Banking & Finance Law Report

Archives: Ohio Law

Subscribe to Ohio Law RSS Feed

Ohio Legacy Trusts

Ohio is now one of a number of states with a so-called “asset protection” statute. Bankers with trust authority might view this development favorably because it may be another possible service line, and indeed Ohio trust companies and Ohio trust lawyers were the main proponents of the statute.  Other bankers however, may encounter the statue as a roadblock in their collection efforts, to their dismay. The new statute was effective March 27, 2013.

Essentially, the statue creates another way to attempt to shield assets from creditor claims. Traditional spendthrift trusts provide such a shield, as does the incorporation of a business or the formation of a limited liability company. There are continuing questions about the effectiveness of asset protection trust statutes like the Ohio Legacy Trust Act. More on this later.

Here is a summary of how the statute works.  A person referred to as the “transferor” transfers assets in what the statute calls “qualified dispositions” to an irrevocable trust and, indeed the point of the statute, is that the transferor can still benefit from those assets through actions of a “qualified trustee,” which must be an Ohio trust company. A benefit might be, for example, a transfer annually of a portion of the trust. In short, …

A Certified Question About “Wrongful Attempted Foreclosure” Likely To Be Left Unanswered For Now

On May 2, we reported here on a trifecta of noteworthy lending cases that were accepted for review by the Ohio Supreme Court.  One of the three cases discussed in that post, Corbett v. Beneficial Ohio, Inc., is a certified-question case from the U.S. District Court for the Southern District of Ohio, in which District Judge Rice asked the Ohio Supreme Court whether the State of Ohio recognized a cause of action for “wrongful attempted foreclosure” and, if so, what the elements of such a tort are.  Last week, however, the parties to the underlying federal case filed a joint motion in the Ohio Supreme Court, asking that the certified question be withdrawn due to settlement and Rule 41(a) dismissal of the federal suit.  Given this development, and the fact that the Supreme Court answers certified questions that “may be determinative of the [federal] proceeding,” S.Ct.Prac.R. 18.1, the status of this tort in Ohio is likely to remain an open question for the time being.  Stay tuned to the Banking & Finance Law Report for any further developments.…

Appellate Court Rules That Creditor Cannot Cog on an Accelerated Debt

In The Henry County Bank v. Stimmels, Inc., et al., 3rd Dist. No. 7-12-19, 2013-Ohio-1607 (Apr. 22, 2013) the Third Appellate District Court rendered a decision that will dismay commercial creditor’s rights attorneys in Ohio in holding that a warrant of attorney to confession judgment R.C. §2323.13 may only be used if the debtor was in default of payment, even where the debt had been accelerated.

The Henry County Bank obtained a cognovit judgment against the defendants, claiming as events of default the defendants’ failures to pay taxes when due and to maintain a stated indebtedness to tangible net worth ratio. After receiving notice of the judgment, the defendants filed a motion under Civil Rule 60(B) to vacate the cognovit judgment. The defendants supported their motion with an affidavit stating that they were not in default of payment, and here is the key: despite having accelerated the debt, the bank stipulated that the defendants were not in default of payment.

The trial court denied the defendants’ motion for relief after a hearing and supplemental briefs, and the defendants filed an appeal. Their sole assignment of error was that the trial court erred in granting judgment on the note without the bank asserting …

An Ohio Supreme Court “Trifecta” of Noteworthy Lending Cases on the Docket

At the end of April, the Ohio Supreme Court agreed to hear three notable cases that readers of this blog may wish to monitor – or perhaps even participate in as amici curiae. First, the Court has agreed to resolve a conflict among Ohio’s appellate districts regarding whether the Statute of Frauds precludes a foreclosure defendant from asserting an oral forbearance agreement as a defense. Next, the Court has agreed to answer a question certified from federal court as to whether Ohio recognizes the tort of “wrongful attempted foreclosure.” Third, the Court has agreed to hear a payday-lending case that has attracted media attention, concerning the interplay between Ohio’s Mortgage Lending Act and the more recent Short-Term Lender Law. For additional information about these three cases, read more here.…

What Goes Up…Quick Glance #2 at Ohio Oil and Gas Leases in Bankruptcy

As Ohio enjoys its latest boom in oil and gas exploration, it is important to understand how oil and gas leases are treated in bankruptcy.  The importance of these issues are underscored by the frequency with which the courts confront them; hence we visit again this unsettled area and consider further the question of the ownership of unextracted oil and gas in a bankruptcy context.

