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Ohio commercial litigation: Chasing deadbeats, it’s part of what we do!

Author By Christopher P. FinneyPosted on

Someone owes you money.

But you have been slow to assign the collection to an attorney for fear of the legal fees and expenses.  This concern certainly is well-founded.

However, Finney Law Firm (a) has the experience, tools and “attitude” to maximize your return from that activity, and (b) is willing to work with you on creative fee relationships, so that the risk and cost of the collection activity does not fall fully on the your shoulders.

The challenge

In every piece of prospective litigation, I attempt to analyze with the client the three components to litigation success: (a) liability (establishing the legal basis the other party owes you money [for example, is the contract clear and the breach easy to establish?]), (b) damages and (c) collectibility.

Collectibility

Let us start at the end: does this target defendant have a pot to pee in?

If you were to get a judgment of any size against him, could we collect from this debtor the sums needed to make the litigation worthwhile form the inception?  Many times the answer is “no.”  If so, you might want to walk away from the matter.

Does the debtor own a house?  A business property?  If so, we can fairly quickly ascertain the mortgage indebtedness versus the value of the property.

Does the debtor own a business?  Car?  Other assets?  Many times debtors structure their lives and their assets in such a way that a creditor really can’t get anything from them — their house in in their wife’s name, and their other assets are well-hidden.

Liability

Ahhh, liability.

The client many times relates to us that liability is “open and shut.”  We file suit and the other side “surely will settle.”

Unfortunately it does not always pan out that way.  Clients frequently don’t understand the facts of their own case, don’t know all the facts, and wear rose-colored glasses about their prospects of success.  Further, even the simplest fact pattern that clearly leads to liability can be time-consuming and laborious in Court to bring to conclusion.

The client needs a realistic understanding of their chances of success and the Court path to a final enforceable judgement.

Damages

And that brings us to the damages calculation.  Defendants, Plaintiffs and Courts all have differing perspectives on how to calculate damages numbers.  And a separate blog entry would have to explore that issue in more depth.  But take, for example, the sale of a house.  Our client is the seller.  The buyer is clearly in breach.  But the seller sixty days later re-sells the house to another buyer for $5,000 more than the buyer in breach agreed to pay.  (And in today’s go-go real estate marketplace, that’s not an uncommon occurrence). What “damages” has the seller sustained from a clear breach of contract?  Other than the time-value of holding the property (taxes, insurance, utilities and maintenance), likely none.

Collection

So, once you file suit and convince the Judge to sign the entry granting an award of damages against a defendant,  you are “off to the races,”  Right?  Well, not exactly.

We have to first identify assets and income streams.  Does the target own a piece of real property?  A bank account?  A job? Securities accounts?  Do they own a closely-held business?  The Finney Law Firm has gum-shoe and cyber assets and relationships that help us to learn of the income and assets of clients in the collection process.

Tools for enforcement

Our tools to force payment of a legal judgment include:

  • Attaching bank accounts.
  • Garnishing wages.
  • Liening and foreclosing on real property.
  • Seizing and selling personal property such as office furniture and equipment, cars and manufacturing equipment. (This one usually gets their attention and frequently a quick check!)
  • A creditor’s bill to force a third party who owes the deadbeat money to instead pay it to you.  These are very powerful.
  • A receivership to place income-producing assets in the hands of a third party whose job it is to assure you are paid from the income stream of the asset or its liquidation.
  • A Judgment Debtor Examination forces a creditor to tell you — under oath — where they are “hiding” their assets so that you can go and grab them.
  • Use of subpoena power to learn from third parties where assets are being hidden.
  • Working through the intricacies of bankruptcy court to either avoid the collections limitations the Court imposes or maximize the collection through their offices.
  • Involuntary bankruptcy.  It takes three creditors banding together to place a debtor into bankruptcy, but this tools forces all the debtor’s cards on the table and stops them from playing games with assets that should belong to you.
  • Fraudulent transfer actions can un-do illegal transfers of assets to friends and family members.  Most powerfully, the act of the fraudulent transfer to these third parties causes them to become defendants in that new action —  putting them on the hook for the debt, plus punitive damages and attorneys fees — for participating in the scheme.

Creative fee relationships

We are not oblivious to the challenges our clients face of withering legal fees and endless court appearances to collect a small and simple debt.  But at the same time, the tremendous work many times required to get a judgment and pursue it through collection also is known to us.

