State ex rel. Atty. Gen. v. Lager ( 2020 )

[Cite as State ex rel. Atty. Gen. v. Lager, 2020-Ohio-3260.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
State ex rel. Ohio Attorney General, :
Plaintiff-Appellee, :
No. 19AP-265
v. : (C.P.C. No. 18CV-7094)
William Lager et al., : (ACCELERATED CALENDAR)
Defendants-Appellees, :
(City of Dayton Public Schools et al., :
Proposed Intervenors- :
Appellants).
:
State ex rel. Ohio Attorney General,
:
Plaintiff-Appellee,
: No. 19AP-330
v. (C.P.C. No. 18CV-7094)
:
William Lager et al., (REGULAR CALENDAR)
:
Defendants-Appellees,
:
(Woodridge Local Schools et al.,
:
Proposed Intervenors-
Appellants). :
D E C I S I O N
Rendered on June 9, 2020
On brief: Dave Yost, Attorney General, Todd R. Marti,
Reid T. Caryer, and Mia Meucci Yaniko, for appellee Ohio
Attorney General. Argued: Todd R. Marti.
Nos. 19AP-265 and 19AP-330 2
On brief: McNees Wallace & Nurick LLC, Karl H.
Schneider, Todd A. Long, and David M. Marcus, for appellees
William Lager et al. Argued: Karl H. Schneider.
On brief: Cohen Rosenthal & Kramer LLP, Ellen M.
Kramer, James B. Rosenthal, and Joshua R. Cohen, for
proposed intervenors-appellants, City of Dayton Public
Schools et al. Argued: Ellen M. Kramer.
APPEALS from the Franklin County Court of Common Pleas
KLATT, J.
{¶ 1} Proposed intervenors-appellants, City of Dayton Public Schools, Toledo City
School District, Northern Local School District, Woodridge Local Schools, Cuyahoga Falls
City School District, and Springfield City School District appeal from a judgment of the
Franklin County Court of Common Pleas denying their amended motion to intervene in
this action.1 Because appellants have not demonstrated that the trial court abused its
discretion in denying their motion, we affirm the trial court's judgment.
I. FACTS AND PROCEDURAL HISTORY
{¶ 2} The Electronic Classroom of Tomorrow ("ECOT") was an Ohio community
school. Administrative proceedings determined that ECOT was overpaid $79,646,748 in
public monies because it failed to meet statutory requirements that it document the hours
of instruction for which it had billed the Ohio Department of Education. Electronic
Classroom of Tomorrow v. Ohio Dept. of Edn., 154 Ohio St.3d 584, 2018-Ohio-3126. This
debt rendered ECOT insolvent and a special master was appointed to preserve/liquidate
ECOT's assets. Among ECOT'S assets are potential claims against individuals owing ECOT
fiduciary duties and certain private for-profit entities that managed significant portions of
ECOT's operations or provided circular materials or marketing, media production,
communication and/or public relation services. The ECOT assets also include potential
claims against an insurance company that provided surety bonds to certain fiduciaries
1 City of Dayton Public Schools, Toledo City School District, and Northern Local School District filed a
notice of appeal initiating case No. 19AP-265. Woodridge Local Schools, Cuyahoga Falls City School District
and Springfield City School District filed a separate appeal–case No. 19AP-330. These appeals have been
consolidated.
Nos. 19AP-265 and 19AP-330 3
and/or entities. The judge presiding over the liquidation proceeding ordered that these
claims be assigned to the state for prosecution, with any proceeds to be distributed among
ECOT's creditors under his direction. (May 1, 2019 Compl. at ¶ 45 and Ex. 3 thereto.)2 In
turn, on August 21, 2018, the state, acting through the Ohio Attorney General, filed a
complaint on ECOT's behalf to pursue these claims.
{¶ 3} On January 29, 2019, appellants filed an amended motion to intervene in this
action pursuant to Civ.R. 24(A) and (B). Appellee, the attorney general, as well as the
defendants-appellees, Altair Learning Management I, Inc., IQ Innovations, LLC, and
William Lager, opposed appellants' amended motion to intervene. On February 14, 2019,
the attorney general also filed a motion for leave to file an amended complaint to assert
additional claims and add additional defendants to the action. In a decision dated April 22,
2019, the trial court granted the attorney general's motion for leave to file an amended
complaint and denied appellants' amended motion to intervene. With respect to
appellants' motion for intervention as of right pursuant to Civ.R. 24(A), the trial court
determined that appellants failed to demonstrate that the attorney general would not
adequately represent their interests. The trial court further determined that intervention
pursuant to Civ.R. 24(B) (permissive intervention) was not warranted because appellants
did not present common issues of law or fact and because intervention would cause undue
delay in the proceedings. Appellants appeal assigning the following errors:
1. The trial court erred as a matter of law in refusing to permit
City of Dayton Public Schools, Toledo City School District,
Northern Local School District, Woodridge Local Schools,
Cuyahoga Falls City School District, and Springfield City
School District (the "School Districts") to intervene as of right
pursuant to Ohio Rule of Civil Procedure 24(A)(2).
