Hi, How Can We Help You?

Category Archives: Commercial Real Estate

So, the Auditor tells you your property valuation is going up, waaaay up….

Author By Christopher P. FinneyPosted on

Our phones are ringing and email boxes are filling up at Finney Law Firm about notices from County Auditors throughout the state of Ohio about dramatic property tax valuation increases coming with the January 2024 tax bills.

Read this shocking paragraph from an article from Paula Christian at WCPO (Channel 9):

The [Ohio Department of Taxation] recommended a 43% increase in property values in Clermont County and 42% in Butler County. The updates will be reflected in 2024 tax bills, which are sent out early next year and will last for three years until reappraisal.

So, the natural reaction from property owners receiving such notices is that their tax bill (i.e., the amount of taxes they are obligated to pay) will rise a similar amount.  This is not true — not by a long shot — given the intricacies of Ohio property taxation.

How could that be?  We explain:

  • First, the County Auditors throughout Ohio are charged by statute with re-valuing properties in their County every three years (a “Triennial”).  The statutory duty is to value each parcel at its fair market value (in the case of new tax valuations coming in January of next year, that is a January 1, 2023 valuation).
  • In southwest Ohio, January of 2024 will see new valuations for each of Hamilton, Butler, Clermont and Montgomery Counties.  Warren County will have new valuations in January of 2025.
  • It is not the Auditor’s job to show mercy, or to “shade” the fact that the real estate market has changed dramatically since the prior 3-year valuation date (in the case of Counties having new valuation in January of 2024, that would be a January 1, 2020 valuation as a comparison).  They are obligated by statute to value properties fairly (i.e., what a reasonable buyer would pay a reasonable seller for that property).
  • Your property taxes are, very roughly, a result of this formula:

(Tax Valuation * Tax rate) – certain credits = tax bill.

  • Thus, it is natural to assume that to the same degree your valuation rises, so does your tax bill.
  • However, it is much more complicated than that.
    • About 10% of your tax bill is inside millage which does stay at the same tax rate (i.e., it does generate more revenue in direct proportion to your increasing valuation).  But that is a very small part of your tax bill.
    • About 90% of your tax bill is outside millage, which is a result of tax levies that year after year generate a fixed amount of revenue for the levy recipients (depending on the district, schools are about 55-70% of your tax bill).  For example, a specific levy passed by the voters years ago may generate a fixed $40,000,000 in taxes each year (regardless of inflation or valuation increases).
    • That means that for the great majority of your Ohio tax bill, as the valuations increase, the rate rolls back, generating the roughly same revenue for the levy recipient overall each and every year.
    • Therefore, if your property has a lower-than-average valuation increase, the outside millage portion of your tax bill will actually decrease.  To the extent that your increase is merely average for that taxing district, the outside millage portion stays the same.  And to the extent that your valuation increase is more than average, the outside millage portion of your taxes will rise, but only to the extent of that excess increase.
    • Remember the last school levy campaign where the pro-levy advocates told you that “taxes don’t keep pace with inflation”?  Well, as a result of the formula set forth above, that’s actually true.

Do remember that when you get a changed value, that’s the first change in three years, so the increase reflects that entire Triennial period (i.e., 8% per year compounded would exceed a 25% valuation increase over three years).

Also keep in mind that certain categories of real estate have in fact seen dramatic changes since three years ago.  Indeed, our region has seen much greater-than-average appreciation than the rest of the nation for single family homes: “Cincinnati has seen the highest percentage of home-sale price increases in the country over the last year.”    As a result, our view is that property values in certain categories of real estate have skyrocketed in the past few years, especially single family residential and apartments, as well as warehouse and industrial properties.  Office properties, especially downtown, may have seen a decrease in valuation.  County Auditors simply are required by state law — as overseen by the State Department of Taxation — to recognize the full measure of those increases in their triennial valuation work. They have no choice.

Chicken Little cries from taxpayers that “the sky is falling” as a result of these properly-recognized valuation hikes are vastly over-stated.  For most taxpayers, the increase in their tax actually paid will be less than the inflation over that Triennial cycle.

