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Ohio Commercial Litigation: Does COVID-19 provide an escape hatch for contractual obligations?

By Casey A. JonesApril 20, 2020August 5, 2022

Unless you’ve been living under a rock somewhere, chances are the current COIVD-19 pandemic has affected at least one, and likely multiple facets of your life. But how do these circumstances impact contractual obligations made pre-COVID-19? Can the pandemic or the economic turmoil it is has created serve as a justification or excuse for getting out of a contract? For instance, if you contracted to purchase real estate in February, before all of the furloughs and Stay at Home Orders, do you still have an obligation to close on that purchase? While the case law surrounding this question is likely to dramatically expand in light of recent events, the answer could likely be “no” under Ohio law, at least as it stands today.

Four Corners Rule

As an initial proposition, contracts are governed by the “four corners rule,” meaning they will be interpreted consistent with what appears on the face of the document. Chan v. Miami Univ., 73 Ohio St. 3d 52, 57 (1995) (“[A]n instrument must be considered and construed as a whole, taking it by the four corners as it were.”). Where unambiguous, no additional terms will be read into the contract, and the terms that are contained within the document will be given their ordinary meaning. Fidelity & Casualty Co. v. Hartzell Bros. Co., 109 Ohio St. 566, 569 (1924) (“This court cannot make a new contract for the parties where they themselves have employed express and unambiguous terms. In the construction of contracts the language employed must be given its usual and ordinary meaning.”).

Parties to a contract are, thus, bound by the contract’s plain and unambiguous terms and are obligated to do that which they have promised in the contract, subject to certain narrow exceptions…

Force Majeure

Contracts often contain “force majeure” clauses. Roughly translated, force majeure is Latin for “superior forces.” Often, you will see this interpreted or referred to as an “Act of God.” What this means in a practical sense is that there is some sort of unforeseeable, intervening circumstance that justifies non-performance under the contract. For example, you have a contract to rent an apartment unit (a lease) but, right before you move in, a bolt of lightening strikes the apartment building and it burns to the ground. Depending on the language of the force majeure clause, this would likely be a qualifying unforeseeable circumstance that could nullify the lease.

Relative to real estate transactions, force majeure clauses are perhaps more often seen in the commercial context than the residential. Many standard realtor’s contracts do not contain such clauses. These clauses may also appear in certain consumer transactions – think contracts for goods or services to be performed.

Consistent with the four corners rule, courts cannot “read in” a force majeure clause where one does not appear on the face of the contract. Therefore, if your contract does not contain a force majeure clause, you likely cannot claim it as a reason for terminating the contract or skirting your obligations thereunder. See Wells Fargo Bank, N.A. v. Oaks, 2011 Ohio Misc. LEXIS 4812, at *7 (Franklin C.P. June 24, 2011) (rejecting force majeure argument where the contract did not contain a force majeure clause).

Where a contract does contain a force majeure clause, courts are likely to interpret such clauses in a very narrow fashion. Thus, if the clause does not specifically contemplate disease, pandemic, unexpected unemployment, or business closures, it may not provide relief in the specific COVID-19 context.

What about changing financial circumstances or “impossibility” of complying with your obligations, more generally?

Despite the non-existence of an applicable force majeure clause, one might think that his or her general inability to pay that which they promised under the contract or worsening financial conditions might excuse performance under the contract. While this may seem like a logical conclusion at first glance, the law dictates that “[m]istaken assumptions about future events or worsening economic conditions, however, do not qualify as a force majeure.” Stand Energy Corp. v. Cinergy Servs., 144 Ohio App. 3d 410, 416 (1st Dist. 2001); see also Wells Fargo, at *7-8 (“[E]conomic down-turn is a risk that every business person necessarily undertakes when they enter into a contract . . .That this country incidentally suffered an economic downturn during the term of their contract does not discharge them from their contractual obligations.”). “A party cannot be excused from performance merely because performance may prove difficult, burdensome, or economically disadvantageous.” State ex rel. Jewett v. Sayre (1914), 91 Ohio St. 85, 109 N.E. 636, 12 Ohio L. Rep. 291.

