DBTC Law Firm

Recent decisions

“How was your day at the office, honey?” “Don’t ask, you won’t believe it!”

The awesome sweep of federal law enforcement authority is often depicted dramatically in the movies. However, real life experiences demonstrate the overpowering reality of law enforcement when it intersects with the lives of ordinary citizens. Such was the seizure of the Mountain Pure water bottling facility in central Arkansas on January 18, 2012. This “wild west” story is an interesting interpretation of constitutional rights.

The Small Business Administration (“SBA”) and Internal Revenue Service (“IRS”) suspected that John Stacks, owner of Mountain Pure, LLC, and its 100,000 square-foot bottling facility in central Arkansas, had committed fraud in applying for disaster relief after a tornado allegedly damaged company property. So, on January 18, 2012, at 8:45 a.m., 35 federal and state law enforcement agents armed with search warrants arrived without prior notice at the plant with their sirens sounding and lights flashing. The agents wore ballistic vests, each carrying loaded handguns and secondary weapons. Upon their entry of the building, employees were pushed against a wall, threatened with pistols, gathered into the break room, had their cell phones confiscated, were detained there for the balance of the day with outside contact forbidden, and subjected to interrogation, while the 100,000 square-foot plant was scoured for evidence of the suspected fraud. It was a scared, unhappy, perplexed bunch of employees who were finally released to go home eight hours later at the end of their “work day.”

Some of the astonished and upset employees, believing their constitutional rights had been offended by these dramatic actions, sued. The United States District Court for the Eastern District of Arkansas, as affirmed by the United States Court of Appeals for the Eighth Circuit, ruled that these actions were reasonable under the Fourth and Fifth Amendments to the United States Constitution, did not violate the employees’ constitutional rights regarding search, seizure or interrogation, and thus gave no rise to any legal relief. Just another day at the office. Mountain Pure v. Cynthia Roberts, Eighth Circuit Court of Appeals, #15-1656, February 25, 2016.

Property Owners Beware of “Squatter’s Rights” That Create Easements Across Your Property.

The lay term “squatter’s rights” is dignified in the law by the term “adverse possession.” In Arkansas, a person can establish legal rights to your real property if for a period of seven years he continuously uses it in a way that is obvious and adverse to the rights of the real owner, such as fencing it, farming it or building on it. Besides being a path to outright ownership which would deprive the title owner of his property, the doctrine of adverse possession can be used to establish easements across property: paths, roadways, drainages or rights-of-way for power lines. While often these circumstances occur to untended rural property, they can also arise literally in your front yard, as illustrated in the recent case of Bingham vs. C&L Electric Cooperative. If the use is “permissive” versus “adverse,” no ownership rights are obtained. Frequently, cases turn on whether the owner had granted permission for such use or whether it was really adverse and without permission. Owners, even in dense, urban areas, need to be specifically aware of their boundaries and control whether any use by third parties is indeed permissive, or might be adverse, causing them to lose property rights.

In the case of Bingham vs. C&L Electric Cooperative, 2015 Ark. App. 237, decided on April 15, 2015, Mr. Bingham lived in his home on 32 acres which had been in his family for over 50 years. Power lines which served his house and neighbors ran across his property. When the electrical company came in to substantially remove the trees under the line for safety reasons, Bingham objected to the cutting of trees on his property.

The Electric Cooperative asserted that they had maintained those lines for over 30 years, and had periodically trimmed the trees under them. There were no documents establishing any kind of easement in favor of the Electric Cooperative. Bingham claimed that the use was permissive–he and his family had allowed the Electric Cooperative to maintain the lines in order to get service to their house and to accommodate their neighbors. The Electric Cooperative demonstrated that they had been trimming the trees on a regular basis for more than the seven years required for adverse possession.

The Court ruled that the power lines were visible, running across the front of Mr. Bingham’s property, and Mr. Bingham had no proof that he had ever granted permission or consent to the Electric Cooperative to place the lines there. The Court found that he acquiesced in the use of his land by his silence and passive assent, confirming the right of the Electric Cooperative to maintain both the lines and the ground beneath them as necessary.

A word to the wise: To the extent any part of an owner’s property is used by a third party for any purpose, the owner needs to have direct, clear and provable communications with that third party on a periodic basis that confirms that such use is voluntary and permissive and can be withdrawn at any time. This will defeat the doctrine of adverse possession coming into play after such use is continued for more than seven years. Placing a locked gate for a few days per year over a well-used roadway or path through properties, or periodic certified letters to an adjacent neighbor whose fence or garden may infringe an owner’s property confirming that permission is granted for the infringement, are illustrative of how an owner can protect his property rights to his titled real estate.

