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Wednesday, Nov. 18, 2009

HIN, LLC v. Cuyahoga County Board of Revision, Cuyahoga County Auditor, and Bedford Board of Education, Case no. 2008-2408
State Board of Tax Appeals

National Solid Wastes Management Association v. Stark-Tuscarawas-Wayne Joint Solid Waste Managment [sic] District, Case no. 2009-0211
5th District Court of Appeals (Stark County)

Doug Bergman et al. v. Monarch Construction Co. et al., Case nos. 2009-0558 and 2009-0649
12th District Court of Appeals (Butler County)

School District Seeks Increase in Valuation of Property Based on Signing of Lease Before Tax Lien Date

HIN, LLC v. Cuyahoga County Board of Revision, Cuyahoga County Auditor, and Bedford Board of Education, Case no. 2008-2408
State Board of Tax Appeals

ISSUE:  When a parcel of commercial property was sold twice in rapid succession, with the first sale occurring  shortly before and the second sale occurring shortly after the tax lien date for a calendar year, and the second sale price was significantly higher than the first because of a long-term lease agreement that was executed by the initial buyer and a tenant prior to the tax lien date, does a county board of revision err in valuing the property for the tax year in question based on the second, higher sale price, even though that sale did not take place until after the tax lien date?

BACKGROUND:  This case involves a dispute over the tax valuation for calendar year 2004 of a 34-acre parcel of land and 75,000 square foot office building on that land, which is located in the Cuyahoga County community of Bedford and the Bedford School District. In December 2003, the land and building were purchased from a previous owner by JBK Properties for $4.9 million. Prior to Jan. 1, 2004, the tax lien date for the upcoming year, JBK executed a 15-year lease agreement with U.S. Bank for full occupancy of the office building. In April 2004, JBK sold the property, including its ownership interest in the lease agreement, to another company, HIC, for $7.4 million. 

In assessing the property for the 2004 tax year, the Cuyahoga County Auditor estimated its taxable market value at $7,848,400. HIC appealed that valuation to the Cuyahoga County Board of Tax Revision, seeking a reduction of the auditor’s valuation to $5 million. The Bedford School District filed a counter-complaint urging affirmance of the auditor’s valuation. The board of revision upheld the auditor’s valuation of the property. HIC then exercised its right to appeal the board of revision’s ruling to the State Board of Tax Appeals (BTA). The BTA reversed the board of revision, and ruled that the true value of the property on Jan. 1, 2004 was determined by the price paid for it in the most recent sale prior to that date, which was the December 2003 transaction in which it was purchased by JBK Properties for $4.9 million. Accordingly, the BTA assigned a 2004 tax valuation of $4.9 million.

The school district has exercised its right to appeal the BTA’s ruling to the Supreme Court.

Attorneys for the school district and county argue that the BTA erred by determining the true value of the property on the tax lien date of Jan. 1, 2004 based only on the dates on which the deeds recording the two sales of the property were filed. They point out that JBK made no physical changes or improvements in the land or building  between its December 2003 purchase and April 2004 resale of the property, and assert that the dramatic increase in  the market value of the property between those dates was completely attributable to the execution of the lease agreement by U.S. Bank, which guaranteed long-term occupancy of the office building by a stable and reliable tenant.  Because the increase in value was based on the lease agreement, and that agreement was executed prior to Jan. 1, 2004, they urge the Court to overrule the BTA and hold that the true value of the property on the tax lien date was the $7.4 million HIC paid for it shortly thereafter with the lease in place.

Attorneys for HIC urge the Court to affirm the BTA’s ruling, which they say followed the statutory requirement that an owner’s tax liability for a given year is based on a property’s value as of the tax lien date for that year.  They point to prior cases in which the Court has ruled that,when there has been a recent arm’s-length sale of a parcel of property between a willing buyer and seller, the preferred method of valuing that property for an ensuing tax year is to adopt the sale price closest to the tax lien date as the presumed true value.  In this case, they say, the property at issue was sold just a few days before the 2004  lien date for $4.9 million, and the BTA properly relied on that sale price as its true value as of Jan. 1, 2004.

Contacts
Thomas A. Kondzer, 440.835.1200, for the Bedford School District Board of Education.

