“The following article originally appeared on the Fox Rothschild’s Wage & Hour blog, and was authored by Mark Tabakman, Partner in the Princeton, NJ office.”

When two entities are a joint employer, or could be deemed as such, they must aggregate the hours worked by employees at each facility in a given week. If those hours exceed forty in total, then overtime must be paid. Sometimes, the entities either believe they are not a joint employer or, simply, do not want to pay overtime. A new FLSA class action seeks to test this truism as two Texas CBD shops are being sued by workers who allege the employer(s) avoided overtime by paying workers with two separate checks. The case is entitled Ross v. Sherman Hemp LLC et al. and was filed in federal court in the Eastern District of Texas.

The Complaint alleges that the owners used employees to work at both stores and would direct them to transfer inventory between the stores. The plaintiffs assert that since the entities have common ownership and shared employees (a sign of joint employer status) the hours worked had to be aggregated for overtime purposes. The Complaint alleges that “even though defendants jointly employed plaintiff, defendants refused to combine the hours plaintiff worked for both Sherman Hemp, LLC and Ashten, LLC each week for overtime purposes.”

The Complaint alleges the workers received two paychecks, one from each entity, as to avoid paying overtime. The Complaint alleges that the Company did this “as if Sherman Hemp, LLC and Ashten LLC were totally independent and unrelated companies.” The result was the continuous working of overtime hours, without proper payment, according to the allegations.

The plaintiffs’ lawyer claims the defendant owners own other franchise locations in Oklahoma, where this same protocol is supposedly in effect. They may seek to add other sites and workers to the case. The lawyers also are delving into whether the parent company knew that these franchisees were operating in this manner. The plaintiff lawyer stated that “if we find some sort of knowledge of and or awareness of these shady business practices then we will definitely be looking at looping them into the litigation as well.” In this regard, the parent Company has in excess of eighty (80) operations.

The Takeaway

The joint employer doctrine is a dangerous thing for employers. It may seem tempting to pay employees with two checks from the different entities to avoid overtime, whether on purpose or not, but if certain factors are present, such as interchange of employees, which is the biggest factor in these determinations, there will be a problem. Common ownership, by itself, is not dispositive, but other commonalities (e.g. Employee Handbook) coupled with interchange, will virtually militate such a finding. Here, if the parent is brought in, that is big trouble!

Then, it is a matter of doing the math…

Senator Joe Manchin of West Virginia has confirmed he will not vote to eliminate the Senate filibuster rule. The news is a timely bonus for Texas businesses buoyed by the recent decision in Facebook, Inc. v. Duguid, in which the Supreme Court sharply limited the types of phone dialers implicating the Telephone Consumer Protection Act (“TCPA”) and its harsh statutory damages.

Proposals to amend the Act should now require support from moderate Republicans to reach an up-or-down vote in the Senate. If so, we can rule out anti-business legislation like a 2019 bill that proposed to bar calls made with “equipment that makes a series of calls to stored telephone numbers, including numbers stored on a list” (i.e., the 9th Circuit approach unanimously rejected in Duguid). We also can expect that industry trade organizations will have time and opportunity for input, possibly interjecting a “human intervention” test, an “actual use” focus, or other limitations.

The biggest threat to a bipartisan approach to any rewrite of the Act is budget reconciliation, which Democrats might be able to use to avoid a Senate filibuster. Amending the core of the TCPA through this process may not be allowed under the “Byrd Rule,” which limits the type of legislation eligible for enactment via budget reconciliation. President Biden did not, for example, pursue a minimum wage hike via budget reconciliation after the Senate parliamentarian ruled it would not have a substantial budgetary impact. Whether the parliamentarian would rule similarly now remains to be seen.

Of note, there is some precedent for amending the TCPA through reconciliation. In 2016, Congress used the process to exempt calls made to collect federal student loans from the TCPA (later struck down as unconstitutional). But the reasoning for acting through budget reconciliation was more straightforward in that instance. The exemption was directly tied to calls made in the collection of federally owned and guaranteed debts. By removing the threat of liability for those calls, Congress ensured that government receipts meaningfully would increase. Whether similar reasoning holds if Congress amends the statute generally in a way that could decrease government receipts is unclear. Nor are there likely to be any existing studies from the Congressional Budget Office projecting federal student loan collections post-Duguid against the expected collections that might follow any of the amendments to be proposed.

What’s clear is that we are not done with the TCPA yet. Stay tuned!


Texas’s “business-friendly” reputation remains under threat as policymakers grapple with the fallout of a polarizing presidency and shifting demographics. There is no better example than the sweeping new bill, SB 1859, that Senator Beverly Powell (D-Burleson) introduced last week targeting student loan servicers. Elected in 2018, Sen. Powell rode an anti-Trump wave to victory in the slightly Republican-leaning Texas Senate District 10. Though she may represent a fairly conservative base, Sen. Powell is not shying away from what many will view as anti-business legislation.

In addition to creating substantial new licensing and regulatory burdens, SB 1859 would mandate the designation of a state student loan ombudsman and, separately, require the Texas Banking Commissioner to investigate any complaint received about a student loan servicer. More troubling, the bill would grant the state’s 3 million+ student loan borrowers a powerful new private right of action.

As proposed, the roadblocks to frivolous filings are virtually non-existent:

  • Do you believe, in hindsight, that your loan servicer “misled” you about whether deferment or forbearance is best under your individual circumstances, sue!
  • Do you believe your loan servicer omitted any “material information” (whatever that may be interpreted to mean by you or your lawyer) at any time when servicing your loan, sue!
  • Do you believe your loan servicer misapplied a payment, don’t call to work it out, sue!
  • Did your loan servicer suppress or delete negative information about your account so that you would not be hurt by your failure to pay, congratulations . . . but still sue!
  • Are your actual damages so small that it would never make sense to go to court, don’t worry, you can get treble damages, costs, and attorney’s fees, now sue!

If enacted in its current form, Texas lawyers will see a windfall from the proposed legislation. It will only take a small segment of Texas’s student loan borrowers (an unfortunate many of whom will be cash-strapped, desperate, and easily misled) to generate the proverbial “wave” of new cases. But, in my experience, I am not sure anyone else will win. Borrowers will invest time and resources in hopeless causes, often ending up worse off than when they started. Busy courts will see their dockets swell with cases that are difficult to cull before summary judgment under Texas procedures. Loan servicers will watch limited resources be redirected to baseless disputes.

It is unclear whether SB 1859 has legs. Let’s hope not. Because the alternative could suggest Texas is no longer a welcome home to America’s leading financial institutions. It also would beg the question: why stop at student loans?

Millennials. Everyone has an opinion, especially us. We are “entitled,” “spoiled,” and “lazy” to some; “diverse,” “educated,” and “confident” to others. Try this: “resilient.”

Millennials rode the 90’s boom straight into the dot-com bust. We watched the World Trade Center fall on live TV. We endured (and continued to endure) more than 20 years of conflict on foreign soil—the best among us serving, fighting, and too often sacrificing terribly. We kept our spirits as New Orleans met the Atlantic. We chose the hope of “Yes we can!” while our economic futures folded like cheaply built spec houses.

Res ipsa loquitur. That’s lawyer-Latin for I paid too much for my degree!

We soldiered on. We made our gigs work. A lucky lot managed their way to ordinary careers. We saved for our own place, began to marry, started having kids (on purpose), and adulted all the way into 401k’s. Sure, nearly all of us missed out on the post-recession bull market. Yes, we were most often on the receiving end of rising property values.  But as the decade closed things were looking up. And then . . . hello COVID-19.

Against this sobering backdrop, you might say the new “lost generation” of 72 million Millennial-age Americans has seen some things. The effects are showing:

Millennials entered the workforce during the worst downturn since the Great Depression. Saddled with debt, unable to accumulate wealth, and stuck in low-benefit, dead-end jobs, they never gained the financial security that their parents, grandparents, or even older siblings enjoyed. [. . . .]

