Monday, December 27, 2010

Happy Holidays & Year End Review - Comments and Feedback are Welcome

I would like to wish everyone a belated happy holidays and a happy new year!! I've decided to take a little break for the holidays and will catch up after the new year. 

I would like to thank everyone who reads this blog for visiting my site. Since its launch, I have invested a lot of time and energy in this blog and have had no idea if it would be able to garner any attention or support to want to continue it into the long-term.  Luckily, I've gotten a lot of positive feedback from people and have seen a substantial increase in web traffic to the site since its launch. This past month the site had over 400 visits and nearly 1,300 page views.  I hope that those visiting found my posts informative and useful.  

My blog is still fairly new (about 3-4 months old) and I am still developing the site and its content. I figured that now would be a great time to reflect and to hopefully get some feedback on how YOU think my blog is doing and what you would like to see changed or improved.

After sifting through my Google Analytics results I know that there are at least a few people who visit this site on a regular basis. I would especially love to hear from You, "the regular."  Please, tell me what you think. Feel free to leave comments, e-mail me, or contact me on facebook and let me know what your thoughts and opinions are about this blog. 

Again, thank you to everyone for visiting. I hope to continue posting and offering quality content in the next year. Have a great holiday and new year!

Monday, December 20, 2010

Ohio Northern District Rules Against Allowing Redaction of Non-Responsive Information In Document Production Discovery Dispute

During litigation, information that is considered discoverable under the civil rules is quite broad. Under Federal Rule of Civil Procedure 26(b)(1), "[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense."

However, when involved in litigation, parties typically want to disclose as little information as possible to an opposing side. Notwithstanding disingenuous motives and disputes, the line between information that is considered discoverable and information that is not can be a fine one; the validity of various tactics and arguments to withhold and conceal information in discovery can be as well. In Arcelormittal Cleveland Inc. v. Jewel Coke Company, L.P. (N.D.Ohio Dec. 16, 2010),  a $100 million dollar breach of contract dispute involving furnace coke, the Ohio Northern District ruled on the legitimacy of one such tactic, the ability of a party to redact information from its document production that it considers unresponsive or confidential.  

In Arcelormittal, the defendant, in response to plaintiff's document requests, produced documents with many portions containing redacted information. Unsatisfied with this production, the plaintiffs filed a motion to compel, requesting the court to order production of non-redacted versions of all documents that the defendant produced. The defendant argued that redactions were allowable because the information was unresponsive and confidential. On the other hand, the plaintiff argued that "irrelevance" was not a proper ground to redact information. 

The court noted a split in authority among courts on the issue of whether redaction is an appropriate way to shield irrelevant or confidential information material from discovery.  Compare Spano v. Boeing Co., 2008 WL 1774460, at *2 (S.D. Ill, Apr. 16, 2008) (redaction is a proper way for a defendant to produce a document that contains both relevant and irrelevant information), Beauchem v. Rockford Products Corp., 2002 WL 1870050 (N.D. Ill. Aug. 13, 2002) (same), & Schiller v. City of New York, 2006 WL 3592547 (S.D.N.Y. Dec. 7, 2006) (same) with Orin Power Midwest, L.P. v. America Coal Sales CO., 2008 WL 4462301, at *2 (W.D.Pa. Sept. 30, 2008) (holding that redaction is not allowed under rule 34) & Metronic Sofamor Danek, Inc. v. Michelson, 2002 WL 33003691, at *4-5 (W.D.Tenn., Jan. 30, 2002) (same).  

In making its ruling the court relied heavily on a recent decision by Ohio's Southern District in Beverage Distributors, Inc. v. Miller Brewing Co., 2010 WL 1727640 (S.D.Ohio, April 28, 2010), which had previously analyzed the same split in authority in a similar decision. The court noted the important themes that the Beverage Distributors court recognized when reconciling the two lines of authority:
“(1) redaction of otherwise discoverable documents is the exception rather than the rule; (2) that ordinarily, the fact that the producing party is not harmed by producing irrelevant information or by producing sensitive information which is subject to a protective order restricting its dissemination and use renders redaction both unnecessary and potentially disruptive to the orderly resolution of the case; and (3) that the Court should not be burdened with an in camera inspection of redacted documents merely to confirm the relevance or irrelevance of redacted information, but only when necessary to protect privileged material whose production might waive the privilege.”

With these three general themes in mind, the court found that there was no compelling reason for the defendant not to disclose information solely on the grounds that the defendant believed that the non-disclosed materials were not relevant or responsive.  Therefore, the Northern District granted the plaintiffs motion to compel production of the redacted information. 

Discovery disputes can be tricky. While this ruling may not apply in every situation, I think that the court made the right decision in this case. I think that the ruling is in line with recent changes to the federal rules that are meant to reduce the time and expense of litigation. If courts allow parties to redact all information in its document production that it believes is irrelevant and non-responsive, this would eventually have the effect of adding additional time and expense to litigation, as parties would likely spend extra time redacting information before production, and more disputes would likely arise over whether information redacted was actually non-responsive. If parties truly have information that is highly confidential and need to protect, they can seek a protective order from the court.     

Thursday, December 16, 2010

Recent Ruling On Account Agreements By Ohio's Sixth District Highlights Account & Billing Procedures That Every Ohio Business Should Make Sure It Has Implemented

This blog posts covers a recent rulings by Ohio's Sixth Appellate District in an account collection lawsuit. The ruling addresses a business's ability to apply the terms of its customer account agreements in collection actions (for review of what "actions on account" are and some of the requirements that must be met to collect on a past due account, see this previous post). At the end of this post, I review some procedures that all businesses should make sure they have implemented in light of this ruling. 

Enforceability of the Terms of an Account Agreement

When parties engage in business transactions for property or services, an "account" is formed.  In most account transactions, a formalized contract or agreement governs the transaction and sets out the terms, conditions, obligations, and rights of the parties. Credit card "accounts" are no different.  When consumers sign up for a credit card, they agree to certain terms and conditions (the fine print) that govern the transaction. Like many businesses, credit card companies include terms in there account agreements that are very legally advantageous.  For example, it is common for account agreements to contain large interest rates, fees, and penalties for late payments, mandatory arbitration clauses, choice of law provisions, and other terms that limit a debtor's ability to dispute or settle a debt on an account.  

But are these advantageous provisions enforceable? And, are there any limitations under Ohio law that effect the general enforcement of account agreements? This is the issue addressed by Ohio's Sixth District Appellate Court in Citibank (South Dakota) v. Perz., 2010-Ohio-5890 (6th Dist. Lucas Co., Dec. 3, 2010).

In Citibank, the court had to determine the enforceability of an account agreement provision that prohibited the settlement of an overdue account balance by a business's acceptance of a late and partial payment from its customer.  The debtor, Julie Benoit (also called Julie Prez) owed Citibank approximately $13,000 on two separate Citibank credit cards. In an attempt to avoid bankruptcy, Julie tried to settle her debt with Citibank by having her attorney mail Citibank $4,000 in the form of two restrictively indorsed checks for the full settlement of her account.

