July 2019 Questions and Sample Answers
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American Electric v. Wuhan Precision Parts
Memorandum to Examinee
Email from Shao Wen “William” Li to Alexandra Carlton
Order entering default judgment
Excerpts from the Federal Rules of Civil Procedure
Pennsylvania Coal Co. v. Bulgaria Trading & Transport Co., Ltd., United States District Court for the District of Olympia (2001)
EduQuest Digital Corp. v. Galaxy Productions Inc., United States District Court for the District of Columbia (2005)
ATKINSON & CARLTON LLP
Attorneys at Law
3 Civic Center Plaza
Franklin City, Franklin 33812
From: Alexandra Carlton
Date: July 30, 2019
Re: American Electric v. Wuhan Precision Parts Ltd.
Our client Wuhan Precision Parts Ltd. (WPP), a Chinese manufacturing company, seeks help in vacating a federal default judgment entered by the U.S. District Court for the District of Franklin. These court proceedings arise from an earlier arbitration between American Electric Distribution Inc. (AE) and WPP, which took place in Franklin.
WPP lost the arbitration and has paid the bulk of the monetary relief awarded to AE by the arbitrators. But because WPP did not fully comply with the arbitrators’ award, AE filed a complaint in federal court to “confirm” or convert the award into a court judgment. Before WPP appreciated what was happening in federal court, AE obtained a default judgment (which converted the arbitration award into a federal court judgment) and was awarded an additional $90,000 in attorney’s fees tied to the court proceedings.
WPP accepts the arbitration award but contests the court’s default judgment. WPP contends that it was not properly served in the federal court action in accordance with the international service of process provisions of the Hague Convention. WPP has asked us whether the default judgment can be vacated.
The Hague Convention is a treaty to which both the United States and China are signatories. It calls for service through governmental channels. However, we expect AE to argue that WPP waived its Hague Convention service protections by agreeing to arbitrate these claims in Franklin, and that WPP should not be able to complain because it received sufficient notice of the Franklin district court proceedings.
The issues presented are ones of first impression in our federal district court of Franklin; however, federal courts in our neighboring districts of Olympia and Columbia have addressed the question, albeit in different ways. Those decisions are attached.
Draft a memorandum to me analyzing the following issues:
- Will WPP succeed in vacating the default judgment due to improper service under the Federal Rules of Civil Procedure and the Hague Convention? Discuss both the facts that support WPP’s motion to vacate and those that undermine it.
- Are there any grounds to challenge the attorney’s fee award?
Your memorandum should focus on the service of process and fee issues. Do not include a separate statement of facts but be sure to integrate the facts into your analysis. Do not address personal jurisdiction. Another lawyer at our firm is assessing WPP’s contacts with Franklin and whether the district court has personal jurisdiction over WPP.
Email from Shao Wen “William” Li to Alexandra Carlton
From: William Li (email@example.com)
Sent: Tuesday, July 23, 2019, 10:24 p.m.
To: Alexandra Carlton (firstname.lastname@example.org)
Subject: American Electric judgment
We at WPP very much appreciated the chance to speak with you by Skype yesterday afternoon about our legal problem. As we discussed, the law firm we hired to handle the arbitration ended its work at our request after the arbitration award was issued. We’re glad you represent us now.
WPP operates in Wuhan, an industrial city and a principal transportation hub in central China. We do not have offices, registered agents, or employees in the United States. WPP manufactures gear motors for dishwashers designed and assembled by American Electric (AE) for subsequent sale by U.S. Clean Corporation (USCC). AE is based in Franklin.
Here’s the chronology of events:
2014 Supplier Agreement: In 2014, USCC asked AE for assurance that replacement gear motors would be available for use in repairing the dishwashers when necessary. Based on that request, on September 21, 2014, WPP and AE entered into a supplier agreement whereby AE authorized WPP to sell replacement gear motors directly to USCC on condition that WPP pay AE a royalty of $50 for each gear motor sold. As part of the supplier agreement, we agreed to arbitrate any dispute in Franklin.
2017 Arbitration: In 2017, AE took us to arbitration, claiming that we had deliberately shipped different motors from the ones that we had agreed to provide in the supplier agreement. AE also claimed that we had sold 900 more replacement motors to USCC than we had reported to AE and therefore owed AE additional royalties. Even though the arbitrators ruled against us, AE did not get all it wanted. The arbitrators decided that we owed $500,000 for shipping nonconforming motors and only $25,000 for unpaid royalties on 500 of the replacement motors we sold directly to USCC. The arbitrators also ordered us to pay AE’s attorney’s fees in the amount of $110,000.
WPP Partial Payments on the Arbitration Award: After the arbitrators issued their award on December 15, 2017, WPP promptly paid half of the $500,000 damages award for the breach of contract claim on the motors. We have not yet paid the $25,000 award for unpaid royalties or the $110,000 attorney’s fee award. We have had to delay payment due to an economic downturn resulting in foreign exchange and cash flow problems.
June 14, 2019 District Court Default Judgment: Our biggest problem is that because we had not fully complied with the arbitration award, a U.S. court has entered a judgment against us that now includes an additional $90,000 in attorney’s fees for the court process over and above the $110,000 in fees awarded by the arbitrators. We do not see how additional attorney’s fees could be awarded. Here’s what we know:
- November 2, 2018 – AE Email of Summons and Complaint: From what you have told us, on November 2, 2018, an email attaching the summons and complaint to enforce the arbitration award was sent to our Vice President of Manufacturing, who had been our designated point of contact during the arbitration. We also understand from you that AE attempted to serve the summons and complaint through Chinese government channels. We did not receive anything from the Chinese government.
- VP Quits on November 9, 2018: We checked, and the VP quit on November 9, 2018. He did not forward the email or notify anyone about it. Just so you know, although the arbitration communications were by email, we normally do business with AE by fax and phone.
- March 8, 2019 – AE Mailing of Default Motion: We now know that AE put its motion for default judgment in the mail to us in March (return receipt requested), thinking mail service was okay because the summons and complaint had been “served” back on November 2, 2018.
- April 15, 2019 – WPP Actually Receives Motion: We did not receive AE’s motion for default judgment until April 15, 2019, because the Wuhan government post office delayed delivery. In addition, the motion papers were in English, and following our company policy, they were sent to our in-house translation department. Once we translated them into Mandarin Chinese, we realized that we needed to contact you. Then we learned from you that the court had already entered a judgment against us.
- June 14, 2019 – Court Orders Entry of Default Judgment: The court’s order entering the default judgment mentions that AE attempted formal service under the Hague Convention by delivering the summons and complaint to the Chinese government. All we know is that we did not receive the summons and complaint, or any other legal documents, through government channels.
Wuhan Precision Parts Ltd.,
Defendant/Respondent. Civil No. 13-199-SJK
Plaintiff American Electric Distribution Inc. (AE) petitions for confirmation of an arbitration award and subsequently moves for an award of $90,000 to cover the attorney’s fees it incurred in pursuing relief before this court. AE is represented by Alan Richetti of Richetti & Hamill. Wuhan Precision Parts Ltd. (WPP) has made no appearance before this court in this matter.
The September 21, 2014 Supplier Agreement
This court proceeding arises from a Supplier Agreement (“Agreement”) effective as of September 21, 2014, between AE and WPP. It reads in relevant part:
7. Attorney’s Fees. In the event of breach, the prevailing party shall be entitled to recover its costs and expenses (including reasonable attorney’s fees) incurred to enforce the terms of this Agreement.
8. Arbitration. Any controversy or claim arising out of or relating to this Agreement or the breach, termination, or validity thereof shall be settled by arbitration carried on in the English language, using three arbitrators selected as detailed in Paragraph 9 below, and shall be held in Franklin City, Franklin, U.S.A. Judgment upon the award rendered by the arbitration panel may be entered by any court having jurisdiction thereof.
December 15, 2017 Arbitration Award
A dispute arose, with AE eventually taking WPP to arbitration before an arbitration panel of the Franklin Center for International Dispute Resolution. The panel awarded AE the following:
First, due to WPP’s sale of nonconforming motors, an award of damages of $500,000.
Second, due to WPP’s failure to properly account for its replacement motor sales to U.S. Clean Corporation, the panel concluded that WPP owed back royalties on the sale of 500 replacement motors, resulting in an additional award of $25,000.
We need your help. The court entered a judgment without our knowledge. We are especially concerned with the additional $90,000 in attorney’s fees. If AE or its lawyers had called us, or used a fax machine, all of this could have been avoided.
Please know that we can pay your bill. Even though we have had some cash flow problems, we have had substantial profits in recent years and have paid a number of much larger judgments entered against WPP.
We appreciate your help.
Shao Wen “William” Li
Director of International Sales
1. Confirming the arbitration award of December 15, 2017, with the arbitration relief now converted to a judgment of this court; and
2. An additional award of $90,000 in attorney’s fees.
Dated: June 14, 2019 :
United States District Judge
EXCERPTS FROM THE FEDERAL RULES OF CIVIL PROCEDURE
Rule 4 [Summons and Complaint]
. . .
(f) Serving an Individual in a Foreign Country. Unless federal law provides otherwise, an individual—other than a minor, an incompetent person, or a person whose waiver has been filed—may be served at a place not within any judicial district of the United States
(1) by any internationally agreed means of service that is reasonably calculated to give notice, such as those authorized by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents;
. . .
(h) Serving a Corporation, Partnership, or Association. Unless federal law provides otherwise or the defendant’s waiver has been filed, a domestic or foreign corporation . . . must be served . . .
(2) at a place not within any judicial district of the United States, in any manner prescribed by Rule 4(f) for serving an individual, except personal delivery . . . .
Rule 5 [Post-Complaint Pleadings]
(a) Service: When Required . . . .
(2) If a Party Fails to Appear. No service is required on a party who is in default for failing to appear. But a [subsequent] pleading that asserts a new claim for relief against such a party must be served on that party under Rule 4.
Pennsylvania Coal Co. v. Bulgaria Trading & Transport Co., Ltd.
United States District Court for the District of Olympia (2001)
Before the court is the motion of defendant Bulgaria Trading & Transport Co., Ltd. (BTT) to vacate a default judgment. BTT makes a limited appearance, arguing that it had not been properly served under the Hague Convention and therefore the default judgment is void for lack of proper service.
Plaintiff Pennsylvania Coal Co. (Penn Coal) contracted for the sale of used coal processing equipment to BTT, a trading company headquartered in Sofia, Bulgaria. The parties agreed to arbitration of all disputes in San Andrea, Olympia.
After a contentious and prolonged arbitration proceeding, the arbitrators awarded Penn Coal $4.5 million due to BTT’s refusal to take delivery of approximately half of the equipment it had purchased. The panel also awarded $300,000 in attorney’s fees to Penn Coal pursuant to a term of the contract providing for the award of attorney’s fees to the prevailing party.
BTT refused all requests by Penn Coal for payment of the $4.8 million award. Penn Coal has presented evidence that BTT has since moved assets and has persisted in its contention that the Penn Coal equipment proved defective, notwithstanding the arbitration ruling to the contrary.
Penn Coal petitioned this court to confirm the award. When a court confirms an arbitration award, the arbitration award becomes a court judgment. In this way, a plaintiff can benefit from all the collection tools flowing from a court judgment. To confirm an arbitration award, the plaintiff files a complaint (or petition) in federal court and serves the defendant with a summons and complaint.
Penn Coal attempted formal Hague Convention service by delivering its pleadings to the appropriate Bulgarian governmental authority, but all subsequent governmental efforts to serve BTT were unsuccessful. Undaunted, Penn Coal took it upon itself to personally serve the summons and complaint at BTT’s headquarters in Sofia, Bulgaria. Penn Coal also arranged for delivery through government postal channels (return receipt received), and it emailed a copy of the complaint to the BTT executive who had entered into the Penn Coal contract, using the same email address the parties had agreed to use for the arbitration proceeding.
Because BTT did not respond to Penn Coal’s complaint or otherwise object over the nine months that followed, Penn Coal moved for, and this court granted, a default judgment for $4.8 million as awarded by the arbitrators, plus an additional $75,000 in attorney’s fees tied to this proceeding.
Three weeks after this court issued its judgment, BTT appeared before this court to vacate that judgment. BTT acknowledges Penn Coal’s evidence that BTT received actual notice but insists that the judgment is void because Penn Coal did not serve BTT in compliance with the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents (Hague Convention). The Hague Convention requires service upon a governmental authority, which in turn will effectuate service upon its own citizens and entities such as BTT. BTT challenges the fees awarded on the same basis.
Service Abroad Under the Hague Convention and Federal Rules of Civil Procedure
The Federal Rules of Civil Procedure state that service on international parties must occur in compliance with the Hague Convention. See Fed. R. Civ. P. 4(f)(1). Both Bulgaria and the United States are parties to the Hague Convention. Formal Hague Convention service calls for service by the Bulgarian authorities upon BTT. Penn Coal did not properly serve BTT under the Hague Convention. BTT relies on case law holding that if a party was never properly served, subsequent judgments founded upon that improper service are void and must be vacated. See, e.g., In re Int’l Media Services Inc. (15th Cir. 1998) (civil litigation, not arbitration).
The Enforcement of Arbitration Awards
Our circuit court has held that entry into an agreement to arbitrate in a particular jurisdiction constitutes consent to personal jurisdiction and to venue. Auto Dealers Ass’n v. Pearson (15th Cir. 1996). However, it is an issue of first impression as to whether a consent to arbitrate in Olympia also relaxes the service of process requirements of the Hague Convention. When a foreign corporation, such as BTT, agrees to participate in an arbitration proceeding in the United States, it cannot expect that it can consent to an Olympia arbitration, participate in it, and then, in the event that it loses, seek refuge in the protections of the Hague Convention to avoid facing any consequences in Olympia. At the same time, this court recognizes that judicial proceedings are different from arbitration proceedings and that the expectation of parties to an arbitration must be balanced against the right of fair notice.
The service-related provisions of the Federal Arbitration Act (FAA) do not resolve the issue. Given this silence, this court will follow the line of authority holding that in cases arising from arbitration proceedings, defects in service of process may be excused where considerations of fairness so require. Where parties have consented to arbitration, actual notice of the proceedings can be sufficient as long as it is fair and no injustice results.
This court acknowledges the Supreme Court’s admonition that compliance with the Hague Convention is “mandatory in all cases to which it applies.” Volkswagonwerk AG v. Schlunk, 486 U.S. 694, 705 (1988). Here, however, Penn Coal tried in good faith to comply by delivering its pleadings to the Bulgarian authorities. More fundamentally, BTT consented to, and then participated in, an Olympia arbitration pursuant to an agreement contemplating the award’s confirmation in court. In that circumstance, strict adherence to the Hague Convention is not required; actual notice and fairness are the standards. The Hague Convention is not designed to be a roadblock to those who act in good faith.
We now assess the fairness of the notice in this case. BTT clearly received notice, albeit without involvement of the Bulgarian government as the Hague Convention provides. Personal service and U.S. mail service are recognized forms of service under the Federal Rules of Civil Procedure. While email service is not typically authorized, it is the means by which the parties communicated during the arbitration. In this case, service via email was a reliable means of delivering the complaint to BTT and was reasonably calculated to give BTT actual notice. Finally, the lengths to which BTT went to evade its contract obligations and avoid accountability for the arbitrators’ award cannot be rewarded. The manner in which BTT conducted its business (e.g., moving assets that could have been used to satisfy the arbitration award and claiming that Penn Coal’s equipment was defective) is highly relevant and must be considered. Also, given that BTT has expressed no difficulty in comprehending the English-language documents arising from an American arbitration conducted in English, and given that BTT failed to appear in the nine months preceding this court’s judgment, justice requires that this court affirm its earlier judgment confirming the arbitration award. On these facts, the actual notice given was fair.
Even though the court grants the default judgment, the court agrees with BTT that Penn Coal’s request for attorney’s fees for these court proceedings is on a different footing. The additional $75,000 in attorney’s fees is not referenced in the summons and complaint. Accordingly, the court will relieve BTT from the $75,000 attorney’s fee judgment.
There are two reasons for denying attorney’s fees in this subsequent court action. First, unlike the confirmation of the arbitration award, the request for fees for litigating before this court is a “new claim for relief.” A new claim requires service that complies with the Federal Rules of Civil Procedure and the Hague Convention. See Fed. R. Civ. P. 5(a)(2). Under the Hague Convention, the party raising a new claim must deliver a copy of that claim to the foreign governing authority, which will then deliver it in accordance with local judicial process. Penn Coal did not follow that procedure.
A second and independent ground for denying attorney’s fees centers on the role of the arbitration panel versus that of the court. While the FAA contemplates that arbitral parties can turn to courts to confirm the awards themselves, courts are careful to defer all substantive decisions to the arbitrators. Here, the contract between Penn Coal and BTT allows for the prevailing party to obtain attorney’s fees but contains no reference to judicial remedies in that regard. Accordingly, Penn Coal’s fee request is one that it must pursue by returning to arbitration. That conclusion is especially appropriate given that this court employed “fairness” principles when upholding the judgment confirming the arbitration award. Those principles cannot be used by Penn Coal to open the door to claims, like requests for attorney’s fees, that were not previously raised with the arbitrators.
Accordingly, BTT’s motion to vacate this court’s earlier default judgment is DENIED as to the $4.8 million arbitration award but GRANTED as to this court’s judgment for $75,000 in attorney’s fees.
EduQuest Digital Corp. v. Galaxy Productions Inc.
United States District Court for the District of Columbia (2005)
Before the court is the petition of EduQuest Digital Corporation (EQ) to confirm a 2003 arbitration award and grant its subsequent motion for an award of attorney’s fees tied to this judicial proceeding.
EQ designs educational games and licenses those products for resale by companies across the globe. Galaxy Productions Inc. (Galaxy) is based in Beijing, China. It entered into a licensing contract with EQ covering 422 of EQ’s products and authorizing their resale over a five-year period from 2000 through 2004. In the event of breach, the licensing contract called for arbitration in Center City, Columbia. The contract provided that any prevailing party was entitled to attorney’s fees. It also stated that “judgment upon the award rendered by the arbitration panel may be entered by any court having jurisdiction thereof.”
The arbitrators, after taking 16 days of testimony, concluded that Galaxy had breached its licensing agreement with EQ by failing to remit all licensing fees for products it sold in China, and that Galaxy’s sale of counterfeit copies of EQ’s games warranted an additional award of lost profits of $750,000. The arbitrators awarded $225,000 in attorney’s fees to EQ and directed that Galaxy submit semi-annual reports of all of its licensed sales.
Facing Galaxy’s noncompliance with the arbitration award, EQ petitioned this court to convert its arbitration decision into a judgment that it can enforce. EQ initiated formal service following the Hague Convention and provisions of the Federal Rules of Civil Procedure. When Chinese entities are involved, the Hague Convention requires that the serving party translate the documents into Mandarin Chinese and deliver the documents to the Chinese Central Authority, which will effectuate service through its provincial courts. EQ fulfilled its responsibilities. However, after hearing nothing from the Chinese government, EQ opted for self-help via a combination of service by personal delivery upon a Beijing agent of Galaxy and service by international mail, return receipt requested. In light of that, EQ asks this court to deem service to have been proper.
