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From a Florida case addressing homestead protection to the enactment of the Social Security Fairness Act and Corporate Transparency Act (CTA) updates, we have recently seen significant developments in estate planning, elder and special needs law, and business law.
To ensure that you stay abreast of these changes, we have highlighted some noteworthy developments and analyzed how they may impact your estate planning, elder and special needs law, and business law practices.
Estate Planning
Evidentiary Hearing Necessary to Determine If Homeowner’s Move to Nursing Facility Was Abandonment of Personal Residence Constituting Waiver of Florida Homestead Protection
Lauth Investigations Int’l Inc. v. Goforth, No. 5D2024-0979, 2024 WL 5098331 (Fla. 5th Dist. Ct. App. Dec. 13, 2024)
Joan Welch Rowan died at a nursing facility, which was listed on her death certificate as her residence. After Joan’s death, her sister filed a petition for administration of Joan’s estate and a separate petition to determine the homestead status of the home that was her personal residence before entering the nursing facility. The trial court denied the homestead petition because Joan was not living at her personal residence at the time of her death.
On appeal, the Florida District Court of Appeal, Fifth District, looked to Article X, section 4, of the Florida Constitution, which provides homestead protection for “the residence of [Florida homeowners] or the owner’s family.” Further, the court cited prior case law establishing that once homestead protection is established, it can be waived only by abandonment or alienation in the manner provided by law. Because a determination of whether a homestead has been abandoned is “necessarily a fact-intensive inquiry” that can only be established by a “strong showing” of the homeowner’s intent not to return to the homestead, the trial court’s failure to hold an evidentiary hearing to determine whether Joan intended to abandon her personal residence or had involuntarily ceased to reside there was reversible error. Lauth Investigations Int’l Inc. v. Goforth, No. 5D2024-0979, 2024 WL 5098331, at *1 (Fla. 5th DCA Dec. 13, 2024). The court reversed and remanded the case to the trial court for further proceedings.
Takeaways: The homestead protection under Florida’s Constitution provides significant tax benefits and asset protection for personal residences of Florida homeowners who intend to make the home their permanent residence. These protections continue after the homeowner’s death in favor of their heirs. However, homestead protections are unavailable if the homeowner has abandoned the residence. In the present case, the court cited Florida cases supporting the position that Joan had not abandoned her residence although she no longer occupied the home. The cases cited by the court indicate that the homestead character of a personal residence is not abandoned when the owner involuntarily changes their residence, as in a case where an infirmity requires residence in a nursing home or hospital facility. See In re Estate of Melisi, 440 So. 2d 584, 585 (Fla. 4th DCA 1983).
Attorney’s Dual Representation of Both Legally Incapacitated Individual and Her Sister Likely Ethical Violation Due to Conflicts of Interest
In re Kim Marie Edwards Trust, Nos. 367185; 368279, 2024 WL 5054433 (Mich. Ct. App. Dec. 9, 2024)
In 2004, Kim Edwards suffered a brain injury during childbirth. She received $2.1 million in the resolution of a related malpractice lawsuit, which funded the Kim Marie Edwards Irrevocable Special Needs Trust (SNT). After the original trustee could not qualify for a bond, Mark Hayward was named successor trustee of the SNT and served in that role for 13 years. Kim’s sister, Melissa, who lived with her and was her primary caregiver but was not her court-appointed legal guardian at any time relevant to this case, was compensated from SNT’s funds. Mark petitioned the probate court to allow the annual account in 2023 and served a copy of the account on Kim’s legal guardian. Kim’s guardian ad litem (GAL) reviewed SNT’s accounts, unsuccessfully attempted to contact Melissa by phone and email, and eventually emailed the accounting to her. The GAL ultimately recommended that the court approve Mark’s account. The court entered an order granting Mark’s petition, having received no objections.
Melissa hired an attorney, Phillip Strehle, to file a motion for a rehearing or reconsideration of the court’s order on Kim’s behalf, asserting that Kim had not been properly served with the petition regarding the account. Meanwhile, Mark petitioned the court for permission to resign as successor trustee and recommended another party who could replace him as successor trustee. The court granted the motion for reconsideration and scheduled a hearing to address the trust account and determine who should serve as the successor trustee.
