MPT-1

American Electric v. Wuhan Precision Parts

FILE

Memorandum to Examinee

Email from Shao Wen “William” Li to Alexandra Carlton

Order entering default judgment

LIBRARY

Excerpts from the Federal Rules of Civil Procedure

Pennsylvania Coal Co. v. Bulgaria Trading & Transport Co., Ltd., United States District Court for the District of Olympia (2001)

EduQuest Digital Corp. v. Galaxy Productions Inc., United States District Court for the District of Columbia (2005)

FILE

ATKINSON & CARLTON LLP

Attorneys at Law

3 Civic Center Plaza

Franklin City, Franklin 33812

To:          Examinee

From:    Alexandra Carlton

Date:     July 30, 2019

Re:         American Electric v. Wuhan Precision Parts Ltd.

Our client Wuhan Precision Parts Ltd. (WPP), a Chinese manufacturing company, seeks help in vacating a federal default judgment entered by the U.S. District Court for the District of Franklin. These court proceedings arise from an earlier arbitration between American Electric Distribution Inc. (AE) and WPP, which took place in Franklin.

WPP lost the arbitration and has paid the bulk of the monetary relief awarded to AE by the arbitrators. But because WPP did not fully comply with the arbitrators’ award, AE filed a complaint in federal court to “confirm” or convert the award into a court judgment. Before WPP appreciated what was happening in federal court, AE obtained a default judgment (which converted the arbitration award into a federal court judgment) and was awarded an additional $90,000 in attorney’s fees tied to the court proceedings.

WPP accepts the arbitration award but contests the court’s default judgment. WPP contends that it was not properly served in the federal court action in accordance with the international service of process provisions of the Hague Convention. WPP has asked us whether the default judgment can be vacated.

The Hague Convention is a treaty to which both the United States and China are signatories. It calls for service through governmental channels. However, we expect AE to argue that WPP waived its Hague Convention service protections by agreeing to arbitrate these claims in Franklin, and that WPP should not be able to complain because it received sufficient notice of the Franklin district court proceedings.

The issues presented are ones of first impression in our federal district court of Franklin; however, federal courts in our neighboring districts of Olympia and Columbia have addressed the question, albeit in different ways. Those decisions are attached.

Draft a memorandum to me analyzing the following issues:

1. Will WPP succeed in vacating the default judgment due to improper service under the Federal Rules of Civil Procedure and the Hague Convention? Discuss both the facts that support WPP’s motion to vacate and those that undermine it.
2. Are there any grounds to challenge the attorney’s fee award?

Your memorandum should focus on the service of process and fee issues. Do not include a separate statement of facts but be sure to integrate the facts into your analysis. Do not address personal jurisdiction. Another lawyer at our firm is assessing WPP’s contacts with Franklin and whether the district court has personal jurisdiction over WPP.

Email from Shao Wen “William” Li to Alexandra Carlton

From:                    William Li (w.li@wuhanprecisionparts.com)

Sent:                     Tuesday, July 23, 2019, 10:24 p.m.

To:                          Alexandra Carlton (acarlton@aclaw.com)

Subject:               American Electric judgment

Dear Alexandra,

We at WPP very much appreciated the chance to speak with you by Skype yesterday afternoon about our legal problem. As we discussed, the law firm we hired to handle the arbitration ended its work at our request after the arbitration award was issued. We’re glad you represent us now.

WPP operates in Wuhan, an industrial city and a principal transportation hub in central China. We do not have offices, registered agents, or employees in the United States. WPP manufactures gear motors for dishwashers designed and assembled by American Electric (AE) for subsequent sale by U.S. Clean Corporation (USCC). AE is based in Franklin.

Here’s the chronology of events:

2014 Supplier Agreement: In 2014, USCC asked AE for assurance that replacement gear motors would be available for use in repairing the dishwashers when necessary. Based on that request, on September 21, 2014, WPP and AE entered into a supplier agreement whereby AE authorized WPP to sell replacement gear motors directly to USCC on condition that WPP pay AE a royalty of $50 for each gear motor sold. As part of the supplier agreement, we agreed to arbitrate any dispute in Franklin.

2017 Arbitration: In 2017, AE took us to arbitration, claiming that we had deliberately shipped different motors from the ones that we had agreed to provide in the supplier agreement. AE also claimed that we had sold 900 more replacement motors to USCC than we had reported to AE and therefore owed AE additional royalties. Even though the arbitrators ruled against us, AE did not get all it wanted. The arbitrators decided that we owed $500,000 for shipping nonconforming motors and only $25,000 for unpaid royalties on 500 of the replacement motors we sold directly to USCC. The arbitrators also ordered us to pay AE’s attorney’s fees in the amount of $110,000.

WPP Partial Payments on the Arbitration Award: After the arbitrators issued their award on December 15, 2017, WPP promptly paid half of the $500,000 damages award for the breach of contract claim on the motors. We have not yet paid the $25,000 award for unpaid royalties or the $110,000 attorney’s fee award. We have had to delay payment due to an economic downturn resulting in foreign exchange and cash flow problems.

June 14, 2019 District Court Default Judgment: Our biggest problem is that because we had not fully complied with the arbitration award, a U.S. court has entered a judgment against us that now includes an additional $90,000 in attorney’s fees for the court process over and above the $110,000 in fees awarded by the arbitrators. We do not see how additional attorney’s fees could be awarded. Here’s what we know:

• November 2, 2018 – AE Email of Summons and Complaint: From what you have told us, on November 2, 2018, an email attaching the summons and complaint to enforce the arbitration award was sent to our Vice President of Manufacturing, who had been our designated point of contact during the arbitration. We also understand from you that AE attempted to serve the summons and complaint through Chinese government channels. We did not receive anything from the Chinese government.
• VP Quits on November 9, 2018: We checked, and the VP quit on November 9, 2018. He did not forward the email or notify anyone about it. Just so you know, although the arbitration communications were by email, we normally do business with AE by fax and phone.
• March 8, 2019 – AE Mailing of Default Motion: We now know that AE put its motion for default judgment in the mail to us in March (return receipt requested), thinking mail service was okay because the summons and complaint had been “served” back on November 2, 2018.
• April 15, 2019 – WPP Actually Receives Motion: We did not receive AE’s motion for default judgment until April 15, 2019, because the Wuhan government post office delayed delivery. In addition, the motion papers were in English, and following our company policy, they were sent to our in-house translation department. Once we translated them into Mandarin Chinese, we realized that we needed to contact you. Then we learned from you that the court had already entered a judgment against us.
• June 14, 2019 – Court Orders Entry of Default Judgment: The court’s order entering the default judgment mentions that AE attempted formal service under the Hague Convention by delivering the summons and complaint to the Chinese government. All we know is that we did not receive the summons and complaint, or any other legal documents, through government channels.

We need your help. The court entered a judgment without our knowledge. We are especially concerned with the additional $90,000 in attorney’s fees. If AE or its lawyers had called us, or used a fax machine, all of this could have been avoided.

Please know that we can pay your bill. Even though we have had some cash flow problems, we have had substantial profits in recent years and have paid a number of much larger judgments entered against WPP.

We appreciate your help.

Thank you,

Shao Wen “William” Li

Director of International Sales

1. JUDGMENT

   Wuhan Precision Parts Ltd.,                       

                                   Defendant/Respondent.                                                              Civil No. 13-199-SJK

                   Plaintiff American Electric Distribution Inc. (AE) petitions for confirmation of an arbitration award and subsequently moves for an award of $90,000 to cover the attorney’s fees it incurred in pursuing relief before this court. AE is represented by Alan Richetti of Richetti & Hamill. Wuhan Precision Parts Ltd. (WPP) has made no appearance before this court in this matter.

   The September 21, 2014 Supplier Agreement

   This court proceeding arises from a Supplier Agreement (“Agreement”) effective as of September 21, 2014, between AE and WPP. It reads in relevant part:

   7. Attorney’s Fees. In the event of breach, the prevailing party shall be entitled to recover its costs and expenses (including reasonable attorney’s fees) incurred to enforce the terms of this Agreement.

   8. Arbitration. Any controversy or claim arising out of or relating to this Agreement or the breach, termination, or validity thereof shall be settled by arbitration carried on in the English language, using three arbitrators selected as detailed in Paragraph 9 below, and shall be held in Franklin City, Franklin, U.S.A. Judgment upon the award rendered by the arbitration panel may be entered by any court having jurisdiction thereof.

   December 15, 2017 Arbitration Award

   A dispute arose, with AE eventually taking WPP to arbitration before an arbitration panel of the Franklin Center for International Dispute Resolution. The panel awarded AE the following:

   First, due to WPP’s sale of nonconforming motors, an award of damages of $500,000.

   Second, due to WPP’s failure to properly account for its replacement motor sales to U.S. Clean Corporation, the panel concluded that WPP owed back royalties on the sale of 500 replacement motors, resulting in an additional award of $25,000.

1. Confirming the arbitration award of December 15, 2017, with the arbitration relief now converted to a judgment of this court; and

2. An additional award of $90,000 in attorney’s fees.

Dated: June 14, 2019 :

                                                                                                Georgia York
                                                                                                                United States District Judge

LIBRARY

EXCERPTS FROM THE FEDERAL RULES OF CIVIL PROCEDURE

Rule 4 [Summons and Complaint]

. . .

(f) Serving an Individual in a Foreign Country. Unless federal law provides otherwise, an individual—other than a minor, an incompetent person, or a person whose waiver has been filed—may be served at a place not within any judicial district of the United States

(1) by any internationally agreed means of service that is reasonably calculated to give notice, such as those authorized by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents;

 . . .

(h) Serving a Corporation, Partnership, or Association. Unless federal law provides otherwise or the defendant’s waiver has been filed, a domestic or foreign corporation . . . must be served . . .

(2) at a place not within any judicial district of the United States, in any manner prescribed by Rule 4(f) for serving an individual, except personal delivery . . . .

Rule 5 [Post-Complaint Pleadings]

(a) Service: When Required . . . .

(2) If a Party Fails to Appear. No service is required on a party who is in default for failing to appear. But a [subsequent] pleading that asserts a new claim for relief against such a party must be served on that party under Rule 4.

Pennsylvania Coal Co. v. Bulgaria Trading & Transport Co., Ltd.

United States District Court for the District of Olympia (2001)

                Before the court is the motion of defendant Bulgaria Trading & Transport Co., Ltd. (BTT) to vacate a default judgment. BTT makes a limited appearance, arguing that it had not been properly served under the Hague Convention and therefore the default judgment is void for lack of proper service.

Background

                Plaintiff Pennsylvania Coal Co. (Penn Coal) contracted for the sale of used coal processing equipment to BTT, a trading company headquartered in Sofia, Bulgaria. The parties agreed to arbitration of all disputes in San Andrea, Olympia.

After a contentious and prolonged arbitration proceeding, the arbitrators awarded Penn Coal $4.5 million due to BTT’s refusal to take delivery of approximately half of the equipment it had purchased. The panel also awarded $300,000 in attorney’s fees to Penn Coal pursuant to a term of the contract providing for the award of attorney’s fees to the prevailing party.

BTT refused all requests by Penn Coal for payment of the $4.8 million award. Penn Coal has presented evidence that BTT has since moved assets and has persisted in its contention that the Penn Coal equipment proved defective, notwithstanding the arbitration ruling to the contrary.

Penn Coal petitioned this court to confirm the award. When a court confirms an arbitration award, the arbitration award becomes a court judgment. In this way, a plaintiff can benefit from all the collection tools flowing from a court judgment. To confirm an arbitration award, the plaintiff files a complaint (or petition) in federal court and serves the defendant with a summons and complaint.

Penn Coal attempted formal Hague Convention service by delivering its pleadings to the appropriate Bulgarian governmental authority, but all subsequent governmental efforts to serve BTT were unsuccessful. Undaunted, Penn Coal took it upon itself to personally serve the summons and complaint at BTT’s headquarters in Sofia, Bulgaria. Penn Coal also arranged for delivery through government postal channels (return receipt received), and it emailed a copy of the complaint to the BTT executive who had entered into the Penn Coal contract, using the same email address the parties had agreed to use for the arbitration proceeding.

