Today, the First District Court of Appeals for Ohio unanimously (on all counts) ruled in favor of Plaintiffs Andrew White and Vena Jones-Cox that the City of Cincinnati’s charges to property owners with alarm systems are an unconstitutional tax.  That decision is linked here.  They remanded the matter back to Common Pleas Judge Leslie Ghiz for determination of class certification, refund of illegally-collected fees, and other matters.  Judge Ghiz originally had ruled that fee was a constitutional assessment imposed by the City.

Attorneys for the Plaintiffs are Maurice Thompson of the 1851 Center for Constitutional Law and Christopher P. Finney of the Finney Law Firm.

You may contact Christopher P. Finney (513.943.6655) for more information.

 

On Thursday, November 18, 2021, attorneys Chris Finney and Curt Hartman will teach “Using Public Records to Overcome Government Bureaucracy” to Cincinnati Lawyer’s Club.  Registration is at 11:30, lunch is at noon, and the 2-hour program starts at 1:15 PM. No reservations are required.  CLE and lunch costs $25 for members and $30 for non-members.  For more information, call Robert W. Cettel, President  513-325-2279 (cell).

Curt Hartman, in particular, is a leading attorney in Ohio on Sunshine Law, which encompasses Ohio’s Open Meetings statute and Ohio’s Public Records statute.  Ohio has some of the strongest Sunshine Laws in the nation, and Finney Law Firm has pursued dozens of cases, including ones all the way to the Ohio Supreme Court, expanding the boundaries of public access to official business. The most famous of such cases was the “Gang of Five” case addressing corruption on Cincinnati City Council that significantly developed and expanded both the Open Meetings and Public Records statutes, but there have been dozens more.

Finney and Hartman will address the statutory and case law rights of the public to official business and regale the audience with important public interest victories (and losses) under those statutes.

For assistance with Ohio public records and open meeting statute matters, contact Chris Finney (513.943.6655) or Curt Hartman (513.379-2923).

10,000 Foot View of What You Need to Know

On February 11, 2022, Ohio’s law governing limited liability companies will change from its current form under Ohio Revised Code Chapter (“ORC”) 1705 (the “Old Law”) to its new form under ORC Chapter 1706 (the “New Law”). This means some significant changes for Ohio limited liability companies, which also apply to those organized under the Old Law. To make these changes less painful and reduce confusion, the New Law will use many of the same terms used in the Old Law. This blog is meant to provide an overview of some, but certainly not all, of those changes.

Changes Relevant to Operating Agreements

An operating agreement is a document governing the relations among the members of a limited liability company and the limited liability company. Many of the provisions of the New Law are default provisions, which a limited liability company can alter through its operating agreement. Due to the default nature of the provisions of the New Law, operating agreements existing under the Old Law should not be affected by the New Law.

Provisions That May Not Be Altered

Similar to the Old Law, a limited liability company may not alter certain provisions. For example, a limited liability company may not (i) eliminate the implied covenant of good faith and fair dealing, as discussed below; (ii) enforce promises to make capital contributions, which are not in writing; or (iii) create a situation where a limited liability company is not a separate legal entity. This is not an exhaustive list.

Limitation, Expansion, and Elimination of Fiduciary Duties

A limited liability company may alter certain duties and liabilities through an operating agreement. An example under the New Law is that a limited liability company may limit, expand, or eliminate fiduciary duties (defined by Black’s Law Dictionary as “a duty to act for someone else’s benefit, while subordinating one’s personal interests to that of the other person”) owed by members, managers, and others. However, this ability for a limited liability company to alter fiduciary duties is not absolute, as a limited liability company may not use an operating agreement to do away with what is referred to as the implied covenant of good faith and fair dealing. The Old Law did not allow for the elimination of fiduciary duties but did allow for the limitation, expansion, and elimination of the duties of loyalty and care. 