Citibank accepted Julie's settlement checks, but subsequently sued her for the rest of the money due on her accounts. It claimed that its acceptance of the partial payments (the two checks for $4000) could not settle the overdue accounts because the customer account agreement that Julie signed when she opened her accounts contained a provision that specifically prohibited the settlement of accounts by late or partial payment. The trial court agreed with Citibank, but on appeal, the Sixth District reversed.

The court found that Citibank's defense failed because there was no evidence that the "customer agreements" it provided to the court were the agreements that Citibank made with Julia when she opened her accounts with Citibank. The court noted that the agreements were nothing more than "unsigned, undated, and unathenticated generic forms" that contained no evidence at all that they "applied to [Julia], had any relation to her account, or were otherwise mailed or sent to her." Therefore, the court held that the agreements were unenforceable. Subsequently, the court also found that Citibank's acceptance of Julie's $4,000 settlement checks was a valid settlement of the debt.

Account Procedures that Every Ohio Business Should Make Sure
It Has Implemented

There are lessons to be learned from the Citibank case. The Citibank case demonstrates the risks and possible consequences that a business can face if it does not keep adequate records of its customer accounts agreements and billing statements. Although the case involves credit cards, its ruling is relevant to the billing and account procedures of any business that wants to ensure that the terms of its account agreements are enforceable and that it can collect on an unpaid account. The following is a short list of some procedures that all businesses should consider implementing in light of the Citibank case:

(1)  Keep original copies of signed and dated customer account agreements
       on record. This applies whether a company is conducting business strictly
       online or has a store with a physical presence. Only keeping records of 
       generic account agreements that a company uses or has used is not 
       sufficient;

(2)  Companies that frequently update customer account agreement terms or 
       have multiple account agreements should keep track of each individual 
       account agreement and the transactions that each governs;

(3)  When updating or changing a customer account agreement, establish a 
       record of the change and evidence that customers effected by the changes 
       were notified and accepted (or acquiesced, depending on the terms of an 
       account agreement) to the new terms.

Businesses looking for more advice on customer account agreements, collection of overdue accounts, and  refinement of billing and accounting procedures should contact an attorney in their area for more assistance.

Friday, December 10, 2010

Southern District Rules on the Retroactive Application of the New Changes to Federal Rule of Civil Procedure 26

In a previous post, I discussed one of the important changes to the Federal Rules of Civil Procedure that took effect on December 1, 2010 regarding the discoverability of Attorney-Expert Communications under FRCP 26. The topic of this post covers another important change to Rule 26 that took place on December 1, the new requirement of summary disclosures for non-testifying experts. It also covers a recent ruling by Southern Districts of Ohio, which clarifies whether the new changes to Rule 26 apply retroactively.

The Old Rule

Under old and current FRCP 26(a)(2)(B), expert witnesses retained by a party specifically to testify at trial must disclose a written report containing their opinions and other information.  Under the old rule, expert witnesses testifying at trial, but not hired or employed by a party specifically to testify at trial, were not required to submit any written reports. Only the disclosure of these witnesses' identities was required. An example of an expert who would not have to disclose a report under old Rule 26(a)(2)(B) is a "treating physician" (personal injury action, the emergency doctor who treated the plaintiffs injuries after an accident).  

New Rule

Under new Rule 26(a)(2)(C), all witnesses who previously may have fallen under the non-reporting requirement, like "treating physician," are now required to provide a "summary of the facts and opinions to which the witness is expected to testify." That is the new rule. 

No Retroactive Application of New Rule 26(a)(2)(C)

An issue that had yet to be truly known until the new changes took effect on December, 1, 2010, is whether the new changes to the rules apply retroactively. For example, what happens if a party, on 10/15/2010, before the new rule changes took effect, decides to call a "treating physician" to testify in a trial, which would take place on 1/15/2011, after the rule changes occurred?  Would the party: (A) have to disclose a summary of what they expected the witness to testify to under the new rule (Rule 26(a)(2)(C), or (B) would the party only have to disclose the identity of the witness (via old Rule26(a)(2)(B))? 

The Southern District of Ohio has answered the issue in the case of William J. Lattuga v. United States Postal Service, Case No. 1:09-cv-416, Doc# 29, Decided on November 29th, 2010. In Lattuga, the Defendant sought to exclude the testimony of two physicians who had been identified as expert witnesses, but had not disclosed summary reports as required by new Rule 26(a)(2)(C). Even though the new rules have taken effect, the court denied the motion because the new rule change "was not in place at the time expert disclosure was required."  In other words, the court held that the new rule change did not apply retroactively. 

This ruling seems to be in line with what most people were expecting would happen. Although courts have not yet formally ruled on the retroactive application of other rule changes that occurred on December 1st, like the discoverability of Attorney-Expert Communications, it can only be assumed that communications that occurred between attorney's and experts before the rule changes took place remain unprivileged and discoverable. The idea of parties signing agreements to apply the rules retroactively has been suggested to try to get around this procedural loophole.   

Sunday, December 5, 2010

Enforceability of Non-Competition Agreements Under Ohio Law

Non-competition agreements (also called "non-competes" and "covenants not to compete") are contractual agreements that require employees to agree not to engage in competitive activities after termination of an employment agreement. In this post, I cover the validity of non-competes and some of the requirements and limitations that exist regarding these provisions under Ohio law. 

(1)  Covenants Not to Compete Must Be "Reasonable"

Although non-competition agreements are restraints on trade and restraints on trade are usually frowned upon, non-competes are enforceable if they are "reasonable."  In Raimonde v. Van Vlerah, 42 Ohio St. 2d 21, 325 N.E.2d 544 (1975), the Ohio Supreme Court held that non-competition agreements will only be found reasonable when an employer can demonstrate that the restriction placed on a terminated employee: (1) is no greater than what is required for the protection of the employer's legitimate business interests, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public.   

Under this three part test, Ohio courts consider several factors when determining whether a non-compete agreement is reasonable, including: (i) how long the restriction lasts and the geographic area that the restriction covers, (ii) whether the employee was the sole contact with customers, (iii) whether the employee possesses confidential information or trade secrets, (iv) whether the covenant operates to bar the employee's sole means of support, (v) whether the covenant seeks to stifle the inherent skill and experience of the employee, (vi) the likelihood that the employee can find other employment if the restriction is enforced and (vii) whether the benefit to the employer is disproportional to the detriment of the employee. Id. at 25; Westco Group, Inc. v. City Mattress, No. 12619, 1991 Ohio App. LEXIS 3878 (2nd Dist., Aug. 15, 1991); Columbus Medical Equipment Co. v. Watters, 13 Ohio App. 3d 149, 468 N.E.2d 343 (10th Dist. Franklin Co., 1983).

The determination of what is "reasonable" will depend on the factual circumstances presented in each case.  A non-compete found reasonable in one context may not be reasonable in another. Compare Proter & Gamble Co. v. Stoneham, 140 Ohio App. 3d 260, 747 N.E.2d 268 (1st Dist. Hamilton Co., 2000) (non-compete protecting employer's interests in customer relationships, good will, and trade secrets found reasonable)  to Brentlinger Enterprises v. Curran, 141 Ohio App.3d 640, 752 N.E.2d 994 (10th Dist. Franklin Co., 2001) (similar agreement found unreasonable and unenforceable).

