‘Patient Safety Near Miss’ Justifies Termination Without Age or Disability Discrimination Liability

After a university dismissed a member of its medical residency program, she sued for wrongful termination and alleged she had been a victim of age discrimination under the Age Discrimination in Employment Act (ADEA) and the Nebraska Fair Employment Practices Act (NFEPA) as well as disability discrimination and retaliation under both under the Americans with Disabilities Act (ADA) and the NFEPA. The U.S. 8th Circuit Court of Appeals (which covers Nebraska employers) recently upheld the dismissal of her claims without a trial, however, affirming a U.S. District Court for the District of Nebraska ruling.

Facts

Dr. Mary E. Canning, age 57, became an internal medicine resident at Creighton University in July 2015. During the first year of residency, she scored in the lowest 15 percent in the country on an in-service examination. Several doctors expressed concerns about her basic skills and level of competence, including memory issues.

After reviewing each resident's progress, a committee determined Canning hadn’t evolved in several areas, making it necessary for her to repeat the first year of residency. The panel let her know she was being placed on a leave of absence with pay until a fitness-for-duty evaluation could be conducted proving she was safe for patient care. She also was told her residency contract wouldn’t be renewed regardless of the evaluation’s results.

Canning retained counsel who sent the committee members a letter outlining their alleged acts of unlawful discrimination and objecting to her participation in the fitness-for-duty evaluation. Creighton's counsel in turn offered a firm resolve that she could repeat the first year of residency so long as she agreed to the evaluation and was cleared for duty.

A neuropsychologist evaluated Canning and found her to be in good mental health. The fitness-for-duty evaluation’s results also gave no indications of medical or psychiatric conditions that would preclude her from performing her duties. Therefore, she was permitted to repeat the residency intern year.

Canning continued to struggle academically, showing an inability to complete assessments or improve to the level of what would be expected from a first-year resident. After taking the in-service exam for the second time and scoring in the lowest seven percent in the country, she was placed on probation.

While on probation, Canning made an error that could have affected a patient’s safety. She discharged a patient admitted for a pulmonary embolism without providing a prescription for an anticoagulant. Her supervisors had previously reviewed the discharge plan with her and instructed her to prescribe the anticoagulant.

Canning admitted the error was “extremely serious.” The committee let her know she had been dismissed from the residency program, pointing to the “significant patient safety near miss” as its reason.

Resident’s claims and lawsuit

After Canning sued for age and disability discrimination and retaliation, Creighton offered nondiscriminatory reasons for terminating her from the residency program by thoroughly documenting her:

·         Lack of medical knowledge;

·         Substandard clinical skills; and

·         Inability to perform a first-year internal medicine resident's duties in a timely fashion.

The documentation showed Canning’s performance in the residency program lacked progression and was at the minimum standards expected of a first-year resident. Creighton argued it “had a right—if not an obligation—to respond to an act or omission affecting patient safety with termination of the responsible individual.”

Creighton asked for summary judgment (dismissal without a trial), and the district court agreed, concluding there wasn’t enough evidence for a jury ever to rule in Canning’s favor. She appealed.

On appeal, Canning argued the district court erred when it concluded no rational fact-finder ever could conclude her termination was motivated by age, but the 8th Circuit affirmed the ruling. It pointed out Creighton produced a legitimate, nondiscriminatory reason for the termination by explaining she had made an “egregious” error affecting patient safety in spite of “supervisor and attending efforts.”

Thus, Creighton satisfied its burden. To rebut the reason, Canning needed to show it was pretextual (or a cover-up for illegal discrimination). But, the 8th Circuit agreed with the district court that her proof had fallen short.

Bottom line

Sensitivity to an employee’s potential or actual disabilities is a good practice and required by the law in terms of considering accommodations. Often, older employees’ age may lead to the question of disabilities. But safety concerns, particularly in the medical arena, will often be paramount and provide justification for dealing with an employee’s errors that threaten the safety of a patient (or coworker, client, customer, or the public).

Bonnie M. Boryca is an attorney with Erickson│Sederstrom, P.C., in Omaha, Nebraska. You can reach her at 402-397-2200 or boryca@eslaw.com.

Anticipated Changes for Landlords & Tenants Due to Covid-19

Considering the current state of affairs and the imminent expiration of Nebraska’s Temporary Residential Eviction Relief Executive Order, it is important for landlords and tenants to become informed of their duties and the potential for additional exposure to new claims on the horizon arising from circumstances surrounding COVID-19. This article is not meant to be an exhaustive discussion in that regard. Rather, I wish to provide an illustrative list of some of those duties and issues surrounding them which could be affected by the anticipated post-pandemic changes to the commercial real estate market.  

It is well founded in Nebraska law that landlords have a duty to mitigate damages following an abandonment, or any other breach of the lease which leads to a vacant unit in order to maximize their recovery of damages. See Hilliard v. Robertson, 253 Neb. 232, 570 N.W.2d 180 (1997). The satisfaction or not of this duty is fact dependent, but proof of the affirmative defense for breaching tenants does not currently require expert evidence, and even in cases where the landlord has erected marketing signage to relet the premises, Nebraska courts have held that such was insufficient to meet this common law duty. Id. In light of the expected shifts in the commercial real estate market due to the growth of implementing work-from-home strategies, and the eventual corrections likely to follow the sunset of governmental lending and grant programs, this duty and the issues tangential to it should be expected to be litigated frequently. Both landlords and tenants should pay close attention to that litigation as there are likely to be arguments which could alter the proof requirements as well as the duty itself in the coming months to account for a more volatile and shifting market space. 

Nebraska courts have also long held that commercial tenants have a duty to protect lawful entrants to the premises from foreseeable dangers in arrangement and use of his premises. Hansen v. First Westside Bank, 182 Neb. 664, 156 N.W.2d 790. Provided further, in some circumstances, liability for a patron’s injuries can even be extended to commercial landlords. See Reicheneker v. Seward, 203 Neb. 68, 277 N.W.2d 539 (1979). In particular, if a lease is not artfully crafted, or if a landlord fails to address issues that he is put on notice of by his tenant and which create an unreasonable risk of harm to patrons, then liability can be extended to the landlord as well as his tenant for injuries which occurred as a result of those issues. Id. But what does this mean regarding the potential for exposure to tenants and landlords with regard to claims based on contracting COVID-19?   

If landlords had no duty to protect their tenants or their tenant’s patrons, then they could save time and resources by demonstrating a hands-off management approach.  Alex J. Schnepf, A Covid-19 Heavyweight Bout Tenant Safety Versus Discrimination, 35 Prob. & Prop., 24, 25 (2021).  However, the absence of a duty to keep tenants safe is not a reality in many states because of the implied warranty of habitability.  Id.   

In Nebraska, the implied warranty of habitability creates a duty for landlords to maintain habitable conditions on their rental properties by ensuring the premises be safe for the health of the tenants.  For example, landlords must “do whatever is necessary, after written or actual notice, to put and keep the premises in a fit and habitable condition.”  Neb. Rev. Stat. Ann. § 76-1419 (West 2001).  The implied warranty of habitability and limited circumstances for the imputation of premises liability discussed above could theoretically create exposure for landlords who fail to reduce the spread of COVID-19 throughout their rental properties.  See Schnepf, Safety Versus Discrimination, supra; see also Reicheneker, Supra. 

It is foreseeable the assurances of the implied warranty of habitability and limited circumstances of imputation of premises liability may be extended to encompass protecting tenants and their patrons from spreading COVID-19 because the virus presents a direct threat to public health and safety.  It follows that an outbreak of the virus on rental properties could render a property uninhabitable and poses the real threat of substantial lawsuits amongst and against tenants and landlords alike.  What steps should landlords take to ensure the safety of their tenants and the habitability of their rental properties?   

Should landlords of commercial rental properties require their employees to receive vaccinations to mitigate the spread of COVID-19?  The Equal Employment Opportunity Commission states that employers may implicate vaccination policies as a qualification for employment.  The Occupational Safety and Health Administration suggests employers have the vaccine available to eligible employees, either at no or low cost, and supplemental information about the vaccines.  See ABA, COVID-19 Vaccines Prompt Different Questions for Employers and Employees (Feb. 20, 2021), available at https://www.americanbar.org/news/abanews/aba-news-archives/2021/02/covid-19-vaccines-prompt-different-questions-for-employers-and-e/. 

Who is exempt from an employee mandated vaccine?  Employers must engage in a process that considers reasonable accommodations for individuals with disability, those that are susceptible to the vaccine, or someone who has a religious objection.  If an employer is unable to make a reasonable accommodation to an employee, they should consider granting leave to the employee.  In doing so, employers should consider the following: Can the employee be granted a period of leave until the threat of COVID ceases?  Is the employee eligible for leave under the Family Medical Leave Act?  Does the employer have generally applicable workplace leave policies that could be used to allow the employee to take leave until the situation in the country changes?  Id.   

