The Lawletter Vol 37 No 4

Jim Witt, Senior Attorney, National Legal Research Group

It generally recognized that whether an individual dies intestate, or especially if he or she dies testate, escheat of the decedent's assets to the State is viewed as an absolutely last resort for the distribution of an estate.  See 27A Am. Jur. 2d Escheat § 12 "Generally; escheat disfavored."  Yet, in the recent Nevada case, In re Estate of Melton, 272 P.3d 668 (Nev. 2012), the result was escheat despite the fact that the testator, William Melton ("Bill"), left two wills.

Bill executed a formal will in 1975 under which he devised most of his estate to his parents, with small portions of the estate going to his brother, Larry J. Melton, and to two of his cousins.  He indicated in this will that his daughter, Vicki Palm ("Vicki"), was to receive nothing.  Bill also left the following handwritten letter, which he had sent to his friend, Alberta Kelleher ("Susie"), in 1995:

5-15-95

5:00 AM

Dear Susie

I am on the way home from Mom's funeral.  Mom died from an auto accident so I thought I had better leave something in writing so that you Alberta Kelleher will receive my entire estate.  I do not want my brother Larry J. Melton or Vicki Palm or any of my other relatives to have one penny of my estate.  I plan on making a revocable trust at a later date.  I think it is the 15 of [M]ay, no calendar, I think it[']s 5:00 AM could be 7:AM in the City of Clinton Oklahoma.

Lots of Love

Bill

/s/ William E. Melton

AKA Bill Melton

[Social security number]

Id. at 671-72.

Susie died in 2002, thus predeceasing Bill, who died in 2008.  During the administration of Bill's estate, the existence of his daughter (and only known child), Vicki, was discovered.  Prior to the discovery of the 1975 will, Vicki had argued that the 1995 letter did not qualify as a holographic will and that the estate therefore passed to her by intestate succession.  After the 1975 will was found, Vicki argued that the 1995 letter was a valid will (but that it was ineffective because Susie had predeceased Bill) and that it revoked the 1975 will, thereby giving Vicki the entire estate as Bill's sole heir at law.

Bill's half sisters, seeking to uphold the 1975 will, argued that the 1995 letter was not a valid will but that if it was valid, it did not revoke the 1975 will.  They further argued that even assuming that the 1995 letter was a valid will that revoked the 1975 will, the revocation had to be disregarded under the doctrine of dependent relative revocation, by which a subsequent will, which has no testamentary effect, does not revoke a prior will if it is shown that the testator intended that such revocation be conditioned on the effectiveness of the later will.

August 1, 2012

Brad Pettit, Senior Attorney, National Legal Research Group

As part of the Health Care and Education Reconciliation Act of 2010, Congress codified the long‑standing common‑law doctrine of "economic substance," which is applied in federal income tax cases to prevent taxpayers from trying to claim tax benefits from transactions that have no bona fide nontax purpose.  Pub. L. No. 111‑152, § 1409(a), 124 Stat. 1029, 1067‑68 (effective with respect to transactions entered into on or after March 31, 2010) (adding subsection (o) to 26 U.S.C. § 7701 and redesignating former subsection (o) as subsection (p)).  The Internal Revenue Code now expressly provides that

[i]n the case of any transaction to which the economic substance doctrine is relevant, such transaction shall be treated as having economic substance only if—

(A)       the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer's economic position, and

(B)       the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.

26 U.S.C. § 7701(o)(1) (Westlaw current through P.L. 112‑90 approved 1‑3‑12).  Section 7701(o) goes on to explain that the term "economic substance doctrine" means the common‑law doctrine under which income tax benefits with respect to a transaction are not allowable if the transaction or series of transactions do not have "economic substance or lack[] a business purpose."  Id. § 7701(o)(5)(A), (D).  It is critical to note that under § 7701(o), there is an "[e]xception for personal transactions of individuals" because Congress expressly provided that the economic substance doctrine is applicable "only to transactions entered into in connection with a trade or business or an activity engaged in for the production of income."  Id. § 7701(o)(5)(B).

The Code also makes it clear that a taxpayer can be subjected to "accuracy‑related penalties" if he or she tries to claim tax benefits from a transaction or series of transactions that lack economic substance.  Id. § 6662(b)(6) (subsection (6) added to § 6662(b) by Pub. L. No. 111‑152, § 1409(b)(1), 124 Stat. at 1069).  Specifically, the Code now expressly provides that accuracy‑related penalties

apply to the portion of any underpayment which is attributable to . . . :

 . . . .

