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Ohio Real Estate Law: Constructive and Resulting Trusts: Little-Known Exceptions to a Well-Known Rule

Author By Casey A. JonesPosted on

As first-year law students and many even outside of the legal community know, the “statute of frauds,” codified in Ohio R.C. 1335.04, requires that any interest in land be evidenced by a writing.

Principle of Part Performance

But this general principle is not without exception. One of the more commonly referenced exceptions is part performance. Sites v. Keller, 6 Ohio St. 483, 489-490 (1834) (“Whenever an agreement has been partly performed, and the terms of it are satisfactorily found, it will be enforced notwithstanding the statute.”); Shahan v. Swan, 48 Ohio St. 25, 37, 26 N.E. 222 (1891) (“[I]f the acts of part performance clearly refer to some contract in relation to the subject matter in dispute; its terms may then be established by parol.”).

Other exceptions

However, lesser-known exceptions exist, as well, and are frequently neglected in the statute of frauds discussion. This has resulted in a misunderstanding among many as to the scope of the statute of frauds and when it precludes a claimed interest in land. Specifically, there are two types of equitable trusts that effectively circumvent the harsh consequences of requiring strict compliance with the statute of frauds: a constructive trust and a resulting trust.

Ohio Constructive Trust

“A constructive trust arises by operation of law against one who through any form of unconscionable conduct holds legal title to property where equity and good conscience demands that he should not hold such title.” Dixon v. Smith, 119 Ohio App.3d 308, 319, 695 N.E.2d 284 (3d Dist. 1997). Where one “who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable means . . . either has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy,” equity will create a constructive trust. Ferguson v. Owens, 9 Ohio St.3d 223, 225, 459 N.E.2d 1293 (1984).

Additionally, at least one Ohio court has suggested that, “[d]espite the above cited language . . . a constructive trust may exist even where there is no evidence that the title to the property was obtained by improper means.” McGrew v. Popham, 5th Dist. No. 05 CA 129, 2007-Ohio-428. ¶¶ 17-19, citing Groza-Vance v. Vance, 162 Ohio App. 3d 510, 520 (10th Dist. 2005). The creation of a constructive trust is premised upon the unjust enrichment that would result if the person holding legal title to the property were allowed to retain it. Ferguson, at 226.

Ohio Resulting Trust

The Ohio Supreme Court has also recognized “a resulting trust as one that the court of equity declares to exist where the legal estate in property is transferred or acquired by one under circumstances indicating that the beneficial interest is not intended to be enjoyed by the holder of the legal title.” Univ. Hosps. of Cleveland, Inc. v. Lynch, 96 Ohio St.3d 118, 772 N.E.2d 105, 2002-Ohio-3748, at ¶ 56, citing First Natl. Bank of Cincinnati v. Tenney, 165 Ohio St. 513, 515, 138 N.E.2d 15 (1956). This concept is easily understood in the purchase-money context – “where property is transferred to one person but another pays the purchase price, the law presumes a resulting trust exists in favor of the person paying for the property.” Hollon v. Abner, 1st Dist. No. C960182, 1997 Ohio App. LEXIS 3814, at *5 (Aug. 29, 1997); Perich-Varie v. Varie, 11th Dist. No. 98-T-0029, 1999 Ohio App. LEXIS 3990, at *7-*8 (Aug. 27, 1999).

For example, in the Perich-Varie case, the court found that where an individual had been making the mortgage payments on property legally held in his former in-laws’ names, he had a full ownership interest in the property. This was true even though the in-laws argued that the mortgage payments were merely “rent” and even though he had only paid $12,000 of the $33,000 mortgage on the property. Perich-Varie, at * 4-5, * 10-11. To eliminate any inequity (after all, that’s what a resulting trust is all about), the Eleventh District required the lower court to order that the mortgage first be satisfied so that the in-laws were not obligated under a mortgage on a property in which they had no interest. Id., at * 14.

Conclusion

As you can see, constructive and resulting trusts represent some pretty significant departures from the rigid statute of frauds in the name of “equity.”  While a lot of confusion, disagreement, and, ultimately, litigation can be avoided by putting matters involving real property in writing, those who find themselves in a situation where their interest has not been reduced to writing are not necessarily without recourse if one of these equitable remedies applies.

 

Subrogation liens for medical bills paid by insurers in personal injury and medical malpractice cases

Author By Casey A. JonesPosted on

Many are surprised to learn that, if they receive a settlement or reward on a personal injury or medical malpractice claim, they are required to essentially “pay back” any party that paid medical bills on their behalf. This is called subrogation, and insurers may have both a contractual and an equitable right to it. Blue Cross & Blue Shield Mut. of Ohio v. Hrenko, 72 Ohio St. 3d 120, 647 N.E.2d 1358 (1995); Warmack v. Arnold, 195 Ohio App. 3d 760, 765 (1st Dist. 2011).