Strehle submitted a brief, purportedly on behalf of both Kim and Melissa, arguing that the court was bound by the trust instrument, which specified that Melissa should be the next successor trustee. Mark disagreed, arguing that because Melissa was paid from the SNT for caregiving services, there would be a conflict of interest if she was appointed successor trustee. In addition, Kim’s GAL asserted that (1) Melissa was not authorized to raise any objections or hire an attorney on Kim’s behalf, (2) Kim’s family had been uncooperative with her guardians in the past, and (3) an experienced professional trustee should be appointed as successor trustee. The court ultimately appointed a professional successor trustee and allowed the trust accounting but did not rule on Phillip Strehle’s ability to represent Kim. However, it ultimately determined that he could not represent both Kim and Melissa because of a conflict of interest. The trial court granted the successor trustee’s motion to allow additional accounts and to pay legal fees.
On appeal, the Michigan Court of Appeals recognized a jurisdictional problem regarding Kim’s ability to pursue the appeal on her own behalf. In its de novo review, the court determined that Kim was a legally protected individual under Mich. Est. & Prot. Indiv. Code § 700.1105 and that, as a result, she did not have standing to bring an appeal on her own behalf. Rather, Kim’s legal guardian—at the time of the appeal, her 18-year-old daughter—should have brought the appeal on her behalf. Phillip Strehle had been hired by Melissa, who lacked the authority to hire him to represent Kim.
The court dismissed the appeal for lack of jurisdiction but also admonished Strehle for his “lack of professional integrity, . . . and for his cavalier and dismissive comments” when it asked him to explain the propriety of his relationship with Kim and Melissa. In re Kim Marie Edwards Trust, Nos. 367185; 368279, 2024 WL 5054433, at *6 (Mich. Ct. App. Dec. 9, 2024). Pursuant to Mich. R. Prof. Cond. 1.7, attorneys should not represent multiple clients when the representation of one is directly adverse to the representation of the other. The court stated that the conflict between his representation of Kim, a beneficiary of the SNT, and Melissa, who was compensated with funds from the SNT, was readily apparent. Noting that there was no evidence that Strehle consulted with Kim’s legal guardian or Melissa about any potential conflict or that they had consented to the dual representation, the court was “gravely concerned” that he may have violated Rule 1.7. Id.
Takeaways: The In re Kim Marie Edwards Trust case highlights that legally incapacitated individuals like Kim do not have standing to bring legal actions on their own behalves: Only Kim’s legal guardian—not Kim—was permitted to hire an attorney on Kim’s behalf. The court also determined that Melissa did not have standing in this matter because she was not a beneficiary of the trust; her role as a caregiver did not confer any legal standing. Moreover, the case is a warning that an attorney who represents multiple clients who may have directly adverse interests, particularly without advising them of the potential conflicts or obtaining their consent—and who purports to represent clients in court proceedings who have no standing to bring the action—may be disciplined for ethical violations.
Elder Law and Special Needs Law
President Biden Signs Social Security Fairness Act
H.R. 82 (Dec. 21, 2024)
On December 21, 2024, the Senate passed the Social Security Fairness Act, which repeals windfall elimination and government pension offset provisions in the Social Security Act. President Biden signed the bill on January 5, 2025. The windfall elimination provision reduced Social Security benefits for more than two million public sector employees who also receive pensions or disability benefits and where Social Security payroll taxes were not withheld. The government pension offset provision reduced Social Security benefits for nearly 750,000 spouses or survivors who receive income from their own pensions. The Social Security Fairness Act applies to monthly benefits payable after December 2023.
Takeaways: The Social Security Fairness Act repeals provisions that have been in place for more than 40 years. The Social Security Administration is currently evaluating how to best implement the new law and will provide more information in the coming weeks. It has indicated that those who will benefit from the new law do not need to take any action at this time if their mailing address and direct deposit information are correct. President Biden stated that millions of beneficiaries will receive lump sum payments for amounts they would have received in 2024 and estimated that they will see an average increase in their benefits of $360 a month going forward.
Business Law
Corporate Transparency Act Update
Texas Top Cop Shop, Inc. v. Garland, No. 4:24-cv-00478, 2024 WL 4953814 (E.D. Tex. Dec. 3, 2024)
On December 3, 2024, in Texas Top Cop Shop v. Garland, No. 4:24-cv-00478, 2024 WL 4953814 (E.D. Tex. Dec. 3, 2024), the United States District Court for the Eastern District of Texas entered a nationwide preliminary injunction blocking the enforcement of the CTA and its implementing regulations. The US Department of Justice (DOJ) filed a notice of appeal on December 5, 2024. Oral arguments are scheduled for March 25, 2025. The DOJ quickly filed emergency motions to stay the preliminary injunction in the federal district court and the Fifth Circuit Court of Appeals.
