Hope Academy Broadway Campus v. White Hat Mgt., L.L.C. , 2013 Ohio 5036 ( 2013 )

[Cite as Hope Academy Broadway Campus v. White Hat Mgt., L.L.C., 2013-Ohio-5036.]
IN THE COURT OF APPEALS OF OHIO
TENTH APPELLATE DISTRICT
Hope Academy Broadway Campus et al., :
Plaintiffs-Appellants/ :
Cross-Appellees, No. 12AP-496
: (C.P.C. No. 10CVC-05-7423)
v.
: (REGULAR CALENDAR)
White Hat Management, LLC et al.,
:
Defendants-Appellees/
Cross-Appellants. :
D E C I S I O N
Rendered on November 14, 2013
Dinsmore & Shohl LLP, and Karen S. Hockstad; Shumaker,
Loop & Kendrick, LLP, James D. Colner, and Adam M. Galat,
for plaintiffs-appellants/cross-appellees.
Taft, Stettinius & Hollister LLP, Charles R. Saxbe, Donald C.
Brey, and James D. Abrams, for defendants-appellees/cross-
appellants.
Jones Day, Chad A. Readler, and Kenneth M. Grose, Amicus
Curiae Ohio Coalition for Quality Education.
Michael DeWine, Attorney General, and Todd R. Marti,
Amicus Curiae Ohio Department of Education.
APPEAL from the Franklin County Court of Common Pleas.
BROWN, J.
{¶ 1} Hope Academy Broadway Campus, Hope Academy Chapelside Campus,
Hope Academy Lincoln Park Campus, Hope Academy Cathedral Campus, Hope Academy
University Campus, Hope Academy Brown Street Campus, Life Skills Center of Cleveland,
Life Skills Center of Akron, Hope Academy West Campus, and Life Skills Center Lake Erie
No. 12AP-496 2
("the schools"), plaintiffs-appellants/cross-appellees, appeal the judgment of the Franklin
County Court of Common Pleas, in which the court granted partial summary judgment in
favor of White Hat Management, LLC, WHLS of Ohio, LLC ("WHLS"), HA Broadway,
LLC, HA Chapelside, LLC, HA Lincoln Park, LLC, HA Cathedral, LLC, HA University,
LLC, HA Brown Street, LLC, LS Cleveland, LLC, LS Akron, LLC, HA West, LLC, and LS
Lake Erie, LLC (referred to as a singular entity "White Hat"), defendants-appellees/cross-
appellants. The Ohio Department of Education ("ODE") and the Ohio Coalition for
Quality Education have filed amicus briefs. White Hat has filed a motion to dismiss for
lack of a final, appealable order.
{¶ 2} The schools are the governing boards of ten community schools. In
November 2005, each of the schools entered into similar management agreements with
separate education management organizations ("EMO"). The EMOs are owned by WHLS.
The EMOs receive assistance from White Hat Management. The White Hat EMOs
manage and operate the schools. The management agreements provide for certain
payments from the schools to White Hat. The schools paid White Hat a fixed percentage
of the per-student state funding they received, called a "continuing fee," as well as full
reimbursements for federal and state grants. White Hat was responsible for the day-to-
day operation of the schools, including the purchasing of furniture, computers, books, and
all other equipment. White Hat also was responsible for providing a building and staff for
the schools.
{¶ 3} The management agreements terminated on June 30, 2007, but the parties
renewed them for one-year terms in 2007-2008, 2008-2009, and 2009-2010. As of the
time of briefing, of the ten original subject schools, two Hope Academies had closed, and
the three Life Skills Centers were under different management.
{¶ 4} On May 17, 2010, the schools filed an action against White Hat and ODE,
seeking declaratory relief, injunctive relief, and an accounting alleging claims of breach of
contract and breach of fiduciary duty. In general, the schools asserted that, pursuant to
the terms of the management agreements, they were entitled to all property purchased by
White Hat using public funds without having to pay White Hat for such property. After
the action was filed, the parties executed a series of "standstill agreements," which
No. 12AP-496 3
permitted the parties to continue operations as if the management agreements were still
in effect.