Despite EQ’s efforts at service, Galaxy failed to respond to EQ’s initial petition to confirm the award. EQ seeks attorney’s fees and costs of $95,000 tied to these judicial proceedings. EQ’s motion for attorney’s fees was served by personal delivery and international mail, return receipt confirmed.
Galaxy made a limited appearance that the court agreed would not waive Galaxy’s jurisdictional objection. Galaxy appeared after receiving the fee-related motion. Galaxy challenges this court’s jurisdiction, arguing that a federal court lacks jurisdiction if a defendant is improperly served, in this case pursuant to the formal governmental service provisions of the Hague Convention.
Confirmation of the Arbitration Award
The Federal Arbitration Act governs the service of petitions to confirm arbitration awards. However, that statute does not provide a method of service for a foreign party who is not a resident of any district in the United States. Some courts, facing circumstances different from those presented here, turn to principles of “fairness” to excuse defects in service of process in cases arising from arbitration proceedings. See, e.g., Penn. Coal Co. v. Bulgaria Trading & Transport Co., Ltd. (D. Olympia 2001) (evidence of evasion). The focus tends to be on the good faith of the underlying business conduct, as well as the reasonableness of the notice. There is sufficient evidence here of the counterfeiting of intellectual property and deliberate noncompliance with the arbitration award. From this court’s perspective, however, the “fairness” standard of Penn Coal, which balances the equities, is too loose to serve as a guide as to when courts can excuse noncompliance with the Hague Convention and Federal Rule of Civil Procedure 4 when confirming arbitration awards.
For this court, at least on these facts, the better rationale is that by agreeing to arbitrate in Columbia and participating in those proceedings, the parties to the underlying contract agreed to the provision allowing court judgments to be entered. This serves as a “deemed waiver” of formal Hague Convention service in connection with confirmation of an arbitration award. Put another way, this court reads the parties’ contract as consenting to service by actual notice that satisfies the general principles of due process and the Federal Rules, rather than the strict formality of the Hague Convention—at least in cases where the arbitration takes place in the jurisdiction contemplated in the parties’ agreement. Under this analysis, Galaxy’s post-award conduct is irrelevant. This court finds that by agreeing to arbitrate, Galaxy is deemed to have waived the right it possesses to formal service. The actual notice Galaxy received here was reasonable and sufficient.
Galaxy objects strongly to the court’s “deemed waiver” analysis. It contends that such an approach eviscerates the Hague Convention protections for all arbitrated matters and opens the door to uninvited judicial proceedings. This court does not intend its holding to be so broad. Here, EQ attempted formal Hague Convention service in good faith. In at least those circumstances, the “deemed waiver” approach should be available to protect good-faith litigants like EQ.
While this court does not adopt the “fairness” approach used in the District of Olympia pursuant to Penn Coal to assess proper service requirements to confirm arbitration awards against foreign parties, this court does agree with the reasoning of the Penn Coal court as to attorney’s fees. The fee request is a “new claim for relief,” and Rule 5(a)(2) requires formal government service under the Hague Convention. Accordingly, this court will deny EQ’s motion for an award of attorney’s fees.
EduQuest’s petition to confirm the arbitration award is hereby GRANTED, and its motion for attorney’s fees is DENIED.
TO: Alexandra Carlton
DATE: July 30, 2019
Re: American Electric v. Wuhan Precision Parts Ltd.
Wuhan Precision Parts Ltd may be able to vacate the default judgment due to improper service
Under Federal Rule of Civil Procedure 4(f)(1), service on an international party must occur in compliance with the Hague Convention. Here, both China and the United States are parties to the Hague Convention. Formal Hague Convention service calls for service by the Chinese authorities upon the defendant. Even though the issues presented in this dispute are issues of first impressions, federal courts in the neighboring districts of Olympia and Columbia have dealt with similar issues. The determination of whether Precision Parts Ltd (WPP) would be successful in challenging the default judgent due to improper service depends on whether the District of Franklin would follow the District of Olympia or the District of Columbia's approach. If the Franklin court followed the Disrict of Olympia approach, it would have a better chance of getting the deafult judgment vacated than if the court followed the District of Columbia approach.
District of Olympia Approach
In the District of Olympia, the court follows a "fairness" approach. In Pennsylvania Coal Co ("Penn Coal"), the case involved the same issue that is presented in our case, whether the court should vacate the default judgment. In Penn Coal, the court held that the defendant's motion to vacate the default judgment was denied, however, the facts are distinguishable from our case.
In Penn Coal, the defendant attempted formal Hague COnvention service by delivering its pleadings to the appropriate Bulgarian government authority. However, all subsequent governmental efforts to serve teh defendant were unsuccesffuly. Instead, the plaintiff personally served the summons and complaint at the defendant's headquarters in Bulgaria. Also, the plaintiff arranged for delivery through government postal channels and also emailed a copy of the complaint to an executive of the defendant who had entered into the contract with the plaintiff, using the same email address that the parties agreed to use for the arbitration proceeding.
In Penn Coal, the court noted that the issue of whether consent to arbitrate in Olympia also relaxes the service of process requirements of the Hague Convention was an issue of first impression. The court noted that when a foreign corporation agrees to participate in an arbitration proceeding in the United States, it cannot expect that it can consent to an Olympia arbitration, participate in it, and then, in teh event that it loses, seek refuge in the protections of the Hague Convention to avoid facing any consequences in Olympia. On the other hand, the court noted that judifical proceedings are differnet from arbitration proceedings and the expectation of the parties to an aribtration must be balanced against the right of fair notice. The court noted that defects in service of process may be excused where consideations of fairness so require. Where parties have consented to arbitration, actual notice of the proceedings can be sufficeint so long as it is fair and no injustice requires. The court conceded that in Volkswagonwek AG, the Supreme Court has held that compliance with the Hague COnvention is "mandatory in all cases to which it applies." Nonetheless, the court pointed out that the plaintiff in Penn Coal attempted in good faith to comply by delievring its pleadings to the Bulgarian authorities. Further, the defendant consented to and partipcaited in an Olympia arbitration pursuant to an agreement contemplating the award's confirmation in court. In the circumstances of Penn Coal, the court found that strict compliance with the Hague Convention is not mandatory. Instead, actual notice and fariness are the standards. The court went as far as noting that the Hague Convention is not designed to be a roadblock to parties that act in good faith. Under the facts of Penn Coal, the Court found that even though there was no involvement from the Bulgarian government, the defendant still received notice. The court found that even though the service was through email, this was acceptable since email was the form of communiation that the parties used during the arbitration. Therefore, the service by email was reaosnably calucated to give the defendnat actual notice. The court also pointed out that the defendant's evasive behavior cannot be overlooked. The court found that the fact that defendant went to great lengths to evade its contract obligations and avoid accountability for the arbitrators' award was "highly relevant" and could not be ignored.
The facts of our case are greatly distinguiable from Penn Coal. In our case, it is true that WPP agreed in the supplier agreement that any controversey or claim arising out of or relating to the agreement would be settled by arbitration to be held in Franklin City, Franklin. Also, the supplier agreement stated that judgent upon the award rendered by the arbitration panel may be entered by any court having jurisdiction thereof. However, it is not true that WPP is attempting to seek refuge in the protections of the Hague Convention to avoid facing any consequences in Franklin. In our case, a court may find that under the considerations of fairness, there was no actual notice given to WPP. A court may find that American Electric ("AE") acted in good faith when it sent an email with the summons and complaint to enforce the arbitration award to the VIce President of Manufactuering since he was the person who was the point of contract during the arbitration. However, the court woudl also consider the fact that in fairness, the Vice President quit and did not forward the email or notify anyone about it before the left the job. Also, the court woudl likely consider the fact that AE attempted to serve the summons and complaint through Chinese government channels. However, the court would also consider the fact that it never received anything from the Chinese government. The court woudl also likely consider the fact that even though arbitration communications were sent by email, WPP typically conducted business with AE via fax and phone. Therefore, the court may have been more likely to view the email with the summons and complaint in favor of AE if it had sent it through fax, which was the typical form of communciation between the parties. Further, the court would certainly consider the fact that unlike Penn Coal, WPP paid almost half of its obligation of the damage award under the arbitration award. Even though WPP did not pay the attorneys fee award or the $25,000 award for unpaid royalities or the other hald of the $500,000 damages award, this is distinguishable from the facts of PEnn Coal. in Penn Coal, the defendant did not pay any portion of the award. In fact, the defendnat moved its assets in an effort to avoid complying with the judgment. In our case, the court would consider the fact that the reason that WPP did not pay the other portion of the arbiration award was because of an economic downturn and not because of ill will or spite towards AE. In our case, WPP never received the summons and complaint to enforce the arbitation award. The only notice it ever received was when it reveived the the motion for default judgment, which was received months after the inital summons and compalint were attempted to be served. When considering the fairness of the situation, if the court followed the approach that Olympia took in Penn Coal, a court in Franklin would likelyl vacate the default judgment.
District of Columbia Approach
If the Franklin court followed the approach taken in the District of Columiba, then WPP would likely not be successful in vacating the default judgment. In EduQuest Digital Corp ("EQ"), the court rejected the Penn Coal fairness standard. The court noted that the "fairness" standard of Penn Coal is too loose to serve as a guide as to when courts can excuse noncompliance with the Hague Convention and Federal Rule of Civli Procedrure 4 when confirming arbitration awards. The court noted that the better approach is that by agreeing to arbitrate in Columbia and participating in those proceedings, the parties to the underlying contract agreed to the provision alowing court judgments to be entered. The court noted that this serves as a "deemed waiver" of formal Hague Convention service in connection with confirmation of an arbitration award. In other words, the court noted that the parties agreement is viewed as consenting to service by acutal notice that satisfies the general pricniples of due process and the Fedearl Rules, rather than teh strict formality of the Hague COnvention, at least in cases where teh arbitration trakes place in the jurisdiction contemplated in teh parties agreement. The court held that by agreeing to arbitrate, the defenadnt was deemed to have waived the right it possessed to formal service. The court found that teh notice that the defandnt received was reasonable and sufficent.
Under the District of Columbia's approach, the court would likely find that there was a "deemed waiver" of formal Hague COnvention service in connection with confirmation of an arbitration award. The court would likely look to the supplier agreement provision where it states "any controversey or claim arising out of or relating to this Agreement or the breach, termination, or validity thereof shall be settled by arbitration . . . and shall be held in Franklin City, Franklin U.S.A. Judgment upon the award rendered by the arbitration panel may be entered by any court having jurisdiction thereof." The court would likely find that WPP waived formal Hague COnvention service and that WPP received was reasonable here. The court would likely find that AE sent notice via email and also attempted to serve process trough the Chinese government, which was reaonsable and sufficient enough. It should also be noted that yn EQ, the court pointed out that when Chinese entites are involved, the Hague Convention requires that the serving party translate the documents into Mandarian Chinese and deliver the documents to the Chinese Central Authority, which will effecutate service through its provincial courts. HOwever, the fact that AE did not translate the documents into Mandarian Chinese and instead they were in English would likely be immaterial from the court's perspective. Rather, the court would be more focused on the agreement to arbitrate the diputes in Franklin and allowing court judgments to be entered.
In sum, depending on whether the court followed the reasoning of the Olympia or Columbia court, would be outcome determiniative here. If the court followed the reasoning of the Olymipia court, WPP has a much better chance at being successul in vacating the default judgment than if the court followed the reasoning of the Columia court where WPP's chances at success are quite low.
Wuhan can likely challenge the award of attorney's fees
Regardless of whether the court took an approach similar to that of Olymipia or Columbia, the court in Franklin would likely deny AE's claim for additional attorney's fees. In EU, the court held that the plaintiff's requires for attorneys fees was a "new claim for relief" and Federal RUle of Federal PRocedure 5(a)(2) requires formal government service under the Hague COnvention. In our case, AE could not dispute the fact that it did not use formal government service under the HAgue COnvention as detailed above since it did not translate the documents into Mandarian Chinese and deliver them though the Chiense Central Authority, which would effectuate service through its provinical courts. Here, the documents were in English and even though they were delivered through Chinese government channels, the documents were never delivered to WPP.
In Penn Coal, the court applied the same reasoning and found that the plaintiff was not entitled to the award of additional attorney's fees. Just as in EU, the court found that the request for attorney's fees was a "new claim for relief" and therefore service must comply with Fedearl Rule of Civil Procedure 5(a)(2). Also, the court found that the award of additional attorney's fees was not appropatite because the plaintiff was not before the apprraite forum in making this request. In other words, the plaintiff should request the additional fees from the arbitrators and not the court. In sum, a court would likely find that Wuhan is not required to pay the additional attorney fees of $90,000.
To: Alexandra Carlton
Date: July 30, 2019
Re: American Electric v. Wuhan Precision Parts Ltd.
You had asked me to prepare a memo addressing (1) whether Wuhan Precision Parts Ltd. (WPP) will succeed in vacating the default judgment against it due to improper service under the Federal Rules of Civil Procedure and the Hague Convention and (2) whether there are any grounds to challenge the attorney fees award that was included in the District Court's default judgment. Please find my assessment below.
I. Service on WPP
The issue is whether WPP will succeed in vacating AE's default judgment due to improper service under the FRCP and the Hague Convention.
Under the FRCP, service on international parties must occur in compliance with the Hague Convention. FRCP 4(f) provides, "Unless federal law provides otherwise, an individual...may be served at a place not within any judicial distriction of the United States (1) by any internationally agreed means of service that is reasonably calculated to give notice, such as those atuhorized by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents." Formal Hague Covention service calls for service by foreign authorities on the foreign party. Penn. Coal Co. The United States Supreme Court has held that compliance with the Hague Convention is "mandatory in all cases to which it applies." Volkswagonwerk AG. When Chinese entities are involved, the Hague Convention requires that the serving party translate the documents into Mandarin Chinese and deliver the documents to the Chinese Central Authority, which will effectuate service through its provincial courts. EduQuest.
The Federal Arbitration Act governs the service of petitions to confirm arbitration awards. EduQuest. However, that statute does not provide a method of service for a foreign party who is not a resident of the United States. Id. While this is a matter of first impression in the Franklin courts, the Olympia and Columbia courts have taken two different approaches to resolve the issue. Olympia considers the good faith of the parties and any injustice that will result. Columbia looks to the parties' contract for a "deemed waiver" of formal Hague Convention service.
A. Olympia's Fairness Approach
The District Court of Olympia, persuasive authority, has held that where a foreign company has consented to arbitration in the United States, subsequent defects in service of process may be excused where considerations of fairness so require. Penn. Coal Co. Where parties have consented to arbitration, actual notice of the proceedings can be sufficient as long as it is fair and no injustice results. Id. Thus, the Olympia court provided that where a domestic corporation has tried in good faith to comply with the Hague Convention, and where the foreign corporation has consented to and participated in domestic arbitration, "strict adherence to the Hague Convention is not required; actual notice and fairness are the standards."
In considering fairness, the Olympia court considered (1) whether the foreign party had received actual notice, (2) whether the foreign party was served via means by which the parties had communicated during their course of business and the arbitration, (3) the lengths to which the foreign party went to avoid its obligations under the arbitration award, (4) whether the foreign party had any difficulty in comprehending the English language, and (5) the foreign party's failure to appear despite any actual notice.
If the Franklin Court adopts Olympia's approach, it will consider the factors above for an overall balancing over fairness and justice. Here, AE sent WPP's vice president an email with the summons and complaint. The VP had been the designated point of contact during arbitration. WPP will be able to show that while its VP received an email with the summons and complaint on November 2, 2018, he quit on November 9, 2018. He did not forward the email or notify anyone else of the suit. WPP will also be able to show that it never received any notification from the Chinese government. It did not receive actual notice until April 15, 2019, and had to have the papers translated into Mandarin Chinese.
As to the second factor, WPP admits that the arbitration communications were made through email. However, they normally did business with AE by fax or phone, and Mr. Li has suggested that the entire issue could have been avoided had AE contacted them by fax or phone.
WPP will be able to show that it has largely cooperated with the arbitration award. It promptly paid $250,000 of the $500,000 damages award. While it has not yet paid the $25,000 for unpaid royalties of $110,000 attorney's fee award, it has had to delay payment due to an economic downturn resulting in foreign exchange and cash flow problems. WPP will also be able to its general good faith in dealing with AE; it has not acted dishonestly and has made good faith efforts to resolve the dispute.
WPP did have to have the documents translated into Mandarin, but the default judgment notes that the pleadings were short and straightforward. AE also established that WPP regularly conduct its international business in English, including the arbitration proceedings.
WPP did fail to appear at the hearing on June 14, 2019, despite having received the documents on April 15, 2019. WPP will have to rely on the fact that it needed to have the papers translated into Mandarin and retain counsel, but a court may be skeptical of its lack of notice because of WPP's afforementioned regular use of English.
If the court applies Olympia's approach, WPP will be able to argue that enforcing AE's improper service would be unfair and unjust.
B. Columbia's Contract Approach
The District Court of Columbia, also persuasive authority, has held that by agreeing to arbitrate in a domestic jurisdiction and participating in those proceedings, the parties to the underlying contract agreed to any provisions allowing court judgments to be entered. EduQuest. Such an agreement services as a "deemed waiver" of formal Hague Convention service in connection with the arbitration award. Id. The Columbia court held that such a waiver consents to service by actual notice that generally satisfies due process and the FRCP, so long as the arbitration took place in the jurisdiction contemplated by the parties in the contract. Id. The Court further qualified its decision by stating that formal Hague Convention service must still be attempted in good faith. Id.
Here, WPP agreed to a provision very similar to the one at issue in EduQuest; the provision specifically states that "judgment upon the award rendered by the arbitration panel may be entered by any court having jurisdiction thereof." The parties did arbitrate in Franklin, the contemplated jurisdiction under the contract. It does seem that AE attempted formal service under the Hague Convention in good faith.
If the court applies Columbia's approach, WPP will not be able to challenge the default award based on improper service.
II. Attorney's Fees
The issue is whether there are any grounds to contest the attorney's fee award.
A "new claim for relief" requires service that complies with the FRCP and the Hague Convention. FRCP 5(a)(2). Both the Olympia and Columbia courts agree that, unlike the confirmation of an arbitration award, a request for attroney's fees is a "new claim for relief." Penn. Coal Co, EduQuest. Under the Hague Convention, the party raising a new claim must deliver a copy of that claim to the foreign governing authority, which will then deliver it in accordance with local judicial process. Penn. Coal Co.
