"BAMSL has changed dramatically in the last 35 years.  When I joined, we had two lunch clubs and a large staff.   BAMSL has shrunk dramatically in staff size and the practice of law has changed with Zoom appearances in court and CLE over the internet.  Frankly, I am happy to see that BAMSL has survived but as a voluntary bar it must continually improve and add value to the everyday life of an attorney."

In early 2023, the Bar Association of Metropolitan St. Louis (BAMSL) engaged the American Bar Association (ABA) for strategic planning services. The ABA Center for Bar Leadership conducted an in-depth analysis of BAMSL's history, finances, membership data, and policies. 

In the following months, an all-member survey was distributed and the Strategic Planning Committee held a day long retreat to discuss the survey results and the findings and recommendations from the ABA. 

President Kevin Gunn, on behalf of the Board of Governors, said “The results of the survey were both affirming and enlightening. Our board is incredibly proud to see that our members value their affiliation with BAMSL so highly and recognize the quality of our programs and services. These insights will drive us to further enhance our offerings, particularly in areas like CLE and community service, while also addressing the critical issues of trust, confidence, and diversity within the profession. We are committed to leveraging this feedback to ensure BAMSL continues to grow and adapt to meet the needs of our members and the broader legal community."

Here are some key takeaways from this comprehensive review:

BAMSL’s Reputation

BAMSL enjoys a stellar reputation among its members. Survey respondents rated nearly all reputational statements with a mean of four or higher out of five. The highest-rated statement, “I’m proud to be affiliated with BAMSL,” received a mean score of 4.4. Additionally, an overwhelming majority (87%) view BAMSL as providing quality programs and services, with 78% stating that BAMSL helps them become better lawyers.

Membership Benefits

Continuing Legal Education (CLE) emerged as the most significant benefit offered by BAMSL, with 86% of respondents listing it as important. Other highly valued benefits include publications, and section and committee activities. Conversely, the least important benefits identified were the complimentary use of the bar center and discounts through national purchasing partners.

Community Service Participation

Forty-one percent of respondents participated in community service activities within the last two years. The majority expressed high satisfaction with these activities, particularly those aimed at youth. Participants found these programs valuable, and suggestions for improvement included better communication and promotion.

Professional Concerns

When considering issues facing the legal profession, respondents frequently cited trust and confidence in institutions and attempts to erode the balance of power. Notably, the concerns of government/public interest lawyers and lawyers under 40 closely aligned with the overall membership, although diversity, equity, and inclusion in the profession were of higher concern to these groups.

These insights will guide BAMSL as we implement our strategic plan, ensuring we continue to meet our members' needs and address the evolving challenges within the legal profession.

Charting the Future: Key Goals for the Foundation of BAMSL's Success

The strategic plan is designed to enhance our association's value, diversity, community service, and sustainability. This plan, formulated with input from our members and stakeholders, sets forth ambitious goals and actionable strategies to ensure BAMSL remains a vibrant and impactful organization.

Our goals are:

Goal 1: Expand Membership Value and Engagement, Chair Jon Baris

Effectively Integrate New Lawyers into the BAMSL Community We aim to create a welcoming and supportive environment for new lawyers. By providing mentorship programs, networking opportunities, and resources tailored to the needs of early-career professionals, we will foster their professional growth and ensure they feel an integral part of the BAMSL community.

Build the Capacity of BAMSL Sections and Committees to Provide Value to Members Our sections and committees are the backbone of BAMSL, offering specialized knowledge and community. We will invest in their development by providing resources and support, enabling them to deliver greater value through educational programs, networking events, and advocacy efforts.

Strengthen the Relationship with Area Law Students Cultivating a strong connection with law students is essential for the future of our profession. We will enhance our outreach to law schools, offering internships, mentorships, and opportunities for students to engage with practicing attorneys, thereby easing their transition from academic to professional life.

Ensure BAMSL’s Portfolio of Programs and Events Speak to Lawyers’ Diverse Interests and Needs We recognize the diverse interests of our members and will curate a portfolio of programs and events that cater to various practice areas, career stages, and personal interests. This inclusive approach ensures that all members find value and relevance in BAMSL’s offerings.

Goal 2: Increase Diversity, Equity, and Inclusion within BAMSL and in the Legal Profession, Chair Hon. Kendra Howard

Ensure Diversity, Equity, and Inclusion Principles are Threaded through BAMSL’s Processes and Programs We are committed to embedding DEI principles in every aspect of our organization. From governance to program planning, we will ensure that our policies and practices promote inclusivity and equity.

Strengthen the Relationship with Local Affinity Bars and Facilitate Greater Collaboration Collaborating with local affinity bars will amplify our efforts to create a more inclusive legal community. By fostering partnerships and joint initiatives, we will share resources and expertise to promote diversity within the profession.

Raise Awareness of Legal Careers within Historically Underrepresented and Marginalized Communities To build a more diverse legal pipeline, we will engage in outreach and educational efforts aimed at historically underrepresented and marginalized communities. By highlighting the opportunities within the legal field, we aspire to inspire the next generation of diverse legal professionals.

Goal 3: Focus BAMSL’s Community Service Efforts to More Effectively Engage Members and Address St. Louis’ Most Pressing Challenges, Chair Christina Moore

Prioritize Impactful Activities that Benefit Traditionally Marginalized Communities Our community service efforts will concentrate on initiatives that provide tangible benefits to marginalized communities. This focus ensures that our volunteer work has a meaningful and positive impact.

Collaborate with Community Organizations to Elevate Civic Education We will partner with local organizations to promote civic education, aiming to empower St. Louis residents with knowledge about their legal rights and responsibilities. These collaborations will help to build a more informed and engaged community.

Strategically Engage and Deploy Volunteers Effective volunteer engagement is critical to our success. We will implement strategies to recruit, train, and deploy volunteers in a manner that maximizes their impact and ensures a rewarding experience for participants.

Goal 4: Ensure BAMSL’s Long-Term Sustainability

Strategy 1: Maximize Dues Revenue We will develop strategies to maximize membership dues revenue through retention and recruitment initiatives. Ensuring that members perceive strong value in their membership will be key to sustaining our financial health.

Strategy 2: Diversify BAMSL’s Other Revenue Streams Diversification of revenue streams is essential for stability and growth. We will explore and implement new funding opportunities, including sponsorships, grants, and innovative programs that generate income.

Strategy 3: Streamline Activities and Functions to Ensure the Effective Use of Resources Efficiency in our operations will ensure that we make the best use of our resources. By streamlining our activities and functions, we can reduce costs and improve our overall effectiveness, ensuring BAMSL’s continued success.

Through this strategic plan, BAMSL is poised to enhance its role as a leader in the legal community, providing unmatched value to our members while addressing critical issues within the profession and the wider St. Louis community. We look forward to working together to achieve these goals and build a brighter future for all.

Strategic Planning Committee

Co-Chairs: 

Hon. Tom Albus and Amy Rebecca Johnson

Members:

Hon. Kendra Howard
Kevin Gunn
Sara Neill
Jon Baris
Courtney Chen
Christina Moore
Hon. David Vincent
Brandy Simpson
Katie Doherty
Marialle Bell
Justin Strayhorn

 

By Jeff Kosseff

Johns Hopkins University Press - 363 pages

This instructive book by Jeff Kosseff, Professor of Cybersecurity Law at the U. S. Naval Academy, makes a convincing case for a hands-off approach to the First Amendment. Threats posed by disinformation and other lies spread and turbocharged by social media are at the heart of this well researched book.  Kosseff clarifies his goals here, saying, “This book explains why courts have set such a high bar for protecting false speech, why we should not relax those standards in the face of serious threats, and how we can address those threats without defaulting to government censorship.” 

Kosseff takes us back to Constitutional Law classes in law school with the title, referring to the commonly held notion that one cannot falsely yell “fire” in a crowded theatre.  That phrase does not come from a case involving either fires or theatres.  Rather it stems from Justice Oliver Wendell Holmes’ opinion in Schenck v. United States, 247 U.S. 47 (1919), a case about a socialist arrested during World War I for peacefully protesting the military draft. The Supreme Court upheld the conviction, and Justice Holmes wrote that “the most stringent protection of free speech would not protect a man in falsely shouting fire in a theatre and causing a panic.” 

Fast forward to 1969, when the Supreme Court ruled in Brandenburg v. Ohio, 395 U.S. 444 (1969), that, to lose First Amendment protection, dangerous speech must both aim at producing, and be likely to produce, imminent lawless action. Kosseff observes that Holmes’ metaphor lives on as a “placeholder justification for regulating any speech that someone believes is harmful or objectionable.”

The book is well organized into three parts: 1) Why the Law Protects Falsehoods; 2) Regulating Falsehoods; and 3) Empowering Rationality. The first part of the book consists of a detailed analysis of mostly First Amendment cases in which the author demonstrates that the “fire in a crowded theatre” concept is complex, and requires that speech cross the threshold of “imminent incitement” to violence or wrongful acts before it can be penalized. 

Kosseff also discusses other cases centered around the concept of truth, which our legal system so values as a cornerstone of democracy. He mentions that “substantial truth” is a defense to a defamation claim, and that certain opinions, no matter how repulsive and perhaps otherwise defamatory, are shielded.  Legal precedents are reviewed to show how courts have placed only the lightest of restrictions on false speech, whether defamatory, commercial, political, or otherwise.  Kosseff concludes in the first part of the book that even if restrictions were imposed, they would rarely be effective in curbing misinformation.  

However, Kosseff acknowledges that there are many ways in which our system does allow restrictions on speech.  For example, in commercial speech, a party can’t advertise liquor or cigarettes on TV.  There is also a wide array of restrictions in dealing with the government, such as the prohibition on lying to an FBI agent. In tort law, there are some protections against speech that causes emotional distress or that interferes with commercial contracts.   

The final part of the book addresses what the reader really wants: a solution to the problem.  But there is no easy fix or silver bullet.  Kosseff summarizes his position:

I largely agree with the cautious skepticism of taking drastic actions.  We should not discount the harms and challenges created by misinformation and disinformation, particularly as it can spread rapidly on social media.  Nor do I rule out all liability for false speech; indeed, our legal system has always left the door open for defamation civil claims and criminal charges such as fraud and lying to government agents.  But the bar for such liability has been and should be extraordinarily high.  Rather than reflexively banning speech that we believe is false, we should look at other options to mitigate the underlying causes of false speech.

