Every year is eventful in its own way, but 2011 seemed to have more than its fair share of momentous occurrences, from extreme weather (the Japan earthquake and tsunami, and devastating tornadoes, drought, and wildfires in the United States) to grassroots protest movements that sprang up in the Middle East (the Arab Spring) and at home (Occupy Wall Street). We learned about the deaths of Osama bin Laden and Moammar Gadhafi. And closer to home, Congresswoman Gabrielle Giffords survived a shooting spree to become an inspiration to many. To top it all off, we were invited to a royal wedding. In Texas, politics captured our attention for much of the year with hotly contested debates over the state budget, education, and redistricting — among other issues — taking center stage during the 82nd legislative session. And Gov. Rick Perry joined the Presidential campaign trail in the fall. On the legal side of things, the <i>Texas Bar Journal</i> Board of Editors has assembled a series of articles that address a sampling of the significant developments during the past year. The articles and topics addressed are not exhaustive, and the opinions reflect only the views of the authors. For information about changes enacted by the 82nd Texas Legislature in areas such as family law, real estate, criminal law, and business law, see the September 2011 <i>Texas Bar Journal</i>, available online at <b>texasbar.com/tbj.</b> For a list of practice-area blogs maintained by Texas lawyers, visit <b>texasbar.com/blogs.</b> We thank the contributors and welcome your comments. Email <b>firstname.lastname@example.org.</b> <b>Access to Justice</b> <i>Harry M. Reasoner</i> In our state’s current economic straits, more than 6 million people now qualify for legal aid in Texas. Pro bono and legal aid programs have the resources to help only 20 percent of those who need legal assistance. As the needs have risen, resources have declined. On Nov. 14, 2011, Congress announced budget cuts to civil legal services to the poor that mean a loss of $6.2 million to Texas legal aid programs. It is expected that interest rates will stay low through mid-2013. Revenue generated from IOLTA accounts will have dropped more than 80 percent from $20 million in 2007 to $2 to $3 million in 2012–13. One bright spot came when the Texas Supreme Court took the lead in seeking legislative funding in 2011. So great was their effort that the Texas Legislature passed a $17.5-million appropriation for the 2012–13 biennium during the special session and adopted a resolution commending the justices for their efforts to promote access to justice. The Texas Access to Justice Commission will redouble its efforts to seek ATJ contributions on the State Bar dues form. In 2011, attorneys contributed more than $890,000 through the ATJ contribution on their dues statements. In addition, many State Bar sections made contributions, including the Bankruptcy, Computer and Technology Law, Construction Law, Consumer and Commercial Law, Corporate Counsel, Labor and Employment Law, Litigation, Real Estate, and Women and the Law sections. On April 26, the Commission celebrated its 10th anniversary with the Champions of Justice for Veterans Gala. With expenses underwritten by the State Bar, the Gala raised more than $375,000 for programs benefiting low-income veterans. For his leadership in ensuring access to courts for those in need, Carl Reynolds, director of the Office of Court Administration, was recognized with the Star of Justice Award. The James B. Sales Boots on the Ground Awards were presented to two deserving recipients: Col. Bryan Spencer for his work in developing Operation Enduring LAMP, which assists active duty service members in need of legal assistance, and Sharon Reynerson, litigation director of Lone Star Legal Aid in Paris, for 25 years of helping thousands of indigent Texans. State Bar members have contributed more than 2 million hours in pro bono work. The State Bar Family Law Section offered continuing legal education courses in rural areas to 176 attorneys. Most attendees committed to take two to four pro bono cases in lieu of paying for the course. When wildfires devastated much of Texas, lawyers provided “boots on the ground” legal assistance to victims. The Commission recently launched the Corporate Counsel Champions of Justice Challenge. Corporate legal departments that accept the challenge by implementing significant pro bono programs in the coming year will be recognized. In November, American Airlines received the Magna Stella Pro Bono Award at the Texas General Counsel Forum. Marathon Oil and Dell Inc. were also recognized for their commendable access to justice efforts. The Access to Justice Internship Program provided 14 law student interns with stipends to work in rural legal aid offices during the summer. Two outstanding law students received the Access to Justice Law Student Pro Bono Award. Sara P. Loeffler of the University of Houston Law Center and Robert A. Brothers of the University of Texas School of Law were honored at the November new lawyers induction ceremony. The University of Texas School of Law also received the Access to Justice Law School Commitment to Service Award for its significant efforts in educating students on access to justice issues and encouraging pro bono participation. The State Bar of Texas made a significant commitment of $1.75 million over five years to fully fund the Student Loan Repayment Assistance Program. As a result, 112 law graduates received monetary support this year for their commitment to work for legal service providers. Because there are not enough pro bono and legal aid lawyers to help the growing number of low-income people in need, many low-income people turn to representing themselves. The Commission’s Self-Represented Litigants Committee is focusing on developing effective solutions to address this issue. In the coming year, poor litigants who cannot obtain a lawyer will have increased access to quality information through newly established assisted pro se programs and self-help centers. In an effort to increase court efficiency, court personnel throughout the state will learn how to provide legal information to pro se litigants, while remaining impartial, maintaining confidential information, and avoiding ex parte communications. Texas lawyers and judges will have the opportunity to learn more about limited scope representation. This ethical and innovative practice model allows low-income clients, who would otherwise attempt to represent themselves, to better afford needed legal services, while creating a new market of paying clients for lawyers. On Oct. 24, 2011, the Texas Access to Justice Foundation sponsored the Supreme Court Luncheon to kick off National Pro Bono Week. The Emily C. Jones Lifetime Achievement Award was presented to Randy Chapman for his years of leadership in legal services and for his efforts in securing civil legal aid funding during the 82nd legislative session. Reagan Brown, a partner in Fulbright & Jaworski, L.L.P., received the Star of Justice Award for his work on the Texas Trial and Pre-Trial Academies, which provide litigation skills training to legal aid attorneys. The Commission also welcomed a new executive director, Trish McAllister, and staff attorney, Melissa Cook, and added a director of development and communications, Georgia Nolan. This year, under the chairmanship of Judge Al Bennett, the Strategic Planning Committee will take on the difficult task of setting the state’s access to justice priorities and goals in the face of greater need and fewer available resources. <b>HARRY M. REASONER</b> is chair of the Texas Access to Justice Commission. He is a partner in Vinson & Elkins, L.L.P. in Houston. <b>Antitrust and Business Litigation</b> Emily W. Westridge In 2011, the U.S. Supreme Court issued a significant opinion that should narrow the scope of general jurisdiction for corporations. Meanwhile, government agencies took an active interest in antitrust issues. The Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) issued substantive amendments to the premerger filing requirements, which will likely increase filers’ disclosure burdens. At the same time, the DOJ successfully sued in the District of Columbia circuit to block the merger of two tax software companies. Each of these developments will shape the practice of antitrust and business litigators in years to come. <b>Revised Premerger Filing Requirements</b> In 2010, the DOJ and the FTC issued Revised Horizontal Merger Guidelines, which outline how the two agencies evaluate mergers and acquisitions involving actual or potential competitors. In 2011, the agencies continued to focus on merger activity, making substantial changes to the Hart-Scott-Rodino Act’s (HSR Act) premerger filing requirements and revising the Premerger Notification and Report Form (Premerger Form). The revisions to the HSR Act impose new and potentially burdensome reporting requirements on filing parties. For example, parties will now be required to submit additional categories of documents, including noncompetition agreements; confidential offering memoranda (prepared within one year of filing that relate to the transaction and were prepared for an officer or director); certain materials created by third-party advisors, including investment bankers; and certain studies and analyses relating to synergies that may be created by the transaction. Also, filing parties must now disclose information regarding a much-expanded group of “associate” entities. Before the 2011 revisions, a filing party’s associates were limited to entities it controlled. Now, a filing party’s associates include any entity that manages the filing party (a managing party) and any of the managing party’s associates.<sup>1</sup> The reporting requirements specific to manufacturers changed as well and may prove to be burdensome for multi-nationals. The DOJ and FTC now require disclosure under Item 5 of revenues for products manufactured outside of the United States but sold in the country. <b><i>United States v. H&R Block</i>: The DOJ Successfully Blocks a Proposed Merger</b> The DOJ’s interest in merger activity this year was not limited to revising the premerger requirements. It also challenged two high-profile transactions, including H&R Block’s proposed acquisition of 2SS Holdings, Inc. (TaxACT). In <i>United States</i> v. H&R Block,<sup>2</sup> one of the rare opinions based on a full trial on the merits of a merger challenge, the court sided with the DOJ and blocked the acquisition, holding that it would substantially decrease competition in the market for digital do-it-yourself (DDIY) tax preparation software. As with many antitrust matters, the outcome of this case turned largely on the definition of the relevant market. There are three ways for consumers to prepare taxes: the old-fashioned pen-and-paper method; assisted preparation (with the help of a tax professional); and through DDIY software programs. The defendant argued that the relevant product market included all three types of tax preparation. But the court rejected this argument and held that DDIY software comprised its own product market. The court’s decision was heavily influenced by the defendants’ own “ordinary course of business documents,” which showed that “competition with other [DDIY] firms drive Defendants’ pricing decisions, quality improvements, and corporate strategy for their own DDIY products.”<sup>3</sup> The court also examined how consumers would define the market: “DDIY products involve different technology, price, convenience level, time investment, mental effort, and type of interaction by the consumer. Taken together these different attributes make the consumer experience of using DDIY products quite distinct. …”<sup>4</sup> After defining the relevant product market, the court considered the market competitors and found that a merger in the highly concentrated DDIY software market, which is dominated by three competitors, would substantially weaken competition. The court found that this would likely result in anticompetitive behavior — including tacit collusion — that would hurt consumers. Moreover, the court found that any anticompetitive effects were unlikely to be alleviated by market expansion because the barriers to entry in the DDIY software market are high. After successfully blocking the H&R Block merger, the DOJ continued its challenge against the proposed merger between AT&T (a client of the author’s law firm) and TMobile. The DOJ alleged that the proposed merger would substantially reduce competition and the number of major competitors in the mobile wireless service market, which it argued could negatively impact wireless consumers. AT&T and T-Mobile responded that there are a number of regional and national competitors in the market and that the merger would be precompetitive, free up spectrum, and positively impact consumers by, among other things, lowering the price and improving the quality of service. In mid-December, AT&T announced it was ending its bid to acquire T-Mobile. <b><i>Goodyear Dunlop Tires v. Brown</i>: A Narrowed Approach to General Jurisdiction</b> In <i>Goodyear Dunlop Tires v. Brown,</i><sup>5</sup> the Supreme Court significantly narrowed the limits of general jurisdiction, which should allow corporations to avoid facing suit in improper forums. The appellees in that case were North Carolina residents whose children had been killed in a bus accident outside Paris, France (the parents). The petitioners were three Goodyear subsidiaries that are organized and operate in Europe (the foreign subsidiaries). The parents brought a wrongful death action against the foreign subsidiaries in North Carolina state court. The North Carolina Court of Appeals exercised general jurisdiction over the foreign subsidiaries because it found that they had created “continuous and systematic contacts” with the forum by placing their tires “in the stream of interstate commerce.”<sup>6</sup> In a unanimous opinion, the Supreme Court reversed. The Court rejected the “stream of commerce” as a “sprawling view” of general jurisdiction that would make “any substantial manufacturer or seller of goods … amenable to suit, on any claim for relief, wherever its products are distributed.”<sup>7</sup> Instead, the Court held that corporations, like people, should only be subject to general jurisdiction in their “homes”: “For an individual, the paradigm forum for the exercise of general jurisdiction is the individual’s domicile; for a corporation, it is an equivalent place, one in which the corporation is fairly regarded as at home.”<sup>8</sup> Although the Court did not define where a corporation’s home lies, it cited approvingly to materials identifying “home” as a corporation’s place of incorporation or principal place of business.<sup>9</sup> <i>Goodyear</i> represents an important change in general jurisdiction analysis, but it remains to be seen if lower courts will adopt the narrow constraints suggested by the Court. <b>Notes</b> 1. 16 C.F.R. §801.1(d)(2). 2. 2011 U.S. Dist. Lexis 130219 (D.D.C. Nov. 10, 2011). 3. <i>Id.</i> at *35. 4. <i>Id.</i> at *37. 5. 131 S. Ct. 2846, 2850 (2011). 6. <i>Id.</i> at 2852. 7. <i>Id.</i> at 2856. 8. <i>Id.</i> at 2853. 9. <i>Id.</i> at 2854. <b>EMILY W. WESTRIDGE</b> is an attorney in the Dallas office of Haynes and Boone, L.L.P. She specializes in white-collar criminal defense, antitrust litigation, and the prosecution and defense of complex commercial litigation matters. <b>Appellate Law</b> Warren W. Harris and Yvonne Y. Ho This year has seen a new mechanism for permissive interlocutory appeals, as well as several notable Texas Supreme Court decisions involving the standards for legal sufficiency review, especially with respect to expert testimony. Also, electronic filing is now mandatory in the Texas Supreme Court. As of Sept. 1, 2011, parties have the same ability to obtain permissive interlocutory review of state trial court rulings as they do for rulings from federal district courts. Previously, a trial court could authorize an appeal from an otherwise unappealable order only if the parties agreed. In passing the “Loser Pays” bill this year, the Legislature eliminated the requirement that the parties must agree, which had often thwarted review. <i>See</i> Tex. Civ. Prac. & Rem. Code Ann. §51.014(d) (effective Sept. 1, 2011). Now, review is available if the court, on a party’s motion or on its own initiative, finds an order (1) “involves a controlling question of law as to which there is a substantial ground for difference of opinion;” and (2) immediate appeal could “materially advance the ultimate termination of the litigation.” <i>Id.</i> The appellate court may accept the appeal if it was timely filed within 15 days after the order was signed and the application for review explains why appeal is warranted. <i>Id.