In my practice, I am often faced with the difficult issue of evaluating the capacity of an older adult client. In the beginning stages of dementia, does the client have the capacity to make important decisions and sign legal documents? Another challenging situation, which frequently occurs concurrently with capacity issues, is undue influence. Adult children and other family members often exert significant persuasive powers and control over elderly adults. When does the level of influence constitute undue influence and potentially invalidate the actions of the elderly adult? This year, the Virginia Supreme Court addressed both of these topics in the case of Parish v. Parish¹ .

In the Parish case, Eugene Parish (“Eugene”) received a head and spinal cord injury in 1982 and the following year was declared incompetent in Florida because he was “incapable of caring for himself or managing his property.” Several years later, Eugene was moved to a facility in Tennessee and his brother, David Wayne Parish (“David Wayne”), took over duties as Eugene’s conservator, asserting to the Tennessee Court that Eugene was a “disabled person . . . in need of partial or full supervision, protection and assistance by reason of mental illness, physical illness or injury, developmental disability or other mental or physical incapacity.”

In 2002, David Wayne facilitated the preparation and execution of a Will by Eugene. During the meeting to discuss the Will, David Wayne acted as the translator for Eugene because Eugene spoke through a voice box as the result of a tracheotomy and was difficult to understand. David Wayne was present in the room when the Will was executed by Eugene. The Will left 25% to David Wayne, 25% to David Wayne’s wife, Diane Parish (“Diane”), 25% to Eugene’s son, David M. Parish (“David”), and 25% to other family members. The Will also named David Wayne as Executor and Diane as successor Executor. If Eugene died without a will, all of his assets would pass to his son, David, who was not told about the Will.

In 2004, the guardianship and conservatorship was transferred to Eugene’s son, David, based upon a petition filed by David and a determination by the Virginia Beach Circuit Court that Eugene was “incapacitated to such an extent that he is unable to care for himself, make medical decisions, manage his estate or understand his debts as they come due.” Eugene died in 2006 and David qualified as the administrator of his estate without a will. Diane petitioned the Court to have Eugene’s Will admitted to probate and to permit her to qualify as Executor².  David claimed that his father did not have the testamentary capacity to execute the Will and that David Wayne and Diane exercised undue influence over Eugene.

The trial court found in favor of Diane and David appealed. The Virginia Supreme Court opined that even though a person has an appointed guardian and conservator, this does not create a presumption of incapacity for purposes of executing estate planning documents. The Virginia Supreme Court has repeatedly held that mental weakness is not inconsistent with testamentary capacity and that less capacity is required to execute a will than to execute a contract or to transact ordinary business. All that is necessary to have the legal capacity to sign a valid will is that, at the time the will is signed, the individual generally must (i) know the assets he owns, (ii) know his immediate family who would typically be beneficiaries of his estate (i.e. the natural objects of his bounty), (iii) know that he is engaged in signing his will and (iv) know how he wishes to dispose of his assets. 

The guardianship and conservatorship statutes of the three states in which fiduciaries were appointed for Eugene (Florida, Tennessee and Virginia) do not require a particular factual finding that Eugene was incompetent to such an extent that he was unable to execute a valid will. Acknowledging that the proponent of the Will has the burden of proving testamentary capacity by a preponderance of the evidence, the trial court heard the testimony of several witnesses, including the paralegal who assisted Eugene in drafting the Will, Eugene’s treating physician and Eugene’s social worker. The Supreme Court held that the evidence in favor of Eugene’s testamentary capacity was sufficient to uphold the trial court’s decision and affirmed that Eugene had the required testamentary capacity to execute the Will.

