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Tuesday, July 6, 2010

AERC Saw Mill Village, Inc. v. Franklin County Board of Revision, Franklin County Auditor and Board of Education of the Dublin City School District, Case no. 2009-1765
State Board of Tax Appeals

Cleveland Metropolitan Bar Association v. Rita Johnson, Case no. 2010-0693

Board of Trustees of the Tobacco Use Prevention and Control Foundation et al. v. Kevin L. Boyce, Treasurer of State, et al., State of Ohio, et al. and Robert G. Miller, Jr., et al., etc., Case no. 2010-0118
10th District Court of Appeals (Franklin County)


Does ‘Carry Forward’ of Tax Board Valuation Trump Owner’s Right to Six-Year Reappraisal Of Property?

Or Does Previous Valuation Cease to Apply When Reappraisal Finalized?

AERC Saw Mill Village, Inc. v. Franklin County Board of Revision, Franklin County Auditor and Board of Education of the Dublin City School District, Case no. 2009-1765
State Board of Tax Appeals

ISSUE:  Did the Board of Tax Appeals (BTA) commit reversible error by “carrying forward”  its 2002 valuation of a parcel of real property for the 2005 and 2006 tax years rather than adopting a lower valuation of the same property established by a mandatory sexennial (every six years) reappraisal completed in 2005?

BACKGROUND:  In this case, the Supreme Court is asked to determine whether a section of state law, R.C. 5715.19(D), that requires prior-year property tax valuations established by rulings of the BTA to be “carried forward” to subsequent years is limited in its application by a separate statute, R.C. 5713.01(B), which requires county auditors to reappraise and set a new tax valuation for all real property within their respective counties every six years.

The case involves the tax valuation of the Sawmill Village Apartments, a 340-unit residential complex in northwest Columbus. The owners of the complex appealed the value of the property set by the Franklin County auditor for the 2002 tax year. In 2005, while the owners’ 2002 valuation appeal was still pending before the BTA, the Franklin County Auditor conducted a mandatory sexennial reappraisal of real property within the county and set a new appraised value of the Sawmill Village complex at $17.9 million.

The 2002 appeal was not finally resolved until September 2006, at which time the BTA approved a stipulation between the property owners and the Dublin City School District setting the true value of the complex as of Jan. 1, 2002 at $20.1 million. In its order approving the stipulated 2002 valuation of the property, the BTA directed the county auditor to carry the 2002 valuation forward and apply it to succeeding tax years “according to law.”  In December 2006, after receiving notice of the BTA ruling, the county auditor’s office not only amended the tax rolls to reflect the value of the complex as $20.1 million for the 2002, 2003 and 2004 tax years, but also increased the valuation of the property that had been entered on the tax list for the 2005 and 2006 tax years based on the auditor’s 2005 reappraisal ($17.9 million) to $20.1 million.

The owners appealed the increased valuation for the 2005 and 2006 tax years to the Franklin County Board of Revision (BOR). The Dublin City School District, within which the Sawmill Village complex is located, filed objections urging affirmance of the auditor’s valuation. The BOR upheld the auditor’s valuation. The property owners appealed the BOR ruling to the BTA. The appeals board held that because the owners had not appealed the increased valuation of their property for 2005 by the statutory deadline for doing so, and had not submitted any evidence to support a reduced valuation of the property for 2006, the $20.1 million valuation set by the county auditor based on the “carry forward” provision of R.C. 5715.19(D) could not be overturned. The owners have exercised their right to appeal the BTA’s ruling to the Supreme Court.

Attorneys for the property owners argue that the provision of R.C. 5715.19(D) requiring that a delayed valuation set by a BTA ruling for a given tax year “carries forward” to intervening years must be read in combination with the requirement of R.C. 5713.01(B) that county auditors must reappraise real property and establish a new tax valuation based on that reappraisal every six years. They assert that the county auditor acted contrary to law in applying the BTA’s delayed valuation of their property for 2002 not only to 2003 and 2004, which were the last two years of the preceding six-year reappraisal cycle, but also to 2005 and 2006, which were the first two years of a new reappraisal cycle for which a reduced value of $17.9 million based on the 2005 reappraisal must be applied. They argue that because the auditor didn’t increase the valuation of their property until December 2006, long after the deadline for appealing a 2005 valuation had passed, the BTA’s denial of their claim based on failure to file a timely appeal of the increase is unreasonable and arbitrary and must be overturned.

Attorneys for the school district argue that in August 2006 the complex owners entered into a stipulated valuation of their property at $20.1 million for the 2002 tax year, and knew or should have known at that time that the plain language of R.C. 5715.19(D) required the valuation set by the BTA to carry forward to all intervening tax years between 2002 and the date of the BTA’s ruling.  They point out that all rulings by the BTA supersede the original valuation of a property set by a county auditor, and assert that nothing in the language of R.C. 5715.19(D) indicates that the legislature intended to limit the carry-forward provision of BTA-established property valuations to whatever years might remain of a current six-year appraisal period.

