Stewart v. Woods Cove II, L.L.C.

[Cite as Stewart v. Woods Cove II, L.L.C., 2017-Ohio-8314.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 105160
EDDIE L. STEWART, ET AL.
PLAINTIFFS-APPELLANTS
vs.
WOODS COVE II, L.L.C., ET AL.
DEFENDANTS-APPELLEES
JUDGMENT:
REVERSED AND REMANDED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-15-855010
BEFORE: Boyle, J., Keough, A.J., and Blackmon, J.
RELEASED AND JOURNALIZED: October 26, 2017
ATTORNEYS FOR APPELLANTS
Michael Aten
1719 Coventry Road, #1
Cleveland Heights, Ohio 44118
Gary Cook
17325 Euclid Avenue, Suite 4004
Cleveland, Ohio 44112
ATTORNEYS FOR APPELLEES
For Woods Cove II, L.L.C., et al.
Tim L. Collins
Joseph Gutkoski
Collins & Scanlon, L.L.P.
3300 Terminal Tower
50 Public Square
Cleveland, Ohio 44113
For Christopher W. Murray
Awatef Assad
Assistant Director of Law
Robin M. Wilson
Chief Trial Counsel
Cuyahoga County Law Department
2079 East 9th Street, 7th Floor
Cleveland, Ohio 44115
MARY J. BOYLE, J.:
{¶1} Plaintiffs-appellants, Eddie Stewart, Leslie Brazil, and Charles Patton
(collectively “Stewart”), appeal from the trial court’s judgment granting
defendants-appellees, Woods Cove II, L.L.C., Woods Cove III, L.L.C. (collectively
“Woods Cove”), and Cuyahoga County Treasurer Christopher Murray’s (“Treasurer”),
motions to dismiss Stewart’s second amended class action complaint for declaratory and
injunctive relief and for damages.
{¶2} For the reasons that follow, we reverse the trial court’s judgment and
remand the matter for further proceedings.
I. Facts and Procedural History
{¶3} Stewart filed his second amended class action complaint for declaratory
judgment, permanent injunction, writ of mandamus, and for damages (“second amended
complaint”) against Woods Cove and the Treasurer.1 His claims concern Ohio’s tax
certificate legislation, R.C. 5721.30 through 5721.46, and specifically, the provisions
that permit the Treasurer to sell tax certificates for real properties to third-party investors
like Woods Cove. Stewart brought his claims on behalf of “all persons in the State of
Ohio whose property tax delinquencies have been certified by [the] Treasurer, and whose
certificates were sold to [Woods Cove] by agreement with the Treasurer.”
{¶4} According to Stewart, from April 20, 2012 through May 10, 2013, and
1
Stewart filed an original complaint and a first amended complaint. Subsequently, with
leave of court, he filed his second amended complaint.
from September 9, 2013 through September 9, 2014, Woods Cove “was the exclusive
purchaser of tax lien certificates from the Treasurer” pursuant to two tax certificate
purchase/sale agreements. Stewart attached a copy of the tax certificate purchase/sale
agreements to his second amended complaint.
{¶5} Stewart claimed that during the stated time period the Treasurer sold tax
lien certificates to Woods Cove for the properties owned by Stewart, Patton, and Brazil.
Stewart attached the applicable tax certificates to his second amended complaint.
Stewart further alleged that the delinquent property tax certificates sold to Woods Cove
pursuant to the tax certificate purchase/sale agreements “were disproportionately
comprised of properties located in communities having significantly higher
concentrations of racial minority populations than Cuyahoga County as a whole.” He
also asserted that Woods Cove entered into agreements with taxpayers for repayment
under the tax lien certificates that resulted in interest rates in excess of the 18 percent
limit imposed by the tax certificate statute.
{¶6} As a result of the Treasurer and Woods Cove’s agreements and their
conduct related to the agreements, Stewart alleged that he was subject to:
(1) tax policy effectively legislated ad hoc by the executive branch of
government and private entities;
(2) the unconstitutional taking of properties for private benefit;
(3) the denial of equal protection of law based upon the Treasurer’s racial
selection of properties being sold to third-party investors like Woods Cove;
(4) the deprivation of due process because the Treasurer delegates the
required notice of redemption rights under the tax certificate statute to
third-party investors like Woods Cove;
(5) unfair, deceptive, and unconscionable practices as a result of the tax
lien certificate purchasers’ negotiations of repayment agreements with
interest and fees in excess of statutory amounts; and
(6) unlawful and discriminatory credit practices because of the
disproportionate effect upon racial minorities.
{¶7} As such, Stewart’s second amended complaint sought a declaratory
judgment that the tax lien statute was unconstitutional pursuant to the Takings Cause,
Article I, Section 19 of the Ohio Constitution and the Fifth Amendment of the United
States Constitution, and the Nondelegation Clause, Article II, Section 1 of the Ohio
Constitution and Article I, Section 1 of the United States Constitution. He also
requested a declaratory judgment that the tax certificate sale/purchase agreements were
unconstitutional pursuant to the Equal Protection Clause, Article I, Section 2 of the Ohio
Constitution, the Due Process Clause, Fourteenth Amendment of the United States
Constitution, and in violation of Ohio’s competitive bidding statute, R.C. 307.86.
