Sun Bldg. Ltd. Partnership v. Value Learning & Teaching Academy, Inc. , 2017 Ohio 8727 ( 2017 )

[Cite as Sun Bldg. Ltd. Partnership v. Value Learning & Teaching Academy, Inc., 2017-Ohio-
8727.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
SUN BUILDING LIMITED : APPEAL NOS. C-160789
PARTNERSHIP, C-160793
: TRIAL NO. A-1404504
LITVAK HOLDING, LLC,
:
and O P I N I O N.
:
TRIAGE PROPERTIES, LLC,
:
Plaintiffs-Appellants-Cross-
Appellees, :
OHIO ATTORNEY GENERAL, :
and :
OHIO DEPARTMENT OF :
EDUCATION,
:
Intervenors-Plaintiffs-Appellees,
:
vs.
:
VALUE LEARNING & TEACHING
ACADEMY, INC., d.b.a. VLT :
ACADEMY,
:
Defendant-Appellee-Cross-Appellant,
:
and
:
VALERIE LEE, Individually and as
Superintendent of VLT Academy, :
CLYDE LEE, Individually and as :
Registered Agent of CEED, Inc.,
VALERIE WATSON, :
[Cite as Sun Bldg. Ltd. Partnership v. Value Learning & Teaching Academy, Inc., 2017-Ohio-
8727.]
LAWRENCE JONES, :
CANDACE GREEN, :
DANIEL CUMMINS, :
BRAD MOELLER, :
GAIL WHITE, :
KELLY M. JOHNSON, :
ROBERT L. MONTGOMERY, :
JUDY MCCONNELL, :
LARRY LASH, Individually and as :
Treasurer of VLT,
:
CHRIST TABERNACLE MINISTRIES
OF EXCELLENCE, INC., d.b.a. :
EDUCATIONAL RESOURCE
CONSULTANTS OF OHIO, INC., :
and :
J. LEONARD HARDING, Executive :
Director of Educational Resource
Consultants of Ohio, Inc., :
Defendants-Appellees, :
and :
RON DUMAS, et al. :
Defendants. :
Civil Appeals From: Hamilton County Court of Common Pleas
Judgment Appealed from is: Affirmed
Date of Judgment Entry on Appeal: November 29, 2017
OHIO FIRST DISTRICT COURT OF APPEALS
McIntosh & McIntosh, PLLC, and Bruce B. McIntosh, for Plaintiffs-Appellants-
Cross-Appellees Sun Building Limited Partnership, Litvak Holdings, LLC, and Triage
Properties, LLC,
Michael DeWine, Ohio Attorney General, and Todd R. Marti, Assistant Attorney
General, for Intervenors-Plaintiffs-Appellees the Ohio Attorney General and the Ohio
Department of Education,
McCaslin, Imbus & McCaslin, Ian R. Smith and R. Gary Winters, for Defendants-
Appellees Valerie Watson, Lawrence Jones, Candace Green, Daniel Cummins, Brad
Moeller, Gail White, Kelly M. Johnson, Robert L. Montgomery, Judy McConnell, and
Larry Lash, and Defendant-Appellee-Cross-Appellant VLT Academy,
Bruns, Connell, Vollmar & Armstrong, LLC, and Thomas B. Bruns, for Defendants-
Appellees Valerie Lee and Clyde Lee,
Brown Law Firm LLC and Phyllis E. Brown, for Defendants-Appellees Educational
Resource Consultants of Ohio, Inc., and J. Leonard Harding.
OHIO FIRST DISTRICT COURT OF APPEALS
M YERS , Judge.
{¶1} These appeals arise from the closure of an insolvent community
school. The closure and insolvency led to litigation by the school’s landlords to
recover unpaid rent from the school, its sponsor, and various individuals the school
claimed were liable for the debt. The trial court entered judgment for the landlords
for the amount of unpaid rent after determining the leases were enforceable.
However, when distributing the limited assets of the school, the trial court ordered
that the former school employees’ claims for unpaid wages and retirement
contributions be paid first. The trial court also determined that the landlords could
not recover the rent damages from the individual defendants and the school’s
sponsor. The landlords and the school have both appealed from these judgments.
For the reasons that follow, we affirm.