However, even when a non-compete is found unreasonable, this doesn't necessarily mean that its void as a matter of law. Courts have the power to modify and amend unreasonable agreements so as to enforce them as to the extent necessary to protect an employer's legitimate interests.  Raimonde, 42 Ohio St. 2d at 25-26.

(2) Non-Competes are Enforceable Against Independent Contractors

As found in the Americare Healthcare Servs. case that I discussed last week, Ohio courts, including the Supreme Court of Ohio, find non-compete agreements made between employers and independent contractors to be enforceable.  For example, in Hamilton Ins. Serv., Inc. v. Nationwide Ins. Cos., 86 Ohio St.3d 270, 1999-Ohio-162 (1999), the Ohio Supreme Court held that a non-compete clause in an agency agreement between Nationwide and its independent-contractor-agent was valid and enforceable.  Similarly, in Albert v. Shiells, 10th Dist. No. 02AP-354, 2002-Ohio-7021, the appellate court affirmed a grant injunctive relief based on a non-compete clause between a beauty salon and its former independent contract.

Therefore, the enforceability of a non-compete does not depend on a person's status as an employee or independent contractor. See, also, Carl Ralston Ins. Agency, Inc. v. Nationwide Mut. Ins. Co., 9th Dist. No. 23336, 2007-Ohio-507; SJA & Assoc., Inc. v. Glider, 8th Dist. No. 80181, 2002-Ohio-3545; Burton Minnick Realty, Inc. v. Leffel, (Sept. 28, 1990), 2nd Dist. No 2680 (holding that a non-compete clause between a real estate broker and an independent contract salesperson would be enforceable if the clause was determined to be reasonable on remand).

(3) Promises of Continued Employment Are Sufficient to Support Non-Competition Agreements

The Americare Healthcare Servs. case also addressed the issue of whether an employer's promise to continue to employ an employee (or independent contractor) is sufficient consideration to support a non-competition agreement. It is a fundamental principal of contract law that "mutual consideration" (or a bargained for mutual exchange of duties) must exist between parties of a contract in order for a contract to be valid.

In Americare, the defendants argued that non-competition agreements were unenforceable because the employer offered nothing in exchange to support the non-compete agreement. However, this argument failed. The Americare court found that the employee independent contractors "were required to sign non-compete agreements and were informed that the execution of a non-compete agreement was a condition of their continued employment or contracting relationship with Americare."

The court noted that both the Ohio Supreme Court and the 1st Appellate District Court in Hamilton County have held that "consideration exists to support a non-competition agreement when, in exchange for the assent of an at-will employee to a proffered non-competition agreement, the employer continues an at-will employment relationship that could legally be terminated without cause." Americare, supra, citing Lake Land Emp. Group of Akron, LLC v. Columber, 101 Ohio St.3d 242, 2004-Ohio-786 (2004); see Financial Dimensions, Inc. v. Zifer, 1999 Ohio App. LEXIS 5379 (1st Dist., Dec. 10, 1990) (the distinction of whether a person is an "employee" or "independent contractor" is "not relevant to the issue").

Therefore, an employer's promise of continued employment of an at-will employee is sufficient to support a non-competition agreement.


(4) Covenants Not to Compete are More Difficult to Enforce Against Physicians

Although a properly drafted non-competition provision/agreement can be found enforceable against anyone, it is particularly difficult to enforce non-competes against physicians. This is because it is more difficult to show that non-competes are reasonable under the three prong test mentioned above. Specifically, it is often difficult for employers to show that they have a legitimate business interest to protect in enforcing a non-compete against a doctor.  Additionally, keeping doctors from working is viewed as being against the public interest. See Ohio Urology, Inc. v. Poll, 72 Ohio App. 3d 446, 594 N.E.2d 1027 (1991); Frederick D. Harris, M.D. v. Thomas L. Craig, III, M.D., 2002 Ohio 5063 (8th Dist. 2002).


Conclusion

Issues underlying what is "fair" competition and what is not is a central issue that courts decide in business litigation cases. Whether a non-competition agreement made between an employer and former employee is fair and reasonable under the circumstances and supported by "mutuality of obligation" is something that all employers and employees should consider before they sign employment or affiliation agreements. The above post is a short list of some of the specific legal considerations that should be taken into account before a covenant not to compete is signed. 

Sunday, November 28, 2010

Non-Compete/Confidentiality Agreement Between Independent Contractor And Mistakenly Unincorporated Corporation Held To Be Valid And Enforceable By Ohio's Tenth Appellate District


Starting a business or making fundamental changes to the structure of a growing business can be an exciting, fast paced, and a potentially confusing experience for small business owners and entrepreneurs. Finding the time to deal with customers, manage employees, market products and services, and complete other daily tasks necessary to maintain and grow a business can be challenging enough. The added requirement of keeping a business legal can be time consuming and overwhelming.  When fundamental changes are undertaken without proper legal advice and support, mistakes can happen that lead to unnecessary risk and liability. 

A mistake that sometimes occurs, is a new or growing company forgets to file paperwork necessary to convert or register its business with the Ohio Secretary of State. This is what happened in Americare Healthcare Servs. v. Akabuaku, 2010 Ohio 5631, No. 10AP-777 (10th Dist., Franklin Co., November 18, 2010), when America Healthcare Services, LLC ("Americare"), a home health care agency, attempted to convert its business from a Limited Liability Company to a Corporation, but forgot to file the necessary paperwork to complete the conversion. When Americare subsequently filed a lawsuit against former employees who had violated non-competition agreements in their employment contracts, the former employees argued that since the non-compete agreements were with "Americare Healthcare Services, Inc.," (not Americare LLC) a corporation that did not exist when the agreements were signed,  the agreements were invalid and unenforceable.     

Under Ohio Law, a business that fails to properly incorporate may still be treated as registered corporation, if it meets the requirements of a de facto corporation or corporation by estoppel doctrine. 

To achieve the status of a de facto corporation, a business entity must make a good-faith attempt to comply with statutory provision governing incorporation.  Jade Sterling Sttel Co. v. Stacey, 8th Dist. No. 88283, 2007 Ohio 532.  In Americare Healthcare Servs., the court found that Americare did not qualify as a de facto corporation because, although Americare believed it had taken appropriate steps to incorporate by notifying all the entities that it worked with of the change and revising all of its forms to reflect a new corporate structure, it failed to file articles of incorporation with the Ohio Secretary of State, as required by O.R.C. 1701.04. See Jade Sterling (rejecting de facto corporation argument where business entity sent articles of incorporation to the Secretary of State, but failed to show any good-faith effort to verify or complete the incorporation); Quality Interiors, Inc. v. Am. Mgt. & Dev. Corp. (Dec. 7, 1990), 11th Dist. No. 89-T-4303 (no de facto corporation formed where articles of incorporation were not filed with the state).

However, the court did find that Americare qualified as a corporation by estoppel.  Under the corporation by estoppel doctrine, a person who enters into a transaction and treats an organization as a corporation will be estopped (disallowed) from later denying the existence of the corporation.  Society Perun v. Cleveland (1885), 43 Ohio St. 481, 490; Lowe v. Tire Clearing House Co. (Nov. 3, 1924), 8th Dist. No. 5253 (affirming judgment where the trial court found that the defendant was estopped from denying the plaintiff's corporate existence, having contracted with the plaintiff; "[w]hen a contract has been made from which a party has derived benefits, estoppel applies").  The court found that Americare qualified as a corporation by estoppel because  the former employees contracted with Americare, Inc., without objection, treated Americare as a corporation, and because it would not have been unfair to hold the defendants to there non-compete agreements. The court subsequently found the non-competition agreements to be otherwise valid and enforceable and affirmed the an injunction that was granted for Americare by the trial court.     

