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Category Archives: Business & Civil Litigation

Cuyahoga County Court of Appeals analyzes primary and implied assumption of the risk in case involving a foul ball at the Cleveland Indians fireworks night

Author By Finney Law FirmPosted on

A recent Cuyahoga County Court of Appeals case distinguishes implied assumption of the risk with the primary assumption of the risk/recreational activity defense discussed in an earlier post here, and recently at Eugene Volokh’s Washington Post blog here.

In July 2012 a spectator was injured by a foul ball at a Cleveland Indians game. As discussed in my earlier post, the Cleveland Indians would generally be immune from liability for the fan’s injuries. However, in Rawlins v. Cleveland Indians Baseball Company, Inc., 2015-Ohio-4587, the Cuyahoga County Court of Appeals found that the trial court erred in granting summary judgment in favor of the Indians on the basis of the doctrine of primary assumption of the risk.

Reds fans may recall that during fireworks Fridays at the Reds games, the ushers and public address announcer wait until after the final out before asking fans near the fireworks to move from their seats. As Sam Wyche once said, “You don’t live in Cleveland.” The ushers at the Indians game may have jumped the gun in moving fans out of certain sections in preparation for the fireworks show. I say may have because there was conflicting testimony in depositions. The original complaint alleged that Rawlins was ordered from his seat, but during his deposition he testified that the usher merely stared at him with her hands on her hips, and that he had overheard other people saying the ushers were telling people to leave their seats.

Primary Assumption of the risk means that in activities which involve risk, each participant (or spectator) assumes the risk for any injury resulting from the risk associated with that injury. As the Court in this case referred to it, the Baseball Rule means that getting hit by a foul ball is a risk normally associated with going to a baseball game – whether you are sitting in your seat or walking to the refreshment stand (or being distracted by the San Diego Chicken). But, when you are being ordered to leave your seat before the final out of the game in preparation for the post-game fireworks show, the club has created a circumstance outside the normal routine of baseball game attendance. In those cases, the club may be liable for injuries resulting from being hit by a foul ball.

 

 

Pillars of strength: An agreement to agree upon something later is no agreement at all

Author By Christopher P. FinneyPosted on

When drafting leases, contracts and other agreements, frequently my client informs me that a key provision has been negotiated or an impasse has been resolved by making an agreement to negotiate an agreement later.

For example, the question the parties have is: “what is to be the lease rate upon a renewal in five years?”  Or, “what will be the location of a utility easement across land of the seller to serve new property being acquired by the buyer?”  And the answer the parties provide is: “will be negotiated at that time” or “we will decide at a later date.”

These answers are, of course, not answers at all.  And they constitute no agreement at all, for what if the parties fail to agree?

In the lease scenario, five years goes by, and the tenant exercises a renewal option subject to a “will negotiate the rental rate later” provision.  Then, the parties negotiate and cannot come up with an agreement.  Is the renewal effective?  If so, at what rate?  If the parties don’t set some sort of procedure (e.g., an appraiser will decide the rate) or some sort of benchmark (e.g., applying CPI inflation rate since the signing off the lease).  The “agree to something later” formulation is the recipe for conflict if not disaster.

In the easement scenario, the seller agrees to provide water, sanitary sewer and electricity easements after the closing on the property being sold, at a location to be decided between the parties. But what if the seller offers access only at a location costly and inconvenient to the buyer?  What if the buyer demands access in a location that makes the remainder of seller’s property undevelopable?  Again, without some procedure (a neutral third party will arbitrate disputes) or benchmark (as close to the east property line as practical), the agreement to provide agreed utility easements at a later date is a hallow promise and an illusory contract.

Now, if the parties trust one another, have a history of getting along, or have economic motivations to cooperate, it may make sense for parties to an agreement to “agree to agree later,” but don’t labor under the illusion that the agreement reached is in itself meaningful, binding or clear.

 

 

 

Navigating turbulent waters: Seven tips on settlement agreements

Author By Christopher P. FinneyPosted on

Ahhh, the peace that comes with conflict resolution!

Whether at the end of a long and raging litigation battle or at the beginning of a minor dispute, the parties have finally entered into settlement discussions.  This is going to be good, right?  Well, even settlement can be fraught with risks, so let’s be sure to get that one last step right.

Here are some valuable tips about settlement discussions:

1. Oral settlements are binding, unless the parties agree that the settlement agreement must be in writing.

Many of the disputes this firm handles are subject to the Statute of Frauds (such as the purchase and sale of real estate, see here).  As a result, many clients are under the misapprehension that a settlement of a dispute about that transaction is likewise subject to the Statute of Frauds (i.e., that the settlement agreement must be in writing and signed by the parties).  This simply is not true.  If the parties to a dispute reach resolution of the dispute orally, that settlement is binding, at least in Ohio and Kentucky.

Of course, oral agreements can be the source of misunderstanding, fraud in and of themselves (“I never agreed to that!”), being incomplete and being not well-thought-through.   Thus, one should be cautious about entering into oral settlement discussions.

However, many times nothing can get a dispute resolved faster and more commodiously than letting the parties — who many times have a long business relationship — hash things out in person, and even without lawyers.  I don’t want to interfere with those positive interactions, so in such circumstances, I recommend a “letter agreement” between the parties that says that the parties are going to engage in such informal conversations, but that nothing is binding on either of them unless and until they reach a final written agreement, signed by both of them.  The letter agreement should further provide that a waiver of the “written agreement” requirement cannot be amended except in writing.

2.  Be careful who you are releasing or from whom you are getting a release.

To get an effective release, the parties identified in a release can be more important than the release language itself. It goes without saying that a release is only binding upon the parties released and only benefits the released parties.  Make sure the parties with the real claims are the ones subject to the form of release.

