“Game” (Case) Called on Account of Absurdity

By: Stephen D. Richman, Esq.- Senior Counsel- Kohrman, Jackson & Krantz

(A Watch Your Language Series Article)

“If the law supposes that," said Mr. Bumble, "the law is an ass — an idiot.”

Many laymen (and lawyers) believe, as Mr. Bumble in Charles Dickens’s Oliver Twist does, that the law, as a general rule is absurd. Admittedly, there have been many absurd court decisions over the years that reinforce this quotation. More often than not, however, it is one or more of the parties to a lawsuit that are absurd, and the court just affirms their inherent absurdity.

This is particularly true in commercial contract law, predominantly because of the prevailing judicial deference to the written word in commercial documents, without regard to the consequences of such deference.

General Rule Re: Commercial Contract Interpretation

As established in other “Watch Your Language” articles for this Blog, as a general rule, courts will typically uphold commercial document provisions unless they are contrary to public policy or statutory law, or the subject of a mutual mistake. Courts traditionally presume that commercial parties are on more of an equal playing field and are more sophisticated concerning commercial real estate transactions, since both parties will usually have attorneys to review their documents. Because courts often defer to the specific language of a commercial document (or lack thereof), unintended results are often the norm for parties who do not seek professional advice, and for professionals who do not closely review their documents. Even the failure to follow a seemingly trivial grammar rule (the use of i.e. vs. e.g.) can result in unintended consequences. In a 1995 Connecticut case, in spite of the tenant’s verbalized intent to the contrary, the court held that the use of “i.e.” [meaning, that is] vs. e.g. [meaning, for example] preceding a short list of repair items in a lease served to limit landlord’s structural responsibility to only those items listed in the lease vs. merely providing examples of the same.

 Because of this judicial deference to “commercial language”, and the fact that courts, as a general rule will not look outside the four corners of a document (to consider extrinsic evidence of intent) if the language is unambiguous, you must “watch your language, and say what you mean, precisely, or a judge will decide what you meant.”

The “Absurd Result Exception”- Beverage Holdings, L.L.C. v. 5701 Lombardo, L.L.C., 2017-Ohio-7090 (Eighth District Court of Appeals; See also, prior vacated opinion at 2017-Ohio-2983)

What if the contract language is clear, but affirmation of such language would lead to an “absurdly unfair” result?

Fortunately for the appellant in the recent case of Beverage Holdings, L.L.C. v. 5701 Lombardo, L.L.C., 2017-Ohio-7090 (See also, prior vacated opinion at 2017-Ohio-2983), the Eighth District Court of Appeals, recognizing that sometimes litigants need to be protected from their own absurdity, confirmed that there is an exception to the general rule of judicial deference to clear contract language, applicable when such clear language would yield a truly absurd result.

The facts of the case are as follows:

On April 29, 2011, Defendant-appellant, 5701 Lombardo, L.L.C (“Lombardo”) and plaintiff-appellee, Beverage Holdings, L.L.C. (“Beverage”) entered into an agreement in which Beverage purchased from Lombardo a preschool/daycare business known as the Goddard School. Lombardo was not able to sell the building at the time of the business sale because of outstanding debt it had on the property (and a large prepayment penalty which would have been due upon a premature payoff of the mortgage). As a result, Lombardo and Beverage, through related entities, entered into a lease agreement which provided that Beverage would lease the property at $12,500/mo. and continue to run the Goddard School until Lombardo was able to sell the real property. Beverage also paid the taxes, assessments, insurance, all utilities and all maintenance and repairs.

Approximately four years later, Beverage sent Lombardo a notice of its intent to purchase the real estate for $1,202,110.09, which included adjustments (credits) for principal payments, a prepayment fee, $462,500 in rent credits, and the security deposit. Lombardo refused to sell at that price and notified Beverage that it was revoking the purchase agreement. Beverage then filed a complaint against Lombardo for declaratory judgement, damages and other legal and equitable relief.