This body of case law generally speaks to “objective” versus “subjective” impossibility. While the law might sanction non-performance based on objective impossibility (i.e., no one could reasonably fulfill their obligations under the circumstances), it typically does not excuse performance based on subjective impossibility (i.e., a particular party cannot fulfill their obligations under the circumstances).

Can challenges posed by COVID-19, independent of financial concerns, create a justification for non-performance?

In the real estate context, for instance, what about the health risks posed by out-of-state buyers or sellers traveling for closings? Fortunately, we live in an era that offers a wealth of technological options here. For example, many title companies are offering “remote” closings. If this is a concern for you, consider reaching out to Ivy Pointe Title for your closing needs, as they offer a staff of experienced title professionals, e-notary licensure in both Ohio and Kentucky, and remote closings, which allow parties to close on real estate transactions from the comfort and safety of their own homes where necessary.

We can help…

All this being said, parties to a transaction can often jointly agree to terminate or delay performance if they so choose, though a subsequent writing may be required to effectuate this agreement in a manner that will be enforceable and protect both sides down the road. If you are party to a transaction and the other side has threatened non-performance where there has been no agreement to terminate or delay, these are likely some of the arguments you will see. On the other hand, if you are concerned about your ability to perform under a contract, there may be additional language within the “four corners” of your contract that could provide some relief. Contracts are exceedingly unique from one another, such that there really is no “one size fits all” approach.

Finney Law Firm has a team of legal professionals with experience ranging from real estate to employment to general commercial law, and we would be happy to review your contract and provide feedback as to your options or help with drafting amendments thereto. Please feel free to reach out to me at (513) 943-5673 or casey@dev.finneylawfirm.com to set up a remote consultation.

Additionally, our attorneys have authored a number of blog entries relative to the COVID-19 crisis and hosted webinars as to potential relief for employers, small businesses, and 1099 employees that may also be of interest. And for more on commercial or real estate transactions and “force majeure,” click here.

We hope you are all staying safe and healthy during this unprecedented time.

Ohio Employment Law: How is overtime pay handled for employees working from home?

By Stephen E. ImmApril 20, 2020August 5, 2022

As a result of the current pandemic, millions more Americans are working from home than there were just a month ago. This significant change in circumstances presents a good opportunity for employers to review their policies when it comes to recording the hours worked by their employees, and the payment of overtime.

Remember that employees who earn at least $684 a week, and who are otherwise “exempt” from the overtime requirements of federal and state law, do not have to be paid additional wages or salary when they work more than 40 hours in a week. Keeping track of the hours these exempt employees work when they are working at home, therefore, is not important from a legal point of view.

Exempt or non-exempt?

This is a good time, however, for employers to make sure that they are correctly classifying their employees as exempt or non-exempt. If an employee is misclassified as “exempt” when he or she is not truly exempt from the overtime laws, the employer can be exposed to significant liabilities for unpaid overtime compensation and additional amounts.

For non-exempt employees, working from home creates some definite challenges when it comes to keeping track of hours worked, and making sure they are paid appropriately. All employers are required to keep accurate records of the hours worked by their non-exempt employees. Note that it is the employer’s responsibility – not the employee’s responsibility – to make sure that these accurate records are kept and maintained. For obvious reasons, it can be harder to keep track of an employee’s hours worked when he or she is working remotely, as opposed to when he or she is working on the employer’s premises.

Time-tracking policies

To make sure that employers comply with their duty to keep accurate time records, they should either have a software solution in place that keeps track of when an employee clocks in and out, or require employees to submit daily timesheets. Employees should also be reminded to clock in and out for lunch, and should be refreshed on the employer’s policies regarding authorization for overtime work.

It is also a good idea to tell employees, when working from home, that they are expected to maintain the same work schedule that they had when working at the employer’s physical location.

