The Lawletter Vol. 49 No. 1

Lee Dunham—Senior Attorney

             Closely related people or entities often make loans, including promissory notes, to each other without the formalities that usually accompany business transactions between strangers. Later—sometimes years later—such transfers can become problematic if the IRS seeks to treat the transfer as a distribution or gift for tax purposes. Is the parties’ failure to execute a promissory note contemporaneously with the loan fatal to treatment of the transaction as a loan? Can the parties retroactively document the loan with a newly executed promissory note?

          “The question of whether a taxpayer has entered into a bona fide creditor-debtor relationship pervades Federal tax litigation.” Dynamo Holdings Ltd. P'ship v. Comm’r, Nos. 2685-11, 8393-12, 2018 Tax Ct. Memo LEXIS 60, at *47 (May 7, 2018). For tax purposes, the answer turns on intent: “[t]he parties must have actually intended to establish a debtor-creditor relationship,” i.e., “at the time the advances were made there [must have been] ‘an unconditional obligation on the part of the transferee to repay the money, and an unconditional intention on the part of the transferor to secure repayment.’” Id. at *47–48, citing Calloway v. Comm’r, 135 T.C. 26, 37 (2010), Ellinger v. United States, 470 F.3d 1325, 1333 (11th Cir. 2006), and Haag v. Comm’r, 88 T.C. 604, 616 (1987), aff'd without published opinion, 855 F.2d 855 (8th Cir. 1988).

Lawletter No. 48 Vol. 4

TORTS:  Duty of Care by a Supplier of Tools or Chattels

Lee Dunham, Senior Attorney

      It is, unfortunately, fairly common for people to sustain injuries from using defective tools or equipment such as ladders or scaffolding with faulty latching mechanisms or broken or improperly modified power tools. In circumstances where the tool was supplied by a third party, the party supplying the tool or chattel is often the employer of the injured worker, and the injury occurs on property owned or controlled by the employer. In such circumstances, the claim is often governed by OSHA regulations or principles of premises liability. However, even where those principles do not apply, liability can arise as a result of negligently supplying a defective chattel. The rule as stated in the Restatement (Second) of Torts § 392 is as follows:

       Chattel Dangerous for Intended Use

     One who supplies to another . . . a chattel to be used for the supplier's business purposes is subject to liability to those for whose use the chattel is supplied . . . for physical harm caused by the use of the chattel in the manner for which and by person for whose use the chattel is supplied (a) if the supplier fails to exercise reasonable care to make the chattel safe for the use for which it is supplied, or (b) if he fails to exercise reasonable care to discover its dangerous condition or character, and to inform those whom he should expect to use it.

The Lawletter Vol 47 No 4

Lee Dunham—Senior Attorney, National Legal Research Group

       It can be frustrating for creditors when a debtor files for bankruptcy, especially when the creditor has put time and expense into successfully litigating a claim in court and obtaining a judgment. Nonetheless, with limited exceptions, even judgment debts are dischargeable in bankruptcy. Among these exceptions to discharge are exceptions that apply to certain fraudulently incurred debts. To claim the benefit of these exceptions, the creditor must bring a timely filed “adversary proceeding” (a suit filed in the Bankruptcy Court, under a separate case number but under the umbrella of the larger bankruptcy case) and plead and prove that a particular debt is nondischargeable under 11 U.S.C. § 523(a)(2)(A) or (B).

       In nondischargeability actions brought pursuant to § 523(a)(2)(A), the plaintiff bears the burden of proving the elements of the claim by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291 (1991); In re Ricker, 475 B.R. 445, 455 (Bankr. E.D. Pa. 2012); In re Witmer, 541 B.R. 769, 777 (Bankr. M.D. Pa. 2015).

