Wednesday, November 10, 2010

I Want My Attorney Fees!

A number of my clients ask the same question regarding the enforcement of contracts, particularly the collection of debt. The question is, “Can I get my attorney fees and cost of collection.” A recent Eleventh Appellate district case, the court discussed this topic in a succinct manner.

The case Somerset Synfuel No. 1, L.L.C. v. Resource Recovery International Corp, 188 Ohio App.3d 368, involved a number of convoluted issues one of which was the defendant’s failure to pay the attorney fees to the successful party in a promissory note issue. In its opinion, the court stated:

As a general rule, the costs and expenses of litigation, other than the usual court costs, are not recoverable under Ohio law, Freeman v. Crown City Mining, Inc., 90 Ohio App.3d 546, 630 N.E.2d 19. Ohio has long adhered to the “American rule” with respect to recovery of attorney fees. A prevailing party in a civil action may not recover attorney fees as part of the costs of litigation, Wilborn v. Bank One Corp., 121 Ohio St.3d 546, 2009-Ohio-306. However there are exceptions to this rule. Attorney fees may be awarded when a statute or an enforceable contract specifically provides for the losing party to pay the prevailing party’s attorney fees, Nottingdale Homeowners’ Assoc., Inc. v. Darby, 33 Ohio St.3d 32, 514, N.E.2d 702.

O.R.C. 1301.21(B) authorizes the award of attorney fees regarding contracts of indebtedness if 1) the contract includes the commitment to pay attorneys’ fees and2) if the contract is enforced through judicial proceedings.

Therefore, in order to obtain attorney fees or other costs of litigation, you must:

1. Have a written agreement authorizing the payment of attorney fees, etc. in the event of default, and

2. Be successful in enforcing the contract.

Friday, October 22, 2010

Winning Your Case – The Importance of Properly Authenticated Documentation

A recent Second Appellate District decision highlights the importance of properly supported documentation in support of one’s claim. The case, SFJV 2005, LLC v. Ream, 187 Ohio App. 3d 715, involved the admissibility of certain documents in support of the foreclosure of the defendant’s property.

As is usual in today’s home financing world, the loan originally signed by the defendants transferred hands from the original financing institutions to other financing companies and administrators resulting in a myriad of assignments and other documents requiring the introduction of evidence showing the proper and legal transfer of interest between the entities. Of course, the person testifying at the trial did not have first hand knowledge of all the transfers but merely testified and presented documents that were either notarized or recorded. The defendant objected to the admissibility of these documents claiming they were “hearsay” and, therefore, inadmissible.

The Ohio Rules of Evidence define hearsay and, in the interest of the speedy adjudication, outline certain exceptions to the hearsay rule. As stated by the court, "Proving the contents of a writing presents problems with hearsay, authentication, and the best evidence rule," the three issues confronting the admissibility of any document. The court’s analysis was as follows:

Evid.R. 801(C) defines hearsay as a "statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." A "statement," as included in the definition of hearsay, is an oral or written assertion or nonverbal conduct of a person if that conduct is intended by him as an assertion. Evid.R. 801(A). "Evid.R. 802 mandates the exclusion of hearsay unless any exceptions apply. The relevant exceptions to the hearsay rule include business records, public records, and records of documents affecting an interest in property. Evid.R. 803(6), (8), (14).

Documents must be authenticated or identified prior to their admission into evidence. Evid.R. 901. This requirement is satisfied "by evidence sufficient to support a finding that the matter in question is what its proponent claims." Extrinsic evidence of authenticity is not required for certain documents to be admitted. Evid.R. 902. For example, certified copies of public records, commercial paper, and acknowledged documents are self-authenticating. Evid.R. 902(4), (8), and (9).

Although the defendants claimed that the documents being admitted were merely duplicates, the court stated, "Duplicates" are admissible to the same extent as an original unless (1) a genuine question is raised as to the authenticity of the original or (2) in the circumstances, it would be unfair to admit the duplicate in lieu of the original. Evid.R. 1003.”