However, if we are going to recommend that a client proceed with a collections action — which necessarily means the economics should work out positively for the client — we are always willing to engage in a discussion about creative fee relationships (hourly fees, flat fees and contingent fees) to achieve the desired end.

The idea on a contingent fee is the more you collect, the more we make — everyone should be happy if the “ring the bell.”  But on the flip side, it it turns out to be a dry well — and many collection actions that seem promising on the front end turn out to be a dry well on the back end — then we share in the pain.

Conclusion

Collections work can be great fun, outmaneuvering a defendant who knows he owes the debt, but is using his wits — legal and illegal — to prevent you from getting to those assets.

So, let your deadbeats become our firm’s problem and allow us to turn that bad debt into an asset.  Call Chris Finney (513-943-6655) or Julie Gugino (513-943-5669) to learn how we can help you.

Ohio corporate law: Dissolution for Corporations and LLCs

Author By Eli N. Krafte-JacobsPosted on
Finney Law Firm attorney Eli N. Kraft-Jacobs

So, you have decided to cease operations, close down your business, and begin the process of dissolving your entity.  You know that there are formalities that must be attended to, but the what/when/how remains elusive.  The first step is to identify if the entity is a corporation or a limited liability company.  Notwithstanding some unique provisions of the Ohio Revised Code, and without discussing the process for nonprofit corporations, professional associations, or partnerships, the following is a general overview of the steps necessary to dissolve domestic corporations and limited liability companies in the State of Ohio.

Electing to Dissolve a Corporation:

A corporation may be dissolved voluntarily by the adoption of a resolution of dissolution by the directors or by the shareholders.  The requirements for dissolving the corporation by resolution of the directors differ from those for dissolving the corporation by the shareholders.

Once a resolution of dissolution has been adopted, and after obtaining the necessary tax clearance, a Certificate of Dissolution shall be prepared, which must include pertinent information for dissolving the corporation.  There are other notification requirements that must be met prior to filing the Certificate of Dissolution with the Ohio Secretary of State.

A corporation may also be dissolved judicially by either: (1) an order of the supreme court or a court of appeals or (2) an order of the court of common pleas in the county where the entity’s principal office is located.  If this is the path your company is taking, the good news is that the relevant court will, purposefully or otherwise, identify the things that need to be accomplished in order to dissolve and wind up the affairs of your company.  The bad news, of course, is that a court is ordering the dissolution of your entity and much of the process will be public record.  If the dissolution occurs pursuant to the supreme court or court of appeals, then the court may either: (a) order the directors to effectuate the dissolution and wind up the entity in the same manner as would occur during a voluntary dissolution or (b) direct the relevant court of common pleas to effectuate the same.  A court of common pleas may only order dissolution in an action brought by the shareholders, the directors, or the prosecuting attorney of the relevant county.

Regarding dissolution in a court of common pleas, if the action is brought by the shareholders, the court may only order dissolution if: (a) the articles have been canceled or the period of existence has expired, (b) the corporation is insolvent and dissolution is the only means through which to protect the creditors, or (c) the corporation has failed or is unable to meet its objectives.  If the action is brought by the directors, the court may order dissolution if there is an even number of directors who are unable to break a deadlock or there is an uneven number of directors, but the shareholders are deadlocked on a vote to elect new directors.  If the action is brought by the relevant prosecuting attorney, the court may order dissolution if it is found that the corporation was organized for, or otherwise engages in, activity including, but not limited to, the following:  prostitution; gambling; loan sharking; drug abuse or illegal drug distribution; counterfeiting; obscenity; extortion; corruption of law enforcement offices or other public officers, officials, or any employees; or any other criminal activity.

Electing to Dissolve a Limited Liability Company:

The process of dissolving a multiple member limited liability company (“LLC”) is similar to dissolving a corporation.  Regarding voluntary dissolutions, an LLC shall be dissolved upon the occurrence of any of the following: (1) the expiration of the period of existence as stated in the operating agreement or the articles of organization, (2) the occurrence of one or more events specified in the operating agreement as causing dissolution, (3) the unanimous written agreement of all members of the LLC, (4) the withdrawal of a member of the LLC unless otherwise stated in the operating agreement, or (5) a decree of judicial dissolution.  A Certificate of Dissolution must be filed with the Ohio Secretary of State in order to effectuate the dissolution of the LLC.

