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JULY 1975 VOL. 9, NO.3

~ THE OFFICiAl PUBLICATION OF THE ARKANSAS BAR ASSOCIATION

Arkansas Lawyer SPECIAL FEATURES

OFFICERS Robert C. Compton. President Herschel H. Friday. Vice路President James M. Moody. Secretary-Treasurer

EXECUTIVE COUNCIL Robert Hays Williams Thomas F. Butt G. Alan Wooten David Solomon Wayne Boyce Randall W. Ishmael John A. Davis. III LeRoy Autrey Joe D. Woodward Leonard Scott Robert D. Ross

EX-OFFICIO Robert C. Compton Herschel H. Friday James M. Moody James 8. Sharp Samuel C. Highsmith Boyce Love

The Strohacker DoctrineAn Arkansas Rule of Property.Gerald L. DeLung 85 What Is Your Ethics Rating? .......... .. ....... 94 Construction Mortgages -Addendum Donis B. Hamilton 97 1974-75 Honorees 100 Seek The Law Leon Jaworski 102 Medical Malpractice Insurance............ . ..... 106 Partnership Taxation in the Estate Situation Lawrence J. Lee 109 Pension Reform Act of 1974 A Brief Review George N. Plastiras 112 1975 Fall Legal Institute 116 Arkansas Model Jury Instructions 119 (Civil)-Revisions

REGULAR FEATURES President's Report. . Juris Dictum Legal Economics Law School News Oyez-Oyez In Memoriam Executive Council Notes Service Directory Aegis

Robert C. Compton 82 C. R. Huie 95 Richard A. Williams 98 J. Steven Clark 105 B. Tarkington 83 117 James M. Moody 96 108 93

EDITOR C. E. Ransick

EDITORIAL COMMITTEE

Donis B. Hamilton Samuel C. Highsmith Robert T. Dawson

Published bi-monthly by the Arkansas Bar Association, 400 West Markham. UtIle Rock. Arkansas 72201. Second class postage paid at Little Rock. Arkansas. Subscription price to non-members of the Arkansas Bar Association $6.00 per year and to members $3.00 per year included in annual dues. Any opinion ex路 pressed herein is that of the author. and not necessarily that of the Arkansas Bar Association. The Arkansas Lawyer. or the Editorial Committee. Contributions to The Arkansas Lawyer are welcome and should be sent in two copies to the Arkansas Bar Center. 400 West Markham. Little Rock, Arkansas 72201. All inquiries regarding advertiSing should be sent to The Arkansas lawyer. above address.

July 1975/Arkansas Lawyer/Bl


PIISIIIIT~S

BEPOIT by Robert C. Compton

This is my first report to the membership. I would like to reiterate some of the thoughts shared with the Delegates at the House of Delegates' Meeting on June 6th, when I assumed to the presidency. "Our Association has been well led. Because of this past leadership, we have a foundation and bar center which is the envy of many of our larger and richer neighbors. We have been instrumental in bringing about landmark legislative enactments and supreme court rules which have so improved our substantive and procedural laws that we are frequently paid the ultimate compliment of being copied by our colleagues in other states. "We maintain an active interest in academic and continuing legal education. We are current on matters relating to the economics of the law practice, specialization, advertising, group legal services and other innovative changes which are proposed for the legal profession. "We are a unified non-unified bar association in that sUbstantially all of the practicing lawyers in Arkansas are voluntary members of this Association. "Therefore I propose nothing new, controversial or devisive. Rather I propose that the Arkansas Bar Association now seek to take the accumulated facilities of our Association to our members throughout the state. I propose that we bury hatchets, let wounds heal, realize our great potential as an active progressive bar association and strive together to make ourselves better lawyers and our profession more responsive to its responsibilities. "We are beseiged by criticisms of our profession. Many say we are not ethical and point to Watergate. Some say we are not responsible and point to the many Americans who cannot obtain adequate counsel. "The lawyer cannot possibly get away from the fact that his is a public task. It calls for something more B2/July 1975/Arkansas Lawyer

than a mere merchant-customer contract. Rather it is akin to a fiduciary relationship. "The public has a need for and a right to a professional man in whom it can repose a particular type of confidence whenever it is faced with some distressing problems, often of a very personal nature. "Hence the most important aspect of the practice of law is the fact that it is. and the inherent nature of things demands that it always shall be, a profession. "We are not going to solve the problem of violations of ethical conduct within our ranks by occasional breast beating when one of our own is caught with his hand in his client's pocket or is tried and found guilty of violating the law. "We will begin to solve this problem only when each of us. as an individual licensed lawyer, is willing to abide strictly by our own Code of Professional Responsibility. As Disralei once said, 'Too often rather than letting our conscience be our guide. we make it our accomplice.' "We will make further inroads towards solving the problem of violations of ethical conduct if and when we become unwilling to tolerate unethical conduct among any of our colleagues. "We must know and willingly accept the fact that with the privilege granted to us to practice law, there is coupled the responsibility of ethical public service that only we as individual practicing lawyers can provide. If such is not provided by each of us individually, all group action will fall far short. We will become just another trade or business regulated by 'Big Brother' and we will have sold our birthright - the wonderful privilege of being a lawyer - very cheaply. "Each of us must shoulder our own responsibility as a member of the greatest of all professions and be willing to conduct our own practice in an ethical and responsible manner. "We can do no more. We must not do any less." J-~_.


OYEZ· OYEZ!

By B. Tarkington R. A. Eilbott, Pine Bluff. new appointee to the state Police Commission. has been elected its chairman. Munici· pal Judge Lindsey J. Fairley was apPOinted In February to a four-year term as a part-time U.S. Magistrate for West Memphis. H. William Allen, Little Rock. has been nominated to the American Bar Association Board of Governors. representing the ABA's Young Lawyers' Sections. William R. Stringfellow, Little Rock. will serve as chainran of the Arkansas Commemorative Commission. Senator Dale Bumpers was the luncheon speaker at the 27th Annual Law Day in Norman. Okla. Henry Jones, Little Rock. has been appointed as a member of the University of Central Arkansas

Board of Trustees. Robert M. McHenry, Little Rock. has been re-elected to a second term on the Little Rock School District Board of Directors. Eugene P. Levy, of the Cromwell. Neyland. Truemper. Levy & Gatchell. architect engineering flrm. has been made Executive Vice President. John R. Lineberger, Fayette· ville. has been apPOinted judge of the new Circuit Court Division of the 4th Judicial District. Joe E. Griffin has been named Texarkana City Attorney replacing Willis B. Smith, Jr. Mr. Smith was recently appointed administrator of the state Alcohol Beverage Control Commission. Phillip Carroll was the guest speaker at the March meeting of the Ar· kansas Association of Women Lawyers. New officers for the Student Bar Association at Little Rock have been elected:

David Cahoon, President Shawna Brown, Treasurer: Diana lord, Secre· tary: and Henry LaHaie, Vice-President. The law flrm of Frierson. Walker. Snellgrove & Laser has announced that Stan· ley R. langley has become a partner and Paul M. Ledbetter has become an associate. William H. Sutton has been elected Arkansas State Chairman of the Defense Research Institute. McHenry & Bryant of Little Rock announce that Joe A. Polk has become a partner. The law firm of Laser. Sharp. Haley. Young & Boswell IS the first tenant In the No. One Spnng Street BUilding at Markham & Spring. Delbert Mikel is now associated with Greene. Cottrell. Craig & Claar law firm In little Rock. Howell. Price Howell & Barron has announced Gary P. Barket as a member of the law firm. Hugh W. Harrison has gone Into practIce for himself w'ith offices at 624 So. Main. Jonesboro. J. Scott Brown, formerly of Florida. IS now associated with Crane & Hawkins. Solicitors. London. Murray Frank Armstrong, a recent graduate has opened his office for the practice of law in Star City. Chle' Juslice Carleton Harris has appointed Judge Milas Hale, JUdge Dean Morley, Judge Edward Grauman as delegates to the National Conference of Special Judges to be held in Canada during August. Eugene L. Schieffler, West Helena. has announced that Jesse E. Porter, Jr. and Harvey L. Yates are associated with him and the firm formed as Schieffler. Yates & Porter. Harry T. Moore, a recent graduate, has become associated with the firm of Cathey. Brown, Goodwin & Hamilton of

Paragould. Judge Mary Burt Nash served as chairman of the ABA Family Law Sectlon's Schwab Memonal Award 1m· plementation Committee. Craig Burns, formerly of Uttle Rock. has opened his law office in Smackover. Orville Clift has JOined the law firm of Yates & Turner. Ozark. as an associate. Byron Eiseman, Jr., Little Rock. was guest speaker at the Western Arkansas Estate Planning Council dinner held in May. State Senator Bill H. Walmsley addressed the May graduating class of Newark High School at Batesville. Dan Felton and Dan Dane

have combined their law practice and are now under the firm name of Dane & Felton. Ltd. Richard S. Smith, Jr., formerly of Jonesboro. is now a partner in the NLR law firm of Southern, Alexander.

Nicholson & Smith. Mrs. Frances Holtzendorff I President of the Ark. Association of Women Lawyers. presented Mrs. Sandra Munday, BUSiness Education teacher at Park view High School. the liberty Bell Award for outstanding community service. Gary M. Vinson, a '75 graduate IS now associated with Highsmith. Tatum. Highsmith. Gregg & Hart of Batesville. J. H. Evans, Ft. Smith. has been appointed to fill a vacancy on the State Board of Law Examiners. The Smith. Williams. Friday. Eldredge & Clark law firm has relocated its offices in the First National Building. 20th Floor. Recent graduate. B. Frank Mackey, Jr. has become associated with the Spitzberg, Mitchell & Hays law firm. Rick Spencer, a recent graduate has opened his law office In Mountain Home and W. B. Guthrie Just being licensed has opened hiS offices for the practice of law In Hazen and Des Arc. Edwin R. Beth· une was the speaker at the April meeting ot the Searcy Rotary Club. Ned Wright, little Rock. has been elected President of Youth Home. President-Elect Her'schel H. Friday IS the current Chairman of the ABA's Standing CommIttee on Continuing Legal Education of the Bar. 30vernor Pryor has announced delegates to the Constitutional Convention and four are ASSOCiation members: Edward L. Wright, H. David Blair, Frank J. Huckabay and Tom B. Smith. Richard P. Osborne, formerly of Fayetteville, has JOined the Governor's staff as a special ASSistant and Legal Counsel. Cleburne County Bar has new officers: Neill Reed, PreSident: Hoyt Thomas, Vice-President; Earl Olmstead, Treasurer; and Evelyn Drake, Secretary. Benton County Bar elected new officers: Sidney H. McCollum, PreSident; John Elrod, Vice-President: and Douglas L. Wilson, SecretaryTreasurer. Sebastian County Bar has new officers: Robert L. Jones, III, President; Bill Thompson, Vice-President and Philip J. Taylor, Secretary-Treasurer. J-_..... July 1975/Arkansas Lawyer/83


West Annnounces Two New Volumes of Uniform Laws Annotated on Civil Procedural and Remedial Law.

Two new volumes, 12 and 13, Civil Procedural and Remedial Laws, of Uniform Laws Annotated, Master Edition, are now available from West Publishing Company, SI. Paul, Minnesota, 55102. The new volumes contain the complete text of the 22 Uniform Acts relating to civil procedural and remedial laws. They include the new Uniform Eminent Domain Code and the new Uniform Rules of Evidence, both approved by the National Conference of Commissioners on Uniform State Laws in 1974. The American Bar Association House of Delegates recently approved the Uniform Eminent Domain Code and four other Uniform Actsthe Uniform Disclaimer of Transfers by Will. Intestacy or Appointment Act; the Uniform Disclaimer of Transfers Under Nontestamentary Instruments Act; the Uniform Disclaimer of Property Interests Act, and the Revised Uniform Consumer Credit Code. The Uniform Eminent Domain Code covered in the new ULA unit was drafted on the premise that condemnation litigation should be conducted much like other civil litigation under procedural rules that can be understood and followed by the general practitioner. In the past, it was the province of the highly specialized practitioner. The federal interstate highway system and urban renewal, for example, annually require the taking of thousands of parcels of property representing millions of dollars in property value. Other of the 22 Uniform Acts in the new volumes deal with: Acknowledgement; Aircraft Finan84/July 1975/Arkansas Lawyer

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THE STROHACKER DOCTRINE AN ARKANSAS RULE OF PROPERTY -Gerald l. Delung

(Editor's note: Mr. De Lung presented his paper on this important subject at the 14th Annual Arkansas Oil & Gas Institute, February 26-March 1, 1975.)

On my first business trip to Arkansas, in 1955, I was introduced to a mysterious concept known as the "Strohacker Doctrine". I was employed by Gulf Oil Corporation and. like most of the major company employees who were working in the Arkoma Basin at that time. my experience in the oil business stemmed from Oklahoma. It was bad enough to move from a state where every courthouse provided the lUxury of a tract index to the agony of Arkansas' grantorgrantee index, but to find that a reservation or conveyance of "minerals" mayor may not have included oil and/or gas, was almost too much. At that time, the Arkoma Basin play was in its lease acquisition phase. and Gulf and Humble were the principal competitors. Neither company was paying more than a dollar per acre bonus consideration. so leases were purchased on the basis of record check rather than abstract examination. Both companies sought advice from Arkansas counsel on the problem presented by the Strohacker decision. The late Jack Smallwood gave an opinion to Humble and John P. Woods advised Gulf. Both companies finally followed the same procedure. We attempted to identify from record check all possible claimants of oil and gas under each tract. and we bought leases from each of them whenever possible. This procedure looked forward to the use of several Arkansas statutes to ultimately resolve ownership and assure the operator of a full working interest with respect to these problem tracts. Section 53-115 A. S. A. permitted integration of production in drilling units.

although at that time the Arkansas Oil and Gas Commission did not grant penalties or forced leases. Under the partition statute (Section 34-1801, et seq., A. S. A.) it was possible to secure the appointment of a receiver to execute an oil and gas lease covering a problem tract. but to use this procedure it was necessary to secure the cooperation of an interest owner to serve as plaintiff. so. in those situations where none of the claimants could be located. this statute was of no help. Section 52-201, et seq.. A. S. A.. was also in effect, but it posed the same problem in 1955 in that a lessee was not privileged at that time to petition for the appointment of a receiver to lease lands owned in joint tenancy, in common or in caparceny. so. even if an interest owner could be located and leased. the procedure couldn't be used unless such an owner would agree to serve as a plaintiff. Assuming that all claimants of interest could somehow be leased or committed by integration, section 27-816 A. S. A., could be resorted to for the purpose of interpleading royalties attributable to the problem tracts within a unit. When the major lease play began in the Arkoma Basin. four cases had been decided by the Arkansas Supreme Court and one by the U. S. District Court for the Western District of Arkansas, which bore upon the so-called Strohacker doctnne. The leasing procedure we used to cover tracts affected by Strohacker type reservations or conveyances was designed to protect the operator. regardless of any change in position the Arkansas Supreme Court might take. At the time there was considerable speculation that the Court might change the position

it took in the 1941 case of Missouri Pacific Railroad Co., Thompson, Trustee, v. Strohacker, 202 Ark. 645, 152 S. W. 2d 587, even though the Court had already announced in its 1949 decision in the case of Briuolara Y. Powell, 214 Ark. 870, 218 S. W. 2d 728, that the Strehacker rule had become a rule of property in Arkansas which should not be disturbed.

During the 20 years since the beginning of the Arkoma Basin play, I have seen a lot of landmen come to Arkansas from Oklahoma, Texas, Louisiana, New Mexico and other producing states. Practically all of them have expressed the same dismay at the dilemma presented by the Strohacker ru Ie that we must have shown 20 years ago. The Strohacker Doctrine is an Arkansas Rule of Property, but it still requires explanation to every newcomer to Arkansas law. I think it may serve a good purpose to review the Strohacker rule from today's perspective. In doing so. I will discuss all of the cases out of the Arkansas Supreme Court which bear upon the socalled "Strohacke(' rule as well as certain cases out of the United States District Courts for the Western and Eastern Districts of Arkansas which have been the subject of appeals to the United States Court of Appeals for the Eighth Circuit. or which have been reported at the District Court level. Although the rule under discussion has consistently required where there is ambiguity as to the minerals actually embraced in instruments purporting to conveyor to reserve certain unspecified .minerals under Continued on page 86

july 19751Arkansas lawyerl85


Doctrine, Continued from page 85

of the Mansfield Gas FIeld which was discovered In 1901. and which became the Ilrst commerCial production of gas or 011 In Arkansas In 1902. The next case reported out of the Supreme Court was the landmark case of Osborn Y. Arkansas Territorial Oil & Gas Co., 103 Ark. 175, 146 5. W. 122, which was decIded In 1912. In thIS case the Court held that natural gas was a mineral and that. In place. It was part of the realty. The Court further held that a conveyance of gas reqUired all of the for· mahtles of a conveyance of any other Interest In land. and poInted out that a conveyance of land without any reservation passed to the grantee the IItle to the natural gas beneath the surface.

generalized terms. that a factual determination be made as to the true intent of the parties, the Court has actually relied upon the contemporary facts and cir· cumstances surroundmg the execution of the Instrument In questIOn, and has determined the Intent of the parties so as 10 be consistent with and limited to those minerals commonly known and recognized by legal and commercial usage in the area where the Instrument was executed. The language I have Just used was taken from the case of Frank Ahne, et ux., v. The Reinhart and Donovan Com· pany, et aI., 240 Ark. 691, 401 5. W. 2d 565, which IS the last case decided by the Arkansas Supreme Court In the line of so·called Strohacker doctrine cases. It would be welt. however. to consider those cases decided by our Supreme Court prior to the Strohacker case in order to understand the legal foundatIon upon which It was based. and in order to better understand the development of the doctrine as It was last expressed In the Ahne case. The earliest reported case out of the Arkansas Supreme Court which Involved minerals. mines or mining was Kansas & Texas Coal Company v. Brownlie, 60 Ark. 582, which was decided in 1895. and which dealt with a charge of negligence In the employment of a 14 year old boy in a coal mine. The next reported case appeared In 1901 and Involved the adoption of local mining regulations with respect to the development of mining claims on public lands. Between 1901 and 1911. fifteen cases were decided by the Arkansas Supreme Court which dealt with problems arisIng in the mining of coal or In connection with mining claims on public lands. In 1911. the first case was decided by our Supreme Court involving 011 or gas. This case was Mansfield Gas Co. v Alexander, 97 Ark. 167, and although the case did not bear upon the question under review. it IS In· terestlng since It Involved development

all had been discovered In UnIon. Columbia and Ouachita Counties in 1920. and the tempo of litigation involvIng oil and gas began to increase. None of the 12 cases mentIOned above. however. had any bearing on the question under review. In 1923. the Supreme Court decided the case of Bodcaw Lumber Co. Y. Goode, 160 Ark. 48, 254 5. W. 345. Citing the Osborn case for authority. the Court held that "minerals" in land, including 011 and gas. are part of the land untIl severed. and are subject to ownership separate from the ownership of the surface. and may be the subject of separate sate. Between 1923 and 1941. the number of cases decided by the Arkansas Supreme Court in the field of oil and gas law and mining law greatly Increased. Cases were decided which ran the gamut of problems affecting development of oil and gas properties. Of these cases. only five bore dIrectly on the creation of a severed minerai estate. In 1928 the Supreme Court deCided the case of Belleville Land and Lumber Co. v. Griffith, 177 Ark. 170, 6 5. W. 2d 36, and held that minerai rights reserved

GERALD L DELUNG, Partner, Warner and Smith Law Firm, Fort Smith. LLB., Vanderbift, 1952; Private practice, West Virginia, 1953-54; Exploration Department, Gull Oit Corporation, 1954-58; Attorney-Landman, Samedan Oil Corporation, 1958-{}2; Private practice, Arkansas, 1962-75; Member, American Association

of Petroleum Landman and American, Arkansas and West Virginia Bar Associations; Former Director, American Association of Petroleum Landman; Former Chairman, Arkansas Bar Association's Mineral Law Section and Environmental Law Committee; Co·Chairman, 8th Annual Oil and Gas Institute.

86/July 1975/Arkansas Lawyer

Between 1912 and 1923 the Supreme Court decided 12 cases involving mines and minerals.

