OLENTANGY LOCAL SCHOOLS BOARD OF EDUCATION, APPELLANT, v. DELAWARE COUNTY BOARD OF REVISION ET AL., APPELLEES.
No. 2013-1506
Supreme Court of Ohio
October 28, 2014
2014-Ohio-4723
Submitted July 8, 2014
{46} I respectfully dissent.
Paul W. Flowers Co., L.P.A., and Paul W. Flowers; and Bashein & Bashein Co., L.P.A., and W. Craig Bashein, for appellees Donald and Debra Yeaples.
Timothy J. McGinty, Cuyahoga County Prosecuting Attorney, and Charles E. Hannan, Assistant Prosecuting Attorney, for appellee Steven E. Gall.
Weston Hurd, L.L.P., Shawn W. Maestle, and Carolyn M. Cappel, for appellants.
Tucker Ellis, L.L.P., Benjamin C. Sassé, and Jeffrey C. Sindelar Jr., urging reversal for amicus curiae, Ohio Association of Civil Trial Attorneys.
Per Curiam.
{2} We must now determine whether an auction sale price can ever be regarded as evidence of a property‘s value and, if so, under what circumstances. Following the reasoning of our decision in Cincinnati School Dist. Bd. of Edn. v. Hamilton Cty. Bd. of Revision, 127 Ohio St.3d 63, 2010-Ohio-4907, 936 N.E.2d 489 (“Fenco“), we hold that
{3} In addition, because the record supports the finding of the Board of Tax Appeals (“BTA“) that the auction sale in this case was a voluntary arm‘s-length transaction, we affirm the BTA‘s determination of the tax-year-2009 value of the property at issue.
Facts
1. The property
{4} This case involves the tax-year-2009 value of parcel No. 319-342-01-015-000. The property is located at 10041 Wellington Boulevard in Powell, Ohio, and has been improved by a single-family dwelling.
{5} In October 2007, a division or affiliate of Countrywide Home Loans acquired the property for $450,000 at a sheriff‘s sale pursuant to foreclosure. Countrywide listed the property for sale on the multiplе listing service (“MLS“) on February 18, 2008, for a price of $479,000 and later reduced the price to $448,900. Months later, Countrywide arranged an auction for the property.
{6} An auction was held on November 17, 2008, and David Abraham offered the last and highest bid, $414,750. Countrywide accepted Abraham‘s bid, and closing occurred on December 17, 2008.
2. Valuation and board of revision proceedings
{8} The Delaware County auditor valued the property at $826,100 for tax year 2009.
{9} TаDa filed a complaint with the Delaware County Board of Revision, seeking a decrease to $414,750, in keeping with the property‘s December 2008 sale price. The Board of Education of Olentangy Local Schools filed a counter-complaint, seeking to maintain the auditor‘s initial valuation.
{10} TaDa moved for an order based solely on its complaint, arguing that it had established a recent arm‘s-length sale and that no hearing was necessary. According to TaDa, “[t]he fact that the subject property was purchased through an auction has no effect on its status as an arm‘s-length transaction” because it was not a forced sale. In response, the school board argued that it was entitled to cross-examine TaDa‘s witnesses and inspect its evidence at a hearing.
{11} On August 24, 2010, the board of revision proceeded with a hearing. At the hearing, TaDa presented Abraham‘s testimony about his purchase of the property. Abraham stated that he had no prior relationship with Countrywide or the auctioneer, Williаms & Williams. He had learned about the auction when his wife saw advertisements on the Internet and in the newspaper several weeks before the auction date.
{12} According to Abraham, interested buyers were permitted to inspect the property both before the auction date and on the day of the auction before bidding began. He testified that 75 to 85 people attended the auction in person and that 50 additional people participated online. Several people bid оn the property before Abraham offered the last and highest bid—$414,750. Countrywide, which had retained the right to reject the highest bid, accepted Abraham‘s offer, and closing occurred on December 17, 2008.
{13} The school board did not present any witnesses at the board of revision hearing, but it did cross-examine Abraham. The school board inquired whether Countrywide had acquired the property in a foreclosure sale and whether Abraham had an affiliation with Countrywide. The school board then asked Abraham to submit a copy of the settlement and the property‘s MLS listing.
{14} At the close of the hearing, the board of revision reiterated the request for additional documentation. A week later, TaDa submitted a copy of the property‘s original MLS listing, a copy of the settlement contract between Abraham and Countrywide, and a “Real Estate Purchase Addendum.” The MLS listing indicated that Countrywide had initially listed the property on February 18, 2008, for $479,000 but later reduced the list price to $448,900. It also stated
{15} On September 7, 2010, the board of revision issued a decision reducing the auditor‘s tax-year-2009 valuation to $414,750.