One of Kosseff’s proposals to help negate or curtail false speech is to create and disseminate the truth, correction or opposite opinion in the face of false statements.  The fallacy of this solution is that broadcasting the truth or correction after the lie has been told rarely convinces those who heard the lie in the first place.  This book is thought-provoking and timely, in light of abuses in social media and the risks associated with artificial intelligence.  It is a useful guide to thinking about a complex issue.

INTRODUCTION

In 2017, Lonnie Wayne Hubbard, a pharmacist from Kentucky, was found guilty by a jury on multiple charges of distributing a controlled substance.[i] The indictment included a forfeiture provision with respect to the pharmacist’s listed property, more specifically an Individual Retirement Account held at T. Rowe Price.[ii] Following the defendant’s jury trial, his IRA was condemned and forfeited to the United States.[iii]

T. Rowe Price issued Hubbard a Form 1099–R: Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for the 2017 tax year, reporting an early taxable distribution in the amount of $427,518.00.[iv] For 2017, Hubbard did not file an income tax return, thus failing to report the $427,518.00 IRA distribution which was forfeited.[v]

           The Internal Revenue Service via its Automated Substitute for Return Program, authorized by § 6020(b) of the Internal Revenue Code, prepared a substitute tax return on behalf of the taxpayer.[vi]

 

In 2020, the IRS sent a notice informing Hubbard of an income tax deficiency for the 2017 tax year of $165,353, an addition to tax of $37,204.00 for failure to file a timely tax return,[vii]  an addition to tax of $28,937 for failure to timely pay,[viii] and an addition to tax of $3,959 under for failure to make estimated tax payments for 2017.[ix] In 2021, Hubbard timely filed a notice of petition with the Tax Court contesting the tax deficiency.[x]

Hubbard’s argument was that since the funds were directly transferred to the government, he never constructively received the funds. Furthermore, he argued that he had reasonable cause for not filing his tax return, as he was incarcerated at the time the tax return was due. Lastly, he argued that his wife (now his ex-wife) never forwarded him the Form 1099-R received from T. Rowe Price.[xi]

Constructive Receipt

Section 61(a) of the Code provides that gross income includes “all income from whatever source derived.”[xii] This includes all accessions to wealth, clearly realized, and over which the taxpayer has complete dominion.[xiii]  Pensions and IRA distributions are generally taxable as income.[xiv]

Gross income under § 61(a) includes items of income that the taxpayer has constructively received. Under the constructive receipt doctrine, funds or property which are subject to a taxpayer’s unfettered command and which they are free to enjoy at their option are constructively received whether they see fit to enjoy them or not.[xv]

Where a taxpayer’s funds are criminally forfeited to the United States to satisfy a forfeiture judgment, the taxpayer is not relieved of the income tax consequences that would have attached to the funds without such forfeiture.[xvi]  By forfeiting the funds, the taxpayer has realized the benefits of the funds, and must recognize the funds as gross income to the same extent as if they had been physically received.[xvii]          

The courts have held that a discharge by a third person of an obligation is equivalent to receipt by the person taxed.[xviii]

In addition, the courts have previously held that IRA funds constitute gross income as an involuntary distribution when forfeited to a third party. A taxpayer constructively receives the IRA distribution when the distribution is made from the taxpayer’s IRA to satisfy a fine or restitution related to criminal conviction.[xix]

In the present case, there were undeniable accessions to wealth, clearly realized, and over which Hubbard had complete dominion. The mere fact that the payments were extracted as punishment for his unlawful conduct did not take away from their character as taxable income to him.

This case reminds us of the infamous 1929 case of Old Colony Trust Co. v. Commissioner,[xx] in which the U.S. Supreme Court considered whether an employer’s payment of the income taxes assessed against the employee constituted additional taxable income to the employee. The Supreme Court held that the employer’s payment of the employee’s tax obligation was in consideration of the services rendered by the employee and constituted additional taxable income to the employee.[xxi] The Court expressly stated that the form of the payment did not make a difference, and that it was immaterial that the taxes were directly paid to the government.[xxii] The Court further explained that the discharge by a third person of an obligation to him is equivalent to receipt by the person taxed.[xxiii] Implicit in the Court’s holding in Old Colony Trust was that the employer’s payment of the employee’s tax obligation constituted an accession of wealth to the employee because he did not have to pay the liability himself.

Some other cases cited by the Tax Court include cases holding that taxpayer realized gross income where taxpayer’s obligation to pay attorney’s fees was discharged because taxpayer’s attorney’s fees were paid directly out of certain sale proceeds;[xxiv] a payment by a third party of taxpayer’s civil liabilities constituted gross income to the taxpayer);[xxv] a taxpayer realized gross income where a pension fund paid his legal fees related to a criminal indictment;[xxvi] and that amounts garnished from employee’s wages for alimony and child support were includible in employee’s income.[xxvii]

Lastly, the Tax Court cited the case of Larotonda v. Commissioner, in which the court ruled that a taxpayer had to include in his gross income proceeds from a retirement account that were levied by the Service to pay the taxpayer’s tax liability.[xxviii]

Excuses Not to File Petitioner’s Tax Return

Sections 6651(a)(1) and (2) of the Code provide that additions to tax may be reduced if petitioner can establish that his failure to timely file or failure to timely pay was due to reasonable cause and not willful neglect.[xxix] HubbardHu argued that he had reasonable cause not to file his tax return because he was incarcerated.[xxx]

This argument failed, as the Tax Court held that Hubbard knew that he had a duty to file his tax returns.[xxxi] The Tax Court took judicial notice that Hubbard had filed his tax returns in previous years, and that he was aware of the criminal forfeiture.[xxxii] The Tax Court relied on Commissioner v. George, in which it was held that incarceration is not reasonable cause for the failure to file an income tax return.[xxxiii]

Lastly, the court addressed Hubbard’s claim that he did not know that he had to file an income tax return because he did not receive the Form 1099-R from T. Rowe Price. Failure to receive tax documents does not excuse taxpayers from the duty to report income, and the courts have held that nonreceipt of a tax document does not constitute reasonable cause to prevent the application of a § 6662(a) accuracy-related penalty.[xxxiv]

Conclusion

In conclusion, Hubbard had no better luck in his proceedings in Tax Court than he did in his unlawful distribution of controlled substances.

MISSOURI SUPREME COURT AFFIRMS TERMINATION OF PARENTAL RIGHTS OF FATHER WHO WAS CONVICTED OF CHILD MOLESTATION.

In The Interest of E.G., 683 S.W.3d 261 (Mo. banc 2024).

The juvenile officer filed a petition in Jefferson County Circuit Court to terminate father’s parental rights to his child.  The mother voluntarily consented to the termination of her parental rights.  The petition by the juvenile officer alleged that the father had pleaded guilty to a Class C felony of third-degree child molestation involving a child younger than 14 years of age, and a Class E felony of sexual misconduct involving a child younger than 16 years of age, in violation of Sections 566.069 and 566.083, RSMo, respectively.

 

The father responded to the petition alleging that termination of his parental rights was not in the child’s best interest.  He also argued that neither of the juvenile victims involved in his prior convictions was his own child, and that his reasoning for pleading guilty was to prevent a worse outcome for him and to prevent further trauma for the victims.  He further stated that he looked forward to bonding with his child after his release from prison and that he has taken opportunities to seek parental programming to become a better and more responsible father.

 

Prior to trial, the father moved to dismiss the action alleging that § 211.447.2(4), dealing with termination of parental rights, is unconstitutional, and he also asserted that terminating his parental rights was not in the best interest of the child.  Section 211.447.2(4) includes as grounds for termination if “The parent has been found guilty of or pled guilty to a felony violation of Chapters 566, 567, 568 or 573 when the child or any child was a victim.”

 

The court overruled his motion to dismiss at a hearing that took place immediately preceeding trial.  After the trial, the court ordered the parties to submit proposed judgments.  The father submitted a proposed judgment, including a constitutional argument as well as a proposed finding, that § 211.447.2(4) is not a statutory basis for termination of parental rights but, rather, is merely a trigger for requiring the filing of a petition to terminate the parental rights.  He had not made that argument previously.

 

The trial court found that termination was justified under § 211.447.2 due to father’s two felony violations of Chapter 566 with child victims, and that termination was in the best interest of the child.

 

On direct appeal to the Missouri Supreme Court (because the appeal involved the validity of a state statute), father raised three points.  In point one, he argued that the circuit court misapplied the law in terminating his parental rights on the grounds that he had previously pleaded guilty to felony violations of Chapter 566, because such a violation is not a statutory ground justifying the termination of parental rights under § 211.447.  In point two, he argued alternatively that if pleading guilty to a felony violation of Chapter 566 is a statutory ground justifying the termination of parental rights, then the court should declare that ground unconstitutional because such a crime does not adequately demonstrate a parent’s unfitness as required for termination.  Finally, he argued that there was insufficient evidence that he was an unfit parent.

 

The Supreme Court, however, declined to address the merits of father’s first two points, noting that the father had failed to raise those arguments in any pretrial motions or at trial.  Finally, the court denied his argument that there was insufficient evidence that he was unfit to be a parent to the child.  The fact that father had pleaded guilty to two felony violations of Chapter 566, when a different child was a victim in each count, was relevant to his fitness to be a parent, and there was sufficient evidence to find that he was not fit to be a parent.  The Supreme Court affirmed the circuit court’s finding that termination of parental rights was in the best interest of the child.  At trial, the court heard evidence that father and child had no emotional ties, father failed to maintain regular visitation or other contact with child, father was able but did not provide necessary care or support for child, father showed a “overall disinterest or lack of commitment” regarding child, additional services would likely not bring about lasting parental adjustment, and child is very bonded to the prospective adopted parents.