The defendant further asserted that the documents were inadmissible as their authenticity had not be certified. The court countered this argument by saying “[Each document bore] a notation of the book and page in which the document was recorded. Moreover, each of the exhibits has a page consisting of an acknowledgment by a notary. Documents acknowledged by [a notary] are self-authenticating, Lorain Cty. Bar Assn. v. Kennedy, 95 Ohio St.3d 116, 2002 Ohio 1943, 766 N.E.2d 151; Evid. R. 902(8).

The defendants then argued that certain documents recorded with the Secretary of State were inadmissible as there was no testimony from the Secretary of State regarding their authenticity. Responding to that argument the court again referred to the Ohio Rules of Evidence, “[The documents] are public records and, thus, admissible under an exception to the hearsay rule. Evid.R. 803(8). Furthermore, the documents include a certificate by the Ohio Secretary of State that it has custody of these specific business records and that the business records show the recording and filing of these documents; the certification is signed by the Ohio Secretary of State and includes the seal of the Office of the Secretary of State. This certification is sufficient to meet the self-authentication requirements of Evid.R. 902.”

What can be drawn from this analysis?

1. As long as a document can be authenticated, it will be admitted as long as it meets one of the criteria for inclusion under the Ohio Rules of Evidence.

2. The direct testimony of a witness to the signing, recording or certification of a document is not required as long as the admission of the document does not violate a hearsay exception outlined in the Ohio Rules of Evidence.

3. Although documents may be admissible someone must testify as the method in which the documents are authenticated.

Tuesday, September 7, 2010

Credit Card Liability - Dispelling Two Myths

A recent Medina County Court case provides dictum regarding two myths regarding credit cards. The case, Citibank v. Kovach, 157 Ohio Misc.2d 24 involved the use of a credit card issued by Citibank to the defendant. Three pertinent facts were established: 1) The defendant did not sign any agreement or contract with the bank, 2) he did use the credit card to the tune of $20,569.06 and 3) the bank attached to its complaint a complete itemization of charges, payments and credits. The two myths dispelled by the case are:

Myth No. 1: The plaintiff must establish that the defendant executed a contract or credit agreement with credit card company to establish liability. This is untrue. Under Ohio law, a cardholder becomes liable for charges made on a credit card by using the credit card itself, Chase Bank USA v. Lopes, 8th Appellate Dist No. 91480, 2008 Ohio 6000, 2008 WL 4950985. In fact, the use of the credit card subjects the card holder to the terms of the credit card agreement, Am. Express v. Silverman, 10th Dist. No. 06AP-338, 2006 Ohio 6374, WL 3491741.

Myth No. 2: The creditor need only produce a summary account attached to its complaint to establish a prima facie case of liability. This is also untrue. In order to establish a prima facie case for money owed on an account, “an account must show the name of the party charged and contain: (1) a beginning balance (zero, or a sum that can qualify as an account stated, or some other provable sum); (2) listed items, or an item, dated and identifiable by number or otherwise, representing charges, or debits, and credits; and (3) summarization by means of a running or developing balance, or an arrangement of beginning balance and items which permits the calculation of the amount claimed to be due." Gabriele v. Reagan (1988), 57 Ohio App.3d 84, 87, 566 N.E.2d 684

Thursday, September 2, 2010

Use of the Internet Subjects Non-Residents to Jurisdiction in Ohio Courts

American jurisprudence has long held that a state courts fail to obtain jurisdiction against a non-resident unless certain “minimum contents” occur that subjects that non-resident to jurisdiction in Ohio courts. In other words, a person residing outside of Ohio can not be sued in Ohio courts unless they’re actions meet the “minimum contacts” required.

Personal jurisdiction, or the right to sue a person in The State of Ohio, is defined in Ohio’s long-arm statute, R. C. 2307.382. Determining whether an Ohio trial court has personal jurisdiction over a nonresident defendant involves a two-step analysis: (1) whether the long-arm statute and the applicable rule of civil procedure confer jurisdiction, and if so, (2) whether the exercise of jurisdiction would deprive the nonresident defendant of the right to due process of law under the Fourteenth Amendment to the United States Constitution, U.S. Sprint Communications Co. Ltd. Partnership v. Mr. K's Foods, Inc. (1994) 68 Ohio St.3d 181, 183-184, 1994 Ohio 504, 624 N.E.2d 1048.

