BEACHLAND ENTERPRISES, INC., ET AL. v. CITY OF CLEVELAND BOARD OF REVIEW, ET AL.
No. 99770
Court of Appeals of Ohio, EIGHTH APPELLATE DISTRICT, COUNTY OF CUYAHOGA
December 19, 2013
2013-Ohio-5585
Civil Appeal from the Cuyahoga County Court of Common Pleas, Case No. CV-779321
JUDGMENT: AFFIRMED IN PART; REVERSED IN PART; REMANDED
BEFORE: Keough, P.J., McCormack, J., and E.T. Gallagher, J.
RELEASED AND JOURNALIZED: December 19, 2013
Barbara Langhenry
Director of Law
Lewis J. Dolezal
Asst. Director of Law
City of Cleveland
601 Lakeside Ave.
Cleveland, Ohio 44114
ATTORNEYS FOR APPELLEES
John W. Monroe
James A. Budzik
Mansour, Gavin, Gerlack & Manos
55 Public Square, Suite 2150
Cleveland, Ohio 44113
{¶1} In June 2011, the city of Cleveland (the “city“), through its commissioner of the city‘s division of assessments and licenses, issued an assessment against Beachland Enterprises, Inc., d.b.a. Beachland Ballroom and Tavern, and its president, Cindy Barber (collectively “Beachland“), for their failure to remit admission taxes from the patrons of the Beachland Ballroom for the period July 2007 through January 2011.
{¶2} Beachland appealed the assessment pursuant to Cleveland Codified Ordinances (“CCO“) 195.16 to the city‘s Board of Review, which affirmed the commissioner‘s assessment. Beachland then filed an administrative appeal of the Board‘s decision pursuant to
{¶3} The city appealed the trial court‘s judgment, and Beachland cross-appealed. We affirm in part, reverse in part, and remand.
I. Background
{¶4} Under CCO Chapter 195, the city levies an 8% tax on the amounts paid for admission to events within the city of Cleveland.1
{¶5} Beachland is a music and concert club and, since 2000, has held events for
{¶6} In 2009, as part of the investigation, auditors from the city‘s division of assessment and licenses conducted field visits to the Beachland Ballroom and verified that Beachland collected an admissions fee for events held there. Subsequently, on July 6, 2010, the commissioner officially engaged Beachland for an audit of the monthly tax reporting period from July 2007 through January 2011. After being informed of the audit, Beachland untimely filed tax returns for the months July 2007 through October 2010, and timely filed a return for November 2010. Subsequently, Beachland untimely filed returns for December 2010 and January 2011. Cindy Barber signed all of the returns on the line requiring the “signature of responsible party.” She listed her title as president of Beachland.
{¶7} Utilizing solely the tax returns submitted by Beachland, in May 2011, auditors for the city‘s division of assessments and licenses issued an examination report that contained findings of admissions tax deficiencies against Beachland. The commissioner adopted the report and issued an assessment in June 2011 against Beachland and Barber, jointly and severally, in the amount of $119,320.08 for unpaid tax liability, $41,601.69 in interest, and $244,016.85 in penalties.
{¶8} Beachland appealed the commissioner‘s assessment to the city‘s Board of Review under
{¶9} At the hearing, counsel for the city presented the commissioner‘s tax file, which included sworn affidavits from the auditors regarding their field visits to Beachland, the tax returns filed by Barber on behalf of Beachland, and correspondence between the city‘s division of assessment and licenses and Beachland dating back to 2000 in which the city advised Beachland of its duty to collect and remit the admissions tax and its tax delinquency, and Barber offered various explanations for Beachland‘s failure to file the required returns and remit the admissions tax. Counsel also presented a copy of the commissioner‘s tax assessment to Beachland, as well as copies of lawsuits filed by the city against other entities for their failure to collect and remit the admissions tax.
{¶10} Beachland did not present any witnesses or evidence at the hearing. It objected to the commissioner‘s assessment, however, on the grounds that (1) the Board‘s hearing was in violation of Ohio‘s Sunshine Law because it was not open to the public; (2) the assessment was not supported by reliable, substantial, and probative evidence because the city‘s entire case consisted of inadmissable hearsay; (3) Beachland was unable to establish its selective enforcement argument given the mandate in
{¶11} The Board rejected Beachland‘s arguments and affirmed the commissioner‘s assessment. It found that (1) the hearing was properly not open to the public because hearings before quasi-judicial bodies are not “meetings” for purposes of Ohio‘s Sunshine Law, and under
{¶12} Beachland appealed the Board‘s decision to the common pleas court pursuant to
{¶13} The trial court also affirmed the assessment of taxes against Beachland Ballroom. With respect to the assessment of interest and penalties, however, the trial court found that the issue was “not ripe” for its review because the Board and commissioner have discretion in “applying monthly penalty and interest assessment” but had not “fully vetted” this issue “in the administrative process.” Accordingly, the trial court remanded the matter “for further hearing and clarification.” Finally, the trial court held that Barber was not personally liable for the assessment and, therefore, reversed the assessment against her.