Further, we usually include in the releasor class and the releasee class “heirs, successors and assigns” of the parties, as well as their “employees, directors, owners, agents, and attorneys.”

Finally on this point, it is important that the releasor(s) acknowledge and represent that they have not assigned their claim in the litigation.

3.  Be careful what you are releasing or what is being released.

As a general rule, when I am representing a defendant who is paying money to settle a claim, I want a full, complete and final release from the plaintiff.  This is so for several reasons, the biggest one being that the plaintiff now knows the “pain threshold” that will get my client to pay money.  If we leave unreleased some of the claims, we have a plaintiff who may well just come back for more.  Further, by paying a plaintiff money, you just help him finance phase two of the litigation.

One exception to this general rule that I consider when representing a defendant, and insist upon when representing a plaintiff, in a dispute relating to the sale of real property, is preserving the warranty covenants that may be contained in a deed for the property.  To me, these are critically important promises from a seller to a buyer, and usually unrelated to other property defects or contract claims.

Additionally, a plaintiff can release claims that do exist as of the time of the settlement, but what about releasing prospective claims?  Typically, it is inappropriate, and may not be possible, to release claims that may arise in the future.

4.  Clear up all ancillary claims and get the litigation dismissed.

In a matter closely related to the “what” of the release, is the issue of clearing up all ancillary disputes in conjunction with a dispute.

Many times a civil claim is attendant with criminal matters, license law complaints, mechanics liens and other impairments of title to real estate, administrative complaints and a host of other sticky issues.  Now, this article is a broad-brush treatment of this issue, and some tricky ethical and other considerations may require very delicately addressing those matters, but when we have the emotional “high” of a settlement, use that Kumbaya moment to put all the bad feelings (and paperwork and proceedings) behind you.

And, of course, make sure the underlying litigation is dismissed concurrent with the settlement.

5. Something I always (almost) forget — the court costs.

So, the defendant is going to pay money and the plaintiff is going to dismiss the lawsuit, but who is going to pay the court costs of the litigation?

In many instances, the court costs are a small number, but in others they can be tens of thousands of dollars.  In any event, it can be the “final insult” or the “icing on the cake” in a settlement.

And in the euphoria and rush of settlement discussions, it is many times the last thing I think of in terms of dispute resolution.  So, I have to remind myself of this component of a settlement.

In my experience, insurance companies routinely pay the court costs as a part of a settlement, but where the litigants have hard feelings or the expenses are significant, it can be a sticking point to have the court costs paid as a part of a settlement.  Thus, the court costs issue should be addressed at the front end of settlement discussions.

6.  Get a mutual release.

Don’t kid yourself that the person writing you a check for settlement may be carefully plotting his retaliation against the plaintiff in another or perhaps even unrelated matter.  “Paybacks are hell,” so they say.

When resolving the dispute for your plaintiff client, ask for a release from the defendant for any claims he may have against the plaintiff as well.  Now, I have had many a defendant say: “if you want a release from me, then pay me some money,” but it is certainly worth seeking such a release.

7.  Indemnities provide unlimited access to your checkbook.

Frequently, defendants paying money to plaintiffs  to settle a claim want the plaintiff to indemnify, defend or “hold harmless” the defendant from claims that may be made by third parties relating to the same events that are subject to the release.

These are not “throw away” provisions or boilerplate.  Rather, they provide open-ended access to a party’s checkbook.  Thus, such provisions could contain the seeds of financial disaster for the plaintiff.  At a minimum, these requests should be carefully considered.  Occasionally, an limited indemnity of “duty to defend” provision may be appropriate, but in most circumstances, requested indemnities are major “red flags” that I reject when representing a plaintiff releasing claims.

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A settlement is a fine end to a dispute, but make sure through these steps that it in fact really the end and really is fine.

Chief Justice’s comments on speedier, more efficient litigation are meaningful for litigants in small cases

Author By Christopher P. FinneyPosted on

Let’s face it, the high cost of litigation drives the outcome for most litigation, as most litigation is low-dollar litigation The vast majority of cases for individuals and business do not involve millions of dollars or momentous constitutional issues.

Thus, Chief Justice’s Roberts comments of today urging trial courts and litigants to achieve a swifter and a more efficient route for litigation has application to the majority of cases this firm handles.

Unfortunately, one party or another to litigation frequently has reason to obstruct the case getting to trial and driving up the cost of litigation.  And, candidly, it seems that some attorneys want to “work a case” — i.e., pull fees from it, before working towards a reasonable settlement.

To work through the thicket of discovery and motions, it frequently falls to the trial judge to move a case along.  Chief Justice Roberts today, among other things, urged trial judges, to do just that.

For our clients, plaintiffs and defendants, that will serve the cause of justice.

 

Real Estate 101: Legal basics of the real estate contract

Author By Casey A. JonesPosted on

I have been fielding a lot of questions lately from buyers, sellers, and Realtors that deal with contracting at its most fundamental level, so I thought I’d put together an article on the basics of the real estate contract.

Offer and acceptance

The essence of a real estate contract is offer and acceptance. The requirement of offer and acceptance applies to each of the major elements of the transaction, which typically include identity of the property and price.

There can be more terms, such as the personal property that accompanies the sale, who pays for the title insurance, and financing and inspection contingencies, but an offer from one party and an acceptance by another party of the major provisions is the basis of the formation of a contract.

One consideration on the issue of offer and acceptance is whether the offer or counteroffer was in fact accepted before its expiration.  We have seen contracts accepted out-of-sync with the terms of the offer and acceptance process, which could empower a buyer or seller to avoid their obligations under that instrument.

If at the end of the back and forth between buyer and seller there remain differences in these material terms, there is likely no “acceptance” of the last offer (i.e., no “contract”).  But if they in fact have agreed, the contract should be enforceable, subject to the “outs” noted below.

