Brendon Friesen to Speak at Upcoming Cleveland Real Estate Field Trip

By:  Josh Morrow

The long-awaited Ohio Supreme Court decision in Ohio Northern University v. Charles Construction Services, Inc., finally hit the books in the last quarter of 2018, sending a clear message to Ohio contractors that their commercial general liability (“CGL”) insurance policies likely will not cover damages caused by their subcontractors’ defective work.

Contractors were already made aware of their lack of CGL coverage for their own defective work, thanks to the Ohio Supreme Court’s ruling in the often discussed Westfield Ins. Co. v. Custom Agri. Sys., Inc. decision from 2012. However, the question arose in ONU as to whether the defective work of a contractor’s subcontractors could be considered an “occurrence” under the contractor’s CGL policy, thus deeming it a covered event. The Court held that the subcontractor’s defective work is not “fortuitous” and therefore not “accidental.” As such, the defective work was not a covered “occurrence” under the general contractor’s CGL policy.

The decision deviates from the position in the majority of states, which have found an event to be an “occurrence” pursuant to the general contractor’s CGL policy language. Time will tell as to how the Ohio legislature responds to the ONU decision, if at all. Until then, contractors should address the issue with their carrier and look to purchase a rider or other form of an endorsement to their current CGL policy in order to fill the gap in coverage.

Perhaps more importantly, contractors should also conduct thorough due diligence when selecting their subcontractors, ensuring only those subs who are qualified and reputable provide work. Significant and consistent on-site inspections should then follow once a subcontractor’s work commences.

While uncertainty remains as to the extent of the ripple effect caused by the ONU decision, one thing seems to be a given. The decision will impact Ohio contractors’ bottom line, as they will now be forced to address their subcontractors’ defective work purely out of their own pocket without the assistance of their carrier. Alternatively, contractor insurance premiums will likely rise in connection with any rider that may look to provide coverage for such work.  Contractors should consult with their insurance agents and lawyers regarding the impact of the decision, both short and long term.

By:  Katie Weber

A: It’s still not too late! Here’s the background: In Cuyahoga County, the County Fiscal Officer is responsible under Ohio law for the valuation of all real estate in its respective county. Real estate is reevaluated in two cycles, the sexennial reappraisal (every six years) and the triennial update (every third year between reappraisals). The key difference between these two reevaluation cycles is the scope and methodology. Although both use an analysis of recent comparable sales to set value on a parcel-by-parcel basis, the Sexennial Reappraisal requires all property to be personally viewed.

Proposed Value Notices were sent out in Cuyahoga County this past July that provided the new proposed value that was determined during the reappraisal. This notice should have provided a “Market Value” and an “Assessed Value.” The “Market Value” is defined as the price your property would likely sell for in an open and competitive market between a willing buyer and seller. “Assessed Value” on real estate is set at 35% of market value by the State of Ohio. Assessed Value is the value of taxable property to which the tax rate is applied to compute the amount of property taxes.

Cuyahoga County allowed informal appeals. However, regardless of whether an informal appeal was filed or the outcome of the informal appeal, property owners are entitled to challenge the tax evaluation through the formal appeal process with the Cuyahoga County Board of Revision. Tax Evaluation Complaints are accepted between January 1, 2019-April 1, 2019 for the 2018 tax year.

In order to successfully challenge an increased appraisal, evidence will need to be submitted that shows the property was reevaluated incorrectly. A recent sale that is below the reevaluation is strong evidence in addition to evidence regarding some form of damage or destruction that impacts the property’s value. Otherwise, a professional appraisal of the property may need to be done in order to have sufficient evidence to successfully challenge the reevaluation.

If you think that the county has incorrectly evaluated the value of your property, give us a call in order to discuss in more detail whether you could bring a successful appeal.

By:  Jen Horn

What happens if you’re a trademark licensee – and your licensor declares bankruptcy? The U.S. Supreme Court will finally be tackling that question in 2019, as it has agreed to hear the case Mission Product Holdings, Inc. v. Tempnology, LLC.

The issue before the First Circuit in Mission Product Holdings was whether a trademark licensee could take advantage of rights that were granted to intellectual property licensees under Section 365 of the Bankruptcy Code. Currently, trademarks are not included in the defined categories of “IP” that receive bankruptcy protection.

Under the Bankruptcy Code, if the debtor (the licensor) rejects an IP license, the licensee has the following options: it can (a) elect to treat the license as terminated, and file a proof of claim for damages, or (b) it can retain its rights to use the IP under the license for the term of the license, as well as any remaining renewal terms that are provided.

To date, lower courts have been split on whether a trademark licensee can continue to use the trademark regardless of a licensor’s bankruptcy filing. Some courts have ruled that it is not permissible, and Congress did not intend to protect a trademark licensee the same way that licensees of other forms of IP, such as patents, are protected. Other courts, though, have held in favor of the trademark licensee.