Civ.R. 4.3 allows service of process on nonresidents in certain circumstances and mirrors the long-arm statute:

"(A) Service of process may be made outside of this state, as provided in this rule, in any action in this state, upon a person who, at the time of service of process, is a nonresident of this state or is a resident of this state who is absent from this state. 'Person' includes an individual * * * who, acting directly or by an agent, has caused an event to occur out of which the claim that is the subject of the complaint arose, from the person's: ...

"(3) Causing tortious injury by an act or omission in this state, including, but not limited to, actions arising out of the ownership, operation, or use of a motor vehicle or aircraft in this state;...

"(9) Causing tortious injury in this state to any person by an act outside this state committed with the purpose of injuring persons, when the person to be served might reasonably have expected that some person would be injured by the act in this state."

With the advent of the Internet a conundrum arises because parties are from different parts of the country and, therefore, courts must determine if cases are properly before them. A recent Ohio Supreme Court case address this problem, at least in defamation cases. The case Kauffman Racing Equip. V. Roberts, 126 Ohio St. 3d 81, involved a defamation case brought by Kauffman, an Ohio supplier of engine blocks against Scott Roberts a resident of Virginia. The defendant purchased an engine block from the Plaintiff over the internet. Roberts was never physically in Ohio at the time of the purchase nor at any time during the events that gave rise to the lawsuit.

After the purchase, Roberts became dissatisfied claiming Kauffman sold him a defective engine block and posted numerous rancorous criticisms of Kauffman over the internet. As a result, Kauffman brought an action for defamation against Roberts in The Knox County Common Pleas Court. The trial court granted Robert’s motion to dismiss for lack of personal jurisdiction. Kauffman appealed and the Fifth District Court of Appeals reversed the trial court’s judgment. Roberts appealed to The Ohio Supreme Court.

In its analysis the court cited the U.S. Sprint case using the case as a foundation for its findings. In its opinion, the court stated the following:

“Roberts contends that Ohio's long-arm statute does not confer personal jurisdiction because he did not direct the alleged tortious statements to Ohio or publish them here. Despite the fact that Roberts's publication of his comments did not emanate from Ohio, those comments were received in Ohio. KRE submitted evidence that at least five Ohio residents had seen the comments posted by Roberts. In Fallang, 40 Ohio St.3d 106, 532 N.E.2d 117, paragraph one of the syllabus, this court held, Civ.R. 4.3(A)(3) authorizes assertion of personal jurisdiction over a nonresident defendant in a defamation action when publication of the offending communication occurs in Ohio. In Fallang, the defendant had written an allegedly defamatory letter and had sent it to a person in Ohio. The tort of libel occurs in the locale where the offending material is circulated (published) by the defendant to a third party. Keeton v. Hustler Magazine, Inc. (1984), 465 U.S. 770, 777, 104 S.Ct. 1473, 79 L.Ed.2d 790. In the instant case, [the defamatory] letter was published in Ohio by virtue of its receipt through the mail. Thus, under the principle announced in Keeton, supra, the tort was committed in Ohio. Fallang, 40 Ohio St.3d at 107, 532 N.E.2d 117.”

The court went on to say, “Roberts contends that Ohio's long-arm statute does not confer personal jurisdiction because he did not direct the alleged tortious statements to Ohio or publish them here. Despite the fact that Roberts's publication of his comments did not emanate from Ohio, those comments were received in Ohio. ... In Fallang, 40 Ohio St.3d 106, 532 N.E.2d 117, paragraph one of the syllabus, this court held, Civ.R. 4.3(A)(3) authorizes assertion of personal jurisdiction over a nonresident defendant in a defamation action when publication of the offending communication occurs in Ohio. In Fallang, the defendant had written an allegedly defamatory letter and had sent it to a person in Ohio. The tort of libel occurs in the locale where the offending material is circulated (published) by the defendant to a third party. Keeton v. Hustler Magazine, Inc. (1984), 465 U.S. 770, 777, 104 S.Ct. 1473, 79 L.Ed.2d 790. In the instant case, [the defamatory] letter was published in Ohio by virtue of its receipt through the mail. Thus, under the principle announced in Keeton, supra, the tort was committed in Ohio." Fallang, 40 Ohio St.3d at 107, 532 N.E.2d 117.