Background Facts and Procedure
{¶2} Plaintiffs-appellants-cross-appellees Sun Building Limited
Partnership, Litvak Holdings, LLC, and Triage Properties, LLC, (“Landlords”) are
owners of real estate that housed defendant-appellee-cross-appellant the VLT
Academy (“VLT”), a community school that was formed in 2005 under R.C. Chapter
3314. VLT was sponsored by defendant-appellee Christ Tabernacle Ministries of
Excellence, Inc., d.b.a. Educational Resource Consultants of Ohio, Inc., (“ERCO”).
The Landlords not only leased the properties to house the school, but they also
allegedly improved them to house the school’s campus based on promises from VLT
that the school would continue to operate there. VLT eventually incurred large
operating losses and fell behind on rent. The Landlords accepted reduced rent based
on an alleged agreement with VLT that the arrearages would be paid during the
succeeding years.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶3} Because of the school’s financial and educational problems, ERCO
declined to renew its sponsorship contract with the school that expired after the
2013-2014 school year. VLT was not able to secure another sponsor, and is now
defunct and insolvent.
{¶4} The Landlords filed this lawsuit in July 2014 against VLT for breach of
contract and unjust enrichment, seeking the recovery of unpaid rent, future rent
owed under the lease, and recoupment of the costs of the improvements to the
property. Pursuant to a term of the leases, the Landlords also sought to seize and sell
VLT’s property in the buildings to satisfy their claims against VLT.
{¶5} Recognizing that VLT was insolvent, the Landlords also named as
defendants individuals involved in the operation and oversight of VLT, including its
Superintendent—Valerie Lee, Lee’s husband Clyde, who owned CEED, Inc., a
company that contracted with VLT for cleaning services, as well as VLT’s then-
current or former board of directors and financial officers (“VLT Director and Officer
Defendants”), seeking to hold these defendant-appellee parties personally liable
under various theories for any money damages owed by VLT.
{¶6} The Ohio Department of Education and the Attorney General
(“ODE/AG”) intervened in the lawsuit. Noting that VLT’s funds are public and that
its property is reserved for public purposes, intervenors-plaintiffs-appellees ODE/AG
argued their intervention was necessary to protect the public’s interest in VLT’s
assets, including the personal property left in the buildings VLT rented, and to
protect VLT’s claims against “VLT insiders,” those accused of misusing VLT’s funds
and contributing to its insolvency. The ODE/AG filed an intervenors complaint that,
as amended, named as defendants Lee, Clyde Lee, CEED, Inc., Echole Harris (the
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OHIO FIRST DISTRICT COURT OF APPEALS
Lees’ daughter), former VLT treasurer McConnell, and the Hartford Fire Insurance
Company, the alleged surety for Lee and McConnell on public official bonds, seeking
the recovery of public funds. The ODE/AG also sought a declaration that the
Landlords’ leases with VLT were invalid.
{¶7} VLT’s sponsor ERCO also moved to intervene in the action, claiming it
was the party charged by law with overseeing the closure of the school and
disposition of its assets. ERCO withdrew this motion after the Landlords amended
their complaint to add claims against ERCO and ERCO’s executive director (the
“ERCO Defendants”), seeking to hold these parties responsible for VLT’s alleged
debts.
{¶8} On September 9, 2014, by agreed entry, the trial court ordered the sale
of VLT’s assets, and this entry indicated that proceeds of the sale would be held in
escrow by the auctioneer until further order of the court. The case was then
consolidated with another action brought in another court by a former VLT teacher.
{¶9} Pursuant to R.C. 1702.50(A)(1) and 3314.074, the trial court ordered
the presentation and proofs of all claims against VLT. Ultimately, 33 former teachers
and administrators submitted claims for the payment of wages and retirement-
contribution benefits. The Landlords submitted claims for the unpaid rent.
Applying R.C. 3314.074, the trial court issued a final order of distribution, and gave
preference to the employee claims over those of the Landlords. The trial court
subsequently stayed this order of distribution.
{¶10} After the Landlords filed a second amended complaint, VLT moved for
summary judgment on the breach-of-contract claims, and the Landlords moved for
partial summary judgment on the contract claim for past-due rent. The ERCO
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OHIO FIRST DISTRICT COURT OF APPEALS
Defendants and the VLT Director and Officer Defendants moved to dismiss the
claims under Civ.R. 12(B)(6). Lee and Clyde Lee moved for judgment on the
pleadings under Civ.R. 12(C).
