The Finney Law Firm is counsel to five multi-handicapped children and their parents in a law suit against the Kings Local School District for abuse at the hands of the special needs classroom teacher. The abuse was exposed by one of the aides.
Yesterday, our firm won two key motions in that case from Judge Michael Barrett.
The decisions are here and here. The Cincinnati Enquirer writes about the victory here.
In order to foster settlements, Courts have a strong bias in favor of settlement discussions and settlement agreements. Here are two ways in which this preference is manifested:
Those not familiar with mechanisms of dispute resolution frequently conclude that because a party offers to settle a claim, he must have done something wrong — something that is the basis for legal liability. Further, knowing the dollars a Plaintiff or Defendant put on the table to resolve a claim in failed settlement discussions places before a decision-maker (Judge, Jury or Arbitrator) important information of how the parties value the claim. Therefore, it would be tremendously prejudicial before a jury — or even a judge — to allow settlement discussions to come in to evidence. As a result, there is a pretty firm rule in Court proceedings that evidence of settlement discussions — regardless of how true they are — are simply inadmissible. Otherwise, parties would be crazy to engage in such discussions for fear of prejudicing the litigation.
Second, once a settlement agreement is reached — or arguably reached — Courts will use their powers to enforce that agreement, whether oral or in writing. [Read here about enforcement of oral settlement agreements.] Thus, parties should carefully consider what they are willing to agree to when it comes to a settlement agreement. Casual and not-well-thought-through agreements can bind you.
It is important that parties carefully protect themselves in situations of potential conflict, especially when undertaking settlement discussions.
Oral settlement agreements are enforceable as a general legal proposition.
We addressed in this blog entry the relatively absolute principle that the statute of frauds requires agreements relating to the purchase and sale of real estate be in writing and signed by the party who one intends to sue. But when it comes to resolving disputes, especially litigation, that rule is thrown out the window.
This sounds like some legal double-speak, but even though the sale of real estate requires signature, the settlement of a dispute regarding the purchase and sale of real estate does not. The statute of frauds does not apply to settlement agreements.
So, when parties are involved in litigation, and settlement discussions ensue, all things said and agreed to in oral conversations are enforceable as a matter of contract. Further, this rule applies when matters are pre-litigation.
Many times when my client is involved in a dispute, the other party asks whether they can have settlement discussions alone, without the attorneys involved. I like the idea, as it can permit the parties to overcome obstacles to settlement that the attorneys cannot. But the problems with this approach, as I explain to my clients, are twofold: (i) first what the client may say that hurts his case or agree to that could resolve the case on terms he does not agree and (ii) even if my client does not say anything precipitous, the other party could claim he did. And then we have an argument about proof of what was or was not said in that private meeting.
As a result, I frequently require a written agreement signed by both parties before such a meeting promising that (i) no agreement will be binding unless and until it is memorialized in writing and signed by both parties, and (ii) anything said in such a meeting with not be used or referenced in any way in the litigation proper.
This blog entry is a first in a series on the Settlement Agreement, the document by which the terms of settlement between Plaintiff and Defendant (or prospective parties to litigation) are memorialized.
All litigation ends in either a trial, a settlement, or the Plaintiff simply walking away from his claim.
Our advice to clients on settlement agreements is to obtain from the other party a full, complete and final release of all claims, known or unknown, from the beginning of time through the execution of the settlement document.
Why? Well, for several reasons.
Now, it is always possible that claims from the Plaintiff could arise from occurrences arising entirely after the first settlement. These later-arising claims are generally not waive able at the time of the first settlement.
In order to obtain finality in a settlement agreement, here are some considerations:
A settlement agreement is frequently quickly drafted from a form at the conclusion of litigation, but some careful thought is appropriate in formulating this important document. We generally do not recommend settling a claim, unless the entire claim is resolved with that document.
In commercial and residential leases, declarations, purchase agreements, and other instruments, parties variously create (i) options, (ii) obligations, and (iii) what are referred to as right of first refusal, but actual terms of each of those “rights” may depend on the phraseology in the document.
As an opening proposition, unless specifically defined by statute or case law — or the legal document itself, words and phrases as used in legal documents have the ordinary and common meaning ascribed to them in the English language. Frequently, as is addressed in this article on condominiums and landominiums, words simply mean what we say they mean — the legal document defines the meaning of terms, perhaps other than what the typical colloquial meaning.
