News & Events

Karl Schneider and Trina Goethals recently served as judges/instructors for the Denison University Moot Court team, in Granville, Ohio. The Denison team meets weekly and is preparing for the upcoming Regional Moot Court Competition, which will be held at the end of November. Moot Court is a practice in simulated appellate court proceedings where the teams are given a case record from which to work. This year’s case deals with issues of free speech and due process. Mr. Schneider and Ms. Goethals will continue to assist the team until their competition.

About Maguire & Schneider, LLP
The law firm of Maguire & Schneider, L.L.P. is an AV-Rated firm established in 1993. Formed by four lawyers, it has grown to over thirty lawyers and maintains its office in Columbus, Ohio. Our clientele includes financial institutions, regional real estate brokerage firms, title companies, insurance companies, governmental entities, small business, individuals and families. With a proven track record of experience M&S offers a breadth and depth of legal expertise, assisting its clients, big and small, in reaching their goals.

Please see the attached article appearing in the Columbus Dispatch September 15, 2008.

http://blog.dispatch.com/dailybriefing/2008/09/hearing_on_payday_petitions_se.shtml

Please see the attached article appearing in the Dayton Daily News September 25, 2008.

http://www.daytondailynews.com/blogs/content/shared-gen/blogs/dayton/ohiopolitics/entries/2008/09/25/casino_issue_certified_for_bal.html

Digitek, a drug used to treat heart failure and abnormal heart rhythms, has been recalled because some tablets contain twice the approved level of active ingredient. These tablets can cause serious injuries--including low blood pressure, cardiac instability, and death. Please contact us if you or a loved one has suffered injury following ingestion of Digitek. You can reach us at 1-800-464-2266.

The drug is distributed by Mylan Pharmaceuticals and sold under the labels "Bertek" or "UDL".

Download the FDA Recall Notice (PDF)

Partners Bradley Barbin and Karl Schneider completed a criminal jury trial in March, 2008 involving tax and conspiracy charges in the Eastern District of Pennsylvania Federal District Court. Karl Schneider, along with colleague Trina Goethals completed a civil jury trial in early June, 2008 in the Butler County Common Pleas court involving alleged real estate broker negligence as well as concealment of foundation damage.

Maguire & Schneider, L.L.P. is pleased to announce that KEITH W. SCHNEIDER, partner, has been elected by his peers as a member of the Columbus Bar Association Board of Governors for the 2008-2009 year. Keith Schneider's practice focuses on all aspects of labor and employment law, general litigation, complex litigation, white collar crime, banking law, municipal law, administrative law, real estate law, and class action.

Lisa Wu Fate has been asked to speak at a one-day seminar on April 18, 2008 titled "What You Need to Know About Public Records and Open Meetings in Ohio". Ms. Wu Fate is recognized statewide as an expert in the areas of public records and open meetings law.

Bradley Davis Barbin, a partner of Maguire & Schneider, has been asked to speak at the "Document Retention and Destruction in Ohio" seminar on February 29, 2008. Mr. Barbin has held several key positions in federal and state government over his twenty-four year legal career. Mr. Barbin devotes his practice to civil and criminal litigation in the state and federal courts.

Lisa Wu Fate has been appointed to the Supreme Court of Ohio, Commission on Technology and the Courts, term ending December 31, 2009.

The Commission was established in December 2007 to advise the Supreme Court of Ohio on rules and policies, etc. pertaining to information technology systems in the Courts; delivery of technology services, educational and training programs for judges and court personnel; exchange of data information between courts to promote greater efficiency; and other issues promoting comprehensive use of technology in the Ohio courts.

The Commission consists of 25 members, appointed by various members of the judiciary, Clerks of Court and Bar Associations, among others. The President of the Ohio State Bar Association is entitled to one appointment, and he appointed Ms. Wu Fate to serve.

Ms. Wu Fate is a member of the litigation group and has expertise in public records law and in many different jurisdictions. She graduated with Honors from the Ohio State University Moritz College of Law and with High Distinction from the University of Michigan.

Lisa Wu Fate and Karl H. Schneider presented an educational seminar regarding short sales to over 200 associates from Real Living HER, Inc. at the company’s 2008 All-Agent Kick-Off Meeting. The meeting is a quarterly event attended by hundreds of the company’s associates and is intended to keep Real Living’s associates at the cutting edge of developments in their chosen field. Recent events involving the mortgage market nationwide have caused increased risk of foreclosure and many homeowners find themselves in need of selling their properties on the open market to avoid a distressed foreclosure sale. Sometimes, to accomplish the arms-length sale, short sale negotiations are required. This option, however, creates a host of legal and ethical considerations for Ohio real estate agents, which were discussed in detail at the event.

Gadolinium is used to obtain a brighter and better image on MRI (magnetic resonance imaging) and MRA (magnetic imaging angiography) scans. In people with kidney problems it can cause an incurable disease known as NSF/NFD.

NSF/NFD typically starts with swelling and tightening of the skin, frequently with red or dark patches. Usually only arms and/or legs are involved. It can progress rapidly to woody, thickened, distorted skin that can become so severe that the person cannot walk. There is no effective treatment.

Download Gadolinium Fact Sheet (MS-Word)

Download Gadolinium Fact Sheet (PDF)

Download FDA Warning Document (PDF)

You may want to consider contacting us if you have NSF/NFD or think you might have it, to discuss your legal rights. You can contact our Pre-Paid Legal Provider department at 1-800-464-2266.

Congratulations to Karl H. Schneider who has been named a 2008 “Super Lawyer”. “Super Lawyers” is a comprehensive and diverse listing of exceptional attorneys representing a wide spectrum of practice areas, firm sizes and geographic locations. The list is based on surveys of thousands of lawyers and peer reviews. Only the top five percent of lawyers from nearly sixty practice areas are named “Super Lawyers”. This is Mr. Schneider’s fourth year being listed in this publication. 2005-2007 he was recognized in the practice area Criminal Defense: White Collar and in 2008 he was recognized in the practice area Professional Liability: Defense.

Amy has the experience and connections. Betty has the money. Together they open a little shop. The grand opening of A&B is a dream come true. They have properly incorporated, hired a CPA, drafted a business plan, carefully selected employees, obtained insurance, and got a great deal with suppliers.

