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Tuesday, Dec. 15, 2009

American Fiber Systems, Inc. v. William W. Wilkins [Richard A. Levin], Tax Commissioner of Ohio, Case no. 2008-1338
State Board of Tax Appeals, Cuyahoga County

Brian P. Spitznagel et al. v. State Board of Education et al., Case no. 2009-0015
10th District Court of Appeals (Franklin County)

Kimberly Neal-Pettit v. Linda Lahman et al., Case no. 2009-0325
8th District Court of Appeals (Cuyahoga County)

Clayton Adams et al. v. Goodyear Tire and Rubber Co. et al., Case no. 2009-0542
8th District Court of Appeals (Cuyahoga County)


Is State Tax Appeals Board Obliged to Follow Earlier Ruling on Valuation of Same Business Property?

American Fiber Systems, Inc. v. William W. Wilkins [Richard A. Levin], Tax Commissioner of Ohio, Case no. 2008-1338
State Board of Tax Appeals, Cuyahoga County

ISSUE: When the state tax commissioner grants a reduction in the assessed value of a business property for one tax year, and the adjusted valuation is approved in a ruling by the State Board of Tax Appeals (BTA), does the legal doctrine of “collateral estoppel” require the BTA to grant a similar valuation of the same property for the following tax year when there has been no significant change in the property from one year to the next?

BACKGROUND:  American Fiber Systems Inc. (AFS) owns a 41-mile long “loop” of fiber optic cable in Cuyahoga County.  The cable consists of 288 strands of fiber optic material contained within a single conduit that is buried under ground in parts of the county and carried above ground on poles owned by AFS for the remainder of its length.

For the 2003 tax year, the state tax commissioner originally assessed the value of the cable itself at $1,758,000.  AFS asked the commissioner for a reassessment, arguing that because the tax applies only to property “used in a business” and only 36 of the 288 strands contained within its cable (12.5 percent) had ever been “lighted” (i.e., used to transmit communication signals), the company was entitled to an 87.5 percent reduction in the assessed value of the cable to $219,000. The company also sought a similar percentage reduction in the tax valuation of its conduit pipe and the poles supporting the above-ground portions of the loop. The tax commissioner granted the requested reassessment of AFS’s fiber optic cable, but denied reassessment of the company’s conduit, poles and circuit testing equipment.

AFS appealed the unfavorable portion of the commissioner’s ruling to the BTA, which issued an order upholding the 2003 valuation of the company’s property as determined by the commissioner.

AFS subsequently received a new business property tax assessment for the 2004 tax year that listed the value of its cable at $1,231,000. The company again filed for reassessment, seeking the same 87.5 percent reduction that had been granted for the previous year based on the fact that 252 of the 288 strands within its cable remained “dark” or unused.  The tax commissioner denied the requested reduction, finding that AFS was not in the business of providing communication services via its fiber optic circuits but was rather in the business of leasing its circuits to other companies. The commissioner’s final determination held that because AFS was a leasing company and the dark or unused fiber within its cable was in effect the “inventory” that it had available for lease, the unused strands within the cable were therefore fully taxable as property “used in business.” AFS appealed the denial of reassessment to the BTA, which affirmed the commissioner’s decision.

AFS now asks the Supreme Court to overrule the BTA’s ruling and order the commissioner to grant the requested reduction in the tax valuation of its unused circuits for 2004.  They argue that, because the BTA approved the valuation of AFS’s cable at $219,000 for 2003, and the tax commissioner conceded that there was no significant change in the company or in the usage of its cable circuits between 2003 and 2004, the appeals board was obliged by the doctrine of collateral estoppel to follow its earlier ruling and grant a similar reduced valuation of the cable for 2004.

Attorneys for the tax commissioner urge the Court to affirm the BTA ruling denying a reduced assessment of the cable loop for 2004.  They point out that AFS’s appeal to the BTA in 2003 did not ask the board to review the reduced valuation of the company’s unused fiber lines, but only sought an extension of the commissioner’s 87.5 percent reduction in valuation of the cable itself to the company’s conduit, utility poles and circuit testing equipment.  Because the BTA’s 2003 ruling did not address the reduced valuation of the cable itself, they say, collateral estoppel does not apply and the appeals board had no obligation to follow any prior decision in reviewing the commissioner’s higher valuation of the cable for 2004.

Contacts
Todd W. Sleggs, 216.771.8990, for American Fiber Systems Inc.