{¶11} The trial court granted partial summary judgment to the Landlords on
their breach-of-contract claim against VLT, but dismissed all of the other defendants
named in the Landlords’ complaint based on statutory “immunity.”1 The trial court
then certified that these judgments were final and that there was no just reason for
delay.
{¶12} In the appeal numbered C-160789, the Landlords appeal from the
order of distribution of VLT’s property and the trial court’s dismissal of the claims
against all defendants except VLT. In the appeal numbered C-160793, VLT appeals
from the grant of partial summary judgment for the Landlords for unpaid rent and
cross-appeals from the order of distribution.
Community Schools
{¶13} All of the assignments of error involve VLT’s status as a “community
school.” Community schools are created under R.C. Chapter 3314 as state-funded
public schools that are independent of any school district and are privately run. See
R.C. 3314.01(B); R.C. 3314.02(B) and (C)(1); R.C. 3314.08(D); State ex rel. Ohio
Congress of Parents & Teachers v. State Bd. of Edn., 111 Ohio St.3d 568, 2006-Ohio-
5512, 857 N.E.2d 1148, ¶ 7.
{¶14} Community schools must be structured as nonprofit corporations or
public-benefit corporations as contemplated in R.C. Chapter 1702. See R.C.
3314.03(A)(1). By statute, each community school is “under the direction” of a
1 The Landlords voluntarily dismissed Ron Dumas, one of the named VLT Director and Officer
Defendants.
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OHIO FIRST DISTRICT COURT OF APPEALS
“governing authority” that consists of a board of at least five individuals. R.C.
3314.02(E)(1). Every community school enters into and is governed by a contract
with an authorized “sponsor” that monitors the school’s performance and its
compliance with all laws applicable to the school. R.C. 3314.03(A)(4). The sponsor
contract must contain certain information, including an addendum identifying the
facilities to be used for the school, “the annual costs associated with leasing each
facility that are paid by or on behalf of the school,” and the name of the landlord.
R.C. 3314.03(9).
{¶15} As required by statute, VLT was established as a nonprofit corporation
under R.C. Chapter 1702, see R.C. 3314.03(A)(1), with a board of directors serving as
the governing authority of the school. As the governing authority of VLT, the board
of directors entered into a “sponsorship contract” with the school’s sponsor, ERCO,
beginning in 2005. As sponsor, ERCO was charged with monitoring VLT’s
performance and its compliance with applicable standards and requirements. See
R.C. 3314.03(A)(4). ERCO and VLT’s board renewed the sponsor contract until
ERCO declined to renew it beyond the 2013-2014 school year. When the sponsor
agreement with ERCO expired on June 30, 2014, VLT was unable to find another
sponsor and the school closed.
{¶16} Under R.C. 3314.071, any contract entered into by the governing
authority of a community school or any of its officers and directors is deemed to be
entered into by the individual in her official capacity. The statute continues: “[n]o
officer, director, or member of the governing authority [of VLT] incurs any personal
liability by virtue of entering into any contract on behalf of the school.” Under R.C.
3314.07(E), ERCO (as sponsor), its directors, officers, and employees, are “immune
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OHIO FIRST DISTRICT COURT OF APPEALS
from civil liability for any action authorized under [R.C. Chapter 3314.] or the
contract entered into with the school under section 3314.03 of the Revised Code that
is taken to fulfill the sponsor’s responsibility to oversee and monitor the school.”
Specifically, ERCO and its officers, directors, and employees
Are not liable in damages in a tort or other civil action
for harm allegedly arising from any of the following:
(1) A failure of the community school or any of its
officers, directors, or employees to perform any
statutory or common law duty or responsibility or any
other legal obligation;
(2) An action or omission of the community school or
any of its officers, directors, or employees that results in
harm[;]
(3) A failure or omission of the community school or
any of its officers, directors, or employees to meet the
obligations of any contract or other obligation entered
into on behalf of the community school and another
party.
R.C. 3314.07(E).
Appeal No. C-160793
{¶17} We first address VLT’s two related assignments of error raised in the
appeal numbered C-160793. VLT argues that the trial court erred by resolving the
cross-motions for summary judgment on the unpaid-rent claims in favor of the
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OHIO FIRST DISTRICT COURT OF APPEALS
Landlords because the leases were not enforceable, and that, because of this, the trial
court erred by distributing any of VLT’s assets to the Landlords.
