Ohio Practical Business Law Counsel has changed its name to
Ohio Practical Business Law
and moved to its own URL:
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July 2, 2008
Ohio Practical Business Law Counsel has changed its name to
Ohio Practical Business Law
and moved to its own URL:
Thanks for reading. Please subscribe to the feed on the new blog.
June 22, 2008
If you’ve been in business long at all, somewhere along the line there may well have been some sort of dispute about the amount a customer owes. And if you’ve had any contact at all with an attorney, you have undoubtedly been told to watch out for “payment in full” situations in which you receive checks purporting to be “in full satisfaction” or containing some similar endorsement indicating that the customer intends this payment to be it. In fact, if you’re in Ohio, you have probably been admonished (and maybe even established as policy) that any check accompanied by a such a restrictive endorsement, or any cover correspondence using this language, MUST be returned to the customer.
Simple enough. But suppose you receive a cover letter enclosing a check for less than the amount owed which doesn’t use these “magic” terms of art? What if the letter specifically states that it is not placing any restrictive endorsement on the check to you, but hastens to add something to the effect that this is all the money we believe is owed to you?
In Ohio, the answer has changed over the years. Prior to the 1989 Ohio Supreme Court case of AFC Interiors v. DiCello, 46 Ohio St.3d 1, 544 N.E.2d 869 (1989), creditors faced the dilemma of having to choose between accepting the lesser amount offered and writing off the balance or rejecting the partial payment being offered in favor of pursuing the debtor for the entire amount due. If a check offered “in full payment” or “in full satisfaction” was cashed by the creditor, the remaining amount owed simply could not be recovered.
From 1989 through 1994, there followed a glorious period for creditors in which they could rely upon Ohio Rev. Code 1301.13 to take the partial payment AND still pursue the debtor for the balance if they did so while make a “reservation of rights”. Thus if the creditor endorsed the check by writing words such as “under protest” or “without prejudice” just above their endorsement before cashing the check, the creditor had managed to have its cake and eat it too. In this way, creditors accepted the partial payment, applied it against the balance owing and then were permittred to continue further collection efforts.
All this changed in 1994 when Ohio adopted the revised version of Uniform Commercial Code Articles 3 and 4. As a result of the change in the law, making a reservation of rights was no longer possible. In addition, if the partical payment was accompanied by correspondence indicating that the payment was ended to satisfy the obligation in full. cashing the check meant that the creditor could not pursue the trmaining ballance. New Ohio Rev. Code 1303.40 (A), which remains in effect today, provided that
the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim.
This had the effect of returning Ohio to the pre-1989 common law era.
So, today, do not be fooled if receiving a partial payment check. In addition to the obvious situation in which it is clearly marked as “payment in full”, you must also pay attention to the correspondence accompanying the payment. If that correspondence indicates that the sender does not intend to pay the balance, then you are cashing the check at your own risk, even if there is no restrictive endorsement placed on the check.
June 11, 2008
Now that I’ve been doing this law blog thing for about eight months, I’ve had a chance to get acquainted with my neighbors in the blogosphere. There are of course my subject matter compatriots all across the country that I’ve enjoyed coming to know through their blogs (Chris Moander of the relatively new Wisconsin Business Law and Litigation blog and Rush Nigut of Rush on Business from Iowa (the home in my youth) especially come to mind). But today I wanted to focus on my geographically proximate neighbors practicing law in Ohio while writing their blogs.
Like anyone else I have my favorites. I don’t claim to be any arbiter of quality or worth so the following is really nothing more than what I’ve found I’ve liked the most so far.
Perhaps my own personal favorite Ohio-based blog is The Briefcase which has been published by solo practitioner Russ Bensing for quite a while. It promises to provide “commentary and analysis of Ohio law” and it certainly delivers. Russ gives brief summaries and case updates of Ohio civil and criminal cases decided by the various Court of Appeals and the Ohio Supreme Court with a bit more criminal than civil cases. While this is of course useful, his regular “Friday Roundup” feature focusing on the more entertaining legal cases out there is a must-read for me every week. In addition, even the case updates and summaries are given with a definite bit of “attitude” that makes them much more interesting than the usual dry case summary. And his “About” section is particularly well done. Russ’s stuff is not often the sort of thing I tend to link to (which may say more about me than him), but I certainly appreciate his contributions.
