First N. Corp. v. Olmsted Falls Bd. of Zoning Appeals , 2014 Ohio 487 ( 2014 )

[Cite as First N. Corp. v. Olmsted Falls Bd. of Zoning Appeals, 2014-Ohio-487.]
[Please see vacated opinion at 2013-Ohio-5580.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 99681
FIRST NORTH CORPORATION, ET AL.
PLAINTIFFS-APPELLANTS
vs.
BOARD OF ZONING APPEALS
OLMSTED FALLS, OHIO, ET AL.
DEFENDANTS-APPELLEES
JUDGMENT:
REVERSED
Administrative Appeal from the
Cuyahoga County Court of Common Pleas
Case Nos. CV-627542 and CV-627672
BEFORE: Stewart, P.J., S. Gallagher, J., and E.A. Gallagher, J.
RELEASED AND JOURNALIZED: February 13, 2014
ATTORNEYS FOR APPELLANTS
Sheldon Berns
Benjamin J. Ockner
Gary F. Werner
Berns, Ockner & Greenberger, L.L.C.
3733 Park East Drive, Suite 200
Beachwood, OH 44122
ATTORNEYS FOR APPELLEES
Paul T. Murphy
Paul T. Murphy Co., L.P.A.
5843 Mayfield Road
Mayfield Hts., OH 44124
James A. Climer
John D. Pinzone
Frank H. Scialdone
Mazanec, Raskin & Ryder Co., L.P.A.
100 Franklin’s Row
34305 Solon Road
Cleveland, OH 44139
ON RECONSIDERATION1
MELODY J. STEWART, P.J.:
{¶1} Olmsted Industrial Park2 (“OIP”) owns 54 acres of unimproved land in the city of
Olmsted Falls. The land is zoned for light industrial use. OIP claims the land is unsuitable for
that purpose, and when a developer proposed using the land for senior-targeted cluster housing,
OIP asked the city of Olmsted Falls to rezone the land or grant it a variance. The city denied
both requests. As OIP pursued its administrative remedies in the court of common pleas, it filed
a declaratory judgment action seeking to have the zoning classification declared unconstitutional
as applied to the property. It also asked the court to commence proceedings to appropriate the
property and pay just compensation because the deprivation of economically viable use of the
property, as currently zoned, constituted a regulatory taking per se. The court upheld the
administrative decisions and, following a trial on the substantive constitutional issues, ruled that
OIP failed to show beyond fair debate that the present zoning classification constituted a
categorical taking of the property.
{¶2} We conclude that the court erred by affirming the city’s refusal to grant a variance.
OIP presented unrebutted evidence to show that the present zoning classification worked an
unnecessary hardship because the property was unmarketable as light industrial space due to a
The original announcement of decision, First N. Corp. v. Bd. of Zoning Appeals Olmsted
1
Falls, 8th Dist. Cuyahoga No. 99861, 2013-Ohio-5580, released December 19, 2013, is hereby
vacated. Appellants’ application for reconsideration brought to the court’s attention an assignment
of error that should have been, but was not, addressed. This opinion, issued upon reconsideration, is
the court’s journalized decision in this appeal. See App.R. 22(C); see also S.Ct.Prac.R. 7.01.
First North Corporation, the named plaintiff, “is the development entity associated with OIP”
2
and both companies are owned and operated by the same principal. Appellant’s brief at fn. 1. The
parties collectively refer to these entities as “OIP,” so we do as well.
poor regional economy, issues with the size and location of the property, and competition from
other light industrial sites (including one funded by the city). The city offered no evidence of its
own, insisting that it could deny a variance in order to diversify its tax base even though it
conceded that the undeveloped property was generating no tax revenue and had not done so in
the 13 years that OIP owned the property. In essence, the city’s position, and one that the court
accepted, was that OIP could be forced to wait indefinitely on the chance that economic
conditions might change in the future and create a demand for light industrial use. This was an
arbitrary and unreasonable position that amounted to an abuse of discretion.
I
A
{¶3} R.C. 2506.04 states:
The court may find that the order, adjudication, or decision is unconstitutional,
illegal, arbitrary, capricious, unreasonable, or unsupported by the preponderance
of substantial, reliable, and probative evidence on the whole record. Consistent
with its findings, the court may affirm, reverse, vacate, or modify the order,
adjudication, or decision, or remand the cause to the officer or body appealed
from with instructions to enter an order, adjudication, or decision consistent with
the findings or opinion of the court.