When the honeymoon is over and the real work of developing a small business begins, Betty the minority shareholder is ignored or worse.

Amy, the majority shareholder, runs the store on a day to day basis but does not keep good records. The cash register is broken so all sales are maintained (or not) on a notepad. Amy makes the cash deposits on a regular basis but diverts some of the cash to another similar business she owns alone. Amy doesn’t see the need to advertise in light of the ads she runs for her other business. Betty is never in the store but relies on sporadic communications from Amy. Since the venture was well funded and they have been friends for years, Betty assumes all is well.

Out of the blue, Amy withdraws from the little shop after nine months of operation. The doors are closed. Of the $50,000 invested by Betty, only $1,500 remains in the corporate bank account. How could this happen?

Records of sales are nearly non-existent. Paid invoices provide a clue as to the number of sales. Bank records indicate transfers were made to Betty’s other business account. The former employees confirm that shop sales exceeded the deposits listed. What is a minority shareholder to do?

Fiduciary duty between shareholders of a close corporation imposes on the members of the firm the obligation of the utmost good faith in their dealings with one another with respect to the company’s affairs, of acting for the common benefit of all in transactions relating to the firm business, and of refraining from taking any advantage of one another by the slightest misrepresentation, concealment, threat, or adverse pressure of any kind.

A majority shareholder has a fiduciary duty not to misuse her power by promoting her personal interests at the expense of corporate interests.

In our example, Amy’s failure to keep adequate records or to promote the business as agreed in the business plan is a breach of fiduciary duty. She clearly wanted the cash to promote her other business venture to the detriment of A&B. Betty is now in a position to sue her partner (and former friend).

Amy’s deposit of A&B money for her own purposes is also an act of Conversion. Conversion is a wrongful exercise of dominion or control over property of another in denial of or under a claim inconsistent with her rights. Betty can show, through the sales receipts she has and bank statement that Amy converted the A&B cash to her other accounts. This is another count in the lawsuit.

Betty, of course, will win her breach of duty lawsuit against Amy. But a Judgment from the Court does not guaranty the collection of her initial investment. Amy has no money since she sunk all the cash into her other business which has also closed due to poor management. The sad ending - Betty is out $50,000 with little hope of recovering even a small portion.

This does not have to happen to you. Fiduciary duty rules are great, but you need to BE INVOLVED. In a close corporation, a minority shareholder is entitled to information regarding the activities of the business in which the investment is made. Minority shareholders can call meetings, request accountings, and be given notice of material changes in the business. A well drafted shareholder agreement is an excellent way to spell out how the business will be run and what information a minority shareholder is entitled; but that does not mean the agreement will be followed. You need to stay involved, particularly in the first year. The most important lesson to take from this example is – if you are looking for a passive investment where you do not need to be involved in the operation of the business, a close corporation may not be for you. Small businesses have many pitfalls –operationally, taxes and others. As a shareholder, you must be ready for the work involved to make a small business successful.

Ohio offers consumer protection in several different types of transactions. For instance, there is a Lemon Law for new car purchases which allows a buyer to bring a claim against the vehicle’s manufacturer if the buyer has experienced problems within the first year or first 18,000 miles of delivery. The problems must substantially impair the use, value, or safety of the car and must have been reported to the manufacturer within the first year or 18,000 miles.

Protection is also provided to consumers under the Consumer Sales Practices Act, the Telephone Solicitation Sales Act, the Home Solicitation Sales Act, as well as legislation including but not limited to automobile repairs, home mortgages, credit cards, store refund and return policies.

Despite a popular belief that consumers have a right to cancel a contract within 3 days of signing, no such right exists. Some exceptions which allow cancellation within 3 days under certain circumstances include mortgage refinance contracts, sales made to a consumer in the consumer’s home and prepaid entertainment contracts. Buyers should consult an attorney before signing any contract.

While consumer protection laws exist, buyers still need to exercise care when signing contracts; whether it is a credit card receipt for an in-store purchase or a contract to buy a home.

Converting a sole proprietorship into a corporation seems like a simple matter of filing Articles of Incorporation, issuing stock certificates and adopting By-laws. No need to pay the lawyers or CPAs more money, right? You risk some serious tax consequences by failing to plan your transaction appropriately.

A conversion from a sole proprietorship to a corporation raises several serious tax issues. As a sole proprietor, you are transferring assets (equipment, inventory, goodwill, etc.) to your new corporation in exchange for corporation stock.

Internal Revenue Code Sec. 351 provides that an exchange of property for stock in a corporation is a nontaxable event only if certain requirements are met. On the surface, the requirements are simple: 1) A transfer of property made by one or more persons who have or will have control of the corporation immediately after the transfer as a result of the exchange (the capital contribution). 2) The only consideration received is common stock or preferred stock that is “nonqualified preferred stock.” 3) There must be a business reason for the transaction.

Traps for the unwary manefest in many forms. For example, the assumption of debt by the new corporation in exchange for stock can be problematic. While the IRC allows for the assumption of debt without a tax consequence, if the principal purpose of the liability assumption is to avoid federal income tax on the exchange or if there is no bona fide business purpose for the debt assumption, the entire liability is treated as boot. The value established for the boot is taxable.

Even if neither of these exceptions is present, if liabilities assumed exceed the total adjusted basis of the property transferred, gain is recognized to the extent liabilities assumed exceed the basis of the property transferred.

The Tax Court and the Federal Circuit Courts are divided on how to treat a personal not transferred as property to a corporation. If this is the type of transaction you are contemplating currently, you should seek the advice of tax counsel.

Another taxable transfer is property transferred to an “investment company”. The determination of whether a company is an investment company shall be made by taking into account all stock and securities held by the company, which can include money, stocks and other equity interests in a corporation, evidences of indebtedness, options, forward or futures contracts, notional principal contracts and derivatives, any foreign currency, any interest in a real estate investment trust, a common trust fund, a regulated investment company, a publicly-traded partnership or any other equity.

One of the most common traps I see in my practice is the transfer of services for stock. Services are not property. When an individual receives stock for future or past work performed, it is a taxable event for the individual. Recall also the requirements for the tax-free exchange for the corporation requires that the transferor of property must own the company after the transaction. Services are not counted as part of the control requirement. Therefore, transfers of services for at least 20% of the stock means the control test is not met. The entire transaction is taxable.