Either you are pregnant or you are not

Being in contract is kind of like being pregnant: either you are or you aren’t.  There is no such thing as “kind of” being under contract.  Courts should apply a fairly black-line test to this subject.  Either you are or you aren’t.

Execution and delivery

“Offer” and “acceptance” typically are handled by the signature of one party physically or electronically delivered to the other party.  In the “good old days” this was handled by one Realtor physically delivering a signed contract to the other Realtor.  Today, delivery is more common via fax and email, both of which are acceptable methods of delivery absent specific instructions in an offer or counteroffer from one party to the other (i.e., if they specify that physical delivery to the Realtor’s office is the only acceptable method of acceptance), in which case whatever method that party specifies will stand as the only acceptable method of acceptance.

Interestingly, I litigated a case once in which only the buyer had signed the contract, and the seller sued, claiming he (the seller) had orally accepted the buyer’s written and signed offer by an oral conversation with the buyer’s Realtor.  The Court agreed, and allowed the suit to proceed!

Finally, as this blog entry explains, electronic signatures are acceptable to the same extent as inked signatures under the law.

A counteroffer is a rejection and a new offer

You can’t “have your cake and eat it too.”  So, a seller who is in receipt of an offer from a buyer can’t at first counteroffer, and if that fails to work, then accept the original offer.  This is so because, by law, a counteroffer is a rejection of the first offer and the making of a new offer.  The old offer from the buyer is rejected and “gone” as of the making of a counteroffer by the seller.

Being under contract (mostly) means you are now bound

This principle seems so obvious that it does not need stating, but when parties sign a contract, they are bound to its terms, and responsible for performance thereunder.  Contrary to mistaken “water-cooler lawyering” (where laymen around a water cooler discuss supposed legal rights and remedies), there is no three-day period within which a buyer is privileged to terminate a contract.

Under a typical commercial and residential form of contract, there are a precious few escape clauses for a seller under the contract.  Typically, the contract is an unconditional promise by the seller to convey title to the buyer upon the buyer’s tender of performance (usually payment of the purchase price).

The buyer on the other hand has several primary ways to avoid his obligations under a purchase contract:

  1. Typically, the buyer’s performance is contingent upon obtaining a satisfactory inspection of the property.  If the buyer desires to terminate the contract during the inspection period, his ability to avoid his obligations under the contract is quite open-ended.
  2. In commercial contracts, many times buyers have similarly open-ended contingencies of acceptable zoning, economic analysis, pre-leasing, and environmental inspections.  During such contingency periods, the buyer may have a significant opportunity to avoid his obligations under the purchase contract.
  3. In both commercial and residential contracts, financing contingencies are also common.  During the period of time allowed for obtaining financing, again, a buyer may be able to terminate if contractually-adequate financing is not obtained.
  4. In the Cincinnati Area Board of Realtors form of residential contract, there is an obligation upon the seller (Section 8) to provide a broad and somewhat open-ended set of documents to the buyer. There is then a period of time (blank in the form contract) for the buyer to terminate the contract based upon his review of those documents.  This right to terminate is discretionary in the buyer.  Further, if the seller never provides the documents, the buyer would arguably then have the right to terminate the contact all the way through the date of closing.
  5. The Cincinnati Area Board of Realtors Contract also contains an appraisal contingency in favor of the buyer that is above and beyond the appraisal obtained by the buyer’s bank in conjunction with his financing.  (NOTE: These two last contingencies are briefly addressed in this blog entry.)
  6. Finally, Ohio Law (O.R.C. Section 5302.30(K)(4)) provides that, in certain residential contracts, if a seller has not provided a residential property disclosure form to the buyer, the buyer will have the right to terminate the contract all the way through the closing date.

Obligation to fulfill contingencies in good faith

Notwithstanding the seemingly open-ended nature of some contingencies, courts have found that parties have an obligation under a contract to attempt to fulfill contingencies in good faith.  See Johnston v. Cochran, (10th District, 2007) 2007-Ohio-4408.

When one of the parties to a contract has direct influence over the fulfillment of a condition precedent, that party bears the burden to show that it made good faith efforts to satisfy the contractual conditions which allegedly excuse its performance.  In other words, a party cannot take advantage of an unfulfilled condition precedent to excuse its performance without first proving that it exercised good faith and diligence in trying to satisfy the condition.

Therefore, refusing to properly and honestly apply for financing that results in a rejection letter from the lender may not be the basis for contract termination under the contingency that allows for the buyer to terminate if he or she cannot obtain financing.  Telling your home inspector to find problems “to kill the deal” would likewise not be the proper fulfillment of an inspection contingency.

How long do I have to wait after someone’s breach?

If a buyer fails to close on the purchase and sale of real property on the date anointed by the contract, may the other party just walk away?  Well, not exactly.   As this blog entry explains, if the contract does not use the magic words “time is of the essence” (in this instance as to the closing date), then time is not of the essence and we don’t really mean for the dates we say in the contract to be strict deadlines.  A buyer or seller would then have to wait a reasonable period (and perhaps a little longer) before they can be assured that a court would find that one party is in breach and that the other party may pursue his remedies for such breach.

Declaration of breach

If one party believes the other party is in breach of a contract, it is appropriate to send a letter formally declaring the other party in breach, and then to act in accordance therewith (i.e,, do not continue to act as if the breaching party has not breached and proceed to prepare for closing, for example).

Remedies for breach

Typically under real estate purchase contracts there are two basic remedies available to both the buyer and the seller for the other party’s breach: (i) monetary damages and (ii) an action for specific performance.