Conclusion

Whether you are an employer or an employee, if you have questions or need clarification about this complicated area of the law, please feel free to reach out to one of our employment attorneys. And stay safe!

Paycheck Protection Program: Have you applied?

By Christopher P. FinneyApril 19, 2020August 5, 2022

Over the weekend, I spoke with about a dozen 1099 or business-owner clients who (a) either still did not know about the Paycheck Protection Program or (b) did not intend to apply for various reasons. Some discussion of that.

If you don’t know about the program, educate yourself. It is broad and generous. It encompasses almost every sole proprietor, 1099 contractor and business owner in the nation. Read about it generally here and watch this webinar for employers with W-2 employees and this webinar aimed primarily at sole proprietors and 1099 contractors.
Do I have to suffer closure or severe economic damage under the COVID-19 crisis to be eligible? No. This program makes virtually no distinction between those severely impacted and those still operating “normally.” You do need to certify some impact from the COVID-19 crisis.
Isn’t this just another SBA loan program with lots of paperwork and loan fees? No, not at all. (a) First, it is a “forgivable loan.” (b) The primary condition is that you must continue to employ your employees for 8 weeks (or call them back if you already laid them off) after the loan is made. (c) If you meet that and a few other simple conditions, the “loan” becomes a grant. (d) It is east to apply. (e) There are no fees. (f) There is no loan guarantee. (g) Even creditworthiness is not considered. This program is designed quickly to get cash into the hands of businesspersons so they can maintain their payroll and avoid bankruptcy.
How do I apply? Call your bank. If you need more help, contact Rebecca L. Simpson of our office (513.797.2856). Candidly, it is fairly easy and straightforward.
But I read the program already is out of money? Yes, this is true, but it appears likely that Congress is poised to authorize another $300 billion this week. Our view is the program will be fully funded until every eligible business which applies has been funded.
Does the program apply to churches and other non-profits? The program does have special rules for churches, but it generally applies to all 501-C3s and C-19s (veterans organizations).
I don’t need the money; let someone else in need have the funds. This is certainly a justification for not applying, just so you have thought this through for yourself and your business. When this program is gone, we see it as highly unlikely it will be renewed on such generous terms.

Every businessperson has their hands full right now, navigating the shoals of uncertainty and change the COVID crisis has presented, but this program almost certainly is well worth your time and attention.

Paycheck Protection Program: Webinar on 1099 contractors is posted by Cincinnati Area Board of Realtors

By Christopher P. FinneyApril 17, 2020August 5, 2022

This morning, Finney Law Firm attorney Rebecca L. Simpson conducted a seminar hosted by the Cincinnati Area Board of Realtors on the Paycheck Protection Plan. A hearty thanks to Christy Beaver for pulling together this program.

This morning’s seminar focuses on how Realtors can qualify and apply for the program.

It is posted here.

This seminar comes on the heels of another seminar hosted by Empower U about the Paycheck Protection Program focusing on employers with W-2 employees.

A link to that previous webinar is here.

Please contact Rebecca L. Simpson (513.797.2856) if you need assistance with the PPP program.

Constitutional Law: Finney Law Firm and 1851 Center file suit against Dr. Amy Acton and Ohio Department of Health over COVID business shutdowns

By Christopher P. FinneyApril 16, 2020August 5, 2022

Today, Finney Law Firm and the 1851 Center for Constitutional Law filed suit in Federal District Court in Columbus, Ohio to enjoin the mandatory “stay at home” orders of the Ohio Department of Health. Named as a Defendant in the action Dr. Amy Acton in her official capacity as Director of the Ohio Department of Health.

The Plaintiff, Tanya Rutner Hartman, owner of Gilded Social: The Fancy Occasion Shop, a Columbus bridal shop, alleges that the official orders of Dr. Acton fail to have any meaningful due process protections built in for a fair hearing to determine what is an “essential” business and can stay open while the state imposes restrictions to prevent further spread of the virus.