Timothy J. Kollin, 216.443.7795, for the Cuyahoga County Auditor and Board of Revision.

Jay Siegel, 216.763.1004, for HIC, LLC.

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Is Ohio EPA Director ‘Indispensable Party’ Who Must Be Joined in Suit Challenging Solid Waste District’s Rules?

National Solid Wastes Management Association v. Stark-Tuscarawas-Wayne Joint Solid Waste Managment [sic] District, Case no. 2009-0211
5th District Court of Appeals (Stark County)

ISSUE: Did the court of appeals err in ordering dismissal of a lawsuit that challenged the validity of administrative rules adopted by a local solid waste management district on the basis that that plaintiff’s complaint failed to join the director of the Ohio Environmental Protection Agency (OEPA), as an “indispensable party” whose participation was necessary to resolve the legal issues in dispute?

BACKGROUND:  This case involves a dispute between the owners of three private landfills located in Stark and Tuscarawas counties and the local Solid Waste Management District jointly serving Stark, Tuscarawas and Wayne counties, referred to as the STW District. The landfill operators are represented in the case by a national trade association of which they are members, the National Solid Wastes Management Association, referred to as the association.

In 1988, the General Assembly enacted legislation that: 1) granted the Ohio Environmental Protection Agency (OEPA) exclusive authority to adopt uniform statewide regulations governing the technical aspects of designing, constructing and operating landfills for the disposal of solid waste; and 2) required each of the state’s 88 counties to either establish its own local waste disposal management district or collaborate with adjacent counties in establishing a joint management district. Local management districts, led by the county commissioners of the county or counties served by the district, were required  to develop and periodically update a long-range plan that: 1) projected future waste disposal needs for the local service area, 2) identified current resources available to meet those projected needs; and 3) set forth strategies for securing whatever additional capacity would be necessary to meet the district’s projected future needs.  District plans were also required to identify opportunities to make the most efficient use of local landfill resources by reducing and/or recycling waste.

Management districts were given limited authority to develop and enforce local rules necessary to implement their respective waste management plans. They were specifically authorized to adopt rules reserving local landfill space for in-district waste only if their plan showed that action was necessary to meet projected needs.  The 1988 legislation specified that if any local waste management district failed to submit timely updates of its initial management plan that met OEPA standards, the director of OEPA had authority to develop and impose an amended plan for that district.

The STW District filed its original plan in 1993. In 1999 and 2003 the district filed plan updates that were disapproved by the OEPA.  The district did not submit alternative plans in either instance. In June 2004, OEPA notified the STW District that it was initiating the process of preparing an amended waste management plan for the district.  The district subsequently engaged in negotiations with the OEPA in which it sought to develop its own updated plan and to issue amended local rules consistent with that plan rather than have an amended plan adopted by OEPA. The district and OEPA ultimately entered into a Memorandum of Understanding (MOU) in which the parties agreed that the STW District would develop and adopt new local rules prior to the date on which an alternative management plan for the district, then being developed by OEPA, was formally adopted.

In November 2006, the district adopted several new local rules including a “recycling” rule specifying that, after Jan. 1, 2008,  landfills within the STW District no longer would be permitted to accept waste from outside the district unless the district in which that waste originated met or exceeded the

STW District’s recycling rate (i.e. the percentage of total waste that is disposed of through recycling rather than dumped in a landfill.) The amended waste management plan for the STW district that had been developed by OEPA was adopted on Dec. 22, 2006.

In 2007, acting on behalf of its member landfill operators, the National Solid Wastes Management Association filed suit in the Stark County Court of Common Pleas seeking a declaratory judgment that the recycling rule adopted by the STW District in November 2006 had ceased to be valid or enforceable following the December 2006 adoption of an amended solid waste management plan for that district by OEPA. In December 2007 the trial court ruled that the new rules were valid and enforceable, but held that it would be impossible for the affected landfills to implement the recycling rule on Jan.1, 2008, and so ordered a delay in the effective date of that rule until July 1, 2008.