</i> §51.014(f ). This provision now closely resembles its counterpart in federal court, 28 U.S.C. §1292(b). Turning to case developments, the Texas Supreme Court has continued its trend of closely scrutinizing the admissibility of expert testimony, particularly regarding causation. In <i>BIC Pen Corp. v. Carter</i>, 346 S.W.3d 533, 536 (Tex. 2011), the Court examined a product defect claim brought by the mother of a child who was seriously injured when her 5-year-old brother accidentally set fire to her dress with a BIC lighter. According to the plaintiff, the lighter was defective because the degree of force required to operate it deviated from the product’s specifications. <i>Id.</i> at 538–39. To prove causation, the plaintiff presented an expert who testified that the brother suffered developmental delays that would affect his fine motor skills. <i>Id.</i> at 544. But the Court noted the expert’s testimony did not show a causal link between the deviation from specified force requirements and the brother’s physical ability to use the lighter. <i>Id.</i> at 544–45. The Court also rejected the plaintiff ’s reliance on the principle that “increased relative risk may be evidence of causation,” from <i>Merrell Dow Pharmaceuticals, Inc. v. Havner,</i> 953 S.W.2d 706 (Tex. 1997). <i>BIC Pen</i>, 346 S.W.3d at 545. The Court concluded the testing needed to show causation in this context is dissimilar from the practical difficulties with proving causation in toxic tort cases. Thus, the Court declined “to adopt a <i>Havner</i>-type analysis as to causation in this case where manufacturing defects are the basis for the liability claim.” <i>Id.</i> The Court also explored the <i>Havner</i> causation principle in <i>Merck & Co. v. Garza,</i> 347 S.W.3d 256 (Tex. 2011). <i>Merck</i> was a products liability suit by relatives of a patient who died from cardiac complications after taking Vioxx. <i>Id.</i> at 259–60. The plaintiffs’ experts relied on data compiled from Merck’s clinical trials and other epidemiological studies to show general causation, i.e., an increased risk of injury from taking Vioxx. <i>Id.</i> at 262–63. The Court rejected this evidence as unreliable and, hence, legally insufficient. <i>Id.</i> at 268. To demonstrate general causation, the Court stressed that clinical trials, even if more reliable than retroactive studies, nonetheless, must satisfy <i>Havner’s</i> requirements. <i>Id.</i> at 263–64. Under <i>Havner</i>, “when parties attempt to prove general causation using epidemiological evidence, a threshold requirement of reliability is that the evidence demonstrate a statistically significant doubling of the risk.” <i>Id.</i> at 265. <i>Havner</i> further requires that the plaintiff show his or her similarity to the subjects in the studies, that other plausible causes can be excluded with reasonable certainty, that the studies utilized a sound methodology, and that at least two studies satisfy the standards of reliability. <i>Id.</i> at 265–66. Here, the Court deemed two of the plaintiffs’ three studies unreliable because they did not address dosages and duration of use comparable to the decedent’s. <i>Id.</i> at 266–67. With only one study that satisfied <i>Havner,</i> the Court held the evidence was insufficient to prove causation. <i>Id.</i> at 267–68. A different yet equally rigorous application of legal sufficiency review is seen in <i>Service Corp. International v. Guerra,</i> 348 S.W.3d 221 (Tex. 2011). One issue the Court addressed was a no-evidence challenge to the vicarious liability of a parent company, SCI International, for the conduct of individuals who negligently moved the body of the Guerras’ family member to a different cemetery plot after it was buried. <i>Id.</i> at 228–31. In analyzing the evidence, the Court applied several legal sufficiency principles from <i>City of Keller v. Wilson,</i> 168 S.W.3d 802 (Tex. 2005). For instance, the Guerras pointed to testimony of one actor that she worked for SCI International, but the Court found this was taken out of context; at other points, the witness maintained she worked for a subsidiary, SCI Texas. <i>Id.</i> at 229 (citing <i>City of Keller</i>). Testimony of employees asserting they worked for “SCI” was also too speculative to show SCI International was their employer because it failed to differentiate between SCI International and SCI Texas. <i>Id.</i> Similarly, the Court held evidence of the “SCI” logo on one individual’s personnel paperwork did not support an inference that he worked for SCI International; that testimony “was as consistent with employment by SCI Texas as it was with employment by SCI International.” <i>Id.</i> at 230. Concluding the evidence was legally insufficient, the Court reversed and rendered judgment in favor of SCI International. <i>Id.</i> at 231, 239. Finally, the Texas Supreme Court recently moved to mandatory electronic filing. <i>See</i> Misc. Docket No. 11-9152, Order of Sept. 12, 2011. Attorneys must register with an approved Electronic Filing Service Provider. Once registered, parties may file electronically and e-serve documents on other parties who have consented to such service. Like the previous rules, the current rules require briefs and other original documents to be converted, not scanned, into text-searchable PDFs. Record and appendix materials may be scanned into PDFs if necessary, but they must also be text searchable. To make briefs easier to review on portable electronic readers, parties should consider embedding hyperlinks to key authorities or documents, which the rules permit. Additional e-filing requirements may be found on the Texas Supreme Court website. For a helpful guide, <i>see</i> Blake A. Hawthorne, <i>A Guide to Creating Electronic Appellate Briefs</i> (2011), available at <b>http://www.supreme.courts.state.tx.us/pdf/AppellateBriefsOfTtheFuture.pdf.</b> <b>WARREN W. HARRIS</b> is a partner in Bracewell & Giuliani, L.L.P. in Houston, where he heads the firm’s appellate group. Harris is president-elect of the Texas Supreme Court Historical Society and is a past chair of the <i>Texas Bar Journal</i> editorial board and of the State Bar Appellate Section. <b>YVONNE Y. HO</b> is an associate of the appellate group at Bracewell & Giuliani, L.L.P. in Houston. She previously served as a law clerk for Judge Thomas M. Reavley of the U.S. Court of Appeals for the Fifth Circuit and for Judge Ewing Werlein, Jr., U.S. District Court, Southern District of Texas. <b>Bankruptcy Law</b> Mark E. Andrews and Aaron M. Kaufman As predicted in last year’s Year in Review issue,<sup>1</sup> perhaps the most significant decision affecting bankruptcy practice this past year was the U.S. Supreme Court’s <i>Stern v. Marshall</i> decision, announced in June.<sup>2</sup> To summarize years of litigation and appeals, the <i>Stern</i> case boiled down to whether and to what extent an Article I tribunal — in this instance, a bankruptcy court — had constitutional authority to finally adjudicate state law claims between a debtor and one of her creditors.<sup>3</sup> The procedural posture of the <i>Stern</i> decision was that a California bankruptcy court had entered a judgment in favor of the debtor Anna Nicole Smith against Pierce Marshall, one of her alleged creditors. In the June 2011 decision, the Court held that, while 28 U.S.C. §157(b)(2)(C) authorizes a bankruptcy court to adjudicate counterclaims asserted by a debtor, Article III of the Constitution does not. Because Smith’s tortious interference counterclaim was neither “integral to the restructuring of the debtor-creditor relationship” nor completely resolved in the process of adjudicating Pierce’s defamation claims, the Court held that the bankruptcy court was without constitutional authority to enter final judgment on the tortious interference claims. The immediate effect of the ruling was that Smith’s favorable judgment from the California bankruptcy court was vacated, and the Texas probate court’s final “take nothing” judgment became preclusive. This opinion could have dramatically altered the course of bankruptcy-related litigation by providing litigants a tool for selecting alternative forums and questioning the authority of bankruptcy courts to adjudicate disputes. Some have even gone so far as to challenge subject matter jurisdiction in light of the <i>Stern</i> decision.<sup>4</sup> What remains to be seen is how lower courts will interpret the holding and rationale in <i>Stern</i> and how such interpretations may affect the authority of Article I tribunals, including both bankruptcy and magistrate courts. At press time, no appeals concerning the application of <i>Stern</i> had reached the Court of Appeals for the Fifth Circuit, but a number of Texas bankruptcy courts have opined on the subject.<sup>5</sup> Two Fifth Circuit opinions decided last year that could also affect bankruptcy-related litigation include <i>Spicer v. Laguna Madre Oil & Gas II, L.L.C. (In re Texas Wyoming Drilling, Inc.)</i><sup>6</sup> and <i>Reed v. City of Arlington.</i><sup>7</sup> In <i>Spicer</i>, the Fifth Circuit considered the level of detail necessary to preserve causes of action through a confirmed bankruptcy plan. In its decision, the court of appeals expanded on the “specific and unequivocal” standard employed in the court’s 2008 <i>United Operating</i> decision,<sup>8</sup> explaining that the standard did not require a plan to enumerate all defendants by name. Instead, the court explained that the standard could be satisfied where the plan or the disclosure statement adequately explained to voting creditors what litigation was likely to be pursued after confirmation to satisfy such creditors’ claims, thus resolving a number of questions raised over the last three years since the publication of <i>United Operating.</i> In <i>Reed</i>, the Fifth Circuit considered the effect of a debtor’s failure to list a cause of action on his Chapter 7 bankruptcy schedules. In that case, the debtor failed to disclose a personal injury cause of action, which ultimately led to a million-dollar judgment in his favor, after he had received a bankruptcy discharge. Initially, an undivided panel of the Fifth Circuit lead by Chief Judge Edith Jones held that factors warranting judicial estoppel against a debtor must be equally applied to his Chapter 7 trustee, preventing the trustee from collecting from the City of Arlington due to the debtor’s misdeeds.<Sup>9</sup> In February, a majority of the active judges for the court of appeals granted a petition for rehearing <i>en banc</i>, effectively vacating Chief Judge Jones’ decision.<sup>10</sup> In August, the <i>en banc</i> panel stated the general rule that “absent unusual circumstances, an innocent trustee can pursue for the benefit of creditors a judgment or cause of action that the debtor fails to disclose in bankruptcy.”<sup>11</sup> Reviewing the record presented to the district court, the court of appeals concluded that “the elements giving rise to judicial estoppel did not exist until after the bankruptcy petition was filed and the judgment had passed into the bankruptcy estate. Because the City could not have asserted judicial estoppel against [the debtor] based on the facts as they existed before the commencement of the bankruptcy, the Trustee received the judgment asset free of this affirmative defense.”<sup>12</sup> Accordingly, the trustee was allowed to collect on the judgment, notwithstanding the debtor’s inequitable conduct. The Fifth Circuit also tested the limits of consumer debtor exemptions under the Bankruptcy Code by addressing two novel issues. First, in <i>Camp v. Ingalls (In re Camp)</i>,<sup>13</sup> the Fifth Circuit held that a debtor who moved from Florida to Texas shortly before filing for bankruptcy protection could claim the federal exemptions under Section 522(d) of the Bankruptcy Code, notwithstanding Florida’s “opt-out” statute.<sup>14</sup> Second, in <i>Smith v. HD Smith Wholesale Drug Co. (In re McCombs)</i>,<sup>15</sup> the Fifth Circuit held that the $125,000 cap on the exemption on homesteads acquired within 1,215 days of the petition date<sup>16</sup> did not allow judicial lien holders to assert enforceable liens on the equity over and above the statutory cap. “The purpose of §522(p),” explained the court, “is to limit the amount of a homestead exemption, thereby increasing the size of the bankruptcy estate available to creditors. … [T]he Trustee took the property with the state-law character it had in the debtor’s hands: a property with an unenforceable lien.”<sup>17</sup> Other noteworthy 2011 decisions from the Fifth Circuit included a ruling that affects employer considerations when a prospective employee is in bankruptcy,<sup>18</sup> and yet another ruling on the “equitable mootness” doctrine.<sup>19</sup> In <i>Burnett v. Stewart Title</i>, the Fifth Circuit held that a private employer who decides to withdraw a job offer after learning that a candidate was a debtor in bankruptcy did not violate Section 525(b) of the Bankruptcy Code.<sup>20</sup> In the third published opinion from the <i>Pacific Lumber</i> bankruptcy cases in as many years, the Fifth Circuit illustrated its continuing struggle to provide a predictable application of the “equitable mootness” doctrine. This time, the court of appeals reconsidered its October 2010 decision that instructed the lower court to award a $29.7-million administrative priority claim after a plan had been confirmed and substantially consummated.<sup>21</sup> In this August 2011 decision, the same panel explained that, on remand, the bankruptcy court should determine the amount of the award after considering the financial health of the reorganized entity.<sup>22</sup> The 2010 decision was revised to instruct the lower court to award an administrative priority claim up to $29.7 million, after considering whether the issue was equitably moot. Finally, a noteworthy development outside the Fifth Circuit was a Second Circuit decision in the Madoff fallout, ruling that the claimants against Bernard L. Madoff Investment Securities, L.L.C. (BLMIS) could be considered “customers” under the Securities Investor Protection Act<sup>23</sup> (SIPA), but could only recover from BLMIS’s assets to the extent of “net equity,” as calculated using the Net Investment Method as opposed to the Last Statement Method.<sup>24</sup> In other words, because customers of BLMIS invested in a Ponzi scheme, they could not rely on their account statements to determine how much they could recover from the SIPA estate, but instead could only recover their initial investment less any amounts withdrawn prior to the collapse of BLMIS. <b>Notes</b> 1. <i>See</i> Mark E. Andrews and Aaron M. Kaufman, “Bankruptcy Law,” <i>Texas Bar Journal,</i> Vol. 74, No. 1, at 21 (Jan. 2011). 2. 131 S. Ct. 2594, — U.S. —, 180 L. Ed. 2d 475 (June 23, 2011). 3. The debtor in the underlying bankruptcy case was Vickie Lynn Marshall, aka Anna Nicole Smith. Pierce Marshall — then a surviving heir of Smith’s deceased husband J. Howard Marshall — filed a proof of claim in Smith’s bankruptcy case for defamation. Smith responded with a defense to the defamation claim and an affirmative counterclaim against Pierce for tortious interference with her expected gift from J. Howard Marshall. Smith’s counterclaim against Pierce was the subject of the Supreme Court’s decision. 4. <i>See, e.g., Faulkner v. Kornman (In re Heritage Org., L.L.C.)</i>, 2011 Bankr. Lexis 3832, Case No. 06-3377 at *26–27 (Bankr. N.D. Tex. Oct. 3, 2011) (noting, and rejecting, the defendants’ challenge to the court’s subject matter jurisdiction over the claims pursued by the liquidating trustee); <i>Fairchild Liquidating Trust v. New York (In re Fairchild Corp.)</i>, 452 B.R. 525, 530 n.14 (Bankr. D. Del. 2011) (“<i>Stern v. Marshall</i> is not a case about subject matter jurisdiction. Rather it addresses the power of the bankruptcy court to enter final orders, <i>assuming that subject matter jurisdiction exists.”</i>) (emphasis in original). The authors express no opinion on the merits of this or any other potential interpretation of <i>Stern</i>, but merely note that litigants have taken diverging positions. 5. <i>See, e.g., In re Mandel</i>, 2011 Bankr. Lexis 3829, Case No. 10-40219 (Bankr. E.D. Tex. Sept. 30, 2011) (“The Supreme Court’s analysis in <i>Stern</i> limits this Court’s constitutional authority to determine counterclaims to matters that must necessarily be decided in ruling on a creditor’s proof of claim.”); <i>Special Value Continuation Partners, LP v. Jones,</i> 2011 Bankr. Lexis 4475, Case No. 11-3304 (Bankr. S.D. Tex. Nov. 15, 2011) (holding that the Court’s more limited authority in light of <i>Stern</i> was a factor against transferring venue to another federal bankruptcy court, and in favor of abstaining and/or remanding the proceeding to state court). 6. 647 F.3d 547 (5th Cir. 2011). 7. 650 F.3d 571 (5th Cir. 2011) (en banc). 8. <i>See generally In re United Operating, L.L.C.</i>, 540 F.3d 351, 355 (5th Cir. 2008). 9. <i>See generally Reed v. City of Arlington</i>, 620 F.3d 477, 482 (5th Cir. 2010) (holding that it was an abuse of discretion to distinguish the debtor’s conduct from that of the trustee). 