1.  Monetary damages

The monetary damages available in a breach of contract setting are typically the difference between the contract price and what the house was worth at the time of the breach.  That means that if the house or commercial property sold for “about” what it is worth (which it usually does), then the monetary damages one party sustains may not be all that significant.  Further, regardless of the re-sale price, the proper proof of the “actual value” number is appraisal testimony presented by each party at trial.

2,  Holding costs and consequential damages

Now, sellers also want to obtain damages for holding costs, and potentially the loss of their subsequent purchase.  Buyers want their temporary living expenses and the cost of storing their home’s contents, as well as the interest rate they lost because of the delayed closing.

On a theoretical level, the courts are, at best, inconsistent in their awards of “holding costs” damages and will typically not award the consequential damages associated with the loss of another purchase transaction.  (Roesch v. Bray, 545 N.E.2d 1301, 1304 (Ohio Ct. App. 1988) (“[C]ourts have not considered in great detail what additional losses may be compensated for in the way of damages pursuant to a breach of a real estate contract. Generally, damages on a breach-of-contract action are limited to losses that are reasonably to be expected as a probable result of the breach.”). See also Ottenstein v. Western Reserve Academy, 374 N.E.2d 427, 429 (Ohio Ct. App. 1977) (Mahoney, P.J. dissenting) (“I do not believe that those damages should include any ‘loss’ of ‘interest’ on the money as such ‘loss’ is not consequential.”).)

The buyer’s temporary housing and storage may be recoverable, but would the court offset the mortgage payments that would be insured if the sale had gone forward?  Similar to the refusal to award consequential damages to a seller, the higher interest rate paid by a buyer may be difficult to obtain. (Quinn v. Bupp, 955 A.2d 1014, 1021 (Pa. 2008) (citing Rusiski v. Pribonic, 511 Pa. 383, 515 A.2d 507, 512 (Pa. 1986) (declining to award damages to a buyer in a land sales transaction calculated upon an increased mortgage interest rate).)

3.  Practical problems in damage recovery

Beyond the theoretical problems in damage recovery, we have the practical.  The cost and difficulty in obtaining monetary damages beyond the valuation question will be challenging when compared to the attorney’s fees that will be incurred in the pursuit of the same.  In the commercial setting, breach damages can be significant.  In the residential setting, it is rarely worth it to pursue a damages claim.

4.  Specific performance

The other remedy for breach of a real estate contract, available to both buyers and sellers, is an action for specific performance.  In a specific performance action, we ask the judge to order the breaching party to perform his obligations under the contract.  For the breaching seller, it is to give a deed and do other things required at the closing.  For the buyer, it is to pay the purchase price and perform his other contractual obligations.  Because every parcel of real property is considered unique and irreplaceable under the law, this remedy is — as a matter of law — available under each real estate contract.

However, consider the practical difficulties of a specific performance action:

  • For sellers, they need to take their property off the market for the duration of litigation — which can last three years or more in the case of an appeal — in order to force this specific buyer to close on this specific property.  Further, once the seller achieves this victory in court, how does he force the buyer to get a bank loan and acquire the funds to buy the property if he otherwise does not have the cash?
  • For buyers, they should be able, through a specific performance action (read here about lis pendens actions), to tie up the title to the seller’s property, but they too will need to be prepared to pursue the matter through its conclusion in the trial court (18 to 36 months) and potentially through the appellate process as well (another 18 to 24 months).  Further, despite some case law that supports a claim for an award of attorney’s fees at the conclusion of such action, typically the cost of pursuing the claim will fall to the plaintiff.

In short, it is the rare buyer or seller plaintiff who has the wherewithal and fortitude to see a specific performance action through to its conclusion.

Obligation to mitigate damages

Whenever a party breaches a contract, the non-breaching party has a duty to mitigate damages. (30 Oh Jur Damages § 102 (2015) (citing Chicago Title Ins. Corp. v. Magnuson, 487 F.3d 985 (6th Cir. 2007)). See also Reitz v. Giltz & Assocs., 2006 Ohio App. LEXIS 4120, at *19 (Ohio Ct. App., Aug. 11, 2006) (“The duty to mitigate damages, otherwise known as the doctrine of avoidable consequences, requires a plaintiff to avoid those damages resulting from a breach of contract that may be avoided “with reasonable effort and without undue risk or expense.”).)  Let’s give an example unrelated to property sales:

A seller brings a truckload of peaches to a buyer in Cincinnati.  When he goes to deliver them, the buyer refuses the product.  The seller cannot simply allow the peaches to spoil on the truck and escalate his damages, he must go to a produce house and sell them for whatever he reasonably can get, holding the buyer responsible for the difference in price between that which was originally promised versus that which was obtained at the produce house sale.  This is called “mitigation of damages.”

Similarly, when a buyer breaches a real estate contract, a seller is obligated to place the property back on the market and obtain the highest possible price and best possible terms to reduce the damages for which the buyer is responsible.

Conclusion

While the idea of a real estate contract might sound intimidating, the law provides guidance as to how the parties should approach these contracts and is fairly lenient as to their execution aside from a few strict requirements (such as offer and acceptance). However, parties should be aware of the consequences should something go wrong in the process due to the potential difficulties of obtaining relief and shift in responsibilities in the event of a breach by the other party.

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Additional resources

We recommend for your reading these additional resources:

How to break a real estate contract by Massachusetts Realtor Bill Gassett >>

How to determine what is a breach of contract by New Hampshire law firm of Fojo, Dell’Orfano >>

Can you cancel a real estate contrat by Realtor.com >>

 

 

 

Appeals Court apologizes for misplacing case for five years

Author By Christopher P. FinneyPosted on

The practice of law, especially appellate litigation practice, mandates boatloads of patience, as is illustrated by this remarkable article in the Wall Street Journal: Appeals Court apologizes for misplacing case for five years.