Predominantly at issue was Section 3(a)(ii) of the purchase agreement, which provides that “the purchase price shall be decreased by [credited for]: Rents received by Seller from the tenant of the Premises, prorated to date of closing.” While both parties agreed that there was to be a credit for rents received, they disagreed as to the amount. Beverage claimed the credit should be for all rents received from the date of the agreement. Lombardo claimed the credit should only be for a prorated amount of the rent for the month of closing.

The purchase agreement also provided that at closing, Beverage Holdings would “receive a credit equal to the reduction in principal for the mortgage notes from the date of the execution of this agreement until the closing date.”

The trial court ruling:

The trial court found for Beverage, concluding that “Section 3(ii)(a) of the Agreement provides Beverage a credit for all rents paid from the date of the Agreement until closing.”

To justify its ruling, the trial court first quoted decisions establishing the “two-part general law re: contract interpretation”; namely, that (1) “When parties to a contract dispute the meaning of the contract language, courts must first look to the four corners of the document to determine whether or not ambiguity exists;” and (2) “If the contract terms are clear and precise, the contract is not ambiguous, and must be honored.” The trial court then reasoned that the contract was clear, as it called for a credit of “rents received,” and there was no language in the contract limiting the credit to rents received for the month of closing.

“Beverage Holdings I” (Beverage Holdings, L.L.C. v. 5701 Lombardo, L.L.C., 2017-Ohio-2983- Vacated):

The Eighth District Court of Appeals in Beverage Holdings I, initially agreed and affirmed the trial court’s decision.

In so doing, it reiterated the general law of commercial contract interpretation in Ohio, citing several Ohio Supreme Court and Eighth Appellate District decisions.

According to the court in Beverage Holdings I, “Contracts are to be read, giving effect to every part of the agreement;…the intent of the parties is to be determined from the contract as a whole;” and while “extrinsic or parol evidence is admissible to explain an ambiguity or uncertainty arising out of the terms of a written instrument…[w]hen the terms in a contract are unambiguous, courts will not in effect create a new contract by finding an intent not expressed in the clear language employed by the parties.”

Applying the facts to the law, the court in Beverage Holdings I concluded that, “[r]elying on the four corners of the agreement and giving these terms their ordinary meaning, the agreement provides for all rent paid by Beverage to be deducted from the initial purchase price.”

When Lombardo sought to introduce parol evidence to give full effect to the parties’ intent, the court in Beverage Holdings I disallowed such evidence, determining that since “the terms of the agreement are unambiguous, we find the parol evidence rule inapplicable to the instant case.”

Had the story ended there, this article would have deemed the Beverage Holdings I decision to be just another example of a court adhering to the general rule regarding commercial contract interpretation.

“Beverage Holdings II” (Beverage Holdings, L.L.C. v. 5701 Lombardo, L.L.C., 2017-Ohio-7090):

However, subsequent to the Beverage Holdings I hearing, a motion for reconsideration was filed, and upon re-review, the Eighth Appellate District in Beverage Holdings II (issued August 3, 2017), reversed the trial court’s holding (and its prior decision issued May 25, 2017).

Consequently, Beverage Holdings now stands for confirmation of another exception to the general rule of contract interpretation; the “absurdity exception.”

In its “about face”, the court in Beverage Holdings II first cited prior Ohio Supreme Court decisions to justify its reversal of Beverage Holdings I, and its confirmation of the absurdity exception. Quoting Alexander v. Buckeye Pipe Line Co., 53 Ohio St.2d 241, 374 N.E.2d 146 (1978), the court in Beverage Holdings II stated: “Common words appearing in a written instrument are to be given their plain and ordinary meaning, unless manifest absurdity results or unless some other meaning is intended from the face or overall contents of the instrument.”