Stewart further alleged causes of action under 42 U.S.C. 1983, the Ohio Consumer Sales
Practices Act, the Ohio Civil Rights statute, and the Truth in Lending Act, and he sought
a writ of mandamus compelling the Treasurer to exercise his authority under the tax
certificate statute in compliance with the constitutional and statutory guidelines.
{¶8} In response to the second amended complaint, Woods Cove filed a motion
to dismiss.2 Woods Cove argued that Stewart’s claims should be dismissed because
2
Prior to filing its motion to dismiss, Woods Cove filed a notice of removal to the United
States District Court, Northern District of Ohio. The Treasurer, however, did not consent to the
they failed to present a “real controversy or justiciable issue between the parties.”
Specifically, Woods Cove claimed that Stewart’s challenges to R.C. Chapter 5721 and
the tax certificate sale/purchase agreements were not ripe for review because the
allegations simply stated that Woods Cove “purchased tax certificates regarding their
properties” and failed to allege that Stewart had “actually been deprived of [his]
property.” Woods Cove also argued that the second amended complaint should be
dismissed because Stewart failed to serve a copy upon the attorney general; he failed to
properly allege a violation under 42 U.S.C. 1983; he lacked standing to pursue claims
under the Ohio Consumer Sales Practices Act and Civil Rights Act; the mandamus
action was improperly disguised as a claim for declaratory judgment and injunction; and
he failed to properly allege a claim under the Truth in Lending Act.
{¶9} The Treasurer also filed a motion to dismiss the second amended
complaint, which joined in and incorporated the motion to dismiss filed by Woods Cove.
The Treasurer further argued that Stewart’s claims under the Ohio Constitution failed
because there is no private right of action for such claims, and the trial court lacked
subject matter jurisdiction because Stewart failed to name the attorney general as a party.
{¶10} Stewart filed oppositions to the motions to dismiss, arguing that his claims
presented a justiciable controversy. Stewart claimed that the validity of the forfeiture
provision of the tax certificate statute was ripe for review because when the Treasurer
sold the tax certificates to Woods Cove, a final decision “was reached” with respect to
removal, and the case was remanded to the Cuyahoga County Court of Common Pleas.
the properties. Stewart also argued that the Treasurer’s discretion to “arbitrarily select
from among parcels” to sell and to be subjected to “increased interest and additional
costs and fees * * * is in fact full, entire, complete, and absolute.” And Stewart
asserted that he properly alleged claims for declaratory judgment and violations under 42
U.S.C. 1983 and the Truth in Lending Act; that any procedural defect to serve the
attorney general was curable; and that he had standing to assert claims under the Ohio
Consumer Sales Practices Act and the Ohio Civil Rights Act.
{¶11} After considering the motions to dismiss, the trial court granted Woods
Cove and the Treasurer’s motions to dismiss stating:
Motion to dismiss of Defendant Cuyahoga County Treasurer W.
Christopher Murray II, filed 05/26/2016, is granted. Motion to dismiss of
Defendants Woods Cove II, LLC and Woods Cove III, LLC, filed
05/25/02016, is granted. While plaintiffs are parties who have properties
encumbered by tax certificate liens, they have not lost their properties to
tax certificate forfeiture orders recently. All of these constitutional
arguments raised by plaintiffs can be raised if a foreclosure case is filed
against these plaintiffs. The court agrees with the defendants[’] argument
that the plaintiffs’ claims are premature. Until a tax foreclosure
complaint is filed by a tax certificate holder, like Woods Cove II, III, or IV,
the injury or harm to the property owner’s interests seems speculative and
premature.
{¶12} It is from this judgment that Stewart appeals. He asserts the following
two assignments of error for our review:
1. The trial court erred in granting the motion to dismiss of
defendant-appellee W. Christopher Murray II, Cuyahoga County
Treasurer.
2. The trial court erred in granting the motion to dismiss of
defendants-appellees Woods Cove II, L.L.C. and Woods Cove III,
L.L.C.
II. Law and Analysis
A. Standard of Review
{¶13} Ohio courts apply an abuse of discretion standard when reviewing a trial
court’s dismissal of a declaratory judgment claim as not justiciable. William Powell
Co. v. OneBeacon Ins. Co., 1st Dist. Hamilton No. C-160291, 2016-Ohio-8124, ¶ 47,
citing Arnott v. Arnott, 132 Ohio St.3d 401, 2012-Ohio-3208, 972 N.E.2d 586, ¶ 13.
Otherwise, an appellate court conducts a de novo review of a trial court’s ruling on a
Civ.R. 12(B)(6) motion to dismiss. Perrysburg Twp. v. Rossford, 103 Ohio St.3d 79,
2004-Ohio-4362, 814 N.E.2d 44, ¶ 5.
{¶14} A Civ.R. 12(B)(6) motion to dismiss for failure to state a claim upon which
relief can be granted tests the sufficiency of the complaint. State ex rel. Hanson v.
Guernsey Cty. Bd. of Commrs., 65 Ohio St.3d 545, 548, 605 N.E.2d 378 (1992). In
deciding whether a complaint should be dismissed pursuant to Civ.R. 12(B)(6), the
court’s review is limited to the four corners of the complaint along with any documents
properly attached to or incorporated within the complaint. Glazer v. Chase Home Fin.
