Sun Bldg. Ltd. Partnership v. Value Learning & Teaching Academy, Inc.Sun Bldg. Ltd. Partnership v. Value Learning & Teaching Academy, Inc.
Michael DeWine, Ohio Attorney General, and Todd R. Marti, Assistant Attorney General, for Intervenors-Plaintiffs-Appellees the Ohio Attorney General and the Ohio Department of Education,
McCaslin, Imbus & McCaslin, Ian R. Smith and R. Gary Winters, for Defendants-Appellees Valerie Watson, Lawrence Jones, Candace Green, Daniel Cummins, Brad Moeller, Gail White, Kelly M. Johnson, Robert L. Montgomery, Judy McConnell, and Larry Lash, and Defendant-Appellee-Cross-Appellant VLT Academy,
Bruns, Connell, Vollmar & Armstrong, LLC, and Thomas B. Bruns, for Defendants-Appellees Valerie Lee and Clyde Lee,
Brown Law Firm LLC and Phyllis E. Brown, for Defendants-Appellees Educational Resource Consultants of Ohio, Inc., and J. Leonard Harding.
{¶1} These appeals arise from the closure of an insolvent community school. The closure and insolvency led to litigation by the school’s landlords to recover unpaid rent from the school, its sponsor, and various individuals the school claimed were liable for the debt. The trial court entered judgment for the landlords for the amount of unpaid rent after determining the leases were enforceable. However, when distributing the limited assets of the school, the trial court ordered that the former school employees’ claims for unpaid wages and retirement contributions be paid first. The trial court also determined that the landlords could not recover the rent damages from the individual defendants and the school’s sponsor. The landlords and the school have both appealed from these judgments. For the reasons that follow, we affirm.
Background Facts and Procedure
{¶2} Plaintiffs-appellants-cross-appellees Sun Building Limited Partnership, Litvak Holdings, LLC, and Triage Properties, LLC, (“Landlords”) are owners of real estate that housed defendant-appellee-cross-appellant the VLT Academy (“VLT”), a community school that was formed in 2005 under
{¶4} The Landlords filed this lawsuit in July 2014 against VLT for breach of contract and unjust enrichment, seeking the recovery of unpaid rent, future rent owed under the lease, and recoupment of the costs of the improvements to the property. Pursuant to a term of the leases, the Landlords also sought to seize and sell VLT’s property in the buildings to satisfy their claims against VLT.
{¶5} Recognizing that VLT was insolvent, the Landlords also named as defendants individuals involved in the operation and oversight of VLT, including its Superintendent—Valerie Lee, Lee’s husband Clyde, who owned CEED, Inc., a company that contracted with VLT for cleaning services, as well as VLT’s then-current or former board of directors and financial officers (“VLT Director and Officer Defendants”), seeking to hold these defendant-appellee parties personally liable under various theories for any money damages owed by VLT.
{¶6} The Ohio Department of Education and the Attorney General (“ODE/AG”) intervened in the lawsuit. Noting that VLT’s funds are public and that its property is reserved for public purposes, intervenors-plaintiffs-appellees ODE/AG argued their intervention was necessary to protect the public’s interest in VLT’s assets, including the personal property left in the buildings VLT rented, and to protect VLT’s claims against “VLT insiders,” those accused of misusing VLT’s funds and contributing to its insolvency. The ODE/AG filed an intervenors complaint that, as amended, named as defendants Lee, Clyde Lee, CEED, Inc., Echole Harris (the
{¶7} VLT’s sponsor ERCO also moved to intervene in the action, claiming it was the party charged by law with overseeing the closure of the school and disposition of its assets. ERCO withdrew this motion after the Landlords amended their complaint to add claims against ERCO and ERCO’s executive director (the “ERCO Defendants”), seeking to hold these parties responsible for VLT’s alleged debts.
{¶8} On September 9, 2014, by agreed entry, the trial court ordered the sale of VLT’s assets, and this entry indicated that proceeds of the sale would be held in escrow by the auctioneer until further order of the court. The case was then consolidated with another action brought in another court by a former VLT teacher.
{¶9} Pursuant to
{¶10} After the Landlords filed a second amended complaint, VLT moved for summary judgment on the breach-of-contract claims, and the Landlords moved for partial summary judgment on the contract claim for past-due rent. The ERCO
{¶11} The trial court granted partial summary judgment to the Landlords on their breach-of-contract claim against VLT, but dismissed all of the other defendants named in the Landlords’ complaint based on statutory “immunity.”1 The trial court then certified that these judgments were final and that there was no just reason for delay.