In re Tempnology ruled against the trademark licensee, with the First Circuit stating that the licensor should be released from any continuing obligations that would interfere with its reorganization. The First Circuit further ruled that it should be up to Congress to expand Section 365 of the Bankruptcy Code to include trademarks.

With the Supreme Court agreeing to hear the appeal, however, parties should finally receive guidance on what happens to a trademark licensee if a licensor rejects the license agreement because of a bankruptcy filing. Regardless of what the Court decides, the ruling is certain to have an impact on the rights and obligations of both trademark licensors and licensees. Stay tuned for updates!

Make it a New Year’s Resolution to Refresh

(or Finally Address!) Your Will

By:  Dan McGuire

Everyone talks about the need to get a Will done (or updated), but many people never take that next step. Perhaps it is the unwillingness to face our own mortality. Perhaps it is just a general lack of knowledge as to what “getting a Will done” involves that makes the individual procrastinate further. If we break down the estate planning process into smaller bites, it may be easier to understand what is involved, and to take that first step, and get the process moving.

Helping clients establish their estate plans is a process that requires diving into a lot of detail: family dynamics, the financial situations of our clients, and the financial situations of their intended beneficiaries, to name a few. It is not a simple “off the rack” solution. You can’t put a suit on someone who is not looking for one. And you certainly should not put one on someone who does not need one.

The main question for a client to answer in getting started in the estate planning process is: “What do I want to accomplish?” Fact finding and organization of thought is imperative. We live in a world of blended families; fast pace; “no time” to sit back and plan years ahead, let alone tomorrow’s activities. Everyone has these issues to address, and delay does nothing to prevent the potential for confusion, disagreement and pain. We assist our clients in defining their situation and goals and designing a plan to accomplish those goals. But that is not where the process ends. We must then implement the plan to ensure those goals are actually met.

Our first goal, then, is to help our clients define what they want to accomplish with their estate plans. As the process continues, our client’s needs and concerns are revealed and developed, which serves to directing the attorney to consider the relative benefits of each sort of plan that might be employed. Ultimately, the client must weigh the cost and benefits of each part of the proposed plan.

So, how does a client actually develop an understanding of what a Will does?

Let’s start with what probate “is” and what it covers. Probate courts cover a lot of subject matters, from the guardianship of minors or incapacitated adults to the process of administering the estates of those who have died, and many other specialized areas. Let’s focus on the administration of a person’s assets after death.

When a person dies, the assets that the person owned individually are what pass through the probate process. So, a car or bank account or house that is in the client’s sole name are included.

OK, then, what does NOT pass through the probate process? Property that does not go through the probate process includes (for example) property owned by the client jointly with another person. So, a bank account or house owned jointly by spouses is not a probate asset.  Similarly, an asset for which there is a beneficiary designation (such as an insurance policy, or IRA, or payable on death bank account) are not probate assets, because that “contract” with the insurance company or investment company or bank defines who is to get the property when the client dies.

When you take OUT the non-probate property, what is left is what is covered by the probate process. And THAT is what is covered by the client’s Will.  If there is no Will, it is distributed according to the state’s law of descent and distribution.

If you want to control who gets how much of all of that property, whether it is probate property or non-probate property, you need to revisit WHAT each asset is, HOW each asset is titled, and IF there is a co-owner, or a beneficiary designation. When all of that is assembled, the client has to determine if that is the plan the client really wants in place. If the answer is anything other than an unqualified “Yes!” then it is time to take action.

Our attorneys are always ready, willing and able to meet and discuss all of those questions, help you articulate your plan and goals, determine the best plan to accomplish them, and then implement it. You will find that, by taking those small bites, the problem that used to lead to procrastination and uncertainty has been addressed and resolved.

By:  Jen Horn

When the European Union’s General Data Protection Regulation (GDPR) was introduced in May, one of the biggest questions was how the law was going to be enforced. The GDPR, which also applies to any U.S. company that handles the personal data of EU citizen, requires businesses to clearly state when they’re collecting personal data and ask for users’ consent in doing so. Many believe it will have implications for future data privacy rules in the United States as well. So far, it looks like the law is being taken seriously – regulators across the EU have already begun imposing fines.

Article 83 of the GDPR authorized data protection authorities (DPA) in EU member states to impose fines of up to approximately $22 million USD, or 2% of a company’s worldwide revenues, or, for serious violations, up to approximately $45 million USD, or 4% of a company’s worldwide revenues. However, Article 83 also required that fines had to be “effective, proportionate, and dissuasive.” The somewhat vague language left many companies wondering how large, exactly, the fines might be.

Their first example came in September, when the Austrian DPA fined the owner of a gambling shop because a camera at its front entrance also recorded footage of a public sidewalk. Interestingly, the Austrian DPA found this was a violation of the GDPR because it was considered a prohibited monitoring of public space. The fine, however, was approximately $5,000 USD plus legal costs, and the Austrian DPA acknowledged that the fine was meant to be “proportionate” to the violation.

