July 2021 Headnotes by Jessica Smith

Dallas Bar Association

HEADNOTES |

Focus | Business Litigation/Franchise & Distribution Law

July 2021 Volume 46 Number 7

Living Legends

Focus

Franchise & Distribution Law

Avoiding the “Accidental” Franchise BY ERICA MAHONEY

On May 21, the DBA presented the next program in the DBA Living Legends series featuring Hon. Elizabeth Lang-Miers, of Locke Lord LLP, interviewed by Jennifer Ryback, McGuire, Craddock & Strother, P.C. Be on the lookout for the next program.

Focus

Business Litigation

“Breaking Up is Hard to Do”: How to Settle Business Cases BY DAVID COALE AND BARIRA MUNSHI

“Breaking up is hard to do,” says the song. Ending a business dispute is hard enough without trouble caused by ambiguities in the settlement agreement about exactly what is being released. Fortunately, two 2021 Dallas Court of Appeals opinions offer key points to remember in drafting and litigating settlement agreements. In Gharavi v. Khademazad, the court considered an agreement that released all claims “directly or indirectly attributable to the transaction or occurrences” involved in an earlier arbitration. The plaintiff subsequently sued for libel about a Yelp post in which the defendant voiced frustration over the unpaid arbitration award. The court found that, “[w]ithout question, the Yelp review was, if not directly, then indirectly attributable to [the] failure to pay” for services that gave rise to the arbitration. Thus, the court found that the release covered any claims related to the Yelp post, dismissed the libel claims, and entered judgment in favor of the defendant. In Headington Royalty Inc. v. Finley Resources, Inc., an oil-and-gas case, the court addressed the meaning of “predecessors” in a release. One side asserted that the term referred to anyone in the chain of title. The other claimed that it referred to predecessors in a particular corporate composition or structure. The court agreed with the latter position, relying on the so-called “associated words canon,” or “birds of a feather” construction rule, which means that words are known by the company they keep. The court rea-

soned that the placement of “predecessors” among words like “officers, directors, shareholders, employees, agents … and representatives,” unambiguously describes a corporate predecessor. The two cases remind us how important it is to determine just what is in dispute between the parties, and how simple changes in language can significantly affect the scope of a settlement. While Gharavi did not address the degree of relationship an “indirect” claim must have to a settled dispute to be released, it teaches that broad terms such as “indirect” can raise the risk of a party inadvertently releasing tangentially-related claims that it may intend to pursue later. Conversely, by expanding the scope of a release, such phrases can “buy peace” for a client from a broader range of potential disputes. Headington turned to traditional canons of construction to determine the meaning of an unclear term in a release. While it reached an answer, a lessdetailed agreement might be less instructive and could lead to even more uncertainty about how to interpret a release. In a complex multi-party setting such as the one presented by that case, the opinion instructs drafters to carefully consider all potential claims and parties contemplated by a release. The discerning drafter will identify the claims or parties it seeks to either include within, or carve out from, a broad release and will negotiate terms using ordinary and specific language to ensure that its intent is unambiguously captured. HN David Coale and Barira Munshi are attorneys at Lynn Pinker Hurst & Schwegmann LLP. They can be reached at dcoale@lynnllp.com and bmunshi@lynnllp.com, respectively.

Inside 14 Pretrial Rule Provides Alternative Procedure to Resolve “Legal Matters” 19 Business Interruption Coverage for COVID-19 23 Full Disclosure: Reducing Risk for LLC Managers

Franchise, distribution, and license agreements have significant commonalities in their transactional objectives: a person has developed certain goods or services under a trademark and seeks to expand its revenue potential by allowing another person to sell these goods and services using the same trademark for a fee. This arrangement is particularly popular with businesses seeking to expand without the additional liabilities attributable to self-expansion, such as real estate and payroll. Despite the overarching commonality in these agreements, the legal distinctions between them can have significant consequences on the grantor’s obligations and liabilities. Practitioners who are faced with preparing such an agreement should be familiar with these distinctions to ensure they provide the appropriate agreement and, if necessary, appropriate disclosures. A “franchise” is legally defined by federal rule. If the transaction meets the definition of a franchise, franchise laws and regulations will apply regardless of the agreement’s name or the parties’ intent. A franchise is defined under the amended Federal Trade Commission franchise rule as an arrangement that includes: (1) the grant of the right to use a trademark, service mark, or trade name in relation to the offer, sale, or distribution of goods or services; (2) significant control or assistance; and (3) the payment of at least $615 to the franchisor before or within six months after beginning operations. “Significant” control or assistance relates to the overall method of the franchisee’s business operation and has been determined to exist when the franchisor requires participation in marketing campaigns; provides training or site approval or design requirements; dictates hours of operation, production, or service techniques; or personnel or accounting procedures. The term “payment” is construed broadly but does not apply to certain inventory purchases. If a transaction meets the definition of a franchise and an exemption or exception does not apply, the franchisor must provide a franchise disclosure document (which

includes 23 disclosure items), and copies of the franchisor’s standard forms of agreement. Many states have also enacted state franchise laws, which may define “franchise” more broadly than the federal franchise rule or impose additional requirements on the franchisor. If a state’s franchise laws apply, the franchisor may be required to register with the state. Failing to meet these requirements creates liability exposure. While no private right of action exists under the federal rule, many states provide avenues for asserting claims against a franchisor, whether based on violations of state business-opportunity acts or a state’s “little FTC Act.” In Texas, a franchise will often constitute a business opportunity under the Texas Business Opportunities Act. Texas franchisors are exempt from complying with this act if they comply with the federal franchise rule. However, if the franchisor fails to comply with the federal franchise rule and the disclosure requirements under the Texas Business Opportunities Act, the franchisee can potentially bring a claim under the Deceptive Trade Practices Act, possibly asserting treble damages. Unlike franchise agreements, distribution and license agreements generally do not include significant control or assistance. The primary objective of a distribution agreement is for a manufacturer to grant others the ability to sell the manufacturer’s branded products. Usually, the distributor provides other goods and services in addition to the manufacturer’s branded products. Additionally, the manufacturer generally has little or no control over the distributor’s business or operations, although there is some control over the quality and standards for distributing the branded products. In some cases, the distributor may pay a fee to become a distributor. In other cases, the distributor may only pay for the products the distributor purchases for distribution. Under a license agreement, a licensor grants a licensee the right to use the licensor’s intellectual property, which may or may not include a trademark. The licensor retains some degree of quality continued on page 22

Need Help? You’re Not Alone. Texas Lawyers’ Assistance Program…………...(800) 343-8527 Alcoholics Anonymous…………………………...(214) 887-6699 Narcotics Anonymous…………………………….(972) 699-9306 Al Anon…………………………………………..…..(214) 363-0461 Mental Health Assoc…………………………….…(214) 828-4192 Crisis Hotline………………………………………..1-800-SUICIDE Suicide Crisis Ctr SMU.…………………………...(214) 828-1000 Metrocare Services………………………………...(214) 743-1200 More resources available online at www.dallasbar.org/content/peer-assistance-committee

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All CLE and Section programs are presented virtually. Check the DBA Online Calendar (www.dallasbar.org) for webinar links and the most up-to-date information.

Calendar July Events

Available, Strategic Considerations, and Potential Pitfalls,” Hon. Barbara Houser, Michaela Crocker, and Mark Moore. (MCLE 1.00)*

FRIDAY CLINICS

JULY 16 Noon

Visit www.dallasbar.org for updates on Friday Clinics and other CLEs.

“Autonomous Vehicles,” Quentin Brogdon. (MCLE 1.00)*

THURSDAY, JULY 1

2:00 p.m. Publications Committee

Real Property Law Section Topic Not Yet Available

TUESDAY, JULY 13

FRIDAY, JULY 2

Noon

Business Litigation Section “Discovery Topics,” Bob Wise. (MCLE 1.00)*

Immigration Law Section “Consular Processing Updates in a COVID & Post-COVID World,” Michelle Alonzo and Lisa Sotelo. (MCLE 1.00, Ethics 0.25)*

TUESDAY, JULY 6

Legal Ethics Committee

WEDNESDAY, JULY 7

Noon

No Events Scheduled

MONDAY, JULY 5

DBA Offices closed in observance of Independence Day

WEDNESDAY, JULY 14

No Events Scheduled

4:00 p.m. LegalLine E-Clinic. Volunteers needed. Contact sbush@dallasbar.org. 4:30 p.m. Equality Committee

THURSDAY, JULY 8 Noon

CLE Committee Criminal Justice Committee

THURSDAY, JULY 15

Trial Skills Section “How to Tell Your Story at Trial,” John Adams and Sara Chelette. (MCLE 1.00)*

MONDAY, JULY 12 Noon

Blockchain Law Study Group "Blockchain Issues – Cyber, Tax, and Crime,” Jason Freeman, Sean Whyte, and Peter Vogel. Bench Bar Conference Committee Public Forum/Media Relations Committee 4:00 p.m. LegalLine E-Clinic. Volunteers needed. Contact sbush@dallasbar.org.

FRIDAY, JULY 9 Noon

Family Law Section Topic Not Yet Available

Noon

Living Legends Program “Kim Askew, interviewed by Alison Ashmore.” Pre-recorded program. (Ethics 1.00)*

MONDAY, JULY 19 Noon

Labor & Employment Law Section “Hot Topics in Gender Discrimination: COVID/ Pregnancy Issues, Title IX Expansion, Me Too, and More!” Paige Melendez. (MCLE 1.00)*

Senior Lawyers Committee

Noon

FRIDAY, JULY 16 Noon

Bankruptcy Tips, Installment III “Bankruptcy Schedules: The Information

Environmental Law Section Topic Not Yet Available

Intellectual Property Law Section “COVID-19 Vaccine Shortages: Are Intellectual Property Waivers the Answer?” Sapna Kumar. (MCLE 1.00)*

Minority Participation Committee

Morris Harrell Professionalism Committee

FRIDAY, JULY 23 Noon

TUESDAY, JULY 20

Law Student Professionalism Program “A Virtual Program for Law Students & Recent Law Graduates.” Sponsored by Morris Harrell Professionalism Committee. More information at dallasbar.org.

