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Motions to Dismiss Still A Possibility

Posted on April 5, 2013 by coollawblog

In spite of the recent Second District Appellate Court decision in Sacksteder v. Senny, 2012 Ohio 4452 (2012), which declined to adopt the more stringent pleading standards set out by the U.S. Supreme Court in Bell Atlantic v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), it is still possible to get inadequately pled complaints dismissed via a motion to dismiss or for judgment on the pleadings. Coolidge Wall recently succeeded in having an intentional infliction of emotional distress count dismissed in a discrimination suit because the plaintiff had not pled facts sufficient to demonstrate the requisite “extreme and outrageous” conduct exceeding “all possible bounds of decency.” The court ruled that terminating an at-will employee, even if there were allegations of discrimination involved, did not automatically rise to the level of a viable intentional infliction of emotional distress case. Rather, the court held that since the harm identified by the plaintiff “is limited to that produced by her discharge,” the plaintiff had alleged nothing that could provoke the level of outrage necessary to sustain a claim for intentional infliction of emotional distress.

There is no doubt that successful motions for judgment on the pleadings or motions to dismiss are more difficult given the Sacksteder decision. However, as the recent decision demonstrates an aggressive and carefully thought out Motion to Dismiss can still be successful. A defendant’s counsel should carefully analyze the facts alleged to determine whether the allegations, if proven, meet the prima facie elements of the cause of action. If not, a Motion to Dismiss is still a tool which can be used.

How to Increase the Odds That the Loser “Really Pays”

Posted on January 28, 2013 by coollawblog

by Richard A. Talda

Often, a client seeking our advice asks if they can recover their attorney’s fees in a lawsuit. We explain that an award of attorney’s fees to a prevailing party only occurs in a few situations: when a Federal or State law mandates an attorney fee award to the lawsuit’s winner, or when a court, in its discretion, determines that the behavior of the losing party is so egregious that punitive damages and attorney’s fees should be awarded. We explain that the necessary “egregious behavior” needs to almost rise to the level of criminal activity before a court will even consider a request for attorney’s fees. While most clients believe that the wrongs done to them by adverse parties are always “criminal” in the sense of being intentional and outrageous, it is rare when a court will award attorney’s fees purely based on bad business behavior.

However, clients can dramatically improve their chances to recover their attorney’s fees by providing a loser pays requirement in their contracts, agreements, purchase orders, proposals, and even in their standard terms and conditions. These clauses are generally enforceable in court and provide a means for a wronged person to recover attorney’s fees when pursuing the adverse party for damages and compensation.

Critical to enforcement of a loser pays provision is the need to make it part of your contract or agreement. Therefore, care must be taken in the specific language of such clauses as well as how they are disclosed and agreed to by all of the parties in a business relationship to ensure enforceability. This is particularly true, if a loser pays clause is found in your terms and conditions. You should consult your legal advisor as to how best to impose and ensure enforceability of such provisions against other parties with whom you do business.

IRS Announces 2013 Pension Plan Limitations

Posted on October 19, 2012 by coollawblog

by Brent Gambill

On October 18, 2012, the IRS announced cost-of-living adjustments for 2013 retirement plan contributions. Individuals will be able to contribute more to retirement plans in 2013. Highlights of the IRS announcement include:

Increasing the salary deferral limit for 401(k) and 403(b) plans from $17,000 to $17,500.
Leaving unchanged the additional catch-up contribution for employees age 50 and older at $5,500.
Increasing the limit on total contributions to defined contribution plans from $50,000 to $51,000.
Leaving unchanged the definition of highly compensated employee as employees making $115,000 per year.
Increasing the amount of compensation that can be taken into consideration for retirement plan contributions from $250,000 to $255,000.
Increasing the contribution limit to individual retirement accounts (IRAs) from $5,000 to $5,500, but leaving unchanged the IRA catch-up contribution for those age 50 and older at $1,000.

The Social Security Administration earlier announced that the Social Security Wage Base for 2013 will increase to $113,700.

House Bill 48 Modified Ohio’s LLC Statute. Your company’s rights and obligations may have changed.

Posted on October 15, 2012 by coollawblog

by W. Chip Herin III

Effective May 4, 2012, House Bill 48 significantly restructured Ohio’s LLC statute by codifying Members’ and Managers’ fiduciary duties, delineating the duties a Member-Manager owes depending on how that Member was appointed Manager, and adding statutory restrictions to Operating Agreements. Below is a summary of these changes.

