Shaker Hts. ex rel. Cannon v. DeFranco

[Cite as Shaker Hts. ex rel. Cannon v. DeFranco, 2012-Ohio-3965.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 98063
CITY OF SHAKER HEIGHTS, EX REL.
CANNON, ET AL.
PLAINTIFFS-APPELLEES
vs.
SYLVIA DEFRANCO, ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-753323
BEFORE: Stewart, P.J., Cooney, J., and S. Gallagher, J.
RELEASED AND JOURNALIZED: August 30, 2012
ATTORNEYS FOR APPELLANT
Maurice A. Thompson
Christopher B. Burch
1851 Center for Constitutional Law
208 E. State Street
Cleveland, OH 43215
ATTORNEYS FOR APPELLEE THE CITY OF SHAKER HEIGHTS
Stephen L. Byron
Ice Miller, LLP
4230 State Route 306
Suite 240
Willoughby, OH 44094
Margaret A. Cannon
Jonathon W. Groza
Ice Miller, LLP
600 Superior Avenue, East
Suite 1701
Cleveland, OH 44114
William M. Ondrey Gruber
Interim Director of Law
City of Shaker Heights
3400 Lee Road
Shaker Heights, OH 44120
ATTORNEY FOR APPELLEE SPRINGFIELD TOWNSHIP
Laura A. Abrams
The Abrams Law Firm LLC
365 Wood Street
Batavia, OH 45103
ATTORNEYS FOR APPELLEE THE CITY OF LOVELAND
Franklin A. Klaine, Jr.
Joseph J. Braun
Strauss & Troy
The Federal Reserve Building
150 East 4th Street
Cincinnati, OH 45202-4018
ATTORNEY FOR APPELLEE THE CITY OF OAKWOOD
Robert F. Jacques
City of Oakwood Law Department
30 Park Avenue
Dayton, OH 45419
ATTORNEYS FOR APPELLEES ROBERT H. BAKER, IN HIS OFFICIAL
CAPACITY ONLY, AS FISCAL OFFICER FOR THE COUNCIL TO PROTECT
OHIO’S COMMUNITIES AND THE COUNCIL TO PROTECT OHIO’S
COMMUNITIES
L. James Juliano, Jr.
Matthew T. Fitzsimmons, III
Nicola, Gudbranson & Cooper, LLC
Republic Building
25 W. Prospect Avenue
Suite 1400
Cleveland, OH 44115
MELODY J. STEWART, P.J.:
{¶1} The city of Shaker Heights, the city of Loveland, the city of Oakwood, and
Springfield Township (Hamilton County) (collectively referred to as “the governments”),
instituted this declaratory judgment action in response to the demand of taxpayer-appellee
Sylvia DeFranco, seeking a declaration regarding their participation in the Council to
Protect Ohio’s Communities (“CPOC”), a regional council of governments that used
municipal and township funds to hire a lobbying group to advocate against the repeal of
Ohio’s estate tax. DeFranco argued that a local government violates the law by using
taxpayer funds to influence state tax legislation that would affect communities other than
its own, and that it cannot hire a lobbying group to do indirectly that which it cannot do
directly. The court held that the cities and township were acting within their lawful
power to join a regional council of governments for purposes of lobbying the state
government and that they did not abuse their discretion by using taxpayer funds to lobby
state officials for policies that impose or maintain taxes on Ohio residents beyond the
individual borders of their communities.
I
{¶2} The parties stipulated to the facts in cross-motions for summary judgment and
submitted the matter to the court on briefs, seeking a ruling as a matter of law. We
review the court’s legal conclusions with no deference.
{¶3} The evidence showed that the four governments involved derive a significant
amount of their operating revenue from the estate tax imposed by R.C. 5731.02(A). For
example, in 2009, estate tax receipts amounted to nearly ten percent of Shaker Heights’
general revenues; in 2009, estate tax receipts amounted to just over 11 percent of
Loveland’s general revenues. All of the governments asserted that a repeal of the estate
tax would have significant adverse consequences to their operating budgets.1
{¶4} These governments decided to form the CPOC for the stated purpose of
“preserv[ing] our communities by maintaining revenue sources and amounts that support
services and expenditures that benefit citizens of local communities throughout the State
of Ohio.” As stated by the chief administrative officer for Shaker Heights, the “focus of
[CPOC] was to advocate for the preservation of the Ohio Estate Tax or, at least, to
preserve for local governments the same amount of revenue that they received through the
estate tax.”