They have smaller savings accounts than prior generations. They have less money invested. They own fewer houses to refinance or rent out or sell. They make less money, and are less likely to have benefits like paid sick leave. They have more than half a trillion dollars of student-loan debt to keep paying off, as well as hefty rent and child-care payments that keep coming due.[1]

Best of all, Millennials are “now entering their peak earning years in the midst of an economic cataclysm more severe than the Great Recession, near guaranteeing that they will be the first generation in modern American history to end up poorer than their parents.”[2]

Que election. Enter the politicians.

As the fight for the Democratic nomination heated up in the summer of 2019, so too did the proposals for addressing the rising student loan balances of Millennial voters. Senator Elizabeth Warren led the way with an initial proposal to cancel $50,000 in student loan debt for anyone with an annual household income of $100,000 or less, to reduce by $1 for every $3 for households with income between $100,000 and $250,000. Senator Bernie Sanders upped the ante by proposing to cancel all federal student loan debt at a cost of $1.6 billion. Then-presidential candidate Biden endorsed a more limited plan to cancel $10,000 per borrower.

Fast forward to 2021 and student loan relief has moved from the realm of probably empty campaign promise to full-blown policy predicament. Many on the Left–increasingly college-educated city dwellers–expect quick action after Democrats won control of the Senate in January. While emboldened, party leadership remains split on what measure of relief to offer, when to do it, for whom, and how.

The lack of clarity is manifesting with harmful consequences. More and more borrowers are purposely defaulting on student loans they hope will disappear. Some may be forgoing the chance to refinance their loans at historically low interest rates. Others face difficult, necessarily uninformed decisions about how best to allocate pandemic-limited resources.

This multi-part series for the Lone Star Bench and Blog hopes to help those navigating the uncertainty surrounding private and federal student loans.

Our first installment will offer a primer on student loans and a quick guide to key relief proposals. The second entry will examine the ongoing clash among policymakers about whether and how to bring about student loan cancellation. Later we will analyze the possible means, likelihood, and impact of the leading proposals for student loan cancellation. To close we will look at other avenues for student loan relief, focusing on potential changes to the Bankruptcy Code and related guidance.

If interested, please subscribe and stay tuned!

[1] https://www.theatlantic.com/ideas/archive/2020/04/millennials-are-new-lost-generation/609832/.

[2] Id.

You have to learn the rules of the game. And then you have to play better than anyone else.

– Sen. Dianne Feinstein

The Supreme Court of Texas issued an Order back in August 2020 setting forth various amendments to the Texas Rules of Civil Procedure. A portion of the amendments took effect on January 1, 2021, and apply to all cases filed on or after that date unless filed in justice court. The rules examined below reflect a desire to balance the need for lowering discovery costs against the complexity of and discovery needs in certain civil actions, including family law cases.

What do the rule changes mean for civil and family law cases moving forward? We’re glad you asked!

Rule 190.2 Expedited Actions and Divorces Involving $250,000 or Less

One of the most notable changes to the rules is the expansion of Level 1 discovery. Level 1 discovery previously governed expedited actions and divorces involving $50,000 or less. The rule change increasing that amount to $250,000 is significant as Level 1 discovery will now encompass a broader range of civil and family law cases. The comment to the amendments notes that the intent was to “promote the prompt, efficient, and cost-effective resolution of civil actions”.

Another important revision to note is the amount of time lawyers now have to examine and cross-examine witnesses in oral depositions. The old rule capped an attorney’s questioning at six (6) hours. However, the new rule allows for up to twenty (20) total hours to depose all witnesses. This is advantageous as it allows counsel a greater amount of time to either conduct more in-depth examinations or depose more witnesses than would typically be permitted under the time-constraints of the former rule.

In addition to these changes, the discovery period in Level 1, Level 2, and Level 3 cases now begins when initial disclosures are due. The discovery period previously commenced at the time the lawsuit was filed. This means that a party seeking affirmative relief can no longer attach a set of written discovery to its Original Petition unless the parties to the suit agree to conduct discovery before the due date for initial disclosures. See Tex. R. Civ. P. 192.2 (unless otherwise agreed to by the parties or ordered by the court, a party cannot serve discovery until after the initial disclosures are due). The discovery period extends until 180 days after the date that initial disclosures are due.

Lastly, the former Rule 190.2(b)(6) disclosures have been incorporated into the revised Rule 194 Required Disclosures discussed in greater detail below.

Rule 194 Required Disclosures

Rule 194 Requests for Disclosure are a thing of the past. The revised Rule 194 implemented required disclosures that order a responding party to provide specific information to the other side no later than thirty days after the date it files an answer or otherwise appears in the case. A party must disclose the information contained in Rules 194.2 (Initial Disclosures), including:

  • The correct names of the parties to the lawsuit
  • The name, address, and telephone number of any potential parties;
  • The legal theories and, in general, the factual bases of the responding party’s claims or defenses;
  • A computation of each category of damages claims by the responding party;
  • The name, address, and telephone number of persons having knowledge of relevant facts;
  • A copy (or description by category and location) of all documents, electronically stored information, and tangible things that the responding party has in its possession, custody, or control, and may use to support its claims or defenses, unless the use would be solely for impeachment;
  • Any indemnity and insuring agreements described in Rule 192.3(f);
  • Any settlement agreements described in Rule 192.3(g);
  • Any witness statements described in Rule 192.3(h);
  • In a suit alleging physical or mental injury and damages, all medical records and bills that are reasonably related to the injuries or damages asserted or, in lieu thereof, an authorization permitting the disclosure of such medical records and bills;
  • In a suit alleging physical or mental injury and damages, all medical records and bills obtained by the responding party by virtue of an authorization furnished by the requesting party; and
  • The name, address, and telephone number of any person who may be designated as a responsible third party.

In addition, Rule 194.2(c) sets forth the content of required disclosures in family law cases. Under the new rule, a party must disclose:

  • All documents pertaining to real estate;
  • All documents pertaining to any pension, retirement, profit-sharing, or other employee benefit plan, including the most recent account statement for any plan;
  • All documents pertaining to any life, casualty, liability, and health insurance; and
  • The most recent statement pertaining to any account at a financial institution, including banks, savings and loan institutions, credit unions, and brokerage firms.

If the suit involves child or spousal support, a party must also disclose all policies, statements, and the summary description of benefits for any medical and health insurance coverage that is or would be available for the child or the spouse; the party’s income tax returns for the previous two years or, if no return has been filed, the party’s Form W-2, Form 1099, and Schedule K-1 for such years; and the party’s two most recent payroll check stubs. These are mandatory disclosures that must be made without any prompting from the other side.

For parties seeking a divorce or otherwise involved in a family law matter, the rule revisions are very important. Often, it may take several weeks or months to gather the financial and property information necessary to resolve a family law dispute. However, the new rule does not allow for that time. Each party must be prepared to produce the requested information and supporting documents at the time the initial disclosures are due in order to comply with the new rules.

The comment to the Rule 194 revision reiterates a desire for the “prompt, efficient, and cost-effective resolution of civil actions” by requiring the disclosure of basic discovery automatically, without awaiting a discovery request. Under the rule, a party is not excused from making its disclosures because it has not fully investigated the case or because it challenges the sufficiency of another party’s disclosures. In addition, a party may not refuse to provide the required information on the basis that the other party has failed to timely provide its own disclosures.

Rule 195 Discovery Regarding Testifying Expert Witnesses

Amended Rule 195.5(a) lists the disclosures for any testifying expert, which are now required without awaiting a discovery request. The revised Rule 195.5(a) also includes three new disclosures based on Federal Rule of Civil Procedure 26(a)(2)(B). The new disclosures are: the expert’s qualifications, including a list of all publications authored in the previous 10 years; a list of all other cases in which, during the previous four years, the expert testified as an expert at trial or by deposition; and a statement of the compensation to be paid for the expert’s study and testimony in the case.

