October 2000
Vol. 3, Issue 2

 
Franklin County Court of Appeals Affirms Use Of Eichleay Formula And Makes It Easier For Contractor To Recover Damages

By Donald B. Leach, Jr., Esq. and Clay Keller, Esq.

A recent decision by the Franklin County Court of Appeals will make it easier for a contractor to recover its overhead costs when its performance has been delayed by the owner. In Complete General Construction Co. v. Ohio Department of Transportation (May 25, 2000), Franklin Cty. App. No. 98AP-1619, unreported, the court reaffirmed earlier Ohio court decisions recognizing the Eichleay formula as a measure of delay damages attributable to overhead, but it eliminated several of the obstacles to recovery posed by those earlier decisions.

The case arose from the work of Complete General Construction on I-670 in Columbus. During the course of its work, Complete General was forced to suspend work when it was discovered that materials for two bridges within the section of highway on which it was working had been improperly designed and manufactured. The suspension lasted almost seven months. During that period Complete General continued to work on other parts of the contract, but it never knew how long the suspension would last. Ultimately, Complete General sued the Ohio Department of Transportation seeking various damages arising from the delay, including amounts for unabsorbed home office overhead based on the Eichleay formula.

The Eichleay formula is based on the recognition that every bid in a construction contract includes an allocation for the contractor's expenses, including wages, equipment and fixed costs such as home office overhead. When the completion of a project is delayed beyond the completion date, the fixed overhead costs continue and the project no longer pays for its allocated portion of the overhead costs. Those costs are said to remain "unabsorbed" and the Eichleay formula provides a means of calculating them.

The formula utilizes the contractor's financial records as follows:

1) Contract Billings Total Billings for X Total Overhead Incurred = Allocable Contract The Actual Contract During the Contract Overhead Period Period

2) Allocable Contract Overhead / Actual Days of Contract Performance = Contract Daily Overhead

3) Contract Daily Overhead X Number of Days of Delay = Unabsorbed Overhead

Using the Eichleay formula the trial court awarded Complete General $184,947.00 in damages. ODOT appealed arguing that Complete General was not damaged because it was able to obtain replacement work and reallocate any unabsorbed office overhead. That defense had been recognized by earlier Ohio court decisions. Significantly, the court refused to recognize the validity of those arguments and adopted the view that the government cannot defend against a claim for Eichleay damages by showing that the contractor continued its normal operations such as bidding on new contracts and working on additional contracts during the suspension period.

As a result of this decision it will be more difficult for the government to defend against a claim for Eichleay damages once a contractor shows that it was delayed for a period of indefinite duration. The court felt this view is justified because the government can avoid that status either by fixing at the beginning of the suspension period a future date when work will resume or by prospectively assuring the contractor that it will have a remobilization period at the end of the delay.

Don Leach is a partner in the Firm and serves as the Shareholder-in-Charge of the Columbus office. His practice focus is on construction law and he regularly represents owners, lenders, contractors, subcontractors and suppliers in construction contracting and dispute-related matters. Don is a member of the Builders Exchange (BX), is a past president of the BX board of directors and is actively involved in the Law Group of the BX. He can be contacted at 614.227.4262 or by e-mail at dleach@bdblaw.com

Clay Keller is an associate attorney practicing in the Firm's Real Estate and Construction Practice Group, based in the Columbus office. He is a recent graduate of the Notre Dame Law School, participated in the moot court program while a student and received honors on his moot court brief. He has previously worked as a law clerk for Bradley & DeRose and as a law clerk for the Honorable Harry C. Dees, Jr., Judge of the United States Bankruptcy Court, Northern District of Indiana, South Bend Division. Clay was a Summer Associate with the Firm during 1999 and can be reached by email at ckeller@bdblaw.com or phone at 614.227.4287.

Amendments To Ohio's Incorporation Law
By Sean W. Vollman, Esq.

In late 1999, the Ohio legislature enacted House Bill 78. This bill, effective since March 17, 2000, amended various sections of Ohio's General Corporation Law. Some of those changes will affect the decisions to be made as a new business is incorporated.

Pre-emptive Rights
Pre-emptive rights are the rights of shareholders of a class of shares to purchase additional shares of the same class when those additional shares are offered or sold for cash. Under the prior law, a shareholder generally had pre-emptive rights unless the articles of incorporation provided differently. Under the new law, the opposite is true. Shareholders will not have pre-emptive rights unless those rights are provided for in the articles of incorporation. A "grandfather clause" provides that this change will apply only to corporations formed after March 17, 2000.

