Publications Archive

Chambers USA Regional Real Estate Guide 2020 – Arkansas

June 2020

by Timothy W. Grooms, J. Cliff McKinney II, Jeb H. Joyce and Scott M. Lar |

Timothy W. Grooms, J. Cliff McKinney II, Jeb H. Joyce and Scott M. Lar authored the Arkansas chapter for the 2020 Chambers USA Regional Real Estate Guide, a state-by-state guide on the real estate sector. This is the third year our firm has contributed to the guide, which provides expert legal commentary on the key issues for businesses involved in the real estate sector, including finance, planning, commercial leases, construction, tax and the impact of COVID-19. You can download the Arkansas chapter below.

For additional information on this topic please contact Timothy W. Grooms, 501-379-1713, tgrooms@QGTLAW.com; J. Cliff McKinney II, 501-379-1725, cmckinney@QGTLAW.com; Jeb H. Joyce, 479-444-5202, jjoyce@QGTLAW.com; or Scott M. Lar, 479-444-5213, slar@QGTLAW.com.

A Guitar Lesson For Lawyers

June 2020

by Steven W. Quattlebaum |

These are challenging times to be sure. While staying healthy is most important, it is only natural that we also contemplate how the economic effects of this pandemic may impact the country, our profession, and our individual practices. However, history has shown that opportunities exist even in the most challenging of circumstances, and there is much to learn from those who not only make the best out of turbulent times but see pathways to success. The story from the Great Depression about a new guitar design offers just such a lesson.

Note: The above is an excerpt from an article appearing in the Spring 2020 issue of The Arkansas Lawyer, a publication of the Arkansas Bar Association. Click the link below to read the entire article.

Steven W. Quattlebaum is a founding member of Quattlebaum, Grooms & Tull PLLC and his primary areas of practice are complex business, toxic tort, and products liability litigation. He can be reached at quattlebaum@QGTLAW.com or 501-379-1707.

Force Majeure In Arkansas

May, 25, 2020

by Timothy W. Grooms and Robbi R. Rosenbaum |

Many Arkansas businesses temporarily shut their doors in light of COVID-19, leading to uncertainty regarding the status of their contracts. Most contracts have a “force majeure” clause, in which the parties agree to waive some or all responsibilities in light of unexpected activity constricting a party’s operations. Parties should understand their rights and responsibilities under their contracts as they consider how to respond to the evolving COVID-19 situation.

Language of the Clause

Parties seeking to suspend performance should first check the language of their contract’s force majeure clause, which must include language encompassing COVID-19. If the clause includes examples like “pandemic” or “quarantine,” the party should be able to invoke the clause. However, most force majeure clauses are not so specific. If the clause references a “government action” or “government order,” a party could argue that certain mandatory governmental directives excuse performance under the clause.

Most force majeure clauses include a catch-all phrase referring, for example, to all other acts not reasonably within control of a party. Arkansas courts, however, limit these catch-all phrases to situations resembling the clause’s specific terms. On the other hand, courts would interpret the catch-all provision broadly when the force majeure clause contains no specific terms.

Impossibility

To qualify for excusal under most force majeure clauses, the COVID-19 pandemic must make continued performance legally or physically impossible. Physical impossibility would be difficult for most businesses to prove in relation to COVID-19, for inconvenience or a decline in revenue is not sufficient. Legal impossibility encompasses circumstances where government restrictions make performance illegal, giving businesses who faced mandatory closures the strongest case.

The force majeure clause may alternatively be broader, covering acts making performance “impossible or reasonably impracticable.” However, parties should hesitate before arguing impracticability. Arkansas courts frequently distinguish between impossibility and impracticability in theory, but rarely in practice.

Mitigation

Arkansas courts require mitigation before granting excusal, generally requiring diligent efforts. Courts are most willing to excuse a party’s breach when the party has attempted to mitigate the damage. With this in mind, Arkansas courts have refused to grant excusal when the breaching party did not resume performance as quickly as reasonably possible. Business owners should keep this in mind as they decide on a re-opening date.

Alternatively, if a breaching party tries to cancel performance completely under the force majeure clause, the other party should offer mitigation options like reduced rent or delayed due dates to prevent total cancellation. Arkansas courts frown on attempts to call off performance when a path to mitigation exists.

Notice

Most force majeure clauses require notice to the other party, and notice is a good idea even when not required. The party invoking the clause should write a letter to the other party detailing the situation, discussing why continued operation is impossible and why mitigation is unavailable. Courts in Arkansas take the notice requirement seriously.

Scope of Relief

Force majeure clauses differ in scope. For example, many force majeure clauses in leases provide for closure without violating the covenant of continuous operation but do not excuse payment of rent during the time of closure. On the other hand, clauses in leases excusing parties from “any term, condition, or covenant” of the lease would excuse payment of rent. Additionally, as noted herein, Arkansas courts grant excusal only for a reasonable time regardless of the clause’s language.

Timothy W. Grooms is a founding member of Quattlebaum, Grooms & Tull PLLC where he focuses his practice on real estate, banking and commercial lending transactions. Mr. Grooms can be reached at tgrooms@QGTLAW.com or 501-379-1713.

Robbi Riggs Rosenbaum, a Spring 2020 graduate of the University of Arkansas at Little Rock Bowen School of Law and a Certified Public Accountant, is joining the law firm as an associate and will concentrate her practice on real estate and commercial transactions. Ms. Rosenbaum can be reached at rrosenbaum@QGTLAW.com or 501-379-1738.

Note: The above article was published in the May 25, 2020, edition of Arkansas Business. Click the link below to read the actual publication.

A Report From The 2019 National Conference Of Commissioners On Uniform State Laws

March 2020

by J. Cliff McKinney II |

The Uniform Law Commission (ULC) held its 128th annual National Conference in Anchorage, Alaska, on July 11-18, 2019. Arkansas was represented by its commissioners, David Nixon, John Thomas Shepherd, and Cliff McKinney. Earlier in the year, Arkansas adopted two new uniform acts: The Uniform Protected Series Act (now Act 1611) and the Uniform Directed Trust Act (Act 1021).

The ULC’s rules for approving proposed uniform acts typically require consideration at two consecutive annual meetings. Following is a brief description of the acts that were approved on final reading this year.

The above is an excerpt from an article written by J. Cliff McKinney II for the Winter 2020 issue of The Arkansas Lawyer, a publication of the Arkansas Bar Association. You can download the entire article below.

For more information on this article, please contact J. Cliff McKinney II at 501-379-1725 or cmckinney@QGTLAW.com.

Recent Amendment to Chapter 12 Bankruptcy Debt Limits Under the Family Farmer Relief Act of 2019

October 2019

by Mary-Tipton Thalheimer and R. Seth Hampton |

In the late 1980s, Congress enacted Chapter 12 of the United States Bankruptcy Code (the “Bankruptcy Code”) to give hope to “family farmers who are facing the brink of disaster where they would have to be thrown off their farms” by giving them the ability to reorganize.[1] For farmers that wanted to keep their farms, prior to enactment of Chapter 12, their only options were to file for relief under Chapter 11 or Chapter 13. However, for many family farmers, Chapter 11 proved too complicated and expensive, whereas the Chapter 13 debt limits disqualified many family farmers. Thus, the goal of Chapter 12 is to allow the debtor to avoid liquidation and foreclosure by reorganizing and restructuring its finances, while continuing its farming/commercial fishing operations, without having to incur the complexities and costs of Chapter 11.[2]

Under Chapter 12, only a family farmer or family fisherman with regular annual income, as defined by the Bankruptcy Code, may file for Chapter 12 relief. The Bankruptcy Code defines an individual family farmer as: (1) an individual or an individual and spouse; (2) engaged in a farming operation; (3) with aggregate debts that do not exceed $4,411,400; (4) with at least 50.0% of the aggregate, non-contingent, liquidated debts, excluding debt for the principal residence, arise out of the individual’s farming operation; and (5) who received more than 50.0% of income from the tax year preceding the petition year (or each of the second and third years preceding the tax year of the petition date) from the farming operation. [3] The Bankruptcy Code defines a corporation or partnership family farmer as an entity: (1) in which more than 50.0% of its outstanding stock or equity held by one family or one family and the relatives of members of the family (which includes an individual related by marriage or blood within the third degree, as well as individuals in a step or adoptive relationship within the third degree) and such family or relatives conduct the farming operation; (2) in which more than 80.0% of the value of its assets are related to the farming operations; (3) with aggregate debts that do not exceed $4,411,400; (4) with at least 50.0% of the aggregate, non-contingent, liquidated debts, excluding debt for the principal residence, arise out of the entity’s farming operation; and (5) whose stock, if any, is not publicly traded.[4]

In recent years, there has been an increase in Chapter 12 filings nationwide resulting from the continued downturn in the U.S. farm economy.[5] According to a Forbes article written by Marua Webber Sadovi, Chapter 12 filings nationwide have increased in recent years, from 317 in 2014, to 458 in 2017, to 474 in 2018.[6] The combination of tariffs and record rainfall in many agricultural states has increased the likelihood that Chapter 12 filings will continue to increase in the near future. In order to make it possible for more family farmers to avail themselves of the protections of Chapter 12, President Trump signed into law the bipartisan Family Farmer Relief Act of 2019 on August 23, 2019, which increases the debt cap for those seeking relief under Chapter 12 from just over $4.2 million to $10 million. According to the Family Farmer Relief Act co-sponsor Representative Antonio Delgado of New York, the “farm economy is exacerbated by an outdated bankruptcy filing cap that leaves farmers without option to restructure or repay their debt.”[7] The Family Farmer Relief Act is meant to align with today’s land values, the increased in the average size of family farm operations, and the current cost of doing business for today’s farmers.

While the Family Farmer Relief Act increases the debt limit for family farmers, the remainder of the requirements for qualification as a Chapter 12 debtor remain the same. Thus, although it appears that fewer family farmers will be disqualified from filing under Chapter 12 due to the amount of their debts, other noted issues with Chapter 12’s eligibility requirements, such as disqualifications based on the types of debts, may still prove problematic.

[1] See 132 Cong. Rec. H9001 (daily ed. October 2, 1986)

[2] See 11 U.S.C. §§ 1201 et seq.

[3] See 11 U.S.C. § 101(18)

[4] See 11 U.S.C. § 101(18)

[5]See National Association of Farm Broadcasters, Trump Signs Family Farmer Relief Act (Aug. 27, 2019) (available at http://southeastagnet.com/2019/08/27/trump-signs-family-farmer-relief-act/); see also The National Agricultural Law Center, Raising the debt limit: How Chapter 12 bankruptcy saves family farms (Aug. 26, 2019) (available at https://nationalaglawcenter.org/raising-the-debt-limit-how-chapter-12-bankruptcy-saves-family-farms/).

[6] Maura Webber Sadovi, Bitter Harvest: Debt And The Bankrupting Of The American Family Farm (Mar. 27, 2019) (available at https://www.forbes.com/sites/debtwire/2019/03/27/bitter-harvest-debt-and-the-bankrupting-of-the-american-family-farm/#1056ce4b7e7a).

[7] See House Passes Delgado’s Bipartisan Legislation to Ease Chapter 12 Bankruptcy Rules for Family Farmers (July 26, 2019) (available at https://delgado.house.gov/media/press-releases/house-passes-delgado-s-bipartisan-legislation-ease-chapter-12-bankruptcy-rules).

Mary-Tipton Thalheimer is an attorney at Quattlebaum, Grooms & Tull PLLC where she concentrates her practice on debtor and creditor rights and bankruptcy. For more information, please contact Mary-Tipton at 501-379-1742 or mthalheimer@QGTlaw.com.

R. Seth Hampton is an attorney at Quattlebaum, Grooms & Tull PLLC where he focuses his practice primarily on real estate, agriculture, commercial finance, and environmental compliance. For more information, please contact Seth at 501-379-1774 or shampton@QGTlaw.com.

Note: The above article was published in the Fall 2019 issue of The Arkansas Banker. Click the link below to read the actual publication.

Compelling and Staying Arbitration in Arkansas

September 2019

Thomas H. Wyatt |

When a party commences a lawsuit in defiance of an arbitration agreement, the opposing party may need to seek a court order to stay the litigation and compel arbitration. Likewise, when a party starts an arbitration proceeding in the absence of an arbitration agreement, the opposing party may need to seek a court order staying the arbitration. This Note describes the key issues counsel should consider when requesting a court to compel or stay arbitration in Arkansas, including preliminary considerations when compelling or staying arbitration, threshold factual issues presented to the court, considerations when preparing the motion, procedural rules applicable to the motion, and appeal of an order compelling or staying arbitration.

The above is an excerpt from an article written by Thomas H. Wyatt for Westlaw Practical Law. You download the entire article below.

For more information on this topic, please contact Thomas H. Wyatt at 501.379.171730 or twyatt@QGTlaw.com.

Chambers USA Real Estate – Arkansas

June 2019

Timothy W. Grooms, J. Cliff McKinney II, Jeb H. Joyce |

Timothy W. Grooms, J. Cliff McKinney II and Jeb H. Joyce authored the Arkansas chapter for the 2019 Chambers USA Regional Real Estate Guide, a state-by-state guide on the real estate sector. The guide provides easily accessible information on navigating the legal system when conducting business in various jurisdictions with leading lawyers explaining local law and practice at key transactional stages. You can download the Arkansas chapter below.

For additional information on this topic please contact Timothy W. Grooms, 501.379.1713, tgrooms@QGTlaw.com; J. Cliff McKinney II, 501.379.1725, cmckinney@QGTlaw.com; or Jeb H. Joyce, 479.444.5202, jjoyce@QGTlaw.com.

Optional Liquidated Damages in Arkansas Commercial Real Estate Purchase and Sale Agreements

March 2019

by Timothy W. Grooms and Mary-Tipton Thalheimer |

“Parties to commercial real estate purchase and sale agreements commonly include liquidated damages provisions whereby the parties agree to the amount of damages a non-breaching party will receive in the event of a breach. The purpose of this article is to inform sellers about Arkansas law on liquidated damages provisions in commercial real estate purchase and sale agreements.”

Note: The above is an excerpt from an article written by Timothy W. Grooms and Mary-Tipton Thalheimer for The Practical Real Estate Lawyer. Please click on the link below to read the entire article. Reprint of this article is courtesy of the American Law Institute Continuing Legal Education, www.ali-cle.org.

For more information about this article or other real estate matters, please contact Timothy W. Grooms at tgrooms@QGTlaw.com, 501.379.1713, or Mary-Tipton Thalheimer at mthalheimer@QGTlaw.com, 501.379.1742. Mr. Grooms and Ms. Thalheimer are both located in the firm’s Little Rock office. Tim’s primary areas of practice are real estate, banking, mergers and acquisitions, and commercial transactions. Mary-Tipton concentrates her practice on bankruptcy and debtor and creditor rights.

Wetlands Conservation Compliance – What Every Ag Lender Should Know About Swampbusters

March 2019

by R. Seth Hampton |

In addition to commonly known environmental laws, regulations and compliance requirements concerning wetlands, such as the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) or Clean Water Act, there exists another body of federal laws and regulations that apply to the use and development of wetlands in connection with production agriculture—the conservation compliance provisions of the Food Security Act of 1985, as amended (the “Act”).[1] The conservation compliance provisions of the Act can be divided into two components: the Wetland Conservation provisions, commonly referred to as “Swampbusters,” and the Highly Erodible Land Conservation provisions, also known as “Sodbusters”. This article will only discuss the former and not the latter, but it is noted that many of the regulations implementing Sodbusters are similar to, and in some instances mirror, those applicable to Swampbusters.

Swampbusters became law on December 23, 1985. However, because the applicability of Swampbusters is limited to agricultural operations, many lenders have little knowledge of Swampbusters or the extent to which its provisions can adversely affect collateral. Many lenders may be shocked to learn that non-compliance with Swampbusters can result in a borrower losing all or a significant portion of collateral typically pledged to secure agricultural operating loans, rendering the loan either wholly or partially unsecured. Accordingly, any lender extending credit to finance an agricultural operation should, at the very least, have a limited understanding of Swampbusters and the consequences that can stem from failure to comply with its mandates.

The purpose of Swampbusters is twofold: (1) discourage the conversion of wetlands to croplands; and (2) protect those croplands (and the owners and producers thereof) that were converted from wetlands before December 23, 1985. Today, the current version of Swampbusters provides that any person who, after December 23, 1985, produces an agricultural commodity on a converted wetland or, after November 29, 1990, converts a wetland for the purpose of making the production of an agricultural commodity possible thereon shall be ineligible to receive certain farm program payments and benefits under certain programs administered by agencies of the United States Department of Agriculture (“USDA”).[2]

The term “converted wetland” is defined as a “wetland that has been drained, dredged, filled, leveled, or otherwise manipulated (including any activity that results in impairing or reducing the flow, circulation, or reach of water) for the purpose or to have the effect of making the production of an agricultural commodity possible if . . . such production would not have been possible but for such action . . .”[3] From this definition came the “prior converted cropland” designation, which refers to a wetland converted prior to Swampbusters’ effective date. Converted wetlands are subject to use restrictions imposed by Swampbusters, while lands designated as “prior converted croplands” or “PCCs” are not. Thus, use of PCCs for agricultural production is not prohibited by Swampbusters and does not trigger farm-program ineligibility.

Compliance with Swampbusters is jointly administered and enforced by USDA’s Farm Service Agency (“FSA”) and Natural Resources Conservation Service (“NRCS”) through collection and periodic reviews of agricultural production data, including crops planted, tillable acreage, tract/field boundaries, land designations, aerial imagery and wetland delineations/determinations. Additionally, compliance is monitored through mandatory self-certifications, which must be made by required persons via a Wetland Conservation Compliance Certification (Form AD-1026) filed with FSA. Certifications are generally made annually and must be made by any person receiving farm program payments or benefits, including “affiliates” of such persons (such as crop-share landlords). Once a Certification is filed, it remains valid and constitutes a continuing certification of compliance until a new Certification is filed. While a Certification must be filed by any person planning to receive farm program payments or benefits, the regulations also require a new Certification to be filed by any person who plans to bring new land into production or make land-use changes, combine established fields or tract, remove fence rows or perform maintenance or improvements to an existing drainage system, or perform clearing, land-leveling, filling, dredging, drainage or other activities that may alter or affect a wetland area.

Compliance with all aspects of Swampbusters is critical, as even failure to file a Certification constitutes non-compliance, triggering the ineligibility provisions. If a person is determined by FSA to be out of compliance with Swampbusters, the farm program payments and benefits for which the person will be ineligible to receive include (i) any disaster payments and payments made under any price-support program administered by FSA, including Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) payments; (ii) conservation program payments made under the Conservation Security Program (CSP), Conservation Stewardship Program (CStP), Environmental Quality Incentive Program (EQUIP) and Wildlife Habitat Incentive Program (WHIP); (iii) contract payments under a production flexibility contract, marketing assistance loans and any type of price support or payment available under Agricultural Market Transition Act; (iv) farm storage facility loans available from the Commodity Credit Corporation; (v) farm operating loans under the Consolidated Farm and Rural Development Act (including FSA direct and guaranteed loans); and (vi) as of 2014, crop insurance benefits and premium subsidies paid under the Federal Crop Insurance Act.[4]

Because the program payments and insurance proceeds typically account for a significant portion of the collateral given to secure agricultural loans—particularly row-crop production loans—non-compliance with Swampbusters can have a substantial effect not only on agricultural producers but also the lenders who finance their operations. For instance, consider a common scenario where a lender extends credit to an agricultural producer to finance the cost of producing a rice and soybean crop, and in exchange, the producer-borrower grants the lender a security interest covering all crops and proceeds, as well as an assignment of indemnity covering all crop insurance proceeds and an assignment of all farm program payments attributable to the crops and farming operations of the producer-borrower. If the producer-borrower is subsequently determined to be ineligible to receive crop insurance and farm program payments and benefits due to non-compliance with Swampbusters, the lender’s collateral and security for the loan will have been essentially reduced to only the crops harvested by the producer-borrower.

Considering the adverse impacts that can result from violation of Swampbusters, lenders should consider proactive steps that can be implemented to limit the risks associated with agricultural production loans, such as requiring additional collateral that is not subject to divestment under Swampbusters or inclusion of additional loan covenants specifically requiring compliance with Swampbusters, timely filings of compliance certifications and prior notice to the lender of planned activities involving changes in the use or physical characteristics of farmlands that may require submission of additional compliance certifications. In addition, lenders should also consider requiring producer-borrowers to annually provide updated FSA Form 156EZs and FSA Farm/Tract maps for all lands farmed by the producer-borrowers as a condition to the loan. These documents may prove particularly useful in assessing loan risks, because each of these documents generally include references indicating whether a wetland determination has been completed with respect to the particular lands, and if so, whether a violation was discovered.

[1] See 16 U.S.C. §§ 3801 et seq.

[2] See 16 U.S.C. §§ 3821.

[3] 16 U.S.C. § 3801(a)(7)(A).

[4] See 16 U.S.C. § 3821(b); see also USDA NRCCS, National Food Security Act Manual, Part 510, § 510.1 (5th ed. Dec. 2015).

R. Seth Hampton is an attorney at Quattlebaum, Grooms & Tull PLLC where he focuses his practice primarily on real estate, agriculture, commercial finance, and environmental compliance. For more information, please contact Seth at 501-379-1774 or shampton@QGTlaw.com.

Note: The above is an article published in the March 2019 issue of The Arkansas Banker. Click the link below to read the actual publication.

Native American Children Should Get Fair & Equal Treatment

March 14, 2019

by Chad W. Pekron |

In every way that matters, Erin Fisher, her husband Richard Fisher, and their son A.C. are a typical normal family. The Fishers live together, celebrate their holidays together, take vacations together, and enjoy the company of A.C.’s younger brother. Mr. Fisher coaches A.C.’s baseball team, taught him to swim, and helps him with his homework.

The Fisher family is atypical in only one way: Mr. Fisher is not A.C.’s biological father, but is instead his stepfather. A.C.’s biological father, Jason Cook, has been out of A.C.’s life for years and has been in and out of custody for a variety of offenses. A.C. considers Mr. Fisher, not his biological father, to be his dad, and wants Mr. Fisher to adopt him as his legal son.

Normally, under Arkansas law this would not be a problem. Arkansas law provides a relatively simple procedure for the termination of parental rights when, as here, a biological parent has abandoned his or her minor child. And once parental rights of one parent are terminated, a stepparent adoption is simple and straightforward. Under any normal circumstances, it would be very easy for the Fisher family to obtain the legal recognition that they desire.

Unfortunately, because A.C. is designated as an “Indian child” due to his biological father’s status as a Native American, the otherwise simple process whereby Mr. Fisher would adopt A.C. is complicated, expensive, and a complete uncertainty. Under the Indian Child Welfare Act (“ICWA”), A.C.’s biological father’s tribe, the Cherokee Nation, was granted the opportunity to intervene in the Fisher’s termination proceeding.

Once the Cherokee Nation intervened – which, notably, it had the right to do even up to two years after an adoption was finalized – the rules changed. Instead of simply showing by clear and convincing evidence that A.C.’s biological father had abandoned him, ICWA imposed two additional burdens. First, the Fishers were required to provide that they had taken “active efforts” to prevent the breakup of the Indian family and that those efforts were unsuccessful. Second, the Fishers were required to prove beyond a reasonable doubt – using expensive expert witnesses – that the failure to terminate parental rights would result in significant emotional trauma to A.C. Given the disparity of resources between the Fishers and the tribe, these additional burdens are essentially insurmountable. More important, they are immoral, given that they have essentially forced A.C. into repeated situations of attempts at visitation that his biological father rejected.

These burdens are based on only one reason: A.C.’s status as an “Indian child.” That classification is defined solely by A.C.’s race. Without question, imposing additional burdens on families based solely upon their race would be unthinkable if any other race were at issue. It should be equally unthinkable to impose those burdens upon an “Indian child.”

Along with the Goldwater Institute counsel Adi Dynar and Keith Morrison, an Arkansas attorney specializing in family law, I have filed suit on behalf of the Fishers in the United States District Court for the Western District of Arkansas, seeking to have ICWA declared unconstitutional as applied in this case. While ICWA was intended to address serious problems in the past, its application to an otherwise uncontested parental termination proceeding violates the Fishers’ rights to be treated equally and fairly under the law without regard for their child’s race. The Fifth and Fourteenth Amendments require no less.

For more information on this article, please contact Chad W. Pekron at 501.379.1726 or cpekron@QGTlaw.com.