{¶ 5} On February 21, 2012, the schools filed a motion for partial summary
judgment, claiming they were entitled to all property, without payment to White Hat, that
White Hat purchased using public funds to operate the schools. On May 11, 2012, the trial
court granted the schools partial summary judgment, finding that the schools are entitled
only to the personal property purchased by White Hat using funding sources that required
the purchase to be in the schools' names pursuant to the terms of the management
agreements. The trial court also found that White Hat had no fiduciary duty to give
property to the schools without compensation. The schools appeal the trial court's
decision, asserting the following assignments of error:
[I.] The trial court erred when it found that White Hat owns
certain personal property under the terms of the Management
Agreements and that the Schools must purchase the property
from White Hat at the expiration of the Management
Agreements.
[II.] The trial court erred in declaring that the Schools have
legal authority to transfer title to personal property under R.C.
Chapters 3313 and 3314.
[III.] The trial court erred in limiting the nature of White
Hat's fiduciary relationship to the Schools.
{¶ 6} We first address White Hat's motion to dismiss for lack of a final,
appealable order. Pursuant to Ohio Constitution, Article IV, Section 3(B)(2), this court's
appellate jurisdiction is limited to the review of final orders of lower courts. "A final order
* * * is one disposing of the whole case or some separate and distinct branch thereof."
Lantsberry v. Tilley Lamp Co., 27 Ohio St.2d 303, 306 (1971). A trial court's order is final
and appealable only if it satisfies the requirements of R.C. 2505.02 and, if applicable,
Civ.R. 54(B). Denham v. New Carlisle, 86 Ohio St.3d 594, 596 (1999), citing Chef Italiano
Corp. v. Kent State Univ., 44 Ohio St.3d 86, 88 (1989).
{¶ 7} When determining whether a judgment or order is final and appealable, an
appellate court engages in a two-step analysis. First, the court must determine if the order
is final within the requirements of R.C. 2505.02. Second, if the order satisfies R.C.
2505.02, the court must determine whether Civ.R. 54(B) applies and, if so, whether the
No. 12AP-496 4
order contains a certification that there is no just reason for delay. Gen. Acc. Ins. Co. v.
Ins. Co. of N. Am., 44 Ohio St.3d 17, 21 (1989). Civ.R. 54(B) does not alter the
requirement that an order must be final before it is appealable. Id., citing Douthitt v.
Garrison, 3 Ohio App.3d 254, 255 (9th Dist.1981).
{¶ 8} R.C. 2505.02 defines a final order and provides several definitions.
Pursuant to Civ.R. 54(B), a trial court may separate one or more claims from other
pending claims for purposes of appellate review. Ohio Millworks, Inc. v. Frank Paxton
Lumber Co., 2d Dist. No. 14255 (June 29, 1994). The claims separated must otherwise
have been finally adjudicated. Id. If the trial court expressly determines that there is no
just reason for delay, then the claim or claims separated, pursuant to Civ.R. 54(B), may be
reviewed on appeal even though other claims remain pending. Id.{¶ 9} In the present case, White Hat's only real argument is that the trial court's
order did not adjudicate all of the parties' claims, and the trial court did not indicate there
was no just reason for delay. It is true that the trial court did not adjudicate all claims in
this multiple-claim action; thus, there could be no final judgment with regard to either
claim absent the "no just reason for delay" language from Civ.R. 54(B). In the original
decision, the trial court made no determination that there was no just reason for delay.
However, the schools filed a motion for Civ.R. 54(B) certification with respect to the trial
court's judgment, which the trial court granted on July 24, 2012. Therefore, we find the
judgment was both a final and appealable order. White Hat's motion to dismiss is denied.
{¶ 10} The schools argue in their assignments of error that the trial court erred
when it granted partial summary judgment in favor of White Hat. Summary judgment is
appropriate when the moving party demonstrates that: (1) there is no genuine issue of
material fact, (2) the moving party is entitled to judgment as a matter of law, and
(3) reasonable minds can come to but one conclusion when viewing the evidence most
strongly in favor of the non-moving party, and that conclusion is adverse to the non-
moving party. Hudson v. Petrosurance, Inc., 127 Ohio St.3d 54, 2010-Ohio-4505, ¶ 29;
Sinnott v. Aqua-Chem, Inc., 116 Ohio St.3d 158, 2007-Ohio-5584, ¶ 29. Appellate review
of a trial court's ruling on a motion for summary judgment is de novo. Hudson at ¶ 29.
