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Does CAFA permit appellate review of sua sponte remand orders? – Commercial Law Bulletin, April 5 2022 | McGlinchey Stafford

McGlinchey’s Commercial Law Bulletin is a biweekly update of recent, unique, and impactful cases in state and federal courts in the area of commercial litigation. We’re pleased to expand our Commercial Law Bulletin from its previous coverage of Ohio case law to include additional areas in McGlinchey’s footprint.


Ohio

Substantially compliant acknowledgment clause

WWSD, LLC v. Woods, 10th Dist. Franklin No. 20AP-403, 2022-Ohio-952

In this appeal, the Tenth Appellate District affirmed the trial court’s decision, agreeing that although the acknowledgment clause erroneously stated the previous sheriff’s name, the clause substantially complied with Ohio’s statutory requirements and the sheriff’s deed was valid.

The Bullet Point: At issue in this dispute was the sufficiency of a sheriff’s deed that conveyed title in real property to the plaintiffs. Ohio courts have held that where the acknowledgment or execution of a deed is defective, the deed is ineffective as against subsequent creditors. Therefore, according to defendant, a defective acknowledgment does not protect a grantee from third-party claims or confer standing to sue.

Under long-standing Ohio law, a deed is required to be signed by the grantor and a notary must properly acknowledge the grantor’s signature. R.C. 5301.01. However, the purpose of acknowledgment is to afford “proof of the due execution of the deed by the grantor, sufficient to authorize the register of deeds to record it.” That is to say, the acknowledgement of a deed is required solely to provide proof that the grantor executed the deed and is a prerequisite to recording the deed and making it constructive notice of all the facts set forth in it. Thus the validity of a deed does not depend on its acknowledgment. Rather, as between the grantor and grantee, the deed is valid despite a defective acknowledgment, and said deed passes title equally to a deed that is properly acknowledged.

In this matter, the acknowledgment in the sheriff’s deed contained the name of the previous sheriff. Nevertheless, the appellate court determined this error was not fatal to the deed under the doctrine of substantial compliance. When interpreting an acknowledgment under the doctrine of substantial compliance, one may refer to any part of the accompanying document, and “[w]here an error occurs in the name of a party to a written instrument, apparent upon its face, and, from its contents, susceptible of correction, so as to identify the party with certainty, such error does not affect the validity of the instrument.” Simply stated, an acknowledgment substantially complies when it in some way identifies the person making the acknowledgment.


Corporate Trade Name

Gingrich v. G & G Feed & Supply, LLC, 5th Dist. Licking No. 2021 CA 00060, 2022-Ohio-982

In this appeal, the Fifth Appellate District reversed and remanded the trial court’s decision, holding that a corporate entity cannot hide behind its trade name to avoid liability as because a plaintiff is under no duty to determine which legal entity holds the trade name being commencing or maintaining an action against it pursuant to R.C. 1329.10(C).

The Bullet Point: In this matter, the plaintiff obtained default judgment against her former employer and multiple related corporate organizations. The plaintiff attempted to collect on said judgment and discovered one of the named defendants in her lawsuit was a registered trade name for an unnamed corporate entity. The plaintiff filed a motion to correct the record, requesting the trial court amend and correct the record, including the judgment entry, docket, and certificate of judgment, to reflect the legal name of the corporate entity as the judgment debtor. The entity objected, arguing that amending the record to add its name was akin to adding a new defendant. In denying the plaintiff’s motion, the trial court stated that while an action may be maintained against a trade name, a judgment against said trade name is not automatically a judgment against the legal entity that registered it. On appeal, the plaintiff asserted the trial court’s holding that a judgment against the trade name was not enforceable against the entity behind it amounted to denying execution and effectively vacating the judgment. In response, the entity argued the plaintiff had a duty to do her due diligence with the Ohio Secretary of State, as the identification of the registrant of the trade name was easily discoverable. Had the plaintiff done her due diligence, she would have discovered the entity behind the trade name and could have substituted the entity into the lawsuit. The appellate court disagreed, finding that the plaintiff had no such obligation. Pursuant to R.C. 1329.10(C), an action may be commenced or maintained against the user of a trade name or fictitious name, whether or not said name is registered with the state. The appellate court pointed out that nothing in the statute imposed a duty upon a party to determine the legal entity behind the trade name before commencing or maintaining “an action against a party named only by its fictitious name” pursuant to R.C. 1329.10(C). Further, “[a] legal entity’s decision to register a trade name does not create a separate duty on a private party seeking to bring suit against that entity…”


Interpleader

NWO Holdco, L.L.C. v. Hilliard Energy, Ltd., 3d Dist. Paulding No. 11-21-03, 2022-Ohio-881

In this appeal, the Third Appellate District affirmed the trial court’s decision, agreeing that as the judgment debtor had no right to the interpleaded funds, the judgment creditor likewise had no right and did not have a valid judgment lien on said funds.