{¶4} The Ohio Supreme Court has given the following characterization of the type of
review to be given by the court of common pleas in an administrative appeal:
Although a hearing before the Court of Common Pleas pursuant to R.C. 2506.01
is not de novo, it often in fact resembles a de novo proceeding. R.C. 2506.03
specifically provides that an appeal pursuant to R.C. 2506.01 “shall proceed as in
the trial of a civil action,” and makes liberal provision for the introduction of new
or additional evidence. R.C. 2506.04 requires the court to examine the
“substantial, reliable and probative evidence on the whole record,” which in turn
necessitates both factual and legal determinations.
(Emphasis sic.) Cincinnati Bell, Inc. v. Glendale, 42 Ohio St.2d 368, 370, 328 N.E.2d 808(1975).
{¶5} The power to review and hear additional evidence necessarily means that the court
of common pleas “must weigh the evidence in the record.” Dudukovich v. Lorain Metro. Hous.
Auth., 58 Ohio St.2d 202, 207, 389 N.E.2d 1113 (1979). But the court of common pleas cannot
simply substitute its judgment for that of the administrative agency. The standard of review set
forth in R.C. 2506.04 is limited to determining whether there is a “preponderance” of evidence to
support the administrative decision, so the court of common pleas must affirm if a preponderance
of reliable, probative, and substantial evidence exists. Id.; Smith v. Granville Twp. Bd. of
Trustees, 81 Ohio St.3d 608, 612, 693 N.E.2d 219 (1998).
B
{¶6} When a court of appeals reviews a common pleas appellate decision in an
administrative appeal, its standard of review is far more circumscribed. In an R.C. Chapter 2506
administrative appeal from a common pleas court decision in a zoning case, we can review the
judgment of a lower court only on questions of law — we do not have the same extensive power
to weigh the preponderance of substantial, reliable, and probative evidence as is granted to the
lower courts. Henley v. Youngstown Bd. of Zoning Appeals, 90 Ohio St.3d 142, 147, 735
N.E.2d 433 (2000). However, “within the ambit of ‘questions of law’ for appellate court review
would be abuse of discretion by the common pleas court.” Kisil v. Sandusky, 12 Ohio St.3d 30,
34, 465 N.E.2d 848 (1984), fn. 4.
II
{¶7} The city’s zoning code defines a “variance” as a “modification of the literal
provisions of this Planning and Zoning Code where such modification will not be contrary to the
public interest.” Olmsted Falls Codified Ordinances 1204.03(b)(129). Under the city’s
ordinances, its board of zoning appeals has the authority to authorize a variance when “strict and
literal interpretation and enforcement” of the zoning code would yield “results inconsistent with
the general purpose of this Code.” Olmsted Falls Codified Ordinances 1206.05(b)(2).
{¶8} In general terms, a use variance is an application for a deviation from the permitted
uses in a zoning district. The city zoning code allows the board of zoning appeals to grant a use
variance if it determines that (1) the variance will result in no substantial detriment to any
surrounding property, (2) the intent and purpose of the zoning code is not impaired, and (3) the
applicant shows either: (a) unnecessary hardship or (b) exceptional circumstances. Olmsted
Falls Codified Ordinances 1032.08(c). “Unnecessary hardship” exists when the “literal
interpretation” of the zoning code would result in “unnecessary hardships peculiar to the property
involved and not based on conditions created by the owner[.]” Olmsted Falls Codified
Ordinances 1032.08(c)(1)(a). In addition, the ordinance makes it clear that “limiting of
possibilities of economic advantage do not constitute unnecessary hardship.” “Exceptional
circumstances” exists when zoning code restrictions apply to the property in question “that do
not apply generally to other properties or classes of uses in the same zoning district.” Olmsted
Falls Codified Ordinances 1032.08(c)(1)(b).