10 a deed are held In perpetuity. In 1929. the Supreme Court decided the case of Rowland Y. Griffin, 179 Ark. 421,165. W. 2d 457, and held that. If a grantor could reserve the minerals In hiS deed conveying the land. and thus segregate them. he could. by an appropriate conveyance pass title to the minerals, retaining the surface. In 1930. the Supreme Court decided the case of Goodson Y. Comet Coal Co., 184 Ark. 192, 31 5. W. 2d 293, and held that a coal lease was not a conveyance of the present title to coal In place. and did not constitute a severance of the coal. In 1938. the Supreme Court decided the case of se9ars v. Goodwin, 196 Ark. 221, 117 5. W. 2d 43, and held that a 1936 deed covenng ...... an undIVIded one-half (1/2) Interest In and to all of the 011. gas and other minerals In. under and upon .. .. certain lands in Union County. Arkansas. conveyed absolute ownership of an undiVided one-half in· terest In the 011. gas and other minerals under the lands conveyed subject only to a then-eXisting lease. In 1939. the Supreme Court decided the case of Sheppard v. Zeppa, Trustee, 199 Ark. 1, 133 5. W. 2d 860, and held the that a 1937 reservation of .. mineral rights in. upon and under. certain lands In Union County. Arkansas, served to reserve the oil and gas un· der said lands to the grantor. Another line of cases had been decided by the Arkansas Supreme Court prior to its decision in the Strohacker case which had an effect upon the Court's reasoning in that case. In 1873 the Court decided the case 0, Swayne v. Vance, Executor, 28 Ark. 282, and held that. where there IS ambiguity In the language of a deed. the Court may resort to extraneous circumstances to ascertain what the parties really intended by the language employment: not for the purpose of changing the contract or agreement. but for the purpose of ascer·


talnlng what the parties referred to and Intended at the tIme of makIng the WritIng. The court followed thIS decision WIth a line of cases holding that. to determine the intention of the parties. a deed must be construed as a whole. and. If consistent with rules of law. the intentIon of the parties must be given effect. Wilson v. Stearn, 202 Ark. 1197, 149 S. W. 2d 571 (1941); Dent v. Industrial Oil & Gas Co., 197 Ark. 95, 122 S. W. 2d 162 (1938) Citizens Investment Co. v Armer, 179 Ark. 376, 16 S. W. 2d 15 (1929). The Court also overruled the common law rule that language contained In the habendum clause of a deed which was repugnant to language In the granting clause must be rejected. The Court reasoned that. If In other parts the deed was complete. the office of the habendum was sterile but that. If the parties chose to utilize It to explaIn what estate was Intended. there was no reason why the contract thus consummated should be jUdIcially disregarded in order that a technical rule may be ..... reverentially embraced as it totters under the weight of antiquity." Stewart Y. Warren, 202 Ark. 873, 153 S. W. 2d 545 (1941); Beasley v. Shinn, 201 Ark. 31, 144 S. W. 2d 710 (1940); Luther v. Patman, 200 Ark. 853, 141 S. W. 2d 42 (1940). Having set the scene by reviewing significant cases decided by the Arkansas Supreme Court prior to its decision In the Strohacker case. let us now summarize the posture of Arkansas decisions at the time of the Strohacker case. The Court had held that ··minerals·· were conSIdered real property until produced. and that they were subject to separate ownership in perpetuity. and were further subject to separate conveyance or reservation In whole or In part. The Court had further held that. where ambiguity eXisted In the language of a conveyance or reservation. the instrument of conveyance or reservation must be viewed as a whole In order to determine the intention of the parties. and that resort could be had to extraneous Circumstances to ascertain such intentIon. The Court had further held that. If consIstent WIth rules of law. the intention of the parties must be given effect. As was later shown In the Strohacker deCision itself. the Court was also aware of the U. S. Supreme Court's deCISion In the case of Boyd Y. United Slates, 116 U. S. 616, 29 L. Ed. 476, 6 S. Ct. 524, wherein the United States Supreme Court had endorsed the doctrine of "contemporaneous construction" as "best and most powerful In law." Professor Summers. at Section 135 of his text. states that the word "mineral" is not a definite term. and its meaning must necessarily depend upon the intent with which it was used. He recognized that there was much apparent conflict

among the courts as to whether oil and gas were Included WIthin the term "minerals." but observed that. If the cases are all vIewed from the standpoint of intention of the parties, they may be entirely consistent. HIS definItion of the general rule on thIS POint IS that: " ... a conveyance or exception of mInerals includes all and gas. unless from the language of the Instrument. or from facts and Circumstances surrounding the parties at the lime of ItS execution. It IS found that the term was used In a more restricted sense Professor Summers Cited numerous cases to poInt up the divergent views adopted by the variOus prodUCing states. Running through all of the cases was the central thread of intention. The dIfferences arose where the methods of determining intention were concerned. We must assume that. since most of these methods had been developed by the lime of the Strohacker deciSion. the Arkansas Supreme Court made a conscious choice in citing the Boyd case and the doctrine of "contemporaneous construction." With the foregoing background, we can examine Ihe 51rohacker case ilself more objectively. The lands involved in the Strohacker case are located in Miller County. Arkansas. and were acquired by the St. Louis. Iron Mountain & Southern Ry. Co. by way of grants from the United States of America. Said lands were subsequently conveyed to Big Wood Lumber Co. by the railroad in 1892 and 1893 via deeds whIch contained reservations of "all coal and mInerai deposits." The surface owner. Strohacker. sought to qUIet title In himself as to oil and gas under said lands contending that the reservations by the railroad were not Intended to include 011 and gas. The Chancellor sustained the plaintIffs contention. and the railroad appealed contending that the reservatIons were Included In the deeds to protect the railroad on ItS warranty In the event that the United States should subsequently reclaim any minerals under saId lands through the reservation of ··all minerai lands Within the limits of the grant" which appeared In the Act of Congress which accomplished the grant. The railroad argued that the reser· vatlon of "coal and mineral depoSIts" by It was Intended to be as broad as any possible reservation by the government under the federal statutes. The railroad then argued that the government was aware of the pOSSibility of oil and gas production at the time of its grants to the railroad. and that the railroad intended. therefore. to reserve anything which the government was aware of and might reclaim under its grants. The Arkansas Supreme Court stated that. "just what is means by the reservations affecting

lands conveyed to Iron MountaIn under the land grant acts IS not controlling here. Our task IS to deCide what Iron Mountain meant when It reserved 'all coal and mineral deposits.' .. In arriving at ItS deCISion. the Court found the reservation of "all coal and minerai deposits" to be suffICIently ambIguous to require interpretation. The Court held that the "purpose of grantor and grantee" should be ascertained from the writing Itself or from the general custom. and should be given effect If It IS pOSSIble to do so Without ImpingIng a settled rule of law. The Court then cited the Boyd case and endorsed the .. contemporaneous constructIon" rule. In ItS opInion. the Court reVIewed the eVIdence upon which the Chancellor has based hiS deCision. and dIscussed the rules of Interpretation employed by other JUrisdIctions In determinIng what substances are included withIn the term "mineraI"' when It IS used in a conveyance or reservation. In affirming the Chancellor. the Court stated: "Although there were court decisions holdIng oil and gas to be minerals. such was not the general construction; and this was partiCUlarly true in a country where oil and gas were not given the slightest commercial consideration in connection with land values. 'AII coal and mineral deposits' undoubtedly were thought to mean. in addition to coal. deposits of substances commonly recognIzed as minerals; and. as to such the reservations were good." The Court further observed that: ''If the reservations had been made at a time when oil and gas productIon. or explorations were general. and legal or commercial usage had assumed them to be within the term ·mlnerals.· certainly appellant should prevail." The Slrohacker case arose In a county which had expenenced drilling activity as early as 1916. and which had been an all and gas prodUCing county since 1930. It is understandable that the MiSSOUri PaCIfic Railroad Co. would not give up eaSily on ItS contention that the reservations of "minerals" or "mineral depoSits" by ItS predecessor did include 011 and gas. The railroad company owned thousands of acres of minerals In counties throughout the state with similar all and gas potentIal. It IS not surprisIng. therefore. that the railroad company would prosecute an appeal to the Arkansas Supreme Court In 1946 In a case which Involved the identical problem presented by the Strohacker case, contending that the Strohacker case should be overruled as being unsound and not in accord with the weight of authority. The case of Missouri Pacific Railroad Co. Thompson, Trustee, v. Furqueron, 210 Ark. 460, 196 S. W. 2d 588, Continued on page 88

July 1975/Arkansas Lawyer/87


Doctrine, Continued from page 87

involved deeds by the railroad company In 1892 and 1894 covering land in Miller County, Arkansas, which reserved' all coal and mineral deposits in and upon said lands .. " The Court held that the principles of law announced and set forth in the Strohacker case were controlling. and specifically cited headnote 5 from Its opinion in that case "By excluding from deeds executed in 1892 and 1893 .all coal and mineral deposits' pertaining to lands in Miller County, Arkansas. accruing to railroad company through government grants. the company no doubt had in mind. as did its grantees, only substances then commonly recognized as minerals; and in view of such intent the language was not sufficient to reserve oil and gas." Two years later (1948). the railroad company was again before the Court in the case of Carson v. Missouri Pacific Railroad Co., Thompson, Trustee, 212 Ark. 963, 209 S. W. 2d 97, which involved a deed from the railroad company executed in 1892 covering land in Saline County, Arkansas, which reserved' all coal and mineral deposits in and upon said lands ... " The Court held that the reservation covered. in addition to coal. deposits of substances commonly recognized as minerals, and found it insufficient to reserve bauxite. a quite different substance. which was practically unknown in this state at the time the deed was executed. The Court cited the Strohacker and Furqueron cases and held that bauxite was not in the contemplation of the parties to the contract when this reservation of mineral rights was made." One year later (1949) the Court decided the case of Brizzolara v. Powell, 214 Ark. 870, 218 S. W. 2d 728, which again involved interpretation of a reservation contained in a deed from the railroad company. Said deed was executed in 1897 covering land in Johnson County, Arkansas, and reserved .. all coal and mineral deposits in and under said lands Unfortunately. the Chancellor had held as a matter of law that the reservation did not include oil and gas. He based his decision on the Strohacker and Furqueron cases which had construed identical reservations made between 1892 and 1894. The Court pointed out that the parties, as well as the Chancellor. had overlooked the point that the rule dealt with questions of fact rather than law, and, since neither party had offered proof as to the intent with which the words of reservation were used in the 1897 deed, the case was not tully developed. The Court remanded the case so that the facts could be ascertained. No further action appears to have B8/July 1975/Arkansas Lawyer

been had in the case, This IS certainly unfortunate. but It does serve to add to the line of decisions under discussion here because as I have said, the Court announced that the Strohacker rule had become a rule of property which should not be d Istu rbed. During the same year (1949). the case of Dierks lumber & Coal Co., v. Meyer, BS F. Supp. 157, was tried in the United States District Court for the Western Dis路 trict of Arkansas. This case involved a reservation of an undivided interest in the "minerals" under certain lands in Garland County, Arkansas. The deed containing the reservation was executed in 1940 and the Court held that the reservation covered novaculite, since it was commonly known and recognized for its commercial value in the vicinity. The Court went further, however, and pointed out that the evidence proved that the grantors in the deed had aclual knowledge of the existence of novaculite on the land in question. I wonder, therefore, whether the federal court was adhering to the settled rule of property announced in the Strohacker case. or whether It based its decision on proof as to the subjective intenl of the parties. The next case to come before the Ar路 kansas Supreme Court on the Strohacker rule was Stegall v. Bugh, 228 Ark. 632, 310 S. W. 2d 251 (1958), which Involved a deed executed in 1900 covering land in Union County, Arkansas, and containing the following language: " , excepl the mineral interest in said lands . ," In this case, the claimant under the quoted exception based his case on proof that the grantor subjectively intended to except from said conveyance the oil and gas, In commenting on such proof the Court agreed that a chancellor might have been Justified in finding that said grantor actually meant to reserve all of the oil and gas. but held that the word "mineral" in its accepted legal and com路 mercial usage, did not include oil and gas in Union County in 1900. The Court stated: "We think that the meaning which this court has heretofore and should hereafter give to the word "mineral," in connection with its use in situations similar to those of this case, is governed not by what the grantor meant or might have meant. but by the general legal or commercial usage of the word at the time and place of its usage." Justice McFaddin dissented in this case and wrote a dissenting opinion in which he contended that petroleum was generally considered to be a mineral in Arkansas in 1900, He proposed that a date at January 1. 1900. be established as the date upon which petroleum became generally considered in Arkansas to be a mineral in order that uncertainty in the matter could be done away with.

In 1962, two cases were reported out 01 United States District Courts in Arkansas which dealt with the Strohacker rule. The case of Singleton v. Missouri Pacific Railroad Co., 205 F. Supp. 113, arose in the Eastern District and involved a deed executed in 1934 covering lands in Pope County, Arkansas, which all the contained a reservation of .. minerals. ," under said lands. Judge J. Smith Henley cited the rule quoted above In Stegall v. Bugh, and found. as a matter of fact" that .. , , . for a number of years prior to 1934, leasing of lands in the western portion of Pope County . for oil and gas purposes was quite common, and that the production of natural gas in western Pope County and In Johnson County was well established on a commercial basis ... " In holding that the reservation included oil and gas, Judge Henley stated: "It is a well-known fact that when oil and gas activity, including leasing of lands for the purpose of drilling for oil and gas. becomes common In a given area. the people in that area soon incorporate it into their concept of 'minerals' and the term 'minerals' comes to be understood in common speech as including oil and gas." The other 1962 case was Mothner v. Ozark Real Estate Co., 300 F. 2d 617, which arose In the Western District. and which involved Johnson County lands. Unlike Brizzolara v. PowelL proof was developed on the factual issues. The facts were complicated by a question as to whether a certain 1891 deed from one J. Richard. absolute on Its face, was really an equitable mortgage which had been satisfied by payment of the debt secured by it. Judge Miller held that the plaintiff. who asserted the mortgage. had failed to prove that it was a mortgage and had further been barred by laches from even asserting it. In this connection, the court stated: "Yet here we have a lapse of 67 years from the time the plaintiffs state their claim accrued in 1893. and during all that time no move was made by anyone to assert this claim. notwithstanding the wide public interest in gas in the Arkansas Valley Area and in Johnson County. until after the defendants. Stephens Production Company and Murphy Corpo;ation, after an expenditure of over $350,000.00, incurred at their sole risk, cost and expense. drilled and completed the aforesaid two gas wells." The court went on to find that. even if the suit had been brought in a timely manner. and a mortgage proved, any interest J. Richard had in the oil and gas would have been can路 veyed by his deed executed in 1897 covering" ... all coal and minerals. under said lands. The court based this finding on the fact that the grantor. J.


Richard. had himself attempted to reserve oil and gas specifically in an 1893 deed. The Court stated that " Richard knew about gas and its value. as evidenced by his attempted reservation in the Griffin deed." From a review of the court file on this case, and particularly the transcript of the Judge's oral opinion at the conclusion of the trial. it is apparent that Judge Miller based his finding that the term "minerals" included oil and gas in Johnson County In 1897 on the subjective intent of the grantor in that particular conveyance. judge Miller found, as a matter of fact, however. that a subsequent deed in the chain of title to said lands executed in 1906 covering' . all coal and minerals ... " included oil and gas. In doing so. he reviewed the facts that gas was produced in commercial quantities at Mansfield in Sebastian County In 1902. and that exploratory attempts had been made in Sebastian County without success as early as 1888. He pointed out that oil and gas leases had been recorded in Johnson County as early as 1916. and that gas had been found in commercial quantities in Johnson County in 1922 and 1926. and that by 1927 the City of Clarksville was using natural gas for domestic and commercial purposes. In affirming Judge Miller. the Eighth Circuit stated that he had not only" ... reached a permissable conclusion. but a just and correct result:' It is interesting to note that Judge Miller cited the Mothner case in his opinion in the Middleton case. which will be discussed later. and stated that he had found that路 ... the use of the word 'mineral' did not include oil and gas in a conveyance of property in Johnson County. Arkansas in 1891." The last case presented to the Arkansas Supreme Court in the Strohacker line of cases was Ahne v. The Reinhart and Donovan Co., 240 Ark. 691, 401 S. W. 2d 565, which was decided in April. 1966. The case involved a deed executed in 1905 covering land in Logan County, Arkansas, which conveyed .. ... coal. oil and mineral .. .'. under said lands. The deed was executed pursuant to an option agreement executed in 1901. The case was filed by our firm on behalf of Gose Petroleum Corporation and its lessor. the Reinhart and Donovan Co., in the Chancery Court for the Northern District of Logan County, Arkansas. seeking a declaratory judgment that the 1905 deed also covered gas. The case was presented to the Chancellor upon written briefs. accompanied by documentary evidence in exhibit form bearing upon the factual issue as to whether gas was a commonly recognized mineral in Logan County when the 1905 deed was executed. The Chancellor found for the plaintiff. and the Arkansas Supreme Court affirmed his factual find-

jng that gas was commonly recognized as a mineral In Logan County in 1905. and reaffirmed the rule stated in the Stegall case using the language which I quoted at the outset of this review. It is significant that the Middleton case. which will be discussed later. had been decided by Judge Miller and was taken Into consideration by the Arkansas Supreme Court in its deliberation on the Ahne case. The dissent of Justice McFaddin in this case is also of interest. since he again insisted that a specific date be fixed when it was generally recognized that 011 and gas were minerals on a statewide basis. He contended that the Court had drifted like a ship without a rudder on a question vital to property law. He reviewed each case bearing on the Strohacker rule and contended that the Court had gone from what the grantor intended in the Strohacker case. to what the parties intended In the Furqueron and Carson cases. back to what the grantor intend路 ed in the Brizzolara case. then to what the word mineral was generally understood to mean at the time of the conveyance in the Stegall case. and finally to a county by county determination of when oil and gas became recognized as minerals in the Ahne case. In June of 1966, the Eighth Circuit decided the case of Western Coal and Mining Co. v. Middleton, 362 F. 2d 43, which had been decided by JUdge Miller of the Western District in 1965. As I have pointed out previously. the Middleton case had been tried (Judge Miller's decision is reported in 241 F. Supp. 407) and was before the Arkansas Supreme Court during its deliberations on the Ahne case. As a matter of fact. attorneys for Western Coal and Mining Co. filed an amicus curiae brief in the Ahne case. and the Eighth Circuit delayed its decision in the Middleton case appeal until the Ahne case was decided. The Middleton case involved a deed from the fee simple owners of certain lands near Fort Smith in Sebastian County, Arkansas, to Western Coal and Mining Co. (a subsidiary of Missouri Pacific Railroad Co.) which was executed on April 2, 1904, and which covered ..... all and singular the coal. fireclay and other minerals contained within and underlying ... " said lands. The Eighth Circuit affirmed Judge Miller and concluded that his findings and jUdgment were supported by substantial evidence. and were not clearly erroneous. The finding of Judge Miller thus affirmed was that" ... although the business community regarded oil and gas as a valuable mineral. the common and commercial usage of the term 'mineral' and 'other minerals' in Sebastian County did not include oil and gas on April 2, 1904." It is difficult to understand how the Eighth Circuit could affirm

the decision in this case when you consider the language of the Ahne case where the Court set up legal or commercial usage ..... as the standard by which the terms "minerals" or "other minerals" were to be measured. Judge Miller specifically found that the "business community" regarded oil and gas as valuable minerals on April 2, 1904. in Sebastian County. By definition. the words "business" and "commerce" are synonymous. and it is our feeling that Judge Miller was actually guided by some standard other than" ... legal or commercial usage ..... in this case. Although he did not say so. Judge Miller may have followed the rule of "ejusdem generis" which is defined by Black's Law Dictionary as ". . Where general words follow an enumeration of persons or things by words of a particular and specific meaning, such general words are not to be construed in their widest extent. but are to be held as applying only to persons or things of the same general kind or class as those specifically mentioned ... " The deed in the Middleton case described coal and fireclay and followed such particular enumeration with " ... and other minerals .. .... Applying the ejusdem generis rule. oil and gas would be excludable as not being of the same kind. class or nature as coal and fireclay. Although Judge Miller specifically stated that the subjective intent of the parties to the transaction" ... is not the governing criteria in determining what is included by the use of the term 'minerals' or 'other minerals' ", it is noteworthy that he also stated" ... The failure of the parties to specifically refer to oil and gas when it was of commercial value in the community is strong evidence that such interest was not intended to pass under the instant deed ... As applied to these particular parties, the grantee had no apparent interest in any possible oil and gas as a mineral as it had at that time shown no interest in the development of this particular industry. Its business was the development and production of coal reserves. Had it sought the possible oil and gas estate. it wou Id have specifically provided for it as it did with respect to the coal and fireclay ... " This type of language is very similar to that used in the so-called "Dunham Rule" cases in Pennsylvania. The Pennsylvania Court recognizes oil and gas as minerals in a scientific sense, but requires their specific mention in conveyances or reservations, and does not construe the general term "minerals" to cover them. The Pennsylvania rule is referred to as the "minority" rule and Pennsylvania is the only state which follows it. Neither the "ejusdem generis" rule. the subjec路 tive intent approach. nor the "Dunham Continued on page 90 July 1975/Arkansas Lawyer/89


Doctrine, Continued from page 89

Rule" are acceptable to the Arkansas Supreme Court.