{¶5} CPOC’s by-laws state that it was established to: (1) act as an ad hoc
organization of communities to advocate for the purposes of CPOC, (2) enter into a
contract with “one or more private individuals, corporations, partnerships or other
organizations for public relations advice, assistance and activity,” (3) enter into a contract
“for lobbying services and activities to foster and advance the purposes of CPOC,” and
R.C. 5731.02(A) was amended in 2011 to make the estate tax effective for “every person
1
dying on or after July 1, 1968 and before January 1, 2013 * * *.” In other words, the estate tax no
longer applies to deaths occurring on or after January 1, 2013.
(4) to take other action or positions that the members might deem to be done in
furtherance of the purpose of the CPOC.
{¶6} The CPOC by-laws provided that each participating member would make a
minimum payment of $5,000 within seven days of joining CPOC. Shaker Heights was
designated as CPOC’s fiscal agent and the Shaker Heights director of finance was
designated as CPOC’s fiscal officer. In their resolutions authorizing the agreement to
join CPOC, both Loveland and Oakwood authorized expenditures of $5,000. Shaker
Heights authorized a total of $150,000 in payment to Burgess & Burgess Strategists, Inc.
and Government Strategies Group, LLC, to provide public relations and lobbying
services, respectively. The contracts were awarded without competitive bidding.
{¶7} DeFranco, a Shaker Heights resident, sent a letter to the Shaker Heights law
director outlining her objections to the city’s participation in CPOC, maintaining that
using city money to fund CPOC constituted a misapplication of funds. She demanded
that the law director institute an action under R.C. 733.56 to enjoin the misapplication of
those funds or the abuse of the city’s corporate powers.
{¶8} The law director filed this declaratory judgment action on behalf of the four
named governments, seeking a determination that a council of governments “includes a
municipality’s authority to engage professional services for lobbying and market
functions that may be performed extraterritorily” and that Shaker Heights was authorized
to enter into a lobbying agreement “without competitive bidding.”
{¶9} DeFranco filed a Civ.R. 12(B)(6) motion to dismiss the complaint on grounds
that the complaint merely sought an advisory opinion and that she was not a proper party
to the action. The court denied the motion to dismiss, finding that DeFranco’s claim that
she was not a proper party was contradicted by DeFranco’s own demand that the law
director of Shaker Heights institute suit under R.C. 733.56 and that the statute specifically
states that “the taxpayer may be named as a party defendant and if so named shall have
the right to assist in presenting all issues of law and fact to the court in order that a full
complete adjudication of the controversy may be had.” DeFranco then filed a
counterclaim for declaratory relief consistent with her demand letter.
{¶10} The governments sought summary judgment on grounds that they were
allowed to join together to form a council of governments to advocate against the repeal
of the estate tax. They argued that the funding they received from estate tax proceeds
entitled them to engage the assistance of professionals to “recommend” to state legislators
that the estate tax not be repealed and that this action encompassed an expenditure
grounded in a “public purpose.” They also argued that the lobbying contracts were
exempt from public contracting laws because they involved “personal services” that they
claimed were routinely exempted from public bidding requirements.
{¶11} DeFranco’s motion for summary judgment conceded that the governments
could validly lobby state officials, but argued that the sole issue before the court was
whether governments could apply public funds toward the cause of imposing taxes on
Ohioans living outside the governmental borders. She argued that a council of
governments could only exercise the powers that the individual governments could
exercise on their own and that the Home Rule Amendment to the Ohio Constitution
limited municipal powers to self-government “within their limits.” She noted that when
a municipal proceeding affects not only the municipality itself but the surrounding
territory beyond its borders, the proceeding is no longer one that falls within the sphere of
local self-government. Lobbying against the repeal of the estate tax, DeFranco argued,
would substantially affect citizens beyond the territorial borders of the governments
because, if successful in their efforts to defeat repeal of the estate tax, it would have the
effect of continuing to impose a tax on eligible citizens throughout the state and not just
in the member governments.
{¶12} The court held that the governments acted within their lawful power to join
a regional council of governments for purposes of lobbying the state government.