Members Cannot Opt Out of Fiduciary Duties: Departing significantly from Delaware law, Ohio LLC Members can no longer eliminate or opt out of their fiduciary duties through the LLC’s Operating Agreement. However, Members are permitted to carve out certain exceptions from the duty of loyalty, including identifying specific transactions or acts that do not violate the duty of loyalty if not manifestly unreasonable. Further, Members or a number or percentage of Members specified in the Operating Agreement may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that would otherwise violate the duty of loyalty. For example, Members may need to create an exception to the duty of loyalty when the Members’ other business activities may compete with the business of the LLC, as is often the case with LLCs formed to own real estate.
Member-Manager Fiduciary Duties: The new law provides that if a Member was appointed in writing and agrees in writing to be a Manager, then that Member owes the fiduciary duties of a Manager (presumably, in addition to the fiduciary duties of a Member): to act in good faith, in a manner the Manager reasonably believes to be in or not contrary to the best interests of the LLC, and with the care that an ordinary prudent person in a similar position would use under similar circumstances. Otherwise, a Manager who is also a Member of the LLC owes only the fiduciary duties of a Member, which are the duty of loyalty and the duty of care (as well as the obligation of good faith and fair dealing when discharging those duties).
Operating Agreements: Typically, the terms of an Operating Agreement supersede any contrary provisions in the Ohio LLC statute. However, under the new law, there are a number of things an Operating Agreement cannot do, including varying the rights and duties of the LLC, unreasonably restricting the right of access to books and records of the LLC, eliminating the duties of a Manager of the LLC, varying the requirements to wind up the LLC business in certain circumstances, and restricting the rights of third parties.

What does this mean for your LLC? Depending on how your LLC is structured, your Operating Agreement may need revision to comply with these new statutory changes. Additionally, LLC Members and Managers should understand and abide by their respective fiduciary duties. Companies are advised to consider these issues and seek counsel from their attorney to ensure continued compliance with Ohio law.

Do You Deserve a Break Today? Not at this McDonald’s

Posted on October 8, 2012 by coollawblog

by Merle F. Wilberding

In McDonald’s Corp v. Union County Board of Revision, 2012 Ohio 3751 (Court of Appeals – 3^rd District), McDonald’s Corporation made it clear that Connolly Construction Co. (“Connolly”) did not deserve a break today. In fact, McDonald’s Corporation wanted Connolly thrown out of court.

On March 31, 2011, Connolly filed a Complaint with the Union County Board of Revision challenging the valuation of McDonald’s property in Marysville. McDonald’s Corporation intervened in the proceeding and moved to dismiss Connolly’s Complaint because the Complaint was signed by “John R. Connolly,” with no indication of his status. It was acknowledged that he was a salaried employee of Connolly, but there was no evidence as to whether or not he was an officer of Connolly.

On August 20, 2012, the Third District Court of Appeals affirmed the dismissal of the case for want of jurisdiction, ruling that, as a salaried employee of Connolly, John R. Connolly, did not come within the protection of the Ohio Supreme Court’s ruling in Dayton Supply & Tool Company v. Montgomery County Board of Revision, 111 Ohio St.3d 367, 2006-Ohio-5852, 856 N.E.2d 926 (2006).

In Dayton Supply, the Supreme Court had ruled that a corporate officer had not engaged in the unauthorized practice of law by signing a complaint for the valuation of property before the Montgomery County Board of Revision. In McDonald’s, the Court of Appeals ruled that a salaried employee did engage in the unauthorized practice of law by signing a complaint for the valuation of property before the Union County Board of Revision.

In making that ruling, I believe the Court of Appeals identified a distinction in employee labels without a difference in whether that act constitutes the unauthorized practice of law. I had the opportunity to argue Dayton Supply before the Ohio Supreme Court and I am confident that neither the oral argument nor the written decision supports a conclusion that a salaried corporate employee engages in the unauthorized practice of law by signing a Complaint, but a salaried corporate officer does not engage in the unauthorized practice of law by signing the exact same type of complaint.

The real thrust of the Dayton Supply decision was that a non-attorney employed by a corporation could sign a complaint before a board of revision without engaging in the unauthorized practice of law, as long as that employee does not actively participate in the case by making legal arguments, examining witnesses, or undertaking any other tasks that can be performed only by an attorney.