L.L.C., 8th Dist. Cuyahoga Nos. 99736 and 99875, 2013-Ohio-5589, ¶ 38. When a
Civ.R. 12(B)(6) motion to dismiss presents matters outside the pleadings, the trial court
may either exclude the extraneous matter from its consideration or treat the motion as
one for summary judgment. Eichenberger v. Woodlands Assisted Living Residence,
L.L.C., 10th Dist. Franklin No. 12AP-987, 2013-Ohio-4057, ¶ 19, citing Powell v. Vorys,
Sater, Seymour & Pease, 131 Ohio App.3d 681, 723 N.E.2d 596 (10th Dist.1998). A
trial court may not, sua sponte, convert a Civ.R. 12(B)(6) motion to dismiss into a
motion for summary judgment and dispose of it without giving notice to the parties of its
intent to do so. Id. To do so constitutes reversible error. Id.{¶15} In ruling on a motion to dismiss, the court accepts as true all the material
factual allegations of the complaint and construes all reasonable inferences to be drawn
from those facts in favor of the nonmoving party. Brown v. Carlton Harley-Davidson,
Inc., 8th Dist. Cuyahoga No. 99761, 2013-Ohio-4047, ¶ 12.
{¶16} To prevail on a Civ.R. 12(B)(6) motion, it must appear beyond doubt that
the plaintiff can prove no set of facts in support of his or her claims that would entitle the
plaintiff to relief. O’Brien v. Univ. Community Tenants Union, Inc., 42 Ohio St.2d 242,
327 N.E.2d 753 (1975), syllabus. If there is “a set of facts, consistent with the
plaintiff’s complaint, which would allow the plaintiff to recover, the court may not grant
a defendant’s motion to dismiss.” High St. Properties, L.L.C. v. Cleveland, 8th Dist.
Cuyahoga No. 101585, 2015-Ohio-1451, ¶ 16, citing York v. Ohio State Hwy. Patrol, 60
Ohio St.3d 143, 573 N.E.2d 1063 (1991). “A court cannot dismiss a complaint under
Civ.R. 12(B)(6) merely because it doubts the plaintiff will prevail.” Bono v.
McCutcheon, 2d Dist. Clark No. 2004CA23, 2005-Ohio-299, ¶ 8, citing v. WLW Jacor
Communications, Inc., 92 Ohio App.3d 232, 234, 634 N.E.2d 697 (1st Dist.1994).
{¶17} Because Ohio remains a notice pleading jurisdiction, this court has stated
that “few complaints fail to meet the liberal [pleading] standards of Rule 8 and become
subject to dismissal,” and that “the motion to dismiss is viewed with disfavor and should
rarely be granted.” Tuleta v. Med. Mut. of Ohio, 8th Dist. Cuyahoga No. 100050,
2014-Ohio-396, ¶ 15, citing Slife v. Kundtz Properties, Inc., 40 Ohio App.2d 179, 182,
318 N.E.2d 557 (8th Dist.1974).
B. Real and justiciable controversy between the parties
{¶18} Stewart’s two assignments of error challenge the trial court’s dismissal of
his second amended complaint. Therefore, we will consider both assignments of error
together.
{¶19} Stewart argues that the trial court improperly determined that his claims
were not ripe for adjudication because foreclosure actions had not been filed. In
support of this argument, Stewart claims that the trial court failed to exclude evidence
outside of the complaint and failed to provide notice to the parties that it was going to
consider such evidence and, thus, the trial court improperly treated the motions to
dismiss as motions for summary judgment. Stewart also argues that the sale of the tax
certificate, and not the initiation of foreclosure actions, gave rise to the adjudicability of
the claims asserted in his second amended complaint.
{¶20} Woods Cove and the Treasurer, however, argue that the trial court properly
granted their motions to dismiss because Stewart’s claims were not ripe for adjudication
because he failed to allege that the properties had been foreclosed upon or forfeited
under the tax certificate. According to Woods Cove and the Treasurer, the mere
allegation that the Treasurer had sold tax certificates for the properties was insufficient
to trigger a real and justiciable controversy. They also argue that the trial court properly
dismissed Stewart’s claims under 42 U.S.C. 1983, the Ohio Consumer Sales Practices
Act, the Ohio Civil Rights Act, the Truth in Lending Act, and for mandamus.
{¶21} The Ohio Supreme Court has interpreted a “justiciable matter” to mean the
existence of an actual controversy, a genuine dispute between adverse parties. State ex
rel. Barclays Bank PLC v. Hamilton Cty. Court of Common Pleas, 74 Ohio St.2d 535,
542, 660 N.E.2d 458 (1996). In order for a justiciable question to exist, the “threat” to
a party’s position “must be actual and genuine and not merely possible or remote.” M6
Motors, Inc. v. Nissan of N. Olmsted, L.L.C., 8th Dist. Cuyahoga No. 100684,
2014-Ohio-2537, ¶ 17, citing Mid-Am. Fire & Cas. Co. v. Heasley, 113 Ohio St.3d 133,
2007-Ohio-1248, 863 N.E.2d 142, ¶ 9.
{¶22} Here, we must review the allegations contained in the second amended
complaint, along with its attachments, to determine whether Stewart alleged a set of facts
that would entitle him to relief.