{¶14} The city appealed, and Beachland cross-appealed.
II. Analysis
A. Standard of Review
{¶15} Common pleas courts and appellate courts apply different standards of review to appeals brought pursuant to
{¶16} An appeal to the court of appeals is more limited in scope. We review on
B. The City‘s Appeal
1. Interest and Penalties
{¶17} Under
{¶18} Dissatisfied with the commissioner‘s ruling that assessed taxes, interest, and penalties, Beachland filed a notice of appeal with the Board of Review. In its notice of appeal, Beachland specifically stated that it was appealing pursuant to
[u]pon recommendation of the Commissioner, the Board of Review may abate penalty, interest or both. Or, upon a written appeal by the taxpayer upon the refusal of the Commissioner to recommend abatement of penalty, interest, or both, the Board may nevertheless abate penalty or interest, or
both, for reasonable cause shown.
{¶19} Although it did not reference
{¶20} In its written decision, the Board found that it was without jurisdiction to abate the interest and penalties due to Beachland‘s non-compliance with CCO Chapter 195. The Board stated:
In this appeal, the Commissioner is not recommending that this Board abate penalty, interest or both, and the Appellants have not appealed from the refusal of the Commissioner to recommend or to decline to recommend abatement of penalty, interest, or both. In fact, the record does not reflect the Commissioner was ever asked by the Appellants to abate the penalty or interest. In light of this fact, this Board is without authority under the code to abate the interest and penalties.
{¶21} The trial court reversed the Board‘s decision on the issue of penalties and interest, however, because it found that Beachland had appealed from the commissioner‘s assessment “in its entirety,” had raised the issue of interest and penalties at the hearing before the Board, and in its notice of appeal to the Board, had asserted that one of the bases for its appeal was that “any and all penalties calculated in the assessed amount is excessive, arbitrary, capricious and unreasonable.” The trial court remanded the issue to the Commissioner for further review and clarification.
{¶23} Contrary to the trial court‘s conclusion, the commissioner does not have “discretion in applying monthly penalty and interest assessment” when he finds unpaid tax.
{¶24} Thus, as in this case, when the commissioner determines that monthly tax returns have not been timely filed and the admissions tax has not been remitted as required, he is required by ordinance to impose certain penalties and interest. However, under
{¶25} In a proceeding under
{¶26} As stated earlier,
[u]pon recommendation of the Commissioner, the Board of Review may abate penalty, interest or both. Or, upon a written appeal by the taxpayer upon the refusal of the Commissioner to recommend abatement of penalty, interest, or both, the Board may nevertheless abate penalty or interest, or both, for reasonable cause shown. The Rules and Regulations may authorize the Commissioner to abate penalty, interest, or both, for reasonable cause shown.
{¶27} Thus, under an abatement proceeding, a party must first petition the commissioner to abate the interest and penalties for reasonable cause and, if the commissioner refuses, the party may appeal such refusal to the Board of Review. If the commissioner recommends abatement, the Board may affirm that recommendation.
{¶28} In this case, as the Board correctly determined, Beachland did not appeal from the commissioner‘s refusal or recommendation to abate the interest and penalties because, in fact, Beachland never petitioned the commissioner under
{¶29} Beachland‘s argument that the Board should have considered the abatement issue at the
{¶30} The city‘s first assignment of error is sustained. The Board properly found that it had no authority to consider the abatement of interest and penalties in Beachland‘s appeal brought pursuant to
2. Personal Liability of Cindy Barber
{¶31} In its second assignment of error, the city argues that the trial court abused its discretion in reversing the Board‘s determination that Barber may be held personally liable for the taxes, interest, and penalties. We agree.