By the way, two of the primary bases we see clients try to raise against the valuation increases of their properties are simply not valid in Ohio:

  • “My property could not have risen in value by this amount.”  While that statement well could be true, the Auditor may have undervalued your property in prior years, resulting in an above-market hike.
  • “The Auditor has valued four similar houses on my street lower than my valuation.”  As entirely unfair as it may seem, the value the Auditor places on another property — as similar in location, size, age and other characteristics as it may be — is irrelevant as a matter of law.  What is relevant are sales of similar properties (which is different than the Auditor’s opinion as to values).

This all leads to a significant caution for those desiring to charge into the Board of Revision and challenge the value of their property: The Board can raise your property value even more if the then-current valuation does not reflect market.  Proceed with great caution.

If you have questions about your new tax valuation, please call the professionals at the Finney Law Firm.  We can answer your questions as well as challenge any valuation that exceeds fair market value of your property.  Contact Jessica Gibson (513.943.5677) or Chris Finney (513.943.6655) to help with that assignment.

 

U.S. District Court Judge Douglas Cole certifies RICO and fiduciary breach class action against Build Realty, Gary Bailey, George Triantafilou and First Title Agency, LLC

Author By Christopher P. FinneyPosted on

We will write more on this later, but we are pleased to announce that — six years after we first filed in State Court, and nearly four years after we moved the case to Federal Court — on Tuesday of this week Federal U.S. District Court Judge Douglas R. Cole certified our firm’s RICO and breach of fiduciary duty claims against the following Defendants as a class action:

  • Build Realty, Inc.
  • Edgar Construction, LLC
  • Cincy Construction, LLC
  • McGregor Construction, LLC
  • Cowtown Holdings, LLC
  • Build NKY, LLC
  • Greenleaf Support Services, LLC
  • Build SWO, LLC
  • Gary Bailey (as trustee and individually)
  • George Triantafilou (as trustee and individually)
  • G2 Technologies, LLC
  • GT Financial, LLC
  • Five Mile Capital Partners, LLC
  • First Title Agency, LLC

In doing so, Judge Cole certified all victims of the alleged RICO and breach of fiduciary duty scheme as class members and certified a sub-class of investors who had their properties improperly taken away by scheme participants.

A class notice is being negotiated and should be sent to class members within the coming month or so.  If you have an updated physical address or email address please email it to Chris@FinneyLawFirm.Com and we will try to keep you updated on developments.

This is a major victory for victims of this scheme, but we have many miles to trial to achieve final justice in this matter.  We will endeavor to keep the public updated through this blog.

For more background on this case, read here, here, here, here and here.

Our able co-counsel in this case is Bill Markovits and the firm of Markovits, Stock and DeMarco.

We are pleased to be “Making a Difference” for our now many clients in this long and very complex litigation.

You may read the Class Certification Order below.

 

As to code enforcement and nuisance actions we strongly recommend “comply”

Author By Christopher P. FinneyPosted on

Friday, our founder Christopher Finney was featured on a panel presentation before the Cincinnati Bar Association on “Code Enforcement from the Municipal Perspective.”  The panel included Erica Faaborg, Deputy City Solicitor of Cincinnati, Kathy Ryan of Wood and Lamping, and Stacey Purcell of Legal Aid of Cincinnati.

The panel discussion covered a wide range of code enforcement and nuisance actions, many of which fall outside the scope of what Finney Law Firm typically would handle such as slum landlords without heat and tenant hoarding.

Our primary experience falls in two areas: (i) Chronic and acute health and building code violations, with the municipality typically seeking an injunction and a fine against the property owner and (ii) nuisance actions seeking either the forced closure of the nuisance business (usually either a motel or a liquor establishment) or the appointment of a receiver to manage, fix up and sell a property.

In both instances, in nearly every jurisdiction in question, the municipality is simply seeking compliance.  In most instances, they neither want your money nor control of your property. They want the nuisance conduct (underage drinking, violence, drug dealing, prostitution) stopped or the the property fixed up.  Period.

