The recent and massive health care reform bill, titled the Patient Protection and Affordable Care Act, was hotly debated and garnered much media attention prior to its passage. One provision of the Act, however, received none of the media spotlight, yet will have a significant impact on a number of employers. The Act amends Section 207 of the Federal Fair Labor Standards Act to now require employers to provide break times during the work day for nursing mothers to express breast milk. Specifically, Section 4207 of the Act, “Reasonable Break Time for Nursing Mothers,” states that an employer must provide a reasonable break time for an employee to express breast milk for her nursing child up to one year after the child’s birth every time such employee has a need to express milk.

The nursing mother break time requirement took affect immediately upon President Obama’s signing of the Act; however, the rules for enforcement have not yet been put in place. The Department of Labor is in the process of developing regulations to implement this new nursing mother break time requirement.

The nursing mother break time requirement applies broadly to all employers covered by the Fair Labor Standards Act. Only an employer of less than 50 employees is potentially exempt, if such requirement would impose an “undue hardship” by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer’s business. Based on the employment-related laws, it can be presumed that the burden will be on the employer to prove “undue hardship.” Employers with less than 50 employees are cautioned not to assume that they are exempt from the nursing mother break time requirement, but should consult with counsel regarding the applicability of the undue hardship exemption to their current situation.

Under the Act, an employer is required to provide nursing mothers with a location, other than a bathroom, that is shielded from view and free from intrusion from co-workers and the public in which to express breast milk. The Act does not require an employer to make major changes to the building environment, but rather provide employees with a designated private space in which to express milk. It is expected that such private space will be required to have at a minimum a locking door, electrical outlets, and be located in close proximity to a bathroom, as well as the employee’s work space.

The Act does not provide any guidance as to what constitutes a “reasonable” break time, nor does it set forth any limit to the number of breaks that can be taken during the work day. As the provision was introduced into the Act by Oregon Senator Jeff Merkley and appears to be loosely modeled after Oregon’s current state law, it is possible that the Department of Labor will look to Oregon’s existing state statute for guidance as to the interpretation of “reasonable” break time. Oregon requires employers to provide employees with a thirty minute break time to express milk.

Pat McGrath

Everyone is familiar with the long-standing rule that, ordinarily at least, the party responding to a discovery request is responsible for response costs. However, when the responding party would be subject to “undue burden or expense,” some or all of the costs may be shifted to the requesting party. The expense of complying with requests for electronically stored information (ESI) has made cost-shifting an increasingly frequent feature of discovery.

In Surplus Source Group v. Mid America Engine, the plaintiff served the defendant with requests for production of documents, including records stored electronically. The defendant searched its files and produced responsive documents. Plaintiff claimed that the production was incomplete. Defense counsel requested additional information from plaintiff so a second ESI search could be conducted. Plaintiff’s counsel responded by summarizing supposed shortcomings with the original search based on a discussion with the firm that conducted the search.

Counsel for the defendant asked plaintiff to provide search terms that would permit a more comprehensive search. Plaintiff’s counsel submitted a list of proposed search terms. However, the search had already been conducted. After receiving documents identified in this search, plaintiff moved to compel discovery of additional material. Defendant maintained that the production was complete.

As the responding party, the defendant was presumptively responsible for the cost of searching for and producing documents responsive to the request. The Court noted that the defendant had demonstrated a “persistent willingness” to design an ESI search that would yield the requested documents, if they in fact existed. Weeks before the second search, the defendant asked the plaintiff to provide search terms. Had the plaintiff done so, the search could have been conducted using those terms.

Because the documents plaintiff requested were critical to resolution of a material issue in the litigation, the Court’s solution was to order the defendant to conduct a third search using the search terms provided by the plaintiff, but to condition the search on plaintiff’s willingness to pay the costs, up to the amount defendant spent in conducting the second search. If the expense of the third search exceeded the cost of the second search, then the defendant would be responsible for the excess.

The decision to order cost shifting reflected the Court’s belief that, had the plaintiff been diligent in providing the search terms, no third search would have been necessary. So plaintiff would ultimately bear the expense of the second search, which would not have taken place except for plaintiff’s delay in providing the defendant with the appropriate parameters for the search.

