The Lawletter Vol 43 No 8

Brad Pettit—Senior Attorney, National Legal Research Group

            The Internal Revenue Code provides generally that "[n]o gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment," as long as the transaction does not involve an "exchange of real property held primarily for sale." 26 U.S.C. § 1031(a) (also includes Pub. L. Nos. 115-233 to 115-253, 115-255 to 115-269; Title 26 current through Pub. L No. 115-270). "As used in section 1031(a), the words 'like kind' have reference to the nature or character of the property and not to its grade or quality." 26 C.F.R. § 1.1031(a)-1(b). Thus, "[o]ne kind or class of property may not, under that section, be exchanged for property of a different kind or class." Id. For example, "[t]he fact that any real estate involved is improved or unimproved is not material, for that fact relates only to the grade or quality of the property and not to its kind or class." Id.

The Lawletter Vol 43 No 7

Brad Pettit—Senior Attorney, National Legal Research Group

            "Rather than disposing of stock in a closely held business (by sale or corporate reorganization) at retirement the retiree may decide to transfer all or a portion of the stock by gifts to various family members." Streng & Davis, Tax Planning for Retirement ¶ 7.05[1] (Thomson Reuters Tax & Acct'g 2018).  Three important objectives can be achieved by making gifts of closely held business stock to family members:

It eliminates the stock's dividend income from the gross income and the estate of the retiree/donor

It removes the value of the stock from the retiree/donor's estate for federal estate tax purposes upon the retiree's death

It solidifies the interests of the family members receiving the stock as officers of the closely held corporation, enabling them access to corporate executive compensation arrangements and other benefits.

The Lawletter Vol 43 No 5

Brad Pettit, Senior Attorney, National Legal Research Group

            On January 12, 2018, in South Dakota v. Wayfair, Inc., 138 S. Ct. 735 (2018) (Mem.), the U.S. Supreme Court granted a petition for writ of certiorari with respect to the decision by the Supreme Court of South Dakota in State v. Wayfair Inc., 2017 SD 56, 901 N.W.2d 754, holding that a state statute that requires Internet sellers with no physical presence in the state to collect and remit sales tax violated the dormant Commerce Clause of the U.S. Constitution.

            In reaching this decision, the Supreme Court of South Dakota had relied on the prior rulings from the United States Supreme Court in National Bellas Hess, Inc. v. Department of Revenue, 386 U.S. 753 (1967), and Quill Corp. v. North Dakota, 504 U.S. 298 (1992), holding that the Commerce Clause of the federal Constitution prohibits a state from requiring an out-of-state seller to collect and remit sales or use tax with respect to mail-order and similar sales and shipments of merchandise to in-state purchasers unless the former has a "physical presence" in the taxing state.

The Lawletter Vol. 43 No. 2

Brad Pettit, Senior Attorney, National Legal Research Group

      A decision by the Supreme Court of Idaho illustrates the difficulties that a guest of a residential tenant may face when trying to hold the tenant's landlord liable for injuries sustained by the guest when the guest was bitten by the tenant's dog.  See Bright v. Maznik, 162 Idaho 311, 396 P.3d 1193 (2017).  In Bright, a guest of the tenants advanced several theories of liability in her suit against the tenants' landlords: negligence per se under Idaho's vicious dog statute, breach of duty to protect the guest from an animal known to have vicious tendencies, common law negligence, voluntary assumption of duty, and premises liability.  None of these claims were successful, primarily because the plaintiff failed to make the requisite factual showings that the landlords either "knew" about or "harbored" a vicious animal on the premises.

      For example, the Bright court found that the landlords could not be charged with "harboring" the tenants' dog on the property, as required under the vicious dog statute, regardless of whether the dog was actually "vicious."  162 Idaho 311, 396 P.3d at 1197.  The Bright court reasoned that, since the term "harbor," as it is used in the vicious dog statute, "contemplates protecting an animal, or undertaking to control its actions," the landlords could not be charged with negligence per se under the statute because there was no evidence in the record that the landlords "received clandestinely and concealed the [tenants'] dog" or "had an animal in [their] keeping."  Id. (citations therein omitted).

The Lawletter Vol 43 No 1

Brad Pettit, Senior Attorney, National Legal Research Group

      The general rule is that a probate or surrogate's court may revoke letters of administration that were granted to an executor or personal representative if there is demonstrated friction, hostility or antagonism between the appointed fiduciary and beneficiaries of a decedent's estate, but only if the enmity between the fiduciary and the beneficiaries threatens to interfere with the administration of the estate.  In re Estate of Brown, 2016 N.Y. Slip Op. 02691, 138 A.D.3d 1191, 29 N.Y.S.3d 630 (3d Dep't 2016).  In other words, neither a conflict of interest nor hostility between an executor or trustee and the beneficiaries of an estate or trust provide the basis for removing a trustee or personal representative unless the administration of the trust or estate has been adversely affected.  In re Gerald L. Pollack Trust, 309 Mich. App. 125, 867 N.W.2d 884 (2015); In re Estate of Robb, 21 Neb. App. 429, 839 N.W.2d 368 (2013) (when executor of estate has a personal interest in administration of estate and in disposition of estate property and circumstances reveal that those conflicting interests are preventing executor from performing fiduciary duties in impartial manner, then executor should be removed).