In my opinion, Judge Miller was clearly in error when he did not find oil and gas to be included within the term "other minerals" in the Middleton case. He discussed in his opinion various legal documents which were of record in 1904. and which clearly demonstrated the legal community's knowledge of oil and gas, and which recited consideration indicating a commercial traffic in such minerals. In view of this, and his specific finding that the "business community" considered oil and gas to be minerals, he should have reached an opposite conclusion from that which he reached. and the Eighth Circuit should not have affirmed him for the same reasons. The Eighth Circuit did affirm Judge Miller, however. so we must estimate the weight which may be given to the Middleton decision by courts in subsequent cases. It is my opinion that courts will not give great weight to the Middleton case because it so clearly departs from the standard laid down by the Arkansas Supreme Court in the Stegall and Ahne cases. The next case in the line of cases bearing on the Strohacker rule was Diamond Shamrock Oil and Gas Co. v. Commissioner of Revenues, et at, which was decided by Judge Williams of the Western District in 1969. This case involved three tracts of land in Logan County, Arkansas, under which the .... coal. oil and mineral .... was conveyed on July 21. 1905. August 5. 1905 and January 16. 1905. All three of the deeds were secured pursuant to options which had been secured from the owners of fee simple title by George Heim. who was the grantee in the deed involved in the Ahne case. The deed in the Ahne case was dated july 26. 1905. covering land three miles from the land involved in this case. and was executed on a form identical to that employed in connection with the three transactions described above. The Diamond Shamrock case arose as an interpleader action by Diamond Shamrock to determine whether gas royalties should be paid to the successor in title to the grantees under the three deeds described above, or to the surface owners under their claim that gas was not conveyed by the deeds. The owners of the interests created by said deeds moved for summary judgment contending that no triable issue of fact remained after the holding in the Ahne case that gas was commonly known and recognized by legal and commercial usage as a mineral in Logan County in 1906. Judge Williams sustained the motion for 9O/July 1975/Arkansas Lawyer

summary jUdgment saying that the Ahne case was dispositive of the issues, and that as to any conveyance of minerals in Logan County. Arkansas, SUbsequent to 1901 no ambiguity as to the meaning of the term is presented ... " The Court took ludicial knowledge of the fact that the lands involved in the in Diamond Shamrock case were" the same community ..." as those involved in the Ahne case. The court appears to have relied on the doctrine of "stare decisis" in so holding. To do so, the Court necessarily ruled that the prior decision in the Ahne case had, as a matter of law, disposed of this case, since stare decisis revolves around the presentation of the same legal problem in a later case involving different parties. An appeal was taken in the Diamond Shamrock case, but notice of appeal was filed prior to entry of judgment. although JUdge Williams had delivered a written opinion, and after briefs had been submitted and the case argued orally to the Eighth Circuit. the Eighth Circuit found that the premature notice of appeal had the effect of depriving it of jurisdiction to do more than remand the case to the Western District for further action. The Western District then entered judgment after remand. but no further appeal was taken. If a rUling of the type made by Judge Williams in this case is Ultimately sustained by reviewing authorities. another dimension will have been added to the Ahne case holding which prescribed "Logan County" as the area affected by the decision. The next case in the line of cases in路 volving the Strohacker rule was decided by Judge Miller of the Western District in March of 1971. The case of Mining Cor路 poration of Arkansas v. International Paper Co.. 324 F. Supp. 705, involved a reservation contained in a deed covering lands in Clark County, Arkansas, which was executed in 1911. The purported reservation was as follows: " ... also re路 serving all minerals, coal. oil and gas on said lands ... " The plaintiff claimed under said reservation that it owned the cinnabar and mercury under said lands. For reasons not pertinent to this discussion, the Court held that the entire reservation was ineffective, but the Court went on to say: .. Even if the reservation in the deed of "all minerals, coal, oil and gas,' should be considered as a valid reservation at the time, May 10, 1911, such reservation did not include cinnabar or mercury for the reason that under the law of Arkansas a reservation which used the term 'minerals' only includes those minerals known to exist in the area embraced in the deed at the time of the execution of the deed. and cinnabar or mercury was not known to exist at that time." The Court cited the Mothner, Middleton, Singleton and Strohacker cases

as authority for this holding. Here again, Judge Miller has shown a reluctance to adopt the Arkclilsas Supreme Court's standard as expressed in the Stegall and Ahne cases and we wonder what this finding would have been if the evidence had indicated that said minerals were "known to exist" in Arkansas in 1911. but no showing could be made that they were commonly recognized in legal and commercial usage as minerals at that time. The last case in the line of cases involving the Strohacker rule was decided by Judge Henley of the Eastern District in January of 1973. The case of Rosa Thomas, el al., v. Markham & Brown, Inc., et al., 353 F. Supp. 498, involving a reservation contained in a deed covering lands in Pulaski County, Arkansas, which was executed in 1953. The reser. One/Fourth vation was as follows: .. (1/4) of all oil. gas and mineral rights in and to said lands." The defendants who were grantees in the deed in question were quarrying and selling a form of granite known as pulaskite, and refused to account to the plaintiffs. who were grantors in said deed, for any portion of the proceeds. The plaintiffs brought suit contending that the mineral reservation in the deed extended to pulaskite. The defendants took two positions. First. they contended that pulaskite was not a mineral in the technical or scientific sense. Alternatively, they contended that. apart from any scientific characterization of pulaskite as a mineral, it was not generally considered to be a mineral in 1953 and that unde~ rUling Arkansas cases it did not fall within the terms of the reservation. The Court found that stone material such as pulas~ kite was not generally considered to be a mineral in 1953. and that a general reference to minerals or mineral rights in a deed or lease at that time would not have been understood in the commercial or legal usage as inclUding such stone. The Court cited the entire line of cases involved in the so-called Strohacker rule. He summarized the holdings of all of the cases in the following manner: "In construing a mineral grant or reservation in which the mention of specific minerals is followed by a general reference to 'other minerals' or 'mineral rights', the courts of Arkansas do not take a ejusdem generis approach which would limit the scope of the general language to minerals of the same generic class as those specifically mentioned. Rather, the question is treated as being one of fact and is to be answered ultimately by reference to the intent of the parties. It should be emphasized, however. that the intent with which the courts concern themselves is objective or presumed; it is not the subjective intent of either the grantor or


grantee. It does not matter what a particular grantor or grantee Intended to be included in or excluded from the scope of general terms like 'mlnerals' or 'mineral rights.' The question is whether at the time of the grant the substance In question was generally considered to be a 'mineral.' If in common speech or usage at the time of the grant the general terms that had been mentioned included the substance In questIon. then the substance IS considered to be included in the grant or reservation, other· wise. it is not." Judge Henley had concluded his opinion after makIng the finding of fact. citation of cases and summary of law which 1 have referred to, I would con· sider It an excellent opinion. Unfortunately. the judge felt it was "worthwhIle to menllon" a recent decisIon from the Texas Supreme Court (Acker v. Guinn, 464 S. W. 2d 348) In which the Texas court held that. unless a contrary intention clearly appears. a mineral conveyance or reservation should not be construed so as to include minerals which cannot be extracted or utilized without destroying the surface of the land as by stripping or quarrying. Judge Henley noted the similarity to the Arkansas Supreme Court decision in the Car· son case which involved bauxite. ThIs causes us to wonder whether the JUdge was moved by thIs consideratlon more than by the findings of fact and application of legal principles first discussed in hIS opinion.

Before turning to the application of the legal authorities I have reviewed, we should take note of the factual data afforded us by evidence introduced in the various cases I have reviewed. The documentary eVidence in the Ahne case is probably the most comprehensive. and was designed to prove the requisite "common recognition in legal and commercial usage" of oil and gas as minerals at as early a date as possible. From such documentary evi· dence we see that the earliest gas show recorded in the state occurred in Fayetteville. Arkansas (WashIngton County) during the drilling of a water well In 1878. Gas shows were reported In two dry holes dnlled In the City of Fort Smith (Sebastian County) in 1888. The earliest geologic map of Arkansas was published in 1892 in the Annual Report of the Geologic Survey by John C. Branner. This map indicated the Clarksville Anticline in Johnson County and the Prairie VIew and Pine Ridge AntiClines in Logan County. The Prairie View AntIcline was described as lying across the Arkansas River south of the ClarkSVille Anticline, and evidence in the Ahne case indicated that thIS land was first leased

for 011 and gas purposes in 1916. As a matter of fact. the evidence in the Ahne case indicated no leases were recorded for oil and gas purposes In Logan County before 1896. From the Mothner case. as well as the Ahne case, the fact appears that the first commercial production of gas In Arkansas occurred at Mansfield in the southern-most part of Sebastian County in 1902. The Mothner case also pOints up the fact that the earliest oil and gas leases recorded in Johnson County were taken In 1916, whIch corresponds to the date of leasing activity on the Praine View AntIcline across the river In Logan County. We are also told in the Mothner case that the earliest commercial production of gas in Johnson County occurred in 1922. although the records of the Arkansas 011 and Gas CommiSSIon Indicate that the discovery well in the Clarksville Anticline was drilled In 1921. In evaluating any Strohacker type conveyance or reservatIon. resort should be had to any case involving lands near the affected tract. The Oil and Gas Commission rec· ords indIcate the dates of the first drilling activity in each of the counties in Arkansas. The records in the Circuit Clerk's offIce in each county proVIde factual data as to the earliest traffic in oil and gas leases in that county. It can be seen, therefore that there is a body of factual information readily available to the landman and attorney to which the legal rules created by the cases can be applied. In order to apply these rules. we must determine what the issues would be if the specific problem presented by a Strohacker type reservation or conveyance were litigated. Regardless of the manner in which the litigation might arise, whether by a suit for a declaratory Judgment. a quiet title suit or by an interpleader action. the Arkansas Supreme Court has sought to answer the essential question of what substances were included within the generalized term "mineraI" appearing in a conveyance or reservation. The Court has indeed made several subtle shifts in its approach to thIS question. but after the Stegall and Ahne cases there can be no doubt that the Court has settled on an approach which requires a factual determination of whether the substances in question in a given case were commonly known and recognized as minerals by the legal and commerCIal usage of the area where the instrument was executed at the time of its execution. In spite of several U.S. Distnct Court cases which seem to turn on the subjective intent of the grantor. or of both parties. or on the "ejusdem generis" rule. or on the Pennsylvania "Ounham" rLile. or upon a determination of minerals "known exist" in the area at the time of conveyance or reservation. the Arkansas Supreme Court has ex·

'0

pressed itself in its own decisions, and has not endorsed any of these rules.

From today's perspective, then, how should you deal with a Strohacker type conveyance or reservation? If the conditIons under which you are operating are the same as those which prevailed in 1955, i. eO, you are trying to secure a lull oil and gas leasehold interest at a low bonus consideration. I would stay with the procedure we used then. I would purchase leases from all claimants of oil and gas interest under problem tracts, If this is not possible. 1 would secure a commItment of unleased Interest by way of the statutes which have been discussed. Since the 1963 amendments, both the conservation statute and the receivership statutes have been Improved from this standpOInt. If you are unable to secure leases or other commitment of all interest in a problem tract. or if the bonus consideration IS so high that it is not feasible to pay multiple bonuses. you may have to make a reasoned choice of claimants. This would be particularly true in situa· tions where a series of conveyances containing mineral reservations have created numerous claimants rather than two opposing claimants under a tract. Under such CIrcumstances, the landman should assemble as much factual data as pOSSIble WIth regard to traffic in or any transactIons Involving oil and gas leases. or conveyances of oil and gas by name. He should also develop the facts with regard to drilling activity or other production or development of 011 and gas In the county where the tract IS. We recommend that all surrounding counties be Similarly checked. When thIS Information has been developed. the attorney should revIew It. along with any factual data already supplied by prior cases. In order to estimate an approximate point In tIme when the term "minerals" would Include oil and gas. When VIewed next to such an estImate. the chOIce of claimant may be obVIOUS. or It may be very close. Under these circumstances. the operator must make a business decision as to whether he WIll risk all on one claImant's positIon. or bite the bullet and lease all of the claImants under the tract. If you happen to be representIng a claimant under one of these problem tracts, your deCision IS somewhat eaSIer sInce you have no choice to make. USIng the same approach as an 011 and gas operator would use In making a choice. you should evaluate your Client's claIm. DependIng upon ItS relative strength or weakness. you can then fashIon an approach to a JudIcial deter· Continued on page 104

July 1975/Arkansas Lawyer191


Great partnership: Orville &Wilbur ...another great partnership: RRKRnSAS BAR RSSOCIRTIOn &

:路CNA/insurance Now working together to provide you with a long-term stable program to combat the prolessionalliability problem. With a partnership like this, wouldn't you expect more? There is, il you just participate. The future is uncertain-protect it.

PROFESSionAL LIABILITY PROGRAm Want more details? Call or write 1--------- - - - - - - - - - - - - - - - - - - - - - - : I

I,

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Arkansas B ar Association Administrator Rather. Beyer & Harper Three Hundred Spring Building Little Rock, Arkansas 72201 (501) 372-4117

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92/July 1975/Arkansas Lawyer

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Editor's

Comment;

AEGIS is a feature of

the

Arkansas

Bar

Association's educational program concerning docket control and other areas of high risk experience in

professlona'

liability

cases.

SAFEGUARDING YOUR PROFESSIONAL FUTURE

"A Word To The Wise Is Sufficient" If It's In Writing! the problem

A homeowner suffered a loss of some valuable antiques through burglary. After five months of negotiations he could not reach a satisfactory settlement with the insurance carrier. He then referred the matter to an attorney who had represented him in prior dealings. The attorney orally agreed to handle the case. After a short period of time, the client allegedly asked the attorney to withdraw from the case because he wanted to pursue the matter on his own. Nothing more was accomplished and the statute of limitations ran out. The insurance carrier refused settlement because the one year in which to file suit had lapsed. The claimant then initiated a professional liability suit against the attorney for his alleged failure to protect the interest of his client.

the result

A compromise settlement was made through the attorne{s professional liability insurance policy because of the conflicting testimony between the attorney and his client as to the scope and duration of the representation.

advice

Always conlirm in writing to the client when the scope or nature 01 the representation changes or ceases.

July 1975/Arkansas Lawyer/93


WHAT IS YOUR ETHICS RATING? Professional Ethics is a "musf' subject! However, many law schools do not have an Ethics Course; many lawyers have not read the Code of Professional Responsibility (adopted by the Arkansas Supreme Court). We are indebted to the New York State Bar Association for permission to reprint four Ethics Quizzes, recently published to remind its members of their professional responsibilities. Score yourself on how well you know the Code. Quiz NO.1 only takes a few minutes. Passing mark: 100.

Yes

No

Don't Know

1. Maya lawyer contribute to the campaign of a judicial candidate before whom he may appear in the future as an advocate? 2. Mayan attorney charge a client interest on a long-delinquent unpaid bill? 3. Maya lawyer send to clients for whom he has drawn wills a notice every five years suggesting that they come in and review their wills for any necessary updating? 4. Maya City Councilman serve as a lawyer for a corporation which competes for city contracts? 5. Maya personal injury lawyer make a personal loan to a client to help him over some" rough spots" on the understanding that the attorney will be reimbursed but only out of the settlement or judgment eventually obtained from pending litigation? 6. Maya lawyer represent both husband and wife in a "friendly" separation or an uncontested divorce if he has explained any possible conflicts of interest to the parties and both have knowingly consented to the arrangement? 7. May the name of a law firm continue to include the name of a partner who serves as a part-time District Attorney but continues to practice regularly with the firm? 8. As a Legal Aid attorney, Mr. Goodfellow represented Ms. Abercrombie in her dealings with the Welfare Department regarding supplementary stipends. He subsequently learns that Ms. Abercrombie had thereafter inherited a sizable amount of money from her uncle. Must he automatically report that fact to the Welfare Dept.? 9. Assume Ms. Abercrombie asks Goodfellow again to represent her at a welfare hearing and Goodfellow confirms from his conversation with her that Abercrombie has failed to report her inheritance on her welfare applications, as the law requires her to do. Does this fact change your answer to question

8? 10. Mayan attorney use a tape recorder to keep a record of his telephone calls without advising the parties on the other end of the line?

Now check your answers against the correct responses. Give each answer a weight of 10. How's your score? If you scored below 100 you should sit right down and read through the Code of Professional Responsibility! Answers are on page 97. :J-_~ 94/July 1975/Arkansas Lawyer


JURIS DICTUM by C. R. Huie Executive Secretary, Judicial Department

TRAFFIC COURT JUSTICE Of interest to all attorneys who may from time to time represent clients accused of traffic violations when they are brought to trial in municipal, city, or justice courts is the activation of Senate Concurrent Resolution No. 17 adopted by the General Assembly on March 13, 1975. Senator Bill Walmsley of Batesville authored the resolution which is quoted in full as follows:

SENATE CONCURRENT RESOLUTION RELATING TO A STUDY OF THE PENALTIES FOR OPERATING AN AUTOMOBILE OR OTHER VEHICLE IN A MANNER NOT IN COMPLIANCE WITH THE LAWS OF THE STATE OF ARKANSAS TO DETERMINE THE ADVISABILITY OF ESTABLISHING ADDITIONAL PENALTIES AND OPPORTUNITIES FOR REHABILITATION FOR TRAFFIC OFFENDERS. WHEREAS, it has long been recognized that a person who operates an automobile or other vehicle in a manner not in compliance with the traffic laws of this State poses a significant threat to the safety of himself and others; and WHEREAS, the number of persons who operate an automobile or other vehicle in a manner not in compliance with the traffic laws of this State continues to increase; and WHEREAS, the penalties now provided by law are capable of being revised to incorporate alternatives to sentencing which would not be unduly restrictive, but which have been proven successful in deterring a person from operating an automobile or other vehicle in a manner not in compliance with the laws of this State; NOW THEREFORE, BE IT RESOLVED BY THE SENATE OF THE SEVENTIETH GENERAL ASSEMBLY OF THE STATE OF ARKANSAS, THE HOUSE OF REPRESENTATIVES CONCURRING THEREIN: That the "Committee on Traffic Court Justice" is hereby created to make a comprehensive study of, among other things, the alternative sentences not now uniformly available to the Courts of

Arkansas which would or could be effective in deterring an individual from operating an automobile or other vehicle in a manner not in compliance with the traffic laws of the State of Arkansas and to determine the advisability of implementing one or more of these alternatives. The "Committee on Traffic Court Justice", hereinafter called committee, shall be composed of eight members. The current President of the Municipal Judges' Council shall serve as the Chairman of the Committee. The remaining seven members shall be appointed by the Chief Justice of the Arkansas Supreme Court. Such appointments shall be made within two months of the adoption of this resolution. The committee is further requested to study, in addition to alternative sentences, any material relating to the problems of the Arkansas Traffic Courts. These further studies may include, but shall not be limited to, a Code of Ethics for Traffic Court Judges and a Uniform Bond Schedule. BE IT FURTHER RESOLVED fhat the Legislative Council shall cooperate fUlly with the "Committee on Traffic Court Justice", to the end that the report of the committee of its findings shall be made to the Arkansas General Assembly not later than ten (10) days from the convening of the next regUlar session of the General Assembly.

In response to the resolution, Chief Justice Harris appointed the following as members of the Committee called for by the resolution: Chairman, Judge Dean Morley of the North Little Rock Municipal Court and President of the Arkansas

Municipal Judges' Council. Other members are: Municipal Judge Lawson Cloninger of Fort Smith; Municipal Judge Lindsey Fairley of West Memphis; Municipal Judge Charles Goldberger of Pine Bluff; Joseph McQuany, Director, EOA Alcoholism Program; Ed Bethune, Esquire, Attorney, of Searcy; Honorable Tommy Mitchum, Member of the House of Representatives, of Batesville, and author of present law pertaining to driving while under the influence of alcohol; and Ms. Arlene Heath, Deputy Prosecuting Attorney of Pulaski County. In a recent address to the Pulaski County Bar, Chairman Morley invited suggestions from not only the lawyers present, but also from those attorneys over the state interested in seeing that the ends of justice are served in our traffic courts. He requested that correspondence be directed either to him at the Municipal Court in North Little Rock or to the Judicial Department, Justice Building, Little Rock, Attention: Bob Wellenberger, Chief of Traffic Courts Division.