The impact of COVID-19 has created a less than favorable housing situation for tenants and landlords alike.  Nebraska’s Temporary Residential Eviction Relief Executive Order, acting as a moratorium on evictions, is set to expire on May 31, 2021.  Further, the Center for Disease Control’s eviction moratorium shall expire after June 30, 2021.  When these moratoriums lapse, an influx of evictions is likely because of COVID-19’s impact on employment, health, and the overall economy.  See Claire Corea, Tenants’ Right: The Law on Paper Versus the Law in Practice, 47 Rutgers L. Rec. 226, 254 (2020). Likewise, as the funds from governmental programs which have subsidized the market begin to run out, and as more companies continue to implement work-from-home strategies, it could reasonably be expected that the availability of replacement commercial tenants to fill those spaces would be less abundant than in recent years. Therefore, it is important for landlords and tenants alike to be aware of not only the market shifts, but also the changes in their duties and potential exposure to liability stemming from the resulting litigation.

Nebraska: A Second Amendment Sanctuary State

The Second Amendment of the Untied State’s Constitution reads, “A well regulated Militia, being necessary to the security of a free State, the right of the people to bear Arms, shall not be infringed.” According to the Pew Research Center, over 72 million Americans own a gun and approximately three-quarters of Americans consider their right to own a gun essential to their freedom.

Many gun owning Americans were concerned with President Biden’s April 07, 2021 announcement that his administration would not “wait for Congress” to draft new legislation regarding gun ownership. The Biden administration advised that it will order the Department of Justice to issue new proposed rules to stop the proliferation of guns assembled from kits, provide a clear definition for stabilizing devices used in target shooting pistols, and publish model “red flag” legislation for states.

In the wake of the presidential announcement, Nebraska Governor Pete Ricketts, issued a signed proclamation designating Nebraska as a “Second Amendment Sanctuary State.” That proclamation read:

WHEREAS, The Second Amendment to the U.S. Constitution Protects the right to keep and bear arms; and

WHEREAS, Article 1-1 of the Nebraska State Constitution guarantees “the right to keep and bear arms for security or defense of self, family, home, and others, and for lawful common defense, hunting, recreational use, and all other lawful purposes” and states that this right “shall not be denied or infringed by the state or any subdivision thereof;” and

WHEREAS, The State of Nebraska has protected the right of Nebraskans to open carry and conceal carry; and

WHEREAS, Nebraska will stand up against federal overreach and attempts to regulate gun ownership and use in the Good Life; and

WHEREAS, The White House and U.S. Congress have announced their intention to pursue measures that would infringe on the right to keep and bear arms; and

WHEREAS, A growing number of counties in Nebraska have declared themselves as “Second Amendment Sanctuary” counties; and

WHEREAS, Nebraska will continue to take any necessary step to defend our right to keep and bear arms.

NOW, THEREFORE, I Pete Ricketts, Governor of the State of Nebraska DO HERBY PROCLAIM the State of Nebraska is a

SECOND AMENDMENT SANCTUARY STATE

and I do hereby urge all citizens to take due note of the designation.

IN WITNESS WHEREOF, I have hereunto set my hand and cause the Great Seal of the State of Nebraska to be affixed this Thirteenth day of April, in the year of our Lord Two Thousand Twenty-One.

With so much attention on firearms and the importance of the Second Amendment to the United States Constitution, responsible gun owners and prospective gun owners need to be informed regarding their rights and the laws surrounding gun ownership and possession. There are currently an array of confusing and rapidly changing legal authorities affecting gun owners. For example, there are many hurdles that a hopeful gun owner must clear before becoming an actual gun owner such as background checks. Gun owners must also be familiar with the many laws setting forth restrictions on the ownership of both handguns and long guns, the laws related to when and how guns can be carried concealed, when and how guns can be carried in the open, and where guns are and are not permitted. Not being familiar with these laws can have severe consequences for gun owners. Those consequences can include criminal repercussions and loss of a gun owner’s right to own or possess a firearm in the future. Some prospective gun owners may have already lost their rights to own a gun and wish to regain that right through the proper channels but do not know how. And, finally, current gun owners may wish to protect the ownership of their firearms with devices known as “gun trusts” but do not know where to get started.

Many of these answers can be found in Nebraska Revised Statute Chapters 69 and Chapter 28. Those interested in purchasing a firearm, or having questions about firearm ownership or possession should not hesitate to review the legislative materials in these statutes or contact an attorney familiar with the subject. Erickson | Sederstrom has several attorneys with significant expertise regarding this area of the law.

Congratulations to Erickson | Sederstrom Partner Matt Quandt on his recent success before the Nebraska Court of Appeals!

Matt represented the defendants (a law enforcement officer, insurance carrier, and third party administrator) regarding an injury accident that occurred in South Sioux City, Nebraska in 2016. Matt filed two Motions to Dismiss in the District Court of Dakota County. First, interpreting and arguing provisions of Nebraska’s Political Subdivisions Tort Claims Act, he argued that the applicable statutes of limitations barred the claims against the Officer. Second, he argued that direct claims against insurers, based on the negligence of their insureds, are not allowed in Nebraska. Last summer, the district court heard oral arguments and granted both motions, dismissing all claims against all three defendants. Plaintiff appealed, and both parties filed briefs. Today, the Nebraska Court of Appeals published a six-page opinion and affirmed the district court’s dismissals.

United States Supreme Court Holds that "Mere Retention" of Debtor Property Does Not Violate the Automatic Stay

The United States Supreme Court recently held, in City of Chicago v. Fulton, that a creditor's "mere retention" of a debtor's property does not violate the bankruptcy automatic stay.  In Fulton, the Court found that the Bankruptcy Code permits a creditor to maintain the status quo when a debtor files for bankruptcy.  In other words, the creditor is not automatically compelled to return property of the debtor that the creditor recovered prior to the bankruptcy filing, but the creditor also cannot dispose of the property while the bankruptcy case is pending absent permission from the bankruptcy court. 

                As most bankruptcy creditors are aware, the Bankruptcy Code contains an automatic stay within § 362(a)(3).  The automatic stay acts to automatically protect the debtor and his or her property from most collection or enforcement acts by creditors upon filing of a bankruptcy petition.  Many debtors' counsel have also taken the position that the automatic stay requires creditors to return property to the debtor if the property had been repossessed or otherwise recovered by the creditor shortly before the bankruptcy filing.  Bankruptcy courts had inconsistently interpreted this aspect of the automatic stay.  Fulton made clear that if the debtor seeks return of the property, the correct means to pursue the return is a Motion for Turnover under §542 of the Bankruptcy Code, not the automatic stay statute. 

                Fulton is good news for secured creditors who fear bankruptcy filings by their defaulted customers.  If the creditor can lawfully recover collateral before a bankruptcy case is commenced, the creditor is not automatically compelled to return that collateral as soon as the bankruptcy is filed.  The debtor must take the affirmative step of filing a Motion for Turnover to compel return of the property. 

                Writing the Supreme Court’s opinion, Justice Samuel Alito noted that the language of § 362(a)(3) leads most logically to the conclusion that only affirmative acts that disturb the status quo are prohibited.  If collateral is already in the creditor’s possession when the bankruptcy case is commenced, the creditor must retain the property, but at least is not automatically required to give up possession without a separate Motion for Turnover by the debtor and opportunity for the Bankruptcy Court to decide that issue.   

                Creditors navigating bankruptcy law issues regarding how to deal with collateral or other property recovered from debtors should seek legal advice about how to proceed.  Bankruptcy law remains fraught with potential pitfalls for creditors.  Erickson|Sederstrom’s creditors’ rights attorneys provide timely advice to creditors who are seeking guidance regarding pre-bankruptcy and bankruptcy rights against debtors and debtors’ property. 

Nebraska Supreme Court Clarifies the Duties of Mental Health Professionals

The Nebraska Supreme Court recently clarified duties of mental health professionals to warn and protect third parties from their patients.  In Rodriguez v. Lasting Hope Recovery Ctr. of Cath. Health Initiatives, the court held that mental health professionals owe no duty as a matter of law to third parties for physical injuries caused by a patient who has not “actually communicated” such a threat to their mental health professionals.  The court further determined that a mental health professional’s duty to warn or protect may be met by reasonable efforts to communicate the threat to the third party and law enforcement. 

 Facts of Rodriguez

 In Rodriguez, the Omaha police placed a patient under emergency protective custody and transported him to Lasting Hope because he expressed intentions of killing his mother.  Upon arrival, the patient was assigned a treating psychiatrist.  The patient’s psychiatrist determined the patient was paranoid, homicidal, delusional, and posed a risk for harm to others outside the hospital environment.  The psychiatrist’s determination was based on the patient’s previously expressed intentions of killing his mother.  Therefore, the psychiatrist recommended for the patient five to seven days’ hospitalization for stabilization and safety, and Lasting Hope called the patient’s mother to warn her of his threats.  

 During the patient’s hospitalization, his girlfriend visited and expressed that she no longer wished to be his girlfriend.  The girlfriend was not afforded the same warning as his mother because the patient had not expressed a similar threat against his girlfriend. 