The case has been assigned to Chief Federal District Court Judge Algenon L. Marbley for the Southern District of Ohio, sitting in Columbus. He has ordered the State of Ohio to brief the matter by 5 PM Friday, April 17, 2020 (tomorrow) and will hold a telephonic hearing Monday at 10 AM. He has promised a decision by Wednesday, April 22, 2020.

A copy of the Complaint is here.

The news release from the 1851 Center is here.

A Cleveland.Com story on the case is here.

For more information, contact Maurice Thompson of the 1851 Center for Constitutional law or Christopher Finney (513.943.6655).

Paycheck Protection Program: SBA runs out of authorized funds and stops taking applications

By Christopher P. FinneyApril 16, 2020August 5, 2022

The stated desire of Congress and the Administration in the Paycheck Protection Program (“PPP”) has been to get money into the hands of business owners — and keep workers off the unemployment line — absolutely as quickly as possible.

But that hasn’t prevented the endless delays and bickering between the democrat House and the GOP Senate in getting full appropriation for the program approved.

Read here that the Small Business Administration website now reads that it is “unable to accept new applications for the Paycheck Protection Program based on available appropriations funding. Similarly, we are unable to enroll new PPP lenders at this time.”

Watch this blog for further updates and contact Rebecca L. Simpson (513.797.2856) for more information on this program. She is keeping updated on the rules and the daily developments.

Ohio and Kentucky Property Tax: Is COVID-19 relevant to property valuation challenges this year?

By Finney Law FirmApril 16, 2020August 5, 2022

As part of our property valuation work, we have received calls from property owners in Ohio and Kentucky asking how the affects of COVID-19 will come into play in property valuation challenges brought this year.

Effective (or target) date of valuation challenge

As an initial matter it is important to know the valuation date at issue. In Ohio, the “tax lien date” is always one year in arrears, so a challenge that is brought this year is actually challenging the value of the property as of January 1, 2019. In Kentucky, the tax lien date is current, so a challenge filed this year is challenging the value as of January 1, 2020.

Timing of when to file a valuation challenge

Because the valuation is as a specific point in time, it is important to consider what was affecting value on that specific date. When hiring an appraiser for a BOR (Board of Revision) in Ohio, or PVA (Property Valuation Administrator) in Kentucky, the appraiser gives her opinion of value as of the tax lien date. So, for instance, if the overall market takes a tumble in March, that would typically not affect the value of a property two month’s earlier. But may suggest that the values were already heading downward in January.

Thus, a hotel or restaurant property owner contemplating a challenge in Kentucky based upon the drop in income due to the COVID-19 virus and the stay at home order, is unlikely to see much weight given to the effects of COVID-19. That said, comparable sales in the past few months (which may reflect the effect of COVID-19 on the real estate market may have some evidentiary weight worth presenting to the PVA.

A challenge next year may be more successful than this year in Kentucky.

For Ohio property owners, COVID-19 is less relevant this year. This is because, as discussed above, the relevant tax lien date is January 1, 2019. As with Kentucky challenges, comparable sales in the past few months can be used as evidence of the value as of January 1, 2019, although the BOR will likely give such sales less weight than sales closer to the tax lien date.

In Ohio, only one challenge per three-year cycle

In Ohio the county auditors revalue properties every three years (the “triennial”). For Hamilton and Clermont Counties 2019 is the last year of the triennial. A new triennial will start with the 1/1/2020 value determined later this year by the County Auditors. In Warren County, the last year of the triennial is 2020 – meaning that the Warren County Auditor will determine a new three year value as of 1/1/2021. As a general rule, property owners may only file one challenge per triennial (R.C. 5715.19(A)(2)). So a cautious approach me be the better approach.

If you’ve already filed a challenge in Ohio, it is worth a shot to raise the issue of COVID-19, but as discussed above, it may fall on deaf ears. For Hamilton County property owners, the best bet may be to wait until 2022 to file for the value as of 1/1/2021. For Warren County property owners, a better approach may be to file next year challenging the value as of 1/1/2020 (this may be a futile effort), but you will be able to refile again in 2022.

Legislative change?

