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Is My Electronic Signature Valid? – Contracts and Commercial Law

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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

Uniform Trade Secrets Act

Sal’s Heating & Cooling, Inc. v. Bers
Acquisition Co.
, 8th Dist. Cuyahoga No. 110685,
2022-Ohio-1756

In this appeal, the Eighth Appellate District affirmed the trial
court’s decision, agreeing that Ohio’s Uniform Trade
Secret Act broadly preempts not only causes of action for
misappropriation of trade secrets but also causes of action that
are based in some way on misappropriation of trade secrets.

The Bullet Point: In this dispute between
competing companies, former plaintiff’s employees went to
work for the defendants, allegedly violating their non-competition
and employee confidentiality/security agreements. The plaintiff
filed suit against the competing companies and its former employees
who had left to work for the competitors. Their alleged claims
included breach of a non-competition agreement, breach of
non-solicitation agreement, breach of contractual duty not to
disclose confidential and proprietary information, violation of
Ohio’s Uniform Trade Secret Act (OUTSA), tortious
interference, and civil conspiracy. The trial court granted in part
the defendants’ motion to dismiss, finding the
plaintiff’s civil conspiracy claim to be preempted by OUTSA.
Plaintiff filed the instant appeal. OUTSA, as stated in R.C.
1333.61 through 1333.69, “provides for civil remedies, i.e.,
injunctive relief and damages for the misappropriation of trade
secrets.” Under R.C. 1333.67(A), OUTSA displaces
“conflicting tort, restitutionary, and other laws of this
state providing civil remedies for misappropriation of a trade
secret.” In this case, the plaintiff alleged defendants
conspired to misappropriate its trade secrets and induce former
employees to breach their contractual obligation to the plaintiff.
In dismissing this claim, the trial court found the civil
conspiracy claim to be specifically linked to the alleged theft of
trade secrets, which was asserted in other counts in the complaint
and thus preempted by OUTSA. Plaintiff contended its civil
conspiracy claim was not preempted, arguing that only claims based
entirely on factual allegations of misappropriation of trade
secrets are preempted. The appellate court disagreed, explaining
that the Sixth Circuit has adopted a broader interpretation of
OUTSA preemption, finding that it “should be understood to
preempt not only causes of action for misappropriation of trade
secrets but also causes of action that are based in some way on
misappropriation of trade secrets.” The test to determine
whether OUTSA displaces a state law claim is to determine whether
“the claims are no more than a restatement of the same
operative facts that formed the basis of the plaintiff’s
statutory claim for trade secret misappropriation.”
“Where the state-law claim has a factual basis independent
from the facts establishing the OUTSA claim, the portion of the
claim supported by an independent factual basis survives
preemption.” Embracing this broader approach, the appellate
court found the central theme of several of the plaintiff’s
claims to be the misappropriation of trade secrets. Further, the
plaintiff redeployed the same operative facts that formed the basis
for its statutory claim for trade secret misappropriation
throughout the complaint. Consequently, the plaintiff’s civil
conspiracy claim was preempted by OUTSA.

E-signed Contract

AC Asset, L.L.C. v. Mitchell, 8th Dist.
Cuyahoga No. 110818, 2022-Ohio-1763

The Eighth Appellate District affirmed the trial court’s
decision in this appeal. The court agreed that a contract may not
be denied legal effect or enforceability because an electronic
signature was used and that a signature on a contract, including an
electronic signature, creates a rebuttable presumption it was
validly executed.