Note: The above appeared on the Goldwater Institute’s “In Defense of Liberty” blog.

Design-Build Highway Projects and How They Change the Landscape for Landowners in the Eminent Domain Process

Summer 2018

by Michael N. Shannon |

Many lenders are affected by road expansion projects in Arkansas. Whether it be for their own branch or main location or for a commercial borrower like a hotel or shopping center, the use of eminent domain to acquire only a portion of property can substantially alter the ultimate value of the remainder of that property. Loss of access, reduced parking, increased proximity to public roadways and many other issues can transform an ideal site for your borrower into one that is minimally usable, if at all. Because the borrower’s site is often the major piece of collateral supporting the loan, it is important to understand the right-of-way acquisition process for public projects.

In a partial takings case (i.e, where only a portion of an owner’s property is taken in eminent domain), “just compensation” is the difference between the fair market value of the whole property immediately before the taking and the fair market value of the remaining property immediately after the taking.[1] This formula is intended to account for both (1) the value of the land and improvements actually taken and (2) the diminution in value of the remaining property after the project. In my experience handling hundreds of eminent domain matters, the real battle is the argument over “damage to the remainder” rather than the per square foot value of the land actually taken.

One of the best ways to minimize the possible damage to the remainder of an owner’s property from a taking is to negotiate with the condemning authority before construction starts. Not all condemning authorities welcome such efforts, and even when they do, solutions are not guaranteed. It never hurts, however, to inform the transportation agency about the aspects of the project that will change the value of the property. Many litigation battles over the “damage to the remainder” have been avoided by meeting with the condemning authority and explaining how the proposed project changes the property’s ultimate desirability.

In recent years, several government representatives have lamented to me the cost of acquiring right-of-way for projects is beginning to outpace the cost of construction and is preventing projects from occurring at all. In this landscape, the incentive to reduce the cost to acquire right-of-way can be a strong motivator for the government to listen to concerns of the landowners ahead of actual construction. For example, sometimes small design changes to access points can mean millions of dollars of savings in acquisition costs. Without access, the site of a future shopping center can become merely a place to cut hay.

With decreasing public dollars available for transportation agencies, many are pursuing alternatives to traditional funding methods and new means of project development and right-of-way acquisition. One of those methods is the use of a “Design-Build” project delivery method. This method is likely to dampen the willingness and ability of government entities to agree to changes in design that can alleviate valuation concerns. Arkansas has recently allowed this method by statute.[2]

Traditionally, highway projects have been done using a method called “Design-Bid-Build” where the governing authority designs the project, then solicits bids from construction companies, one of which ultimately builds the project. In the “Design-Build” method, the design and construction phases are combined into a single contract between the transportation agency and the private construction/design company. While the governing body produces a “preliminary” design, the actual and final design is done by a private contractor. Among the touted benefits of this approach are a reduced schedule, project cost savings, reduced litigation with the construction contractor and a transfer of risks and costs for design errors to the private company. However, the government entity loses control of many aspects of the project.

While Design-Build facilitates shifting of traditional design responsibilities to the private contractor, acquisition of the property necessary for the new right-of-way remains the responsibility of the government agency. Traditionally, right-of-way acquisition decisions and negotiations under the “Design-Bid-Build” process have occurred up to the point that the agency physically needed the property to begin construction. Changes to the design could be made during that time to adjust the amount of property actually needed or the location of access points, for example. However, under the “Design-Build” model, right-of-way acquisition will generally occur prior to and during the selection of the private design-builder, meaning property will be acquired before the final design is determined thus lessening the time in which property owners can negotiate changes to the acquisitions. Only a “preliminary design” will exist when acquisitions occur. While the general corridor will be identified, the design details will not be in place at the time of the acquisition. Once property has been acquired, there is no process in place to “give back” any that ultimately proved unnecessary in the final design.

Acquisition prior to final design may also produce uncertainty in the litigation process. As noted above, the measure of just compensation is made using the value of the property after the project is complete and permanently in place.[3] If there is a delay between the acquisition and the final design, the landowner may not know how the project will ultimately impact his property until much later than usual. The options are to (1) proceed to a jury trial over just compensation without knowing the final design or (2) to delay any trials (assuming the trial court is willing) until such plans are in place. Changes in plans could increase or decrease the just compensation needed to make the landowner whole.

In short, while the advent of the Design-Build model does not completely destroy the ability of the landowner to negotiate regarding the scope of the project and property to be taken, it will certainly make such efforts more difficult and it will complicate some aspects of the litigation process to determine just compensation.

The first true Design-Build project in Arkansas will be the “30 Crossing” project spanning the Arkansas River between Little Rock and North Little Rock. A number of commercial properties will be impacted by the project on both sides of the river. If you or any of your clients have any questions regarding how that project or any other project will affect your/their property, please do not hesitate to call me or one of my law partners at Quattlebaum, Grooms & Tull PLLC.

[1] Arkansas Model Jury Instruction § 2002.

[2] Ark. Code Ann. § 27-65-107(c) gave the ArDOT “the authority to enter into contracts that combine the design, construction and construction engineering phases of a project into a single contract that shall be referred to as a design-build project contract.”

[3] Arkansas Model Jury Instruction § 2002.

For more information, please contact Michael N. Shannon at 501-379-1716 or mshannon@QGTlaw.com.

Note: The above is an excerpt from the article published in the Summer 2018 issue of the Arkansas Community Banker. Click the link below to read the actual publication.

Chambers USA Regional Real Estate Guide – Arkansas

Summer 2018

Timothy W. Grooms, J. Cliff McKinney II, Jeb H. Joyce |

Timothy W. Grooms, J. Cliff McKinney II and Jeb H. Joyce authored the Arkansas chapter for the 2018 Chambers USA Regional Real Estate Guide, a state-by-state guide on the real estate sector. The guide provides easily accessible information on navigating the legal system when conducting business in various jurisdictions with leading lawyers explaining local law and practice at key transactional stages. You can download the Arkansas chapter below.

For additional information on this topic please contact Timothy W. Grooms, 501.379.1713, tgrooms@QTlaw.com; J. Cliff McKinney II, 501.379.1725, cmckinney@QGTlaw.com; or Jeb H. Joyce, 479.444.5202, jjoyce@QGTlaw.com.

You Snooze, You Lose

June 11, 2018

by Lindsey C. Pesek |

Arkansas law has a number of hurdles to maneuver in order to establish an enforceable mechanic’s and materialman’s lien in the construction industry, many of which must be satisfied well in advance of even filing a lien. Arkansas lien law is statutory in nature, and only those who comply with the statutory requirements are entitled to obtain and enforce a lien on real estate subject to a construction agreement.

The above is an excerpt from an article written by Lindsey C. Pesek that appeared in the June 11, 2018 issue of the Northwest Arkansas Business Journal. Please click the link below to read the full article.

Please contact Lindsey C. Pesek at 479-444-5211 or lpesek@QGTLAW.com for additional information on this topic.

Restaurants, Guns and Signs

April 2, 2018

By Brandon B. Cate |

During the 2017 legislative session, Arkansas enacted two new acts concerning public and private places and concealed handguns. While the act concerning concealed handguns on college campuses received much attention, the same act authorized bar patrons to carry a concealed handgun under certain circumstances. Nevertheless, a bar may take affirmative steps under the new act if the business owner wishes to continue to prohibit concealed handguns within its premises.

The above is an excerpt from an article written by Brandon B. Cate that appeared in the April 2, 2018 issue of the Northwest Arkansas Business Journal. Please click the link below to read the full article.

Please contact Brandon B. Cate at 479-444-5205 or bcate@QGTLAW.com for additional information on this topic.

Praise The Hogs And Pass The Ammunition: The Expansion Of Concealed Carry Rights

March 2018

by Timothy W. Grooms and J. Cliff McKinney II |

Timothy W. Grooms was a presenter during the session “Premises Liability: Lawyers, Guns and Money – Firearms and Other Liability Concerns” at the 2018 American College of Real Estate Lawyers (ACREL) Mid-Year meeting in Orlando, Florida. “Praise the Hogs and Pass The Ammunition: The Expansion of Concealed Carry Rights”, a paper co-authored by Mr. Grooms and J. Cliff McKinney II, was included in The ACREL Papers for the Spring 2018 meeting and traces the history of concealed carry in Arkansas and other States, including the multi-year battle in Arkansas over concealed carry on campus. The article can be found by clicking the link below.

For more information, please contact Timothy W. Grooms at tgrooms@QGTlaw.com or 501.379.1713 or J. Cliff McKinney II at cmckinney@QGTlaw.com or 501.379.1725.

Arkansas Disallows Pre-Dispute Jury Waivers

Winter 2018

by Mary-Tipton Thalheimer |

To avoid the time, expense, and uncertainty of submitting a claim to a jury, banks commonly include provisions in their loan documents that conspicuously state the parties to the loan documents waive their right to a jury trial for any claims arising out of or related to the loan documents. The majority of courts all over the country have upheld such jury-waiver provisions.[1] On December 7, 2017, Arkansas adopted the minority view when the Arkansas Supreme Court (the “Court”) delivered its opinion in Tilley v. Malvern National Bank. [2]

In July 2010, Kenneth W. Tilley and Malvern National Bank (the “Bank”) entered into a loan agreement.[3] The loan agreement included a jury-waiver provision, but when the Bank filed a foreclosure action against Mr. Tilley, he demanded a jury trial on his counterclaims against the Bank and a former bank employee.[4] The trial court and the Arkansas Court of Appeals found that, pursuant to the jury-waiver provision, Mr. Tilley waived his right to a jury trial.[5] The Court found otherwise.[6]

The Court examined the counterclaims raised by Mr. Tilley and concluded that because his counterclaims were historically submitted to a jury and the sole remedy sought was monetary damages, his claims were the type that should be submitted to a jury as a legal matter.[7] The Bank asserted that even if Mr. Tilley’s counterclaims were the type that should be submitted to a jury, he waived the right to a jury trial by executing the loan agreement, which included a jury-waiver provision.[8] Mr. Tilley asserted that, notwithstanding the jury-waiver provision in the loan agreement, the Arkansas Constitution provides that the right to a jury trial “shall remain inviolate.”[9]

While the Arkansas Constitution does state “the right of trial by jury shall remain inviolate,” it also states “a jury trial may be waived by the parties in all cases in the manner prescribed by law.”[10] The Court interpreted “in the manner prescribed by law” to mean any waiver must be governed by Arkansas statutes and the Arkansas Rules of Civil Procedure. For example, as noted by the Court, arbitration agreements are enforceable because the Arkansas Arbitration Act has been codified in Arkansas Code Annotated §§ 16-108-201 et seq.[11] Currently, no Arkansas statutes or rules of civil procedure expressly provide for pre-dispute waivers of the right to a jury trial.[12] Additionally, the Arkansas Rules of Civil Procedure that do address waiver of a jury trial indicate that the waiver may only take place after a party makes a jury demand.[13] Accordingly, a narrow majority of the Court held that contractual jury waivers are not enforceable under the Arkansas Constitution.[14]

As a result of the Court’s ruling in Tilley v. Malvern National Bank, banks can no longer rely on the jury-waiver provisions included in their loan documents to shield them from the possibility of a jury trial. Because a foreclosure action is an equitable action, the Tilley ruling does not affect a bank’s right to submit its foreclosure claim to the judge instead of a jury.[15] However, if the bank also has legal claims or the borrower has legal counterclaims against the bank in connection with the subject loan, the borrower can demand that the legal claims be submitted to a jury regardless of whether the borrower executed an agreement that includes a jury-waiver provision. Therefore, the only way for Arkansas banks to ensure claims arising out of or related to their loan documents are not submitted to a jury is to include an arbitration clause in the loan documents.

While inclusion of an arbitration clauses in loan documents is currently the only way to absolutely avoid a jury trial in Arkansas, that might not always be the case. As noted by Justice Wood in her dissenting opinion, the Arkansas General Assembly has the authority to determine how a party may waive his or her right to a jury trial.[16] Thus, the Arkansas General Assembly could always enact a statute that explicitly states parties to a contract may waive the right to a jury trial. Additionally, for contracts with out-of-state borrowers, the loan documents could include a choice of law provision designating the other state’s law as the governing law. Thus, despite the Tilley ruling, banks should not rush to strike jury-waiver provisions from their loan documents.

[1] Prior to December of 2017, only California and Georgia found pre-dispute jury-waiver provisions unenforceable. See Grafton Partners L.P. v. Superior Court, 116 P.3d 479 (Cal. 2005); Bank South, N.A. v. Howard, 264 Ga. 339, 444 S.E.2d 799 (1994).

[2] Tilley v. Malvern Nat’l Bank, 2017 Ark. 343.

[3] Id. at 2.

[4] Id. at 3.

[5] Id. at 4.

[6] Id. at 2.

[7] Tilley, 2017 Ark. 343, at 8.

[8] Id. at 9.

[9] Id. at 10.

[10] Ark. Const. art. 2, § 7.

[11] Tilley, 2017 Ark. 343, at 13―14

[12] Id. at 14.

[13] Id. at 15.

[14] Id. Justices Baker delivered the opinion, and Justices Wynne and Hart and Special Justice Warren joined. Chief Justice Kemp did not participate. Justices Goodson and Wood each authored a dissenting opinion, and Justice Womack joined Justice Wood’s dissenting opinion.

[15] See Tilley v. Malvern Nat’l Bank, 2017 Ark. 343, at 7.

[16] Id. at 20.

For more information, please contact Mary-Tipton Thalheimer at 501-379-1742 or mthalheimer@QGTlaw.com.

Note: The above is an excerpt from the article published in the Winter 2018 issue of the Arkansas Community Banker. Click the link below to read the actual publication.

HVCRE Lending: Understanding the Regs & Upcoming Changes

February 2018

by Daniel J. Beck |

Changes may soon be made to the High Volatility Commercial Real Estate (“HVCRE”) loan regulations that would ease borrower capital contribution requirements and allow exemptions for properties already producing income. There are competing proposals. One has passed in the House and is sitting in the Senate, the other has been proposed by the federal banking agencies but has not yet been adopted. Below is an overview of HVCRE rules today and the proposed changes that could occur.

Where does HVCRE stand today?

A loan is an HVCRE loan if “prior to conversion to permanent financing, [it] finances or has financed the acquisition, development, or construction (“ADC”) of real property.” If a loan is classified as an HVCRE loan, it will be assigned a risk weighting of 150%, instead of the normal risk weighting of 100%. The net effect is to lower a bank’s return on capital. If a loan qualifies as HVCRE, a bank has to choose between requiring additional equity from the borrower or charging greater interest to offset the increased capital costs.

For an ADC loan to be excluded from HVCRE – the loan must satisfy each of the following:

Loan-to-value ratio must be less than or equal to the applicable maximum ratio prescribed by bank regulators;
Borrower must have contributed capital to the project of at least 15% of the real estate’s “as completed” value, based on a current appraisal; and
Borrower must contribute the capital prior to the bank funding the loan, and the capital contributed by the borrower, or internally generated by the project, must be contractually required to remain in the project until the loan is converted to permanent financing.

What capital contributions qualify?

Qualifying capital contributions may include, unencumbered land, cash expended to acquire a site (including engineering or permitting expenses directly related to the project), and soft costs that contribute to the “completion and value of the project” as long as they are commercially reasonable and paid by the borrower. Examples of soft costs include interest and fees related to pre-development expenses, developer fees, leasing expenses, feasibility studies, brokerage commissions, and management fees. While cash equity used to acquire contributed land counts toward the capital contribution requirement, any land value in excess of the cash investment at the time of the loan is not taken into account. A bank should document the details pertaining to the amount of cash paid for the land and the soft costs used to meet the capital contribution requirement.

In order to meet the capital contribution requirement, the loan documents must include terms requiring that all contributed or internally generated capital remain in the project throughout the life of the project. The borrower must not have the ability to withdraw either the capital contribution or the capital generated internally by the project prior to obtaining permanent financing.

What is not considered an eligible capital contribution?

Eligible capital contributions do not include borrower-owned real estate from an unrelated project pledged to the subject project; purchasers’ deposits on units in a condominium project; financing from an external lienholder, such as a second mortgage; assets contributed to the project after the advancement of funds; cash received in the form of grants, regardless of whether the grant is received from nonprofit organizations, municipalities, or government agencies; any contribution that may be withdrawn by the borrower prior to the borrower obtaining permanent financing; and proceeds from a separate loan used to finance the project.

Are there other exemptions to HVCRE?

In addition to the capital contribution exemption, other HVCRE exemptions include loans for 1-4 family residential properties; the purchase or development of agricultural land for agricultural purposes provided the valuation of the agricultural land is based on its value for agricultural purposes and the valuation does not take into consideration any potential use of the land for non-agricultural commercial development or residential development; and qualified investments in community development.

What are the proposed changes to HVCRE regulations?

On November 8, 2017, the House passed H.R. 2148. If the Bill passes the Senate unchanged and is signed into law, loans will not be classified as HVCRE if the property is producing enough income to satisfy the bank’s debt service requirements and pay expenses related to the property, regardless of whether the loan meets the bank’s standards for permanent financing. This exemption would exclude several loans that are used to renovate or improve existing income producing property. Banks could also reclassify an existing HVCRE loan to non-HVCRE if the property can cover the debt service and the expenses related to the property. The Bill would ease capital requirements by allowing a borrower to use the appreciated value of the real property in calculating the 15% capital contribution requirement for an exemption to HVCRE. Finally, the proposed Bill would exempt loans made prior to January 1, 2015.

If H.R. 2148 does not pass, the federal banking agencies have another proposal which can be found in Simplifications to the Capital Rule Pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996. The proposed regulation would reduce the current HVCRE risk weight requirement from 150% to 130%, but it would also remove the capital contribution exemption. Removing the capital contribution exemption could increase the number of loans subject to the new High Volatility Acquisition, Development and Construction (“HVADC”) loan definition. HVADC would apply to new loans that “primarily finance” the acquisition of vacant or developed land, the development of land to erect new structures (including infrastructure), or the construction of buildings or dwellings. Fifty percent (50%) of the loan proceeds would need to be used for acquisition, development, or construction to be classified as HVADC. An HVADC loan would switch to “permanent financing” if the loan is prudently underwritten and the property has sufficient income to pay the debt service.

We will have to wait and see if either of the new regulations are passed, but if they are, there should be some relief to the current HVCRE restrictions.

For more information, please contact Daniel J. Beck at 501-379-1762 or dbeck@QGTlaw.com.

Note: The above article appeared in the February 2018 issue of The Arkansas Banker. Click the link below to read the actual publication.

ALTA/NSPS Survey: Understanding Table A

December 2017

by Daniel J. Beck |

The goal of an ALTA/NSPS Survey (2016 Standards) is to discover critical information that would not be revealed in a title report, which includes boundary line encroachments, unrecorded easements or other encumbrances, contiguity, access, and other matters. In addition to the standard survey request made by borrowers, Table A is an optional list of requests that may be made to the surveyor. Many lenders don’t have a strong understanding of what items should be requested in a commercial real estate transaction and why they should be requested. Below is a quick explanation of the Table A optional items and when they should be included.

Monuments – the purpose of this item is to set the boundary for the survey, see whether existing monuments are accurate, and whether new monuments should be placed. The surveyor should be identifying monuments as part of its field work. The cost of this item should be minimal, but it doesn’t provide that much protection to the lender.

Address of the Surveyed Property – again, this is something the surveyor is going to confirm regardless of whether this item is checked, so it should be included.

Flood Zone Classification – this is standard and should always be requested. It will determine whether the property needs flood insurance.

Gross Land Area – will include the land area and other areas of the property, including square footage, if requested. It may be important to include this item to see if any zoning requirements will affect the use of the property. It is a commonly checked item, but not always necessary from a lender’s perspective.

Vertical Relief – this will provide topographic information and is usually not used unless needed for construction purposes.

Zoning – 6(a) and 6(b) require the borrower to provide zoning information to the surveyor, which information should usually be obtained as part of a lender’s due diligence. Section 6(b) will require the surveyor to graphically incorporate building setback requirements. Both are commonly requested.

Dimensions – 7(a) and 7(b)(1) will show the dimensions and square footage of the exterior of the building being mortgaged and are standard. Item 7(b)(2) allows the borrower to request additional areas to be measured for square footage. It can be helpful if the lender needs to be certain about the square footage of the interior of the building for valuation purposes, or if there are zoning issues. Item 7(c) measures height of the building and would be necessary if you need to confirm that the property meets certain zoning requirements.

Substantial Features – will identify other features of the property outside of the main building, such as parking lots, billboards, signs, swimming pools, landscaped areas, and substantial areas of refuse. This item is typically requested.

Parking – if requested, the surveyor will include the number and types of parking spaces. Usually needed to ensure it complies with zoning requirements and is typically requested in a commercial loan.

Party Walls – this item will only be used if the borrower’s property shares walls with adjoining properties. This is typical in urban areas or in older downtown areas where the buildings are connected.

Location of Utilities – this should be included in any request. It would be important to know, for example, that utility lines run underneath a building that is being mortgaged and that in the event the lines need to be fixed it could result in the local utility ripping up the floor of the borrower’s property.

Government Related Survey Requirements – this item is not needed in most commercial loans, but may arise if the loan is being financed through HUD or affects federal property.

Names of Adjoiners – this is not always requested, but the surveyor is usually going to find out who the adjoining land owners are in its research so this should not be much of an additional costs to include.

Distance to the Nearest Intersecting Street – this item is used to ensure the property meets zoning requirements regarding distances to intersecting streets, and is standard.

This item is usually not needed. If selected, the borrower can specify other ways it wants the property measured. It is typically selected when you are dealing with large land masses.

Evidence of Recent Earth Moving Work – this item is necessary and the surveyor should be certifying the same to satisfy the title requirement that no construction has started.

Proposed Changes in Street Rights-Of-Way – a change in the street right-of-way could be significant to the borrower and should be included in the survey report.

Wetlands – this item shows if the property is subject to a wetland restriction. It is not typical for most commercial transactions, but will depend on the location of the property.

Offsite Easements or Servitudes – surveyors are required to show easements on the property and plot them when required. However, selecting this item means the easements become subject to the minimum standards. This may require additional work from the surveyor so the borrower should discuss this item with the surveyor before selecting.

Professional Liability Insurance – this is a standard item, and the typical coverage is $1,000,000.00 per occurrence, but you can ask the surveyor what their coverage is and fill in the blank.

This section is left blank and allows the borrower to request additional items.

It’s helpful to try to understand the purpose of the survey and its components. There are often significant items that may be overlooked by a borrower who is racing to get a project completed while having several other deals in the hopper. Often a borrower will order a survey without coordinating with the lender. Try to make it clear that you need to see the survey request before it is made, and ask for the appropriate items to be checked. I suggest incorporating the requirements into the loan agreement if possible. Finally, always make sure that the survey is certified to the borrower, the lender, and the title insurer. It is common for a lender to review a survey, but never follow up and make sure the surveyor has actually certified the survey to the lender. This allows the lender to have recourse against the surveyor in the event a mistake is made. Hopefully your commercial borrower is sophisticated and has a strong understanding of surveys and why they are important, but if the borrower is not, the commercial lender must be knowledgeable of surveys to protect the bank.

For more information, please contact Daniel J. Beck at 501-379-1762 or dbeck@QGTlaw.com.

Note: The above is an article that appeared in the Fall 2017 issue of the Arkansas Community Banker. Click the link below to read the actual publication.