A hospital in Portugal, however, was not quite as lucky. News was released in October that the unnamed hospital received a fine of approximately $455,000 USD for two separate violations. The first involved patient information that was found to be inappropriately available to non-medical staff; the second concerned the confidentiality and integrity of treatment systems. This is one of the highest fines imposed to date, and the hospital has stated it is appealing the penalty.

Most recently, a German chat platform was fined approximately $91,000 USD for a breach of user passwords that occurred in July. User information and passwords were stored in unencrypted plain text, and hackers managed to gain access to more than 800,000 email addresses and more than 1.5 million user names and passwords, some of which were later published on the Internet. Fortunately, the company’s handling of the event appears to have helped reduce the amount of its fine; the DPA report noted the company’s fast communication of the incident to its users, as well as its total cooperation with the DPA.

So what can this tell us about how the GDPR will be enforced? In sum, it appears that the law will be enforced fairly – but broadly. If a DPA is willing to impose a fine, however small, for a camera that captures too much of a public sidewalk, that’s a sign that the EU is serious about improving data privacy and security for consumers. Just as important, though, is that it also appears a company’s quick and comprehensive response to learning about an issue could lessen the amount of its fine.

By:  Jen Horn

Q:       I keep hearing about various data privacy regulations being passed, but my company does not do business overseas. Should I still be thinking about doing anything, and if so, why?

 A:      Yes, absolutely! The General Data Protection Regulation (GDPR) that took effect in May arguably has gotten the most press because of its global reach and implications. But just because your business doesn’t operate on a global scale doesn’t mean that you shouldn’t be proactive in addressing data privacy and/or cybersecurity issues.

First and foremost, as discussed in the article above, Ohio recently approved legislation that will provide a legal incentive for businesses with a cybersecurity program meeting certain criteria. Because data breaches and cybersecurity issues have unfortunately become a matter of when, rather than if, the smartest thing you can do is make sure your company has a plan in place. And if you already have a plan in place, make sure you set aside time annually, at a minimum, to review and update it in order to ensure compliance.

Ohio isn’t the only state taking measures to address data privacy and cybersecurity issues, however. California also passed legislation, the California Consumer Privacy Act of 2018 (CCPA), at the end of June. This new regulation, which is the first major data privacy law passed in the United States, will formally take effect on January 1, 2020. The CCPA gives “consumers” – defined as natural persons who are California residents for tax purposes – several key rights with respect to their personal information:

• The right to know what personal information a business has collected on them, how it was collected, what it is being used for, and whether it is being disclosed or sold, and to whom;
• The right to “opt out” of having a business sell their personal information to a third party; and
• The right to have a business delete their personal information entirely, subject to some exceptions.

So why is the CCPA worth paying attention to? First, because it will affect an estimated 500,000 small to medium U.S. businesses – many of whom may not fall under the GDPR’s reach. But second, because California historically has been the first state to address privacy issues. In 2002, it became the first state to require notifications of data security breaches, and in 2004, it passed the first law requiring websites to have privacy policies. In other words, the CCPA could well be the first of many other state data privacy laws, or potentially even start the conversation on establishing national privacy legislation; it is a strong indicator of things to come.

Though the CCPA has been compared to the GDPR, don’t assume that being in compliance with GDPR means your company automatically complies with the CCPA – the two laws are not all that similar. For example, the CCPA defines “personal data” much more broadly, gives California consumers greater rights to access their personal data, and is stricter on data sharing for commercial purposes.

As things currently stand, the CCPA will apply to for-profit businesses that collect and control California residents’ personal information, do business in the State of California, and (1) earn $25 million or more in annual revenue; or (2) hold the personal data of 50,000 or more California residents, households or devices on an annual basis; or (3) obtain at least half its revenue selling personal data of California residents.

Penalties for noncompliance with the CCPA are divided into two categories: Intentional and unintentional. Intentional violations are $7,500 per violation; unintentional violations are subject to a $2,500 fine per violation. Additionally, companies could be ordered in civil lawsuits to pay statutory damages between $100 and $750 per California consumer and incident, or actual damages – whichever is greater – on top of any other court-ordered relief.

For now, it would be wise for any business to start paying attention to how Ohio’s law is implemented in November, and to watch for changes to the CCPA prior to its 2020 execution. Furthermore, if you haven’t already, start tracking all personal information you might collect, use, and store, and what your corporate privacy policy says about personal information. Being proactive and assuming that the CCPA could become law across the country could save you significant time in the long run

By:  Jen Horn

Companies that take reasonable cybersecurity precautions against data breaches will have a distinct advantage starting in November. That’s because Ohio’s Data Protection Act, which Governor John Kasich signed in August, formally takes effect November 2nd.

