempt to specify and delegate insurance coverages to the owner and contractor. The Insurance Exhibit allows the parties to develop those specific owner and contractor insurance requirements in a conspicuous, separate portion of the contract. If, as may well be the case on the size and complexity of projects typically found in Arkansas, the owner and contractor simply want standard coverages historically required under AIA documents, they can simply ignore the optional coverage sections and either rely on the basics contained in Article 11 of AIA201 or fill in the required policy limits in the Insurance Exhibit. At the very least, they will have had an opportunity to see a checklist of insurance items, consider them, and elect whether or not those coverages are indicated for the particular project involved.
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2017-2018
Sustaining Contributors Benefactors 2017-2018 Darryl E. Baker Roy T. Beard III Larry W. Burks Thomas M. Carpenter Suzanne G. Clark Jon B. Comstock Steven A. Cosse Steven B. Davis Sherry D. DeJanes Justice Robert H. Dudley Jack East III Bob Estes Brent J. Eubanks
Benefactors are members who make a sustaining contribution of $250/year in addition to membership dues to support Association programs. Judge Victor A. Fleming Judge Robert F. Fussell John F. Gibson, Jr. Judge Donald Goodner Judge David F. Guthrie Stuart W. Hankins David Michael Hargis Kyle Heffley Denise Reid Hoggard Gary Holt Paul W. Keith William H. Kennedy III J. Cliff McKinney II
James “Jim” A. McLarty III Michael Millar Brandon K. Moffitt Margaret Woodward Molleston Rosalind M. Mouser Debby Thetford Nye Neal R. Pendergraft John V. Phelps Bill D. Reynolds Judge John R. Scott Ted C. Skokos Don Allen Smith James W. Smith
James D. Sprott Mary Beth Sudduth Matthew A. Toback Glenn Vasser George G. Vaught Jr. John Cogan Wade Eddie H. Walker James R. Wallace Rufus E. Wolff Tom D. Womack Judge Susan Webber Wright
Patrons 2017-2018 Mark H. Allison Elizabeth Ann Andreoli Jeffrey John Angelovich Ben F. Arnold Barry D. Barber Judge Harry Francis Barnes Melody Peacock Barnett Kay Baxter David L. Beatty Paul B. Benham III Michael Stephen Bingham Allen W. Bird II Judge Samuel N. Bird Daniel C. Blaney Margaret Long Blissard Charles Tad Bohannon Senator Will Bond Frank W. Booth Ted Boswell Robert Bruce Branch, Sr. Silas H. Brewer, Jr. Fred E. Briner Bill W. Bristow
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Benefactors are members who make a sustaining contribution of $100/year in addition to membership dues to support Association programs. Christopher D. Brockett Judge William R. Bullock Robert D. Cabe John C. Calhoun, Jr. Worth Camp, Jr. Jerry L. Canfield Douglas M. Carson Christopher Chad Causey Robert M. Cearley, Jr. Earl Buddy Chadick Sterling Taylor Chaney Kristin Clark John Ralph Clayton Roger U. Colbert Charles T. Coleman Randy Coleman Nate Coulter Judge James O. Cox Michael A. Crockett James E. Crouch Tim J. Cullen F. Thomas “Tom” Curry C. Michael Daily www.arkbar.com
Thomas A. Daily Kirk D. Darbe Judge Robert T. Dawson Judge Beth M. Deere Earl Ross Downs, Jr. James M. Dunn Warren E. Dupwe Jeff Davis Duty, Jr. Don A. Eilbott Byron M. Eiseman, Jr. Stephen Engstrom Frances S. Fendler Laura K. Ferner Lyle D. Foster Matthew L. Fryar David M. Fuqua Price C. Gardner Buck C. Gibson Charles Clifford Gibson III Pamela B. Gibson Sam E. Gibson Greg R. Giles Stephen Richmond Giles
John P. Gill Dent Gitchel Morton Gitelman Roger A. Glasgow Dorsey D. Glover Richard E. Griffin Ronald L. Griggs Justice James H. Gunter, Jr. (ret.) Don F. Hamilton Frank S. Hamlin David K. Harp Charles L. Harwell Richard F. Hatfield Robert W. Henry Rosanna Henry Paul F. Henson Joseph Hickey Anthony A. Hilliard R. H. “Buddy” Hixson Glen Hoggard Cyril Hollingsworth Don Hollingsworth Robert Howard Hopkins
Thank You for Your Support Patrons (cont.) 2017-2018 Robert E. Hornberger Frank Huckaba Judge Ann Beane Hudson Rebecca B. Hurst Karen K. Hutchins James W. Hyden Robert S. Irving Judge Michael E. Irwin Donald T. Jack, Jr. Randolph C. Jackson Christopher M. Jester Amy Dunn Johnson Robert S. Jones Patricia R. Julian David W. Kamps Philip E. Kaplan Sean T. Keith Judson C. Kidd Judge Milam Michael Kinard Joseph F. Kolb Peter G. Kumpe Howard Baker Kurrus Michael Alan LaFreniere Judge David N. Laser John Charles Lessel Stark Ligon Judge John R. Lineberger Stephen A. Lisle David R. Matthews
Michael R. Mayton Michael S. McCrary Bobby McDaniel Dustin B. McDaniel Josh E. McHughes James E. McMenis Philip Miron Chalk S. Mitchell Charles B. Mitchell, Jr. Michael W. Mitchell T. Ark Monroe III Orin Eddy Montgomery Harry Truman Moore Stephen E. Morley Kenneth R. Mourton Wm. Kirby Mouser Sheffield Nelson Judge William David Newbern Stephen B. Niswanger Dana Daniels Nixon R. Gary Nutter Edward T. Oglesby Judge James E. O’Hern III William L. Owen William Lance Owens William L. Patton, Jr. Walter A. Paulson Kristin L. Pawlik Brant Perkins