While the Federal Arbitration Act (FAA) contemplates that arbitral parties can turn to courts to confirm an arbitration award itself, courts are careful to defer all substantive decisions to the arbitrator. Penn. Coal Co. Where a contract allows for the prevailing party to obtain attorney's fees but contains no reference to judicial remedies in that regard, the party seeking attorney's fees must pursue them by returning to arbitration. Penn. Coal Co. As the Olympia Court applied "fairness" principles when upholding a judgment confirming an arbitration award, it held that those same principles could not be used to open the door to claims, like requests for attorney's fees, that had not been previously raised with the arbitrators. The Columbia District Court subsequently agreed with and applied its Olympian counterpart's reasoning. EduQuest.
WPP can contest the award of additional attorney's fees based on the reasoning adopted by both the Olympia and Columbia courts. Because both jurisdictions agree, the rulings will likely be highly persuasive in a Franklin court. Because the contract did not contemplate judicial remedies in regard to attorney's fees, the additional award of attorney's fees would be a "new claim for relief." AE would be required to re-attempt proper service, in good faith, under the Hague convention. WPP's ultimate actual notice would either have to satisfy the fairness test of Olympia, or the general due process requirement of Columbia. Of course, a Franklin court could elect to implement an entirely different test.
WPP will be able to contest the attorney's fee award based on the fact that it was a "new claim for relief" and required separate service.
While this is an issue of first impression in the Franklin courts, WPP will be able to contest AE's service on the basis that unfairness and injustice will result if the finding of adequte service is upheld. WPP should argue for the court to adopt Olympia's approach, because a challenge would likely fail under Columbia's approach. Additionally, WPP may contest the attorney's fee award on the basis that a court judgment awarding attorney's fees was not contemplated in the parties' contract, and that AE is obligated to return to arbitration to obtain any further award of attorney's fees.
Estate of Carl Rucker
Memorandum to Examinee
Transcript of client interview
Memorandum re: Appraisal
Excerpt from Walker’s Treatise on Life Estates
In re Estate of Lindsay, Franklin Court of Appeal (2008)
Manford v. French, Franklin Court of Appeal (2011)
Buckman & Carraway
Attorneys at Law
240 West End Highway
Middleburg, Franklin 33905
From: Dana Carraway
Date: July 30, 2019
Re: Carl Rucker
Carl Rucker has asked for our advice about the disposition of his property after his death. Mr. Rucker owns a house in Middleburg, which he has owned for nearly 45 years. He has two children by his first wife: Fred and Andrew. His first wife died 24 years ago. He remarried 18 years ago to his current wife, Sara Rucker.
Mr. Rucker would like to arrange his affairs so that, if he dies first, Mrs. Rucker can live in the house for the rest of her life. He wants to make sure that the house passes to his two sons after her death. However, his current wife and his two sons do not get along. He expects that, if given the chance, his sons would try to remove Mrs. Rucker from the house if she were living in the house after his death. He also believes that, if she owned the house, Mrs. Rucker would leave the house to a charity rather than to his sons. Mr. Rucker would like our advice about how to assure the result that he wants while minimizing the possibility of extended legal battles.
I’d like you to focus on two of the possible approaches that Mr. Rucker might consider: (1) creating a life estate in the house for Mrs. Rucker while she is alive, with the remainder to his sons; and (2) contracting with his wife to write wills that leave the house to his sons after both he and Mrs. Rucker have died.
Please prepare a memorandum for me that discusses the advantages and disadvantages of these two approaches. Make sure to discuss the impact, if any, on a surviving spouse’s elective share. Your memorandum should also include a recommendation as to which approach will better accomplish Mr. Rucker’s stated goals: (1) to assure that Mrs. Rucker can live in the house for the rest of her life, (2) to assure that his sons receive the house after she dies, and (3) to minimize the risk of litigation between them.
As you will see, the client does not want a trust; do not address that topic.
Transcript of client interview: Carl Rucker
July 17, 2019
Attorney Carraway: Hello, Mr. Rucker. Thank you for coming today.
Carl Rucker: Thank you for making the time.
Attorney: I understand that you want to talk about a will.
Rucker: Well, yes, although I’m not sure it’s a will I want.
Attorney: Tell me how I can help.
Rucker: To help you understand the situation, I have to tell you a little about my background. I’m 67 years old now, but I got married when I was 19. My first wife, Frances, was the same age, and we started a family right away. We had two boys within about three years.
Attorney: What are their names?
Rucker: Fred is 47. And Andrew, or Andy, is 45. They’re both married. Fred has two kids of his own.
Attorney: When your sons were born, did you live in Middleburg?
Rucker: Yes. I’ve lived in Middleburg my whole life. After Andy arrived, we bought the house that I live in now, on Cherry Tree Road.
Attorney: I know that neighborhood. You say that only you live there. . . . Is Frances . . . ?
Rucker: Yes, she passed away the year Andy turned 21. Cancer.
Attorney: I’m sorry.
Rucker: I was on my own for years after that. Then I met Sara. She was a receptionist at my doctor’s office, and we just hit it off. We got married about 18 years ago. And that’s the problem.
Attorney: How so?
Rucker: My sons do not like her. I mean, they really don’t like her. She is very different from their mother, it’s true. But I’d have thought they’d get over it. Sara made an effort, but she couldn’t do a thing about it. Things have been hard for years. It’s at the point where I only see the boys on my own. I visit them, and Sara doesn’t come with me. The boys and Sara don’t talk at all. And if I’m honest, I think Sara has come to dislike them too.
Attorney: I am very sorry to hear this. I know how hard that can be. Can you explain what you’re looking for from me?
Rucker: It has to do with the house. It’s a beautiful place. The boys love it because it’s where they grew up. They resent Sara because they think she wants to take it away from them. Sara loves the house because it’s where she and I have made a life together. We’re very happy there. She worries that they will kick her out as soon as I die.
Attorney: Who owns the house?
Rucker: I do. Frances and I owned it jointly, but I took over when she died. We had a 30-year mortgage on the place, but I paid that off years ago. Sara has never asked to become an owner, and I never saw the need to put her on the deed. Now . . . I don’t know.
Attorney: Do you know how much the house is worth?
Rucker: I don’t. I have never put it on the market, and never plan to do so. I think the fair market value is $250,000, maybe higher. The property taxes are around $1,700 a year.
Attorney: By the way, Carl, how old is Sara?
Rucker: Sara is 65.
Attorney: And are you retired?
Rucker: I will retire next year. I don’t have a pension or a retirement account, since I never worked anywhere that offered one. So I will be relying on Social Security. Sara is working now but will retire a few years from now. She doesn’t have a pension or retirement account either. So all she’ll have is her Social Security.
Attorney: Do you have any other assets?
Rucker: Yes, I own several long-term certificates of deposit that total around $200,000. These are all in my name alone. I plan to give them to Sara when I die.
Attorney: Luckily, your assets will not raise any estate tax concerns. Let me ask something different: are you both healthy?
Rucker: Yes, and with luck, we’ll stay that way.
Attorney: Of course. It’s my job to help you plan for the worst.
Rucker: I know. And I have already lost Frances. It could happen again, to either of us.
Attorney: Tell me exactly what you want to happen.
Rucker: If I die first, I want Sara to be able to have the house as long as she is alive. Then I want it to go to my sons. If Sara dies before I do, then I want my two sons to have the house after I die. They get along and will figure out what to do with it.
Attorney: If you die first, and Sara gets the house outright, will she make sure that your sons get the house eventually?
Rucker: She says she will, but I am not so sure. There’s just too much bad blood between them. Also, she has been very involved in a charity and may want to leave the house to that charity when she dies.
Attorney: If your sons get the house outright, will they let Sara live there as long as she wants?
Rucker: Again, I hate to say it, but no, they won’t. I’m sure they would try to kick her out.
Attorney: Let’s say that we find a way for Sara to keep the house while she is alive. Would she be able to afford it?
Rucker: Well, between her Social Security and whatever Social Security she gets as my widow, she might be able to pay the taxes and keep the place up, but I worry that she might not be able to afford unexpected repairs or emergencies. It’s possible she would have to borrow against the house. That’s why I plan to leave her the $200,000 certificates of deposit when I die.
Attorney: Your sons, are they well off?
Rucker: Yes, they’re doing okay. They won’t need the Cherry Tree house. But I know that they would like to keep it in the family.
Attorney: One last thing. Do you think that there is any chance that Sara and your sons will figure out a way to get along with one another?
Rucker: The way things have been, no, not a chance. I really worry about it. The last thing I want is for the three of them to end up fighting in court, spending money on lawyers, and selling the house to end up with nothing.
Attorney: Okay. Thank you, Carl. I know that this is hard to discuss. We will look into the choices that you might have. I’ll start by focusing on what happens if Sara survives you. I will schedule an appointment when we have some ideas. I would normally recommend a trust for this kind of situation.
Rucker: I don’t want a trust. I had a close friend who left his property in a trust and it caused him and his wife and children nothing but trouble. And I don’t want anyone else to have control of the property.
Attorney: You and I will have to go over what a trust can and cannot do. But I hear you. When we meet next, we will be sure to go over other options as well.
Certified Residential Appraiser
1 Vicker Place
Centralia, Franklin 33705
To: Dana Carraway
From: Jill Baker
Date: July 23, 2019
Re: Valuation of Carl Rucker Residence and Life Estate
You asked me to determine the current fair market value for the residence of Carl Rucker and to assess the value of a life estate held by Mrs. Rucker, currently age 65, in that residence, assuming Mr. Rucker were deceased.
Fair Market Value
The Rucker residence is located at 1513 Cherry Tree Road in Middleburg, Franklin. It is a 2,700-square-foot two-story house, with garage, attic, and basement. The house sits on three acres of land in a neighborhood zoned R10 for residential use. The house is set back about 60 feet from the road and has a large backyard.
I spoke with agents at different real estate agencies about the neighborhood and about comparable properties. These agents indicated that houses in that neighborhood have retained their value, even in down times for real estate; and, as you know, the housing market is coming back in our region. Based on sales of comparable houses, these agents agreed that current fair market value for the house would be roughly $250,000. This value is likely to change over time.
Value of Life Estate
As you know, the value of a life estate is less than the value of the fee ownership of the whole property. For purposes of advising your client at this time, I have calculated that the present value of a life estate for Mrs. Rucker in the residence is $80,000, assuming Mr. Rucker is deceased.
Excerpt from Walker’s Treatise on Life Estates
The owner of real property, by deed effective immediately or by will, can create successive ownership interests in the realty. An interest created in a person currently entitled to possession for that person’s life is called a life estate, and that person is called a life tenant; an interest created in a person whose right to possession arises only after the death of the life tenant is called a remainder. Life estates and remainders can be created in one or more persons.
Life Tenant: A life tenant has absolute and exclusive right to use of the property during his or her lifetime. Life estates can be held by one or more persons, such as spouses or siblings. The life tenant is entitled to possession of the property during his or her life or to rents from the property should the life tenant rent it to another. The rights of a life tenant expire automatically upon the death of the life tenant. The life tenant is responsible for real estate taxes, insurance, and maintenance costs related to the property.
Generally, the life tenant can sell or otherwise transfer that interest. However, any transferee from a life tenant can have an estate only for so long as the life tenant lives. Similarly, if the life tenant mortgages the life tenant’s interest, that mortgage expires when the life tenant dies. However, a deed or will can empower a life tenant to sell or mortgage the property from which the life estate is carved without the consent of the owners of the remainder interest.
Remainder Owner: The owner of the remainder following a life estate automatically becomes owner of the real estate immediately upon the death of the last life tenant. The remainder owner has no right to use of the property or the income from the property during the life tenant’s lifetime. Remainders may also be created in one or more persons.
Creating a life estate in real property while the owner is alive (as opposed to one created by the owner’s will) can be accomplished by executing a new deed from the owner of the property to the life tenant(s) and remainder owner(s). It is generally advisable to record the deed. However, the decision to transfer the property to a life estate is almost always irreversible. If the owner changes his or her mind, a change cannot occur without the consent of all life tenants and remainder owners. Their mutual consent may be difficult to obtain.
All owners, including remainder owners, must agree to sign a deed to sell the property in fee or to sign a mortgage to borrow money secured by the full value of the property. Disagreement among the owners severely restricts the marketability of the property and may make it nearly impossible to borrow money to make major repairs or improvements to the real property.
If a life estate in real property is created while the owner is alive, then upon the death of the last life tenant, the real property automatically belongs to the remainder owner, with no need for probate of that property, avoiding the costs and delays of probate. A life estate is worth less than full ownership in the same property.
The remainder owner cannot affect the life tenant’s interest in the property. For example, if a parent who owns real property gives her children a remainder interest and retains a life estate in the property for herself, neither the children nor the children’s creditors can affect the parent’s possession. If the life tenant’s actions or neglect harm the property, the remainder owners can sue the life tenant (or the life tenant’s estate) for the damage in an action for waste.
The risk of litigation should be considered, especially for life estates created by a will. In addition to the time and costs of litigation, there is a risk that the court could award the monetary value of the life estate to the life tenant instead of possession of the property. Such a result would defeat the testator’s wishes to permit the life tenant to live in the residence. Transferring property by deed, as opposed to by will, minimizes this risk.
Creating a life estate by deed in the owner’s spouse may have implications for the distribution of the owner’s probate estate. Franklin law permits a surviving spouse to claim a percentage share of the deceased spouse’s “augmented estate” (the deceased spouse’s probate estate increased by, among other things, lifetime gifts to the surviving spouse). This share is called the “elective share.” For many years, it was unclear what should happen when the surviving spouse held a life estate transferred by deed from the deceased spouse while alive. Recent cases have clarified that the value of such a life estate should be included in calculating the elective share of the surviving spouse.
No requirement of spousal consent
Some states limit the ability of one spouse who has sole title to a residence to transfer that residence to anyone without the other spouse’s consent. Franklin law does not recognize this limitation with respect to a residence titled solely in one spouse’s name prior to the marriage. Nor is Franklin a community property state. Thus, in Franklin, a spouse who has sole title to a residence may transfer a life estate to anyone without the other spouse’s consent.
In re Estate of Lindsay
Franklin Court of Appeal (2008)
Joseph Lindsay, spouse of the decedent, Nancy Lindsay, filed a petition in the probate court seeking to take his elective share of the decedent’s estate. The probate court determined that Mr. Lindsay’s elective share had been satisfied by a life estate transferred to him by the decedent and an outright bequest in the decedent’s will and that Mr. Lindsay was not entitled to anything further from the decedent’s estate. Mr. Lindsay appeals from that determination.
The decedent and Joseph Lindsay were married on June 16, 1990. Mr. Lindsay was the decedent’s second husband. The decedent had two children by a prior marriage, both of them adults at the time of her second marriage. The decedent owned a residence and 25 acres of surrounding land, acquired before her second marriage. On July 20, 2005, the decedent transferred this real property to herself and Mr. Lindsay as life tenants, granting a remainder interest to her two children. Joseph Lindsay’s life estate was valued at $200,000. The assets of Nancy Lindsay’s estate that would pass by will (stocks, bonds, savings accounts, and other personal property) totaled $900,000, of which Joseph Lindsay was bequeathed $400,000. Mr. Lindsay elected not to receive this bequest and instead to claim the elective share.
Franklin law states that Joseph Lindsay is entitled to claim an elective share equal to 50% of the “augmented estate” or, in the alternative, what was bequeathed in the will. Franklin Probate Code § 2-202. The question before the court is whether the value of the life estate should be included in the augmented estate, in addition to the assets passing by will, when determining the elective share. We hold that the value of the life estate should be included.
The percentage size of the surviving spouse’s share depends on the length of time the surviving spouse had been married to the decedent. Id. A spouse like Mr. Lindsay, who was married for 15 years or more, is entitled to claim a 50% elective share of the augmented estate. Permitting a surviving spouse to claim an elective share of a deceased spouse’s augmented estate protects that spouse from the harsh effects of the decedent’s decision to leave the spouse little or nothing through probate. The purpose of the elective share is to give the surviving spouse a fair share of the economic partnership maintained by the couple before the decedent’s death.
An augmented estate, according to Franklin law, includes four categories of assets, only three of which are relevant here: (1) the net assets held in the probate estate, Franklin Probate Code § 2-204; (2) the assets transferred by the decedent to the decedent’s spouse before death, Franklin Probate Code § 2-206; and (3) the surviving spouse’s own assets and pre-death transfers, Franklin Probate Code § 2-207. Using these three provisions, the probate court calculated the value of the “augmented estate,” described earlier, at $1.1 million.
Petitioner Lindsay’s calculation: exclude value of life estate from augmented estate and claim 50% elective share
Mr. Lindsay claimed his elective share of the estate pursuant to Franklin Probate Code § 2-202. As Mr. Lindsay calculates his elective share in the augmented estate, he claims to be entitled to 50% of the $900,000 probate estate (or $450,000). He also claims that the value of the life estate (worth $200,000) should be disregarded in computing the elective share. If he is correct, he would receive a total of $650,000 of benefits: $450,000 as his elective share plus the earlier transfer of the life estate worth $200,000.
The personal representative’s calculation: include value of life estate in augmented estate
The personal representative of the decedent’s estate agrees that the elective share is 50% of the augmented estate. However, the representative takes a different view of how that share is calculated, claiming that the value of the augmented estate includes both the probate estate and the value of the life estate. By including Mr. Lindsay’s life estate, the “augmented estate” totals $1,100,000: the $200,000 life estate plus the $900,000 in probate assets. Therefore, the 50% elective share equals one-half of $1,100,000 (that is, $550,000). Because Mr. Lindsay has already received the $200,000 life estate, he would be entitled to receive only $350,000 of the probated assets via an elective share.
We agree with the personal representative that Mr. Lindsay’s life estate should be included in the calculation of the augmented estate for determination of his elective share. In addition, the court correctly used the value of the life estate, or $200,000, and not the full fair market value of the house, in calculating the elective share.
Accordingly, we affirm the probate court’s decision.
Manford v. French
Franklin Court of Appeal (2011)
On January 27, 1997, Opal French and her husband, George, executed a single will that recited only that it was a “joint” will. This will would have transferred all the property of the first spouse to die to the survivor; then, upon the death of the survivor, all the survivor’s property, including the property acquired from the first spouse to die, was to go to Mary Elizabeth Manford, their only child. George predeceased Opal in 1998. Opal received all property held by him pursuant to the joint will.
In 2004, Opal French drafted a new will, expressly revoking the 1997 joint will. This new will transferred all of her property to her two children by a previous marriage. It also expressly disinherited Manford. The will stated that Opal had “given Mary Elizabeth Manford her part of the estate before my death, through significant loans that she has not repaid. I forgive these loans, but she has received enough.”
Opal died in February 2010. Her children from the previous marriage, acting as co-executors, offered the 2004 will for probate. Manford contested, claiming that (1) the 1997 joint will was intended to be contractually binding; (2) Opal could not revoke the 1997 will after she had benefited from its probate; and (3) because of this fact, her 2004 will was invalid. Manford sought specific performance of the 1997 will, or in the alternative, money damages.
