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Tilting the Scales

Business Issues with a Legal Slant

Avoid “Uh-Oh”-Pen Carry at the Airport

Posted in Legal Risk Management

open-carry-airportSince Texas’ open carry law went into effect at the beginning of the year, Pistol Pete has carried his Glock everywhere he can in his shoulder holster. In a rush to make his flight to Houston for a business meeting, Pete forgets to remove his holster and attempts to walk through TSA’s screening with his loaded Glock. Does he face big-time legal trouble when the TSA agent sees his gun?

Pete’s Not Alone.

Apparently, passengers attempt to bring guns through airport security several times a day, and TSA says the numbers keep rising each year.

It’s Okay in Texas—if Concealed.

Some Texas airports took a proactive approach to the new open carry laws by posting statements on where gun owners can carry their weapons on airport property. In addition to open carry, last year the Texas Legislature passed a law that gave concealed carry owners the opportunity to immediately leave the airport screening area when security notified him or her that their weapon was discovered. However, the law also seems to provide that it is not a defense if Pete openly carried the weapon, even though he has his CHL. So, Pete may still be in trouble for his open carry folly—although TSA will probably give him a free pass by allowing him to leave the security area and store the weapon in his truck.

Each State is Different.

Pistol Pete might be in some trouble, had this happened in another state.  Attempting to carry a gun through airport security is a state issue—not a federal issue—and thus the penalty, if any, is determined by the jurisdiction where the airport is located.

Tilting the Scales in Your Favor.

Accidents happen, especially when we’re distracted. If you inadvertently attempt to take a handgun through security (whether open or concealed carry) tell the TSA agents it was a mistake, you forgot you had it on you, and that you would like to go back to your vehicle.  Remember, staying calm is likely to get you the best result under the circumstances!

If you are traveling outside of Texas and plan to bring your gun with you, you should review the gun laws for the states you are traveling through.

Top 8 Pitfalls of Arbitration

Posted in Legal Risk Management

arbitration-pitfallsAfter months of arguing over defective solar panels with his supplier, California X-Tra Green Solar, Ed Ezeeout finally calls his favorite attorney at Fixx, Itt & Quick. Dutifully gathering all emails, invoices and transport documents with X-Tra Green, Ezeeout comes across the parties’ master sales agreement. Giving it another look, he discovers a “boiler plate clause” agreeing to mandatory arbitration. In the confidence of his favorite attorney, Ezeeout bemoans the time and cost of resolution and suggests, hopefully, “Well, at least the arbitration will be in Texas, will be confidential and will save me time and money. And, if we don’t like the way things are going, we can avoid arbitration and get a jury trial. Either way, we can appeal any unfavorable or wrong judgment, right?” Does Ezeeout risk even more frustrations?

Yes. Originally a viable alternative to the time and expense of a jury trial, the Federal Arbitration Act and the Texas Arbitration Act hoped to offer a confidential, final dispute resolution that would save litigants time and money. Many claim it now does neither.