Antitrust & Trade Section “No Poach, No Solicit, No Good: How to Avoid Criminal Antitrust Liability For Labor-Related Agreements,” Thomas York. (MCLE 1.00)*

MONDAY, JULY 26

International Law Section Topic Not Yet Available

TUESDAY, JULY 27

Community Involvement Committee

Entertainment Committee

WEDNESDAY, JULY 21

No DBA Events Scheduled

WEDNESDAY, JULY 28 Noon

Collaborative Law Section Topic Not Yet Available

Entertainment Art & Sports Law Section Topic Not Yet Available

Noon

Energy Law Section “Case Law Update,” Charles Sartain. (MCLE 1.00)*

Health Law Section “Ethical and Legal Issues Facing Healthcare During COVID-19 including Cloud, Cyber, AI, and Blockchain,” Rachel Rose and Peter Vogel. (MCLE 1.00, Ethics 0.50)*

THURSDAY, JULY 29

3:30 p.m. DBA Board of Directors

Alternative Dispute Resolution Section “Topic Not Yet Available,” Michael F. Pezzulli. (MCLE 1.00)*

Friday Clinic “Autonomous Vehicles,” Quentin Brogdon. (MCLE 1.00)*

Law in the Schools & Community Committee

Pro Bono Activities Committee

No DBA Events Scheduled

FRIDAY, JULY 30 No DBA Events Scheduled

THURSDAY, JULY 22

Noon Criminal Law Section “Parole Fundamentals,” Joseph Padian. (MCLE 1.00)*

BENEFIT FREE Room Rental in 2021 & 2022 Book a personal or professional event by December 31, 2021 and the rental fee will be waived. Event must be held by December 31, 2022. Contact Dawn Finley to book your event today.

EXCITED TO SEE YOU SOON The DBA plans to open to smaller meetings such as committees in July, and to reopen for all meetings in September. Keep your eye on DBA Online and Headnotes for reopening information.

214-220-7472 or dfinley@dallasbar.org Rental fee waived for current DBA Members and their firms. Membership will be verified by the Dallas Bar Association. Events must be booked by 12/31/21 and held by 12/31/22.

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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President’s Column

Headnotes

We Are Ready to Meet (In Person) BY AARON TOBIN

In January, I released a column, Until We Meet (In Person) Again. I actually drafted the column in November, and at the time, it was still quite uncertain when we would start to come out of the pandemic and what that would look like. I remember questioning whether reopening the building would happen in 2021 at all. Fortunately, the vaccine is out, the country is reopening, and it is time for us to be together in person again. Starting this month, the Dallas Bar Association will gradually reopen the building and resume in-person programming for the first time in over 15 months.

A Gradual Reopening

The building will open and be available for committee and leadership meetings in July and August. Then, starting September 1, regular in-person programming will resume to include section meetings and all special events. We know many have become accustomed to taking advantage of our online virtual/Zoom platform. Rest assured, many events this year will be a hybrid format so that our members will enjoy the best of both worlds—in-person and real-time remote programming for those who prefer to attend virtually. Food service will be available through our partner, Culinaire. Initially, there will not be a buffet. Instead, prepackaged gourmet lunches will be offered. We will, of course, follow CDC guidelines so that our building is a safe environment for our members to gather and collaborate. Our DBA Support Team, led by, Alicia Hernandez, have worked very hard and have done an outstanding job during the entire pandemic to maintain a safe environment at the building, and to prepare the building for reopening. The DBA did not miss a beat thanks to Alicia’s leadership and our team’s tremendous effort.

When We Reopen, We Will Have a New Name

As many of you are aware, the DBA Board of Directors recently voted to change the name of the building. A special committee has been appointed and is hard at work vetting potential names. It is anticipated that the committee will have a proposed name to recommend to the DBA Board and the Board of Trustees for the Dallas Bar Foundation (the owner of the building) this summer in time to unveil the new name by September 1 when the building reopens fully.

A Busy Fall

There is a lot happening at the DBA this fall, starting with a big party! Mark your calendars for September 18, a DBA Celebration— when we have a back to the building party with food and entertainment. Space will be limited so do look for the invitation to RSVP.

Here are some events to look forward to upon reopening in the fall. The annual meeting will be early this year on Friday, October 29 at 3:30 p.m. While not at the building, we are pleased to announce that the bench bar conference will be in person this year November 3-5 at our usual location, Horseshoe Bay. Our lead bench bar chair, Joel Crouch, his co-chairs, and the committee have put together an outstanding lineup of speakers and programming for our return to an in-person event. The DBA Public Forum Committee has planned a special series around the 20th Anniversary of 9/11. On September 2, Phil Zelikow, Executive Director of the 9/11 Commission, will present a virtual program, and then on September 10, at an inperson program, DBA Past Presidents Harriet Miers and Bob Jordan will discuss their roles in the Bush Administration during 9/11 and its aftermath. Ms. Miers was Chief White House Legal Counsel and Ambassador Jordan was Ambassador to Saudi Arabia at the time. While we were away, several new judges were elected or appointed and took their respective benches. As is a tradition, judicial investitures will take place this fall as we welcome new faces to the bench. The first investiture is for the Honorable Rhonda Hunter (Past President, 2004) and is scheduled for September 2 at 3:30 p.m. A joint investiture for our new 5th District Court of Appeals Justices is planned for October 4 at 3:30 p.m. Not to worry, there will be plenty of exciting virtual programming to take in this summer before the building reopens fully. Our Living Legend interview series continues on July 15 at noon featuring one of our most decorated practitioners, Kim Askew, of DLA Piper. Bar None will come to us once again virtually with Remotely Entertaining and will run this summer, so be on the lookout for those announcements. Martha Hardwick Hofmeister, Tom Mighell, and a cast of many have been working hard to bring this year’s production to our members. Proceeds, as always, benefit the Sarah T. Hughes Diversity Scholarship fund. The Minority Clerkship Program will take place on June 25 at noon. Our third installment of Bankruptcy for the NonBankruptcy Practitioner will take place virtually on July 16, featuring the Honorable Barbara Houser, Michaela Crocker, and Mark Moore speaking on the bankruptcy schedule process. And finally, please do not forget that our building remains one of the most beautiful settings in town for special occasions and corporate events. Please take full advantage of our home and book your firm events and special occasions. No matter the size of the gathering, Culinaire has a special and safe experience that you and your guests will enjoy. With the building reopening and the outstanding programming on tap, it remains an exciting time to be a DBA member. I look forward to seeing you (in person) soon, my friends. Aaron

BANKRUPTCY TIPS

for the Non-Bankruptcy Practitioner

A Dallas Bar Association 2021 Bankruptcy Program Series

Thursday, July 15 | Noon - 1:00 PM MCLE: 1.00 Ethics

Hosted virtually on Zoom. Register at Dallasbar.org.

Kim Askew

DLA Piper LLP

Interviewed by Interviewed by Alison Ashmore with Dykema Sponsored by:

PROGRAM 3 Bankruptcy Schedules: The Information Available, Strategic Considerations, and Potential Pitfalls

FRIDAY, JULY 16, 2021 • NOON - 1:00 PM HOSTED ON ZOOM • MCLE: 1.00

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: Aaron Z. Tobin President-Elect: Krisi Kastl First Vice President: Cheryl Camin Murray Second Vice President: Bill Mateja Secretary-Treasurer: Ebony Rivon Immediate Past President: Robert L. Tobey Directors: Vicki D. Blanton (Chair), Rob Cañas, Jonathan Childers (Vice Chair), Stephanie G. Culpepper, Whitney Keltch Green (President, Dallas Association of Young Lawyers), Marissa Hatchett (President, J.L. Turner Legal Association), Stacey Cho Hernandez (President, Dallas Asian American Bar Association), Hon. Martin Hoffman, Kate Kilanowski, Jennifer King (President, Dallas Women Lawyers Association), Hon. Audrey Moorehead, Javier Perez (President, Dallas Hispanic Bar Association), Hon. Monica Purdy, Lindsey Rames, Kelly Rentzel, Bill Richmond, Sarah Rogers, Mary Scott, Amy M. Stewart, and Mary Walters Advisory Directors: Ashlei Gradney (President-Elect, J.L. Turner Legal Association), Andy Jones (PresidentElect, Dallas Association of Young Lawyers), Jonathan Koh (President-Elect, Dallas Asian American Bar Association), Elsa Manzanares (President-Elect, Dallas Hispanic Bar Association), Derek Mergele-Rust (President, Dallas LGBT Bar Association), and Marisa O’Sullivan (President-Elect, Dallas Women Lawyers 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 Beth Johnson Vice-Chairs: Elisaveta (Leiza) Dolghih and Joshua Smeltzer Members: Logan Adcock, Benjamin Agree, Dallas Andersen, Andrew Botts, David Brickman, Catherine Bright Haws, Ian Brown, Srinivasan Chakravarthi, Lindsay Drennan, Alexander Farr, Dawn Fowler, Candace Groth, Ted Huffman, Neil Issar, Alexandra Jones, Krisi Kastl, Katherine Kim, Brian King, Jared Knight, John Koetter, Margaret Lyle, Majed Nachawati, Keith Pillers, David Ritter, Carl Roberts, 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: Shawna Bush Communications/Media Director: Jessica D. Smith Controller: Sherri Evans Events Director: Rhonda Thornton Executive Assistant: Liz Hayden Executive Director, DBF: Elizabeth Philipp LRS Director: Biridiana Avina LRS Program Assistant: Marcela Mejia LRS Interviewer: Viridiana Rodriguez Law-Related Education & Programs Coordinator: Melissa Garcia Marketing Coordinator: Mary Ellen Johnson Membership Director: Kimberly Watson Director of Legal Education: Kathryn Zack Publications Coordinator: Judi Smalling Receptionist: Araceli Rodriguez Staff Assistant: Yedenia Hinojos DALLAS VOLUNTEER ATTORNEY PROGRAM Director: Michelle Alden Managing Attorney: Holly Griffin Mentor Attorneys: Kristen Salas, Katherine Saldana Paralegals: Whitney Breheny, Miriam Caporal, Star Cole, Tina Douglas, Carolyn Johnson, Andrew Musquiz, Alicia Perkins Community Engagement Coordinator: Marísela Martin Copyright Dallas Bar Association 2021. All rights reserved. No reproduction of any portion of this publication is allowed without written permission from publisher.

