Attorney Casey A. Taylor

 

We have previously written on the different types of deeds (Real Estate 101: Different Types of Deeds in Ohio, Kentucky, and Indiana), as well as how costly it can be to breach your covenants under a general warranty deed (Real Estate 101: Breach of General Warranty Covenants Can Be Costly Mistake).  Perhaps the most common breach occurs when you transfer property that is encumbered in some way, such as by an easement or lien, and that easement or lien is not excepted from the deed. However, one of the less discussed components of a general warranty deed is the covenant to defend. Whether you are the grantor or grantee with respect to a general warranty deed, you should be aware of when this duty arises, and what it means, in order to protect yourself, your rights, and your checkbook.

Statutory duty to defend in “short form” general warranty deeds

R.C. 5302.06 states:

In a conveyance of real estate, or any interest therein, the words “general warranty covenants” have the full force, meaning, and effect of the following words: “The grantor covenants with the grantee, his heirs, assigns, and successors, that he is lawfully seized in fee simple of the granted premises; that they are free from all encumbrances; that he has good right to sell and convey the same, and that he does warrant and will defend the same to the grantee and his heirs, assigns, and successors, forever, against the lawful claims and demands of all persons.

(Emphasis added). This means that a grantor who conveys property under a general warranty deed promises to defend the grantee and the grantee’s title against all “lawful claims and demands” of others.

What are “lawful claims and demands”?

Unfortunately, Ohio law does not provide much guidance as to what “lawful claims and demands” encompasses – this is not a defined term under the statute, nor have the courts ventured to define it in this context. A lawsuit is generally defined to be “the lawful demand of one’s right.” Ludlow’s Heirs v. Culbertson Park, 4 OHIO 5 (1829).

Additionally, in various contexts, Ohio courts have provided the following guidance as to each of the terms separately:

  • State ex rel. Grant v. Brown, 39 Ohio St. 2d 112, 116 (1974) (“To say of an act that it is ‘lawful’ implies that it is authorized, sanctioned, or at any rate not forbidden, by law.”);
  • La Fon v. City Nat’l Bank & Trust Co., 3 Ohio App. 3d 221, 223 (10th Dist. 1981) (adopting the definition of “claim” as “to assert . . . to state; to urge; to insist . . . a right or title.”);
  • Crozier, v. First National Bank of Akron, 9th Dist. Summit No. 10140, 1981 Ohio App. LEXIS 13717, *6-7 (defining “claim” as “a ‘broad comprehensive word’ that includes ‘an assertion’ and ‘a cause of suit or cause of action.’”); and
  • Eighth Floor Promotions v. Cincinnati Ins. Cos., 3d Dist. Mercer No. 10-15-19, 2016-Ohio-7259, ¶ 26 (“‘Demand’ is defined as ‘the assertion of a legal right or procedural right.”).

Thus, read collectively, a “lawful claim or demand” can be defined as “an authorized or unforbidden assertion of a right.”

Do we first have to ascertain is a “claim or demand” is lawful before duty to defend arises?

However, courts have found that the term “lawful” does not require the “claim or demand” to be meritorious before the duty to defend is triggered since this would essentially render the covenant meaningless. See Sediqe v. I Make the Weather Prods., 6th Dist. Lucas No. L-15-1250, 2016-Ohio-4902, ¶ 29 (holding that the claim or demand as it relates to the underlying duty, e.g., that the property is not free from encumbrances as warranted, need not be proven or successful before the duty arises, as “such a rule would render the duty to defend ineffective and eliminate the grantor’s right to control the defense against the claim.”). Thus, for example, a party claiming to have a lien on conveyed property need not prove the validity of their lien before the grantor’s duty to defend the grantee against such claim arises. The idea is that the grantor will step in before it gets to that point in order to defend the grantee’s title against such claims.

Does a suit have to be filed to trigger a duty to defend?

Indeed, the party asserting the claim likely isn’t even required to file suit to trigger the grantor and grantee’s respective rights and obligations under the general warranty deed. As discussed (Here), the Court in Hollon v. Abner, 1st Dist. Hamilton No. C960182, 1997 Ohio App. LEXIS 3814 (Aug. 29, 1997) did not require that the party asserting the adverse, “lawful claim or demand” bring suit before the grantor’s duties under the general warranty deed arose. In fact, the Court awarded the grantee attorney’s fees as damages in a suit initiated by the grantee because the grantee would not have incurred those fees had the grantor lived up to his obligations under the general warranty deed.

Conclusion

If you are a grantee under a general warranty deed and someone asserts a claim against your property (even if they haven’t yet filed suit), the first step to getting your grantor to defend your title as warranted is by informing the grantor that someone is asserting such a claim. As a grantor, if you receive notice that someone is asserting a claim against property that you conveyed by general warranty deed, proven or not, you will want to step up sooner rather than later. A delay in honoring your covenant to defend likely only exacerbates your grantee’s attorney’s fees (especially if your grantee has to file suit to defend his or her own title), for which you will ultimately be responsible.

