Each December, the Texas Bar Journal features the year’s developments in the profession through a series of articles written by Texas legal experts. Rocky Dhir talks with three of 2022’s authors to learn more about new case law and trends in their areas of the law. Emily Black shares insights from antitrust and business litigation, Shawn Tuma gives an update on rapidly-evolving requirements in cybersecurity and data privacy, and Roland Love gives an overview of new laws and court-issued opinions related to real estate law.
Emily Westridge Black is a partner in the Austin office of Shearman & Sterling, where she specializes in complex commercial litigation and white-collar defense.
Shawn Tuma is a partner at Spencer Fane LLP in Cyber Risk Management, Cyber Incident Response, and Cyber Security, Hacking and Data Breach Litigation.
Roland Love is vice president of business alliances & field operations at Independence Title in Dallas, TX.
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Intro: Welcome to the State Bar of Texas Podcast, your monthly source for conversations and curated content to improve your law practice with your host, Rocky Dhir.
Rocky Dhir: Hi, and welcome to the State Bar of Texas Podcast. 2022 has been a remarkable year for lawyers. The COVID pandemic has not officially been declared over, but it appears to be behind us for the most part. Courts have reopened. They’re back in person. Restaurants are full again and morning traffic makes us yearn just a little for another lockdown. Am I right? Or maybe instead a lock out like all the other drivers are locked out of their cars just long enough for us to reach our destinations. Actually, I’ll tell you, in my imaginary world, I get locked out of my destination too, and then I end up just going home and re-watching Tiger King.
All right, so guys, in past years, the December issue of the Texas Bar Journal features highlights of the year that are about to conclude and then we get to focus on another year just ahead of us. This year is no different and I always enjoy reading the year and review articles and realizing, first, just a sheer variety of practice areas and, second, I realize why I host a podcast and write briefs and no longer actively practice. You all lawyers can be pretty smart sometimes.
So, I’ll tell you, I encourage you guys to take a peek at the December issue of the Bar Journal, but today we will talk to three of the authors to get a deeper dive into three practice areas with three very different focuses. Emily Black, a partner with Shearman & Sterling’s Austin office, co-wrote the overview for antitrust and business litigation alongside her New York based colleague, Sophie Copenhaver. Shawn Tuma has been on this podcast before because he just won’t leave us alone. He just keeps coming back and saying, put me on, put me on. He’s also one of the state’s preeminent experts on cybersecurity law. He will be discussing developments in that practice area. And finally, we brought in the big gun for our real estate update, Roland Love, who has won lifetime achievement awards and serves on committees and boards that are too numerous to list, and I wouldn’t be surprised if at some point he wins an Emmy. I’m just saying that it could happen. So, Emily, Shawn and Roland, welcome you all to the podcast. Great to have you.
Shawn Tuma: Good morning, Rocky.
Emily Black: Good to be here. Thank you.
Rocky Dhir: Absolutely. So, we usually do our episodes as group discussions and we all just kind of get in there and have a little fun. But today, we’ll focus on each practice area so that we can kind of get a little bit deeper in each one and then we can do justice to each of those different practice areas and your incredible hard work and putting that together for us. We’re going to do this alphabetically by practice group. So, we’ll start with Emily in business litigation, then go to Shawn on cybersecurity and round it off with Roland in real estate. So, enough of my ABCs. We’ll get down to the ABCs of business litigation.
Emily, your overview focuses on business litigation and it sounds like the U.S. Supreme court has effectively held that the Federal Arbitration Act is not in and of itself a form of federal question jurisdiction. Am I interpreting your article correctly?
Emily Black: You are. There was an interesting opinion out of the Supreme Court this year. It did not go the way that many of us expected. It involved reversing the Fifth Circuit and it really turned on the difference in the language between Sections 9 and 10 of the Federal Arbitration Act.
Rocky Dhir: And what are those sections? Tell us what they do for the uninitiated.
Emily Black: So, 9 and 10 are the sections you would rely on to confirm an arbitrary award. The Supreme Court had previously looked at Section 4 four of the FAA.
