Unpublished Decision Demonstrates Difficulties Inherent in Setting Aside Settlements

The process by which this issue arises is somewhat confusing, but basically the facts are that:

Parent has two children. Original trust leaves residue to his children 50-50; and if either child predeceases, the share of predeceased child goes to the descendants of the deceased child.

One child dies and then the parent becomes demented, subject to guardianship and conservatorship. Conservator petitions the trial court for instruction on the validity of a trust amendment which may or may not have been signed. No signed copy is found. The purported amendment was made after the death of the child, and if valid, would leave the entire residue to the surviving child and nothing to the descendants of the deceased child.

Matter is mediated and the surviving child and descendants of the deceased child reach an agreement regarding the division of the residue, which agreement is approved by the trial court.

Subsequently, the child who would have received everything under the purported trust amendment announces that he has found the signed amendment, and seeks to set aside the order approving the settlement pursuant to MCR 2.612(C)(1).

The trial court denies the motion to set aside the order, and the Court of Appeals affirms.

In Re Frank M. Lambrecht, Jr. Trust (click on name to read the case) is unpublished, but I think it does a reasonably good job looking at what it takes to set aside a settlement agreement, and probably gets the right result in what is no doubt a very close case.

There are several grounds on which the agreement (or more accurately, the court order adopting the agreement) is challenged, all of which come under MCR 2.612(C)(1).

MCR 2.612(C)(1)(a) – Mutual Mistake.  Court of Appeals holds that while it may well have been a mutual mistake of a material fact that no signed amendment existed, the parties all knew that it was possible that one might subsequently be found, and that possibility was presumably factored into the value they placed on the case when they settled.  So, unlike some other types of orders, an order approving a settlement agreement has already factored in the possibility of this type of mistake = no relief here.

MCR 2.612(C)(1)(b) – After Discovered Material Evidence.  The Court of Appeals says that the child challenging the settlement agreement is correct that the discovery of the signed amendment would meet most of the requirements necessary to obtain relief under MCR 2.612(C)(1)(b), but on these facts this contesting child fails to meet the burden of showing that it could not have been found with “reasonable diligence.”   The child seeking relief says the signed amendment was found in his parent’s desk drawer, but that he chose not to look there while his parent was alive, out of respect for that parent’s privacy.  Basically, his deference on this point may have been admirable but does not obviate his obligation to use due diligence.  There is no question he had access, and presumably the desk drawer would have been an obvious place to look.  So that won’t work.

MCR 2.612(C)(1)(e) and (f) – No Longer Equitable and Other Grounds for Relief.  The Court of Appeals notes that the settlement was not solely based on the fact that a signed amendment was missing. Rather, the settlement negotiations included other issues, including whether, even if the signed amendment were found, the amendment would be set aside for lack of capacity or undue influence.  In light of the other variables in play during the settlement process, it could not be said that the resulting agreement is no longer fair.

Conclusion. This case neatly presents the issue of how and why an order approving a settlement agreement is different from other types of court orders when it comes to seeking relief under MCR 2.612(C)(1); and neatly applies the law to facts that make the decision a close call on several grounds.

 

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VA Program Adds Divestment Rules and More

The so-called “Aid and Attendance” pension has become an important source of income for older adults needing long term care services, and an important source of business for some elder law attorneys. The program is offered through the Veterans Administration.  Eligibility requires military service during a period of conflict, or being the spouse or surviving spouse of a veteran that meets that requirement. In addition, there are asset and income eligibility rules. Those income and asset rules will change dramatically with the implementation of new regulations formally adopted today (but taking effect in 30 days).

There are several changes. Some of the more notable changes are outlined below. Before I get into those, I think it would be helpful to acknowledge the context of these changes and the overriding themes that tie them together.

First, it seems evident that these new rules are a reaction to the role of lawyers and financial planners who, for the past ten years or so, have become increasingly involved in “helping” veterans qualify for these benefits. The VA clearly perceives this development as harmful to the program and perhaps even exploitative towards the veterans.

Second, this VA benefit is often considered by older adults who need help with aging issues, as something available either in addition to, or as an alternative to, applying for long term care benefits through Medicaid. For historical reasons, these two programs have had very different financial (asset and income) eligibility rules.  These changes make the VA benefit rules more like the Medicaid eligibility rules.