This means that an appellate court conducts an independent review, without deference to
the trial court's determination. Zurz v. 770 W. Broad AGA, L.L.C., 192 Ohio App.3d 521,
No. 12AP-496 5
2011-Ohio-832, ¶ 5 (10th Dist.); White v. Westfall, 183 Ohio App.3d 807, 2009-Ohio-
4490, ¶ 6 (10th Dist.).
{¶ 11} When seeking summary judgment on the ground that the non-moving party
cannot prove its case, the moving party bears the initial burden of informing the trial
court of the basis for the motion and identifying those portions of the record that
demonstrate the absence of a genuine issue of material fact on an essential element of the
non-moving party's claims. Dresher v. Burt, 75 Ohio St.3d 280, 293 (1996). The moving
party does not discharge this initial burden under Civ.R. 56 by simply making a
conclusory allegation that the non-moving party has no evidence to prove its case. Id.Rather, the moving party must affirmatively demonstrate by affidavit or other evidence
allowed by Civ.R. 56(C) that the non-moving party has no evidence to support its claims.
Id. If the moving party meets its burden, then the non-moving party has a reciprocal
burden to set forth specific facts showing that there is a genuine issue for trial. Civ.R.
56(E); Id. If the non-moving party does not so respond, summary judgment, if
appropriate, shall be entered against the non-moving party. Id.{¶ 12} The present case involves the reading and interpretation of contracts
between the parties. In construing the terms of a written contract, our primary objective is
to give effect to the intent of the parties, which is presumed to rest in the language they
have chosen to employ. Shifrin v. Forest City Ents., Inc., 64 Ohio St.3d 635, 638 (1992).
Common words appearing in a written instrument will be given their ordinary meaning
unless manifest absurdity results, or unless some other meaning is clearly evidenced from
the face or overall contents of the instrument. Alexander v. Buckeye Pipe Line Co., 53
Ohio St.2d 241 (1978), paragraph two of the syllabus. Where the terms are clear and
unambiguous, a court need not go beyond the plain language of the instrument to
determine the rights and obligations of the parties. Aultman Hosp. Assn. v. Community
Mut. Ins. Co., 46 Ohio St.3d 51, 53 (1989). Where possible, a court must construe the
agreement to give effect to every provision in the agreement. In re All Kelley & Ferraro
Asbestos Cases, 104 Ohio St.3d 605, 2004-Ohio-7104, ¶ 29. Moreover, the construction of
a written contract is a question of law, which we review de novo. Id. at ¶ 28.
{¶ 13} Here, the schools argue in their first assignment of error that the trial court
erred when it found that White Hat owns certain personal property under the terms of the
No. 12AP-496 6
management agreements and that the schools must purchase the property from White
Hat at the expiration of the management agreements. The pertinent language in the
agreements is found in three sections of the agreements: Sections 2, 8, and 12. Section 2
provides, in pertinent part:
b. Equipment:
i. The Company shall purchase or lease all furniture,
computers, software, equipment, and other personal property
necessary for the operation of the School. Additionally, the
Company shall purchase on behalf of the School any furniture,
computers, software, equipment, and other personal property
which, by the nature of the funding source, must be titled in
the School's name.
{¶ 14} Section 8 provides, in pertinent part:
8. Fees.
a. Management, Consulting and Operation Fee. The School
shall pay a monthly continuing fee (the "Continuing Fee") to
the Company of Ninety Six Percent (96%) of the revenue per
student received by the School from the State of Ohio
Department of Education pursuant to Title 33 and other
applicable provisions of the Ohio Revised Code (the "Code")
plus any discretionary fees paid under the discretionary bonus
program identified in Paragraph 8.c. (the "Qualified Gross
Revenues"). Qualified Gross Revenues do not include: Student
fees, charitable contributions, PTA/PTO Income and other
miscellaneous revenue received which shall be retained by the
School or PTA/PTO. Federal Title Programs, lunch program
revenue and such other federal, state and local government
grant funding designated to compensate the School for the
education of its students shall be fully paid to the Company.
i. Payment of Costs. Except as otherwise provided in this
Agreement, all costs incurred in providing the Educational
Model at the School shall be paid by the Company. Such costs
shall include, but shall not be limited to, compensation of all
personnel, curriculum materials, textbooks, library books,
computer and other equipment, software, supplies, building
payments, maintenance, and capital improvements required
in providing the Educational Model. It is understood that at
the School's election, upon termination of this Agreement all
personal property used in the operation of the School and
owned by the Company or one of its affiliates and used in the
No. 12AP-496 7
operation of the School, other than proprietary materials
owned by the Company, may become the property of the
School free and clear of all liens or other encumbrances upon
the School paying to the Company an amount equal to the
"remaining cost basis" of the personal property on the date of
termination.
ii. Property Owned by the School. The property purchased by
the School shall continue to be owned by the School.