{¶12} In the appeal numbered C-160789, the Landlords appeal from the order of distribution of VLT’s property and the trial court’s dismissal of the claims against all defendants except VLT. In the appeal numbered C-160793, VLT appeals from the grant of partial summary judgment for the Landlords for unpaid rent and cross-appeals from the order of distribution.
Community Schools
{¶13} All of the assignments of error involve VLT’s status as a “community school.” Community schools are created under
{¶14} Community schools must be structured as nonprofit corporations or public-benefit corporations as contemplated in
{¶15} As required by statute, VLT was established as a nonprofit corporation under
{¶16} Under
Are not liable in damages in a tort or other civil action for harm allegedly arising from any of the following:
(1) A failure of the community school or any of its officers, directors, or employees to perform any statutory or common law duty or responsibility or any other legal obligation;
(2) An action or omission of the community school or any of its officers, directors, or employees that results in harm[;]
(3) A failure or omission of the community school or any of its officers, directors, or employees to meet the obligations of any contract or other obligation entered into on behalf of the community school and another party.
Appeal No. C-160793
{¶17} We first address VLT’s two related assignments of error raised in the appeal numbered C-160793. VLT argues that the trial court erred by resolving the cross-motions for summary judgment on the unpaid-rent claims in favor of the
{¶18} We review the trial court’s grant of summary judgment de novo, applying the standard set forth in Civ.R. 56. Comer v. Risko, 106 Ohio St.3d 185, 2005-Ohio-4559, 833 N.E.2d 712, ¶ 8. Summary judgment is proper if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. See Civ.R. 56(C).
{¶19} Generally, to prevail on a breach-of-contract claim, a plaintiff must establish the existence of a contract, performance by the plaintiff, breach by the defendant, and damages. Tidewater Fin. Co. v. Cowns, 197 Ohio App.3d 548, 2011-Ohio-6720, 968 N.E.2d 59, ¶ 12 (1st Dist.). An agreement that binds a governmental entity involves public money. Therefore, it must be in writing and approved pursuant to the formalities required by law. See Lathrop Co. v. City of Toledo, 5 Ohio St.2d 165, 172, 214 N.E.2d 408 (1966) (“[N]o recovery can be had on a contract that is entered into contrary to one or more of the legislated requirements.”); Waltherr-Willard v. Mariemont City Schools, 601 Fed.Appx. 385, 389 (6th Cir.2015), citing Wright v. City of Dayton, 158 Ohio App.3d 152, 2004-Ohio-3770, 814 N.E.2d 514, ¶ 40 (2d Dist.).
{¶20} VLT conceded that Lee, as superintendent of VLT, had the authority to bind VLT when she signed the challenged leases. It argued instead that the leases were not enforceable unless the board voted to accept them after they were signed. And VLT presented unrefuted evidence in support of summary judgment
{¶21} VLT does not cite any specific statute addressing the formal requirements with respect to community-school leases. Nor does it cite any law requiring subsequent approval of a signed lease. Rather, VLT cites only the requirement of
{¶22} After our review of the law, we conclude that a governmental entity can bind itself to a lease by taking sufficient action before it is executed. See State ex rel. Perona v. Arceci, 129 Ohio App.3d 15, 716 N.E.2d 1181 (9th Dist.1998);
{¶23} The Landlords presented unrefuted evidence that the board had voted to authorize the leases before execution. This evidence included authenticated copies of the leases. These leases contained a sworn statement from Lee warranting that “she is duly authorized to execute and deliver this Lease on behalf of [VLT] in accordance with a duly adopted resolution of such entity in accordance with the Bylaws of such entity, and that the Lease is binding upon such entity.” VLT does not argue otherwise. Nor does it present any evidence to the contrary. The Landlords also presented evidence that the board had approved the sponsor contract that, as required by
{¶24} Moreover, VLT did not challenge the Landlords’ summary-judgment evidence concerning the Landlords’ performance, VLT’s breach, or the amount of damages. Thus, the Landlords were entitled to judgment as a matter of law on their claim for breach of contract related to the unpaid rent. VLT, conversely, was not entitled to summary judgment on the breach-of-contract claims. And because the Landlords’ claim against VLT was enforceable, the trial court did not err by awarding the Landlords a distribution of VLT’s assets.
{¶25} Accordingly, we overrule VLT’s first and second assignments of error.