As three starting points, commonly I advise:

  • Maybe our client has a legitimate defense, the nuisance does not exist, is not as exaggerated as the municipality claims, or we have an over-zealous building inspector picking a fight with a single property owner. But (a) this usually can be worked out (as their objective typically is compliance, we universally find they are clear and reasonable when asked to be) and (b) the Judge who will hear the case lives in our community and typically wants zealous code enforcement — we all want to live in a nice community, right?  As to judicial matters, these are “police powers” enforcement and the Judge almost never wants to second guess the City in a code issue. It will be very hard to overcome the presumption that the City is being reasonable in its enforcement.
  • Even if the client is right, the risk of lost and cost of litigation pales in comparison to the cost of fixing up the property or abating the nuisance.
  • And, worst of all, if the City is victorious in seeking the appointment of a receiver for your property, it’s “game over” for the property owner in terms of preserving any value from — any equity in — the property.  Why? Because the lawyers and receiver take over the property, repair it at your expense, charge their professional fees to the project and pay themselves from the income and proceeds, and sell the property quickly for what they see as a fair price to a new operator.  You can kiss your years-developed, hard-earned equity goodbye.  In the case of liquor establishments, if you are ordered closed, your millions of dollars in capital to develop and promote an establishment are out the window if you are forcibly shut down.

As a result, we strongly recommend working with building officials toward a reasonable compromise for enforcement — it can end the dispute, it improves the property or its operation, and it makes our communities stronger.  More importantly, in in the long measure, it saves the client money by investing in his property or business rather than running up a huge — and likely non-productive — legal tab.

Having said all of this — and we do counsel compliance and cooperation — a business owner or property owner does not need to just “lay down” for expensive and over-the-top enforcement.  Our firm has fought and won amazing battles against State and local governments, all the way to the US Supreme Court.  We have successfully challenged entire legislative schemes, including pre-sale and pre-leasing inspections, which are a constitutional overreach, in multiple jurisdictions.  Our firm has made a name for itself fighting and winning against bad government actors.  Our tools include the US and State Constitutions, state statute, the State of Ohio taxpayer statutes against both cities and county commissions, Open Meetings laws, Public Records laws, and other statutory avenues.  But before launching into these battles, we want to make sure we are positioned to win and that the client appreciates the costs and risks for undertaking these fights.

Julie M. Gugino

“Perfect” legal solution to getting out of property co-ownership in Ohio

Author By Julie M. GuginoPosted on

Legal disputes are rarely cut-and-dried to the point that the other party is without any legal defense to the action.  It seems there is always something about which to argue (read here, for example).  But it certainly seems to us — by reading the statute and by using it — that a statutory partition action in Ohio (O.R.C. Chapter 5307) is just such a “perfect” solution.

Two or more parties own property; one or more parties wants “out”

In this case, the statute addresses the issue where two or more parties own real property together but cannot agree if or when to sell it.

We are not addressing multiple shareholders in a corporation that owns real property or co-members of an LLC that own real property, but two or more parties named as grantees in a deed who own property together (known in the law as co-tenants).  Those shareholder or member disputes are handled in another manner.

Perfect power of partition

In short, in a partition action, one party can force the judicial sale of the property to the highest bidder with the net proceeds divided among the co-owners (the parties may argue, and this firm has argued about proper adjustments to the distribution of net proceeds).  There is no defense to the action although the process can take time as the Court permits discovery over the course of the partition proceedings.  However, the right to partition of jointly owned property is statutory – if one party brings the action, the property will ultimately be judicially sold.

How to proceed to partition

Thus, if you own property jointly in Ohio and you want to liquidate your interest (for any reason at all or for no real reason at all), but the other party or parties do not wish to sell what are your options?

For this situation, let’s assume two things:

  • The co-owners are not married as that would be handled in Domestic Relations Court.
  • There is no written agreement, what we call a co-tenancy agreement (see here), whereby the parties have established in writing how they will handle disagreements between them as to how the property will be held and disposed.  In that case, the agreement likely will control.

Then, what options do you have to resolve differences over the ownership and disposition of jointly owned real estate? The answer lies in an action in partition.

What is partition?

