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Trade Names vs. Fictitious Names: How to Best Protect Your Brand

Author By Casey A. JonesPosted on

What’s in a name?

In the legal context, a business name is much more than the words on a website or the logo on the company merchandise. It is distinct identifier that implicates a company’s potential liability, right to exclusivity, and reputation.

For example, corporations and limited liability companies are required to have certain specific words in their business name, such as “Inc.,” “Company,” “Co.,” “Corp.,” or “LLC.”  This tells the general public how the company is structured and that, absent certain limited exceptions, the owners of the company are not liable for the company’s debts.

However, many companies also have “DBAs” or names under which they “do business as.” These names are not the formal name of the company, can be used to “rebrand” or expand upon an existing corporation or LLC, and generally fall into two categories: trade names and fictitious names. While these two categories are colloquially used interchangeably, they are not the same.

A trade name is “a name used in business or trade to designate the business of the user and to which the user asserts a right to exclusive use.” Ohio Rev. Code 1329.01(A)(1) (emphasis added). A fictitious name is “a name used in business or trade that is fictitious and that the user has not registered or is not entitled to register as a trade name.” Ohio Rev. Code 1329.01(A)(2). A fictitious name cannot include the name of any entity registered under the Ohio Revised Code, such as a corporation, LLC, or registered trade name and does not carry a right of exclusivity.

The incentive for registering a trade name is, typically, the right to exclusive use. Because a fictitious name does not include the right of exclusive use, the primary reason to register a fictitious name, if at all, is to be able to file and maintain a cause of action under the fictitious name. See Ohio Rev. Code 1329.10(B).

To register a trade name, the proposed name cannot include certain words and abbreviations such as “company,” “corp.,” etc., and must be “distinguishable” from any other names within the Ohio Secretary of State’s records. Ohio Rev. Code 1701.05(A). Importantly, a name is not considered “distinguishable” merely because it includes differing punctuation, abbreviations, or a different tense or number of the same word. Ohio Rev. Code 1701.05(B).

If another person or business attempts or purports to use a name that is the same as, or not readily distinguishable from, a registered trade name, such person or business may be liable for trademark infringement.

“[A] party [is] entitled to protection against the use, by another, of its established trade name and trademark in such manner as to mislead the trade and the public to believe that when they are dealing with one, they are dealing with the other, or in such manner that such use results, or may result, in appropriation of the good will, a property right of the other.” Patio Enclosures, Inc. v. Borchert, 8th Dist. No. 40592, 1980 Ohio App. LEXIS 12190, 1980 WL 354611, *2 (May 15, 1980).

“The touchstone of liability [for trademark infringement] is whether the defendant’s use of the disputed mark is likely to cause confusion among consumers regarding the origin of the goods offered by the parties.” Daddy’s Junky Music Stores, Inc. v. Big Daddy’s Family Music Ctr., 109 F.3d 275, 280 (6th Cir. 1997). In determining whether a likelihood of confusion exists, a court will typically weigh the following eight factors: (1) strength of the senior mark, (2) relatedness of the goods or services, (3) similarity of the marks, (4) evidence of actual confusion, (5) marketing channels used, (6) likely degree of purchaser care, (7) the intent of defendant in selecting the mark, and (8) likelihood of expansion of the product lines. Id., citing Frisch’s Restaurants, Inc. v. Elby’s Big Boy, Inc., 670 F.2d 642, 648 (6th Cir. 1982); see also Interactive Prods. Corp. v. a2z Mobile Office Solutions, Inc., 326 F.3d 687, 694 (6th Cir.2003).

The right to trade name exclusivity can be particularly useful in protecting your brand—or, in other words, your company’s reputation. If another company is using a substantially similar name, which is likely to cause confusion among consumers and is, for example, acting illegally, not providing quality products or services, treating its customers poorly, etc., that is not conduct that you want to be confused or associated with your brand. Having the legally protected right to prevent such a bad actor from using your company name (or one that is not readily distinguishable) can be a powerful tool, especially considering the relative simplicity and low cost of registering a trade name.

For assistance forming, restructuring, and/or protecting your business, or to enforce your rights with regard to your company or trade name, please contact Attorney Casey A. Jones at (513) 943-5673 or Casey@FinneyLawFirm.com.

Why the type of deed matters when negotiating and closing on the sale of real estate

Author By Casey A. JonesPosted on

Most legitimate real estate contracts, both residential and commercial, include a provision dictating the specific form of deed that will be exchanged between the Seller and Buyer at Closing. However, particularly for relatively inexperienced parties, this can seem like a “throw away” provision that doesn’t hold a great deal of weight. This could not be more wrong.

In Ohio, we generally see four different types of deeds: (i) a general warranty deed, (ii) a limited warranty deed, (iii) a quit claim deed, and (iv) a fiduciary deed. The type of deed selected to transfer the property has implications concerning the title conveyed from Seller to Buyer and the Seller’s potential liability for any title defects moving forward, often independent of any owners’ policy of title insurance (if one exists).

Before diving into these different types of deeds, perhaps the more basic question to understand is: What is title? Title to real estate relates to any rights or claims to a property. It encompasses the right to own, possess, use, control, enjoy, dispose/sell, or exclude others. Buyers seek as clear of title as possible and as many guarantees of the same as the Seller is willing to give. On the other hand, the Seller should be mindful of the promises it is making based on the type and language of the deed.

