Lawletter Vol 49 No. 2

Anne Hemenway—Senior Attorney

            On March 15, 2024, the United States Supreme Court decided a pair of cases from Michigan and California on the issue of whether a public official violates the First Amendment by blocking individuals from the public official's personal social media page. In the Michigan case, Lindke v. Freed, 601 U.S. 187, 144 S. Ct. 756, 218 L. Ed. 2d 121 (2024), Kevin Lindke, a private citizen argued that James R. Freed, the unelected city manager of Port Huron, Michigan, violated his free speech rights when the unelected official blocked the complaining citizen from his personal Facebook page. In the California case, O'Connor-Ratcliff v. Garnier, 601 U.S. 205, 144 S. Ct. 717, 218 L. Ed. 2d 138 (2024), two elected school board members blocked from their social media pages the parents who criticized the board of trustees. In both cases, the blocked citizens were outraged that they were barred from the private internet sites.

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).

The Lawletter Vol. 49 No. 1

Paul Ferrer—Senior Attorney

                The Virginia Supreme Court’s July 2023 decision in Monroe v. Monroe, 889 S.E.2d 646 (Va. 2023), turned on the trial court’s lack of jurisdiction to enter a sanctions order more than 21 days after the trial court had entered its final order dismissing the case. See Va. S. Ct. R. 1:1. For corporate attorneys, however, the case is more notable for Justice Kelsey’s admirably lucid discussion of the nature of a shareholder-derivative action and the status of the plaintiff seeking to maintain such an action.

            Lisa Monroe and Joseph Monroe were the married co-owners of MEPCO Materials, Inc., with 51% and 49% ownership interests, respectively. A week after Joseph filed for divorce, he, as the sole director at that time, caused MEPCO to file a civil action against Lisa for conversion and breach of fiduciary duty, alleging that she had used MEPCO funds for personal use. The following year, Joseph resigned from his position. Because he could no longer speak directly for MEPCO, he sought to convert the action against Lisa—which alleged classic claims that devolved to the benefit of the corporation and both of its shareholders, and not just to Joseph individually—to a shareholder-derivative action, that is, “an equitable proceeding in which a shareholder asserts, on behalf of the corporation, a claim that belongs to the corporation rather than the shareholder.” Monroe, 889 S.E.2d at 650 (quoting Little v. Cooke, 274 Va. 697, 709, 652 S.E.2d 129, 136 (2007)). Under the Virginia Stock Corporation Act, however, a shareholder “shall not commence or maintain a derivative proceeding unless the shareholder,” among other things, “[f]airly and adequately represents the interests of the corporation in enforcing the right of the corporation.” Va. Code Ann. § 13.1-672.1(A)(3). Justice Kelsey referred to this as a “statutory standing requirement that the putative representative must satisfy from the beginning to the end of the derivative action.” Monroe, 889 S.E.2d at 650.

The Lawletter Vol. 49 No. 1

Cassidy Crockett—Senior Attorney

      Many lawyers believe that advising a cannabis business, or cannabusiness, is the same as advising any other business. However, there are several considerations to take into account before taking on these clients.

Legal Ethics

      Attorneys know that ABA Model Rule 1.2(d) forbids attorneys from counselling or assisting clients in criminal conduct. While many states have either modified this rule or issued opinions exempting cannabis businesses, some still consider it an ethics violation to work with these businesses. In 2021, the Georgia Supreme Court denied a motion by the state bar to amend this rule to allow attorneys to engage with the newly legalized low-THC medical cannabis program. In re Motion to Amend 2021-3 (Ga. June 21, 2021). As long as cannabis remains a federally illicit substance, the first step that any attorney looking to engage with a cannabusiness client should take is to check their state ethics rules before proceeding.

Regulatory Compliance

     Cannabis laws are changing very quickly across the country, but cannabis regulations change even faster. While in most states, new laws take effect on a specified date, regulations can take effect and change throughout the year. It may also be warranted in some cases to attend agency hearings as well if the attorney is engaged in the permitting process. It is imperative that attorneys working with the cannabis industry familiarize themselves with their state’s administrative process, relevant agencies, and the administrative code.

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.

Lawletter No. 48 Vol. 4

ELECTION LAW:  Federal District Court Judge Orders Georgia Lawmakers to RedrawCongressional Map for the 2024 Election

Anne Hemenway, Senior Attorney

        On October 26, 2023, in three cases similar to the U.S. Supreme Court decision rejecting Alabama's congressional map, the Federal District Court for the Northern District of Georgia in Alpha Phi Alpha Fraternity, Inc. v. Brad Raffensperger, No. 1:21-CV-05337-SCJ, Pendergrass v. Brad Raffensperger, No. 1:21-CV-05339-SCJ, and Grant v. Brad Raffensperger, No. 1:22-CV-00122-SCJ, 2023 U.S. Dist. LEXIS 192080 (N.D. Ga. Oct. 26, 2023), wrote a consolidated 516-page Opinion and Memorandum of Decision also rejecting Georgia lawmakers' congressional maps. In a state where the recent population growth has been almost entirely made up of minority residents, the state's congressional and legislative maps presented to the court did not add more majority-Black districts. Accordingly, the federal court concluded that despite the fact that Black voters have more opportunities, "the political process is not equally open to Black voters." Further, the court concluded that the current U.S. congressional maps presented to the court dilute and diminish the Black population's voting power in the Atlanta area.