Let’s start with “options.” Tenants may negotiate the following common types of options in a lease:
Conversely, a Landlord, commonly seeks a right or option to relocate the tenant to another space to give him flexibility to lease out his building as he best sees fit.
As a general rule, all of these options are as enforceable as the base lease — the tenant or landlord can really impose upon the other party significant burdens from these options, especially as the passage of time makes exercise one or more of the options valuable. For example, imagine that a tenant today could negotiate a current “fair market value” option to purchase for the ten buildings in which he rents for a period of ten years. Invariably at least one of those buildings may rise in value, while others may fall. The tenant has a tremendous advantage of being able to buy the one that has risen in value after the price was negotiated, while ignoring the remainder in which it has fallen or stayed the same.
Some considerations for options:
I am surprised at how often tenants and landlords overlook the choice when negotiating a lease to include in that instrument an obligation in the tenant to buy the property at a fixed or calculated price at or before the end of the term.
Many times as a client is explaining the business terms of a transaction to me, they say that they want an “option” to purchase in the contract or lease, when what they are describing to be is a fixed obligation to purchase (or to expand, etc.).
So, explore with the client when they discuss an option what they really mean by that term.
Then we get to the always-confusing-term, “right of first refusal,” and its counterpart that some insist is an entirely different animal and some insist is exactly the same — “first right of refusal.” And then something called a “Right of First Offer.”Huh?
Under a classic “right of first refusal,” it typically proceeds like this: Tenant is in a building and is happy to be the tenant. But tenant might someday like to buy the building, or may not want a landlord different than the original one.
Thus, they hum along for years under the lease, but the lease provides that if landlord receives an offer to purchase the property that he is otherwise inclined to accept, landlord must offer the building to the tenant on the same terms as that third party offer, before accepting that offer, and give to tenant, say, a week to decide if he wants to buy on those terms or not. This right in the tenant is what I would refer to as a classic “right of first refusal.”
Some important considerations when negotiating a right of first refusal:
And to make you tear your hair out, I have seen contracts that say that “tenant will have the Right of First Refusal to buy the real estate for $1,000,000.” Huh? That’s maybe an option to purchase, but not a “Right of First Refusal.”
And to really confuse things, we have had a lease with both an option to purchase and a right of first refusal. Wow. What if a third party offer comes in at a price above the option price? That triggers the “right of first refusal” in the tenant, but does it extinguish the option to purchase? If not, the tenant could just buy the property at the lower price, and turn around and sell the property to the third party buyer for the offer price, and pocket the profit (and deprive the landlord of that margin). Ouch for the landlord.
Then the animal “Right of First Offer.” This article explains that as:
With the right of first offer, a business partner or tenant is granted the right to make the first offer on a business or property. The seller is free to accept or reject the offer, and the seller is always free to return to the buyer if he can’t get a better deal.
I candidly don’t have any idea what that means, as any buyer has a right at any time to make an offer to buy a business or real estate. They don’t need someone’s permission to make an offer.
This article says a “Right of First Offer” springs to life when the landlord decides to sell a property. Then, you must give tenant first negotiating dibs before offering it to the marketplace generally. OK, that makes some sense, but it is still a pretty weak right.
And how about “First Right of Refusal.” As this article seems to say, it seems like the same thing as a “Right of First Refusal.” I also have seen the use of this term more like the “Right of First Offer” — give me first negotiating rights before offering the building on the market generally.
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This blog entry addresses options, obligations and rights of first refusal in the context of the landlord/tenant relationship, as that is most frequently where we see these arise. But they can just as well be present in corporate buy-sell agreements, limited liability company operating agreements, or even in free-standing documents that have no other terms. In the case of the latter, the holder of the option should carefully consider the issue of giving consideration for the grant of the right from the owner of the asset.
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First, landlords should be cautious about giving these various rights to tenants — and moreover assuring that it is not granting overlapping rights to more than one party. What if, for example, three different tenants in a building want a right to purchase, or two tenants have rights to expand into the same premises?
Second, all of these rights tie up a landlord operationally and may be obstacles to concluding a sale of the building to a third party.
But with those caveats, a landlord can provide significant value to a tenant by adding flexibility for his operational needs, thus allowing additional momentum to a landlord to fully rent his property.