10. <i>See Reed v. City of Arlington,</i> 634 F.3d 477 (5th Cir. 2011). 11. <i>Reed v. City of Arlington</i>, 650 F.3d 571, 573 (5th Cir. 2011). 12. <i>Id.</i> at 576. 13. 631 F.3d 757 (5th Cir. 2011). 14. Generally, a debtor may claim exemptions under state law, under Section 522(b)(3)(A), or under federal law, under Section 522(d), unless the laws of the applicable state — in this case, Florida — effectively “opt out” and require debtors to claim state law exemptions. See 11 U.S.C. §522(b)(2). Florida legislators enacted an “opt-out” statute. See Fla. Stat. Ann. §222.20. However, the bankruptcy court in this case held that Florida’s “opt-out” was, by its own terms, not applicable to this debtor who no longer resided in Florida. <i>See In re Camp</i>, 631 F.3d at 760. 15. — F.3d —, 2011 U.S. App. Lexis 20132 (5th Cir. Oct. 4, 2011). 16. <i>See</i> 11 U.S.C. § 522(p). 17. <i>In re McCombs</i>, 2011 U.S. App. Lexis 20132 at *10–11. 18. <i>Burnett v. Stewart Title, Inc. (In re Burnett)</i>, 635 F.3d 169 (5th Cir. 2011). 19. <i>See generally In re Pacific Lumber</i>, 584 F.3d 229 (5th Cir. 2009). 20. <i>In re Burnett</i>, 635 F.3d at 173; <i>but see</i> 11 U.S.C. §525(a) (containing stricter prohibitions on employment practices by public employers). 21. <i>See In re Scopac</i>, 624 F.3d 274, 286 (5th Cir. 2010). 22. <i>In re Scopac</i>, 649 F.3d 320. 322 (5th Cir. 2011). 23. 15 U.S.C. §78aaa et seq. 24. <i>See generally In re Bernard L. Madoff Investment Securities, L.L.C.</i>, 654 F.3d 229 (2d Cir. 2011). <b>MARK E. ANDREWS</b> is a shareholder in the Dallas office of Cox Smith. He specializes in corporate restructuring, creditors’ rights, and other bankruptcy matters. <b>AARON M. KAUFMAN</b> is an associate of the Dallas office of Cox Smith. He specializes in corporate restructuring, creditors’ rights, and other bankruptcy matters. <b>Commercial Litigation</b> Brian Lauten In its decision in <i>In re Commitment of Seth Hill</i>, 334 S.W.3d 226 (Tex. 2011), the Texas Supreme Court fundamentally altered the law of voir dire and restricted a trial court’s discretion to discontinue inquiries that explore juror bias and prejudice. Prior to the Texas Supreme Court’s decision in <i>In re Commitment of Seth Hill</i>, there were three seminal cases in the area of voir dire: <i>Babcock v. NW. Memorial Hosp</i>., 767 S.W.2d 705 (Tex. 1989), <i>Cortez v. HCCI-San Antonio, Inc.,</i> 159 S.W.3d 87 (Tex. 2005), and <i>Hyundai Motor Co. v. Vasquez,</i> 189 S.W.3d 743 (Tex. 2006). <b>The Trilogy of Case Law Applicable to Voir Dire </b> In <i>Babcock v. NW. Memorial Hosp</i>., 767 S.W.2d 705 (Tex. 1989), an opinion authored by Justice Oscar Mauzy in 1989, the Texas Supreme Court held the trial court reversibly erred in refusing to allow a patient in a medical malpractice case to ask the panel about a perceived “lawsuit crisis” or an “insurance liability crisis” in the national psyche. <i>Babcock</i> also held that despite the inadmissibility of insurance to prove negligence, the plaintiff ’s attorney should have been permitted to explore a perceived threat that lawsuits increase insurance rates, which is germane to a potential juror’s bias or prejudice toward the litigation. <i>Babcock</i> held that parties are entitled to reasonable latitude in questioning the panel to allow all parties to “intelligently exercise” their preemptory challenges. Approximately two decades later, the Texas Supreme Court steered away from the language in <i>Babcock</i>, holding that a trial court has substantial discretion to limit the voir dire examination. In <i>Cortez v. HCCI-San Antonio, Inc.,</i> 159 S.W.3d 87 (Tex. 2005), an insurance adjuster was not disqualified as a matter of law, even though he admitted he had “preconceived notions” and “would feel biased.” There, the Court arguably reversed the long-standing rule that a juror could not be rehabilitated once that juror expressed either a bias or a prejudice. Indeed, a juror is no longer disqualified for uttering “magic words” including statements that a juror is “leaning” toward one party or that a party is “starting out ahead.” Similarly, in <i>Hyundai Motor Co. v. Vasquez,</i> 189 S.W.3d 743 (Tex. 2006), the Supreme Court reversed the court of appeals and provided trial courts with substantial discretion in controlling the questions that may be asked during a voir dire examination. <i>Hyundai</i> was a products liability dispute wherein an allegedly defective airbag caused the death of an unbelted child. The trial court disqualified two panels because the plaintiff ’s attorney successfully inquired into prospective jurors’ biases and prejudices against unbelted children as an undisputed fact in the case. When the third venire panel was convened, the trial judge refused any further inquiry on the issue of the child having been unbelted. Subsequently, the plaintiffs were only allowed to ask the third panel “general questions about belting,” rather than allowing them to disclose that the child was not wearing a seatbelt. The court noted that parties may not ask the panel what amount of weight they would afford certain facts at issue in the case. A voir dire examination that offers a “preview of the evidence” is improper. The Supreme Court reaffirmed the proposition in <i>Cortez</i> that a trial court has broad discretion to disallow the inquiry. <b>In <i>Hill</i>, the Supreme Court Reverts to Babcock</b> In 2011, the Texas Supreme Court glossed over the underpinnings in <i>Cortez</i> and <i>Hyundai</i> and re-committed to the analysis in <i>Babcock.</i> In <i>In re Commitment of Seth Hill</i>, 334 S.W.3d 226 (Tex. 2011), a civil commitment proceeding, the state had the burden to prove the defendant was a (1) sexual predator and (2) suffered from a behavioral abnormality that made him likely to continue engaging in sexual violence. Hill admitted he had engaged in sexual activity with other inmates at an all-male facility. In voir dire, several panel members admitted they could not give a fair trial to a homosexual. The trial court disallowed any further inquiry on the topic of homosexuality. Hill’s attorney then attempted to ask the panel whether they would require the state to meet its burden of proving the second element of a disjunctive statute; that is, whether Hill suffered from a behavioral abnormality. The trial court sustained the state’s objection and refused the inquiry. On appeal, the Texas Supreme Court reversed in Hill’s favor and held the trial court abused its discretion in disallowing both inquiries. The Court, citing <i>Babcock</i>, held that, while a trial court has “reasonable control” over voir dire, it is an abuse of discretion to disallow a litigant from pursuing an examination that would lead to the “intelligent use” of preemptory challenges. The Supreme Court further held that Hill’s inquiries were not improper commitment questions; rather, the commitment the jurors were asked to make was <i>legislatively mandated</i>. The state had to prove both prongs of a disjunctive statute. <i>Hill</i> suggests the discretion that largely insulated trial courts from appellate error under <i>Cortez</i> and <i>Hyundai</i> is more limited in scope. The practical consequence of <i>Hill</i> is that parties should be prepared to explain why a proposed question is anchored to a legal element or affirmative defense that must be proven in the court’s charge. <i>Hill</i> restricts a trial court’s ability to disallow parties from asking commitment questions that are tailored to elements of proof that will be submitted to the jury. In limiting the trial court’s discretion, the parties’ ability to inquire into biases and prejudices is similarly broadened. It is important to underscore that the Texas Supreme Court’s view upon the proper scope of voir dire may have changed since <i>Cortez</i> and <i>Hyundai</i> were decided six years ago. Justices Nathan Hecht and Don Willett are the only two justices currently on the Court who were in the majority in <i>Hyundai</i>; while Justices David Medina, Dale Wainwright, and Phil Johnson, who dissented from that decision, are also still on the Court. Thus, there is a 3-2 balance in the Court in favor of the dissenting view in <i>Hyundai,</i> which is very similar to the reasoning supplied in <i>Hill.</i> A <i>per curiam</i> opinion only requires six votes and <i>Hill</i> was a <i>per curiam</i> decision. Since <i>Hyundai</i>, two new judges have been added to the Supreme Court. It would therefore appear that this Supreme Court, at least with respect to voir dire, may be closer in step with Justice Mauzy’s 1989 opinion in <i>Babcock</i> than with the 2005–06 decisions in <i>Cortez</i> and <i>Hyundai</i>, respectively. Regardless, the practical implications of <i>Hill</i> will be hotly debated as trial courts attempt to harmonize the trilogy of cases that control the scope of the voir dire examination. <b>BRIAN LAUTEN,</b> of Sawicki & Lauten, L.L.P. in Dallas, is a trial lawyer who practices in the areas of commercial litigation, business litigation, trade secrets, noncompetition agreements, contract and real estate disputes, fiduciary litigation, and partnership disputes. <b>Consumer Law</b> Chad Baruch The Texas Legislature enacted important new laws in 2011 for the protection of consumers. Initially, the Legislature took steps to protect consumers from payday lending abuses. House Bill 2592 requires credit service organizations to provide consumers with “adequate information” about costs before they sign agreements. H.B. 2594 requires payday and car title lenders to be licensed and regulated by the state. To counter the rise of “SLAPP” actions (Strategic Lawsuits Against Public Participation), the Legislature enacted H.B. 2973, the Citizens Participation Act. This statute provides special judicial procedures for claims alleging defamation in relation to statements on a “matter of public concern,” which the statute defines to include statements about “a good, product, or service in the marketplace.” The statute permits a person sued for such comments to file a special motion to dismiss, requiring an expedited hearing and staying discovery pending ruling, and permitting recovery of attorney’s fees if the motion is granted. This statute provides a powerful new protection against retaliatory defamation claims for consumers making public comments about goods and services in the marketplace. In a ruling with substantial implications for consumers, the U.S. Supreme Court held in <i>AT&T Mobility LLC v. Comcepcion</i>, 131 S. Ct. 1740 (2011) that the Federal Arbitration Act prevents a state court from invalidating contract clauses that waive a consumer’s right to participate in classwide arbitration proceedings. The case concerned a provision for individual arbitration, precluding both litigation and classwide arbitration. The court of appeals held the clause unconscionable and invalid under California law. The Supreme Court reversed, holding that the FAA supports enforceability of arbitration clauses and that state law requiring classwide arbitration interferes with the FAA’s scheme. This issue now likely will shift to the administrative arena, where the Dodd-Frank Act requires the Consumer Financial Protection Bureau to assess the effect of mandatory arbitration clauses on consumers, report to Congress, and, if supported by the assessment, prohibit or restrict arbitration clauses to protect consumers. Additionally, Congress is presently considering the proposed Arbitration Fairness Act of 2011, which, if enacted, would prevent a business from requiring a consumer to agree to a pre-dispute arbitration clause. In another case with consumer implications, the Supreme Court held that no showing of loss causation is required to obtain class certification in a securities fraud class action. <i>Erica P. John Fund v. Halliburton Co.,</i> 131 S. Ct. 2179 (2011). <b>CHAD BARUCH</b> is an appellate attorney in Rowlett and assistant principal of Yavneh Academy of Dallas. <b>Criminal Law</b> Kathleen FitzGerald Perdon and Justice Kerry P. FitzGerald <b><i>Brady</i> Revisited</b> In <i>Pena v. State</i>, PD-0852-10, 2011 WL 4467257 (Tex. Crim. App. Sept. 28, 2011), an officer pulled the defendant’s van over for a traffic violation in September 1998. When the defendant exited the van, the officer smelled an odor of marijuana about him. The officer saw what he thought was freshly cut marijuana covering the cargo area of van. During the lengthy conversation that ensued and involved other officers, the defendant insisted that it was not marijuana but plants he had cut on the side of the highway in Kansas and that he was going to make leather goods and other items out of them. The officer could not remember if the appellant had said the material was hemp or if the defendant had requested testing of the plant material. Pursuant to a <i>Brady</i> motion, the state furnished the copy of the videotape from the officer’s car-mounted camera and advised the defense counsel that no sound was on the recording. In March 2002, the defendant requested an independent examination and testing of evidence; however, the plant material had been destroyed in March 2000. The records of the how and why of the destruction were unavailable. The officer testified and video confirmed that the officers spent considerable time discussing the matter with the defendant at the scene and that the officer may have tried to call a chemist. During arguments, the state was very skeptical of the defendant’s claim that the material was not marijuana, as well as his request for testing so late in the game after the material had been destroyed. After jury arguments and while the jury deliberated, somehow the audio on the videotape was activated while the squad car was in motion. This audio included statements about where the defendant had obtained plant material, what he was going to make out of it, where he got the idea, his request of the officer to test the material and how that would be done, that he was not worried because he knew it was not marijuana, and that if he had known the material was illegal to possess he would have dumped it. On appeal, the state claimed the <i>Brady</i> complaint was not preserved for review and that the complaint did not rise to the level of a <i>Brady</i> violation because the “item in issue is the defendant’s own statement.” At the outset, the Court of Criminal Appeals put to rest the state’s preservation position by noting how the matter had been preserved in the defendant’s motion for a new trial. In addressing the merits, the Court emphasized the “audio portion of the videotape was (or at least should have been) known to the State.” The state created, preserved, and maintained exclusive control over this evidence. The state created the tape and advised the defendant and the trial court that there was no audio. The defendant was not aware of this audiotape, which “documented his statements and the surrounding events and directly supported his defense,” and would have countered the state’s skepticism. The Court conducted a detailed analysis showing the tape was favorable to the defendant (as both exculpatory and impeachment evidence) and was material (“The defendant must show that, ‘in light of all the evidence, it is reasonably probable that the outcome of the trial would have been different had the prosecutor made a timely disclosure.’ ”). The Court reversed, holding the state violated the defendant’s constitutional right as expressed in <i>Brady</i>. <b>Search Exceeded Scope of Consent</b> In <i>State v. Weaver</i>, 349 S.W.3d 521 (Tex. Crim. App. 2011), four narcotics officers went to the defendant’s welding shop looking for “Bear,” a person wanted in another county. They saw Bear’s car parked in front. When officers asked, the defendant gave consent to look for the person. The officers searched for 10 minutes but did not find the person in the shop or inside a van located in the workshop at the rear of the shop. As officers had also received information about meth being used and distributed from this business, they lingered. One officer asked about any illegal guns, narcotics, etc., and the defendant said he had licensed guns, which he showed. When asked about the van, the defendant said his father owned it but that he drove it. The defendant refused consent to search the van. After retrieving a drug dog from the squad car, the officers ran the dog around the van, saw “odor response” to a passenger door, and searched the van. Inside, they found pipes and meth on the floor board. The trial court found the officers exceeded the scope of search. The court of appeals affirmed. The Court of Criminal Appeals also affirmed and concluded the facts supported the trial court’s implicit finding that the van was parked in a protected, nonpublic area of business premises rather than in a parking lot open to the public. Officers needed, but did not have, permission to be where they were when they initiated the dog sniff. <b>Self-defense Instructions</b> In <i>Morales v. State</i>, No. PD-1155-0, Nov. 9, 2011, the issue revolved around the so-called “duty to retreat.” The facts showed a fight occurred involving multiple individuals in two gangs. The decedent fought the defendant’s brother. The defendant shot and killed the decedent. The court acknowledged considerable conflicting evidence; the defendant raised the defense of third party. The trial court instructed the jury on self-defense (9.31) and deadly force in defense of a person (9.32). In addition, the court gave general instructions on “duty to retreat” (9.32(c)), and then applied the law of self-defense, in part requiring the jury to believe “that defendant reasonably believed that, under the circumstances then existing, a person in [the defendant’s] situation would not have had a duty to retreat before using deadly force in his own defense.” The appellant complained about references to duty to retreat.