Dallas Bar Association
HEADNOTES |
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Focus | Corporate Counsel/Securities
February 2022 Volume 47 Number 2
Hartline Barger Continues Support of DVAP Through Pandemic BY MICHELLE M. ALDEN
As the unique challenges of the pandemic continue through the current Omicron surge, businesses and nonprofits continue to adjust to changing circumstances. Outstanding DVAP supporter Hartline Barger LLP has stepped up once again with a donation of $30,500—one of only two donations at this top level during this year’s Equal Access to Justice Campaign! The firm has a long history of supporting pro bono in Dallas through the Campaign. Including this gift, the firm has donated more than $185,000 to legal aid for low-income people since 2007. “We hope our continued support of DVAP will help narrow the justice gap in Dallas County. It’s surreal to be heading into our second year of the pandemic, and the need for quality legal services has not diminished. We are grateful that our attorneys have adjusted to practicing law in this uncharted territory, and that our clients have continued to support us. Because our business has stayed viable, we are in the fortunate position to give back to our community,” said partner Melissa Dorman Matthews. Hartline Barger LLP focuses on general civil litigation defense and trials. While the firm’s services are wide-ranging, they focus on product liability litigation, personal injury defense, commercial litigation, construction litigation, and labor & employment litigation, among other areas. Access to justice is a core value of the firm. “We work tirelessly to provide support to our clients when they need it most. How-
Focus
Melissa Dorman Matthews
Richard Crews
ever, we understand not everyone has the means or opportunities to obtain dedicated representation. Our team at Hartline Barger is proud to support the Equal Access to Justice Campaign. We hope to be an example for other law firms that are similarly situated and thus encourage them to be supportive of such a deserving cause,” added Managing Partner Richard Crews. Access to legal services continues to be incredibly important during the pandemic as people are isolated and facing economic challenges. DVAP continues its weekly virtual intake clinics every Thursday, along with monthly virtual veterans’ clinics, as well
as periodic virtual wills clinics and driver’s license restoration clinics. One recent applicant, “Joanne,” came to DVAP seeking help. She made an oral agreement with a property manager to lease a commercial space to run a restaurant. Joanne began renovations and was in the process of obtaining all necessary permits to run her business, when the property manager locked her out and blocked her from re-entering the premises, taking her belongings without explanation. Volunteer attorneys S. Wesley Butler and Raymond Fisher, of Kilpatrick Townsend & Stockton LLP, accepted the case for pro bono representation. They sued
the defendant, lost the case in Justice of the Peace Court, and appealed to County Court. There, a judgment was entered in favor of the client, and the defendant was ordered to pay $8,347. The client has since received the amount owed to her and is very thankful to her attorneys, who made it possible to move on from this unfortunate situation and gain a new start for her fledgling business. The justice gap in Dallas County is daunting. In a country based on justice for all and access to our court system, over 25 percent of Dallas County residents live near the poverty level, and 42 percent have slim hope of affording an attorney. With annual poverty incomes of $33,125 for a family of four, justice is a luxury for low and moderateincome families. As partner Jeffrey Patterson stated, “We are well acquainted with the impact that DVAP has on the underrepresented in North Texas; its efforts towards mitigating the staggering justice gap are unparalleled. We know our contribution helps put resources into the right hands.” DVAP is a joint pro bono program of the DBA and Legal Aid of NorthWest Texas. The program is the only one of its kind in Texas and brings together the volunteer resources of a major metropolitan bar association with the legal aid expertise of the largest and oldest civil legal aid program in North Texas. For more information, or to donate, visit www. dallasvolunteerattorneyprogram.org. HN Michelle Alden is the Director of the Dallas Volunteer Attorney Program. She can be reached at aldenm@lanwt.org.
Corporate Counsel/Securities
COVID Securities Cases and Regulatory Actions BY CLINT A. CORRIE
When COVID struck the U.S. in March 2020, and the stock market dropped 40 percent almost overnight, many industries and experts anticipated an avalanche of litigation eclipsing the wave of lawsuits filed after the 2008 financial crises. So far, this prediction has not played out, with only 29 securities cases filed since the initial shutdown and only 10 COVID-related filings in the first four months of 2021. Those suits and enforcement actions may represent the calm before the storm.
Inadequate Disclosure Suits
The early days of the coronavirus pandemic focused largely on high-profile news stories about close-quarters COVID outbreaks on cruise ships and the resulting passenger quarantines. Shareholder law-
suits were filed against Norwegian Cruise Line and Carnival Cruise Line for allegedly releasing misleading statements and engaging in aggressive sales campaigns downplaying the pandemic risks to passengers, concealing early knowledge of the threats of COVID, violating port call regulations, and failing to follow their own health and safety protocols by continuing cruise operations during the pandemic. Similarly, shareholders of a REIT named Geo Group, Inc., that operates residential recovery facilities, alleged that the Geo Group made omissions and misstatements regarding the effectiveness and diligence of its COVID response procedures.
Regulatory Actions
Following its disclosure guidelines for publicly reporting companies in April 2020, the S.E.C. brought an enforcement action
against Praxsyn Corporation and its CEO, alleging that the substantial uptick in company share prices was caused by false assertions that Praxsyn had negotiated agreements to buy and sell large amounts of N95 masks. The S.E.C. filed two other lawsuits against companies for releasing false statements about the availability and efficacy of COVID supplies such as testing kits, hand sanitizers, and thermal imaging equipment to detect individuals with fevers in large crowds. In early June 2020, the S.E.C. targeted individual defendants in two separate “pump and dump” complaints, alleging the defendants misrepresented investor responses and investment opportunities in order to inflate share prices and then dump the stock over a short period. In December 2020, the S.E.C. levied a hefty fine against the Cheesecake Factory for allegedly concealing the extent of the financial difficulties it faced during the pandemic. Private
investor lawsuits against them followed. The DOJ filed its first-ever criminal securities action against the president of medical technology company Arrayit Corporation alleging securities and healthcare fraud for misrepresenting Arrayit’s ability to provide accurate, fast, reliable, and cheap COVID tests, inflating test sales numbers, and misleading investors about future prospects.
Shareholder Derivative Suits
In the past year, courts in two Delaware cases Marchand v. Barnhill, and In re Clovis Oncology, Inc. Deriv. Litig. have focused on director liability when it comes to public safety and health concerns in food distribution, and in Clovis, the court emphasized the board’s oversight function must be continued on page 22
Inside 6
DBA Board Elects Chair and Vice Chair
8
Inaugural of Krisi Kastl
14 Nuts and Bolts: Some Basics about the FLSA 22 Growing Litigation & Enforcement Risks for SPACs in 2022
DBA MEMBER REMINDER: All members who have not yet renewed for 2022 will be dropped on March 1, 2022. Renew TODAY in order to continue receiving all your member benefits. Thank you for your support of the Dallas Bar Association!
2 He a d n o t e s l D a l l a s B a r A s s o ciation
February 2022
Programs and meetings are presented Virtually, Hybrid, or In-Person. Check the DBA Online Calendar (www.dallasbar.org) for the most up-to-date information. Programs in green are Virtual Only programs.
Calendar February Events
Visit www.dallasbar.org for updates on Friday Clinics and other CLEs. Bench Bar Conference Committee
BLACK HISTORY MONTH
February is Black History Month. For articles and information on Black History Month, visit rb.gy/kte9d0. To find out more about J.L. Turner Legal Association, visit www.jltla.org. For more on the DBA’s Diversity Initiatives, log on to www.dallasbar.org.
FEBRUARY 4 Noon
FRIDAY CLINICS
4:00 p.m. LegalLine E-Clinic. Volunteers needed. Contac mmejia@dallasbar.org.