III
A
{¶9} The land in question is located within an I-2 light industrial district. That zoning
restriction has been in place for more than 130 years, however, the property has never been used
for industrial purposes (it was apparently farmland until the 1930s and went fallow). The I-2
industrial district provides for industrial and manufacturing uses “which may utilize products,
materials, and/or processes that create smoke, noise, odor, dust, fumes, glare, or other
objectionable characteristics, but the impacts of which are controlled in compliance with
permitted uses, performance standards, and setback and screening requirements.” Olmsted Falls
Codified Ordinances 1258.01(b). In essence, the I-2 light industrial use zone prohibits
manufacturing utilizing raw goods and is limited to the “processing, assembling or packaging of
goods, conducted within wholly enclosed buildings.” Olmsted Falls Codified Ordinances
1258.03. Other permitted uses include offices of professional occupations, research
laboratories, nonmanufacturing business conducted in wholly enclosed buildings, storage and
distribution, wireless communication towers or facilities, and household services like laundry or
dry-cleaning. Id. Expressly excluded as an I-2 use are “dwellings of any kind[.]” Olmsted
Falls Codified Ordinances 1258.04(a).
B
{¶10} OIP purchased the unimproved land in 2000 from Dairypak Corporation. The site
is a mostly rectangular lot, with residential housing on the north perimeter and train tracks on the
south perimeter. An electrical substation and electrical transmission towers intersect the far
southwest corner of the land. Dairypak Corporation maintains a packaging plant on the
southeast corner of the property. There is access to the property by only two roads: Fitch Road
on the west; Mapleway Drive on the east. Both roads carry only two-lanes of traffic with no
left-turn lanes. Residential housing exists on the other side of each road.
{¶11} In its application for a variance, OIP made the following argument relative to the
property’s location making it unsuitable for development as light industrial:
The features of the Property that underlie its unsuitability for [light industrial]
uses include without limitation its location, remoteness from interstate access, and
proximity to transportation alternatives (i.e., rail) that are outmoded, given that the
Property’s permitted light industrial uses would be more suited to truck access.
But even the truck access limitations of its permitted light industrial use clash
with the surrounding residential environment. The transportation infrastructure
surrounding the Property is by its nature suited to the area’s abundant residential
users, not for significant truck traffic incident to light industry. Moreover, the
Property’s remoteness from similar industrial users and districts disconnects it
from area where such suitable infrastructure might be available. These
exceptional circumstances uniquely affect the Property in ways not generally
applicable to other industrially zoned property.
(Emphasis sic.)
{¶12} OIP also argued that external economic factors had softened the need for the type
of “flex” industrial space contemplated by the zoning. “Flex” industrial space can, consistent
with uses permitted under the I-2 zoning classification, be used to house several different types of
traditional business structures, from office space to warehouses to light industrial. At the time
OIP purchased the land, the vacancy rate for industrial flex space in the greater Cleveland area
was 12 percent, but at the time of the variance application, the vacancy rate stood at 21 percent.
{¶13} The high vacancy rate for flex industrial space was brought about for two reasons:
lack of demand and an influx of industrial flex space to the region. The commercial real estate
experts collectively testified that the demand for new, light industrial flex space in the greater
Cleveland metropolitan area was functionally nonexistent. In addition to the lack of demand,
area plant closures had resulted in a repurposing of existing factories into industrial flex space.
These newly-repurposed spaces were priced significantly cheaper than any space that OIP might
construct. For example, one expert noted that a closed auto factory in Lorain, Ohio, had been
bought by a developer. The expert believed the converted factory would charge $1.50 per
square foot in rent for what he called a “feature rich facility.” Were OIP to build on a
speculative basis (meaning without any commitment from prospective tenants), its cost in new
construction would require it to charge as much as $5 per square foot in rent for similar space.
The experts agreed that industrial flex space was exceptionally price-sensitive, with only slight
differences in rent being the determining factor for many businesses. And the higher price that
OIP would have to charge would be in a market in which the lack of demand and surplus
inventory had caused the price charged per square foot to fall in the last five years.
{¶14} A real estate appraiser was more blunt in his assessment of the viability of the site
for light industrial flex space: “The conclusion is flatly that this is not an industrial development
location. The reason that it is not is that there is no way that you can get a reasonable
investment back, a reasonable rate of return, from this property because it starts out with so many
debilitating factors.”