More typically, cost shifting is a factor when the scope of discovery requested results in excessive costs for the responding party or when electronically stored information is “not reasonably accessible.” This illustrates that a requesting party’s failure to cooperate with the responding party to limit the expense of searching for and identifying electronically stored information can also be a proper basis for cost shifting.

Pat McGrath

An arbitration agreement cannot limit a non-party’s legal right to compel production of arbitration-related documents by parties to the arbitration agreement. In a recent lawsuit, defendant Health Grades, Inc. claimed that plaintiff could not see documents related to a binding arbitration agreement between Health Grades and another party because those parties had agreed not to disclose arbitration materials.

In an effort to obtain the arbitration documents, plaintiff served the non-party, Hewitt Associates, with a subpoena. Health Grades, Inc. objected to the production because of the mutual non-disclosure and confidentiality agreement between it and Hewitt in the arbitration contract.

The Court of Appeals upheld the District Court’s production order. The Court of Appeals explained that, even if the agreement between defendant Health Grades and Hewitt had purported to block production, it would not have been effective to prevent disclosure to plaintiff, a non-party to the arbitration agreement. Contracts bind only the parties; parties cannot contractually agree among themselves to cut off third-party discovery. Trade secrets, privileges, and the statutes or rules requiring confidentiality must be respected, but litigants’ preference for secrecy does not create a legal bar to disclosure of litigation materials.

Health Grades and Hewitt Associates were entitled to agree between themselves that they would not voluntarily disclose any information related to the arbitration; however, this did not extend to disclosure pursuant to legal right. Plaintiff was entitled to compulsory process to obtain relevant documents from Hewitt.

This should be a caution flag. A confidentiality requirement is effective as to, and enforceable by, the parties themselves. However, the confidentiality agreement is not binding, at all, on non-parties. The best practices procedure should be requiring return of confidential documents by the opposing party and then destruction of those documents, under proper internal procedures.

Please contact us if you feel you may need to revisit your document retention and destruction policies.

Pat McGrath

When parties to an arbitration agreement disagree as to the arbitrability of a dispute, there is a question as to who decides arbitrability. Is the matter for a court to resolve, or is it an issue for arbitration? The answer is that it depends on the parties’ agreement. See First Options of Chicago, Inc. v. Kaplan. Submission of the matter to arbitration requires “clear and unmistakable” evidence of the parties’ intent that arbitrability is for an arbitrator to decide.

Rule 7(a) of the American Arbitration Association Rules provides that the arbiter has “the power to rule on his or her own jurisdiction.”

In Fallo v. High-Tech Institute, the 8th Circuit held that the arbitration clause’s incorporation of AAA’s Commercial Arbitration Rules constituted a clear and unmistakable expression of the parties’ intent to leave the question of arbitrability to an arbiter.

However, many courts require that the arbitration agreement specifically state, in clear and unequivocal terms, that the arbitrability of the dispute is a question solely for the arbitrator. As a practical matter, courts tend to favor themselves as the initial judge as to the applicability of the arbitration agreement; whereas, arbitrators seem to typically always find it within their province to determine the arbitrability of the particular matter.

Consequently, the best practice is to make sure that the binding arbitration clause is carefully crafted, paying particular attention to specific terms of art that are used in your legal jurisdiction to ensure that binding arbitration stays where you intended it to stay.

