Category Archives: General Legal

General

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

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Richard A. Talda  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.

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

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W. Chip Herin III  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

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  by Merle F. Wilberding

In McDonald’s Corp v. Union County Board of Revision, 2012 Ohio 3751 (Court of Appeals – 3rd 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.

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

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Sasha VanDeGrift 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

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

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Patricia Friesinger  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 (2nd 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!

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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.

Stay away from my friends: When is a business’s social media friend list a trade secret?

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Sasha VanDeGrift  by Sasha VanDeGrift

The general rule in Ohio is that for a customer list to be a trade secret, it has to be… a secret. Usually this means that the customer list is stored in a locked drawer or a password-protected server that only a few trusted people can access.

But with the emergence of social media, a friend list may be as or more important than a traditional customer list. But can a business’s friend list be a trade secret just like a customer list?

Christou v. Beatport, L.L.C., No. 10-cv-02912-RBJ-KMT, 2012 U.S. Dist. LEXIS 34307 (D. Colo. 2012) has raised this very issue. Christou owned several nightclubs in Denver that featured electronic house music. Christou employed Bradley Roulier as his talent scout and performance coordinator. Roulier had access to the friend lists.

The relationship between Christou and Roulier soured and Roulier left Christou’s nightclub empire to form a competing music business called Beatport. As former employees sometimes do, Roulier left with information that Christou believed to be trade secrets, including the friend lists.

Christou sued Roulier and Beatport, claiming the friend lists were trade secrets. Beatport moved to dismiss, arguing that the friend lists could not be trade secrets as anyone who accessed Christou’s social media pages could see who Christou’s friend are.

But the court found that the names themselves, readily available to the public, were not the important factor. Rather, by friending a business, the business gained access to the friend’s interests and preferences, contact information, and a built-in means of contact. This information cannot be obtained from outside sources. The court found that Christou could continue the lawsuit against Beatport because the friend lists could plausibly be trade secrets.

The court did not address whether the individual user’s profile is private or public. Facebook in particular has made headlines when privacy settings changed automatically and made formerly private content public. If a user made his/her content public, including the interests and preferences that could be valuable to a business, would that negate the court’s conclusion that the information requires protection because it cannot be obtained elsewhere? Can something be a trade secret when the business cannot control whether the very thing it desires to protect is actually a secret.

On the other hand, a friend list is greater than the sum of its parts. Having lists of thousands of people who have self-identified themselves as potential customers is immensely valuable. In Christou, the friend lists contained thousands of people, some of whom identified favorite DJs, songs, artists, etc., which would help Christou or Beatport learn what music was trending with their primary audience. Even if the customers all made their profiles public, which would make their contact and preference information just as available to Beatport as to Christou, Beatport would have to use its resources to find the profiles. Having a list of those people would save time and money, a fact that might persuade a judge that regardless of whether the profiles are public or private, the information is a trade secret.

Few, if any, courts have resolved these questions. As the court in Christou stated, whether a friend list is a protectable trade secret is an issue of first impression in federal court. Likewise, Ohio courts have not decided this issue. But we are likely to see more litigation on this issue, including the final decision in Christou.

The implication from the court’s decision is that under the right circumstances, a friend list might be a trade secret. Friend lists have business value and have to be treated that way. Make it clear that you do not want anyone other than your people talking to your friends. If your actions do not tell your competition to stay away from your friends, the competition will try to replace you as your friends’ BFF in the industry

Ohio Supreme Court Says Noncompete Clock Begins to Run Upon Merger

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In a recent decision, the Ohio Supreme Court determined that the clock begins to run on the noncompetition prohibition in employees’ agreements at the time their employer merges with another entity, not at the time the employees ultimately separate their employment with the surviving entity, years later.

The Court’s 4-3 decision in Acordia of Ohio v. Fishel is significant and controversial. Counsel for Acordia had argued that such a finding would displace over 150 years of well established Ohio corporate law governing the surviving company’s rights to all of the assets and property (in this case employee agreements) of each constituent entity to the merger.  Additionally, at oral argument, one of the dissenting justices asked how the employee agreements at issue differed from any other contract that a constituent company may have had with its customers or suppliers that survived following a merger.

In its decision, the Court was careful to find that the agreements were in fact transferred to the surviving entity in accordance with Ohio law.  However, these agreements only prohibited the employees from competing for a period of two years following their employment with their named employer, Frederick Raugh & Company, not with any successor entity.  Moreover, the Court stated that it was significant that the agreements did not state that they would apply to the company’s “successors and assigns.”  Therefore, the Court narrowly construed  the noncompete language at issue and found  the noncompetition restriction had expired years before the employees left Acordia and took over a million dollars of business to a competitor less than six months after terminating their employment with Acordia.