General Warranty Deeds

Perhaps the most common form of deed, especially in the residential context, is a general warranty deed. The inclusion of the words “general warranty” constitutes a promise by Seller that:

  • Seller is the fee simple owner of the property;
  • The property is free from all encumbrances;
  • Seller has the right to sell the property; and
  • Seller will defend Buyer relative to each of these promises, forever, against the lawful claims or demands of all persons.

Ohio Rev. Code 5302.06. Thus, for example, if a property is transferred with general warranty covenants, and someone later claims to have an easement over the property, the Seller has an affirmative duty to defend the Buyer’s title, which also includes payment of Buyer’s attorneys’ fees. You can read more on the duty to defend here: https://finneylawfirm.isoc.net/ohio-real-estate-law-triggering-duty-defend-general-warranty-deed-claim/.

This is obviously a tall order for two relatively unassuming words and therein lies the importance of understanding what they mean and their implications.

Limited Warranty Deeds

When transferring a property via limited warranty deed, the Seller is promising to convey as good of title as he or she received. Essentially, this means Seller is promising that Seller did not do anything to impair or encumber the title to the property. However, it is not as broad as a general warranty deed which covenants the same relative to periods both prior to and during Seller’s ownership of the property.

Fiduciary Deed

A fiduciary deed transfers property from a Seller acting as—you guessed it—a fiduciary (e.g., a trustee, executor of an estate, etc.). This connotes that the Seller is not the direct owner but is selling the property on behalf of another person or entity, that they are duly appointed to serve in that capacity, that they have legal authority to sell the property, and that they have followed all statutory requirements. A fiduciary deed does not make any warranties relative to title. Otherwise, fiduciaries could face liability relative to title defects for property that isn’t even directly theirs, resulting in a chilling effect where individuals would seldom wish to serve in such capacity for fear of such repercussions.

Quit Claim Deed

A Quit Claim Deed, likewise, makes no warranties or representations relative to the title of the property being transferred. It is somewhat akin to an “as is” clause but, instead of the physical condition of the property, it relates to the title.

Differences between the Contract and Deed

Scenario 1: Seller makes broad representations in the Contract to Purchase or Purchase and Sale Agreement (PSA) that he or she is conveying good, clear title free from all encumbrances, but then there is only a limited warranty deed.

Scenario 2: Seller is skittish and does not wish to make any representations as to title but will otherwise agree to convey title to the property using a general warranty deed.

Unless the Contract or a particular provision therein specifically states that it will survive Closing then, at the Closing, the Contract merges with the Deed. This means that any conflicts as between the Contract and the Deed are resolved in favor of the Deed and what the Deed says is what controls. In Scenario 1 above, the Seller would only be liable, and the Buyer would only have recourse against the Seller for, any defects that occur during Seller’s ownership. In Scenario 2 above, Buyer could concede on requiring representations in the Contract because the general warranty deed covenants have the same effect and those are what will control should an issue arise post-closing. These are but a couple of examples illustrating the practical effects of the type of deed used to convey property and the ways in which the type of deed can impact contract negotiations and ongoing liability as well.

In any event, we always recommend that Buyers purchase an owner’s policy of title insurance (this is in addition to the lender’s policy, which only protects the lender). This is especially true where the Buyer is taking title via limited warranty, fiduciary, or quit claim deed, as their recourse against the Seller will be extremely limited, if not non-existent.

For help negotiating the purchase or sale of real estate or understanding the terms thereof, including the deed provisions, please reach out to Attorney Casey A. Jones at (513) 943-5673 or Casey@FinneyLawFirm.com. We are happy to assist clients who are buying or selling with or without a real estate agent; however, if you do have an agent, we will work alongside your agent to ensure the most appropriate and comprehensive representation to protect your interests.

 

Eminent Domain and Transportation/Utility Easements

Author By Casey A. JonesPosted on

Scenario:

You own a home or commercial property, and you receive a letter from the Department of Transportation, Duke Energy, or another utility provider seeking a temporary or permanent easement over your property for purposes of constructing a utility pole, water lines, traffic signals, etc.

Do you have to agree? What are your options?

The reality is that if a governmental or public utility company wants an easement over your property, they will – in almost every circumstance – get it, through litigation if all else fails. However, that does not mean that you have to agree to everything they are asking of or offering to you.

The easement sought may be a “taking” (on a temporary or permanent basis) of the right to use your property as you wish, the right to access certain areas of your property, or of parking spots for your customers. It could mean lengthy construction that may deter customers or make it difficult to see or access your business. Each of these situations have a value, tangible or otherwise, to you as the property owner.

Given the likelihood of the requesting entity eventually obtaining the easement (i.e., the right to use the property) that it seeks, via eminent domain proceedings or otherwise, attempting to fight the “taking” through litigation may or may not be the best option or strategy for you. If you have received one of these letters or “offers,” we would be happy to discuss your options and whether there are certain terms that we should focus on for purposes of negotiation. We have had great success with negotiating compensation (netting the client substantially more, even accounting for any legal fees) and/or addressing concerns over potential damage to the property, ensuring that the client is afforded adequate protections so that they will be made whole in such event, among other concerns.

Temporary or permanent easements can have a lasting impact on you, your property, and your business, and it is important to make sure you are covering your bases in negotiating reasonable and favorable terms, ensuring as much protection as possible, and yes – receiving adequate compensation. We understand this, as do the companies seeking the easement. They are generally receptive to negotiating the terms so that the parties can have an amicable agreement in place to allow the necessary improvements, while minimizing any adverse effects to the owners’ ability to use and prosper from their property. However, it helps to have an experienced attorney on your side to help advise you and present your negotiated terms in a manner most likely to be effective.