<sup>1</sup> The court of appeals held no error because instructions tracked the statute.<sup>2</sup> The Court of Criminal Appeals noted the retreat provision was deleted in 2007. The new 9.32(c) incorporates “no duty to retreat” provisions (i.e., person who has not provoked the difficulty). When such provisions do not apply, however, the problem emerges: May a trial court properly instruct on duty to retreat (as done here)? No. Why? The Legislature removed this matter from the statute (“… [T]he statute no longer contains the language regarding a general duty to retreat.”). Thus, the statute no longer authorizes inclusion of the matter in a jury charge. “Though the matter might still be a relevant evidentiary issue in the prosecution, the unauthorized inclusion of the instruction constitutes a comment on the weight of the evidence.” In footnote 15, the Court stated: “Generally speaking, an instruction constitutes a comment on the weight of the evidence if the instruction is not grounded in statute, is covered by the general charge to the jury, and focuses the jury on a specific type of evidence that may support an element of an offense or defense.” The Court observed: “Instead of asking the jury to determine whether ‘a reasonable person would not have retreated,’ the instructions asked the jury to determine whether a person ‘would not have had a duty to retreat.’ ” The Court reversed and remanded to the court of appeals. <b>Eyewitness-Identification Expert </b> The opinion in <i>Tillman v. State</i>, PD-0727-10, Oct 5, 2011, was authored by Court of Criminal Appeals Judge Barbara Hervey, a recognized scholar and leader in the scientific field. The issue was whether eyewitness-identification expert testimony was relevant. Three eyewitnesses saw the person in question from different vantage points. Eyewitnesses 1 and 2 made no identification when shown a photo lineup (six sets of six photos; last set included the defendant’s photo) two months after the crime. Twelve days later, Eyewitness 1 positively identified the defendant in a live lineup (no other person in photo lineup appeared in the live lineup); Eyewitness 2 tentatively identified the defendant in a live lineup. Eyewitness 3, while being driven by officers in the defendant’s neighborhood, tentatively identified the defendant. The next day, Eyewitness 3 identified the defendant out of the same photo lineup spread of 36 photos. The trial court excluded the testimony on behalf of the defendant of an eyewitness-identification expert. The court of appeals affirmed, stating, in part, the expert witness had no knowledge of the facts and did not try to connect his opinion with facts. The Court of Criminal Appeals reversed and remanded to the court of appeals for harm analysis. The Court noted that during the trial court hearing, the expert said he was not there to render opinion about the accuracy of any particular witness’ testimony and did not intend to discuss a specific lineup or photo spread used; he would only discuss the manner in which the lineup and photo spread were employed. The Court recognized the matter was “soft science,” and then discussed how it was both reliable and relevant (<i>Kelly v. State</i>, 824 S.W.2d 568 (Tex. Crim. App. 1992); <i>Nenno v. State</i>, 970 S.W.2d 549 (Tex. Crim. App. 1998). The Court stressed the special circumstances presented in this case and admonished that such expert testimony may not pass muster in other situations. This is a “must read” decision for counsel who intend to walk the same path. <b>Synergistic Effect Instruction in DWI Cases</b> In both <i>Ouellette v. State</i> (PD-1722-10, Oct. 12, 2011 (Judge Paul Womack for majority (5); Judge Michael Keasler concurred in judgment; Judges Lawrence Meyers and Cheryl Johnson dissented; Judge Hervey did not participate)) and <i>Barron v. State</i> (PD-1770-10 (Nov. 9, 2011) (6-3)) motorists were stopped, alcohol smelled, tests conducted, and pills found. The jury instructions in both referred to alcohol and drugs; an additional, “more susceptible” instruction relating drugs to alcohol was given in <i>Barron</i>. In <i>Ouellette</i>, pills were seized; the defendant denied recent use; and the officer testified to the effect of the drug. In <i>Barron</i>, no pills were seized, and officers and the defendant disputed the effect of whatever drug was involved (the officer recalled “hydrocodone” on a label, whereas the defendant said the pills were Bonine for motion sickness). <i>Ouellette</i> was affirmed (DWI statute “focuses on the state of intoxication, not an intoxicant”; circumstantial evidence showed the defendant was intoxicated by drugs); <i>Barron</i> was reversed (the decision indicates the state’s evidence was weak) and quoted the trial court and state’s remarks that the “state needed evidence of the pills to prove intoxicated.” This was a harmful error because instructions introduced a specific mode of action (susceptibility through interaction of medication or drug and alcohol) and supported the state’s theory that a combination of hydrocodone and alcohol produced intoxication. These two decisions may have serious consequences in formulating DWI jury instructions. <b>Confrontation </b> In the DWI case <i>Bullcoming v. New Mexico</i>, 131 S.Ct. 2705 (June 23, 2011), the U.S. Supreme Court addressed the issue as to whether the confrontation clause allows prosecution to introduce a forensic lab report containing a testimonial certification, made in order to prove a fact at a criminal trial, through the in-court testimony of an analyst who did not sign certification or personally perform or observe the performance of the test reported in certification. The Court answered “No,” unless the witness who made the statement is unavailable and the defendant has had prior opportunity to confront that witness, and reversed the New Mexico Supreme Court’s judgment. <b>Notes</b> 1. The defendant also complained that jury instructions omitted instructions regarding presumption of reasonable conduct. The reader is referred to the opinion for analysis. 2. The Court of Appeals sustained a point of error relating to the punishment phase — the failure of the jury instructions to require unanimity with respect to the “sudden passion” issue — and remanded the case for a new punishment hearing. <b>KATHLEEN FITZGERALD PERDON</b> is an assistant city attorney in Waco. <b>KERRY P. FITZGERALD</b> is a justice of the Fifth District Court of Appeals in Dallas. <b>Family Law</b> Georganna L. Simpson and Steven R. Morris In 2011, the Texas Legislature amended a number of Family Code provisions, including statutes related to spousal maintenance, mistaken paternity, collaborative law, access to children under 3 years of age, and appeals from orders terminating the parent-child relationship — all of which became effective Sept. 1, 2011. <b>Spousal Maintenance</b> One of the more important changes relates to the eligibility, duration, and amount of spousal maintenance that a trial court may award. Previously, where family violence was not an issue, in order to be eligible for spousal maintenance, a spouse seeking spousal maintenance had to “lack sufficient property … to provide for the spouse’s minimum reasonable needs.” Section 8.051(2) now requires that, due to specified circumstances, the spouse is unable to “earn sufficient income to provide for the spouse’s minimum reasonable needs.”<sup>1</sup> Additionally, Section 8.051(2) previously required the duration of a marriage to last a minimum of 10 years, regardless of the requesting spouse’s circumstances, in order to be eligible for spousal maintenance. Whether the requesting spouse was unable to support himself or herself due to a severe disability, or because the spouse was a custodian of a child who required substantial care, or simply because the spouse lacked the education and skill to gain employment, the spouse would not be eligible for spousal maintenance if the marriage lasted less than 10 years. Section 8.051(2) now separates these three circumstances and the 10-year marriage duration requirement only applies when the requesting spouse “lacks the ability” to earn sufficient income to provide for his or her minimum reasonable needs. The duration of spousal maintenance has also changed. Previously, the duration of spousal maintenance under most circumstances was limited to three years. Now, the court may award spousal maintenance for five, seven, or 10 years depending on the duration of the marriage.<sup>2</sup> These durational time frames are the outer limits for which a court may award spousal maintenance, the statute still requires that spousal maintenance be limited to the shortest reasonable period that would allow the requesting spouse to begin earning sufficient income to provide for his or her minimum reasonable needs. Additionally, as in the previous version of the statute, the court may award spousal maintenance indefinitely where the requesting spouse is incapacitated by a physical or mental disability, or is the custodian of a child who requires substantial care. <b>Mistaken Paternity </b> Another significant change relates to the termination of the parent-child relationship when the parent is the petitioner, i.e., in circumstances involving mistaken paternity. Section 154.006 now allows a man to file a suit to terminate the parent-child relationship between himself and a child at any time if, without obtaining genetic testing, he previously signed a paternity acknowledgment or was adjudicated to be the father of the child.<sup>3</sup> The petition must allege facts that show 1) he is not the genetic father and 2) he “signed the acknowledgment of paternity or failed to contest parentage … because of the mistaken belief … that he was the child’s genetic father based on misrepresentations that led him to that conclusion.” Upon petition, the court will hold a hearing to determine whether the petitioner has established a prima facie case for termination — and if so, the court must order genetic testing. If the results of the test exclude the petitioner as the child’s genetic father, the court “shall” render an order terminating the parent-child relationship. The order terminating the parent-child relationship will also terminate the petitioner’s future child support obligations, but will not terminate any child support that accrued before the termination order. The timing of the petition is important. Before Sept. 1, 2012, the petitioner may file a termination petition regardless of the date he discovered the facts indicating that he is not the child’s genetic father. After Sept. 1, 2012, the petitioner must file a termination petition no later than one year after the date that he discovers the facts indicating he is not the child’s genetic father. <b>Access to a Child Under Three Years of Age</b> Section 153.254 provides that for a child less than three years of age, a trial court “shall render an order appropriate under the circumstances for possession of [the] child.”<sup>4</sup> The statute now includes a list of 13 factors a trial court must consider when rendering such an order. Additionally, upon a party’s request, the statute now requires the court to file supportive findings within 15 days after the request. The statute still requires the trial court to simultaneously render a prospective order to take effect on the child’s third birthday — which presumptively will be a standard possession order. <b>Collaborative Law</b> The Legislature has adopted the Uniform Collaborative Family Law Act. The underlying policy of the act is to “encourage the peaceable resolution of disputes … involving the parentchild relationship” through voluntary settlement procedures.<sup>5</sup> These disputes may include disputes related to conservatorship, access and possession, and child support. <b>Accelerated Appeals in Termination Cases</b> Procedures for appeals of final orders terminating parental rights are governed by the Texas Rules of Appellate Procedure.<sup>6</sup> A parent appealing a termination order is no longer required to file a statement of appellate points with the trial court or have the trial court determine whether the appeal would be frivolous prior to the appeal. The Legislature has directed the Supreme Court to adopt procedural rules for accelerating these appeals. As such, proposed rules are currently pending before the court and await its approval. <b>Unsworn Declaration</b> Document filings have become much easier as sworn and notarized affidavits are no longer required with the filings.<sup>7</sup> Now, an unsworn declaration may be used in lieu of sworn declarations, affidavits, oaths, and verifications. Please see the statute for details including the proper form. <b>Notes </b> 1. Tex. Fam. Code Ann. §8.051. 2. Tex. Fam. Code Ann. §8.054. 3. Tex. Fam. Code Ann. §161.005. 4. Tex. Fam. Code Ann. §153.254. 5. Tex. Fam. Code Ann. §15.001. 6. Tex. Fam. Code Ann. §263.405. 7. Tex. Civ. Prac. & Rem. Code Ann. §132.001. <b>GEORGANNA L. SIMPSON </b> is a sole practitioner in Dallas whose practice has focused exclusively for more than 20 years on family law appellate matters. <b>STEVEN R. MORRIS </b> is a sole practitioner in Dallas who is building his practice in family law appeals and other civil matters. <b>Health Law</b> Diane T. Carter Health care reform has been the most debated issue in the health care industry in 2011. Since the enactment of the Patient Protection and Affordable Care Act (PPACA) on March 23, 2010, many lawsuits have been filed challenging the act, including 26 federal lawsuits and 26 district court cases. On Nov. 14, 2011, the U.S. Supreme Court agreed to hear its first case regarding the constitutionality of the act. The case comes from the 11th Circuit, where the court held that the PPACA’s mandate that all individuals obtain health insurance is unconstitutional. Texas was one of the 25 states that acted as a plaintiff in the case. The Supreme Court agreed to hear two issues regarding the PPACA: whether the law’s mandate is unconstitutional, and if so, whether the entire law must be scrapped. Oral arguments are set for March 2012, with a ruling to possibly be delivered in the summer of 2012. Due to the timing of this case, it will be a hot issue of political debate for the upcoming presidential election. While the PPACA has been debated, the Centers for Medicare and Medicaid Services (CMS) has issued several rules to implement provisions of the act. Such rules include the final regulations released on Nov. 2, 2011, for Accountable Care Organizations (ACO). An ACO is a network of providers and suppliers that share responsibility for providing care to patients who are assigned to the ACO. The PPACA’s Shared Savings Program implemented ACOs as a way to offer health care entities and providers financial incentives to reduce costs and improve the quality of care for Medicare beneficiaries through shared savings. Because of the many federal health care fraud and abuse laws that are implicated through ACOs, CMS published an interim final rule that implements waivers of these laws for ACOs that participate in the Medicare Shared Savings Program. <b>CMS Implements New Fraud Prevention Measures</b> As required by the PPACA, CMS has implemented several rules and methods to prevent fraud. As of Jan. 1, 2012, all states are to implement a Medicaid Recovery Audit Contractor (RAC) program. The RAC program is intended to provide a review of Medicaid claims for any overpayments or underpayments and to recoup overpayments from providers on behalf of the state. As another method to prevent fraud, CMS implemented innovative predictive modeling technology to fight Medicare fraud effective July 1, 2011. The program is designed to stop fraudulent claims before they are paid. CMS stated that the technology is similar to the technology used by credit card companies, which uses real-time data to spot suspect charges. <b>Medicare Physician Fee Cut for 2012 </b> On Nov. 1, 2011, CMS published its 2012 Medicare Physician Fee Schedule containing policies and payment rates for physicians