My other “substantive” favorite Ohio-based blog is the Ohio Employer’s Law Blog published by Jon Hyman of Kohrman, Jackson & Krantz for more than a year. Its tagline is “Practical employment law information for businesses in Ohio and beyond.” What I like about this blog is Jon’s well written, informative, and useful (even “practical”) posts about important issues in the labor and employment law areas. I also think Jon’s analysis of the legal issues he covers is clear and seems right on point. In addition, I like his regular “What I’m Rreading” series which features several quick links to other interesting posts around the blogosphere. I don’t practice in this area so I appreciate having such excellent resource available to keep me up to date about pertinent legal developments.
Ohio Employer’s Law Blog is one of two Ohio-based blogs focusing on employment and labor issues. The other is Porter, Wright, Morris & Arthur’s Employer Law Report which says it will be “Reporting on recent legal developments and trends affecting employers”. It has been published sporadically over the last couple of years, but now seems to be adding new worthwhile posts more frequently.
The D&O Diary published by Kevin M. LaCroix of Oakbridge Insurance Services, an insurance intermediary focused exclusively on management liability issues, focuses on perhaps the most complex issues of any Ohio-based law blog. It is intended to be “A Periodic Journal Containing Items of Interest from the World of Directors and Officers Liability, with Occasional Commentary”. I haven’t had much chance to become fully acquainted with this blog yet, but hope to so in the near future.
When it comes to coverage of both substantive and professional developments of interest to Ohio lawyers, I like the Cleveland Law Library Weblog the best. It explains that “our goal is to inform local attorneys of major legal developments important to their practice”. I often find ideas for posts by reading this blog and appreciate the links usually provided. The Cincinnati Law Library Blog and the Moritz Legal Information Blog which provides “Legal Information and Research Resources Brought to You by The Michael E. Moritz Law Library at The Ohio State University” also provide these sort of services.
One of the newest Ohio-based law blogs is the Ohio Real Estate Blog published by the attorneys of the Real Estate Practice Group of Kohrman, Jackson & Krantz which started up only a couple of months ago in April. In same real estate practice area is the Build on This! blog published by the attorneys of the Real Estate and Construction Practice Group of Buckingham, Doolittle & Burroughs, LLP which offers “Current news, information, and events affecting the real estate, construction and land use industry and its professionals”.
Another recent addition to the blogosphere is the Reasonable Doubts blog published by Jeffrey Davis. It started in March 2008 and, as its name would suggest, focuses on crminal law. In addition, the Ohio Family Law Blog, published by Robert Mues of Holzfaster, Cecil, McKnight & Mues, LPA, began in December 2007 and tries to provide “Family Law and Divorce Information for Ohio Families Seeking Solutions”.
Interestingly, there are TWO Ohio based law blogs called Sixth Circuit Blog. One seems to focus on criminal law and offers “Case summaries and commentaries by federal defenders of the Sixth Circuit”. The other, published more sporadically by Eric Zagrans, focuses primarily on civil law and is “Devoted to Appellate Law and Practice Within the Sixth Circuit and Its Constituent States”
Rounding out the roster of Ohio-based law blogs (at least those I’m aware of) are the following with which I am less familar, in part because they relate to areas of law with which I have less experience in my day to day practice:
While there are several newer Ohio based law blogs, there are also many that have been published for two or three years or even longer. There are also some earlier Ohio-based blogs that are no longer publishing. In addition, there are several “business” blogs based in Ohio that touch on legal issues from time to time, but that’s a subject for another day.
I hope I haven’t forgotten anyone, but if I have, just add a comment with your URL and then we’ll know about you too.