 

Divestment. Divestment means giving away your assets (or taking other steps to artificially reduce their availability) in order to qualify for the benefit. Heretofore, there was no penalty if an applicant gave away resources in order to qualify for this VA benefit.  Now there will be.  Most Medicaid long term care programs have had divestment rules for at least 20 years.

Like the Medicaid long term care programs, penalties for asset transfers will result in periods of ineligibility the duration of which will be a function of the amount sheltered. Whereas the so-called “look back period” for Medicaid is five years, the look-back for this program will be three years.

Use of trusts and annuities in planning can result in divestment analysis under these new rules.

There are exceptions, and interestingly there is an exception for elders who were taken advantage of by an advisor who was marketing services purportedly designed to allow them to qualify for this benefit. Or, in other words, if an attorney told you to put your assets in an irrevocable trust or annuity, and now, as a result, you are ineligible for benefits, you merely have to assert that the lawyer was a charlatan to avoid the penalty (at least that how I read it).

Homestead Exemption. Both this VA benefit and Medicaid have historically exempted the primary residence from consideration as a countable asset.  In recent years, Medicaid has placed a limit on the value of an exempt homestead.  Now VA will limit the exempt homestead by using a different measurement – two acres.

Countable Asset Limit.  The amount of exempt assets that have historically been excluded for this VA benefit has been uncertain.  While some offices used a “rule of thumb” figure at times, the real rule required a calculation taking into account the income shortfall of the applicant, their life expectancy and their available resources.  Medicaid has long had a simple $2,000 rule for single people, and a formula for married persons, with a ceiling.  That Medicaid formula is called the Community Spouse Resource Allowance (or CSRA) (also sometimes called the “protected spousal amount”).  Each year the Medicaid program announces the maximum CSRA. In 2018, the maximum CSRA is $123,600.  VA has adopted, as their new asset limit for all applicants, the Medicaid maximum CSRA.

 

Conclusion. These are dramatic changes for lawyers who offer advice on this benefit.  There are other changes.  Above are those that I perceive as most notable.  To read more:  click here to read the rule changes as they were originally published in 2015 (yes it has been around that long); and click here to read the VA commentary that accompanied the announcement that the rule changes would finally be implemented today.

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Terror Clause Canaries Don’t Fly

In this unpublished decision from the Court of Appeals, a potential litigant filed a “petition for instruction” which asked the trial judge to decide the question of: If a subsequent petition to modify the trust were filed, whether such a petition would be deemed to violate the trust’s terror clause and thereby cause petitioner to forfeit her interest in the trust?

Click here to read: In Re Robert E. Whitton Revocable Trust

Curiously, a trial judge saw fit to issue such an opinion. In this case, the trial court determined that the petition for instruction did not itself violate the terror clause, but that a subsequent petition to modify the trust would violate the clause and that the petitioner had no probable cause to bring that petition.

A terror clause (aka “no contest clause”) is a provision in a will or trust that says a beneficiary will be penalized (typically the penalty is to lose their interest in the estate) if they contest the will or trust at issue.

Michigan law on terror clauses is pretty straightforward and is spelled out in MCL 700.7113 (for trusts) an in MCL 700.2518 and 700.3905 (for wills). (click on the statutes to read them). They are generally enforceable, but will not be enforced in cases where the party had “probable cause” to initiate the proceeding.

Litigants, like the one in this case, have long attempted is to come up with a way of having a court determine whether they will be penalized if they bring an action before actually doing so. They want to know in advance whether they will be deemed to have triggered the terror clause if they file a petition being contemplated.  These efforts don’t work.  Several years ago, the Court of Appeals issued a published decision in a case handled by our firm in which it declared that trial courts lack authority to rule on such speculative matters for the reasons that the issue is non-justiciable (not ripe, as it were).  Click here to read that prior post.  Basically, the appellate courts have said that if you want to contest a document, you have to take your chances.  So, it’s no surprise that the Court of Appeals held that the trial court lacked jurisdiction to decide this case, and vacated that part of the trial court’s decision.  And it’s curious that, in light of the clear law on this point, the trial judge in this matter thought that such an action could be decided.