For example, if Joe gets rear-ended and suffers $10,000 worth of medical expenses (note: this is separate and apart from any property claim he may have for damage to his vehicle), $5,000 of which are paid by his auto insurance, $4,000 of which are paid by his health insurance, and $1,000 of which he pays out of pocket, Joe is required to pay his auto insurance and health insurance companies back for any amounts they paid on his behalf (here, $5,000 and $4,000 respectively).

This information often leads to a certain degree of panic to the tune of “What if I don’t get any settlement or I lose my case? Do I still have to pay them back?!” The answer is no. If you haven’t signed any sort of release interfering with the insurer’s rights, the insurer is free to pursue payment from the at-fault party. If there is a lawsuit filed, the insurer should be put on notice of that action and can protect their own interests accordingly.

The idea is just that an insured generally cannot interfere with the insurer’s right to subrogation, so any settlement ultimately needs to be approved by the insurer. See generally Chemtrol Adhesives, Inc. v. American Mfgrs. Mut. Ins. Co., 42 Ohio St. 3d 40, 537 N.E.2d 624 (1989) (explaining that where an insured releases his rights to claim injury under a settlement agreement, the subrogation rights of the insurer are effectively barred).  Perhaps the most common instance where an insurer refuses to consent to a settlement is where the settlement amount is less than what the insurer paid and, thus, would not compensate it. See, e.g., Erie Ins. Co. v. Kaltenbach, 130 Ohio App. 3d 542 (10th Dist. 1998) (requiring the insured to pay back the insurer in the full amount of the settlement where the insured accepted settlement of $4,462 despite subrogation liens totaling $5,000).

However, in many cases, insurance companies are actually willing to reduce the amount they will accept in satisfaction of their subrogation lien if it will help to inspire a settlement. This sometimes results in the injured/insured walking away with more money in his or her pocket.

Navigating the waters of insurance settlements, releases, subrogation liens, subrogation reductions, etc. can be tricky. This is where having an attorney with knowledge and experience in these matters can create immense value. Our firm has successfully handled various types of personal injury and medical malpractice claims. I would be happy to discuss with you any claims you believe you may have to determine if we can create value for you.

When Limited Liability Isn’t So “Limited”

Author By Casey A. JonesPosted on
Casey Taylor write on Ohio commercial real estate brokerage liens
Casey Taylor, attorney

Our firm has previously written on the creative ways one can shield his or her personal assets through the corporate or limited liability structure. As noted in that entry (Link Here), “Ohio courts and courts throughout the nation have been pretty vigilant in protecting the corporate veil of owners of corporations and limited liability companies.”  However, this general principle is not without a couple of narrowly drawn exceptions, explored below.

Formation of LLCs

The Finney Law Firm deals regularly with clients and other parties that are organized as limited liability companies (“LLCs”) or corporations.  After all, these entities are fairly simple to create – one must simply fill out an online form or two, submit a relatively small fee to the Secretary of State, and they are then able to transact business without fear of personal liability, right? Maybe not.

The powerful “corporate veil” protection of an LLC

Generally, an LLC member cannot be held personally liable for the torts or contractual obligations of the LLC solely by virtue of his or her membership in the LLC. City of Lakewood v. Ramirez, 2014-Ohio-1075, ¶ 11 (8th Dist. 2014). Thus, if an LLC defaults on its obligations under a contract, an adverse party cannot obtain judgment against the LLC members’ or managers’ personal assets.  It is for this reason, along with its ease of formation, that the LLC structure is so desirable to many. And, most of the time, it succeeds in its purpose of precluding judgment against the members’ personal assets.

Narrow exceptions

However, there are two sets of circumstances under which the limited liability structure does not shield members from personal liability.

1.   Piercing the corporate veil

The first is where the court deems it proper to “pierce the corporate veil,” thereby removing that protection of limited liability.

[I]n order to pierce the corporate veil and impose personal liability upon [members or managers], the person seeking to pierce the corporate veil must show that: (1) those to be held liable hold such complete control over the corporation that the corporation has no separate mind, will, or existence of its own; (2) those to be held liable exercise control over the corporation in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity; and (3) injury or unjust loss resulted to the plaintiff from such control and wrong.