Regarding tribunal dissolutions, a tribunal may declare an LLC dissolved and order the business to be wound up upon the occurrence of any of the following: (1) an event making it unlawful for all or most of the business to continue or (2) a determination by the tribunal that any of the following is or are true: (a) the economic purpose of the LLC is likely to be unreasonably frustrated, (2) a member of the LLC has engaged in conduct relating to the business that makes it not reasonably practicable to carry on business with such member, or (c) it is not otherwise practicable to carry on the business.

The process for dissolving a single member LLC differs from the above process for a multiple member LLC.

Voluntary Winding Up:

Once an entity voluntarily elects to dissolve and files a Certificate of Dissolution with the Ohio Secretary of State, the relevant parties are authorized to proceed with the winding up of the corporation/LLC.  Winding up is the process of selling the assets of the business, paying off creditors, and distributing any remaining assets to the  members or shareholders in accordance with Ohio  law.  This is separate and distinct from a judicial or tribunal dissolution, during which the court will control the process of winding up.

There are some minor distinctions between LLCs and corporations with regard to the winding up process, but they largely follow the same path.

It is important to note that dissolution is not a magic wand with which one may avoid company liabilities.

While the dissolution process may seem straight forward, you should always seek legal counsel to ensure the I’s are dotted and the T’s crossed.

Selling on a land installment contract?

Author By Eli N. Krafte-JacobsPosted on

Imagine you are trying to sell a piece of property, but no one is making any offers.  That is, until a prospective purchaser offers to buy the property on a land installment contract.  You can hardly contain your relief at being able to move on, so you sign the contract without understanding some of the terms, or even what a land installment contract is.  That leads to the questions, “What did I just sign” and “Did I agree to something I shouldn’t have?”

A land installment contract (also known as an installment contract or a land contract) is an agreement between a seller (vendor) of real property and a buyer (vendee), pursuant to which the vendor agrees to sell real property after the vendee pays a series of installments and other obligations set forth in the land installment contract (such as payment of real estate taxes and assessments, utilities, etc.) over a set period of time.  Essentially, the vendor is acting as a lender in the transaction by allowing the buyer to make a series of small payments not unlike a mortgage payment.  From a legal perspective, the vendor is the legal title holder and the real estate and the vendee is the equitable owner of the property.

Selling on a land installment contract can be beneficial when: (i) the vendor has unsuccessfully listed their property on the market for a long period of time, (ii) the vendor does not need the equity from their property in order to pursue the purchase of their next piece of property, or (iii) a prospective purchaser is having a difficult time obtaining traditional financing (in which case a sizable down payment is preferential).

In addition to the standard provisions you need to watch out for (e.g., the purchase price, the closing date, inspection terms, etc.) there are clauses that can be problematic for the selling party.  One such clause is the vendee’s right to make repairs of undisclosed items on the property, and then deduct the cost of such repairs from the final payment.  That clause could sound as innocuous as something like this:

In the event that the vendors fail to pay any amounts due and owing hereunder, the vendees may pay such amount at buyers’ complete and sole discretion, and thereafter deduct the amount of such payment from the final payment.

On its face, this clause doesn’t sound problematic, but when coupled with other clauses in the land installment contract, such as the following, it becomes an issue:

In the event that any representation or warranty of vendors is false, vendees shall have the right, at their absolute discretion, to either: (i) rescind this agreement and refund all amounts paid under the same or (ii) reduce the final payment owed to vendors for any and all losses, liabilities, costs, or expenses associated with vendors’ false representation or warranty; provided, however, that no reduction may occur for losses, liabilities, costs, or expenses associated with any replacement, maintenance or repair of an item on the property that was conspicuously disclosed to vendees.

Essentially, this gives the vendee the power to make repairs on any item on the property that is in need of repair, which need is at the vendee’s absolute discretion.  The scrupulous vendee may elect to fix the most minor damage, regardless of the cost, because the cost will be deducted from the final payment and the vendee won’t lose any money.  Instead, the vendee obtains all of the benefit, and the cost for such benefit will come straight from the vendor’s pocket.