Purpose
Previously, Ohio's General Corporation Law required that the purpose for which the corporation was formed be included in the articles of incorporation. A broad purpose clause would allow the corporation the freedom to participate in activities that were not initially contemplated. If it was desirable to limit the activities of the corporation, a narrow purpose clause was used. Under the new law, a purpose clause is no longer required. If no purpose clause is provided in the articles of incorporation, a corporation may "engage in any lawful act or activity for which a corporation may be formed." A purpose clause should be used only when the incorporators want to limit the activities in which the corporation can participate.

Organizational Meetings
The new law allows for the incorporators to name the initial directors in the articles of incorporation or to hold a meeting at which they elect initial directors. If initial directors are named, those initial directors hold the organizational meeting at which, among other things, the code of regulations is adopted. In the alternative, the incorporators may receive subscriptions for shares and call for an organizational meeting to be attended by the shareholders. If initial directors are named and those initial directors do not adopt a code of regulations within 90 days after the formation of the corporation, only the shareholders may adopt the code of regulations.

Sean Vollman is an associate member of the Firm in its Business and the Finance & Public Law Practice Groups. Sean can be reached by e-mail at svollman@bdblaw.com or phone at 330.258.6515.

Transfer On Death Deed- A New Tool To Avoid Probate

By David W. Woodburn, Esq.

The Ohio Legislature has recently enacted a new statute that will provide property owners with an alternative means of avoiding probate on their real property at their death. Newly enacted §5302.22 of the Ohio Revised Code creates what is known as a Transfer on Death Deed. This deed allows individuals to hold title to real estate while providing for a beneficiary designation upon their death. When the property owner passes away, the interest in the real property vests immediately in the named beneficiary, thereby avoiding probate.

Ways to Avoid Probate
Prior to this new statute, an owner of real estate could avoid probate only by owning property as a joint tenant with right of survivorship or by transferring the property to a living trust. Although they are effective ways of avoiding probate, these forms of ownership were not an option where an individual did not have a living trust or did not wish to share title to property with another person. The newly enacted statute avoids both of these issues.

The Transfer on Death Deed can be created by any person who owns an interest in real property, regardless of whether or not the individual owns the entire interest or a portion. To create the new beneficiary designation, the owner must re-title the deed in his or her name with language granting one or more beneficiaries the right to the property upon death. Under the statute, each named beneficiary must be specifically identified. In other words, a parent cannot simply direct that the property pass to his or her "children" or "lineal descendants." Instead, the owner must specify the particular name of each child or lineal descendant to whom he or she would like the property to pass at death. An owner of the real estate is free to change the transfer on death beneficiaries at any time by recording another deed. Thus, the owner can eliminate originally named beneficiaries and add additional beneficiaries as they are born or determined to be appropriate.

Once the landowner has decided whom he or she wishes to name as the beneficiary, the deed must be executed with the same formalities as those of any other deed. Although the deed does not need to be delivered to the beneficiary, it must be recorded with the appropriate County Recorder's Office. Failure to record the deed may nullify the transaction.

After a deed is recorded, the grantor retains full ownership of the property. The statute is clear that the transfer on death beneficiary has no interest whatsoever in the real estate until the owner's death. Thus, the interest in the property owned by the transfer on death beneficiary is not subject to attachment, nor is it transferable through the estate of the named beneficiary, and the spouse of a named beneficiary will have no interest in the property itself.

Retaining Full Ownership
All in all, the creation of the transfer on death beneficiary will provide an excellent opportunity for those owning real estate in their individual name to avoid probate. If you do not presently own property as a joint tenant with right of survivorship or if you have not titled property into a living trust, it may be prudent for you to consider the use of a Transfer on Death Deed so as to avoid the unnecessary probate of real estate held in your name.

David W. Woodburn is a member of the Real Estate and Construction Practice Group and the Trusts and Estates Practice Group. If you need further information on this issue, David can be reached at 330.258.6506 or by e-mail.

Yes, Software Piracy Is Copyright Infringement

By Louis F. Wagner. Esq.

When you buy software, you purchase the right to use it, with certain restrictions. If you copy, distribute or install the software in ways that the license does not allow, you are violating federal copyright law, which carries both civil and criminal penalties. Copyright protection is not limited to books, songs and movies; it includes computer software. Worldwide, more than 38 percent of all software in use is illegally copied. In 1998, piracy cost the software industry $11 billion in lost revenues. More importantly, software piracy can be very expensive to your business in the long run.