If you are contemplating starting a corporation from your existing sole proprietorship, adding shareholders, or any other stock related transaction, use the following planning guide:

• Have an attorney form the corporation and draft the bylaws and a shareholders’ agreement.


• Issue the stock to the sole proprietor upon transfer of the assets and execution of the applicable documents.


• Obtain appraisals of all property contributed to the entity or otherwise document the valuation.


• Consult with your tax advisor and/or CPA regarding an S corporation election.


• Determine whether any gain will result if liabilities are assumed in excess of basis.


• Have an attorney review loan documents to be sure the assumption of debt, or even the transfer of debt, is allowed. Obtain lender consent, if necessary.

Make sure the RESULTS you intend are the RESULTS you get. Plan appropriately for your stock transaction and avoid the traps of the tax code by obtaining expert advice.

Congratulations to Attorney Trina N. Goethals who passed the Missouri Bar. Ms. Goethals practices in the areas of Litigation and Real Estate. A graduate of Central Missouri State University in 2000, Ms. Goethals received her law degree from Capital University Law School in 2005.

Karl H. Schneider has been asked to speak at a title insurance agents’ forum sponsored by Old Republic Title Insurance Company on November 14, 2007. Mr. Schneider will address various litigation matters including foreclosure suits and attendant bankruptcy issues.

At the 2007 Provider Awards Banquet, held on September 23rd in Nashville, Tennessee, Pre-Paid Legal recognized Maguire & Schneider and some of its lawyers with awards for distinguished customer service.

Maguire & Schneider received the “Determination Award”. This award recognizes our continued commitment to meeting and exceeding the requirements of Pre-Paid Legal’s service criteria. Maguire & Schneider has been recognized with a customer service award in 9 out of the last 10 years.

Attorneys Bill Donahue, Tom Gallagher, Chris Lentz and Andrea Martin received Members’ Choice Awards. These awards are based on Member feedback and excellent survey results for the past year.

Partner Wayne Hassay and Attorney Jeffrey Runyan received awards for their excellent service as Legal Shield attorneys. No other firm had two attorneys selected for this award.

Congratulations to all of our attorneys who individually received awards and to the attorneys and staff who worked together to receive the Determination Award!

The Small Business and Work Opportunity Tax Act of 2007 was signed into law on May 25, 2007. Included int eh Act are various small business tax incentives and a few revenue raisers such as new and enhanced penalties and broadening of the kiddie tax.

Previously, a child subject to the kiddie tax pays tax at his or her parents’ highest marginal rate on the child’s unearned income over $1,700 if that tax is higher than the tax the child would otherwise pay on it. In the alternative, parents could elect to include the income on their own return the child’s gross income in excess of $1,700. A child was subject tot the kiddie tax if he or she has not attained age 18 before the close of the tax year; either parent of the child is alive at the end of the tax year; and the child does not file a joint return for the tax year.

For tax years beginning after May 25, 2007, the kiddie tax rules apply to children age 18, and children over age 18 but under age 24 who are full-time students – their earned income doesn’t exceed on-half of the amount of their support.

This expansion of the kiddie tax rules attempt to curtail a strategy some parents were advised to use to take advantage of a beneficial feature of the long-term capital gains rates. The top tax rate on “adjusted net capital gain” in 2007 is 15%. But to the extent a taxpayer’s adjusted net capital gain would otherwise be tax in the two lowest tax brackets (10% and 15%) it’s taxed at 5% for 1007 and 0% for 2008 through 2010. Same families sought to benefit from these rates by gifting appreciated stock, mutual-funds shares, and other securities to their low-income, young-adult children, who could then sell the securities tax-free in 2008, 2009, and 2010. The new law changes will eliminate the opportunity to do this in many cases. However, if the earned income of a child over age 18, or age 19-23 if a full time student, exceeds one-half his or her support, the kiddie tax rules won’t apply and he or she will be able to take advantage of the 0% capital gains rate next year and his or her own bracket on other types of unearned income.

Earned income is always taxed at the child’s tax rates. Thus, one way of providing a child with income without triggering increased tax liability under the kiddie tax rules is to employe the child (at reasonable compensation) in, for example, a trade or business owned by the parent. Computer-literate children, for example, could help with a variety of tasks. As a result, the child’s earnings won’t be subject to the kiddie tax and will generate a deduction for the family business. As an added bonus, this could help to avoid the kiddie tax on unearned income of a child age 18 or age 19-23 if a full0time student.

For purposes of the kiddie tax, support is defined the same as it is for the dependency deduction requirement that a qualifying child not provide more than one-half of his or her own support for the tax year, but any scholarships received by a student for study at an educational organization are excluded in determining the total support paid for the student for the tax year.

You should discuss the options for dealing with your children’s tax liability with your tax professional. Gifting strategies and other estate planning tools can still be used to reduce your tax burden.

The Internal Revenue Service released a publication further explaining the Attributed Tip Income Program (ATIP), a voluntary alternative tip reporting program for the food and beverage industry. For calendar year 2007 only, employers are allowed until June 30,2007 (rather than Feb. 28, 2007 when they timely filed Form 8027 information return) to begin the tip attribution process and make an election to participate in ATIP. As long as employers notify IRS that they would like to participate in the program by filing Form 8027, the safe-harbor protection will begin the first payroll period that the employer attributes tips based on the prescribed formula.

Publication 1461 explains that under ATIP, the amount of tips that must be reported by the restaurant is determined under a formula based on the restaurant’s credit card sales. The employer determines a method for attributing the tips among all tipped employees and attributes tips to the employees at least monthly. The method should be fairly close to the actual distribution of the tips among employees, including tip-outs and amounts passed along to employees who are not directly tipped. The amount attributed to each participating employee is treated as wages for purposes of employment taxes paid by the employer.

This method relieves some accounting burdens for employers tracking each employee tip collection. Nonparticipating employees must still report the amount of tips they actually receive to their employer, and the employers must treat the reported amount of tips as wages. Employees must sign participation agreements. If you are interested in electing to participate in this program, please consult with your CPA or tax professional to prepare appropriate filings and participation agreement.

