AE Owner, L.L.C. v. E. Cleveland

2019 Ohio 2220

• Court: Ohio Court of Appeals
• Decided: June 6, 2019
• Docket: 107475
• Status: Published

Opinion

[Cite as AE Owner, L.L.C. v. E. Cleveland, 2019-Ohio-2220.]

COURT OF APPEALS OF OHIO

EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA

AE OWNER L.L.C., ET AL., :

Plaintiffs-Appellees, : No. 107475 v. :

CITY OF EAST CLEVELAND, ET AL., :

Defendants-Appellants. :

JOURNAL ENTRY AND OPINION

JUDGMENT: AFFIRMED RELEASED AND JOURNALIZED: June 6, 2019

Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-17-890113

Appearances:

Berns, Ockner & Greenberger, L.L.C., Sheldon Berns, and Majeed G. Makhlouf, for appellees.

Willa M. Hemmons, East Cleveland Law Director, for appellants.

RAYMOND C. HEADEN, J.:

Defendants-appellants, the city of East Cleveland, Salondra Wallace

(Housing Administrator), Anthony Bumbalis (Building Inspector), Anthony Dizdar (Building Inspector), and Kimberly Lanum (Housing Inspector),1 appeal from the

trial court’s order granting plaintiffs-appellees AE Owner L.L.C., Crystal Spires, Ltd.,

and KB Owner L.L.C.’s (“property owners”) motion for summary judgment and

enjoining defendants-appellants from enforcing East Cleveland Codified

Ordinances 1349.05(a).2 For the reasons that follow, we affirm.

Procedural and Substantive History

Property owners own rental properties within the city of East

Cleveland. On June 6, 2017, the city of East Cleveland increased its occupancy fee

on rental properties from $10 to $100 per unit. On December 7, 2017, property

owners filed a complaint against East Cleveland. Pursuant to R.C. 2723.01 et seq.,

the action sought to enjoin East Cleveland from enforcing East Cleveland Codified

Ordinances 1349.05(a) and collecting occupancy fees under that section. On June

1, 2018, competing motions for summary judgment were filed on behalf of property

owners and East Cleveland. Property owners filed a combined memorandum in

opposition to East Cleveland’s motion for summary judgment and objections to

inadmissible evidence in East Cleveland’s motion for summary judgment on July 2,

2018. East Cleveland filed a reply to that motion on July 9, 2018, but did not

1 The named individual defendants were sued in their official capacities. Defendants will be collectively referred to as “East Cleveland.”

2 The original complaint named AE Portfolio L.L.C., KB Portfolio L.L.C., and Crystal Spires, Ltd. as plaintiffs. On May 31, 2018, plaintiffs filed a motion for substitution of parties under Civ.R. 25(C) substituting AE Owner L.L.C. and KB Owner L.L.C. as party plaintiffs; Crystal Spires, Ltd. remained a plaintiff. Plaintiffs’ motion for substitution was granted on June 12, 2018. respond to property owners’ motion for summary judgment. On July 23, 2018, the

trial court granted property owners’ motion for summary judgment and denied East

Cleveland’s motion. East Cleveland filed a timely notice of appeal on July 24, 2018.

Property owners’ motion for summary judgment did not question

East Cleveland’s ability to impose an occupancy fee. Property owners challenged the

amount and application of the occupancy fee stating it was an illegal tax disguised

as a fee. East Cleveland did not file a brief in opposition to property owners’ motion

for summary judgment; hence, the court relied exclusively on the property owners’

motion when making its determination. The evidence presented a fee whose value

was not tied to the cost of an inspection program. The amount of the fee was

determined based upon a comparison of similar fees charged by neighboring

communities. The funds collected in accordance with the fee were not segregated

exclusively for inspection related activities, but were deposited in the city’s general

fund. Based upon the evidence, the trial court determined the fee as applied to the

property owners was unconstitutional because it was an illegal tax disguised as a fee.

The trial court permanently enjoined East Cleveland from enforcing East Cleveland

Codified Ordinances 1349.05(A) against the property owners.

East Cleveland appeals, presenting the following assignments of error

for our review: “The Trial Court erred in granting Plaintiffs’ Summary Judgment

Permanently Enjoining the City’s enforcement of its Occupancy Fee Ord. 1345.05.

