Tenants: Beware and Negotiate

In a matter of first impression before the Texas Supreme Court, the Court ruled that a Residential Lease provision that obligated the Tenant to pay for any damages that result from “any cause not due to Landlord’s negligence or fault” was not void and unenforceable.

The background facts:  A young lady, Carmen White, got her first apartment and signed a standard Texas Apartment Association (“TAA”) lease.  Her parents gave her a washer and dryer set as a gift.  While using the dryer, it caught fire and burned her apartment and others nearby.  The damages to the apartment complex exceeded $83,000.00.  The source of the ignition was unknown and no fault was placed on White or the Landlord.  The landlord’s insurance company paid the claim, subrogated, and demanded reimbursement from Ms. White.  When she refused to pay the insurance company brought suit against her. 

The Procedural facts:  The case was tried to a jury.  After trial, the jury answered “no” to a question asking if White’s negligence proximately caused the fire.  However, the jury answered “yes” to the question whether White breached the lease agreement by failing to pay the casualty loss.  The jury awarded the landlord $93,498.00 in damages.  White moved for judgment not withstanding the verdict which was granted and the trial court rendered a take-nothing judgment.  The Court of Appeals affirmed the trial court ruling holding that that the Reimbursement Provision was void as against public policy.  The Appeals Court found a fatal conflict between the Reimbursement Provision’s broad language and Chapter 92 of the Texas Property Code restricting a Landlord’s ability to contractually allocate repair responsibilities.

The Supreme Court ruling:  The Supreme Court was to determine, as a matter of first impression, whether public policy embodied in the Texas Property Code precludes enforcement of a residential lease provision imposing liability on a tenant for property losses resulting from “any other cause not due to the landlord’s negligence or fault”.  In so holding the Supreme Court (in a 5-4 decision) repeatedly stated the well known legal axiom that “Parties in Texas may contract as they wish, so long as the agreement does not violate the law or offend public policy, recognizing the the Legislature has limited the freedom of a landlord and tenant to contractually allocate responsibility for repairs materially affecting health and safety.  Interestingly in footnote 4, the court acknowledged that above the signature block, the lease prominently states that the lease can be modified by agreement of the parties, but neither party requested modifications to the Reimbursement Provision. 

The Lease contained a reimbursement provision standard in the TAA lease which obligated the Tenant to pay for any damages that result from “any cause not due to Landlord’s negligence or fault”.

As we all know it is almost impossible to get a Landlord to revise any provision in a standard form lease, but if you are to avoid the tragedy that happened to Ms. White, you must negotiate a modification of the Lease.

Be aware that the TAA Lease is a legal document and forms a binding contract.  You should consult an attorney for help revising the Lease. 

We would first add a sentence to Section 10, Special Provisions.  We would write in the blanks a sentence to limit my liability.  For instance, “Notwithstanding anything to the contrary, Tenant shall never be responsible for repair, or liable for damages to Landlord’s property, including other units in the complex, unless such damage is proximately caused by the negligence of Tenant, Tenant’s guests, or invitees.”

Secondly, we would strike out certain language contained in Section 12. We would strike out “or any other cause not due to our negligence or fault”, at the end of the first sentence of Section 12.

We firmly believe that no residential Tenant should be held responsible to repair other units damaged or for property losses “resulting from any other cause not due to the landlord’s negligence or fault.”  Do not let this happen to you.

How Should You Respond to Potentially False I-9 Documentation?

At present, the federal government expects companies to carefully examine all I-9 documents presented by job applicants and to ask questions about required paperwork that looks like it may have been altered. Once you receive proper documents that look valid, you must keep your copy of the completed I-9 form on file, ready to share it with ICE (Immigration and Customs Enforcement) upon request. In some cases, you may be given only three days’ notice to produce these documents for all your employees.

To help employers fulfill their duties, ICE provides general guidelines that describe how all I-9 document reviews should be handled. These guidelines are further referenced below, along with topics you should address with your human resource staff to help them avoid accidentally discriminating against applicants and employees while simply trying to obtain fully updated, accurate documents.