As first-year law students and many even outside of the legal community know, the “statute of frauds,” codified in Ohio R.C. 1335.04, requires that any interest in land be evidenced by a writing.

Principle of Part Performance

But this general principle is not without exception. One of the more commonly referenced exceptions is part performance. Sites v. Keller, 6 Ohio St. 483, 489-490 (1834) (“Whenever an agreement has been partly performed, and the terms of it are satisfactorily found, it will be enforced notwithstanding the statute.”); Shahan v. Swan, 48 Ohio St. 25, 37, 26 N.E. 222 (1891) (“[I]f the acts of part performance clearly refer to some contract in relation to the subject matter in dispute; its terms may then be established by parol.”).

Other exceptions

However, lesser-known exceptions exist, as well, and are frequently neglected in the statute of frauds discussion. This has resulted in a misunderstanding among many as to the scope of the statute of frauds and when it precludes a claimed interest in land. Specifically, there are two types of equitable trusts that effectively circumvent the harsh consequences of requiring strict compliance with the statute of frauds: a constructive trust and a resulting trust.

Ohio Constructive Trust

“A constructive trust arises by operation of law against one who through any form of unconscionable conduct holds legal title to property where equity and good conscience demands that he should not hold such title.” Dixon v. Smith, 119 Ohio App.3d 308, 319, 695 N.E.2d 284 (3d Dist. 1997). Where one “who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable means . . . either has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy,” equity will create a constructive trust. Ferguson v. Owens, 9 Ohio St.3d 223, 225, 459 N.E.2d 1293 (1984).

Additionally, at least one Ohio court has suggested that, “[d]espite the above cited language . . . a constructive trust may exist even where there is no evidence that the title to the property was obtained by improper means.” McGrew v. Popham, 5th Dist. No. 05 CA 129, 2007-Ohio-428. ¶¶ 17-19, citing Groza-Vance v. Vance, 162 Ohio App. 3d 510, 520 (10th Dist. 2005). The creation of a constructive trust is premised upon the unjust enrichment that would result if the person holding legal title to the property were allowed to retain it. Ferguson, at 226.

Ohio Resulting Trust

The Ohio Supreme Court has also recognized “a resulting trust as one that the court of equity declares to exist where the legal estate in property is transferred or acquired by one under circumstances indicating that the beneficial interest is not intended to be enjoyed by the holder of the legal title.” Univ. Hosps. of Cleveland, Inc. v. Lynch, 96 Ohio St.3d 118, 772 N.E.2d 105, 2002-Ohio-3748, at ¶ 56, citing First Natl. Bank of Cincinnati v. Tenney, 165 Ohio St. 513, 515, 138 N.E.2d 15 (1956). This concept is easily understood in the purchase-money context – “where property is transferred to one person but another pays the purchase price, the law presumes a resulting trust exists in favor of the person paying for the property.” Hollon v. Abner, 1st Dist. No. C960182, 1997 Ohio App. LEXIS 3814, at *5 (Aug. 29, 1997); Perich-Varie v. Varie, 11th Dist. No. 98-T-0029, 1999 Ohio App. LEXIS 3990, at *7-*8 (Aug. 27, 1999).

For example, in the Perich-Varie case, the court found that where an individual had been making the mortgage payments on property legally held in his former in-laws’ names, he had a full ownership interest in the property. This was true even though the in-laws argued that the mortgage payments were merely “rent” and even though he had only paid $12,000 of the $33,000 mortgage on the property. Perich-Varie, at * 4-5, * 10-11. To eliminate any inequity (after all, that’s what a resulting trust is all about), the Eleventh District required the lower court to order that the mortgage first be satisfied so that the in-laws were not obligated under a mortgage on a property in which they had no interest. Id., at * 14.

Conclusion

As you can see, constructive and resulting trusts represent some pretty significant departures from the rigid statute of frauds in the name of “equity.”  While a lot of confusion, disagreement, and, ultimately, litigation can be avoided by putting matters involving real property in writing, those who find themselves in a situation where their interest has not been reduced to writing are not necessarily without recourse if one of these equitable remedies applies.

 

Many are surprised to learn that, if they receive a settlement or reward on a personal injury or medical malpractice claim, they are required to essentially “pay back” any party that paid medical bills on their behalf. This is called subrogation, and insurers may have both a contractual and an equitable right to it. Blue Cross & Blue Shield Mut. of Ohio v. Hrenko, 72 Ohio St. 3d 120, 647 N.E.2d 1358 (1995); Warmack v. Arnold, 195 Ohio App. 3d 760, 765 (1st Dist. 2011).