3. BTA proceedings
{16} The school board appealed to the BTA under
{17} In its brief, the school board argued that the board of rеvision had erred by relying on the property‘s 2008 sale price because a foreclosure auction sale is not evidence of value under
{18} In response, TaDa observed that the BTA frequently recognizes auctions as arm‘s-length transactions. TaDa further argued that the circumstances of this auction were unlike those in Fenco, 127 Ohio St.3d 63, 2010-Ohio-4907, 936 N.E.2d 489, in which this court held that the sale price at a foreclosure auction by the U.S. Department of Housing and Urban Development (“HUD“) was not evidence of value.
{19} The BTA affirmed. In its opinion, the BTA distinguished between forced and voluntary auctions, reasoning that a sale price at auction is the best evidence of a property‘s value as long as the sale satisfies the requirements for an arm‘s-length transaction. “[B]ased upon the record” before it, the BTA found that “all elements of an arm‘s-length sale were indeed present” for the 2008 sale. BTA No. 2010-L-2354, 2013 WL 6833204, at *2. The BTA then concluded, “As there is insufficient evidence to indicate that the sale * * * was not an arm‘s-length transaction, we find that the sale price of $414,750 is the best evidence of the true value of the property.” Id.
{20} The school board appealed the BTA‘s decision, raising seven assignments of error and asserting two propositions of law.
Analysis
1. Standard of review
{21} We review BTA decisions only to determine whether they are “reasonable and lawful.”
{22} Here, we must ultimately determine whether the record supports the BTA‘s factual finding that the 2008 auction sale was a voluntary arm‘s-length transaction. In order to resolve that issue, however, we must first resolve two questions of law: (1) whether the price paid for real property at an auction sale can ever be considered as evidence of the property‘s value and (2), if so, which party bears the burden to prove that the auction sale was (or was not) an arm‘s-length transaction between typically motivated parties.
2. Auction sale prices may, under certain circumstances, be regarded as evidence of a property‘s value
{23} In its first proposition of law, the school board argues that
a. R.C. 5713.04 and former R.C. 5713.03 direct the auditor‘s valuation of real property
{24}
{25} To implement former
b. R.C. 5713.04 applies to both voluntary and involuntary auctions
{27} At the outset, we must consider the meaning of “auction” in
{28} In two previous cases, we mentioned the issue but had no need to decide it. Walters v. Knox Cty. Bd. of Revision, 47 Ohio St.3d 23, 546 N.E.2d 932 (1989); Fenco, 127 Ohio St.3d 63, 2010-Ohio-4907, 936 N.E.2d 489.
{29} This case finally presents an opportunity for the court to determine the meaning of “auction” in this context. The Revised Code offers little guidance in this exercise: neither
{30} In the absence of additional statutory guidance, however, we must “look to the usual and ordinary definition of the word.” Brecksville v. Cook, 75 Ohio St.3d 53, 56, 661 N.E.2d 706 (1996); see also
{31} TaDa contends that regardless of how “auction” is defined,
{32} TaDa‘s argument derives from the General Assembly‘s use of different tenses in former
{33} This argument is foreclosed by our decisions (as well as BTA decisions), which have applied
{34} We therefore reject TaDa‘s argument as contrary to precedent;
d. R.C. 5713.04 is not an absolute bar
{35} In light of the above analysis, we must now decide whether
{36} In Fenco, we analyzed the significance of a HUD foreclosure sale under
{37} In short, as interpreted by Fenco,
{38} The standard we applied to foreclosure sales in Fenco also applies to auction sales for two reasons. First,
{39} Furthermore, there is even greater reason to let parties introduce evidence that a sale was voluntary and at arm‘s length in the context of an auction sale than a foreclosure. In the latter situation, a seller is by definition unlikely to be typically motivated—the sale, by definition, is “forced.” By contrast, the circumstances of auctions vary significantly, increasing the likelihood that a particular transaction may satisfy the criteria for an arm‘s-length sale. Accordingly, as thе BTA has repeatedly recognized, in spite of
{40} For these reasons, we reject the school board‘s first proposition of law and hold that
3. The burden to prove that an auction sale is evidence of value falls on the proponent of the sale price
{41} The school board‘s second proposition of law requires us to determine which party bears the burden to prove that an auction sale price is (or is not) the best evidence of a property‘s value. The school board argues that the BTA erred by not requiring the proponent of the sale price, TaDa, to prove that the transaction was voluntary and at arm‘s length. In addition, the school board claims that the record does not support the BTA‘s finding that “all elements of an arm‘s-length sale were indeed present” here. BTA No. 2010-L-2354, 2013 WL 6833204 at *2.
a. The proponent of a sale price bears a heavier burden when the sale occurred at an auction
{42} The purpose of former
{43} By contrast, when the underlying transaction is an auction or a forced sale, the proponent of the sale price bears a heavier burden. As explained above,
{44} The BTA found that the November 2008 auction sale was a voluntary, arm‘s-length transaction. As explained above, we afford great deference to the BTA‘s factual determinations, reversing only if a finding is not supported by reliable and probative record evidencе. Satullo, 111 Ohio St.3d 399, 2006-Ohio-5856, 856 N.E.2d 954, at ¶ 14.