Pat McGrath

On December 2, 2009, Mark McFarland and Marty Jackson, members of the Firm’s Business Practice Group, obtained summary judgment in favor of a client who had been sued in his capacity as the former Trustee of two (2) trusts. Plaintiffs, a beneficiary of the trusts and the current Successor Co-Trustees of the two (2) trusts, brought an action in the District Court of Johnson County, Kansas against the former Trustee seeking damages and reimbursement for attorneys’ fees and expenses in excess of $500,000.00 for alleged violations of the Uniform Trust Code, K.S.A. 58a-101 et seq. and the Uniform Prudent Investor Act, K.S.A. 58-24a01 et seq.
Although plaintiffs alleged the former Trustee violated the Uniform Trust Code, Mark and Marty argued that plaintiffs’ claims focused ultimately on the former Trustee’s investment and management activities. The Court agreed and further found that plaintiffs’ alleged damages flowed from the alleged negligent investment of the trusts’ assets not from administration of the trusts.
The Court then concluded that the Uniform Prudent Investor Act, not the Uniform Trust Code, governed plaintiffs’ claims. The Court relied on K.S.A. 58a-901 which provides, “[n]otwithstanding any provisions of the Kansas uniform trust act to the contrary, K.S.A. 58-24a01 et seq. [the Kansas Uniform Prudent Investor Act] and amendments thereto shall govern the investment and management of trust assets.” (Emphasis added) Additionally, the Court found persuasive the Kansas Supreme Court’s holding in McGinley v. Bank of America, N.A., 279 Kan. 426, 435, 109 P.3d 1146 (2005), which states “despite the arrival of the KUTC, the Uniform Prudent Investor Act . . . still governs the investment and management of trust assets.”
Having successfully argued that plaintiffs’ claims were based upon investment and management activities and, therefore, the Uniform Prudent Investor Act governed, Mark and Marty next argued that the trust instruments eliminated, or at least restricted and altered the prudent investor rule set forth in the Uniform Prudent Investor Act.
The trusts in this case were created in 1996. In 1996, Kansas law relating to the investment of trust funds “expressly recognized that the trust instrument can modify the fiduciary’s obligations under the prudent investor rule and, in so doing, shield[s] the fiduciary from liability when it relies upon those trust provisions.” See, McGinley v. Bank of America, N.A., 279 Kan. 426, 433, 109 P.3d 1146, 1151 (2005). The Uniform Prudent Investor Act, K.S.A. 58-24a01 et seq., was enacted in 2000. K.S.A. 58-24a01(b) retained the power of a trust instrument to restrict, eliminate or otherwise alter the “default” prudent investor rule.
In this case, the trust instruments contained the following provisions relative to the trustee’s power to invest:

“To invest and reinvest any and all funds coming into his possession for investment in such securities or property, real or personal, as he may in his absolute and uncontrolled discretion deem proper and suitable, including corporate stocks of all classes, and units or interests in any common trust fund operated by said Trustee solely for the investment of funds in his care as a fiduciary or co-fiduciary, without limitation by any statute, custom, or rule or law, now or hereafter existing, relating to the investment of trust funds; and to hold and retain as an investment for the trust estate, without accountability for loss, any and all of the property or securities which may be delivered, transferred or conveyed to him hereunder by the Donor without any duty to convert or diversify, although they may not be of the character generally regarded by law or custom as proper investments for trust funds.” (Emphasis added.)

* * *

“All powers and discretion granted to the Trustee hereunder are exercisable by the Trustee only in a fiduciary capacity. Except for his willful default, a Trustee shall not be liable for any act, omission, loss, damage or expense whatsoever arising from the performance or non-performance of his duties hereunder.” (Emphasis added)

This Court concluded that the prudent investor rule was eliminated by these provisions of the trust instruments. The Court further found that plaintiffs had not offered any facts suggesting “willful default” by Defendant. Accordingly, the Court granted summary judgment in favor of the Firm’ client.
If you are a Trustee, or have a client that is or was a Trustee, and litigation has been or is threatened, then contact Mark or Marty to schedule a consultation.

Typically, throughout the course of a litigated case, the attorney representing a corporation will be requested by the corporation’s independent auditors for opinions in connection with an audit of the company’s financial statements for the year. Surprisingly, this “auditor’s request letter” usually comes directly from the corporation, on the corporation’s letterhead and signed by an authorized representative of the corporation. The independent auditor simply has sent the corporation a form template for the corporation to send on the corporation’s letterhead to all of the corporation’s legal counsel.

Usually, the language is identical in all auditors’ requests and takes the following format:

“Dear Mr. McGrath,

In connection with an audit of the financial statements for ABC Corporation as of January 1, 2009 through December 31, 2009, please furnish to our independent auditors, Ernst & Young (fax number 913-888-1065) a description and evaluation of certain matters with respect to which you have been engaged and to which you have devoted substantial attention on behalf of ABC Corporation in the form of legal consultation or representation. Your response should include matters, which existed as of January 1, 2009, and arising subsequently, to the date of your reply.
Pending or threatened litigation (excluding unasserted claims):
Please list all pending or threatened litigation, excluding unasserted claims. Materiality for purposes of this letter includes items involving amounts which could potentially exceed $10,000. Information regarding each matter should include:

1. The nature of the litigation;
2. The progress of the litigation to date;
3. How ABC Corporation is responding or intends to respond to the litigation, e.g. to contest the case vigorously or to seek an out-of-court settlement; and
4. An evaluation of the likelihood of an unfavorable outcome and an estimate, if one can be made, of the amount or range of potential loss.”