Deficient Notice Of Appeal Results In Dismissal

October 2017

by Sarah Keith-Bolden |

Although Arkansas’s rules of appellate procedure have been liberalized in recent years to eliminate certain “frustrating procedural pitfalls,”[1] it is still critical for attorneys to pay close attention to procedural rules when handling an appeal. The need for caution is illustrated by a recent decision in which the Arkansas Court of Appeals dismissed an appeal because it concluded that the circuit court did not have jurisdiction to enter the only order that was referenced in the notice of appeal.[2]

In Tidwell v. Rosenbaum, the original order that the appellant attempted to appeal was entered on September 19, 2016.[3] The appellant timely moved to vacate and for a new trial on September 21, 2016.[4] The circuit court did not rule on the motion for a new trial within 30 days, and it was deemed denied on October 21, 2016.[5] Six days later, on October 27, 2016, the circuit court entered an order denying the motion for a new trial.[6]

The appellant timely filed a notice of appeal on November 21, 2016, within 30 days of the deemed denial of the motion for new trial.[7] The notice, however, referenced only the “order refusing new trial” and not the original September 19, 2016 order or the October 21, 2016 deemed denial of the motion for new trial.[8] On appeal, the appellee did not challenge the contents of the notice of appeal or the appellate court’s jurisdiction.[9]

Dismissing the appeal sua sponte for lack of jurisdiction, the court of appeals held that the notice of appeal did not perfect the appeal because “orders not mentioned in the notice of appeal are not properly before [the appellate court].”[10] While “absolute strict compliance with [Rule 3(e) of the Arkansas Rules of Civil Procedure, which outlines the content of a notice of appeal,] is not always necessary. . . Arkansas appellate courts do require substantial compliance.”[11] Since the notice of appeal referenced only the October 27, 2016, order denying a new trial—which the circuit court had no jurisdiction to enter more than 30 days after the motion for a new trial was filed—the notice of appeal was ineffective and the appellate court lacked jurisdiction.[12] The appeal was dismissed without consideration of the merits of the appellant’s arguments.[13]

[1] See White v. Davis, 352 Ark. 183, 187 n.4, 188, 99 S.W.3d 409, 412 n.4, 413 (2003) (Brown, J., dissenting) (“Over the past decade, a trend has been established in [the Arkansas Supreme Court] to eliminate procedural pitfalls that resulted in no decision on the merits of a case. Those pitfalls were frustrating to both the bench and the bar.”).

[2] Tidwell v. Rosenbaum, 2017 Ark. App. 490, at 1.

[3] Id. at 1.

[4] Id.; see Ark. R. Civ. P. 59(b) (“A motion for a new trial shall be filed not later than 10 days after the entry of judgment.”).

[5] Tidwell, 2017 Ark. App. 490, at 1; see Ark. R. Civ. P. 59(b) (“If the court neither grants nor denies the motion [for a new trial] within 30 days of the date on which it is filed or treated as filed, it shall be deemed denied as of the 30th day.”).

[6] Tidwell, 2017 Ark. App. 490, at 1.

[7] Id.; see Ark. R. App. P.—Civ. 4(b)(1) (“Upon timely filing in the circuit court of a motion . . . for a new trial under Rule 59(a), the time for filing a notice of appeal shall be extended for all parties. The notice of appeal shall be filed within thirty (30) days from entry of the order disposing of the last motion outstanding. However, if the circuit court neither grants nor denies the motion within thirty (30) days of its filing, the motion shall be deemed denied by operation of law as of the thirtieth day, and the notice of appeal shall be filed within thirty (30) days from that date.”).

[8] Tidwell, 2017 Ark. App. 490, at 2; see Ark. R. App. P.—Civ. 3(e) (“A notice of appeal or cross-appeal shall. . . designate the judgment, decree, order or part thereof appealed from. . . .”).

[9] Appellee’s Br., Tidwell v. Rosenbaum, Case No. CV-17-110 (May 30, 2017).

[10] Tidwell, 2017 Ark. App. 490, at 3.

[11] Id.

[12] Id.

[13] Id.

For more information, please contact Sarah Keith-Bolden at 501-379-1789 or sbolden@QGTlaw.com.

How to Bank Marijuana Related Businesses

July 2017

by Daniel J. Beck |

After the passage of the “The Arkansas Medical Marijuana Amendment of 2016,” I wrote an article in The Arkansas Banker that addressed the risks associated with providing banking services to marijuana related businesses (“MRBs”). Because of such risks, a majority of financial institutions will refuse to offer banking services to MRBs and their vendors when MRBs begin to operate in Arkansas. Some may choose, however, to take the risk. Several institutions across the country are currently banking MRBs and sharing their practices with others. Regulators also have experience with financial institutions banking MRBs and have provided additional guidance to help those who are willing to provide services to the industry.

For more information, please contact Daniel J. Beck at 501-379-1762 or dbeck@QGTlaw.com.

Note: The above is an excerpt from an article that appeared in the July 2017 issue of The Arkansas Banker. Click the link below to read the actual publication.

Churches And Concealed Handguns

June 2017

by Brandon B. Cate and Lindsey C. Pesek |

During the 2017 legislative session, the Arkansas General Assembly and Governor Asa Hutchinson enacted several new laws concerning public places and concealed handguns, including laws permitting a person to carry a concealed handgun on college campuses upon acquiring a newly-created enhanced permit from the Arkansas State Police. These new laws concerning concealed handguns also have an impact on churches. Specifically, Act 562 (which was House Bill 1249) and Act 859 (which was Senate Bill 724) go into effect on September 1, 2017, and will modify current Arkansas law by requiring churches to take affirmative steps if they wish to continue to prohibit concealed handguns on church property.

The above is an excerpt from an article written by Brandon B. Cate and Lindsey C. Pesek. Please click the link below to read the full article.

Please contact Brandon B. Cate (479-444-5205 or bcate@QGTLAW.com) and Lindsey C. Pesek (479-444-5211 or lpesek@QGTLAW.com for additional information on this topic.

The Ethics of Representing Marijuana-Related Businesses

June 2017

by Justice J. Brooks I |

Since the passage of the Arkansas Medical Marijuana Amendment of 2016 (“Medical Marijuana Amendment”), marijuana-related business (“MRBs”) are soliciting lawyers to provide legal advice and assistance. Some have posited that a lawyer advising or assisting a client on the cultivation or dispensing of marijuana under state law is in violation of Rule 1.2(d) of the Arkansas Rules of Professional Conduct given that those activities are still illegal under federal law. However, other states interpreting language identical to Rule 1.2(d) have come to different conclusions and neither the Supreme Court of Arkansas nor the Arkansas Committee on Professional Conduct (“ACPC”) has taken a public stance on this issue. This leaves lawyers interested in representing MRBs with two choices: (1) risk violating Rule 1.2(d) by working with MRBs or (2) deprive MRBs of needed legal representation.

Note: The above is an excerpt from an article in the Spring 2017 issue of The Arkansas Lawyer. Please click the link below to see the published article.

For more information on this article or other medical marijuana issues please contact Justice J. Brooks I at 501-379.1723 or jbrooks@QGTlaw.com.

The Arkansas Supreme Court Goes to War: A Sampling of Legal Issues Confronted by the Court During World War I

June 2017

by J. Cliff McKinney II |

This year marks the 100th anniversary of the United States entering into World War I, the first of the Twentieth Century’s catastrophic wars that brought about so much suffering, upheaval, and change. As with World War II, the Arkansas Supreme Court found itself indirectly part of World War I as it faced unique legal challenges and issues caused by the war. What follows is a sampling of cases that illustrate some of the unique challenges faced by the Court because of the “War to End All Wars.”

Note: The above is an excerpt from an article in the Spring 2017 issue of The Arkansas Lawyer. Click the link below to see the published article.

For more information, please contact J. Cliff McKinney II at 501-379-1725 or cmckinney@QGTlaw.com.

Considerations in Building the Arkansas Construction Contract

May 29, 2017

by Lindsey C. Pesek |

Northwest Arkansas residents know that the construction industry is booming again. New subdivisions, offices, restaurants and shops seem to appear overnight. Construction is a fast-paced industry that often demands quick decisions. Often these quick decisions are made over hand-shakes or text messages to ensure a quick turnaround. Most deals finish without a hitch. However, it just takes that one mishap to cause worry and trouble for a growing company or a residential homeowner. Whether it be a homeowner with a finish date on a house that is repeatedly postponed, a subcontractor who hasn’t been paid, or a contractor with subcontractors that are not completing specified work, too many times I have a prospective client walk into my office seeking help with such a situation. That prospective client often has no written contract outlining the obligations of the various parties involved in a project. Or, the prospective client has utilized a form contract found on the internet, without a full understanding of the contractual terms.

While there is no requirement for a written contract in the construction world, having one on the front end can be useful to protect all parties. While the most obvious topics to address in a construction contract include payment obligations, scope of work, and any required lien notices, there are several other things to consider, many of which are often overlooked when drafting a construction contract. For example, Arkansas implies certain warranties into a contract, including habitability, sound workmanship, and proper construction. Often, builders wish to limit the extent of these warranties in an effort to minimize the time for accountability. The extent to which these warranties can be disclaimed or limited is not a settled area of the law in Arkansas. However, providing certain specific and conspicuous language in a contract is strong evidence in the face of any dispute.

Another often overlooked, yet important, construction topic is insurance. There are numerous risks inherent in all construction projects which can impact not only the parties involved but often the entire project. From general liability, flood, workers’ compensation, and automobile liability, insurance is important to protect all parties involved in the event one of the risks becomes a reality. Notably, Arkansas law requires that some of these topics, including workers’ compensation, be covered by the contractor or subcontractor. A contract that specifies who must carry insurance (generally the owner, contractor, and architect), and the type secured, can significantly reduce the risks involved and ensure compliance with the law. It is important for the construction contract to clearly identify any insurance requirements, and ensure that said requirements do not conflict with any other provisions in the contract.

Another often overlooked concept is how to resolve any dispute that may arise between the parties. Choosing on the front end the applicable law and venue to be applied in a dispute, and the method of dispute resolution, can assist the parties in resolving disputes efficiently. For instance, a company may want to require disputes be addressed in arbitration instead of in a lawsuit, which can sometimes provide a less adversarial, informal, more efficient means of settling a dispute. Arkansas law allows parties to include arbitration provisions in construction contracts.

These considerations are only a handful of areas where a written contract can help remedy construction dispute, or provide strong evidence on the chance a dispute winds up in court. Taking the time on the front end to create a contract, or have an attorney review one you have been asked to execute, may help alleviate potential devastating consequences.

For more information on this article or other construction issues, please contact Lindsey C. Pesek at 479-444-5211 or lpesek@QGTlaw.com

Note: This article appeared in the May 29, 2017 issue of the Northwest Arkansas Business Journal. Please click the link below to see the the published article.

Dereliction of Duty

Spring 2017

By Daniel J. Beck |

A bank’s culture begins with its board of directors. Those individuals set the tone for the bank and have the ultimate responsibility for its successes and failures. Warren Buffet understood this in 1991 when he stepped in as Chairman to lead Salomon Brothers after the investment bank was close to filing bankruptcy for a bond trading scandal. A few years earlier in 1987, Mr. Buffett made an investment on behalf of Berkshire Hathaway to become the largest shareholder of Salomon Brothers. In the wake of the scandal, Mr. Buffett had to testify in front of Congress. As part of his testimony, Mr. Buffet stated:

I have asked every Salomon employee to be his or her own compliance officer. After they first obey all rules, I then want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper, to be read by their spouses, children, and friends, with the reporting done by an informed and critical reporter. If they follow this test, they need not fear my other message to them: Lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.

Now Mr. Buffett’s Berkshire Hathaway is the single largest shareholder of another financial institution that is embroiled in scandal – Wells Fargo & Company.

Wells Fargo entered into a consent order with the CFPB on September 8, 2016 to pay the CFPB $100 million for its practices that included opening unauthorized deposit accounts for existing customers, issuing credit cards without their customers’ knowledge, enrolling customers in online banking services that they did not request, and ordering and activating debit cards using customers’ information without their knowledge. Wells Fargo also has to pay $35 million to the OCC and $50 million to the City of Los Angeles for its fraudulent behavior. While these fines are significant, considering Wells Fargo currently holds $1.9 trillion in assets, the harm to the company’s reputation may have more of an impact than the fines.

As part of the fallout of the scandal, Wells Fargo eventually terminated its acting Chairman and CEO, John Stumpf and its Community Bank leader Carrie Tolstedt, who has received the bulk of the blame for the scandal. Both had to forfeit unvested awards and claw-back vested awards totaling $69 million for Stumpf and $67 million for Tolstedt.

In response to the CFPB consent order, the Board of Directors ordered an internal investigation into the sales practices of its Community Bank. The Sales Practices Investigation Report was created by the law firm Shearman & Sterling LLP and was released on April 10, 2017. The report largely blames Tolstedt as head of the Community Bank and Wells Fargo’s decentralized structure. Tolstedt, who was admired throughout the bank for her success with cross-selling, implemented a culture of high pressure sales wherein employees were constantly worried about making quotas just to keep their jobs.[1] The pressure created high turnover with inexperienced bankers being promoted largely due to their sales performance.[2] While the report does not absolve the Board, it is not highly critical and gives cover to the Board by highlighting that the sales practice and sales integrity issues were not flagged by top executives to the Board or any of its committees as “noteworthy risks” until 2014.[3] Essentially saying the Board was kept in the dark by the executives of the company. A closer look at the company’s sales practices over more than a decade and one could see that the Board certainly had ample evidence that it should be concerned with the risks related to the company’s sales practices.

Wells Fargo’s most recent troubles arose out of a Los Angeles Times article in 2013, citing the company’s high pressure sales requirements that lead to unscrupulous behavior, and ultimately to the City of Los Angeles challenging those practices in a lawsuit in 2015. But that was not the beginning of Wells Fargo’s problems with its sales culture. As early as 2002 the Board’s Audit & Examination Committee received warnings about the company’s sales conduct and “gaming” issues.[4] However, no fundamental changes were made.[5] In 2010, there were 700 cases of whistleblower complaints about Wells Fargo’s sales tactics, even though Wells Fargo’s Board claimed they were never informed about the complaints.[6] In 2011, Wells Fargo entered into a consent order with the Federal Reserve Board which imposed an $85 million civil penalty based on allegations that internal compensation arrangements would encourage sales personnel to steer borrowers that qualified for prime mortgage into subprime products.[7] The following year in 2012, the Justice Department required Wells Fargo to pay $184.3 million in compensation to qualified minority borrowers steered into subprime loans.[8] The idea that the Board of Directors at Wells Fargo didn’t know the risks surrounding sales practices prior to 2014 is hard to believe. Yet the internal investigation indicates that the lack of emphasis on the sales practice issues was understandable because such risks were not understood quantitatively to have a material impact on Wells Fargo’s financial statements.[9] The Board seemed to be satisfied with management’s actions of simply firing lower level employees and managers for misconduct, but not changing the culture until the company was embroiled in litigation.[10]

The board of directors for a bank “cannot delegate its responsibility for the consequences of unsound or imprudent policies and practices, whether they involve lending, investing, protecting against internal fraud, or any other banking activity.”[11] It appears as if the Board for Wells Fargo is trying to “pass the buck” and has received serious criticism outside of Wells Fargo for the dereliction of the Board’s duties. Two proxy firms announced their recommendation that many of the Directors for Wells Fargo should be dismissed prior to a vote on the election of the Board. Institutional Shareholder Services (“ISS”) recommended twelve of the fifteen Directors be terminated, and Glass Lewis recommended that six be terminated. The Board has called ISS’s recommendation “extreme”, “unprecedented”, and “unwarranted”.[12] A majority of the shareholders of Wells Fargo agreed, and it has been reported that Berkshire Hathaway voted in favor of all the existing directors.[13]

Even though the Directors were re-elected, some narrowly, they will have to deal with the fallout from the company’s over aggressive sales culture for some time. For example, a new shareholder lawsuit has been filed against Wells Fargo alleging the bank targeted undocumented immigrants by instructing employees to “round-up” undocumented immigrants at construction sites, factories, and 7-Elevens and drive them to a Wells Fargo branch to open unneeded accounts.[14] At 86, Mr. Buffett will not be stepping in to take over as chairman of the Board. However, the Directors should listen to his words from the Salomon Brothers crisis and let senior executives know that they should not only comply with the law, but use their moral compass. If any executive or employee causes the company to lose a shred of reputation, the Board’s response should be, in Mr. Buffett’s words, ruthless.

[1] Independent Directors of the Board of Wells Fargo & Company Sales Practices Investigation Report, pgs. 6-7 (Apr. 10, 2017).

[2] Id. at p. 28.

[3] Id. at p. 97.

[4] Id. at 98.

[5] Matt Egan, Wells Fargo scandal: Where was the board? (Apr. 24, 2017), http://money.cnn.com/2017/04/24/investing/wells-fargo-scandal-board-annual-meeting/.

[6] Id.

[7] Howell E. Jackson, One Take on the Report of the Independent Directors of Wells Fargo: Vote the Bums Out, (Apr. 22, 2017), https://corpgov.law.harvard.edu/2017/04/22/one-take-on-the-report-of-the-independent-directors-of-wells-fargo-vote-the-bums-out/.

[8] Id.

[9] Independent Directors of the Board of Wells Fargo & Company Sales Practices Investigation Report, pgs. 6-7, 14, 100.

[10] Id., pgs. 32-33, 36-37, 105.

[11] Fed. Reserve Com. Bank Exam. Man., Section 5000.1, Duties and Responsibilities of Directors, p. 1 (Apr. 2013).

[12] Wells Fargo Board of Directors Issues Statement on ISS report (Apr. 23, 2017), https://wellsfargo.com/about/press/2017/statement-iss_0407/.

[13] John Maxfield, Can Warren Buffett Save Wells Fargo’s Board of Directors? (Apr. 24, 2017), https://www.fool.com/investing/2017/04/24/can-warren-buffett-save-wells-fargos-board-of-dire.aspx.

[14] Nikita Biryukov, Wells Fargo Account Scam Targeted Undocumented Immigrants, Lawsuit Claims (Apr. 27, 2017), http://www.nbcnews.com/business/business-news/wells-fargo-account-scam-targeted-illegal-immigrants-claims-lawsuit-n752206.

For more information on this article or other banking issues, please contact Daniel J. Beck at 501-379-1762 or dbeck@QGTlaw.com.

Note: This article appeared in the Spring 2017 issue of the Arkansas Community Banker. Please click the link below to see the published article.

Recent Changes To The Arkansas Freedom of Information Act Makes Transparency Easier For Local Government

May 22, 2017

By Sarah E. DeLoach |

Fifty years ago this year, the Arkansas General Assembly passed the Arkansas Freedom of Information Act (FOIA), codified at Arkansas Code Annotated Section 25-19-101, et seq.[1] The Arkansas FOIA requires that government business be conducted openly by having open meetings and by making records available for Arkansas citizens’ review. The law has successfully exposed the business of Arkansas government, but at a cost. FOIA requests for government records require government offices to allocate their limited resources to searching, compiling, and reviewing documents for disclosure, which often takes longer than citizens or government offices would like. Whereas previous amendments have recognized and attempted to ameliorate this burden on state government offices, none have addressed the problem for local governments—until now. Act 1107, the most recent amendment to the Arkansas FOIA, brings the Arkansas FOIA one step closer to being the model of government transparency it was intended to be. [2]

The amendment identifies the boon technology can be for government offices and citizens in maintaining transparency. The tech world too has become increasingly interested in using its resources to make government more accessible to citizens. For example, nonpartisan non-profit website USAFacts, formed by former Microsoft CEO Steve Ballmer, gathers national, state, and local government data and presents that data in approachable infographics.[3] The site went live in April 2017 after economists, professors, and researchers gathered financial data from government sources for three years.[4]

Arkansas’s local governments now have the option of joining state government offices in publishing the information specified by the Arkansas FOIA on the internet, and be compliant with FOIA, thanks to Act 1107.[5] This means that local government offices may review and publish records “in electronic form via the Internet” just once, rather than for every request received.[6] If the local government offices opt in, the Arkansas FOIA requires that they publish a description of their organization as well as their rules, regulations, policies, and administrative decisions, with some exceptions for confidential information.[7] Moreover, if the office foresees a group of documents is “likely to become the subject of frequent requests for substantially the same records,” it may preemptively review and publish those documents online and be compliant with FOIA.[8]

This amendment is a small step toward making FOIA less onerous for government and more efficient for the public. The hope now is that local governments are able to use this change in law to help themselves and to “be more effective stewards of taxpayer dollars.”[9]

For more information please contact Sarah E. DeLoach at 501-379-1709 or sdeloach@QGTlaw.com.

[1] Tom Larimer, Arkansas Freedom of Information Act, The Encyclopedia of Arkansas History & Culture, http://www.encyclopediaofarkansas.net/encyclopedia/entry-detail.aspx?entryID=4599 (last visited May 22, 2017).

[2] Act 1107, H.B. 1623, 91st General Assembly Reg. Sess. (Ark. 2017).

[3] USAFacts, http://usafacts.org/ (last visited May 22, 2017).

[4] Amar Toor, Steve Ballmer’s new project: find out how they government spends your money, The Verge (April 18, 2017), https://www.theverge.com/2017/4/18/15337896/steve-ballmer-usafacts-spending-revenue-database.

[5] Ark. Code Ann. § 25-19-108(c) (2017).

[6] § 25-19-108(b)(1).

[7] § 25-19-108(a)(1)-(4).

[8] § 25-19-108(a)(5).

[9] Act 1107, Sec. 1(a)(8).

The Effects Of Medical Marijuana On Employer Drug Policies

March 2017

By Justice J. Brooks I |

The legalization of marijuana, for either medical or recreational purposes, in 28 states and the District of Columbia has created issues for employers that wish to maintain a drug free work-force. Though there is no protection against adverse employment action for employees that use legalized marijuana recreationally, employees that use medical marijuana may be afforded such protection. While the interpretation and enforcement of state marijuana laws should be done on a state-by-state basis, there are emerging trends that employers across the country should be aware of when crafting, revising, and enforcing their employee drug policies. This article does not address all the issues an employer may encounter in states that have legalized marijuana (i.e. workers’ compensation, drug testing, wrongful termination, unemployment, and off-duty activities) nor is it meant to be an exhaustive analysis of the issues discussed, but it does examine pertinent issues related to medical marijuana and employer drug policies and provide practical advice about how employers can take steps to keep their work-force drug free.

Note: This is an excerpt from an article in the Spring/Summer 2017 issue of USLAW Magazine. Click the link below to see the published article.

For more information on this article or other medical marijuana issues please contact Justice J. Brooks I at 501-379.1723 or jbrooks@QGTlaw.com.

Scholarships for Retail Development

March 27, 2017

by J. Cliff McKinney II |

Most of us love it when the Razorbacks win. It is thrilling to watch a player like Darren McFadden score the decisive touchdown.

A college football team like the Razorbacks depends on talented athletes, and colleges use scholarships to attract these athletes. Consider McFadden for a moment. He grew up loving the Razorbacks, but does anyone believe he would have been a Razorback without a scholarship? Imagine the coach saying, “We know you could get a great scholarship in Texas or Oklahoma, but we want you to pay your own way.”

This sounds ridiculous, but this is what Arkansas is doing when it comes to recruiting retail development to our state.

Arkansas’ economic development efforts are geared to attract manufacturing. According to the National Retail Federation, though, retail trade employs 252,283 Arkansans, while manufacturing employs 159,792. Retail is the largest employment industry in the state; manufacturing is a distant third. Retail development also improves quality of life.

Other states recognize the valuable economic contribution of retail. These states have incentive programs – retail scholarships – that Arkansas tries to compete against without an effective answer. So what are these scholarships in other states? Here are a few examples.

Tax increment financing is the most common retail incentive in most states. TIF works by capturing a portion of the property tax revenue generated by a new development and funding public infrastructure projects, such as roads and sewers, with the captured revenue. TIF is not a tax break for retailers because the same tax is paid with or without the TIF, but TIF upgrades public infrastructure.

Every surrounding state routinely uses TIF, often as a starting point in an incentive package. Arkansas has a TIF program on the books, but the Arkansas Supreme Court ruled most of it unconstitutional in 2007. Nothing was done to fix it.

In addition to TIF, Texas has a program called Chapter 380 incentives. These can include grants of money, loans, sales or leases of public property, and property tax abatements to incentivize retail development.

For example, Carrolton has a Chapter 380 incentive for retailers granting up to $1,000,000 for rehabbing older buildings. El Paso rebates up to 100 percent of all city property taxes and sales taxes for certain retail projects. Many cities in Texas use Chapter 380 to rebate sales tax to retailers who make public improvements, widen streets or upgrade utilities.

Oklahoma allows individual cities to develop retail incentive programs. Oklahoma City, for instance, offers public infrastructure improvements, expedited permitting and other incentives depending on the size of the retail project. Broken Arrow offers similar incentives, including sales tax rebates for retail projects. Tulsa, Bartlesville and other cities also have retail development incentive programs.

Arkansas, meanwhile, has nothing meaningful to offer.

We must position ourselves to be more competitive, especially considering Arkansas’ average weekly wage is the lowest in the nation and our per capita gross domestic product is lower than all surrounding states except Mississippi.

Retailers look for the best return on investment. Arkansas’ comparatively weak economy already makes us a challenge for many developers, a challenge compounded by the offers of incentives in surrounding states that may have stronger demographics. In retail development, Arkansas is a football team with no scholarships competing against aggressive and well-funded opponents.

