By: John B.C. Porter, Esquire
Until recently, if a member walked into a credit union in Ohio and wanted to open a trust account, the credit union, being properly advised by its legal counsel, required the member to provide the credit union with a copy of the trust instrument. The credit union needed a copy of the trust instrument because Ohio law did not provide a safe harbor for credit unions dealing with trustees. In other words, if the credit union did not know who the successor trustees were or what powers the trustee(s) possessed, Ohio law did not shield from liability credit unions that inadvertently or unknowingly allowed trustees to exceed the powers granted them under the trust, or worse yet, allowed a purported trustee to exercise dominion over the trust when said trustee was not yet or never would be the trustee of the trust.
Effective at the beginning of 2007, however, the Ohio legislature adopted provisions of the Uniform Trust Code (“UTC”) to govern the administration of trusts in the State of Ohio. One provision of the UTC arguably provides the safe harbor that Ohio law was previously lacking. Ohio Revised Code (“ORC”) § 5810.12. This provision states that a person who, in good faith, deals with a trustee without knowledge that the trustee is exceeding or improperly exercising the trustee’s powers is protected from liability “as if the trustee properly exercised the power.” ORC § 5810.12(A). The provision continues by stating that a person dealing, in good faith, with a trustee, need not even inquire into the extent of the trustee’s powers or the propriety of their exercise. ORC § 5810.12(B). Furthermore, a person who, in good faith, delivers assets to a trustee is not required to ensure their proper application. ORC § 5810.12(C). This provision even protects a person from liability who, in good faith, deals with a former trustee, without knowledge that the trusteeship terminated, as if the former trustee were still a trustee. ORC § 5810.12(D).
One of the official comments to this section states that a third party, acting in good faith, may assume that the trustee has the necessary power. Consequently, there is no need to request or examine a copy of the trust instrument. If, however, the third party requires assurance that the trustee has the necessary authority under the trust, said third party should require a certification of trust as provided in § 5810.13. This provision was enacted with the specific intent to negate the rule followed by some courts—that a third party is charged with constructive notice of the trust instrument and its contents.
Keep in mind; a prerequisite to this protection from liability is the credit union acting in good faith in dealing with the trustee. Unfortunately, what the UTC does not define is what constitutes “good faith.” If a member walks into the credit union and claims she is the trustee for the Quartermaine Revocable Family Trust on account with the credit union, is this enough? Obviously, the safest approach would be to require the trustee to provide the credit union with a certification of trust. A person acting in reliance upon a certification of trust, without knowledge that the representations contained in the certification are incorrect, is not liable to any person for so acting and may assume without inquiry the existence of the facts contained in the certification. ORC § 5810.13(F). In fact, if the credit union demands the trust instrument in addition to a certification of trust, it may be liable for damages if a court determines that the credit union did not act in good faith in demanding the trust document! ORC § 5810.13(H).
With the adoption of the UTC in Ohio and its relevant provisions that shield credit unions acting in good faith from liability when dealing with trustees, the best practice is for credit unions to require purported trustees of trust accounts to furnish the credit union a certification of trust at account opening. Requesting the actual trust instrument is no longer necessary, and in some cases may even expose the credit union to liability. The Ohio legislature’s adoption of the UTC now provides credit unions with a desperately needed shield from liability as well as greatly simplifying credit unions’ operations.
John B.C. Porter is an Associate in the Credit Union department of the Brooklyn Heights operations center. He can be reached at (216) 739-5003 or jporter@weltman.com.
When a lawyer files suit on behalf of a client, there is a lengthy process involved. First, the lawyer has to develop an understanding of the law and make sure the complaint filed is not frivolous. This means that the complaint has to be supported by facts and that the law has to support the claim or that the attorney has to have a reasonable belief that he or she has enough of a case to change existing law. The complaint can be filed in a state court of federal court and then the credit union has some time to respond, often 28 days in state court and 20 days in federal court. If you get a complaint, the very first thing you must do is fax the complaint to your insurance company. Often, the credit union will have insurance coverage for litigation instances. I always recommend that credit unions purchase additional insurance for litigation, usually known as litigation riders. Once the credit union retains counsel, that lawyer will file an answer and perhaps an answer and counterclaim asserting some type of claim against the person bringing the lawsuit.
Once the initial pleadings are filed, the next step is the discovery process. The discovery process involves both sides obtaining information about the case through interrogatories, request for production of documents and request for admissions and sworn testimony. If you are involved in a lawsuit where the credit union is sued, you will no doubt have to fill out responses to paper discovery.