5:30 p.m. DBA New Member Reception. Honoring our New DBA Members and Newly Licensed Attorneys. For more information, contact Shawna Bush at sbush@dallasbar.org. or (214) 220-7414. In Person Only
THURSDAY, FEBRUARY 10
FRIDAY, FEBRUARY 18
Summer Law Intern Program Committee. Virtual Only
Noon
CLE Committee. Virtual Only
Publications Committee. Virtual Only
“Amendments to the UCC to Deal with Emerging Technologies,” Bill Henning. (MCLE 1.00)* Virtual only
TUESDAY, FEBRUARY 1 Noon
Lien Laws,” Fred Wilshusen. (MCLE 1.00)* Virtual only
Corporate Counsel Section “ESG 101: A Primer for Corporate Counsel,” Tamara Baggett. (MCLE 1.00)* Virtual only Tort & Insurance Practice Section “An Update on Qualified Immunity,” Cheves Ligon. (MCLE 1.00)* Virtual only Morris Harrell Professionalism Committee. Virtual only
WEDNESDAY, FEBRUARY 2 Noon
Employee Benefits & Executive Compensation Law Section “A Look at 2022: Legislative and Regulatory Updates for Qualified Plan and Health and Welfare Plans,” Kelly Ultis. (MCLE 1.00)* Virtual only Solo & Small Firm Section “How to avoid Malpractice in a Post-Pandemic Legal World,” Robert Tobey. (Ethics 1.00)* Virtual only
Criminal Justice Committee. Virtual only
FRIDAY, FEBRUARY 4 Noon
Friday Clinic “How to Sue a Slum Landlord,” Gene DuBose. (MCLE 1.00)*
MONDAY, FEBRUARY 7 Noon
FRIDAY, FEBRUARY 11
9:00 a.m. Family Law Section Bench Bar Conference Information and Registration link: https:// family-law-section.swoogo.com/benchbar2022. (MCLE 7.00, Ethics 2.25)* Virtual Only
MONDAY, FEBRUARY 14 Noon
Real Property Law Section “The Annotated Phase I Environmental Site Assessment Report,” Mark McPherson. (MCLE 1.00, Ethics 0.25)*
TUESDAY, FEBRUARY 8 Noon
Business Litigation Section “Demonstrative Graphics: Think Outside the Jury Trial,” Britta Stanton. (MCLE 1.00)* Immigration Law Section “Prosecutorial Discretion Updates from OCC,” Paul Hunker. (MCLE 1.00)* Virtual Only
Alternative Dispute Resolution Section “Building a Justice System for the Internet: Online Dispute Resolution,” Colin Rule. (MCLE 1.00)* Virtual Only
Peer Assistance Committee. Virtual Only
Franchise & Distribution Law Section “Franchises and the Tax Nexus; and Franchise and Insurance Needs,” Wes Dutton and Chase McBeath. (MCLE 1.00)* Virtual Only
Child Welfare and Juvenile Justice Committee. Virtual only
Mergers & Acquisitions Section “How to Maximize Company Value in M&A Transactions,” Bryson Miller. (MCLE 1.00)* Virtual Only
International Law Section “2021 Year in Review for Intellectual Property Law and International Law,” Darin Klemchuk. (MCLE 1.00)* Virtual Only
Equality Committee. Virtual only
Home Project Committee. In Person Only
Community Involvement Committee. Virtual only
Public Forum Committee. Virtual only
Legal Ethics Committee. Virtual Only
4:00 p.m. LegalLine E-Clinic. Volunteers needed. Contact mmejia@dallasbar.org.
THURSDAY, FEBRUARY 3
WEDNESDAY, FEBRUARY 9 Noon
SAVE the DATE
Dallas Bar Association 30th Annual
Golf Tournament Benefiting Access to Justice
Noon
Noon
Noon
WEDNESDAY, FEBRUARY 23 Noon
Collaborative Law Section Topic Not Yet Available
Entertainment, Art & Sports Law Section Topic Not Yet Available 4:00 p.m. LegalLine E-Clinic. Volunteers needed. Contact mmejia@dallasbar.org.
THURSDAY, FEBRUARY 24 Noon
Criminal Law Section Topic Not Yet Available
Environmental Law Section “Regulation of Coal Combustion Residuals in Texas,” Stephen Richardson. (Ethics 1.00)* Virtual only Intellectual Property Law Section “PTAB – Patent Owner and Petitioner Perspectives and Impacts on District Court Litigation,” Daniel Block, Roshan Mansinghani, and Chris Stewart. (MCLE 1.00)* Virtual only
FRIDAY, FEBRUARY 25
Law in the School & Community Committee. Virtual Only
Noon
Pro Bono Activities Committee. Virtual Only
MONDAY, FEBRUARY 28
4:00 p.m. LegalLine E-Clinic. Volunteers needed. Contact mmejia@dallasbar.org.
Noon
THURSDAY, FEBRUARY 17 Noon
Probate, Trusts & Estates Law Section “Tips and Tricks for Practicing Probate and Guardianship Law in Dallas County,” Mark Caldwell, LaNasha Houze and Nikki Wolff. (MCLE 1.00)* Relaunch Committee
Energy Law Section “MSA Negotiations,” John Almy and William Pugh. (MCLE 1.00)* In Person Only
Health Law Section “Sexual Harassment and #METOO in Medicine: What’s a Physician to Do?” Karin Zaner. (MCLE 1.00)* Virtual Only
Labor & Employment Law Section “Widening the Pipeline and Assessing the Barriers: Attracting and Maintaining Diverse Legal Talent,” Erika Fadel, Phil Kim, Koi Spurlock, Natasha Stamper, and Robert Tobey. (Ethics 1.00)*
TUESDAY, FEBRUARY 22
WEDNESDAY, FEBRUARY 16
Bankruptcy & Commercial Law Section “Tips from Trustees on Maximizing Exemptions,” Anne Burns, Laurie Dahl Rea, and Emily Wall. (MCLE 1.00)* Virtual Only
Construction Law Section “The 2021 Updates to the Texas Mechanic’s
MONDAY, FEBRUARY 21
TUESDAY, FEBRUARY 15 Noon
Living Legends Program “Retired Chief Justice Carolyn Wright, interviewed by Chalon Clark, and Jennifer N. Jones. (Ethics 1.00)* Virtual Only Friday Clinic “Amendments to the UCC to Deal with Emerging Technologies,” Bill Henning. (MCLE 1.00)* Virtual only
Summer Law Intern Program Committee. Virtual Only
Tax Law Section “Tribune Media Company v. Commissioner, a Recent Tax Court Decision Addressing the Disguised Sale of the Chicago Cubs,” Richard M. Lipton. (MCLE 1.00) In Person Only
Minority Participation Committee “For Profit Boards: How to Join and Where it May Fit in Your Career,” Nora Denzel, Luba Greenwood, Joanna Ridgway and moderator Sanford Holmes. (MCLE 1.00)* Virtual only
Noon
Noon
Judiciary Committee. Virtual only
“How to Sue a Slum Landlord,” Gene DuBose. (MCLE 1.00)*
FEBRUARY 18 Noon
Minority Participation Committee
Appellate Law Section “Tips and Tools for Serving as the Appellate Attorney on Your Trial Team,” Kirk Pittard. (MCLE 1.00)* In Person Only
Trial Skills Section Topic Not Yet Available
Science & Technology Law Section “The Global Chip Shortage - Why Can’t We Make More?” Charles Yeh. (MCLE 1.00)* Virtual only Securities Section “Disgorgement-Post Liu,” Bill Mateja and Ralph Janvey. (MCLE 1.00)* Golf Tournament Committee
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Where: Texas Rangers Golf Club
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If special arrangements are required for a person with disabilities to attend a particular seminar, please contact Alicia Hernandez at (214) 220-7401 as soon as possible and no later than two business days before the seminar. All Continuing Legal Education Programs Co-Sponsored by the DALLAS BAR FOUNDATION. *For confirmation of State Bar of Texas MCLE approval, please call the DBA office at (214) 220-7447. **For information on the location of this month’s North Dallas Friday Clinic, contact yhinojos@dallasbar.org.
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D al l as Bar A ssoci ati on l Headnotes 3
4 He a d n o t e s l D a l l a s B a r A s s o ciation
February 2022
President’s Column
Headnotes
The Groove is in the Heart BY KRISI KASTL
Taken from Inaugural Address given on January 22, 2022 I am going to start this with an admission…I lead with my heart. I consult it regularly in court. I lead with it when I meet a client. I wear it on my sleeve when I hold the hand of someone whose life has been shattered by fate. And it was broken a little when my dear friend, Karen McCloud, who was a heart opener left this world way too soon. But, because I have your attention and I am feeling particularly confessional today, I am going to let you in on a second admission. Sometimes….you can find my heart on the dance floor. So, I can think of no better way to mark this through music and a little iambic pentameter. Celebrating good times was always in demand When the only girl among six boys issued a command I learned at a young age what a strong foundation grows Through Mom and Dad’s back breaking work Seven mighty Kastl’s rose. We faced unbearable loss but didn’t fall apart The good times sewed a tapestry uniting all our hearts. A menagerie of memories crowd my recollection St. Joes and Canutillo’s Eagles had my first affections Moving through college made me reach for higher I found solid support as a UTEP Miner Through college and carnivals, waiting tables, bussing time Drinking life’s overflow was a Kastl’s favorite line. I learned to lean in and respect, the ebb and flow of life The lessons sewn growing up added the perfect spice. Party of Seven. Now party of one. Nose to the Grindstone. Law School year number one. It was hard to leave my family and the comforts we shared But I found a warm welcome with Texas Tech Raiders The tests, the case studies, a restful night at arms-length Scholastic effort was second to the friends that we made We linked arms with destiny and aligned with the flow. I worked and learned. My heart knew the score. I was taught by the masters. And was ready to roar. Twenty years of working Of witnessing the shower Of good ties that bind The hearts central power The honor of representation. The honor of serving. The honor of friendship. The honor is growing.
Friday, February 18 | Noon - 1:00 PM MCLE: 1.00 Ethics
Hosted virtually on Zoom. Register at Dallasbar.org.