{¶ 15} Section 12 provides, in pertinent part:
c. Equipment and Personal Property. On or before the
Termination Date, and after the payment of the "remaining
cost basis" to be made by the School in accordance with
Section 8 (a), herein the Company shall transfer title to the
School, or assign to the School the leases (to the extent such
leases are assignable), for any and all computers, software,
office equipment, furniture and personal property used to
operate the School, other than the Company's proprietary
materials. Other than said proprietary materials, the School
shall own said personal property and the rights under any
personal property lease assigned from the Company to the
School.
{¶ 16} The trial court concluded that Section 8(a)(i) provided that White Hat
would buy and own all personal property, with the single exception of any property
required by the funding source to be purchased in the names of the schools. For all
personal property bought and owned, the trial court found, the schools would have to pay
White Hat.
{¶ 17} The schools argue that the agreements were ambiguous with respect to the
ownership rights to property purchased with the continuing fee, as it is unclear when
White Hat was required to act as the schools' purchasing agent. The schools argue there
were at least the following two interpretations as to when White Hat had to act as the
schools' purchasing agent: (1) the schools' interpretation – White Hat acted as the schools'
purchasing agent with respect to any property purchased with the continuing fee, and
(2) White Hat's and the trial court's interpretation – White Hat sometimes acted as the
schools' purchasing agent in undefined circumstances.
{¶ 18} With regard to the first interpretation – that White Hat acted as the schools'
purchasing agent with respect to any property purchased with the continuing fee – the
No. 12AP-496 8
schools contend that Section 2(b)(i) clearly indicates that White Hat was required to act as
the schools' purchasing agent when the property was required to be titled in the schools'
names due to the nature of the funding source. The schools argue that the "nature" of the
funding source is meant to differentiate between public and private funding. The schools
point to Section 8(a) to assert that ODE was one funding source, and the federal, state,
and local governments that provided grant funding were other funding sources, and the
common characteristic shared by these funding sources listed in Section 8(a) was that
they are all public entities. Thus, the schools contend, as Section 8(a) relates to Section
2(b)(i), the "funding sources" underlying the continuing fee were public in nature.
Accordingly, White Hat was obligated to act as the schools' purchasing agent for any
property purchased with the continuing fee, and all such property purchased with the
continuing fee was owned by the schools.
{¶ 19} With regard to the second interpretation, which was advocated by White
Hat and adopted by the trial court – that White Hat sometimes acted as the schools'
purchasing agent in certain circumstances – the schools contend that neither the trial
court nor White Hat explained when White Hat would be obligated to act as the schools'
purchasing agent. The schools point out that White Hat's position is that it owns all
property purchased with the continuing fee, as funds received in the form of the
continuing fee convert from public funds to private funds, relying upon the language in
Section 8(a)(i). The schools claim that White Hat's and the trial court's reading of the
agreements fails because: (1) White Hat's obligation to "pay costs" under Section 8(a)(i) is
irrelevant to the ownership rights of property because under Section 2(b)(i) White Hat
was required to make purchases, or "pay costs," for property purchased on behalf of the
schools, (2) White Hat's reading would render meaningless Section 2(b)(i), which
recognizes instances when White Hat was to act as the schools' purchasing agent based
upon the nature of the funding source, and the schools are public schools that receive
their funding from public sources, and (3) the repurchase provision in Section 8(a)(i)
applies only to property used in the operation of the schools and owned by White Hat, so
White Hat's reliance on that section presupposes that White Hat already owns the
property, which is the center of the current dispute.
No. 12AP-496 9
{¶ 20} In its appellate brief, White Hat argues simply that White Hat is a
purchasing agent for the schools in one very limited situation: when a funding source
requires property to be titled in the schools' names. White Hat contends that, in all other
circumstances, White Hat bought the property with its own money and is the sole owner
of that property.