This case also offers the opportunity to discuss another, perhaps dicier, aspect of our terror clause statutes, which is that the imposition of a penalty is not necessarily limited to proceedings in which the validity of document at issue is being contested. Rather these statutes indicate that a terror clause can be written to impose a penalty for initiating any type of proceeding relating to the trust or will.  So, in this case, the anticipated subsequent petition was being framed as a “petition to modify” a trust to conform with an amendment that the settlor had purportedly had drafted, but never got around to signing.  The appellants in this case were hoping to escape the imposition of the terror clause penalty on the idea that the subsequent petition they were considering wouldn’t actually (per their argument) contest the validity of the trust, but would only inquire as to the validity of an unsigned amendment.  Likewise the respondents in this matter argued that the act of bringing a petition for instruction was itself a violation of the terror clause.  The point of all this is that Michigan law allows for very broad terror clause provisions, including, presumably, a provision that would penalize a litigant for bringing a petition for instruction, or that says a petition seeking to recognize an unsigned amendment is a violation. The opinion in this case indicates only that the terror clause in this trust was “lengthy.”  It is not clear what the scope of this lengthy terror clause is, but it is seems possible at least that a terror clause could have been written which would have been unambiguous on these specific issues.

So, the points here are that (1) There are no terror clause canaries – no free bites at the apple. When a terror clause is in play, you take your chances.  And (2) A terror clause may be written to impose a penalty for initiating any form of proceeding which relates to the will or trust at issue.  The scope of the terror clause itself is significant in deciding how to proceed in cases where these provisions are in play.

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COA on Brody Trust Remand: We Were Both Right

In what should be the last chapter in the Rhea Brody Trust saga, the Court of Appeals has released its decision resulting from a Michigan Supreme Court Order remanding the case to the COA.  As previously discussed here, confusion was created by the first Brody Trust decision (“Brody I”) regarding whether a child/beneficiary has standing to initiate litigation involving a parent’s revocable trust regardless of whether the parent/settlor is still competent.

To read the new Brody case, click here.

To read prior posts on this case, click here and here.

In Brody Trust I, the COA held that a child who is a beneficiary of a revocable trust may have standing to initiate litigation regarding the administration of a revocable trust, regardless of whether the parent/settlor is competent. The COA relied upon the definition of an “interested person” as set forth in MCL 700.1105(c).  That decision shocked the probate community, and caused the probate section of the state bar to file an amicus brief asking the Michigan Supreme Court to reverse that holding.  [The probate section did not ask for a reversal of the outcome of Brody I, because based on the facts of the case, and specifically the fact that the settlor was in fact incompetent, and the trustee was also the settlor’s agent under a power of attorney, standing would exist under MCL 700.7603(2).]  Click on the statute to read those laws.

The MSC accepted briefs on appeal, but rather than hear and decide the case, the MSC simply vacated controversial portions of Brody I and remanded it to the COA for a new and improved opinion.

Now, the new opinion (“Brody II”) has been issued.  In it, the COA acknowledges that the probate section was correct in asserting that MCL 700.7603(2) would apply in this case and that the application of that statute would provide standing to the petitioner/child/beneficiary. But – and it’s kind of a big but – they say that they were not wrong in their application of MCL 700.1105(c).

Litigators Rejoice?

Brody II is published, so it is the law. What this means, it seems, is that under MCL 700.1105(c), depending on the facts and circumstances of the case, a probate court could find that a child or beneficiary of a revocable trust might have standing to initiate litigation regarding the administration of a revocable trust even where the settlor remains competent and could amend the trust and cut out complaining child/beneficiary.  Is this a boon for litigators?  Possibly, but I think probably not.  Probate courts have discretion under the second sentence of 700.1105(c) to determine who would be an interested person in any particular proceeding, and that decision is based on the “particular purposes of, and matter involved in” the litigation.  Presumably, it would be a rare set of circumstances where a trial court would want to exercise their discretion to allow litigation by an aggrieved child or beneficiary in cases where the settlor can speak for themselves.  Presumably also, competent settlors who are offended by having their children and/or other beneficiaries initiate litigation, will in fact amend their documents and resolve the issue that way.