Contacts
J. Kieran Jennings, 216.763.1004, for AERC Saw Mill Village Inc.

Mark H. Gillis, 614.228.5822, for the Dublin City Schools Board of Education.

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Attorney Discipline

Cleveland Metropolitan Bar Association v. Rita Johnson, Case no. 2010-0693

The Board of Commissioners on Grievances & Discipline has recommended that the license of Garfield Heights attorney Rita R. Johnson be suspended for one year, with the last six months of that term stayed on conditions, for neglecting legal matters entrusted to her by clients in two separate cases and for other violations of state attorney discipline rules in her dealings with those clients.

In its report to the Court, the disciplinary board found that Johnson failed to appear at scheduled pretrial conferences and other court proceedings, failed to file required documents, failed to comply with discovery demands or  respond to motions by opposing parties, and ultimately abandoned the cases of both clients without the permission of the court or proper notice and efforts to protect her clients’ legal interests. Among other disciplinary infractions, the board found that Johnson had violated the professional conduct rules that require an attorney to  provide competent representation and act with reasonable diligence on behalf of clients, and the rules that prohibit an attorney from knowingly disobeying an obligation under the rules of a tribunal and from withdrawing from employment in a court proceeding without the permission of the court.

Johnson has filed objections to the board’s findings and recommended sanction. She argues that the board did not give proper weight to her testimony that her violations occurred during a period of great stress in her personal life for which she has now obtained counseling, or to the fact that she voluntarily left the practice of law in 2007 in recognition that personal problems had impaired her ability to provide competent representation to clients, and now holds  a non-attorney position with the Garfield Heights Municipal Court.

The Cleveland Metropolitan Bar Association, which prosecuted the disciplinary complaint against Johnson, responded to her objections by noting that the rules governing attorney discipline proceedings do not recognize a self-diagnosis of “stress” unsupported by evidence from medical professionals as a mitigating factor. They also note that Johnson was the subject of a previous disciplinary complaint that resulted in a reprimand, and argue that her prior violation is sufficient to support the board’s recommendation of an actual license suspension and a subsequent period of probation as a condition for future reinstatement.

Contacts
Timothy A. Marcovy, 216.241.7740, for the Cleveland Metropolitan Bar Association.

Alvin E. Mathews, 614.227.2312, for Rita R. Johnson.

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Did Legislature Violate Constitution in Diverting Proceeds of Tobacco Use Prevention Fund for Other Uses?

Plaintiffs Claim 2000 Bill Created Trust Not Subject to Future Reallocation

Board of Trustees of the Tobacco Use Prevention and Control Foundation et al. v. Kevin L. Boyce, Treasurer of State, et al., State of Ohio, et al. and Robert G. Miller, Jr., et al., etc., Case no. 2010-0118
10th District Court of Appeals (Franklin County)

ISSUE: Did 2008 legislation in which the General Assembly withdrew $230 million of the $264 million proceeds of Ohio’s Tobacco Use Prevention and Control Endowment Fund and appropriated those funds to pay for non-tobacco related expenditures violate the retroactivity clause of the Ohio Constitution and/or the contracts clauses of the U.S. and state constitutions?

BACKGROUND:  In 1998, Ohio and 45 other states entered into a Master Settlement Agreement (MSA) with the nation’s leading tobacco manufacturers. The settlement resolved multiple lawsuits that had been filed against the tobacco companies by state attorneys general to recover health care expenses incurred by their states for tobacco-related disease. Under the MSA, Ohio was to receive approximately $10.1 billion in payments over a 25 year period. 

In 2000, the 123rd General Assembly passed S.B. 192, which enacted R.C. Chapter 183. The new statute established eight new funds within the state treasury into which revenue from the tobacco settlement was to be appropriated to support different governmental purposes, among which were school construction, law enforcement, biomedical research and education technology.

S.B. 192 also created a separate fund identified as the “Tobacco Use Prevention and Control Endowment Fund” and specified that the endowment fund was “not part of the state treasury.” The bill appropriated $235 million from Ohio’s first allocation of MSA funds to the Ohio Department of Health, and instructed the department’s director to “disburse monies appropriated in this appropriation item to the Tobacco Use Prevention and Control Endowment Fund created by section 183.08 of the Revised Code.” The bill stated that the proceeds of the endowment were to be appropriated by an appointed board of trustees to “reduce tobacco use by Ohioans, with special emphasis on reducing the use of tobacco by youth, minority and regional populations, pregnant women, and others who may be disproportionately affected by the use of tobacco.” From 2000 to April 2008, moneys from the endowment fund and earnings on the fund’s unspent balance supported a variety of smoking prevention and cessation programs across the state. 