When Frugality Does Not Pay: Divorcing the Spendthrift Spouse

One might presume that in a divorce between the proverbial spendthrift grasshopper and save-for-the-winter ant, the frugal partner would be entitled to some consideration when their marital property is divided in the divorce. A recent court decision makes it clear that foolish, extravagant and excess expenditures by one spouse do not preclude them from receiving in a divorce their full one-half share of all remaining property accumulated during the marriage– despite the frugal and thrifty saving habits of the other spouse.

Arkansas law provides that all property accumulated during the marriage, regardless of which spouse earned it and regardless of whose name it may be held in, is marital property. The law further provides that all marital property will be divided one-half to each party in the divorce unless that is inequitable, taking into consideration specified considerations, such as the length of the marriage; the age, health and station in life of the parties; the parties’ occupation; the amounts and sources of income; vocational skills; employability; and opportunities of each party, etc. (Arkansas Code Annotated §9-12-315). If indeed a Court makes an unequal distribution of property, the Court must state its basis and reasons for not dividing the property equally, and it is not unusual for trial courts to be reversed by the appellate courts for failing to explain an unequal distribution.

In the case of Wainwright vs. (Wainwright) Merryman, decided early in 2014 (2014 Ark. App. 156), the Arkansas Court of Appeals considered the arguments of a disappointed ex-husband that he should have greater share of the division of marital property in his favor because he saved considerable amounts of his own income while his ex-wife spent or concealed hers.

The Court ruled that a spouse does not lose their right to 50% of what is left by making pre-divorce transfers of all their property, even for free, and even though that strips them of all means of supporting their spouse and leaves their spouse without the means of subsistence. The court’s only consideration was that such expenditures be in good faith and without intention of defrauding the other spouse’s estate.

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.

A Jewel Falls from the Crown of Qualified Retirement Plans– Inherited IRAs are No Longer Immune from Creditor Claims.

Since the mid-1970’s, qualified retirement plans in all forms (profit-sharing, pension, IRA, SEP, 401K, etc.) have been the crown jewels of financial planning: funded with before-tax dollars, compounding rapidly in tax-deferred investments, and protected in bankruptcy from creditors.  What could be better?  A recent Supreme Court decision took one of the jewels from the crown when it found that inherited IRAs are not protected from creditors.

In the approximately 40 years since qualified retirement plans took center stage, their favored status  has been proven by the fact that they now own close to a majority of the publicly traded stocks in the United States, trillions of dollars’ worth.  Available in many forms, they allow earned income to avoid income taxes when first invested in the plan; the plans then grow rapidly because the  earnings  compound annually without income taxes being assessed against the growth; and finally, in the payout years, when income taxes are assessed, tax brackets are typically much lower than the years when the contributions and earnings were accruing.  As if this weren’t enough, such plans are flexible, allowing transfers from one plan to another, or rollovers to an IRA, and permit one spouse to inherit them from another spouse without paying either estate or income taxes.  All of this is significantly enhanced by the fact that such plans are generally immune from the claims of creditors, even when the owners of those funds file bankruptcy.  In recent years, it has become legally possible to inherit IRAs, so that succeeding generations may continue the deferral of income on these growing assets.

Finally, one jewel has fallen from this many-faceted crown of the investment world.  In its decision of June 12, 2014, the United States Supreme Court decided in Clark v. Rameker that inherited IRAs are not exempt from the claims of creditors.  Pointing out the many, significant differences between an inherited IRA and one that has been created by a person’s own earned income, the Supreme Court refused to make such assets immune from creditors’ claims in bankruptcy.  In that case, Ruth Heffron died and left her IRA of $450,000 to her daughter.  Her daughter had drawn it down to about $300,000 when she was compelled by her debt situation to file bankruptcy.  The exemption of inherited IRAs from bankruptcy claims had been a topic of much speculation and contradictory rulings in lower courts.  The daughter argued that the IRA funds should be preserved to her through the bankruptcy because they were retirement funds.  The Bankruptcy Court agreed  with creditors that the funds could be seized; the United States District Court for the Western District of Wisconsin reversed the Bankruptcy Court, and was reversed in turn by the U.S. Court of Appeals for the 7th Circuit, landing the long-pending question before the U.S. Supreme Court.  It is now clear and final that inherited IRA funds are not exempt in bankruptcy from the claims of creditors.

