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As the economy remains depressed, most who still have a job feel fortunate, however, lack of economic growth usually translates into steady or even declining compensation – often in the face of demands for greater productivity.  Hard times like these, in turn, sometimes motivate workers, from the lowest paid to the highest, to seek to supplement their income through skimming profits from their employer  How do you spot a person who is likely to engage in dishonesty within the firm, and how do you prevent it?

Editor: David Bilinsky & Laura Calloway

The first point to consider is front-end credit evaluation.  Take time and the opportunity to evaluate your current credit review policies and (if applicable) vendors.  Is the information you are receiving current and reliable?  Have you noticed any failures or loopholes in the process that have resulted in credit losses?  It goes without saying that taking the necessary steps up front to evaluate credit risk is a major factor in the long term health of receivables, aging, and profitability.

Next, we recommend evaluating and implementing procedures to structure debt obligations to assure payment to the greatest extent possible, with respect to each of guarantees, security, and lien rights.  Guarantees are necessary to insure payment from a credit-sound person or entity, when the primary obligor is either of questionable risk or is without a significant credit history.  Regardless of the credit-worthiness of the obligor, a guaranty from a company principal is a good idea.

Retaining security against personal property delivered on credit is, more than ever, a necessary device for our corporate clients.  Too often we have seen goods shipped without security, which severely limits the shipper’s ability to recover assets or damages on the back-end of a bad transaction.  A quality security agreement that protects the shipper’s rights to goods and proceeds does require a modest investment of time and capital on the front end.  However, the benefit is a significant increase to assurance of payment, and it should be a planned prerequisite of any manufacturer or distributor. 

Likewise, those companies involved in the construction trades need to preserve lien rights at each of the job evaluation, shipping, and payment stages of their transactions, so as to insure profitability.  Like security agreements against personal property, the lien laws invariably include a number of procedural and substantive requirements that must be followed in order for lien preservation and priority against real estate.  If missed, there are penalty-type provisions in the statutes that may hamper, if not cripple, the seller’s rights to payment.  Proper legal counsel involves outlining each step in the lien process and preparing the forms and documents necessary to secure the seller’s lien for goods and labor. 

Extension of credit is not the proper time or forum for trying to establish friendly and amicable relationships with new customers.  Too often we see sellers who have been burned by making sales on someone’s good nature or word.  Networking or advertising, as the case may be is, the time to drive in new business.  When it comes to credit, focus should remain on properly securing debt and protecting the corporate bottom line.

 Please contact Sean Donovan at 513-533-2705 or sdonovan@fssp-law.com to review your business’ credit extension policies.

Buy-sell agreements serve two functions by (1) restricting transfers of ownership interests in the business, and (2) creating a limited market for the ownership interests. This prevents ownership interests from otherwise falling into the hands of outsiders who aren’t active participants in the business or who lack a long-term commitment to the business. Although few people are interested in purchasing interests in closely held businesses, sales do sometimes occur. In addition, outsiders can acquire interests as a result of involuntary transfers in creditors’ rights or marital dissolution proceedings involving a business owner, and business interests can be transferred by gift or by contribution to the capital of another business entity. Buy-sell agreements typically seek to restrict transfers of all types by giving the business or the other owners the right to purchase any interest that an owner wishes to transfer voluntarily or that has been transferred involuntarily.

The lack of a market for interests in small businesses can create an awkward situation when an owner retires, becomes disabled, or dies. The affected owner will no longer be employed by the business, and the owner, or his or her family, may need to liquidate the business interest to pay living expenses or to seek investments providing a greater current return. At the same time, the other owners may prefer not to have a co-owner who is no longer involved with the business and very likely will be even less interested in having members of the former owner’s family as co-owners. The interests of all parties can be accommodated if a buy-sell agreement requires the business or the other owners to purchase the interest of an owner on retirement, death, or disability. By specifying the price and terms of purchases, the buy-sell agreement can also streamline ownership transitions and avoid costly disputes at times when a business may already be vulnerable as a result of having lost one of its principal owners.