For example, if Joe gets rear-ended and suffers $10,000 worth of medical expenses (note: this is separate and apart from any property claim he may have for damage to his vehicle), $5,000 of which are paid by his auto insurance, $4,000 of which are paid by his health insurance, and $1,000 of which he pays out of pocket, Joe is required to pay his auto insurance and health insurance companies back for any amounts they paid on his behalf (here, $5,000 and $4,000 respectively).

This information often leads to a certain degree of panic to the tune of “What if I don’t get any settlement or I lose my case? Do I still have to pay them back?!” The answer is no. If you haven’t signed any sort of release interfering with the insurer’s rights, the insurer is free to pursue payment from the at-fault party. If there is a lawsuit filed, the insurer should be put on notice of that action and can protect their own interests accordingly.

The idea is just that an insured generally cannot interfere with the insurer’s right to subrogation, so any settlement ultimately needs to be approved by the insurer. See generally Chemtrol Adhesives, Inc. v. American Mfgrs. Mut. Ins. Co., 42 Ohio St. 3d 40, 537 N.E.2d 624 (1989) (explaining that where an insured releases his rights to claim injury under a settlement agreement, the subrogation rights of the insurer are effectively barred).  Perhaps the most common instance where an insurer refuses to consent to a settlement is where the settlement amount is less than what the insurer paid and, thus, would not compensate it. See, e.g., Erie Ins. Co. v. Kaltenbach, 130 Ohio App. 3d 542 (10th Dist. 1998) (requiring the insured to pay back the insurer in the full amount of the settlement where the insured accepted settlement of $4,462 despite subrogation liens totaling $5,000).

However, in many cases, insurance companies are actually willing to reduce the amount they will accept in satisfaction of their subrogation lien if it will help to inspire a settlement. This sometimes results in the injured/insured walking away with more money in his or her pocket.

Navigating the waters of insurance settlements, releases, subrogation liens, subrogation reductions, etc. can be tricky. This is where having an attorney with knowledge and experience in these matters can create immense value. Our firm has successfully handled various types of personal injury and medical malpractice claims. I would be happy to discuss with you any claims you believe you may have to determine if we can create value for you.

Casey Taylor write on Ohio commercial real estate brokerage liens
Casey Taylor, attorney

Our firm has previously written on the creative ways one can shield his or her personal assets through the corporate or limited liability structure. As noted in that entry (Link Here), “Ohio courts and courts throughout the nation have been pretty vigilant in protecting the corporate veil of owners of corporations and limited liability companies.”  However, this general principle is not without a couple of narrowly drawn exceptions, explored below.

Formation of LLCs

The Finney Law Firm deals regularly with clients and other parties that are organized as limited liability companies (“LLCs”) or corporations.  After all, these entities are fairly simple to create – one must simply fill out an online form or two, submit a relatively small fee to the Secretary of State, and they are then able to transact business without fear of personal liability, right? Maybe not.

The powerful “corporate veil” protection of an LLC

Generally, an LLC member cannot be held personally liable for the torts or contractual obligations of the LLC solely by virtue of his or her membership in the LLC. City of Lakewood v. Ramirez, 2014-Ohio-1075, ¶ 11 (8th Dist. 2014). Thus, if an LLC defaults on its obligations under a contract, an adverse party cannot obtain judgment against the LLC members’ or managers’ personal assets.  It is for this reason, along with its ease of formation, that the LLC structure is so desirable to many. And, most of the time, it succeeds in its purpose of precluding judgment against the members’ personal assets.

Narrow exceptions

However, there are two sets of circumstances under which the limited liability structure does not shield members from personal liability.

1.   Piercing the corporate veil

The first is where the court deems it proper to “pierce the corporate veil,” thereby removing that protection of limited liability.

[I]n order to pierce the corporate veil and impose personal liability upon [members or managers], the person seeking to pierce the corporate veil must show that: (1) those to be held liable hold such complete control over the corporation that the corporation has no separate mind, will, or existence of its own; (2) those to be held liable exercise control over the corporation in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity; and (3) injury or unjust loss resulted to the plaintiff from such control and wrong.

Stewart v. R.A. Eberts Co., 2009-Ohio-4418, ¶ 16 (4th Dist. 2009), citing Belvedere Condominium Unit Owners’ Ass’n v. R.E. Roark Cos., 67 Ohio St. 3d 274, ¶ 3 of the syllabus, 617 N.E.2d 1075 (1993).  The idea behind piercing the corporate veil is that there is so little separation between the individual and the LLC, that they can almost be considered “alter-egos” such that it is not unreasonable to hold the member or manager of the LLC personally liable for the debts, obligations, and/or liabilities of the LLC.