{¶15} The experts said that the lot was too small to contemplate development of a light
industrial park. One expert said the property lacked the kind of visibility needed to “get some
synergy, if you will, as far as industrial development.” Another expert said: “54 acres is too
small to make a dent in anything. And nobody is going to look at that property for [light
industrial] use.”
{¶16} The property also suffered from poor access to roads and highways, making it
incompatible with the needs of industrial users. The property is served only by two-lane roads
that run through residential areas. The size of truck utilized by light industrial companies is too
big for the type of roads running through residential areas. This problem is exacerbated because
neither road contains a left-turn only lane.
{¶17} Location was another issue — the property bordered on residential areas and lacked
direct access to interstate highways and other commercial amenities. The OIP property had been
unused for more than 70 years and local residents who presumably enjoyed the quiet, nonuse of
the property over that period voiced significant opposition to the planned industrial park.
{¶18} Apart from resident concern over increased traffic was the problem of getting to the
site. All of the experts agreed that the property lacked immediate access to interstate highways.
The property had been zoned for light industrial at a time when its direct access to a rail line was
considered a positive and the interstate highway system had not been fully developed. However,
in the present day, light industrial users rely on trucking, not rail. One expert noted that where
light industrial expansion had recently occurred in other locales, that expansion had been driven
by direct highway access. He said that, barring direct highway access at the OIP property,
“you’re going to have trucks coming * * * back and forth, and it is just not practical.”
{¶19} In addition to the lack of highway access was the property’s isolation from similar
business activities that could act as “other industrial demand generators” to drive additional
development. In other words, the property lacked proximity to retail-commercial activities,
restaurants, amenities, and services that would naturally support an expansion of industrial use.
{¶20} OIP also showed that the property faced competition from the city’s own Joint
Economic Development District (“JEDD”) with Olmsted Township. According to the JEDD’s
marketing materials, the site (to be known as “Stearns Crossing Business Park”) consists of more
than 250 acres of land within Olmsted Township with “immediate access to major highways.”
The JEDD sits just 1.35 miles west of the OIP site, and is located along the same rail line that
borders the OIP property. The JEDD has the inherent competitive advantage of being developed
by governmental entities that can improve off-site infrastructures with government funding.
One expert said that larger properties like the JEDD have “a shot at getting * * * public funding
and having users in there that have special uses.”
{¶21} Viewing all of these factors together, the experts unanimously concluded that the
site was simply unsuitable for light industrial development. A real estate broker who spent two
years unsuccessfully marketing the property for OIP concluded that
[t]he potential for development of the subject Olmsted site is so distant as to be
undefinable; therefore we might guess that it would take at least 25-30 years to
reach full development, even assuming that the Greater Cleveland Market were to
become robust soon (which it is not and likely will not).
(Emphasis sic.)
{¶22} The broker concluded that without commitments from prospective tenants, “it
would be a serious mistake” for OIP to build industrial flex space on a speculative basis.
{¶23} Another real estate broker said that if OIP came to him and asked him to market the
property for industrial use, “I would not market it and I would not waste my time trying to market
this as an industrial use. It’s just not there and won’t be there.” A city planner for a number of
area communities echoed the concerns of OIP’s experts and gave his opinion that “regardless of
the market, I don’t believe that this property will ever be developed for industrial use.”
C
{¶24} The city’s objections to the rezoning were based on its desire to pursue a long-term
strategy to diversify its tax receipts away from the current 92 percent residential. The OIP site
constituted more than 50 percent of the city’s industrially-zoned land (the JEDD is located in
Olmsted Township). The city feared that granting a variance would negatively impact the city’s
desire to have a more balanced tax base.
{¶25} In addition to diversifying its tax base, the city feared that additional residential
expansion would increase the financial burden on its school system at a time when the residents
had defeated three consecutive school levies. City officials also expressed the concern that
senior residents who did not have children who used the school system would be disinclined to
vote for school levies. The superintendent of the Olmsted Falls School District testified that he
was “hard pressed to believe that a residential development for senior citizens in Olmsted Falls is
any more marketable than an industrial park” and that a 192-unit development could produce an
additional 200 students for the school system.
