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BANKING/CORPORATE/COMMERCIAL LAW The Texas Business Law Foundation won a big victory during the 78th session of the Texas Legislature with passage of a bill that rewrites and reorganizes the state’s business laws. The bill’s passage this year follows unsuccessful attempts in 2001 and 1999. Unlike in the previous two sessions, when the weighty bill became bogged down, Daryl Robertson, chairman of the Texas Business Law Foun-dation, says it received an early hearing before the Houston Business & Industry Committee. Robertson, a partner in Jenkens & Gilchrist in Dallas, says the chairwoman of the committee, Rep. Helen Giddings, D-Dallas, was supportive and “spent a lot of time championing the bill.” “She made it her highest priority,” says Arthur “Val” Perkins, a lobbyist for the foundation. The rewrite, H.B. 1156, is an 824-page document that reorganizes, simplifies and modernizes the state’s business laws and makes some substantive changes to the law. Gov. Rick Perry signed the bill on May 29, but it doesn’t go into effect until Jan. 1, 2006. Perkins, a director in Houston’s Coats, Rose, Yale, Ryman & Lee, says the delayed effective date of the new Business Organizations Code will allow for any necessary cleanup during the 79th session of the Legislature. He says that helped give lawmakers a measure of comfort in passing the voluminous document. Another lobbyist for the foundation, John Kuhl, says the bill passed this session because of Giddings’ efforts, but also because of support from Perry, Lt. Gov. David Dewhurst and Speaker Tom Craddick. The bill was prepared with assistance from the Texas Legislative Council, which has been ordered by the Legislature to codify all of the state’s statutes. The bill, for the first time, collects all law pertaining to the formation, organization and operation of a business entity into a single code. [ See "800-Page Bill Simplifies Texas' Business Laws," Texas Lawyer, May 5, 2003, page 4.] Kuhl says the Texas Business Law Foundation had a great session overall, with all five of the bills on its legislative agenda receiving approval from lawmakers. The other bills make changes to the Texas Business Corporation Act, and changes to the laws governing limited liability corporations and limited liability partnerships in Texas. They also update Article 1 of the Uniform Commercial Code, which includes general provisions, and amend Article 9 of the UCC, which deals with secured transactions. Kuhl says the foundation’s success was surprising because of the unusual nature of the session, where a few big issues such as tort reform dominated the action, and a new leadership was in power. “It wasn’t really a session to be passing a lot of legislation. [There was] much more of an orientation for killing legislation over there, so we were very pleased,” says Kuhl, a partner in Sanford & Kuhl in Houston. Bankers were pleased with bills that would change the state’s home-equity lending laws, presuming approval from voters. The Legislature passed S.J.R. 42, which will put a proposed constitutional amendment before voters on Sept. 13 to authorize a home equity line of credit. John Heasley, executive vice president and general counsel of the Texas Bankers Association, says the current law provides only for a lump-sum disbursement when taking a home-equity loan, requiring borrowers to start paying interest immediately even if they don’t need the money right away. The enabling legislation for the line of credit law is included in S.B. 1067, which also would authorize state regulators to issue interpretations of the equity lending laws. The Texas Association of Reverse Mortgage Lenders also is pleased with the passage of H.J.R. 23, a resolution that allows voters to decide on Sept. 13 if homeowners should be allowed to refinance their home equity loan through a reverse mortgage. “It was our No. 1 issue, and we got it,” says Scott Norman, the group’s executive director, who adds it would allow qualified homeowners aged 62 or older who take out reverse mortgages to save money by refinancing with a lower interest rate. Heasley says the Texas Bankers Association also supports the constitutional amendment to allow home-equity refinancing with reverse mortgages. “It’s good for the homeowners,” he says. Norman says the Texas Association of Reverse Mortgage Lenders will be back in 2005, seeking legislation to extend the line of credit to reverse mortgages. – Brenda Sapino Jeffreys CRIMINAL LAW It was blissfully quiet on the criminal law front in the 78th legislative session as lawmakers were more concerned with the budget and other political turmoil to get too caught up in changing the Texas Penal Code. “That’s sort of the theme of the session – if it didn’t have to do with money, it was of little interest to folks over there,” says Shannon Edmonds, legislative director of the Texas District and County Attorneys Association. “Since most of the issues we care about don’t have to do with money, we were on the back burner.” But there were a few notable changes in criminal law. The most interesting criminal bill the Legislature passed was S.B. 319, which changes the definition of “individual” in