{¶18} We review the trial court’s grant of summary judgment de novo,
applying the standard set forth in Civ.R. 56. Comer v. Risko, 106 Ohio St.3d 185,
2005-Ohio-4559, 833 N.E.2d 712, ¶ 8. Summary judgment is proper if the evidence,
viewed in the light most favorable to the nonmoving party, demonstrates no genuine
issue of material fact exists and the moving party is entitled to judgment as a matter
of law. See Civ.R. 56(C).
{¶19} Generally, to prevail on a breach-of-contract claim, a plaintiff must
establish the existence of a contract, performance by the plaintiff, breach by the
defendant, and damages. Tidewater Fin. Co. v. Cowns, 197 Ohio App.3d 548, 2011-
Ohio-6720, 968 N.E.2d 59, ¶ 12 (1st Dist.). An agreement that binds a governmental
entity involves public money. Therefore, it must be in writing and approved
pursuant to the formalities required by law. See Lathrop Co. v. City of Toledo, 5
Ohio St.2d 165, 172, 214 N.E.2d 408 (1966) (“[N]o recovery can be had on a contract
that is entered into contrary to one or more of the legislated requirements.”);
Waltherr-Willard v. Mariemont City Schools, 601 Fed.Appx. 385, 389 (6th
Cir.2015), citing Wright v. City of Dayton, 158 Ohio App.3d 152, 2004-Ohio-3770,
814 N.E.2d 514, ¶ 40 (2d Dist.).
{¶20} VLT conceded that Lee, as superintendent of VLT, had the authority to
bind VLT when she signed the challenged leases. It argued instead that the leases
were not enforceable unless the board voted to accept them after they were signed.
And VLT presented unrefuted evidence in support of summary judgment
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OHIO FIRST DISTRICT COURT OF APPEALS
demonstrating that VLT’s board did not vote to accept the leases after they were
signed.
{¶21} VLT does not cite any specific statute addressing the formal
requirements with respect to community-school leases. Nor does it cite any law
requiring subsequent approval of a signed lease. Rather, VLT cites only the
requirement of R.C. 3314.02(D) that the board vote to adopt the sponsorship
contract with a sponsor to create a community school.
{¶22} After our review of the law, we conclude that a governmental entity can
bind itself to a lease by taking sufficient action before it is executed. See State ex rel.
Perona v. Arceci, 129 Ohio App.3d 15, 716 N.E.2d 1181 (9th Dist.1998); R.C.
3313.33(B) (“No contract shall be binding upon any board [of education] unless it is
made or authorized at a regular or special meeting of such board.”).
{¶23} The Landlords presented unrefuted evidence that the board had voted
to authorize the leases before execution. This evidence included authenticated copies
of the leases. These leases contained a sworn statement from Lee warranting that
“she is duly authorized to execute and deliver this Lease on behalf of [VLT] in
accordance with a duly adopted resolution of such entity in accordance with the
Bylaws of such entity, and that the Lease is binding upon such entity.” VLT does not
argue otherwise. Nor does it present any evidence to the contrary. The Landlords
also presented evidence that the board had approved the sponsor contract that, as
required by R.C. 3314.03(9), identified the leased property, the landlords, and the
amount of the rental payments. Therefore, the Landlords established that the board
had authorized the leases before they were executed by Lee and the Landlords. This
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OHIO FIRST DISTRICT COURT OF APPEALS
is sufficient, and the board was not required to subsequently ratify the contract they
had already authorized.
{¶24} Moreover, VLT did not challenge the Landlords’ summary-judgment
evidence concerning the Landlords’ performance, VLT’s breach, or the amount of
damages. Thus, the Landlords were entitled to judgment as a matter of law on their
claim for breach of contract related to the unpaid rent. VLT, conversely, was not
entitled to summary judgment on the breach-of-contract claims. And because the
Landlords’ claim against VLT was enforceable, the trial court did not err by awarding
the Landlords a distribution of VLT’s assets.
{¶25} Accordingly, we overrule VLT’s first and second assignments of error.