The Bullet Point: A lease is a contract between
a landlord and the tenant. As the appellate court explained, a
signature on a contract creates a rebuttable presumption that it
was validly executed. In Ohio, using an electronic signature does
not change this rebuttable presumption. Further, a contract may not
be denied legal effect or enforceability because an electronic
signature was used. To rebut the presumption the signature was
validly executed, the party denying the signature must introduce
evidence to support her denial, which, if believed, would be
sufficient to permit the trier of fact to make a finding in her
favor. When a defendant presents such evidence to rebut the
presumption, the burden remains with the plaintiff to establish
that the signature was genuine. Here, the trial court found that
the landlord withstood its burden of proving by a preponderance of
the evidence that the defendant executed the lease agreement. At
trial, the landlord admitted into evidence the lease agreement
containing the electronic signature of both defendant and her
cousin, as well as an audit report printed from Adobe Sign showing
a timeline of the lease agreement’s preparation, submission,
and execution. Landlord’s property manager testified that the
defendant and her cousin each electronically submitted the rental
application and uploaded a copy of their driver’s license and
paystubs, with the defendant “cosigning for” her
cousin. The property manager also explained the landlord’s
business practices and procedures involving electronically
executing lease agreements, including testifying audit reports from
Adobe Sign, which serve as a “trail system” that tracks
the signing process of the lease. He also testified that both
defendant and her cousin electronically executed the lease in the
same manner as all leases that the landlord issues. Although the
defendant testified that she did not execute the lease, she
provided no corroborative, credible evidence that her cousin
assumed her identity and executed the lease agreement on her
behalf. Defendant admitted that other than a police report, which
she failed to provide during the trial, she had no other proof to
substantiate her claim. Moreover, the documents the defendant
provided did not establish that she lived elsewhere or paid rent to
another landlord. Accordingly, the defendant failed to rebut with
sufficient evidence the presumption that the lease was validly
executed or failed to demonstrate that she was the victim of
identity theft.

Fiduciary Duty

Hawes v. Downing Health Technologies L.L.C.,
8th Dist. Cuyahoga No. 110920, 2022-Ohio-1677

In this appeal, the Eighth Appellate District reversed the trial
court’s In this appeal, the Eighth Appellate District
reversed the trial court’s decision that the defendant owed a
fiduciary duty to the plaintiff, as there was no evidence he knew
the plaintiff was relying upon him as a fiduciary in deciding to
invest in the company and plaintiff did not completely depend upon
the defendant in deciding to invest.

The Bullet Point: At issue in this matter
was the relationship between an employee/investor and his
employer/companies in which he invested. Here, the plaintiff
entered into an employment contract with one of the defendant
companies, some of which were portfolio entities and some of which
were investment entities. The entities were entwined, controlled,
and operated by parent corporate entities. As a condition of
hiring, the plaintiff was required to invest $250,000 into a pooled
investment fund of affiliated companies through the defendants. A
few days after making the investment and beginning employment, the
plaintiff realized the defendant’s companies were a
“sham.” Paychecks were either late or never received,
and employees were owed back pay for years and were often not paid
until a new employee was hired and made the requisite $250,000
investment. The plaintiff filed suit against the entities and
several high-level individuals, alleging in part breach of
fiduciary duty. During litigation, all corporate defendants went
out of business, and all but one of the individuals filed for
personal bankruptcy. The matter proceeded to trial against the
remaining individual defendant, after which the trial court found
the defendant breached his fiduciary duty to the plaintiff.
Defendant appealed, arguing the determination he breached a
fiduciary duty to the plaintiff was against the manifest weight of
the evidence. Specifically, the trial court found defendant and
plaintiff created a de facto fiduciary relationship because both
parties understood that a special trust or confidence had been
reposed in the other. Upon review, the appellate court disagreed. A
fiduciary relationship is one in which special confidence and trust
is reposed in the integrity and fidelity of another, and there is a
resulting position of superiority or influence acquired by virtue
of this special trust. A de facto fiduciary relationship may arise
from an informal confidential relationship, which exists whenever
trust and confidence is placed in the integrity and fidelity of
another. As the appellate court explained, “the determination
concerning what constitutes a confidential (fiduciary) relationship
is a question of fact dependent upon the circumstances in each
case.” The Supreme Court of Ohio has explained that a
fiduciary duty may arise from an informal relationship only if both
parties understand that a special trust or confidence has been
reposed. In this case, the parties negotiated an arms-length
commercial transaction. No evidence indicated the parties stood in
a position of special confidence in each other or that defendant
exerted a position of superiority influence over the plaintiff.