Stewart v. R.A. Eberts Co., 2009-Ohio-4418, ¶ 16 (4th Dist. 2009), citing Belvedere Condominium Unit Owners’ Ass’n v. R.E. Roark Cos., 67 Ohio St. 3d 274, ¶ 3 of the syllabus, 617 N.E.2d 1075 (1993).  The idea behind piercing the corporate veil is that there is so little separation between the individual and the LLC, that they can almost be considered “alter-egos” such that it is not unreasonable to hold the member or manager of the LLC personally liable for the debts, obligations, and/or liabilities of the LLC.

2.  Member’s own acts, ommisions or fraud

The second instance where a member can be held personally liable notwithstanding the limited liability structure is where the members’ own acts or omissions constitute fraud. R.C. 1705.48; See also Deitrick v. Am. Mortg. Solutions, Inc., 2007-Ohio-839, ¶ 19 (10th Dist. 2007) (finding that a “corporate officer can be individually liable in tort if the promises contained in the contract are fraudulent” and “even if he commits the fraud while in the course of his corporate duties”); Stewart, at ¶ 30 (“[N]either the corporate shield, nor a shield of limited liability insulates a wrongdoer from liability for his or her own tortious acts.”). Additionally, this second instance is not contingent upon the first (i.e., a litigant who seeks to hold an LLC member personally liable for the member’s own fraud need not first pierce the corporate veil in order to do so).  Yo-Can, Inc. v. Yogurt Exch., 149 Ohio App. 3d 513, 527 (7th Dist. 2002) (“[P]laintiffs need not pierce the corporate veil to hold individuals liable who allegedly personally commit fraud.”).

Conclusion

Thus, while the LLC or corporate structure are very successful at providing owners/members with a great deal of protection the overwhelming majority of the time, one shouldn’t make the mistake of thinking his or her personal assets are entirely immune regardless of the circumstances.

Good Funds Law updated again: Checks can be up to $10,000

Author By Christopher P. FinneyPosted on

In April of this year, the Ohio legislature passed an updated Good Funds Law for transactions involving residential real estate to mandate, among other things, wire transfers for amounts in excess of $1,000, with a few exceptions.

Now, that amount has been increased to $10,000.

So, the new rule is that a ll funds coming into a title company to fund a residential real estate transaction must come in in one of the following ways:

  • Electronically-transferred funds, including wire transfers;
  • Personal checks, cashier’s checks, money orders or Official Checks of $10,000 or less;
  • Automated clearing house (ACH) transfers; or
  •  Checks from a real estate broker’s escrow account.

We will keep you updated with further changes in the law so that we can continue to be “accurate and on-time, everytime.”

Thank you, one and all.

Author By Christopher P. FinneyPosted on

I want to extend a warm and sincere “Thank You” to the attorneys, staff, vendors, and clients of Finney Law Firm, LLC who have joined together to make our firm — dedicated to “Making a Difference” for our clients and in our profession and community — a tremendous success in our first four years in operation.

We started our new firm in Eastgate in the fall of 2013 with a great group of attorneys, a loyal and experienced staff, a top-notch lineup of vendors and a solid core of clients.  Since then, we have attracted more talented attorneys and staff, and have been met with simply overwhelming response from our clients.

We started with just four attorneys and three staffers.  Since then, we have grown to nine full-time attorneys, and are about to add our tenth.  We have expanded the law firm at Ivy Pointe in Eastgate three times, and eventually added space in the Rookwood Pottery building in Mt. Adams.  Just weeks ago, we tripled our space at Mt. Adams, so that the two offices are now roughly equal in size.

Under the leadership of attorney Rick Turner, we started Ivy Pointe Title, LLC in the fall of 2014 to support our commercial real estate closings and added to that base residential transactions.  He started with one full-time staffer, and now oversees an operation of seven full time employees. Due to tremendous success under his leadership, in November, we plan on doubling the size of the title company.

Our journey has taken us three times to the United States Supreme Court (with three unanimous victories) and numerous times to the Ohio Supreme Court.  We have handled dozens of multi-million dollar corporate and real estate transactions for our small business clients, and we have saved clients more than five million dollars in real estate taxes.  We successfully have handled numerous class actions for clients, including acting as local counsel for the ground-breaking class action against the Internal Revenue Service.  All of this is while we have daily served, client-by-client, to “make a difference” in their transaction or litigation matter.

These accomplishments are the result of the combined efforts of many people, and to each and every one of them I owe my deep gratitude.  The engine of commerce, the laboratory of legal innovation, and the commitment to client service we have made together is enduring and flourishing, ultimately, because we all work together to provide value for our loyal clients in each assignment.