A real estate partition is a formal legal proceeding through which a joint owner of real estate can ask the court to split the property.   An “action for partition is equitable in nature, but it is controlled by statute.”  McGill v. Roush, 87 Ohio App.3d 66, 79, 621 N.E.2d 865 (2d Dist. 1993). A Partition Action is a lawsuit which existed at the common law for the purpose of passing down family farms.[1] When the heirs could not agree on how to run the farm together, one or more could commence a partition action, asking the court to fairly divide the farm between the heirs. Partition of the property itself is favored over sale and division of proceeds, however a property may be sold if it can be shown that it cannot be divided without manifest injury.[2]

Sale if property cannot reasonably be divided

Thus, a party can ask that the property be sold if it is determined that it cannot be divided. Certainly, this is the usual case for typical residential properties today. In this situation, the Court will appoint a commissioner or commissioners under O.R.C. § 5307.09.  When the commissioner(s) are of the opinion that the estate “cannot be divided without manifest injury to its value” they will provide a “just valuation of the estate” to the Court. One or more of the parties can elect to take the estate at the appraised value and pay to the other parties their proportion of the same. Alternatively, if neither party desires to purchase the property or cannot agree on the proportionate purchase of the same, the property will be sold at auction to the highest bidder.  Often, cases are resolved and settled among the parties prior to this occurring.

Under O.R.C. §5307.07, when partition of more than one tract is demanded, the Court will set off to each interested party its proper proportion in each of the several tracts. Thus, when multiple parcels of land are owned jointly, the separate parcels can be conveyed to separate owners so that each owner will have total control over their now separately owned parcel.

If a property was acquired upon someone’s death, a partition cannot be ordered within one year from the date of the death of the decedent, unless it is proven that either (i) all claims against the estate have been paid, (ii) secured to be paid, or (iii) that the personal property of the deceased is sufficient to pay those claims.

Attorney’s Fees

Under O.R.C. §5307.25, reasonable attorney’s fees can be paid from the proceeds of the sale to Plaintiff’s counsel and may also be paid to “other counsel for services in the case for the common benefit of all the parties” as the Court determines.

Conclusion

Thus, a Partition Action can be used to force the sale of jointly owned property where a recalcitrant party refuses to act.  Partition is a powerful tool to unwind and unstick a longstanding problem with a co-owner that will not budge.

 

______________________________________

[1] The Appellees assert that the “Commissioner made a good faith effort to partition the Property, but there is no way to physically divide this family farm into four sections based on the lack of frontage, the inconsistent and varying nature and uses of the land, and the physical location of the parcels. Simon v. Underwood, 2017-Ohio-2885, ¶ 65 (Ct. App.).

[2] “Since the partition of property is to be favored over the sale of property, when a party objects to a commissioner’s report, that party should have a right to a hearing to contest the commissioner’s findings before the property is appraised and subsequently sold.” Stiles v. Stiles, 3d Dist. Auglaize No. 2-89-3 (May 10, 1991)]. Court must comply with statutory procedures to appoint a commissioner, make an independent valuation and recommendation regarding whether the property could be divided without a manifest injury to the property’s value and providing a joint owner opportunity to elect the property, and no was provided. Thrasher v. Watts, 2011-Ohio-2844, (Ohio Ct. App., Clark County 2011).

Major survey “fails”: They happen

Author By Christopher P. FinneyPosted on

I recently received a plat of survey from a client for a 90-year-old two-family residence he had purchased.  (Survey obtained after the closing.)  It showed several things:

  • The building encroached 8′ onto his neighbor’s property;
  • In addition, there was a walkway and retaining wall the projected even further onto his neighbor’s property; and
  • The home projected 6′ into the public right-of-way (a “right-of-way” is the land owed in “fee simple” or by easement by a governmental entity for roadway and sidewalk purposes (such as through dedication); it is usually much wider than the actual paved area for either).

Now, that’s a hot mess of title and survey issues.  What to do?  What to do?

Get a survey before a purchase

Well, for starters, this is great example of why a buyer needs a survey in addition to a title examination before purchasing real property.  None of these problems would be evidenced by a title examination.  Only a field survey would show these encroachments.  Further, title insurance does not cover these occurrences.

Excuses and justifications

As a side note, we hear over the phone and in the closing room the 25 reasons why a buyer, lender or Realtor does not think title insurance or a survey is needed:

  • The property is “new” (i.e. a new subdivision, with newly-constructed houses);
  • The property is “old,” meaning the homes, garages, driveways and other improvements have existed for a long time.
  • Certainly the seller checked the title and survey, so it is fine.

None of these is a good reason not to get title insurance and a survey.  We can explain further if you like.