 

Judge Powell concurred in the result, and wrote that even if father had properly preserved his first two claims, the circuit court’s judgment would still be affirmed.  The father’s prior convictions for child molestation and sexual misconduct constitutes statutory grounds for termination of his parental rights pursuant to § 211.447.2, and that section is constitutional both facially and as applied to the facts of the case.

 

MISSOURI SUPREME COURT AFFIRMS DISMISSAL OF SUIT AGAINST CITY OF ST. LOUIS FOR INJURY ON BIKE PATH.

Rachel Sender v. City of St. Louis, 681 S.W.3d 189 (Mo. banc 2024).

Rachel Sender was injured when she had a bicycle accident on a bike path in Forest Park on August 12, 2018.  She provided notice of her injury to the City on October 11 pursuant to § 82.210, RSMo., which provides:

 

No action shall be maintained against any city of this state which now has or may hereafter attain a population of one hundred thousand inhabitants, on account of any injuries growing out of any defect in the condition of any bridge, boulevard, street, sidewalk or thoroughfare in said city, until notice shall first have been given in writing to the mayor of said city, within ninety days of the occurrence for which such damage is claimed, stating the place where, the time when such injury was received, and the character and circumstances of the injury, and that the person so injured will claim damages therefor from such city. (emphasis added)

 

In her letter to the City she stated: “[Sender] suffered a broken clavicle, concussion and other injuries on/near South West corner, Forest Park Bike Path in St. Louis City, MO when she encountered a defect in the road ….”  

 

The City replied on October 29, acknowledging her claim and requesting her birthdate, Social Security number, medical records, photographs and police report. Sender then responded with the requested information and included photos of the defect in the bike path.

 

On March 20, 2019, the City sent Sender another letter informing her that the City would not accept liability for her claim because her letter “failed to adequately identify the location of the alleged incident” and did not specify the location “with any certainty.”  Although Sender provided the City with further information, including Garmin data and a map showing the location of the accident, this was provided beyond the 90-day statutory period prescribed by § 82.210.

Sender then sued the City alleging two counts of negligence based on premises and personal liability.  The City moved to dismiss both counts and requested an evidentiary hearing regarding the sufficiency of the notice, arguing that the content of Sender’s letter was deficient because she had not adequately described the location of her injury.  Sender responded, arguing in part, that the bike path was not “enumerated property in § 82.210 that entitled the City to notice.”  After an evidentiary hearing, the circuit court found that although a bike path is not specifically enumerated in § 82.210, it is a thoroughfare pursuant to the statute because “it is part of the continuous design and unobstructed way to direct public traffic.”  It also found that Sender’s description in her letter of October 11 was insufficient and affected the City’s ability to fully investigate the claim and, consequently prejudiced its ability to defend against the claim.  The circuit court then sustained the City’s motion to dismiss Sender’s petition with prejudice.

 

Sender appealed to the Missouri Court of Appeals, Eastern District, which reversed the trial court's judgment, finding that Sender’s notice was sufficient under Section 82.210. The Supreme Court subsequently granted transfer.

 

The Supreme Court held that “the bike path is a publicly maintained exterior improvement facilitating the traffic of pedestrian traffic – the type of property contemplated by Section 82.210.”  Thus, the court held, the bike path is a thoroughfare within the meaning of § 82.210, and Sender was required to provide proper notice of her claim to the City.

 

Sender also argued before the Supreme Court that her October 11 notice was not so misleading that it affected the City’s ability to fully investigate the claim and did not prejudice the City’s ability to defend the claim.  The Court pointed out that the circuit court held a hearing and entered judgment stating, “In light of the testimony and evidence adduced at the Travis hearing, [Sender’s] notice did not substantially conform with the intent and purpose of § 82.210.”  Sender, on appeal, asserted that the circuit court erred in so finding because the court misapplied the law to the facts of her case.

 

The Supreme Court, however, noted that Sender failed to provide the Court with the record of the facts adduced at the trial court hearing. Therefore, the Supreme Court could not review her claim of error without knowing the predicate facts to determine the legal question of whether the circuit court misapplied the law in finding Sender’s notice insufficient based on the facts.  The Court noted that the circuit court appropriately conducted a required hearing, but Sender did not provide any record of the hearing in presenting her appeal.  As a consequence, the Court lacked knowledge of the relevant predicate facts and could not determine if the circuit court erroneously applied the law.  When the record does not contain all information and documents essential for the Court to decide an issue on appeal, the claim of error cannot be reviewed.  

 

 

 

SUPREME COURT HOLDS MEDICAL MALPRACTICE CLAIM IS BARRED BY TWO-YEAR STATUTE OF LIMITATIONS.

Dane Templeton v. Charles Orth, D.O., SC100089 (Mo. banc 1-30-24).

Dane Templeton sued his orthopedic surgeon for medical malpractice in Clay County Circuit Court and asserted that his suit was within the statute of limitations because the “continuing care” doctrine applied to toll the two-year statute of limitations.  The trial court disagreed, and dismissed his claim as being outside the statute of limitations.  The Supreme Court affirmed, holding that the uncontested facts before the circuit court show that plaintiff’s medical malpractice action was time-barred.

 

Templeton was thrown from a passenger seat of a golf cart into a tree and a barbed wire fence, sustaining an injury to his right knee and thigh.  On September 18, 2012, Dr. Orth operated on Templeton’s injured leg, and after surgery Templeton returned to Dr. Orth for follow-up evaluations over a course of several months.  Dr. Orth did not provide any medical care to Templeton between his last post-operation checkup on December 6, 2012 and December 10, 2015, when Templeton returned to Dr. Orth because of the swelling in his right knee.  Orth operated on the knee again and provided follow-up care through August 2016.  On August 18, 2016, Dr. Orth prescribed an antibiotic.  Templeton’s last appointment with Dr. Orth was on August 29, 2016.  At that time, Orth wrote Templeton a prescription for a pain relief drug and advised Templeton he would “see him in a month at least.”

 

In the meantime, Templeton made an appointment with Dr. Eid, an infectious disease doctor, on September 1, 2016.  Dr. Eid ordered an orthopedic consultation at the University of Kansas Medical Center.  Templeton was seen by an orthopedic doctor at KU Medical Center on September 7, 2016.  At that appointment, Dr. Tilley reviewed Templeton’s course of treatment with Dr. Orth and recommend two options.  The first would consist of prolonged suppressive antibiotic surgery, and the other option would be to stop the antibiotics and see if things worsen.  Plaintiff elected the second option and, without consulting Dr. Orth, stopped taking the antibiotics.  However, the condition of plaintiff’s leg worsened.  In an October 11, 2016, Dr. Tilley performed surgery on Templeton’s thigh and removed two pieces of wood that had been left in his leg after his 2012 accident.  After surgery, plaintiff continued seeing Dr. Tilley for post-operative care and did not see Dr. Orth again.

 

On October 9, 2018, plaintiff sued Dr. Orth and Orthopedic Surgeons, Inc. alleging that Dr. Orth was negligent in his failure to appropriately recognize, evaluate, treat and resolve Templeton’s condition.  Thus, his suit was filed more than two years after he last saw Dr. Orth.  Dr. Orth filed an answer and raised the affirmative defense that plaintiff’s action was barred by the two-year statute of limitations in § 516.105. The trial court agreed and granted summary judgment in favor of Dr. Orth.

 

 

Templeton appealed to the Missouri Court of Appeals, Western District, which affirmed the judgment in part and reversed and remanded in part for further proceedings, in a 2-1 decision. The Supreme Court then granted Templeton’s application for transfer.

 

The Supreme Court then affirmed the trial court’s judgment, explaining that § 516.105.1 requires that medical malpractice suits be brought within two years of the date of the alleged act of negligence. The Court noted that one exception to the two-year statute of limitations is the common law doctrine commonly referred to as the “continuing care” exception. This was described by the court in Weiss v. Rojanasathit, 975 S.W.2d 113, 119-20 (Mo. banc 1998):

 

The duty to attend the patient continues [and, therefore, the statute of limitations is tolled] so long as required unless the physician-patient relationship is ended by (1) the mutual consent of the parties, (2) the physician’s withdrawal after reasonable notice, (3) the dismissal of the physician by the patient, or (4) the cessation of the necessity that gave rise to the relationship.  Absent good cause to the contrary, where the doctor knows or should know that a condition exists that requires further medical attention to prevent injurious consequences, the doctor must render such attention or must see to it that some other competent person does so until termination of the physician-patient relationship. (bracketed material added by Court)

Here, plaintiff (1) sought a second opinion from Dr. Tilley, (2) received an alternative treatment plan from Dr. Tilley, and (3) consciously chose to follow Dr. Tilley’s plan by discontinuing the antibiotics that Dr. Orth had prescribed, without further consultation with Dr. Orth after August 29, 2016. Based on these three actions, all of which indisputably occurred before October 9, 2016, the only reasonable inference is that Templeton intended to terminate the physician/patient relationship with Dr. Orth at that time.  Taken alone, any one of these actions may not have been enough to terminate the continuing care relationship, but a combination of these three actions ended plaintiff’s continuing care relationship with Dr. Orth before October 9, 2016. Therefore, his suit, which was filed more than two years later, is barred.

 

JUDGMENT AGAINST MERCY HOSPITAL JOPLIN REVERSED FOR FAILURE TO MAKE A SUBMISSIBLE CASE.

Steven Harner v. Mercy Hospital Joplin, 679 S.W.3d 480 (Mo. banc 2023).

A jury in Newton County awarded Steven Harner $1.5 million on his negligence claim, alleging Mercy breached its duty to protect him from criminal acts of a third person on Mercy’s property.  The Missouri Supreme Court reversed the judgment against Mercy, however, holding that Harner failed to make a submissible case against Mercy, and that Mercy owed no duty to Harner under the “known third person” exception.

 

The Court explained that in any action for negligence, a plaintiff must establish that the defendant owed a duty of care to the plaintiff, the defendant breached that duty, and the defendant’s breach proximately caused the plaintiff’s injury.  Missing in this case was the element of duty.  A duty of care rises when “there is a reasonable likelihood that particular acts or omissions will cause harm or injury.”  The Court explained that “the touchstone for the creation of a duty is foreseeability.”  That duty is generally measured by whether or not a reasonably prudent person would have anticipated the danger and provided against it.  

