Current Developments: July 2026 Review

In the past month, we have seen significant developments in estate planning, business law, elder law, and special needs planning. We have highlighted the most noteworthy developments to ensure you and your firm stay informed of any changes. From federal cases imposing increased tax liability for an asset transfer not made for a nontax purpose and reversing an administrative law judge’s denial of Supplemental Security Income disability benefits, to a Department of Justice opinion that certain federal employment discrimination guidelines are unconstitutional and a new Florida rule requiring certification of the accuracy of legal citations in court filings, read on to learn how these developments may impact your practice. 

Estate Planning

Assets Included in Decedent’s Gross Estate Where Transfers to Family Limited Partnership Were Not Motivated by a Nontax Purpose

Estate of Fields v. Comm’r of Internal Revenue, No. 25-60403, 2026 WL 1642415 (5th Cir. June 8, 2026)

In 2010, Anne Fields nominated her great-nephew, Bryan Milner, as executor of her estate and signed a power of attorney (POA) appointing him as her agent. Anne was diagnosed with Alzheimer’s disease in 2011. In 2012, Bryan began managing most of her finances due to her declining condition. In May 2016, Anne’s health declined substantially, and Bryan met with an estate planning attorney to discuss her estate. The attorney recommended that Bryan form a limited partnership to hold Anne’s assets, with Anne named as a limited partner holding a 99.9941 percent interest and a limited liability company named as the general partner holding a .0059 percent interest. Bryan transferred Anne’s assets into a limited partnership as recommended. In June 2016, Anne passed away.

Anne’s estate was large, and Bryan hired an accountant to help prepare the estate tax return. On the estate tax return, the estate included Anne’s limited partnership interest as part of the gross estate, which was valued at $10,877,000. The estate tax return did not include the value of the assets transferred into the limited partnership, which were valued at $17 million. The estate calculated its final tax liability at $4,617,800.

Following an audit, the Internal Revenue Service (IRS) issued a notice of deficiency, determining that Anne’s gross estate included more than the value of the limited partnership interest. The IRS also assessed a 20 percent underpayment penalty. The estate sought relief in the tax court, but the court agreed with the IRS’s determination of a $1,828,594 tax deficiency and a $270,417 penalty. The estate appealed.

The Fifth Circuit Court of Appeals held that the value of Anne’s estate depended on the proper application of I.R.C. §2036(a). Under § 2036(a), the gross estate includes the value of property that a decedent transferred before their death, where the decedent retained an interest in the property that was relinquished only at death and the transfer was not a bona fide sale for adequate and full consideration.

The sole issue on appeal was whether the transfers of Anne’s assets to the limited partnership amounted to a bona fide sale. The court noted that it must conduct an objective, factual inquiry to determine whether the transfer served a substantial nontax purpose and was actually motivated by that purpose.

The estate asserted that the transfers had multiple nontax purposes. First, the estate argued that the transfers remedied limitations in Anne’s POA, which it claimed did not provide a workable plan for appointing a successor agent. Although the POA named Bryan’s two sisters as successor agents, the estate asserted that the sisters did not feel comfortable managing Anne’s financial affairs. The court rejected this concern, finding that neither Anne, a sophisticated businesswoman, nor Bryan nor his sisters expressed any such concerns at the time of the POA’s execution. Further, the formation of the limited partnership, which was managed solely by Bryan, did not remedy the alleged problems with succession.

Second, the estate asserted that the transfers were necessary because financial institutions had continuously failed to expeditiously honor Bryan’s authority as Anne’s agent under the POA. The court rejected the estate’s argument based on Bryan’s ability, as Anne’s agent, to quickly transfer $17 million of assets to the limited partnership within the span of one month.

Third, the estate claimed that the transfers to the limited partnership were necessary to consolidate and streamline the management of Anne’s assets. The court rejected its argument, finding that most of the assets—a professionally managed brokerage account, shares of bank stock, and a tree farm managed by a local company—did not require active management or streamlining.

Fourth, the estate asserted that the transfers were necessary to protect Anne’s assets against fraud and elder abuse. Although the evidence showed that two instances of financial elder abuse had occurred, Bryan did not form the limited partnership until several years later. The court found that Bryan would have formed the limited partnership much earlier if elder abuse had truly been his motivation.

The court further found that other factors, including the timing of the transfers, which occurred concurrently with Anne’s significant health deterioration in May 2016, and an email from Bryan’s attorney to an appraiser seeking a deeper discount, supported the tax court’s ruling that the nontax purposes asserted by the estate were likely “after-the-fact justifications, not actual motivations.” Estate of Fields v. Comm’r of Internal Revenue, No. 25-60403, 2026 WL 1642415, at *5 (5th Cir. June 8, 2026).