George N. Plastiras Donald C. Pullen Joseph H. Purvis Richard L. Ramsay Brian H. Ratcliff Gordon S. Rather, Jr. Robert James Reid Robert Jeffrey Reynerson Judge Curtis E. Rickard Lewis E. Ritchey William B. Roberts William S. Robinson Colby T. Roe Charles D. Roscopf Brian M. Rosenthal John L. Rush Don M. Schnipper Frank B. Sewall Stephen M. Sharum J. L. (Jim) Shaver, Jr. William Farrar Sherman Shaneen K. Sloan Erron W. Smith Richard Allen Smith Robert D. Smith III Michael W. Spades, Jr. Aaron L. Squyres Katherine Carey Stephens Jean D. Stockburger
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Thomas S. Stone Alex G. Streett Judge John F. Stroud, Jr. James H. Swindle, Jr. W. H. Taylor Rex M. Terry Morris W. Thompson Judge Cindy Thyer Justice Annabelle Imber Tuck Richard Edwin Ulmer Marcus L. Vaden James R. Van Dover Vicki S. Vasser-Jenkins William A. Waddell, Jr. Wyman R. Wade, Jr. Danyelle J. Walker Judge Bill H. Walmsley Judge John C. Ward Stan L. Warrick John Dewey Watson Timothy Fagan Watson, Sr. David J. Whitaker Katharine C. Wilson Rebecca H. Winburn Carolyn B. Witherspoon Marsha C. Woodruff Eric Lane Worsham Dennis M. Zolper
2018-2019
Your gift strengthens the Association by helping to support its mission and many projects. You will receive: • recognition as individual sponsors in The Arkansas Lawyer magazine • a specialty ribbon for your name badge at the Annual Meeting • recognition at the Annual and Mid-Year Meetings Show your support when you renew your membership by adding a sustaining contribution on your membership form for the 2018-2019 Bar Year that begins July 1, 2018. For questions, contact Michele Glasgow at 501-801-5661 or mglasgow@arkbar.com. Vol. 53 No. 2/Spring 2018 The Arkansas Lawyer
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Unbundling Arkansas: Why Unbundling is the Future in Legal Service Delivery Arkansas’s legal market is facing a conundrum. Business opportunities for attorneys appear plentiful, yet attorneys are not taking advantage of these opportunities. For example, more than 50,000 domestic relations cases are filed annually in Arkansas; however, approximately 99% of these cases involve at least one unrepresented litigant.1 Given that Arkansas has the fewest attorneys per capita2 and nearly a third of Arkansas law school graduates are not employed in positions that require bar passage,3 the future looks uncertain for attorneys and legal consumers alike. Unbundled legal services, also referred to as limited scope representation, “a la carte” legal services, or discrete task representation, allow a client to hire an attorney to assist with part, but not all, of the client’s legal matter. Unbundling typically involves providing legal advice, conducting document preparation and review, or making limited court appearances. Prior to providing assistance, the attorney and client enter into an agreement identifying specific tasks that each will complete. The Arkansas Supreme Court has recognized unbundled legal services as a way to increase access to justice and has recently made several rule changes to support this practice. In December 2017, the Court amended several of the Arkansas Rules of Civil Procedure to clarify specific obligations of attorneys who unbundle their services. The opinion revised Rules 11 and 64, and added a new Rule 87. The amended rules explicitly authorize ghostwriting and lay out a process by which a limited scope attorney can notify the court of the extent of representation. Attorneys who ghostwrite pleadings must disclose their identity in a notation at the end of the document, but do not sign them. The modified rule also allows an attorney who ghostwrites to rely on the client’s representation of facts unless the attorney has reason to believe the representation is false or materially insufficient. Finally, the new rules permit attorneys who give proper notice of a limited scope agreement in a court proceeding to be 44
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automatically relieved as counsel of record once the limited representation is completed. These rule changes build on previous modifications made to the Arkansas Rules of Professional Conduct in June 2016, which clarify the ethical responsibilities of attorneys offering unbundled services. Specifically, Rules 1.2(c), 4.2, and 4.3 were modified. Rule 1.2(c) explicitly permits attorneys to provide unbundled legal services. The rule permits unbundling only when it is appropriate under the circumstances, which means that it is usually not an option for complicated cases or unsophisticated clients. The revisions also include the addition of language regarding when a client’s informed consent has to be in writing. Rules 4.2 and 4.3 clarify when a client who has engaged