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Criminal and civil legal issues in cryptocurrency

Wed, 03/14/2018 - 11:00

It seems everyday there is a new report about bitcoin and the amount of value it continues to generate on the market. The tremendous amount of wealth being driven into initial coin offerings, or ICOs, is creating a new generation of barons similar to the financial influence exerted by John D. Rockefeller, Andrew Carnegie, and Cornelius Vanderbilt in the early 20th century.

Panelists Alan Cohn, of counsel to Steptoe & Johnson; Kathryn Haun, a lecturer at Stanford University and a member of the board of directors of Coinbase; and Jonathan Levin, co-founder of Chainalysis, discussed pitfalls of ICOs and gave some examples of how legal problems have arisen from them at “Cyberspace Barons: Creators of ICOs and Ransomware,” at SXSW in Austin.

Investors looking to get in on the burgeoning cryptocurrency market are putting big money into these offerings. For example, Tezos raised $232 million in a matter of weeks during its ICO. There is also a rumored Telegram ICO on the horizon with a $1 billion funding goal.

More and more cryptocurrency exchanges are on the market, but they don’t have much staying power, Levin said. “The survival rate for an exchange that was born in 2010 or 2011 was something like 15 percent over a one-year or two-year horizon.” Levin said there were multiple reasons for why exchanges failed including being hacked, being unable to execute a business plan, or simply not having enough demand for the currency.

In addition to the high rate of failure, the enormous amount of money being generated has led to scammers and other legal issues. A recent Russian ICO raised $1 million from the public market even though its “team page” was comprised of Google images and actor Ryan Gosling was listed as one of the company’s “officers,” as Levin showed in a slide at the presentation.

BTC-e was a prominent and popular cryptocurrency exchange since its founding in 2011, but legal troubles arose when Alexander Vinnik, who allegedly operated BTC-e (BTC-e claims it never employed Vinnik), was arrested on accusations of laundering $4 billion worth of bitcoin through the exchange, Levin said.

Included in the alleged laundering was an accusation of theft from Mt. Gox, another cryptocurrency exchange, Haun said. There was some evidence of about 450,000 bitcoins being stolen from Mt. Gox and ending up with Vinnik, Haun said.

Initial interest in BTC-e came about for another reason though. “The government became interested in BTC-e because analysis showed that about 95 percent of ransomware schemes were cashing out or liquidating their bitcoin through BTC-e,” Haun said.

Outside of criminal actions, class action lawsuits are now also becoming a part of ICOs.

Kathleen and Andrew Breitman started Tezos Blockchain in 2014 in hopes of updating the bitcoin blockchain that was created in 2008. The Breitmans envisioned Tezos as a new digital commonwealth, Cohn said.

The company was to be governed by the Tezos Foundation, based in Switzerland, and management of the business was to be done by Dynamic Ledger Solutions, based in the U.S.

Tezos generated $232 million in a relatively short period of time with the sale of 600 million Tezis. The large amount of money generated attracted the attention of class action attorneys, Cohn said.

Cohn said there were numerous reasons why class action lawyers focused on Tezos, including failing to deliver their technology on time, which led to functionality problems. Also, a fight broke out between the head of the Tezos Foundation and the Breitmans about how the governance of the currency would be managed, Cohn said.

This has led to class action lawsuits against Tezos. “There have been a number of class actions filed against Tezos alleging everything from the unregistered sale of securities to fraud … material misrepresentation, unfair competition, and false advertising,” Cohn said. One of the main reasons is that “the token was described not as a token, but as a nonrefundable donation at least as far as is alleged in the various class action complaints—not as a token sale, but as a nonrefundable donation to a foundation.”

Cohn said the transaction was described in the same way as a supporter donating money to a charity and receiving a tote as a gift in return.

Sponsored Content: 10 Lessons Learned in 10 Years

Tue, 03/13/2018 - 23:01

Over the past 10 years, Clio Co-founders Jack Newton and Rian Gauvreau have grown Clio from two to 250 employees, and from a new product to something that’s used by 150,000 legal professionals in 90 different countries. Here are some of the most important lessons they’ve learned along the way—about lawyers, technology, and themselves.

Lead the conversation

When Jack and Rian initially came up against hesitation and apprehension over the cloud in the legal industry, they immediately decided to lead the narrative instead of being dragged along by it.

They wrote white papers and blog posts, took on speaking engagements, and formed the Legal Cloud Computing Association (LCCA) to set standards for best practices around legal cloud computing. They even launched what’s become the biggest and best legal tech conference around—the Clio Cloud Conference, which saw 1,200 attendees in 2017. Today, the cloud is generally accepted in the legal industry: 20 U.S. states have issued ethics opinions that permit cloud computing.

Communicate more and more as you grow

On the road from two to over 250 employees, and from a single office to four global locations, communication at Clio has become much more complex.

“Communication happens so easily when you’re on small teams,” Rian explains. “Everybody knows what everybody else is doing. But with companies at scale, like we’re at now, you have to engineer different ways of making sure everybody’s in the know, and that they have the information they need to effectively to do their jobs.”

Take time to define your values

Jack and Rian are also proud of Clio’s values, and point to them as a key tool that’s helped them successfully scale Clio’s award-winning culture. With them, Clio has remained an environment where every employee is encouraged to innovate, share ideas, and point out and take on new challenges.

“I think that was a really key moment in our history and scaling journey,” Jack says. “I don’t think we would have scaled to 250 people as successfully as we have without actually having those as a touchstone that people can go to and reference on a day to day basis.”

