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The Love Boat: Arkansas Even Recognizes River Boat Marriages that Take Place in Other States

Sometimes a marriage license is not “just a piece of paper” and can be quite significant. In the recent case of Stovall v. Preston, 2018 Ark. App. 64, the Arkansas Court of Appeals upheld the validity of the marriage of a couple that were married more than twenty-seven years earlier by a boat captain in Louisiana. This occurred despite the fact that the marriage did not satisfy the technical requirements of Arkansas’s marriage comity law. Even with the apparent legal deficiencies, the Arkansas Court of Appeals declared the marriage to be valid in Arkansas because the couple had a copy of the Marriage License that was issued by the State of Louisiana.

Most states, including Arkansas, have statutes that determine the validity of marriages that occurred outside of the boundaries of the state. These laws are intended to extend comity (legal recognition) to foreign marriages, so as to avoid situations in which a person would be considered legally married in one state, but classified as unmarried in another state. Arkansas’s statute addressing this issue, allows for recognition of marriages “contracted outside of this state that would be valid by the laws of the state or country in which the marriages were consummated and in which the parties then actually resided . . .” Ark. Code Ann. §9-11-107 (a). This protection was previously restricted by Ark. Code Ann. §9-11-107 (b) to only allow for comity with respect to marriages between opposite sex couples, but that portion of the statute was later held to be unconstitutional. As a result, under the language of the statute, marriages between any couples married in accordance with the laws of other states would be recognized in Arkansas so long as the individuals consummated the marriage in the state in which the marriage was originally contracted and “actually resided” in that state.

In Stovall, the son of an 83-year-old woman challenged the validity of his mother’s twenty-seven-year marriage as part of a guardianship proceeding. His mother and her husband had been married by a boat captain in Louisiana. Although the couple had obtained a valid Louisiana Marriage License, they had not “actually resided” in Louisiana in the manner described in Ark. Code Ann. §9-11-107 (a). In addition, the son alleged that there was no evidence that the couple consummated the marriage following the marriage ceremony. The son argued that his mother and step-father’s undisputed failure to reside in Louisiana rendered their marriage invalid.

Evaluating the merits of this claim, the Arkansas Court of Appeals acknowledged the “longstanding presumption that a marriage entered in due form is valid, and the burden of proving a marriage is invalid is upon the party attacking its validity.” The Arkansas Court of Appeals also noted that past Arkansas cases had treated marriage license statutes as “directory, not mandatory.” Based upon those presumptions of interpretation, the Arkansas Court of Appeals determined that it would uphold the purpose of Ark. Code Ann. §9-11-107, which “is to recognize as valid marriages contracted outside of Arkansas that would be valid by the laws of the state or country in which the marriages were consummated.” Although the Arkansas statute required residency in Louisiana, the Arkansas Court of Appeals held that the Louisiana Marriage License was sufficient to prove a valid marriage was contracted in accordance with Louisiana law and would thus be recognized in Arkansas. Apparently, love conquers all!

Putting Lipstick on a Pig: Recess Versus Physical-Activity Periods

In 2012, when the Pulaski County Special School District (“PCSSD”) replaced paid monitors, who had been supervising the students’ recess, with certified teachers, some teachers vehemently protested the change. They argued that the school district’s actions violated existing Arkansas law that had been enacted to protect teachers from being burdened with wide-ranging duties that extend beyond their primary roles as instructors.

Under Arkansas law, school districts are prohibited from assigning teachers more than 60 minutes a week of “noninstructional duties.” Ark. Code Ann. §6-17-117. Pursuant to the statute, such “noninstructional duties” specifically include the supervision of students before and after the instructional day begins or ends for students. It also includes the general supervision of students during breakfast, lunch, scheduled breaks and recess. A separate Arkansas law, which was passed in 2007, mandates 90 minutes of physical activity per week for children in kindergarten through sixth grade. The 90-minute period can include recess in addition to “physical education instruction” by a certified teacher. Ark. Code Ann. §6-16-132.