It’s a new year with new rules to follow. For a full copy of the Supreme Court of Texas’ Order Amending Texas Rules of Civil Procedure 47, 169, 190, 192, 193, 194, and 195, click here.


“At what point do we simply say . . . this statute is an ill fit for current technology?” – Justice Clarence Thomas

Nearly 3 decades before Zack Morris ascended to the fictional governorship of California in NBC’s reboot of Saved by the Bell, he was America’s best known Preppy—the cool kid with politician hair toting the raddest, most cutting edge, must-have gizmo his Dad’s money could buy: a Motorola DynaTAC 8000X. Yes, I mean the “brick” phone.

Standing 13 inches tall and weighing nearly 2 lbs., it was a marvel of its time. To say the now comically oversized “mobile” device is outmoded should offend no one. Moore’s Law may be on its death bed (if not already at an end), but it departs having made its mark over the last 30 years. Unceasing progress brought forward a technological milieu bearing almost no resemblance to the world of early 90’s Bayside High. Once-Jetsonian gadgets like portable CD players, VCRs, and camcorders began collecting dust in thrift stores long ago. Shrinking cell phones replaced pagers in hip clips. Answering machines were relegated to Seinfeld re-runs.

Another relic of the era fared better. Not only did the Telephone Consumer Protection Act of 1991 (TCPA) stay relevant as the technology it meant to regulate grew obsolete, but evolving views of the Act’s provisions regulating the use of an “automatic telephone dialing system” (ATDS) gave birth to a multi-billion dollar litigation windfall more than 20 years later. How?

The Advent of the TCPA

Congress enacted the TCPA in 1991 to remedy a particular set of ills. The advent of computer-assisted telephone dialers made it possible for telemarketers and scammers alike to flood American phone lines—residential, mobile, business, and emergency—with thousands, and sometimes tens of thousands, of junk faxes and unwanted solicitations in a single campaign. Indiscriminate use of the new technology to blast calls randomly, and in rapid succession, became a “scourge of modern civilization.” As described by the bill’s sponsor, Senator Fritz Hollings:

They wake us up in the morning; they interrupt our dinner at night; they force the sick and elderly out of bed; they hound us until we want to rip the telephone right out of the wall . . . . These calls are a nuisance and an invasion of our privacy.”

Fed-up consumers made their displeasure clear to the Federal Communications Commission (FCC) and State commissions, prompting a range of legislative responses including the TCPA.

While residential telemarketing calls drove the bill, the pernicious impacts of robocalls were broader. Unsolicited calls tied up emergency phone lines at police stations, hospitals, and fire stations, particularly when blasted to large blocks of sequential numbers. They made it impossible for small businesses to use their phones and fax machines for long periods. They filled up answering machine tapes, preventing consumers from receiving important and personal messages they actually wanted. And in many cases the not-insignificant cost of each contact was stuck to the unwilling recipient.

The TCPA sought to remedy these concerns in two key ways. First, the Act broadly barred robocalls, i.e., non-emergent, non-consensual calls made using “an artificial or prerecorded voice,” to all residential phone lines and certain categories of non-residential lines—including those associated with a wireless, fax, or pager service. Second, Congress barred non-emergent, non-consensual calls made to wireless and other non-residential lines using an ATDS, which it defined to mean “equipment which has the capacity – (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such calls.”

Critically, Congress choose not to effect its policy aims by penalizing the act of dialing automatically. It could have conditioned liability on a caller’s actual use of a particular device as some suggested. It elected instead to target the capacity of the dialers being used to call, however used. Liability, then, would attach to any call from any equipment qualifying as an ATDS—whether dialed automatically or not. But the Act’s reach would extend only so far as the definition of ATDS allowed.

Initially, it did not reach far.

The Ascent of the TCPA

It may surprise the casual observer to learn the “TCPA lawyer” is a recent phenomenon. TCPA litigation barely existed in the 90s. The niche but now mind-numbingly profitable industry began to develop for the plaintiff’s bar in the late 2000s as the Obama-era FCC sought to redefine ATDS to capture new forms of modern dialing equipment. The plan worked. Courts forced to defer to a series of expansive FCC rulemakings opened the floodgates to a wave of class and individual plaintiffs ready to cash in. The Act’s lucrative damages ranging from $500 to $1,500 per prohibited call or text proved a compelling incentive. The number of plaintiffs filing TCPA claims ballooned from 14 in 2008 to 827 in 2011, rocketed to 3,015 in 2014, and peaked at 4,638 in 2016 according to WebRecon LLC.

The financial and operational impacts of the TCPA bonanza were huge. By way of example, a compilation of five U.S. businesses (Caribbean Cruise Line, Capital One, Dish Network, US Coachways, and AT&T Mobility) paid in excess of $300 million dollars to settle unrelated TCPA class actions from 2014 to 2017, presumably at pennies on the dollar to their true exposure. The sum of publicly reported class settlements over the last decade exceeds a billion dollars, not including defense costs, settlements of thousands of additional claims by individuals, penalties in FCC enforcement actions, and jury verdicts as high as $925,000,000. Virtually every major player in all sectors of the U.S. economy felt the impact; this, even though the TCPA—relevant text unchanged—was on no one’s radar a decade ago.[1]

The Reset of the TCPA

Not long after reaching its zenith, the TCPA landscape transformed again. The D.C. Circuit in ACA Int’l v. Fed. Commc’n Comm’n, 885 F.3d 687 (D.C. Cir. 2018), invalidated key portions of earlier FCC rulemakings driving the groundswell of TCPA litigation. Key here, the court vacated a 2015 FCC Order that redefined ATDS to cover dialers with the potential capacity to dial random or sequential numbers, even if it lacked the present ability to do so. Despite rejecting the FCC’s definition as “unreasonably, and impermissibly, expansive,” the D.C. Circuit did not offer a replacement. Nor has the FCC since issued an order reinterpreting the term.[2]

Left to their own devices[3] a majority of district courts moved to narrow the Act’s reach citing its text, the nature of technology in 1991, and the FCC’s position in early guidance. Others disagreed. All encountered difficulties with the placement and punctuation of the phrase “using a random or sequential number generator” within Section 227(a)(1)(A) of the Act.

The result was a hodgepodge of conflicting opinions and at least four main treatments described by then-Judge Barrett in Gadelhak v. AT&T Servs., Inc., 950 F.3d 458 (7th Cir. 2020): (1) the phrase might modify both store and produce, meaning a device must be able to do at least one of those actions using a random or sequential number generator to be an ATDS; (2) the phrase may describe the telephone numbers themselves, limiting an ATDS to a device that dials randomly or sequentially generated numbers; (3) the phrase may attach only to the word produce, bringing devices with the mere ability to store and dial numbers with the statute’s ambit; or (4) the phrase may refer to the manner of dialing numbers no matter how they are generated, stored, or produced.