Thank you, most sincerely, for making this such a fun, rewarding adventure!

Christopher P. Finney, President

Ohio Employment Law: Can an Employee lawfully be fired based on a completely False Accusation?

Author By Stephen E. ImmPosted on
Suppose someone is falsely charged with a crime. They’re innocent until proven guilty, right? They have the right to a trial, to a lawyer, and to confront their accusers, right? They have a right to defend themselves and be judged by a jury of their peers, right? And if they are innocent, they may be exonerated and vindicated, right?
 
All true. And these rights are a cherished part of our democracy. It’s all part of what we Americans call “Justice.” And most of us would see the heavens fall before we would allow a citizen to be punished for committing a crime without having  these rights honored.
 
But suppose someone is falsely accused of doing something wrong AT WORK. Say they were accused of committing sexual harassment when they did no such thing. Or suppose they were falsely accused of doctoring time records, or some other act of dishonesty. And suppose they get fired on the basis of this false accusation. Surely they would have some protection from such false accusations, right? After all, getting fired is serious business. It can harm someone as much or more than getting charged with a crime.
 
The reality, though, is that for most employees there is little or no protection from being fired on the basis of a false accusation. Unless the employee is in a union or in the classified civil service of the government, the employee is considered “at will.” This means that they serve “at the will” of their employer, and thus that they can be fired for any reason that is not “contrary to law.” This can include entirely false and even “made up” reasons. So unless the employer’s ultimate motivation for firing the employee is an illegal consideration (like discrimination) there is often no legal remedy for the “at will” employee who is fired on the basis of a false accusation. They can be punished without a trial, without a fair chance to defend themselves, and without any due process.
 
This is hard for many people to understand or believe. We are a nation that believes in justice, fairness, and rights. When I tell clients that an at will employee may not have any legal recourse after being fired on the basis of a false accusation, I am often met with blank stares. People have trouble believing that can be true in America. But the truth is that few people have less rights than an at will employee fired on the basis of a false allegation.
 
If the employer repeats the false accusation to third parties – such as to prospective employers who call for a reference on the fired employee – then in that instance the employer may be liable for defamation of the employee’s character.
 
But otherwise the falsely accused employee often can get no “justice” for what may be an extremely unjust act.

 

Ohio Employment Law: Does the Now Famous Fired Engineer Have a Legal Claim Against Google?

Author By Stephen E. ImmPosted on

There has been a firestorm of controversy recently over Google’s decision to fire James Damore. Damore is the software engineer who wrote an internal memo – subsequently leaked – that criticized the company’s policies on diversity and inclusion.

Specifically, Damore claimed that biological differences between men and women may account for the fact that women are under-represented in tech positions at Google and elsewhere. Google fired Damore for his statements, and his termination has been widely debated – earning praise from liberal groups and scorn from conservatives.

But was Damore’s firing LEGAL? Does he have a legal case against Google for wrongful discharge?

For a lot of people, this is a First Amendment issue. They say, “Doesn’t he have the right to express himself? Aren’t his Constitutional rights being violated if he is fired for speaking his mind, whether we agree with him or not?”

The answer to THAT question is “no.” The First Amendment applies to actions taken by the government, not by private employers. It would protect Damore from any action taken by the government, but not from action taken by Google.

But Damore still might have a case. He has already filed an unfair labor practice charge with the National Labor Relations Board. The law says that employees are protected when they engage in “concerted activity” with one another regarding the terms and conditions of their employment. Damore’s claim with the NLRB alleges that his memo – sent to other Google employees – was “concerted activity” about a company policy that affected the employment conditions of he and his fellow employees.

Additionally, Damore claimed in his memo that the company’s diversity program discriminated against men, because – he claimed – it gave female applicants and employees unfair advantages in hiring and promotion decisions. He can claim – and probably will claim – that he was terminated in retaliation for opposing what HE saw as discrimination in the workplace. Firing an employee for expressing opposition to what they REASONABLY BELIEVE is unlawful discrimination is illegal.

Note that the employee doesn’t have to be RIGHT that illegal discrimination is occurring. He or she just has to “reasonably believe,” in good faith, that it is. If they have that reasonable belief, the employee is often protected from retaliation for expressing their opposition to the practice.

This case raises some very interesting issues about employment law and discrimination, and will be very closely watched by many different advocacy groups – and practicing lawyers like us – in the coming months and years.