Texas criminal statutes. The new definition allows defendants to be charged in the death of an unborn child. Previously unborn children could not be crime victims. The statute excludes the prosecution of mothers and doctors who perform legal abortions. The bill takes effect on Sept. 1, 2003. The bill “caught a lot of attention because of the [Laci] Peterson case out in California,” says Allen Place, a lobbyist for the Texas Criminal Defense Lawyers Association. “That’s a fairly big deal.” Other smaller adjustments to the Texas Penal Code that the Legislature passed include H.B. 2668, which requires judges to sentence most defendants convicted of first-time state jail offenses to probation, unless they have prior convictions. The bill takes effect on Sept 1, 2003. “We call it the back to the future bill,” Edmonds says. Edmonds says when the Legislature first created state jail felonies in 1993, first-time state jail offenders were supposed to receive probation. But many judges ignored the law because of the way it was written, and first-time state jail offenders received mandatory probation even if they’d been to state prison before, Edmonds says. Place and Edmonds say the bill may save the state some money, but it won’t change many sentencing practices in state courts. “Probably most of those cases are getting community supervision anyway,” Place says. Another notable bill the Legislature passed is S.B. 1057, which changes the law regarding mental competency hearing. Under the bill, a trial to determine a defendant’s competency can be waived if both sides agree. And courts can commit mentally ill defendants to a state mental facility for up to 180 days. Previously defendants could be committed to a state mental facility for as long as 18 months, Edmonds says. The bill goes into effect on Jan. 1, 2004. – John Council ENVIRONMENTAL LAW Funding clean air initiatives dominated the environmental issues debated during the 78th legistlative session. The importance of developing a blueprint to fund the state’s primary pollution-reduction plan, the Texas Emissions Reduction Program (TERP), was a no-brainer, says Connie Westfall, chairwoman-elect of the State Bar of Texas Environmental and Natural Resources Section and a partner in Dallas’ Strasburger & Price. “If we didn’t come up with this money, we would lose federal highway funds,” she says. “That’s the hammer the feds have on the states to get them to clean up the air.” Texas is fast approaching a 2007 deadline to bring the Dallas and Houston areas into compliance with the federal Clean Air Act. During the 2001 session, state lawmakers passed S.B. 5, which implements fees to generate about $100 million annually for pollution-reduction efforts. S.B. 5 raised funds for TERP by placing a $225 registration fee on automobiles from outside the state. Auto dealers sued the Texas Department of Public Safety in Dodd Motor Co. Inc., et al. v. Texas Department of Public Safety, et al. alleging the fee was a hindrance to interstate commerce, and 261st District Judge Lora Livingston of Travis County agreed. “The court said the funding source was unconstitutional,” Westfall says. “The court said you can’t discriminate against out-of-state people. So they [lawmakers] were scrambling this year to come up with another source of funds.” That new funding source is H.B. 1365, which will add about $150 million annually to TERP’s grant funds, which are used to replace high-polluting diesel equipment, such as that used by construction companies, says Zak Covar, chief committee clerk for the House committee on environmental regulation. Committee chairman Rep. Dennis Bonnen, R-Angleton, authored the bill Sen. Chris Harris, R-Arlington, sponsored it. Gov. Rick Perry is expected to sign the bill, which will go into effect Sept. 1, 2003. The money will come from increasing vehicle title transfer fees from $13 to $33 in areas not in compliance with federal clean air guidelines – currently the Houston and Dallas areas – and from an increase in the fee from $13 to $28 in those counties that are in compliance, Covar says. It also doubles the surcharge, to 2 percent, on the sale, lease or rental of any on-road diesel vehicle weighing more than 14,000 pounds, such as dump trucks and tractor-trailers, he says. If the vehicle is a 1996 model or older, the surcharge fee is 2.5 percent, Covar says. The broad-based funding for the program is palatable, says R. Kinnan Goleman, a partner in Brown McCarroll in Austin. “That was the big concern from my clients’ perspective,” says Goleman, who counts chemical plants, oil refineries and other manufacturing companies among his clients. “The bill obviously went through several iterations of how the funding was going to be, and the way it came out, I think, was appropriate.” The bill also specifically states that the Texas Commission on Environmental Quality (TECQ) will not be allowed to reduce speed limits for environmental reasons. “That came from a brouhaha that occurred in the early TERP proposal,” Goleman says. When TECQ lowered speed limits to 55 mph in the Dallas area and surrounding counties, to reduce vehicle emissions, there was such public outrage that the ruling had to be