Manford filed an affidavit maintaining that Opal and George had conducted a family meeting in 1996 and expressed a plan to execute a will that would devise the estate to Manford after their deaths. The parties filed cross-motions for summary judgment. The trial court ruled for the co-executors. Manford appealed.
We must decide whether Opal had any contractual obligation to George arising from the 1997 will that prevented her from revoking that will after George’s death and thereby preventing Manford from receiving all her mother’s estate. This question depends on whether the creation of a joint will on its own creates such a contractual obligation.
An individual who receives an unrestricted bequest under a will has complete freedom to dispose of the property he or she receives. She can sell the property, mortgage it, or dispose of it by will. Given this, some spouses seek to restrict the ability of the surviving spouse to dispose of property in a will, especially where one or both spouses have children by a previous marriage.
Two methods exist to accomplish such a restriction. First, the spouses may enter into a contract to make a will, one that restricts the right of the surviving spouse to alter an agreed-upon testamentary disposition. A contract to make a will requires the survivor not to change the terms of an already-agreed-upon will, but it does not prevent the survivor from transferring the property during the survivor’s lifetime. The survivor could sell the property or encumber the property with debt without breaching the contract, provided the agreed-upon will remains the same. Kurtz v. Neal (Franklin Sup. Ct. 2005).
Second, spouses can restrict the rights of the survivor through a joint will or a mutual will that reflects a contractual agreement between them. A joint will is one will, signed by two or more testators, that deals with the distribution of the property of each testator. Mutual wills are separate wills of two or more testators that make “mirror-image” dispositions of each testator’s property.
Franklin Probate Code § 2-514 provides in general terms that any contract to make a will or not to revoke a will must be in writing:
A contract to make a will or devise, or not to revoke a will or devise, or to die intestate, may be established only by (i) provisions of a will stating material provisions of the contract, (ii) an express reference in a will to a contract and extrinsic evidence proving the terms of the contract, or (iii) a writing signed by the decedent evidencing the contract.
This statutory provision resolved a long-standing line of cases that dealt with questions about “oral contracts to make a will.” As specified in the current statute, there must be some written evidence of the existence and terms of such a contract. This requirement assures that the parties’ intentions can be determined and minimizes the risk of future litigation over the contract. Breach of a contract to make a will or not to revoke a will gives rise to two possible remedies: specific performance of the contract or money damages.
Manford claims that the mere fact of drafting a joint will provides written evidence of both the existence and terms of a contract binding both testators to the terms of the joint will. Whatever the merits of this proposition in general, Franklin Probate Code § 2-515 undercuts it: “The execution of a joint will or of mutual wills does not create a presumption of a contract not to revoke the will or wills.” The 1997 will executed by Opal and George French is a joint will. The fact of its execution, standing alone, does not create an obligation that Opal may not revoke it and make a new and different will.
In the alternative, Manford claims that the terms of the joint will imply the existence of a contract not to revoke a will and that the family meeting in 1996 provides “extrinsic evidence proving the terms of the contract.” Franklin Probate Code § 2-514(ii). This argument fails for two reasons. First, the statute requires “an express reference . . . to a contract” in the joint will; no such reference exists. Second, the “family meeting” described in Manford’s affidavit entails little more than a statement by George and Opal that they planned to make a will at some point in the future, not that they had executed or intended to execute a contract to do so.
Thus, the 1997 will imposed no contractual obligation on Opal not to execute a new will revoking the 1997 will’s terms. George and Opal could have entered into a contract binding Opal not to do so, but nothing in the record indicates that they did so or that such a contract was reduced to writing.
TO: Dana Carraway
DATE: July 30, 2019
RE: Carl Rucker
Carl Rucker is a client of our firm, who is seeking advice on how to dispose of his property after his death. Understanding his family dynamics is imperative to counseling Mr. Rucker on how to dispose of his property.
My analysis willl focus on two possibiliites for Mr. Rucker's property; (1) creating a life estate in the house for Mrs. Rucker while she is alive, with remainder to his sons and (2) contracting with his wife to write wills that leave the hosue to his sons after both he and Mrs. Rucker have died. In evaluating each approach, I also will analyze which approach will be better to accomplish his stated goals to (i) ensure that Mrs. Rucker can live in the house for the rest of her life and ii) to assure that his sons receive the house after she dies and iii) to minimize the risk of litigation between them.
STATEMENT OF FACTS
Mr. Rucker owns a house in Middleburg, which he has owned for almost 45 years. He has two children from his first wife, Freda, who are named Fred and Andrew. Fred is 47 and Andrew is 45. They both grew up in Mr. Rucker's current house. They are both married and Fred has two children. His first wife died 24 years ago, and he remarried 18 years ago to Sara Rucker. Sara and Mr. Rucker have lived together in the house, and it is where they have made a life together. However, his two children do not like Mrs. Rucker, and the relationships have deteriorated to a point where Mrs. Rucker does not visit the Mr. Rucker's children when he visits them. In addition, Mrs. Rucker and the two children do not talk to each other. While his children initiallly did not like her, Mrs. Rucker has grown to dislike them as well.
Mr. Rucker is seeking to arrange his property so that if he dies first, Mrs. Rucker can live in the house for the rest of her life, and that upon her death, his two sons will obtain the house. However, as his two sons and wife do not get along, he is concerned that his sons will attempt to remove Mrs. Rucker from the house if she were living on it after his death. In addition, he is also worried that Mrs. Rucker will attempt to leave the house to a charity rather than to his sons.
Mr. Rucker is concerned regarding the house. Currently, it is valued at around $250,000, and property taxes are around $1,700 per year. If this were to be in a life estate, the value of teh life estaet would be $80,000, per Jill Baker's valuation of the residence and life estate. Mr. Rucker has several long term certificates of deposit that total around $200,000, however, he does not have a pension or retirement account, and upon his retirement next year, will be relying on his Social Security. He hopes that Mrs. Rucker can have the house as long as she is alive, and then for the house to go to his sons. However, if Mrs. Rucker dies before he does, he wants the sons to have it when he dies. In addition, he is worried that if Mrs. Rucker gets the house, that she will not be able to pay the taxes and keep the place up, as well as that she might not be able to afford unexpected emergencies or repaires, and that his children will attempt to kick her out. While he wants to leave her the $200,000 certificates to ensure that she is able to pay the taxes and keep the house up, he is also worried she may borrow against the house, despite him already paying off the mortgage. He is also very concerned that all of them will end up fighting in court regarding this and end up selling the house.
In order for Mr. R to accomplish his stated goals to (i) ensure that Mrs. Rucker can live in the house for the rest of her life and ii) to assure that his sons receive the house after she dies and iii) to minimize the risk of litigation between them, I believe that it would be preferable for him to create a life estate in the house for Mrs. R, with the remainder to his sons, rather than contracting to or creating a joint will.
1. Creating a Life Estate for Mrs. Rucker with the Remainder to Fred and Andrew
While a life estate in the house for Mrs. Rucker while she alive can be done, with her being a life tenant and the sons being remainders, Mr. Rucker should be cautious about the future prospects of litigation in this, as well as the effect it has on Mrs. Rucker's elective share. First I will evaluate the basics of life estates in order for Mr. R to understand, and then I will disucss the effects on Mrs. R's elective share, as well as the advantages and consequences of such an action.
A. Life Estate Basics
A life estate is an interest created in a person currently entitled to possession for that person's life, according to Walker's Treatise on Life Estates. The person whose interest this is created in is the life tenant, while a remainder is an interest created in a person whose right to possession arises only after the death of the life tenant. A life tenant has absolute and exclusive right to the use of the property during his or her lifetime, and is entitled to possession of the property during his or her life or to rents from the property should the life tenant rent it to another. The rights of a life tenant expire automatically upon the death of the life tenant, and the life tenant is responsible for real estate taxes, insurance and maintenace costs related to the property. If a life estate where craeted in the home, Mrs. R would be the life tenant with the absoulte and exclusive right to use during her lifetime, while Fred and Andrew would be entitled to a remainder of the property, which automatically would pass to them upon the death of Mrs. R.
ii. Ability to Pay Taxes and Maintenance
The issue here is whether a life estate would be proper, as Mr. R is concerned that Mrs. R cannot pay for the real estate taxes and maintenance costs. As a life tenant, Mrs. R would have to pay for these expenses. Walker's Treatise on Life Estates. Mrs. R would have to pay real estate taxes, insurance and maintenance costs related to the property. While Mr. R is concerned about her ability to pay for the taxes and maintenance costs, this is important to note here, that she would be responsible for this.
Another issue is whether Mr. R is concerned about Ms. R borrowing against the estate. All owners, including the remainder owners, must agree to sign a deed to sell the property in fee or to sign a mortgage to borrow money secured by the full value of the property. Walker's Treatise on Life Estates. Thus, if disagreements occur, it can restrict the marketability of the property and make it impossible to borrow money to make major repairs and improvements to the real property. If Mr. R wants Mrs. R to be able to obtain a mortgage or borrow against the house, she would need the son's approval, which is unlikely. While it seems like Mr. R does not want Mrs. R to borrow against the house, he also does want to provide for her, and is worried about her ability to maintain the house without doing so. While he is seeking to provide for her through his certificates of deposit, he needs to consider whether this is reasonable, and whether she would be able to maintain the house and pay for the property taxes without needing to borrow against the house.
iii. Restriction of Sale of Property
Another issue is whether Ms. R's ability to sell or transfer the interest in the property can be restricted. A life tenant can sell or otherwise transfer that interest, but the transferee can only have an estate for so long as the life tenant lives. Walker's Treatise on Life Estates. If the life tenant also mortgages the life tenant's interest, that mortgage expires when the life tenant dies. This issue can be changed through a deed or will, which can empower a life tenant to sell or mortgage the property from which the life estate is carved without the consent of the owners of the remainder interest. While Mrs. R would be able to sell or transfer the interest in her life tenancy, which includs mortgages and borrowing against the property, this expires when she dies, and thus, the property would go to the children encumbered by this. However, in the deed or will, Mr. R can also empower a life tenant to sell or mortgage with consent of the remainders. Yet, Mr. R is unlikely to allow this, as he does not want her to have the ability to sell the property or borrow against it, as he wants it to remain for the children.
iv. Lack of Ability for Remainders to Use Property
Another issue is whether the lack of ability for the children to use the property during Mrs. R's propertyi s an issue for Mr. R. The owner of the remainder following a life estate automatically becomes owner of the real estate imediaetly upon the death of the last life tenant, but the remainder has no right to use the property during the life tenant's lifetime. Walker's Treatise on Life Estates. Here, the children would not have the right to use the property during Mrs. R's lifetime. While this seems to be in the best interest of Mr. R, which would prevent the children from evicting Mrs. R from the property, he may want them to have the possibility of reentering the property during her lifetime is an issue occurs or if she is unable to maintain the property.
v. Possibility of Revoking the Deed
Another issue is whether Mr. R believes he would change his mind in devising the life estate to Mrs. R. A life estate can be accomplished while the owner is alive by executing a new deed from the owner of the property to the life tenants and remainder owners. Walker's Treatise on Life Estates. This deed should be recorded, however, the decision to transfer the proeprty to a life estaet is almost irreversible. Thus, if the owner changes his or her mind, a change cannot occur without consent of all the life tenants and remainder owners, which can be difficult to obtain. While devising the property in a life estate to Ms. R with remainder to the children through a recoreded deed seems like a very simple way to devise of this property, Mr. R would not be able to change his mind easily, and if he does change his mind, he would have to have the consent of all the life tenants and remainders, which would be very difficult to do considering the current state of affairs with the family.
vi. Pros and Cons
While there are many negatives to consider in this method, another positive is that if this is created when Mr. R is alive, upon the death of the last life tenant the property belongs to the remainder, without needing to probate the property, which avoids the cost of probate. Walker's Treatise on Life Estates. In addition, the most significant aspect of this type of property is that the remainder owner cannot affect the life tenant's interest in the property. Walker's Treatise on Life Estates.However, if the life tenant's actions or neglect to the property, the remainder owners can sue the life tenant or the life tenant's estate for the damage in an action for waste. However, as that would occur in a narrow set of circumstances, it seems to address most of Mr. R's problems and is able to protect Mrs. R's life estate interest against the children.
However, here, the risk of litigation should be considered, as there is a risk that the court could award the monetary value of the life estate instead of possession of the property. Such a result would defeat the testator's wishes to permit the life tenant to live in the residnce. However, transferring the property by deed instead of by will, minimizes this risk.
B. Value of Life Estate in the Augmented Asset In Determining the Elective Share
The issue here is the effect the creation of a life estate by deed would have in Mrs. R's distribution of Mr. R's probate estate. Creating a life estate by deed in the owner's spouse may have implications for the distribution of the owner's probate estate. Excerpt from Walker's Treatise on Life Estates. Per Franklin law, a surviving spouse can claim a percentage share of the deceased spouse's "augmented estaet", which share is called an "elective share". However, the value of such a life estate should be included in calculating the electiv e share of the surviving spouse.
The issue here is whether the value of the life estate should be included in determining the elective share of a spouse. A spouse is entitled to claim an elective share equal to 50% of the "augmented state" or what was bequethed in the will per Franklin Probate Code Section 2-202. The value of the life estate should be included in the augmneted estate, per In Re Estate of Lindsay, Franklin Court of Appeal (2008).
The issue is the percentage size of Ms. R's share. Per Franklin Law an augmented estate includes 1) the net assets held in probate estate 2) the assets transfered by the decedent to the decedent's spouse before death, and 3) the surviving spouse's own assets and pre-death transfers. Franklin Probate Code Section 2-204, 2-206, 2-207. In Lindsay, the life estate was included in the calculation of the augmented estate for determination of his elective share. The percentage size of the surviving spouse's share depends on the length of time the surviving spouse had been married to the decedent. In Re Estate of Lindsay. In In Re Estate of Lindsay, Mr. Lindsay was married for 15 years, was entitled to claim a 50% elective share of the agumented estate. Permitting a surviving spouse to claim an elective share of a deceased spouse's augmented estate protected that spouse from the harsh effects of the decedent's decision to leave the spouse little or nothing through probate. The purpose of the elective share is to give the surviving spouse a fair economic partnership maintained by the couple before the decedent's death. In comparison, here, permitting Mrs. R to a claim of an elective share of Mr. R's augmented estaet would protect her from being left with nothing or little to nothing to support her. The court uses the value of the life estate to not the fulll fair makret value of the house in calculating the elective share. Thus, in calculating Mrs. R's elective share, which would likely be 50%, as they were married for around 18 years, longer than the length of marriage of Mr. Lindsay, we should deduct the value of the life estate, which is $80,000. Mr. R's life probate assets likely include only the certificates of deposits, which is $200,000 and the value of the house, which is $250,000. While this is likely to change, as the value of the house is likely to change, this should be used as an estimate. 50% of this estate of $450,000 is around $225,000, and the $80,000 life estate would be subtracted by this, $165,000. This fact should be considered when Mr. R is devising of his property.
2. Contracting to leave the house to his sons after he and Mrs. R have died
A. Contract Considerations
In order to contract with Mrs. R to make a joint will, several formalities need to be followed. Per the Franklin Code Section 2-514 provides the general terms that any contract to make a willl or not to revoke a will must be in writing: a contract to make a will or devise, or not to revoke a will or devise, or to die intestate, may be established only by i) provisions of a will stating material provisions of the contract ii) an express reference in the will to a contract and extrinsic evidence providng the terms of the contract and iii) a writing signed by the decedent evidencing the contract. In addition, per Franklin Probate Code Section 2-515 "the execution of a joint will or of mutual wills odes not create a presumption of a contract not to revoke the will or wills."
The issue is whether there are adequate protections for Mr. R in a joint will, in which he would want to execute a joint will. Without any contractual obligations limited the other party not to execute a new will revoking the original joint will's terms, the living spouse may execute another will revoking the terms of the joint will. An individual who received an unrestricted bequest under a will has complete freedom to dispose of her property he or she receives. She can sell the property, mortgage it, or dispose of it by the will. However, some spouses seek to restrict the ability of the surviving spouse to dispose of the property in a wall, especiailly where one or both spouses have childreb by a previous marriage. Manford v. French, Franklin Court of Appeal (2011). This is dislayed in Manford v. French, in which the child who was guaranteed property in the joint will, contested the execution of her mother's new will that revoked the previous will and provided her with nothing. In Manford, Opal, the wife of George who contracted a joint will with him, revoked the will after his death and prevented their daughter from receiving anything from her mother's estate. Opal French and her husband executed a single will that recited only that it was a joint will, however, when George predeceased Opal in 1998, Opal received all property held by him pursuant to the joint will. The joint will had stated that the property would go to the first spouse who died, and upon the death of the survivor, it would go to their only child, Mary Elizabeth Manford. In 2004 Opal drafted a new will, revoking the 1997 joint will, and this will transfered all of her property to her two children from the previous marriage and disinherited Manford. The will also stated that Opal had given Manford her part of the estate before her death through significant loans that she never repaid, and in forgiving these loans, Manford has "received enough". When Opal died her two children from previous marriage offered the 2004 will into probate, however, Manford contested. Thus, this case displays reasons for why Mr. R should be concerned about executing a joint will, as it would provide Mrs. R with the possibility of revising the joint will, and providing his children with nothing, or allowing her to sell the house or retain the property, or provide her charity with the property. However, this can be limited in two ways. Thus, as Mr. R is very concerned about the possibility of Mrs. R not leaving the property to his sons, this is not the best method, as it could possibly leave them without the house.
B. Alternative Contract Type I: Spouses May Enter Into a Contract to Make a Will, One That Restricts the Right of the Surviving Spouse to Alter An Agreed Upon Testaemntary Disposition
In contracting a joint will Mr. R can restrict the right of the surviving spouse to alter an agreed upon testamentary disposition. Per Kurtz v. Neal (Franklin Sup. Ct. 2005), this would require the surviving spouse not to change the terms of an already agreed upon will but does not prevent the survivor from transfering the property during the survivor's lifetime, the survivor could sel the propety or enucumber the proeprty with debt without breaching the contract, provided the willl remains the same. Thus, by doing this type of joint will, it would prevent her from altering the agreed upon will. However, this must be expressed in the will, and it could end up being probated and litigated. In addition, by forming this type of contract, he would need Mrs. R to agree to this, and it is unclear whether she would agree to this. In addition, there is a risk that she could go to court and fight the provisions, and thus, leaving his children with nothing.
C. Alternative Contract Type II: Spouses Can Restrict the Right of the Surivvor Through a Joint Will or a Mutual Will that Reflects a Contractual Agreemnet Between Them
Per Manford, a joint will is one, signed by tow or more testators that deals with the distribution of the property of each testator. Mutual wills are separate will of two or more testators that make "mirror-image" dispositions of each testators' property. Here, if Mr. R decides to do this, he would laos need to allocate all of his property in the joint will. In addition, he would need Mrs. R's consent in drafting the "mirror-image" dispositions of each other's property which may be difficult to achieve. In addition, as seen in the prior type of contract, there is a chance of litigation, which is whar Mr. R does not want.