2.  Member’s own acts, ommisions or fraud

The second instance where a member can be held personally liable notwithstanding the limited liability structure is where the members’ own acts or omissions constitute fraud. R.C. 1705.48; See also Deitrick v. Am. Mortg. Solutions, Inc., 2007-Ohio-839, ¶ 19 (10th Dist. 2007) (finding that a “corporate officer can be individually liable in tort if the promises contained in the contract are fraudulent” and “even if he commits the fraud while in the course of his corporate duties”); Stewart, at ¶ 30 (“[N]either the corporate shield, nor a shield of limited liability insulates a wrongdoer from liability for his or her own tortious acts.”). Additionally, this second instance is not contingent upon the first (i.e., a litigant who seeks to hold an LLC member personally liable for the member’s own fraud need not first pierce the corporate veil in order to do so).  Yo-Can, Inc. v. Yogurt Exch., 149 Ohio App. 3d 513, 527 (7th Dist. 2002) (“[P]laintiffs need not pierce the corporate veil to hold individuals liable who allegedly personally commit fraud.”).

Conclusion

Thus, while the LLC or corporate structure are very successful at providing owners/members with a great deal of protection the overwhelming majority of the time, one shouldn’t make the mistake of thinking his or her personal assets are entirely immune regardless of the circumstances.

How do I obtain an Ohio commercial real estate broker lien?

Attorney Casey Taylor

First, let’s be clear: There is no lien right for real estate brokers for property consisting solely of between one and four residential units. (O.R.C §§1311.85 and .86).

However, licensed real estate brokers do have lien rights in transactions involving commercial properties, i.e., anything other than between one and four residential units.  (O.R.C §§1311.86).

The lien rights extend to brokerage contracts for the provision of services for selling, purchasing, and leasing.  (O.R.C §§1311..86(A) and (B)).  They do not appear to cover the provision of property management services.

What is a lien?

In one sense, a lien does not get you anything more than the contract rights you already have: You have a signed listing agreement, you have earned your commission, you can sue in a court of competent jurisdiction, and you can thus get paid the amount of money you are owed.

But as a practical matter, lien rights are tremendously powerful in “turning the tables” on a property owner, giving quick, inexpensive and powerful leverage to the Realtor to resolve a commission dispute.

Why is a lien important?

Leverage often is the “whole ballgame.”  So often, (a) debtors will avoid debts they clearly owe just because they can, for purposes of the time-value of money (by delaying the payment, they can use your money in the interim) and (b) the reality is that most creditors will not go to the trouble and expense of hiring and paying an attorney to collect the sums owed to them.

Litigation can cost as little as $20,000 per case, up to hundreds of thousands of dollars for a vigorously-contested action.  So, the question for a Realtor claiming a commission is: Can I “check” or “checkmate” a property owner (seller or landlord) into recognizing, dealing with and paying my claim without the two years and tens of thousands of dollars in legal fees needed to vindicate that right?

A lien is a powerful tool — it encumbers real property

A lien is an encumbrance on real property.  In most cases, real property encumbrances have the same priority of the order of filing, i.e., the first-filed is paid first from the sale proceeds, the second, second and so forth.  (Ohio mechanics liens are the major exception to this rule, dating back to the date of first work on a project.)

This gives the lien holder two distinct advantages, many times powerful advantages: (a) their claim is secured against the real estate (i.e., the owner cannot further squander the equity in the property by a sale or mortgage) (b) the claimant has placed a cloud on the title with what may still be a disputed claim, effectively preventing the owner from selling or mortgaging the asset until the earlier of (i) the statutory expiration of the lien or (ii) the judicial disposition of the claim and the lien rights.

Thus, as a practical matter if the property owner wants to sell his property or take out a new mortgage or refinance an existing mortgage, he will have to “deal with” the Realtor’s claims before doing so.

A broker’s lien is unilateral — it does not require the owner’s signature or consent

Contrary to what many clients ask of us in a simple contract or tort claim (“please lien their property”), in most circumstances a lien cannot be placed against real property until either (a) the owner signs a voluntary instrument such as a mortgage or (b) the conclusion of litigation, which usually takes years.  In the meantime, a defendant can sell and mortgage the property, or otherwise encumber it, and then squander the asset without concern for the plaintiff’s claims.  (This is constrained by concerns about fraudulent conveyance issues that will be discussed in another blog entry later.)

The right to place a unilateral lien against real estate is very narrow, being limited to government liens (such as tax liens, assessments, environmental liens, etc.) and mechanics liens (for work done on real property and materials delivered to real property for incorporation therein).