Recognizing that the right of self-government meant that individual governments could
not act beyond their territorial boundaries, the court found that “the general laws
recognize the right of local governments to lobby the state government to adopt or repeal
any legislation” and that the ability to join a council of governments enabled the members
of the council to lobby as a collective. (Emphasis sic.) The court also found that
expenditures for lobbying served a public purpose objective as that phrase might, in the
governments’ discretion, be deemed to be a matter affecting the public welfare. The loss
of operating income so obviously affected the governments that they could rationally
view the retention of the estate tax as a matter of public welfare for their citizens.
II
{¶13} DeFranco first argues that the court erred by finding that “municipalities and
townships have authority to lobby.” She maintains that townships in general, and
Springfield Township in particular, have no power to lobby because they are statutory
creations whose power is limited to that which is expressly delegated to them by statute.
She argues that the General Assembly has authorized township lobbying only through the
Ohio Township Association.
{¶14} “Townships are creatures of the law and have only such authority as is
conferred upon them by law.” State ex rel. Schramm v. Ayres, 158 Ohio St. 30, 33, 106
N.E.2d 630 (1952). Local governments “are invested only with limited powers” and can
only engage in transactions that are authorized by statute, so “the authority to act in
financial transactions must be clear and distinctly granted, and, if such authority is of
doubtful import, the doubt is resolved against its exercise in all cases where a financial
obligation is sought to be imposed upon the county.” State ex rel. Locher v. Menning, 95
Ohio St. 97, 99, 115 N.E. 571 (1916).
{¶15} Springfield is a limited home rule township created under R.C. Chapter 504.
R.C. 504.04(A)(1) states that limited home rule townships may, by resolution,
[e]xercise all powers of local self-government within the unincorporated
area of the township, other than powers that are in conflict with general
laws, except that the township shall comply with the requirements and
prohibitions of this chapter * * *.
{¶16} DeFranco argues that Springfield Township lacked any authority to
participate in the CPOC because it was limited to membership in the Ohio Township
Association. She cites R.C. 505.241, which states that a “board of township trustees may
authorize its elected officers to join an association or nonprofit organization formed for
the improvement of township government” as authority for the proposition that townships
must lobby exclusively through the Ohio Township Association.
{¶17} We do not read R.C. 505.241 as limiting township lobbying solely through
the Ohio Township Association. That section states only that a township board of
trustees may authorize its elected officers to join an association formed for the
improvement of township government. It says nothing about the Ohio Township
Association, much less that the Ohio Township Association is the sole body through
which a township may engage in lobbying. In short, R.C. 505.241 does not expressly
limit townships from belonging to an organization other than the Ohio Township
Association.
{¶18} In fact, R.C. 167.01 specifically authorizes townships to join a council of
governments that is not limited solely to townships.
[G]overning bodies of any two or more counties, municipal corporations,
townships, special districts, school districts, or other political subdivisions
may enter into an agreement with each other, or with the governing bodies
of any counties, municipal corporations, townships, special districts, school
districts or other political subdivisions of any other state to the extent that
laws of such other state permit, for establishment of a regional council
consisting of such political subdivisions. (Emphasis added.)
{¶19} Although a council of governments is not specifically authorized to lobby
under R.C. 167.01, that activity is reasonably implied by R.C. 167.03(C), which permits a
council of governments to “perform such other functions and duties as are performed or
capable of performance by the members and necessary or desirable for dealing with
problems of mutual concern.”
{¶20} Governmental subdivisions may engage in the outright advocacy of issues of
importance to them, including lobbying other governmental officials. R.C. 101.70(A)
defines a “person” for purposes of lobbying as, among things, “any county, township,
municipal corporation, school district, or other political subdivision of the state[.]” A
“person” may engage a “legislative agent” to actively advocate on his behalf. R.C.
101.70(E) defines “actively advocate” as “advocate, or oppose the passage, modification,
defeat, or executive approval or veto of any legislation by direct communication with any
member of the general assembly * * *.” Therefore, townships and municipal
corporations are persons who may engage a legislative agent for purposes of opposing the
repeal of the estate tax.
{¶21} It is true that R.C. 101.70 is a definitional provision, but that fact has no
bearing on Springfield’s right to lobby. R.C. 1.47(C) states that “in enacting a statute, it
is presumed that * * * a just and reasonable result is intended.” Moreover, it is a “rule of
statutory construction that a statute should not be interpreted to yield an absurd result.”
