How will the ‘Doomsday’ Budget and Legislation Impact Houston? A Preview of the 82nd Texas Legislature Discover the Harris County Law Library The Return of the “Death Tax” Proposed Changes to Oil and Gas Taxation 61st Harvest Party
Volume 48 – Number 4
Legislation and Taxes
contents Volume 48 Number 4
FEATURES will the ‘Doomsday’ 10 How Budget and Legislation Impact Houston? By Val Perkins
Preview of the 82nd 14 ATexas Legislature Return of the 24 The “Death Tax” By Mellany L. McDonald
Changes to 28 Proposed Oil and Gas Taxation By Chris Wolfe
Harvest Party 32 61st Raises $527,500 for
The Houston Lawyer
Houston Bar Foundation
The Houston Lawyer (ISSN 0439-660X) is published bimonthly by The Houston Bar Association, 1300 First City Tower, 1001 Fannin St., Houston, TX 77002-6715. Periodical postage paid at Houston, Texas. Subscription rate: $12 for members. $25.00 non-members. POSTMASTER: Send address changes to: The Houston Lawyer, 1300 First City Tower, 1001 Fannin, Houston, TX 77002. Telephone: 713-759-1133. All editorial inquiries should be addressed to The Houston Lawyer at the above address. All advertising inquiries should be addressed to: Quantum/SUR, 12818 Willow Centre Dr., Ste. B, Houston, TX 77066, 281-955-2449 ext 16, www.thehouston lawyer.com, e-mail: firstname.lastname@example.org Views expressed in The Houston Lawyer are those of the authors and do not necessarily reflect the views of the editors or the Houston Bar Association. Publishing of an advertisement does not imply endorsement of any product or service offered. For article REPRINTS, please contact Wright’s Reprints: 1-877-652-5295. ©The Houston Bar Association, 2010. All rights reserved.
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contents Volume 48 Number 4
departments Message 6 President’s What Will We Need to Do? By T. Mark Kelly the Editor 8 From Legislation and Taxes By John S. Gray Spotlight 34 Committee The HBA Elder Law Committee By Christopher B. Heald
Record 37 OffThetheProvenance of
Andrius Kontrimas By Julie Barry
the Bar 38 AtJudicial Investitures Reviews 40 Media Boomtown DA Reviewed by Don Rogers
Matches in the Gas Tank: Trial by Fire in the Armstrong Cult Reviewed by N. Jill Yaziji Trends 42 Legal The Supreme Court Offers
Jeffrey Skilling a Mixed Result By Jim Zucker
Texas Law’s Interpretation on a Valid Marriage: An Analysis of the Marriage of Nikki and Thomas Araguz in the State of Texas By Lisa Brindle Talbot and David Arlington Talbot, III Profile in Professionalism: 46 ARandall O. Sorrels
Abraham, Watkins, Nichols, Sorrels, Agosto & Friend
The Houston Lawyer
47 Placement Service 48 Litigation MarketPlace 4
By T. Mark Kelly Vinson & Elkins LLP
The Houston Lawyer
What Will We Need to Do?
uch has been written about the issues that the current Texas Legislature will consider, debate and vote upon. The budget, redistricting, eminent domain and immigration reform will certainly be at the forefront of the session. Articles about proposed bills are published in this magazine and in news media throughout the state, exploring how they could affect our practices and our personal finances. I’d like to talk about how budget issues could affect the Houston Bar Association and its outreach in the community. Education is one of the primary functions of the HBA. Our continuing legal education program is one of the finest in the nation. We offer our members CLE programming nearly every week of the year, much of it at no cost to members. That always has been and always will be one of our main focus areas. But community education is also integral to the Houston Bar Association’s mission. Our programs reach nearly 40,000 students in elementary, middle and high schools each year. We teach children and teens about the judicial process, about the Constitution, about their legal rights and responsibilities, about law as a career, and about the legal and health consequences of drug and alcohol abuse. Budget proposals from both the House and the Senate could result in a drastic reduction in funding for the State’s public
education system. This could mean that school districts will be asked to stretch their resources even thinner, laying off teachers and staff, increasing class size, and cutting even more programs not considered part of core education. Schools will either lose valuable learning experiences for students, or they will increasingly look to community and professional organizations like the HBA to provide enrichment programs. Similarly, cuts in mental health, social programs and legal services will place greater responsibility on non-profit organizations. More people will look for assistance with food, shelter, clothing and other necessities. Programs like our Campaign for the Homeless clothing drives and diaper drive will need to serve more facilities and agencies. Statistics show that Texas currently meets only about 20 percent of the legal needs of low-income Texans. Budget cuts would certainly affect the ability of the HBA’s Houston Volunteer Lawyers Program to provide crucial legal services to low-income Harris County citizens. This in turn will mean a greater need for pro bono volunteers to provide relief for those
who cannot afford the most basic protections from domestic violence, mortgage foreclosures, bankruptcy, and other lifealtering legal situations. And we will need to provide more services for our senior citizens and our veterans through programs like our WillA-Thon, which provides wills and estate planning documents for low-income elderly citizens, and our Veterans’ Legal Initiative, which provides legal services for those who have served our country. There is no doubt that what happens in this legislative session will affect the way we practice law. It may also determine whether we need to contribute more, volunteer more, or take more responsibility for those in our community who will find themselves with less. I urge each of you, regardless of your political affiliation, to read and educate yourself about the bills before the Texas Legislature and to think about how they may affect your professional and personal life. And I urge you to let your state senators and representatives know what you think about specific legislation. This is not the time to sit back and wait to read about what happened in the news or the next bar journal.
“How could State budget issues affect the HBA and its outreach in the community?”
Strategies for Wealth
from the editor
By John S. Gray Gardere Wynne Sewell LLP
Keri Brown Baker Botts L.L.P.
Catherine Le Law Firm of Catherine Le
Robert W. Painter The Painter Law Firm
The Houston Lawyer
Don Rogers Harris County District Attorney’s Office
Tamara Stiner Toomer Attorney at Law
Legislation and Taxes
n January 11, 2011, the 140-day clock of the 82nd legislative session began ticking away for the Texas House and Senate with the swearing-in of the largest number of freshmen house members in Texas in nearly 40 years, as a consequence of Republican victories in the 2010 mid-term election. After opening the session with a moment of silence to remember the victims of the Tucson, Arizona, shootings, Lt. Governor David Dewhurst welcomed Governor Rick Perry to the platform to address the senate. Perry then declared two emergency issues as priorities for the session: eminent domain and abolishing rules creating so-called “sanctuary cities,” where police are not allowed to check the immigration status of persons they stop or arrest. By listing these issues as emergency items, Perry allows the legislature to consider them in the first 60 days of the legislative session. But Perry also acknowledged that there are other pressing issues that need to be addressed, including balancing the budget, redistricting, the voter identification bill, and school bullying. This issue of The Houston Lawyer focuses on bills that are currently before, or may come before, the 82nd legislative session that Houston lawyers believe may impact their practices and our community. With Texas facing a massive budget shortfall of as much as $27 billion, some tough decisions have to be made. Each state agency has already been asked to find between a 5 and 10 percent cut in their budget. But even this will not be enough to balance the budget. With promises not to raise taxes, Austin will have to find new sources of revenue. Franchise tax and sales tax receipts have not brought in as much funds as expected so it is probable that fees will have to be increased to make up the difference. There is even talk about taking a serious look at legalizing gambling but some dismiss that idea as a side show, at best, because the $3
to $4 billion in revenue expected would not come in until after this budget crisis is over. The article by Val Perkins explains how the upcoming battle to balance Texas’ “doomsday” budget without raising taxes will directly impact Houston’s schools and universities, the Texas Medical Center, and immigrant citizens. Mark Shuck, our special guest editor in charge of putting this issue together, reveals much more in his compilation of brief reports from various Houston lawyers about proposed bills that may impact the following substantive areas of the practice: animal law, business organizations, collaborative law, employment law, environmental law, family law, gaming law, litigation, and probate law. This issue also features two tax-related articles of current importance and interest. The first is an article by Chris Wolfe, titled “Proposed Changes to Oil & Gas Tax Legislation,” warning of plans by the Obama Administration to use the tax code to indirectly reduce global warming. Specifically, the Obama Administration is in favor of increasing the tax burden on oil and gas as a means to discourage fossil fuel consumption, thereby reducing carbon emissions and replacing oil and gas jobs with “green” manufacturing jobs. The second is an article by Mellany McDonald discussing “The Return of the ‘Death Tax.’” This article chronicles the political climate at the end of 2010 in which President Obama struck an unexpected deal with key Republican leaders that addressed controversial estate taxation issues. I hope you enjoy this issue of The Houston Lawyer. We appreciate your comments, critical or otherwise, so please do not hesitate to share your thoughts on our publication. Our overriding goal is to make this publication a valuable part of your membership in the HBA and your practice. As always, please take a few moments to look at the advertisers in your copy of this magazine, give them a call, and then use their products and services when possible.
BOARD OF DIRECTORS President
T. Mark Kelly
David A. Chaumette
Brent A. Benoit
First Vice President
M. Carter Crow
Barrett H. Reasoner
Second Vice President
Alistair B. Dawson Jennifer A. Hasley
Benny Agosto, Jr. Warren W. Harris
Hon. David O. Fraga Daniella D. Landers
DIRECTORS (2010-2012) Todd M. Frankfort John Spiller
editorial staff Editor in Chief
John S. Gray Associate Editors
Keri D. Brown Robert W. Painter Tamara Stiner Toomer
Catherine Le Don Rogers
Julie Barry Angela Dixon Dori Kornfeld Goldman Farrah Martinez Caroline C. Pace Joy E. Sanders Hannah Sibiski Mark R. Trachtenberg N. Jill Yaziji
Sharon D. Cammack Don D. Ford III Al Harrison Judy L. Ney Maidie Ryan Mark Schuck Lisa Brindle Talbot Gary A. Wiener
HBA office staff Membership and Technology Services Director
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Amelia Burt Communications Director
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By Val Perkins
How will the ‘Doomsday’ Budget and Legislation Impact Houston?
s the 82nd session of the Texas legislature convened on January 11, 2011, featuring a State House of Representatives containing 101 Republicans, by far the most in history, the political class in Austin was abuzz that an expansive budget shortfall was going to make for a somber and contentious legislative session. Revenue projections had already confirmed a shortfall of at least $15 billion, as much as $27 billion to maintain present services to the State’s expanded population. With the Governor and Republican leadership having pledged that there would be no tax increases, many observers predicted massive cuts in the provision of State services.
Those fears became a reality when the Chairman of the House Committee on Appropriations introduced to that body the House’s “starting point” budget proposal, providing a total State budget of $156.4 billion in state and federal monies, a decrease of nearly 17 percent from the current budget. A companion Senate budget released days later was only slightly less painful, a 15.4 percent decrease from the budget of the current biennium. Both proposals slash almost $10 billion from what is currently needed to cover funding formulas for the State’s public education system which will see over 170,000 additional students entering the public school system during the next budget cycle. Local school officials in Houston have estimated that this approximate 10 percent across the board funding cut will mean a cut to the Houston Independent School District of as much as $348 million, a full 20 percent of the District’s entire budget. Teacher and staff layoffs, increased class sizes, reduced busing services, and perhaps even the possibility of being forced to ask Harris County voters to approve a higher property tax rate are all possible outcomes for HISD officials. Likewise, the University of Houston which has been so successful of late in efforts towards making itself into a “Tier One” University in Texas, is also likely to feel monetary pain from the State budget. Only weeks ago the University had reveled in the announcement by the prestigious Carnegie Foundation for the Advancement of Teaching that it was now categorized as a “research university with very high research activity,” the equivalent of “Tier One” status for such an institution. Only the University of Texas and Texas A&M University enjoy that status
in the State. Now, however, additional State investment in the University’s efforts may be questionable under the proposed budgets, which produce cuts to UH which may reach the $100 million level. Of course, other area public institutions of higher learning will also be dramatically affected. Indeed, the State House budget proposed the elimination of State funding for four community colleges, including Brazosport Community College located near Lake Jackson. While the budget debate will be complicated and time consuming, nearly certain to extend for the entire session and perhaps even to result in the calling by the Governor of special sessions during the summer to finally resolve all outstanding issues, it is certain that the budgetary debate will profoundly impact the economics of the City of Houston. Public education and local institutions of higher education will be immediately affected but there is also no question that expected cuts in State Medicare and Medicaid reimbursements will severely impact the health care industry in the City and the Texas Medical Center in particular. Of course, all local infrastructure projects which rely to any extent on State funding – such as the building of roads and
other large expenditure facilities – will be impaired as well. Next to the budget shortfall, immigration and border enforcement are hot topics this legislative session and legislation to be considered will have a direct impact on Houston employers and the City itself. In barely the first month of legislator bill filing, over 50 separate bills were filed on these topics, including voter identification legislation, proposals that require local enforcement of federal immigration laws and bills that prevent the state from printing documents in Spanish. Additional bills authorize law enforcement officials to inquire into the immigration status of any person under arrest and prohibit undocumented residents from bringing a claim in state court. Still others deny citizenship to children born in the United States to il-
legal immigrants, require school districts to determine the citizenship of enrolled students, end entitlements to illegal aliens and their children, and prevent illegal immigrants from getting professional licenses in Texas. Hanging over any immigration law is the pending legal challenge of Arizona’s controversial immigration measures. These measures have been temporarily blocked by a federal judge who deemed immigration enforcement within the federal government’s jurisdiction leaving states uncertain of their authority. Texas Democrats are united in their opposition to Arizona-style immigration laws and many in the Texas business community, especially in the hospitality, agriculture and construction industries, which rely heavily on immigrant labor, also oppose certain of these immigration bills. Notwithstanding any opposition, the Governor made good on promises during his election campaign by declaring legislation dealing with “sanctuary cities” and voter identification as emergency
measures, meaning this legislation can be considered by the Legislature during the session’s first 60 days. Indeed, voter identification bills became the first legislation to be considered by either house of the Legislature when brought to the Senate floor and quickly passed to the House the third week of the session. Redistricting, the bugaboo of legislative sessions the last decade, also looms. Due to its increasing population growth, Texas will receive four additional congressional seats and it is thought by many observers that one of those seats will be a suburban Houston area seat. State Senate and State House seats are also likely to be reconfigured in the Houston area. Map drawers will be confronted with a loss of population in many Panhandle and West Texas districts, requiring district lines to tilt eastward across the state. Additionally, on the House side, with 101 Republican districts to try to protect, the Republican majority in the House will be confronted with attempting to draw as many safe Republican seats as possible while, at the
same time, not running afoul of the federal Voting Rights Act which mandates that minority voting not be diluted. Thus, while they are dealing with the budget crisis and sparring over immigration reform, Legislators will be looking over their shoulders at the maps being considered for redistricting to insure the safety of their individual seats. Even with all of these high profile issues confronting the Legislature, the business of the State will move forward and thousands of individual pieces of legislation will be considered during the 140 day session. Governor Perry has already made property rights legislation an emergency item and it is a certainty that legislation further restricting the governmental use of eminent domain will be debated during the session. Proponents of legalized gambling in Texas were hopeful throughout the legislative interim that the State’s budget woes might make the ability of the State to enhance its revenue stream through casinostyle gambling more attractive, but the November election of so many Republicans from the most conservative wing of their party have stifled to some degree those proponents’ hopes. Still, gambling legislation will be filed and considered during the session. While the legislative leadership has pledged that taxes will not be raised, it is a certainty that the present tax structure in the State will be closely examined. Some sales tax exceptions may be eliminated and the Statewide franchise tax, which resulted in far less revenue than was originally anticipated, is also likely to be modified to some degree. Every legislative session is unique but the 2011 session –with an unprecedented budget crisis and extremely contentious issues directly on the surface of legislative consideration –will be one of a kind. Val Perkins, with 30 years experience in representing clients before the Texas Legislature, joined the Government Affairs Group of Gardere Wynne Sewell LLP in 2010. He practices in both the firm’s Houston and Austin offices.