rescinded, Goleman says. “So legislators made sure the agency no longer has the ability to lower speed limits.” H.B. 4, the session’s tort reform bill, also included a clarification of the definition of trespass as it relates to environmental cases, says Albert Axe, an environmental lawyer and shareholder in Jenkens & Gilchrist in Austin. The new definition requires that a party show damages to successfully claim that a company emitting airborne toxins has trespassed, Axe says. Perry signed the bill on June 11. Most of the bill’s provisions, including the trespass clarification, go into effect on Sept. 1, 2003. – Jeanne Graham FAMILY LAW The simplest, most prosaic and least controversial changes to the Texas Family Code approved by the 2003 Legislature ultimately may have the most profound effect, says Rep. Toby Goodman, R-Arlington. Specifically, legislators passed H.B. 913, authored by Goodman and sponsored by Sen. Chris Harris, R-Arlington, which changes �153.312 (a) of the Family Code so that the standard midweek visiting day for noncustodial parents is Thursday, instead of Wednesday. Now, noncustodial parents will have a chance to meld their standard every-other-weekend visits with their weekday visits, Goodman says, giving the noncustodial parent, in effect, a long weekend with the child. “We only went from Wednesday to Thursday, but it’s a big change,” Goodman says. H.B. 913 did not inspire nearly as much controversy and rancor as H.B. 729 – authored by Goodman and sponsored by Sen. Florence Shapiro, R-Plano – a measure that spells out the contractual rights for intended parents with a gestational host mother, who is impregnated with one or both of the parents’ biological material or with donor eggs or sperm. The bill passed by legislators spells out the rights of all involved, specifically giving the intended parents custodial rights from birth and the gestational mother protections in contractual disputes, for instance, financially obligating the intended parents if the child’s medical costs are high at birth. The legislation sparked tremendous opposition from right-to-life organizations, says Goodman, a member of the House’s Juvenile Justice and Family Issues Committee, because some groups oppose assisted-reproduction techniques and believe that married couples who cannot conceive should adopt. “Politically, it was a difficult bill,” says Goodman, who will not predict whether Gov. Rick Perry will veto the proposed law. With the legislation, Texas lawmakers followed provisions set in the Uniform Parentage Act of 2002 by the National Conference Committee on Uniform Laws, a group of gubernatorial appointees, all lawyers, who created a set of recommendations that states use as guidelines. “The story is simple,” says John J. Sampson, a professor at the University of Texas School of Law who studied such proposals for lawmakers prior to the legislative session. “If you don’t have something in place, then you have nothing, and this is a multimillion – I hate to use the word – industry. We need rules.” Another controversial piece of legislation signed by the governor is the Defense of Marriage Act, S.B. 7, authored by Sen. Jeff Wentworth, R-San Antonio, and Rep. Warren Chisom, R-Pampa. “There was wall-to-wall people when that piece of legislation was debated,” recalls Sampson, who says he was neutral about the legislation. However, Sampson says ultimately the bill will “not have a whit of an effect on anybody,” because there was existing language in several statutes in the Family Code that covered the same ground. Like similar legislation passed around the nation, the proposed law specifically forbids the recognition of same-sex marriages. So a gay couple who gets married in Vermont, where same-sex unions are sanctioned by state law, cannot have that marriage recognized in Texas. For Stewart W. Gagnon, a partner in Houston’s Fulbright & Jaworski and a former chairman of the State Bar of Texas Family Law Section’s Legislative Committee, the most controversial piece of legislation and the one bill that inspired him to write to Perry asking for a veto was H.B. 913, which allows the court to restrict the residency of children in jointly managed conservatorship cases. The governor has not signed the legislation yet. H.B. 913, which amends �153.134 of the Family Code, gives a jury the right to impose a restriction on where the child of divorced parents lives. A jury can decide that the child must live within one block of the noncustodial parent. In the past, such restrictions were limited to requiring the custodial parent to live within a particular county or in a county contiguous to that particular county. Gagnon fears that the new rules will prompt more divorcing couples with child custody issues to seek jury trials. Goodman, owner and managing partner of Goodman, Clark & Beckman, agrees that one side or the other will ask for a jury, particularly if one side knows a judge is inclined to rule against it on the residency restrictions issue. But Sampson notes that the legislation initially was proposed by the State Bar Family Law Section’s Legislative Committee. “If I had a dollar for every time someone used that jury trial floodgate argument,” Sampson