Other survey nightmares

In addition to the problems identified above, we have seen other major survey problems:

  • A new house built in violation of a zoning or covenant setback.
  • An entire subdivision where each house was built 5′ onto the neighbor’s property (and thus needs re-platting, deeding the 5′ to the correct owner, a release of the “wrong” mortgage and a re-filing of the correct mortgage).
  • Condominiums where the unit numbering was changed from the time the contract was signed to the time when the condominium documents were file (and thus many units were mis-numbered and every unit needs a new deed, a release of the “wrong” mortgage and a re-filing of the correct mortgage).
  • A complete misunderstanding (or misrepresentation) of the location of property lines.
  • Encroachments (e.g., fences, sheds, utilities) of various improvements onto our client’s property.
  • Encroachments of various improvements from our client’s property onto their neighbor’s property.
  • An easement that runs right where your client intends to build on otherwise “raw land.”

Solutions

For the client noted above, he has several remedies to the problems.

  1. First, did he purchase title insurance?  If he did, he may have a claim — but probably not.  Why not?  For starters, title insurance provides coverage for the insured premises, not for property outside the boundaries of the insured premises.  And by definition, the three problems he called about are outside of the metes and bounds of the property he acquired.  Moreover, the standard title insurance policy specifically excepts coverage of matters that would be disclosed by an accurate survey, and as a rule that exception to coverage is not deleted (and thus coverage provided) without a survey certified to the title company.
  2. Second, did he get a general warranty deed from the seller, the most common form of deed in use in southwest Ohio certainly?  If so, he may (may) have a claim against the seller for breach of the contract and breach of the general warranty covenants.
  3. Third, as to the first two issues (the encroachments onto the neighbor’s property he almost certainly has a strong case for a claim to ownership of the property through “adverse possession.”  You may read a detailed analysis of that here.
  4. Fourth, however, as to the portion of the property in the public right-of-way, the client has a difficult row to hoe.  One may not adversely possess against a governmental entity in Ohio.  The only way to perfect title to the portion of the building in the right-of-way is to seek a deed (or statutory street vacation) from the governmental entity whereby they voluntarily surrender that title to the property owner.

Conclusion

The saying “an ounce of prevention is worth a pound of cure” is appropriate here, as it is with all due diligence investigations before the purchase of real property.  The buyer should have “kicked the tires” with a good surveyor before closing on the sale.  But this is the situation now. So, he can pursue the seller and the neighbor to vindicate his rights to the home and walkway.  As to the governmental entity owning an interest in the right-of-way, he simply needs to work the ropes to see if it will relinquish its interest in his home.

 

 

Clermont property buyer gets tagged with $682,000 extra tax bill; litigation ensues

Author By Christopher P. FinneyPosted on

The purchaser of an apartment building Clermont County and his counsel are learning the lessons of real property taxes — and the ways to handle tax prorations —  the hard way.  Because neither the seller nor his attorney thought through the transaction carefully, the purchaser (a) lost $682,000 in tax proration negotiations and (b) has suffered what appears to be an entirely unnecessary increase in the same amount in his annual real estate taxes, essentially forever.

How can outcomes between savvy and clumsy real estate transactional work vary so dramatically?

Underlying facts

On December 28, 2021, RS Fairways, LLC closed on the purchase of Fairways at Royal Oaks, an apartment complex in Pierce Township on Clermont County for $32,600,000.  The Auditor’s valuation at the time of the sale was $6,622,000.  The difference between the sale price and the Auditor’s valuation was $25,977,700, a whopping 500% increase.

Following the sale, our former Associate, Brian Shrive — who now heads the civil division of the Clermont County Prosecutor’s office — on behalf of the Prosecutor, saw the conveyance fee form filed with the deed reporting the whopping sale price-compared-to-Auditor’s-valuation and filed \a Board of Revision Complaint to increase the valuation — retroactively to January 1, 2021 — to the sales price.

Almost inexorably, the Board of Revision would have so increased the value, so the owner, the Prosecutor and the School Board later entered into a Stipulation as to the new valuation at $32,600,000.

Tax proration language

As we have written about here (just one month before this buyer closed; he should have read our blog!), standard tax proration language in use in the Cincinnati area calls for a tax proration to be based upon the most recent available tax duplicate.  Since the Auditor and School Board will not know about the sale until after the deed is recorded, current taxes can’t possibly be based upon the sale price.  Here, the Auditor obviously had a grossly outdated and inaccurate valuation.