Join the Houston Bar Association’s 100 Club The Houston Bar Association 100 Club is a special category of membership that indicates a commitment to the advancement of the legal profession and the betterment of the community. The following law firms, corporate legal departments, law schools and government agencies with five or more attorneys have become members of the 100 Club by enrolling 100 percent of their attorneys as members of the HBA. Firms of 5-24 Attorneys Firms of 5-24 Attorneys Abraham, Watkins, Nichols, Sorrels, Agosto & Friend Abrams Scott & Bickley, L.L.P. Adair & Myers PLLC Ahmad, Zavitsanos & Anaipakos, P.C. Ajamie LLP Allen Boone Humphries Robinson LLP Andrews Myers Coulter & Hayes, P.C. Bair Hilty, P.C. The Bale Law Firm, PLLC Barker Lyman, P.C. Bateman/Pugh, PLLC Bell, Ryniker & Letourneau, P.C. Berg & Androphy Bingham, Mann, House & Gibson Brown McCarroll L.L.P. Buck Keenan LLP Burck, Lapidus, Jackson & Chase, P.C. Bush & Ramirez, L.L.C. Butler I Hailey Caddell & Chapman Cage Hill & Niehaus, L.L.P. Campbell Harrison & Dagley L.L.P. Campbell & Riggs, P.C. Chernosky Smith Ressling & Smith PLLC Christian Smith & Jewell, L.L.P. Cochran Baker Williams & Matthiesen LLP Cokinos Bosien & Young Conley Rose P.C. Connelly • Baker • Wotring LLP Cooper & Scully, P.C. Cozen O’Connor Crady, Jewett & McCulley, LLP Currin, Wuest, Mielke, Paul & Knapp, PLLC David Black & Associates De Lange Hudspeth McConnell & Tibbets LLP Devlin Naylor & Turbyfill PLLC Diamond McCarthy LLP Dinkins Kelly Lenox Lamb & Walker, L.L.P. Dobrowski L.L.P. Dow Golub Remels & Beverly, LLP Doyle Restrepo Harvin & Robbins, L.L.P. Drucker, Rutledge & Smith, L.L.P. Ebanks Taylor Horne L.L.P. Edison, McDowell & Hetherington LLP Ellis, Carstarphen, Dougherty & Griggs P.C. Essmyer, Tritico & Rainey, L.L.P. Ewing & Jones, PLLC Farnsworth & Von Berg, L.L.P. Fibich Hampton & Leebron, L.L.P. Fisher, Boyd, Brown & Huguenard, LLP Fizer Beck Webster Bentley & Scroggins, P.C. Fleming & Associates L.L.P. Foreman DeGeurin & Nugent Frank, Elmore, Lievens, Chesney & Turet, L.L.P. Fullenweider Wilhite PC Funderburk & Funderburk, L.L.P. Galloway Johnson Tompkins Burr & Smith Germer Gertz, L.L.P. Givens & Johnston PLLC
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Chamberlain Hrdlicka White Williams & Martin Coats I Rose Gardere Wynne Sewell LLP Jackson Walker L.L.P. King & Spalding LLP Martin, Disiere, Jefferson & Wisdom, L.L.P. Porter & Hedges LLP Thompson & Knight LLP Winstead PC Firms of 100+ Attorneys Andrews Kurth LLP Baker Botts L.L.P. Bracewell & Giuliani LLP Fulbright & Jaworski L.L.P. Haynes and Boone LLP Locke Lord Bissell & Liddell LLP Vinson & Elkins LLP Corporate Legal Departments Anadarko Petroleum Corporation AT&T Texas BP CenterPoint Energy El Paso Corporation Kellogg Brown & Root Inc Lyondell Petrochemical Company MAXXAM Inc Newfield Exploration Company Petrobras America Inc. Plains Exploration & Production Co. Pride International Inc. Rice University Sysco Corporation Texas Children’s Hospital Total E&P USA Inc. University of Houston System Law School Faculty South Texas College of Law Thurgood Marshall School of Law University of Houston Law Center Government Agencies City of Houston Legal Department Harris County Attorney’s Office Harris County District Attorney’s Office Harris County Domestic Relations Office Metropolitan Transit Authority of Harris County Texas Port of Houston Authority of Harris County Texas
A Preview of the 82nd I Texas Legislature
As the article on the preceding pages illustrates, the state’s budget will be the major issue that the 82nd Texas Legislature will face. Okay, you say, but what’s going to happen to the codes? What’s this Legislature going to do to affect those black Vernon’s books in my office (or computer)? To try to answer these questions, The Houston Lawyer has collected a topical preview of some of the things to look for in this upcoming legislative session that could affect your practice.
By Robyn Katz n the upcoming 82nd Session of the Texas Legislature, there will likely be animal-related bills introduced pertaining to commercial breeders, cockfighting, an animal abuser registry, pets in protective orders, and appeals when an animal has been seized. Commercial breeder bill: Like more than half of the states in the country, this bill would protect animals by requiring the humane treatment of dogs and cats, including proper clean water, sanitary living conditions, shelter, and proper veterinary care. The principal purpose of the “puppy mill” bill is to ensure the humane care and treatment of dogs and cats in the custody of large-scale commercial breeders. To accomplish this, the bill requires a commercial breeder (defined as a person who has 11 or more breeding females and is in the business of selling their offspring) to obtain a commercial breeder license from the Texas Department of Licensing and Regulation (“TDLR”). This is the same agency that regulates various businesses and professions from manicurists to electricians to guard dog companies to scrap medal dealers to elevator manufacturers, and so on. As of last count, TDLR regulates over 28 businesses and professions. All licensing, regulation and enforcement
is done by the TDLR or other government agency they may choose to contract with. It is equally important to note that no non-government entity has any power or regulatory authority under the bill. The bill requires a commercial breeder to apply for a commercial breeder license and pay a fee set by the TDLR. The fees for the initial license and the renewal licenses cannot exceed the amount necessary to fund the cost of administering and enforcing the regulatory program by the TDLR. The commercial breeder must allow the TDLR to perform an initial inspection and thereafter an annual inspection of the commercial breeder’s facility to ensure that it is in compliance with the standards set by TDLR. These standards will be similar to those currently set forth in the United States Department of Agriculture regulations for dogs and cat breeders under the Federal Animal Welfare Act. They will basically cover things such as the housing, feeding, veterinary care, and sanitation at the commercial breeder’s facility. Currently, there are no laws against puppy mills and no state regulation to require minimum care standards. Opponents of this bill argue that animal cruelty laws are already in place to allow seizure of starving or cruelly treated animals and, therefore, regulations are not needed. However, by the time that animal control officers have the evidence to conduct a seizure, the animals they find are either dead, dying or in need of extensive medical care. In any case, they have suffered needlessly for extended lengths of time. Cockfighting bill: Cockfighting is prevalent throughout Texas, including East Texas, West Texas, the Valley, and both metropolitan and rural areas. Cockfighting puts the poultry industry in jeopardy, as the interstate and international movement of fighting cocks contributes to poultry diseases, specifically the avian flu. House Bill 1320 would make owning or operating a cockfighting facility, owning cockfighting equipment, training a cock to fight, and attending
a cockfight a crime. Unlike most states, Texas makes it very difficult to prosecute cockfighting because the only way to do so is by actually witnessing two people fighting their birds. This bill makes each of the supporting activities an offense, and would classify cockfighting as an organized crime. The bill would effectively assist law enforcement in stopping the cruel and bloody act of cockfighting, and the other illegal and violent activities that accompany it. This bill is supported by the Texas Municipal League, the Texas Sheriffs Association, the Texas Animal Control Association, the Texas Veterinary Medical Association, county and district attorneys throughout the state, and the Texas Poultry Federation. Animal abuse registry bill: Many states now have registries where those people convicted of acts of cruelty to animals must register in a database. The Texas bill creates a database and would require the registration of any person who was convicted of cruelty to animals or received a deferred adjudication for offenses involving cruelty to animals. Suffolk County, New York recently created such a database, and it was largely supported by domestic violence advocates, child welfare advocates, and others interested in the protection of their loved ones and pets. There is well-documented research showing the strong relationship between animal abuse and cruelty to other interpersonal crimes, and those who commit the crime of cruelty to animals are often repeat offenders. Other states are currently considering such registries, as well. Pets in protective orders: House Bill 323 was filed on November 19, 2010 by State Representative Jodie Laubenberg (R-Wylie). If the bill passes, it will allow for the inclusion of service and companion animals within protective orders. Appeal of animal seizures: Last session, the Texas Legislature passed a bill that enables appeals in cases involving the seizure of cruelly treated animals. This bill would streamline the appellate
process in cases that involve the seizure of cruelty treated animals. Under the new law, an owner who was divested of ownership of his animals due to the cruel mistreatment of them would have a one-time appeal from either the Justice of Municipal Court or the County Court. Additionally, the law would expedite the appellate process so the animals are not held in limbo for an extended period of time. The law also provides adequate security for the cost of the government or non-profit agency which has custody of the animals during the process of litigation. Robyn Katz is an Assistant District Attorney at the Bexar County District Attorney’s Office and a graduate of Texas Tech School of Law. She has authored articles related to animal law.
By Julie Barry ith the filing of HB 521 for the 82nd Legislature, Representative Gary Elkins has once again attempted to introduce legislation that would clarify the standard of liability protection that should be afforded to members of limited liability companies (“LLC”) for the obligations of the LLCs. HB 521 would align the standards for piercing the liability shield of LLCs with the standards used to pierce the liability shield of corporations by amending Business Organizations Code, chapter 101, subchapter A, to include a new section 101.002 which would provide that section 21.223 (limitation on liability for obligations of corporations, officers, and shareholders), section 21.224 (preemption of liability), section 21.225 (exceptions to limitations on liability), and section 21.226 (liability of pledgees and trust administrators) would apply to an LLC and its members, owners, assignees, and subscribers. Current law is silent as to what standards a court should use to determine whether an LLC’s limited-liability protections should be pierced to provide for personal liability on the part of the LLC’s
members for the obligations of the LLC. Consequently, there is a difference of opinion as to what standard should apply to LLCs. Some legal experts argue that since LLCs are inherently less formal than corporations they should not enjoy all the same liability protections that corporations have. It should be easier to pierce an LLC’s limited-liability protections than it is to pierce those of a corporation. Other experts argue that Texas created LLCs to allow groups that could not incorporate to enjoy some of the same desirable legal protections afforded a corporation. HB 521 would provide clarification to the law by making clear that standards for piercing the corporate veil that currently apply to corporations would also apply to LLCs. HB 521 would provide no more or less protection to LLCs than current law grants to corporations. Representative Elkins filed similar legislation under HB 3624 on behalf of the Business Law Foundation during the last session, as a companion to SB 1773. However, SB 1773 died on the House Calendar. Julie Barry is an attorney with Theodore J. Lee, focusing on U.S. and international commercial transactional law. She is a member of The Houston Lawyer editorial board.