            Penalties For Failure to Comply with an Operating Agreement

Under the New Law, a limited liability company may, also through its operating agreement, impose any penalty or consequence upon a member for failing to comply with its operating agreement. A couple of specific examples enumerated in the New Law include (i) forcing the sale of a member’s membership interest in a limited liability company and (ii) reducing a member’s proportionate interest in a limited liability company. The Old Law did not allow for such penalties.

            Third Parties’ Ability to Approve Amendments

Another wrinkle from the New Law dealing with operating agreements is that a limited liability company may vest the authority to approve amendments to its operating agreement in third parties (parties not involved in the limited liability company). The Old Law did not allow for this.

Separate Asset Series

One of the more critical changes in the New Law, which was not allowed under the Old Law, is the allowance for separate asset series in limited liability companies. Through its operating agreement, a limited liability company may establish separate series with separate (i) rights, powers, or duties regarding specified property or obligations of the limited liability company or its profits and losses; or (ii) purposes or investment objectives. Either of the foregoing is possible if each series has at least one member associated with it.

Where there is a separate asset series, the debts, liabilities, obligations, and expenses for that series are only applicable to that series, not any other series or the limited liability company in general, and vice versa.

To benefit from this treatment, a limited liability company must (i) maintain the assets of each series separately from any other series, and the limited liability company in general; and (ii) provide a statement in its operating agreement and its articles of organization (document filed with the Ohio Secretary of State to establish the limited liability company) similar to what is outlined in the preceding paragraph.

Membership Without Membership Interest or Contribution

Under the New Law, a party may become a member of a limited liability company without acquiring a membership interest or contributing to a limited liability company.

The Old Law required that a party be admitted (i) at the time a limited liability company was formed, (ii) by acquiring an interest directly from a limited liability company, or (iii) by acquiring an interest from a member of a limited liability company.

Statement of Authority

The New Law allows a limited liability company to file a statement of authority with the Ohio Secretary of State to state the authority of a specific party in a certain position to conduct business on behalf of a limited liability company. As such, where there is a statement of authority, it is no longer necessary to look to an operating agreement to determine who can conduct business on behalf of a limited liability company. Having a statement of authority will also limit the ability of third parties to enforce members’ and managers’ unauthorized decisions.

The Old Law did not provide for statements of authority but generally required parties transacting with a limited liability company to look to its operating agreement to determine who could conduct business on its behalf.

End of the Member-Managed and Manager-Managed Distinction

The New Law implicitly does away with the distinction between member-managed and manager-managed limited liability companies. A limited liability company no longer needs to make this distinction in its operating agreement, which was necessary under the Old Law.

Under the New Law, a manager is any party authorized to manage the activities of a limited liability company. Such a party does not need to be defined as a manager but can be called a director, officer, or anything else. This may allow for more flexible management structures, which the Old Law did not contemplate.

Mechanism for Barring Certain Claims after Dissolution

Known Creditors

Under the New Law, when dealing with known creditors, a dissolved limited liability company may give notice of its dissolution to known creditors, setting a deadline for them to bring their claims. Such a deadline may not be less than 90 days from the date of the notice. If the known creditors fail to bring their claims within that period, then their claims are effectively barred, protecting the dissolved limited liability company from those claims.

Unknown Creditors

Under the New Law, when dealing with unknown creditors, a dissolved limited liability company may now (i) publish a notice of its dissolution on its then maintained website, if any, and (ii) provide a copy of such notice to the Ohio Secretary of State for it to publish on its own website. If the dissolved limited liability company does so and requests that unknown creditors present their claims in accordance with the notice within two years from the date of publication (or if the statute of limitations runs during the two years), then those claims are effectively barred, protecting the dissolved limited liability company from those claims.

Under the Old Law, the dissolution of a limited liability company did not prevent the commencement of a proceeding against it.

Conclusion

The foregoing changes are only some of those seen under the New Law. If you need help navigating the New Law, it would be prudent to reach out to the Finney Law Firm. We can provide further guidance and a more in-depth explanation of the foregoing changes.  Contact Jennings Kleeman (513.797.2858) for assistance with your LLC or corporate affairs.