a limited scope attorney is considered to be represented and unrepresented for purposes of the opposing attorney’s communication responsibilities. The rule modifications support the implementation of unbundled legal services in Arkansas. By clarifying the ethical and procedural requirements for attorneys offering these services, more attorneys will feel comfortable offering this option to clients. Unbundling benefits attorneys, clients, and courts. By unbundling, attorneys are able to access a largely untapped market of new clientele. In turn, legal help becomes accessible for more Arkansans, which means pleadings filed are correct and complete, and more cases are heard on their merits. Finally, unbundling allows courts to run much more smoothly and efficiently. The Arkansas Access to Justice Commission, which drafted and recommended the rule changes that the Supreme Court ultimately adopted with modifications, has now turned its attention to the ethical implementation of unbundling across the state of Arkansas. The Commission has made a variety of resources available for attorneys, legal consumers, and court personnel, on its website at www.arkansasjustice.org/unbundling. Arkansas’ legal market is on the precipice
of a crisis. Many legal consumers are proceeding without any representation. Meanwhile, attorneys are missing meaningful business opportunities by not offering services to a vast untapped market of potential clients willing and able to pay for some legal help. Arkansas courts, experiencing a high volume of self-represented litigants, grapple with the ramifications of this issue on a daily basis. Unbundled legal services provide a mechanism for legal help to become accessible to more Arkansans, which benefits attorneys, clients, and courts. Additionally, the rule changes adopted by the Arkansas Supreme Court further support application of this legal service delivery method. More accessible legal help benefits everyone in the legal market, and by unbundling legal services, Arkansas’ legal market is better equipped to handle the unique issues on the horizon. Endnotes: 1. Chanley Painter, Exploring the Problem of Self-Represented Litigants in Arkansas Civil Courts (2011), http://arkansasjustice.org/ our-work/. 2. Search: Lawyer Near Me, https:// www.2civility.org/search-lawyer-near-me. Arkansas has just 20 lawyers per 10,000 residents. 3. American Bar Association Section of Legal Education and Admission to the Bar, https://law.uark.edu/_documents/509/ EmploymentOutcomes2017.pdf, http://ualr. edu/law/files/2010/09/ABA-EmploymentSummary-for-2017-Graduates.pdf.
Stefanie Blahut is the Statewide Planning & Development Volunteer for Arkansas Access to Justice.
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ARKANSAS CHAPTER The following attorneys are recognized for
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DISCIPLINARY ACTIONS Final actions from January 1, 2018 - Marc 31, 2017, by the Committee on Professional Conduct. Summaries prepared by the Office of Professional Conduct (OPC). Full text documents are available on-line either at http://courts.arkansas.gov and by entering the attorney’s name in the attorney locater feature under the “Directories” link on the home page, or also on the Judiciary home page by checking under “Opinions and Disciplinary Decisions.” [The “Model” Rules of Professional Conduct are for conduct prior to May 1, 2005. The “Arkansas” Rules are in effect from May 1, 2005.] INTERIM SUSPENSION: MATTHEW M. HENRY of Little Rock, Bar No. 2005167, on March 7, 2018, by an Order issued by Committee Panel A in Case No. CPC 2018-013, upon a verified petition by the Executive Director, was placed on interim suspension pending further disciplinary proceedings. Henry was found to presently pose a substantial threat of serious harm to the public and his clients due to shortages of trust account funds probably totaling over $400,000 related to two clients or former clients, an outstanding court pickup order in another case, and 10 new grievance files having been opened against him since October 2016 at the Office of Professional Conduct. The interim suspension order remains in place, as Henry has not filed any motion to vacate or modify the suspension. JENNIFER L. MAHER of North Little Rock, Bar No. 2010126, in Case No. CPC 2018-005, upon a verified petition by the Executive Director, by order filed March 7, 2018, pursuant to §16.A(2) of the Procedures, upon her plea to a “serious crime,” was found to presently pose a substantial threat of serious harm to the public or to her clients, and was placed on interim suspension. Maher entered a guilty plea to the charge of theft by receiving in Pulaski County District Court in November 2017, where she was fined $100 and ordered to pay court costs and restitution in the amount of $529.00. Maher has two other criminal matters pending.