Estate Planning with Digital Assets

Author By Eli N. Krafte-JacobsPosted on

Technology consumes the lives of most Americans.  In fact, humans create an estimated 2.5 quintillion bytes of data each day and an estimated 90 percent of all the world’s data was created in the last two years.[1]  In perspective, 2.5 quintillion bytes of data is equal to about 530 million songs or 90 continuous years of HD video.[2]  Holding power and control over digital assets is advantageous to the owner, but many jurisdictions do not have laws to effectively govern what happens to a deceased person’s digital assets.  Prior to April of this year, Ohio was one of those jurisdictions.

Ohio House Bill 432 (HB432) was signed into law by Governor Kasich at the end of 2016 and it became effective April 6, 2017.  This Bill, otherwise known as the Omnibus Probate Bill, made significant changes to estate administration in Ohio.  Chief among those changes was the adoption of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA).  Under the original Uniform Fiduciary Access to Digital Assets Act (UFADAA), fiduciaries were authorized to manage digital property such as computer files, web domains, and virtual currency, but it restricted a fiduciary’s access to the substantive content of electronic communications (e.g., email messages, text messages, social media accounts, etc.).  However, HB432 and RUFADAA extended the reach of a fiduciary to include the power to manage a person’s substantive digital assets.

Rather than granting this power across the board, HB432 outlines the means through which an individual may grant such power to his or her fiduciary.  These means include: (1) online tools offered by a custodian or possessor of digital assets and through which an individual can select how their digital assets will be treated, (2) a will, trust, or power of attorney, and (3) the custodian’s terms of service.[3]  The foregoing means are listed in order of descending authority.  In other words, an online tool supersedes the terms of a will or trust, which supersedes the custodian’s terms of service, which supersedes the default RUFADAA rules.

As estate planning catches up with technology, it is important to understand how newly enacted legislation can affect your rights.  With Ohio’s recent adoption of RUFADAA, individuals now have greater control over what happens to their digital assets after death.  As is good practice with estate planning, individuals seeking to exert a measure of control over their digital assets after death should consult with an estate planning attorney.

[1] Bringing big data to the enterprise, IBM.com, https://www-01.ibm.com/software/data/bigdata/what-is-big-data.html (last visited May 25, 2017).

[2] Mikal Khoso, How Much Data is Produced Every Day?, Ne. U.: Level (May 13, 2016), https://www.northeastern.edu/levelblog/2016/05/13/how-much-data-produced-every-day/.

[3] See generally, Ohio Rev. Code § 2137.03 (2017).

Finney Law Firm brings free speech suit against Cleveland MetroParks

Author By Finney Law FirmPosted on

 

The Cleveland Park District has a policy requiring people obtain permission before engaging in any “First Amendment Activity” within Cleveland parks. And, once granted permission,  one must  remain within a specific (often remote) designated First Amendment zone.

During a recent Edgewater Live concert (think the old Party in the Park), our client, Alison Abdul-Kareem, attempted to circulate petitions in support of an initiative to place an issue decriminalizing misdemeanor amounts of marijuana on Cleveland’s ballot this November.

Ms. Abdul-Kazeem refused to either apply for a permit, or limit herself to the free speech zone (a 15 minute walk from the area of the park hosting the concert series). Thus, park rangers, enforcing the Park District’s policy proceeded to harass our client, including at one point surrounding her standing only a few feet away from her, thus frightening off any would be petition signers. Our suit, styled Alison Abdul-Kazeem v. Board of Commissioners of the Cleveland Metropolitan Park District, et al. 17-cv-01613, seeks to vindicate the right of Abdul-Kazeem, and others, to exercise their First Amendment rights throughout the public areas of public parks, without the threat of official harassment.

As first year law students learn, because initiative petitioning goes to the essence of self-government and constitutes and implicates core political speech and associational rights, “First Amendment protection for such interaction…is ‘at its zenith.’” (Buckley v. American Constitutional Law Foundation, Inc., 525 U.S. 182, 183 (1999), quoting Meyer v. Grant, 486 U. S. 414, 425 (1988)).

A Finney  Law Firm attorney filed the complaint and motion for a temporary restraining order and preliminary injunction on Tuesday  in the U.S. District Court for the Northern District of Ohio, and Judge Dan A. Polster has ordered the Park District to respond by noon on Wednesday and will hold conference on the motion at 3 p.m. on Wednesday. We are pleased to see the Court acting with such speed in this matter; and are hopeful that the Court will issue the injunction, allowing our client and other petition circulators free access to Edgewater Park in time for the next concert on Thursday – the last such event before petitioning ends for this year (petitions must be turned in by next Wednesday in order to qualify for the November 2017 ballot).

A copy of the complaint and motion are available here and here.

Cleveland.com has an article on the lawsuit here.

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