The typical auditor’s letter goes on with other factors related to the lawsuit and financial statements.

The question becomes, can the adverse party in litigation discover what the attorney communicated to the independent auditor. That is, is it a waiver of attorney-client privilege? If so, the adversary can discover how ABC Corporation intends to respond to the litigation, either by seeking an out-of-court settlement or by vigorously contesting it. More importantly, the adversary can discover ABC’s attorney’s evaluation of the likelihood of an unfavorable outcome and an estimate as to the range of potential losses.

In United States v. Textron, Inc. and Subsidiaries, 2009 WL 136752, the Internal Revenue Service issued an administrative summons to Textron, Inc. seeking tax accrual papers prepared by Textron. The requested material identified questionable positions Textron took on its returns, estimated the chances these would not withstand IRS scrutiny, and calculated the amount of additional tax liability that would result were the positions revised. The reason for doing this was to allow Textron to maintain an adequate reserve fund, properly report its assets and liabilities, and obtain independent certification of its financial statements. As part of the auditing process, Textron showed the working papers to its independent auditors, Ernst & Young.

Textron refused to comply with the subpoena. It contended that the work papers were covered by the attorney-client privilege and, because they were created in anticipation of possible litigation with the IRS, constituted protected work product. The District Court found the work papers were both privileged attorney-client communications and protected work product. On appeal, however, the United States Court of Appeals held that the disclosure to Ernst and Young waived the privilege.

Caution always needs to be used in an attorney’s disclosure to an independent auditor’s request. If the opposing counsel subpoenas the auditor’s request letter, it is likely that the auditor’s request letter may include the attorney’s evaluation of the likelihood of an unfavorable outcome and an estimate as to the range of potential loss.

Pat McGrath

In an ERISA claim, plaintiff Anderson sued AB Painting and Sandblasting to collect delinquent contributions to an employee benefit plan. The District Court granted summary judgment for plaintiff in the entire amount claimed delinquent, $6,500.00. The District Court awarded attorney fees to plaintiff in the amount of $10,000.00, which was far less than plaintiff’s request, which was $50,000.00.

On appeal, the court rejected the notion that attorneys’ fees must be proportional to damages. It took the position that rejection of a proportionality requirement is consistent with the purpose of fee shifting statutes, which reflect the congressional intent that violations of certain laws require redress, no matter the magnitude of the violation. Stated in a different way, fee shifting “helps to discourage petty tyranny.” Barrow v. Falck, 977 F.2d 1103 (1992). The court reasoned that the purpose of fee shifting statutes is to allow actions to be brought for even minor violations of certain laws. The court concluded that fee shifting would not “discourage petty tyranny” if fees were capped or measured by the amount in controversy.

Pat McGrath

Tax accrual work papers created to identify tax positions potentially subject to IRS challenge, estimate the probability of the challenges’ success and calculate the reserve funds required to satisfy additional tax liability are not documents prepared “in anticipation of litigation or for trial” and therefore are not protected work product. See United States v. Textron, Inc., 2009 WL 2476475 (2009).

To demonstrate that disclosure of documents claimed to be privileged or entitled to work product protection was inadvertent, it is sufficient simply to show that disclosure was a mistake. See Coburn Group, LLC v. Whitecap Advisors, LLC, 2009 WL 2424079 (2009).

Unless preparation for litigation is the primary purpose of an ombudsman investigation, documents created as part of the investigation are not entitled to work product protection. See Pinstripe, Inc. v. Manpower, Inc., 2009 WL 2252137 (2009).

Pat McGrath

A party seeking sanctions for spoliation of evidence must show that the evidence allegedly destroyed, not preserved or altered, was relevant to one of the party’s claims or defenses.  See Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99 (2002).  What does relevance mean in this context and how may it be established?  In a very recent disability discrimination claim, the plaintiff contended that  defendants destroyed e-mail messages that were relevant to her claim that her former employer failed to take reasonable steps to accommodate her disability.  She said the destroyed e-mail would have shown she made requests for an accommodation in the form of a hand-rail and the defendants were aware of her disability and knew she had fallen and been injured on the stairs lacking a hand-rail.  As a sanction for spoliation, plaintiff requested an adverse inference instruction.