MODEL JURY INSTRUCTIONS CRIMINAL The Supreme Court Committee on Model Jury Instructions - Criminal has been reactivated following a temporary recess pending completion of the work of the Criminal Code Revision Commission. Now that the new Criminal Code has been adopted, and the proposed Rules for Criminal Procedure now pending before the Supreme Court will be acted on by the Court in the near future, application has been made to the Arkansas Commission on Crime and Law Enforcement for funding continued work of the Committee. Approval of the application Continued on page 96

July 1975/Arkansas Lawyer/95


EXECUTIVE COUNCIL NOTES By James M. Moody Secretary路Treasurer

The Executive Council has met twice since the last issue of the Arkansas Lawyer. At its March 8, 1975 meeting, the Council heard a report from the Professional Utilization Committee. The committee made a number of specific recommendations including writing to each JUdge and Chancellor to determine the need for lawyers in their district; expanding the Bridging the Gap seminar to include a five day course in Faye芦eville in addition to the one in little Rock; and to request that law students be inctuded in Career Day at the University of Arkansas at Little Rock and at the Fayetteville campus. The Council approved the resolution which had been proposed to the House of Delegates asking the Supreme Court to adopt a rule permitting attorneys residing out of the State to practice before Arkansas courts after meeting certain standards. The Supreme Court in a per curiam orde' dated May 12, 1975 in-

Juri. Dictum, Continued from page 95

is expected in June, and Judge Paul Wolfe of Fort Smith, new Chairman of the Committee, is expected to ask his Committee to begin work in July, Judge Wolfe succeeds Judge Charles Light of Paragould who has retired. Other members of the Committee appointed by the Supreme Court are; Associate Justice George Rose Smith of the Arkansas Supreme Court; Circuit Judge William Lee, Clarendon; Circuit Judge 0, H, Hargraves, Forrest City; Bill Wilson, Esquire, Attorney, Little Rock; Jack L Lessenberry, Esquire, Attorney, Little Rock; John C, Calhoun, Jr., Esquire, At-

96/July 1975/Arkansas Lawyer

vited members of the bar to make suggestions and comments to them by June 11, 1975, President Sharp made the following appointments to the Arkansas Law Review Board: Judge William H, Enfield for a five year term, Mr. Henry Woods for a five year term, Mr. C. B. Nance, Jr. for a five year term and William R. Wilson to fill the position of Judge Richard B, McCulloch. Col. Ransick reported that the first stage of the bicentennial project is funded after receiving $2,(X)() from the Bicentennial Commission. At its May 16 and May 17 meetings at the Red Apple Inn, the CounCil approved for consideration by the House of Delegates a functional plan for Implementing a statewide lawyer referral service. Richard Hatlield, Chairman of the Prepaid Legal Aid Committee reported on recent developments and the "Chicago Amendments" which place open and closed plans on the same level. The

torney, Little Rock; Circuit Judge Harrell Simpson, Pocahontas; Circuit JUdge Bobby Steel, Nashville; Mahlon Gibson. Esquire, Prosecuting Attorney, Fayetteville; and William I. Prewitt, Esquire, Attorney. EI Dorado. Executive Director is Frederick S. Ursery, Esquire, Attorney, Little Rock. The Committee will welcome suggestions from both Bench and Bar and any other person who desires to make helpful contributions. Communications may be directed to Frederick S, Ursery, Esquire, Attorney, The First National Building, Little Rock 72201, phone: 376-2011 or the Judicial Department, Justice Building, Little Rock 72201. 1....

CounCil approved the "Chicago Amendments" for consideration by the House of Delegates as a proposed amendment to the Code of Professional Conduct adopted by the Supreme Court, President-elect Bob Compton announced the discontinuance of several existing committees and the creation of new Medical-Legal and Specialization committees. President Sharp reported that 15 of the Bar's legislative bills had been enacted into law; that the two which failed of passage had not been processed through the Association's normal procedures and that. in addition, $50,000 had been obtained to fund the operation of the Supreme Court's Civil Procedure Comminee for two years under the chairmanship of JUdge Andrew Ponder, A Rememberance Resolution for the families of the past presidents of the Bar who died this year will be prepared by President Sharp and will establish a precedent in such cases. The Council voted a "Do Pass" to the proposed Uniform Rules of Evidence. The rules will be considered by the House of Delegates at a special meeting in Fayetteville at the Fall Legal Institute for inclusion in the next bar sponsored legislative package. Ballots for contested positions on the House of Delegates were tabulated on May 22. Harley Cox, Jr. won a seat from Jefferson County and the winners in Pulaski County were Chris Barrier, Charles Brown, Joe Buffalo, Abner McGehee and Larry Wallace, Membership continued to remain at a record high with 1.988 members as of May 15,1975 compared to a membership of 1,860 on May 11, 1974 and 1,712 as of May 11, 1973, J--__


Construction Mortgages In Arkansas . . . Questions and Partial Answers

...

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~

...

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-by Donis B. Hamilton ADDENDUM In the discussion of intervening liens for fixtures on pages 52 and 53 of the article "Construction Mortgages in Arkansas - Questions and Partial Answers" in the April issue of The Arkansas Lawyer, the effect of the amendment to Section 85-9-313 of the Statutes by Act 116 of 1973 was omitted. In House, Trustee v Long, 244 Ark. 718, 426 SW. 2d 814. it was held that the security interest in a heating and cooling system took precedence over the prior recorded construction mortgage to the extent that advancements had been made

Answers to Ethics Quiz (No Peeking! Mark your own answers to the quiz first.) 1. Yes. Providing the following conditions are observed: the contribution is not unreasonably large; it is made to a committee rather than the candidate himself; neither the contributor nor the committee informs the candidate of the contribution. In this case. as in all others involving ethical issues. any doubts about the propriety of the donation should be resolved against it. as "a lawyer shou Id avoid even the appearance of impropriety". Canon 9. 2. No. This does not include, however. interest awarded by the court if the debt is reduced to judgment. 3. Yes. Such renewal notices may in fact be required if there has been a material change in fact or law since the will was drawn. At any rate. such a renewal notice system does not violate the prohibition of solicitation contained in DR 2-104 (A), since the person notified already is a client. 4. No. Even if no actual conflict of interest were to be involved in such

under the mortgages before the goods were affixed to the real estate. After the effective date of Act 116 of 1973 (January 1. 1974) the construction money mortgage would take precedence over the security interest in the fixture whether or not the security interest was perfected prior to the installation of the fixture. However. the construction mortgage priority may be subordinated where the mortgagee has consented in writing to the security interest or has disclaimed an interest in the goods as fixtures or where the debitor has a right to remove the goods as against the mortgagee.

An interesting feature of the new provisions of Ark. Stats. Section 859-313 is that a refinancing of the construction mortgage carries with it the superiority of the construction mortgage lien over the security interest in the fixtures. For an excellent comparison of the old and the new provisions of Ark. Stats. Section 85-9-313. see Goodkin. "The Ambiguous Statutory Machinery Pertaining to Fixtures under the Uniform Commercial Code: Whether the New 9-313 Provision Effectively Eliminates Prior Criticism of the Old 9-313" 27 Ark. L Rev. 482 (1973) :J-~

a situation, a lawyer should avoid actions which even suggest impropriety. See DR 5-101; DR 8-101; Canon 9. This conduct may also be proscribed by conflict-of-interest laws. as in New York City. Consent of the city agency. however. would not cure the problem. 5. No. Generally, a lawyer should not acquire a proprietary interest in his client's litigation. While a lawyer may advance to a client the costs of litigation, other monetary assistance should not be provided. See EC5-7; EC5-8; DRS-103 (A) (B). 6. No. A lawyer should not represent mUltiple clients where a possible conflict of interest may arise. While disclosure to the clients of the risk of conflict and their subsequent consent to multiple representation will often allow such an arrangement to proceed. the possibility of prejudice in the divorce situation is sufficiently great that multiple representation should be avoided regardless of the parties' consent. 7. Yes. The test for maintaining the names of part-time public officials is generally whether they practice "actively and regularly". See

EC2-12. Of course. local laws and agency regulations regarding limitations on practice by part-time officials must always be considered. 8. No. See next answer. 9. Yes. A lawyer is not ordinarily under an affirmative obligation to reveal such information to the government and may properly assume that his client will do so. He becomes so obligated if he receives information "clearly establishing" that his client or another person has committed fraud. In this case. the receipt of evidence of deliberate failure to disclose the inheritance on the part of the beneficiary would bind the lawyer to call upon his client to rectify the omission. and, if she does not. to inform the Welfare Department of this fact. See DE 7-102 (B). 10. Even though such a recording by one party to a conversation may not be illegal, the obligation to be candid and fair makes it unethical for an attorney to make any secret recording of his conversations with others except under special circumstances sanctioned by jUdicial or other proper authority. !I_ .... July 1975/Arkansas Lawyer/97


Legal Economics THE TEAM APPROACH or HELP! MY SECRETARY'S GONE TODAY! By Fran Shellenberger路

Anthony Advocate and Lawrence Lawyer. partners In a firm of five attorneys. met In the hallway enroute to their adJOining offices early one morning. Each had bUsy schedules for the day and many Items ready for his secretary. In addition. Anthony was preparing for an out-ot-town trip and was finishing a complex agreement to mail to his client that afternoon. Anthony and Lawrence each worked closely with his own personal secretary whose desk was stationed near her lawyer's office. Louise, Lawrence's secretary. was equipped with an automatic typewriter while Audrey. Anthony's secretary. used a standard electric model. Upon arrival at his office. Anthony was greeted by Louise. who brought him the morning mall and the message that his secretary. AUdrey. would not be In the offlce that day due to the illness ot her youngest child. O,d Anthony hurry to call the firm's office manager with an urgent request for secretarial help that day? Did the office manager have to arrange for someone else's secretary to assist him? What about temporary help from an outside agency for the day? Can they get someone experienced? Old Anthony decide to call hiS client and explain tactfully that his secretary IS away and he'll have to walt for her return next week to complete the client's agreement? Fortunately. Anthony dldn't have to do any of these things because he and Lawrence Instituted a "team approach" last summer, The two lawyers and the two secretaries agreed to work together as a team of four. Anthony and Lawrence proVided work for both Audrey and Louise who in turn shared the secretarial duties for both lawyers. Audrey and Louise divided the duties so that Louise handled the document preparation for both lawyers on her automatic typewriter and 98/July 1975/Arkansas Lawyer

Audrey handled correspondence. appointments, filing. answering the telephone. etc.. for both lawyers. Louise enjoyed the freedom from offlee Interruptions when she was preparing lengthy documents and soon became the office expert With her automatiC typewriter. She found time to asSiSt other lawyers In the firm with their workload occasionally. While she was satisfied with the arrangement and enJoyed the personal contact with the two at1orneys. she felt at times that Audrey did not appear to have very much to do and wondered if the arrangement was fair. Also. the steady typing workload was exhausting at times. Audrey found that she could offer both lawyers administrative support and could become closely connected With each lawyer's practice. Because she became knowledgeable about the chents' affairs and the chents themselves. she was able to assume more and more responsibility when the lawyers themselves were unavailable to their clients. However. she was uncomfortable at times because it seemed that someone else was doing her old job for her. She missed the feeling of accomplishment associated with the completion of a lengthy typing assignment. Louise and Audrey agreed that although the team approach was helpful. each would like to have at least part of her old Job back. So they carried therr "job sharing" a step further. Each secretary traded Jobs With the other long enough to learn the other's Job. They took the time to prepare a desk manual of Instructions for carrying out the varIOUS aspects of their Jobs. Each was able to use the other's manual when problems arose or when one of them was absent. In addition. Audrey took a few days' training to learn how to operate Louise's automatic typewriter. She found she learned even more from Louise herself, however. because Louise had developed innovative techniques for her

typewriter which were not mentioned In the training sessions. LOUise enjoyed the variety of Audrey's duties and appreciated the time away from her typewriter. LoUise was overwhelmed at how little she could accomplish during the day due to the almost constant interruptions. She marveled at Audrey's ability to handle difficult situations and bragged that Audrey couid tell a client or adverse counsel to go to (expletive deleted) and convince him that he would enjoy the trip! Each secretary developed a new awareness of the other's abilities and an appreciation for the other's duties by understanding them fulty. The team approach benefited the members In ways which surprised all of them. LOUise and Audrey found that they could eaSily schedule time away from the office for appointments. etc.. because the other secretary could carry on alone for short periods wllhout creating a criSIS for the lawyers. Anthony and Lawrence were delighted with the arrangement because they now had mo secretaries who were familiar with their work and were rarely Without expert help. If the workload demanded it. each lawyer could utilize the help 01 both secretaries for a time, When Lawrence was preparing for a triP away from the city, both secretanes assisted in getting the work taken care of before he left. While he was gone, both secretaries were available to Anthony. who needed some extra help by then. On thiS particular morning, Anthony and Lawrence discussed the priorities for that day's work. LOUise. the team typing specialist. spent part of the day assisting Anthony with hiS agreement. and both lawyers continued With business as usual even though Audrey was absent. 路Secretary for Richard A. Williams. the regUlar author of this column. J...


Governor David Pryor is shown, presenting the Law Day Proclamation to Association President James B. Sharp. In the background from right to left are Elizabeth Brooks, Chief Justice Carleton Harris, Ralph Sloan, Judge Dean Morley and Col. C. E. Ransick.

President James D. Fellers of the American Bar Association congratulates H. William Allen of little Rock. nominee for the ABA's Board of Governors. An Associate in the Little Rock law firm of Wright. lindsey & Jennings. Allen is a member of the ABA Special Committee to Survey Legal Needs and the Council of the Young Lawyers Section. He is Chairman of the Young Lawyers Section's Committee on liaison with the American Medical Association. He was Chairman of the Arkansas YLS Disaster Relief Committee. A native of Brinkley. Arkansas. Allen received a B. A. degree from Southwestern at Memphis in 1966 and a J. D. degree from Washington University in 1969. He was admitted to the bars of Arkansas. Illinois and Missouri in 1969 and served as assistant U. S. attorney. Northern District of Illinois. in 1969-70. He served as a special assistant to Edward L. Wright when Mr. Wright was ABA President 1970-71. He also is a member of the Illinois, Arkansas and Pulaski County, Ark .. bar associations. J-~ July 1975/Arkansas Lawyerl99


"SEEK THE LAW" -Leon Jaworski

His address to the General Assembly of the 77th Annual Meeting of the Arkansas Bar Association on June 5, 1975

As far back as the 16th century, Sir Francis Bacon, British essayist. philosopher and statesman, put his views in these challenging words: "1 hold every man a debtor to his profession; from the which. as men of course do seek to receive countenance and profit. so ought they of duty to endeavor themselves by way of amends. to be of help and ornament thereto ... Two centuries later. Thomas Jefferson wrote to a friend of the Revolution who he thought was backsliding on his obligations of citizenship that "there is a debt of service due from every man to his country. proportioned to the bounties which nature and fortune have measu red to him." Debtors we are. indeed. and our debts are posted on the ledger of our respective professions and vocations. Currently we must take inventory of ourselves anew to ascertain: Where are the credits, where are the ornaments? In a recent edition of Freedom at Issue, the Board of Trustees of Freedom House issued a statement proposing a seven-point credo. I thought the third was the most striking and authentic of these several points: "The individual has lost track of his relationship to government. expecting government to handle almost everything for him. He has lost the belief that he has much control over his destiny. too often taking refuge in a spurious nostalgia for the past. Government cannot do everything, and what it does undertake will succeed or fail by the individual's own behavior." Indeed we are looking for informed. intelligent leadership. We are looking for the type of leaders so well identified by Peri路 cles who, according to the Athenian historian, described his warriors as having earned praise that will never die and along with this a home in the minds of men-an enduring home, if you please.

102/July 1975/Arkansas Lawyer

In pondering the characteristics of the men and women that are to lead America. we can prayerfully Join the poet Gillman: "God send us men with hearts ablaze. All truth to love. all wrong to hate: These are the patriots nations need. These are the Bu Iwarks of the state." But when we search for leaders - we are not merely casting our eyes at the top rung of the ladder. We mean leadership at all levels. Especially do we mean citizenship leadership at the community level. Today our concern is leveled at the challenge our free society faces in the maintenance of a citizenry obedient to law. Every now and then I hear a great sermon. I heard such a ser路 mon last year when the Pastor of the First Presbyterian Church in Philadelphia filled the pulpit in the New York Avenue Presbyterian Church in Washington. His sermon was on the subject of seeking a city, taking his text from Hebrews 11:10 "For he looked for a city which hath foundations. whose builder and maker is God." When in his sermon this illustrious preacher laid out the elements of a city "which hath foundations," he said: "Seek the Law, Seek the Word. Seek to do good. The old truth remains. you see. that you cannot achieve good by evil means. Apparently nothing is so difficult to understand in our present society. The tired old excuse is still that the end justifies the means. It has always been wrong. It is wrong still." We must recognize that this preachment is as true today as it was when our nation was formed under law. Still fresh on my mind is the sadness of seeing one of the great tragedies of modern history - men who once had fame in their hands sinking to infamy - all because eventually their goals were of the wrong dreams and aspirations. The teachings of right and wrong had been forgotten and little evils were per路 mitted to grow into great evils - small sins to escalate into big sins. How did Alexander Pope put it? "Unblemished. let me live or die unknown. Give me an honest fame. or give me none." Perhaps the most incredible of all conditions I encountered in Washington during the investigations was not only a flirting with the truth by some high officials but a blatant flouting of the truth - a contemptible course of conduct that breaks down all confidence in integrity. responsibility and leadership. To paraphrase the words of James Russell Lowell - the "cause of evil prospered" temporarily. but in the end it became evident again that "truth alone is strong." Painful to this nation as were the trials and tribulations of Watergate. there were many in foreign lands who looked with admiration upon the workings of our democratic processes. I received a number of letters from citizens of other countries so expressing themselves. One of these came from far away Allahabad in India. in which the writer said: "The bold manner in which the people of the United States tackled the Watergate af路 fairs shows a new path to the lovers of democracy the world over. I am sure that through this single example. the United States has proved the immense superiority that the free system has over the system practiced in countries behind the Iron Curtain." Then he added: "The misuse of power should be stopped on an international basis just as it is being stopped in your country. " If we are to turn back the pages of history. we find that those who gave birth to this nation almost two hundred years ago sought a dream of domestic tranquility. They laid out a pattern to form "a more perfect union." They offered bloodshed and


suffered privation to lay the foundation for such a nation. They entrusted what they had founded. with all of its freedoms and natural riches. to succeeding generations until it came into our hands. The question is. how are we administering this trust? An honest appraisal compels us to admit that we find in our midst too much factionalism - we find far too much divisiveness. the result of which is to disrupt the formation of "a more perfect union. It was only a few weeks ago that I stood in the hallowed room in Independence Hall in Philadelphia. where the Declaration of Independence was signed, and after four months of debate. deliberation. study and prayer. our Constitution was adopted. As I contemplated Ihe setting. as it existed almost two hundred years ago. there crossed my mind. more deeply than every before. the hardships. the service. and above all else the selflessness of these great patriots who gave so much to earn for generations to come the freedoms that are ours today. And as I walked away from this historic place. there returned afresh the eloquent expressions of dedication and devotion that meant so much to them and which they hoped would be as fervently embraced by us. To remind me - almost to haunt me - came the recollections of immortal words they penned - "That all men are created equal" - "life. liberty and the pursuit of happiness" - and finally. the pledge to each other of "our lives. our fortunes and our sacred honor," Then I paused to wonder - are these just empty phrases to many of us today - or are they still as radiant. as inspirationaL and as binding in our pursuits as they were to these great founders of freedom and seekers of justice? It was not by accident that our nation's founders structured a

system ot government so unmatched in strengths of freedoms and social progress as to attain for us a position of leadership among the countries of the world. Neither was it by accident that. once attained. this position of preeminence has beeII retained throughout the years that followed. The undergirding force was. and has been through the years. the spirit of America. a spirit born in sacrificial dedication and nurtured by a devotion that places country above sell. But the spirit is waning - especially the readiness to offer leadership - and only a resurgence of this once indomitable spirit can meet the critical

challenges of today. But the spirit SO sorely needed is not selfgenerating and without manifestations of leadership. selfless and courageous. on the part of many individuals at many levels. it will be lost. We know Ihat our nation was founded on the premise that the individual citizen is to enjoy the Constitutional guaranties of life. liberty and property. but the premise does not end there. It is a two-way street and the citizen has the reciprocal responsibility of discharging the duties of citizenship. and this means that whatever contributions he can make to society and to good government. he is under obligation to discharge. And this obligation rests especially on the shoulders of those who by training and experience have a particular competence in matters of government and in citizen leadership. In the trying and tragic Watergate days. the institutions of our government discharged their responsibilities. The American people insisted that constitutional action be taken and there was sufficient leadership to respond in places where action was needed. But if once the people and their leaders. tried and true. are not boldly to speak out and condemn wrongs in government. if they are to be indifferent and their representatives in government apathetic. what will follow? To find the answer in history. we need be no more retrospective than to review the disastrous experience of Nazi Germany. There we saw. as the consequence of people's silence, timidity and indifference. the tragic deterioration of a proud nation that had given SO richly to the culture of the western world. It retrograded to uncontrollable lawlessness and with anarchy as the threat. a dictatorship arose. In the end, we saw the shambles with concentration camps, barbarities and depravities as the remaining fragments of what was once a nation toasted for achievement in art and literature and science. The despicable ideology of Nazism did not grip Germany overnight. It came as a cancerous growth, which by easy stages substituted wrong and evil for freedom and right and human

dignity. As Edmund Burke warned - '"All that is needed for the forces of evil to win is for enough good men to do nothing." And. in fact. - to paraphrase Burke's admonition - there were enough good men and enough good women in Germany. who. during the growth of Nazism. did nothing. They disapproved of what they saw. but as they did nothing about it. the wrongs escalated from day 10 day. Once the stranglehold of Nazism was applied to the free institutions of Germany and the schools were poisoned. places of worship silenced. and the courts prostituted. the freedoms of protest and resistance were annihilated and the voices of good men and women were lastingly

stilled. There is great need today for instituting in our schools throughout our country an enlarged and improved program of youth education in the fundamentals of law in a free society and in the responsibilities of leadership. Continued on page 104

July 1975/Arkansas Lawyer/l03


Law, Continued from page 103

We call on our young people lor greater activity In undergird· 109 our Institutions of government; we gIve them greater responsibilities at an earlier age than in generations past. but are we fair to them and to society in these respects unless we also prepare them with the knowledge and the understanding necessary to discharge these obligations? The theme of Law Day, U S. A a year or two ago- called on "Young Amenca to "Lead the Way" In regard to the changing of bad laws. the preservation of good laws. and the making of better laws So far so good. yet how IS this mandate to be executed unless there IS present the ability to differentiate between good and bad laws? Whatever changes are made must be within the framework of law as It applies to our constitutional form of government. and If the baSIC principles that pertain to them are not thoroughly comprehended. the wrong course IS likely to result. To diS· charge thiS duty of prepanng our young people for the tasks that Will be theirs. we must obtain in our schools. beginning as early as the elementary grades. a revitalized curriculum of education In the real meaning of citIzenship.