Hon. Barbara J. Houser United States Bankruptcy Judge

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 750 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.

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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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IOLTA Matters: Correct Course and Compliance Today BY JEANNE M. HUEY

Every Texas attorney knows that their obligation to keep the property of others in a separate trust (IOLTA) account in accordance with ethics Rule 1.14 is absolute and not waivable. However, strict compliance with IOLTA rules can seem overwhelming and unintentional IOLTA violations are common despite the rules being clear, unequivocal, and readily available. Whether you are managing your practice or have staff, outside professionals, and/or software to handle client funds, there are three things you should do to be confident you are compliant or to correct course if you are not. First, understand the rules. The basic rule is simple: Money not belonging to you that comes into your possession must be in an IOLTA or separate trust account in the client’s name. Money belonging to you must not be in those accounts. Failure to comply with this most basic requirement is a breach of your ethical duty to safeguard client funds under Rule 1.14. Once you earn, and therefore own client funds, they must promptly be moved

into a business or personal account before they are used for any purpose. You cannot pay operating expenses directly out of an IOLTA or trust account, nor can you use an IOLTA or trust account as a savings account by failing to move funds as soon as they are earned. What about a check or direct deposit that is partially earned and partially for trust? That check or deposit must go directly into trust and then the portion owed to the firm can then be transferred to an operating account. You cannot do it the other way around because client funds can never be deposited in a non-trust account. These are the basic rules that most often cause trouble, but you should review all the rules at least once a year. For example, I have used the general term “IOLTA” to refer to trust accounts here, but if the client reasonably expects to earn interest on their funds the rules require that the funds go into a separate client trust account instead of the IOLTA account. You will find the guidelines in the State Bar’s Guide to Trust Accounts, at the State Bar of Texas website, and the Texas Equal Access to Justice Foundation website

Spanish for Lawyers 2021 Fall Session: August 10-October 13

where official IOLTA account information for both attorneys and financial institutions is available. Second, put policies and procedures in place to ensure compliance with the rules by everyone in the office. Rule 5.01 governs situations where partners and supervisory attorneys are responsible for the conduct of other attorneys in the firm. Rule 5.03 requires attorneys to take “reasonable efforts” to ensure that non-attorney staff comply with an attorney’s professional obligations. Institute a written procedure for timekeeping, billing, and the transfer of earned funds from trust. Be specific about who is responsible and the dates each month that each action is to take place, and then follow it. Also, don’t forget that your fee agreement must reflect proper handling of client trust funds. It should state how often you will invoice the client and let them know that you will not transfer funds from the trust without notifying them first. The best practice is to make sure that the client approves the bill before transferring funds from the trust to the operating account. Once you have an acceptable fee agreement and procedures in place, it is crucial that you and anyone working for you follow those procedures. Third, don’t put off IOLTA accounting. Firm accounting issues can be complicated and tedious and IOLTA accounting is doubly so because it must be so precise. If you are not already using an integrated attorney accounting software

Held online via

to record your trust transactions—that is, software that connects to your accounting program and automatically records trust transactions through “double entry” accounting—consider doing so. It will simplify the process and avoid the many mistakes that tend to occur with double entry accounting when it is attempted manually. If these terms and processes are unfamiliar to you, now is the time to read up, invest in appropriate software, and learn how it works. Using the right software will also allow you to produce up to the minute records showing the transactions in the entire IOLTA account, as well as for each individual client who has had funds in IOLTA or trust. It may seem obvious, but proper IOLTA accounting requires that you reconcile your IOLTA and trust account(s) every month. Keeping accurate individual trust records is much easier if you avoid group deposits and withdrawals from your IOLTA account; by making separate deposits and withdrawals it becomes much easier to assign each transaction to the right client. Because the penalties for trust and IOLTA rule violations can be severe, including disbarment, every Texas attorney should take whatever steps are necessary to become and remain compliant today. HN Jeanne M. Huey, of Hunt Huey PLLC, can be reached at jhuey@ hunthuey.com.

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Google Meet/Video conference. Learn how to read, write, and speak Spanish at an adult continuing education level, with emphasis on legal terminology at the

Texas Lawyers’ Assistance Program…………...(800) 343-8527 Alcoholics Anonymous…………………………...(214) 887-6699 Narcotics Anonymous…………………………….(972) 699-9306 Al Anon…………………………………………..…..(214) 363-0461 Mental Health Assoc…………………………….…(214) 828-4192 Crisis Hotline………………………………………..1-800-SUICIDE Suicide Crisis Ctr SMU.…………………………...(214) 828-1000 Metrocare Services………………………………...(214) 743-1200

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DBA Bench Bar Conference is back in the Hill Country! November 3-5, 2021 HORSESHOE BAY RESORT Up to 7 Hours MCLE including Ethics Meet your Judges Awesome networking Trial Lawyer of the Year Award Karaoke

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DAY OF CIVILITY SEPTEMBER 17, 2021 A SPECIAL PROGRAM PROMOTING CIVILITY Sponsored by the Morris Harrell Professionalism Committee

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8 He a d n o t e s l D a l l a s B a r A s s o ciation

Jul y 2021

2021 DBA 100 CLUB - WE WANT YOU! What is the DBA 100 Club? The DBA 100 Club is a distinguished membership recognition category that consists of Firms, Law Schools, Organizations and Government agencies with two or more attorneys as well as corporate legal departments that have 100% membership in the DBA. Recognition is FREE and given to the 2021 DBA 100 Club members in our Headnotes publication and at our Annual Meeting. Please note that the DBA 100 Club is FREE recognition and open for renewal annually. We do not automatically renew an organization’s membership due to changes in attorney rosters each year. Do you see your name on the list? If not, you need to GET ON THE LIST! To become a 2021 DBA 100 Club member, please submit your request via email and include a list of all lawyers in your Dallas office to Kim Watson, kwatson@dallasbar.org. We will verify the list with our member records and, if eligible, we will add your firm to the 2021 DBA 100 Club! If we receive your qualifying list by July 7th, your firm will be included on the August DBA 100 Club recognition list in Headnotes.

Send in your list TODAY! DBA 100 Club Members as of June 14, 2021 2 to 5 Attorneys Adair, Morris & Osborn, P.C. Adam L. Seidel, P.C. Addison Law Firm P.C. Albert & Stobaugh, PLLC Aldous Walker LLP Anderson & Brocious P.C. Anderson & Riddle, LLP Anderson Grossman PLLC Arnold & Freeman Ashcraft Law Firm Atkins, O’Toole & Briner, L.L.C. Atwood Gameros LLP Avant Law Firm Ayres Law Office, P.C. Balekian Hayes, PLLC Bisignano Harrison Neuhoff LLP Blankenship, Wiland & O’Connor, P.C. Booth Albanesi Schroeder PLLC Bower PLLC Chen Dotson, PLLC Chris Lewis & Associates, P.C. Clark Law Firm Crain Brogdon Rogers, LLP Davenport & Epstein, P.C. Fisher & Welch, P.C. Fuller Mediations FurgesonMalouf Law PLLC Gauntt Koen Binney & Kidd, LLP Hitchcock Evert LLP Horton & Archibald, P.C. Hosch & Morris, PLLC Howard & Spaniol, PLLC Howell & Willingham, PLLC JMA Firm, PLLC

Johnston Tobey Baruch, P.C. Kastl Law, P.C. Kellett & Bartholow PLLC Langley LLP Law Office of Jodi McShan, PLLC Law Offices of Maduforo & Osimiri Lawrence Law PLLC Marshall & Kellow, LLP Mincey-Carter, PC Murchison Law Firm Pace & Pace, L.L.P. Peeples & Kohler, P.C. Prager & Miller, P.C. Quaid Farish, LLC RegitzMauck PLLC Riney Packard PLLC Russell & Wright, PLLC Sawicki Law Sheils Winnubst, PC Skierski Jain PLLC Smith, Stern & Friedman, P.C. Spencer & Johnson, PLLC Thomas, Feldman & Wilshusen, L.L.P. Turton & Pinkerton, PLLC Voge Rohe PLLC Walker & Long Waranch & Nunn PLLC Westerburg & Thornton, P.C. Wisener Nunnally Roth LLP Wolff Law, PLLC Woolley <> Wilson, LLP. Yarbrough & Elliott, P.C. Law Firms with 6 or More Attorneys Ackels & Ackels, L.L.P. Bradley Arant Boult Cummings, LLP Bragalone Olejko Saad PC Burford & Ryburn, L.L.P.