What federal law established the need to obtain I-9 documents from job applicants?

Congress passed the Immigration Reform and Control Act (IRCA) back in 1986. It requires employers to obtain job applicant documents that validate each person’s right to work in this country. This task is handled by fully completing a Form I-9 document for each job applicant. To help establish their legal status, applicants can produce such items as:  a driver’s license, a Permanent Resident Card, a US passport, a birth certificate and a Social Security card.

Can some I-9 documents be acceptable even when they initially look questionable?

The simple answer to that question is “Yes.” However, you should always keep notes in your file concerning any odd documents that you first believed might be false – and keep a copy of them. As ICE notes on its website, there are times when a worker may show you documents indicating different last names – and that may be acceptable if the job applicant can provide you with a reasonable explanation for the varied listings.

While employers must be respectful and open-minded while handling required I-9 tasks, they should be acting in agreement with previously established, written employee guidelines clearly noting that all new hires and established employees can be fired for providing any false job applicant documents. When you haven’t already created such written guidelines and acceptable standards of employee conduct, you may later find yourself accused of discriminating against an applicant or employee based upon his or her immigrant (or special ethnic) status.

This type of scenario often unfolds when an employee informs you after being hired that one or more documents given to you before being hired was fraudulent or invalid. This tends to occur when the employee is trying to provide you with newly updated, valid documents.

This specific type of issue was presented to the Department of Justice (DOJ) back in 2015. Unfortunately, instead of issuing an advisory opinion, the DOJ simply noted that employers should already be prepared to handle these types of issues — based on established employee conduct guidelines. Otherwise, they risk being sued for one of at least four employment-related forms of discrimination.

Is it true that some employers have been heavily fined for I-9 violations?

Yes. One of the largest fines recently imposed by the Office of the Chief Administrative Hearing Officer (OCAHO) involving I-9 irregularities was against Hartmann Studios. That company was required (in July of 2015) to pay $600,000 in civil penalties. (That amount had been reduced from the original penalty sought of $812,665.) When Hartmann was undergoing a new inspection back in 2011, the company employed over 700 workers.

While that large sum of money is quite high, it’s important to recognize that Hartmann Studios was unable to provide any I-9s for some of its employees who had been terminated and needed an extension of time to produce documents for others.

What steps can our office (or company) take now, to make sure were fully complying with all current I-9 document guidelines?

If you haven’t already done so, give serious thought to signing up for the US government’s
E-Verify program that can help you properly process all your I-9 documents. By visiting this government website, you can learn more about how this program works. Your usage of this service may help establish your good-faith attempt to properly handle all I-9 duties.

You may also want to ask your lawyer if you should require all newly hired (and established) employees to sign a form that clearly indicates their awareness that they may be immediately fired for their dishonesty if you ever learn that they’ve provided you with any fraudulent I-9 documents. If you do this, you’ll need to strictly apply this standard.

Please contact our Murray Lobb law office so we can answer any other questions you may have about properly handling all I-9 documents. We can also provide you with advice on drawing up a general employee handbook — that also fully alerts all employees to the possible consequences of supplying your company with fraudulent I-9 documents.

HB 1974 Provides Useful New Power of Attorney Provisions

The State Bar of Texas often promotes new legislation like HB 1974 that helps people more readily use probate statutes to benefit themselves. This new statute provides changes to durable powers of attorney (POA) that were supported by the Bar’s Real Estate, Probate and Trust Law Section. They became effective on September 1, 2017.

In broad terms, these new provisions (1) clarify certain legal presumptions involving durable powers of attorney, (2) broaden the types of powers that principals can give to designated agents and (3) define when a party can legally refuse to accept someone’s power of attorney.

Penalties for not accepting powers of attorney are also discussed since these documents must usually be accepted as valid (unless clear exceptions set forth in the new provisions are met.)