Be irrationally optimistic

To build a successful business, Jack argues that it’s important to be optimistic, even if the odds aren’t in one’s favor. “There are a lot of downpoints that you reach as a founder, and if you’re not irrationally optimistic you’d just give up,” Jack explains.

Don’t go it alone

Both Jack and Rian believe that having a strong friendship prior to founding Clio has been a boon for the company’s success. “A big aspect of our joint success is having each other to lean on,” Jack says. “The whole idea is when you’re in those lows, you have someone to pick you up and help persevere. That partnership is really important.”

Invest more in what matters most

One day, when Clio had about 60 employees, Rian and Jack walked into a common area at Clio HQ and saw faces they didn’t recognize for the first time. Then and there, they decided to meet every new Clion as part of the interview process going forward.

Jack and Rian being personally involved in the hiring process for every person who joins Clio isn’t necessarily something that scales easily. However, to build a truly successful team, the pair has found some things are valuable enough to warrant the extra effort.

Be a part of our journey—learn more at clio.com/10years.

 

The future of AI regulation

Tue, 03/13/2018 - 11:00

With the growing presence of artificial intelligence in daily life—self-driving cars, facial recognition, personalized Amazon search results, and smart personal assistants like Alexa and Echo—there are questions forming about what rules should be followed.

Andrew Burt, chief privacy officer and legal engineer at Immuta, discussed what laws currently exist for AI regulation and suggested how laws that govern AI should be created during “Regulating AI: How to Control the Unexplained” at SXSW in Austin.

Andrew Burt describes possible regulations for artificial intelligence during a SXSW panel.

A new law—General Data Protection Regulation, or GDPR—will be going into effect in May in the European Union. The GDPR will prohibit any artificial intelligence from making important decisions about consumers without direct human input.

The Future of AI Act, which was proposed in Congress, would establish a federal advisory committee to examine how technologies like automation and machine learning impact society. Senators Maria Cantwell, Ed Markey, and Todd Young proposed the bill in the Senate, and Representatives John Delaney and Pete Olsen sponsored a similar bill in the House.

The city of New York formed a committee in January that required city agencies to make information about automated processes and AI available to the public.

Burt said these measures have their upsides, but that one singular regulation should not and could not be the answer to AI.

“We absolutely should not setup a Federal Department of AI today,” Burt said. “AI is simply too many different applications of technologies in too many different areas to have one meaningful solution.”

As an example, Burt said the laws guiding AI in medicine should not apply to how AI works in spam filtering or recommending news articles on one’s Facebook feed. Burt said AI laws need to be tailored to specific industries and specific use cases.

These laws would have similarities in addressing such things as AI choices, the tradeoff between accuracy and transparency, data management, maturity and volume of input, and the output of data. Burt said these areas would be central in creating “clearer standards to data scientists and developers who create these models.”

Burt also said that the makers of software need to have some liability for the programs they create and the decisions those programs make.

“The makers of software, I think, need to be held clearly liable—when that software causes specific harms,” Burt said. “They need to understand where this liability exists before they start creating these models.”

Houston Volunteer Lawyers expands pro se program hours

Mon, 03/12/2018 - 09:00

The Houston Volunteer Lawyers expanded its pro se assistance program, known as the Library Booth, which provides legal information for people representing themselves typically in family law matters like divorce and custody modification.

The program will now be open five days a week from 9 a.m. to noon and from 1 p.m. to 5 p.m. at the Harris County Law Library on 1019 Congress Avenue in downtown Houston.

“Because of the incredible demand for assistance to self-represented litigants, we are pleased to offer expanded opportunities for help,” said Alistair Dawson, president of the Houston Bar Association. “We believe the extended hours will benefit the courts and the administration of justice, as well as the pro se litigants.”

The program, which helped 1,457 people in 2017, has a host of volunteers, including HVL senior staff attorneys and paralegals and lawyers from rotating Houston law firms.

HVL is also looking to expand in other areas of its pro se divorce program with monthly divorce clinics on the horizon, as well as paid internships to help litigants with documents and forms such as petitions, final decrees, civil process requests, and civil answers.

For more information, go to makejusticehappen.org or visit the HVL office, 201 Caroline St., 17th Fl., Houston 77002, from 8:30 a.m. to noon and 1 p.m. to 2 p.m.

Creekview High School takes first at mock trial competition

Fri, 03/09/2018 - 12:30

Creekview High School, of Carrollton, won the 39th annual Texas High School Mock Trial Competition. Photo courtesy of the Dallas Bar Association.

Carrollton’s Creekview High School won first at the 39th annual Texas High School Mock Trial Competition, marking a repeat from last year and their fifth championship in the past six years.

The competition took place March 3 at the George Allen, Sr. Courthouse in Dallas and brought more than 25 high schools to argue a hypothetical civil court case written by local attorneys from the Dallas Bar Association.

Students took on the roles of prosecutors and defense attorneys while the jurors were composed of real judges and lawyers who selected the teams that best demonstrated presentation skills.

The other top schools of this year’s competition were second place winners One Day Academy, of Austin; and Covenant Classical School, of Fort Worth, and the Law Magnet of Dallas, who were both semi-finalists.

Creekview High will represent the state at the 2018 National High School Mock Trial Competition in Reno, Nevada, May 10-12.