Today’s Wall Street Journal has an article about creative home buying by friends. Is this a good idea?

Well, economically, it could make sense.  A single person may not need a 4-bedroom home, but could easily share the cost of loan principal and interest, taxes, insurance, utilities and maintenance costs with another friend with the same housing needs. But what happens when one friend loses their job? Has a drug or alcohol problem? Has a bad boyfriend (or girlfriend)?  Likes to party too much? Gets a job out of town?  Gets married? Has a different standard for maintenance and improvements to the home? No longer can afford “their share” of the expenses?

Let us assure you that without documenting the agreement carefully laying out expectations and contingencies of the parties going forward, co-ownership (known as co-tenancy in Ohio law, as counterintuitive as that may sound) could turn out to be expensive and legally problematic.

The bottom line is that co-owners, whether buying as an investment or to live in the property, should have a clear understanding in advance and in writing as to (a) the standard of maintenance and who decides, (b) the division of monthly expenses, and (c) an exit strategy on death, disability, or one co-owner just wanting “out.”

Finney Law Firm has drafted many LLC operating agreements, corporate buy-sell agreements, and co-tenancy agreements. Contact  Eli Krafte-Jacobs (513.797.2853) or Jennings Kleeman (513.943.6650) for help with such an agreement.

For most contracts, an agreement is an agreement: If the parties agreed, orally, on paper, or even just electronically, in an email, text message, or through social media, generally, the agreement can be legally binding.

However, agreements relating to the purchase, sale and leasing of real estate can have special requirements for their enforceability. Here, we explore the Ohio Statute of Frauds (O.R.C § 1335.05), which requires certain agreements (i) be in writing and (ii) signed by “the party to be charged therewith,” i.e., the buyer, seller, landlord or tenant. And for real estate instruments, the Ohio Statute of Frauds has those requirements for contracts for the purchase and sale of real estate and for leases (residential or commercial) extending beyond one year. Many people are familiar with the requirement of the Ohio Statute of Frauds as it relates to real estate.

Less familiar to laymen and even real estate professionals is Ohio’s Statute of Conveyances, which requires deeds, mortgages, land installment contracts and leases with a term in excess of three years to be “acknowledged” before a notary public (i.e., “notarized”).  This derives from O.R.C. § 5301.01, which requires these instruments to be notarized and O.R.C. § 5301.08, which then excepts from that requirement leases for less than three years.

 But what does the Statute of Conveyances mean? Is it that, if you have a signed lease, residential or commercial, that is not notarized, and (i) a tenant has moved in, (ii) a landlord or tenant has made expensive improvements to a premises, or (iii) a tenant has made a long-term commitment to having its operations at a specific location, the other party can simply terminate the lease due to it not being notarized?  Despite this seeming like a harsh outcome, the answer is yes, to a degree.

To bypass such harsh outcome, the Courts have carved out equitable exceptions to the Statute of Conveyances. This blog entry explores the enforceability of non-notarized leases in excess of three years in Ohio under the Statute of Conveyances on the one hand and those common law exceptions on the other.

Enforceability of non-notarized leases in excess of three years in Ohio

Where parties execute a lease without notarizing it, the lease is considered defectively executed. A defectively executed lease is invalid and does not create the exact lease sought to be created. That said, the terms of the defectively executed lease are controlling once the tenant moves in and starts paying rent under said lease, except for duration. The duration is determined by the provision for the payment of rent. For example, a lease with monthly rent payments results in a month-to-month lease, while a lease with annual rent payments results in a year-to-year lease.

Where parties do sign and notarize a lease as required by the Statute of Conveyances, and such lease contains an option to renew, the act of accepting an option to renew does not require a second formal execution.  However, where there is not an option to renew, a grant of an additional term is an independent and separate transaction requiring its own compliance with the Statute of Conveyances.

Common law exceptions

The applicable law in a defectively executed lease case depends on the type of the relief pursued. If the party suing seeks to recover damages for breach of the lease, then the applicable route is that of the equitable doctrine of Partial Performance. If the party suing seeks to have the defective lease treated as a contract to make a lease, then the applicable route is that of the equitable doctrine of Specific Performance.