For assistance in assessing your options or negotiating easements, please contact Casey A. Jones, Esq. at casey@finneylawfirm.isoc.net or (513) 943-5673.

What do all of these contingencies mean? Strategies for buying a home in a competitive market without abandoning all reason

Author By Casey A. JonesPosted on

With interest rates dropping, the housing market is becoming even more saturated with buyers. Practically speaking, that means that buying a home has, once again, become super competitive and provisions that were once a “given” in Contracts to Purchase are now being eliminated in favor of making the offer more appealing to sellers, including the removal of financing, appraisal, and inspection contingencies.

But what is not always understood is what happens if these contingencies are removed and things go south.

I have had at least three clients or potential clients call me in the past month with varying levels of “buyers’ remorse.” Either they had simply changed their minds, or they had agreed to waive the inspection contingency altogether, or they had agreed to pay significantly more than the property’s appraised value – and, now, they wanted to walk away. Each of these clients were under the understandable, but mistaken belief that they could simply forfeit their earnest money and everyone would go their separate ways. Unfortunately, it is not so simple.

Financing Contingency

This contingency allows you to justifiably terminate a Contract if you are unable to obtain financing. If you are getting a loan/outside financing (versus paying cash for the property), you NEED to keep this contingency. This protects you in the event you lose your job, or experience a significant change in your income or financial situation. Buyers are generally required, however, to apply for financing within a set number of days and to act in good faith in attempting to obtain financing. In other words, if you experience a change of heart, ghosting your lender so that they deny your financing is likely not a feasible strategy.

Appraisal Contingency

We most often see this contingency removed in cash purchase situations. When using outside financing, your lender will almost certainly require that the home appraise for the purchase price or for the purchase price less the amount you are planning to put “down” (i.e., pay out of pocket at closing). Buyers (in both cash and financed transactions) sometimes add provisions that they will pay $“x” or “x”% over the appraised value to make their offer more competitive. What this means is that the Buyer agrees to bring the difference between the appraised value and amount for which the property was required to appraise to closing. If this contingency is removed entirely or amended to allow for a certain amount above the appraised value, the buyer may be contractually obligated to pay significantly more than the fair market value of the home, resulting in a negative equity situation.

Inspection Contingency/”As-Is” Purchase

Removal of the inspection contingency is, by far, the most popular among buyers seeking to make their offers more competitive. This can be done in a few ways: 1) designating the purchase “as-is” or stating that inspections are for “informational purposes only,” 2) forfeiting the right to terminate based on inspections, and 3) waiving inspections altogether.

  • An as-is purchase does not necessarily mean that you waive inspections. It can also mean that you are performing inspections but that you will not seek repairs or a price reduction from the seller based on what you may find during inspections (or that you will only seek repairs/a reduction based on defects or conditions estimated above a certain dollar value). Under an “as-is” purchase or when inspections are for “informational purposes only,” you can still maintain the right to terminate based on the inspections. However, the contract language should be clear as to what is intended as the above terminology can be somewhat ambiguous.

 

  • The inverse of No. 1 above, buyers sometimes agree that they will perform inspections but they will not terminate based on the inspections. Instead, they will allow the seller the opportunity to “fix” any defective conditions. Candidly, this can create a whole host of issues. For example, what happens if there is a dispute between seller and buyer as to whether the issue was fixed or fixed properly? What if the seller refuses to drop the price or fix a condition, or disagrees that it is defective? Under a prototypical inspection contingency, the buyer could terminate in this situation (i.e., where no agreement can be reached between the parties) but, here, the buyer has ostensibly forfeited its right to terminate. While there could be defenses to the enforceability of such forfeiture, it could also be quite expensive to litigate that issue to conclusion.

 

  • Finally, buyers in a competitive market often waive inspections altogether. This means they will not perform any due diligence as to the physical condition of the property. While this can allow for a faster closing and obviously sounds great to the seller, it is very risky if things go awry. Under such circumstance, the buyer will have essentially no recourse if they discover a defect after closing, the exception to this harsh result being if they can prove that (a) the seller knew about the defect, (b) the buyer did not know about the defect, (c) the defect would not have been discovered had the buyer performed reasonable inspections (e., it was a “latent” defect and not an open and obvious one), (d) the seller did not disclose the defect on the Residential Property Disclosure Form or otherwise misrepresented the same, and (e) the buyer suffered damages as a result. These are the elements of a cause of action for fraud and are not easily proven. Further, unless the cost of remedying the defect is at least $30-40,000+, it is often not financially worthwhile to pursue given the legal/expert fees and expenses. A buyer can seek reimbursement for its attorney’s fees upon satisfying the elements of fraud, but such reimbursement can never be fully guaranteed.

As noted above, there are a number of ways that each of these contingencies can be crafted, limited, or even removed and the resulting implications can vary widely. This is why it is so critical to consult with an attorney before agreeing to deviate from standard language. If you are found to be in breach of the contract or decide to “walk away” without legally adequate justification, your liability is often not limited to your earnest money – in fact, it can add up to tens, if not hundreds, of thousands of dollars.

There are other options and terms that can be included in an offer to “sweeten the deal” for sellers and help get your offer noticed, even in a competitive market, without jeopardizing the rights and protections that are so vital to buyers.