Therefore, the court affirmed the tax court’s ruling that the transfers were not made for a substantial nontax purpose. The court ruled that the value of the transferred assets must be included in the value of Anne’s gross estate. Further, the court ruled that the accuracy-related penalty was justified because Bryan should have known that a $6 million reduction in reportable assets was too good to be true; further, the estate had failed to show that it had relied in good faith on a tax professional’s advice in including only the partnership interest instead of the value of all assets in Anne’s gross estate.

Takeaways: The Fields decision emphasizes that a transfer of assets must actually be motivated by a genuine nontax purpose to avoid inclusion in a decedent’s gross estate under I.R.C. § 2036(a). After-the-fact justifications will not prevent the inclusion of the value of transferred assets in the gross estate. Further, the decision provides a reminder that where the tax benefit sought from a transfer is so extreme that a reasonable person should know that it is too good to be true, a taxpayer who nevertheless tries to take advantage of that benefit may incur an accuracy-related penalty due to their negligence or disregard of the rules.

OBBBA Bluebook: Limitations on Itemized Deductions Apply to Trusts and Estates

U.S. Joint Comm. on Tax’n, General Explanation Of The Tax Provisions Of Public Law 119–21, JCS-1-26 (May 28, 2026)

The 2019 Tax Cuts and Jobs Act temporarily eliminated the limitation on itemized deductions set forth in I.R.C. § 68. The One Big Beautiful Bill Act (OBBBA), Public Law 119–21, permanently eliminated the limitation, which was set to apply again in 2026, and replaced it with an amended § 68. Amended § 68 (see section 70111 of Public Law 119–21) establishes a new limitation that generally provides that itemized deductions will be reduced by 2/37 of the lesser of (1) the total amount of itemized deductions or (2) the taxable income exceeding the dollar amount at which the 37 percent tax bracket begins.

The previous version of § 68 exempted trusts and estates from the limitation on itemized deductions. The newly amended § 68 left questions about whether the reduction in itemized deductions under OBBBA applies to trusts and estates.

On May 28, 2026, the Joint Committee on Taxation issued the General Explanation Of The Tax Provisions Of Public Law 119–21 (commonly known as a “Bluebook” and available to download here). On page 26, footnote 102, it provides:

The provision [i.e., amended section 68] also applies to estates and trusts. See sec. 641(b) (providing that the taxable income of an estate or trust generally is computed in the same manner as in the case of an individual). Section 63(d) defines the term ‘‘itemized deductions’’ to refer to all allowable deductions other than those allowable in arriving at adjusted gross income, see sec. 62, and those listed in section 63(b). Therefore, the itemized deductions for an estate or trust include (without limitation) the personal exemption under section 642(b) and the deductions for beneficiary distributions under sections 651 and 661. Treasury Regulation section 1.67–4(a)(1)(ii) provides that these three deductions ‘‘are not itemized deductions under section 63(d).’’ That regulation, however, interprets section 67(e), which provides, ‘‘For purposes of this section [which, for certain taxable years, imposed a limitation on miscellaneous itemized deductions],’’ the section 642(b), 651, and 661 deductions are treated as allowable in arriving at adjusted gross income. Because the rule of section 67(e) is, by its terms, limited to section 67, the regulation does not exclude the deductions under section 642(b), 651, or 661, or any other deductions, from being itemized deductions for purposes of the provision.

(emphasis added). Thus, according to the Bluebook, under the circumstances set forth in § 68, the reduction would apply to distributable net income (DNI) distributions to beneficiaries, meaning that a trust could no longer take a distribution deduction equal to the amount of income distributed and could owe income tax based on phantom income, requiring the trust to dip into the principal of the trust to pay it. Commentators believe that the reduction would also apply to I.R.C. § 642(c) charitable deductions for estates and nongrantor trusts.

Takeaways: Although Bluebooks are not authoritative or a source of legislative history, courts may consider them to the extent they are persuasive. If courts adopt the view espoused in the Bluebook, the principal of trusts, which, in 2026, reaches the top federal income tax bracket of 37 percent when taxable income exceeds $16,000, could be rapidly reduced by annual income tax payments on amounts distributed to an income beneficiary. Such an outcome would likely lead to litigation by frustrated remainder beneficiaries. In addition, it could mean that income distributed by the trust is taxed twice, with income tax due from both the trust and the income beneficiary.