The DBA has sponsored and coordinated the competition since it began in the 1970s with a focus on educating high school students on the justice system and how the law is applied, honing critical thinking and quick analysis through exercises, preparation, and presentation. Since its inception, the Texas High School Mock Trial Competition has drawn more than 120,000 participants and has awarded $300,000 in scholarships.

For more information, go to texashighschoolmocktrial.com.

President’s Update: State Bar Transparency & Other News

Thu, 03/08/2018 - 16:33

Tom Vick

Editor’s note: State Bar of Texas President Tom Vick sent the following message to members on Thursday. 

Starting Sunday, open government advocates will recognize Sunshine Week, a yearly celebration of access to public information. In that spirit, I’m pleased to announce that the State Bar of Texas is moving forward with plans to begin videotaping its quarterly Board of Directors meetings and sharing the videos on our website and social media.

The videos will be posted at texasbar.com/board soon after each board meeting. We’ll be piloting the new recording process starting with the next board meeting on April 27 in Fort Worth. We believe this will promote transparency by making it easier for you to learn about the work of your elected representatives and the issues affecting you.

State Bar board meetings are already open to the public, and anyone is welcome to come and address the board. But Texas is a big state, so getting to the meetings can be impractical. We do our best to come to you by holding board meetings in different cities, but with video we will now be even more accessible.

I want to thank President-elect Joe K. Longley for making this issue a priority and Executive Director Trey Apffel and the State Bar staff for making it happen. The State Bar has also received requests to live-stream board meetings, and we are studying that possibility.

The State Bar will post the April 27 meeting agenda at texasbar.com/board at least seven days before the meeting. In the meantime, you can visit the site to read past meeting minutes.

We always welcome your comments and questions. You can reach me at statebarpresident@texasbar.com and Executive Director Trey Apffel at trey.apffel@texasbar.com.

Our Finances, Online
The State Bar also recently launched the Our Finances page with several years’ worth of budget documents, financial statements, and independent auditors’ reports.

Today, the board’s Executive Committee received the State Bar’s 2017 fiscal year internal audit reports, and the findings are positive. The CPA firm of McConnell & Jones LLP conducted the audit, which focused on the State Bar’s compliance with:

  • the Public Funds Investment Act; and
  • State Bar Act, State Bar Rules, and State Bar Board Policy Manual provisions related to the following departments:

o   Membership;

o   Advertising Review;

o   Budget and Finance;

o   Purchasing and Facilities; and

o   Information Technology.

The audit found all areas to be in compliance. It also found the State Bar has adopted best practices in a variety of areas to better serve its members and the public. You can read the reports at the Our Finances page.

Bar Card Replacement Fee Cut
Finally, the cost of a replacement bar card is dropping from $25 to $15, effective immediately. The State Bar has been working toward this change for some time in response to members’ requests, so I’m pleased to see it become a reality. Go here for instructions on how to request a replacement bar card.

Be on the lookout for an email from your district directors in coming days with more updates from your State Bar.

Sincerely,

Tom Vick 
President, State Bar of Texas

TOJI’s third cohort kicks off

Thu, 03/08/2018 - 15:30

The third cohort of the Texas Opportunity and Justice Incubator, or TOJI, started March 1, with its newest participants getting introduced to ways to run a successful solo law practice.

TOJI is the first statewide legal incubator in Texas and aims to close the access to justice gap. The program teaches attorneys with fewer than five years of experience the finer points of setting up their practices, with a focus on the legal needs of low- and modest-income Texans.

The participants TOJI draws are entrepreneurial and enthusiastic about being successful as solos.

“I’m an independent woman and I like to have my own things and I want something to be passionate about,” said TOJI participant Chantelle Clark.

Clark, a first-year attorney who focuses on business law, applied to TOJI after hearing about the program through a CLE for solos in Houston. She said being surrounded by other like-minded attorneys can be helpful since they may be knowledgeable in areas she isn’t and can teach her

Clark said the program will help her learn the ins and outs of sustaining a practice like a business and becoming the best lawyer she can. Her motivations for practicing solo: going to bat for people getting starting in business or who are in disputes with business partners while maintaining the flexibility to take off time she needs to take care of her family.

Attorneys in TOJI start off the 18-month program with three weeks of boot camp. The first week they form business plans and attend pointed lessons that cover topics such as malpractice insurance policies—participants are required to carry a policy at their own expense—business banking, and business entities.

Recalling the TOJI mission of serving low- and modest-income Texans, the attorneys are required to provide at least 100 hours of pro bono legal services during their first year in the program. They are encouraged to do in pursuit of their desired areas of practice.

TOJI Director Anne-Marie Rábago and her staff receive applications online, and each cohort has up to 10 attorneys, with a new group selected every six months. Including all three cohorts, there are 28 participants.

Leo De La Garza applied to TOJI after searching State Bar programs online and being told about the incubator by friend and second cohort participant Eugene Haller. De La Garza, who practices immigration law, said solo practice can be lonely in the beginning but that TOJI provides a healthy support network of attorneys.

“The better my business model the more effective my marketing and ability to help people,” he said.

TOJI will begin accepting applications in May for the fourth cohort, set to begin in September. For more information, go to txoji.com.

A guide to legal-related events and sessions at SXSW in Austin

Thu, 03/08/2018 - 14:30

Don’t think for a second that South by Southwest doesn’t have anything to do with the legal world. SXSW has been offering continuing legal education and other law-related programming since 1998—and this year proves to be just as informative, with sessions on everything from government policy and augmented reality to startups and blockchain.