In order for Mr. R to accomplish his stated goals to (i) ensure that Mrs. Rucker can live in the house for the rest of her life and ii) to assure that his sons receive the house after she dies and iii) to minimize the risk of litigation between them, I believe that it would be preferable for him to create a life estate in the house for Mrs. R, with the remainder to his sons, rather than contracting to or creating a joint will. While each approach will need to be explained to Mr. R, including the advantages and consequences of each action, our goal is for Mr. R to be protected, and for his property to be devised upon his death as he desires. While each approach has advantages and consequences, I believe that the life estate creation, while would be difficult to revoke during his lifetime, would ensure that the property is distributed as he sees fit, providing Mrs. R with the life estate, and adequate financial support, while providing the sons with the house in the remainder, and preventing them from the possibility of litigation, as well as from outsting Mrs. R from the property.
To: Dana Carraway
Date: July 30, 2019
Re: Carl Rucker
You have asked me to analyze which approach would accomplish Mr. Rucker's goals in regards to the disposition of his house after his death. Mr. Rucker wants his first wife to live in the hosue for the rest of her life and wants to make sure that his house passes to his two sons. The two approaches that will be analyzed below are (1) creating a life estate in the house for Mrs. Rucker while she is alive, with the remainder to his sons and (2) contracting with his wife to write wills that leave the house to his sons after both he and Mrs. Rucker have died. My recommendation as to which approach will be better to accomplish Mr. Rucker's goals is also included.
B. Approach 1: Creating a Life Estate and Remainder
An interest created in a person currently entitled to possession for that person's life is called a life estate. An interest created in a person whose right to possession arises only after the death of al life tenant is called a remainder (Walker's Treatise).
An advantage of a life tenant is that she has absolute and exclusive right to use the property during her lifetime. The life tenant is also entitled to possession of the property during her life or to rents from the property should the life tenant rent it to another. Additionally, the life tenant's rights expire automatically upon the death of the life tenant. Finally, the life tenant is responsible for real estate taxes, insurance, and maintenance costs to the property (Walker's Treatise).
Some disadvantages is that the life tenant can sell or otherwise transfer her life estate interest. However, an transferee from a life tenant can have an estate only for so long as the life tenant lives. Similarily, if the life tenant mortgages the life tenant's interest, the mortgage also expires when the life tenant dies. However, and importantly, a will can empower a life tenant to sell or mortgage the property from which the life estate is carved out without the consent of the owners of the remainder interest (Walker's Treatise).
An advantage for a life estate with a remainder is that a remainder owner following a life estate automaticaly becomes the owner of the real estate immediately following the death of the last life tenant. A disadvantage is that the remainder owner has no right to use the property or the income of the property during the life tenant's lifetime (Walker's Treatise).
In order to create a life estate while the owner is still alive (as opposed to one created by will ), it can be accomplished by executing a new deed from the owner of the property to the life tenant and remainder owners. It is also advisable to record that deed. A disadvatange, and is important to note, that the transfer of property to a life estate is almost always irreversible. If the owner changes his mind, a change cannot occur without the consent of all life tenants and remainder owners, which can be difficult to obtain (Walker's Treatise).
A further advantage, is all owners, including remainder owners, must agree to sign a deed to sell property in fee or to sign a mortgage to borrow money secured by full value of the property. This restriction has an advantage and disadvantage. First, disgreement among the owners severely restricts the marketability of the property. But, it may make it nearly impossible to make major repairs and improvements on the property (Walker's Treatise).
Another advtantage is that since the property passes automatically to the remainder owners, there is no no need to probate that property, which avoids the costs and delays of probate. However, there is a risk of litigation, if the life estates are created by will. In addition to the time and costs of litigation, there is a risk that the court could award the monetary value of the life estate to the life tenant instead of possession of the property. This would defeat the testator's wishes to permit the life tenant to live in the residence. But, transferring the property by deed minimizes this risk (Walker's Treatise).
Finally, another disadvantage, is that Franklin allows a spouse who has sole title to a residence to transfer a life estate to anyone without the other spouse's consent (Walker's Treatise).
C. Approach 2: Contracting to Write Wills
An individual who receives an unrestricted bequest under a will has complete freedom to dispose of the property he or she receives. She can sell the property, mortage it, or dispose of it by will (Manford v. French).
First, spouses may enter into a contract to make a will, one that restricts the right of the surviving spouse to alter an agreed upon testamentory disposition. A contract to make a will requires the survivor not to change the terms of an already-agreed-upon-will, but it does not prevent the survivor from transferring the property during the survivor's lifetime. The survivor could sell the property or encumber the property with debt without breaching the contract, provided the agreed-upin will remains the same (Kurtz v. Neal).
Second, spouses can restrict the rights of the survivor through a joint will or mutual will that reflects a contractal agreement between them. A joint will is one will, signed by two or more testators, that deals with the distribution of the property of each testator. Mutual wills are separate wills of two or more testators that make "mirror image" dispositions of each testator's property (Manford v. French).
The Franklin Provate Code (FPC) 2-514 provides that any contract to make a will or not to revoke must be in writing. Further, a contract to make a will or devise, or not to revoke a will or devise, may be established only by (1) provisions of a will stating material provisions of the contract, (ii) an express reference in a will to a contract and extrinsic evidence proving the terms of the contract, or (iii) a writing signed by the decedent evidencing the contract (Manford v. French citing FCP 2-514).
Breach of a contract to make a will or not to revoke a will gives rise to two possible remedies: specific performance of the contract or money damages (Manford v. French).
Additionally, FCP 2-515 states that the execution of a joint will or of mutual formal wills does not create a presumption of a contract not to revoke the will or wills. The mere fact of drafting a joint will does not create an obligation on the survivor to revoke it and make a new different will.
In Manford v. French, spouses executed a joint will, which specifcally disposed of property to the surviving spouse, then their only child. However, the surviving spouse drafted a new will and expressly revoked the joint will when her spouse passed away. This led to litigation and the court found thatthe joint will imposed no obligation on the surviving spouse to execute a new will revoking the will's terms. Although there was evidence of a "family meeting," this was not enough extrinsic evidence to prove the terms of the contract. As a result, the child did not receive the property, as the decedent wished.
D. Elective Share
Franklin law states that a spouse is entitled to an elective share equl to 50% of the "augmented estate" or, in the alternative, what was bequeated in the will. Franklin Probate Code 2-202. Augmented estate includes four categories of assets, three of which are: (1) net assets held in the probate estate FPC 2-204, (2) assets transferred by the decedent to the decedent's spouse before death (FPC 2-206), (3) the surviving spouse's own assets and pre-death transfers (FPC 2-207).
The percentage size of the surviving spouse's share depends on the length of time the survivng spouse had been married to the decedent. A spouse who is married for 15 years or more, is entitled to claim a 50% elective share of th augmented estate. Elective share protects the spouse from harsh effecs of the decedent's decision to leave the spouse little or nothing through probate.
The purpose of the elective hare is to give the surviving spouse a fair share of the economic partnership maintained by the couple before the decedent's death. (In re Lindsay).
In valuating the life estate, court will use the value of the life estate and not the full fair market value of the house in calculating the elective share. Value of the life estate is included in the augmented estate in addition to the assets passing by will, when determining the elective share (In re Lindsay).
In In re Estate of Lindsay, the decedent transferred her real property to herself and her spouse as life tenants with remainder to her two children. When the decedent died, he elected not receive bequests in the will but instead claimed an elective share. Because he received the life estate valued at $200,000, his elective share was calculated by subtracting the $200,000 from his share. The augmented estate was valued at $1,100,000. His elective share was $550,000 minus the $200,000 and he received $350,000.
In this case, Mr. and Mrs. Rucker have been married for 18 years. As a result, Mrs. Rucker would be entitled to a 50% elective share of the augmented estate. According to the Certified Residential Appraisal prepared by Jill Baker, the value of the life estate of the residence in Middleburg, Franklin is $80,000. The fair market value of the house would roughly be $250,000.
Mr. Rucker also plans to leave Mrs. Rucker $200,000 in certificates of deposit. Mrs. Rucker's own assets include her Social Security.
Mr. Rucker's augmented estate would be the $200,000 certificates of deposit plus the $80,000 of the life estate. His total estate would be $280,000. Mrs. Rucker's 50% elective share would be $140,000 minus the $80,000 she would received if Mr. Rucker transferred the life estate to her during his lifetime. Mrs. Rucker would then only be entitled to $60,000 if she took an elective share.
Mr. Rucker has concerns that Mrs. Rucker may be able to pay taxes and keep the place up if she takes the life estate in the residence, but she might not be able to afford unexpected repairs and emergencies. She may have to borrow money. The $60,000 in elective share will not be adequate to take care of Mrs. Rucker, like Mr. Rucker wishes to.
Both approaches present advtantages and disadvangates. However, because of the risks of litigation and the formalities of contracting to make a will, creating a life estate seems to be the best option to fulfill Mr. Rucker's wishes.
Accoridng to Mr. Rucker, if he dies first, he would like Mrs. Rucker to live in the house he has owned outright for nearly 45 years for the rest of her life. After Mrs. Rucker's death, he wants the house to pass to his two sons, Fred and Andrew. But, Mrs. Rucker and the two sons do not get along. Mrs. Rucker and the sons do not talk at all. Mr. Rucker is concerned that his sons will try to remove Mrs. Rucker from the house. Mr. Rucker believes that there is no chance that Mrs. Rucker and the sons will ever get along. Further, Mr. Rucket is concerned that Mrs. Rucker would transfer her interest to a charity rather than to her sons.
Creating a life estate in the house for Mrs. Rucker seems to be the best option. It would first accomplish Mr. Rucker's goal of allowing Mrs. Rucker to possess and live at the residence without the intereference from his sons. Second, Mrs. Rucker's life estate would not allow her to transfer the property in fee simple to a charity. She would only be able to transfer the property for the remainder of her life. Which would ensure that Mr. Rucker's sons would automatically get the property at Mrs. Rucker's death.
Mr. Rucker is most likely better off transferring the property by deed to Mrs. Rucker and his sons. Although this is irreversible, it minimizes the risk of litigation, which is another concern for Mr. Rucker. A court may award Mrs. Rucker the value of the life estate, $80,000, instead of possession. Mr. Rucker's primary wish is to have Mrs. Rucker live on the property, so a will to devise the property is not the best solution.
However, it may be hard for Mrs. Rucker to obtain money to upkeep the property, since all owners, including remainder owners, which in this case would be Fred and Andrew, to sign a deed to borrow money. Because there is such bad blood between Fred and Andrew and Mrs. Rucker, obtaining money to make repairs or improvements to the property will likely be impossible. But, it does restrict the marketability of the property, which will fulfill Mr. Rucker's wish of making sure Mrs. Rucker does not transfer her interest to a charity and making sure his sons obtain the property.
In conclusion, having Mr. Rucker execute, by deed, a life estate to Mrs. Rucker with a remainder to Fred and Andrew, will likely accomplish Mr. Rucker's goals.
MEE Question 1
Testator’s handwritten and signed will provided, in its entirety,
I am extremely afraid of flying, but I have to fly to City for an urgent engagement. Given that I might die on the trip to City, I write to convey my wish that my entire estate be distributed, in equal shares, to my son John and his delightful wife of many years if anything should happen to me.
January 4, 2010
When Testator wrote the will, he was domiciled in State A, and his son John was married to Martha, whom he had married in 2003. Testator had known Martha and her parents for many years, and Testator had introduced Martha to John. At the time John and Martha married, Martha was a widow with two children, ages five and six. Following their wedding, John and Martha raised Martha’s children together, although John never adopted them.
Two years ago, Martha was killed in an automobile accident.
Six months ago, John married Nancy.
Four months ago, Testator died while domiciled in State B. All of his assets were in State B. The handwritten will of January 4, 2010, was found in Testator’s bedside table. Testator was survived by his sons, John and Robert, and John’s wife Nancy. Testator was also survived by Martha’s two children, who have continued to live in John’s home since Martha’s death.
State A does not recognize holographic wills. State B, on the other hand, recognizes “wills in a testator’s handwriting so long as the will is dated and subscribed by the testator.”
Statutes in both State A and State B provide that “if a beneficiary under a will predeceases the testator, the deceased beneficiary’s surviving issue take the share the deceased beneficiary would have taken unless the will expressly provides otherwise.”
How should Testator’s estate be distributed? Explain.
The Testators estate should be distributed with John would taking 1/2 interest in T's estate and Martha's two children each recieving 1/4 of the estate because T's holographic will was valid and he did not revoke it despite knowledge of the prior mariage children.
Generally a will is valid if it meets the requirements of age, writing, intent, signature, and witness. A testator must be 18 at the time of execution. It appears from the apparant age of testator's son that the testator is over the age of 18. The testator must have testamatory intent at the time of the writing. The testator's acknowledgment of his potential death and the subsequent language "should anything happen to me" confirms the testators intent that the writing serve as his will.
A sub issue is raised at this point in his langugage "I write to convey my wish", typically this language would be considered precatory language and would not be valid. However, this language is followed by sufficient detail in that it provides instruction that the estate be distributed in equal shares. Such detail can overide the defect of the precatory language. Thus on this sub-issue, the testators wish should be given effect.
Next, the testatory signed the will. This satisfies both the general rewuirement that a will be signed and State B's requirement that the testator subscribe the will.
Generally, the execution of a will must be witnessed by two witnesses. Here that standard does not appear to be met as the entirity of the will did not identify any witnesses. Nonetheless, a holographic will does not require two witnesses if the will is written in the testator's handwriting.
State A does not recognize holographic wills while State B does. The issue here is whether the testators holographic will is valid for probate. A will can will be valid if any of three conditions are met. 1) The will was validly executed under the laws of the state of execution. 2) the will was valid in the state of the testator's domicile at the time of death or 3) the will was valid in the state where the property is located. The testator died while domiciled in State B and all of his assets where in state B. While the will was invalid in the state of execution, it nonetheless satisfies the two other conditions. Thus, the testator's holographic will is valid.
A third issues arises with respect to the phrase "and his delightful wife" this phrase is ambiguous and does not sufficiently identify whom the testator was refering to. While the plain meaning would normally be given effect, courts will permit extrinsic evidence when dealing with an ambigous term like such. Accordingly, the phrase "wife of many years" combined with the date of execution, would lead a court to conclude that Marth was the intended beneficiary of the testators will.
Having been found inside the testators bedside table, one could conclude that the will was not revoked because it was in the testators sole control and was not destroyed, ripped, marked, or cancelled by any other act.
The final issue concerns whether Martha's interest lapsed at the time of her death. Martha's interest was in equal shares with John and Martha predecised the testator. Absent an anti-lapse statute this interest would lapse and return to the residual. However, both state A and State B have an antilapse statute in "if a veneficiary under a will predecesases the testator, the deceased beneficiary's suriving issue take the share the deceased beneficiary would have take nunless the will expressly provides otherwis. The will does not expressly state otherwise, it simply states in equal shares. Thus, Martha's surving issue; issue being her heir, would take her interst.
At the time John and Martha marreid, Martha was a widow tih two children. These two children were her heirs. In at least some jurisdictions, an anti-lapsign statute would only be valid to decendants of the testator's grandparents lineal decendants. Here, Martha's prior children do not satisfy that. Jogn Never adopted them. Thus the issue is whether non-adopted children can take as issue under an antilapsing statute if they were raised by the father.
The testator was aware of these children long after execution. John had also raised them as his own. Had the testator wanted to deny them inhertence, he could have revoked his will. There is no evidence of that here. Therefore, John would take a 1/2 interest in T's estate and Martha's two children would each recieve 1/4 of the estate.
I. The issue is whether the law of State A applies or the law of State B applies to determine whether the holographic will is admitted for probate.
Generally, the state in which the Testator was domiciled at death will govern the will and disposition of the Testator's property (except for real estate where the law of the location where the property is located will govern). Therefore, since the Testator died and was domiciled in State B and all of his assets were in State B, the law of State B will govern. This is important because State B allows for holograph wills, but State A does not recognize holographic wills.
A holographic will is a written document in the testator's handwriting where the testator expresses intent to that this document is his will, sets out the property to be devised and is signed by the testator. Generally, the intent, material portions, and signature need to be in testator's handwriting. State B has a specific statute governing holographic wills which allows for "wills in a testator's handwriting so long as the will is dated and subscribed by the testator." Here, the testator complied with State B's provisions. The testator had a handwritten document which was a will, in that it expressed the testator's intent to distribute property at death because the testator had comtemplated death due to the impending flight. The testator intended to convey his property by stating that "write to convey my wish that my entire estate be distributed...." Further, the testator complied with the statute by dating and signing the document at the end of the document.
The handwritten will is a valid holographic will in State B and may be admitted to probate.
II. If the will is properly accepted, the issue is who will receive property under the will.
If there is an ambiguity under the terms of the will, the court will look at outside evidence to determine the testator's intent at the time of making the will.
Here, the word "wife" is ambiguous. John was previously married to Martha at the time Testator made the will and Martha is the intended receipient of half the Testator's property. Testator wished "that my entire estate be distributed, in equal shares, to my son John and his delightful wife of may years." However, even though John is currently married to Nancy, John was married to Martha at the time the testator made the will and had been married to Martha for many years, which means that Testator likely intended Martha to receip an equal share of the property. Nancy does not have a claim because it is not a general statement, like to John and his wife at the time, but there is specific indication that Testator meant Martha, and not just whoever is John's wife because Testator called her "delightful" and had known her for many years.
Therefore, Testator likely intended to have her estate split equalled between John and Martha.
Third, the panel granted AE’s request for attorney’s fees tied to the arbitration proceeding, but only in the sum of $110,000—one-third of the amount requested. The panel concluded that AE had overstated its case in several material respects that caused both sides to incur unnecessary fees and costs. The panel noted, however, that its ruling did not deny or limit AE’s right to recover attorney’s fees, if any, that might be incurred in enforcing its rights to future accountings and/or royalties.
The Court Proceedings to Confirm the Award and Motion for Default Judgment
AE served its original complaint seeking to confirm the arbitration award by email to the Vice President of Manufacturing for WPP. Email service was used during the arbitration pursuant to the procedural rules governing the arbitration. AE’s subsequent motion for a default judgment, which added a request for $90,000 in attorney’s fees, was served upon WPP by mail. The complaint was served on November 2, 2018, and the default motion was served on March 8, 2019. WPP failed to respond. Almost eight months have elapsed since service of the complaint, and over 90 days have elapsed since the date of the service by mail of the motion for default judgment. The court notes that unlike the summons and complaint, the default motion was not translated into Mandarin Chinese, although those pleadings were short and straightforward. Moreover, the record establishes that WPP regularly conducted its international business in English, including the arbitration proceedings at issue.
AE also attempted formal Hague Convention service of its pleadings via the Chinese Central Authority but received no communication in return.
Accordingly, it is hereby ordered that the plaintiff’s motion for default judgment is GRANTED, and judgment is entered as follows:
UNITED STATES DISTRICT COURT
DISTRICT OF FRANKLIN
American Electric Distribution Inc.,
ORDER ENTERING DEFAULT
III. The issue is whether State B's anti-lapse statute applies to Martha's children.
In general, if a beneficiary dies before a testator dies, the gift from the testator to the beneficiary will consider to have lapsed. Further, anti-lapse statutes generally only apply to lineal descendents, like children. However, when a state has an anti-lapse statute the statute will apply. Here, State B's statute is broad stating "if a beneficiary predeceases the testator, the deceased beneficiary's surviving issue take the share of the deceased beneficiary would have taken unless the will expressly provides otherwise." This statute does not limit anti-lapse to only blood relatives, so Martha and her children are protected by it.
Martha's children will receive the deceased beneficiary's share that she would have taken because the will does not provide otherwise. Therefore, John will receive half of the Testator's estate and Martha's children will receive the other half of the estate.
IV. The issue is whether Robert has a claim for anything.
Generally, under an intestacy statute, Robert would split the estate with his brother, John. If the court did not admit the holograph will, then Robert would share the estate with his brother 50-50. However, since the holographic will is likely admitted to probate Robert will not take anything. Robert may be able to make a claim that Testator did not have the capacity at the time of the will since Testator could not specifically name Marth, a person that he had known for many years, but this claim will likely fail.
MEE Question 2
On February 1, a woman began serving a 60-day sentence in the county jail for operating a motor vehicle under the influence of alcohol. On February 4, a detective from the county sheriff’s department took the woman from her cell to an interrogation room in the jail building. He informed her that she was a suspect in a homicide investigation and that he wanted to ask her some questions. The detective then read the woman the state’s standard Miranda warnings:
You have the right to remain silent. Anything you say can be used against you in court. You have the right to an attorney. If you cannot afford an attorney, one will be appointed for you. If you decide that you wish to speak with us, you may change your mind and stop the questioning at any time. You may also ask for a lawyer at any time.
The detective asked the woman if she understood these rights. When she replied, “Yes, and I want a lawyer,” questioning ceased immediately, and she was returned to her cell
On March 15, the detective removed the woman from her cell and took her back to the same interrogation room. The detective told her that he wanted to ask her questions about the homicide because he had new information about her involvement. The detective read her the same Miranda warnings he had read on February 4 and asked her whether she understood her rights. She said, “Yes.”
The woman then asked the detective, “If I ask you to get me a lawyer, how long until one gets here?” The detective replied as follows:
We have no way of getting you a lawyer immediately, but one will be appointed for you, if you wish, if and when you go to court. We don’t know when that will happen. If you wish to answer questions now without a lawyer present, you have the right to stop answering questions at any time. You also have the right to stop answering questions until a lawyer is present.
The detective’s statement accurately characterized the procedure for appointment of counsel. The woman then said, “I might need a lawyer.” The detective responded, “That’s your call, ma’am.
After a few minutes of silence, the woman took a Miranda waiver form from the detective and checked the boxes indicating that the rights had been read to her, that she understood them, and that she wished to waive her rights and answer questions. She then signed the form. After the detective began to question her, she confessed to the homicide.
The woman was charged with murder in state court. Her lawyer filed a motion to suppress the woman’s March 15 statements to the detective, alleging three violations of her Miranda rights by the detective:
(1) Interrogating the woman on March 15 after she had invoked her Miranda right to counsel on February 4.
(2) Incorrectly conveying to the woman her Miranda right to counsel by the statements he made on March 15.
(3) Interrogating the woman on March 15 after she had invoked her Miranda right to counsel on March 15.
This state affords a criminal defendant no greater rights than those mandated by the U.S. Constitution.
After an evidentiary hearing, the trial court denied the motion to suppress on all three grounds raised by defense counsel.
Did the court err? Explain.
I. Interrogation of the Woman on 3/15 after her invocation on 2/4.
The issue here is whether the police can obtain a valid Miranda waiver after the right to counsel was previously invoked.
Miranda Doctrine applies to confessions made during custodial interrogation. A suspect is in custody when they would not feel reasonably free to terminate the encounter (or are unable to), and a suspect is being interrogated when subject to express questioning or its functional equivalent. If a suspect is being interrogated in custody such that Miranda Doctrine applies, the Supreme Court requires certain warnings to be given which inform a suspect of their rights. Any waiver of Miranda must be knowing and voluntary. Further, the right to silent or the right to counsel must be affirmatively invoked by the suspect, at which point questioning must stop immediately. The right to remain silent needs to be scrupulously honored, while the right to counsel depends on more factors, such as the location, the officers, the offenses, and also how much time has passed since the invocation. Two weeks is commonly used as a period wherein the police can re-engage with the suspect.
Here, the police subjected the suspect to custodial interrogation. She was in prison and brought specifically into another room. No evidence is given about her state of mind, but being incarcerated is a good indicator of her being in custody. Further, the detective was clearly intent on interrogating her about the homicide, so, the detective proceeded to give her, in full and validly, her Miranda warnings by telling her she had the right to counsel, the right to having counsel appointed, and the right to ask for one at any time. The woman's subsequent invocation of counsel was effective, by stating "I want a lawyer," and as prescribed, questioning ceased immediately. Then, over five weeks after the initial encounter, the detectives re-engaged with the suspect, again validly read her the Miranda rights and she read the form, checked each box, said she understood them, and then proceeded to waiver her rights and answer questions.
In conclusion, the amount of time that passed means that the detective re-engaging the suspect after her invocation of the right to counsel was not contrary to the constitution. The Court did not err in denying the motion.
II. The Conveyance of Her Miranda Right to Counsel
The issue here is whether the detective's conveyance or classification of her right to counsel by the statements he made violated the suspect's rights.
As stated above, Miranda doctrine requires an affirmative invocation of the suspect of their right to counsel. Further, it's stated that the detective's follow-up statements accurately characterized the procedure for appointment of counsel.
Here, the suspect did not affirmatively invoke her right to counsel a second time, but rather asked a follow-up procedural question to the detective. He then gave her the information she asked for, and by saying "I might need a lawyer," the detective did not have a duty to stop questioning. He accurately read her her rights and then proceeded to make sure she understood them by answering her questions and providing her with a form to review. Further, the warnings given clearly show that she had a right to an attorney, a right to have an attorney appointed, and that she could ask for one at any time. Stating "that's your call ma'am" to an ineffective invocation doesn't lend itself to the conclusion that the detective did not properly convey her right to counsel to her.
The Offier did not wrongfully convey her right to an attorney, but rather effectively gave her Miranda warnings and then answered her questions. He had no duty to refrain from questioning after her answer. The Court did not err.
III. Invocation of the Right to Counsel on 3/15.
The issue here is whether the suspect invoked her right to counsel by her statements made on 3/15.
As stated above, Miranda doctrine requires an affirmative invocation of the suspect of their right to counsel. If not specifically asserted, the police can seek a valid Miranda waiver by making sure that the suspect was aware of their rights and that the waiver was knowing and voluntary.
Here, the detective gave the Miranda warnings, which were necessary because the suspect was again subject to custodial (in prison) interrogation (getting asked express questions). Rather than affirmatively invoke her right to counsel as she did previously, she merely responded "I might need a lawyer" and asked a question about how long until the lawyer could get the interrogation site. This isn't a proper invocation, and so the detective attempted to engage the suspect to get a waiver, where the rights were read, the suspect was orally asked whether she understood her rights, and then was provided a form with individual check boxes for acknowledging that she understood her rights and wished to waive them. The statements made after that waiver are not subject to exclusion because they were voluntary.
In conclusion, the court did not err and the suspect's rights were not violated because she did not invoke her right to counsel again.
Interrogating the woman on March 15 After Invoking Right to Counsel on February 4.
The trial court did not err in denying the motion to suppress on the first count for invocation of right to counsel. The issue is how long are police required to refrain from questioning a suspect after they validly invoke their right to counsel. The Fifth Amendment protects individuals from self-incrimination and the right to be free from making incriminating statements. In Miranda, the Supreme Court extended this right to custodial interrogation environments. Miranda applies when a suspect is in a custodial interrogation situation. Custody is determined by an objective standard and asks whether or not a suspect would objectively feel reasonably free to leave under the circumstances. Custody will be found in highly coercive situations like the one here in an interrogation room. Second, the police must be "interrogating" the person. Interrogation is also an objective test under Innis that asks whether a reasonable person would feel compelled to answer or the comments would reasonably elicit a response from the defendant. Here, Miranda was required during the entire sequence of interrogation because the police were questioning the defendant in custody (an interrogation room) and asking about an ongoing homicide investigation. (Note the 6th Amendment does not apply here because defenant was only charged with DUI and the 6th Amendment is offense specific post-charging). A reasonable person would not feel free to leave the interrogation room and would be reasonably understood by the detective to elicit a response from the woman.
If Miranda is applicable, a defendant that invokes the right to counsel must be left alone for 14 days under the Edwards Doctrine. Moreover, the invocation of the right to counsel must be clear and unambiguous. Here, the suspect validly and unambiguously invoked her right to counsel by saying "I want my lawyer." This triggers the 14 day Edwards period. Here, the police abided by Edwards and waited long after 14 days to continue interrogating the suspect. Defendant invoked her right to counsel on February 4th and was not questioned again until March 15 well after the 14 day period. Thus, the trial court did not err in finding the interrogation valid on March 15.
Incorrectly Conveying to the Woman Her Miranda right to counsel by the statements he made on March 15.
The police correctly conveyed the woman's right to counsel by statements he made on March 15. The issue is whether a police officer may inform a suspect of Miranda and how specific the rights must be read. The Supreme Court has liberally applied Miranda and held that a reasonable conveyance standard is appropriate. Under this standard, the police need not be exact in the conveyance or recital, but must convey the key facts that a suspect may stay silent and may request a lawyer etc. Here, on February 4, the police stated the Miranda warnings verbatim "You have the right to remain silent. Anything you say can and will be held against you etc..." On March 15, the detective removed the woman from her cell and took her back to the interrogation room. The detective read her the same Miranda warnings he read above on February 4 and asked her whether she understood." She replied yes. Based on the liberal reasonable conveyance standard, the detective repeating the detailed warnings listed above will be more than sufficient to be constitutional. Thus, the detective did not err and the trial court did not err in finding that there was not constitutional defect with the conveyance and statements on March 15.
Interrogating the Woman on March 15 after she Invokes Miranda Right to Counsel on March 15.
The trial court did not err in finding that the woman was properly interrogated on March 15. The issue is whether the woman constitutionally and clearly invoked her right to counsel on March 15. As discussed above, Miranda right to counsel must be unambiguously invoked by the defendant as she did on Feb 4. A defendant may waive her right to counsel through a (1) knowing, (2) intentional, and (3) voluntary waiver. First, on March 15, she never legally invoked her right to counsel. Unlike on February 4, staying "I might need a lawyer" is not sufficiently clear to invoke the right and the woman waived her rights. After a few minutes of silence, the woman signed the Miranda waiver form and checked the boxes that she had been read her rights, she understood them, and she wished to waive them. She then signed the form. She confessed later to homicide. Woman did not invoke her right to counsel and even if she did, she waived the right. Woman knowingly signed the form and checked the boxes, and waived her rights to not answer. In conclusion, woman never constitutionally and clearly invoked her right to counsel on March 15, and even if she did, she waived the right and the trial court correctly denied all motions to suppress.
MEE Question 3
Parent Inc., a company in the renewable energy business, has several subsidiaries. In all cases, Parent maintains control of its subsidiaries by selecting the members of each subsidiary’s board of directors, most of whom also serve as officers and employees of Parent.
One of the subsidiaries, HomeSolar Inc. (incorporated in a jurisdiction that has adopted a version of the Model Business Corporation Act), was acquired three years ago by Parent. Parent owns 80% of HomeSolar’s voting shares, with the remaining shares publicly traded on a national stock exchange. HomeSolar manufactures and sells products exclusively for the residential solar power market.
Another subsidiary, IndustrialSolar Inc., is wholly owned by Parent and manufactures products exclusively for the industrial solar power market.
A shareholder of HomeSolar, after making a proper demand on the board to which the board failed to timely respond, brought a derivative suit against Parent, as the controlling shareholder of HomeSolar, making the following allegations:
(1) HomeSolar has not paid dividends since being acquired by Parent three years ago. In SEC filings, HomeSolar has explained that its no-dividend policy provides funds for its research and development budget as it seeks to develop new products for the residential solar power market in which it operates. Nonetheless, HomeSolar has more than adequate earnings and was obligated to pay dividends to its shareholders.
(2) Since acquiring HomeSolar, Parent has caused HomeSolar to purchase the “rare earth” minerals necessary for the manufacture of its residential solar panels from SolarMaterials Corp., a wholly owned subsidiary of Parent. SolarMaterials was created for the purpose of acquiring such minerals and reselling them to the various renewable energy subsidiaries of the Parent group. The long-term contract under which HomeSolar purchases rare earth minerals from SolarMaterials, however, sets prices significantly higher than the current market prices under similar long-term contracts for such minerals.
(3) After Parent learned about a large government grant to develop industrial-scale solar projects, Parent caused IndustrialSolar to apply for and secure this grant, denying HomeSolar the opportunity to obtain this grant.
- Did Parent breach any duties to HomeSolar with respect to HomeSolar’s no-dividend policy? Explain.
2. Did Parent breach any duties to HomeSolar with respect to HomeSolar’s contract with SolarMaterials for the purchase of rare earth minerals? Explain.
3. Did Parent breach any duties to HomeSolar by denying HomeSolar the opportunity to apply for the government grant? Explain.
No Dividend Policy
Parent did not breach any duties to HomeSolar with respect to HomeSolar's no dividend policy. At issue is the authority of the board of directors to authorize, or rather deny, paying out dividends. As an initial matter, Parent does owe fiduciary duties to HomeSolar. This is because Parent owns 80% of HomeSolar's voting shares and Parent maintains control of its subsidiaries (of which HomeSolar is one) by selecintg the members of each subsidiary's board of directors, most of whom also serve as officers and employees of Parent. Because Parent is a controlling shareholder of HomeSolar and because Parent controls what appears to be the entirety of HomeSolar's board by placing its own officers and employees of the board, Parent owes fiduciary duties to its subsidiaries. The first question is whether Parent breached any duties to HomeSolar by not paying out dividends. Parent did not breach any duties in this regard. First, the derivative suit is not a proper derivative action. A suit to force a company to pay out dividends is a direct suit that an individual shareholder must bring. A failure to pay out dividends is not a proper derivative suit. That aside, Parent still did not violate any duties to HomeSolar with its no divided policy. Unless stated otherwise in the Articles of Incorporation or the Bylaws, the board of directors are under no duty to pay out dividends. Paying out dividends is in their sole discretion. Only if a shareholder can show abuse of that discretion can a court find that a failure to pay out dividends is a breach of a duty. Here, Parent was exercising its proper discretion by having the board of HomeSolar not declare dividends, and it was not an abuse of discretion. There is no evidence that HomeSolar's articles or bylaws mandate that the board must pay out dividends. As such, there is no breach there. Furthemore, the decision not to pay out dividends appears to be a properly exercised use of discretion. By not paying out dividends, HomeSolar can provide funds for research and development budget in seeking to develop new products for the residential solar power market in which it operates. This is a perfectly valid exercise of discretion. Just because HomeSolar has more than adequate earnings and the shareholder believes that HomeSolar is obligated to pay dividends does not mean Parent must have HomeSolar pay out dividends. Parent, as majority shareholder and de facto controller of the board of directors of HomeSolar, may exercise its discretion in paying out dividends. Unless the articles or the bylaws provide otherwise, or past history indicated a dividend payment regularly with a sudden, unjusitifed stop, a shareholder cannot force a board to approve a payout of dividends. Parent did not breach any duties to HomeSolar with respect to HomeSolar's no-divident policy.
Contract with SolarMaterials
Parent did breach its duties to HomeSolar with respect to HomeSolar's contract with SolarMaterials for the purchase of rare earth minerals. At issue is whether this contract was improper self dealing that violates the fiduciary duty of loyalty. The board of directors of a corporation, as well as its officers, owe a duty to the corporation to act in good faith and in a way that an ordinary person would reasonably believe is in the corporation's best interests. The board and officers further owe a duty to act as an ordinarily prudent person in like circumstances would reasonably act. The former sentence is the duty of loyalty. One way a board of directors can violate the duty of loyalty is by engaging in a self-interested transaction. Where the board of directors of one company serve another company and engage in dealings between the first company and the second, the board of directors are engaged in self-dealing unless some exceptions are met. Here, the board of directors of HomeSolar is made up of Parent's officers and employees. Furthermore, SolarMaterials Corp. is a wholly owned subsidiary of Parent. As such, when HomeSolar's board of directors engages in deals with SolarMaterials, the board is self-dealing because, as a wholly owned subsidiary, what's good for SolarMaterials is good for Parent, which is good for the officers and employees. As such, Parent and its officers and employees serving on the board of HomeSolar were engaged in self dealing, which violates the duty of loyalty. A board of directors will not have been deemed to breach the fiduciary duties of loyalty for self dealing if: (1) the deal was fair to the company; (2) after a disclosure of all the material facts, a majority of disinterested board members approve; or (3) after a disclosure of all the material facts, a majority of disinterested shares entitled to vote approve the measure. Here, no such procedures took place. First, the deal was not fair to HomeSolar because the long-term contract with SolarMaterials is set at prices significantly higher than the current market prices under similar long-term contracts for such minerals. Second, it appears there was no vote of disinterested board members with a full disclosure of all material facts, primarily because it seems that there are no disinterested board members on HomeSolar's board. Lastly, there appears to have been no vote of the disinterested shareholders, because Parent was interested since SolarMaterials is its wholly owned subsidiary. Because the board of HomeSolar, officers and employees of Parent who owned SolarMaterials as its wholly owned subsidiary, were engaged in self-dealing with the transaction between HomeSolar and SolarMaterials without any saving exception, Parent has breached its fiduciary duties of loyalty to HomeSolar for self dealing.
Parent did not breach any duties to HomeSolar by denying HomeSolar the opportunity to apply for the government grant. At issue is whether Parent usurped a corporate opportunity from HomeSolar. Usurping a corporate oppportunity is a breach of the fiduciary duty of loyalty. A board member, or board, or controlling shareholder usurps a corporate opportunity when it takes a business opportunity that the company reasonably had an expectation in. The person or entity in question must alert the company of the opportunity and allow the company to decide whether or not to take it. Insufficient funds to take the opportunity is no defense. Additionally, an opportunity will be deemed to be an opportunity that the company had a reasonale expectation in when that opportunity was in the same business line as the company. Here, because it can be fairly stated that the government grants were not an opportunity HomeSolar had a reasonable expectation or interest in, Parent did not breach the duty of loyalty by usurping this opportunity. The government grants were to develop industrial-scale solar projects. IndustrialSolar is wholly owned by parent and manufactures products exclusively for the industrial solar power market. HomeSolar, on the other hand, manufactures and sells its products exclusively for the residential solar power market. Since a grant to develop industrial scale solar projects was exclusively the domain of IndustrialSolar and not residential in any way, it cannot be said that HomeSolar had an expectation in that opportunity. HomeSolar is exclusively a residential solar company. The government grants were for industrial projects. These are two separate business lines. HomeSolar had no expectation in this opportunity, therefore Parent did not breach the duty of loyalty by usurping the opportunity through IndustrialSolar.