If that holding were applied properly in Connolly, the case could have proceeded on the merits. Instead, the public interest factors advanced by the Supreme Court went unheeded by the Court of Appeals in its ruling that I believe unfairly restricts the public’s access to the judicial system without any corresponding benefit to the public. I hope the Ohio Supreme Court reviews the Connolly case.

Protecting Against Unfair Competition: Will Your Company’s Non-Compete Agreements Survive a Merger?

Posted on August 24, 2012 by coollawblog

by Marc Fleischauer

The Ohio Supreme Court recently decided a case about non-competition agreements and the surprising effect of corporate mergers on their enforceability. The decision changes Ohio law significantly and gives rise to urgent and specific drafting recommendations for employers.

In Acordia of Ohio, L.L.C. v. Fishel, 2012-Ohio-2297 (2012), the Court was faced with a common scenario. “Company A” had required certain employees to sign restrictive covenants (commonly called “non-compete agreements”) prohibiting solicitation of customers and other competition against Company A for two years following termination of employment. Company A later merged with “Company B” to form “Company AB.” The same employees continued working for Company AB for several years after the merger, doing the same jobs with no apparent interruption.

Roughly four years after the merger, the employees quit their jobs at Company AB and joined a competing business. According to the Court, “They soon used their contacts to recruit multiple customer accounts from [Company AB]. Within six months, 19 customers had transferred $1 million in revenue….”

Company AB sued to enforce the employees’ agreements with Company A, based on the merger and the operation of Ohio Revised Statute § 1701.82. That statute says that a newly merged company is “vested” in the contractual rights of the original companies “without further act or deed.” Company AB maintained that it had automatically taken on all the same contract rights originally belonging to Company A.

The Supreme Court decided that indeed Company AB could enforce the agreements as written, but it added a huge caveat that dramatically altered the effect of mergers in Ohio going forward. The employees had only agreed not to compete with Company A; the agreements did not expressly include similar restrictions against competing with Company A’s “successors and assigns,” which would have included Company AB. So while Company AB could technically prevent competition with the now-defunct Company A, it was powerless to prevent competition against Company AB, according to the Court.

Further, the Court held that the same merger that had transformed Company A into Company AB was itself was a “termination of employment” event, starting the clock on the employees’ two-year non-competition requirement. By the time the employees quit Company AB and started competing, any contractual obligations they had owed to Company A had already long expired.

In the current economic climate, corporate mergers and other acquisitions are commonplace as companies seek to consolidate or otherwise change their corporate status. Often these corporate changes have little or no practical effect on employees, who at most might see a new name on their paychecks. But with this new Supreme Court decision, employers may be inadvertently giving away their restrictive covenant rights. To avoid an Acordia outcome, employers should take these steps now:

Ensure that non-compete contracts define “company” to include “successors and assigns,” such that employees will remain contractually obligated regardless of what corporate form the employer takes in the future.
Draft such agreements to make clear that mere mergers or other legal changes in corporate form do not trigger the post-termination commencement of the non-compete period.
If you suspect that the company’s existing agreements are already susceptible to the new Acordia outcome, especially if your company has ever undergone a change in corporate structure, consider amending or rewriting existing agreements with the help of experienced employment counsel.

Reach out and touch someone… at your own risk! Police can track cell phone emitted GPS data without a warrant

Posted on August 24, 2012 by coollawblog

by Sasha VanDeGrift

For those of you who have followed the Coolidge How the TECH Are You? portion of the blog, you may remember that we blogged earlier this year about an Ohio Appellate Court that held that there is no right to privacy in the data that cell phone providers keep on their customers.

Now, the United States Sixth Circuit Court of Appeals has weighed in on cell phone data, holding that police can track the GPS signal a cell phone emits without a warrant. See United States v. Skinner, No. 09-6497 (6th Cir. Aug. 14, 2012).

In the opening line of the Opinion, Judge Rogers opines that “[w]hen criminals use modern technological devices to carry out criminal acts and to reduce the possibility of detection, they can hardly complain when the police take advantage of the inherent characteristics of those very devices to catch them.” The full Opinion is available at the link below.

For the average person, the idea of the police being able to track you using the GPS information your cell phone spits into the air waves might evoke memories of reading the novel 1984 in high school English class or watching a crime drama rerun from last week. But for those involved in illegal enterprises, the Sixth Circuit’s ruling, like emerging technologies, “changes everything. Again.”

http://www.ca6.uscourts.gov/opinions.pdf/12a0262p-06.pdf

Ways to Pass the Check: Cost-shifting during the electronic discovery process

Posted on July 6, 2012 by coollawblog

by Sasha VanDeGrift

There is an old saying that there is no such thing as a free lunch. But in the e-discovery arena, there are times when counsel can “pass the check” for e-discovery to the opposing party.