By Harry Tindall he Uniform Collaborative Law Act (“UCLA”), jointly sponsored by the State Bar of Texas Alternative Dispute Section and the State Bar of Texas Collaborative Law Section, is expected to be introduced in the 2011 Texas Legislature. For those not familiar with collaborative law, following is a brief explanation: Parties and lawyers commit to trying to settle a dispute out of court and if not successful, the parties must retain new lawyers. Meetings are scheduled and agendas are prepared. The parties and lawyers meet face to face. Discovery is informal, but any requested information must be
produced. Experts are usually jointly retained. Parties can opt out of the process at any time. The UCLA was unanimously approved by the Uniform Law Commission at its Annual Meeting in July 2009. It has been endorsed by the Collaborative Law Institute of Texas, as well as by the Family Law Section of the American Bar Association. Texas was the first state to ever pass collaborative law legislation in 2001. Several other states have passed collaborative law legislation or enacted court rules. Utah became the first state to adopt the UCLA in 2010. About 15 states are expected to have introductions in 2011. As currently drafted, the UCLA will appear as a new Chapter 161 in the Civil Practice and Remedies Code. Collaborative law is entirely voluntary. The UCLA makes clear that no party shall be required to participate in this form of dispute resolution. This is designed to preclude local rules that are now commonly imposed to require mediation. The Act will cover all forms of civil disputes, not just family law matters. This was the subject of considerable discussion by the Uniform Law Commission, but ultimately it was decided that there was no sound policy reason not to extend collaborative law to all areas of civil practice. Current Texas law only applies to family law cases. The UCLA provides that parties can agree to keep the discussions confidential. The Act also provides privilege to the communications made in the joint meetings, subject to certain limitations such as fraud and misrepresentation. Settlement agreements are binding as in mediation. In this regard, the draft adopts the exact language of the current Texas Alternative Dispute Resolution statute. Finally, the draft preserves the current Texas Family Code provisions for collaborative law. The provisions have proven to be popular with the collaborative family practitioners and there was no desire to change those sections.
For more information about the UCLA, visit www.collaborativepractice.com or www.nccusl.org. Harry Tindall is a Texas Commissioner for the Uniform Law Commission.
By Samantha Martinez ith our state’s usual flair for the dramatic, the Texas Legislature is taking on a number of “hot button” workplace issues, including guns, drugs, criminal history, and immigration. Firearms: Re-introduced after failing in 2009, Senate Bill 321 (Hegar, Birdwell) proposes to amend the Texas Labor Code to allow employees to transport or store guns or ammunition in their private vehicles in employer parking areas. Employers can still prohibit firearms in their buildings and in any vehicle which the employer owns or leases. Employers would not be civilly liable for any injury or death resulting from compliance with this law, except (in an exception that may swallow the rule) in cases of gross negligence. Schools are exempt from this law. Verification of lawful status to work: Some Texas legislators are looking to pass Arizona-style rules for employers. House Bills 178 and 601 (Jackson) require employers to use the federal “Everify” program to electronically confirm employment eligibility to work and subject employees to immediate termination if they are responsible for and fail to use the “E-verify” program. House Bill 296 (Berman) goes one step further, where in addition to requiring employers to use the federal “E-verify” program, the bill would prohibit contracts or subcontracts with independent contractors who are unauthorized to work in the United States. Violations of this proposed legislation would include criminal and civil penalties, as well as revocation of occupational licenses and return of any government grant or subsidy. House Bill 296 also proposes to criminalize the act
of impeding traffic to hire day laborers. House Bills 177 (Jackson) and 623 (Bonnen) require individuals who seek to obtain or renew occupational licenses, certificates, registrations, or permits to first prove employment eligibility using the federal I-9 standard. Unemployment benefits: House Bill 126 (Legler) would require individuals seeking unemployment benefits to submit to and pass a drug test. Moreover, an individual receiving unemployment benefits who fails a pre-hire drug test is disqualified from benefits and must notify the Texas Workforce Commission of the failure or repay benefits. House Bills 223 (Strama) and 314 (Zaffirini) amend the definition of base period and broaden the involuntary separation definitions and chargeback exclusions relating to disability and illness, sexual assault, family violence, and relocation. Criminal history: House Bill 68 (Martinez) requires employers who turn away an applicant based on criminal history to notify the applicant of the specific arrest
or disposition that precluded employment and how they learned of the arrest or disposition. House Bill 542 (Dutton) prohibits employers from denying employment on the basis of dismissal, deferred adjudication, or discharge of a crime. Pay discrimination: Senate Bill 280 (Davis) mirrors Congress’ Lilly Ledbetter Act and would amend the Texas Labor Code so that a pay discrimination claim accrues each time an individual is subject to the allegedly discriminatory act, i.e., with each paycheck. Leave for court hearings: Senate Bill 64 (Zaffirini) would grant paid leave to attend court proceedings for employees who are crime victims or parents or guardians of crime victims, and the bill also seeks to protect them from retaliation for taking such leave. Samantha Barlow Martinez is a partner at Muskat, Martinez & Mahony, LLP. She is Board-certified in Labor and Employment Law, and represents employers in litigation and management of workplace issues.
Environmental Law By John S. Gray
ven with every other hot-button issue in this legislative session, environmental concerns will still be front and center. Both the Texas Railroad Commission (“TRC”) and the Texas Commission on Environmental Quality (“TCEQ”) are scheduled for sunset review in which all aspects of their operations are subject to evaluation and public comment. Among the top issues being highlighted by TCEQ’s sunset process are (1) public assistance and participation, (2) using compliance history as a regulatory tool, (3) enforcement efforts, (4) drought issues, and (5) funding programs. The sunset process, however, is off to a slow start and given all that is on the plate this year, there is some talk that the Legislature may avoid this messy sunset debate by simply moving the process to the next legislative session in 2013. The TRC sunset process involves
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sweeping structural changes. For example, during the process it is suggested to replace the three elected commissioners with five part-time appointees while other proposals are to elect a commissioner and supplement him or her with two part-time appointees. These sunset processes are not the only environmental issues being considered this session. Bills have already been filed that address: • overall support and state use of renewable energy and conservation technology – HB51, HB128, HB211, HB450, HB453, SB238; • recovery and recycling of electronic equipment – HB88 • expanding the use of cost-benefit analyses in proposed rules – HB125; • changing the name of the TRC to the Texas Oil and Gas Commission – HB173; • industrial and municipal waste disposal wells – HB444; • dumping and industrial operation that adversely affects surface waters
– HB451, SB160; • oil and gas produced water pipelines – SB103, SB106, SB107; • oil and gas waste injection wells – SB104, SB105; and • water conservation – SB181, SB274, SB292. Additionally, do not be surprised if the Legislature considers bills that address concerns being raised by citizens living in and around Fort Worth who are concerned by pollution from natural gas wells in the Barnett Shale. Two other areas that many believe the Legislature may weigh in on are climate change regulations being promulgated by the Environmental Protection Agency (“EPA”) and the airpermitting dispute between TCEQ and the EPA. As of January 2, 2011, EPA rules require TCEQ to begin considering greenhouse gas emissions in air quality permitting. TCEQ Chairman Bryan Shaw and Texas Attorney General Greg Abbott responded to the EPA’s request to know whether Texas will administer the per-
mitting of greenhouse gases by stating that: “Texas has neither the authority nor the intention of interpreting, ignoring or amending its laws in order to compel the permitting of greenhouse gas emissions.” Unsurprisingly, the EPA announced just before Christmas that it will seize authority from Texas to regulate major emitters of greenhouse gases. This decision will affect 167 facilities in Texas—many of them power plants and oil refineries. The EPA claims that its actions will actually help Texas businesses by avoiding permitting uncertainty. Governor Perry responded by stating that: “The federal Environmental Protection Agency on Thursday effectively declared Texas unfit to regulate its own greenhouse gas emissions” and promised to fight the EPA’s actions in court. Some fear that the Texas Legislature may seek to directly influence the dispute between Texas and the EPA. If that occurs, life in this Texas legislative session could get very interesting. John S. Gray is a partner in the environmental section at Gardere. He is the editor in chief of The Houston Lawyer.
By William W. Morris he 82nd Legislature has only recently convened and already more than 40 bills directly affecting family law have been filed. And this does not include the Family Law Section’s bills. If the Legislature focuses on anything other than the budget or redistricting there is a good chance some significant legislation affecting family law may pass. Paternity Mistakes – There are several bills which, in light of available scientific evidence, attempt to correct mistakes made in the past as to paternity. These bills would allow a finding of non-paternity if genetic testing showed the person designated in the order as the father was excluded by the test and there was a showing of a mistake or fraud. Any
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current obligation to pay child support would cease but any support paid in the past would not be subject to repayment. Possession of and Access to Children Under 3 – The Family Code would provide a list of factors (as opposed to actual guidelines) for the court to consider in making an order for possession of and access to children under 3. Protective Orders – When there was a third protective order granted based on a finding of family violence the court would have discretion in the duration of the order. The proposed legislation would also allow persons under the age of 18 to sign an affidavit in support of a petition for a protective order. Spousal Maintenance – Revisions to Chapter 8 of the Family Code would include increasing the amount of the monthly payment from a maximum of $2,500 to $5,000. The potential duration of the order could increase depending on the length of the marriage. Legal Separation – Texas currently does not have legal separations. A pro-
posed constitutional amendment and proposed amendment to the Family Code would create legal separation and allow the court to partition the community estate into separate property, make the income from the separate property separate property, and make the parties earnings the separate property of the spouse who earns the income. This would all remain separate property even if the parties petition to vacate the legal separation order. In some cases a suit for dissolution of marriage would be abated. The Family Law Section of the State Bar of Texas has a package which includes some of the matters above as well as the hearsay testimony of young children, gestational agreements, military deployment, fraud on the community, and appointed counsel on appeal. William W. Morris is a partner at Looper Reed & McGraw, where he practices family law, arbitration and ADR. He served as an associate judge for the 247th District Court from 1982-1993. A member of the legislative
committee of the Family Section of the State Bar, Morris has chaired the HBA Family Law Section, the HBA Collaborative Law Section and the Gulf Coast Family Law Specialists.
By Jill Elsey B 4062 has been proposed to the Texas Legislature in one way or another multiple times. The Texas racing industry has angled for video lottery terminal (“VLT”) legislation for the past decade. In the last legislative session, the bill died in committee. HB 4062 would authorize video lottery terminals at licensed horse and greyhound racetracks and would provide a defense for video lottery operations by federally recognized Indian tribes. The bill would create the State Video Lottery Account as a special account in the General Revenue Fund, and this account would receive 35 percent of total net terminal income from video lottery operations at racetracks
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each year. The remainder of the net terminal income would be retained by the racetracks, with a provision that the parimutuel license holder at each racetrack enter into a written agreement to allocate a percentage of the racetrackâ€™s net terminal income to race purses. Texas horse racing needs video lottery terminals in order to compete with racetracks in other states. The VLTs would help to generate enough revenue to allow racetracks in Texas to offer larger purses. According to Shawn Hurwitz, Chief Executive Officer of Sam Houston Race Park, â€œOver the past decade, the ability of Texas racing to remain competitive has been severely impacted as horse owners and horsemen have left to race in neighboring states where slot machines at parimutuel facilities have generated larger purses.â€? The Texas Racing Commission indicates that the provisions requiring racetrack video lottery establishments to apply a percentage of their net VLT income to be used for purses would attract additional race animals, owners, trainers,
and animal care providers to the state. The legislation dedicates enough revenue to purses such that Texas racing would become regionally competitive in 3 years and nationally competitive in 6 years. For the first time, and due to a provision benefiting all performance sport horses in the bill, Texas HORSE (which is a group consisting of united organizations around the state including national organizations located in Texas such as American Quarter Horse Association, National Cutting Horse Association, and American Paint Association) has backed this legislation in a united effort. Previously, the majority of the support and lobbying power for this bill came from the Texas Thoroughbred Association and the Texas Greyhound Association. In September 2010, Penn National Gaming announced its involvement in a joint venture to purchase 50 percent of Sam Houston Race Park. The deal also included Valley Race Park and an option to build a new track in Laredo, Texas. With this new support from an established gaming
corporation and organizations outside the racing industry, this bill looks to be well on its way. Although State Representative Yvonne Gonzalez Toureilles, who sponsored the bill last year, has not been reelected, the bill will be picked up by another representative in the 2011 session. This 2011 legislative session seems to be the perfect environment for this bill to get passed. It seems as though the state budget woes will be the main topic of the 2011 legislative session. Thus, legislators will be looking for new budget cuts and new forms of revenue. Jill Elsey is a solo practioner who focuses exclusively on equine legal matters and assists clients in all aspects of the horse industry.
By John S. Gray hile few bills have yet to be filed directly affecting litigation issues, keep an eye out for the following
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proposed bills in the upcoming 2011 legislative session that would impact litigation: 1. Reducing the evidentiary standards in asbestos litigation by overturning the Texas Supreme Court’s 2007 decision in Borg-Warner Corp. v. Flores. The Flores court held that its decadeold decision in Merrell Dow Pharmaceuticals Inc. v. Havner was applicable to asbestos-related litigation. Thus, to establish legal liability, asbestos plaintiffs must establish a scientific connection between each defendant-specific exposure and his injury. A strong effort was made to legislatively overrule Flores during the 2009 legislative session. While that effort failed, many expect another attempt to be made in this legislative session. 2. Dismissing “inactive” asbestos and silica cases thereby allowing plaintiff attorneys to end the attorney-client relationship with these clients. In 2005, the Texas Legislature passed a landmark bill setting forth medical criteria to be used in asbestosrelated and silica-related litigation. At the time, thousands of silica cases and tens of thousands of asbestos cases had already been filed in Texas courts. The 2005 legislation provides that these cases could not proceed to trial until the individual plaintiff furnishes medically valid evidence of an actual impairment caused by exposure to asbestos or silica. Five years later, only a tiny fraction of plaintiffs have made the requisite showing leaving thousands of inactive cases on file that the courts and the attorneys must follow because of their fiduciary duties. While there is an effort to dismiss these “inactive” cases ending the attorney/client relationships, there are also discussions to change the law to provide that if a plaintiff refiles his case at a later date (as the law currently allows), the plaintiff gets the benefit of the law existing at the time the plaintiff originally filed suit. 3. In 2007 in Entergy Gulf States Inc. v.