says, “I’d be living in Provence by now.” Both bills would be effective Sept. 1, 2003, as long as Perry does not veto the bills. – Miriam Rozen GOVERNOR’S OFFICE Gov. Rick Perry declared two issues as priorities for the 78th legislative session: home owner’s insurance reform and medical malpractice reform. The Legislature did as commanded and sent Perry bills on both issues that addressed most of the governor’s concerns, but not all of them. For example, the tort reform bill Perry wanted did not include a provision that would allow lawyers to take their medical malpractice cases to a specialized court created by the Texas Supreme Court. “I don’t think you ever get everything you want in any legislative session,” says Gene Acuna, a Perry spokesman. “But the governor declared both of these issues of emergency action and felt they benefited the state . . . [and] the state took a major step forward.” On June 11, Perry signed H.B. 4, the tort reform bill that includes a $250,000 cap on non-economic damages in medical malpractice cases – one of the most controversial bills of the session. H.B. 4 also: • requires plaintiffs to provide an expert witness report from a qualified physician within four months of filing a case; • tightens the “Good Samaritan” provision in H.B. 4 to make it easier for a health care professional to provide emergency care to an injured person without fear of being sued; and • creates a Texas medical disclosure panel to draft a list of common risks that need to be disclosed to patients before they consent to a medical procedure. “With this comprehensive lawsuit reform measure, we are ending costly and intentional legal delays, requiring reasonable attorney’s fees in class action lawsuits, and removing the incentive for trial lawyers to file frivolous lawsuits,” Perry says in a prepared statement. Paula Sweeney, a past president of the Texas Trial Lawyers Association and a partner in Dallas’ Howie & Sweeney, has a different take on H.B 4: “It’s going to eliminate the access to the courthouse for a lot of hurt people.” One of the key insurance bills to pass during the session was S.B. 14, which Perry signed into law on June 10. That bill is designed to: • close loopholes that had allowed many homeowner and auto insurance companies to bypass rate regulation; • allow companies greater flexibility to offer more coverage options, making it easier for consumers to find policies that best suit their needs at the lowest possible price; • provide the Texas Department of Insurance with the authority to offer rate flexibility to small companies to stimulate market competition in Texas; and • limit the use of geographical factors to determine rates. “All future rates must be fair, reasonable and justified. If future rates are unfair, the Department of Insurance now has the authority in law to reject excessive rates out of hand and force insurance companies to offer lower rates,” Perry says in his statement. The legislative changes made in this session don’t seem to offend the insurance industry, says Jerry Johns, president of the Southwestern Insurance Information Service, which represents insurance companies that write 85 percent of the home and auto policies in Texas. “It has turned now from a political issue to a business initiative more than anything else,” Johns says of Perry’s home insurance reform initiative. “The proof will be whether insurers will re-enter this market and commit financial capital to Texas.” – John Council THE JUDICIARY Despite a major push for a change in the way Texas selects judges, the Legislature again refused to let voters decide whether to scrap partisan judicial elections and allow the governor to appoint the judiciary. A proposed constitutional amendment that would establish an appointment-retention system died in the House Judicial Affairs Committee without coming up for a vote. Under the proposal, the governor would appoint state trial and appellate judges, who eventually would have to face voters in retention elections. In these uncontested elections, constituents would vote for or against keeping the judge on the bench. If they vote to not keep a judge, the governor appoints someone else. Sen. Robert Duncan, R-Lubbock, blames Republican Party of Texas officials for the demise of S.J.R. 33. “They decided they were going to put all their efforts into killing it, and that’s what happened,” says Duncan, a partner in Crenshaw, Dupree & Milam. “I am very disappointed that those who say they trust the voters won’t let the voters decide this issue.” Ted Royer, spokesman for the state Republican Party, says, “That bill died because it was a bill that a majority of House members opposed. They recognized that taking away their constituents’ rights would probably not be a good thing for them to do.” Duncan, who has sought to change the way Texas judges are selected since the mid-1990s, says he isn’t giving up on the appointment-retention plan and will introduce legislation to implement it in 2005. While lawmakers balked at changing the judicial selection process, they approved a bill that establishes petition requirements for candidates for the state’s two highest courts. Under H.B. 296, by Rep. Toby Goodman, R-Arlington, a