Appeal No. C-160789
{¶26} The Landlords’ first assignment of error is directed to the trial court’s
order of distribution concerning about $222,000 in net proceeds from the sale of
VLT’s assets after a public auction. Applying R.C. 3314.074, and relying on the
stipulation that set forth the amount of the claims, the trial court ordered that most
of these proceeds be distributed to the former VLT teachers and administrators
(excluding Lee, McConnell, and Harris) who had made claims for unpaid wages, and
to the appropriate retirement systems to satisfy the employer retirement
contribution for those wages. The court then ordered that the remainder of the
proceeds, about $3000, be distributed pro rata to “the Plaintiffs [Landlords]” based
on the amount of their claims.2
2 The parties represent that the trial court ordered that only Sun Building Limited Partnership
receive the remaining funds. The record reflects, however, that while the trial court initially
indicated to the parties by a letter on July 1, 2016, that only Sun Building Limited Partnership
would receive the sum of $2,830.06, in its subsequent judgment entry dated September 22, 2016,
the court ordered the remaining sums to be distributed “pro rata” to the Landlords.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶27} When explaining the distribution order, the trial court stated that R.C.
3314.074 gave it “discretion to distribute the property of a closed community school
according to the equities of the case.” And the court found that the equities of the
case required that it give priority to the employee-related claims over the claims of
the other creditors, such as the Landlords. The court noted that those former
employees had no culpability for the school’s financial troubles and no way to protect
themselves from those problems, and the Landlords could have avoided some of
their claimed losses by “acting more quickly to enforce their rights under the leases,
but chose not to do so.” The court also noted that preferring the employees was
“consistent with Ohio’s pattern of generally preferring employee claims over claims
of general creditors.” On appeal, the Landlords contend that the court erred by
preferring the employee-related claims because R.C. 3314.074 unambiguously
required a pro rata distribution. We disagree.
{¶28} R.C. 3314.074 governs the distribution of the assets of defunct
community schools and provides in relevant part:
Divisions (A) and (B) of this section apply only to the
extent permitted under Chapter 1702. of the Revised
Code.
(A) If any community school established under this
chapter permanently closes and ceases its operation as a
community school, the assets of that school shall be
distributed first to the retirement funds of employees of
the school, employees of the school, and private
creditors who are owed compensation, and then any
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OHIO FIRST DISTRICT COURT OF APPEALS
remaining funds shall be paid to the department of
education for the redistribution to the school districts in
which the students who were enrolled in the school at
the time it ceased operation were entitled to attend
school under section 3313.64 or 3313.65 of the Revised
Code. The amount distributed to each school district
shall be proportional to the district’s share of the total
enrollment in the community school.
***
(C) If the assets of the school are insufficient to pay all
persons or entities to whom compensation is owed, the
prioritization of the distribution of the assets to
individuals or entities within each class of payees may be
determined by decree of a court in accordance with this
section and Chapter 1702. of the Revised Code.
{¶29} We review de novo issues of law such as the interpretation of statutes.
Under the clear and unambiguous language of R.C. 3314.074, the assets of a closed
community school must be distributed “first to the retirement funds of employees of
the school, employees of the school, and private creditors who are owed
compensation”—all of which are in the same class of payees. R.C. 3314.074(A). If
there are any remaining funds, they shall be paid to the school districts where the
community school’s students resided on a pro rata basis. R.C. 3314.074(A).
{¶30} In arguing that the trial court erred in its application of R.C. 3314.074,
the Landlords maintain that the statute does not allow for any equitable
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OHIO FIRST DISTRICT COURT OF APPEALS
considerations and requires an equal division among the three types of payees—
retirement funds, employees, and creditors. R.C. 3314.074(A) provides that money
received from the sale of the defunct community school’s assets “shall be distributed
first to the retirement funds of the employees of the school, employees of the school,
and private creditors who are owed compensation.” (Emphasis added.) But this
argument ignores the language in section (C) authorizing the trial court to determine
the “prioritization of the distribution of assets to individual persons or entities within
each class of payees” if the school’s assets are insufficient to pay all claims. We find,
as the trial court did, that the statute gives the court discretion to determine the
allocation between employee-related and general-creditor claims, so long as the
allocation is in accordance with R.C. 3314.074 and R.C. Chapter 1702.
{¶31} R.C. Chapter 1702 does not specifically address how these claims are to
be allocated. It does, however, contain provisions on the distribution of a nonprofit
corporation’s property during the “winding up” of its affairs, see R.C. 1702.49, and
authorizes the court of common pleas to supervise the resolution of the claims
against that property, see R.C. 1702.50, including the distribution of the property
and the “issuance * * * of any * * * order that the court considers proper.” R.C.