Prior to the Fall of 2012, PCSSD utilized paid monitors to supervise students’ recess periods throughout the school day. However, in a purported effort to incorporate “physical education instruction” into the school day to comply with Ark. Code Ann. §6-16-132, PCSSD subsequently issued a new policy that reclassified recess periods as “physical-activity periods” and assigned certified teachers to supervise the periods instead of paid monitors. Despite the reclassification, PCSSD did not make any substantive changes to the activities that occurred during these periods and the teachers did not provide any formal instruction to the students. The only difference between recess periods and physical-activity periods was the presence of a certified teacher.

Teachers objected to this new assignment, arguing that it violated Ark. Code Ann. §6-17-117 and prevented them from utilizing that time to “grade papers, call parents, and plan and prepare for the next class.” In an effort to challenge the new policy, some of the teachers brought suit against PCSSD, asserting that the physical-activity periods, which required no actual instruction, constituted extra “noninstructional duties” that resulted in the teachers being improperly forced to exceed the 60-minute noninstructional duty limitation of Ark. Code Ann. §6-17-117. After evaluating the nature of the activities, the trial court concluded that the policy change violated Ark. Code Ann. §6-17-117. Upholding the trial court’s ruling, the Arkansas Court of Appeals noted that the activity “periods still met the common meaning and practice of the definition of ‘recess’ and hence were ‘noninstructional duties’ under section 6-17-117(b).” Pulaski County Special School District v. Lewis, 2017 Ark. App. 264 (2017).

In other words, recess is recess regardless of the label you put on it. Accordingly, in Arkansas a school district cannot alter its obligations to teachers and avoid statutory requirements by means of semantic gymnastics.

Shootout on Highway 65: Are Gunfights Covered Under an Auto Insurance Policy?

While it is true that one can insure just about anything, that does not mean that everything is insured. A man in Southeast Arkansas learned that lesson the hard way, after his auto insurance claim was denied following a gunshot injury that he received while driving on a highway.

The man was driving his vehicle on U.S. Highway 65 in Mitchellville, Arkansas, when an individual in a separate vehicle pulled up beside the man’s vehicle and shot him. The man was able to drive himself to the hospital to receive medical attention. Subsequently, he filed an uninsured motorist claim with his insurance company for his personal injuries and personal property damages. The insurance company denied the claim, citing a provision in the insurance policy that excluded injuries and damages that result from an “intentional act” and arguing that there was “no causal relationship or connection between [the man’s] claimed bodily injuries and property damage and the use of a motor vehicle.” In essence, it argued that the injuries and property damage did not “arise out of” the use of the motor vehicle, as is required under the terms of the policy. The man, on the other hand, asserted that a causal connection did exist and even though the shooter intentionally shot him, the man had no way of knowing that he was going to be shot and, therefore, it was an accident from his perspective. In addition, he argued that the terms “accident,” “arising out of a motor vehicle,” and “arising out of the use of” were not defined in the insurance policy and were susceptible to multiple reasonable interpretations.

While the Arkansas Court of Appeals agreed with the insurance company that the shooting was “an intentional act, not an accident as contemplated in the policy,” the case primarily turned on the interpretation of the term “arising out of” in the insurance policy. As a general rule, in Arkansas, “[i]f the language of an insurance policy is unambiguous, [courts] give effect to the policy’s plain language . . .” Williams v. Allstate Prop. and Cas. Ins. Co., 2017 Ark. App. 45, *5 (Ark. App. 2017). However, “if the language is ambiguous, [courts] construe the policy liberally in favor of the [person holding the insurance policy] and strictly against the [insurance company].” Id. In Williams, the Arkansas Court of Appeals relied upon Arkansas Supreme Court precedent in holding that in the context of an uninsured motorist provision, the term “arising out of” means something that is “causally connected with” the subject of the provision. Based upon this interpretation, the Court of Appeals determined that the term “arising out of” was clear and unambiguous and had been appropriately applied in prior insurance cases.

The prior insurance cases included an Arkansas Supreme Court case in which the appellate court found that an accidental shooting involving two kids who discharged a gun they found stored in a vehicle did not arise out of the ownership, maintenance or use of the vehicle. There was also an Arkansas Court of Appeals case in which the appellate court held that uninsured motorist coverage was inapplicable in a case in which a driver was shot by his passenger after the driver pulled the vehicle to the side of the road due to his intoxicated passenger becoming ill.