The appellate grind

TGavelhe common appellate practice is: You work hard to brief and argue a case before a Court, and then you wait.  Some waits are mercifully short.  For example the average turn-around time in the Hamilton County Court of Appeals after oral argument is among the shortest in the nation at about 40 days (that may be as much as 12 months from filing of the appeal).  We won our 9-0 U.S. Supreme Court decision in the Susan B. Anthony List case in 54 days.  It is sometimes really is remarkable.  But other courts — and decisions in specific cases — can take what seems to the litigants to be interminable amounts of time. We had two decisions issued earlier this year that each took the Ohio Supreme Court just under a year after full briefing to decide.

Waiting for a pot to boil

But, of course, it’s like watching for a pot of water to boil.  The wait times seem lengthy to the clients and their attorneys who are anxious for a decision, but it’s just another day at the office for the Courts — the Judges and their clerks.

The gentle nudge

And the way it works for litigators waiting for a decision is that you can call the Clerk and gently inquire about the status of a decision, and the answer is almost always the same: “we are working on it;”  “it will come out soon.”  And sometimes you wonder . . . are they really working on it?  Is it really coming out soon?  Did that clerk even really check to see that it’s not lost somewhere in the office under a stack of papers?  Hmmm.

My first appellate case

My very first appellate argument involved what I thought was a pretty simple, straightforward matter.  The facts were agreed and the record was very thin.  The single legal issue was not at all complex.  It just needed a decision from a panel of three wise judges.  After a year of waiting for a decision, I called the clerk for the Court of Appeals who thought a year was especially long to write an opinion too.  So, he checked.  He called me back and said “when I realized that that case was assigned to Judge so-and-so, I knew what the problem was.  I have handled it; it will be out soon.”

And sure enough, after about two or three days we finally had a decision.

It turns out that Judge so-and-so was nearing the end of his appellate career, and his cases had started to languish.  But an alert Clerk got it “unstuck” and magically we had a decision within a few days.

Thus, all these memories came flooding back when I read the Wall Street Journal story.

The 5-year wait in the Chicago case

First, a nod to the Court for admitting their mistake, and apologizing for it.  It showed some strength of character for the Judges — who could just as easily have brushed the error under the rug — to address the matter head-on.

But, you will note in the story that the clerks did get the phone calls from counsel, and the clerks gave them the standard brush-off responses.  No one from the Clerk’s office apparently followed up and checked on the status of the case.  So, we have answered that question: No, sometimes the Clerk has no idea of the status of your case, and did not check, before telling you “we are working on it” and “it’s coming out soon.”  Hopefully the Court in that case does follow through and fix their procedures to assure this does not happen again.

The bazooka: A writ of procedendo

There is another option for litigants waiting too long for decisions — they can file for a writ of procedendo to a court of superior jurisdiction.  The writ of procedendo is a prerogative writ from a higher court ordering the lower court to make a decision.  Essentially, you can “sue” the trial court or appellate judges to force them to make a decision.  For a decision sitting at the Common Pleas Court, one can file at the Court of Appeals.  For a Court of Appeals decision, you can file at the Supreme Court.  I don’t think there is anything you can do to speed decisions from the Ohio or U.S. Supreme Court.

We actually filed for one!

So, how do writs of procedendo typically work out?

Our team had a case before the Franklin County Common Pleas Court that was not the easiest of decisions — the issues of law were evolving.  But the record was short and the issues fairly narrow — the Judge just needed to decide.  Further, we knew the  issue would ultimately be decided in the courts of appeals, perhaps the United States Supreme Court.  The case had been pending 24 months, and we had fully briefed cross motions for summary judgment some 14 months earlier.  We called and gently inquired about timing to the Judge’s clerk — to no avail.  So, I called my co-counsel and said: “Do you really want to go your whole career and never file for a writ of procedendo?  Let’s go for it!”

Well, magically, it worked!  We got the attention of the Common Pleas Court Judge.  Within about 10 days of the filing of the appellate pleading, the Judge in the Common Pleas Court issued a decision alright — and he ruled against our client.  The matter presently is pending on appeal to the 10th District Court of Appeals.

Conclusion

The common wisdom is that this typically is how undertaking writs of procedendo work — you get a decision alright.  It’s like my mother used to tell me: If you want a decision right now, the answer is “no.”

So, generally you just wait, . . . and wait and wait.

Sometimes it is a short wait; other times you wonder if you will get a decision while you are still here on this earth.

But when the pot finally boils, you mostly forget all about the wait and either lick your wounds of a loss, or celebrate your win.  The wait fades as a distant memory.

Advanced commercial real estate law: Options to purchase in Ohio

Author By Christopher P. FinneyPosted on

chris_finneyThis article is an in-depth exploration of options to purchase real estate, a powerful tool for real estate developers to “kick the tires” of real estate before committing to buy, and an important right in tenants to purchase their property — rather than continuing to lease.

NOTE: this article exploring the distinction between Options, Obligations and Rights of First Refusal.

An option to purchase real estate typically places the prospective purchaser completely in the driver’s seat of a transaction — giving him the unfettered option to purchase real estate, usually at a fixed price.  So, the operative language for an option to purchase may look like this:

Purchaser [tenant] has the exclusive right and option to purchase the real property described on the attached Exhibit A during the term of this Agreement [Lease] for the price of $__________________.

There are several key considerations to options for both parties and then several components that should be addressed in a written option to purchase agreement.

Variable price

In addition to fixed-price options, the parties could agree upon all sorts of formulas for establishing the price, including:

  • If the option to purchase will extend out over a period of years, a CPI or inflation adjustment may be appropriate;
  • If the building is a multi-tenant facility, it may make sense to base the purchase price on gross or net income divided by a cap rate, or some other formulation;
  • Parties frequently base option prices on an appraisal, or multiple appraisals, to ascertain value at the time of the exercise.  Regardless of how “fair” or “objective” this may seem, appraisals on commercial buildings can vary widely based upon the appraiser and the assignment he has been given.  Appraisals are also very expensive; and
  • Finally, please resist the temptation to agree upon “market value” or “an agreed price” at the time the option is exercised, for “an agreement to agree to something later is no agreement at all.”