It is in our human nature to trust other people. We assume, for example, that if a seller is selling us a house, that he would not sell us a “bill of goods” and convey a house full of defects. It is also in our nature that, when things go wrong, we look for someone other than ourselves to blame. It is further in our nature to expect when we hire a professional to do a job, he will do it thoroughly and properly.
But in the case of purchasing real property, all of these instincts are just dead wrong.
First, people can and do fail to disclose material defects in real property when they sell it. It happens all the time.
Second, as we explore here, the law of Ohio is firmly established as caveat emptor, or “buyer beware.” This means that the burden unquestionably is on the buyer to “kick the tires” and confirm the condition of real property before buying it.
Third, be careful of even relying on your home inspector, as he likely will not stand behind his work.
Now, here are some tips that will try the patience of even the heartiest homebuyer:
1) Even if you do everything right: Ask all the right questions, and hire a home inspector, he might still miss something. Massachusetts Realtor Bill Gassett, here, has a good blog entry today on things home inspectors — despite their best efforts — miss.
2) Let’s assume the home inspector missed something — something big! Surely he will stand behind his work. Unlikely. Most home inspectors have a contractual provision that if they make a mistake, the limit of their liability is the amount you paid them. And generally that is enforceable in Ohio.
3) If you are buying a foreclosure, or from a bank or an estate, they both (i) have no obligation to complete the Ohio residential property disclosure form, and (ii) they usually disclaim liability for home defects. If you pursue them you are going to be mostly out of luck.
4) If a seller agrees to make repairs to a home before the closing, it is incumbent upon the buyer to check — before the closing — that the work was in fact done and done correctly. The closing is an act of finality, and a buyer will claim a “waiver” of claims. So, confirm all obligations are fulfilled before closing.
5) Finally, even if a buyer has a meritorious claim against a seller, a Realtor or an inspector arising from property defects, the odds are pretty good that he cannot afford to pursue those claims in litigation.
What all this means is that a buyer must really, really check out the property, the structure — from footer and foundation to roof, the mechanical systems — HVAC, plumbing, and electrical, and all appliances. For, once he closes, he has bought the property and it’s his. The likelihood of him pursuing post-closing claims profitably is minimal.
This article is the eighth in a series on new construction. The contents of this series of articles apply to commercial as well as residential projects.
This blog entry addresses documenting change orders in new construction projects, commercial and residential. But before we get there, let’s re-visit the fundamentals of new construction contracting.
As is set forth in this prior blog entry:
the starting point is a clear starting point. At the time of the signing of the contract, it is important to know what the builder has committed to build — and what he has not committed to — and what the buyer has agreed to pay for that product. Once we have that foundation, we can address the construction changes and price changes from that point.
As a bad foundation of a house will undermine the entire project, a poor starting point for a new construction contract is not a good foundation for the construction process.
Then, once the initial scope, price and timing are clear, as change orders become necessary or appropriate, every single time a change order is agreed upon in a construction project, that change order should be crisply documented. That documentation should be a written change order signed by both parties to the contract, which includes, in each instance, all of the following:
1) The change to the scope of the project. The parties should detail what is being eliminated from the construction and what is being added.
2) The change in the price as a result of the change order.
3) The change in the construction schedule as a result of the change order.
Even if one or more of the foregoing are not changing at all, that should be detailed and documented as well.
I tell clients that the point of a contract is twofold: (i) to flesh out the issues between the parties and eliminate confusion as to what is being agreed upon and (ii) to create a document of the commitment of each party to the other that, yes, can be enforced in a court of law.
What happens when one or more of these issues are left unaddressed is that both issues are at play: (i) the parties may have a misunderstanding of the impact of the change order on timing or price, and (ii) it creates a murky situation when it comes time to enforce that contract.
When a seller acts in the role of financing the sale of real property, residential or commercial, there are significant potential downsides for the seller.
In this article, we explore the three primary vehicles for seller financing in the sale of real property: (i) lease with option or obligation to purchase, (ii) land installment contract, and (iii) deed with note and mortgage back from the buyer. In each of these three vehicles, the seller risks non-payment by the buyer. That blog entry then explores the legal paths to recovering clear title and possession of the property, and collecting on the indebtedness.