2. In the alternative, the trial court abused its discretion in
refusing to permit the School Districts to intervene as of right
pursuant to Ohio Rule of Civil Procedure 24(A)(2).
2 We also note that pursuant to R.C. 3314.074(A), "[i]f 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 remaining funds shall be paid to the department of
education for 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."
Nos. 19AP-265 and 19AP-330 4
3. The trial court abused its discretion in refusing to the
School Districts to permissively intervene pursuant to Ohio
Rule of Civil Procedure 24(B).
II. LEGAL ANALYSIS
A. Standard of Review
{¶ 4} The appellants challenge the trial court's denial of their amended motion to
intervene as of right pursuant to Civ.R. 24(A), and alternatively to permissively intervene
pursuant to Civ.R. 24(B). Appellants agree that the denial of permissive intervention is
reviewed for abuse of discretion. (Appellant's Brief at 11.) However, appellants contend in
their first assignment of error that their amended motion to intervene as of right is subject
to a de novo standard of review. We disagree.
{¶ 5} It is well-established that an appellate court reviews a trial court's decision to
deny both a motion to intervene pursuant to Civ.R. 24(A) (intervention as of right) and
Civ.R. 24(B) (permissive intervention) for abuse of discretion. State ex rel. Merrill v. Ohio
Dept. of Natural Resources, 130 Ohio St.3d 30, 2011-Ohio-4612, ¶ 41; Petty v. Kroger Food
& Pharmacy, 10th Dist. No. 05AP-592, 2005-Ohio-6641, ¶ 7 (Civ.R. 24(A) motion); State
ex rel. Montgomery v. Columbus, 10th Dist. No. 02AP-963, 2003-Ohio-2658, ¶ 14. The
phrase "abuse of discretion" connotes more than an error of law or judgment; it implies
that the court's attitude is unreasonable, arbitrary, or unconscionable. Id., citing
Blakemore v. Blakemore, 5 Ohio St.3d 217, 219 (1983). However, courts construe Civ.R. 24
liberally to permit intervention. Merrill at ¶ 41, citing State ex rel. SuperAmerica Group v.
Licking Cty. Bd. of Elections, 80 Ohio St.3d 182, 184 (1997).
B. Intervention as of Right–Civ.R. 24(A)
{¶ 6} "In order for an applicant to intervene as a matter of right under Civ.R. 24(A),
either a statute of this state must confer an unconditional right to intervene upon the
applicant, or the applicant must: (1) claim an interest relating to the property or transaction
that is the subject of the action; (2) be so situated that the disposition of the action may, as
a practical matter, impair or impede the applicant's ability to protect his or her interest;
(3) demonstrate that his or her interest is not adequately represented by the existing
parties; and (4) move to intervene in a timely manner. Failure to satisfy any one of the
elements in Civ.R. 24(A) will result in the denial of the motion to intervene." Petty at ¶ 8,
Nos. 19AP-265 and 19AP-330 5
citing Fairview Gen. Hosp. v. Fletcher, 69 Ohio App.3d 827, 831 (10th Dist.1990).
Although intervention as a matter of right is to be liberally construed in favor of the putative
intervenor, the intervenor must demonstrate all of the required elements set forth in Civ.R.
24(A). Snider Interests, L.L.C. v. Cannata, 8th Dist. No. 103659, 2017-Ohio-85, ¶ 15.
{¶ 7} Appellants do not point to any statute that provides for an unconditional right
to intervene in this action. Therefore, appellants must satisfy all four of the above
enumerated elements of Civ.R. 24(A) in order for intervention as of right to be appropriate.
Petty at ¶ 9. A government agency charged by law with representing the interest of a
proposed intervenor will usually be deemed adequate to represent the proposed
intervenor's interest. Montgomery at ¶ 26. This presumption may be overcome by
demonstrating adversity of interest, collusion, or nonfeasance. Id. at ¶ 25.