We can help make sure you understand the potential consequences of the contract language and even draft or revise an offer to make sure you are protected, whether you are working with an agent or purchasing a home on your own. Making a competitive offer does not have to mean taking on substantial additional risk.

Please reach out to Casey A. Jones, Esq. at casey@finneylawfirm.isoc.net or (513) 943-5673 for assistance.

Small Businesses now required to report ownership to FinCEN

Author By Casey A. JonesPosted on

*** PLEASE CAREFULLY READ ***

If you are an owner or officer of any closely-held corporation or limited liability company (or any other business entity or serve as a fiduciary of any entity) – or intend to be, you need to carefully read about these new federal regulations that mandate disclosure of the ultimate beneficial ownership of that entity – the consequence being as much as a $500 per day fine for non-compliance.

For small business owners:

  • We strongly recommend attention to this matter and compliance.
  • If you have a long-dormant LLC or corporation, now may be a time to consider dissolving the same to avoid filing requirements under this regulation.

On January 1, 2024, the Corporate Transparency Act (“CTA”) took effect, requiring non-exempt entities (both foreign and domestic) that are registered to conduct business in the United States to submit certain information regarding their “beneficial ownership” to a confidential database housed within the Financial Crimes Enforcement Network (“FinCEN”).  Unless exempt, the CTA affects:

  • Corporations, LLCs, and other similar entities created by the filing of a document with the Secretary of State, whether formed prior to or after the effective date of January 1, 2024; and
  • Corporations, LLCs, and other entities formed under the laws of a foreign country but registered to do business in any U.S. State, whether formed prior to or after the effective date of January 1, 2024.

These non-exempt entities are referenced in the CTA as “Reporting Company(ies).” The Reporting Companies required to submit information under the CTA are not just limited to corporations and LLCs, but also include limited liability partnerships, limited partnerships, and business trusts.

How do I know if my entity is exempt?

FinCEN recognizes 23 exemptions to the CTA’s BOI reporting requirement.

Please note that these exemptions contain many nuances. If you are unsure whether your entity may qualify for an exemption, we are happy to help you in your evaluation. Additionally, FinCEN’s Compliance Guide (linked below) contains a wealth of information to consider when making this determination.

https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf

We anticipate the most common exemption for our clients will be No. 21 (large operating company).  Large operating companies are those that (a) employ more than 20 full-time employees (30+ hours per week) within the United States, (b) maintain a physical location with an operating presence within the United States, and (c) can demonstrate over $5 million in gross sales or receipts via federal tax return or other applicable IRS form.

What information am I required to disclose?

Reporting Companies are required to complete and submit a form detailing their “beneficial ownership information” or “BOI.” A beneficial owner is any individual who, directly or indirectly, (a) exercises substantial control over the Reporting Company, or (b) owns or controls at least 25% of the ownership interests of the Reporting Company (“Beneficial Owner”). In other words, FinCEN wants to know who owns and controls entities operating within the United States at an individual level.

  • Examples of a beneficial owner who exercises substantial control of a Reporting Company include, without limitation:
  • Officers and directors (or those who exercise the authority of an officer or director), g., CEO, CFO, COO, President, Treasurer, etc.;
  • Individuals with the authority to appoint or remove officers or the board of directors;
  • Individuals with ownership or control of a majority of the voting power or voting rights of the Reporting Company;
  • Individuals with rights relative to the Reporting Company associated with any financing arrangement or interest in a company;
  • Individuals who exercise control over one or more intermediary entities that separately or collectively exercise substantial control over a Reporting Company; and
  • Individuals who direct, determine, or have substantial influence over important decisions made by the Reporting Company.
  • Examples of an ownership interest include, without limitation:
  • Individuals with an interest in the Reporting Company by virtue of equity, stock, or similar instrument; preorganization certificate or subscription; or transferable share of, or voting trust certificate or certificate of deposit for, an equity security, interest in a joint venture, or certificate of interest in a business trust;
  • Individuals with any capital or profit interest in an entity; and
  • Individuals who have an “option” relative to any of the foregoing.

Minors, individuals acting solely as employees, and those whose only interest in the Reporting Company is via a future right of inheritance are NOT considered beneficial owners.

In determining the percentage of ownership interest in corporations, entities taxed as corporations, and other entities that issue shares of stock, an individual’s percentage of ownership interest is the greater of (a) the total combined voting power of all classes of ownership interests of the individual relative to the total outstanding voting power of all classes of ownership interests entitled to vote, or (b) the total combined value of the ownership interests of the individual relative to the total outstanding value of ownership interests.

For entities that issue capital and profit interests (including entities treated as partnerships for tax purposes—e.g., many one or two-member LLCs), the individual’s total capital and profit interests are compared to the total outstanding capital and profit interests of the Reporting Company.

The person(s) who prepares and/or files the BOI Report is referred to as the “Company Applicant.” This can be an owner or representative of the Reporting Company, such as an attorney. Each Reporting Company will need to provide the name, residential street address, and a copy of a photo ID for each of its Company Applicants AND each of its beneficial owners.

A copy of the BOI Report template can be found here: https://boiefiling.fincen.gov/fileboir.

What is the deadline for submitting the BOI Report?

In short, the deadline for Reporting Companies to submit their BOI Reports differs depending on when the Reporting Company was formed.