D
{¶26} The city council upheld the board of zoning appeals, finding that the property was
suitable for light industrial use given that Dairypak, the entity that sold the property to OIP, had
been using adjacent property for that very purpose for more than 50 years. The city council also
expressed its concern that granting a variance would upset the city’s goal of expanding its
industrial tax base to counter its heavy reliance on residential taxes. The city council was
unsympathetic to OIP’s claim that the shape of the property was ill-suited to industrial
development, claiming that OIP knew the shape of the property when it purchased it and that the
city did not have “the onus * * * to save [OIP] from a bad investment.” The city council
rejected OIP’s assertion that the economic downturn meant that there was no demand for the type
of industrial use required by the present zoning — it believed (as of May 2007) that the economy
“has begun to rebound to turning positive” and that in any event OIP “made a hasty purchase”
and “failed to investigate the business cycle” and that the city “should not rezone the property
against the concepts of our Master Plan just because there is a kink in the business cycle.”
Finally, the city council found that its commitment to a joint economic development district lying
outside its borders did take away from its commitment to pursue other light industrial
development within the city.
{¶27} The court affirmed the city’s decision, finding the order “is not unconstitutional,
illegal, arbitrary, capricious, unreasonable or unsupported by a preponderance of substantial,
reliable and probative evidence on the whole record.”
IV
{¶28} OIP argues that the court abused its discretion by upholding the city’s refusal to
grant it a use variance from the I-2 light industrial zoning classification. OIP sought the
variance on grounds that strict enforcement of the zoning code would result in an unnecessary
hardship peculiar to the property. That hardship, claimed OIP, was that external economic
factors dried up demand for light industrial facilities. And that lack of demand, coupled with
intrinsic issues relating to the size of the lot and poor access to public highways, meant that there
would be no demand for light industrial facilities for the foreseeable future.
A
{¶29} There is no question that OIP presented uncontradicted evidence in support of the
use variance. However, the city’s position in the court of common pleas was that it “does not
have the burden to prove anything, and in fact in most variance proceedings the municipality
presents no evidence with regard to any question of fact. Consequently, the lack of evidence
presented by the City has nothing to do with whether or not [OIP] carried [its] burden.” R. 17,
Brief of appellee City of Olmsted Falls, at 8.
{¶30} The city’s argument is correct only insofar as it states the basic premise that a
decision by a board of zoning appeals is presumed correct and the party contesting the board’s
decision has the burden of showing why it was wrong. Consol. Mgt., Inc. v. Cleveland, 6 Ohio
St.3d 238, 240, 452 N.E.2d 1287 (1983). But the standard of review applied by the court of
common pleas is to weigh the evidence to determine whether the board’s decision is supported
by a preponderance of reliable, probative, and substantial evidence. Dudukovich, 58 Ohio St.2d
at 207. The party seeking a variance has the initial burden of offering evidence, but once that
burden has been met, the opposing party cannot demur — it must come forward with its own
evidence. And it requires no citation to say that the absence of any factual issue turns a matter
into a question of law that we review de novo.
{¶31} Our recitation of the facts should make it clear that OIP carried its burden of
presenting evidence that an unnecessary hardship would result if the city denied it application for
a use variance. It offered significant evidence to show not only that the property could not be
developed consistent with the I-2 light industrial zoning classification, but that it would not be
viable for that purpose in the future. The market for light industrial use had evaporated given
the poor economic climate and the availability of other cheaper, more accessible sites, including
the city’s own attempt to market industrial flex space with its nearby JEDD.
B
{¶32} The city offered nothing to contest OIP’s evidence and, in fact, agrees that the
present business climate precludes light industrial development. Its primary reason for denying
the use variance was twofold. First, it appeared to argue a form of caveat emptor, stating its
belief that OIP made a bad business decision in purchasing land that it knew was zoned for light
industrial use and that decision “does not put the onus on the city to save the owner from a bad
investment.” Second, it argued that its desire to balance its overwhelming residential tax base
with a commercial base was paramount to any short-term hardship that OIP might suffer in a
cyclical economy.