Over time, competing camps began to coalesce around the first and third interpretations. In Dominguez v. Yahoo, Inc., 894 F.3d 116 (3d Cir. 2018), for example, the Third Circuit elected to return to its pre-2015 interpretation of the Act holding that a dialer cannot qualify as an ATDS unless it has the present ability to randomly or sequentially generate numbers and to dial them. The Eleventh and Seventh Circuits followed with similar interpretations of the Act, buoying the defense bars in the TCPA plaintiff-heavy federal district courts of Florida and Illinois.[4]

California defendants had no such luck. The Ninth Circuit in Marks v. Crunch San Diego LLC, 904 F.3d 1041 (9th Cir. 2018), ruled consistent with the third interpretation that a system capable of sending text messages to a list of stored telephone numbers was an ATDS. Taking a slightly different path, the Marks court emphasized two main factors in support: (a) Congress’ decision to allow ATDS calls made with prior express consent, which the Court reasoned would require the caller to dial specific numbers from a prepopulated list; and (b) Congress’ decision to leave the core definition of ATDS untouched when amending the TCPA in 2015, which the court viewed as a tacit endorsement of the FCC’s pre-ACA Int’l definition.[5] In so holding, the Marks court rejected the Dominguez opinion as “unpersuasive” because it flowed from the “unreasoned assumption that a device must be able to generate random or sequential numbers in order to qualify as an ATDS.” The Second and Sixth Circuits later reached similar results solidifying a circuit split.

The consequence for businesses with texting or calling programs is that, as of this writing, a caller’s potential liability for a initiating a single series of contacts varies wildly by jurisdiction—even if made from a single device or system. Companies sued in the Third, Eleventh, and Seventh Circuits can benefit from a narrowly tailored view of the statute that excludes most dialers now in use. Unfortunate targets in the Ninth, Second, and Sixth Circuits face interpretations arguably as expansive as the FCC’s failed 2015 approach. Defendants in other circuits are left to guess.

Fortunately the TCPA’s seesawing uncertainty may soon end, for better or worse. The Supreme Court held oral argument on December 8 in Facebook, Inc. v. Duguid, et al., with advocates sharply contesting whether and, if so, how the Act applies to modern dialing systems. Though the outcome is anyone’s guess, the Justices’ questions elucidated key concerns that could control when they decide whether to cancel (or cement) the plaintiff’s bar’s multi-billion dollar TCPA boondoggle.

Facebook, Inc. v. Duguid, et al.

Aptly described at argument as “very nuanced” language that reflects a “great deal of legislative compromises,” the ATDS definition has become a grammarians’ coup.

Thankfully three of the country’s premier appellate advocates were on hand to help make sense of things. Former U.S. Solicitor General and Supreme Court pro Paul Clement represented the petitioner, Facebook. Texas’ own Bryan Garner, a top expert on modern legal usage (and famous sparring partner to the late Justice Scalia), appeared for the respondents. Joining them from the Office of the Solicitor General was a former law clerk to Justice Roberts and Bristow Fellow, Jonathan Ellis.

The parties’ arguments in Duguid brought into sharp relief the difficulty that so many have faced pinning down the exact role Congress intended the phrase “using a random or sequential number generator” to play within the ATDS definition. No shortage of intellectual firepower was on display as the lawyers and Justices delved into grammatical concerns like sentence structure, syntax, and synesis. The panel heard talk of restrictive modifiers, punctuation, modifying phrases, and direct objects. Later, disjunctive and lexical verbs moved to the fore. More than anything, though, the advocates’ expertly nuanced grammatical dissertations landed softly.

Most of the Justices showed resignation to the statute’s shortcomings. While challenging the respondents’ characterization of the text as “grammatical,” Justice Gorsuch politely quipped he’d expect Mr. Garner—an expert legal writer with a knack for clear prose—to rewrite the statute. Justice Alito separately suggested that if the Court had the power to declare the statute obsolete, it might be useful. Others pointed to apparent fault lines in both parties’ positions.

Possibly joining Justice Barrett in seeing only “imperfect” solutions, the bench brushed back efforts to engage on canons of interpretation and rules of syntax mostly irrelevant in ordinary speech. More practical concerns took precedence. What kind of dialers existed in 1991? What capabilities did they have? How did Congress intend to regulate that equipment? How does the text of the statute apply to modern devices, business and personal? How would the Court’s adoption of each alternative impact callers and call recipients? A greater picture emerged as the Justices explored the different facets of the competing regimes proposed.

Static or Dynamic?

Several Justices wondered if the parties’ interpretational fixes, if adopted, would rewrite the law. That is, if the problems posed are rooted in the particularities of technology unknown to Congress in 1991, in the words of Justice Sotomayor, “wouldn’t it be [Congress’] job, not [the Court’s], to update the TCPA to bring it in line with the times?” There seemed to be disagreement nonetheless whether: (A) the text captures virtually all dialing equipment, meaning it is Congress’ job to curtail the statute’s nearly unlimited reach, or (B) the text captures a much more limited set of modern dialers, meaning Congress—not the Court—must act to prevent the wave of unsolicited calls and texts the respondents believe it will permit.

If one accepts that the meaning of the text is static, a compelling case can be made that the respondents’ construction would do the most violence to the prevailing view at enactment. Favorably for callers, the FCC’s earliest guidance mirrors Facebook’s position in Duguid that merely storing and dialing numbers does not trigger the ATDS provision. In its 1992 Order[6] the FCC explained the ATDS calling restriction “clearly do[es] not apply to functions like ‘speed dialing,’ ‘call forwarding,’ or public telephone delayed message services . . . . because the numbers called are not generated in a random or sequential fashion.” Its 1995 Order likewise described “calls dialed to numbers generated randomly or in sequence’ as ‘autodialed.’”

The early guidance may have less impact, however, if a majority of the Court views the text as being “dynamic.” Justice Breyer, for one, was interested to explore whether Congress intended for the TCPA’s terms to change alongside advancing technologies. If so, he noted the Court often “interpret[s] a statute dynamically to adapt to changing circumstances, looking at the context in which it is passed and how it’s changed, in order to decide how to do so.”

Callers would not be wrong to see this as a potential obstacle to the outcome they seek. Elevating soft factors at the expense of the statute’s text could bolster the respondents’ privacy-based policy arguments. Even still, the interpretational tools at hand must work within the text as written. And the principal advocate for a dynamic view, Justice Breyer, himself remarked at argument that Facebook has a “pretty strong case on the consequences and purposes.”

A hypothetical helps us understand why. Imagine that the State of California wanted to stop a scourge of prank calls to Bayside High School principal, Richard Belding, in 1991. Assume its legislature chose to do so (1) by barring the making of nonconsensual calls to Mr. Belding “using a cellular telephone,” and (2) by defining “cellular telephone” based on then-common features to mean any “portable electronic device which has the capacity – (A) to make wireless telephone calls, using a keypad and LED screen; and (B) to receive such calls.” By targeting the devices that Zack Morris and others were known to employ at enactment, the statute would have achieved its aim. If left unchanged for 30 years, no one could sensibly read the language to prevent now-Governor Morris from making prank calls from his iPhone between campaign stops—even if many Californians still adore Mr. Belding.

One could try. Analogizing to the respondents’ position in Duguid, an enterprising plaintiff’s attorney might argue the statute should be read to bar calls made to Mr. Belding without his prior express consent using a “portable electronic device which has the capacity to receive [wireless] calls.” The problem is apparent. No one would be able to call Mr. Belding from any device without possibly violating the statute. The reading would capture Governor Morris’ sophomoric antics at the expense of every concerned parent or friend contacting Mr. Belding from an ordinary smartphone. Viewing the statute in this way goes well beyond its original purpose with harmful consequences.

Many on the Court seem to see the ATDS restriction as sharing a similar overbreadth problem.

Practical Consequences

Encouraging for callers, several of the Justices voiced skepticism that Congress intended for the TCPA to reach the extraordinary range of conduct that respondents’ reading would capture.

  • Justice Sotomayor expressed grave concern that the respondents’ approach would subject everyday Janes and Joes to a new wave of TCPA claims when using their iPhones.
  • Justice Gorsuch similarly implied the TCPA could “make a criminal of us all” if the Court accepts respondents’ view. Giving a specific example, he noted the capacity of most phones to redial missed calls from a list of stored numbers at the click of a button.
  • Justice Barrett echoed her concern in Gadelhak that auto-replies from an iPhone would fall within the scope of the statute, thus covering all calls made using that device.[7]
  • Justice Alito noted the practical problem for the respondents’ view comparing the function of call forwarding technology that was widely available in 1991 and the capacity of smartphones to dial numbers “automatically” based on pre-programmed commands.[8]
  • Justice Thomas went further to question whether Congress meant for “calls” to include text messages, a huge source of TCPA liability for conduct not possible in 1991. While not squarely at issue, he wondered whether the statute sensibly applies to texts at all.