Summers, the Texas Supreme Court held that when acting as its own general contractor, a property owner can also be the “statutory employer” of a subcontractor’s employees entitling it the protections provided by the Workers’ Compensation Act. A number of Bills were introduced in the 2009 session to overrule Summers. While those efforts were unsuccessful, additional efforts to legislatively overturn Summers are expected this session. 4. In the 2003 tort reform bill, the Texas Legislature passed a law that allowed a plaintiff claiming payment of medical bills as damages to only recover the amount he actually paid, but not any amount written-off by the medical-services provider. In the 2007 and 2009 sessions, bills were introduced to repeal this provision so that plaintiffs can return to the pre-2003 law, which allowed recovery of amounts billed by the medical-services provider, but not paid or owed by anyone. While those efforts were unsuccessful, persons in-
terested in changing this aspect of the law are expected to try again. 5. The same 2003 tort reform bill provided that in a healthcare liability case, non-economic damages are limited to $250,000 against all physicians and healthcare providers and $500,000 against healthcare institutions (totaling $750,000 that might be recovered in a healthcare case). The law also provides that a person who in good faith administers emergency care is not liable in civil damages for an act performed during the emergency unless the act is “willfully or wantonly negligent.” Bills were introduced in the last two legislative sessions proposing to index the “caps” to adjust for inflation, and to change or lower the standard applicable to emergency care and are expected again this session. John S. Gray is a partner in the environmental section at Gardere. He is the editor in chief of The Houston Lawyer.
By Don D. Ford III he codification of the new Estates Code is the biggest probate and guardianship item on the agenda for the 2011 Legislature. Set to become effective in 2014, the new Estates Code will represent a nonsubstantive reorganization of the probate, guardianship, and power of attorney provisions currently found in the Probate Code. In 2010, the Legislative Council released drafts of the proposed provisions for the guardianship and power of attorney portions of the Estates Code for comment by a wide group of parties that might be affected by the changes. Those proposed changes will be incorporated into a bill introduced into the 2011 Legislative session, and it is expected that the bill will pass and be signed into law. The probate provisions of the new Code were previously released and adopted. In 2008, the Legislative Council released the draft of the probate portion of the Estates code, and the bill adopting those
provisions was approved by the Legislacases. ture and signed into law during the 2009 The only other potentially noteworthy legislative session. When complete, the probate bill that has been introduced into codification will represent the most sigthe Legislature is House Bill 322, which nificant change in the probate and guardproposes changes to Section 25.0022 of ianship arena in quite a few years. the Texas Government Code related to The other most significant bill that the eligibility of a former statutory prohas been introduced into the Legislature bate judge to receive assignments to hear is Senate Bill 286, which is probate and guardianship “When complete, a change proposed to Secmatters. Under current law, the codification will tions 665A and 665B of the a former judge must have represent the most Probate Code. As currently served a minimum of 96 enacted, these provisions months as the sitting judge significant change assess the attorneys’ fees of a statutory probate court in the probate and and costs of a guardianship guardianship arena...” in order to be eligible for action against the estate of such assignments. However, the ward, or in some cases, to be paid this Bill would reduce the requirement out of the county treasury. The proposed to 72 months of service. This Bill would revisions to these sections would allow simply enlarge the pool of candidates courts to charge the attorneys’ fees and who could sit by assignment as former expenses of the guardianship proceeding statutory probate judges. against one of the parties to the proceeding. If adopted, this provision would repDon D. Ford III is a partner at Ford & resent a dramatic shift in the current law, Mathiason LLP and is Board Certified in Estate and it would have a potentially chilling Planning and Probate. He is a member of the effect on those engaged in guardianship editorial board of The Houston Lawyer.
Discover the Harris County Law Library By Stanley Santire
library has now grown to over 100,000 volumes. The HBAâ€™s County Law Library Committee, which dates back to 1870, reviews the facilities and materials, and makes recommendations to the HBA board on how the HBA can serve the library. The Harris County Law Library is designed to be a working library, so it has a constantly updated collection of State Bar CLE material, as well as law reviews, law journals, treatises, and loose leaf materials. In addition to having one of the finest collections of printed research material in Harris County, the library provides access to various electronic research materials. The library is located on the top floor of the Jury Assembly Building at 1019 Congress, which makes The Harris County Law Library is it perfect for research for located on the top floor of 1019 lawyers on a tight schedCongress, which also currently ule during trial or those houses the jury assembly room.
colleague and I were walking out the door of the courthouse at 5:30 p.m. We had to respond to a point of law first thing in the morning, and had a long way back to the office and a lot of research to do. I suggested saving time by using the Harris County Law Library, which was just a couple of blocks away. The possibility had not even entered my colleagueâ€™s mind. A few minutes later he found comfort in the libraryâ€™s quiet, spacious interior, and was impressed by the pleasant staff member who helped us find the books that we needed. By 7:30 p.m., we had thoroughly briefed the matter, copied the pertinent cases on one of several available copy machines, and were ready to argue the matter in court. My colleague was surprised at how much the library had to offer, but I am used to it. In fact, I often schedule my research to coincide with court appearances so that I can take advantage of the library. I have found, however, that many Houston lawyers are unaware of the wealth of research material funded by Harris County that is available there. The library was originally established by the Houston Bar Association to help lawyers for whom the expense of law books was a strain. The county-operated
who just want to do legal analysis in a relaxed environment. Aside from the pleasures of using real books, the library provides something that cannot be matched by online research - the human element. The welltrained and dedicated staff is always available to help lawyers and others find the right treatise on a legal topic or set of books with needed forms. Though originally designed for lawyers, the library is also available to the general public. It is open weekdays from 8:00 a.m. to 8:00 p.m. and on Saturdays from 9:00 a.m. to 5:00 p.m. More information about the libraryâ€™s collection is available at http://www.co.harris.tx.us/law/. To really get a feel for it, stop by the library next time you are at the Harris County courthouse complex. The staff will be happy to show you around. Stanley P. Santire practices law in Houston and is a member of the HBA County Law Library Committee and the HBA CLE Committee.
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The Return of the ‘Death Tax’
By Mellany L. McDonald
The Federal Estate Tax is Back! The year 2010 will go down in history as one of the most interesting for estate planning attorneys across the nation. Many estate planning professionals predicted that Congress never would have allowed the repeal of the estate tax at the end of 2009. As January 1, 2011, approached, estate planners waited with bated breath in anticipation for an act of Congress. Just before the year-end and during the lame duck session, President Obama struck an unexpected deal with key Republican leaders. The proposed bill contained generous tax incentives for businesses and individuals alike. Watching the Congressional debates on H.R. 4853, Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010,1 was like watching a playoff game where no one was a big fan of either team. There were expansive benefits, but at a high cost. It should have come as no surprise that something would be done to address the estate tax issue and the other tax issues presented by the 2010 temporary repeal, but few expected that it would be done at the very last possible moment.
Current Baseline Budget According to the Tax Policy Center, the Obama Administration’s budget depended, as part of its baseline, on the permanent extension of the estate tax under parameters that were in effect during 2009.2 The baseline budget assumed at a minimum what the estate tax rate would be and the threshold of the exemption. If the 2001 and 2003 tax cuts had been extended without modification, the estate tax would have been maintained at its 2009 levels, meaning that estates with a net value in excess of the $3.5 million exemption would have been subject to a 45 percent tax rate.3 This assumed that Congress acted and the President acquiesced to extend Bush tax cuts in the same
form as they existed prior to December 31, 2009.4 The measure considered at year end allowed a much lower estate tax and a much higher exemption. Doing nothing would have caused the estate tax rate to reset at pre-2001 levels, causing taxes to increase for everyone—an outcome that neither President Obama nor Congress wanted.
2010 Tax Regime During 2010, because of the estate tax repeal, no estate was taxed, regardless of the size of the estate. While one might think that families of wealthy individuals who died in 2010 enjoyed the tax reprieve for decedents’ estates, the estate tax repeal was accompanied by other tax policy changes that affected a decedent’s estate. For example: there was no fair market value step-up in basis at the date of death for those inheriting property; capital gains were taxed at less favorable, higher rates; generation-skipping transfer tax increased; and dividends were subject to an increased tax.5 Many speculated that a retroactive tax policy, which was predicted to be in place early in 2010, was still a possibility at year end.6 This was certainly an unwieldy dilemma for estate planners in determining what instruments to employ, what transfers to make, and whether and when to dispose of property.
Other Attempts to Address the Temporary Tax Repeal Some may think that Congress sat on their hands too long or spent too much time working on health care reform and financial services reform to address the estate tax repeal, but there were numerous attempts to rectify the lapse of the estate tax in both the House and the Senate. Many of these measures were attempted in anticipation of the repeal before the end of 2009. No measure survived the political wrangling that took place in Congress. One internet blog entitled “Future of the Federal Estate Tax”7 captures
a summary of many of the attempts by Congress to resolve the tax repeal issue. There were several options, but not one could get passed in both the House and the Senate. The House passed the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Bill of 2009 (H.R. 4154) to permanently extend the estate tax at 2009 exemption rates.8 For 2010 and later, H.R. 4154 repealed provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) that eliminated the tax on estates, the tax on generation-skipping transfers and the step-up in basis provisions (thus retaining estate and gift tax provisions in effect in 2009).9 The Responsible Estate Tax Act (S. 3533) also would have repealed provisions of EGTRRA that eliminated the tax on estates and generation-skipping transfers and the step-up in basis provisions.10 S. 3533 would have amended the Internal Revenue Code to: (1) change estate tax brackets for estates over $750,000 and impose a maximum tax rate of 55% on estates over $50 million; (2) require a 10% surtax on estates over $500 million; (3) increase the reduction in valuations of farmland for estate tax purposes to $3 million; (4) increase the maximum estate tax exclusion for contributions of conservation easements to $2 million; (5) require estates’ representatives to file information returns and provide valuations and consistent basis information to persons acquiring property from a decedent; (6) set forth estate valuation rules for certain transfers of non-business assets and limit estate tax discounts for certain individuals with minority interests in a business acquired from a decedent; and (7) revise rules for valuing assets in grantor retained annuity trusts to require that the right to receive fixed amounts from an annuity last for a term of not less than 10 years, that such fixed amounts not decrease during the first 10 years of the annuity term, and that the remain-
der interest have a value greater than zero when transferred.11 The Fair and Simple Tax Act of 2009 (H.R. 99)12 and the Death Tax Repeal Act (H.R. 205)13 would have permanently repealed the estate tax. Permanent repeal was an unlikely scenario. Even if a bill or resolution had survived Congress, it was not anticipated that it would have ever made it past President Obama’s desk, at least not before 2012. According to the Joint Committee on Taxation, a permanent repeal would have been expensive.14 It was estimated that between 2008 and 2018, a permanent repeal would reduce revenue by about $670 billion.15 According to the Urban and Brookings Institute Tax Policy Center, a permanent repeal would have been regressive, and the Center believed that the group that would benefit the most is people almost entirely at the top of the income distribution, which would invite massive tax sheltering by the wealthy.16
H.R. 4853, The New “Big Deal” President Obama’s deal with GOP leaders, which was highly contested by more liberal Democrats and Republicans, moved smoothly through the Senate, passing with 81 yes and 19 no votes.17 There was rumor of difficulty in the House of Representatives. Liberal leaders were upset by the more conservative congressional leaders’ contradiction—arguing for spending cuts and a lower deficit while pushing forward a bill that would cost $858 billion and provide substantial benefits for very wealthy taxpayers. However, the amended version of H.R. 4853 failed late into the night and the original measure passed un-amended with 277 ayes and 148 nays.18 Under the “Big Deal,” the estate tax would be 35% of the taxable estate and the estate tax exemption would increase to a historic high of $5 million through 2012. With this tax regime, it is estimated that only half of the number of estates that were taxed in 2009 would have been taxed if the decedent instead died in 2011 or 2012.19 Key components
of the “Big Deal” regarding the estate tax include the following: • Election for 2010 estates. The new measure allows executors of 2010 estates the choice of whether to use 2010 or 2011 tax rules.20 • Portability of exemption. A surviving spouse will be permitted to use any unused portion of his or her most recently-deceased spouse’s $5 million exemption.21 • Gift and generation-skipping tax. The measure unifies the estate, gift and generation-skipping taxes, with one $5 million per-individual exemption for all three.22 The measure makes no changes to the $13,000 annual gift-tax exclusion.23 • Extension of Bush tax cuts. The measure extends the tax relief enacted in 2001, 2003 and 2009. This includes allowing the fair market value step-up in basis at the decedent’s death for those inheriting property, taxation of capital gains at more favorable lower rates, and decreased tax on dividends.24
Was the “Big Deal” the Best Deal? One can only wonder if the “Big Deal” was the best deal that the President could have reached. What leverage might President Obama have forfeited by agreeing to this deal when he did? Political pundits will likely discuss this issue during the election season. What might have happened if Congress did not pass the deal? Would it have mattered if the deal did not pass at the end of 2010? The newly elected Republican-controlled House of Representatives likely would have worked hard to pass an estate tax fix retroactively to the beginning of 2011 as soon as they took office. However, the new House likely would have dropped many of the concessions that President Obama pushed for, such as extending unemployment 26
benefits and cutting payroll taxes.