Retired Chief Justice Carolyn Wright Fifth Court of Appeals
Interviewed by Chalon Clark, Husch Blackwell LLP and Jennifer N. Jones, Toyota Motor North America, Inc. Co-sponsored by DBA WE LEAD and the DBA Equality Committee
And one who is dancing in heavenly splendor—whose dedication to justice is forever remembered. Now I am going to stop rhyming because there is only so much Iambic pentameter a gal can dole. I am going to take a breath and speak from the heart. I am standing before you because of my Mother. My Mom was my first and best teacher. She instilled in me a perseverance and resilience foundational in every connection I make. We grew up poor, but never lacking. That is a vital distinction. She raised seven children and endured the unspeakable anguish of burying my brothers Ernie and Danny. Despite the twists of fate, my Mom never gave into grief and instead manifested wonder. Her favorite phrase was my guiding force; “Life is what you make it.” It was an expression my Grandmother grew up saying. My Mother lived it. And I am honored to inherit it. My grandmothers were women of legend. You can see my Grandma Kastl’s influence in my firm’s logo. She helped write my happy ever after by sharing a physical manifestation of our family’s name—a castle. I added the signature pink to symbolize the perpetual blossom of possibility. My Dad taught me the meaning of becoming an entrepreneur by forging on when all seemed lost. He inherited a carnival that was central to our family. His commitment to its survival meant years of sacrifice and dedication. My parent’s courage to live life on their own terms inspired me to cultivate my own practice. My brothers continue to inspire and delight me every day. I grew up wanting a sister. Now, I have five of them who have given us a gaggle of nieces and nephews to celebrate life’s perfection. We are living our dream. We are growing our hearts the way we were taught to by the Kastl’s who started the kingdom. We all have banner years that separate our life into a before and after. 2006 was that year for me. In 2006 I took a leap of faith and started my own firm. 2006 was the year I met my new best friend and life partner, Sean Sullivan. In one week, we will celebrate our 11th year of making partner. I was accepted into the Dallas Association of young lawyer’s leadership class in 2006. My heart grew by leaps in bounds that year. And that was just the beginning. So many of you are an integral part of my heart’s growth: Mom and Dad you grew my heart. Ernie and Danny you grew my heart. Karen, Carol, and Danette you grew my heart. Puerto Vallarta group you grew my heart. Texas Trial Lawyers girls, you grew my heart AAJ Women’s Caucus, you grew my heart. Texas Woman Lawyers you grew my heart. Judiciary, you grew my heart. Godchildren, nieces, and nephews, you grew my heart. Dallas Bar Association you grew my heart. And Sean Sullivan You have my heart. If you didn’t hear your name, it is because I am too nervous. If you are sitting here tonight, you have helped me, and I am in your gratitude. Yes, times are tough. Covid is not going away soon. Division seems rampant, but I am going to ask you to look closer. There were events that looked like heart breakers from afar. Upon closer inspection, I can honor the process. What I thought would shatter a heart made it grow stronger. These trying times grew our hearts into a resilient muscle because that is how muscles work; they become fatigued by process and grow more POWERFUL. 2022 is not a change of heart, but a strengthening of it. We will get our groove back and stand in gratitude for what we have achieved and hopeful for what adventures lay ahead. I am genuinely grateful to be here with you during this beautiful time. Thank you profoundly for the honor of your company… from the bottom of my heart. Let’s get back to business; the Dallas Bar Association’s purpose is heart’s work. Our purpose is to serve and support the legal profession and promote good relations among lawyers, the judiciary, and the community. Our community relations mean access to justice is the highest priority. The Dallas Bar Association is not a building. It is not a place you go. It is a living, breathing organization that is constantly evolving to meet the critical needs of the community. As President, with the help of the best board of directors, the most dynamic section and committee chairs, we will continue our mission and keep the DBA the best bar in the country. This is it. This is the time we move forward to embrace 2022 with all its twists and turns If you knew Karen you knew how much she loved to dance. In her memory, I am going to ask you to raise your glass. To 2022, may we dance with the waves and move with the moon. Let’s reclaim our groove in 2022! HN
Published by: DALLAS BAR ASSOCIATION
2101 Ross Avenue Dallas, Texas 75201 Phone: (214) 220-7400 Fax: (214) 220-7465 Website: www.dallasbar.org Established 1873 The DBA’s purpose is to serve and support the legal profession in Dallas and to promote good relations among lawyers, the judiciary, and the community. OFFICERS President: Krisi Kastl President-Elect: Cheryl Camin Murray First Vice President: Bill Mateja Second Vice President: Vicki D. Blanton Secretary-Treasurer: Liz Cedillo-Pereira Immediate Past President: Aaron Z. Tobin Directors: Lauren Black, Rob Cañas, Jonathan Childers (Chair), Stephanie G. Culpepper, Rocio Garcia Espinoza, Hon. Dennise Garcia, Ashlei Gradney (President, J.L. Turner Legal Association), Hon. Martin Hoffman, Andrew Jee, Andy Jones (President, Dallas Association of Young Lawyers), Jennifer King, Jonathan Koh (President, Dallas Asian American Bar Association), Elsa Manzanares (President, Dallas Hispanic Bar Association), Hon. Audrey Moorehead, Timothy Newman, Marisa O’Sullivan (President, Dallas Women Lawyers Association), Kelly Rentzel, Sarah Rogers (Vice Chair), Drew Spaniol, and Amy M. Stewart Advisory Directors: Alison Ashmore (President-Elect, Dallas Women Lawyers Association), Carla Green (President-Elect, Dallas Hispanic Bar Association), Amber Hamilton Gregg (President-Elect, J.L. Turner Legal Association), Nadia Haghighatian (President, Dallas LGBT Bar Association), Nicole Munoz Huschka (President-Elect, Dallas Association of Young Lawyers), and Janet Smith (President-Elect, Dallas Asian American Bar Association) Delegates, American Bar Association: Rhonda Hunter, Mark Sales Directors, State Bar of Texas: Chad Baruch, Rebekah Brooker, Michael K. Hurst, Mary Scott, Robert Tobey HEADNOTES Executive Director/Executive Editor: Alicia Hernandez Communications/Media Director & Headnotes Editor: Jessica D. Smith In the News: Judi Smalling Display Advertising: Annette Planey, Jessica Smith PUBLICATIONS COMMITTEE Co-Chairs: James Deets and Joshua Smeltzer Vice-Chairs: Elisaveta (Leiza) Dolghih and Ted Huffman Members: Logan Adcock, Benjamin Agree, David Brickman, Catherine Bright Haws, Ian Brown, Srinivasan Chakravarthi, Gracen Daniel, Lindsay Drennan, Alexander Farr, Dawn Fowler, Neil Issar, Beth Johnson, Andrew Jones, Alexandra Jones, Krisi Kastl, Jon Kettles, Brian King, Jared Knight, John Koetter, Alan Lightfoot, Margaret Lyle, Derek McKee, Majed Nachawati, D. Mason Parham, Keith Pillers, David Ritter, Carl Roberts, Sarah Rogers, John Shipp, Jared Slade, Sarah Spires, Jay Spring, Sarah-Michelle Stearns, Scott Stolley, Robert Tarleton, Paul Tipton, Anastasia Triantafillis, Pryce Tucker, Kathleen Turton, Peter Vogel, Benton Williams, Jason Winford DBA & DBF STAFF Executive Director: Alicia Hernandez Accounting Assistant: Jessie Smith CLE Coordinator: Viridiana Rodriguez Communications/Media Director: Jessica D. Smith Controller: Sherri Evans Events Director: Rhonda Thornton Executive Assistant: Elizabeth Hayden Executive Director, DBF: Elizabeth Philipp LRS Director: Biridiana Avina LRS Interviewer: Giovanna Alvarado LRS Program Assistant: Marcela Mejia Marketing Coordinator: Mary Ellen Johnson Membership Director: Shawna Bush Publications Coordinator: Judi Smalling Receptionist: Araceli Rodriguez Staff Assistant: Yedenia Hinojos Texas High School Mock Trial & Law Related Education Director: Melissa Garcia DALLAS VOLUNTEER ATTORNEY PROGRAM Director: Michelle Alden Managing Attorney: Holly Griffin Mentor Attorneys: Kristen Salas, Katherine Saldana Paralegals: Whitney Breheny, Miriam Caporal, Tina Douglas, Carolyn Johnson, Suzanne Matthews, Andrew Musquiz, Alicia Perkins Community Engagement Coordinator: Marísela Martin Secretary: Charnese Garrett Copyright Dallas Bar Association 2022. All rights reserved. No reproduction of any portion of this publication is allowed without written permission from publisher. Headnotes serves the membership of the DBA and, as such, editorial submissions from members are welcome. The Executive Editor, Editor, and Publications Committee reserve the right to select editorial content to be published. Please submit article text via e-mail to jsmith@dallasbar.org (Communications Director) at least 45 days in advance of publication. Feature articles should be no longer than 800 words. DISCLAIMER: All legal content appearing in Headnotes is for informational and educational purposes and is not intended as legal advice. Opinions expressed in articles are not necessarily those of the Dallas Bar Association. All advertising shall be placed in Dallas Bar Association Headnotes at the Dallas Bar Association’s sole discretion. Headnotes (ISSN 1057-0144) is published monthly by the Dallas Bar Association, 2101 Ross Ave., Dallas, TX 75201. Non-member subscription rate is $30 per year. Single copy price is $2.50, including handling. Periodicals postage paid at Dallas, Texas 75260. POSTMASTER: Send address changes to Headnotes, 2101 Ross Ave., Dallas, TX 75201.