Mr. Garner’s parries to these concerns, when not rejected outright, tended to demonstrate the vulnerability of the respondents’ position. They also often were at odds with past precedent and the familiar positions advanced by plaintiffs in prior cases involving human intervention.

The most glaring example of this was an exchange with Justice Sotomayor. Agreeing with Facebook’s view that respondents’ interpretation would subject “every cell phone owner . . . to the harsh criminal and civil penalties of the TCPA,” Justice Sotomayor asked for an explanation of why Congress would have intended that result. She added, “please don’t answer by saying it hasn’t happened yet, and the reason I say that is because, if you get a ruling in your favor, I know for sure that there will be lawsuits against individuals that will follow.” (Emphasis added.)

It was a difficult question, and from the author’s view the most critical of the day, because there was, and is, no good answer for the respondents. Let’s take Mr. Garner’s responses in turn.

  1. Article III judges know how to deal with frivolous claims. Sure, within the limits of the tools available to them, but this point presupposes that the claims will wholly lack merit. In the Justice’s hypothetical, the opposite is true. Courts will be forced to reckon with these claims in the ordinary course. Individual defendants will be forced to hire lawyers or appear in federal court pro se. Ordinary folks will face statutory damages claims that can bankrupt them.
  2. The average person will not use her smartphone as an autodialer. Okay, this is probably not true in the context of the Act, but it does not matter. In the Justice’s hypothetical, at least one standard feature available to smartphone users will implicate the statute. Whether a person uses that feature does not matter. Congress structured the statute to focus on a device’s capacity, not use. Mr. Garner seemed to suggest the Court could read the missing use limitation into the ATDS restriction based on the fact of the word “automatic” in ATDS. It is doubtful whether the plaintiff’s bar agrees, nor have courts accepted the position. A later exchange with Justice Gorsuch showed why it goes too far:

JUSTICE GORSUCH: [A]ll the statute says is you have to have equipment that stores a number and can be used to dial the number.

[. . . .]

GARNER: [T]hat’s the word being defined, automatic dialing system, and it must be the equipment itself that does the dialing.

JUSTICE GORSUCH: No, the equipment has to have the capacity to store and it has to have the capacity to dial. It doesn’t say it must do it solely by itself. I mean, now we’re really changing the grammar, aren’t we?

[. . . .]

GARNER: Your Honor, it’s — it’s not considered automatic when — when you place the call if you press the button. [. . . .]

JUSTICE GORSUCH: Congress can define anything to mean anything it wishes, right?

GARNER: That’s correct, Your Honor.

JUSTICE GORSUCH: All right. So it can define an automatic dialing system to mean whatever it wishes, and, here, it defined it to mean equipment which has the capacity to dial a stored number on your interpretation.

  1. The ordinary smartphone user will have consent. Perhaps in the colloquial sense of the word, but they almost certainly will not have given prior express consent to receive calls made using an ATDS or prerecorded messages as the relevant defense requires. The question of consent has been a tricky one since the Act’s inception. Without wading into what presently qualifies, one can argue that, if society knows every smartphone to be an ATDS, some of the everyday communications a person shares with friends, family, and others could be deemed as being made with consent. But in this very best case scenario, the affirmative defense cannot be made until summary judgment—only after the individual defendant and courts have incurred significant time and costs. Plus, the gaps are enormous. As experienced TCPA callers know too well, numbers are reassigned. Phones are shared. Consent is revoked. What’s more, if consent is our best defense against back-breaking TCPA liability, every smartphone will need to track consent. Every call will have to be recorded. Personal texts will require opt-out language. (Let’s not.)

In other instances Mr. Garner sought to soften the blow of respondents’ reading by interjecting human intervention as a factor that could save ordinary smartphone users from TCPA liability. Setting aside the capacity problem inherent in this argument, it suffers from a separate malady. The FCC and courts have been unable to articulate a bright-line rule that properly addresses the wide array of manual inputs or processes, always evolving, that might qualify as human intervention. Consequently, if the Court were to write a “human intervention” component into the statutory definition, it almost certainly would adopt a case-by-case approach. As with consent, the first opportunity to prevail on this defense would be at summary judgment. In addition, fact disputes would abound, thereby subjecting regular smartphone users to arduous, expensive trials. The statute’s structure does not appear to support the respondents’ proposed reliance on human intervention. Even if it did, availability of the defense would offer minimal practical relief.

Respondents’ Retreats to High Ground

Probably sensing the difficulties of his position as it relates to ordinary smartphones, Mr. Garner frequently pivoted to policy. There is no question whether protecting privacy is a goal of the TCPA, particularly the privacy of the home. With cell phones having replaced many residential lines as Americans’ sole or preferred means of contact, some argue the Court should read the Act to provide equal protection. Others contend the invasion of privacy risks are even greater, requiring even more stringent protections as cell phones invade most areas of contemporary life.

As framed by Mr. Garner, Facebook advances a “viperine interpretation” of the statute to terrible effect: “Like a viper, it kills the statute and privacy.” A bit melodramatic, maybe, but the argument makes what is the respondents’ strongest point well. An inconvenient truth for callers is that adoption of Facebook’s approach could pave the way for some added amount of unwanted calls being made to cell phones, which the Court could find crosses Congress’ privacy objective.

That is not to say a majority of the Court will find the TCPA’s privacy interest paramount. Justice Kavanaugh smartly noted during oral argument that Congress chose not to subject residential calls to the ATDS restriction. Its choice is at odds with the respondents’ focus on privacy as a lodestar because residential lines were far more ubiquitous and often a sole means of contact when the statute was enacted. It also invites consideration of whether Congress’ institution of an ATDS prohibition was “about something other than privacy” as Justice Kavanaugh hinted.

Thinking back to the societal ills prompting the Act, it is a reasonable inference to draw. Relatively few people had cell phones in 1991. Those phones were bulky. Some stayed in the car. Others sat in a bag. Even the most advanced phones lacked the battery life to be a constant companion. The threat of bombardment to all people, at all places, at all times was minimal. But the phones were expensive, with costly pay-by-the minute calling plans. Perhaps, then, Congress’ main aim in limiting calls made using an ATDS was a financial one. And perhaps the point in other instances, such as with emergency calls, was to advance safety. If the Court agrees, it could help tip the scales in favor of Facebook.

In addition, the Court could point to other factors weighing against the much-ballyhooed onslaught of debt collection and telemarketing calls a ruling for Facebook purportedly would unleash. Other provisions of the TCPA will remain intact, along with the FCC’s enforcement authority under the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994. The Fair Debt Collection Practices Act (FDCPA) and state statutes governing a range of calling activities will remain. And the FCC will continue to partner with carriers to block spam robocalls and texts. Still, no one, presumably including each of the Justices, looks forward to the prospect of any new random, unwanted calls.

Facebook’s Surplusage Problem

The most significant threats emerging for callers at oral argument related to the surplusage canon. Questioning from Justices Kagan, Alito, and Gorsuch suggested that, in their estimations, Facebook’s reading hinged on whether Congress sensibly could have meant the phrase “using a random or sequential number generator” to modify “to store” in 1991.

  1. Does it make sense to write a definition about a system using a random or sequential number generator in the very process of storing telephone numbers?
  2. Second, if yes, did equipment in operation employ such a process?
  3. Third, if yes, does it matter whether at least one or more examples of that equipment only used a random or sequential number generator when storing numbers?