(6)        Any disallowance of claimed tax benefits by reason of a transaction lacking economic substance (within the meaning of section 7701(o)) or failing to meet the requirements of any similar rule of law.

Id.

On at least three occasions, the U.S. Tax Court has noted that the above‑described provisions of § 7701(o) essentially represent the adoption by Congress of the common‑law doctrine of economic substance as articulated by the U.S. Court of Appeals for the Third Circuit in the case of ACM Partnership v. Commissioner, 157 F.3d 231, 247‑48 (3d Cir. 1998), cert. denied, 526 U.S. 1017 (1999).  Crispin v. Comm'r, T.C. Memo. 2012‑70, T.C.M. (RIA) ¶ 2012‑070, 2012 WL 858406, at *6 n.14; Blum v. Comm'r, T.C. Memo. 2012‑16, T.C.M. (RIA) ¶ 2012‑016, 2012 WL 129801, at *17 n.21; Rovakat, LLC v. Comm'r, T.C. Memo. 2011‑225, T.C.M. (RIA) ¶ 2011‑225, 2011 WL 4374589, at *27 n.11. 

August 14, 2012

Doug Plank, Senior Attorney, National Legal Research Group

It is well established that the Sixth Amendment to the U.S. Constitution provides to a criminal defendant the constitutional right to counsel and that this right encompasses the right to effective assistance of counsel.  Strickland v. Washington, 466 U.S. 668 (1984).  Because a determination of whether a defendant's trial counsel has provided effective assistance at trial can rarely be made prior to the end of the trial or prior to the issuance of the judgment of the court, a defendant's first opportunity to raise the issue of ineffective assistance of counsel is on appeal.  However, most States prohibit the litigation of ineffective-assistance-of-counsel claims on direct appeal and, instead, require defendants to bring such claims in a collateral habeas corpus proceeding, usually following the termination of the appeal process.  Such collateral proceedings have their own limiting rules, as most States require all issues that can be raised in postconviction proceedings to be brought in one proceeding and hold that issues not raised in the initial proceeding will be forever barred unless the defendant can show both good cause for the failure to have raised them and actual prejudice from that failure.  Moreover, the U.S. Supreme Court squarely held in Coleman v. Thompson, 501 U.S. 722, 753-54 (1991), that an attorney's errors in a postconviction proceeding do not qualify as cause for a default, and the Court refused to find that a defendant has a constitutional right to counsel in postconviction relief actions, thus barring ineffective-assistance-of-counsel claims for attorney errors in those proceedings.  Under 28 U.S.C. § 2254, the federal statute governing the procedures for bringing a federal habeas corpus action to contest a judgment in a state court criminal proceeding, a defendant is entitled to bring only one proceeding and can only raise issues in that proceeding that were previously raised either in the state trial or in state postconviction relief proceedings.

These limitations have created a situation in which a defendant has no remedy when he has plainly been denied his constitutional right to effective assistance of counsel at trial and yet his attorney has also failed to raise that issue in his initial state postconviction relief action.  Under the principles discussed above, the defendant would simply be unable to get relief for his deprivation of the right to counsel, because he would be foreclosed from bringing up the issue in a successive habeas corpus action and could not raise the issue in a federal proceeding under § 2254 because it had not been raised at the state level.

The Supreme Court recently addressed this problem and decided in Martinez v. Ryan, 132 S. Ct. 1309 (2012), a fiercely contested 7-2 decision, that a federal habeas corpus action was indeed available to remedy ineffective assistance of counsel at a state court trial, even where that issue had not been properly raised in the defendant's state postconviction actions.  The reasoning of the Court in Martinez would appear to open the door to many more successful federal habeas corpus proceedings for criminal defendants alleging ineffective assistance of counsel.

The Lawletter Vol 37 No 3

Fred Shackelford, Senior Attorney, National Legal Research Group

Proving that the common law continues to evolve, the Virginia Supreme Court has recognized a new cause of action for tortious interference with parental rights.  In Wyatt v. McDermott, ___ Va. ___, 725 S.E.2d 555 (2012), an unmarried woman allegedly conspired with attorneys, an adoption agency, and a Utah couple to place her newborn child up for adoption without the knowledge or consent of the child's father.  The father sued the couple, the attorneys, and the agency for tortiously interfering with his parental rights, and the Wyatt court was called upon to decide whether this tort exists in Virginia.  Noting that no statute provided the answer, the court recognized that the parent-child relationship is a constitutionally protected and valuable right.