We’ve reviewed hundreds of session descriptions to create our list of some of the top legal-related events at the March 9-17 conference. A SXSW badge is required to attend (CLE events are open to all badgeholders; other events require the specified badge(s)).

Follow Texas Bar Journal staff coverage on the Texas Bar Blog and on Twitter at hashtag #sxsbot for recommended panels, updates, and photos. And look for a wrap-up of events the following week and in a future issue of the Texas Bar Journal.

ABA CoLAP and ABA LSD to host live Twitter Chat on law student wellness

Thu, 03/08/2018 - 09:00

The American Bar Association Commission on Lawyer Assistance Programs and ABA Law Student Division will host a live Twitter chat on law student wellness from 12 to 1 p.m. CST on March 28.

The national Twitter chat, held in recognition of National Mental Health Day for Law Schools, aims to encourage students to seek help when they need it, address questions about the stigma of mental health issues, discuss how it relates to bar application character and fitness standards, and any other questions students may have.

ABA CoLAP (@ABACoLAP) and ABA LSD (@ABAlsd) will be joined by special guests Mistie Bauscher (@bauschlawyer), an Idaho criminal trial attorney and a partner in Briggs & Bauscher; Dallas-based attorney Brian Cuban (@bcuban), author of “The Addicted Lawyer, Tales of the Bar, Booze, Blow, & Redemption;” and Amanda Lee (@HLS_StudentGov), student government president at Harvard Law School.

Students are encouraged to comment and follow along with the hashtag #LawStudentWellness.

Attorneys and paralegals sworn in at TBLS Induction Ceremony

Wed, 03/07/2018 - 15:00

On February 23, 2018, at an induction ceremony in Austin, 194 attorneys and 30 paralegals became certified by the Texas Board of Legal Specialization. Photo by Eric Quitugua

 

The latest group to be certified by the Texas Board of Legal Specialization was inducted at the AT&T Executive Education and Conference Center in Austin on February 23. Spanning nearly 30 specialty areas, inductees included 194 attorneys and 30 paralegals.

TBLS also announced the creation of two specialty areas, child welfare law and property owners association law. Executive Director Leo Figueroa said the launch of the new specialties, as well as an increase in applicants in recent years, shows the growing value of board certification in the state.

“We’re proud to recognize these newly board certified attorneys and paralegals, whom also recognize the impact of specialization, as this is an achievement that greatly matters to potential clients, fellow lawyers, and the judiciary,” Figueroa said. “Congratulations to our newest class of board certified attorneys and paralegals.”

Numerous awards were given out during the induction ceremony.

Judge Dean Rucker, of the 318th Family District Court in Midland, received the Tom Garner Award for his work creating the child welfare law specialty. Rucker, who is certified in family law, is a founding member of the TBLS Child Welfare Law Advisory Commission.

John F. Sheehy, of Sheehy Lovelace & Mayfield in Waco, received the inaugural John F. Sheehy, Jr. Distinguished Attorney Award. The award recognizes an attorney who has been certified for more than 25 years, is committed to serving the public and justice system, and has raised the standards of the profession. Sheehy has been certified in residential, commercial, and farm & ranch real estate law for 35 years.

State Bar of Texas Executive Director Trey A. Apffel III was the keynote speaker. Apffel, who is certified in personal injury trial law and civil trial law, first spoke about being inspired to become a lawyer by his father, who described trying cases “like playing football with a suit on.” He then recalled testing for his own board certifications and gave praise to paralegals, who he said are in the trenches on a daily basis.

Apffel told the inductees to wear their certifications like a badge of honor and emphasized how attorneys and paralegals have the ability to change lives and help people achieve justice so they can put their lives together.

“It’s how you treat others in practice that’s going to frame your legacy in this profession,” he said.

 

 

State Bar of Texas board chair honored with diversity award

Mon, 03/05/2018 - 06:52

Rehan Alimohammad

The University of Houston Law Alumni Association honored State Bar of Texas Board of Directors Chair Rehan Alimohammad with its annual Diversity and Inclusion Award on February 17 at the association’s 42nd Annual Law Gala and Auction.

Alimohammad received the award in recognition of significant achievement toward developing a more diverse and inclusive legal community.

Alimohammad, a 2001 graduate of the University of Houston Law Center, is a partner in one of the nation’s largest minority-owned firms, Wong Fleming. In the firm’s Sugar Land office, Alimohammad is in charge of immigration law and tax law. He is the first attorney of Asian descent and the first immigration attorney to hold the position of chair of the State Bar of Texas Board of Directors.

“The State Bar of Texas and all of its leaders work very hard to promote diversity in the legal profession,” Executive Director Trey Apffel said. “Promoting diversity is part of the State Bar’s mission statement, and it’s the best way to ensure that this state’s community of lawyers can appropriately serve Texas’ growing and diverse population.”

Apffel noted the State Bar also received a national award in August for one of its signature programs to promote diversity and inclusion in the legal community. The Texas Minority Counsel Program (TMCP) received an ABA Partnership Award at the American Bar Association’s Annual Meeting in New York. The ABA Partnership Awards Program salutes bar association projects directed at increasing the participation and advancement of diverse lawyers.

Texas Supreme Court adopts amendments to attorney disciplinary rules

Fri, 03/02/2018 - 13:04

The Texas Supreme Court on Thursday issued orders adopting amendments to attorney disciplinary rules effective June 1.

You can read the orders at the links below.