Rocky Dhir: And what does that do? What does Section 4 do?
Emily Black: Section 4 is the Motion to Compel Arbitration.
Rocky Dhir: Okay. I think a lot of us have worked with that at some level or the other.
Emily Black: Many of us have for better or for worse.
Rocky Dhir: Right, of course.
Emily Black: But there’s different language in 4 than in 9 and 10 and when you do a textual reading of the FAA, the result that was reached in the new opinion, Badgerow v. Walters, makes a lot of sense but, again, wasn’t entirely expected. So, Section 4 of the FAA, the Motion to Compel Arbitration, has very specific language which allows a court to exercise jurisdiction over a federal court to exercise jurisdiction over a Motion to Compel Arbitration if they would have jurisdiction over the dispute saved for the arbitral agreement.
Rocky Dhir: That Section 4 says this?
Emily Black: Section 4 says that.
Rocky Dhir: Okay.
Emily Black: And so, when the court looked at that in 2009 in a case called Vaden v. Discover Bank, what the court said is that language enables courts to look through the petition. They can look through to the actual underlying dispute and determine whether they have jurisdiction over that dispute and they may for diversity reasons or they may because it presents a federal question.
In the years since then, federal courts have really taken that look through approach whenever they’re looking at the FAA including when they’re looking at whether they have authority to enforce an arbitral award and that brings us to 2022 in the Badgerow v. Walters. This was an underlying employment dispute. The employee alleged unlawful termination and the employer moved to arbitrate. They did arbitrate. The decision went for the employer.
Rocky Dhir: Okay.
Emily Black: And as you can imagine, the employee wasn’t thrown.
Rocky Dhir: Can’t imagine why, but yes. Okay.
Emily Black: Can’t imagine why. And so, the employee brought an action to set aside the arbitral award.
Rocky Dhir: This would be under Sections 9 and 10 then, right? That would all be it.
Emily Black: Section 9. Well, so the initial action was by the employee to set it aside. The employer countered and said, no, no, you need to enforce this arbitral award. It was properly entered and the employer brought that claim in federal court to enforce the action. The District Court agreed and enforced and the employee appealed. The Fifth Circuit also agreed. They said we have jurisdiction. The federal courts have jurisdiction over this matter and the award was proper. The employee then appealed to the Supreme Court, and the Supreme Court reversed and said you don’t actually have jurisdiction here, federal courts, and it turned on this difference in the language between Section 4 on the one hand and Section 9 and 10 on the other.
So, we talked about in Section 4, you have the language that federal courts have jurisdiction if saved for the agreement. They would have had jurisdiction over the dispute. They don’t have that in Sections 9 and 10. They don’t have that same language, and the court said that the difference between 4 on the one hand and 9 and 10 on the other allows under 4 to do the look through but under 9 and 10, you only have jurisdiction at the federal court if the actual phase of the application to enforce the award supports Federal Court Jurisdiction.
Rocky Dhir: This is interesting, Emily. I guess, the underlying employment dispute that was not under federal law then. Were they state court claims?
Emily Black: No, it was a federal claim by non-diverse parties and the issue right is what they were doing when they were moving to enforce the arbitral award, they were not seeking a decision on the federal employment claim. They were simply seeking to enforce the arbitral award.
Rocky Dhir: Okay.
Emily Black: And what the court said here, basically, if you are going to move to enforce an arbitral award, that application, without looking through to what is the substance of the underlying dispute, the application itself has to support federal jurisdiction, and so really there you’re looking at like diversity jurisdiction for example.
Rocky Dhir: That’d be the only basis because there’s no real federal question at that point.
Emily Black: That’s right and this will be a big change. This will be a big change in arbitral practice and as we’re thinking through it, one thing that will be very important is to really look into residual venue clauses because we all know that some state courts are much more resistant to the FAA and resistant to arbitration than federal courts, certainly. And so, you need to really give thought to where are you going to end up if you have to move to enforce an arbitral award.
Rocky Dhir: Tell us for a second, what is a residual venue clause for those that may not be familiar?