 After six days of compliance with medication and hospitalization by the patient, the psychiatrist concluded the patient was ready to be released.  Further, the patient no longer expressed an intent to harm his mother.  In fact, the patient stated to his psychiatrist that he “had a good conversation” with his mother over the telephone during his hospitalization, and he committed to “not act to harm anyone.”

 The former girlfriend’s body was discovered the following day.  Investigators concluded that the patient strangled his former girlfriend.  The decedent’s parents brought action against Lasting Hope claiming that it was responsible for wrongful death. 

 Duty to Warn & Protect

 The Nebraska Mental Health Practice Act and the Nebraska Psychology Practice Act both contain limits on practitioners’ duties regarding treating patients with mental illness.  These limits were enacted in response to the California Supreme Court's decision in Tarasoff v. Regents of University of California.  There, the court held that a mental health professional “who knows or should know that a patient poses a serious danger of violence to a third party owes a duty to exercise reasonable care to warn and protect that third party.”   

 In the case of Munstermann v. Alegent Health, the Nebraska Supreme Court determined that:

 [A] psychiatrist is liable for failing to warn of and protect from a patient’s threatened violent behavior, or failing to predict and warn of and protect from a patient’s violent behavior, when the patient has communicated to the psychiatrist a serious threat of physical violence against himself, herself, or a reasonably identifiable victim or victims.  The duty to warn of or to take reasonable precautions to provide protection from violent behavior shall arise only under those limited circumstances . . . and shall be discharged by the psychiatrist if reasonable efforts are made to communicate the threat to the victim or victims and to a law enforcement agency.

 Like the Munstermann rule, the Mental Health Practice Act and the Psychology Practice Act explicitly require that for a duty to warn to arise, a serious threat of physical violence against a reasonably identifiable victim must be “actually communicated” to a mental health professional.  “Actual communication” requires the patient to verbally express or convey to the psychiatrist their prediction to commit physical violence either against themself or a reasonably identifiable victim.

 The only reasonably identifiable victim the patient “actually communicated” an intent to physically harm was his own mother.  Based on these verbal expressions of threats, the psychiatrist ordered Lasting Hope staff to call the patient’s mother to warn her.  By the time the psychiatrist had ordered the patient’s discharge, she knew that Omaha police were aware of the patient’s threats of physical violence against his mother because Lasting Hope staff had discussed the threats with law enforcement officers, who also warned the patient’s mother.  The patient never actually communicated to his psychiatrist that he intended to harm his former girlfriend; therefore, the psychiatrist had no duty to warn her.

 Under the Munstermann rule, psychiatrists owe no duty as a matter of law to third parties for physical injuries caused by a patient who have not “actually communicated” a threat of physical violence.  Once an “actual communication” has taken place, any duty to warn or protect on the part of the psychiatrist can be discharged by reasonable efforts to communicate the threat to the victim and a law enforcement agency.  Here, the patient’s lack of communicated threats against his former girlfriend meant that no duty to warn or protect was triggered for the psychiatrist.  The former girlfriend’s death was not legally attributable to a breach of duty by the psychiatrist or Lasting Hope because the patient never “actually communicated” that he intended to harm his former girlfriend. 

 Future Developments

 When faced with a patient who “actually communicates” a serious threat of physical violence against a reasonably identifiable individual, mental health professionals have a duty to both warn and protect that individual.  However, these duties shall be discharged by the psychiatrist if reasonable efforts are made to communicate the threat to both the individual and to a law enforcement agency.

 Erickson | Sederstrom has provided counsel to mental health and other practitioners for decades.  Please consult with one of our attorneys if you have questions regarding impact of the Rodriguez decision and how mental health practitioners can minimize their legal risks.

No Age Bias in Demoting 51-Year-Old Employee for Lack of Accounting Experience

Former employees alleging age discrimination have the burden to prove the employment decision in question hinged on their age. In a recent case arising in Nebraska, the U.S. 8th Circuit Court of Appeals (which has jurisdiction over employment claims arising in the state) found the federal trial court in Omaha had properly dismissed the age claims raised by a 51-year-old woman. While restructuring its financial department, the employer demoted the employee because she lacked accounting experience, after which she ultimately resigned.

Facts

Lana Starkey worked for Amber Pharmacy from September 2001 until August 2015. In 2014, her position changed from enrollment director to financial services director. The change coincided with the acquisition of Amber by Hy-Vee, a supermarket chain.

After the acquisition, Amber’s accounting and financial department was found to be “in complete disarray,” a situation exacerbated when the pharmacy implemented a new operating system in February 2015. The company retained a “third-party implementation consultant” for the new operating system, who reported the biggest obstacle to implementing the system was because the financial team was “understaffed” and “potentially not the right skill level” and lacked “management in the financial area.” The consultant recommended restructuring the team.

At about the same time the consultant delivered the report, Starkey reported to others that Amber was being overpaid by Texas Medicaid, incorrect billing codes were being used for the payments, and some employees were engaged in e-mail practices that raised concerns about violating the Health Insurance Portability and Accountability Act (HIPAA).

The company considered various plans for restructuring the financial department, ultimately determining Starkey’s position would be eliminated. According to the company, the decision was based on accounting expertise, which Starkey lacked, and her struggles in adapting to the new operating system.

Starkey was told her job was being eliminated and was offered a choice of two new positions, both of which were demotions with a pay cut. In June 2015, she reluctantly accepted one of the positions but questioned whether the demotion was caused by her report of the Medicaid and HIPAA issues.

In August 2015, Starkey resigned, after which she didn’t receive a timely COBRA notice about her right to elect temporary continuation of health insurance coverage.

Legal Action

Starkey filed suit in Nebraska state court, claiming her resignation was caused by discrimination, retaliation, the demotion, and a hostile work environment, asserting various federal and state claims against Amber, Hy-Vee, and Mike Agostino, Amber’s president. The defending parties moved the case to federal court and promptly asked for summary judgment (dismissal without a trial), asserting no material facts were in dispute and that they were entitled to judgment as a matter of law.

The federal court granted summary judgment on each of Starkey’s federal charges, including her Age Discrimination in Employment Act (ADEA) claims. It also dismissed all state claims except for a particular portion of her claim under the Nebraska Fair Employment Practices Act (NFEPA). It remanded the retaliation claim based on her reporting of the Medicaid discrepancies to state court.

The federal court also found Hy-Vee and Agostino weren’t proper parties and dismissed all claims against them.

8th Circuit’s Decision

Starkey appealed the trial court’s decision on all claims except for one filed under Title VII of the Civil Rights Act of 1964, which she abandoned on appeal. Amber appealed the district court’s partial denial of summary judgment on the NFEPA claim.

Age bias claims tossed. The 8th Circuit upheld the trial court’s summary dismissal of Starkey’s age discrimination claims. After noting there was no direct evidence of age bias and assuming she could establish an initial prima facie (or minimally sufficient) case, it found Amber articulated a legitimate, nondiscriminatory reason for eliminating her position in the newly restructured financial department and demoting her, specifically the need to put a stronger emphasis on accounting and more effectively implement the new operating system.

In addition to the fact the company needed to prioritize accounting skills and experience to operate the new system, Starkey had candidly admitted “(a)ccounting is not for [her].” The court noted it would not second-guess the employer’s business judgment, particularly when it was based, at least in part, on the third-party consultant’s recommendations.

Therefore, to prevail on the age claim, Starkey would’ve had to show the stated reasons were a mere pretext (or cover-up) for age discrimination, i.e., “but for” her age, she would not have been demoted. The court quickly rejected her assertion that since other employees over the age of 40 were terminated and younger employees absorbed her job duties, she was a victim of age bias. The court found all the accused parties were entitled to summary judgment on her age-based claims.

COBRA claim fails. The 8th Circuit likewise upheld the dismissal of Starkey’s COBRA claim since she hadn’t pointed to any facts showing an interference with her attainment of benefits or that she was harmed in any way by any lack of notice. Starkey admitted she (1) knew about her COBRA rights, (2) wouldn’t have elected the coverage anyway, and (3) had enrolled in her husband’s less expensive employer plan in which she had no out-of-pocket medical expenses.

Hostile environment, emotional distress charges also thrown out. Finally, the 8th Circuit found the trial court had properly dismissed Starkey’s claims for hostile environment and intentional infliction of emotional distress based on the demotion. She hadn’t alleged sufficient facts to establish outrageous conduct and severe emotional distress, as Nebraska law requires.

Retaliation claims survive. The 8th Circuit found all of Starkey’s retaliation claims under the NFEPA should be remanded (or sent back) to state district court to analyze and determine whether her activity was “protected conduct” and whether it would apply the “manager rule” in the context of a retaliation claim under the state statute. The manager rule has become an emerging trend in many courts. It provides that a management employee who, in the course of her normal job performance, disagrees with or opposes her employer’s actions doesn’t engage in protected activity. Lana L. Starkey v. Amber Enterprises, Inc., et al., Case No. 19-3688 (8th Circuit, 2021).