The Act, the first legislation of its kind in the country, creates a legal incentive for businesses that maintain a recognized cybersecurity program. (Other states, such as New York, require a certain level of compliance with cybersecurity standards, but don’t offer any incentive to do so). Provided that its cybersecurity plan conforms to a certain framework, a company may invoke a “safe harbor defense” in Ohio to a cause of action that alleges a failure to implement reasonable IT security controls that resulted in a data breach.

In order to qualify for this legal defense, the business must implement a written cybersecurity plan that clearly does the following:

• Protects the security and confidentiality of personal information;
• Protects against anticipated threats or hazards to the security or integrity of personal information; and
• Protects against unauthorized access to and acquisition of personal information that is likely to result in a material risk of identity theft or fraud.

This is not a one-size-fits-all type of plan. It may be based on a company’s size, the nature and scope of its activities, the sensitivity of any personal information protected under the cybersecurity program, and the cost and availability of tools to improve IS and reduce vulnerabilities.

The one thing that any cybersecurity program must do, however, is “substantially comply” with one of eight industry-recognized frameworks, which include:

• Center for Internet Security’s Critical Security Controls for Effective Cyber Defense;
• Federal Information Security Modernization Act;
• Federal Risk and Authorization Management Program’s Security Assessment Framework;
• Gramm-Leach-Bliley Act’s Safeguards Rule;
• Health Information Technology for Economic and Clinical Health Act;
• International Organization for Standardization (ISO)/International Electrochemical Commission’s (IEC) 27000 Family – Information Security Management Systems Standards; and
• National Institute of Standards and Technology’s (NIST) Cybersecurity Framework.

The Act does not provide companies with blanket immunity to a data breach lawsuit, and businesses do still have the burden of proving that their cybersecurity program complies with the law’s requirements. But as long as a business can establish compliance, the Act gives it an affirmative defense to tort actions (including invasion of privacy and negligence) that it might be facing following a data breach that involves personal or restricted information.

As we advise clients time and again, no-one is immune from the threat of a data breach, and companies should approach data security as a question of when a breach will happen, not if. The new Act will give Ohio businesses an advantage if they take the time to evaluate things like what data they create, maintain, or share, and create a cybersecurity program that is appropriate for their company.

Ohio’s Data Protection Act is also one of the first laws in the country to recognize documents secured by blockchain technology as legal documents. An amendment to the Act updated Ohio’s existing Uniform Electronic Transactions Law to now state that “a record or contract secured through blockchain technology is considered to be in an electronic form and to be an electronic record.”

Generally speaking, “blockchain technology” is what underlies the rapidly growing cryptocurrency market. Cryptocurrencies – the most popular of which at the moment is bitcoin – are virtual currencies that exist peer-to-peer. They were initially developed as a means of fixing perceived flaws with the way money is transmitted from one party to another. Apparent flaws include the amount of time it can take a cross-border financial transaction to clear, as well as the costs of a financial transaction.

Blockchain technology, then, is the digital and decentralized public ledger that records all transactions. Any time someone does anything with cryptocurrency, this virtual ledger tracks the transaction and encrypts it, to protect it from cybercriminals. But because blockchain is “decentralized,” meaning it is controlled by users and computer algorithms rather than a centralized bank, there is not one specific hub that stores all transaction data. Rather, it is stored in bits and pieces across the world. The transactions are distributed and recorded across multiple computers, ensuring there are multiple copies to prevent altering a transaction record. This allows the ledger to be easily verifiable despite being decentralized.

Recognizing documents that are part of blockchain transactions as “legal documents” will likely help to legitimize the technology in Ohio. Though blockchain has most frequently been tied with cryptocurrencies, proponents of the technology have indicated that blockchain could be very useful in other industries, including finance, health care, real estate, and supply chain management.

By:  Ed Patton

With President Donald Trump’s additional $200 billion dollars in trade tariffs on China now in effect, the focus turns to their impact. The tariffs, which began on Monday, encompass a wide variety of goods, ranging from seafood and vegetables to auto parts and construction material. And while they began at 10 percent, tariffs will increase to 25 percent on January 1, 2019. Effects of the tariffs will vary depending on what is purchased, with consumers seeing greater price increases on more expensive items such as televisions, cars, or homes and home renovations, due to increased costs on construction materials.

And businesses, some of which have been dealing with increased taxes on imports like steel and aluminum for months, will see costs increase further. The intent of tariffs is to help domestic companies by making their domestic product more affordable than the foreign alternative, but they don’t always have the desired effect. Manufacturers can end up being forced to lay off workers or increase prices for customers to offset their own price increases.

Whether President Trump’s latest tariffs on China will do anything to address the trade imbalance between the two nations remains to be seen; China responded by imposing penalties on $60 billion of U.S. products.