Commercial brokerage lien rights

O.R.C. §1311.86 provides such unilateral lien rights for the collection of a commission in commercial transactions in specific circumstances set forth in the statute.  Being a unilateral filing, means that the Realtor claiming the lien simply signs and files a piece of paper in the Hamilton County Recorder’s office.  It does not require a signature (on the lien filing) of the property owner.

Statutory requirements

Because the lien arises from the statute, strict compliance with the statutory mandates will be required.  F. W. Winstel Co. v. Johnston, 103 Ohio App. 525, Paragraph 1 of the Syllabus (1st Dist. 1957).         These are set forth in O.R.C. §1311.86:

  • It is for written brokerage contracts only (O.R.C. §1311.86(A) and (B)).
  • It is for “for services related to selling, leasing, or conveying any interest in commercial real estate” (O.R.C. §1311.86(A)) and “for services related to purchasing any interest in commercial real estate.” (O.R.C. §1311.86(B)).
  • “The lien is effective only if the contract for services is in writing and is signed by the broker or the broker’s agent and the owner of the lien property or the owner’s agent.”   (O.R.C. §1311.86(A) and (B)).
  • The lien is for the broker only, not his salespersons.  (O.R.C. §1311.86(C)(1).
  • The lien amount is either the brokerage commission due, or if due in installments only that portion due on conveyance.  (O.R.C. §1311.86(C)(2) but in the case of commercial leasing, (O.R.C. §1311.86(C)(3).
  • Only the property subject to the brokerage agreement can be liened.  ((O.R.C §§86(C)(5)).
Lien contents

To perfect a lien, the following steps must be followed:

  • The claimant must prepare, sign and have acknowledged (notarized) an affidavit containing each of the following: (a) name of the broker who has the lien, (b) the name of the owner of the lien property, (c) a legal description of the lien property, (d) the amount for which the lien is claimed, (e) the date and a summary of the written contract on which the lien is based, and the real estate license number of the broker. R.C. 1311.87(B)(2).
  • Additionally, the lien affidavit must state that the information contained in the affidavit is true and accurate to the knowledge of the broker. Id.
Lien deadlines

The timeframes within which a commercial broker’s lien must be filed are:

  • For a sale of liened, the Affidavit must be recorded prior to the conveyance of the property. R.C. 1311.86 (B)(3).
  • For a purchase of liened property the Affidavit must be recorded within ninety days after the conveyance of the property. R.C. 1311.86 (B)(4).
  • For liens based upon a leasing commission, the Affidavit must be recorded within ninety days after a default by the owner in payment. R.C. 1311.86 (B)(5).
Notice to property owner

One other requirement not to overlook:  “On the day the lien affidavit is recorded, the broker shall provide a copy of the lien affidavit to the owner of the lien property and, where a contract for the sale or other conveyance of the lien property has been entered into, to the prospective transferee, where known, either by personal delivery or by certified mail, return receipt requested. O.R.C. 1311.86 (B)(6).

Be careful — “Slander of title” claims can be nasty

If one files a lien against real property that is later determine to have been in bad faith, the lien claimant can find himself the target of a suit for a cause of action known as “slander of title.”  Slander of title is the tort of impairing title to someone’s real estate without a reasonable basis therefor. McClure v. Fischer Attached Homes, 2007-Ohio-7259, ¶ 21, 882 N.E.2d 61 (Clermont Co. C.P. 2007), citing Green v. Lemarr, 139 Ohio App. 3d 414, 433 (2d Dist. 2000).

The really bad part of a slander of title claim is that it can include an award to the property owner of an award of his attorneys fees and a punitive damages amount. Additionally, the commercial brokerage lien statute specifically allows for the prevailing party to recover its attorney’s fees. O.R.C. 1311.88(C) (“[A] court may assess the nonprevailing parties with costs and reasonable attorney’s fees incurred by the prevailing parties.”). However, in cases involving general slander of title claims (i.e., outside of the commercial brokerage lien context), the attorney’s fees have been limited to the those “necessary to counteract a disparaging publication,” and did not include those incurred in prosecuting the slander of title. Cuspide Props. v. Earl Mech. Servs., 2015-Ohio-5019, ¶ 40 (6th Dist. 2015).

Thus, we recommend moving forward with the filing of an affidavit for a commercial broker’s lien cautiously, only where the broker is certain of the merits of his position and even then still willing to withstand the possible claim for slander of title from an owner.

Conclusion

The Finney Law Firm is privileged to have many real estate brokerage clients, including commercial Realtors.  The commercial lien right is a very powerful one, and one that we think is under-utilized in commission disputes.

Consider one of our attorneys to assist you in such a dispute, including the use of the right to a commercial lien.

Our firm sometimes receives inquiries about areas of the law that few even consider until they are facing a potential lawsuit. Recently, one of those inquiries was whether one can be responsible for his or her tree falling and harming another or their property.