 

As a general rule, businesses have no duty to protect invitees from the criminal acts of unknown third persons because such activities are rarely foreseeable.  The Court pointed out, however, that an exception may arise when a business “knows or has reason to know, that a third party is harming or is about to harm an entrant,” sometimes referred to as the “known third person” exception. Such a duty may arise when a person, known to be violent, is present on the premises or an individual is present who has conducted himself so as to indicate danger and sufficient time exists to prevent injury.”  

 

In this case, at approximately 6:55 p.m. on December 23, 2015, Kaylea Liska arrived at Mercy via ambulance with her boyfriend, who was to receive treatment at the hospital.  After waiting for her boyfriend for some time in the hospital, Liska became anxious and wanted to leave and at around 8 p.m. left the hospital and entered the parking lot.  In the parking lot, she approached Floyd Bennett, a 79-year-old man waiting in his car, and asked him for a ride.  He declined, and Liska walked away but remained in the parking lot.  Bennett did not report the incident to Mercy because he believed Liska was more of an annoyance rather than a threat.

 

Subsequently, at 8:04 p.m., Liska entered an unlocked vehicle belonging to Keith and Elnora Wooldridge.  They were inside the hospital at the time.  About 20 minutes later, they returned to the parking lot and found Liska inside their vehicle.  Keith Wooldridge told her, “Lady, I think you’re in the wrong car.”  Without speaking to the Wooldridges, she exited the vehicle and ran away, taking prescription medication from the vehicle.  

 

The Wooldridges immediately went back inside the hospital and reported to Mercy employee Dee-Dee Baker at the front desk that someone had been in their car and they had been robbed.  Baker called Mercy employee Jody Berry, who worked in dispatch for Mercy’s security department.  Dispatcher Berry called Security Officer Ryan Meier and reported the incident to the Joplin police department.

 

Meier arrived at the front desk shortly thereafter and spoke with the Wooldridges for about 20 minutes.  Although they told Officer Meier they had been robbed, Meier testified that what they described to him was a theft.  The Wooldridges did not report that Liska had yelled at, threatened, or made any physical contact with them, or that she had a weapon.  Meier testified at trial that nothing the Wooldridges told him suggested that Liska posed a threat to anyone at Mercy.

 

 

Subsequently, the security personnel conducted two rounds by vehicle of the Mercy parking lot to look for suspicious people entering vehicles after being advised of the Wooldridge report.  Officer Meier went back into the parking lot with Keith Wooldridge to inspect the Wooldridges’ vehicle.  In the meantime, Liska remained in the parking lot after leaving the Wooldridges’ vehicle. She returned to Bennett’s vehicle and again asked for a ride, which he declined to provide.  He did not report the incident to Mercy.

 

Liska subsequently walked around the parking lot until she found another unlocked vehicle, this one belonging to Harner.  Harner testified that before going into the hospital he left his Ruger .380 pistol – which was loaded and had no safety – either in the center console or the glovebox, neither of which were locked.  Liska entered Harner’s vehicle.  When she entered Harner’s vehicle, its alarm was triggered and lasted for about 55 seconds.  The alarm went off again about 4 minutes later for approximately 12 seconds.  When Harner returned from the hospital, he opened the door and yelled at Liska to get out of his vehicle.  A brief struggle ensued, during which Liska grabbed Harner’s pistol and shot him in the neck.  He survived the shooting and subsequently sued Mercy for negligence.

 

After the jury verdict in Harner’s favor, Mercy appealed to the Missouri Court of Appeals, Southern District, which affirmed the judgment, finding that Harner had made a submissible case under the known third person exception. The Supreme Court granted Mercy’s application for transfer.

 

The Supreme Court held that Mercy did not breach a duty, under the known third person exception, to protect Harner from Liska’s criminal acts while on Mercy’s property.  The Court found that Liska did not act in a dangerous or threatening manner until Harner yelled at her when he found her inside the car.  Prior to the shooting, there was no evidence from which Mercy could have known Liska would become violent, as she had not engaged in any verbal or physical altercation on Mercy’s premises.  There is no evidence that Liska had or would likely use a gun prior to her use of Harner’s unsecured and loaded pistol which she found inside his unlocked vehicle.  From the Wooldridge report, Mercy merely knew Liska had, without force, entered an unlocked vehicle and fled as soon as she encountered the owners, taking prescription medication from the vehicle with her.  The Wooldridges did not report that Liska was armed or that she had yelled at, threatened, or made any physical contact with them.  They did not describe the woman as angry, yelling, or threatening.  It cannot be said these facts and circumstances rendered it foreseeable that Liska would become violent or dangerous.

 

Judge Paul Wilson dissented, arguing that Harner had made a submissible case under the known third party exception because the actions of which Mercy was aware – breaking into a vehicle and stealing drugs – created a foreseeable risk of danger not only to the owners of that vehicle but to others in the parking lot.

 

 

 

MISSOURI SUPREME COURT INVALIDATES STATUTE AS VIOLATED SINGLE SUBJECT RULE.

Johnathan Byrd, et al., v. State of Missouri, 679 S.W.3d 492 (Mo. banc 2023).

House Bill 1606 was passed by the Missouri legislature in 2022; it related to political subdivisions but also contained a provision imposing restrictions on the expenditure of state funds allocated for combatting homelessness, and it made the act of unauthorized sleeping and camping on state-owned lands a class C misdemeanor. The Supreme Court held that this statute violated the single subject requirement of Article III, Section 23 of the Missouri Constitution.

 

As originally proposed, H.B. 1606 sought to reduce the amount of information certain counties were required to publish in their financial statements and was entitled “an act to repeal Sections 50.800, 50.810, 50.815, and 50,820, and to enact in lieu thereof two new sections relating to county financial statements.”  The House of Representatives passed the Senate Committee Substitute for 1606, which merely changed the date by which financial statements must be published.

 

Subsequently, the Senate’s Local Government and Elections Committee recommended that H.B. 1606 be passed in the form of a Senate Committee substitute which was entitled “AN ACT To repeal [eleven sections of the Revised Statutes of Missouri] and to enact new sections relating to county officials, with penalty provisions.” (Bracketed material added by Byrd Court.) The Senate adopted this Senate Committee substitute which included provisions: (1) modifying the narrative title from “relating to county officials” to “relating to political subdivisions,” and (2) adding § 67.2300 to the bill.  That new § 67.2300, among other things, sought to impose restrictions on the expenditure of state funds allocated for combatting homelessness and make the act of unauthorized sleeping and camping on state-owned lands a Class C misdemeanor.  Finally, on May 11, the House and Senate passed a conference committee substitute to H.B. 1606 which included a new § 67.2300 and 49 other new sections.  In June 2022, Governor Mike Parson signed the bill into law.

 

Several individuals and an organization entitled “The Gathering Tree, dba Eden Village,” filed separate petitions in Cole County Circuit Court to invalidate H.B. 1606 for violating the single subject rule.  The Circuit Court consolidated the suits and found that the legislation did not violate the single subject rule.  On direct appeal, the Supreme Court disagreed and found that H.B. 1606 violated the constitutional single subject requirement, because the addition of § 67.2300 to the bill introduced at least one impermissible additional subject, i.e., homelessness.

 

Article II, § 23 of the Missouri Constitution provides: “No bill shall contain more than one subject which shall be clearly expressed in the title.”  The high court explained that a bill does not violate the single subject requirement “so long as the matter is germane, connected, and congruous.”  The test for whether a bill addresses a single subject is “not how the provisions relate to each other, but whether the provisions are germane to the general subject of the bill.” (Emphasis added by Byrd Court.) In deciding such a case, the Court first “looks to the bill’s title to determine its subject.”  So long as “the bill’s title is not too broad or amorphous to identify the single subject of the bill, then the bill’s title serves as the touchstone for the constitutional analysis.”  The Court pointed out that the title of HB 1606 was “an act to repeal [forty-two] sections . . . and to enact in lieu thereof fifty new sections relating to political subdivisions, with a delayed effective date for a certain section and with penalty provisions.” (Emphasis and bracketed material added.)  The Court noted that even though § 67.2300 contains provisions regulating the expenditures of state funds for housing or homelessness, and even though such provisions would apply to political subdivisions receiving those funds, the new statutes provisions apply to every entity receiving state funds, including not-for-profit organizations and private developers.  The Court held that the connection between the various provisions of § 67.2300 and the subject “political subdivisions” is remote at best and, in some instances, completely missing.  Those provisions do not fairly relate to or have a natural connection with that subject; instead, they have such a connection with the wholly different subject of homelessness. 

 

The Court then considered the question of whether the provisions of H.B. 1606 that are not germane to its “political subdivisions” subject could be severed (thereby saving the remaining portions of the bill) or whether the entire bill must be struck down.  The Court further explained that judicial severance will be appropriate only when the “Court is convinced beyond a reasonable doubt that the legislature would have passed the bill without the additional provisions and the provisions in question are essential to the efficacy of the bill.”  In this case, the Court held that there was no basis in the record for concluding beyond a reasonable doubt that the legislature would have passed H.B. 1606 without the new § 67.2300.  Therefore, the Court invalidated H.B. 1606 in its entirety.

Since August 28, 2005, there have been nine changes to the Missouri Workers’ Compensation Act.[i]  Through the years I have tracked the changes to Chapter 287, as a labor of love and money, in authoring and editing a statute book as a fundraiser for Kids’ Chance of Missouri.[ii] As there otherwise is no one easy place to go for legislative history of the Missouri Workers’ Compensation Act, I decided to provide one.

I am quite sure all those practicing Missouri workers’ compensation have done this, at least those in the St. Louis area who might be reading this article. You read through Chapter 287, RSMo., and draft changes and edits that should be considered either due to internal inconsistencies, case law interpretations, or simply clarifications of the original intent. No?  People do not do this on their Saturdays?  (Please, do not judge me.)