Conclusion

So, the COA missed the obvious way to resolve this case in Brody I, and they acknowledge that Brody II. But they don’t just leave it at that.  By taking the “we were both right” approach, they allow for the possibility of future litigation initiated by children or beneficiaries of revocable trusts while the settlor is competent.

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Michipremes Ponder the Space between Absent and Divorced

The Michigan Supreme Court has ventured back into probate law, this time to explain the rules for determining what it takes to prove that one spouse was “willfully absent” from the other pursuant to MCL 700.2801(2)(e)(i). It’s another lengthy opinion, and again there is significant division among the Justices.

In Michigan, if a married person dies, their surviving spouse has certain statutory financial rights in the probate estate of the deceased spouse. That is, unless the surviving spouse was “willfully absent” from the deceased spouse for a year or more before the death.

The facts of this case are that James married Maggie in 1968. They had four children together.  In 1976, Maggie packed up the kids, moved out and successfully sued James for support.  The two lived apart, although both in the same town (Saginaw), up until James died in 2012.  The trial court found that Maggie was still adequately connected to James throughout their 36 year separation so that it could not be said she was willfully absent.  The Court of Appeals affirmed.  The Supreme Court affirmed in a 4-3 decision.

Much of the majority opinion focuses on facts of this particular case, which the majority weaves to construct a story whereby the 36 year absence is portrayed as something short of a willful absence.  [I love it that the majority counts it as evidence of their continued emotional connection that James consented to the support order – rather than have a trial and possibly face a higher amount.  Or that he joined Maggie in a suit to allow her to continue to receive healthcare benefits through his employer – when presumably his support payments would have increased had she been cut off.]

The dissent, joined by three justices, argues that the majority has stretched the meaning of the word “absent” beyond reason.

Ultimately however, the case of In Re Estate of James Erwin Sr. will stand for the proposition that:

Absence in this context presents a factual inquiry based on the totality of the circumstances, and courts should evaluate whether complete physical and emotional absence existed, resulting in an end to the marriage for practical purposes. The burden is on the party challenging an individual’s status as a surviving spouse to show that he or she was “willfully absent,” physically and emotionally, from the decedent spouse.

To read In Re Estate of James Erwin,, Sr. click here.

Congrats to friend and colleague Valerie Kutz-Otway for prevailing despite some clearly difficult facts.

XXX TURN BACK NOW XXX

Supplemental Ramblings

Ok, these cases are kind of interesting in a sociological sort of way, right? And the courts didn’t create this problem. The legislature made this an issue by deciding that divorce isn’t the only line that matters; and by giving it a name (“willfully absent”) that suggests ill will or selfishness. So there’s a country music quality to the whole thing that invites gender stereotypes and morality judgments.

Remember Arbutus and Lyle? (click here for a refresher)

Maggie is different than Arbutus but the same. Both are seemingly good women who did what they had to do to get by. Arbutus was a good hearted woman lovin’ a good timin’ man (she loved him in spite of his wicked ways that she don’t understand). Maggie’s story is less developed, but the suggestion is that she did what she had to do for herself and their children and that she would have stood by her man, if he had only been a better husband.

So maybe this is really a gender stereotype thing. Would James have been treated as surviving spouse as to Maggie’s estate?  Would the Court have gone to such lengths to find a sufficiently adequate emotional connection to give him a bite out of her life savings?  Seems unlikely to me. His wife left him and took the kids, then had to sue him for support.

Or maybe this is just about sex. What if Arbutus or Maggie had gone off and shacked up with some other guys?  Would the court feel so warm and fuzzy towards these women, or would their sexual liberation be a bar to their rights?

So when this issue arises, we face something like a common law divorce trial, one where fault is a relevant inquiry. Is this helpful or necessary where we already have a clear line of married or divorced?  But, as I say, the legislature created this situation, not the courts.  In fact, by maximizing the circumstances in which someone can be found to not be willfully absent, that is, by minimizing the space between willful absence and divorce, the MSC has probably done all it can to discourage litigation in this arena.

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Divestment Rules for Medicaid Waiver Clarified – Maybe

A policy bulletin has been issued by the Michigan Department of Health and Human Services which provides additional direction on when and how a divestment penalty period runs for persons otherwise eligible of Medicaid Home and Community Based Waiver services (aka the ”MIChoice” program).