Because BTT did not respond to Penn Coal’s complaint or otherwise object over the nine months that followed, Penn Coal moved for, and this court granted, a default judgment for $4.8 million as awarded by the arbitrators, plus an additional $75,000 in attorney’s fees tied to this proceeding.

Three weeks after this court issued its judgment, BTT appeared before this court to vacate that judgment. BTT acknowledges Penn Coal’s evidence that BTT received actual notice but insists that the judgment is void because Penn Coal did not serve BTT in compliance with the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents (Hague Convention). The Hague Convention requires service upon a governmental authority, which in turn will effectuate service upon its own citizens and entities such as BTT. BTT challenges the fees awarded on the same basis.

Service Abroad Under the Hague Convention and Federal Rules of Civil Procedure

The Federal Rules of Civil Procedure state that service on international parties must occur in compliance with the Hague Convention. See Fed. R. Civ. P. 4(f)(1). Both Bulgaria and the United States are parties to the Hague Convention. Formal Hague Convention service calls for service by the Bulgarian authorities upon BTT. Penn Coal did not properly serve BTT under the Hague Convention. BTT relies on case law holding that if a party was never properly served, subsequent judgments founded upon that improper service are void and must be vacated. See, e.g., In re Int’l Media Services Inc. (15th Cir. 1998) (civil litigation, not arbitration).

The Enforcement of Arbitration Awards

Our circuit court has held that entry into an agreement to arbitrate in a particular jurisdiction constitutes consent to personal jurisdiction and to venue. Auto Dealers Ass’n v. Pearson (15th Cir. 1996). However, it is an issue of first impression as to whether a consent to arbitrate in Olympia also relaxes the service of process requirements of the Hague Convention. When a foreign corporation, such as BTT, agrees to participate in an arbitration proceeding in the United States, it cannot expect that it can consent to an Olympia arbitration, participate in it, and then, in the event that it loses, seek refuge in the protections of the Hague Convention to avoid facing any consequences in Olympia. At the same time, this court recognizes that judicial proceedings are different from arbitration proceedings and that the expectation of parties to an arbitration must be balanced against the right of fair notice.

The service-related provisions of the Federal Arbitration Act (FAA) do not resolve the issue. Given this silence, this court will follow the line of authority holding that in cases arising from arbitration proceedings, defects in service of process may be excused where considerations of fairness so require. Where parties have consented to arbitration, actual notice of the proceedings can be sufficient as long as it is fair and no injustice results.

This court acknowledges the Supreme Court’s admonition that compliance with the Hague Convention is “mandatory in all cases to which it applies.” Volkswagonwerk AG v. Schlunk, 486 U.S. 694, 705 (1988). Here, however, Penn Coal tried in good faith to comply by delivering its pleadings to the Bulgarian authorities. More fundamentally, BTT consented to, and then participated in, an Olympia arbitration pursuant to an agreement contemplating the award’s confirmation in court. In that circumstance, strict adherence to the Hague Convention is not required; actual notice and fairness are the standards. The Hague Convention is not designed to be a roadblock to those who act in good faith.

We now assess the fairness of the notice in this case. BTT clearly received notice, albeit without involvement of the Bulgarian government as the Hague Convention provides. Personal service and U.S. mail service are recognized forms of service under the Federal Rules of Civil Procedure. While email service is not typically authorized, it is the means by which the parties communicated during the arbitration. In this case, service via email was a reliable means of delivering the complaint to BTT and was reasonably calculated to give BTT actual notice. Finally, the lengths to which BTT went to evade its contract obligations and avoid accountability for the arbitrators’ award cannot be rewarded. The manner in which BTT conducted its business (e.g., moving assets that could have been used to satisfy the arbitration award and claiming that Penn Coal’s equipment was defective) is highly relevant and must be considered. Also, given that BTT has expressed no difficulty in comprehending the English-language documents arising from an American arbitration conducted in English, and given that BTT failed to appear in the nine months preceding this court’s judgment, justice requires that this court affirm its earlier judgment confirming the arbitration award. On these facts, the actual notice given was fair.

Attorney’s Fees

Even though the court grants the default judgment, the court agrees with BTT that Penn Coal’s request for attorney’s fees for these court proceedings is on a different footing. The additional $75,000 in attorney’s fees is not referenced in the summons and complaint. Accordingly, the court will relieve BTT from the $75,000 attorney’s fee judgment.

There are two reasons for denying attorney’s fees in this subsequent court action. First, unlike the confirmation of the arbitration award, the request for fees for litigating before this court is a “new claim for relief.” A new claim requires service that complies with the Federal Rules of Civil Procedure and the Hague Convention. See Fed. R. Civ. P. 5(a)(2). Under the Hague Convention, the party raising a new claim must deliver a copy of that claim to the foreign governing authority, which will then deliver it in accordance with local judicial process. Penn Coal did not follow that procedure.

A second and independent ground for denying attorney’s fees centers on the role of the arbitration panel versus that of the court. While the FAA contemplates that arbitral parties can turn to courts to confirm the awards themselves, courts are careful to defer all substantive decisions to the arbitrators. Here, the contract between Penn Coal and BTT allows for the prevailing party to obtain attorney’s fees but contains no reference to judicial remedies in that regard. Accordingly, Penn Coal’s fee request is one that it must pursue by returning to arbitration. That conclusion is especially appropriate given that this court employed “fairness” principles when upholding the judgment confirming the arbitration award. Those principles cannot be used by Penn Coal to open the door to claims, like requests for attorney’s fees, that were not previously raised with the arbitrators.

Accordingly, BTT’s motion to vacate this court’s earlier default judgment is DENIED as to the $4.8 million arbitration award but GRANTED as to this court’s judgment for $75,000 in attorney’s fees.

EduQuest Digital Corp. v. Galaxy Productions Inc.

United States District Court for the District of Columbia (2005)

                Before the court is the petition of EduQuest Digital Corporation (EQ) to confirm a 2003 arbitration award and grant its subsequent motion for an award of attorney’s fees tied to this judicial proceeding.

Procedural History

EQ designs educational games and licenses those products for resale by companies across the globe. Galaxy Productions Inc. (Galaxy) is based in Beijing, China. It entered into a licensing contract with EQ covering 422 of EQ’s products and authorizing their resale over a five-year period from 2000 through 2004. In the event of breach, the licensing contract called for arbitration in Center City, Columbia. The contract provided that any prevailing party was entitled to attorney’s fees. It also stated that “judgment upon the award rendered by the arbitration panel may be entered by any court having jurisdiction thereof.”

The arbitrators, after taking 16 days of testimony, concluded that Galaxy had breached its licensing agreement with EQ by failing to remit all licensing fees for products it sold in China, and that Galaxy’s sale of counterfeit copies of EQ’s games warranted an additional award of lost profits of $750,000. The arbitrators awarded $225,000 in attorney’s fees to EQ and directed that Galaxy submit semi-annual reports of all of its licensed sales.

Facing Galaxy’s noncompliance with the arbitration award, EQ petitioned this court to convert its arbitration decision into a judgment that it can enforce. EQ initiated formal service following the Hague Convention and provisions of the Federal Rules of Civil Procedure. When Chinese entities are involved, the Hague Convention requires that the serving party translate the documents into Mandarin Chinese and deliver the documents to the Chinese Central Authority, which will effectuate service through its provincial courts. EQ fulfilled its responsibilities. However, after hearing nothing from the Chinese government, EQ opted for self-help via a combination of service by personal delivery upon a Beijing agent of Galaxy and service by international mail, return receipt requested. In light of that, EQ asks this court to deem service to have been proper.

Despite EQ’s efforts at service, Galaxy failed to respond to EQ’s initial petition to confirm the award. EQ seeks attorney’s fees and costs of $95,000 tied to these judicial proceedings. EQ’s motion for attorney’s fees was served by personal delivery and international mail, return receipt confirmed.

Galaxy made a limited appearance that the court agreed would not waive Galaxy’s jurisdictional objection. Galaxy appeared after receiving the fee-related motion. Galaxy challenges this court’s jurisdiction, arguing that a federal court lacks jurisdiction if a defendant is improperly served, in this case pursuant to the formal governmental service provisions of the Hague Convention.

Confirmation of the Arbitration Award

The Federal Arbitration Act governs the service of petitions to confirm arbitration awards. However, that statute does not provide a method of service for a foreign party who is not a resident of any district in the United States. Some courts, facing circumstances different from those presented here, turn to principles of “fairness” to excuse defects in service of process in cases arising from arbitration proceedings. See, e.g., Penn. Coal Co. v. Bulgaria Trading & Transport Co., Ltd. (D. Olympia 2001) (evidence of evasion). The focus tends to be on the good faith of the underlying business conduct, as well as the reasonableness of the notice. There is sufficient evidence here of the counterfeiting of intellectual property and deliberate noncompliance with the arbitration award. From this court’s perspective, however, the “fairness” standard of Penn Coal, which balances the equities, is too loose to serve as a guide as to when courts can excuse noncompliance with the Hague Convention and Federal Rule of Civil Procedure 4 when confirming arbitration awards.

For this court, at least on these facts, the better rationale is that by agreeing to arbitrate in Columbia and participating in those proceedings, the parties to the underlying contract agreed to the provision allowing court judgments to be entered. This serves as a “deemed waiver” of formal Hague Convention service in connection with confirmation of an arbitration award. Put another way, this court reads the parties’ contract as consenting to service by actual notice that satisfies the general principles of due process and the Federal Rules, rather than the strict formality of the Hague Convention—at least in cases where the arbitration takes place in the jurisdiction contemplated in the parties’ agreement. Under this analysis, Galaxy’s post-award conduct is irrelevant. This court finds that by agreeing to arbitrate, Galaxy is deemed to have waived the right it possesses to formal service. The actual notice Galaxy received here was reasonable and sufficient.

Galaxy objects strongly to the court’s “deemed waiver” analysis. It contends that such an approach eviscerates the Hague Convention protections for all arbitrated matters and opens the door to uninvited judicial proceedings. This court does not intend its holding to be so broad. Here, EQ attempted formal Hague Convention service in good faith. In at least those circumstances, the “deemed waiver” approach should be available to protect good-faith litigants like EQ.

Attorney’s Fees

While this court does not adopt the “fairness” approach used in the District of Olympia pursuant to Penn Coal to assess proper service requirements to confirm arbitration awards against foreign parties, this court does agree with the reasoning of the Penn Coal court as to attorney’s fees. The fee request is a “new claim for relief,” and Rule 5(a)(2) requires formal government service under the Hague Convention. Accordingly, this court will deny EQ’s motion for an award of attorney’s fees.

EduQuest’s petition to confirm the arbitration award is hereby GRANTED, and its motion for attorney’s fees is DENIED.

Sample Answer

MEMORANDUM

TO:                Alexandra Carlton

FROM:          Examinee 

DATE:           July 30, 2019 

Re:            American Electric v. Wuhan Precision Parts Ltd. 

Wuhan Precision Parts Ltd may be able to vacate the default judgment due to improper service 

Under Federal Rule of Civil Procedure 4(f)(1), service on an international party must occur in compliance with the Hague Convention. Here, both China and the United States are parties to the Hague Convention. Formal Hague Convention service calls for service by the Chinese authorities upon the defendant. Even though the issues presented in this dispute are issues of first impressions, federal courts in the neighboring districts of Olympia and Columbia have dealt with similar issues. The determination of whether Precision Parts Ltd (WPP) would be successful in challenging the default judgent due to improper service depends on whether the District of Franklin would follow the District of Olympia or the District of Columbia's approach. If the Franklin court followed the Disrict of Olympia approach, it would have a better chance of getting the deafult judgment vacated than if the court followed the District of Columbia approach. 

District of Olympia Approach 

In the District of Olympia, the court follows a "fairness" approach. In Pennsylvania Coal Co ("Penn Coal"), the case involved the same issue that is presented in our case, whether the court should vacate the default judgment. In Penn Coal, the court held that the defendant's motion to vacate the default judgment was denied, however, the facts are distinguishable from our case. 