Ultimately, if your property has been on the market for a long period of time and a prospective vendee offers you a land installment contract, you can breathe your sigh of relief, but do not sign the land installment contract until you are absolutely sure you understand the terms contained therein.  It is highly recommended that you seek legal counsel to represent your interests prior to entering into the land installment contract.

Contact Finney Law Firm to see how we can help you with your real estate needs and transactions.

Foreign Corporation Primer: Register before filing suit

Author By Finney Law FirmPosted on

One important but often overlooked provision of Ohio corporate law is the requirement that “foreign corporations” (meaning any corporation established outside the state of Ohio) must obtain a license to transact business within the state of Ohio when doing business in Ohio.

No foreign corporation. . .shall transact business in this state unless it holds an unexpired and uncanceled license to do so issued by the secretary of state. To procure such a license, a foreign corporation shall file an application, pay a filing fee, and comply with all other requirements of law respecting the maintenance of the license as provided in those sections.

R.C. 1703.03.

Although a failure to obtain a license does not invalidate any contracts a foreign corporation enters into in Ohio, a lack of registration means that a foreign corporation cannot maintain a lawsuit in Ohio courts.

The failure of any corporation to obtain a license…does not affect the validity of any contract with such corporation, but no foreign corporation that should have obtained such license shall maintain any action in any court until it has obtained such license. Before any such corporation shall maintain such action on any cause of action arising at the time when it was not licensed to transact business in this state, it shall pay to the secretary of state a forfeiture of two hundred fifty dollars and file in the secretary of state’s office the papers required by divisions (B) or (C) of this section, whichever is applicable.

R.C. 1703.29.

A similar provision for foreign limited liability companies is located at R.C. 1705.58.

This is a common provision throughout the United States. In Kentucky the requirement is codified at Kentucky Revised Statute 14.9-20.

A recent Hamilton County Court of Appeals case highlights the importance of licensing your foreign corporation. In LV REIS, Inc. v. Hamilton County Board of Reviison, et al., C-160732. the First District Court of Appeals upheld the Common Pleas Court’s dismissal of a case brought by a Nevada corporation that had failed to register with the state before filing a Board of Revision appeal in the Common Pleas Court.

Had LVREIS been successful in the underlying case, it would have saved approximately $17,000 in property taxes per year – making the failure to register a costly oversight. It should be noted however, that even though the Common Pleas Court granted the motion to dismiss, it also provided some analysis of the merits of the appeal, suggesting that LVREIS would not have prevailed had the case been decided on the merits. 

If you are operating a foreign corporation or limited liability company in Ohio, this case should serve as a warning to make sure you’ve properly registered in every state in which you operate. If you are not currently registered in Ohio, you can register now.

For those involved in disputes with foreign entities corporations, this can be an important defense to raise in litigation, as even though a foreign corporation can cure the defect prospectively, the case law suggests that if an unregistered foreign corporation files suit but later registers with the state, such registration does not cure the lack of jurisdiction.

Contact Finney Law Firm for assistance with your corporate or property tax matter here.

Ohio Real Estate Law: Electronic recording has arrived

Author By Christopher P. FinneyPosted on

The day many of us had anticipated in real estate transactions has arrived: Electronic filing of real estate documents.

Hamilton County Auditor Dusty Rhodes, Hamilton County Recorder Norbert Nadel and Hamilton County Engineer Ted Hubbard have collaborated to allow — starting Wednesday, February 7, 2018 — for recording of deeds and other instruments conveying property ownership to be filed completely online using the web portal at Simplifile.com.

Warren County has allowed for electronic recording for some time.

  • The Hamilton County Recorder’s Office has a instruction guides here and here.
  • Warren County’s information is here.

The remarkable advancement eliminates the need for a trip to the auditor’s and recorder’s offices to file a broad variety of recorded real estate instruments.

For more information, contact Auditor Rhodes’ office at 513.946.4235.

Proposed Legislation to Clarify Tax Levy Ballot Language

Author By Finney Law FirmPosted on

House Bill 488 sponsored by Ohio State Representatives Becker and Hood will require that the effect of proposed tax levies be more clearly explained on the ballot.

Under current law, information on the effect of a proposed tax levy is expressed based upon the “tax value” of real property (35% of the true value). The proposed law will provide information based on the effect of the tax levy using the fair market of real property, as well as the millage rate against the tax value.

The proposed change will make it easier for voters to understand tax levies and make more informed choices at the ballot box.