1702.50(A)(9). Although the general rule is that “assets of a dissolved insolvent
corporation should be preserved for the benefit of all its creditors, each to share in
proportion to his claim,” Cay Machine Co. v. Firestone Tire & Rubber Co., 175 Ohio
St. 295, 194 N.E.2d 425 (1963), paragraph one of the syllabus, the common pleas
court has the authority “to ensure that each beneficial owner receives his due
according to the equities of the situation.” Id. at 300 (interpreting identical language
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OHIO FIRST DISTRICT COURT OF APPEALS
in R.C. 1701.89 that governs the winding up of affairs of an insolvent for-profit
corporation).
{¶32} We also find instructive Ohio laws protecting these unpaid workers
and their retirement funds. For instance, R.C. 1311.34 provides a preference for the
claims of unpaid laborers over those of general, unsecured creditors, for labor that is
performed, as in this case, “within the period of three months” before the employer is
“placed in the hands of an assignee, receiver, or trustee.” And R.C. 3307.41 and
3309.66 shield public school employee and teacher retirement funds from execution
and garnishment, except in certain domestic-relations proceedings.
{¶33} Although we agree that R.C. 3314.074(A) does not specifically state
whether distribution is to be pro rata, in the order listed, or in the court’s discretion,
we cannot accept the interpretation proposed by the Landlords, which would conflict
with R.C. 3314.074(C) and the language of these other referenced statutes. R.C.
3314.074(A) and (C), when considered in pari materia with these other statutes, do
not require the trial court to order a pro rata distribution of assets to the retirement
system, unpaid employees, and the general creditors when the assets of the defunct
community school are insufficient to satisfy the claims of all the payees in that class.
Rather, we conclude that the court has discretion to determine the order of payment
and allocation.
{¶34} Ultimately, we review the trial court’s order of distribution of assets
under an abuse-of-discretion standard. See Cay, 175 Ohio St. at 298, 194 N.E.2d
425; Union Bank Co. v. N. Carolina Furniture Express, L.L.C., 189 Ohio App.3d 538,
2010-Ohio-4176, 939 N.E.2d 873, ¶ 20 (3d Dist.). Because the trial court’s order of
distribution was consistent with the law and was supported by the evidence, it was
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OHIO FIRST DISTRICT COURT OF APPEALS
not arbitrary, unreasonable, or capricious, and we cannot say that it was an abuse of
discretion. Accordingly, we overrule the first assignment of error.
{¶35} In their second assignment of error, the Landlords argue that the trial
court erred by dismissing their claims against the ERCO Defendants, the VLT Board
of Director and Officer Defendants, and defendants Lee and Clyde Lee.
{¶36} The Landlords do not challenge on appeal the trial court’s
determination that R.C. 3314.071 and 3314.07(E) precluded any contract-based
claims against these parties. Instead, the Landlords’ argument in support of reversal
centers around their contention that they stated claims against the VLT Director and
Officer Defendants, the ERCO Defendants, and Lee and Clyde Lee, based on
allegations that these defendants had “engaged in conduct that [wa]s wanton, willful,
and out of the scope of their employment,” causing the[se] [defendants] to “lose the
immunity provided by statute” and rendering them “civilly liable for the damages
incurred by the [Landlords],” and thus entitling the Landlords “to damages and
payment for the balance due and owing on the leases entered into by the
[defendants].”
{¶37} The Landlords, however, do not cite any authority recognizing a
private cause of action against any of these defendants for the mismanagement or
misuse of public funds that would allow the Landlords to recover from these
defendants for VLT’s debt. As a matter of law, these defendants owed no fiduciary
duties to the Landlords, even though they may have owed duties to VLT and the
public in general.
{¶38} Admittedly, R.C. 2307.60 does authorize a private cause of action for
damages from any criminal act. See Jacobson v. Kaforey, 149 Ohio St.3d 398, 2016-
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OHIO FIRST DISTRICT COURT OF APPEALS
Ohio-8434, 75 N.E.3d 203, ¶ 10, 13. And the Landlords alleged that contracts
entered into between Lee and Clyde Lee violated R.C. 2921.42, which prohibits a
public official from having an unlawful interest in a public contract. But the civil
cause of action for damages authorized by R.C. 2307.60 does not arise when
otherwise prohibited by law. Id. at ¶ 13. Here, the Landlords are seeking to recover
public funds for their own private use, which is not permitted under the law. While
the defendants may be public officials that can be held liable for the misuse of public
funds in an action brought by the appropriate state authority, see Cordray v.