New Florida Law Amends Criteria for Uncontested Probate Proceedings and Clarifies Authority of Personal Representatives

H.B. 1337 (Fla. 2026)

Florida House Bill 1337, effective July 1, 2026, amends Florida’s probate law to increase small estate thresholds, provide personal representatives with access to a decedent’s safety deposit box, and authorize personal representatives to initiate an enforcement action if a custodian of an asset refuses to recognize valid letters of administration.

The law implements recommendations of The Workgroup on Uncontested Probate Proceedings Report aimed at increasing the efficiency and effectiveness of uncontested probate proceedings, which constitute more than 94 percent of Florida’s probate caseload.

The law doubles the value of estates eligible for summary administration from $75,000 to $150,000. The law also doubles the value of intestate estates with nonexempt personal property that may be disposed of without administration from $10,000 to $20,000. It also expedites estate administration by requiring financial institutions to cooperate when they are presented with valid letters of administration.

Takeaways: The new law addresses challenges arising from Florida’s growing aging population and reduces the burden on personal representatives, family members, and courts by increasing the efficiency of its probate administration process for modest estates.

Elder Law and Special Needs Planning Law

ALJ Erred in Discrediting Opinions of SSI Applicant’s Treating Physicians and His Subjective Testimony

Ortiz v. Bisignano, No. 24-5407, 2025 WL 4947035 (9th Cir. June 24, 2026)

Max Ortiz, born in 1959, filed for Supplemental Security Income (SSI) benefits in 2015, claiming that he was disabled as a result of degenerative disc disease, a seizure disorder, and several mental health issues, including bipolar disorder and anxiety. After a series of hearings and appeals, an administrative law judge (ALJ) denied his claim in 2023. The ALJ found that Max had the residual functional capacity (RFC) to perform medium work, rejecting Max’s subjective testimony regarding his tremors, pain, mood challenges, and other symptoms; giving little weight to his treating physicians’ opinions; and giving substantial weight to a nontreating physician’s opinion. The ALJ’s decision was upheld in federal district court. Max filed a timely appeal.

The Ninth Circuit Court of Appeals found that the ALJ had erred in rejecting the opinions of Max’s treating physicians and crediting the opinions of nontreating physicians without providing specific and legitimate reasons supported by substantial evidence. The court found that the ALJ had erroneously rejected the opinion of Max’s treating physician, Dr. Shute, that Max should be limited to light work, which was based on multiple treatments over two years. The ALJ had identified in Dr. Shute’s opinion inconsistencies that the Ninth Circuit Court of Appeals found were not supported by substantial evidence in the record: Dr. Shute’s report that Max had a normal gait, strength, and range of motion was consistent with his opinion that Max should be limited to light work based on his chronic and debilitating pain. The court found that Max’s pain independently supported his exertional limitation.

The ALJ had given significant weight to Dr. Leinenbach’s opinion, based on only one examination, that Max was capable of continuously engaging in all work-related functions except for a limitation that he lift no more than 20 pounds. The court found that the ALJ had erred in crediting Dr. Leinenbach’s opinion instead of Dr. Shute’s opinion: Under the applicable pre-2017 guidelines, the opinion of a treating physician (Dr. Shute) must be given greater weight than that of an examining physician (Dr. Leinenbach).

In addition, the court found that the ALJ had erred in rejecting all opinions related to Max’s mental functioning except that of a nonexamining physician, Dr. Clifford, who had relied exclusively on the opinions of three examining physicians that the ALJ had rejected as outdated.

The court further ruled that the ALJ had erred in giving little weight to Dr. Wingate’s and Dr. Weiss’s opinions based on their psychological and psychiatric evaluations of Max: The ALJ’s concerns about their evaluations were based on misunderstandings of the evidence. The court found that Dr. Wingate’s opinion that Max was unable to regularly function in the workplace was not rebutted by his ability to participate in weekly counseling sessions and Alcoholics Anonymous meetings. Similarly, the court found that Dr. Weiss’s observations of normal speech, cooperation, and ability to concentrate were not inconsistent with his opinion that Max had bipolar disorder and was unable to maintain employment. Further, the ALJ had erred by failing to identify a real conflict between Dr. Weiss’s opinion that Max was able to engage in certain daily activities and his opinion that Max was unable to work a full day without interference from his psychological symptoms.