Space is too short for me to cover the multitude of programs other states use, or to explore the economic impact that incentives have. Incentives that work in Texas or Oklahoma may not be right for Arkansas, so I am not advocating any particular program. What I am advocating is a commission, sanctioned by state government, to carefully study how our neighbors incentivize retail development. Such a commission might reveal a new path for Arkansas to grow our economy and improve our quality of life through encouraging retail development.

For more information, please contact J. Cliff McKinney II at 501-379-1725 or cmckinney@QGTlaw.com.

Note: The above article appeared in the March 27, 2017 issue of Arkansas Business. Click the link below to see the published article.

Websites, Mobile Applications and the ADA: Strategies to Avoid this Litigation Land Mine

March 2017

by Meredith M. Causey |

Meredith M. Causey served as a presenter for the USLAW EduNet Webinar: Websites, Mobile Applications and the ADA: Strategies to Avoid this Litigation Land Mine. While most business owners have a general understanding of the requirements of complying with the Americans with Disabilities Act for their physical locations, many are unfamiliar with a developing area of the law which will require that websites be ADA compliant as well. In 2016, there was a tremendous increase in the number of lawsuits filed alleging website accessibility claims, a trend that is expected to continue. The webinar explored the current state of the law, how the law may develop, and provided strategies and actions that can be taken by businesses and organizations in an effort to prevent these types of lawsuits. A link to the video presentation can be found here and a PDF of the presentation slides can be found by clicking the link below.

For additional information, please contact Meredith M. Causey at mcausey@QGTlaw.com or 501.379.1743.

Who Can Be A Chapter 12 Debtor?

March 20, 2017

by Mary-Tipton Thalheimer |

Farmers in the United States experienced an economic boom in the 1970s fueled in large part by an increased demand for farm commodities coupled with high inflation and escalating farmland values. In the 1980s, however, the demand for commodities fell and the value of farmland quickly followed suit, resulting in an economic bust that rivaled that of the Great Depression. An estimated twenty-five percent (25%) of the assessed valuation of America’s farmland disappeared during that time, and over one-third (1/3) of America’s farmers found themselves in serious financial trouble. The number of farm foreclosures soared, and farm bankruptcies reached record highs. For the farmers who wanted to keep their farms, their only bankruptcy options were to file for relief under Chapter 11 or Chapter 13 of the United States Bankruptcy Code (the “Code”). Unfortunately for many farmers, Chapter 11 proved to be too complicated and expensive, whereas the debt limits of Chapter 13 precluded many farmers from qualifying as Chapter 13 debtors.

In response, Congress enacted Chapter 12 of the United States Bankruptcy Code, which is specifically tailored to provide bankruptcy relief for farmers who need financial rehabilitation. A Chapter 12 debtor typically continues the farming operation as a debtor-in-possession, though a trustee will also be appointed to the bankruptcy case. The Chapter 12 debtor must submit a plan of reorganization within ninety (90) days of filing for bankruptcy relief, but no approval of the plan from creditors is necessary. Through the plan, Chapter 12 debtors are permitted to alter their secured debt by reducing the amount owed on the property to the property’s fair market value. Chapter 12 also provides benefits in the form of reducing interest rates to the current market rate and extending the payment period of the debt. Moreover, Chapter 12 debtors may propose plans in which they pay only a small fraction of the debt owed to unsecured creditors so long as all of the debtor’s disposable income is dedicated to the Chapter 12 plan throughout its duration.

Today, farmland values are once again soaring while the prices of commodities continue to fall. Though conditions today are not identical to those of the 1980s, there is reason to believe another agricultural economic bust could occur in the future, but unlike in the 1980s, Chapter 12 is already in place and provides many benefits to those who qualify to be Chapter 12 debtors. But not all farmers qualify for relief under Chapter 12. The Code sets forth very specific requirements for Chapter 12 eligibility, and any debtor that fails to meet all of the requirements will face dismissal or conversion of his or her Chapter 12 case. Thus, it is important that farmers know whether they qualify for Chapter 12 relief before they file their petition. Likewise, given the many benefits afforded Chapter 12 debtors at the expense of their creditors, creditors should also be aware of the Chapter 12 requirements to ensure only farmers who meet the strict requirements receive its benefits.

Note: The above is an excerpt from an article written by Mary-Tipton Thalheimer. Please click on the link below to read the entire article.

For more information about this article or other bankruptcy matters, please contact Mary-Tipton Thalheimer at mthalheimer@QGTlaw.com or 501.379.1742.

Banking With Marijuana Related Businesses: A Different Perspective

March 2017

by Justice J. Brooks I |

Since “The Arkansas Medical Marijuana Amendment of 2016” was approved last November, it has received a pessimistic reaction in the Arkansas banking community due to the risks associated with providing banking services to marijuana related businesses (“MRBs”). Most notably, marijuana is still illegal under federal law. Still, several financial institutions in other states where marijuana is legal for either medical or recreational use have started doing business with MRBs despite the risks. With this in mind, Arkansas banks should consider the potential financial and social benefits of working with MRBs and ways they can reduce the associated risks before rejecting the idea.

Note: This is an excerpt from an article in the Winter 2017 issue of the Arkansas Community Banker. Click the link below to read the complete article.

For more information please contact Justice J. Brooks I at 501-379.1723 or jbrooks@QGTlaw.com.

Mendoza v. WIS International, Inc.: The Supreme Court’s Decision Makes Seat Belt Non-Use Relevant Evidence

February 2017

by Justice J. Brooks, I |

For decades, Arkansas Code Annotated §27-37-703 barred Arkansas defense attorneys from introducing evidence related to a plaintiff’s non-use or improper use of a seat belt in lawsuits resulting from motor vehicle accidents (the ”Failure to Comply Statute”). This allowed a plaintiff to keep evidence of his or her potentially negligent actions from juries even though the plaintiff was seeking damages for injuries that would likely have been mitigated or prevented had he or she been wearing a seat belt at the time of the accident. However, a recent Supreme Court of Arkansas decision, Mendoza v. WIS International, Inc., which addresses the Failure to Comply Statute, may open the door for the introduction of this evidence at trial and offer insight into how the court may treat analogous cases in the future.

Note: The above is an excerpt from an article that appeared in the Winter 2017 issue of The Arkansas Lawyers. Click the link below to read the entire article.

For more information on this article please contact Justice J. Brooks, I at 501.379.1723 or jbrooks@QGTlaw.com.

The Top Three Title Issues REALTORS® Need to Know

January 2017

by Timothy W. Grooms and R. Seth Hampton |

“Nothing is worse in the eyes of a real estate professional than discovering an issue with the title to real estate on the heels of a scheduled closing. Title issues come in a multitude of varieties, forms and fashions, and depending on the severity of the issue, can stop a real estate deal dead in its tracks, as well as render the title essentially worthless. The good news is that a solution for nearly every issue exists. The remedies available depend greatly on the issues and factual circumstances. In any event, identifying the problem as soon as possible is essential to resolving the issue in the most efficient and inexpensive manner. Before committing to purchase an interest in real estate, due diligence in the form of reviewing a title commitment and current survey is imperative to discovering and resolving potential issues with real estate titles. A thorough review of a title commitment and current survey will reveal most title issues, including three of the most common title issues encountered by real estate professionals: (i) blanket easements, (ii) boundary issues and (iii) errors and omissions in the chain of title. Below is a brief overview of these top three title issues, along with some suggested solutions and practice pointers for the real estate professionals who encounter them.”

Note: The above is an excerpt from an article that appeared in the Winter 2017 issue of Terra Firma, the official publication of the REALTORS® Land Institute. Click the link below to read the entire article.

For more information on this article or any real estate topic please contact Timothy W. Grooms at 501.379.1713 or tgrooms@QGTlaw.com or R. Seth Hampton at 501.379.1774 or shampton@QGTlaw.com.

Carbon Offsets – An Alternative In Reducing Greenhouse Gas Emissions

January 20, 2017

by William A. (Al) Eckert III |

Forests in the United States naturally remove carbon dioxide during photosynthesis and sequester carbon by storing it in the trees, root systems and in the woody debris on the forest floor resulting in a reduction in the accumulation of greenhouse gas emissions. The sale of carbon offsets by forest landowners is one option to promote carbon sequestration and reduce forest conversion by clear cutting or property development. The sale of carbon offsets enables industry and individuals to meet their carbon reduction goals when the cost of a reduction of carbon emissions within their business is cost prohibitive.

A carbon offset is an environmental benefit purchased at a cost below the cost that would be incurred by the industry to achieve the same reduction in emissions. The monetary value of the carbon offsets sold is a financial incentive for landowners to participate in forest management and sustainability as a financially viable alternative to timber removal which ultimately contributes to overall greenhouse gas emissions. A carbon offset represents the removal of one (1) metric ton of carbon dioxide equivalent from the atmosphere, which is given a monetary value per ton based on market conditions.

Carbon offsets are typically sold by participating landowners in a marketplace defined as voluntary or mandated cap-and-trade programs. The voluntary market provides a mechanism for businesses and individuals to purchase carbon offsets to reduce their carbon footprint. Although no federal cap-and-trade requirements currently exist, states have attempted to reduce carbon emissions through the regulated sale of carbon credits. In 2006, California passed the Global Warming Solutions Act to require reductions in the state’s greenhouse gas emissions. The California Air Resources Board was authorized to develop the California cap-and-trade program to create economic incentive by placing a cap on greenhouse gases that may be emitted by a regulated industry, which in turn may purchase carbon offsets as emission allowances when the industry cannot meet its emission limits. Industries that are subject to California’s cap-and-trade emission regulation may meet up to eight percent (8%) of their obligation to reduce greenhouse gas emissions with carbon offsets. The financial return for the sale of carbon offsets provides an incentive for forest landowners to increase their volume of sequestered carbon, to maintain their “carbon stock” in their forested lands through management practices, and to increase the carbon offsets in their land available for sale in the marketplace in the long-term. Carbon sequestration projects pursuant to improved forest management practices seek to increase the forest carbon sequestered above a “baseline” based on U.S. Forest Service Inventory Analysis data. As the marketplace sets a value of sequestered carbon in metric tons, the carbon offset has a monetary value (per metric ton) that is sold to a regulated industry as allowances where the entity exceeds its statutory greenhouse gas emission limits.

Deforestation currently contributes 10% – 15% of global greenhouse gas emissions. Forest Trend, a nonprofit organization whose goal is to maintain, restore and enhance forests, reported that in 2014, companies and governments world-wide committed $705 million dollars in new dollars to avoid deforestation. One-third of those new dollars were channeled through voluntary and compliance carbon markets in the form of direct market-based payments to emission reduction. Forest landowners in Arkansas have an option to maintain their forested lands and potentially receive a financial gain through the sale of units of sequestered carbon as carbon offsets in the cap-and-trade marketplace.

If you have any questions regarding these or other environmental issues, please contact Al Eckert at 501.379.1712 or aeckert@QGTlaw.com.

“Direct Sales”: Must Residential Contractors Provide Pre-Construction Notices of Intent to File Materialman’s Liens?

January 3, 2017

by Philip A. Elmore |

Generally, residential contractors in Arkansas must give a homeowner notice of intent to file a lien prior to the beginning of construction work on the residential property. See Ark. Code Ann. § 18-44-115(a)(3). If a contractor fails to provide this pre-construction notice, the contractor cannot acquire a lien on the residential property. See Ark. Code Ann. § 18-44-115(a)(1).

Arkansas recognizes an exception, however, if the homeowner “orders materials or services directly from the lien claimant.” Ark. Code Ann. § 18-44-115(a)(8)(B) (emphasis added). This is known as the “direct sale” exception. The direct sale exception was created to protect a property owner from finding liens placed on their property by third parties unknown to the owner, as the exception only applies to parties with whom the owner directly purchases services or materials. The direct sale exception does not apply to third parties hired by a general contractor that never directly contract with the owner.

In Hammerhead Contracting & Development, LLC v. Ladd, the Arkansas Supreme Court determined that the “direct sale” exception to the pre-construction notice statute applies to general contractors where: (1) the owner orders materials or services directly from the contractor; (2) the owner is in direct privity with the contractor; and (3) there are no undisclosed suppliers or laborers. 2016 Ark. 162, at 7, 489 S.W.3d 654, 659. The Court arrived at this conclusion by construing the words “[a] sale shall be a direct sale only if the owner orders materials or services from the lien claimant” set forth in Ark. Code Ann. § 18-44-115(a)(8)(B) in their ordinary and usually accepted meaning.

This case has important potential effects upon construction law in Arkansas. Ark. Code Ann. § 18-44-107(1) defines “contractor” as “any person who contracts orally or in writing directly with a person holding an interest in real estate, or such person’s agent for the construction of any improvement to or repair of real estate.” (emphasis added). As the dissenting opinion in Hammerhead notes, this statutory definition of “contractor” seems to indicate “a property owner’s dealings with a general contractor . . . are always going to fall within the direct-sale exception.” Hammerhead, 2016 Ark. 162, at 9, 489 S.W.3d at 660. Effectively, the majority’s opinion in Hammerhead “writes the statute out of the Arkansas Code” as “there is no situation in which a general contractor will not be sheltered by the direct-sale exception.” Id. A residential homeowner, by entering into a residential construction contract with a contractor, orders construction “services” directly from the contractor.

While pre-construction notices may no longer be required from residential contractors, until this area of the law is further explored, contractors are advised to continue providing notices of intent to file a lien prior to the beginning of any construction work. The Hammerhead court was divided 4-3. While an avenue may exist to file a lien even if the pre-construction notice was not given, contractors need to be sure they are fully compliant with Arkansas’s statutory law.

If you have questions about this or any other areas of construction law, please contact Philip Elmore at 479-444-5203 or pelmore@qgtlaw.com.

Is Your Website ADA Compliant?

December 2016

by Meredith M. Causey |

Is your website accessible to individuals with disabilities? If it is not, or if you are not sure, now is the time to take a look at this issue. Title III of the Americans with Disabilities Act (ADA) prohibits discrimination on the basis of disability in places of public accommodation. This law, enacted in 1990, does not specifically address website accessibility because it predates the widespread use of the Internet. However, the Department of Justice (DOJ), which enforces the ADA, has made it clear that it interprets the ADA as applicable to websites. Courts are split on if and when a business is obligated to create an accessible website. The law is unclear in Arkansas and courts in other jurisdictions have held that the ADA applies to websites that have a connection to goods and services available at a physical location, such as a bank.

While the law is unsettled, this has not stopped private litigants and the DOJ from attempting to enforce ADA website compliance. Many companies have received demand letters from plaintiffs’ firms alleging the company is violating Title III of the ADA because its website is not sufficiently accessible to individuals with disabilities. Additionally, the number of lawsuits alleging inaccessible websites continues to increase. Since the beginning of 2015, more than 240 businesses have faced lawsuits claiming their websites are inaccessible to the blind in violation of the ADA.

There are currently no legally binding technical standards that identify what is required for a website to be compliant with Title III of the ADA. Many of the demand letters being sent by plaintiffs’ firms claim that unless the company modifies its website to meet the standards in the World Wide Web Consortium’s (W3C) Web Content Accessibility Guidelines (WCAG 2.0 AA), the company will continue to violate Title III of the ADA. The WCAG 2.0 AA Guidelines provide specific technical guidance on the design of a website to promote access to individuals with a disability. These guidelines include (1) providing alternatives for non-text content so that screen readers can recognize and vocalize them; (2) ensuring all functions can be performed on a keyboard; (3) ensuring image maps are accessible; and (4) adding headings to allow easier navigation. Keep in mind that an accessible website does not necessarily look all that different to people without disabilities. An ADA compliant website allows adaptive software used by individuals with disabilities to augment content and make it easier to consume.

Without clear guidance from the courts or the DOJ, businesses are left in a difficult position of determining what specific standards their website must meet to comply with Title III of the ADA. However, even without clear guidance litigants continue to make demands and file lawsuits against companies claiming their websites are not ADA compliant. To mitigate the risks of becoming the subject of a legal claim alleging ADA violations, companies should conduct a website assessment to determine its level of accessibility and the costs and burdens associated with updates that would make it more accessible to individuals with a disability. For banks or other businesses that engage third-party vendors to design or maintain their website, review the WCAG 2.0 AA Guidelines with your vendor to determine what updates are cost effective and begin developing a plan for performing additional updates. Consult your vendor agreement to determine if it includes a representation that the website will be compliant with applicable law and the extent to which the vendor is obligated to indemnify the business for claims related to website noncompliance.

For more information please contact Meredith M. Causey at 501-379.1743 or mcausey@QGTlaw.com.

Note: This article appeared in the December 2016, issue of the Arkansas Banker. Click the link below to read the actual publication.

Banking and Medical Marijuana in Arkansas – It’s Still Illegal

December 2016

by Daniel J. Beck |

This November Issue 6, titled “The Arkansas Medical Marijuana Amendment of 2016,” was approved by a majority of Arkansas voters and will amend the Arkansas Constitution to allow the use and distribution of medical marijuana. However, the first sentence of the Amendment acknowledges that “marijuana use, possession, and distribution for any purpose remain[s] illegal under federal law…” Regardless of the change to the Arkansas Constitution, banks remain prohibited from offering banking services to those who operate medical marijuana dispensaries and cultivation facilities, and third parties that do business with such parties.

Controlled Substances Act

Marijuana is still a Schedule I Controlled Substance under the Controlled Substances Act, so any activity related to the use and sale of marijuana is illegal. The Bank Secrecy Act (“BSA”) prohibits any bank from knowingly assisting in processing the proceeds of an illegal transaction and requires the reporting of known or suspected criminal violations of federal law or a suspicious transaction related to a violation of the BSA through a Suspicious Activity Report (“SAR”). While 28 states and the District of Columbia have legalized the use of marijuana, either for medical purposes or for recreation, Congress has not removed marijuana as a Schedule I Controlled Substance or provided an exemption for banks offering services to marijuana-related businesses.

FinCEN Guidance

The only guidance for banks is from the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), the organization responsible for overseeing SARs. On February 14, 2014, in conjunction with a memorandum by James M. Cole, the Deputy Attorney General for the Department of Justice (“DOJ”) (the “Cole Memo”), FinCEN released a guidance memorandum addressing how banks can provide services to marijuana-related businesses consistent with their BSA obligations. FinCEN reiterated that while marijuana remains illegal, the DOJ’s enforcement actions pursuant to the Cole Memo should focus on the following priorities:

▪Preventing the distribution of marijuana to minors;

▪Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;

▪Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;

▪Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;

▪Preventing violence and the use of firearms in the cultivation and distribution of marijuana;

▪Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;

▪Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and

▪Preventing marijuana possession or use on federal property.

If a bank wishes to offer services to a marijuana-related business, FinCEN recommends that banks conduct customer due diligence, including: (i) verifying the business is duly licensed and registered to sell marijuana; (ii) reviewing the license application and related documents submitted to the licensing authorities; (iii) requesting the available information about the business and related parties from the licensing and enforcement authorities; (iv) developing an understanding of the normal and expected activity for the business, including the products to be sold and the type of customers to be served; (v) ongoing monitoring of publicly available sources for adverse information about the business and related parties; (vi) ongoing monitoring for suspicious activity; and (vii) refreshing information obtained as part of ongoing customer due diligence.

Banks doing business with known marijuana-related businesses in which one of the Cole Memo priorities is not implicated will still have to file a “Marijuana Limited” SAR, stating that the SAR is being filed solely because the customer is engaged in a marijuana-related business, and file continuing activity reports thereafter. If the bank determines at some point the marijuana-related business implicates one of the Cole Memo priorities or violates state law, it will need to file a “Marijuana Priority” SAR, and a “Marijuana Termination” SAR if the bank deems it necessary to terminate the relationship with the marijuana-related business.

Even with the guidance from the DOJ and FinCEN, banks continue to refuse to provide services to marijuana-related businesses in states where marijuana use has been approved by state government because providing such services is illegal. To complicate matters further, an employee, landlord, vendor, or other third party contractor of a marijuana-related business is receiving the direct proceeds of an illegal activity, which is illegal. If a bank knows the funds received by such third parties are from a marijuana-related business, a bank would be participating in the illegal activity by allowing the funds to flow through the bank. Therefore many banks simply refuse to open accounts or close existing accounts with such third parties.

Prosecution of Medical Marijuana

Since medical marijuana was approved in California in 1996 the DOJ has continued to prosecute marijuana-related businesses, including medical marijuana dispensaries and cultivation facilities. However, in 2014 Congress passed a rider to an appropriation bill which restricted funds from the DOJ for any effort to restrict certain states from implementing their own laws authorizing the use, distribution, possession, or cultivation of medical marijuana. Because of the appropriation rider, the 9th Circuit Court of Appeals upheld a ruling that denied the DOJ’s right to prosecute a medical marijuana facility, provided the facility could show it complied with the applicable California law regarding the use and distribution of medical marijuana. U.S. v. McIntosh, 833 F.3d 1163, 1179 (9th Cir. 2016).

Unfortunately this decision doesn’t give any relief for Arkansas banks wishing to offer banking services to marijuana-related businesses. First, the appropriations rider needs to be extended past 2016 and amended to include Arkansas for the DOJ restriction to be applicable in Arkansas. Second, since the decision was made in the 9th Circuit, it would not be applicable to courts in Arkansas at this time. Finally, there has been no legislation that would apply an exemption to the regulatory authority of the Federal Reserve, the OCC or the FDIC regarding this issue.

Conclusion

A majority of the states in the Union have authorized some form of marijuana use, but there is no concrete exemption for providing banking services to marijuana-related businesses. While it is not known whether the President-elect and his new administration wish to increase or decrease the prosecution of medical marijuana use and distribution, it is unlikely that the momentum for legal medical marijuana will stop at the state level. At some point Congress will need to act to change the laws concerning marijuana and banking. This issue will be addressed when it is deemed to be a priority by Congress. Bankers will have to actively engage their representatives if they wish to provide banking services to this new industry in the near future.

For more information, please contact Daniel J. Beck at 501-379-1762 or dbeck@QGTlaw.com.

Note: This article appeared in the December 2016 issue of The Arkansas Banker. Click the link below to read the actual publication.

The Two-Part Approach to Defeating the “Local Controversy” Exception to CAFA

November 28, 2016

by Chad W. Pekron

Arkansas class action attorneys have developed an arsenal of tactics designed to avoid the Class Action Fairness Act (“CAFA”). Among those tactics is to name an Arkansas employee of a non-Arkansas defendant corporation as a defendant in Arkansas-only class actions in an attempt to satisfy the “local controversy” exception of CAFA.

The “local controversy” exception to CAFA requires Arkansas federal courts to remand a class action to state court if three conditions are satisfied. First, more than two-thirds of the class members are Arkansas citizens. Second, “at least 1 defendant is a defendant – (aa) from whom significant relief is sought by members of the plaintiff class; (bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and (cc) who is a citizen of the State in which the action was originally filed.” Third, no factually similar actions have been filed against any of the defendants in the last three years. 28 U.S.C. § 1332(d)(4)(A). When satisfied, this exception can keep significant Arkansas-only class actions out of federal court.

Assuming the complaint has satisfied the first and third conditions, to keep the case in federal court the defendants must show that there is no non-diverse defendant that is “significant” to the case. To do this, defense counsel should use a two-part approach utilizing both CAFA’s express language and the more basic jurisdictional doctrine of fraudulent joinder. While similar on their face, each contains important nuances that can work together to keep cases in federal court.

Defense counsel should first consider whether the Arkansas defendant has been fraudulently joined. A defendant is fraudulently joined if there is “no reasonable basis in fact and law” for the claims against him. Block v. Toyota Motor Corp., 665 F.3d 944, 948 (8th Cir. 2011). “A plaintiff cannot defeat a defendant’s right of removal by fraudulently joining a defendant who has no real connection with the controversy.” Wilkinson v. Whirlpool Corp., 2014 WL 98801, at *2 (W.D. Ark. Jan. 10, 2014). If the non-diverse defendant is fraudulently joined, CAFA may apply without need to consider whether the local controversy exception applies.

One important benefit of the fraudulent joinder doctrine is that a court may consider extrinsic evidence in making its determination. Block, 665 F.3d at 948. In two recent cases, Arkansas federal courts have relied upon undisputed affidavits from non-diverse employee defendants to hold that they had been fraudulently joined. In Wilkinson and Atwood v. Peterson, 2015 WL 11108981 (E.D. Ark. Sept. 10, 2015), the plaintiffs made certain allegations about the non-diverse employees that supposedly supported plaintiffs’ claims against them. The defendants in each case submitted affidavits contradicting those allegations in support of their petitions for removal; the plaintiffs contended that the federal court should disregard the affidavits.