In other words, standard and customary contract language in use in greater Cincinnati simply does not adequately protect the purchaser in a situation where it is paying much higher than the Auditor’s present valuation.

The Contract in question provided:

If the 2021 tax bill is not available as of the Closing Date, then the proration described in clause (b) above shall be based on the 2020 tax bill for the property.

Why do we prorate taxes in Ohio?  Taxes in Ohio are paid “six months in arrears at the end of the period.”  What does that mean?

It means that the first half 2021 tax bill is issued in January of 2022 and the second half 2021 tax bill is issued in July of 2022.  Therefore as of the date of closing (here, the end of December 2021), the seller owned the property for all of 2021, but hadn’t paid the taxes for 2021.  Therefore, at closing (under local contract form and custom) the seller prorates to the buyer the taxes for the period it had owned the property, but at existing tax and valuation rates.

The dual problems are: (i) if there is a change in the tax rate for 2021 (such as with the passage of a school or other levy), the proration will be wrong as to the 2021 rate and (b) if there is a change in the tax valuation in the normal triennial cycle, the valuation (and thus the taxes) will change, and, here’s the kicker, (c) well after the closing, a school board or the County Prosecutor have the right to ask the Board of Revision to retroactively, back to the beginning of the prior tax year, change the valuation to a reported sales price.

And, as Casey Jones of our office blogged here, a recent arm’s length sale is uncontestably the valuation for tax purposes.

Thus, under the law, a purchaser is liable for taxes calculated at the tax amount for the taxes for the periods from the date prior to the sale (based upon the next tax bill to be issued) and into the future.  And this new tax rate calculates in “unknowns” at the time of the closing, which are a change in rate and a change in valuation.  Both of these can be both assessed, and as to the valuation, can be contested and litigated, well after the sale, but the retroactive liability for those taxes falls on the new property owner.

“Forever” increase in taxes

The tax proration flub — a $682,000 mistake — was bad enough, but worse is that the reported sale will result in a new baseline valuation for future taxes of $32,600,000 for a property that previously was valued and taxed at just $6.2 million.  Every three years the County will start with the $32 million number and make (likely) increases from there, so this owner will have $700,000 in higher taxes (than likely he anticipated) forever.

Could the massive increase have been prevented?

Two fairly sophisticated legal techniques could have been employed by this purchaser to avoid these massive “surprise” tax bills.  One would have spared them the cost of the under-proration, and the second could have resulted in a permanent savings — tens of millions to the purchaser’s bottom line.  They employed neither.

First, when a purchaser pays an amount significantly above Auditor’s valuation for property (this is a simple task of comparing the sale price to Auditor’s valuation [a quick on-line check]) before the contract is negotiated and signed, a purchaser will want the tax proration language to include a re-proration after the final taxes for the year prorated are known.  [By the way, when we get into an environment of declining values, the inverse rules as to tax proration can apply — the purchaser will have an advantage in the proration process — an over-proration —  if the contract language is not modified.]

Second, a technique is available in Ohio (but not Kentucky) to have the seller first transfer the property into an LLC that he owns exclusively (by deed, but with an “exempt conveyance fee form,” so that no sales price is reported) and then, at the closing between seller and purchaser, the seller transfers his interest in the LLC to the purchaser — and thus there is no recorded deed.  These transfers are referred to as “drop and swaps” or “entity transfers.”  In this situation — with some possible exceptions, the Auditor and school board are not put on notice of the sale or the sale price, and thus the increase in value could slip by unnoticed.

Here, the purchaser employed neither technique resulting in a bad proration and “forever” tax liability.

Ensuing litigation

Despite terrible tax proration language that we see as “fatal” to the purchaser’s claims (see above, they agreed to base the proration on the 2020 tax bill, period), the purchaser has sued the seller for a re-proration based upon the post-closing tax “surprise.”  Good luck with that.  See the Complaint here.

Conclusion

Smart advance legal planning by a purchaser or seller can dramatically change the outcome as to taxes in a real estate transaction.  Contact Isaac T. Heintz (513.943.6654) or Eli Krafte-Jacobs (513-797-2853) for assistance on your real estate transactions to avoid these disastrous outcomes.