Barton A. Hubbard, 614.466.5967, for State Tax Commissioner Richard A. Levin.

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Did State School Board Err In Denying Village’s Petition for Transfer to Neighboring School District?

Brian P. Spitznagel et al. v. State Board of Education et al., Case no. 2009-0015
10th District Court of Appeals (Franklin County)

ISSUE: In cases involving petitions for the transfer of property from one public school district to another, did the Supreme Court of Ohio’s 2008 decision in Bartchy v. State Board of Education overrule prior decisions of the 10th District Court of Appeals holding that a loss of tax revenue by the school district that would surrender property, without more, is not a sufficient basis for the state board of education to deny a requested transfer?

BACKGROUND: In this case, more than 80 percent of the property owners in the Cuyahoga County village of Walton Hills, including Brian Spitznagel, signed a petition in 2004 asking the state board of education to approve the transfer of all property within the village from the Bedford City School District (BCSD) to the Cuyahoga Heights Local School District (CHLSD). A 2005 evidentiary hearing before a state board referee resulted in a recommendation that the transfer be denied based on negative economic consequences it would have on the BCSD. In light of significant changes to state school funding laws enacted by the General Assembly in June 2005, the board sent the case back to the referee for a second evidentiary hearing to reconsider the economic impact of the proposed property transfer.

While finding that the BCSD’s loss of tax revenue resulting from the transfer would be less severe under the revised school funding formula, and that the revenue loss could be further mitigated by cost savings and alternative funding options identified by the petitioners, the referee again recommended disapproval of the property transfer because it would still have a negative financial impact on the BCSD. The state board issued a decision denying the transfer in December 2006. The Walton Hills residents exercised their right to appeal that decision to the Franklin County Court of Common Pleas, which upheld the board’s ruling. They then appealed the trial court’s decision to the 10th District Court of Appeals.

On review, the 10th District reversed the denial of the transfer as “not in accordance with law,” citing its own earlier holding in Crowe v. State Board of Education (1999).  In Crowe, the 10th District held that in order to justify denial of a property transfer, the state board of education must not merely determine that a school district losing property would lose some tax revenue, but must make a specific finding that the revenue loss resulting from the requested transfer would damage the educational operations of that district to a degree that outweighs the positive consequences of the proposed transfer for the students affected by it. Because the state board of education did not make specific findings quantifying the impact of the lost tax revenue on the BCSD’s educational operations, or balancing that impact against the positive consequences of the transfer for students residing in Walton Hills, the 10th District held that the board’s denial of the Walton Hills transfer petition was invalid and remanded the case to the board for further proceedings.

On the same day the 10th District issued its decision, however, the Supreme Court of Ohio announced its decision in Bartchy v. State Board of Education, which held in part that the state board had not acted contrary to law when it denied a requested property transfer based primarily on the loss of tax revenue that would be experienced by the school district from which the transfer was sought. The 10th District granted motions by the BCSD and state board to reconsider its original decision in light of the Supreme Court’s holding in Bartchy. The court subsequently entered a new judgment abandoning its earlier reliance on Crowe and upholding the board’s denial of the Walton Hills transfer petition based on Bartchy

The Walton Hills petitioners now ask the Supreme Court to overturn the 10th District’s action, which they say was based on an incorrect application of Bartchy to their case. They point out that Bartchy involved four homeowners who admitted that they sought to transfer their land from one school district to another primarily to improve their property values, and that not one child residing at any of those properties was currently enrolled or planned to enroll in a public school. Under those specific facts, they say, the Bartchy court approved denial of the requested property transfer because it found that the petitioners had not identified any benefit to any student that would result from approval of the transfer, whereas the property-losing school district had made a showing that its students were likely to suffer at least some negative consequence through the loss of tax revenue from the four subject properties.

Unlike the property owners in Bartchy, they say, the petitioners in this case produced evidence that there were approximately 300 school-age children residing in Walton Hills and that a majority of them were already attending public schools in the Cuyahoga Heights district on a tuition-paying basis rather than attending Bedford city schools for free because the Cuyahoga Heights schools had a superior academic rating, were easier to get to from Walton Hills, and had excess classroom capacity and lower student-teacher ratios than the Bedford schools. In light of this evidence and other asserted student benefits that would be advanced by approval of the transfer, they say, the 10th District was right in its original decision holding that a generalized finding by the board of some lost tax revenue by the BCSD, without more, was not a legally sufficient basis for denial of the Walton Hills transfer petition.