Generally, land owners do not owe a duty with regard to harm caused to another as a result of some natural condition of the land, provided that the harm occurs outside of the land. Heckert. V. Patrick, 473 N.E.2d 1204, 1206 (Ohio 1984). However, there are some exceptions with regard to injuries resulting from falling trees and/or branches. Id. at 1207.

“[A]n owner of land abutting a highway may be held liable on negligence principles under certain circumstances for injuries or damages resulting from a tree or limb falling onto the highway from such property.” Id. For example, “a possessor of land in an urban area is subject to liability to persons using a public highway for physical harm arising from the condition of trees near the highway.” This duty of an urban landowner includes a duty to inspect the tree to make sure that it is safe. Id. This is because urban landowners are thought to have fewer trees – thus, it is not too great of a burden to do so. See id.

However, for rural landowners, who potentially own entire forests of trees, an affirmative duty to inspect the trees would likely amount to a very heavy burden. Id. Therefore, the Ohio Supreme Court has adopted a distinction between rural and urban landowners in this respect. Id. As such, rural landowners have no duty to inspect trees growing on their property adjacent to rural highways, or to ascertain defects that may result in injury to someone travelling on the highway, but, to the extent a rural landowner has “knowledge, actual or constructive, of a patently defective condition of a tree,” that landowner must exercise reasonable care to prevent harm. Id. Constructive knowledge can result from the appearance of the tree, thereby giving notice to an owner that the tree is not in good shape and could fall. In recognition that the distinction between rural and urban areas may not always be an easy one to make as suburbia continues to grow and expand, the Court also provided a list of factors to be considered when making such determination, including “the location of the highway, its size and type, as well as the number of people utilizing it.” Id. at 1208.

Courts have generally applied the law as it relates to rural landowners to cases involving trees falling onto neighbors’ property (i.e., the landowner will be liable to the neighbor where the landowner has actual or constructive knowledge that the tree is defective. See Johnston v. Filson, 2014-Ohio-4758 (12th Dist. 2014) (granting summary judgment to a landowner upon finding that the landowner did not have actual or constructive notice of the tree’s condition); Motorists Mut. Ins. Co. v. Flynn, 2013-Ohio-1501 (4th Dist. 2013) (finding that photographs of a tree significantly leaning toward the neighbor’s house presented a genuine issue of material fact as to whether a reasonable person should have known that the tree posed a danger); Wertz v. Cooper, 2006-Ohio-6844 (4th Dist. 2006) (granting summary judgment in favor of landowner for damage resulting from the landowner’s tree falling onto its neighbor’s property because the neighbor failed to establish that the landowner had either actual or constructive knowledge of a patent dangerous condition of the tree).

So while, in most cases, you will not have an affirmative duty to go out and inspect every single tree on your property, actual or constructive (visible) notice that the tree is not in good shape could create liability if that tree were to fall and cause harm. The lesson? Don’t ignore unhealthy or potentially problematic trees/limbs.

When purchasing a home, most buyers take advantage of the common “home inspection contingency,” affording them the opportunity to have the property professionally inspected in order to reveal potential defects before moving forward with the purchase. For their own protection, many home inspectors have begun including clauses limiting their liability to the price paid for the inspection in their contracts. In essence, this means that, if an inspector charges $500 for the inspection but misses a defect that costs the buyer/homeowner $2,000, the inspector is only liable (if at all) up to the $500 amount, not the full cost of remedying the defect. But are these clauses actually enforceable?

Ohio courts seem to say “Yes.” Home buyers have argued that the clauses are unconscionable (or unfair). However, courts have noted that the clauses appear on the face of the contract, that buyers are able to read the contract and ask questions before signing, and that buyers are permitted to decline the clause or the contract or hire another inspector altogether if they do not agree to the clause. See Barto v. Boardman Home Inspection, Inc., 2015-Ohio-5210, ¶19 (11th Dist. 2015).  Therefore, such clauses are generally not considered unconscionable, and courts have continued to enforce them.

In fact, clauses limiting the liability of inspectors have even been enforced where they effectively preclude enforcement of arbitration clauses contained within the same contract. In McDonough v. Thompson, the parties were required under their contract to resolve any disputes through arbitration. 2004-Ohio-6647, ¶¶2-3 (8th Dist. 2004).  However, because the filing fee for arbitration exceeded the inspector’s maximum liability under the contract (i.e., the price of the inspection), the court declined to enforce the arbitration clause, but did enforce the limitation of liability. See generally id. The court found that “an arbitration clause is not enforceable when the clause, in conjunction with a limitation of liability clause, effectively denies a claimant any redress.” Id. at ¶13. Thus, not only are these clauses enforceable, but they seem to be enforceable even to the preclusion of other clauses carrying a general presumption of enforceability (as arbitration clauses do).