Lesson for Employers

Starkey’s case underscores the importance of developing a well-reasoned plan for any company or department restructuring that will involve the elimination of certain positions. You should develop and apply clear criteria for executing the restructuring.

Mark Schorr is the editor of the Nebraska Employment Law Letter and a frequent contributing author to HR Daily Advisor today, which goes out to more than 200K employers, HR pros, GC, etc., across the country

Erickson|Sederstrom Elects Matt Quandt and Shay Garvin as Partners; Connor Orr Joins the Firm

ERICKSON | SEDERSTROM is pleased to announce that MATTHEW D. QUANDT and SHAY GARVIN have been elected Partners and CONNOR W. ORR has joined the firm as an Associate.

Matt has been with the firm for two years, before which he litigated at a reputable Kansas City firm. His practice focuses on civil litigation, including catastrophic injury and wrongful death, trucking and transportation, construction defect, product liability, and professional liability. He is also a member of TIDA (the Trucking Industry Defense Association). He received his J.D. from the Washburn University School of Law (cum laude) and his B.S. from Baker University (cum laude). He is admitted to practice law in the state and federal courts of Nebraska, Kansas, and Missouri.

Shay has been with the firm since 2019. Prior to joining Erickson | Sederstrom, he practiced for several years with a nationally recognized firm in Lincoln. Shay focuses his practice on transactional areas, including mergers and acquisitions, business formation, securities offerings, debt and equity financing, and general counsel. Shay also has extensive experience in the transportation industry and is active in the Nebraska logistics community. He received his J.D. and M.B.A. in 2015 from the University of Nebraska and his B.A./B.S. from the University of Arizona. He is admitted to practice law in Nebraska.

Connor has joined the firm representing both individual and commercial clients for litigation and general counsel matters. Connor graduated from Creighton University Magna Cum Laude in 2014 with a Bachelor’s degree in Economics, then went on to obtain his Juris Doctorate from the Creighton University School of Law in 2017. He is a member of both the Nebraska and Iowa State bars, and has extensive litigation experience representing clients in both state and federal courts for matters including commercial contract disputes, insurance defense, personal injury, construction defects, product liability, wrongful death, trucking and transportation, and disputes concerning both commercial and residential real estate. He also has experience providing estate and business planning services, providing advice to help guide families and small, local business owners through both prosperous and difficult times.

Common Misconceptions About Wills and Probate

Traditionally, most people think of a will as the vehicle that transfers all of a person’s property upon their death; however, wills do not always pass ownership of everything. Trusts, transfer on death deeds, beneficiary designations, and joint accounts with rights of survivorship are also tools that transfer ownership of property upon death. For example, most retirement plans pass to a named beneficiary. Many bank accounts pass to a joint tenant with rights of survivorship or to a payable on death beneficiary. Nebraska has also adopted another method of transferring ownership of real estate upon the death of the owner through the use of a transfer on death deed. All of the aforementioned examples pass outside the terms of a will.

Another common misconception is how wills work and when they go into effect. Wills do not go into effect until the will has been admitted to probate. Probate is a court-supervised legal process that occurs in the county court where the decedent resided and is typically required to administer a person’s estate after their death. After the will is validated by the court, the court must also appoint a personal representative (or executor) to oversee and manage all estate assets. Therefore, just having a will and naming someone as your personal representative does not automatically deem the will to be valid and allow the person named in the document to jump right in and start transferring property.

It is also important when meeting with your estate planning attorney that you do not limit the discussion to your will or who gets your assets upon death. Planning for a disability or incapacity during your lifetime is also a very important aspect of planning for your future.

Whether you are exploring the idea of estate planning for the first time or you have had a plan in place for years, we would welcome the opportunity to take a fresh look at your situation to ensure that every piece of your estate plan fits with your overall financial picture and goals.

This article does not create or constitute an attorney-client relationship and is not intended to convey or constitute legal advice. It is important to speak with a qualified professional regarding your specific matter prior to taking any action.

The Acquired Immunity Doctrine – Will the Nebraska Supreme Court Take the Next Step and Adopt the Entire Doctrine?

The acquired immunity doctrine is an affirmative defense that may be available to state construction contractors that are sued by a third party for alleged construction plan design defects.  Here is the scenario: The Nebraska Department of Transportation (“Department”) contracts with a road contractor to remove and replace part of a state highway.  The Department designs the construction plans and requires the contractor to follow the plans as designed.  Part of the construction plans include a traffic control plan.  The traffic control plan complies with the Manual on Uniform Traffic Control Devices (“MUTCD”).  Traffic control is subcontracted to a traffic control manager.  The traffic control subcontractor has no discretion to deviate from the traffic control plan and must set up all traffic devices at the required locations as the Department orders. The subcontractor sets up the traffic devices as the traffic control plan requires.  

Subsequently, a third party is injured in the construction zone and alleges that additional or different traffic devices should have been used on the project.  The Department retains its sovereign immunity because: 1) the Department’s choice of devices was discretionary, and a matter of engineering judgment; and, 2) under Nebraska’s State Tort Claim Act, the Department retains its sovereign immunity for “Plans for Construction of or improvement to highways.” See Neb. Rev. Stat. §§ 81-8,219 (9) & (11) (Reissue 2014). Yet, the subcontractor is sued for the traffic plans’ alleged design defects even though the Department designed the plan and is immune from liability. Can the subcontractor raise the Department’s sovereign immunity as an affirmative defense?  The answer is “yes,” and the defense is called the “acquired immunity doctrine.”  

The acquired immunity doctrine “provides that a contractor who performs its work according to the terms of its contract with a governmental agency, and under the governmental agency’s direct supervision, is not liable for damages resulting from its performance.” Lopez v. Mendez, 432 F.3d 829, 833 (8th Cir. 2005) (citing Smith v. Rogers Group, Inc., 348 Ark. 241, 72 S.W.3d 450, 455 (2002)) (emphasis added). “Thus, if damages result from the contractor’s performance of a construction contract with the state, ‘and the damages result from something inherent in the design and specifications required by the public agency, the contractor is not liable unless he is negligent or guilty of a wrongful tort.’” Lopez, 432 F.3d at 833 (quoting Guerin Contractors, Inc. v. Reaves, 270 Ark. 710, 606 S.W.2d 143, 144 (1980)). “The purpose of the doctrine is to protect an ‘innocent contractor who has completely performed the work to the government’s plans and specifications.’” Lopez, (quoting Smith, 72 S.W.3d at 456).

The Nebraska Supreme Court has not yet adopted the acquired immunity doctrine.  But the Supreme Court has adopted the immunity’s fundamental concept. That is, the Supreme Court has said “where a construction contractor follows plans and specifications supplied by the owner which later prove to be defective or insufficient, [the contractor] is not responsible to the owner for loss or damage resulting therefrom as a consequence of the defectiveness or insufficiency of such plans and specifications.” Lindsay Mfg. Co. v. Universal Sur. Co., 246 Neb. 495, 506-07, 519 N.W.2d 530, 539-40 (1994); see also Langel Chevrolet-Cadillac, Inc. v. Midwest Bridge & Constr. Co., 213 Neb. 283, 287, 329 N.W.2d 97, 100-01 (1983) (citations omitted); Central Neb. Pub. Power & Irr. Dist. v. Tobin Quarries, Inc., 157 F.2d 482, 485-86 (8th Cir. 1946) (applying Nebraska law); State v. Commercial Cas. Ins. Co., 125 Neb. 43, 50, 248 N.W. 807, 808-09 (1933).

This is the acquired immunity doctrine. Furthermore, although the Nebraska’s State Tort Claims Act excludes independent contractors from the term “state agency,” “the acquired-immunity doctrine creates an exception to this rule.” See Neb. Rev. Stat. § 81-8,210(1); see also Lopez, 432 F.3d at 833. The reason for the exception “is to protect an ‘innocent contractor who has completely performed the work to the government’s plans and specifications.’” Lopez, 432 F.3d at 833 (quoting Smith, 72 S.W.3d at 456).  In fact, other jurisdictions with tort claims acts like Nebraska’s Act and that have the same “state agency” exclusion for contractors as Nebraska’s Act, still have adopted the acquired immunity doctrine to protect innocent contractors that follow the state’s construction plans. See id. at 833-34 (discussing the acquired immunity doctrine under Arkansas law); see also McLain v. State, 563 N.W.2d 600, 605 (Iowa 1997); Fraker v. C.W. Matthews Contracting Co., Inc., 272 Ga. App. 807, 614 S.E.2d 94 (2005); Garrett Freightlines v. Bannock Paving Co., 112 Idaho 722, 731, 735 P.2d 1033, 1042 (1987).

For example, the Iowa State Tort Claims Act also excludes independent contractors from the term “state agency.” I.C.A § 669.2(5). But the Iowa Supreme Court nevertheless adopted the acquired immunity doctrine to protect its independent contractors from liability. Specifically, in McLain v. State, supra, the plaintiffs sued the State of Iowa, its general contractors, and a subcontractor working in an interstate construction zone. The plaintiffs claimed that the construction zone was unreasonably dangerous because the traffic warning signs failed to warn motorists of traffic congestion. McLain, 563 N.W.2d at 601. The district court granted the general contractor and subcontractor summary judgment under the acquired immunity doctrine and in affirming summary judgment, the Iowa Supreme Court held:

The rule is well established that a contractor for the State is not liable to a third party for damages if the contractor complies with the State’s plans and specifications and is not negligent in performing its work . . . . In other words, in those situations the contractor shares the same immunity as the State.

