With times getting tougher, Greeda Greenshade at ShortCircuit City noticed that her customers were paying their invoices much later. So, Greeda hired an outside firm StrongArm Collectors to collect the aging receivables. ShortCircuit did get a little concerned, however, when one of its best customers Delia Dish called to complain about StrongArm’s collectors who left a voicemail –

This message is for the deadbeat Delia. If you think that you could rip these merchants off, not pay your bills, and hide behind your telephone, I guess you’ll just have to explain to the judge why you stole from this merchant, ShortCircuit City. At this moment, we do not have any intentions of working this matter out with you voluntarily. You may need to turn yourself in to the local county sheriff’s office.

Delia reported that she was told if she did not pay, her children would “watch their mother being taken away in handcuffs,” and they would “be bringing their mommy care packages in prison.” StrongArm’s caller dialed Delia 17 times in 10 minutes using abusive language, referring to her as a “deadbeat,” “retard,” “thief,” and “idiot.” Later a collection letter on the letterhead of the law firm Dewey, Cheatum & Howe, advised Delia that the law firm would consider taking criminal or civil action against Delia. However, the law firm neither signed nor sent the letters. In fact, the law firm had no idea that StrongArm was even sending them. Finally, StrongArm called Delia’s 64-year old mother. Fearing that Delia would be arrested and carted off to jail, Delia’s mother paid StrongArm’s demand plus its additional charges, in full.

Does StrongArm Collectors have a problem?

As a debt collector, StrongArm has a problem. It repeatedly violated the Fair Debt Collection Practices Act because it was just the collector, did not originate the debt, and it

  • used abusive language and called Delia repeatedly
  • falsely represented that communications came from an attorney
  • falsely represented that Delia would be arrested or imprisoned, or had committed a crime, and falsely threatened legal action
  • communicated with someone else about the details of Delia’s debt
  • added impermissible additional charges to the debts collected

Does ShortCircuit City have a problem? Maybe. One of the penalties that can be assessed against StrongArm is cancellation of the debt. That would end ShortCircuit’s ability to collect anything from Delia.

Litigation Tips of the Month. If you use a bill collection company, know their tactics as well as their claimed successes. Obviously those businesses who hire collection agencies are trying to avoid the “hard” cost of dollars not collected; however, there is also the potential of a “soft” cost from lost customers if unethical collection methods are employed. Delia Dish, recently a great customer, who might appear to be a deadbeat today may again become one of ShortCircuit City’s best customers tomorrow.

If StrongArm calls, the customer Delia should have asked for proof that it “owns” the debt or has authority to collect it, and that the amount of the debt is correct. If Delia disputed the debt in writing, StrongArm must stop all collection efforts within 30 days until it proves its authority to collect and the correct amount to be collected.

See Federal Trade commission v. Check Investors, Inc,; Check enforcement; Jaredco, Inc.; Barry S. Sussman; Elizabeth M. Sussman; Charles T. Hutchins, Case No. 05-3957, decided by the US Court of Appeals for the Third Circuit Nos. 05-3558/3957, which upheld the district court’s order for injunctive relief and $10.2 million in fines awarded to the Federal Trade Commission.  And, see Household Credit Services, Inc. v. Driscol, 989 S.W.2d 72 (Tex. App. – El Paso 1998), and the Texas Debt Collection Act, Texas Finance Code 392.206.

Kris Kringle wanted to celebrate the Christmas season in style with a knock-out-the-lights “Christmas Party” complete with a turkey dinner and all the trimmings.  However, human resources manager Holly Dais insisted that the bash must be called a “Holiday Party” due to the diverse nature of the workforce. Holly implied that to call the company bash a “Christmas Party” was against the law, or at the very least, evidence of employment discrimination.  Who’s right?

Both.  Kris Kringle can call the company bash a “Christmas Party.” That alone does not provide the basis for a claim of employment discrimination against RevvedUp Retailers. On the other hand, the concern expressed by Holly Dais has merit. While calling the bash a “Christmas Party” may not, by itself, be discriminatory, Holly’s belief that it might run the risk of alienating the diverse workforce at RevvedUp is legitimate. Should a lawsuit ever be filed against RevvedUp Retailers alleging religious discrimination, the party name could be a very small piece of a number of other instances supporting a claim for employment discrimination.

Tilting the Scales Your Way Although the probability of it serving as the basis for an employment claim is remote, business owners should “pick and choose their battles carefully.”  Given the ethnic and religious composition of your workforce, does calling the annual company party a “Christmas Party,” risk alienating your employees? If so, you may want to go with the recommendation of your HR manager, and simply call the annual bash a “Holiday Party.”

For more about Christmas in schools and the workplace, please see the U.S. Supreme Court case of Lynch v. Donnelly, 465 U.S. 668 (1984). “The Constitution does not require complete separation of church and state; it affirmatively mandates accommodation, not merely tolerance, of all religions, and forbids hostility toward any.”