The association appealed the trial court’s decision.  On review, the 5th District Court of Appeals did not reach the merits of the trial court’s ruling because it found that, because the current waste management plan in place for the STW District was the alternative plan developed by OEPA, the director of OEPA was an “indispensable party” to any lawsuit seeking to bar enforcement of the district’s local rules.  Because the association’s complaint had not joined the OEPA director as a party in the case, and his participation was essential to the resolution of the legal issues in dispute, the court of appeals ruled that the trial court had acted without jurisdiction in hearing the case, and remanded it to the common pleas court with instructions to dismiss the plaintiff’s complaint as defective.

The association sought and was granted Supreme Court review of the 5th District’s ruling. Attorneys for the association and landfill operators argue that the court of appeals erred in holding that the OEPA director was an essential party who must be joined in their suit challenging the STW District’s local rules. They assert that the language of the applicable state law, R.C. 343.01(G), grants authority to adopt and enforce  local rules only to local solid waste management districts, and then only where a provision in that district’s current management plan explicitly asserts rulemaking authority. In this case, they say, the amended plan for the STW District that was adopted by the OEPA contains no language authorizing local rulemaking, and the authority of the OEPA director to implement and enforce rules is limited to statewide technical issues involving the siting, construction and safe operation of landfills, not enforcement of local rules dealing with the preservation of a specific district’s waste disposal resources. Thus, they contend, their complaint was not defective by failing to join the OEPA director as a necessary party to the declaratory judgment action, and their appeal of the trial court’s judgment should be reinstated.

Attorneys for the STW District agree that the OEPA director was not an essential party that had to be joined in order for the trial court to have jurisdiction over the association’s declaratory judgment action. They argue that there is nothing in the statute authorizing local management districts to adopt local rules that bars continuing enforcement of those rules simply because an amended district plan has been adopted. They also assert that the contractual powers of the OEPA director include authority to enter into a memorandum of understanding with a local waste management district authorizing that district to enact and enforce local rules even after the district’s previous management plan has been supplanted by a modified plan developed by the OEPA.

Contacts
Terrence M. Fay, 614.464.1211, for National Solid Wastes Management Association.

Thomas W. Connors, 330.456.8341, for Stark-Tuscarawas-Wayne Joint Solid Waste Mgt. District.

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May Court Reduce Prevailing Wage Award Against Contractor Based on Public Agency’s Mistake?

Doug Bergman et al. v. Monarch Construction Co. et al., Case nos. 2009-0558 and 2009-0649
12th District Court of Appeals (Butler County)

ISSUES:

BACKGROUND:  Ohio’s prevailing wage law, set forth in Ohio Revised Code Sections 4115.03 through 4115.16, generally requires that workers employed in the construction of government buildings and other public improvement projects must be paid according to a wage scale that approximates the hourly rates received by union workers doing similar work in that area of the state. If workers on a project subject to the prevailing wage law later believe that they were underpaid, they may file a complaint with the Ohio Department of Commerce, which is obliged to investigate and, if the complaint is found valid, recover the underpaid wages from the responsible contractors on behalf of the workers. The law also provides that, as an alternative to pursuing collection through the commerce department, underpaid workers may file a private lawsuit against the contractor.

This case involves a private lawsuit pursued by Doug Berman and other masonry workers employed on a prevailing wage construction project at Miami University. The university contracted with Monarch Construction Company, a general contractor, for the necessary trades work. Monarch subcontracted masonry work on the project to Don Salyers Masonry, which employed the workers involved in the case. After the job was completed, Salyers’ employees filed a complaint with the commerce department alleging that they had not been paid at the prevailing wage. The department sent multiple inquiries to Salyers seeking copies of its payroll records. Salyers, which had gone out of business, never replied.

After reviewing the workers’ complaint through the documentation then available, the department sent a notification to Monarch as the general contractor responsible for its subcontractors’ compliance with prevailing wage laws, that the department had made a preliminary determination that Salyers’ workers had been underpaid by $368,000.  The notice, which was Monarch’s first notification that a complaint had been filed, also informed Monarch that it was subject to statutory penalties equal to the total amount of underpayment, with 25 percent of the penalties going to the workers and 75 percent going to the commerce department to fund prevailing wage enforcement activities.  