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D al l as Bar A ssoci ati on l Headnotes 5
6 H e a d n o t e s l D a l l a s B a r A s s o ciation
February 2022
DBA Board Elects Chair and Vice Chair STAFF REPORT
At its January Organizational Meeting, the Dallas Bar Association Board of Directors elected Jonathan Childers Chair of the Board and Sarah Rogers Vice-Chair of the Board for 2022. Mr. Childers is an experienced firstchair trial lawyer at Lynn Pinker Hurst & Schwegmann. A graduate of SMU Dedman School of Law, he specializes in energy litigation, business ownership and fiduciary disputes, trade secrets, high-stakes business torts, and complex financial issues. He has been on the DBA Board of Directors since 2016 and is currently the Board Advisor to the Memorial & History Committee and the Business Litigation and Energy Law Section. In addition to his DBA Board service, Mr. Childers was Co-Chair of the 2017-2018 EAJ Campaign, which raised $1 million dollars for access to justice. Ms. Rogers is a graduate of SMU Dedman School of Law. She is an experienced personal injury attorney at of Crain Brogdon Rogers LLP. She is an active leader in the local community, having served as the President of the Dallas Association of Young Lawyers in 2013 and as the Secretary of the Texas Young Lawyers Association in 2011. Most recently, she served as the Dallas Women Lawyers Association’s President in 2019, and currently serves as a member of Attorneys Serving the Community. She is currently the Board Advisor to the Publications and Law in the Schools & Community Committees and the Solo & Small Firm Section. The Board appointed Justice Dennise Garcia, of the Fifth District Court of Appeals, to serve a judicial at-large position. A graduate of SMU Dedman School of Law, Justice Garcia is Board
Jonathan Childers
Advisor to the Bench Bar Conference Committee and the Appellate Law Section. Filling a Director position is Andrew Jee, of Jee Law, PLLC. Mr. Jee is a graduate of SMU Dedman School of Law and has served for many years as Chair of the Fee Disputes Committee. He is Board Advisor to the Fee Disputes Committee and Alternative Dispute Resolution and Labor & Employment Law Sections. Timothy Newman, a partner at Haynes and Boone, LLP, was appointed as an At-Large Director. He is a graduate of William & Mary Law School and is currently Board Advisor to the Morris Harrell Professionalism Committee and Antitrust & Trade Regulation and Franchise & Distribution Law Section. The 2022 board also includes: President Krisi Kastl; President-Elect Cheryl Camin Murray; First Vice President Bill Mateja; Second Vice President Vicki Blanton; SecretaryTreasurer Liz Cedillo-Pereira; Imme-
Sarah Rogers
Hon. Dennise Garcia
Andrew Jee
Timothy Newman
diate Past President Aaron Tobin; Directors Lauren Black, Rob Cañas, Stephanie G. Culpepper, Rocio Garcia Espinoza, Ashlei Gradney, Hon. Martin Hoffman, Andy Jones, Jennifer King, Jonathan Koh, Elsa Manzanares, Hon. Audrey Moorehead,
Marisa O’Sullivan, Kelly Rentzel, Drew Spaniol, and Amy M. Stewart; ABA Delegates Rhonda Hunter and Mark Sales; and State Bar Directors: Chad Baruch, Rebekah Brooker, Michael K. Hurst, Mary Scott, and Robert Tobey. HN
FEDERAL & STATE CRIMINAL DEFENSE | FEDERAL & STATE CIVIL TRIAL MATTERS
Knox Fitzpatrick ✯ Jim Jacks ✯ Bob Smith ✯ Mike Uhl ✯ Ritch Roberts 500 NORTH AKARD STREET, ROSS TOWER, SUITE 2150 DALLAS, TEXAS 75201-6654 | 214-237-0900 *Independent Law Offices
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D al l as Bar A ssoci ati on l Headnotes 7
8 He a d n o t e s l D a l l a s B a r A s s o ciation
February 2022
The Inaugural of Krisi Kastl The Inaugural of Krisi Kastl, DBA’s 113th President, was held January 22, 2022, at the Westin Galleria Dallas. It was an elegant evening, with fashionably dressed guests, a silent and live auction, a casino party, and dancing. Each year, the Inaugural is the culmination of the Campaign for Equal Access to Justice. This year, an amount of $1.2 million was raised for the Dallas Volunteer Attorney Program. Congratulations to this year’s Ticket to Drive Raffle winner: Debbie Cunningham, who will take home a 2022 Lexus NX 250 and runner up Pamela St. John, winner of the vacation travel package.
President Kastl and Mr. Sullivan raise a glass in memory of Karen McCloud
President Kastl recognizes Immediate Past President Aaron Tobin
Kandace Walter performed the song ‘Thank You for Being a Friend’
DBA President Krisi Kastl and husband Sean Sullivan
Kastl Family
DBA Past Presidents
THANK YOU Kastl Law, P.C. for underwriting the Inaugural Casino Party!
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D al l as Bar A ssoci ati on l Headnotes 9
NEW LOOK, SAME TEAM
Stephanie Luce Ola steph@sorrelsola.com
White Collar
Add 214-774-2424 a
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10 H e a d n o t e s l D a l l a s B a r A s s ociation
Focus
February 2022
Corporate Counsel/Securities
The Yin and the Yang of Delaware Corporate Law the directors are conflicted or face personal liability for their part in the alleged wrongdoing. In United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021), the court articulated the following test, to be applied on a director-by-director basis, to determine whether demand is futile: (i) the director received a material personal benefit from the alleged misconduct; (ii) the director would face a substantial likelihood of liability on the claims that are the subject of the demand; or (iii) the director lacks independence from another person who received a material personal benefit or would face a substantial likelihood of liability. If the foregoing test is satisfied for at least half of the board, demand is excused as futile. This seems like a mere procedural question, but it is the core issue in many derivative lawsuits. If demand is not excused, the lawsuit is barred. By contrast, if demand is excused, the court has already concluded that at least half of the board is compromised, giving considerable leverage to the plaintiff. Recognizing the importance of the court’s decision on demand, the Delaware Supreme Court emphasized that “the demand requirement is not excused lightly.” And yet, on multiple occasions in the last two years, Delaware courts have permitted derivative lawsuits to go forward against corporate boards who did not engage in fraud or self-dealing, but simply failed to conduct sufficient oversight. Such claims are known as “Caremark” claims, named after a pioneering 1996 decision.
BY BRAD FOSTER
For more than a century, Delaware has been the 800-pound gorilla of corporate law. Two million business entities are incorporated in Delaware, including the majority of the New York Stock Exchange and 70 percent of the Fortune 500. Delaware has a huge body of case law, a dedicated business court, and a probusiness mindset. Pro-business, however, is not the same as pro-management. While Delaware courts are generally deferential to the business judgment of corporate boards, they are less tolerant of conflicts of interest and breaches of the insiders’ fiduciary duties to shareholders. Poor claims fare poorly in Delaware, as they should. But meritorious claims fare better in Delaware than in many other jurisdictions, with a knowledgeable judge subjecting potential misconduct to granular scrutiny. This is the yin and the yang of Delaware corporate law—the carrot and the stick. Thus, it is not surprising that Delaware courts brought good news and bad news to corporate boards in 2021. In September, the Delaware Supreme Court raised the bar for investor plaintiffs seeking to bring derivative litigation against a company’s officers and directors. Under Delaware law, a lawsuit alleging injury to a corporation belongs to the corporation itself, i.e., the board of directors. If a shareholder seeks to usurp the board and bring a derivative claim on behalf of the company, he must make a demand on the board to pursue the claims, or alternatively, establish that making such a demand would have been futile because
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In 2019, the Delaware Supreme Court authorized a Caremark suit against the board of Blue Bell Creamery after a listeria outbreak shut down the company’s operations. The court excused demand because the entire board was potentially liable for its alleged failure to oversee the company’s safety problems. Since 2019, the Chancery Court has permitted at least four more Caremark claims to proceed. The latest opinion is perhaps the most disturbing. In the case of In re Boeing Company Derivative Litigation, 2021 WL 4059934 (Del. Ch. Sept. 7, 2021), the Chancery Court authorized a derivative suit against the board of directors of Boeing, finding that the board failed to engage in “rigorous oversight” of the safety problems with the company’s 737 MAX aircraft. This “rigorous oversight” standard is an exercise in hindsight that is unfair to board members, inconsistent with the business-judgment rule and the general deference to board decisions mandated by Delaware law, and a far cry from the
court’s own recital that a Caremark claim is “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” Delaware courts tend to be selfcorrecting, eventually sanding off any excesses. At some point, they will limit Caremark claims again, promulgating new tests and guardrails. In the meantime, corporate boards should be mindful of the increased risk of Caremark claims. Active engagement on all “mission critical” issues is essential—not only bread-andbutter financial and operational issues, but also important regulatory matters, safety concerns, cybersecurity breaches, COVID-related matters, and ESG issues. Board members also need well-drafted indemnity and exculpation agreements and solid Directors and Officers insurance coverage. While these precautions were always necessary, in the current litigation environment, they are critical. HN Brad Foster is a Member at Frost Brown Todd LLC. He can be reached at bfoster@fbtlaw.com.