{¶32} In Soltesiz v. Tracy, 75 Ohio St.3d 477, 1996-Ohio-150, 664 N.E.2d 1273, the Supreme Court of Ohio recognized that a corporate employee may be held personally liable for the taxes, penalty, and interest where the statute clearly and unambiguously
[W]hen an employer-corporation fails to either (1) file a tax return or (2) remit the withheld taxes owed, it is liable for the taxes, the penalty and the interest accrued. [When the tax statute] is clear and unambiguous and imposes personal liability upon the responsible employee for the consequences of failing to file the employer‘s tax report or failing to remit the employee withholding tax * * * the responsible employee is personally liable for the taxes, the penalty, and the interest accrued.
{¶33} Although Beachland is correct that generally corporate officers are not personally liable for corporate liability, there are numerous examples of Ohio law that impose such personal liability in the withholding tax context. For example,
{¶34} Here, the admissions tax imposed by CCO Chapter 195 is a withholding tax.
{¶35} Persons responsible for the collection of the tax hold the tax in trust for the city and are required to report and remit such amounts monthly.
I]f any corporation, limited liability company, or business trust required to file returns and to remit tax due to the City under this chapter fails for any reason to make the filing or payment, any of its employees having control or supervision of or charged with the responsibility of filing returns and making payments, or any of its officers, members, managers, or trustees who are responsible for the execution of the corporation‘s, limited liability company‘s or business trust‘s fiscal responsibilities shall be personally liable for the failure.
{¶36} Because the statute clearly and unambiguously imposes personal liability, consistent with Soltez, 75 Ohio St.3d at 479, 1996-Ohio-150, 664 N.E.2d 1273, Barber can be held personally liable for the taxes, interest, and penalties assessed due to Beachland‘s failure to report and remit the admissions tax to the city.2
{¶38} Nevertheless, although we agree that Barber‘s signature on a February 2011 application for a certificate of registration for payment of future admission taxes is not sufficient to establish her personal liability for the 2007 to January 2011 time frame, our review of the record demonstrates that the commissioner presented overwhelming evidence to the Board that Barber was indeed the employee “having control or supervision of or charged with the responsibility of filing returns and making payments” and thus subject to personal liability.
{¶39} Barber signed and attested to each of the 43 returns filed with the commissioner as the “responsible party.” Further, the commissioner‘s investigative file, which the commissioner submitted to the Board, contained correspondence between the
{¶40} Reading this correspondence in conjunction with Barber‘s signature as the “responsible party” on the 43 returns filed with the commissioner unequivocally demonstrates that Barber was indeed the employee responsible for filing returns and making payments on behalf of Beachland. Accordingly, the commissioner was within his authority to assess the amount due and owing against Barber personally and therefore, the trial court abused its discretion in reversing the Board‘s decision that affirmed the commissioner‘s assessment of personal liability.
{¶41} The city‘s second assignment of error is sustained.
C. Beachland‘s Cross-Appeal
1. Public Meeting or Confidential Hearing
{¶42} In its first assignment of error on cross-appeal, Beachland contends that the trial court abused its discretion in determining that the hearing before the Board of Review was not a public meeting under
{¶43} Ohio‘s Sunshine Law, codified at
{¶44} As the Ohio Supreme Court has made clear, a quasi-judicial hearing is not a meeting for purposes of
{¶45} An administrative agency conducts a quasi-judicial proceeding when it settles “a justiciable dispute requiring evaluation and resolution. Implicit in this concept is the exercise of discretion.” Id. The test for determining whether the act by an administrative agency is quasi-judicial is whether the function involves the exercise of discretion and requires notice and hearing, all elements being required to constitute a quasi-judicial act. Id.
{¶46} Here, the Board acted as a quasi-judicial body by adjudicating the dispute between the commissioner and Beachland. The parties received notice and a hearing at which they were given the opportunity to present evidence, and the Board, exercising its discretion, evaluated the evidence and decided the dispute. It could not be clearer that the hearing before the Board was a quasi-judicial proceeding not subject to the
{¶47} Beachland contends that the hearing was not quasi-judicial, however, because the Board has no authority to subpoena witnesses. But the fact that the Board, or any other administrative agency, is not vested with the full complement of judicial authority, including subpoena power, does not demonstrate the proceedings are not quasi-judicial. See, e.g., M.J. Kelley Co. v. Cleveland, 32 Ohio St.2d 150, 290 N.E.2d 562 (1972) (proceedings of administrative officers and agencies are quasi-judicial where there is a requirement of notice, hearing, and the opportunity to introduce evidence through witnesses; no requirement of subpoena power).