The court found that the ALJ had also erred by not providing clear and convincing reasons for discrediting Max’s subjective testimony about his seizures and psychological symptoms that made working difficult. Although the evidence showed that Max took medicine for his seizures, it did not reflect that the medicine had resolved his seizure disorder. The court determined that the ALJ also did not provide sufficient reasons for discrediting Max’s other mental health testimony.

The court reversed and remanded for the calculation and award of benefits instead of for further proceedings, finding that the record was fully developed, the ALJ had failed to provide sufficient reasons for the rejection of the aforementioned evidence, and the ALJ would be required to find Max disabled on remand if the erroneously discredited evidence were credited as true. The court further found that Max’s age and the long delay in awaiting benefits also weighed against remanding for further proceedings, stating, “We decline to invite further repetition of this already unfortunate administrative history.” Ortiz v. Bisignano, No. 24-5407, 2025 WL 4947035, at 11 (9th Cir. June 24, 2026).

Takeaways: Elder law and special needs planning attorneys who represent individuals who have applied for disability benefits should advocate vigorously for their clients to ensure that their applications are not denied based on erroneous reasoning. The Ortiz court applied regulations regarding medical opinions that were applicable to claims filed before March 27, 2017. For claims filed on or after March 27, 2017, C.F.R. § 416.920c applies.

Nonattorney Trustee Who Filed Documents in Court on Behalf of Trust Engaged in Unauthorized Practice of Law

Almericas Veterans Mortg. Tr. v. Brock & Scott, PLLC, No. 03-26-00461-CV, 2026 WL 1714996 (Tex. Ct. App. June 12, 2026)

In response to a trial court’s order against it, Almericas Veterans Mortgage Trust, represented by its pro se trustee, filed a notice of appeal. The Texas Court of Appeals notified the trustee that, under Rule 7 of the Texas Rules of Civil Procedure, he was not permitted to appear pro se in his representative capacity as a trustee. The court explained that Rule 7 allows individuals to represent themselves pro se to litigate their rights on their own behalf but not to litigate rights in a representative capacity. Only licensed attorneys are permitted to represent other parties under Texas law. Consequently, if a nonattorney trustee files documents on behalf of a trust, the trustee has engaged in the unauthorized practice of law.

Because no attorney filed an amended notice of appeal on the trust’s behalf, the court dismissed the appeal.

Takeaways: The Almericas Veterans Mortgage Trust case is a strict reminder for Texas corporate and private trustees, as well as family members who are trustees of special needs trusts: If a trust enters a legal dispute or foreclosure action, a nonattorney trustee must retain a licensed Texas attorney to handle the filing. Courts in other jurisdictions have made similar rulings (see, e.g., Ziegler v. Nickel, 75 Cal. Rptr. 2d 312 (Cal. Ct. App. 1998) (adopting the reasoning of Back Acres Pure Trust v. Fahnlander, 443 N.W.2d 604 (Neb. 1989)).

Court Imposes Constructive Trust over Life Insurance Proceeds Where Beneficiary-Aunt Failed to Comply with Deceased Brother’s Instructions to Transfer Them to His Daughters

Geels v. Flottemesch, 277 N.E.3d 57 (Ind. Apr. 8, 2026)

In 2021, David Malinowski died unmarried with three daughters. He designated his sister, Regina Geels, as the sole beneficiary of his two life insurance policies. After David’s death, Regina submitted a claim to MetLife for the insurance proceeds. Several days later, David’s daughters notified MetLife that there was litigation regarding the policies and filed a petition to construe the will and impose a constructive trust over the insurance proceeds. The daughters alleged that David had intended for Regina to hold the benefits as their trustee and that the beneficiary designation was the result of undue influence or fraud. The trial court concluded that the life insurance proceeds were subject to a constructive trust on behalf of David’s daughters because David and Regina had a fiduciary relationship. The court of appeals reversed, finding that the Employee Retirement Income Security Act of 1974 (ERISA) preempted state law remedies such as a constructive trust, that Regina had not waived the issue, and that Regina was the beneficiary of the policies. The daughters appealed.

The Indiana Supreme Court determined that Regina had waived her argument that ERISA preempted the daughters’ desired state law remedy, i.e., the imposition of a constructive trust. Regina had not raised ERISA preemption in her answer to the daughters’ petition to impose a constructive trust over the insurance proceeds. The court held that Regina could not avoid waiver because MetLife had raised ERISA preemption in its answer, which did not put the daughters on notice that Regina would raise that defense as well.