That is not the end of the story.  There remain ways to continue the deferral of income tax on such funds for the benefit of successor generations, after the contributor’s death, while protecting such funds from creditors (see our April 7, 2014 post on Spendthrift Trusts). However, this is a far more complex arrangement than simply naming your heirs as beneficiaries of your IRA, and requires specialized legal assistance and planning.

Discovery Process Required

Failing To Effectively Participate In Pretrial Discovery Can Lose Your Case, Regardless Of Its Merits.  In civil litigation, there are detailed rules which allow both sides to make extensive inquiry of the other side’s information, documents, and knowledge of the case. This can be done through written questions (“interrogatories”), requests for documents (“requests for production”), and questioning, taken before a reporter who transcribes the questions and answers, under oath (“depositions”). In many cases, especially in commercial and business litigation, the inquiries can seem overwhelming and take a vast amount of a client’s resources to truthfully, fully respond. Clients often resist this perceived offensive and costly intrusion into their knowledge and data bank. However, it is required, and courts will strictly enforce a party’s right to have this information. The Arkansas Supreme Court case of Ross Systems vs. AERT, decided in November 2011 (2011 Ark.473),determined that the defendant in business litigation had “thumbed its nose” at the court, flagrantly violating discovery rules, and as a result, the formal answer that it had filed in court was stricken, leaving it in default, and being denied the opportunity to contest the significant claims for damages that had been alleged against it for deceit, deceptive trade practices and breach of contract– regardless of what merit those defenses may have had.

Actually, the discovery rules give a party several bites at the apple before serious sanctions are imposed, but this case illustrates that it is not a matter to be taken lightly. In this case, the plaintiff was required to spend a fair amount of time and money giving the defendant ample opportunity to make discovery responses. The first responses were deemed evasive and incomplete, and as required by the discovery rules, the plaintiff’s lawyer attempted to resolve the discovery issue through a letter. However, the defendant did not respond to that. Subsequently, the plaintiff filed a motion to compel responses to the discovery, again, a procedure contemplated by the discovery rules. A hearing resulted, in which the court directed that supplemental responses be filed within 21 days. Though responses were filed, it was alleged they provided little additional information.

At this point, the plaintiff filed a motion for sanctions (again, as permitted by the rules) for failure to comply with the court’s order. Though some additional material was provided the day before the hearing on that motion, the court found that even though a significant number of documents had been provided, the response was incomplete. The fact that they were not in the defendant’s possession was of no consequence, because the defendant made no effort to determine and specify which documents there were, had taken no steps to provide complete discovery, and was in essence “just thumbing its nose at the court’s order,” which was a flagrant discovery violation.  With the defendant’s answer stricken by the court, it was technically in default and had no right to further participate in the proceedings, giving the plaintiff a free shot to make its case without any opposing evidence.

Moral of the story: However bothersome discovery must be, courts take seriously a party’s obligations to participate in good faith in the discovery process.

Serious Illness Or Death After Being in a Toxic Environment Does Not Necessarily A Legal Claim Make

The recent case of Richardson vs. Union Pacific Railroad, 2011 Ark. App. 562, followed the developing Arkansas law that 1) proving the existence of known toxic substances brought into an area by the defendant, 2) which substances are known to cause sickness or death, 3) followed by the sickness or death of a claimant who was for an extended period in that area, is insufficient to make a claim for loss against that defendant. In this particular case, the lawsuit of a cancer-stricken railway employee, who had been exposed over a long period of time to workplace diesel fumes, creosote and pesticides, was dismissed as having an insufficient evidentiary basis.  The Court required specific linkage, through the use of expert testimony, to confirm both the actual level of exposure and a nexus between that particular exposure and the causation of the disease. Though experts were presented by the plaintiff, the expert testimony did not meet the standard required in Arkansas courts. Accordingly, what might appear to the layman as an obvious claim of liability for toxic poisoning must meet very stringent expert proof requirements in the Arkansas courts.

In addressing the admissibility of plaintiff’s proffered expert testimony, the Court first discussed the two-prong test a toxic-tort plaintiff must adduce as to causation: general and specific causation.  General causation addresses only whether a specific agent – in this case, diesel fumes and creosote, among others – can cause a particular illness.  Specific causation, on the other hand, requires a showing that the agent did, in fact, cause the particular plaintiff’s illness.  It was in the plaintiff’s attempt at showing specific causation that the expert testimony fell short, ultimately leading to the dismissal of the plaintiff’s claim.