SUSPENSION (Stayed with probation): ANN C. DONOVAN of Rogers, Bar No. 78043, in Case No. CPC 2017-020, by Consent Findings and Order filed January 19, 2018, was placed on license suspension for 24 months, with the suspension fully stayed, for her violation of Rules 1.1, 1.3, 5.3(b), and 8.4(d). Donovan represented a client on a Social Security matter. Donovan should have filed an appeal for her client within 60 days, but the request for hearing was untimely. Upon receiving notification that her request was denied, the client contacted Donovan, who blamed her assistant for the delay. The client terminated Donovan’s representation, and filed a pro se Request to Vacate Notice of Dismissal to Social Security. The SSA ALJ’s order “found good cause to vacate the dismissal order and to reopen [the] claim… one of the potential good cause reasons for missing the deadline to file her request for hearing is that the claimant relied upon the representative to file the request for hearing.” SUSPENSION: WILLIAM KURT MORITZ of Hope, Bar No. 99021, in CPC File No. 2017-030. Moritz was suspended from the practice of law for a period of six months on June 12, 2017, in the case of In Re: William Kurt Moritz, CPC File No. 2016-153. Moritz was also suspended from the practice of law for a period of 60 months on June 12, 2017, in the case of In Re: William Kurt Moritz, CPC File No. 2016-161. On October 24, 2017, Shunquiz Trotter was looking for legal assistance for her fiancé, Tommy Hamilton. Trotter called Moritz’s law office, spoke to him, and then met with him there. Moritz agreed to represent Hamilton and accepted money from Trotter. Moritz and Trotter then exchanged text messages about court proceedings. Moritz did not appear in court. Moritz failed to file a timely response to the formal complaint. On March 20, 2018, a committee panel issued a new 60-month license suspension to Moritz for violations of Rules 8.4(c) and 8.4(d), imposed a $1,000 fine, and $50 costs, and also imposed a Reprimand and a $1,000 fine for failure to respond to the formal Complaint.
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DANA A. REECE of Little Rock, Bar No. 87142, CPC File Nos. 2013-031, 2014034, and 2014-038. In April 2016, Reece agreed to a consent proposal where she admitted violation of certain Rules of Professional Conduct and offered a threemonth suspension of her license, with the period of suspension stayed, subject to conditions of probation for a period of 24 months. In January 2017, the Office of Professional Conduct filed a Petition for Revocation alleging Reece failed to comply with the conditions. Reece responded to the petition. On February 13, 2018, Panel C of the Committee on Professional Conduct found Reece to have violated the conditions of probation and suspended Reece’s license to practice law for a period of three months. Reece filed a notice of appeal and the matter is pending. The Rules found violated were 1.3, 1.4(a)(3) and 1.16(d) in CPC No. 2013031, 1.3, 1.4(a)(3) in CPC No. 2014-034, and 1.15(d) and 3.4(c) in CPC No. 2014-038. REPRIMAND: THERESA L. CALDWELL of Maumelle, Bar No. 91163, in Case No. CPC 2016-058,
on a complaint by David Hamilton of New Blaine, Arkansas, by Panel A hearing findings and order filed March 2, 2018, on violations of AR Rules 1.5(c), 1.8(a), and 3.3(a), was Reprimanded and ordered to pay $2,110.55 hearing costs. Other rule violations charged were found not proven. Hamilton was a Central-Arkansas-based businessman with varied business interests in the late 1990s and into the mid-2000s. Hamilton and Caldwell became acquainted in the mid-1990s when Caldwell practiced in a small Little Rock law firm, with Sharon Streett, where Hamilton also worked while attending some law school. By the mid-2000s, Hamilton had suffered business setbacks, was involved in much litigation, and Caldwell became his counsel in many of these matters. Hamilton’s main business venture, in the pet supply field, was liquidated through a Chapter 7 “noassets” bankruptcy in 2007-2009, which was handled by other counsel. In late 2003, Hamilton and wife purchased a 458-acre farm property on the PulaskiLonoke County line, with a first mortgage of about $481,000 to AgHeritage Farm Credit and a second mortgage for most of the balance of the purchase price to the seller, a
Sims Farm Trust. Hamilton intended to turn the property into a private prison facility, if several million dollars in funding could be obtained for the project. An oral agreement was made between Hamilton and Caldwell by which she would become the general counsel for the new project, at a $125,000 salary, around October 1, 2005, if funding was obtained. From August 2005 through April 2007, Caldwell claimed she put substantial time and effort into the new venture. The farm property was first deeded to Hamilton and wife, and was to then be transferred into a new LLC that Caldwell created on September 27, 2005, called CARDC. The deed for the farm property from the Hamiltons to the new LLC, prepared by Caldwell on a deed form she obtained from lawyer Jason Stuart on March 1, 2006, was allegedly signed and notarized on September 28, 2005, and witnessed by Caldwell’s two adult sons in Fayetteville, but was not recorded until August 30, 2006. Caldwell later admitted asking her sons to sign the deed and had it backdated to September 2005. The person who actually took the deed to Lonoke and got it recorded in August 2006 was disputed at hearing.