Based upon the factual and legal analysis found in these two prior cases and an additional case involving a volunteer firefighter who was injured by an inadvertently slammed van door while at the scene of an automobile accident, the Arkansas Court of Appeals found the injuries that occurred as a result of the shooting on the highway “could have just as easily taken place outside of the vehicles.” Accordingly, the Arkansas Court of Appeals held that there was no causal connection between the vehicle’s use and the shooting and, therefore, it was appropriate for the insurance company to deny the man’s uninsured motorist claim.

In light of these decisions, one should not rely upon a standard auto insurance policy to cover unusual injuries, such as gunshot wounds. It is a safe bet that such injuries will not be covered by a standard auto insurance policy. If one has questions regarding what is and is not covered under a particular insurance policy, he or she should seek out professional guidance.

The Times They Are A-Changin’: A Sing-Along with the Chief Justice of the Arkansas Supreme Court

On the heels of the United States Supreme Court’s decision in the Obergefell v. Hodges, 576 U.S. , 135 S. Ct. 2584 (2015), which effectively abolished prohibitions against same-sex marriage in the United States, state supreme courts around the country have been grappling with the legal implications of that ruling on state statutes that are not explicitly related to same-sex marriage, but for which one can argue an indirect impact on the “statutory benefits” received by married couples. In Smith v. Pavan, 2016 Ark. 437 (2016), the Arkansas Supreme Court recently resolved one such issue, but not without an unconventional dissent penned by the Honorable Howard W. Brill, then the Chief Justice of the Arkansas Supreme Court, in which he quotes Bob Dylan’s well known protest anthem, “The Times They Are A-Changin’” and advocates for a broader application of the Obergefell opinion in testing the constitutionality of Arkansas statutes.

In the Pavan case, three same-sex couples challenged the Director of the Arkansas Department of Health’s compliance with various Arkansas statutes limiting the individuals that can be included on a child’s birth certificate to the biological parents, with some specific statutory exceptions. In an attempt to apply the Obergefell opinion to Pavan, the trial court concluded that one of the birth certificate statutes was unconstitutional and creatively interpreted the other in such a manner as to avoid constitutional scrutiny. In the same ruling, the trial court held that a prior circuit court case had previously granted injunctive relief regarding birth certificates and, therefore, the doctrine of res judicata prevented the Director from refusing to issue amended birth certificates to the plaintiffs in the Pavan lawsuit.

The Arkansas Supreme Court found that res judicata was inapplicable in the Pavan case, because the orders issued in the prior court case did not address the specific birth certificate issues contested in the Pavan case. In addition, the Arkansas Supreme Court held that the United States Supreme Court’s Obergefell opinion “does not impact [the Arkansas statutes] governing the issuance of birth certificates and that these statutes pass constitutional muster.” Pavan, 2016 Ark. at *10. In explaining the constitutionality of the statutes, the Arkansas Supreme Court concluded that the statutes primarily relate to the relationship of the biological mother and biological father to the child, rather than the marital relationship of the husband and wife, and that it is this information that is required to be truthfully recorded on the child’s birth certificate. Id. at *12-14. Likewise, the Arkansas Supreme Court determined that the Arkansas Department of Heath has an important governmental objective in ensuring the accuracy of the information included on birth certificates – tracing public-health trends and providing critial assistance to an individual’s identification of personal health issues and genetic conditions.” Id. at *15-18.

After considering the arguments of the parties, the Arkansas Supreme Court held that “[it could not] say that naming the nonbiological spouse on the birth certificate of the child is an interest of the person so fundamental that the State must accord the interest its respect under either statute.” Id. at *17. Moreover, the Arkansas Supreme Court found there was no equal protection violations, noting that:

In the situation involving the female spouse of a biological mother, the female spouse does not have the same biological nexus to the child as the biological mother or the biological father has. It does not violate equal protection to acknowledge basic biological truths.Id. Based upon these findings, the Arkansas Supreme Court reversed the trial court’s ruling and dismissed the case against the Director of the Arkansas Department of Heath.