{¶ 8} In the case at bar, the trial court's denial of appellants' amended motion to
intervene as a matter of right was based on its determination that appellants failed to
establish that their interest in the property that is the subject of the action (monies sought
to be recovered on ECOT's behalf) is not adequately represented by the attorney general.
Given its finding that appellants failed to establish this element, the trial court found it
unnecessary to address the remaining requirements of Civ.R. 24(A).3
{¶ 9} In their first and second assignments of error, appellants contend that the
trial court erred in denying their amended motion to intervene as a matter of right pursuant
to Civ.R. 24(A). Appellants argue that they presented non-speculative evidence that the
attorney general would not adequately represent their interest. In support of their
argument, appellants contend that they overcame the presumption of adequate
representation by the attorney general by demonstrating adversity of interest and
nonfeasance based upon the following allegations:
3 The trial court denied appellants' amended motion to intervene as of right based solely on its finding that
the appellants failed to show that the attorney general would not adequately represent their interest.
Although the attorney general and the defendants-appellees also alleged that appellants lacked standing to
intervene and that any interest appellants have in this litigation is contingent and too remote to warrant
intervention, the trial court did not address those issues. The trial court did not make any findings with
respect to appellants' standing or the nature of their interest in the subject of this litigation. For purposes
of deciding the issue before us, we assume, without deciding, that appellants did not need to establish
standing to assert a claim in order to seek intervention under Civ.R. 24(A) and (B) and that they have "an
interest relating to the property or transaction that is the subject of the action" as required by Civ.R. 24(A).
Nos. 19AP-265 and 19AP-330 6
1. The attorney general and/or his predecessor took a more
aggressive litigation strategy in two earlier cases involving
failed charter schools;
2. The attorney general and/or his predecessor took a less
aggressive litigation strategy in another case involving a charter
school and a charter school management company in which he
was representing the Ohio Department of Education;
3. The attorney general has in the past spoken at ECOT
commencement events and has previously received political
contributions from two of the individual defendants in this
case;
4. The attorney general and/or his predecessor have not
actively prosecuted this case as evidenced by his delay in
amending the complaint to add a new defendant and new
claims and by not aggressively pursuing discovery; and,
5. The attorney general actively opposed appellants' motion to
intervene.
Appellants rely on the same allegations in challenging the trial court's finding that the
attorney general and appellants have the same ultimate goal–to recover the maximum
amount of money possible on ECOT's behalf. Lastly, appellants argue that these
allegations demonstrate that the attorney general has a conflict of interest and that his
representation in this case violates the Rules of Professional Conduct.
{¶ 10} In response to appellants' allegations, the attorney general contends that
there are significant factual differences in the other cases involving charter schools cited by
appellants and that these factual differences explain the differences in the claims asserted
and remedies sought by the attorney general. The attorney general argues that appellants'
comparison of cases is nothing more than a conclusory critique of litigation tactics without
any analysis of these differing facts and circumstances. The attorney general further
contends that appellants have presented nothing to show that the trial court was wrong in
concluding that his office and appellants share the same ultimate goal. Quite the contrary,
the attorney general asserts that the amended complaint and appellants' proposed
complaint attached to their amended motion to intervene demonstrate that both his office
and appellants share the same ultimate goal–to recover the maximum amount of money on
ECOT's behalf. To rebut appellants' general assertion that he is too friendly to charter
Nos. 19AP-265 and 19AP-330 7
schools and/or the individual defendants in this case, the attorney general points out that
since 2011 the attorney general's office has:
1. Obtained $8,224,776.30 in judgments on audit findings
related to charter schools;
2. Pursued, and continues to pursue, another $5,010,999 in
judgments on charter school related audit findings;
3. Obtained or is seeking an additional $53,330,730.90 in
judgments against persons/entities who had no audit findings
issued against them, but violated common law and statutory
duties in connection with charter schools;
4. Aggressively sought to preserve charter school-related
debts in bankruptcy proceedings;
5. Successfully prosecuted multiple administrative
proceedings to revoke professional licenses based on
misappropriations of charter school funds; and,
6. Taken an aggressive posture in this case seeking very
substantial damages against defendants-appellees, including
individual defendants that have previously made political
contributions.