FORENSIC PSYCHIATRY GERALD S. STEIN, M.D. Cell: 479-244-6582 FAX: 970-987-5100
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Funding for CARDC did not appear and Caldwell became dissatisfied with her arrangement with CARDC and Hamilton. Sims sued on the second mortgage on the farm property. The suit was dismissed in May 2006, after Hamilton obtained finding from a friend, Teeter, the borrowed funds went through the Caldwell client trust account, and Sims was paid in full. On November 30, 2006, AgHeritage sued in Lonoke County to foreclose on its unpaid note and first mortgage. The claims of AgHeritage in this suit were dismissed in December 2010 when AgHeritage was paid in full by Hamilton’s mother, who took title to the farm. Efforts to obtain investor funding for the prison project in 2006-2007 were not successful. On March 6, 2007, Hamilton, as its principal, approved a letter from CARDC prepared by Caldwell, for use with her creditors, stating she was owed $140,000 from CARDC. Through her legal representation of the Hamiltons and their business interests, Caldwell knew about much of their personal and financial matters. Differences between Caldwell and Hamilton came to a head in early April 2007, when Caldwell demanded Hamilton tell her exactly what her interest in his CARDC project and property was or would be, for the
From the ordinary to the most complex, no appeal is too small or large Writing Briefs to the Arkansas Court of Appeals, the Arkansas Supreme Court, the Federal Circuits and the United States Supreme Court
services she had rendered to him. Hamilton denied he had ever promised her any ownership interest in his venture. At a meeting of just the two of them, which Caldwell secretly taped, she demanded Hamilton give her a note for $1,000,000 or sign over one-half of his prison business venture, which they had discussed as being valued then in the $9-10,000,000 range, based on appraisals of the farm property as it would be improved and developed for the prison project. Hamilton declined. A few days later, at a second meeting, which Caldwell again secretly taped, Caldwell, Hamilton and two mutual lawyer friends, Sharon Streett and her husband Julian, met to discuss the dispute. At that meeting, Caldwell conceded she had no written agreement with Hamilton and that her involvement in the prison venture was contingent on it being funded. Hamilton consulted with attorney Jason Stuart about these matters. Thereafter, Caldwell withdrew as counsel for Hamilton and his business entities in the various pending litigation matters. On May 7, 2007, Caldwell filed a materialmen’s and laborer’s lien against the 458-acre farm, to secure her claim for $250,559 for materials and services. On August 7, 2007, a cross-clam was filed in the AgHeritage foreclosure suit for Caldwell
against Hamilton and his entity that owned the farm, claiming she was owed $4,857,699 for her alleged promised 50% ownership interest in the prison venture and for services she had rendered. Shortly thereafter, Hamilton filed a grievance against Caldwell, and OPC contacted Caldwell. Stuart represented Hamilton in contesting the Caldwell cross-claim and lien. At a hearing on November 20, 2007, the trial court voided the Caldwell lien. The next day, Caldwell’s counsel filed a lis pendens against the same farm property. In March 2008, the trial court nullified the Caldwell November 2007 lis pendens. Various appeals were attempted. Caldwell never prevailed in any court on any of her claims of an ownership interest in Hamilton’s businesses. In the end, the prison venture never got funded, the farm was sold out of the foreclosure lawsuit to Hamilton’s mother, and Caldwell was never paid anything by Hamilton or any of his businesses for her work. Hamilton and Stuart contended Caldwell attempted to extort the approximately $4,500,000 or more from Hamilton by means of her spurious cross-claim and her efforts to interfere with Hamilton’s efforts to obtain critical project financing.