Arbitration Pitfalls

  1. Arbitration agreements are valid. Resistance is futile. Texas courts almost always enforce them. Unless both parties agree not to enforce an arbitration clause, either party may send their dispute to arbitration. Ezeeout is not likely to get a jury trial.
  2. Arbitration may not be in Texas. X-Tra Green’s “boiler plate language” will likely require arbitration in California and applying California law, increasing Ezeeout’s cost and uncertainty.
  3. Arbitration isn’t always cheaper. It can be, but only if the arbitration clause is tightly drafted or the clients force a budgeting process. Litigants pay for either one or three arbitrators; even one costs more than a Texas court judge. Litigants often pay administrative services which can be prohibitive for small disputes. Depending upon the agreement, all of the costs of the judge and of administration are imposed either equally or against the losing party. Discovery can be just as expensive, if not more, depending upon the involvement of the arbitrator(s) and the permitted scope of discovery fights.
  4. Arbitrators aren’t always qualified. Selecting the best arbitrator for your circumstances requires careful consideration of cost, demeanor, conflicts of interest with the other attorney and their client, usefulness of fact-specific experience, and, perhaps, predilection to one kind of claim or the other. Depending upon complexity, specific field or industry knowledge may be helpful. Avoiding conflicts and knowing who your adversary knows may be even more critical. Finally, investigate whether your arbitrator is both capable and willing to rule decisively, and to not just “split the baby.”
  5. Arbitration might not be faster. It should be, but that’s not always the case. While intentionally not duplicating all of the rules of civil procedure and evidence, some arbitration service rules risk creating unfamiliarity. And, unfamiliarity affects timeliness. Properly managed, arbitration can provide flexibility to fashion the procedure and discovery to the circumstances. It hinges on the arbitrator(s) pushing to resolution rather than permitting the parities and their counsel to fight over irrelevant discovery and procedural matters. As the saying goes, time is money.
  6. Arbitration isn’t necessarily confidential. This is only true if the arbitration agreement specifically says so. Even then, it should include appropriate confidentiality language to suit the circumstances.
  7. Arbitration isn’t usually appealable. Unless the arbitration agreement provides otherwise (and even if it does, appellate courts disagree on application), an arbitration award is final and not appealable. The only “cure” is to insure that the arbitrator is diligent, qualified and fair.
  8. Arbitration isn’t enforceable unless written. The arbitration award is enforceable only by a written judgment or opinion. Absent the losing party voluntarily fulfilling the award, the arbitration award must be returned to a state or federal court for enforcement. If the trial court vacates the arbitration award, that’s appealable by the winning party in arbitration by court ordered mandamus as fellow blogger Drew York accomplished.

Tilting the Scales in Your Favor.

Properly drafted and implemented, an arbitration clause in your company agreement can permit you to keep dispute resolution in Texas, before an arbitrator of your selection, with narrowly crafted, appropriate discovery. It could even include a limited resolution process permitting an accelerated timetable to reduce expenses, and perhaps even position the resolution to minimize damages to the business relationship between litigants. The starting point?

For example, quality control can be aided by: asking your counsel to prepare a budget and calibrate it to the amount and importance of the case; setting limitations on discovery to avoid discovery overkill by broadly preserving every back-up tape, hard drive and document, and focusing on the specific subject matter, evidence and likely witnesses by promptly investigating to find out what is likely discoverable, where it is stored and who the likely witnesses are; mutually agreeing to exchange access to inspect and copy documents at the expense of the inspecting party; limiting email production, if any, by custodians, search terms and date range; stipulating to facts not in issue; and agreeing to use affidavit and deposition testimony for noncontroversial testimony.

If you are still reading this and you are an in-house counsel or business owner looking to make your arbitration options more cost and time efficient, retired Justice Jim Moseley of my firm and I would like to buy you a cup of coffee. We have some ideas about a streamlined process for arbitration that we would like to poll. No obligations and no warranties, express or implied!

Dashing Through Non-Competes Christmas Style

Posted in Employment & Labor, Non-Competes

Wanting to expand out of North Dakota before the Christmas season, Homer’s Christmas Tree Farm picked Bubba’s Christmas Farm in the Texas Panhandle. Knowing that Bubba’s employee, Skeeter Jones, was critical to Bubba’s continuing success, Homer required Skeeter to sign a new employment contract complete with non-competition and non-solicitation provisions under North Dakota law. When Skeeter decided to quit and open his own Christmas tree farm several months later, Homer called his lawyer Haven O’Sham in a fit of fury demanding that the non-compete be enforced against Skeeter in Texas. But which law applies, North Dakota or Texas? Homer’s lawyer insists Texas; Skeeter’s lawyer argues North Dakota law which would make the non-compete unenforceable. Who’s right?   Which state law applies? Hang on, this one is a little complicated and a departure from the customary short answer.

Texas Non-Compete Law.

Non-compete agreements are generally enforceable in Texas, so long as they are reasonable geographically, in length of time and in their scope, and so long as the employer gives up something of value such as confidential information about pricing, customers, marketing or the like.

North Dakota Non-Compete Law.

Unfortunately for Homer, North Dakota law prohibits any non-competition agreement except when: (1) you sell the goodwill of a business and limit the non-compete to a city or county; or (2) partners in a partnership agree not to carry on a similar business in the same city as the partnership.

