The Lawletter Vol 46 No 4

Paul Ferrer—Senior Attorney, National Legal Research Group

            Well-established contract law holds that when one party breaches a contract, the nonbreaching party must make reasonable efforts to mitigate its damages. The consequences of failing to mitigate are well illustrated by a recent Illinois appellate decision. See Mayster v. Santacruz, 2020 IL App (2d) 190840, 163 N.E.3d 246.

            The plaintiff owned and operated a Mathnasium math tutoring franchise. The franchisee entered into a binding purchase agreement to sell the franchise for $100,000. The parties bickered over several terms, but the disagreement did not justify the buyer's termination, which therefore constituted a breach. Soon after the breach, however, the buyer offered to reinstate the deal and buy the franchise for the same $100,000 originally agreed. The franchisee refused, choosing instead to raise the asking price to $130,000 to explore more profitable opportunities. The franchisee also declined the franchisor's suggestion that it advertise the franchise for sale in an internal publication that targeted Mathnasium owners, and would thus have been more likely to produce a new buyer. The trial court concluded that the buyer had breached the contract but that the franchisee could not recover any damages based on its absolute failure to mitigate. The only questions presented on appeal were whether the franchisee had failed to mitigate its damages and, if so, whether its failure barred it from recovering anything at all.

The Lawletter Vol 46 No 4

John Stone—Senior Attorney, National Legal Research Group

            A youth mentor brought a 12-year-old boy to his farm for a weekend of outdoor activities, where he allowed the boy to drive an all-terrain vehicle ("ATV") without a helmet or supervision. When the boy suffered permanent serious injuries, including a brain injury and partial blindness, after he lost control of the ATV, he sued the mentor for negligent entrustment and supervision. A trial court granted summary judgment dismissing the suit, concluding that the Minnesota Nonprofit Corporations Act immunized the defendant from civil liability for his alleged negligence.

            An appellate court reversed the lower court because the Act applies only to a volunteer's actions that are undertaken "within the scope of the person's responsibilities as a[n] . . . agent[.]" Hogan v. Brass, No. A20-0846, 2021 WL 852073 (Minn. Ct. App. Mar. 8, 2021). In this case, the nonprofit organization through which the mentor and the boy became associated connected adult mentors with children affected by a parent's incarceration. It provided only same-day mentoring services, encouraging each volunteer mentor to connect with the child on a weekly basis for one to four hours. In various ways, the organization expressly declined a role in interactions that involve overnight or extended arrangements.

D. Bradley Pettit, Senior Attorney, National Legal Research Group

            According to a treatise on revocable trusts,

[t]he number of individuals who own animals is staggering. As many as 56.7 million households in the United States own dogs and 45.3 million own cats.

2 George M. Turner et al., Revocable Trusts, 5th § 78:1 (Westlaw current through November 2020 update).

            As to pet trusts, the Uniform Probate Code provides as follows:

Subject to this subsection and subsection (c), a trust for the care of a designated domestic or pet animal is valid. The trust terminates when no living animal is covered by the trust. A governing instrument must be liberally construed to bring the transfer within this subsection, to presume against the merely precatory or honorary nature of the disposition, and to carry out the general intent of the transferor. Extrinsic evidence is admissible in determining the transferor’s intent.

Unif. Prob. Code § 2-907(b) (Westlaw current through 2019 Annual Meeting of the National Conference of Commissioners on Uniform State Laws).

The Lawletter Vol 46 No 4

Paul Ferrer—Senior Attorney, National Legal Research Group

            The familiar "American rule" holds that a prevailing party generally cannot recover its attorney's fees from the losing party in the absence of a statute or contract provision specifically authorizing an award of such fees. Jurisdictions are divided on the issue of whether a party can recover its attorney's fees as damages, rather than costs, for the breach of a covenant not to sue the other party. In those jurisdictions that have not permitted attorney's fees to be awarded as damages, courts have reasoned that the contract containing the covenant not to sue can itself provide for attorney's fees in the event of its breach if that is the parties' intention. See Artvale, Inc. v. Rugby Fabrics Corp., 363 F.2d 1002, 1008 (2d Cir. 1966) ("Certainly it is not beyond the powers of a lawyer to draw a covenant not to sue in such terms as to make clear that any breach will entail liability for damages, including the most certain of all—defendant's litigation expense."). By contrast, other courts have determined that the American rule does not apply in "those cases in which the attorney fees are not awarded to the successful litigant in the case at hand, but rather are the subject of the law suit itself." Zuniga v. United Can Co., 812 F.2d 443, 455 (9th Cir. 1987). Virginia recently adopted the latter view.

The Lawletter Vol 46 No 3

Trish Sifka—Senior Attorney, National Legal Research Group

        An English Judge and Jurist, Sir Edward Coke, declared in 1604: “[T]he house of everyone is to him as his Castle and Fortress as well for defence against injury and violence, as for his repose[.]” This famous quote from the Court of King’s Bench has been simplified to essentially mean that “every man’s home is his castle” and, thus, deserves special protection. Sir Coke stated this as part of his ruling in Peter Semayne v. Richard Gresham & Estate of George Berisford. Gresham and Berisford were joint tenants of a house in Blackfriars, London. Berisford died while still owing a debt to Semayne, so Semayne sued for writ of attachment against the home.