Also, if you were involved in the facts and circumstances of the case, you may be called to testify at a deposition. The deposition is where the opposing attorney asks the witness questions about the facts and circumstances of the case. This is taken down by a court reporter. Depositions can be very unpleasant. Lawyers often seek to lead the witness into admitting something that the witness does not intend to say or to construe what the witness is saying to help his or her own case.
After the discovery process is complete, then the parties can file dispositive motions, that is, motions like a motion for summary judgment that would allow the court to rule on the case without having a trial. If the parties cannot settle and the motions do not resolve the case, the case goes to trial. It can be a bench trial in front of judge only, or a jury trial. If you have seen Law and Order, you have and idea of what the trial process is like. First, both sides make opening statements. Then the Plaintiff’s side gets to put on its case in chief in the form of calling witnesses. The witnesses testify as to the evidence of the plaintiff. The defense is allowed to cross-examine any witness put on by the plaintiff. Once the plaintiff has presented all of its evidence, then the plaintiff rests and the defendant is allowed to put on evidence to support its case and the plaintiff then can cross-examine its witnesses. There are closing arguments and then the court or the court and jury rules on the case.
Filed under: credit unions, Truth in Lending Act, Uncategorized, wrongful repossession
Rob will be presenting a webinar on June 19 to the Illinois League of Credit Unions on ”Why Member Sue Credit Unions and Win”, which is part of their Quick Bites seminar series. This seminar will provide participants with a guide to keeping their credit union out of hot water. Topics of discussion will include the Truth in Lending Act, wrongful repossession and other regulatory violations triggering legal action from members. The seminar will provide the credit union manager with ideas on how to improve internal policies and procedures to help protect their credit union from triggering a lawsuit. Rob will review actual case law, give real life examples of credit unions involved in significant litigation, and explain how the litigation was resolved. If you’re interested in listening in on this webinar, register here.
The following is an article reprinted with permission from the Fall 2005 edition of The WWR Letter:
Liability for Sponsorship of an Event
By: Sara Donnersbach, Esquire
What risks are there in sponsoring an event, if those participating are injured during the event?
The answer to this question depends on what the sponsor does to carefully plan and take precautions to avoid liability associated with a participant’s injury. It is possible for a sponsor to incur liability, if a sponsor fails to plan carefully. Fortunately, statutes, express releases and waivers, and common law doctrines all protect sponsors from liability.
Ohio law provides several options to event sponsors who wish to protect themselves from potential liability. The law recognizes the fact that sponsored events, such as sporting events, often involve risks that cannot be eliminated through the exercise of proper care. Event promulgators still must take the initiative to ensure the safety of their participants, but the sponsors will not automatically incur liability for an accident.
Individuals who choose to take part in an event assume many of the risks associated with the event. Additionally, sponsors can require participants to sign releases or waivers prior to their participation in the event. If sponsors carefully make use of available precautions (such as waivers), the sponsors vastly reduce the likelihood of any liability.
With that said, a sponsor can still incur tort liability for negligence depending upon whether the sponsor owed any duty to the event participant, breached the duty owed, and a foreseeable injury or damage to the event participant resulted. Robinson v. Bates, 2005 Ohio App. LEXIS 1789, 2 (2005). If a person is legally obligated to act in a certain manner or with certain responsibility toward another person because of their relationship or situation, the person owes a ‘duty’ to the other person. Hardy v. Hall, 2003 Ohio App. LEXIS 4499, 4 (2003).
Waivers and releases of liability usually release someone from owing such a duty to another, if the person owed the duty voluntarily and freely signs the waiver. This is important because an actor who no longer owes a duty cannot be liable for negligence. Releases and waivers constitute express assumptions of risk on the part of the event participants. Express assumption of risk immunizes a sponsor from suit for negligence when a participant expressly contracts not to sue for any future injuries. Wilson, 2001 Ohio App. LEXIS at 4.
In one instance, a company sponsored an in-line skating event, where a participant was injured while using the in-line skates. The sponsor had each participant sign a release of liability to take part in the promotional event, and only then issued each participant in-line skates and access to the premises. While the company sponsor did not own the premises, the court held that the company sponsor owed no duty to the participants, and thus was not liable for participant injuries. The court relied upon Ohio Revised Code (O.R.C.) §1533.181, and found the company sponsor to be a ‘premises occupant.’ Ross v. Strasser, 116 Ohio App. 3d 662 (1996).