{¶23} All of Stewart’s claims in his second amended complaint, whether couched
as requests for declaratory judgment, injunction, mandamus, or damages, challenge the
validity of Ohio’s tax certificate statute, the tax certificate sale/purchase agreements, and
Woods Cove and the Treasurer’s conduct related to the sale of the tax certificates. Not
only does Stewart make specific constitutional and statutory challenges to the tax
certificate statute and the tax certificate sale/purchase agreements, but he also claims that
he has been damaged by them. For example, Stewart alleged that property owners, like
Brazil, Patton, and others similarly situated, suffered harm when Woods Cove purchased
the tax certificates from the Treasurer because the property owners were subjected to an
increased interest rate of more than 18 percent if they wanted to redeem their properties.
And, according to Stewart’s second amended complaint, the manner in which the
Treasurer sold the tax certificates to Woods Cove was racially disproportionate.
{¶24} Taking the allegations in the seconded amended complaint as true and
construing all reasonable inferences drawn from those allegations in favor of Stewart as
we are required to do, we find that it does not appear beyond doubt that Stewart can
prove no set of facts entitling him to the relief requested. We cannot say, at this stage
of the litigation, that Stewart’s claims are premature, speculative, or barred by the
ripeness doctrine. We, however, are not commenting on the merits of Stewart’s claims.
Rather, given the liberal pleading standard and disfavoring of motions to dismiss, we
hold that the trial court erred in granting Woods Cove and the Treasurer’s motions to
dismiss the second amended complaint.
{¶25} We further find that the trial court improperly considered factual evidence
not before it when ruling on the motions to dismiss. Specifically, in its judgment, the
trial court stated that “[w]hile plaintiffs are parties who have properties encumbered by
tax certificate liens, they have not lost their properties to tax certificate forfeiture orders
recently.” It then based its determination of the ripeness of Stewart’s claims on the
factual issue of whether foreclosure actions had been brought against the property
owners. Thus, without notice to the parties, the trial court effectively considered
factual issues outside the pleadings and improperly determined that no foreclosure
actions had been brought against the properties, thereby justifying the dismissal of
Stewart’s second amended complaint. We find it reversible error for the trial court to
have considered extraneous factual matters outside the pleadings without notification to
the parties of its intention to do so.
{¶26} Stewart’s first and second assignments of error are sustained.
{¶27} Judgment reversed and remanded to the trial court for further proceedings
consistent with this opinion.
It is ordered that appellants recover from appellees costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court 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.
MARY J. BOYLE, JUDGE
PATRICIA ANN BLACKMON, J., CONCURS;
KATHLEEN ANN KEOUGH, A.J., DISSENTS WITH
SEPARATE OPINION
KATHLEEN ANN KEOUGH, A.J., DISSENTING:
{¶28} Respectfully, I dissent.
{¶29} First, I disagree with the majority’s conclusion that the trial court
considered factual matters outside the pleadings — specifically, that foreclosure actions
had not been filed against appellants — and thereby converted the motions to dismiss
into a summary judgment motion without notifying the parties that it was doing so. It is
apparent that the trial court’s conclusion that no foreclosure had yet been filed against
appellants was based solely upon appellants’ failure to assert in any of their three filed
complaints that foreclosure actions had been filed against them. A review of the record
demonstrates that appellees did not attach any evidentiary materials to their motions to
dismiss; they merely pointed out that appellants’ alleged harm was contingent because
the complaint did not allege any foreclosure, and that the complaint therefore failed to
present a justiciable or real controversy. Appellants’ argument on appeal that the trial
court impermissibly considered evidence outside the pleadings is nothing more than an
attempt to recast their own pleading deficiency as the trial court’s error, an argument the
majority accepts, apparently without reference to the record. Interestingly, it is
appellants who impermissibly sought to supplement the record on appeal by attaching
new materials that were not part of the trial court record to their appellate brief.
{¶30} Second, even assuming, as the majority concludes, that appellants’ claims
were not premature (a conclusion with which I disagree), I would find that the trial court
properly granted appellees’ motions to dismiss because independent, alternative grounds
supported dismissal of their claims. These grounds were argued by the Treasurer and
Woods Cove in their respective motions to dismiss, and in their briefs on appeal.
Appellants do not address any of these issues on appeal, thereby abandoning any
argument against them (the only argument raised by appellants is that their claims were
not premature), and the majority does not address any of these alternative bases for
dismissal in its opinion, even though its conclusion that appellants’ claims were not
premature does not render the other bases for dismissal argued by appellees moot.
Because we may affirm on other grounds than those reached by the trial court, I would
find, as explained below, that the trial court properly granted appellees’ motions to
dismiss. State v. Stedman, 8th Dist. Cuyahoga No. 77334, 2001 Ohio App. LEXIS
4912, *43 (Nov. 1, 2001) (“Affirmance on other grounds is appropriate if those grounds
mandate the same result.”).