Based upon Holly Dais’ advice, Kris Kringle opts to throw a “Holiday Party.”  The big day arrives and RevvedUp Retailer’s employees gather for a traditional turkey dinner at a swanky resort.  The setting is beautiful and everyone is having a jolly time until some of RevvedUp Retailers employees reveal they don’t like turkey.  Kris Kringle is shocked at this incredible revelation and immediately fires those employees.  Can Kris Kringle fire employees just for not liking turkey?

Yes. Texas is an employment-at-will state. The employment-at-will doctrine maintains that if there is no express agreement to the contrary, employment may be terminated at any time by either party, for good cause, bad cause, or no cause at all.

In Texas, some of the exceptions to the employment-at-will doctrine are termination related to actions:

  • Contrary to an employment agreement;
  • Arising from refusing to commit a criminal act for the employer, or from “whistle-blowing” on violations or crimes committed by the employer;
  • Discriminating on the basis of age, race, national origin, gender, religion, disability, or pregnancy;
  • Refusing an AIDS test or polygraph test;
  • Serving on a jury, or complying with a subpoena;
  • Performing active duty in state military forces;
  • Filing a claim under the Workers’ Compensation Act;
  • Requesting or taking leave under the Family Medical Leave Act; or
  • Complaining of minimum wage or overtime violations.

Tilting the Scales In Your Way

Although employees may be terminated for good cause, bad cause or no cause at all, employers often feel compelled to offer explanations or reasons for termination.  Resist the temptation. It can only lead to headaches.  By the time you decide to terminate an employee, it’s too late to explain, and trying to justify your action will probably be futile.  The safest practice is to offer no reason at all and just say “things are not working out and I think it’s best if you and the company part ways.”

For more information, please see Montgomery County Hosp. Dist. v. Brown, 965 S.W.2d 501 (Tex.1998) or AccuBanc Mortg. Corp. v. Drummonds, 938 S.W.2d 135 (Tex.App.–Fort Worth 1996, writ denied).

Sally Svelte was just wild about Harry. They agreed to exchange traditional wedding vows – with just a couple of additions written into a prenuptial agreement.

Harry, smitten by Sally’s slender 120 pound figure and her famous Thanksgiving Holiday Pecan Pie, proposed that her weight must stay at 120 pounds.  The agreed contractual penalty for any excess?  $500 for each additional pound.

Not to be outdone, Sally suggested that Harry limit his Sunday football watching with friends to one game a week.  Sally also insisted that Harry curb his tongue around his in-laws.  His penalty for a violation?  $10,000. Both penalties were agreed to be paid from the violators’ separate property.

Is their prenuptial agreement enforceable?  Most likely.

Texas law recognizes all parties’ freedom to contract. Therefore, Texas allows spouses who enter into a premarital agreement to exercise the broadest possible freedom to arrange their marital property rights as they desire, so long as it does not violate public policy. So does Harry and Sally’s premarital agreement violate public policy? Parties may generally contract with respect to, “any other matter, including their personal rights and obligations, not in violation of public policy or a statute imposing a criminal penalty.” The provisions in their premarital agreement, while arguably not in the best interests of a successful marriage as some of us may know it, are probably not against public policy. It is therefore unlikely that a Texas court will find that Sally and Harry’s premarital agreement is illegal or inconsistent with or contrary to the public’s best interest. If it is not against public policy, it is enforceable.

Editorial Comment: Fortuitously, last week Scott Burns of the Dallas Morning News wrote an article “Prenuptial Contract Doesn’t  Bode Well,” who said, in part “… You may think I am a hopeless romantic, but if you are truly concerned about protecting [a prenuptial agreement], you may not be ready for the promises you make on the day you marry. It is not hopelessly romantic to believe, as I do, that a good marriage can only be achieved when you embrace those promises without reservation.”

Delilah aka “Dirty” Dancer enjoyed gyrating at the Friday night community gatherings held in the local Town Hall of Mainstreet, USA. Regrettably, Dirty’s 56 year old grooving was viewed by many members of the cozy community as a little too “unorthodox” for their “G Rated” children. Dirty Dirty’s dancing limelight was snuffed when she was banned from attending the town events. Town officials said they received complaints about Dirty’s dancing and short skirts, and she ignored repeated warnings. Dirty retorted that the town talk of Mainstreet, USA treated her differently from patrons who were dancing and dressing in a similar fashion.

The Real Dirty Delilah, with the help of the ACLU, filed a lawsuit in Federal Court in 2001. After a seemingly endless flurry of motions, hearings, and appeals, on April 30, 2008, the 4th Circuit reinstated Dirty’s almost eight year old lawsuit. At the insistence of the insurance company which had long been promoting settlement, it appears that, without admitting any wrongdoing, the Town of Mainstreet, USA threw in the towel. Dirty is reported to have received payment of some $275,000. We don’t know if that was enough money to get Dirty to agree to end her dancing career in the cozy community of Mainstreet, but it probably was enough to buy her some good dancing lessons and maybe even her own place to dance!