Please contact Jim Keller in our Business Law practice area at 513-533-2983 or

jkeller@fssp-law.com to review and update your buy-sell agreement.

The most common refrain I hear is, “I don’t have much; everything will just go to my family.”  Even though that might be the case, do you know how it will actually get to your family?  Without any planning, the most likely case will be that one of your family members will be required to apply to the Probate Court for the authority to work with the financial institutions where your assets are held.  Yes, Probate Court.

While “probate” has become the equivalent of a dirty word in many circles, I find that most people do not truly understand what it means to “probate” an asset.  Probate is the process of organizing a deceased person’s assets, appointing someone to handle the payment of the decedent’s debts, and then distributing the balance of the assets to the beneficiaries. It sounds fairly simple, and it is, if the right measures are taken prior to a person’s death; but, if a person does not plan properly prior to death, this process can be lengthy, cumbersome, and expensive, with court costs and attorney fees diminishing the final distributions to the beneficiaries.  In short, if a decedent’s affairs are not organized prior to their death, they will be by the time the probate process is completed.

Take the example of a woman I recently met. Her uncle had died a few days earlier. Her uncle had never had children, and his wife had preceded him in death. The niece wanted to put her uncle’s affairs in order, but not having the original, signed Last Will and Testament of her uncle, she could not access his safe deposit box.  But, she thought the Will was in the safe deposit box, so it became a catch-22.  She would have to apply to the Probate Court for the authority to open the safe deposit box, but then once the Will was found, a second hearing for authority might have to take place if the Will named a specific Executor. 

Assuming the niece continued to have the authority to act for her uncle, how would she find and collect the assets her uncle owned?  How would she know which debts he had, whether he owned a brokerage account, or had a Roth IRA somewhere?  She could wait for statements to come to his house, but in the interim, she still didn’t know what funds he has to pay for a funeral.  And if he has a mortgage, how will she continue to pay that—even if she plans to sell the property—without having access to the funds in his accounts?  Most importantly, if she is acting on behalf of her uncle, will she even be a beneficiary of his assets?  Every state has a statute of descent and distribution that a probate court must abide by if there is no Will; that statute determines the order in which family members inherit.  If the uncle’s mother is still living, the niece might not inherit anything at all!

Many strategies can be used to avoid the probate process.  The most flexible strategy is to create an inter vivos (“living”) trust and make the trust the owner and/or beneficiary of all of your assets; this would allow you to leave specific percentages of your entire estate to anyone you chose to name as a beneficiary (including charities and friends as well as children or other family members). Another strategy is to name a beneficiary for each of your assets; this does not allow you to leave percentages of your estate, so it works better if you only want to name one or two beneficiaries (for example, if you have two children who should inherit equally).

Most importantly, though, is not necessarily avoiding probate, but rather making sure your affairs are organized prior to your death to help your family members focus solely on the grieving period.  Make sure your estate planning documents are easy to read and the meet state law on validity as well as being accessible to the person(s) you want to handle your affairs.  I recommend that my clients keep their original documents in the fireproof safes at FSSP but also keep a copy of the documents in a home desk or filing cabinet that can be accessed by family members.  In the same file, you can keep a current list of your financial accounts and current debts to make collection as stress-free as possible.  This organization during your lifetime will prove to be an asset to your loved ones after your death. 

In an upcoming issue of the FSSP newsletter, I will discuss the status of the Federal estate and gift tax and what it means for your planning.

Author – Jessica A. Nielsen, Esq.

That nugget is the parsing of Rule 41(A). The Court notes that “Civ.R. 41(A)[1] allows for a dismissal of all claims against particular defendants, and not individual claims.” In other words, a party cannot utilize Rule 41(A)(1) to dismiss part of its claim — the text of the rule actually states that 41(A)(1) is all or nothing.