Following the Texas federal district court’s order blocking enforcement of the CTA, there was a rapid succession of events:
December 17, 2024: The Texas federal district court denied the DOJ’s emergency motion to stay its order. The US Justice Department appealed this decision to the Fifth Circuit Court of Appeals.
December 23, 2024: A motions panel of the Fifth Circuit Court of Appeals granted the DOJ’s emergency motion to stay the preliminary injunction, once again enforcing the CTA, and ordered the appeal expedited. FinCEN then extended the original January 1, 2025, deadline for filing beneficial ownership information (BOI) reports to January 13, 2025.
December 26, 2024: The merits panel of the Fifth Circuit Court of Appeals reversed the decision of the motions panel, reinstating the district court’s injunction blocking enforcement of the CTA.
December 31, 2024: The DOJ filed an emergency application asking the US Supreme Court to stay the nationwide injunction against the CTA pending appeal or to limit the preliminary injunction to the named parties in the case. The DOJ also asked the US Supreme Court to treat its application as a petition for a writ of certiorari to address the issue of whether the federal district court had improperly imposed a nationwide injunction.
Takeaways: In light of the Fifth Circuit’s December 26, 2024, ruling, reporting companies are not currently required to file BOI reports. WealthCounsel members may visit the Corporate Transparency Act webpage on the member website for additional information and updates.
Sixth Circuit: FMLA Leave Available to Employee in In Loco Parentis Relationship with Adult
Chapman v. Brentlinger Enter., Nos. 23-3582, 23-3613, 2024 WL 5103053 (6th Cir. Dec. 13, 2024)
Celestia Chapman worked for the Midwestern Auto Group (MAG) car dealership. When Celestia’s sister Sharon became terminally ill with cancer, Celestia became Sharon’s primary caregiver. Initially, Celestia used her paid time off to travel to another state to care for Sharon. When she no longer had paid days off, MAG allowed her to take unpaid leave but did not specify how long it would allow the leave to continue. Celestia requested unpaid leave under the Family and Medical Leave Act (FMLA), but MAG did not grant the request because it believed that the FMLA did not cover leave to care for siblings. MAG agreed to a modified schedule, allowing Celestia to work reduced hours. However, when Celestia did not arrive at work on the first day of the reduced schedule, MAG fired her. Celestia and MAG disagreed about whether MAG had permitted her to arrive late to work. Two days later, Sharon died.
Celestia filed a lawsuit against MAG, alleging, in part, that it had interfered with her FMLA rights in denying her request for unpaid leave and had retaliated against her by terminating her employment. The federal district court granted summary judgment in favor of MAG on the FMLA claims, and Celestia appealed.
On appeal, the Sixth Circuit Court of Appeals reviewed de novo the issue of whether Celestia was entitled to FMLA leave to care for her sister. Under 29 U.S.C. § 2612(a)(1)(c), an eligible employee is entitled to 12 workweeks of leave during a 12-month period to care for “the spouse, or a son, daughter, or parent, of the employee, if such spouse, son, daughter, or parent has a serious health condition.” Further, under 29 U.S.C. § 2611(7), “[t]he term ‘son or daughter’ means a biological, adopted, or foster child, a stepchild, a legal ward, or a child of a person standing in loco parentis, who is--(A) under 18 years of age; or (B) 18 years of age or older and incapable of self-care because of a mental or physical disability.”
The Sixth Circuit disagreed with the district court’s conclusion that Celestia could not stand in loco parentis to Sharon because neither the parent-child relationship nor the incapacitating disability began before Sharon turned 18, holding that nothing in the text indicated that Congress intended for age or timing limitations to be read into the in loco parentis designation. Because the language in FMLA did not address whether FMLA recognized an in loco parentis relationship under those circumstances, and MAG provided neither FMLA case law for Department of Labor regulations that clearly addressed the question, the court looked to common law. Based on its precedent, the court concluded that in loco parentis relationships can form between adults, including adult siblings.
The court further determined that, in evaluating whether a person intended to stand in loco parentis over an adult, its precedent looked to both direct evidence of how the two adults viewed each other based on their communications to each other and to others. In addition, it considered indirect evidence, such as whether the loco parentis parent
(1) is in close physical proximity to the adult loco parentis child;
(2) assumes responsibility to support them;
(3) exercises control or has rights over them; and
(4) has a close emotional or familial bond with them, akin to an adult child.