and non-physician practitioners who are paid under the Medicare Physician Fee Schedule. In absence of Congressional action, the final rule will reduce rates for services on or after Jan. 1, 2012, by approximately 27.4 percent. The rate is calculated annually based on a formula that includes the application of the sustainable growth rate. There is concern that such a drastic cut in fees will cause physicians to leave the Medicare program or stop practicing completely. <b>Medicaid No Longer Pays for Treatment of Health Care-Acquired Conditions</b> CMS adopted a rule that prohibits Medicaid from paying for health care-acquired conditions as of July 2, 2011. The rule also allows states to identify other provider-preventable conditions for which Medicaid payments will be prohibited. The health care-acquired conditions that CMS prohibits Medicaid from paying include air embolism, blood incompatibility, catheter-related infections, injuries resulting from a fall, foreign object retained after surgery, severe bedsores, and surgical site infections. <b>Texas Adopts Law to Allow Physician Assistants to Own PAs and PLLCs</b> As of Sept. 1, 2011, physician assistants may jointly own professional associations (PAs) and professional limited liability companies (PLLCs) with physicians. The law contains a number of restrictions, including the requirement that the physician assistant or combination of physician assistants only owns a minority interest in the entity. Additionally, an individual physician assistant’s ownership interest may not equal or exceed the ownership interest of an individual physician owner. The restrictions also prevent physician assistants from being an officer of the entity and contracting or employing a physician to be a supervising physician for that physician assistant. <b>New Law Allows Texas to Form a Health Care Compact </b> Senate Bill 7, signed by Gov. Rick Perry on July 19, 2011, allows Texas to partner with other states to form a health care compact to ask the federal government for fiscal and governmental control of Medicaid and Medicare. S.B. 7 also creates health care collaboratives in which health care practitioners can contract with each other to collectively provide health care services as a bundled service; aligns Medicaid and Children’s Health Insurance Program (CHIP) reimbursement with patient outcomes rather than quantity of services; and places prescription drug benefits into Medicaid managed care with existing patient protections. <b>DIANE T. CARTER</b> is a partner in Brown McCarroll, L.L.P. in Austin. She is certified in health law by the Texas Board of Legal Specialization. <b>Immigration Law</b> Kenneth J. Harder Immigration law is the proverbial river that remains forever unchanged yet, as water flows by, changes continuously. Twenty- five years ago, President Ronald Reagan signed into law the Immigration Reform and Control Act, introducing new enforcement measures requiring employers to verify the identity and employment eligibility of all new hires while providing a path to legal status for millions of undocumented immigrants. Today, calls persist for greater immigration enforcement at the federal, state, and local levels while others clamor for legalization of illegal immigrants. The issues endure. The details change continuously. The bipartisan cooperation that allowed immigration reform to pass through a divided Congress 25 years ago seems a quaint visage of the past. Dozens of bills addressing discrete immigration issues were introduced in Congress in 2011. These ranged from a proposal to mandate universal use of E-Verify, the federal online employment eligibility verification program, to a reprise of the DREAM Act, a bill legalizing the immigration status of certain undocumented children. No serious attempt was made to tackle comprehensive immigration reform. Following the example set by Arizona last year, several states enacted laws intended to deter illegal immigrants by, <i>inter alia</i>, restricting their right to contract, requiring schools to verify the immigration status of students and directing local police to confirm the immigration status of anyone stopped during the enforcement of other laws. Alabama, South Carolina, Georgia, and Utah are among those states that passed laws requiring local police to become involved in enforcement of immigration laws. The U.S. Department of Justice (DOJ) actively challenged many such state laws on federal preemption grounds, arguing that they would divert federal resources from high-priority targets including terrorists, criminals, and employers that illegally hire aliens without work authorization. Accepting this preemption argument, federal courts have enjoined parts of the immigration legislation of several states. The Texas Legislature considered and rejected more than 90 separate bills addressing immigration issues, including Arizonastyle legislation. Gov. Rick Perry, who has defended access to education for undocumented children, conversely supported legislation prohibiting cities and counties from implementing sanctuary city policies. Under a sanctuary city policy, local police are instructed not to inquire about a person’s immigration status during law enforcement activities. The movement to ban sanctuary city policies enjoyed some popular support. Police chiefs and sheriffs throughout the state, however, expressed strong opposition to the legislation, concerned that local police departments, already facing budget cutbacks, would be required to divert resources from community law enforcement. Efforts to block the implementation of sanctuary city policies ultimately failed in both the regular and special legislative sessions. Not all states rushed to adopt immigration law enforcement measures. A few suspended participation in the federal Secure Communities program administered by the U.S. Department of Homeland Security (DHS). This program requires anyone booked into a jail, citizens and non-citizens alike, to be checked against DHS databases for immigration violations. Governors in Illinois, New York, and Massachusetts, expressing concern that Secure Communities has a negative impact on local law enforcement activities by discouraging community cooperation with law enforcement, ended participation in the federal program. Citing the financial burden placed on small businesses by E-Verify, California enacted legislation that prohibited the state from requiring employers to use it. In addition, California adopted a state DREAM Act, making college education more affordable for undocumented students. Illustrating the political anomalies raised by illegal immigration, the view that easing the path to education for all state residents makes good business sense was a position shared both by arch liberal Gov. Jerry Brown of California and staunch conservative Gov. Rick Perry. Over the past decade, DHS has doubled the number of Border Patrol agents assigned to the Southwest border while adding remote video surveillance systems, automated license plate readers, and a phalanx of other human and electronic systems designed to thwart the entry of unauthorized immigrants and contraband. Illegal immigration attempts are now less than one-third of peak levels. DHS reports that it deported 396,906 illegal immigrants in fiscal year 2011, the largest number ever. More than half of these persons were convicted of a felony or a misdemeanor. This represents an 89-percent increase in the removal of criminal aliens during the last three years. The surge in criminal alien removal reflects the Obama Administration’s immigration enforcement priorities, described above, which conflict with state laws that do not discriminate between the threat level represented by individuals illegally present in the United States. The DHS enforcement priorities include national security threats, organized criminal activity, and repeat immigration offenders, among others. An ancillary policy for exercising discretion in the prosecution of removal cases, designed to take low priority cases out of the system, thereby freeing up resources to focus on greater threats, was announced in June 2011 by Immigration and Customs Enforcement (ICE). Under this policy, ICE will evaluate each removal case and, where various favorable factors are found, will administratively close the file, removing it from the immigration court’s docket. Affected individuals are eligible to apply for employment authorization and permitted to remain in the United States. Both supporters and opponents of immigration have found something to be unhappy about with these dual policies. Immigration advocates decry the increase in removals of illegal immigrants. Opponents condemn the “administrative amnesty” represented by the exercise of prosecutorial discretion and demand removal of any unauthorized immigrant that comes to the attention of ICE. Meanwhile, the U.S. Citizenship and Immigration Services (USCIS), the branch of DHS responsible for adjudicating petitions for benefits under the Immigration and Nationality Act, continues a trend of interpreting and implementing the law in an ever-more restrictive manner. Bringing additional workers to the states at a time of persistently high unemployment does not garner widespread popular sympathy. Foreign-born entrepreneurs and foreign investors, however, have a well-documented history of creating high-growth businesses. A report to Congress in June 2011, however, describes employers and foreign investors who seek international talent for projects in the United States continuing to complain of legitimate business operations impeded by unduly burdensome requests for additional, often immaterial evidence from USCIS that appears to bear no relation to the actual evidentiary standard. Subsequently, USCIS announced an initiative to bring experts from private industry to help design effective adjudication tools to support job-creating business immigration and foreign investment. There is little evidence that this initiative has gone beyond the concept stage. On a more tangible scale, U.S. Customs and Border Protection, the entity responsible for the inspections and admissions process at air, land, and seaports, actively promoted and expanded its Trusted Traveler programs throughout 2011. Among them, “Global Entry” allows U.S. citizens, lawful resident aliens, and certain others to volunteer for prescreening in order to receive expedited immigration inspection when returning from abroad. Similarly, the Transportation Security Administration (TSA), another DHS entity, began testing a pilot program, TSA PreCheck. This program also uses passenger- volunteered information to prescreen travelers to accomplish two goals: 1) to expedite the airport security inspection process and, 2) consistent with the DHS unlawful immigrant removal policies and local police concerns with the effective use of limited resources, to free resources to focus on threats to public safety. Due to space limitations and given the complexity of the political, social, and hyper-technical legal dimensions of immigration law, this summary merely skips a stone across the surface of the river, touching a few points rather than plumbing the depths. <b>KENNETH J. HARDER</b> leads the immigration and nationality law department at Dunbar Harder, P.L.L.C. in Houston. He is certified in immigration and nationality law by the Texas Board of Legal Specialization. <b>Insurance Law</b> Lee H. Shidlofsky and Douglas P. Skelley The landscape of Texas insurance law saw significant decisions in 2011. Notably, courts continued to grapple with what it means to “contractually assume liability” in a construction contract. And, in a decision that could be a bellwether for things to come or just simply an anomaly, a state appellate court adopted an exception to the “eight corners” rule for determining the duty to defend. <b>The <i>Gilbert</i> Effect</b> Last year, the Supreme Court of Texas’ decision in <i>Gilbert Texas Construction, LP v. Certain Underwriters at Lloyd’s London</i>, 327 S.W.3d 118 (Tex. 2010), held for the first time that the “contractual liability” exclusion in a standard CGL policy applied to more than just indemnity and hold harmless agreements. More specifically, the Court held that the exclusion applied to negate the duty to indemnify when the insured’s liability was based on a contractual assumption of liability that would not otherwise exist because the insured was immune from tort liability. After <i>Gilbert</i>, however, a question remained as to whether it would be construed narrowly to the unique fact pattern before the Court or broadly to apply whenever an insured’s liability is based on a breach of contract. In 2011, two federal district courts adopted the broad view. <i>See Ewing Construction Co., Inc. v. Amerisure Ins. Co.,</i> 2011 WL 1627047 (S.D. Tex. Apr. 28, 2011); <i>Crownover v. Mid-Continent Cas. Co.</i>, Civil Action No. 3:09-CV-2285 (N.D. Tex. Jan. 13, 2011). In <i>Crownover</i>, the federal district court held that the contractual liability exclusion applied when an arbitration ruling against an insured homebuilder was based on a breach of contract theory. <i>Crownover</i>, like <i>Gilbert</i>, involved the duty to indemnify. Unlike in <i>Gilbert</i>, however, there was no express assumption of liability for damages. Rather, the court held that entering into a construction contract sufficed as a contractually assumed liability. In <i>Ewing</i>, the court went one step further than <i>Gilbert</i> and <i>Crownover</i> and applied the exclusion to the duty to defend. As in <i>Crownover</i>, and despite the Supreme Court’s lengthy discussion of the exact provision in the contract in which Gilbert assumed the liability for the damages at issue, Judge Janice Graham Jack essentially held that entering into a construction contract constitutes an assumption of liability sufficient to trigger the exclusion. Having found the exclusion applied in the first instance, Judge Jack’s decision also addressed the same exception to the exclusion addressed in <i>Gilbert</i> — that is, whether the liability at issue was liability the insured would have had in the absence of the contract. Like in <i>Gilbert</i>, the court in <i>Ewing</i> also found the exception did not apply. In doing so, however, Judge Jack applied the “economic loss” rule — a liability defense — at the duty to defend stage. Because Judge Jack ruled that the tort allegations were not viable, and all that remained were allegations of breach of contract, the court held that the contractual liability exclusion negated the duty to defend. Both <i>Crownover</i> and <i>Ewing</i> have been appealed to the Fifth Circuit Court of Appeals. In addition, in <i>Ewing</i>, the Fifth Circuit is faced with an Unopposed Motion to Certify Questions to the Supreme Court of Texas. At press time, both cases remain pending before the Fifth Circuit. As such, 2012 may be the year that determines the true scope of the “contractual liability” exclusion. Either way, the outcome will have a significant impact for insureds and insurers alike. <b>An Exception to the “Eight Corners” Rule — Bellwether or Anomaly?</b> The Houston Court of Appeals issued an opinion in <i>Weingarten Realty Mgmt. Co. v. Liberty Mut. Ins. Co.</i>, 343 S.W.3d 859 (Tex. App. — Houston [14th Dist.] 2011, pet. denied), that could prove significant in 2012 and beyond. For years, state appellate courts have remained consistent in refusing to acknowledge any exception to the “eight corners” rule in light of the Supreme Court’s consistent refusal to adopt one when faced with that option. Federal courts, including the Fifth Circuit, have been inconsistent as to whether an exception exists. In <i>Weingarten</i>, in a 2-1 decision, the 14th District Court of Appeals in Houston became one of the first state appellate courts in recent history to recognize an exception. <i>Weingarten</i> involved a claimant, who contended that a company was a lessor — which would have entitled it to additional insured coverage under a CGL policy issued to the claimant’s employer. The court of appeals found an exception existed that enabled the insurer to show the entity was not in fact the lessor of the property. The court reasoned that the benefit of the “eight corners” rule exists only for an insured and “[a] stranger to the policy neither needs nor should expect this benefit.” Accordingly, under the court’s reasoning, enforcing the strict “eight corners” rule would not further the underlying policy of the doctrine, but would impose on insurers a duty to defend anyone who — by accident or otherwise — is pleaded into coverage under a policy to which it previously was a complete stranger. Surprisingly, when considering the split of authority in the federal courts as outlined in the dissenting opinion, the Supreme Court denied the petition for review. Accordingly, as it stands, it is not clear whether an exception to the “eight corners” rule exists and, even if does, whether the exception is limited to the facts presented in <i>Weingarten</i>. As a consequence, 2012 likely will see an increase in declaratory judgment actions as insureds and insurers attempt to ascertain the true impact, if any, of <i>Weingarten</i>. <b>LEE H. SHIDLOFSKY</b> is a founding partner in the Shidlofsky Law Firm, P.L.L.C. in Austin, where his practice focuses on insurance coverage, insurance-related litigation, and risk management. He is immediate past chair of the State Bar Insurance Law Section. <b>DOUGLAS P. SKELLEY </b> is a senior associate of the Shidlofsky Law Firm, P.L.L.C. in Austin, where his practice focuses on insurance coverage and insurance-related litigation. <b>Labor and Employment Law</b> Michael P. Maslanka Texas employment law had a turbulent year in 2011, starting with a decision from the Texas Supreme Court. On June 24, 2011, the Court rewrote non-compete law in Texas with its decision in <i>Marsh U.S.A., Inc., et al v. Cook.