Mr. Clement and Mr. Ellis appeared to clear these hurdles citing industry amici briefs detailing the equipment available to callers in 1991. Because there were devices that used random and sequential number generators to produce numbers for immediate dialing, or to store them for later dialing, it would have been natural in their views for Congress to describe both functions in the ATDS definition. More broadly, Mr. Clement responded to Justice Alito that Facebook’s interpretation squares with the sense of the statue considering Congress was capturing a process:

[T]o get to the heart of your question, I don’t think there’s anything nonsensical or redundant about talking about using a random generator, number generator, to store numbers. I think it’s not any different in principle with the phrase that a lot of people have used to describe the sense of the ATDS prohibition, which prohibits dialing of numbers using a random or sequential number generator. In both contexts, I think the senses are very sensible — the sentences are very sensible. They just mean that you’re using the number generator not to do the actual dialing or the actual storing but as part of the process of storing telephone numbers to be called or part of the process of dialing telephone numbers to be called. And I think, if you understand the terms in that way, they make perfect sense in — in normal English. And I think what they really get at is the idea that Congress was trying to prohibit the use of a random or sequential number generator, either for immediate dialing, which would be produced, or for later dialing, which would be captured even more aptly by the verb “to store.”

As a fallback, Mr. Ellis added that Congress could simply have adopted a belts-and-suspenders approach when attempting to capture the process of random number generation by dialers. Citing precedent from other cases, he argued it would be appropriate in such an instance to disregard other ordinary rules of grammar and canons of construction including superfluity.

Whether a majority of Justices accept some combination of these arguments (or consider a fourth interpretational approach from Duguid that Justice Gorsuch raised)[9] could be key.

Luckily for callers, any perceived surplusage problem for Facebook carries less weight for another reason: the respondents’ interpretation has the same problem and worse. If the Court adopts an interpretation that captures every device that stores and dials numbers, the phrase “using a random or sequential number generator” will no longer have a role to play. Maybe that is what the phrase deserves for the trouble it has caused, but it would not align with the FCC’s original understanding. Reading the central element out of Congress’ definition also smacks of judicial overreach.


In his summation, Mr. Garner branded the Duguid proceeding as “not a case about cell phones dialing” but “about cell phones being called.” In truth, it is not about either. It is about equipment dialing cell phones—equipment now as common as Zack Morris’ brick phone.

As cogently argued by Mr. Clement:

Congress targeted a very specific problem in this provision, a problem that was prevalent in 1991. I think it was successful in eradicating that specific technology, and my friend would like to use the synesis or the sense of the statute to repurpose the statutory prohibition to address more modern ills. [ . . . .] I don’t think it’s something [the Court] should really consider, and I think it gives too little credence to Congress’s own ability to address these problems in an ongoing way.

The author is cautiously optimistic a majority of the Court will agree.

[1] Consider that case filings in default-driven, comparatively low-value FDCPA actions numbered 10,376 in 2009 according to WebRecon. The annual sum grew a healthy 27% in 5 years to 13,172. Meanwhile TCPA filings not uncommonly prompted by the same or similar contacts grew a staggering 6,459% (39 to 2,558).

[2] A July 2020 declaratory ruling by the FCC’s Consumer and Governmental Affairs Bureau on the TCPA’s application to certain peer-to-peer (P2P) messaging platforms may suggest the Commission favors reigning in ATDS liability. Without parsing the statutory definition, the Bureau reasoned whether a specific device or platform is an ATDS turns on whether it is capable of performing the statutorily defined functions “without human intervention.” While notable for defining ATDS more narrowly than the FCC’s 2015 order, the Bureau made clear it did not resolve the ongoing ATDS proceeding, affirming “[t]he details of the [FCC’s] interpretation of the autodialer definition remain pending in the wake of a 2018 decision of the U.S. Court of Appeals for the D.C. Circuit.”

[3] The Administrative Orders Review Act a/k/a the Hobbs Act, 28 U.S.C. § 2342 et seq., gives federal appellate courts exclusive jurisdiction to set aside or determine the validity of specified FCC final orders. Challenges are due in the D.C. Circuit or the federal circuit in which the petitioner resides within 60 days of the order’s entry. Before ACA Int’l, most federal district courts read the Hobbs Act to bar challenges to the FCC’s overbroad definition of ATDS in cases before them.

[4] TCPA case filings slowed in the face of the headwinds, dipping to a five-year low of 3,267 in 2019.

[5] The added language was later severed from the statute on constitutional grounds in Barr v. Am. Ass’n of Political Consultants, Inc., arguably undermining the Marks court’s reliance on this factor.

[6] In re Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, CC Docket No. 92-90, Report and Order, 7 FCC Rcd. 8,752, 8,776,  ¶ 47 (1992).

[7] In the Gadelhak opinion that Justice Gorsuch described as “excellent,” Justice Barrett explained:

“[I]t is worth noting the far-reaching consequences of Gadelhak’s ungrammatical interpretation: it would create liability for every text message sent from an iPhone. That is a sweeping restriction on private consumer conduct that is inconsistent with the statute’s narrower focus. Gadelhak argues that to qualify as an “automatic telephone dialing system” a device need only have the “capacity … to store … telephone numbers” and then to call or text them automatically. Every iPhone today has that capacity right out of the box. An iPhone of course can store telephone numbers; it can also send text messages automatically, for example by using the “Do Not Disturb While Driving” function. See How to Use Do Not Disturb While Driving, APPLE (Sept. 19, 2019), https://support.apple.com/en-us/HT208090 (“If someone sends you a message [while this feature is turned on], they receive an automatic reply letting them know that you’re driving.”). Every iPhone, then, has the necessary capacities to meet the statutory definition. That means that under Gadelhak’s interpretation, every call or text message sent from an iPhone without the prior express consent of the recipient could subject the sender to a $500 fineSee 47 U.S.C. § 227(b)(3)(B).

Gadelhak v. AT&T Servs., Inc., 950 F.3d 458, 467 (7th Cir. 2020) (emphasis added).

[8] Of possible importance, Justice Alito identified call forwarding as the “greatest problem” for the respondents.

[9] Facebook did not advance this argument. But Justice Gorsuch’s questioning indicated the fourth approach may be in play, which both Mr. Clement and Mr. Ellis agreed would have the same practical effect as Facebook’s reading.

Most businesses are familiar with the concept of trademarking a word, logo, or slogan that serves as a unique identifier of their goods or services. After all, those are the markers that first come to mind when you think about a certain brand. But clients and practitioners often overlook another aspect of trademark protection relating to the total image or overall appearance of the brand. Trade dress is a subset of trademark law that refers to the visual appearance and characteristics of a product, its packaging, or even the aesthetic design of a building. This may include features such as size, shape, color or color combinations, texture, graphics or even certain sales techniques. When businesses seek to protect their name and branding, they typically only think to trademark their business name or logo. However, in certain situations a business can protect less tangible aspects of its brand and goodwill, and this is where trade dress comes into play. The seminal case on this topic is Two Pesos, Inc. v. Taco Cabana, Inc., which the United States Supreme Court decided in 1992. Most Texans instantly recognize the festive and brightly colored patios that are distinctive of Taco Cabana restaurants. The Supreme Court in Two Pesos paved the way for businesses to protect the visual aspects of their brand, as it granted such protection for Taco Cabana on the distinguishing characteristics of its buildings.

Similar to conventional trademarks, trade dress is entitled to protection if it is distinctive. Distinctiveness can either be inherent or be acquired secondarily through long-term use or other external market factors. In addition to being distinctive, in order to be entitled to protection, the trade dress cannot be functional. Trade dress is considered functional if its features are essential to the use or purpose of the article that affects its cost or quality. A design feature of a particular article is considered essential only if the feature is dictated by the functionality concerns. For example, if the shape of a product serves the function of providing ease of grip, then that would amount to a non-protectable functional shape.