{¶48} Furthermore, Beachland‘s assertion that the Board “specifically prohibited [it] from calling witnesses to testify” is incorrect. Although the Board was without power to subpoena witnesses on behalf of Beachland, the transcript of the hearing demonstrates that the Board offered Beachland the opportunity to present witnesses at the hearing but Beachland chose not to put forth any evidence. (Tr. 19.)
{¶49} Next, relying on TBC, 81 Ohio St.3d 58, 1998-Ohio-445, 689 N.E.2d 32, and Ross, 125 Ohio St.3d 438, 2010-Ohio-2167, 928 N.E.2d 1082, Beachland contends that even if the Board can properly deliberate in private to reach its decision, the hearing before the Board should have been public. Neither case supports Beachland‘s argument.
{¶50} TBC involved an appeal of a property valuation to the Board of Tax Appeals (“BTA“). On appeal to the Ohio Supreme Court, the property owner argued that
{¶51} TBC does not support Beachland‘s argument that the Board‘s hearing in this case should have been public because the BTA proceedings were open to the public under Ohio Adm.Code 5717-1-5(D), not under
{¶52} Beachland‘s reliance on Ross is similarly misplaced. In Ross, a county board of elections held a hearing to decide challenges to Ross‘s voter registration. The hearing was open to the public but the board deliberated in private. On appeal to the
{¶53} The Ohio Supreme Court rejected this argument. It found that “even though a public body must open all its meetings to the public, there is a category of gatherings called ‘hearings,’ which do not have to be public.” Id. at ¶ 24. It reiterated that quasi-judicial hearings are not meetings for purposes of
{¶54} The trial court also held that the Board‘s hearing was not a public hearing because
{¶55} Beachland‘s argument fails, however, because the Board is not city council nor a subordinate body of the council. It is an administrative body created under CCO 191.2501 for the express purpose of deciding administrative tax appeals. It has no
{¶56} Because the trial court properly held that the hearing before the Board was a quasi-judicial hearing not subject to
2. Subpoena Power of the Board
{¶57} In its second assignment of error on cross-appeal, Beachland asserts that the trial court erroneously affirmed the Board‘s refusal to issue subpoenas yet hold a private hearing.4 Beachland contends that it was prejudiced by the Board‘s lack of authority to issue subpoenas because it could not adequately present evidence and develop its case. Beachland‘s argument is without merit.
{¶58} Although the Board acts in a quasi-judicial manner, it does not have inherent judicial powers. Green v. W. Reserve Psychiatric Habilitation Ctr., 3 Ohio App.3d 218, 220, 444 N.E.2d 442 (9th Dist.1981), citing State ex rel. Clarke v. Cook, 103 Ohio St. 465, 1345 N.E. 655 (1921). “Administrative powers are only implied when clearly necessary to effect an express power. Such implied power can be no greater than the express power and must be exercised subject to the same express power limitations.” Id.
{¶60} Furthermore, Beachland did not pursue its judicial remedy for the Board‘s inability to issue subpoenas in the common pleas court. Under
the appellant was unable to present evidence by reason of a lack of the power of subpoena by the officer or body appealed from, or the refusal, after request, of that officer or body to afford the appellant opportunity to use the power of subpoena when posssessed by the officer or body.
3. Hearsay Evidence
{¶62} In its third assignment of error, Beachland argues that the trial court abused its discretion in affirming the Board‘s decision in part because the decision was “based solely on hearsay evidence and unsworn testimony,” and not supported by substantial, reliable, and probative evidence. We disagree.
{¶63} As stated by this court in Cleveland v. Posner, 193 Ohio App.3d 211, 2011-Ohio-1370, 951 N.E.2d 476, ¶ 27 (8th Dist.),
[t]he Ohio Supreme Court has held that administrative agencies are not bound by the rules of evidence applied in court. Simon v. Lake Geauga Printing Co., 69 Ohio St.2d 41, 44, 430 N.E.2d 468 (1982). Evidence that is
admissible in administrative hearings is defined as follows: “(1) ‘Reliable’ evidence is dependable; that is, it can be confidently trusted. In order to be reliable, there must be a reasonable probability that the evidence is true. (2) ‘Probative’ evidence is evidence that tends to prove the issue in question; it must be relevant in determining the issue. (3) ‘Substantial’ evidence is evidence with some weight; it must have importance and value.” Our Place, Inc. v. Ohio Liquor Control Comm., 63 Ohio St.3d 570, 571, 589 N.E.2d 1303 (1992). Furthermore, hearsay is admissible in administrative proceedings. Simon, 69 Ohio St.2d at 44.