In light of the courts’ eagerness to enforce limitation of liability clauses in this context, a buyer’s best remedy might actually be against the seller of the home (to the extent the seller may have concealed or lied about the defect), and those cases can often be tenuous.

Read more here about home defects and residential property disclosure forms:

We have many dedicated and professional public servants, both elected officials and bureaucrats.  But we also have some who are not so dedicated and not so professional, and even the best can get intoxicated by their power, respond to the mob, or fail to understand the constitutional and statutory limitations on their authority.

Fortunately, in this nation, we have a system of checks and balances, and when an elected official steps over the bounds of his authority, we have the courts to check that abuse of power.

At the Finney Law Firm, we take pride in representing our clients and communities by, when necessary, standing a haughty elected official or appointed bureaucrat before a Judge and making them account for their excesses.  The only thing more satisfying than that is both winning and shifting the fees to the government that forced the action to begin with, for which Ohio law allows.

Under Ohio law, both (i) standing is conferred and (ii) an award of attorney’s fees to a prevailing plaintiff is granted for ultra vires acts (acts beyond their power) by government officials.  This is achieved through taxpayer actions.

Standing

“Standing” is a threshold issue in all litigation.  To have standing, an individual must generally have an actual and concrete injury, caused by the conduct of which the individual complains and capable of being redressed by the court. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992).  Because the status of taxpayer is shared by so many, it can sometimes be difficult to establish standing; however, Ohio law has alleviated that problem with statutes such as R.C. 733.59 (for cities/municipalities) and R.C. 309.13 (for counties).

The Ohio taxpayer statutes provide that an individual may request in writing that the city solicitor, village director, or county prosecutor (whichever is applicable), if there is one, initiate an action to hold government actors accountable for their ultra vires acts.  If there is no such solicitor, director, or prosecutor to initiate the action or if they fail to do so upon a taxpayer’s written request, the taxpayer may initiate the suit himself. The action is then brought in his own name on behalf of the municipal corporation or the state, whatever the case may be.  This, in essence, confers standing upon any taxpayer seeking to put a stop to such injustices, regardless of their arguably generalized injury.

In so doing, the taxpayer “volunteers to enforce a right of action on behalf of and for the benefit of the public.” State ex rel. Nimon v. Springdale, 6 Ohio St. 2d 1, ¶ 2 of the syllabus (1966). The only other requirement is that the taxpayer must give a “security” for the cost of the proceeding, presumably to discourage meritless actions.  However, the Ohio First District Court of Appeals, has found that the filing fees satisfy this requirement, although other courts have disagreed and required something more. McQueen v. Dohoney, 1st Dist. Hamilton No. C-130196, 2013-Ohio-2424, at ¶ 21 (June 12, 2013); But see, Bowshier v. Vill. of N. Hampton, 2d Dist. Clark No. 2001 CA 63, 2002-Ohio-2273, at ¶ 27 (May 10, 2002); National Elec. Contrs. Ass’n v. City of Mentor, 108 Ohio App. 3d 373, 381 (11th Dist. 1995).

Attorney’s Fees

 An added benefit for the taxpayers who bring these actions, as well as their attorneys, is that they are entitled to attorney’s fees upon showing that the action resulted in public benefit. State ex rel. White v. Cleveland, 34 Ohio St. 2d 37, ¶ 3 of the syllabus (1973); See also R.C. 733.61 (“If the court hearing a case under section 733.59 of the Revised Code is satisfied that the taxpayer had good cause to believe that his allegations were well founded, or if they are sufficient in law, it shall make such order as the equity of the case demands. In such case the taxpayer shall be allowed his costs, and, if judgment is finally ordered in his favor, he may be allowed, as part of the costs, a reasonable compensation for his attorney.”); R.C. 309.13 likewise provides for reasonable attorney’s fees.  One of Finney Law Firm’s own cases established that “[t]he public benefit need not be monetary in character. That benefit may be of a more intangible character, such as the prevention of illegal government activity.”  City Of Cincinnati ex rel. Smitherman v. City of Cincinnati, 188 Ohio App. 3d 171, 178 (2010), citing Billington v. Cotner, 37 Ohio St.2d 17, 19, 305 N.E.2d 805 (1974).  However, to get attorney’s fees, the taxpayer must produce a contract (fee agreement) showing that he has actually incurred attorney’s fees. Harris v. Carney, 8th Dist. Cuyahoga No. 34733, 1976 Ohio App. LEXIS 8334, *6 (Apr. 8, 1976).

For more information on taxpayer actions, attorney’s fees in such actions, and other fee-shifting provisions, Attorney Chris Finney will be presenting at an NBI seminar in Cincinnati, Ohio titled Local Government Law From Start to Finish on Friday, December 16, 2016.