The Trial Court violated the City’s right to Equal Protection when it struck down its

law that is permitted by Other Inner Ring Cities in Cuyahoga County. The Trial Court violated the City’s Due Process When it denied its right to raise the resources

required to support and maintain a rental unit oversight program. The Trial Court

violated the City’s Home Rule Authority when it declared its Occupancy Fee Law

unconstitutional.”

Law and Analysis

Motion for Summary Judgment

Generally, a trial court’s decision to grant summary judgment is

reviewed de novo. Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105, 1996-Ohio-

336, 671 N.E.2d 241. The reviewing court conducts an independent review of the

record to determine whether summary judgment is appropriate.

Summary judgment is appropriate under Civ.R. 56 when “(1) no

genuine issue as to any material fact exists; (2) the party moving for summary

judgment is entitled to judgment as a matter of law; and (3) viewing the evidence

most strongly in favor of the nonmoving party, reasonable minds can only reach one

conclusion which is adverse to the nonmoving party.” Hull v. Sawchyn, 145 Ohio

App.3d 193, 196, 762 N.E.2d 416 (8th Dist.2001). “The moving party bears the

initial burden of demonstrating that there are no genuine issues of material fact

concerning an essential element of the opponent’s case.” (Emphasis

omitted.) Dresher v. Burt, 75 Ohio St.3d 280, 292, 1996-Ohio-107, 662 N.E.2d

264. If the moving party fails to satisfy this burden, the motion for summary

judgment must be denied. Id. at 293. If the moving party satisfies its initial burden, the nonmoving party must then set forth specific facts showing that there is a

genuine issue for trial. Id.

In its first assignment of error, East Cleveland argues the trial court

erred in granting property owners’ motion for summary judgment finding the city’s

occupancy fee unconstitutional and therefore enjoining the city from enforcing the

ordinance. We find the occupancy fee is a tax disguised as a fee and overrule East

Cleveland’s first assignment of error.

The issue is whether the occupancy fee assessed by East Cleveland is

a “fee” or “tax.” “[T]his court determined that a municipality may require a license

fee for a particular business or activity; however, the amount of such fee must bear

a reasonable relation to the burden imposed, by the activity being licensed and by

the licensing process itself, upon the governmental entity involved.” Teamster’s

Hous., Inc. v. E. Cleveland, 36 Ohio App.3d 83, 84, 521 N.E.2d 4 (8th Dist.1987),

citing Richmond Hts. v. LoConti, 19 Ohio App.2d 100, 250 N.E. 2d 84 (8th

Dist.1969). A fee that does not comport with this criterion is in fact a tax disguised

as a license fee and is unconstitutional. Id. “The burden of showing that an

ordinance is unconstitutional rests upon the challenger who must present clear and

convincing evidence of facts which make the ordinance unconstitutional and void.”

Id., citing Petrocon v. Kosydar, 38 Ohio St.2d 264, 313 N.E.2d 373 (1974).

Applying the relevant case law to the case sub judice, the evidence

supports classifying the occupancy fee as a tax. East Cleveland’s mayor, finance

director, and director of community development and building and housing stated the purpose of the occupancy fee increase was to provide services for the general

welfare of the community. While East Cleveland hoped to eventually have

additional funds to improve and expand the rental inspection process, monies

collected from the occupancy fee were not limited to use for such services. The

collected funds were placed in East Cleveland’s general fund and were used on any

needed expenditure rather than allocated for limited or narrow purposes. The city’s

general fund, which supports city operations as a whole, provided fire, police, EMS,

and service department amenities to all residents. No cost analysis was completed

by East Cleveland establishing the projected cost of inspection services. Therefore,

the amount of the occupancy fee does not reflect the amount of money needed to

pay for inspection services or other items related to East Cleveland’s rental

properties. East Cleveland wanted to impose an occupancy fee similar in amount to

those charged by neighboring municipalities. The fee increase was determined on a

comparison of occupancy fees imposed by neighboring communities rather than the

expected costs of new inspection services. In actuality, East Cleveland’s proposed

occupancy fee was intended to pay for services for the general health and well-being

of the community rather than costs reasonably related to managing a specific

operation. Belvoir Cliffs Apts., Ltd., v. Cleveland, 8th Dist. Cuyahoga No. 39055,

1979 Ohio App. LEXIS 12020, 5 (Aug. 16, 1979), citing LoConti, supra.

While East Cleveland proposes the occupancy fee was to permit an

increase in rental property inspections, the evidence does not support this position.