There is in progress now a movement sponsored by the American Bar AssociatIOn designed to cope wIth this need. I hope that you will embrace It - takp It home with you and make certain that It becomes a part of the life of this com· munlty Its sale aim IS to Improve and extend educational programs In law and in our democratic processes in our primary and secondary schools. When Daniel Webster said that Justice IS man's greatest Interest on earth. what did he mean? Certainly he did not mean that lawyers alone could provide this Justice. He did not mean that they could assure it nor did he mean that they could preclude it. To obtain Justice. our society must have not only lawyers of Integrity but. even more so, courageous Judges who Will not be swayed by public clamor - It must have fair·minded Jurors who Will not be governed by bias or prejudice - and it must have upright witnesses who Will not taint the truth. You and I. and others like us. inherited the freedoms and the glones we enJoy today. They have been preserved perforce the rule of law. We know that we hold them In trust. not only for ourselves but for generations of beneflclarles yet unborn. Let it be our commitment and our endeavor that history record that we have been faithful trustees. :.I...

Pension,

Doctrine,

Continued from page 115

Continued from page 9J

fit rate base or any combination of these. The maximum benefit to be covered under the PBGC for any participant will be $750 a month but no more than 100% of his average compensation during his highest paid five years. If a Plan terminates and the PBGC pro· vides unfunded covered benefits. the employer is liable to reimburse the PBGC for the benefit in an amount of up to 30% of the employer's net worth for which a tien against the employer"s property may be asserted. PREEMPTION OF OTHER LAWS Effective January 1. 1975. all provisIOns of the law except those applying e)(cluslvely to qualified plans, supersede state and local laws Insofar as they relate to any Plan that is subject to the federal law. In general. state laws regulating banks. Insurance companies and seCUritIes. and general criminal laws are not affected by the Act. CONCLUSION Obviously. it is too early to realistically appraise the total merits of the Pension Reform Act of 1974. The pendulum has made its move: and no doubt the Act will accomplish many of its recited objec· tives and afford added protection for beneficiaries of Pension Plans. When viewed in this light. the Act is clearly justified. Whether the Act has added too much administrative supervision. technicalities and costs for the long-range good sought to be accomplished and whether it will deter Pension Plans thaI would otherwise be created. remains to be seen. [1--.....

mination of its status. If it is a strong claim with great potential value. you may want to take the initiative and sue to quiet title. If it is questionable. you may want to advise your client to lease to an operator so that development can proceed. If production is obtained. you can then adjust the cost of your efforts to the amount of royalty Interpled by the operator. Since most of you are oil and gas onented. I have talked In terms of 011 and gas operations today In dOing so. I don't mean to suggest that the Strohacker rule IS limited in its application to oil and gas cases. The Carson case Involved bauxite. The Dierks case involved novaculite. The Mining Corporation of Arkansas case involved cinnabar. Whatever the substance involved. the same basic approach should be used to evaluate a claim to it under a Strohacker type con· veyance or reservation. Since the conservation statute is not available to you in connection with minerals other than oil and gas. however. your statutory assistance would be more limited when you are dealmg with other minerals. As originally passed In 1937. the receivership statute contained a definition of minerals which Included...... oil. gas. asphalt. coal. iron. zinc, lead. cinnebar, bauxite. clay, slate and all other products and substances that may be mined. separated, removed and sold from the soil for profits." This Section

l04/July 1975/Arkansas Lawyer

(Section 52-212 A. S. A.) was repealed by the 1963 amendment. It is my opinion that the statute would still be available for use in connection with a broad range of minerals. Ideally. however, you should secure leases or some form of voluntary commitment from all of the disputing claimants of the substance involved prior to commencement of operations, so that. upon the development of a fund of royalties or other monies claimed by the disputing parties, you would be able to file an appropriate Interpleader action In Chancery Court for the purpose of determining ownership of the fund and of future payments. At the first Arkansas Oil and Gas Institute in 1962. Sam Sexton. Jr.. gave a paper pertaining to the Strohacker doctnne In which he concluded that: ''The results reached by the Arkansas Su· preme Court have brought about a sltua· tion where the grantor loses that which he did not sell. for which he has not been paid. and with whIch he did not intend to part while the grantee obtains that for which he did not pay and which he did not e)(pect to receive." He closed his paper with the hope that the Court would provide a clarification which deals more equitably with all parties. I know that the clarification provided by the Ahne case did not fulfill Sam·s hopes, Whether or not you agree with hiS conclusion as to the effect of the Strohacker rule, it is. as the title of this paper states. "An Arkansas Rule of Property"· J - _.


By J. Steven Clark Director of Admissions Dean Wylie H. Davis is pleased to announce that Distinguished Professor Emeritus Robert A. LeHar has conlribul路 ed five thousand dollars for furnishings in the faculty lounge and library in the new Waterman Hall complex. The building. remodelization and furnishing of the new complex should be complete by the beginning fall semester. Commencement was held Saturday, May 17th at the Fayetteville campus in the ballroom of the Arkansas Union. The commencement address was given by Dr. Robert A. Lellar. Messrs. Steve H. Nickles. Roger D. Osburn. James R. Williamson and Ms. Susan Webber all graduated with high honors. The honors graduates were Ms. Mary V. Currie and Messrs. Lonnie R. Beard. Mark Allen Breedinback. Paul Edward Danielson, Jackson Murry Jones, Karlton Kemp. Jr.. George L. Mallory. and Paul B. Young. Jr. Mr. Vannoy Culpepper of the graduation class was selected as the first recipient of the Wayne W. Owen award. Mr. Culpepper was selected because of academic improvement since enrollment and demonstrated potential to be a successful attorney. The award consists of three hundred dollars and a plaque. Mr. Kim Smith of the graduation class was presented the Trial Advocacy Award. The award of one hundred

dollars goes to the student selected as the best trial advocate in the student moot court trial competition. Professor Albert M. Witte will spend the summer as a visiting professor at the University of Oklahoma School of Law. Professor Witte will teach contracts. In addition. Professor Witte will attend as a delegate a special NCAA convention to discuss reducing inter-collegiate athletic costs. Mr. Garry Wann of Batesville has been elected as President of the Student Bar Association at the Fayetteville campus. Mr. Mike Hays of Wilson is the newly elected justice of Garland Chapter of Phi Alpha Delta law fraternity. Professor Milton Copeland will spend eight weeks as a visiting professor at Drake School of Law this summer. Professor Copeland was recently promoted to the rank of full professor. New members of the National Moot Court Team for the Fayetteville campus for 1975-76 are Messrs. David Gearhart of Fayetteville, Steven Curlee of Elkins, and John Bynum of Russellville. Professor George Skinner attended an institute on microforms and also the annual meeting of the southwest chapter of the American Association of Law librarians, April 3. 4. and 5 at Columbia, Missouri. While at the meeting he was also named the program chairman for

the association's 1976 meeting in New Orleans. The School of Law is pleased to announce the appointment 01 five new persons to the faculty at the Fayetteville campus. Ms. Ellen Bass has been appointed as an Assistant Professor and Director of Admissions. Ms. Bass has been serving as a clerk ior the Honorable G. Thomas Eisele. U. S. District Judge. She is a graduate of the University of Virginia School of Law. Mr. Howard Brill has been appointed as an Assistant Professor. He comes to our faculty from private practice in Rock Island. Illinois. Mr. Brill is a graduate of the University of Florida School of Law. Mr. Richard Atkinson has been appointed as an Assistant Professor. Professor Atkinson is a Yale law school graduate. He joins our faculty from private practice with the law firm of King and Spalding In Atlanta. Georgia. Mr. George Knox has been appointed as an Assistant Professor. He comes to our faculty from practice as the Deputy City Attorney of the city of Miami, Florida. Mr. Knox is a graduate of the University of Miami School of Law. Mr. Charles Sullivan has been appointed as an Associate Professor. Professor Sullivan is a Harvard law school graduate. He comes to our faculty from the School of Law University of South Carolina where he has taught the past three years. Additionally, Or. Hoyt Kirkpatrick, orthopedic surgeon from Fort Smith. has been appointed as a Lecturer in Law and Medicine. Or. Kirkpatrick assists Professor Fred Spies in the instruction of the seminar in Law and Medicine. Finally. this author is pleased to announce his appointment as Assistant Dean of the School of Law Fayetteville campus. 1974-75 Law Review Writing Awards - Price A. Dickson Award for the best Comment to James R. Williamson. of Vienna. Illinois, for "Search of the Person Incidental to Arrest." in 28 Ark. L. Rev. 79 (1974). Arkansas Bar Foundation Award for the Second best Comment to Gary M. McDonald. of Tulsa. Okla" for "Pre-Trial Detention: Constitutional Standards," in 28 Ark. L. Rev. 129 (1974). Arkansas Bar Foundation Award for the Third best Comment to Karlton H. Kemp. Jr.. of Little Rock. for "Recent Obscenity Cases" (not yet published). Arkansas Bar Foundation Awards for the Best and Second Best Case notes a tie - to Martha L. Grubbs. of little Rock. for "Trademark Protection by Oes~ criptive Name and Color" (not yet published): and to Jackson Jones, of Harrell. Ark .. for"A Defeat for the Guest Statute." in 28 Ark. L. Rev. 29 (1974). J-~ July 1975/Arkansas Lawyer/lOS


MEDICAL MALPRACTICE INSURANCE

Mr. James B. Sharp. President of the Arkansas Bar Association. has asked the Association's Legislation Committee. of which I am Chairman. to investigate the so-called "malpractice crisis" from the standpoint of the Bar and to make recommendations to its policy making bodies. In view of the apparent disposition in some quarters to make lawyers the "goats" of this sudden, alleged "malpractice crisis," he has also asked me to appear at this hearing to make a statement. Newspapers have published accounts that St. Paul. the major carrier, is now threatening to leave Arkansas if a very substantial increase in rates is not afforded for its excess coverate. i. e., coverage over $100.000. Some representatives of the insurance industry, who are anxious to divert the stream of negative publicity attendant upon the sudden and unexplained radical increases in premiums and arbitrary termination of group programs, have attempted to generate public and medical profession antagonism Association President James B. Sharp requested that the Associa路 lion's Legislation Committee serve as an Ad Hoc Committee to con-

sider the so-called" medical malpractice insurance" problem in Arkansas. Following a committee meeting, Chairman Henry Woods was directed to appear before the Arkansas Insurance Commission to make recommendations concerning the medical malpractice insurance rate increases sought by the industry. Chairman Woods' remarks at the recent hearing before the Commission Bre reproduced here for the benefit of all

concerned.

lOO/July 1975/Arkansas Lawyer

against attorneys who represent people injured through the carelessness of some few physicians or hospitals. Lawyers do not create malpractice cases. The medical profession, as with any other industry or profession. contains a small percentage of people who practice their profession carelessly and harm members of the public. I regret to say there are such people in the legal profession. but I am proud to say that within the last few years the legal profession has set up an active disciplinary program to inhibit such conduct. In the area of medical malpractice, perhaps more than in any other single field, the trial bar can point to an unequaled record of contributing to the protection of the public by compelling scrutiny and improvement of the medical profession. The infamous case of Dr. Nork, the Sacramento surgeon responsible for injury to so many people. is but a single example. This doctor. an alleged drug addict for over ten years, performed unnecessary back operations in an incompetent and bungled fashion, resulting in the butchery of over fifty persons. His colleagues. some of whom had reason to know or suspect his incompetence. did nothing about it. The hospital where he performed his operations had no system to monitor the action of its doctors. For example. whiie Dr. Nork's postoperative reports would always indicate that the patient was making a remarkable recovery and was progressing beautifully, the nurse's notes would invariably show that the patient was suffering excruciating pain and was having terrible problems. It was a trial lawyer from Sacramento who, through weeks

and months of investigation. uncovered what this man was doing. Neither his colleagues, highly reputable physicians. nor the hospital administration had anything to do with the uncovering of Dr. Nork. Many people in the health care professions themselves attest to the contribution in the improvement of medicine worked by the very existence of malpractice suits. (See. for example, the report of the Secretary's Commission on Medical Malpractice, Department of Health. Education and Welfare. January 16. 1973) There is no question but that St. Pau I is attempting to impose drastic increases in insurance premiums for

doctors. Yet I saw a quotation of Commissioner Ark Monroe in the press to the effect that in the last five years St. Paul had not paid a single claim on excess coverage. the area in which they are seeking the increase. The fact that verdicts. like everything else, have increased steadily with inflation over the past two decades is a fact well-known to all concerned. Why then is there suddenly a "crisis in medical malpractice insurance?" Some say that the "malpractice crisis" was precipitated by the threat of the Argonaut Insurance Company to withdraw from New York because of "soaring" or "skyrocketing" increases in malpractice su its. The only official figures are filed by the Office of Court Administration of the State of New York which annually prepares a complete breakdown of all cases filed in New York courts. These statistics show not thousands but 412 malpractice cases were placed on the court calendars in New York for the 1962-63 Judicial Year, 398 cases in the next year, 274 in 1966-1967 and 284 in 1971-1972. In


the most recent full year ending June 30. 1974. the total was one-half that of ten years ago or only 218 malpractice cases. According to figures released by the New York State Medical Society. there were 935 claims for medical malpractice in 1962. In the year 1972. there were 1.191 such claims. During this period. the number of physicians covered rose from 16.000 to 20.000. One can. therefore. see that there has been no growth whatsoever in medical malpractice claims in New York. In 1973 the Employers Insurance Company of Wausau. the previous insurance carrier. took in S36.500.000 in premiums and paid out $17.452.000 in losses. Simple arithmetic says that for the 20.000 insured physicians. this comes out to less than $1.000.00 per doctor. In fact. doctors paid an average premium in 1973 of $1.350 (not $40.000 or $50,(00). In 1974 the Argonaut Insurance Company received premium payments of $74.000.000.00 just about double that which the Employers took in in 1973. based upon an 197% increase in premiums. These premiums were collected in advance and. presumably. were available for investment at 10% interest a year. They have. as yet. disposed of only two claims and have. as a result. incurred almost no losses. They should almost be able to pay their losses out of the interest on the premiums received since they will have received two to four years of interest on these premiums before any significant number of claims become payable. Why then has Argonaut Insurance Company taken the position that it has? The answer is that it has suffered lerrible losses as a resu II of poor stock market investments and is required to retrench so as to maintain adequate reserves. This analysis is confirmed in the Wall Street Journal of January 30. 1975. which indicates that Argonaut Insurance Company was counting on making a profit through successful investment of its premium income from doctors before having to payout any sizable amount in claims. One must. therefore, ask Argonaut if it is not in fact the decline in the stock market rather than any increase in verdicts which was

responsible for their financial difficulties. The only thorough governmental studies of the medical malpractice area essentially exonerate the trial bar from all of the charges being hurled presently by the insurance industry. The 1973 Report of the HEW Commission concluded that the vast majority of malpractice claims are legitimately based on valid inJuries and some reasonable belief on the part of the claimant that he has been the victim of malpractice. The Waxman Select Committee of the California Assembly. reporting in June of 1974. declared that there was little eVidence of any substantial number of non-meritorious medical malpractice suits having been filed in California. The HEW Commission Report concluded that the contingent fee system in no way induces lawyers to file dubious or doubtful malpractice cases. This report found that plaintiffs' at10rneys earnings from malpractice cases if prorated to an hou rly basis were comparable in range to the earnings of the lawyers for the defense who are paid by insurance companies on an hourly basis. The HEW Commission actually went so far as to recommend that organized medicine "establish an official policy encouraging members of their professions to cooperate fully in medical malpractice actions so that Justice will be assured for all parties: and the Commission encourages the establishment of pools from which expert witnesses can be drawn." (Report. page 37.) The Waxman Committee concluded that the average closing payout for malpractice claims in California was between Seven Thousand and Eight Thousand Dollars. In Arkansas the situation is even more favorable to doctors. In my years of practice in Pulaski County I recall only one successful jury verdict against a doctor and that was for a modest amou nt. In the last twenty years two malpractice judgments in favor of the jury awarded $2.500 for the death of a nine-yearold black child. as the resu It of grossly irregular treatment for a skull fracture. In that case seven doctors testified against the defendant doctor. In the other there was an award of $50.000 against a physician who had operated on the

wrong leg. Arkansas doctors have fared even better than their counterparts in other states where plaintiffs win one out of five jury cases. according to the above-mentioned HEW report. The law in Arkansas could hardly be more favorable to doctors and therefore to their insurors. Res ipsa loquitur is not permitted. Medical testimony of negligence is required: the locality rule is in force: and there is a subjective standard as to care (the only such instance in tort law). The statute of limitations. contrary to that In any other tort situation. runs from the date of the negligence and not the date when it is discovered. If an instrument IS left inside a patient's abdomen and not discovered for more than two years. the claim is barred. Incidentally. the statute of limitations in malpractice is two years. while in other negligent torts it is three years. The Bar stands ready to meet with our friends and colleagues in the medical profession to iron out any misunderstandings that may have arisen in a highly charged and emotional atmosphere. The Bar and the medical profession have enjoyed fine relations in Arkansas. We are not averse to some type of screening procedure to weed out the possibility of unjustified suits being filed against physicians. Certainly no professional likes to be sued. and he should not be sued without adequate basis. No competent lawyer wants to handle such a suit. Malpractice cases are expensive. timeconsuming and difficult to try with only a small chance of success before a JUry (one In five nationalty). My law firm has tried only four malpractice cases to a JUry. In two we represented defend"nt doctors and in two we represented inJured patients against doctors. We won the former and lost the latter. All of them represented an enormous expenditure of time and effort. I would like to suggest that our very able Insurance Commissioner chair a meeting composed of five doctors appointed by the President of the Arkansas Medical Association and five lawyers named by the Arkansas Bar Association to discuss first of all whether there is a real "malpractice crisis" in this state and. if one does exist. to find ways to solve it. J- .__ July 1975/Arkansas Lawyer/107


I~

Service Directory

:==-'1'

..

~4w7

Book Review

~

HOW TO MAKE MONEY PRACTICING LAW. by Volney F. Monn.

IS

a book first published in

1966. but the new Fifth Edition

IS

as up-ta-date as a new hairstyle.

The price of 512.95 seems high.

BEACH ABSTRACT & GUARANTY COMPANY REPRESENTING: COMMERCIAL STANDARD TITLE INS. CO. ABSTRACTS-ESCROWS TITLE INSURANCE 213 W. 2nd SI. Little Rock. Ark. FR 6-3301

,.

but every other page contains a nugget as to how to increase earnings from a law practice. The book

has been printing BRIEFS for over 35 years. May we be of service to you? 311 East Capitol Little Rock 375-1281

is a great refresher course, from

Ivar Publications. P.O. Box 1855. Los Angeles. California 90028. The author's main thrust - to have a zero accounts receivable

FOR SALE:

ments must be met. He clearly explains practical methods of securIng legal bUSiness and more ImfX>rtant. as to how to keep clients after original engagement. The sections on public relations cover Involvement With client, staff and other attorneys. These sections should be read and reread by every lawyer In public or private practice, Morin's statements are a

~.