Many courts treat e-discovery the same way they treat paper discovery, and presume that parties must pay their own costs. See Dahl v. Bain Capital Partners, L.L.C., 655 F. Supp. 2d 146, 148 (D. Mass. 2009)(internal citations omitted). In fact, the Southern District of New York in the landmark Zubulake case found that cost-shifting should be considered only when electronic discovery imposes an “undue burden or expense” on the responding party. Zubulake v. UBS Warburg L.L.C., 217 F.R.D. 309, 318 (S.D.N.Y. 2003).

So, what exactly constitutes the “undue burden or expense” requirement to shift costs to the other party? One court held in 2010 that for data kept in an accessible format, the usual rules of discovery apply and the responding party should pay the costs of production. Barrera v. Boughton, Case No. 3:07cv1436 (RNC), 2010 U.S. Dist. LEXIS 103491, at *3 (D. Conn. Sept. 30, 2010). But if the responding party can show that the requested information is not reasonably accessible, it either may not be obligated to produce the information at all, or the court may shift some portion of the costs to the requesting party. Id.

The Federal Circuit Model Order takes a different approach. It states that costs “will be shifted for disproportionate ESI production requests” pursuant to Federal Rule of Civil Procedure 26. Fed. Cir. Model Order at 2, ¶ 3. By stating that costs “will be shifted,” the Model Order implies that the district courts will have little, if any, discretion in determining whether to shift costs of the production requests that are disproportionate. By only explicitly allowing cost shifting in the event of disproportionate e-discovery production requests, the probable result is that textualists in the Federal Circuit will not shift costs for other issues that might arise between the parties.

The Model Order goes on to require that when tasked with determining whether e-discovery production requests are “disproportionate” the court must consider a party’s “nonresponsive or dilatory discovery tactics.” Fed. Cir. Model Order at 2, ¶ 3. The Model Order further states that a party’s “meaningful compliance with this Order and efforts to promote efficiency and reduce costs will be considered in cost-shifting determinations.”

To shift e-discovery costs under a system like the Model Order, an attorney must show the judge what s/he has done in an effort to make the e-discovery process cost less and yield better results. The Model Order requires only “meaningful” rather than absolute, perfect, or unwavering compliance. How judges will interpret what is “meaningful” will probably vary, but it provides an argument if complete compliance was not possible due to the other party’s “nonresponsive or dilatory discovery tactics.”

One way to deal with these issues is to agree with opposing counsel at the beginning of the case to “go Dutch.” One court warned that when the parties do not discuss the e-discovery early on, both parties are likely to bear some financial burden for the discovery, particularly if there is a dispute. See DeGeer v. Gillis, 755 F. Supp. 2d 909, 929-930 (E.D. Il. 2010).

This is not just an issue for cases involving millions of dollars in e-discovery expenses. In Couch v. Wan, Case N. CV F 08-1621, 2011 U.S. Dist. LEXIS 79043, *10-12 (E.D. Cal. July 20, 2011), the district court ordered that plaintiffs, defendants, and a non-party government agency share the costs of e-discovery, which totaled $54,000.

With e-discovery impacting more and more cases, it is worth exploring whether there are arguments for cost-shifting. With e-discovery, there is no such thing as a free lunch for those who do not know when and how they can get one…

Asset Protection: Sometimes, being attached to your spouse means that your creditors cannot attach your assets

Posted on July 3, 2012 by coollawblog

by Patricia Friesinger

HISTORY LESSON: Back in days of yore, (2/9/72 – 4/4/85 in Ohio), a form of property ownership known as Tenancy By the Entirety (TBE) was recognized. The TBE form of property ownership harkens back to times when women had much less control over their affairs and needed to be protected from their husband’s debts. It is useful now to protect assets from creditors.

“TBE” EXPLAINED: The general principle behind TBE property is that it is not owned part by husband and part by wife, but entirely by a fictional third-party made of the union of husband and wife. As such, only creditors of husband and wife can attach TBE property.