Legal Presumptions Supporting Texas POAs

  • When properly notarized and signed by the principal who created the document, a durable power of attorney (POA) naming an agent must be considered valid;
  • A POA drafted in another state must be considered valid (once it’s certain that it fully complies with the laws of the other state);
  • The recipient of a faxed, photocopied or emailed copy of a POA can rely upon it like the original without liability.

New Powers and More Agents Can Now More Easily Be Included in POAs

  • If the principal names co-agents, they can act independently of each other – unless the POA specifically forbids such activity;
  • New rights of survivorship can be created or changed by named agents – if this right is specifically set forth in the POA;
  • The designated POA can delegate certain expressly assigned authority to others;
  • An agent can create, terminate or make various changes to an inter vivos trust;
  • Rights of survivorship and certain beneficiary designations can be changed by an agent if the principal included them in the POA document.

Specific restrictions are also set forth regarding the new parties an agent can name when making certain POA changes – they are designed to prevent the agent from naming anyone who the agent already has a legal duty to support.

Limited Facts or Known Events That Can Justify Rejecting a POA

Although this new legislation clearly states that power of attorney documents should normally be accepted and that penalties can apply if this doesn’t occur – the new statutes do list numerous situations that can justify the rejection of a specific POA. Here are some of the many exceptions that can allow someone to reject a proffered POA.

  • The party being given the POA has reason to believe that an SAR (suspicious activity report) has been filed regarding the agent or principal;
  • The person hesitant to accept the POA is aware that a judicial proceeding has already begun that was initiated to determine the document’s validity;
  • A party has a “good faith” belief that the named agent has a criminal record based on financial crimes;
  • The party handed the POA believes in “good faith” that the principal is currently being abused in some manner by the named agent;
  • The party asked to accept the POA has received conflicting instructions from one or more agents named in that same document.

While this list isn’t intended to be comprehensive, it does set forth some of the new provisions justifying a person’s decision to reject a POA document. However, anyone who won’t accept a proffered POA must state this refusal in writing and give the specific reasons for rejecting it.

Since questions may always be raised regarding many powers of attorney, it’s wise to first speak with your Houston probate attorney when trying to decide whether to honor one that’s been tendered to you. Our firm is also prepared to draft any new POA that you may currently need.

Food Security Act – 1 ; UCC1 – 0

This is a Warning regarding The Food Security Act.

Do not leave the gate open, all your cattle (collateral) will disappear!
At first glance, the Federal Food Security Act of 1985 appears to severely disadvantage perfected parties with security interests in farm products. But the Act’s primary aim is to establish a framework of enhanced notice for buyers, sellers, and secured parties of farm products. Nevertheless, secured creditors of farm products may find themselves without recourse against buyers of farm products in the ordinary course of business if they are not adequately informed of the various pitfalls within the Act.

For the most part, senior perfected secured parties reign supreme under Article 9 of the Uniform Commercial Code. A senior perfected party, for instance, will prevail over a conflicting security interest perfected in the same collateral. See U.C.C. §§ 9-317; 9-322(a). This policy is sensible because it permits lenders to extend credit at fair interest rates in exchange for security. However, a significant deviation from this rule involves “buyers in the ordinary course of business” (“BIOCOB”). Under Article 9, a BIOCOB, “takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.” See U.C.C. §§ 9-320(a), 1-201(b)(9). Here, the policy varies from the general rule– that is, such a buyer needs protection from a secured party’s enforcement of a security interest.

Nonetheless, even the BIOCOB exception includes an exception. A person buying farm products, such as livestock and crops, from a person engaged in farming operations does not take free of a security interest created by their sellers. See U.C.C. § 9-320(a). For example, suppose Farmer, grants a security interest in all his cattle to Bank, in exchange for a loan. Farmer who is experiencing financial difficulties, then sells all his cattle to “Joe” in the ordinary course of business. Under Article 9, Joe is not protected by the BIOCOB principle. Instead, Joe’s purchase of the cattle is subject to Bank’s security interest in the cattle. Therefore, Bank will be able to enforce its security interest in the cattle against Joe.