TSCHIEMER
LEGAL BRIEFING Handling all your briefing needs Robert Tschiemer is the author of the Arkansas Bar Weekly Case Summaries, available at www.arkbar.com. For a complete list of decisions see www.tschiemerlegalbriefing.com
Robert S. Tschiemer
Ark. Bar 84148 P.O. Box 549 Mayflower, AR 72106-0549 501.951.3303 (p) 501. 377.9866 (f) robert@tschiemerlegalbriefing.com www.tschiemerlegalbriefing.com
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RICHARD L. MAYS, JR., of Little Rock, Bar No. 2010150, in Case No. CPC 2015094, on a Complaint initiated as a result of media coverage of Mays’ resignation from the Arkansas Parole Board in late July 2015, by Panel C hearing findings and order filed March 28, 2018, on violations of Rules 1.11(d), 7.1, 8.4(c), and 8.4(d), was, by a 4-3 vote, Reprimanded, assessed a $10,000 fine, and ordered to pay $2,242 hearing costs. The three panelists in the minority voted for a three-month license suspension. Other rule violations charged were found not proven. After obtaining a BBA degree, an MBA degree, and then his law degree in 2001, Mays went to work for the family Little Rock law firm in 2001 as a law clerk. In 2007 the Governor appointed him to a position as one of seven Commissioners of the Arkansas Parole Board (APB), a full-time salaried state job. In September 2010, Mays was licensed to practice law in Arkansas. Mays was reappointed as a Commissioner in December 2011 for a full term, and served until his resignation in mid-July 2015. In mid-October 2013, the APB investigator, Belken, conducted interviews at the East Arkansas Regional Unit at Brickeys of ADC inmates eligible for parole
consideration by the APB at its meeting on October 24, 2013. The unit interview process involved creation of an interview sheet and a recommendation by the interviewer. During the interview of inmate Staggers, Belken was informed that Mays had represented Staggers in his underlying criminal case plea that resulted in the sentence to ADC from which Staggers was seeking parole. Belken’s written recommendation was to deny Staggers parole for one year. Back at the APB, Belken shared this information with APB Chair Felts, who informed Belken that Mays had a conflict, he should not vote on the Staggers file, and to check the Staggers file the evening before the Board meeting to make sure Mays did not vote on it. The Staggers file, with no vote by Mays, was voted on by the full Board on October 24, 2013, and the recommended denial was approved. A few days later, the inmate records system at APB showed the Board action on Staggers was to defer for two weeks. At about this time other commissioners asked Belken about a blank Staggers vote sheet Mays brought to them on or about October 29, 2013, asking them to approve parole release, a form several members signed based on representations by Mays. An internal APB investigation revealed
that Mays had gone into the paper Staggers file after the Board action, removed and shredded the original Belken vote sheet and denial recommendation, and replaced it with a new vote sheet created by staff for Mays. Mays then falsely marked the new interview form as the interview work of a third Board member and recommending release on parole for Staggers. Mays admitted his conduct to Board members. A new vote affirmed the Staggers denial. Staggers applied for reconsideration in December 2013, and the Board, with Mays voting with the majority, instead of recusing, voted to again deny. In 2014-2015, Mays also voted on parole files of at least two other inmates whom he had represented in their underlying criminal cases. In 2014, Belken found materials on the law firm website where Mays worked that informed viewers of Mays connection with the parole process while advertising Mays’ services as a criminal defense lawyer. Mays’ personal LinkedIn site falsely indicated he had been an attorney since 2001, when he had not been licensed in any jurisdiction until he was in Arkansas in 2010. Mays was suspended from his duties by Chair Felts in June 2015. Mays had a meeting with the Governor in July
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2015 and resigned his position. In September 2015, a mass mailing solicitation letter was sent to hundreds of inmates eligible for parole over the names of Mays and another attorney, offering their services and Mays’ expertise as a former Parole Board member for eight years, using language that was likely to create an unjustified expectation about the results the lawyers can achieve for the potential client. (At submission deadline, the period for filing any notice of any appeal to the Arkansas Supreme Court had not expired.) THOMAS C. MORRIS, III of Bella Vista, Bar No. 84110, in Case No. CPC 2017-034, by Findings and Order filed March 28, 2018, on information provided to OPC by another person, was Reprimanded for his violation of Rules 3.4(c) and 8.4(d). In another case, on April 21, 2017, the Committee on Professional Conduct issued an Order of Interim Suspension on Morris, and Morris received notice that he was on interim suspension. Section 22 of the Procedures applies to former attorneys, including those on interim suspension. While suspended, Morris sent a demand letter using Tom Morris & Associates letterhead on behalf of his client. The letter
stated Morris was the attorney representing the client and invited the recipient to contact Morris regarding the matter. Also, Morris’ legal website remained active despite Morris being on interim suspension.
communication and telephone calls to Oliver. No written response has ever been received from Oliver to the OPC requests.