When the requested sanction is an adverse inference instruction, the District Court said that relevance means “something more than sufficiently probative” to satisfy Federal Rule of Evidence 401 (evidence is relevant when it has “any tendency to make the existence of any fact . . . of consequence . . . more probable or less probable”).  The moving party must offer sufficient evidence from which to reasonably infer that the destroyed or unavailable evidence “would have been of the nature alleged by the party affected by its destruction.”  In other words, there must be evidence tending to show that the missing evidence would have been favorable to the movant’s case.

Relevance may be established in two ways.  It may be inferred if the party allegedly responsible for spoliation is shown to have had a “sufficiently culpable state of mind.”  Alternatively, the moving party may offer extrinsic evidence tending to demonstrate that the missing evidence would have been favorable to one of its claims or defenses.

Plaintiff argued that relevance was established as a matter of law because spoliation was caused by defendants’ gross negligence.  However, the court found that, while defendants were negligent, their conduct was not grossly negligent.  So their conduct did not support a finding of relevance as a matter of law.  See Toussie v. County of Suffolk, 207 WL 4565160 (2007).

Ultimately fatal to plaintiff’s motion was her failure to offer extrinsic evidence demonstrating that the destroyed e-mail would have been favorable to her case.  The evidence she relied on was, if anything, more favorable to defendants’ position.  She offered nothing, aside from speculation, to support her claim that the destroyed e-mail would have established that she requested installation of a hand-rail, and that defendants were aware of her difficulty using steps and knew a hand-rail was necessary.  In view of her failure to demonstrate that any destroyed e-mail would have been favorable to her claim, her request for an adverse instruction was denied.

Pat McGrath

In litigation resulting from alleqed discriminatory safety inspections of busses, defendants objected to producing archived e-mail. Defendants moved for a protective order, arguing that retrieving the e-mail would be unduly burdensome and costly. Plaintiffs opposed the motion. The district court determined that a decision on the motion depended, in part, on whether defendants had implemented an adequate litigation hold. In the courts view, whether defendants had deleted e-mail that should have been preserved was a relevant factor in determining whether it would be prohibitively burdensome or expensive to retrieve the archived e-mail.

As a general proposition of law, litigation hold letters are not discoverable, particularly when they include privileged attorney-client communications or material entitled to work-product production. See In Re: E-Bay Seller Anti-trust Litigation, 2007 WL 2852364 (N.D. Cal. 2007). Although there is no automatic right to production of litigation hold letters, a plaintiff is entitled to know what categories of electronically stored information a defendants employees were directed to preserve and collect, and the specific action they were instructed to take to accomplish this.

In Major Tours, Inc. v. Colorel, 2009 WL 2413631 (2009), the Federal District Court held that an exception to the general rule of non-discoverability may be recognized and that the protection of litigation hold letters may be compelled when the party seeking production makes a preliminary showing of spoliation. The rationale is simple, though often overlooked by corporations. Once litigation is reasonably anticipated, routine document retention/destruction policies must be suspended and a litigation hold put in place to ensure that relevant evidence is preserved. Failure to preserve documents for use in pending or reasonably foreseeable litigation, as well as destruction or significant alteration of evidence, constitutes spoliation. A preliminary showing that evidence was spoliated allows discovery of litigation hold letters.

Litigation hold letters or document retention notices are often drafted by counsel and constitute work product. They may also include privileged attorney-client communications. Consequently, they are generally protected from discovery. However, there are limits on the extent of protection. Steps taken to preserve and collect documents and electronically stored information, as well as the types of information to be preserved, are discoverable, even if the specific language of the hold letters or retention notices is protected.

Once litigation is reasonably foreseeable, it is imperative that anticipated parties to the litigation evaluate their document retention policies and litigation hold procedures.

Pat McGrath

A federal employee’s request to reconsider an EEOC decision upholding denial of a discrimination claim extends the ninety days statutory period for filing the complaint in a Title VII action.