       A claim is nondischargeable under § 523(a)(2)(A) where the creditor proves each of the following: (1) the debtor obtained money through a material misrepresentation that, at the time, the debtor knew was false or was made with gross recklessness as to its truth; (2) the debtor intended to deceive the creditor; (3) the creditor justifiably relied on the false representation; and (4) its reliance was the proximate cause of loss. In re Rembert, 141 F.3d 277, 280-81 (6th Cir. 1998). Section 523(a)(2)(A) applies only to statements other than statements “respecting the debtor’s or an insider’s financial condition,” which fall under the narrower exception defined under § 523(a)(2)(B).

The Lawletter Vol 46 No 6

Lee Dunham—Senior Attorney, National Legal Research Group

     Your motion for summary judgment was denied. Not long thereafter, the judge in your case retires and is replaced by a new judge who seems much more sympathetic to your client’s arguments. The deadline to file a motion to reconsider has expired. Can you simply refile your motion and try your luck again with Judge #2? Sometimes, but caveats apply.

     Within a single action, consistency and efficiency are achieved by a doctrine known as the “law of the case.” See Watkins v. Elmore, 745 F. App’x 100, 102 (11th Cir. 2018); In re Justice Oaks II, Ltd., 898 F.2d 1544, 1549 n.3 (11th Cir. 1990). It is broadly similar to res judicata in that under the law-of-the-case doctrine, as a general rule, “an issue decided at one stage of a case is binding at later stages of the same case.” United States v. Escobar-Urrego, 110 F.3d 1556, 1560-61 (11th Cir. 1997); see also Hallahan v. Courier-Journal, 138 S.W.3d 699, 705 n.4 (Ky. Ct. App. 2004) (“The doctrine of law of the case establishes a presumption that a ruling made at one stage of a lawsuit will be adhered to throughout the lawsuit.”).

     Unlike res judicata, however, the law of the case is “not jurisdictional in nature, and the court's power is not limited thereby” but, rather, is “a rule of practice ‘self-imposed by the courts.’” United States v. Anderson, 772 F.3d 662, 668 (11th Cir. 2014). While res judicata is a rule of law, the law of the case merely “directs a court's discretion.” Arizona v. California, 460 U.S. 605, 618 (1983), decision supplemented, 466 U.S. 144 (1984).

     Notwithstanding the law-of-the-case doctrine, a court's previous rulings may be reconsidered as long as the case remains within the jurisdiction of the court.

The Lawletter Vol 46 No 3

Lee Dunham, Senior Attorney, National Legal Research Group

            As most seasoned practitioners are all too aware, it is often more time- consuming and frustrating to litigate a case against an incompetent pro se party or opposing counsel than it is to oppose a good lawyer. A litigant who is sloppy, mentally unwell, or who has very little understanding of the law can simply invent fictions faster than a competent and ethical attorney can refute them. Luckily, such a litigant often reveals his or her incompetence immediately through his or her pleadings. The best way to limit wasted time is usually to attempt to dispose of as much of the case as possible “on the papers.” Dismissal is, of course, the ideal result, but even if dismissal is not possible, it is still better to force the opponent to proceed on “cleaned up” and comprehensible pleadings without irrelevant statements or unsupportable claims.

            The Federal Rules of Civil Procedure specify requirements for the form and content of pleadings and motions, as well as mechanisms to force opposing counsel to adhere to those specifications or suffer penalties for failing to do so. Most states have some version of these procedural tools, and many have adopted rules close or identical to the Federal Rules.

The Lawletter Vol 43 No 8

Lee Dunham—Senior Attorney, National Legal Research Group

            Student debt is the second-largest source of U.S. household debt, at nearly $1.4 trillion. Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit (accessed on Nov. 10, 2018). It is projected that nearly 40% of student loan borrowers will default by 2023. Judith Scott-Clayton, The Looming Student Loan Default Crisis is Worse than we Thought (accessed on Nov. 10, 2018). Many attorneys have seen increased requests for student loan advice.

            Because students are often young and legally unsophisticated at the time they borrow, many understand little about their contracts, or have lost—or never obtained—copies of the essential documents. The first step in such circumstances is to have the client contact the servicer to request copies of the promissory note and related documents, payment history, name and address of the current lender, and documentation of any transfers.