(A) Partial Performance:

A defectively executed lease can be validated through Partial Performance. Partial Performance is based in fairness and is utilized where it would be unfair to permit the Statute of Conveyances to invalidate the defectively executed lease. Partial Performance validates a defectively executed lease where the following four factors are present: (i) unequivocal acts by the party relying on the agreement; (ii) the acts are exclusively referable to the agreement; (iii) the acts change the party’s position to his detriment; and (iv) the acts make it impossible to place the parties in “statu quo”. The party wishing to benefit from Partial Performance must show that the facts of their particular matter meeting the aforementioned four factors are, more likely than not, true.

Generally, the facts of the cases, where the courts allow Partial Performance to validate defectively executed leases from the Statute of Conveyances, include: (i) expending sums of money, (ii) extending credit, (iii) making improvements, and (iv) following what the parties called for in the defectively executed lease. That said, it is important to note that moving in and paying rent is not sufficient to relieve the parties from the Statue of Conveyances.

(B) Specific Performance

Courts may allow for Specific Performance of defectively executed leases where no adequate remedies at law exist. Whether courts will allow for Specific Performance of defectively executed leases is within each respective court’s discretion. As such, Specific Performance is not guaranteed.

Where parties seek to enforce defectively executed leases through, and courts allow for, Specific Performance, the Statute of Conveyances does not impede such enforcing parties’ right to recovery. This is because defectively executed leases are enforceable, as a matter of fairness, as contracts to make a lease between the parties who intended to be bound by them. Courts may order Specific Performance of such contracts.

Conclusion

So, if you are a party to a defectively executed lease, and you are concerned with its enforceability, it is prudent to take some time to call the Finney Law Firm. We can help determine whether your lease is compliant with the Statute of Conveyances, and what you might be able to do if it is not.

On October 1, the Cincinnati Area Board of Realtors and Dayton Area Board of Realtors issued a major update to the form residential purchase contract in use by most Realtors in the two marketplaces. This blog entry explores the major changes to the Contract.

Most Realtors in both the Cincinnati and Dayton marketplaces use form contracts prepared by their Board of Realtors.  Because of the cross-over of the two marketplaces (West Chester, Springboro, etc.), several years ago, the two Boards started issuing a joint contract form.  Both Boards have undertaken extensive training of their members for this most-recent significant set of changes.

The changes include:

  • The most significant change is a complete re-write of the inspection contingency. In the sizzling residential market of 2020 and 2021, desperate buyers trying to secure a contract on a home — after losing out in multiple multiple-offer situations — would buy a home quickly, maybe rashly, sight-unseen with an inspection contingency. During the previously open-ended contingency period, they would for the first time “decide” if they wanted to buy the home. If they terminated (which came with increasing frequency), the seller lost a crucial 10-20 days at the beginning of the marketing period and ended up with a home back on the market with the stigma of a failed sale. This was frustrating for Realtor and seller.  The changes include:
    • Requiring that the inspector be licensed in Ohio (or specialists in more narrow fields).
    • Allowing access for inspection.
    • “Minor, routine maintenance and cosmetic items” cannot be the basis for termination.
    • Importantly, if the seller fails to timely respond to buyer’s request for repairs, he is deemed to have agreed to make those repairs.
    • In the event of certain undisclosed significant defects, the buyer has the right to skip the repair offer/counteroffer process, and simply terminate the contract. These bases are:
      • Structural
      • The presence of asbestos
      • The presence of lead-based paint
      • The presence of hazardous materials
  • A converse problem has also emerged due to the unusually active marketplace, which is that a seller would (in my word) scheme to cause a buyer to default under the contract, such as not allowing access for inspections. The requirement for seller cooperation is made explicit.
  • All timelines in the contract form are “time is of the essence,” except the closing date, which allows for an extension of up to seven days if both parties are “proceeding in good faith performance.”
  • The buyer is in default if earnest money has not been paid within three days.
  • Clarification is made as to the authority of the seller to sign in a fiduciary and corporate capacity.
  • Clarifies that the title agent or closing attorney is representing neither buyer nor seller.
  • The contract better explains Ohio’s confusing timing of real estate tax payments and prorations, and continues the option to elect the Dayton short proration or Cincinnati’s full proration at closing.
  • Clarifies that seller is responsible for Home Owner’s Association transfer fees, along with the cost of obtaining HOA documentation.