Reversion to Pre-2001 Regime If nothing was done to address the temporary estate tax repeal, then the nation would have automatically reverted to the pre-2001 estate tax regime. The estate tax exemption would have dropped to $1 million and the top tax rate would have increased to more than 55 percent in 2011 and later years.25 Many middleclass families would have been required to pay some estate tax because of the lower exemption threshold. It would have cost the government nothing, but would have broken many of President Obama’s campaign promises. With passage of the “Big Deal,” a permanent solution will still have to wait two more years. The same uncertainty faced at the end of 2010 will likely rear its ugly head again at the end of 2012. Since the “Big Deal” is only a temporary measure, if Congress does not pass permanent legislation, then taxpayers in 2013 will face reversion to the pre2001 estate tax regime.
increased taxes for more than just those taxpayers. One thing was certain at January 1, 2011: the estate tax would have reverted to its pre-2001 regime if Congress did not propose an acceptable measure before then. That would have been incredibly harsh on estates that would have otherwise been exempt from taxation under the old $3.5 million threshold. The lame duck session of Congress held no real promises of permanent resolution, and it was almost unrealistic to think that even a temporary compromise was a possibility. Few anticipated a deal of this magnitude being signed into law so quickly. The estate tax is back—the question now becomes what the estate tax will look like when consensus on a permanent measure is reached. Mellany L. McDonald is a solo practitioner and owner of the Law Office of Mellany L. McDonald, PLLC. She practices in the areas of probate and estate planning. Endnotes Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, H.R. 4853, 111th Cong. (2010). 2. Urban Institute & Brookings Institution, Tax Policy Center 2010 Budget Tax Proposals: Make 2009 Estate Tax Permanent, Tax Topics (May 9, 2009), http://www.taxpolicycenter.org/ taxtopics/2010_budget_estatetax.cfm. 3. See id. 4. See id. 5. The Trust Advisor Blog: U.S. Federal Estate Tax Repealed for 365 Days, http://thetrustadvisor.com/news/estatetaxrepealed/ (Jan. 1, 2010). 6. Glenn M. Karisch, Estate Tax Chaos Presents Problems, Opportunities (Jan. 1, 2010), http://www.texasprobate.com. 7. Future of the Federal Estate Tax, http://mhs.typepad.com/ threepointfive-45/federal-estate-tax-bills-in-front-of-congress. html/ (Nov. 26, 2010). 8. Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Bill of 2009, H.R. 4154, 111th Cong. (2009). 9. See id. 10. The Responsible Estate Tax Act, S. 3533, 111th Cong. (2010). 11. Id. 12. Death Tax Repeal Act, H.R. 205, 111th Cong. (2009). 13. Fair and Simple Tax Act of 2009, H.R. 99, 111th Cong. (2009). 14. Joel Friedman and Andrew Lee, Permanent Repeal Of The Estate Tax Would Be Costly, Yet Would Benefit Only A Few, Very Large Estates (June 17, 2003), http://www.cbpp.org/cms/index. cfm?fa=view&id=1964. 15. Roberton Williams, Urban Institute & Brookings Institution, Wealth and Transfer Taxes: How could we reform the estate tax? (Nov. 29, 2007), http://www.taxpolicycenter.org/upload/ Elements/II-9KEYELEMENTS_WealthTransferTaxes.final.pdf. 16. See id. 17. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, H.R. 4853, 111th Cong. (2010). 18. See id. 19. Laura Saunders, The ‘Death Tax’ Is Reborn: The State of the Estate Tax, WAL. ST. J., Dec. 11, 2010, at B7. 20. Id. 21. Id. 22. Id. 23. Id. 24. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, H.R. 4853, 111th Cong. (2010). 25. Urban Institute & Brookings Institution, Supra note 2. 1.
Conclusion The political climate at the end of 2010 caused a great deal of doubt that there would be an easy compromise to resolve issues created by the temporary estate tax repeal. The campaign promises of newlyelected congressional leaders helped fuel the belief that an estate tax that both Congress and the President could live with (without backing out of their respective promises) was unlikely in the short term. Apparently, there was some incentive to finding “middle ground” to get a tax bill passed. Few wanted to see a tax increase at the start of 2011. Some newly-elected Senate and House members campaigned on the promise to extend all of the Bush tax cuts. While President Obama has vowed to raise taxes only on taxpayers who earn in excess of $250,000 annually (a small percentage of the total American population), a return to pre-2001 rates and exemptions certainly would have
2010 Harvest Party Underwriters The Houston Bar Association and the Houston Bar Foundation would like to thank all those who underwrote the 61st Harvest Party. $30,000 Andrews Kurth LLP $25,000 Baker Botts L.L.P. Bracewell & Giuliani LLP Fulbright & Jaworski L.L.P. Locke Lord Bissell & Liddell LLP Vinson & Elkins L.L.P. Williams Kherkher Hart Boundas, LLP $10,000 Beirne, Maynard & Parsons, L.L.P. Jones Day King & Spalding LLP Navigant Consulting, Inc. $7,500 Exxon Mobil Corporation Morgan, Lewis & Bockius LLP $6,100 Kay, Mark, Christine, Bill, Todd, Melanie, John Eddie, Alistair, Bob, Denise, Otway, Bill, David, Rocky $5,000 Akin Gump Strauss Hauer & Feld LLP Amegy Bank of Texas Baker Hostetler LLP Beck Redden & Secrest, L.L.P. BP America Inc. ConocoPhillips Company De La Rosa & Chaumette DLA Piper Fibich Hampton & Leebron, L.L.P. Gardere Wynne Sewell LLP Gibbs & Bruns LLP Haynes and Boone, LLP HBA Litigation Section Howrey LLP Pride International, Inc. Schirrmeister Diaz-Arrastia Brem, LLP Shell Oil Company StoneTurn Group Sutherland Asbill & Brennan LLP Thompson & Knight LLP Weil, Gotshal & Manges LLP Winstead PC $4,000 HBA Family Law Section $2,500 Abraham Watkins Nichols Sorrels Agosto & Friend Administaff, Inc. Anadarko Petroleum Corporation BHP Billiton Legal
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Fullenweider Wilhite PC Germer Gertz, L.L.P. Hagans Burdine Montgomery Rustay, P.C. Hasley Scarano, L.L.P. HBA ADR Section HBA Appellate Practice Section HBA Corporate Counsel Section HBA Federal Practice Section HBA Labor & Employment Law Section HBA Oil, Gas & Mineral Law Section HBA Real Estate Law Section Hewlett Packard Co. Hicks Thomas LLP Hirsch & Westheimer, P.C. Jackson Walker L.L.P. Jenkins & Kamin, L.L.P. Jim Adler & Associates, P.C. Johnson, Trent, West & Taylor, L.L.P. JPMorgan Chase Lighthouse Legal Copy Linebarger Goggan Blair & Sampson LLP Liskow & Lewis, A PLC Looper Reed & McGraw, P.C. Lumen Legal MacIntyre & McCulloch, LLP MehaffyWeber, P.C. Metro Mickey Mills Munsch Hardt Kopf & Harr, P.C. Nathan Sommers Jacobs, P.C. Ogden, Gibson, Broocks, Longoria & Hall, LLP Olson & Olson LLP Perdue & Kidd, L.L.P. Phelps Dunbar LLP Porter Hedges LLP Providus Reynolds, Frizzell, Black, Doyle, Allen & Oldham LLP Rhem Golvach, P.C. Rocky & Debbie Robinson Royston, Rayzor, Vickery & Williams, L.L.P. Schiffer Odom Hicks & Johnson PLLC Shannon, Martin, Finkelstein & Alvarado, P.C. Shepherd, Scott, Clawater & Houston, L.L.P. Smyser Kaplan & Veselka, L.L.P. South Texas College of Law Sprott Rigby Newsom Robbins & Lunceford, P.C. Sterling Bank Stewart & Lynn Gagnon Strong Pipkin Bissell & Ledyard, L.L.P. Sysco Total Petrochemicals USA, Inc. UBS Wealth Management/Mark Elias & Dan Carter Ware, Jackson, Lee & Chambers, L.L.P. Welsh & Chapoton LLP Westlake Chemical Corporation Wright Brown & Close, LLP Yetter Coleman LLP Zimmerman, Axelrad, Meyer, Stern & Wise, P.C. $500 HBA Construction Law Section HBA Law Practice Management Section Stradley, Chernoff & Alford, L.L.P.
By Chris Wolfe
Proposed A Changes to Oil and Gas Taxation
re taxes meant to raise revenues for the government or to change human behavior? Plentiful and inexpensive energy is a current requirement for an advanced economy. This is as true of centrally planned, manufacturing economies (such as China), as it is for democratic, service based economies (such as the United States). However, formulating and adhering to a consistent energy policy is much more difficult for a democracy than an authoritarian regime, as the United States experience shows. The policy of the United States has been, in general, to encourage through federal income tax treatment, the rapid development and draining of oil and gas reserves within the United States. Certainly, during times of high oil prices, such as 1974 through 1981, the United States has imposed additional taxes on oil and gas companies. However, the trend in the United States over the last 90 years has been to give tax incentives for domestic oil and gas exploration and production. The United States has also unintentionally given tax incentives to foreign oil and gas exploration and production. This tax incentive is a product of globalization and the ownership of oil and gas reserves by the same foreign national governments that set income taxes on income derived from those reserves. In recent years, global warming attributable to human activities has become a political issue within the United States. Proponents of reducing carbon emissions in the interest of slowing global warming generally favor government policies that discourage the use of oil and gas. Increasing the tax burden on oil and gas is a logical method for reducing carbon emissions. This article, therefore, discusses some of the key oil and gas tax initiatives of the Obama Administration to achieve such a purpose.
As part of reducing carbon emissions, the Obama Administration proposes the following with respect to the oil and gas industry: 1. Repeal the last in, first out inventory accounting method. 2. Elimination of the enhanced oil recovery credit. 3. Elimination of the marginal wells credit. 4. Requiring capitalization, rather than expensing, of intangible drilling costs. 5. Eliminating deductions for tertiary injectants. 6. Elimination of percentage depletion. 7. I nclusion of working interest ownerships in the passive loss limitation rules. 8. Exclusion of the oil and gas industry from the domestic manufacturing deduction currently available to U.S. taxpayers. 9. I ncrease geological and geophysical amortization periods from two years to seven years. 10. Reinstate Superfund excise taxes. 11. Modify the tax rules for dual jurisdiction oil and gas companies (production abroad). The reasoning of the Obama Administration for this proposed tax program is best presented with quotes from the Administration: 1. Overview of the Administration’s. Environmental and Energy Policy The Obama Administration believes that our nation must build a new, clean energy economy, curb our dependence on fossil fuels, limit the emissions of greenhouse gases
(GHGs), and make America more energy independent. It is no longer sufficient to address our nation’s energy needs solely by finding more fossil fuels. Instead we must take dramatic steps towards becoming a clean energy economy. These include encouraging the use of, and investment in, clean energy infrastructure and energy efficient technologies.1
security and is also inconsistent with the Administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources. Moreover, the tax subsidy for oil and gas must ultimately be financed with taxes that result in underinvestment in other, potentially more productive, areas of the economy.2
3. Cross Jurisdictional Problems. Modify the tax rules for dual 2. Targeting Oil and Gas as an capacity taxpayers. Industry. Current U.S. tax The manufactur“The President agreed rules attempt to ing deduction at the G-20 Summit identify the portion generally is of a foreign levy paid available to all in Pittsburgh to phase by a dual-capacity taxpayers that generate qualiout subsidies for fossil fuels taxpayer that constitutes an income tax fied producso that the United States eligible for a foreign tion activities tax credit versus a income, which can transition to a 21st payment for a specifunder current century energy economy. ic economic benefit. law includes In making this deincome from the The manufacturing termination, current sale, exchange rules place signifior disposition deduction effectively cant weight on the of oil, natural provides a lower rate of formal characterisgas or primary tics and terms of the products thereof tax with respect to a foreign levy. In many produced in the favored source of income.” cases, the terms United States. and the structure of the foreign levy as it applies to U.S. Reasons for Change. taxpayers have been structured or The President agreed at the G-20 negotiated to meet, in form, the U.S. Summit in Pittsburgh to phase out requirements of an income tax. The subsidies for fossil fuels so that the fact that recently certain foreign United States can transition to a 21st countries (in particular, Qatar and century energy economy. The manthe United Kingdom) have reduced ufacturing deduction effectively protheir statutory corporate income vides a lower rate of tax with respect tax rates except with respect to oil to a favored source of income. The and gas companies further indicates lower rate of tax, like other oil and that at least a portion of the foreign gas preferences the Administration levies paid by such companies are proposes to repeal, distorts markets in fact in exchange for the right to by encouraging more investment in exploit natural resources (that is, a the oil and gas industry than would specific economic benefit) and not occur under a neutral system. To an income tax. Under the proposal, the extent the lower tax rate encourdual capacity taxpayers will be ages overproduction of oil and gas, permitted to claim a credit for the it is detrimental to long-term energy thehoustonlawyer.com
portion of the foreign levy that the taxpayer would pay if it were not a dual capacity taxpayer.3