The Bullet Point: In Ohio, interpleader is governed by Civ.R. 22, which provides in part: “Persons having claims against the plaintiff may be joined as defendants and required to interplead when their claims are such that the plaintiff is or may be exposed to double or multiple liability.” Interpleader is “a two-stage action” involving a stakeholder who “controls a fund [that] is subjected to the claims of two or more claimants” and “does not know who is the proper claimant.” “In the first stage, the stakeholder, in order to avoid a multiplicity of suits and possible multiple liability, interpleads the claimants.” If the trial court determines that interpleader is appropriate and that the claimants should be made to litigate their respective claims to the contested fund, the stakeholder is usually dismissed upon deposit of the fund with the court. The action then moves to stage two, where the court must “decide the claimants’ relative rights and priority to the interpled funds.” In stage two, each claimant must prove it has a title or lien, legal or equitable, with respect to the deposited funds. If multiple claimants establish cognizable interests in the funds, the court then must determine the order of priority amongst the claimants. In this case, there was no dispute that the specific funds interpleaded by plaintiff represented purchase price payments.


Oil and Gas Dispute Not Arbitrable

French v. Ascent Resources-Utica, L.L.C., 2022-Ohio-869

In this appeal, the Supreme Court of Ohio reversed and remanded the Court of Appeals’ judgment, holding that as the action seeking a determination that an oil and gas lease expired by its own terms was a controversy involving the title to or the possession of real estate, it was not subject to arbitration under R.C. 2711.01(B)(1).

The Bullet Point: This discretionary appeal presented the Supreme Court of Ohio with a single question: is an action seeking a determination that an oil and gas lease has expired by its own terms a controversy “involving the title to or the possession of real estate” so that the action is exempt from arbitration under R.C. 2711.01(B)(1)? R.C. 2711.01(A) states, “A provision in any written contract, except as provided in division (B) of this section, to settle by arbitration a controversy that subsequently arises out of the contract * * * shall be valid, irrevocable, and enforceable, except upon grounds that exist at law or in equity for the revocation of any contract.” In turn, R.C. 2711.01(B)(1) provides that R.C. 2711.01 through 2711.16—a statutory scheme that includes the authority for a court to stay proceedings pending arbitration, see R.C. 2911.02(B)—”do not apply to controversies involving the title to or the possession of real estate.” Although defendant in this case argued that the action should be stayed pending arbitration, the oil and gas leases at issue clearly involved the title to or the possession of real property. As the Court explained, it is well settled in Ohio law that an oil and gas lease grants the lessee a property interest in the land. Notably, R.C. 5301.09 provides that all oil and gas leases must be recorded in the applicable county’s land records, “[i]n recognition that such leases and licenses create an interest in real estate.” This is consistent with the Court’s prior determination that when an oil and gas lease burdens property, it prevents the landowner from passing “title free and clear of all liens and encumbrances.” Moreover, an “oil and gas lease constitutes a title transaction because it affects title” to real estate. (Emphasis in opinion.) The Court further explained that an oil and gas lease affects the possession of the land. Pursuant to long-standing Ohio law, an oil and gas lease “is a lease of the land for the purpose and period limited therein, and the lessee has a vested right to the possession of the land to the extent reasonably necessary to perform the terms of the instrument on his part.” (Emphasis in opinion.). Here, the oil and gas leases at issue contained a primary term and a secondary term, which stated that the leases terminated unless a well was producing oil or gas or unless defendant commenced drilling operations within 90 days of the expiration of the primary term. Therefore, the oil and gas leases may have terminated by operation of law if certain conditions stated in their terms had not been met. Consequently, the dispute in this case was, therefore, a controversy involving the title to or the possession of real property and, under R.C. 2711.01(B)(1), not subject to arbitration.


Florida

Jurisdiction to Review Sua Sponte Remand Orders

Ruhlen v. Holiday Haven Homeowners, No. 21-90022 (11th Cir. March 9, 2022)

The Eleventh Circuit examined whether it had jurisdiction to review a district court’s sua sponte order remanding a case to the state court from which it was removed under the Class Action Fairness Act (CAFA).

The Bullet Point: As a general rule, a court of appeals may not review a district court’s decision to remand a case based on its determination that it lacks subject-matter jurisdiction. Though 28 U.S.C. § 1453(c)(1) provides an exception to this general rule where the appeal is “from an order of a district court granting or denying a motion to remand a class action to the State court from which it was removed,” such exception does not cover a district court’s sua sponte remand order.

In this case, the plaintiffs filed a “representative action” in state court alleging both state and federal claims against numerous defendants. The defendants removed the case based on both the federal claim and CAFA, which allows removal of an action brought by one or more representative persons as a class action. Thereafter, the plaintiffs filed an amended complaint that omitted the federal claim, and the district court sua sponte remanded the case back to state court based on a determination that federal-question jurisdiction no longer existed and a claim brought in a representative capacity is not a class action as that term is understood for CAFA jurisdiction. The defendants then filed a petition for permission to appeal.