Although the court treated Americare as a corporation by estoppel and upheld the non-compete agreements made with the former employees, the case serves as an example of the unnecessary risks that a business can face when mistakes are made and basic legal requirements are not met.  Under different facts, the non-competition agreements may have not been found enforceable and Americare could have exposed itself unnecessary liability.  If you are in the process of launching or making fundamental changes to a business, you should contact an attorney in your area to make sure that you receive proper legal counsel for the process. 

Wednesday, November 17, 2010

Eighth District Rules that Facts Supporting Affirmative Defenses are Discoverable as Long as Parties ask for "Letters, Memorandum, and Other Documents"

Scenario:  Party A sues Party B alleging wrongful termination, pay discrimination, hostile work environment, unsafe work environment, and witness intimidation. Party B denies everything and asserts 27 Affirmative Defenses.   Party A's lawyer is pissed. Party B is a bullshitter and playing games. They get into a "heated  debate," call each other names, and make threats.  Finally, Party A files a motion to compel to get Party B to divulge the "exact factual defense[s]", of the 27, that Party B will actually prove in its case and to provide "specific reference to facts, exhibits, dates, witnesses, and transactions between parties."  Party B objects and claims that the facts and materials underlying its affirmative defenses are protected under the work-product doctrine. The trial court tells Party B to put up or shut up and grants Party A's motion to compel. Party B appeals.

This is what happened in Decuzzi v. City of Westlake, 2010 Ohio 5365, 2010 Ohio App. LEXIS 4518 (8th Dist. Cuyahoga Co., November 4, 2010). And the 8th District Appellate Court, reversed.  

The court found that the work-product doctrine applied and Party B did not have to produce any information.  Under Ohio Rule of Civil Procedure 26(B)(3), (the work-product doctrine) documents and other informations prepared in anticipation of litigation or for trial by a party or its representative do not have to be produced, unless good cause is shown.

The court found that Party A's request were too broadly worded. That its discovery requests asked Party B to divulge how it intended to defend its case and that this information was protectable work-product.  The court surmised that it didn't want to "rewrite [Party A's] interrogatories for them", but suggested that a more "proper discovery requests ask for letters, memoranda, and other documents that contain facts that support the [Party B's] affirmative defenses."  The court also scolded Party B stating that Party B knew "full well what type of information [was] sought and should not feign such sensitivity to opposing counsel's broad discovery." 

This sounds like a scenario that happens all to often. This case provides a nice guide on what type of things its okay to request from opposing counsel to test a dubious affirmative defense, and what type of requests are over-broad.  

Sunday, November 7, 2010

Amendments To Federal Rule Of Civil Procedure 26 To Take Effect Soon - New Rules Regarding Work Product Protections For Communications Between Expert Witnesses And Lawyers

A recent blog post by the North Carolina Business Litigation Report provides an important reminder that on December 1, significant changes to the rules governing civil practice in the federal courts will take effect. (the post incorrectly states that the rules change occurs Dec. 10.)  Most significant among the changes are revisions to Federal Rule of Civil Procedure 26, which governs the discovery of information from expert witnesses retained to testify at trial. 

Under the current and soon to be the old version of FRCP 26, when a lawyer retains an expert witness for trial, any communications a lawyer makes with the expert, or any draft reports prepared by the expert, are considered discoverable information.  As described by the revisers of the rule, the old rule tends to inhibit robust communications between lawyers and experts and has had the effect of leading attorneys to "take elaborate steps to avoid creating any discoverable record and at the same time take elaborate steps to attempt to discover the other side's drafts and communications [with its experts]." Committee on Rules of Practice and Procedure.  The new rules are supposed to better protect the work product of testifying experts and help reduce the costs of litigation

Under the revisions to FRCP 26, draft reports prepared by expert witnesses and any other communications between expert witnesses and a party's attorney are given the same protection already provided to other types of communication under the Work-Product Doctrine.  Specifically, the new rule provides that the Work-Product Doctrine applies to "drafts of any report or disclosure required under Rule 26(a), regardless of the form in which the draft is recorded."  The rule also applies to employee's and assistants of the expert witness. In other words, communication and drafts fully discoverable under the old rule are protected and not discoverable by opposing counsel any more. 

However, there are some limited exceptions to the new rule. The following categories of expert-attorney communications would continue to be subject to full discovery under revised FRCP 26 and will not garner work-product protection:  (1) Data or facts provided by the lawyer that the expert used in forming opinions; (2) Assumptions the attorney provided and the expert relied on in forming opinions; (3) Communications related to an expert's compensation. 

The changes are going to save a lot of time and money for litigants.  However, communications between lawyers and expert witness remain discoverable until December 1, 2010.  So continue to be careful until that date. 

Friday, October 29, 2010

Ohio Bar Exam July 2010 Results - Case Western Law School Finishes First

Ohio Bar Exam results are out for the July 2010 Bar Exam.  I passed! :-)  http://www.supremecourtofohio.gov/AttySvcs/admissions/Results/7282010.pdf


Congratulations to Case Western Reserve Law School, after years of dwindling bar passage rates, the school has regained its prominence with the highest overall passage rate in the state, 91%! Congrats to all that passed!

http://www.supremecourt.ohio.gov/AttySvcs/admissions/tabulations/10jul/10jul2.pdf

Saturday, October 23, 2010

Cleveland Morning From My Office

Defense to Credit Card Collection Lawsuits And "Account Actions" Under Ohio Law

An "account", is a right to payment for a monetary obligation.  Under Ohio Rev. Code § 1309.102 (2)(A), any sort of transaction that involves the sale, lease, license, or assignment of property, or a transaction for any type of performance of a service, is considered an account.  While many different monetary obligations represent "accounts," a very easy or common example is a credit card.  In exchange for credit in the purchase of goods and services, consumers incur a monetary obligation to the credit card company.  If a consumer does not pay their obligation on their account, the credit card company (or an assignee debt collector) may bring an action on the account to collect on the debt that is owed.

In order for a creditor or debt collector to bring a successful action on account it must jump through several hoops to prove that they are the party that is entitled to collect on the debt and that the amount of debt owed on the account is what they claim it is.  For example, Ohio Rules of Civil Procedure 10(D)(1) provides that "a copy of the account or written instrument must be attached to the pleading."  Additionally, where an assignee (debt collector) brings an action on an account obtained from another entity, it must establish the existence of a valid assignment agreement. Worldwide Asset Purchasing, L.L.C. v. Sandoval, 8th Dist. No. 2007-CA-00159, 2008-Ohio-6343, ¶26.