Ohio Contract Law: Voiding contracts on the basis of fraud

Author By Casey A. JonesPosted on

Properly drafted written contracts are typically enforceable as against the parties thereto, with few exceptions – fraud being one of them. The manner in which written contracts are treated upon the allegation of fraud is highly dependent on the type of fraud alleged. In short, it is a question of whether the party claiming fraud alleges that they were defrauded as to the terms or nature of the contract or as to the facts and representations underlying the contract.

Void and Voidability

One of the most common scenarios in which this question arises is relative to settlement agreements and/or “releases,” where one party gives some consideration (e.g., money) in exchange for the settlement and release of actual or potential legal claims. The type of fraud being alleged determines whether the contract or agreement is automatically void (void ab initio) or merely voidable. “A release obtained by fraud in the factum is void ab initio, while a release obtained by fraud in the inducement is merely voidable upon proof of fraud.” Haller v. Borror Corp., 50 Ohio St. 3d 10, 13 (1990). “Whether a release was procured through fraud of either type is a question for the trier of fact [such as a jury]. Whether the fraud as alleged is in the factum or in the inducement is an issue of law for the court.” Id., at 14-15.

Fraud in the Factum

“A release is obtained by fraud in the factum where an intentional act or misrepresentation of one party precludes a meeting of the minds concerning the nature or character of the purported agreement.” Id. Imagine a grandchild telling her grandmother that she is signing a letter for school when it is really a change to her estate plan. “Where device, trick, or want of capacity produces ‘no knowledge on the part of the releasor of the nature of the instrument, or no intention on his part to sign a release or such a release as the one executed,’ there has been no meeting of the minds.” Id., quoting Picklesimer v. Baltimore & O. R. Co., 151 Ohio St. 1, 5 (1949).

Fraud in the Inducement

As the title would suggest, “[c]ases of fraud in the inducement. . . are those in which the plaintiff, while admitting that he released his claim for damages and received a consideration therefor, asserts that he was induced to do so by the defendant’s fraud or misrepresentation.” Haller, at 14. In Haller, the alleged fraud involved the financial solvency of a defendant company. In essence, a representative of the company allegedly represented to the plaintiffs that the company would soon be closed and, therefore, if Plaintiffs did not accept the offered settlement, they would likely receive nothing with respect to their claim(s). Id., at 11-12. The plaintiffs apparently later learned that this was not true. The Ohio Supreme Court found these allegations consistent with a claim of fraud in the inducement.

Practical Considerations

“A release of liability procured through fraud in the inducement is voidable only, and can be contested only after a return or tender of consideration.” Haller v. Borror Corp., 50 Ohio St. 3d 10, 14 (1990); see also Berry v. Javitch, Block & Rathbone, L.L.P., 127 Ohio St. 3d 480, 483 (2010) (“[A]n action for fraud in the inducement of a settlement of a tort claim is prohibited unless the plaintiff tenders back the consideration received and rescinds the release.”); Manhattan Life Ins. Co. v. Burke, 69 Ohio St. 294 (1903).

While it may seem obvious, one cannot seek to void a contract while retaining the consideration they received for the same. In Haller, the plaintiffs received $50,000 in exchange for a release of their prior claims. The Court, finding their allegations of fraud to be consistent with fraud in the inducement, held that the plaintiffs were required to tender back the $50,000 to the defendants before they could seek to void the settlement agreement and release. Because they had not done so, the release they signed remained valid and enforceable, and their claims (including those released under the settlement agreement and that of fraud in the inducement) were dismissed. This is consistent with the idea that one cannot “cherry-pick” which parts of a contract to enforce; they cannot denounce their obligations under a contract while retaining the benefits thereof.

When it comes to contract negotiations, these cases demonstrate how important it is to (a) start from a properly drafted contract, and (b) do your due diligence in order to mitigate the risk of later disputes and litigation. Our transactional team is uniquely positioned to help in these negotiations, having significant experience in contract drafting, negotiation, and disputes.

For assistance with contractual matters, contact Casey Jones (513.943.5673 )

Judge Wende Cross certifies classes in Cincinnati “Alarms Tax” case

Author By Christopher P. FinneyPosted on

Hamilton County Common Pleas Court Judge Wende Cross has certified two classes in White v. Cincinnati, litigation in which both the 1851 Center for Constitutional Law and Finney Law Firm represented payors of the illegal and unconstitutional Cincinnati tax on security alarm systems.  The two distinct classes certified are (a) residential and (b) non-residential payors of the Cincinnati alarms tax.