Emily Black: Sure. A residual venue clause is the clause that controls the venue that’s appropriate for ancillary disputes related to an arbitration.
Rocky Dhir: Got it. Okay. So, some of these employment agreements will have that saying, we’re going to go to arbitration and if we need to go to court related to the arbitration, it’s going to be this set of courts or this venue.
Emily Black: Exactly.
Rocky Dhir: Okay. This I can imagine can be a bit confusing because — here’s one of the other questions I had and I don’t know to what extent you’ve had the opportunity study this, but there’s this difference that the court’s parsing between Section 4 of the FAA and then Sections 9 and 10 and I have to admit I’m a little rusty on my statutory interpretation, but wouldn’t you read all of that together to try to harmonize it as opposed to saying 4 is different from 9 and 10? That just seems a little, I guess, discordant to me.
Emily Black: It would have been a potential approach and I think one that there is a lot of intuitive appeal to.
Right now, the court that would hear your Motion to Compel an arbitration may very well not be a court that you could go to to enforce the arbitral award and there is something very counterintuitive about that, but we have decades of jurisprudence from the Supreme Court now that say the law — when you’re interpreting a statute, you have to read what’s written there and the different language between the different act needs to be given effect. And so, I think if you’re applying that canon of statutory instruction, they arrive at the right result.
Rocky Dhir: Interesting. Okay. Yeah, that is very counterintuitive. Now, we do have a couple more minutes left to talk about business litigation. We’ve got another issue involving jurisdiction that you talked about and that’s the Mallory case. This was interesting because this goes to corporate citizenship and corporate jurisdiction. Tell us a little bit about that case. What was going on underneath and how did that decision come about?
Emily Black: Sure, and this one is an interesting one. It’ll actually be heard in the upcoming term, but Mallory v. Norfolk Southern is another employment case and Mallory was an employee of Norfolk Southern, worked for the company in Ohio and Virginia, I believe, and then brought a lawsuit in Pennsylvania alleging that he had been exposed to carcinogens in the course of his employment and, as a result, had developed cancer.
Rocky Dhir: But he was not exposed in Pennsylvania. He was exposed outside of Pennsylvania, but he’s bringing suit in Pennsylvania?
Emily Black: Outside of Pennsylvania, and so the lawsuit was filed in Pennsylvania because Mallory lives there now. Ordinarily, right, you would not expect for Pennsylvania to necessarily have jurisdiction over Norfolk Southern.
Rocky Dhir: I’m surprised it wasn’t forum non-convenience at that point because there’s really no connection with Pennsylvania other than the plaintiff’s state of residence.
Emily Black: Yeah, but there’s a quirk of Pennsylvania law and Pennsylvania is not unique here, but they have what’s called a consent by registration scheme where they require companies to register with the Secretary of State in order to do business there. Many states have that, most, maybe all, but Pennsylvania has a tweak to that which provides that if you register to do business in the state, you have consented to jurisdiction against you, general purpose consent to jurisdiction by registration.
Rocky Dhir: And Norfolk Southern had registered or whatever.
Emily Black: They had registered.
Rocky Dhir: But if you’re a corporation with no nexus, no connection, never doing any business in Pennsylvania and you don’t register, then theoretically this wouldn’t apply to you, or does it now?
Emily Black: It wouldn’t apply to you, but you may have to register for all kinds of reasons and you could have very minimal contacts, certainly not contacts that would be sufficient to support jurisdiction under traditional jurisdictional principles, but here, you’re stuck, right? Once you’ve registered, you are subject to general purpose jurisdiction.
Rocky Dhir: Wow, okay.
Emily Black: And so, Norfolk Southern has argued that this violates their 14th Amendment due process rights and that they should not be subject to personal jurisdiction simply by virtue of the fact that they were required to register and, actually, Norfolk Southern won at the Trial Court level, won at the appellate level, and won in the Pennsylvania Supreme Court.
Rocky Dhir: So now, it’s going to the U.S. Supreme Court.
Emily Black: And so now, the question will be what’s the U.S. Supreme Court going to do with that.