Moreover, courts have required complete dependence by the
inferior party to recognize the de facto status. There was no
evidence that the defendant had any knowledge plaintiff was relying
upon him as a fiduciary in deciding to invest in the company. More
importantly, the plaintiff did not present evidence demonstrating
that he depended entirely on the defendant. On the contrary, the
plaintiff testified he was uncertain about the investment and
joining the company, and it was recommended to him that he speak
with the defendant regarding his concerns. While the defendant was
at the meeting to answer the plaintiff’s questions,
“his ultimate purpose was to sell plaintiff on the
company.” But the plaintiff testified that he also consulted
his wife and venture capital friends, who advised him not to invest
in the company. Therefore, the plaintiff did not wholly depend upon
the defendant in deciding to invest in the company, and there was
no de facto fiduciary relationship between the parties.

Breach of Contract

Szewczyk v. Century Fed. Credit Union, 8th
Dist. Cuyahoga No. 110822, 2022-Ohio-1683

In this appeal, the Eighth Appellate District affirmed the trial
court’s decision, agreeing there was no breach of the
parties’ contract as the agreement’s language and its
incorporated documents unambiguously permitted the credit union to
charge the overdraft fees.

The Bullet Point: In this dispute, the
plaintiff filed a class action against the defendant credit union
on behalf of himself and all others similarly situated, asserting a
claim for breach of contract and alleging the credit union charged
account holders overdraft fees on accounts that were never actually
overdrawn. Specifically, the plaintiff claimed he was assessed a
$25 overdraft fee on a $65 withdrawal when his account was not
negative after the withdrawal. Thus, according to the plaintiff,
the credit union improperly assessed an overdraft fee for that
transaction in breach of the contract documents. The credit union
filed a motion to dismiss, which the trial court granted upon
finding the contract unambiguously authorized the overdraft fees.
Plaintiff appealed, arguing no contract language unambiguously
allowed the credit union to assess overdraft fees when the monthly
account statements show the account was never overdrawn. Therefore
the credit union breached the contract. To state a claim for
breach-of-contract, a plaintiff must allege “(1) the
existence of a binding contract, (2) the nonbreaching party
performed his or her contractual obligations, (3) the other party
failed to fulfill its contractual obligations without legal excuse,
and (4) the nonbreaching party suffered damages as a result of the
breach.” When the terms in a contract are unambiguous, courts
will not create a new contract by finding an intent not expressed
in the precise language employed by the parties. Terms in a
contract are ambiguous if their meanings cannot be determined from
reading the entire contract or if they are reasonably susceptible
to multiple interpretations. Here, the plaintiff asserted his
Membership and Account Agreement with the credit union is ambiguous
because it does not define “available funds” or
“available account balance.” Plaintiff contended these
terms mean “actual balance.”

The credit union argued the Agreement unambiguously provides it
will charge overdraft fees for overdrafts of the “available
balance,” which the credit union contended means “the
money in an account minus holds placed on funds for
transactions” pursuant to the well-established industry
definition. Reviewing the Agreement, including the attached
documents, the appellate court agreed the language was unambiguous.
Where one instrument incorporates another by reference, both must
be read together. Construing the Agreement and its incorporated
documents as a whole, the language was clear and unambiguous that
“available funds” and “available account
funds” are not synonymous with “actual balance.”
Instead, an account’s available funds balance can be less
than the actual balance. One of the incorporated documents
explained that there might be a delay between when a deposit is
made at an ATM and when it will be available for withdrawal.
Another of the documents explained that there is a distinction
between available account balance and actual account balance as the
credit union reserved the right to hold funds deposited by check
and that longer delays may apply, which would delay the ability to
withdraw funds. Thus, upon review of the documents as a whole, they
unambiguously provide that a credit union member will not have
access to his or her funds immediately; that is, the available
balance can be less than the actual balance in a member’s
account. Because the contract is unambiguous, the overdraft fee
that the credit union charged was not in breach of its terms.

Florida

Requests for Declaratory Relief

Cintron v. Edison Ins. Co., No. 2D21-1334 (Fla.
2d DCA May 18, 2022)

The Second District determined whether a complaint satisfied the
pleading requirements necessary to seek declaratory relief.