Karl H. Schneider and Bradley Davis Barbin have been asked to speak at the National Business Institute’s presentation “Criminal Defense: Pretrial Success." Mr. Schneider will address “Dealing With Uncooperative or Hostile Witnesses" and “Ethical Issues in Criminal Discovery." Mr. Barbin will discuss “Evidence--Do You Have All of It?” and “Trouble-Shooting Extreme Situations.” The seminar will occur on June 19, 2007 in Columbus, Ohio.

Maguire & Schneider, LLP partner Bradley Davis Barbin convinced the 9th District Court of Appeals in Akron to reverse a high profile murder conviction on March 21, 2007.  The court further ordered the immediate release of a fifty two year old mother of seven, who had been serving a life sentence. Mr. Barbin presented the oral argument in January 2007. He indicated that the murder conviction was based entirely upon circumstantial evidence and that the three judge panel reversed the conviction for insufficient evidence. (Case No. C.A. 23019, Case No. CR 2005 01 0032)

Dateline NBC is scheduled to present a two hour special on this murder case on May 4, 2007 between 8:00 p.m. and 10:00 p.m.

The law firm of Maguire & Schneider, L.L.P congratulates Karl H. Schneider, one of its founding partners, who has been named one of the 2007 Ohio Super Lawyers. Candidates are nominated by ballots mailed to lawyers throughout the State of Ohio, evaluated by a panel of their peers and then selected based on recognition and achievements. He was also honored with this distinction in 2005 and 2006. Maguire & Schneider, L.L.P. maintains offices in Columbus, Ohio and Naples, Florida. Mr. Schneider practices in our Columbus office and is a resident of Upper Arlington where he resides with this wife and three children.

Maguire & Schneider, LLP had the honor of hosting the 2006 Pre-Paid Legal Annual Award Conference. One hundred and fifty eight Attorneys and Administrators from fifty law offices across the United States and Canada attended this event. The C.E.O., founder, and chair of the board Harland Stonecipher and Vice President of Attorney Resources, Leslie Fisher, presented Maguire & Schneider, LLP with the Outstanding Service Award for 2006.

The Tax Court upheld IRS practice of using bank deposit reconstruction to determine self-employed internet entrepreneur’s unreported income. Bank deposits are prima facie evidence of income. The taxpayer failed to keep adequate records of his business receipts and other income. All bank deposits were considered regular taxable income without regard to their origin where no other evidence was available.

In the same case, the Taxpayer failed to keep records of payments to Internet uplink service in the amount of $47,000 which was claimed as an expense. The expense was disallowed.

Books and records must be retained so long as the contents thereof may become material in the administration of any tax law. Normally, additional tax must be assessed within three years of the return being filed. This period is extended if there is a “substantial omission” (more than 25%) of gross income. There is no limitation on assessment for false or fraudulent returns.

BUSINESS PRACTICE TIP: Keep your business tax records and substantiation of expenses organized and in a safe place for at least six years after the date of filing the return.

Your credit card bill just arrived in the mail and you notice a $500 charge for a lawnmower from a home improvement store in Illinois. Wait a minute...you don't have a lawn and you certainly don't live in Illinois! It's identity theft. Quick! What do you do next?

Step 1 - 10 minutes

Call the creditor to notify them of the fraud right away. The creditor should reverse the fraudulent charges and lock your account. You should have photocopies of your credit cards and credit contact numbers stored in a safe place just for this kind of emergency. Be sure to record the times, dates and names of the people you contact in a log for future reference.

Step 2 - 10 minutes

Your next step is to contact the credit reporting agencies to report the crime and request that a 90-day fraud alert is placed on your credit report. You only need to contact one of the three bureaus (TransUnion, Equifax or Experian) to have fraud alerts placed on all three of your credit reports.

This 90-day alert will notify creditors that you may be a victim of fraud and advise them to verify your identity before opening any new accounts. This alert also entitles you to a free credit report from each bureau for your review. Fraud resolution experts with the credit reporting agencies can also help you check your credit data for other signs of identity theft and can help you restore your account security. Don't forget to record the results of your contacts in your identity theft log.

Step 3 - 10 minutes

Your last ten minutes should be spent on the Federal Trade Commission's Web site filling out an ID theft affidavit. Once you complete this worksheet, you can use it to report fraud to creditors and can keep it in your records for future reference. If your identity theft goes beyond credit card fraud, you should also contact your local law enforcement agency to file a police report. Add copies of your affidavit and police report to your identity theft log and store these documents in a safe place. How quickly you spot and report identity theft can make all the difference!

On Aug. 8, 2005, the President signed the Energy Tax Act which could provide homeowners with a $500 credit for non-business energy property (a one time credit) and the 30% of cost credit for residential energy efficient property (up to $2000). Not surprising, given their subject matter, both are fairly complex. While the many energy related technicalities related to these credits will hopefully be easily resolved with the help of manufacturers’ certification/labeling, the average person should be aware of this tax saving opportunity.

A homeowner may take advantage of these credits by installing energy efficient insulation, skylights, exterior doors, and pigmented coated metal roofs. For example, you may be eligible for a $50 credit for each advanced main air circulating fan or $300 for qualified energy-efficient property heat pumps, water heaters and central air conditioners.

For additional details please consult your tax advisor.

For 2005, a taxpayer can make a Roth IRA contribution equal to the lesser of (1) $4,000 (up to $4,500 if he is age 50 or older), or 100% of the compensation that痴 includible in his gross income for that year. The maximum Roth IRA contribution is reduced by amounts contributed to non-Roth IRAs and is phased out if modified AGI exceeds $150,000 for joint filers. The deadline for establishing and making a contribution to a Roth IRA is the unextended tax return due date for the tax year to which the contributions relate.

If you have questions regarding tax-free rollovers, conversion of traditional IRA to a Roth or recharacterization of a contribution, please consult your tax advisor.

In recent years, many businesses have started to include mandatory arbitration provisions in contracts with suppliers, customers, and consumers. While mandatory arbitration provisions may be advantageous in certain transactions, their benefits must be analyzed on a case by case basis.

Arbitration is a private dispute resolution process in which a neutral third party renders a decision resolving the dispute after both parties have had an opportunity to be heard. Mandatory arbitration provisions, which are usually included within the terms of a written agreement, require the parties to resolve any dispute related to that transaction through this process, as opposed to presenting the matter to the courts. Overall, this process has been viewed as less costly and more efficient than traditional litigation. However, there are many situations where this presupposition has proven false.