Posters

Do you know the poster required to be posted by every employer in Missouri is simply wrong?  I know, most employers probably do not have this poster or, if they do, it is above their copier or in their lunchroom and no one reads it.  Still, it should be accurate, I would argue.  The content of the poster is outlined in Section 287.127:

(2) That employees must report all injuries immediately to the employer by advising the employer personally, the employer's designated individual or the employee's immediate boss, supervisor or foreman and that the employee may lose the right to receive compensation if the injury or illness is not reported within thirty days or in the case of occupational illness or disease, within thirty days of the time he or she is reasonably aware of work relatedness of the injury or illness; employees who fail to notify their employer within thirty days may jeopardize their ability to receive compensation, and any other benefits under this chapter…[iii]

The problem is that the boldface language above is inaccurate.  Section 287.420, RSMo., requires reporting to your employer “… no later than thirty days after the diagnosis of the condition …” Even this provision has been interpreted to provide further time to report an occupational disease.  The time really does not begin to run until the “triggering diagnosis” is identified; when it was recorded by a physician that the occupational disease was related to work.[iv]

The language in the poster at work is language taken from the statute of limitations for occupational diseases, contained in § 287.063:

3. The statute of limitation referred to in section 287.430 shall not begin to run in cases of occupational disease until it becomes reasonably discoverable and apparent that an injury has been sustained related to such exposure…[v]

Just in this one example, you have a poster required to be posted by every employer in Missouri, providing a false summary of a statutory provision that itself has been interpreted more broadly, even under the guise of strict construction.[vi]

Medical Fee Disputes

Section 287.140, RSMo., governs medical bill fees disputes and defers to the Division of Workers’ Compensation who “shall, by regulation, establish methods to resolve disputes concerning the reasonableness of medical charges, services, or aids.”  The Division set up two distinct types of medical fee disputes in their regulation under 8 CSR 50-2.030.  “Direct pay” actions are for medical providers to pursue collection for authorized care where no payment has been received.[vii] The second type is a “reasonableness dispute” action on a bill for authorized care where payment has been made but there is a balance in dispute.[viii]

In 2014, Section 287.140, RSMo., was amended to provide:

Any application for payment of additional reimbursement, as such term is used in 8 CSR 50-2.030, as amended, shall be filed not later than: (1)  Two years from the date the first notice of dispute of the medical charge was received by the health care provider if such services were rendered before July 1, 2013; and (2)  One year from the date the first notice of dispute of the medical charge was received by the health care provider if such services were rendered after July 1, 2013…[ix]

The problem is that with the defining of the statute of limitation for “additional reimbursement,” the same does not provide a statute of limitations for a “direct pay” application.  Presumably, the fall-back would be the 10-year statute of limitation under contract law. To my knowledge, this has not been interpreted, but it seems obvious that the intent of the Missouri Legislature in 2013, when providing for a very short statute of limitations for additional compensation medical fee disputes, was not to imply a long 10-year statute of limitations for when no payment has been made.

Commutation

Less a case of an oversight or poor drafting, but more a provision of questionable or archaic public policy, § 287.530 provides very limited grounds for parties to resolve and settle an open claim for indemnity (permanent total disability or death benefits for all practical purposes) after an award has been entered.  The lump sum must be the present value of the stream of indemnity payment expected to be payable based upon the life expectancy of the claimant, who would be the totally disabled employee or the dependent(s) in a death case.  The commission also must determine if it is in the best interest of the employee or dependent(s).

In determining whether the commutation asked for will be for the best interest of the employee or the dependents of the deceased employee, or so that it will avoid undue expense or undue hardship to either party, the division or the commission will constantly bear in mind that it is the intention of this chapter that the compensation payments are in lieu of wages and are to be received by the injured employee or his dependents in the same manner in which wages are ordinarily paid. Therefore, commutation is a departure from the normal method of payment and is to be allowed only when it clearly appears that some unusual circumstances warrant such a departure.[x]

Cases involving death benefits or permanent total disability are resolved by way of settlement every day in Missouri.  Section 287.390.1 provides:

 … An administrative law judge, or the commission, shall approve a settlement agreement as valid and enforceable as long as the settlement is not the result of undue influence or fraud, the employee fully understands his or her rights and benefits, and voluntarily agrees to accept the terms of the agreement.[xi]

The Missouri Supreme Court, in Dickemann v. Costco Wholesale Corp., found that the commutation section is to be strictly interpreted, consistent with the statute’s mandate, and denied a proposed settlement which both parties, represented by counsel, had sought to have approved.[xii]

From a public policy standpoint, why does this section exist to thwart the intention and desire of the parties?  The percentage of cases where this provision is invoked is much less than 1% of the claims in Missouri.  If you want to “commute” the award, you must rely on the Commission’s calculation of the present value and life expectancy of the claimant(s) as well as their judgment that the same is in their best interest.  A bit paternalistic, I would suggest. 

The natural pivot, considering this archaic provision, is not to reduce your death cases to a final award to provide both parties the ability to negotiate and settle and compromise the case at some point for some lump sum.  I vote to scrap the section. 

Death Benefit Rate

This seems purely an oversight, but the compensation rate for death benefits under § 287.240(2) suggests that the average should be based upon a year’s wages “as provided in section 287.250.”   The problem is that § 287.250 was modified and no longer requires a year’s worth of wages to be used.  The rate calculation is now based upon 13 weeks of wages.

Except as otherwise provided for in this chapter, the method of computing an injured employee's average weekly earnings which will serve as the basis for compensation provided for in this chapter shall be as follows:

… (4)  If the wages were fixed by the day, hour, or by the output of the employee, the average weekly wage shall be computed by dividing by thirteen the wages earned while actually employed by the employer in each of the last thirteen calendar weeks immediately preceding the week in which the employee was injured or if actually employed by the employer…[xiii]

The Southern District of the Missouri Court of Appeals has clarified that § 287.250 governs, due to the reference § 287.240(2) makes to that section.[xiv]  Still, it would be nice to clean that one up.

Commissioner Compensation

The Missouri Labor and Industrial Relations Commission is the three-person panel that handles appeals of workers’ compensation claims and unemployment compensation claims as well as prevailing wage disputes. This panel does this work for the entire state of Missouri.   The odd thing about their compensation is that they are paid less than what the Workers’ Compensation Administrative Law Judges (ALJs) make, whose awards they review on appeal. An ALJ’s salary is set by statute to be at “ninety percent of the rate at which an associate division circuit judge is compensated.”[xv]

This does not make sense. From a logical point of view, you would want your Administrative Law Judges to apply to be on the Commission, where their experience would be invaluable.   What ALJ would apply to receive less money, however?  I guess we could cut the pay of all the ALJs.  (For any judges reading this article: just kidding.)

Subrogation Interest vs. Lien

Similar to the statute of limitation for medical fee disputes discussed above, § 287.150 is a bit confusing.

1.  Where a third person is liable to the employee or to the dependents, for the injury or death, the employer shall be subrogated to the right of the employee or to the dependents against such third person, and the recovery by such employer shall not be limited to the amount payable as compensation to such employee or dependents, but such employer may recover any amount which such employee or his dependents would have been entitled to recover.  Any recovery by the employer against such third person shall be apportioned between the employer and employee or his dependents using the provisions of subsections 2 and 3 of this section.

2.  When a third person is liable for the death of an employee and compensation is paid or payable under this chapter, and recovery is had by a dependent under this chapter either by judgment or settlement for the wrongful death of the employee, the employer shall have a subrogation lien on any recovery and shall receive or have credit for sums paid or payable under this chapter to any of the dependents of the deceased employee to the extent of the settlement or recovery by such dependents for the wrongful death.  Recovery by the employer and credit for future installments shall be computed using the provisions of subsection 3 of this section relating to comparative fault of the employee.[xvi]

What is wrong with this, you may ask?   Once again, it’s likely unintended, but for all third-party cases that do not involve the “death of an employee,” there would arguably only be a subrogation interest and not a subrogation lien.  It’s not a huge difference, although a lien certainly provides the employer and their carrier more protection to collect their subrogation.   I try, when possible, to resolve the subrogation issue when I resolve and settle the workers’ compensation claim or, at the very least, have the settlement stipulation confirm that the claimant agrees to honor and pay the subrogation interest of my client when the third-party case is resolved.

Workers’ compensation is a specialized practice guided by statute and administrative practice. It can be confusing for employers and the attorneys who represent them.  In fiscal year 2023, 92,404 workplace accidents were reported to the Missouri Division of Workers’ Compensation (DWC) affecting all categories of business in Missouri, ranging from healthcare to manufacturing to hospitality.[i] If you represent employers, it is likely your clients will face workplace injuries. Here are 10 tips to help you understand workers’ compensation. These recommendations will enable your clients to prevent and manage workplace injuries.

1. Be insured.  All Missouri employers with more than five employees and all employers in the construction industry are required to have workers’ compensation insurance.[ii]  Failure to have workers’ compensation insurance is a Class A misdemeanor and carries a penalty of up to three times the annual premium the employer would have paid had such employer been insured.[iii] 

When securing a workers’ compensation policy, be honest about the type of work employees perform.  Employers sometimes seek favorable rates on workers’ compensation insurance by mischaracterizing the work employees perform.  For example, if an employee operates a cement mixer, they are a “heavy equipment operator,” not a “clay artisan.”  If an employer misrepresents the nature of work performed by employees, this may result in civil action from the insurer, investigation by the Fraud and Non Compliance Unit (FNU) and prosecution for a Class A misdemeanor.[iv]

2. Prevent Injury.  I believe most employees do not want to get hurt at work; work injuries can be disruptive and inconvenient.   If an employer prevents accidents, employees are safer and happier. Additionally, the employer’s Experience Modification Rate (“mod”) rating will remain favorable, which will have a positive impact on the employer’s workers’ compensation insurance premiums. Employers should perform daily safety checks to identify and remedy hazards. Invest in thorough training, especially for new employees.  Watch out for frequent causes of workplace injuries, which include wet or slippery floors, obstructions and unsecured overhead objects.  Machinery should be inspected and maintained regularly.  Employees should be encouraged to use safety equipment such as gloves, safety glasses, ear plugs, non-skid shoes and steel-toed boots.