{¶64} Thus, we reject Beachland‘s argument that the Board could not rely on hearsay evidence. It is a well-settled principle of administrative law that administrative agencies are not bound by the rules of evidence and that hearsay is admissible in administrative proceedings. Shephard v. Ohio Dept. of Job & Family Serv., 166 Ohio App.3d 747, 2006-Ohio-2313, 853 N.E.2d 335, ¶ 22 (8th Dist.). Furthermore, Beachland‘s assertion that the evidence before the Board consisted of “only unsworn testimony” is simply wrong. The city submitted the sworn affidavits of the commissioner certifying a true and exact copy of the assessment document (which included correspondence between the city and Barber, the auditors’ sworn field reports, and the tax returns filed by Barber) and attesting to the gross amount of admissions tax collected from Beachland from 2007-2010, and the sworn affidavit of auditor Mike Ryba certifying a true and exact copy of the tax returns filed by Beachland. And, even if the evidence rules applied, the trial court properly determined that the exceptions to the hearsay ruled outlined in
{¶65} Finally, we reject Beachland‘s assertion that the trial court erred in affirming
{¶66} Beachland‘s third assignment of error is therefore overruled.
D. Conclusion
{¶67} The trial court‘s judgment is affirmed in part and reversed in part. We affirm that part of the trial court‘s judgment that affirmed the Board‘s decision that the Board‘s quasi-judicial proceeding is not subject to Ohio‘s Sunshine Law or the Rules of Evidence. We also affirm that part of the trial court‘s judgment that affirmed the assessment of tax against Beachland Ballroom. We reverse the part of the trial court‘s judgment that reversed the Board‘s imposition of penalties and interest against Beachland and Barber, and reverse the trial court‘s judgment finding that Barber is not personally liable for the tax, penalties, and interest. The matter is remanded for the trial court to
{¶68} Affirmed in part; reversed in part; remanded.
It is ordered that the parties share equally in the 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.
KATHLEEN ANN KEOUGH, PRESIDING JUDGE
EILEEN T. GALLAGHER, J., CONCURS;
TIM McCORMACK, J., DISSENTS. (SEE ATTACHED DISSENTING OPINION).
BEACHLAND ENTERPRISES, INC., ET AL. v. CITY OF CLEVELAND BOARD OF REVIEW, ET AL.
No. 99770
Court of Appeals of Ohio, EIGHTH APPELLATE DISTRICT, COUNTY OF CUYAHOGA
TIM McCORMACK, J., DISSENTING:
{¶69} I respectfully dissent.
{¶70} “That the power to tax is the power to destroy; that the power to destroy may defeat and render useless the power to create.” McCulloch v. Maryland, 17 U.S. 316, 4 L.Ed. 579 (1819).
{¶71} It is perplexing to attempt to understand how America‘s most economically distressed city, a city that has hemorrhaged most of its population and most of its commerce, finds itself locked in a death spiral with one of its few, innovative,
{¶72} We are required by this appeal to merely interpret provisions of a city tax code, not to attempt to make sense of how this conflict, with much larger consequences, came to our doorstep. We can only expect that based on the regional value of Beachland Ballroom, the parties jointly recognize the multi-dimensional value of this unique Cleveland taxpayer; that prudence in resolving this potentially destructive administrative action is adopted from this day forward.
{¶73} While dissenting, I agree in part with my colleagues, the majority, in their disposition of Beachland‘s cross- appeal. I would, though, fully affirm the trial court in reversing the Cleveland Board of Review‘s assertion and action that it is without authority, without power to affect the imposition of interest and penalties in the amount of $285,708.54 on Beachland. I would affirm the trial court in reversing the Board‘s imposition of personal liability as to Beachland‘s president.
{¶74} Pursuant to
{¶75} I agree with the trial court that despite the provisions of
{¶76} I would also affirm the trial court‘s finding regarding Beachland‘s president‘s personal liability. The trial court reasoned that CCO Chapter 195 does not define “Fiscal Officer,” nor does it provide that the Fiscal Officer is the responsible party. All of the documents Ms. Barber signed were in her capacity as the Corporation‘s “President.” Furthermore, the Board found personal liability based on R.C. Chapter 5739 (Ohio Sales Tax). The trial court rejected the Board‘s reasoning because Ms. Barber was not assessed penalties or prosecuted under Section 5739. I agree.
{¶77} For these reasons, I would affirm the judgment of the trial court.