Attorneys for the BCSD and state board of education point out that the legislature has given statutory authority to the board to review and decide whether to grant or deny petitions seeking the transfer of property from one school district to another. They note that courts reviewing the board’s decisions  must begin with a presumption that they are lawful, and place the burden of proof on parties challenging the board’s judgments.

In this case, they say, the board through its referee reviewed extensive documentary evidence and hours of hearing testimony, and twice concluded that the negative financial impact of the proposed property transfer on the BCSD outweighed the factors cited by the Walton Hills property owners in favor of granting their petition.  In light of subsequent rulings by the common pleas court and 10th District upholding the board’s decision, they argue, this Court should follow its own holding in Bartchy that a loss of tax revenue is detrimental to the academic operations of a school district, and that the negative impact of such a loss, by itself, may be a sufficient basis on which to deny a transfer of property from a district. They also assert that failure to uphold the state board’s presumptive authority to approve or deny school district transfers, absent a showing of clear legal error, will encourage homeowners across the state to file speculative petitions for transfers to a more prestigious school district, and then force the state to litigate judicial appeals if it denies those petitions.

Contacts
Stephen W. Funk, 330.376.2700, for Brian Spitznagel and other Walton Hills property owners.

D. Lewis Clark Jr., 614.365.2700, for the Bedford City School District.

Benjamin C. Mizer, 614.466.8980, for the State Board of Education.

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Is Jury Award of Attorney Fees Covered by At-Fault Driver’s Auto Insurance Policy?

Kimberly Neal-Pettit v. Linda Lahman et al., Case no. 2009-0325
8th District Court of Appeals (Cuyahoga County)

ISSUE:  When a jury makes awards of punitive damages and attorney fees to the plaintiff in a personal injury lawsuit based on a finding that the driver responsible for her injuries acted “with malice,” is the attorney fee portion of that award covered by the defendant’s auto insurance policy, or is it precluded from coverage by a policy exclusion for “punitive damages, fines or penalties?”

BACKGROUND:  Kimberly Neal-Pettit was injured in a 2003 auto accident that was caused by another driver, Linda Lahman, while Lahman was fleeing the scene of an earlier crash. Lahman was subsequently determined to have been driving while intoxicated at the time of both accidents. Neal-Pettit sued Lahman and her auto insurance company, Allstate, for damages arising from her crash injuries.

A jury awarded Neal-Pettit compensatory damages of $113,800.  Based on a finding that Lahman had acted “with malice” in causing Neal Pettit’s injuries, the jury also awarded her $75,000 in punitive damages and an award of reasonable attorney fees and litigation expenses that the court subsequently set  at a total of $46,800.  Allstate paid Neal-Pettit the full amount of her compensatory damages, but denied any coverage under its policy for either the punitive damages or the attorney fees and litigation expenses awarded by the jury.

Neal-Pettit filed suit against Allstate in the Cuyahoga County Court of Common Pleas seeking payment for the attorney fee/litigation expense portion of the jury verdict.  The trial court granted summary judgment in favor of Neal-Pettit.  On review, the 8th District Court of Appeals affirmed, finding that the language of Lahman’s Allstate auto insurance policy provided coverage for “all damages” arising from bodily injury.  The court held that the attorney fees and litigation expenses awarded by the jury were compensatory in nature and were not precluded from coverage by a policy exclusion for “punitive or exemplary damages, fines or penalties.”

Attorneys for Allstate now ask the Supreme Court to overrule the trial court and 8th District.  They argue that the portions of the jury award covering attorney fees and litigation costs were imposed as punishment for Lahman’s deliberate unlawful acts rather than as compensation for the plaintiff’s bodily injury, and therefore fell under the policy exclusion for “punitive damages, fines or penalties.”  They point to a provision of state law, R.C. 3937.182(B) that specifically prohibits any Ohio insurance policy from indemnifying a defendant for punitive damages, and contend that the trial and appellate court rulings in this case violate the public policy purpose underlying that statute, which is to prevent wrongdoers from escaping the consequences of their deliberate wrongful acts by “insuring them away.”