But beyond the simple action to collect on the debt, seller financing situations frequently involve further complications for the seller:
1) First, with the seller’s security for payment of the debt being recovering possession of and title to the property, the “security” of the seller is getting the property “back.” But the buyer could in the interim, significantly impair the condition of the property. Commercial buyers could environmentally contaminate the property or make modifications that impair the structure. Residential buyers may make “improvements” to the property that impair its marketability.
2) Second, we have experienced all too-frequently that the buyer tends to assert claims against the seller as a defense to the payment of the seller financing. These claims range from fraud in failure to disclose claimed defects in the real property to misrepresentation as to the rent roll and the P&L statement provided before the closing.
3) Seller can encounter significant legal complications due to unpaid contractors for work on the property (giving rise to mechanics lien claims), unpaid taxes, and unpaid utility bills.
And taking a second mortgage position for a portion of the purchase price (where a deed is exchanged for a portion of the purchase price) can be even more precarious. A second mortgage holds all of the risks set forth above, and in addition, second mortgagees are, obviously, subordinate, to a first mortgage. To the extent that the value of the property to a foreclosure sale is inadequate to pay the first mortgage, the second mortgage is valueless.
Thus, seller should carefully weigh the risks associated with seller financing of real property.
In a case that has received some Internet attention, the Village of West Jefferson, Ohio, learned that commas still matter. You can read the Court of Appeals decision here.
Andrea Cammelleri woke up on Thursday evening, February 13, 2014 (she worked third shift) to find that her pickup truck – that had been parked in front of her home – was missing. She called 911 to report the vehicle stolen, only to be informed that the car wasn’t stolen, it was impounded. It seems that the Ms. Cammelleri had parked her truck in the same spot for more than 24 hours, in violation of a Village Ordinance:
It shall be unlawful for any person, firm or corporation to park or leave standing upon any street, road, thoroughfare or highway in the Village, any motor vehicle camper, trailer, farm implement and/or non-motorized vehicle for a continued period of twenty-four hours except on weekends and holidays, at which the time shall be seventy-two hours.
Ms. Cammelleri and her attorney argued that the ordinance is ambiguous, she parked a pickup truck and the ordinance refers only to “any motor vehicle camper, trailer, farm implement and/or non-motorized vehicle” The trial court, in convicting Ms. Cammelleri, found that it is obvious that a comma is missing between “motor vehicle” and “camper” and everyone understands that the ordinance is intended to apply to “motor vehicles” or “campers,” and that therefore, it is illegal in the Village of West Jefferson to park a pickup truck in the same spot for more than 24 hours.
Ms. Cammelleri, however, refused to accept that the grammar lessons we had all been taught as children no longer mattered. She took her case to the Court of Appeals.
The Twelfth District Court of Appeals determined that (a) because of the missing comma, the statute is ambiguous; and (b) applying the normal rules of statutory interpretation, the statute, as written, does not apply to Ms. Cammelleri’s pickup truck. Her conviction was thus overturned.
While not directly on point, we are hopeful that this case will lead to a resurgence of the Oxford Comma.
There is a creative children’s song called “The song that doesn’t end,” and through its circular lyrics, according to the song, “it just goes on and on my friend.” Listen here.
For some unfortunate sellers of real estate (usually commercial real estate), there are contracts that don’t end, either. They just go on and on, tying up the seller from selling the property to a third party.
There are some unscrupulous buyers who use a form of commercial real estate purchase contract — on retail space, raw land, offices, apartment buildings, warehouses, and various and other sundry commercial properties — that puts the seller in a terrible box. This form of contract, through some creative and circular language — referencing, for example, 180 days from a date that never occurs– never requires buyer to close, but it also never puts an end to his due diligence period, so neither does he have to terminate.
Thus, forever and ever, under this form of contract, the buyer can sit and wait — preventing seller from selling the property to another party. This allows the buyer to both (i) without cost, to wait until the property becomes “hot” and then someday sell it at a profit to a third party or (ii) to extort a payment from the seller to just dry up and blow away.
Now, because the buyer never has to perform and never has to terminate, it is likely the contract could be defeated in litigation as unenforceable for lack of consideration. The problem is that the buyer can tie the matter up in Courts for a year or two even after the seller commits to litigate, at great cost, of course, to the seller.
The net result is the same — the seller can neither shake the buyer nor force him to close.
Thus, seller beware of the contract that doesn’t end. Read every contract thoroughly before signing.