1
{¶33} Although the city’s zoning code states that an “unnecessary hardship” does not
exist when the reasons for requesting the variance are based on conditions created by the owner,
there was no evidence that OIP caused its own hardship. At the time it purchased the land in
2000, vacancy rates for industrial flex space were low and the experts agreed that OIP could
viably construct for that purpose. However, by the end of 2001, an economic downturn occurred
that caused a lowering of rents. As businesses closed or moved out of state, those facilities
came on the market for lease. Preexisting facilities had the advantage of being able to offer
lower rents (they cost less to build); new facilities of a kind contemplated by OIP were
handicapped by construction costs that forced them to charge more rent to be competitive. So
OIP’s new facility could not hope to compete against existing facilities, particularly when those
existing facilities were more accessible to highways. The economic conditions were
intervening, external factors not caused by OIP.
2
{¶34} The city desired to balance its tax revenue because its current tax base was more
than 90 percent residential. It characterized current economic conditions as “a kink in the
business cycle” that OIP should wait out. The court found this rationale persuasive, stating:
If the Property were rezoned and OIP’s residential development came to fruition
and economic times change, then there would be no way to revert the property to
industrial, and the City’s tax base will remain heavily imbalanced with no room
for recovery. If the City is correct and the economy begins to improve, and
should a business choose to build on that property then the City and the
community will benefit from additional income and real property taxes.
{¶35} The court relied on a number of implied “ifs” to support its conclusion, but “ifs”
are not facts. The city offered no evidence of any kind to show the future viability of the land as
industrial. Instead, it relied on conclusions such as “real estate development is cyclical, and one
type of development is not always the most profitable at a certain point in time.” See Appellee’s
brief at 13. In fact, the court appeared to accept the city’s assertion that an improving economy
would permit light industrial development without regard for the uncontradicted expert testimony
that the land would never be developed as light industrial, regardless of whether business
conditions improved.
{¶36} We agree that temporary economic downturns do not justify knee-jerk zoning
changes. On the other hand, the city’s position would require a landowner to wait indefinitely
before showing that economic conditions have created an unnecessary hardship. This
conclusion is supported by the city’s argument that one of OIP’s experts said that he held onto
land in the city of Strongsville for 25 years before developing it, so it would be reasonable to
expect OIP to do the same.
{¶37} OIP purchased the land in 2000 and spent four years unsuccessfully marketing it
for light industrial development. At present, conditions have not improved to the point where
there is any demand for light industrial facilities within the city. Indeed, those same conditions
have meant that the city has yet to turn the first shovel on its own JEDD — a joint venture that
predated OIP’s purchase of the property — even though the experts agreed that the JEDD was a
superior industrial development opportunity because of its size, location, and public funding.
While it is true that the land was privately owned for many years, it is equally true that the
company that owned the land did nothing with it for more than 40 years. From the point of view
of a private investor, idle land is nonproductive, so it stands to reason that it was not developed
because of lack of demand. That lack of demand continues to this day. To accept the city’s
argument would condemn the land to lie fallow in perpetuity, or until the city tires of collecting
no revenue from the land.
{¶38} At this juncture, it is useful to ask why the city would be content to forsake
residential development and prospect of tax revenue to let the land lie unused and generate no tax
revenue. The city’s primary answer — diversification of tax revenue — provides only a part of
the answer. With more than 90 percent of the city zoned for residential use, those residents
require significant services from the city. The cost of providing those services has, by all
accounts, led to high taxes in Olmsted Falls. The city believes that industrial users are far less of
a burden on city services than residential users, so it wishes to encourage industrial development.
In this case, retaining land for light industrial use that generates no income would be more
valuable to the city than using the land for residential housing that would require potentially
more services than the land would generate in tax revenue. For example, the school
superintendent testified that the city school system was stretched beyond physical capacity, with
some students being taught in modular classrooms. The city residents had rejected three straight
school levies and the school superintendent feared that new housing could bring as many as 200
more children into the district.
{¶39} The superintendent testified outside of his field of competency. He gave his
opinion that “I’m hard pressed to believe that a residential development for senior citizens in
Olmsted Falls is any more marketable than an industrial park.” Unlike OIP’s experts who had
extensive credentials in urban planning and commercial real estate, the superintendent offered no
reason for the board to give any credence to his opinion on the potential marketability of
senior-focused housing.
{¶40} What is more, the superintendent’s statement about an influx of new students was
premised on his assumption that OIP’s development would not be age-restricted. OIP told the
board of zoning appeals and city council that senior-focused housing would necessarily target
“empty nester” homeowners. In fact, OIP raised the possibility that the proposed development
could legally be limited to residents of a preestablished age in order to minimize the school
district’s exposure to more students. See Housing for Older Persons Act, 42 U.S.C. 3601 et seq.