{¶ 21} After reviewing the plain language of the agreements, we find the terms of
the agreements, when read as a whole, are not ambiguous. The schools own only that
property that must be titled in the schools' names due to "the nature of the funding
source." Section 2(b)(i). The language as used in the agreements does not support the
schools' interpretation that White Hat acted as the schools' purchasing agent with respect
to all property purchased with the continuing fee because the fee originated from a
"public" funding source. Presumably the bulk of White Hat's purchases to execute its
educational model for each school come from that school's continuing fee and grant
funding. Thus, under the schools' interpretation of the agreements, they would be entitled
to virtually all of the property purchased by White Hat to execute its educational model, as
the schools believe they are entitled to all property purchased with the continuing fee and
any grant funding. However, it is apparent from Sections 2(b)(i), 8(a)(i), and 12(c) that
the agreement contemplates that White Hat will purchase property to execute its
educational model and will own certain of that property. Thus, that the agreements
contemplate that White Hat will own property it purchases strongly suggests that the
schools' interpretation that they should own virtually all of the property is incorrect.
{¶ 22} Although the schools might counter that the property that White Hat owns
is that property paid for with its "own" money, this attempted distinction reveals the flaw
in the schools' overall theory. Under the schools' theory, White Hat's "own" money used to
pay for property apparently must derive from earnings gained in the business of
managing schools. However, presumably these earnings derive, at least in significant part,
from the continuing fee paid to it by various schools – both those schools in the present
case, as well as others. Thus, at some point, the continuing fee paid to White Hat must
convert to White Hat's private monies with which it may then purchase its "own"
property. The schools neglect to define precisely when the continuing fee paid to White
Hat loses its public character and becomes White Hat's private income. Pursuant to the
No. 12AP-496 10
schools' theory, the monies from the continuing fee must never convert to White Hat's
"own" private monies anytime during the effective terms of the agreements; that is, the
continuing fee payments are always public funds as long as the parties are operating
under the agreements or any extension of the agreements. The schools fail to present any
authority for such an expansive definition of public funds. Therefore, the schools'
contention that the continuing fee paid to White Hat is still public funds, even after it is
paid to White Hat, has logical failings.
{¶ 23} Indeed, as White Hat points out, this court has explicitly found that once
public funds are paid to a private entity, they lose their public character. In State ex rel.
Yovich v. Bd. of Edn. of Cuyahoga Falls City School Dist., 10th Dist. No. 91AP-1325,
(June 23, 1992), a school psychologist, who worked at a non-public school through its
contract with a private corporation, filed an action seeking a declaration that the board of
education had a duty to make employer contributions to the State Teachers Retirement
System ("STRS") for him. The board claimed that, although it was obligated to provide
psychological services to pupils with funds appropriated by the state of Ohio, the
psychologist was an employee of a private corporation and was not a teacher. In seeking
STRS contributions, the psychologist argued, in relevant part, that the board paid him
with public funds. On appeal, we rejected the psychologist's public funds argument,
concluding:
Finally, appellant urges that * * * he was paid from public
funds while working for [the private corporation]. While
public funds were appropriated initially to pay for the type of
services performed by appellant, the funds lost their chief
characteristic of "public funds" once the funds came into
possession and control of CSO, a private entity. The hallmark
of public funds is that such money belongs to the state or a
subdivision of government. The appellant in this case was
paid by a private corporation whose funds were not controlled
or held by the board. We, therefore, reject the contention that
appellant was paid with public funds.
{¶ 24} Our holding in Yovich is applicable to the present circumstances. Although
the monies White Hat used to pay for property were once public funds, at the time of the
purchases, the monies used to pay for the property were in the possession and control of
White Hat, a private entity. White Hat could decide how and whether to spend the money,
No. 12AP-496 11
and the board no longer had any control over or possessory interest in the monies.
Therefore, consistent with Yovich, we agree that the continuing fees the schools paid to
White Hat using public funds lost their chief characteristic of public funds once the funds
came into possession and control of White Hat, a private entity.
{¶ 25} Accordingly, if the funds White Hat used to pay for the property were
private funds, then the meaning of the language in Sections 2, 8, and 12 is clear. Section
8(a)(i) provides that White Hat must pay for all property used in the education of the
students, and the schools may purchase any property owned by White Hat upon
termination of the agreement. Section 2(b)(i) explains which property White Hat owns.