* * *

Here, the evidence in the record reflects that [the general contractors and subcontractor] complied with all State plans and specifications and did not perform their work in a negligent manner. Throughout the project, the State controlled all decisions regarding the placement and installation of the traffic control devices. [The subcontractor] installed the warning signs as it contracted to, and on the day of the accident, the signs were in their proper locations and in complete working order.

Id. at 605 (citations omitted).

The Iowa court also noted that monitoring the effectiveness of the signs was “part of the decision-making process of whether to install additional signs,” which was a decision retained by the State and immunized by statute. Id. The Iowa Supreme Court then held that “[b]ecause [the general contractors and the subcontractor] complied with the State’s contract specifications, we conclude as a matter of law that they may share immunity with the State . . . .” Id.

            Here, like McLain, the subcontractor in our scenario followed the traffic control plan and the traffic plan complied with the MUTCD.  Also, the third-party’s claim that the traffic control plan should have included different or additional traffic devices is a claim against the Department because the Department designed the Traffic Plan —not the subcontractor. The Department, however, is immune from liability because: 1) the traffic plan’s design was a matter of engineering judgment; and, 2) the traffic plan was part of the Project’s “Plans for Construction” for a highway improvement. Neb. Rev. Stat. §§ 81-8,219 (9) & (11). Thus, the subcontractor is cloaked in the Department’s sovereign immunity because it “complied with all State plans and specifications and did not perform their work in a negligent manner. [And] [t]hroughout the project, the Department controlled all decisions regarding the placement and installation of the traffic control devices.” McLain, 563 N.W.2d at 605.

            Now, we need the right case to be taken to the Nebraska Supreme Court.  And remember, in Nebraska you can now file an interlocutory appeal on an order denying summary judgment based on the assertion of sovereign immunity.  Neb. Rev. Stat. § 25-1902.  

Post-Loss Assignments of Benefits: An Easier Way for Contractors to Get Paid

Contractors face an endless stretch of legal and business hurdles on a daily basis. They have to deal with weather, safety, personnel, material acquisition, permits, and needy homeowners. But, getting paid on residential construction work covered by a homeowner’s insurance policy should not be one of those hurdles because there is an easier way for contractors to get paid.

When a homeowner suffers a loss covered by their insurance policy, they have the right to assign their insurance benefits to the contractor making the repairs to their home. By doing this, the homeowner authorizes the insurance company to make the contractor a co-payee for that loss.

In most states, the law permits contractors to ask homeowners to assign their post-loss benefits to the contractor for the work they bid. This allows the contractor to receive payment directly from the homeowner’s insurance company. And, most importantly, helps the contractor avoid those dreaded situations where a homeowner receives their insurance payout but refuses to pay their contractor for its work.

Contractors, however, must beware of the many pitfalls that they can fall into with these post-loss assignments of benefit agreements. Failure to follow laws designed to protect insured homeowners can lead to a contractor’s entire contract becoming voided.

For example, a post-loss assignment of benefits has to be a written agreement. That agreement must contain certain language as set forth by statute, and the contractor has to place the homeowner’s insurance on notice of the assignment within a certain number of days depending on the jurisdiction.

Contractors also have to be careful not take certain forbidden actions on behalf of the homeowner. Some states like Iowa forbid a contractor from negotiating with a homeowner’s insurance company on the homeowner’s behalf. Other states strictly forbid a residential contractor from offering rebates on their deductible as an incentive for choosing their construction company for their job. Mistakes like these can cause a court to find the residential contractor’s entire agreement is void and unenforceable.

Finally, post-loss assignment of benefits under an insurance policy must include specific language depending on the jurisdiction that the contract is contemplated. For example, in Nebraska, a contractor must include the following language in all caps and in 14 pt. font for its assignment to be proper:

YOU ARE AGREEING TO ASSIGN CERTAIN RIGHTS YOU HAVE UNDER YOUR INSURANCE POLICY. WITH AN ASSIGNMENT, THE RESIDENTIAL CONTRACTOR SHALL BE ENTITLED TO PURSUE ANY RIGHTS OR REMEDIES THAT YOU, THE INSURED HOMEOWNER, HAVE UNDER YOUR INSURANCE POLICY. PLEASE READ AND UNDERSTAND THIS DOCUMENT BEFORE SIGNING.

THE INSURER MAY ONLY PAY FOR THE COST TO REPAIR OR REPLACE DAMAGED PROPERTY CAUSED BY A COVERED PERIL, SUBJECT TO THE TERMS OF THE POLICY.

IT IS A VIOLATION OF THE INSURANCE LAWS OF NEBRASKA TO REBATE ANY PORTION OF AN INSURANCE DEDUCTIBLE AS AN INDUCEMENT TO THE INSURED TO ACCEPT A RESIDENTIAL CONTRACTOR'S PROPOSAL TO REPAIR DAMAGED PROPERTY. REBATE OF A DEDUCTIBLE INCLUDES GRANTING ANY ALLOWANCE OR OFFERING ANY DISCOUNT AGAINST THE FEES TO BE CHARGED FOR WORK TO BE PERFORMED OR PAYING THE INSURED HOMEOWNER THE DEDUCTIBLE AMOUNT SET FORTH IN THE INSURANCE POLICY.

THE INSURED HOMEOWNER IS PERSONALLY RESPONSIBLE FOR PAYMENT OF THE DEDUCTIBLE. THE INSURANCE FRAUD ACT AND NEBRASKA CRIMINAL STATUTES PROHIBIT THE INSURED HOMEOWNER FROM ACCEPTING FROM A RESIDENTIAL CONTRACTOR A REBATE OF THE DEDUCTIBLE OR OTHERWISE ACCEPTING ANY ALLOWANCE OR DISCOUNT FROM THE RESIDENTIAL CONTRACTOR TO COVER THE COST OF THE DEDUCTIBLE. VIOLATIONS MAY BE PUNISHABLE BY CIVIL OR CRIMINAL PENALTIES.

The contractor must have the homeowner sign and date below this language as well. Then, after the  post-loss assignment of benefits is executed, a residential contractor in Nebraska must provide a copy of the assignment to the homeowner’s insurance company within five business days.

By taking advantage of post-loss assignments of rights under an insurance policy, contractors can keep revenue streams open cand collections moving. And often times, these simple assignments can help a contractor avoid the headache of executing liens as well. Residential contractors, however, should remember that contracts can be tricky. Assignments like the one described above need to be properly incorporated into the contractor’s underlying contract and those contracts need to meet all necessary formalities under the law to be binding. Therefore, contractors should never hesitate to reach out to a construction lawyer who is familiar with construction contracts and litigation when they have questions about their contracts.

Solar Land Leases

Most Nebraskans and Iowans have become accustomed to seeing wind farms popping up across the prairies of the Midwest. However, fewer of us may realize that solar farms, which are large-scale, ground-mounted arrays of photovoltaic (PV) panels, are emerging as a potential renewable energy alternative to wind power.  Consequently, landowners in certain areas are being approached by developers of solar farms to discuss a potential lease of their land for the housing of a solar farm.

 The use of solar energy is on the rise in the United States and in Nebraska.  In fact, according to the Solar Energy Industries Association, solar energy production in Nebraska is expected to increase over 500% during the next five years.  The increase is due to two main factors.  One factor is the tax incentives offered by state and federal governments that help offset the cost of solar development (which incentives may be increased further under a Biden administration).  The other factor is that the cost of PV cells has decreased significantly over the last few years (and will likely continue to decrease).  

 The rapid growth of solar energy production has caused owners of large tracts of land (including farmers) to consider whether alternative uses of their land may bring them a higher rate of return.  However, solar farm developers are generally very selective when choosing potential land for a solar farm.  The primary criteria such developers use when choosing land are (i) frequency of sunlight (including the absence of sunlight blocking obstructions), (ii) proximity to important infrastructure like roads and grid connection points and (iii) quality of terrain (flat and free from large rocks is most desirable).   When a developer does find land that meets these criteria, it may aggressively pursue a long-term “solar lease” with the owner of the land for the development of a solar farm.  In these instances, a landowner should seek the advice of legal counsel before entering into a solar lease, as it will affect the use of and earnings from the land for generations.  Items to consider prior to agreeing to a solar lease include the following:

1.      Lease Term – Due to the significant investment made by the developer, solar leases are generally going to be for at least 20 years, during which time the land will be unavailable for other purposes.  Thus, a landowner should ensure he or she is willing to devote the land for this use for the entire length of the lease.  Solar leases may also include options by the developer to extend the term of the lease and/or obtain rights to use additional land owned by the landowner.  These terms should be negotiated carefully, and the implications should be fully understood by the landowner.    