Get it in writing

As this article explains, the statute of frauds in each state will govern an option to purchase agreement — and as such it must be in writing and signed by the party against whom you want to enforce it, or as far as the law is concerned, the claimed transaction simply did not happen.

Contracts many times act as options

Most commercial contracts to purchase real estate are really options when you think about it.  What I mean by this is that the contingencies to the buyer’s performance typically are so open-ended in commercial purchase agreement, that the buyer can simply “opt” to buy or not buy before the close of a due diligence period.  Thus, following the line of thinking above, does it make sense for the buyer to have some “hard, forfeited money in the game to obtain this valuable right from a seller?  It’s at least something to consider.

An option is a contract when it has been exercised

Conversely, once a buyer exercises his option to purchase real estate, he is then obligated to purchase the real estate and the seller is bound to sell.  Thus, the instrument — upon its exercise — becomes exactly the same as a contract to purchase.  The question is thus, on what terms?

Because it may be too late to negotiate key contract terms after the exercise of the option, all of the components of a purchase contract should be called out in the option.  These should include, at a minimum: (i) quality of title, (ii) closing date, (iii) date of possession, (iv) tax and rent prorations, etc.  In a lease, many times the “option to purchase” is relegated to a single paragraph or section, but even if so, these contract provisions (along with the other components noted below) should be carefully addressed in that one paragraph.

Free-standing option or part of another instrument?

Often, an option to purchase is a component of another instrument — usually a lease — or it can be its own freestanding “option to purchase agreement.”  In leases, options to purchase is most common in situations in which the tenant is occupying the entirety of the real estate.  Further, an option to purchase can be an important component of sale-leaseback agreements and build-to-suit arrangements, both of which can be viewed as, at least in part, financing vehicles.  Regardless of the genesis and context of the option to purchase, the matters set forth in this blog entry are appropriate for consideration.

As to free-standing option agreements, it is common that the buyer of the option pay the seller a sum of money or other consideration for the option.  First, this is required under the contact principle of “consideration.”  Without something paid for the promise to sell, the contract may fail for lack of consideration.  Further, as the option gives the buyer the open-ended right to sell or lease the property to others once he exercises the option and buys the property, it provides substantial value to a buyer — this is something the seller may not want to just give away.

On the other hand, the seller may not be overly anxious to force a significant price for the option, as it is an effective way of marketing a property through a qualified developer that otherwise might sit unused and unsold for years.

The option period

During the option period, the seller is unable to convey clear title to a third party (because it would be subject to the option in the buyer), and the buyer typically performs his due diligence, markets the property for sale or lease to third parties, obtains zoning and other regulatory approvals, and obtains his financing.

Commonly, an option to purchase is for a fixed period of time.  So, for example, if the option is part of a lease with a three-year term, the option would run concurrent with that three year-term, or perhaps need to be exercised no later than 90 days preceding the lease expiration.  In the case of a term that runs concurrent with a lease, consider (i) options to renew and (ii) holdover periods.  How will the option be handled during such periods as well?  Some proposed language:

The term of this option will run from the execution of this Agreement through December 31, 2020.

– or –

Tenant may exercise this option throughout the term of the Lease and any extension or renewal hereof, provided that it must be exercised no later than 90 days prior to the expiration of this Lease.  The option is not effective during any holdover period.

Other times, the period within which the option must be exercised hinges off of the due diligence period.  So, if a buyer has six months to physically inspect the property and to obtain his zoning and other regulatory approvals for a new intended use, then the option period may run 60 days beyond the close of that due diligence period.  A problem, especially for a seller, with this approach is that if it is not clear that the buyer has to proceed with diligence with his inspections and regulatory approvals and there is no closed-end date for that due diligence period, then the option date never arrives, and title to the property is perpetually clouded until the buyer makes up his mind — which he may not be motivated to do.

We address that issue in this blog entry: Advanced commercial real estate: Seller beware, the contract that doesn’t end.  Typically language that bases the option period on due diligence inspections would not be used within a lease.  So, some proposed language for freestanding option to purchase agreements:

This option may be exercised by buyer up to sixty days following the close of the Due Diligence period as the same is defined in Section 3, above.

In any event, to properly draft an option to purchase, the period of time, or formula for determining the period of time, within which buyer has to exercise the option should be clearly stated.

The exercise

Perhaps where many options “fall down” in the drafting is in clearly explaining what the buyer must do to exercise the option, and that the option is then forfeited if not exercised within that period of time.  When, where and how the option should be exercised and when and how the option expires for non-exercise (or otherwise) are important components of the drafting of an option to purchase instrument.  Again, some proposed language:

This option may be exercised on or before the Expiration Date by buyer delivering to seller written notice of the exercise of the option by hand delivery or certified mail.

Non-exercise

What then happens if the option is not exercised within the option period?  The instrument should make clear that the option then expires and the buyer/tenant has no right to purchase the subject property.  Some model language:

If buyer [tenant] fails to exercise the rights granted by this option as and when provided for herein, then this option will be deemed to have expired, and buyer [tenant] will have no right to purchase the property.  Time is of the essence as to the option period, and the exercise of the option as provided herein.

Special lease provisions

When an option to purchase is contained in a lease, some special matters should also be considered.  For example, what if the tenant falls into default in the payment of his rent?  Landlords frequently want to either revoke option rights completely upon one default, or more likely suspend the tenant’s option rights during the period of any default.  Thus, the grant of the right may be preceded by the language: “So long as tenant is not then in default of any of its obligations hereunder.”  Other things to consider with options built in to leases are:

  • The due diligence inspections usually are not needed as the tenant is familiar with the property, and indeed may be the cause of conditions present at the property; and
  • Tax proration issues can be complicated if the tenant is paying the taxes as a part of his lease payments.