In Penn Coal, the defendant attempted formal Hague COnvention service by delivering its pleadings to the appropriate Bulgarian government authority. However, all subsequent governmental efforts to serve teh defendant were unsuccesffuly. Instead, the plaintiff personally served the summons and complaint at the defendant's headquarters in Bulgaria. Also, the plaintiff arranged for delivery through government postal channels and also emailed a copy of the complaint to an executive of the defendant who had entered into the contract with the plaintiff, using the same email address that the parties agreed to use for the arbitration proceeding.

In Penn Coal, the court noted that the issue of whether consent to arbitrate in Olympia also relaxes the service of process requirements of the Hague Convention was an issue of first impression. The court noted that when a foreign corporation agrees to participate in an arbitration proceeding in the United States, it cannot expect that it can consent to an Olympia arbitration, participate in it, and then, in teh event that it loses, seek refuge in the protections of the Hague Convention to avoid facing any consequences in Olympia. On the other hand, the court noted that judifical proceedings are differnet from arbitration proceedings and the expectation of the parties to an aribtration must be balanced against the right of fair notice. The court noted that defects in service of process may be excused where consideations of fairness so require. Where parties have consented to arbitration, actual notice of the proceedings can be sufficeint so long as it is fair and no injustice requires. The court conceded that in Volkswagonwek AG, the Supreme Court has held that compliance with the Hague COnvention is "mandatory in all cases to which it applies." Nonetheless, the court pointed out that the plaintiff in Penn Coal attempted in good faith to comply by delievring its pleadings to the Bulgarian authorities. Further, the defendant consented to and partipcaited in an Olympia arbitration pursuant to an agreement contemplating the award's confirmation in court. In the circumstances of Penn Coal, the court found that strict compliance with the Hague Convention is not mandatory. Instead, actual notice and fariness are the standards. The court went as far as noting that the Hague Convention is not designed to be a roadblock to parties that act in good faith. Under the facts of Penn Coal, the Court found that even though there was no involvement from the Bulgarian government, the defendant still received notice. The court found that even though the service was through email, this was acceptable since email was the form of communiation that the parties used during the arbitration. Therefore, the service by email was reaosnably calucated to give the defendnat actual notice. The court also pointed out that the defendant's evasive behavior cannot be overlooked. The court found that the fact that defendant went to great lengths to evade its contract obligations and avoid accountability for the arbitrators' award was "highly relevant" and could not be ignored. 

The facts of our case are greatly distinguiable from Penn Coal. In our case, it is true that WPP agreed in the supplier agreement that any controversey or claim arising out of or relating to the agreement would be settled by arbitration to be held in Franklin City, Franklin. Also, the supplier agreement stated that judgent upon the award rendered by the arbitration panel may be entered by any court having jurisdiction thereof. However, it is not true that WPP is attempting to seek refuge in the protections of the Hague Convention to avoid facing any consequences in Franklin. In our case, a court may find that under the considerations of fairness, there was no actual notice given to WPP. A court may find that American Electric ("AE") acted in good faith when it sent an email with the summons and complaint to enforce the arbitration award to the VIce President of Manufactuering since he was the person who was the point of contract during the arbitration. However, the court woudl also consider the fact that in fairness, the Vice President quit and did not forward the email or notify anyone about it before the left the job. Also, the court woudl likely consider the fact that AE attempted to serve the summons and complaint through Chinese government channels. However, the court would also consider the fact that it never received anything from the Chinese government. The court woudl also likely consider the fact that even though arbitration communications were sent by email, WPP typically conducted business with AE via fax and phone. Therefore, the court may have been more likely to view the email with the summons and complaint in favor of AE if it had sent it through fax, which was the typical form of communciation between the parties. Further, the court would certainly consider the fact that unlike Penn Coal, WPP paid almost half of its obligation of the damage award under the arbitration award. Even though WPP did not pay the attorneys fee award or the $25,000 award for unpaid royalities or the other hald of the $500,000 damages award, this is distinguishable from the facts of PEnn Coal. in Penn Coal, the defendant did not pay any portion of the award. In fact, the defendnat moved its assets in an effort to avoid complying with the judgment. In our case, the court would consider the fact that the reason that WPP did not pay the other portion of the arbiration award was because of an economic downturn and not because of ill will or spite towards AE. In our case, WPP never received the summons and complaint to enforce the arbitation award. The only notice it ever received was when it reveived the the motion for default judgment, which was received months after the inital summons and compalint were attempted to be served.  When considering the fairness of the situation, if the court followed the approach that Olympia took in Penn Coal, a court in Franklin would likelyl vacate the default judgment. 

District of Columbia Approach

If the Franklin court followed the approach taken in the District of Columiba, then WPP would likely not be successful in vacating the default judgment. In EduQuest Digital Corp ("EQ"), the court rejected the Penn Coal fairness standard. The court noted that the "fairness" standard of Penn Coal is too loose to serve as a guide as to when courts can excuse noncompliance with the Hague Convention and Federal Rule of Civli Procedrure 4 when confirming arbitration awards. The court noted that the better approach is that by agreeing to arbitrate in Columbia and participating in those proceedings, the parties to the underlying contract agreed to the provision alowing court judgments to be entered. The court noted that this serves as a "deemed waiver" of formal Hague Convention service in connection with confirmation of an arbitration award. In other words, the court noted that the parties agreement is viewed as consenting to service by acutal notice that satisfies the general pricniples of due process and the Fedearl Rules, rather than teh strict formality of the Hague COnvention, at least in cases where teh arbitration trakes place in the jurisdiction contemplated in teh parties agreement. The court held that by agreeing to arbitrate, the defenadnt was deemed to have waived the right it possessed to formal service. The court found that teh notice that the defandnt received was reasonable and sufficent. 

Under the District of Columbia's approach, the court would likely find that there was a "deemed waiver" of formal Hague COnvention service in connection with confirmation of an arbitration award. The court would likely look to the supplier agreement provision where it states "any controversey or claim arising out of or relating to this Agreement or the breach, termination, or validity thereof shall be settled by arbitration . . . and shall be held in Franklin City, Franklin U.S.A. Judgment upon the award rendered by the arbitration panel may be entered by any court having jurisdiction thereof." The court would likely find that WPP waived formal Hague COnvention service and that WPP received was reasonable here. The court would likely find that AE sent notice via email and also attempted to serve process trough the Chinese government, which was reaonsable and sufficient enough. It should also be noted that yn EQ, the court pointed out that when Chinese entites are involved, the Hague Convention requires that the serving party translate the documents into Mandarian Chinese and deliver the documents to the Chinese Central Authority, which will effecutate service through its provincial courts. HOwever, the fact that AE did not translate the documents into Mandarian Chinese and instead they were in English would likely be immaterial from the court's perspective. Rather, the court would be more focused on the agreement to arbitrate the diputes in Franklin and allowing court judgments to be entered.  

In sum, depending on whether the court followed the reasoning of the Olympia or Columbia court, would be outcome determiniative here. If the court followed the reasoning of the Olymipia court, WPP has a much better chance at being successul in vacating the default judgment than if the court followed the reasoning of the Columia court where WPP's chances at success are quite low.  

Wuhan can likely challenge the award of attorney's fees 

Regardless of whether the court took an approach similar to that of Olymipia or Columbia, the court in Franklin would likely deny AE's claim for additional attorney's fees. In EU, the court held that the plaintiff's requires for attorneys fees was a "new claim for relief" and Federal RUle of Federal PRocedure 5(a)(2) requires formal government service under the Hague COnvention. In our case, AE could not dispute the fact that it did not use formal government service under the HAgue COnvention as detailed above since it did not translate the documents into Mandarian Chinese and deliver them though the Chiense Central Authority, which would effectuate service through its provinical courts. Here, the documents were in English and even though they were delivered through Chinese government channels, the documents were never delivered to WPP. 

In Penn Coal, the court applied the same reasoning and found that the plaintiff was not entitled to the award of additional attorney's fees. Just as in EU, the court found that the request for attorney's fees was a "new claim for relief" and therefore service must comply with Fedearl Rule of Civil Procedure 5(a)(2). Also, the court found that the award of additional attorney's fees was not appropatite because the plaintiff was not before the apprraite forum in making this request. In other words, the plaintiff should request the additional fees from the arbitrators and not the court. In sum, a court would likely find that Wuhan is not required to pay the additional attorney fees of $90,000. 

Sample Answer

To: Alexandra Carlton

From: Examinee

Date: July 30, 2019

Re: American Electric v. Wuhan Precision Parts Ltd. 

You had asked me to prepare a memo addressing (1) whether Wuhan Precision Parts Ltd. (WPP) will succeed in vacating the default judgment against it due to improper service under the Federal Rules of Civil Procedure and the Hague Convention and (2) whether there are any grounds to challenge the attorney fees award that was included in the District Court's default judgment. Please find my assessment below. 

I. Service on WPP

The issue is whether WPP will succeed in vacating AE's default judgment due to improper service under the FRCP and the Hague Convention. 

Under the FRCP, service on international parties must occur in compliance with the Hague Convention. FRCP 4(f) provides, "Unless federal law provides otherwise, an individual...may be served at a place not within any judicial distriction of the United States (1) by any internationally agreed means of service that is reasonably calculated to give notice, such as those atuhorized by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents." Formal Hague Covention service calls for service by foreign authorities on the foreign party. Penn. Coal Co. The United States Supreme Court has held that compliance with the Hague Convention is "mandatory in all cases to which it applies." Volkswagonwerk AG. When Chinese entities are involved, the Hague Convention requires that the serving party translate the documents into Mandarin Chinese and deliver the documents to the Chinese Central Authority, which will effectuate service through its provincial courts. EduQuest. 

The Federal Arbitration Act governs the service of petitions to confirm arbitration awards. EduQuest. However, that statute does not provide a method of service for a foreign party who is not a resident of the United States. Id. While this is a matter of first impression in the Franklin courts, the Olympia and Columbia courts have taken two different approaches to resolve the issue. Olympia considers the good faith of the parties and any injustice that will result. Columbia looks to the parties' contract for a "deemed waiver" of formal Hague Convention service. 

A. Olympia's Fairness Approach

The District Court of Olympia, persuasive authority, has held that where a foreign company has consented to arbitration in the United States, subsequent defects in service of process may be excused where considerations of fairness so require. Penn. Coal Co. Where parties have consented to arbitration, actual notice of the proceedings can be sufficient as long as it is fair and no injustice results. Id. Thus, the Olympia court provided that where a domestic corporation has tried in good faith to comply with the Hague Convention, and where the foreign corporation has consented to and participated in domestic arbitration, "strict adherence to the Hague Convention is not required; actual notice and fairness are the standards." 

In considering fairness, the Olympia court considered (1) whether the foreign party had received actual notice, (2) whether the foreign party was served via means by which the parties had communicated during their course of business and the arbitration, (3) the lengths to which the foreign party went to avoid its obligations under the arbitration award, (4) whether the foreign party had any difficulty in comprehending the English language, and (5) the foreign party's failure to appear despite any actual notice. 

If the Franklin Court adopts Olympia's approach, it will consider the factors above for an overall balancing over fairness and justice. Here, AE sent WPP's vice president an email with the summons and complaint. The VP had been the designated point of contact during arbitration. WPP will be able to show that while its VP received an email with the summons and complaint on November 2, 2018, he quit on November 9, 2018. He did not forward the email or notify anyone else of the suit. WPP will also be able to show that it never received any notification from the Chinese government. It did not receive actual notice until April 15, 2019, and had to have the papers translated into Mandarin Chinese. 

As to the second factor, WPP admits that the arbitration communications were made through email. However, they normally did business with AE by fax or phone, and Mr. Li has suggested that the entire issue could have been avoided had AE contacted them by fax or phone. 

WPP will be able to show that it has largely cooperated with the arbitration award. It promptly paid $250,000 of the $500,000 damages award. While it has not yet paid the $25,000 for unpaid royalties of $110,000 attorney's fee award, it has had to delay payment due to an economic downturn resulting in foreign exchange and cash flow problems. WPP will also be able to its general good faith in dealing with AE; it has not acted dishonestly and has made good faith efforts to resolve the dispute. 

WPP did have to have the documents translated into Mandarin, but the default judgment notes that the pleadings were short and straightforward. AE also established that WPP regularly conduct its international business in English, including the arbitration proceedings. 