proper prices on the consumption of goods that cause pollution.6
3. If these tax proposals are really about pollution, this is not a good approach to reducing greenhouse gas emissions.
4. The new fuel economy standards of the Administration are expected to eliminate the consumption of 1.8 billion barrels of oil between 2012 and 2030. In assessing the realism of reaching the policy objectives of the Obama Administration through raising taxes on oil and gas, the impartial Joint Committee on Taxation observes the following: 1. These tax changes will increase the after-tax costs of oil and gas, reduce the amount of capital invested in oil and gas and potentially increase the price of oil and gas.4 2. Decreases in the U.S. production of oil targeted by tax increases will increase oil imports but will probably have little impact on the global price of oil.5
If fossil fuel prices were to rise as the result of the repeal of incentives for fossil fuel production, there could be substitution from fossil fuels and into other energy sources, including nuclear or renewable sources of energy. The impact on pollution of any such substitution is unclear and would depend on the type and quantity of pollution associated with the alternative energy resource. To the extent that addressing pollution concerns was a major objective, economic theory would suggest the need for a tax on the externality from the consumption of fossil fuels that equaled the social harm from the consumption. Simply removing selected subsidies related to the production of fossil fuels does not address the issue of establishing
4. The national security implications of the Administration’s targeted tax provisions are not clear. If the proposals caused substitution into alternative resources of energy, reliance on foreign sources of fossil fuels could be reduced because nuclear and renewable energy sources are domestically produced. Alternatively, to the extent that the proposals primarily affect domestic production of fossil fuels, it is possible that any substitution into these alternate energy sources reflects a substitution from domestic production of fossil fuels into domestic production of these alternate sources, thus leaving the United States’ reliance on foreign fossil fuels unchanged. Furthermore, as the proposals are likely to have no effect on the world price of fossil fuels, any increase in prices for domesti-
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cally consumed fossil fuels is likely to be attenuated, and the proposals could primarily result in substitution of foreign fossil fuel sources for domestic sources whose production is more reliant on the subsidies provided in current law. Such an outcome would further imply that the proposals would not lead to any shift into the alternate energy sources of nuclear or renewables.7 The economic stakes are high. According to a Wood Mackenzie study commissioned by the American Petroleum Institute, released August 17, 2010, eliminating both the expensing of IDC and the domestic manufacturing credit would shift the average break-even points for U.S. oil from $47 to $52/bbl and from $5.40 to $6.00/Mcf for natural gas. On November 18, 2010, the spot market price of oil was well above $52/bbl, but the spot market price for U.S. natural gas was considerably below $6.00/Mcf. Based on the study’s numbers, the Obama Admin-
istration’s proposed tax changes would discourage the domestic development of lower carbon natural gas rather than higher carbon oil. While the Joint Committee on Taxation views the potentially affected oil and gas extraction industry as employing 166,600 workers in the United States, the American Chamber of Commerce reports that the number of oil and gas industry workers that would be affected by the proposed tax increases is 9,200,000. Either way, the number of jobs that could be affected by the Obama Administration’s proposed changes should not to be taken lightly. Forbes Magazine reports that, from public filings of ExxonMobil, on a global profit of $45.2 billion dollars in 2009, no U.S. federal income tax was paid. Thus, expect Congressional scrutiny of the current U.S. system of cross-border taxation. Republican control of the House, record deficits, and a continuing weak economy make adoption of the Obama Administration’s oil and gas tax initiative
in the near term unlikely. Longer term, the United States will ultimately adopt a policy on whether to encourage or discourage oil and gas use through taxation, either purposefully or through inaction. So, are taxes meant to raise revenues for the government or to change human behavior? Chris Wolfe is a partner with Haynes and Boone, LLP. He has more than 23 years of experience in representing energy-related businesses. He also practices in the areas of mergers and acquisitions and tax business planning. Endnotes 1.
2. 3. 4.
Testimony of Michael F. Mundaca, Assistant Secretary (Tax Policy) of the Department of Treasury before the House Ways and Means Committee (April 14, 2010). Id. Id. Joint Committee on Taxation, Present Law Energy-Related Tax Provisions and Proposed Modifications Contained in the President’s Fiscal Year 2011 Budget, (JCX-23-10) April 12, 2010. Id. Joint Committee on Taxation, Present Law Energy-Related Tax Provisions and Proposed Modifications Contained in the President’s Fiscal Year 2011 Budget, (JCX-23-10) April 12, 2010. Id.
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he 61st Harvest Party, co-sponsored by the Houston Bar Association, Houston Bar Association Auxiliary and Houston Bar Foundation, raised $527,500 in underwriting to benefit the Foundation, the charitable arm of the association. The event was held November 15 at River Oaks Country Club, with more than 1,000 HBA members and their guests in attendance. HBA Treasurer Brent Benoit of Locke Lord Bissell & Liddell and HBF Chair Kent W. “Rocky” Robinson of Andrews Kurth LLP served as event co-chairs. The Houston Bar Foundation is now in its 28th year of service to the legal community and the profession. The Foundation’s primary beneficiary is the Houston Volunteer Lawyers Program, which provides thousands of hours of pro bono legal representation to low-income Harris County residents each year.
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Christy and Brent Benoit
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The HBA Elder Law Committee By Christopher B. Heald
The Houston Lawyer
event. If you know a senior citizen who ouston Bar Association’s ElThe Elder Law Committee’s most sucmight qualify for a free will, have them der Law committee was orgacessful program is its yearly Will-a-Thon call 713-228-0735 between the hours of nized with the goal of serving for low-income senior members of the 9:00 a.m. and 3:00 p.m., February 28the specific legal needs of less community. During that program, particiApril 8, for screening. fortunate The Elder Law Committee furelderly Houstonians ther serves seniors in the commuwho would not othnity by publishing the Elder Law erwise be able to obHandbook, a 54-page booklet that tain legal services. The contains valuable information committee provides and resources for all seniors and Houston area seniors their families, and provides them with a variety of free with detailed information regardlegal services ranging ing seniors’ rights and the services from legal advice to available to them. The booklet will drafting through is updated each year, and one of its site visitation prothe Committee’s 2011 goals is to gram each year. include a new section specifically Participating lawaddressing the increasing number yers volunteer to travel to and visit senior A volunteer attorney prepares a will for a senior during the Elder Law Committee’s Will-A-Thon. of fraudulent solicitations and scams aimed at seniors. It will inform secommunities in the area, where they anpating attorneys gather at one of the reguniors of the risks they face in today’s onswer legal questions and provide informalarly visited communities to meet with line environment, and equip them with tion and resources to elderly citizens who the knowledge they need to recognize seniors in need. Each could not otherwise fraudulent schemes and avoid becoming visit provides seniors in afford to have their victims of them. that community with wills drafted. After the Darlene Payne Smith, the committee’s the opportunity to ask initial meetings with co-chair, says she is “very honored to be questions and receive each of the seniors, a part of the committee,” and enjoys the advice for their spethe attorneys draft the opportunity to serve seniors in need in cific legal issues. When wills, and a formal will Houston and its surrounding areas. The assistance beyond a signing ceremony is committee continues to be dedicated to simple consultation is held for them the folassisting the less fortunate seniors of our needed, the participatlowing month. The community with their legal needs, and ing lawyers will help initial consultation for looks forward to continued success in the seniors to obtain this year’s Will-a-Thon 2011. legal counsel through will be April 19, and either the Houston the will signing cerVolunteer lawyers Pro- The Elder Law Handbook provides practical emony follows on May Christopher B. Heald is an associate at gram or the Houston advice for seniors and their families. 17. Each year between Ford & Mathiason LLP, a probate boutique Lawyer Referral Service, depending on 90 and 100 wills are drafted and executfirm. He specializes in probate and guardtheir particular situations. ed for the seniors who participate in the ianship litigation.
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What does it take to become an “Equal Access Champion”? The firms and corporations listed below have signed 5-year commitment forms that indicate they will uphold a pledge to provide representation in a certain number of cases each year, based on the number of attorneys in the firm or legal department. The goal is to provide pro bono representation in at least 1,500 cases through the Houston Volunteer Lawyers Program each year, and to increase that goal each year. For more information contact Kay Sim at (713) 759-1133.
Large Firm Champions Andrews Kurth LLP Baker Botts L.L.P. Bracewell & Giuliani LLP Fulbright & Jaworski L.L.P. Locke Lord Bissell & Liddell LLP Vinson & Elkins LLP Corporate Champions Baker Hughes Incorporated BP CenterPoint Energy, Inc. ConocoPhillips Continental Airlines, Inc. Exxon Mobil Corporation Marathon Oil Company Port of Houston Authority Rosetta Resources Inc. Shell Oil Company Waste Management, Inc. Intermediate Firm Champions Akin Gump Strauss Hauer & Feld LLP Beirne, Maynard & Parsons, L.L.P. Gardere Wynne Sewell LLP Haynes and Boone, L.L.P. King & Spalding Thompson & Knight LLP Mid-Size Firm Champions Adams & Reese LLP Baker & Hostetler LLP Chamberlain, Hrdlicka, White, Williams & Martin Greenberg Traurig, LLP Howrey LLP Jackson Walker L.L.P. Jones Day Morgan, Lewis & Bockius LLP
Porter & Hedges, L.L.P. Strasburger & Price, L.L.P. Susman Godfrey LLP Weil, Gotshal & Manges Winstead PC Small Firm Champions Abraham, Watkins, Nichols, Sorrels, Agosto & Friend Beck, Redden & Secrest, L.L.P. Doyle, Restrepo, Harvin & Robbins, L.L.P. Gibbs & Bruns LLP Hays, McConn, Rice & Pickering, P.C. Hughes Watters Askanase LLP Johnson DeLuca Kennedy & Kurisky, P.C. Kroger Frisby Schwartz, Junell, Greenberg & Oathout, L.L.P Shook Hardy & Bacon, L.L.P. Sutherland Asbill & Brennan LLP Weycer, Kaplan, Pulaski & Zuber, P.C. Yetter Warden & Coleman LLP Boutique Firm Champions Abrams Scott & Bickley, L.L.P. Coane & Associates Connelly • Baker • Wotring LLP Edison, McDowell & Hetherington LLP Fullenweider Wilhite PC Funderburk & Funderburk, L.L.P. Hicks Thomas LLP Jenkins & Kamin, L.L.P. Ogden, Gibson, Broocks, Longoria & Hall, L.L.P. Squire, Sanders & Dempsey L.L.P. Strong Pipkin Bissell & Ledyard, L.L.P. Wilson, Cribbs & Goren, P.C.
Solo Champions Law Office of O. Elaine Archie Basilio & Associates Peter J. Bennett Law Office of Thomas Black, P.C. Fatima Breland Law Office of Fran Brochstein Law Office of Barbara Calderon Law Office of Robbie Gail Charette De la Rosa & Chaumette Papa Dieye The Ericksen Law Firm Frye & Cantu, PLLC Fuqua & Associates Terry L. Hart Law Office of David S. Hsu Katine & Nechman L.L.P. The Keaton Law Firm, PLLC Gregory S. Lindley Law Office of Maria S. Lowry Martin R. G. Marasigan Law Offices The Law Office of Evangeline Mitchell, PLLC The Montalvo Law Firm Morley & Morley, P.C. Bertrand C. Moser Pilgrim Law Office Robert E. Price W. Thomas (Tommy) Proctor Gwen E. Richard Law Offices of Judy Ritts Cindi L. Robison Scardino & Fazel Shortt & Nguyen, P.C. Sadler Law Firm Jeff Skarda Teal & Associates Tindall & England, P.C. Diane C. Treich Norma Levine Trusch
OFF THE RECORD
The Provenance of
Andrius Kontrimas By Julie Barry
he term “provenance,” which refers to the origin or the dous progress in recent years, with museums publicly posting works source of something, is typically used to describe the in their possession that have gaps in provenance. Still, others assert the ownership history of a work of art. It is a fascinating museums aren’t doing enough by listing the works, essentially leaving subject about which Andrius Kontrimas knows a great it to possible claimants—many of whom are now quite old and withdeal. Like the fine art with which out financial resources—to do the research themhe passionately assists his clients, selves. “Gaps in provenance can be for a variety of lawyer Andrius Kontrimas leaves a lasting imreasons and it cannot be assumed malfeasance is pression. Kontrimas, who heads up the internathe reason for the interruption,” Kontrimas said. tional tax group of Fulbright & Jaworski L.L.P., Kontrimas’ own provenance began in the U.S. is an avid art collector whose interest in art has while his Lithuanian parents were attending gradspanned the decades. He was able to transform his uate school here. With dual U.S. and Lithuanian art expertise into a practice in the early 1990s, and citizenship, Kontrimas’ interest in art developed now represents an impressive list of art clients, induring frequent travels with his family throughcluding museums, art dealers, private collectors, Andrius Kontrimas at the Museum of Fine out Europe. Kontrimas attended college at UCfoundations and estates. Berkeley and law school at UCLA. Upon graduArts, Houston. Among the topics clients often ask Kontrimas to address and assist ating from law school, he went to work for Vinson & Elkins. From with are the perils and pitfalls of provenance. Provenance is importhere, he moved to Jenkens & Gilchrist, where he served as that firm’s tant to art collectors because it establishes the historical, social, and Houston office managing partner until he moved on with his group to economic framework of a work of art. When a dispute arises over Fulbright & Jaworski. the ownership, the source is typically a gap in the work’s provenance. Not all of Kontrimas’ attention to art is work-related. He currently “There are a number of reasons why these gaps may exist,” explains serves on the Development Committee, as well as the European Art Kontrimas. “In particular, there are the ‘Three D’s’—death, divorce and Committee, for the Museum of Fine Arts Houston. His particular area debt. Throughout the centuries, works of art have changed hands as of interest is 18th and 19th century European art. Kontrimas says his a result of one of these misfortunes, and at times the individuals inrole on the European Art Committee allows the opportunity to prevolved did not wish for their identities or adverse circumstances to be view works that are being considered as possible acquisitions by the revealed.” Consequently, works of art were often sold in anonymity. museum, as well as exhibition planning. From listening to him retell When there are gaps in provenance of European art between the scintillating stories of forgeries, theft and fraud, it is clear that Kontriyears 1933 and 1945, there is risk it may be the result of the systematic mas relishes his connections to the art world. He even married a fellow confiscation of art by the Nazis. By the end of World War II, an estilawyer turned professional artist, who has an impressive career of her mated 150,000 pieces of art had been looted in Western Europe, and own, with over 20 years of experience. While Kontrimas’ accomplishnearly half a million pieces in Eastern Europe. This art has a current ments in the area of art law have been the result of intelligence and estimated value exceeding $200 billion. Consequently, when it comes hard work, he also knows he has been truly blessed to have been able to establishing title to a work of art, clean provenance is a highly valuto develop his passion so successfully. able asset to a museum, gallery or private collector, as is the expertise “I have been privileged to have these opportunities and to earn of Andrius Kontrimas in legally protecting that ownership. the trust of my clients to be able to work in such a fascinating area,” Great strides have been made in the art world with respect to docuKontrimas said. “It is an art lover’s dream come true.” mentation of works of art with questionable provenance, due in large part to the Internet, Kontrimas explained. Between 1998 and 2006, Julie Barry is an attorney with Theodore J. Lee, focusing on U.S. and numerous works in American museum collections were identified as international commercial transactional law. She is a member of The stolen by the Nazis. Many experts say the art world has made tremenHouston Lawyer editorial board. .
at the bar
The Hon. Harvey G. Brown, Jr. was sworn in as a justice on the First Court of Appeals by the Hon. Dale Wainwright of the Supreme Court of Texas on December 15, 2010.