candidate for the Texas Supreme Court or the Court of Criminal Appeals must present a petition signed by at least 50 voters from each of the 13 courts of appeals districts when they file for office and pay the filing fee. Goodman, owner and managing partner of Goodman, Clark & Beckman, passed a similar piece of legislation in 2001, but Gov. Rick Perry vetoed the bill. Perry hasn’t indicated what he plans to do about H.B. 296. “That is under review,” says Perry spokeswoman Kathy Walt. A projected $10 billion shortfall in revenue for the 2004-2005 budget cycle left lawmakers searching for programs that could be cut. One area hard hit by lawmakers’ budget ax is the visiting judges’ program. Alicia Key, administrative director of the State Office of Court Administration, says an estimated $8.33 million was spent on visiting judges in the trial courts in fiscal year 2002. Lawmakers budgeted only $3.36 million to provide trial courts with visiting judges in 2004, she says. The budget cut is even more devastating at the appellate court level. Key, who also is an attorney, says the state spent an estimated $1.65 million for visiting judges in the appellate courts in 2002, but only $298,963 was budgeted for that program in 2004. The Legislature also made some changes in the visiting judges program. Under H.B. 3306, a previously defeated judge can’t hear a case by assignment if a party in the case objects. The bill also authorizes sitting trial judges to be assigned to courts of appeals – a move that Key says could save the state money. Although the state pays a retired or former appellate judge assigned to a court 100 percent of an appellate judge’s daily salary, a trial judge won’t receive additional pay if assigned to a court of appeals. Last year, the Texas Supreme Court recommended that the districts of the 14 courts of appeals be redrawn. As part of the redistricting, the high court recommended that the 1st Court and 14th Court in Houston be combined and that a new appeals court be created in the Rio Grande Valley. The recommendation didn’t stir much interest in the Legislature, although some minor changes were made. H.B. 2261 transferred Ector, Gaines, Glasscock, Martin and Midland counties from the district of El Paso’s 8th Court of Appeals to the district of Eastland’s 11th Court. The bill also reduces the number of justices on the 8th Court to three and adds a justice to the three-member 9th Court in Beaumont, effective Jan. 1, 2005. Another bill eliminates the options for the filing of appeals from trial courts in Brazos County. Under the current districts, Brazos County is in the districts of Waco’s 10th Court and the two appeals courts in Houston. H.B. 988 removes Brazos County from the district for the 1st Court and 14th Court. – Mary Alice Robbins LABOR AND EMPLOYMENT Michael P. Maslanka says the executives employed by his corporate client, a major employer in the Dallas area, already have reported to him that they’ve seen an uptick in the number of employees or former employees filing suits against the company. Why? Maslanka believes the employees are trying to avoid the changes expected with the tort reform legislation passed by the Legislature in the 2003 session. Maslanka, a partner in Dallas’ Godwin Gruber, says that H.B. 4, which called for tort reform across the board and will impose some of the litigation costs on plaintiffs, will have “an enormous impact” on labor-related litigation. Specifically, Maslanka says Chapter 42 of H.B. 4 gives valuable rights to the defense side in employment cases that will kick in 91 days after a case has been filed. At that point, under the new law, the employer or defendant in the case can make a settlement offer, Maslanka says. If that offer is rejected by the plaintiff-employee and the plaintiff-employee subsequently fails at trial to win a judgment of more than 80 percent of the previously proposed settlement amount, the defendant-employer can ask the court to make the plaintiff-employee responsible for the company’s legal costs, including attorneys’ fees, Maslanka says. In the past, Maslanka says, plaintiffs have only been responsible for miscellaneous costs – such as deposition and printing expenses. “Now they’ll have the entire enchilada,” Maslanka says. Maslanka says that because a plaintiff in an employment case typically requests a lot of discovery from an employer to prove his case – the employer holds all the personnel records, for example, that would show any alleged disparate treatment – the legal costs an employer could pass on to a plaintiff are steep. Yet, Maslanka says, within 91 days after a plaintiff files a suit, it will be difficult for a plaintiff-employee’s lawyer to estimate those costs and have a good evaluation of what kind of case he’ll take to trial. Maslanka says he expects plaintiffs to start filing more employment-related suits in federal courts, and to avoid state courts because of H.B. 4. Hal K. Gillespie, a partner in Dallas’ Gillespie, Rozen & Watsky, a firm that represents employees and unions, agrees that Chapter 42 of H.B. 4 will cause problems for plaintiff-employees. “It’s bad legislation. It modifies the common-law American rule that both parties pay