WPP did fail to appear at the hearing on June 14, 2019, despite having received the documents on April 15, 2019. WPP will have to rely on the fact that it needed to have the papers translated into Mandarin and retain counsel, but a court may be skeptical of its lack of notice because of WPP's afforementioned regular use of English. 

If the court applies Olympia's approach, WPP will be able to argue that enforcing AE's improper service would be unfair and unjust. 

B. Columbia's Contract Approach

The District Court of Columbia, also persuasive authority, has held that by agreeing to arbitrate in a domestic jurisdiction and participating in those proceedings, the parties to the underlying contract agreed to any provisions allowing court judgments to be entered. EduQuest. Such an agreement services as a "deemed waiver" of formal Hague Convention service in connection with the arbitration award. Id. The Columbia court held that such a waiver consents to service by actual notice that generally satisfies due process and the FRCP, so long as the arbitration took place in the jurisdiction contemplated by the parties in the contract. Id. The Court further qualified its decision by stating that formal Hague Convention service must still be attempted in good faith. Id. 

Here, WPP agreed to a provision very similar to the one at issue in EduQuest; the provision specifically states that "judgment upon the award rendered by the arbitration panel may be entered by any court having jurisdiction thereof." The parties did arbitrate in Franklin, the contemplated jurisdiction under the contract. It does seem that AE attempted formal service under the Hague Convention in good faith. 

If the court applies Columbia's approach, WPP will not be able to challenge the default award based on improper service. 

II. Attorney's Fees

The issue is whether there are any grounds to contest the attorney's fee award. 

A "new claim for relief" requires service that complies with the FRCP and the Hague Convention. FRCP 5(a)(2). Both the Olympia and Columbia courts agree that, unlike the confirmation of an arbitration award, a request for attroney's fees is a "new claim for relief." Penn. Coal Co, EduQuest. Under the Hague Convention, the party raising a new claim must deliver a copy of that claim to the foreign governing authority, which will then deliver it in accordance with local judicial process. Penn. Coal Co. 

While the Federal Arbitration Act (FAA) contemplates that arbitral parties can turn to courts to confirm an arbitration award itself, courts are careful to defer all substantive decisions to the arbitrator. Penn. Coal Co. Where a contract allows for the prevailing party to obtain attorney's fees but contains no reference to judicial remedies in that regard, the party seeking attorney's fees must pursue them by returning to arbitration. Penn. Coal Co. As the Olympia Court applied "fairness" principles when upholding a judgment confirming an arbitration award, it held that those same principles could not be used to open the door to claims, like requests for attorney's fees, that had not been previously raised with the arbitrators. The Columbia District Court subsequently agreed with and applied its Olympian counterpart's reasoning. EduQuest. 

WPP can contest the award of additional attorney's fees based on the reasoning adopted by both the Olympia and Columbia courts. Because both jurisdictions agree, the rulings will likely be highly persuasive in a Franklin court. Because the contract did not contemplate judicial remedies in regard to attorney's fees, the additional award of attorney's fees would be a "new claim for relief." AE would be required to re-attempt proper service, in good faith, under the Hague convention. WPP's ultimate actual notice would either have to satisfy the fairness test of Olympia, or the general due process requirement of Columbia. Of course, a Franklin court could elect to implement an entirely different test.

WPP will be able to contest the attorney's fee award based on the fact that it was a "new claim for relief" and required separate service. 

III. Conclusion

While this is an issue of first impression in the Franklin courts, WPP will be able to contest AE's service on the basis that unfairness and injustice will result if the finding of adequte service is upheld. WPP should argue for the court to adopt Olympia's approach, because a challenge would likely fail under Columbia's approach. Additionally, WPP may contest the attorney's fee award on the basis that a court judgment awarding attorney's fees was not contemplated in the parties' contract, and that AE is obligated to return to arbitration to obtain any further award of attorney's fees. 

                                                        Sincerely,

                                                            Examinee

MPT-2

Estate of Carl Rucker

FILE

Memorandum to Examinee

Transcript of client interview

Memorandum re: Appraisal

LIBRARY

Excerpt from Walker’s Treatise on Life Estates

In re Estate of Lindsay, Franklin Court of Appeal (2008)

Manford v. French, Franklin Court of Appeal (2011)

Buckman & Carraway

Attorneys at Law

240 West End Highway

Middleburg, Franklin 33905

MEMORANDUM

To:          Examinee

From:    Dana Carraway

Date:     July 30, 2019

Re:         Carl Rucker

                Carl Rucker has asked for our advice about the disposition of his property after his death. Mr. Rucker owns a house in Middleburg, which he has owned for nearly 45 years. He has two children by his first wife: Fred and Andrew. His first wife died 24 years ago. He remarried 18 years ago to his current wife, Sara Rucker.

                Mr. Rucker would like to arrange his affairs so that, if he dies first, Mrs. Rucker can live in the house for the rest of her life. He wants to make sure that the house passes to his two sons after her death. However, his current wife and his two sons do not get along. He expects that, if given the chance, his sons would try to remove Mrs. Rucker from the house if she were living in the house after his death. He also believes that, if she owned the house, Mrs. Rucker would          leave the house to a charity rather than to his sons. Mr. Rucker would like our advice about how to assure the result that he wants while minimizing the possibility of extended legal battles.

I’d like you to focus on two of the possible approaches that Mr. Rucker might consider:  (1) creating a life estate in the house for Mrs. Rucker while she is alive, with the remainder to his sons; and (2) contracting with his wife to write wills that leave the house to his sons after both he and Mrs. Rucker have died.

                Please prepare a memorandum for me that discusses the advantages and disadvantages of these two approaches. Make sure to discuss the impact, if any, on a surviving spouse’s elective share. Your memorandum should also include a recommendation as to which approach will better accomplish Mr. Rucker’s stated goals: (1) to assure that Mrs. Rucker can live in the house for the rest of her life, (2) to assure that his sons receive the house after she dies, and (3) to minimize the risk of litigation between them.

As you will see, the client does not want a trust; do not address that topic.

Transcript of client interview: Carl Rucker

July 17, 2019

Attorney Carraway:        Hello, Mr. Rucker. Thank you for coming today.

Carl Rucker: Thank you for making the time.

Attorney:            I understand that you want to talk about a will.

Rucker:               Well, yes, although I’m not sure it’s a will I want.

Attorney:            Tell me how I can help.

Rucker: To help you understand the situation, I have to tell you a little about my background. I’m 67 years old now, but I got married when I was 19. My first wife, Frances, was the same age, and we started a family right away. We had two boys within about three years.

Attorney:            What are their names?

Rucker: Fred is 47. And Andrew, or Andy, is 45. They’re both married. Fred has two kids of his own.

Attorney:            When your sons were born, did you live in Middleburg?

Rucker: Yes. I’ve lived in Middleburg my whole life. After Andy arrived, we bought the house that I live in now, on Cherry Tree Road.

Attorney:            I know that neighborhood. You say that only you live there. . . . Is Frances . . . ?

Rucker: Yes, she passed away the year Andy turned 21. Cancer.

Attorney:            I’m sorry.

Rucker: I was on my own for years after that. Then I met Sara. She was a receptionist at my doctor’s office, and we just hit it off. We got married about 18 years ago. And that’s the problem.

Attorney:            How so?

Rucker: My sons do not like her. I mean, they really don’t like her. She is very different from their mother, it’s true. But I’d have thought they’d get over it. Sara made an effort, but she couldn’t do a thing about it. Things have been hard for years. It’s at the point where I only see the boys on my own. I visit them, and Sara doesn’t come with me. The boys and Sara don’t talk at all. And if I’m honest, I think Sara has come to dislike them too.

Attorney:            I am very sorry to hear this. I know how hard that can be. Can you explain what you’re looking for from me?

Rucker: It has to do with the house. It’s a beautiful place. The boys love it because it’s where they grew up. They resent Sara because they think she wants to take it away from them. Sara loves the house because it’s where she and I have made a life together. We’re very happy there. She worries that they will kick her out as soon as I die.

Attorney:            Who owns the house?

Rucker: I do. Frances and I owned it jointly, but I took over when she died. We had a 30-year mortgage on the place, but I paid that off years ago. Sara has never asked to become an owner, and I never saw the need to put her on the deed. Now . . . I don’t know.

Attorney:            Do you know how much the house is worth?

Rucker: I don’t. I have never put it on the market, and never plan to do so. I think the fair market value is $250,000, maybe higher. The property taxes are around $1,700 a year.

Attorney:            By the way, Carl, how old is Sara?

Rucker: Sara is 65.

Attorney:            And are you retired?

Rucker: I will retire next year. I don’t have a pension or a retirement account, since I never worked anywhere that offered one. So I will be relying on Social Security. Sara is working now but will retire a few years from now. She doesn’t have a pension or retirement account either. So all she’ll have is her Social Security.

Attorney:            Do you have any other assets?

Rucker: Yes, I own several long-term certificates of deposit that total around $200,000. These are all in my name alone. I plan to give them to Sara when I die.

Attorney:            Luckily, your assets will not raise any estate tax concerns. Let me ask something different: are you both healthy?

Rucker: Yes, and with luck, we’ll stay that way.

Attorney:            Of course. It’s my job to help you plan for the worst.

Rucker: I know. And I have already lost Frances. It could happen again, to either of us.

Attorney:            Tell me exactly what you want to happen.

Rucker: If I die first, I want Sara to be able to have the house as long as she is alive. Then I want it to go to my sons. If Sara dies before I do, then I want my two sons to have the house after I die. They get along and will figure out what to do with it.

Attorney:            If you die first, and Sara gets the house outright, will she make sure that your sons get the house eventually?

Rucker: She says she will, but I am not so sure. There’s just too much bad blood between them. Also, she has been very involved in a charity and may want to leave the house to that charity when she dies.

Attorney:            If your sons get the house outright, will they let Sara live there as long as she wants?

Rucker: Again, I hate to say it, but no, they won’t. I’m sure they would try to kick her out.

Attorney:            Let’s say that we find a way for Sara to keep the house while she is alive. Would she be able to afford it?

Rucker: Well, between her Social Security and whatever Social Security she gets as my widow, she might be able to pay the taxes and keep the place up, but I worry that she might not be able to afford unexpected repairs or emergencies. It’s possible she would have to borrow against the house. That’s why I plan to leave her the $200,000 certificates of deposit when I die.

Attorney:            Your sons, are they well off?

Rucker: Yes, they’re doing okay. They won’t need the Cherry Tree house. But I know that they would like to keep it in the family.

Attorney:            One last thing. Do you think that there is any chance that Sara and your sons will figure out a way to get along with one another?

Rucker: The way things have been, no, not a chance. I really worry about it. The last thing I want is for the three of them to end up fighting in court, spending money on lawyers, and selling the house to end up with nothing.

Attorney:            Okay. Thank you, Carl. I know that this is hard to discuss. We will look into the choices that you might have. I’ll start by focusing on what happens if Sara survives you. I will schedule an appointment when we have some ideas. I would normally recommend a trust for this kind of situation.

Rucker: I don’t want a trust. I had a close friend who left his property in a trust and it caused him and his wife and children nothing but trouble. And I don’t want anyone else to have control of the property.

Attorney:            You and I will have to go over what a trust can and cannot do. But I hear you. When we meet next, we will be sure to go over other options as well.

Jill Baker

Certified Residential Appraiser
1 Vicker Place
Centralia, Franklin 33705

MEMORANDUM

To:          Dana Carraway

From:    Jill Baker

Date:     July 23, 2019

Re:         Valuation of Carl Rucker Residence and Life Estate

                You asked me to determine the current fair market value for the residence of Carl Rucker and to assess the value of a life estate held by Mrs. Rucker, currently age 65, in that residence, assuming Mr. Rucker were deceased.

Fair Market Value

                The Rucker residence is located at 1513 Cherry Tree Road in Middleburg, Franklin. It is a 2,700-square-foot two-story house, with garage, attic, and basement. The house sits on three acres of land in a neighborhood zoned R10 for residential use. The house is set back about 60 feet from the road and has a large backyard.