In addition to the proffered deposition testimony, East Cleveland’s answer to plaintiffs’ complaint states the occupancy fee was adopted “for the health, safety and

welfare of the residents of East Cleveland, Ohio.” “[I]t is difficult to imagine that an

ordinance designed to protect and promote the public health, safety and welfare of

an entire community could be characterized as anything but a tax.” Drees Co. v.

Hamilton Twp., 132 Ohio St.3d 186, 2012-Ohio-2370, 970 N.E.2d 916,

quoting Home Builders Assn. of Mississippi, Inc. v. Madison, 143 F.3d 1006, 1012

(5th Cir.1998).

This court previously reviewed this same factual pattern in 1982 in

Teamster’s Hous., Inc., 36 Ohio App.3d at 84, 521 N.E.2d 4. In Teamster’s, the

plaintiff in that case, the city of East Cleveland (“the Plaintiff”), increased its

occupancy fee from $5 to $10 per unit per year. This court found the Plaintiff had

the constitutional authority to charge the licensing fee, but it was required to impose

a fee reasonably related to the provided services. The new fee was charged solely to

increase general revenue for the city rather than to fund property inspections. The

Plaintiff failed to file evidence in compliance with Civ.R. 56 to show there was a

genuine issue for trial and a motion for summary judgment was upheld finding the

Plaintiff’s occupancy fee unconstitutional. Despite the ruling in Teamster’s, East

Cleveland has not only continued its enforcement of the occupancy fee but has

enacted an increase of the fee. In the present case, property owners’ motion for

summary judgment identified the same issues raised in Teamster’s, yet, East

Cleveland now states the ruling is “misplaced and antiquated.” We do not agree with

East Cleveland’s application of the law. Subsequent to Teamster’s, the Ohio Supreme Court analyzed whether

an assessment was a fee or a tax in Drees. The Drees court reviewed a framework of

four factors, called the Withrow factors, State ex rel. Petroleum Underground

Storage Tank Release Comp. Bd. v. Withrow, 62 Ohio St.3d 111, 113, 116-117, 579

N.E.2d 705 (1991), as well as the Am. Landfill analysis created in Am. Landfill, Inc.

v. Stark/Tuscarawas/Wayne Joint Solid Waste Mgt. Dist., 166 F.3d 835 (6th

Cir.1999). The Withrow factors include: 1) was the assessment imposed to further

regulatory measures to address a specified issue; 2) was the assessment used only

for the narrow and specified purpose and not placed in the general fund; 3) was the

assessment imposed by a government in return for a service it provides; and 4) was

the assessment calculated and adjusted so that the amount of funds generated were

in an amount sufficient to cover the expenses. Hiznay v. Boardman Twp., 7th Dist.

Mahoning No. 15 MA 0122, 2017-Ohio-1212, ¶ 25, citing Withrow. Answers

affirming the Withrow factors indicate an assessment is a fee whereas a negative

response indicates a tax. The Am. Landfill analysis states:

[A] court should consider “(1) the entity that imposes the assessment; (2) the parties upon whom the assessment is imposed; and (3) whether the assessment is expended for general public purposes, or used for the regulation or benefit of the parties upon whom the assessment is imposed.”

Drees at ¶ 27, quoting Bidart Bros. v. California Apple Comm., 73 F.3d 925, 931

(9thCir. 1996). No single test exists to distinguish a tax from a fee; the substance of

an assessment must be evaluated on a case-by-case basis. Drees at ¶ 15. Application of the Withrow factors and Am. Landfill analysis indicate East Cleveland’s

occupancy fee is actually a tax.

Viewing the evidence most strongly in favor of East Cleveland,

reasonable minds can only conclude that property owners established, by clear and

convincing evidence, that the proposed occupancy fee constitutes an illegal tax

disguised as a fee. East Cleveland’s first assignment of error lacks merit and is

overruled.

Right to Equal Protection

East Cleveland’s second assignment of error asserts it was denied due

process by the trial court’s decision to grant summary judgment. Specifically, East

Cleveland claims discrimination occurred since other municipalities have

occupancy fees that have not been found unconstitutional.

East Cleveland’s occupancy fee was found unconstitutional for the

reasons cited above. East Cleveland is permitted to adopt and enforce an occupancy

fee that satisfies the rigors of the relevant case law so that the assessment is classified

as a fee rather than an illegal tax disguised as a fee. The fact that East Cleveland’s

neighboring communities impose an occupancy fee suggests those municipalities

have taken the steps necessary to comply with the relevant case law. A city’s

occupancy fee must be crafted in conjunction with its own needs, and the fee must

be reasonably related to the services the city wishes to provide. Belvoir Cliffs Apts.,

8th Dist. Cuyahoga No. 39055, 1979 Ohio App. LEXIS 12020, at 3, citing LoConti,

19 Ohio App.2d at 100, 250 N.E.2d 84. The mere enforcement of an occupancy fee by another municipality has no bearing on the status of East Cleveland’s proposed

ordinance and the legality of any such fee is outside the scope of this appeal.

East Cleveland’s second assignment of error lacks merit and is

Due Process

In its third assignment of error, East Cleveland challenges the trial

court’s granting of summary judgment because the ruling violated the city’s due

process. Specifically, East Cleveland claims the trial court should have evaluated the

constitutionality of the East Cleveland Codified Ordinances 14-17 under R.C. 2721.01

et seq. rather than R.C. 2723.01 et seq.

Property owners filed a complaint on December 7, 2017, asking for

injunctive relief under R.C. 2723.01 et seq. Under R.C. 2723.01, a trial court has

authority to enjoin the assessment of illegal taxes. In contrast, R.C. 2721.01 et seq.

is applicable when a party seeks a declaratory judgment action. Property owners did

not file a declaratory judgment action, and therefore, R.C. 2721.01 et seq. is

inapplicable to the current action.

The lower court followed the requirements of R.C. 2723.01 et seq. and

did not violate East Cleveland’s due process. East Cleveland’s due process argument

lacks merit, and therefore, we overrule the third assignment of error.

Home Rule Authority

In its fourth assignment of error, East Cleveland claims the trial

court’s ruling violated the city’s home rule authority. The Home Rule Amendment, conferred under Section 3, Article XVIII of the Ohio Constitution, grants a

municipality with “‘authority to exercise all powers of local self-government and to

adopt and enforce within their limits such local police, sanitary and other similar

regulations, as are not in conflict with general laws.’” Cleveland Taxpayers for Ohio

Constitution v. Cleveland, 8th Dist. Cuyahoga No. 94327, 2010-Ohio-4685, ¶ 17. “In

determining whether a local ordinance conflicts with the general law of the state, the

court must consider whether the ordinance prohibits that which the [state law]

permits, or vice versa.” Ohioans for Concealed Carry, Inc. v. Cleveland, 8th Dist.

Cuyahoga No. 104970, 2017-Ohio-1560, 90 N.E.3d 80, ¶ 10. East Cleveland argues

a municipality has authority to collect fees that will benefit the health, safety, and

welfare of its residents.

Again, we reiterate that East Cleveland has the authority to

implement an occupancy fee. However, there must be a nexus between the

occupancy fee, the benefit designed to be provided from collection of that fee, as well

as satisfaction of any other requirements identified in the relevant case law. Without

establishing the conditions identified in the cited case law, a proposed fee is simply

a tax disguised as a fee and will be found unconstitutional. Because East Cleveland’s

current occupancy fee does not satisfy the rigors of applicable case law, it has been

and continues to be found unconstitutional. This decision does not find occupancy

fees, per se, unconstitutional. An occupancy fee drafted in accordance with the cited

case law that operates as a fee rather than as a tax can be imposed as permitted

under a municipality’s home rule authority. The trial court’s decision did not violate East Cleveland’s home rule

authority. The fourth assignment of error is without merit and, as a result, is

We affirm the trial court’s ruling in favor of property owners’ motion

for summary judgment that enjoins East Cleveland from collecting the $100 per unit

occupancy fee under the East Cleveland’s Codified Ordinances 1349.05(A) and find

the occupancy fee unconstitutional.

Judgment affirmed.

It is ordered that appellees recover from appellants 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.

RAYMOND C. HEADEN, JUDGE

ANITA LASTER MAYS, J., and MICHELLE J. SHEEHAN, J., CONCUR