 2.      Compensation – Landowners should be particularly careful about the way their compensation is structured.  A flat rental rate will provide a landowner with a steady and certain income stream on the land.  However, a developer may try to structure all or a portion of the rent based on the developer’s income and/or revenue.  This is generally ill-advised to the extent it can be avoided, as it reduces the certainty of income to the landowner.

 3.      Landowner Remedies – A landowner should ensure he or she will have a sufficient remedy in the event of a breach of the solar lease by the developer.  Developers may be newer companies without significant assets.  To the extent possible, a landowner should seek parent/owner guarantees and/or security deposits for his or her protection in the event the developer fails to fulfill its obligations under the solar lease.

 4.      Rights of Others – Mortgages, deeds of trust, farm leases and other rights in the landowner’s property that may be granted to others could preclude granting a solar lease on the land.  A landowner should ensure that no such other rights in the land have been granted that could conflict with the solar lease.  Failure to do so could cause a landowner to be in breach of other agreements and/or the solar lease, resulting in significant costs to the landowner.

 5.      Land Impact – The installation of a solar farm may cause long-term damage to the soil and/or irrigation systems of farmland.  It may take considerable time and expense after the termination of a solar lease and removal of equipment for the land to be returned to a condition suitable for crop production.  The allocation of the costs of returning the land to such condition should be addressed in the solar lease.

6.      Taxes – Solar leases may impact the classification of land as agricultural for tax purposes. This can increase a landowner’s taxes going forward, and may result in recapture of prior tax reductions.  A landowner should understand the tax impact of any solar arrangement and the lease should allocate which party is responsible for taxes during the lease term, including any tax increases. 

 7.      Risk and Insurance – The lease should include customary indemnification and allocation of risk provisions.  The parties should also ensure that adequate insurance is carried by both to cover such obligations.

 8.      Maintenance – The developer is typically going to be the party that is responsible for maintaining the solar equipment, but the lease should also clearly specify which party is charged with maintaining access to such equipment and/or the area surrounding the solar equipment.

 9.      Community Perceptions – A landowner should consider how a solar lease may impact his or her relationship with the community.  Community members may object to the installation of a solar farm in their community for a variety of reasons.  These include (i) opposition to the appearance of solar panels on the landscape, (ii) concern over the impact  the construction and maintenance of a solar farm may have on neighboring properties (including property values) and (iii) distrust of outside developers.

Entering into a solar lease is a major decision, and landowners should not take entering into one lightly.  If you have any questions regarding a potential solar lease on your land, please contact a member of our Real Estate group.

The material in this publication was created as of the date set forth above and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

Nebraska Supreme Court Clarifies Enforcement of Covenants Regarding Homeowners’ Associations

Erickson | Sederstrom's attorneys’ have extensive background in real estate disputes.  If faced with a difficult issue involving real estate – including conveyances, development, zoning, construction, property tax, or other issues – we recommend you contact our office and speak with one of our attorneys. 

 Real estate developments typically are governed by covenants that require or prohibit certain actions by property owners.  To be enforceable, covenants must involve issues that “touch and concern” the land.  The “touch and concern” element of real property covenants has been convoluted in its development.  The Nebraska Supreme Court recently narrowed the interpretation of this element as applied to communities governed by a homeowners’ association (“HOA”).  See Equestrian Ridge Homeowners Ass'n v. Equestrian Ridge Estates II Homeowners Ass'n, 308 Neb. 128, 146 (2021).  Specifically, the court determined that the “touch and concern” element may be satisfied as applied to communities governed by an HOA when the “burden” of HOA payments is afforded to a “benefit” that is: (1) considered a necessity to the community; and (2) increases the value of the community’s lots.

 Facts

 In Equestrian Ridge Homeowners Ass'n v. Equestrian Ridge Estates II Homeowners Ass'n, the Nebraska Supreme Court decided a dispute between two neighboring HOAs involving real covenants running at law in a neighborhood near Gretna, Nebraska.  The covenants addressed requirements to maintain a street.

 In 2004, Ted Grace (“Grace”) and Duane Dowd (“Dowd”) owned contiguous tracks of land near Gretna.  Together, Grace and Dowd agreed to grant their respective tracts of land to Equestrian Ridge, an L.L.C. established by Grace and Dowd, and develop the tracts into residential subdivisions.  Subsequently, Grace and Dowd executed an additional agreement to develop Grace’s tract (“Equestrian Ridge Estates”) first, then Dowd’s tract (“Dowd Grain Subdivision”) thereafter.  All fifteen lots in Equestrian Ridge Estates were sold and were subject to the authority of its HOA through a series of covenants, conditions, and restrictions (“CC&R’s”).  During the development of Dowd Grain Subdivision, the parties determined that Shiloh Road, the only accessible pathway to the Subdivision, terminated at a dead end; therefore, the parties decided to improve accessibility to the Subdivision by “extending Shiloh Road past its dead end to the west, across the border with” Equestrian Ridge Estates.  This agreement was evidenced by Dowd’s promise to subject Dowd Grain Subdivision and its forthcoming HOA, through a series of CC&R’s, “to a sharing of one third of the costs and expenses for the repair and maintenance of 232d Street within Equestrian Ridge Estates.”

 After developing several lots within Dowd Grain Subdivision and renaming the subdivision Equestrian Ridge Estates II, Dowd resigned from the HOA.  Thereafter, “[t]he board members of Equestrian Ridge Estates II HOA formally accepted Dowd's relinquishment of all his interests and agreed to manage the subdivision, and contributed its share of maintenance costs to improve 232d Street.

 In early 2015, Equestrian Ridge Estates II HOA “met to discuss major roadwork that was expected along 232d Street” and made several complaints, including “that when Equestrian Ridge Estates HOA made repairs to 232d Street, it did so without the input of Equestrian Ridge Estates II HOA.”  Equestrian Ridge Estates II HOA further complained “that they only ever learned about 232d Street maintenance projects upon receiving invoices from Equestrian Ridge Estates HOA, typically without any explanation about the maintenance for which they were being asked to contribute.”  Afterwards, Equestrian Ridge Estates II HOA amended its CC&R’s “to remove any requirement of [their] lot owners to contribute to maintenance costs of 232d Street” and refused to contribute to road maintenance costs, while Equestrian Ridge Estates HOA paid the entire amount.  As a result, Equestrian Ridge Estates HOA filed suit against Equestrian Ridge Estates II HOA to seek payment for the road maintenance costs pursuant to the covenants.

 Legal Conclusions

 The Nebraska Supreme Court held that Equestrian Ridge Estates II HOA “was bound to contribute to 232d Street maintenance costs under the 2004 Agreement” because Equestrian Ridge Estates II HOA “was a successor in interest of Dowd Grain Subdivision and, as such, was bound by the covenant at issue in the 2004 Agreement, which runs with the land in perpetuity.”  In support of its holding, the Nebraska Supreme Court set forth and applied the three requirements for a covenant to run with the land:

(1) The grantor and the grantee must have intended that the covenant run with the land, as determined from the instruments of record; (2) the covenant must touch and concern the land with which it runs; and (3) the party claiming the benefit of the covenant and the party who bears the burden of the covenant must be in privity of estate. 

 Applied here, the “intent to bind” element was met because it was contemplated in the 2004 agreement that the covenants at issue “would bind lot owners in the future.”  When considering the “touch and concern” element, the court noted that “it has been found impossible to state any absolute tests to determine what covenants touch and concern land and what do not.”  Therefore, this issue was “one for the court to determine in the exercise of its best judgment upon the facts of [the] case.”

 The Nebraska Supreme Court has adopted a clearer explanation of “what it means for a covenant to touch and concern the land.”  The “covenant must impose, on the one hand, a burden upon an interest in land, which on the other hand increases the value of a different interest in the same or related land.”  The “touch and concern” element is met in this instance because “[i]n exchange for the burden of being required to contribute to 232d Street maintenance costs, Dowd afforded Equestrian Ridge Estates II and its future lot owners the benefit of paved access across 232d Street to public roads.”

 Finally, the Nebraska Supreme Court distinguished and applied various definitions of “privity” when analyzing the third element of “privity of estate.”  See id. at 146-47.  In essence, “privity” can be “defined as mutual or successive relationships to the same right of property, or such an identification of interest of one person with another as to represent the same legal right or derivative interest . . . between parties.”  Id. at 147.  The “privity of estate” element is satisfied in this case because Equestrian Ridge Estates II, the same property that Dowd once owned, is now controlled by Equestrian Ridge Estates II HOA and owned by Equestrian Ridge Estates II HOA and Equestrian Ridge Estates II's lot owners.  Id.  Accordingly, “Dowd and these lot owners are successive owners of the same land pursuant to their deeds of purchase for the lots.”  Id. 

 Therefore, Dowd’s promise to subject his subdivision to a requirement to contribute to 232d Street maintenance costs at the time of the 2004 agreement “was a covenant that ran with the land.”  As a result, Equestrian Ridge Estates II HOA, as the successor in interest to Dowd, was bound to contribute to 232d Street maintenance costs.