In recent years, more and more millennials are pursuing higher education.  This trend has, in many instances, pushed back the age at which we are beginning our careers, starting families, and making big purchases.  Thus, NOW is the time that so many of us are looking into buying our first homes.  Here is one thing you need to know, whether you are a prospective buyer or seller:

The Residential Property Disclosure Form (required for residential real property transfers in Ohio per R.C. 5302.30) is not just a formality, but rather, is an EXTREMELY important component of the transaction.

At Finney Law Firm, we represent both buyers and sellers in real estate transactions that have, arguably, gone awry.  The issue often has to do with a disclosure made (or not made) in the Real Property Disclosure Form.  This form requires sellers to answer questions about the condition of the property they are selling.  It covers the structural integrity of the home, water intrusion issues, plumbing, etc.

Home is a big purchase so contracts will have an effectSellers are required to disclose any problems of which they have knowledge.  Even if the property is being sold “as is,” sellers have a duty to not engage in fraud in executing this form (i.e. to not knowingly make any affirmative misrepresentation or conceal a latent material defect in the property).  For example, if the seller knows that the basement floods but checks the box marked “No” next to the section for water intrusion, the seller has arguably engaged in fraud, and a damaged buyer could pursue those claims against the seller.  It is in the best interest of the seller to disclose all that he knows about the property so as to avoid the risk of future liability.

On the flip side, a buyer has certain obligations as well. If the seller in the aforementioned example had said “ten years ago, there was a flood in the basement, but we caulked some cracks and it is no longer a problem,” the buyer is arguably not entitled to rely on that disclosure in assuming that the problem is fixed and that there are no longer any water intrusion issues.  The Ohio Supreme Court has held:

Once alerted to a possible defect, a purchaser may not simply sit back and then raise his lack of expertise when a problem arises. Aware of a possible problem, the buyer has duty to either (1) make further inquiry of the owner, who is under a duty not to engage in fraud, or (2) seek the advice of someone with sufficient knowledge to appraise the defect.

See Tipton v. Nuzum, 84 Ohio App.3d 33, 38, 616 N.E.2d 265 (1992), citing Layman v. Binns, 35 Ohio St. 3d 176, 177, 519 N.E.2d 642 (1988).  Therefore, the buyer should then make further inquiry, by hiring an inspector or asking follow-up questions of the seller, or both. To this point, this can be such an exciting time and even the most cautious buyers can easily become anxious to close on and move into their new home, but it is in the best interest of the buyer to ask questions and investigate anything that might become an issue down the road.  While the extra time or comparably nominal expense of making such further inquiry can seem frustrating, it could save you tens – if not hundreds – of thousands of dollars in repairs and/or legal fees down the road.

Earlier this year, the Finney Law Firm obtained a favorable settlement for five special needs children within the Kings Local School District who were severely mistreated by their teacher, and the firm continues to proudly represent its clients in other similar cases.  However, a decision by the Sixth Circuit Court of Appeals may have heightened the burden imposed on plaintiffs bringing substantive due process claims, which was one of several causes of action alleged in the Kings case.

Substantive due process, under the Fifth and Fourteenth Amendments, forbids government actors, including public school teachers, from intruding into the fundamental rights promised to individuals under the U.S. Constitution.  Relevant here are the “rights to be free from physical abuse at the hands of state actors, and to enjoy personal security and bodily integrity in an educational setting.” Webb v. McCullough, 828 F.2d 1151, 1158 (6th Cir. 1987).

In Domingo v. Kowalski, 810 F.3d 403 (6th Cir. 2016), the Court applied the “shocks the conscience” standard used in substantive due process cases in a way that may very well place an insurmountable obstacle in the way of students seeking to hold their teachers accountable for constitutional violations in the classroom.

The plaintiffs in Domingo, special needs students as young as six years old, brought a substantive due process suit against their teacher alleging that she:

abused her students during the 2003-2004 school year by, among other things, gagging one student with a bandana to stop him from spitting, strapping another to a toilet to keep her from falling from the toilet, and forcing yet another to sit with her pants down on a training toilet in full view of her classmates to assist her with toilet-training.

Despite finding that the teacher’s actions were improper, the Sixth Circuit refused to hold the teacher liable, reasoning that her conduct did not “shock the conscience.” In so finding, the Court borrowed the Third Circuit’s “shocks the conscience” test, which ultimately requires that the actor have malicious or sadistic intent, which the Domingo Court did not find.  Requiring such bad intent is an extremely high standard, making it challenging, at best, for many plaintiffs to meet even in cases as egregious as Domingo. In light of the conduct permitted in Domingo, it is difficult to imagine exactly what type of classroom conduct would shock the conscience.