In addition, the court found that the trial court had not clearly erred in imposing a constructive trust in favor of the daughters. The court noted that a constructive trust is an equitable remedy available against someone who acquires another’s property through actual or constructive fraud or other wrongful means. It requires the person who holds title to that property to convey it because they would be unjustly enriched if permitted to retain it. Constructive fraud, which does not require intent to defraud, arises upon the breach of a duty arising from a fiduciary relationship.

The court determined that the evidence supported the trial court’s finding that David and Regina had a fiduciary relationship. The court found that, in addition to their sibling relationship, Regina had managed almost all of David’s legal and financial affairs as his agent under his financial and medical powers of attorney and had become his de facto guardian; thus, she had exercised superiority and influence over him, which supported the trial court’s finding of a fiduciary relationship.

The evidentiary record showed that several years before David’s death, one of his daughters had texted Regina that David had told her that he had instructed Regina to split the insurance proceeds among his daughters. In her response, Regina acknowledged that the daughters would receive the proceeds. Further, the record showed that David intended for his daughters to receive all of his possessions. The court found that because of Regina’s fiduciary relationship with David, she owed him a duty of loyalty, which she had breached by claiming the insurance proceeds for herself. Consequently, Regina’s actions constituted constructive fraud. The court affirmed the trial court’s judgment, determining that its imposition of a constructive trust in favor of the daughters was not clearly erroneous.

Takeaways: The Geels case highlights that equitable remedies, such as constructive trusts, may be available to rectify a breach of trust or fiduciary duty, particularly in intrafamily asset management scenarios involving elderly individuals who are in a fiduciary relationship with someone they depend on for assistance with their financial and medical needs.

Business Law

DOJ Concludes that EEOC Guidelines Applicable to Disparate Impact Liability Are Unconstitutional; EEOC Rescinds Guidance

U.S. Dep’t of Just., Constitutionality of Disparate-Impact Liability Under Title VII, 50 Op. O.L.C. __ (June 9, 2026)

On June 9, 2026, the US Department of Justice (DOJ) issued an opinion in response to the Equal Employment Opportunity Commission’s (EEOC) request for a review of the constitutionality of its current interpretation of the disparate impact provisions of Title VII of the Civil Rights Act. The DOJ concluded that the EEOC’s existing rules and guidelines are unlawful and unconstitutional because they attempt to guarantee equal outcomes, whereas the Equal Protection Clause of the US Constitution and Title VII guarantee only equal treatment.

The DOJ stated that the EEOC’s existing interpretation treated disparate impact not as an evidentiary mechanism that could reveal intentional discrimination but as giving rise to a strong inference of intentional discrimination. It imposes liability based solely on disproportionately adverse effects without regard to an employer’s likely intent. As a result, the DOJ concluded that the EEOC’s approach “functions as a qualified racial-proportionality mandate and spurs employers to engage in race-based decisionmaking to avoid liability.” U.S. Dep’t of Just., Constitutionality of Disparate-Impact Liability Under Title VII, 50 Op. O.L.C. __, at 2 (June 9, 2026).

Based on safeguards applicable to disparate impact liability that the US Supreme Court has determined are constitutionally required, the opinion outlined three “corrections” necessary to resolve the tension between disparate impact claims under Title VII and the “color-blind” US Constitution:

1. To establish the business necessity defense, employers must show that a challenged practice is “rational, convenient, or helpful for serving a valid business purpose.” Id. Employment practices are presumed to be job-related. Disparate impact liability is created only by practices that are not plausibly job-related and are “irrational or arbitrary.” Id.
2. Plaintiffs asserting disparate impact liability must satisfy causality by demonstrating that the challenged employment practice itself, rather than external factors or other employer practices, caused the alleged disparate impact.
3. Plaintiffs must provide evidence of the availability of an alternative practice that would reduce the disparate impact and would be equally effective in achieving the employer’s valid business purpose.

The DOJ determined that the EEOC’s current requirement—that employers must establish a valid business purpose using an in-depth validation study that proves that the criterion is positively related to successful performance and that the correlation is strong enough to justify the criterion’s disparate impact—was inconsistent with Title VII’s business necessity defense. In addition, the DOJ stated that EEOC guidelines authorize voluntary affirmative action, which is a racial preference inconsistent with Title VII and the US Constitution.

On June 30, 2026, in response to the DOJ’s opinion, the EEOC issued a statement announcing that it had voted to rescind two guidance documents: “Affirmative Action Appropriate Under Title VII of the Civil Rights Act of 1964 as Amended” and a related document, the “Compliance Manual Section 607 on Affirmative Action.”

Takeaways: The DOJ’s opinion is not binding precedent, but it indicates how the federal government will interpret the law. Employers should review their practices to ensure that job applicants and employees are not treated differently based on their demographic characteristics. New guidance will likely be issued in the coming months.

Workers Found to Be Independent Contractors under Federal Law, Employees Under State Law

Tomasello v. ICF Tech., Inc., No. 23-3759, 2026 WL 1500841 (D.N.J. May 29, 2026)

Performers who livestreamed on a hosting platform called Streamate brought an action against ICF, the corporation that operated the platform, under the Fair Labor Standards Act (FLSA), the New Jersey Wage and Hour Law, and the New Jersey Wage Payment Law. They asserted that they were employees and that Streamate was liable for federal and state wage violations, including the withholding of minimum wages, the misappropriation of tips, and the failure to compensate the plaintiffs for all hours worked.

The federal district court noted that it must apply two distinct legal frameworks in analyzing the federal and state claims: To evaluate the FLSA claim, the court must apply the six-factor economic reality test adopted by the Third Circuit Court of Appeals; to analyze the state claim, the court must apply the ABC test used by New Jersey state courts.

In evaluating the FLSA claims, the court considered the following factors:

• The nature and degree of control by the employer. The court found that although the platform enforced some rules, its degree of supervision and control was minimal compared to that of the performers, who set their own prices, designed and controlled their performances, and streamed simultaneously on competing platforms. In addition, although ICF required the performers to verify that they were adults and sign an agreement, they did not have to undergo an interview or other typical employee onboarding procedures. This factor weighed in favor of concluding that the plaintiffs were independent contractors.
• The opportunities for profit and loss. The court determined that because the plaintiffs did not receive a set biweekly salary or fixed commission but instead set their own prices and controlled their own profits, this factor weighed in favor of concluding that the plaintiffs were independent contractors.
• The investment in equipment. Because ICF had clearly invested much more in the streaming platform than the plaintiffs, who only had to purchase a laptop, webcam, and internet connection, the court determined that this factor weighed in favor of concluding that the plaintiffs were employees.
• Special skills. Noting that unskilled workers who perform routine work are more likely to be deemed employees, whereas independent contractors often have specialized skills and perform discrete work projects, the court found that the performers were not required to have a specialized skill, prior experience, training, or certification to sign up as a performer. Therefore, the court found that this factor weighed in favor of concluding that the plaintiffs were employees.
• Degree of permanence. In considering the exclusivity, length, and continuity of the working relationship between the performers and the platform, the court found that the performers had no term of employment, no exclusivity requirement, and unrestricted flexibility, which weighed in favor of finding them independent contractors.
• The extent to which service rendered is an integral part of the employer's business. Noting that the plaintiffs, as performers, were essential to ICF’s business because the streaming platform would not exist without them, the court found that this factor weighed in favor of finding an employment relationship.

Although three of the factors weighed in favor of an employment relationship and three weighed in favor of finding that the plaintiffs were independent contractors, the court—considering them together to determine whether, as a matter of economic reality, the plaintiffs were dependent on the streaming platform or were operating independent businesses for themselves—determined that they were independent contractors. The plaintiffs had control over all meaningful aspects of their work and retained the right to work concurrently for ICF’s competitors; thus, they were not entitled to the protections that the FLSA provides to employees.

In contrast to the federal standards, New Jersey law establishes a presumption of employment. A worker is deemed to be an employee unless the hiring business satisfies a three-pronged ABC test.

• Prong A: Employer does not exercise control over the worker. The performer agreement provided that ICF did not have the right to direct or control the plaintiffs’ schedules or creative content. As a result, the court found that ICF satisfied the first prong, thereby supporting a finding that the plaintiffs were independent contractors.
• Prong B: Service outside of the course of business or the business’s locations. Because ICF was a streaming platform, its entire business was wholly dependent on the content created by the performers. Further, the platform was the commercial venue where the business operated and the plaintiffs performed their services within the virtual footprint of the business’s enterprise. Therefore, the court found that ICF had failed, as a matter of law, to satisfy its burden that the plaintiffs provided a service outside its business or business locations and thus were independent contractors.

Because the ABC test requires the satisfaction of all three prongs to establish that a worker is an independent contractor, the court did not address prong C, i.e., that a worker was customarily engaged in an independently established trade, occupation, profession, or business.

Due to its failure to satisfy the ABC test, the court ruled that the plaintiffs qualified as statutory employees under state law and had established liability on the state law claims. The court granted ICF’s motion for summary judgment on the FLSA claims but granted the plaintiffs’ motion for summary judgment as to the state law claims.

Takeaways: The Tomasello decision highlights the different analyses used to determine whether workers are independent contractors or employees at the federal and state levels and the potential for different outcomes. A majority of states have adopted some version of the ABC test, which generally makes it easier for workers to be classified as employees under state wage and hour laws than the economic reality test applicable to FLSA claims. For related coverage of the US Department of Labor’s recently proposed independent contractor rule, please see our April 2026 monthly recap.

Agreement Purporting to Provide Employee with Ownership Interest in Business after Five Years Void for Indefiniteness

Langley v. Autocraft, Inc., 929 S.E.2d 575 (N.C. May 22, 2026)

In 2015, Joshua Langley left his employment with Autocraft, Inc. (Autocraft) and began working for a different company. In 2016, Keith Clapp, the owner of Autocraft, sent Joshua a message advising him to contact Keith if he ever wanted to return to Autocraft. Joshua then discussed returning to Autocraft with Keith and prepared a one-page document setting forth terms such as his salary, hours, and benefits. The document also provided that he would receive a 10 percent ownership of Autocraft at the five-year mark from his start date. It provided that this was contingent upon his decision to become a 10-percent owner, that he be able to review the books and debt at the four-year mark, and that the owner finance the remaining 90 percent over the following five to 10 years. Joshua, Keith, and Keith’s wife signed the agreement in December 2016. In January 2017, Joshua resumed work at Autocraft until his termination in August 2022.

Joshua brought a suit against Autocraft and, later, Keith individually, seeking to enforce the provision granting him a 10 percent ownership interest in the company. The North Carolina Business Court granted Keith’s motion for summary judgment, finding that the agreement provided Joshua with an unlimited right to determine the nature or extent of his performance and, thus, that the consideration he provided was illusory. Joshua appealed, arguing that the agreement was not illusory or that the agreement should be enforced under the quasi-estoppel or mend-the-hold doctrines.

In its majority opinion, the North Carolina Supreme Court instead concluded that the alleged contract was void for indefiniteness. The court noted that a contract is enforceable only if there is mutual assent to the terms of the agreement, establishing a meeting of the minds. The court noted that when a contract is so vague and indefinite that the parties’ intent cannot be discerned, there is no meeting of the minds, and the contract is void.

The court determined that the 10 percent ownership provision was followed by three subprovisions stating that Joshua could decide whether to become a 10 percent owner, that he could review the company’s books after four years of employment, and that the owner would finance the other 90 percent in the following five to 10 years. The court held that the ownership provision must be considered together with the related subprovisions.

The court found that the ownership provision—including its subprovisions—was unenforceable because it could not determine its meaning. The owner financing subprovision did not include a price or formula from which a price could be computed. In addition, it did not include details on how the remaining 90 percent interest would be owner-financed, nor did it include a payment timeline. The court held that enforcing the agreement would require it to compel the parties to assent to contractual terms to which they never agreed; as a result, the agreement was unenforceable because of its indefiniteness.

The court also rejected Joshua’s quasi-estoppel claim. Under the quasi-estoppel doctrine, a party who accepts a transaction and its benefits may be estopped from later taking a position inconsistent with their acceptance of the transaction. However, the court found that in a situation such as the present case, enforcement under a quasi-estoppel theory is impossible because the contractual terms are too indefinite to enforce.

The court further ruled that Joshua’s equitable mend-the-hold theory also failed on the merits. Under the mend-the-hold doctrine, a party may not assert inconsistent litigation positions in a single lawsuit. Joshua asserted that Autocraft’s assertion of a counterclaim arguing that he owed a fiduciary duty to Autocraft meant that it had implicitly taken the position that the agreement was enforceable. However, Autocraft had explicitly rejected that position. Moreover, Autocraft’s counterclaim was a wholly separate claim, stated in the alternative, and was not a new justification for its nonperformance that would permit the application of the mend-the-hold doctrine.

Thus, the court modified and affirmed the Business Court’s judgment, finding that the agreement was void for indefiniteness.

Takeaways: The Langley opinion highlights the importance of well-drafted business documents. To avoid being found void for indefiniteness, a business purchase agreement must include all terms necessary for its enforcement, including the purchase price and payment terms or a method for determining them. WealthCounsel’s Business Docx^® solution includes both an equity purchase agreement suite and an asset purchase agreement suite that contain not only the agreements but also letters of intent, opinion letters, personal guarantees, and other documents necessary for successful business sales.