{¶31} Appellants’ second amended complaint asserted ten claims:
Count 1 — the tax lien certificate enabling statute violates the Takings
Clauses of the Ohio and United States Constitutions;
Count II — the tax lien certificate enabling statute is unconstitutional as an
impermissible delegation of legislative authority;
Count III — the tax certificate sale/purchase agreements between the
Treasurer and Woods Cove II and Woods Cove III are unconstitutional as
violating the Equal Protections Clauses of the Ohio and United States
Constitutions;
Count IV — the tax certificate sale/purchase agreements between the
Treasurer and Woods Cove are unconstitutional as violative of appellants’
procedural due process rights;
Count V — The tax certificate sale/purchase agreements between the
Treasurer and Woods Cove were not subject to Ohio’s competitive bidding
process;
Count VI — violation of 42 U.S.C. § 1983 by virtue of defendants’
conduct pursuant to R.C. [Chapter] 5721;
Count VII — violation of Ohio’s Consumer Sales Practices Act
(“OCSPA”) (against Woods Cove only);
Count VIII — violation of Ohio’s Civil Rights Statute (“OCRA”) (against
Woods Cove only);
Count IX — Writ of Mandamus (against the Treasurer only);
Count X — violation of the federal Truth in Lending Act (“TILA”)
(against Woods Cove only)
{¶32} Appellants also sought certification of a class pursuant to Civ.R. 23.
Count I — Takings Claim
{¶33} Count I, the alleged violation of the Takings Clause, fails because
appellants failed to adequately plead a takings claim. In Williamson Cty. Regional
Planning Comm. v. Hamilton Bank, 473 U.S. 172, 186, 105 S.Ct. 3108, 87 L.Ed.2d
(1985), the United States Supreme Court held that a claim for a taking of a property
interest is not ripe until the government entity charged with implementing the regulations
has reached a final decision regarding the application of the regulations or statute to the
property at issue. Williamson also held that if a state provides a procedure for seeking
compensation for the alleged taking, the property owner cannot claim a violation of the
Takings Clause until he has used the procedure and been denied compensation. Id.;
State ex rel. Macey v. Byrd, 8th Dist. Cuyahoga No. 103646, 2016-Ohio-4703, ¶ 21.
{¶34} Appellants’ second amended complaint alleged that the Treasurer reaches a
“final decision” when he sells tax certificates representing delinquent and unpaid
property taxes. Appellants did not set forth any factual allegations to assert its legal
conclusion that a sale of delinquent and unpaid property taxes constitutes a final decision
to constitute an unlawful taking, nor do they (or the majority) cite to a single case that
supports this conclusion.
{¶35} Most importantly, however, in their brief in opposition to Woods Cove’s
motion to dismiss, appellants conceded that the Treasurer’s purported “final decision” to
sell the tax certificates is not final at all. Specifically, appellants admitted that after the
Treasurer sells the tax certificate, “absent some independent intervening affirmative act,
such as the election of a property owner to redeem, or the purchase of a foreclosed
property at sheriff’s auction by a third party, the property is subject to the forfeiture
provision of the tax certificate statute.” (Emphasis added.) Because, as appellants
admitted, the property owner can avoid foreclosure at numerous points during the
foreclosure process (e.g., by entering into a payment plan, by paying their delinquent
taxes, by redeeming the property) — any of which appellants concede is an intervening
event that breaks the causal connection between the sale of the tax certificate and the
foreclosure — the Treasurer’s sale of the tax certificates cannot constitute a final
decision for purposes of a takings claim. Moreover, appellants’ assertion that the
Treasurer’s sale of tax certificates is a final decision ignores the plain language of the
statute, which allows the Treasurer to void the sale of a tax certificate for “any reason.”
R.C. 5721.34. Without a “final decision,” appellants failed to adequately plead a
takings claim.
{¶36} Furthermore, appellants make no claim in the complaint that they sought
and were denied compensation under Ohio law for the alleged unlawful taking of their
property — an essential element of a takings claim. In Ohio, a property owner alleging
a physical or regulatory taking must file a mandamus action in state court to compel
public authorities to institute appropriation proceedings. Until the state appropriation
proceedings are complete and the property owner has been denied just compensation,
there is no constitutional injury, and a Takings Clause claim is not ripe. Cornerstone
Developers, Ltd. v. Sugarcreek Twp., S.D. Ohio No. 3:5-cv-93, 2015 U.S. Dist. LEXIS
145798, *10-11 (Oct. 27, 2015). Accordingly, appellants’ takings claim necessarily
fails, and the trial court did not err in dismissing it.
Count II — Impermissible Delegation of Legislative Authority
{¶37} The trial court also properly dismissed Count II of appellants’ second
amended complaint, which alleged that the tax certificate statute impermissibly delegates
legislative authority by virtue of “the plenary power afforded the Treasurer to select
parcels for certificate sales and the discretion afforded the tax lien certificate purchaser
in entering into repayment agreements with taxpayers and in exercising foreclosure
remedies against properties with unpaid delinquencies.”
{¶38} The long-standing rule on the permissible delegation of legislative authority
involves the “distinction between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and conferring an authority or
discretion as to its execution, to be exercised under and in pursuance of the law. The
first cannot be done; to the latter no valid objection can be made.” Peachtree Dev. Co.
v. Paul, 67 Ohio St.2d 345, 353, 423 N.E.2d 1087 (1981).
{¶39} Here, the tax certificate statute establishes a statutory framework within
which the Treasurer is required to perform. Pursuant to the statute, the county auditor is
required to compile a delinquent tax list consisting of all properties on which taxes are
delinquent. R.C. 5721.011. After receipt of the delinquent land list, the Treasurer may
select properties from the list that he may attempt to transfer by sale of tax certificates,
but his discretion to select the properties is expressly limited by the provisions of R.C.
5721.31(A)(1)(a)-(c), which specify which parcels may not be selected for a tax
certificate sale.