As a result of legislation passed following the Sunset Review process, changes to attorney disciplinary process were required through rule revisions proposed by the Chief Disciplinary Counsel (CDC) and adopted by the Texas Supreme Court. The primary objective of the legislative mandates is to promote earlier resolution of complaints and increased consistency in the process.

The State Bar of Texas sought public comment on the proposed revisions from January 10 to February 8. More than 100 comments were received, and the State Bar forwarded those comments to the Texas Supreme Court for consideration.

 

Tech Bytes videos offer information on a range of technology-related topics

Fri, 03/02/2018 - 13:00

The State Bar of Texas Computer and Technology Section worked with TexasBarCLE to create a series of videos about technology-related topics ranging from apps and authentication to security and social media.

The videos range in length from two minutes to 23 minutes and cover topics including “Digging for Digital Dirt: Discovery of Social Media Evidence,” “Why Cybersecurity Is a Legal Issue,” “Informed Consent Implications for Cloud Computing, Engagement Agreements and Cyber Insurance Coverage,” and “How to Effectively and Properly Redact Documents Within the Rules.”

Find a link to the videos and more technology-related tools at texasbar.com/tech-resources.

Texas Bar Journal must-reads for March 2018

Fri, 03/02/2018 - 12:30

Check out our editorial staff’s must-reads for the March 2018 issue. Don’t forget to catch up on Movers and Shakers, Memorials, and Disciplinary Actions.

The Toughest Bar in Texas
A look at the lawyers and future Supreme Court judges who fought at the Alamo and San Jacinto.
By Dylan O. Drummond

A New Day for Children
By Justice Debra J. Lehrmann

Family Protections in Probate

A look at exemptions and allowances under the Texas Estates Code.
By Elizabeth Brenner

105 Degrees and Rising
An Irving attorney’s path in law began with escape during the fall of Saigon.
By Eric Quitugua

E-Discovery Strategies: A dozen tips for requesting and producing parties

Thu, 03/01/2018 - 09:30

Craig Ball offers a dozen e-discovery strategies for both requesting and producing parties. For more useful tips on how to run your practice and to learn more about estate planning and probate law, read the entire March issue at texasbar.com/tbj.

Remain Calm, All Is Well: The State of Independent Executor Removal Law in Texas

Thu, 03/01/2018 - 08:00

Independent administration of estates in Texas stretches back to even before Texas was a state. Since 1843, when the Congress of the Republic of Texas allowed a testator to provide “that no other action than the probate and registration of the will shall be had in the Probate Courts,” Texas has allowed estate administration free of judicial supervision. William I. Marschall Jr., Independent Administration of Decedents’ Estates, 33 Tex. L. Rev. 95, 97 (1954). Texas has so fiercely guarded independent administration that, initially, an independent executor could not be removed for any reason except for failure to post a bond. Elizabeth R. Kopecki, Comment, Removal of Independent Executors: Examining the Standard in Texas after the Addition of Material Conflict of Interest to Section 149C of the Texas Probate Code, 44 St. Mary’s L.J. 281, 287 (2012). Practitioners were concerned that giving a court the removal power for any other reason would interfere with independent administration.

It was not until the Legislature passed a statute in 1979 that a formal mechanism existed to remove an independent executor. Id. at 287 n. 29. Even today, those specifically enumerated statutory grounds are the only way to remove an independent executor.

It was with that background in mind that the Texas Supreme Court decided Kappus v. Kappus, 284 S.W.3d 831 (Tex. 2009). In Kappus, the court determined that a conflict of interest could be, but was not as a matter of law, grounds for removing an independent executor. Id. In the subsequent legislative session, the Texas Legislature passed a bill that added a new subsection to the removal statute providing for removal when “the independent executor becomes incapable of properly performing the independent executor’s fiduciary duties due to a material conflict of interest.” Tex. Estates Code § 404.0035(4). [Note: The removal statute for independent executors is found at Texas Estates Code § 404.0035 (hereinafter, the “removal statute”). A separate statute exists at Texas Estates Code § 361.052 that governs the removal of dependent executors and administrators. Analysis of that statute is beyond the scope of this article.]

Some commentators have decried this addition. Stanley M. Johanson, Johanson’s Tex. Estates Code Ann. § 404.0035 cmt. at 470-72 (Thomson Reuters 2017); Kopecki, Removal of Independent Executors, 44 St. Mary’s L.J. at 315-16; Kopecki, Removal of Independent Executors, 44 St. Mary’s L.J. at 315-16. The chair of the Estate and Trust Legislative Affairs Committee of the State Bar of Texas Real Estate, Probate, and Trust Law Section said the new subsection “appears to be an attempt to statutorily overrule the decision in Kappus v. Kappus.” Id. at 472. Professor Johanson calls it “a litigation-breeding statute with no hope of a fine-tuning legislative fix as to what might constitute a ‘material’ conflict” and recommends its repeal for being in contravention of Kappus. Id.

Because the conflict of interest language was added in the first legislative session after Kappus, the addition is rightly considered a response to that case. But what kind of response?

Comparing Kappus to the new Subsection

The controversy in Kappus began with two brothers who owned a plot of land 50-50 as co‑tenants. Id. at 834. Both brothers made improvements to the land. Id. After one brother died, the other qualified as his independent executor and proposed to sell the land to pay the decedent’s debts. Id. His plan was to split the proceeds from the sale evenly between himself and the estate. Id. The decedent’s ex-wife opposed the 50-50 split, asserting that the improvements her ex-husband made were more valuable than those made by the surviving brother and the estate should therefore get a higher percentage of the sales proceeds. Id. When the executor disagreed, she then sought his removal on the grounds he had a conflict of interest. Id. The trial court refused to remove, but the 9th Court of Appeals in Beaumont disagreed and found that the conflict of interest required removal. Id.