ECL Attorney Spotlight CHRISTINE MAZUREK
Christine Mazurek, ECL class of 2021-22 Practice area – Family Law and Child Welfare Christine’s path to becoming a lawyer began many years ago when she suffered a serious injury on the job and suddenly became homeless with three young children. Fortunate to find a two-year program for homeless families that provided a home, food, counseling, and education, she was able to obtain a degree in paralegal studies and provide for her family. Christine’s hands-on experience of working in the trenches as a paralegal for over two decades ignited her passion to pursue a law degree. So, once her children began attending college, she enrolled at UNT Dallas College of Law and completed her J.D. at night while working full-time during the day. Christine launched her solo practice in June of 2021 with the goal of providing an affordable hourly rate and retainer structure to help everyday people. “I wanted to be a solo practitioner by choice to have a low overhead so that I could give services that individuals could afford,” Christine said. “Because of my unique experience and background, I have the ability to analyze family law from every angle—client, paralegal and lawyer.” As a member of the ECL attorney incubator program, Christine receives training, mentorship and support to make her dreams a reality. For more information, log on to www.dallasbar.org/ecl.
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D al l as Bar A ssoci ati on l Headnotes 11
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12 He a d n o t e s l D a l l a s B a r A s s ociation
Column
February 2022
Ethics
When You Say Nothing at All BY MATTHEW MUCKLEROY
As litigators, we often find ourselves with superior knowledge of certain facts to that of our adversaries. Clients confide in their counsel, divulging salient facts, whether helpful or (often) harmful to their case. Oftentimes, the opposing counsel learns of these facts for the very first time during your client’s oral deposition. But, what if during a deposition under the pressure of cross-examination, your client testifies to facts that you know to be false? In October 2021 (Opinion No. 692), the Professional Ethics Committee for the State Bar of Texas addressed this issue. In the facts presented, defendant, during a deposition and under cross-examination by plaintiff ’s counsel, testified falsely about key facts that were previously disclosed to defendant’s counsel. During the next break, defendant’s counsel urged the defendant to correct the falsehood, but the defendant refused to do so. The issue never came up again, and when the plaintiff ’s counsel passed the witness, the defendant’s counsel declined to ask further questions. The Committee stated that the fact pattern presented the “very difficult issues” encountered by lawyers when balancing, on the one hand, the duty of candor to the court and, on the other hand, the duty of loyalty to and zealousness on behalf of a client, along with the duty to maintain confidential client information. Rule 3.03 of the Texas Disciplinary Rules of Professional Conduct contemplates
this balancing act, which provides that a lawyer shall not knowingly “make a false statement of material fact or law to a tribunal,” “fail to disclose a fact to a tribunal when disclosure is necessary to avoid assisting a criminal or fraudulent act,” or “offer or use evidence that the lawyer knows to be false.” Rule 3.03 also provides that if a lawyer has offered material evidence and comes to know of its falsity, “the lawyer shall make a good faith effort to persuade the client to authorize the lawyer to correct or withdraw the false evidence[,]” and “[i]f such efforts are unsuccessful, the lawyer shall take reasonable remedial measures, including disclosure of the true facts.” The Committee stated that this Rule serves as an exception to the duty to maintain client confidentiality under Rule 1.05. The Committee found that the instant fact pattern did not implicate the Rule 3.03 disclosure requirement of the attorney. The client, not the attorney, made a false statement of fact or law. The attorney did not offer or use the false deposition testimony as summary judgment evidence, or otherwise. The attorney’s silence was also not deemed to be a “use” of the false testimony, while the Committee noted that comment 13 to Rule 3.03 creates an expectation that the lawyer’s silence does not amount to “assisting a criminal or fraudulent act.” The Committee found that comment 13 to Rule 3.03 specifically applies to this situation, which provides that “[a]lthough the lawyer should urge that the false evidence be corrected or withdrawn,” the full range of the obli-
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gations imposed by Rule 3.03 (taking reasonable remedial measures, including disclosure of the true facts) were not implicated. However, the attorney would violate the rules if he or she used that false testimony in support of the client’s case. The outcome would be different, and the Rule 3.03 disclosure obligations would necessarily be implicated, if the client testified falsely during direct examination by his attorney. The Committee went on to acknowledge a split in other jurisdictions as to whether a lawyer’s silence “in the face of cross-examination perjury constitutes ‘assisting’ a criminal or fraudulent act.” As the Rules are written, the Committee found that “assisting” requires more than mere silence or inaction. In conclusion, the Committee found
that a lawyer does not have a duty to correct intentionally false statements made by a client during cross-examination by an opposing attorney during a deposition. However, that should not be construed to mean the lawyer should do nothing. The lawyer’s continuing obligation to the client includes urging the client to correct the false testimony and explaining the potential civil and criminal ramifications of such false testimony. The lawyer may withdraw from representation if the client refuses to correct such testimony, but the lawyer is not required to do so. If the lawyer remains as counsel, no disclosure obligation is triggered, but the lawyer is not allowed to utilize the false information to further the client’s case. HN Matthew Muckleroy, of Muckleroy, PLLC, can be reached at matt@muckleroylaw.com.
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PMR Firmad_Headnotes_030921.indd 1
D al l as Bar A ssoci ati on l Headnotes 13
3/9/21 1:51 PM
14 H e a d n o t e s l D a l l a s B a r A s s o ciation
Focus
February 2022
Corporate Counsel/Securities
Nuts and Bolts: Some Basics about the Fair Labor Standard Act BY VALE KRENIK
A potential client calls you and complains that “my employer did not pay me” or “we hired an independent contractor, but they now claim they were employees and were not paid overtime.” For both the plaintiff and defendant, an understanding of the Fair Labor Standards Act (FLSA) is essential in these situations.
What Is It?
The FLSA sets the minimum hourly wage, mandatory overtime, timekeeping requirements, and restrictions on employment of minors… to start. The federal law, 29 U.S.C. § 201–219, 29 C.F.R. §§ 778–794, provides federal subject matter jurisdiction for claims related to unpaid labor and unpaid overtime. The act provides for damages, liquidated damages, punitive damages, mandatory attorney’s fees, and even the possibility of criminal penalties. It also provides burden-shifting provisions and an anti-retaliation provision. Additionally, there are recordkeeping requirements imposed on the employer. It has a two-year statute of limitations, unless a “willful violation” is alleged, in which case the statute of limitations is three years.
Is the Plaintiff an Employee?
Independent contractors are not
covered by the FLSA, but in each case, the question remains whether the alleged independent contractor is really a misclassified employee. There are several standards to consider: the Federal Department of Labor standards (seven factors), IRS standards using common-law factors, Texas Workforce Commission standards (about 20 factors), and the FLSA with its suffer, or permit-towork, standard and economic-realities test—whether the alleged employee is economically dependent upon the business to which they render their services as a matter of economic reality—with (yes, you guessed it) even more factors. The FLSA provides a more expansive standard than the traditional “right to control test.” You could find yourself answering suits in federal court, state court, before the Texas Workforce Commission, and in IRS hearings… CONCURRENTLY. Each standard is highly fact-intensive, and careful analysis is very important. In my experience, even if the “independent contractor” Plaintiff represented themselves as a corporation, invoiced as a corporation, provided a corporate EIN, had employees, and paid estimated taxes—they may allege and might be considered an employee.
Who Was the Employer?
The determination of employer seems to be a question of law (but was not always) and is defined under the FLSA to include “any person act-
ing directly or indirectly in the interest of an employer in relation to an employee.” Clearly, a company that has been paying the wage or invoice could be considered the employer, but it does not have to be so. Further, a person can be the employee of multiple persons or entities, there can be joint employers, and multiple companies functioning as an enterprise. At least one case found that the president of the company was the employer, even though that president was also an employee of the same company. Owners and executives of the company might be held directly liable.
Does the Employment Activity Fall Under the FLSA? FLSA only applies to industries that affect commerce. However, those activities of employment could be wholly intrastate and still be under the control of the FLSA because virtually all economic activity, no matter how trivial, affects commerce. Its wage and hour provisions apply to employees who in any workweek are engaged in commerce, engaged in production of goods for commerce, employed in an “enterprise” engaged in commerce (including the production of goods for commerce), or employed in domestic services in a household (with exceptions). Be careful of the definitions of
each word. For example, “commerce” means “trade, commerce, transportation, transmission, or communication among the several States or between any State and any place outside thereof.” Commerce means commerce… got it. Huh? Clear as mud. Well, at least “enterprise” is defined with financial and employee requirements to be an enterprise, so if the allegation is that the employer was an enterprise, make sure it fits. The FLSA definitions are construed very broadly. There are also many exemptions: trainees, volunteers and prisoners, those providing domestic services to an individual, fishing operations, agricultural, executives, administrative, educational, learned professionals, creative professionals, teachers, outside sales, highly compensated employees, and the practice of law or medicine (bad news ladies and gents— lawyers—again legally overworked and underpaid), with each exception or exemption category having various criteria and tests. There are also disputes to determine whether the employer is an immune governmental entity. In the end, it makes me even wonder about the employment status of persons engaged in selling Girl Scout cookies. HN Vale Krenik is an attorney with The Krenik Law Firm, PLLC. He can be reached at help@lawemail.net.