“Roberts posted his allegedly defamatory statements on the Internet, ostensibly for the entire world to see. How much of the world saw the comments is unknown; but we do know that at least five Ohioans saw Roberts's statements. The comments were thus published in Ohio. Because Roberts's allegedly defamatory statements were published in Ohio, his alleged tort was committed in Ohio, and he falls within the grasp of R.C. 2307.382(A)(3) and Civ.R. 4.3(A)(3).”

Finally, the court stated, “But even if Roberts did not publish or circulate his statements within the territorial boundaries of Ohio, he is not shielded him from the reach of Ohio's long arm. R.C. 2307.382(A)(6) and Civ.R. 4.3(A)(9) permit a court to exercise personal jurisdiction over a nonresident defendant and provide for service of process to effectuate that jurisdiction if the cause of action arises from a tortious act committed outside Ohio with the purpose of injuring persons, when the nonresident defendant might reasonably have expected that some person would be injured thereby in Ohio, Clark v. Connor (1998), 82 Ohio St.3d 309, 313, 1998 Ohio 385, 695 N.E.2d 751.

Since Roberts published his comments on a medium for all the world to see, it was reasonable for Roberts to expect that the comments would be read in Ohio and thereby injure an Ohio resident.

The question, is how far will this decision go? This case involves defamation. Will this case be used to expand the reach of Ohio courts in breach of contract issues and other non-tortious issues? Only time will tell.

Wednesday, July 21, 2010

The Need for Unambiguity and an Underlying Agreement

A recent Ohio Court of Appeals case exemplifies the need to strive for contract terms with little ambiguity and the requirement to generate an underlying agreement in support of a promissory note.

The case, Cranberry Fin., LLC v. S&V P'ship, 186 Ohio App. 3d 275, involved a dispute regarding the terms of a promissory note. The debtor entered into a promissory note and subsequently argued that the terms of the underlying agreement were different from the note.

The court, in its opinion, stated, “A promissory note is a contract and rules of contract interpretation apply to the interpretation of promissory notes. If a contract is clear and unambiguous, then its interpretation is a matter of law and there is no issue of fact to be determined. If, however, an ambiguity is present such that parole evidence is necessary to resolve the ambiguity, a factual determination of intent or reasonableness may be necessary to supply the missing term. The fact-finder may also examine the surrounding circumstances of the transaction to determine the parties' intent. Further, it is axiomatic that contracts -- including promissory notes -- are construed against the drafter. The rule is well established that where there is doubt or ambiguity in the language of a contract it will be construed strictly against the party who prepared it. In other words, he who speaks must speak plainly or the other party may explain to his own advantage.”

But the court went further, “When a party voluntarily places his signature upon a note or other writing within the Ohio Statute of Frauds, and where that party's sole defense to an action brought upon the writing is that a different set of terms was orally agreed to at that time, such defense shall not be countenanced at law regardless of the theory under which such facts are pleaded. In such event, the writing alone shall be the sole repository of the terms of the agreement.”

In this case, the Sixth Appellate Court, merely restated what is known in the law as the “Parole Evidence” rule. Basically, the rule imparts that oral testimony may not be introduced into evidence to alter the terms of a written agreement. Only if the terms of the agreement have ambiguities, may the court entertain testimony to interpret the ambiguous portions of the agreement. Therefore, if the terms in an agreement are unambiguous, the court will not permit testimony that would alter those terms.

In this case, the court deemed the terms of the promissory to be unambiguous. Therefore, the party could not introduce evidence in derivation of those terms.