        In Virginia, real property held as tenancy by the entirety is especially sacrosanct. Where a tenancy by the entirety in the fee simple is created, the property is completely immune from the claims of creditors against either husband or wife alone. Rogers v. Rogers, 257 Va. 323, 512 S.E.2d 821 (1999); Pitts v. United States, 242 Va. 254, 408 S.E.2d 901 (1991). “The tenancy by the entirety may be severed only by mutual consent of the spouses or by divorce.”  In re Bunker, 312 F.3d 145, 151 (4th Cir. 2002); see also In re Sampath, 314 B.R. 73, 92 (Bankr. E.D. Va. 2004) (“The tenancy by the entirety estate retains its full vitality in Virginia.”). Accordingly, a spouse cannot waive contest to forfeiture of real property held as tenancy by the entirety in a plea agreement because that would result in severing of the title without the other spouse’s consent.

The Lawletter Vol 46 No 3

Nadine Roddy—Senior Attorney, National Legal Research Group

            An exotic dancer was an "employee" of an adult entertainment club under the Fair Labor Standards Act ("FLSA"), even though a written agreement disclaimed an employment relationship, a federal district court sitting in Florida recently held in Schofield v. Gold Club Tampa, Inc., No. 8:19-CV-3097-VMC-TGW, 2021 WL 533540 (M.D. Fla. Feb. 12, 2021). The summary judgment evidence showed that the economic reality of the relationship was one of employer and employee given the degree of control over the dancer's work exercised by the club, among other factors.

            An exotic dancer who worked at an adult entertainment club brought suit against the club owner and its operator ("club"), seeking a ruling that she had been misclassified as an independent contractor, that she was the club's employee, and that she was thus entitled to employee's protections under the FLSA.

The Lawletter Vol 46 No 3

Matt McDavitt—Senior Attorney, National Legal Research Group

            It is well-settled that in most states, completed inter vivos gifts are deemed irrevocable, even in circumstances where the donor’s relationship with the donee later deteriorates or the purpose of the gift dissipates. “Many gifts are made for reasons that sour with the passage of time. Unfortunately, gift law does not allow a donor to recover/revoke an inter vivos gift simply because his or her reasons for giving it have soured.” Dayal v. Lakshmipathy, 2020-Ohio-5441, ¶ 37, 163 N.E.3d 683 (quotation formatting and citations omitted). However, Louisiana has a unique statute that allows completed lifetime gifts to be revoked upon proper facts showing “ingratitude” to the donor, either through attempted murder or through cruel treatment, where an action is brought within a year of the injurious act or imputed knowledge of such.

Revocation on account of ingratitude may take place only in the following cases:

• If the donee has attempted to take the life of the donor; or
• If he has been guilty towards him of cruel treatment, crimes, or grievous injuries.

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 46 No 2

Charlene Hicks—Senior Attorney, National Legal Research Group

            Corporate shareholders, individual members of a limited liability company, or residents of a homeowners' association often file derivative complaints on behalf of the entity to assert rights that the entity itself has failed to raise against third parties. Sometimes these derivative actions prompt the entity to file its own lawsuit against the same third parties, resulting in parallel proceedings.

            In Star v. TI Oldfield Development, LLC, 962 F.3d 117, 131 (4th Cir. 2020), the Fourth Circuit considered for the first time the issue of "whether a plaintiff's derivative action on behalf of an entity is rendered moot by the entity's settlement of the same or similar claims in another action." As a matter of first impression, the court held that it may.

            The evidence showed that the Board of Directors of Oldfield, a residential community in South Carolina, filed lawsuits related to Oldfield's development. Rob Star, an Oldfield resident, later filed a derivative action on Oldfield's behalf, alleging similar claims against the same defendants. After the Board settled the lawsuits that it brought, the defendants moved to dismiss Star's derivative action on the ground that the settlements rendered the derivative lawsuit moot, and, therefore, the court lacked jurisdiction. In opposition, Star alleged that the settlement agreement was invalid due to a conflict of interest by certain board members and that the derivative action alleged claims not included in the Board's lawsuits.

The Lawletter Vol 46 No 2

Brad Pettit—Senior Attorney, National Legal Research Group

            A recent decision by the U.S. Tax Court serves as a reminder that if an individual elects to take funds from his or her tax-favored retirement account before he or she attains the age of 59½, the distribution from the account to him or her is not only subject to federal income tax, as are all distributions from retirement accounts, but is also subject to the 10% additional tax that is imposed upon early withdrawals from retirement accounts, such as individual retirement accounts ("IRAs"). In Lashua v. Commissioner, T.C. Memo. 2020-151, 2020 WL 6559172 (Nov. 9, 2020), the Tax Court reminded us that if we decide to withdraw funds from an otherwise tax-deferred retirement account before we reach the age of 59½, we should be prepared, under 26 U.S.C. § 61(a), to report the distribution as "gross income" on our individual or joint federal income tax return and, pursuant to 26 U.S.C. § 72(t)(1), to pay an "additional tax" equal to 10% of the funds that were withdrawn.