The plaintiff’s claim was supported by the opinions of two highly credentialed expert witnesses.  One, an industrial hygiene expert, opined that the plaintiff was excessively exposed to diesel exhaust, herbicides and other substances during his employment at the railroad, relying upon anecdotal testimony and the result of the railroad’s carbon monoxide testing performed in July 1986.  The other expert testified that plaintiff’s exposure to diesel exhaust fumes, creosotes, herbicides and pesticides actually caused his cancer, citing to many medical journal articles in support of his opinions.  Simply, the Court found that these expert opinions lacked reliable analysis, failed to discuss the plaintiff’s actual exposure levels, and were not the result of a valid, reliable methodology.  Their opinions were excluded from being introduced at trial.

On appeal to the Arkansas Supreme Court, the plaintiff argued that it was error to require the plaintiff to prove, with a precise “parts-per-million measurement,” his exact exposure to toxic chemicals which he claims to have caused his cancer.  While not going so far as to require testimony describing with precise, mathematical proof the degree of exposure to toxic chemicals experienced by a plaintiff, the Supreme Court requires proof based upon reliable methodology that the plaintiff was exposed to levels of the harmful agent that is known to cause the kind of harm that the plaintiff claims to have suffered.  To that end, an expert’s causation testimony must demonstrate that the defendant’s emission probably – not possibly –  caused a particular plaintiff the kind of harm of which he or she complains.  Because the plaintiff produced no reliable evidence as to his actual exposure to diesel exhaust or benzene, his claim failed.

As a whole, the Richardson vs. Union Pacific Railroad case highlights Arkansas’s strict standards governing a plaintiff’s potential claim for damages based upon long-term exposure to a toxic tort.  While a showing that the toxic substance can cause the ailments complained of meets the general causation element of his claim, a plaintiff must meet the much higher burden of establishing specific causation by demonstrating that, under reliable scientific methodologies, the level of toxic agent to which the plaintiff was exposed often causes the general public similar injuries as those suffered by plaintiff and, specifically, that the toxic agent was the specific cause of plaintiff’s damages.

Accordingly, a very high and specific level of scientific proof must be adduced by a plaintiff to proceed in Arkansas courts on a toxic tort claim.  While finding an expert who is able to meet these highly technical and particularized standards is both difficult and expensive, it is nonetheless essential to a plaintiff who wishes to proceed and file a lawsuit on such a claim.

$340,000 Home Up In Smoke And No Tax Deduction

You may be aware that sometimes fire departments are allowed by property owners to burn private structures for training purposes. It may be fun to watch, and the fire department will certainly enjoy the training opportunity, but the Tax Court has ruled that there is no tax deduction for the loss. A Virginia property owner purchased a house and lot for $625,000 and then granted to the local fire departments the right to burn the house (appraised at $340,000) for a training exercise. The house was burned over several weeks in training exercises in which half a dozen different fire departments participated. The taxpayer claimed the donation of the $340,000 house to charity, which resulted in a $98,000 deduction on their tax return. The deduction was disallowed, and the IRS position was confirmed in the United States Tax Court.

The case reporting this was Patel vs. Commissioner, 138, T.C.#23, issued on June 27, 2012. It invoked several quite complex provisions of the Tax Code, having to do with the charitable deduction of “partial interests” in property. While there were seemingly angles that could have been resolved in the taxpayer’s favor, the court prominently noted in its Opinion that the taxpayer had purchased the property with the intent to promptly demolish the house existing on it and build a new house.  While that particular facet did not directly relate to the very complex analysis of the charitable gifting provisions of the Internal Revenue Code reviewed by the court, one cannot help but wonder how much the court was influenced by this fact. It is a frequent subject of challenge by the IRS what the value of a particular charitable gift may be: a painting, a tract of real estate or a stamp or coin collection. The taxpayer, of course, wants the highest possible value for the charitable gift; the IRS seeks the opposite. If the starting place for analysis is that the taxpayer really thought the property was worthless, should it be justified as a charitable donation?  The Tax Court thought not in these circumstances.

Those Cheating on Their Marriage Must Pay

A recent Arkansas Court of Appeals case points out that those cheating on their marriage must pay the price for the paramour.  It further illustrates the practical problem arising from the current social issue of same-sex marriages, which under current Arkansas law could  cause those who seek an alternative lifestyle to lose custody of their minor children.

The Arkansas Court of Appeals, in a December 2011 decision, addressed two interesting social problems arising from a divorce where a same-sex relationship occurred.  Robert and Lisa Bamburg married in 1988, had two children, separated in 2009 and proceeded to divorce.  Both were demonstrated by the testimony to be good parents.  However, the evidence showed that  during the marriage, Ms. Bamburg developed a romantic relationship with another woman. Typically, under Arkansas law, “fault” in causing the divorce (cruelty, adultery, indignities) has little or no effect on alimony, property settlement, child custody and visitation or child support, each having their own applicable principles unrelated to whose fault may have caused the divorce.