Section 2(b)(i) requires White Hat to purchase on behalf of the schools only that property
that, by nature of the funding source, must be titled in the schools' names. Because White
Hat's private funds do not require the property purchased with them be titled in the
schools' names, the property purchased with White Hat's private funds is owned by White
Hat. Following this logic to its end, pursuant to Section 12(c), White Hat must then
transfer title in the property to the schools after the schools' payment under Section
8(a)(i).
{¶ 26} We disagree with the schools' contention that ambiguity in the agreements
is illustrated by the trial court's finding that the parties must refer to some unspecified
funding source "requirements" outside the agreements to determine each party's property
rights and the court's failure to explain how the parties should determine whether the
funding source required the purchase of property in the schools' names. The schools
present no authority for the proposition that a contract cannot reference a defined
variable outside of the contract. To be sure, contractual language is ambiguous if a court
cannot determine its meaning from the four corners of the contract. See Covington v.
Lucia, 151 Ohio App.3d 409, 2003-Ohio-346, ¶ 18 (10th Dist.). However, contracts are not
invalid simply because they depend upon an outside source to supply a contract term. See,
e.g., State ex rel. Ohio Atty. Gen. v. Tabacalera Nacional S.S.A., 10th Dist. No. 12AP-606,
2013-Ohio-2070, ¶ 20 (finding that the case was not one involving a contract that named
a specific outside source to give meaning to a particular term, like a term in a variable rate
loan that refers to a rate set by an outside source to calculate the rate for the loan);
Arlington Hous. Partners, Inc. v. Ohio Hous. Fin. Agency, 10th Dist. No. 10AP-764, 2012-
No. 12AP-496 12
Ohio-1412, ¶ 36 (variable terms that will fluctuate with an independently set index are a
common and enforceable component of many types of contract). Here, the terms of the
agreements are explicit in requiring property to be titled in the schools' names only if the
source of the funds requires purchases made with them to be titled in the names of the
schools. Whether a funding source requires purchases made with them to be titled in the
name of the school is not an uncertain variable capable of varying interpretations but,
rather, a definite term to provide meaning to the terms of the agreements. Despite the
schools' attempt to deconstruct the agreements with ambiguity, the intent and meaning of
the agreements, specifically Section 2(b)(i), are clear here.
{¶ 27} The schools next argue that because of the uncertainties and ambiguities in
the contract, the trial court was required to resolve them in a way that makes the
agreements fair and reasonable, and the trial court's finding was against public policy. The
schools contend that it was unfair to find that White Hat owned all of the property it
bought with the continuing fee because White Hat was already earning substantial income
from the continuing fee and was not entitled to earn even more in the form of property
ownership.
{¶ 28} Initially, we reject the schools' unfounded argument that it would be unfair
to find that White Hat owned all of the property it bought with the continuing fee because
White Hat was already earning substantial income from the continuing fee and was not
entitled to earn even more in the form of property ownership. The schools fail to cite any
authority for the proposition that White Hat is somehow precluded from earning "even
more" by keeping any property it purchased even though it was also earning income from
the continuing fee. There is no case law we are aware of that caps a private entity's level of
income based upon the sole nebulous reason of it being "unfair." If the contracts entered
into by the parties here permitted White Hat to purchase and own private property using
its own income, including income derived by the continuing fee, then we see no inherent
unfairness in such an agreement. We also fail to see why property retained by White Hat
spending the continuing fee should be treated any differently than earnings retained by
White Hat not spending the continuing fee. If it is not unfair for White Hat to retain the
unspent continuing fee as profit, it should not be unfair for White Hat to retain property
purchased with the continuing fee.
No. 12AP-496 13
{¶ 29} With regard to the schools' claim that we must interpret the agreements in
such a way that makes them fair and reasonable, that rule of contract is only implicated
when a contract is susceptible to two interpretations. See GLIC Real Estate Holdings,
LLC v. Bicentennial Plaza Ltd., 10th Dist. No. 11AP-474, 2012-Ohio-2269, ¶ 10 (where a
contract is susceptible of two constructions, we must employ the construction that makes
the agreement fair and reasonable and gives the agreement meaning and purpose). Where
contractual language is unambiguous, we must apply that language as written without
resort to methods of construction or interpretation, and we may not, in effect, create a
new contract by finding an intent not expressed by the clear language. See Cleveland
Constr., Inc. v. Kent State Univ., 10th Dist. No. 09AP-822, 2010-Ohio-2906, ¶ 29.