In Wilkinson, however, Judge P.K. Holmes held that “[i]n evaluating whether state law might impose liability on [the local defendant], the Court is not obligated to accept as true the facts alleged in the amended complaint when it is presented with undisputed evidence to the contrary.” 2014 WL 98801, at *3. Judge Moody held similarly in considering the affidavits presented in Atwood. Both cases held that in the absence of any evidence put forth by the plaintiffs to contradict the affidavits, fraudulent joinder had been established and federal jurisdiction was proper. Atwood, 2015 WL at *4.

In conjunction with this type of fraudulent joinder analysis, defense counsel should also attempt to demonstrate that the non-diverse defendant is either not a “significant basis” of the class claim or not a defendant from whom “significant relief” is sought. In making this argument, it is important to explain that “the local-controversy exception to CAFA jurisdiction is a narrow exception that was carefully drafted to ensure that it does not become a jurisdictional loophole.” Westerfeld v. Independent Processing, LLC, 621 F.3d 819, 822 (8th Cir. 2010).

The analysis of whether a defendant is “significant” is two-fold. First, whether a defendant’s conduct is a “significant basis” for the claims “cannot be decided without comparing it to the alleged conduct of all the Defendants.” Id. at 825 (quoting Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144, 151 (3d Cir. 2009)). In many circumstances, this will involve an analysis of the defendant’s interactions with the class. A defendant who had limited interaction with the class as a whole (in Westerfield, the non-diverse defendant had serviced only 56 of the 3,894 loans as issue), is far more likely to be found insignificant. While courts have split over the extent to which extrinsic evidence can be used to conduct this analysis, the Eighth Circuit endorses at minimum the use of objective evidence demonstrating limited interactions. 621 F.3d at 823-24; but see Rhodes v. Kroger Co., 2015 WL 5006070 (W.D. Ark. Aug. 24, 2015) (Holmes, J.) (holding that the plain language of CAFA bars the use of extrinsic evidence).

Second, the question of whether the complaint seeks “significant relief” against a defendant analyzes “whether the relief sought from a particular defendant amounts to a significant part of the total relief sought.” Green v. SuperShuttle Intern., Inc., 2010 WL 419964, at *3 (D. Minn. Jan. 29, 2010). A non-diverse defendant is not “significant” if the relief being sought from him is “small change” compared to what is truly being sought from the diverse defendant. Coleman v. Estes Exp. Lines, Inc., 631 F.3d 1010, 1018 (9th Cir. 2011). This determination can often be made from the face of the complaint. The Ninth Circuit recognized in Coleman, where a putative class sued a trucking company and a non-diverse truck driver for millions of dollars in damages resulting from an accident, that “any experienced lawyer or judge reading the complaint would have known that ‘significant relief’ was not being sought against the truck driver.” Id. at 1019-20.

It is important to consider both fraudulent joinder and the significance analysis of CAFA in order to cover all potential bases of federal jurisdiction. A non-diverse defendant who is potentially liable to only the class representative may not be fraudulently joined, but is insignificant to the class as a whole. On the other hand, a non-diverse defendant who interacted with many class members might be significant, yet fraudulently joined, if he or she had nothing to do with the allegations in the case. By making a two-part inquiry into class actions purporting to rely upon the “local controversy” exception, defense counsel stand a better chance of federal jurisdiction.

For more information, please contact Chad W. Pekron at 501-379-1726 or cpekron@QGTlaw.com.

Note: This article appeared in the November 28, 2016, issue of the Arkansas Association of Defense Counsel newsletter. Click the link below to read the actual publication.

Revisiting Your Partnership Agreement: Practical Considerations In Light of The New Partnership Audit and Adjustment Provisions

November 22, 2016

by Scott M. Lar |

For nearly twenty-five years, the audit and adjustments to the federal income tax liabilities of partnerships (and limited liability companies taxed as partnerships[1]) have been governed by the rules and procedures referred to by tax practitioners as “TEFRA.”[2] That all changed with the enactment of Title XI of the Bipartisan Budget Act of 2015 (“Act”).[3] The Act significantly alters the audit and adjustment provisions of the Internal Revenue Code of 1986, as amended, applicable to partnerships and partners. In general, the new audit and adjustment provisions will apply to returns for partnership tax years beginning January 1, 2018.[4]

For partnerships subject to the audit and adjustment provisions of the Act, an increase in a partnership’s taxable income from an audit will generally result in a tax, computed at the highest rate applicable to an individual or corporation[5], levied on the partnership, not the partners (the “partnership level tax”).[6] Because the identity of the partners and their respective partnership interests are not always identical, or even substantially identical, year to year, the partnership level tax can carry dramatic economic consequences. For example, assume adjustments are incurred in one year (the “audit year”), but determined and applied in a subsequent year (the “adjustment year”). In this situation, the economic burden of adjustments incurred in the audit year will be stomached by the partners in the adjustment year in proportion to their partnership interests in the adjustment year (as opposed to the partners in the audit year in proportion to their partnership interests in the audit year).

The new regimen does, however, provide two mechanisms for assigning responsibility for the partnership level tax to the audit year partners; specifically, the amended return mechanism and the passthrough election mechanism. The amended return mechanism generally provides that if one or more audit year partners file an amended return for the audit year reporting all partnership adjustments allocable to the partner (and for any other taxable year with respect to which any tax attribute is affected by reason of that adjustment) and pays the tax due as a result of such adjustments, then the partnership may disregard that partners allocable share of the adjustments in computing the partnership level tax. Stated differently, if proper amended returns are filed by all audit year partners and each of those partners pays the resulting increase in tax, there would be no partnership level tax.[7]

The passthrough election mechanism generally provides that the partnership may elect to pass through the adjustments to the audit year partners, and accordingly, avoid payment of the partnership level tax. If the partnership utilizes this passthrough election mechanism, the audit year partners would owe interest on any increase in tax resulting from the pass through of the adjustments at a rate 200 basis points higher than the rate normally applicable to tax underpayments.

It is safe to assume that few, if any, partnership agreements address, or even contemplate, imposition of a partnership level tax and the economic burden of said tax on adjustment year partners (who may be newly admitted partners) or the varying of partnership interests from the audit year to the adjustment year. Although the new regimen is not effective until January 1, 2018, it is not too early to begin considering amendments to the partnership agreement to address the potential economic impacts. For example, assuming the primary objective of the partnership is to impose the burdens of partnership adjustments on the audit year partners (who may be former partners) in proportion to their audit year partnership interests, the partnership agreement may be amended to address the following concepts:

Specific, adjustment related indemnification in favor of the partnership from each partner and former partner;

Circumstances when it is acceptable for the adjustments to result in a partnership level tax (for example, when the partners, and their respective partnership interest, are the same for the audit year and the adjustment year);

If it is not acceptable for the adjustments to result in a partnership level tax, consider mechanisms to induce the audit year partners to file and pay tax under the amended return mechanism (one such inducement, for example, may be that in default of the amended return mechanism, the partnership will make a passthrough election, which would, by its terms, result in the application of an interest rate that is 200 basis points higher than the normal underpayment rate to the partners’ increased tax liabilities); and

If a passthrough election is not necessary to achieve the partnership’s objectives, procedures to protect audit year partners from that election and the increased interest rate.

Another significant change in the Act is the elimination of the “tax matters partner.” Under TEFRA, the tax matters partner was the “face” of the partnership audit. The tax matters partner would provide information to the partners, serve as part notice partner, and, to a limited extent, function as the decision maker for purposes of the audit. The Act replaces the tax matters partner with the “partnership representative,” whose role throughout the audit is more substantial than that of the tax matters partner. The partnership representative has the ability to make decisions and take actions that have a binding effect on some, most or all of the partners.[8] This ability is the result of the Act providing a breadth of authority to the partnership representative (who need not even be a partner).[9] Therefore, the introduction of the partnership representative in the Act creates duties, responsibilities, and potential liabilities that were absent in the role of the tax matters partner. Accordingly, partnerships (and their partners) should consider amending the partnership agreement to address the procedural changes under the new regimen, such as requiring the partnership representative to provide correspondence to each affected partner which is, or may be, material to the audit. The partnership agreement could also be amended to require the partnership representative to exercise his authority only after notice has been provided to all affected partners pursuant to written directions from an oversight group.

It is important to note that certain partnerships may “elect out” of the Act’s audit and adjustment to federal tax liability provisions.[10] Specifically, partners with no more than one hundred partners, all of whom are individuals, estates, or corporations, may elect out.[11] A partnership with an upper-tier partnership as a partner, however, may not elect out under the terms of the Act[12] If a partnership elects out, the audit and adjustment to liability of the partnership and its partners will be governed by pre-TEFRA law.[13]

The Act has, in many ways, changed the landscape of partnership tax audits. Although certain aspects of the new regimen are riddled with anomalies, we do know this much: the new regimen will be effective, at the latest, for partnership tax years beginning January 1, 2018. Partnerships (and their partners) would be wise to address the issues presented by the Act sooner rather than later. At a minimum, partnerships should consider partnership agreement amendments which address the election out, the partnership level tax, the economic burden of the partnership level tax on the partners, and the position of partnership representative.

[1] The word “partnership” when used in this article also refers to a limited liability company taxed as a partnership, and the phrase “partnership agreement” also refers to an operating agreement.

[2] Tax Equity and Fiscal Responsibility Act of 1982, I.R.C. §§ 6221 – 6234.

[3] H.R. 1314, 114th Cong. (2015) (enacted).

[4] See § 6241(g) of the Act.

[5] The highest individual or corporate rate is used regardless of whether any such person is a partner.

[6] See § 6225 of the Act.

[7] Note: the new section 6225(c)(2) amended return mechanism is riddled with anomalies, a discussion of which is beyond the scope of this article.

[8] See § 6223 of the Act.

[9] Id.

[10] See § 6221 of the Act.

[11] Id.

[12] The Act does, however, authorize the Internal Revenue Service to provide, by administrative guidance or regulation, election out treatment for partnerships with an upper-tier partnership as a partner. See § 6221 of the Act.

[13] Tax adjustments are applied at the partner level under pre-TEFRA law, with each partner treated independently.

For more information please contact Scott M. Lar at 479.444.5213 or slar@QGTlaw.com

With All My Worldly Goods I Thee Endow: The Law and Statistics of Dower and Curtesy in Arkansas

Published November 2016

by J. Cliff McKinney II |

“Dower and curtesy are ancient doctrines that have been a part of Arkansas law since the dawn of statehood. Though many states have abandoned dower and curtesy, the concepts remain a basic provision of Arkansas law. This article explores the current status of the law in Arkansas including a detailed analysis of the current statutory system along with a sampling of some of the myriad associated common law concepts and interpretative features. Most importantly, though, this article examines the real life application of dower and curtesy in Arkansas through an empirical study examining more than a decade of deeds filed in fifteen Pulaski County neighborhoods representing a cross-section of socio-economic backgrounds The study provides statistics that might help policymakers decide the fate of dower and curtesy in Arkansas.”

For more information, please contact J. Cliff McKinney II at 501-379-1725 or cmckinney@QGTlaw.com.

Note: The above is an excerpt from the article in the Spring 2016 issue of the University of Arkansas at Little Rock Law Review. Click the link below to read the actual publication.

The 10 Scariest Things in Arkansas Real Estate Law

October 2016

by J. Cliff McKinney II |

J. Cliff McKinney II was a presenter at the Arkansas Bar Association seminar, Scariest Things You Don’t Know: Frighteningly Common Mistakes Lawyers Make, held on October 31, 2016, in Little Rock. Mr. McKinney’s topic was real estate law and his presentation included the pitfalls of magic language, silence regarding mineral rights, the correct way to list the name of a trust, due diligence, warranty deeds, the Clean Water Act, the National Historic Preservation Act, and dower and curtesy. Please click the link below to see the course materials.

For more information, please contact J. Cliff, McKinney 501-379-1725 or cmckinney@QGTlaw.com

Common Mistakes Lawyers Make – Agricultural Law

October 2016

by R. Seth Hampton |

R. Seth Hampton was a presenter at the Arkansas Bar Association seminar, Scariest Things You Don’t Know: Frighteningly Common Mistakes Lawyers Make, held on October 31, 2016, in Little Rock. Mr. Hampton’s topic was agricultural law and his presentation covered impacts of federal conservation and agricultural programs on sales and leases of farmland, security interests in farm products and landlord’s lien, common pitfalls to consider when drafting agricultural lease agreements, and applicability of Section 18-16-105’s requirements for terminating oral leases for farmland. Please click the link below to see the course materials.

For more information, please contact R. Seth Hampton at 501-379-1774 or shampton@QGTlaw.com

Unjustly Sued: Problems with Unjust Enrichment Claims Against Contractual Non-Parties

September 26, 2016

by Lindsey C. Pesek |

Joseph Price and I recently represented a co-defendant sued in Arkansas state court by a plaintiff for breach of contract. The client was not a party to the contract at issue, so the plaintiff also brought an unjust enrichment claim based on the same underlying facts as the breach-of-contract claim. The case of Servewell Plumbing, LLC v. Summit Contractors, Inc., 362 Ark. 598, 210 S.W.3d 101 (2005), addressed this situation.

Arkansas law is well established that, absent a few exceptions[1], unjust enrichment “has no application when an express written contract exists.” Servewell, 362 Ark. at 612, 210 S.W.3d at 112. The Eighth Circuit explained the general rule:

The reason for the rule that someone with an express contract is not allowed to proceed on an unjust enrichment theory, is that such a person has no need of such a proceeding, and moreover, that such a person should not be allowed by means of such a proceeding to recover anything more or different from what the contract provides for.

U.S. v. Applied Pharmacy Consultants, Inc., 182 F.3d 603, 609 (8th Cir. 1999). In Servewell, the Arkansas Supreme Court expanded the application of this general rule to non-parties to the contract. See 362 Ark. at 612, 210 S.W.3d at 112.

Servewell involved a contract dispute between a subcontractor and a general contractor and owner of a development project. Among other allegations, the subcontractor brought a claim for unjust enrichment against the developer of apartment buildings. The claim was based on the general contractor’s failure to pay the subcontractor for property enhancements pursuant to a written contract between the general contractor and subcontractor. See id. at 601, 210 S.W.3d at 104. The developer was not a party to the contract between the subcontractor and general contractor. See id. The subcontractor argued that the developer had been unjustly enriched by the subcontractor’s improvements to the developer’s property, while the subcontractor had received no compensation for its performance in providing the benefits to the developer. See id. at 612, 210 S.W.3d at 111-12. The circuit court rejected the subcontractor’s argument and dismissed the claim because the contract between the general contractor and subcontractor governed the payment for services aspect of the parties’ relationship. Id., 210 S.W. 3d at 112.

On appeal, the Supreme Court upheld the circuit court’s ruling that the subcontractor’s claim against the developer for unjust enrichment lacked merit. Id. at 612-13, 210 S.W.3d at 112. In doing so, the Supreme Court reaffirmed the “settled principle” that a party may not recover under a theory of unjust enrichment when a valid contract exists. Id. at 612, 210 S.W.3d at 112. The Supreme Court, however, recognized a new and narrow exception to that settled principle, stating that the “subcontractor could recover from a [non-party to the contract], even when a separate contract exist[ed] between the subcontractor and general contractor, if the [non-party] has agreed to pay the general contractor’s debt or if the circumstances surrounding the parties’ dealings can be found to have given rise to an obligation to pay.”[2] Id. at 612-13, 210 S.W.3d 112 (quoting U.S. E. Telecomm., Inc. v. U.S. W. Commc’ns Servs., Inc., 38 F.3d 1289, 1296-98 (2d Cir. 1994)). Despite this recognition, the Supreme Court affirmed the dismissal of the subcontractor’s unjust enrichment claim because “there [was] no evidence of any such agreement between [the parties]…the general rule—that one cannot recover in quasi-contract when an express contract exits—governs the matter.” Id. at 613, 210 S.W.3d at112.

While Servewell is not a new case, and the majority of the opinion discusses construction law issues, Servewell did not limit its holding to the particular facts and more recent non-construction case law cites Servewell. See Tuohey v. Chenal Healthcare, LLC, No. 4:15CV00506 JLH, 2016 WL 1180339, at *5 (E.D. Ark. Mar. 25, 2016) (“This rule also applies to defendants who are not a party to the express contract.”) (citing Servewell); King v. Homeward Residential, Inc., No. 3:14CV00183 BSM, 2014 WL 6485665, at *2 (E.D. Ark. Nov. 18, 2014) (“Indeed, the existence of a valid and enforceable written contract usually precludes recovery in quasi-contract, even against a third party.”) (citing same).

The tenets set forth in Servewell should be considered when representing a client sued for unjust enrichment when the case includes a written contract, even when the client is not a party to that contract.

[1] Exceptions to this general rule may arise when an express contract is void or does not fully address a subject. See Campbell v. Asbury Auto., Inc., 2011 Ark. 157, 23, 381 S.W.3d 21, 37; see also Klein v. Arkoma Prod. Co., 73 F.3d 779, 786 (8th Cir. 1996).

[2] Despite this narrow exception, you should be aware of the statute of fraud’s prohibition for these types of agreements.

For more information, please contact Lindsey C. Pesek at 479-444-5211 or lpesek@QGTlaw.com.

Note: This article appeared in the September 26, 2016, issue of the Arkansas Association of Defense Counsel newsletter. Click the link below to read the actual publication.

Arkansas Supreme Court Cures Defect in Thousands of Orders in Two Arkansas Counties

September 2016

by Sarah Keith-Bolden |

A recent decision by the Arkansas Court of Appeals temporarily “call[ed] into question the effectiveness of thousands of orders in this state.” In re Admin. Order No. 2(b)(2), 2016 Ark. 172, at 2 (per curiam). Before the court was a judgment that was stamped “RECORDED” by the Baxter County Circuit Clerk’s office. Havner v. Ne. Ark. Elec. Coop., 2016 Ark. App. 149, at 3. Neither party questioned the effectiveness of the judgment. See id. (“Whether an order is final and appealable is a matter going to our jurisdiction; jurisdiction is an issue that we are obligated to raise on our own motion.”).

The Arkansas Court of Appeals, however, noted that a judgment is entered—and potentially appealable[1]—only when the circuit clerk “stamp[s] or otherwise mark[s] it with the date and time and the word ‘filed.’” Id. at 4 (emphasis added) (quoting Ark. Sup. Ct. Admin. Order No. 2(b)(2)); see Nat’l Home Cntrs, Inc. v. Coleman, 370 Ark. 119, 120-21, 257 S.W.3d 862, 863 (2007) (explaining that a ruling from the bench is not final and appealable until it is “reduced to writing and filed of record”). Because the order before it had been “recorded but never filed,” the court held, it was not final or appealable. Havner, 2016 Ark. App. 149, at 5. The court dismissed the appeal without prejudice. Id.

Petitioning for rehearing by the Arkansas Court of Appeals or review by the Arkansas Supreme Court, the appellant attached an affidavit by the Baxter County Circuit Clerk, who affirmed that the software utilized by the clerk’s office since February 2015 stamped all documents as “recorded” and that the judgment was considered “filed” by the clerk’s office. Appellant’s Petition for Rehearing at Ex. 3, Havner v. Ne. Ark. Elec. Coop., No. CV-15-468 (Ark. Ct. App. Mar. 14, 2016); Appellant’s Petition for Review at Ex. 3, Havner v. Ne. Ark. Elec. Coop., No. CV-16-219 (Ark. Sup. Ct. Mar. 14, 2016). It turned out that the Pike County Circuit Clerk, too, had been stamping documents as “recorded” rather than “filed” since May 2013. In re Admin. Order No. 2(b)(2), 2016 Ark. 172, at 1–2 (per curiam). All of the orders purportedly entered in Baxter County for a year and Pike County for nearly three years were, therefore, potentially “in limbo,” and the time period for appealing these orders might not have begun to run. See Deer/Mt. Judea Sch. Dist. v. Kimbrell, 2013 Ark. 393, at 4-5, 7-8, 430 S.W.3d 29, 35 (explaining that claims “remain[] ‘in limbo’ until all outstanding claims [a]re either finally adjudicated or [a]re otherwise no longer a bar to finality and a final order [i]s entered”); see also Ark. R. App. P.–Civil 4(a) (providing that a notice of appeal must be filed within 30 days of the “entry of the judgment, decree or order appealed from”) (emphasis added).

The Arkansas Supreme Court responded with a per curiam order that chastised clerks for failing to comply with the court’s “clear directive . . . to stamp or otherwise mark judgments, decrees and orders . . . with the word ‘filed’” but decreed that all orders “marked ‘recorded,’ or ‘presented’ and ‘recorded,’ for the period beginning May 1, 2013, and ending April 14, 2016,” would be deemed “filed.” In re Admin. Order No. 2(b)(2), 2016 Ark. 172, at 1–2 (per curiam). From April 14th on, however, clerks are expected to stamp all judgments, decrees, and orders with the word “filed.” Id. As for the Havner parties, although the Arkansas Court of Appeals declined to reconsider its holding, the Arkansas Supreme Court granted review. Letter Order, Havner v. Ne. Ark. Elec. Coop., No. CV-15-468 (Ark. Ct. App. Apr. 6, 2016); Letter Order, Havner v. Ne. Ark. Elec. Coop., No. CV-16-219 (Ark. Sup. Ct. Apr. 21, 2016). The appeal is now pending before the Arkansas Supreme Court. Assuming the judgment passes muster apart from the clerk’s stamp, the court will be able to consider the appeal.

[1] Rule 2 of the Arkansas Rules of Appellate Procedure–Civil outlines the types of civil orders, such as final judgments, from which an appeal may be taken.

For more information, please contact Sarah Keith-Bolden at 501-379-1789 or sbolden@QGTlaw.com.

How the Change to Rule 26 is Changing Discovery

September 2016

by Amber Davis-Tanner |

Litigants – especially defendants – have historically lamented the broad scope of discovery allowed by the Federal Rules of Civil Procedure. Discovery often is the most time-consuming and contentious aspect of litigation. In 2010, the Committee on Rules of Practice and Procedure met at the Duke University School of Law to develop strategies to “improve the disposition of civil cases by reducing the costs and delays in civil litigation…and furthering the goals of Rule 1 ‘to secure the just, speedy, and inexpensive determination of every action and proceeding.’ ”

For more information, please contact Amber Davis-Tanner at 501-379-1784 or adtanner@QGTlaw.com.

Note: The above is an excerpt from the article published in the Fall/Winter 2016 issue of USLAW Magazine. Click the link below to read the actual publication.

The FDIC’s Expanding View of Golden Parachute Payments

Summer 2016

by Daniel. J. Beck |

“In the immediate aftermath of the financial collapse in 2008, the phrase ‘golden parachute’ was repeatedly printed in headlines when referring to large bonuses executives were receiving after leaving their companies and the world economy in ruins. As the Treasury tried to stem the tide of bank failures through recapitalization efforts such as TARP, it prohibited certain incentive compensation practices for institutions who received funds through such programs. Under the TARP regulations, any company receiving TARP funds could not give ‘golden parachute payments’ to senior executive officers for any reason, except for payments for services performed, until such funds were repaid to the Treasury.”

For more information, please contact Daniel J. Beck at 501-379-1762 or dbeck@QGTlaw.com.

Note: The above is an excerpt from the article published in the Summer 2016 issue of The Arkansas Community Banker. Click the link below to read the actual article.

Taxation of Build-Out Allowance

July 2016

by C. Ryan O’Quinn |

In negotiating a build-out allowance from its landlord, does a tenant create income for itself? Unless the tenant has met the requirements of Internal Revenue Code Section 110, the answer is probably unclear. The crux of the analysis in determining whether a tenant has income from landlord-funded improvements is whether the tenant “owns” the improvements. If the tenant owns the improvements, then it has been enriched from the landlord-provided allowance and has realized income.

But what is “ownership” in this context? Outside of IRC 110, the IRS has determined ownership for these purposes by examining seven factors: (1) who has legal title, (2) how have the parties to the transaction treated it, (3) did the tenant acquire an equity interest in the property, (4) who has the right to possess the asset, (5) which party pays the property tax, (6) which party bears the risk of loss or damage to the property, and (7) which party receives the profits from the operation and sale of the property. While these seem reasonable, seven-factor tests from the IRS rarely produce consistent, reliable results.