Calabrese Budner LLP Canterbury, PC Cavazos Hendricks Poirot, P.C. Cobb Martinez Woodward PLLC Condon Tobin Sladek Thornton Nerenberg Cooper & Scully, P.C. Cowles & Thompson, P.C. Cozen O’Connor DeHay & Elliston, L.L.P. Durham, Pittard & Spalding, LLP Estes Thorne & Carr PLLC Godwin Bowman PC Griffith Barbee PLLC Guida, Slavich & Flores, P.C. Hall Render Killian Heath & Lyman Harper & Bates LLP Hayward PLLC JAMS Johnston Clem Gifford PLLC Jones, Allen & Fuquay, L.L.P. K&L Gates LLP Kilgore & Kilgore, PLLC KoonsFuller McGuire, Craddock & Strother, P.C. Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P. Parsons McEntire McCleary PLLC Passman & Jones, P.C. Payne Mitchell Ramsey Law Group L.L.P. Peckar & Abramson, P.C. Sargent Law, P.C. Scroggins Law Group, PLLC Shackelford, Bowen, McKinley & Norton, LLP Stacy Conder Allen LLP Staubus & Randall, L.L.P. Steed Dunnill Reynolds Bailey Stephenson LLP

The Hartnett Law Firm Tollefson Bradley Mitchell & Melendi, LLP Touchstone Bernays Winstead PC Ziegler Gardner Bell, PLLC Corporate Legal Departments Arcosa, Inc. Borden Dairy Company Capital Senior Living, Inc. Compatriot Capitol Inc. Dunhill Partners, Inc. El Rancho Inc. Gaedeke Energy GFR Holdings, LP HomeVestors of America, Inc. LALA U.S., Inc. North Texas Tollway Authority Rosewood Resources, Inc. Tenaska, Inc. The Rosewood Corporation Government Agencies, Law Schools & Organizations City of Irving City Attorney’s Office CitySquare LAW Dallas County Community College District Dallas County Probate Courts Federal Reserve Bank of Dallas Mosaic Family Services Inc. UNT Dallas College of Law Special Recognition Student Members of UNT Dallas College of Law

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D al l as Bar A ssoci ati on l Headnotes 9

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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

Jul y 2021

Business Litigation/Franchise & Distribution Law

Personal Jurisdiction in the 21st Century: Time for New Int’l Shoes? BY DAVID KENT

After decades of losses before the Supreme Court of the United States, plaintiffs finally won a case upholding the jurisdiction of state courts over non-resident corporate defendants. In a decision in which all voting justices agreed on the result, the court found that state courts in Montana and Minnesota had specific jurisdiction over Ford Motor Company for in-state accidents involving used vehicles, despite the absence of in-state activities directly connecting Ford to the specific vehicles involved. Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., 141 S. Ct. 1017 (March 25, 2021). Does this decision suggest the winds of change are blowing in the jurisprudential fields of personal jurisdiction? Perhaps. For three-quarters of a century, first-year law students have discussed personal jurisdiction in terms of “minimum contacts” and “traditional notions of fair play and substantial justice,” thanks to the venerable U.S. Supreme Court case of International Shoe Co. v. Washington, 326 U.S. 310 (1945). “Minimum contacts” in turn has yielded discussions of “general jurisdiction” and “specific jurisdiction.” But the world has changed since International Shoe, decided just after the end of World War II. Ford Motor Co. may signal that the Court is open to reconsidering how to analyze personal jurisdiction. The facts in Ford Motor Co. were not particularly complicated, and the holding was not particularly surpris-

ing. The appeal was a consolidation of two personal injury cases involving claims by plaintiffs who resided and were injured in the forum states of Montana and Minnesota. The injuries were caused by accidents involving used Ford vehicles that were purchased in the forum states. Ford argued there was no general jurisdiction because it was not “at home” in either Montana or Minnesota (a term of art coined in Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011)). Ford also claimed there was no specific jurisdiction because it had not designed, manufactured or sold either vehicle in Montana or Minnesota. Ford essentially urged a “but for” version of specific jurisdiction, relying on the long-established and oftquoted phrase that the plaintiff ’s claim must “arise out of or be related to” the defendant’s contacts with the forum. By Ford’s reasoning, this meant the plaintiffs’ claims had to arise from Ford’s in-state activities related to the specific vehicles involved in the accidents. Since all of Ford’s involvement with the specific vehicles occurred out of state—i.e., designing, manufacturing, and selling—Ford reasoned that the plaintiffs’ claims did not “arise out of or relate to” anything Ford did in the forum states. The Court decided 8-0 (Justice Amy Coney Barrett not participating) that Montana and Minnesota had specific jurisdiction. Justice Elena Kagan, writing for five justices, readily dispensed with Ford’s arguments, finding that the arguments offered too restric-

tive a view of specific jurisdiction. Even if the plaintiffs’ claims did not directly “arise out of” Ford’s activities in the states, they at least “related to” those activities. Justice Kagan explained: “The first half of that standard asks about causation; but the back half, after the ‘or,’ contemplates that some relationships will support jurisdiction without a causal showing.” Ford employed “every means imaginable” to market its products and services to residents of the forum states, which Justice Kagan concluded created a “strong ‘relationship among the defendant, the forum, and the litigation’—the ‘essential foundation’ of specific jurisdiction.” Justice Kagan’s parsing of the phrases “arises out of” and “related to” is interesting in and of itself, because it raises questions of whether courts will now broaden the view of specific jurisdiction by focusing on a defendant’s general activities in the state, even if unconnected to the controversy before the court. In years past, defendants could fairly readily wall off those unconnected activities. How well that will work in the future is not so clear. Of even greater interest, however, were the concurring opinions of Justice Samuel Alito and Justice Neil Gorsuch. After explaining the reasons why his view differed from Justice Kagan’s analytical approach to the “arises out of or be related to” language, Justice Alito added some

musings about whether the International Shoe method for analyzing jurisdiction “is well suited for the way in which business is now conducted” and also commended Justice Gorsuch’s “thoughtful” concurring opinion on that subject. For his part, Justice Gorsuch, with Justice Clarence Thomas joining, expressed even greater concern about the continued viability of International Shoe, describing its conceptualization of general jurisdiction as “almost quaint,” and stating that “some of the old [personal jurisdiction] guardrails have begun to look a little battered.” While he had complete confidence in the correctness of the result reached in the Ford case, he candidly admitted to leaving the case “with even more questions than I had at the start,” and invited “future litigants and lower courts” to help the Court “face these tangles and sort out a responsible way to address the challenges posed by our changing economy in light of the Constitution’s text and the lessons of history.” In sum, from uncomplicated facts and an unremarkable holding, Ford Motor Co. may well indicate that the Court may be ready to try on some new “personal jurisdiction shoes” to replace the time-worn footwear of International Shoe. HN David Kent practices with the Dallas office of Faegre Drinker Biddle & Reath, LLP. He may be reached at david. kent@faegredrinker.com.

Save the Date Judicial Investiture of the

Hon. Rhonda Hunter 303rd District Court

September 2, 2021 3:30 PM at DBA Headquarters

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Jul y 2 0 2 1

D al l as Bar A ssoci ati on l Headnotes 11

HIGH FIVE FOR TURNING 5 TEXAS & LOUISIANA CAR WRECK LAWYERS

Myles Lenz

Ramez Shamieh

2021 Rising Star

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Laura Rivas

We are grateful for all of your referrals the last ﬁve years which have been an integral part of our growth and achievements.

12 He a d n o t e s l D a l l a s B a r A s s ociation

Column

Jul y 2021

Ethics

The Dilemma of the Paid Fiduciary BY GENE DUBOSE

It is curious that an attorney’s most fundamental ethical obligation is not found in the Texas Rules of Professional Conduct, although it is fleetingly adverted to. That obligation arises from the fact that our relationship with our clients is a fiduciary relationship. The rules of professional conduct deal with some of the common problems that arise in the business of being a lawyer, but they do not define the nature of the attorney-client relationship. Our role as a fiduciary, however, shapes everything we do. Our fiduciary duty informs us that we must always act not for our own benefit, but solely for the benefit of our client. We are, however, paid fiduciaries, and most of us are paid via an hourly rate. Our every action will cost the client. At the outset, of course, we must inform our client what our actions will cost per hour, but thereafter we must be satisfied that we are not multiplying our tasks or our client’s costs unnecessarily. The debate on how we put our obligations before our interests will in large part be an inner monologue, at least

for those of us who litigate. Our clients are rarely experienced enough to perceive what is necessary and what is not. In the main, they will follow our advice. Let me pose some questions to ask ourselves about our fiduciary duties in some common situations.

Situation No. 1

Your client wants you to bring a suit to collect $15,000 for damage done to her home by a repairman. Do you tell her that she can bring her case in small claims court without a lawyer? Do you give her an estimate of what your fees will be for trying the case? Do you tell her that Texas is the most debtor-protective state in the union, and if she gets a judgment, she may not be able to collect on it? As you can see, putting all these issues before your client could lead her to decide either (1) she does not want to bring a suit or (2) she will bring her suit pro se. In this vein, are you unwilling to take a case where you perceive that your client will simply be throwing good money after bad?

Situation No. 2

Your firm has been hired to represent your client in a business matter where $150,000 is in dispute. The facts are straightforward, and the area of law is one where you are experienced. Will you bring in other members of your firm to help you on this case? If you are thinking about doing that, have you requested your client’s consent to do so? Have you explained the need for doing so? Have you brought along an associate for hearings or depositions? Have you explained to the client the need for the associate’s presence? Is your decision on staffing a case determined by the wealth of the client or by your need for assistance? Is all the work you do on a case necessary? Do you stand up to your managing attorney if he pressures you to do more billable work or to take on more lawyers than you think necessary?