A former employee brought a Title VII action alleging discrimination by the Department of Defense. The defendant moved to dismiss on the grounds that the action was untimely. Pursuant to Title VII and its implementing regulation (29 C.F.R. § 1614.407), when the Equal Employment Opportunity Commission denies a federal employee’s discrimination claim, a claimant seeking de novo review in federal court must file a complaint “within 90 days of receipt of notice of final action taken by . . . the [EEOC].” According to the defendant, the EEOC took “final action” with respect to plaintiff’s administrative claim in 2006 when it denied her appeal of the decision rejecting her claim. Plaintiff did not file her complaint until late 2007, well after the 90-day limitations period expired. The defendant contended that this made the complaint untimely.

Plaintiff argued that the limitations period did not begin to run on the date the EEOC denied her appeal, but when she received notice of the EEOC’s decision on her request for reconsideration. That date, February 14, 2007, was less than 90 days prior to when she filed her complaint.

The defendant contended that plaintiff’s interpretation of § 2000e-16(c) was inconsistent with the definition of “final action” as used in § 1614.407. As stated in 29 C.F.R. § 1614.405(b), an EEOC decision is “final . . . unless the commission reconsiders the case.” The defendant interpreted this to mean that a decision is final unless the EEOC grants a motion for reconsideration, which the EEOC did not do.

The court held that in the absence of specific language in the EEOC regulation then in effect (29 C.F.R. § 1613.235) or a publicly articulated EEOC position regarding the effect on finality of a request for reconsideration, if filed within the time for suing under Title VII, a request for reconsideration prevents an EEOC decision from being a “final action.” The consequence is to extend the deadline for filing a complaint until 30 days following final disposition of the reconsideration request. See Williams v. Chu, 2009 WL 2475168 (2009).

Pat McGrath

In Eshelman v. Agere Systems, Inc., 2009 WL 223858 (2009) the Court held that a back pay award may be augmented to offset the adverse tax consequences of a lump-sum payment.

A one-time, lump-sum award of back pay may have unanticipated consequences for a plaintiff in employment discrimination litigation. Back pay awards are taxable. Taxes are incurred in the year paid. When the entire amount of back pay is received at once rather than over a period of time, plaintiff may wind up in a higher tax bracket and be subject to greater tax liability.

The jury awarded plaintiff $170,000 in back pay after finding that defendant violated the Americans with Disabilities Act (ADA; 42 U.S.C.A. § 12101, et seq.) and an analogous Pennsylvania statute. Plaintiff moved for an additional monetary award to offset the negative tax consequences of receiving the back pay award in a single lump sum. The District Court granted the motion and increased the award by $6,893.00.

The defendant argued that there was no legal support for the Courts action. The 3rd Circuit disagreed. It held that a District Court may, pursuant to the broad equitable powers granted by the ADA, award a prevailing plaintiff in ADA litigation an additional amount to compensate for the increased tax burden a lump-sum back pay award may create.

The Court reasoned that a chief remedial objective of the federal employment discrimination statutes is to make victims of discrimination whole. Courts have broad equitable powers to effectuate this "make whole" remedy. See Franks v. Bowman Transportation Co., Inc., 424 U.S. 747 (1976). In the 3rd Circuits view, without an additional amount to offset the increased tax burden resulting from a lump-sum receipt of back pay, it is not possible to restore a plaintiff to the economic status quo that would have existed but for the defendants discriminatory conduct.

Whether a back-pay award may be "grossed up" to offset the adverse tax consequences of a lump-sum payment is a question without a definitive answer, at this time. Some courts say yes. See Sears v. Atchinson, Topeka and Santa Fe Railway Company, 749 F.2d 1451 (10th Cir. 1984). Others say no. See Fogg v. Gonzalez, 492 F.3d 447 (2007).

Interestingly, any request for an enhancement should be made part of the damage request rather than reserved for any post-trial motions. The reason is that post-trial enhancement may be deemed an additur that violates the 7th Amendments prohibition against judicial re-examination of a jurys finding. See Kelley v. City, 206 WL 1304954 (2006).