Click here to read the policy bulletin, which takes effect October 1, 2018.

The point of the policy seems to be that under federal law there was uncertainty about how to start a divestment penalty period running for persons in waiver programs, like MIChoice. The source of this clarification is a federal directive to state Medicaid directors that explains why there is perceived confusion about this issue.  In fact, I think the federal letter does a better job of explaining the issue than the State Policy Bulletin.  Click here to read that letter.

In any event, the powers that be have decided that the penalty period begins to run when the person applying for MIChoice services is deemed otherwise eligible for the program, which is a four part test:

  • determined that the applicant meets financial and non-financial requirements for Medicaid;
  • determined that the applicant meets the level of care criteria for the 1915(c) waivers;
  • determined that the applicant has an individual person-centered service plan in place; and
  • confirmed there is an available waiver slot for the applicant’s placement.

Well, BEM 405, page 14, already says:

The penalty period starts on the date which the individual is eligible for Medicaid and would otherwise be receiving institutional level care (LTC, MIChoice waiver, or home help or home health services), and is not already part of a penalty period.

As far as I can tell, this current Michigan policy seems to be in line with the new proposed policy. It certainly seems consistent with the federal directive, which simply says:

the penalty period start date for a 217 applicant is no later than the point at which a 217 applicant would otherwise be receiving HCBS waiver coverage based on an approved application for such care but for a penalty

If you want to worry about something, you might look to the State’s decision to include the requirement that there be an open slot to start the penalty running. That might prove challenging for planners in the future.

So, in the end, I’m not sure how things change with this new policy, or if they really do. Nonetheless BEM 405 will presumably be rewritten to conform with the bulletin and those who practice in this area may run into snags, or avoid snags, as a result.

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Phone App “document” is a Valid Will in Michigan

It happened and it’s published.

The Michigan Court of Appeals held, in a published decision, that a paragraph posted by a decedent on his phone is a valid will under Michigan law, and specifically, MCL 700.2503.

We’ve discussed Michigan’s uniquely liberal law regarding instruments intended to be wills before. See, for instance, Section 2503 Grows Up (click on name).

In this case, Duane Horton wrote a note in his journal stating that his testamentary wishes could be found on his phone app. They looked and they found it.  The trial court admitted the electronic expression as the decedent’s will under MCL 700.2503. The Court of Appeals affirmed.

Click here to read In re Estate of Duane Francis Horton, II

It’s an important case as it further fleshes out the impact of Michigan’s cutting edge law.

First, it dismisses the number one misconception about Section 2503, which is that it is intended only to fix “minor, technical deficiencies” in documents that would otherwise be admissible as holographic wills or otherwise. The COA holds that the statute doesn’t say that, and doesn’t mean that.  Rather Section 2503 is a stand alone, separate process for admitting testamentary expressions which does not require any formality, only clear and convincing evidence of intent.

Equally important, the case stands for the proposition that an electronic document is a “document” for the purposes of this statute.

These are powerful developments in probate law, and, for better or worse, Michigan seems to be on the cutting edge. Fun issues, fun times.

 

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Sunday Thinking: Moments of Perfection

At this time of year, looking out at the lush Michigan vegetation, I am often reminded of one of Shakespeare’s sonnets – No 15, in which he observes that all things, humans included, experience a moment of perfection.  A moment we build toward and from which we decline.   He reflects on physical perfection, but it makes me think also of the various types of perfection that humans achieve.

Physical perfection is reached very early in life – that age when our bodies are magnificent and require no upkeep. Mental perfection, the accuracy and speed of our minds, comes later, probably in our 30’s or maybe 40’s. And then there is an emotional perfection that can come even later in life when our minds are still sharp but also informed by experience; when we can see the landscape and understand more deeply the decisions we make and our relationship to people and things.

And so Olympic athletes are often just children. Great scientists make their mark in mid-life.  But it is the aged grandparent who can best provide judgment-free and  unconditional love. (And, dare I say, the later-in-life lawyer who can give the best counsel.)

In practice, we see clients and their families, and we recognize the different stages of life that they are in. It’s all part of the planning process.  We often think ahead for them about decline, and try to help them anticipate the challenges they will face.  But sometimes I like to remember how they will evolve from where they are now to other moments of perfection.