The Lawletter Vol 43 No 4

Lee Dunham, Senior Attorney, National Legal Research Group

            Bankruptcy Code § 521(1) places an affirmative duty upon a debtor to disclose all assets to the bankruptcy court. A known cause of action that has accrued is an asset that must be scheduled under Bankruptcy Code § 521(1). See Eubanks v. CBSK Fin. Group, Inc., 385 F.3d 894, 897 (6th Cir. 2004); Cusano v. Klein, 264 F.3d 936, 945 (9th Cir. 2001). An unliquidated cause of action need not actually be filed prior to the commencement of the bankruptcy in order to qualify as an asset that must be scheduled. See Barletta v. Tedeschi, 121 B.R. 669, 671-72 (N.D.N.Y. 1990). However, debtors frequently neglect to list unliquidated causes of action as assets, whether because they have filed a bankruptcy without the assistance of a competent bankruptcy attorney or because, through simple oversight or lack of understanding, they failed to inform their bankruptcy counsel of their existing claims.

The Lawletter Vol 42 No 10

Lee Dunham, Senior Attorney, National Legal Research Group

            During the holiday season, many of us open our homes to friends and coworkers and, unfortunately, sometimes a guest is injured or becomes sick on the property. What is the scope of a host's duty to render first aid to the uncle who cuts his hand while carving the turkey, or the New Year's Eve guest who has far too much to drink?

            Courts of most states generally follow the scheme outlined in the Restatement (Second) of Torts as to duty to render aid. The general rule, of course, is that there is no duty to render aid to one who is in peril, even if it would be easy to provide assistance. See Restatement § 314 ("The fact that the actor realizes or should realize that action on his part is necessary for another's aid or protection does not of itself impose upon him a duty to take such action."). But an exception applies when a "special relationship" exists between the parties.

The Lawletter Vol 42 No 7

Lee Dunham, Senior Attorney, National Legal Research Group

            Collateral estoppel, also known as "issue preclusion," prohibits relitigation of factual or legal issues that have been "actually and necessarily decided" in earlier litigation. See, e.g., Banga v. First USA, 29 F. Supp. 3d 1270, 1280-81 (N.D. Cal. 2014) (citing San Remo Hotel L.P. v. San Francisco City & County, 364 F.3d 1088, 1094 (9th Cir. 2004)).  Unlike the related doctrine of res judicata (or "claim preclusion"), which operates as a complete bar to relitigation of an entire claim, under collateral estoppel, the (new and different) claim may proceed, but "the prior judgment conclusively resolves an issue actually litigated and determined in the first action." DKN Holdings LLC v. Faerber, 61 Cal. 4th 813, 824, 352 P.3d 378, 386-87 (2015), reh'g denied (Aug. 12, 2015).  Claim preclusion bars litigation of all issues that were or could have been litigated in the original action under the original claim, while issue preclusion resolves only those issues that were actually litigated. Banga, 29 F. Supp. 3d at 1280-81.

The Lawletter Vol 42 No 2

Lee Dunham, Senior Attorney, National Legal Research Group

     Tax-related identity theft occurs when someone uses a taxpayer's stolen Social Security number to file a fraudulent refund. Often, the taxpayer is not aware of the identity theft until he or she files a valid tax return and is notified by the Internal Revenue Service ("IRS") that multiple returns have been filed in his or her name. Its incidence, like that of other forms of identity theft, has increased in recent years due to hacking and phishing scams that have enabled cybercriminals to obtain far-reaching access to taxpayers' personal data, including Social Security numbers.

     The schemes of the criminal defendants described in United States v. Philidor, 717 F.3d 883 (11th Cir. 2013), and United States v. Gonzalez, No. 13 CR 154 RWS, 2014 WL 316984, at *2 (S.D.N.Y. Jan. 27, 2014), are illustrative of the nature and scope of the problem.