June 7, 2008
Whether you’re a lender making a loan secured by a mortgage on real estate, a prospective buyer, or an unpaid tradesman making improvements to real estate, understanding Ohio mechanics’ lien law is very important. Guernsey Bank v. Milano Sports Enterprises, LLC, 2008-Ohio 2420 (May 20, 2008), a decision recently handed down by the Franklin County Tenth Appellate District Ohio Court of Appeals, while not really that interesting as far as making new law, underscores this importance and should be seen as a warning of what could happen if proper procedures are not followed. Francisco Luttecke of Bricker & Eckler LLP provides a useful and complete summary of the facts and holding of this case in an e-alert to whose mailing list I seem to have been added (not that I’m complaining).
Facts of Guernsey Bank Case. At the most basic level, the Guernsey Bank case illustrates some of the problems that can arise in more complicated transactions. The defendant Milano Sports Enterprises, LLC (“Milano Sports”) had entered into a purchase contract to buy an indoor tennis facility that it intended to convert into an ice rink. Because Milano Sports wanted to get started on renovations immediately rather than waiting to close on the purchase, it entered into a lease agreement with the seller. About two months later, the purchase was consumated and financed by a loan from Guernsey Bank secured by a mortgage on the subject real estate.
Meanwhile, in the intervening two months, an electrical contractor and other tradesmen performed some of the work necessary for the conversion, but were not paid. After the purchase transaction went through and the Guernsey Bank mortgage had been recorded, the electrical contractor and other unpaid contractors filed mechanic’s lien affidavits. It should also not come as too much of a surprise that a few months after this, Guernsey Bank started foreclosure proceedings regarding the real estate.
Eventually the property was sold at foreclosure sale for $525,000, leaving Guernsey Bank with a deficiency of approximately $75,000. A priority fight broke out over who was entitled to the foreclosure sale proceeds with Guernsey Bank challenging the priority and validity of the mechanics’ liens. Ultimately, Guernsey Bank received only about $137,000 of the foreclosure sale proceeds because the Court found the mechanics’ lien holders had priority. Thus Guernsey Bank wound up with a deficiency of more than $475,000 instead of only $75,000.
What to Know About Mechanics’ Liens. Which brings us to the lessons to be learned from this rather ordinary case:
whether the work performed had produced visible results which were sufficient to make it reasonably apparent to a person examining the site that the construction, excavation, or improvement had actually commenced…. In order for the work to be deemed the commencement of construction, it must form a part of the work necessary for the construction and be of a nature that can afterward be considered a component part of the structure.
See also Schalmo Builders, Inc. v. Malz, 90 Ohio App.3d 321, 629 N.E.2d 52 (1993).
June 4, 2008
From the comfort and convenience of my office computer this morning, I watched the oral argument before the Ohio Supreme Court in Dombroski v. Wellpoint, Case No. 2007-2162. In this case. the Court was asked to answer the question “when may a tort plaintiff pierce the corporate veil to pursue recovery from a “parent” corporation“. The Court allowed both sides substantially more than the allotted 15 minutes each, asking both attorneys numerous questions.
Suzanne Richards of Vorys, Sater, Seymore & Pease argued on behalf of the defendant-appellant “parent” company shareholder against which plaintiff-appellee Dombroski seeks recovery. Robert Palmer appeared on behalf of Ms. Dombroski. Both attorneys were extremely well prepared. Although the Ohio Council of Retail Merchants, Ohio Chamber of Commerce, the Ohio Chapter of the National Federation of Independent Business, and the Ohio Farm Bureau Federation jointly submitted an amici curaie brief in support of the defendant parent company, they did not participate in the oral argument.
Factual and Procedural Background. In a nutshell, the most salient facts are that Ms. Dombroski was denied insurance coverage for a procedure deemed “experimental”. Ms. Dombroski had a health insurance policy issued by defendant Community Insurance Company (“CIC”) which utilized Anthem UM Services, Inc. (“AUMS”) to administer its policies and process claims. Still another company, Anthem Insurance Companies, Inc. (“AICI”) defined the scope of the coverages under CIC policies. CIC, AUMS, and AICI were all subsidiaries of defendant Wellpoint, Inc. (“Wellpoint”). Coverage was apparently denied as a result of a blanket policy by defendant AICI. Dombroski sued everyone for bad faith denial of her claim. Counsel for Ms. Dombroski conceded that undercapitalization was not an issue.