Attorneys for Neal Pettit say the plain language of Lahman’s Allstate policy provides coverage for all forms of “damages” for which an insured party is found liable except “punitive or exemplary damages, fines or penalties.”  They point to a number of prior court decisions holding that, when a plaintiff is awarded attorney fees as a result of a jury finding that the defendant acted with bad faith or malice, the attorney fees become part of the compensatory damages in the case. They say that Allstate is asking the Court to judicially add words to its policy exclusion by extending it to “attorney fees and litigation expenses,” when no such language appears in the policy. They assert that no Ohio court has ever held that the public policy underlying R.C. 3937.182 prohibits insurance coverage for an award of attorney fees or litigation expenses.

Contacts
Thomas M. Coughlin Jr., 216.241.8333, for Allstate Insurance Company.

W. Craig Bashein, 216.771.3239, for Kimberly Neal-Pettit.

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Does Asbestos Tort Reform Statute Bar Claims for ‘Take-Home’ Exposure of Workers’ Family Members?

Clayton Adams et al. v. Goodyear Tire and Rubber Co. et al., Case no. 2009-0542
8th District Court of Appeals (Cuyahoga County)

ISSUE:  Does R.C. 2307.941 immunize a property owner from civil liability to any individual for asbestos-related illness if that individual’s exposure to asbestos took place anywhere other than on the property owner’s premises?

BACKGROUND: Clayton Adams of Cleveland was exposed to multiple sources of workplace asbestos while he was employed by the Goodyear Tire & Rubber company between 1973 and 1983. During that period Clayton’s wife, Mary Adams, routinely shook asbestos-bearing dust from his work clothes, and inhaled some of that dust, in the course of doing her husband’s laundry. In March 2007, Mary was diagnosed with malignant mesothelioma, a lung disease strongly linked to inhalation of asbestos fibers. She died of the disease four months later.

Clayton Adams and the Administratrix of Mary’s estate, Cheryl Boley, filed a lawsuit against Goodyear in the Cuyahoga County Court of Common Pleas, asserting among other claims that the company had been negligent in exposing its workers’ family members to the risk of asbestos-related illness.

Goodyear moved for summary judgment dismissing Adams’ complaint. They cited R.C. 2307.941(A)(1), a “tort reform” provision enacted by the General Assembly in 2005, which exempts property owners from liability “for any injury to any individual resulting from asbestos exposure unless that individual’s alleged exposure occurred while the individual was at the premises owner’s property.”  The trial court granted summary judgment in favor of Goodyear, ruling that claims based on “second-hand” exposure of workers’ family members to workplace asbestos were explicitly barred by R.C. 2307.941(A)(1). On review, the 8th District Court of Appeals affirmed the trial court’s judgment.

Attorneys for Clayton Adams and his wife’s estate now ask the Supreme Court to reverse the lower court’s rulings and reinstate their claims against Goodyear. They argue that the trial and appellate courts ignored the introductory wording of R.C. 2307.941(A), which specifies that all of the provisions that follow in subsequent sections of that law apply to asbestos claims that are brought against a premises owner “for exposure to asbestos on the premises owner’s property.”  They assert that because Mary was not exposed to asbestos on Goodyear’s property, but rather in her own home, the exemption from liability provided by R.C. 2307.941(A)(1) does not bar her suit against Goodyear. They contend that the tort for which recovery is sought is not a “premises liability” claim, but rather a common law negligence claim based on Goodyear’s failure to prevent a dangerous contaminant from being transported out of its plant and into the homes of its employees.

Attorneys for Goodyear, supported by multiple amicus curiae (friend of the court) briefs submitted by business associations and insurance industry groups, urge the Court to affirm the lower courts’ rulings that the only rational way to read the provisions of the tort reform statute is: 1) as applying to all tort lawsuits that seek damages for exposure to asbestos on the owner’s property; and 2) as exempting a property owner from liability for asbestos-related injury to any individual when that person’s exposure to asbestos occurred somewhere other than on the owner’s premises. 

In this case, they argue, it is uncontested that the asbestos that Mary was exposed to came from Goodyear’s premises, and that her exposure did not occur on Goodyear’s premises. Therefore, they assert, the trial and appellate courts were correct in finding  that the tort reform statute applied to the Adamses’ lawsuit against Goodyear, and that the statutory immunity for off-premises asbestos exposure conferred by R.C. 2307.941(A)(1) applied to Goodyear and was a sound legal basis for granting summary judgment in its favor.

Contacts
Thomas W. Bevan, 330.467.8571, for Clayton Adams and Cheryl Boley, Administratrix of Estate of Mary Adams.

Richard D. Schuster, 614.464.5475, for Goodyear Tire and Rubber 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.