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D al l as Bar A ssoci ati on l Headnotes 15
fighting every day for every person
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16 H e a d n o t e s l D a l l a s B a r A s s o ciation
February 2022
MLK Day Celebrated at the Arts District Mansion On January 17, DBA President Krisi Kastl presented the MLK, Jr. Justice Award posthumously to Karen D. McCloud, who was slated to be DBA President in 2022, but passed away of cancer in April 2020. Ms. McCloud’s mother, Carole McCloud, and her godchildren accepted the Award on her behalf. Also at the luncheon, DISD 5th grader Jaliah Rodgers gave her awardwinning MLK Jr. Oratory Competition speech, which is hosted annually by Foley & Lardner. The keynote speaker was Hon. Ada Brown, of the U.S. District Court – Northern District of Texas. After the luncheon, a memorial reception was held. DBA Past President Jerry Alexander presented a painting of Karen McCloud that will hang at the Arts District Mansion.
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Take out an Area of Practice and/or Foreign Language Proficiency listing in the 2022 DBA Member Directory to get great exposure for your practice. For just $35 per listing you will be included in both the printed and online DBA Member directory. Listing Cost: $3 35.00 For more information and an order form contact Judi Smalling at jsmalling@dallasbar.org or (214) 220-7452.
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D al l as Bar A ssoci ati on l Headnotes 17
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18 H e a d n o t e s l D a l l a s B a r A s s o ciation
Focus
February 2022
Corporate Counsel/Securities
Commissions in Securities Transactions by Unregistered Persons BY VALERIE P. THOMAS AND RALPH S. JANVEY
Generally, persons that buy or sell securities for others must register as a broker or dealer. Section 15(a)(1) of the Exchange Act provides that it is unlawful for a broker or dealer who is not registered to affect any transaction in the purchase or sale of any security. Section 12 of the Texas Securities Act is similar. Exchange Act Rule 3a4-1 generally exempts unregistered control persons of issuers who assist in the selling process from federal registration as a broker or dealer, but only for one offering per year, and only if they are not compensated based on securities transactions and they perform other substantial duties for the issuer. To qualify for a Texas state exemption from broker or dealer registration, the selling director, officer, or employee of the issuer cannot have been hired for the purpose of offering securities, any securities activities must be incidental to work duties, and compensation must be based entirely on non-securitiesrelated duties. A selling agent cannot disguise a commission by calling it something
else. For instance, in SEC v. Graham, filed in November 2020, judgment was entered against unregistered brokers even though they listed sham activities rather than commissions on their invoices to the issuer. In the SEC’s charges in 2018 against unregistered brokers who sold securities in the Woodbridge ponzi scheme, commissions were deemed to include both the 5 percent commissions purposefully mischaracterized as a “marketing bonus” and the resale by the brokers of high interest rate notes to investors at a lesser interest rate. As described by the SEC’s 2017 DAO Report, many digital assets (including tokens or cryptocurrency) are securities which must be registered or exempt. As such, disguised commissions for the sale of digital assets will be deemed transaction-based compensation in connection with unregistered brokerage activities, such as in SEC v. ICOBOX, filed in 2019 or the Texas state enforcement action In re Wichkoski filed in September 2021. When recommending—though not selling—securities, including digital assets, “touting” charges under Section 17(b) of the Securities Act may be a concern if commissions or other com-
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pensation is not disclosed. The 2020 charges against John McAfee and his bodyguard, Jimmy Watson, stemming from their promotions of digital assets on Twitter resulted in both civil and criminal charges. Likewise, the digital token promoters posting to rapper T.I.’s Twitter account and other promoters compensated with either cash or even just a promise of employment in SEC v. FLIK were charged in 2020 with violations of Section 17(b) for promoting securities without disclosing payment. And, of course, arguably the most uncertain area in determining Section 15(a) registration liability concerns “finders”, those persons receiving payment often for merely finding the investors. At present, such persons must register as “finders” under Texas state rules, but there is no federal registration process nor is there a federal exemption yet. Federal common law tests for determining whether or not someone is acting as a broker examine the phrases “engaged in business” or “effecting transactions,” as found in the definition of “broker” in Section 3(a)(4) of the Exchange Act and Section 15(a) of the Exchange Act, in order to determine the necessity of registration for persons who may not be engaged in traditional “broker” activities. “Broker” activities may include solicitation, participating in negotiations, advising investors about the merits of an offering, handling customer funds, having a history of selling securities of other issuers, or receiving commissions. Certain no-action letters, such as the 1991 Paul Anka letter, support the contention that limited unregistered
activity may not be prosecuted. In October 2020, the SEC did propose— but not adopt—exemptive relief to two identified classes of finders. This proposed exemption arises—in part—due to the lack of registered broker-dealer interest in smaller capital raises. The exemption would apply to natural persons who must either (i) only provide investor contact information to a single issuer for one transaction within a 12-month period without contacting any investors; or (ii) for the second proposed class of “finder”, may contact and interact with potential investors but (A) must describe compensation arrangements and conflicts and (B) cannot advise about the valuation or advisability of the investment. Absent an exemption, an unregistered person who engages in securities transactions may be subject to enforcement actions by the SEC, state regulators, as well as private actions for rescission. Both the SEC and state regulators have authority to refer unlawful behavior to prosecutors for criminal prosecution as well. The issuer may have liability under Section 20 of the Exchange Act for aiding and abetting the violation. Typically, the SEC will seek injunctions, disgorgement (including interest), and civil penalties. Typically, the Texas State Securities Board will seek injunctions, but if such orders are violated, registration violations may be prosecuted criminally, punishable by up to ten years in prison. HN Valerie P. Thomas and Ralph S. Janvey are attorneys at Krage & Janvey, LLP. They can be reached at vthomas@ kjllp.com and rjanvey@kjllp.com, respectively.
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From the Bench DOMINIQUE COLLINS
Dominique Collins, Criminal District Court #4 also home of the Dallas County Veterans Treatment Court
HELP PRESERVE OUR HEADQUARTERS: BECOME A SUSTAINING MEMBER All Sustaining Members will be prominently recognized in Headnotes and at our Annual Meeting.
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Why did you decide to become a Judge? I was working in the Mental Health Division of the Dallas District Attorney’s Office and a judge I really respect called me over and complimented me on the way I handled my cases and told me that she respected my interactions with our mentally ill defendants. She told me that she thought I’m make a good judge and that I should consider running in the next election. I was really surprised at the thought, but… here I am 3 terms later! Why do you participate in Bar programs? They provide great CLE and it’s also a rare opportunity to fellowship with attorneys in a lot of diverse practice areas. What are you currently reading? Option B by Sheryl Sandberg and Adam Grant Fun fact about you: I was an Airlift Rodeo Cowgirl for 2 years of my 12 years on active duty in the United States Air Force.
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D al l as Bar A ssoci ati on l Headnotes 19
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20 H e a d n o t e s l D a l l a s B a r A s s o ciation
February 2022
Lawyers’ Legacy: George Clifton Edwards BY BILL HOLSTON
On November 20, 2021 Dallas leaders unveiled a historic marker: “On March 3, 1910, a 59-year-old Black handyman named Allen Brooks was lynched by a white mob …. Mr. Brooks was accused-without evidence of assaulting his white employer’s daughter.’ Sitting in the room with him during his pretrial hearing was his lawyer, George Clifton Edwards. A mob broke into the courthouse, tied a rope around his client and threw him through the window, killing him. Edwards never forgot that awful act of injustice and dedicated his entire career in becoming the man his son described as a ‘one-man civil liberties bureau.’ Edwards was born in Dallas in 1877. His initial career was as an educator. He teamed with local Episcopal Dean Hudson Stuck to found a night school for the children working
in the Dallas Cotton Gins. Later, he successfully advocated for State child labor laws and on labor rights with the Dallas Trades Assembly, a local labor union. After losing his job as a teacher because he was a member of the Socialist party, he decided to ‘read law’, under his father and he became a lawyer in 1910. His first case was as a court appointed lawyer for Allen Brooks. This case left an indelible impression on the young lawyer. He was disgusted because not only was no real effort made to protect or rescue Mr. Brooks, but no one was ever held to account for his murder. This inspired him to fight for change. Edwards was a charter member in Dallas of the ACLU and a longtime supporter of the NAACP. Edwards’ practice extended to every vulnerable group in Dallas at the time, Blacks, Mexican Americans, plaintiff ’s suing loan sharks for usury, and picketers from the International Ladies Gar-
VOLUNTEERS NEEDED For DBA Memorial & History Committee Volunteers are needed to help write memorial resolutions honoring deceased members of the DBA.