There are certainly other attorneys who have had a few more trips around the block than yours truly, but in my two years as a law clerk and one year in practice, I have never seen this distinction made by a practicing attorney. It is absolutely standard procedure to dismiss some but not all claims via a Rule 41(A)(1) notice of dismissal.

Instead, it appears, if a party wants to dismiss only some of its claim, it must obtain an order of the court under Rule 41(A)(2). That rule provides that, “[e]xcept as provided in division (A)(1) of this rule, a claim shall not be dismissed at the plaintiff’s insistence except upon order of the court and upon such terms and conditions as the court deems proper.” In other words, the partial dismissal must come from the court, not the plaintiff, and a court can place conditions upon a partial dismissal.

I could be wrong, but this seems like an awfully important distinction, no? Think about it — how many partial dismissals have you filed in the last year? As it turns out, all of those claims are still pending. Or better yet, how many partial dismissals of claims against your client have been filed? You might have to defend those yet.

Personal jurisdiction, of course, is a two-part analysis. A court first must examine whether the Ohio long-arm statute and Civil Rule regarding service, R.C. 2307.382 and Rule 4.3, respectively, permit the exercise of jurisdiction. Analogizing to the technology of yesteryear–letter writing–the Court explained the allegedly defamatory statemetns were “published” in Ohio by virtue of their actual receipt by several individuals in Ohio. That fact brings the case within R.C. 2307.382(A)(3) and Rule 4.3(A)(3), which confer jurisdiction over allegedly tortious acts committed in Ohio.

This, of course, is something of a legal fiction, as the postings were certainly not created within Ohio. As a fall-back position, the Court cites R.C. 2307.382(A)(9) and Rule 4.3(A)(6), which create jurisdiction over allegedly tortious acts committed outside Ohio where the alleged tortfeasor might reasonably expect that someone in Ohio would be injured by the acts. The Court’s fall-back seems to be the stronger position and probably should have been the primary holding. It will be interesting to see whether the Court’s holding that the publication actually occurred in Ohio by virtue of its receipt in Ohio has any unexpected consequences in the future. (Though to be fair, this is simply an extension of existing precedent, not new doctrine, so perhaps the concern is misplaced.)

Having established that the long-arm statute and Civil Rule are satisfied, the second part of the personal-jurisdiction analysis comes under the due process clause of the Fourteenth Amendment. As relevant here, due process requires that the exercise of jurisdiction arise out of the defendant’s contacts with Ohio. The defendant must have purposely availed itself of the privilege of acting in Ohio, and must have reasonably anticipated that it may be haled into court in Ohio; the defendant’s contacts with Ohio must not be random, fortuitous, or attenuated.

Employing the well-known Calder “effects test,” the Court held that the defendant’s allegedly tortious conduct was not simply “untargeted negligence,” but rather purposeful activity directed at a resident of Ohio. The defendant therefore should have assumed that the effects of his actions should be felt in Ohio, and as a result he could reasonably anticipate being haled into court in Ohio.

Kauffman is not a landmark decision. It is well-supported by existing law on both personal jurisdiction and defamation. But it is another example of courts’ willingness to engage with technology and to fit current doctrine into the new world order. Let’s hope that Ohio continues down its path of reasonableness in this regard.

As a side note, Kauffman is now officially my favorite opinion of 2010, thanks to the explanatory parenthetical in ¶13 of “(emoticons omitted).”

When Michael Bustle started working as a hairstylist at Michael’s in 1995, he signed an agreement which included a one-year non-compete clause. He left in August 2007 and rented a booth at a competing salon. Michaels sued Bustle several months later, after noticing that his clients did not return. The parties agreed to a settlement under which Bustle would not provide any hair styling or hair care treatment for one year — that is, Bustle essentially agreed to abide by his non-compete clause — and the trial court journalized an entry incorporating their agreement.