{¶40} “Plenary power has a well defined legal meaning and significance. It
means full, entire, complete, absolute.” Madigan v. Dollar Bldg. & Loan Co., 52 Ohio
App. 553, 563, 4 N.E.2d 68 (10th Dist.1935). It is readily apparent that the tax
certificate statute does not confer “plenary power” to the Treasurer to make the law; it
merely confers limited authority as to its execution.
{¶41} In their brief in opposition to appellees’ motions to dismiss, in response to
appellees’ argument that the statute does not give the Treasurer plenary power,
appellants argued that the “assessment of taxes” is a legislative responsibility, and that
their second amended complaint stated a valid claim based upon the tax certificate
statute’s impermissible delegation of “such responsibility” to the Treasurer and Woods
Cove. The Treasurer does not assess taxes, however. Pursuant to his statutory duty
under R.C. Chapters 323 and 5721, the Treasurer is obligated to collect delinquent and
unpaid property taxes. Even appellants recognize that the Treasurer does not assess
taxes; paragraph six of their second amended complaint alleges that “Defendant W.
Christopher Murray II, Cuyahoga County Treasurer is a ‘county official’ as defined by
Chapter 301 et seq. of the Ohio Revised Code and administrator of the office responsible
thereunder for the collection of taxes in Cuyahoga County * * *.” (Emphasis added.)
{¶42} Unsupported legal conclusions are not accepted as true for purposes of a
motion to dismiss and are insufficient to withstand such a motion. Mitchell v. Lawson
Milk Co., 40 Ohio St.3d 190, 193, 532 N.E.2d 753 (1988). “A complaint must be more
than bare assertions of legal conclusions.” Vagas v. Hudson, 9th Dist. Summit No.
24713, 2009-Ohio-6794, ¶ 10. Appellants’ claim that the tax certificate statute
impermissibly delegates legislative authority is a legal conclusion unsupported by the
statute or any other facts. Accordingly, the trial court did not err in dismissing this
claim.
Count III — Equal Protection Clause
{¶43} To state a claim for violation of the Equal Protection Clause, a plaintiff
must allege facts sufficient to show that persons similarly situated suffered unequal
treatment, or that the defendants acted with intent to discriminate against the plaintiff
based on his or her membership in a protected class. Washington v. Davis, 426 U.S.
229, 239-240, 96 S.Ct. 2040, 48 L.Ed.2d 597 (1976);
{¶44} Here, appellants alleged that the tax certificate sale and purchase
agreements between Cuyahoga County (through the Treasurer) and Woods Cove resulted
in a disparate impact on African Americans. However, merely alleging disparate impact
(a legal conclusion) is not enough. “A plaintiff who fails to allege facts at the pleading
stage or produce statistical evidence demonstrating a causal connection [between the
policy or statute and its alleged disparate impact] cannot make out a prima facie case of
disparate impact.” Texas Dept. of Hous. & Community Affairs v. Inclusive Communities
Project, Inc., 576 U.S. ____, 135 S.Ct. 2507, 2523, 192 L.Ed.2d 514 (2015). Even in
Tuleta v. Med. Mut. of Ohio, 8th Dist. Cuyahoga No. 100050, 2014-Ohio-396, the case
cited by the majority for the proposition that motions to dismiss should rarely be granted,
this court recognized that “[a] complaint must allege sufficient underlying facts that
relate to and support the alleged claim, and may not simply state legal conclusions,” and
that a claim must be dismissed where it fails to allege sufficient facts to support the
claim. Id. at ¶ 12, 46, 56.3
{¶45} Here, although appellants’ second amended complaint alleges that the tax
lien certificate “scheme” permitted by statute has a “disproportionate effect upon racial
minorities,” it contains no facts whatsoever to support its claim. Despite two
amendments to their original complaint and the filing of two briefs in opposition to
appellees’ motions to dismiss, appellants failed to cite to the trial court any facts
whatsoever to support their claims of disparate impact. Accordingly, the trial court did
not err in dismissing this claim. See Gordon v. Davenport, N.D.Cal. No. C 08-3341 SI,
3
Indeed, in Tuleta, this court reversed the trial court’s denial of the defendant’s motion to
dismiss, finding that the plaintiff had failed to set forth sufficient operative facts to support any of his
claims. Id. at ¶ 41, 46, 50, 56.
2009 U.S. Dist. 9015, *14-16 (Feb. 9, 2009) (dismissing disparate impact claim because
“[p]laintiff has not alleged that defendants acted with discriminatory purpose in enacting
their rules, nor has he alleged facts sufficient to show that defendants applied the rules to
him in a discriminatory manner”).
Count IV --- Procedural Due Process
{¶46} In order to prevail on a procedural due process claim, a plaintiff must plead
and prove either (1) that he was deprived of property as a result of an established state
procedure that itself violates due process rights, or (2) that the defendants deprived him
of property pursuant to a random and unauthorized act, and that available state remedies
would not be adequate to redress the deprivation of property. Cikraji v. Messerman,
N.D. Ohio No. 1:13CV2059, 2014 U.S. Dist. LEXIS 90589, *22 (June 30, 2014).
{¶47} Appellants’ second amended complaint merely alleged that tax certificates
regarding their properties have been sold. The complaint did not allege that appellants
have actually been deprived of their property, nor did it contest the underlying taxes as
either being paid or not due in the first place. Nor did appellants allege that available
state remedies to redress any perceived wrong are inadequate. Consequently,
appellants did not adequately plead a procedural due process claim, and the trial court
therefore properly dismissed this claim.