                I spoke with agents at different real estate agencies about the neighborhood and about comparable properties. These agents indicated that houses in that neighborhood have retained their value, even in down times for real estate; and, as you know, the housing market is coming back in our region. Based on sales of comparable houses, these agents agreed that current fair market value for the house would be roughly $250,000. This value is likely to change over time.

Value of Life Estate

                As you know, the value of a life estate is less than the value of the fee ownership of the whole property. For purposes of advising your client at this time, I have calculated that the present value of a life estate for Mrs. Rucker in the residence is $80,000, assuming Mr. Rucker is deceased.

LIBRARY

Excerpt from Walker’s Treatise on Life Estates

The owner of real property, by deed effective immediately or by will, can create successive ownership interests in the realty. An interest created in a person currently entitled to possession for that person’s life is called a life estate, and that person is called a life tenant; an interest created in a person whose right to possession arises only after the death of the life tenant is called a remainder. Life estates and remainders can be created in one or more persons.

Life Tenant: A life tenant has absolute and exclusive right to use of the property during his or her lifetime. Life estates can be held by one or more persons, such as spouses or siblings. The life tenant is entitled to possession of the property during his or her life or to rents from the property should the life tenant rent it to another. The rights of a life tenant expire automatically upon the death of the life tenant. The life tenant is responsible for real estate taxes, insurance, and maintenance costs related to the property.

Generally, the life tenant can sell or otherwise transfer that interest. However, any transferee from a life tenant can have an estate only for so long as the life tenant lives. Similarly, if the life tenant mortgages the life tenant’s interest, that mortgage expires when the life tenant dies. However, a deed or will can empower a life tenant to sell or mortgage the property from which the life estate is carved without the consent of the owners of the remainder interest.

Remainder Owner: The owner of the remainder following a life estate automatically becomes owner of the real estate immediately upon the death of the last life tenant. The remainder owner has no right to use of the property or the income from the property during the life tenant’s lifetime. Remainders may also be created in one or more persons.

Considerations

Creating a life estate in real property while the owner is alive (as opposed to one created by the owner’s will) can be accomplished by executing a new deed from the owner of the property to the life tenant(s) and remainder owner(s). It is generally advisable to record the deed. However, the decision to transfer the property to a life estate is almost always irreversible. If the owner changes his or her mind, a change cannot occur without the consent of all life tenants and remainder owners. Their mutual consent may be difficult to obtain.

All owners, including remainder owners, must agree to sign a deed to sell the property in fee or to sign a mortgage to borrow money secured by the full value of the property. Disagreement among the owners severely restricts the marketability of the property and may make it nearly impossible to borrow money to make major repairs or improvements to the real property.

If a life estate in real property is created while the owner is alive, then upon the death of the last life tenant, the real property automatically belongs to the remainder owner, with no need for probate of that property, avoiding the costs and delays of probate. A life estate is worth less than full ownership in the same property.

The remainder owner cannot affect the life tenant’s interest in the property. For example, if a parent who owns real property gives her children a remainder interest and retains a life estate in the property for herself, neither the children nor the children’s creditors can affect the parent’s possession. If the life tenant’s actions or neglect harm the property, the remainder owners can sue the life tenant (or the life tenant’s estate) for the damage in an action for waste.

The risk of litigation should be considered, especially for life estates created by a will. In addition to the time and costs of litigation, there is a risk that the court could award the monetary value of the life estate to the life tenant instead of possession of the property. Such a result would defeat the testator’s wishes to permit the life tenant to live in the residence. Transferring property by deed, as opposed to by will, minimizes this risk.

Elective share

                Creating a life estate by deed in the owner’s spouse may have implications for the distribution of the owner’s probate estate. Franklin law permits a surviving spouse to claim a percentage share of the deceased spouse’s “augmented estate” (the deceased spouse’s probate estate increased by, among other things, lifetime gifts to the surviving spouse). This share is called the “elective share.” For many years, it was unclear what should happen when the surviving spouse held a life estate transferred by deed from the deceased spouse while alive. Recent cases have clarified that the value of such a life estate should be included in calculating the elective share of the surviving spouse.

No requirement of spousal consent

Some states limit the ability of one spouse who has sole title to a residence to transfer that residence to anyone without the other spouse’s consent. Franklin law does not recognize this limitation with respect to a residence titled solely in one spouse’s name prior to the marriage. Nor is Franklin a community property state. Thus, in Franklin, a spouse who has sole title to a residence may transfer a life estate to anyone without the other spouse’s consent.

In re Estate of Lindsay

Franklin Court of Appeal (2008)

                Joseph Lindsay, spouse of the decedent, Nancy Lindsay, filed a petition in the probate court seeking to take his elective share of the decedent’s estate. The probate court determined that           Mr. Lindsay’s elective share had been satisfied by a life estate transferred to him by the decedent and an outright bequest in the decedent’s will and that Mr. Lindsay was not entitled to anything further from the decedent’s estate. Mr. Lindsay appeals from that determination.

The decedent and Joseph Lindsay were married on June 16, 1990. Mr. Lindsay was the decedent’s second husband. The decedent had two children by a prior marriage, both of them adults at the time of her second marriage. The decedent owned a residence and 25 acres of surrounding land, acquired before her second marriage. On July 20, 2005, the decedent transferred this real property to herself and Mr. Lindsay as life tenants, granting a remainder interest to her two children. Joseph Lindsay’s life estate was valued at $200,000. The assets of Nancy Lindsay’s estate that would pass by will (stocks, bonds, savings accounts, and other personal property) totaled $900,000, of which Joseph Lindsay was bequeathed $400,000. Mr. Lindsay elected not to receive this bequest and instead to claim the elective share.

Franklin law states that Joseph Lindsay is entitled to claim an elective share equal to 50% of the “augmented estate” or, in the alternative, what was bequeathed in the will. Franklin Probate Code § 2-202. The question before the court is whether the value of the life estate should be included in the augmented estate, in addition to the assets passing by will, when determining the elective share. We hold that the value of the life estate should be included.

                The percentage size of the surviving spouse’s share depends on the length of time the surviving spouse had been married to the decedent. Id. A spouse like Mr. Lindsay, who was married for 15 years or more, is entitled to claim a 50% elective share of the augmented estate. Permitting a surviving spouse to claim an elective share of a deceased spouse’s augmented estate protects that spouse from the harsh effects of the decedent’s decision to leave the spouse little or nothing through probate. The purpose of the elective share is to give the surviving spouse a fair share of the economic partnership maintained by the couple before the decedent’s death.

                An augmented estate, according to Franklin law, includes four categories of assets, only three of which are relevant here: (1) the net assets held in the probate estate, Franklin Probate Code § 2-204; (2) the assets transferred by the decedent to the decedent’s spouse before death, Franklin Probate Code § 2-206; and (3) the surviving spouse’s own assets and pre-death transfers, Franklin Probate Code § 2-207. Using these three provisions, the probate court calculated the value of the “augmented estate,” described earlier, at $1.1 million.

Petitioner Lindsay’s calculation: exclude value of life estate from augmented estate and claim 50% elective share

                Mr. Lindsay claimed his elective share of the estate pursuant to Franklin Probate Code         § 2-202. As Mr. Lindsay calculates his elective share in the augmented estate, he claims to be entitled to 50% of the $900,000 probate estate (or $450,000). He also claims that the value of the life estate (worth $200,000) should be disregarded in computing the elective share. If he is correct, he would receive a total of $650,000 of benefits: $450,000 as his elective share plus the earlier transfer of the life estate worth $200,000.

The personal representative’s calculation: include value of life estate in augmented estate

The personal representative of the decedent’s estate agrees that the elective share is 50% of the augmented estate. However, the representative takes a different view of how that share is calculated, claiming that the value of the augmented estate includes both the probate estate and the value of the life estate. By including Mr. Lindsay’s life estate, the “augmented estate” totals $1,100,000: the $200,000 life estate plus the $900,000 in probate assets. Therefore, the 50% elective share equals one-half of $1,100,000 (that is, $550,000). Because Mr. Lindsay has already received the $200,000 life estate, he would be entitled to receive only $350,000 of the probated assets via an elective share.

We agree with the personal representative that Mr. Lindsay’s life estate should be included in the calculation of the augmented estate for determination of his elective share. In addition, the court correctly used the value of the life estate, or $200,000, and not the full fair market value of the house, in calculating the elective share.

                Accordingly, we affirm the probate court’s decision.

Manford v. French

Franklin Court of Appeal (2011)

                On January 27, 1997, Opal French and her husband, George, executed a single will that recited only that it was a “joint” will. This will would have transferred all the property of the first spouse to die to the survivor; then, upon the death of the survivor, all the survivor’s property, including the property acquired from the first spouse to die, was to go to Mary Elizabeth Manford, their only child. George predeceased Opal in 1998. Opal received all property held by him pursuant to the joint will.

                In 2004, Opal French drafted a new will, expressly revoking the 1997 joint will. This new will transferred all of her property to her two children by a previous marriage. It also expressly disinherited Manford. The will stated that Opal had “given Mary Elizabeth Manford her part of the estate before my death, through significant loans that she has not repaid. I forgive these loans, but she has received enough.”

                Opal died in February 2010. Her children from the previous marriage, acting as co-executors, offered the 2004 will for probate. Manford contested, claiming that (1) the 1997 joint will was intended to be contractually binding; (2) Opal could not revoke the 1997 will after she had benefited from its probate; and (3) because of this fact, her 2004 will was invalid. Manford sought specific performance of the 1997 will, or in the alternative, money damages.

                Manford filed an affidavit maintaining that Opal and George had conducted a family meeting in 1996 and expressed a plan to execute a will that would devise the estate to Manford after their deaths. The parties filed cross-motions for summary judgment. The trial court ruled for the co-executors. Manford appealed.

                We must decide whether Opal had any contractual obligation to George arising from the 1997 will that prevented her from revoking that will after George’s death and thereby preventing Manford from receiving all her mother’s estate. This question depends on whether the creation of a joint will on its own creates such a contractual obligation.

                An individual who receives an unrestricted bequest under a will has complete freedom to dispose of the property he or she receives. She can sell the property, mortgage it, or dispose of it by will. Given this, some spouses seek to restrict the ability of the surviving spouse to dispose of property in a will, especially where one or both spouses have children by a previous marriage.

Two methods exist to accomplish such a restriction. First, the spouses may enter into a contract to make a will, one that restricts the right of the surviving spouse to alter an agreed-upon testamentary disposition. A contract to make a will requires the survivor not to change the terms of an already-agreed-upon will, but it does not prevent the survivor from transferring the property during the survivor’s lifetime. The survivor could sell the property or encumber the property with debt without breaching the contract, provided the agreed-upon will remains the same. Kurtz v. Neal (Franklin Sup. Ct. 2005).

                Second, spouses can restrict the rights of the survivor through a joint will or a mutual will that reflects a contractual agreement between them. A joint will is one will, signed by two or more testators, that deals with the distribution of the property of each testator. Mutual wills are separate wills of two or more testators that make “mirror-image” dispositions of each testator’s property.

                Franklin Probate Code § 2-514 provides in general terms that any contract to make a will or not to revoke a will must be in writing:

A contract to make a will or devise, or not to revoke a will or devise, or to die intestate, may be established only by (i) provisions of a will stating material provisions of the contract, (ii) an express reference in a will to a contract and extrinsic evidence proving the terms of the contract, or (iii) a writing signed by the decedent evidencing the contract.

This statutory provision resolved a long-standing line of cases that dealt with questions about “oral contracts to make a will.” As specified in the current statute, there must be some written evidence of the existence and terms of such a contract. This requirement assures that the parties’ intentions can be determined and minimizes the risk of future litigation over the contract. Breach of a contract to make a will or not to revoke a will gives rise to two possible remedies: specific performance of the contract or money damages.

                Manford claims that the mere fact of drafting a joint will provides written evidence of both the existence and terms of a contract binding both testators to the terms of the joint will. Whatever the merits of this proposition in general, Franklin Probate Code § 2-515 undercuts it: “The execution of a joint will or of mutual wills does not create a presumption of a contract not to revoke the will or wills.” The 1997 will executed by Opal and George French is a joint will. The fact of its execution, standing alone, does not create an obligation that Opal may not revoke it and make a new and different will.