3. Understand the basics of workers’ compensation.  Work injuries can occur as a result of an accident or an occupational disease injury from repetitive motion.  The Department of Labor & Industrial Relations has a website with information for both businesses and workers, labor.mo.gov/dwc. The DWC is working to upgrade and improve its website.

Employees with compensable workplace injuries are entitled to the benefits granted in the Missouri workers’ compensation statutes.[v] There are three primary workers’ compensation benefits:

Medical care:  Injured employees receive medical treatment if they are injured on the job. The medical providers are selected, and paid for, by the employer and/or insurer.[vi]

TTD (Temporary Total Disability): The treating physician may issue work restrictions.  Employees may return to work if the employer can accommodate the restrictions.  If the employer cannot accommodate the restrictions, injured workers are entitled to be off work and collect temporary total disability (TTD) benefits.  TTD is calculated as 2/3 of an employee’s average wage (AWW) up to a state maximum.  The workers’ compensation insurance carrier will request gross wages for the 14 weeks prior to the date of injury to calculate the AWW.[vii]

PPD (Permanent Partial Disability): Injured workers are entitled to a settlement if they sustain permanent partial disability as a result of their injuries. Occasionally, a PPD settlement is equal to the PPD rating issued by the treating doctor. More often than not, a PPD settlement is reached through negotiations, mediation and/or hearing based on the schedule of losses defined in Section 287.190, RSMo. PPD settlements are formalized by a Stipulation for Compromise Settlement, which must be approved by an ALJ.[viii]  If an injured worker is disfigured from a work injury, they are entitled to disfigurement benefits for scarring, burning or discoloration to the face, neck and arms.[ix]   

Occasionally, an employee may not be able to return to any job as a result of a workplace injury.  Those injured workers may quality for weekly permanent total disability (PTD) benefits until death.[x]

4. Safety rules matter.  Employers should have company safety rules and apply them consistently.  Determine the most relevant safety rules, put the rules in writing, make a handbook and post the safety rules in visible locations: near time clocks, or in break rooms and restrooms. Conduct quarterly safety meetings with employees.  Make sure employees confirm in writing that they have reviewed and understand the company handbook. If an employee fails to follow safety rules, penalties against the employee may be available, but only if the safety rules were written and enforced.[xi]

Speaking of penalties, those penalties go both ways. Employers can be penalized for failing to “comply with any statute in the state,” such as removing a safety guard from a machine.  If the employer commits a safety penalty, the employee may be entitled to a 15% increase in benefits. For example, if an employer removes an emergency stop from a machine and the employee is injured because the machine fails to stop, the employer could be assessed a safety penalty.[xii]

5. Seatbelts protect employees. If employees drive their company or personal vehicle for work, employers should have a written policy mandating the use of seatbelts.  “Wear your seatbelt” may seem like an obvious safety rule, as seatbelts are required by Missouri statute.[xiii]  Nonetheless, employers should formally adopt a written rule that employees must wear seatbelts at all times when operating or as a passenger of a vehicle.

6. Reporting. Employers or their insurers should report injuries to their workers’ compensation carriers within five days.  This allows for timely investigations and prompt medical care for the injured worker.  If an injury requires treatment beyond first aid or results in lost time from work, the injury must be reported.[xiv]  I advise employers that “first aid” is the type of treatment an elementary school nurse could provide a child.

7. Don’t be a fraud. In fiscal year 2023, 379 workers’ compensation fraud and noncompliance cases were investigated by the Missouri FNU.[xv]  Of these, 84 cases were referred to the Missouri Attorney General’s office for prosecution.  It is incorrect to assume fraud relates only to employees faking work injuries.  Employers commit fraud when they “[k]nowingly make or cause to be made any false or fraudulent statements with regard to entitlement to benefits with the intent to discourage an injured worker from making a legitimate claim.”[xvi]

Example: Ed the Employee slips on oil while walking across a garage carrying tires.  Based on the unnatural position of his hand, Ed believes he has broken his wrist.  His employer, Bad Guy Motors, makes him an offer before Ed heads to the emergency room. Bad Guy proposes Ed tell the emergency room that he was hurt at home and use his group health insurance to pay for his medical care. In exchange, Bad Guy will give Ed $5,000 cash and 2 weeks of vacation. This practice is unfair to the injured worker and interferes with the employee’s medical recovery.  It also constitutes workers’ compensation fraud. 

Employers should never, ever try to dissuade or bribe an injured worker from pursuing workers’ compensation benefits.

8. Preserve evidence. All evidence associated with an accident should be preserved.   Even if an injury seems minor, the injured worker should prepare a written injury report with time, date, and mechanism of injury. Save any surveillance video and make a back-up copy. Locate accident witnesses and have them prepare written statements including their contact information.  Interview co-workers about what they witnessed, if anything.  If there is faulty machinery, save it for inspection. The workers’ compensation insurer as well as attorneys, doctors and ALJ’s will review and depend on the evidence preserved by employers.  

9. Light duty. If an employee has been released to return to work with restrictions from the workers’ compensation physician (called “light” or “modified” duty), the employer is not obligated to find work for the injured worker to perform. An employee who cannot work due to restrictions will receive TTD from the insurer.  But, if there is work for the employee to perform within the restrictions, modified duty is ideal because it keeps an employee engaged. 

Example:  Erika the Employee fell from a ladder while hanging art on the gallery walls of her employer, Fancy Art. Erika’s treating physician will allow Erika to return to work so long as she lifts no more than 10 pounds. However, Erika’s job at Fancy Art requires her to lift heavy pieces of art weighing 25 pounds. Erika cannot return to regular duty at Fancy Art and will collect TTD benefits. However, if Fancy Art can offer a modified duty position, such as performing office work and calling prospective customers of Fancy Art, Erika can work and will not collect TTD. Erika is happy because she stays at work and receives her regular paycheck.

10. Read the mail.  An employer should closely review any correspondence from the DWC. There are three types of correspondence from the DWC requiring immediate attention.

The first type of correspondence an employer will receive from the DWC is a Claim for Compensation (Form WC-21). If a Claim for Compensation has been filed, there are 30 days for an attorney to answer the claim on behalf of the employer. If the claim is not timely answered, the facts in the claim are deemed admitted.[xvii] 

Example:  Employer Dismal Daycare receives an Acknowledgement of a Claim for Compensation from the DWC filed by former employee Eva. This makes no sense to Dismal because Eva wasn’t at work on the day of the alleged injury, and she didn’t report an injury to her supervisor. Confused, Dismal puts the claim form in a pile of mail to review later. Weeks go by, the time to answer the claim timely passes, and now the answer is late. By failing to answer in a timely manner, Dismal has admitted Eva’s accident occurred, in addition to any facts pled in the claim.

Employers should also be alert if they receive notice of a setting, such as a Voluntary Settlement Conference, Pre-Hearing Conference, Mediation or Hearing. If the DWC is generating these notices, there is an active workers compensation matter pending at the DWC and the insurer should be notified.

Finally, the Family Support Payment Center can issue a lien for child support obligations for 25% of weekly TTD benefits or up to 50% of PPD settlements.[xviii] Be sure to send the Family Support Payment Center correspondence to the insurer so the lien can be satisfied.

These pointers are not exhaustive, but hopefully will be enough basic guidance for employers and their counsel.

Permanent Partial Disability is defined in Missouri as a disability that is permanent in nature and partial in degree.[1] Understanding the impact of injuries and assessing workers’ entitlement to Permanent Partial Disability, however, is not an exact science. Most workers’ compensation systems try to provide a method that is administratively easy and produces fair and adequate compensation for workers’ injuries. Workers’ compensation laws in all states address the issue of PPD, but there is no common system or agreement on valuation.

Scheduled Body Parts

Missouri’s Workers Compensation Act provides a schedule of 29 body parts with assigned values set out in weeks.[2] Injuries to teeth have a separate “schedule” set out by Regulation and found at 8 CSR 50-5.010 of the Department of Labor and Industrial Relations rules. If the disability suffered in any of the 29 body parts listed in  Section 287.190.1, RSMo., is total by reason of amputation or complete loss of use, then the number of weeks of compensation allowed in that schedule for such disability is increased an additional 10%.[3] Loss of hearing and loss of sight are listed as a schedule loss. Both of those losses have specific rules set forth for the determination of loss.[4]

Non-Scheduled Body Parts

Anything not listed in the schedule is considered a non-scheduled loss. Non-scheduled losses include injuries to the head, neck, back, organs, skin conditions etc. Non-scheduled losses are based on the “Body as a Whole” which is assigned a value of 400 weeks.[5]  For example, a psychological/mental condition has been found to be an unscheduled loss.[6] Tinnitus, a neurological condition that causes ringing/buzzing or uncontrollable noise in the ears is considered an unscheduled loss.[7] Section 287.190.3 also directs that non-scheduled injuries shall include permanent injuries causing loss of earning power.

Requirements to Establish PPD

Permanent Partial Disability is decided after temporary disability compensation is stopped, and the injured worker has reached maximum medical improvement (MMI). MMI is the point where an injury or medical condition will no longer improve with medical treatment and no further progress is expected.[8] It should be noted here that more medical care should not be denied simply because an employee may have achieved maximum medical improvement. The statute contemplates medical treatment that gives comfort and relief even though a cure of residual conditions is not available.[9] In addition, to be entitled to future medical benefits, an employee need not show conclusive evidence of a need for future medical treatment. A claimant needs only to show a reasonable probability that future medical treatment is necessary because of the work-related injury.