Buyers of farm products undoubtedly despised this result, and in 1985, convinced Congress to protect them under the Federal Food Security Act. Section 1631(d) of the Act effectively eliminated the exception to the BIOCOB rule relating to buyers of farm products. Now, “a buyer who in the ordinary course of business buys a farm product from a seller engaged in farming operations shall take free of a security interest created by the seller, even though the security interest is perfected; and the buyer knows of the existence of such interest.” See 7 U.S.C.S. §1631(d).

In their congressional findings, Congress noted that certain State laws permitting secured lenders to enforce liens against purchasers of farm products even if the purchaser did not know that the sale of products violated the lender’s security interest in the products exposed purchasers of farm products to double payment for the products; once at the time of purchase, and again when the seller fails to repay the lender. This exposure to double payment, Congress said, “inhibits free competition in the market for farm products” and “constitutes a burden on and an obstruction to interstate commerce in farm products.” See 7 U.S.C.S. §1631(a). Therefore, “notwithstanding any other provision of Federal, State, or local law”, buyers of farm products benefit from the same rights as other BIOCOB.

The Federal Food Security Act, however, affords two procedures for perfected secured parties to reclaim priority status over BIOCOB of farm products. Under the first mechanism, the State where the farm product is produced must have established a “central filing system.” This type of filing system is intended to provide heightened notice to prospective buyers of farm products. Currently, all fifty states have public filing systems for U.C.C. Article 9 financing statements. However, only nineteen (19) states have set up a central filing system under the Act. Here is a link showing which States have central filing systems certified by the U.S. Department of Agriculture as meeting the requirements of Section 1631 of the Food Security Act of 1985: https://www.gipsa.usda.gov/laws/cleartitle.aspx. Notably, Texas has not established a central filing system complying with the Act.

The second mechanism (applicable to Texas) of providing secured parties priority status over BIOCOB of farm products involves a seldom followed and impracticable notice procedure. Under the Act, a buyer of farm products takes subject to a security interest created by the seller if within one year before the sale of the farm products, the buyer receives from the secured party or the seller written notice of the security interest in the relevant farm products. The written notice must be an original or reproduced copy thereof, containing the name and address of the secured party and person indebted to the secured party, describing the farm products subject to the security interest, and noting “any payment obligations imposed on the buyer by the secured party as conditions for the waiver or release of the security interest.” See 7 U.S.C. §1631(e).

As noted above, only nineteen States have certified central filing systems, which leaves secured parties of farm products in most States with limited options in protecting their security interests. In the previous example above highlighting the exception to the BIOCOB rule, Bank is entitled to enforce its security interest in the cattle against Joe, the purchaser of the cattle from Farmer under Article 9. Under the Federal Food Security Act in most states, however, Bank would lose its priority status with regards to the cattle and would be unable to enforce its security interest against Joe, unless Bank complies with either one of the Acts two mechanisms for reclaiming priority status.

In Texas, the legislature adopted Article 9 of the U.C.C. but has not established a certified central filing system under the Federal Food Security Act. As a result, a scenario much like the one where the Bank loses its priority status to Joe is almost certain to occur. Therefore, creditors have two main options when dealing with farm products as security in Texas: 1) a creditor could accept farm products as collateral under a security agreement and comply with the second mechanism under the Act for reclaiming priority status; or 2) the creditor could reject farm products as security all together. The first option is clearly the riskier choice for a creditor because complying with the second mechanism hinges entirely on the seller of farm products notifying the secured creditor of the sale. Oftentimes, debtors are forgetful or in financial distress and will fail to notify a secured party of a sale on secured collateral. Either way, creditors and buyers of farm products should proceed with caution when dealing with farm products as security in Texas. You have been warned!

If you have any questions or if you need our help, Contact us Today!