{¶ 11} As previously noted, a government agency charged by law with representing
the interest of a proposed intervenor is presumed to adequately represent the proposed
intervenor's interest. Montgomery, 2003-Ohio-2658, at ¶ 26. To rebut this presumption,
appellants had the burden to show adversity of interest, collusion, or nonfeasance. Id. at
¶ 25. Appellants did not allege collusion. Therefore, appellants had to demonstrate
adversity of interest or nonfeasance. The trial court expressly considered the evidence
presented by appellants and the attorney general and concluded that appellants had not
satisfied their burden to show adversity of interest or nonfeasance. We fail to see how the
trial court abused its discretion in reaching this conclusion.
{¶ 12} Although appellants are clearly critical of the attorney general's litigation
strategy in this case, a mere disagreement over litigation strategy does not establish
inadequate representation. Id. at ¶ 24. The trial court could reasonably conclude that
appellants' comparison of claims and remedies sought in this case to those asserted by the
attorney general in other cases involving failed charter schools did not demonstrate
Nos. 19AP-265 and 19AP-330 8
nonfeasance. As noted by the attorney general and the trial court, the facts and
circumstances in these cases are different and appellants provide only conclusory criticism
without any analysis of these factual differences. In addition, appellants' assertion that the
attorney general should have moved more aggressively with discovery and should have
asserted certain claims against certain defendants in the original complaint, rather than in
the subsequently filed amended complaint, did not require the trial court to find
nonfeasance. Quite the contrary, it demonstrates the attorney general's intent to pursue
the very claims appellants want asserted.
{¶ 13} Nor does appellants' contention that the attorney general's past support for
charter schools demonstrates an inability to represent appellants' interests in this case.
Other evidence presented to the trial court supports the attorney general's assertion that he
has taken aggressive action in cases involving charter schools when justified. The trial court
could consider the actions undertaken by the attorney general to recover public monies by
pursuing claims involving other failed charter schools, and/or by asserting claims against
those who violated fiduciary and/or statutory duties to charter schools, in assessing
whether the attorney general shares a common interest with appellants in this case and
whether he would adequately represent appellants' interests. We also note the trial court
expressly found that the attorney general and appellants share the same ultimate goal–"to
recover the maximum amount of money allegedly owed from the defendants under the
law." (Apr. 22, 2019 Decision & Entry at 6.) In reaching that conclusion, the trial court
reviewed the claims asserted in the attorney general's amended complaint and those
contained in appellants' proposed complaint–noting that appellants conceded "the claims
proposed by the School Districts overlap with those asserted by [the State] in many
respects." Id. Given the evidence before the trial court, appellants have not shown that the
trial court abused its discretion in finding that the attorney general can adequately
represent appellants' interest in this case–particularly in view of the presumption of
adequate representation afforded to a government agency. Montgomery at ¶ 24.
Therefore, the trial court did not err in denying appellants' motion to intervene pursuant to
Nos. 19AP-265 and 19AP-330 9
Civ.R. 24(A). For these reasons, we overrule appellants' first and second assignments of
error.4
{¶ 14} In appellants' third assignment of error, they argue that the trial court erred
in denying its motion to permissively intervene pursuant to Civ.R. 24(B). Again, we
disagree.
{¶ 15} Appellants sought permissive intervention under Civ.R. 24(B), which
provides in relevant part:
Upon timely application anyone may be permitted to intervene
in an action * * * when an applicant's claim or defense and the
main action have a question of law or fact in common. * * * In
exercising its discretion the court shall consider whether the
intervention will unduly delay or prejudice the adjudication of
the rights of the original parties.
{¶ 16} The trial court expressly recognized appellants' concession that they "were
not involved in the facts underlying the state's claims." (Decision & Entry at 7.) Based on
this concession, the trial court found that appellants had not demonstrated they had a claim
or defense in common with the action brought by the attorney general. The trial court also
noted appellants' concession that granting their request to intervene might delay these
proceedings. Id. Given these admissions and the trial court's inherent authority to manage
its docket, appellants have not shown that the trial court abused its discretion in denying
their request for permissive intervention. Therefore, we overrule appellants' third
assignment of error.
{¶ 17} Having overruled appellants' three assignments of error, we affirm the
judgment of the Franklin County Court of Common Pleas.
Judgment affirmed.
SADLER, P.J., and LUPER SCHUSTER, J., concur.
4 This court has no jurisdiction to determine whether the attorney general's representation in this case
constitutes a violation of Prof.Cond.R. 1.7, and therefore, we do not address that aspect of appellants'
argument.