Due to the fact that he strongly disagreed with the Arkansas Supreme Court’s refusal to apply Obergefell in the Pavan case, Chief Justice Brill issued a spirited dissent. Chief Justice Brill is a respected educator, author and jurist. In addition to his reputation for well-reasoned legal analysis, he has a nearly legendary reputation in the Arkansas legal community for incorporating cultural references within his presentation of legal thought. He struck again in the Pavan case, beginning his dissent with the immortal words of the folk icon and recent Nobel laureate, Bob Dylan:

Come gather ’round peopleWherever you roam

And admit that the waters

Around you have grown

And accept it that soon

You’ll be drenched to the bone

If your time to you is worth savin’

Then you better start swimmin’ or you’ll sink like a stone

For the times they are a-changin’

. . . .

Come senators, congressmen

Please heed the call

Don’t stand in the doorway

Don’t block up the hall

For he that gets hurt

Will be he who has stalled

There’s a battle outside and it is ragin’

In his dissent, the Chief Justice argues that “[t]he logical extension of Obergefell, mandated by the Due Process Clause and the Equal Protection Clause, is that a same-sex married couple is entitled to a birth certificate on the same basis as an oppositesex [sic] married couple.” Pavan, 2016 Ark. at *23 (declaring the right to a birth certificate is a “corollary to the right to a marriage license”). He also explains that “[r]egardless of personal values and regardless of a belief that the United States Supreme Court may have wrongfully decided a legal issue, all are bound by the law of the land.” Finally, the Chief Justice admonishes all three branches of Arkansas’ government “to heed the call,” in adapting to same-sex marriage, because “[t]he times are indeed a-changin’.”

While his dissent is unusual in its form and not binding as precedent, it certainly is memorable.

Katy bar the door! Union officials are prohibited from protesting in Walmart stores, but they are welcome to shop.

It is well known that there has been a “cold war” for decades between Walmart and labor unions. Walmart and the labor unions have engaged in both symbolic battles as well as legal battles to support their respective positions. This conflict has risen to the point of pop culture status, as Walmart opponents and celebrities have taken to the Internet to disparage Walmart and its customers. Walmart has won the most recent battle in this protracted legal war by prevailing in a civil trespass lawsuit that resulted in a permanent injunction against certain disruptive labor activities in Walmart stores and on other Walmart properties, including efforts to employ “flash mobs” as a form of protest.

Walmart has long adopted the position that unions are unnecessary in the context of Walmart’s company culture and that such unions would not serve the best interests of its associates and the company. The labor unions, on the other hand, have argued that it is in the best interests of those associates to collectively bargain with Walmart to seek improved pay and working conditions. Many of these arguments have played out under the guidance of the National Labor Relations Board, pursuant to the requirements of the National Labor Relations Act. However, in United Food and Commercial Workers International Union v. Walmart Stores, Inc., 2016 Ark. 397 (2016), the Arkansas Supreme Court recently found the National Labor Relations Act to be inapplicable in a trespassing case that Walmart brought in Benton County Circuit Court. In that case, the Arkansas Supreme Court upheld Walmart’s prohibition against labor union groups engaging in demonstrations and protests in Walmart stores and on other Walmart properties. While labor union groups are allowed to enter Walmart stores to shop or for other non-disruptive purposes, if such groups engage in the prohibited activities they may be held liable for trespassing. Generally, state laws that relate to labor and alleged unfair labor practices are preempted by the National Labor Relations Act. Despite this general rule, in United Food and Commercial Workers International Union, the Arkansas’s Supreme Court joined the ranks of various other state supreme courts by holding that the National Labor Relations Act does not preempt common law tort actions such as trespassing.

This Arkansas Supreme Court case arose from a 2013 injunction that a trial court issued to prevent the labor union groups from entering on Walmart properties to engage in any “non-shopping activities.” The trial court issued the injunction after a union group organized multiple confrontational protests at various Walmart store locations in Arkansas. While the Arkansas Supreme Court found the injunction’s limitation of all “non-shopping activities” to be too broad, the Court upheld Walmart’s right to prohibit the labor union related groups from entering onto Walmart properties to engage in activities “such as picketing, patrolling, parading, demonstrations, ‘flash mobs,’ handbilling, solicitation, and manager confrontations.” United Food and Commercial Workers International Union, 2016 Ark. at *11. As a result of the Arkansas Supreme Court’s ruling, if labor union groups want to enter Walmart stores in Arkansas, they might have to exchange their protest signs for shopping carts.