litigation costs and makes an un-American rule,” says Gillespie. – Miriam Rozen MUNICIPAL LAW Municipalities went into the 78th legislative session seeking ways to raise money, knowing that the state government was looking to tighten its belt. But a late change made by legislators to a proposed statewide ethics code – H.B. 1606 – has members of the Texas Municipal League crying foul. TML executive director Frank Sturzl describes H.B. 1606 as bad legislation that will hurt cities trying to attract quality candidates to seek public office. The bill as amended requires every elected official, city manager and city attorney representing a municipality with a population that exceeds 100,000 to file an annual financial statement with the city clerk or secretary. That financial statement must include an account of the financial activity of the official and that official’s spouse and children. The original House version applied the financial disclosure requirements to cities with populations that exceed 350,000 people; the Senate version had no financial disclosure requirements at all. The financial statement must include all sources of income – shares of stocks owned, acquired or sold; bonds, notes or other paper held, acquired or sold; any interest, dividend, royalty or rent exceeding $500; each person or institution to whom a personal debt of $1,000 or more exists; all beneficial interests in real property or businesses owned, acquired or sold; certain gifts received; income in excess of $500 from a trust; a list of all boards of directors on which the individual serves; and other forms of income. The requirements are similar to what must be disclosed by state and federal elected officials. Legislators argued that since city officials are in a position to handle taxpayer money, residents have the right to know their financial dealings. “There is no doubt that this bill will lead to a sharp drop in the number of people willing to run for municipal office, and possibly the number of current office-holders willing to complete their terms,” Sturzl says. Sturzl says he also is concerned with what could happen in the next legislative session. “What if they decided to lower the requirement to cities of 50,000 population?” he asks. “That could have a big impact on smaller cities who use outside counsel on a retainer. If they have to make all kinds of financial disclosures, they won’t do the work. Then cities are left without legal representation.” Sturzl says his organization plans to ask Gov. Rick Perry to veto the bill, but he does not know if it will do any good. In the meantime, some members of the Lubbock City Council sent letters to the governor vowing to resign if he signs the bill into law. “Cities have a hard enough time recruiting quality candidates to seek office,” Sturzl says. “This will make it worse. Who wants to open up their lives for a job that, in many cases, doesn’t pay more than $25 a month?” H.B. 1606 goes into effect on Sept. 1, 2003. In addition, lawmakers passed H.B 164 broadening a city’s use of sales tax money for street maintenance. Previously cities could only ask voters to approve a sales tax increase of a quarter-cent. The bill lowers that number to one-eighth of a cent, giving cities more flexibility in assessing tax money. Sturzl says TML was happy to see several pieces of legislation fail that would have hurt municipalities. Bills that would have restricted annexing authority and required cities to pay property owners if land is re-zoned did not pass. “I believe we were able to defeat a lot of bills out there that were not beneficial to cities, but the last-minute changes to the ethics legislation set us back,” Sturzl says. H.B. 164 went into effect on March 31, 2003, because it was unopposed. – Kelly Pedone PROBATE/TRUST LAW Legislators filled in some of the gaps regarding the state’s probate and trust laws in the 2003 session, but more work is needed, says Barbara Anderson, chairwoman of the State Bar of Texas Real Estate, Probate and Trust Law Section. “I think that there will always be gaps in probate law,” Anderson says. “However, we are very pleased with the changes that took place this session.” The main pieces of legislation the section focused on this year were H.B. 2240 and H.B. 2241. The section submitted the Uniform Prudent Investor Act and the Uniform Principal and Income Act to legislators, Anderson says. Both bills passed and will take effect Jan. 1, 2004. The acts deal with trusts and how trustees diversify low-interest rates. Both acts say that trustees have a variety of investment options and can shift between principal-investing and income-investing as conditions warrant, with the standard of prudence being an overall measure of fiscal responsibility. “Basically the new law [H.B. 2240 and H.B. 2241] more closely reflects modern investment theory,” Anderson says. “It gives trustees more flexibility and more options.” Legislators also changed the guardianship code. H.B. 1470 requires a guardian of an estate to appear before a probate judge within 30 days of his or her appointment to disclose the estate’s assets. In the past, a guardian had 90 days, but members of the State Bar’s guardianship committee wanted