Lawletter Vol. 48 No. 4

CRIMINAL LAW:  The Extent of Judicial Power in Sentencing Pursuant to a Federal Plea Agreement

Suzanne Bailey, Senior Attorney

          A recent decision from the U.S. Court of Appeals for the Fourth Circuit, United States v. Toebbe, 85 F.4th 190 (4th Cir. 2023), illustrates both the binding nature of plea agreements entered into pursuant to Rule 11 of the Federal Rules of Criminal Procedure and the ultimate authority of the judge in sentencing. Diana Toebbe, a high school humanities teacher with a Ph.D., and her husband, Jonathan Toebbe, a nuclear engineer assigned to the Reactor Engineering Division of the Naval Nuclear Propulsion program and possessing both an active Top Secret security clearance through the Department of Defense and an active “Q clearance” through the Department of Energy, decided to supplement their income by selling Restricted Data of the U.S. Navy relating to Virginia-class-nuclear-powered submarines to a foreign government. Unfortunately for the Toebbes, the foreign government alerted the FBI to the couple’s proposed scheme, and all of the “dead drops” of information Jonathan thought he was making to the foreign government—with Diana acting as look-out—were actually left for an FBI undercover investigation team. Both Toebbes were indicted and charged with “one count of conspiracy to communicate Restricted Data, in violation of 42 U.S.C. § 2274(a), and two counts of aiding and abetting the communication of Restricted Data, in violation of § 2274(a) and 18 U.S.C. § 2," 2023 U.S. App. LEXIS 28366, at *7-8, and both faced a potential sentence of life in prison.

Lawletter Vol. 48 No. 4

CORPORATIONS:  When Traditional Standing Rules Do Not Apply to Shareholder Derivative Actions

Charlene Hicks, Senior Attorney

     Standing, or the right to pursue a judicial action, is often viewed in black-and-white terms, that is, either a plaintiff does or does not have standing. In some situations, however, the plaintiff’s status cannot be so easily quantified. One notable grey area is found in shareholder derivative litigation.

     Generally speaking, in order to maintain a shareholder derivative suit, an individual plaintiff must own stock in the corporation at the time the controlling shareholders or directors committed the wrongful act against the corporation that is the subject of the action, and the plaintiff must retain ownership of that stock for the entire duration of the lawsuit. If these stock ownership requirements are not satisfied throughout the entire course of litigation, the plaintiff lacks standing to maintain the derivative action on behalf of the corporation. This general rule is premised on the rationale that a former shareholder would not personally benefit from a recovery by the corporation; therefore, he/she “might be willing to accept an improper or inadequate settlement” to the detriment of the remaining shareholders. Noakes v. Schoenborn, 116 Or. App. 464, 470, 841 P.2d 682, 685 (1992).

Lawletter Vol  48 No. 3

ChatGPT, LLMs, and Legal Research

Brett R. Turner—Senior Attorney

What Is ChatGPT? What Are LLMs?

      ChatGPT is one particular brand of a large language model, or LLM. LLMs are a recent technological advance in how computers and humans communicate with one another. In one direction, LLMs parse plain-language instructions and convert them into language which a computer can understand. In the opposite direction, LLMs allow computers to translate their output into ordinary language for humans, including not only sentences but also entire written products, such as memos or briefs.

      More specifically, LLMs work by starting with certain words (the prompt) and finding other words which are associated with those words in certain training material. An algorithm is then used to convert the chosen words into a product using ordinary human language.

      ChatGPT has been analogized to the automatic chat bots found on many support websites. The software begins with a prompt, scans through a specific list of documents, and produces the content of those materials in ordinary human language.

Lawletter Vol  48 No. 3

The Utility of a Declaratory Judgment Action

Paul Ferrer—Senior Attorney

          Most states, as well as the federal government, have enacted some form of declaratory judgment act, which authorizes courts to declare the rights and other legal relations among parties even though traditional remedies for damages or equitable relief are not yet available. Virginia’s Declaratory Judgment Act is typical. It permits Virginia’s trial courts, “[i]n cases of actual controversy, . . . to make binding adjudications of right, whether or not consequential relief is, or at the time could be, claimed” by the parties. Va. Code Ann. § 8.01-184. Declaratory relief is particularly useful in settling controversies involving the interpretation of written instruments, such as contracts, deeds, and wills, but relief may be sought whenever there is an “actual antagonistic assertion and denial of right.” Ames Ctr., L.C. v. Soho Arlington, LLC, 301 Va. 246, 876 S.E.2d 344, 347 (2022) (quoting Va. Code Ann. § 8.01-184). In Ames Center, the Virginia Supreme Court noted the struggle courts have sometimes faced in finding “the case-specific equilibrium where a declaratory-judgment action serves its intended purpose without going too far or not going far enough.” 876 S.E.2d at 348. That, however, was not one of those cases.