Rocky Dhir: And in case I have any upcoming trips to Vegas planned, do you have a prediction one way or the other?
Emily Black: Gambling on what the Supreme Court might do is never a particularly good use of your money, but if I were a betting woman, which I am not, but if I were, I think the Supreme Court will affirm. I think part of the project in recent years has been to tighten up the approach to jurisdiction, to introduce more of a measure of consistency and to ensure fairness for companies that they are not subject to suit anywhere, anytime by anyone. And so, I think that they will affirm.
Rocky Dhir: Interesting. Well, that’s definitely one to watch and, Emily, we could talk about this more, but we do need to move on. And so, thank you for that overview and giving us a little bit more detail. We’re going to turn next to Shawn Tuma to talk about cybersecurity.
But, Shawn, I’ve known you for a long time. You probably need a couple extra minutes to think this through. I’m just getting – you probably need to wake up, slap yourself across the face, something, right?
Shawn Tuma: Rocky, I need a couple extra minutes to think everything through. Okay?
Rocky Dhir: Okay.
Shawn Tuma: Yeah, yeah. This is a standard.
Rocky Dhir: That’s why you and I get along so well. So, let’s do this. We’re going to take a quick ad break, hear from our sponsors and when we come back, Shawn Tuma is going to give us our cybersecurity update and we’re going to find out a little bit more about what’s going on in this very, very fascinating and fast-developing area. We’ll be right back.
Okay, guys, we are back and we have Shawn Tuma. He is ready and just raring to go. He wants to talk to us about cybersecurity. Before we get into the 2022 review, I’ve got to give you a shoutout. I mean, for all the teasing we do to each other, I’ve got to tell you, Shawn, you were ahead of the curve on this one. I remember back in 2009, you were telling lawyers to pay more attention to cybersecurity and we would all just kind of nod our heads and say, “What do you think about getting a Twitter handle?” And you were leaps and bounds ahead of us. So, you saw this coming down the pike 10 years ago.
Shawn Tuma: You know, Rocky, I appreciate that because I was talking about this back in 2009, but what a lot of people don’t remember is I was also talking about Y2K in 1999 and that was supposed to be my ticket to stardom and early retirement and that just kind of fizzled right out. And so, it took a long time. That was 10 years later that I finally started finding a little relevance. So, I guess, that you just keep beating the same drum long enough. Maybe, it works out.
Rocky Dhir: Well, you certainly found your moment.
Shawn Tuma: I mean, we’re all so busy with our practices, doing our day-to-day job. We forget sometimes that there are people out there trying to do harm to us in our practices and this is just one of them.
Rocky Dhir: You know, it’s always interesting to me because now more than ever, I think for anybody who works with corporate clients, cybersecurity is now — in 2009, they never ask. And now, it’s — okay, what is your cybersecurity footprint, what do you have, what protections do you have, and it’s fascinating to me because I remember there was a time when going cloud-based was a cybersecurity risk and sort of the mantra was put everything on your hard drive because it’s safer there. And now, it’s flipped entirely. Don’t keep it on your hard drive. You’ll want to keep it on a secure cloud platform. And so, I think the other part of this is that it’s so confusing for luddites like me. We don’t know what to do at any given point. I mean, are you finding that resistance to be the same?
Shawn Tuma: Yeah. So, there are a couple of important points in there, Rocky. One is cybersecurity in today’s age for law firms is a business development tool and a marketing tool as much as it is a risk management tool because so many clients have cybersecurity requirements that are placed upon them that they must now ensure that the lawyers who they’re entrusting their sensitive information to likewise protect that information. So, there are a lot of law firms that if they don’t have the cybersecurity basics that they need to have, they’re not going to get business.
Rocky Dhir: Same with the client.