You can follow the progress of House Bill 488 here.

Ohio Commercial Law: Is an obligation “joint and several” if the instrument is silent on the topic?

Author By Julie M. GuginoPosted on
Attorney Julie M. Gugino

“Joint and several liability” is a legal concept that provides that each obligor under a contract is fully liable for the obligations under that contract as to the other party to the contract (i.e, the party to whom the joint obligors are obligated).  So, in the instance that two or more guarantors sign a guarantee instrument to a bank for a loan, if they are “joint and severally liable,” it means that each guarantor owes the entire debt to the bank in the event of default.  The bank can’t collect twice the guaranteed amount, but it can choose which guarantor from which to obtain payment.

So, the question addressed in this article is “what is the default position as to joint and several liability on a contract if the instrument is silent on the topic?”  We address topic this under Ohio and Kentucky law.

The answer: In short, “joint and several” is the default interpretation absent language in the instrument that absolves parties of such liability.

General Contract Principles

A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. Restat 2d of Contracts, § 1 (2nd 1981). Further, where there are more promisors than one in a contract, some or all of them may promise the same performance, whether or not there are also promises of separate performances. Restat 2d of Contracts, § 10 (2nd 1981). Such is the situation when more than one individual signs a guaranty or a promissory note.

Standard contract language

The standard modern form to create duties which are both joint and several is “we jointly and severally promise,” but any equivalent words will do as well. In particular, a promise in the first person singular, signed by several persons, creates joint and several duties. Restatement (Second) of Contracts § 289 (1981). What this means is that, generally, under the common law, promises of the same performance create “joint” liability on the part of each promisor unless an intention is manifested to create a “solidary” obligation. Restat 2d of Contracts, § 289 (2nd 1981). However, many states have state specific statutes which have altered or refined this rule.

Common law when contract is silent

In Ohio, an individual signing a note as a co-maker with another individual is jointly and severally liable for the debt, except as otherwise provided in the instrument. Ohio Rev. Code Ann. § 1303.14(A). Star Bank, N.A. v. Jackson, 2000 Ohio App. LEXIS 5567, *1. Under U.C.C. Art. 3, a party signing a promissory note as a co-maker is jointly and severallyliable for the debt. Darrah v. Leakas, 1994 Ohio App. LEXIS 220, *1. As among themselves, co-makers are presumed liable in equal amounts, however, these rights are governed by the particular terms of the contract between the co-makers. Poppa vs. Hilgeford, 1982 Ohio App. LEXIS 13658, *1.

In Kentucky, likewise, in the absence of an express agreement to the contrary, when two or more individuals execute a note, such persons are jointly and severally liable to the holder, even though the instrument contains no such express provision.  KRS 355.3-118. Schmuckie v. Alvey, 758 S.W.2d 31, 33-34.

Duty of contribution from co-makers

As between or among themselves, however, in the absence of evidence of a contrary agreement, co-makers are presumed to be liable in equal amounts and a right of contribution, based upon an implied contract of reimbursement and not the instrument, exists between or among them. 11 Am. Jur. 2d, “Bills & Notes” § 588 (1963). Id.

Conclusion

What this means is that if you sign a note or guaranty or other like instrument with another individual, the holder of that note, in their sole discretion, can choose to recover the full amount against you and only you. As between you and your co-maker, depending on your agreement, you likely retain the right to seek contribution from them pro-rata.

For more information on commercial instruments and personal guarantees, contact Julie Gugino at (513) 943-5669.

Making a difference: Turning legal work into cheese

Author By Julie M. GuginoPosted on

Through the course of our representation of clients, they often encounter zoning codes which are outdated and properties that are non-conforming, often in vibrant flourishing neighborhoods.  This was the case for one client, who desired to seek a use variance for a property in Evanston, a stone’s throw from the burgeoning Walnut Hills neighborhood.

The challenge

In this case, the clients desired to purchase a block construction building that was zoned Residential Mixed Use and convert the same into an artisanal cheese making facility and retail store/tasting room. This building had previously been operated as a medical building and was constructed prior to implementation of the current Zoning Code. As a result, an 8,334 square foot block building sat vacant and unused, a blight to its community because of zoning that relegated it to Residential Mixed Use. As a result, we were retained to pursue a use variance on their behalf and assist them in their endeavors to “put Cincinnati cheese on the map and to begin that dream in the Evanston neighborhood.”