  • Reporting Companies formed prior to January 1, 2024 must submit their BOI Reports by January 1, 2025. However, we recommend getting these reports submitted sooner rather than later in case the FinCEN database experiences any technical issues due to increased traffic toward the end of 2024.
  • Reporting Companies formed on or after January 1, 2024 but prior to January 1, 2025 are required to submit their BOI Reports within 90 days of formation (the date on which they receive confirmation from the Secretary of State in most instances).
  • Reporting Companies formed on or after January 1, 2025 are required to submit their BOI Report within 30 days of formation.
  • Any update or change to a Reporting Company’s BOI must be submitted within 30 days of when the change occurs.

What happens if my Reporting Company does not submit its BOI Report within the required timeframe?

FinCEN has provided that:

The willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required BOI report may be held [personally] accountable for that failure.

Furthermore, any individual who refuses to provide information required to be included in the BOI Report, or who provides false information, may also be subject to civil and/or criminal penalties.

Next Steps

If your entity is a Reporting Company created prior to January 1, 2024, you have time. However, you should be compiling the necessary documents and information required to complete the BOI Report. Finney law Firm is offering BOI Consultations, during which time we will (a) help you determine whether your entity is a Reporting Company or whether an exemption applies, (b) hep you identify your company’s beneficial owner(s), and (c) submit your Reporting Company’s BOI Report to FinCEN as a Co-Company Applicant.

If your entity was formed on or after January 1, 2024, your deadline may be quickly approaching, and it is extremely important that you file the BOI Report and/or contact us right away.

Please contact the business law attorney with whom you work at Finney Law Firm or Casey Jones (513) 943.5673 for filing compliance and for more information.

Knowing who to sue: Pre-Suit Discovery vs. John Doe Defendants in Ohio

Author By Casey A. JonesPosted on

It’s easy to assume that, in order to file a lawsuit, you must necessarily know who you are suing and what you are suing for. This is only partially true.

It is actually not at all uncommon for a party to know that they have been wronged in some manner and know that they have viable legal claims as a result of that wrong, yet not know the identity of the party from whom to seek redress. When this situation arises, there are a couple of options.

Doe Defendants

Civ.R. 15(D) states:

“When the plaintiff does not know the name of a defendant, that defendant may be designated in a pleading or proceeding by any name and description. When the name is discovered, the pleading or proceeding must be amended accordingly. The plaintiff, in such case, must aver in the complaint the fact that he could not discover the name. The summons must contain the words ‘name unknown,’ and a copy thereof must be served personally upon the defendant.”

These unknown defendants will often be identified as “John Doe” or “Jane Doe.”

Petition for Pre-Suit Discovery

On the other hand, Ohio law provides with a process by which they can file a “Petition for Discovery,” which is filed like a complaint but, practically speaking, is more akin to a motion asking the court to order another party to produce certain documents or divulge certain information in response to an interrogatory.

The pre-suit discovery process is governed by R.C. 2317.48, which states:

When a person claiming to have a cause of action or a defense to an action commenced against him, without the discovery of a fact from the adverse party, is unable to file his complaint or answer, he may bring an action for discovery, setting forth in his complaint in the action for discovery the necessity and the grounds for the action, with any interrogatories relating to the subject matter of the discovery that are necessary to procure the discovery sought.

Ohio courts have clarified that “R.C. 2317.48 is available to obtain facts required for pleading, not to obtain evidence for purposes of proof.” Marsalis v. Wilson, 149 Ohio App. 3d 637, 642 (2d Dist. 2002). In other words, this is not a free pass for a party to determine whether he or she has a claim or weigh how strong it may be; it is a limited opportunity to ascertain facts that must be alleged in a proper pleading relative to a claim for which the party already has a good faith basis. In nearly every instance, the missing information being sought is the identity of a potential party.

Civ.R. 34(D) further governs this process with regard to requests for documentation. See generally Huge v. Ford Motor Co., 155 Ohio App. 3d 730 (2004). “R.C. 2317.48 and Civ.R. 34(D) work in tandem to govern discovery actions.” Id., at 734. In order to take advantage of this Rule, the party must first make reasonable efforts to obtain the discovery voluntarily. The petition must include:

(a) A statement of the subject matter of the petitioner’s potential cause of action and the petitioner’s interest in the potential cause of action;

(b) A statement of the efforts made by the petitioner to obtain voluntarily the information from the person from whom the discovery is sought;

(c) A statement or description of the information sought to be discovered with reasonable particularity;

(d) The names and addresses, if known, of any person the petitioner expects will be an adverse party in the potential action;

(e) A request that the court issue an order authorizing the petitioner to obtain the discovery.

Civ.R. 34(D)(1). The court will issue an order for the discovery if it finds:

(a) The discovery is necessary to ascertain the identity of a potential adverse party;

(b) The petitioner is otherwise unable to bring the contemplated action;

(c) The petitioner made reasonable efforts to obtain voluntarily the information from the person from whom the discovery is sought.

Civ.R. 34(D)(3). Note that, under Civ.R. 34(D), that the discovery is needed “to ascertain the identity of a potentially adverse party” is not just a practical effect but, rather, a requirement of the Rule.

Which is best?

If a party can reasonably identify and is merely missing the name of the adverse party or parties or believes they can obtain information from the unnamed parties via discovery once the action is filed, naming a “Doe Defendant” under Civ.R. 15(D) is likely the most efficient route. However, if additional information or documentation is necessary to even begin to identify the adverse party, an action for pre-suit discovery may be warranted.