Other requirements also exist. To prevail in an action on an account, a copy of the account or written instrument attached to the pleadings must establish the existence of the account in the name of the party charged (the debtor), as well as,
"(1) a beginning balance of zero, or a sum that can qualify as an account stated, or some other provable sum; (2) listed items, or an item, dated and identifiable by number or otherwise, representing charges, or debits, and credits; and (3) a summarization by means of a running or developing balance, or an arrangement of beginning balance and items that permits the calculation of the amount claimed to be due." Great Seneca Fin. v. Felty, 170 Ohio App.3d 737, 2006-Ohio-6618, 869 N.E.2d 30, ¶6.
Capital Fin. Credit, L.L.C. v. Mays, 1st Dist. No. 09-CV-19312, 2010-Ohio-4423, addresses a valid defense to actions on accounts concerning the third requirement, the need to provide a running or developing balance of the amount due.  In Capital Finance, the Hamilton County Court of Appeals reversed summary judgment and remanded because the plaintiff debt collector failed to attach documents to the pleadings that itemized the credits and debits allegedly owed on an overdue credit card account. The court explained,
“When the balance due on a credit-card account is not substantiated by an itemization of the credits and debits leading to that balance, a genuine issue of material fact remains concerning the amount due on the account. Here, the evidence that CFC had properly placed before the trial court as attachments to the litigation director’s affidavit established only that (1) Mays had opened a credit-card account with Citibank under the terms of a credit agreement attached to the affidavit; (2) Mays’s account with Citibank had been properly assigned to CFC; and (3) according to the text of the affidavit itself, “[c]rediting all payments received to date, [Mays had an unpaid balance] of $7,909.43 plus interest at the rate of 23.90% per annum on $4,676.09 from June 5, 2009.” This statement in the director’s affidavit was the sole evidence establishing the amount due on Mays’s account. No evidence was presented that substantiated the credits and debits leading to that balance.”
Therefore, the court found that a genuine issue of material fact existed concerning the amount allegedly due on the credit card and it reversed the previous ruling of the trial court, which had granted summary judgment in favor of the debt collector.

Collection of an overdue debt is commonplace in business.  However, in order to collect upon an account, a running itemized balance of the debt must be provided.  The Capital Finance case serves as an important tool that can be utilized in defending an action for collection on an account. Alternatively, it is a reminder for all seeking to collect on unpaid bills of the requirements necessary to do so. 

Sunday, October 17, 2010

Denial of Discovery Motion Because of No Certification that Parties Attempted to Confer and Resolve There Dispute in Good Faith

A recent post by Chicago IP Litigation Blog highlights a decision by the Northern District of Chicago.  In Chamberlain Group v. The Lear Corp., No. 05 C 3449, Slip Op. (N.D. Ill. Jul. 15, 2010 (St. Eve, J), the court denied a motion to compel deposition of a witness in a patent case merely because the party seeking to compel the deposition failed to comply with the meet and confer rule.  

©Stu Rees. All rights reserved.
Other courts have similarly denied discovery motions when parties fail to comply with meet and confer requirements. See Frazier v. Southeastern Pa. Transp. Auth., 161 F.R.D. 309, 312 (E.D. Pa. 1995) (Plaintiff's motion for protective order denied because party failed to confer with Defendant prior to filing its motion in an attempt to resolve its dispute without court action); Doe v. Nat'l Hemophilia Found., 194 F.R.D. 516, 519 (D. Md. 2000) (Plaintiff's motion to compel answer to discovery interrogatories and document production requests denied because plaintiff failed to attempt to resolve its dispute with the defendant by even informal means); Gibbs v. Oklahoma Dep.'t of Transp., 1991 WL 405514 at *3 (W.D. Okla. August 21, 1991) (court denied otherwise meritorious motion to compel because counsel failed to follow meet and confer rule); Mr. Electric Corp. v. Khalil, 2008 U.S. Dist. LEXIS 103801 (D. Kan. December 23, 2008) (motion to compel answer of discovery requests denied because party did not meet requirement of including certification of a good faith attempt to confer and resolve the issue with opposing counsel).

Federal Rule of Civil Procedure 26(c)(1) is clear, a motion for protective order must include a certificate that the parties "in good faith conferred or attempted to confer with other affected parties in an effort to resolve the dispute without court action." These examples of the inability to follow a simple procedural rules is important because it burns everyones time and money.  They serves as an important reminder to read and follow the rules as they are written.


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Monday, October 11, 2010

Class Action Against Whole Foods for "Case Discount" Problems Certified by the Northern District of Ohio

In May 2010, Cathy Pfaff went to purchase a case of “365 brand water” at her local Whole Foods grocery store but did not receive the advertised 10% “case discount” on her purchase.  Most products Whole Foods sells can be purchased in bulk.  If items are purchased as such, they are eligible for a 10% "case discount."  This is true even if the product is typically sold as a single unit: “Customers wanting a case of something off the shelf (Cereal for example) should ask a [Whole Foods employee] and the [employee] should box up the product for them.”  Although Whole Foods advertised the 10% discount for products bought in bulk, the store never actually coded its registers to give the discount for many of its products.

On behalf of herself and all other consumers similarly situated, Cathy Pfaff has brought a class action case against the grocery chain on allegations of (1) fraud, (2) breach of contract, (3) breach of the duty of good faith and fair dealing, (4) negligent misrepresentation, (5) violation of the Ohio Consumer Sales Practices Act; (6) unilateral mistake; and (7) unjust enrichment.  In Pfaff v. Whole Foods Market Group, Inc., case no. 1:09-cv-02954 (N.D.Ohio September 29, 2010) the court agreed to certify the class and for it to include: 
“All Ohio residents who purchased a case of products from Whole Foods store in Ohio on or after September 8, 2009 for purposes that are primarily personal, family, or household, but did not receive the 10% case discount.”
The Ohio Northern District Court found that the plaintiff class definition met the requirements of numerosity, commonality, typicality, and adequacy as proscribed in FRCP 23(a).  The court also found that the plaintiff class met the requirements of predominance and superiority under FRCP 23(b).  

I shop at whole foods every now and again, but I don’t think I have ever tried to get a “case discount.” If you have, you may want to double check your receipt. 

Friday, October 8, 2010

Evidentiary Standards for Preliminary Injunction Hearings in the Sixth Circuit

A preliminary injunction is a temporary court order issued at the beginning of a case, which prevents a party from pursuing a particular course of conduct until the conclusion of a trial on the merits.  Rule of Civil Procedure 65 governs the issuance of preliminary injunctions.  Rule 65 states that a preliminary injunction "shall not be issued without notice to the adverse party.”  Fed. R. Civ. P. 56(a)(1).  Therefore, a party against whom a preliminary injunction is sought must be given an opportunity to appear at a hearing to argue that the injunction should not be granted.  A preliminary injunction is regarded as extraordinary relief.  In order for injunctive relief to be granted, the party requesting the injunction must show that there is a likely chance that they will succeed on the merits of their claims and that there is a substantial likelihood that they will be irreparably harmed unless an injunction is granted immediately.

The preliminary injunction hearing itself is much more informal than a regular trial. Since the hearing is held before a judge, many evidentiary issues, that normally arise in the presence of juries, are no longer that big of a deal.  To paraphrase a judge in a recent hearing that I attended, “I am a big boy and can figure out what value to assign the evidence.” This means that normal evidentiary objections that evidence is hearsay, a question is leading, a response or question is argumentative, or piece of evidence is irrelevant or prejudicial, just doesn’t matter as much because a judge isn’t going to be as affected as a normal layperson.  Indeed, “there is generally a reduced evidentiary standard in preliminary injunction motions.” Perfect 10, Inc. v. Cybernet Ventures, Inc., 213 F.Supp.2d 1146, 1154 (C.D. Cal. 2002) cited by United States v. Standring, 2005 U.S. Dist. LEXIS 41330, at *5 (S.D. Ohio March, 2006) (applying a “reduced evidentiary standard" for authentication of websites and screen shots).