The Winner?

Probably Homer and Texas law. Most courts if given the opportunity will enforce their own state law against their own residents. Recently the United States Court of Appeals for the Fifth Circuit addressed an argument similar to Homer’s that Texas law should apply. In Cardoni v. Prosperity Bank, Prosperity Bank acquired F&M Bank and Trust out of Oklahoma. As part of the deal Prosperity required F&M’s employees in Tulsa to sign new employment contracts that contained non-compete agreements. The contracts were governed by Texas law. The employees quit and went to work for a competitor in Tulsa. Prosperity tried to obtain an injunction to enforce the non-competes, but the employees said Oklahoma law governed, and that Oklahoma law prohibited the non-competes. The court of appeals agreed, holding that Oklahoma had a materially greater interest than Texas in determining the issue because the bankers performed most of their work in Oklahoma, and Tulsa was identified as the place of performance in their contracts. Because Oklahoma prohibits non-compete agreements, those provisions in the bankers’ contracts were invalid.

Tilting the Scales in Your Favor.

Because each state’s laws differ widely, to successfully enforce important provisions such as non-compete agreements, carefully review your options with your attorney. Properly done, Homer almost certainly would have crafted a Texas employment agreement and successfully enforced the non-compete against Skeeter without having to argue about whether Texas or North Dakota law applied. Yet, final results do depend on the circumstances. There is no “one size fits all.” Enforcement of non-compete agreements are becoming more common place.

What about Generic Non-Compete Forms from the Internet?

Generic internet non-compete and employment agreements are just that – generic – and sometimes more expensive to try to enforce than they are worth. As a general rule you should always avoid generic forms from the internet for almost any legal issues. They usually cause more harm than good.

Merry Christmas and Happy New Year to all!

Holiday Parties – Top 10 Tips to Avoid Holiday Hangups

Posted in Around the Holidays, Employment & Labor, Legal Risk Management

iStock_000080152415_MediumWanting to avoid hang-ups at its annual firm holiday party, the law firm of Dewey Cheatham and Howe invited its employees, their spouses and dates, and offered everyone a complimentary Uber ride home. For those living too far away, they were offered an overnight hotel stay.

Assuming that the free ride home was a license to drink without restraint and choosing not to take his wife, Schleeze Bagg did not work the day of the party, had a couple of drinks before and imbibed to his heart’s content all evening. Rather than Uber home, Schleeze and his assistant Ladda Climbar accepted the free overnight stay. Later that night Schleeze decided to drive Ladda home. The ensuing car wreck sent them both to the hospital and the teenage couple in the other car to the morgue. Problems for DC&H?

Maybe and no. Setting aside the possible sexual harassment exposure, under Texas law DC&H owes no legal duty to prevent someone from drinking and driving … even if they are minors… or even guests… and even if the social host knows the guest is intoxicated. The offer of free lodging or a free ride home was just that, a complimentary offer to employees with no strings attached, unless the employer somehow “took responsibility” for the employee, which could have a different ending.

While DC&H may have dodged legal liability to non-employees for Schleeze Bagg’s alcohol related accident, the relaxed environment and alcohol, and allegations of sexual harassment have possible repercussions beyond legal liability – affecting PR and public perceptions of DC& H and employee morale.

Tilting the Scales in Your Favor.

Even if the company has limited or no legal exposure, actions speak louder than words when it comes to taking care of your employees and your company. Ten tips for planning and safely enjoying your company-sponsored event:

  1. Plan early and well to identify and avoid potential issues and to encourage professional behavior.
  2. Make attendance optional, and don’t take roll.
  3. Invite Spouses and dates to discourage spontaneous interludes.
  4. Celebrate after working hours with a professional bartender or servers trained to manage party goers and their intoxication, maybe even at a restaurant or bar
  5. Offer non-alcoholic beverages and plenty of food, especially if it’s sugary rather than salty.
  6. Consider offering free Uber rides home, being careful that doing so does not promote unrestrained drinking. Encourage the professional servers to assist in their use.
  7. Skip the mistletoe. It can lead to unwanted kissing or touching.
  1. Discourage overindulgence of alcohol, i.e., no “beer-drinking” contests.
  1. Discourage “after parties.”
  2. Post-Party touch base with key players to identify any potential issues and follow up.

After noting the number of alcohol related tips, you may want to ask yourself if alcohol is worth having.

Check out Gray Reed’s own Michael Kelsheimer who writes an employment blog and has tips and tricks described at Employment Law 101: Holiday Parties.

Past Related Articles.

Will Over-Serving Your Guests Ruin Your Holiday (Legally Speaking)?

Common Law Business Partnership – Can You Have a Partner Despite a Contrary Agreement?

Posted in Legal Risk Management

Believing that a non-binding term sheet and earlier written agreements precluded any unwritten partnership, Original Oil Production Services (OOPS) cut out its colleague Petroleum United Transfer Zenith (PUTZ) and secretly negotiated its own sweet deal with a competitor.

Aghast upon discovering that OOPS took sole ownership and advantage of the joint efforts of these midstream oil and gas transporting giants to solve the puzzle to reverse the normal flow of crude and send it from North Dakota and Canadian oil patches back to the Gulf, PUTZ sued. Concluding that despite prior agreements the parties’ conduct evidenced an unwritten partnership, a jury found that OOPS breached its fiduciary duty of loyalty to the tune of $500 million. Did the jury get it right?

Unwritten Partnership?

A Dallas County judge and jury think so. A partnership is “an association of two or more persons to carry on a business for profit,” regardless of whether they intend to create a partnership. OOPS argues that previously signed documents prohibit any partnership. The jury agreed with PUTZ’s argument that the parties plowed right past some initial agreements and satisfied not just one, but all five partnership statutory factors to establish a partnership: (1) sharing in profits; (2) expressing intent to be partners; (3) participating in control; (4) agreeing / sharing in losses or liability; and (5) agreeing to contribute money or property – consequently overruling any previous, preliminary agreements.

PUTZ argues that a partnership forms when the parties act like partners, despite what they said when conditions precedent were never satisfied. For example, Texas law recognized a  partnership when parties acted as a partnership in the face of an unsatisfied condition precedent to sign a written partnership; in the face of agreeing not to be partners when they agreed to share profits and expenses, contribute property, and obligate each other for debts; and even when calling their agreement a “lease” yet the “lease” terms evidenced profit and loss sharing and a joint enterprise benefiting both.

Fiduciary Duty Breached Until Proven Innocent?

Given the finding of a partnership, OOPS breached its fiduciary duty of loyalty to its partner PUTZ. And, since OOPS violated the trust and confidence owed by its duty of loyalty, OOPS must prove that its conduct was honorable to avoid PUTZ’s breach of duty claim. OOPS, as the accused, must prove its innocence. Guilty until proven otherwise innocent is the much tougher legal standard for fiduciaries.

Disgorgement of Profits?

In Texas, a person is not permitted to profit by his own wrong. All profits from misconduct, such as a stolen business opportunity, are subject to disgorgement. A fiduciary (OOPS) must account for, and yield to its beneficiary partner (PUTZ), any profit made as a result of a breach of a fiduciary duty. Disgorgement discourages disloyalty and strengthens fiduciary relationships by stripping the defendant of any wrongful gain.

Tilting the Scales in Your Favor

Actions speak louder than words when it comes to taking care of your partner. Regardless of the paperwork crafted and signed, if you and your partner start wheeling and dealing your ideas, and the ideas take form in a way different from your initial documents, know that you better act in the best interest of you both. Loose fitting first agreements hardly trump the demands of competitive, heavily negotiated subsequent transactions. How do you prove that you don’t have a partnership and you did not breach your fiduciary duty of loyalty? Sign a new written agreement that either details the evolving arrangement, or clearly disavows any ongoing business relationship.

Epilogue

Circumstances like these happen all the time, particularly in the oil and gas industry. Understandably, the energy industry and lawyers across the state are closely following the real case with very similar facts – Enterprise Products Partners LP v. Energy Transfer Partners, LP before the 5th Court of Appeals in Dallas. Appellant briefs for the trial court Plaintiff Energy Transfer and the appellant- trial court Defendant Enterprise Products Partners can be found on the appellate website. Many predict the appeal will make its way to the Texas Supreme Court.

Past Related Articles

Animal House – Can You Own Exotic Animals?

Posted in Property Issues

man with tiger

Phil Elliott, wide receiver for the North Dallas Bulls, posts a photograph on Instagram showing his new pet tiger hanging out in his backyard in Preston Hollow.  His post goes viral and becomes a hot news topic.  The next day, PETA claims Elliott’s tiger is illegal and requests the Dallas Police Department seize the tiger.  Can Elliott shake PETA’s attack?

Exotic Animal Regulations Across the Country.

The ability to own exotic pets varies across the country.  At least 14 states ban private individual citizens from owning exotic animals as pets.   Approximately 14 more states have some sort of licensing scheme requiring the owner to register the animal.  Other states have regulations covering the ownership of exotic animals, but do not require registration or may not have enforcement provisions.  This is a great summary of each state’s laws concerning exotic animals.

Texas’ Permit Requirements for Exotic Animals.

Texas prohibits private individuals from owning or having custody of a “dangerous wild animal” – such as a lion, tiger or bear[1]unless the person has a certificate of registration from either the city or county animal control department, or from the county sheriff if the county does not have an animal control department.  The registration certificate must be renewed annually.  The owner must also have at least $100,000 liability insurance coverage for the animal.  Additionally, the owner must immediately notify the animal control department or the sheriff if the animal escapes or attacks a human.

The failure to register a wild animal is a Class C misdemeanor for each day the animal is not registered.  This means the owner could be punished with a fine of $500 for each day.  Additionally, the city or county where the person keeps the wild animal may sue the owner and recover a civil penalty between $200 and $2,000 per day, plus attorney’s fees.

Tilting the Scales in Your Favor

Pets can be expensive, but exotic pets can be even more expensive if you fail to follow the rules.  So before you buy the cute capuchin monkey for your kids or significant other, make sure you take care of the paperwork to avoid any potential legal trouble.

[1] The Texas statute contains a defined, exclusive list of “dangerous wild animals.”

Stadium Follies – When Can You Sue the State of Texas?

Posted in Legal Risk Management

football stadiumWhat a year it has been for the Podunk (Texas) High School football team. After the school opened its new $50 million, 18,000-seat stadium at the beginning of the year, the team has reeled off an undefeated regular season and is headed to the playoffs for the first time since 1974.

The scuttlebutt in Podunk (population 10,000) is about how good the team’s chances are of winning a state title. Leading the way is star quarterback Rock Cannon, a senior whose arm strength matches his last name. A number of colleges have offered Rock a scholarship to play for them, and he’s verbally committed to the University of Arkansas.

While on the way to practice in the school’s stadium before their opening playoff game, Rock tripped on an unmarked hollow pipe, fell, and broke his throwing hand’s wrist. Not only is Podunk’s magical season effectively over, but the injury is so severe that he may not throw the football the same again. Subsequently, the colleges have all withdrawn their scholarship offers. Rock’s parents sue the school district on his behalf for negligence. The district responds that Rock’s claims are barred by either the Texas Tort Claims Act or the State’s Recreational Use Statute. Has Rock run into a solid defense?

Rock’s claims are not barred by the Texas Tort Claims Act.

Governmental entities generally enjoy sovereign immunity, or the legal principle from English law that “the king can do no wrong.” The Texas Legislature has enacted the Texas Tort Claims Act (TTCA), which determines in what instances a governmental entity, such as a school district, may be liable for tortious conduct under Texas law. Under the TTCA, governmental entities are not immune from claims arising out of their proprietary functions (such as the operation or maintenance of a public utility), claims arising from the use of a motor vehicle, or premises liability cases. Because Rock’s injury was allegedly caused by a condition at the football stadium (the unmarked hollow pipe) his claims are not barred by the TTCA.

Football is not “recreation”.

What about the district’s second argument that Rock’s claims are barred by the Recreational Use Statute? This statute is important because it limits a property owner’s liability to injuries resulting from gross negligence or malicious conduct. The Texas Supreme Court recently considered two cases involving recreational and competitive sports. In one case, a mother was injured while watching her daughter’s high school soccer game at a local stadium. In the second case, a grandmother was injured when she tripped while walking to the parking lot after watching her granddaughter’s youth softball game. In both cases, the Court made it clear that spectating at a sporting event is not “recreation” under the statute, and therefore a property owner (such as a school district) may be held liable for injuries resulting from negligent conditions. The Court also did an extensive analysis of the statute and found that “[t]he recreational use statute was originally enacted to encourage landowners to open private land for natural pursuits.” The Court reasoned that competitive sports, while sometimes taking place outdoors, did not fall within the statute’s original purpose. Thus, the district’s second argument is a weak defense.

Tilting the Scales in Your Favor

he Recreational Use Statute applies to private property owners as well. If you own private property and lease the property for hunting or fishing – or even bird watching (!!!) – remember that the Recreational Use Statute limits your liability to grossly negligent or malicious conduct. If your land qualifies for agricultural use, your liability is capped at $500,000 per person and $1 million per incident to incentivize private property owners to open their property for recreational purposes.
As always, watch where you are walking!

Employee Benefits – Do Employers Owe a 401(k) Fiduciary Duty?

Posted in Employment & Labor

401k and EmployersBack in July, we discussed how Jed Clampett of Mama’s Fried Pies caused his VP of marketing Elly May to suffer exorbitant taxes due to a deferred bonus that he offered.  This month, Jed finds himself again in the grease with his employees – this time with his 401(k) plan. Unfortunately Jed and his company’s plan administrators were not paying attention to 401(k) plan costs. Jed was told that the fees in the retirement plan made it extremely competitive. However, federal disclosure documents showed the fees are more than three times higher than other plans available to comparable companies. Is that a problem for Jed and his fellow Mama’s Fried Pies employees charged with administering the plan? If so, what’s the downside risk to Jed.

Yes. According to a Supreme Court of the Unites States opinion earlier this year, Mama’s Fried Pies, as the plan sponsor, owed a duty to conduct proper due diligence – a fiduciary duty – which would have revealed that they were paying too much in fees. Since they did not do the proper research, the plan administrators and Mama’s Fried Pies breached their fiduciary duty to their employees. Jed and his plan administrators were held responsible not only for repayment of the excessive fees to each employee’s plan account but also for interest, penalties and sizeable attorneys’ fees. Hiring someone else to do handle their 401k plan was not nearly enough.

The dilemma is that Jed and his fellow employees at Mama’s Fried Pies are not in the business of setting up or maintaining 401k plans. They don’t know much about saving and investing. They relied upon someone else – their expert. Although Jed’s expertise is not setting up 401k plans for his workers, Jed and his plan administrators still have a fiduciary duty to investigate and to examine the 401k – to carefully shop around and to check it regularly. What about the outside financial adviser upon whom the company relied? That expert may be responsible, particularly if the plan was marketed as being “extremely competitive.”

What does “fiduciary duty” mean?

While a fiduciary duty may be created by statute, as in the case of the employee benefit plans mentioned above (ERISA, etc.), it is often best described by trust law. Who is NOT a fiduciary (but may think or say that they are)? Generally speaking, bankers, accountants, insurance and real estate brokers, architects, engineers, doctors, dentists, teachers and certified financial planners (at least so far… stay tuned) do not owe their customers a fiduciary duty. While they may owe their customers a duty, none of these owe the highest duty in law, being a fiduciary duty. Any damages caused by these relationships are tied to very different duties, often looking more like garden variety negligence.

Saying that a fiduciary owes the highest duty known to the law is perhaps better understood in the context of relationships such as husband-wife, general partners, executors and trustees. More than caring for the assets as if owned by the fiduciary, the fiduciary must care for them in the manner best suited for the beneficiary. The penalty for not acting in the beneficiary’s best interest … The fiduciary loses and must pay to the beneficiary: any increase in value that was reasonably expected and any decrease in value, whether expected or not. Additionally, the fiduciary must reimburse the beneficiary for interest, penalties, fees and, frequently, punitive or exemplary damages.

Tilting the Scales in Your Favor

How do you prove that your company undertook proper due diligence? Whether it be a 401k compliance committee or a bonus plan, ask plenty of questions, ask them on a regular basis and get expert advice from someone other than who is selling you the product. Give both the proper attention. For example, if your 401k compliance committee and executive committee or board of directors often meet on the same day, with the board meeting getting all of the time, plan the 401k compliance committee meeting for a separate day. Allow plenty of time, ask questions and insist on detailed reporting. If your employee bonus plan extends beyond your current fiscal year, insist on an expert opinion ensuring the plan will pass IRS muster. Only your tax attorney or tax accountant knows for sure!

Past Related Articles

End-of-Year Bonuses? Possible Tax Pitfalls!

Declaring War on Drones Part Deux: Is a Drone Operator/Owner Liable for Trespassing?

Posted in Property Issues

FORT COLLINS, CO, USA, JULY 24, 2014:  Airborne radio controlled DJI Phantom quadcopter drone with GoPro Hero 3  camera  on a gimbal mount.

Last month Tilting discussed whether Daisy Duke and her Uncle Jesse faced civil or criminal liability for shooting down Boss Hogg’s drone trespassing over their property. To recap: Daisy Duke was sunbathing by her Uncle Jesse’s pool when a drone owned by Boss Hogg began hovering over the pool area. Daisy freaked out, and Uncle Jesse shot the drone out of the sky. Later he learned that Boss Hogg took photos of Daisy. This month Tilting considers whether Boss Hogg is liable to the Dukes for trespassing and invasion of privacy.

Does flying a drone over someone’s property constitute trespassing?

Yes. Trespassing can occur in two ways: (1) a person physically enters another person’s land without permission; or (2) a person causes an object to enter another person’s land without permission. The fact that the drone is in the airspace above the property, and not on the ground, does not matter because the property owner owns a reasonable amount of airspace above the property. Drone operators are likely adhering to FAA guidelines that recommend flying a drone less than 400 feet off the ground. In effect, the FAA claims the airspace over 400 feet. Understandably the property owner claims the airspace under 400 feet. Thus, flying a drone invades that airspace, and constitutes a trespass.

What about Invasion of Privacy?

A party may have an invasion of privacy claim for “nonphysical invasions” such as spying or wiretapping. For example, setting up a video camera in someone’s bedroom is an invasion of privacy. The plaintiff must prove that the invasion of privacy was something that would severely offend, humiliate or outrage the ordinary person. Using a drone to photograph or videotape someone in their backyard will likely meet this standard.

Does a drone owner face civil liability?

Yes in two ways. Boss Hogg may be liable for trespass or invasion of privacy under common law. If the drone typically flies over the property for a short period of time, and the property owner does not usually incur any costs to remove the drone, damages are likely limited to mental anguish.

The Dukes also have a claim under a new statute passed by the Texas Legislature two years ago. The law creates a private cause of action against the drone owner or user for using a drone to capture an image of the property owner (or tenant) or their property and allows the property owner to recover $5,000 for all of the images captured during each trespass, or $10,000 if the drone owner/operator discloses, displays or distributes the images. Another benefit to property owners is that they can recover court costs and attorney’s fees, which would not otherwise be recoverable. Boss Hogg will find himself in big trouble for violating this new law.

There is potential criminal liability as well. The new Texas law adds misdemeanor offenses for the drone owner/operator who uses a drone to photograph or video another person or privately owned property.

Tilting the Scales in Your Favor

If you operate your drone responsibly you should avoid any potential legal crashes. It is best to make sure that if you fly your drone off your property, you fly it over public property or have the other property owner’s permission to fly on their land. Similarly, you should not take any photographs or video on private property without a person’s or property owner’s permission.

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Eminent Domain and Condemnation – What’s It All About?

Posted in Property Issues

iStock_000005414153_Medium

Texan ranch owner Hugh Steerman (fondly known as “Gramps”) just received notice that his family’s fourth-generation, 2,000-acre, Rambling Steer Ranch is a possible pathway for the West Texas Rail from Fort Worth to El Paso. Gramps is concerned that the planned route will split the Rambling Steer, prohibiting cattle from being moved across the tracks to grass and water, and pressuring his wildlife harvest by introducing strange sound and light to the quiet. Can Gramps stop the train? If not, what can he expect?

Probably not. The best solution is to make the Rambling Steer Ranch appear less desirable than the other rail options or, and, failing that, to cut the best deal he can with West Texas Rail. A last resort is a lawsuit challenging the authority of West Texas Rail to condemn the property, and then challenging any damages awarded as being too little. A bare-bones overview of the condemnation process follows.

Adequate Compensation for Public Use

The Texas Constitution requires that adequate compensation be paid to landowners for property taken for public use through the exercise of the authority of Texas eminent domain. If acting under state eminent domain authority, constitutional amendments, effective January 2010, require a two-thirds supermajority of both houses of the Texas Legislature before eminent domain power can be delegated. If acting under the Federal Railroad Administration, federal eminent domain authority is slightly different, but the process is much the same. Assuming that West Texas Rail complied with the requirements for finding appropriate public use and public necessity under either Texas or federal eminent domain requirements for taking part of the Rambling Steer, and also gave timely notice of the required statement of landowner’s bill of rights, then what?

Negotiations with Condemnor

Now’s the time for Gramps to make his best pitch to West Texas Rail either to go around or to re-route to the outside boundary of the Rambling Steer to avoid depriving Gramps’ usage of the remaining property for grazing and water access, and for hunting. If West Texas Rail has the opportunity to re-align its rail along the Rambling Steer’s boundary, it will likely do so to avoid paying for additional damages to the remaining property and for the obvious public relations value of working with the existing landowners. If a mutual agreement cannot be reached, however, West Texas Rail will send to Gramps a final offer, with copies of a written appraisal, draft deed or easement, and the Texas Landowner’s Bill of Rights.

Special Commissioner’s Hearing

If the final offer is not accepted within fourteen days, West Texas Rail may initiate, but is not likely to act that quickly to file, a condemnation proceeding to exercise the power of eminent domain to transfer title to the property from Gramps to an entity duly empowered by the government. The condemnation lawsuit will be filed with the county court at law in the county where the Rambling Steer is located. A judge will appoint three disinterested real property owners in the county as special commissioners to assess damages only. The judge may accept special commissioners recommended by the litigating parties and may give each party an opportunity to challenge one of the court-appointed commissioners. The special commissioners must promptly schedule a hearing at the earliest practical time, but no earlier than the twentieth day after their appointment. Although not obligated to attend, Gramps (and any expert he may elect to use) may attend and testify as to the market value of the portion of the ranch being condemned, as well as to the damage that the rail project would cause to the remainder of the Rambling Steer. After the special commissioners render their decision, Gramps must file a written statement of objections in a timely manner if he disagrees with the decision.

Condemnor’s Right to Possession

After the conclusion of the special commissioners proceeding, West Texas Rail has the statutory right to obtain but, again, may choose to delay and to continue negotiating before taking possession of the property pending further litigation if: (a) it pays the money awarded either to Gramps or to the court, and (b) complies with related deposit and bonding requirements. If the court later rules that condemnation was wrongful, the temporarily displaced Gramps may recover damages if there was no right to condemn the Rambling Steer. If Gramps withdraws the deposited compensation, he waives all objections to the legality of the taking and may only contest the adequacy of the amount paid. If Gramps challenges the adequacy, and the county court at law judge later determines that the compensation paid was too high, Gramps must pay West Texas Rail back.

Tilting the Scales in Your Favor

If you receive notice of a condemnation proceeding possibly affecting your property, don’t ignore it. Instead, learn as much about the routes and the condemning authority as you can, possibly also investigating the condemnor’s eminent domain authority. Gather information identifying all the properties identified as likely candidates for the rail route and condemnation, particularly yours. Identify arguments that make your property less desirable than someone else’s and meet with an authorized condemnor representative on your property to point out the negative impacts of the proposed taking. Know that, for example, West Texas Rail will want to foster good will among those affected – they may be customers someday. If negotiations are unsuccessful, and you get to the special commissioners’ hearing, consider retaining counsel who will likely recommend hiring an expert witness. Even if you don’t get the damages award you seek from the special commissioners, you will probably want to have expert testimony before the county court judge.

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