Most promissory notes are fairly simple and do not set forth underlying agreements relating to the note. Therefore, it is vitally important that the parties enter into an agreement setting forth the terms underlying the note and that agreement be referenced as part of the covenants set forth in the note.

Tuesday, April 27, 2010

The Use of Limited Liability Companies in Ohio

The use of LLCs have become very prevalent by business in Ohio. LLCs are popular because they combine the limited liability features of a corporation with the flexibility of a partnership. Under prior law, the only way to limit one’s liability for the misdeeds of others in your organization was to form a corporation. But, the use of a corporation also required s ver structured adherence to certain rules required by Ohio’s corporation law, plus a bifurcated tax structure that, sometimes, resulted in double tax to the owner of the company.

A Brief History

Corporations are “artificial” entities that are permitted under Ohio law. As a business entity became larger, with attendant increased liability issues, the use of a corporation permitted a business owner to shield himself from personal liability for the debts of the corporation and a shield from personal liability in the event of some catastrophic event that was not covered by liability insurance.

Of course the use of a corporation also presented structuring requirements that necessitated mandated meetings of directors and shareholders. In addition, the use of a corporation necessitated the filing of a separate corporate tax return, aside from the individual return filed by the owner of the company.

The consequence in failing to follow these rules was the possibility of piercing the corporate veil and holding the shareholders personally liable for the debts and liabilities of the corporation.

A number of years ago, Congress recognized the unfair nature of a tax structure that resulted in the double taxation of small businesses and permitted such corporations to make an “election” to be taxed as an individual. This became the so-called “Sub-chapter S corporation.” After the election, instead of filing a corporate tax return, the corporation filed an informational return with the IRS, but distributed what were called K-1s that distributed the income of the corporation (both distributed and undistributed) between the shareholders based upon the numbers of share they owned. But this election failed to address the underlying issues involving the mandated meetings and other structured requirements of a corporation.

Recently, a number of states, including Ohio recognized this problem and introduced the concept of the Limited Liability Company. The establishment of an LLC permits the benefits inherent with the limited liability of a corporation combined with the flexibility and lower tax burden of a partnership or individual.

The LLC in Ohio

Ohio’s law incorporates this philosophy of limited personal liability while allowing lower tax consequences. Forming an LLC is quite simple in Ohio. As in the established of any artificial entity, there are forms that need to be completed. But once executed, the LLC becomes a self-perpetuating entity requiring little structuring as is required of a formal corporation.

NEXT Blog - Is an LLC good for me?

Thursday, April 22, 2010

New EPA Lead Paint Regulations Take Effect April 22, 2010

A number of years ago the EPA established regulations relating to the disclosure of lead-based paint in residential housing built prior to 1978. The regulations required the landlord to provide a lead-based paint disclosure form to prospective tenants. Only certain types of housing were exempt including those that had been certified lead-free by a certified inspector.

On April 22 new EPA regulations take affect that apply to any renovations of pre-1978 housing. The new “EPA Renovation, Repair and Painting Rule” applies to all “renovations performed for compensation in target housing and child occupied structures.” Target housing is defined as housing constructed prior to1978, with the exception of housing for seniors or the disabled, unless a child under 6 is expected to reside, and 0-bedroom (studio) apartments. “Renovation” is defined as “the modification of any existing structure that results in the disturbance of painted surfaces. To qualify, more than 6 square feet per room of interior painted surface must be disturbed or 20 square feet of exterior painted surface.

These rules call for the contractor to use lead dispersal prevention techniques when performing renovations - much like those required of asbestos abatement firms.

Housing which is tested and determined to be lead-free in accordance with the regulations are not subject to the provisions. Also exempt is work done by an owner in an owner-occupied home where there is no child under 6 and no pregnant women.

The regulations require that the entity performing the work must be EPA certified. If the owner is performing the work personally, they must become certified. The EPA accredits training providers.

The rules regarding lead-based paint disclosure by landlords has not changed. A disclosure statement must be given to all prospective tenants prior to their tenancy unless a certified inspector has declared the structure to be lead free. But any contractors or owners performing renovations of housing built prior to 1978 must now comply with the new construction rules.