Therefore, in the present case, as we have found the language in the agreements is
unambiguous, we do not resort to this rule of contract.
{¶ 30} The schools next argue that the trial court ignored the absence of statutory
authority for community schools to transfer property for the benefit of a private entity.
Furthermore, the schools contend that the trial court misinterpreted R.C. 3314.04 and
3313.41. R.C. 3313.41 provides rules that boards of education must follow when disposing
of real or personal property that it owns in its corporate capacity. R.C. 3314.04 provides:
Except as otherwise specified in this chapter and in the
contract between a community school and a sponsor, such
school is exempt from all state laws and rules pertaining to
schools, school districts, and boards of education, except
those laws and rules that grant certain rights to parents.
{¶ 31} White Hat counters that the schools were exempt from "all state laws
pertaining to" traditional public schools, except as noted in R.C. 3314.04; thus, the
schools' contention that they do not have authority to pass title of personal property to
White Hat is invalid. White Hat also asserts that the schools' argument that it cannot
dispose of the property is premised on the notion that the schools owned the property in
the first place. White Hat points out that the schools' own records do not reference or
account for the personal property it claims to own, White Hat purchased all of the
property in dispute with its own money and not any grant money, and the contracts did
not specify that White Hat was buying property on behalf of the schools.
No. 12AP-496 14
{¶ 32} The trial court found that the schools operate under R.C. 3314.04 and that
section exempts them from all state laws and rules that apply to traditional schools,
school districts, and boards of education, except for those laws and rules that grant certain
rights to parents. The court concluded that, because R.C. 3313.41, upon which the schools
rely, does not grant any rights to parents, it does not fall under the exception in R.C.
3314.04.
{¶ 33} We agree with the trial court. As White Hat points out, the schools'
argument that R.C. 3313.41 limited its ability to dispose of property is grounded upon the
presupposition that it owned the property in question in the first place. As we have
already found, the schools did not own the property. Notwithstanding this finding, we
would still reject the schools contention. Although the schools again attempt to create
ambiguity with the language used in R.C. 3314.04, we find it clear. As the trial court
found, R.C. 3314.04 exempts community schools from all laws and rules that apply to
traditional schools, except for those relating to the rights of parents. As R.C. 3313.41 does
not relate to the rights of parents, the schools are exempt from that rule and it does not
impose any limits on its disposal of property. We find no reason to read anything more
complicated into this plain language. Thus, this argument is without merit. Therefore, for
all of the above reasons, the schools' first assignment of error is overruled.
{¶ 34} The schools argue in their second assignment of error that the trial court
erred in declaring that the schools have legal authority to transfer title to personal
property under R.C. Chapters 3313 and 3314. The schools' argument under this
assignment of error closely tracks the final argument addressed under the schools' first
assignment of error above. The schools contend that, as public entities created by statute,
they may take only those actions specifically authorized by statute, and they must pursue
the proper statutory method of disposing of its property. The schools maintain that
nothing in community school legislation authorizes property transfers with respect to
community schools; thus, they are barred from selling or transferring property.
{¶ 35} However, the schools' arguments are again based upon the notions that the
schools owned the property bought by White Hat with monies that were paid to it as the
continuing fee and that the property was purchased with public funding. As we have
found, the schools never owned the property, and the property was not purchased with
No. 12AP-496 15
public funding. Instead of transferring property to White Hat, the schools paid money to
White Hat, which then bought property using the income generated from the continuing
fee. There has never been any exchange of the property in question here. Therefore, this
argument is without merit, and the schools' second assignment of error is overruled.
{¶ 36} The schools argue in their third assignment of error that the trial court erred
by limiting the nature of White Hat's fiduciary relationship to the schools. " 'A "fiduciary
relationship" is one in which special confidence and trust is reposed in the integrity and
fidelity of another and there is a resulting position of superiority or influence, acquired by
virtue of this special trust.' " Stone v. Davis, 66 Ohio St.2d 74, 79 (1981), quoting In re
Termination of Employment, 40 Ohio St.2d 107, 115 (1974). The term "fiduciary" is
defined as "a person having a duty, created by his undertaking, to act primarily for the
benefit of another in matters connected with his undertaking." (Emphasis omitted.)