</i> For a non-compete to be enforceable, an employee must receive consideration from an employer and the non-compete must protect an employer interest worthy of protection. Before <i>Marsh</i>, the providing of confidential information to an employee was the sole consideration for a non-compete, and the non-compete could be used to protect the employer’s interest in keeping confidential information confidential. After <i>Marsh</i>, providing stock options to an employee is sufficient consideration for a non-compete and an employer’s goodwill is now a protectable interest. So, the new formula says this: An employer provides stock options to an employee to incentivize him or her to work harder, and by working harder the employee generates goodwill for the employer, and the employer can use a non-compete to protect the goodwill generated on its behalf. Is anything that incentivizes an employee to work harder now sufficient consideration? As the three justices in dissent were quick to point out, where does it all end? A sign-on bonus? A quarterly bonus program? Can non-competes now be bought and paid for? We will see. One important but overlooked point: The Court held in a brief mention that a non-solicit provision in which a departing employee promises not to recruit former colleagues must be treated like a non-compete. Consequently, an employee must be provided consideration for the non-solicit in order for it to be enforceable. The passage reads like dicta but employers should consider it in drafting non-solicits. The Court granted writ this year in an important age discrimination case under the Texas Labor Code. In <i>Mission Consolidated Independent School District v. Garcia</i>, the Corpus Christi Court of Appeals reasoned that the law allows a terminated plaintiff to establish age discrimination even if she was replaced by an older employee. The employer asked the high court to reserve this decision, essentially asking “where’s the discrimination?” A possible contra argument is that an employer fires a 53-year-old because it believes workers in their 50s should act a certain way, and then replaces the employee with a 57-year-old who more closely conforms to the employer’s stereotype. Wouldn’t the termination still be due to age? We will see how the court sorts it out, but it generally doesn’t take a case like this to say “good job, court of appeals.” What else is on the high court’s docket? In <i>Safeshred, Inc. v. Martinez</i>, the Austin Court of Appeals held, 2-1, that a plaintiff can recover punitive damages for a <i>Sabine Pilot</i> violation, where the employee claims he suffered an adverse employment action solely because he refused to perform an illegal act, one that carries criminal penalties that would land him in the Big House. The Court has heard arguments and a decision is expected in 2012. Two U.S. Supreme Court cases will affect Texas employment litigation. In <i>Staub v. Proctor Hospital</i>, the Court issued a pro-employee decision, finding that an employer is on the hook for discrimination even if the decision maker is pure of heart but was influenced by the biased decisions or recommendations of a not-so-pure subordinate. What about multiple reasons for the adverse employment decision? Doesn’t the subordinate’s bias need to be a proximate cause of the decision? No, according to the Court. Justice Antonin Scalia cut to the quick: “… (I)t is common for injuries to have multiple proximate causes.” So, if just one is unlawful bias and the case gets to a jury, <i>Staub</i> will make it easier to establish that adverse discrimination infected a challenged employment action. The Supreme Court also sided with employees in deciding that an employee’s oral complaints of an employer’s wage and hour violations is protected activity under the anti-retaliation provision of the Fair Labor Standards Act (FSLA). Here is the standard as illuminated by the Supreme Court: “To fall within the scope of the [FLSA’s] anti-retaliation provision, a complaint must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the (FLSA) and a call for their protection.” Translation: While the Court will expand the avenues through which a complaint is made, mere grumblings will not protected activity make. The case is <i>Kasten v. Saint-Gobain Performance Plastics.</i> The amendments to the Americans with Disabilities Act (ADA), which took effect Jan. 1, 2009, and their regulations, promulgated on May 24, 2011, are now being felt in courtrooms across Texas. The effect is hard to understate. Employees once excluded from coverage of the ADA are now covered. Have sleep apnea? Covered. Enlarged prostrate? Covered. Cancer in remission? Covered. Look at <i>Norton v. Assisted Living Concepts, Inc.</i> (2011) from the Eastern District of Texas. The plaintiff suffered from renal cancer. The court denied the employer’s motion for summary judgment. Why? Previously, to establish a covered disability, an employee had to show not just that he had cancer but that the cancer stopped him from leading a normal life — namely, getting up the morning, brushing his teeth, driving to work, or performing similar daily activities. The amendments wiped away this onerous standard. In fact, the <i>Norton</i> court not only denied the employer’s motion for summary judgment, but, under the revisions to Rule 54 of the Federal Rules of Civil Procedure, ordered the employer to explain why summary judgment should not be granted to the plaintiff on the issue of ADA coverage. If there was any doubt on this sea change, a federal district court in Houston snuffed it out. In <i>Meinfelt v. P.F. Chang’s China Bistro</i> (2011), an employee who had a brain tumor sued, claiming his employer fired him because of it. In denying summary judgment, the court rejected the employer’s argument that the amendments “did not … render nearly two decades of case law (prior to the enactment of the amendments) extinct.” The bottom line: Those pro-employer cases are as extinct as the dinosaurs. There’s more under the ADA amendments and regulations. An impediment that is in remission is still a covered disability. <i>First</i>, a physical or medical condition that is in remission is still a covered disability. <i>Second</i>, if a pill or medical treatment can alleviate the impairment (i.e., a mitigating measure), there is still a covered disability. <i>Third</i>, if an employer mistakenly believes the employee suffers from a disability, there is still ADA coverage, even if the employer does not think that the condition is a substantial limitation or a major life function. Employment law is dynamic, changing from year to year, and 2011 was no exception. <b>MICHAEL P. MASLANKA</b> is head of the Dallas office of Constangy, Brooks & Smith, L.L.P. He is the author of several books, including <i>Maslanka’s Field Guide to the ADA and Its Amendments.</i> His blog, “Work Matters,” can be read at <b>http://www.texaslawyer.typepad.com/work_matters.</b> <b>Patent Litigation</b> Michael C. Smith The chief development in 2011 for Texas patent lawyers was the passage of landmark patent legislation, in the form of the America Invents Act (AIA), Pub. L. 112–12, H.R. 1249, 112th Cong., §19(d) (1st Sess. 2011) on Sept. 16, 2011. The AIA has four key provisions that affect patent litigation. First, the United States will change to a “first-to-file” patent system, which is the system used by most of the rest of the world. The first-to-file system provides an incentive for inventors to file as quickly as possible to avoid an earlier filing by a competitor, but the Act also provides for a proceeding between patent owners if the holder of the later patent can show that the earlier patent’s invention was derived from the later patent holder’s invention. These “derivation proceedings” will replace the current, seldom-used interferences. Second, the Act allows third parties to challenge the validity of any claim of a patent after it is issued. But the time period is limited to nine months after issuance, review cannot be sought by a plaintiff after filing a suit involving the patent, and if review ends with a final decision, the challenging party cannot use in later litigation the arguments that were or could reasonably have been used. Third, the wave of <i>qui tam</i> “false marking” cases filed in 2010 as a result of the Federal Circuit’s decision in <i>Forest Group, Inc. v. Bon Tool Co</i>., 590 F.3d 1295 (Fed. Cir. 2009) was eliminated by retroactive amendments to 35 U.S.C. §292. As a result of the amendments, false marking plaintiffs in both new and existing cases will now be required to prove competitive injury and their damages will be limited to the injury sustained. Further, marking with an expired patent is explicitly excluded from the definition of “false marking” in the statute. Fourth, and most important for most Texas patent litigators, a late addition to the legislation was a new statute controlling the issue of joinder of defendants for certain patent infringement cases, previously determined under the general joinder provisions of Fed. R. Civ. P. 20. For cases commenced on or after the date of the enactment of the AIA, parties cannot be joined together in an action or have their actions consolidated for trial unless the asserted claims deal with the same accused product or process. Specifically exempted from the bar of joinder of claims involving different products are patent infringement actions under 35 U.S.C. §271(e)(1), i.e., Hatch- Waxman Act claims involving pharmaceuticals. While questions remain about the provision’s effect on many multi-defendant case issues, i.e., cases involving overlapping products or claims, consideration of concerns of judicial economy, and consolidation for trial of common issues other than infringement, the provision is expected to result in a significant reduction in the number of cases being filed against large numbers of defendants producing unrelated products in favor of a larger number of individual cases filed on a product-by-product basis, which can be consolidated for pretrial, although not trial, absent the defendants’ consent. The Federal Circuit’s recent activity in the field of mandamus decisions regarding patent venue also continued throughout the year. In both 2009 and 2010, the Federal Circuit issued five venue mandamus opinions, and in both years the opinions split 3-2 in favor of granting mandamus requiring cases to be transferred. In 2011, as of this writing, there were nine reported venue mandamus opinions, with two from the Eastern District of Texas granted and two denied, and five from other districts, with one granted and four denied. Several of these holdings were notable for their focus on the issue of judicial economy. First, in <i>In re Google, Inc.,</i> Misc. No. 968 (March 14, 2011), the Federal Circuit affirmed a district court’s denial of a motion to sever and transfer in which it noted that judicial economy plays a paramount role in trying to maintain an orderly, effective administration of justice, and having one court decide all of the claims in the case furthered that objective. But in <i>In re Verizon Business Network Services, Inc.,</i> 635 F. 3d 559 (Fed. Cir. 2011) and <i>In re Morgan Stanley</i>, Misc. Nos. 962, 964, 967 (April 6, 2011), the court found that the district court’s familiarity with the patent in suit through prior cases was too tenuous a reason to deny transfer in the face of convenience factors strongly favoring transfer. In <i>In re Morgan Stanley</i>, the court also stated that it did not regard the prospective speed with which the case might come to trial to be of particular significance in the case because the plaintiff was a non-practicing entity that did not make or sell any product that practiced the claimed invention, and, therefore, did not need a quick resolution of the case because its position in the market was not threatened, nor had it identified any other reason why speed to trial was a significant consideration in that case. With respect to other case law, perhaps the most significant development was the U.S. Supreme Court’s holding in <i>Microsoft Corp. v. i4i L.P.</i> — U.S. —, 131 S. Ct. 2238 (2011), in which the Court declined to change the existing requirement that claims of patent invalidity be shown by clear and convincing evidence, even when the claim of invalidity is based on evidence of “prior art” that the U.S. Patent and Trademark Office did not review before granting the patent. In local developments, the retirement of three of the Eastern District of Texas’ district and magistrate judges — all with substantial experience handling complex patent litigation — in the fall of 2011 and spring of 2012 will also affect Texas patent litigators with cases in the district, which remains one of the most popular districts in the nation for patent infringement cases. As with recent years, 2011 was one of massive change, and more is likely yet to come. <b>MICHAEL C. SMITH </b> is a partner in the Marshall office of Siebman, Burg, Phillips & Smith, L.L.P. He is chair of the <i>Texas Bar Journal</i> Board of Editors. <b>Probate Law</b> Prof. Gerry W. Beyer The Texas courts have been busy over the past year deciding probate cases, sometimes in predictable ways with classic fact patterns or developing new law to handle cases of first impression, but also in ways that some probate practitioners would find surprising, if not shocking. This review covers the “Top Ten” lessons to be learned from the decisions rendered in probate cases by Texas courts during the latter part of 2010 and 2011.<sup>1</sup> <b>1. Arbitration clauses in trusts unenforceable</b> The settlor in <i>Rachal v. Reitz</i>,<sup>2</sup> included a trust provision requiring the beneficiaries to arbitrate any dispute with the trustees. The court held that this provision was unenforceable because a person cannot be compelled to arbitrate a dispute if the person did not agree to relinquish the right to litigate. The beneficiary is merely a recipient of equitable title to property and not a party to the trust instrument. <b>2. Forged will may effectively dispose of property</b> In <i>Haisler v. Coburn</i>,<sup>3</sup> the father died with a will leaving his entire estate to the stepmother. The daughter contested the will but later dismissed the contest after receiving property under a family settlement agreement. Years later, the daughter learned that her father’s will was a forgery and filed an equitable bill of review to set aside the probate. The trial court refused and the appellate court affirmed. A bill of review is proper when there is extrinsic fraud that prevents a party from fully litigating all of the party’s rights or defenses. The court explained that the fraud in this case was merely intrinsic, that is, “She was not kept from court; no false promises of compromise were alleged to have been made; and she was not denied knowledge of application to probate the will.”<sup>4</sup> <b>3. Contest lack of dominant jurisdiction with plea in abatement</b> The Texas Supreme court held in <i>In re Estate of Puig</i><sup>5</sup> that “[t]he proper method for contesting a court’s lack of dominant jurisdiction is the filing of a plea in abatement, not a plea to the jurisdiction.”<sup>6</sup> <b>4. Determine if appellate court has jurisdiction before appealing</b> Despite clear guidance from the Texas Supreme Court in 1995<sup>7</sup> regarding when a trial court judgment is appealable or only interlocutory, appellate lawyers continue to have difficulty making this distinction. The high court explained that a lower court order is appealable if the applicable statute (Probate Code) declares the order to be final, and is not appealable “if there is a proceeding of which the order in question may logically be considered a part, but one or more pleadings also part of that proceeding raise issues or parties [that are] not disposed of.”<sup>8</sup> Because of the potential difficulty in applying this rule, the court provided valuable advice when it stated that “[a] severance order avoids ambiguities regarding whether the matter is appealable. Litigants can and should seek a severance order either with the judgment disposing of one party or group o[f ] parties, or seek severance as quickly as practicable after the judgment.”