With regard to the undue influence issue, the Supreme Court stated that the general rule is that a presumption of undue influence is created when the testator was old at the time a will was executed, the testator named a beneficiary who was in a position of confidence or dependence and the testator previously had expressed an intention to make a different disposition under his will. In this case, however, the requirement that the testator be “old” did not apply. Eugene was 22 years of age at the time of his brain injury and 41 years old at the time he executed his Will. Additionally, Eugene had not previously expressed a different intention with regard to the disposition of his estate. At 22 years of age he did not have significant assets until after his injury. The Supreme Court agreed that there was insufficient evidence of undue influence to create a presumption which would shift the burden of proof to Diane. However, even if the presumption had been applied, the trial court indicated that the facts would have been insufficient for the court to come to a different conclusion. For example, the trial court noted that “notwithstanding the impairments that he suffered, [Eugene] was a stubborn man . . . if he did not want to do something, he . . . knew how to resist.” As a result, the Supreme Court affirmed the trial court’s ruling that there was no undue influence.

The Parish case is a good reminder that although an estate planner cannot avoid family disputes or will contests in the future, he or she should take steps to ensure that the preparation and execution of wills are handled appropriately. For example, when a client comes to my office accompanied by a family member or friend, I always take the opportunity to meet with the client alone. The client must be given an opportunity to speak openly with me about his or her wishes, outside of the presence of any other person. Engaging a client in a discussion of his or her thoughts and reasoning is better than asking questions that merely require yes or no answers. If I have concern about a client’s competence, or if I anticipate a challenge to the client’s Will after death, I request that the client obtain a current statement of capacity from a physician. Finally, it is always beneficial to prepare a memorandum to my file outlining the estate planning process.
–Lawrence G. Cumming

¹ 281 Va. 191, 704 S.E.2d 99 (2011).
² Apparently, David Wayne declined to serve as Executor.

The regulation of storm water from construction activities has the attention of enforcement agencies at the federal and state level.  The most recent example is the $625,000 fine paid by Ryland Group Inc. to the United States Environmental Protection Agency (EPA) for storm water violations at construction sites. Both the EPA and the Virginia Department of Conservation and Recreation (DCR) have published new regulations controlling storm water generated by construction activities.  Since DCR published a Storm Water General Permit for Construction Activities before the EPA finalized its regulations, construction sites in Virginia that obtain the state general permit have to comply with their permit, but not with EPA regulations.  EPA’s regulations will become effective in Virginia as they must be incorporated into the state general permit when it is renewed in 2014.  EPA is working on developing a turbidity standard that will limit the amount of suspended solids in discharge from construction sites.

DCR recently updated the Virginia regulations for storm water activities at construction sites that will limit the discharge of phosphorus from construction sites, including redevelopment sites that will have the same amount of impervious surface as the pre-development site.  These regulations impose stringent limits on the quantity of storm water discharged as well. They also spell out specific requirements for storm water prevention plans that are required of all permittees and are favorite targets for enforcement by both DCR and EPA.  Fortunately the regulations include liberal grandfathering requirements that, if followed, enable a company to postpone the need to comply with these requirements.
–Marina Liacouras Phillips

A fascinating dynamic in trademark law is the interplay between public perception of trademark rights and the rights themselves.  Driven by a desire to monetize the value of marks in new ways, especially by licensing, mark owners sometimes can create their own realities, broadening their rights and shrinking the public domain.  A couple of recent developments illustrate the process.

“Tweet” is in widespread use as either a verb for the act of sending a message via Twitter or a noun for the message itself.  Variants of “Tweet” also have been claimed in applications for registration of trademarks by Twitter and others for a variety of goods and services.  Because of the ubiquitous nontrademark and occasional trademark uses of “Tweet”, Twitter thus far has been unable to register the term as its own mark.    Thwarted at the United States Patent & Trademark Office (“PTO”), last month Twitter filed a civil action in district court in California in an effort to cancel a registration of LET YOUR AD MEET TWEETS held by a company named Twittad.  Were Twitter to succeed in actions like this, it could prevent others from referring to Tweets, in marks or in otherwise, without paying a license fee.

Closer to home, earlier this year Virginia Tech tried to ban a local company from using HOKIE REAL ESTATE as its name.  Of course, “Hokies” is widely used by fans and the press to describe Tech students, and Virginia Tech doesn’t sell real estate, act as a broker or license anyone to do those things under the term.  Yet, it does grant licenses to sell all sorts of merchandise under the HOKIES mark, and (like other mark owners) would like to expand the range of goods and services it licenses.  The parties settled this lawsuit in September, with the owner of the real estate company acknowledging Tech’s rights in HOKIE, but getting in return a royalty-free license to use the term with HOKIE REAL ESTATE as well as free advertising space and even game tickets.   The real estate firm got off the hook and a few goodies, but Virginia Tech is the real winner.  The license effectively expands its trademark rights, and gives the school leverage to claim rights in other related fields.