The Eleventh Circuit held it did not have jurisdiction to consider the appeal because sua sponte remand orders on cases removed under CAFA are outside the scope of § 1453(c)(1), which provides jurisdiction to review orders granting or denying a motion to remand a class action. The Eleventh Circuit concluded that because the ordinary meaning of the word “motion” refers to a request made by a party and does not contemplate something a court does on its own, the plain language of § 1453(c)(1) does not apply to a sua sponte remand. The Eleventh Circuit constrained its inquiry to an examination of the language of the statute, declining to assume whether Congress intended to include sua sponte orders in this exception.


Attorney’s Fees and Actual Damages

Vintage Motors v. Mac Enter. of NC, No. 2D21-590 (Fla. 2d DCA March 11, 2022)

The Second District held that attorney’s fees are neither a substantive component of FDUTPA’s “actual damages” nor “damages” under a common law breach of fiduciary duty claim.

The Bullet Point: Actual damages under the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”) cannot include attorney’s fees incurred in bringing the FDUTPA action. Similarly, the element of damages in a common law action, such as a breach of fiduciary duty claim, do not include attorney’s fees, which are ancillary to recovery.

In this case, after a nonjury trial on an action for FDUTPA and breach of fiduciary duty, the circuit court entered a final judgment awarding attorney’s fees as the sole component of damages. On appeal of the final judgment, the Second District ruled actual damages cannot include attorney’s fees incurred in bringing the action, and the circuit court erred when it concluded otherwise. The Second District based its holding on three factors: (1) the plain language and structure of FDUTPA’s text sets apart attorney’s fees from actual damages, decisively indicating the legislature meant to distinguish these two terms from one another; (2) the common law distinguishes damages, as an element of a civil claim, from attorney’s fees, which are usually ancillary to recovery on the claim; and (3) Florida courts consistently define FDUTPA’s provision of actual damages without the inclusion of attorney’s fees. The Second District accordingly reversed the final judgment.


Discovery During Pendency of Arbitration

Shader v. ABS Healthcare, Nos. 3D21-2344 & 3D21-2437 (Fla. 3d DCA March 9, 2022)

The Third District held that during the pendency of an arbitration, the arbitrators have exclusive authority to determine discovery matters and the trial court is prohibited from becoming involved.

The Bullet Point: A court departs from the essential requirements of the law by asserting jurisdiction over discovery after a matter has been referred to arbitration. Once arbitration is ordered, a stay in the trial court is mandated, and the arbitrator is authorized to take charge of discovery, including the issuance of protective orders.

At issue in this appeal is whether the authority to interpret and apply a trial court’s interlocutory protective order entered prior to the case being submitted to arbitration lies with the trial court or the arbitrators during the pendency of an arbitration. In this case, prior to the case being submitted to arbitration, the trial court entered a protective order and designated certain testimony and material as confidential. After the case was submitted to arbitration, the trial court granted a motion to de-designate the testimony and entered an order authorizing its public use. The Third District quashed this order, holding that (1) during the pendency of the arbitration, the arbitrators have exclusive authority to determine discovery matters; (2) the Florida Arbitration Code specifically extends the arbitrator’s authority to protective orders; and (3) the Code mandates the stay of the judicial proceeding after referral to arbitration, and the trial court therefore lacks authority to become involved during the pendency of the arbitration.


Service Charges Under the FLSA

Compre v. Nusret Miami, No. 20-12422 (11th Cir. March 18, 2022)

The Eleventh Circuit determined whether a restaurant’s mandatory 18% service charge was considered a tip or a bona fide service charge under the Fair Labor Standards Act (FLSA).

The Bullet Point: Under federal employment law, if a restaurant’s mandatory service charge is deemed a tip, the restaurant is prohibited from using those fees to pay minimum and overtime wages to employees. However, if the mandatory fee is considered a bona fide service charge, those fees may be applied toward employee wages. The critical determining factor is whether the decision to pay the sum is made solely by the customer.

In this case, a restaurant added a mandatory 18% service charge to customers’ bills and redistributed the payments to certain employees on a pro rata basis to cover the restaurant’s minimum and overtime wage obligations. The employees challenged the compensation scheme, alleging the service charge was actually a tip and therefore could not be used to offset wage obligations under the FLSA. The restaurant maintained the 18% fee was not a tip but a bona fide service charge. The Eleventh Circuit agreed, holding the mandatory 18% fee was not a tip because it was a “compulsory charge for service,” and neither the decision to pay it nor the amount to pay was determined solely by the customer. The Eleventh Circuit further concluded that this classification is not dependent upon how the charges are treated on the restaurant’s tax returns, nor is it impacted by managers retaining discretion to remove the charges. The Eleventh Circuit therefore affirmed the district court’s award of summary judgment to the restaurant.