Section 110 of the Internal Revenue Code is meant to provide consistency and reliability in determining the taxation of landlord-provided build-out allowances. If Section 110 applies to a build-out allowance, then it is not included in the gross income of the tenant (whether as cash or a rent reduction).

Section 110 has a few requirements:

The lease must be a short-term lease of retail space. Section 110 is only helpful for retail tenants. For purposes of Section 110, a retail tenant is any person that sells tangible personal property or services to the general public. A “short term lease” is a lease having a duration of fewer than 15 years
The build-out allowance has to be for the purpose of constructing or improving qualified long-term real property for use in the tenant’s trade or business at such retail space. “Qualified long-term real property” means nonresidential real property that is part of or present at the retail space of the tenant. The construction or improvements must revert to the landlord at the end of the lease.
The lease agreement must expressly state that the build-out allowance is for the purposes of constructing the improvements. It is crucial that the lease agreement not simply provide a discounted rent to allow the tenant additional funds to complete the build-out.
The build-out allowance must be noted in a statement attached to the tenant’s and landlord’s income tax returns.

By complying with Section 110, a retail tenant can ensure its treatment of a build-out allowance for tax purposes is respected by the IRS.

For more information, please contact C. Ryan O’Quinn at 501-379-1736 or roquinn@QGTlaw.com.

Federal Regulation of Natural Gas Production and Storage Expands in 2016

July 2016

by Michael B. Heister |

In the last couple of months, the federal government has implemented two key efforts – one by regulation and one by law – of great importance to Arkansas’s natural gas producers. These laws are part of the broader trend nationwide of trying to enhance the nation’s energy infrastructure, which has been justified on a variety of grounds including national security, anti-terrorism, environmental protection, and supporting domestic employment. The declines in energy prices over the last few years may have depressed resource production in Arkansas for the time being, but it is critical that owners/operators be aware of these developments to ensure that when they do resume production, it is in compliance with standards that might not have been in effect when production was halted in 2012 or 2013.

The first of these became law on June 3, 2016, when the U.S. Environmental Protection Agency (“EPA”) released its final rules for reducing methane emissions from the oil and gas industry – Oil and Gas Sector: Emission Standards for New, Reconstructed, and Modified Sources (the “2016 NSPS”). See 81 Fed. Reg. 35,942 (June 3, 2016). Although mainly focused on methane, the 2016 NSPS also seeks to reduce emissions of smog-forming volatile organic compounds (“VOCs”) and air toxics.

The 2016 NSPS rule contains several significant changes of interest to most producers. First, it requires that owners/operators of natural gas equipment meet methane emissions limits using technologies that are cost-effective and readily available. To a certain degree, this is an extension of an EPA rulemaking from 2012, and thus might be familiar to some owners/operators. However, the 2016 NSPS rule has broader application than the 2012 rule insofar as the new rule could reach hydraulically fractured oil wells that might contain natural gas, pneumatic pumps at well sites and gas production plants, and compressors and pneumatic controllers at transmission and storage facilities. Furthermore, the 2016 NSPS rule requires owners/operators to find and repair leaks (i.e., fugitive emissions) from two to four times per year depending on the location (e.g., well sites, gathering and boosting stations, transmission compressor stations). Of course, the 2016 NSPS rule provides detailed requirements for how the foregoing must be done.

The 2016 NSPS rule also attempts to resolve the uncertainty regarding when emissions must be aggregated for adjacent facilities. The 2016 NSPS rule defines “adjacent” to mean equipment and activities that are under common control if they are located on the same site or are on sites that share equipment and are within a quarter of a mile of each other (although this does not apply to offshore operations). Under this new definition of “adjacent,” some owners/operators may find themselves subject to the rule when they had previously been exempt.

Later that same month, a second significant law was put into effect when President Obama signed the Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (the PIPES Act), Pub. L. 114-183, reauthorizing the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) through 2019. The PIPES Act unanimously passed both the U.S. House of Representatives and the Senate. A key component of this reauthorization was a mandate that PHMSA promulgate rules for underground natural gas storage, largely in response to a leak in California in 2015, and represents another key regulatory consideration for Arkansas’s natural gas producers.

Although PHMSA and its federal predecessors have had the legal authority to mandate safety regulations for natural gas storage for decades, they generally have not done so. Instead, they have preferred to rely on the states to develop safety standards and encouraged the use of industry standards. A key problem with this approach is the only enforceable requirements were state-based, and those could not be applied out-of-state, and arguably could not be applied to the in-state part of facilities that were interstate. Section 12 of the PIPES Act was Congress’s response in June of 2016. It gives PHMSA two years to promulgate standards for underground natural gas storage facilities. The U.S Energy Information Administration estimates that Arkansas has approximately 21 million cubic feet of natural gas storage capacity in Arkansas, and while many states have far greater storage capacity, this still suggests the new storage rule will have application in Arkansas. Nonetheless, those Arkansas entities that will be affected by this rulemaking should monitor it closely and consider whether to submit comments to PHMSA to ensure the rule reflects the experience and needs of the Arkansas entities that will be regulated under the new rule.

Please contact Michael B. Heister (501-379-1777 or mheister@QGTlaw.com) for additional information.

How to Hire a Lawyer

June 2016

by Vincent O. Chadick |

“Over time, I have heard frequently that lawyers — while able to communicate effectively with other lawyers and judges — take for granted that laypersons understand them. And I’ve been told about a general reluctance even to consult a lawyer, out of concern that the lawyer will be too busy, too complicated or (you guessed it) too expensive. So what follows are modest suggestions for contacting and, if appropriate, hiring a lawyer. And doing it right.”

For more information, please contact Vincent O. Chadick at 479-444-5208 or vchadick@QGTlaw.com.

Note: The above is an excerpt from the article published in the June 13, 2016, issue of Arkansas Business. Click the link below to read the actual article.

Landlord Tenant Law: Here’s What You Should Know

June 2016

by Jeb. H. Joyce |

“Lawyers dealing with commercial landlords and tenants often are in the same role as ESPN anchors, educating clients with court decisions or legal positions of which they may not be aware. This article shares some ‘Did You Know?’ facts in the area of Arkansas commercial landlord tenant law.”

For more information, please contact Jeb H. Joyce at 476-444-5202 or jjoyce@QGTlaw.com.

Note: The above is an excerpt from the article published in the June 6, 2016, issue of the Northwest Arkansas Business Journal. Click the link below to read the actual article.

New Rules for Incentive-Based Compensation

Spring 2016

by Daniel J. Beck |

“In April, the OCC, Fed, FDIC, FHFA, NCUA, and SEC issued a proposed rule implementing Section 956 of the Dodd-Frank Act which sets restrictions on incentive-based compensation for banks. The goal of the new rule is to curb short term incentives and excessive risk. The most onerous restrictions on incentive-based compensation apply to covered institutions with over $50 billion in consolidated assets. However, smaller institutions will still need to maintain, document, and enforce incentive-based compensation plans which reduce the risk of material financial loss to the institution.”

For more information, please contact Daniel J. Beck at 501-379-1762 or dbeck@QGTlaw.com.

Note: The above is an except from the article published in the Spring 2016 issue of The Arkansas Community Banker. Click the link below to read the actual article.

Justice in the Hinterlands: Arkansas as a Case Study of the Rural Lawyer Shortage and Evidence-Based Solutions to Alleviate It

Published April 2016

by J. Cliff McKinney II |

“In recent years, state high courts, legislatures, bar associations, and other justice system stakeholders have become aware that a shortage of lawyers afflicts many rural communities across the nation and that this dearth of lawyers has implications for access to justice.”

For more information, please contact J. Cliff McKinney II at 501-379-1725 or cmckinney@QGTlaw.com.

Note: The above is an excerpt from the article in the University of Arkansas at Little Rock Law Review. Click the link below to read the actual publication.

A Checklist for Buying Real Property

March 2016

by J. Cliff McKinney II |

“No one buys a car without researching it — looking up facts from the maker, reading reviews, test driving, etc. In other words, a car buyer does his or her due diligence before making a purchase. The same concept applies for real estate, only on a much larger scale because of the high price of real estate and complicated issues.”

For more information, please contact J. Cliff McKinney II at 501-379-1725 or cmckinney@QGTlaw.com.

Note: The above is an excerpt from the article published in the March 28, 2016, issue of Arkansas Business. Click the link below to read the actual publication.

A Quick Review of the 2016 Minimum Standard Detail Requirements for ALTA/NSPS Land Title Surveys

March 2016

by Grant M. Cox |

On February 23, 2016, the revised Minimum Standard Detail Requirements for ALTA/NSPS Land Title Surveys (the “2016 Standards”) issued by the American Land Title Association (ALTA) and the National Society of Professional Surveyors went into effect.[1] This revision is the latest since the 2011 changes to the minimum standards (the “2011 Standards”). As most real estate professionals are aware, the purpose of the 2016 Standards is to allow the production of a survey acceptable to a title company to insure title to real property free and clear of survey matters other than those shown by the survey. As such, these standards go to the heart of any purchaser’s due diligence when purchasing real property.

While not a complete overhaul of the 2011 standards, the 2016 Standards contain some important changes which surveyors, title professionals, attorneys and others involved in real estate matters should note. First, the 2011 Standards were known as the Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys. The 2016 Standards substituted ALTA/ACSM for ALTA/NSPS as the National Society of Professional Surveyors, Inc. (“NSPS”) is the legal successor organization to the American Congress on Surveying and Mapping (“ACSM”). Many of the revisions in the 2016 Standards merely reflect this change.

However, some of the larger revisions include changes to Sections 4, 5, 6 and & Table A of the 2011 Standards governing records research, fieldwork, plat/maps and survey specifications, respectively. In the 2011 Standards, Section 4 stated that certain Record Documents[2], documents of record referred to in the Record Documents, documents necessary to determine junior/senior rights and other documents which affect the property being surveyed shall be provided to the surveyor. The 2016 Standards clarify the documents which must be provided to a surveyor in order to complete an ALTA/NSPS Land Title Survey. While recorded documents must be provided to the surveyor, unrecorded documents affecting the property being surveyed may only be provided if so desired by the client. If recorded documents or unrecorded documents are not provided to the surveyor or if non-public or quasi-public documents are required to complete the survey, the surveyor is only required to research if it is required by the state’s statutory or administrative requirements and if such research has been previously negotiated between the surveyor and the client. While the changes with regards to Section 4 do not seem to be that great, they do clarify what documents are necessarily required and what research, if any, a surveyor is required to perform.

The revisions to Section 5 of the 2016 Standards similarly make certain clarifications to the 2011 Standards. For instance, pursuant to the 2016 Standards, the surveyor is to determine the appropriate degree of precision based on the planned use of the property only if such planned use is reported in writing to the surveyor by the client. If the planned use is not reported in writing, the surveyor is to determine the appropriate degree of precision based on the existing use of the property. Additionally, the revisions clarify that trees, bushes, shrubs and other natural vegetation do not need to be located on the survey unless required by the contract or unless such natural vegetation is deemed to be evidence of possession by occupants or adjoiners. Further, the revisions clarify that water features running outside the property must only be identified if they are within five (5) feet of the perimeter boundary of the surveyed property.

One of the most notable changes in the 2016 revisions is in Section 6 regarding the preparation of a new description for the surveyed property. As with the 2011 Standards, the 2016 Standards generally disfavor the preparation of a new description except in the case of an original survey. However, the 2016 Standards go further and make clear that if a new description is prepared, the surveyor is to make a note on the map or plat stating that the new description describes the same real estate as the record description or, if it does not, then how the new description differs from the record description. This is specifically helpful because new descriptions are often created as the ability to measure distances has become more precise. Further, such notes on the map or plat will greatly assist attorneys and title insurers in determining whether to use older record legal descriptions or newly prepared legal descriptions when both are listed on the plat or map.

Finally, two of the bigger changes with regards to Table A of the 2016 standards revolve around zoning and identification of utilities. Item #6 in Table A has been revised to provide that a surveyor must only list the current zoning classification, setback requirements, the height and floor space area restrictions and parking requirements if the client provides the surveyor with a zoning report or letter. The 2011 Standards only required a surveyor to list the zoning classification if provided by the insurer. Additionally, if the client desires the surveyor to graphically depict such building setback requirements, the surveyor is only required to do so if the client provides a zoning report or letter and such requirements do not involve an interpretation by the surveyor. Item # 11 in Table A was revised in 2016 to recognize that calls to 811 or other similar utility locate requests from surveyors may be ignored or result in an incomplete response. If this happens, the surveyor is now required to note whether such utility locate request was ignored or incomplete and how it affected the surveyor’s assessment of utility location.

While the 2016 Standards do not provide a whole host of revisions from the 2011 standards, title professionals, attorneys and purchasers should review them to understand exactly what information they will receive from a surveyor. Some of the revisions now require different information be provided to the surveyor or certain items to be negotiated in the contract between the surveyor and client. Without reviewing the 2016 Standards, clients or other real estate professionals may not get the information they received in the past.

[1] This article is based on the redline of the 2016 Standards to the 2011 Standards found at http://c.ymcdn.com/sites/www.nsps.us.com/resource/resmgr/ALTA_Standards/2016_Standards_REDLINE_20151.pdf .

[2] The 2011 Standards defined “Record Documents” as complete copies of the most recent title commitment, the current record description, the current record descriptions of adjoiners, any record easements benefiting the property, record easements or servitudes and covenants burdening the property.

For more information, please contact Grant M. Cox at 501-379-1756 or gcox@QGTlaw.com.

Expanding Qualified Mortgages

Winter 2016

by Daniel J. Beck |

“On December 4, 2015, the Fixing America’s Surface Transportation Act or “FAST Act” was signed into law. The FAST Act provides relief to community banks by allowing small banks to petition the Consumer Financial Protection Bureau (“CFPB”) to expand areas that are considered “rural” by the CFPB. The FAST Act may also ease the threshold of mortgage loans that must be originated in rural areas by small banks to qualify for exceptions to qualified mortgages under the Truth in Lending Act (“TILA”) depending on how the CFPB interprets the change to TILA.”

For more information, please contact Daniel J. Beck at 501-379-1762 or dbeck@QGTlaw.com.

Note: The above is an excerpt from the article published in the Winter 2016 issue of The Arkansas Community Banker. Click the link below to read the actual article.

Financing Arkansas’s Agricultural Producers – A Brief Primer on Proper Collateral Securitization and Alternative Financing That Every Agricultural Lender Should Know

February 2016

by R. Seth Hampton |

Agricultural lenders now face significant competition in the agricultural credit market from not only banking institutions, but also many nonbank lenders, including the Farm Credit System, United States Department of Agriculture Farm Service Agency and agricultural vendors, such as equipment manufacturers and seed companies who provide limited-purpose financing for purchases of their products. To remain competitive in the increasingly competitive agricultural lending market, lenders must be able to provide producers with financing on terms comparable to those offered by others (namely, nonbank lenders), while managing the inherent risks presented by agricultural lending.

The risks associated with financing crop production are virtually unavoidable, as credit repayment is primarily dependent on successful crop production and marketing by the producer, and is often secured by illiquid collateral serving as the secondary source of repayment. Because of a producer’s inability to control the weather, commodity prices and other factors affecting crop production, even the most prudent producer, as well as its lender, can be left with little control over sufficient yields and prices necessary for repayment of a loan. Set forth below is a brief primer on proper loan collateralization and alternatives available for extending crop production financing that every agricultural lender should know when extending credit for production of agricultural commodities.

I. Properly Securing Collateral

Real Estate as Collateral

If a production loan will be secured by real estate, a mortgage should be executed by all persons or entities with fee simple title to the real estate and filed of record in the office of the circuit clerk of the county where the property is located. Unless the mortgage is properly executed and filed of record, the lender’s interest in the real estate may not be perfect. To ensure the mortgage is executed by the proper party(s), the lender should obtain a commitment for a title insurance policy from a title company to confirm the parties executing the mortgage are the legal owners of the real estate.

The mortgage must also be properly acknowledged. Unless a mortgage or any other instrument affecting the title to real property is properly acknowledged, it may not be filed of record. See Ark. Code Ann. §§ 16-47-101 and 18-12-208. The Arkansas General Assembly recently enacted a statute establishing forms of acknowledgement for all mortgages and other written instruments affecting the title to real property located in Arkansas. See Ark. Code Ann. § 16-47-107. A lender should confirm the mortgage’s acknowledgement is consistent with the statutory form, as the statute also provides that any instrument containing the form acknowledgement is deemed to be valid and sufficient for recordation. Id.

Additionally, the mortgage must contain a maturity date or third parties may assume the mortgage is scheduled to expire five (5) years after the date the mortgage is filed of record. See Ark. Code Ann. § 18-40-103. See also Clark v. Shockley, 205 Ark. 507, 508 (1943).

With respect to the recording location, the mortgage should be filed of record in the office of the circuit clerk of the county where the property is located. In addition to recording in the proper county, in some instances a mortgage must also be recorded in the proper county district. Arkansas has ten counties with two county seats, or districts, which are as follows:

Arkansas County – DeWitt and Stuttgart;
Carroll County – Berryville and Eureka Springs;
Clay County – Corning and Piggott;
Craighead County – Jonesboro and Lake City;
Franklin County – Charleston and Ozark;
Logan County – Paris and Booneville;
Mississippi County – Blytheville and Osceola;
Prairie County – Des Arc and DeValls Bluff;
Sebastian County – Fort Smith and Greenwood; and
Yell County – Danville and Dardanelle.

If a mortgage is given on property located in any of these ten counties, it must be recorded in the office of the circuit clerk for the county and district where the property is located. For example, if a mortgage is given on real estate located in the Southern District of Prairie County, it should be recorded in the Office of the Circuit Clerk for the Southern District of Prairie County located in DeValls Bluff.

Farm Equipment and Crops as Collateral

Arkansas has adopted the Uniform Commercial Code (“UCC”) with only minor variations. Revised Article 9 establishes the rules for acquiring and perfecting a lien on personal property, such as farm equipment and crops. See Ark. Code Ann. § 4-9-101, et seq. If farm equipment or crops will serve as collateral securing a production loan, a lender should require the producer to execute a security agreement granting the lender an interest in the equipment/crops. The security agreement must contain an accurate description of the personal property given as collateral for the production loan.

Under current law, a financing statement covering farm equipment/crops must be filed with the Office of the Arkansas Secretary of State to perfect the lender’s interest in farm equipment/crops. To ensure the lender’s interest has priority over any other securing interest, the lender should obtain copies of all UCC filings filed against the producer (and, if the producer is an entity, the persons owning an interest in the entity).

Crop Insurance as Collateral

It is common practice for lenders to require a producer to maintain certain types and amounts of crop insurance on the crops to be produced with the loan proceeds. Crop insurance basically comes in two varieties: (i) yield-based insurance, which insures against loss of crops caused by natural disasters such as droughts, floods and hail; and (ii) revenue-based insurance, which insures against revenue losses caused by yield or commodity price shortfalls. If crop insurance will serve as collateral for a production loan, the lender should have the producer execute a document assigning the producer’s rights to the insurance proceeds to the lender. Because crop insurance is federally subsidized and because of the limitations imposed by the “actively engaged” requirements under the current Farm Bill, this author suggests use of a separate document for securing the lender’s interest in any crop-insurance proceeds, in addition to requiring the insurance policy to name the lender as an additional insured.

It should also be noted that, while it is permissible for lenders to require producers to carry crop insurance in connection with a production loan, federal law prohibits a lender from requiring the producer to purchase crop insurance from a specific provider. Accordingly, the loan agreement should not require the producer to purchase crop insurance from a specific insurance agent or agency.

Government Payments as Collateral

Although direct and counter-cyclical payments were repealed by the current Farm Bill, program payments are still made under other farm and conservation programs administered by agencies of the United States Department of Agriculture, which can serve as collateral for a production loan and help with cash flow. The primary sources of program payments are paid through the two new safety net programs administered by the Farm Service Agency (“FSA”)—Agricultural Risk Coverage (“ARC”) and Price Loss Coverage (“PLC”)—and the Conservation Stewardship Program (“CSP”) administered by the Natural Resources Conservation Service (“NRCS”). If PLC, ARC or CSP payments will serve as collateral securing a production loan, the lender should require the producer to execute the proper document assigning the producer’s rights to the payments to the lender.

To properly assign PLC and ARC payments, FSA Form CCC-36 should be used and filed with the FSA office for the county where the land subject to the payments is located and with the FSA office designated as the producer’s “home office” by FSA. Unlike PLC and ARC, CSP is administered by NRCS, which has its own form of assignment. Specifically, NRCS Form CPA-1236 should be used for assignments of CSP payments and filed with the NRCS office for the county where the land subject to the payments is located and with the NRCS office located in the county where the producer’s designated FSA home office is located.

II. Limiting Risk through Alternative Financing

FSA Guaranteed Loans

Lenders may limit the risk associated with production loans by extending credit under the Guaranteed Loan Program. The Program is administered by FSA and provides a credit safety net for both producers and lenders by allowing lenders to provide financing under competitive terms and with minimal risk. Loans available under the Program include loans to purchase farmland, livestock, farm equipment, insurance and inputs (such as seed, fuel and chemicals), construct or repair buildings, improvements and other fixtures, develop farmland to promote soil and water conservation, refinance existing farm debt and cover family living expenses.

Under the Program, the loan is made directly to the producer by the lender, and FSA provides the lender with a guarantee to cover up to ninety-five percent (95%) of loss of principal and interest incurred by the lender on the loan. FSA will guarantee loans under the Program of up to $1,399,000.00 (adjusted annually based on inflation). In exchange, the lender is charged a one and a half percent (1.5%) guarantee fee, which may be passed onto the producer. Interest rates are negotiated between the lender and the producer, but may not exceed the average rate offered by the lender for non-guaranteed loans. The guaranteed portion of the loan may be sold by the lender on the secondary market. Before a lender may participate in the Program, the lender must be certified as a “qualified lender” by FSA. To learn more about the Program and how to become a qualified lender, a lender should contact the local FSA office.

FSA Emergency Loans

When shortfalls caused by natural disasters present repayment issues, rather than extending additional credit (which, in turn, entails assuming additional risk) or foreclosing a loan, a lender may work with a producer to obtain additional credit through the Emergency Loan Program. The Program is administered by FSA and offers additional financing to producers in designated areas where property damage or production losses have occurred due to a natural disaster, such as flooding or drought. The designated areas consist of those counties declared by the President or designated by the Secretary of Agriculture as primary disaster areas or quarantine areas, as well as all counties adjacent to the counties declared or designated disaster or quarantined areas.

Under the Program, FSA will loan up to $500,000.00 directly to producers to cover losses of property, equipment and income resulting from the disaster. Specifically, emergency loan funds may be used to restore or replace property or equipment essential to the producer’s farming operation, pay production costs incurred during the disaster year, refinance certain debts (excluding real estate) and pay essential family living expenses and for reorganizing farming operations. Emergency loans are generally structured on a repayment plan of between one and seven years. It should also be noted that the $500,000.00 limit on emergency loan funds is in addition to funds available to producers under the Guaranteed Loan Program and other programs administered by FSA (such as PLC, ARC and the Marketing Assistance Loan Program).

For more information, please contact R. Seth Hampton at 501-379-1774 or shampton@QGTlaw.com.

Common Hurdles Implementing the New TRID Rule

February 2016

by Daniel J. Beck |

“As you are well aware, the third of October marked the deadline for implementation of the new TILA-RESPA Integrated Disclosure (TRID) Rule. Lenders, title companies and real estate brokers are handling the implementation quite well, but there are a few common issues that have persisted in the brief time since the rule has taken effect.”

For more information, please contact Daniel J. Beck at 501-379-1762 or dbeck@QGTlaw.com.

Note: The above is an excerpt from the article published in the Fall 2015 issue of the Arkansas Community Banker. Click the link below to read the actual publication.

U.S. Fish and Wildlife Service Issues Final Rule on Protection of Threatened Species in Arkansas

February 2016

by William A. (Al) Eckert III |

In 2015, the Northern Long-Eared Bat was listed as a “threatened” species by the U.S. Fish and Wildlife Service under the Endangered Species Act of 1973, as amended, due to drastic population declines caused by a fungal disease known as “white-nose syndrome.” The Northern Long-Eared Bat occurs in 37 states (including Arkansas) and 13 Canadian Provinces. The final 4(d) rule (50 CFR 17) which goes in effect February 16, 2016, allows the U.S. Fish and Wildlife Service to define protection of the Northern Long-Eared Bat as a “threatened” species, which is any species likely to become an “endangered species” (a species at the brink of extinction) within the foreseeable future throughout all or a significant portion of its range.