The remedies for trade dress infringement are the same as those for trademark infringement, which include injunctions, recovery of economic damages in the form of the defendant’s profits or the plaintiff’s actual damages, and/or attorney’s fees in “exceptional” cases. Although it is always advisable to seek a registration whenever possible, it is not the end of the road if you are dealing with an infringer and do not have a registration. In fact, trade dress protection is available under the Lanham Act even in the absence of an actual registration, similar to conventional trademarks. Despite some of the limitations in obtaining trade dress protection, a business should always seek to protect any unique characteristics of its products, services, or branding that give it a competitive edge.

Hashtags for women entrepreneurs and female owned business are becoming more prominent. Tag lines such as “Mom-preneur” #girlpreneur #womenceo, #girlboss #solopreneur #entreprenuerher abound in social media posts in the fashion industry. It is not easy to be a female entrepreneur but with the rise of e-commerce more and more women are forming businesses and successfully selling their products. According to Visa’s 2020 State of Female Entrepreneurship report, though 79% of female entrepreneurs in the U.S. say they feel more empowered than they did five years ago, nearly 70% still report difficulty in obtaining the funding they need to succeed. In addition, many women want to take their business to the next level but simply do not know how.

Women like Kendra Scott, Sara Blakley (owner of Spanx) and Karen Noseff (owner of Rebel Athletics who was recently voted EY’s Entrepreneur of the Year in 2020) show the world that female entrepreneurs are reshaping the fashion industry and the business world. Many aspiring female entrepreneurs have the goals, the dreams, and the desire to launch big business. From startups to venture capital funding to protecting your copyright/trademark rights, having the right lawyer on your side from the beginning can provide the framework for success and allow you to build rapport with a trusted advisor who truly knows your business inside and out.

How you do know when to take your hobby or side hustle and turn it into a profitable business? Do you need to incorporate? What state should the business be formed in? What if your business takes off and you need venture capital funding? What about the legal implications of hiring employees and independent contractors?

A. Types of Business

              Protecting yourself, your assets and your business are important first steps to building your dream. Tax considerations and liability protections are key topics to consider before starting a business. What starts out as a small hobby in a living room can easily and very quickly turn into a booming business especially with the right social media following. In the world of fast fashion, businesses and brands can quickly come into the spotlight with the right social media plug. Business owners should be prepared well in advance. Some basic types of business entities include:

  1. Sole Proprietorship- A sole proprietorship is not a legal entity and simply refers to the business owner. The owner is personally liable for all debts associated with the business and a sole proprietorship does not offer any tax benefits or liability protections to the owner.
  2. LLC- A limited liability company (LLC) is a legal entity which provides liability protection for the owner(s) but may be taxed as a partnership or corporation. An LLC can have a single member owner or have multiple members.
  3. Corporations (C Corp vs S. Corp.)- Corporations are great entities for larger business that intend to go public or operate internationally. However, in some cases forming a corporation is beneficial to smaller companies as well. Corporations offer significant liability protections but require a lot of administrative upkeep and legal documentation.

It is important to understand the difference between state law classifications of an entity may not always be the same as the tax classification of an entity. Selecting the appropriate business entity matters as does the state in which you choose to formalize the creation of your business.

              Depending on where you live and your goals, forming your business in your home state may make the most sense. However, many business owners choose to form an entity in Delaware or Nevada for various reasons including the favorable corporate law statutes.  If you are considering going public or obtaining venture capital funding, incorporating may be the most beneficial for the future of your company. Regardless of where your business is incorporated deciding on when, where and how to incorporate is a fundamental decision that affects the future of your business.

B.    Protecting Your Creation

              If you have spent time, money and energy developing your ideas you want to make sure the proper legal protections are in place to protect your idea from being stolen. While it may be necessary to register your copyright or trademark, your idea or product can (and should) be protected without formal registration. But, there are legal steps you need to and should take to protect your intellectual property designs and ideas before you start marketing your products. Also, if you are working with a partner or multiple partners contracts should be in place from the beginning to outline and define the legal ownership rights of any ideas, products and designs.

C.         Equity Financing/Venture Capital

              In addition to legal advice surrounding your decision to seek funding, a great introductory book Venture Deals by Brad Fed and Jason Mendelson provides a great perspective on insights and trends for all stages of financing (note: I do not have any business relations or dealings with the author I just personally found the book helpful for my business).

D.   Advisory Board or Board of Directors

More and more resources exists to assist female entrepreneurs with launching their dreams and building a brand. If your company is not ready for a paid Board of Directors, forming an advisory board can help take a business to the next level. Nonprofit organizations such as The Fourth Floor have launched specifically to help women find board members and angel investors for blossoming companies or become board members in previously established entities.

E. Contract Review and Negotiations

              Prior to signing any type of contract with  partners, leasing agreements, manufactures, suppliers or distributors, business owners should always have an attorney review the contract to ensure the business owners personal and business interests are protected.

F.  Conclusion

The bottom line is that there is a surge in female owned business in the fashion industry and many more in the works (so many individuals have spent quarantine working on pursuing passions and finding creative ways to launch business dreams and goals). Working with a lawyer may seem daunting for a startup company but may ultimately save the business thousands of dollars in the future if protections are put in place from the start.



How can you be an effective trustee appointed in a chapter 11 case if you cannot retain counsel when the case first begins? Well one bankruptcy court in North Carolina explained that a trustee’s retention of counsel is not an automatic right in some chapter 11 cases. First, let me lay the predicate.

The New Act. There is a new category of chapter 11 trustees statutorily appointed under the Small Business Reorganization Act of 2019 (the “Act”), which created Subchapter V of chapter 11 of the Bankruptcy Code. The Act, enacted into law on February 19, 2020, came in the nick of time. Subchapter V was enacted to simplify the bankruptcy process for the smaller businesses and reduce the costs of filing bankruptcy and confirming a plan. Then in response to the COVID-19 crisis, Congress through the CARES ACT, expanded eligibility for small businesses and increased the cap for eligibility purposes, making it an option for larger businesses struggling from the widespread pandemic.

How Does the Act Help Small Businesses. For those readers who aren’t familiar with this Act, it makes the appointment of a trustee mandatory in every chapter 11 Subchapter V case just as it is mandatory in chapter 7, 12 and 13 cases. Also, it (i) shortens the timetable for filing a chapter 11 plan, (ii) dispenses with the disclosure statement step, (iii) precludes competing chapter 11 plans, (iv) stretches the payment of administrative expense claims beyond the effective date of a plan, (v) dispenses with the statutory requirement of paying quarterly US Trustee’s fees which can be significant over the life of the chapter 11 case, (vi) eliminates the appointment of a statutory creditors’ committee, and (vii) permits a debtor to retain its interest in the reorganized entity even when senior creditors are not paid in full.

Role of a Trustee. The Act requires the appointment of a trustee in every case. Unlike in a traditional chapter 11 case, the trustee is not charged with operating the debtor’s business. Rather the trustee has the limited role of assisting the debtor with proposing and confirming the plan and overseeing distributions under the plan. The term of the trustee depends on whether the plan is contested or consensual. The trustee’s role ends when the plan is substantially consummated. The debtor is required to notify the trustee when the plan is substantially consummated. In a non-consensual plan, the trustee is obligated to make distributions to creditors as contemplated in the plan until all distributions are made. The trustee files with the court a final report accounting for all distributions.