<sup>9</sup> Trial court judgments recently held to be merely interlocutory include a determination that an alleged spouse had previously divorced the decedent,<sup>10</sup> order to an independent executor to account,<sup>11</sup> and an order to the executor to sell real property.<sup>12</sup> On the other hand, the court held that an order admitting a will to probate and granting an independent administration was final and appealable.<sup>13</sup> <b>5. Late probate excuses often accepted</b> The courts appear willing to accept a will proponent’s excuses for not probating the will within four years of death as Probate Code Section 73 normally requires. The excuse was certainly worthy in <i>In re Estate of Campbell</i>,<sup>14</sup> where the proponent did not discover the will until six years after his stepfather died. But in <i>In re Estate of Perez</i>,<sup>15</sup> the court accepted the proponent’s weak excuses such as not knowing about the requirement of probating a will within four years of death, thinking that probate was an unnecessary procedure, and not wanting to spend the money to do so. In this context, ignorance of the law was a justification. <b>6. Determination of heirship may preclude probate of will</b> The <i>In re Estate of Rogers</i><sup>16</sup> case warns will proponents about the danger of delaying probate. Because the court had already made a determination of heirship, it refused to allow the later probate of a will even though the proponents filed the will within four years of the decedent’s death. The court held that it was too late to appeal or seek a bill of review and thus rejected the will. <b>7. Personal representative owes no duty to unsecured creditor</b> In <i>Mohseni v. Hartman</i>,<sup>17</sup> the court held “that an independent executor does not owe a general legal duty of care to the unsecured creditor of an estate in the management of the estate’s assets.”<sup>18</sup> The court analogized that creditors cannot sue living debtors for mismanaging property that could cause them to be unable to pay their debts. <b>8. Personal representative must quickly investigate decedent’s bank accounts</b> In a case of first impression, the Texas Supreme Court in <i>Jefferson State Bank v. Lenk</i><sup>19</sup> sets forth how the Uniform Commercial Code interfaces with the Probate Code with respect to the running of limitations to recover for improper withdrawals from a decedent’s account. The court held that in the context of deceased customers, “(1) a bank satisfies its burden by retaining account statements for retrieval by the estate administrator, and (2) the repose period begins to run once an administrator is appointed.” <sup>20</sup> The court explained that after a customer’s death, the bank cannot send statements to the customer and, thus, retaining the statements is appropriate. A personal representative must examine bank account statements immediately after being appointed or else risk that the repose period will run barring a recovery for unauthorized withdrawals from the decedent’s accounts. The repose period can run before the personal representative obtains knowledge of the account. Thus, the personal representative must take prompt action to locate all of the decedent’s accounts. The decedent’s most recent income tax returns may be helpful in determining the existence of the accounts. <b>9. Non-attorney trustee cannot appear pro se</b> <i>In re Guetersloh</i><sup>21</sup> holds that a trustee had no right to proceed pro se in a representative (trustee) capacity but could proceed without an attorney with regard to claims in an individual capacity. The court stated that “if a non-attorney trustee appears in court on behalf of the trust, he or she necessarily represents the interests of others, which amounts to the unauthorized practice of law.”<sup>22</sup> <b>10. Discovery rule not applicable to claims for tortuous interference with inheritance rights</b> In <i>Haisler v. Coburn,</i><sup>23</sup> the court refused to adopt a discovery rule when the testator’s daughter attempted to bring a tortuous interference with inheritance rights action against the forger of her father’s will and the individuals who had prior knowledge of the forgery. <b>Notes</b> 1. For detailed coverage of the cases discussed in this review as well as other recent probate cases, see the author’s website at www.professorbeyer.com. For a discussion of the actions of the 2011 Texas Legislature in the probate area, see William D. Pargaman, <i>Probate, Guardianship, and Trust Law</i>, 74 Tex. B.J. 712 (2011). 2. 347 S.W.3d 305 (Tex. App. — Dallas 2011, pet. filed). 3. 2010 WL 2953372 (Tex. App. — Waco 2010, pet. denied). 4. <i>Id</i>. at *2. 5. 55 Tex. Sup. Ct. J. 13 (2011). 6. <i>Id.</i> at 13. 7. <i>Crowson v. Wakeham</i>, 897 S.W.2d 779 (Tex. 1995). 8. <i>Id.</i> at 783. 9. <i>Id.</i> 10. <i>In re Estate of Morales</i>, 345 S.W.3d 781 (Tex. App. — El Paso 2011, no pet. h.). 11. <i>Pollard v. Pollard</i>, 316 S.W.3d 238 (Tex. App. — Dallas 2010, no pet.). 12. <i>Rawlins v. Weaver</i>, 317 S.W.3d 512 (Tex. App. — Dallas 2010, no pet.). 13. <i>In re Hudson</i>, 325 S.W.3d 811 (Tex. App. — Dallas 2010, no pet.). 14. 343 S.W.3d 899 (Tex. App. — Amarillo 2011, no pet. h.). 15. 324 S.W.3d 257 (Tex. App. — El Paso 2010, no pet.). 16. 322 S.W.3d 361 (Tex. App. — El Paso 2010, no pet.). 17. 2011 WL 2304133 (Tex. App. — Houston [1st Dist.] 2011, no pet. h.). 18. <i>Id</i>. at *7. 19. 323 S.W.3d 146 (Tex. 2010). 20. <i>Id.</i> at 149. 21. 326 S.W.3d 737 (Tex. App. — Amarillo 2010, no pet. h.). 22. <i>Id.</i> at 740. 23. 2010 WL 2953372 (Tex. App. — Waco 2010, pet. denied). <b>GERRY W. BEYER</b> is the Governor Preston E. Smith Regents Professor of Law at the Texas Tech University School of Law, where he teaches probate courses such as Wills & Trusts, Estate Planning, and Texas Estate Administration. Beyer is a member of the Real Estate, Probate, and Trust Law Council of the State Bar of Texas. <b>School Law</b> Joy Baskin In 2011, the state financial crisis led to unprecedented cuts in public education funding, as well as efforts to increase efficiency in public schools. At the same time, the Texas Legislature passed new mandates regulating several aspects of public education, while the Texas Education Agency moved forward with the implementation of new assessment and accountability standards. In addition, the Fifth Circuit handed down landmark rulings that will shape future understanding of students’ First Amendment rights and school district liability for the harmful actions of third parties. <b>School Funding Cuts </b> At the conclusion of the legislative session, the state budget appropriated approximately $53.8 billion for public education, including $831 million from the federal Education Jobs Act. Although this substantial appropriation continues to represent the largest single expenditure of state general revenue, appropriations to the Foundation School Program were estimated to be $4 billion, or 5.6 percent, less than would have been required under previous law. Because Texas’ school finance formulas distribute funding on a per-student basis, and because the state’s population of school-aged children continues to climb, in order to reduce spending, the legislature had to alter the Texas Education Code’s school finance formulas in Senate Bill 1, passed in the special session. In addition, reduced funding dismantled several education grant programs, including a technology allotment, new instructional facilities allotments, full-day pre-kindergarten grants, educator incentive pay, and the Student Success Initiative designed to assist struggling students. The Legislature reduced average per-student state aid by nearly $500, or approximately $11,000 per classroom. The revised school finance formulas are already being challenged in state district court. In October 2011, a group of plaintiffs, including school districts, students, parents, and taxpayers led by the Equity Center, filed an original petition in Travis County. The petition asserts, among other claims, that the current finance scheme violates the state constitution as it fails to provide an efficient system due to its inequitable distribution of resources among districts; fails to make suitable provision for public schools because the system is inadequately funded; and indirectly creates a statewide property tax because local school districts are forced to tax at the maximum rate permitted by law.<sup>1</sup> Other interested groups are expected to join as plaintiff-intervenors as the case progresses. <b>New Flexibilities</b> In light of reduced state funding, reduced access to local tax revenue, and the elimination of specific programs, many school districts faced layoffs of professional teaching staff for the first time. In S.B. 8, passed in the special session, the Legislature attempted to provide school districts greater flexibility to make financial decisions, including staffing decisions, in the management of public schools. The bill modifies teacher contract nonrenewal and termination procedures, allows for streamlined hearing procedures in times of financial exigency, permits salary reductions, and provides for furloughs of professional employees.<sup>2</sup> On Nov. 21, 2011, the Commissioner of Education issued an emergency rule defining when districts may declare financial exigency and, thereby, access some of the flexibilities created by S.B. 8. The rule sets a high bar; for example, the state funding reductions earlier this year would not meet the criteria. The rule does, however, permit the commissioner to approve in writing a declaration of financial exigency based on “other criteria.”<sup>3</sup> The Legislature also responded to reduced funding for technology by adopting a new, more flexible approach to purchasing instructional materials and technology equipment. S.B. 6, also from the special session, discarded the former process for buying textbooks and created a per-student instructional materials allotment for purchasing books, online content, or other electronic materials, as well as technology equipment needed to access electronic content.<sup>4</sup> <b>First Amendment </b> Two recent Fifth Circuit decisions interpreted the scope of elementary students’ federal rights at school. In the first, four former elementary school students in the Plano Independent School District filed suit claiming school officials prevented them from sharing their evangelical Christian beliefs with classmates by distributing, at various times and places, written religious materials at school. In the most publicized incident, one plaintiff attempted to give classmates candy-cane shaped pens with notes ascribing religious significance to the shape and colors of a candy cane. After a district court and a panel of the Fifth Circuit denied qualified immunity to the principals, the court granted <i>en banc</i> review. A majority of the court concluded that, at the time of these alleged events, the law governing elementary students’ distribution of religious material was not <i>clearly established,</i>and consequently, the principals were entitled to qualified immunity. Nevertheless, a majority of the divided court went on to examine the plaintiffs’ allegations and determine that, going forward, the principals’ alleged acts would be violations of clearly established law. In other words, school officials are now on notice that certain actions will violate the free speech rights of elementary-aged students.<sup>5</sup> <b>Duty to Protect Students</b> In the second Fifth Circuit case, Jane Doe, a 9-year-old student in the Covington County Independent School District in Mississippi, was checked out of school and sexually assaulted at least six times by an unauthorized adult posing as a relative. The school had a compulsory check-out policy, but it did not require district employees to verify identification. Doe’s father brought suit under Section 1983 and Section 1985 against the district and district officials. On appeal after the district court granted a motion to dismiss, a panel of the Fifth Circuit reviewed U.S. Supreme Court precedent establishing that when a person is in government custody and the individual’s liberty is so restrained as to render that person unable to care for himself or herself, a special relationship exists requiring the government to protect the individual against private violence. In light of Doe’s young age and the fact that she was restricted to campus at the time she was checked out and removed from the protection of her teachers and classmates, the panel held that a special relationship had been established, creating a duty for the school district to protect Doe from harm.<sup>6</sup> The panel’s decision contradicts numerous previous rulings that compulsory attendance laws do not give rise to a duty to protect children at school. The Fifth Circuit has agreed to rehear the case <i>en banc</i>. The full court’s conclusion will have a significant impact on school districts’ exposure to liability for the harmful acts of third parties. For example, the panel’s decision has already been cited as cause not to dismiss a Section 1983 case against a Texas school district alleging district officials had a duty to protect a student from bullying that allegedly led to the child’s suicide.<sup>7</sup> <b>Notes </b> 1. Petition available online at http://www.equitycenter.org/resources/litigation. 2. More information is online at www.tasb.org/services/legal/esource/personnel/documents/sb8_flexibilities_reducing_costs_july11.pdf. 3. 19 Tex. Admin. Code §109.1002. 4. More information is online at www.tea.state.tx.us/index2.aspx?id=2147501653. 5. <i>Morgan, et al. v. Swanson, et al.</i>, No. 09-40373, 2011 WL 4470233 (5th Cir. Sept. 27, 2011) (<i>en banc</i>). 6. <i>Doe ex rel. Magee v. Covington County Sch. Dist. ex rel. Bd. of Educ.,</i> No. 09- 60406, 2011 WL 3375531 (5th Cir. Aug. 5, 2011) (en banc review granted). 7. <i>Estate of M. Lance ex rel. Lance v. Lewisville Indep. Sch. Dist.</i>, No. 4:11-CV- 00032, 2011 WL 4100960 (E.D. Tex. Aug. 23, 2011). <b>JOY BASKIN</b> has served as director of legal services for the Texas Association of School Boards since 2005. She is the immediate past chair of the State Bar School Law Section. <b>Tax Law</b> Heather C. Panick The year 2011 was relatively uneventful in tax law. Due to the growing budget deficit, high unemployment rates, and the upcoming presidential election in 2012, the focus of the nation and the U.S. government was on negotiations designed to reduce the deficit and create jobs without harming any party’s political clout. This resulted in the introduction of tax legislation designed primarily to put off the tax increases and decreases for another year, with a few minor exceptions, and to maintain the status quo. One exception was the passage of House Resolution 4, also known as the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011. This Act repealed Section 2101 of the 2010 Small Business Jobs Act and Section 9006 of the Patient Protection and Affordable Care Act (PPACA) and places the new and onerous Form 1099 reporting requirements of businesses back to pre- PPACA rules. Also included in new legislation was the deletion of the free choice voucher program from the PPACA, which was viewed as impossible to administer. Motivated by the status of the economy, new IRS compliance programs are aimed at identifying and pursuing areas of perceived potential tax avoidance transactions. In addition, a heightened whistleblower program incentivizes taxpayers who report incidents of non-compliance. <b>Changes in Tax Rates and Exclusions</b> While the close of 2010 signaled the end of the Bush-era tax cuts, Congress passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (P.L. 111- 312), which preserved a number of the tax breaks that were set to expire at the end of 2010. The Act also created a few new provisions. The Act included a two-percentage point payroll tax reduction to the employee’s share of Social Security taxes for 2011. This means that workers paid only 4.2 percent Social Security tax on wages up to $106,800. The reduction was available to all workers subject to Social Security withholding, including selfemployed individuals. Another change was the new law relating to the estate, gift, and generation-skipping transfer tax rates. The Act provided for a $5 million exclusion amount and a top tax rate of 35 percent for the estate, gift, and generation-skipping taxes. The exclusion is transferable between spouses if the surviving spouse elects to use the remaining portion of the available exclusion. These rates will expire on Dec. 31, 2012. Surprisingly, the IRS recently announced the inclusion of generation-skipping transfer (GST) tax transactions as listed transactions that must be disclosed to the