The Northern Long-Eared Bat is a forest-dependent species typically roosting in trees, and predominately hibernates in winter in caves and abandoned mines. During the summer, the Northern Long-Eared Bat typically roosts singly or in colonies in cavities, underneath bark, crevices, or hollows of both live and dead trees and/or snags. In areas of Arkansas impacted by the white-nose syndrome fungal disease, the final 4(d) rule prohibits any harm, harassment or mortality to the Northern Long-Eared Bat that may occur “incidental” to an otherwise lawful activity, such as tree removal for a construction project. “Tree removal” is the cutting down, harvesting, destroying, trimming or manipulation in any other way the trees, saplings, snags, or any other form of wooded vegetation likely to be used by the Northern Long-Eared Bat. This “incidental take” prohibition applies to the hibernation site for the Northern Long-Eared Bat, including tree removal activities with a quarter-mile of a hibernaculum (a place of abode occupied by an animal during winter) or from activities that cut down or destroy known occupied maternity roost trees, or from June 1^st to July 31^st the cutting down or destruction of trees within a 150 foot radius from a maternity roost tree.

The U.S. Fish and Wildlife Service has developed a Northern Long-Eared Bat Consultation Area for areas of Arkansas where migration of the Northern Long-Eared Bat has occurred. Consultation with the U.S. Fish and Wildlife Service is to ensure that tree removal activities are not likely to jeopardize the continued existence of the listed species or adversely modify designated critical habitats. The U.S. Fish and Wildlife Service has issued a Survey Guidance for Arkansas to assess the requirements for U.S. Fish and Wildlife Service consultation and a bat survey, to determine the presence or absence of the Northern Long-Eared Bat, if necessary.

No Consultation Area – if a project requiring tree removal occurs outside of the identified Consultation Area, no consultation with U.S. Fish and Wildlife Service is necessary.

Consultation Area (Winter)

(a) If a project requiring tree removal from October 15^th to April 1^st occurs inside a Consultation Area, but outside of a hibernaculum or catch record individual buffer, consultation with U.S. Fish and Wildlife Service is required. (A bat survey may not be required.)

(b) If a project between October 15^th and April 1^st requiring tree removal, other than forest conversion/clear cutting, occurs within a 2.5 mile catch record individual buffer and known maternity roosts, consultation with U.S. Fish and Wildlife Service is required. If between October 15^th and April 1^st forest conversion/clear cutting occurs within a 2.5 mile catch record individual buffer, consultation is required and an affect determination by U.S. Fish and Wildlife Service will be assessed on a case-by-case basis.

(c) If a project requiring tree removal from November 30^th to March 15^th for other than forest conversion/clear cutting and occurs within a three mile buffer of a known hibernaculum, consultation with U.S. Fish and Wildlife Service is required. If from November 30^th to March 15^th forest conversion/clear cutting within a three mile hibernaculum individual buffer occurs, consultation with U.S. Fish and Wildlife Service is required, and an affect determination by U.S. Fish and Wildlife Service will be assessed on a case-by-case basis.

Consultation Area (Summer)

(a) If a project requiring tree removal from April 1^st to October 15^th occurs inside a Consultation Area but outside an identified buffer and is one acre or less, consultation with U.S. Fish and Wildlife Service is required.

(b) If a project requiring tree removal from April 1^st to October 15^th occurs inside a Consultation Area but outside an identified buffer and is more than one acre, consultation and bat surveys will be required between May 15^th and August 15^th if suitable habitat is present.

(c) If a project requiring tree removal from April 1^st to October 15^th occurs within a 2.5 mile catch record individual buffer and known maternity roosts and suitable habitat is present, consultation with U.S. Fish and Wildlife Service is required.

(d) If a project requiring tree removal from March 15^th to November 30^th occurs within a 3 mile buffer of a known hibernaculum and suitable habitat is present, consultation with U.S. Fish and Wildlife Service is required.

A habitat assessment should be conducted prior to conducting a bat survey to ensure a habitat is suitable for the Northern Long-Eared Bat. A presence/absence bat survey is not required in areas with unsuitable habitat. For more information, contact the Arkansas Ecological Field Office of U.S. Fish and Wildlife Service at 501-513-4403 or the website at www.fws.gov/arkansas-es/.

For more information, please contact William A. (Al) Eckert III at 501-379-1712 or aeckert@QGTlaw.com.

Arkansas Supreme Court Extends Notice Provisions of UCC to Services Contracts

December 2015

by Joseph R. Falasco |

The Uniform Commercial Code (UCC), codified in Arkansas at Ark. Code Ann. § 4-1-101 et seq., typically applies only to sales of goods and does not apply to an agreement for services. When an agreement involves both the sale of goods and services, the UCC applies when the transaction is fundamentally an exchange of goods. B & B Hardware, Inc. v. Fastenal Co., 688 F.3d 917, 921 (8th Cir. 2012). Notwithstanding, the Arkansas Supreme Court recently ruled that the UCC provides guidance with respect to contracts for services that are not covered by the UCC. See Hartness v. Nuckles, 2015 Ark. 444. Specifically, the Court ruled in Hartness that the UCC notice requirements from Ark. Code Ann. § 4–2–607 apply to express or implied warranties created in a contract for services. Thus, even in service contracts, reasonable notice of breach must be given before a lawsuit can be filed.

The Court used broad language in Hartness, suggesting the UCC will inform all contracts. The Court stated that it “has often looked to the UCC for guidance on contract principles by analogy” and that it has a “well-established practice of reasoning to the UCC by analogy in contracts for services.” Given the Court’s opinion, persons seeking to sue for breach of contract should carefully consider UCC provisions regardless of whether the UCC is strictly applicable. Likewise, parties sued for breach of contract can look to the UCC for defenses even when the UCC does not govern the transaction.

For more information, please contact Joseph R. Falasco at 501-379-1776 or jfalasco@QGTlaw.com.

Automatic Stay Exceptions Provide Leeway for Financial Institutions

December 2015

by Mary-Tipton Thalheimer |

“Once a debtor files a petition for protection under the United States Bankruptcy Code, an automatic stay goes into effect, providing the debtor with breathing room from its creditors and preventing the creditors from racing to the courthouse.”

For more information, please contact Mary-Tipton Thalheimer at 501-379-1742 or mthalheimer@QGTlaw.com.

Note: The above is an excerpt from the article published in the November 2015 issue of The Arkansas Banker. Click the link below to read the actual publication.

The Attorney General Issues Opinion Regarding Timing of Release of Electronic Records Requested Under Freedom of Information Act

December 2015

by Brandon B. Cate and Lindsey C. Pesek |

When Arkansas enacted its version of the Freedom of Information Act (the “FOIA”) in the 1960s, the General Assembly deemed it “vital in a democratic society that public business be performed in an open and public manner so that the electors shall be advised of the performance of public officials and of the decisions that are reached in public activity and in making public policy.” Ark. Code Ann. § 25-19-102. Since its passage, the FOIA has been used for many noble purposes. Through review of public records and admission to public meetings, Arkansas citizens—including members of the press and attorneys—have used the FOIA to monitor the performance of public officials as well as to access the public decision-making process. In November 2015, however, in response to an inquiry of State Senator Jeremy Hutchinson, Arkansas Attorney General Leslie Rutledge issued an opinion that incorrectly interprets the FOIA and may result in Arkansas citizens receiving delayed responses to FOIA requests for certain public records. See Ark. Op. Att’y Gen. No. 2015-095.

The FOIA says that “all public records shall be open to inspection and copying by any citizen of the State of Arkansas during the regular business hours of the custodian of records.” Ark. Code Ann. § 25-19-105(a)(1)(A). Arkansas law professors John Watkins and Richard Peltz—who jointly authored the seminal treatise on the FOIA—as well as an Attorney General opinion from the 1990s make clear that this statutory language means that, when a citizen makes a request for records, the records shall be produced immediately. See John J. Watkins & Richard J. Peltz, The Arkansas Freedom of Information Act, 273 (Arkansas Law Press, 5th ed. 2009); Ark. Op. Att’y Gen. No. 94-225. The only exception to this rule is for those records that are in “active use or storage and therefore not available at the time a citizen asks to examine it.” See id.; see also Ark. Code Ann. § 25-19-105(e). In this circumstance, the custodian of the record has up to three business days in which to produce the requested record. See Ark. Code Ann. § 25-19-105(e).

Mr. Hutchinson’s inquiry of Ms. Rutledge asked whether electronic files on a computer or smart phone, including voice-mail messages, should be produced immediately upon a FOIA request or if they qualified as records in use or storage, thus adding three additional days for their production. See Ark. Op. Att’y Gen. No. 2015-095. Ms. Rutledge opined generally that “most records are in active use or storage” and then referenced dictionary definitions of the term storage in support of her conclusion that custodians have three business days to disclose electronic files because they are stored on a computer or smart phone. Id.

Ms. Rutledge’s opinion is at odds with the directives of the FOIA. While Ms. Rutledge looked to dictionary definitions, she ignored a prior opinion from Attorney General Winston Bryant determining that the FOIA’s use of the term storage means only “those records which at the time of the FOIA request are located in a place which makes immediate access impossible or impractical.” Ark. Op. Att’y Gen. No. 94-225. Indeed, the FOIA provides that the storage exception applies only to those records that are “not available at the time a citizen asks to examine it.” Ark. Code Ann. § 25-19-105(e). In this modern world of instant access due to the rapid evolvement of technology, it is doubtful that immediate access to most electronic files would be “impossible or impractical.” This is particularly true considering the General Assembly’s technology directives in the FOIA.

The FOIA contemplates requests for electronic files and directs that “[a]ny computer hardware or software acquired [after 2001] shall be in full compliance with the requirements of [the FOIA] and shall not impede public access to records in electronic form.” Ark. Code Ann. § 25-19-105(g). A “citizen may request a copy of a public record in any medium in which the record is readily available or in any format to which it is readily convertible with the custodian’s existing software.” Ark. Code Ann. § 25-19-105(d)(2)(B). Further, the FOIA directs that “[r]easonable access to public records and reasonable comforts and facilities for the full exercise of the right to inspect and copy those records shall not be denied to any citizen.” Ark. Code Ann. § 25-19-105(d)(1). The upshot of these three statutory requirements is that electronic files shall not be kept by the custodian in a manner that would make their retrieval impossible or impractical. Rather, custodians shall keep electronic records in a manner allowing immediate access to citizens, citizens may request a copy of the electronic file in any medium that is readily available or in any format to which it is readily convertible, and citizens shall be afforded reasonable access and reasonable comforts and facilities in which to review or copy the electronic file. In view of these FOIA dictates from the General Assembly, Ms. Rutledge’s conclusion that custodians have three business days to disclose electronic files merely because they are located on a computer or smart phone is contrary to Arkansas law and should be rejected by Arkansas courts.

Moreover, the Supreme Court of Arkansas holds that the FOIA is to be “liberally” construed in order “to accomplish its broad and laudable purpose that public business be performed in an open and public manner.” Thomas v. Hall, 2012 Ark. 66, 4-5, 399 S.W.3d 387, 390. Exceptions to the FOIA’s requirements—such as the three-day extension—are narrowly construed and, when there is doubt, the exception “will be interpreted in a manner favoring disclosure.” Id. Accordingly, even if there is any doubt in the language of the FOIA regarding the timing of the release of electronic files—and there should not be—Arkansas courts should determine that such records be released immediately upon request.

For more information, please contact Brandon B. Cate at 479-444-5205 or bcate@QGTlaw.com or Lindsey C. Pesek at 479-444-5211 or lpesek@QGTlaw.com.

Note: A version of this article was published in the Arkansas Democrat-Gazette and the Northwest Arkansas Democrat-Gazette on December 11, 2015. See Brandon B. Cate & Lindsey C. Pesek, Opinion In Error: FOI Interpretation Incorrect, Ark. Dem.-Gaz., Dec. 11, 2015, at B7, available at http://www.arkansasonline.com/news/2015/dec/11/opinion-in-error-20151211/; Brandon B. Cate & Lindsey C. Pesek, Opinion In Error: FOI Interpretation Incorrect, N.W. Ark. Dem.-Gaz., Dec. 11, 2015, at B7, available at http://www.nwaonline.com/news/2015/dec/11/opinion-in-error-20151211/?opinion.

Employment-At-Will Doctrine in Arkansas: Do Employment Manuals Create For-Cause Employment?

December 2015

by Philip A. Elmore |

Arkansas courts recognize the right of employers to fire employees under the “employment at-will doctrine” where an employer-employee relationship remains completely terminable at will (other than for discriminatory reasons related to age, sex, race or religious beliefs) by either the employer or employee, unless there is an agreement to the contrary.

However, the employment at-will doctrine is not absolute as Arkansas courts recognize a number of exceptions to the general rule. One such exception involves employment manuals and handbooks. In Gladden v. Arkansas Children’s Hospital, 292 Ark. 130 (1987), the Arkansas Supreme Court held that a for-cause employment contract was formed between an employer and employee even though the employer referred to the employment as strictly at-will. The employment was determined to be for-cause because the employment manual’s terms and conditions contained a definitive list of grounds and conditions for dismissal. The Court considered this list to be a provision that the employee would not be discharged except for cause due to its exhaustive nature, even though the employment was for an unspecified term.

The Arkansas Supreme Court also stated that an employment manual creates a for-cause employment contract if it contains an express provision against termination except for cause upon which the employee relies. If such provisions exist, employers that arbitrarily discharge their employees face potential liability for both breach of contract and wrongful discharge under the employment agreement.

Arkansas courts continue to follow the Gladden decision. In Cisco v. King, 90 Ark. App. 307 (Ark. Ct. App. 2005), former employees of St. Francis County, Arkansas filed a wrongful-termination claim against the county. They alleged that the county’s employment manual created an employment contract under which they could be discharged only in accordance with the manual’s terms.

The county’s employment manual specifically stated that the tenure of an employee with “permanent status” shall “continue during good behavior and satisfactory performance of his duties.” The manual distinguished this from “probationary employees,” all of whom were required to “serve a probationary period,” during which they “may be terminated for any reason without recourse….”

The county argued that the terms relating to employee job security were not sufficiently definite and comprehensive and should be distinguished from the manual in Gladden. The Arkansas Court of Appeals disagreed, and stated that the promise to “permanent employees” amounted to a “promise not to terminate a permanent employee without cause.” The court also stated that the clear distinction between “permanent” and “probationary” employees strengthened this interpretation of the employment manual.

If an employer wishes to retain at-will employment for its employees under Arkansas law, it should look very closely at its own employment manuals. Such manuals need to be very carefully constructed. An employment manual should not provide a definitive list of events that would be considered grounds and conditions for dismissal.

The employer should also confirm that any employment manuals do not contain express provisions against termination except for cause. Employers have unintentionally provided employment manuals with such provisions to employees they thought were strictly at-will. Such circumstances can be avoided if the employer takes the time to review the terms actually contained in the manual.

Finally, employers should attempt to avoid, whenever possible, the creation of a distinction between “permanent” and “probationary” temporary employees in the employment manual. A distinction for “permanent” employees could be construed by courts to create a promise to not terminate the permanent employee at-will.

For more information, please contact Philip A. Elmore at 479-444-5203 or pelmore@QGTlaw.com.

E-Discovery Alert: Proportionality

November 2015

by Meredith M. Causey and Michael B. Heister |

Demonstrating the burden or expense of complying with discovery often requires an affidavit or other evidentiary proof of the time or expense involved in responding to the discovery request. The IT personnel in charge of the requested information is usually a good starting point. A June 2015 decision by the U.S. District Court for the District of Kansas discusses a party’s insufficient proof regarding its proportionality objection.

In Cargill Meat Solutions Corp. v. Premium Beef Feeders, LLC, No. 13-cv-1168-EFM-TJJ, 2015 WL 3937410 (D. Kan. June 26, 2015), the court considered the defendants’ motion to compel and the plaintiff’s objection to discovery based on proportionality. In this breach of contract case, the defendants sought to compel production of documents related to “hedging and/or risk management strategies and/or policies for all cattle purchased” pursuant to the agreement at issue in the case. The plaintiff objected that the discovery sought was not proportional and should not be compelled.

The court held that a party asserting an unduly burdensome objection to a discovery request must show “not only undue burden or expense, but that the burden or expense is unreasonable in light of the benefits to be secured from the discovery.” In addition, a party must “provide sufficient detail in terms of time, money and procedure required to produce the requested documents.”

In this case, the plaintiff failed to meet its burden by only providing an estimate that complying with the discovery request would require searching additional custodian records and cost $4,000 to $5,000 per custodian. The plaintiff did not identify how many custodians would be involved and failed to explain why this cost would be disproportionate to the amount in controversy, which was in excess of $2 million. The court granted the motion to compel and concluded that the plaintiff failed to adequately establish the alleged burden of producing the requested discovery.

For more information, please contact Meredith M. Causey at 501-379-174.3 or mcausey@QGTlaw.com or Michael B. Heister at 501-379-1777 or mheister@QGTlaw.com.

The Differing Durations of Judgments and Judgment Liens

November 2015

by Daniel D. Boland |

There are a variety of means by which a judgment may be enforced against a judgment debtor in Arkansas. Among the most common are writs of execution, where the sheriff is directed to seize the debtor’s property for the purpose of having it sold to satisfy the judgment, and writs of garnishment, where the debtor’s employer or bank is required to withhold wages or bank deposits and pay them to the judgment creditor. Another potential aid in collecting a judgment is the judgment lien, which attaches to all real estate owned by the judgment debtor in the county where the judgment was rendered. It often goes unrecognized that the period during which a judgment is generally enforceable against the debtor and the duration of the judgment lien do not necessarily coincide. They are governed by different statutes and different rules of common law. A statutory amendment adopted in the 2015 Arkansas legislative session highlights and reinforces this distinction.

The period during which a judgment is generally enforceable against the debtor is governed by Arkansas Code § 16-56-114 — the statute of limitations applicable to judgments. It provides for a ten year limitation period after which, unless the period has been extended, further enforcement action is barred. However, if the debtor makes a payment on the judgment debt, or if the creditor causes the issuance of process or execution, including a writ of garnishment, to attempt to collect the judgment before it is barred, the statute of limitations will be tolled and a new ten year period for enforcing the judgment will commence. See, e.g., Primus Automotive Financial Services vs. Wilburn, 2013 Ark. 258, 428 S.W.3d 480 (2013).

The judgment lien, on the other hand, is governed by Arkansas Code § 16-65-117. Under that section, the duration of the lien is also ten years from the date of the judgment, but, unlike the statutory period for general enforcement of the judgment, a judgment lien will not be extended by payments made by the debtor or the issuance of process or execution to collect the judgment. A judgment lien on real estate may be extended only by suing out a scire facias using the procedure set forth in Arkansas Code § 16-65-501, which involves having a writ issued in the action in which the judgment was rendered. Act 1113 of the 2015 legislative session amended Arkansas Code § 16-65-117(d)(1) to state more explicitly that suing out a scire facias is the exclusive means by which the duration of a judgment lien may be extended.

Judgment creditors should be aware that, even if it has been more than ten years since a judgment was rendered and no scire facias has been sued out, the judgment may nevertheless remain enforceable by virtue of some earlier payment by the debtor or effort by the creditor to collect the judgment, any of which may have extended the life of the judgment. Conversely, title examiners can take comfort in the fact that none of those actions will extend the duration of the judgment lien. An examiner can conclusively determine whether an old judgment remains a lien simply by reviewing the court file for the case in which the judgment was rendered to see if a scire facias was ever sued out.

For more information, please contact Daniel D. Boland at 501-379-1710 or dboland@QGTlaw.com.

NLRB’s New Joint-Employer Standard and the Practical Effect for Arkansas Employers

October 2015

by Madeline K. Moore |

In what is being hailed by many as a monumental decision, the National Labor Relations Board (“NLRB”) recently reversed its decades-old “direct control” standard for determining joint- employer status. In the 3-2 Browning-Ferris Industries of California decision released August 27, 2015, the majority cited concerns that the “Board’s joint-employment jurisprudence [had become] increasingly out of step with changing economic circumstances.” The Board went on to embrace a new standard that looks to whether two or more employers possess the authority to “share or codetermine th[e] matters governing the [workers’] essential terms and conditions of employment,” going a step further to clarify that a joint employer need only “possess,” not actually “exercise” such authority. The direct-control standard required that an employer actually exercise the authority over the workers before being determined a joint employer.

Browning-Ferris Industries of California (“BFI”) used a staffing firm to provide workers outside of a recycling plant under an Agreement that stated that the firm was their sole employer. The staffing firm recruited and hired the workers, staffed them to cover each of BFI’s three shifts, and employed separate supervisors to oversee them. Even so, the Board found that BFI still acted as a joint employer due to its ability to determine the terms and conditions of employment. The practical effect of the decision is that companies employing individuals through staffing agencies are more likely to be held liable for labor violations committed by employees of subcontractors or franchisees and incur an obligation to bargain with unions representing those outsourced employees.

The Browning-Ferris decision, though it will likely be appealed, also foreshadows the outcome of the still-pending McDonald’s case. In that case, the NLRB’s General Counsel maintains that McDonald’s is a joint employer that cannot avoid liability for alleged unfair labor practices and illegal retaliation based on the argument that its individual restaurants are operated by franchisees.

Perhaps the bigger take-away for Arkansas employers is the general trend that employers may be less likely to avoid liability and obligations for workers that are labeled as independent contractors,

“1099”s, or employees of a separate subcontractor. As government and enforcement agencies such as the Department of Labor (“DOL”), IRS, and NLRB embrace broader tests for imposing employer liability, employers must face the “economic reality” that they may be required to provide benefits to additional workers, and be exposed to increasing financial liability for employment practices under myriad state and federal regulations. See Information Regarding DOL Initiative To Address Misclassification of Employees as Independent Contractors at http://www.dol.gov/whd/workers/misclassification/.

Employers, particularly those operating as franchisors or employing individuals through staffing agencies or as independent contractors, should look carefully at their practices.

Quattlebaum, Grooms & Tull PLLC regularly advises employers with respect to labor and employment compliance and represents employers in employment-related investigations and litigation.

CLE Presentation: Landlord-Tenant Evictions, Court, and Litigation

September 2015

by Joseph W. Price II |

Joseph W. Price II was a presenter at the 13th Annual Landlord-Tenant Law: Leases, Eviction, Litigation, and Settlements seminar in September 2015. Click the link below to see his presentation.

For more information, please contact Joseph W. Price II at 501-379-1772 or jprice@QGTlaw.com.

E-Discovery Alert: Preserving Text Messages

September 2015

by Michael B. Heister and Meredith M. Causey |

A recent decision by the Court of Chancery in Delaware serves as another reminder of the need for attorneys to advise their clients early and often about preserving non-traditional electronic communications. In Kan-Di-Ki, LLC v. Suer, 2015 WL 4503210 (Del. Ch. July 22, 2015), the court confronted the problem of text messages on a lost cellular phone.

In Kan-Di-Ki, LLC, the defendant sold his interests in two medical equipment companies to the plaintiff in two transactions totaling roughly $4.3 million. A couple of years after selling his interests, the defendant went to work for a customer of the plaintiff, and defendant helped the customer re-negotiate existing agreements with the plaintiff and eventually the customer fired plaintiff. Plaintiff sued the defendant for breach of contract, among other things.

Before the trial, plaintiff moved for discovery sanctions regarding two types of evidence. The first was for emails that were deleted in the ordinary course before the defendant became aware that plaintiff might sue him. The interesting part of the court’s decision pertained to the second collection of evidence – text messages that defendant sent third parties after he became aware of the possibility that plaintiff would sue him. The plaintiff claimed his lost his cell phone roughly a year after the lawsuit was filed.

The court ruled that the plaintiff had acted recklessly by failing to preserve the contents of his phone. The court’s ruling was premised in large part on the fact that defendant had asked for plaintiff’s text messages before the phone was allegedly lost and had been told that they were not “subject to deterioration, manipulation, or even just being forgotten.” The court awarded defendant up to $20,000 in attorneys’ fees and made “narrowly tailored” inferences against the plaintiff where the record seemed incomplete due to the absence of text messages that “probably” had existed.