Therefore, it is customary for Courts in the Sixth Circuit to relax the standard of what is admissible evidence at preliminary injunction hearings.  For example, while the Court of Appeals for the Sixth Circuit has not explicitly stated whether hearsay evidence may be considered in the context of a preliminary injunction hearing, In re De Lorean Motor Co., 755 F.2d 1223, 1230 n.4 (6th Cir. 1985) (“The parties assume that the Federal Rules of Evidence are fully applicable to a hearing on a motion for preliminary injunction. We express no opinion on this question.”), district courts have readily admitted and considered such evidence during hearings.  See Toledo Area AFL-CIO Council v. Pizza, 898 F. Supp. 554, 558-59 (N.D. Ohio 1995)(“[A] Court…may give even inadmissible evidence some weight…Therefore, all affidavits submitted by all parties will be received for whatever value each may add to these proceedings”);  United States v. O’Brien, 836 F. Supp. 438, 441 (S.D. Ohio 1993) (“The Federal Rules of Evidence do not apply at preliminary injunction hearings....”); Family Trust Found., Inc. v. Wolnitzek, 345 F. Supp. 2d 672, 699 n.10 (E.D. Ky. 2004) (court admitted and gave some weight to hearsay evidence); Performance Abatement Servs. v. Lansing Bd. of Water & Light, 2001 U.S. Dist. LEXIS 2891, *5 (W.D. Mich. Mar. 6, 2001) (“the district court may consider inadmissible evidence in ruling on motions for preliminary injunction.”);  FTC v. Nat’l Testing Servs., LLC, 2005 U.S. Dist. LEXIS 46485, *5 (M.D. Tenn. August 18, 2005) (“A district court may rely on affidavits and hearsay materials....”).

Since there is typically little time to gather materials and prepare for a preliminary injunction hearings, it is a good thing to know that what little time is available to prepare, does not need to be spent worrying as much about evidentiary and  admissibility issues.  For more information on the admissibility and proper authentication of web pages, screen shots, and e-mails in the Sixth Circuit see my post previous post. 

Wednesday, September 29, 2010

Authentication of Web Pages and Screen Shots as Evidence at Trial in the Sixth Circuit

In today's world litigators, in preparation for trial, routinely scan the internet to build up evidence for their case.  It is common place to search internet sites like Linkedin, Myspace, Facebook, Twitter, Google, and even the blogashpere to find dirt on a party opponent.  But when you find a golden nugget of evidence, how does one proceed to capture that evidence so it can be properly authenticated and admitted as probative evidence in your case.  A recent article written over on law.com back in January goes into an in depth explanation of this issue and some emerging trends in the law on how some courts are dealing with it.  I recommend reading the article as it is well written and provides a base of knowledge on the issue I am about to delve into as it pertains to federal courts in the Sixth Circuit.

As the article explains, courts generally fall into three camps with respect to the scope of testimony that FRE 901(b)(1) requires in order to authenticate and admit evidence of web pages and screen shots.  Since the Sixth Circuit Court of Appeals has yet to announce a formal standard, it is important to consider all three approaches and how courts within the Sixth Circuit have ruled on the issue so far.

The first camp takes a more stringent and conservative approach, requiring testimony showing that the information proffered was actually posted by the individual to whom the information is attributed to, in the form of a "statement or affidavit from ... [the website's] web master or someone else with personal knowledge."  In Re Homestore, Inc. Sec. Litig., 347 F.Supp. 2d 769, 782 (C.D. Cal. 2004); see also, Wady v. Provident Life and Accident Ins. Co of Am., 216 F. Supp. 2d 1060 (C.D. Cal 2002) (sustaining objection to affidavit because affiant lacked personal knowledge of who maintained the website or authored the documents).  As stated in the above referenced law.com article, this is similar to authenticating a letter, which requires showing that it was written by the individual to whom it is attributed.  So far, I have not come across authority in the Sixth Circuit that requires this type of showing.

The second approach taken by courts is much more permissive and all that is typically required to introduce web page and screen shot evidence is testimony from the person who created the screen shot that the image "accurately reflects the content of the Web site and the image of the page on the computer at which the [screen shot] was made."  Toytrackerz LLC v. Koehler, 2009 WL 2591329, at 6 (D. Kan. Aug. 21, 2009); see also, Nightlight Sys., Inc. v. Nitelites Franchise Sys., Inc., 2007 WL 4563875, at 5-6 (N.D. Ga. May 11, 2007)).  This is basically the same standard as what is applied to photographs and the party proffering the evidence does not have to authenticate the information as authored or sponsored by the individual to whom it is attributed.  All that needs to be shown is that the screen shot or web page accurately reflects what was on the site.  Solo, Inc. v. Catona, 2008 WL 4906115, at 1, n.5 (C.D. Cal. Nov. 10, 2008) (court admitted screen shot noting that although the declarant "may not have [had] knowledge as to how the Web site works on a technological level, his declaration establishes sufficient knowledge to attest that the screen shots are an accurate representation of what he encountered upon visiting the web site."); Victaulic Co. v. Tieman, 499 F.3d 227, 236 (3rd Cir. 2007).

From what I have found through my research, courts in the Sixth Circuit fall into the second camp and, they tend to be even more permissive than the courts noted above.  In Schneider Saddlery Co. v. Best Shot Pet Prods. Int., LLC., 2009 U.S. Dist. LEXIS 27227, at *25 (N.D. Ohio March 31st, 2009), the Northern District of Ohio, was faced with the issue of whether unauthenticated images taken from web pages could be considered by the court in a motion for summary judgment.  Citing Nightlight Sys., supra at *16, for support, the Northern District found that the images were not admissible and needed to be authenticated by presenting evidence from a "percipient witness stating that the printout accurately reflected the content of the page and the image of the page on the computer at which the printout was made.". citing, cf., Lorraine v. Markel Am. Ins. Co., 241 F.R.D. 534, 561 (D. Md. 2007) ("Photographs have been authenticated for decades under Rule 901(b)(1) by testimony of a witness familiar with the scene depicted in the photograph who testifies that the photograph fairly and accurately represents the scene).

The Middle District of Tennessee appears to have taken the same approach as the Schneider court.  See Smith v. Pfizer Inc, 2010 U.S. Dist. LEXIS 47698, *17 (M.D. Tenn. 2010) (court allowed authentication of e-mails lacking any routing or contact information because " document[s] can... be authenticated by '[t]estimony that a matter is what it is claimed to be' [citation ommitted] and [the proponents] ... testimony [was enough to] authenticate the document."); Capital Confirmation, Inc. v. Auditconfirmations, LLC, 2009 U.S. Dist. LEXIS 77440 (M.D. Tenn 2009) (screen shots of website that confirmed the statements of affiants and broader arguments were properly considered by the court).