However, the trustee is held accountable for all funds received from the debtor and is charged with objecting to claims that are improper. In addition, the trustee is the resource to parties seeking information, and may opposed the discharge of a debtor, if appropriate. Despite this statutory guidance, it is not clear how a trustee will be compensated, whether the trustee must meet the statutory qualifications under Section 322 of the bankruptcy code and whether the trustee may retain counsel. Section 326(b) does appear to apply to trustees in Subchapter V cases which limits compensation to five percent of the distributions made. Certain statutory functions imposed on a Subchapter V trustee cannot be performed without counsel, such as objecting to claims and objecting to a debtor’s discharge, if appropriate.

Hiring Counsel. Setting aside the issue of how a professional hired by a trustee will be paid, and whether Sections 327 and 330 apply to the retention of an attorney seeking to be retained by a Subchapter V trustee, there is nothing in the Act that prohibits the hiring of an attorney by the Subchapter V trustee.

Nonetheless, one court put the kibosh on a trustee seeking to retain counsel. In a June 11, 2020, decision issued by a North Carolina bankruptcy court in Penland Heating and Air Conditioning, Inc., Case No. 20-1795 (Bankr. E.D. N. Car. June 11, 2020), the Honorable David M. Warren denied the application of a trustee to retain counsel in a Subchapter V case. The Debtor in this case operated a heating and air conditioning business that performed services throughout the state of North Carolina. The debtor was winding down its business affairs and intended to file a plan to provide for the liquidation of its assets after completing all unfinished jobs.

Citing to In re Ventura, 615 B.R. 1, 6 (Bankr. E.D.N.Y. Apr. 10, 2020), Judge Warren adopted the Ventura court’s summary of a Subchapter V trustee’s duties under Section 1183(b). The Subchapter V trustee acts as a fiduciary for creditors, in lieu of an appointed creditors’ committee. The Subchapter V trustee is also charged with facilitating the Subchapter V debtor’s small business reorganization and monitoring the Subchapter V debtor’s consummation of its plan of reorganization. Ventura, at 7. The role of a Subchapter V trustee is like that of a trustee in chapters 12 and 13, and a Subchapter V debtor remains in possession of assets and operates its business. Id.

Then, citing to the Honorable Paul W. Bonapfel’s article, A Guide to the Small Business Reorganization Act of 2019, 93 Am. Bankr. L.J. 571, 582-83 (2019), Judge Warren concluded that while the Act does not restrict a Subchapter V trustee from employing attorneys and other professionals under Section 327(a), the employment of attorneys or other professionals has the potential to substantially increase the administrative expenses of the case, which in his view contradicts the purposes of the Act which is to streamline and reduce costs. Id. at 591.

Finally, citing to the Department of Justice’s handbook for Subchapter V trustees, Judge Warren concluded that the employment of professionals by a Subchapter V trustee is especially important in cases in which the debtor remains in possession and the debtor has already employed professionals to perform many of the duties that the trustee might seek to retain its professionals to perform. Judge Warren stated that the trustee should keep the statutory purpose of the Act in mind when carefully considering whether employment of the professional is warranted under the specific circumstances of each case. U.S. Dep’t of Justice, Handbook for Small Business Chapter 11 Subchapter V Trustees 3-17-18 (2020).

At the hearing, the trustee stated that he filed the Application as a matter of course but did not have any current need for legal representation in the Debtor’s case. The court denied the request stating that to be consistent with the Act, the trustee has to have a specific purpose for counsel. The court left open the possibility that if during the case the trustee identifies a specific need for the employment of an attorney or other professional, then the court will consider another request.
The court recognized that routinely it allows chapter 7 panel trustees and chapter 11 trustees to hire themselves and their law firms to provide legal services on behalf of the trustee. The court stated that allowing trustees to employ themselves or their firms provides an economical efficiency to case administration. Consistent with Section 330 of the bankruptcy code, the court cautioned that overzealous and ambitious Subchapter V trustees that perform unnecessary or duplicative services may not be compensated, and other fees incurred outside of the scope and purpose of the Act may not be approved.

Takeaway. The direction from the North Carolina court is not necessarily a troublesome decision. A trustee has to be mindful of the purposes for which counsel will be hired and articulate it to bankruptcy court in its application. Simply put, a trustee has to establish necessity not only seeking to pay counsel but also when hiring counsel. It is a good practice anyway.

In light of all the negative new stories in 2020 and the statistics about the rise in divorce rates, it does not hurt to point out that there is a plus side to the pandemic: more requests for premarital agreements means more people are choosing to get married. Whether through chosen quarantine in the early stages of a relationship or slowly getting to know a new love through FaceTime, 2020 has allowed many people to reevaluate their lives, wants, needs. While it is true there is an uptick in divorces and custody disputes related to the pandemic, there is also a rise in requests for Premarital Agreements. So many people have found love and happiness during the pandemic. Family law is not always about ending relationships and fighting over children and assets.  Sometimes it helps to point out the positives.

What Is Premarital Agreement?

              A premarital agreement is a written contract entered into by two individuals prior to a marriage or civil union to solidify property and financials rights and division of that property upon the termination of the marriage by divorce or death. A premarital agreement is valid in Texas if it is in writing and signed by both parties. In addition, the parties must agree that they have each disclosed their assets and have waived any right to further disclosure prior to signing the premarital agreement. While it is not required, each individual should have their own independent attorney review the premarital agreement prior to signing.

Why do I need a Premarital Agreement?

              There are many reasons couples choose to execute a premarital agreement but some of the most frequent reasons to enter an agreement prior to marriage are:

  • one or both spouses plan to bring property into the marriage
  • One spouse owns a thriving business or has recently invested in a small business they expect to profit from in the future
  • One spouse has significant debts coming into the marriage (such as student loans)
  • one spouse is much wealthier than the other
  • The marriage is not the first marriage for one or both spouses
  • one or both spouses have children from prior relationships
  • One or both spouses expect to receive an inheritance they want to protect in the future (income from separate property is in most cases  is considered community property)

Texas Community Property Laws.

Texas is one of the nine community property states. What that means in Texas is that property acquired during the marriage is presumed to be community property and thus owned by both spouses regardless of how the property is titled. In the event of a divorce, community property is subject to a just and right division between the parties. In a premarital agreement, spouses can contract and agree to alter the characterization of their assets, debts and liabilities. Some spouses chose not to create a community estate at all. Other people choose to limit the creation of community property to only jointly titled assets. There are a myriad of options for couples to reach agreements regarding the characterization of property and the division of property in the event of a divorce.

What About Children?

A premarital agreement can address provisions for children from prior marriages such as setting aside certain assets or funds for their benefit. However, Texas law does not allow parties to address child support or child custody for children of the marriage in a premarital agreement.

Couples can reach agreements regarding the payment of alimony or a lump sum payment in the event of the bad acts of one spouse. For example, some couples choose to agree that in the event of adultery, the spouse committing the bad act will owe the other spouse a large lump sum payment as part of the divorce.

Does It Matter If The Marriage Will Not Be In Texas?

              Generally, no. If a couple chooses to get married in another state or country but intends to reside in Texas following the marriage then a Texas premarital agreement can be executed. In order for Texas law to apply to a premarital agreement there should generally be some tie to Texas (such as one party resides in Texas or the parties intend to reside in Texas).

Can a Premarital Agreement Be Set Aside?

              A premarital agreement in Texas can be set aside only under very limited circumstances. Generally, it is the public policy of the State of Texas favoring the freedom of contract so most premarital agreements are found to be valid and enforceable. In order to set aside a premarital agreement, one party must prove that either the agreement was not signed voluntarily or it was unconscionable. Examples of an “unconscionable” agreement are determined on a very fact specific, case by case basis. Some examples include but are not limited to: (1) one of the spouses failed to provide the other spouse with a fair and reasonable disclosure of all financial obligations and property owned prior to marriage; (2) one of the spouses did not voluntarily and expressly waive, in writing, any right to said disclosure and (3) one of the spouses did not, or could not reasonably have had, adequate knowledge of the other spouse’s property interests and financial obligations.