 Future Developments for Covenants Running at Law as Applied to Communities Governed by an HOA

 Although the “touch and concern” element has been convoluted throughout its development, the Nebraska Supreme Court has now narrowed its interpretation of this element as applied to communities governed by an HOA.  Specifically, the court determined that the “touch and concern” element may be satisfied as applied to communities governed by an HOA when the “burden” of HOA payments is afforded to a “benefit” that is: (1) considered a necessity to the community; and (2) increases the value of the community’s lots, such as the street maintenance costs involved here. 

Structuring the Sale of a Business

Selling Assets Versus Equity

One of the more critical initial items to consider when selling a business is determining whether the sale involves selling the equity or assets of the business.  The choice of structure will have an impact on several items, including, (i) the tax consequences to each of the buyer and seller, (ii) the party responsible for the company’s liabilities, and (iii) third-party consents required to consummate the transaction.  In many cases, the buyer and seller will benefit differently depending on the structure, so it is important for the seller of a business to fully understand the impact of each structure.  This article will briefly describe the mechanics of an asset sale and equity sale, and then discuss some important items that are implicated depending on the chosen structure.  

Equity Sales

 A sale of equity involves the buyer, which may be an individual, group of individuals, or a company, purchasing the stock (in the case of a corporation) or interests (in the case of an LLC or partnership) of the business directly from the owner(s) of the equity.  After the sale of the equity is consummated, the  buyer takes the entire business as a whole, including all of the business’s assets and liabilities.

Diagram 1 shows the structure of a proposed equity sale.  Note that ABC, LLC is the target company and owned by the seller prior to the sale.   The buyer is proposing to transfer cash to the seller in order to purchase the equity of ABC, LLC.  Diagram 2 shows the results of the transaction after the closing, with the buyer owning the equity of ABC, LLC and the seller now holding the cash from the buyer.  Note that the buyer takes ABC, LLC with all of the assets and liabilities of the company and, except as may be agreed between the buyer and seller, the company is still responsible for satisfying all of the liabilities it had when it was owned by the seller.

Asset Sales

In contrast to an equity sale, a sale of the assets of a business involves the buyer (almost always an entity) purchasing only certain assets and assuming only certain liabilities of the target company.  After the sale is consummated, the target company retains any unpurchased assets and liabilities that were not assumed by the buyer.

Diagram 3 shows the structure of a proposed asset sale.  Note that ABC, LLC is the target company and the buyer is proposing to transfer cash to the target company in order to purchase certain assets and assume certain liabilities of ABC, LLC.  Diagram 4 shows the results of the transaction after the closing, with the buyer owning the purchased assets and liabilities and the target company now holding the cash from the buyer, as well as certain retained assets and liabilities.  This is an important distinction from an equity sale since the cash generated from the asset sale may now need to be used to pay off certain retained liabilities.

Impact of Structure

Tax Consequences

In an asset sale of a business with significant depreciable assets, the buyer will often receive a tax benefit while the seller may experience a tax disadvantage.  This is because the purchase price in such an asset sale is often greater than the basis of the depreciable assets.  This allows the buyer to receive a stepped-up basis in such assets and further depreciate the assets to reduce the buyer’s income.  Meanwhile, the seller will have to pay taxes at the ordinary income rate for the difference between the assets’ basis and the purchase price.

In an asset sale without significant depreciable assets, the tax benefit to the buyer (and disadvantage to the seller) will generally be much lower.

In an equity sale, the seller typically receives a tax advantage because in most equity sales, the equity that is sold receives tax treatment as a capital gain (which is taxed at a lower tax rate than ordinary income). State rates for capital gains vary by state. In Nebraska, capital gains may be avoided altogether through the use of certain tax planning strategies.

There are also certain tax elections that may apply to some transactions that can provide benefits to both the buyer and seller.  For example, a 338(h)(10) election made in connection with the sale of stock allows a seller to receive capital gains tax rates on the sale and the buyer to receive a stepped-up basis in the assets. 

Treatment of Liabilities

As touched on above, in a sale of equity, all of the liabilities of the target company stay with the target company after the sale.  This means that the seller of equity generally does not have to worry about responsibility for further liabilities of the company after the sale (although the seller will likely have agreed to backstop the buyer for certain undisclosed liabilities that may arise for some period after the closing). 

Contrast this with an asset sale, where the buyer of the assets generally takes few liabilities.  This means that the seller of the assets will remain responsible for future liabilities of the target company, and owners of the target company may thereafter remain liable for several years after dissolution. This is why asset sales are generally preferred by buyers and equity sales are generally preferred by sellers.

Assignment of Intangible Assets

In a sale of equity,  contracts (such as leases, customer agreements, etc.) transfer with the target company by operation of law.  This means that, unless any contracts have restrictions on a change of control of the target company, there is no need to obtain the consent of contract counterparties in order to consummate the transaction. 

However, in a sale of assets, such transfer does not occur automatically, and most contracts will have a restriction on assignment without the consent of the counterparty.  This can take considerable effort depending on the number of consents that are needed, and may jeopardize the confidentiality of the transaction.  Thus, all other items being equal, a sale of equity is generally preferential if the target company has a large number of material contracts.

The bottom line is that the choice of transaction structure can have a significant impact on the pre-closing duties and post-closing obligations of the parties and have a direct effect on the amount of cash that the seller ultimately receives from the transaction. Thus, any business owner should seek competent legal advice to understand the risks and benefits of various transaction structures very early on in a potential sale process.

Nebraska Supreme Court Upholds Premises Liability Standard, Rejecting Foreseeability as a Conclusory Factor

In Sundermann v. Hy-Vee, the Nebraska Supreme Court found that Hy-Vee was not liable to the plaintiff, Sundermann, who sustained serious injuries when she was struck by a pickup truck while using an air compressor to fill her tires in a Hy-Vee parking lot.  Sundermann v. Hy-Vee, Inc., 306 Neb. 749 (2020).  In support of its holding, the Nebraska Supreme Court applied the framework for premises liability and rejected the trial court’s finding that Hy-Vee was liable based upon a more general foreseeability analysis.  Id at 764.  The premises liability test holds that a possessor of land is subject to liability for an injury caused to its lawful visitor by a condition on the land if

(1) the possessor either created the condition, knew of the condition, or by the existence of reasonable care would have discovered the condition; (2) the possessor should have realized the condition involved an unreasonable risk of harm to the lawful visitor; (3) the possessor should have expected that a lawful visitor such as the plaintiff either (a) would not discover or realize the danger or (b) would fail to protect himself or herself against the danger; (4) the possessor failed to use reasonable care to protect the lawful visitor against the danger; and (5) the condition was a proximate cause of damage to the plaintiff. 

Id.  Applying these elements to the facts, the first element was satisfied because Hy-Vee designed the parking lot area and chose where to place the air compressor.  Id at 767.  In considering the second element, the court viewed the evidence in the light most favorable to the plaintiff and assumed that there was a genuine issue of material fact regarding whether the location of the air compressor created an unreasonable risk of harm.  Id at 771.  When considering the third element, the law holds that “a land possessor is not liable to a lawful entrant on the land unless the possessor has or should have had superior knowledge of the dangerous condition.”  Id at 770.  Further, a landowner will not be liable for a dangerous condition unless the landowner “should have expected” that the plaintiff “either would not discover or realize the danger or would fail to protect himself or herself against the danger.”  Id. 

The open and obvious doctrine states that a possessor of land is not liable to an invitee for harm caused by any activity or condition on the land when the danger is known or obvious to the invitee.  Id.  The court found that the dangers of parking in the drive aisle to use the air compressor were obvious and the plaintiff would have appreciated the risks associated with parking where she did and crouching down to fill her tires.  Id.  Further, there was no evidence that Hy-Vee had any reason to believe that Sundermann would become distracted and unable to recognize the obvious risk, but rather Sundermann testified that she was aware of the danger and was watching for traffic.  Id.  Because the open and obvious doctrine clearly applies, Hy-Vee is not liable under the doctrine.

The court therefore found that the third element could not be satisfied, stating “even when a land possessor is aware lawful visitors are choosing to encounter an obvious risk, it does not necessarily follow that the land possessor has reason to expect the lawful visitors will fail, or be unable, to protect themselves from that risk.  Id.  Hy-Vee had not received any safety complaints before about that location, and there had not been any prior accidents that would lead Hy-Vee to believe lawful visitors would fail to protect themselves from the obvious risk associated with choosing to park in the drive aisle.  Id.  Further, Hy-Vee had no reason to expect that the plaintiff would not appreciate the danger posed by her activities.  Id.

            Because the third element could not be satisfied, Hy-Vee could not be held liable for Sundermann’s injuries.  This case was significant in rejecting the analysis used in the trial court, which focused on whether it was reasonably foreseeable that a lawful visitor would be injured in such a way.  This court instead focused on the premises liability standard, in which foreseeability is a consideration, but not a conclusory factor.