TS Litigation Tip. “Swallow Your Pride Now and Again.” Particularly maddening to all of us are problems or behavior, whether they be community or corporate, that we all know are simply not “right.” At first, it may feel good and noble to pursue truth and honesty, but sometimes pushing a point can end up being painfully time consuming and unacceptably costly.

Do you think that Dirty would have reconsidered her rabble rousing if the kind folks in Mainstreet, USA first invited her to join them in a family meal to meet their children before the complaints were lobbed? Do you wonder if there might have been other conciliatory options permitting Dirty to be met “half-way” rather than only “our way or the highway?” Given the “complaints” about short skirts and dirty dancing, how do you predict the prattlers would have reacted if those who were bumping and grinding were a gaggle of their own teenagers? Should lawyers, who are licensed both as attorneys before the court and “counselors,” first consider options to avoid litigation and discord in the hope of securing a resolution that is closer to a more economical “win-win” for all sides?

For more information on this case go to:

Rebecca Willis v. Town of Marshall, North Carolina, No. 07-1404 in the U.S. Court of Appeals for the Fourth Circuit on appeal from the U.S. District Court for the Western District of North Carolina, at Asheville (CA-02-217-1) (April 30, 2008) (Unpublished).

Rebecca Willis v. Town of Marshall, North Carolina, No. 03-2252 in the U.S. Court of Appeals for the Fourth Circuit on appeal from the US District Court for the Western District of North Carolina, at Asheville (CA-02-217-1) (October 7, 2005).

Recently Cash Crash met a CFO of a large computer software company on a plane. The CFO was beaming because he just collected a $1 million receivable from GIA – money that would not have been paid without the economic bailout. Cash Crash asked the CFO if he considered the possibility that his money may vanish if GIA goes into bankruptcy in the next 90 days.

Bankruptcy Preferences. A bankruptcy preference threatens the CFO’s company with the possibility of a  refund to the bankruptcy estate of the $1 million receivable paid to him by GIA. Moreover, a preference lawsuit almost certainly costs the company time and money in litigation. The law presumes that monies paid within 90 days of filing bankruptcy unfairly prefer those payees over other creditors. Those creditors receiving payment must then prove that such payments are defensible, and are “fair” to the other creditors and the bankrupt’s estate.

The three most common defenses to a preference lawsuit filed to recover payments made to creditors during the 90 day period prior to the filing of the bankruptcy petition are all based upon whether the payment was received –

  1. In exchange for new value (i.e., COD) or “substantially contemporaneous” new value;
  2. In the ordinary course of business and under ordinary business terms; or
  3. If, after the payment was received, the creditor provided new or additional value.

So, if the CFO’s company provided software to GIA shortly before or after he received the payment, and if the value of that software was about a million dollars, then the CFO may be able to beat a preference suit. Also, if the amount and the timing of the payment from GIA to the CFO were in keeping with the on-going, prior business relationship between the two, the CFO may be in the clear.

John is the CEO of a national retail chain. He is a big supporter of the Whig party and enthusiastic about the upcoming election. John loves to talk politics with his employees in the workplace and even hangs candidate signs on the outside of the building. Sometimes he invites his employees to join him at Whig fundraisers and rallies. Recently, a Tory candidate announced her support for legislation that would make unionization efforts easier for John’s hourly employees but would, in all probability, negatively affect the retailer’s bottom line. John warns his hourly employees about the “dangers” of supporting the Tory candidate and tells them they should vote Whig.

Is John violating the law?

Probably. Under Federal election law, employers are forbidden from telling hourly employees how to vote. A company may make “electioneering communications” to its shareholders, executives and salaried managers. However, companies are prohibited from expressly advocating the election or defeat of a particular federal candidate to hourly employees.

Practice Pointer: Employers should exercise caution while discussing politics with employees. While employers may think they are engaging in friendly political chit- chat, their hourly employees may interpret these conversations quite differently.

For more information, please see the Federal Election Campaign Act.

Also, for a related article in the Wall Street Journal, see the August 1, 2008, “Wal-Mart Warns of Democratic Win.”

On Monday morning, at Uptown High School, Buffy reported to the school Principal that her Chanel sunglasses and iPod nano were missing from her locker. After lunch, Suzy Snitch told Uptown’s Principal that she saw Kandi Klepto trying to sell a pair of sunglasses to another student during lunch. The Principal decided to search Kandi’s locker and opened the locker without Kandi’s permission with a master key pursuant to the Uptown High School Student Handbook which warns that lockers may be searched at anytime when reasonable cause exists. The Principal found the Chanel sunglasses and iPod inside Kandi’s locker.