The Ohio legislature is working on multiple bills in rapid succession to stabilize the economy and prevent economic hardship to businesses and property owners. Perhaps this will be one area where the inequity of January 1 versus April 1, 2020 property values will be addressed.

Thus, in light of the spate of COVID-19 relief acts, it would not be surprising to see the state legislatures act to provide property tax relief with a 4/1/20 or 5/1/20 effective or target date for 2021 valuation challenges. We will keep an eye on the legislatures in Ohio and Kentucky and update our blog as we learn more.

Conclusion

Ultimately, property owners should temper their expectations that the BOR or PVA will recognize the effects of COVID-19 on property values in this year’s challenges.

Hopefully the financial effects of COVID-19 will not be long-lasting. But if they are, it may be a better basis for a valuation challenge in 2021 or even 2022 (for an effective date after the COVID crisis broke out).

Contact Christopher P. Finney (513-943-6655) for assistance with your property valuation challenge.

How Will Coronavirus Affect Contractual Relationships and Obligations?

By Todd McMurtryApril 16, 2020

posted: Apr. 16, 2020
Todd McMurtry
Business Law
Contractual Obligations, COVID

The coronavirus pandemic has disrupted practically every aspect of American life. Whether closed by government order or by concerns about public safety, millions of businesses around the country have seen their operations come to a halt. Despite the overwhelming effect of COVID-19, it is not a certainty that an “Act of God” clause in a business contract will enable a party to ignore its obligations under the agreement.

Many contracts include force majeure provisions that account for situations where an outside event prevents a signatory from fulfilling contractual duties. If you’re thinking of relying on this type of provision to justify nonperformance or if a party to an agreement is invoking a COVID-19-related Act of God clause against you, here are some factors to consider:

Terms of the agreement — As in any contract interpretation matter, it’s critical to examine the document to see if a pandemic is mentioned specifically or generally as an event that would affect the parties’ rights. For example, the collective bargaining agreement between the National Basketball Association and its players’ union specifically refers to “epidemics” as a force majeure event that allows the league’s owners to withhold salary and potentially revoke the entire agreement.
Impossibility vs. difficulty — Many unexpected things can drastically alter the feasibility of meeting one’s contractual obligations. However, just because something has become more difficult, economically impractical or even dangerous, that does not justify the use of an Act of God exception. Even in a relatively recent case involving a highly contagious disease, Morocco wasn’t able to invoke force majeure to escape liability after it canceled a 2015 soccer tournament while the Ebola virus afflicted West Africa. Though holding the tournament might have been unwise and costly, the Court of Arbitration for Sport ruled that it was not impossible.
Foreseeability — Another consideration when a party seeks to defend its nonperformance by claiming an Act of God is whether the circumstance was foreseeable. Financial downturns (even severe ones), shipping problems, material shortages and other situations affecting contract fulfillment are usually considered foreseeable. In fact, some agreements specifically exclude common problems that might lead a contract partner to invoke a force majeure

The unique nature of the COVID-19 pandemic has thrust all of America into uncertainty. Counting on Act of God language to relieve you from your legal duties might not be a sure bet, even if you believe you have a compelling case. Taking prompt steps to communicate with contract partners might be a better way to reach a solution that acknowledges the harm that was done and modifies certain rights and obligations. By working with a skillful, creative business lawyer, you might be able to avoid a serious conflict over how force majeure is defined in your situation. If consensus cannot be reached, your attorney can advise whether you might succeed in a legal action.

About Finney Law Firm, LLC

Founded in 2014, FLF has grown to 15 attorneys located in offices in Eastgate and downtown Cincinnati with five major practice areas: Corporate Law, Real Estate Law, Employment Law, Commercial Litigation and Public Interest and Constitutional Litigation. FLF has the unique claim to three 9-0 victories at the United States Supreme Court for its public interest practice along with breakthrough class action work.