Buy-Sell Agreements

Buy-Sell Agreements, sometimes referred to as Shareholder Agreements in corporations or Members’ Agreements in LLCs, serve as a valuable tool in small businesses, especially in the area of transition planning. Generally, Buy-Sell Agreements are entered among equity holders and the business and dictate when and how an equity interest can or must be purchased or sold, and by whom. Some attorneys refer to them as “prenups for business owners,” because they generally govern how business owners can or must separate from one another, and what will become of the respective ownership interests upon such separation. The primary functions of these types of agreements are to protect the value of the various stakeholders’ interest in the business and ensure smooth and workable transitions in ownership of the business by preventing disagreements and potential lawsuits from undercutting the efficient operation of a business. Every business lawyer has stories of disputes, costs and expenses, time and even businesses that could have been saved had the lawyer advised and the client or clients agreed that a properly drafted Buy-Sell Agreement should be negotiated and entered. This article will discuss some of the key concepts Buy-Sell Agreements typically cover.

General Structure
Most Buy-Sell Agreements are intended to allow the equity holders in a business one or more mechanisms to divest themselves of their interest in the business, and/or protect their interest in the business in the event another equity holder elects to divest. This means, most often, that one stakeholder or another has either (1) a right or an obligation to purchase another stakeholder’s interest in certain events; or (2) a right or an obligation to sell such stakeholder’s interest in certain events. These mechanisms take many forms and should be specifically designed and drafted to meet the needs and goals of the applicable small business and its equity holders. In the most typical agreements, they prevent a party from divesting without meeting certain requirements.
For example, in some small businesses, the most important goal is to achieve some stability and consistency and a clear process and power structure in the event of a transition. In others, the primary objective is to protect one party’s investment in the company, or the value derived therefrom, either for that equity holder or that equity holder’s family and loved ones. In other businesses, the primary objective is to allow an equity holder to avoid being locked into a company controlled by others. All of these are potential interests that can be balanced in negotiating and implementing a Buy-Sell Agreement.

Triggering Events
One of the core features of a typical Buy-Sell Agreement is that certain events or circumstances trigger a right or obligation to sell or purchase an interest in the business. The most commonly agreed upon triggering events include those over which the relevant member has little or no control, such as death, disability or termination; those over which the relevant member may have some measure of control, such as divorce or bankruptcy; and those over which the member likely has control, such as an election to transfer or sell such member’s interest in the business, retirement, or other voluntary separation from the business. There may be others, depending on the specific circumstances of the business and its stakeholders. Depending on the surrounding circumstances, and the exact interests the stakeholders intend to protect, different triggering events may trigger different rights and obligations. For example, the operators of a business may wish to treat a retirement more favorably than a voluntary resignation prior to retirement age, or may wish to treat a termination for cause differently from an election to leave the business for health or other reasons. A Buy-Sell Agreement is flexible enough to allow for these variations in treatment in order to conform to the needs and desires of the stakeholders.

The Purchaser
Another important concept to build into a Buy-Sell Agreement is the appropriate purchasing party – who specifically has the right or obligation to purchase the equity interest? The most common potential purchasers are 1) the company or 2) the other equity holder(s). This portion of a Buy-Sell Agreement allows for some creativity. The Agreement can be structured so that, upon a triggering event, the remaining equity holders have the option to purchase the interest and if they decline, the company then has the option (or obligation) to purchase the interest. The roles can be flipped, with the company having the first option and the equity holders the second. There is flexibility in determining who will purchase the interest and whether they have the option or obligation. This is an important conversation topic for equity holders and gives them some flexibility to achieve a good result for all interested parties from a variety of perspectives, including tax treatment, operations, cash flow, and others.

Valuation
Another important element of a Buy-Sell Agreement is how the purchase price or other consideration to be paid in connection with a transaction will be determined. In most scenarios, this starts with a methodology for valuing the interest to be sold and determining what value the parties seek to protect. This valuation can take many different forms, including an agreement among the equity holders (annual or otherwise), a third-party appraisal, or implementation of a predetermined formula for calculating value. It can also account for certain discounts or other adjustments at the parties’ discretions, such as marketability and lack of majority control. These valuation methods and potential adjustments should dovetail with the agenda of the parties in making the agreement, including possible variation for precise circumstances, as contemplated previously in discussing triggering events. In considering and fleshing out these issues in advance, parties can take full advantage of a Buy-Sell Agreement in preventing uncertainty and attendant disputes down the road.

Transaction Terms
Another key element to consider is how the sale and purchase of the equity interest will play out. This includes determining when, where, and how the payment will be made. The process is dependent on the facts and circumstances surrounding the company, such as whether the company or other buyer has sufficient cash available at any given time to pay in full or if financing will be required. The stakeholders have to weigh and balance the potentially competing interests of a departing equity holder receiving value, the remaining equity holders’ access to and available resources, the company’s cash flow and other operational considerations. A Buy-Sell Agreement can be negotiated and structured to protect any or all of those interests to the extent the stakeholders deem it necessary or appropriate.

Specific Provisions
Buy-Sell Agreements often address other potential transaction scenarios, providing stakeholders with certain rights or obligations on account thereof. For example, drag-along rights generally allow a majority stakeholder to force a minority stakeholder to participate in a transaction the majority stakeholder has elected to consummate. Conversely, tag-along rights generally allow a minority stakeholder a right to force its way into such a transaction. Shootout provisions generally allow one stakeholder to elect to trigger a mechanism for a buyout and another stakeholder to elect who will purchase and who will sell, or some other material aspects of the transaction. Buy-Sell Agreements can contain preferential rights for certain buyers or other acquirers, or provisions intended to benefit certain groups of stakeholders to the exclusion of others. All of these provisions depend, again, on the particular circumstances surrounding the business and the parties’ balancing of potentially competing interests in the business.

Conclusion
Buy-Sell Agreements, “pre-nups for business owners,” are an adaptable tool that stakeholders can use to manage transition in a business to properly balance the potentially competing interests among various stakeholders and the business itself. As discussed, they can be negotiated and implemented to fit a wide variety of circumstances and address a wide variety of needs or interests. Business owners should consider implementing a Buy-Sell Agreement or similar arrangement in some form at the earliest opportunity, as they allow business owners to achieve a degree of certainty in the business environment, which is rarely, if ever, a negative. Lawyers should raise the possibility as early as possible and do what they can to educate business owner clients about the advantages a solid Buy-Sell Arrangement can provide.

Third Party Solicitations – Are These Services Necessary?

When you are forming a new entity, registering a trademark, or even just filing deed, you will be receiving numerous documents from your attorney in order to facilitate that process. Be wary of solicitations you receive from third parties requesting payment for services or documents you may not need or which may already be taken care of by your attorney. Some of these solicitations include the following:

• Obtaining Certificates of Good Standing;

• Name publishing;

• Federal Labor Law poster;

• Annual Records Statement;

• Obtaining a copy of your recently filed deed; and

• Publication of your trademark registration on a third-party site.

These solicitations are sent to request payment for services that may not be required. While some of these items or services are necessary, they may already be handled by your attorney as part of the services they are providing to you. If you receive a letter soliciting payment for something you feel may be handled by your attorney or may not be necessary, reach out to an attorney to make sure. They can verify whether what you received is something you need or whether it can be disregarded.

SCOTUS Holds that Homosexual and Transgender Persons are Protected from Adverse Employment Actions Under Title VII

The United States Supreme Court has handed down a landmark case solidifying the rights of homosexual and transgender individuals within the workplace in Bostock v. Clayton Cty. The Court held that all three of the employers in the underlying cases violated Title VII of the Civil Rights Act of 1964 when each of the employers fired employees shortly after those employee revealed that he or she were either homosexual or transgender. Proceeding on the assumption that the term “sex” as it is used in Title VII refers only to the biological distinction between male and female, the Court turned its focus to analyzing what Title VII says about “sex.”

Title VII says it is “unlawful . . . for an employer to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.” 42 U. S. C. §2000e-2(a)(1) (emphasis added). The Court stated that, “[i]n Title VII, Congress adopted broad language making it illegal for an employer to rely on an employee’s sex when deciding to fire that employee.” As such, the Court determined that it is a necessary consequence of Title VII of the Civil Rights Act that an employer who fires an individual merely for being gay or transgender defies the law.

Additional Funding Enacted for Coronavirus Relief Programs

Last week, Congress passed and the President signed the latest legislation to provide additional funding for Coronavirus relief programs, the Paycheck Protection Program and Health Care Enhancement Act.
This legislation is now commonly known as “Phase 3.5” of legislative coronavirus stimulus and relief packages.

First, Phase 3.5 adds an additional $310 billion to the Paycheck Protection Program (“PPP”). Low interest, forgivable loans available through the PPP were quickly exhausted when first made available.

Phase 3.5 also adds an additional $50 billion for Economic Injury Disaster Loans (“EIDLs”) and expands the scope of eligible businesses. EIDLs are now available to certain agricultural entities with less than 500 employees.

$75 billion is provided to support health care facilities to help offset additional costs and expenses due to the coronavirus. Finally, $25 billion is provided to support increased testing.