Other examples are not hard to find.  “March Madness” is a phrase universally used by the media and public to describe the NCAA’s basketball tournament (it was first used in connection with the NCAA by the media in the early 1980s).  In addition, the term was used since the 1940s by an Illinois high school basketball association to identify its tournament.   The NCAA and the high school association contested each other’s rights in court, and eventually agreed to vest the mark in a new licensing organization, allowing both to use the phrase and, of course, for each to earn more licensing fees.

“Superbowl” is the name of the NFL’s championship game, so it should be a permissible fair use to refer to the game, even for commercial purposes.  Yet, the NFL licenses the mark so aggressively that merchants avoid the term even when they should not have to.  They came to refer to “The Big Game” instead, fearing the NFL will claim trademark infringement if they run an advertisement like “See the Superbowl on a new flat-screen TV.”  “The Big Game” eventually became so popular that in 2006 the NFL sought to claim it as its own mark.    In this instance, the league’s efforts to register THE BIG GAME were thwarted by not only the fact that the phrase is generic, but also because it had been used since 1902 to identify a football game between Stanford and Berkeley.  The league abandoned its application for registration in 2007.

These stories illustrate that trademark law is not defined just by statutes and case law, but very much also by how economic incentives (to garner licensing revenue; to avoid litigation costs) affect behavior, how behavior in turn affects perceptions, and then how those altered perceptions affect behavior.  The results of this feedback loop usually, though not always, involve creeping trademark rights and a shrinking public domain.    It also makes it harder to advise clients about the risk of infringement. 

For an excellent in-depth analysis of this dynamic, see an article by University of Richmond Law School professor Jim Gibson published in the Yale Law Journal, Risk Aversion and Rights Accretion in Intellectual Property Law.

Chris Mugel practices intellectual property law from Kaufman & Canoles’ Richmond, Virginia office.  –Christopher J. Mugel

On Monday, October 3^rd, the United States Supreme Court began a new term by hearing oral arguments on whether Medicaid recipients and healthcare providers can bring a lawsuit against a state for failing to pay the rates required under the federal Medicaid law. The case, Douglas v. Independent Living Centers of Southern California, arises out of the Ninth Circuit and stems from a decision made by the California legislature to cut the rates paid to healthcare providers due to budget concerns.

Under the Medicaid program, the federal government finances a significant portion of costs to doctors who provide healthcare services to the poor. In exchange for receiving the federal funds, states must agree to pay fees to health care providers of an amount sufficient to ensure that indigent patients have access to care. The federal Department of Health and Human Services makes the determination of whether the rates paid to doctors and hospitals are sufficient and any change to those rates must first by approved by the agency prior to implementation.  The concern is that lower fees will not cover the costs associated with patient care such that doctors and hospitals will be unable to afford to take care of Medicaid patients. In 2008 and 2009, California cut the fees paid to doctors by 10 percent without first obtaining approval of the federal government. In response, doctors, hospitals, and patients filed suit against the state and won temporary injunctive relief that required California to maintain the higher rate pending trial. The state appealed the decision.

Representing the state was California Deputy Attorney General Karen Schwartz, who argued that patients, doctors, and hospitals lacked standing to challenge the rate cuts in court because Congress had not specifically authorized such private party suits. According to Schwartz, the only available remedy for the unauthorized rate cuts is for the federal government to discontinue funding California’s Medicaid program, a measure Justice Ruth Bader Ginsburg called “a very drastic remedy that’s going to hurt the people that Medicaid was meant to benefit.”  In response to Schwartz, the attorney representing the medical providers and patients argued that the Supremacy Clause of the U.S. Constitution permitted the beneficiaries of a federal program to bring a claim against a state to ensure that federal law prevails in instances where a state’s actions are inhibiting the enforcement of federal law. No clear majority opinion was evident after oral arguments were completed but a decision is expected in the near future.
–Meagan J. Thomasson