Appeal No. C-160789
{¶26} The Landlords’ first assignment of error is directed to the trial court’s order of distribution concerning about $222,000 in net proceeds from the sale of VLT’s assets after a public auction. Applying
{¶28}
Divisions (A) and (B) of this section apply only to the extent permitted under
Chapter 1702. of the Revised Code .(A) If any community school established under this chapter permanently closes and ceases its operation as a community school, the assets of that school shall be distributed first to the retirement funds of employees of the school, employees of the school, and private creditors who are owed compensation, and then any
remaining funds shall be paid to the department of education for the redistribution to the school districts in which the students who were enrolled in the school at the time it ceased operation were entitled to attend school under section 3313.64 or3313.65 of the Revised Code. The amount distributed to each school district shall be proportional to the district’s share of the total enrollment in the community school.* * *
(C) If the assets of the school are insufficient to pay all persons or entities to whom compensation is owed, the prioritization of the distribution of the assets to individuals or entities within each class of payees may be determined by decree of a court in accordance with this section and
Chapter 1702. of the Revised Code .
{¶29} We review de novo issues of law such as the interpretation of statutes. Under the clear and unambiguous language of
{¶30} In arguing that the trial court erred in its application of
{¶31}
{¶32} We also find instructive Ohio laws protecting these unpaid workers and their retirement funds. For instance,
{¶33} Although we agree that
{¶34} Ultimately, we review the trial court’s order of distribution of assets under an abuse-of-discretion standard. See Cay, 175 Ohio St. at 298, 194 N.E.2d 425; Union Bank Co. v. N. Carolina Furniture Express, L.L.C., 189 Ohio App.3d 538, 2010-Ohio-4176, 939 N.E.2d 873, ¶ 20 (3d Dist.). Because the trial court’s order of distribution was consistent with the law and was supported by the evidence, it was
{¶35} In their second assignment of error, the Landlords argue that the trial court erred by dismissing their claims against the ERCO Defendants, the VLT Board of Director and Officer Defendants, and defendants Lee and Clyde Lee.
{¶36} The Landlords do not challenge on appeal the trial court’s determination that
{¶37} The Landlords, however, do not cite any authority recognizing a private cause of action against any of these defendants for the mismanagement or misuse of public funds that would allow the Landlords to recover from these defendants for VLT’s debt. As a matter of law, these defendants owed no fiduciary duties to the Landlords, even though they may have owed duties to VLT and the public in general.
{¶38} Admittedly,
{¶39} For these reasons, we have no occasion to review, as urged by the Landlords, the statutory exceptions to immunity from tort liability that can apply to political subdivision employees, including those set forth in
{¶40} Upon our de novo review of the dismissal of the challenged claims, we determine that, accepting all the factual allegations in the complaint as true, the Landlords have not stated a claim upon which they can recover against the ERCO Defendants, the VLT Director and Officer Defendants, or the Lees. See O’Brien v. Univ. Community Tenants Union, Inc., 42 Ohio St.2d 242, 327 N.E.2d 753 (1975), syllabus; Mitchell v. Lawson Milk Co., 40 Ohio St.3d 190, 192, 532 N.E.2d 753 (1988); Peterson v. Teodosio, 34 Ohio St.2d 161, 165-166, 297 N.E.2d 113 (1973). Thus, the trial court did not err by dismissing the claims against these defendants-appellees. Accordingly, we overrule the Landlords’ second assignment of error.
Conclusion
{¶42} Because the Landlords have demonstrated that no genuine issue of fact exists as to an essential element of its breach-of-contract claims against VLT for unpaid rent due under the leases, the Landlords are entitled to judgment as a matter of law on that claim. The trial court therefore did not err by entering summary judgment for the Landlords on that claim and by ordering the distribution of some of VLT’s assets to the Landlords in satisfaction of this debt.
{¶43} Further, the trial court’s order of distribution that gave priority to the claims of VLT’s former employees was consistent with the law and the facts, and was not an abuse of discretion afforded the court in the distribution of assets of an insolvent community school.
{¶44} Finally, because the Landlords have stated no claims for relief upon which they can recover from the ERCO Defendants, the VLT Director and Officer Defendants, and the Lees, the trial court did not err by dismissing these defendants.
Judgment affirmed.
MOCK, P.J., concurs.
MILLER, J., concurs separately.
{¶45} I concur in the result and with nearly everything stated by the majority. I write separately to state my view that
{¶46} I disagree with the majority’s reading that there are two payee classes—“retirement funds of employees of the school, employees of the school, and private creditors” comprising one class, and public schools, the second. Treating public schools as a class of payees under
{¶47}
{¶48} I would further hold that
Please note:
The court has recorded its own entry on the date of the release of this opinion.