The court observed that under English common law, a cause of action existed to provide a father with recourse for abduction of a son or heir who was rendering services.  The court also noted that the overwhelming majority of courts in other states have allowed a cause of action for tortious interference with the parent-child relationship.  Although the General Assembly has abolished the cause of action for alienation of affections, Va. Code Ann. § 8.01-220, the Wyatt court distinguished the two torts:

"Tortious interference with parental or custodial relationship" intimates that the complaining parent has been deprived of his/her parental or custodial rights; in other words, but for the tortious interference, the complaining parent would be able to exercise some measure of control over his/her child's care, rearing, safety, well‑being, etc.  By contrast, "alienation of affections" connotes only that the parent is not able to enjoy the company of his/her child; this cause of action does not suggest that the offending party has removed parental or custodial authority from the complaining parent.

___ Va. at ___, 725 S.E.2d at 562 (internal quotation marks omitted).

The court concluded that a cause of action for tortious interference with parental rights is consistent with existing common law, and set forth its elements as follows:

(1) the complaining parent has a right to establish or maintain a parental or custodial relationship with his/her minor child; (2) a party outside of the relationship between the complaining parent and his/her child intentionally interfered with the complaining parent's parental or custodial relationship with his/her child by removing or detaining the child from returning to the complaining parent, without that parent's consent, or by otherwise preventing the complaining parent from exercising his/her parental or custodial rights; (3) the outside party's intentional interference caused harm to the complaining parent's parental or custodial relationship with his/her child; and (4) damages resulted from such interference.

Id. (internal quotation marks omitted).

The Lawletter Vol 37 No 3

Jeremy Taylor, Senior Attorney, National Legal Research Group

The U.S. District Court for the Western District of Pennsylvania recently decided a case involving issues of preemption under the Medical Device Amendments ("MDA") to the Federal Food, Drug, and Cosmetic Act ("FDCA").  See Gross v. Stryker Corp., Civ. No. 11-1229, 2012 WL 876719 (W.D. Pa. Mar. 14, 2012).  The case is important because it explains clearly both the grounds upon which a manufacturer may defend on the basis of MDA preemption and the basis upon which a plaintiff may circumvent the preemptive effect of the statute in bringing state tort claims.

In Gross, the plaintiff had received an implantation of an artificial hip prosthesis manufactured by the defendant.  The plaintiff alleged that the device was defective and that the defect had caused him to suffer a serious infection at the operation site, with attendant pain and the necessity of a corrective procedure.  The plaintiff sued under state law theories of strict liability, negligence, and breach of express and implied warranties.

The defendant argued that the plaintiff's state law claims were preempted by the MDA.  The MDA contains an express preemptive section, which provides that no State may establish any requirement for a medical device that is different from or in addition to any requirement imposed under the FDCA and that relates to the safety or effectiveness of the device.  See 21 U.S.C. § 360k(a).  The court agreed that the plaintiff's claims were preempted by the MDA.

Initially, the court noted that for a state cause of action to be preempted by the MDA, the medical device at issue must have been subject to specific federal requirements related to its safety and effectiveness and the plaintiff's claim must be premised on state law that imposes different requirements.  The court noted that, generally, state common-law claims contesting the safety and effectiveness of a device that received approval under the premarket approval process ("PMA") conducted by the Food and Drug Administration ("FDA"), such as the hip prosthesis at issue in the case at hand, are subject to express preemption.  This is because questions regarding a device's safety and effectiveness are requirements addressed in the PMA.

The court concluded that the plaintiff's state breach-of-implied-warranty claim imposed a requirement different from or in addition to the federal requirements and, therefore, was preempted by the MDA in light of the fact that Pennsylvania's "below commercial standards" requirement was not the same as the standards imposed by the FDA.  The court similarly concluded that the plaintiff's negligence claim ran afoul of the preemptive reach of the MDA, given that the plaintiff alleged that the defendant had been negligent in placing the device into the stream of commerce when it contained unsafe manufacturing residuals or bacteria.