The Supreme Court of Ohio found no absurdity in the contract language of Alexander (giving the grantee the right, in an easement agreement “to lay additional lines of pipe alongside of the first line”), but rather it established the so-called absurdity exception in the negative. The Ohio Supreme Court in Alexander sided with the defendant, concluding that it would not be absurd to interpret the language as allowing for limitless pipeline installations because “the term ‘additional’ has a numerical connotation, and the term ‘alongside of’ has a geographical connotation…[and], when the term ‘alongside of’ is read in conjunction with the preceding phrase ’to lay additional lines of pipe,’ it is apparent that the term ‘alongside of’ does not contain a numerical limitation, but simply indicates that the parties intended that additional lines be laid side by side or adjacent to the first line.” 

The court in Beverage Holdings II cited further “absurdity precedent” in several insurance policy decisions, most notably Cincinnati Ins. Co. v. Anders, 2003-Ohio-3048 (2003), whereby the Ohio Supreme Court in Cincinnati held that it would be absurd to consider an insured’s failure to disclose prior property damage as an “occurrence” entitling the insured to coverage for its fraudulent, non-disclosure.

Applying the facts to the law, the court in Beverage Holdings II basically echoed the dissenting opinion of Judge Stewart in Beverage Holdings I, who stated: “Given that the parties understood that Lombardo had issues with its financing prior to entering into the real estate purchase agreement, it would be absurd to conclude that Lombardo intended to deduct from the purchase price both principal payments and all rents received during what could be a lengthy lease term (the parties contemplated a lease term of as much as ten years).”  According to the court in Beverage Holdings II, interpreting the rent credit provision as requiring all rents between contract and closing vs rents in the month of closing to be credited, could yield the absurd result that “Beverage would not only acquire the property, but would also be owed money at closing [from the Seller, Lombardo]-all the while enjoying the profits from operating the business.”

Based upon the foregoing, the court in Beverage Holdings II reversed the trial court’s decision and remanded the case back to the trial court to determine what the parties truly intended with their purchase agreement.

What Is The Moral Of This Story?

Don’t hang your hat on the “absurdity exception to the rule.” First of all, we have no guidelines as to what is considered “absurd.” Perhaps judges will know absurdity, like obscenity, when they see it, but we do not have the advantage of “judicial hindsight- x ray specs.” The few “absurdity cases” out there do seem to turn more on equitable principles than on “interpretive absurdity.” For example, the court in Alexander wanted to prevent an insured from benefiting from its own fraudulent, non-disclosure and the court in Beverage Holdings II was concerned with the plaintiff-appellant “taking advantage of errors in drafting.” Nevertheless, despite a few hard to prove exceptions, the general rule re: judicial deference to the written word in commercial documents, still… rules. Commercial real estate and other contract decisions are still yielding absurd results, for example, those turning on the use of seemingly trivial grammar rules such as e.g. vs. i.e., and the insertion, or omission of commas. In other words, you must still “watch your language, and say what you mean, precisely, or a judge will tell you what you meant.”

When Baseball is a Bone Breaking vs. a Heart Breaking Experience, who is Responsible?

By: Stephen D. Richman, Senior Counsel-Kohrman, Jackson & Krantz, PLL

While a good deal of the heartbreak from our beloved Cleveland Indians just missing another World Series victory is behind us, some fans have had more than their hearts break as a result of an Indians baseball game.

In the recent case of Rawlins v. Cleveland Indians Baseball Co., Inc., 2015 Ohio 4587 (Cuyahoga County) the Eighth District Court of Appeals was faced with the question of whether the owner of property (the Cleveland Indians) was liable for injuries sustained by Keith Rawlins during an Indians baseball game.

Besides being “die hard Indians fans,” this article is in our real estate blog because it deals with the general issue of “premises liability”. Generally, in Ohio, all property owners/occupants are responsible for maintaining safe conditions for the people visiting their property and can be held liable for certain injuries on their property. The degree of responsibility (“duty of care”) depends on multiple factors, most notably who has entered on to the land, be it a social guest/invitee, a licensee, or a trespasser.  The duty of care might be as easy as posting a sign, and as costly as re-paving a parking lot to change its grade.

Of course, there are always exceptions to the general rule, and this holds true with regard to premises liability.

One such exception worthy of discussion is the one at issue in the Rawlins case, known as “the Baseball Rule.” The Baseball Rule is actually the name for the more recognizable defense to premises liability negligence claims (i.e., primary assumption of the risk) in sporting event situations. Under this doctrine, a plaintiff who voluntarily engages in a recreational activity or sporting event assumes the inherent risks of that activity and cannot recover for injuries sustained in engaging in such activity unless the defendant acted recklessly or intentionally in causing the injuries. Injury claims resulting from a foul ball at a baseball game, tripping on a root during a nature night hike, or from a roller skating collision are examples of negligence claims which could be effectively barred by the defense of assumption of the risk.

Are there exceptions to the exception? Are there specific circumstances caused by the property owner that call into question whether or not the injured party truly assumed the risk?

These were the basic issues presented to the Eighth District Court of Appeals in Rawlins.

The facts of the case are as follows: In July of 2012, Keith Rawlins bought tickets for himself and his daughter to the Indians game against Baltimore. It was a night game, with a fireworks show scheduled for after the game. The tickets Rawlins purchased were for seats located on the third-base side of the field in Section 171 and, therefore, were subject to closure for the post-game fireworks show. In his complaint, Rawlins alleged that at the top of the ninth inning, an usher ordered them to immediately vacate their seats. In a later deposition, however, Rawlins testified that an usher came to the end of the row where he and his daughter were seated and “just stood there with her arms folded” “or hands on her hips” and stared at him, seemingly delivering a message to move. Nevertheless, when Rawlins and his daughter left their seats at the top of the ninth inning, Mr. Rawlins was struck by a foul ball. Rawlins maintained that the accident occurred because they were ordered out of their seats due to the post-game fireworks show.

In November, 2013, Rawlins filed a negligence action against the Cleveland Indians as a result of injuries Rawlins sustained after he was hit by the foul ball. In November, 2014, the Cleveland Indians filed a motion for summary judgment (basically, this is a request for an early dismissal of an action based on law), contending that the action was barred by the defense of primary assumption of the risk. In January, 2015, the trial court granted the Cleveland Indians’ motion for summary judgment. Rawlins then appealed to the Cuyahoga County Court of Appeals.

Rawlins argued that the doctrine of primary assumption of the risk does not apply when there are attendant circumstances caused by the property owner that are not inherent to the game of baseball. Rawlins claimed that the order to move out of their seats constituted the attendant circumstances.

In arriving at its decision to overrule the trial court’s decision of summary judgment in favor of the Cleveland Indians, the court in Rawlins first analyzed cases that applied the general rule and supported the position of the Indians, namely, that “baseball is an inherently dangerous activity and that the spectator is in the best position to protect him or herself from injury at a baseball game.” According to the Rawlins court, “The consensus of … opinions is to the effect that it is common knowledge that in baseball games hard balls are thrown and batted with great swiftness, that they are liable to be thrown or batted outside the lines of the diamond, and that spectators in positions which may be reached by such balls assume the risk thereof. This theory is fortified by the fact that such spectators can watch the ball and can thus usually avoid being struck when a ball is directed toward them.”

The court in Rawlins, however, also analyzed a prior Supreme Court of Ohio decision (that it believed dispositive of the Rawlins case) that seemingly establishes an exception to the “primary assumption of the risk rule”. That case is Cincinnati Baseball Club Co. v. Eno, 112 Ohio St. 175, 147 N.E. 86 (1925). In Eno, the spectator was injured by a baseball during the intermission of a double-header that was hit by a player practicing near the unscreened portion of a stadium grandstand. The Ohio Supreme Court concluded that the facts in Eno presented a materially different situation from the general rule, and that there was a question of fact whether the stadium owner was responsible for allowing players to practice in close proximity to the grandstand during an intermission when the scheduled games were not being played.

Citing other Ohio Supreme Court decisions that followed Eno, the court in Rawlins also recognized that “In many situations, as in Eno, there will be attendant circumstances that raise questions of fact whether an injured party assumed the risk in a particular situation.”

The Cleveland Indians disagreed with Rawlins’s attendant circumstances theory. The ball club contended that fireworks shows are a common phenomenon of modern baseball, and introduced precedent in the form of a Second Appellate District case that held that even though a patron was distracted by a mascot when the patron was hit by a foul ball, mascots are part of, and inherent to baseball and accordingly, the patron still had a duty to be vigilant.

In overruling the trial court, the court in Rawlins agreed that there is an exception to the primary assumption of the risk doctrine (as applied in the Eno case), however, it held that whether or not the Indians did in fact order Mr. Rawlins from his seat, and whether or not the order to relocate because of the fireworks was an attendant circumstance not inherent to baseball were questions of fact that would need to be heard by the trial court.

In other words, based upon the holding in Rawlins, “under the assumption of the risk doctrine, the sponsor of a sporting event has a duty “‘not to increase the risk of harm over and above the inherent risk of the sport,’” and whether or not the risk of harm is so increased is a genuine issue of fact.

So what is the moral of this story? Simply remember that hot coffee is hot, a fish entrée is bound to include bones, and baseballs are bound to be flying overhead during a baseball game, which in the 21^st century includes mascots, fireworks and hopefully more World Series games for the Cleveland Indians.

Ohio Assembly Enacts Shift in Receivership Environment after Six Decades of Inactivity

Reprinted with permission from author Christopher D. Caspary, Staff Attorney, Cuyahoga County Court of Common Pleas. 

(This article was originally printed in the September 2015 Cleveland Metropolitan Bar Journal)

Introduction

            The last time the Ohio Assembly modified Ohio Revised Code (“R.C.”) §2735, Dwight D. Eisenhower was President, a gallon of gasoline cost twenty cents, and Mickey Mantle was in his third season as the starting centerfielder of the New York Yankees.

Moving beyond mere facilitation of judgment collection, the receivership remedy has evolved into a common, expedient, and generally cost-effective means to effectuate a defunct company’s dissolution or resolve ongoing issues within an insolvent organization. Due to these developments, R.C. §2735, the cornerstone of Ohio receivership law, was in drastic need of revision and expansion.

            Due to a patch-work of court decisions addressing issues that were not covered by statute or existing precedent, certain crucial aspects of receivership law were subject to conflicting interpretations. A statutory framework was needed to help standardize results in receivership actions. The current amendment to R.C. §2735 in House Bill 9 (“H.B. 9”) codifies certain best practices that are familiar in Cuyahoga County without restraining the court’s ability to appropriately tailor relief and receivership orders.

The Law

            H.B. 9 was enacted December 19, 2014 and has an effective date of March 23, 2015. Though the changes present in H.B. 9 are extensive, the legislature did not modify R.C. §2735.03 (Oath and Bond), R.C. §2735.05 (Examination), or R.C. §2735.06 (Investment of Funds by Receiver). 

Key Changes to R.C. §2735

·         R.C. §2735.01(C) expounds upon §2735.01(A)(6), which combine to specify that receivers “may be appointed to manage all the affairs” of the applicable business entity.

·         R.C. §2735.04(B) codifies substantive powers of the receiver such as entering into lease or sale contracts that do not impact lien priority, executing construction contracts, and conveying real or personal property. The subsection also authorizes the commonplace practice of opening a deposit account.

·         R.C. §2735.04(C) codifies and potentially expands upon existing case law on lien priority for receiver fees and expenses. See, e.g., Dir. of Trans. of Ohio v. Eastlake Land Dev. Co., 177 Ohio App. 3d 379, 388-389, 2008-Ohio-3013, 894 N.E.2d 1255 (8th Dist.) (allowing expenses from a mortgage sale to extinguish receivership fees with mortgagee acquiescence and full participation in the matter); see also, Ohio v. Tokmenko, 112 Ohio App. 42, 43, 165 N.E2d 804 (8th Dist. 1960) (noting that receivership expenses are generally payable out of the “corpus of the property”); but see, Wilkens v. Boken, Inc., 8th Dist. Cuyahoga No. 64230, 1993 Ohio App. LEXIS 6202, ¶ 16-19 (Dec. 23, 1993) (requiring that “unusual or substantial” expenditures provide notice, an opportunity to be head, and receive eventual court approval).

·         R.C. §2735.04(D) definitively establishes a comprehensive procedure allowing a receiver to dispose of real property.

·         R.C. §2735.04(D)(1)(a) and §2735.04(D)(3) codify existing case law on a receiver’s ability to sell property “free and clear of liens” (with limited exceptions). See Huntington Nat’l Bank v. Motel 4 BAPS, Inc., 191 Ohio App. 3d 90, 94-95, 2010-Ohio-5792, 944 N.E.2d 1210 (8th Dist.).

·         R.C. §2735.04(D)(1)(b)-(c) allows the court to order the receiver to provide evidence of the value of the property or solicit and consider additional offers prior to executing a conveyance.  

·         R.C. §2735.04(D)(2) sets forth specific procedures that must occur before a receiver can dispose of real property. This subsection specifically requires that the receiver file a motion with the court regardless of whether a specific offer to purchase has been received and provide at least ten-day written notice to all interested parties (defined in the Statute). If an objection is filed, a hearing must take place that allows all parties to be heard. Finally, an order of sale must be issued by the court.

·         R.C. §2735.04(D)(7) requires that the court create a redemption deadline allowing a party to act and void the sale. This period cannot be shorter than three days.

·         R.C. §2735.04(D)(10) requires that the receiver file and serve a certificate of sale and report that outlines important transactional details for property conveyance conducted under the auspices of R.C. §2735.04(D)(2)(a)(ii), which governs sales with a specific offer to purchase the real property in question. This allows a receiver to avoid having to obtain court approval for a contract sale twice.

Observations and Challenges Moving Forward

·         Receivership case law in Ohio remains dynamic and growing, yet at times, incomplete.

·         The most substantial amendment found in H.B. 9 addresses the disposition of real property by a receiver and the ability to do so “free and clear of liens.” Property rights can be difficult to protect in the current bad asset environment, where title reports are complicated, lengthy, and at times inaccurate.

·         R.C. §2735.04(D)(2)(b) sets forth notice requirements that must be met before a receiver can dispose of real property. The statute notes that either a preliminary judicial report or a title commitment is acceptable for determining the parties that must be noticed.

·         Case law interpreting the changes present in H.B. 9 will take time to fully develop. Although the amendment codifies important receivership precedent, certain gap-filling decisions were not specifically addressed by the General Assembly, and their continued applicability may be in question. For example, though R.C. §2735.04(C) empowers the court to “require an additional deposit” (to be deposited by the requesting or consenting parties) “to cover funds” that will be expensed pursuant to a R.C. §2735.04(B)(4) contract, the Statute does not specifically address whether a court can require the original movant (or acquiescing and full participating party) to cover all receivership costs not extinguished by the receivership estate.  

·         R.C. §2735.02 adds language that a court should afford “priority consideration…to any of the qualified persons nominated by the party seeking the receivership,” but cautions that “[n]o nomination of qualified persons for the receivership is binding upon the court.” Though the Statute is clear that the court retains ultimate discretion in deciding who to appoint, the law now views receiver nominations by the movant favorably.

·         Whether courts, in interpreting R.C. §2735.04(C), will maintain the aforementioned “unusual or substantial” standard for expense authorization and priority despite such a distinction not being present in the Statute.

Conclusion

            The amendment of R.C. §2735.01 et seq. provides needed statutory guidance and predictability to the  receivership environment and is a net positive for receivership practitioners as the lack of predictability in receivership orders was one of the largest disadvantages when utilizing state court remedies. The amendment specifically codifies certain receivership powers that have become commonplace in many jurisdictions, such as disposing of real property “free and clear of liens,” scheduling hearings and allowing an opportunity to be heard before entering certain receivership orders, and creating a blanket rule of receivership fee and administrative expense priority.

            H.B. 9 does not inhibit the ability of the court to tailor the order appointing a receiver to the specific facts of the matter at hand and allows the receivership remedy to continue to be an important, powerful, and flexible resource available for attorneys in bad asset liquidation or business salvage environments. Mickey Mantle would be proud; the General Assembly has just hit a homerun. 

Disclaimer: The contents of this article are not intended to serve as legal advice. Appropriate legal counseling or other professional consultation should be obtained prior to undertaking any course of action related to the topics explored by this article.

Christopher D. Caspary serves as the Staff Attorney to Judge Nancy A. Fuerst in the Cuyahoga County Court of Common Pleas. Mr. Caspary completed his undergraduate studies at The Ohio State University and received his JD/MBA from Cleveland State University. Mr. Caspary has an interest in the diverse area of business law. 

OHIO SUPREME COURT RULES THAT A TENANT’S ABANDONMENT OF NONCONFORMING USE CANNOT CONSTITUTIONALLY BE IMPUTED TO MOBILE-HOME PARK’S OWNER

The Supreme Court of Ohio recently ruled, in State ex rel. Sunset Estate Properties, L.L.C., v. Lodi, Slip Opinion No. 2015-Ohio-790, that a portion of the Village of Lodi’s zoning code (dealing with abandonment of nonconforming mobile home use) is unconstitutional on its face. 

The facts in this case are simple enough (the law is another matter).  Basically, the appellees, Sunset Properties, L.L.C., and Meadowview Village, Inc., each own property in Lodi on which they operate mobile-home parks. Both properties are in areas currently zoned in districts that do not permit mobile-home parks, however, the mobile-home parks are deemed legal nonconforming uses (under Ohio Revised Code Section 713.15) because such uses existed prior to the passage of the Village’s zoning ordinance. In other words, they are (what is commonly known as) “grandfathered.”

In 1987, the Village of Lodi (the appellant in the Ohio Supreme Court case) passed an ordinance (Lodi Zoning Code 1280.05(a)) regarding abandonment of nonconforming uses.  Generally, the ordinance contained two parts. The first provided a general time frame for deemed abandonment: when a nonconforming use has been discontinued for six months or more. The second part was specific to mobile homes. This provision stated that the absence or removal of a mobile home from its lot constitutes discontinuance from the time of removal. In reliance on this provision, when a tenant left one of appellees’ mobile-home-park lots and the lot was vacant for longer than six months, Lodi would refuse to reconnect water and electrical service when a new tenant wanted to rent the lot.  As a result, appellees were not able to re-rent these lots and claimed they lost a property right due to the corresponding loss of use/income.

As a result of the Village of Lodi’s actions, the appellees filed suit, and requested, among other things, a declaration from the trial court that the ordinance is unconstitutional and constitutes a taking of their properties. The trial court granted summary judgment in favor of Lodi on all counts. The mobile-home park owners appealed, asserting that the trial court erred in granting summary judgment in favor of Lodi.  The Ninth District Court of Appeals agreed with the park owners and reversed the trial court’s judgment, holding that Lodi’s zoning ordinance was unconstitutional on its face. The Village of Lodi then appealed to the Ohio Supreme Court, who affirmed the Ninth District’s judgment.

Before rationalizing its holding, the Ohio Supreme Court in Sunset Estates first reminds us that “[t]his court has consistently approved the constitutionality of comprehensive zoning ordinances.” The court cited several cases where the court held zoning to be a valid legislative function of a municipality’s police powers and that a strong presumption exists in favor of the validity of such zoning ordinances. Since the specific ordinance being reviewed in Sunset Estates dealt with abandonment of non-conforming uses, the court then cited cases establishing that Ohio courts “have upheld both the denial of the right to resume a nonconforming use after a period of nonuse, and the denial of the right to substitute new buildings for those devoted to an existing nonconforming use and to add or extend such buildings.” In fact, according to the court, nonconforming uses may be regulated “to the point that they wither and die”, and still pass constitutional muster. However, as the court in Sunset Estates clarified, “the authority of state and local governments to regulate land use is vast but not unbounded.”

The boundaries, according to the Ohio Supreme Court are established in Section 1, Article XIV, Amendments, United States Constitution, and Section 16, Article I of the Ohio Constitution, providing that no person shall be deprived of life, liberty or property without due process of law. And, as the court previously reasoned in Akron v. Chapman, 160 Ohio St. 382, 385 (1953), “property” contemplates not only ownership and possession, but “the substantial right of unrestricted use, enjoyment, and disposal.” Consequently, the court in Sunset Estates reasoned that in order for a nonconforming use to be extinguished, the use must be voluntarily abandoned, not taken away. Non-conforming uses cannot be regulated by an ordinance that deprives a property owner of a vested property right.

Constitutionally speaking, the court held that the deprivation of the vested private-property rights of mobile-home-park owners was not rationally  related  to  Lodi’s legitimate  goals  of  protecting  property  values  and encouraging  development. Factually disturbing to the court was the fact that the plain language of the (last sentence of the) Village of Lodi’s ordinance imputed a tenant’s abandonment of one lot within a mobile-home park on the park’s owner.  In so doing, “the provision impermissibly deprives the owner of the park of the right to continue the use of its entire property in a manner that was lawful prior to the establishment of the zoning ordinance.” In other words, the vacation of a mobile park tenant from its pad is not (and should not be deemed) according to the court, a voluntary abandonment of the non-conforming use by the mobile park owner.

The court did clarify that it had no problem with ordinances that provide that a nonconforming use shall not be re-established at the end of a certain period of abandonment. In fact, the Ohio Revised Code has a general provision addressing nonconforming land use (O.R.C. Section 713.15). The court also had no problem with Lodi’s Zoning Code…except for the final sentence.  

The last sentence of Lodi Zoning Code 1280.05(a) rendered the ordinance “arbitrary” and irrational” (according to the court) because the Lodi ordinance does not distinguish “abandonment” or “discontinuance” for any type of nonconforming use other than relative to mobile homes. In other words, while all other property owners and businesses must voluntarily abandon the nonconforming use of the property, mobile home parks alone can be forced into involuntary abandonment simply by a mobile home being removed  (i.e., a structure that is designed to be moved) from a lot.

State ex rel. Sunset Estate Properties, L.L.C., v. Lodi is not without controversy. Two dissenting judges and others are not happy with the court’s decision, because they believe the majority was “trigger happy” in pushing the “unconstitutional button.”According to the dissenting judges, “the court of appeals failed to exercise judicial restraint in deciding this case on constitutional grounds without first fully addressing nonconstitutional issues that could have been resolved.” Citing prior case law, the dissent noted that the Ohio Supreme Court does not reach constitutional issues unless absolutely necessary… and that “courts should exercise judicial restraint and determine whether a case can be resolved based on non-constitutional issues before considering constitutional issues.”

In fact, the original complaint raised two, non-constitutionally based issues: 1) the Lodi Zoning Code 1280.05(a) conflicts with state law; and 2) there is an issue of interpretation, namely as to whether or not Lodi Zoning Code 1280.05(a) authorized Lodi to extinguish the nonconforming use of the properties in question, lot by lot.

     Even though the dissenting judges commented that the 9^th District Court of Appeals failed to review these non-constitutional issues, they declined to review them as well. Perhaps there is merit to these claims. ORC 713.15 does use the term “voluntarily discontinued” while Lodi Zoning Code 1280.05(a) states that absence or removal of a mobile home “shall constitute discontinuance”.  Conflicting provisions? Maybe. Could the court have resolved this case based upon the interpretation of vs. the constitutionality of Lodi’s Zoning Code 1280.05(a)? Perhaps. In any event, at least mobile home park operators in Ohio are smiling in the wake of State ex rel. Sunset Estate Properties, L.L.C., v. Lodi.