       The mere fact that the personal representative of a decedent's estate is also a beneficiary thereof does not necessarily create a conflict of interest that would justify the removal of the personal representative as the fiduciary for the estate.  Gardiner v. Taufer, 2014 UT 56, 342 P.3d 269.  In order to justify removal of a personal representative who is also a beneficiary of an estate, the evidence must show that the personal representative committed some negligent act or mismanagement of the estate before a court can find a sufficient conflict of interest that is serious enough to justify removal of the estate fiduciary.  Id. ¶ 31, 342 P.3d at 279.

The Lawletter Vol 42 No 8

Brad Pettit, Senior Attorney, National Legal Research Group

            The general rule is that "[w]hile a landlord is not a guarantor for the safety of those persons who might be expected to come upon its property, it does have a duty to make all repairs and do whatever is necessary to put and keep the premises in a fit and habitable condition."  49 Am. Jur. 2d Landlord and Tenant § 454 (Westlaw May 2017 Update) (citing Rodriguez v. Providence Hous. Auth., 824 A.2d 452 (R.I. 2003)). A recent decision by a Georgia appellate court in a deck collapse case indicates that unless the evidence shows that an out-of-possession lessor of residential real estate knew or had reason to know that a potentially dangerous condition existed with respect to the premises or an improvement thereto, the landlord cannot be held liable for injuries that were suffered by a guest of the tenant due to the alleged failure to repair the premises or make an improvement. Aldredge v. Byrd, 341 Ga. App. 300, 799 S.E.2d 263 (2017), reconsideration denied (Apr. 26, 2017). 

The Lawletter Vol 42 No 3

Brad Pettit, Senior Attorney, National Legal Research Group

            "[A]n implied waiver of nonperformance under a contract will be established by a party's conduct inconsistent with the assertion of the right to the performance allegedly waived, or by conduct that indicates that strict compliance with the contract will not be required, provided that the conduct manifests the requisite intent to waive the right to performance or has induced the requisite reliance by the other party." 13 Williston on Contracts § 39:30 (4th ed.) (Westlaw current through May 2015 Update) (footnotes omitted). For example, a lessor who regularly accepts late payments may establish a course of performance or "an order of business," which operates to waive, as to future payments, a provision making time of the essence and to preclude that party from enforcing a forfeiture. Id. It is also a principle of contract law that "[u]nless otherwise agreed, a course of dealing between the parties gives meaning to or supplements or qualifies their agreement." Restatement (Second) of Contracts § 223 (1981) (Westlaw current through Oct. 2016 Update).

The Lawletter Vol 41, No 3

Brad Pettit, Senior Attorney, National Legal Research Group

     The Restatement of Trusts provides generally that "[a] trustee may be removed . . . for cause by a proper court." Restatement (Third) of Trusts § 37(b) (2003 & Westlaw database updated Oct. 2015) (emphasis added). The Comment to section 37 of the Restatement says that "[f]riction between the trustee and some of the beneficiaries [of a trust] is not a sufficient ground for removing the trustee unless it interferes with the proper administration of the trust." Id. § 37 cmt. e(1). Thus, although the "[b]eneficiaries may be resentful when property they expected to inherit is placed in trust, or of reasonable exercise of a trustee's discretion with regard to matters of administration or the alleged underperformance of the trustee's investment program[, s]uch resentment ordinarily does not warrant removal of the trustee." Id. "[B]ut a serious breakdown in communications between beneficiaries and a trustee may justify removal, particularly if the trustee is responsible for the breakdown or it appears to be incurable." Id.

     A leading treatise on trust law notes that "[d]isagreeable personal relations between the beneficiary [of a trust] and the trustee are frequently relied upon as grounds for removal [and] the mere fact that the beneficiary wants the trustee removed is not enough" to sustain a petition for removal of a trustee. George Gleason Bogert et al., The Law of Trusts and Trustees § 527 (Westlaw database updated Sept. 2015) (footnotes omitted). Thus, "[d]ifferences of opinion or unfriendliness" between a trust beneficiary and the trustee are "insufficient" grounds to support the removal of a trustee from office. Id. (footnotes omitted).

The Lawletter Vol 40 No 11

Brad Pettit—Senior Attorney, National Legal Research Group

     The Supreme Court of Mississippi recently addressed the issue of the enforceability of a renewal provision in a land lease agreement that left for future negotiation matters such as the renewal period, the rental amount, and increases in rent. The court held that the provision was unenforceable. Intrepid, Inc. v. Bennett, No. 2014-CA-00999-SCT, 2015 WL 5158397 (Miss. Sept. 3, 2015) (not yet released for publication). In ruling that the renewal clause in the parties' lease was not enforceable, the Intrepid court reasoned that since "the rental amount in a lease contract is an essential and basic requirement," the parties' failure to set forth a "definite method to determine the rent upon renewal" was fatal to the enforceability of the renewal clause in their lease agreement. Id. at *3. The court noted that "[t]he [lease] option, by its very terms, required that rent 'shall be renegotiated,' and its uncertain formula for determining the amount of increase made this task impossible." Id.

The Lawletter Vol 40 No 8

Brad Pettit, Senior Attorney, National Legal Research Group

     In 2014, an Indiana appellate court considered the issue of whether a landlord can enforce a provision in a residential lease contract that seeks to protect it from liability for personal injuries caused by fungus or mold on the leased premises. In Hi-Tec Properties, LLC v. Murphy, 14 N.E.3d 767 (Ind. Ct. App.), transfer denied, 20 N.E.3d 851 (Ind. 2014), a tenant who leased an apartment that was below ground level brought suit against her landlord, alleging, inter alia, that mold in the apartment had aggravated her preexisting asthma and caused other injuries. The landlord defended against the tenant's claim by pointing to a clause in the parties' lease agreement that read in pertinent part as follows: