CHASING THE AMBULANCE CHASER?: TCPA Suit Against Accident Law Firm Shows Sharks Can Eat Each Other After All
This one will be fun for folks.
A personal injury law firm in Florida is being sued in a TCPA class action based on calls apparently made by a lead generator hoping to drum up work for the law firm.
The complaint alleges FRIEDLAND & ASSOCIATES, P.A. d/b/a Accident Claims called Plaintiff more than 130 times despite his number being on the DNC list and despite his requests to stop calling.
Fiedland moved to dismiss the suit but in Helmuth v. Friedland 2025 WL 442477 (S.D. Fl. Feb. 10, 2025) the Court denied the motion finding the complaint was properly pleaded.
Diving in a bit, the court found allegations Defendant “encouraged Plaintiff to engage the legal services” of Friedland and provided Plaintiff’s number to Defendant Friedland, which proceeded to call Plaintiff offering its legal services” were enough to show the calls were made at the law firms direction and subject to its control.
Next Friedland argued complaint should be dismissed because it does not identify the phone numbers the calls came from and does not state when the opt-out occurred in relation to the 130 alleged calls. The Court determined, however, that neither allegation was required given the large number of calls at issue– the court essentially inferred that the calls continued after a reasonable time elapsed.
The Court also refused to dismiss the willful damage request determining a jury might decide Friedland’s conduct was knowing or willful.
Indeed the Court refused to even throw out the injunctive relief claim determining that given over 100 calls were made to the guy there was a likelihood of future injury.
My goodness.
A complete loss for a law firm in a TCPA suit.
Can’t say I like to see it. But I don’t hate it either.
“THE ULTIMATE CONSEQUENCE”: Small Businesses Fold as FCC Moves to Require Notification of Carrier Call Blocking– But Takes No Action on Real Problems
So the FCC plans to vote next month on a rule requiring carriers to advise callers when their calls have been blocked based on “reasonable analytics.”
On the one hand that’s fine, I guess. But the carriers should NEVER have been allowed to block calls without notification to begin with. That’s just insane.
And the fact we will all need to wait another year before Sip code 603+ to be in use is cold comfort.
But, slightly better than nothing I suppose.
What we really need is IMMEDIATE action on the R.E.A.C.H. petition to STOP illegal call/sms blocking and mislabeling— and to dismantle TCR. This is URGENT.
Every day I am hearing from another small business telling me that call and text blocking– particularly text blocking– is threatening to (or is–wait or it) putting them out of business. TCR is most of the problem, but the aggregators and carriers — including phantom voicemails the carriers are apparently using to “block” calls while still charging for the traffic– blocking on the basis of content is a massive problem.
So let’s back up and remind everyone of what’s at stake.
There are actually two separate issues, but they fall into the same basic concept of carriers blocking communications.
First, is carrier VOICE call blocking based on “reasonable analytics.” This was first authorized back in 2018 and there have now been a ton of revisions to a safeharbor created to allow carriers to violate section 201 of the Communications Act–which basically requires carriers to act as “common carriers” and connect all phone traffic.
As already noted, carriers have been allowed to block calls for years now based on an unspecific black box of requirements that, as far as I can tell, have resulted in BILLIONS of LEGAL AND CONSTITUTIONAL phone calls being blocked essentially at the FCC’s invitation with ZERO recourse.
I talked to a client YESTERDAY so was having so much trouble getting calls to go through he bought his own carrier operator. Plus he has to cycle through thousands of DIDs a day to avoid his numbers being labeled. As he tells me: “If you call more than 20 times a day from a DID they label you as spam. More than 40 they label you as scam.”
The carriers figure if you are calling at volume then your phone number must be important to your business. As soon as they know that they figure you will pay them to white label your number and they will block and label you until they pay up.
DISGUSTING.
Requiring the carriers to advise you (finally) when they block is step one–this should have been done years ago, of course– but so what if there’s no required redress?
And there isn’t.
Because the FCC has never said what can and cannot be blocked to begin with. That’s part of what the R.E.A.C.H. petition is trying to fix.
But that’s just the first problem and probably the smaller of the two.
The second problem is SMS blocking, and this is even more painful and the FCC has intentionally made it harder for businesses to address. And you REALLY need to understand this part– because it is nuts.
Also back in 2018 the FCC clarified that SMS isn’t a telecommunication service it is an “information service.” Because, you see, SMS isn’t a communication function its a storage function. You’re not talking to someone else when you send a message you’re just transferring a data set.
Crazy, absurd, tortured logic– and one of the worst rulings to come out of the FCC at that time.
The classification of SMS as a Title III information service was done specifically to allow carriers to block SMS. It was believed at the time that the carriers had successfully deployed SMS blocking already and the FCC didn’t want to upset the apple cart by stripping text blocking authority away from the carriers.
But they did.
By removing the requirement of the carriers to faithfully transmit all SMS messages it allowed the carriers to determine their own terms of use on content providers (people sending text messages) including declaring that certain content just wouldn’t be allowed on their networks.
Total violation of the First Amendment. A licensing scheme of the highest order.
It gets worse.
The carriers have conspired (anti-trust?) to only accept traffic registered through a company called The Campaign Registry. TCR is foreign owned and has both tremendous power and visibility in the telecom ecosystem right now.
TCR literally has the ability to prevent any business or political campaign from sending high volume text messages. And it is using that power to silence people based on CONTENT. And the aggregators are afraid of TCR rejections so they are not even submitting campaigns to TCR to begin with (just like they are blocking SMS and calls that they think the carriers won’t like.)
Just yesterday I was told of a campaign that an aggregator would not even submit to TCR for approval because the political message was “polarizing and considered offensive [to some].”
Prior restraints on free political speech are literally actively ongoing. It is a massive problem.
How big of a problem?
How about a small business that just shut down because it could not get 10DLC access. In the words of the owner:
To give you some background, we ran our business for five successful years using P2P texting – a model that allowed us to deliver highly responsive and personalized service. Our customer service was second to none, and we consistently met the high expectations of our clients. However, the introduction of 10DLC upended everything.
Here’s what happened…
Regulatory Impact:The 10DLC regulations brought with them a burdensome, protracted registration process. We were initially advised by our provider that unregistered traffic would soon be phased out (multiple times over the course of 2 years), prompting us to urge our clients to register promptly. Unfortunately, this promise was repeatedly reversed. Each time we were told to push for registration with an imminent cutoff, the timeline shifted unexpectedly. These delays were not trivial – they were lengthy enough to derail critical campaigns, especially for political clients with tight election deadlines.
Client Impact:The prolonged and unpredictable registration procedures forced our clients into a corner. Many of our smaller clients, who relied on our nimble P2P texting to engage with voters, found themselves unable to complete registration in time, rendering them unable to run their campaigns effectively. Worse yet, several larger clients, seeking more stable and predictable service, migrated to vendors who seemed to have insider information or more streamlined processes in place. The impact on our reputation was severe, despite our best efforts to support our clients every step of the way.
The Ultimate Consequence:After years of success, these cumulative issues made it impossible for us to maintain our business model. We prided ourselves on agility and excellent customer service, but the excruciating delays and inconsistent guidance around 10DLC left us with no viable path forward. This week, we made the difficult decision to close our doors.
Done.
Small business vaporized.
By a process that was never legal to begin with.
Its nuts.
And here’s the worst part– it doesn’t work. In fact, SMS spam has gotten WORSE since TCR took over its little role as censorship king of America.
Now how is that possible?
Before there was very little SMS spam. The FCC takes the reigns off the carriers and they put a foreign-owned company in charge of network access and now there is a ton of SMS spam.
Hmmmmm.
I wonder why that is?
Dear FCC:
I know you have A TON going on– and thank you very much for your efforts staying one-to-one–but we need a public comment period on the R.E.A.C.H. petition to stop all of this right away.
Thank you.
Chancery Imposes Penalties for Spoliation in Facebook Litigation
A recent Delaware Court of Chancery decision provides useful guidance regarding the requirements to preserve evidence in litigation and the potential penalties for spoliation. In the matter styled: In re Facebook, Inc. Derivative Litigation, C.A. Cons. No. 2018-0307-JTL (Del. Ch. Jan. 21, 2025), the court addressed spoliation in litigation involving allegations that Facebook sold personal information in violation of applicable obligations it had to its social media users.
I. Factual Background
Although several million documents were produced in the litigation, this decision involved a motion alleging that the COO of Facebook and one of the members of the board of directors failed to preserve their personal email accounts which were used at least occasionally for business communications relevant to the lawsuit.
II. Legal Analysis
The legal definition for spoliation is the destruction or significant alteration of evidence, or the failure to preserve evidence properly, or the improper concealment of evidence. Slip op. at 11 (citing Goldstein v. Denner, 310 A.3d 548, 567 (Del. Ch. 2024)).
Court of Chancery Rule 37(b) authorizes spoliation sanctions for failure to preserve ESI and requires that before sanctions can be imposed, it must be shown that: (1) The responding party had a duty to preserve the ESI; (2) The ESI is lost; (3) The loss is attributable to the responding party’s failure to take reasonable steps to preserve the ESI; and (4) The requesting party suffered prejudice. Moreover, in order for an adverse inference or case dispositive sanctions, the plaintiff must show that the responding party recklessly or intentionally failed to preserve ESI. Slip op. at 12.
III. When Court Should Decide Spoliation Motion
The court recited factors it will consider to determine whether to address a spoliation motion before trial or after trial. Slip op. at 13-14.
IV. When a Duty to Preserve Exists
The first question under Rule 37(e) is whether ESI should have been preserved.
The court emphasized that: “A party is not obligated to preserve every shred of a paper, every e-mail or electronic document.” Slip op. at 14-15 and footnote 51. But the party must preserve what it reasonably should know is relevant to the action. The duty applies to key people likely to have relevant data.
The second step in a Rule 37(e) analysis is whether the ESI is lost. For purposes of Rule 37(e), information is lost only if it is irretrievable from another source including other custodians. Slip op. at 17.
The third step in the Rule 37(e) analysis is whether ESI was lost because of the failure of a party to take reasonable steps to preserve it.
In order to understand preservation, we must understand the components of ESI discovery.
The court reviewed the five steps involved in ESI discovery: (i) Identification; (ii) Preservation; (iii) Collection; (iv) Review; and (v) Production. In this case the issues were identification and preservation.
(i) Identification: Taking reasonable steps to identify ESI is the first step in preserving evidence or information which should be collected and preserved. This involves locating the relevant people that have custody of the relevant ESI or the ability to obtain it, as well as the location of types of ESI. Slip op. at 18. This may involve interviewing individuals that might have information about the location of relevant ESI.
(ii) Whether there was a failure to take reasonable steps to preserve: The next step is to preserve ESI, but a party “need not preserve all documents in its possession; it must preserve what it knows and reasonably ought to know is relevant to possible litigation and is in its possession, custody, or control.” Slip op. at 19.
Importantly, the court explained that it should be “sensitive to the parties’ sophistication with regard to litigation in evaluating preservation efforts; some litigants, particularly individual litigants, may be less familiar with preservation obligations than others who have considerable experience in litigation.” Slip op. at 19.
(iii) Steps Necessary to Preserve
The court distinguished between the practical steps an organization must take to preserve compared to an individual, but both must suspend routine document destruction policies. Slip op. at 20. For example, individuals must disable auto-delete functions, and also backup data for personal devices. Failure to do so may suggest they acted unreasonably. An individual must self-educate in order to learn what is necessary to prevent automatic deletion or destruction.
Applying the standards to the Facebook case, the court found that the COO was highly sophisticated as the chief operating officer and she knew what was required. She should have consulted company counsel if she had any doubts. Her failure to take steps to avoid the auto-deletion of her email was not reasonable. Slip op. at 21-22.
The court also explained that the director of the company who failed to disable his auto-delete function for his personal emails acted unreasonably, but in his case there was no prejudice.
V. Prejudice Required
If there was no prejudice from the loss of ESI, no sanctions are imposed. Slip op. at 23. The court explained what prejudice means in this context.
The prejudice analysis requires that the requesting party provide an explanation as to why the lost ESI could have been relevant, but “the mere fact that evidence is lost is not sufficient to demonstrate prejudice; the requested party must provide a plausible explanation as to why evidence could have been relevant such that the failure to preserve is prejudicial.” Slip op. at 24.
Once the party seeking sanctions meets the initial burden, the party who failed to preserve must convince the court that the lost ESI did not result in prejudice, such as: because the material could not have been relevant, or would not have been admissible, or could not have been used by the requesting party to its advantage. Slip op. at 24.
The court explained why the loss of the COO’s emails was prejudicial—but why there was no prejudice from the emails of the board member that were lost. Slip op. at 25-27.
VI. Sanctions
The court rejected most of the requests for sanctions, and only imposed an elevated requirement for the burden of proof, as well as an award of fees for bringing the motion for sanctions. Slip op. at 29.
Seventh Circuit Decision Highlights Distinction Between Traditional Non-Compete and Forfeiture-for-Competition
A recent decision by the U.S. Court of Appeals for the Seventh Circuit allowed an employer to enforce a “forfeiture-for-competition” against a former plant manager. The Court explained that, under Delaware law, forfeiture-for competition is not subject to the same reasonableness standard as a traditional non-compete clause. The case is LKQ Corporation v. Robert Rutledge, No. 23-2330 (7th Cir. Jan. 22, 2025).
Background
A former plant manager received restricted stock unit (RSU) awards as part of his compensation over several years. Each RSU award was governed by Delaware law and stated that the employee would forfeit his RSUs if he went to work for a competitor within 9 months after leaving the company. The company sought to enforce the forfeiture after the employee resigned and joined a competitor.
In June 2023, a federal District Court in Illinois held that the forfeiture provision was unenforceable because it failed a standard reasonableness test based on geographic and temporal scope, protecting a legitimate business interest, and a balancing of the equities. On appeal, the Seventh Circuit noted that the Delaware Supreme Court had distinguished between forfeiture-for-competition and a traditional non-compete, holding that a forfeiture-for-competition provision was not subject to the reasonableness test; but the forfeiture provision in that case was contained in a limited partnership agreement that had been negotiated by sophisticated parties. The Delaware Supreme Court had not addressed whether reasonableness would be required for a forfeiture clause in an agreement between employer and employee that had been subject to little or no negotiation.
The Seventh Circuit certified the open question to the Delaware Supreme Court and the Delaware Supreme Court responded that its prior decision was not limited to the limited partnership context. The Delaware Supreme Court explained that, unlike a traditional non-compete clause, a forfeiture-for competition provision “does not restrict competition or a former employee’s ability to work.” The Delaware Supreme Court cautioned, however, that there could be circumstances where the forfeiture is “so extreme in duration and financial hardship that it precludes employee choice by an unsophisticated party and should be reviewed for reasonableness.”
Applying the Delaware Supreme Court’s explanation, the Seventh Circuit held that the circumstances of the case were not so “extreme in duration and financial hardship” as to require a reasonableness review. Although the plant manager’s annual salary was only $109,000, he was not unsophisticated and had voluntarily accepted RSU awards that were available only to “key persons”—a designation reserved for less than 2% of the company’s workforce. The Seventh Circuit also determined that, though substantial, forfeiting RSUs valued between $130,000 and $340,000 did not reach the level of “extraordinary hardship” that might require a reasonableness review. Accordingly, the Seventh Circuit reversed the District Court and remanded for further proceedings.
Implications
Although non-compete provisions are almost always subject to some version of a reasonableness test (and prohibited altogether in some states), many states apply a looser standard to forfeiture-for competition provisions. The principle is that, while it might be unreasonable to restrict competition or to prevent someone from taking another job, it is fair to condition incentive compensation on honoring a non-compete. Employers should remain mindful, however, that there is some limit on the cost that can be imposed for breaching a non-compete. The details will vary by jurisdiction and the court’s assessment of the equities.
Navigating Text Messages in Discovery
In We The Protesters, Inc., et al., v. Sinyangwe et. Al, the Southern District of New York was recently called upon to resolve a discovery dispute that, according to the Magistrate Judge, “underscore[d] the importance of counsel fashioning clear and comprehensive agreements when navigating the perils and pitfalls of electronic discovery.” More specifically, the court was determining whether, without an express agreement between the parties’ counsel in place, plaintiffs could properly redact text messages based on responsiveness.
We The Protesters, Inc. Background
The litigation arose from a business divorce between the founders of nonprofit Campaign Zero. Plaintiffs’ complaint asserted 17 causes of action for inter alia, trademark infringement, unfair competition, misappropriation, and conversion. Defendants counterclaimed, accusing plaintiffs of copyright infringement, trademark infringement, cyberpiracy, and unfair competition.
In March 2024, the Hon. John P. Cronan granted in part and denied in part plaintiffs’ motion to dismiss three of defendants’ counterclaims. Discovery proceeded and the current dispute came to light after the parties exchanged productions of text messages and direct messages from a social media platform.
In drafting the operative discovery protocol, the parties agreed to collect and review all text messages in the same chain on the same day whenever a text within the chain hit on an agreed-upon search term. (Dkt. No. 64 at 1 & Ex. A). Plaintiffs understood this to mean they needed to produce only the portions of the messages from the same-day text chain that were responsive or provided context for a responsive text message.
Defendants had a different understanding, claiming the entire same-day text chain must be produced in unredacted form. Upon reviewing plaintiffs’ production, defendants objected and claimed plaintiffs’ unilateral redaction of these text messages was improper. Following an unsuccessful meet and confer, defendants filed a letter-motion seeking to compel production of unredacted copies of all text messages in the same chain that were sent or received within the same day. Plaintiffs responded, contending their redactions were proper and, in the alternative, seeking a protective order.
Discussion
Text Messages in Discovery
The court’s decision began with the observation that text messages are an increasingly common source of relevant and often critical evidence in 21st century litigation.[1] According to the court, text messages do not fit neatly into the paradigms for document discovery embodied by Rule 34 of the Federal Rules. Although amended in 2006 to acknowledge the existence of electronically stored information (ESI), i.e., email, the rules were crafted with different modes of communication in mind. Unlike emails, with text messages each text or chain cannot necessarily be viewed as a single, identifiable “document.”
And so, the issue is whether, for discovery purposes, each text message should be viewed as its own stand-alone “document”? Or is the relevant “document” the entire chain of text messages between the custodian and the other individual(s) on the chain, which could comprise hundreds or thousands of messages spanning innumerable topics?[2]
As the opinion notes, federal courts have adopted different approaches with respect to text messages. Some courts, including the Southern District of New York, suggest that a party must produce the entirety of a text message conversation that contains at least some responsive messages.[3] By contrast, other jurisdictions, like the Northern District of Ohio, hold “the producing party can unilaterally withhold portions of a text message chain that are not relevant to the case.”[4] “Still other courts have taken a middle ground.”[5]
Against this backdrop, the court noted that litigants are free to—and are well-advised to—mitigate the risk of this uncertain legal regime by agreeing on how to address text messages in discovery. Rule 29(b) specifically affords parties the flexibility to design their own, mutually agreed upon protocols for handling discovery, but “encourage[s]” counsel “to agree on less expensive and time-consuming methods to obtain information.”[6] Such “‘private ordering of civil discovery’” is “‘critical to maintaining an orderly federal system’” and “‘it is no exaggeration to say that the federal trial courts otherwise would be hopefully awash.’”[7]
The court noted a party may think twice about insisting on the most burdensome and costly method of reviewing and producing text messages for its adversary if it knows it will be subject to the same burden and cost. In general, the parties are better positioned than the court to customize a discovery protocol that suits the needs of the case given their greater familiarity with the facts, the likely significance of text message evidence, and the anticipated volume and costs of the discovery.[8]
Resolution Where Agreement is Incomplete
Here, the court noted the parties negotiated an agreement regarding the treatment of text messages. However, the agreement was incomplete. According to the court, email exchanged between the parties, along with the parties’ summary of the verbal discussions that took place show agreement that (1) discovery would include text messages; (2) specific search terms would be used to identify potentially responsive text messages; and (3) when a search term hit on a text message, counsel would review all messages in the same chain sent or received the same day, regardless of whether the text message that hit on the search term was responsive. The parties both produced responsive text messages in the form of same-day text chains, manifesting mutual assent that a same-day chain represented the appropriate unit of production. However, the parties’ agreement did not explicitly address whether, in producing those same-day text chains, texts deemed irrelevant and non-responsive would be redacted or, instead, the chains needed to be produced in their entirety. It was that failure that caused the instant dispute.
In resolving the dispute, the court viewed the issue through the prism of the parties’ prior agreement, discussions, and lack of discussions. The court indicated its task was not to determine the “right answer” to the redaction question in the abstract, but rather how to proceed with an agreement that was unknowingly incomplete. The court identified its task as akin to filling a gap in the parties’ incomplete agreement.[9]
In completing its task, the court noted the familiar principle of contract law that “contracting parties operate against the backdrop” of applicable law which, in this context, was supplied by Al Thani — the leading case in the Southern District on the issue of redactions from text messages and one authored by the presiding district judge in this litigation. Al Thani holds squarely that “parties may not unilaterally redact otherwise discoverable” information from text messages for reasons other than privilege.[10] Yet that is precisely what plaintiffs did.
The court further relied upon Judge Aaron’s decision in In re Actos Antitrust Litigation as instructive. In Actos, the issue involved “email threading,” i.e., the production of a final email chain in lieu of producing each separate constituent email. Specifically, a discovery dispute arose because defendants made productions “using email threading even though the Discovery Protocol, by its terms, did not permit such approach.”[11] Judge Aaron rejected defendants’ unilateral decision to use threading, explaining “if the issue had been raised when the parties were negotiating the Discovery Protocol, Plaintiffs may have been able to [avoid the issue], however, Plaintiffs were not provided the opportunity to negotiate how email threading might be accomplished in an acceptable manner.”[12] The court declined to impose threading on plaintiffs.
Here, the court found the Actos reasoning persuasive. If plaintiffs wanted to redact their text messages, it was incumbent upon them to negotiate an agreement to that effect or, in the absence of agreement, resolve the issue with the court before defendants made their production. Accordingly, as in Actos, the court construed the absence of a provision in the parties’ agreement allowing redaction of text messages to preclude plaintiffs from unilaterally redacting.
Considerations for Text Message Discovery
We The Protesters, Inc., is an important reminder of a few things. First, text messages and other forms of mobile instant messages are a critical form of evidence in today’s litigation. Any discovery protocol should address preservation, production, and potential redactions to that ESI. Additionally, given the cost and burden attendant to ESI, parties should leverage Rule 29(b) and fashion their own, mutually agreeable protocols for handling discovery, with an eye toward proportionality and efficiency. Finally, cooperation and communication are key in litigation. When in doubt, consider picking up the phone to opposing counsel. Here, had plaintiff confirmed its intention to redact content prior to production, much effort and cost may have been avoided.
[1] Mobile phone users in the United States sent an estimated 2 trillion SMS and MMS messages in 2021, or roughly 5.5 billion messages per day, a 25-fold increase from 2005. SMS and MMS messages represent only a subset of the universe of mobile instant messaging, or MIM, which also includes other means of messaging via mobile phones. MIM, in turn, does not account for the vast volume of instant messages, or IM, sent on computer-mediated communication platforms. The use of IM and MIM “has become an integral part of work since COVID-19.” Katrina Paerata, The Use of Workplace Instant Messaging Since COVID-19, Telematics and Informatics Reports (May 2023).
[2] After all, an email chain is typically confined to a single subject, whereas a single text chain can read more like a stream of consciousness covering countless topics.
[3] Lubrizol Corp. v. IBM Corp., (citing cases); see also Al Thani v. Hanke (noting the general rule that parties may not unilaterally redact otherwise discoverable documents for reasons other than privilege,) id. at *2; see also Vinci Brands LLC v. Coach Servs., Inc. (following Al Thani).
[4] Lubrizol at *4 (citing cases from various jurisdictions that follow this approach).
[5] Id. (citing cases from such jurisdictions).
[6] Id. 1993 Adv. Comm. Note.
[7] Brown v. Hearst Corp. (quoting 6 Moore’s Federal Practice § 26.101(1)(a)).
[8] See generally Jessica Erickson, Bespoke Discovery, 71 Vand. L. Rev. 1873, 1906 (2018) (“Parties should have more information than judges about the specific nature of their disputes and thus should be in a better position to predict the types of restrictions that will be appropriate.”).
[9] See In re World Trade Center Disaster Site Litig. (“In limited circumstances, a court may supply a missing term in a contract.”); Adler v. Payward, Inc.(“[C]ourts should supply reasonable terms to fill gaps in incomplete contracts.”) (citation omitted).
[10] Al Thani at *2.
[11] Id. at 551.
[12] Id.
The Government Contractor’s Guide to Termination for Convenience
The Trump administration, as part of its efforts to reshape the federal government, began terminating federal contracts for the convenience of the government almost immediately after coming back to town. These contract terminations show no signs of slowing in the near term. Accordingly, government contractors need to know their rights and obligations so that they can be best positioned if one or more of their contracts are terminated. This article provides a user-friendly guide for government contractors on these important rights and obligations.
General
“Termination for convenience means the exercise of the Government’s right to completely or partially terminate performance of work under a contract when it is in the Government’s interest” (Federal Acquisition Regulation (FAR) 2.101). The right to terminate for convenience is made a part of almost all government contracts by inclusion of the standard Termination for the Convenience of the Government clauses in FAR 52.249-1 through -5. The Termination for Convenience clause in commercial item contracts issued under FAR Part 12 can be found in paragraph (l) of FAR 52.212-4. For government contracts that do not contain a termination for convenience clause, such a clause nonetheless is generally read into the contract by operation of law under the “Christian Doctrine.” See G.L. Christian & Assoc. v. United States, 312 F.2d 418 (Ct. Cl. 1963).
Procedures
Once a government contract has been terminated for the convenience of the government, a series of duties for both the prime contractor and the contracting officer are triggered under FAR 49.104 and FAR 49.105, respectively. These duties are discussed in turn below.
Duties of Prime Contractor
FAR 49.104 (Duties of Prime Contractor After Receipt of Notice of Termination) states that, “[a]fter receipt of the notice of termination, the contractor shall comply with the notice and the termination clause of the contract, except as otherwise directed by the TCO [Termination Contracting Officer].”
FAR 49.104 states that “the notice and clause applicable to convenience terminations” generally require that the contractor:
Stop work immediately on the terminated portion of the contract and stop placing subcontracts thereunder;
Terminate all subcontracts related to the terminated portion of the prime contract;
Immediately advise the TCO of any special circumstances precluding the stoppage of work;
Perform the continued portion of the contract and submit promptly any request for an equitable adjustment of price for the continued portion, supported by evidence of any increase in the cost, if the termination is partial;
Take necessary or directed action to protect and preserve property in the contractor’s possession in which the government has or may acquire an interest and, as directed by the TCO, deliver the property to the government;
Promptly notify the TCO in writing of any legal proceedings growing out of any subcontract or other commitment related to the terminated portion of the contract;
Settle outstanding liabilities and proposals arising out of termination of subcontracts, obtaining any approvals or ratifications required by the TCO;
Promptly submit the contractor’s own settlement proposal, supported by appropriate schedules; and
Dispose of termination inventory, as directed or authorized by the TCO.
Accordingly, government contractors who have had a contract terminated for convenience need to be mindful of the duties that the FAR imposes upon them and should adequately document their compliance with these duties.
Duties of Contracting Officer
FAR 49.105 (Duties of Termination Contracting Officer After Issuance of Notice of Termination), in turn, states that “[c]onsistent with the termination clause and the notice of termination, the TCO shall”:
Direct “the action required of the prime contractor;”
Examine the prime contractor’s termination settlement proposal and, when appropriate, the settlement proposals of subcontractors;
Promptly negotiate settlement with the contractor and enter into a settlement agreement; and
Promptly settle the contractor’s settlement proposal “by determination for the elements that cannot be agreed on, if unable to negotiate a complete settlement” (see FAR 49.105(a)).
Next, FAR 49.105(b) states that, “[t]o expedite settlement, the TCO may request specially qualified personnel to”:
Assist in dealings with the contractor;
Advise on legal and contractual matters;
Conduct accounting reviews and advise and assist on accounting matters; and
Perform the following functions regarding termination inventory (see FAR subpart 45.6): verify its existence; determine qualitative and quantitative allocability; make recommendations concerning serviceability; undertake necessary screening and redistribution; and assist the contractor “in accomplishing other disposition.”
Moreover, FAR 49.105(c) states that the TCO “should promptly hold a conference with the contractor to develop a definite program for effecting the settlement.” In addition, the FAR states that, “[w]hen appropriate in the judgment of the TCO, after consulting with the contractor, principal subcontractors should be requested to attend.”
FAR 49.105(c) goes on to state that “[t]opics that should be discussed at the conference and documented include”:
General principles relating to the settlement of any settlement proposal, including obligations of the contractor under the termination clause of the contract;
Extent of the termination, point at which work is stopped, and status of any plans, drawings, and information that would have been delivered had the contract been completed;
Status of any continuing work;
Obligation of the contractor to terminate subcontracts and general principles to be followed in settling subcontractor settlement proposals;
Names of subcontractors involved and the dates termination notices were issued to them;
Contractor personnel handling review and settlement of subcontractor settlement proposals and the methods being used;
Arrangements for transfer of title and delivery to the government of any material required by the government;
General “principles and procedures to be followed in the protection, preservation, and disposition of the contractors and subcontractors’ termination inventories, including the preparation of termination inventory schedules;”
Contractor accounting practices and preparation of SF 1439 (Schedule of Accounting Information (FAR 49.602-3);
Accounting review of settlement proposals;
Any requirement for interim financing in the nature of partial payments;
Tentative “time schedule for negotiation of the settlement, including submission by the contractor and subcontractors of settlement proposals, termination inventory schedules, and accounting information schedules (see [FAR] 49.206-3 and [FAR] 49.303-2)”;
Actions taken by the contractor to minimize impact upon employees affected adversely by the termination (see paragraph (g) of the letter notice in FAR 49.601-2); and
The “[o]bligation of the contractor to furnish accurate, complete, and current cost or pricing data, and to certify to that effect in accordance with [FAR] 15.403-4(a)(1) when the amount of a termination settlement agreement, or a partial termination settlement agreement plus the estimate to complete the continued portion of the contract exceeds the threshold in [FAR] 15.403-4.”
Although the duties set forth under FAR 49.105 are generally directed to the contracting officer, contractors should keep an eye on these obligations and do their best to make sure that the contracting officer is adhering to them.
Termination Settlement Proposals
In exchange for the government retaining the right to terminate most federal contracts for the convenience of the government, the FAR allows contractors to submit a convenience termination settlement proposal in which the terminated contractor may seek recovery of certain costs. FAR 49.201(a) states that such a settlement “should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including a reasonable allowance for profit.”
There are two basic approaches to convenience termination settlement proposals: the “inventory basis” and the “total cost” basis. The submission requirements under these two approaches are discussed in turn below. In addition, we discuss unique convenience termination rules for commercial item contracts under FAR 12.403, as well as the general timing requirements for submitting convenience termination settlement proposals.
Inventory Basis
FAR 49.206-2(a) states that “[u]se of the inventory basis for settlement proposals is preferred.” Under the inventory basis, “the contractor may propose only costs allocable to the terminated portion of the contract, and the settlement proposal must itemize separately” the following: (1) “[m]etals, raw materials, purchased parts, work in process, finished parts, components, dies, jigs, fixtures, and tooling, at purchase or manufacturing cost;” (2) charges such as engineering costs, initial costs, and general administrative costs; (3) costs of settlements with subcontractors; (4) settlement expenses; and (5) other “proper charges.”
FAR 49.206-2(a) additionally states that “[a]n allowance for profit ([FAR] 49.202) or adjustment for loss ([FAR] 49.203(b)) must be made to complete the gross settlement proposal.” In addition, “[a]ll unliquidated advance and progress payments and all disposal and other credits known when the proposal is submitted must then be deducted.”
FAR 49.206-2(a) goes on to state that the “inventory basis is also appropriate for use under the following circumstances.”
The “partial termination of a construction or related professional services contract;”
The “partial or complete termination of supply orders under any terminated construction contract;” and
The “complete termination of a unit-price (as distinguished from a lump-sum) professional services contract.”
Total Cost Basis
Concerning the “total cost” basis of settlement, FAR 49.206-2(b) states: “When use of the inventory basis is not practicable or will unduly delay settlement, the total-cost basis (SF-1436) may be used if approved in advance by the TCO as in the following examples”:
If production has not commenced and the accumulated costs represent planning and preproduction or get ready expenses;
If, under the contractor’s accounting system, unit costs for work in process and finished products cannot readily be established;
If the contract does not specify unit prices; and
If the termination is complete and involves a letter contract.
Accordingly, contractors seeking to use the “total cost” basis should confirm in writing with the TCO in advance that the “total cost” basis is acceptable.
“When the total-cost basis is used under a complete termination, the contractor must itemize all costs incurred under the contract up to the effective date of termination.” FAR 49.206-2(b)(2). Further, “[t]he costs of settlements with subcontractors and applicable settlement expenses must also be added,” “[a]n allowance for profit ([FAR] 49.202) or adjustment for loss ([FAR] 49.203(c)) must be made,” and “[t]he contract price for all end items delivered or to be delivered and accepted must be deducted.” “All unliquidated advance and progress payments and disposal and other credits known when the proposal is submitted must also be deducted.”
With respect to the use of the total-cost basis under a partial termination, the FAR states that the “settlement proposal shall not be submitted until completion of the continued portion of the contract.” FAR 49.206-2(b)(3). The FAR also states that the settlement proposal “must be prepared as in [FAR 49.206-2(b)(2)], except that all costs incurred to the date of completion of the continued portion of the contract must be included.”
If, however, “a construction contract or a lump-sum professional services contract is completely terminated, the contractor shall”:
Use the total cost basis of settlement;
Omit line 10 “Deduct-Finished Product Invoiced or to be Invoiced” from Section II of Standard Form-1436 Settlement Proposal (Total Cost Basis); and
“Reduce the gross amount of the settlement by the total of all progress and other payments” (see FAR 49.206-2(b)(4)).
FAR 49.602, in turn, outlines the standard forms used to prepare settlement proposals under both the inventory and total cost basis.
Generally speaking, a convenience termination settlement proposal should seek costs that would otherwise be allowable under FAR Part 31 (see e.g., FAR 52.249-2(i)). FAR 31.205-42 (Termination Costs) sets out specific cost principles applicable to certain unique termination situations. Notably, “settlement expenses,” including the costs incurred in the preparation and presentation of convenience termination settlement proposals, may be allowable costs (see FAR 31.205-42(g)). Finally, in instances in which the prime contract allows for partial payments, “a prime contractor may request [partial payments] on the form prescribed in [FAR] 49.602-4 at any time after submission of interim or final settlement proposals,” and “[t]he Government will process applications for partial payments promptly” (see FAR 49.112-1(a)).
Commercial Item Terminations
Unique termination for convenience procedures apply to commercial item contracts covered by FAR Part 12. Specifically, FAR 12.403(d) provides that, when the contracting officer terminates a contract for commercial items for the government’s convenience, the contractor shall be paid:
The “percentage of the contract price reflecting the percentage of the work performed prior to the notice of the termination for fixed-price or fixed-price with economic price adjustment contracts;” or
An “amount for direct labor hours (as defined in the Schedule of the contract) determined by multiplying the number of direct labor hours expended before the effective date of termination by the hourly rate(s) in the Schedule;” and
Any “charges the contractor can demonstrate directly resulted from the termination.”
FAR 12.403(d) goes on to state that the “contractor may demonstrate such charges using its standard record keeping system and is not required to comply with the cost accounting standards or the contract cost principles in [FAR] part 31.” Importantly, the government “does not have any right to audit the contractor’s records solely because of the termination for convenience.”
Finally, FAR 12.403(d) provides that the parties generally “should mutually agree upon the requirements of the termination proposal,” and that the parties “must balance” the government’s “need to obtain sufficient documentation to support payment to the contractor against the goal of having a simple and expeditious settlement.” Thus, unlike settlement proposals submitted under FAR Part 49, there is no standard form for submitting a settlement proposal under FAR Part 12.
Timing Requirements
FAR 52.249-2 (Termination for Convenience of the Government (Fixed-Price)), which is the most common convenience termination clause, states in relevant part:
(c) The Contractor shall submit complete termination inventory schedules no later than 120 days from the effective date of termination, unless extended in writing by the Contracting Officer upon written request of the Contractor within this 120-day period.
* * *
(e) After termination, the Contractor shall submit a final termination settlement proposal to the Contracting Officer in the form and with the certification prescribed by the Contracting Officer. The Contractor shall submit the proposal promptly, but no later than 1 year from the effective date of termination, unless extended in writing by the Contracting Officer upon written request of the Contractor within this 1-year period. However, if the Contracting Officer determines that the facts justify it, a termination settlement proposal may be received and acted on after 1 year or any extension. If the Contractor fails to submit the proposal within the time allowed, the Contracting Officer may determine, on the basis of information available, the amount, if any, due the Contractor because of the termination and shall pay the amount determined (emphasis added).
Notably, the timing requirements for submitting convenience termination settlement proposals are generally consistent across FAR clauses for traditional government contracts (see e.g., FAR 52.249-3 (Termination for Convenience of the Government (Dismantling, Demolition, or Removal of Improvements)) (containing similar timing requirements under subparagraphs (c) and (e)); FAR 52.249-5 (Termination for Convenience of the Government (Educational and Other Nonprofit Institutions)) (same). Generally, commercial item convenience termination submissions under FAR Part 12 do not contain similar timing requirements.
That said, each contract and set of facts should be analyzed on a case-by-case basis to ensure that the contractor is complying with applicable submission deadlines, and submission deadlines should be calculated conservatively regardless of which FAR clause applies.
Notably, the FAR does not impose a time limit by which the TCO must complete settlement negotiations with a terminated contractor. However, for small business concerns, the FAR dictates that auditors and the TCO “shall promptly schedule and complete audit reviews and negotiations, giving particular attention to the need for timely action on all settlements involving small business concerns” (see FAR 49.101(d)).
Claims and Appeal Rights
In Gardner Machinery Corp. v. United States, 14 Cl. Ct. 286 (1988), the U.S. Claims Court — which is the predecessor to the U.S. Court of Federal Claims — distinguished settlement proposals from Contract Disputes Act (CDA) claims as follows:
[A] Settlement proposal is contemplated under the regulations as a request for opening negotiations. It is not contemplated by the regulations that settlement proposals be used for the submission of final demand, final decision requested CDA claims. That is not to say that CDA claims may not grow out of the settlement proposal process or be converted to a CDA claim. It simply means that at the point of impasse in the negotiation process, the contractor must submit or resubmit its written claim, now in dispute for a finite amount of money, to the contracting officer and request a final decision thereon.
While the foregoing summary may seem straightforward, the rules in this area can actually be quite tricky. Thus, it is important to seek guidance from experienced legal counsel when seeking to convert a convenience termination settlement proposal to a formal “claim” under the CDA.
Once a contracting offer issues a final decision on a contractor’s claim, a dissatisfied contractor may generally appeal that decision to the cognizant agency board of contract appeals within 90 days of receipt of the decision or bring suit on the claim in the U.S. Court of Federal Claims within 12 months (see 41 U.S.C. § 7104).
Conclusion
In light of the recent uptick in federal contract terminations, contractors should be prepared to properly account for and timely submit recoverable costs in a convenience termination settlement proposal, as discussed in this guide.
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Home Developers Beware: Mass. Appeals Courts Finds Chapter 93A Liability Beyond Contractual Disclosure Requirements
In Tries v. Cricones, home buyers prevailed at trial on their claims against home developers and sellers. Plaintiffs sued because defendants’ failed to disclose that the buyers’ yard was contaminated by Japanese knotweed, large shards of glass, and metal debris. A jury found for the plaintiffs on their private nuisance, breach of the implied covenant of good faith and fair dealing, and Chapter 93A, Section 9 claims. The trial judge denied the defendants’ motion for a directed verdict and awarded the plaintiffs’ their damages, attorneys’ fees, and costs.
On appeal by the defendants, the Appeals Court concluded that the trial judge should have granted the defendants’ motion for a directed verdict on the plaintiffs’ private nuisance and breach of the implied covenant of good faith and fair dealing claims. As to private nuisance, the claim requires a claimant to have an interest in the property and the “invasion” causing the nuisance must “come from beyond, usually from a different parcel.” Accordingly, the plaintiffs did not have a private nuisance claim against the defendants for pre-existing contamination of their own yard. The claim would be more appropriate under an implied warranty of habitability theory.
As to the implied covenant claim, the Appeals Court similarly concluded that defendants were entitled to a directed verdict because the implied covenant cannot be used to create rights and duties not provided in an existing contractual relationship. Here, the parties’ purchase and sale agreement did not expressly require the defendants to disclose soil contaminants, and the existence of the contaminants alone was not sufficient evidence that the defendants had breached their contractual obligations in bad faith. Rather, a purchaser’s protection against latent defects in a home purchased from a builder lies in any warranty and disclosure requirements in the sale contract, and, again, the implied warranty of habitability, and Chapter 93A.
As to Chapter 93A, the Appeals Court rejected the defendants’ argument that their liability under Chapter 93A was limited to the “terms and obligations”of the parties’ contract. That is because Chapter 93A is “not dependent on traditional tort or contract law concepts for its definition” of unfair or deceptive acts or practices. In that regard, a property seller can violate Chapter 93A by not disclosing a material fact even in the absence of a contractual duty to disclose, especially when disclosure of the fact may have influenced a buyer not to enter into the transaction.
To recover under that theory, the plaintiffs had to show that (1) the defendants knew that the property was contaminated with hazardous material; (2) the contamination was a material circumstance which would have led the plaintiffs not to purchase the property; and (3) the defendants failed to disclose the problem. Here, the evidenced adduced at trial support those findings. Also, while a defendant may avoid liability under Chapter 93A for a nondisclosure “if it is shown that the plaintiff knew about the contamination,” the evidence did not demonstrate such knowledge by the plaintiffs. Therefore, despite not having any disclosure requirements in the purchase and sale agreement, the Appeals Court affirmed the trial court’s Chapter 93A judgment against the defendants.
This decision demonstrates the importance of developer-sellers of residential homes looking beyond common law and contractual disclosure requirements and assessing whether they need to disclose any known latent defects in the property before consummating the sale. Otherwise, once discovered, latent defects may expose a developer-seller to Chapter 93A liability.
District Court Rules Employer’s Withdrawal Liability Cannot Be Based on Post-Rehabilitation Plan Contribution Increases
In Central States, S.E. & S.W. Pension Fund v. McKesson Corp., No. 23-cv-16770, 2025 WL 81358 (N.D. Ill. Jan. 13, 2025), the district court affirmed that a multiemployer pension plan’s calculation of withdrawal liability should not have included contribution rate increases imposed after the plan had implemented a rehabilitation plan.
An employer that withdraws from a multiemployer pension plan is generally liable for its proportionate share of the plan’s unfunded vested benefits. The statutory methods used to calculate the employer’s share are all based in part on the amount of contributions the employer was required to remit to the plan in the years preceding its withdrawal. The employer’s withdrawal liability is payable immediately in a lump sum or pursuant to a statutory payment schedule. The payment schedule is calculated by: (i) determining the employer’s maximum annual payment, (ii) determining how many payments the employer must make to pay off the withdrawal liability with interest, and (iii) capping the number of payments at no more than twenty years (even if the withdrawal liability would not be paid off in twenty years). One of the most important variables used to calculate the employer’s withdrawal liability and its payment schedule is the contribution rate at which the employer was required to contribute to the plan. All else equal, a higher rate will result in greater withdrawal liability and larger annual payments.
For plans that have adopted a funding improvement or rehabilitation plan, the Multiemployer Pension Reform Act of 2014 (MPRA) amended the statute to generally exclude from these calculations any contribution rate increases imposed after 2014 unless the increases: (i) were due to increased levels of work or employment, or (ii) were used to provide an increase in benefits or benefit accruals that an actuary certifies is paid using contributions not contemplated by the funding improvement or rehabilitation plan and that will not imperil the plan from satisfying the requirements of its funding improvement or rehabilitation plan.
The District Court’s Decision
McKesson Corporation was a contributing employer to the Central States Pension Fund. The Fund adopted a rehabilitation plan in 2008 that called for annual increases in McKesson’s contribution rate. The rehabilitation plan did not alter the Fund’s formula for benefit accruals, which called for participants to accrue 1% of all contributions made to the Fund on their behalf during the year. When McKesson withdrew from the Fund, the Fund demanded that it pay $1,437,004.08 per year for 20 years to pay off its withdrawal liability. McKesson commenced arbitration to challenge the assessment, arguing that the Fund should have excluded the contribution rate increases pursuant to MPRA, which would have lowered its required payments to $1,091,819.04 per year for 20 years.
The arbitrator agreed and the District Court affirmed. The Court concluded that the statute was unambiguous and that once a multiemployer pension plan adopts a funding improvement or rehabilitation plan, there is a presumption that any subsequent contribution rate increases are to be excluded from the withdrawal liability calculation unless the plan satisfies one of the two statutory exceptions. The Court rejected the Fund’s argument that it qualified for the second exception because, pursuant to its 1% accrual formula, any increase in contributions resulted in increased benefits to participants. The Court noted that the resulting increase in benefits predated the Fund’s rehabilitation plan, and thus could not satisfy the statute’s requirement that increased contributions be used to pay for additional benefits or benefit accruals, and that in any event, the Fund had not obtained the actuarial certification needed to satisfy the statutory exception. The Court also rejected the Fund’s alternative argument that only the portion of the increased contribution rates used to reduce the Fund’s underfunding should be excluded from the withdrawal liability calculation and that the portion used to pay for increased benefit accruals should not. The Court held that the statute does not make any such distinction, and rejected the Fund’s reliance on a proposed rule by the PBGC that would have interpreted the statute to allow for such a distinction because the PBGC did not end up adopting the rule.
Proskauer’s Perspective
Several other employers have challenged the Fund’s efforts to include post-2014 contribution rate increases in its withdrawal liability calculations, and the Seventh Circuit is expected to resolve the issue later this year. Plans that have taken a similar approach to the Fund will want to monitor these cases, as they may have a significant impact on their approach to calculating employers’ withdrawal liability. In the meantime, for employers that contribute to or have withdrawn from plans that have adopted funding improvement or rehabilitation plans, the decision is a reminder to review closely withdrawal liability calculations to assess whether rate increases are being included in the calculation of withdrawal liability or the corresponding payment schedule.
United States: Unsustainable—Acting SEC Chairman Signals Reconsideration of Climate Risk Disclosure Rules
In March 2024, the SEC adopted The Enhancement and Standardization of Climate-Related Disclosures for Investors final rule, which required companies to make disclosures regarding climate risks and disclosures of Scope 1 and 2 emissions information (the Climate Risk Reporting Rule). The Climate Risk Reporting Rule was promptly challenged by several lawsuits that were ultimately consolidated in the Eighth Circuit Court of Appeals.
With the change in presidential administration, it has been widely expected that the Climate Risk Reporting Rule would be rescinded and that the SEC, under new leadership, could alter its litigation strategy. On 11 February 2025, Acting SEC Chairman Uyeda did just that. He issued a statement noting that, due to “changed circumstances,” he had directed the SEC staff to request that the Eighth Circuit delay the litigation to provide time for the SEC to “deliberate and determine the appropriate next steps in these cases.” In his statement, he noted that both he and Commissioner Peirce (who now represent a majority of the SEC Commissioners) had voted against the Climate Risk Reporting Rule, and he explained his concerns regarding whether the SEC had the statutory authority to adopt the rule, the necessity of the rule, and whether the SEC had followed the appropriate procedures required under the Administrative Procedure Act.
In response to the statement put out by Acting Chairman Uyeda, Commissioner Crenshaw released a statement that the SEC did not act outside of its remit by passing the Climate Risk Reporting Rule and that Acting Chairman Uyeda acted without the full Commission’s input in making this decision.
While Acting Chairman Uyeda’s statement does not necessarily have a practical impact on the rule itself, it is an affirmative signal that this Commission is not supportive of the Climate Risk Reporting Rule and will likely take future action to rescind it. This statement, coupled with earlier statements from Paul Atkins, the President’s nominee for SEC Chairman, that were critical of the Climate Risk Reporting Rule, likely serve as confirmation of the expectations that the Climate Risk Reporting Rule will not go into effect.
SEC Asks Court to Put Climate Change Litigation on Hold
As previously reported in our last post, The Fate of the New U.S. Climate Change Rules Under the New Republican Administration, legal challenges to the SEC’s rules mandating extensive new climate change disclosure is ongoing in the 8th Circuit U.S. Court of Appeals, and has been fully briefed and awaiting oral arguments.