Conference Room Furniture ARKANSAS BAR ASSOCIATION 400 West Markham Little Rock. Arkansas Phone: 375-4605 .

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unique blend of psychological pnnclples and personal experience. I do not agree With the entire outline for the operation of a successful law practice. but the author has some tned and proven stop and re-examine your own methods of operation and unless you are a successful genius, you will find some ideas to adapt into your own system. The cost of the book can be earned from better relations With your next client.

-Robert W. McMenamin Member Committee on Public Service & Information 0 Reprinted From Oregon State Bar Bulletin

May. 1974 lOS/July 1975/Arkansas Lawyer

~,

balance by the use of deposit fees - is intriguing. I cannot see thiS method working In all stiuatlons, but any progress would result In a higher collection ratio for fees charged. The author points out that equipment for a modern secretary station will probably cost

methods. The book Will make you

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I


Partnership Taxation In the Estate Situation -By Lawrence J. Lee

One of the often encountered but les~ ser understood problems facing those advising estates is how to handle the decedent's partnership Interests for income tax purposes. Assume a common situation: Decedent ("'D") IS a partner In Slip. Shod. Filch and Hacker ("SSFH"). attorneys. who report. for income tax purposes on the cash method and calendar year, D dies on July 1. To these basic facts other embellishments will be added to Illustrate the various nuances in partnership taxation, There are two basic issues: 1, What is reported on D's final IndIvidual Income tax return? 2. What does hiS estate or other successors In interest report on their tax returns? THE TAXABLE YEAR A. Decedent's Individual Return Three taxable years are involved: D's year lor individual reporting on form 1040: SSFH's year for information reportIng purposes on form 1065: and D's partnership taxable year, Generally speaking. the death of a partner does not terminate a partnership's taxable year 1 , The partnership's year continues both as to the surviving partners and the deceased partner. 2 Thus. as a general rule. SSFH's taxable year continues to December 31 (and renews itself on January 1 next succeeding and so on). D's interest as a partner is still reported on the calendar year. But D's individual taxable year for personal reporting of income does terminate with his death. D ceases to be a taxpayer on July 1 and hiS last year for Individual reporting is January 1 through July 1. Under partnership Income tax rules. D is required to include in his final short-year (January 1 through July I) his distributive share of SSHF's taxable income or loss for any year ending with or in D's taxable year. J But, since SSFH is on a calendar year, it has no taxable year ending with or in the period January 1 through July 1. Hence. 0 has no partnership income to report on hiS final short-year return. As will be explained below. this is good and bad. but mostly bad.

To Illustrate this further. change the facts a bIt so that SSFH's taxable year IS a fiscal year ended June 30 (which would be unusual since all partners here would presumably report on a calendar year basls).l If the fiscal year was so, then Os final Short-year return for January 1 through july 1 would Include D's distributive share of SSFH's taxable income or loss for SSFH's fiscal year just ended on June 30, On a current annual baSIS, 0 would pIck up his share of SSFH's IOcome lor ItS year July 1. 1973 through June 30, 1974. because that is a partnership year ended with, or in, D's IndivIdual taxable year,S The approach which keeps the partnership's taxable year alive applies. strangely enough. to two-person partnerships,6 It would be assumed that the survivor cannot be a partner with himself. but such IS possible for income tax purposes. B. The two-Person Partnership A two-member partnership does not terminate for Income tax purposes so long as the estate or other successor in Interest of the deceased partner continues to share in the profits or losses of the partnership.7 So long as the estate or successor in interest continues to receive payments from the partnership in any of the following forms: 1. guaranteed payments, usually in the form of salary continuation. where the decedent was and is entitled to a salary regardless of the profit or loss of the partnership: 2. distributive share of partnership In~ come, as where D's estate would continue to receive D's share of billed, but uncollected time or subsequently billed and collected time or a share of fees derived from clients or accounts which D had originated: or 3. payments in exchange for the deceased's interest In the partnership, as, for example. In exchange for D's capital In the partnership (hiS Investment In office furniture, fixtures, office machines, law library. etc.): the partnership continues and the partnershlp's taxable year runs ItS usual 12 month (52-53 weeki cycle.' The partnership IS terminated and its taxable year ends only when the enllre Interests of the decedent In the partnership are paid off, C. The Effect of Buy-Sell Agreements Suppose that upon D's death there was In force a buy-sell arrangement

whereby surviving partner Slip agreed to purchase D's partnership Interest. Reg. Section 1.706-1 (c) (3) (ivi states: "If. under the terms of an agreement existing at the date of death of a partner, a sale or exchange of the decedent partner's interest in the partnership occurs upon that date. then the taxable year of the partnership with respect to such decedent partner shall close upon the date of death." Under thiS rule, the conclUSions reached under Topic A-'"Decedenfs IndiVidual Return'"-change. Now. not only does D's Individual taxable year terminate. but also D's partnership taxable year ends (or. strictly speaking. the taxable year of SSFH with respect to D closes). What are the results?9 First. D's reporting year is January 1 through July 1. This final short year re~ turn includes D's other income. but now includes D's distributive share of SSFH's Income for the taxable period January 1 through July 1. As to D. it is as if SSFH's taxable year ended on July 1, which IS a partnership year which ends with or In D's short taxable year (January 1 through July 1). If D died on July 1. 1974. his final return would Include hiS share of SSFH's Income or loss for the period January 1. 1974 through July 1. 1974. Second. conSider the result If SSFH IS on a fiscal year ended June 30. In such a case, D's final return would include hIS share of SSFH's taxable Income or loss for SSFH's fiscal year ended June 30. 1974. plus one day of SSFH's Income. That one day would be the extremely short SSFH taxable year as to D, namely the start of SSFH's new fiscal year on July 1, 1974 (which would ordinarily run

Continued on page 110

Lawrence J. Lee is a member of Shimmel, Hill, Bishop & Gruender, P.C., of Phoenix, Arizona. SA (illinois), 1955; J.D. (Cornell), 1958; LL.M. (Georgetown), 1961. Trial Attorney, Civil Rights Division. Department of Justice, Washing~ ton. D.C., 1958-1960. Law Clerk to JUdge Ernest Van Fossan. U.S. Tax Court. 1960-1962. Member: American Bar Association (Chairman, Committee on Continuing Legal Education, Section of Taxation. 1970-1974); American Law Institute.

July 1975/Arkansas Lawyer/l09


Taxation, Continued from page 109

to June 30. 1975) but which ends as to D on July 1. 1974. since that IS the assumed date of D's death. The "sale or exchange" enVIsioned by the above Quoted rule does NOT Include any transfer of o's partnership interest by reason of Inhentance or testamentary dlSposltlon. 1o Further. the buy-sell arrangement must be wIth another partner or a stranger to the partnership and NOT with the partnership Itself. The buy-out cannot be funded with partnership assets. Compare here. for discussion purposes. the result achieved In the diSCUSSion of the two-person partnership (Topic 8 - "The Two·Person Partnership",. It was there observed that even a two-member partnershIp IS not terminated lor Income tax purposes so long as the decedent's estate or successors In interest is receivng a pay-out lrom the partnership. Obviously. the same rule applies if the pay-out is being made by a surviving ten-man partnership. This result is not different whether that pay-out is regarded as the liquidation of a deceased partner's interest in a partnership pursuant to the uniform partnership act or as being pursuant to a buy-sell agreement. Thus. if it is the partnership itself which is paying out pursuant to the buysell arrangement. the buy-sell arrangement does not terminate the partnership and the partnership's taxable year runs its normal cycle, But. as everyone knows. buy-sell arrangements are not carried out at the instant of death, It sometimes takes years before the estate or beneficiaries are paid-out under the terms of the agreement. What happens In the meantime? Assuming that the buy-sell rlrrangemenl IS not With the partnership itself. but with a stranger. the rule IS that o's partnership taxable year In respect of SSFH is terminated and for Income tax purposes. o IS no longer a partner. 1 t It wou Id seem that much depends on what the buy-sell agreement states. If, to take one IIlustrallon. It clearly states that O's Interest In SSFH terminates on July 1 - date of death - and that Mr. Slip immediately succeeds to hiS Interest effective that date. matters are fairly eaSily resolved. o's estate has gain or loss on the sale of D's partnership interest (which gain may in part be taxed as ordinary Income, see IRC Section 751). O. as Indicated above. picks up on hiS final return his share of SSFH's income or loss for the penod January 1 through July 1. Mr. Slip picks up the Income attributable to o's Interest which Slip purchased from july 2 until the end of SSFH's normal year, December 31. Presumably, the partners understood that Mr, Slip would be pIcking up extra 110/July 1975/Arkansas Lawyer

ordinary Income from date of death and the purchase price was adjusted for the ordinary Income tax Mr. SlIp would pay In taking over D's Interest. On the other hand. suppose a less precise arrangement. 0 IS expected to enJoy hiS proportionate share of SSFH's income or loss, such as it may be. as from billed but uncollected accounts, receipts from whIch are received after D's death. but to which 0 IS entllied. until Mr. Slip gets around to paying the purchase price to O's estate for o's partnership interest. The Income tax regulations slm· ply do not handle thiS Situation, ConSider. on thiS problem. the language contained In Reg Section 1.706-1 (C) (3) liv) quoted above: ··If. under the terms of an agreement existing at the date of death of a partner. a sale or exchange of the decedent partner's mterest In the partnership occurs upon that date "Occurs upon that date" means what? The agreement is effective as of the date of death? The literal closIng of the sale IS effected on that date? What IS obViously Intended IS that the buy-serl agreement becomes effective as of the date of death of the partner and has the effect of taking the decedent out of the partnership as of the date of death. However. In the Illustration cited. the arrangement was not so precise. Rather o's estate continued to draw hiS share of ordinary Income from SSFH although it was contemplated that Mr Slip. with reasonable dispatch, would purchase D's partnership Interest. Probably. as a practical conSideration, the estate and Mr. Slip Will walt until year end and effect the buy-out on January 1. A practical approach should be taken: (1) o's estate should report hiS dlstnbutlve share of SSFH 5 Income until his Interest is In fact purchased by Mr. Slip: (2) Mr Slip Will commence to pick up the Income attnbutable to 0'5 share of SSFH at the effective day of the purchase, The Internal Revenue Service IS not likely to question such reporting unless the ordinary Income is going untaxed, Of course, variOus interpretations and viewpoints can apply. For example. o's estate may regard the sale for all Intents and purposes as "done" on the date of O's death and treat all cash receipts (whether received from SSFH or Mr. Slip) as payments against the purchase price which the estate Will report as capital gain. ThiS leaves the burden of ordinary Income to either Mr. Slip or Mr. Slip and the other partners of SSFH. Such confusIon POints to the necessity that buy-sell arrangements must be preCisely drawn. The same practIcal approach must be taken If SSFH IS the purchaser, The Income attributable to 0'5 share of SSFH Will be picked up by the surviving part· ners. or not. depending on what the par-

ties have agreed rangement.

In

theIr buy-out ar-

D. Continuance of the Partnership Year Assume that no buy-sell arrangement applies. 0 simply dies, and the handling of his interest In SSFH must await a negotiated settlement. Unless o's death works a termination of SSFH. the followIng applies (which summarizes the preVIOUS diSCUSSion): 1. o's individual year closes and o's estate must make D's final return. 2. As to SSFH Income. o's final return Includes Income. or not. depending on the facts. If SSFH IS on a calendar year, o returns nothing. If SSFH IS on a fiscal year which ends at any time between January 1 through July 1. o's final return Includes D's share of SSFH's income for that fiscal year, but no share of income for any period of tIme between the end of such fiscal year and the date of D's death. 3. O's estate. or successor In Interest. su bstltutes for 0 as a partner for Income tax purposes and It reports the Income derived thereafter. Thus. If SSFH IS on a calendar year so that O. who died July 1. did not Include any of that current years Income Into hiS final return. O's share of Income for the calendar year ended December 31, IS reported by hiS estate (or successor In Interest). E. Death of Partner Terminates Partnership Where the death of a partner terminates the partnership. the partnership year terminates on the date of death for all partners. 12 Thus. II o's death effected a termination of SSFH. then SSFH's partnership year. assuming. ordinarily. a calendar year, IS January 1 through July 1 D's IndiVidual taxable year closes and so does hiS partnershIp year. SSFH's taxable year closes and thus It closes the partnership year for all the other partners (Mr. Slip et al.). ThiS IS good or bad. depending on the facts. The new SSFH (reconstituted after ils tax termination) may have a choice of a new tax year. Income may be pocketed Into a short year. But. if SSFH is a real estate partnership the resu It may not be a happy one. There may be loss of baSIS in the property. and the real estate becomes used thereby knocking out accelerated depreciation and perhaps the use of the component method. Ordlnanly, however. o's death will not terminate SSFH except under these circumstances: 1J 1. 0 IS the only active law partner so that SSFH's bUSiness IS discontinued and no part of any bUSiness. finanCial operation or venture of the partnership continues to be carried on by any of its partners In a partnership form.


2. 0 owns more than 50% in the capItal and profits of SSFH and his interest is purchased effective at the date of death by someone other than SSFH itself. 3. In a two-member partnership. if O's partnership interest IS immediately purchased by the surviving partner and 0 ceases to derive any pay-out from what was before hiS death - the partnership. REPORTING BY THE ESTATE OR SUCCESSOR IN INTEREST A. Income in Respect of Decedent The income which the estate or successor in interest picks up which is attributable to the decedent prior to his death is income in respect of the decedent under Section 691. 14 This has various effects in administermg the estate which will not be discussed here other than to make the point. For example. recalling the basic facts heretofore used. assume that SSFH is on the calendar year ended December 31, 1974. D dies July 1, 1974. Because SSFH's calendar year ended December 31,1974, does not end in or with o's short year. January 1 through July 1. 1974, D does not pick up his distributive share of SSFH's income in o's short year. Instead. o's estate (or successor in interest picks up that income effective December 31. 1974 and In doing so. the estate is picking up IRC Section 691 income in respect of the decedent. The tainted income is that part of the income attributable to January 1. 1974 through July 1. 1974: the balance of income for July 2. 1974 through December 31. 1974. is not tainted. B. Reporting by Successor As indicated by the example given in the preceding paragraph (Topic A "Income in Respect of Decedenf'l. 0 did not report income. but his estate was liable to. In the example given. this would be one full year of SSFH income to be reported by D's estate. As suggested at the outset of this paper. this is good and bad. This is good. for example. if 0 prior to his death had substantial ordinary income to be reported in his final short-year return. Shifting SSFH's income to the estate - another taxpayer - may have given both taxpayers a rate break under the graduated rates. On the other hand. 0 might have had extensive personal deductions (medical. etc.). and, indeed. might have been planning for the tax by the acquisition of tax shelter investments. Allor most of these deductions might be wasted on his tax return especially if his only income was SSFH source. The estate. having few. if any. deductions (and a distribution to gain the advantage of distribution deduction to beneficiaries might at that point be premature), will be hit with all the SSFH source income. To help mitigate what might otherwise be a bad result. Reg.

Section 1.706-1 (cl (31 (1111 prOVides as follows: (III) If a partner (or a retiring partner). In accordance with the terms of the partnership agreement. deSIgnates a person to succeed to hIS Interest in the partnership after his death. such designated person shall be regarded as a successor in interest of the deceased for purposes of this chapter. Thus. where a partner deSignates hiS widow as the successor In Interest. her distributive share of income for the taxable year of the partnership ending within or with her taxable year may be Included In a J0tnt return In accordance with the provisions of Sections 2 and 6013 (al (21 and (31. Few lawyers appreciate thiS planning mechanism. Note that deSignation of the successor in interest must be made In the partnership agreement. If it is silent on the appointment. then presumably all the probate law problems of a bequest in a non testamentary instrument come into focus. However. the designation in the partnership agreement is somewhat similar to the exercise of a power of appointment and this may be an approach to the probate law problems. if the Will is silent on the subject. Presumably a Will can be drafted to meet the problem. The reason this mechanism has not become fashionable is that it can be a dangerous weapon. Matters have to stay fairly static to avoid problems. The entire partnership interest must be disposed of by the decedent. This involves problems of balanctng bequests. The widow's inclusion into her income of the communIty half of the partnership's income to some degree solves the income tax problem. However. it can be a useful device. For example. if the decedent knows that one of his children, a music teacher. will never have a substantial income and such child is a beneficiary of a substantial portion of the estate anyway. it might be safe to designate the musician as the successor in interest to the partnership Interest thereby Shifting the final year's partnership income to the musician. In any event. to be effective. the designation or appointment as successor in interest must be contained in the partnership agreement and must actually assign to the successor each element of the decedent's interest in the partnership.15 It is not clear. for example. what the result is if the decendent"s capital interest is assigned to the widow. but the right to receive his distributive share of Income is assigned to a child. APPLICATION OF ABOVE RULES TO ALL TYPES OF PARTNERSHIPS The tax rules discussed above apply to general partnerships and to limited partnerships: the Code knows no distinction between the two types of partnerships.

However. In revieWing the literature on tax shelters and the use of limited partnerships. there IS always great concern as to the adverse tax results If the limited partnership IS termmated for tax purposes. The death of a partner does not terminate the partnership. and smce. generally speaking. the general partner owns only one or two percent of the partnership. there can be no shIft in 50% or more of the partnership Interests. 16 What then is the concern. for example. If the general partner dies? Those famIliar with partnership tax work appreciate that a lImited partnership succeeds. as such. and not as an aSSOCiation taxable as a corporation. only If the limited partnership lacks cerlain corporate characteristics. One characteristic reflecting partnership and not corporation is that the limited partnership terminates upon the death of the general partner (see A.R.S. Section 29320). But. under IRG Section 706. recallY if " ... the operations of the partnerships are discontinued and no part of any business. financial operation. or venture of the partnership continues to be carried on by any of its partners In a partnership." Assuming that the syndicate has but one general partner who is an indiVIdual. hiS death should terminate the partnership. Why? Because no "right think 109" limited partner would wish to continue the business of the syndicate as a partnership. To do so subjects them to general partner liability. IS It can safely be assumed for income tax purposes that the limited partners will do anything except operate as a partnership and. hence. the partnership will terminate as of the date of death" 1. Reg. Section 1.706-1 (c) (3) (i) 2. Ibid. 3. Reg. Section 1.706-1 (a) (1) 4. See Reg. Section 1.706-1 (b) (1) (ii) 5. Reg. Section 1.706-1 (c) (c) (ii) 6. Rev. Ruf. 54-55, 1954-1 G.B. 153 7. Reg. Section 1.706-1 (c) (3) (i) and Reg. Section 1.708-1 (b) (1) (i) (a) 8. Reg. Section 1.736-1 (a) (1) (ii) and (a) (6) 9. Reg. Section 1.706-1 (c) (3) (vi), Example (2) and Rev. Rul. 67-65, 1967-1 G.B. 168 10. Reg. Section 1.706-1 (c) (3) (iv) 11. Rev. Rul. 54-55, 1954-1 G.B. 153 12. Reg. Section 1.706-1 (c) (3) (i) 13. Reg. Section 1.708-1 (b) 14. Reg. Section 1.706-1 (c) (3) (v) 15. See Rev. Ruf. 68-215,1968-1 G.B. 312 (cf, Rev. Ruf. 68-195,1968-1 G.B. 3(5) and Rev. Ruf. 71-271, 1971-1 G.B. 206 16. Estate of Guy B. Panero, 48 T.G. 147 (1967) 17. Reg. Section 1.708-1 (b) (1) (i) 18. A.R.S. Section 29-307 19. There will usually be a very quick incorporation J ~ -~

July 1975!Arkansas Lawyer!111


PENSION REFORM ACT of 1974 A BRIEF REVIEW by George N. Plasliras -a member of the law firm of DAVIDSON, PLASTIRAS & HORNE. Ltd.. of Little Rock, one of the first legal professional corporations in Arkansas.