In the recent case of In re Cassetto, 475 B.R. 874 (Bankr. N.D. Ohio 2012), a bankruptcy court for the Northern District of Ohio examined whether a bankruptcy trustee charged with administering the assets of an individual chapter 7 debtor could enter into an oil and gas lease despite the debtor’s objections, and, if so, whether the debtor’s homestead exemption would apply to the signing bonus for such lease.

The lease the trustee sought to enter into had a five year term and would permit the extraction of oil and gas in exchange for a $3,900 per acre signing bonus and royalties of 17.5% of the value of any oil and gas produced from the property.  The trustee sought to enter into the lease, receive the signing bonus and thereafter abandon the lease to …

10th District Court of Appeals Upholds Subordination and Flow Down Provisions in Commercial Construction Documents

On March 29, 2013, the Court of Appeals for the 10th Appellate District in Columbus issued a decision of significance for mortgage lenders that rely on contractual subordination and flow down provisions in construction contracts. 

In KeyBank Natl. Assn. v. Southwest Greens of Ohio, L.L.C., 10th Dist. No. 11AP-920, 2013-Ohio-1243, the 10th District Court of Appeals upheld the September 14, 2011 decision by Judge John Bessey of the Franklin County, Ohio Common Pleas Court that the plaintiff lenders (the "Lenders") had priority over the subcontractors/ mechanic’s lien claimants even though the lenders recorded their mortgage subsequent to the notice of commencement’s recording.  The decision is significant because during this period fraught with contested foreclosures and inter-creditor disputes over priorities in real estate, the 10th District has affirmed Ohio’s broad construction and consistent enforcement of flow down provisions in construction documents.

In the spring of 2008, defendant Columbus Campus, LLC ("Campus") contracted with a general contractor to construct a continuing care retirement community on 88 acres in Hilliard, Ohio.  On March 10, 2008, Campus filed a notice of commencement; on April 16, 2008, the Lenders executed a $90 million construction loan agreement with Campus secured by …

Perfecting Security Interests in Assets of Ohio Gas and Pipeline Companies

With the recent boom in Ohio’s oil and gas industry, secured creditors in Ohio should be sensitive to special statutory requirements for perfecting security interests granted in assets of gas and pipeline companies.

Although security interests in personal property and fixtures are most frequently perfected by filing financing statements under the UCC, there are several types of security interests which require perfection through other channels.  In Ohio, pursuant to Section 1701.66 of the Revised Code, security interests in property of “public utilities” are among the interests that must be perfected by other means. “Public utility” is defined by the Ohio Revised Code Sections 4905.02 and 4905.03 to include, among others and with certain exceptions, (i) gas companies and natural gas companies, when engaged in the business of supplying artificial or natural gas, as applicable, for lighting, power, or heating purposes to consumers within Ohio and (ii) pipe-line companies, “when engaged in the business of transporting natural gas, oil or coal or its derivatives through pipes or tubing, either wholly or partly within [Ohio], but not when engaged in the business of the transport associated with gathering lines, raw natural gas liquids, or finished product natural gas liquids.” (Emphasis added).  Additional …

The Mystery of Mineral Rights: A Lesson for Lenders

By now, you have probably heard about some of the changes in title policies and title searches caused by the recent oil and gas activity in Ohio.  Title insurers also recently added to their policies a standard exception for any “lease, grant, exception or reservation of minerals or mineral rights.”