                In the alternative, Manford claims that the terms of the joint will imply the existence of a contract not to revoke a will and that the family meeting in 1996 provides “extrinsic evidence proving the terms of the contract.” Franklin Probate Code § 2-514(ii). This argument fails for two reasons. First, the statute requires “an express reference . . . to a contract” in the joint will; no such reference exists. Second, the “family meeting” described in Manford’s affidavit entails little more than a statement by George and Opal that they planned to make a will at some point in the future, not that they had executed or intended to execute a contract to do so.

                Thus, the 1997 will imposed no contractual obligation on Opal not to execute a new will revoking the 1997 will’s terms. George and Opal could have entered into a contract binding Opal not to do so, but nothing in the record indicates that they did so or that such a contract was reduced to writing.

                Affirmed.

Sample Answer

MEMORANDUM

TO: Dana Carraway

FROM: Examinee 

DATE: July 30, 2019

RE: Carl Rucker 

INTRODUCTION 

Carl Rucker is a client of our firm, who is seeking advice on how to dispose of his property after his death. Understanding his family dynamics is imperative to counseling Mr. Rucker on how to dispose of his property. 

My analysis willl focus on two possibiliites for Mr. Rucker's property; (1) creating a life estate in the house for Mrs. Rucker while she is alive, with remainder to his sons and (2) contracting with his wife to write wills that leave the hosue to his sons after both he and Mrs. Rucker have died. In evaluating each approach, I also will analyze which approach will be better to accomplish his stated goals to (i) ensure that Mrs. Rucker can live in the house for the rest of her life and ii) to assure that his sons receive the house after she dies and iii) to minimize the risk of litigation between them. 

STATEMENT OF FACTS 

Mr. Rucker owns a house in Middleburg, which he has owned for almost 45 years. He has two children from his first wife, Freda, who are named Fred and Andrew. Fred is 47 and Andrew is 45. They both grew up in Mr. Rucker's current house. They are both married and Fred has two children. His first wife died 24 years ago, and he remarried 18 years ago to Sara Rucker. Sara and Mr. Rucker have lived together in the house, and it is where they have made a life together. However, his two children do not like Mrs. Rucker, and the relationships have deteriorated to a point where Mrs. Rucker does not visit the Mr. Rucker's children when he visits them. In addition, Mrs. Rucker and the two children do not talk to each other. While his children initiallly did not like her, Mrs. Rucker has grown to dislike them as well. 

Mr. Rucker is seeking to arrange his property so that if he dies first, Mrs. Rucker can live in the house for the rest of her life, and that upon her death, his two sons will obtain the house. However, as his two sons and wife do not get along, he is concerned that his sons will attempt to remove Mrs. Rucker from the house if she were living on it after his death. In addition, he is also worried that Mrs. Rucker will attempt to leave the house to a charity rather than to his sons. 

Mr. Rucker is concerned regarding the house. Currently, it is valued at around $250,000, and property taxes are around $1,700 per year. If this were to be in a life estate, the value of teh life estaet would be $80,000, per Jill Baker's valuation of the residence and life estate. Mr. Rucker has several long term certificates of deposit that total around $200,000, however, he does not have a pension or retirement account, and upon his retirement next year, will be relying on his Social Security. He hopes that Mrs. Rucker can have the house as long as she is alive, and then for the house to go to his sons. However, if Mrs. Rucker dies before he does, he wants the sons to have it when he dies. In addition, he is worried that if Mrs. Rucker gets the house, that she will not be able to pay the taxes and keep the place up, as well as that she might not be able to afford unexpected emergencies or repaires, and that his children will attempt to kick her out. While he wants to leave her the $200,000 certificates to ensure that she is able to pay the taxes and keep the house up, he is also worried she may borrow against the house, despite him already paying off the mortgage. He is also very concerned that all of them will end up fighting in court regarding this and end up selling the house. 

ANALYSIS 

In order for Mr. R to accomplish his stated goals to (i) ensure that Mrs. Rucker can live in the house for the rest of her life and ii) to assure that his sons receive the house after she dies and iii) to minimize the risk of litigation between them, I believe that it would be preferable for him to create a life estate in the house for Mrs. R, with the remainder to his sons, rather than contracting to or creating a joint will. 

1. Creating a Life Estate for Mrs. Rucker with the Remainder to Fred and Andrew 

While a life estate in the house for Mrs. Rucker while she alive can be done, with her being a life tenant and the sons being remainders, Mr. Rucker should be cautious about the future prospects of litigation in this, as well as the effect it has on Mrs. Rucker's elective share. First I will evaluate the basics of life estates in order for Mr. R to understand, and then I will disucss the effects on Mrs. R's elective share, as well as the advantages and consequences of such an action. 

A. Life Estate Basics

i. Basics

 A life estate is an interest created in a person currently entitled to possession for that person's life, according to Walker's Treatise on Life Estates. The person whose interest this is created in is the life tenant, while a remainder is an interest created in a person whose right to possession arises only after the death of the life tenant. A life tenant has absolute and exclusive right to the use of the property during his or her lifetime, and is entitled to possession of the property during his or her life or to rents from the property should the life tenant rent it to another. The rights of a life tenant expire automatically upon the death of the life tenant, and the life tenant is responsible for real estate taxes, insurance and maintenace costs related to the property. If a life estate where craeted in the home, Mrs. R would be the life tenant with the absoulte and exclusive right to use during her lifetime, while Fred and Andrew would be entitled to a remainder of the property, which automatically would pass to them upon the death of Mrs. R. 

ii. Ability to Pay Taxes and Maintenance

The issue here is whether a life estate would be proper, as Mr. R is concerned that Mrs. R cannot pay for the real estate taxes and maintenance costs. As a life tenant, Mrs. R would have to pay for these expenses. Walker's Treatise on Life Estates. Mrs. R would have to pay real estate taxes, insurance and maintenance costs related to the property. While Mr. R is concerned about her ability to pay for the taxes and maintenance costs, this is important to note here, that she would be responsible for this.

Another issue is whether Mr. R is concerned about Ms. R borrowing against the estate. All owners, including the remainder owners, must agree to sign a deed to sell the property in fee or to sign a mortgage to borrow money secured by the  full value of the property. Walker's Treatise on Life Estates. Thus, if disagreements occur, it can restrict the marketability of the property and make it impossible to borrow money to make major repairs and improvements to the real property. If Mr. R wants Mrs. R to be able to obtain a mortgage or borrow against the house, she would need the son's approval, which is unlikely. While it seems like Mr. R does not want Mrs. R to borrow against the house, he also does want to provide for her, and is worried about her ability to maintain the house without doing so. While he is seeking to provide for her through his certificates of deposit, he needs to consider whether this is reasonable, and whether she would be able to maintain the house and pay for the property taxes without needing to borrow against the house. 

iii. Restriction of Sale of Property 

Another issue is whether Ms. R's ability to sell or transfer the interest in the property can be restricted. A life tenant can sell or otherwise transfer that interest, but the transferee can only have an estate for so long as the life tenant lives. Walker's Treatise on Life Estates. If the life tenant also mortgages the life tenant's interest, that mortgage expires when the life tenant dies. This issue can be changed through a deed or will, which can empower a life tenant to sell or mortgage the property from which the life estate is carved without the consent of the owners of the remainder interest.  While Mrs. R would be able to sell or transfer the interest in her life tenancy, which includs mortgages and borrowing against the property, this expires when she dies, and thus, the property would go to the children encumbered by this. However, in the deed or will, Mr. R can also empower a life tenant to sell or mortgage with consent of the remainders. Yet, Mr. R is unlikely to allow this, as he does not want her to have the ability to sell the property or borrow against it, as he wants it to remain for the children. 

iv. Lack of Ability for Remainders to Use Property

Another issue is whether the lack of ability for the children to use the property during Mrs. R's propertyi s an issue for Mr. R. The owner of the remainder following a life estate automatically becomes owner of the real estate imediaetly upon the death of the last life tenant, but the remainder has no right to use the property during the life tenant's lifetime. Walker's Treatise on Life Estates. Here, the children would not have the right to use the property during Mrs. R's lifetime. While this seems to be in the best interest of Mr. R, which would prevent the children from evicting Mrs. R from the property, he may want them to have the possibility of reentering the property during her lifetime is an issue occurs or if she is unable to maintain the property. 

v. Possibility of Revoking the Deed 

Another issue is whether Mr. R believes he would change his mind in devising the life estate to Mrs. R. A life estate can be accomplished while the owner is alive by executing a new deed from the owner of the property to the life tenants and remainder owners. Walker's Treatise on Life Estates. This deed should be recorded, however, the decision to transfer the proeprty to a life estaet is almost irreversible. Thus, if the owner changes his or her mind, a change cannot occur without consent of all the life tenants and remainder owners, which can be difficult to obtain. While devising the property in a life estate to Ms. R with remainder to the children through a recoreded deed seems like a very simple way to devise of this property, Mr. R would not be able to change his mind easily, and if he does change his mind, he would have to have the consent of all the life tenants and remainders, which would be very difficult to do considering the current state of affairs with the family. 

vi. Pros and Cons 

While there are many negatives to consider in this method, another positive is that if this is created when Mr. R is alive, upon the death of the last life tenant the property belongs to the remainder, without needing to probate the property, which avoids the cost of probate. Walker's Treatise on Life Estates. In addition, the most significant aspect of this type of property is that the remainder owner cannot affect the life tenant's interest in the property. Walker's Treatise on Life Estates.However, if the life tenant's actions or neglect to the property, the remainder owners can sue the life tenant or the life tenant's estate for the damage in an action for waste. However, as that would occur in a narrow set of circumstances, it seems to address most of Mr. R's problems and is able to protect Mrs. R's life estate interest against the children.  

However, here, the risk of litigation should be considered, as there is a risk that the court could award the monetary value of the life estate instead of possession of the property. Such a result would defeat the testator's wishes to permit the life tenant to live in the residnce. However, transferring the property by deed instead of by will, minimizes this risk. 

B. Value of Life Estate in the Augmented Asset In Determining the Elective Share 

The issue here is the effect the creation of a life estate by deed would have in Mrs. R's distribution of Mr. R's probate estate. Creating a life estate by deed in the owner's spouse may have implications for the distribution of the owner's probate estate. Excerpt from Walker's Treatise on Life Estates. Per Franklin law, a surviving spouse can claim a percentage share of the deceased spouse's "augmented estaet", which share is called an "elective share". However, the value of such a life estate should be included in calculating the electiv e share of the surviving spouse. 

The issue here is whether the value of the life estate should be included in determining the elective share of a spouse. A spouse is entitled to claim an elective share equal to 50% of the "augmented state" or what was bequethed in the will per Franklin Probate Code Section 2-202. The value of the life estate should be included in the augmneted estate, per In Re Estate of Lindsay, Franklin Court of Appeal (2008). 

The issue is the percentage size of Ms. R's share. Per Franklin Law an augmented estate includes 1) the net assets held in probate estate 2) the assets transfered by the decedent to the decedent's spouse before death, and 3) the surviving spouse's own assets and pre-death transfers. Franklin Probate Code Section 2-204, 2-206, 2-207. In Lindsay, the life estate was included in the calculation of the augmented estate for determination of his elective share. The percentage size of the surviving spouse's share depends on the length of time the surviving spouse had been married to the decedent. In Re Estate of Lindsay. In In Re Estate of Lindsay, Mr. Lindsay was married for 15 years, was entitled to claim a 50% elective share of the agumented estate. Permitting a surviving spouse to claim an elective share of a deceased spouse's augmented estate protected that spouse from the harsh effects of the decedent's decision to leave the spouse little or nothing through probate. The purpose of the elective share is to give the surviving spouse a fair economic partnership maintained by the couple before the decedent's death. In comparison, here, permitting Mrs. R to a claim of an elective share of Mr. R's augmented estaet would protect her from being left with nothing or little to nothing to support her. The court uses the value of the life estate to not the fulll fair makret value of the house in calculating the elective share. Thus, in calculating Mrs. R's elective share, which would likely be 50%, as they were married for around 18 years, longer than the length of marriage of Mr. Lindsay, we should deduct the value of the life estate, which is $80,000. Mr. R's life probate assets likely include only the certificates of deposits, which is $200,000 and the value of the house, which is $250,000. While this is likely to change, as the value of the house is likely to change, this should be used as an estimate. 50% of this estate of $450,000 is around $225,000, and the $80,000 life estate would be subtracted by this, $165,000. This fact should be considered when Mr. R is devising of his property. 