Marijuana, and Casinos, and Tort Reform! Oh, my!

To add to the drama of this unprecedented election season, a side battle has been raging in Arkansas Courts with respect to three proposed amendments to the Arkansas Constitution. This battle involves attempts, through constitutional amendment, to legalize medical marijuana, legalize additional casinos and gambling, and authorize the Arkansas General Assembly to enact a specific type of medical tort reform that limits certain types of damages and limits attorney contingency fees.

Unlike many states, in Arkansas, our Constitution (Amendment 7) allows for a streamlined method for citizens to amend that Constitution by popular vote. The purpose of this process is to give “power to the people.” Citizens petition their legislators to propose amendments, citizens obtain signatures for the proposed amendments, and the Arkansas Attorney General must approve any ballot names and ballot titles prior to the proposed amendments being put to the vote of the citizenry. However, it is not a free for all. There are some limits on any attempt to amend the Arkansas Constitution by popular vote. Arkansas Chief Justice Howard Brill recently stated that “[t]he spirit of Amendment 7, which gives power to the people, requires [the Arkansas Supreme Court] to give appropriate guidance to those constituencies.” Wilson v. Martin, 2016 Ark. 334 (2016) (concurring opinion).

Which brings us back to the battle of the proposed constitutional amendments. Each proposed amendment – the medical marijuana amendment, the casino/gambling amendment, and the medical tort reform amendment – have fervent advocates as well as stiff opposition. The medical marijuana amendment drew the ire of the state Chamber of Commerce, many businesses, doctors, and even the Governor (former head of the federal Drug Enforcement Administration). Similarly, the proposed medical tort reform amendment has been aggressively challenged by the Arkansas Bar Association, the American Trial Lawyers Association, and various medical malpractice plaintiffs’ attorneys. There was also opposition to the proposed casino amendment, which created some strange bedfellows, uniting religious groups and Arkansas’s existing casinos (Oaklawn Park and Southland Gaming) in opposition to an out-of-state push to allow for expanded gambling in Arkansas.

Due to this active opposition, it was inevitable that challenges to the three proposed amendments would end up before the Arkansas Supreme Court. The cases, which were decided by the Arkansas Supreme Court on October 13, 2016, each challenged the adequacy of the respective “ballot titles.” Under Arkansas law, “[t]he ballot title must be an impartial summary of the proposed amendment, and it must give voters a fair understanding of the issues presented and the scope and significance of the proposed changes in the law.” Cox v. Daniels, 374 Ark. 437, 288 S.W.3d 591 (2008). It must be complete enough to convey the scope of the amendment and be “free from misleading tendencies that, whether by amplification, omission, or fallacy, thwart a fair understanding of the issue presented.” Id. After reviewing the various ballot titles, the Arkansas Supreme Court ruled the ballot titles for the proposed casino and medical tort reform amendments were insufficient because they failed to provide voters with enough information to understand the proposed amendments and their scope. Lange v. Martin, 2016 Ark. 337 (2016); Wilson v. Martin, 2016 Ark. 334 (2016); Rose v. Martin, 2016 Ark. 339 (2016). The Court came to a different conclusion with respect to the ballot title for the proposed medical marijuana amendment, which it found to be sufficient. It made this decision in spite of the fact that the ballot title fails to specifically inform voters that the amendment prevents doctors, lawyers, and other professionals from being denied a license to practice or from being disciplined for using medical marijuana.

As you head to the polls to cast your votes in this crazy election, you can be assured that at least two of your votes will not count. The Arkansas Secretary of State is prohibited from counting any of the votes related to the proposed casino and medical tort reform amendments, even though they will appear on ballot. On the other hand, your vote either in favor or against medical marijuana will count.

Charging Too Much Interest? Your Goose Is Cooked. Charging Too Little Interest? The Goose Cooks You.