However, in this context, the fact of the illicit relationship had two very significant impacts on the final trial decision, which was affirmed on appeal by the appellate court: First, the husband sued to recover funds that had been spent during the marriage on the illicit relationship. The court awarded Mr. Bamburg several thousand dollars for such monies, though not all that he had asked for. The appellate court, citing the 2003 decision in Williams v. Williams, 82 Ark. App. 294, 108(S.W.3d 629), held that it is permissible to have one spouse reimburse the other for improper expenditure of marital funds during the marriage for a paramour. In Arkansas, the law is settled that you have to pay for your paramour in a divorce.

Second, despite her lesbian relationship, Ms. Bamburg was awarded custody of the children. However, the court ordered that neither parent while in custody of the children could have overnight visits by romantic, unmarried partners, citing “unmarried cohabitation with a romantic partner…in the presence of a child cannot be abided.”  What is implicit in this decision is that Mr. Bamburg  may re-marry a conventional wife and continue unimpeded in her presence with any visitation awarded him by the court. However, Ms. Bamburg, not having the advantage of legal same-sex marriage in Arkansas, cannot legalize her lesbian relationship in Arkansas, and thus threatens losing custody of her children if she seeks to establish a marital-type relationship with her partner in the presence of the children.  Whether one would legally accomplish a same-sex marriage elsewhere and then “bring” it to Arkansas is unresolved in the Arkansas courts.  Bamburg v. Bamburg 2011 Ark. App.546.

Misery loves company–but not in Arkansas Courts

In two recent decisions the Arkansas Supreme Court has ruled that where several persons’ actions may have contributed to a single injury, such as a multiple vehicle accident or where multiple medical personnel are involved in a bad treatment outcome, the claimant/plaintiff may sue just  a single defendant for the full amount of damages on the theory that the jury would only award damages caused by that defendant.  More importantly, the Court decided that the single defendant has no rights as to the other defendants to bring them into the lawsuit, or to sue them to share the blame and resulting losses, or to even get credit for amounts they have paid the claimant to settle out of the case.  This is an unintended aberration in the law, which puts the single, selected defendant at significant, unmitigated risk of paying the whole claim, even though others are liable and may have paid settlements; it also gives claimants/plaintiffs the ability to pile up and collect damages in excess of their losses by separately settling with some of the defendants, while suing just one.

Prior to 2003 civil defendants in a tort case were “jointly and severally” liable to an injured party.  If one of the defendants found to be at fault could not pay his share of the plaintiff’s verdict, another defendant could be required to pay the entire amount even if the payment exceeded the percentage of fault assigned to that defendant by the jury.   In an effort to resolve this perceived inequity, the Arkansas Legislature enacted the Civil Justice Reform Act of 2003.   This Act abolished “joint and several” liability and provided that liability was only “several” and that a defendant would only be responsible for his share of fault as determined by a jury.   The 2003 Act also contained a provision allowing the jury to consider the fault of non-parties to the case to properly determine the fault of the defendant in the case.   However, several years after the Act went into effect, the Arkansas Supreme Court declared the non-party fault provision unconstitutional as invading the rule-making authority of the Court.   Because of that defendants were left with the prospect of attempting to join other parties to the case for the jury to apportion fault among all potential responsible parties.

In Proassurance Indemnity Company, Inc. v. Pamela and Kenny Metheny (December 13, 2012) and St. Vincent Infirmary Medical Center and Catholic Health Initiatives v. Edgar Shelton and Clara Shelton (February 2013) the Arkansas Supreme Court ruled that a defendant does not have the right to have a jury apportion fault as to non-parties and defendants do not have a right to join additional parties to the case for contribution.   The Court reasoned that because liability is “several” only, a defendant has no right to join alleged co-tortfeasors as additional parties via a third-party complaint for contribution and indemnity.   Several dissenting opinions were filed in the Shelton decision, noting the problem that now exists when there are multiple tortfeasors but not all are sued by the plaintiff.    Presumably, if a defendant has a right of contractual indemnity with a non-party, that may allow the non-party to be joined to the case.  This an area of significant opportunity for plaintiffs/claimants represented by clever, knowledgeable lawyers, and of significant, increased risk and exposure for defendants and their insurers, whose ability to limit their losses to their proportion of fault has been arguably diminished by these rulings.  This will be a developing area of Arkansas law.