For help with a residential contract issue, contact Eli Krafte-Jacobs (513.797.2853) or Jennings Kleeman (513.943.6650).

The $137 million judgment against car maker Tesla this week was one of the largest awards in a racial harassment case in U.S. history.   No doubt it has gained the attention of employers and employees alike.

A California federal jury ordered Tesla to pay Owen Diaz nearly $137 million dollars in damages for racial harassment, including $4.5 million for past emotional distress, $2.4 million for future emotional distress, and $130 million in punitive damages.

Diaz complained that he was subjected to persistent racial harassment including racial slurs. And he claimed that the harassing behavior continued even after he reported and complained about the conduct.

Tesla denies the harassing behavior and denies their responsibility for it, as Diaz was a contractor, not an employee.  The jury, however, found that Diaz was subjected to harassment, and that Tesla failed to sufficiently address it.  It is not clear if Tesla will appeal, or if they do if they will prevail.  Even if Tesla were to appeal and prevail, they would have spent years in very costly litigation.

What can employers do to protect their employees from harassment and themselves from lawsuits.

After seeing the headlines and reading about the Tesla case, employers may be asking themselves how they can insure their employees are safe from harassment and their company is protected from such a lawsuit.   Employers with the best of intentions can be vulnerable, and their employees can be vulnerable as well, if the right kind of policies, procedures, and training are not put in place.

Employers should:

  1. Have the right policies in place to prevent and address harassing behavior

Employers should have written policies that outline the types of behavior that will not be tolerated, a procedure for reporting any such behavior, how such behavior is to be investigated, and clear rules on the consequences of such behavior.

  1. Provide effective training for supervisors and employees on the policies

Even if an employer has solid policies in place, those policies cannot be effective if supervisors and employees are not aware of or do not understand the policies.   Periodic and clear training needs to be provided, so the policies can be followed and enforced.

  1. Enforce the policies

Employers need to be diligent in consistently enforcing their policies to make them effective.  If supervisors and employees see that policies are not being enforced, they may feel they don’t need to be followed and choose to ignore them.  And, if policies are enforced sometimes and not others, that in itself could create feelings and claims of unequal treatment and potentially harassment.

What should employees take from the Tesla Judgment?

The Tesla judgment sends a message to employees that:

  1. Juries may be taking a harder line against harassment

With its $130 million punitive damages award, the California jury sent the message that harassment will not be tolerated in the workplace and must stop or there will be dire consequences.  Punitive damages are on top of any actual damages and are meant to punish and send a message.   This message from the California jury is in line with our society’s increased focus over the last few years and months on issues of discrimination and harassment.  While the Tesla case was decided by a California jury, this could signal a shift toward harsher consequences from juries in harassment cases in other geographical areas as well.

  1. Employees should not be afraid to report harassment

Some employees may be afraid to report harassment because they do not want to seem like they are not a team player or because they are concerned the issue will not be addressed and they may be retaliated against.  The Tesla decision sends a message that employees should not tolerate harassment in the workplace, and that employers must take harassment seriously and have policies and procedures in place to investigate and stop the harassing behavior.  And, it send the message to employees that if the harassment is not dealt with effectively in the workplace, they can seek a remedy in the courtroom.

Effective policies, training and enforcement can help protect both employees and employers, and aid in maintaining a productive and harassment free workplace and avoiding lawsuits.

For legal assistance with workplace issues, contact our capable labor and employment law attorneys, including Steve Imm (513.943-5678) Matt Okiishi (513.943.6659) and Rebecca L. Simpson (513.797-2856).