Multiple Injuries

If a claimant sustains injury to two or more portions of the body (scheduled or unscheduled), depending on the degree of disability to each part of the body, they may be entitled to more compensation based on the “multiplicity factor.”   A multiplicity factor is a special or added allowance for cumulative disabilities resulting from a multiplicity of injuries arising from one accident or exposure. An ALJ and/or the Commission has the discretion to include a “multiplicity” factor in assessing cumulative disabilities. This method is not specifically set out in the Act but has been upheld as an acceptable consideration by case law.[10] 

In Lowery v. ACF Industries, Inc.,[11] the claimant sustained a crushing injury to two (2) fingers which left the fingers weak, atrophy and in a fixed contracted position with limited ability to grasp. The Commission awarded disability to the hand (175 level) rather than base the award on a scheduled loss of use of the individual fingers.[12] Often with multiple injuries to various parts of the body, the injuries will be treated as an unscheduled loss and the award is a loss to the body as a whole. Keep in mind, the total amount of PPD compensation has been held to not exceed 400 weeks. In Swartz v. Shamrock Dairy Queen, the claimant sustained severe injuries making him paraplegic.[13] He continued to work, however, and sought compensation for PPD. A physician rated his disability as 100% loss of use of each leg (which equaled over 400 weeks), 60% loss of use of the body as a whole for neurogenic bladder, 20% loss of use of the body as a whole for sexual dysfunction, and 15% loss of use of the body as a whole for psychological injuries.[14] The court held that according to the Act he was limited to recovery of only 400 weeks.[15]

Factors to Consider in Determining PPD

Missouri courts have incorporated a variety of measurements to equitably decide PPD. In Loven v. Greene County, the Southern District of the Missouri Court of Appeals found the definition of “disability” to include:

… the inability to do something, a deprivation of lack of physical, intellectual, or emotional capacity or fitness, the inability to pursue an occupation or to perform services for wages because of physical or mental impairment, or physical or mental illness, injury, or condition that incapacitates in any way.[16]

What is not compensated is the  “pain and suffering” an injured worker endures during and after the healing period.[17]  In Missouri, the courts have held that the purpose of the Workers Compensation Act is not to provide indemnity for any pain and suffering or physical ailment. The focus is on a claimant’s loss of earning power and/or  loss of the ability to perform or participate in non-work activities.

Awards for all scheduled and unscheduled injuries are based on disability prior to artificial correction.[18] A finding of PPD does not need to require an actual loss of earnings.[19]

Proving Up PPD

When seeking PPD benefits, the claimant has the burden of proof to show that a disability resulted and the nature of such disability.[20]  This must be shown by a reasonable degree of probability.[21]  Reasonable probability means probability founded on reason and experience which inclines a person to believe it, but may leave some room for doubt.[22] The determination of a specific amount or percentage of disability awarded to a claimant is a finding of fact within the province of the Commission and ALJ.[23]  A claimant may sustain a PPD despite having no work restrictions, medication or other treatment regiments, if it appears there is an injury that caused a partial loss of bodily function and an impairment of the efficiency of the person in the ordinary pursuits of life.[24] In Sapienza v. Deaconess Hosp., the court found that an injured employee’s return to full work did not render an award of 400 weeks for PPD excessive, where the evidence showed the employee was impaired in ordinary pursuits of his life due to many injuries.[25]

Missouri’s statute and courts have  utilized a broad range of assessment tools to make sure that settlements and awards accurately provide reasonable monetary compensation, and require that medical care adequately provides services that cure and relieve the effects of the injury or medical condition. Missouri considers both diminishing performance and participation in both work and non-work activities in assessing PPD.  Missouri’s approach has always provided the opportunity in mediation for discussion with the claimant on the effects of the injury.

Not all people have the same physical or psychological resilience. Human frailties may predispose a person to more severe damage than others and result in variation of need for treatment and the extent of PPD. An experienced ALJ will be familiar with what adequate medical care and testing is needed for most injuries. They also will recognize when the medical care offered is inadequate and focused on short term gains to limit treatment costs and promote premature return to work. Delays by insurance companies in authorizing medical tests or treatment creates distrust and agitation that adversely affect the success of injured workers’ outcomes.   

Medical Evidence

The Act provides that PPD shall be proven and certified by a physician. Medical opinions addressing compensability and disability shall be stated within a reasonable degree of medical certainty. In deciding compensability and disability, where inconsistent or conflicting medical opinions exist, objective medical findings shall prevail over subjective findings. Objective medical findings are those findings demonstrable on physical examination or by proper test or diagnostic procedures.  The ALJ and Commission are not bound by the exact percentages of disability estimated by medical witnesses, and are free to deviate from those percentages.

The court in Quinlan v. Incarnate Word Hospital held that the Commission/ALJ are not bound by the exact percentages of PPD estimated by medical providers.[26] The impact of an injury upon the employee’s ability to work or take part in non-work activities involves considerations which are not exclusively medical in nature.[27]

Disfigurement

Disfigurement is additional to any PPD caused by injuries or medical conditions, and is required to be considered if the employee is seriously and permanently disfigured about the head, neck, hands or arm, up to a maximum amount of 40 weeks.[28]

Aggravation of Pre-Existing Conditions

Missouri courts have long held an employee can be compensated when a work injury aggravates a preexisting condition to the level of a disability, provided proof of the requisite statutory standard of causation: that the work accident was the prevailing factor in causing the resulting medical condition and disability.[29]  The prevailing factor is defined to be the primary factor in relation to any other factor, causing both the resulting medical condition and disability. The aggravation of a pre-existing condition or its symptoms should show a sufficient change in pathology to qualify for compensation.[30]

If a claimant suffers a work injury to a part of the body that was previously injured or disabled, the assessment of PPD for the work injury requires apportionment of the disability between the two conditions requiring expert opinion.[31]

Section 287.190.6(3) provides any award of compensation shall be reduced by an amount proportional to the PPD determined to be a pre-existing disease or condition or attributed to the natural process of aging sufficient to cause or prolong the disability or need for treatment. If a preexisting condition bears upon a claim for PPD, expert testimony should provide a conclusion as to the extent of the preexisting condition to decide what percentage of PPD is attributable to the work-related disability. A failure to offer expert testimony may result in no recovery.[32]

Disability is a Legal Determination

Medical evaluations that describe and quantify the lost  capabilities and burdens added do help judges analyze the impact of the impairment on the claimant’s life and assess whether any disability benefits are owed and how much.  However, disability is a legal and not a medical determination.  Non-medical factors such as age, education, work experience, transferable skills, intellect, support network, psychological resilience, the economy and geographic area of residence will be considered in context with the law.

The decision is ultimately in the hands of the ALJ and Commission. An assignment of PPD is within the expertise of the Labor and Industrial Relations Commission and Administrative Law Judges and is considered a finding of fact.[33]

As the saying goes, time flies when you are having fun! I cannot believe my term as President of BAMSL is coming to an end and this is my last article for the St. Louis Bar Journal.

As we begin this celebration of 150 years of BAMSL, I reflect on the legal profession and how it has evolved. Our profession has been shaped by societal changes, technological advancements, and an evolving understanding of justice. From a limited scope of legal practice to the ever-changing faces behind the gavel, the journey has been one of significant evolution. Nevertheless, amidst the changes, a fundamental truth remains: the unifying oath that binds all legal professionals to serve with dignity and integrity.

In the 19th century, the legal profession was characterized by a predominantly male, exclusive, and conservative environment. The role of lawyers was often limited to the elite, and legal education lacked the diversity seen today. In fact, women only started becoming formally educated in the 1840’s, and African Americans in the 1860’s. However, as societies progressed and notions of equality took root, the legal profession adapted.

The latter half of the 20th century witnessed a significant expansion of legal education, making it more accessible to a broader demographic. Women and minorities entered the legal arena, challenging traditional norms and contributing to a more diverse and inclusive profession. Today, thanks to the tireless efforts of many, the legal world is increasingly reflecting the diverse tapestry of society. This not only enriches the profession with a wider range of perspectives, but also ensures fairer representation for all individuals seeking legal assistance.

We also witnessed a technological revolution that reshaped how legal professionals operate. From online legal research platforms to automated contract review tools, technology has significantly altered the way legal services are delivered. While some view this with apprehension, fearing job displacement, others recognize the potential for technology to improve efficiency, cost-effectiveness, and access to justice. The key lies in embracing technology as a tool, not a replacement, and harnessing its power to enhance the legal practice.

As the world became more interconnected, the legal profession evolved to handle international issues and complex global transactions. Specialization within the legal field became more prevalent, with lawyers focusing on niche areas such as environmental law, intellectual property, or international human rights. This specialization allowed legal professionals to provide more nuanced and expert guidance in an increasingly complex legal landscape.

Despite the significant changes, the oath lawyers take upon entering the profession remains a constant. This oath transcends individual differences and binds all lawyers to shared principles: upholding the law, serving clients diligently, and promoting justice. This shared commitment to serving the common good, regardless of background or specialization, is what truly unites the legal profession and sets it apart.

We can all remember the day and the feeling. For me, I was in the serene ambiance of the courthouse, standing before the judge, heart pounding with anticipation as my parents looked on with pride. I remember raising my right hand to take the oath, with a flood of memories rushing through my mind, from all-night studies and friends made along the journey to impassioned debates. With each word spoken, I remember feeling the weight of responsibility settling on my shoulders, truly realizing the solemn promise I was making to uphold the law. I was so excited to realize that my journey as a defender of truth had begun, and that it would be marked by integrity, compassion, and the unwavering pursuit of justice for all.

Missouri attorneys are all too familiar with the following oath that is reaffirmed year after year:

I do solemnly swear that I will support the Constitution of the United States and the Constitution of the State of Missouri;

That I will maintain the respect due courts of justice, judicial officers and members of my profession and will at all times conduct myself with dignity becoming of an officer of the Court in which I appear;

That I will never seek to mislead the judge or jury by any artifice or false statement of fact or law;

That I will at all times conduct myself in accordance with the Rules of Professional Conduct; and,

That I will practice law to the best of my knowledge and ability and with consideration for the defenseless and oppressed.

So help me God.

It must be noted that the oath is not a political or partisan mantra but rather speaks to the humanity of the legal profession. By focusing on the shared values and commitments that bind legal professionals together, regardless of individual affiliations or ideological inclinations, we can all underscore the universal principles of justice, integrity, and equality that serve as a consistent guide through the complexities of our evolving society.

However, the legal profession has had, and continues to have, controversial issues to address, such as equal access to justice, immigration reform, and the impact of political ideologies on the judiciary, which have sparked debates within the legal community. Addressing these challenges requires a collective commitment to the principles embedded in the shared oath, emphasizing the role of legal professionals in safeguarding justice for all, not due to any particular political affiliation, but due to us all being held to a higher standard.