For example, mandatory arbitration provisions in consumer contracts or in contracts between an employer and an individual employee are coming under strict scrutiny by the courts, and in some cases, have been found to be unenforceable. In addition, even if an arbitration clause itself is not challenged, the arbitration decision may later be challenged in court. Obviously, these types of legal disputes will add to the cost of arbitration. Furthermore, when a private dispute resolution mechanism like arbitration is used, the parties typically pay the cost for the arbitrator痴 services, which may be substantial depending on the nature of the dispute. Therefore, prior to inserting mandatory arbitration provision in a contract, you should consider the nature of the contract (consumer or commercial), the amount involved, and the complexity of the potential issues to determine whether mandatory arbitration is the best way to resolve potential disputes.

The Fair and Accurate Credit Transaction Act�s (FACTA) disposal provisions went into effect on June 1st. The purpose of the rules is to prevent workplace identity theft by requiring employers to properly dispose of records that contain �consumer information.� FACTA amends the Fair Credit Reporting Act (FCRA) and requires �any person that maintains or otherwise possesses consumer information, or any compilation of consumer information, derived from consumer reports for a business purpose to properly dispose of any such information or compilation.�

Under the rule, �consumer information� means any record about an individual that is a consumer report or is derived from a consumer report as defined by the FCRA. The FCRA�s definition of a consumer report includes any written, oral, or other communication of any information by a consumer reporting agency regarding a consumer�s credit standing, credit capacity, character, reputation, personal characteristics, or mode of living which is used as a factor to establish the consumer�s eligibility for employment. Practically, the disposal rules come into play whenever a third-party is used to perform a credit check, run a credit report, conduct a background investigation, or perform a driving record check. Further, if information from any of these reports is made part of another document, such as a summary of the reports, these additional documents are also covered by FACTA. The rules are limited by the requirement that information must come from a third-party; information gathered by internal research or checking is not covered under FACTA.

The rules require proper disposal of consumer information contained within the reports covered by FACTA. The rules further require employers to take �reasonable measures� to protect against unauthorized access to information contained within reports covered by FACTA once the reports are disposed. The logical question is what are reasonable measures? The rule suggests shredding, burning, or pulverizing documents. Computer and electronic files must be erased. These rules only apply to the disposal of consumer information�they do not apply to the maintenance and/or storage of the information.

If you have not heard the state of Ohio has adopted a commercial activity tax (CAT) which became effective July 1, 2005. The CAT tax is an annual privilege tax to do business in Ohio and is measured by gross receipts on business activity. The tax applies to all types of businesses regardless of legal form. Individuals also may be subject to the tax. This is how the CAT tax works: most everyone, except wage earners, with gross receipts beyond $150,000 must register with the state and pay a fee of $20.00 ($15.00 if you register electronically) on or before November 15, 2005. For gross receipts up to $1 million, you pay $150.00 annually. For gross receipts above $1 million, you will pay an additional .0026. Here are a few examples:

� Sam owns a welding shop and has $475,000 in gross receipts. His business expenses total $410,000 leaving him with net income of $65,000. Sam pays income tax on $65,000 plus an extra $150.00 for the CAT tax.

� Wendy is a partner in a small medical practice. The practice generates $2 million in gross receipts. The practice will pay $2,750 in CAT tax.

� Karl has investment properties that generate $5 million in gross rents. In addition to paying income tax on the net income (gross receipts less allowable deductions) his CAT tax will be $10,550.

As the examples show, each person is paying more tax to the state of Ohio than before.

The CAT tax will be phased in over the next five years and payment is due in February of each year. Some taxpayers will be required to make quarterly payments.

Here is one more tidbit: If state of Ohio revenue projections from the CAT tax are lower than projected, the Ohio Tax Commissioner (and not your elected representatives) is permitted to increase the Cat tax.

For more information on the CAT tax and how it may apply to your situation, please consult your tax advisor.

When a married supervisor conducts longstanding, concurrent affairs with three female subordinates at work and grants them professional favors over more deserving candidates, does it constitute unlawful sexual harassment?
In Miller v. Department of Corrections, the California Supreme Court has held that it does, despite a longstanding reluctance by courts to recognize claims of so-called "sexual favoritism."

The case was brought by two former employees at the Valley State Prison for Women (VSPW). The Plaintiffs alleged that they were subjected to discrimination and harassment as a result of the chief deputy prison warden's multiple workplace affairs.

The crux of the complaint is its allegation that the deputy warden openly carried on three affairs with female employees at the prison, all subordinate to him, and granted those women undeserved privileges and promotions because of his relationship with them. At the same time, the suit alleges, female employees who complained about these relationships were punished, and retaliated against, for their objections.

One might contend that they have been denied access to job benefits not because of their sex, but because the boss happened to choose a different woman to have an affair with. The EEOC's Policy Guidance states the agency's position on when sexual favoritism constitutes illegal harassment or discrimination. It recognizes the possibility that widespread favoritism can create a hostile environment for both male and female employees.
The Court said, “when such sexual favoritism in a workplace is sufficiently widespread it may create an actionable hostile work environment in which the demeaning message is conveyed to female employees that they are viewed by management as 'sexual playthings' or that the way required for women to get ahead in the workplace is by engaging in sexual conduct with their supervisors or management.”

Isolated incidences of sexual favoritism, while clearly inappropriate, are not considered unlawful by the EEOC. The safe thing, then, for employers to do is prohibit such favoritism, just as they often have policies banning nepotism.
When sexual favoritism is as pervasive and unfettered as it is alleged to have been at VSPW, no woman can get a fair evaluation based on her abilities and work-related talents. That is the essence of sex discrimination, and the Miller court was right to put a stop to it.

On April 20, 2005, President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the “Act”). The Act is one of the most comprehensive pieces of bankruptcy legislation to be enacted in decades. With the exception of some provisions, the effective date for the new law is October 17, 2005. The intent behind the legislation is to prevent individuals and other entities from abusing the remedies provided by the Bankruptcy Code. As a result, a number of the new provisions in the Act are designed to produce increased payments to creditors and/or to increase a creditor’s rights in the bankruptcy proceeding. This article briefly highlights some of the major changes that will take effect this fall.