On June 25, 2021, a panel of the United States Court of Appeals for the Sixth Circuit held unanimously for Jonathan Barger, represented by Steve Imm and Matt Okiishi of our Employment Law division, that his protest against his union allegedly overbilling for the work of its members was “protected speech” under the Labor-Management Reporting and Disclosure Act (“LMRDA”). The LMRDA guarantees, among other things, a union member’s freedom to “express any views, arguments, or opinions,” that touch on a matter of union concern. A copy of the decision in the case styled Jonathan Barger, et al v. United Brotherhood, et al is linked here.

In his Complaint, Mr. Barger alleged that he was subjected to union discipline when he reported time theft allegedly directed by the president of his local to his union brothers, as well as to a private employer. The union, within three days, allegedly retaliated by having Mr. Barger brought up on charges for causing “dissention” within the union. The District Court dismissed Barger’s case, stating that he was beyond the protections of the LMRDA because his motives in reporting the alleged theft were not purely disinterested. The District Court was also critical of Mr. Barger’s failure to publicize his allegations to the rest of his union brothers within the three-day gap following his allegations and preceding the union discipline. Finney Law Firm appealed on behalf of Mr. Barger

The federal Sixth Circuit Court of Appeals reversed the District Court decision, and found that Mr. Barger’s speech was protected under the LMRDA since it upheld the fundamental purpose of the LMRDA: to correct abuses of power and instances of corruption by union officials. The Court further declined to hold his failure to publicize the allegations against him, noting that doing so would create “perverse incentives” for unscrupulous unions to stamp out whistleblowing quickly before publication is possible. Lastly, the Court held that a union member’s motive does not determine whether his or her speech is “protected” or not.

Unlike many appeals court decisions, this victory was recommended by the Court for full publication, signifying that the Court views the case as one of great importance and significance.

Mr. Barger now looks forward to getting his much-deserved and hard-fought day in court.

On September 29, 2021, the First District Court of Appeals issued a decision in CUC Properties, Inc. v. smartLink Ventures, Inc., Case No. C-210003 which will have a far reaching and substantial impact upon cases in the State of Ohio in which default judgment was obtained as a result of service by the US Postal Service during the COVID-19 pandemic.

At issue in CUC Properties v. smartLink was the service of Summons and Complaint by the US Postal Service.  In that action, smartLink disputed that it received service of the Complaint as provided under Civ. R. 4.1 where the USPS noted “Covid 19” or “C19” on the return receipts delivered to smartLink and its registered agent.  As a result of their failure to file an Answer, CUC Properties obtained judgment by default against them.  smartLink appealed, asserting that the notation “Covid 19” or “C19” did not amount to service as provided under the Civil Rules.

The Court agreed, holding that,

The Covid-19 pandemic certainly demanded innovation and flexibility, and courts around the state (and country) admirably exhibited great creativity in keeping the courthouse doors open while also ensuring public safety. The challenging nature of the pandemic aside, we simply cannot dispense with the rules and due process protections. This is particularly so when the record contains no indication that service was otherwise validly achieved. On this record, therefore we hold that a notation of “Covid 19” or “C19”  does not constitute a valid signature under Civ. R. 4.1(A).

This decision, undoubtedly, will have far reaching effects upon the finality of default judgments granted in Ohio courts during the course of the pandemic where the USPS chose to use a notation of “Covid 19” or “C19” in place of having the individual at the address personally sign for the mail from the Court.

 

Attorney and founder of Finney Law Firm, Chris Finney, on September 28, presented “Seven Deadly Sins of Commercial Real Estate” to  the Ohio Association of Realtors annual convention in Columbus, Ohio.  The course addressed the costly mistakes (some common, some not-so-common) made by real estate sellers, purchasers and lenders, including due diligence mistakes, regulatory swamps and paying unnecessary taxes.

We are proud that the proficiency, experience and reach of Finney Law Firm in real estate and real estate-based litigation is being recognized throughout the State.