The Texas Supreme Court heard the executor’s appeal and noted “no subsection [in the removal statute] specifically covers ‘conflict of interest’ in those express terms.” Id. at 835. However in analyzing the removal statute, the court found that a conflict of interest could fall into the subsection allowing for removal for “gross misconduct or gross mismanagement.” Id. at 837. In reading a conflict of interest into the statute, the court observed “[a] good-faith disagreement over the executor’s ownership share in the estate is not enough, standing alone, to require removal” because “[a] potential conflict does not equal actual misconduct.” Id. But “there may be scenarios where an executor’s conflict of interest is so absolute as to constitute what the statute terms ‘gross misconduct or gross mismanagement.’” Id.

In deciding whether a conflict of interest rose to the level of gross misconduct or mismanagement, the court imparted several factors “including the size of the estate, the degree of actual harm to the estate, the executor’s good faith in asserting a claim for estate property, the testator’s knowledge of the conflict, and the executor’s disclosure of the conflict.” Id. at 838. In applying those factors to the Kappus dispute, the court determined that removal was not warranted and reversed the court of appeals.

That was the state of removal jurisprudence when the Legislature acted in 2011. Now, the statute declares that independent executors can be removed if they “become[] incapable of properly performing the independent executor’s fiduciary duties due to a material conflict of interest.” Tex. Estates Code § 404.0035(4). The statute does not define “material.” Looking to the dictionary for its plain meaning, “material” means “having real importance or great consequence.” Webster’s Third New International Dictionary 1392 (2002). The mere existence of a material conflict of interest is not enough. Instead, the conflict actually hinders the administration of the estate by preventing the independent executor from properly performing his or her duties.

Now compare the rationale of Kappus to how the Legislature amended the removal statute. Both determined that simply having a conflict of interest is not enough to warrant removal. Both required the existence of additional circumstances beyond a conflict of interest. Both insisted that the conflict cannot be hypothetical—it must actually harm the estate. The only minor differences are that first, the court found all of this in an existing subsection in the statute, while the Legislature added a specific subsection for it. And second, the court gave factors to use in analyzing whether a conflict of interest warranted removal, while the Legislature did not.

One explanation for why the Legislature acted is that incorporating a conflict of interest into the removal statute prevents an overruling of Kappus. After all, a conflict of interest is not an explicit ground for removal in the statute and the holding would have been vulnerable to a later court deciding that it should not have been read into “gross misconduct or gross mismanagement.” Now, a conflict of interest is enshrined in the removal statute and protected from the Texas Supreme Court changing its mind.

Statutory Construction Tools

Even for the two small differences between Kappus and the Legislature’s addition, the tools of statutory construction show that they can be reconciled.

A long-standing rule of statutory construction is that if a subsequent amendment to a statute does not change the substance of a court’s previous decision, the holding remains applicable. In re Pirelli Tire, L.L.C., 247 S.W.3d 670 (Tex. 2007). One of the issues facing the court in Pirelli was what factors a trial court should consider in deciding a forum non conveniens motion—those from a previous decision or those from a more recent statute. Id. at 675. In its analysis of the issue, the court observed that the common law and statutory factors largely overlapped. Id. at 677. The court reasoned that the similarities meant that the Legislature did not intend to displace the prior Supreme Court decision. Id. Thus, the court read the two together in holding that the Legislature incorporated the common law factors into the statute. Id.

Similarly, Kappus laid out factors for when a conflict of interest warranted removal. Then the Legislature passed an amendment that added a material conflict of interest subsection to the removal statute. Had the Legislature provided guidance in conflict with Kappus, one could rightly conclude the Legislature overruled Kappus. But because the Legislature passed an overlapping (but not conflicting) amendment, the similarities allow a court to read the two together and incorporate the Kappus factors into the statute.

Legislative History

Additional support for the argument that the Legislature did not overrule Kappus comes from legislative history of the subsection in question. The material conflict of interest subsection was added in the 2011 legislative session as part of a larger omnibus bill that was originally drafted by the State Bar of Texas Real Estate, Probate and Trust Law Section. House Comm. on Judiciary & Civil Jurisprudence, Bill Analysis, Tex. S.B. 1198, 82nd Leg., R.S. (2011). However, the conflict of interest provision was not in the original bill. Id. It was only after Senate passage and referral to the House Jurisprudence Committee that the material conflict of interest subsection (one of several amendments the committee adopted) was added. Id. at 12. After some back and forth between the Senate and the House, the House amendments were adopted and the omnibus bill was signed into law by Gov. Rick Perry. H.J. of Tex., 82nd Leg., R.S. 4792, 4805, 5892, 6873, 6913 (2011); S.J. of Tex., 82nd Leg., R.S. 3643, 3996, 5084, 5148, 5151 (2011).