Title and recording

And as is addressed in this article on tenant’s rights in a receivership, the title to the property in which rights are granted by the owner is important.  For, if the property is subject to a pre-existing lease, mortgage, option to purchase or other instrument that precedes the new option to purchase, then the new option to purchase is likely to be subject to the right of the tenant or grantee in that prior instrument.

  • In the case of a mortgage, the mortgagee can wipe out that later-granted option with a foreclosure proceeding.
  • In the case of a tenant, the option to purchase would be subject to the tenant’s rights, which may well be under a long-term lease.
  • In the case of another optionee, the pre-existing option may take priority over the new one, thus defeating the right to purchase in the later instrument.

Now, to be clear, the seller of the option may have liability to the buyer for breaching the agreement, but for a buyer that has paid, say, $100,000 for the “rights” to buy a building, a worthless claim against an insolvent seller will be little consolation.

So, how does a buyer under an option, whether a tenant or a buyer under a free-standing option agreement, proceed with assurance that his option rights will take priority over the claims of others:

  • Perform a title exam and visually inspect the property as to tenants or other occupants (say, a neighbor with an encroachment) who may have pre-existing rights;
  • Get written subordination agreements from those with superior rights to the option to purchase or clarify that they do not have superior rights, such as through an estoppel certificate; and
  • Once priority is established through those first two steps, record the new option to purchase so that the world is placed on notice of the priority of the rights created by that instrument.

Conclusion

An option to purchase can be seen as a casual commitment by both the buyer and the seller, because it may appear preliminary to a transaction actually transpiring.  But, in reality, it usually grants powerful rights to the buyer that, once exercised become a binding contract.   Further, from the buyer’s perspective, before paying significant sums for property optioned or investing monies in due diligence work, it behooves the buyer to carefully consider and then address superior rights of others in the property.

* * *

If you need assistance with properly framing an option to purchase agreement, as buyer or seller, we encourage you to call any member of our real estate transnational team, Chris Finney (513-943-6655), Isaac Heintz (513-943-6655), or Rick Turner ((513-943-5661).  For litigation support regarding a dispute over an option to purchase, contact Brad Gibson (513-943-6661).

* * *

Finally, here are some good articles for additional reading on options to purchase real estate:

Option Contracts for Buying & Selling Real Estate from Lawyers.com >>

Who Really Needs a Real Estate Option Contract? from Realtor.com >>

Consider the Consequences of Your Options from the CCIM Institute >>

The advantages of a full-service law firm coupled with a title insurance company

Author By Christopher P. FinneyPosted on

There are many law firms in greater Cincinnati, some special-purpose and some full-service, and there are many title insurance companies, commercial- and residential-focused.

But as a lender, as a consumer, as an investor, as a Realtor, what are the advantages to having a robust title insurance company coupled with a full-service law firm?  We think there are several.

  • First, from a real estate transactional perspective, we offer significant depth of experience and breadth of services to residential and commercial buyers and sellers, as well as lenders: closing and title services, leases, seller financing documents, and post-occupancy agreements.  We also can handle zoning and regulatory matters relating to your property.
  • Our litigators can vigorously litigate to enforce the contracts that we write and that you sign, or defend against such actions.
  • We can handle sophisticated matters relating to bankruptcy, probate administration, and the business components of a real estate transaction.
  • Finally, our property tax valuation team can assure you are not paying more in taxes than the law requires.

We strive to produce the same high-quality product and responsive customer service across each practice area of the Finney Law Firm and with Ivy Pointe Title.  We invite you to let us show you how we can “make a difference” in your real estate matters.

Advanced commercial real estate law: Adverse possession and prescriptive easements in Ohio and Kentucky

Author By Christopher P. FinneyPosted on

In most circumstances, real estate law is a remarkably simple discipline: (a) read and understand the contract (or deed or declaration) and (b) the order of recording is the order of priority.  Now, these rules are not always followed, but they give us a general framework within which to practice.

However, two curveballs in real property rights are what we refer to as “adverse possession” or a “prescriptive easement.”

Adverse possession

An owner of land owns his property as against the claims of all others — it’s a pretty simple concept.  But in most states actual ownership can be “taken” from the owner — without a court proceeding — through “adverse possession.”  In Ohio the timeframe is 21 years and in Kentucky  it is 15 years.

In law school, we learn the acronym: O-C-E-A-N to describe the five claims the claimant must establish by a preponderance of the evidence to establish adverse possession.

  • Open
  • Continuous
  • Exclusive
  • Adverse
  • Notorious

The idea is that the claimant must in all manners have acted as the owner of the property, and have openly asserted to the world, continuously for the period of time in question, his ownership of the property.  This is a very tough standard, indeed.

A typical fact pattern we see as to adverse possession claims is that a claimant mows the law, trims the bushes, or operates an ATV across the disputed property (in fact owned by the neighbor) for a prolonged period of time.  The actual owner of the land comes to our firm to express concern about these activities.  Now, other than the public liability concerns for such activities (what if someone gets hurt!), there is a risk that the user will someday claim ownership of the land via adverse possession.  How do we prevent this?

It’s actually pretty simple to fix this.  If the user is using your land with permission, then the claim is by its nature not adverse.  So, I advise clients to send to their neighbors using their land a certified letter granting revokable permission for the use in question:

  • “Hey, I’ve noticed that for the past 10 years you have been cutting the grass on an acre of my property.  I wanted you to know how much I appreciate this and to give you permission to keep cutting my grass, until I change my mind.”  