The Southern District of Ohio, in United States v. Standring, 2005 U.S. Dist. LEXIS 41330 (S.D.Ohio March 15, 2006), allowed evidence of documents from third-party websites without any testimony and held that evidence of this type can be authenticated with merely a declaration.  The court held that a declaration attesting to the evidence, "when view in combination with the documents' circumstantial indicia of authenticity (such as the dates and web addresses that appear thereon)... would support a reasonable juror in the belief that the documents are what [the proponent] says they are." id. at *5, citing Perfect 10, Inc. v. Cybernet Ventures, Inc., 213 F. Supp.2d 1146, 1154 (C.D. Cal. 2002) ("computer printouts are the only practical method by which the allegations of the complaint can be brought before the Court and there is generally a reduced evidentiary standard in preliminary injunction motions"), United States v. Tank, 200 F.3d 627, 630 (9th Cir. 2000). This type of authentication is done under FRE 901(b)(4) rather than 901(b)(1).

The Schneider, supra, court also considered and allowed printouts from parties' web-sites that were unauthenticated.  Because the dispute was over trademarks, the court took judicial notice of the images on the parties' websites that were the subject of the dispute.  Id. at *23-24.  But this was mainly because there was no contention by either party that the images were inaccurate or could not be properly admitted before a jury. citing, Comedy III Prods., Inc. v. New Line Cinema, 200 F.3d 593, 594 (9th Cir. 2000) ("[T]he district court took judicial notice of the motion picture's contents."); cf. Thomas v. Walt Disney Co., 2008 U.S. Dist. LEXIS 14643, at *5 (N.D. Cal. Feb. 14, 2008) ("[T]he Court grants Defendants' request for judicial notice of the text of 'Squisher the Fish' and the motion picture 'Finding Nemo'."). Therefore it is also possible for judicial notice to used as a tool for authentication in some instances.

As stated on in the law.com article referenced earlier, the third camp lies somewhere between the first and the second, and the evidence required typically depends on the circumstances.  For Example, in United States v. Jackson, 208 F.3d 633, 637 (7th Cir. 2000), a white supremacist group claimed responsibility on its website for the alleged actions of the defendant.  The court refused to admit screen shots of the supremacist group's website offered by the defendant because the defendant did not prove the website's owner actually posted the information.  The court noted, however, that the type of evidence required to meet the prima facie burden depends on the proponent's incentive and ability to falsify evidence. In that case, the proponent, the defendant, was a sophisticated computer user and had every incentive to try to place the blame on someone else.  Therefore, because of the incentive, the court required the defendant to link the information directly to the website's sponsor.

For lawyers practicing in the Sixth Circuit who wondered where the Circuit stood on the issue of authenticating web sites and screen shots, I hope this post, read in conjunction with the law.com article, was able to shed some light on the issue.

Sunday, September 26, 2010

Personal Jurisdiction of Corporate Officers Under Alter-Ego Theory

The corporate form is a beautiful thing. It allows businesses to raise capital and take risks that without the shield of limited liability, would normal subject individuals to horrific losses if things took a turn for the worse.  Alter-ego theory allows plaintiffs to pierce the shield of limited liability when corporate officers abuse corporate privileges to perpetrate frauds.

The case described below is an illustration of how individual officers of corporations are typically not subject to the jurisdiction of courts simply because the corporation they work for has been sued. Without the requirements necessary to meet the alter-ego theory doctrine, employees and officers of corporations should feel safe that their actions conducted in the normal course of business operations will not subject them to individual liability (most of the time) in a court of law.


In, Keene Building Products Co., v. Stuc-O-Flex Int'l, Inc., No. 1:10 CV 1511 (N.D.OH, September 23rd, 2010).  Plaintiff, Keene, manufacturer of sound and moisture control products, sold products to Defendant, Stuc-O-Flex for five years, who in turn sold and distributed their products to customers in the State of Ohio and elsewhere.  Keene alleged in its complaint that Stuc-O-Flex and its owners owed them over $220,000 for breach of contract, unjust enrichment, fraudulent inducement to contract and misrepresentation, interference with contracts and business relationship, and defamation.  Stuc-O-Flex counter claimed that Keene had violated a exclusivity agreement with Stuc-O-Flex by selling the products of competitors.

Individual corporate officers of Stuc-O-Flex filed a motion to dismiss because of lack of personal jurisdiction.  Typically, corporate officers are not necessarily subject to personal jurisdiction just because the corporation they work for is.  For a court to exercise personal jurisdiction over an individual or corporation that would not ordinarily be subject to it, the plaintiff must show that the individual is an alter ego of a corporation that is subject to personal jurisdiction in that court.  This is because under alter ego theory, the corporation and the individual are the same entity, as the person merely uses the corporation as a fraudulent means to abuse corporate protections and escape personal liability.

Some of the things necessary to show that an individual should be subject to personal jurisdiction under alter ego theory are: (1) the corporation is grossly under capatilezed; (2) corporate formalities (board meetings, minutes, etc.) are not followed; (3) the corporation incurs debt when it is already insolvent; (4) shareholder hold themselves out to be personally liable for debt when they are not; (5) funds and other property of the corporation are diverted for personal use by an individual; (6) there is an absence of corporate records; and (7) the corporation is merely a facade for the operations of the dominant shareholders.

The court found that Keene failed to show that the individuals named in the suit were subject to personal jurisdiction under alter ego theory.  Keene argued that when personal jurisdiction was proper because when he sold product to Stuc-O, he named the individual defendants, as well as the corporation as having title to the goods as he shipped them and the defendants were involved with sales and marketing activities on behalf of their corporation.  These allegations were found to be very insufficient to meet the alter ego theory requirements.

Wednesday, September 22, 2010

Plaintiff Alleges Sufficient Facts to Survive Dismissal in Contract Over $100 Million in Furnace Coke

This post is a summary brief of a case. Follow the link to the case to read more.

ARCELORMITTAL CLEVELAND, INC., et al., v. JEWELL COKE COMPANY, L.P., CASE NO. 1:10-CV-00362 (Ohio Northern District, September 21st 2010).

The Plaintiff sued seeking reformation of an alleged mistake in a long-term contract for the supply of blast furnace coke. The parties originally agreed that Defendant would provide an annual supply of approximately 700,000 tons of blast furnace coke to Plaintiff for 3 years with an option to extend for two more years. The parties executed an amended agreement later to make it for the whole 5 years and for a new annual sale contract of 700,000 tons of coke from January 1, 2008 through 2020 under a new pricing formula. The parties based their amended purchase agreement pricing formula on the price of coke sold under a former agreement.

In its complaint, the Plaintiff alleged that the pricing formula for the furnace coke in the amended purchase agreement contained an error that required the Plaintiffs to pay a 50% premium for Defendant's furnace coke and were being overcharged $100 million.  On the other hand, the Defendant contended that the pricing formula in the agreement was correct. The accurate interpretation of the disputed formula turned on whether the weighted average of a calculation from the previous agreement belonged in the numerator or the denominator of the pricing multiplier.