Since 1988, the Business Software Alliance (BSA) has been a voice of some of the world's leading software developers regarding enforcement of their copyrights. Its members include Adobe, Apple, Autodesk, Bentley Systems, CNC Software/Mastercam, Corel Corporation, Macromedia, Microsoft, Network Associates and Symantec. Since BSA started its enforcement of copyright laws on behalf of its clients, it has collected over $40 million in fines.

Most BSA investigations begin with a call to BSA's hotline, 1-888-NO PIRACY, or a posting on its website, http://www.bsa.org. After an initial investigation of the lead, BSA typically contacts the company reported, although in some cases it pursues a software raid using U.S. Marshals and local law enforcement officials to seize evidence. What is surprising to many organizations is that unauthorized copying can result in stiff penalties, which can cost organizations much more than if they had bought the software programs in the first place.

A copyright owner, typically the software publisher, is entitled to say how and under what circumstances the software may be reproduced, distributed and installed. In a civil case, the copyright owner can stop you from using the pirated software and request monetary damages. The owner can choose between actual damages, which include the amount the owner has lost because of your infringement plus all amounts you have profited, and statutory damages, which can be as high as $150,000 for each work copied. The government can criminally prosecute you for copyright infringement and, if convicted, you may be fined up to $250,000 or given a jail term of up to five years or both.

My advice? Purchase genuine software products and install them in accordance with the license agreement, which should be kept in a safe place. When purchasing software that is installed by someone else, be sure that your vendor provides you with all original disks, manuals and certifications, as well as proof that your use is properly licensed. Know what is going on at your company. Ignorance of the actions of an employee is not a defense to copyright violations.

Louis Wagner is Co-chairperson of the BDB Intellectual Property Practice Group. He can be reached by e-mail or at 330.258.6453 if you need further information on these or any other intellectual property issues.

To help you learn more about our attorneys in the Real Estate and Construction Law Practice Group, each issue of Build on This will provide you a profile of one of our group members. This month, we are featuring Bill Williams.

William G. Williams is a shareholder based in the Canton, Ohio office. For fun, Bill enjoys watching the Cleveland Indians play baseball, either with his two teen-age daughters or with friends and business acquaintances.

Bill likes to spend time with his family and has shared his love of travel with them, whether it is only to Pittsburgh, Pennsylvania, and Columbus, Ohio, or to Florida and Canada. He believes that getting away for even a weekend a month creates new experiences and learning opportunities for his whole family. Bill also spends quite a bit of time with both daughters working on math homework. Needless to say, they would all prefer to be doing other activities!

On the professional front, Bill has been chairman of the Stark County Bar Association's Real Estate Law Committee for the past four years. He previously served as a member and chairman of Plain Township's Board of Zoning Appeals. Bill was a member of the State of Ohio's Oil and Gas Commission for seven years. He is vice president of Certified Title Agency, Inc., where he has been a title insurance agent since 1985. Bill has been involved in real estate litigation cases, including adverse possession, eminent domain, easements, leases, real estate purchase disputes, land use issues and zoning. He is the legal counsel for the Better Business Bureau/Canton Regional, Inc., and is a current trustee for the Stark State College Foundation. He has been a past trustee and past president for the Canton Palace Theatre Association and the Downtown Canton Association.

Bill Williams practices in the Business Law and Real Estate and Construction Law Practice Groups at Buckingham, Doolittle & Burroughs, LLP. He can be reached by e-mail at bwilliams@bdblaw.com or phone at 330.491.5237.

Edward Buehrle presented in October for the Cleveland Bar Association's Annual Real Estate Law Institute seminar. His topic was a case study review of Overlaying Ownership and Ground Leases.

BDB 2001 Real Estate/Construction Law Seminar
SAVE THE DATE!! April 3, 2001
We hope you will plan to join us for our Annual Real Estate/Construction Law Seminar which will be held on April 3, 2001 at the Hilton Inn West in Fairlawn, Ohio. A variety of timely and important topics that affect the real estate and construction industries will be presented. Watch your mail and our web site for further details!

If you are interested in having a speaker from BDB make a presentation to your organization, please contact: Cheryl Warren, Director of Client Relations and Marketing at cwarren@bdblaw.com or 800.686.2825 ext. 546.

For more information on speaking engagements, visit http://www.bdblaw.com/new/events.html.


At BDB we are always improving our processes so that we operate efficiently and effectively. Please let us know how you like our new broadcast format. E-mail: bdb@bdblaw.com Phone: 330.258.6473 Fax: 330.252.5473. 
Thank you.

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