Elston v. Howland Local Schools, 113 Ohio St.3d 314, 2007-Ohio-2070, 865 N.E.2d 845,
¶ 25. It would be absurd for the legislature to define a township as a “person” for
purposes of the lobbying statutes if it did not intend to grant a township the authority to
lobby, either on its own or through a legislative agent. To hold otherwise would render
any mention of townships in R.C. Chapter 101 nugatory. There is one “cardinal canon”
of statutory interpretation above all others: “a legislature says in a statute what it means
and means in a statute what it says[.]” Connecticut Natl. Bank v. Germain, 503 U.S. 249,
253-254, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992). Having listed townships as persons
entitled to engage in active advocacy, the legislature plainly intended to grant that power
to them.
{¶22} It follows that, by entering into CPOC, Springfield joined a council of
governments to perform collectively that which it was authorized to perform on its own.
Advocating for the defeat of an effort to repeal the estate tax was a legitimate exercise of
Springfield’s authority as a township, so its membership in CPOC for that same purpose
was likewise authorized.
III
{¶23} DeFranco next argues that regardless of whether Springfield or the three
plaintiff cities were authorized to lobby for the repeal of the estate tax, they had no
authority to spend money on a purpose that would affect those outside each government’s
territorial boundaries. She maintains that municipalities have limited powers of
self-government and may only exercise those powers within their borders. By
advocating for the estate tax, the four governments had the effect of altering the public
policy of municipalities and townships “that would rather not levy that tax.”
{¶24} The “Home Rule Amendment,” Section 3, Article XVIII of the Ohio
Constitution states: “Municipalities shall have authority to exercise all powers of local
self-government and to adopt and enforce within their limits such local police, sanitary
and other similar regulations, as are not in conflict with general laws.”
{¶25} Home rule powers have been defined as “such powers of government as, in
view of their nature and the field of their operation, are local and municipal in character.”
State, ex rel. Toledo v. Lynch, 88 Ohio St. 71, 97, 102 N.E. 670 (1913). In Beachwood
v. Cuyahoga Cty. Bd. of Elections, 167 Ohio St. 369, 371, 148 N.E.2d 921 (1958), the
Ohio Supreme Court stated:
The power of local self-government granted to municipalities by Article
XVIII relates solely to the government and administration of the internal
affairs of the municipality, and, in the absence of statute conferring a
broader power, municipal legislation must be confined to that area. (See
Prudential Co-Operative Realty Co. v. City of Youngstown, 118 Ohio St.,
204, 160 N.E. 695.) Where a proceeding is such that it affects not only the
municipality itself but the surrounding territory beyond its boundaries, such
proceeding is no longer one which falls within the sphere of local
self-government but is one which must be governed by the general law of
the state.
To determine whether legislation falls within the area of local
self-government, the result of such legislation or the result of the
proceedings thereunder must be considered. If the result affects only the
municipality itself, with no extra-territorial effects, the subject is clearly
within the power of local self-government and is a matter for the
determination of the municipality. However, if the result is not so confined
it becomes a matter for the General Assembly.
{¶26} To the extent that CPOC’s advocacy against the repeal of the estate tax had
extraterritorial consequences, those consequences were so ancillary to the exercise of
home rule powers that they did not fall outside the sphere of local self-government.
{¶27} “The Home Rule Amendments do not restrict a city to involvement solely in
its own territory and do not prevent a city from acting in its interest outside the city limits
* * *.” In re Petition for Annexation to the city of Westerville 162.631 Acres in the
township of Blendon, 52 Ohio App.3d 8, 556 N.E.2d 200 (10th Dist.1988). Indeed,
“[t]he existence of adverse extraterritorial effects does not automatically mean an
ordinance is not a matter of self-government.” Lima v. State, 122 Ohio St.3d 155,
2009-Ohio-2597, 909 N.E.2d 616, ¶ 44, citing Cleveland v. Shaker Hts.,30 Ohio St.3d
49, 30 OBR 156, 507 N.E.2d 323 (1987), paragraph two of the syllabus (“adverse
extraterritorial traffic effects on a neighboring municipality are not, standing alone,
enough to overcome the presumption of the validity of a legislative enactment taken
under a municipality’s home rule powers”). Municipal regulations will be invalidated
only when they have “significant” extraterritorial effects. State ex rel. Evans v. Moore,
69 Ohio St.2d 88, 90, 431 N.E.2d 311 (1982). This is because the home rule authority
“confers a high measure of sovereignty upon municipalities[.]” Cleveland v. Shaker Hts.,
30 Ohio St.3d at 51. Legislation enacted under the home rule powers will be invalid only
when it is a matter of “statewide” concern; that is, a matter requiring state uniformity.