Symbolically on Labor Day. September 2. 1974, President Ford signed into law the Employee Retirement Income Security Act of 1974 (Public Law 93-406) which has been known popularly as the Pension Reform Act (" Act"). The Act. which is voluminous. makes complex and comprehensive changes in the rules under which an employee pension bene路 fit plan ("Pension Plan" or "Plan") is to be established and operated. The Act is designed (at the expenses of more rigid supervision) to cure certain abuses which have occurred in the past and to better protect the interests of the participants and their beneficiaries Some 01 the problem areas were: (1) loss of retirement benefits after long periods of employment because they were not vested; (2) loss of promised benefits resulting from inadequate contributions to the Pension Plan: and (3) loss of anticipated benefits when unscrupulous employers terminated their Pension Plan after they, the owners, received the bulk of the Plan's funds before the necessary funds had been otherwise accumulated in the Plan for the benefit of other participants and their beneficiaries. With the establishment of professional corporations in the 1960's. Pension Plans became increasingly popular and they were brought to the public's attention as the principal tax advantage. A qualified Pension Plan permits an employer to currently deduct its contribution while the employee defers the income until the benefits are remitted from the Plan. Further. income earned on in112/July 1975/Arkansas Lawyer

vestments by the Plan is not subject to an income tax or capital gains tax so that the Plan is permitted 10 accumulate tax-free income. Generally, favorable income tax treatment or lower tax rates are available to the retired participant when the funds are received because of a material reduction at retirement age in his income from wages, the extra exemptions and other favorable tax provisions. In addition, the Pension Plan receives favorable estate tax treatment. As a practitioner you have undoubtedly been bombarded with a mass of literature concerning the Act and feel a need for at least a nodding acquaintance wifh the Act. Hopefully. if the reader can keep from nodding, such an acquaintance can be derived herefrom. An attorney's role in Pension Plan matters may be varied. He may be a shareholder in a professional corporation and wear the hat of an employer; a professional employee receiving benefits as an employee-participant; or he may fulfill the traditional role as counsellor of the regulator. ernployer or employee. Major topics under the Act include: (1) Reporting and Disclosure: (2) Participatin9 and Coverage: (3) Vesting: (4) Funding: (5) Fiduciary Responsibility: (6) Administration and Enforcement; (7) Self-employed Individual Plans: (8) Individual Retirement Accounts ("IRA"): (9) Limitations on Contributions and Benefits; (10) Lump sum Distributions; (11) Salary Reduction Plans; (12) Plan Termination Insurance; and (13) Pre-emption of other Laws. For convenient reference these are reviewed in that sequence. The Act will be clarified by future regUlations and rulings, which will undoubtedly modify some of the comments made herein. In addition to the IRS. the Department of Labor has certain supervisory and administrative responsibilities under the Act. The Act substantially affects every Pension Plan now in effect in the United States and will have a significant impact on decisions as to future Plans.

Title I of the Act contains labor law provisions which apply generally to employee benefit plans (in addition to Pension Plans, these include employee welfare benefit plans, such as hospitalization or medical reimbursement plans which are not discussed herein) of employers or employee organizations established in or affecting interstate commerce and replaces the Welfare and Pension Plan Disclosure Act. Title II contains tax law provisions which apply to tax-qualified plans. Title III provides for jurisdiction. administration and enforcement. Title IV establishes the Pension Benefit Guaranfee Corporation ("PBGC") and provides for plan termination insurance program for certain Pension Plans. Certain provisions of the Act are applicable to an individual account plan popularly known as a "defined contribution plan" and others to a "defined benefit plan." The former provides for individual accounts for the participants and include profit sharing. money purchase pension plans. so-called target plans.


stock bonus plans and thrift and saving plans; the latter is a pension plan other than a defined contribution plan. In general. the Act does not apply to governmental plans. non-electing church plans. plans maintained solely to comply with workmen's unemployment. disability or compensation laws. plans maintained outside the United States pri~ marily for the benefit of non-resident aliens. employee welfare plans. excess benefit plans. unfunded deferred com· pensation arrangments. plans es· tablished by labor organizations. or plans of certain other organizations. Effective dates under the Act vary with the different provisions depending upon whether the Pension Plan was effective on January 1. 1974 or not however. all provisions become effective no later than plan years beginning after December 31. 1975. REPORTING ANO DISCLOSURE Each Plan is now required to report annually certain financial and actuarial data to the Secretary 01 Labor. The Secretary of Labor is granted the authority to prescribe forms for reports to him paralleling similar authority already available to the Secretary of Treasurer. An audited financial statement will be required: and in addition. defined benefit plans must have a certified actuarial re· port. Other reports are required at the time of a Plan's termination. For plans with fewer than 100 participants. simplified reports may be authorized. Contents of the annual reports are specified in the Act. Each Plan is to retain on behalf of its participants an independent qualified public accountant who annually is to prepare an audited financial statement of the Plan's operations. An enrolled actuary must prepare an actuarial statement on an annual basis for every plan subject to the funding re~ quirement of Title I. The actuarial state~ ment generally is to indicate the present value of all plan liabilities lor non-forfeitable pension benefits. Each administrator of a Pension Plan is required to disclose to each participant and each beneficiary by furnishing a summary plan description (the "Sum· mary") written in a manner calculated to be understood by the average Plan participant or beneficiary (whatever that means). The Summary is to include all important Plan provisions. identification of the persons responsible for Plan investment or management. a description of benefits. the circumstances that may result in disqualification or ineligibility and the procedure to be followed in presenting claims for benefits under the Plan. If there have been amendments to the Plan. an up-dated Summary is to be furnished to participants every five

years: and in any event. a new Summary is to be furnished every ten years. The annual report and Plan documents are to be made available for examination by participants or benefi~ ciaries by the Plan adm inistrator who should provide reasonable access to these reports and documents at the principal office of the Plan and other places as necessary Each participant also is to be furnished an annual schedule of Plan assets and liabilities and receipts and disbursements as submitted with the annual report. Upon written request. the Plan admini~ strator is required to furnish a complete copy of the comprehensive Plan description. the latest annual report and other instruments under which the Plan is established and operated. total accrued benefits and the nonforfeitable pension benefit rights which have accrued to the participant or beneficiary. No more than one such request per year is permitted. When a participant of a Plan terminates his employment during a Plan year. he is to be furnished a copy of the statement of his deferred vested benefits which will also be furnished to the Social Security Administration. PARTICIPATION AND COVERAGE Generally an employee cannot be ex· eluded fror.. participation in a Plan if he has attained the age of 25 and has had at least one "Year of Service." The Act permits a three-year service requirement if the Plan provides full and immediate vesting for all participants. A defined benefit pension plan can exclude an em· ployee from participation who is hired within five years of attaining his normal retirement age (normally 65) under the Plan. A "Year of Service" means a twelve· month period during which the em~ ployee has completed at least 1.000 hours of service measured from when the employee enters service. The em~ ployee would then be admitted to the Plan within six months of his anniversary date of employment or by the beginning of the first plan year following his first anniversary date. whichever occurs earliest. The Plan would not require admission of an employee if he "Separates from Service" before his applicable ad· mission date for participation. "Separation from Service" does not mean temporary absences due to vacation. sickness. strike or seasonal layoff. If a seasonal or part-time employee has at least 1.000 hours of service during a Plan Year. he may not be excluded from the Plan. In the case of seasonal in· dustries where the customary period of employment is less than 1.000 hours. the term Year of Service will be determined by Department of Labor regulations.

A Plan is permitted to exclude em· ployees hired pursuant to collective bargaining for purposes of anti-discrimina~ tion rules where there is evidence that retirement benefits have been the subJect of good·faith bargaining. Alas. there is a built·in employer benefit from collec· live bargaining. If union employees are covered under the Plan. then benefits or contributions must be provided for them on a non-discriminatory basis. VESTING An employee's accrued benefit is vest· ed (i. e.. nonforfeitable) when a participant or his beneficiary has a legally enforceable claim against the Plan to receive suCh benefit. either immediately or at some time in the future. In a defined contribution plan a participant's accrued benefit is the amount in his individual account under the Plan. In a defined benefit plan. a participant's accrued benefit is determined under the Plan and is expressed either in the form of an annual benefit commencing when he obtains his normal retirement age specified in the Plan or as the actuarial equivalent thereof. That portion of a participant's accrued benefits not vested is subject to forfeiture. A forfeiture of the employer-derived accrued benefit arises when a participant who has Separated from Service incurs a one·year Break in Service (500 or less hours of service). However. a participant who completes more than 500 hours of service. but less than 1.000 hours of service the following year. does not have a Break in Service. but neither is he a participant. For lack of a better description. such as employee's hours of service may best bedescribed as an ''In·Between Service Period." A defined contribution plan may provide that Years of Service after a one~ year Break in Service are disregarded for the purpose of determining an employee's vested right to his pre-break employer-derived accrued benefit. The Act provides full and immediate vesting of all benefits derived from employee contributions. With respect to employer contributions. a Plan must satisfy one of three alternate vesting schedules. In setting up a Plan. the alternates which an employer may elect are: (1) 100% vesting after 10 Years of ServIce: (2) 25% of the benefits vest after 5 Years of Service. 5% vests alter each of the next 5 years and 10% vests after each of the next 5 years: or (3) 50% vests when an employee has completed at least 5 Years of Service. and age plus service equals at least 45 or. if earlier (after 10 Years of Service) an additional 10% vests after each subsequent Year of Service. Continued on page 114

July 1975/Arkansas Lawyer/113


Act, Continued from page 113

However. the IRS retains certain rights to acceterate vesting If such a schedule diSCriminates in favor of employees who are officers. shareholders or highly compensated. Generally. vesting provisions are to apply to all Years of Service of an employee with an employer. A Year of Service has the same meaning for vesting as it does for participating. Preparticipation service and service performed before the effective date of the Act are included lor purposes of determining the employee's place on the vesting schedule. However. the following services need not be included for vesting purposes: (1) service for which an employee declined to make contributions if required by the tan: (2) service with an employer for a period for which the employer did not maintain the Plan or a predecessor Plan; (3) service of less than 1.000 hours in a year; and (4) In some instances. service performed prior to age 22. An employee's right to benefits attributable to his own contributions may never be forfeited. An emptoyee's right to accrued benefits attributable to his employer's contribution. once vested. are not forfeitable except for a limited number of instances. If a Plan terminates or there is a complete discontinuance of contribution under the Plan, full vesting of all accrued benefits is required. Certain other provisions have been added by the Act which pertain to a participant's accrued benefits. If a Plan provides for a retirement benefit in the form of an annuity. the participant has been married for the one-year period ending on the annuity starting date. and the parIIclpant does not elect otherwise, then the Plan must provide for a joint and survivor annuity. The participant must be supplied with a written explanation in laymen's language as well as a dollar and cents illustration of his election to take or waive the joint and survivor annuity. All Plans must have a spendthrift provision: however. it may provide that after a benefit is in pay status. an employee may make a voluntary revocable assignment not to exceed 10% of any benefit payment (garnishment and levy is not considered a voluntary assignment). Increases in Social Security benefits may not be used to reduce benefits to participants that are already in pay status. A Plan is generally required to provide for commencement of benefit payments not later than 60 days after the end of the plan year in which the latest of the following events occur: (1) The participant attains age 65 or an 114/July 1975/Arkansas Lawyer

earlier normal retlrement age specified In the Plan: (2) Ten years have lapsed from the lime the participant commenced participation In the Plan; or (3) The participant terminates hiS service with the employer FUNDING Once an employee becomes a participant. the employer must contribute to the Pension Plan on his behalf which is known as funding. Funding may be noncontributory. i. e.. the employer pays all the cost: it may be mandatory, i. e" an employee is required to contribute in addition to the employer: or it may be voluntary. i. e.. an employee may voluntarily contribute on his own behalf. The new funding requirements apply to defined benefit and money purchase pension plans but not to profit sharing or stock bonus plans. Money purchase pension plans and target plans that maintain individual participants accounts are exempt from the funding standards. except when the required annual contribution is not made. Each Plan subject to the new funding requirements must maintain a "funding standard account" as a vehicle for funding. In addition to funding current costs. the employer must amortize each year a portion of past liabilities, as yet unfunded. starting immediately. For plan years beginning after January 1, 1975. contributions made after the close of the plan year may relate back to that plan year for purposes of funding if the contributions are made within 2 1/2 months after the close of that plan year. FIDUCIARY RESPONSIBILITY A new federal fiduciary standard IS established to protect against defalcation or other misuse of pension funds. Title I applies standards and remedies similar to those of traditional trust law to govern the conduct of fiduciaries. Title II applies an excise tax on disqualified persons who violate the new prohibited transaction rule. Each fiduciary under the Act is now subject to certain standards. requirements, limitations. and prohibitions which include: (1) a "prudent man" standard: (2) the requirement that all Plan funds be used for the exclusive benefit of the employees. (3) a diversification requirement. (4)a limitation on the purchase of employer securities and employer real properties, (5) certain prohibited transactions, and (6) certain other additional prohibitions. There are some exemptions to the above. provided notice thereof is given to all interested parties. A fiduciary with respect to a Plan is a person who exercises any authority or control in the management or disposition of Plan assets or any discretionary

authority In the management or admlnlstratlon of the Plan. or who has the authority or re.:..ponslbility to render investment adVIce for a fee or other compensation. The term applies to plan sponsors (generally employers), plan admlnlstrators. plan trustees. Investment managers and Investment adVisors and may apply to others as well. The Act specifically prohibits Plan fiduciaries and any "party路in-interest" from engaging in certain transactions involving the direct or indirect sale. exchange or lease between the Plan and a "party-in-interest" of property. the loaning of money or other extension of credit. the furnishing of goods. services or facilities. the transferring of any Plan Income or asset. or the uSing of plan income or asset. A "party-in-interest" means any fiduciary (including any administrator. officer, trustee or custodIan, counsel. employee or a Plan. a person providing services to a Plan. the employer. the employee organization. a relative of these persons. and an employee. officer. director of 10% shareholder of such persons. Strict standards are established for any person who is a fiduciary and willful violators are subject to fine and imprisonment. (Fiduciaries may not be re路 tieved of their obligations and existing exculpatory agreements are void. To the extent permitted by law, however. certain specified fiduciary obligations may be delegated to others. White a fidUCiary may be insured against potential personal liabilities for Plan losses, such Insurance may not be acquired with Plan assets. The flduclary or the Employer may purchase such insurance. The Act generally requires every fiduciary of an employee benefit Plan and every person who handles funds or other property of a Plan to be bonded. A party-in-interest who has engaged in a prohibitive transaction IS subject to a tax of 5% of the amount involved in the transaction per year and a second tax of 100% is imposed if the transaction is not corrected after notice that the 5% tax is due. ADMINISTRATION AND ENFORCEMENT In general. the Secretary of Labor has the responsibility for the administration of Title I of the Act. and the Internal Revenue Service has such responsibility for Title II. Both have a Significant and appropriate role in the enforcement of the participation, vesting and funding standards. There are general guidelines for the coordination of administration between both departments. The Secretary of Labor may bring action for breach of fiduciary responsibility or to enjoin any act or practice which violates provisions under Title I or to ob-


taln any other appropriate relief to enforce any provisions of that Title. The IRS retains the administrative responsibility for Initial determination of whe路 ther a Plan qualifies for the special tax benefits: and for the later determination of whether a Plan continues to qualify for the special tax benefits once operatIonal.

The Act further provides a procedure for obtaIning a declaratory Judgment from the U S. Tax Court with respect to the tax-qualified status of an employee benefit plan effective for petitions filed more than one year after the date of enactment. A participant or beneficiary may bring a CIVil action against any person who interferes with hiS rights which are protected under the Act. In addition such person may be subjected to a fine of 510.000. one year imprisonment or both. Civil action may be brought by a participant or beneficiary to recover benefits due under the Plan. to clarify rights to future benefIts or for relief from breach of fiduciary responsibility. Any person who willfully violates any provision of Title I relative to reporting and disclosure may be subjected to a fine of $5.000. one year imprisonment or both. If a Plan administrator fails or refuses to furnish to a participant or a beneficiary such information as is required. the administrator may be personally liable to the participant or the beneficiary lor up to $100 per day Irom the date 01 the failure or refusal. A Court may order such other relief as it deems proper.

SELF路EMPLOYED INDIVIDUAL PLANS (HR 10 PLANS) The Act Increases the maximum deductible contribution on behalf of selfemployed individuals to the lesser of 15% of earned income or 57.500. The same provision is made with respect to deductible contributions on behalf of Subchapter S corporation shareholderemployees. In addition to the percentage limitalion. not more than 5100.000 at earned income may be taken into account. Self-employed persons (but not shareholder-employees) are permitted to set aside up to 5750 of earned income a year wIthout regard to the percentage of limitation. Upon the issuance of regulations by the Treasury Department. self-employed persons may convert the 15%/$7.500 limitation contributions into approximate equivalent limitations on benefits which individuals can receive under a defined benefit plan. A 6% excise tax is levied on excess contributions to plans for self-employed. The tax on premature distributions was increased to 10%.

INDIVIDUAL RETIREMENT ACCOUNT ("IRA") An individual who is not an active partlClpant In another qualified retirement plan is permitted to establish his own Plan In the form of an IRA account for the most part. the IRA is treated for lax purposes comparable to other Plans. The Individual may make contributions Into such Plan himself or contributions may be made by hiS employer. Husbands and wives are eligible Individually and each can make contributions to their own IRA. The maximum deduction IS the lesser of 15% of earned compensation or $1.500. The assets of an IRA may be Invested in a trusteed or custodial account with a bank. savings and loan. credit Union. annuity contract or certain life Insurance endowment contracts The deduction for IRA contributions is available to taxpayers starting in 1975. Funds in the account accumulate taxfree until distribution commences no earlier than age 59 1/2 nor later than 70 1/2. Distributions received by the participant or his beneficiary are fully taxable as ordinary income and are not subJect to the federal estate tax exemption. Rules on creation of the individual retirement accounts. annual contributions; and penalties for excess contributions, premature distribution and improper accumulations are comparable to HR-lO plans. One of the most flexible provisions of the Act permits a terminating employee with a vested accrued benefit under either a corporate Plan or HR-10 Plan to transfer such funds into an IRA ("rollover"). If this transfer is made within sixty days alter funds are available. no income tax is payable on the rollover. A taX-free rollover may also be made from an IRA to a subsequent employer's qualified Plan If the new employer's Plan permits It. Finally. rollovers are permitted from old to new IRA but only once every three years.

LIMITATIONS ON CONTRIBUTtONS AND BENEFITS In the case of a defined benefit penSion plan. the hIghest annual benefit that can be paid from a qualified plan to a participant IS not to exceed the lesser of 100% of the partIcipants average compensation m his high three years of employment or 575.000. Both of these ceilings may be adjusted to reflect cost of living increases. This adjustment is not available for HR-10 plans or IRA. In the case of a defined contribution plan. such as profit sharing or money purchase plan, the annual additions for the year cannot exceed the lesser of 25% of the participants compensation of $25.000 (subject to annual cost of living

Increases). The term "annual additions" mean the sum of (1) the employer's contribution. (2) the lesser of (a) 1/2 of all the employee's contribution or (b) the employee's contribution in excess of 6% to other compensation and (3) any forfeitures which are added to the employee's account. Annual additIons do not include rollovers from a qualified plan or mdlvldual retIrement account. A specIal formula IS provided for the IndiVidual who is covered by both a defined benefit plan and a defined contribution plan, LUMP-SUM DISTRIBUTIONS EffectIve for distributions paid in taxable years beglnOing after December 31. 1973. new tax treatment applies to the lump-sum portion of a "total distribution." The pre-1974 portion of the taxable distribution which (excluding employee contrlbUtlons. net unrealized appreciation on any distribution of employer stock and guaranteed annuities) is taxed as long-term capital gain. To determine the pre-1974 portion. a simplified method has been introduced. using the ratio of the member's years of participation prior to 1974 to his total participation. The balance at the lump sum is the post-1974 portion and is to be treated as ordinary income except that it is taxed at a lower tax rate based on a 10-year averaging device and uses the tax rate schedule for unmarried taxpayers. SALARY REDUCTION PLANS Some employees took a voluntary reduction in salary in order for their employer to establish a Pension Plan. and a question was raised whether such reductions should be treated as income to the employees In the current year. The Act sanctions as employer contributions. salary reduction plans prior to June 27. 1974 and will continue to do so at least through December 31. 1976. If the Plan was not In existence on June 27. 1974. then contributions are to be treated as employee contributions (income to the employee) until January 1. 1977 or until new regulations by the Treasury Department are preSCribed. PLAN TERMINATION INSURANCE All qualified defined benefit plans except plans 01 professional seNiee employers haVing twenty-five active participants or less under the Act are required to participate In a program of plan termination insurance which is administered by a new government corporation. PBGC. to be established within the Labor Department. Initial premiums are minimal and in subsequent years the PBGC may set premiums using the per capita rate base. the unfunded insurance benefit rate base. the total insured beneContinued on page 104

July 1975/Arkansas Lawyer(.1l5


FALL LEGAL INSTITUTE DOWNTOWN MOTOR LODGE

OCTOBER 16-18

STUDENT UNION BUILDING UNIVERSITY OF ARKANSAS

FAYETTEVILLE

The 1975 Arkansas v. Texas game has been moved back to Fayelleville for Saturday afternoon, October 18th. The 1975 Fall legal Institute will be held in Fayelleville, October 16-17. The Special Meeting of the House of Delegates is scheduled for Saturday morning, October 18th. The Institute will cover the new Arkansas Criminal Code, effective July 1, 1975. The Downtown Motor lodge will be the Institute's headquarters. The program sessions will be held in the Student Union Building of the University of Arkansas. Kindly make your room reservations right away at one of the many motels in Fayetteville game, accommodations will be hard to find later on.