The Hon. Marc Brown was sworn in as judge of the 180th District Court by the Hon. Susan Brown, his wife and judge of the 185th District Court, on January 5, 2011.
The Hon. Jeffrey A. Shadwick was sworn in as judge of the 55th District Court by the Hon. Mark Davidson, MDL judge and retired judge of the 11th District Court, on January 4, 2011.
The Hon. Denise Bradley was sworn in as judge of the 262nd District Court by the Hon. Mike Anderson, retired judge of the 262nd District Court, on January 6, 2011.
NON-SUBSCRIBER WORKERS COMPENSATION CASES REFERRALS ACCEPTED Texas is the only state that does not require employers to carry state worker’s compensation coverage for their employees. We have successfully handled these cases against H.E.B., Kroger, Richway Transportation, Memorial Hermann and many other Texas employers that are non-subscribers to State Workers Compensation.
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If your client’s employer is a “non-subscriber” and there is a serious injury caused by the employer’s negligence, call us - we can help!
Thomas N. Thurlow & Associates, P.C. The Lyric Centre 440 Lousiana, Suite 1200, Houston, TX 77002 713-224-6774 38
at the bar
The Hon. James T. Lombardino was sworn in as judge of the 308th District
The Hon. David D. Farr was sworn in as judge of the 312th District Court by the
Court by Sen. Dan Patrick, District 7, on January 6, 2011.
Hon. Judy L. Warne, judge of the 257th District Court, on January 7, 2011.
The Hon. Ellen Shelton was sworn in as associate judge of the 312th District
The Hon. Denise V. Pratt was sworn in as judge of the 311th District Court by the Hon. Doug C. Warne, retired judge of the 311th District Court, on January 18, 2011.
Court by the Hon. David Farr, judge of the 312th District Court, on January 7, 2011.
Additional photos of Judicial Investitures will appear in the next issue of The Houston Lawyer.
Jeffry S. Abrams (713) 522-4733
William Andrews (713) 850-4200
Susan G. Perin (713) 572-5000
Robert Black (409) 835-5011
Tommy Proctor (713) 871-2500
Nancy Huston (713) 546-3590
Louis P. Selig (713) 807-1707
Alan F. Levin (713) 877-1600
Susan S. Soussan (713) 961-2880
Gary McGowan (713) 552-1855
Michael S. Wilk (713) 220-9124
Alice Oliver-Parrott (713) 222-6338
Alvin Zimmerman (713) 552-1234
%XPEDITE 3CHEDULING !VAILABLE DATES ONLINE FOR OF THE STATES PREMIER NEUTRALS
4O CHECK SCHEDULES ONLINE VISIT WWW4EXAS.EUTRALSORGQUICKSEARCH The Academy is a statewide association of ADR professionals who have substantial experience in the resolution of commercial and civil disputes. Each member has been recognized for their accomplishments through the Academyâ€™s peer-nomination and client-interview procedures. Membership is by invitation only and limited to neutrals who devote a significant percentage of their practice to private civil mediation or arbitration. For more information, call Rose-Anne Raies, National Academy of Distinguished Neutrals (NADN) Roster Coordinator at (813) 600-5678 or visit www.NADN.org/about
Boomtown DA By Carol S. Vance 321 pages Whitecaps Media 2010
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Reviewed by Don Rogers arol S. Vance, the author of Boomtown DA, received his law degree from the University of Texas in 1958, and served as an assistant district attorney with the Harris County District Attorney’s Office for eight years. On February 1, 1966, he became Harris County’s district attorney following his appointment by Governor John Connally, and remained in that position for almost 14 years after winning four unopposed elections. In 1979, he resigned as district attorney, and took a position as a partner with the law firm of Bracewell & Patterson, now Bracewell & Giuliani, where he remained until his retirement as a senior partner in 2001. During his career, he was a founder and served as president of the National District Attorneys Association; chair of the Texas Board of Criminal Justice, which oversees the Texas Department of Criminal Justice; and as a fellow of the American College of Trial Lawyers. A Christian faith-based Texas prison unit he helped start in Sugar Land, the Carol S. Vance Unit, is named after him. Houston was the fastest growing city in the United States (a “boomtown”) when Vance served as district attorney, and with its population growth came a dramatic increase in crime. In his book, Vance discusses his experiences at the Harris County District Attorney’s Office during that era, including: (1) the changes and improvements he made to the office itself, which progressed from a small office that was challenged by big cases to 40
a big office that could handle anything; (2) the many high-profile criminal cases he oversaw or personally prosecuted as district attorney; and (3) the many colorful judges, prosecutors, criminal defense lawyers, and other notable characters who participated in those cases, including such Texas legal legends as Percy Foreman, Richard “Racehorse” Haynes, Dick DeGuerin, Rusty Hardin, Erwin Ernst, and Johnny Holmes. The book contains 22 chapters. The first seven chapters address Vance’s experiences during the period he served as an assistant district attorney, and the remaining chapters discuss the events that occurred and criminal cases he prosecuted or supervised after he became district attorney. The book contains photographs of Vance and some of the judges, prosecutors, defense lawyers, politicians, and government officials with whom he associated. Its four appendices contain additional information about the Harris County District Attorney’s Office and the assistant district attorneys who served there during Vance’s era, as well as office rosters, organizational charts, and a 1976 office portrait. The book is well-written, informative, and entertaining. It will bring back many memories of persons and events to anyone who practiced law in Harris County during the time Carol Vance was district attorney, and will otherwise be of interest to persons concerned with the history and development of Houston and Harris County, the Harris County District Attorney’s Office, and the Harris County criminal justice system. Don Rogers is an assistant district attorney with the Harris County Attorney’s Office and serves as the Media Reviews editor for The Houston Lawyer.
Matches in the Gas Tank: Trial by Fire in the Armstrong Cult By Carla Powers Bright Sky Press 2009
Reviewed by N. Jill Yaziji n one of the most arresting passages of Carla Powers’ personal memoir Matches in the Gas Tank, the author describes coming home one evening from a neighbor’s house to find that her mother had nearly died giving birth to her youngest brother. The labor had started the night before, but since the Radio Church of God disallowed medicine and surgery, her mother had to give natural birth at home. The baby was breach and his arm entangled in the umbilical cord, tearing her mother’s uterus on the way out. “[T]he first thing that hit me” Powers writes, “was the metallic, pungent smell… Blood was everywhere… in the bathtub… spattered on the walls. Blood smeared the floor. I was scared out of my wits, but I didn’t let on… I knew something was dreadfully wrong.” Powers kept quiet for years, distancing herself from this and other painful childhood memories through layers of professional recognition and Armani suits. She broke away from the tyranny of the Radio Church of God, and an abusive father, to become a lead litigator at a major Houston company. Yet, professional success notwithstanding, a powerful inner voice one day urged her to write her story; and write she did. The narrative voice in this intense per-
violent rages of an alcoholic father who had become completely absent from his family, except for short visits when he beat his wife and terrorized his children into believing he was in charge. Powers dealt with the fear and insecurity that haunted her childhood by becoming more driven, “driven by indignation” to become a lawyer so she could defend others who, like her mother, had no recourse. Yet, she herself did not escape the psychological impact of dogma. She recounts listening to Armstrong’s prophecy that Christ would return “eight years from now” when she was 12-years-old and feeling chill bumps on her body as she pictured the world unraveling in the Great Tribulations—her young imagination seized by the Church’s illustrations of “emaciated parents holding dead children….” Even at the age of 16, despite winning speech and debate awards, she surrendered to a minister’s cross-examination of her sex life. Only after years of physical and intellectual distance, and access to alternative social institutions, did the author begin to peel off the layers of her own inner subjugation. In writing Matches in the Gas Tank, Powers reclaims a life nearly lost to fear and insecurity. But in so doing she also expands our understating of how religious dogmas take their hold on people’s minds and turn them into manipulated psyches—a tale bearing relevance to far greater an audience than the one simply interested in the book’s cathartic value. N. Jill Yaziji is the principal of Yaziji Law Firm, specializing in business litigation. She is a member of the Editorial Board of The Houston Lawyer.
sonal memoir is bitter, as the author demands answers for why her family, and many others, yielded to the dictates of Armstrong’s cult, abandoned traditional Christian dogma, declined medicine, accepted the Church’s tithing at higher rates than federal income taxes despite its poverty, and refused to question Armstrong’s dogma well after so many of his prophecies failed to materialize. The result is a moving account of the power of indoctrination and the destructive influence of religion when it turns from a force of moral guidance into a draconian code of conduct regulating its followers’ lives. The author’s father began listening to Armstrong’s radio sermons while stationed overseas in the 1950s. Powers tells us that Armstrong’s voice was authoritative and commanding, spoke of “reeducation” and prosperity, and promised his followers “material gratification here and now,” unlike the conventional eschatological narrative of happiness beyond. For a war veteran with a fourth-grade education, the attraction of becoming a well-respected and well-paid minister was undeniable. So, when Powers was five, she and her family moved from Arkansas to Big Sandy, Texas, where the Church had embarked on building a major campus. But the promise of prosperity turned into thin air when Charles Powers failed to become a minister and his business faltered as he turned increasingly to alcohol to patch over his wounded pride. With riveting detail, Powers takes her readers through the turmoil that she, her mother, and two brothers experienced in the subsequent 15 or so years, as their lives tethered between the harsh strictures of a church that prohibited divorce and the
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The Supreme Court Offers Jeffrey Skilling a Mixed Result
By Jim Zucker
The Houston Lawyer
n November 1, 2010, attorneys for Jeffrey Skilling returned to the Houston federal courthouse and argued before the same Fifth Circuit Court of Appeals panel that heard Skilling’s original appeal in 2008. The occasion for the appearance was to argue the effect of the Supreme Court’s ruling in Skilling v. United States, No. 08-1394, 130 S. Ct. 2896 (2010). The Court delivered its opinion on June 24, 2010, addressing Skilling’s claim that he was unable to receive a fair trial in Houston due to pretrial publicity and community prejudice and his argument that 18 U.S.C. § 1346, the honest-services fraud statute, is unconstitutionally vague. The Court affirmed the Fifth Circuit’s holding that Skilling received a fair trial despite negative pretrial publicity, but reversed the lower court’s honest-services ruling. The Court’s opinion is significant with respect to both the fair-trial standard and honest services, the former not having been addressed by the Court in the age of pervasive 24/7 media coverage and the latter restricting what had become a significant prosecutorial tool wielded against corporate titans. Skilling Received A Fair Trial Skilling argued before both the Fifth Circuit and the Supreme Court that the overwhelmingly negative pre-trial press coverage, the number of victims (those who directly or indirectly lost money in Enron’s collapse) in Houston, and the guilty plea 42
shortly before trial of Richard Causey, who was to be tried with Skilling and Ken Lay, meant that Skilling could not receive a fair trial in Houston and his trial should have been moved. The Fifth Circuit agreed that the volume and tone of the media coverage surrounding Enron’s collapse (noting that even the pet featured in the Houston Chronicle’s “Pethouse Pet of the Week” had “enjoyed watching those Enron jerks being led away in handcuffs”), the large number of victims (from Enron employees to Houstonians suffering collateral effects), and the Causey plea created a presumption of juror prejudice. The Fifth Circuit held, however, that the presumption was rebuttable and, after reviewing the district court’s “proper and thorough” voir dire, concluded that the empanelled jury was actually impartial and the Government had overcome the presumption of prejudice. The Court likewise concluded that Skilling’s jury was actually impartial and that he was not prejudiced by being tried in Houston. The Court disagreed, however, that the atmosphere and events surrounding Enron’s collapse and Skilling’s trial warranted a presumption of prejudice in the first place. The Court distinguished Skilling’s trial from cases where the Court previously applied a presumption of prejudice. To begin, the Court noted the difference between the size and characteristics of the community in which Skilling’s alleged crimes occurred, namely that Houston is the fourth most populous city in the United States with more than 4.5 million people eligible for jury duty at the time of Skilling’s trial. “Given this large, diverse pool of potential jurors, the suggestion that 12 impartial individuals could not be empanelled is hard to sustain.” Second, the Court found it significant that, though the media coverage was “not kind,” there was no confession by Skilling. The Court explained that a juror may not reasonably be expected to ignore reports of a confession or purported confession, but could be expected to “shut from sight”
merely negative news stories. Moreover, the Court opined that Houston’s size and diversity ameliorated the impact of the negative news coverage. Third, the Court believed that the passage of time between the alleged commission of the crime and the trial—four years in Skilling’s case— counseled against a presumption of prejudice. Finally, and of greatest significance to the Court, the jury’s acquittal of Skilling on nine insider-trading counts confirmed that it was impartial and that a presumption of prejudice was not warranted. Additionally, the acquittal of other Enron executives tried in Houston, e.g., the Enron Broadband executives, demonstrated that Enron defendants could receive a fair trial in Houston. Honest-Services Fraud Is Limited To Bribes and Kickbacks Before the Supreme Court, as before the Fifth Circuit, Skilling pressed his arguments that the honest-services fraud theory was unconstitutionally vague or, at the least, the statute did not encompass his conduct. Honest-services fraud initially appeared as a crime in the early 1940s when courts interpreted the mail- and wire-fraud statutes—specifically the phrase, “scheme or artifice to defraud”—to include the deprivation of intangible rights, as well as money or property. The crime targeted public corruption in which there was not necessarily an obvious victim, e.g., where a mayor accepted a bribe and awarded the bribing party a contract, but on the same terms as could have been negotiated at arm’s length so that the City suffered no tangible loss, but did endure the intangible loss of the mayor’s honest services. Most early honest-services cases involved bribery of public officials, but over time, courts recognized private-sector honest-services fraud as well. In McNally v. United States, 483 U.S. 350 (1987), the Court considered the honestservices fraud theory of conspiracy for
the first time and held that the mail- and wire-fraud statutes only applied to tangible rights, such as money and property, not intangible rights, such as honest services. The Court explained that the fraud statutes did not clearly include intangible rights and for courts to hold so rendered the statute too ambiguous. If Congress wanted the fraud statutes to apply to intangible rights, then it would have to “speak more clearly.” The next year, Congress enacted 18 U.S.C. § 1346, a single sentence that defined “scheme or artifice,” as used in the mail- and wire- fraud statutes, to include “a scheme or artifice to deprive another of the intangible right of honest services.” Skilling argued that Congress’s single sentence was void for vagueness because it did not state a criminal offense with sufficient definiteness that ordinary people could understand the prohibited conduct, and that it encouraged arbitrary and discriminatory enforcement, both in violation of due process. The Court admitted that the vagueness argument had force—in fact, Justice Scalia wrote separately, with Justices Thomas and Kennedy joining, and agreed that the statute is unconstitutionally vague—but instead of invalidating the statute, the Court chose to limit its construction. For the limitations, the Court looked to the pre-McNally honest-services cases, which were, “in the main,” limited to “schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who had not been deceived.” The Court held that “§ 1346 criminalizes only the bribe-and-kickback core of the pre-McNally case law.” In the end, although the Court rejected Skilling’s constitutional argument, by limiting honest-services fraud to bribes and kickbacks, the Court adopted Skilling’s alternative argument that his actions did not constitute honest-services fraud. Because the Government never alleged that Skilling received any side payments from third parties, the Court held that “Skilling did not commit honest-services fraud.” The Court
remanded the case to the Fifth Circuit because Skilling’s indictment alleged three objects of the conspiracy—honest-services wire fraud, money-or-property wire fraud, and securities fraud—and his conspiracy conviction could still stand on either of the latter two objects. It is also an open question whether any of Skilling’s other convictions would fall if the conspiracy conviction were overturned. Hence, Daniel Petrocelli’s return to Houston on November 1 to argue before the Fifth Circuit. The Fifth Circuit has taken the case under submission and its ruling is forthcoming. Jim Zucker is an associate at Yetter Coleman LLP, where his practice focuses on complex commercial litigation and appeals.