Shawn Tuma: That’s right because the clients now can’t do business with them. So, that’s one issue. The other issue that I think is really important that you brought up is the complexity of it. We love to make cybersecurity sound complicated because it’s like impressive cocktail party talk like kind of James Bond type, the Russian hackers did X, Y, Z. The reality of it is the vast majority of cyber incidents are not very complicated. They’re fairly basic and they’re fairly predictable, but what we have done — and they’re manageable with basic cyber hygiene. What we have done by overcomplicating this is we’ve created basically paralysis by analysis. Folks just can’t figure out the best things to do. So, they sit there doing nothing many times when just picking any one of the top 10 practices and starting down the path would be better than doing nothing. And so, one of the things I try to do is simplify as much as possible and for my simple brain that works a whole lot easier too.
Rocky Dhir: Well, that’s my approach to marriage as well. I just do nothing. And so far, I’m not in trouble, but also, I’m not winning any awards. So, Shawn, let’s step back for a second, talking about the year in review and talking about your article for the December issue of the Texas Bar Journal.
You referenced something called the Texas Hacking Law and that seems to have played a pretty prominent role in 2022. Can you tell us what that law is? Can you dumb it down for somebody like me?
Shawn Tuma: Yeah. So basically, there are two components to it. There is a civil component and there’s a criminal component. The civil component is called the Harmful Access by Computer’s Act. It’s the one that we see most commonly. It’s the same statutory language. What it basically says it’s a broader version of the Federal Computer Fraud and Abuse Act. It prohibits unauthorized access to computers. So, under the Texas version, it prohibits the access to a computer without the effective consent of its owner. So, that effective consent language is much broader than under the Federal Computer Fraud and Abuse Actually and when we refer to computers, we’re referring to things like you said, cloud services, cloud-based email accounts. We’re referring to a Facebook account. All of these types of things are encompassed within that definition of computers.
So basically, whenever someone uses some kind of fraudulent means or even if it’s an employee who’s going outside the established parameters that the employer has established for them and maybe taking data that they’re not entitled to, to use for their own purposes, that’s been held to be a violation of that law. So, it’s pretty broad law and one of my goals with this update was to kind of get away from some of the more routine type things we see in cyber and privacy and help people see some of the broader application that this has in our practice.
Rocky Dhir: So, it’s interesting. One of the ones that stood out to me in your update was talking about the old owners of a company. They sell the company and then they still go and access emails and, to me, it would have just been commonsense that once you sell the company, you no longer own the emails and you stay out, but it sounds like that doesn’t always happen. And so now, it looks like they’ve added former owner access into this rubric of the hacking law. So, can you tell us a little bit more about how that issue even came up?
Shawn Tuma: So, it’s a common law inclusion, if you will, of this former owner. It’s an interpretation saying that the basic principles of the hacking law is it’s a violation to access a computer without the effective consent of its owner. And so, whenever that ownership changes and the former owner is no longer the owner of the computer system and they go in and access the email, in this case, by circumventing the security controls that were in place, it’s a violation of the statute. And one of the reasons I wanted to include this is because we see a lot of cases where this happens and what’s unique about it or what this should be a lesson for Texas lawyers is when you’re doing a transaction, make sure you include all of the computer accesses in your asset purchase agreement or whatever document you’re using because that change of ownership of the account means even if the former owner still has the credentials, they’re now prohibited from going in and doing that, and it’s kind of an ego thing a lot of times with owners of companies. They sell the company and they’re like, yeah, whatever, but these are my relationships and that’s my email and, by God, I’m not giving that up. And so, you’ve got to factor that human nature into this.
But then, the other side of it is a practice pointer is make sure you advise your clients when they do purchase these kind of accounts to obtain the credentials and then go in and make sure you have effectively locked out the former owners because even if the law says they can’t do it, doesn’t mean they’re not going to do it anyway.
Rocky Dhir: There’s a lot going on in cybersecurity, and your Year In Review article has a lot of different topics in there and you’ve done a great job I think of taking all that encapsulating it into one page, and I’m sure that was a challenge. What would you say is the single most important issue that you’d want Texas lawyers to take away? What do you think from a cybersecurity law perspective, what was the one part of the update you’d want folks to really kind of focus in on and maybe get some help if they need it in that area?