2. Contracting to leave the house to his sons after he and Mrs. R have died 

A. Contract Considerations 

In order to contract with Mrs. R to make a joint will, several formalities need to be followed. Per the Franklin Code Section 2-514 provides the general terms that any contract to make a willl or not to revoke a will must be in writing: a contract to make a will or devise, or not to revoke a will or devise, or to die intestate, may be established only by i) provisions of a will stating material provisions of the contract ii) an express reference in the will to a contract and extrinsic evidence providng the terms of the contract and iii) a writing signed by the decedent evidencing the contract. In addition, per Franklin Probate Code Section 2-515 "the execution of a joint will or of mutual wills odes not create a presumption of a contract not to revoke the will or wills." 

The issue is whether there are adequate protections for Mr. R in a joint will, in which he would want to execute a joint will. Without any contractual obligations limited the other party not to execute a new will revoking the original joint will's terms, the living spouse may execute another will revoking the terms of the joint will. An individual who received an unrestricted bequest under a will has complete freedom to dispose of her property he or she receives. She can sell the property, mortgage it, or dispose of it by the will. However, some spouses seek to restrict the ability of the surviving spouse to dispose of the property in a wall, especiailly where one or both spouses have childreb by a previous marriage. Manford v. French, Franklin Court of Appeal (2011). This is dislayed in Manford v. French, in which the child who was guaranteed property in the joint will, contested the execution of her mother's new will that revoked the previous will and provided her with nothing. In Manford, Opal, the wife of George who contracted a joint will with him, revoked the will after his death and prevented their daughter from receiving anything from her mother's estate. Opal French and her husband executed a single will that recited only that it was a joint will, however, when George predeceased Opal in 1998, Opal received all property held by him pursuant to the joint will. The joint will had stated that the property would go to the first spouse who died, and upon the death of the survivor, it would go to their only child, Mary Elizabeth Manford. In 2004 Opal drafted a new will, revoking the 1997 joint will, and this will transfered all of her property to her two children from the previous marriage and disinherited Manford. The will also stated that Opal had given Manford her part of the estate before her death through significant loans that she never repaid, and in forgiving these loans, Manford has "received enough". When Opal died her two children from previous marriage offered the 2004 will into probate, however, Manford contested. Thus, this case displays reasons for why Mr. R should be concerned about executing a joint will, as it would provide Mrs. R with the possibility of revising the joint will, and providing his children with nothing, or allowing her to sell the house or retain the property, or provide her charity with the property. However, this can be limited in two ways. Thus, as Mr. R is very concerned about the possibility of Mrs. R not leaving the property to his sons, this is not the best method, as it could possibly leave them without the house. 

B. Alternative Contract Type I: Spouses May Enter Into a Contract to Make a Will, One That Restricts the Right of the Surviving Spouse to Alter An Agreed Upon Testaemntary Disposition

In contracting a joint will Mr. R can restrict the right of the surviving spouse to alter an agreed upon testamentary disposition. Per Kurtz v. Neal (Franklin Sup. Ct. 2005), this would require the surviving spouse not to change the terms of an already agreed upon will but does not prevent the survivor from transfering the property during the survivor's lifetime, the survivor could sel the propety or enucumber the proeprty with debt without breaching the contract, provided the willl remains the same. Thus, by doing this type of joint will, it would prevent her from altering the agreed upon will. However, this must be expressed in the will, and it could end up being probated and litigated. In addition, by forming this type of contract, he would need Mrs. R to agree to this, and it is unclear whether she would agree to this. In addition, there is a risk that she could go to court and fight the provisions, and thus, leaving his children with nothing. 

C. Alternative Contract Type II: Spouses Can Restrict the Right of the Surivvor Through a Joint Will or a Mutual Will that Reflects a Contractual Agreemnet Between Them

Per Manford, a joint will is one, signed by tow or more testators that deals with the distribution of the property of each testator. Mutual wills are separate will of two or more testators that make "mirror-image" dispositions of each testators' property. Here, if Mr. R decides to do this, he would laos need to allocate all of his property in the joint will. In addition, he would need Mrs. R's consent in drafting the "mirror-image" dispositions of each other's property which may be difficult to achieve. In addition, as seen in the prior type of contract, there is a chance of litigation, which is whar Mr. R does not want. 

CONCLUSION

In order for Mr. R to accomplish his stated goals to (i) ensure that Mrs. Rucker can live in the house for the rest of her life and ii) to assure that his sons receive the house after she dies and iii) to minimize the risk of litigation between them, I believe that it would be preferable for him to create a life estate in the house for Mrs. R, with the remainder to his sons, rather than contracting to or creating a joint will. While each approach will need to be explained to Mr. R, including the advantages and consequences of each action, our goal is for Mr. R to be protected, and for his property to be devised upon his death as he desires. While each approach has advantages and consequences, I believe that the life estate creation, while would be difficult to revoke during his lifetime, would ensure that the property is distributed as he sees fit, providing Mrs. R with the life estate, and adequate financial support, while providing the sons with the house in the remainder, and preventing them from the possibility of litigation, as well as from outsting Mrs. R from the property. 

Sample Answer

MEMORANDUM 

To: Dana Carraway 

From: Applicant 

Date: July 30, 2019 

Re: Carl Rucker 

A. Introduction 

        You have asked me to analyze which approach would accomplish Mr. Rucker's goals in regards to the disposition of his house after his death. Mr. Rucker wants his first wife to live in the hosue for the rest of her life and wants to make sure that his house passes to his two sons. The two approaches that will be analyzed below are (1) creating a life estate in the house for Mrs. Rucker while she is alive, with the remainder to his sons and (2) contracting with his wife to write wills that leave the house to his sons after both he and Mrs. Rucker have died. My recommendation as to which approach will be better to accomplish Mr. Rucker's goals is also included. 

B. Approach 1: Creating a Life Estate and Remainder 

        An interest created in a person currently entitled to possession for that person's life is called a life estate. An interest created in a person whose right to possession arises only after the death of al life tenant is called a remainder (Walker's Treatise). 

        An advantage of a life tenant is that she has absolute and exclusive right to use the property during her lifetime. The life tenant is also entitled to possession of the property during her life or to rents from the property should the life tenant rent it to another. Additionally, the life tenant's rights expire automatically upon the death of the life tenant. Finally, the life tenant is responsible for real estate taxes, insurance, and maintenance costs to the property (Walker's Treatise). 

        Some disadvantages is that the life tenant can sell or otherwise transfer her life estate interest. However, an transferee from a life tenant can have an estate only for so long as the life tenant lives. Similarily, if the life tenant mortgages the life tenant's interest, the mortgage also expires when the life tenant dies. However, and importantly, a will can empower a life tenant to sell or mortgage the property from which the life estate is carved out without the consent of the owners of the remainder interest (Walker's Treatise). 

        An advantage for a life estate with a remainder is that a remainder owner following a life estate automaticaly becomes the owner of the real estate immediately following the death of the last life tenant. A disadvantage is that the remainder owner has no right to use the property or the income of the property during the life tenant's lifetime (Walker's Treatise). 

        In order to create a life estate while the owner is still alive (as opposed to one created by will ), it can be accomplished by executing a new deed from the owner of the property to the life tenant and remainder owners. It is also advisable to record that deed. A disadvatange, and is important to note, that the transfer of property to a life estate is almost always irreversible. If the owner changes his mind, a change cannot occur without the consent of all life tenants and remainder owners, which can be difficult to obtain (Walker's Treatise). 

        A further advantage, is all owners, including remainder owners, must agree to sign a deed to sell property in fee or to sign a mortgage to borrow money secured by full value of the property. This restriction has an advantage and disadvantage. First, disgreement among the owners severely restricts the marketability of the property. But, it may make it nearly impossible to make major repairs and improvements on the property (Walker's Treatise).

        Another advtantage is that since the property passes automatically to the remainder owners, there is no no need to probate that property, which avoids the costs and delays of probate. However, there is a risk of litigation, if the life estates are created by will. In addition to the time and costs of litigation, there is a risk that the court could award the monetary value of the life estate to the life tenant instead of possession of the property. This would defeat the testator's wishes to permit the life tenant to live in the residence. But, transferring the property by deed minimizes this risk  (Walker's Treatise).

        Finally, another disadvantage, is that Franklin allows a spouse who has sole title to a residence to transfer a life estate to anyone without the other spouse's consent (Walker's Treatise).  

C. Approach 2: Contracting to Write Wills 

        An individual who receives an unrestricted bequest under a will has complete freedom to dispose of the property he or she receives. She can sell the property, mortage it, or dispose of it by will (Manford v. French).

        First, spouses may enter into a contract to make a will, one that restricts the right of the surviving spouse to alter an agreed upon testamentory disposition. A contract to make a will requires the survivor not to change the terms of an already-agreed-upon-will, but it does not prevent the survivor from transferring the property during the survivor's lifetime. The survivor could sell the property or encumber the property with debt without breaching the contract, provided the agreed-upin will remains the same (Kurtz v. Neal). 

        Second, spouses can restrict the rights of the survivor through a joint will or mutual will that reflects a contractal agreement between them. A joint will is one will, signed by two or more testators, that deals with the distribution of the property of each testator. Mutual wills are separate wills of two or more testators that make "mirror image" dispositions of each testator's property (Manford v. French). 

        The Franklin Provate Code (FPC) 2-514 provides that any contract to make a will or not to revoke must be in writing. Further, a contract to make a will or devise, or not to revoke a will or devise, may be established only by (1) provisions of a will stating material provisions of the contract, (ii) an express reference in a will to a contract and extrinsic evidence proving the terms of the contract, or (iii) a writing signed by the decedent evidencing the contract (Manford v. French citing FCP 2-514).

        Breach of a contract to make a will or not to revoke a will gives rise to two possible remedies: specific performance of the contract or money damages (Manford v. French).

        Additionally, FCP 2-515 states that the execution of a joint will or of mutual formal wills does not create a presumption of a contract not to revoke the will or wills. The mere fact of drafting a joint will does not create an obligation on the survivor to revoke it and make a new different will. 

        In Manford v. French, spouses executed a joint will, which specifcally disposed of property to the surviving spouse, then their only child. However, the surviving spouse drafted a new will and expressly revoked the joint will when her spouse passed away. This led to litigation and the court found thatthe joint will imposed no obligation on the surviving spouse to execute a new will revoking the will's terms. Although there was evidence of a "family meeting," this was not enough extrinsic evidence to prove the terms of the contract. As a result, the child did not receive the property, as the decedent wished. 

D. Elective Share

        Franklin law states that a spouse is entitled to an elective share equl to 50% of the "augmented estate" or, in the alternative, what was bequeated in the will. Franklin Probate Code 2-202.  Augmented estate includes four categories of assets, three of which are: (1) net assets held in the probate estate FPC 2-204, (2) assets transferred by the decedent to the decedent's spouse before death (FPC 2-206), (3) the surviving spouse's own assets and pre-death transfers (FPC 2-207).  

        The percentage size of the surviving spouse's share depends on the length of time the survivng spouse had been married to the decedent. A spouse who is married for 15 years or more, is entitled to claim a 50% elective share of th augmented estate. Elective share protects the spouse from harsh effecs of the decedent's decision to leave the spouse little or nothing through probate. 

        The purpose of the elective hare is to give the surviving spouse a fair share of the economic partnership maintained by the couple before the decedent's death. (In re Lindsay).  

        In valuating the life estate, court will use the value of the life estate and not the full fair market value of the house in calculating the elective share. Value of the life estate is included in the augmented estate in addition to the assets passing by will, when determining the elective share (In re Lindsay). 