O.R.C. §1533.181 protects owners, lessees, or premises’ occupants from owing a duty to ‘recreational users’ of the premises:
(A) No owner, lessee, or occupant of premises:
(1) Owes any duty to a recreational user to keep the premises safe for entry or use;
(2) Extends any assurance to a recreational user, through the act of giving permission, that the premises are safe for entry or use;
(3) Assumes responsibility for or incurs liability for any injury to person or property caused by any act of a recreational user.
(B) Division (A) of this section applies to the owner, lessee, or occupant of privately owned, nonresidential premises, whether or not the premises are kept open for public use and whether or not the owner, lessee, or occupant denies entry to certain individuals.
HISTORY: 130 v H 179, § 1 (Eff 9-24-63); 146 v H 117. Eff 9-29-95.
The term ‘recreational user’ refers to any person who: 1) has permission to use the land, 2) does not pay a fee or consideration for their use (other than a state or agency fee), and 3) enters the premises in order to hunt, fish, trap, camp, hike, swim, or engage in other recreational pursuits. O.R.C. §1533.18(B). The term ‘premises’ encompasses both privately-owned and state-owned lands, ways, waters, and buildings. (O.R.C. §1533.18(A)). Company sponsors need not own the relevant premises in order to benefit from the statute. See Ross, 116 Ohio App. 3d at 12-13. Premises occupants, such as a company sponsor, with the right to admit or exclude entry onto the property, also qualify for statute’s protection. Id.
The recreational user statute may be able to offer the event sponsors some protection, but the sponsors need to qualify as occupants of the premises. The sponsor’s status as ‘occupants’ depends upon the procedures surrounding the event and the sponsor’s ability to exclude people from the event. If sponsors wish to be afforded the statute’s protection, they must take measures to assert some control over the area and event in question. The ability to control the area will be a determining factor in whether the sponsor is afforded immunity for purposes of the statute.
Are there any other sponsor protections or defenses?
When an event is knowingly dangerous, and a participant is injured while participating in such an event, courts have found that a sponsor will not be liable for those injuries. A sponsor will not be found liable where a participant assumes an ordinary risk. Wilson v. Lafferty Volunteer Fire Department 2001 Ohio App. LEXIS 5328, 1-2 (2001). In this case, the event sponsored was a game of softball, and the participant was injured while running. The court found the participant voluntarily entered the game, and while he did not sign any type of release prior to playing in the game, the event sponsor was protected by the defense of primary assumption of risk. Id at 11-12.
Primary assumption of risk relieves an event sponsor from owing a duty when risks are so inherent in an activity that the event sponsor cannot eliminate them. It is an affirmative defense and will act as a complete bar to plaintiff’s recovery if successful. Bundschu v. Naffah, 147 Ohio App. 3d 105, 112 (2002). An event sponsor may raise this complete defense when a participant voluntarily consents to an activity, understands that the activity involves known risks, and engages in the activity regardless of the risks. Wilson, 2001 Ohio App. LEXIS at 3.
Absent reckless or intentional conduct on the part of an event sponsor, a participant assumes the risk of injury when he or she partakes in the event. This standard applies whether the event was organized or unorganized, or supervised or unsupervised. Id at 8. Additionally, the standard extends to non-participants, owners, operators, and sponsors of recreational and sporting events. Id.
“[Wanton] misconduct differs from that form of negligence which consists in mere inadvertence, incompetence, unskillfulness, or a failure to take precautions to enable the actor adequately to cope with a possible or probable future emergency, in that reckless misconduct requires a conscious choice of a course of action, either with knowledge of the serious danger to others involved in it or with knowledge of facts which would disclose this danger to any reasonable man.”
Staadecker v. Emerald Health Network, Inc., 1993 Ohio App. LEXIS 6010 (1993). An event sponsor who does not engage in wanton or willful conduct, will not be liable for a participant’s injuries.
What should you do to protect yourself as an event sponsor?
· Carefully plan and take precautions to avoid liability associated with a participant’s injury
· Take the initiative to ensure the safety of participants
· Require participants to sign releases or waivers prior to their participation in the event
· Obtain waivers and releases of liability
· Prevent otherwise needless risks that can be removed
· Adequately plan for the event and take any preventative measures that can identify a potential problem
Sara M. Donnersbach is a Partner in the Complex/Special Collections department of the Cleveland office of Weltman, Weinberg & Reis, Co., L.P.A. (WWR), where her responsibilities include handling complex consumer and commercial collections as well as litigation. She also oversees both the Governmental Collections Practice Group and the Attorney General Collection Unit. She can be reached at (216) 685-1039 or sdonnersbach@weltman.com.