Over the past ten years, the maximum constitutionally allowed rate of interest in Arkansas has been a moving target, leaving businesses and financial institutions with little sense of certainty in regard to how much interest they are legally allowed to charge. Failure to abide by the Arkansas Constitution’s usury requirements has resulted in debts being declared void and creditors being held liable to repay debtors twice as much interest as the debtors paid on the usurious loans. This issue has been further complicated by the Internal Revenue Service’s policies regarding taxing interest on no interest loans. While banks and sophisticated lenders are usually informed on these complex rules, privately negotiated loans involving individuals and small businesses regularly run afoul of the rules, leading to unexpected and unhappy results.

Prior to the 1980’s, an interest rate greater than 10% per annum was considered void in Arkansas as to both principal and interest. In the 1980’s, Arkansas voters approved Amendment 60 to the Arkansas Constitution (identified as Article 19, §13), which specified that the maximum legal rate of interest would be set at 5% per annum above the Federal Reserve Discount Rate at the time of the contract, with an additional cap for consumer loans and credit sales being set at 17% per annum. Under Article 19, §13, a usurious contract could result in interest, principal or both being declared void as well as entitling a debtor to damages of double the interest already paid.

The variable maximum lawful rate of interest, which was set forth in Article 19, §13 of the Arkansas Constitution, caused tremendous confusion for persons wishing to charge lawful interest rates. First, the Federal Reserve Discount Rate, which served as the starting point for determining the lawful rate of interest, was abolished by the Federal Reserve in January of 2003. See 12 CFR §201.4. This left Arkansas’s maximum lawful rate of interest in limbo until 2006, when the Arkansas Supreme Court clarified that the Primary Credit Rate was the natural successor to the Federal Reserve Discount Rate and, therefore, should replace the Federal Reserve Discount rate for purposes of calculating the maximum lawful rate of interest. See Pakay v. Davis, 367 Ark. 421, 241 S.W.3d 257 (2006).

Second, Arkansas Constitution Art. 19, §13(d)(i) provided for an assumed 6% interest rate in all contracts in which no interest rate was previously agreed to by the parties. Such a provision seemed viable, so long as the Federal Reserve Discount Rate/Primary Credit Rate was greater than 1%. However, once the Primary Credit Rate dropped below 1%, in 2008, the Arkansas Constitution appeared to be internally contradictory. The 6% assumed interest rate, which was required by Art. 19, §13(d)(i), was considered unlawful because it exceeded 5% per annum above the Primary Credit Rate. Perhaps no one conceived of the possibility of interest rates dropping as low as 0.75%.

In light of these shortcomings, in 2010, Arkansas voters approved Amendment 89, which repealed Arkansas Constitution Art. 19, §13 in its entirety. Amendment 89, which became effective on January 1, 2011, establishes that the maximum interest rate allowed in Arkansas is 17%. This is a departure from the fluctuating interest rates that were calculated as part of now repealed usury provisions of the Arkansas Constitution. Amendment 89’s streamlined approach establishes a general maximum lawful interest rate to apply to the vast majority of loans and contracts. Only government bond transactions (under Ark. Const. Amendment 89, §§2 and 4), national banking association loans (under 12 U.S.C., §85), and loans from federally insured depository institution banks with their primary office in Arkansas (under Ark. Const. Amendment 89, §2; 12 U.S.C., §1831u) fall outside the limits of the 17% maximum rate. The fixed 17% maximum interest rate affords lenders, businesses and individuals greater certainty in their efforts to avoid charging unlawful interest rates. This ease of compliance is particularly important due to the harsh penalty for failing to comply with the usury requirements of Amendment 89. Under Amendment 89, loans that exceed the maximum lawful rate of interest are void as to both principal and interest. In essence, the creditor loses the ability to collect from the debtor.

While Amendment 89 removed some of the more complicated aspects of the previous usury provisions of the Arkansas Constitution, it left a vacuum in relation to one key issue. Unlike the previous usury provision, Amendment 89 does not address the rate of interest a party can collect on a contract in which no rate of interest was agreed upon by the parties. The previous usury provisions of the Arkansas Constitution accounted for such a situation by allowing for an assumed rate of 6% interest, but those provisions have been repealed and there are currently no Arkansas statutes to fill the gap. With this omission, lenders, businesses and individuals who have relied upon the assumed 6% interest rate for decades may be left to the discretion of the courts with respect to the collection of interest on contracts that fail to include a specified rate of interest. It is thus exceedingly important for anyone who enters into a contract to ensure that the contract specifically states the exact interest rate to be charged and that the rate is not in excess of the maximum lawful interest rate allowed under Amendment 89.