Arkansas ys. Texas Saturday, October 18, 1975 116/July 1975/Arkansas Lawyer

with the Texas


lfn memoriam Be strong and of good courage, do not fear or be in dread of them; for it is the Lord your God who goes with you; he will not fail you or forsake you. -Deuteronomy 31:6 CARL E. lANGSTON

of the Pulaski County Planning Board.

ber at the Northwest Arkansas Regional

1913-1975

Besides his son and partner, he is survived by his wife, Mrs. Muriel Wade

Airport Committee. Mr. Crouch served as Arkansas Bar Association Vice-President in 1964-65,

Carl Eugene langston. aged 62, a litin 1970 for Little Rock Municipal Judge. died May 10. 1975. Mr. Langston was born at Coal Hill (Johnson County). and was graduated in 1930 from Coal Hill High School. He re-

Langston, of Little Rock. who is court reporter for Pulaski Chancellor Darrell Hickman; a daughter, Mrs. C. Allen McKnight of Little Rock; two brothers, Porter langston of Coal Hill and William Edward Langston, Jr.. of San Diego,

ceived a bachelor's degree in 1934 from

Cal.; four sisters. Mrs. Florence Smreker

the College of the Ozarks at Clarksville. In 1937 he was graduated cum laude from Notre Dame University School of Law, and a year later, he received his

of Fort Smith. Mrs. Ora Mae Marvel of Clarksvilie, Mrs. Violet Matthews of EI

tle Rock lawyer who ran unsuccessfully

Paso, Texas. and Mrs. Cora Lee Marvel

of Coal Hill.

COURTNEY C. CROUCH

Lewis. For the next two years he was in

1912-1975

partnership with Fred A. Isgrig. He later

Courtney C. Crouch, aged 62, of Springdale, past president of the Arkan-

served as assistant attorney general during the administration of the late Guy E. Williams. Mr, Langston was commissioned as an ensign in World War II and was assistant to the executive officer of Radio

Wahiawa at Oahu, Hawaii, where the Japanese radio code was broken. He remained active in the Naval Reserve after

World War II, and retired from the Re-

sas Bar Association and a past member of the Arkansas Bar Association's Board

of Examiners died May 7, 1975. 80m at Collins, Missouri, he was graduated from the University of Mis-

souri Law School at Kansas City in 1933 and had practiced law in Springdale since then. He was a trustee of the Arkansas Law

serve as a commander in 1970. He was a former commander of the Reserve Offi-

School Foundation. a member of the

cers' Training School at Little Rock.

Southwestern Legal Foundation at Dallas, and a special justice of the Arkansas Supreme Court. Mr. Crouch was a member of the First United Methodist Church in Springdale, and a member of the Church's Board of

He was a member of Trinity Masonic

Lodge 694, the Arkansas Consistory, Scimitar Shrine Temple and the Royal Order of Jesters. He was a former chairman of the Offi-

cial Board of Highland United Methodist Church. In 1946 Mr. Langston entered in to partnership with the late Municipal Judge Quinn Glover. When Judge Glover died in 1970, Mr. langston ran unsuccessfully to fill the unexpired term.

Since Judge Glover's death, Mr. Langston had been in partnership with his son, John Langston, in the firm of

Langston and langston. He was a member of the Pulaski County, Arkansas, and American Bar Associations, and was a former member

Crouch, Jr., of Hot Springs, Dr. Michael E. CrOUCh of Minnesota, and James E. Crouch of Springdale; a sister, Mrs. J. E. Nanney of Tennessee, and two grandchildren.

Juris Doctor degree from the school.

From 1938 to 1941. Mr. langston practiced law in partnership with Troy W.

and President in 1965-66; he served on the Executive Committee for a number of years, and held various committee chairmanships; and was an Arkansas Bar Foundation Fellow and Patron. Survivors include his wife. Mrs. Marie Loftis Crouch: three sons. Courtney

executive committee and trustee of the

Stewards. He was a member of the

Springdale Memorial Hospital Board of Trustees.

J. CllB BARTON 1903-1975

J. Clib Barton, well-known attorney, businessman and civic leader in Fort

Smith for many years. died April 22, 1975, at the age of 71. Mr. Barton was currently chairman of

the board of Superior Federal Savings and Loan Association. He was the organizer and a past president of Harbour House. Inc.. and was active on the Board there. He began his law practice in Fort

Smith in 1927, joining his uncle, G. C. Hardin, in the firm of Hardin and Barton. Active in charitable projects, he was a

past member of the Sebastian County Welfare Board, Red Cross and was chairman of Doss Cutton Charitable Foundation and of Godfrey-Thomas Charitable Foundation.

He was elected mayor of

Mr. Barton was a past vice president of

Springdale at age 23 in the 1930's. and was believed to be the country's young-

Alma Canning Co.. Good Canning Co. and Charleston Canning Co., and was

est mayor at the time.

cnairman of the Young Democrats in

He was past president of the Springdale Rotary Club and was a member of the Chamber at Commerce Board of

Fort Smith 1927-34. He was a 32nd Degree Mason, a past

Directors for many years. He was past chairman of the Washington County Democratic Central Committee. Mr. Crouch was a director of the First

past board member at First United Methodist Church, and a member of Hardscrabble Country Club.

National Bank at Springdale and a mem-

Continued on page 118

member of the Chamber of Commerce,

July 1975!Arkansas lawyer!117


Memoriam, Continued from page 117

Mr. Barton had received the Silver Beaver Award from the Boy Scouts. He was an Arkansas Bar Foundation Fellow. Mr. Barton leaves his wife, Wilma; a daughter, Mrs. Patsy McDonald of Newport: two sons, the Rev. John Barton, Jr., of Hot Springs. and James of Walnut Creek. California, and seven grandchildren.

NICHOLAS J. GANTT, JR. 1879-1975 Nicholas J. Gantt, Jr.. aged 95, of Pine Bluff. who practiced law in that city for more than 70 years. died April 28. 1975. Mr. Gantt was named the State's Outstanding Lawyer in 1961 by the Arkansas Bar Association and the Arkansas Bar Foundation. He was president of the Arkansas Bar in 1940 and a past president of the Coun· cil of Past Presidents of the Association. The Past President's Room at the Arkan· sas Bar Center at Little Rock is named for him. and he was an Arkansas Bar Foundation Fellow and Patron. Born at Magnolia, he was the son of the late Nicholas J. and Laura Browning Gantt. He was graduated from Hendrix College in 1898 and was named a Distin· guished Alumnus of the College in 1973. Mr. Gantt received a masters degree from Vanderbilt University at Nashville, Tenn. in 1901 and a law degree from Vanderbilt in 1903. He was admitted to the bar in 1903, and began the practice of law in Pine Bluff. and continued to do so until his death. In 1911, he formed the law firm that is now known as Coleman, Gantt, Ramsay and Cox. Mr. Gantt was City Attorney at Pine Bluff from 1929 to 1932 and was city at· torney for Altheimer for a number of years. He was a member of the Jefferson County Bar ssociation and a fellow of the American College of Probate Counsels. Mr. Gantt was a member of the Jeffer· son County Board of Health, to which he was first appointed in 1925. He was a past president and member of the Board of the Reliable Abstract and Title Company in Pine Bluff, a senior vice president and member of the Board of the First Federal Savings and Loan Association of Pine Bluff, a former president of the Board of Directors of the Coca-Cola Bottling Company of Southeast Arkansas and a member of the Board of the Ar· kansas Oak Flooring Company. Mr. Gantt was a member of First United Methodist Church in Pine Bluff. and selVed on its Official Board for many years and was on the Building Committee when the present church was built. 118/July 1975/Arkansas Lawyer

He was a co-founder of the Quawpaw Masonic Lodge No. 730, the first potentate of the Sahara Shrine Temple in Pine Bluff, a member of the Lafayette Chapter No. 7 of the York Rite Bodies, the Damascus Commandery No.1. the Royal Order of Jesters and a charter member of the Red Cross of Constantine No.

ing to his parents' home for about a year before passing a U.S. Civil Service exam and taking a position in Washington. D.C. where he attended law school and worked. He began practicing law in Harrison in 1926 as a junior partner with Virgil Willis and then opened his own law office in 1926. Later he served in partnerships with Shouse and Rowland and with W. J. Cotton. He was a member of the Harrison Lions Club and the Boone County Bar Association and Arkansas Bar Association and American Legion. Survivors inClude hIS wife. Mrs. Clara Hubbard Murray: a son, Noland Patric Murray, of Conway: three brothers, Roy of Kansas City, Mo., Denver of Rogers, Regal of Dallas. Tex.: two sisters, Mrs. Olive Ireland of Globe. Ariz., Mrs. Ernest Jackson of Ft. Smith: and two grandchildren.

29. Survivors include his wife, O'Donley Gantt.

Mrs.

WOODY MURRAY 1895-1975 Woody Murray, aged 79. a retired Cir· cuit Judge of the 14th Judicial D,strlct and Harrison attorney for almost 50 years, died March 3. 1975. Mr. Murray had been in politics and the practice of law all his adult life. He was Harrison City Attorney and City Clerk for 12 years. selVed two terms in the Arkansas House of Representatives from 1934 to 1937. was Circuit Judge of the 14th JudiCial District for 16 years, from 1951 to 1966. He was active in the First Baptist Church in Harrison for over 40 years and was Sunday School teacher of the Men's Bible Class in the Church for about four decades. He received his BA and LLB degrees from Southwestern University Law SChool in Washington, D.C.. and passed the Arkansas State Bar examination. He was born October 28, 1895. at Murray, the Newton County community about 12 miles South of Jasper. which was named after hiS family. In World War I. he spent six months in the Army Air Corps at Vancouver Barracks, Washington, and was honorably discharged in December of 1918. return-

J. H. MARTIN 1887-1975 J. H. Martin died October 21. 1973, at the age of 82. Mr. Martin was born in Missouri, was an ex~school teacher, worked for the Rock Island Railroad for a number of years. and later became a Certified Put>lic Accountant in Little Rock. He was associated with his brother. E. C. Martin of Kansas City, under the firm name of Martin & Martin of Kansas City and Little Rock. as a firm of Certified Public Accountants. Mr. Martin was a member of the Ar~ kansas Bar Association. He was never married. ../"

-.

MEMORIAL GIFTS ··It is more blessed to give than to receivc"-Ifowever, a member profits both ways "'ith a memorial gift to the Arkansas Bar Founda· tion. One's gift is a beautiful way of honoring a former colleague. The family must be most aPI)rcciative of such remembrance. The gift is noted in the Foundation's Memorial Book and, of course, is tax deductible. Memorial gifts may be sent to the Arkansas Bar Ccnter. The memorial card (below) of the Arkansas Bar Foundation is formal and is I)romluly delivered "I)on receipt of the memorial gift. WE ACKNOWLEDGE WITH GRATEFUL APPRECIATION THE RECEIPT OF A GENEROUS MEMORIAL GIFT FROM

0'

IN MEMORV OF THE LATE

.':1",{,

. (>/,..;{n nJ,oJ ,-:1t3a,.. .~r.u n'k,lt61" LITTLE ROCK. ARKANSAS

'-


ARKANSAS MODEL JURY INSTRUCTIONS (CIVIL) -Revisions Resulting from Act 367 of 1975Prepared by the Arkansas Supreme Court Committee on Model Jury Instructions (Civil) Henry Woods, Chairman

AMI 612 (Revised 1975) ASSUMPTION OF RISK-GENERAL _ _ _ _ contends that assumed the risk of his own (injuries) (damages). To establish that defense, has the burden of proving each of the following propositions: First: That a dangerous situation existed which was inconsistent with the safety of ( ) (and) ( 's property). Second: That knew the dangerous situation existed and real_ ized the risk of (injury) (damage) from it. (In determining whether knew of the dangerous situation and realized the risk of (injury) (damage) from it you may take into consideration whether the danger was (open and) obvious.) Third: That voluntarily exposed himself to the dangerous situation which proximately caused his claimed (injuries) (damages). NOTE ON USE If it is contended that the plaintiff's claim is barred or diminished by his having assumed the risk of the negligence of someone other than the defendant. it is recommended that the case be submitted on interrogatories. See fifth paragraph of Comment. See AMI 613 for assumption by passenger of risk of driver's intoxication. COMMENT By a 1975 legislative enactment. the common law defense of assumption of risk is no longer a complete bar in an action for damages. Act 367 of 1975. Acts of Arkansas; Ark. Stat. Ann. Section _ _ . Conduct which constitutes assumption of risk is now. like negligence, embraced within the concept of "fault" and therefore is to be compared with any fault on the part of those parties from whom recovery is sought. See Chapter 21 and AMI 2115. For a discussion of the distinctions between assumption of risk and contributory negligence see Prosser. Law of Torts. Section 68 (4th Ed. 1971).

Although the doctrine of assumption of risk is generally applied in employeremployee cases, it is a distinct principle of law which is also applicable in other situations. Bugh v. Webb. 231 Ark. 27. 328 S.w.2d 379. 84 A.1.R.2d 444 (1959); Haynes Drilling Corp. v. Smith. 200 Ark. 1098. 143 S.w.2d 27 (1940). Knowledge and appreciation of the danger have been emphasized as importan elements of this defense. Mercury Mining Co. v. Chambers, 193 Ark. 771. 102 S.w.2d 543 (1937); Carroll v. Lanza, 116 F.Supp. 491 (ED.Ark.19531. affirmed in part and reversed in part. Lanza v. Carroll. 216 F.2d 808 (8th Cir. 1954). reversed 349 U.S. 408. 75 S.Ct. 804. 99 L.Ed. 1183 (1955). However. it has long been recognized in the employeremployee cases that "the servant assumes ordinary risks and dangers, including those hazards known to him and those which are open and obvious". Lee v. Pate, 198 Ark. 723. 131 S.w.2d 8 (1939); Hall v. Patterson. 205 Ark. 10. 166 S.w.2d 667 (1942). The use of the phrase "in the exercise of ordinary care should

have known" In paragraph "Second" appears to be justified by the opinion in Goodin v. Boyd-Sicard Coal Co.. 197 Ark. 175. 122 S.w.2d 548 (1938). However. such language has been held to be in error when used in an assumption of risk instruction. Walther v. Cooley. 224 Ark. 1027, 279 S.W.2d 288 (19550. The standard of care to be applied is a subjective one. of what the particular plaintiff in fact sees. knows. understands, and appreciates. McDonald v. Hickman. 252 Ark. 300. 478 S.w.2d 753 (1972); Price v. Daugherty. 253 Ark. 421. 486 S.w.2d 528 (1972). In J. Paul Smith Co. v. Tipton. 237 Ark. 486. 374 S.w.2d 176 (1964) it was held that a passenger in an automobile can assume the risk of the negligence of the driver of the automobile in which he is a passenger. In such a case assumption of risk may operate to bar or diminish a party's recovery against a third party. See Note. 18 Ark. l. Rev. 360 (1965). See also Hass v. Kessell. 245 Ark. 361. 432 SW2d 842 (1968). For a comprehensive discussion of assumption of risk see Cowart v. Casey Jones. Contractor. Inc.. 250 Ark. 681. 487 S.w.2d 710 (1971) and Rhoads v. Service Machine Co.. 329 F.Supp. 367 (ED. Ark. 1971). Continued on page 120

July 1975/Arkansas Lawyer /119


Instructions. Continued from page 119

AMI 631 (Revised 1975) ASSUMPTION BY PASSENGER OF RISK OF DIVER'S INTOXICATION _ _ _ contends that assumed the risk of (his) (their) own injuries. To establish that defense, has the burden of proving each of the following four propositions: First: That (plaintiff's driver) was under the influence of intoxicants to the extent that his ability to drive his vehicle was impaired. Second: That knew that (plaintiff's driver) was in that condition and realized the risk involved in riding with him. Third: That voluntarily accompanied (plaintiff's driver) despite (his) (their) knowledge and realization of the risk involved. Fourth: That any injuries sustained by were proximately caused (plaintiff's driver). by such intoxication of NOTE ON USE Do not give AMI 607 when this instruction IS given. If the plamtlff passenger is suing the dnver of another vehicle alone. and It IS contended that the plaintiffs claim IS barred or dlmmlshed by his having assumed the nSk of his own dnver's intoxication, It is recommended that the

case be submitted on Interrogatones.

COMMENT For a discussion of the doctrme of assumption of nsk In general. see the Comment to AMI 612. This Instruction Will usually be used when both the dnver and his passengers

Chapter 21 COMPARATIVE FAULT-GENERAL VERDICT (Introduction Revised, 1975-Supersedes page 250, AMI2d) The instructions In thiS chapter are deSigned only for use with a general verd,ct and are based upon Act 367. Acts of Arkansas of 1975: Arl<. Stats. Ann. Subsection _ _. Smce 1955 Arkansas has not followed the common law rule that "contnbutory negligence" Will bar any recovery for damages. The "comparatlve negligence" doctrine, Initially adop.ted by statute In 1955, was modified by the General Assembly In 1957 and again In 1973. The latter enactment created a pnnclple of "comparatlve fault." However, the "fault" of the parties to be compared under the 1973 Act was limited to "conduct actionable In tort," a definition which did not embrace the affirmatIve defense of assumption of nsk. Act 367 of 1975 defines "fault" as "any act. omiSSion. conduct. nsk assumed. breach of warranty or breach of any legal duty which IS a proximate cause of any damages sustained by any party." The fault of a claiming party does not bar recovery unless it equals or exceeds in degree any fault on the part of a party or parties from whom a recovery is sought. On the other hand. if the fault of a claimIng party is of less degree. his damages are merely reduced in proportion to the July 1975!Arkansas Lawyer!120

degree of hiS own fault. Act 367 IS effective July 9. 1975. Whether Act 367 IS to be afforded retroactive application IS necessanly a question which addresses Itself to the Supreme Court of Arkansas Pending a resolution of thiS Issue. the Committee urges caution In utiliZing JUry InstruCtions which embrace assumption of nsk wIthin the concept of "comparatlve fault" In cases involving causes of action anslng pnor to the effective date of the 1975 Act. Under present Circumstances, the vast maJonty of cases Will Involve a com pan-

have been engaged In a drmklng party. In the earlier cases. when contributory negligence was a complete defense. the Court held that the members of such a dnnklng party were engaged in a Joint enterpnse. so that the dnver's negligence was Imputable to the passengers. Sparks v. Chitwood Motor Co.. 192 Ark. 743. 94 S.w.2d 359 (1936): see also LeWIS v. Chitwood Motor Co.. 196 Arl<. 86. 1t5 S.W.2d 1072 (1938). Mer the comparative negligence statutes were adopted. the Court discarded the theory of 10lnt enterpnse and recognized that the situation actually Involves assump.tion of risk. Hurley v Peebles, 238 Ark. 739. 364 S.W.2d 261 (1964). Under thiS latter pOInt of view the defense of assumption of risk Will ordinarily present a question of fact for the IUry. as IS usually the case In other situations involVing the doctnne of assumption of nSk. See Palmer v. Mykelbusl. 244 Ark. 5. 424 S.w.2d 269 (1968). When the plaintiff IS found to have assumed the nsk of hiS own driver's negligence or Willful and wanton conduct. that negligence or misconduct will bar or diminish hiS recovery. J. Paul Smith Co. v. Tipton. 237 Ark. 486. 374 S.W.2d 176 (1964). See Comment to AMI 612.

son of neglIgence on the part of a claim,ng party With negligence on the part of the party or parties from whom recovery IS sought. Therefore. most of the instructIOns In thiS chapter are phrased in terms of comparative negligence. However. since It IS Impossible to prepare model Instructions on comparative fault which Will cover every conceivable situation. 0 number of different forms are presented In thiS chapter. These can readily be adapted to fit a partIcular set of facts. For example. If a defendant-counterclalmant IS a personal representative, the method of Identifying parties employed In AMI 2103 can be used In modifying slightly AMI 2104. see also AMI 2404. an Illustrative set of instructions which contains a combination of AMI 2112 and 2103.

AMI 2101 (Deleted 1975) COMPARATIVE NEGLIGENCE-WHEN OTHER DEFENSES ARE SUBMITTED COMMENT The defense of assumptlon of risk as a complete bar to recovery having been modified by statute, an appropnate comparative fault instruction will define the effect of any defenses raised in cases submitted on general verdict.

Whether AMI 2101 has any continuing validity will depend upon a judicial resolution of the question of possible retroactive application of Act 367 of 1975. Acts of Arkansas. See third paragraph of Introduction to this chapter. J-~

.


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