Statute of Limitations Implications

One common misconception is that an action for pre-suit discovery under R.C. 2317.48 and/or Civ.R. 34(D) or, alternatively, naming a Doe Defendant somehow preserves or tolls the statute of limitations until the party can be identified and the ultimate action (or amended action) brought against them. This is not the case. In 2010, the Supreme Court of Ohio issued its decision in Erwin v. Bryan, holding that it could not, “through a court rule, alter the General Assembly’s policy preferences on matters of substantive law, and Civ.R. 15(D) therefore may not be construed to extend the statute of limitations beyond the time period established by the General Assembly.” 125 Ohio St. 3d 519, 525 (2010). “Civ.R. 15(D) does not authorize a claimant to designate defendants using fictitious names as placeholders in a complaint filed within the statute-of-limitations period and then identify, name, and personally serve those defendants after the limitations period has elapsed.” Id., at 526.

While Erwin does not make as explicit of a finding as to R.C. 2317.48 and/or Civ.R. 34(D), its inclusion of these rules in the same discussion, as well as the nature of such rules (contemplating an action exclusively for discovery and not naming the adverse party or parties, as they cannot be ascertained without the same) strongly suggests an identical result. Indeed, the statute of limitations is intended to encourage parties to be diligent in investigating their claims and, if the identity of an adverse party is in question, the spirit (and, likely, the letter) of the law would require such party to initiate a discovery action with sufficient time to obtain the discovery and then bring the ultimate action.

 

 

How Recent Sales Affect Your Property Taxes

Author By Casey A. JonesPosted on

Most property owners recognize that the real estate taxes they pay are directly tied to the county auditor’s assessed value of their property. What most do not understand, however, is how those values are determined. In short, auditors in Ohio are tasked with reappraising all real estate in the county ever six years, with “updates” every three years. R.C. 5715.24.

As one might imagine, this is not an easy task, especially in more populous counties. Auditors use a variety of methods and technologies to assist them with appraising and updating the values in their counties. One of the most common and most accurate methods utilized is an examination of recent sales. This does not refer to recent sales in the area (i.e., comparable sales or “comps”)—that is a different method—but, rather, a sale of the actual subject property.

In Ohio, a recent sale of the subject property is “rebuttably presumed to be the true value and represents the best evidence of true value.” Amherst Marketplace Station, LLC v. Lorain Cty. Bd. of Revision, 2021-Ohio-3866, ¶ 10 (emphasis added), citing Terraza 8, L.L.C. v. Franklin Cty. Bd. of Revision, 150 Ohio St.3d 527, 535 (2017). See also R.C. 5713.03. In other words, “[t]he use of a recent arm’s-length sale price is [] the favored means of determining value for purposes of taxation.” Amherst, at ¶ 10. However, this presumption is subject to rebuttal via evidence that the sale was either (a) not at arm’s length or (b) not recent. Id.

What is an “arm’s length” transaction?

For purposes of R.C. 5713.03, an “arm’s length sale” is “a voluntary sale without compulsion or duress, that generally takes place in an open market where the parties act in their own self-interest.” Buck Warehouses, Inc. v. Bd. of Revision, 2d Dist. Montgomery No. 2007-Ohio-2132, ¶ 13, citing Walters v. Knox City Bd. of Revision, 47 Ohio St.3d 23, 25 (1989). Put simply, the inquiry is: What would a willing buyer pay to an unrelated, willing seller for this property on the open market? Of course, the presumption makes sense in this context—obviously, a buyer would pay what a buyer did pay.

What is considered a “recent” sale?

The recency question is a bit more complex. The Ohio Supreme Court appears to say that courts (or taxing authorities) are not “compelled” to presume the recency of a sale that occurs more than 24 months before the tax lien date. See generally Akron City Sch. Dist. Bd. of Educ. v. Summit County Bd. of Revision, 139 Ohio St. 3d 92 (2014). The “tax lien date” is most easily understood as January 1 of the tax year in question. While the Akron case appears to set a “bright-line rule” as to how recent a sale must be in order to be afforded the true value presumption, the Court qualified it by saying that recency should not be presumed relative to a sale that occurred more than 24 months before the tax lien date, “when a different value has been determined for that lien date as part of the six-year reappraisal.” So, if the auditor determines that a value other than the sale price applies, then that sale price (more than 24 months old) cannot be used to create a presumption of the true value of the property.

Regardless of whether a prior sale is sufficiently recent to trigger a presumption as to the value of the property, even older sales are important to the determination of the true value. The Ohio Supreme Court has held that, even where sales are too remote to be afforded a presumption of value, they are “some indication of true value” and “should [be] taken into account.” Dublin-Sawmill Properties v. Franklin County Bd. of Revision, 67 Ohio St. 3d 575, 576-77 (1993) (emphasis added). Similarly, the First District Court of Appeals has held that taxing authorities act appropriately in “considering evidence of [a] sale . . . in making [their] determination of value” even where the sale was not sufficiently recent to create a presumption of value. Othman v. Bd. of Educ., 1st Dist. Hamilton Nos. C-160878, C-170187, 2017-Ohio-9115, ¶ 22.

What does all of this mean for property owners?

Practically speaking, this body of law affects the average property owner in two ways: (1) preparing for a potential increase in property taxes relative to recently purchased property, and (2) knowing the available options relative to tax appeals.