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

Tips for Defending Your Business Reputation Online

By Todd McMurtryApril 15, 2020

posted: Apr. 15, 2020
Todd McMurtry
Business Law
communications, online reputation

In cyberspace, a single negative review, tweet or Facebook post can inflict damage on a business that is difficult to undo. Effectively defending your company’s online reputation demands taking a proactive role rather than waiting until your company is attacked to jump into crisis-management mode. Here are some preventative steps you can take immediately:

Control your brand — Registering a website domain in your business name and doing the same on social media platforms helps prevent others from posing as your company online.
Publish your own content — If someone Googles your company, negative information posted by others may appear at the top of the search results. By publishing blogs, articles, videos, social media messages and other content that is in line with your brand, you can increase the likelihood of your posts appearing high in search rankings.
Encourage and respond to posts and reviews — Develop a record of positive repute by asking satisfied customers and other business contacts to post about or review your products or services online. Responding to positive feedback with thanks and encouragement can inspire more people to voice their appreciation. If someone writes a negative post, responding respectfully with your side of the story demonstrates candor and concern for the truth.
Establish social media and communications policies — Guidelines should be put in place so that anyone who communicates on behalf of your company on social media or anywhere else only should have a clear understanding of which topics should be discussed, what should be kept private and how customer service issues should be handled.
Follow online conversations about your company —By keeping aware of the reports and opinions people publish about your company, you can compile positive feedback while also catching negative impressions when they happen. Among the means available are setting up alerts via Google or using social media tracking software.
Know what to do in a crisis — Plan for the worst by devising a crisis management plan. It should designate who at your company will be in charge of speaking for the company in the event that negative information online poses significant harm. It should also address who should be in charge of developing and implementing damage control measures.

About Finney Law Firm, LLC

FLF also has an affiliated title insurance company, Ivy Pointe Title, LLC, that closes and insures nearly a thousand commercial and residential real estate transactions annually.

For more information about Finney Law Firm, visit finneylawfirm.com.

Media Contact: Mickey McClanahan; mickey@finneylawfirm.isoc.net; 513.797.2850.

Paycheck Protection Program: SBA clarifies treatment of self-employed and independent contractors

By Rebecca L. SimpsonApril 14, 2020August 5, 2022

Some of the most common questions about the Paycheck Protection Program (PPP) over the last couple of weeks have been how it applies to those who are self-employed and/or receive 1099 income. The Small Business Administration (SBA) has now issued an “Interim Final Rule” addressing many of these questions. Here are some highlights:

Eligibility

Those who have income from self-employment and file a Form 1040, Schedule C for tax purposes are eligible for the PPP if:

You were in operation on February 1, 2020;
You are an individual with self-employment income (such as an independent contractor or sole proprietor);
Your principal place of residence is in the United States; and
You filed or will file a form 1040 Schedule C for 2019.

One exception applies to partnerships and LLCs filing taxes as a partnership. In general, the partnership must file for the PPP rather than the individual partners.

Calculation of Maximum PPP Loan

If you have no employees, in general, your maximum loan amount will be 2.5 times your average monthly net profit, which is calculated using the amount on your 2019 IRS Form 1040 Schedule C Line 31 (the Line 31 amount is capped at $100,000)
If you have employees, you will also add in eligible amounts of your W2 payroll to employees in calculating your maximum loan amount
If you received and Economic Injury Disaster Loan (EIDL) between January 31, 2020 and April 3, 2020 that may impact your loan amount as well.

Forgiveness of PPP

The rules with respect to how self-employed individuals and independent contractors must spend the funds are similar to the rules for small businesses with one significant exception. The amount that self-employed and independent contractors can spend on “payroll” for themselves (meaning net profits in their case) is capped at an amount equal to eight weeks worth of net profit (8/52 of 2019 net profits).

Conclusion

This new SBA Interim Final Rule also indicates the SBA will issue further guidance for individual with self-employment income who were not in operation in 2019, but who were in operation on February 15, 2020.

The Finney Law Firm will continue to post updates on the PPP. If you have questions or need help with your particular situation, please feel free to contact Rebecca L. Simpson (513.797.2856).

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