The legal profession is indeed at a fascinating crossroads. We are standing at a point where tradition and innovation meet, and we must decide which path to take forward. What is really remarkable, however, is that no matter which road we choose, the core values of our profession will remain the same.

While it may be tempting to dive headfirst into this digital revolution with its speed-of-light advances, we cannot forget our ethical standards that have guided us for decades. We need to ensure that as we embrace these technological advancements, we continue to do so with the highest level of integrity and commitment to justice.

None of these advancements can outshine the goal of creating a profession that is truly inclusive and diverse. We need lawyers from all backgrounds, representing all communities, so that everyone's voice is heard, and everyone's rights are protected. Given that the fight for justice is far from over, we will need all hands on deck if we are going to make any real progress.

So yes, we are at a crossroads, but it is an exciting one, with limitless opportunities. It is a chance for us to embrace the future and unite, to harness the power of technology while upholding our ethical standards, and to work together towards a more just and equitable society. As long as we remember the spirit of the oath that binds us together, and keep the common good in mind, I truly believe that the legal profession has the potential to shape a brighter future for all.

Please join me in supporting the leaders of BAMSL into our new Bar Year, including President-Elect Kevin Gunn. BAMSL continues to create better lawyers through education and development, improving the administration of justice, and educating and supporting the public. I thank you for your support over the last year. I am proud of all we accomplished to further the mission. 

            My father, Judge Arthur Litz, authored Books in Brief in this publication for the past 57 years. While I do not expect to serve for that length of time, I look forward to carrying on his legacy by reviewing books of interest to the bench and bar. Editor-in-Chief David Truman must have been clairvoyant when he mused in the last issue whether I would review John Grisham’s latest novel, The Exchange: After the Firm.  Grisham’s books have been favorites of mine for decades and I believe Judge Litz reviewed more books by John Grisham than any other author.

            We first met Mitch McDeere in Grisham’s 1991 novel The Firm,[i] when he took a job in Memphis, right out of Harvard Law School. That story concluded with McDeere and his wife Abby in the Cayman Islands with Mitch’s brother, a trusted secretary and $10 million. They escaped the FBI and the mob, having provided the government with documentation to indict the attorneys at his old law firm, Bendini, Lambert & Locke. The Firm sold more than 7 million copies, so I expected to see Mitch again, but I did not think it would take 32 years. 

            We are reintroduced to McDeere, now a 41-year-old partner at Scully & Pershing, a 2000-attorney international law firm.  The story starts in 2005 in New York. Mitch’s wife Abby is now senior editor at a small publishing house specializing in cookbooks. The couple lives on the upper west side of Manhattan with 8-year-old twin sons Clark and Carter. While most Scully partners are chauffeured in black sedans, Mitch rides the subway to and from his office as an example of his frugality and humble past.

            Early in the book, Mitch travels back to Memphis on a pro bono assignment, where he also meets with his former best friend and Bendini associate, Lamar Quinn.  After pleading guilty and serving 27 months in a federal prison, Quin took the bar exam, petitioned to practice in Tennessee, and finally got his license back. Now a small-town lawyer with a general practice, Quinn is past his bitterness toward Mitch and the two bury the hatchet.

            After the Tennessee trip, the book moves in a completely different direction, feeling like a new book rather than a sequel. The story is centered around finance rather than law.

            Giovanna Sandroni, an Italian associate of Scully & Pershing‘s London office, was abducted in Libya during the Gaddafi regime and held for a $100 million ransom. Scully & Pershing is suing to collect $500 million owed to their clients over the construction of a bridge in Libya. Ms. Sandroni – coincidentally the daughter of a partner of the firm – was kidnapped while visiting that bridge.

A female go-between with the kidnappers demands no police or government involvement. Thus, the money must be raised by the Scully & Pershing firm. That task falls to Mitch, and he travels all over the world to secure the ransom funds, while simultaneously dealing with the terrorists. At one point, Mitch learns that his family is under surveillance by the kidnappers and, as Grisham writes, “The shock had not begun to wear off; indeed, they were still in the middle of the shock.”         

            While quite entertaining, The Exchange: After the Firm is not one of his best. Grisham fans will enjoy the fast-moving plot with intrigue, violence, and several shady characters. I wish he had woven more legal threads into this, his 49^th book.

Introduction:

With the popularity of using Individual Retirement Accounts (IRAs) to hold non-traditional assets such as precious metals, partnership interests, real estate, and other property, a recent case involving James Caan, the actor who played Santino Corleone (better known as Sonny) in the movie The Godfather, illustrates some of the perils of using IRAs to hold non-traditional assets.

What is an IRA?

Section 408 of the Internal Revenue Code is the main Code provision governing IRAs. It was enacted as part of the Employee Retirement Income Security Act of 1974,[1] in furtherance of Congress’s goal “to create a system whereby employees not covered by qualified retirement plans would have the opportunity to set aside at least some retirement savings on a tax-sheltered basis.”[2]

 

Section 408(a) provides that an IRA is “a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries, but only if the written governing instrument creating the trust meets the [requirements enumerated in paragraphs (1) through (6)].”[3] Section 408(h) further provides that for purposes of section 408:

 

a custodial account shall be treated as a trust if the assets of such account are held by a bank (as defined in subsection (n)) or another person who demonstrates, to the satisfaction of the Secretary, that the manner in which he will administer the account will be consistent with the requirements of this section, and if the custodial account would, except for the fact that it is not a trust, constitute an individual retirement account described in subsection (a). For purposes of this title, in the case of a custodial account treated as a trust by reason of the preceding sentence, the custodian of such account shall be treated as the trustee thereof.[4]

To form a custodial IRA, the taxpayer executes a written custodial agreement that meets the requirements specified in section 408(a)(1) through (6). Once the custodial agreement is executed, section 408(h) treats the custodial agreement as a trust instrument and the custodian as a trustee, which allows for section 408(a) to apply, thereby creating a custodial IRA.

If the IRA is a custodial account, the institution’s duty is to hold and safeguard the investment; there is no duty with respect to investment decisions. The practical distinction is that a custodial account’s investment decisions can be dictated by the IRA owner/beneficiary.

Trust IRAs and custodial IRAs have the same three tax attributes, which together constitute the tax-deferral system that Congress created: (1) cash contributions are generally deductible; (2) accretions from the IRA’s assets are not taxable (except for Section 511 unrelated business income); and (3) distributions are taxable.

Alternative/Nontraditional Assets

IRAs are not limited to holding traditional assets such as cash, bonds, and publicly traded securities; they can still qualify for tax advantages while holding alternative assets.

When an IRA holds alternative assets, however, the IRS requires that the IRA’s trustee or custodian report the fair market value of the alternative assets yearly, valued as of December 31 of the preceding year, i.e. year-end fair market value.[5]

 

Distributions from an IRA

In addition to creating a tax-deferral system through IRAs, Congress provided for nontaxable rollovers of IRA distributions, by which taxpayers can transfer investments from one IRA to another without incurring tax liability.

When a taxpayer requests an IRA distribution, that distribution is nontaxable if the entire amount received, including money and any other property is paid into an IRA for the benefit of such individual not later than the 60th day after the day on which he receives the distribution.[6]

A taxpayer may also choose to roll over only a portion of the distribution, in which case only the portion that is contributed to another IRA within the 60-day rollover period qualifies as a nontaxable rollover contribution,[7] and the non-contributed portion must be included in income.[8]

Taxpayers are limited to one nontaxable rollover of an IRA distribution per one-year period, whether it be a full or partial rollover.[9]

Distributions of noncash property

If the distribution consists of noncash property, the taxpayer must contribute the exact same property in order for the distribution to be considered a nontaxable rollover contribution under section 408(d)(3)(A)(i).[10] In other words, the taxpayer cannot change the character of the noncash property.

Sonny’s Predicament

Caan held a partnership interest in an IRA with UBS serving as the IRA custodian.[11] As part of the UBS custodial agreement, UBS placed the responsibility with Caan to provide a year-end fair market value of the partnership.[12]

In 2015, Caan failed to provide UBS with the partnership’s 2014 year-end fair market value.[13] As a result, UBS refused to continue serving as the custodian of the partnership interest, and sent a letter to Caan notifying him of a distribution of the partnership Interest.[14] UBS then issued Caan a Form 1099–R – Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., which reported to the IRS a distribution of the partnership Interest using the 2013 year-end value as the value of the distribution.[15]

            Also in 2015, Caan’s financial advisor moved to Merrill Lynch and Caan transferred his IRAs to Merrill Lynch.[16] The partnership interest, however, was not eligible for electronic transfer, so Caan’s investment advisor at Merrill Lynch directed that the partnership be liquidated, and the cash sent to Caan’s Merrill Lynch IRA account.[17] Said liquidation and cash transfer did not occur until approximately a year from the time that UBS notified Caan of UBS’s distribution of the partnership interest.[18]

On his federal income tax return for tax year 2015, Caan reported a nontaxable distribution of his IRA.[19]

The IRS Commissioner disagreed with Caan’s position and determined an income tax deficiency of $779,915.00 for tax year 2015.[20] He filed a petition with the U.S. Tax Court for redetermination of his 2015 income tax deficiency.

Shortly before filing the Tax Court petition, Caan requested a private letter ruling from the IRS granting him a waiver of the 60-day period for rollovers of IRA distributions.[21] The IRS denied that request on the grounds that Caan did not meet the “same property” requirement.[22] In other words, regardless of the timing of the rollover, Caan’s liquidation of the partnership interest and contribution of the cash to the Merrill Lynch IRA did not comply with the “same property” requirement. As such, it was not a nontaxable rollover.

            The Tax Court sided with the IRS, holding that the partnership interest was distributed in 2015 to Caan, and that Caan did not contribute the partnership interest in a manner that would qualify as a nontaxable rollover contribution under section 408(d)(3) because he changed the character of the property when the partnership interest was liquidated prior to rolling over the property to his new IRA.[23]

Takeaway

            When a client holds nontraditional or alternative assets in an IRA, the IRA should be reviewed yearly, and any actions involving rolling over such assets to a different custodian must be taken with care.