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. Seegenerally 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.
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 alsoDeitrick 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 dohave 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.
Sellers 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 Laymanv. 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.
Earlier this month, an Ohio inmate appealed a state Supreme Court decision holding that a second execution attempt would not violate the inmate’s constitutional rights.
Broom, a convicted murderer, was sentenced to death for his crimes. In 2009, an attempt to execute him was unsuccessful after 18 stabs at finding a viable vein over a span of approximately two hours ultimately failed. Broom argued all the way up to the Ohio Supreme Court that a second attempt to execute him would amount to cruel and unusual punishment and violate double jeopardy. The Ohio Supreme Court rejected Broom’s arguments in a split decision.
Broom has appealed this ruling to the Supreme Court of the United States. The last time the High Court addressed a death penalty case was in 2015 with its Glossip v. Gross decision. In that case, the Court upheld a method of execution 5-4 over the challenge of several prisoners. The late Justice Scalia was in the majority.
We know from Glossip that at least four Justices have some concerns about the death penalty, with two of them calling for a re-examination of its constitutionality altogether. As it takes the vote of only four Justices for the Court to hear a case, it is likely that certiorari will be granted on Broom’s appeal. If the case is heard before Justice Scalia’s vacancy is filled, and the Justices vote as they did in Glossip, it will be 4-4, and the Ohio Supreme Court decision will stand.
However, filling the SCOTUS vacancy is proving to be a hot issue in this year’s presidential election. This case may go either way, depending on the outcome and who is appointed by our next president to fill Justice Scalia’s seat. Thus, it could, interestingly, be decided at the polls on November 8th – yet another reason to get out and vote!
As a real estate attorney, I many times take for granted that experienced real estate professionals — Realtors, lenders, and investors — understand the fundamentals of real estate law. And many times I am proven wrong in that assumption.
Just a few weeks ago, I again learned this lesson from real-life experience.
In that scenario, the parties signed a document entitled “letter of intent” for a million-dollar-plus property. The document identified the property in question, the purchase price and the timing for the closing.
Later, the seller obtained another offer on the property and took the position that our “Letter of Intent” was not binding. We took the opposite position and vigorously acted to enforce the newly-formed contact.
How is that so?
Statute of Frauds
First, we have extensively explored on this site the requirements of every state in the union that contracts for the purchase and sale of real estate (i) must be in writing and (ii) must be signed by the “party to be charged” therewith (i.e., the party who is to be sued on the contract). Grafton v. Cummings, 99 U.S. 100, 106 (1878); Smith v. Williams, 396 S.W.3d 296, 298 (Ky. 2012); Sanders v. McNutt, 72 N.E.2d 72, 75 (Ohio 1947). You may read more about that here.
What writing constitutes a contract?
Virtually any document that evidences a meeting of the minds between parties on the material terms of a transaction and that complies with the statute of frauds will be a binding contract for the purchase and sale of real estate. McGeorge v. White, 174 S.W.2d 532, 533 (Ky. Ct. App. 1943); Beasley v. ANG, Inc., 10th Dist. Franklin No. 12AP-1050, 2013-Ohio-4882, ¶ 8 (Ohio Ct. App., Nov. 5, 2013).
The title of the document does not matter. The paper on which the contract is memorialized does not matter. Whether it is written in pen, pencil, or crayon does not matter.
It simply matters that the material terms are in the document, the document is in writing and the document bears the signature of the “party to be charged therewith.”
Memoranda of understanding and letters of intent
Certainly, though, a document entitled so innocuously as a “letter of intent” or a “memorandum of understating” would not in and of itself be a binding agreement, right? Wrong.
Sometimes the terms of a document — such as a letter of intent or memorandum of understanding — may say in the text that it is not binding upon the parties unless and until they sign a contract drafted by their attorneys and signed by the parties. In such instance, by its own terms, the document is not a binding contract. See, e.g., John Wood Group USA, Inc. v. ICO, Inc., 26 S.W.3d 12, 17 (Ct. App. Tx. 2000) (“the parties expressly stated that the letter agreement ‘is not binding,’ with the exception of certain enumerated paragraphs”); Christ v. Brontman, 175 Misc. 2d 474, 477 (S.Ct. N.Y. 1997) (“Generally, if the language in the contract so provides, a real estate sales agreement which is subject to the approval of attorneys is not binding and enforceable until approved by the attorneys.”).
But in the absence of such “saving” language, a writing is a binding agreement on the terms set forth in such writing.
Again, the title of a document, or its brevity, could lead a buyer or seller to believe it is intended to be non-binding, and simply preliminary. Buyers and sellers are lulled into erroneous understanding that the informal nature of the document, the shortened text, and/or the title mean that the document is not binding unless and until further documentation follows, carefully reviewed or drafted by counsel. This is simply false as a matter of law.
Lot Reservation Agreements
This same logic extends to “Lot Reservation Agreements” in the context of a buyer-builder relationship. A one-paragraph agreement that seems to be just a quick way to tie up a piece of property for a few weeks or months could in fact give rise to binding obligations assuming the agreements comply with other contract principles.
Principle extends to other agreements
Although the focus of this article is the purchase and sale of real estate, its contents could just as well apply to other legal transactions such as real estate leases, options, easements and license agreements, and to non-real estate transactions such as equipment leases, and the sale of a company or its assets.
The back of an envelope
We learn in law school that a buyer and seller can memorialize a contractual agreement on any type of paper, including the back of a used envelope.
About 20 years ago, to my surprise, I ended up being involved in a “back of the envelope” case. There, the buyer sat on one side of a table and the seller’s Realtor was on the other side of a table. The Realtor wrote out some basic bullet-point contract provisions, being the address of the subject property, the price and the closing date, on the back of a used legal-sized envelope. The buyer, on the other side of the table, signed the document upside down! — he didn’t even bother turning around the writing and reading it. A judge found that that crazy-looking instrument constituted a contract binding upon that buyer.
The lesson: It simply does not matter what kind of paper the contract is memorialized upon or even where and how the terms are written on that piece of paper.
Conclusion
As we frequently caution our clients, “it’s a dangerous world out there.” You must carefully consider the consequences of your actions and those acting on your behalf.