Situation No. 3

For litigating attorneys whose fees

are based on hourly billing, the fees stop when the case settles. Once you are involved in an active lawsuit, do you explain to your client the virtues and, for all practical purposes, inevitability of settlement to resolve the case? Do you try to settle the case as early as possible? Do you stop discovery when you have pretty much everything you need for mediation? In these questions about the fiscal aspects of your fiduciary responsibilities to your client, the Texas Rules of Professional Conduct are blessedly quiescent. A fee only becomes a subject for a grievance if it is illegal or unconscionable, and a fee is unconscionable only “if a competent lawyer could not form a reasonable belief that the fee is reasonable.” Rule 104(a). As you can imagine, this is a standard rarely met. In ordinary matters of drawing the line between your bills and your client’s interest, it is just up to you and your conscience. HN Gene DuBose, of DuBose Legal, P.C., may be reached at gene@duboselegalgroup.com.

2021 Stephen Philbin Award Winner Announced STAFF REPORT

The Dallas Bar Association hosted the 2021 Stephen Philbin Awards this spring and the winner has been selected. The KXAN, Austin, investigative team of David Barer, Arezow Doost, Josh Hinkle, and Chris Nelson were selected by this year’s judges to receive the prestigious award. In selecting the

winners, judges consider educational value, accuracy, resourcefulness, as well as the journalist’s initiative in pursuing the story and the story’s contribution to public debate. The KXAN team’s story “Locked in Limbo,” highlighted the struggle of mentally ill men and women in Texas’ county jails. A summary of the story: “Incapable of standing trial, they wait in line behind

hundreds of other people—sometimes over a year—for a bed in a state hospital to get help they need. As Texas’ population booms, leaders have recognized this problem is also growing, but their efforts to shrink the backlog have failed. In 2019, the number of people stuck on the waitlist—with cases stalled and constitutional rights possibly violated— reached historic levels. KXAN highlighted families caught up in this system and the state’s struggle for solutions.” Read the whole

story at http://lockedinlimbo.com. The Philbin Awards were established in 1983 in honor of Stephen Philbin, an active member of the Dallas Bar Association and a leading authority on media law, who lost his battle with leukemia in 1982. The competition is state-wide, and the winner receives a $5,000 cash award. The winners will be recognized at the Dallas Bar Foundation’s Fellows Luncheon on Thursday, November 11, 2021. HN

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Jul y 2 0 2 1

D al l as Bar A ssoci ati on l Headnotes 13

KOONSFULLER SHAREHOLDERS ROW 1: Liz Porter,*

Charla Bradshaw,* Ike Vanden Eykel (CEO),* Rick Robertson,* Heather King* ROW 2: Sean Abeyta,*

Neda Garrett,* Brian Loughmiller,* Sally Pretorius,* Chris Meuse,* Jessica Janicek,* Fred Adams,* Julie Crawford,* Rob McEwan*

As recognized among Tier 1 U.S. News – Best Lawyers® “Best Law Firms” in Dallas/Fort Worth for Family Law by U.S. News & World Report L.P.

FAMILY LAW IS NOT ONLY WHAT WE DO. IT’S ALL WE DO.

With more than thirty proven attorneys in four offices across North Texas, KoonsFuller is one of the largest family law firms in the Southwest. We offer clients a level of legal representation and range of resources unmatched by any other family law firm. Working together, as a fully integrated team, there is no case too large or complex for us to manage. To learn more about KoonsFuller, visit koonsfuller.com.

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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

Jul y 2021

Business Litigation/Franchise & Distribution Law

Pretrial Rule Provides Alternative to Resolve “Legal Matters” BY CHERYL MANN AND MIKE NORTHRUP

Texas Rule of Civil Procedure 166(g) authorizes trial courts to decide “legal matters” before trial. Paragraph (g) is underutilized. Though current Paragraph (g) was added in 1990, just over a dozen appellate opinions have mentioned the provision in the succeeding 30 years. This authorization offers litigants a simpler and less-costly approach to resolving pivotal disputes than some other available procedures, such as a motion to dismiss or motion for summary judgment. “Legal matters” that can be resolved under Rule 166(g) include both factual matters and questions of law. However, if it is a factual matter, Rule 166(g) allows a trial court to decide it only if it is an undisputed fact or a conclusively-established fact. There are innumerable questions of law that could be resolved in a judicially efficient manner, allowing judges to streamline the focus of the litigation and the trial. Examples of questions in a contract case include whether

a party has standing, whether the contract is enforceable, whether the contract is ambiguous, whether the contract was breached, and whether the contract is subject to the statute of frauds. Defamation cases involve many questions of law such as whether a statement concerns a public or private issue, whether the statement referred to the plaintiff, whether the plaintiff is a public or private individual, whether the publication is an actionable statement of fact, whether the statement is defamatory, whether the statement is defamatory per se, and whether a qualified or conditional privilege applies. Pivotal questions relating to affirmative defenses might also be resolved. The accrual date of the cause of action for limitations purposes could be decided. Defenses such as privilege or justification could be resolved. Questions involving the proper measure of damages could also be resolved. A Rule 166(g) hearing may be held at any time before the case goes to trial. In fact, it appears that so long as the hearing begins prior to the start of trial, there is no impedi-

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ment to the trial court delaying its ruling until as late as the conclusion of voir dire. But, there is no restriction against setting a pretrial hearing early in the life of the case to get a trial court’s ruling on a legal matter. An early ruling by the trial judge on a pivotal issue often can help to focus discovery and other case developments on important issues. A motion filed under Rule 166(g) has some procedural advantages over other devices such as a motion to dismiss or a summary-judgment motion. Rule 166(g) imposes no requirement of 21 days’ notice of the hearing on the motion. Thus, if the opposing party has filed a motion for summary judgment and set it 21 days out, thereby precluding a cross-motion, Rule 166(g) may offer a solution. Or, if a motion for summary judgment cannot be filed because of a cut-off date in the pretrial order, or because there is insufficient time prior to trial, Rule 166(g) may provide an alternative pathway to getting a ruling. Also Rule 166(g) avoids the

danger of an attorney’s fees award that might be incurred in connection with a Rule 91a motion to dismiss or an anti-SLAPP motion. Rule 166(g) imposes no requirement on evidence that may be considered or the form of evidence presented. In fact, trial courts have examined deposition testimony and heard live testimony in order to understand the legal issue and make a ruling. Although a Rule 166(g) order has the potential to be case-dispositive, ordinarily the ruling would narrow the scope of issues for trial, to the benefit of the court, the parties, and the jury. As with any trial court ruling, the ruling would be subject to challenge at the conclusion of the case. On appeal, a Rule 166(g) ruling is treated like a summary judgment order or directed verdict and is reviewed de novo. HN Cheryl Mann is Of Counsel at the Law Offices of Brad Jackson. She may be reached at cheryl@bradjackson.com. Mike Northrup is a Shareholder at Cowles & Thompson, P.C. He may be reached at mnorthrup@cowlesthompson.com.

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DBA 100 Club WHAT IS THE DBA 100 CLUB? The DBA 100 Club is a special membership category that recognizes firms, agencies, law schools, and organizations that give 100% membership support to the DBA! WHAT IS THE COST TO JOIN THE DBA 100 CLUB? IT’S FREE! HOW DO YOU JOIN? Firms, government agencies, and law schools with two or more lawyers as well as corporate legal departments can qualify if all of their Dallas office attorneys are DBA members. To join the 2021 DBA 100 Club, please submit a list of all lawyers in your Dallas office to Kim Watson, kwatson@dallasbar.org. Once approved, we will add your organization to the 2021 DBA 100 Club member recognition list! WHAT ARE THE PERKS? Our 2021 DBA 100 Club members will be recognized in Headnotes, the 2022 DBA Pictorial Directory, and at our Annual Meeting.

Joi n today!

Jul y 2 0 2 1

D al l as Bar A ssoci ati on l Headnotes 15

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

Jul y 2021

Procedures and Best Practices for Closing a Solo or Small Firm BY GREG SAMPSON

Lawyers with solo or small firm practices contemplating retirement primarily ask two questions. When and how should I transition out of my practice? And how can I optimize the value of the practice for myself and my family when I do decide to exit? Simply put, the answers lie in early preparation and planning. Before outlining best practices for succession, all solo/small firm lawyers need to assure their practice does not become a casualty of sudden cessation without any planning. Fortunately, Rule 13.04 of the Rules of Disciplinary Procedure makes it more attractive to name your own custodian online. The new rule outlines a custodian’s authority to act without court supervision and limits their liability the same as custodianships supervised by a court under the other provisions of Part XIII of the Rules. All solo and small firm lawyers should avail themselves of this easy step to protect their practice and

their clients in a sudden cessation. But sudden cessations without planning do not afford an opportunity to place clients with a preferred successor attorney and rarely provide compensation for the value of the practice. Early and thoughtful planning for succession should accomplish both of those objectives. And like the solution for sudden cessation of practice, the State Bar’s Law Practice Management Program in tandem with the Work Group for Succession Planning are working to provide guidance online in the succession planning portal. There you will find several articles providing guidelines, checklists and suggested forms for best practices to transition or sell your practice. Below are some of those insights. First, you need to set a time when you would like to exit your practice. This may not mean full retirement, but if not, then it is important to envision what a reduced practice will look like and for how long. The shorter the time to exit the faster you will need to implement your plans.