Essentially, this language means that any separate mineral interest created at any point in time by any party is now an exception to the title insurance policy, regardless of whether it is expressly disclosed.  In other words, there will be no coverage offered whatsoever if one of those interests negatively impacts the property in the future, even if it was not specifically disclosed in the policy.  And because title insurers will not insure against oil and gas interests, there isn’t much incentive for them to include such interests as exceptions in their title searches, especially when the cost of obtaining such information can be staggering.…

Supreme Court Rules of Superintendence on Commercial Dockets

The pilot program for commercial docket courts in Ohio began in 2009, and was met with strongly positive reviews by both business lawyers and their clients, who generally experienced prompter resolution of and greater expertise in commercial cases.  It now appears that what began as a pilot program will become permanent. 

In late 2012, the Supreme Court Task Force on Commercial Dockets issued a final report in which it recommended the Supreme Court adopt Rules 49 through 49.12 of the Rules of Superintendence for the Courts of Ohio allowing for the permanent establishment of commercial dockets.  The report found that the benefits of the program included accelerating decisions, creating expertise among judges, and achieving consistency in court decisions around the state, and it expected that these rules will be made permanent.  These rules provide in part for the following:

Expansion of the Commercial Docket Program– the Rules expand the commercial docket to counties with either 6 or more general division judges or populations exceeding 300,000, although implementation of the commercial docket program remains voluntary.

More Formalized Training– while the Temporary Rules require unspecified training of commercial docket judges through the Supreme Court of Ohio Judicial College, permanent Rule …

President Signs Bill Protecting Privileged Information Submitted to the CFPB

Banks and consumers concerned about waiving attorney-client privilege can now rest easy when submitting privileged information to the Consumer Financial Protection Bureau (CFPB). Congress recently passed legislation confirming such submissions will not waive privileged status as to third parties, consistent with existing law with respect to submissions to other federal banking agencies.

On December 20, 2012, President Obama signed H.R. 4014, protecting privileged information submitted to the CFPB, a federal supervisory entity created by the Dodd-Frank Act of 2010. The bill was passed by the House in March and by the Senate in December, and was strongly supported by the American Bar Association, numerous state bar associations, and the U.S. Chamber of Commerce.

H.R. 4014 clarifies that when financial institutions and other entities supervised by the CFPB submit privileged information, they do not waive attorney-client privilege as to third parties, and the CFPB can share such information with other federal agencies without affecting its privileged status. Although provisions protecting privileged information submitted by banks to other supervisory agencies, such as the FDIC and Federal Reserve Board, have previously existed, the Dodd-Frank Act did not clearly specify whether these provisions would apply to information submitted to the CFPB as well. …

Ohio General Assembly Amends Statutory Attorney-Client Privilege

Financial institutions’ lawyers working in Ohio (and their clients) should take note of an important development regarding the law of attorney-client privilege. On December 20, 2012, Governor John Kasich signed into law Amended Substitute House Bill 461, which makes important changes to Ohio’s attorney-client privilege statute, R.C. 2317.02(A)(1). 

Until recently, Ohio’s attorney-client privilege statute stated that the attorney-client privilege would prevent an attorney from testifying in deposition or at trial except "by express consent of the client or, * * * if the client voluntarily testifies, * * * the attorney may be compelled to testify on the same subject."  (Emphasis added.)  This language gave rise to two, somewhat controversial principles of Ohio privilege law. 

First, the Supreme Court of Ohio has held for over 150 years that the statutory privilege is waived whenever a client "voluntarily testifies" – not just when the client voluntarily testifies about the substance of a privileged attorney-client communication.  Although few Ohio lawyers were aware of this line of precedent, it had been followed several times in Ohio’s appellate courts and as recently as 2008.  Second, the Supreme Court of Ohio has held repeatedly that "R.C. 2317.02(A) provides the exclusive means …