Overview of Major Changes to Consumer Bankruptcy Cases. Subject to certain exceptions, any individual seeking relief under any chapter of the Bankruptcy Code must complete an individual or group counseling session from an approved nonprofit budget and credit counseling agency within 180 days of filing for bankruptcy protection.

One of the most significant changes made by the Act involves the ability of individuals to file a Chapter 7 bankruptcy. The Act greatly limits the availability of Chapter 7 bankruptcy relief through implementation of the “means test.” Generally speaking, after October 17, 2005, if a debtor’s monthly income exceeds the median income level of his/her state, as reported by the Bureau of the Census, the debtor will be subject to the “means test.” The “means test” is a convoluted formula to determine if a presumption of abuse exists. If a presumption of abuse does exist in a Chapter 7 bankruptcy, the debtor will have to defend against a motion to dismiss the Chapter 7 case by demonstrating that “special circumstances” exist that justify the need for Chapter 7 relief. The intent behind the “means test” is to limit the availability of Chapter 7 relief for individuals. Accordingly, if an individual is prohibited from filing a Chapter 7 bankruptcy, his/her only choices are to either forego bankruptcy relief or seek bankruptcy relief under Chapter 13, which requires at least a minimal repayment of debts. As a result, creditors should, at least in theory, receive a higher repayment on their claims against a debtor under the Act then they did under the soon to be old law.

The automatic stay provisions of the Bankruptcy Code once provided a broad protection for debtors by generally prohibiting any continuation of collection efforts by creditors. The automatic stay provisions of the Act, however, create numerous new limitations on the applicability of the automatic stay. A creditor’s ability to continue collection efforts against a debtor that has filed a bankruptcy case will substantially change under the Act. Several of the new provisions modify the applicability of the automatic stay in relation to interests in real property and leases, which is discussed in more detail below.

Another important amendment to the Bankruptcy Code involving Chapter 7 bankruptcy cases and secured debt is the requirement that the debtor must either redeem the property or reaffirm the debt applicable to collateral. In the past, debtors were able to avoid the formal process of redemption or reaffirmation by simply maintaining current payments to the creditor for the secured debt. Redemption requires a debtor to “buyout” a creditor’s interest in collateral by paying the value of the collateral. Reaffirmation means the debtor agrees to pay the debt according to the original terms of the contract. Pursuant to the Act, the application of the automatic stay may be terminated with respect to certain property if the debtor fails to either redeem the property or reaffirm the debt within a specified time period.

Overview of Major Changes Affecting Real Property in Bankruptcy. The Act contains numerous amendments that affect interests in real property. For example, any act to enforce a lien against or security interest in real property after an order granting relief from the automatic stay as to such real property was entered in any prior bankruptcy case is excepted from the automatic stay for two years after the entry of the order granting the relief from the automatic stay, subject to certain exceptions. Thus, if a creditor is granted relief from the automatic stay in one bankruptcy proceeding, and the debtor, thereafter, files a subsequent bankruptcy case, the automatic stay may not prohibit that secured creditor from enforcing its rights in the collateral under state law.

Another change regarding real property involves a landlord’s ability to proceed with its eviction process after a tenant has filed bankruptcy. The Act provides an exception to the automatic stay wherein a landlord may be able to continue its eviction, unlawful detainer action, or similar proceeding if the landlord received a judgment for possession of such property prior to the date the debtor files for bankruptcy protection. This new provision, however, is limited by certain exceptions.

Other significant changes created by the Act provide additional protection for creditors, including, but not limited to, lessors and secured creditors with an interest in real property. These new provisions provide additional exceptions to the applicability of the automatic stay based upon the number of prior bankruptcy cases filed by the debtor. In certain circumstances, the automatic stay terminates after thirty (30) days. In other instances, the automatic stay never even goes into effect after the debtor files bankruptcy, which means the creditor is not prohibited from proceeding with its action and may not need to obtain an order from the Bankruptcy Court to do so. Further, a creditor with a secured interest in real property may request relief from the automatic stay based upon, among other things, the fact that the debtor has filed multiple bankruptcies affecting such real property. All of these provisions, however, are subject to certain limitations and may be overcome by the debtor by filing the appropriate paperwork with the Bankruptcy Court.

One last important change in the Act involves the assumption or rejection of an unexpired non-residential real property lease. The new law provides that a debtor has one hundred and twenty (120) days from the date of the filing of the bankruptcy case to assume or reject a non-residential real property lease. Thereafter, the debtor may request a ninety (90) day extension, which provides a maximum of two hundred and ten (210) days from the date of the filing of the bankruptcy case within which the debtor must either assume or reject the lease. The Act further provides that any request by the debtor for an extension beyond the maximum of two hundred and ten (210) days cannot be granted unless the landlord/lessor has provided its written consent. This is a significant change because under the current law it is customary for the debtor to request and be granted numerous and lengthy extensions to assume or reject a lease. This new provision in the Act will require the debtor and the lessor/landlord participate in negotiations much earlier in the bankruptcy proceeding.

Conclusion. This article provides only a brief overview of some of the significant changes that will take effect on October 17, 2005. The changes created by the Act are much too numerous to be addressed one by one in this article, and thus, this article is not an exhaustive explanation of the impending modifications that will be implemented by the Act. If you or your business become involved in a bankruptcy matter as a result of your client, tenant or customer filing a bankruptcy case, it is advisable that you seek advice as to how the new law may affect you or your business. The attorneys at Maguire & Schneider, L.L.P., are happy to discuss any questions or concerns you may have regarding the new bankruptcy law.

If your business provides information on your deadbeat clients to any one of a number of credit reporting agencies, such as Equifax, Experian, or TransUnion, you are regarded as a “furnisher” under the Fair Credit Reporting Act (“FCRA”).

The FCRA regulates the collection and disbursement of personal credit information and dictates the duties and responsibilities of those who furnish that information, including creditors and debt collectors. As enacted, the FCRA provided near-blanket immunity from common law tort liability (defamation, invasion of privacy, negligence) to furnishers in order to facilitate full and complete reporting. This immunity is slowly eroding, subjecting furnishers to liability for damages for failing to properly investigate a consumer’s dispute and correct inaccurate information.