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A popular Chinese proverb tells us, “The best time to plant a tree was 20 years ago. The second-best time is now.” The sooner you start the better your results. Second, with a clear vision of how you want to exit, you need to decide which of the three most common methods of transition best fit you and your clients. One is bringing a younger lawyer into the firm and gradually transferring files and clients to him or her with some retirement compensation worked out as you gradually exit. Another is to merge with a larger firm and arrange a compensation and/or retirement plan that adequately pays for the clients you bring to that firm. A third option is an outright sale of your ongoing practice to another lawyer or lawyers, which may or may not include a transition period. Sales of practices or practice areas are permissible in Texas, provided you adhere to the Disciplinary Rules of Professional Conduct. The Committee on Disciplinary Rules and Referenda is now considering for referendum ABA Model Rule 1.17 on sale of a practice, which is still good ethical guidance in the meantime. Each of the transition methods require careful attention to several ethical rules that might be tripped inadvertently. A few of the key rules addressed extensively on the succession planning portal include (1) confidentiality, (2) conflicts of interest, (3) competence, (4) client communication, and (5) fee setting (including avoidance of impermissible fee splitting). The risk of violating these rules are minimized to some degree when the transfer involves hiring a successor lawyer into your firm or merging with another firm. And it must be remembered that clients

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can always pick their lawyer regardless of any expectation by the lawyers to the transfer. When setting a price, factors such as the amount and duration of recurring fees, transition of referral sources and periods of mentoring or client relationship transfer should be considered. And when selling a practice, do not underestimate the value of a longstanding phone number, website, blog, and any valuable office equipment. The condition of your files, including up to date contact information and status summaries, with easyaccess digitization, can also enhance the value of your practice. Documents in the sale of a practice include client consent letters, a purchaser’s letter of intent, non-disclosure agreement during the due diligence analysis, and a contract of sale. The terms of sale should address the price, manner of payment, representations and warranties, non-compete/non-solicitation provisions, handling IOLTA accounts, indemnification and other essential terms. The seller must also arrange for malpractice insurance (e.g., tail coverage). Terms of sale can be very much like other business sales, except for the element of protecting the client’s interests and adhering to relevant ethical rules. Details on these issues can be found on the Law Practice Management webpage for closing a practice, found at www. texasbarpractice.com/law-practice-management/plan/. HN Greg Sampson is Senior Counsel at Gray Reed, Board Certified in Estate Planning and Probate Law, and Co-Chair of the State Bar of Texas Work Group on Succession Planning. He may be reached at gsampson@grayreed.com.

DVAP’s Finest TU NGUYEN

Tu Nguyen is a sole practitioner.

1. How did you first get involved in pro bono? After law school, I took a brief pause from the law to focus on family and a family business. When it was time to return to my legal practice full-time, I wanted to focus on ways to continue giving back to the community. DVAP was a great fit. The support staff and mentoring attorneys provided the necessary guidance to help me confidently move forward with all my cases.

2. Describe your most compelling pro bono case. It was an estate planning case involving an elderly woman. The referral was actually for the standard will and power of attorney documents. Once we met and started talking, I realized she had some assets which needed management. As I listened to her concerns, I realized there was much more I could do to help ease her mind. She was concerned about what would happen to her estate and, more importantly, how she could continue to help her family and goddaughter even after her death. It was very rewarding to see her whole demeanor change after we finished everything. Without DVAP, she would have missed out on strategic ways to protect her assets and continue her wishes after death. 3. Why do you do pro bono? My family was part of what is referred to as the «boat people» - the Vietnamese refugees who started arriving in America around 1980 after the Vietnam War. We arrived in America with nothing but the clothes on our backs. It was through the kindness of volunteers that my family was able to survive. When we needed legal services, the legal aid office provided volunteer attorneys who worked tirelessly to help us. Although I was very young, I still remember the impact it had on my family. Now I am in a position to give back and complete the circle of kindness. 4. What impact has pro bono service had on your career? Lots of people readily make time to offer guidance when they learn you are handling a case pro bono. Those opportunities for growth are invaluable to a solo attorney managing her legal practice on her own. It›s embarrassing to admit, but I›ve met wonderfully talented and incredibly smart attorneys who have graciously answered a lot of my «dumb» questions. 5. What is the most unexpected benefit you have received from doing pro bono? Unexpectedly, doing pro bono service is not just a selfless act. It actually is quite selfish in a way. I have gained so much personally and professionally. When we help others with genuine kindness in our hearts, that kindness is returned tenfold in so many different ways.

Pro Bono: It’s Like Billable Hours for Your Soul. To volunteer or make a donation, call 214/748-1234, x2243.

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D al l as Bar A ssoci ati on l Headnotes 17

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The DBA is Your One-Stop CLE Shop! With free CLEs, webinars, and the DBA Online CLE Catalog, you can find all the CLE credits you need. Log on to

www.dallasbar.org for more information. We look forward to seeing you again in person soon!

On April 23, the DBA presented the second in a series on Bankruptcy Tips. Amber Carson, Gwendolyn Hunt, Davor Rukavina, and Jerry Alexander spoke on the topic of “Just the Tip of the Iceberg: Understanding the Scope of the Automatic Stay.”

The Dallas Asian American Bar Association and the DBA Minority Participation Committee presented “Past, Present, and Future – Hate Crimes, Asian American Jurisprudence, and Civil Rights.” The program was co-sponsored by the DBA Equality Committee and the Asian American Bar Association of Houston.

On April 26, the Health Law and Intellectual Property Law Sections hosted “The Science, Ethics, and Law of Gene Editing in a CRISPR World,” with speakers (left to right): Eric N. Olson and Tom Mayo, and moderator Kate Morris.

Professor Gerry W. Beyer gave his annual Case Law Update to the Probate, Trusts & Estates Law Section on April 27. He was joined by Shannon Guthrie and Brandy Baxter-Thompson.

On May 11, the Business Litigation Section presented “Winning Tips for Remote Trials, Hearings, Arbitrations, and Mediations in Complex Commercial Cases,” with (left to right): Alan Dabdoub, Josh Sandler, Will Snyder, Josh Lang, and Danielle Vera.

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Jul y 2 0 2 1

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D al l as Bar A ssoci ati on l Headnotes 19

Business Litigation/Franchise & Distribution Law

Business Interruption Coverage for COVID-19 BY RYAN K. MCCOMBER

The economic impact of the COVID-19 pandemic has been devastating to many industries, and sports and entertainment industries are no exception. While the monetary losses from cancelled or postponed concerts, empty sports stadiums, and the closing of everything from movie theaters to Broadway and the associated job losses made the headlines, the monetary losses for the hospitality and other businesses that depend on these industries have been equally as staggering. Not surprisingly, the losses generated by businesses negatively impacted by the COVID-19 pandemic have caused many businesses to file claims under their business interruption insurance policies. Indeed, many businesses in the sports and entertainment industries simply had no financial options to survive other than to present claims for their losses under their business interruption insurance policies. While a limited number of business interruption insurance policies specifically provide coverage for virus-related losses, many either do not provide such coverage or are silent as to whether a business interruption, due to a pandemic or a pandemic-related shutdown, is covered. Moreover, many business interruption insurance policies contain coverage exclusions for contamination and other pollutants, which do not appear to squarely address viruses such as COVID-19. Furthermore, due to the infrequency of pandemics, there is also sparse legal precedent providing guidance. The unprecedented number of claims and coverage denials has resulted in a wave of litigation concerning business interruption insurance coverage in Texas and across the country, which has led to inconsistent results. In most cases, businesses have not been successful in claiming benefits under business interruption insurance policies that do not expressly cover virus-related losses. These unsuccessful claims include those filed by various concert promoters and professional sports teams. The most prevalent argument against claims for coverage under business interruption insurance policies for COVID19 losses is that such policies do not provide coverage for purely economic harm suffered by a business when its operations are suspended because such policies require a “direct physical loss”

for coverage to apply. Although there is strong precedent, in a majority of jurisdictions, requiring a “physical loss,” several courts have not followed the majority rule. In fact, businesses outside of Texas have had limited success in arguing that their business interruption policies were either ambiguous regarding the physical loss requirement or that contamination resulting from the COVID-19 virus may be tantamount to physical damage. In cases where the business interruption policies are silent with respect to physical damage, businesses have had some recent success arguing that traditional exclusions dealing with pollutants or contamination are too imprecise to exclude coverage for COVID-19. The legal landscape in Texas does not appear to be changing based on these decisions, but some recent decisions suggest that it could. Two Texas business interruption insurance cases

recently filed in federal court have been dismissed, despite considering some of the arguments in favor of coverage, because the businesses failed to plead that COVID-19 was present and damaged the property. However, the same court recently denied a motion to dismiss similar claims brought by a theatre chain because it had pleaded that COVID-19 was present and damaged the property by changing the content of the air. These recent cases, and existing Texas precedent, suggest that a business will have to plead and prove “damage to property” to establish coverage in Texas, unless the policy expressly provides coverage for losses caused by communicable diseases. However, unlike many of the recent non-Texas cases where businesses have successfully pursued claims for coverage, many business interruption insurance policies issued in Texas have specific exclusions for virus-related losses. Therefore, the foregoing precedent would still not cre-

ate coverage where coverage for losses related to COVID-19 were expressly excluded in the business’ policy. Because the sports and entertainment industries have experienced unprecedented losses due to the COVID-19 pandemic that will likely continue into the near future, business interruption coverage disputes will undoubtedly continue. This creates an opportunity for potential changes in the law. Sports and entertainment lawyers, and their clients, must stay up to date on case law interpreting and applying the “direct physical loss” coverage requirements in COVID-19 related litigation. Also, they should monitor the interpretation and application of exclusions for virus-related losses to understand their coverage under either new or existing business interruption insurance policies. HN Mr. McComber is a Partner at Figari + Davenport, LLP and may be reached at ryan.mccomber@figdav.com.