Count V — Competitive Bidding Process
{¶48} In their fifth cause of action, appellants sought a declaratory judgment that
the tax certificate sale/purchase agreements are invalid because they were entered into in
violation of R.C. 307.86, Ohio’s competitive bidding statute.
{¶49} Appellants were obviously not bidders on the contracts so as to establish
standing to sue as unsuccessful bidders. Nevertheless, a taxpayer may prosecute an
action to enjoin the execution and performance of a contract on the ground that there was
no competitive bidding, in violation of the law. Wilson Bennett, Inc. v. Greater
Cleveland Regional Transit Auth., 67 Ohio App.3d 812, 818, 588 N.E.2d 920 (8th
Dist.1990). However, a party wishing to bring a taxpayer’s action must first make a
written request to the municipality’s law director to prosecute the action. Id. If the law
director takes no action, the individual taxpayer may bring the action in his own name.
Id.{¶50} Here, appellants’ second amended complaint made no allegation that they
had made a written demand that Cuyahoga County’s law director institute an action
seeking declaratory and injunctive relief regarding the tax certificate sale/purchase
agreements. Accordingly, they failed to establish that they have standing as taxpayers or
otherwise to assert this claim. Bennett at 818 (party had no standing as taxpayers where
they failed to demand that the city’s law director bring suit for declaratory and injunctive
relief regarding lack of competitive bidding on construction project). The trial court
therefore properly dismissed the claim.
Count VI — Violation of 42 U.S.C. 1983
{¶51} Appellants’ Section 1983 claim was premised upon alleged conduct under
Ohio’s tax certificate statute that appellants contended violated the Takings, Equal
Protection, and Due Process Clauses of the Ohio and United States Constitutions.
{¶52} To state a claim under Section 1983, (1) the conduct in controversy must be
committed by a person acting under color of state law, and (2) the conduct must deprive
the plaintiff of rights, privileges, or immunities secured by the laws or Constitution of the
United States. Rhoades v. Cuyahoga Metro. Hous. Auth., 8th Dist. Cuyahoga No.
84439, 2005-Ohio-505, ¶ 16. Thus, appellants’ attempt to base their Section 1983 claim
on violations of the Ohio Constitution was insufficient to state a claim.
{¶53} Appellants conceded in their brief in opposition to Woods Cove’s motion to
dismiss that they cannot state a Section 1983 claim under provisions of Ohio law or the
Ohio Constitution. They argued instead that they had successfully alleged violations of
the United States Constitution so as to avoid dismissal. However, as discussed at length
in this dissent, appellants’ second amended complaint failed to state claims under the
Takings, Due Process, and Equal Protection Clauses of the United States Constitution.
Additionally, the second amended complaint did not allege that Woods Cove was a
“state actor” for Section 1983 purposes. “The mere action by a private party pursuant to
state statute is not enough to make the private party a ‘state actor.’” Cooper v.
Commercial Sav. Bank, S.D. Ohio No. 2:12-cv-0825, 2013-U.S. Dist LEXIS 174071,
*10 (Dec. 12, 2013), citing Lugar v. Edmondson Oil Co., 457 U.S. 922, 937, 102 S.Ct.
2744, 73 L.Ed.2d 482 (1982). Accordingly, the trial court properly dismissed this claim.
Count VII — Consumer Sales Practices Act
{¶54} Appellants’ claim under the OCSPA fails because they did not establish
they have standing to bring such a claim. In their second amended complaint, appellants
claimed to have sustained damages due to allegedly unlawful “repayment contracts”
entered into by Woods Cove and “taxpayers.” Appellants failed to allege that they are
party to any “repayment contract” with Woods Cove, nor did they attach a copy of any
alleged contracts to their complaint, in violation of Civ.R. 10(D). Because they are not
a party to any contract with Woods Cove, appellants cannot demonstrate they sustained
any damages as a result of the repayment contracts, and thus, cannot sustain a claim for
relief.
{¶55} Even more significantly, the OCSPA specifically exempts from its
application “[a]n act or practice required or specifically permitted by or under federal
law, or by or under other sections of the Revised Code.” Here, the repayment contracts
of which appellants complain are specifically permitted by statute. R.C. 5721.38(C)(2);
R.C. 5727.30(F). Accordingly, the OCSPA is not applicable, and the trial court
therefore properly dismissed this claim.
Count VIII — Ohio’s Civil Rights Act
{¶56} Appellants’ OCRA claim is also based on the repayment contracts between
Woods Cove and “taxpayers.” The trial court properly dismissed this claim because not
only did appellants fail to allege that they are parties to any repayment contract with
Woods Cove, they also failed to establish that Woods Cove is a creditor for purposes of
the Act.
{¶57} The OCRA prohibits “creditors” from discriminating “in the granting,
withholding, extending, or renewing of credit, or in the fixing of the rates, terms, or
conditions of any form of credit, on the basis of race.” R.C. 4112.021(B)(1)(a). A
“creditor” for purposes of the Act is one “who regularly extends, renews, or continues
credit.” R.C. 4112.021(A)(2). “Credit” is defined in the OCRA as “the right granted
by a creditor to a person to defer the payment of a debt, to incur debt and defer its
payment, or to purchase property or services and defer payment for the property or
services.” R.C. 4112.021(A)(1). However, “[p]ayment plans with respect to tax
obligations do not involve the granting of a right to defer payment of ‘debts,’ but rather
the granting of a right to defer payment of tax obligations, which are not ‘debts.’”