The Acordia decision points out the importance of having well drafted employee agreements which cover all the bases and provide for contingencies such as  assignment or corporate restructuring.  Additionally, in the event of a merger, the surviving entity would do well to make sure that new employment agreements and restrictive covenants are signed by its employees to protect against the result reached by the lead opinion in Acordia. 

In the digital age, justice never takes a holiday…

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Sasha VanDeGrift by Sasha VanDeGrift

Even when the courthouse is closed on the weekends and holidays, the wheels of justice are still turning.

The Montgomery County, Ohio Clerk of Courts, in keeping with Dayton’s rich history of technological innovation, has an extensive electronic filing system that allows attorneys (and judges) to file documents 24 hours a day, seven days a week, from virtually anywhere on the planet that has a secure internet connection.  Mont. Co. C. P. R. 1.37(IX)(A).  Each electronically filed document receives an electronic stamp that includes the date and time it was filed.  Mont. Co. C. P. R. 1.37(IX)(B). With a keystroke, a judge signs an electronic document “via a digitalized image of his or her signature combined with a digital signature.” Mont. Co. C. P. R. 1.37(VIII)(D)(4). This technology allows judges to decide cases even on days when the court traditionally is closed for business.

But believe it or not, there are people who do not like this development.

In Bank of N.Y. Mellon v. Ackerman, 2nd Dist. No. 24390, 2012-Ohio-956, the common pleas court judge electronically signed a decision granting foreclosure to the bank using the e-filing system even though the courthouse was closed for Veterans’ Day. The couple facing foreclosure appealed the decision, arguing in part that the decision was improper because the judge entered the decision on a court-holiday.  Id. at ¶ 11.

The Second District Court of Appeals disagreed, finding that the common pleas court had no specific time when it was obligated to render decisions and certainly could surrender its holiday to work on cases if the judge so chose.  Id. at ¶ 12-14.  The Second District also found no flaw with the use of an electronic signature.  Id. at ¶ 14.  The couple also never showed how they were arguably harmed by the manner in which the foreclosure decision was filed. Id. at ¶ 14.  The Second District upheld the use of the e-filing technology on a legal holiday, as well as the underlying merits of the foreclosure. (Interestingly, the Second District does not participate in the Montgomery County e-filing system.)

Regular readers of the Coollaw blog, particularly our segment How the TECH Are You, know that there are often negative consequences that arise out of technology’s ever-expanding presence in American life. Sometimes, these consequences require a fresh look at what the law sees fit to protect. But other times, technology puts us one step closer to accomplishing important societal goals, like providing justice that is as efficient as it is fair. Here, a judge used technology –and sacrificed a day off–to do just that.

The couple could ask the Ohio Supreme Court to consider the case, but it seems doubtful that the justices would want to discourage their colleagues on the bench from working overtime to achieve the courts’ raison d’etre.

Rockin Robin, Tweet Tweet Tweet

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Merle Wilberding  by Merle Wilberding

“Rockin’ Robin, Tweet, Tweet, Tweet” were some of the great lyrics from early Rock & Roll. Bobby Day brought this song to # 2 on the Billboard Top 100 in 1958. Although Bobby Day was a one-hit wonder, his “Rockin’ Robin, Tweet Tweet Tweet” lives on even today on You Tube ( http://www.youtube.com/watch?v=ocT1wFcYspE ).

Bobby Day could never have foreseen that “Tweet Tweet Tweet” would become the sounds of the times today, as everyone either tweets or knows someone who tweets, and as everyone either is on Facebook or knows someone on Facebook – - so much so that the tweets or other social media communications may be caught in the netting of the legal system. Just ask Jacob Jock who spent three days in the slammer because, while sitting on a jury, “friended” the defendant in the case.

There are other illustrations of jurors tweeting during the trial about their thoughts on the evidence, or posting their thoughts on Facebook. In fact, the corruption trial of Baltimore Mayor Sheila Dixon became known as the “Facebook Five” case because five jurors had “friended” each other during the trial. These practices have put at risk a number of cases on appeal.

It is clear that we must do something to keep these Rockin’ Robins and chatty jurors from “hoppin’ and a-boppin’ and singing [to] all the little birdies on Jaybird Street.” Think about the lyrics from that song and the potential for juror social media misconduct and then give me a response to these questions:

What should lawyers do to safeguard their client from social media misconduct?

What should judges do to safeguard their proceedings from social media misconduct?