AICI and Wellpoint filed motions to dismiss each of them as a party defendant on the grounds that the contract was with CIC and not with them and there was no grounds for bypassing the corporate entities. The trial court agreed, but the Seventh Appellate District Court of Appeals reversed, holding that the second prong of the Belvedere test could be satisfied through the showing of an “unjust” or “inequitable” act even if it did not rise to level of fraud or illegality On appeal, the proper interpretation of Belvedere for determining when it is appropriate to pierce the corporate veil was certified because of a conflict among the Courts of Appeal.
Oral Argument Synopsis. All of this is a very long introduction to the oral argument itself. Counsel for Wellpoint emphasized that the second prong of Belvedere required the parent company/shareholder to have “perpetrated a second wrong” by deliberately destroying the ability of the defendant subsidiary to satisfy any judgment against it. Counsel for Ms. Dombroski emphasized that “piercing the corporate veil” is an “equitable argument” and that insurance bad faith claims are “fairness torts”. He also emphasized thhat Wellpoint set corporate policy for the subsidiaries. Several of the Justices seemed to have difficulty understanding the complete corporate structure and a couple asked if perhaps the case was not yet ripe for determination.
Justice Pfeifer suggested that perhaps the Court didn’t think all that carefully about the test formulated in Belvedere because the veil piercing was a relatively small part of that case and that the whole test should be re-evaluated. Later in the oral argument, he posed the question of what would happen if and when the plaintiff tried to depose the nonparty parent regarding the establishment of the policy leading to the denial of coverage.
Chief Justice Moyer suggested that, although the question certified was the proper interpretation of Belvedere, the case could actually be decided on much narrower grounds. He posited that if a medical insurance company sets up a subsidiary with the purpose of hindering recovery by plaintiffs, that would be “illegal” and easily fall within all interpretations of Belvedere‘s second prong. Justice Lanzinger later asked a similar question.
Justice Stratton seemed to think (and I tend to agree) that Dombroski should have an adequate direct claim against CIC and consequently no veil piercing argument was necessary. Justice O’Connor was concerned that focusing on whether an “unjust” or “inequitable” act might “open the floodgates” for litigation in this area; she indicated that she felt that there had to be “some level of dishonesty” before recovery could be had.
My Thoughts. I tend to agree that more must be proven than just that there was an “unjust” or “inequitable” act perpetrated on the plaintiff to justify piercing the corporate value. Otherwise the three prong test of Belvedere is really collapsed into a single inquiry. I also think that sometimes the world is not fair and people who really don’t deserve it suffer misfortune; I don’t think that someone else should be held responsible for this occurrence in every case.
At the same time, I am not altogether sure that the more stringent test really helps the defendant “parent” company in this particular instance. It does seem to me that the multiplicity of subsidiaries may well have been set up to thwart policyholders seeking to challenge denial of coverage. To the extent that is true, I think the parent company may have abused the underlying conceptual policies of limited liability and should be denied the benefits of that legal doctrine as a consequence.
I am also concerned, however, as to what effect a more “flexible” standard for determining when piercing the corporate veil is permissible would have on closely held companies with a limited number of individuals as equity owners. Here, especially, something more sinister than suffering by the plaintiff ought to be required. If that is all that is necessary, then every complaint should include a count seeking the piercing of the corporate veil. Almost by definition, if there is any actionable claim at all, it is because something “unjust” or “inequitable” happened to the plaintiff.
Perhaps the answer is to introduce further confusion by bifurcating the standards for piercing the corporate veil, having one applicable only to closely held entities, or at least to imposing personal liability against individuals, while the other is applicable only to more sophisticated transactions.
Oh yeah – how do I want it to come out to help my case? I like the Belvedere standard just as it is, thank you, and wouldn’t mind if you made it even more restrictive.
For more on the piercing the corporate veil concept and Belvedere, read my previous post on Piercing the Corporate Veil- What It Means and How to Avoid It.