Pollice v. Natl. Tax Funding, L.P., 225 F.3d 379, 410 (3d Cir. 2000). Simply stated,
there is no personal “debt” incurred or deferred by a property owner who enters into a
redemption payment plan. Accordingly, because Woods Cove is not extending credit to
persons who enter into repayment contracts, it is not a “creditor” for purposes of the
OCRA, and the trial court properly dismissed this claim.
Count IX — Mandamus
{¶58} The trial court also properly dismissed appellants’ mandamus claim. A
writ of mandamus will issue only where the relator has shown (1) that he has a clear
legal right to the relief prayed for, (2) that respondents are under a clear legal duty to
perform the requested act, and (3) that relator has no plain and adequate remedy at law.
State ex rel. Plain Dealer Publishing Co. v. Barnes, 38 Ohio St.3d 165, 167, 527 N.E.2d
807 (1988).
{¶59} If the allegations of a complaint for a writ of mandamus indicate that the
true object sought is for a declaratory judgment and a prohibitory injunction, the
complaint does not state a cause of action in mandamus and must be dismissed. State ex
rel. Grendell v. Davidson, 86 Ohio St.3d 629, 634, 716 N.E.2d 704 (1999). To ascertain
the true intent of the mandamus action, a court must examine the complaint to determine
if it “actually seeks to prevent, rather than compel, official action.” State ex rel.
Cunningham v. Amer Cunningham Co., L.P.A., 94 Ohio St.3d 323, 324, 762 N.E.2d
1012 (2002).
{¶60} Here, appellants sought a declaration that the tax certificate statute was
unconstitutional, and asked the trial court to prevent the Treasurer from acting in
accordance with it. This was not a claim in mandamus; it was a claim for declaratory
judgment and prohibitory injunction disguised as a mandamus claim. See, e.g., State ex
rel. Kuhar v. Medina Cty. Bd. of Elections, 108 Ohio St.3d 515, 2006-Ohio-1079, 844
N.E.2d 1179 (mandamus claim was actually a claim for declaratory judgment and
prohibitory injunction where relator sought a declaration that H.B. 66 was
unconstitutional and an order preventing the elections board from acting consistently
with the statute); State ex rel. Intl. Heat & Frost Insulators & Asbestos Workers Local #3
v. Court of Common Pleas, 8th Dist. Cuyahoga No. 85116, 2006-Ohio-274, ¶ 22
(mandamus claim was actually a claim for declaratory judgment and prohibitory
injunction where relators asked the court to declare Am.Sub.H.B. 292 unconstitutional
and prevent the court from acting in accordance with it). Accordingly, the trial court
properly dismissed this claim.
Count X — Truth in Lending Act
{¶61} Appellants’ TILA claim arises under 15 U.S.C. 1638, which requires
certain disclosures by a “creditor” in connection with a “consumer credit transaction.”
Appellants’ second amended complaint asserted that a “consumer credit transaction” was
created for TILA purposes because Woods Cove purchased tax certificates from the
Treasurer, and entered into repayment contracts with delinquent taxpayers. As with
their claims regarding alleged violations of the OCSPA and OCRA, appellants failed to
allege that they are party to any repayment contract with Woods Cove, nor did they
attach a copy of any alleged repayment contracts to the complaint, in violation of Civ.R.
10(D). Accordingly, appellants failed to establish standing to bring a claim for relief
under TILA.
{¶62} Moreover, case law and the Staff Commentary to the TILA’s implementing
regulations specifically hold that TILA does not apply to tax liens and payment plans
deferring payment of a tax obligation. TILA defines “credit” as “the right granted by a
creditor to a debtor to defer payment of debt or to incur debt and defer its payment.” 15
U.S.C. 1602(e). In Pollice, supra, 225 F.3d 379 (3d Cir. 2000), the Third Circuit
specifically considered whether TILA applied to an entity that, like Woods Cove, had
purchased delinquent claims and liens for unpaid taxes from a municipality. The Third
Circuit Court of Appeals specifically found that “the granting of a right to defer payment
of a tax obligation is not ‘credit’ for purposes of TILA,” and that “payment plans do not
constitute ‘consumer credit transactions’ with respect to the tax obligations.” Id. at 410.
Further, as discussed above, it held that “payment plans with respect to tax obligations
do not involve the granting of a right to defer payment of ‘debts,’ but rather the granting
of a right to defer payment of tax obligations, which are not ‘debts.’” Id. In reaching
this conclusion, the court cited the Staff Commentary to the TILA’s implementing
regulation, which specifically states that tax liens and tax assessments are not considered
credit for TILA purposes. Id. Because the TILA is not applicable in this case, the trial
court properly dismissed this claim.
Class Action Allegations
{¶63} Because, as discussed above, all of appellants’ claims fail, its class action
claim also necessarily fails.
{¶64} Because all of appellants’ claims fail, I would hold that the trial court
properly granted appellees’ motions to dismiss and dismissed appellants’ second
amended complaint, albeit for reasons other than set forth in the journal entry.
Accordingly, I dissent.