It’s magical.  With one simple and polite letter, sent via certified mail and saved in a permanent place, you have eliminated any potential adverse possession claim, as long as it is sent before the 21 years (in Ohio) or 15 years (in Kentucky) lapses..

Now, there are many other issues with establishing an adverse possession claim:

  • What if there were multiple owners over that 21-year period of time?  That is OK as far as an adverse possession claim goes, but it presents a proof issue.
  • What if others have also used the land?  Then at best it is a prescriptive easement claim (see below).
  • Is “who pays the tax bill” dispositive as to an adverse possession claim?  It is persuasive, but not dispositive.
  • Can a tenant assert an adverse possession claim?  No, their occupancy is by its nature permissive, not adverse.

Prescriptive easement

A prescriptive easement claim is asserted and analyzed in the same manner as an adverse possession claim except:

  • The interest asserted is an easement interest, not a fee simple (ownership) interest;
  • The “E” from the acronym OCEAN is eliminated; the use does not need  to have been exclusive to establish a prescriptive easement claim.

The result of a successful prescriptive easement claim is not ownership of the disputed property, but rather establishes a non-exclusive easement to use the land in question for a specific purpose.  So, a shared driveway area or a common utility line would be classic examples of a claimed prescriptive easement.

How claim is asserted

I suppose neighbors could just acquiesce to the adverse possession of another, and lawyers and judges would not need to be involved, but that’s not typically how we see it working.  The way we see adverse possession asserted is that one neighbor sues another neighbor either (a) to stop an offending use or (b) to ask the Court to declare ownership of the subject property via adverse possession.  Because of the very long timeframes involved, the proofs can be difficult on each side.  Cases in which physical improvements have been built long ago are the easiest to establish an adverse possession or prescriptive easement claim.

Conclusion

The moral to this story is that a property owner cannot simply sit on and ignore his property rights; he must vigilantly defend them, lest their ownership just evaporate by his neighbor’s use of his property.  It does happen.

Most of the times this occurs in a commercial setting, it can be expensive and even interrupt operations of the business.  In the residential setting, most of these claims seem to settle as a result of the small value of the land at issue versus the tremendous cost of litigating.

I link below to few articles on adverse possession for further reading.

Adverse Possession Law >>

Adverse Possession: When Trespassers Become Property Owners >>

What Is the Difference Between Adverse Possession and prescriptive easements >>

If you become a party to an issue involving adverse possession or prescriptive easements, let the professionals of the Finney Law Firm “make a difference” for you.

 

Some litigation is like an onion, some is like a tomato

Author By Christopher P. FinneyPosted on

Litigation like vegetables?  Yes, it can be that way.

Think about the salad.  Onions can be peeled away one layer at a time, tomatoes you just slice through the middle.  Litigation can be proceed in both ways, for each plaintiff and defendant.

Plaintiff’s tomato

As a plaintiff’s counsel, finding a case that you can slice down the middle like a tomato — putting an end to it quickly and in an advantageous way for your client — can be gratifying.  Our firm, for example, Tomatodoes a significant amount of fee-shifting litigation in which when the plaintiff wins — even a small victory — the cost of attorneys fees and expenses (all of them) falls to the defendant.  In such cases, frequently the defendant wants a quick settlement to avoid open-ended liability for their wrong-doing.  Other times, the plaintiff has such a strong case, the mere demand or filing of suit will bring the defendant to the table to settle.  Finally, sometimes the power of the story in the media can convince a defendant to quick bring an end to a big battle before his misdeeds are displayed before the world.

Plaintiff’s onion

Other times, a plaintiff has to slowly and methodically convince the defendant of the strength of his position — like peeling an onion back one layer at a time.  Layer by layer, and sometimes cut by cut, the defendant realizes that the case is just going to get worse for him each day, each motion and each deposition that passes.  Eventually the defendant relents, but it can be hard work; some defendants take a lot of convincing.  “Onion” litigation is the most gratifying when the Judge is moving with the client, and motion by motion, ruling by ruling, lays open the defendant to the plaintiff’s claims.  The penultimate “onion” strategy for a plaintiff is a (occasionally surprising) motion for summary judgment, or maybe partial summary judgment on liability only that makes liability — and potentially open-ended liability — a foregone conclusion to the defendant.  That frequently is enough to wrangle a strong settlement.  Some onion cases, however, require that you take them all the way through trial and even layers of appeals.

Defendant’s tomato

From a defendant’s perspective, a quick end to litigation — slicing open the tomato — is a motion to dismiss or a motion for judgment on the pleading at the commencement of litigation.  All the plaintiff has done is file the complaint (the initial lawsuit paperwork).  In response, the defendant says “this is not worth the paper it is written on,” and successfully moves to have the entire case thrown out before the first punch is thrown.  That’s a tomato, cut right down the middle.

Defendant’s onionOnion

Finally, we look at defendant’s onion, the slow use of motion work and discovery to peel back the layers of the plaintiff’s case down to its rotten core.  This is most typical in cases involving insurance defense.  By slow, methodical work, the defense counsel makes the plaintiff prove their case, or establishes that he does not have one. Sometimes this strategy can backfire on defense counsel, running up costs for the client — or indemnitor — only to show the strength of the plaintiff’s case and counsel.  In any event, hard, slow, committed defense work can undo what at first seem to be strong plaintiff’s cases.  Because of the cost and risk of litigation, the onion strategy typically works best for defendants, especially those with insurance carriers funding the defense or those defendants with deep pockets. Onion defenses can last through multiple interlocutory appeals and appeals all the way through the U.S. Supreme Court.

Conclusion

The moral to this story is that litigation — strategically planned and  properly pursued to its end — can be successful as either an onion or a tomato.  But onions typically are a lot more expensive.

 

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