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 November/December 2009

LEGAL TRENDS

As of December 1, a Day is Actually a Day in Federal Practice

By Ann Zeigler

Calculating deadlines in federal practice has always been exasperating. But the challenge of figuring out which rule applies to defining “days” becomes much easier as of December 1, 2009. On that date, when amendments to the Federal Rules of Civil Procedure, Criminal Procedure and Bankruptcy Procedure (and associated Southern District Local Rules) become effective, a day becomes just a day.
For those of you who mercifully put the whole thing behind you after the bar exam, here’s a small reminder from a federal district judge in Kentucky:

“If a ten-day period and a fourteen-day period start on the same day, which one ends first? Most sane people would suggest the ten-day period. But, under the Federal Rules of Civil Procedure, time is relative. Fourteen days usually lasts fourteen days. Ten days, however, never lasts just ten days; ten days always lasts at least fourteen days. Eight times per year ten days can last fifteen days. And, once per year, ten days can last sixteen days. And this does not even take into account inclement weather. As we sometimes say in Kentucky, there’s eight ways to Sunday.” Miltimore Sales, Inc. v. Int’l Rectifier, Inc., 412 F.3d 685, 686 (6th Cir. 2005).

The amendments change the method for calculating and counting periods which are to be measured in days as well as the actual number of days for action under various rules. The major point of clarification is that intermediate weekends and holidays will now count as days in calculating short time periods (fewer than 11 days in civil and criminal practice and fewer than 8 days in bankruptcy practice).

These rules changes occur in tandem with changes to various federal statutes changing the number of days in various statutory periods. In most cases, periods shorter than 30 days are set in 7-day multiples.

The amendments set new guidelines for calculating “next day” and “last day” in both forward and backward time calculations.

The amendments also change the way the rules apply to electronic filing.
For obvious reasons the three sets of Local Rules for the Southern District of Texas are amended to give effect to the changes in the Federal Rules and the statutory changes on December 1.

For the entire set of amendments, plus an extremely useful summary, go to the Southern District’s website, http://www.txs.uscourts.gov/news/rules_amendments.htm. 

Ann Zeigler is a bankruptcy attorney and of counsel to the securities litigation and arbitration practice at Nelson S. Ebaugh, P.C. She is the editor in chief of The Houston Lawyer.

 

Courts (Not Arbitrators) Resolve Contract-Formation Defenses to an Arbitration Clause

By Nelson S. Ebaugh

In In re Morgan Stanley & Co., Inc., --- S.W.3d ----, 2009 WL 1901635 (Tex.), 52 Tex. Sup. Ct. J. 1072 (July 3, 2009), the Texas Supreme Court delved into the murky issue of whether courts or arbitrators should decide contract-formation defenses to an arbitration clause. The majority in the divided court held that courts should resolve contract formation defenses to arbitration. In reaching its conclusion, the majority made an educated guess as to how the United States Supreme Court would approach the issue. Only time will tell if the Texas Supreme Court guessed correctly.

In Morgan Stanley, the guardian of an elderly woman and her estate sued Morgan Stanley, among others, in a Dallas County district court for mismanagement of the estate’s securities accounts. Pursuant to the arbitration clauses in the account agreements, Morgan Stanley moved to compel the guardian’s claims to arbitration. The guardian opposed Morgan Stanley’s motion. The guardian argued that when the ward signed the account agreements with Morgan Stanley, she lacked the mental capacity to assent to the agreements. Moreover, the guardian maintained that the court, instead of an arbitrator, should decide the issue of capacity.

Because trading securities necessarily involves interstate commerce, the Federal Arbitration Act (“FAA”) governed the arbitration clauses in dispute. The Texas Supreme Court consequently reviewed both federal and state precedent construing the FAA in order to reach its decision in Morgan Stanley.

At first blush, this may have appeared to have been an easy task. Especially since the United States Court of Appeals for the Fifth Circuit had expressly held in 2002 that arbitrators, i.e. not courts, should resolve the issue of whether a signor lacked the mental capacity to assent to a contract containing an arbitration clause. The Texas Supreme Court, however, chose not to follow the Fifth Circuit’s precedent on point.

Instead, the Texas Supreme Court chose to follow the precedent of other federal and state courts which have held that courts should resolve contract-formation defenses to an arbitration clause. In reaching its conclusion, the Texas Supreme Court relied heavily on the United States Supreme Court’s dicta in Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). According to the majority in Morgan Stanley, dicta in Buckeye implied that contract-formation defenses to arbitration, including lack of mental capacity, should be decided by courts instead of arbitrators.

The lone dissenter, Justice Hecht, claimed that the majority read too much into Buckeye’s dicta. Justice Hecht also roundly criticized the majority’s opinion for completely ignoring the Fifth Circuit’s precedent on point.

In his dissenting opinion, Justice Hecht aptly noted that “Federal courts in Texas must follow the Fifth Circuit, and state courts must follow this Court. After today, whether an issue of mental capacity is for the court or arbitrator in the first instance will depend on whether arbitration is sought in state or federal court. Today’s decision encourages the forum-shopping the Court has tried hard to avoid.”
As a consequence of the decision in Morgan Stanley, forum-shopping will occur. Until the United States Supreme Court decides the issue presented in Morgan Stanley, it will be interesting to see whether the Fifth Circuit or the Texas Supreme Court modifies its respective holding to curb such forum-shopping.