AT THE HEART OF DALLAS

THE RIGHT MOVE Juanita DeLoach, PhD

Intellectual Property Litigation Partner When Juanita DeLoach joined Barnes & Thornburg, she got a crash course in lateral integration. Soon after she started, DeLoach was assigned to a major client matter with a team of attorneys representing offices and practices from across the firm. “My first trip as a lead on the project was to China,” she says. “When you spend long days together, you get to know people in a way you otherwise would not.” DeLoach was immediately struck by the caliber of attorneys at the firm. “One of the partners on my team has his own Wikipedia page!” she says. “And for this project, I was supposed to be leading him.” But the level of collaboration and collegiality she experienced put any concerns to rest. DeLoach says, “Although it was a little intimidating, it was also an opportunity. He couldn’t have been more supportive. Getting the chance to ‘lead up’ is rare, so I took advantage of the opportunity to showcase my organizational and leadership skills. “Compared to other firms where I’ve practiced, especially in Big Law, I’ve grown to feel more comfortable speaking up for myself and others, and affecting change.”

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And she’s made a big impact, from organizing virtual programs to keep summer associates engaged during the pandemic, to serving on the Diversity, Equity and Inclusion committee, to launching and hosting a popular Zoom interview series with firm talent and leaders. “I try every day to pay it forward by making others here feel valued, included and part of the team.”

The DBA Lawyer Referral Service Can Help. Log on to www.dallasbar.org/ lawyerreferralservice or call (214) 220-7444.

See what sets us apart in Dallas at btlaw.com

Juanita DeLoach is a proud partner in the Dallas office of Barnes & Thornburg, one of the largest law firms in the country, with more than 700 attorneys and other legal professionals serving clients worldwide.

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How to Improve Client Experience with Frictionless Billing BY EMILY BURNS

People have grown accustomed to the convenience of electronic payments and online bills in every aspect of their lives. So much so, that it has become second nature to pull out their phones or credit cards at every business they enter. If your practice is committed to providing a 21st century law firm client experience, you have to adopt frictionless billing payment processes. Not only will adopting frictionless billing give your clients the service they want and deserve, it will also set you apart from firms who have not yet stepped into the modern era with electronic billing and payments.

What is Frictionless Billing?

Frictionless billing is a payment process that involves fewer steps and simpler interactions. In the law firm context, frictionless billing refers to making it easier for clients to pay by reducing the number of

steps in the process. With frictionless billing, there is no waiting for a paper invoice to come in the mail, no need to get out a checkbook, no need to put a check in the mail, and no uncertainty about whether payment has been sent or received.

4 Ways Tools Reduce Friction for Clients

Electronic payment solutions simplify the billing process for your firm and increase the ease of submitting payment for your clients by reducing friction in four major ways: Eliminating paper bills: First and foremost, electronic payment solutions clean up the clutter of old payment methods. Userfriendly online platforms make it easier for clients to access invoices and payment records to see whether they need to make payments or to find information that they may need. Offering instant confirmation: Electronic payments create opportunities for

Be Sure to Visit Your E-Communities

instant gratification for your clients, who can receive immediate automated payment confirmations to know that their payment has been received by their attorney. No more need for both lawyer and client to wonder where the client’s payment may be. Facilitating preferred payment methods: The overwhelming majority of people prefer paying by credit or debit cards or other electronic means. This includes payments not only for consumer goods but also for any bills they receive, including invoices from professional service providers like attorneys. Allowing clients to pay on their own schedule: The advent of electronic payments has given every consumer the convenience of being able to pay their bills on their own schedule—at any time 24 hours a day, seven days a week. Implementing electronic payments in your firm means clients can pay invoices on their own schedule rather than solely during your business hours.

What to Consider When Accepting Electronic Payments

Of course, lawyers face unique issues in accepting electronic payments that many other retailers or service providers do not. This mostly stems from attorneys’ ethical obligations with respect to client and third-

E-Communities on the DBA website are a great place to view current information on your Sections and Committees. Officers use these Communities to post and send announcements. To access, log in to your My DBA Page and find your E-Communities under the My E-Communities tab.

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party funds. In the earlier days of electronic payments, lawyers did not necessarily have the option to divert client payments into trust accounts. However, in recent years, the legal industry has seen the launch of electronic payment processors targeted specifically for law firms, offering lawyers the ability to separate payments into earned and unearned funds and send funds to their proper accounts. Processing fees from electronic payments also posed ethics and operational issues for law firms. However, payment processors for lawyers like LawPay allow firms to ensure that fees and expenses are appropriately deducted from operating accounts rather than client funds. From a practical perspective, payment processing fees also represent an expense or overhead that lawyers have resisted. But more and more firms are recognizing that payment processing fees should be looked at as just another cost of doing business and factored into the firm’s financials accordingly. Many lawyers also note that the minimal costs of electronic payment processing are far outweighed by the benefit of immediate, confirmed payment. HN

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D al l as Bar A ssoci ati on l Headnotes 21

Business Litigation/Franchise & Distribution Law

2021 Rule Changes: Texas Rules of Civil Procedure BY NICOLE WILLIAMS AND MACKENZIE WALLACE

While the Texas Rules of Civil Procedure are amended yearly, the amendments to the Texas Rules effective January 1, 2021 materially impacted discovery and expert litigation practice in Texas state courts. Specifically, the amendments significantly affected (1) Rule 194 initial disclosures, (2) the applicability of Rule 169 expedited action procedures, (3) Rule 195 expert designations, (4) Rule 106 service methods, and added (5) Rule 194.4 pretrial disclosures. Though there are additional amendments, this article is limited to these five important aspects of the 2021 amendments. For Rules 194, 169, and 195 these new requirements apply for all cases filed on or after January 1, 2021. The new service options under Rule 106 became effective on December 31, 2020.

Initial Disclosures Now Required Under Rule 194

The amendment to Rule 194 replaces “requests for” disclosures with a mandatory disclosure requirement similar to the disclosure requirement in the Federal Rules of Civil Procedure. Under amended Rule 194, disclosures are due within 30 days after the first answer is filed. Further, a party cannot serve discovery until after the initial disclosures are due, unless otherwise agreed to by the parties or ordered by the court. The initial disclosure-content requirement under amended Rule 194 is similar to that required to be disclosed under the previous version of Rule 194. However, the parties must now also disclose a computation of each category of damages and provide copies of documents in support of such computation,

as well as any documents they may use to support their claims or defenses. Rule 194.3 also now provides that testifying expert disclosures will be made in conformance with Rule 195.

Broadened Applicability of Expedited Action Procedures Under Rule 169

Texas Rule of Civil Procedure 169 “expedited action” procedures apply limited discovery and expedited trial settings for cases under a certain amount in controversy. The maximum amount in controversy for Rule 169 to apply was previously $100,000, but amended Rule 169 has increased this amount and now applies to lawsuits in which the claimant seeks monetary relief aggregating $250,000 or less (excluding interest, punitive or statutory damages and penalties, attorneys’ fees and costs). Any party may still file a motion and showing of good cause, prompting the court to remove the suit from the expedited process. The court must still set the case for a trial date that is within 90 days after the discovery period ends. Further, amended Rule 190.2 increases the aggregate amount of oral deposition time permitted for expedited actions from 6 hours to 20 hours.

Altered Expert Designations Under Rule 195

Amended Rule 195.2 provides that parties seeking affirmative relief must designate experts 90 days before the end of the discovery period, and all other experts must be designated 60 days before the end of the discovery period, unless otherwise ordered by the court.

Rule 195.5 now requires certain disclosures regarding experts. These required disclosures include the expert information previously required in Rule 194 and additional information for retained experts: (a) the expert’s qualifications, including a list of all publications authored in the previous 10 years, (b) a list of all other cases in which, during the previous four years, the expert testified as an expert at trial or by deposition, and (c) a statement of the compensation to be paid for the expert’s study and testimony in the case. Prior Rule 195.2 required disclosure of experts at the same time as initial disclosures. Although the information required as part of the expert designation has expanded under Rule 195, the new timing rule could have competing impacts on parties’ abilities to quickly retain and prepare for rebutting expert testimony.

Expanded Service Under Rule 106

Amended Rule 106 expands the methods for service of citation. Specifically, Rule 106(b) now specifically allows a court— upon a motion supported by a statement

sworn to before a notary or made under penalty of perjury that traditional methods of service were not successful—to authorize substituted service by social media, e-mail, or other technology that will be reasonably effective to give the defendant notice of suit. Thus, lawsuits can now be sent by email or posted on Facebook, Instagram, Twitter, or any other available social media platforms as long as some type of evidence indicates the defendants will learn of the case and could not be served through traditional methods.

Required Pretrial Disclosures Under Rule 194.4

Amended Rule 194.4 provides that parties file and serve information regarding witnesses, documents, and other exhibits (including summaries of evidence) that they may present at trial other than solely for impeachment. Unless the court orders otherwise, these disclosures must be made at least 30 days before trial. HN

Nicole Williams is the Managing Partner of Thompson Coburn’s Dallas office. Mackenzie Wallace is a Partner at the firm. They can be reached at nwilliams@thompsoncoburn.com and mwallace@ thompsoncoburn.com, respectively.

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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In The News KUDOS

P. Lindley Bain, of GoransonBain Ausley, has been elected Managing Partner. Vynessa Nemunaitis, of Weil, Gotshal & Manges LLP, has been chosen as a member of the 10th anniversary class of Leadership Council on Legal Diversity Fellows. Frank Stevenson, of Locke Lord LLP, has been elected President of the Western States Bar Conference. Tom Leatherbury, of Vinson & Elkins LLP, received the Patrick Wiseman Award for Civil Rights in recognition of his outstanding contribution to the civil rights and liberties of all Texans from The Civil Liberties & Civil Rights Section of the State Bar of Texas. Rogge Dunn, of Rogge Dunn Group, PC, has been recognized by SMU for his longtime support and contributions with the naming of the Rogge, Cathy and Ross Dunn Classroom in the James M. Collins Executive Education Center. Chris Schwegmann, of Lynn Pinker Hurst & Schwegmann LLP, has accepted an invitation to join the International Association of Defense Counsel, the preeminent invitation-only global legal organization for attor-

neys who represent corporate and insurance interests.