This opinion reinforces a few key lessons familiar to attorneys who work on e-discovery issues. First, be sure to analyze non-traditional sources of electronic information such as text messages. Second, discuss with your client whether that information is safe. Fires happen. Cellular phones get dropped in the bathtub. Telling the client not to erase the data may no longer be enough. Finally, communicate with opposing counsel early, and in writing, about potential sources of electronic information. If you educate opposing counsel about what should be preserved, the court is likely to be more sympathetic to you if a problem arises later because your guidance was ignored and evidence was lost.

For more information, please contact Michael B. Heister at 501-379-1777 or mheister@QGTlaw.com or Meredith M. Causey at 501-379-1743 or mcausey@QGTlaw.com.

Eminent Domain: Summary of Recent Legislative Changes

August 2015

by Michael N. Shannon |

Arkansas law regarding eminent domain was amended in the 2013 and 2015 legislative sessions in several meaningful ways.

In 2013, a provision was added in Ark. Code Ann. § 27-67-317(b) entitling the landowner to an award of appraisal costs, expert witness fees and attorneys’ fees if the compensation awarded by the jury exceeded the amount of money deposited by the State of Arkansas by ten percent (10%) or more. This provision applied only to condemnation actions filed by the State Highway and Transportation Department. The opportunity to receive fees and costs was an important step in allowing aggrieved landowners the opportunity to challenge the valuation of their property in Court. Otherwise, true “just compensation” could not be achieved in any case where the landowner disputed the value from the Highway Department and required the service of an attorney.

In 2015, the attorney and appraisal fees’ provision was extended to apply to other condemning authorities in addition to the Highway Department including, for example, public utilities and improvement districts. Currently, only counties and cities are exempted from the fees and costs provision. See Ark. Code Ann. § 18-15-103(b)(11). However, the threshold for an award of fees and costs was increased from ten percent (10%) to twenty percent (20%) for the applicable condemning authorities.

Another provision added in 2015 confirmed that when a trial is required to determine just compensation, the decision must be made by a twelve-person jury. Ark. Code Ann. § 18-15- 103(9). While this has always been the case for actions filed by the Highway Department, it is now true in all condemnation actions. This requirement does not prevent a landowner from settling an eminent domain action out of court, but it does ensure a right to a jury trial if needed.

Next, the term “just compensation” was substituted for “market value” in the section describing the landowner’s rights. Ark. Code Ann. § 18-15-103(b)(1). This change recognizes that “just compensation” may include damages other than the mere market value of the property taken – such as the damage done to the value of the remainder of a landowner’s property after the loss of the property taken.

Finally, the law was amended to require that the condemning authority provide an assessment of just compensation prior to or contemporaneously with a good-faith offer of just compensation. Ark. Code Ann. § 18-15-103(b)(5). The good-faith offer and the assessment must be provided before a lawsuit seeking condemnation of the property is filed.

If you have questions about your rights when property is taken by eminent domain, please do not hesitate to contact us.

Just What the Doctor Ordered? Tips for Employee Wellness Programs

Spring/Summer 2015

by Amber Davis-Tanner |

“Workplace wellness programs have gained popularity over the past several years. According to the Equal Employment Opportunity Commission (“EEOC”), 94 percent of employers with more than 200 employees and 63 percent of companies with fewer employees have some sort of wellness program. These programs take many forms. Employers promote health for their employees in many ways, including subsidizing gym memberships or healthcare premiums, providing access to weight-loss or smoking cessation programs, and improving healthful snack selections in break rooms.”

Note: The above is an excerpt from the article published in the spring/summer 2015 issue of USLAW Magazine. Click the link below to read the actual publication.

Civil Monetary Penalties and the Gap in Bank D&O Coverage

Fall 2014

by Daniel J. Beck |

“While this is not a new issue, the FDIC thought it was important to remind banks in Financial Institution Letter 47-2013 that they cannot indemnify or pay for insurance policies which pay claims for civil monetary penalties assessed against a bank’s instituion-affiliated parties or “IAPs” (which generally includes officers, directors and controlling shareholders). In the letter the FDIC also made it clear that there is no exception from this restriction for banks that pay for such insurance, but are reimbursed by the IAP for the policy expense. This had become a common workaround that banks used to provide such coverage for their officers and directors, but it is now clearly prohibited.”

Note: The above is an excerpt from the article published in the Fall 2014 issue of Arkansas Community Banker. Click the link below to read the actual publication.

Attention AG Lenders: Arkansas’s Livestock Owner’s Lien Act May Change Your Priorities

Spring 2014

by R. Seth Hampton |

“Any agricultural lender operating within the State should take heed of the recent development in Arkansas’s secured-transactions laws pertaining to sales of livestock.”

Note: The above is an excerpt from the article published in the Spring 2014 issue of The Arkansas Community Banker. Click the link below to read the actual publication.

Provisions Added to Perfect Interest in Personal Property

September 2013

by Timothy W. Grooms |

“Fundamental to the concept of taking a security interest is the ability of a secured party to remain perfected in its collateral. The Arkansas General Assembly recently passed Act 138 of 2013 (“Act”), which became effective on July 1, 2013, revising certain portions of Article 9 of the Uniform Commercial Code, the body of law governing the priority and perfection of security interests in personal property.”

Note: The above is an excerpt from the article published in the September 30, 2013, issue of The Banker’s Advocate. Click the link below to read the actual publication.

Caveat Who?: A Review of the Landlord/Tenant Relationship in the Context of Injuries and Maintenance Obligations

Summer 2013

by J. Cliff McKinney II |

“Bad things happen. People make mistakes. Evil exists in the world, as does stupidity, which may be the superlative source of many tort and contract claims. Claims of liability will inevitably arise in the landlord/tenant relationship.”

Note: The above is an excerpt from the article in the University of Arkansas at Little Rock Law Review. Click the link below to read the actual publication.

The Collateral Source Rule: A Compendium of State Law

2012

by R. Ryan Younger |

“Arkansas”

Note: This excerpt is from from The Collateral Source Rule: A Compendium of State Law. ©2012. DRI. Click the link below to read the actual publication.

Implementing Institutional Controls at Brownfields and Other Contaminated Sites

2012

by J. Cliff McKinney II |

“The Arkansas Department of Environmental Quality (ADEQ) regulates hazardous substances in Arkansas. ADEQ is vested with the authority granted by the EPA, specific state statutes, and the Arkansas Pollution Control and Ecology Commission (PC&E Commission).”

Note: The above is an excerpt from the Arkansas Bar Association Book. Click the link below to read the actual publication.

Even Courts Are Going Green. How to Protect Yourself From Greenwashing Litigation

Spring/Summer 2012

by Joseph W. Price II |

“This article was printed on biodegradable, post-recyclable paper with chemical- free ink, and produced in a carbon-neutral fashion by an energy-efficient printing com pany that uses only sustainable resources. Got your attention? Although untrue here, it is probably not the first time that you have heard an over-the-top, too-good-to-be-true line as it seems everyone is rushing to be “green” in the hopes of capitalizing on the environmentally-savvy consumer and his or her purchasing power. If such assertions stretch the truth or are not capable of sufficient authentication, however, they also may catch the attention of governmental officials or enterprising class-action attorneys.”

Note: The above is an excerpt from the article published in the spring/summer 2012 issue of USLAW Magazine. Click the link below to read the actual publication.

Deed Covenants of Title and The Preparation of Deeds: Theory, Law, and Practice in Arkansas

2011

by J. Cliff McKinney II |

“Let’s assume A sold B his 50-year-old bungalow, located on a platted, fenced city lot in Little Rock. A conveyed a typical ‘general warranty deed’ to B. The legal description in the deed contained the lot and block number. Delighted, B moved in; but her delight turned to dismay when she looked at an old survey A left behind when he moved out and saw that the fence was inside her lot lines by several feet, on two sides of her property. B was a lover of plants and wanted more room for her garden, so she pulled down the fence, tearing up her neighbors’ plants within the lot lines as shown on the survey, in order to expand her own yard.”

Note: The above is an excerpt from the article in the University of Arkansas at Little Rock Law Review. Click the link below to read the actual publication.

Negotiating Arkansas’s Law of Several Liability

Fall 2011

by Joseph R. Falasco |

“Life intersects art, sometimes. As a practicing lawyer, I have tried to employ rules, statutes, and laws in service of a defined and client- oriented goal. As a potter, I work to form a lump of clay into a functional piece of art. When the Arkansas General Assembly enacted the Civil Justice Reform Act in 2003, it provided a moist ball of clay. Tort reform is by nature controversial. We all knew that some of its provisions were going to be challenged—one way or another—in Arkansas’s courts. Regardless of how you feel about the Act, we can all agree that the General Assembly presented Arkansas lawyers with a new set of statutes to mold into a functional body of law. After some years of kneading by lawyers and the Arkansas Supreme Court, the Act as it exists today looks different than it did eight years ago. Yet, what remains of the Act must be further applied in a way so that it functions in a meaningful manner and does real work for all litigants. This writing provides background information on some lingering issues and suggests how the remaining clay can be put to good use by the legal potters–whether they be lawyers or judges.”

Note: The above is an excerpt from the article in The Arkansas Lawyer Fall 2011. Click the link below to read the actual publication.

Adverse Possession and Boundary by Acquiescence in Arkansas: Some Suggestions for Reform

2011

by J. Cliff McKinney II |

“Some commentators have characterized adverse possession as a ‘strange and wonderful system,’ others as ‘legal[ized] land theft.’ Like Dr. Jekyll and Mr. Hyde, it has two faces. The positive face, a doctrine of repose, provides a way to cure title problems and promotes stability of title and of boundary lines. Its negative face allows wrongful possessors to gain title, occasionally makes headlines, causes consternation in first-year law students, and no doubt affirms the general public’s suspicion of law.”

Note: The above is an excerpt from the article in the University of Arkansas at Little Rock Law Review. Click the link below to read the actual publication.

Affirmative Acts and Antitrust: The Need for a Consistent Tolling Standard in Cases of Fraudulent Concealment

2011

by Amber Davis-Tanner |

“It is axiomatic that ‘no man may take advantage of his own wrong.’ It is also a fundamental principle of the American justice system that an exception should not swallow a rule. The doctrine of fraudulent concealment reflects the first principle: It is intended to ensure that a defendant does not ‘take advantage of [its] . . . wrong’ by permitting the statute of limitation to be tolled when a party has concealed a wrong. Various courts have established standards to determine when a statute of limitations will be tolled by fraudulent concealment in antitrust litigation. The ‘self-concealing’ standard that some courts have adopted threatens to swallow the rule established by the doctrine. The ‘affirmative-acts’ standard is a more moderate approach that avoids the breadth of the self-concealing approach while still ensuring that wrongdoers will be punished for their unlawful acts.”

Note: The above is an excerpt from the article in the University of Arkansas at Little Rock Law Review. Click the link below to read the actual publication.

Using Technology at Trial

January 2011

by E. B. (Chip) Chiles IV |

“Almost every trial now involves the use of technology by lawyers. The extent to which lawyers use technology at trial, of course, varies according to the differences in particular cases and the preferences of individual lawyers, but technology is now a fact of every trial lawyer’s life. Technology has contributed a variety of new tools that trial lawyers can employ to streamline the presentation of evidence, communicate information and ideas with greater force and clarity, and heighten credibility and persuasiveness. The following materials seek to assist lawyers in identifying and understanding available technology and using it to improve performance at trial.”

Note: The above is an excerpt from a presentation at the 2011 Arkansas Bar Association Mid-Year Meeting. Click the link below to read the actual presentation.

Does Turning Off The Lights Mean Turning On A Lawsuit?

Fall/Winter 2010

by J. Cliff McKinney II |

“Everyone knows that we are living in tough economic times. Many retail businesses are looking for ways to cut costs. In some cases, national, regional and local retailers may decide to close some stores to focus resources on more profitable units. However, many retailers lease space that is subject to long-term leases. Rather than break the lease, these retailers may make the economic decision to keep paying the rent on a closed, or “dark,” store. However, there can be serious legal consequences for doing so; specifically, the retailer could be subject to a suit for breach of an implied covenant of continuous operation.”

Note: The above is an excerpt from the article published in the Fall/Winter 2010 issue of USLAW Magazine. Click the link below to read the actual publication.

Arkansas Construction & Design Law

2009

by Timothy W. Grooms |

“Arkansas law does not heavily regulate private construction project negotiation and bidding with regard to project delivery systems. Arkansas requires that general contractors only perform construction management services in those fields in which they hold the proper classification…”

Note: The above is an excerpt from the American Bar Association’s State-By-State Guide to Construction & Design Law Current Statutes and Practices. Second Edition ©2009. Click the link below to read the actual publication.

Arkansas Commercial Lending Law

by Timothy W. Grooms |

“This survey is designed to provide commercial lenders and businesses contemplating the extension of credit to Arkansas borrowers a general overview of various issues of Arkansas law which affect commercial lending relationships. Neither Arkansas law governing consumer lending transactions nor issues of federal law are addressed in this survey. Because of the breadth of the topic, we cannot in this limited survey deal comprehensively with every issue that may arise in the context of a commercial lending transaction. Therefore, lenders should not rely solely on this survey for answers to questions involving the application of Arkansas law to a specific set of facts.”

Note: The above is an excerpt from the American Bar Association’s Commercial Lending Law: A State-by-State Guide. ©2009. Click the link below to read the actual publication.

Understanding The 2007 Revisions To The Arkansas Quiet Title Statutes: What Every Bank Should Know

Spring 2008

by J. Cliff McKinney II |

“Banks frequently face the problem of borrowers who want to purchase (or pledge as collateral) real property that has title flaws. The title flaws can be as minor as a fence-line dispute to as severe as multiple parties claiming title to the same property. In these cases, it is sometimes necessary to file a quiet title suit. A quiet title suit is a special type of lawsuit that asks a court to determine the rights of parties to real estate.”

Note: The above is an excerpt from the article published in the Spring 2008 issue of The Arkansas Community Banker. Click the link below to read the actual publication.

Are You Trying to Imply Something?: Understanding the Various State Approaches to Implied Covenants of Continuous Operation in Commercial Leases

2009

by J. Cliff McKinney II |

“This article is being written during tough economic times. In September and October 2008, the Dow Jones Industrial Average dropped a couple thousand points. When economic times are this dire, companies may begin to rethink strategies and may look at store closings as a way to save money. For instance, Circuit City considered closing at least 150 stores in an unsuccessful effort to avoid bankruptcy. Many other retailers have either done the same or considered it. The same thing, however, can happen when the economy is good. Businesses may decide to abandon an existing store and relocate to a better location to follow shoppers or community trends. Businesses may also decide to leave a site that is simply unprofitable for whatever reason.”

Note: The above is an excerpt from the article in The University of Arkansas at Little Rock Law Review. Click the link below to read the actual publication.

Remote Deposit Capture – Risks and Solutions

by Daniel D. Boland |

“When the Check 21 Act, went into effect in October, 2004, one of its stated purposes was ‘to foster innovation in the check collection system.’ One emerging innovation made possible by the Act is ‘remote deposit capture,’ the process by which a bank customer can scan checks and deposit them electronically, without physically bringing the checks to a bank office or ATM.”

Note: The above is an excerpt from the article. Click the link below to read the actual publication.

An Overview of Arkansas Tax Increment Financing District Law

by Jeb H. Joyce |

“Tax increment financing districts, otherwise known as ‘redevelopment’ or ‘TIF’ districts, are used in many states as an economic development tool. While fairly new in Arkansas, TIF districts have enjoyed an eventful existence. This article discusses the brief history of TIF districts, the fundamental structure of TIF law, and recent changes to TIF law enacted in the 2005 Arkansas General Assembly.”

Note: The above is an excerpt from the article. Click the link below to read the actual publication.

Environmental Law for The Arkansas Lawyer

by William A. (Al) Eckert III |

“The practicing lawyer in Arkansas through his experience gains some general knowledge about almost all areas of the practice of law and with time develops an expertise in certain areas of law to serve a specific need for his clients. The practice of environmental law has its own characteristics and requires not only an understanding of environmental laws and regulations but also an understanding of a unique administrative law system and its procedures. Arkansas attorneys unfamiliar with environmental practice may not be aware that the Administrative Procedures Act does not apply to administrative procedures before the Arkansas Pollution Control and Ecology Commission or that this commission and the Arkansas Department of Environmental Quality are separate regulatory bodies with separate functions and roles in the regulation of environmental law.”

Note: The above is an excerpt from the article. Click the link below to read the actual publication.

Factoring the Ambiguity: A Futile Attempt to Understand the Ambiguous Nature of the Integration Doctrine’s Five Factor Test

2003

by J. Cliff McKinney II |

“In 1961, the Securities and Exchange Commission (SEC) introduced five factors, launching more than forty years of ambiguity, confusion, and contradiction. The SEC developed the integration doctrine’s five factor test to assist issuers and judges determine whether supposedly separate offers are really part of the same integrated transaction. However, the SEC failed to provide any meaningful guidance to aid in the interpretation or application of these factors. As a result, courts have reached a wide-range of contradictory opinions, and issuers have little solid guidance to predict whether the five factor test will integrate offers.”

Note: The above is an excerpt from the article in the Security Regulation Law Journal ©2003. Click the link below to read the actual publication.

Frozen Embryos and Gamete Providers’ Rights: A Suggested Model for Embryo Disposition

Spring 2005

by Joseph R. Falasco |

“Procreational autonomy is one’s ability to choose when to have a child. Because advances in human reproduction technology allow one to create embryos with donated sperm and egg and freeze them for future use, it is important to analyze the resulting legal implications. This Article proposes a complete disposition model in cases where the egg and sperm donors disagree about the embryo’s ultimate fate. While embryos should be accorded a level of respect as a potential life, referring to an embryo’s legal status as ‘chattel’ is useful because it gives an embryo its deserved respect while bringing clarity to the law. This Article distills the policies alluded to in the scant case law dealing with the disposition of frozen embryos and argues that the right to avoid procreation is the stronger interest when attempting to resolve an embryo disposition dispute.”

Note: The above is an excerpt from the in the American Bar Association’s Jurimetrics Journal ©2005. Click the link below to read the actual publication.

How Three Simple Lessons Can Save a Bank a Half-Million Bucks – Or, In Re Southwestern Glass Co., Inc.: The Effect of Garnishment On An Automatic Line of Credit

by J. Cliff McKinney II |

“In June 2003, the Eighth Circuit Court of Appeals handed down its ruling in the case of In re Southwestern Glass Co., Inc. This case began with a $517,000 judgment against one of Bank of Arkansas’ customers and ended in a $583,628.52 ruling against the bank. This case provides a powerful warning to banks and important lessons on how to better respond to garnishments and structure automatic draw lines of credit.”

Note: The above is an excerpt from the article. Click the link below to read the actual publication.

Law Day: Fifty Years of Celebrating the Rule of Law

by J. Cliff McKinney II |

“In 1776, Thomas Jefferson penned the now famous words that became the philosophical foundation of our nation: We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. The Founders fostered this idea by forging our system of governance around the concept of the Rule of Law. The Rule of Law is the principal that the government must exercise power only in accordance with lawfully enacted and fully disclosed laws that apply equally to all citizens, regardless of rank, prestige or power. The Rule of Law defends against the arbitrary enforcement of laws characteristic of totalitarian governments like that from which the Founders declared our nation’s independence.”

Note: The above is an excerpt from the article. Click the link below to read the actual publication.

Real Estate Practice Tips

by J. Cliff McKinney II |

“Unfortunately, too many lawyers cede the responsibility of drafting deeds to non-lawyers, such as secretaries, paralegals or title agents, who use form deeds. This has two potentially fatal flaws: 1. the deeds are often wrong; and 2. this leads to lawyer complacency. Lawyers should not rely on canned deeds prepared by non-lawyers. Instead, lawyers should draft deeds with extreme caution. Following are four particularly important points to consider, all based on mistakes I’ve seen in non-lawyer prepared deeds…”

Note: The above is an excerpt from the article. Click the link below to read the actual publication.

Sizing Up a Multi-Party Tortfeasor Suit in Arkansas: A Tale of Two Laws–How Fault Is, And Should Be, Distributed

Winter 2004

by Joseph R. Falasco |

“In an era where lawyers, courts, and politicians have attempted to steer tort liability damage allocation in a more predictable direction, both the Arkansas Supreme Court and the General Assembly have recently turned multi-party tort law into a morass. The supreme court’s precedent drastically changed Arkansas’s traditional approach to contribution among tortfeasors, and the General Assembly’s reaction through the Civil Justice Reform Act equally nullified prior law. [FN1] For claims accruing prior to March 25, 2003, a settlement and release by plaintiffs can cost more than the traditional pro-rata share of the joint tortfeasor’s responsibility; a settlement can completely absolve other possible defendants of liability. [FN2] For claims accruing after March 24, 2003, a plaintiff’s ability to recover through trial has been severely tempered. The Arkansas Supreme Court has veered from its traditional approach of fault attribution in joint tortfeasor suits. The court erred in its interpretation of the law, and a more appropriate reading will be introduced along with an analysis of how attorneys can approach the multi-party tortfeasor suits in Arkansas for acts accruing prior to March 25, 2003. Moreover, the General Assembly created a unique framework for multi-party tortfeasor suits, and an analysis of the new law will follow.”

Note: The above is an excerpt from the in the University of Arkansas at Little Rock Law Review. Click the link below to read the actual publication.

Soldiers’ and Sailors’ Civil Relief Act – What Every Bank Should Know

by J. Cliff McKinney II |

“In 1940, on the verge of United States involvement in World War II, Congress passed the Soldiers’ and Sailors’ Civil Relief Act (the “Act”). Although Congress has amended the Act, its principal purpose remains the same today. The purpose of the Act is to help service personnel devote their full attention to their military role by minimizing the distraction of financial or other legal burdens. The Act protects members of the military from the enforcement of certain legal obligations incurred prior to active duty which the serviceman is unable to meet due either to his absence from home or from the financial hardship caused by lower military pay.”

Note: The above is an excerpt from the article. Click the link below to read the actual publication.

Standard or Open? A Brief Primer on Insurance Designations

by J. Cliff McKinney II |

“All banks routinely require lenders to insure collateral for the benefit of the bank. However, bankers often do not know the difference between insurance endorsements and designations on policies obtained by borrowers. This article will briefly examine several of the more common types of insurance endorsements and designations and make suggestions regarding the type of language bankers should require in policies obtained by borrowers.”

Note: The above is an excerpt from the article. Click the link below to read the actual publication.

What Financial Institutions Should Know Before Answering That Subpoena

by Timothy W. Grooms |

“This article encompasses customers’ privacy rights and a financial institution’s obligation to answer a subpoena and when it is necessary and safe to do so. There are three acts of importance with this issue. First, is the Gramm-Leach-Bliley Act that provides financial customers with the right to privacy regarding nonpublic personal information held at a financial institution. Second, is the Right to Financial Privacy Act which provides financial customers with the right to be informed by the government before it obtains nonpublic information from the financial institution. Third, is the USA PATRIOT Act (“the Patriot Act”) which was enacted after the attacks of September 11, 2001, to strengthen anti-terrorism and the Annunzio-Wylie Anti-Money Laundering Act. The Patriot Act allows the government to obtain personal information about a financial institution’s customers without the customer knowing or having any right to be informed that a suspicious activity report was made or requested.”

Note: The above is an excerpt from the article. Click the link below to read the actual publication.

Who’s Getting Used in Arkansas: An Analysis of Usury, Check Cashing, and the Arkansas Check-Cashers Act

2002

by Joseph R. Falasco |

“Consider the following hypothetical. Ms. Luebbers needs immediate cash for food, and her checking account at Arkansas Bank does not contain the necessary balance. Therefore, she goes to Check Cashers, Inc. and issues a personal check for $400 payable to its order. Luebbers is the drawer of the check, Check Cashers, Inc. is the payee, and Arkansas Bank is the drawee. By written contract executed between the parties, Check Cashers, Inc. agrees not to present or deposit the check for fourteen days. Ms. Luebbers is given the right to repurchase her check for face value until the fourteen-day period expires. In consideration for the check, Check Cashers, Inc. gives Ms. Luebbers $350 (in effect charging her $50). The $50 charge represents two separate fees: 1) 10% of the face value of the check (that is, $40), plus 2) a $10 service fee for holding the check for fourteen days. If Luebbers does not repurchase the check, Check Cashers, Inc. can either deposit the check in its own depositary bank or present it to the drawee bank for payment, thus completing the deferred presentment check-cashing transaction. This simple hypothetical has presented controversial issues of legislation relating to usury in Arkansas.”

Note: The above is an excerpt from the article in the University of Arkansas Law Review. Click the link below to read the actual publication.