Id. at *11. Therefore, the court remanded the case to the district court to determine if Celestia had an in loco parentis relationship with her sister.
Takeaways: The Sixth Circuit’s decision in Chapman is significant because it expands the scope of FMLA protections to more familial relationships than previously recognized. As a result, employers, particularly those in the Sixth Circuit, which includes Ohio, Kentucky, Michigan, and Tennessee, should consider the possibility that an employee may be entitled to FMLA protections if the relationship between an employee who is a caregiver for another adult is intended to be parental in nature rather than simply “generous assistance.” Id. at *12.
Delaware and Indiana Courts Decline to Blue-Pencil Overbroad, Unreasonable Noncompete Agreements
Sunder Energy, LLC v. Jackson, No. 455, 2023, 2024 WL 5052887 (Del. Dec. 10, 2024)
Taylor Jackson was a minority member of Sunder Energy, LLC (Sunder), a solar sales dealer organized as a Delaware limited liability company (LLC). Until 2023, Sunder was the exclusive dealer for Freedom Forever, LLC (Freedom), a solar installation company. When Sunder was formed, two majority members were expected to manage Sunder and several minority members, including Taylor. The majority owners eventually drafted an LLC operating agreement containing restrictive covenants binding Taylor and the other minority members who owned “incentive units” in the LLC but had no voting, consent, preemptive, or informational rights. The restrictive covenants bound Taylor while he held incentive units and for two years after ceasing to own equity in Sunder. Taylor was prohibited from engaging in door-to-door sales business in markets where Sunder operated or reasonably anticipated operating. In addition, Taylor was prohibited from recruiting or encouraging anyone working for Sunder to leave. The majority members did not send Taylor and the other minority members the LLC agreement to review; rather, the minority members only received a one-page joinder agreement to sign. The majority members encouraged them to sign the agreement “by the end of tonight.” Taylor signed the LLC operating agreement approximately one hour after receiving it without the advice of an attorney. He later signed a one-page joinder agreement binding him to an amended 2021 LLC operating agreement that expanded the geographical scope of the noncompetition covenant.
In 2022, Taylor, who had become Sunder’s highest-paid sales leader, had direct authority over many of Sunder’s key markets, managed nearly half of Sunder’s sales force, and held the title of vice president. However, Sunder’s majority owners made several decisions that negatively affected Sunder’s relationship with Freedom and its own sales force. At that point, Taylor obtained Sunder’s LLC operating agreement and discovered that he was bound by the restrictive covenants. Taylor ultimately left Sunder and moved to Solar Pros, another Freedom dealer. He recruited many in his Sunder sales group to join him there. Freedom agreed to indemnify him against claims brought by Sunder, including claims that he had violated the restrictive covenants.
Sunder filed an action against Taylor for breach of the restrictive covenants, among other claims, but the Delaware Court of Chancery determined that the restrictive covenants were unenforceable because they were unreasonably broad as a matter of law. The court held that they were unreasonable and overbroad as to whom they covered, when they applied, and where they applied geographically. The court of chancery declined to blue-pencil the restrictive covenants so that they could be enforced to the extent that they were reasonable and enforceable.
On appeal, the Delaware Supreme Court reviewed whether the court of chancery erred in declining to exercise its equitable authority to blue-pencil the restrictive covenants. The court noted that “[n]either side disputes that Delaware courts have the discretionary power to blue-pencil overbroad restrictive covenants to align a company's legitimate interests and an individual's right to be free from unreasonable restrictions on their livelihood.” Sunder Energy, LLC v. Jackson, No. 455, 2023, 2024 WL 5052887, at *8 (Del. Dec. 10, 2024). However, Delaware courts had exercised this discretion in situations where there was equal bargaining power, the parties specifically negotiated the language of the restrictive covenants, consideration was given in exchange for signing the covenant, or the context involved the sale of a business.