The first scenario is perhaps most common in the current, booming real estate market. Consider the following:

You purchased a home in May 2019 for a purchase price of $350,000.00. The county auditor’s assessed value of the home was $180,000.00 as of the date you purchased. In 2020, the auditor increases your value to $350,000.00.

(Side Note: Many homeowners are pleased when the auditor increases the value of their home because they think it corroborates the investment they made and demonstrates that they now own a more valuable piece of property. While this makes sense, it is also important to consider that this value is what sets the amount of property taxes for which the owner will be responsible. In short, the higher the value, the higher the taxes.)

In the above example, your property taxes will nearly double if the auditor catches the sale and adjusts the value to the sales price. This is not inherently unfair. Notwithstanding the rising sale prices, that is what you paid for the property so you must have thought it was worth that. But it is important that buyers are aware of this near inevitability, go into the transaction with eyes open, and have the means to properly deal with its implications.

The second scenario will likely be less common with the recent passing of HB 126 (significantly restricting school districts’ ability to file tax complaints seeking an increase in the value and, thus, taxes paid by property owners in their districts).

Your property is and has been valued between $430,000.00 and $450,000.00 from 2008-2018. You bought the property on the open market for $515,000.00 in 2018. In 2019, you receive a notice in the mail that the value is being increased to $515,000.00 (to match the sale price). Three years later (in 2022), you receive a similar notice increasing the value to $800,000.00. You haven’t made any material improvements to the property. What are your options?

Here, this is an arm’s length transaction. However, you purchased the property nearly three years prior to the “tax lien date” (Remember: 2022 tax bills relate to Tax Year 2021, so the “tax lien date” is 1/1/2021). Under the precedent set in the Akron case, you aren’t entitled to a presumption of value based on the sales price. However, the sale price is some evidence of value that any reviewing authority should take into account. These considerations are important in deciding whether to file a Complaint with the Board of Revision to challenge your value.

Our firm’s experienced attorneys represent real estate investors, property owners, and tax payers relative to these issues and can help you navigate the best option(s) for your individual circumstance, including advising as to whether and when you should challenge your property values and formulating a strategy to give you the best possible chance of success. We’d love to work with you.

The Intersection Between “Omitted” Property Taxes and TOD Affidavits

Author By Casey A. JonesPosted on

Pursuant to R.C. 5713.20(A), “[i]f the county auditor discovers that any building, structure, or tract of land or any lot or part of either, has been omitted from the list of real property, the auditor shall add it to the list[.]” This “omitted property” includes property that was incorrectly, though in earnest, subjected to an exemption. However, it does not stop there.

The auditor is also required to compute and assess the taxes for preceding years during which the property was incorrectly omitted or exempted, up to five years, unless the property was transferred in the meantime. For purposes of this provision, “in the meantime” means before the omitted tax is actually assessed. If the property was transferred, the assessment can only relate to the time period after the transfer – i.e., the new owner will not be responsible for omitted taxes that would have accrued prior to its ownership. This should encourage a new or prospective owner to evaluate whether and how the property is taxed, make sure any exemptions, indeed, apply or that such use will continue, and otherwise prepare themselves for the likelihood of an increased tax.

As for property taxes accrued prior to a transfer of ownership, these are typically prorated at the closing (as for arm’s length transactions for value). But what happens if there is no closing?

Consider the following scenario:

Father owns property that has, for years, been subject to a property tax exemption. Father is ill and wants to avoid probate upon his death, so he executes a Transfer on Death (“TOD”) Affidavit, which will allow the property to transfer to Daughter without the need to open an estate. Upon Father’s Death, the property transfers to Daughter. However, unbeknownst to Daughter (and, perhaps, even unbeknownst to Father), an “omitted tax” was assessed two weeks before Father’s death and, thus, prior to the point in time that the property actually transferred to her.

The omitted tax was assessed because the auditor found that the property was improperly exempted or the exemption no longer applied for tax years preceding Father’s death. Because the omitted tax was assessed prior to the actual transfer of the property (remember, it did not transfer until the time of Father’s death), the “unless in the meantime the property has changed ownership” exception to R.C. 5713.20 does not apply. However, property tax assessments “run with the property,” meaning that Daughter is now responsible for, essentially, paying back up to five years’ worth of tax savings that Father realized as the result of the improper exemption (through no fault of his own), even though Daughter had no vested interest in the property during the period for which the exemption was in effect. If Daughter does not pay the omitted tax, she risks tax liens and/or foreclosure of the property. These omitted taxes can pretty quickly add up to tens of thousands of dollars, even before non-payment penalties.

In the case of an omitted tax, timing is of the utmost importance – e.g., when the omitted tax was assessed relative to when the property changed ownership. This may seem like a one-off case or unlikely occurrence. However, TOD affidavits are becoming an increasingly popular method of avoiding probate and, often, the TOD beneficiaries take little interest in the property until such time as it is to transfer to them. The lesson: be vigilant. The county auditors’ websites publish information relating to tax assessments and payments. The knowledge of whether a property in which you may, at some future time, have an interest is literally a few mouse clicks away. And if you need help, we have attorneys who are familiar with these issues relative to each of the tax, real estate, and probate implications who can assist you.