the time decreased. “I’m sure I’m going to take a lot of heat for that,” says Lisa Jamison, committee chairwoman. “Some attorneys believe it’s not enough time, but we believe that if you are doing your job you should know what needs to be done within 30 days. If there is a problem, then you can always ask for an extension.” In addition under H.B. 1470, guardians must provide the court with an investment plan that shows they are mindful of the long-term needs of their wards. Bankruptcy judges also require such plans, Jamison says, where the bankruptcy trustee must outline a person’s assets and what they will be used for. Another bill, H.B. 1473, gives rights to a guardian dealing with a ward who has a mental defect. In the past, a sheriff was required to take the ward to a facility and sign that person in if there was a need to get that person emergency medical attention. For some wards, Jamison says, it was upsetting to have a stranger assume the role of guardian. The new legislation allows the guardian to take the ward to the facility and fill out the paperwork. The bills go into effect on Sept. 1, 2003. – Kelly Pedone REAL ESTATE The Real Estate, Probate and Trust Law Section of the State Bar of Texas tracked 1,250 bills this session, says Janna Melton, chairwoman of the section’s real estate division legislative committee. “We’ve got about 200 bills that passed that will be on our final report,” she says. Insurance reform was big on the legislative agenda this year, and two bills passed this session, says Ron Walker, general counsel for the Texas Association of Realtors. S.B. 14 calls for a reduction in homeowners’ insurance rates and limits the use of credit scoring in underwriting, and credit scoring can no longer be used as the sole reason for denying, canceling or not renewing a homeowner’s insurance. In addition, the bill gives guidelines to insurance companies as to when they have the right to cancel a policy, Walker says. “I don’t think rates will be lowered as much as they’ve increased over the past couple of years. It’s not a great win for homeowners, but it’s better than nothing,” he says. The governor signed S.B. 14, which took effect on June 11, 2003. Another victory for homeowners came in the form of S.B. 127, which relates to water-damage insurance claims. In the past, insurance companies often denied water-damage claims on the basis of a policyholder’s bad claims history, Walker says. In January, the Texas insurance commissioner adopted a rule stating that homeowners could not be denied coverage on the basis of one prior water claim. With S.B. 127, the Legislature said that homeowners can’t be denied coverage on appliance-related water damages, such as water heaters, washing machines and dish washers, as long as the insurance applicant has not made more than three appliance-related claims in the last three years and can provide documentation that the offending appliance was repaired, Walker says. The governor signed the bill, which took effect on June 11, 2003. Another change this session involved the creation of the Texas Residential Construction Commission. H.B. 730 created the commission, which will be funded by collecting an additional fee from new home buyers. The commission’s responsibilities will include minimum performance standards that contractors are supposed to adhere to and a state-sponsored inspection process when a homeowner submits a claim for defective construction, Melton says. Additionally, the commission will provide an alternative avenue for mediating disputes between builders and homeowners. Either the builder or homeowner can file a claim with the commission. Any pending suit would be put on hold while the commission investigates. Once it makes a determination, the builder can make an offer to fix the problem or compensate the homeowner. If the homeowner declines the offer and moves forward with a suit, the homeowner would have the burden of proof of overcoming what the commissioner’s inspector said about the defect. The bill is meant to encourage dispute resolution rather than litigation. Once signed by the governor, the bill will go into effect on Sept. 1, 2003. One of the last big-ticket real estate bills passed this year was H.B. 329. The law requires mold assessors and remediators to be licensed by the Texas Department of Health, Melton says. Licensing is necessary due to the abundance of mold claims filed in Texas in recent years, Melton says. Some assessors and remediators had little or no experience in this area, meaning there was the potential for consumer fraud, Melton says. Perry signed the bill on June 11; it goes into effect on Sept. 1, 2003. Other measures enacted during the 2003 session include a law to clarify previously passed legislation. H.B. 2180 says commercial landlords may use “reasonable and customary methods” to calculate charges for items such as common area maintenance or utilities without spelling out precisely how such items are computed, Melton says. Previously passed legislation stated that such charges had to be spelled out precisely within a lease. The bill has not yet been signed by the governor. – Lisa M. Whitley

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