IRS on a taxpayer’s federal tax returns under Internal Revenue Code Section 6011. This change in law applies to GST transactions entered into on or after Nov. 14, 2011. Failure to disclose participation in a GST subjects a taxpayer to penalties under Code Sections 6662A and 6707A. Finally, on Nov. 22, 2011, President Barack Obama signed into law H.R. 674, 3% Withholding Repeal and Job Creation Act. In addition to repealing the 3 percent withholding requirement under Code Section 3402(t) on payments due to vendors providing services to federal, state, and local government entities, the Act also amends the Work Opportunity Tax Credit (WOTC). This amendment provides employers a tax credit for hiring veterans and extends the current WOTC for employers who hire qualified veterans until Dec. 31, 2012. <b>Compliance and Enforcement Efforts</b> The IRS’ focus on the reporting of foreign bank accounts and foreign asset ownership continued in 2011. While opening audits for foreign bank account reports (FBAR) enforcement, the IRS offered its second Voluntary Disclosure Program for FBAR rules non-compliers. The program expired Sept. 9, but offered taxpayers reduced penalties and avoidance of criminal penalties in exchange for the voluntary disclosure of foreign bank accounts. In addition, the Foreign Account Tax Compliance Act (FATCA) was enacted as part of the Hiring Incentives to Restore Employment Act (P.L. 111-47) in 2010. The FATCA, which is effective this year, requires the disclosure of foreign financial assets, reporting by and withholding with respect to foreign financial institutions and new penalties for failure to disclose an ownership interest in a foreign financial asset if the aggregate value of the asset exceeds $50,000. The financial institution reporting obligation, which does not take effect until 2013, has been estimated to cost financial institutions as much as $100 million to implement. The IRS is working on guidance in this area. Another focus for compliance and enforcement is the misclassification of workers. To entice employers into compliance, the IRS announced a Voluntary Classification Settlement Program in September. The program allows employers to correct misclassification issues going forward, while providing protection from possible audits and employment tax liability for past years, along with the promise of reduced penalties. Finally, the IRS has initiated a Return Preparer Compliance Program to ensure the competency of the return preparers and to assist the IRS in curtailing preparer abuse. The IRS’ focus is “ghost preparers,” preparers who do not sign the returns and identify themselves as paid return preparers, and preparers whose clients’ returns show warning signs of abuse. <b>What does the future hold?</b> The future of the nation’s complicated tax system and its strategy for resolving the increasing budget deficit will be impacted by the outcome of the 2012 election. No matter what the outcome of the election, there will surely be significant changes and updates in 2012. <b>HEATHER C. PANICK</b> is an associate in the ERISA practice group in the Houston office of Jackson Lewis, L.L.P. She focuses her practice on tax adversary proceedings arising from employment tax and employee benefit issues. <b>Texas Supreme Court </b> Kent Rutter At the Texas Supreme Court, 2011 will be remembered as the year the Court conquered its backlog. The backlog peaked in 2007, when 60 submitted but undecided causes remained on the Court’s docket at the end of the term. At the end of the 2011 term, only four submitted causes remained to be carried over into the 2012 term.<sup>1</sup> The Court now operates much like the U.S. Supreme Court, which decides every case during the same term in which it is argued. <b>More Decisions, Fewer Grants </b> How did the Court clear its backlog? The only way it can — by issuing decisions at a faster pace while adding fewer new causes to its docket. The trend toward increased productivity has spanned a decade. The Court issued an average of 100 deciding opinions each year between 2002 and 2006, and an average of 117 deciding opinions each year between 2007 and 2011. <sup>2</sup> It helped that the Court’s work has not been disrupted recently by heavy turnover. Between 2003 and 2005, a wave of departures from the Court meant the arrival of new justices who needed time to familiarize themselves with the docket. Since 2006, the Court has enjoyed a period of stability, with seven of the Court’s nine seats being held by the same justices. While the number of decisions has gone up, the number of petitions for review being granted has gone down. Between 2006 and 2009, the Court received an average of 843 petitions each year and granted 114. In 2010 and 2011, the Court received an average of 788 petitions each year and granted 98. As the Court decided more causes and granted fewer petitions for review, its backlog dwindled. <b>Mandatory E-Filing</b> In March, the Court began accepting documents filed through the Texas.gov electronic-filing system. In September, the Court went a step further and required attorneys to file all documents electronically. Appellate e-filing is convenient for practitioners and provides several advantages to the Court. The Court encourages practitioners to include electronic bookmarks in the appendices to petitions and briefs and in the records in original proceedings, helping the justices locate particular documents quickly. Many appellate practitioners also include bookmarks in the body of their briefs, along with hyperlinks to cited authorities and documents in the appendix or record. The justices and their staff often read petitions and briefs on computers and portable devices, and they frequently comment that they appreciate fully hyperlinked electronic briefs. <b>Legislatively Required Rules</b> To clear the way for electronic filing, the Court amended Texas Rules of Appellate Procedure 9.2 and 9.3 in February. Thus began a busy year for rule amendments, many of them required by the Legislature. In accordance with House Bill 274, the Court amended Texas Rule of Civil Procedure 168 and Texas Rule of Appellate Procedure 28 to set forth procedures for permissive interlocutory appeals, which are now authorized when the trial court certifies that the appeal involves a controlling question of law and would materially advance the termination of the litigation. The Court also amended Texas Rule of Civil Procedure 167 to reflect the “loser pays” provisions of H.B. 274 regarding attorney’s fees and other litigation costs. In accordance with other legislation, the Court amended rules relating to returns of service, expedited foreclosure proceedings, and indigent litigants in parental-termination cases. More rule amendments will be coming in 2012. As directed by the Legislature, and with the benefit of work begun in 2011 by two Court-appointed task forces and the Supreme Court Advisory Committee, the Court will promulgate rules for (1) the prompt dismissal of cases that have no basis in law or fact, (2) lowering discovery costs and expediting resolution in civil actions in which the amount in controversy does not exceed $100,000, (3) determining whether cases require additional resources to ensure efficient judicial management, and (4) small claims and eviction cases in justice courts. <b>Chief Justice Joe R. Greenhill, 1914-2011</b> In February, the Court mourned the passing of former Chief Justice Joe R. Greenhill, the longest-serving justice in the Court’s history. His opinions span a quarter-century and 331 volumes of the <i>Southwestern Reporter.</i> Greenhill arrived at the Court as a briefing attorney in 1941 and served in that role until World War II, when he interrupted his legal career to join the U.S. Navy. After the war, Greenhill returned to the Court as a briefing attorney, then served as first assistant to Texas Attorney General Price Daniel. In 1957, after Daniel became governor, he appointed Greenhill to the Court as an associate justice. Greenhill won his first election campaign in 1958, narrowly surviving a challenge by the state’s first female district judge, Sarah T. Hughes.<sup>3</sup> In 1972, Greenhill succeeded Robert W. Calvert as chief justice. In his new role, Greenhill advanced the legislation that brought about the annual State of the Judiciary speech, which he used to advocate judicial reforms. One of Greenhill’s proudest achievements was the 1980 legislation that gave criminal jurisdiction to the intermediate courts of appeals. In 1982, Greenhill retired from the Court and helped open the Austin office of Baker Botts, L.L.P., where he maintained his practice until he retired from the profession in 2009, at the age of 94. <b>Notes </b> 1. See Kurt Kuhn, “Understanding the 2011 Term of the Texas Supreme Court,” State Bar of Texas Advanced Civil Appellate Practice Course (2011). The figures in this paragraph exclude a small number of causes that were abated. 2. Except where noted, the docket statistics in this article are based on figures from the Office of Court Administration and refer to fiscal years, which end on Aug. 31. 3. See Judge Mark Davidson and Kent Rutter, “The Making of a Justice: The 1958 Joe Greenhill/Sarah T. Hughes Race for the Supreme Court,” 63 Tex. B.J. 961 (2000). <b>KENT RUTTER</b> is a partner in the appellate practice group of Haynes and Boone, L.L.P. in Houston. He is certified in civil appellate law by the Texas Board of Legal Specialization. <b>Water Law </b> Cindy Smiley Calendar year 2011 certainly made the record books on matters involving water and water law for many reasons. With respect to rainfall, the Office of the Texas State Climatologist reported that the time period between October 2010 and September 2011 was the most intense one-year drought in Texas since at least 1895 (when state weather records were first kept).<sup>1</sup> Over the year, the drought conditions became more serious and expanded to include all 254 counties in Texas. As a result of these conditions, Gov. Rick Perry issued and renewed statewide Emergency Disaster Proclamations, most recently on Nov. 30, 2011, citing, among other causes, the significantly low rainfall, the declining reservoir and aquifer levels, the threats to water supplies, and the imminent threat to public health, property, and the economy resulting from the exceptional and historic drought conditions. When a disaster declaration is in effect, the Governor may suspend any law or rule and use any property, public or private, as necessary to respond to the disaster.<sup>2</sup> <b>Surface Water </b> From a surface water perspective, in a state that, as a general rule, owns the surface water, the drought conditions have necessitated some rare and unprecedented responses from state government. Operating under the doctrine of prior appropriation, in which surface water rights issued first are given priority over subsequently issued water rights (also known as the “first in time, first in right” doctrine), a diminishing quantity of water in a watercourse may require government action to assure that the water is allocated in accordance with its legal priorities. If a senior water rights holder is not receiving water at its diversion point on a watercourse, it may call upon more junior water rights holders to stop their upstream diversions. This is referred to as a “senior priority call.” The Texas Commission on Environmental Quality (TCEQ), charged with the responsibility to administer and enforce Texas law governing the rights to divert and use state water under the Texas Water Code, has responded to “calls” from senior water rights holders by issuing directives to upstream, junior water rights holders to curtail their water usage. Through mid- December 2011, the TCEQ had received 15 senior calls and had curtailed junior water rights in the Brazos, Neches, Llano, and San Saba river basins. Current information on the Texas drought is accessible on the TCEQ website at <b>http://www.tceq.texas.gov/response/drought.</b> The Water Code was amended during the 82nd Legislature (2011), and House Bill 2694, <sup>3</sup> effective on Sept. 1, 2011, includes a new Section 11.053 titled “Emergency Order Concerning Water Rights.” This provision describes the actions that the TCEQ’s executive director may take during periods of drought or water shortages and requires the TCEQ to adopt rules to implement this new provision. The TCEQ’s rulemaking process is already underway, with new “water curtailment” rules expected to be adopted in April 2012. This year saw progress in the work toward establishing instream flows (or environmental flows) under the directives established during the 2007 legislative session with the passage of Senate Bill 3. Standards for the Sabine, Neches, Trinity, and San Jacinto rivers and associated bays were adopted into TCEQ rules in April 2011. With rulemaking currently underway, standards for more of the river and bay systems, including the Colorado and Lavaca rivers and Matagorda and Lavaca bays, are on schedule for adoption in 2012. On the federal level, the definition of “waters of the United States” continues to be a significant topic. The U.S. Environmental Protection Agency and the U.S. Army Corps of Engineers issued a “Draft Guidance on Identifying Waters Protected by the Clean Water Act” in May 2011, which proposed to clarify the waters that are protected by the federal Clean Water Act, as interpreted by regulations and the U.S. Supreme Court. The agencies accepted public comments on the guidance document for several months. At this time, the future of the guidance document seems uncertain, but these issues remain important in Texas. <b>Groundwater</b> From a groundwater perspective, the actions taken by the Texas Legislature in 2011 were significant, as the Legislature attempted to resolve some of the practical difficulties associated with the implementation of Chapter 36 of the Water Code, and the total number of groundwater conservation districts grew to nearly 100. Also affected by the drought conditions, groundwater districts faced questions on water usage and supply as surface water diminished and aquifer levels dropped. In some areas, “exempt uses” of water gained attention, as groundwater was tapped for oil and gas development and regional water planning entities worked to quantify exempt usage amounts for purposes of establishing quantities of modeled available groundwater. Landowners, groundwater districts, and lawyers waited through the year for a much-anticipated Texas Supreme Court opinion on the issue of groundwater ownership, which was argued before the Court on Feb. 17, 2010. This case, styled <i>Edwards Aquifer Authority v. Burrell Day and Joel McDaniel</i>,<sup>4</sup> raises issues presented by the historic “rule of capture,” by a landowner’s constitutional protection from a government “taking,” and by the nature of the property right to groundwater. More specifically, the case presents the issue of whether a landowner has an ownership interest in the water under his land while in place, or whether the ownership interest commences once the groundwater has been produced. The Court has not yet issued its opinion, and the wait for answers continues. Perhaps in an effort to answer some of the questions associated with the uncertain nature of groundwater interests and the authorities of groundwater districts that were highlighted by the <i>Day and McDaniel</i> case, the 2011 Texas Legislature passed S.B. 332, effective Sept. 1, 2011. S.B. 332 amended Water Code Section 36.002 to state that the Legislature recognizes that a landowner owns the groundwater below the surface of the landowner’s land as real property and to clarify that groundwater ownership and rights entitle the landowner to drill for and produce the groundwater below the surface of real property (with some conditions). S.B. 332’s amendments also acknowledge a groundwater district’s authority to regulate such things as spacing and production from wells. To conclude, judging from the matters highlighted above and other topics that are brewing, 2012 promises to be another significant year for water issues and water law. <b>Notes</b> 1. <i>The 2011 Texas Drought: A Briefing Packet for the Texas Legislature</i>, Oct. 31, 2011; Page 3; available at http://atmo.tamu.edu/osc/library/osc_pubs/2011_drought.pdf. 2. Tex. Gov’t Code Ann. §§418.014–.017. 3. House Bill 2694 is considered the TCEQ’s “Sunset Bill,” extending the agency’s existence for 12 more years. 4. <i>The Edwards Aquifer Authority v. Day</i>, No. 08-0964 (Tex. pet. granted Jan. 15, 2010). <b>CINDY SMILEY</b> is a partner in the Austin office of Kelly, Hart & Hallman, L.L.P., where she focuses on environmental and administrative law. Smiley is 2011–12 chair of the State Bar Environment & Natural Resources Law Section. <i>The author expresses her gratitude for the contributions of <b>Shana L. Horton,</b> senior counsel to Kelly, Hart & Hallman, to this article.</i>
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