Shawn Tuma: Probably the update from the Texas AG’s office because while it applies — right now, the Texas AG is primarily —
Rocky Dhir: This is about data breaches, right?
Shawn Tuma: About data breaches.
Rocky Dhir: The data breaches, okay.
Shawn Tuma: Yeah, they’re primarily enforcing the Texas Data Breach Notification law against really kind of name brand companies, Walmart, Google, companies like that.
Rocky Dhir: Target from a few years ago, yes.
Shawn Tuma: Yeah, but the lessons to be learned from that are very instructive and in each of their orders, they’re putting out specific requirements that these companies are required to adhere to such as having a chief information security officer, having an incident response plan, performing risk assessments of their environment. And if you go in and you see and I tried to list out the most important requirements in this update because what they’re promoting and requiring is what I would say is at the top of the list of best practices.
So, back to my original point of trying to simplify this and bring some prioritization into the thousands of things companies could be doing, if you look at this list, it’s a great way to guide your clients and say, go and do these things because not only is this what the Texas attorney general is looking for, it’s what many of the other attorney generals and other regulators are looking for. And oh, by the way, it’s going to help you be much more secure so you never get hacked and breached and you never end up in this position in the first place.
Rocky Dhir: So, this particular act about data breach notification, I’m assuming that has to do with a company reaching out to those whose information has been compromised and letting them know that it happened. But now, if I’m reading your update correctly, there is also a component where you have to let state authorities know before you let the public know and tell them, hey, we had a breach. Here’s what happened and here’s how far we think it goes. Am I interpreting that correctly?
Shawn Tuma: Well, a couple of things there. One, Texas does have the data breach notification requirement. Texas also has a general requirement for everyone doing business in Texas that they maintain appropriate security and protection over sensitive information.
Rocky Dhir: That’s business of all sizes or is there a size?
Shawn Tuma: Of all sizes.
Rocky Dhir: Okay.
Shawn Tuma: Of all sizes. So, Texas has that general requirement that you have appropriate cybersecurity. The Texas AG’s opinions or more I should say, their consent decrees within the settlements are reinforcing the Texas AG’s view of what’s required under that very simple you must have appropriate cybersecurity requirements. So, that’s the best interpretation of what that requirement is, is these AG opinions. Now, —
Rocky Dhir: Interesting.
Shawn Tuma: — the legislature passed a requirement this session, not the session, but for Texas banks to have to notify the banking commissioner, if you will, as soon as possible but not later than 15 days of a material cyber incident prior to notifying the individuals or, interestingly enough, regulators, law enforcement, anyone else. So, this is only Texas banks that this particular update topic applies to, but it’s important to note that it’s much broader. Its application is much broader than just a data breach notification. This applies to notifying regulators, law enforcement which happens much more regularly than just a breach notification. So, this is a very broad requirement on Texas banks that they need to be paying attention to. It also has a requirement to have an incident response plan and other things within that that they need to be aware of because while the larger more sophisticated banks have that many times, smaller ones don’t. So, they really need to be aware of that.
Rocky Dhir: Wow. Okay. Well, again, Shawn, just like with Emily’s topic on jurisdiction and business litigation, we could probably go on and on with this, but we do need to get into the world of real estate. So, Roland Love is up next.
Roland, looks like real estate has been busy and what jumped out to me in your update was the law surrounding mechanics and materialman’s liens. I don’t know that a lot of Texas lawyers pay that much attention to that area, but from what I can gather, it’s hugely important and we need to be paying a bit more attention to it. So, can you give us a little more insight? It sounds like they’ve expanded the application and mechanics in materialman’s liens. Can you tell us a little bit more about that?
Roland Love: Yeah, that’s so true, Rocky. The subcontractors primarily have led this charge. They’ve been working on it for decades and we had a substantial revision beginning January 1, 2022. Primarily, it has expanded the scope of who can make a claim and for what they can make a claim, so demolition, landscaping all kinds of individuals or businesses that have given value to the property. The other thing that it did was make the process for making a mechanics lien claim much simpler. They’ve simplified the timelines and when those can be made because those have always been a trap for the subcontractor to try to figure out the timelines on that. One thing they did do though, they shortened the limitations for filing a lawsuit to one year. Big deal.