Today, the Acting Chairman of the SEC reiterated his prior position that the agency lacked authority to promulgate the rules, and announced that he would ask the court to pause the litigation so that the SEC can consider its next steps. The Acting Chairman likely wishes to await Senate confirmation of the permanent Chairman before taking action. It remains unclear what the SEC will ultimately do, although today’s announcement suggests that the SEC would likely withdraw the new rules in due course. If the SEC decides to materially amend the rules, in light of international pressure, it would withdraw the current rules and re-commence the process for issuing new rules.
Doubt as to the future of the SEC’s climate disclosure rules is likely to accelerate efforts in some states to follow California’s lead and adopt their own rules. For further information on California climate change rules, please see here: Climate Reporting in 2025: Looking Ahead
Court Reversed a Judgment Based on a No-Contest Clause Because After Nonsuiting The Will Contest Pleading, The Trial Court Did Not Have Jurisdiction Over The Defensive Allegations Concerning The Clause
In In re In the Estate of Wegenhoft, an applicant filed an application to probate a will, which contained a no-contest clause. No. 14-23-00350-CV, 2024 Tex. App. LEXIS 5352 (Tex. App.—Houston [14th Dist.] July 30, 2024, no pet. history). Contestants filed their opposition to the will, asserting that the will was executed under undue influence, but they nonsuited their claims on the eve of trial. The trial court permitted the applicant’s claims concerning suitability and enforcement of the no-contest clause to proceed to trial and ultimately rendered judgment in favor of the applicant after a jury trial. The contestants filed an appeal challenging the trial court’s subject matter jurisdiction to enter judgment against them when they nonsuited their contest prior to trial.
The court of appeals reversed the trial court’s judgment, holding that it did not have jurisdiction after the nonsuit:
Texas Rule of Civil Procedure 162 provides that a plaintiff may take a nonsuit at any time before introducing all of his evidence other than rebuttal evidence… However, rule 162 expressly limits the right to nonsuit an entire cause when the defendant has a claim for affirmative relief pending. A claim for affirmative relief is one “on which the claimant could recover compensation or relief even if the plaintiff abandons his cause of action.” Therefore, while a nonsuit has the effect of terminating a case from the moment the motion is filed, it does not affect the right of an adverse party to be heard on a pending claim for affirmative relief…
As a brief recap, Curtis and Cynthia opposed the admission of the 2013 Will and filed a counterapplication to probate the 1989 Will. Carl filed a motion alleging that his siblings violated the no-contest clause and requested a finding that they were unsuitable to serve as executors. He also re-asserted these claims in an amended answer to his siblings’ counterapplication. Before the case proceeded to trial, Curtis and Cynthia filed their notice of nonsuit, thereby abandoning their will contest and counterapplication. Accordingly, the only live pleading remaining was Carl’s application to probate the 2013 Will.
We cannot agree that Carl’s claims asserted in his motion or amended answer survived the nonsuit because his claims did not constitute an independent claim for affirmative relief. Put another way, the nonsuit rendered Carl’s claims moot because his claims were dependent on his siblings’ will contest and counterapplication. Without the contest or counterapplication, Carl could not possibly seek to enforce his claims… Contrary to Gibbons, Carl’s application only requested probate of the 2013 Will and that he be appointed as executor. Carl has not cited (and research has not revealed) any Texas case in which a court retained jurisdiction after a nonsuit over claims asserted in an answer when the claims did not seek affirmative relief. Accordingly, Carl’s claims were extinguished by the nonsuit because he did not have a pending claim for affirmative relief.
Id.
Court Holds That Party Waived Appeal by Not Timely Appealing an Order Admitting a Will to Probate
In In re Est. of Wheatfall, a trial court entered an order admitting a will to probate and denying a will contestant’s claims. No. 01-22-00920-CV, 2024 Tex. App. LEXIS 5503 (Tex. App.—Houston [1st Dist.] August 1, 2024, no pet. history). The contestant had alleged additional objections to the will that was not expressly overruled by the trial court’s order. After additional motions in the trial court, the contestant then filed an appeal of the order three months later.
The court of appeals discussed the finality of probate orders:
[A]ppeals from probate courts involve an exception to the final-judgment rule because multiple final judgments may be rendered on discrete issues before an entire probate proceeding is concluded. Two categories of probate court orders are considered final for purposes of appeal even when they do not dispose of all pending parties and claims. First, if a statute expressly declares that the particular phase of the probate proceedings is final and appealable, that statute controls. Second, in the absence of a statute, the order is final if it disposes of all parties and all issues in “the phase of the proceeding for which it was brought.”
Id. The court of appeals held that the order was an appealable order as it disposed of all parties and all issues for that phase:
In asserting that the September 5, 2019 filing was a will contest that initiated a new phase of the proceeding, Wheatfall relies on Texas Estates Code section 55.001, which provides that any “person interested in an estate may, at any time before the court decides an issue in a [probate] proceeding, file written opposition regarding the issue.” We find pertinent to the proceeding Texas Estates Code section 256.101, which provides:
(a) If, after an application for the probate of a decedent’s will or the appointment of a personal representative for the decedent’s estate has been filed but before the application is heard, an application is filed for the probate of a will of the same decedent that has not previously been presented for probate, the court shall: (1) hear both applications together; and (2) determine: (A) if both applications are for the probate of a will, which will should be admitted to probate, if either, or whether the decedent died intestate; or (B) if only one application is for the probate of a will, whether the will should be admitted to probate or whether the decedent died intestate.
This provision requires that a challenge to the validity of one or more wills be adjudicated in a single proceeding. Here, the record shows that the trial court consolidated Wheatfall’s application for letters of administration, in which Wheatfall alleged that the decedent died intestate, with DeBose’s application to admit the 2009 will to probate. Once joined in the same proceeding, these competing applications established a contest about the validity of the 2009 will. Thus, although Wheatfall’s September 5, 2019 filing may be a “written opposition,” it was not a new “contest.” A will contest is a direct attack on the order admitting a will to probate. Wheatfall filed his opposition before the trial court signed its order admitting the 2009 will to probate.
Wheatfall also asserts that the September 16, 2019 order admitting the 2009 will to probate was not final because in stating that it was not ruling on any objections to the probate of the will asserted after September 4, 2019, the trial court left the September 5, 2019 filing unadjudicated. We disagree… In finding that the 2009 will was valid, the trial court also impliedly rejected any claim of undue influence. Further, the trial court rejected Wheatfall’s claim that the decedent died without a valid will by denying his application for letters of administration, his application for determination of heirship, and his motion for appointment of an attorney ad litem. The language of the trial court’s September 16, 2019 order admitting the 2009 will to probate thus shows that the trial court disposed of Wheatfall’s contest to the validity of the 2009 will, including the issues he raised in his September 5, 2019 filing. Because the September 16, 2019 order admitting the 2009 will to probate disposed of all parties and all issues in “the phase of the proceeding for which it was brought” we conclude that it was a final, appealable judgment.
Id. Because the notice of appeal was filed after the thirty-day deadline, the notice of appeal was untimely and the court of appeals held that it lacked jurisdiction.