Internatl. Preparatory School, 128 Ohio St.3d 50, 2010-Ohio-6136, 941 N.E.2d 1170,
the Landlords do not have standing to bring this claim. We note that the intervenor
attorney general is pursuing these claims at the request of the state auditor.
{¶39} For these reasons, we have no occasion to review, as urged by the
Landlords, the statutory exceptions to immunity from tort liability that can apply to
political subdivision employees, including those set forth in R.C. 2744.03(A)(7).
{¶40} Upon our de novo review of the dismissal of the challenged claims, we
determine that, accepting all the factual allegations in the complaint as true, the
Landlords have not stated a claim upon which they can recover against the ERCO
Defendants, the VLT Director and Officer Defendants, or the Lees. See O’Brien v.
Univ. Community Tenants Union, Inc., 42 Ohio St.2d 242, 327 N.E.2d 753 (1975),
syllabus; Mitchell v. Lawson Milk Co., 40 Ohio St.3d 190, 192, 532 N.E.2d 753(1988); Peterson v. Teodosio, 34 Ohio St.2d 161, 165-166, 297 N.E.2d 113 (1973).
Thus, the trial court did not err by dismissing the claims against these defendants-
appellees. Accordingly, we overrule the Landlords’ second assignment of error.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶41} We note that we are disregarding the Landlord’s argument challenging
the purported settlement agreement between the attorney general and Hartford
Insurance. The Landlords did not amend their notice of appeal or file a new notice of
appeal to challenge this agreement, and therefore, this court lacks jurisdiction to
review this argument.
Conclusion
{¶42} Because the Landlords have demonstrated that no genuine issue of fact
exists as to an essential element of its breach-of-contract claims against VLT for
unpaid rent due under the leases, the Landlords are entitled to judgment as a matter
of law on that claim. The trial court therefore did not err by entering summary
judgment for the Landlords on that claim and by ordering the distribution of some of
VLT’s assets to the Landlords in satisfaction of this debt.
{¶43} Further, the trial court’s order of distribution that gave priority to the
claims of VLT’s former employees was consistent with the law and the facts, and was
not an abuse of discretion afforded the court in the distribution of assets of an
insolvent community school.
{¶44} Finally, because the Landlords have stated no claims for relief upon
which they can recover from the ERCO Defendants, the VLT Director and Officer
Defendants, and the Lees, the trial court did not err by dismissing these defendants.
Judgment affirmed.
MOCK, P.J., concurs.
MILLER, J., concurs separately.
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OHIO FIRST DISTRICT COURT OF APPEALS
MILLER, J., concurring separately.
{¶45} I concur in the result and with nearly everything stated by the
majority. I write separately to state my view that R.C. 3314.074 affords a trial court
less discretion than the majority indicates.
{¶46} I disagree with the majority’s reading that there are two payee
classes—“retirement funds of employees of the school, employees of the school, and
private creditors” comprising one class, and public schools, the second. Treating
public schools as a class of payees under R.C. 3314.074(C), which gives the court
some discretion to control payments, conflicts with R.C. 3314.074(A), which
expressly dictates that funds “redistribut[ed]” to school districts “shall be
proportional to the district’s share of the total enrollment in the community school.”
A court has no discretion concerning how these distributions occur. Nor is the court
even involved in determining which school districts receive a redistribution. That
role is reserved to the Department of Education.
{¶47} R.C. 3314.074(C) speaks to distributions “within each class of payees.”
Since public schools are not a payee class, “retirement funds of employees of the
school, employees of the school, and private creditors who are owed compensation,”
are three payee classes, not one. If these three were a single class, then “within each
class” would be meaningless.
{¶48} I would further hold that R.C. 3314.074(A) states the order in which
payment is required—retirement funds first, employees second, and private creditors
third. This means that a court does not have discretion to order payment be made to
creditors before payment to retirement funds or employees.
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OHIO FIRST DISTRICT COURT OF APPEALS
{¶49} In sum, I would hold that the court’s discretion is limited to
distributions within each of the three classes set forth above, and that the priority of
distribution is set by statute. Because the trial court ordered payments be made to
employees prior to creditors, I concur in the affirmance.
Please note:
The court has recorded its own entry on the date of the release of this opinion.
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