The Defendant argued that (1) the Plaintiff failed to state a plausible claim of either mutual or unilateral mistake; (2) the Plaintiff's mistake claims failed because the Plaintiff was negligent in discovering the alleged mistake; (3) the Plaintiff's claim of mutual mistake failed because the Plaintiff did not adequately plead mutual mistake, and instead plead an implausible scrivener’s error; (4) the Plaintiff's unilateral mistake claim failed due to an insufficient pleading of the Defendant’s knowledge of the mistake; (5) the Plaintiff's unilateral mistake claim failed because the Plaintiff bore the risk of mistake; and (6) the Plaintiff's claim for unjust
enrichment was barred since an express contract governed the dispute.

The court found that the Plaintiff alleged sufficient facts to support their claim of mistake based upon negotiation of the contract and amended contract, that the Defendant's coke was supposed to be priced at a discount, and was mistakenly priced at a premium.  The court found that the Plaintiff's claim that they did not notice the mistake because of an illustration provided by the Defendants during negotiations which did not show the mistaken pricing formula that the Plaintiff relied upon was enough to satisfy the pleading standard of “good faith and fair dealing” required under Ohio law, and that negligence did not bar the Plaintiff's claim. The court found that a "scrivener's error" could be grounds for mutual mistake under Ohio law and was sufficiently pleaded.

The court also found that unilateral mistake was also sufficiently pleaded because the term at issue in the contract was material and it was plausible that the Defendant should have known of the mistake because the Defendant drafted the contract, provided a inaccurate illustration of the contract, engaged in negotiation with plaintiff based on the illustration, and then later accepted the steeply inflated payments. The court found that the Plaintiff's unjust enrichment claim was not barred as a matter of law because although the parties had an agreement that would normally govern their dispute, the agreement itself was disputed so an unjust enrichment claim was proper.  Accordingly, the court denied all of the Defendant's arguments for dismissal.

Sunday, September 19, 2010

Class Action Against Whirlpool, Allegation of Fraud, That "Energy Star" Logo Doesn't Convey The Need To Run Extra Cycles To Clean Clothes

This post is a summary brief of a case. Follow the link to the case to read more.

In In re: WHIRLPOOL CORP. FRONT-LOADING WASHER PRODUCTS LIABILITY LITIGATION, CASE NO. 1:08-WP-65000, (N.D. Ohio September 15th, 2010), the Plaintiff's Complaint alleged Whirlpool had violated various state and federal laws in the marketing and sale of its front-loading washing machines because alleged defects in the machines lead to mold problems. The Plaintiffs also alleged violations of the Ohio Consumer Sales Practices Act, tortious breach of warranty, negligent design and failure to warn, breach of express and implied warranties, unjust enrichment, and fraud-based violations of numerous state consumer protection and deceptive trade practices statutes.

The Plaintiff's complaint alleged that the energy star logo on defendants products makes express representations about the quality of its washing machines, namely, that the washing machines sold are “High Efficiency” and they save water and energy. The complaint did not allege that these representations were false.  Instead, the Plaintiffs complaint stated that while labeling its products ENERGY STAR compliant, Whirlpool concealed the fact that customers would need to run extra cycles of hot water and other cleaning products to combat mold problems in the machines. 

The Defendant, Whirlpool Corporation, moved to dismiss the Plaintiffs’ fraud claims on the grounds that the claims (1) lacked particularity, (2) failed to allege any actionable false statement, and (3) were prohibited by the relevant state consumer fraud statutes as a matter of law. The Court denied Whirlpool's motion. The court found that the amended complaint was enough to assert an allegation for fraud.  The Defendant's motion was therefore denied.

Defendant Wins Summary Judgment for $3 Million in Damages Arising From the Misclassification of a Loan

This post is a summary brief of a case. Follow the link to the case to read more.

In CHARITY v. GMAC MORTGAGE INVESTMENTS, INC., et al.,CASE NO. 4:09-CV-02958-SL, (N.D. Ohio September 14, 2010), the Court granted Defendant GMAC's motion for summary judgment. Plaintiff and her then husband Rodney Cheatham (“Cheatham”) took out a mortgage and loans from Defendants in the amount of over $200,000. On February 15, 2008, nearly three years after receiving the home equity line of credit, Plaintiff filed a Complaint against Defendants in Trumbull County Common Pleas Court alleging that with regard to two loan applications she submitted Defendants had failed to meet various statutory notification requirements and had unlawfully discriminated against her in violation of the Federal Trade Commission Act (“FTCA”) and the Fair Credit Reporting Act (“FCRA”). Plaintiff sought $2 million in compensatory damages and $1 million in punitive damages. Shorty after Plaintiff filed she ceased making payments on the mortgage loan and home equity line of credit. As a result, Defendants initiated a foreclosure action against Plaintiff and Cheatham.  On or about August 25, 2008, Plaintiff and Defendants entered into a settlement agreement.

Within one year of having settled , Plaintiff submitted to ditech three separate applications seeking to refinance her loans. Defendants contend that for each of the refinancing applications Plaintiff submitted the available interest rate offered wa not materially lower than the interest rate Plaintiff enjoyed on the Senior Loan. As such, because of the costs associated with refinancing, there was no financial incentive for Plaintiff to refinance. Consequently, Defendants maintain, Plaintiff informed ditech that she was no longer interested in refinancing, and the applications were classified as “withdrawn and cancelled” in accordance with ditech company policy. Plaintiff then filed the Complaint in the within case, challenging Defendants’ stated rationale for classifying her applications for refinance as withdrawn and cancelled. Plaintiff alleged that Defendants violated numerous statutory reporting requirements, and breached the Charity I Settlement Agreement. Plaintiff sought $2 million in compensatory damages and $1 million in punitive damages.

On Plaintiffs first claim the court found that Plaintiff has failed to offer any evidence of damages arising out of Defendants’ alleged conduct with respect to the modification of the Junior Loan. On Plaintiffs second allegation, that even if Defendants were found to have “hidden” Plaintiff’s Junior Loan within the confines of the ditech website, Plaintiff failed to offer any evidence of damages resulting from her inability to find and pay her Junior Loan online. On Plaintiff's third claim the court found that the defendant did not exploit the plaintiff's ignorance in the original settlement and that nothing in the agreement that she signed obligated her to pay her original obligations to the company and that the agreement contained a clause specifically releasing the company from further claims. On Plaintiff's fourth claim was that because a co-borrower to the original home equity line of credit failed to sign the modification agreement, the converted loan is fraudulent. The court found that her husbands signature was unecessary to execute the loan and that she failed to establish any damages she sustained as a result of her ex-husband’s signature not being required on the Junior Loan modification agreement or the converted loan.

Plaintiff’s fifth claim was that Defendants breached the Charity I Settlement Agreement by failing to remove Plaintiff’s ex-husband from the Junior and Senior Loans. The court found that evidence indicated that the Plaintiff was fully aware that removal of her ex-husband’s name from the loans would not be part of the Charity I Settlement Agreement and that Plaintiff’s ex-husband’s removal from the loans a term of the Charity I Settlement Agreement.  Plaintiffs final allegation was that Defendant's caused Plaintiff duress and violated Ohio Unconscionable Consumer Sales Acts or Practices by initiating foreclosure proceedings against Plaintiff during settlement negotiations. The Court found that Defendants had a legal right to initiate foreclosure proceedings and that under Ohio law“[i]t is never duress to threaten to do that which a party has a legal right to do.” Accordingly, the court summary judgment on the claims to the defendant.