Variances under Cincinnati Municipal Code

Under §1445-15 of the Cincinnati Zoning Code a variance from the requirements of the Cincinnati Zoning Code can be granted, provided the condition giving rise to the request for the variance was not created by the current or prior owner.  In addition, a variance can be granted owing to special conditions affecting the property, where application of the Zoning Code would be unreasonable and result in practical difficulties. Finally, consideration is given as to whether the variance is necessary for the preservation and enjoyment of a substantial property right of the applicant possessed by owners of neighboring properties.

Showing of unnecessary hardship

In addition to these factors, under §1445-16 of the Code, no variance can be granted unless the applicant demonstrates it will suffer unnecessary hardship if strict compliance with the terms of the Code is required. Hardship is demonstrated by the following factors: (a) the property cannot be put to any economically viable use under any of the permitted uses in the zoning district;  (b) the variance requested stems from a condition that is unique to the property at issue and not ordinarily found in the same zone or district; (c) the hardship condition is not created by actions of the applicant; (d) the granting of the variance will not adversely affect the rights of adjacent property owners or residents; (e) the granting of the variance will not adversely affect the community character, public health, safety or general welfare; (f) the variance will be consistent with the general spirit and intent of the Zoning Code; and (g) the variance sought is the minimum that will afford relief to the applicant.

“In The Public Interest”

Finally, in order to obtain a use variance, an applicant must show the proposed variance “is in the public interest.” The factors considered under §1445-13 of the Code include: present zoning, community guidelines and plans, existing traffic, buffering, landscaping, hours of operation, neighborhood compatibility, proposed zoning amendments, consideration of adverse effects, the elimination of blight, economic benefit, job creation, effect upon tax valuations, and private and public benefits.

The wasted potential of a long-vacant property

In our clients zoning matter, an existing structure which did not conform to the Code had sat vacant for five years or more.  The zoning needs of the Property were unique to it and the hardship had not been created by the owner of the Property. Its impact on the immediate neighborhood as a vacant and blighted building were adverse, contributing nothing to the neighborhood, and detracting greatly from the same.

Making a difference for our client

Our clients were able to obtain a use variance and now that vacant building has been transformed into a cheese making facility and retail store/tasting room that will further transform this already bustling community.

Read more about their story here.

Ohio Real Estate Law: Ohio Auditors take aim at “LLC Loophole” transfers

Author By Finney Law FirmPosted on

Ohio imposes fees on the conveyance of real estate, and generally determines the value of real property based upon the sale price when the property is sold. One means of avoiding the conveyance fee and reporting the sale price is the use of a “LLC Loophole.”

The LLC Loophole is a means of conveying title to real property using an LLC as an intermediary, rather than transferring title directly from the seller to the buyer. A property owner transfers title to real estate to an LLC that she owns, and then sells the LLC itself to the buyer. One benefit of  this conveyance is that no conveyance fee is paid, and the auditor is not alerted to the sale price.

Consider this illustration:

Property owner owns a strip mall valued by the auditor at $500,000. She has received an offer to buy the property for $750,000, but the buyer wants to avoid the publicity of reporting the sale through a conveyance form and the automatic increase in tax value that would come by simply buying the property directly from the property owner. So, the property owner sets up a new limited liability company, Strip Mall, LLC; conveys title to the property to Strip Mall, LLC; and then sells her 100% ownership interest in Strip Mall, LLC to the buyer for $750,000. The only filing with the county auditor is the conveyance fee showing a fee exempt transfer from the property owner to the LLC. No one is alerted that the buyer now owns the strip mall or that it was valued at $750,000 in an arm’s length transaction.

Under the proposed law, when the property owner sells her ownership interest in the LLC, she would have to report that sale to the auditor as if she had sold the real estate directly to the buyer. At that point, the auditor would assess a conveyance fee, and the real estate would be taxed at the sale price. The proposed bill would require the reporting and payment of taxes whenever any interest in an LLC or other entity that owns real estate (directly or indirectly) takes place.

To be clear, there is nothing unlawful about using LLCs in property transfers, and it is a perfectly legitimate method for conveying real estate.