Nelson S. Ebaugh is the principal of Nelson S. Ebaugh, P.C. He earned his
LL.M. in Securities and Financial Regulation from the Georgetown University Law Center. Ebaugh is a member of the editorial board of The Houston Lawyer.

 

Texas Allows Authorization Agreements for Nonparent Relatives

By Keri D. Brown

The Texas legislature recently passed new chapter 34 of the Texas Family Code, titled “Authorization Agreement for Nonparent Relative.”1 The new chapter 34 finally gives parents an approved method of giving a close relative authorization to care for their child,2 replacing those notes scribbled onto paper or, at best, typed out and notarized. The new chapter was passed, in part, to allow nonparent caregivers the means to legally care for the child, with the approval of the child’s parent, without resorting to the time, expense, and difficulty of court proceedings.3

Chapter 34 permits a parent or both parents to authorize a grandparent, adult sibling, or adult aunt or uncle of the child to:

  • authorize medical care for the child, including consents for immunization;4

  • obtain health insurance and automobile insurance for the child;

  • enroll the child in school;

  • authorize the child to participate in extracurricular activities;

  • authorize the child to obtain a driver’s license or identification card;

  • authorize employment for the child; and

  • apply for and receive public benefits on the child’s behalf.5

The statutory requirements of the authorization agreement include providing relevant identifying information for the parent, child, and relative receiving authorization. Also, there cannot be (1) a court order or pending suit affecting the parent-child relationship, (2) pending litigation regarding custody of or access to the child, or (3) a court with continuing jurisdiction over the child; however, the court with continuing jurisdiction over the child in any of the above situations can give written approval for the authorization agreement.6 The agreement must also contain certain warnings and disclosures, including, among others, that the document does not convey the rights of a legal guardian and that a parent who is a party to the agreement may terminate the agreement at any time.7 The relative does not gain custody of the child by virtue of the agreement.8

The authorization agreement must be signed and notarized by both parties.9 If both parents did not sign the authorization agreement, the parent who did sign the agreement must mail a copy of the agreement to the other parent (unless the other parent is deceased or parental rights have been terminated) no later than ten days after the agreement is executed; otherwise, the agreement is void.10

An authorization agreement terminates upon the following:

  • after execution of the agreement, a court enters an order affecting the parent-child relationship, custody of or access to the child, or appoints a guardian for the child under Texas Probate Code § 676; unless the court gives written permission for the agreement to continue;11

  • written revocation by a party, if the party gives written notice of the revocation to all other parties, files the written revocation with the clerk of the county where the child or relative resides or where the child resided when the agreement was executed, and files the revocation with the clerk of any court that (1) has continuing jurisdiction over the child, (2) has a court order or pending suit affecting the parent-child relationship, (3) in which there is litigation pending regarding custody of or access to the child, or (4) in which a guardianship appointment is in place;12 or

  • the date stated in the authorization agreement.13

A person who was not a party to the authorization agreement is not subject to civil or criminal liability if he or she relied in good faith on a proper authorization agreement without actual knowledge that the agreement was void, revoked, or invalid.14

By no later than January 1, 2010, the Texas Department of Family and Protective Services is required to have available forms that meet the Family Code’s requirements for the authorization agreements.15

Provided that the statutory requirements of the authorization agreement are satisfied, the agreement can be a helpful tool for parents and caregivers. The authorization agreement does not have a maximum time limit unless the parties include a limit in the agreement, so conceivably, a parent could give the relative a continuing authorization agreement that the relative could use as needed (such as if the child permanently resides with the relative). Family lawyers and estate planning lawyers may wish to discuss the advisability of an authorization agreement with their clients as appropriate.

Keri D. Brown is an associate in the Private Clients Section at Baker Botts L.L.P. and a member of The Houston Lawyer Editorial Board.

Endnotes
1. Act of June 19, 2009, 81st Leg., R.S., ch. 815, § 1, 2009 Tex. Gen. Laws __ (to be codified at TEX. FAM. CODE ANN. ch. 34) (hereinafter TEX. FAM. CODE § ____). 2. TEX. FAM. CODE §§ 34.001–34.002. 3. Sen. Kirk Watson, Bill Analysis, http://www.legis.state.tx.us/tlodocs/81R/
analysis/pdf/SB01598H.pdf (last visited Sept. 30, 2009). 4. This provision does not allow the relative to authorize an abortion or the administration of emergency contraception to the child. TEX. FAM. CODE § 34.002(c). 5. Id. § 34.002. 6. Id. § 34.003(a). 7. Id. § 34.003(b). 8. Id. § 34.007(b). 9. Id. § 34.004(a). 10. Id. § 34.005(a). This provision does not appear to make an exception for a non-signing parent who resides with the signing parent; therefore, to comply with the letter of the law, the signing parent must mail the authorization agreement to the other parent even if that parent resides in the same house. Alternatively, both parents could execute the agreement. 11. Id. § 34.008. 12. Id. § 34.008(c). 13. Id. § 34.008(d). 14. Id. § 34.007. 15. Act of June 19, 2009, 81st Leg., R.S., ch. 815, § 2, 2009 Tex. Gen. Laws ____.


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