{45} Initially, the school board urges us to reject the BTA‘s factual determination because the BTA erroneously required the school board to prove that the auction sale was not voluntary or at arm‘s length, rather than requiring TaDa to prove that it was. The penultimate paragraph of the BTA‘s opinion explains that the auction sale price was the best evidence of value because “there [was] insufficient evidence that the sale * * * was not an arm‘s-length transaction.” (Emphasis added.) BTA No. 2010-L-2354, 2013 WL 6833204 at *2. This suggеsts that the BTA did improperly require the school board to offer evidence to prove that the auction sale was not an arm‘s-length transaction.
{46} In the sentence immediately preceding this statement, however, the BTA expressly found that “all elements of an arm‘s-length sale were indeed present” in this transaction. Id. Thus, the BTA did not merely presume that the transaction was at arm‘s length because the school board failed to prove otherwise. We will therefore proceed to evaluate whethеr the record supports the BTA‘s factual determination about the nature of this transaction.
{47} Three factors are relevant to deciding whether a transaction occurred at arm‘s length: whether the sale was “voluntary; i.e., without compulsion or duress,” whether the sale “[took] place in an open market,” and whether the buyer and seller “act[ed] in their own self interest.” Walters, 47 Ohio St.3d at 25, 546 N.E.2d 932. Here, the school board says that the record does not indicate that Countrywide acted voluntarily or that it was a typically motivatеd seller.
{48} Countrywide acquired the property for $450,000 in October 2007 “through foreclosure, deed-in-lieu of foreclosure, or similar process.” In February 2008, Countrywide listed the property on the MLS at a price of $479,000. Later, Countrywide reduced the list price to $448,900. In November 2008, Countrywide sold the property at auction. It publicized the auction weeks ahead of time and gave interested bidders an opportunity to inspect the property before the auction date. Approximately 75 to 85 people attеnded the auction in person, and an additional 50 potential bidders participated online. Ultimately, Abraham was the highest bidder. Countrywide had retained the right to reject the highest bid, but it accepted Abraham‘s bid of $417,500.
{49} As we have previously acknowledged, sellers in foreclosure sales are usually not typically motivated or acting voluntarily. Fenco, 127 Ohio St.3d 63,
{50} However, we have also recognized that “a more remote connection between the foreclosure and the sale” may exist in some cases. Id. at ¶ 30. As a result, “[u]nder some circumstances where a bank acquires distressed property, the bank‘s subsequent sale of the property may be considered an arm‘s-length transaction.” Kahoe v. Cuyahoga Cty. Bd. of Revision, 8th Dist. Cuyahoga No. 99188, 2013-Ohio-2097, 2013 WL 2286608, ¶ 15. Accord Columbus City School Dist. Bd. of Edn. v. Franklin Cty. Bd. of Revision, 134 Ohio St.3d 529, 2012-Ohio-5680, 983 N.E.2d 1285, ¶ 31 (upholding the BTA‘s factual determination that a short sale was voluntary even though a short sale “naturally raises the inference of distress and duress“).
{51} The record here suggests a more remote connection between the property‘s foreclosure and TaDa‘s acquisition of the property than existed in Fenco, and it further contains additional indicia that Countrywide—unlike HUD in Fenco—acted voluntarily, as a typically motivated seller. The MLS listing confirms that Countrywide listed the property on the open market for nine months beforе the auction. In addition, Abraham‘s testimony indicates that the auction was publicly advertised for a significant period of time, it was well attended, and there were multiple bidders for the property. The highest bid was 92 percent of the property‘s final MLS list price.3 Countrywide accepted this bid, although it had retained the right to reject it. The presence of these “open-market elements definitely militates in favor of finding a transaction to have been at arm‘s length.” N. Royalton School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 129 Ohio St.3d 172, 2011-Ohio-3092, 950 N.E.2d 955, ¶ 30.
{52} On this record, the BTA could reasonably have concluded that Countrywide acted under duress and was not a typically motivated seller. But the record also contains sufficient evidence to support the BTA‘s contrary conclusion. As a result, we must defer to the BTA‘s finding that this particular auction sale was voluntary and occurred at arm‘s length. See Satullo, 111 Ohio St.3d 399, 2006-Ohio-5856, 856 N.E.2d 954, at ¶ 14.
{53} For the foregoing reasons, we affirm the decision of the BTA.
Decision affirmed.
O‘CONNOR, C.J., and PFEIFER, O‘DONNELL, LANZINGER, KENNEDY, FRENCH, and O‘NEILL, JJ., concur.
Rich & Gillis Law Group, L.L.C., and Mark H. Gillis, for appellant.
Corsaro & Associates Co., L.P.A., and Christian M. Bates, for appellеe TaDa Investments, L.L.C.
Carol O‘Brien, Delaware County Prosecuting Attorney, and Mark W. Fowler, Assistant Prosecuting Attorney, for appellees Delaware County Auditor and Board of Revision.