AI and Legal Tech

Supreme Court of Florida Requires Representation of Accuracy of Legal Authorities Cited in Court Filings

In re Amendments to Florida Rule of General Practice and Judicial Administration 2.515, No. SC2026-0673 (Fla. May 28, 2026)

On May 28, 2026, the Supreme Court of Florida issued In re Amendments to Florida Rule of General Practice and Judicial Administration 2.515, No. SC2026-0673, which amends its rules to provide a uniform statewide requirement that those who sign documents filed in any of Florida’s courts—regardless of whether they are pro se litigants or attorneys—must represent that the legal authorities identified in those documents exist and are accurately cited. Although the court acknowledged that generative artificial intelligence (AI) tools can be helpful as drafting or research aids for court filings, it recognized that they could generate inaccurate content, including hallucinated (fake) authorities. The amendment also authorizes Florida courts to impose sanctions for filings inconsistent with the required representation, including reprimand, contempt, striking of the document, dismissal of the proceedings, costs, and attorneys’ fees.

The amendments were effective June 15, 2026.

Takeaways: Although there are many instances where attorneys have been sanctioned for court filings containing inaccurate or nonexistent legal authorities (see, for example, our June 2026, February 2026, and November 2025 monthly recaps), the Supreme Court of Florida is one of the first state courts to amend its rules to require those who file court documents to represent that the legal authorities they have cited are accurate.

Other Related Legal Developments

State Bar of California Issues Opinion Addressing Ethical Obligations of Attorneys Who Provide Services Under Flat Fee Agreements

State Bar of Calif., Standing Comm/ on Pro. Resp. and Conduct, Formal Op. No. 2026-210 (2026)

The Standing Committee on Professional Responsibility and Conduct of the State Bar of California recently issued a formal opinion addressing the ethical obligations of California attorneys who represent clients pursuant to flat fee agreements—under which an attorney earns the specified fee by performing the services for which the fee is charged based on factors other than the number of hours spent providing the services—when the representation is terminated before all legal services specified in the agreement are completed or the scope or complexity of the matter exceeds the initial expectations of the attorney and client.

When a client pays a flat fee in advance, the attorney may deposit it into the firm’s operating account only if the written disclosures set forth in California Rule of Professional Conduct 1.15(b) are provided. The fees are not earned until the services are fully performed. California Rule of Professional Conduct 1.16 provides that an attorney must promptly refund any part of a fee that is not earned upon termination of the representation.

When the attorney and client have agreed in advance on the value of each individual task, that agreed-upon amount must be refunded for any task left unperformed. Provisions addressing the agreed-upon amounts must not be unconscionable under California Rule of Professional Conduct 1.5. California Business & Professions Code section 6148 should be considered in drafting such provisions: It provides that an attorney may charge a flat fee for legal services but must clearly identify which services the fee covers; specify when the fee, or any portion of it, is considered earned; and specify how a refund will be calculated.

Absent such an agreement, the refund owed for an unperformed task may be determined under a quantum meruit analysis, which allows an attorney to recover the reasonable value of services actually rendered.

If the parties renegotiate a flat fee arrangement midrepresentation, including because the attorney misjudged the complexity or time requirements of the engagement, the attorney must comply with California Rule of Professional Conduct 1.8.1, which mandates that the terms be fair and reasonable to the client and fully disclosed in writing, and that the client be advised to consult an independent attorney and provide written consent to the transaction.

The opinion provides practical guidance recommending that, in their communications with clients about flat fee arrangements, attorneys should do all of the following:

• define the scope and limitations of the services provided under the arrangement to set expectations and guide time estimates
• specify any extra services outside the flat fee, their cost, and how client authorization must be documented (i.e., in writing)
• set milestones impacting the earning of the flat fee (e.g., 25 percent earned upon filing a document, or $5,000 earned upon completing an application)
• discuss the attorney’s right to quantum meruit if the representation is terminated before completing a milestone
• establish clear timelines and goals, including how often the client should expect updates
  

Takeaways: As mentioned in the opinion, an increasing number of attorneys are considering flat fees as an alternative to traditional billing practices, such as hourly billing, to ensure their fees reflect the true value of their services. This trend is likely to continue as some legal tasks can now be completed more quickly with the help of AI. State rules vary, so attorneys should become familiar with the rules and ethics opinions relevant to flat fees in their states. For additional discussion of the ethical implications of using AI for attorneys’ pricing models, see Sydney Morris, Will the Integration of Artificial Intelligence into the Legal Profession Ethically Require a Change in Attorney Billing? The Georgetown J. of Legal Ethics (Apr. 14, 2026).