(allowing communities to market themselves as “55+”or “age-restricted” provided that 80
percent of the occupied units are occupied by at least one person who is 55 years of age or older).
Admittedly, OIP’s witnesses conceded that even if restricted to seniors, its planned residential
housing could bring in up to 15 additional students. But that number is significantly lower than
the 200 postulated by the superintendent.
{¶41} In any event, OIP offered evidence to assuage the city’s concerns about
diversifying its tax base, noting that recent changes in Ohio’s tax structure had made reliance on
a light industrial base less appealing as a source of tax revenue for municipalities. A public
policy analyst said that in ten years the percentage of tax revenue generated by business
properties had fallen from 31 percent to less than 12 percent. For that reason, the public policy
analyst said, “these industrial office pieces that we were telling people to hold aside and save to
balance out their long-term sustainability don’t do that anymore.” Her testimony was based on
her conclusion that “you can build a whole boatload of business today in your community and
not get nearly the tax base balance that we all thought we were going to get in 1994.”
{¶42} OIP also offered an opinion by an urban planner — the same urban planner that
assisted the city in drawing up its master plan — challenging the continued classification of the
property as light industrial. He noted that the city designated the property light industrial
because it had been the practice to do so with land adjacent to railroad tracks. The planner noted
that the practice was changing, and “the more marketable industrial sites are increasingly located
convenient to freeway interchanges or along major highways.” The planner recognized the
city’s desire to diversify its tax base away from residential, but noted that the city’s master plan
acknowledged that “alternative housing (other than a standard single-family home and lot) could
result in tax revenues that exceed service costs.”
{¶43} The city assails the planner’s opinion, noting that he helped write the 1997 zoning
code to comply with the master plan that sanctioned the continued use of the land as light
industrial. It argues that as a paid expert for OIP, the planner’s opinion carries no credibility.
The planner’s opinion, however, was consistent with other experts who testified that the market
for light industrial space had become extremely competitive and that the location of the property
put OIP at a huge disadvantage for developing it. So to the extent the planner’s position had
changed in 15 years, that change reflected the new realities facing light industrial development.
V
{¶44} OIP more than carried its burden of offering evidence showing that the present I-2
light industrial zoning classification worked an unnecessary hardship on it because changing
economic conditions, inherent site limitations, and competition from other sources made light
industrial development unviable. In response, the city offered no evidence of any kind because
it erroneously insists that it need not offer anything. That position is patently wrong — once
OIP met its burden of showing that the present zoning works an unnecessary hardship on it, the
burden shifted to the city to show otherwise. To accept the city’s argument that it had no
obligation to offer evidence to rebut a landowner’s evidence in support of a variance would mean
that no opposed variances should ever be granted.
{¶45} The city agrees that presently, the land cannot viably be developed as zoned, but
maintains that its interest in diversifying its tax base is sufficient reason to deny the variance.
The city’s argument appears to be premised on an outdated sense of the kind of revenue it could
generate. What is more, diversification as a long-term goal is simply unrealistic because the
land as presently zoned is not generating any tax revenue nor does there appear to be any
possibility that it will at some point in the future. OIP spent four futile years trying to market the
property and now 13 years have passed with no development opportunity in sight. In fact, the
city’s own joint venture industrial park, conceived before OIP purchased its property, has yet to
be constructed, even though both parties agreed that the city’s joint venture was a superior
opportunity. While the economy does operate in cycles, the city offered no evidence to counter
the expert opinion that the current bad economy is not just a product of a cycle, but an economic
reality endemic to the entire region.
{¶46} With no evidence in dispute, we find as a matter of law that the court erred by
affirming the city’s refusal to grant OIP’s request for a use variance based on unnecessary
hardship. The city’s decision to deny the use variance in the face of unrebutted evidence of
unnecessary hardship was arbitrary and its insistence that the land lay fallow indefinitely was
unreasonable. The first assignment of error is sustained.
VI
{¶47} We next consider OIP’s argument raised in its second assignment of error that the
city’s zoning regulations resulted in a taking for which just compensation must be paid.