On April 2, 2008, in response to a significant slowdown in the state’s economy, Governor Ted Strickland announced a $1.5 billion  stimulus plan that he said would be partially funded by diverting $230 million from the then-current $264 million balance of the tobacco use prevention endowment fund to pay for a non-tobacco related job creation program. Two days later, on April 4, 2008, the trustees of the Tobacco Use Prevention and Control Foundation voted to encumber a significant amount of the current proceeds in the endowment fund for future tobacco cessation activities. On April 8, the trustees  entered into a $190 million contract with American Legacy Foundation to provide continuing tobacco cessation programs in Ohio.

Later that same day, the 127th General Assembly passed emergency legislation diverting all but $40 million of the current balance of the endowment fund to a new “Jobs Fund” created in the state treasury. The tobacco fund trustees filed suit in the Franklin County Court of Common Pleas challenging the constitutionality of the legislature’s action. Shortly thereafter, American Legacy intervened as a plaintiff in the case, asserting that the legislature’s diversion of funds from the endowment had unlawfully interfered with the contract it had entered into with the foundation on April 8. On May 6, 2008, the General Assembly enacted  H.B. 544, which formally abolished the tobacco foundation, liquidated the endowment fund and diverted most of its proceeds to the state treasury for job creation.

In late May 2008, the trial court consolidated the trustees’ and American Legacy’s claims with a new suit that had been filed by Robert Miller and David Weinmann, two former smokers who had participated in foundation-funded smoking cessation programs. In June 2009 the trial court denied American Legacy’s contract impairment claim, but ruled that the  legislation enacted by 123rd General Assembly in 2000 had intentionally created a permanent, dedicated endowment outside of the state treasury that could only be used to fund future smoking prevention and cessation programs. Based on that holding, the court found that the action of the 127th General Assembly diverting the proceeds of the endowment fund to non-smoking related programs violated Miller and Weinmann’s constitutional rights as vested beneficiaries of the tobacco trust fund.

The state appealed.  On review, the 10th District Court of Appeals reversed the trial court’s judgment. The court of appeals held that the 127th General Assembly did not violate either the retroactivity clause of the Ohio Constitution or the contracts clauses of the state or federal constitutions in enacting H.B. 544, because it had acted within the legislature’s plenary power to appropriate and reorganize state funds to meet changing fiscal needs and priorities. The plaintiffs sought and were granted  Supreme Court review of the 10th District’s ruling.

Attorneys for Legacy and for Miller and Weinmann assert that the plain language of the 2000 legislation creating the  endowment fund and the legislative history of that bill – as attested to by a joint amicus curiae brief filed in the case by former state attorney general Betty Montgomery, former state senate president Richard Finan and former state health director  J. Nick Baird – show that it was the clear intent of the 123rd General Assembly to make a one-time appropriation and disbursement to create a permanent, dedicated “trust” that would fund statewide smoking prevention and cessation programs for the foreseeable future. They argue that the 2000 legislation did not infringe on the prerogatives of future legislatures because it was a one-time appropriation that committed only tobacco settlement monies that were paid to and disbursed by the state during the term of the 123rd General Assembly.  They also contend that the endowment fund created by S.B. 192 in 2000 meets all the legal requirements of a “trust,” and that Miller and Weinmann meet all the legal requirements of beneficiaries who had a vested interest in that trust with which the 127th General Assembly was constitutionally barred from interfering.

Attorneys for the state urge the Court to affirm the 10th District’s conclusion that the 123rd General Assembly’s creation of a tobacco use prevention endowment fund as part of S.B. 192 did not create a “trust” whose proceeds are permanently outside the control of future legislatures.  Instead, they argue, the 2000 legislation  merely created a “custodial fund” like a number of others that are exempted from the normal  requirement that any appropriated moneys unspent at the end of each biennium are swept back into the general revenue fund, but whose proceeds are still under the control and subject to the plenary authority of the legislature. They assert that nothing in the language of the 2000 legislation states an intent to place the proceeds of the endowment outside the control of future legislatures, and argue that even if there were such language, it would be unenforceable because it would place an impermissible limitation on the constitutional authority of the General Assembly.

Contacts
John W. Zeiger, 614.365.9900, for Robert G. Miller, David W. Weinmann and American Legacy Foundation.

Alexandra T. Schimmer, 614.466.8980, for the State of Ohio and Attorney General Richard Cordray.

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These informal previews are prepared by the Supreme Court's Office of Public Information to provide the news media and other interested persons with a brief overview of the legal issues and arguments advanced by the parties in upcoming cases scheduled for oral argument. The previews are not part of the case record, and are not considered by the Court during its deliberations.

Parties interested in receiving additional information are encouraged to review the case file available in the Supreme Court Clerk's Office (614.387.9530), or to contact counsel of record.