The Bullet Point: This appeal stemmed from the
trial court’s dismissal with prejudice of the
appellants’ second amended complaint for declaratory relief
concerning the interpretation and construction of contractual
rights, obligations, and exclusions contained in an insurance
policy. The trial court determined that (1) the second amended
complaint failed to state a cause of action, (2) there was no
ambiguous policy language requiring construction, and (3) there was
an adequate remedy at law. In disagreeing with each trial
court’s determinations, the Second District identified the
pleading requirements necessary to seek declaratory relief and
found the second amended complaint met each one. The Second
District further held that declaratory relief is available to
resolve questions concerning the application of unambiguous policy
provisions to a disputed set of facts, and its application is not
precluded by the existence of another adequate remedy at law.
Therefore, the Second District reversed and remanded to allow the
appellants to proceed with their claim for declaratory relief.

Recovery of Fees for Litigating Fees

Nazarova v. Nayfield, No. 3D21-1940 (Fla. 3d
DCA May 18, 2022)

The Third District reviewed the language of a contract to
determine whether it was sufficiently broad enough to encompass
recovery of fees for litigating the number of fees to be
awarded.

The Bullet Point: As a general rule, litigants
cannot recover fees incurred in litigating the amount of
attorney’s fees to be awarded (also known as “fees for
fees”). However, an award of “fees for fees” is
permissible in cases where the underlying contract is broad enough
to encompass recovery of fees incurred in litigating the amount of
fees.

This appeal stemmed from a final judgment including an award for
attorney’s fees incurred in litigating the amount of
attorney’s fees. The Third District held the trial court
erred by awarding “fees for fees,” reasoning that the
recovery of fees incurred in litigating attorney’s fees is
generally prohibited unless the underlying contract contains
language sufficiently broad enough to encompass such an award. In
reviewing the underlying contract, in this case, the Third District
determined its language was not broad enough to warrant this
exception to the general rule prohibiting recovery of “fees
for fees.” Specifically, the attorney’s fees provision
in the underlying contract awarded prevailing party fees in any
lawsuit brought to enforce the contract, which was “simply
not broad enough to encompass recovery of fees for litigating the
amount of fees to be awarded.” Therefore, the Third District
remanded with directions to amend the final judgment by removing
any attorney’s fees awarded for litigating the amount of
attorney’s fees to be awarded.

Res Judicata

Claims Hldg Grp., LLC v. AT&T Mobility,
LLC
, No. 3D21-615 (Fla. 3d DCA May 18, 2022)

The Third District reviewed whether the res judicata doctrine
precluded a claim.

The Bullet Point: At issue in this appeal
was whether the doctrine of res judicata, which prevents the
litigation of a claim that was brought or could have been brought
in prior litigation, precluded the appellant from filing the
instant action, which was premised on claims identical to those
raised in a prior action but sought damages incurred at a different
time. Both actions alleged that AT&T violated Florida’s
Deceptive and Unfair Trade Practices Act by charging improper
monthly administrative fees to the same account. Still, the instant
action sought to recover only the damages incurred after the prior
action was dismissed with prejudice. The appellant maintained res
judicata; therefore, it did not apply to the instant action because
it sought damages separate from the prior lawsuit. Conversely,
AT&T argued res judicata applied to the instant action
regardless of when the damages were incurred because the claims
derived from the same alleged misconduct. The trial court agreed
with AT&T and granted its motion for summary judgment based on
res judicata.

In affirming the trial court’s decision, the Third
District noted that, for res judicata purposes, in determining
whether both litigations involve “the thing being sued
for” (which is one of the elements necessary to invoke the
doctrine of res judicata) the proper inquiry focuses on the
defendant’s conduct, rather than the plaintiff’s
damages. The Third District determined that the substantive issue
underpinning both actions was identical and thus, notwithstanding
the different periods in which damages allegedly were incurred in
the two cases, the “thing being sued for” in both cases
was identical. Therefore, the Third District concluded that the
trial court correctly applied the res judicata doctrine to preclude
the appellant’s claims.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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