So, there was some give and take. The one year can be extended by written agreement recorded before the one year. And so, we probably will see that where there are some longer-term projects or some people working on things, but this is a huge change and it only applies to contracts entered into on or after January 1. So, if you’re under an old contract, the old law applies. If you’re under a newer contract, the new law applies. Big deal.
Rocky Dhir: I also want to make sure that we talk about the Mitchell decision by the Texas Supreme Court because that featured very prominently that talks about effectively serviced by publication and kind of what happens there. So, can you tell us a little bit about the background of that case, how it came about? And this could affect litigators outside of real estate, too.
Roland Love: Oh, yeah.
Rocky Dhir: So, I wanted to make sure we do not forget that. So, tell us a bit about Mitchell and the underlying facts and how it came around.
Roland Love: So, Mitchell v. Map Resources is really an oil and gas lease context and that is where the money really is on this situation. Many times, leases are entered into or court ordered in the context of service on all of the parties involved. So, we’re trying to create a lease that covers a number of interests of property and, many times, those people are hard to find, and so they do service by publication.
In this case, the heirs were able to show that the individual that their predecessor’s information was available in the appraisal tax records. And so, it wasn’t not easily available that that constitutes being easily available. And so, the court set aside that default judgment a decade or so after it had been entered into and, of course, that’s really going to shake up where the money goes if you have a producing oil well. Significant decision for any situation where you’re doing service by publication, you definitely want to use all reasonable diligence to find that individual’s information.
Rocky Dhir: That means going to the property tax records, many of which are online now. So, they say just look them up and see if you can find them.
Roland Love: You kept the wonder, don’t you? Maybe, we’re using today’s concepts of how easy it is to find information for a default judgment back in 1999. But certainly, that is where the core went is that that information was available and, of course, information is everywhere nowadays. So, we have to do those searches.
Rocky Dhir: You talked about a lot of issues and, again, just like what Shawn did, you had a lot that you had to compress into one page. And so, before we talk about anything specific, I want to make sure we asked you, what do you think is the most important or impactful development from 2022 in the real estate practice area?
Roland Love: Well, thanks for that question because there were definitely some things that people —
Rocky Dhir: It was not pre-planned.
Roland Love: Not, but it is something we really, really need to pay attention to. One is, of course, they changed the law on filing homestead exemptions to where an individual buying a home that doesn’t already have that exemption can file for a homestead exemption immediately upon buying that property. So, mid-year, that’s a huge change for the taxpayer.
Rocky Dhir: How was it before? What was the old law on that?
Roland Love: You could only apply for a homestead exemption on January 1 of each year. So, if I bought property mid-year, I’d have to wait until the next January 1. And so, that created a tax burden for many taxpayers who did not have the benefit. Let’s just say I closed on January 15. I’d have to go a whole year without having the availability of that homestead exemption. So, it was a good win-win piece of legislation.
The other really good, I think where Texas led the nation is we created a statutory process for removing racial deed restrictions from deeds in the deed records and it’s a very simple process. It’s available to an owner of property and this was the Royce West Bill.
I actually had Royce come across from the Senate and the House named the bill after him and applauded him. It was a big event. So, I think we should be very proud that Texas led the way in doing that one.
Rocky Dhir: With the racial deed restrictions, I guess, to an untrained eye, I assumed those would be void as against public policy to begin with. But it sounds like we needed to have an actual act of the legislature to kind of codify that.
Roland Love: Well, the interesting part they have been illegal for many, many years. They’re constitutionally illegal. They’re illegal by Federal Law and Texas law but look at it from the perspective of a homeowner, particularly a person of color that is buying a piece of property and they’re in their chain of title is a racial deed restriction that they can’t own that property and it can be very offensive to that individual and those provided a process to remove that. It’s something that the minority community has wanted for some time and I think this is an excellent solution to addressing that.
Rocky Dhir: So, as opposed to simply saying ignore it, we’re now saying we’re going to remove it so it’s no longer in there. That’s what effectively.