Although we have concluded that the court erred by refusing to reverse the city’s refusal to grant
a use variance on the subject property, OIP maintains that refusal was made in the face of
overwhelming evidence that the I-2 zoning regulations precluded all viable economic use of the
property. It thus argues that it was entitled to damages for a temporary taking that occurred
during the period between the time the city refused to grant the variance and the date of our
judgment.
{¶48} Article I, Section 19 of the Ohio Constitution establishes the inviolability of private
property and requires the state to compensate property owners whenever “taken.” The concept
of a “taking” as embodied in both the Ohio Constitution and the Fifth Amendment to the United
States Constitution (“nor shall private property be taken for public use, without just
compensation”) generally applies to the direct, physical appropriation of private property. It was
not until 1922 that the United States Supreme Court held that the Constitution required the
government to directly compensate a landowner whose property was not physically taken, but
rather whose use of such property was restricted by regulation. See Pennsylvania Coal Co. v.
Mahon, 260 U.S. 393, 412, 43 S.Ct. 158, 67 L.Ed. 322 (1922); Lucas v. South Carolina Coastal
Council, 505 U.S. 1003, 1014, 112 S.Ct. 2886, 120 L.Ed.2d 798 (1992). That kind of taking
may occur when a land-use regulation “‘does not substantially advance legitimate state interests
or denies an owner economically viable use of his land.’” Id. at 1016, quoting Agins v. Tiburon,
447 U.S. 255, 260, 65 L.Ed.2d 106, 100 S.Ct. 2138 (1980) (footnote omitted).
{¶49} Our discussion in part I of this opinion makes it clear that the city should have
granted OIP’s requested use variance because the I-2 light commercial zoning classification
imposed an unnecessary hardship on OIP’s use of the property. This was essentially a finding
that OIP proved that the I-2 light commercial zoning classification deprived it of all beneficial
use of the property because the permitted use was not economically feasible or could not be
efficiently continued. See Warner v. Jerusalem Twp. Bd. of Zoning Appeals, 63 Ohio Misc.2d
385, 392, 629 N.E.2d 1137 (C.P.1993). But that holding does not necessarily mean that OIP
was deprived of all use of the property such that the I-2 light commercial zoning classification
operated as a compensable, temporary taking.
{¶50} To put it another way, the unnecessary hardship standard for granting use variances
is not the same as the constitutional taking standard. The “hardship” standard necessarily admits
that there is some use for land, but that use works an unnecessary hardship on the landowner.
The taking standard, as applicable here, is one applying to “a regulation that permanently requires
a property owner to sacrifice all economically beneficial uses of his or her land.” Arkansas
Game & Fish Comm. v. United States, ___ U.S. ___, 133 S.Ct. 511, 518, 184 L.Ed.2d 417(2012), citing Lucas, 505 U.S. at 1019. The difference between the two standards explains why
a variance from a zoning ordinance can be granted under conditions in which the application of
that particular zoning ordinance would not result in an unconstitutional taking of property. See,
e.g., Garelick v. Sullivan, 987 F.3d 913, 917 (2d Cir.1993); 8 McQuillin, Municipal
Corporations, Section 25.167, at 761 (3d Ed.1991). (“A condition of difficulty or hardship is
not deemed equivalent to a taking of property, in the constitutional sense[.]”) (Footnote
omitted.)
{¶51} Applying these principles to this case shows that the zoning classification worked
an unnecessary hardship to OIP, but it did not deprive OIP of all economically beneficial use of
its land. In other words, OIP could have built an industrial park on the land consistent with the
I-2 zoning classification. Indeed, it purchased the property with the intention of developing and
building an industrial park and marketed the property accordingly for several years before it was
forced to conclude that economic conditions rendered that type of development a losing
proposition. So even OIP must concede that at the time it purchased the property, the zoning
classification did not deprive it of all economically beneficial use and rise to the level of a taking
without just compensation.
{¶52} Judgment reversed.
It is ordered that appellants recover of appellees their costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the Cuyahoga County
Court of Common Pleas to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the
Rules of Appellate Procedure.
MELODY J. STEWART, PRESIDING JUDGE
SEAN C. GALLAGHER, J., and
EILEEN A. GALLAGHER, J., CONCUR
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