Though the amendment adding the material conflict of interest subsection was not discussed or analyzed in committee or on the floor, that lack of discussion is still telling. As part of the same omnibus bill, the Legislature amended a Probate Code section, in response to Holmes v. Beatty, 290 S.W.3d 852 (Tex. 2009), to provide that a survivorship agreement will not be inferred simply because a bank account is designated JT TEN, or joint tenancy. In describing the joint tenancy changes, the bill analysis states they “are intended to overturn the ruling of the Texas Supreme Court in Holmes v. Beatty, 290 S.W.3d 852 (Tex. 2009).” House Committee on Judiciary & Civil Jurisprudence, Bill Analysis, Tex. S.B. 1198, 82nd Leg., R.S. (2013). The Legislature could not have been more explicit.

However, in the very same omnibus bill, there is no similar expression that the Legislature intended to overrule or otherwise modify Kappus. In fact, the legislative history is entirely silent as to Kappus. The Legislature clearly knew how to express its intent to overrule a Texas Supreme Court decision, but chose not to do so. That further suggests that the Legislature did not intend to overrule Kappus.

Conclusion

Did the Legislature overrule Kappus when it added a conflict of interest as a ground for removal? No. It codified it. By adding a material conflict of interest subsection to the removal statute, the Legislature removed the analysis from the gross misconduct subsection and placed it in its own stand‑alone subsection.

Interpreted in this light, what constitutes a material conflict of interest is neither unknown nor mysterious. The holding of Kappus remains applicable and provides guidance. After all, some of the factors you would consider in determining what makes a conflict of interest of real important or great consequence are the size of the estate, the degree of harm to the estate, the good faith of the executor, the testator’s pre‑existing knowledge of the conflict, and the executor’s disclosure of it. The very same factors listed by the court in Kappus. Those same factors also help determine whether the material conflict of interest renders the independent executor incapable of performing his duties.

Reading the Legislature as building upon Kappus rather than overruling it makes the most sense and provides the greatest consistency to Texas law.

Jeff Watters represents clients in state courts with respect to estate administration and fiduciary duty issues. He also handles federal estate, gift and income tax litigation and controversy work, including disputes and litigation with the Department of Justice and the Internal Revenue Service.

Watters earned his law degree from Baylor University School of Law and undergraduate degree from University of North Carolina at Chapel Hill. He can be reached at jwatters@grayreed.com.

 

 

Justice for All calendar contributions top $11,000

Wed, 02/28/2018 - 16:30

The Justice for All calendar is a two-year calendar designed to inform low-income Texans of their rights and responsibilities. A product of the State Bar of Texas Legal Access Division, legal services attorneys, and pro bono attorneys, the calendar covers basic information on a variety of topics ranging from fair debt collection to tenant rights.

Contributions for 2018-19 calendar totaled $11,550 from the following State Bar sections: Aviation Law; Consumer and Commercial Law; Corporate Counsel; Family Law; Government; GP, Solo & Small Firm; Hispanic Issues; Intellectual Property Law; International Law; Judicial (a first-time donor this year); LGBT Law; Litigation; Paralegal; Poverty Law; and Real Estate, Probate and Trust Law. The Texas Young Lawyers Association also contributed.

For each calendar month, a legal topic is explained in one page and contact information is made available for important resources such as Medicaid and the Client Assistance Program. The Justice for All calendar is available in PDF in English, Spanish, and Vietnamese.

To download a calendar, go to the State Bar of Texas Legal Access Division online.

The Legal Access Division gives special thanks to first time donors the Aviation, General Practice, Solo & Small Firm, LGBT, Paralegal, and Judicial sections.

Sponsored Content: The 2018 Reisman Awards: Call for Submissions

Tue, 02/27/2018 - 23:01

Ten years ago, Jack Newton and Rian Gauvreau built the very first version of Clio themselves—while both were still working full-time jobs. But when they found out that one engaged customer, Catherine Reisman, was depending on Clio to run her practice, they both quit their jobs to focus on Clio full-time.

Catherine’s faith in (and early feedback for) Clio played a big part in the company’s early success, helping Clio become the transformative legal practice management solution it is today.

In honor of Catherine, Clio launched the Reisman Awards at the 2017 Clio Cloud Conference. Today, we’re proud to open submissions for the 2018 Reisman Awards, recognizing Clio customers who demonstrated excellence in one of the following four categories:

  • Best Growth Story
  • Legal Innovation (previously Law Firm Innovation)
  • Best New Law Firm
  • Community Champion

We’re incredibly excited to hear more stories from the amazing legal professionals who use Clio. If you use Clio, submit your law firm’s story today, or nominate someone who is doing great work.

From tech innovators to community champions, there are some truly dedicated lawyers doing great work. Read stories from last year’s winners and get inspired.

Best Growth Story: ASA Law Group

Shuaib Ahmed founded ASA Law Group with the intention of making law firm operations more efficient and passing the savings on to clients. He also had another goal—to create a better work-life balance for himself and his employees. He’s seen massive success, growing revenues from $80,000 to $1.2 million within his first year of operations.

Learn more about how Shuaib runs a holistic practice with Clio.

Law Firm Innovation: Vela Wood

Kevin Vela and Radney Wood of Vela Wood P.C. strongly believe that travelling the world makes you a better citizen, and they make that a priority for employees at their law firm. It’s made their business stronger than ever.

Read more about how Vela Wood helps its staff travel the world with Clio.

Best New Law Firm: Ergo Law

For Emma Reid and Cathy Donald of Ergo Law, stepping out to start their own law firm was an exciting opportunity rather than something to be scared of. Now, they can work more flexibly with better work-life balance.

See how Emma and Cathy successfully started their own practice with Clio.