{¶28} The authorization to lobby carries with it the ancillary effect that some
living outside of the municipality might be adversely affected by the lobbying. This is a
necessary and foreseeable consequence of the statutory authority to advocate and lobby
the General Assembly under R.C. 101.70(E). The General Assembly must have
understood that a municipality’s advocacy on an issue would have an effect of some kind
on those taking the opposite side of the issue. Indeed, it would have been pointless for
the legislature to authorize governments to advocate and lobby on matters of concern to
them, yet limit such advocacy to the extent that it conflicted with contrary positions held
by those outside a government’s borders.
{¶29} Suppose that two municipalities lobby the General Assembly for placement
of a state office within their respective borders: DeFranco’s argument, if taken to its
logical conclusion, would bar the use of public funds to lobby for this purpose because
the placement of the state office in one municipality would necessarily be to the detriment
of the other municipality. Yet there is no authority for the proposition that a municipality
cannot use public funds to lobby for this purpose. Indeed, lobbying of this kind is
generally accepted because it involves the internal affairs of each municipality. See
State ex rel. McClure v. Hagerman, 155 Ohio St. 320, 324, 98 N.E.2d 835 (1951),
quoting 38 American Jurisprudence, Municipal Corp., Section 395 (“It is well settled that
if the primary object of an expenditure of municipal funds is to subserve a public purpose,
the expenditure is legal although it may also involve as an incident an expenditure which,
standing alone, would not be lawful.”) That the resolution of an issue might have some
extraterritorial effect does not mean that the lobbying did not serve a primarily internal
purpose. CPOC acted from a self-interested perspective by advocating against the repeal
of the estate tax, so to the extent its goals conflicted with those outside its members
borders, any extraterritorial effect was purely ancillary.
{¶30} The court correctly recognized the ancillary nature of CPOC’s advocacy by
distinguishing Beachwood. Beachwood involved a proceeding seeking detachment of a
portion of a village into a township. The supreme court found that the result of a
detachment proceeding was a “change not only in the boundaries of a municipality but
also in the boundaries of another political subdivision of the state.” Beachwood, 167
Ohio St. at 371. Detaching a portion of one government into another thus had a direct
effect on neighboring communities, as opposed to the ancillary effects resulting from
lobbying against the repeal of a law.
{¶31} We likewise find DeFranco’s reliance on Cleveland v. Artl, 62 Ohio App.
210, 23 N.E.2d 525 (8th Dist.1939) to be misplaced. In Artl, we expressed concerns over
the city’s use of public funds to compensate councilmen for expenses incurred on trips to
the state capitol “for the purpose of advising and urging the Governor and members of the
Legislature of impending relief crises and the urgency of enactment of relief legislation.”
Id. at 212. We found that this was not a proper use of public money, stating that
“[c]ouncilmen could become lobbyists as well as legislators and remunerate themselves in
their dual capacity. We know of no such power or authority in constitutional or charter
provision.” Id. at 213. The evidence in this case shows that no elected officials sought
compensation for lobbying and, in fact, delegated that task to registered lobbyists. In
any event, Artl predated the enactment of R.C. 167.01 by 28 years, so it is no longer
precedent for the proposition that municipalities may not actively advocate to the General
Assembly.
{¶32} CPOC’s lobbying efforts were primarily intended to preserve estate tax
revenue. Whether this was a wise use of municipal and township funds is not for us to
question. We hold that the CPOC members could use public money to fund lobbying
efforts that had a primary purpose germane to the individual CPOC members, even
though that same lobbying might have some extraterritorial ancillary effect.
{¶33} Judgment affirmed.
It is ordered that appellees recover of appellants their costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the Cuyahoga
County Court of Common Pleas to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
MELODY J. STEWART, PRESIDING JUDGE
COLLEEN CONWAY COONEY, J., and
SEAN C. GALLAGHER, J., CONCUR