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State Supremes Issue Split Decision on Mardigian

Relish the moment because this is as exciting as probate law gets.

We’ve written about the case before (See: This is Awkward).  Attorney prepares an estate plan (will and trust) for non-relative, leaving millions to said attorney and attorney’s family.

Trial court says: An attorney can’t do that under the rules of professional conduct, and therefore the estate plan is void – on summary disposition.

Court of Appeals reverses the trial court. COA says: While the lawyer may face discipline for the ethics violation, the validity of the trust is not implicated by the ethics rule.  That decision was 2 to 1.

Now, the Michigan Supreme Court reviews the Court of Appeals, and it’s a 3 to 3 tie [The 7th Justice abstains because he was on the COA panel that decided it – and was one of the two votes on the prevailing side.]  Apparently a tie means the COA decision is affirmed.

So the issue is whether a violation of the MRPC rule 1.8(c) (which precludes an attorney from creating estate plans for non-relatives in which they receive a substantial benefit) has any role in a trial contesting the validity of the estate plan? The answer is “no, it does not.”  While everyone agrees that the attorney is a fiduciary and that, as such, the presumption of undue influence is in play, the prevailing opinion is that the ethics violation, in and of itself, is not a factor in the case.

It’s a Long Decision

As indicated, there are two opinions, each with 3 signatories. In all it’s 53 pages long.  Click here to read the case.

The three who vote to affirm the COA ultimately conclude that it’s not their role to change the law of undue influence to enforce ethical obligations of the bar. The other three see this as an opportunity to do just that.  Their approach would be to treat a violation of the ethics rule as giving rise to an per se finding of undue influence.  They assert that the law needs to catch up with changes that have taken place since the last time the MSC reviewed this question more than 50 years ago, which changes included the adoption of MRPC 1.8(c).

Each opinion includes a lengthy discussion of undue influence and the presumption. It at least attempts to clarify some of the confusion that exists about the presumption and particularly about how it is rebutted.  This case will no doubt be quoted in litigation going forward.  So if you do this kind of work, you need to read this case.

They’re Making My Point

The Supremes don’t know it, and likely won’t revisit this issue in my lifetime, but their decision demonstrates the point I was trying to make in my recent post: The Imperfect Bandage of Undue Influence (click on name to read it).  My point is that:  Undue influence isn’t cutting it.

In both opinions, but especially the opinion of the non-prevailing Justices, the Justices seem uncomfortable with how difficult it is to prove undue influence and how easy it is for the presumption to be rebutted. For me though, their distress is too narrowly focused.  Even the side that would change the law to prevent this result in this case, would only do so in situations where a lawyer is involved.  From my perspective, it is just as suspicious when a benefiting child or housekeeper prepares the will, deed, beneficiary designation, etc..

So, in conclusion, the MSC has spoken. It’s a long opinion and long awaited by many in the probate community.  The facts of the case and the evenly divided court add a dash of drama.  Required reading for probate geeks.

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MSC Fixes Brody Trust

UPDATE:  The Court of Appeals issued a new opinion on August 7, 2018.  The blog post on that opinion can be read by clicking here.

As previously discussed on this blogsite, the problem with this Rhea Brody Trust case is that the Court of Appeals misconstrued the standing provisions of the Michigan Trust Code in concluding that a child/beneficiary of the settlor has standing to initiate a trust proceeding while the parent/settlor is alive. [See Remainder Beneficiary of Revocable Trust has Standing to Sue Trustee for Breach]. Besides being wrong, the COA’s conclusion was unnecessary because under the facts of this case (including the fact that the settlor was incompetent), the offended party had standing under the Michigan Trust Code.

As with the Brody conservatorship case, the COA decision was appealed to the Michigan Supreme Court and an amicus brief was filed by the Probate Section of the State Bar. As with the Brody conservatorship matter, the MSC received the amicus brief, fixed the problem, and then denied leave as no longer necessary.  However, in this matter, the MSC actually ordered part of the COA’s decision vacated and remanded the matter to the COA to correct their analysis.  So presumably there will be another, more enlightened, COA decision forthcoming.

Click here to read the MSC Order.

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