I. The No-Dividend Policy
The issue here is whether Parent company breached any duties owed to HomeSolar with respect to the no-dividend policy in effect after the acquisition.
A derivative suit is instituted on behalf of a corporation by shareholder against its directors (in this case officers and employees of the Parent company) for a breach of fiduciary duties owed to them by the directors. A precusor to a derivative suit, absent it being futile, is a pre-suit demand on the board, otherwise litigation can ensue. Among these fiduciary duties are the duty of care and the duty of loyalty. The duty of care provides that the directors cannot be grossly negligent in their carrying out of the business practices of the corporation, but business decisions made by directors are subject to the Business Judgment Rule, a rebuttable presumption which presumes that the directors act in good faith in carrying out the duties of the corporation. Normally, the discretion to delare dividends lies entirely with the directors, unless they refuse to do so in bad faith.
Here, although HomeSolar has more that adequate earnings to potentially declare a dividend, there is no evidence of bad faith such that the directors couldn't exercise their discretion in determining whether to declare a dividend. The reason given, that it provides funds for research and development appears to be in good faith and entitled to the presumptions under the Business Judgment Rule.
In conclusion, Parent did not breach its duties in failing to declare dividends, unless the shareholder can show bad faith. (This is also more commonly shown in a direct suit, rather than derivative).
II. The Contract with SolarMaterials
The issue here is whether Parent company breached any duties owed to HomeSolar with respect to the mandated purchasing contract between HomeSolar and SolarMaterials, another subsidiary.
The Duty of Loyalty prevents the directors of a corporation from making transactions that are a conflict of interest with the director's duty of loyalty to the company. Common examples of conflict of interest transactions are self-dealing, usurping corporate business opportunities, and directly competing with the corporation. In a case where there are interested directors on both sides of a transaction (self-dealing for ex.), the duty of loyalty is implicated unless there has been a full disclosure of all the material facts to the transaction and a majority vote to affirm the transaction by a majority of the uninterested directors. The duty of care may also be implicated in a situation where the directors act grossly negligent in the carrying on of business affairs, as discussed above.
Here, the duty of loyalty is implicated in a few respects. First, Parent company places interested directors on the boards of both SolarMaterials and HomeSolar, and is the parent company of both. This is a self-dealing transaction wherein they are voting to contract from HomeSolar with another subsidiary at a price higher than the current market prices, and there is no evidence that this is being voted on by the uninterested directors. Further, this isn't the type of circumstance where there was a short-form merger and requires relaxed standards of disclosure and notice, because Parent only owns 80% of the shares instead of the requisite 90%. Thus, the interested directors from Parent company are on both sides of the transaction, it implicates the duty of loyalty because this is a form of self-dealing, and further, the duty of care is implicated because the contract price being paid is higher than the current market rates.
In sum, the contract with SolarMaterials breaches the Duty of Loyalty to HomeSolar and potentially also the duty of care.
III. Denying the Opportunity to Apply for the Government Grant
The issue here is whether Parent breached any duties owed to HomeSolar with respect to the business opportunity of applying for the federal grant.
The duty of loyalty also prevents interested directors from competing with the corporation through outside business ventures, as mentioned above. It also prevents directors from usurping corporate business opportunities. Some factors to consider on whether or not the business opportunity was usurped is whether the uninterested directors knew about it, whether it was the type of transactions that the corporation regularly engaged in, and whether or not they elected not to pursue the opportunity.
Here, the subsidary of Parent company, IndustrialSolar elected to apply for a secure a grant, denying the opportunity of HomeSolar to obtain it. This means that IndustrialSolar was directly competing with HomeSolar because shareholders from HomeSolar may have wanted to pursue applying for that grant but were denied the opportunity. Further, this could be considered a usurping of a business opportunity, violating the duty of loyalty because the uninterested directors were not given a chance to try and pursue the grant despite it being potentially beneficial to them.
In sum, this conduct in favoring IndustrialSolar likely violated the duty of loyalty as well.
MEE Question 4
On March 1, a contractor and an owner of movie theaters signed an agreement providing that, no later than August 15, the contractor would install seats in the owner’s new movie theater. The agreed-upon price was $100,000, which was less than the $150,000 that other similar contractors would charge for the same work. The agreement required that the owner pay the contractor half the price at the time the work commenced and the other half at completion. The contractor was willing to do the work for less money than its competitors because the contractor was new to the area and hoped to build up a positive reputation.
The agreement further provided that the contractor would start work no later than July 1. On
July 1, before beginning the agreed-upon work, the contractor informed the owner that it would not perform its obligations under the agreement because it had obtained a more lucrative installation contract elsewhere. At that point, no payments had been made to the contractor.
The installation of the seats was the last step necessary for the theater to open to the public. The owner, which had anticipated that the contractor would install the seats by the August 15 deadline, had planned and widely promoted a film festival for September 1–10 to celebrate the opening of the new movie theater.
Immediately after learning that the contractor would not install the seats, the owner began to look for a substitute contractor. Despite diligent efforts, the owner could not find a contractor that would agree to install the seats by August 15. Eventually, after an extensive search, the owner found a substitute contractor that agreed to install the seats for $150,000 by September 15. No other contractor could be found who would agree to install the seats at a lower price or before September 15.
Installation of the seats was completed on September 15, the substitute contractor was paid $150,000, and the theater opened a few days later. Because the theater had no seats at the time of the film festival scheduled for September 1–10, the owner canceled the festival.
The owner sued the original contractor for breach of contract, and the parties agreed to a non-jury trial. The judge has concluded that the contractor’s actions with respect to the seat-installation agreement constituted a breach of contract by the contractor. In addition, the judge has made the following findings of fact:
- The contractor was unaware that the owner was planning to hold a film festival when it entered into the contract.
- The owner would have made a profit of $35,000 if the seats had been installed in the new movie theater and the film festival had been presented there as scheduled on September 1–10.
- The owner could have relocated the film festival to a nearby college auditorium that was available September 1–10 and, if this had occurred, the owner would have made a profit of $25,000.
- Do the damages recoverable by the owner include $50,000 for the amount paid to the substitute contractor above the $100,000 price to be paid to the original contractor under the contract? Explain.
- May the owner recover for lost profits resulting from the cancellation of the film festival? Explain.
- Assuming that the owner is entitled to recover for lost profits resulting from the cancellation of the film festival, how much should the owner recover? Explain.
1) Common law governs breach of contract suits where the subject matter of the contract is not for the sale of goods. Here, the parties contracted for installation of seats, which is a service.
The issue here is whether the additional $50,000 is recoverable where the original contract was entered into at a price lower than fair market value. In a breach of contract case, the typical remedy under common law will be expectation damages. Expectation damages are intended to put the party in the same place as they would have been if the contract had been completed. These damages also seek to ensure that each party recovers the "benefit of their bargain." Here, the original contract price was $100,000, which was $50,000 lower than what similar contractors in the area would pay. However, this reduction in price was not due to a mistake by one party, but rather due to the contractor's willingness to do the work at a lower price because he was hoping to build up his reputation. The fact that the contractor was on notice that this was a lower price is not problematic to his recovery of the full $150,000 because this was the "bargain" he contracted to. The contractor was the party who breached by informing the owner that he would not fulfill the contract on July 1. The owner is therefore entitled to compensate him for the services rendered by the substitute contractor as of July 1, given this is an unequivocal anticipatory repudiation. The owner sought out substitute performance using diligent efforts, and found a contractor who completed the installation for $150,000. Therefore, in order for the owner to be compensated for the benefit of his bargain, he is entitled to teh difference beetween the substituted service less the contract price, which in this case will include the $50,000 above the price to be paid.
2) The owner will not be able to recover lost profits. Lost profits are available to the non-breaching party when the contract expressly states that time is of the essence or where the breaching party was aware that a delay in there performance will result in lost profits. Without such notice or contractual language, the court will not award lost profits given it is not foreseeable at the time of contract that a delay would cause the owner to lose profits. This is especially true if the lost profits would be hard to calculate given there was a new enterprise or business venture. Here, the contract stated that the seats would be installed by no later than August 15th but there is no time is of the eseence clause. However, at common law, it is assumed that unless stated, time is of the essence and contractors have a reasonable time to complete performance if there are any delays. Further, there is no evidence that the contractor was aware of the need for the seats to be installed by August 15th nor was he aware of the pending film festival. The court found specifically that the contract was unaware of the plans to hold a film festival at the time it entered into the contract. The contract was breached well in advance of the date performance was due and even so, on the date construction was to start. The contractor was not able to find a replacement contractors that could finish until September 15th, but that will not affect the lost profits analysis given there was no notice of these potential lost profits at the time of contract. Further, this venture was new, so it would be difficult to predict the level of profits to be earned at the time of contract. Therefore, the contractor will not be liable to the owner for lost profits from the film festival.
3) If the owner is entitled to recover lost profits, he would be able to recover $35,000. The issue is whether it is reasonable for the court to reduce the damages for a film festival at the local college when the purpose of the festival was to celebrate the new theater's opening. Where there is a breach of contract, the non-breaching party will have a duty to mitigate damages through reasonable efforts. Where damages are mititgated, the profits earned from the substitute performance will be deducted from the damages owed. In the case of a personal services contract, the court will not require the party to perform services that are not sufficiently similar to those it contracted to complete. Here, the purpose of hosting the film festival was for the owner to celebrate his new theater. Hosting a festival at a local college would not fulfill this same purpose for the owner in creating publicity around the theater. If this was found to be a reasonable alternative, the damages recoverable would only be $10,000 but here, the purpose of the festival would not be fulfilled. Therefore, the owner should recover for the full $35,000.
$50,000 for the Amount Paid to the Substitute Contractor
The first issue is whether the $50,000 paid to the substitute contractor is recoverable by the plaintiff-movie theater owner.
The judge found that the contractor's actions with respect to the seat installment agreement constituted a breach of contract between the movie theater owner and the contractor. It is irrelevant for damages purposes in this case whether the common law or the Uniform Commercial Code (hereinafter "UCC") governs this claim. Typically, the UCC governs contracts for the sale of goods, and the common law governs where services are the bargained-for benefit. Where there is a combination of goods and services negotiated in a contract, courts typically employ the predominant purpose test unless otherwise provided for in the contract at issue. Here, a mixture of goods and services was to be provided for the $100,000. The movie theater owner negotiated to pay that price to cover both the cost of the chair (the goods) and the cost of installation (the services). Analyzing the issue under the predominant purpose test, we do not know how much of the $100,000 was to be paid for the goods and how much for the services. However, it apppears from the agreement that the predominant purpose of the contract was the services: it was the installation of the seats that concerned the owner rather than the seats themselves: it is likely the owner could have ordered and received the seats from any manufacturer before August 15, but the owner needed the seats installed in the theater, which is likely the predominant purpose. Thus, the common law governs in this case.
In the event of a breach under the common law, the plaintiff in a contracts action is entitled to recover damages resulting from the breach. Monetary damages can include, among others, expectation damages, reliance damages, and consequential damages. Expectation damages seek to put the nonbreaching party in the same position he or she would have been in absent a breach; reliance damages, which cannot be awarded in connection with expectation damages, compensate the nonbreaching party for any expenses incurred in reliance on performance of the contract; consequential damages are those damages that flow from the result of the breach. Regarding this sepcific award, expectation damages would be most appropriate because the additional $50,000 is easily quantifiable, and the movie theater owner is seeking with these damages to be placed in the position the owner would have been if the contract had been performed, i.e. that seats were installed in the theater for $100,000.
To recover expectation damages, the damages must be easily quanitifiable, and the recovery must place the nonbreaching party in the same position as if the breach had not occurred. It is appropriate in a construction contract to calculate these damages by subtracting the contract price from the price actually paid. Because the contractor unequivocally notiifed the owner that it would not perform before performance was set to begin, this constitutes an anticipatory repudiation. In addition, there must be no defense to liability, such that performance of the contract was impossible, impractical, or that the purpose of the contract was frustrated. There are no facts to indicate the availability of such a defense here: to the contrary, the contractor breached solely because it obtained a more lucrative contact elsewhere. Even where a breach occurred without defense, however, a plaintiff always has an obligation to mitigate damages to any extent practicable, particularly in the case of anticipatory repudiation. This means that the plaintiff has the duty to put in a good faith effort offset the costs that will occur as a result of the breach and may not simply inactively allow the breach to occur and sue for damages.
Here, the plaintiff expected when he or she formed the contract that seats would be installed in the movie theater for $100,000. Instead, seats were installed in the movie theater for $150,000, $50,000 more than what the plaintiff expected. There is no defense available to the contractor that would relieve it of its obligations under the contract. In addition, the owner fulfilled its obligations to mitigate damages: the facts indicate the the owner began "diligent efforts" and an "extensive search" "immediately" after learning the contractor would breach. This conduct satisfies the owner's duty to mitigate damages, and the movie theater owner is entitled to damages.
Reliance damages are unavailable in this case. There are no facts indicating the owner expended any funds relying that the contract be fulfilled, but costs from things such as advertising the film festival would fall into this category. However, the amount paid for things like this is presumably less than the $50,000 available as expectation damages, and a plaintiff may not recover both expectation and reliance damages, so the owner would be better-suited to seek the expectation damages.
Thus, it is appropriate for the movie theater owner to recover the $50,000 as expectation damages from the contractor.
Lost Profits from the Cancellation of the Film Festival
The next issue is whether the movie theater owner is entitled to recover lost profits resulting from the cancellation of the film festival.
Unbeknownst to the contractor, the movie theater owner needed the seats installed in its theater by August 15 to be prepared for the planned film festival at the theater. Had the duties been performed in accordance with the agreed-upon terms in the contract, the movie theater owner anticipated it would have made $35,000 in profits from the movie festival.
Such a loss would likely be characterized as consequential damages. Consequential damages are those harms which flow from the result of the breach. Consequential damages are recoverable only where the plaintiff can show that the damages were foreseeable and that the defendant knew that the plaintiff would suffer a unique harm as a result of the breach. It is foreseeable that a movie theater owner would lose profits from ticket sales as a result of the contractor's breach, although it is difficult to say whether the profits from a movie festival would be foreseeable. However, this award likely is unavailable because the judge found that the contractor did not know about the festival, i.e. that the movie owner would suffer these unique damages as a result of the breach.
Therefore, it is unlikely that the owner will be able to recover the lost profits from the movie festival.
Amount of Lost Profits from the Cancellation of the Film Festival
The foregoing notwithstanding, there is still an issue of how much the owner would be able to recover if it could recover lost profits from the movie festival.
Assuming that is the case, it is likely that the movie theater owner would be able to recover $35,000, because, despite any duty to mitigate, it could likely show some reason why moving the location of the film festival was unreasonable.
When a breach of contract occurs, there is a duty on the nonbreaching party to mitigate damages to the extent reasonable. In its defense, the contractor has shown that the movie theater could have mitigated its damages relating to lost profits. The owner expected to make $35,000 if it had been able to show the film festival if the breach had not occurred, but the contractor proved that the owner could have still made $25,000 if it had moved the festival, thus mitigating the damages. However, the owner would likely be successful in showing that it is impractiable for a movie theater to show a film festival at a separate location. Even where the theater could make some profit, the purpose of a movie theater's business is to provide a venue for the public to watch movies. Part of the business model iincludes enticing customers to return to the theater so the theater may continue to profit. Requiring a movie theater to present a film festival at an alternative location would frustrate the entire purpose of the movie theater's business, and there would be thus no duty to move the location of the film festival.
Thus, the owner would likely be able to recover the full $35,000 fo lost profits.
MEE Question 5
Twelve years ago, Wendy and Frank were married in State A. One year later, their daughter, Danielle, was born in State A. The couple and their daughter have continued to live in State A.
One year ago, Frank lost his job as a steelworker after suffering a serious back injury. Frank’s doctor has said that he will not be able to return to work.
One month ago, Frank filed an action against Wendy seeking spousal support. Frank filed the action after Wendy, a commercial airline pilot whose work frequently necessitates her absence from home, stopped depositing her wages into the couple’s joint bank account and refused to pay household bills. Frank’s unemployment insurance is inadequate to pay all the household bills.
Danielle’s school recently sent her parents a note indicating that Danielle will not be allowed to enroll in school next year unless the parents provide proof of her vaccination. Frank, based on his personal, nonreligious beliefs, has consistently refused to allow Danielle to receive any vaccinations. Danielle does not satisfy the requirements for a medical exemption. State A has amended its mandatory vaccination law by eliminating all nonmedical exemptions based on “personal beliefs.” As amended, the law requires, as a precondition to a child’s enrollment in any public school, that “the child’s parent or guardian must provide proof that the child has received all vaccinations mandated by the State Department of Health.” Frank has brought an action challenging the State A vaccination law under the U.S. Constitution as a violation of his parental rights.
Two weeks ago, Danielle, age 11, with her parents’ permission, went to visit her aunt in State B. One week into the visit, the aunt called Frank and Wendy and told them that Danielle did not want to return to her parents’ home because “Mom is always traveling, Dad is really depressed since his back injury, and I just can’t stand living there anymore.” The aunt told Frank and Wendy that “I can’t in good conscience send her home, so I’m immediately going to court to seek legal custody.”
- May Frank obtain spousal support from Wendy? Explain.
2. Will Frank’s constitutional challenge prevail? Explain.
3. In what state must the aunt file a custody petition? Explain.
4. Is the court likely to grant legal custody of Danielle to her aunt? Explain.
1. The issue is whether an spouse is required to support a relationship financially. In certain aspects, individuals who are married are considered to be one unit under the law; meanwhile, in other ways they continue having their individual identities. A marriage is not only about the duties and rights that spouses have as a unit under the law, but also includes several duties to each other. The doctrine of necessaries in one of those duties that is owed from one spouse to the other. It requires that a spouse be liable for what is necessary within a marital relationship and family. This doctrine includes supplying the basic sustenance (food, clothing, a roof over their head) and can include the paying of medical expenses, as medical care is also considered to be a necessary. The doctrine of necessaries applies because what is at issue are the family's household bills. This doctrine would also apply even if Frank needed the money to pay his medical expenses as a result of his back injury. Although Wendy may not be required to deposit her money into the couple's join bank account, under the doctrine of necessaries she would be required to pay the household bills.