The Fair Credit Reporting Act (“FCRA”) requires creditors to give adverse action notices (“AAN”) to each consumer whose application has been denied in part due to the evaluation of their credit report. There are two essential prerequisites to this obligation:
When a director or an officer makes a decision on behalf of the credit union, there is always the chance that the decision will later be second-guessed. Suppose, for example, that the credit union decides to change data processors and the new vendor does not perform. Who gets the blame? Another example might be the decision to start a new line of business at a credit union by partnering with a vendor in the sub-prime lending arena. If the vendor and the credit union lose money together, who is blamed for the decision? What are the consequences? What defense does a director or officer have if he or she is sued as a result of a decision made?
The common law has an answer in the Business Judgment Rule (“BJR”). Some states have codified this. In other words, in some states, it is a law on the books that a director can review. One leading case has defined the BJR as:
A presumption that in making a business decision, the directors of a corporation acted on an informed basis in good faith and in the honest belief that the action was taken in the best interests of the company. Aronson v. Lewis 473 A.2d 805, 812 (Del. 1984).
Making a decision on an informed basis means doing your homework. There is a threshold level of due diligence required. A director can rely on reports and opinions from professionals to achieve this. Going back to the vendor contract example, a Board could rely on a memorandum from the CEO describing how the CEO took bids from three vendors and how he or she came to recommend one of the three. The Board can rely on attorney opinion letters regarding the vendor contract as well as an accountant’s opinion as to the financial status of the vendor. The point is that the Board does not have to go at it alone. Indeed, reading reports and using outside opinions helps a Board show that it has made decisions on an informed basis.
Lack of self-interest is another key element. When I give presentations on director and officer liability, I cannot stress enough how bad it is to be self-serving. Let me make it clear here: if you will benefit personally by a decision that you make as a director, you will lose the protection of the Business Judgment Rule. There is a presumption that a director who acts on behalf of a credit union with his or her own interests involved does not act in good faith.
Generally speaking, when reviewing a decision made by a director or officer, the
[C]ourt will examine the decision only to the extent necessary to determine whether the plaintiff has alleged and proven facts that overcome the business judgment rule presumption that business decisions are made by disinterested and independent directors on an informed basis and with a good faith belief that the decisions will serve the best interests of the corporation. 1 Dennis J. Block, Nancy E. Barton, Stephen A. Radin, The Business Judgment Rule Fiduciary Duties of Corporate Officers at 5 (1998)
This is a good idea. We want directors and officers to be able to make decisions on an informed basis, without self-dealing, quickly and efficiently. We don’t want officers and directors to constantly second-guess decisions. Moreover, it’s only fair. As one court stated:
The contrary doctrine seems to us to suppose the possession, and require the exercise of perfect wisdom in fallible beings. No man would undertake to render a service to another on such severe conditions. Percy v. Millaudon 8 Mart. (n.s.) 68 (La. 1829).
So we protect officers and directors to an extent. Another court put it this way: “The business outcome of an investment project that is unaffected by director self-interest or bad faith cannot itself be an occasion for director liability. That is the hard core of the business judgment doctrine.” Gagliardi v. TriFoods Int’l, Inc. 683 A.2d 1049, 1051 (1996).
However, the defense is not ironclad. There have been instances where a court has allowed plaintiffs to second guess the directors. In Litwin v. Allen, 25 N.Y.S.2d 667 (Sup. Ct. 1940), a Board bought debentures for three million dollars. Unfortunately, the purchase agreement allowed the seller to buy back the debentures at their sale price within six months. Thus, if the debentures lost money, the company bore the loss. If the debentures made money, the seller would realize the gain. It really amounted to a case of negligence on the part of the Board. In Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), the directors of a company sold their company after hearing a 20-minute presentation and failed to read the merger agreement or conduct due diligence on the sale price. To the court, it was a gross example of the Board not doing its homework.
In short, a Board is entitled to rely on outside opinions: accountants, lawyers, auditors, etc. A Board is protected when it makes a decision in good faith without self-interest. If a board does its due diligence but makes a bad decision, the BJR offers the Board protection if things don’t go as planned.