CHARLES DWAIN OLIVER of Hampton, Bar No. 2001009, in Committee Case No. CPC 2017-026, by Findings & Order filed March 20, 2018, on a complaint filed by Thomas Slaughter, for violations of Rules 1.1, 1.3, 1.4(a)(3), 1.4(a)(4), 8.1, and 8.4(c), was reprimanded and assessed an $800 fine and $50 costs. Oliver was also reprimanded for his failure to respond to the formal Complaint and assessed a $1,000 fine. In April 2013, Slaughter employed and paid Oliver $800 in fees to get Slaughter’s criminal record expunged. Slaughter then made several unsuccessful attempts at contacting Oliver. Oliver did not take any action or file any pleadings on behalf of Slaughter. Oliver did not provide Slaughter with any refund of the $800.00 fee paid. From late 2014 on, the Office of Professional Conduct (OPC) made several unsuccessful attempts at getting Oliver to respond in writing to the allegations made against him in the grievance by written
THERESA L. CALDWELL of Maumelle, Bar No. 91163, in Case No. CPC 2015-002, on a complaint by Mafalda Casas-Cordero, then of Mountain Home, by hearing findings and order filed March 2, 2018, for violations of AR Rules 1.9(a) and 3.3(a), was Cautioned and assessed $2,110.63 in hearing costs. Other rule violations charged were found not proven. Ms. Casas-Cordero (Mafalda) and Anthony Mira (Anthony) were married and living in California when their daughter Antonia was born in 1994. The parents divorced in 1999. Mafalda and Antonia later relocated to Mafalda’s native Chile in early 2005. Later in 2005 Anthony obtained sole custody of Antonia in the California courts. In October 2008, Mafalda and Antonia both relocated from Chile to Mountain Home, Arkansas, to join Anthony in his new retirement home. Mafalda and Anthony did not remarry. Antonia had special learning disabilities. The parents became dissatisfied
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with the manner in which the Mountain Home School District (MHSD) attempted to deal with these issues and provide appropriate and required educational services through an Individual Educational Program (IEP) for Antonia. On or about August 18, 2009, the parents met with Caldwell in Little Rock and employed her for representation in a “Due Process” Complaint process against MHSD under the IDEA law. Caldwell’s contract showed only Anthony as her client, but almost all, if not all, pleadings she filed were in the names of both parents as parties and her clients. Three days later Caldwell filed the Due Process Complaint. The matter was settled on September 28, 2009, just before the hearing was to start. The parties developed a new IEP for Antonia that was approved on October 14, 2009. Caldwell later denied she ever represented Mafalda in the MHSD matter, claiming Anthony paid her fees and was her sole client in the MHSD matter. In January 2010, problems arose between Antony and Mafalda and he had her removed from his residence and filed suit for a restraining order to bar Mafalda from contact with him and Antonia. Mafalda filed
a response, seeking visitation with Antonia and that the TRO be set aside. After a hearing in early March 2010, the judge issued an order directing the start of visitation for Mafalda in April and that neither parent was to remove the minor child from Arkansas. Upon learning of the new order, Anthony fired his counsel and hired Caldwell, who filed her appearance. The next day, Mafalda’s new counsel filed a new and separate change of custody case against Anthony. Upon being served with summons and the new complaint, on March 20, Anthony packed up Antonia and drove them to Los Angeles, supposedly for a “spring break trip,” where they remained until well after the Arkansas litigation was concluded. Mafalda’s counsel wrote Caldwell, stating that Caldwell had a conflict in representing Anthony against Mafalda in a custody action involving the same child where Caldwell has just a few months previously represented both parents in a case against the child’s school district and which involved the child’s educational well-being. Caldwell declined to withdraw, and stayed in the custody case through an appeal. In May 2010, the Arkansas court asked Caldwell if any court
action involving Antonia was pending in California and Caldwell stated she thought there was but she would need to check on that. Mafalda’s counsel stated there was nothing then pending in California. Anthony did not reopen the California divorce case until October 2010, and then the Arkansas court was notified. During this time, Caldwell failed to correct a false statement of material fact made to the Arkansas court, while challenging the jurisdiction of the Arkansas court and alleging the custody dispute should be heard in California. In December 2010, the Arkansas court found that, although it had jurisdiction of Antonia, the California court was the more convenient forum for the custody case, as the child was there, as were several key witnesses, and sent the matter to California to be heard and resolved. Mafalda appealed this decision and lost. The custody and visitation litigation in California ended when Antonia turned eighteen in December 2012.