Did the school official violate the student’s constitutional rights by searching her locker without her permission?

No. In the school setting, a school administrator may search a student’s locker. In Texas, courts have generally concluded that an expectation of privacy in a student locker does not exist, especially where the school (or a state regulation) provides notice that lockers may be opened at any time and when school administrators have the ability to access lockers through a master key (e.g. when personal locks are prohibited). However, a search requires a measure of reasonable suspicion or reasonable cause under all the circumstances. Among other factors, a direct tip from a student informant, reasonable notice to the student body that lockers might be searched, or an underlying governmental interest can supply sufficient grounds to justify a search. To determine the reasonableness of a search, a two pronged test is used. First, it must be determined that the action was “justified at its inception.” A search by a teacher or school official will be “justified at its inception” when there are reasonable grounds for suspecting that the search will turn up evidence that the student has violated either the law or the rules of the school. Second, it must be determined whether the search was reasonably related in scope to the circumstances which justified the search in the first place.

For more information, see Shoemaker v. State, 971 S.W.2d 178 (Tex. App.—Beaumont 1998, no writ).

Buck, Dick and Buddy were old college friends who hunted together every year over dove season’s opening weekend. This year, plenty of summer rainfall filled up even the shallowest tanks, so the dove were not flying to water like normal. So the three friends started down a sunflower row, each carrying a 12-gauge shotgun with #7-½ shot in an attempt to “stir up” the birds. While walking, Buddy moved up a hill placing Dick and Buck at the points of a triangle. A dove took to flight resulting in both Buck and Dick shooting in Buddy’s direction. Tragically, Buddy was hit by shot in the right eye and blinded. Who is liable?

Under current Texas law, if Buddy establishes that one or both of his friends pulled the fateful trigger even without proving which one, then Dick and Buck must each prove it was not their fault. Until one shows no responsibility, then each is fully responsible for the accident. The court will treat both Dick and Buck as jointly and severally (or each fully) liable unless one can show no fault at all. This public policy that makes Dick and Buck both responsible avoids the practical unfairness of denying Buddy recovery simply because he cannot prove who and how much damage each defendant did, when it is certain that between them both they did it all.

For more information about the law in Texas and other states concerning joint and several liability in hunting and other situations, see Trapnell v. Sysco Food Servs., Inc., 850 S.W.2d 529 (Tex. App.—Corpus Christi 1993) affirmed, 890 S.W.2d 796 (Tex. 1994); Summers v. Tice, 199 P.2d 1 (Cal. 1948); Restatement (Second) of Torts § 433B(2).

Michael is the owner of Phelps Sports & Outdoors, which carries a full range of sporting goods and apparel. Michael is anticipating a surge in interest in swimming after the widely televised and viewed Democracy Games, and wants to have the latest and most sought after swimming merchandise available. The Speezo LZB Speedster swimsuit is the latest in swimming technology, and Michael feels there will be a major demand for it after its wide use in the Games. Michael decides to call Mark, owner of Spitz Swimming Wholesalers, Inc., in hopes of procuring these swimsuits and getting a jump on competitors. After intense negotiations, Michael and Mark agree on a price of $7.00 per suit.

However, a week later when Michael calls Spitz Swimming Wholesalers, Inc., to check on his order, a sales rep for the company informs Michael that, due to increased demand, the price is now $8.00 per suit. Enraged by this sudden spike in price, Michael decides to call Mark and record their conversation as evidence that they had agreed to the lower price.

Is Michael violating the law?

Under Texas law, at least one party to the telephone conversation must know that it is being recorded. So, if you are a party to the conversation, you can record it without announcing that it is being taped. Or, to use the language of the statute, a person commits an offense if he “intentionally intercepts, endeavors to intercept, or procures another person to intercept or endeavor to intercept a wire, oral, or electronic communication, unless the person is a party to the communication, or one of the parties to the communication has given prior consent.”

Further, Federal and Texas laws allow for what is commonly known as the “business telephone” exception. This exception generally allows employers to monitor calls made on company telephones used in the ordinary course of business, without employees consent. BE ADVISED, however, wiretapping laws do differ in many other states such as California and Florida, often requiring all parties participating in the telephone conversation to consent to any recording. So, if one or more participants in the conversation are then out of the State of Texas, that state’s laws must be considered before taping any conversation. Further, the law regarding the taping of spousal conversations and conversations involving minor children is an unsettled area in Texas.

For more information, please see Tex. Pen. Code Ann. § 16.02(b)(1); (c)(4)(A)-(B) (Vernon Supp. 2007). And, for a more scholarly explanation prepared by Michael Lillibridge in our Houston office, please go to the Looper Reed and McGraw web at http://www.lrmlaw.com/pdf/Tape_Recording_Conversations.pdf.