Do the words Escalator, Zipper and Cellophane sound familiar? Sure they are items that you may use every day, but they were also once registered trademarks.  They became so popular that the trademark became the generic name for the product.  The marks are now dead and considered to be in the trademark graveyard.  There are several ways to help keep your mark alive. Xerox Corporation has an advertising campaign to remind the public that the mark XEROX is not a generic term for photocopiers.  Another way is to ensure there is a generic name for your branded product, even if you have to invent the name.  For example, “online skates” was created for ROLLERBLADES. The use of the term “brand” is another way to avoid the trademark graveyard.  Johnson & Johnson uses BAND-AID brand bandages.  Take note of the use of your trademark by others and, if necessary, put your trademark on a maintenance plan to keep it out of the trademark graveyard.  –Nicole J. Harrell

As detailed in an earlier post by Nicole Harrell, the .xxx top level domain names for the adult entertainment industry are scheduled to go live later this year, and, if you are a registered trademark holder, you can apply to opt-out of .xxx domains.  A local organization in Norfolk, Virginia is viewing the new .xxx top level domain names as a marketing opportunity.  Instead of opting out of the .xxx domains for its trademark, People for the Ethical Treatment of Animals (“PETA”) indicated through a spokeswoman that PETA has applied to launch a website at peta.xxx.  Through that website, PETA plans to feature videos and photographs which will lead viewers to animal rights messages. 
–Kristan B. Burch

A broker is defined under the International Traffic in Arms Regulations (“ITAR”) as “any person who acts as an agent for others in negotiating or arranging contracts, purchases, sales, or transfers of defense articles or defense services in return for a fee, commission, or other consideration.”  22 CFR § 129.2(a)  Brokering activities include acting as a broker, as previously defined, and “includes the financing, transportation, freight forwarding, or taking of any other action that facilitates the manufacture, export, or import of a defense article or defense service, irrespective of its origin.”  22 CFR § 129.2(b).  If your company performs these activities, then ITAR applies and it must comply with the ITAR obligations for brokers.

If your company acts as an agent for others in negotiating or arranging contracts, purchases, sales, or transfers of products, then the first step is to determine whether the products in which your company deals are defense articles.  To do this, you must review the United States Munitions List (“USML”), which is located at 22 CFR § 121.1.  If the product is located on the USML, then the product is considered a defense article.  Assuming your company acts as a broker in exchange for a fee, commission, or other consideration, it must register with the Directorate of Defense Trade Controls (“DDTC”) pursuant to ITAR.  Exemptions from registration are narrow and include only the following persons:

1. Employees of the United States Government acting in official capacity,
2. Employees of foreign governments or international organizations acting in official capacity, and
3. Persons exclusively in the business of financing, transporting, or freight forwarding, whose business activities do not also include brokering defense articles or defense services.  (For example, air carriers and freight forwarders who merely transport or arrange transportation for licensed USML items).

 22 CFR § 129.3   

To register as a broker, your company must submit (1) a statement of registration, (2) a transmittal letter, (3) documentation that demonstrates it is incorporated or otherwise authorized to do business in the Unites States, and (4) a registration fee of $2,250.00.  22 CFR § 129.4.  In addition to registration with the DDTC, a broker may be required to obtain a license before engaging in certain enumerated brokering activities, depending on the particular product and country involved in the transaction.  See 22 CFR § 129.6-.7.  Even if a license is not required, the registered broker must provide an annual report to DDTC specifying its brokering activities by quantity, type, U.S. dollar value, and purchasers’ and recipients’ license numbers, as well as any applicable ITAR exemptions.  If you would like more information on the obligations of brokers pursuant to ITAR, please feel free to contact me at recoley@kaufcan.com. –R. Ellen Coley

As the variety of trust instruments available to estate planners increases, the amount of boilerplate or form language in such instruments seems to increase as well. When representing fiduciaries in trust and estate litigation, I see a surprising number of disagreements that arise from language no one likely gave much thought to when the document was drafted. A recent Virginia Supreme Court case reinforces why it is so important to review even the most mundane language of each and every instrument to make sure it accurately portrays the wishes and desires of each client.