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 )

Ohio Real Estate Law: Enforceability of “liquidated damages” provisions and how they differ from earnest money

Author By Casey A. JonesPosted on

Earnest Money vs. Liquidated Damages

As Chris Finney has addressed extensively in prior blog entries, “a common misunderstanding of parties to a purchase contract is that the escrow money is some sort of measure of or limitation on damages for the buyer’s breach, or, conversely, that the return of the earnest money ‘cures’ the seller’s breach and is the limitation on his damages as well. However, unless the real estate purchase contract specifically calls out either of those limitations, neither of those propositions is true.” In other words, an earnest money deposit is in no way representative of the amount of “damages” caused by a breach of the contract unless the parties to that contract say it is.

Consider the following example: A Buyer contracts to purchase a home for a purchase price of $350,000. Buyer deposits $5,000 in earnest money. Buyer decides to buy a different home instead and breaches the contract to purchase the first home. The Seller of the first home has a tough time selling it after Buyer backs out but, eventually, finds someone else to buy the home. However, the new buyer will only pay $320,000. Seller can typically seek damages from Buyer based on the difference in the purchase price, i.e., $30,000, because that is the amount that places Seller in the position he would have been but for Buyer’s breach. Seller is NOT limited to merely collecting the $5,000 earnest money.

So then what does the phrase “unless the parties to the contract say it is” really mean? How can the parties to a contract predetermine what the damages will be if one of them breaches?

A liquidated damages clause is a contractual vehicle through which the parties can stipulate – in advance – the amount of damages due and owing should one of them breach the contract. It can be a fixed amount or a percentage of the total contract price. Relative to real estate contracts, particularly in the commercial context, parties will sometimes agree, in the purchase contract, that the earnest money will act as liquidated damages in the event of breach. Thus, while liquidated damages are not necessarily equal to the amount of earnest money deposited, they can be if the parties so agree.

Are liquidated damages clauses enforceable?

As the Ohio Supreme Court has long held, “parties are free to enter into contracts that contain provisions which apportion damages in the event of default.” Lake Ridge Academy v. Carney, 66 Ohio St. 3d 376, 381 (1993). However, many parties who later breach a contract after having agreed to such a provision unsurprisingly attempt to defeat the same by arguing that the provision to which they agreed is somehow unenforceable – most often, by arguing that the clause operates a “penalty.”

Ohio courts utilize a three-part test to evaluate whether a liquidated damages clause is, indeed, enforceable.

Where the parties have agreed on the amount of damages, ascertained by estimation and adjustment, and have expressed this agreement in clear and unambiguous terms, the amount so fixed should be treated as liquidated damages and not as a penalty, if the damages would be (1) uncertain as to amount and difficult of proof, and if (2) the contract as a whole is not so manifestly unconscionable, unreasonable, and disproportionate in amount as to justify the conclusion that it does not express the true intention of the parties, and if (3) the contract is consistent with the conclusion that it was the intention of the parties that damages in the amount stated should follow the breach thereof.

Samson Sales, Inc. v. Honeywell, Inc., 12 Ohio St. 3d 27, Paragraph 2 of the Syllabus (1984).

Courts routinely uphold these clauses in the real estate context, in large part due to the unpredictability of the market. See, e.g., Cochran v. Schwartz, 120 Ohio App. 3d 59, 62 (2d Dist. 1997); Kurtz v. Western Prop., L.L.C., 2011-Ohio-6726 (10th Dist. 2011); Ottenstein v. Western Reserve Academy, 54 Ohio App. 2d 1, 4 (9th Dist. 1977); Schottenstein v. Devoe, 83 Ohio App. 193, 198 (1st Dist. 1948); Curtin v. Ogborn, 75 Ill. App. 3d 549, 555 (Ill. App. 1979) (outlining a general rule that liquidated damages are appropriate in amount where ten percent or less of the purchase price). This is because “although the contract price is easily ascertainable, the fair market value of real estate fluctuates, in some cases dramatically, and these fluctuations, based upon numerous independent variables, are unpredictable.” Kurtz, at ¶ 30 (relative to the first prong in the Samson test). “Difficulties inherent in assessing the fair market value of property due to the volatility of the real estate market have been the impetus for Ohio courts giving effect to liquidated damages provisions in real estate transactions.” Id., at ¶ 31.

Who does a “liquidated damages” clause benefit?

While it is perhaps easier to envision how liquidated damages provisions tend to benefit the non-breaching party, they can be just as advantageous to a breaching party. For example, consider a situation where Buyer is under contract to purchase a $1 million retail center with a $100,000 liquidated damages clause. Buyer elects not to purchase the property and breaches the contract. A week after Buyer’s breach, there is a down-turn in the real estate market and, now, Seller can only get $800,000 for the property. Rather than potentially being on the hook for the $200,000 difference between the contract price and ultimate sale price, Buyer’s liability is capped at the fixed liquidated damages amount of $100,000 because that is what the parties agreed to in the contract.

Liquated damages clauses can also be mutually advantageous inasmuch as it allows the parties to know what to expect. Circumstances may arise that require a party to choose between breaching the contract or incurring some other loss. In such a situation, the clause helps that party weigh their options and explore all possible outcomes in order to make an informed decision.

Is a liquidated damages clause a good idea?

Like so many legal questions, the answer is unfortunately the rather frustrating “it depends.” Ultimately, whether to include a liquidated damages clause in your contract or whether to agree to such a clause being proposed by the other side, is a decision that should be made on a case-by-case basis after considering all of the potential factors that may come into play.

Our firm has significant experience in dealing with these types of provisions – from drafting, to review, and to enforcement – and we can help you explore how including such a provision in your real estate contract may impact you, as well as answer any other real estate contract questions you may have.

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