The Lawletter Vol 37 No 3

Matthew McDavitt, Senior Attorney, National Legal Research Group

In all areas of law, long-established principles must at times be applied to novel circumstances or technologies, with a result that is often predictable, based upon the general legal elements of the underlying legal claim.  Such is the case with a threat in the world of international shipping—the hijacking and ransom of commercial vessels in the Gulf of Aden.  This threat is not truly novel, but the danger, often romanticized in popular culture due to its remoteness to modern life, has after more than a century reemerged in recent years as a major threat.

Maritime insurance policies are often named-risk policies, and one major class of risk is termed "general average," a broad category encompassing losses to be proportionately borne by all parties interested in the venture, so long as the losses were occasioned by voluntary sacrifice of part of the ship or a portion of the cargo in order to save the vessel or the voyage in an emergency.  An examination of two types of losses experienced during a pirate hijacking—payment of ransoms and consumption of fuel and supplies by pirates—signals what losses are properly compensable under the general average named-risk category of an insurance policy.

There are three requisite elements to prove a general average sacrifice:  (1) the vessel must be in imminent danger; (2) there must be an intentional, voluntary sacrifice of property by the crew or owners to avert that peril; and (3) by that intentional sacrifice, the safety of the vessel, the remaining cargo, or the voyage must be secured.  See Am. Afr. Exp. Co. v. S.S. Exp. Champion, 442 F. Supp. 715 (S.D.N.Y. 1977).  These elements needed to prove a general average sacrifice were later codified in the York-Antwerp Rules, incorporated into many marine insurance policies today:

There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure.

York-Antwerp Rules 2004 R. A(1) (emphasis added).  Under Rule C(3), "any indirect loss whatsoever, shall not be allowed as general average."

Thus, in light of these well-settled elements of general average, we may examine the two classes of losses that often occur during piracy events.  First, payment of ransoms is clearly covered as a general average sacrifice, as ransoms represent property (money) paid by parties interested in the maritime venture in order to secure the safety of the vessel and crew during a time of peril.

The Lawletter Vol 37 No 3

Sandra Thomas, Senior Attorney, National Legal Research Group

Courts in several states have interpreted their child support guidelines to allow an order that directs the custodial parent to pay support to the noncustodial parent under appropriate circumstances.  Among these is the Supreme Court of Indiana.  In Grant v. Hager, 868 N.E.2d 801 (Ind. 2007), that court, with two of the five justices dissenting, held that "there is a rebuttable presumption that a custodial parent is not required to make child support payments under these circumstances but that a trial court has authority to deviate from that presumption in accordance with the Indiana Child Support Rules and Guidelines."  Id. at 802.

In Grant, the marriage of the parties was dissolved in 2003.  The parents were granted joint legal custody of their two children, with the mother receiving primary physical custody, and, in accordance with the Indiana guidelines, the father was ordered to pay $108 in child support.  Two years later, the father filed a petition to modify his support obligation.  The father submitted a worksheet showing the mother's annual income of approximately $106,000 and the father's annual income of approximately $56,000; the mother earned 65.4% of the total combined income, and the father earned 34.6%.

The Indiana guidelines directed a total weekly child support obligation for both parents of $517.  Calculating the support obligation of each parent in accordance with that parent's percentage of total income, the mother was responsible for $338, and the father for $179.

Under the guidelines, the father was entitled to a Parenting Time Credit in the amount of $216 based on the number of overnights the children spent with him during the year, and he was entitled to a credit of $55 for health insurance premiums paid by him.  The total of the father's credits, $271, exceeded his $179 share of the weekly support by $92.

The trial court recognized that the mother was the primary custodial parent but concluded that the guidelines produced a "negative credit" that required modification of the existing support order.  The trial court ordered the mother, the custodial parent, to pay child support to the father, the noncustodial parent, in the amount of $92 per week.

The mother appealed, arguing that "the Guidelines cannot result in a custodial parent paying support to the non-custodial parent."  Id. at 802-03.  The court of appeals agreed with the mother and reversed the child support award to the father.  The Indiana Supreme Court granted review.

The supreme court agreed with the court of appeals that the guidelines did not authorize the payment of child support from a custodial to a noncustodial parent.

Rule 2 of the guidelines states a rebuttable presumption that the amount of the award that would result from application of the guidelines is the correct amount.  Applying this presumption to the case before it, the court found that there was a rebuttable presumption that neither party owed support to the other.  However, Rule 3 of the guidelines provides that if the court concludes that the amount of the award reached through application of the guidelines "would be unjust," the court "shall enter a written finding articulating the factual circumstances supporting that conclusion."  Id. at 803.

The court concluded: