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Tilting the Scales

Business Issues with a Legal Slant

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.


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.

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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


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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Can You Videotape Someone Else’s Conversation?

Posted in Constitutional Rights & Issues

iphone videoCareful about protecting the safety of his customers, A.R. Remington, owner of Fishinabarrel Gun Range, installed surveillance cameras to blanket his premises, except the restrooms. Last week while target practicing with his Glock 9mm, Politician Ronald Crump made an off color joke about his likely opponent in the upcoming presidential election using a reference that only grandfathers would have said. Not only were Crump’s comments recorded by Fishinabarrel Gun Range, his opponent’s aide Sly Tapr happened to video the conversation on his phone which he posted on the internet. The recording went viral. Can Fishinabarrel operate surveillance cameras without advising its customers like Crump? Can Sly Tapr legally videotape Ronald Crump?

Yes to both. Generally speaking, Texas law does not prohibit surreptitious audio or video recording, either criminally or civilly, making it unlikely that a recording of a fraternity off-color chant or a surreptitious recording of an interview in a doctor’s office would be illegal or civilly actionable in Texas.

Texas Penal Statutes

Texas law prohibits photographs, videotape or other broadcasts of another in a bathroom or private dressing room. However, a broader prohibition of such imagery without the other’s consent and with the “intent to arouse or gratify the sexual desire of any person” was struck down by the Texas Court of Criminal Appeals. Texas’ Highest Criminal Court , in part, opined: (1) taking photographs in public places is generally constitutionally protected, because photographs are generally protected expression; (2) this First-Amendment-protected conduct doesn’t lose its protection even when the photographer is intending to arouse or gratify sexual desires; and (3) the statute cannot be defended as a permissible privacy protection because narrower statutes banning photographs in certain private places, such as bathrooms or dressing rooms or “inside [a person’s] home” exist and would be constitutional. For the record, eavesdropping into telephone conversations or hacking into computers are different issues, for which there are many criminal statutes. Texas law, for example, prohibits recording telephone conversations unless one party to the conversation is aware of the recording. The federal Wiretap Act generally is directed to criminalizing government and private conversations intended to be used in court or by law enforcement.

But, Can You be Sued?

Maybe. Texas case law generally recognizes the tort of invasion of privacy which includes: (1) intrusion on seclusion, and (2) public disclosure of private facts.

Intrusion on Seclusion

Either A.R. Remington or Sly Tapr must intrude on Ronald Crump’s private place or private matters, for example, videoing in a bedroom, entering a home without permission, or following, spying on and harassing. As the Fishinabarrel surveillance and the Sly videotaping involved a public place and public matters, neither is liable for invasion of privacy.

Public Disclosure of Private Facts

The offended party must establish that publicity of the private information would be highly offensive to a reasonable person, such as sexual relations, family disputes, unpleasant or humiliated illnesses where there is no legitimate public concern. While the viewing public might be offended, Ronald Crump’s statements “off the record” are not the kind of private information that would satisfy any Crump complaint of public disclosure of private facts, either by A.R. Remington’s Fishinabarrel surveillance or Sly Taper’s social media posting.

Tilting the Scales in Your Favor

Employers. If you are an employer, post signs advising the area is protected by video surveillance and include notification of your right to undertake surveillance in your Employer’s Handbook, but not including bathrooms or dressing areas.

Retailers. There is value in advising your customers, generally, that there are surveillance cameras. Not knowing where they are may discourage improper customer conduct.

Nursing Homes. Consider granting written authorization to the nursing home staff for video surveillance of your loved one’s living area if circumstances warrant.

General “Expectation of Privacy”. Although this seems to be a buzz phrase of late, as far as Texas law is concerned, unless it fits into one of the criminal or civil elements detailed above, it’s a nice phrase that probably does not warrant broad application in Texas.

Past Related Articles

Recording a Telephone Conversation in Texas

Recording a Sports Event – “Gentlemen Start Your Videos”

Declaring War on Drones: Is it a Crime to Shoot Down a Drone over Your Property?

Posted in Constitutional Rights & Issues, Criminal Law, Property Issues

Drone with CameraTrying to avoid the sweltering heat, “Uncle Jesse” Duke was in the garage working on his moonshine operation when he heard a loud shriek in the backyard. He ran to the back to find his niece, Daisy, sunbathing by the pool. Daisy shouted, “That drone keeps hovering over the pool area looking toward me. Do something about it Uncle Jesse!” Uncle Jesse quickly ran back to the garage, grabbed his trusty shotgun, and blew the drone out of the sky. An hour later Sheriff Coltrane showed up at Jesse’s house and asked, “Jesse, did you shoot a drone?” Jesse responded, “You’re durn right I did.” Sheriff Coltrane replied, “Well Jesse, that was Boss Hogg’s $2,000 drone you destroyed. I’m sorry, but I’m gonna have to arrest you.” Jesse said, “I didn’t commit no crime Sheriff. It’s my American right to defend my property.” Is Jesse right?

Can You Lawfully Shoot Down a Drone over Your Property?

Two reported cases in New Jersey and Kentucky deal with shooting drones flying over private property. Both times the shooters were charged with criminal mischief and related misdemeanors. As a starting point, your homeowner’s property is both the dirt and your improvements, and also a reasonable amount of airspace necessary to utilize your property. While you can’t complain that the American Airlines flight at 30,000 feet is trespassing on your property, a drone that’s only 200 feet off the ground…? Well, that’s probably a different story…

Earlier Tilting articles mentioned that each state has a “castle doctrine.” Although it varies by state, the “Castle Doctrine” generally allows homeowners to protect themselves, and in some cases their property, with force.   Beyond the “Castle Doctrine” Texas has another law that permits a property owner to use “force” when the property owner reasonably believes it is necessary to prevent a trespass on their land.   Using that Texas statute, the conduct may be justified and criminal liability may be avoided where the homeowner used “deadly force” (i.e., a gun) to shoot down the drone.

What about civil liability?

The homeowner’s action may also be justified against civil liability if the homeowner can prove: (1) the trespassing Drone was not privileged to be above the homeowner’s property (such as to avoid an emergency); (2) the homeowner reasonably believed the trespass by the Drone can only be prevented or terminated by the force used; and (3) the homeowner either requested the trespass cease, or reasonably believed that request would be useless or that substantial harm would be done before the request can be made. But there is no clear cut answer at this time, and these defenses would be decided by a court or jury.

Tilting the Scales in Your Favor

While no one wants their privacy intruded upon, we do not recommend shooting a drone out of the sky. While you might have good legal arguments to justify your actions – and probably have a jury’s sympathy – it will still be a costly process, particularly when you may be one of the first cases of this kind in the state. Obviously, your liability exposure is compounded if you happen to miss the drone and hit another person or their property.

Having said that the drone owner does not necessarily get away scot-free. In 2013 the Texas Legislature passed a law that 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, as well as court costs and attorney’s fees. The drone owner or user may also be liable to the homeowner for trespassing and for one of the torts of invasion of privacy (check out our other article this month “Can You Videotape Someone Else’s Conversation”). Next month we’ll explore this issue from the drone owner’s perspective, including federal regulations and recommendations for flying unmanned drones.

End-of-Year Bonuses? Possible Tax Pitfalls!

Posted in *Way Out - Advice, Legal Risk Management, Money

Business conceptAfter stepping down from running the family oil business (see last month’s article), Jed Clampett runs Mama’s Fried Pies, his late wife Rose Ellen’s fried pie business. With business booming, Jed decides to hire Elly May as the Vice President of Marketing so he can spend more time in the kitchen rather than sales. If Elly May remains with the company for a full five years, she will receive a base salary plus a $50,000 bonus, payable in $10,000 increments over five years with each increment vesting at the end of the calendar year (e.g., the first $10,000 vests on December 31, 2015) but not payable until the following June 1st. Does this retention bonus structure risk additional taxes to Elly May and Mama’s Fried Pies?

Internal Revenue Code Section 409A

Yes. Mama’s Fried Pies’ bonus agreement with Elly May does not comply with IRS Section 409A because the payment is not made by March 15, 2016. The vesting 2015 bonus must be included in Elly May’s 2015 taxable income when it vests. Worse yet, Elly May owes regular taxes plus a 20% excise tax ($2,000) on the bonus amount, plus interest at the underpayment rate plus one percent. Under the Internal Revenue Code Section 409A, Mama’s should have paid the vested retention bonus (a) on a predetermined date; (b) pursuant to a fixed schedule of payments; or (c) no later than March 15th of the calendar year following the year of vesting.

Tilting the Scales in Your Favor

To ensure that your bonus plan – either as an employee or paid by you as the employer – complies with the Internal Revenue Code, confer with your tax attorney or accountant to avoid the penalties of an IRS illegal bonus plan. Executives and employees receiving a retention bonus should confirm the legality of the arrangement before agreeing, and then consult with their employer. Likewise, employers must conform their bonus plans with the Internal Revenue Code to avoid conflicts, and possible litigation with their key employees. Now is the best time to review these bonus plans. Recently, the Internal Revenue Service ruled that if a bonus plan does not meet Section 409A’s requirements, but the company corrects the bonus plan no later than the year before the bonus first vests, the plan will be compliant.

Kudos to Jason Luter, ERISA and deferred compensation expert at Gray Reed, who just authored a client alert on this issue and assisted in editing this article.