Enforcement of the FCRA had been left largely to government officials and state Attorneys General. A consumer’s private right of action was severely limited. As the FCRA is amended, more and more consumers are successfully prosecuting their private remedies under the FCRA and increasingly, the target of this is litigation is the furnisher of information that appears on their credit report. Where once a consumer who disputed information on his report had to deal only with the credit reporting agency that published the information, beginning in December, the consumer can dispute negative information directly with the furnisher himself. In either case, when a furnisher is made aware of a consumer dispute they must investigate the claim and verify that the information being reported is accurate or delete it. This validation procedure must generally be completed within thirty (30) days and is the source of the increase in consumer litigation. Rather than a cursory review of the disputed information, I would encourage all furnishers to vigorously investigate a disputed claim before verifying that the negative information is valid. Recent case law has raised the bar for investigations and suggests that verification should occur only when the furnisher has documentation to “conclusively” support the negative report.

FCRA amendments that become effective December 4, 2004 prohibit a furnisher from reporting information that he “knows or has reasonable cause to believe” is inaccurate. If a client disputes his account with your company and provides you with documentation to support his position, prudence would dictate that the item be deleted from any credit reporting agency and your internal record system updated. Many successful consumer complaints are the result of a disputed item reappearing on a credit report months after the dispute was resolved in the consumer’s favor. Though these furnishers passed the investigation and verification test, they failed the FCRA final exam when their internal record-keeping system re-reported the negative and false information with knowledge of the inaccuracy.

Members of partnerships, owners of sole proprietorships, and officers of family farm corporations, are not covered as employees under Ohio Workers’ Compensation law unless specifically requested.

Ohio’s workers’ compensation system is a mandatory participation system. Companies with one or more employees must pay into the system. Every “employee” who suffers a work-related injury is protected under the workers’ compensation laws. However, members of partnerships, owners of sole proprietorships, and officers of family farm corporations are not considered “employees” under the workers’ compensation laws.

Under Ohio law, partnerships, sole proprietorships, and family farm corporations, that are employers in ohio, may elect to include members of such partnerships, owners of such sole proprietorships, and officers of such family farm corporations, as employees. However, such employers must make such election by submitting written notice to the Bureau of Workers’ Compensation identifying the person to be covered, and providing additional mandatory information. If no such written notice is provided, the person is not covered as an employee, and will not be entitled to workers’ compensation benefits for work-related injuries.

Small business owners should consider what will happen to the business in the event of the death of a shareholder. Typically, corporations will use a Key Man Insurance policy to fund either a Buy-Sell Agreement or Cross-Purchase Agreement among the shareholders. The following are benefits and concerns for each type of plan.

Entity Purchase Buy-Sell Plans Benefits to the Firm

• The firm is to be the owner, premium payor, and beneficiary of policies on the lives of its owners.


• The business is to use the proceeds of the policy to purchase a deceased owner s interest from his or her estate.


• Fair market value of the interest is to be established and liquidity for the owners estate created.


• The business is in a lower tax bracket than owners, effectively lowering the cost of the plan.


• Pooling of premium shares is desired when there is an age disparity among the owners.


• Survivors want a guarantee that funds will be available to purchase shares at the death of an owner.


• Stability is sought. Employees, lenders, customers, suppliers, and shareholders are more confident of business continuation after the death of an owner.


• No unreasonable compensation concerns as in the case when salaries are increased to pay life insurance premiums under a cross-purchase agreement.


• An unwanted forced sale is to be avoided.


• A smooth transition of control is desired.

Concerns for the Company

• Premium payments are nondeductible by the membership.


• The value of the business interest, as specified in the buy-sell agreement, is includible in the Member’s estate.


• Voting power could be unfavorably shifted at a member’s death.


• Insurance cash values and death benefits are subject to claims of company creditors.


• It can result in higher capital gains to surviving owners should interest be sold at a later date because no step up in basis is available.


• The firm s loss of the use of the premium payment.

• There is to be an exchange of business interest for cash/notes among members or third-party buyers.


• Members seek to establish a fair market value for their business interest.


• Members are to be owners, premiums payors, and beneficiaries of life insurance policies.


• Surviving members wish to receive a step-up in basis in acquired interest, possibly resulting in tax savings at a later sale.


• Avoidance of family attribution concerns is desired.


• Life insurance cash values and death benefits are not to be subjected to the claims of company creditors.


• Premiums are to be paid by the firm, through a bonus arrangement, and treated as reasonable compensation to owners.


• An agreement is needed to continue the business after the death of a Member, free of conflicting interests.


• Surviving members want a guarantee that funds will be available at the death of an owner.


• Stability is sought. Employees, lenders, customers, suppliers, and shareholders are more confident of business continuation after the death of members.


• An unwanted forced sale is to be avoided.


• Life insurance proceeds are to be free from income taxation.


• A smooth transition of control is desired.

Concerns for the Company

• The value of business interest as stated in the buy-sell agreement is includible in a members’ estate.


• The member’s loss of use of premium payment.


• Possible unreasonable compensation concerns where salaries are increased to pay life insurance premiums.


• The member may have difficulty in paying premium.

The biggest concern for most employers is the proverbial bottom line. Employers should, however, be aware of their potential for becoming embroiled in litigation that may end up costing them thousands of dollars. In addition, the Equal Employment Opportunity Commission (EEOC) is always looming on the horizon, ready to enforce the laws under its purview; namely, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (ADEA) of 1967, the Equal Pay Act (EPA) of 1963, Titles I and V of the Americans with Disabilities Act (ADA) of 1990, sections 501 and 505 of the Rehabilitation Act of 1973, and the Civil Rights Act of 1991. In the 2002 fiscal year, 84,442 charges were filed with the EEOC, which was a 5% increase from the previous year. The EEOC awarded a staggering 310.5 million dollars to victims of discrimination in the 2002 fiscal year. Fortunately for employers, Ohio courts continue to uphold the employment-at-will doctrine, which basically states that an employee, not under an employment contract, may be terminated at any time, with or without cause. This doctrine, however, does not give employers carte blanche to terminate employees when that termination may run afoul of state or federal anti-discrimination laws.