After Bustle’s customers still did not return, Michaels hired a private investigator to determine whether Bustle was violating the court’s order. After a seven-month investigation the PI determined that Bustle was still providing the prohibited services, and Michaels filed a motion for contempt.

At the contempt hearing, Bustle admitted to providing prohibited services to 180 former Michaels clients and had profited over $37,000 in nine months of doing so. Testimony from Michaels revealted that its lost profits for the same work would have been about twice as much, and that it had incurred about $15,000 in attorney’s fees and about $52,000 in PI fees. The trial court found Bustle in contempt, awarded damages and costs totaling about $140,000 to Michaels, and enjoined Bustle from competing for an additional 11 months.

On appeal, the First District rejected Bustle’s arguments that the agreed order did not comply with Rule 65 (because Bustle agreed to it, he had no cause to complain — somewhat similar to invited error, if any error) and that Michaels waited too long to pursue its contempt motion (the court found the time to be reasonable due to the necessary investigation).

On the issue of whether Michaels was awarded a double recovery by virtue of a disgorgement of profits and an extended non-compete term, the court explained that in a contempt case, the court has power to both coerce compliance with the court’s order, and to compensate the the party injured by the contempt. By disgorging the profits and awarding the costs to Michaels in addition to extending the non-compete term, the First District said, the parties were merely put back in the position that they would have been in if there had been no contempt. As a result, there was no double recovery.

Judge Hendon disagreed on the double recovery issue. Because the non-compete period has now expired, however, and cannot be undone, she concurred in the judgment.

Earlier this week the First District cited Iqbal and Twombly [PDF] for what appears to be the first time, putting it in line with the Eighth and Ninth Districts as Ohio appellate courts which have adopted the heightened standard. To be sure, Ohio courts have consistently looked to federal case law for guidance in the interpretation of analogous rules, but Iqbal and Twombly were enough of a game changer to lead some to speculate that Ohio courts may demurr and retain the old standard.

Instead, the prosecution witness — a police officer who was also “trained by several purse and jewelry companies to recognize their trademarks and to recognize counterfeit products” — merely testified that in his opinion the items seized were counterfeit. He also testified that through his “training and experience” he was aware that the trademarks were on the principal register of the USPTO, but he admitted that he had never seen any registration documents. A five-member majority of the court held that this testimony was insufficient to prove beyond a reasonable doubt that the marks were on the principal register. Although the majority doesn’t say so, in effect the holding is that the testimony about registration is hearsay–the companies who owned the marks told the officer that they were registered, and the officer told the court. When viewed in that light, it’s classic hearsay under Evid. Rule 801.

And yet, two justices dissented, arguing instead that the victims are most likely to know which marks were counterfeited, and the fact that the officer was trained by victims qualifies him as an expert with capacity to testify about the registration.

The dissent’s approach strikes me as somewhat similar to the practice rejected by the Supreme Court of the United States in Melendez-Diaz v. Massachusetts. In that case, the Court held that the prosecution may not introduce a forensic report at trial without making the report’s author available to testify (or to be otherwise cross-examined by the defendant). What the dissent in Triosi would allow is something of the complement to what was rejected in Melendez-Diaz — whereas Melendez-Diaz prohibited admitting the documentation without the foundation testimony of the witness, the Triosi dissent would allow the testimony of the witness without the foundation documents.

(For what it’s worth, there was some sentiment in Sixth Amendment circles that Melendez-Diaz, however young it may be, was not long for the world when Justice Sotomayor joined the Court; she was seen as a possible fifth vote to overturn Melendez-Diaz, and the case of Briscoe v. Virginia — which was already on the Court’s docket for OT09 when Justice Sotomayor took the bench — was seen as a possible vehicle to do so. Briscoe was fully briefed, but on January 25 of this year — just two weeks after argument — the Court issued a one-sentence per curiam decision vacating and remanding in light of Melendez-Diaz.)