Even though it is now much easier to make sure one steers clear of charging more than the lawful rate of interest, it is also important to note that not charging enough interest is also an issue. Generally a below market loan, especially those payable over a period greater than six months, are subject to re-characterization by the Internal Revenue Service to impute interest. That means that some number of past years’ tax returns have to be amended from both sides of the transaction – taking time, money and effort, and drawing additional IRS scrutiny. The IRS is aware that some individuals in an attempt to avoid paying ordinary income on interest earned will instead charge little or no interest but have a higher principal on the loan. This is often done in an attempt to convert ordinary interest income to capital gains which is often taxed at a preferential rate. In order to prevent this from happening, the IRS can re-characterize the loan to either include imputed interest or to require an original loan discount be taken on the principal amount. One needs to be especially careful in intra-family loans to make sure the appropriate interest rate is charged or there might be gift tax implications to such loan. Before entering into a below-market or interest free loan be sure to check with a tax adviser to review the possible implications of such loans or one could be very surprised by the changes the IRS makes to the loans and the corresponding tax returns, even if the taxpayer had no ill intentions when the loan was originally made.


The Poisoned Well: How a Court Can Fire Your Attorney Against Your Wishes

Arkansas’s rules of evidence and civil procedure attempt to balance the doctor-patient privilege with the attorney-client privilege. However, an Arkansas Supreme Court decision has found that a non-party doctor’s disclosure of patient information to his attorney may result in that attorney being prevented from representing the doctor’s medical partner and medical practice once a lawsuit has been filed.

In the 2012 case of Bulsara v. Watkins, 2012 Ark. 108, a malpractice suit was threatened against two doctors and their medical clinic. The two doctors consulted with their lawyer about the claims and subsequently the malpractice suit was filed, but only against one doctor and the medical clinic, leaving the other doctor out of the litigation. The lawyer who had consulted with all three defended the case in court where the defendant doctor and his medical practice won by jury verdict. The disappointed plaintiff moved for a new trial and to disqualify the defense lawyer. The trial court denied that motion, and plaintiff appealed to the Arkansas Supreme Court, arguing that he was prejudiced by the defense attorney having “inappropriate” communications with the non-party doctor in violation of the plaintiff’s doctor-patient privilege.

On appeal, a divided Arkansas Supreme Court reversed the trial court’s ruling, finding the plaintiff was prejudiced by the non-party doctor’s communication of private medical information to that doctor’s own attorney, because that attorney ended up defending the non-party doctor’s medical partner against the plaintiff’s medical malpractice action. The defendant argued that because the defense attorney was representing the two doctors and their clinic prior to the medical malpractice action being filed, they were collectively exercising their right to counsel regarding potential litigation. However, the majority of the Arkansas Supreme Court dismissed the defendant’s arguments. The Court determined that the non-party doctor’s right to counsel did not remove her obligation to protect confidential information obtained under the doctor-patient privilege, unless the doctor herself was sued or the patient consented to her communicating with defense counsel. In this case, the plaintiff clearly did not consent to such communications and only the doctor’s medical partner and the medical clinic were sued by the plaintiff, not the doctor herself. As a result, the Arkansas Supreme Court concluded that the plaintiff was entitled to a new trial.

In spite of rebuke of several dissenting Justices and the objection of defendant doctor, the Arkansas Supreme Court went well beyond holding that the plaintiff was entitled to a new trial; it effectively fired the defendant’s trial attorney from further representation. The majority held that the defense attorney who had prepared and tried the initial lawsuit should be prohibited from representing the defendant doctor in the subsequent re-trial. In essence, the Court held that the attorney’s communications with the non-party doctor before the litigation started, and the resulting access to confidential information had “poisoned the well” and would continue to prejudice the plaintiff if the attorney was allowed to participate in the re-trial of the case. The majority’s ruling compelled the trial court to prevent the attorney from representing the defendant doctor in the re-trial of the medical malpractice case.

With this ruling, it appears that Arkansas trial courts have the power to terminate an attorney’s representation of a defendant doctor without the client’s consent.