ment Workers Union. In 1931 he was representing two labor organizers who were members of the Communist Party. They were speaking out against Jim Crowism, lynching, and the discrimination against Black Americans. For their efforts they were arrested. Edwards obtained their release from jail. As they were leaving the jail, all three were taken by armed Klansman to the Trinity River Bottoms. The armed men beat the two organizers and released Edwards unharmed, other than a warning against representing Communists. His son recorded that Edwards had no use for Communist dogma, but he had no doubt of the duty of a lawyer to defend any citizen to speak or advocate for what he chose. Some of his advocacy for civil rights involved the Dallas Bar Association. In 1941 the ABA amended its rules to allow Black attorneys to join. Some Dallas lawyers called this a ‘slap in the face of all Southern Gentlemen’. They proposed a resolution of the DBA calling on the ABA to change its policy. In November 1944, Mr. Edwards and other Dallas lawyers spoke up against this and outraged some members by insisting that Blacks “were not being given economic and judicial justice in the south.’ The resolution failed. Edwards often spoke truth to power. He once wrote a letter to the editor of the Dallas Morning News, that lawyers were strangely silent about assaults on civil liberties, ‘when courage, conscience and prin-
ciple ought to cause them to speak vigorously.’ In 1956, at the age of 78, he appeared in court for the last time, in a case representing the NAACP, along with Thurgood Marshall and local legend, the Black civil rights lawyer W. J. Durham. The suit sought an injunction against operating in Texas by the NAACP. Justice Marshall explained that during the trial, the judge called him to the bench and asked: ‘What is that white lawyer doing with you?” Marshall replied that Edwards had explained he did not want history to record that there was not one white lawyer in the state willing to stand up for the NAACP. In 1961, at his funeral, one of his pallbearers was W.J. Durham. Members of his own family did not attend the service because there were Black pallbearers. A fellow activist said at the funeral: “Some time ago, I chanced on this quote from Mr. Justice Oliver Wendell Holmes, ‘It is required of a man that he should take part in the actions and passions of his time, at the peril of being judged not to have lived.’ Mr. Edwards did. I hope we all can.” Sources: Pioneer at Law, George Edwards Jr., Norton, 1974 and Pioneer of the Social Frontier, Steven R. Butler, Dallas Historical Society, Legacies, Fall 2008 HN Bill Holston is the Executive Director at Human Rights Initiative of North Texas, Inc. and may be reached at bholston@hrionline.org.
Please contact John Goren at appealnow@aol.com if you would like to serve on this committee.
DVAP’s Finest MISTY FARRIS
Misty Farris is Senior Counsel with Dean Omar Branham Shirley, LLP. How did you first get involved in pro bono? A long time ago, I worked at a firm that had a pro bono project in which we took simple divorce cases, got training at our office, and the judge came in and handled proveups one day in our conference room. I’m sorry to say that I didn’t continue at that point. I had tiny kids, and I just felt overwhelmed. When I came to my current job in April, I knew my supervisor had been very active in DVAP and that I would have support for getting involved, and I have. What types of cases have you accepted? I’ve worked on simple divorces, estate planning, custody cases, and I’m just starting on probate cases and a name change. Everything is new to me, but the mentor attorneys are incredible at providing guidance and answering questions. Describe your most compelling pro bono case. The truth is they are all compelling. It is amazing the difference you can make in someone’s life with relatively little effort. I think the one that’s touched me the most is a case in which an older sister is trying to get custody of her younger sister where mom died years ago. She’s been taking care of her, but there’s nothing official to help make it work, and they are both so young. Why do you do pro bono? It reminds me of why I wanted to be a lawyer, and it takes so little effort from your regular workday to help someone accomplish something they have no idea how to accomplish on their own. What is the most unexpected benefit you have received from doing pro bono? I never knew what I would do after I retired. Now I think I know—handle more DVAP cases.
Pro Bono: It’s Like Billable Hours for Your Soul. To volunteer or make a donation, call 214/748-1234, x2243.
REASONS TO HIRE A HIGH SCHOOL INTERN FOR THE SUMMER Catch up on filing Help making copies Help clean/organize ignored spaces Front desk relief Research assistance Give a student work experience for their college resume Much more! Interested? Contact Melissa Garcia at mgarcia@dallasbar.org
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D al l as Bar A ssoci ati on l Headnotes 21
Corporate Counsel/Securities
Bounds of the Attorney-Client Privilege for In-House Lawyers ments, among which were communications involving in-house counsel discussing the company’s response to outside media inquiries. The court found the communications were created for non-legal purposes with no legal advice offered, and on this point, the Fifth Circuit agreed as Boeing couldn’t articulate that its counsel had “in fact provided legal advice on the content of th[o]se communications.” In Moser v. Navistar Int’l Corp., Navistar Financial attempted to claw-back a portion of an inadvertently produced email. In a chapter 11 plan trustee’s case against Navistar, the company inadvertently produced an email between its inhouse counsel, her supervisor, a corporate paralegal and outside counsel it claimed as privileged. Deciding a claw-back motion, the court concluded certain paragraphs relating to factual information learned from third parties, informing others of a meeting held with directors to discuss a response, and stating why counsel-copied recipients were unprotected. Otherwise, the court protected counsel’s summaries of the directors’ meeting and her assessment of Navistar’s legal options and legal position. The demarcation point of content within the email triggering privilege protections was the disclosure of confidential communications and the existence of legal advice. Finally, in a recent state court opinion, the privilege was upheld to protect Celanese Corporation documents and communications withheld in personal injury litigation in In re Fairway Menthanol LLC. Prior to suit, a facility electrician fell into charged electrical equipment, prompting Celanese’s general counsel to appoint an internal investigative team to provide information
BY DAVID HERROLD
Litigators are inherently attuned to the doctrine. Our transactional colleagues know it, but rarely does it surface in their world. Our corporate clients are aware of the privilege but can take it for granted when they assume communications involving in-house counsel are always sacrosanct. While the attorneyclient privilege is alive and well within corporate legal departments, there are boundaries to the doctrine’s application that should not be in question when your client needs its protection the most. In-house counsel wear two hats: that of legal advisor and that of business participant; and the privileged nature of their communications depends upon which hat they are wearing. When management copies in-house counsel in a businessrelated email seeking no legal advice, no privilege arises. But, when counsel is copied to secure legal advice or assist in some legal proceeding, protection results. The basic test for the privilege as communicated by the 5th Circuit in In re Boeing Co., is if the communication is made in confidence “to a lawyer or his subordinate, for the primary purpose of securing either a legal opinion or legal services, or assistance in some legal proceeding.” This tracks Texas Rule of Evidence 503(b)(1), which allows clients “to refuse to disclose and prevent from disclos[ure] confidential communications made to facilitate the rendition of professional legal services to the client.” Boeing recently found itself in the privilege crosshairs in Earl v. Boeing Co., a case stemming from the crashes of two Boeing 737 Max jets. In discovery, Boeing asserted the privilege over 232 docu-
needed to assess liability in any subsequent litigation or regulatory proceedings. After a deposition subpoena targeted those internal efforts, Celanese invoked the privilege, and plaintiffs moved to compel. On mandamus from the Harris County trial court’s adverse ruling, the Court of Appeals upheld the company’s privilege. Although the plaintiffs claimed the investigative work had been performed by nonlawyer company employees, was communicated by those employees and all for the purpose of preventing future injuries, Celanese successfully showed all withheld communications involved in-house and outside counsel, were for purposes of providing and communicating legal advice and that the investigative team had been appointed by in-house counsel to undertake the task, as “representatives of the client” to effectuate Celanese’s legal representation. Upholding the privilege claim, the appellate court noted, Texas
“Rule 503(b) does not require that the primary purpose of the communication be to facilitate the rendition of legal services; it only requires that the communication be made to facilitat[e]” the same. There is a fine, but sometimes blurry, line between what is privileged and what is not within a corporate legal department. When an email can be written and sent within less than a minute, privilege considerations can go by the wayside. Corporate management and counsel alike should remain mindful of the context and nature of their communications with each other and between in-house counsel and other non-lawyer employees and the possibility that—if not confidential and directly related to facilitating legal advice or services—they could be subject to disclosure in subsequent adversarial situations. HN David Herrold is Partner at Burke Bogdanowicz PLLC and can be reached at dherrold@burkebog.com.
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Women's Leadership Initiative Featuring
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Focus
February 2022
Corporate Counsel/Securities
Growing Litigation and Enforcement Risks for SPACs in 2022 BY EVAN SINGER
The recent explosion in the use of special purpose acquisition companies (SPACs) as an alternative to traditional IPOs has been well publicized. Also known as a “blank check company,” a SPAC is formed by an entity or management team called the “sponsor,” which receives “founders shares” that are worth 20 percent of the post-IPO equity, in exchange for paying certain expenses and contributing working capital. The SPAC then conducts a traditional IPO, after which it has two years to either acquire a private company— the so-called “de-SPAC transaction”— or liquidate and return funds to its investors. Notably, at any time before the de-SPAC transaction, a SPAC’s shareholders can decide to keep their shares, to sell them on the open market, or to redeem them and receive their initial investment back, plus interest. As is often the case, a rise in deal volume has led to a corresponding rise in litigation and enforcement risk. During 2021, shareholders filed dozens of cases against SPACs, their D&Os, and/or D&Os of the target companies. Federal court lawsuits typically have alleged violations of the federal securities laws (e.g., Section 10(b) of the 1934 Act), whereas state court cases usually have alleged breaches of fiduciary duty. Beyond civil litigation,
SPACs have attracted attention from Congress and the SEC. For example, in late 2021 the U.S. House Committee on Financial Services passed two bills regarding SPACs: the “Holding SPACs Accountable Act”, and the “Protecting Investors from Excessive SPACs Fees Act.” For its part, the SEC has filed a handful of SPAC-related enforcement actions, and it has provided guidance (and words of caution) to SPAC market participants via statements from the Division of Corporate Finance and speeches from Chairman Gensler, among others. During a December 2021 speech, for example, Chairman Gensler expressed concerns about a variety of SPAC-related issues, such as disclosures to shareholders, practices by sponsors to “condition the market” for an upcoming de-SPAC transaction, and the role of “gatekeepers” in SPAC transactions. Chairman Gensler has requested several SPAC-related proposals and recommendations from SEC Staff, and it is reported that the SEC could promulgate SPAC-related rules as early as April 2022. Whether private litigation or government enforcement actions, SPACrelated cases usually focus on the disclosures made by a SPAC in connection with its IPO or the de-SPAC transaction, sometimes after publication of a short seller’s report that questions the accuracy of those disclosures.