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IN MEMORIAM Matthew Wayne Adlong of Conway died January 15, 2018, at the age of 60. Matt graduated from Conway High School in 1977 and the University of Central Arkansas in 1980. In 1982, he married his high school sweetheart, Rosemary Lynch. In 1983, he graduated from the University of Arkansas School of Law in Fayetteville and began his law practice in Conway, which continued until his death. He was a member of the Arkansas Bar Association. Russell D. Berry of Stuttgart died April 18, 2018, at the age of 64. Rusty was an attorney and served the people of Arkansas County and the surrounding areas for many years. He was a member of the Arkansas Bar Association. John A. “Zan” Davis IV died on March 15, 2018, at the age of 62. He was a graduate of Parkview High School, and after graduating from Hendrix College, he attended the University of Arkansas Law School at Fayetteville. As an attorney, Zan was associated with the Attorney General’s office before joining the firm of Whetstone and Whetstone. In 1988, he began his own private practice. He was a member of the Arkansas Bar Association and was awarded a Golden Gavel for his work as chair of the Workers Compensation Institute. He practiced law up until Oct. 2017. David Buford Horne of Fayetteville died April 9, 2018, at the age of 78. David graduated from the University of Arkansas in 1962 and accepted his ROTC commission in the US Army. He served two years at Fort Benning, Ga., and then returned to Fayetteville to enter law school in the fall of 1964. He served in the 188th Air Reserve Unit
from 1964 to 1970. David graduated from the University of Arkansas Law School in January 1967. He immediately began his practice in Fayetteville as a partner with Hugh R. Kincaid. He was City Prosecutor and Assistant City Attorney in the 1960s and 1970s. David was President of the Washington County Bar Association in 1980. He began practice with Darren Gibbs in 2012. He was a member of the Arkansas Bar Association where he served on the House of Delegates. Lizabeth Lookadoo (Libby) of Sherwood died March 6, 2018, at the age of 61. Libby graduated from Arkadelphia High School in 1976. She attended University of Arkansas, Fayetteville, where she was a member of Kappa Alpha Theta sorority. She graduated from Henderson State University and obtained her J.D. from University of Arkansas Law School. She was admitted to Arkansas Bar in 1988. Libby was currently serving as General Counsel for the Contractor’s Licensing Board of Arkansas. She was a member of the Arkansas Bar Association where she served on the Tort Law Committee and was recently honored for her work on the 2016 Construction Law Handbook. Joseph Nelson Peacock of McCrory died on March 5, 2018, at 75 years old. He earned his juris doctorate from the University of Arkansas School of Law in Fayetteville. He returned to McCrory to practice law and served as city attorney. He spent eight years in the Arkansas State House of Representatives and later served on the Arkansas State Claims Commission and Arkansas State Parole Board. He was a member of the Arkansas Bar Association. Ronald A. May of Little Rock died on April 16, 2018, at the age of 89. After graduating from West High School in 1946, Ron enlisted in the army and was assigned to the 7th Division, Army of Occupation, Korea. After being discharged as a Corporal, he attended the University of
Iowa, graduating in 1950 with a BA Magna Cum Laude in American studies. He then attended Vanderbilt University Law School, where he graduated in 1953. Ronald was admitted to the Arkansas Bar in 1953, and practiced law in the state for over 50 years. He settled in Little Rock in 1958, when he joined the law firm of Wright, Lindsey, & Jennings. He formally left the law firm in September of 2013. He was active in both the Arkansas Bar Association and the American Bar Association. For many years he chaired the American Bar’s various committees on technology and computing, and was a pioneer in the use of computers in the practice of law in Arkansas. William H. “Bill” Schulze of Little Rock died on February 26, 2018, at the age of 91. He entered the University of Arkansas in the fall semester on a football scholarship, but left college to join the United States Marine Corps. He attended the Marine Corps’ Japanese Language school at Camp LeJeune, North Carolina. He served in China after the war ended. After his service, he returned to school. He graduated from the University of Tulsa School of Law in 1951. He worked for Mid-Continent Oil Company and Gulf Oil Corporation. In 1956 he moved back to Russellville, Arkansas. He practiced law in Russellville where he served as Municipal Judge until 1974, when he accepted an appointment as an Administrative Law Judge with the Social Security Administration. He served in Macon, Georgia, Mayagüez, Puerto Rico, New Orleans, Louisiana, and finally Little Rock, Arkansas. He retired in 1997, but returned as a Senior ALJ in 2002 and 2003. He was a member of the Arkansas Bar Association. The information contained herein is provided by the members’ obituaries.
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