We expect that public school boards in particular, as well as other property tax funded organizations will lobby in support of this legislation; and that it will find opposition from real estate investors and small government advocates generally. Whether it is this particular bill or another future proposal, the LLC Loophole will be facing continued scrutiny and efforts to impose conveyance fees and determine the purchase price.

The Legislative Services Commission’s analysis and the bill text are below.

Finney Law Firm will be keeping an eye on this bill as it works through the Ohio Legislature.

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Ohio commercial transactions: Think twice before signing these six transactional documents

Author By Christopher P. FinneyPosted on

As we march through our lives, folks shove documents under our nose for signature all the time.  In reality, we should carefully, very carefully, read them and consider their implications before signing any of them.

After all, there are charlatans and fraudsters standing eager to take advantage of us at every turn.  And even if other parties don’t start out as such, life events can put people in default or desperate straits – and then “desperate people do desperate things” as they say.

Still, certain documents bear significant additional risk or have a history of resulting in litigation or economic calamity for the signer.

Here, we take a serious look at six transactional documents that frequently result in legal or financial problems:

  • Personal guarantee for debts of another. Your daughter and son-in-law are buying a house, but have bad credit, or you are starting a business and need to guarantee the lease or franchise agreement to provide the fiscal backing for the undertaking.  A personal guarantee is fine and in some instances both called for and reasonable.  But think it through:

–>  Am I financially capable of fulfilling this guarantee if the underlying obligation falls into default?

–>  Would the other party accept a guarantee limited in time, amount or some other cutoff?  Or proceed with no guarantee?

–>  If there are multiple guarantors, would the lender be satisfied with me just paying my pro-rata share of the underlying debt?

–>  Is there some other way that the transaction can proceed without my guarantee?  Can someone offer security for the loan instead?

  • Non-Compete agreements. More and more employers are asking new employees to sign non-compete agreements or agreements wherein the employee agrees not to solicit customers, employees or vendors of the enterprise.  Employers are entirely within their rights to demand such agreements (the question of whether they are enforceable is addressed here).  But should an employee agree to restrict his future earnings potential and career path based upon this job opportunity?  If you really think it through, many time the answer is “No thanks, I’ll take a pass.”
  • Agreements with attorneys. We really hate to say this, but one of our clients was a seller under a land installment contract for the sale and purchase of real estate.  The buyer was an attorney.  After repeatedly falling into default, our client initiated a forfeiture action against the attorney.  He countered with a blistering series of arguments that were all untrue or frivolous.  Confronted with withering legal bills to prove their case, they quickly settled on relatively unfavorable terms.  Lesson learned.
  • Businesses with 50/50 ownership. It seems to make sense: Two partners throwing in equal shares of cash and effort to start a business; they should own it 50/50.  And in decision-making, decisions are 50/50, meaning it requires the consent of both parties to move forward with anything.  However, after years of addressing business disputes, it has become clear that these ownership structures – with no one in charge and everyone’s cooperation required to make decisions – are the source of operational and legal gridlock, resulting in painful, expensive and endless litigation.  I have even seen very difficult dispute resolution between former (or soon-to-be-former) spouses in a 50/50 ownership structure.  Indeed, getting into business with any third party can be the source of conflict, monetary losses and litigation.
  • Agreements you are not prepared to litigation to conclusion. If you think about it, in an instance in which you are investing time or money, you have two essential choices: Either be prepared to “eat” these investments by walking away or be prepared to litigate your claims to conclusion to defend your investment.  Is the person you are contracting with someone you are prepared to sue to enforce your rights?  Is the transaction structured and documented in such a way that you could prevail in that litigation? Will the cost of enforcing these agreements (or defending against a suit from the other party) of such magnitude that it will be worth litigating?
  • Indemnity and “hold harmless” clauses in leases and other contracts. It’s easy to sign a 50-page legal document that satisfies the major business terms you have negotiated.  But what about the fine print?  Buried deeply within a lease, loan documents, or asset purchase contracts can be all sorts of warranties, indemnities, and “hold harmless” provisions.  It seems simple that a seller or borrower should stand behind his obligations, but do you really want to give an open-ended contractual indemnity or warranty in this specific instance?  It is, as is addressed here, a potential blank check, open-ended access to your checkbook.

We are not saying that you should never sign any of the foregoing instruments.  What we are saying is that experientially these undertakings result in much conflict, legal fees and emotional angst, and should be undertaken only with great caution.

 

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