The court declined to establish a bright-line rule for when it is appropriate for the court to blue-pencil a restrictive covenant. It determined that Sunder had imposed a restrictive covenant on Taylor for “minimal-to-no separate consideration” for agreeing to be bound by the restrictive covenant; rather, he was given incentive units that could not be freely transferred and were repurchased by Sunder for $0 after he left. The court determined that the restrictive covenant was “exceptionally broad,” not tailored to protect Sunder’s legitimate business interests, and potentially indefinite in duration. Id. at *11. It also rejected Sunder’s argument that the court of chancery should have blue-penciled the restrictive agreement due to the “blatantly competitive” nature of Taylor’s actions, which Sunder asserted would have breached even a narrowly circumscribed restrictive covenant. Id. at *12. The court stated that blue-penciling a restrictive covenant under these circumstances would disincentivize employers from drafting reasonable restrictive covenants because even the most unreasonable covenants could be enforced if the employee’s conduct is “sufficiently flagrant.” Id. Further, the relief Sunder sought opposed the principles of freedom of contract because it would require the court to create “an entirely new covenant to which neither side agreed” rather than simply limiting its temporal or geographic scope. Id. Therefore, the court affirmed the court of chancery’s decision denying Sunder’s motion for a preliminary injunction.
MED-1 Sols., LLC v. Taylor, No. 24A-PL-450, 2024 WL 4876906 (Ind. Ct. App. Nov. 25, 2024)
In 2010, Jennifer Taylor received an offer of at-will employment from MED-1 Solutions contingent upon executing a noncompetition agreement. Jennifer signed the offer and the noncompetition agreement. In 2014, RevOne Companies (RevOne), which owned MED-1 Solutions, required Jennifer to sign a new noncompetition agreement, stating that she would be fired if she did not. The noncompetition agreement stated that she was barred from “[d]irectly or indirectly becom[ing] affiliated with, employed by, [or] acquir[ing] an interest in” any entity that performs these services, in whole or in part.” MED-1 Sols., LLC v. Taylor, No. 24A-PL-450, 2024 WL 4876906, at *8. (Ind. Ct. App. Nov. 25, 2024). Jennifer was eventually promoted to chief operating officer of RevOne. In 2022, Jennifer tendered a resignation letter and began working for Health Care Claims Management Inc. (HCM) in 2023. RevOne sought injunctive relief, alleging that Jennifer had breached the noncompetition agreements. The court declined to grant injunctive relief, determining that RevOne had failed to demonstrate a likelihood of success on the merits, partly because the noncompetition covenant was unenforceable because it was overbroad.
On appeal, the Indiana Court of Appeals determined that the noncompetition agreement was unreasonable because it prohibited Jennifer from working for a competitor in any role, including roles that were entirely different from her position for Med-1 and did not implicate any of RevOne’s legitimate and protectable business interests. In addition, the court declined to blue-pencil the noncompetition agreement. The court explained that the blue-pencil doctrine was “really an eraser” that enables the court to erase divisible terms that it found unreasonable so that only reasonable restrictions remain. Id. at *8. The court explained that it cannot “rewrite” a noncompetition agreement by “adding, changing, or rearranging” its terms. Id. Because RevOne had not specified, and the court did not find any language that the court could simply strike to render the rest of the noncompetition agreement enforceable, the trial court did not err in concluding that RevOne was unlikely to succeed on the merits of its claim that Jennifer had breached the noncompetition agreement.
Takeaways: The Sunder Energy and MED-1 Solutions cases, respectively, involve noncompetition covenants signed by an LLC member and a key employee, both of which fall into categories traditionally viewed less unfavorably than restrictive covenants signed by the average worker. Even the Federal Trade Commission’s (FTC’s) final Non-Compete Clause Rule (currently blocked by a nationwide injunction, see Ryan LLC v. Fed. Trade Comm’n, No. 3:24-CV-00986-E (N.D. Tex. Aug. 20, 2024)), which would broadly prohibit employers from entering into noncompete agreements with workers, permits the enforcement of existing noncompete agreements with senior executives and allows them in the context of the sale of an owner’s interest in a business (although it is notable that in Sunder, the minority LLC member was treated more like an employee). However, in those circumstances, noncompetition agreements must still be reasonable in scope and protect a legitimate interest. Although the Sunder Energy and MED-1 Solutions courts did not reject the use of the blue-pencil doctrine in the proper circumstances, they declined to use it to “rewrite” noncompetition agreements that were overbroad and unreasonable. In addition to the FTC’s attempt in 2024 to ban noncompete agreements for most workers, multiple states have recently enacted statutes imposing strict restrictions on noncompete agreements. Attorneys and clients should consider alternatives such as nondisclosure agreements if there is a risk that an employee whom a competitor later employs could cause harm to the business by disclosing confidential or proprietary information to the competitor.