Pat McGrath

From my experience, almost every real estate professional has unwittingly violated the Real Estate Settlement Procedures Act (RESPA) at some point in their career. You probably want to know what constitutes a violation, which we will get to. First, I find it effective to explain the potential penalties, which include the following:
• Up to a $10,000 fine, or
• Imprisonment for up to one year, or both
• Treble (triple) damages for any actual damages (closing costs)
• Court costs, and reasonable attorneys fees
If that doesnt get your attention, you must value you money and freedom less than I do. In general RESPA applies to real estate professionals in two instances:
1. Prohibition of kickbacks and unearned fees [12 USC 2607]
2. Sellers requiring a specified title company [12 USC 2608]
The first one is pretty straight forward, you are not to "accept any fee, kickback or thing of value pursuant to any agreement or understanding" that is related to or part of a real estate settlement service involving a federally regulated mortgage loan. To put it plainly, you can not get referral fees from your friendly hometown closing company.

The second one, although not directly applicable to the real estate professional, is still important. As a fiduciary (trusted adviser), you have a duty to disclose what you know to your client. Dont let your sellers make the sale conditional on a certain title insurance company, or they will be opening themselves up to treble (triple) damages for the amount paid for the title insurance, and you will have one very unhappy client.

As you often hear, "certain exclusions may apply" which pertains to RESPA as well. There are certain real estate transactions and mortgages that are not covered by RESPA, but to be safe the $50 kickback is hardly worth the risk.

How long should I keep my Real Estate Transaction files?

It is a common question with two competing principles: Regulations vs. Statute of Limitations.

Since most of you are Real Estate Professionals in Missouri and Kansas, I will limit the analysis to these states. Both jurisdictions require that a Real Estate Broker maintain his/her files relating to any Real Estate Transaction for three (3) years.

Missouri - 20 CSR 2250-8.160 - Retention of Records

Kansas Administrative Regulation No. 86-3-10

Most Brokers are proponents of destroying any file older than three (3) years. It is understandable, it helps to clear out valuable storage space. In many brokers minds, it may also help them to avoid liability. While the first thought may be partially correct, the second is patently false.

Missouri and Kansas have different Statute of Limitations applicable to negligence and fraudulent misrepresentation claims:

Missouri - 5 years
Kansas - 2 years.

This post doesnt apply as much to Kansas transactions since the Commission requires retention for a time period longer than the Statute of Limitation, but Missouri has a troublesome 2 year gap.

I will tell you from experience that the worst case for an attorney is one where the client has no records to dispute the claims, other than a Real Estate Professionals foggy memory of events that happened over five years ago. To help prove my point, I want you to close your eyes, picture a client from five years ago and tell me who inspected their property and what the inspection report said. Obviously, this exercise is nonsense because it is impossible.

The bottom line is anyone acting as a Real Estate Broker in a Missouri transaction needs to retain his/her files for 5 years. Scan them, and store them on CD, hard drive, back-up disks, online storage, etc. There are many options with little cost, so find one you like and do it.

If you destroy the file, and you get sued, you may have just destroyed your best defense. Open up your check book.

The Tenth Circuit in Hennagir v. Department of Corrections recently affirmed the District Court’s grant of summary judgment on an employment accommodation claim.

Barbara Hennagir was employed as a physician’s assistant by the Department of Corrections (DOC). Following several years of successful work by Hennagir, the DOC added a physical safety training requirement to medical and clinical positions that required inmate contact, including Hennagir’s position. Unable to complete the training because of a number of physical impairments, Hennagir complained of disability discrimination and requested that she be able to continue in her position without fulfilling the new requirement. The DOC refused, and suit was initiated by Hennagir.

The District Court granted summary judgment in favor of the defendant on all of Hennagir’s claims. On appeal, Hennagir argued as one of her issues that the DOC failed to reasonably accommodate her inability to become Peace Officer Standard in Training (POST) certified.

The court found that POST certification was an essential job function, yet each of the accommodations proposed by Hennagir demanded an identical modification: waiver of the POST certification requirement. Because Hennagir was requesting that the DOC eliminate an essential job function, she failed to show that a reasonable accommodation was possible. Thus, the Tenth Circuit Court of Appeals concluded that the District Court was correct in entering summary judgment on Hennagir’s reasonable accommodation claim.

Pat McGrath

 Would you buy a house that was the site of a homicide or suicide? Many people could care less, but many people are adamantly opposed; this puts sellers and their agents in an interesting position when it comes to disclosure.