Although Ohio’s statutes no longer provide for TBE property, some other states still recognize TBE property with interesting wrinkles relating to:

form for invoking TBE ownership (i.e. presumed, “magical” words required to create it, unities of time of ownership, etc.),
extent of protection provided (i.e. full protection (other than against federal tax liens, See Drye v. U.S., 528 U.S. 49 (1999) and U.S. v. Craft, 535 U.S. 274 (2002))), protection akin to a life estate, protection until the non-debtor spouse dies, etc.),
types of property protected (i.e. all property or land only), and
residency requirements (i.e. whether husband and wife must be residents of the state for enforcement).

State Extent of Protection Provided* Types of Property Protected**

Alaska	Limited	Real and Personal
Arkansas	Limited	Real and Personal
Delaware	Full	Real and Personal
District of Columbia	Full	Real and Personal
Florida	Full	Real and Personal
Hawaii	Full	Real and Personal
Illinois — FN1
Indiana	Full	Real ONLY
Kentucky	Limited	Real ONLY
Maryland	Full	Real and Personal
Massachusetts	Limited	Real and Personal
Michigan	Full	Real ONLY
Mississippi	Full	Real and Personal
Missouri	Full	Real and Personal
New Jersey	Limited	Real and Personal
New York	Limited	Real ONLY
North Carolina	Full	Real ONLY
Ohio — FN2
Oklahoma — FN3
Oregon	Limited	Real ONLY
Pennsylvania	Full	Real and Personal
Rhode Island	Full	Real and Personal
Tennessee	Limited	Real and Personal
Vermont	Full	Real and Personal
Virginia	Full	Real and Personal
Wyoming	Full	Real and Personal

*See http://www.fredfranke.com/asset-a-estate-planning/36?task=view
** See http://www.usatoday.com/money/perfi/columnist/block/2003-09-16-block_x.htm
FN1 Only available for personal residence
FN2 Available from 2/9/72 – 4/4/85 (deeds between those dates are still recognized)
FN3 The asset protection value of TBE ownership was abrogated by statute on 5/7/45 (60 Oklahoma Statutes 1991 § 74

As such, Ohioans can take advantage of TBE protections of states without residency requirements.

WARNING: The methods for using TBE protections are complex and should not be used for asset protection or estate planning without investigating the state’s laws regarding effectiveness of TBE protection in each instance. The laws of the state where real estate is located is generally used when issues arise relating to that real estate, but that is not always the case when it comes to personal property. See e.g. Reif v. Reif, 86 Ohio App.3d 804 (2^nd Dist Ohio 1993). So while a court in Florida (for example) should recognize and protect personal property held as TBE property by Ohio residents, a court in Ohio may not recognize the protections of TBE ownership for personal property attachable in Ohio – such as a bank account held at a bank with branches in Florida and Ohio.

BOTTOM LINE: Since some situations and state laws will allow Ohioans to protect property using TBE ownership, it might be worth “tying the knot” or avoiding “untying the knot” to protect property interests from creditors.

It’s a Tax, not a Regulation of Commerce!

Posted on June 28, 2012 by coollawblog

by Mike Leesman

Prior to today, the case brought by twenty-six states (including Ohio), several individuals, and the National Federation of Independent Business challenging the constitutionality of the individual mandate portion of the Patient Protection and Affordable Care Act had been decided by the Court of Appeals for the Eleventh Circuit stating that Congress lacked authority to enact the individual mandate. Based on this ruling, and a feeling that the U.S. Supreme Court would follow suit, many thought that the Act would become meaningless without this “penalty” for individuals failing to purchase health insurance.

The Supreme Court changed all of that with one hundred plus pages of text that essentially takes a completely opposite position from the Court of Appeals. The opinion, released today, states that the individual mandate is a constitutional act of Congress when construed under Congress’s powers to lay and collect taxes, and not pursuant to the Commerce Clause (as has been the position of the President since the inception of the law). In declining to approve the individual mandate under the Commerce Clause, but approving it under the power to tax, the Court stated that “Congress already possesses exclusive power to regulate what people do.” “Upholding the Affordable Care Act under the Commerce Clause would give Congress the same license to regulate what people do not do.” The Court went on to say that despite the Act calling the payment a “penalty,” and not a “tax,” the payment was functionally a tax, which will be paid to and collect by the IRS.

While the fallout from this decision will continue for months to come, it would appear the country should continue to prepare for implementation of those portions of the Act that become effective in 2014.

— coollawblog

Thoughts from the attorneys at Coolidge Wall Co., L.P.A.

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