Rasor Boulevard, Suite 61, Plano, Texas 75024. (214) 556-3862.

Sadaf Abdullah joined Ericsson Inc. as InHouse Counsel.

Wendi Rogaliner, of Bradley Arant Boult Cummings LLP, will serve on the Journal of Health and Life Sciences Law editorial board.

Mackenzie Wallace joined Thompson Coburn LLP as Partner.

Lindsay Hedrick joined Honeywell as Chief Labor and Employment Counsel in their Houston office.

Jennifer Ryback, of McGuire, Craddock & Strother, P.C., has been named 2020-2021 DAYL Outstanding Young Lawyer. Hilda Galvan, of Jones Day, received the Sarah T. Hughes Women Lawyers of Achievement Award from the State Bar of Texas and Law Section. Yvette Ostolaza, of Sidley Austin, has been named Chair-Elect of the firm’s Management Committee. Terry Bentley Hill, of The Law Offices of Terry Bentley Hill, has been appointed Vice Chair of the State Bar’s Texas Lawyers Assistance Program for 2021-2022 Meyling Ly Ortiz, of Toyota Legal One, Toyota Motor North America, Inc., received the Association of Corporate Council’s Pro Bono and Public Service Award.

ON THE MOVE

Chris Kruppa Downs opened the firm Krupa Downs Law, PLLC located at 8105

Patrick Knapp joined Jackson Walker as Partner. Michael Gaston-Bell has rejoined Haynes and Boone, LLP as Counsel. Elizabeth Ryan and Stephen Iya have joined Weil, Gotshal & Manges LLP as Partner and Associate, respectively. Jason Weber joined Polsinelli PC as Shareholder. A. Raylee Starnes joined Crowe & Dunlevy as an Associate. Chandler Stephens joined Munck Wilson Mandala as an Associate. Nicholas Low joined Nicolaides Fink Thorpe Michaelides Sullivan LLP as an Associate. Former Justice Bill Whitehill joined Condon Tobin Sladek Thornton Nerenberg as a Member. Jessica Hammons and Wesley Williams joined Akin, Gump, Strauss, Hauer & Feld, L.L.P. as Partners. Kirby Drake opened the firm, Kirby Drake Law PLLC, located at 3904A Elm Street, Dallas, TX 75226. (214) 207-2286.

July Friday Clinic Friday, July 16, Noon “Autonomous Vehicles,”Quentin Brogdon | MCLE 1.00 Register online at www.dallasbar.org.

Lawrence A. Waks joined Reed Smith LLP as a Partner. Chisara Ezie-Boncoeur joined Barnes & Thornburg LLP as Of Counsel in their South Bend, IN, Dallas, and New York offices. Mary Goodrich Nix joined Lynn Pinker Hurst & Schwegmann LLP as Partner. Lisa M. Sotelo opened the firm Sotelo Immigration Law Group, located at 15455 Dallas Parkway, Suite 600, Addison, TX 75001. (214) 732-1930. Craig Carpenter joined BakerHostetler as Partner. Holt Foster joined Sidley Austin as Partner. Chandler Winslow joined GoransonBain Ausley PLLC. News items regarding current members of the Dallas Bar Association are included in Headnotes as space permits. Please send your announcements to Judi Smalling at jsmalling@ dallasbar.org

Avoiding the “Accidental” Franchise CONTINUED FROM PAGE 1

SAVE THE DATE

Amber Hamilton Gregg joined Suzanne I. Calvert & Associates as In-House Counsel.

control; however, unlike a franchise, the licensor does not have a significant degree of control over the licensee or provide the licensee with significant assistance. Drafting a license agreement that balances the licensor’s need to maintain its intellectual property rights while avoiding creating a franchise can be incredibly difficult, and the line between the two is

often unclear. In summary, franchise, distribution, and license agreements primarily differ based on whether they include “significant” control or assistance. Practitioners should be cautious of any control or assistance included in these agreements to ensure that an accidental franchise is not created. HN Erica Mahoney is an attorney at Mullin Rybicki, P.C. She can be reached at erica.mahoney@mrkpc.com.

Mark your calendars for

Friday, July 23 | Noon - 1:30 PM Hosted Virtually In this program Law Students will: • Gain insights through a “Been there, did this” focus on how to best position themselves in the unknown job market of 2021 and beyond • Learn from a recent law school graduate who will present lessons learned as a new lawyer as well as the experiences of job transitioning during a pandemic • Attend breakout sessions facilitated by DBA members that will include professionalism discussions through situations they may experience during school and in law practice

DBA/DAYL Moms in Law 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. Email cpleatherberry@gmail.com to join the Moms in Law email listserv.

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Visit DallasBar.org for more details & registration information.

For more information, contact (214) 321-3238 or dba@legaldirectories.com

Jul y 2 0 2 1

Focus

D al l as Bar A ssoci ati on l Headnotes 23

Business Litigation/Franchise & Distribution Law

Full Disclosure: Reducing Risk for LLC Managers BY WADE MCCLURE AND COURTNEY KENISKY

In today’s business world, the entity of choice is often a Texas Limited Liability Company (LLC). Savvy business leaders tend to favor LLCs for their simplicity and lack of regulation. But as the LLC’s popularity continues to grow in Texas, so does the body of case law and legal issues associated with the LLC. Importantly, the business client should understand the potential fiduciary duties owed to the LLC and its members, as well as how those duties might impact other transactions between the LLC’s members. Neither the Texas Limited Liability Company Act (TLLCA) nor the subsequently-enacted limited liability provisions of the Texas Business Organizations Code (TBOC) directly impose fiduciary duties on an LLC’s managers or its members. However, numerous Texas cases have found the existence of fiduciary duties for managing members of an LLC. While there is no bright-line test, Texas Courts have found that managing members owe fiduciary duties to the LLC and the other members because of the amount of control and responsibility given to the managing members, most often through the LLC Company Agreement. Because a manager or a member acts as the LLC’s agent in many situations, some Texas courts have imposed fiduciary duties on members and member managers of an LLC based on analogies to agency law. See, e.g., ERTG Invs., LLC v. Hardee (In re Hardee), 2013 WL1084494 (Bankr. E.D. Tex. 2013). The fact that the TBOC allows LLC members to directly bring derivative proceedings also demonstrates that lawmakers intended to provide a mechanism to hold LLC management accountable for breaches of fiduciary

duty. See Tex. Bus. Orgs. Code §§101.451101.463.

What Leads to a Breach of Fiduciary Duty Claim?

Some examples of situations that could lead to a claim for breach of fiduciary duty against a managing member include: (1) the managing member forgoes a business opportunity for the LLC, then enters into the same opportunity for their personal benefit, or for another Company they own or control; (2) the managing member purchases a property or product from one of the managing member’s other companies for an inflated price; or (3) the managing member sells a product to one of the managing member’s other companies for a reduced price. Other, less obvious transactions may also lead to breach of fiduciary duty claims. In fact, any transaction between a managing member and another member of the LLC can potentially lead to a breach of fiduciary duty claim. As a recent unpublished opinion from the Dallas Court of Appeals warns, any situation in which the managing member could be viewed as using his personal situation to benefit him or herself will be examined. Cardwell v. Gurley, 2018 WL 3454800 (Tex.App.—Dallas 2018, pet. denied). Similarly, another court found that a managing member of an LLC owed a fiduciary duty to another member of the LLC in connection with the repurchase of the other member’s interests. That court reasoned that the managing member had powers and responsibilities akin to that of a general partner and ultimately held that a fiduciary relationship arises when the managing member has special knowledge and a personal interest in the outcome.

Practical Takeaway

Thus, either: (1) a redemption agreement where a member’s interest is purchased back by the LLC, or (2) a direct purchase agreement where the managing member sells his interests in the LLC to another member, could open the door to potential claims for breach of the fiduciary duties of full disclosure and loyalty. While Texas courts have shown a reluctance to go further than the specific facts of the case before them, the trend in Texas case law is clear—the greater the personal stake the managing member has in the transaction or occurrence at issue, the more likely the court will find fiduciary duties exist and have been breached. A potential concern could also exist even when the managing member enters into a completely separate transaction with another member of the LLC. No Texas case has gone this far, but a creative lawyer may attempt to “push the envelope” here under the right fact pattern.

an LLC to draft its company agreement in a way that could “expand or restrict” any duties (including fiduciary duties) of a member, manager, officer, or other person. See Tex. Bus. Orgs. Code §101.401. Although it is not clear whether this provision can be used to eliminate fiduciary duties completely, including exculpatory language in the company agreement when the LLC is initially formed could provide some protection. Because of uncertainty as to how far such a contractual limitation could protect the managing members, the best practice for the managing member is to document his or her “full disclosure” of all facts related to any transaction with another member of the LLC. The managing member may need that proof later on if the other member suffers from “buyer’s remorse” and pursues a claim for breach of fiduciary duty. HN

Wade McClure and Courtney Kenisky are attorneys at Mayer LLP. Ways to Minimize the Risks Office Space, Position Wanted, They can be reached at wmcclure@mayerllp.com and ckenisky@ Office Space, Position Wanted, mayerllp.com, respectively. Importantly,Positions the TBOC also allows Available, Services Positions Available, Services

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Jul y 2021