Monarch submitted documentation of fringe benefits that had been paid to the Salyers workers. The department adjusted its records to reflect those payments and issued an adjusted determination setting the amount of underpaid wages at approximately $171,000. Fifty-two of the affected Salyers employees pursued recovery of their claims administratively through the commerce department, which entered into a settlement with Monarch and disbursed the proceeds of the settlement to those workers. In negotiating the settlement agreement, the department waived the penalty assessments. The remaining 34 workers filed suit in the Butler County Court of Common Pleas, seeking $225,000 in back wages, an award of their attorney fees and court costs, and  penalties of $56,000 (25 percent of their claimed underpaid wages) on their own behalf and $168,000 (75 percent of the claimed underpayment) on behalf of the commerce department.

Following a bench trial, the court ruled that the 34 workers who filed suit were entitled to recover approximately $98,000 in underpaid wages.  After determining that 10 percent of that underpayment was based on Miami University’s failure to notify Salyers or Monarch about a change in the prevailing wage, the court  then reduced the amount recoverable by the plaintiffs from Monarch to $88,013. The court declined to impose the 25 percent penalty set forth in R.C. 4115.10(A), holding that the statutory language gave courts discretion to impose or waive that sanction and ruling that it would be unjust to impose the penalty on Monarch in this case because it was Salyers, not Monarch, that had been guilty of the underpayments.  Twenty-seven of the 34 plaintiffs accepted the amounts awarded by the trial court.  Seven appealed the trial court’s decision.  On review, the 12th District Court of Appeals affirmed the trial court’s offset of Monarch’s damages to reflect Miami’s partial liability for the underpayments, and upheld the lower court’s ruling that  the 25 percent penalty provided in R.C. 4115.10(A) is discretionary rather than mandatory.

Bergman and the remaining  plaintiffs now ask the Supreme Court to reverse the trial and appellate court rulings. With regard to the reduction of their award from Monarch based on Miami’s failure to notify the contractor of a change in the prevailing wage, they contend that the prevailing wage statute entitles workers to recover the full amount of underpaid wages from their employer, and makes no provision for workers to sue the state or its political subdivisions for prevailing wage violations. They argue that the provision assessing liability against a public agency based on its failure of notification can only be practically enforced by requiring contractors to compensate their workers for the full amount of all underpayments, attorney fees and penalties, and then allowing the contractor to sue the public agency to recover whatever portion of its outlays is found to have resulted from the agency’s error.

With regard to the 25 percent penalty, the workers contend that the language of R.C. 4115.10(A) requires that when a court finds that an employer has committed prevailing wage violations, in addition to awarding back pay it must also impose a 25 percent penalty payable to the underpaid workers except in cases where the court makes a specific finding that the underpayment resulted from either  1) misinterpretation of the statute or 2) a payroll error.  In this case, they say, neither the trial court nor the court of appeals found that either of the statutory exceptions applied, and therefore they erred by holding that the plaintiffs were not entitled by law not only to full reimbursement of their underpaid wages, but also to an additional award against Monarch of 25 percent of the total underpayments.

Attorneys for Monarch respond that R.C. 4115.05 imposes direct liability on a government agency for underpayments to workers that are caused by the  agency’s failure to inform contractors of the correct prevailing wage for each category of workers on that project. They point out that the plaintiffs in this case originally joined Miami University as a defendant, but later dismissed those claims, and cannot now argue that they have been prevented from recovering the portion of underpaid wages they could and should have pursued from Miami. They also argue that R.C. 4115.10(A) does not make assessment of the 25 percent penalty against employers mandatory, because it uses the word “may” rather than “shall” in the sentence authorizing the imposition of that penalty.

NOTE:  Amicus curiae (friend of the court”) briefs supporting the position of the plaintiff workers in this case have been filed by the Ohio attorney general’s office and groups representing  building trade unions. Amicus briefs supporting the position of Monarch have been filed by two Ohio trade associations representing building contractors.

Contacts
Joseph M. D’Angelo, 419.224.8989, for Doug Bergman and other plaintiff workers.

Gregory P. Rogers, 513.381.2838, for Monarch Construction Company.

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These informal previews are prepared by the Supreme Court's Office of Public Information to provide the news media and other interested persons with a brief overview of the legal issues and arguments advanced by the parties in upcoming cases scheduled for oral argument. The previews are not part of the case record, and are not considered by the Court during its deliberations.

Parties interested in receiving additional information are encouraged to review the case file available in the Supreme Court Clerk's Office (614.387.9530), or to contact counsel of record.