Groob v. KeyBank, 108 Ohio St.3d 348, 2006-Ohio-1189, ¶ 16. A fiduciary relationship
may be created by contract or an informal relationship where both parties understand
that a special trust or confidence has been reposed. Id., citing Umbaugh Pole Bldg. Co.,
Inc. v. Scott, 58 Ohio St.2d 282, 287 (1979).
{¶ 37} Here, the trial court found that a formal general fiduciary relationship was
not created by the agreements. The court found that the parties dealt with each other at
arm's length in a commercial context, and the parties' relationship was not created
informally but, rather, by execution of 16-page contracts that specifically provided that the
contracts were not to be construed as creating a partnership of joint venture between the
parties. The court did find that the agreements created a limited fiduciary duty on the part
of White Hat to use its best efforts to assist the schools in obtaining assignments of
existing leases under the same terms and conditions and left open the possibility that a
general fiduciary relationship was created by the conduct of the parties.
{¶ 38} The schools contend that White Hat was barred from taking title to the
property even if the schools had authority to pass it because White Hat is both a public
official and a fiduciary barred from taking pecuniary gain in performing a public contract.
In support, the schools cite State v. McKelvey, 12 Ohio St.2d 92, 95 (1967), in which the
Supreme Court of Ohio held that a public official is a fiduciary, and a public official cannot
use his position for private profit, as it would be a violation of this duty to the citizens of
No. 12AP-496 16
the state for an official to use his public office for private gain. However, such precedent
" 'was established, and has typically been applied, in the context of public officials who
engaged in some sort of financial misconduct, such as using their public office for private
gain or misappropriating funds in contravention of express statutory duties.' " Cristino v.
Bur. of Workers' Comp., 10th Dist. No. 12AP-60, 2012-Ohio-4420, ¶ 19, quoting State ex
rel. Cook v. Seneca Cty. Bd. of Commrs., 175 Ohio App.3d 721, 2008-Ohio-736, ¶ 32 (3d
Dist.). Such is not the case here. Here, the "private gain" resulting from White Hat's
ownership in the property was not due to financial misconduct but from the expenditure
of the corporation's own income derived from formerly public funds. The schools have not
cited any authority for the proposition that the fiduciary duty of public officials extends to
a community school management company's purchase of goods with private corporate
income generated from continuing fees, and we decline to extend the law in this manner
to create such a duty when the agreements specifically indicated that the parties did not
intend to create a partnership or joint venture and termed White Hat an independent
contractor. See, e.g., Nilavar v. Osborn, 127 Ohio App.3d 1, 20 (2d Dist.1998) (parties to a
joint venture owe each other fiduciary duties, such as a duty of full disclosure and a duty
against self-dealing); Schulman v. Wolske & Blue Co., L.P.A., 125 Ohio App.3d 365 (10th
Dist.1998) (under Ohio law, there is generally no fiduciary relationship between an
independent contractor and his employer unless both parties understand that the
relationship is one of special trust and confidence).
{¶ 39} In addition, a fiduciary relationship cannot be unilateral. Applegate v. Fund
for Constitutional Govt., 70 Ohio App.3d 813, 817 (10th Dist.1990). "A party's allegation
that he reposed a special trust or confidence in an employee is insufficient as a matter of
law to prove the existence of a fiduciary relationship without evidence that both parties
understood that a fiduciary relationship existed." Schulman at 372, citing Lee v.
Cuyahoga Cty. Court of Common Pleas, 76 Ohio App.3d 620, 623 (8th Dist.1991). In the
present case, the schools failed to produce any evidence showing that White Hat, which
was an independent contractor under the agreement, entered into any mutual fiduciary
relationship with the schools. Although we agree every contract contains an implied duty
for the parties to act in good faith and to deal fairly with each other, Littlejohn v. Parrish,
163 Ohio App.3d 456, 2005-Ohio-4850, ¶ 27, there was no formal general fiduciary duty
No. 12AP-496 17
created by the agreements that required White Hat to purchase and hold property for the
schools' benefit. For these reasons, the schools' third assignment of error is overruled.
{¶ 40} Accordingly, the schools' assignments of error are overruled, and the
judgment of the Franklin County Court of Common Pleas is affirmed.
Motion to dismiss denied;
judgment affirmed.
TYACK and McCORMAC, JJ., concur.
McCORMAC, J., retired of the Tenth Appellate District,
assigned to active duty under authority of the Ohio
Constitution, Article IV, Section 6(C).
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