DBA/DAYL Moms in Law March Luncheon Join Moms in Law for lunch at True Foods in Preston Center on Thursday, March 3, at 11:45 a.m. To RSVP for this lunch, or if you want to join the Moms in Law email listserv, email cpleatherberry@gmail.com. Being a working mom can be challenging. Being a working lawyer mom can be a different ballgame with its own unique challenges. Moms in Law is a no pressure, no commitment, informal, fun, support group for lawyer moms.
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For example, in Akazoo S.A., a putative class of shareholders alleged that the SPAC made material misrepresentations concerning the target media streaming company’s business. Similarly, the SEC recently charged the SPAC, its sponsor and CEO, along with the target company and its founder, for making misrepresentations about purportedly successful tests of the company’s propulsion technology. Another common thread in SPACrelated litigation is a sponsor’s potential conflicts of interest. For example, did a sponsor push the SPAC to acquire a company in which the sponsor has an interest, or did it push the SPAC into a poor deal because the two-year period was nearing expiration and the sponsor faced losing the value of its founder’s shares? In some instances, a shareholder has alleged that the SPAC’s directors breached their fiduciary duties by prioritizing their personal interests in approving an allegedly unfair merger; in others, the shareholder contends that the disclosures concerning the conflicts were insufficient. One significant, unresolved issue is whether a federal statutory “safe harbor” for forward-looking statements applies to statements made in connection with a de-SPAC transaction, such as financial projections. While projections are not made in a traditional IPO, some SPACs have disclosed projections concerning the target company’s busi-
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Evan P. Singer is a Partner at Jones Day. He can be reached at epsinger@jonesday.com.
COVID Securities Cases and Regulatory Actions CONTINUED FROM PAGE 1
more rigorously exercised “when a company operates in an environment where externally imposed regulations govern its ‘mission critical’ operations”. A recent increase in shareholder complaints against officers and directors of COVIDcentric companies resulted in suits against Inovio Pharmaceuticals, Sorrento Therapeutics, Chembio Diagnostics, and Vaxart after their alleged misleading or incomplete statements regarding the companies’ development of a vaccine or a cure for COVID proved to be false, and also claimed that the defendants provided insufficient risk disclosures regarding COVID’s impact on operational and financial prospects.
Post-COVID Litigation: The Next Wave
The next litigation wave is underway. On November 18, 2021, the Hialeah Employees Retirement System Fund filed a proposed class action in federal court
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ness, ostensibly relying on application of the “safe harbor.” SEC officials have expressed skepticism that the “safe harbor” should apply, and at least one shareholder has argued that it does not apply in a case filed in Louisiana federal court. Another unresolved issue is whether SPACs are unregistered investment companies—and therefore that the compensation paid by the SPAC to its sponsors and directors—is illegal and void under the Investment Company Act of 1940. The issue is the subject of pending motions to dismiss in several SPAC-related lawsuits. SPAC-related litigation seems likely to increase in 2022 as hundreds of SPACs searching for a company to acquire complete their acquisitions. SPAC market participants can take steps to minimize the risk that litigation may pose, however. For example, a SPAC should conduct comprehensive due diligence of a target company and any statements by the target company—particularly projections— before including them in disclosures to shareholders. A SPAC also should consider obtaining a fairness opinion. In addition, a SPAC’s board should tread carefully around possible conflicts involving the sponsor, and, if a question arises, should ensure that any relevant disclosures to shareholders contain all material information. HN
in Manhattan to represent investors who acquired stock in Peloton, the exercise company, claiming that the Hialeah Fund lost $8.1 billion in one day in relying on repeated public statements by Peloton and its executives that the company’s dramatic sales surge in 2020 was not due to COVID and the company’s growth and financial results were sustainable well beyond COVID. Peloton’s stock price crashed in August 2021 after it reported “material weakness in its financial reporting.” The most recent wave of post-pandemic suits will target optimistic representations that companies could “weather the storm” or “not only survive but thrive” after the worst of the pandemic, as materially false or misleading attempts to buoy stock prices. Additionally, experts expect that financial weaknesses falsely attributed to the pandemic will become more apparent as the economy recovers and lead to a new wave of litigation. HN Clint A. Corrie is a Partner at Lewis Brisbois, and can be reached at clint.corrie@lewisbrisbois.com
Client Development— Speak at a DBA Program Interested in sharing your legal knowledge and expertise with your colleagues? The CLE Committee is looking for speakers and hot topics for the Friday Clinic programs it holds throughout the year. Please submit a short bio, title, and 2-3 sentence description of your presentation to yhinojos@ dallasbar.org. Submissions will be discussed at monthly CLE Committee meetings.
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D al l as Bar A ssoci ati on l Headnotes 23
Corporate Counsel/Securities
Six Things to Consider When Hiring Outside Counsel BY DONNA WILKINSON
Companies have many reasons to retain outside counsel. The rationale for retaining outside counsel may simply be a need to support and provide additional legal advice on a particular legal problem the company is facing. Alternatively, in-house counsel could be seeking a second attorney with whom to shoulder a portion of a risk. While the rationale behind the need to retain outside counsel may change, certain factors should always be considered to ensure a successful engagement. 1. Is the engagement temporary or a long-term partnership? Sometimes, a company may need to find outside counsel with specific expertise and experience in handling a particular matter, making a focus on building a relationship with outside counsel less important. In such cases, the arrangement would likely be a onetime engagement. However, in other cases, a company may seek to develop a strong relationship with outside counsel firms to be prepared for emerging risks or to have a source of quick answers. The advantage of building a relationship with outside counsel to use on an ongoing basis is that in doing so, outside counsel will have a deeper knowledge of the company’s business, objectives, and risk tolerance, leading to higher quality results. 2. What level of experience is needed? An attorney with substantial experience may be valuable, but sometimes that experience comes with a hefty price tag or does not meet the level of risk the matter poses to the company. Does the company need a transactional attorney with basic contract-law drafting knowledge who can help draft a simple one-page amendment, or has the company been served with a large lawsuit in an area of law in which the company has no expertise? This is not to say experience is never a relevant factor, but the company’s budget, desired end result, and timeframe should be considered when choosing outside counsel. 3. What is the company’s budget? Unsurprisingly, outside counsel costs vary wildly. When a company retains outside counsel, budget must be top of mind and must be discussed early and often by both parties. A company should request that outside counsel provide a budget with a plan for achieving the end objective. Additionally, it may be helpful to request information on the case’s worth based on past verdicts
in similar lawsuits, and conduct a costbenefit analysis. Further, the company should ask outside counsel if the estimated fees include expenses. Finally, a company should understand outside counsel’s billing practices and whether the fees are hourly, flat, or contingent. 4. Is there a reliable source for obtaining a referral? A recommendation or referral can be valuable when hiring outside counsel, especially if the area of law is unfamiliar to a company or a company has never hired outside counsel. If a referral is not available, depending on the size of the company or legal matter, a simple and straightforward request for proposal can be issued to seek responses from multiple potential outside counsel to facilitate the selection process. 5. Where is outside counsel located and does it have presence in other areas where a company may need assistance in the future? While this factor may seem to be obvious, it is important to ensure a legal matter is handled by outside counsel familiar with a particular region or state’s laws and court staff. A company should also consider whether the legal matter will require face-to-face meetings or if phone calls and email will suffice. If outside counsel has to constantly travel long distances to handle legal matters for the company, the legal budget will increase. 6. Does the communication and business style of outside counsel match that of the company and legal matter to be handled? Whether temporary or long-term, proactive communication is key in a relationship with outside counsel to ensure both parties stay on the same page. The company will want outside counsel who takes time to explain complex legal issues, offers more than one strategy, and gives the company confidence that the legal matter will be handled in a thorough and thoughtful manner. Additionally, regular check-ins are crucial, but outside counsel must also respect the company’s time. All companies at some point will eventually find themselves in a situation where legal assistance is needed, and the selection of outside counsel is imperative to successfully meet business objectives. With a world of choice in selecting outside counsel, it is important to think through those factors most important to a company. HN Donna Wilkinson is General Counsel at Ameriflex. She can be reached at dwilkinson@myameriflex.com.
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24 H e a d n o t e s l D a l l a s B a r A s s o ciation
Congratulations Quentin Brogdon 2022 President Texas Trial Lawyers Association • American Board of Trial Advocates, Dallas Chapter, President 2017 • Dallas Trial Lawyers Association President 2007 • Association of Interstate Trucking Lawyers of America, President 2018 • International Academy of Trial Lawyers, Fellow • American College of Trial Lawyers, Fellow • International Society of Barristers, Fellow
February 2022