Roland Love: Essentially, what we end up with is an order of the court identifying that racial restriction as inappropriate and illegal and offensive and it will be placed in the deed records with the document. It’s a careful play because we don’t really like to go in and start altering historical records or removing historical records. So, that’s not really something that is a viable alternative, but this is I think the next best thing that if I buy a piece of property that had a racial restriction on it, I will also have an order of the court declaring it removed.
Rocky Dhir: But now, if I’m the property owner, do I actually have to go into court, set up litigation, hired a lawyer to do this or is there a fast-track process by which I can –?
Roland Love: It is very fast track. It’s a little bit like filing a motion to remove a slanderous lien that has no validity. It’s usually about a seven-day process. The form is in the statute. You fill out the form. You file the form. The court has an order. That’s also in the statute. They enter it and it’s very quick. You could use a lawyer but you don’t really need one and we are adding it to the real estate forms manual, too. So, it should be a very simple process.
Rocky Dhir: Again, very interesting topics. You had some more you wanted to talk some more.
Roland Love: But there was one other, I just think it’s kind of minor but everyone needs to know about it. Our legislature passed a requirement of notice of a public improvement district. So, if you’re buying or selling real estate, the seller must give that notice that the property is in a public improvement district before signing the contract.
Rocky Dhir: Tell us what a public improvement district is because, again, not everybody may know. So, what are those and why is that important?
Roland Love: So many times, and this is particularly cities, there’s only a couple of counties that have done this. But in a city, I may identify a geographic area that is in need of specific improvements that the neighborhood may want. It may be street signs, it might be roads, it might be curbs, it might be different kinds of lights, a historical area, whatever, and they will create that district and they will borrow money. The city will borrow money to pay those costs and it will be taxed until the bond is paid.
Rocky Dhir: Got it.
Roland Love: So additionally, what it is, is a disclosure of an additional property tax, but if the ramifications are fairly draconian like I was getting ready to say is that a contract can be canceled before it closes, if we close without giving the notice, it can be rescinded and there can be an action for damages. So, as a practitioner, it seems little but it’s not something I want to miss. If I’m doing a real estate contract, I want to make sure I check for Public Improvement District and that I’ve given that notice.
Rocky Dhir: Do you anticipate this is something that will simply be put into forms as a matter of course or do you anticipate there are going to be situations where lawyers and realtors just miss it entirely?
Roland Love: No, it’ll definitely become a standard disclosure in the contract forms. Texas Real Estate Commission has already adopted it for their residential forms and the ones they promulgate. I think Texas Realtors has it in their standard commercial contract. It’s just that we got to make sure it finds its way out to the attorney world because, many times, we have form contracts that we use that we’ve worked up over decades within a law firm. We need to make sure those notices are put in there.
Rocky Dhir: So, go back and review everything. Don’t just pull it out and copy and paste.
Roland Love: Again, it’s a minor little thing that can kill a big deal.
Rocky Dhir: Absolutely. Well, this has been a fascinating episode and I’ll tell you what I love most about the December episode is, when we do the year in review, there are so many practice areas that you don’t realize the complexity and just how many interesting nuances there are in it. So, Emily Black, Sean Tuma, Roland Love, we’ve run out of time for the episode, but I want to thank all you all. And yes, this is a Texas Podcast. So, I said all you all. Thank you all for being here on the podcast today. And again, thank you for these amazing overviews.
If you’re tuning in, I want to thank you and encourage you to stay safe and be well. More importantly, if you’re a lawyer tuning in, please do go and take a little bit of time to read about these different practice areas. They’re all interesting and you may think something is not up your alley, but it may end up coming right into a case or into something that you’re working on. So, pay attention, read this December 2022 issue of the Texas Bar Journal and thank you again for tuning in.
If you like what you heard today, please rate and review us in Apple Podcast, Google Podcast or your favorite Podcast app. Until next time, remember, life’s a journey, folks. I’m Rocky Dhir signing off. Hope you have a very, very Happy New Year.
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