Spousal support is limited to situations where a married couple has gotten divorced and there is an economically dependent spouse. Frank may be considered an economically dependent spouse because he cannot return to work due to a back injury and his unemployment insurance is not enough; however, he is not filing for divorce and therefore cannot obtain spousal support from Wendy. Wendy will be required to pay the household bills and provide the necessaries that are needed within this marital relationship.
2. Constitutionally, parents have rights as to how they raise their children and how they are educated. However, these rights are subject to certain limitations by state and requiring vaccinations of children who are enrolling in school would an appropriate limitation. The right of a parent to raise their children is a fundamental right under the constitution. State laws that violate a fundamental right are subject to strict scrutiny. In order for a law to pass strict scrutiny it must be necessary to pursue a compelling government interest. Here, State A's law that requires proof of all vaccinations mandated by the state's department of health would pass strict scrutiny because there is a compelling government interest: the health of the entire state. This interest is compelling because not only are the lives of children who attend at risk, but also any other child who comes into contact with those children, as well as the family members, and any other people who come into contact with diseases that could be protected from by vaccinations. The law is necessary because there are less restrictive ways to ensure that each child who attends public schools are vaccinated. The facts state that Danielle does not satisfy the requirements for medical exceptions, meaning that the law likely has certain exceptions, and only non-medical exemptions based on "personal beliefs" were eliminated showing that it is narrowly tailored. Because the State A statute passes strict scrutiny Frank's constitutional challenge would not prevail.
3. Aunt must file in State A because State A is Danielle's home state. The issue is whether a child custody petition can be fild and heard in the state where the child is physically located. A child custody petition must be filed in the home state of a child. A child's home state is determined by where they have been living consecutively for 6 months. Based on the facts Frank, Wendy and Danielle have lived in State A for more than the past 6 months. Danielle has not been in state B long enough for it to be her home state. Even if she were there for 6 consecutive months it would not become her home state as she is not there with her parent or parents. Danielle's home state is the domicile of her parents, which is state A, because as a child she cannot chose her domicile, instead it is determined by operation of law.
4. The issue is whether a court can terminate the parental rights of biological parents when a third-party petitions for custody. When a court is looking to grant custody as between parents, the court looks to the best interest of the child. In this consideration, the court has many considerations like the mental, emotional and physical health of the parties, who has been the primary caregiver, how well adjusted the child would be, if the child is 12 years old or over the court will heavily weigh what the child wants. If the child is younger than 12, the court will not give the child's desire that much weight. However, when the custody battle is between a parent and a third-party, the court will look at whether the parents are unfit to have custody over the child. Unfitness is determined if the parents have abandoned the child or if the parents have abused the child. The court is not likely to grant aunt legal custody of Danielle to her aunt unless the court finds that her parents are unfit. The facts here do not hint at Wendy and Frank being unfit, they may not be perfect because Wendy is barely home and the father's despression, however this is not likely to be found as unfittness by the court, even though Danielle wants to stay with her aunt.
1. May Frank obtain spousal support from Wendy?
Spousal support, or alimony, is generally awarded in situations where one spouse is unable to live without the assistance of another spouse (although it frequently comes up in divorce situations unlike here). It is typically given after reviewing a totality of the circumstances including factors such as; income of both spouses, length of marriage, health, lifestyle, necessity, change in circumstance, etc.. Here, Frank and Wendy were married for 12 years, shared a joint bank account, had a child, Danielle. A year ago, frank lost his job as a steelworker after he suffered a serious back injury and he will be unable to return to work. In addition, Wendy has stopped depositing her wages in the bank account and refuses to pay household bills. Wendy is a commercial airline pilot, whose work frequently necessitates her absence but she holds a steady job. In addition, Frank's unemployment insurance is not enough to pay all the household bills. Based on these facts, it seems likely a court will look at Frank's situation and find it a rather grim outlook after review of all the circumstances. Thus, it is likely that a court may grant Frank some spousal support from wendy to ensure the household bills are paid and Frank can sufficiently make it on his own without a job that he used to help support them all these years.
2. Will Frank's constitutional challenge prevail?
Typically parental rights over a child are both legal and physical rights over the child's day to day physical routine and activities (such as school, extracurriculars, etc..) or legal rights and abilities such as religious beliefs, etc.. These rights stem from your fundamental rights in the constitution of a right to privacy. Typically a parent does have the right to hold a child from medicine for religious reasons. This right will only be breached in the most extreme of circumstances if they go against the best interests and general welfare of the child or could result in death (modern trend). Here, Frank's right is based on his personal, non-religious beliefs, and that is to refuse Danielle of vaccinations. In addition, Danielle does not satisfy the requirements for a medical exemption and State A has amended its vacinnation law by eliminating all nonmedical exemptions based on "personal beliefs." As amended, to enroll in public school there must be proof that the child has received all vaccinations mandated by the State Department of health.
Parental rights may fall under an individuals privacy rights which are a fundamental right. Fundamental rights are governed by strict scrutiny when evaluating if rights were violated. Strict scrutiny looks to see if a government can show that there were no less restrictive means to showing/proving a compelling government interest. Here, it seems unlikely that a court will allow this challenge to prevail. Keeping the public up to date in vaccinations is an compelling government interest as it promotes the general health and welfare of the public not to mention in this situation the health and wellness of students in public schools who could get sick or Danielle's getting sick from lack of vaccinations. It is also unlikely that there is a less restrictive mean than a proof of vaccination form to allow enrollment in the public school. This will be hard to prove against for Frank as the amendment seems to be in the best interest of the child, children in public schools, and the state, all compelling government interests in a very low restrictive way. Thus, Frank's constitutional challenge will likely not prevail.
3. In what state must the aunt file a custody petition?
Child custody is governed under the UCCJEA, the Uniform child custody jurisidiction enforcement act. Under the UCCJEA (And if the CKPA, child kidnapping preventation act, applies) it typically would follow suit in the same way, only a state which has custody jurisdiction over the child can make decisions on custody. Under the UCCJEA, custody is usually decided in two ways: the first, the home state test which is where if a child has lived in a home state continouosly in the last 6 months and still either resides there or a parent retains a connection to the state within the next 6 months, that state will have home state jurisdiction. If home state jurisdiction does not exist pursuant to the above, then courts will look to see which state has the most signigicant connection to the child. In addition, under the full faith and credit clause, any jurisdiction that is valid in State A will be valid in State B. So were the aunt able to file in A and receive custody, State B will be able to enforce it.
Here, it seems likely that home state jurisdiction would apply here. Danielle has lived in State A since she was born with her parents, this is a continuous domicile as she has lived there in the last 6 months continuously without interruption. While she is in State B with her Aunt now, who is challenging their legal custody, her parents are still in State A and she has only been gone for 2 weeks. Thus, if home state jurisdiciton is found (likely it is) the aunt must file the custody petition in State A who will retain custody jurisdiction. If home state does not apply, the most significant connects test applies and even then it seems likely that State A would hold jurisdiction as she has lived there for 12 years, goes to school in State A, and both her parents still live there. In addition, she went to visit her Aunt with her parents permission. Thus, it seems that no matter the test, state A holds jurisdiction however under the UCCJEA, it seems likely the home state jurisdiction test will be followed and applicable.
4. Is the court likely to grant legal custody of Danielle to her aunt?
Typically, biological parents have a right to take care of their children over any other individuals, unless they are incapicated, they cannot supply for the best interests and general welfare of the child, or take care of the child. In addition, a child's wants, if of sufficient maturity, will also be taken into account. Here, Frank cannot work after suffering a severe injury at work however he is of sound mind and not abusing, hurting, or otehrwise affecting Danielle negatively in anyway. It will be argued that Danielle stated that he is very depressed and it will likely also be brought up that he refuses to allow her vaccinnations. These both can be against the interest and general welfare of the child, Danielle. In addition, it is brought up by Danielle that her mom is always travelling and likely her absence from home affects Danielle negatively especially given the recent situation of her mom not helpign with household bills. But there is no indication that she is not of sound mind or harming Danielle in anyway. As Danielle is 11 and of sound mind, a court will take her statement and listen to it given she is stating she cant stand to live there anymore. Typically, a biological parents rights to their child is only broken in those situations where it is clear keepign the child there is resulting in abuse, harm, or clearly not in the best interests and welfare of the child. Here, neither parents harm her but their current sitaution is only causing stress and strife to Danielle's life. However, her mom travelling for work and her dad depressed after a workplace injury, with neither causing any harm to Danielle, is likely not enough reason right now for their parental rights to be terminated and legal custody granted to Danielle's aunt. If it is to be seen that the parents divorce, things continue to go down hill and they cant provide for her and pay for bills and her meals or school, etc.. then maybe a court will find that it is no longer in her best interest to stay with her parents.
MEE Question 6
Trident Healthcare Inc., incorporated in State X, owns and operates hospitals and clinics in States X, Y, and Z. Medical information for all of Trident’s current and former patients is stored on computer equipment housed at Trident’s corporate headquarters in State X.
Last December, unknown persons hacked into Trident’s computer system and obtained the personal medical information of at least 30,000 Trident patients, including 5,000 patients living in State X, 10,000 patients living in State Y, and 15,000 patients living in State Z. However, there is no evidence that the thieves have used any of this medical information.
The State X Privacy Protection Act imposes an absolute duty on health-care providers, including companies like Trident, to keep patient medical information private. The legislature concluded that the “invasion of privacy” resulting from data breaches causes significant harm to the individuals involved. Thus, the law allows any person whose private medical information is obtained by an unauthorized third party in any manner to recover actual damages from the health-care provider. Further, because such damages are sometimes difficult to quantify, the state law provides that an individual is entitled to a minimum statutory (nominal) damages award of $500 to compensate for this “invasion of privacy.” This state law is not preempted by any federal law.
A man, who is a citizen of State X and whose medical records were stored in the Trident computers, has brought a class action in the federal district court of State X against Trident on behalf of himself and all the persons whose health-care information was taken during the hacking of Trident’s computer system. The man is represented by counsel with extensive experience in class actions of this type. The complaint is limited to claims arising out of the hacking of medical information. It seeks no actual damages but does seek statutory damages on behalf of all members of the class pursuant to the State X statute. The complaint alleges the facts detailed above and alleges that the court has jurisdiction based on diversity, pursuant to 28 U.S.C. § 1332. The complaint also alleges that most if not all of Trident’s patients are U.S. citizens who are domiciled in the states where they receive their health care.
State X’s legislatively adopted Civil Practice Rules provide that “if any statute or law of this state allows for an award of statutory or nominal damages, recovery of such damages may be sought in an individual action but not in a class action.”
Trident has moved to dismiss the man’s class action brought in federal district court, arguing that (i) the court lacks subject-matter jurisdiction over the state-law claim raised by the class action, (ii) the action fails to allege a claim upon which relief can be granted because of the state law barring class actions to recover statutory damages, and (iii) the man does not have standing to bring a statutory damages claim in federal court.
With respect to each of these arguments, how should the court rule? Explain.
1) The issue is how the court should rule with regard to Trident's motion to dismiss concerning the subject-matter jurisdiction claim.
In order to have subject matter jurisdiction over a state law claim, a court must have either federal question jurisdiction, meaning the plaintiff's complaint concerns rights or statutes under federal law, or diversity jurisdiction, which requires the plaintiff and defendant to be from different states (complete diversity), and for the amount in controversy to exceed $75,000. A corporation's domicile is both the place of incorporation and its principal place of business, which courts have held is the "nerve center" of the corporation. In a class action, under the Class Action Fairness Act, the parties need only have minimal diversity (at least one plaintiff must be diverse from at least one defendant), the amount in controvery must exceed $5 million, and the plaintiffs must equal or exceed 100 people.
The man is from State X, and Trident is incorporated in State X. Trident's principal place of business is likely also State X, where its corporate headquarters are located, although Trident has clinics in other states. Assuming that at least some of the affected persons from other states join the action (and are properly added to the class under Rule 23), complete diversity will be satisfied. One-thousand people would have to join in order for the amount-in-controversy to exceed the CAFA threshold of $5 million ($500 per person, times 1,000 people equals $5 million). Assuming that the man and his lawyer can find people to satisfy these threshold amounts, the court will have diversity subject matter jurisdiction over the claim.
2) The issue is how the court should rule on Trident's motion that The man failed to state a claim upon which relief can be granted because of the state law barring class actions.
A court with diversity jurisdiction over a claim is obligated to apply the state law in which it sits concerning substantive matters, and federal law concerning procedural matters under the U.S. Supreme Court's Erie decision. However, even if there is a state law governing an area, the state statute or rule may be prevented, if there is evidence that a federal rule or statute was intended to "occupy the field" in the area of litigation.
Although State X's legislature adopted a Civil Practice Rule that is direclty on point to this action, there are counterveiling interests at stake here. There is evidence that Congress passed the Class Action Fairness Act to occupy the field of class actions, and therefore should preempt all state law in this area. Additionally, there is a federal rule on point, Rule 23, which governs class action requirements. As such, it is likely that a court will find that if he can meet the rule 23 requirements and CAFA standards, it will not be granted.
3) The issue is whether the man has standing to bring this statutory damages claim in federal court.
In order to have a standing, a person must suffer an injury-in-fact. That injury must be caused by the defendant, and the plaintiff must have suffered damages. There must also be redressability of the plaintiff's claim.
According to the Privacy Protection Act, the man and his similarly situated class members have standing because the breach of privacy caused injury, that injury was caused by Trident, and the statute provides a method for redressability in the form of statutory damages.
When a claim is in federal court under diversity jurisdiction, a court must apply the substantive law of the state in which the court sits. Klaxon. Assuming that the claim is properly in federal court (see above), the court is obligated to apply State X's substantive law. The Privacy Protection Act is substantive because it creates rights and a cause of action (a method of redressability) for the citizens of State X (and those who avail themselves of State X's laws).
Although the Man did not suffer actual damages as a result of the hacking, the PPA, which the federal district court of State X overseeing a claim by way of diversity jurisdiction must apply as substantive state law, gave the Man standing, even in federal court.
Subject Matter Jurisdiction
The court does not lack subject matter jurisdiction over the state law claim. At issue is whether the man can use the federal act permitting general diversity rather than complete diversity for this to meet subject matter jurisdiction. Ordinarily, when a case is based on a state law claim only, a federal court will have subject matter jurisdiction when there is complete diversity and the amount in controversy exceeds $75,000. Complete diversity means every single plaintiff must be difference from every single defendant. In class actions, only the named class representative's residency matters for determining subject matter jurisdiction based on diversity. Furthermore, the named class representative must have a claim where the amount in controversy exceeds $75,000 on its own. Aggregation is not permitting. Therefore, under ordinary rules, there is no subject matter diversity here. A human citizen's residency for subject matter jurisdiction is determined based on that person's domicile, where the person is located with the intent to remain as domiciled. Here, the man is a resident of State X. For a corporation, a corporation is domiciled in every state it is incorporated and its personal place of business, which is the nerve center where directors and officers direct and control the corporation's actions. This is usually the corporation headquarters. Here Trident Healthcare Inc is incorporated in State X and has its principal place of business in State X. Therefore, this a State X plaintiff versus a State X defendant. Complete diversity is failed. Additionally, since the man's damages are probably limited to $500, then he does not meet the amount in controversy either.
However, the federal legisalture enacted a statute that confers subject matter jurisdiction on class actions based on general diversity. Under this statute, a federal court may have subject matter jurisdiction when any plaintiff is diverse from any defendant. This statute applies when two factors are met: (1) there are more than 500 plaintiffs and (2) the total amount in controversy exceeds $5 million. Here, at least 30,000 people were injured by the hacking, well above the federal statutory number. Furthermore, even if each plaintiff is limited to $500, the total damages would be $15 million, well over the $5 million threshold. Therefore, since there are well over 500 plaintiffs and the alleged damages are well over the $5 million, the federal statute applies to confer subject matter jurisdiction. Since plaintiffs from State Y and State Z are diverse from Trident, a State X corporation, there is general diversity. Some plaintiffs are different from the defendant. Therefore, the federal statute confers subject matter jurisdiction in this case. The court does not lack subject matter jurisdiction over the state law claim.
Failure to State a Claim and Eerie
The action does not fail to allege a claim upon which relief can be granted because of the state law claim barring class actions to recover statutory damages. At issue is whether the Eerie doctrine applies. When a federal court is sitting in diversity jurisdiction, it must apply two different set of laws. The federal court must apply the state substantive law but also apply the federal procedural law. When two procedural laws seem to conflict, the court will first decide whether or not there is Federal Rule of Civil Procedure on point. If so, it must be applied over the state law. If not, the court then must decide if the state law is actually procedural or whether it is actually substantive. There are five categories of rules that are immediately substantive like the statute of limitations, the tolling of the statute of limitations, the elements of claims or defenses etc. If not, the court will conduct an analysis determining whether the state law is "outcome determinative," whether applying the state law would increase forum shopping, and whether the state has an interest in having its laws applied. Here, a state law provides that if any statute of law of the state provides for an individual award of statutory or nominal damages, recovery of such damages are limited to individual actions but prohibited in class actions. The analysis is easy because there is a Federal Rule of Civil Procedure directly on point. Federal Rule of Civil Procedure 23 affords plaintiffs the ability to be certified as a class action when it meets the numerosity, commonality, typicality, and representative requirements. If so, the court can certify the class action. Furthermore, the class action must involve one of three common themes, including the fact that a common necleus surrounds the one action. Here, all of the requirements are met and the third type of class action can be certified. As such, FRCP 23 directly conflicts with State X's law. Because there is a Federal Rule of Civil Procedure directly on point, the federal court must apply that federal rule. Therefore, this action can be certified as a class action and the action does not fail to allege a claim upon which relief may be granted.
The man has standing to bring a statutory damages claim in federal court. At issue is whether the man has met all three requirements for standing. In order for a federal court to hear a plaintiff's cause of action, that plaintiff must have standing to bring the claim. Standing requires three things: an injury, causation, and redressability. Here, all three elements are met. First, the man clearly suffered an injury. While his medical information has not been used by the hacking thieves, his information was still stolen and he was injured in that regard. While it may be too remote to find that there will be an injury based on the thieves using the information, just the fact that the man's information was stolen indicates he suffered an injury. The legislature of State X itself has found that there is significant harm to indivduals via an invasion of privacy in these types of situations. Furthermore, there is causation. This requires that the defendant be the cause of the plaintiff's injury. While the direct cause of injury may have been the hackers, Trident can still be considered the cause of the data breach. Had Trident exercised better care and protected the medical information of its patients better, perhaps the breach would not have happened. There is sufficient plausibility to say that Trident did not provide its medical patients with enough protection regarding their medical information. Thus, Trident can be deemed the cause of the man's injury. Lastly, there is redressability, which means the court can grant some kind of relief to the plaintiff for the injury. Here, the court can award the man monetary damages, or declaratory relief as well. The monetary damages alone are sufficient to show that the court could redress the man's injury and make him whole. Since the man can show an injury, Trident causing that injury, and the court's ability to redress that injury, the man has standing to bring a statutory damages claim in federal court.