Texas Law’s Interpretation on a Valid Marriage: An Analysis of the Marriage of Nikki and Thomas Araguz in the State of Texas By Lisa Brindle Talbot and David Arlington Talbot, III
he tragic death of a Wharton County firefighter has ignited a legal firestorm that has added a twist to the long-standing fight over same-sex marriages. Texas law provides that a marriage is between a man and a woman.1 But, a future ruling by the District Court of Wharton County could change how the terms “man” and “woman” are defined under Texas law. On July 3, 2010, Thomas Trevino Araguz, III, 30 years old, died while battling a fire in Boling, Texas, approximately
55 miles southwest of Houston. Thomas was a captain and 11-year veteran of the Wharton Volunteer Fire Department. Thomas’ death has led to a heated legal battle over his death benefits, totaling an estimated $600,000. On July 12, 2010, eight days after Thomas’ death, his mother, Simona Longoria, filed a lawsuit in Wharton County styled In the Estate of Thomas Trevino Araguz, III, Deceased, Cause No. 44575. Soon thereafter, Thomas’ first wife, Heather Delgado, intervened on behalf of her two minor sons with Thomas.2 The heart of this lawsuit is centered on the gender of Thomas’ wife, Nikki Araguz, a 35-year old woman who was born a man. Specifically, Simona’s and Heather’s lawsuit requests that the Court hold the marriage between Thomas and Nikki void because the couple were members of the same sex, and such unions are not recognized in Texas.3 As Thomas died without a will, a ruling holding the marriage void would prevent Nikki from receiving any insurance or death benefits the couple had, with these benefits only going to Thomas’ sons. The Life of Nikki Araguz On June 4, 1975, Nikki was born as a male, Justin Graham Purdue, in Carmel, California. At birth, Nikki suffered from a rare defect called Partial Androgen Insensitivity Syndrome (“AIS”). Partial AIS causes an individual to be born with the physical traits of a female, but have ambiguous genitalia or male genitalia.4 AIS prevents the individual from responding to androgens (testosterone), causing their genitals not to develop any further after birth, puberty, or during adulthood.5 After living her life for over 20 years as Justin, she legally changed her name to Nikki Paige Purdue in February 1996. Two years later, Nikki married her first husband Emilio Mata, who was 18 years her senior. As a result of legal and financial problems, the marriage ended in divorce in 2007. During that same year, Nikki met Thomas, who was separated from Heather.
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Thomas and Heather divorced, and Thomas married Nikki on August 23, 2008, in Needville, Texas. Less than two months later, Nikki underwent genital reconstructive surgery. The Parties’ Legal Arguments Before the Court The issue before the Wharton County court is whether under Texas law, a marriage is void if one party is male and the other party is born a male but subsequently undergoes genital reconstructive surgery to acquire female genitalia. Thomas’ mother, Simona, asserts that the marriage between the couple was never legal and should be dissolved on the grounds that Nikki was a male at birth. She cites a Texas appeals court ruling in Littleton v. Prange6 as the controlling case law. In Littleton, Christie Littleton, a former man and post-operative transsexual woman, filed a wrongful death suit arising from her husband’s death due to complications after a medical procedure.7 As the surviving spouse, Christie filed a medical malpractice claim against her deceased husband’s doctors.8 The doctors filed summary judgment motions challenging Christie’s status as a valid wrongful death claimant.9 Specifically, the doctors argued that despite the sex reassignment surgery, Christie remained legally a man and could not be the surviving spouse of another man under Texas law.10 The Texas Court of Appeals found that Christie could not be the spouse of another man because Christie was “created and born a male” and noting that her birth certificate listed her as male.11 The fact that medical science could construct female anatomy and genitalia did not, in the Court’s view, change Christie’s status as a man. The court gave significant weight to the fact that the sex reassignment surgery did not create internal reproductive organs or alter Christie’s male chromosomes. The court concluded “[t]here is no womb, cervix or ovaries in the post-operative trans44
sexual female... [b]iologically, a post-operative transsexual female is still a male.”12 During the pendency of the suit, Christie successfully amended her birth certificate to change her gender designation to female.13 Despite this attempt, the court still held that the amended birth certificate was not binding because the original certificate was a true and accurate reflection of her gender at the time of her birth.14 Thus, the core of the Littleton ruling has two facets: (1) a person’s original birth certificate is immutable in Texas with regard to their sex designation; and (2) in Texas, biology determines one’s legal sex status. The Littleton court’s heavy reliance on biology fails to adequately address the status of transgendered individuals born with chromosomal or anatomical anomalies, such as persons with both ovarian and testicular tissue or ambiguous genitalia. Individuals with these conditions, sometimes called intersex individuals, often suffer from chromosomal anomalies such as an extra x or y chromosome. It is unclear under Littleton how a Texas court would rule where the transgendered man or woman suffered from a chromosomal or anatomical anomaly. Given the foregoing, there is certainly room for multiple attacks to be placed on the Littleton ruling. One argument would be that the Littleton court’s evaluation of genetics and sexual morphology is simply incorrect law. Another argument is that the Littleton ruling should not apply because Nikki could be deemed intersex and her AIS status at birth placed her in a completely separate category. For now, Nikki maintains that she is female and that her marriage to Thomas was valid. She relies upon a new provision in the Texas Family Code, § 2.005, which took effect in 2009. Section 2.005 expanded a marriage license applicant’s proof of identity to include “a court order relating to the applicant’s name or sex change.”15 Nikki argues that this legislation effectively overturns the Littleton decision because she can now rely upon proof of her sex change,
rather than her birth certificate (as noted in Littleton) to prove her gender. Under this argument and her reliance upon § 2.005, Nikki claims that her marriage to Thomas is valid under Texas law. However, critics of this argument argue that § 2.005 does not conflict with the Littleton court’s ruling that a person’s sexuality is determined at birth. Therefore, in spite of what documents are used as proof of one’s identity for obtaining a marriage license under § 2.005, the court can still rely upon the reasoning used in Littleton to hold that Nikki was born a man. Under these circumstances, the court could still hold that regardless of her proof of a sex change, her birth certificate lists her as a man—ultimately voiding her marriage to Thomas. If nothing at all, § 2.005 may leave the door open for certain same-sex unions to be considered valid under Texas law, even after applying Littleton. In cases where the transgendered party at birth was of the opposite sex of his or her marriage partner, but later obtained a sex change, a court may hold that the marriage is valid even if the parties are now of the same sex. In May 2010, the Bexar County Clerk issued a marriage license to a male-to-female transgendered woman and her female fiancé. Relying on Littleton and the fact that the transgendered woman’s birth certificate designated her as a man, the Bexar County Clerk reasoned that the seemingly gay marriage was valid because it was between a man and a woman.16 The Texas Attorney General, Greg Abbott, refused an earlier request by the El Paso County Clerk to rule on this issue when the couple initially applied for a marriage license in El Paso, Texas, stating that the court was the proper entity to make such a ruling.17 A Brief History of Decisions Addressing this Issue Nikki may have a difficult road ahead of her. In one of the first cases dealing with the validity of a marriage involving a postoperative transsexual, Corbett v. Corbett,18
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an English court held the marriage was void.19 In Corbett, a husband sought to dissolve his marriage to his transgendered wife on the basis that the wife was legally a man. The husband further alleged that due to the transgendered status, he was unable to engage sexually with his spouse and consummate the marriage.20 In finding for the husband, the court held that biology alone determines a person’s sex, at least in the marriage context.21 According to the court, “the biological sexual constitution of an individual is fixed at birth (at the latest) and cannot be changed, either by natural development of organs of the opposite sex, or by medical or surgical means.”22 Only a year after Corbett, a New York state court tackled the issue. In Anonymous v. Anonymous,23 a husband sought to annul his marriage to his pre-operative transgendered wife.24 In this case, the transgendered wife underwent sex-reassignment surgery after she married the husband. As a result, the court noted that at the time of the marriage, the wife was unquestionably still a man and had all male organs—a fact the husband allegedly first learned on his wedding night.25 The court held that the marriage was void because New York law stated that a marriage was a contract between a man and a woman.26 The court’s decision in Anonymous highlights a hurdle Nikki may too face. Similar to the facts in Anonymous, Nikki also underwent sex re-assignment surgery two months after her union to Thomas.27 Based on this fact alone, the court may hold that the Araguz marriage is void because it was between two men at the time of the marriage.28 In 1976, New Jersey confronted the issue and unlike previous courts, upheld the marriage. In M.T. v. J.T.,29 a husband paid for his transsexual wife’s sex re-assignment surgery prior to their wedding.30 Two years later, the marriage ended in divorce and the wife sought spousal support from her husband.31 In response to the husband’s
objections, the New Jersey court rejected the argument that the marriage was void because the wife was a man.32 In particular, the Court determined that sexual identity was based on more than simply biology and acknowledged the significant psychological aspects to one’s perception of his or her gender.33 The court reasoned that if sex reassignment harmonizes a person’s genitalia or organs with their psychological sexual identity and they are able to perform sexually as their chosen gender, then the law must recognize their chosen sexual identity for the purposes of marriage.34 This ruling is unlike many others that have routinely held that an individual’s sex is determined at birth and is based on anatomy. Should the Araguz court hold similarly, it would certainly change Texas’ marriage laws as we now know it.
attorney at Mills Shirley’s Houston, Texas office. His practice areas also include commercial litigation, insurance defense, and environmental tort cases. Endnotes 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.
Conclusion Given the complexity of the issue and the implications a ruling may have on same-sex marriages in Texas, it is impossible to predict how the court will rule. Any decision by the court with respect to Thomas and Nikki’s marriage will have a far-reaching influence on society, especially as we grapple with issues surrounding the status of transgendered individuals and what it means to be a man or a woman.
20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34.
See Tex. Fam. Code Ann. § 2.001. The National Union Fire Insurance Company of Pittsburg also intervened on September 10, 2010. See Tex. Fam. Code Ann. § 2.001. See http://en.wikipedia.org/wiki/Androgen_insensitivity_ syndrome. See id. 9 S.W.3d 223, 225 (Tex. App.—San Antonio 1999). See id. Id. Id. Id. Id. at 223. Id. at 230. Id. Id. See Tex. Fam. Code Ann. § 2.005. Chuck Lindell, “AG declines to issue opinion on same-sex marriage,” Austin American Statesman, Aug. 10, 2010. See id.; see also 2010 Tex. AG Lexis 37 (El Paso Aug. 6, 2010). 2 W.L.R. 1306, 2 All E.R. 33 (P.D.A. 1970). Id. Id. Id. at 1323. Id. 325 N.Y.S.2d 499 (N.Y. Sup. Ct. 1971). Id. Id. Id. at 501. Id. at 499. Id. at 500. 355 A.2d 204, 205 (N.J. Super. Ct. App. Div. 1976). Id. Id. Id. 355 A.2d at 207. Id. at 211.
Lisa Brindle Talbot is a member of The Houston Lawyer Editorial Board and an attorney in Houston, Texas. Her practice areas include commercial litigation, insurance defense and environmental tort matters. David Arlington Talbot, III is an thehoustonlawyer.com
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The Houston Bar Association Lawyer Placement Service will assist members by coordinating placement between attorneys and law firms. The service is available to HBA members and provides a convenient process for locating or filling positions. 1. In order to place an ad, attorneys and law firms must complete a registration record. Once registration is complete, your position wanted or available will be registered with the placement service for six months. If at the end of the six-month period you have not found or filled your position, it will be your responsibility to re-register with the service in writing.
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