Despite employers' continued reliance on the employment-at-will doctrine, the Supreme Court of Ohio has issued several decisions in the recent past that have chipped away at this doctrine. Most notably, there are four major exceptions to the employment-at-will doctrine: express contracts, implied contracts, promissory estoppel, and public policy. Each of the aforementioned exceptions can transform an employee-at-will to a contract employee who may only be terminated for cause. When terminating for cause it is critical to have maintained detailed employment records.

Employee Handbooks
Well written policies in an employee handbook may serve as a shield to help employers deflect potential lawsuits by employees; however, employers run a tangible risk when issuing employee handbooks since a poorly written handbook may provide an employee with a sword with which to pierce the employment-at-will doctrine and/or prove a discrimination claim. A poorly drafted handbook may be all an employee needs to succeed with a wrongful discharge claim, and a well crafted handbook may be all an employer needs to head off a lawsuit or investigation by the EEOC or OCRC. There is no law in Ohio which requires an employer to maintain or issue an employee handbook, but they do provide many advantages to employers. Employee handbooks allow an employer to present its employees with company policies and procedures. A handbook may also aid management in uniformly implementing and enforcing these policies, and uniformly and consistently enforced policies can be an employer's best defense against a wrongful discharge lawsuit.

The most important component of any employee handbook is the disclaimer. The disclaimer should state clearly the handbook is not an employment contract, in no manner guarantees continued employment, and that the employee is an at-will employee who may be terminated at any time and for any reason. In addition, the disclaimer should state that the policies and procedures contained in the handbook are intended as guidelines and the employer may unilaterally modify the policies and procedures at any time. Placing the disclaimer on the initial pages of a handbook is recommended since courts have found that inconspicuously posted disclaimers may not properly inform employees of their at-will status.

The actual policies and information contained in a handbook will vary depending on the characteristics of each company such as size, field of operation, and whether employees are union members. Generally, topics such as benefits (holidays, vacation, health, insurance, etc.), attendance and leave policies, dress codes, computer policies, copyright and trade secret policies, drug and alcohol policies, and discipline appear in employee handbooks. Employers may also want to include some background information on the company such as its history and its expectations for the future.

If an employer is covered by the Family Medical Leave Act (FMLA) and provides an employee handbook, it must include information relating to the FMLA and employees' rights under the statute. Handbooks should provide information regarding who is eligible for protected leave, what leave qualifies for protection, the employer's notice procedures for FMLA leave, and how the employer will calculate the 12-month period under the FMLA. If the employer requires employees to use paid vacation or sick leave prior to FMLA protected leave that must be included in the handbook.

An employer who includes a list of offenses for which an employee may be terminated should be cautious in wording its discipline and discharge procedures so that a court cannot later determine that an employee could not be terminated for an offense not specifically enumerated. To prevent this, employers should be clear in stating that any list of offenses that warrant termination is not exhaustive and the employer reserves the right to terminate an employee at any time within its discretion. Also, an employer implementing progressive discipline procedures should maintain flexibility to deviate from the procedures if appropriate.

As a business owner you must always remember that executing a written contract with key provisions is the most essential element in a successful business transaction. The best way to prevent a dispute in any transaction is to have the parties intentions reduced to writing.

Once a dispute has arisen, it can be very costly, frustrating, time-consuming, inconvenient and difficult for parties to agree on a resolution. Thus, no matter what type of business transaction is being contemplated, a written contract with well-crafted provisions to protect your company's interests is absolutely necessary. Although, some business transactions may be fairly simple, a missing key provision can lead to litigation costing more than the business transaction itself. On the other hand, a relatively complex business transaction can go awry if the provisions that are included happen to be vague, ambiguous, or incomplete.

The Hazard of Form Contracts
Knowing you need a contract and living in today?s information age, you may be tempted to download a form contract from a website. Although convenient, such contracts may not always be the smartest decision for a business-owner. Occasionally, for a simple business transaction, a form contract may suffice; however, there are a few major problems with form contracts you need to keep in mind.

First, the biggest flaw with form contracts is that they are extremely generic. A form contract may not necessarily conform to the state's laws in which the transaction is taking place. Certain provisions may be unenforceable under state law which could make the entire contact unenforceable.

Second, a form contract may not completely and clearly express the true intention of the parties. It will contain generic provisions, but it will not contain the specific clauses that are peculiar to the business transaction. A party may add specific language to express the true intention of the parties; however, once again, the language that is added may be vague, ambiguous, or incomplete.

Finally, with a form contract that has specific language added to it, the party who adds the language is in a very vulnerable position in the event there is a contractual dispute. Contract law states that any ambiguity or vagueness in a contract is interpreted by the Court against the party that drafted the contract. Thus, this may lead to an unfavorable interpretation against your company if you drafted the contract or provided the form.

Therefore, in any business transaction, it is absolutely necessary to finalize the parties' agreement by executing a well-drafted written contract. It is fundamental to have the necessary contract provisions to protect your economic interest at stake. With the assistance of an attorney who has experience in drafting and negotiating business contracts, a business-owner can be assured that many potential problems may be avoided, such as, delivery of non-conforming or untimely goods, responsibility for attorney's fees, excessive damages with no limitation of liability, an unfavorable state's choice of law, or an inconvenient venue to litigate the dispute. Ultimately, all of these issues will result in costly and lengthy litigation that may have been preventable from the onset by just adding the key provisions.

With most businesses, trademarks and copyrights have become an integral part of company assets and goodwill. No longer is a mark or logo just a symbol of a company. Names and logos are now assets attaining goodwill and providing name and/or product recognition and revenue. Most companies are familiar with the concept of a trademark. This is due in part to the company widely utilizing its name for recognition within the industry and with clients. Unfortunately, the majority of companies have not properly protected their trademarks and as a result, these companies are not utilizing valuable statutory protections. Similarly, literary and/or visual arts works are often not protected to the fullest extent of the law, again causing a lapse in copyright protection for an entity's assets.

If your registered mark is used illegally by others, statutory damages are available. By statute, any unlawful distribution, reproduction, or manufacture of a registered trademark or copyright, provides the owner with the option of seeking actual damages and statutory damages. Statutory damages can be anywhere from $500 to $20,000 for a simple violation to up to $100,000 for a willful violation. The court can also assess court costs and attorney fees. More likely than not, the statutory damages and attorneys fees well outweigh any actual damages.

Don't hesitate to take appropriate legal steps to protect your company's trademark.