The case of Dolby v. Dolby involved a parcel of property with a large mortgage. Under Virginia law, property specifically devised in a Will passes subject to the mortgage. In this case, however, the property passed outside of probate, and whether the mortgage ran with the land or stayed with the Estate was a question that required more detailed analysis of the language of the Will. The language focused on by both the trial court and the Virginia Supreme Court, in reaching different opinions, was not language specifically drafted for Mr. Dolby to address his specific situation, but instead was form language similar to that found in almost every Will.

Five years before his death, Cornelius Dolby, a commercial real estate developer, bought a house secured by a mortgage of more than $1.5 million. Originally, he purchased it in his own name, and lived there with his girlfriend and longtime employee. Almost four years later, the couple married. Mr. Dolby then executed a deed of gift transferring the property from him alone, to him and his new wife as tenants by the entireties, with the right of survivorship. Upon the death of Mr. Dolby, by operation of law, the widow Dolby became the sole owner of the property in fee simple.

Mr. Dolby also had a Will and a Revocable Inter Vivos Trust. The Will left all of Mr. Dolby’s personal property to his wife, and directed that the residuary pour over into the Trust. The Trust had a series of complicated disbursement instructions.

Because of the ownership as tenants by the entirety, the property was not included in Mr. Dolby’s Estate. Trouble arose, however, because of the mortgage encumbering the property. After the deed of gift was recorded, Mrs. Dolby was never added to the loan, which remained Mr. Dolby’s sole obligation. After Mr. Dolby’s death, Mrs. Dolby took title to the property, but asserted that the mortgage was an obligation of the Estate. Mr. Dolby’s three adult daughters by his first marriage, who were beneficiaries of the Estate, disagreed. Seeking an answer to whether the mortgage should become the obligation of the wife or the Estate, the co-executors, Mrs. Dolby and two brothers of Mr. Dolby, filed a petition for aid and direction with the local circuit court.

Noting that the intent of the testator is always the most important factor in interpreting Wills, the circuit court judge relied upon language stating that the executors “shall not be required to pay prior to maturity any debt secured by mortgage, lien or pledge of real or personal property owned by me at my death, and such property shall pass subject to such mortgage, lien or pledge.” The attorney who drafted the Will testified that this language was “boilerplate” language he placed in every Will. Nevertheless, the judge decided that it indicated an intent to have the property pass subject to the mortgage, and Mrs. Dolby was obliged to pay the debt. Noting that Mrs. Dolby had received $3 million in life insurance proceeds as well as the property (which was valued at almost $2.9 million at the time of death) while the children had received no distribution from the Estate, the judge held there was no evidence that Mr. Dolby intended to leave his widow almost $6 million in assets, while forcing the Estate to pay off his mortgage and leaving his children essentially nothing from an otherwise substantial estate. The judge therefore ordered Mrs. Dolby to pay the mortgage.

The Virginia Supreme Court disagreed. In doing so, it focused on a completely different portion of the same “boilerplate” language. The Supreme Court focused on the portion of the same sentence that relieved the Estate of the obligation to pay debts secured by property held “at my death.”  Finding that Mr. Dolby did not own the property at his death, because it had passed to his widow at the moment of death, the Supreme Court held that the Estate was obligated to pay the mortgage.

This result highlights the dangers of inserting seemingly innocuous, boilerplate language into any testamentary instrument, without first considering its effect on the intent of the person for whom it is drafted. Oftentimes, such language is glossed over by both the drafter and the client, only to rear its head in later litigation. It is important to remember a court will assume such language embodies the specific client’s intent. In this case, as pointed out by the circuit court judge, there was no evidence Mr. Dolby intended to leave his widow the house and the substantial life insurance proceeds, while leaving his children essentially nothing from an otherwise substantial estate after the mortgage was paid. Yet, because the boilerplate language inserted in the instrument did not make clear any intent to the contrary, this was the final result. –W. Hunter Old