The City charged residential alarm-system-owners $50 per year to register their systems and commercial owners $100 to register their systems.  Last fall, the 1st District Court of Appeals unanimously ruled the tax illegal under Ohio law and unconstitutional, overruling a trial Court ruling on the same subject.  In March of this year, the Ohio Supreme Court preserved that victory for Cincinnati property owners when it refused to accept discretionary review of the case.

We now proceed to an an Order that will establish the amount and procedures for the restitution of the illegally-collected sums, a fairness hearing, and then distribution of the refunds to payors.  We aim for the conclusion of those steps this calendar year.  The amount of restitution is expected to be more than $3.6 million.

For questions, contact Chris Finney at 513.943.6655.

You may read the order issued April 22 here.

 

 

Chris Finney talks to 700 WLW’s Bill Cunningham about unanimous jury verdict against the Ohio Civil Rights Commission Commission (outrageous)

Author By Christopher P. FinneyPosted on

Listen in as Chris Finney discusses his 8-0 unanimous victory against the Ohio Civil Rights Commission as they attempted to extract money for a tenant in an entirely frivolous case.  The conduct of the Ohio Attorney General’s office and the Ohio Civil Rights Commission was shameful and outrageous in this case.

 

Team Finney notches big unanimous victory in jury trial versus Ohio Civil Rights Commission

Author By Christopher P. FinneyPosted on

Truth can be stranger than fiction.  And the last few weeks at the Finney Law Firm that has been the case.

Yesterday, Chris Finney, Jessica Gibson and Julie Gugino racked up a unanimous jury verdict (8-0) to defeat a case of claimed retaliation in response to a tenant’s claimed request for a disability accommodation that was met with a non-renewal of a residential lease.  The case was styled Ohio Civil Rights Commission v. Abundant Life Faith Fellowship in front of Judge Christian Jenkins in Hamilton County Common Pleas Court.  The Civil Rights Commission was also suing the Church’s pastor who had served for 41 years.  In candor, the Civil Rights Commission did a terrible job of vetting its own case with a terrible, dishonest plaintiff and a very sympathetic defendant.  Its attorneys at trial also were not exactly prepared or stellar.

The Civil Rights Commission case was full of demonstrable untruths about a kind-hearted 74-year-old African American minister who had suffered two strokes.  By the testimony of two of her fellow tenants in the building, the complaining tenant had plotted starting fewer than two weeks into her tenancy to drum up a fictitious lawsuit against the landlord as a way to extract money from him — she told this to her fellow tenants.  And for a year, she made his life a living hell, with incessant complaints about inadequate heat and fabrication about needing more light for a vision disability (in fact, her complaints about lighting had been adequately addressed early in her tenancy).  Dozens of complaints were addressed by visits by with servicemen, engineers, and repairmen to cater to her many whims and incessant gripes.  The Cincinnati Health Department came out and confirmed the unit in every room was heated to a comfortable 72°F to 73°F (the tenant lied to the jury — never a good idea — and said the readings were 62°F, 64°F and 66°F).

In the funniest part of the trial, the tenant at first denied and then admitted sending a bizarre text message to the landlord in the depth of winter, after he noticed that the windows of every unit in the building were open, including those of the tenant who constantly complained it was too cold!  Here is the text message, grammatical errors and misspellings included:

Yes, her crazy assertion to the landlord was that he must maintain the heat in the unit at 70°F even if the windows of the unit are left open!

Of course Pastor Brown and the Church had to fund the 4-year defense of the Civil Rights Administrative Complaint and the lawsuit, which he did with aplomb, but at great expense.  For the benefit of all landlords subject to outrageous prosecutions from obstinate public agencies, he saw this case through to its appropriate and proper end.  He refused to be bullied by the Ohio Civil Rights Commission, the office of the Ohio Attorney General and Housing Opportunities Made Equal (H.O.M.E.) (which manufactured evidence and knowingly lied to the Civil Rights Commissions in “building their case”).

For more information or to avoid being bullied by these same agencies: (a) DO NOT TALK TO THEM in an investigation EVER and (b) contact Jessica Gibson  (513.943.5677) for assistance with your case.

1 2 3 … 25