Community Champion: The Hite Law Group

Nicholas Hite of The Hite Law Group has built his practice with the goal of making legal services accessible to everyone. In a few short years, he’s become recognized as a leading expert in LGBTQ representation in Louisiana. He also aims to offer affordable legal services to those who don’t qualify for free legal aid but also can’t afford to hire a lawyer at market rates.

Learn how Nicholas manages 160 open cases at a time with Clio.

Community Champion: California Innocence Project

Since 1999, the California Innocence Project has freed 27 individuals who collectively served over 300 years in prison for crimes they did not commit. The organization strongly believes that everyone in the criminal justice system deserves a fair chance at justice.

Read about how the California Innocence Project tracks thousands of inquiries every year with Clio.

We want to celebrate the work you do: Share your firm’s story for your chance to win a Reisman award at this year’s Clio Cloud Conference.

Updates from the 2018 State Bar President-elect Candidates

Tue, 02/27/2018 - 10:43

Editor’s note: The following message was sent to State Bar of Texas members on Tuesday.

In an effort to encourage voter participation and educate members on the 2018 State Bar president-elect candidates, the State Bar is sending periodic emails with messages submitted by the candidates addressing topics of their choosing. The second messages are available at the links below.

Note: Opinions expressed by the candidates do not necessarily reflect the views of the State Bar of Texas.

Lisa Blue
Dallas

Randy Sorrels
Houston Click here to read Lisa Blue’s message.  Click here to read Randy Sorrels’ message. 

Voting in the 2018 election for State Bar president-elect and district director will take place April 2 to May 1. On April 2, attorneys eligible to vote will be mailed an election packet that includes a paper ballot, candidate brochures, and instructions on how to cast their vote. An email also will be sent to attorneys, giving them instructions on how to vote online. Be sure to check your spam filter. Election emails are sent by the State Bar’s election provider, Election Services Corporation, and will be sent from statebaroftexas@electionservicescorp.com.

The election packet and email will contain a voter authorization number (VAN) with instructions on how to vote online. Attorneys may use this VAN and their bar card number to log on to the election website to cast their ballot. If attorneys do not have their VAN, they can also go to the State Bar website, texasbar.com, to cast their vote during the voting period.

Attorneys may either submit their paper ballot via mail or vote online using the information provided. The secure election system will not allow duplicate votes.

More information on the election is available at texasbar.com/election.

UPDATE: Texas Supreme Court adds, amends Harvey-related orders

Mon, 02/26/2018 - 14:41

Update (2/26/2018): The Supreme Court of Texas has extended the order permitting out-of-state lawyers to practice temporarily in Texas through August 31. Read the amended order here.

Original post (8/30/2017)

Editor’s Note: The Texas Supreme Court issued the following advisory Wednesday regarding its emergency orders related to Hurricane Harvey.

The Texas Supreme Court has amended orders relating to problems created by Hurricane Harvey and its aftermath, amending one to allow out-of-state lawyers to practice temporarily in Texas and adding others (1) to permit the Aransas County court at law to sit in San Patricio County and (2) extending the August 31 deadline to pay State Bar membership fees for attorneys whose principal offices are in areas subject to disaster declarations.

The following orders have been issued and posted to the Court’s webpage:

Joint Order with Court of Criminal Appeals to Modify and Suspend Court Proceedings

  • All courts in Texas should consider disaster-caused delays as good cause for modifying or suspending all deadlines and procedures—whether prescribed by statute, rule, or order—in any case, civil or criminal.

Emergency Order Resetting Limitations in Civil Cases

  • Because statutes of limitations are not subject to a good-cause exception, the Supreme Court orders, pursuant to Government Code Section 22.0035(b), that any applicable limitations statute is suspended for any civil claim if the claimant shows that the disastrous conditions resulting from Hurricane Harvey prevented the timely filing of the claim despite the party’s and counsel’s diligent efforts. Any such suspension extends only to the date on which it becomes reasonably possible to file the claim despite the disastrous conditions, taking into account the circumstances.
  • Expires September 28, 2017, unless the Court extends it.

Order Permitting Out-of-State Lawyers to Practice Temporarily in Texas

  • Affects attorneys in good standing where they are licensed to practice law outside Texas and either (1) are displaced because of Hurricane Harvey and are practicing in Texas remotely as if the practicing in their home jurisdictions or (2) are retained by a legal-aid or pro bono program or a bar association providing services to Hurricane Harvey victims. Attorneys must register for temporary practice (form attached to order) with the State Bar of Texas and agree to abide by the Texas Disciplinary Rules of Professional Conduct and to submit to Texas disciplinary jurisdiction.

Amended Order Permitting Out-of-State Lawyers to Practice Temporarily in Texas

  • References to practicing law in Texas have been changed to practicing Texas law and language requiring an attorney to register with the State Bar of Texas changed to as soon as possible after beginning to provide services under this order.
  • Language referring to an attorney retained by a legal-aid or similar organization has been changed to providing services under this order to assure the order applies to attorneys who provide pro bono services for no compensation.

Joint Order with Court of Criminal Appeals Authorizing the Aransas County County Court at Law to Conduct Proceedings Temporarily in San Patricio County

Order Extending Deadline for Payment of State Bar Membership Fees by Certain Attorneys Affected by Hurricane Harvey

  • For Texas attorneys whose principal offices are counties declared disaster areas, the deadline for paying State Bar membership fees is extended to October 31, 2017. Failure to meet that deadline will result in automatic suspension November 1, 2017.

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