        In In re Estate of Lindsay, the decedent transferred her real property to herself and her spouse as life tenants with remainder to her two children. When the decedent died, he elected not receive bequests in the will but instead claimed an elective share. Because he received the life estate valued at $200,000, his elective share was calculated by subtracting the $200,000 from his share. The augmented estate was valued at $1,100,000. His elective share was $550,000 minus the $200,000 and he received $350,000. 

        In this case, Mr. and Mrs. Rucker have been married for 18 years. As a result, Mrs. Rucker would be entitled to a 50% elective share of the augmented estate. According to the Certified Residential Appraisal prepared by Jill Baker, the value of the life estate of the residence in Middleburg, Franklin is $80,000. The fair market value of the house would roughly be $250,000. 

        Mr. Rucker also plans to leave Mrs. Rucker $200,000 in certificates of deposit. Mrs. Rucker's own assets include her Social Security. 

        Mr. Rucker's augmented estate would be the $200,000 certificates of deposit plus the $80,000 of the life estate. His total estate would be $280,000. Mrs. Rucker's 50% elective share would be $140,000 minus the $80,000 she would received if Mr. Rucker transferred the life estate to her during his lifetime. Mrs. Rucker would then only be entitled to $60,000 if she took an elective share.   

        Mr. Rucker has concerns that Mrs. Rucker may be able to pay taxes and keep the place up if she takes the life estate in the residence, but she might not be able to afford unexpected repairs and emergencies. She may have to borrow money. The $60,000 in elective share will not be adequate to take care of Mrs. Rucker, like Mr. Rucker wishes to. 

E. Recommendation

        Both approaches present advtantages and disadvangates. However, because of the risks of litigation and the formalities of contracting to make a will, creating a life estate seems to be the best option to fulfill Mr. Rucker's wishes.  

        Accoridng to Mr. Rucker, if he dies first, he would like Mrs. Rucker to live in the house he has owned outright for nearly 45 years for the rest of her life. After Mrs. Rucker's death, he wants the house to pass to his two sons, Fred and Andrew. But, Mrs. Rucker and the two sons do not get along. Mrs. Rucker and the sons do not talk at all. Mr. Rucker is concerned that his sons will try to remove Mrs. Rucker from the house. Mr. Rucker believes that there is no chance that Mrs. Rucker and the sons will ever get along. Further, Mr. Rucket is concerned that Mrs. Rucker would transfer her interest to a charity rather than to her sons. 

        Creating a life estate in the house for Mrs. Rucker seems to be the best option. It would first accomplish Mr. Rucker's goal of allowing Mrs. Rucker to possess and live at the residence without the intereference from his sons. Second, Mrs. Rucker's life estate would not allow her to transfer the property in fee simple to a charity. She would only be able to transfer the property for the remainder of her life. Which would ensure that Mr. Rucker's sons would automatically get the property at Mrs. Rucker's death. 

        Mr. Rucker is most likely better off transferring the property by deed to Mrs. Rucker and his sons. Although this is irreversible, it minimizes the risk of litigation, which is another concern for Mr. Rucker. A court may award Mrs. Rucker the value of the life estate, $80,000, instead of possession. Mr. Rucker's primary wish is to have Mrs. Rucker live on the property, so a will to devise the property is not the best solution. 

        However, it may be hard for Mrs. Rucker to obtain money to upkeep the property, since all owners, including remainder owners, which in this case would be Fred and Andrew, to sign a deed to borrow money. Because there is such bad blood between Fred and Andrew and Mrs. Rucker, obtaining money to make repairs or improvements to the property will likely be impossible. But, it does restrict the marketability of the property, which will fulfill Mr. Rucker's wish of making sure Mrs. Rucker does not transfer her interest to a charity and making sure his sons obtain the property.  

        In conclusion, having Mr. Rucker execute, by deed, a life estate to Mrs. Rucker with a remainder to Fred and Andrew, will likely accomplish Mr. Rucker's goals. 

MEE Question 1

Testator’s handwritten and signed will provided, in its entirety,

I am extremely afraid of flying, but I have to fly to City for an urgent engagement. Given that I might die on the trip to City, I write to convey my wish that my entire estate be distributed, in equal shares, to my son John and his delightful wife of many years if anything should happen to me.

January 4, 2010

Testator

When Testator wrote the will, he was domiciled in State A, and his son John was married to Martha, whom he had married in 2003. Testator had known Martha and her parents for many years, and Testator had introduced Martha to John. At the time John and Martha married, Martha was a widow with two children, ages five and six. Following their wedding, John and Martha raised Martha’s children together, although John never adopted them.

Two years ago, Martha was killed in an automobile accident.

Six months ago, John married Nancy.

Four months ago, Testator died while domiciled in State B. All of his assets were in State B. The handwritten will of January 4, 2010, was found in Testator’s bedside table. Testator was survived by his sons, John and Robert, and John’s wife Nancy. Testator was also survived by Martha’s two children, who have continued to live in John’s home since Martha’s death.

State A does not recognize holographic wills. State B, on the other hand, recognizes “wills in a testator’s handwriting so long as the will is dated and subscribed by the testator.”

Statutes in both State A and State B provide that “if a beneficiary under a will predeceases the testator, the deceased beneficiary’s surviving issue take the share the deceased beneficiary would have taken unless the will expressly provides otherwise.”

How should Testator’s estate be distributed? Explain.

Sample Answer

The Testators estate should be distributed with John would taking 1/2 interest in T's estate and Martha's two children each recieving  1/4 of the estate because T's holographic will was valid and he did not revoke it despite knowledge of the prior mariage children.

Generally a will is valid if it meets the requirements of age, writing, intent, signature, and witness. A testator must be 18 at the time of execution. It appears from the apparant age of testator's son that the testator is over the age of 18. The testator must have testamatory intent at the time of the writing. The testator's acknowledgment of his potential death and the subsequent language "should anything happen to me" confirms the testators intent that the writing serve as his will.  

A sub issue is raised at this point in his langugage "I write to convey my wish", typically this language would be considered precatory language and would not be valid. However, this language is followed by sufficient detail in that it provides instruction that the estate be distributed in equal shares. Such detail can overide the defect of the precatory language. Thus on this sub-issue, the testators wish should be given effect. 

Next, the testatory signed the will. This satisfies both the general rewuirement that a will be signed and State B's requirement that the testator subscribe the will. 

Generally, the execution of a will must be witnessed by two witnesses. Here that standard does not appear to be met as the entirity of the will did not identify any witnesses. Nonetheless, a holographic will does not require two witnesses if the will is written in the testator's handwriting. 

State A does not recognize holographic wills while State B does. The issue here is whether the testators holographic will is valid for probate. A will can will be valid if any of three conditions are met. 1) The will was validly executed under the laws of the state of execution. 2) the will was valid in the state of the testator's domicile at the time of death or 3) the will was valid in the state where the property is located.  The testator died while domiciled in State B and all of his assets where in state B. While the will was invalid in the state of execution, it nonetheless satisfies the two other conditions. Thus, the testator's holographic will is valid. 

A third issues arises with respect to the phrase "and his delightful wife" this phrase is ambiguous and does not sufficiently identify whom the testator was refering to. While the plain meaning would normally be given effect, courts will permit extrinsic evidence when dealing with an ambigous term like such. Accordingly, the phrase "wife of many years" combined with the date of execution, would lead a court to conclude that Marth was the intended beneficiary of the testators will. 

Having been found inside the testators bedside table, one could conclude that the will was not revoked because it was in the testators sole control and was not destroyed, ripped, marked, or cancelled by any other act. 

The final issue concerns whether Martha's interest lapsed at the time of her death. Martha's interest was in equal shares with John and Martha predecised the testator. Absent an anti-lapse statute this interest would lapse and return to the residual. However, both state A and State B have an antilapse statute in "if a veneficiary under a will predecesases the testator, the deceased beneficiary's suriving issue take the share the deceased beneficiary would have take nunless the will expressly provides otherwis. The will does not expressly state otherwise, it simply states in equal shares. Thus, Martha's surving issue; issue being her heir, would take her interst. 

At the time John and Martha marreid, Martha was a widow tih two children. These two children were her heirs. In at least some jurisdictions, an anti-lapsign statute would only be valid to decendants of the testator's grandparents lineal decendants. Here, Martha's prior children do not satisfy that. Jogn Never adopted them. Thus the issue is whether non-adopted children can take as issue under an antilapsing statute if they were raised by the father. 

The testator was aware of these children long after execution. John had also raised them as his own. Had the testator wanted to deny them inhertence, he could have revoked his will. There is no evidence of that here. Therefore, John would take a 1/2 interest in T's estate and Martha's two children would each recieve 1/4 of the estate. 

Sample Answer

I. The issue is whether the law of State A applies or the law of State B applies to determine whether the holographic will is admitted for probate.

        Generally, the state in which the Testator was domiciled at death will govern the will and disposition of the Testator's property (except for real estate where the law of the location where the property is located will govern).  Therefore, since the Testator died and was domiciled in State B and all of his assets were in State B, the law of State B will govern. This is important because State B allows for holograph wills, but State A does not recognize holographic wills.

        A holographic will is a written document in the testator's handwriting where the testator expresses intent to that this document is his will, sets out the property to be devised and is signed by the testator.  Generally, the intent, material portions, and signature need to be in testator's handwriting.  State B has a specific statute governing holographic wills which allows for "wills in a testator's handwriting so long as the will is dated and subscribed by the testator."  Here, the testator complied with State B's provisions. The testator had a handwritten document which was a will, in that it expressed the testator's intent to distribute property at death because the testator had comtemplated death due to the impending flight.  The testator intended to convey his property by stating that "write to convey my wish that my entire estate be distributed...."  Further, the testator complied with the statute by dating and signing the document at the end of the document.

        The handwritten will is a valid holographic will in State B and may be admitted to probate. 

II. If the will is properly accepted, the issue is who will receive property under the will.

        If there is an ambiguity under the terms of the will, the court will look at outside evidence to determine the testator's intent at the time of making the will.

        Here, the word "wife" is ambiguous.  John was previously married to Martha at the time Testator made the will and Martha is the intended receipient of half the Testator's property.  Testator wished "that my entire estate be distributed, in equal shares, to my son John and his delightful wife of may years."  However, even though John is currently married to Nancy, John was married to Martha at the time the testator made the will and had been married to Martha for many years, which means that Testator likely intended Martha to receip an equal share of the property.  Nancy does not have a claim because it is not a general statement, like to John and his wife at the time, but there is specific indication that Testator meant Martha, and not just whoever is John's wife because Testator called her "delightful" and had known her for many years. 

        Therefore, Testator likely intended to have her estate split equalled between John and Martha.

1. Third, the panel granted AE’s request for attorney’s fees tied to the arbitration proceeding, but only in the sum of $110,000—one-third of the amount requested. The panel concluded that AE had overstated its case in several material respects that caused both sides to incur unnecessary fees and costs. The panel noted, however, that its ruling did not deny or limit AE’s right to recover attorney’s fees, if any, that might be incurred in enforcing its rights to future accountings and/or royalties.

   The Court Proceedings to Confirm the Award and Motion for Default Judgment

                   AE served its original complaint seeking to confirm the arbitration award by email to the Vice President of Manufacturing for WPP. Email service was used during the arbitration pursuant to the procedural rules governing the arbitration. AE’s subsequent motion for a default judgment, which added a request for $90,000 in attorney’s fees, was served upon WPP by mail. The complaint was served on November 2, 2018, and the default motion was served on March 8, 2019. WPP failed to respond. Almost eight months have elapsed since service of the complaint, and over 90 days have elapsed since the date of the service by mail of the motion for default judgment. The court notes that unlike the summons and complaint, the default motion was not translated into Mandarin Chinese, although those pleadings were short and straightforward. Moreover, the record establishes that WPP regularly conducted its international business in English, including the arbitration proceedings at issue.

                   AE also attempted formal Hague Convention service of its pleadings via the Chinese Central Authority but received no communication in return.

                   Accordingly, it is hereby ordered that the plaintiff’s motion for default judgment is GRANTED, and judgment is entered as follows:

UNITED STATES DISTRICT COURT

DISTRICT OF FRANKLIN

American Electric Distribution Inc.,

                                Plaintiff/Petitioner,

                                                                                                                                ORDER ENTERING DEFAULT